Income Tax Appellate Tribunal - Chennai
G. Kanagaraj vs Dy. Cit on 24 October, 2001
Equivalent citations: (2001)73TTJ(CHENNAI)731
ORDER
K.S.S. Prasad Rao, J.M. This appeal is filed by the assessee having been aggrieved by the order, dated 8-2-2001, for the block period 1-4-1987 to 30-9-1997.
2. The assessee has raised in its grounds of appeal the following issues :
1. The learned Commissioner (Appeals) has erred in confirming the addition of Rs. 11,75,000 made by the assessing officer towards undisclosed income. The learned Commissioner (Appeals) is unjustified in concluding that on facts the appellant was attempting to suppress the alleged income of Rs. 11.75 lakhs by manipulation.
2. The learned Commissioner (Appeals) erred in rejecting the appellant's explanation in respect of the addition of Rs. 11,75,000 as not supported by facts and evidence. The learned Commissioner (Appeals) erred in stating that the appellant had not been able to justify the retraction from the sworn statement given due to undue stress, influences, coercion and compulsion by the Income Tax Officials.
3. The learned Commissioner (Appeals) erred in concluding that the income returned by the appellant for the assessment year 1997-98 amounting to Rs. 47,032 was undisclosed income of the appellant under section 158BB(1)(c) of the Act. Section 158BB only prescribes the method of computing the undisclosed income for the block period. However, prior to making such computation, the existence of undisclosed income as such, is required to be shown. If there is no undisclosed income, the question of application of different clauses of sub-section (1) of section 158BB for the purpose of computing undisclosed income for the block period cannot arise.
4. The learned Commissioner (Appeals) erred in holding that the assessment was not barred by limitation. The learned Commissioner (Appeals) erred in observing that the search finally concluded on 1-10-1997. As per the Panchnama executed in the assessee's case, the search commenced on 30-9-1997, at 10.00 a.m. and the proceedings were closed on 30-9-1997, at 5.50 p.m. as finally concluded. This would further be fortified by the fact that the block period mentioned in the assessment order is from 1-4-1987 to 30-9-1997 and not up to 1-10-1997. Since the search was concluded on 30-9-1997, the assessment should have been made on or before 30-9-1999, and consequently the assessment made on 28-10-1999, is time-barred and untenable in law.
2.1 Both parties were heard through their representatives regarding the grounds raised in the appeal and its legal implications thereof. The undisputed facts of the case that are necessary to adjudicate the issues are as follows. There was a search in the case of the assessee in his residence on 30-9-1997. Consequent to that search notice under section 158BC of the Income Tax Act, dated 23-2-1998, was issued to the assessee. The assessee has filed return in Form 2B admitting NIL undisclosed income for the block period on 27-3-1998. After hearing the assessee the learned assessing officer passed the assessment order dated 28-10-1999, fixing the undisclosed income by the assessee at 15,44,070 demanding tax of Rs. 9,26,442. Against this order the assessee has filed appeal before the Commissioner (Appeals). During the hearing of the appeal by the Commissioner (Appeals) the assessee has taken an additional ground that the assessment is barred by limitation. The learned Commissioner (Appeals) after hearing the assessee has partly allowed the, appeal of the assessee holding that the assessment is not barred by time as contended by the assessee. Hence this appeal is filed by the assessee raising the grounds stated supra.
3. The first two grounds raised by the assessee in the appeal with regard to the addition of a sum of Rs. 11,75,000 made by the assessing officer and confirmed by the Commissioner (Appeals), Regarding this issue the assessing officer has observed at page 3 of his order as under :
"During the course of assessment proceedings the assessee stated that the same amount was taken in the books of M/s Satyabala Financial Services and he retracted the statement given at the time of search.
I have considered the submissions of the assessee. In view of the declaration made under section 132(4) specifically on this issue as referred to above, the explanation offered by the assessee is rejected and the sum of Rs. 11,75,000 is brought to tax as undisclosed income of the assessee for assessment year 1997-98 during the said block period."
The learned Commissioner (Appeals) has considered this issue in his order from para 2.1 onwards and ultimately found in para 2.3 at page 4 of the impugned order as under :
"I have carefully considered the submissions and the facts. The appellant is an educated person and he has stated in clear terms that the impugned sum of Rs. 11.75 lakhs was his income. The various facts which transpired during the search, i.e., arranging the loan by the appellant, filing of the complaint and the way the same has been taken to the books of M/s Satyabala Financial Services will reveal that the appellant was attempting to suppress the income of Rs. 1.75 lakhs by manipulation. The present explanation of the appellant is not supported by facts and evidence. He has not been able to justify the retraction from his sworn statement. Therefore, I do not find any merit in this ground and sustain the addition."
4. Before the Tribunal, the assessee contended that this is the income of M/s Satyabala Financial Services a proprietary concern of his wife Smt. K. Indrani and it was accounted in the books of the said concern. He brought the attention of the Tribunal to the observations of the assessing officer at page 2 of the assessment order which goes as hereunder :
"Shri G. Kanakaral, the assessee had arranged a loan of Rs. 4.75 lakhs to Shri Dakshinamoorthy and two others from Smt. Krishnammal, wife of retired High Court Judge. When the loan was arranged G. Kanakaraj the assessee has also taken a blank cheque from two guarantors Shri Vanila Arasu and P.S. Madhavan. As the loans were not repaid, the assessee presented a cheque given by the borrower in the bank and the same was dishonoured and later he filed a criminal case against the borrower and also the creditor for a very huge amount. Ultimately, a compromise deal was struck, according to which the loan taken from Smt. G. Krishnammal was repaid to her and a sum of Rs. 12 lakhs was given to G. Kanakaraj to drop the criminal proceedings initiated against them. The above sum of Rs. 12 lakhs was paid through Karur Vysya Bank pay order dated 19-12-1996 in 13 different names. After meeting the advocate's expenses of Rs. 25,000, the balance amount of Rs. 11,75,000 was the net amount received by the assessee in this deal. Instead of admitting this sum of Rs. 11,75,000 as his income. G. Kanakaraj, the assessee had accounted this sum of Rs. 11,75,000 in the books of M/s Satyabala Financial Services, Proprietrix concern of Smt. K. Indirani, wife of Shri G. Kanakaraj, as loan taken from twenty-one persons totally different from that of the persons who have given the pay orders. On 31-3-1997, in the books of M/s Satyabala Financial Services certain income from the source of consultancy and interest to the extent of Rs. 11,79,831 was shown and on the same date the credit shown in the above referred twenty-one names were debited and their accounts were closed."
The assessee's representative contends that in view of these categorical observations by the assessing officer, it is clear that this amount was accounted for in the firm of M/s Satyabala Financial Services and therefore, against adding the same amount in the individual assessment of the assessee amounts to double taxation and such a double taxation is unsustainable under law.
5. As can be seen from the observations of the authorities of the department, this amount was included by not accepting the retraction of the sworn statement made by the assessee on the date of search, i.e., on 30-9-1997. When a statement is retracted by the person who made the same, it carries no value and it cannot be based or enforced against the maker of the said statement. Under these circumstances, we are of the considered opinion that the inclusion of the disputed amount of Rs.11,75,000 is unsustainable under law.
6. The third issue raised by the assessee in the grounds of appeal pertains to the income returned by the appellant for the assessment year 1997-98 amounting to Rs. 47,032. This amount was included in the block assessment income as undisclosed income of the appellant under section 158BB(1)(c) of the Act.
"The assessee filed his return of income for the assessment year 1997-98 outside the time-limit, that is, on 19-12-1997, admitting a total income of Rs. 47,032. This is also brought to block assessment as undisclosed income."
Except this observation, there is no other material relied on by the assessing officer for treating this amount as undisclosed income of the block period. Regarding this issue, the learned Commissioner (Appeals) has considered in para 6 onwards in the impugned order as hereunder :
"6.1 The assessing officer has added this amount with the observation that the appellant had not filed this return within the time available for the assessment year 1997-98 but filed the same only after the search.
6.2 I find that the assessing officer has rightly included this amount under section 158BB(1)(c). Therefore, I uphold the addition."
From these observations also, it is evident that there is no reasoning as to how this amount is an undisclosed income, moreso, when the assessee filed a return showing this as income for the assessment year concerned. Merely because the return was filed lately, it cannot be treated as undisclosed income under any provisions of law. Section 158BB(1)(c) reads as under :
"158BB(1) : The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with assessing officer, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous year, determined
(a) ..............
(b) ..............
(c) where the due date for filing a return of income has expired but no return of income has been filed, as nil; "
From a reading of this section, it is evident that it is only a procedure enunciated for computation of undisclosed income of the block period. Even taking into consideration the said clause, it talks about a situation where no return is filed during the period provided for filing the return. But it is not stated as income shown in a return filed after expiry of the time-limit in that clause is to be treated as undisclosed income. The block assessment enunciated in Chapter XIV-B of the Act is a special procedure and the assessed income under this chapter is to be taxed at the maximum rate of 60 per cent and it contains the procedure for computation of undisclosed income of the block period. The provisions are to be taken in its strict meaning but not assuming other than what was stated in the said provisions. So under these circumstances, in our considered opinion, the disputed addition is not at all sustainable under law applicable thereto. Accordingly, this issue is answered in favour of the assessee.
8. The last issue raised by the assessee in his grounds of appeal is as under :
"The learned Commissioner (Appeals) erred in holding that the assessment was not barred by limitation. The learned Commissioner (Appeals) erred in observing that the search finally concluded on 1-10-1997. As per the Panchnama executed in the assessee's case, the search commenced on 30-9-1997, at 10.00 a.m. and the proceedings were closed on 30-9-1997, at 5.50 p.m. as finally concluded. This would further be fortified by the fact that the block period mentioned in the assessment order is from 1-4-1987, to 30-9-1997, and not up to 1-10-1997. Since the search was concluded on 30-9-1997, the assessment should have been made on or before 30-9-1999, and consequently the assessment made on 28-10-1999, is time-barred and untenable in law."
This ground relates to limitation aspect that was raised before the Commissioner (Appeals) as additional ground and the learned Commissioner (Appeals) has considered this issue in the impugned order in paras 8 & 8.1 as follows :
"8. During the course of hearing of the appeal, an additional ground has been filed on 20-3-2000, mentioning that the assessment is barred by limitation. The contention of the appellant is that the search was concluded on 30-9-1997, and the time-limit for completion of the assessment had expired on 30-9-1999. It is pleaded that the order made on 28-10-1999, is time-barred.
8.1 I find that though the main part of the search was concluded on 30-9-2000, the follow up actions were continued till October, 2000. It cannot be said that the search was concluded only on 30-9-1997. From the papers available with the Panchnama, it is seen that the search had been finally concluded on 1-10-1997. Therefore, I do not find any merit on this ground and dismiss this also."
It is observed by the learned Commissioner (Appeals) that the search was concluded on 30-9-2000. On behalf of the assessee it is contended that the search in ,question was started on 30-9-1997, and was concluded on the same day by starting at 10 a.m. and ending by 5.30 p.m. This fact was further confirmed by the mention of block period in the assessment order as "1-4-1987, to 30-9-1997". Since the search was finally concluded on 30-9-1997, the assessment should be completed on or before 30-9-1999, as per the relevant provisions of law. But in the present case, the assessment order was passed on 28-10-1999, which is apparently beyond 30-9-1999.
9. The time-limit for completion of block assessment was mentioned in clear and categorical terms in section 158BE. Clause (1) thereof enunciates the period of limitation for passing an order under section 158BC as two years from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases, where a search is initiated or books of account or documents or any assets are requisitioned on or after 1-1-1997. In the assessment order it was mentioned in the first para itself that the proceedings under section 158BC of the Income Tax Act dated 23-2-1998, was served on the assessee. So the limitation for passing an order under the said section as stated supra is two years from the end of the month on which the search was finally concluded. As can be culled out from the undisputed facts stated supra, the search in the present case was started and concluded on 30-9-1997, itself. So the assessment order is to be passed as per the law applicable thereto within two years from the end of the month that is 30-9-1997. Admittedly, the present assessment order was dated 28-10-1999, having been passed on 28-10-1999, whereas prescribed period of two years expires by 30-9-1999. So the present assessment order is passed beyond the prescribed time provided under the relevant provisions of law applicable thereto.
10. The learned Departmental Representative has argued that the assessee was not present at the time of search in his residential premises. But his wife Smt. K. Indrani was present and that the assessee was present on the day when search was conducted in the proprietrix concern of Smt. Indrani called M/s Satyabala Financial Services and that, that search finally concluded at 4.00 a.m. having been started at 10 a-m. on 30-7-1997. Thereby the search was finally concluded on 1-10-1997, only. Therefore, the assessment order passed on 28-10-1999, is well within the period of two years provided under the relevant provisions of law.
11. Even assuming that the statement recorded from the assessee while the concern of his wife M/s Satyabala Financial Services was searched, that the search finally concluded at 4 a.m. having been commenced at 10.00 a.m. on 30-9-1997, can be enforced or relied for framing a block assessment against the said concern M/s Satyabala Financial Services, proprietrix concern of the wife of the assessee. If the department wants to enforce that statement against the assessment made in the name of the assessee, it has to issue notice under section 158BD subject to the satisfaction of the concerned authority. But in the present case, while relying on the statement of the assessee made during the search of the said concern, the department is not able to show that subjective satisfaction enunciated under the relevant provisions of law. Apart from that a notice also was not issued under section 158BD in the present case, as is evidenced from the facts stated supra. Therefore, the contention of the department is not at all tenable under law. Under these circumstances, in our considered opinion, when the search was finally concluded against the assessee on 30-9-1997, and when a notice under section 158BC was issued to the assessee, the assessment order under section 158BC should be passed within two years therefrom. But in the present case, admittedly, the assessment order was passed on 28-10-1999, which is beyond two years calculated from 30-9-1997, as stated supra. Therefore, the assessment order passed against the assessee in the present case is clearly barred by limitation provided under the law applicable thereto. Therefore, that assessment itself is liable to be quashed.
12. In the result, we find this issue in favour of the assessee and the assessment order itself is hereby quashed. The appeal of the assessee is hereby allowed.