Bombay High Court
Mr. Akhtar Hasan Rizvi vs Joint Commissioner Of Income-Tax,Spl. ... on 25 September, 2025
2025:BHC-OS:19575-DB
2-ITXA-44-04.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
Digitally
BALAJI
signed by
BALAJI
GOVINDRAO
INCOME TAX APPEAL NO.44 OF 2004
GOVINDRAO PANCHAL
PANCHAL Date:
2025.10.17
14:25:38
+0530
Mr. Akhtar Hasan Rizvi .. Appellant
Vs.
Joint Commissioner of Income-Tax,
Spl. Range-44, Mumbai .. Respondent
...
Mr. M. Subramanian a/w Mr. V. S. Hadade, Advocates for the
Appellant.
Ms. Ruju Thakkar, Advocate for the Respondent.
...
CORAM : SHREE CHANDRASHEKHAR, CJ &
GAUTAM A. ANKHAD, J.
DATE : 25th SEPTEMBER 2025.
Per, Shree Chandrashekhar, CJ.
This Income Tax Appeal under section 260A of the Income Tax Act, 1961 has been filed by the assessee, who at the relevant time was engaged in the business of construction and development of properties.
2. The Assessing Officer gave a notice to the appellant pursuant to a search and seizure operation carried on the premises of the Architect of the appellant under section 132(1) of the Income Tax Act, 1961 on 2nd February 1996. The notice under section 158BD of the Income Tax Act, 1961 which was issued to the appellant on 4th November 1997 required him to prepare a true and correct return of his total income including the undisclosed income. By an order dated 30th November 1998, the Assessing Officer held that the appellant had undisclosed income of Rs.19,75,000/- for the block period 1986-87. Aggrieved thereby, the appellant approached the Income Tax Appellate Tribunal on the following grounds :-
1/6BGP ::: Uploaded on - 17/10/2025 ::: Downloaded on - 17/10/2025 21:49:37 ::: 2-ITXA-44-04.doc "(i) section 158DB of the Act is not applicable as because the person who was searched accepted that the undisclosed income belongs to him and he paid the tax thereon.
(ii) the AO has not recorded the satisfaction note; he proceeded only on the basis of the intimation letter.
(iii) the AO who forwarded the file has not recorded the reasons;
(iv) notice under section 158BC of the Act was not issued; and
(v) Notice under section 158BD of the Act was issued after twenty months from the date of search;"
3. The Tribunal in its judgment dated 9 th July 2003 held that the Assessing Officer has jurisdiction to deal with the information supplied by the Assessing Officer of the Architect. The Tribunal further held that the undisclosed income of the appellant has been correctly assessed by the Assessing Officer. The Tribunal held as under while dismissing the appeal preferred by the appellant :-
"27. Profits and gains derived from an illegal business are liable to be taxes. Such profits are to be determined in accordance with the provisions of the Act. It is not possible to hold that some of such provisions do not apply to the taxable income in the case of an illegal business, while some others do. May be that in an illegal business, it may not be practicable to comply with the requirements of section 40A(3), but that only means that such illegal business ought not to be carried on. It is a business prohibited by law. By taxing its income, it is not legalised or validated. In the case of S Venkata Subba Rao vs CIT, 173 ITR 340, 344(AP) it was held that section 40A(3) apply to a business carried on illegally. In that case, the cash payment by the assessee to persons from whom smuggled goods were purchased was held not covered by the then Rule 6DD(j). In the case of CIT vs. Maddi Venkataratnam & Co. (P) Ltd. 144 ITR 373, 392 (AP), on appeal (1998) 229 ITR 534 (SC) it was held that an illegal payment cannot be brought within the exception of Rule 6DD(j). As such, we do not find any force in the ground of the assessee on this count.
28. We have perused the impugned order. In our opinion, correct view was taken in the matter. We find no infirmity in the impugned order. Accordingly we uphold the same.
29. In the result, appeal of the assessee stands dismissed."
4. This Income Tax Appeal has been admitted vide order dated 3rd December 2004 on the following substantial question of law :-
"On the facts and in the circumstances of the case, whether the Tribunal was right in law in holding that the undisclosed income of Rs.19,75,000/- was determined under Chapter XIVB and not under section 69C of the I.T.Act?"2/6
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5. Mr. M. Subramanian, the learned counsel for the appellant submits that the assessment order passed on 30 th November 1998 does not record satisfaction of the Assessing Officer. The said order is, therefore, invalid in view of the decision in Income Tax Appeal No.416 of 2023 titled "Mahindra & Mahindra v. Commissioner of Income-tax". The learned counsel for the appellant submits that the provisions under section 158BD could not have been invoked and the assessment of so called undisclosed income was required to be computed under section 69C of the Income Tax Act. The learned counsel for the appellant further submits that the proviso added to section 158BD shall operate prospectively but the Assessing Officer committed an error in law and made erroneous assessment. On the other hand, Ms.Ruju Thakkar, the learned counsel for the Revenue referred to the findings recorded in paragraph no.22 of the judgment rendered by the Tribunal to submit that the provisions of section 69C was not at all applicable in the case of the asseessee-appellant.
6. It is quite a well settled law that the High Court while exercising powers under section 260A of the Income Tax Act, 1961 should be satisfied that the case involves a substantial question of law and not merely a question of law. In "Chandrabhan (deceased) through Legal Representatives & Ors. v. Saraswati & Ors" (2022) 20 SCC 199, the Hon'ble Supreme Court held as under :-
" 31. .........To be a question of law "involving in the case" there must be first, a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstances of each case whether a question of law is a substantial one and involved in the case or not, the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to 3/6 BGP ::: Uploaded on - 17/10/2025 ::: Downloaded on - 17/10/2025 21:49:37 ::: 2-ITXA-44-04.doc do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis. (See Santosh Hazari v. Purushottam Tiwari 10.)"
7. The expression "undisclosed income" has been defined under section 158B(b) of the Income Tax Act to include any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, which represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of Income Tax Act, or any expense deduction or allowance claimed under this Act which is found to be false. Section 158BD of the Income Tax provides that where the Assessing Officer is satisfied that any undisclosed income belongs to or pertains to or relates to any person other than the person (not specified person) with respect to whom search was initiated under section 132 or requisition was made under section 132B. We find that the Tribunal referred to cross-examination of Shri. S. M. Lasrado, the Architect, who deposed that the appellant had made cash payments to him on various dates. The Tribunal also referred to section 292B to reflect on the undisclosed income of the appellant.
8. Two forums have recorded concurrent findings of fact on the issue of satisfaction of the Assessing Officer that the appellant did not disclose income of Rs. 19,75,000/-. We find that the Tribunal has discussed in the judgment dated 9 th July 2003 that the requirements in law are satisfied and the petitioner had suppressed income. Merely referring to the statutory provisions and contending that he had disclosed the expenditure are not sufficient grounds to hold that the substantial question of law as formulated vide order dated 3rd December 2004 shall arise in this case. In "Chunnilal V. Mehta & Sons Ltd. v. Century Spg. & Mfg. Co. Ltd." 1962 SCC OnLine 4/6 BGP ::: Uploaded on - 17/10/2025 ::: Downloaded on - 17/10/2025 21:49:37 ::: 2-ITXA-44-04.doc SC 57, the Hon'ble Supreme Court expounded the expression "substantial question of law" in following words:-
"3. The next question is whether the interpretation of a document of the kind referred to above raises a substantial question of law. For, Article 133(1) provides that where the judgment, decree or final order appealed from affirms the decision of the court immediately below in any case other than a case referred to in sub-clause (c) an appeal shall he to this Court if the High Court certifies that the appeal involves some substantial question of law. To the same effect are the provisions of Section 110 of the Code of Civil Procedure. In the old Judicial Commissioner's Court of Oudh the view was taken that a substantial question of law meant a question of general importance. Following that view its successor, the Chief Court of Oudh, refused to grant a certificate to one Raghunath Prasad Singh whose appeal it had dismissed. The appellant, therefore, moved the Privy Council for special leave on the ground that the appeal raised a substantial question of law. The Privy Council granted special leave to the appellant and while granting it made the following observation in their judgment:
"Admittedly here the decision of the Court affirmed the decision of the Court immediately below, and, therefore, the whole question turns upon whether there is a substantial question of law. There seems to have been some doubt, at any rate in the old Court of Oudh, to which the present Court succeeded, as to whether a substantial question of law meant a question of general importance. Their Lordships think it is quite clear -- and indeed it was conceded by Mr De Gruyther -- that that is not the meaning, but that 'substantial question of law' is a substantial question of law as between the parties in the case involved." (p. 128) Then Their Lordships observed that as the case had occupied the High Court for a very long time and on which a very elaborate judgment was delivered the appeal on its face raised as between the parties a substantial question of law. This case is reported in Raghunath Prasad Singh v. Deputy Commissioner of Partabgarh [(1926-27) 54 IA 126] . What is a substantial question of law as between the parties would certainly depend upon the facts and circumstances of every case. Thus, for instance, if a question of law had been settled by the highest Court of the country the question of law however important or difficult it may have been regarded in the past and however much it may affect any of the parties would cease to be a substantial question of law. Nor again, would a question of law which is palpably absurd be a substantial question of law as between the parties. The Bombay High Court, however, in their earlier decision already adverted to have not properly appreciated the test laid down by the Privy Council for ascertaining what is a substantial question of law. Apparently the judgment of the Privy Council was brought to their notice for, though they do not make a direct reference to it, they have observed as follows: "The only guidance that we have had from the Privy Council is 5/6 BGP ::: Uploaded on - 17/10/2025 ::: Downloaded on - 17/10/2025 21:49:37 ::: 2-ITXA-44-04.doc that substantial question is not necessarily a question which is of public (2) importance. It must be a substantial question of law as between the parties in the case involved. But here again it must not be forgotten that what is contemplated is not a question of law alone; it must be a substantial question. One can define it negatively. For instance, if there is a well- established principle of law and that principle is applied to a given sets of facts, that would certainly not be a substantial question of law. Where the question of law is not well settled or where there is some doubt as to the principle of law involved, it certainly would raise a substantial question of law which would require a final adjudication by the highest court."
One of the points which the learned Judges of the Bombay High Court had to consider in this case was whether the question of the construction to be placed upon a decree was a substantial question of law. The learned Judges said in their judgment that the decree was undoubtedly of a complicated character but even so they refused to grant a certificate under Section 110 of the Code of Civil Procedure for appeal to the Federal Court because the construction which the Court was called upon to place on the decree did not raise a substantial question of law. They have observed that even though a decree may be of a complicated character what the Court has to do is to look at its various provisions and draw its inference therefrom. Thus according to the learned Judges merely because the inference to be drawn is from a complicated decree no substantial question of law would arise. Apparently in coming to this conclusion they omitted to attach sufficient weight to the view of the Privy Council that a question of law is "a substantial question of law" when it affects the rights of the parties to the proceeding. Further the learned Judges seem to have taken the view that there should be a doubt in the mind of the Court as to the principle of law involved and unless there is such doubt in its mind the question of law decided by it cannot be said to be "a substantial question of law"
so as to entitle a party to a certificate under Section 110 of the Code of Civil Procedure. It is true that they have not said in so many words that such a doubt must be entertained by the Court itself but that is what we understand their judgment to mean and in particular the last sentence in the portion of their judgment which we have quoted above."
9. No other substantial question of law arises in this case and, accordingly, Income Tax Appeal No.44 of 2004 is dismissed.
[GAUTAM A. ANKHAD, J.] [CHIEF JUSTICE] 6/6 BGP ::: Uploaded on - 17/10/2025 ::: Downloaded on - 17/10/2025 21:49:37 :::