Income Tax Appellate Tribunal - Chandigarh
Assistant Commissioner Of Income Tax vs Smt. Ranjit Kaur on 11 August, 2005
Equivalent citations: (2006)99TTJ(CHD)568
ORDER
M.A. Bakshi, Vice President
1. The appeal of the Revenue for the block period 1st April, 1989 to 24th June, 1999 is directed against the order dt. 23rd Oct., 2003 of CIT(A)-I, Ludhiana. We have heard the parties and perused the records.
2. The only dispute involved in this appeal is relating to the addition of Rs. 3,87,283 made in this case under Section 158BD r/w Section 158BC deleted by the CIT(A).
3. The relevant facts, briefly stated, are that search under Section 132 of the IT Act, 1961, was conducted at the business premises of M/s Classic Global Impex Ltd. on 24th June, 1999. On the basis of the documents seized and post-search enquiries made by the DI (Wing), it came to light that the said company was engaged in giving bogus capital gain or loss as per requirement of the concerned persons. Only bills of purchase and sale of shares owned by the company were supplied to earn capital gain or loss but no actual trading in shares was done and that these were merely paper transactions for the purpose of giving entries of capital gains. The AO having jurisdiction over the respondent received information from Asstt. CIT, Central Circle-I, Ludhiana, vide his letter No. 7, dt. 12th April, 2001 informing the AO that Mrs. Ranjeet Kaur had made transaction of 15,800 shares of M/s Classic Global Impex Ltd. On the basis of this information, the AO initiated proceedings under Section 158BD. The assessee had objected to initiation of proceedings under s. 158BD. So however, the AO rejected the objections. The assessee also asked the AO to give the reasons for issuing notice under Section 158BD, in response to which the AO vide letter dt. 6th June, 2003 informed the assessee that the reasons have been recorded before the issue of notice under Section 158BD and that the assessee was at liberty to inspect the file and satisfy herself on this ground. The assessee was also asked to establish the genuineness of the transaction made in shares of M/s Classic Global Impex Ltd. The assessee not having furnished sufficient evidence to establish the genuineness of the purchase or sale of the shares, the AO on the basis of evidence recorded in paras 3 to 5 of the assessment order held that the transaction disclosed by the assessee in the purchase and sale of shares was bogus in order to claim deduction under Section 54F. The AO has specifically pointed out that M/s Classic Global Impex Ltd. had engaged M/s Beetel Capital Services Ltd. as its agent for which an agreement had been executed for payment of Rs. 2,000 per month to the said firm. The AO also referred to the statement of Shri Kavintansh Khanna, director of M/s Beetel Capital Services Ltd. who had admitted that he used to effect all transfers on the basis of list supplied to him by the management of the company without any transfer deed and without verifying any specimen signatures of previous holder because he did not have the register of specimen signatures. The AO has also pointed out that the transaction in shares had been routed through M/s Neeraj Aggarwal & Co. and M. Sood & Co. and statement of Shri Surinder Kumar Sood had also been recorded. Shri Sood had stated that he did not remember the transaction except that the payment was made to the assessee by cheque. The AO also referred to the prevailing rate in stock exchanges of Ludhiana, Delhi and Mumbai at the time of purchase and sale by the assessee and has pointed out the variation in the rates with reference to the prevalent rates at the relevant point of time. The AO had accordingly treated a sum of Rs. 3,79,660 as undisclosed income of the assessee. Further addition of Rs. 7,593 was on account of 2 per cent commission for getting the entry in this regard.
4. The assessee had challenged the order of the AO before the CIT(A) on various grounds and had pleaded as under :
That the appellant had filed copies of the brokers' account and other contract notes along with return of income.
That the transaction of sale and purchase of shares was disclosed in the return arid as such the said income could not be brought within the ambit of undisclosed income under Section 158BC.
That there was no satisfaction recorded under Section 158BD before issue of the notice.
That even on merits, no addition is justified in the hands of the assessee.
5. The CIT(A) held that since the assessee had disclosed the transaction of sale and purchase of shares in the original return, the AO was precluded from issuing notice under Section 158BD to the assessee for the purpose of assessing the same income that was disclosed by the assessee. Since the CIT(A) quashed the assessment on the aforesaid ground he did not consider it necessary to record the finding in regard to the satisfaction recorded under Section 158BD as well as on the merits of addition.
6. The Revenue is aggrieved and in appeal before us. The learned Departmental Representative pointed out that in the course of search of M/s Classic Global Impex Ltd., incriminating material was found to establish that the share transactions claimed by various persons including the assessee were bogus. Since the assessee had also shown transaction of 15,800 shares of the said company, the AO was justified in issuing notice under Section 158BD. According to the learned Departmental Representative, the assessee had disclosed capital gains simply for the purposes of claiming deduction under Section 54F to explain the source of investment in the construction of the house property. It was accordingly, pleaded that the order of the CIT(A) may be set aside and that of the AO restored.
7. The learned Counsel for the assessee, on the other hand, reiterated the contention advanced before the CIT(A) that once the assessee had disclosed the income in the original return, the AO is precluded from taking action for assessment of the investments, etc. in the block assessment. The learned Counsel placed reliance on the decision of the jurisdictional High Court of Punjab & Haryana in the case of CIT v. Smt. Geeta Gupta in IT Appeal No. 249 of 2003 order dt. 23rd Jan., 2004 in support of the contention that since the assessee had disclosed the assets, action under Section 158BD could not be justified. The learned Counsel also contended that the AO had not recorded the satisfaction before issue of notice under Section 158BD and that the assessee had placed sufficient evidence on record to support the transaction in the purchase of shares was genuine. It was accordingly, pleaded that the appeal of the Revenue may be dismissed.
8. We have given our careful consideration to the rival' contentions. The principle of law laid down by the Hon'ble Punjab & Haryana High Court in the case of CIT v. Geeta Gupta (supra) is binding upon us. In this case, their Lordships have held that "it seems that the AO has not made any addition on account of anything found during the course of search representing undisclosed income on assets. However, he has made the addition on the presumption that the assets/investments reflected in the statement of affairs/balance sheet ought to have been in possession of the assessee." Their Lordships have further recorded "in the present case, the statement of affairs/balance sheet showing the capital balance in asst. yr. 1997-98 had duly been disclosed in the return filed for that year. The only valuable article or thing recovered at the time of search was 719 gms. gold ornaments, which was less than gold ornaments of 3.4 kgs. declared in the WT Return for the year 1995-96. Thus, there was no question of there being any undisclosed income within the meaning of Section 158B(b) of the Act." The crucial question, however, for our consideration is as to how far the above principle of law is applicable in the case before us. It has got to be decided as to whether any material was found by the Revenue in the course of search of any person on the basis of which the AO could have satisfaction that there was undisclosed income assessable in the case of the assessee justifying action under Section 158BD. The evidence found in the course of search in the case of M/s Classic Global Impex Ltd. on 24th June, 1999 revealed that the company was engaged in giving bogus gain or loss as per requirement of the concerned persons for commission. The assessee had also shown transaction in respect of the above company of 15,800 shares. The assessee had disclosed capital gains from sale and purchase of said shares in the regular return filed for asst. yr. 2000-01 but had simultaneously claimed deduction under Section 54F in respect of the investment in residential house property. The important question that has been raised before us is that when the assessee had disclosed the capital gains in the return of income, can it be said that there was undisclosed income which was chargeable to tax under the block assessment procedure. It may appear that since the assessee had disclosed the capital gains, in other words, disclosed the income rather than suppressing the income, there could not be undisclosed income for the purpose of bringing the same to tax under Chapter XIV-B of the IT Act, 1961. However, when the entire facts are taken into account, it becomes abundantly clear that but for this claim of purchase and sale of shares and the bogus capital gains, the investment made by the assessee in the house property remains unexplained for which the assessee would be liable to tax as income from undisclosed sources. So the impact of the disclosure by the assessee in the return covers the investment made in the construction of the house property. In other words, if the capital gain claimed by the assessee is bogus and the assessee has no source of income to explain the investment in the house property, the provisions of Section 69 would be attracted and the assessee liable to tax in respect of unexplained investment in the house property. This is what is to be appreciated in the right perspective. The assessee had not offered the investment made in the house property as its income for the relevant assessment year. The investment in house property has been claimed to have been made out of sale proceeds of sale of shares which on the basis of search is alleged to be bogus. Thus, there is live link between the material found in the course of search of another person and the investment in house property made by the assessee.
9. The next question that arises for consideration is as to whether the CIT(A) was right in holding that since the assessee, while filing the return of income for asst. yr. 2000-01, had disclosed the capital gain and investment in the house property, no action under Section 158BD was permissible in this case. The CIT(A) has held that once the transaction has been disclosed in the return of income the same could not have been brought under the definition of "undisclosed income" by any yardstick. He has cited the following decisions in support of his finding:
(a) CIT v. Shamhu Lal C. Bachkaniwala
(b) L.R. Gupta and Ors. v. Union of India and Ors.
(c) CIT v. Vinod Danchand Ghodawat
(d) Abdulgafar A. Nadiawala and Anr. v. Dy. CIT (2002) 18 IT. Rep. 142 (Mumbai)
(e) Chinar Estates (P) Ltd. and Ors. v. Dy. CIT and Ors. (2002) 18 Rep 531 (Del)
(f) Chander Mohan Mehta v. Asstt. CIT (1999) 65 TTJ (Pune) 327 : (1999) 71 ITD 245 (Pune)
(g) Sampat Beer Bar v. Asstt. CIT (2002) 18 IT Rep. 220.
10. It may be relevant to reproduce the operative portion of the order of the CIT(A) to appreciate the correctness of his order :
As held in all the aforesaid decisions, 'undisclosed income' clearly refers to the income which has not' been or would not have been disclosed for the purposes of this Act.
Respectfully following the above judgments, and after gong through the entire gamut of the submissions of the learned Counsel on this issue, I am convinced that the said transactions (having been duly disclosed in the regular return of income for the asst. yr. 2000-01) did not fall within the description of 'undisclosed income'. Consequently, I am unable to uphold the action of the AO in assessing the said gains as 'undisclosed income' Since the appeal on this issue has succeeded, therefore, I do not consider it necessary to dilate upon the other issues, namely, the justifiability of the 158BD satisfaction, as well as the merits of the case, which have become academic and hence infructuous in nature in view of the above decision.
11. It has already been pointed out that the decision of the CIT(A) is also sought to be supported by the decision of the jurisdictional High Court in the case of CIT v. Smt. Geeta Gupta in IT Appeal No. 249 of 2003, order dt. 23rd Jan., 2004 (supra) on behalf of the assessee.
12. On going through the aforementioned decisions relied upon by the CIT(A) and also the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Smt. Geeta Gupta (supra), we are of the considered view that the reliance on these decisions is misplaced. The principle of law which has been laid down by the Hon'ble Punjab & Haryana High Court, various other High Courts and Benches of the Tribunal is that the block assessment has got to be based on incriminating material, found in the course of search or in continuation of such proceedings and that no addition can be made on the basis of entries in the books of account or balance sheet filed along with the return of income or during the regular course of proceedings, subject to the condition that no incriminating material is found in the course of search on the basis of which entries or disclosure made by the assessee in the return of income or during the course of regular assessment proceedings, are found to be incorrect or false. If the finding of the CIT(A) that wherever the assessee has disclosed the transaction in the original return, proceedings under Section 158BC/158BD would not be permissible, is accepted, then in no case of search assessment can be made in respect of the sources of income or assets disclosed in the return of income or in the course of regular assessment proceedings. For example, if the assessee has disclosed income from business in the original return and the purchases and sales are recorded in the books of account and in the course of search it is found that the purchases claimed by the assessee are bogus, then proceedings under Section 158BC or Section 158BD would not be permissible because the assessee had disclosed the purchases in the course of regular assessment. In our considered view, the judgments on this issue have to be read in the context in which these have been rendered. When the judgments relied upon by the CIT(A) and the judgment of the jurisdictional High Court in the case of CIT v. Smt. Geeta Gupta are to be read in the context in which these have been rendered, we are confident that there is no scope for any ambiguity. The restriction placed by various High Courts and the Tribunal in the above referred decisions is that in the case of a search where no incriminating material is found, the AO cannot investigate the transactions, which are recorded and disclosed in the regular course of assessment. Once incriminating documents are found in the course of search, the proceedings under Section 158BC or Section 158BD would be permissible even if those documents relate to the transactions disclosed in the original return. In this case, the assessee had disclosed the capital gains and the investments in the house property in the regular return of income. However, as a result of search in the case of M/s Classic Global Impex Ltd. the transactions in shares disclosed by the assessee in the return of income have been found to be bogus. It is on the basis of incriminating documents found in the course of search that the transactions disclosed by the assessee are found to be bogus and consequently the investment made in the house property claimed to have been met out of the said capital gains has remained unexplained and accordingly, addition would be justified on account of undisclosed income. As pointed out earlier, the bar under Section 158BC/158BD, in regard to the transactions disclosed in the return/balance sheet or during the assessment proceedings, applies on such transactions in respect of which no incriminating document is found in the course of search. This distinction has been overlooked by the CIT(A). We, therefore, taking the totality of the facts and circumstances of this case into consideration, set aside his order in regard to this issue and hold that the AO would be justified in taking action under Section 158BC/158BD even in respect of transactions disclosed in the return of income if incriminating documents are found as a result of search under Section 132 in the case of assessee or in the case of third party relating to undisclosed income. His order is, therefore, liable to be set aside. The order of the CIT(A) on this issue is accordingly set aside.
13. We, however, find that the CIT(A) did not decide other objections raised by the assessee in regard to the recording of the satisfaction before issue of notice under Section 158BD and on the merits of the case. In order to be just and fair to the assessee, we consider it appropriate to remit these two issues to the file of the CIT(A) for the purpose of deciding the same in accordance with law and after giving reasonable opportunity of being heard to the assessee. Needless to mention that the only issue decided by the CIT(A) has been reversed by us by this order and accordingly same is not open for his fresh decision.
14. For statistical purposes, the appeal of the Revenue is allowed.