Karnataka High Court
Rishabchand Bhansali vs Deputy Commissioner Of Income Tax on 23 February, 2004
Equivalent citations: (2004)188CTR(KAR)185, [2004]267ITR577(KAR), [2004]267ITR577(KARN), 2004 AIR - KANT. H. C. R. 1087, 2004 TAX LR 448
JUDGMENT R.V. Raveendran, J.
1. This appeal by the assessee is against the order of the Tribunal, Bangalore Bench, dt 29th Sept., 2003, in IT(SS)A No. 54/Bang/2002 relating to the block period 1990-91 to 1999-2000.
2. The AO passed a block assessment order dt. 25th June, 2001, under Section 158BC of the Income-tax Act, ("Act" for short), in pursuance of a search conducted under Section 132 of the Act on 13th July, 1999. The said assessment order was passed after obtaining the previous approval from the Jt. CIT (Range 4), Bangalore, as required under Section 158BG of the Act. The assessee challenged the assessment order before the CIT(A)-II, Bangalore, in ITA No. 436/CIT(A)-II/2001-02. The appeal was allowed in part by an order dt. 7th Feb., 2002, granting certain reliefs. The assessee filed a further appeal before the Tribunal and the Tribunal by an order dt. 29th Sept., 2003, allowed the said appeal in part granting some more reliefs.
3. The appellant is aggrieved by the non-grant of other reliefs sought by him. The appellant contends that the appeal ought to have been allowed in entirety. He contends that the following substantial questions of law arise for consideration in this appeal:
"(i) Before granting the previous approval granted under Section 158BG for making an order of assessment for a block period, whether the Jt. CIT is required to give a hearing to the assessee; and whether failure to do so will violate the principles of natural justice and thereby invalidate the previous approval as also the order of assessment for the block period.
(ii) Whether, on the facts, the Tribunal is correct in law in holding that the amount of Rs. 22 lakhs constitute income in the hands of the appellant and others; and if so whether the Tribunal is justified in law in holding that the amounts have to be assessed in the hands of respective persons without hearing such persons.
(iii) Whether the Tribunal is justified in law in holding the appellant is liable to be assessed for income of Rs. 2,00,000 on account of deficit stock?
Re. question No. (i):
4. Section 158BG provides that no order of assessment for the block period shall be passed by the AO without the previous approval of the Jt. CIT in respect of a search initiated under Section 132. The assessee contends that before granting previous approval under Section 158BG for an order of assessment made under Section 158BC, the Jt. CIT should have given a hearing to the assessee. It is submitted that the power to grant previous approval under Section 158BG is an amalgam of appellate and revisional power and therefore, the right to a hearing should be read into Section 158BG. It is also contended that the Tribunal failed to consider this ground though specifically urged before it.
4.1 Chapter XIV-B contains a special procedure for assessment of search cases. Section 158BC prescribes the procedure for block assessment. Clause (c) of Section 158BC enables the AO, on determination of the undisclosed income of the block period, to pass an order of assessment and determine the tax payable by him on the basis of such assessment Sub-clause (b) requires the AO to proceed in the manner laid down in Section 158BB and the provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144, while determining the undisclosed income of the block period. It is thus evident that the procedure clearly contemplates the AO giving a hearing to the assessee before making an assessment order in regard to the block period.
4.2 Clause (k) of Section 246A provides for an appeal against the order of assessment for the block period made by the AO under Clause (c) of Section 158BC Sub-section (2) of Section 250 provides for a hearing of the appeal. Thus, the assessee is heard by the AO before making the assessment order under Section 158BC. If the assessee is aggrieved by the assessment order he has a remedy by way of an appeal under Section 246A where also he is heard. There is no need, therefore, for the Jt. CIT to give a hearing before giving previous approval under Section 158BG Firstly, the statute does not provide for such a hearing, secondly, principles of natural justice also do not require such a hearing having regard to the fact that the assessee gets a hearing before the assessment and also a hearing if he files an appeal against the order of assessment, and thirdly the order passed by the Jt. CIT granting previous approval under the proviso to Section 158BG is in exercise of administrative power on being satisfied that the order of assessment has been made in accordance with the provisions of Chapter XIV-B. The previous approval is purely an internal matter and it does (SIC-not) decide upon any rights of the assessee. The Jt. CIT, while examining the matter under the proviso to Section 158BG does not examine or adjudicate upon the rights or obligations of the assessee, but only considers whether the AO has fulfilled the requirements of Chapter XIV-B. 4.3. In V.C. Shukla v. State (Delhi Administration) , the Supreme Court gave the following example:
"In cases where law requires sanction to be given by the appointing authority before a prosecution can be launched against a Government servant, it has never been suggested that the accused must be heard before sanction is accorded....."
4.4 Where a statute requires the Executive to take an administrative action after being satisfied or after forming an opinion as to the existence of a state of circumstances, the action is based on the subjective satisfaction. It is well settled that any administrative actions based either on policy or on subjective assessment, if does not prejudicially affect any vested right or interest, need not be preceded by a hearing, unless the statute specifically provides for the same. Therefore, in the absence of any provision for opportunity of hearing in Section 158BG, there is no need for the Jt. CIT to give a hearing to tire assessee before granting "previous approval" under Section 158BG. The first question is, therefore, answered against the assessee.
Re. Question No. (II)
5. A sum of Rs. 22,00,000 was added by the AO to the income of the assessee as undisclosed income by way of interest. The CIT(A) confirmed the same. The Tribunal held that the said interest was earned on the amount financed to M/s. Balakrishna Group. It was held that assessee had financed M/s. Balakrishna Group through his own funds, the funds of his HUF and funds of his daughter-in-law's proprietary concern (Praveen Textiles). The assessee had admitted in his statement recorded on 13th July, 1999, (date of search) that a sum of Rs. 22 lakhs was received as interest on the following lending (i) Rs. 25 lakhs advanced by cheque by M/s Praveen Textiles (of which assessee's daughter-in-law was the proprietrix), Rs. 15 lakhs advanced by cheque by the assessee's proprietary concern (H. Ashok Kumar & Co.,) and Rs. 73,00,000 advanced in cash. The Tribunal observed :
"3.2 While examining the issue of advances to Balakrishna group it has been found and held that the amount was advanced to Balaknshna Group out of the funds belonging to the assessee, the HUF of assessee amounting to Rs. 73 lacs and also by the daughter-in-law of the assessee. The interest pertains to the entire advances and it cannot be said that the entire interest received is out of the advance given by assessee alone. In the circumstances, the sum of Rs. 22 lacs which is already received and is refinanced is to be considered as income of respective lenders, i e, the assessee, the assessee HUF and M/s Praveen Textiles of which the appellant's daughter-in-law is the proprietrix. Thus to the extent of interest received pertaining to the amount financed by the assessee out of his proprietary concern is to be assessed in the hands of assessee and balance to be taxed in respective cases. The AO shall examine the issue and consider only that portion in the interest income which is not earlier offered in the regular return filed by the assessee."
5.1. The finding that Rs. 22 lakhs was the undisclosed income in the hands of the assessee, assessee's HUF and Praveen Textiles is a pure finding of fact arrived at on the admissions made by the assessee on 13th July, 1999, which was duly recorded. The admission is not disputed. Nor has the assessee subsequently demonstrated that the admission is incorrect. Therefore we find no reason to interfere with the finding that Rs. 22 lakhs is the undisclosed income. The further finding that the entire sum of Rs. 22 lakhs is not the undisclosed income of the assessee alone, but of the assessee, his HUF and his daughter-in-law is a finding beneficial to the assessee, as otherwise the assessee would have to bear the tax and other burdens relating to the entire undisclosed income of Rs. 22 lakhs. The Tribunal has now restricted the liability of the assessee to his portion of the interest income of Rs. 22 lakhs Any attempt by assessee to disturb that finding would result in the entire Rs. 22 lakhs being treated as undisclosed income of the assessee.
5.2. It is next contended that the finding of the Tribunal that the portions of the interest income of the assessee's HUF and daughter-in-law, out of Rs. 22 lakhs, will have to be taxed in the respective cases, is opposed to principles of natural justice, as neither assessee's HUF, nor assessee's daughter-in-law have been heard in the matter According to the appellant, the Tribunal ought to have restricted its direction that the undisclosed income be taxed, to the share of the assessee in Rs. 22 lakhs. It is contended that the direction to tax the balance in the hands of other persons could have been made only after giving appropriate notices to such persons and hearing them On a careful reading of para 3.2 of the order of the Tribunal, we find that there is no infirmity or violation of principles of natural justice. The Tribunal has clearly stated that the AO shall examine the issue and consider only such portion of the interest income, which is not earlier offered, in the regular return filed by the assessee. The observation that the balance has to be taxed in the respective cases necessarily means that the balance has to be taxed in accordance with law, after issue of appropriate notices and grant of hearing to the other persons concerned, that is assessee's HUF and assessee's daughter-in-law. There is no basis for the assumption that the Tribunal has directed the AO to assess the balance of the interest amount in the hands of third parties without giving them an opportunity of hearing. Hence the second question does not arise for consideration at all.
Re. Question No. (III)
6. The third question relates to the liability of assessee to be assessed for the income of Rs. 2,00,000 on account of deficit stock. This is purely a question of fact Learned counsel for the assessee fairly conceded that the said issue did not involve any question of law, much less substantial question of law.
7. The appeal is, therefore, dismissed as having no merit.