Telangana High Court
Sri Mangaram Choudary Huf vs The Assistant Commissioner Of Income ... on 21 August, 2025
Author: P.Sam Koshy
Bench: P.Sam Koshy
THE HONOURABLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA
INCOME TAX TRIBUNAL APPEAL NO.275 of 2008
JUDGMENT:(per Hon'ble Sri Justice Narsing Rao Nandikonda) This appeal is filed arising out of the order, dated 28.02.2008 in IT (SS) A No.65/Hyd/2005 passed by the learned Income Tax Appellate Tribunal, Bench "B" Hyderabad (for short, 'the Tribunal') for the Assessment Years 1997-1998 to 2003- 2004.
2. The brief facts of the case are that the appellant has been engaged in the business of purchase and sale of gold and silver articles under the name and style of M/s.Choudhary Jewellery and Silver Palace. It is stated that as on today, the appellant is looking after the business as Karta of Hindu Undivided Family (HUF). While so, a survey was conducted under Section 133 A of the Income Tax Act, 1961 (for short, 'the Act, 1961') on 21.03.2003 at the business premises of the appellant and found excess stock of gold and silver articles worth Rs.47,97,837/- and the same was admitted by the 2 PSK,J&NNR,J ITTA_275_2008 appellant in his sworn statement. Pursuant to the same, a warrant of search under Section 132 of the Act, 1961 was issued by the Director of Income Tax (Investigation), Hyderabad, which was executed on the appellant on 21.03.2003 and the same was finally concluded on 25.04.2003. His statement was also recorded under Section 132 (4) of the Act, 1961 on 21.03.2003 and again on 26.03.2003, wherein he admitted that there is excess stock of gold and silver articles worth Rs.47,97,837/-, which was not disclosed in the regular books of accounts.
3. In the affidavit filed in support of the petition, it is stated that in response to the notice, dated 11.07.2003, issued under Section 158 BC of the Act, 1961, the appellant filed income tax returns on 18.09.2003 for the block period of 01.04.1996 to 21.03.2003 showing 'undisclosed income' as 'NIL' He further stated that he also filed regular income tax returns for the Assessment Year 2003-2004 showing the total income at Rs.47,28,077/- which includes sum Rs.46,03,947/- being 'undisclosed income' of gold and silver articles detected during the course of survey proceedings. It is further case of the 3 PSK,J&NNR,J ITTA_275_2008 appellant that though the unaccounted gold and silver articles were detected and admitted by him as 'undisclosed income' during the course of survey proceedings, the same are not liable for tax in regular assessment proceedings. But, without considering the same, the Assessing Officer held that the unaccounted gold and silver articles worth Rs.47,33,192/- is liable to be taxed under Section 158 BC of the Act, 1961 and erroneously passed the impugned order.
4. It is further case of the appellant that aggrieved by the order, dated 28.06.2004, passed by the Assessing Officer under Section 158BC of the Act, 1961 for the block period 01.04.1996 to 21.03.2003 and the appeal No.0139/CIT (A)- VI/2004-05 filed against the order, dated 28.06.2004 passed under Section 143 (3) of the Act, 1961 for the Assessment Year 2003-2004, the appellant filed appeals before the Commissioner of Income Tax (Appeals)-VI, Hyderabad. The Commissioner of Income Tax placing reliance on the judgment of High Court of Delhi in L.R.Gupta v. Union of India 1 held that 'Undisclosed 1 194 ITR 32 4 PSK,J&NNR,J ITTA_275_2008 Income' means it was hidden from the Department and if Department was aware of its existence then it was not undisclosed income and finally the Commissioner concluded that the income which was already detected in the course of survey under Section 133A of the Act, 1961 cannot be treated as 'undisclosed income' for the purposes of search under Section 132 of the Act, 1961 and accordingly, allowed the appeals. Aggrieved by the order passed by the Commissioner, the Department filed an appeal vide Appeal No.IT (SS) A No.65/Hyd/2005 before the Income Tax Appellate Tribunal, Bench 'B', Hyderabad, and the said appeal was allowed observing that the excess unaccounted stock shall be liable to be assessed in block assessment proceedings only. Aggrieved by the same, the present appeal is filed by the appellant.
5. Heard Ms.Vaishnavi Ambadipudi, learned counsel representing Sri S.Ravi, learned Senior Counsel appearing for the appellant and Sri P.Murali Krishna, learned standing counsel for Income Tax, appearing for the respondent. 5
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6. Learned counsel for the appellant has argued and contented that the amount of Rs.47,97,837/- cannot be treated as 'undisclosed income' as defined in sub-section (1) (b) of Section 158B of the Act 1961, it cannot be taxed. The said Section reads as follows:
"158B Definitions--In this Chapter, unless the context otherwise require-
(a) ....
(b) "undisclosed income" includes 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, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act [or any expense, deduction or allowance claimed under this Act which is found to be false]"
She further argued that only the income which has to be taxed is under sub-section (1) of Section 158B of the Act, 1961, which reads as follows:
158BB. Computation of undisclosed income of the block period.--
(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 this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence], as 6 PSK,J&NNR,J ITTA_275_2008 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 years, determined--
7. The said provision makes it clear that the 'undisclosed income' for the block period i.e., from 01.04.1996 to 21.03.2003 should be computed on the basis of evidence adduced. She further argued that the appellant has disclosed the 'undisclosed income' during survey before initiating search proceedings. Hence, the same cannot be taken as 'undisclosed income' and she supported the order passed by the learned Commissioner of Income Tax (Appeals). In support of her contentions, she also placed reliance on the judgment of High of Madras in case of Smt. Sivabala Devi v. ACIT 2.
8. Per contra, learned Standing Counsel for Income Tax Department appearing for the respondents vehemently argued and supported the order passed by the Income Tax Appellate Tribunal Bench 'B', Hyderabad. He further contended that the provisions of Income Tax Act, 1961 prescribes a special procedure for Assessment of search cases (i.e., cases where 2 2004 88 ITD 333 MAD 7 PSK,J&NNR,J ITTA_275_2008 search is initiated under Section 132) for search initiated after 30.06.1995 and on or before 31.05.2003, in which 'Undisclosed Income' has been found. No such kind of special procedure is prescribed for making assessment on the basis of information collected during the course of survey under Section 133A of the Act, 1961.
9. It is an admitted fact that the appellant, being Hindu Undivided Family, engaged in the business of purchase and sale of gold and silver articles under the name and style of M/s. Choudhary Jewellery and Silver palace. It is also not in dispute that there was a survey operation conducted on 21.03.2003 under Section 133A of the Act, 1961, in the business premises of M/s. Choudhary Jewellery & Silver Palace by the Income Tax officials. During the survey, they found excess stock of gold and silver articles worth Rs.47,97,837/-, which was not accounted in the regular books of accounts maintained by the appellant and he also failed to explain the source of investment of excess gold and silver at the time of survey. It is also not in dispute that after excess stock was 8 PSK,J&NNR,J ITTA_275_2008 found, a warrant under Section 132 A of the Act, 1961 was issued and the same was concluded on 25.03.2003 and the respondents found cash of Rs.9,840/- and 15,319.67 gms of gold and 124.624 kgs of silver. It is not in dispute that the same was not seized for the reason that the appellant undertook to pay the entire amount of tax Rs.28.80 lakhs relatable to the value of excess stock of Rs.48 lakhs, admitted 'undisclosed income'. A notice under Section 158 BC of the Act, 1961 was issued on 11.07.2003 and pursuant to the said notice, the appellant filed returns for Block Period 01.04.1996 to 21.03.2003. Thereafter, the appellant also filed regular returns for the Assessment Year 2003-2004 on 18.09.2003 showing total income of Rs.47,28,077/- which included Rs.46,03,947/- being unexplained investment in gold and silver articles disclosed at the time of search admitting undisputed income as 'Nil' in the status of Hindu Undivided Family.
9
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10. No doubt, as per the Judgment of High Court of Madras in Commissioner of Income Tax v. Sivabala Devi 3 at paragraph Nos.61 and 62 it was held as under:
61. It will be worthwhile to refer to the principles laid down by the hon'ble Supreme Court while working out the provisions under Chapter XIV-B of the Act for making block assessment of "undisclosed income". In the decision reported in Asst. CIT v.
Hotel Blue Moon (2010) 321 ITR 362 (SC), where the hon'ble Supreme Court has held as under in paragraph 12 (page 368):
"12. Chapter XIV-B provides for an assessment of the undisclosed income unearthed as a result of search without affecting the regular assessment made or to be made. Search is the sine qua non for the block assessment. The special provisions are devised to operate in the distinct field of undisclosed income and are clearly in addition to the regular assessments covering the previous years falling in the block period. The special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. It is not intended to be substituted for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done 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 the Assessing Officer. Therefore, the income assessable in block assessment under Chapter XIV-B is the income not disclosed but found and determined as the result of search under section 132 or requisition under section 132A of the Act."
62. Similarly in the decision reported in Manish Maheshwari v. Asst. CIT (2007) 289 ITR 341 (SC), it has been held as under in paragraph 11 (page 348):
"11. The condition precedent for invoking a block assessment is that a search has been conducted 3 (2011) 237 CTR 337 10 PSK,J&NNR,J ITTA_275_2008 under section 132, or documents or assets have been requisitioned under section 132A. The said provision would apply in the case of any person in respect of whom search has been carried out under section 132A or documents or assets have been requisitioned under section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of section 158BC in respect of any other person, the conditions precedent wherefor are : (i) satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 of the Act ; (ii) the books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person ; and (iii) the Assessing Officer has proceeded under section 158BC against such other person."
11. He also relied on the judgment of the Hon'ble Supreme Court in Commissioner of Income Tax, Chennai v. S.Ajit Kumar (in Civil appeal Nos.10917 of 2013, 4449 of 2015, 5255 of 2015 and 10165 of 2010) wherein the Hon'le Supreme Court was pleased to allow all the appeals vide judgment dated, 02.05.2018 and at paragraph Nos.8, 10 and 12 of the said Judgment, it was held as under:
8) In the present case, the period for Block Assessment is 01.04.1996 to 17.07.2002. Section 153A of the Income Tax Act, 1961 (for brevity "the IT Act") provides the pro cedure for completion of assessment where a search is initiated under Section 132 of the IT Act or books of account or 11 PSK,J&NNR,J ITTA_275_2008 other documents or any asset are requisitioned under Section 132A of the IT Act.
10) In the instant case, the office and residential premises of the assessee searched on 17.07.2002 and finally concluded on 21.08.2002. During the course of search, certain evidence were found which showed that the assessee had indulged in under statement of his real income relating to the block period from 01.04.1996 to 17.07.2002. Consequently, a notice dated 25.02.2003, under Section 158BC of the IT Act, was issued to the assessee and he was asked to file block assessment. In reply to such notice, the assessee filed return on 11.08.2003, admitting the undisclosed income as "NIL."
12) The method of calculating the undisclosed income of the block period is provided under Section 158BB of the IT Act. It would be appropriate to re-produce the relevant part of Sections 158BB and 158 BH of the IT Act which is as follows:
"158BB. Computation of undisclosed income of the block period.-(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous year failing within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, 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......
158BH. Application of other provisions of this Act -
Save as otherwise provided in this Chapter, all other 12 PSK,J&NNR,J ITTA_275_2008 provisions of this Act shall apply to assessment made under this Chapter."
(Emphasis supplied)
12. The method of calculating the 'undisclosed income' of the block period is provided under Section 158BB of the Act, 1961. It would be appropriate to re-produce the relevant part of Sections 158BB and 158 BH of the Act, 1961, which reads as under:
"158BB. Computation of undisclosed income of the block period.-(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous year falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, 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..
158BH. Application of other provisions of this Act Save as otherwise provided in this Chapter, all other provisions of this Act shall apply to assessment made under this Chapter."
(Emphasis supplied) 13 PSK,J&NNR,J ITTA_275_2008
13. Admittedly, in the present case, the appellant herein filed Income Tax Returns on 18.09.2003 for the block period i.e., on 01.04.1996 to 21.03.2003 and thereafter, the appellant also filed regular returns for the Assessment Year 2003-2004 on 18.09.2003 showing total income at Rs.47,28,077/-, which included Rs.46,03,947/-, the 'undisputed income' as 'NIL'. But, the case of the appellant is that all along amount of Rs.47,33,192/- cannot be treated as an 'undisclosed income' as defined in clause (b) of Section 158B of the Act, 1961, as such it cannot be taxed.
14. There is no dispute that basing on the evidence which is found during search and seizure operation, the assessee has not accounted for the gold and silver articles amounting to Rs.47,97,815/-. But, according to the appellant, the 'undisclosed income' was treated as NIL and he also paid regular income tax returns on 18.09.2003 in the status of Hindu Undivided Family for the Assessment Year 2003-2004 showing total income of Rs.47,28,077/-, which included Rs.46,03,947/- the 'undisclosed amount. The Assistant Commissioner of 14 PSK,J&NNR,J ITTA_275_2008 Income Tax at paragraph No.8 of the Assessment Order, dated 28.06.2004, it was held as under:
"Thus a combined reading of the definition of 'undisclosed income' as also the provisions of charging section mandates that any income represented by unaccounted assets found as a result of search is required to be assessed only as per the provisions contained in Chapter- XIVB but not under regular procedure. I have, therefore, no hesitation in my mind to tax the income relatable to excess stock found as a result of search under the provisions of Chapter-XIVB of the Act. Hence, the contention of the assessee that the income is assessable in the regular return is rejected."
As per definition 158BA (2) of the Act 1961, the total undisclosed income relating to the block period shall be charged to tax, at the rate specified in Section 113, as income of the block period.... As per 158BA (2) (c) - the income assessed shall not be included in the regular assessment of any previous year included in the block period.
15. In the present case, admittedly, the appellant has not included the 'undisclosed income' in the returns filed by him for the block period 01.04.1996 to 21.03.2003 and showing the same as 'NIL.' The assessee has to prove the same before the Assessing Officer that the transaction relating to 'undisclosed income' was recorded in the books of account or other records maintained in the normal course. Further, as the assessee has not accounted for investment of excess gold and silver articles of 15 PSK,J&NNR,J ITTA_275_2008 Rs.46,03,947/- in the regular books of accounts, the Assessment proceedings were initiated under Section 158BC of the Act, 1961.
16. Admittedly, the said gold and silver articles were not recorded, the income assessed shall not be included in the regular assessment of any previous year included in the block period, as such the contention of the appellant that the Tribunal has committed error in coming to the conclusion that the appellant is liable to be assessed under Section 158BA of the Act, 1961 and not Section 156 (3) of the Act cannot be accepted and the income has to be assessed in the block assessment period.
17. The proviso to Section 158BA3 of the Act, 1961 would not be applicable to the case of the appellant as such, this bench is of the opinion that the arguments made by learned counsel for the appellant cannot be accepted and the substantial question of law is answered in favour of the revenue and we do not find any error committed by the Tribunal in passing the 16 PSK,J&NNR,J ITTA_275_2008 impugned order and there are no grounds to interfere with the same.
18. Accordingly, the Income Tax Tribunal Appeal is dismissed confirming the order, dated 28.02.2008 in IT (SS) A No.65/Hyd/2005 passed by the learned Income Tax Appellate Tribunal, Bench 'B' Hyderabad. There shall be no order as to costs.
Miscellaneous petitions, if any, pending in this appeal shall stand closed.
___________________________ JUSTICE P.SAM KOSHY __________________________________________ JUSTICE NARSING RAO NANDIKONDA Date:21.08.2025 YVL