Income Tax Appellate Tribunal - Bangalore
Assistant Commissioner Of Income Tax vs Late A.S. Sengoda Gounder on 20 April, 2001
Equivalent citations: [2002]82ITD829(BANG)
ORDER
T.J. Joice, A.M.
1. As the issues involved in these appeals are inter-connected, they are disposed of by a common order for the sake of convenience. ITA 182/Bang/99 is appeal filed by the Department against the order of the CIT(A) dt. 21st Dec., 1999, which is a consolidated order for the asst. yrs. 1994-95 and 1995-96. However, the Departmental appeal with which we are concerned here relates to the asst. yr. 1995-96 only. The appeal before the CIT(A) was filed by the assessee against the order of the Asstt. CIT, Central Circle-Hi, Bangalore (hereinafter referred to as the AO for short), under Section 143(3) of the IT Act, 1961, dt. 31st March, 1998 for the previous year ending on 31st March, 1995. On the other hand, IT(SS)A.17/Bang/1999 is an appeal filed by the assessee and is directed against the order of the CIT(A), dt. 9th June, 1999. This appeal was filed by the assessee before the CIT(A) against the order of the AO, dt. 28th Aug., 1998, passed under Section 158BC r/w Section 143(3) of the IT Act, 1961, for the block period 1987-88 to 1997-98 upto the date of search on 20th Feb., 1997. In other words, the previous years relevant to the block period relate to the financial years 1986-87 to 1995-96 and a part of the financial year 1997-98 from 1st April, 1996, to 20th Feb., 1997.
2. Before coming to the specific grounds of appeal, it is necessary for us to put in brief the relevant facts of the case which have given rise to the disputes now raised before us. The assessee belongs to a business family engaged in textile business in Pallipalayam, Erode district of Tamilnadu. The assessee filed a return of income for the asst. yr. 1995-96 on 4th Dec., 1996, declaring total income of Rs. 4,56,200 and agricultural income of Rs. 7,35,600. In the statement of total income filed with the return, a footnote has been given as under:
"During the year the assessee has received NRI(E) gifts amounting to Rs. 1,51,28,998, the details of which viz., donor, bank remittances, details, etc. are enclosed. These gifts are exempt under Section 5(l)(iib) of the GT Act. The entire amount was directly invested by way of unsecured loans in companies where he is interested."
3. It is to be noted in this connection that prior to the date of return, the ITO, Ward-1(l), Erode, conducted a survey under Section 133A in the business premises of late Sengoda Gounder on 8th Oct., 1996. During the course of survey, it was noticed that Sri Sengoda Gounder and his family members had received drafts from NRI accounts from various persons hailing from Muscut, Dubai, Swizerland, etc. In the statement recorded at the time of survey, Shri Sengoda Gounder stated that these amounts were received as gifts from NRIs. However, he was not in a position to furnish the details. In order to buy peace and cooperate with the Department, he agreed to offer NRI gifts of Rs. 6.73 crores received by himself and his family members as undisclosed income. At the time of survey, Sri Gounder and his family members had not filed the income-tax returns for the asst. yr. 1995-96. As stated earlier, the return was filed for this year on 4th Dec., 1996. The assessee enclosed along with the return a statement giving the list of donors and the amount of money received from them and claimed exemption under Section 5(l)(iib) of the GT Act. These amounts were invested in two companies belonging to the group, viz., M/s Sri Sampoornalakshmi Spinning Mills (P) Ltd. (SSLSM) and M/s Sri Jagan Spinning Mills Ltd. (SJSM), corning to Rs. 87.05 lakhs and Rs. 63.09 lakhs, respectively, in the case of Sri. Sengoda Gounder. The other amounts were also invested in the same companies by the other members of the family, all investments totalling to Rs. 6.73 crores.
4. Subsequently, the Investigation Wing of the Department took action under Section 132 of the IT Act, 1961, on 20th Feb., 1997, and 21st Feb., 1997, at the residential premises of the assessee and his family members and also the administrative office of SSLSM. During the course of search, document files numbering nine, yellow folders numbering six and loose sheets and rubber stamps were seized. The seized material bearing Nos. 1 to 15 contained affidavits signed before the Notary Public of Cochin, photocopies of demand drafts, cheques, bank letters, NRI Bonds and letters from some of the donors addressed to Sri. A.S. Sengoda Gounder and his family members.
5. The AO noticed that the regular assessment for the asst. yr. 1995-96 was pending as on the date of search. He also was of the opinion that assessment under Section 158BC had to be made in view of the search action under Section 132 for the block period ending with the date of search. The regular assessment under Section l43(3) was getting time-barred by 31st March, 1998. On the other hand, the block assessment under Section 158BC was getting time-barred only by February, 1999. As stated earlier, the regular assessment under Section 143(3) was finalised on 31st March, 1998, and the assessment under Section 158BC for the block period was finalised by an order passed on 28th Aug., 1998. In both the assessments, the AO brought to tax inter alia, an amount of Rs. 1,51,28,998, which he held as unexplained or undisclosed income in the hands of the late Sri A.S. Sengoda Gounder. In other words, the assessee's theory of having received gifts from NRIs was disbelieved and it was treated as undisclosed income of the assessee for the purposes of assessment, both under Section 143(3) and under Section 158BC. While doing so, the AO treated the regular assessment under Section 143(3) as a protective assessment because at the relevant time the assessment under Section 158BC was pending and according to the AO, the substantive assessment should be properly made only under Section 158BC in view of the search action under Section 132 and the mandatory nature of the provisions contained in Chapter XIV-B of the IT Act, 1961.
6. Against this background, we proceed to dispose of the appeals now before us. For the sake of convenience, we will take up the Departmental appeal filed for the year 1995-96 i.e., ITA 182/Bang/1999. ITA 182/Bang/1999--Asst. yr. 1995-96 :
7. The grounds of appeal filed by the Department read as under :
(1) "The order of the CIT(A) is opposed to law and facts of the case.
(2) The CIT(A) erred in holding that the income returned in the belated return and the additions made are required to be considered in the block assessments only.
(3) Having held that the income returned in the belated return and the addition made at the time of regular assessment are required to be considered in the block assessment, the CIT(A) has not given a finding to the above effect directing the AO to include such income in the block assessment.
(4) For these and such other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) may be set aside and that of the AO restored.
(5) The appellant craves leave to add, to alter, amend and/or delete any of the grounds on or before the hearing of the appeal."
8. We have heard Shri K. Ramesh and Shri U. Anjaneyalu, the learned Departmental Representatives and Shri Shridhar, the learned counsel for the assessee at length. From the grounds of appeal as reproduced above, it is clear that the Department is aggrieved by the decision of the CIT(A) in directing the AO to delete the additions made to the returned income in the regular assessment framed under Section 143(3) of the IT Act. In other words, the Department is aggrieved by the direction of the CIT(A) to consider these additions only in the block assessment done under Section 158BC of the Act. We find much substance in the grievance of the Department. This is because of the fact that the addition in respect of NRI gifts amounting to 1,51,28,958 has been made not only in the regular assessment under Section 143(3) made on 31st March, 1998, but also in the block assessment under Section 158BC finalised on 28th Aug., 1998. In other words, what has been brought to tax in the block assessment is nothing but what has already been assessed in the regular assessment under Section 143(3) in respect of the same assessee and in respect of the same assessment year. The AO has considered the regular assessment under Section 143(3) as protective in nature whereas the block assessment has been treated by him as substantive assessment. The learned CIT(A) deleted the additions made in the regular assessment and considered that these additions are warranted only in the block assessment.
9. The case laws so far reported on protective assessments indicate that the Department is not precluded from making protective assessment when there is a doubt regarding the assessability of the income either with respect to the assessment year or with respect to the identity of the assessee concerned. In other words, two parallel assessments, one protective and the other substantive, are justified when there is a doubt as to the exact assessment year to which the income relates in the case of the same assessee or when there is a doubt as regards the identity of the assessee to whom such income belongs. However, the case before us is peculiar in the sense that there is no doubt regarding the identity of the assessee or the assessment year to which the income relates. It is strange to note that the AO in spite of having done a regular assessment under Section 143(3) on the basis of evidence available with him at the time of making such assessment, chose to do another assessment in the case of the very same assessee for the very same assessment year, under the block assessment scheme making the very same addition. In other words, the assessee has been subjected to double taxation in respect of the same income for the same assessment year. This is against all canons of jurisprudence relating to taxation laws. Even if it is assumed for argument sake that the AO had any doubt regarding the section under which the assessment was to be framed, even then, he should have regarded the regular assessment under Section 143(3) as substantive assessment and the subsequent assessment made in the block assessment scheme as protective assessment. This would have been in proper consonance with the principle of avoiding double taxation. In a case like this, it is the assessment made at an earlier point of time which has to be considered as substantive and not the assessment done at a later stage especially when no other item of income has been considered for addition in the subsequent assessment.
10. We find that the Department is well justified in filing this appeal against the order of the CIT(A) because, the average effective rate of tax as per the regular assessment comes to 82.88 per cent (including the interest levied). On the other hand, the average rate of tax including interest as per the block assessment comes to 63.6 per cent. In other words, it is more beneficial to the Revenue to consider the regular assessment under Section 143(3) as substantive in nature rather than the block assessment under which the assessee suffers less tax.
11. It is also significant to note that there is no cross-appeal by the assessee nor is there any cross-objection filed by the assessee with respect to the Departmental appeal filed for the asst. yr. 1995-96. The assessee's only objection is with respect to the block assessment made in this case and this objection is being considered by us separately in the assessee's appeal relating to the block assessment as per the discussion infra.
12. In view of the above finding, we hold that the CIT(A) erred in law in deleting the addition made by the AO in the regular assessment made under Section 143(3). In reaching this conclusion, we have taken into account the fact that in the initial statement made during the course of survey under Section 133A, at the business premises of the assessee on 8th Oct., 1996, Shri A.S. Sengoda Gounder in answer to question No. 11 agreed to pay the tax on the income of Rs. 6,94,89,000. Even though the plea of having received the NRI gifts from various persons was made at that time, the assessee was not able to substantiate this plea and the AO, therefore, was well justified in disbelieving the genuineness of the gifts and treating them as unexplained income. In this view of the matter, we uphold the order of the AO framed under Section 143(3) by reversing the order of the CIT(A) to the effect that these disputed items of income have to be considered only in the block assessment under Chapter XIV-B.
13. In the result, the Departmental appeal is allowed for the asst. yr. 1995-96 in the case of late A.S. Sengowda Gounder.
I.T.(SS) A/17/Bang/1999 :
14. This is an appeal filed by the assessee against the block assessment under Section 158BC consisting of the previous years 1986-87 to 1995-96 and the subsequent period from 1st April, 1996, to 20th Feb., 1997 (i.e., the date of search). In other words, the assessment years involved in the block period are 1987-88 to 1996-97 and also the asst. yr. 1997-98 in part. However, in the concluding portion of the block assessment order, the undisclosed income has been included only for the asst. yrs. 1995-96, 1996-97 and 1997-98 as under :
Asst. yr.
Rs.
Rs.
1995-96 NRI gifts 1,51,28,998 Commission, etc. in respect of NRI gifts (as discussed above) 15,12,900 1,66,41,898 1996-97 Excess agrl. income treated as undisclosed income 5,58,500 1997-98
-Do-
5,84,000 Total undisclosed income 1,77,84,398 or 1,77,84,400 Tax thereon at the rate of 60% 1,06,70,640 Interest under s 158BFA(1) of the IT Act for delayed submission of the return on Rs. 1,06,70,640 for three months @ 24% p.a. 6,40,236 Total liability 1,13,10,876 Tax akeady paid Nil Balance payable 1,13,10,876
15. From the above, it is clear that what has been subject to tax in the block assessment is nothing but the NRI gifts of Rs. 1,51,28,998 and the expenses by way of commission for arranging such gifts and also excess agricultural income treated as undisclosed income. As regards NRI gifts, we have also upheld the validity of the regular assessment wherein the same addition of Rs. 1,51,28,998 has been made for the asst. yr. 1995-96 while disposing of the Departmental appeal discussed supra. In the circumstances, for the very same reasoning, we have to hold that the addition in respect of the same item in another proceeding for the same assessment year amounts to double taxation and is, therefore, liable to be cancelled.
16. As regards expenses by way of commission relating, to NRI gifts, we find that this is purely an estimate made by the AO at 10 per cent of the total value of the so-called NRI gifts received and that the CIT(A) has reduced the estimate to 5 per cent. This estimate has been necessitated because there was no seized material or other evidence relating to the transaction of payment of commission to any party. With regard to the excess of agricultural income treated as undisclosed income, we find that there was no seized books of account or other material for arriving at the above computation and this is also a pure estimate by the AO. The CIT(A) while disposing of the appeal relating to the block assessment, has reduced the excess agricultural income to Rs. 2 lakhs for the asst. yr. 1995-96 and to Rs. 3.15 lakhs for the asst. yr. 1996-97 and Rs. 3.30 lakhs for the asst. yr. 1997-98 (vide para 30 of the appellate order). It is significant to note in this connection that the figure of Rs. 2 lakhs is what is treated by the AO under the regular assessment made for the asst. yr. 1995-96. However, for all the years, the fact remains that there was no seized material or books of account in order to support the Revenue's case of estimate of undisclosed income out of what was claimed by the assessee as agricultural income. In the absence of any seized material in support of the estimate made, the addition in respect of excess agricultural income as made in the block assessment is totally unwarranted in view of the definition of undisclosed income as given in Section 158(b) which reads as under :
Section 158(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."
17. From the above discussion, it is crystal clear that all the basic materials for coming to the conclusion with regard to the quantification of income were available to the AO at the time of making the original assessment under Section 143(3) and no fresh evidence was unearthed by the Department in the course of search for arriving at a higher estimate of undisclosed income. In the circumstances, the computation of undisclosed income made in the block assessment framed as per the order dt. 28th Aug., 1998, is liable to be deleted and consequently, the undisclosed income in the case of Shri A.S. Sengoda Gounder within the meaning of Section 158(b) is reduced to Nil, as whatever income was assessable has already been assessed under the regular assessment for the asst. yr. 1995-96 and is assessable in the regular assessment, if any, made or to be made for the asst. yrs. 1996-97 and 1997-98.
18. In the result, the assessee's appeal objecting to the block assessment is allowed.
19. To sum up, the Departmental appeal for the asst. yr. 1995-96 relating to the regular assessment under Section 143(3) is allowed and the assessee's appeal directed against the CIT(A)'s order relating to the block assessment is also allowed.