TMI Blog2003 (2) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... a case of undisclosed income against the assessee. Therefore, he issued notice under section 158BC on 7-3-1997, which was served on the assessee on 18-3-1997. The assessee filed the return in Form No. 2B on 26-5-1997. She admitted an undisclosed income of Rs. 2,31,098 and paid tax of Rs. 1,38,659. 4. Later on the Assessing Officer issued notice under section 143(2) on 29-5-1997 and set in motion the process of assessment of undisclosed income in the case of the assessee. The Assessing Officer found that the assessee is the proprietrix of three business concerns, namely M/s Bharani Yolkam International, M/s Bharani Rea] Estate and Sri Bala Co. M/s. Bharani Yolkam International is doing business as commission agent for M/s The Karur Co-operative Handloom Export Production Project Limited. The said business was said to be commenced from the assessment year 1984-85. The rate of commission entitled for the assessee was 1096. The assessee claimed various expenditure in respect of the said business in the form of salary, rent, electricity and other establishment charges and had shown certain amounts as income from the said concern for all the assessment years included in the block pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,000 1995-96 20,000 1996-97 (Upto 19-1-1996) 16,000 -------- 1,16,000 --------- ----------------------------------------------------- 6. The other concern of the assessee, Sri Bala Co., dealt with a property known as Loch End Compound in Kodaikanal. The assessee had entered into a purchase agreement with Indian Evangelical Lutheran Church Trust Association on 29-4-1991. The assessee had originally invested a sum of Rs. 10 lakhs by way of advance to the Trust for purchase of the property. The assessee also invested Rs. 5 lakhs thereafter. Even though the assessee has taken over the possession of the property, the property could not be registered in her name for a number of litigations. The assessee had spent money to develop the property for running the business of a guest house. She was earning rental income from the assessment year 1993-94 onwards. The assessee did not admit such rental income from the guest house as income, but on the other hand, set off the income against the work in progress for the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------- ----------------------------------------------------- 8. While preparing the cash flow statements for the various assessment years included in the impugned block period, the assessee has taken credit for certain gifts said to be received by her. The Assessing Officer did not accept the genuineness of the gifts and treated the gifts as the undisclosed income of the assessee. The total amount on this point treated as undisclosed income of the assessee is Rs. 1,20,700, as shown below: ----------------------------------------------------- Assessment year Amount Rs. ----------------------------------------------------- 1986-87 3,000 1987-88 3,500 1989-90 4,000 1990-91 42,500 1991-92 4,200 1992-93 7,500 1993-94 15,000 1994-95 11,000 1995-96 28,000 1996-97 (Upto 19-1-1996) 2,000 --------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at she had received a loan of Rs. 2 lakhs from P.C. Palaniswamy of Erode for making investments in Sri Bala Co. and M/s. Bharani Real Estate. This loan amount of Rs. 2 lakhs is also added by the Assessing Authority as undisclosed income. 12. While mentioning about M/s. Bharani Real Estate, we have mentioned that the Assessing Officer has accepted the income as returned by the assessee. Accordingly, he has treated Rs. 1,242 as the undisclosed income of the assessee for the assessment year 1993-94. In the case of the same business, the assessee has claimed a depreciation of Rs. 15,228 for the assessment year 1994-95 in respect of an air conditioner. The Assessing Officer held that the Air Conditioner was installed in assessee's residential house and therefore the same could not be allowed. The said amount of Rs. 15,228 was also treated as the undisclosed income of the assessee. 13. The assessee had sold a plot of land at Karur for a consideration of Rs. 1,80,000. The land was purchased in 1988. The Assessing Officer computed a capital gains of Rs. 1,50,650 against the above transaction and treated the same as the undisclosed income of the assessee for the assessment year 1996-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94 6,000 1994-95 6,000 1995-96 6,000 1996-97 (U pto 19-1-1996) 6,000 -------- 30,375 -------- ----------------------------------------------------- 16. For the assessment year 1996-97 the assessee had shown an opening capital of Rs. 60,000. This was not accepted by the Assessing Officer and the same is treated as the assessee's undisclosed income. 17. A sum of Rs. 32,150 was found in the course of search. Out of the above sum, the Assessing Officer treated Rs. 30,000 as the undisclosed income of the assessee for the assessment year 1996-97. 17A. As seen from the above paragraphs, the Assessing Officer has worked out the undisclosed income in the case of the assessee by estimating commission income; disbelieving the gifts received by the assessee; disallowing the opening capital; treating the cash found in the course of search as undisclosed income; disallowing a portion of the agricultural income returned by the assessee; treating the guest house income as undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us making out the total commission income at Rs. 5,99,405. It is the contention of the assessee that there is no provision in a block assessment to work out undisclosed income on an estimate basis. The assessee also contends that there is a double addition of commission income to the extent of Rs. 38,538, as an equivalent amount has already been stated by the assessee in the cash summary filed before the Assessing Officer. The assessee also objects to the addition of Rs. 1,16,000 against the sale proceeds of thorn trees made by the Assessing Officer. It is the contention of the assessee that the Real Estate business contemplated by the assessee did not commence at that point of time and the assessee was only actually developing the land for future sale. In such circumstances, any income received by way of sale of thorn trees should go to reduce the capital cost of the assessee and therefore the Assessing Officer was not justified in treating the same as the undisclosed income of the assessee. It is the contention of the assessee that the Assessing Officer has erred in relying on the decision of the Hon'ble Supreme Court in Tuticorin Alkali Chemicals Fertilizers Ltd.'s case. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs. 1,50,650 on the sale of property at Karur is absolutely against law, as the land sold in question was agricultural land. Regarding the compensation received at Rs. 9,50,000 and treated by the Assessing Officer as undisclosed income, it is the case of the assessee that it is only a capital receipt in the nature of damage and does not constitute income at all. The assessee also submits that there is no basis for the Assessing Officer to treat Rs. 30,000 as the undisclosed income out of the sum of Rs. 32,150 found in the course of search. 20. All the above contentions raised by the assessee regarding each and every item of addition made by the Assessing Officer are described in ground Nos. 7 to 23 of the grounds of appeal filed by the assessee. 21. In addition to the grounds raised on the merits of the various additions made by the Assessing Officer in the impugned block assessment, the assessee has also raised additional grounds, which are legal grounds in nature. 22. The assessee has raised three additional grounds as follows: (i) There is no proper notice served on the assessee to invoke the jurisdiction under section 158BD. In the absence of a proper notice, the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be served earlier to at least 15 days before the assessment under section 158BC is completed. According to the learned Chartered Accountant, this is a necessary inference to be drawn from the provisions of section 158BC, although for framing the assessments for cases under section 158BD provisions have been made for a different time limit. In this case, no such notice with a period of at least 15 days was served on the assessee from the date in which the corresponding section 158BC assessment should have been completed. In this context, the learned Chartered Accountant relied on the decisions of the Hon'ble Supreme Court reported in Y. Narayana Chetty v. ITO [1959] 35 ITR 388, CIT v. Thayaballi Mulla Jeevaji Kapasi [1967] 66 ITR 147 and CIT v. Kurban Hussain Ibrahimji Mithiborwala [1971] 82 ITR 821. 24. Shri Lav Saxena, the learned Commissioner of Income-tax appearing for the Revenue contended that what is sought to be explained by the learned Chartered Accountant is only a legal gymnastics. The learned Commissioner pointed out that in the scheme of block assessment no time is prescribed for issue of notice. Limitation is provided for completing the assessment. Separate provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 158BC assessment or 158BD assessment. But of course the provisions of law have adhered to the principles of natural justice and require the Assessing Officer to serve a notice on the parties by giving at least a period of 15 days to file the block returns. As the matters are so clear in the scheme of block assessment, we find that the inferential arguments made by the learned Chartered Accountant on the question of issue of notice and assumption of jurisdiction are by and large logical or academic. Accordingly, the first additional and legal ground raised by the assessee that there was no proper notice and there was no proper assumption of jurisdiction is rejected. 26. The second additional and legal ground raised by the assessee is that the Assessing Officer has not recorded the reasons before issue of the notice under section 158BD and if the reasons recorded in the assessment order were to be construed as the reasons so recorded, such reasons are vague and therefore not germane to assume valid jurisdiction under section 158BD of the Income-tax Act, 1961. On this additional ground also, we heard both sides in detail. The contention of Shri Venkatesan, the learned Chartered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er for framing the impugned block assessment were already furnished and informed to the Income-tax Department even before the search action. Therefore, the argument of the assessee is that to that extent there cannot be a case of undisclosed income against the assessee. 28. The learned Chartered Accountant argued on this point at length. He submitted that the Deputy Director of Income-tax (Investigation), Madurai had sent a statutory letter under section 131 of the Income-tax Act to the assessee on 1-3-1995. The assessee was asked to submit the particulars regarding her income-tax and wealth-tax assessments, sources of income, detailed activities carried out under the name "Sri Bala Co." and copies of Bank accounts. The assessee has filed a detailed reply dated 11-3-1995 in response to section 131 letter issued by the D.D.I. Shri Venkatesan submitted that the assessee has furnished all the relevant information sought for by the D.D.I. the assessee has stated in her letter that so far she has not been assessed to Income-tax or Wealth-tax. In respect of the activities of Sri Bala Co., the assessee stated that she has been appointed as a Power Agent pursuant to the sale agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by her in land, M/s. Bharani Yolkam Internationals, Bharani Real Estate, Sri Bala Co., MBS Granites, Sri Krishna Silks, etc. totalling to Rs. 43,30,825. The assessee has also furnished the details of corresponding sources to the extent of Rs. 45,07,425. The sources were in the form of income from Bharani Yolk am Internationals for the period from 1985 to 1995, jewel loans, agricultural income from two acres of agricultural land at Velayuthampalayam during the period 1988 to 1993, loan from Mrs. Dharmambal, proceeds of the sale of thorn trees, guest house receipts from Sri Bala Co. for the period from 1992 to 1995, share of agricultural income from 10 acres of agricultural land owned by the firm M/s. MBS Granites for the period 1992 to 1994, loans availed from business associates through assessee's husband and receipt on account of the sale of land belonging to Bharani Real Estate. The learned Chartered Accountant pointed out that as against a total investment of Rs. 43,30,825, the assessee has explained the source for Rs. 45,07,425 as early as on 15-5-1995, whereas the search was only on 19-1-1996. The learned Chartered Accountant further pointed out that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en furnished by the assessee in this case through her letter dated 15-51995 to the A.D.I., Madurai, in response to his notice under section 131 of the Income-tax Act. The provisions of section 131 of the Income-tax Act gave powers to the Income-tax authorities discovery, production of evidence etc. A requisition made under section 131 is a statutory requisition made by a competent Income-tax authority. Information and details furnished by an assessee in response to such a statutory requisition made under section 131 is for the purposes of this Act and any resultant disclosure made by the assessee in the course of reply to the requisition issued under section 131 is absolutely a disclosure made by the assessee for the purposes of this Act. Therefore, except a few items, all other items considered by the Assessing Officer for the purposes of making the impugned block assessment have already been furnished by the assessee to the competent Income-tax Authority well before the date of search, which amounted to a valid disclosure for the purposes of this Act. Things being so, the income or investments made by the assessee in respect of those materials already disclosed cannot be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee by filing returns of income or wealth. In the present case, the assessee has not filed returns or income or wealth till the date of search carried out in the residential premises of her husband and her co-brother. Therefore, it cannot be held that the assessee has disclosed the particulars regarding assets and properties owned by her and the sources available with the assessee for acquiring those assets and properties and particulars of sources of income to the Income-tax Department. A disclosure becomes a disclosure for the purposes of block assessment only if the assessee had filed returns of income prior to the date of search and initiation of block assessment proceedings. The learned Commissioner submitted that the law has provided opportunities to the assessee for filing the returns of income, as stated in various provisions contained in section 139 of the Income-tax Act. The assessee has not furnished the returns. The assessee might have replied to the queries made by the Asstt. Director, but such compliance made by the assessee cannot be considered as equivalent to disclosure of assets and income made by the assessee. 35. The learned Commissioner submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosed income" in section 158B(b), which is reproduced in paragraph 30 above, makes the point clear, inasmuch as that income or property, which has not been disclosed for the purposes of this Act, or income or property which would not have been disclosed for the purposes of this Act. 37. Disclosed for the purposes of this Act definitely means, disclosed for the purposes required by the various provisions contained in the Income-tax Act, 1961. Disclosed for the purposes of the Income-tax Act, 1961 does not mean, disclosed for the purposes of making an assessment alone. There is no such a restriction given in the definition of "undisclosed income", so as to presume that particulars furnished by an assessee through filing a return of income alone constitute disclosing the particulars for the purposes of this Act. The assessee might be furnishing details and particulars regarding his property and income in compliance of the requirements made by appropriate authorities invoking different provisions of the Income-tax Act, 1961. In the present case, the assessee has furnished the details regarding her business, investments in such businesses, sources of income etc. Through her letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontemplation that the Hon'ble Court held that payment of advance tax itself does not establish an intend to disclose the income. The Hon'ble Court was in fact examining the difficult question of finding out the intention of the petitioner in that case. The petitioner was searched. He was taking shelter under the defence that he had paid advance tax. It was in that circumstance the Hon'ble Court held that the disclosure is to be made by filing the return. That observation of the Hon'ble Court cannot be disassociated from the intimate factual matrix of that case. The observation of the Hon'ble Court that the disclosure is to be made by filing the return is not a ratio laid down by the Hon'ble Court, but a supporting observation made by the Court in examining the real intention of the petitioner. Therefore, we do not think that the Hon'ble High Court of Madras has interpreted the expression "undisclosed income" in the said case by exposing the meaning of "disclosed for the purposes of this Act" 39. Therefore, we are afraid that the decision of the Hon'ble High Court of Madras in B. Noorsingh's case relied on by the learned Commissioner may not be applicable to the facts of the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sources included income from M/s. Bharani Yolkam Internationals by way of commission, jewel loans, agricultural income, loan from Mrs. Dharmambal, income from sale of thorn trees, guest house income from Kodaikanal property belonging to Sri Bala Co., share in the agricultural income of 10 acres of land owned by MBS Granites, loans from business associates collected through assessee's husband, receipt on account of sale of land in the account of Bharani Real Estate, etc. etc. She has furnished the details of lands situated at various places in Trichy, Tanjore, Karur, Velayudhampalayam, etc. The assessee has furnished the details of the partners of the firm in which the assessee is also a partner. She has filed the details of commission receipts and income estimated therefrom. The assessee has furnished the names and addresses of all loan creditors. She has provided the details of jewellery loan availed by her during the relevant period. 42. The various items of undisclosed income worked out by the Assessing Officer obviously related to the various investments and sources thereof as explained by the assessee; stated in the above paragraphs, through her letter dated 15-5-1995. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. On a detailed examination of the particulars furnished by the assessee through her letter dated 15-5-1995 and the items of undisclosed income considered by the Assessing Officer in the impugned block assessment, what we find is that almost all the items considered by the Assessing Officer have been already covered by the letter dated 15-5-1995. Therefore, they come out of the purview of undisclosed income. 46. Following are the only items which do not find a place in assessee's letter dated 15-5-1995: 1. Opening capital of Rs. 60,000. 2. Cash found at the time of search Rs. 32,150 3. Gifts from relatives Rs. 1,20,700 4. Interest added under section 64 Rs. 30,375 5. Compensation received from Dr. Suriya Sekhar Rs. 9,50,000. 47. Let us examine whether the above listed items could be considered as undisclosed income or not. 48. The opening capital of Rs. 60,000 claimed by the assessee in her cash flow statements filed before the Assessing Officer has been disbelieved by the Assessing Officer and treated as undisclosed income. The assessee coming from such an affluent family and having her own properties and businesses at different places and different sources of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto an agreement with Dr. Suriya Sekhar, the owner of the property, that she would buy the property. But the agreement could not be carried out to its logical conclusion. The contract could not be performed. Therefore, the assessee approached the Civil Court for relief of specific performance. While the suit was so pending before the competent Civil Court, the parties reached into an out of Court settlement. As per the details produced before us, this out of Court settlement has been endorsed by the Civil Court and a consequential decree was pronounced. The assessee received a sum of Rs. 9,50,000 as compensation from Dr. Suriya Sekhar for relieving the property and also for the breach of contract committed by Dr. Suriya Sekhar. The Assessing Officer treated the amount was the undisclosed income of the assessee even without accepting the contention of the assessee that she had already spent Rs. 4 lakhs for the renovation of the building. 53. It is a fact that the assessee received the sum of Rs. 9,50,000 by way of damages as a result of the out of court settlement arrived at between the parties. The assessee surrendered her right to fight for specific performance in the Court. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived the compensation only during the previous year relevant to the assessment year 1996-97. The search was on 19-1-1996. The time for filing the return of income for the assessment year 1996-97 was not expired at the time of search. The assessee had time to file the return till 31-3-1996; whereas the search was on 19-1-1996. The fact that the assessee was residing in the said property and there was a suit pending before the Civil Court in respect of the agreement of sale of that property were already brought to the notice of the Department through the letter filed by the assessee to the A.D.I., Madurai. When this matter is already informed to the department and the time for filing of the return has not been expired, there is no basis to presume that the assessee would not have disclosed the receipt of damages of Rs. 9,50,000 to the department. On this ground also, the receipt of Rs. 9,50,000 does not fit into the definition of undisclosed income provided in section 158B(b). 55. We have considered all the aspects of the case, both on law and on facts. The assessee having furnished all the information particulars and details regarding her investments, sources thereof and nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
