9911796707
TMI Blog2003 (2) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 period. But the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 9,500 1994-95 29,124 1995-96 41,116 1996-97 (Upto 19-1-1996) 17,794 ----------- 5,99,405 ----------- ------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above income has been worked out by the Assessing Officer on an estimate basis and not on the basis of exact accounts. 7. As per the statements and details furnished by the assessee, the source of investments made by her in various businesses were availed by way of loans from about 42 persons. She has furnished the details of those persons from whom she availed such loans. According to the Assessing Officer, the genuineness of those loans were not proved and accordingly he treated the entire loan amounts as assessee's undisclosed income. A total of Rs. 75,31,500 is taken as the undisclosed income of the assessee against the loan creditors. The year-wise particulars are as below: ----------------------------------------------------- Assessment year Amount Rs. ----------------------------------------------------- 1991-92 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; Rs. ----------------------------------------------------- 1986-87 3,000 1987-88 3,500 1989-90 4,000 1990-91 42,500 1991-92 4,200 1992-93 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 989-90 12,000 1990-91 17,000 1991-92 17,000 1992-93 34,000 1993-94 34,000 1994-95 34,000 1995-96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; -------- 38,538 -------- ----------------------------------------------------- 11. While considering the undisclosed income for the assessment year 1991-92, the Assessing Officer has rejected the claim of the assessee that 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. ----------------------------------------------------- 1993-94 1,25,000 1994-95 1,25,000 1995-96 1,20,000 1996-97 (Upto 19-1-1996) 96,000 ----------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; -------- ----------------------------------------------------- 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 income; treating the loan amounts as undisclosed income; agricultural share income from M/ s. MBS Granites treated as undisclosed income; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 14,21,854 -- 14,21,854 1994-95 13,44,123 -- 13,44,123 1995-96 21,76,616 -- 21,76,616 1996-97 19,95,644 -- 19,95,644 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ends 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 the contention of the assessee that there is no basis for disallowing the depreciation claim of Rs. 8,750 on Air conditioner on the ground that it was installed in the residential premises of the assessee. It is absolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Assessing Officer is not justified in invoking jurisdiction under section 158BD. (ii) On the parity of reasoning and rationale contained under section 148 of the Income-tax Act, 1961, it is necessary to record reasons under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough 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 provisions of limitations are given, one for 158BC assessment and one for 158BD assessment. In the present case, the notice was served on the assessee on 18-3-1997. The impugned assessment was made through the order passed on 26-3-1998 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Accountant is that whatever assets and income attributed against the assessee had in fact, accepted by the assessee and therefore there is no provocation at all for the Assessing Officer to interconnect the assets and income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndisclosed 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 agreement of Kodaikanal property entered into with Indian Evangelical Lutheran Church Trust Association. The sale consideration stated was Rs. 302 lakhs. The consideration was to be paid within 27 months by instalments. The assessee could s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 furnished the details of investments made by the assessee in landed properties, plot-wise, and also the corresponding sources for making such investments. The learned Chartered Accountant pointed out that the assessee has furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 as undisclosed income in the hands of the assessee and could not be made subject matter of a block assessment. 32. In support of his extensive arguments and contentions, the learned Chartered Accountant relied on the following decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 the assessee was bound to file her returns of income for so many preceding assessment years, but she having failed to file the returns, the department called for certain particulars regarding her assets, properties and sources of income. On app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 dated 15-5-1995 in compliance of the notice issued by the A.D.I., Madurai under section 131 of the Income-tax Act. Disclosing certain details and particulars in compliance of a requisition made by an appropriate authority under section 131 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 present case. In the present case we are examining the intention of the assessee as such. We are examining the effect of the actions of the assessee. Even though induced by a requirement made under section 131 of the Income-tax Act, the fact is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Therefore, it is crystal clear that the assessee has disclosed to the department her commission income from M/s. Bharani Yolkam International. The additional income worked out by the Assessing Officer from M/s. Bharani Yolkam International is purely on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 income including agricultural income, it is not at all exaggerating to claim a reasonable amount of Rs. 60,000 as her opening capital in 1986. The assessee has offered a plausible explanation and the amount of opening capital claimed by the assessee at Rs. 60,000 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is for surrendering that right and relinquishing the possession of the property that the assessee received the damages of Rs. 9,50,000. The right relinquished by the assessee through the out of Court settlement was not a transferable right at all. It was the assessee wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn 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 of other incomes enjoyed by her to the Income-tax Department as early as on 15-5-1995 through her reply to the Asstt. Director of Income-tax, Investigation-II, Madurai, in compliance of his notice under section 131, we have to hold that the Assessing Officer is not justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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