TMI Blog2008 (10) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... as conducted. The search was carried on March 27, 2003. On the basis of the materials collected in the course of search, the Assessing Officer has determined the total undisclosed income at Rs. 2,48,49,214. Among other items, two additions made by the assessing authority related to the alleged investment in gold and unexplained loans and investments in various companies. The addition in respect of investment in gold was Rs.4,57,032. The addition on account of unexplained loans and investments was Rs. 2,28,92,182. In the first appeal, the Commissioner of Income-tax (Appeals) has granted partial relief in respect of the addition made against the alleged investment in gold. The addition of Rs. 4,57,032 was made by the assessing authority on the ground that the assessee has not explained the excess gold jewellery of 828 gms found at the time of search. The Commissioner of Income-tax (Appeals) held that the assessee is entitled for a credit of 500 gms and the balance of 328 gms alone could be held as unexplained investment of the assessee. The Commissioner of Income-tax (Appeals) further deleted the addition of Rs. 2,28,92,182 made on account of unexplained loans and investments. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. The companies which have explained the sources as balance in their bank account should also prove how the amounts were introduced in their bank accounts. It is also a case of the Revenue that creditworthiness and genuineness of the transaction have not been proved in the case and therefore, the order of the Commissioner of Income-tax (Appeals) is not sustainable in law. It is also the case of the learned senior Departmental representative that the chain of transactions leading to the credit in the books of account of the assessee is to be seen as a single one and tested applying the provisions of section 68 as transaction between the assessee and the creditors alone cannot be isolated and claimed to be proved on identification of creditors. He further argued that the Commissioner of Income-tax (Appeals) has erred in holding that protective assessment in respect of loans from five companies was not in accordance with law. He submitted that section 158BC does not prohibit protective assessment. He also relied on the decision in Parasmal Dangi alias Parasmall Jain v. Asst. CIT [2006] 100 TTJ (Chennai) 608. He submitted that when the substantive assessment is subjected to appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts are in the nature of undisclosed income in the hands of the impugned assessees is frustrated. Therefore, on the legal ground alone these additions could not have been sustained and in that manner, the Commissioner of Income-tax (Appeals) has passed just and proper order. We heard both sides in detail and considered the disputed issues. At the time of search, 5690 gms of gold jewellery was found and inventorised. The assessee explained that he and his family members held a total quantity of 5878 gms of gold jewellery including the gold jewellery of his married daughter Smt. Manita Kumari Mardia. Smt. Mardia held 1010 gms of gold ornaments. The particulars furnished by the assessee complied with wealth-tax returns filed by the assessee and his family members. Initially, the Assessing Officer found a difference of 2772 gms of gold ornaments. Thereafter he accepted the contention of the assessee in respect of Shri Suresh Chand Bafna (HUF) that his holdings of gold jewellery were reflected in the balance-sheet. After accepting such explanation, the Assessing Officer finally came to a conclusion that there was an excess of gold to the extent of 828 gms. The contention of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the fate of the addition challenged by the Revenue in its appeal becomes only a consequence. The relevant ground raised by the assessee in his cross-objection is reproduced below : "6. For that the Commissioner of Income-tax (Appeals) failed to appreciate that the Assessing Officer having been satisfied that the undisclosed income belongs to the lenders namely, Dhananjeya Securities Ltd., Bifour Financial Services Ltd., Net Axis Software Services Ltd., Parque Foods and Exports Ltd., Mega Channel Computers Ltd., Space Computers and Systems Ltd., Four C Software Ltd., Telesys Software Ltd. and the investor namely IEC Fabchem Ltd. in Osiaji Finance Chennai Ltd. could not have treated the same as the undisclosed income in the hands of the cross-objector." We heard both sides in detail and considered this matter as well. On going through the records of the case, we find that the transactions of loans and investments have already been recorded in the books of account maintained by the assessee in his regular course of business. The particulars regarding the advances and investments have not been searched out by the Department for the first time in the course of search as incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions, whether it is permissible in law to conduct an enquiry regarding the genuineness of those recorded transactions in the course of a block assessment ? The High Court of Madhya Pradesh has considered this legal question in the case of CIT v. GOM Industries Ltd. [2002] 257 ITR 78. In that case considered by the hon'ble High Court, the Tribunal has given a finding of fact that the assessee had recorded the alleged transactions in its books of account and the assessee was under the bona fide belief that the said transactions were genuine. The High Court upholding the order of the Tribunal held that in such cases, all disclosures having already been made before the search action, the Revenue authorities cannot presume a case of undisclosed income. The Delhi High Court in the case of CIT v. Vishal Aggarwal [2006] 283 ITR 326 had considered an analogous case. In that case, no incriminating materials were found in the course of search. But, the Assessing Officer treated the gifts already disclosed by the assessee in its return as undisclosed income. The hon'ble High Court held that in the absence of recovery of any incriminating material in the course of search, the assessing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned block assessment. Therefore, we find that on this legal ground itself the additions made by the assessing authority are not sustainable in law. The Commissioner of Income-tax (Appeals) has considered the issues on the merits and the assessee has raised many more legal contentions in his cross-objection including contention on applicability of section 68, etc. But, all those findings and grounds become academic for the simple reason that the additions made by the assessing authority are not sustainable as those transactions do not come under the purview of Chapter XIV-B. This legal infirmity committed by the Assessing Officer goes to the root of the addition. Therefore, on this ground itself we have to uphold the order of the Commissioner of Income-tax (Appeals) deleting those additions. Once the cross-objection is adjudicated in the above line, the ground raised by the Revenue on this issue of addition of Rs. 2,28,92,182 becomes infructuous and the issue stands decided against the Revenue. As far as the cross objection filed by the assessee is concerned, all other grounds render themselves infructuous. Therefore, in result, the issue of investment in gold jewellery is reman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal ground raised by the assessees in their cross objections needs to be considered first as the said legal ground goes to the root of the case whether the block assessments completed under section 158BD themselves are sustainable in law or not. In this respect, the learned chartered accountant appearing for the assessees placed before us the copies of satisfaction notes recorded by the Assessing Officer to issue notices under section 158BD in these four cases. In these satisfaction notes, it is the contention of the learned chartered accountant that the Assessing Officer himself has stated that all the transactions leading to inference of undisclosed income have already been entered into the regular books of account maintained by these assessees in their regular course of business. He also stated that all these assessees were filing the returns of income on a regular basis and the returns were supported by financial statements including balance-sheets in which the disputed capital accounts have been reflected. He, therefore, contended that once the capital account and related transactions are very much reflected in the books of account of the concerned assessees, what is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady been reflected in the accounts and they did not come to light for the first time when materials were collected in the course of search made in the case of Shri Suresh Chand Bafna. Section 158BD which permits the Assessing Officer to frame a consequential block assessment dealing with undisclosed income of any person other than the person whose case is covered by section 158BC. The law in section 158BD provides that where the Assessing Officer is satisfied that any undisclosed income belongs to any person other than the person with respect to whom search was made under section 132, then accounts and other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that officer shall proceed in accordance with law. Therefore, it is clear that the law has prescribed a satisfaction on the part of the Assessing Officer that any undisclosed income belonging to any other person has been found out in the course of search or requisition proceedings. The Supreme Court in the case of Manish Maheshwari v. Asst. CIT [2007] 289 ITR 341 has held that the conditions precedent for invoking the provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterials collected in the course of search or requisition. Section 158BC is used to proceed on the person who is searched or requisitioned. Section 158BD is used to proceed against the person other than the person who was searched or requisitioned. But, for the above procedural difference, the pith and substance of the condition necessary for making a block assessment is the same under section 158BC and section 158BD. A case of undisclosed income must survive in the light of material found out in the course of search or requisition. The law has statutorily defined, what is "undisclosed income" to mean that the income not disclosed to the Department or would not have been disclosed but for the search or requisition. Therefore, the case of undisclosed income is pari materia the same both in section 158BC and in section 158BD. In these cases, we have already seen that the transactions alleged to be leading to undisclosed income have already been reflected in the books of account of the assessees before the search had taken place. Therefore, it does not come under the purview of section 158B(b). Therefore, it is needless to say that the additions of undisclosed income made by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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