TMI Blog2016 (3) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... disbelieved the aforesaid explanation as the withdrawals from the bank was much prior to the date of payment to Sh. Arvind Seth and there was no explanation for withdrawing cash in tranches and keeping the funds idle. In respect of the sales made in cash, the enquiries made by the AO revealed that cash sales of ₹ 6,16,586/- were booked in January 1999 in addition to receipts of ₹ 2,10,854/- described as 'sales realisation'. On enquiries, the AO found that the Assessee had failed to prove the said sales as there was no evidence of availability of stocks for sale and no purchases had been shown for making such sales. Further considering that the returns filed by the Assessee for the block period returned income only in the range of ₹ 18,210/- in the year 1989 to ₹ 77,440/- in the year 1999-2000, the withdrawals claimed by the Assessee were rightly disbelieved by the AO. Similarly, the claim that the Assessee's wife had contributed ₹ 10.15 lacs in cash was also not accepted as no source for such cash could be identified. The AO noted that the Assessee's wife had shown a capital of ₹ 5,57,420/-. For AY 1998-99, she had claimed to have received ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74 lacs paid by the Assessee in cash for the purchase of property bearing No.C-104, Naraina Vihar, Delhi? 2. Whether the Income Tax Appellate Tribunal was correct in law in holding that the provisions of Section 158 BB of the Income Tax Act, 1961 were not applicable to the facts of the case? 3. Whether the Income Tax Appellate Tribunal was correct in law in holding that the genuineness of the investment made for the purchase of property bearing No.C-104, Naraina Vihar, Delhi was to be considered in the hands of the Assessee, Smt. Anita Aggarwal and Harjeev Aggarwal and Sons, HUF? 4. Briefly stated, the facts relating to the present case are as under:- 4.1 A search was conducted on 01.02.1999 on the premises of one Mr Arvind Seth, a Non-resident Indian, pursuant to a specific information received from the investigation wing that the property bearing No. C 104, Naraina Vihar, Delhi owned by Mr Arvind Seth, was being sold for ₹ 86 lacs out of which only ₹ 12 lacs were paid by cheque and the balance was payable in cash. The said search resulted in recovery of ₹ 42.50 lacs and US $30000 from Mr Arvind Seth of N-29, Green Park, New Delhi. A copy of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aggarwal (his wife) and Harjeev Aggarwal Sons HUF (hereafter the HUF ) for a sum of ₹ 86 lacs from Mr Arvind Seth out of which ₹ 74 lacs was paid in cash and ₹ 12 lacs was yet to be paid. He further stated that out of ₹ 74 lacs, ₹ 14 lacs was paid out of cash in hand accumulated over a period of time in their personal as well as the firm s account and the balance amount of ₹ 60 lacs was paid out of sale proceeds of unaccounted stock sold in cash in the market. 4.6 The Assessee was again examined under Section 131 of the Act on 24.02.1999, and he affirmed the submission furnished by him on 05.02.1999 in the following words: As I have submitted in my submission dated 5.2.99 the amount of ₹ 60 lacs as I have already submitted. It represents unaccounted money belonging to me And I shall pay tax on it at the appropriate time. 4.7 Thereafter, the Assessee sent a letter dated 16.04.1999, now stating that the amount paid by him was from tax reflected sources, borrowing and advances against future commitments. The authorised representative of the Assessee also furnished a letter dated 28.06.1999, explaining the sources of the funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. In addition, the cash of ₹ 1,00,600/- found at the residence of the Assessee - which was claimed by the Assessee as belonging to his mother and was not seized during the search - was also included as the Assessee's undisclosed income. 6. The Assessee appealed against the block assessment order before the CIT(A), who before deciding the appeal, sought a remand report from the AO. After considering the contentions advanced by the Assessee as well as the remand report, the CIT(A) upheld the addition of ₹ 74 lacs but deleted the addition of ₹ 12 lacs which were paid by the Assessee by way of cheques since these cheques were not en-cashed. 7. Aggrieved by this appellate order, both the Assessee as well as the revenue filed appeals before the ITAT. The Assessee challenged the addition of ₹ 74 lacs while the revenue challenged the deletion of ₹ 12 lacs. The ITAT deleted the addition of ₹ 74 lacs holding that the Assessing Officer did not make out any valid case for treating the investment as the undisclosed income of the Assessee for the block assessment. The ITAT further held that even if there is any doubt about the genuineness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as is available with the AO. He argued that in the present case, the conditions under Section 158BB(1) for taxing the payments in question were duly fulfilled; first of all, for the reason that the Assessee was examined under Section 132(4) of the Act and by virtue of the said provision, his statement could be used in evidence in any proceedings under the Act; and secondly, the search conducted on the premises of Mr Arvind Seth had unearthed various incriminating documents that evidenced cash payments from the Assessee. Thus, a block assessment could be made in the case of the Assessee based on such incriminating material. 10.3 Mr Singh further submitted that the Assessee, in his statement recorded on 24th February, 1999, had reiterated his admission that ₹ 60 lacs represented unaccounted money on which the Assessee would pay the requisite tax. He submitted that in this view the Assessee's subsequent assertion that he and his wife had borrowed funds from three independent entities against back to back sale arrangements was clearly an afterthought and the ITAT had erred in not rejecting the same. 11. Mr Salil Aggarwal, learned counsel for the Assessee submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the block period and are only in respect of undisclosed income which are not included in the regular assessments. 14. At the outset, it is necessary to refer to Section 158B(b) of the Act, which defines undisclosed income ; the said clause reads as under: (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 15. As is apparent from the plain language of the above definition, undisclosed income includes not only the income that is not disclosed but also which would not be disclosed. Section 158BB of the Act provides for computation of undisclosed income. The opening words of the said section are relevant and read as under: 158BB. (1) The undisclosed income of the block period shall be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the undisclosed income of the block period has to be determined or computed on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence . This Court in Ravi Kant Jain (supra), as indicated above, has already observed that the procedure of assessment under Chapter XIV-B is a special procedure intended to provide a mode of assessment of undisclosed income which has been detected as a result of search. The procedure under Chapter XIV-B is not intended as a substitute to regular assessment and its scope and ambit is limited in that sense to materials unearthed during the search. As pointed out in Ravi Kant Jain (supra), 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 accounts or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence. It is, therefore, clear that the undisclosed income, which is to be determined under Chapter XIV-B, has to be determined on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of Section 132(4) of the Act are read in the context of Section 158BB(1) read with Section 158B(b) of the Act, it is at once clear that a statement recorded under Section 132(4) of the Act can be used in evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an Assessee has to be computed on the basis of evidence and material found during search. The statement recorded under Section 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be based on the statement recorded. 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the aforesaid interpretation of Section 132(4) of the Act must be read with the explanation to Section 132(4) of the Act which expressly provides that the scope of examination under Section 132(4) of the Act is not limited only to the books of accounts or other assets or material found during the search. However, in the context of Section 158BB(1) of the Act which expressly restricts the computation of undisclosed income to the evidence found during search, the statement recorded under Section 132(4) of the Act can form a basis for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment. 24. If the Revenue's contention that the block assessment can be framed only on the basis of a statement recorded under Section 132(4) is accepted, it would result in ignoring an important check on the power of the AO and would expose assessees to arbitrary assessments based only on the statements, which we are conscious are sometimes extracted by exerting undue influence or by coercion. Sometimes statements are recorded by officers in circumstances which can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 158BC of the Act. 26. It is next to be examined whether the Assessee s communication dated 5th February, 1999 and his statement recorded under Section 131 of the Act is the sole basis for making the block assessment or whether the AO had other incriminating material which would justify assessing ₹ 74 lacs as undisclosed income under Section 158BC of the Act. 27. A perusal of the assessment order indicates that on 2nd February 1999, a diary containing certain notings of purchases and sales that were not recorded in the books of accounts was also unearthed during search conducted on the Assessee. The Assessee had himself declared that ₹ 89,400/- was the profit in respect of unaccounted sales and purchases that were recorded in that diary. It is further relevant to note that the Assessee carried on business as a sole proprietor of a concern named M/s Machine Tools and Hardware Store. During the search, certain books of account were also seized. The Assessee had on 5th February, 1999, immediately after the search stated that ₹ 60 lacs paid for purchase of the property in question was paid out of unaccounted stocks sold in cash. Subsequently, in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XXXX XXXX XXXX XXXX (3) Where the assessee proves to the satisfaction of the Assessing Officer that any part of income referred to in sub-section (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 for any previous year has not expired, and such income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period. 30. A plain reading of sub-section (3) of Section 158BA of the Act indicates that the Assessee can prove to the satisfaction of the AO that the income under sub-section (1) of Section 158BA (undisclosed income) relates to the previous year that has not expired that is, the year in which search is conducted - and such income or transactions are recorded in the books of accounts and other documents maintained in the normal course before the date of the search. 31. Concededly, in the present case, the Assessee has been unable to show that the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had concluded that the cash paid by the Assessee was undisclosed income. The ITAT has accepted that since the cash has been duly accounted for and disclosed in the returns filed by the Assessee subsequently, the same cannot be considered as undisclosed income. The ITAT has further proceeded on the basis that since there was no allegation of any nexus between the Assessee and the three entities, M/s Penguin Chits Pvt. Ltd., M/s Parmeshwar Chits Pvt. Ltd. and M/s Jai Associates, who were stated to have provided the cash, the AO could not treat the cash provided by the said entities as undisclosed income of the Assessee. The ITAT was of the view that if the genuineness of deposits made as disclosed by the said entities could not be verified, the same would have to be taxed in those entities. 34. In our view, the ITAT has erred in not examining or not interpreting the scope of 'undisclosed income' as defined under Section 158B(b) of the Act. By virtue of Section 158B of the Act, undisclosed income not only includes income or property which has not been disclosed but also income which would not have been disclosed for the purposes of the Act. The Supreme Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments have been made in cash and there is no explanation as to why such large payments were required to be made in cash. Secondly, such cash payments were not recorded by the Assessee in its books or any record maintained by it at the time of search. Thirdly, the Assessee had admitted by a letter sent immediately after the search as well as in a statement recorded under section 131 of the Act that the source of ₹ 60 lacs cash payments was sale of unaccounted stock. Fourthly, the fact that the Assessee carried on transactions outside his books of accounts is also not disputed. The additions made by the AO with regard to unaccounted transactions recorded in the diary have been sustained and the Assessee has not appealed against the decision of the ITAT in that respect. Fifthly, although the Assessee now claimed that there were back to back agreements with three unrelated entities for sale of the property in question, no such documents were produced at the material time. There is also no explanation as to why such documents could not have been produced at the relevant time. 36. As noticed earlier, there was a clear admission on the part of the Assessee that the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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