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Commissioner of Income Tax, Chennai Versus Shri. T. Rangroopchand Chordia

2016 (5) TMI 879 - MADRAS HIGH COURT

Addition of undisclosed income on the basis of loose sheets found at the time of search - Held that:- In the light of the definition of the expression 'document' and in the light of admissibility of the said document based upon the statements made by the assessee, the additions made by the assessing officer cannot be found fault with. Though there was a retraction of those statements by the assessee, those retractions were rightly rejected on the appreciation of the return filed on 27.9.2002 whe .....

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red by V. Ramasubramanian, J. ) This appeal is filed by the Revenue under section 260A of the Income Tax Act, 1961. The appeal was admitted on 4.9.2007, on the following two questions of law:- "i) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that addition of undisclosed income cannot be made on the basis of loose sheets found at the time of search on the ground that the sheets did not contain the dates of the transactions and as such do not have any .....

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ions of law raised are narrated as under:- (1) The respondent/assessee is an individual carrying on business of Hire Purchase Finance for Automobiles. He is also having an interest as a Partner or Director or Shareholder in certain Concerns/Firms/Companies, about which, we are not now concerned. (2) A search and seizure operation under section 132 was conducted in the premises of the assessee on 7.6.2000, based on a warrant of authorisation issued in the name of the assessee. The search was actu .....

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turn of income, which he filed, the assessee declared an undisclosed income of ₹ 5,00,000/- for the block period. (6) The officers found that the income of the assessee that was not disclosed included, business income from a property development venture, business income from a Proprietory Concern engaged in finance business, long term capital gains on the sale of property at Poes Garden and bogus creditors appearing in the books of accounts of various family Concerns apart from investments .....

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the order dated 30.9.2002 under section 158BC read with section 143(3) of the Act. Subsequently, an order of rectification was also passed under section 154 about which we are not now concerned. 3. The assessee filed an appeal in I.T.A.No.46/2003-04 before the Commissioner of Income Tax (Appeals). The appellate Commissioner concurred with the findings of the assessing officer and dismissed the appeal holding that the addition of ₹ 58,53,000/- towards undisclosed income was correct and prop .....

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estions and held that the loose sheets, on the basis of which, additions were made, were not of any evidentiary value and that therefore, the addition of the amount of ₹ 58,53,000/- was not proper and correct. Therefore, the Tribunal allowed the appeal of the assessee. Hence, the Department is on appeal before us. 5. Before going into the two questions of law raised for our consideration, we must address ourselves to the preliminary issue raised by Mr.R.Sivaraman, learned counsel appearing .....

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2 was one passed under section 143(3). Therefore, heavy reliance is placed by Mr.R.Sivaraman, the learned counsel appearing for the respondent/assessee, upon the decision of the Delhi High Court in COMMISSIONER OF INCOME TAX v. PAWAN GUPTA (318 ITR 322) and ASSISTANT COMMISSIONER OF INCOME TAX v. HOTEL BLUE MOON (321 ITR 362). 7. We have carefully considered the above submissions. 8. For finding an answer to the above contention, it may be necessary to take note of a few dates and some of the pr .....

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a return of income. 11. Though clauses (b), (c) and (d) of Section 158BC indicate the procedure to be followed by the assessing officer after serving notice under clause (a) of Section 158BC, there is no indication in those clauses as to what the assessing officer should do in case the assessee fails to respond to the notice or responds to the notice beyond the period stipulated therein. Clause (b) of section 158BC, on which reliance is placed upon merely enables the assessing officer to proceed .....

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n 158BC makes a reference to section 158BB, sections 142, 143(2), 143(3), 144 and 145, let us now take a detour to those sections. 13. Section 158BB merely indicates the manner in which the undisclosed income of the block period has to be computed. Therefore, we may skip the same. Section 142 deals with the procedure for making an enquiry before assessment. The procedure prescribed under section 142(1) deals with two types of situations viz., where a person has made a return under section 115WD .....

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under section 142(1). The proviso to clause (i) of sub-section (2) of section 143, inserted by the Finance Act, 2003, with effect from 1.6.2003, states that no notice under this clause shall be served on the assessee on or after the 1st day of June, 2003. Sub-section (2) of section 143 reads as follows:- "(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall,- (i) where he has reason to believe .....

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r the 1st day of June, 2003;" 15. A reading of sub-section (2) of section 143 would reveal that it also applies to a case where a return has been furnished either under section 139(1) or in response to a notice under section 142(1). Thus, section 143(2) also does not cover a situation where no return has been filed. Therefore, a reference under clause (b) of section 158BC to sub-section (2) of section 143 may have to be understood in the context of the fact that both of them do not deal wit .....

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the terms of the notice under section 142(1). The third contingency is one where the assessee, having made a return, failed to comply with all the terms of the notice under section 143(2). 17. Thus, section 144 is the only provision where the assessing officer could have proceeded to have a best judgment assessment upon the failure of the assessee to file a return in response to a notice issued under clause (a)(ii) of section 158BC of the Act. 18. But, if we have a look at the sequence of event .....

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he Department to complete the assessment. It is in such circumstances, that the Department did not choose to pass a best of judgment assessment under section 144. The notice under section 143(2) could not also be issued since it contemplates the adherence of the principles of natural justice, if notice is issued. In other words, a situation has been created by the assessee for the assessing officer, whereby the default on the part of the assessee was to be taken advantage of by him. 20. Keeping .....

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ling of the block return. In other words, if literal meaning to the dictum of the Supreme Court is applied, the notice under section 143(2) could have been issued on or before 27.9.2003. But, that would go against the prescription contained in section 158BC. Therefore, the decision in Hotel Blue Moon has to be read in the context of a person, who filed the return within the time and the Department had slept over the same. The same would apply to the decision of the Delhi High Court in Pawan Gupt .....

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ns, intended to be used, or which may be used, for the purpose of recording that matter." 22. It is relevant to note that this definition is a re-production of the definition of the same expression contained in Section 3(18) of the General Clauses Act. Therefore, it is clear that loose sheets recovered from the premises of the assessee constitute documents within the meaning of the Explanation under sub-section (4) of section 132. Sub-section (4) of Section 132 speaks about the admissibilit .....

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