TMI Blog2017 (3) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... his foreign travel and the estimate of his professional income) which was the suppressed rent, and determined, is twice removed from reality. The error in this kind of assessment was compounded, given that no material relating to such “suppressed rent” was discerned during the search or from the seized materials. Thus, this assessment falls outside the jurisdiction of the AO, since the block assessment conducted is not based on relatable evidence as required under section 158BB(1), but on presumptions made by the AO, as was highlighted in R.M.L. Mehrotra (supra), how an assessment based on search alone that does not attribute material evidence found therein or other information available with the AO relating to such materials cannot constitute block assessment. Receipt of two gifts received by the assessee and the gift to the Assessee’s wife - Held that:- Where an income and assets are disclosed in the books of account and no incriminating material is found during search and seizure, addition in the block assessment is not valid. Therefore, the gifts received by the assessees from Jhanwar Lal Kothari, as well as the gift from Shri R. K. Jatia fell outside the purview of block as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn of Sangeeta Misra; and an addition of ₹ 6,00,000/- allegedly on account of difference in professional receipts and cash in hand. 3. In ITA 423/2004, an addition of ₹ 38,71,507/- was made in respect of a gift to Sangeeta Misra, (the wife of the Assessee in ITA 119/2004, Pinaki Misra), from one Shri R. K. Jatia, a resident of Japan. This gift was in the form of a cheque drawn on Marine Midland Bank, New York for a sum of US$ 1,50,000/- and the same was received by the Assessee s wife in Hong Kong through her attorney Shri N. B. S. Mani. Another addition was made, of an amount of ₹ 25,00,000/-, on account of foreign travel expenses incurred by Ms. Sangeeta Misra. Additionally, on the basis of estimate of income for several years and expenses, the AO added various amounts. The assessees were aggrieved and approached the Income Tax Appellate Tribunal (ITAT). The ITAT s Order dated 08.06.2001 4. Aggrieved by the assessment order passed for the block period, both assessees, preferred appeals before the ITAT, New Delhi. A two-member bench of the ITAT, New Delhi, heard the appeal relating to Mr. Pinaki Misra and announced an order on 8.06.2001. The Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious assessment years and directed the AO to re-compute the addition on account of foreign travel expenses in the various assessment years falling in the block period with a further verification to be made in respect of the actual number of days spent abroad by the Assessee during the said block period. 6. In relation to the aggregate addition of ₹ 18,38,209/- on account of expenses alleged to have been incurred outside the books of account on maintenance etc., the AO stated that the Assessee had shown nominal expenditure on the cars maintained in the various assessment years falling within the block period and it was noticed that the Assessee was maintaining more than one car whose numbers varied/increased from year to year. It was also observed that the Assessee owned imported cars, with high costs on maintenance, staffing, insurance etc. The Assessee contended that the addition was made on assumptions and presumptions, and assessments already completed accepting the car expenses cannot be reviewed since the scope of block assessment under Chapter XIV-B of the Act is limited to items of undisclosed income. The ITAT went on to hold that the estimates made by the AO were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipts in the assessment years 1994-95 to 1997-98. The arguments of the Assessee were twofold, namely, that there was no material found during the course of the search which would show that the professional receipts had been earned and suppressed; and secondly, the additions were based on the past history overlooking the fact that in the assessment year 1994-95 to 1996-97 the Assessee had disclosed professional receipts to the tune of ₹ 3,65,000/-, ₹ 3,25,000/- and ₹ 4,10,000 respectively. It was, therefore, urged that the aggregate addition of ₹ 9,50,000/-be deleted. As against this, the counsel for the Revenue strongly supported the order passed by the AO relying heavily on the fact that the Assessee had not produced his books of account in spite of numerous opportunities allowed and as such, provisions of section 145(2) of the Act were attracted, and the addition was justified. The ITAT went on to hold that there is substantial merit in the arguments advanced on behalf of the Assessee, and allowed the Assessee a relief of ₹ 7,50,000/-. 9. Due to a difference of opinion between the Accountant Member and the Judicial Member, the case was referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of the two gifts aggregating ₹ 90 lacs received from one Shri Jhanwar Lal Kothari was right or the view taken by the J.M. to uphold the addition was the correct one. 10. In the view expressed by the third member, the issue of jurisdiction was underlined: 5. The scope and ambit of block assessment under Chapter XIV-B of the I. T. Act 1961 is a basic and fundamental issue giving jurisdiction to the AO. The issue has come up before the Hon'ble Delhi High Court in the case of CIT Vs. Ravi kant Jain (2001) 250 ITR 141 and it was held that block assessment under Chapter -XIV-B of the I. T. Act 1961 is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. 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 account or documents and such other material or information as are available with the AO. Evidence found as a result of search is clearly relatable to Sec. 132 and 132A of the Act. Similarly the Hon'ble Calcutta High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is provided in the section and 'on the basis of evidence found has to included all evidences found or filed earlier with the Department. Section 158BC has been amended w.e.f. 1-7-95 to include the clause relatable to such evidence . Even before the amendment the Assessing Officer had the power to compute undisclosed income on the basis of materials or information available with him. The use of the word 'are' only means that the materials or information are those which are available with him at the time of passing he block assessment order and not necessarily those found earlier during the search. This is a procedural section and its retrospectively has to be upheld. As regards the first point of reference the division bench has specifically considered the point of jurisdiction and therefore it cannot be reviewed. 12. The President of the ITAT then passed the final order under section 255(4) of the Act on 22.04.2003, and the matter was referred back to the Bench for decision according to the majority opinion. In these circumstances, the ITAT, by its impugned order dated 05-06-2003, allowed the Assessee s appeal. In the second appeal, i.e ITA 423/2004, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out to the ITAT, by the Revenue, but without avail. After the remit for decision on merits, in these circumstances, the order allowing the Assessee s appeals partly was erroneous. 16. Counsel for the Revenue also urged that the issues relating to foreign travel expenses and those towards stay as well as expenses were decided wrongly. It was submitted that these were added due to the statements made by Chandraswamy, who admitted that the Assessee, Mr. Pinaki Misra, had accompanied him on several occasions. Furthermore, the additions made on account of undisclosed income reflected in household expenditure as well as suppressed rent, were warranted in law. Counsel submitted that the explanation provided in regard to the two gifts received by the Assessee s minor sons, of ₹ 45,00,000/- was unconvincing and the AO acted within jurisdiction to bring them to tax for the relevant years. 17. In regard to ITA 423/2004, it was contended that the 15 additions made pertained to estimated professional receipts which the AO decided had not been disclosed, for several years; value of unreported investment in purchase of shares and jewelry and also the gift received from Mr. Jatia, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me disclosed or expenditure incurred, which had been subjected to previous assessments could not have been validly made. 20. Counsel further highlighted that there cannot be any controversy about the Tribunal s power to decide whether the Revenue could re-assess the previous year s returns as that was a matter of law. It was submitted that though five questions were referred for decision, the member who was asked to decide them noticed that the issue of jurisdiction, which went into the root of the matter, was unaddressed. As a member of the Tribunal it was his duty to point this to the other two who had differed with each other on five specific points. If at that stage, the Revenue felt aggrieved, it should have approached this court. That it chose to abide by the ruling of the two members when that specific point was urged meant that the Revenue is now precluded for arguing on that issue. 21. Learned counsel relied on the decision of the Supreme Court, reported as The Assistant Commissioner of Income Tax, Chennai v. A.R. Enterprises (2013 (2) AD (S.C.) 21 ) for the proposition that in the absence of any material seized for any block assessment, or material relatable to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply; (c) the Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment; (d) the assets seized under section 132 or requisitioned under section 132A shall be dealt with in accordance with the provisions of section 132B. 23. The Gujarat High Court had, in an earlier decision, in N.R. Paper Board Ltd. v. DCIT (1998) 234 ITR 733 (Guj) ruled that block assessments and regular assessments deal with different purposes. The aim and objective of block assessments is the assessment of undisclosed income of the block period as a result of search. The objective of a regular or normal assessment is to determine the true total income or loss of the previous year on the basis of the return under section 139 and other documents and decide the Assessee s tax liability. 24. The structure and pattern of Chapter XIV-B as originally enacted w.e.f. 1st July, 1995 and as modified/changed through amendments, from time to time (in the relevant provisions), continues to retain its purpose, in that, a block assessment pertaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the AO subsequent to the conclusion of the search operation unless and until such material has a relationship or connection with certain material or evidence found during the course of search. It was highlighted in CIT v. Ravi Kant Jain (250 ITR 141- Delhi) how the procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. The scope and ambit of a block assessment is limited to materials unearthed during search and 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 account or documents and such other materials or information as are available with the AO. The Bombay High Court in the case of CIT v. Vinod Danchand Ghodawat (247 ITR 448 (Bom.) also held, similarly that where the assessee had made disclosure in their wealth tax return, which was accepted by the Department, additions made by the Department on the ground of undisclosed income was erroneous. 26. A larger, five member bench of the Supreme Court reiterated the distinctness of the procedure between normal assessments and block assessments, with sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prasad More (supra) undoubtedly propounds an important principle of law relating to evidence. Its application however is wherever there is material that can validly be used to complete an assessment (in this case a block assessment). Again, as in the case of Shailendra Mahto, that authority has no applicability for this case. 28. As far as the question regarding the jurisdiction of the third member to doubt the reassessment on the basis that income to be added was not an issue is concerned, this court is of the opinion that such an objection should not be articulated this day and age. It is axiomatic a clich d proposition of law that a statutory authority conferred with quasi judicial powers has undoubted jurisdiction to (a) decide issues concerning its jurisdiction in a particular matter and (b) to apply the correct legal principles. Indeed, to say that a tribunal cannot decide a foundational issue, because of a perceived procedural issue would expose the legal system to insurmountable barriers- the foremost of them being that the litigant would be driven to superior courts each time the issue crops up in the competent tribunal. Hardly any authority is required for this, but di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t standing to the credit of Shri S.K. Chakraborty but the same was reflected in Mr. Misra's balance sheet, his bank account, duly supported by the confirmation of Shri S.K. Chakraborty; and an original amount was accepted in the original proceedings u/s 143(3) according to the assessment order for Assessment Year (hereinafter also referred to as AY ) 1989-90 dated 11.09.1990. In parallel, the AO made an addition of ₹ 5,00,000/- for the AY 1992-93 on account of alleged estimated income incurred from M/s Triad Associates by the Assessee s wife. Further, Shri Chakraborty had confirmed on behalf of the ESPI Industrial Corporation on 23.11.1989 certifying that a sum of ₹ 2,50,000/- was receivable from the Assessee. As such, the AO had made a further addition of ₹ 2,50,000/- on the ground that the said amount given by Shri Chakraborty was not recorded by the Assessee in his books of account. On the point of jurisdiction regarding the addition of ₹ 2,50,000/-, the AO did not come across any material during the course of search and as is clear from the assessment order, the addition of ₹ 2,50,000/- was made on the basis of the statement made subsequent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the lower side as against the figure of ₹ 50,00,000/- as worked out for by the Revenue. What is apparent is that the AO omitted the statement of Chandraswamy that the assessee s expenses were borne by his devotee. Yet, whether the requisition of the passport from the passport office falls squarely within section 158BC, requires examination. The additions made on the foreign trips incurred by Ms. Sangeeta Misra are also to be examined in the same light. 33. In Mahesh Bhatt v. Asstt. Commissioner of Income Tax (2004)87 TTJ (Mumbai) 734 the court highlighted how the Income Tax Act provides additions or disallowances in a block assessment have to be based on evidences found at the time of search and not merely on the basis of presumptions and assumptions by taking inference from the set of material available on record. It was similarly held in Sunder Agencies v DCIT (1997) 63 ITD 245 (Mum) that the scheme of Chapter XIV-B does not empower to the Revenue to presume or draw assumptions in regard to the undisclosed income. The AO can only proceed on the basis of material detected at the time of search and the evidence gathered under section 132(4) only, and not otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, there does not seem to be any observation on the assessee s arguments that no incriminating material had been found at the time of search pertaining to the suppression of professional receipts. The counsel for the Revenue, however, in the course of the present proceedings was unable to pinpoint any material, which had been found during the course of the search vis-a-vis the point at issue, thereby, the aforesaid figures arrived at cannot be brought to tax as undisclosed income in the block assessment, within the meaning of section 158BB(1). Therefore, in the absence of any material found during the course of search, the post search enquiries made by the AO would become futile since this would only be relevant for a regular assessment u/s 143(3) and not in respect of a block assessment. 35. The next item is addition of ₹ 28,70,000/- made by the AO towards suppressed rent. The search took place on 01.11.1996. Further, the property in question i.e. 145, Jor Bagh, New Delhi is owned by a company named M/s. Jupiter Estates Pvt. Ltd. and the assessee along with his family were residing in this property since June, 1989. The tenancy was formally recognized by means of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the affidavit of Shri Kothari dated 30.04.1994 and the gift deed where it was stated that the gifts have been made out of natural love and affection. He also furnished copy of NRE account No. 5010009008 maintained with Sanwa Bank Ltd. in the name of Shri J.L. Kothari from where these gifts have been made. These gifts were duly reflected in this bank account. The assessee (Mr. Misra) also furnished a copy of the letter from Nakomthon Bank dated 26.05.1994 which stated that Shri Kothari was their valued customer and the bank provided credit facilities in the form of over draft, short term loan upto a moderate 7 figures in Baht. The assessment order shows that the addition was made entirely on the basis of the post search enquiries, and as a matter of record, the Assessee had disclosed the gifts in his return for AY 1994-95. Similarly, the gift to Ms. Sangeeta Misra was scrutinized previously in an assessment under section 143(3) of the Act, the receipt of the gift was duly disclosed in the return for AY 1992-93 and the gift had been accepted on scrutiny of the documents and evidence. As such, since the gifts have already been disclosed to the Revenue prior to the search, they cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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