TMI Blog2018 (5) TMI 439X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of search regarding the undisclosed income. It is relevant that the respondent/assessee in his block return had declared undisclosed income, i.e. unaccounted income, to the tune of ₹ 86.82 lacs. In view of the aforesaid conflict and divergence, having recorded our prima facie reservation on the view expressed on "books of accounts" and more particularly on "oral statement " not being evidence found, we are inclined to refer the question of interpretation of the term “undisclosed income” for the purpose of block assessment to a larger bench to resolve and iron out differences and bestow and bring clarity. While examining the questions, the view expressed in Harjeev Aggarwal (2016 (3) TMI 329 - DELHI HIGH COURT) on whether a statement recorded under Section 132(4) cannot be treated as evidence found during the course of search could be considered and re-appraised. Larger bench could so examine the issue and question whether it would be appropriate and proper, when addition made in block assessment is deleted and knock down for "technical" grounds, for the Tribunal and Court to direct that the addition should have been made in regular/normal assessment in terms of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T was correct in law in deleting an addition of ₹ 51,10,000/- being the undisclosed income although the assessee himself admitted in his statement before the Income Tax Authorities that he had paid money to buy these gifts? 6. With the consent of counsels for the parties, we had reframed the substantial question of law vide order dated 31st October, 2017 to the following effect:- 1. Whether the Income Tax Appellate Tribunal was correct in law in deleting the addition of ₹ 51,00,000/- (Rupees Fifty One Lacs) as undisclosed income and accepting the case of the assessee that he has been able to establish genuineness of the gift? 2, Whether the Income Tax Appellate Tribunal was right in holding that the Assessing Officer could not have added the income of ₹ 51,00,000/- as undisclosed income in the Block assessment proceedings under chapter XIV B of the Income Tax Act, 1961? It was also clarified in the said order that the first question includes the issue whether the decision and reasoning of the tribunal is perverse or not. Substantial questions of law primarily relate to and arise in ITA No.169/2005. Decision in ITA No.895/2008 would be consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 6th January,2000 had again accepted and admitted that the gifts were bogus and had offered the same to be taxed. For clarity, we have subsequently reproduced entirely or relevant portions of the statements on oath made by the respondent/assessee on 25th November, 1999, 29th December, 1999 and 6th January, 2000. 10. Pursuant to notice under Section 158 BC dated 20th November, 2001, the respondent assessee filed block return for the block period on 4th January, 2002 accepting and declaring undisclosed income of ₹ 86,82,110/. 11. During the course of the block assessment proceedings, the respondent/assessee vide letter dated 13th March, 2002 retracted his admission on bogus gifts, asserting that the gift of ₹ 50,00,000/- given to him by Mr. Rama Pati Singhania was genuine and not procured. The gifts were given by way of two cheques dated 8th May, 1999 and 12th May, 1999 of ₹ 25,00,000/- each, drawn on Hong Kong Shanghai Banking Corporation Limited. Mr. Rama Pati Singhania, who was a regular assessee with the Income Tax Department, Kanpur, had sold his residential flat at Bombay for ₹ 2,75,00,000/- for which he had obtained clearance from the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld match the sum total of undisclosed income declared by the respondent/assessee of ₹ 82,82,110/-, arranged gift of ₹ 50,00,000/- in the name of the respondent /assessee, arranged gift of ₹ 10,00,000/- in favour of M/s. Gupta Sons (HUF) and the commission of ₹ 1,81,000/- for arranging the gifts. 15. The Commissioner of Income Tax (Appeals) affirmed the additions made, observing that the respondent /assessee had voluntarily offered the gifts for taxation during the course of search. There was no coercion. The second statement was recorded 40 days after the search in the presence of his counsel. There was corroborative evidence that the said gifts, though paid by cheques, were sham and arranged for as search party had found documents that the respondent/assessee was doing business through benami concerns, which had undisclosed sales turnover of ₹ 26,35,25,144/-, including sales through bank accounts of ₹ 18,80,71,883/. Respondent/assessee with this unaccounted turnover could have bought the gifts as was accepted by him on two occasions. Interestingly, the respondent/assessee to justify the gifts had stated that the gifts may have been made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ambit is limited in that sense to materials unearthed during search. It is in addition to regular assessment already made or to be made. Clause (b) of section 158B contains inclusive definition of undisclosed income and 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.}. If we analyse the aforesaid definition, it provides that undisclosed income includes- (i) Any money, bullion, jewellery or other valuable article or thing or, (ii) any income based on any entry in the books of account or other documents or transactions; (iii) such money, bullion, jewellery, valuable article, thing, entry in the books of account or other documents or transactions represents wholl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to recording Question No. 20, the authorized officer has recorded the title statement taken during the course of search. In fact, the Assessing Officer has referred to the statement as preliminary statement at page 5 of the block assessment order. From these facts, it is amply evident that statement of the assessee admitting the gifts to be non-genuine has been recorded before the commencement of the search and cannot conceivably be construed as a statement u/s 132(4) of the Income-tax Act. The decision of Allahabad High Court in R.R. Gavit Vs. Smt. Sher Banu Hasan Daya 161 ITR 793 support the view taken by us. The statement of admission dated 25.11.99, which is the sole basis adopted by the Assessing Officer for bringing the gifts within the purview of undisclosed income u/s 158BB for the purposes of block assessment cannot thus be treated as evidence found as a result of search. We are, therefore, of the view that the genuineness of the gifts cannot possibly be treated as covered within the limited scope and purview of undisclosed income under the block assessment. On this legal ground alone, the impugned addition of undisclosed income treating the gifts as non-genuine is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in question have been made have been completed after scrutiny in Central Circle, Kanpur by the Officer of the rank of the Joint Commissioner of Income-tax. All such documents were provided to the Assessing Officer during the block assessment proceeding and also form part of the paper book filed before us. Ld. Counsel has drawn our attention to gift deed dated 20th June, 1999 as well as 30th May, 1999 which were executed by the donor as well as the donee and produced during the assessment proceedings before the Assessing Officer. Shri Rampati Singhania has sworn affidavit dated 13.5.1999 and 20.6.1999 much before the search and these affidavits have been filed during the block assessment proceedings and are placed in the first paper book filed before us. From these facts, it is amply evident that the gift transactions are duly disclosed and accounted for in the books of account of the donor as well as the donees. These transactions cannot be considered as secret, hidden or concealed. The surrounding facts and circumstances like routing the transactions through regular banking channels by the donor and the donees and accounting for all the amounts in their respective books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay further be made to the decision of Delhi High Court in S. Arjun Singh Vs. CWT 175 ITR 91, cited by the Id. Counsel where a similar proposition has been laid down. The Punjab Haryana High Court in Kishan Lal s case 88 ITR 293 have taken the same view and observed, it is an established principle of law that a party is entitled to show and prove that admission made by him is in fact not correct and true. Such admission raise a presumption against the persons making the admission but such presumption is rebutable. 36. A very heavy onus lay upon the assessee to refute and controvert the admission made at the time of search operation. In the instant case before us, documents and evidence filed by the assessee during the course of assessment proceedings before the Assessing Officer to which reference has been made hereinbefore by us amply established that the gifts in question have been made by Shri Rampati Singhania, a leading industrialist of Kanpur belonging to J.K. Group and such gifts are evidenced by gift deeds duly executed before the date of the search. Source of the gift, creditworthiness of the donor as well as genuineness of the transactions have been established by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case essential elements as engrained in the definition of gift under the Gift Tax Act. The view taken by us is amply reinforced by the decision of Chandigarh Bench of the Tribunal in the case of R.K. Syal Vs. ACIT 66 TTJ 656 cited by the Id. Counsel . In this decision, the Chandigarh Bench held as under: The gifts made cannot be rejected merely on the ground that there was no occasion or relationship for making the same. The element close relationship or occasion for making gift do not flow from the definition of gift as given in Sec.2 (Xii) of the Gift Tax Act. The conditions laid down there are there should be transfer by one person to another of any existing movable or immovable property, the transfer should be voluntary and should be made without consideration of any money. 39. At this stage, we may also refer to the observations of the Delhi High Court in the case of CIT Vs. Sunita Vacchani 184 ITR 121 as refereed by the Id. Counsel. The Hon ble high Court observed, The Tribunal has examined the evidence which was available on the record and has arrived at the aforesaid findings. Even though it may be surprising as to how large sums of money are received by a fam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Smt. Prabha Aggarwal has a locker in Indian Overseas Bank, Model Town, Delhi. I will be giving the key of locker. Second locker is in name of Sanjay Aggarwal and Monica Aggarwal in Punjab National Bank, Subzi Mandi, Delhi locker No. 933. Q.3 Please give details of your and yours family members immovable properties. Ans. We have following immovable properties: 1. House at 2/34, Roop Nagar, Delhi Anscestral property 2. Godown at Khasra No. 53. Siraspur, Delhi in my name 3. Factory 28 Rajasthan Udyog Nagar,Delhi Delhi Acrylic 4.Factory at Vill.- Bad Malik Sonepat, Haryana. In name of Haryana Acrylic 5. Factory at Village Dhaturi Distt. Sonepat , Haryana In name of Delhi Acrylic 6. Land at Near Vill Bhondsi Gurgaon (One Acre) In my name 7. Plot (200 Sq. Yards) in Narela Housing Scheme In my name There is not other immovable property my name or in name of my fami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor: (1) Manish Aggarwal (2) Sanjay Aggarwal 4. M.S. Marble Granite Co. Pvt. Ltd., 28, Rajasthan Udyog Nagar, Delhi Director: (1) S.S. Garg, Manager (2) Bhupender Nath 5. Acry Monomour Pvt. Ltd. Vill. Dhaturi, Sonepat, Haryana Director: (1) Sanjay Aggarwal (2) Manish Aggarwal Q13 What are your source of income? Ans. Investment in shares of the companies mentioned in answer to the Question no. 12 is the only source of my income. Q.14 Give full details of your family members, age, occupation residence and their source of income. Also state their income tax particulars, if any. Age Occupation Source of income Myself M.S. Aggarwal 2/34, Roop Nagar Age -54 yrs. Business Wife Prabha Aggarwal Age 45 yrs Business Salary from Delhi Acrylic Son Sanjay Aggarwal 31 yrs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Haryana Acrylic Mft. Co. Pvt. Ltd. Canara Bank, 15-A, Opp. Birla Mill, Kamal Nagar 1145 FDRs - There is no FDR in my name or in the name of my family members or business concerns. Investment in shares - Neither my family member nor me have ever invested in shares of any company except our family companies . We have following vehicles:- 1. DL1CF 1695 Esteem Haryana Acrylic s a/c. 2. DL 8C 9495 Opel Delhi Acrylic s a/c. 3. 4738 Zen Mona Acrylic s a/c. 4. 3721 M.V. -- 5. 2658 M.V. -- There is no other investment in my name or in the name of my family member. Q. 16. How much cash jewellery and other valuables are lying in this premises ? Ans. About ₹ 4,00,000/- in cash and jewellery of about 70 tolas is lying in this premises. Q. 17 Do you know M/s. Loe Ram Munshi RamShroff ? Ans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ize and colour of sheet for import. Sale price of sheet varies from ₹ 30 to 50 per Kg. in domestic market depending again on the same parameters. Q.23 Please explain as to what are expenses incurred on the items imported before being sold in market and con sequent profit margin on sale of items. Ans. There is about 85% of the CIF incurred expenses which include 73% as custom duty and 12% misc. expenses. This leaves 15% margin of profit on sale. The break this as follows: CIF / Kg. Rs.14 Duty / Kg. Rs.10 Other Expenses (Transportation etc.) Rs.2 Rs.26 Balance ₹ 4/- per kg. is profit Q.24 Whether same processing are done on the material imported or the same is directly sold. Ans. There is no processing operation done on the material imported. The imported goods are sold after sorting cutting to saleable size whose cost has already included in other expenses mentioned above. Q. 25 What is the total turnover of M/s. Universal Enterprises per year during the last ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f your residence. Ans. The gift deed was delivered to me by Mr. V.K. Goyal after 2 to 3 months of payment of gift. I will produce the gift deed in 2 or 3 days. Q. 32 Please confirm whether any gift deed was singed when the gift was made or it is still to be done. Ans. I remember have received the gift deed from Mr. V.K.Goyal after payment of ₹ 50,00,000/- and 3% commission in cash. Q. 33 Please furnish the latest address of Sh. Vipin Bansal and also clarify whether he is employee in your company / in any other firm owned and controlled by you or your family members. Ans. He is independently handling the affairs of M/s. Universal Enterprises on my behalf. He is signatory in the bank (India Bank Pahar Ganj and Sales Tax Authority. His latest address is not known to me, His previous phone No. was 4638999 latest telephone is also not known to me. Q. 34 Please confirm how much initial investment was made in M/s. Universal Enterprises. Also state by whom this investment was made. Ans. The initial investment of ₹ 10,00,000/- was made by me. Q. 35 Please state the mode and source of above investment Ans. It was cash, generated throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Balance payment is mentioned on the documents. Q. 40 During the course of search proceedings it has been informed by control room that certain papers were found from the premise belonging to M/s. British Scaffolding India Pvt. Ltd. showing certain agreement with M/s. Acry Monomers Pvt. ltd. for the purchase of plant and machinery by your concern initially at a consideration of ₹ 1.20 crores which however, was substantiated later on by another agreement showing sale consideration at ₹ 65 lacs. Please explain how and when the balance consideration was - passed to M/s. British Scaffolding Pvt. Ltd. Ans. The balance consideration of ₹ 55 lacs was paid in cash in the office of Sh. H.R. Shive at 75-76 Manisha, Nehru Place, New Delhi . The cash was received by the cashier of the company. The name of cashier, I do not remember. The amount was paid probably in more than two installments. Q. 41 What factors compelled you to reduce the sale consideration reflected in books of a/cs from ₹ 1.20 crores to ₹ 65 lacs ? Ans. It was the demand of other party and they insisted on receiving the cash. Q.42. Please explain the sources of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coercion. Sd/- 26.11.99 (MS Aggarwal) Sd/- 26.11.99 Pawan K. Kumar IRS Dy. Director of Income tax (Inv) Unit-II, E/2, ARA Centre Jandewalan Extn., New Delhi 110055 W-1 Sd/- W-1 Sd/- 22. Second statement on oath of the respondent/assessee under Section 131 of the Act was recorded on 29th December, 1999, in the presence of Mr. Vinay Kumar Goel, Chartered Accountant. Relevant portion of this statement reads:- Statement of Shri M.S. Aggarwal s/o Sh. M.R Aggarwal R/o 2/34 Roop Nagar New Delhi recorded on oath during the proceedings u/s. 131 of the I.T. Act 1961 on 29.12.1999 at Room No. 267, ARA Centre Jhandewalan Extn. New Delhi in the presence of his AR, Sh. Vinay Kumar Goyal , CA. I hereby under take to state the truth and only truth In the name of God Sd/-29.12.99(3.40pm) (MS Aggarwal) Oath Taken Sd/- 29.12.99 Pawan K. Kumar IRS Dy.Director of Income tax (Inv) Unit-II, E/2, ARA Centre Jandewalan Extn., New Delhi -110055 Oath Administrator Q.1 Please identify yourself. Ans. I am Mahender Singh Aggarwal S/o Sh. Mangat Ram Aggarwal aged 54 years r/o 2/34 Roop Nagar, N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the withdrawals from bank. For example, documents referred entry 9.18 means the payments ₹ 9,18,000/- have been made for import. Similarly on page-2 one entry Capital Plastic 25,000/- is on LHS which means ₹ 25,000/-has been recd from M/s. Capital Plastic. On page -7 LHS there is on entry of Advista 150 it means ₹ 1,50,000 have been received from Advistas 150 it means ₹ 1,50,000 have been received from Advistas. Annexure A-39 This probably relates to the details of payments made for purchases which have not been reflected in my regular books of a/cs and some pages from pages No. 15 onward pertain to M/s. Universal Enterprises which has not filed any return of income so far. The exact details shall be known once my employee who has written it shall came and explain. Annexure A-40, A-42 and A-46 These are relating to the cash transactions which are not reflected in our regular books of accounts. However, some entry may be reflected in our regular books of accounts which I cannot point out at this moment. The LHS (Half page) reflects the receipts and the other half show payments made. Annexure A-41 This diary contains details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of income. Q.17 These plant and machinery are still used by you or has again been re-sold. Ans. The Plant and machinery purchased from BSIL has been installed and being used by M/s. Acry Monomers (I) Pvt. Ltd. Q. 18 Please confirm to whom the cash amount was delivered at the premises of BSIL Ans. It was given to the cashier, whose name I do not remember at the premises of BSIL. Q. 19 Who asked you to deliver the cash to the cashier ? Ans. Once I had gone myself to deliver the cash and I was told by Sh. Neerav Hans S/o. Sh. H.R. Shiv to deliver the cash to their cashier sitting at the same office premise at Nehru Place, New Delhi. Q. 20 How many time the cash was delivered to BSIL for the purchase of machinery? Ans. Probably three times. Q. 21 Who gave the cash from your side on other occasion. Ans. I do not remember the name, perhaps Tarun Kr. My employee would have given the cash. I will tell the name after consulting my staff. Q. 22 Will you and your staff be able to identify the man to whom cash was delivered at BSIL. Ans. It might be possible that my employee who delivered the cash may recognize the person to whom t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above information in three list. Q. 28 What about the details of gifts taken by you which were informed during the course of search? Ans. It was taken from Sh. Rama Pati Singhania r/o Kamla Tower, Kanpur (UP). It was taken in the form of cheque for about ₹ 50 lacs. I have no evidence of the gift I hereby voluntarily offer the same for taxation. Q. 29 When were the cheques deposited in which account how many cheques were received. Ans. It was received in the current financial year, i.e. about six to eight months back. The amount was received in two/three cheques which was duly deposited in my bank account around the same time. I do not remember the particulars of bank account where the same were deposited. It was received probably in my name. I will furnish the exact details in three-four days. Ans. It was received in the current financial year, i.e., about six to eight months back. The amount was received in two/three cheques which was duly deposited in my bank account around the same time. I do not remember the particulars of the particulars of the bank account where they were deposited. It was received probably in my name. I will furnish the exact detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y preferred to accept the truth in the spirit of atonement. 24. The first attempt and retraction came in the letter dated 13th March, 2002 filed by the assessee during the course of the block assessment proceedings. Till then no specific communication was written to retract and withdraw the admission and confession that the gifts were bogus and procured by paying cash. 25. The Tribunal, in our opinion, has incorrectly observed and held that initial and first question and answers on gift, with reference to the statement recorded on 25th November, 1999, were at the preliminary stage and before the search, and question No. 20 onwards form part of the statement recorded during the search. The said finding of the Tribunal is fallacious and unacceptable. It ignores the first portion or the preamble before the statement was recorded, which reads as under: Statement of Shri Mahender Singh Aggarwal s/o Sh. Mangat Ram Aggarwal aged 54 years R/0 2/34 Roop Nagar Delhi recorded on oath during the search and seizure operation u/s 132 of the Income-tax Act, 1961 on 25.11.99 at 2.34 Roop Nagar, Delhi. 26. Clearly questions no. 4 to 11 quoted above and recorded on 25th November, 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the sense that the respondent/assessee had paid cash to procure the gifts from an unrelated person with whom he had no personal relations, love and affection as was admitted by the respondent/assessee in his two statements, before taking a u-turn after two years in 2002. This core issue has been overlooked and ignored by the Tribunal to hold that the gift was genuine. 29. Gift as defined in Section 122 of the Transfer of Property Act means voluntary transfer of existing movable or immovable property made without consideration by the person called donor to another called the donee. Three important and essential characteristics of gifts are that it should be voluntary, it should be without consideration and there should be acceptance by the donee. Expression without consideration was explained and elucidated in Kumari Sonia Bhatia versus State of U.P. and Others, (1981) 2 SCC 585 , which exposition need not be referred to in detail in view of the limited legal issue that arises in the present case, albeit it is beyond cavil that the gift must be voluntary and without consideration . Asokan versus Lakshmikutty and Others, (2007) 13 SCC 210 , reiterates that absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he significant aspects of creditworthiness of donors and genuineness of the transactions were highlighted. The relationship between the donors and the assessee was also examined so as to furnish an acceptable reason or justification for such gift out of natural love and affection. 216. It was emphasised that to examine the genuineness of a gift, the test of human probability was very appropriate. It was reiterated that a gift cannot be accepted as such to be genuine merely because the amount has come by way of cheque or draft through banking channels unless the identity of the donor, his creditworthiness, relationship with the donee and the occasion was proved. Unless the recipient proved the genuineness of the transaction, the same could be very well treated as an accommodation entry of the assessee's own money, which was not disclosed for the purpose of taxation. 217. In all, however, the process undertaken by the Income Tax Authorities under Section 68 of the Act is only to determine as to whether the receipt is an income from undisclosed sources or not and is unrelated to the lawfulness of the sources or of the receipt. Thus, even if a receipt claimed as a gift is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y remorse and atonement to make an admission and confess a wrong. Motive of the person making the admission to gain indulgence, advantage or avoid evil of a temporal nature, cannot be treated as equivalent to inducement, coercion or fraud. Whether a confession is voluntary or induced by force, threat, coercion and wrongful inducement would primarily be one of fact, albeit any judicial verdict and decision on the issue must take all relevant facts and circumstances of the case into consideration and should not be guided by mere pre-ordained impressions. Factors like time of retraction, nature and manner of retraction etc. are relevant. Mere retraction does not make or proves that the admission was obtained by inducement, threat etc. Further, prudence requires that the court would examine the truthfulness and correctness of the admission when admissions are accepted and relied. Corroboration by attending circumstances may be justified.[ See K.T.M.S. Mohd. and Another versus Union of India, (1992) 3 SCC 178, Telstar Travels Private Limited and Others Versus Enforcement Directorate, (2013) 9 SCC 549, Adambhai Sulemanbhai Ajmeri and Others versus State of Gujarat, (2014) 7 SCC 716 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1999 and 6th January, 2000 are trustworthy, true and correct. Finding of the Tribunal on accepting the gift as genuine is contrary to law being perverse and contrary to facts and material on record. Whether addition of ₹ 50 lacs would have been made as undisclosed income in the block assessment order or should have been made in the regular assessment order 35. Chapter XIV-B relating to procedure for assessment in search cases was introduced with effect from 1st July, 1995 by Finance Act, 1995. The provisions of this Chapter have undergone several amendments, including some with retrospective effect from 1st July, 1995 by Finance Act, 2002. This has resulted in confusion and divergent interpretation of provisions of the said Chapter. Initially undisclosed income relating to the block period was taxed at 60% as prescribed under Section 113, with immunity from specified interest and penalty contemplated under Section 158BF on the undisclosed income. This had no bearing on tax, interest and penalty payable on normal/regular assessment, even if pending and when the assessment was subsequent to the search. Legal position underwent a change with enactment of Section 158BFA b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the regular assessment in respect of each previous year included in the block period; (b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period; (c) the income assessed in this Chapter shall not be included in the regular assessment of every previous year included in the block period. (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. (underlined portion was inserted by Finance Act (No.2), 1998 w.r.e.f. 1st July, 1995) xxx 158-BB. Computation of undisclosed income of the block period.-( 1) The un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (f) where an assessment of undisclosed income had been made earlier under clause (c) of Section 158-BC, on the basis of such assessment. Explanation .-For the purposes of determination of undisclosed income,- (a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of this Act without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of Section 32: Provided that in computing deductions under Chapter VI-A for the purposes of the said aggregation, effect shall be given to set off of brought forward losses under Chapter VI or unabsorbed depreciation under subsection (2) of Section 32; (b) of a firm, returned income and total income assessed for each of the previous years falling within the block period shall be income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called: Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the partners, whether on allocation or on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (1) of Section 142, setting forth his total income including the undisclosed income for the block period: Provided that no notice under Section 148 is required to be issued for the purpose of proceeding under this Chapter: Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return; (b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158-BB and the provisions of Section 142, sub-sections (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply; (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. 37. In Commissioner of Income Tax, Delhi-II versus Ravi Kant Jain, [2001] 250 ITR 141 (Delhi), after referring to sub-section (1) to Section 158BA, which starts with a non obstante clause, it was observed that block assessment under Chapter XIV-B was in addition to the regular assessment in respect of each previou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with respect to whether or not the assessee possessed the intention to do the same. To gauge this, however, reliance must be placed on the surrounding facts and circumstances of the case. xxxx 25. Hence, the computation of undisclosed income for the purposes of Chapter XIV-B has to be construed in terms of the total income received, accrued, arisen; or which is deemed to have been received, accrued or arisen in the previous year, and is computed according to the provisions of the Act. According to Section 139(1) of the Act, every person who is assessable under the Act, must file a return declaring his or her total income during the previous year on or before the due date, for assessment under Section 143 of the Act. Hence, the disclosure of income is the disclosure of the total income in a valid return under Section 139, subject to assessment and chargeable to tax under the provisions of the Act. It is important to bear in mind that total income is distinct from the estimated income, upon the basis of which, advance tax is paid by an assessee. Advance tax is based on estimated income, and hence, it cannot result in the disclosure of the total income assessabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Finance Act, 2002, with effect from July 1, 1995, any expense, deduction or disallowance claimed under the Act, which was found to be false was also treated as undisclosed income. An inclusive definition is to be read broadly and in a wide manner and should not be given a restrictive meaning. The expression undisclosed income with effect from July 1, 1995, therefore, would mean and include any false expenditure, deduction or allowance claimed under the Act but was found to be false, or any money, bullion, jewellery, valuable article or thing, that had not been or would not have been disclosed and also included any income based on entry in the books of account or other documents, which had not been disclosed or would not have been disclosed for the purposes of this Act. The crucial and singularly pre-eminent expression used in the said clause is has not been or would not have been disclosed for the purposes of this Act. We shall be subsequently referring to, in detail, the judgment of the Supreme Court in Asst. CIT v. A.R. Enterprises, [2013] 350 ITR 489 (SC); (2013) 3 SCC 196, but suffice at this stage, it is to notice and reproduce the following paragraph from A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have been allowed or claimed. 10. Section 158BA(1) of the Act begins as a non obstante provision giving primacy to the procedure prescribed under Chapter XIV-B of the Act to the exclusion of other provisions of the Act where search was conducted after June 30, 1995, up to May 31, 2003 (see section 158BI of the Act), or books of account or other documents of the assessee had been requisitioned in the aforesaid period. Sub-section (2) stipulates that the rate of tax as specified in section 113 shall apply to income calculated for the block period irrespective of the previous years to which the income relates and irrespective of the fact whether regular assessment for any one or more assessment years was pending or not. Explanation which was inserted by the Finance (No. 2) Act, 1998, with retrospective effect from July 1, 1995, is a cause of some debate, as do the subsequent amendments by the Finance Act, 2002, again with retrospective effect from July 1, 1995. The amendments incorporated by the Finance Act, 2002, reflect the position that there was a greater clarity and understanding, regarding block assessment proceedings when the Finance Act, 2002, was enacted. It reflect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f account or documents as well as other information relatable to such evidence could be taken into consideration for the purpose of undisclosed income for the block period. The income so calculated shall be increased or reduced by the aggregate of total income or loss of the previous years which have been determined where assessment under section 143/144/147 of the Act had concluded prior to the date of commencement of search or date of requisition; but where returns of income have been filed under section 139/142(1)/148 of the Act, then such increase or reduction shall be done on the basis of income disclosed in such returns. Section 158BB(2)(b) of the Act is indicative that the returned income, where assessment had not been concluded or made, the returned income would be treated as disclosed income and any other income on the basis of evidence found during the course of search or requisition of books of account or documents with other evidence relatable to such evidence would be treated as undisclosed income and, accordingly, made the subject matter of the block assessment. The controversy that would remain is whether in view of the said clause (b) where assessments were pending, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as recorded in the books of account and other documents maintained in the normal course where such entries result in computation of loss for any previous year falling in the block period. Sub-clause (B) would only apply in a case where the income, as a result of entries in the books of account and other documents maintained in the normal course on or before the date of search or requisition did not exceed the maximum amount not chargeable to tax. Clause (ca) deals with cases not covered by clause (c), i.e., when no return of income had been filed but income was taxable. Thus, where the due date of filing of return had lapsed but no return had been filed and computation was not at a loss or below the taxable limit, income as per the books of account shall be treated as nil , even if as per the books of account and other documents maintained in the normal course, the income disclosed was above the taxable limit. In such cases, irrespective of the figures in the books of account or documents, income has to be by default, taken as nil . Clause (ca) would apply only when the date of filing of return has expired and return of income has not been filed. 15. Clause (d) would apply t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act for determination of undisclosed income for the block period. While deciding the said issue, the Supreme Court observed that Chapter XIV-B provides for assessment of undisclosed income unearthed as a result of search. These provisions were devised to operate in distinct field of undisclosed income and were in addition to regular assessments covering the previous years, falling in the block period. Block assessment was not intended to be a substitute for regular assessment and was a special procedure intended to provide mode of assessment of undisclosed income done on the basis of evidence found as a result of search, or requisition of books of accounts, or documents and such other material and information as were available with the Assessing Officer. The said decision does not directly relate to the point and question before us. We would simultaneously now deal with the decisions of the Delhi High Court in CIT versus Bluechip Construction Company (P) Ltd., [2007] 213 ITR 530 (Delhi), Commissioner of Income Tax, Delhi-VI versus Ashok Dua, [2009] 177 TAXMAN 494 (Delhi), Commissioner of Income Tax versus Vishal Aggarwal, [2006] 283 ITR 326 (Delhi), Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nearthed evidence. 11. In so far as the present case is concerned, the very first requirement, namely, of non-disclosure of the material does not arise because in fact the assessee had disclosed the transaction in its account books and this is not disputed by the Revenue. Moreover, the sale appears to have been considered by the Assessing Officer during the course of regular assessment, although learned counsel for the parties are not in a position to tell us the exact facts. In any case, since the first condition itself is not satisfied, the falsity of the claim being relatable to that evidence does not arise. Elucidation was that for invoking the provisions of Chapter XIV-B for block assessment procedure, two requirements must be satisfied and the requirements were cumulative. Firstly, there should be material or documents showing that information had not been or would not have been disclosed and secondly that the expense, deduction or allowance should be false on the basis of evidence unearthed as a result of search. We would observe that this decision has to be read in light of the ratio subsequently expounded and explained by the Supreme Court in A.R. Enterprises ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed in the return, the due date for which was subsequent to the date of the search cannot be answered in that manner, and that the burden and a heavy one, was on the Revenue that they had not attempted to discharge. It was held that to negate addition in the block assessment, it was enough if the amount disclosed by the assessee was in the bank account. In Ashok Dua (supra), the assessee had received gifts from non-residents which were credited in the bank accounts. These bank accounts were discovered during the course of search and gift deeds and the affidavits in support of gifts were also found during the course of search. Referring to the case of Vishal Aggarwal (supra), it was observed that these gifts would be outside the purview of Chapter XIV-B of the Act. On the question of undisclosed income we have referred to the judgment of the Supreme Court in A.R. Enterprises (surpa), which should be considered as settling the issue and controversy. Earlier ratio contrary to the dictum in A.R. Enterprises (supra) should be treated as over-ruled and not binding. 43. In Director of Income Tax (Exemption) versus All India Personality Enhancement and Cultural Centre for Schola ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d income. It was held as under: 10. Admittedly, ₹ 41,400 had never been offered for tax and it was never shown as income of the assessee, the entries of these deposits were found in the regular cash books maintained by the assessee. When the entries were found in the books of the assessee, the assessee could not explain the genuineness of the deposits, this amount was never disclosed, it is an undisclosed income of the assessee. The Tribunal has committed an error in holding that as the entries were found in the regular books of account, therefore, it cannot be treated as undisclosed income. 11. The view is contrary to the provisions of Chapter XIV-B of the Income-tax-Act, 1961. In Chapter XIV-B of the Act, special provisions for assessment in search cases have been given and if any amount of income has not been taxed and during the course of search, if some undisclosed income is found on the basis of material seized, that should be treated as undisclosed income as per the scheme of special assessment under the aforesaid Chapter. 44. It has been submitted on behalf of the respondent/assessee that in the present case no evidence was found as a result of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of search could not be treated as another document. Late Shri Raj Pal Bhatia (supra), was a case relating to Section 158BD of the Act which relates to initiation of block assessment proceedings against a third person who has not been subjected to search and seizure operations on the basis that undisclosed income belonging to him or whose books of accounts or other document sheets or assets had been requisitioned. In the context of the said provision, the Division Bench observed that the oral statement would not be covered by the expression seized during the course of search and would not qualify the expression document . However, no final or authoritative opinion was given by the Division Bench on the said aspect as appeal of the Revenue was rejected for the reason of absence of any satisfaction in writing by the Assessing Officer of the searched person, in view of decision of the Supreme Court in Manish Maheshwari versus Assistant Commissioner of Income Tax and Others, (2007) 289 ITR 341 (SC). Thus, Late Shri Raj Pal Bhatia (supra) had not expounded a clear ratio on the aspect as is clear from paragraph 16 of the said judgment, which reads as under:- 16. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only in respect of books of accounts or other documents found during the course of search but also in respect of matters relevant for purposes of any investment connected with any proceedings under the Act. In the context of Section 158BB(1) read with Section 158B(b) of the Act, it was observed that despite the Explanation, oral statement would be relevant and used only if incriminating document or material was found during the search and seizure operation and not by itself as incriminating evidence and gathered during search. Noticeably contrary view has been taken by the Kerala High Court in Commissioner of Income Tax versus M/s Hotel Meriya, [2011] 332 ITR 537 (Kerala) after referring to Section 3 of the Finance Act and Section 131 of the Act. Oral evidence, it was observed, would be admissible for the purpose of block assessment also. Explanation to Section 132(4), it was emphasized, permits recording of statement on oath for all purposes connected with any proceedings under the Act. 48. In the case of Harjeev Agarwal (supra), the question of law was answered in favour of the Revenue and against the assessee in spite of the ratio and observations made in the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext we would have to read and understand the questions and answers given by the respondent /assessee in his statements under Section 132(4) of the Act. Oral statement was and should not be read in isolation, as respondent/assessee at the first and initial stage had accepted that the gift of ₹ 50,00,000/- was not genuine, and was a subterfuge. Oral evidence and documentary material was collected during the course of search regarding the undisclosed income. It is relevant that the respondent/assessee in his block return had declared undisclosed income, i.e. unaccounted income, to the tune of ₹ 86.82 lacs. 51. Given the aforesaid position, and in view of the aforesaid conflict and divergence, having recorded our prima facie reservation on the view expressed on books of accounts and more particularly on oral statement not being evidence found, we are inclined to refer the question of interpretation of the term undisclosed income for the purpose of block assessment to a larger bench to resolve and iron out differences and bestow and bring clarity. While examining the questions, the view expressed in Harjeev Aggarwal (supra) on whether a statement recorded under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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