TMI Blog1999 (6) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... ulging to the arguments advanced by the parties, we consider it necessary to refer to the brief facts, as they emerge from the records before us. 3.2. The facts relating to the issue of undisclosed income of Rs. 4,05,840 are that when the appellant was called upon to furnish a return of her undisclosed income by virtue of provision of s. 158BC of the Act, the appellant furnished her return for block period on 6th Feb., 1997. When the appellant was called upon to explain the nature and details of the entries made in document marked as Annexure A-1, the appellant vide her letter dt. 15th Feb., 1997 explained that the entries listed in the documents represented investment in the construction of building named as 'Ved Ashram' and belonging to her husband Dr. B.N. Tripathi. Since appellant's name was appearing against most of the entries in this document, the appellant was asked to show cause as to why the entries against her name should not be considered as having been originated from her and since the amount involved in the building named 'Ved Ashram'. It was proposed that the amount should be taken as appellant's undisclosed investment on account of unexplained investment in the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi, being in service, was not available all the times, he used to give money to the appellant who, in turn, used to pass on the same as and when required to Mr. Pappu. In view of these facts, the appellant's counsel stressed that the money given to Pappu and having been mentioned against appellant's name in the seized documents did not belong to the appellant. According to him, the source of money was Dr. B.N. Tripathi and the appellant had nothing to do with it as far as the onus is concerned. In all these conditions, the assessee's counsel drew our attention to the submissions made before the AO according to which Dr. B.N. Tripathi, while explaining the investment and source thereof in the construction of building 'Ved Ashram' had explained that out of total investment of Rs. 7,41,044 upto October, 1996, the cost of land was Rs. 1,12,660 and the cost of construction was explained as under: Rs. (i) From personal funds. 3,89,859 (ii) Out of funds received against the sale 3,51,185 agreement of house No. 117/48. Pandu Nagar, Kanpur, belonging to the father of Dr. B.N. Tripathi. This amount was stated to have been invested through the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tripathi and his family is residing. Dr. Ved Nath Tripathi is residing in his ancestral house at Unnao. Keeping in view his age, Dr. Ved Nath Tripathi decided to dispose off his house property No. 117/485, Pandu Nagar, Kanpur so as to avoid any future dispute amongst his two sons and one daughter, after his death. He asked his son Dr. B.N. Tripathi, who is residing in this house property, to sell the house to any customer at reasonable price. Sri P.K. Dubey, Advocate of Banda, who is brother-in-law of Dr. B.N. Tripathi, agreed with Dr. B.N. Tripathi to purchase the house property for a total sum of Rs. 7,50,000 sometimes in December, 1991. Since Sri P.K. Dubey was not having ready cash available to make entire payment at once, and also Dr. Ved Nath Tripathi was not in much haste to sell the property, therefore, Dr. B.N. Tripathi allowed Sri P.K. Dubey to make the payment of sale consideration in parts as and when the money is available with him. From 15th Jan., 1992, to 25th Sept., 1994, Sri P.K. Dubey gave Rs. 3,55,000 in cash on different dates which was received by Dr. B.N. Tripathi on his father's behalf. Since during this period Dr. B.N. Tripathi started construction of Ved A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... himself could have handed over the money direct to Mr. Pappu. According to the learned Departmental Representative, Mr. Pappu was not only honest but seems to have been directed by the appellant and Dr. B.N. Tripathi so far as the details in the documents are concerned. Explaining this aspect, the learned Departmental Representative submitted that the appellant and Dr. B.N. Tripathi might have directed Mr. Pappu to keep a record of source funds handed over to him and has not been so, then Mr. Pappu should not have written the name at all. The learned Departmental Representative further submitted that the facts of mentioning of appellant's name and also the name such as "from Ved Pathology" on 29th July, 1993, or such as "from SBI-Ved Pathology" on 22nd Sept., 1993, further goes to show that Mr. Pappu had instructions to record the source from which the money was received by him and, therefore, the appellant cannot plead that the money had not flown from her. Another way of pleading advanced by the learned Departmental Representative was that had the money originated from Dr. B.N. Tripathi, then Mr. Pappu should have written "though Mrs. Usha Tripathi" but since it was not the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aduman Kumar Dubey, Advocate, we have seen the details of money recorded in the background marked as Annexure 1 (datewise) and the acknowledgment receipts issued by Dr. B.N. Tripathi for acknowledging the receipt of money from Mr. Praduman Kumar (datewise) and had found that none of the dates mentioned in Annexure A-1 tallies with the dates on which Dr. B.N. Tripathi had claimed and had acknowledged to have received the money. It is also surprising that the receipts of cash received have been issued by Dr. B.N. Tripathi and not by his father. 5.2. The appellant's plea gets belied from further facts that Dr. B.N. Tripathi has not shown receipt of any money from his father either as gift or as a loan. The details on the liability side or the balance sheet of Dr. B.N. Tripathi as on 31st March, 1997, are as under: Liabilities Rs. Dr. B.N. Tripathi: Capital account 9,56,525.91 Unsecured loan: Shri. H.C. Pant 50,000.00 Shri Kailash Dixit, Durg 50,000.00 Dr. S.N. Awasthi 30,000.00 Shri Rakesh Kumar 15,000.00 Dr. V.N. Tripathi 40,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination of appellant's undisclosed income of Rs. 2,73,283 on the basis of seized documents marked as Annexure A-2. 6.1. The facts relating to the issue are that the total receipts as per seized documents marked as Annexure A-2 were at Rs. 20,73,974 against which the appellant's regular books of accounts showed the receipts of Rs. 9,08,439. The appellant, while furnishing her return of undisclosed income, declared an undisclosed income of Rs. 8,92,252 on the basis of documents Annexure A-2 as per following computation: Rs. Gross receipts as per diary 20,73,974 Less: Expenses incurred as noted in the diary 2,73,283 ---------- 18,00,691 Less: Receipts recorded in the regular ledger 9,08,439 Amount of income not recorded in the regular 8,92,252 account books ---------- 6.2. The appellant's claim of expenses of Rs. 2,73,283 duly recorded in the Annexure A-2, was based on the plea that he had given an incentive/com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eiving small amounts at certain rate. Absence of any evidence in form of any record of rough account to keep tract of these payments also makes the version of the assessee unbelievable. Thus, in view of the foregoing, the difference of receipts recorded in A-2 and regular books shall be taken as undisclosed income. It is believed that Dr. Tripathi and Dr. Saraswat carried these sums on behalf of the assessee. The rest of the expenditure are recorded in the regular books. Thus, a sum of Rs. 11,65,535 is treated as undisclosed income on the basis of Annexures A-2 and A-5 to A-8." 6.3. We have heard the assessee's counsel as well as the learned Departmental Representative who have advanced their respective arguments in the light of the aforesaid facts. 6.4. The appellant's counsel submitted that when the receipts in a document are considered as income, then expenses recorded against those receipts in that very documents should also be considered at its face value and should be allowed as deduction. He further submitted that the assessee's claim of deduction of expenses to the extent of Rs. 2,73,283 has been rejected because no cogent reason has been shown for the same and it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnexure A-2 at Rs. 8,92,252, as declared by the appellant. III. Ground Nos. (xiv), (xv) and (xxi) 8. These grounds are against determination of appellant's undisclosed income as per seized documents marked as Annexure A-3 at Rs. 1,63,395 as against undisclosed income of Rs. 71,415 declared by the appellant. 8.1. This document contains the details of job work and payments collected by various attendants on door to door basis. Out of gross receipts of Rs. 1,75,000 only a few were recorded in the regular books of account maintained for the purpose of income-tax. When called upon to explain the extent of income on the basis of this document, the appellant computed her undisclosed income at Rs. 71,450 as per following details: Rs. "Total investigation receipts from August, 1995 1,75,000 to December, 1995 Less: 25 per cent recorded in regular books 43,750 -------- 1,32,750 Less: Collection charges from August, 1995 61,300 to June, 1996 paid -------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -3 and the expenditure should be taken as per actual, i.e., at Rs. 61,300 recorded in Annexure A-3. The AO is directed to recompute the undisclosed income in view of the above directions. IV. Ground Nos. (xvi) to (xxi): 10. The objection raised by the appellant in these grounds is against the estimation of appellant's undisclosed income on the basis of documents marked as Annexures A-2, A-3, A-5 to A-8 after estimating the undisclosed income for the period of 9 months or so for which there were the details in any of the documents. 11. The facts relating to the issue, as borne out from the record before us, are that the AO had found entries recorded in Annexure A-2 as recorded in Annexure A-3 which in turn were recorded in Annexures A-5 to A-8. On the basis of this fact, the AO formed an opinion that the appellant might be having such income or adopting such procedure for suppressing the actual receipts at least for the period from April, 1996 to December, 1995 also and since the documents found did not contain the entries for this period, the AO further assumed that the documents such as Annexure A-5 to A-8 must have also been maintained for the period April to December, 1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the undisclosed income for whole of the year. In support of this submission, the learned Departmental Representative relied on the decision in the case of CST vs. H.M. Esufali H.M. Abdulali 1973 CTR (SC) 317 : (1973) 90 ITR 271 (SC) whereby estimation of turnover for the purpose of sales-tax, for the whole year, on the basis of undisclosed turnover for a limited period found during survey was held to be justified. In rejoinder, the appellant's counsel submitted that the provisions of Chapter XIV-B are a self contained code and the undisclosed income has to be computed on the basis of documents found and seized during the search and the other provisions of the Act such as provisions of s. 145 which enable the AO to estimate the assessee's income or turnover, as the case may be after taking into account the books of account, are not applicable to the assessments for block period. 13. We have considered the rival submissions, facts and circumstances of the case and the case laws relied on by the parties and are of the opinion that the first issue for our decision is with respect to the applicability of provisions, other than the provisions of Chapter XIV-B of the Act, to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "158BC. Procedure for block assessment.- Where any search has been conducted s. 132 or books of account, other documents or assets are requisitioned under s. 132A, in the case of any person, then, (b) the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in s. 158BB and the provisions of s. 142, sub-ss. (2) and (3) of s. 143 and s. 144 shall, so far as may be, apply." (v) "158BF. Certain interests and penalties not to be levied or imposed.- No interest under the provisions of s. 234A, 234B or 234C or penalty under the provisions of cl. (c) of sub-s. (1) or s. 217 or s.271A or s. 271B shall be levied or imposed upon the assessee in respect of the undisclosed income determined in the block assessment." (vi) "158BH. Application of other provisions of this Act- Save as otherwise provided in this Chapter, all other provisions of this Act shall to assessment made under this Chapter." 13.1. The dissectional analysis of the aforesaid provisions goes to show that (i) "undisclosed income" to be assessed under this Chapter includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry or transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same would not have been disclosed had there been no search. 14.1. As far as the first two eventualities are concerned, there is no difficulty in finding as to whether the income found recorded in the documents or books of account found during the search had been disclosed or not or would have not been disclosed but the difficulty arises only in case where the time/period for furnishing the return under s. 139(1) of the Act has not expired because in that case the Revenue has to prove that the income, though recorded in the documents or books of account found during search, but yet would not have been disclosed. This difficulty, to some extent, gets solved if there are two sets of books of accounts and the entries therein differ because in that situation it can be inferred that the entries related to income in one set are meant for disclosure purpose whereas in the other set are not to be disclosed. 14.2. As far as appellant's case is concerned, since some of the entries, which are in the nature of income, recorded in document Annexure A-3 has not been recorded in the other set of books claimed to be regular books of account by the assessee for the purpose of income-tax, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plea advanced by the present assessee that provisions other than the provisions of Chapter XIV-B cannot be applied for assessment for block period then the whole of such undisclosed income duly recorded in the books/documents found during the search will be considered as undisclosed income, i.e., without giving benefits of deductions under provisions of s. 23 or s. 24 or s. 51 to 54H or s. 16(1) or s. 57(3), s the case may be which is not only unjustified but looks absurd also because the income to be determined under the IT Act is the taxable income as is clear from the provisions of Chapter IV of the Act. Similarly, if the income from all heads is not to be aggregate then in the above exercise the total income (as per present assessee's theory) computed under Chapter XIV-B shall be from other sources and to compute the undisclosed income, deduction of already assessed or returned income, which is only business income, shall have to be allowed. The result again shall be absurd as is evident from the following example: Example Take the case of assessees A and B, both of whom have business income, say, of Rs. 1 lakh and have also earned some amount of capital gain, say, or R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not disclosed any capital gain (case of B) out of capital gain of Rs. 50,000 goes scot free. Was such an intention of the legislature? Or, can provisions be interpreted in this way? We are afraid in assuming either such intention of the legislature or interpreting the provisions in this way. 14.5. In view of above discussion, we are unable to interpret the provisions the way the appellant's counsel has tried because the Hon'ble Supreme Court in case of K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC) has clearly held that an interpretation, which leads to absurdity, must be avoided. The interpretation should be to advance the purpose of the law and not to defeat the same. The Hon'ble Supreme Court in another case, CIT vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC) on the facts of that case, has held as under: "If a strict and literal construction of the statute leads to an absurd result, i.e., a result not intended to the subserved by the object of the legislation ascertained from the scheme of the legislation, than, if another construction is possible apart from the strict literal construction, then, that construction should be prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock period computed, in accordance with the provisions of Chapter N of the Act and reduced by the aggregate of total income already assessed or declared in any pending return and increased by the loss for such previous year, either assessed or declared in pending return. In other words, what the sections prescribe, is the total income to be computed in accordance with the provisions of Chapter IV of the Act and since s. 145 do not fall within Chapter IV, it is deemed to have been excluded from the applicability to the assessment for block period. (iii) Even otherwise, the provisions of s. 145 can be applied only after rejecting the books of account or documents found during the search as unreliable or on the ground that the true income cannot be deducted therefrom and if the books of accounts or the documents found during the search are rejected, then there is no question of any income or undisclosed income on the basis of such books of account or documents which is a prerequisite and only condition for computation of undisclosed income. 14.7. In view of above facts and circumstances, we are of the opinion that so far as the computation of undisclosed income under the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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