Jewellery held belonging to 3 wives though purchase bills found in search were in assessee’s name. HC uphelds deletion of undisclosed income u/s 158B(b)
ABCAUS Case Law Citation:
ABCAUS 2141 (2017) (12) HC
The instant appeal was filed by the Income Tax Department (the Revenue/Department) against the order/judgment passed by the Income Tax Appellate Tribunal (ITAT) deleting the additions made by the Assessing Officer (AO) under block assessment.
Important Case Laws Cited/relied upon by the parties:
Smt. Tara Devi Aggarwal vs. CIT reported in (1973) 88 ITR 323 (SC)
Dr. Brijesh Lahoti vs. CIT reported in (2006) 282 ITR 349 (MP)
CIT vs. Calcutta Knitwears reported in (2014) 362 ITR 673 (SC)
Bipin Vimalchand Jain vs. Assistant Director of Income Tax (Investigation) and Others (2008) 305 ITR 304 (Bom)
Dialust vs Deputy CIT (2003) 261 ITR 456 (Bom)
CIT vs E. Sudhir Reddy (2016)67 taxmann.com 177 (Andhra Pradesh)
Hemant Kumar Ghosh vs Assistant CIT (2015) 375 ITR 79 (Patna)
Brief Facts of the Case:
The assessee was operating transport vehicles. A search and seizure operation was conducted by the Revenue in both residential and business premises of the assessee. During the search receipts of purchase of gold ornaments in the name of the assessee on different dates were found but the purchases were not entered in the relevant cash books of the assessee. Accordingly, in the block assessment, inter alia the addition was made in respect of such receipts for purchase of gold ornaments.
The ITAT however deleted the aforesaid addition made.
Aggrieved by the deletion, the Revenue approached the Hon’ble High Court inter alia disputing the deletion made.
The Substantial Questions of Law framed/pressed for determination:
Whether on the facts and in the circumstances of the case the ITAT was justified in deleting the addition for three financial years on account of jewellery holding that the same belonged to the 3 wives of the assessee and relying on the 3 returns filed by the 3 wives under the presumptive Tax Scheme but after the completion of block assessments whereas the purchase bills were in the name of the assessee alone?
Contention made on behalf of the Petitioner Revenue:
It was submitted that the assessee had failed to explain the receipts in respect of the jewellery and the amounts therein were included as undisclosed income under section 158B(b).
It was argued that the assessee had opportunity to explain under the provisions of sub-section (3) of section 158BA and clause (d) in subsection (1) of section 158BB. The Purported explanation of the assessee was that though the receipts were in the assessee’s name they were in respect of jewellery paid by and belonging to his wives. However, such an explanation was not possible under the above provisions.
It was submitted that the amounts mentioned in the receipts, being in the name of the assessee, were not disclosed in the assessee’s accounts or documents and as such were correctly included as undisclosed income in the block assessment under Chapter XIVB of the Act. Though such an explanation might be offered under section 69 but the provisions thereof were only applicable as far as practicable to a block assessment under the Chapter.
It was contended that mere filing of return by the wives of the assessee subsequent to the search did not give sanctity to the income declared by the wives as income earned. Such returns therefore could not be relied upon to rebut the presumption, possible under the Chapter-XIVB, that the receipts being in the name of the assessee, the amounts involved were his undisclosed income.
Contentions made on behalf of the Respondent Assessee:
It was submitted that explanation tendered by the assessee was inherently possible under the provisions of Chapter XIV-B, an obsolete Chapter of the Act. The said Chapter provided for special procedure for assessment of search cases but by itself was not a complete code. Section 158BH made other provisions of the Act applicable to the Chapter. That would include opportunity of being heard as under sub-section(3) of section 142, made expressly applicable by clause(b) in section 158BC. This opportunity cannot be confined to an endeavour to explain in relation to the books of accounts and documents of the assessee himself. The assessee could well seek to demonstrate and explain that in fact the income alleged to be undisclosed is neither income of the assessee nor undisclosed in the hands of another.
The assessee also relied on the proviso under clause (i) in sub-section (1) of section 132B to submit that while the amount of liability determined, on completion of assessment under Chapter XIV-B, could be recovered from seized assets but under the proviso a “person concerned” could make an application for release of such asset. According to him this militates against the interpretation sought to be given by the Revenue that an explanation regarding block assessment pursuant to search is confined to the assessee himself.
Observations made by the High Court:
The Hon’ble High Court observed that the receipts for the jewellery were in the name of the assessee but the explanation offered was that they were partly for re-making and partly for purchase of gold ornaments. According to the assessee the amount paid belonged to his three wives. The assessee being well-known in the locality no shopkeeper would bother to ask the names of the wives while preparing the bills, but the ornaments belonged to his wives as paid for by them.
It was also observed that the wives had filed Form 4A for four financial years under section 115K being special provision for computation of income (presumptive tax scheme) under the Income Tax Act, 1961 (the Act). The statements, inter alia, pertaining to such forms were filed much after the date of search.
The Hon’ble High Court observed that Chapter XIV-B of the Act was a special provision enacted by the Legislature for the purpose of assessments in search cases. The Chapter was introduced with effect from 1st July, 1995 and subsequently made inapplicable in cases of search initiated under section 132 or section 132A after 31st May, 2003, with effect from 1st June, 2003.
The Hon’ble High Court further observed that the Chapter-XIV-B comprises of sections 158B to 158BH. Section 158B provides for the definition of, inter alia, undisclosed income. Sections 158BC and 158BD provide for the procedure for block assessment of the assessee’s undisclosed income. Section 158BD provides for assessment in the case of undisclosed income of any other person. It is clear that the provisions of the Chapter were enacted for the purpose of assessing undisclosed income. It follows that when an assessee seeks to explain a discovery in search as not being his undisclosed income, he necessarily has to prove to the satisfaction of the Assessing Officer that the discovery relates to disclosed income, disclosed by way of record, on or before the date of search or requisition, in the books of accounts or other documents maintained in the normal course relating to the block assessment period.
The Hon’ble High Court opined that the interpretation given by the Madhya Pradesh High Court could not however be relied upon to urge that the explanation contemplated in sub-section (3) of section 158BA would exclude an explanation that the discovery is not the assessee’s income at all. It is only where the discovery relates to the income of the assessee that the provision regarding explanation about such income, for it not to be included in the block period as undisclosed income, comes into play.
A satisfactory explanation regarding a discovery as not being the income of the assessee and further that the sum is disclosed income of another, as in this case, cannot be ignored by the Revenue on the contention that such an explanation is not possible under the Chapter-XIVB.
The Hon’ble High Court expressed concurrence with the submission that the assessee’s opportunity of being heard made expressly applicable by clause (b) in section 158BC and also the reliance placed on the proviso under clause (i) in sub-section (1) of section 132B, in the matter of an application made by a person concerned for release of seized assets.
The Hon’ble High Court observed that the fact that the returns filed by the wives of the assessee were accepted by the Revenue was relied upon by the Tribunal. There was no doubt that such acceptance could have been set aside as erroneous and prejudicial to the interests of Revenue but such was not done.
The Hon’ble High Court found that the Tribunal had accepted the explanation of the assessee that the amounts mentioned in the receipts found, which were in the name of the assessee, related to the disclosed income of his wives. The Hon’ble High Court opined that the view taken by the Tribunal, on the facts and circumstances before it, was a plausible view.
The question framed was answered in the affirmative in favour of the assessee.