Material found in a Survey made simultaneously at a connected person can be used in Block Assessment of an assessee u/s 158BB read with Section 158 BH of the IT Act-Supreme Court
The instant appeal was filed by the Income Tax Department (Revenue) against the judgment passed by the High Court whereby the Division Bench dismissed the appeal filed by the appellant Revenue while upholding the decision passed by the Income Tax Appellate Tribunal (the Tribunal/ITAT) related to block assessment.
ABCAUS Case Law Citation:
ABCAUS 2316 (2018) (05) SC
Important Case Laws Cited/relied upon by the parties:
Assistant Commissioner of Income Tax and Another vs. Hotel Blue Moon (2010) 3 SCC 259
Commissioner of Income Tax vs. G.K. Senniappan 284 ITR 220
Material found in a simultaneous Survey of a connected person-use in Block Assessment
A search was conducted by the officers of the Revenue in the premises of the assessee. On the same date there was a survey in the premises of a limited company (the company) which was the builder and interior decorator who had constructed and decorated the house of the assessee.
The fact that the assessee had engaged the above contractor for construction of the house become known pursuant to the said search. At the same time, from the survey at the company’s premises, the fact of the assessee had paid Rs 95,16,000/- to it in cash was revealed which was not accounted for.
The Assessing Officer, completed the block assessment and, inter alia, held that the said amount is liable to tax as undisclosed income of the block period.
Being aggrieved with the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) who held that it was due to the search action that the Department had found that the assessee had engaged the services of the company. Hence, the order of block assessment was upheld.
The assessee brought the matter before the Tribunal. The Tribunal, set aside the decisions of the Assessing Officer and learned CIT (Appeals). Being aggrieved, the Revenue filed an appeal before the High Court which dismissed the appeal.
The question for consideration was whether the material found in the course of survey in the premises of the builder company could be used in Block Assessment of the assessee? i.e. whether the fact of cash payment can be added under the head of the undisclosed income of the assessee in block assessment?
The Revenue contended that the High Court failed to consider that the information gathered during the search was not limited to appointment of interior decorator but also to information regarding the cash payments made over and above the cheques payments and not accounted by the assessee.
Further, it was also contended that it is the standard practice in the Department that when a search takes place in the case of an assessee, many related business premises are simultaneously covered under survey. Learned senior counsel further contended that though it is called a survey, it is very much part of the search process and the inquiry and investigation is one process. This is to be distinguished from the surveys which are stand-alone surveys, totally unconnected to any search.
The Hon’ble Supreme Court observed that it is a cardinal principle of law that in order to add any income in the block assessment, evidence of such must be found in the course of the search under Section 132 of the Income Tax Act (the Act) or in any proceedings simultaneously conducted in the premises of the assessee, relatives and/or persons who are connected with the assessee and are having transaction/dealings with such assessee.
The Supreme Court noted that admittedly the cost of investment was disclosed in the return filed u/s 158BC by the assessee. The assessee had also disclosed the detail of transaction between the assessee and the company. However, he had not disclosed the payment of cash made to the company.
The Apex Court observed that provisions of section 158BB provides that for the purpose of calculating the undisclosed income of the block period, it can be calculated only on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence. Section 158BB has prescribed the boundary which has to be followed. No departure from this provision is allowed otherwise it may cause prejudice to the assessee. It is the cannon of tax law that it should be interpreted strictly.
However it was noted that the section 158BH makes all other provisions of the Act applicable to assessments made under Chapter XIVB except otherwise provided under this Chapter.
The Hon’ble Supreme Court observed that any material or evidence found/collected in a Survey which has been simultaneously made at the premises of a connected person can be utilized while making the Block Assessment in respect of an assessee under Section 158BB read with Section 158 BH of the IT Act. The same would fall under the words “and such other materials or information as are available with the Assessing Officer and relatable to such evidence” occurring in Section158 BB of the Act.
Accordingly the Supreme Court opined that the Assessing Officer was justified in taking the adverse material collected or found during the survey or any other method while making the Block Assessment.
The Hon’ble Supreme Court set aside the impugned orders and restored the orders passed by the Assessing Officer making the Block Assessment. All the appeals tagged together were allowed.