2016 (3) TMI 329 - HC - Income Tax

Cash payments made for purchase of property taxed as undisclosed income - Held that - There was a clear admission on the part of the Assessee that the payment of ₹ 60 lacs were from the sale of undisclosed stock. The statement was reiterated again after the search on 24th February, 1999 and it is difficult to contemplate that the letter dated 5th February, 1999 and the statement recorded on 24th February, 1999, which were much after the search, were not made voluntarily and of free will. In our view, the only inescapable conclusion that can be drawn from the surrounding facts is that the Assessee would not have disclosed the cash payments admittedly made by the Assessee and such payments were his undisclosed income. The Assessee had subsequently claimed that he had paid a sum of ₹ 12.9 lacs in cash which was withdrawn from his proprietorship concern. He further explained that a sum of ₹ 4 lacs had been withdrawn from the bank accounts on 26th November, 1998 and 7th December, 1998. The balance amount was paid out of the sales made in cash. The AO had disbelieved the aforesaid explanation as the withdrawals from the bank was much prior to the date of payment to Sh. Arvind Seth and there was no explanation for withdrawing cash in tranches and keeping the funds idle. In respect of the sales made in cash, the enquiries made by the AO revealed that cash sales of ₹ 6,16,586/- were booked in January 1999 in addition to receipts of ₹ 2,10,854/- described as sales realisation . On enquiries, the AO found that the Assessee had failed to prove the said sales as there was no evidence of availability of stocks for sale and no purchases had been shown for making such sales. Further considering that the returns filed by the Assessee for the block period returned income only in the range of ₹ 18,210/- in the year 1989 to ₹ 77,440/- in the year 1999-2000, the withdrawals claimed by the Assessee were rightly disbelieved by the AO. Similarly, the claim that the Assessee s wife had contributed ₹ 10.15 lacs in cash was also not accepted as no source for such cash could be identified. The AO noted that the Assessee s wife had shown a capital of ₹ 5,57,420/-. For AY 1998-99, she had claimed to have received ₹ 60,000/- as salary and ₹ 32,550/- as petty gifts. During the AY 1999-2000, the Assessee s wife claimed to have income from other sources amounting to ₹ 9,05,000/-. The source of such income was not disclosed and it was the Assessee s case that source of such money was not required to be disclosed. In absence of any satisfactory explanation as to the source of ₹ 14 lacs which was admittedly paid by the Assessee, the same would also be liable to be taxed in his hands. - Decided against assessee

Summary

Issues Involved:

1. Deletion of addition of Rs. 74 lacs as undisclosed income.
2. Applicability of Section 158BB of the Income Tax Act, 1961.
3. Consideration of the genuineness of investment in the hands of the Assessee and related parties.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Rs. 74 lacs as Undisclosed Income:

The Revenue filed an appeal against the ITAT's order, which deleted the addition of Rs. 74 lacs made by the AO as undisclosed income. The AO had contended that the cash payment for purchasing a property was not accounted for in the Assessee's books. The ITAT held that the AO did not make a valid case for treating the investment as undisclosed income for the block period and that such addition should be considered in regular assessment proceedings. The High Court analyzed whether the cash payments could be taxed as undisclosed income based on evidence found during the search, including the Assessee's statements and seized documents. The Court concluded that the statements made by the Assessee, which were corroborated by other evidence, justified the addition of Rs. 74 lacs as undisclosed income.

2. Applicability of Section 158BB of the Income Tax Act, 1961:

The ITAT held that provisions of Section 158BB were not applicable to the facts of the case. The High Court examined the scope of Section 158BB, which deals with the computation of undisclosed income based on evidence found during the search. The Court emphasized that a block assessment under Chapter XIV-B is intended for assessing undisclosed income unearthed during a search. The Court noted that the Assessee's statements, corroborated by seized documents, indicated unaccounted cash transactions, thereby falling within the purview of Section 158BB. Consequently, the Court found that the ITAT erred in holding that Section 158BB was not applicable.

3. Consideration of the Genuineness of Investment in the Hands of the Assessee and Related Parties:

The ITAT had directed that the genuineness of the investment should be considered in the hands of the Assessee, his wife, and the HUF. The High Court scrutinized the Assessee's explanation regarding the sources of cash payments, which included alleged loans from three entities. The Court found that the Assessee failed to produce documents supporting these claims at the material time. The Court also observed that the Assessee's subsequent explanations were inconsistent and appeared to be an afterthought. The Court held that the ITAT failed to address whether the cash payments would have been disclosed, considering the surrounding facts and circumstances. The Court concluded that the Assessee's cash payments were indeed undisclosed income, considering the lack of credible evidence for the sources of funds.

Conclusion:

The High Court allowed the Revenue's appeal, setting aside the ITAT's order. It held that the addition of Rs. 74 lacs as undisclosed income was justified based on the evidence found during the search and the Assessee's statements. The Court emphasized that block assessments under Chapter XIV-B are meant for undisclosed income unearthed during searches and that the Assessee's explanations regarding the sources of funds were not credible. The questions of law were answered in favor of the Revenue, and the Assessee's appeal was dismissed.