2018 (5) TMI 439 - HC - Income Tax

Genuineness of the gift - Addition undisclosed income - assessee himself admitted in his statement before the Income Tax Authorities that he had paid money to buy these gifts - voluntary transfer of existing movable or immovable property made without consideration by the person called donor to another called the donee - regular/normal assessment in terms of sub-section (6) to Section 153 - Held that - In the present case, Revenue would submit that papers and documents were found, which indicated that the assessee had not disclosed income from six benami concerns. Books of account would also include the pass-books or statement of bank accounts. It is in this context we would have to read and understand the questions and answers given by the respondent /assessee in his statements under Section 132(4). 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. 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 sub-section (6) to Section 153 of the Act. The appeals would be accordingly placed before Hon ble the Acting Chief Justice for being referred to a Larger Bench for deciding the issues and questions hereinbefore noticed. The questions of law can be thereafter answered by the Larger Bench or on the basis of opinion given and expressed by the Larger Bench, on the appeals being listed before the roster Bench.

Summary

Issues Involved:
1. Whether the Income Tax Appellate Tribunal (ITAT) was correct in law in deleting the addition of ?51,00,000/- as undisclosed income and accepting the case of the assessee that he has been able to establish the genuineness of the gift.
2. Whether the ITAT 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.
3. Whether ITAT was correct in law in deleting the penalty imposed by the Assessing Officer under section 158 BFA(2) of the Act.

Detailed Analysis:

Issue 1: Genuineness of the Gift
- Facts and Admissions: During the search operations, the respondent/assessee admitted to having received gifts of ?50,00,000/- and ?10,00,000/- from Mr. Kamlapati Singhania, which were arranged by his Chartered Accountant, Mr. V.K. Goel, to whom the respondent/assessee had paid ?60,00,000/- in cash. The respondent/assessee admitted that these gifts were bogus in his statements recorded on 25th November 1999, 29th December 1999, and 6th January 2000.
- Tribunal's Decision: The Tribunal deleted the addition of ?61,80,000/- (including ?50,00,000/- as gift and ?1,80,000/- as commission) on the grounds that no evidence was found during the search to impeach the genuineness of the gifts and that the gifts were disclosed in the books of accounts of the donor and donee.
- High Court's Analysis: The High Court found that the Tribunal had overlooked the core issue of whether the gifts were arranged and bogus, as admitted by the respondent/assessee in his statements. The Court emphasized that a genuine gift must be voluntary and without consideration, which was not the case here as the respondent/assessee had admitted to paying cash to procure the gifts. The Court concluded that the gift of ?50,00,000/- was procured and not genuine, and the Tribunal's finding was perverse and contrary to facts and material on record.

Issue 2: Addition in Block Assessment
- Legal Provisions: The Court examined the provisions of Chapter XIV-B, including the definition of "undisclosed income" under Section 158B(b) and the computation of undisclosed income under Section 158BB.
- Tribunal's Decision: The Tribunal held that the addition of ?61,80,000/- could not be made in the block assessment as it was not based on evidence found during the search.
- High Court's Analysis: The Court referred to the Supreme Court's decision in A.R. Enterprises, which clarified that undisclosed income includes income that "has not been or would not have been disclosed for the purposes of the Act." The Court noted that the respondent/assessee had never intended to disclose the ?50,00,000/- as taxable income and had not done so in the block return. The Court concluded that the addition of ?50,00,000/- was rightly made in the block assessment as it constituted undisclosed income.

Issue 3: Deletion of Penalty
- Tribunal's Decision: The Tribunal deleted the penalty imposed under Section 158 BFA(2) on the grounds that the additions made in the block assessment were set aside.
- High Court's Analysis: The Court noted that the decision on the penalty was consequential to the decision on the addition of ?50,00,000/- as undisclosed income. Since the addition was upheld, the penalty imposed by the Assessing Officer was also justified.

Conclusion:
The High Court concluded that the ITAT was incorrect in deleting the addition of ?50,00,000/- as undisclosed income and in holding that the Assessing Officer could not have added this income in the block assessment. The Court also upheld the penalty imposed under Section 158 BFA(2). The Tribunal's decision was found to be perverse and contrary to the facts and material on record.