2006 (8) TMI 239 - AT - Income Tax

Block Assessment in search case - evidence found during the course of the search - Undisclosed income within the meaning of section 158BC - What is the meaning and scope of phraseology, 'Such other materials or information as are available with the Assessing Officer and relatable to such evidence' appearing in section 158BB(1) of the Act as substituted by the Finance Act, 2002 with retrospective effect from 1-7-1995. - profit on the value of total purchases based on actual quota - business of purchase and sale of IMFL and country liquor - HELD THAT - The expression materials or information are of wider import than evidence and as far as the admissibility of such materials and information is concerned, there is no distinction to be drawn between the assessment under the regular provisions of the Act and block assessment. The burden of proof, however, on the Assessing Officer may be greater in block assessment proceedings than in regular assessment proceedings, in view of the fact that while regular assessment is made of income, block assessment is made of undisclosed income. While completing the block assessment the Assessing Officer can include in his computation of undisclosed income only that undisclosed income that the assessee did not disclose in any income-tax proceedings the assessee was bound to do so or the income that the assessee would not have disclosed in the normal course if there was no search. While relying upon any materials or information as a supplement to the evidence found as a result of the search the Assessing Officer is not bound by technical rules of evidence and, therefore, he may take into account facts and circumstances that may not be admissible under Indian Evidence Act and he may arrive at his finding not on the basis of any direct evidence of undisclosed income but on the basis of cumulative effect of all the facts and circumstances relating to the proceedings before him. We are of the view that the issue relating to the assessee's undisclosed income for assessment year 1996-97 from the concern M/s. Ashok Kumar Co., Sirsa and for assessment year 1997-98 from the concern M/s. Ved Prakash Darshan Singh is required to be examined further by the Assessing Officer and for that purpose we restore the question of assessee's undisclosed income, if any, from these two concerns to the file of the learned Assessing Officer for decision afresh after allowing the assessee further opportunity of being heard in the matter. The Assessing Officer shall cull out from the massive evidence/material found as a result of the search or gathered by the Assessing Officer during the course of proceedings under section 158BC that may have bearing on the question of the assessee's interest in the two concerns abovenamed and weigh the same in the light of explanations arid contentions of the assessee. Thereafter the learned Assessing Officer shall decide the issue afresh in accordance with law and make a detailed speaking order. While we accept the finding of the learned Assessing Officer that the assessee has carried out liquor business in the names of various concerns during the block period, we find that computation of undisclosed income of the assessee as made by the learned Assessing Officer requires certain modifications. We appreciate that in the instant case the learned Assessing Officer had a problem, inasmuch as the assessee had never filed any returns of income in the past and there are no books of account either. The sales at various liquor vends and outlets has been entirely in cash and there is no information of any credit sales, even if therewere any. In such a scenario the Assessing Officer was required to gather considerable material by way of post search enquiry which he did. In view of the very detailed discussion on various aspects of the provisions of section 158BB(1) we have no difficulty in holding that almost the entire material or information gathered by the Assessing Officer by way of post search enquiry constitutes materials or information relatable to evidence found as a result of search to the effect that the assessee was carrying out an entirely undisclosed liquor business in the names of various concerns during the block period. We have also noted that the language of the provisions of section 158BB(1) is virtually the same as the language of section 143(3). Even otherwise provisions of section 158BC(b) expressly incorporate the provisions of sections 142, 143(2), 143(3), 144 and 145 in relation to a block assessment order u/s 158BC. It, therefore, follows that the same standards as in relation to an order under section 143(3) do apply to an order under section 158BC as well. At the same time on a careful appraisal of the computation of undisclosed income as made by the learned Assessing Officer in the impugned order, we are of the view that the same call for certain modifications for the following reasons - (i) The provisions of sections 69, 69A to 69D legally empower the Assessing Officer to assess such investments and expenditure in the absence of satisfactory explanation from the assessee. The provisions of sections 69, 69A to 69D have been consciously incorporated in section 158BB(1) by way of substitution made by the Finance Act, 2002 with retrospective effect from 1-7-1995 whereby the words provisions of Chapter IV have been substituted by the words provisions of this Act . The assessment of both, even though legally permissible is, therefore, often required to be avoided so as to arrive at a just and fair assessment. Conscious of this basic aspect the learned Assessing Officer has himself allowed the assessee credit of the assessee's security deposits in an earlier year and assessed in the subsequent year only incremental accretion in the security deposits made in the names of various concerns. However, he has not followed the same approach in respect of other items of investments and expenditure. In our opinion, for the purpose of a just and fair assessment of the assessee's undisclosed income, only the incremental accretion in the assessee's investments/assets/expenditure should be assessed in a subsequent year with the rider that the funds wasted in household expenses or blocked in immovable and movable assets would obviously be not available for fresh investments or expenditure in the subsequent years. (ii) In the liquor business the public auction is made and the contract is given to the highest bidder. In order to be successful, bidders have to come out with the maximum possible amount that puts considerable pressure on their margin of profit. Fourthly, the learned Assessing Officer has applied the same rate on IMFL as in respect of country liquor, that is unrealistic. We hastened to add here that in view of the approach we have endorsed in (1) above, this aspect loses significance because as we would shortly see, the incremental accretion in the assessee's investments and expenditure is sufficient to arrive at a fair assessment of the assessee's undisclosed income for many assessment years. (iii) It is not open to the Assessing Officer to make assessment of income figures and at the same time ignore the loss figures on one and the same seized document. Moreover the learned Assessing Officer has himself not taken the seized document as a complete account of assessee's income and expenditure of the two financial years. As to the document A5, page 7 the figures have been read by the Assessing Officer in an arbitrary manner. He interprets the figure 70 to represent 70 lakhs and HT, Hansai to read Haryana Tube, Hansi without any further enquiry and co-relation with the alleged Haryana Tube, Hansi. We are, therefore, of the view that the learned Assessing Officer has not been able to support the additions made by him on the basis of the seized documents with any evidence, material or information that may carry some conviction. Furthermore as he has separately assessed the investments and expenditure of the assessee, to that extent these additions, if at all, are in the nature of double assessment. For all these reasons we delete the additions made by the learned Assessing Officer based on such documents. (vi) Here we find that the estimate of house-hold expenses of the assessee as made by the learned Assessing Officer for various assessment years are fair and reasonable. They are mainly based on concrete material, such as educational expenses of the assessee's children, electricity and telephone bills etc. For the same reason we also uphold the learned Assessing Officer's computation of undisclosed income on account of assessee's investment in movable assets, as enumerated in paragraph 32 of this order. (vii) We are clearly of the view that huge income from business as computed above sufficiently covers and, therefore, no separate addition on account of cash credits, gifts and seized documents is called for. We direct accordingly. As to the amount of cash seized, the same has of course to be included while working out the assessee's business income based on investments, acquisitions and expenditure. It is, thus, seen that the assessee's investments and expenditure for the broken period of assessment year 1997-98 as brought on record by the learned Assessing Officer falls short of the undisclosed income already assessed up to assessment year 1996-97. It is because the block period for assessment year 1997-98 is less than three months. Under these circumstances we are of the view that for assessment year 1997-98 the assessee's undisclosed income should be restricted to business profits of the year as computed by the learned Assessing Officer. We accordingly estimate assessee's undisclosed income for assessment year 1997-98. Thus, subject to any further order that the learned Assessing Officer may pass in relation to M/s. Ashok Kumar Co., Sirsa and M/s. Ved Parkash Darshan Singh Co., Jind, the assessee's undisclosed income for the block period is assessed We have, however, exercised all possible care to avoid any excessive or unreasonable estimate of the assessee's undisclosed income of the block period. For that reason we have not accepted many of the additions made by the Assessing Officer and allowed the assessee telescoping to the full extent. We have also sent back the issues relating to the concerns M/s. Ashok Kumar Co., Sirsa and M/s. Ved Parkash Darshan Singh Co., Jind for re-appraisal and re-adjudication by the Assessing Officer. In view of the above various grounds taken by the assessee in this appeal are disposed of accordingly. In the result, this appeal is partly allowed.

Summary

Issues Involved:
1. Meaning and scope of the phrase "such other materials or information as are available with the Assessing Officer and relatable to such evidence" under section 158BB(1) of the Income-tax Act.
2. Validity of the block assessment order under section 158BC.
3. Assessment of undisclosed income from liquor business.
4. Assessment of undisclosed investments in immovable properties.
5. Assessment of household expenses and investments in movable assets.
6. Validity of post-search enquiries and their relevance to the block assessment.
7. Treatment of statements recorded during and after the search.
8. Assessment of cash credits, gifts, and other seized documents.
9. Telescoping of income and expenditure.

Issue-wise Detailed Analysis:

1. Meaning and Scope of the Phrase "Such Other Materials or Information as are Available with the Assessing Officer and Relatable to Such Evidence":
The Tribunal clarified that the undisclosed income must be computed based on evidence found as a result of the search and such other materials or information relatable to such evidence. The phrase "relatable to such evidence" allows the Assessing Officer to supplement the evidence found during the search with additional materials or information gathered during post-search enquiries, provided there is a certain and specific nexus between the evidence found and the undisclosed income proposed to be assessed.

2. Validity of the Block Assessment Order under Section 158BC:
The Tribunal upheld the validity of the block assessment order, emphasizing that the Assessing Officer is empowered to conduct post-search enquiries to gather further materials or information that are relatable to the evidence found during the search. The Tribunal rejected the contention that only the evidence found during the search should be considered, allowing for a broader interpretation that includes materials gathered post-search.

3. Assessment of Undisclosed Income from Liquor Business:
The Tribunal agreed with the Assessing Officer's conclusion that the assessee was engaged in the liquor business in benami names. The evidence found during the search, including partnership deeds, documents relating to business operations, and statements from salesmen and other employees, supported this conclusion. The Tribunal found that the Assessing Officer had brought on record sufficient material to substantiate the assessee's involvement in the liquor business.

4. Assessment of Undisclosed Investments in Immovable Properties:
The Tribunal upheld the assessment of undisclosed investments in certain immovable properties, such as House No. 835/14, Yeti Nagar, Hansi, and Plot No. 1490, Sector 46, Gurgaon. However, the Tribunal directed the Assessing Officer to re-examine the assessee's undisclosed income from the concerns M/s. Ashok Kumar & Co., Sirsa, and M/s. Ved Prakash Darshan Singh & Co., Jind, for the relevant assessment years, as the evidence for these concerns was relatively thin.

5. Assessment of Household Expenses and Investments in Movable Assets:
The Tribunal upheld the assessment of household expenses and investments in movable assets based on the evidence found during the search, such as educational expenses, electricity and telephone bills, and investments in household gadgets and vehicles. The Tribunal found that the Assessing Officer's estimates were fair and reasonable.

6. Validity of Post-Search Enquiries and Their Relevance to the Block Assessment:
The Tribunal rejected the contention that post-search enquiries should be ignored, emphasizing that such enquiries are essential to gather further materials or information relatable to the evidence found during the search. The Tribunal found that the Assessing Officer's post-search enquiries were justified and relevant to the block assessment.

7. Treatment of Statements Recorded During and After the Search:
The Tribunal found no merit in the assessee's contention that the statements recorded by various income-tax authorities were obtained under coercion or undue pressure. The Tribunal upheld the reliance on these statements, noting that they were recorded by empowered officers at different places and times, and there was no concrete evidence to support the allegations of coercion.

8. Assessment of Cash Credits, Gifts, and Other Seized Documents:
The Tribunal deleted the additions made by the Assessing Officer based on certain seized documents, such as A-4 and A-5, finding that the Assessing Officer's interpretation of these documents was arbitrary and not corroborated by any further enquiry. The Tribunal also found that the additions on account of cash credits and gifts were not supported by sufficient evidence.

9. Telescoping of Income and Expenditure:
The Tribunal emphasized the need for telescoping of income and expenditure to avoid double assessment. The Tribunal allowed the assessee credit for security deposits assessed in earlier years and assessed only the incremental accretion in subsequent years. The Tribunal also allowed telescoping of household expenses and investments in immovable and movable assets to arrive at a fair assessment of the assessee's undisclosed income.

Conclusion:
The Tribunal partly allowed the assessee's appeal, upholding the assessment of undisclosed income from the liquor business and certain undisclosed investments, while directing the Assessing Officer to re-examine the assessee's undisclosed income from two specific concerns. The Tribunal also emphasized the need for telescoping of income and expenditure to avoid double assessment.