2016 (5) TMI 727 - HC - Income Tax

Search and seizure operation under Section 132 - addition on the basis of the notebook and the Bank passbook - validity of documents seized - addition to undisclosed income - Held that - Section 158BB of the Act empowers the Assessing Officer to frame assessment of the block period on the basis of evidence found as a result of search. As discussed above, the diary, KPS-5 and undisclosed passbook of the S.B. A/C No.9266 though recovered from the survey of the premises of Sujata Hotel Pvt. Ltd., but not only the assessee had made a statement that his passbook and the cheque book are kept in the Sujata Hotel Pvt. Ltd but had also relied upon them while submitting his Block Return and had taken the said stand in his reply to the questionnaire. Still further, the Assessing Officer can take into consideration the other materials or information as are available with the Assessing Officer and relatable to such evidence recovered during the search operation. Therefore, such documents can be taken into consideration by the Assessing Officer. The documents taken into consideration are related to the search operation at the premises of the assessee on the own admission of the assessee while replying to the questionnaire to explain the basis of his undisclosed income declared by him. Thus, we find that not only the survey was not illegal but also that the material collected was relied upon by the assessee himself to explain the basis of undisclosed income for assessment years 2001-02 and 2002-03 shown in his block return, and therefore clearly relatable to evidence found as a result of search, etc. and, thus, was rightly made basis to frame block assessment by the Assessing Officer. Assessing Officer could take into consideration the note book KPS-5 and passbook of S.B. A/C No.9266 recovered from the premises of Sujata Hotel Pvt. Ltd. but from the office cabin which was in the control of the assessee. Tribunal has consequently erred in law in upholding the deletion of the additions made by the Assessing Officer on the basis of the notebook and the Bank passbook - Decided against assessee

Issues Involved:

1. Consideration of notebook KPS-5 and Bank Passbook in computation of undisclosed income.
2. Applicability of the decision in CIT vs. G. K. Senniapan.
3. Legality of the deletion of the addition of ?1,59,40,263/- by the Tribunal.

Detailed Analysis:

1. Consideration of Notebook KPS-5 and Bank Passbook:

The primary issue was whether the notebook KPS-5 and the Bank Passbook, found during a survey under Section 133A at the office premises of Sujata Hotels Pvt. Ltd., could be considered by the Assessing Officer in computing the undisclosed income. The Tribunal had held that these documents could not be considered as they did not amount to "such other materials or information as are available with the Assessing Officer" under Section 158BB(1) of the Act.

The High Court disagreed, emphasizing that the assessee had himself relied on the documents while filing his block return for the assessment years 2001-02 and 2002-03. The Court noted that the documents were found in the cabin of the assessee within the premises of Sujata Hotels Pvt. Ltd., and the assessee had admitted that his passbook and cheque book were kept there. Thus, the documents were under the control of the assessee. The Court cited several precedents to support the view that even if a provision is mandatory, it can be waived by the individual for whose benefit it is intended. Therefore, the Assessing Officer was justified in considering these documents for the assessment.

2. Applicability of the Decision in CIT vs. G. K. Senniapan:

The Tribunal had relied on the decision in CIT vs. G. K. Senniapan to exclude the documents found during the survey. The High Court found this reliance to be misconceived. The Court explained that in the Senniapan case, the search and survey were conducted at different premises, and the evidence from the survey could not be used for the search assessment. However, in the present case, the premises surveyed were not alien to the assessee. The assessee was a Director of Sujata Hotels Pvt. Ltd., and had admitted to keeping relevant documents there. Therefore, the Court held that the interpretation given by the Madras High Court in the Senniapan case could not be extended to the facts of the present case.

3. Legality of the Deletion of the Addition of ?1,59,40,263/- by the Tribunal:

The Tribunal had upheld the deletion of the addition made by the Assessing Officer based on the notebook KPS-5 and the Bank Passbook. The High Court found this to be erroneous. The Court noted that the documents were related to the search operation and were relied upon by the assessee himself in his block return. The Court also referred to the Supreme Court's view that evidence obtained from an illegal search could still be used for assessment, emphasizing that the survey in this case was not illegal. Therefore, the Tribunal's decision to uphold the deletion was incorrect.

Conclusion:

The High Court allowed the appeal, setting aside the orders of the CIT (Appeals) and the Tribunal. It held that the Assessing Officer was justified in considering the notebook KPS-5 and the Bank Passbook for the block assessment, and the deletion of the addition of ?1,59,40,263/- was not legally sustainable.

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