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TMI Blog2014 (5) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... in proper perspective - The income that has been disclosed by the assessee in the returns of income, other than the income unearthed as a result of search, cannot be treated as undisclosed income while assessing the income during the block period – thus, the matter is remitted back to the Tribunal for fresh adjudication – Decided in favour of Revenue. Acceptance of agricultural income – Failure to prove the carrying on of agricultural activity – Held that:- The Appellate Authority deleted the addition as undisclosed income for the block period - the agricultural income for 1995-96 was accepted by the AO - the income of Rs.3,50,000/- for the AY 1996-97, was deleted being undisclosed income for the block period – there was no reason to interfere in the order of the Appellate Authority and the Tribunal – Decided against Revenue. Availability of deduction u/s 54 and 54F of the act – assessees had sold their undivided interest in the land - Capital gains derived – Held that:- Section 54F provides that if the assessee has a residential house he cannot seek the benefit of long term capital gain - Under this provision, merely because, the words residential house are preceded by arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal did not consider the materials on record in proper perspective and has simply by single sentence in the order set-aside the concurrent findings of fact recorded by the authorities below - the order of the Tribunal is set aside – Decided in favour of Revenue. - ITA Nos.216/2007 to 219/2007 - - - Dated:- 7-3-2014 - Dilip B Bhosale and B Manohar, JJ. For the Appellant : Sri K V Aravind, Adv. For the Respondent : Sri S Parthasarathi, Adv., for Smt Vidya Sharma, Adv. a/w Sri Mallaharao, Adv. JUDGEMENT Per: B Bhosale: 1. These four appeals, under Section 260-A of the Income Tax Act, 1961 (for short the Act ), arise from the common order dated 31st August 2006 rendered by the Income Tax Appellate Tribunal, Bangalore (A-Bench) (for short the Tribunal'), disposing of four Income Tax Appeal Nos.1/B/2005, 2/B/2005, 6/B/2005, 7/B/2005. The first two appeals, before the Tribunal, were preferred by the assessees, while the remaining two by the revenue. 1.1. The appeals before the Tribunal were directed against the order dated 15th January 2004 passed by the Commissioner of Income Tax (Appeals-VI), Bangalore (for short CIT(A) ) in ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be prosecuted for not filing return of income. The assessees did not respond to this letter also. Hence a notice under Section 142(1) along with a letter was issued on 4-2-2003. This notice and the letter were also not responded to by the assessee. Hence another notice under Section 142(1) was issued on 13-2-2003. In response, the assessee filed a return for the block period declaring their income nil . With the return, a letter had been filed by the assessees substantiating the reasons for filing the return of income declaring nil income. The assessee also objected to the proceedings initiated under Section 158BC. Then the assessee, through their Chartered Accountant, before the Assessing Officer furnished bills and after examining the seized material and the other material produced before him, assessment for the block period was concluded declaring undisclosed income of the assessee and issued demand notice and challan accordingly. Penalty proceeding under Section 158BBFA (2) were also initiated separately. The undisclosed income as computed by the Assessing Officer, read thus: 1994-1995 Income returned 2,50,940 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before the CIT (A). Against the order of the CIT (A) dated 15th January 2004, the assessee as well as the revenue filed two appeals each before the Tribunal. The Tribunal allowed the appeals filed by the assessees and dismissed the appeals filed by the revenue. Hence the revenue is before this Court under Section 260-A of the Act against the order of CIT (A). 6. The revenue in these appeals has formulated the following substantial questions of law for our consideration: I. Whether on the facts and in the circumstances of the case and in law the Appellate Authorities were justified in holding that in the Block period, for the assessment years 1994-95, 1996-97, 1998-99, 1999-2000 and 2000-2001, though the return of income had been filed by the assessee beyond the date prescribed under Section 139 (1) of the Act, the income disclosed therein cannot be brought to tax in the Block assessments as per section 158 BB of the Act? II. Whether on the facts and in the circumstances of the case and in law the Appellate Authorities were justified in holding that the agricultural income declared by the assessee is liable to be accepted despite the assessee failing to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in valid return , the same will have to be computed as undisclosed income of the block period. 8.2. On the other hand, Mr. Parthasarthy, learned counsel for the respondent-assessee submitted that the income which is disclosed by filing return, irrespective of the fact whether it was filed within the time stipulated under Section 139(1) or within the time extended under Section 139(4) of the Act and which is disclosed before the search, under any circumstances, cannot be treated as undisclosed income. He submitted that, if on the date of search, the time to file return has not expired, for such assessment year also, the income cannot be treated as undisclosed income as contemplated by clause (d) of subsection (1) of Section 158BB. He submitted that, in the present case, for 1994-95 and 1996-97, the returns were filed by the assessee much before the search, though after the time prescribed under Section 139 of the Act and for the remaining three assessment years, viz., 1998-1999, 1999-2000 and 2000-2001, the assessee disclosed income after the search. Insofar as the assessment year 2000- 2001 is concerned, he submitted that the search was conducted even before the expiry of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of accounts or documents and such other materials or information as are available with the AO. Therefore, the income assessable in block assessment under Chapter XIV-B is the income not disclosed but found and determined as the result of search under s.132 or requisition under s.132A of the Act. (emphasis supplied) 11. Section 158B, in the Chapter, defines block period and undisclosed income . Section 158BA provides for assessment of undisclosed income as a result of search. Section 158BB provides for computation of undisclosed income of the block period. Section 158BC provides for the procedure for block assessment. Section 158BD speaks about undisclosed income of any other person. Section 158BE provides for time limit for completion of block assessment. Other sections in this Chapter are not relevant for our purpose. Chapter XIV-B provides for assessment of undisclosed income unearthed as a result of a search without affecting the regular assessment made or to be made. 12. For our purpose the definition of undisclosed income is relevant which reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to be done. 15. Under Section 158BB the undisclosed income of the block period shall be aggregate of the total income of previous years falling within the block period computed, in accordance with the provisions of the Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined in the manner provided in clause (a) to (f) of sub-section (1) of Section 158BB. Section 158BB of the Act provides for computation of undisclosed income of the block period. For our purpose Sub-section (3) of Section 158BB is relevant, which states that the burden of proving to the satisfaction of the assessing officer that any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement of search or of the requisition, as the case maybe, shall be on the assessee. 16. Section 158BC provides for the procedure for block assessment. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, as stipulated in the Act, and therefore an undisclosed income signifies income not stated in the return filed. Keeping that in mind, it seems that the legislature has clearly carved out two scenarios for income to be deemed as undisclosed: (i) where the income has clearly not been disclosed and (ii) where the income would not have been disclosed. If a situation is covered by any one of the two, income would be undisclosed in the eyes of the Act and hence subject to the machinery provisions of Chapter XIVB. The second category, viz. where income would not have been disclosed, contemplates the likelihood of disclosure; it is a presumption of the intention of the assessee since in concluding that an assessee would or would not have been disclosed, income, one is ipso facto making a statement with respect to whether or not the assessee possessed the intention to do the same. To gauge this, however, reliance must be placed on the surrounding facts and circumstances of the case. 26. Hence, the computation of undisclosed income for the purposes of Chapter XIVB has to be construed in terms of the total income received, accrued, arisen; or which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular which provides for the procedure for making block assessment. Clause (e) of the Circular reads thus: (e) Procedure for making block assessment: (i) The AO shall serve a notice on such person requiring him to furnish within such time, not being less that 15 days, as may be specified in the notice, a return in the prescribed form and verified in the same manner as a return under cl.(i) of sub-s. (1) of s.142 setting forth his total income including undisclosed income for the block period. The officer shall proceed to determine the undisclosed income of the block period and the provisions of s.142, sub-ss. (2) and (3) of s.143 and s.144 shall apply accordingly. 20.1. From bare perusal of clause (e) and the observations made by the Supreme Court in paragraph 12 of Hotel Blue Moon, it is clear that block assessment is not intended to be substitute for regular assessment. Its scope and ambit is limited in that sense to the materials unearthed during search. This is in addition to the regular assessment already done or to be done. In short, the assessment in the block period can only be done on the basis of evidence found as a result of search or requisition of books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1999-2000 was 31-3-2001 and for 2000- 2001 it was 31-3-2002. Returns for all the three years were, however, filed on 7-5-2003 in pursuance of the notice issued by the Assessing Officer after the search. Insofar as the last assessment year is concerned, it was urged on behalf of the assessee that they could not file return of income, though the extended period as contemplated by sub-section (4) of Section 139 of the Act had not expired, on the date of search, since during the search entire record was seized and hence there was a delay on the part of the assessee to file return of income for this assessment year. 23. Having regard to the facts and circumstances of the present case and the settled position of law, it is clear that the income unearthed on the basis of evidence found as a result of search or requisition of books of account or documents or such other materials or information available with the Assessing Officer and relatable to such evidence alone could be assessed so as to declare undisclosed income for all the six assessment years in the block period. The Tribunal has not examined the case in proper perspective and in the light of the settled position of law. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income the assessees had shown loss from house property and so also, loss from business along with the capital gains. In the return of income filed on 18-12-1998 for the assessment year 1997-98, long term capital gain in the case of assessee- M.J. Siwani as was shown in the assessment order, is as under: No.1/1 North road, Bangalore 4,220 Property at No.27 Davis Road Bangalore 16,86,955 50% share of property at No.15/1, Binny Crescent road, Benson Town, Bangalore 22,143 17,12,518 Less Exemption u/s.54 17,12,518 Balance NIL To this computation the following note was furnished as explanatory: The assessee has entered into an agreement to purchase 50% of undivided right and interest of property at No.15/3 Binny Crescent Road, Benson Town, Bangalore from his brother Shri H J Siwani for a consideration of Rs.15,00,000/- and spent towards construction on the above property an amount of Rs.83,50,000/-. The total amount reinves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seized material in A 02/HMC/27 indicates purchase and possession of right in a residential house located at 'Varoda Road', Bombay. The existence of this residential house right from 1992 make the allowability of claim of relief u/s 54F doubtful. In view of these evidences seized during the course of search, the claim has been examined by the DDI in the post search investigation. Coupled with the findings of the DDI, the claim has been examined in detail during the course of assessment proceedings. The findings and conclusions thereon are as under: 1. 1/1, North Road, Bangalore The assessee has produced copy of the purchase deed and the premises is a residential one and therefore, the assessee is eligible for exemption u/s.54. 2. No.27, Davis Road, Bangalore The address of the property is not 27, Davis road, Bangalore but 28, Davis Road, Bangalore. This property was purchased by Shri M.J. Siwani and Shri H.J. Siwani jointly by way of four purchase-deeds dt. 28th of January 1991, 2nd of January 1999, 6th of May 1991 and 16th of September 1991. While purchasing, the properties were numbered as No. 28, 28/1, 28/2 and 28/3. This premises as per the narratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... several purchasers. The purchasers of the land, in turn, had entered into a development agreement with M/s. H.M. Constructions to construct a building consisting of apartment. From the admitted facts, it is clear that what the assessees had transferred was their undivided share in the land and not the land plus residential house/apartments. The building was constructed by M/s H.M. Constructions, which is an independent entity in law, though both the assessees were partners thereof. 25.4. It is in this backdrop, the Assessing Officer as well as the Appellate Authority rightly refused to extend any benefit of Section 54 of the Act. Section 54F provides capital gain arising from transfer of any long term capital asset not being residential house. In view thereof, the provisions contained in Section 54F, as has been rightly held by the Assessing Officer and the Appellate Authority, were attracted. Under this provision, the assessee should not be in possession of a residential house on the date on which the transaction resulting in long term capital gains takes place. On the date of transaction, that is, the sale of undivided shares in the landed property the assessees were having t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e residential house cannot be taken away without due process of law or it continues till there is a partition of such residential house. Thus, we are unable to agree with the view expressed by the Tribunal on this issue and we set-aside the findings recorded on this question of law. We accordingly, answer the third substantial question of law in favour of the revenue and against the assessee. 27. Next, we would like to consider the fourth substantial question of law raised by the revenue. The assessee, as regards valuation of closing stock, in trading account adopted closing stock of land in litigation as 'Nil', explaining that the 20 sites measuring 1,09,813.98 sq.ft. were involved in the litigation. The assessees produced documents in support thereof. The Assessing Officer after examining the documents and the claim of the assessee held that there was no basis for the assessee to value the land as Nil. There is no dispute that as on the date of assessment the assessee was in possession of a registered document in respect of the said land. It is equally true that the assessee had a choice to value the stock at cost or at market price, whichever is lower. There is nothin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntary evidence in respect of this amount, purportedly received from G. Anand and so also requested to produce G. Anand for clarification. Incidentally, G. Anand was also required in the case of M/s. H.M. Constructions of which both the assessees were partners. M/s. H.M. Constructions has claimed that it had entered into some agreement with G. Anand. The assessee despite seeking time and giving undertaking to furnish confirmation letter from G. Anand, who, according to the assessee at the relevant time was not available, did not submit confirmation nor did he produce him before the Assessing Officer. It appears that G. Anand was running a video parlour in the premises of the assessees at Mumbai and that the assessees and G. Anand had decided to run the business of video parlour. However, due to some misunderstanding between the assessees and G. Anand, their proposal to run the business together was fizzled out. At one stage, it appears, the Assessing Officer got in touch with G. Anand, who sought an adjournment, but thereafter failed to appear before the authority. It is in this backdrop, we have considered all the three orders passed by the Assessing Officer, Appellate Authority an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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