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TMI Blog2014 (10) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... received u/s 158BC - there is a perceptional difference in the operative force of section 271(1)(i)(c) vis-à-vis section 158BFA(2) - The charge against the assessee u/s 158BFA(2) could be, why they failed to compute true disclosed income out of the seized material - whether the assessees have made a deliberate attempt to disclose nil undisclosed income or they have sufficient reasoning for forming belief that no undisclosed income is available in their hands which is to be disclosed in response to the notice received u/s 158BC. Whether at the time of filing the return, a man of ordinary prudence can form a belief that he has no undisclosed income on the basis of seized material supplied to him - Whether such formation of belief is a bonafide one having regard to the material on the record or it is merely a Performa explanation - It is to be kept in mind that if a claim was not made in the return, then the assessee would be foreclosing his right to dispute the claim and would accept the stand of the Revenue – in COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT] making incorrect claim does not amount to concealment of particulars, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are descriptive and argumentative in nature. In brief their common grievance is that the learned CIT (A) has erred in confirming the penalty imposed upon them u/s 158BFA(2) of the Income Tax Act, 1961. 2. The facts on all vital points are common in all the appeals. Therefore, for the facilitative reference, we are taking up the facts from the appeal of Shri Mohd. Khasim for which the learned representatives have addressed their arguments. The adumbrated facts are that a search and seizure operation was carried out u/s 132 of the Income Tax Act at all the appellants on 29th May, 2001. Along with the appellants, premises of one M/s Domicile Developers Ltd along with the premises of assessees were also covered. During the course of search, incriminating documentary evidence were found and seized. In order to give a logical end to the proceedings, a notice u/s 158BC dated 8.5.2002 was served upon the assessee on 21.5.2002. The assessees were directed to file return of income within 30 days from the date of notice. Shri Mohd. Khasim had filed his return of income 18/06/2002 declaring nil undisclosed income. Similarly the other appellants have also declared nil income. Notices u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. Thus, on the basis of the entries made by the vendee in its books of accounts, he construed that the land was sold for a sum of ₹ 2.83,01,868/- after debting the cost of land and other payment for eviction, brokerage etc. He calculated the capital gain assessable in the hands of each appellants. 3. On the other hand, the stand of the appellants was that at the time of purchase of the land, a partnership firm in the name and style of M/s Tipu Sultan Co. was constituted on 3.4.1996. The firm has credited the partners a/c with the value of the land brought in as their share. It has been filing regular return of income, but no income has been offered on sale of the property as on date and it was treated as stock-in-trade. The amounts received from M/s Domicile Developers is treated as an advance. The 2nd submissions of the appellants was that as per the agreement dated 8.11.1996, the sale consideration was settled at ₹ 1.27 crores. The assessees had received ₹ 67.00 lakhs through account payee cheques which has been duly showed. Shri Mohd. Khasim has received a sum of ₹ 5.00 lakhs through cheque No.557308 dated 20.10.1996 drawn on Vijaya bank, Austin T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Undisclosed income as explained abut Rs.29,54,448 Taxable Income Rs.29,54,448 Tax thereon @ 60% Rs.17,72,669 Add:Surcharge @ 2% ₹ 35,453 Total Tax Payable ₹ 18,08,122 4. The addition so made has been confirmed up to the Hon'ble High Court. During the course of hearing, it was pointed out that SLPs have been filed before the Hon'ble Supreme Court but the learned DR informed in the Court that the SLPs have also been dismissed. Assessing Officer has initiated the penalty proceedings u/s 158 BFA(2) on the ground that the assessees have failed to disclose the true undisclosed income in the shape of capital gain. The Assessing Officer has imposed a penalty of ₹ 18,08,122/- in the case of Shri Mohd. Khasim. The penalties have accordingly been computed in the cases of other assessees. The operative part of the penalty order read as under: 7. It is to be mentioned here that apart from mentioning the above, the assessee in his letter filed 20.11.2009 has not submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this 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 AO and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined, (a) where assessments under s. 143 or s. 144 or s. 147 have been concluded (prior to the date of commencement of the search or the date of requisition), on the basis of such assessments; (b) where returns of income have been filed under s. 139 (or in response to a notice issued under sub-s. (1) of s. 142 or s. 148) but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns; (c) where the due date for filing a return of income has expired, but no return of income has been filed,-- (A) on the basis of entries as recorded in the books of account and other documents maintained in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) or sub-s. (1B) of s. 143. (2) In computing the undisclosed income of the block period, the provisions of ss. 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to 'financial year' in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition. (3) The burden of proving to the satisfaction of the AO 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 may be, shall be on the assessee. (4) For the purpose of assessment under this chapter, losses brought forward from the previous year under Chapter VI or unabsorbed depreciation under sub-s. (2) of s. 32 shall not be set off against the undisclosed income determined in the block assessment under this chapter, but may be carried forward for being set off in the regular assessments. 6. Expounding the scope of the block assessment and inclusion of undisclosed income, the Hon'ble Delhi High Court in the case of CIT vs. Ravi Kant Jain (2001) 167 CTR (D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re that of undisclosed income. Therefore, the proceeding carries with it a presumption that returns filed in pursuance of such proceedings are of undisclosed income and not necessarily in accordance with the books of accounts. Its verification has to be searched outside regular books with reference to material that has been found during search. That makes it imperative to adjudicate the return with reference to material that has come in the possession of the assessing authority during the course of search proceedings and on which basis the belief about the existence of undisclosed income is entertained by the assessing authority inviting invocation of ss. 158BB and 158BC. The enquiry into the correctness of such returns with reference to material so found has nexus with the object of the special provisions, to adjudicate whether the assessee is still honestly disclosing his income correctly after incriminating material has been found in the possession of the Revenue authority before such returns can be rejected and thereafter to frame assessment estimating the income liable to tax to the best of judgment on the basis of the material that is available with him. 7. The Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he factum of undisclosed income. Without such evidence or material the AO is not empowered to draw any presumption as to the existence of undisclosed income. A presumption is an inference of fact drawn from other known or proved facts. It is rule of law under which Courts are authorized to draw a particular inference from a particular fact, until and unless the truth of such inference is disproved by other evidence. We find that the scheme of Chapter XIV-B does not give power to the Revenue to draw the presumption in regard to the undisclosed income. The AO could proceed on the basis of material detected at the time of search and the evidence gathered. Under s. 132(4), the authorized officer may, during the course of search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Act. 9. From the above it is clear that undisclosed income in block assessments has to be determined on the basis of the seized material. Thus for assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income of any person under this Act, (A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner(Appeals) or the CIT to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of Clause (c) of this sub- section, be deemed to represent the income in respect of which particulars have been concealed . 13. A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants has been imposed u/s 158BFA. Let us take note of these provisions. The relevant provisions are as follows : 158BFA. (1) Where the return of total income including undisclosed income for the block period in respect of search initiated under s. 132 or books of account, other documents or any assets requisitioned under s. 132A on or after the 1st day of January, 1997, as required by a notice under cl. (a) of s. 158BC, is furnished after the expiry of the period specified in such notice, or is not furnished, the assessee shall be liable to pay simple interest @ one per cent of the tax on undisclosed income determined under cl. (c) of s. 158BC for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time specified in the notice, and-- (a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or (b) where no return has been furnished, on the date of completion of assessment under cl. (c) of s. 158BC. (2) The AO or the CIT(A) in the course of any proceedings under this chapter, may direct that a person shall pay by way of penalty a sum which shall not be le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, let us consider the facts of the present case. We are conscious of the fact that additions have been made by the Assessing Officer and those additions have been confirmed by the CIT (A), ITAT and by the Hon'ble High Court. To that extent being a subordinate appellate authority, Tribunal cannot question the quality of evidence or whether those conclusions could be arrived or not. It is also equally undisputed position that the penalty proceedings is an independent proceeding, where the evidence can be re-appraised but again that could not authorize the Tribunal to take a contradictory view in the penalty proceedings with regard to inference of facts arrived at in the quantum proceedings and upheld by the Hon'ble High Court. 17. The question before us is, whether at the time of filing the return, a man of ordinary prudence can form a belief that he has no undisclosed income on the basis of seized material supplied to him. Whether such formation of belief is a bonafide one having regard to the material on the record or it is merely a Performa explanation. It is to be kept in mind that if a claim was not made in the return, then the assessee would be foreclosing his right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from all encumbrances, charges, litigations, etc. and subject to the terms and conditions contained hereunder: NOW THIS AGREEMENT OF SALE WITNESSETH AS HEREUNDER: 1. The purchasers had paid an advance amount of ₹ 5,00,000/- (Rupees Five Lakhs only to the Vendor by cheque bearing No.557308 dated 20.10.1996 drawn on Vijaya Bank, Austin Town Branch, Bangalore;................. Similar clauses are available in the agreements of other vendors. 20. The next relevant item is the supplementary agreement dated 22.11.1999 which is being put in service by the Revenue. The consideration clause in this agreement read as under: WHEREAS the vendors above named had entered into an agreements of sale on different dates individually with the purchases above named in respect of the property bearing Sy. Nos. 181 182, situated at Bilekahalli village, Begur Hobli, Bangalore measuring 3 acres, 7 guntas excluding 1 gunta of Karab land, and in part performance of agreements of sale. The Vendors above named have received a total part sale consideration of ₹ 4,13,00,000 from out of total sale consideration of ₹ 4,65,50,000/- balance sale consideration of ₹ 52,50,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ...... 21. The third evidence is a list of payments exhibiting the payments made by M/s Domicile Developers; they read as under. It contains date of payments from 3.4.1997 to 22.1.1998. This list was confronted to the assessee and these amounts were taken into consideration by the Assessing Officer. 22. Let us take note of the questions and replies put to Shri Naveed in his statement u/s 132(4). Statement u/s 132(4) dated 29.05.2001 Naveed S/o Sayed Ghouse: Q.No.5 Please state the sale consideration in respect of the lands purchased from Mohd. Kasim and his family members on which Domicile Developers has constructed 308 flats and how much amount has been paid so far to them? Ans. The sale consideration is ₹ 4,65,50,000/-. We have been paid a sum of ₹ 2,75,00,000/-approximately to Mr. Mohd. Kasim and his family members through cash and cheques. A sum of ₹ 1,38,00,000/- has been debited on account of development charges, construction charges, payment of on encroachers and other incidental expenses, which have been incurred by us, which actually should have been incurred by Chotu Sab and his family members. A sum of ₹ 52,50,000/- is sti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made by Mr.Chotu Sab alias Mohd. Khasim during the course of search. According to the Assessing Officer, he and his son Tipu Sultan were cross examined in the presence of Shri Naveed and they have admitted the sum of ₹ 2.75 crores as the sale consideration received by them. The other evidence is the copy of the supplementary agreement and the disclosures made by Shri Naveed. A perusal of the statement of Shri Naveed would suggest that his concern has not given effect to the supplementary agreement into the books of accounts. It is explicitly clear from the reply to the Question No.14. He has disclosed incurrence of ₹ 1.38 crores towards development charges which is part of the total consideration settled at ₹ 4.65 crores in the supplementary agreement. But this figure was nowhere mentioned in the agreement. It was a contradiction emerges out in his statement. For the Developers, it was an expenditure which is of allowable nature. Therefore, the stand of the developer would always be that it has incurred expenditure. As far as disclosure made u/s 132(4) is concerned, it is admissible only against the interest of Shri Naveed and bound Domicile Developers and not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd converted to residential status and paid the betterment charges and conversion charges to the authorities?. Kasim. I have paid the betterment charges and handed over the properties to you. Naveed. The statement given by you that the agreement dt. 22.11.1999 was for having received a consideration of ₹ 4.13. crores was only in good faith and further stating with the interest obtaining loan from the Bank. This statement is absolutely fake and misleading. Did I tell you that you are signing this agreement for availing loan or for canvassing? Kasim. Yes you told me. Naveed. Do you know that I being a BPA Holder and an agreement holder is not entitled for obtaining the bank loans. Kasim. I do not know and I am not aware of it. Naveed. Was it not your property under the park zone under BDA and which I got it denotified. Was it a fact. Kasim: Yes it is a fact Naveed. Were Mr. Shankar and Mr.Mahadevappa not your agents for getting the land converted to whom money has been paid by me as per your guideline? Kasim. Mr. Shankar and Mr. Mahadevappa are the real estate brokers who were involved in the park zone denotification. I had asked Mr.Naveed to make payments but not u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is able to demonstrate with the help of some material that such admission was either mistaken, untrue or under the misconception of facts, then only on the basis of such admission, no addition is required to be made. It is true that admissions being a declaration against an interest are good evidence, but they are not conclusive and parties always at liberty to withdraw the admission by proving that they are either mistaken or untrue. In law retracted confession even may form the legal basis of addition, if the Assessing Officer is satisfied that it was true and was voluntarily made. But basing the addition on a retracted declaration solely would not be safe. It is not strict rule of law but it is only a rule of prudence. As a general rule of practice, it is unsafe to rely upon the retracted confession without corroborative evidence. According to the appellants the alleged statement was recorded at 2.00 am in the night at the premises of M/s. Domicile Developers. They were examined in the village. Thereafter they were brought to the premises of Domicile Developers. This situation is to be visualized in the background of intellectual compatibility of these two persons vis- -vis the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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