Commissioner of Income Tax and another vs Gauthamchand Bhandari

D.V. Shylendra Kumar, J.—Appeal u/s 260A of the income tax Act, 1961 (for short, "the Act") by the Revenue against the order of the income tax Appellate Tribunal, Bangalore Bench, posing for answer the following substantial questions of law : (1) Whether the Tribunal was correct in holding that a sum of Rs. 50 lakhs detected during search conducted on July 19, 1999, as a loan given to Sri T. Balakrishna which had not been recorded in the books of account maintained by the assessee and cannot be treated as undisclosed income of the assessee and brought to tax in the block period ?

(2) Whether the Tribunal was correct in holding that the Department being aware of the income of Rs. 50 lakhs of the assessee which had been detected before search in a survey conducted u/s 133A of the Act on July 13, 1999, was precluded from bringing it to tax in block assessment as it cannot be treated as undisclosed income of the assessee ?

The assessee is an individual and the assessment period is the block period July 20, 1989, to July 19, 1999, in terms of the provisions clause (d) of sub-section (1) of section 158BB of the Act. The assessment block period was a sequel to a search that was conducted on July 13, 1999, at the premises of one T. Balakrishna, who, while explaining an undisclosed loan transaction of Rs. 50 lakhs said to have been borrowed from the assessee and in cash, indicated that it was a loan transaction borrowed from the assessee by the said Balakrishna for the purpose of constructing the school building, as the said Balakrishna was the whole and sole of an educational institution by name St. Ann''s High School, Rajajinagar, Bangalore (Sri M.V. Seshachala, learned senior standing counsel for the Revenue submits that said Balakrishna is the "owner" of the educational institution). 2. The bone of the contention that has landed before this court between the Revenue and the assessee for an answer posed in the form of substantial questions of law, as extracted above.

The statement of the said Balakrishna pursuant to the search on his premises by the income tax authorities on July 13, 1999, led in turn to the search of the premises of the assessee at No. 506, 10th main, 6th Block, Rajajinagar, Bangalore, and at that time, it is the version of the Revenue that, the assessee admitted the loan transaction and that he had in fact advanced Rs. 50 lakhs to the said Balakrishna.

It appears, during the search, the officials of the Department found that the assessee also had business premises at No. 369/54, 80 Feet Road, Rajajinagar, Bangalore, and for gathering better information, had conducted a survey of this premises, in exercise of the power conferred u/s 133A of the Act and found that the business was being carried at that premises under the name and style of Mahaveer Jewellery and Bankers. This survey u/s 133A at the business premises of the assessee the consequence of the search u/s 132, which had been conducted at the residential premises of the assessee, though the survey, it appears, had followed immediately on the heels of the search.

It appears, the assessee, much later filed a return of income for the assessment year 1999-2000 and had claimed that the said Rs. 50 lakhs was the income of the accounting period April 1, 1999, to March 31, 2000. As a sequel to the search of the residential premises of the assessee on July 19, 1999, the officials of the Department followed up the matter by issuing a notice dated September 20, 1999, invoking section 158BC of the Act. The assessee-respondent by filing the return of income for the block period on November 4, 1998, conveniently disclosed a sum of Rs. 1,26,100 from out of Rs. 50 lakhs which was without dispute the undisclosed income of the assessee even as admitted earlier and as is established later, claiming that the balance of Rs. 50 lakhs is being offered to tax in the regular return that he intended to file for the assessment year 1999-2000.

Though, it appears that the last date for filing the return of income for the assessment year was July 31, 1999, the assessee while did not file such return but nevertheless filed the return on November 4, 1999, as that was not totally prohibited.

The Assessing Officer while did not give much credence or importance to the return filed by the assessee for the assessment year 1999-2000, chose to proceed against the assessee in respect of the entire undisclosed income of Rs. 50 lakhs and assessed it for the block period July 20, 1989, to July 19, 1999, in terms of the provisions of section 158BC of the Act. The assessment order at annexure C to the writ petition resulted in total tax liability of Rs. 32,78,368 on the assessee. The Assessing Officer, by passing a protective assessment order for the entire sum of Rs. 50 lakhs on the basis of the return filed by the assessee for the assessment year 1999-2000., nevertheless sought to enforce the block assessment order keeping in abeyance the enforcement of the assessment made on the return for the assessment year 1999-2000 as a protective measure.

It is in this state of affairs, the assessee appealed to the Commissioner of income tax (Appeals), but without success, as in terms of the order dated December 11, 2001 (copy at annexure B), the Appellate Commissioner agreed with the view taken by the Assessing Officer and dismissed the appeal.

The assessee carried the matter further to the Appellate Tribunal and met with success, as he found acceptance before the Tribunal for his version that the Assessing Officer could not have assessed the entire amount of Rs. 50 lakhs as though it is income of the block period, as even in accordance with the statutory provisions, there was still time and scope for the assessee to file a return of income for the balance period of the accounting period, particularly as the search had taken place on July 19, 1999, and a substantial part of the accounting period was still ahead, i.e., up to March 31, 2000, and the assessee could have earned considerable income and whereafter alone the assessee could have filed the return of income for the assessment year 1999-2000 and, therefore, bringing to tax some part of the income of this accounting period, i.e., from April 1, 1999, to July 19, 1999, alone was permissible for the block assessment and with the specific case of the assessee being that the income out of Rs. 50 lakhs for this period, a sum of Rs. 1,26,100 should have been assessed for the regular assessment year 1999-2000 and the Assessing Officer and the Appellate Commissioner having not chosen to action in accordance with this claim of the assessee, the Tribunal should allow the appeal.

It is this contention of the assessee which found favour with the Tribunal and the Tribunal has, therefore, allowed the appeal of the assessee, reversed the orders of the Assessing Officer and the Appellate Commissioner and has directed the Assessing Officer to proceed on the basis of the return filed by the assessee.

It is now the Revenue''s turn to come up to this court in appeal, contending that the Tribunal has committed an error in law in proceeding on the premise that the assessee was entitled to get this undisclosed income for the balance period of the accounting year April 1, 1998, to March 31, 1999, and up to July 19, 1999, and that the actual date of beginning of the block period being July 20, 1989, as the block period necessarily goes back for a period of 10 years from the date of search.

Appeal having been admitted on the substantial questions of law as indicated above, and the assessee having been put on notice, the matter is taken up for hearing. However, we have heard only M.V. Seshachala, learned senior standing counsel for the Revenue, as the learned standing counsel alone has appeared before us and made submissions, whereas the assessee remained unrepresented, notwithstanding the fact of having availed of the services of counsel by name Sri K. Ravi. Sri K.S. Ravi, who are conspicuous by their absence.

The submission of Sri Seshachala is that the Tribunal has committed a serious error in law in not only getting confused with the factum of search conducted at the residential premises of the assessee with the survey conducted, albeit on the same day at the business premises of the assessee, but has also placed erroneous reliance of decisions and authorities not germane to the facts and circumstances of the case; that the Tribunal has also committed an error in law in understanding the concept of block period and the enabling provisions of sections 158B and 158BB of the Act, for the purpose assessing the undisclosed income of the assessee during the block period, even while an option was given to the assessee to file return of income of the balance period of the accounting year, i.e., on and after the date of search by filing a regular return of income earned subsequently ending with the accounting year during which search had been conducted.

Sri Seshachala also points out that the Tribunal has overlooked the legislative changes that have been brought into the provisions of section 158BB in terms of the Finance Act, 2002, in terms of section 65 of the Act, which has given retroactive effect with effect from July 1, 1995, the date from which Chapter XIV-B was added to the Act.

The submission is that in terms of the legislative changes, which have ensured that the statutory provisions as stand now are as if they were on the statute book since the inception, i.e., since the introduction of Chapter XIV-B into the Act, but have also misunderstood the definition of the phrases "undisclosed income" and the "block period" in section 158B of the Act and the undisclosed income as found in clause (b) of section 158B of the Act. Section 158B of the Act reads as under :

158B. Definitions.�In this Chapter, unless the context otherwise requires,--

(a) ''block period'' means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted u/s 132 or any requisition was made u/s 132A and also includes the period up to the date of the commencement of such search or date of such requisition in the previous year in which the said search was conducted or requisition was made :

Provided that where the search is initiated or the requisition is made before the 1st day of June, 2001, the provisions of this clause shall have effect as if for the words, ''six assessment years'', the words, ''ten assessment years'' had been substituted;

(b) ''undisclosed income'' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false.

It is the further submission of the learned standing counsel that the method and manner of computation of the income of the block period and the beginning point and ending of the date of search have all been very clearly and categorically indicated u/s 158BB and there cannot be any ambiguity as to the assessment for the block period getting vitiated even assuming that some income relating to the regular assessment period has also got included in the block period as has been understood by the Tribunal.

The submission is that in the present case, while there is absolutely no scope on facts to indicate that the assessee had convinced the Assessing Officer to claim that the income up to the date of search and forming part of the income of the accounting period from April 1, 1999, to March 31, 2000, had been reflected in any books of account maintained in the normal course of business activity of the assessee but on the other hand the assessee had not even revealed to the Department about his business activity, leave alone maintaining any books of account or amount having been reflected, there was absolutely no scope for excluding any part of the undisclosed income of Rs. 50 lakhs from out of the scope of assessment for the block period. It is, therefore, urged that the order passed by the Tribunal, reversing the orders of the Assessing Officer and the Appellate Commissioner, is not sustainable and calls for suitable correction in this appeal, answering the questions posed in this appeal in favour of the Revenue and against the assessee.

Though there is no representation for the assessee, we have, nevertheless, bestowed our anxious consideration to the submissions made at the Bar on behalf of the Revenue and have perused the orders of the Assessing Officer and the Appellate Commissioner as also the order of the Tribunal and we have also been taken through the statutory provisions with some detail by Sri Seshachala.

We find that the object of introducing Chapter XIV-B into the statute book is to ensure that the need for invoking reopening provision, viz., section 147 of the Act and a limitation placed therein are all in the interests of the Revenue, as, perhaps, the Legislature in its experience and wisdom had thought it fit that the recourse to the provision of section 147 of the Act had only encouraged dishonest assessees and was also counter productive for the Revenue and the purpose of providing a degree of protection to honest assessees, who had already filed their returns of income and also not to keep tinkering with the concluded assessment, have all been over a period, fully taken advantage of by unscrupulous, evasive assessees making illegal gains at the cost of the Revenue and at the cost of the society and, therefore, in our opinion, the provisions of Chapter XIV-B call for a strict construction and not to either vaguely or loosely relieve an erring assessee from the rigour of these statutory provisions.

If an undisclosed income is found to attract the provisions of Chapter XIV-B, then there is no escape for an assessee from the applicability and the consequences that follow on the application of this provision of law.

We find that the only scope for reducing the rigour of block assessment, which is the provision for providing different rate of tax at 60 per cent, flat, but relieving an assessee of the liability towards interest and fine, is a compromise which the Legislature has made for ensuring effective and decisive culmination of the bringing to tax the undisclosed income of errant and law violating assessees.

Therefore, any scope for avoiding such rigour if at all is only to be found in the very statutory provisions, which are to be found in terms of clause (d) of sub-section. (1). of section 158BB of the Act, which reads as under :

158BB. Computation of undisclosed income of the block period.--(1) The undisclosed income of 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 Assessing Officer 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,-- . . .

(d) where the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years;

As per the statutory provision, the exclusion of the income from assessment of block period, if it is attributable to the part of the accounting period of the year in which the search has been conducted, it is possible only of and only when the assessee has produced before the Assessing Officer such of his books of account which are maintained in the normal course of business activity of the assessee, wherein is recorded the entries indicating the generation of income to the part of the accounting period and then only to exclude that part of the income from that segment of accounting period and allow the assessee to file a return excluding the income in the later assessment and not otherwise. As is rightly submitted by Sri Seshachala, in the present case, the assessee never made any offer for bringing to the notice of the Assessing Officer such a possibility by producing relevant material and in fact we find that the assessee is not even informed about the activity to the Revenue. No other question arises. Therefore, this appeal is to be allowed against the order of the Appellate Tribunal being without any rhyme or reason and not in consonance with the statutory provisions and not even in consonance with the material on record, but being one passed more in confusion and misunderstanding of the facts and law and is set aside and the order passed by the Assessing Officer as confirmed by the Appellate Commissioner is restored and affirmed.

We cannot avoid observing that of late the quality of orders that are come out from the Tribunal in exercise of its appellate power u/s 256 of the Act are found to be wanting and in many respect and many a times the orders are very prefecture, even non-speaking orders and has no correlation to the fact situation that prevails in a given case.

We also notice that the members of the Tribunal have developed an unhealthy habit of quoting totally unrelated judgments which are not applicable at all to the facts of the case, to pass orders not otherwise sustainable on facts or in law. We strongly deprecate such a tendency on the part of the members of the Tribunal, which is quite naturally a professional Tribunal comprised of expert members, one member from the Revenue side and another member from the accounting side, with considerable experience in their respective fields and to whom we can attribute expertise. We feel sorry that the confidence posed by the Legislature is not being justified by passing orders that are outcome from the Tribunal now-a-days. It is high time the method of recruitment to the Tribunal is also reviewed by the authority concerned and at least henceforth it is ensured that the members of some standing, integrity and competence are put in place as members of the Tribunal and not all and sundry.

The Legislature, particularly the Union Parliament may also take note of such tendency on the part of the Tribunal and ensure for suitable legislative measure so that the purpose and the object with which such Tribunals are constituted really subserve not only the interest of aggrieved assessee but also to ensure that the Revenue''s interest is not simply scarified or jeopardized by errant members.

Registrar General of this court is directed to send copies of this judgment to the Law Commission of India, Secretary to Department of Revenue, Ministry of Finance,, Government of India, Secretary to Government, Ministry of Law and Parliamentary Affairs, Government of India and the Central Board of Direct Taxes, New Delhi. Appeal is allowed and the substantial questions posed are answered in favour of the Revenue and against the assessee.