The Commissioner of Income Tax vs K. Narasa Reddy

K. Raviraja Pandian, J.—The assessee has filed the appeal framing the following questions of law:

Whether the Tribunal was right in deleting the undisclosed income relating to the assessment year 1995-96 and 1996-97 when the return was

filed long after the stand.

Whether the Income Tax Appellate Tribunal was right in cancelling the addition of Rs. 1,60,000/- u/s 2(22)(e) as deemed dividend?

The relevant block assessment period in this case is from 1986-87 to 1996-97. The respondent assessee is the Managing Director of Kences

Foundation (P) Limited, a company engaged in the construction and sale of flats with its registered office at 33-A, B.N.Road, T.Nagar, Madras.

There was a search in the residential premises as well as the business premises of the assessee u/s 132 of the Income Tax Act, 1961 on

23.02.1996. Consequent to the search block assessment has been initiated and an assessment order has been made. In that assessment, an

addition has been made as undisclosed income. The incomes were declared vide return filed on 30.07.1996 was at Rs. 2,24,800 for the

assessment year 1995-96 and Rs. 1,83,480/- for the assessment year 1996-97 vide return filed on 17.02.1997. These returns were filed

admittedly before the date of search u/s 139(4) of the Act. The assessing officer considered the income disclosed in the returns as undisclosed

income and also made an addition at Rs. 1,60,00,000/- as deemed dividend in the hands of the assessee u/s 2(22)(e) of the Act for the block

assessment.

On appeal to the Tribunal, the Tribunal, after considering the materials made available before it, was of the view that there could be no question

of deemed dividend in the case of assessee u/s 2(22)(e) of the Act as the very ingredient of the section was not present and the addition of amount

as undisclosed by the assessing officer was already disclosed in the returns filed and on the said reasoning, allowed the appeal. The correctness of

the said order is now questioned by the revenue in this appeal. The appeal has been admitted on the questions of law above referred to.

Learned Counsel for the revenue submitted that pursuant to the search made, block assessment has been made against the company in which

the respondent assessee was the Managing Director. The block assessment made against the company was the subject matter of an appeal before

this Court earlier in Tax Case Nos. 10 & 47 of 2000. After a detailed hearing of the learned Counsel on either side, this Court in the appeal

pertaining to the company thought it fit to remand the matter to the assessing officer for redoing the exercise by holding that the document seized at

the time of search would at best be considered as prima facie material, except the documents there was no seizure of money, bullion, jewellery or

other articles or things of value during the time of search. The said documents themselves would not be the sole criteria for estimating the

undisclosed income, in view of the explanation offered by the assessee that they were prepared for the purpose of settling the dues of the outgoing

director, who proposed to retire. Therefore the documents seized from the premises of the assessee at the time of search were not conclusive

proof to arrive at the undisclosed income. As the subject matter of this appeal also is relating to the block assessment of the director of the same

assessee, this appeal may also be remitted to the assessing officer with an observation to the assessing officer to follow the directions given in the

above case since reported in 289 ITR 509.

Learned Counsel for the respondent assessee also submits that certain points in disputes have been decided in favour of the assessee in the

above said judgment. The points so held in favour of the assessee in that case can be directed to be made applicable to the respondent assessee in

this case also by giving directions to the assessing officer.

Having regard to the submissions made by the learned Counsel on either side for the remand of the matter and taking into consideration the fact

that even in the earlier case in respect of the assessee company, this Court has set aside the orders of the assessing officer and the Tribunal and

remitted the matter to the assessing officer to do the framing of assessment in accordance with law, we are of the view that in this appeal is also

same order could be passed. Accordingly, the order of the assessing officer as well as the Tribunal are set aside and the matter is remitted back to

the assessing officer to make the assessment in accordance with law and on the basis of the materials available on record and in the light of the

reasoning stated in the case of the assessee''s company reported in Assistant Commissioner of Income Tax Vs. Kences Foundation P. Ltd., .