When Income declared after search was not undisclosed

By | August 21, 2015

Income declared after search was not undisclosed if covered by advance tax and TDS

Q;  Assessee declared certain income in belated return  after date of search. Whether such income can be treated as undisclosed ?

Section 158B(b), read with section 139, of the Income-tax Act, 1961

Subject :Income declared in belated return in Block assessment in search cases (Block period 1989-90 to 1998-99 and 1999-2000)

Decision : Where assessee declared certain income in belated return filed under section 139(4) after date of search, to extent said income was covered by advance tax and TDS, same could not be treated as undisclosed income

IN THE ITAT GUWAHATI BENCH (THIRD MEMBER)

3R

v.

Assistant Commissioner of Income-tax, Circle-1, Guwahati

H.L. KARWA, PRESIDENT (AS A THIRD MEMBER)
B.R. KAUSHIK AND RAJENDRA, ACCOUNTANT MEMBER
AND HEMANT SAUSARKAR, JUDICIAL MEMBER

IT APPEAL NOS. 161 AND 162 (GAU.) OF 2004
[BLOCK PERIOD 1989-90 TO 1998-99 & 1999-2000]

MARCH  25, 2014

Sunil Sharma and Debashis Mitra for the Appellant. O.A. Mao, CIT and P.K. Mandal, Sr. DR. for the Respondent.

ORDER

Hemant Sausarkar, Judicial Member – The appeal in ITA No. 161/Gau/2004 is directed at the instance of the Assessee against the order of the learned CIT(A).

2. The AO while passing the assessment order u/s 158BC, read with section 143(3) of the IT Act vide order dated 29-8-2003 has concluded for total taxable income of the assessee for Rs. 77,160/- and directed for penalty proceeding u/s 158BFA (2) of the Act.

3. There was a search u/s 132 of the Act conducted in the clinic and chamber premises of Dr. N. N. Dutta, Panbazar, Guwahati on 4-2-1999 and survey was conducted u/s 133A of the Act in the business premises of the Restaurant i.e. M/s. Intosh a unit of M/s. 3 R. During the course of search books of account, papers and documents were found inventorised and identification marked as GD 1 to GD 77. The seized papers relate to business of the assessee for X-ray, audiogram, pharmacy, canteen and restaurant and professional fees.

4. The assessee is a partnership firm commenced its business with effect from 01-04-1996 having 3 partners namely (1) Miss Mayurakhi Dutta, (2) Miss Gariashi Dutta and (3) Shri Jayatishman Dutta engaged in the business of selling fast foods, soft drinks and beverages under the name of M/s. Intosh. No books of account were maintained. The assessee has filed return of income for the first time during 1998-99 on 31-03-2002 after the search.

5. The AO considered the proceeding u/s 158BD and therefore, notice u/s 158 BC, read with section 158BD was issued on 12-06-2001, which was served on the assessee on 23-08-2001. In compliance, return was filed on 21-09-2001 for the block period 01-04-1988 to 04-02-1999 for nil income. Notice u/s 142(1) and 143(2) were issued and served on 04-10-2002. The assessment was completed on the basis of the seized materials after hearing of the assessee vide order dated 29-08-2003.

6. In appeal, the learned CIT(A) dismissed the appeal of the assessee.

7. The assessee is in appeal before us.

8. The Counsel of the assessee has submitted before us that the assessment u/s 158BC, read with section 143(3) is barred by limitation, since the notice u/s 158BC, read with section 158BD was issued much after the expiry of the limitation u/s 158B(1). Therefore, the assessment on the basis of notice which is time-barred is not sustainable. Further, the learned Counsel of the assessee submitted that there is no search in the case of the assessee and no satisfaction is recorded by the AO for having prima facie evidence for initiating proceedings u/s 158BD, which is not communicated to the assessee. There is violation of principle of natural justice. The learned Counsel of the assessee submitted that the assessee has filed voluntary return for the assessment year 1998-99 cannot be said to be non-est on the ground that the return was filed after the date of search. The addition made by the AO in assessment, which is cancelled on the basis of notice, dated 12-6-2001 of notice which is time-barred is unjustified and unreasonable, therefore, liable to be deleted.

9. The assessee is a partnership firm established as per agreement with effect from 25-12-1997. Before that Miss Mayurakshi Dutta was running the same in her individual capacity. The income of the firm has to be calculated with effect from 25-12-1997. The earlier income i.e. before 25-12-1997 has to be taxed in the hands of Miss Mayurakshi Dutta in her individual capacity up to 30-9-1997 since the intermediate period is for renovation and repairs of the premises. M/s. Intosh a unit of a firm, which was belonging to a firm, previously managed as M/s. Dutta Stores being sole proprietary concern of M/s. Dutta Stores till 30-9-1997. Partnership Firm came into existence with effect from 25-12-1997. Therefore, income for the assessment year 1997-98 belongs to Miss Mayurakshi Dutta as her own proprietary income disclosed by her in the return. The total receipts during 1998-99 were partly owned by the firm i.e. the assessee and partly income of proprietary business of Miss Mayurakshi Dutta as sole proprietary concern. Therefore, the addition is fully unjustified.

10. The learned Sr. DR relied on the order of the AO and that of the learned CIT(A) and submitted that the concurrent finding of the learned CIT(A) and the AO to be sustained, since the AO has passed assessment order on the basis of seized documents, which is denied by the assessee during the assessment.

11. We have heard the rival submissions, perused the record and citations relied by the assessee.

As regards ground No 1 and 2:

12. It is admitted fact that (a) Search seizure u/s 132 was conducted on 4-2-1999 in the clinic and chamber premises of Dr. N.N. Dutta and survey u/s 133A was conducted in the business premises of M/s. 3 R and M/s. Intosh, a unit of the firm/assessee where books were seized marked as GD 1 to GD77 which include register pertaining to the clinic. (b) The assessee has filed return for assessment year 1998-99 on 31-3-2000 after the date of search i.e. 4-2-1999. (c ) Notice u/s 158BC, read with section 158BD was issued on 12-6-2001 and served on 23-8-2001. (d) Notice u/s 142(1) and 143(2) were also issued and served on 4-10-2002.

13. On the basis of the admitted facts as above it is brought on record by the AO that notice u/s 158BC, read with section 158BD, dated 12-6-2001 was issued since the AO considered for proceeding u/s 158BD being assessment for third person. The AO has not brought on record the prima facie evidence for invoking jurisdiction and forming opinion for initiating proceedings u/s 158BD, which are mandatory pre-requirements for initiating proceedings u/s 158BD. The notice u/s 158BD, read with section 158BC is not procedural requirement, but mandatory to the AO to issue and serve the notice with the prima facie evidence found during the search relating to other person and satisfaction. Therefore, assessment u/s 158BC, read with section 143(3) without mentioning section 158BD is without proper jurisdiction.

14. However, the learned Counsel admitted in open Court that the issue is fairly covered by ITAT order in appeal ITA No. 63/Gau/2005 dated 24-7-2006 Dr. Nagen Chandra Deka.

15. Therefore, the grounds of appeal of the assessee are rejected.

As regards ground Nos. 3 and 5:

16. The assessee has filed return for the assessment year 1998-99 voluntarily u/s 139(4) filed on 31-3-2000. This cannot be termed as non-est even the return filed on 4-2-1999. The assessee has relied on paper book and citations, which are on record before us. While respectfully relying on the decisions J.K. Narayanan (HUF) v. Asstt. CIT [1999] 69 ITD 104 (Mad.), Sou. Vidya Madanlal Malani v. Asstt. CIT [2000] 74 ITD 341/[2001] 115 Taxman 316 (Pune) and Smt. Sitadevi Daga v. Asstt. CIT [1998] 67 ITD 151 (Indore), we are of the opinion that the income which is disclosed by the assessee u/s 139(4) voluntarily even after search was on record with the AO. Therefore, income declared by the assessee cannot be termed as undisclosed income only for the reason that the return was filed after the date of search. Our views get support from the orders Amarnath Aggarwal v. Dy. CIT [2000] 67 TTJ 551 (Delhi), Omprakash Sharma v. Dy. CIT [2004] 4 SOT 369 (JP), Friends Overseas (P.) Ltd. v. Dy. CIT [2001] 73 TTJ 367 (Delhi), Sou. Vidya Madanlal Malani (supra ), Chandra Bhan v. Asstt. CIT [2006] 98 ITD 6 (Agra), CIT v. Ashim Krishna Mondal [2004] 270 ITR 160/[2005] 144 Taxman 365 (Cal.) and P.R. Patel v. Dy. CIT [2001] 78 ITD 51 (Mum.).

17. In the result the grounds of appeal of the assessee are allowed.

As regards ground No. 4:

18. The assessee has brought on record that during the assessment year 1997-98 Miss Mayurakshi Dutta was controlling the business in the name of M/s. Dutta Stores, a proprietarial concern till 30-9-1997 and the partnership existed only with effect from 25-12-1997. The income before 25-12-1997 belongs to Miss. Mayurakshi Dutta and not of the assessee firm.

19. Therefore, the ground of appeal of the assessee is allowed.

20. In the result, the appeal of the Assessee is disposed off as discussed above in the order.

ITA No. l62/Gau/2004 – by the Assessee

21 . The AO while completing the assessment u/s 158BC, read with section 143(3) vide order dated 29-8-2003 has arrived at total taxable income for Rs. 3,80,720/- which includes year, wise income as under:

1995-96 Rs. 23,981/-
1996-97 Rs. 7,388/-
1997-98 Rs. 1,05,302/-
1998-99 Rs. 2,44,034/-

22. There was a search u/s 132 conducted in the clinic and chamber premises of Dr. N.N. Dutta on 4-2-1999. The documents, books etc. were found and inventorised as GD 1 to GD 77, which includes important documents relating to the business activities of Dr. N.N. Dutta.

23. Notice u/s 158 BC, read with section 158BD, dated 12-6-1991 was issued and served on 23-8-2001. The assessee filed nil return for the block period.

24. Notice u/s 142(1) and 143(2) was issued and assessment was completed after hearing of the assessee.

25. In appeal the learned CIT(A) has confirmed the order of the AO on legal issues and limitation and additions for the assessment years 1995-96 to 1998-99.

26. The assessee is in appeal before us.

27. The learned Counsel of the assessee has relied on the same arguments as in appeal No. l61/Gau/2004 before the Bench. So also the learned DR.

28. We have perused the records and citations brought on record in paper book filed by the assessee

As regards ground Nos. 1 and 2

29. These grounds are similar to the ground nos. 1 and 2 in ITA No. 161/Gau/2004. The Hon’ble Bench has taken the decision that the order u/s 158BC, read with section 158 BD is illegal and unjustified being time-barred and the mandatory requirement of having prima facie forming the opinion and recoding satisfaction for initiating proceedings u/s 158BD was not conveyed to the assessee. Therefore, the order of the AO u/s 158BC, read with section 143(3), dated 29-8-2003 is unjustified and not sustainable for want of recording satisfaction for initiating proceeding u/s 158 BD on the basis of records seized during the search relating to third person being prima facie evidence.

30. The learned Counsel of the assessee admitted before the Bench that the ground is fairly covered against him under order of the Hon’ble Bench in ITA No. 63/Gau/2005, dated 24-7-2006 Dr. Chandra Nagen Deka (supra ) against him.

30A. Therefore the ground of appeal is rejected.

As regards ground No. 3:

31. The AO has made the addition for the assessment years 1995-96 and 1996-97 for Rs. 23,981/- and Rs. 7,388/- on the basis of seized documents as discussed on page 2 last para and page 3 of his order.

32. In appeal the learned CIT(A) has confirmed the same.

33. The learned Counsel for the assessee before us submitted that during the assessment years 1995-96 and 1996-97 Dr. N.N. Dutta was running the clinic and consultancy business as proprietary concern and partnership firm came into existence during the financial year 1996-97 and Dr. N. N. Dutta and the assessee was furnishing separate returns regularly along with computation and balance sheet of M/s. Panbazar Diagnostic Centre i.e. the assessee for the assessment year 1997-98 and 1998-99. Therefore, we are of the opinion that the income for the assessment years 1995-96 and 1996-97 for Rs. 23,981/- and Rs. 7,388/- has to be taxed in the hands of Dr. N.N. Dutta being proprietor of the clinic and consultancy.

34. In the result, the ground of appeal of the assessee is allowed.

As regards ground No. 4: undisclosed income for the assessment year 1997-98 and 1998-99 for Rs. 1.05.320/- and Rs. 2,44,034/-

35. The assessee has filed voluntary return u/s 139(4), which is accompanied with paperbook. Return for the assessment was filed on 31-3-1999 and 1998-99 on 31-3-2000 for Rs. 1,05,320/-and Rs. 2,44,034/- respectively. Dr. N.N. Dutta was also not examined by the AO to identify the income of the firm or for his individual for the assessment years 1995-96, 1996-97, 1997-98 and 1998-99. Therefore, return filed which is on record with the AO, which are prima facie accepted, cannot be treated as nonest and the income disclosed in the return cannot be treated as undisclosed income. Our views get support from the orders Amarnath Aggarwal (supra ), Omprakash Sharma (supra ), Friends Overseas (P.) Ltd. (supra ), Sou. Vidya Madanlal Malani (supra ), Chandra Bhan (supra ), Ashimkrishna Mandal (supra ), 78 ITD 55 (sic) and Amity Hotels (P.) Ltd. v. CIT [2005] 272 ITR 75/142 Taxman 160 (Delhi).

36. In the result, the ground of appeal is allowed.

As regards ground No. 5:

37. Since the assessee has disclosed the income by filing return for the assessment years 1997-98 and 1998-99 being the income of the firm, higher income cannot be estimated without any reasons and record to substantiate the claim on the basis of seized documents.

38. The learned DR has not brought on record the seized documents showing the higher income. Therefore, income declared by the assessee in the return filed by the assessee is to be accepted and no addition can be made on estimate basis.

39. In the result, the ground of the assessee is allowed.

40. In the result, the appeals of the assessees are disposed off as discussed above in the order.

ORDER

B.R. Kaushik, Accountant Member – I have perused the proposed order of the ld. Judicial Member. For the reasons discussion hereinafter, I am not in agreement with him on certain issues. Hence this dissenting order.

2. The facts of the two cases are similar. In brief, certain books of account and other documents were found during the course of search of the premises of Dr. N.N. Dutta on 04-02-1999. On the basis of such seized books of account, the documents etc. pertaining to the affairs of these assessees, proceedings were initiated in their respective cases. First two grounds of both these appeals are identical. The assessees have questioned the decision of the ld. CIT(A) to uphold the validity of these assessments. It was contended that the last date for completion of block assessment in the case of Dr. N.N. Dutta from whose premises the relevant documents were seized pertaining to these assessees, was 28-02-2001, whereas the notices in these cases u/s. 158BC, read with section 158BD were served on 23-8-2001 and these notices were beyond time in view of sections 158BC, 158BD and 158BE of the Act and hence invalid.

3. This issue is squarely covered by the decision of this Bench as per order dated 24-07-2006 passed in ITA No. 63(Gau)/2005 in the case of Dr. Nagen Chandra Deka (supra ). I respectfully differ from the discussion in the proposed order of the ld. J.M. in paras 13 and 29 where he has held that the A.O. did not bring on record the prima facie evidence for invoking jurisdiction and forming opinion for initiating proceedings u/s. 158BD and the assessments under consideration finalised u/s. 158BC, read with section 143(3) of the Act was without mentioning section 158BD and without the satisfaction of the A.O. and hence without proper jurisdiction.

4. In my considered opinion there was sufficient material before the A.O., which was seized in the case of Dr. N.N. Dutta, in respect of undisclosed income of these assessees and he had rightly invoked the provisions of section 158BC, read with section 158BD and the assessments have been rightly upheld as valid by the ld. CIT(A). As per the decision in the case ofDr. Nagen Chandra Deka (supra ) this Bench has held that no time limit was prescribed for issuing notice u/s. 158BC, read with section 158BD and the assessments have been made within the time-limit prescribed u/s. 158BE of the Act. The ground Nos. 1 and 2 of these appeals have been rightly rejected by the ld. J.M. following the decision of this Bench in the case of Dr. Nagen Chandra Deka (supra ). I, therefore, agree with the conclusion arrived at by him but do not agree with his observation in paras 13 and 29 of the proposed order as discussed above. Ground Nos. 1 and 2 of these appeals are accordingly rejected. With due respect, it is also observed that the ld. J.M. is not correct in holding as per paras 13 and 29 of the proposed order that the assessments in question were without proper jurisdiction and at the same time rejecting the aforestated grounds of appeal as per paras 15 and 30A for the reasons given in paras 14 and 30 of his proposed order.

5. Ground No. 3 of ITA No. 161 (Gau)/2004 and ground No. 4 of ITA No. 162 (Gau)/2004 are also identical insofar as the decision of the ld. CIT(A) in confirming the action of the A.O. in holding that the voluntary returns filed by the assessees u/s. 139(4) for assessment year 1997-98 in the case of M/s. 3R and for the assessment years 1997-98 and 1998-99 in the case of M/s. Panbazar Diagnostic Centre were non-est because the same were filed after the date of search and no benefit could be given to the assessee in respect of the income disclosed in the said returns.

6. After careful consideration of discussion on this issue, the orders of the lower authorities and the relevant paras in the proposed order of the ld. J.M., I am of the opinion that the returns filed after the date of search as per provisions of section 139(4) could not be considered non-est. However, I respectfully differ with the ld. J.M. that income declared by the assessee in these returns was not to be considered as undisclosed income. In my considered opinion, the income declared in these returns could not be considered as undisclosed income only for the reasons that the returns were filed late. However, in view of the provisions of section 158BB(1)(ca) and the decision of the Hon’ble jurisdictional High Court in the case of Dr. (Mrs.) Alaka Goswami v. CIT [2004] 268 ITR 178/138 Taxman 212 (Gau.), the deduction is required to be allowed for the income declared in the belated returns filed by the assessees after the date of search to the extent the income is covered by prepaid advance-tax and T.D.S. These grounds of these appeals are, therefore, treated as partly allowed.

7. As per ground Nos. 4 and 5 in ITA No. 161(Gau)/2004 for the assessment year 1997-98 the income of Rs. 8,021/- and for the assessment year 1998-99 the income of Rs. 69,136/- was determined by the A.O. which was confirmed by the ld. CIT(A) and the decision of the ld. CIT(A) on these points have been questioned by the assessee.

8. It is seen from the orders of the lower authorities that the seized documents related to these two concerns and for the reasons discussed in the orders of the lower authorities the gross receipts of M/s. 3R for the assessment year 1997-98 was determined at Rs. 89,878/- on the basis of seized document GD-10. Expenditure of Rs. 81,857/- recorded in the seized documents was reduced and net receipts were taken at Rs. 8021/- and added as undisclosed income rejecting the plea of the assessee that during the relevant period no business was conducted by the firm for the reasons that as per partnership deed the business of the assessee had commenced on 01-04- 1996. Similarly for the financial year 1997-98 as per detailed discussion in the orders of the lower authorities the gross receipts were determined at Rs. 1,69,662/- out of which deduction for expenditure of Rs. 1,00,526/- was allowed and the net receipt of Rs. 69,136/- for business was added as undisclosed income of the assessee on the basis of the seized documents GD-15, GD-40 and GD-42.

9. The assessee has failed to prove anything to the contrary and the estimate of undisclosed income on the basis of seized documents is reasonable. With due respect, in my considered opinion, the decisions of the lower authorities need no interference. These grounds of appeal are, therefore, rejected.

10. In ITA No. 162(Gau)/2005 in the case of M/s. Panbazar Diagnostic Centre as per ground Nos. 3 and 5, the action of the lower authorities in treating the undisclosed income of Rs. 23,981/- and Rs. 7388/- for the assessment years 1995-96 and 1996-97 respectively had been questioned on the ground that the income belonged to Dr. N.N. Dutta and that the income of Rs. 1,05,302/- and Rs. 2,44,034/- considered as undisclosed income for the assessment years 1997-98 and 1998-99 was wrongly confirmed by the Ld. CIT(A).

11. The issues have been discussed in detail by the lower authorities. The additions were made on the basis of details recorded in the seized material discussed at pages 2 to 5 of the impugned assessment order. The seized material revealed the sale of medicine and X-ray receipts. The A.O. accordingly determined the income of the pharmacy business and X-ray/Audiogram on the basis of receipts and expenditure recorded in the relevant seized materials. The assessee has failed to prove that the income in question was included in the income of Dr. N.N. Dutta. No material has also been brought before us to prove that the determination of undisclosed income is unreasonable or on the basis of wrong estimation. The additions are, therefore, confirmed subject to direction that income declared in the returns filed by the assessee after the date of search to the extent it relates to the prepaid advance-tax and T.D.S. should be allowed as a tax deduction from the business income of the block period in view of decision in the case of Dr.(Mrs.) Alaka Goswami (supra ). These grounds of appeal are, therefore, partly allowed.

12. As a result, both the respective appeals of these assessees are treated as partly allowed.

ORDER UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961

In these appeals, due to difference of opinion between the Members of the Bench, Therefore, following questions were referred to the Hon’ble President of the Income-tax Appellate Tribunal u/s. 255(4) of the I.T. Act, 1961, for the opinion of the Third Member. The questions framed are as under:

“1. Whether in the facts and circumstances of these cases the block assessments can be considered invalid?

2. Whether in the facts and circumstances of these cases if can be held that the AO did not bring on record the prima facie evidence for invoking jurisdiction and initiation of proceedings u/s. 158BD of the Act?

3. Whether in the facts and circumstances of these cases the assessments finalized u/s. 158BC, read with section 143(3) of the Act can be considered as assessments without mentioning section 158BD and without the satisfaction of the A.O. and hence without proper jurisdiction?

4. Whether in the facts and circumstances of these cases the aforestated questions which wee not raised by the assesses can be considered while deciding these appeals by the I.T.A.T.

5. Whether in the facts and circumstances of these cases the issues can be decided on merit after declaring the impugned assessments u/s. 158BC, read with section 143(3) as without proper jurisdiction?

6. Whether in the facts and circumstances of these cases the income of Rs. 8021/- and Rs. 69,136/- was liable to be assessed as undisclosed income of the assessee M/s. 3R (ITA No. 161/Gau/2004) for the assessment years 1997-98 and 1998-99 respectively?

7. Whether on facts and circumstances of the case the income of Rs. 23,981/- and Rs. 7388/- respectively for the assessment years 1995-96 and 1996-97 respectively were liable to be assessed in the block assessment of the assessee M/s. Panbazar Diagnostic Centre (ITA No. 162/Gau/2004) ?

8. Whether in the facts and circumstances of the case the income of Rs. 1,05,302/- and Rs. 2,44,034/- for the assessment years 1997-98 and 1998-99 respectively were liable to be assessed in the block assessment of M/s. Panbazar Diagnostic Centre (ITA No. 162/Gau/2004) ?

9. Whether in the facts and circumstances of these cases, the income declared in the belated returns filed after the date of search by the assessee were liable to be fully deducted from the income of the respective assessees for the relevant periods?”

THIRD MEMBER ORDER

H.L. Karwa, President (As A Third Member) – The following points of difference were referred to me for my decision:

“1. Whether in the facts and circumstances of these cases the block assessments can be considered invalid?

2. Whether in the facts and circumstances of these cases it can be held that the A.O. did not bring on record the prima facie evidence for invoking jurisdiction and initiation of proceedings u/s. 158BD of the Act?

3. Whether in the facts and circumstances of these cases the assessments finalized u/s 158BC, read with section 143(3) of the Act can be considered as assessments without mentioning section 158BD and without the satisfaction of the A.O. and hence without proper jurisdiction?

4. Whether in the facts and circumstances of these cases the aforesaid questions which were not raised by the assessees can be considered while deciding these appeals by the I.T.A.T.

5. Whether in the facts and circumstances of these cases the issues can be decided on merit after declaring the impugned assessments u/s 158BC, read with section 143(3) as without proper jurisdiction?

6. Whether in the facts and circumstances of these cases the income of Rs. 8021/- and Rs. 69,136/- was liable to be assessed as undisclosed income of the assessee, M/s 3R (ITA No. 162/Gua/2004) for the assessment years 1997-98 and 1998-99 respectively?

7. Whether in the facts and circumstances of these cases the income of Rs. 23,981/- and Rs. 7,388/- respectively for the assessment years 1995-96 and 1996-97 were liable to be assessed in the block assessment of the assessee M/s. Panbazar Diagnostic Centre (ITA No. 162/Gau/2004)?

8. Whether in the facts and circumstances of these cases the income of Rs. 1,05,302/- and Rs. 2,44,034/- for the assessment years 1997-98 and 1998-99 respectively were liable to be assessed in the block assessment of M/s. Panbazar Diagnostic Centre (ITA No. 162/Gau/2004)?

9. Whether in the facts and circumstances of these cases, the income declared in the belated returns filed after the date of search by the assessee were liable to be fully deducted from the income of the respective assessees for the relevant periods?

Sd/- Sd/-
(B.R. Kaushik) (Hemant Sausarkar)
Accountant Member Judicial Member
Dated : 26.12-2006.”

2. The facts of these two cases are that a search and seizure operation u/s 132 of the Income-tax Act, 1961 (in short “the Act”) was conducted at the clinic premises of Dr. N.N. Dutta, Panbazar, Guwahati on 4th February, 1999. During the course of search operation, certain books of account, papers/documents were found and seized. These seized materials included some important registers, exercise books, files containing cash memos/vouchers etc. related to the business activities such as X-rays, audiogram, pharmacy, canteen and restaurant and professional fees etc. In both the cases, proceedings u/s 158BD were initiated and notices u/s 158BC read with section 158BD of the Act were issued on 12th June, 2001, requiring the assessees to file block returns in Form No. 2B. In response to the said notices, both the assessees furnished the block returns in Form No. 2B on 21st September, 2001 declaring therein the total undisclosed income for the block period 01.04.1998 to 04.02.1999, at NIL. Thereafter, notices u/s 142(1) and 143(2) were issued and served on the assessees on 04.10.2002. The A.O. after hearing the assessees, framed the assessment orders in both the cases on 29th August, 2003. In ITA No. 161/Gau/2004 (M/s.3R), the A.O. determined the undisclosed income for assessment year 1997-98 at Rs. 8,021 and for assessment year 1998-99 at Rs. 69,136. In ITA No. 162/Gau/2004 (M/s. Panbazar Diagnostic Centre), the A.O. determined the undisclosed income of Rs. 23,981 and Rs. 7,388 for assessment years 1995-96 and 1996-97, respectively. The A.O. further determined the undisclosed income of Rs. 1,05,302 and Rs. 2,44,034 for the assessment years 1997-98 and 1998-99, respectively.

3. Feeling aggrieved and dissatisfied with the orders passed by the Assessing Officer, the assessees filed the appeals before the Commissioner of Income-tax (Appeals)-1, Guwahati, who vide his separate orders dated 6th August, 2004 (M/s.3R) and 12th August, 2004 (M/s. Panbazar Diagnostic Centre), dismissed the appeals, and hence, they filed the appeals before the Tribunal.

4. In ITA No. 161/Gau/2004, the assessed raised the following grounds:—

“1. For that on the facts and in the circumstances of the Appellant’s case, the ld. CIT(A) was not justified in holding that since no time-limit within which Notice has to be issued or served on the ‘Other Person’ within the provisions of Section 158BD of the I.T. Act has been prescribed under the Act, there was no infirmity or illegality in the Assessment Order of the A.O. in spite of the fact that the Notices u/s 158BC, read with Section 158BD was issued to the Appellant much after the Expiry of the Limitation in case of the ‘Searched – Person’ within the provisions of Section 158BE(1) of the I.T. Act.

2. For that on the facts and in the circumstances of the case, the ld. CIT(A) should have held that the impugned Assessment Order passed by the A.O. in case of the Appellant was bad and invalid under law inasmuch as the same was passed on the basis of a Notice which was barred by implied limitation and as such the Assessment order completed on the strength of such Notice was bad and unsustainable under law.

3. For that without prejudice to the above contention but insisting fully on the same, on the facts of the Appellant’s case, the ld. CIT(A) was not justified in holding that the Voluntary return filed by the Appellant u/s 139(4) of the I.T. Act on 31.3.2000 for Assessment Year 1998-99 was non-est’ in law as the same was filed after the date of search and as such no benefit can be given to the Appellant in respect of the income disclosed in the said return.

4. For that on the facts and in the circumstances of the case, the ld. CIT(A) was not justified in upholding the Appellant’s undisclosed income for assessment year 1997-98 at Rs. 8,021/-.

5. For that on the facts and in the circumstances of the case, the ld. CIT(A) was not justified in upholding the Appellant’s ‘undisclosed income’ for Assessment Year 1998-99 at Rs. 69,136/-.”

5. In ITA No. 162/Gau/2004, the assessee raised the following grounds:—

“1. For that on the facts and in the circumstances of the Appellant’s case, the ld. CIT(A) was not justified in holding that since no time-limit within which Notice has to be issued or served on the ‘Other Person’ within the provisions of Section 158BD of the I.T. Act has been prescribed under the Act, there was no infirmity or illegality in the Assessment Order of the A.O. inspite of the fact that the Notices u/s 158BC, read with Section 158BD was issued to the Appellant much after the Expiry of the Limitation in case of the ‘Searched – Person’ within the provisions of Section 158BE(1) of the I.T. Act.

2. For that on the facts and in the circumstances of the case, the Ld. CIT(A) should have held that the impugned Assessment Order passed by the A.O. in case of the Appellant was bad and invalid under law inasmuch as the same was passed on the basis of a Notice which was barred by implied limitation and as such the Assessment order completed on the strength of such Notice was bad and unsustainable under law.

3. For that without prejudice to the above contention but insisting fully on the same, even on facts, the learned CIT(A) was not justified in confirming the A.O.’s action in holding that the so-called ‘undisclosed income’. Quantified by him at Rs. 23,981/- and Rs. 7,388/- respectively for the Assessment Years 1995-96 and 1996-97 belong to the appellant and not to Dr. N.N. Dutta, as claimed by the Appellant and more so when the appellant firm was not in existence during aforesaid two years.

4. For that on the facts and in the circumstances of the case, the ld. CIT(A) was not justified in confirming the action of the learned A.O. in holding that the Voluntary Returns filed by the Appellant u/s 139(4) of the I.T. Act for Assessment Year 1997-98 and 1998-99 were non-est’ in law even when there was no search u/s 132(1) in case of the appellant firm and further when these returns were processed and assessed u/s 143(1)(a) of the I.T. Act.

5. For that on the facts and in the circumstances of the case, the ld. CIT(A) was not justified in confirming the action of the learned A.O. in determining the appellants undisclosed income for assessment years 1997-98 and 1998-99 at Rs. 1,05,302/- and Rs. 2,44,034/- respectively.”

6. As regards common ground Nos. 1 and 2 of the appeals, both the Members of the Tribunal agreed to reject the grounds holding that the issue was covered against the assessees by the decision of the ITAT Guwahati Bench dated 24th July, 2006, in the case of Dr. Nagen Chandra Deka (supra ). As far as the merits of the appeals are concerned, the learned Judicial Member in his proposed order allowed ground Nos. 3 to 5 in ITA No. 161/Gau/2004 and ground Nos. 3 to 5 in ITA No. 162/Gau/2004. The learned Accountant Member did not agree with the views of the learned JM and passed a separate dissenting order. As regards ground No. 3 of ITA No. 161/Gau/2004 and ground No. 4 of ITA No. 162/Gau/2004, the learned AM agreed with the views of the learned JM to the extent that the returns filed after the date of search as per the provisions of section 139(4) of the Act could not be considered as non-est. Further, he did not agree with the views expressed by the learned JM that income declared by the assessees in these returns was not to be considered as undisclosed income. In view of the decision of the Hon’ble jurisdictional High Court in the case of Dr.(Mrs.) Alaka Goswami (supra ), the learned AM observed that the deduction was required to be allowed for the income declared in the belated return filed by the assessees after the date of search to the extent the income is covered by prepaid advance tax and TDS. Accordingly, the learned AM held that ground No. 3 of ITA No. 161/Gau/2004 and ground No. 4 of ITA No. 162/Gau/2004, are to be treated as partly allowed. The learned AM rejected ground Nos. 4 and 5 of ITA No. 161/Gau/2004 and Ground Nos. 3 and 5 of ITA No. 162/Gau/2004.

7. I have heard S/Shri Sunil Sharma & Debashis Mitra, the learned Counsels for the assessee, at length. On behalf of the Revenue, S/Shri O.A. Mao, CIT-DR and P.K. Mandal, Sr. DR, appeared and argued the case. I have also perused the records.

8. At the very outset, I may point out that there is no discussion with respect to question Nos. 1 to 3 in the separate orders passed by the Members of the Tribunal. On a perusal of question No. 4, it would be clear that question Nos. 1 to 3 were never raised by the assessee before the Bench. However, the learned JM made certain observations in paras 13 and 29 of the proposed order. The observations therein were made without verifying the assessment records and without putting any query in that regard to the Departmental Representative, who appeared before the Bench during the course of hearing. It is observed that with respect to question Nos. 1 to 3, the learned AM has not given any findings for the obvious reason that no such issues were raised and argued by the assessee before the Division Bench. This fact would be clear from question No. 4 which was formulated and referred to by both the learned Members wherein it is stated that no such issues were raised by the assessees. In that view of the matter, there could not be any difference of opinion with regard to question Nos. 1 to 3 and 4.

9. In view of the above, no decision on merits is being given in respect to question Nos. 1 to 4.

10. As regards question No. 5, it is observed that neither the learned Judicial Member nor the learned Accountant Member has given any findings to the effect that the impugned assessments were framed without proper jurisdiction. Thus, there was no difference of opinion between the learned Members on the above issue, and therefore, the appeals can be decided on merits.

11. Now, I will take up question No. 6. The A.O. determined the assessees undisclosed income for assessment year 1997-98 at Rs. 8,021. The assessees’ main contention before the authorities below was that the entire income for the assessment year 1997-98 belonged to Ms. Mayurakshi Dutta, proprietress of M/s. Dutta Stores and the entire income was duty shown by her in her return for the assessment year 1997-98. It was also brought to the notice of the authorities below by the assessee that Ms. Mayurakshi Dutta was one of the partners of the assessee-firm. The assessee-firm came into existence vide a deed of partnership executed on 06.11.1996 consisting of three partners viz., (i) Ms. Mayurakshi Dutta – 40%, (ii) Ms. Gariashi Dutta – 40%, and (iii) Shri Jayatishman Dutta – 20%. During the financial year 1996-97, relevant to the assessment year 1997-98, the assessee-firm could not commence its business and as such, it had no income whatsoever. The business of restaurant under the trade name of ‘Intosh’, a unit of the assessee-firm belonged to M/s. Dutta Stores of which Ms. Mayurakshi Dutta was proprietress up to 30th September, 1997. The assessee-firm could commence its business only on and from 25th December, 1997 and it had no business or income whatsoever during the previous year relevant to the assessment year 1997-98. It was claimed by the assessee before the authorities below that Ms. Mayurakshi Dutta had shown in her return of income for the assessment year 1997-98, an income of Rs. 60,865 from M/s. Dutta Stores. It appears that the A.O. has not made any inquiry to ascertain the truthfulness in assessees claim and also without affording any specific opportunity to the assessee in this regard, the A.O. has no material to reject the assessees bona fide and genuine version. It is apparent from the records that Ms. Mayurakshi Dutta, one of the partners of assessee-firm, carried on the business of M/s. 3R under the trade name of M/s.Dutta Stores up to 30th September, 1997. M/s. Dutta Stores, under the banner of ‘3R’ used to sell Cold Drinks, Ice-creams, Ready to eat Snacks and other petty grocery and stationery items. For the assessment year 1997-98, Ms. Mayurakshi Dutta has shown net receipts from proprietorship concern namely M/s. Dutta Stores at Rs. 60,865, which is supported by the documentary evidence in the form of copy of computation of taxable income, balance sheet as on 31st March, 1997 filed on 31st March, 1999, along with the return of income for assessment year 1997-98. The return of income filed by Ms. Mayurakshi Dutta for the assessment year 1997-98 has been accepted by the Revenue. Thus, considering the above facts, there was no justification in making the addition of Rs. 8,021 in the hands of the assessee for the assessment year 1997-98. Even otherwise also, the income for assessment year under consideration has already been taxed in the hands of Ms. Mayurakshi Dutta, under no circumstances, the same can be considered as income in the assessee’s hands.

12. The A.O. also determined undisclosed income at Rs. 69,136 for the assessment year 1998-99. The main contention of the assessee was that the business of restaurant was run up to 30th September, 1997 by Ms. Mayurakshi Dutta in her individual capacity. For the assessment year 1998-99 comprising of a period of six months from 01.04.1997 to 30.09.1997, Ms. Mayurakshi Dutta disclosed the turnover or receipt of Rs. 1,71,480 and expenses of Rs. 1,36,800 with resultant net profit of Rs.37,680. She had disclosed this amount in her return of income for the assessment year 1998-99. Since the income for the period 01.04.1997 to 30.09.1997 has already been taxed in the hands of Ms. Mayurakshi Dutta, therefore, the same cannot be considered as income in the hands of the assessee-firm. In my opinion, the A.O. without taking into consideration the above facts, merely proceeded on the presumption that the so-called receipts of Rs. 1,69,662 as worked out by him on the basis of seized papers constituted undisclosed sales of the assessee-firm. In fact, there was no basis whatsoever in working out the expenses attributable to above sales at Rs. 1,00,526 and thereby in treating the difference of Rs. 69,136 as undisclosed income of the assessee. In the instant case, the A.O. has not brought any material on record to hold that the entire impugned receipts as worked out by him on the basis of seized material, constituted undisclosed sales of the assessee. The onus was entirely on the Assessing Officer to conclusively establish that the sales and expenses as worked out by him were unaccounted and as such the same called for the adverse inference. In my opinion, there is a substance in the contention of Shri Sunil Sharma, the learned Counsel for the assessee, that in fact the so-called undisclosed receipts of Rs. 1,69,662 as worked out by the Assessing Officer was without any basis, and hence the action of the A.O. was not correct and deserved to be rejected.

13. In view of the above discussion, I am of the view that the income of Rs. 8,021 and Rs. 69,136 cannot be assessed as undisclosed income in the hands of the assessee, M/s. 3R (ITA No. 161/Gau/2004) for the assessment years 1997-98 and 1998-99, respectively. In that view of the matter, I agree with the views of the learned Judicial Member in holding that there was no justification in determining the undisclosed income of Rs. 8,021 and Rs. 69,136 of the assessee for the assessment years 1997-98 and 1998-99, respectively.

14. Question No. 7 relates to M/s. Panbazar Diagnostic Centre (ITA No. 162/Gau/2004). The assessee claimed that the undisclosed income of Rs. 23,981 and Rs. 7,388 for the assessment years 1995-96 and 1996-97 respectively belonged to Dr. N.N. Dutta. The additions were made on the basis of details recorded in the seized material discussed at pages 2 to 5 of the assessment order dated 29th August, 2003. The assessee is a partnership firm engaged in the business activities of X-ray, Audiogram and Pharmacy, etc. According to A.O. the assessee did not maintain regular books of account such as cash book, ledger etc. The firm filed its income-tax return for the first time for the assessment year 1997-98 on 31st March, 1999 i.e. after the date of search conducted in the clinic of Dr. N.N. Dutta on 4th February, 1999. The Assessing Officer observed that the seized materials marked GD-6 and GD-12 were medicine sales register and X-ray receipts register respectively showing the gross receipts from medicines and X-ray and expenses only for medicine as mentioned in para 3 of the assessment order. The A.O., on the basis of seized material, determined the income of the Pharmacy business and X- ray/Audiogram on the basis of receipt and expenses recorded in the relevant seized material. The assessee took the plea that the income in question was included in the income of Dr. N.N. Dutta in his individual capacity and Dr. Dutta has disclosed the income from this source in his individual returns of the concerned years. However, the A.O. observed that Dr.Dutta had not shown any income from Pharmacy and X-ray business in the income statement (balance sheet etc.) for the financial years 1994-95 and 1995-96 filed along with his individual returns. In that view of the matter, the A.O. determined the undisclosed income of the assessee at Rs. 23,981 for assessment year 1995-96 and Rs. 7,388 for the assessment year 1996-97. The learned Accountant Member has categorically observed that no material was brought before the Tribunal to prove that the determination of undisclosed income was unreasonable or on the basis of wrong estimation. I find that the assessee has not produced any documentary evidence to show that the income in question was disclosed by Dr. Dutta in his returns for the financial years 1994-95 and 1995-96 relevant to the assessment years under consideration. The assessee also failed to bring any evidence on record to show that the assessee-firm came into existence only during the financial year 1996-97 relevant to the assessment year 1997-98. Considering the entire facts and circumstances of the present case, I am in agreement with the findings given by the learned Accountant Member that the additions were correctly made by the A.O.

15. Now I will take up question Nos. 8 and 9. For the assessment years 1997-98 and 1998-99, the A.O. determined the undisclosed income at Rs. 1,05,302 and Rs. 2,44,034 respectively on the basis of seized material. The assessee-firm furnished its original return u/s 139(4) of the Act for the first time for the assessment year 1997-98 on 31st March, 1999 i.e. after the date of search. The return u/s 139(4) for assessment year 1998-99 was also furnished on 31st March, 2000 i.e. after the date of search. The returns filed by the assessee for the assessment years 1997-98 and 1998-99 were treated as non-est by the A.O. and the CIT(A) upheld the order of the A.O. On this issue there was a difference of opinion between the learned Members of the Tribunal. The learned Judicial Member was of the opinion that the authorities below were not justified in treating the returns filed u/s 139(4) of the Act after the date of search as non-est. The learned Accountant Member, however, took a contrary view which is stated in para 6 of his dissenting order. The learned Accountant Member has referred to the decision of the Hon’ble jurisdictional High Court in the case of Dr.(Mrs.) Alaka Goswami (supra ), wherein the Hon’ble High Court has observed (Head Note) as under:-

“Search and seizure was conducted under section 132 of the Act at the residence of the assessees. In response to the notice under section 158BC, the assessees filed returns disclosing undisclosed income for the block period of April 1, 1986 , to August 21, 1996. In the block period the undisclosed income for the assessment year 1995-96 was also included and the assessees claimed that the income covered by the amount of advance tax paid for the assessment year 1995-96 could not be treated as undisclosed income for the purpose of block assessment. The Assessing Officer and the Appellate Tribunal rejected these claims of the assessees.”

16. On appeal, the Hon’ble Gauhati High Court held (page 185) as under:—

“In any case although there is a difference between the regular assessment and the block assessment, as we have already noticed, unless the provisions of the block assessment specifically bar the assessing authority from taking into consideration the income disclosed by the assessee on payment of the advance tax to be taken into consideration, the income disclosed by the assessee on payment of advance tax would be an income disclosed to the Revenue and cannot be treated as an income undisclosed for the relevant assessment year. Learned counsel for the Revenue could not point out any provision on the basis of which we can hold that the income disclosed on payment of advance tax cannot be treated as disclosure of income, by virtue of a particular statutory provision under Chapter XIV-B of the Act.

For the discussions aforesaid, we answer the question in the negative and hold that the income disclosed on account of payment of the advance tax cannot be held to be undisclosed income for the purposes of block assessment. The appeals of the assessees are allowed to that extent and the assessment orders would be modified taking the income on payment of advance tax as disclosed income and not as the undisclosed income for the assessment year 1995-96.”

17. The learned Accountant Member in his dissenting order observed that the deduction is required to be allowed for income declared in the belated return filed by the assessee after the date of search to the extent the income is covered by prepaid advance tax and TDS. He accordingly allowed the grounds partly. In view of the decision of the Hon’ble jurisdictional High Court referred to above, I fully agree with the view taken by the learned Accountant Member.

18. The file may be placed before the Division Bench for passing an order in conformity with the majority opinion.

ORDER

H.L. Karwa, President – In these appeals, due to difference of opinion between the Members of the Division Bench, the following questions were referred for the opinion of the Third Member:

“1. Whether in the facts and circumstances of these cases, the block assessments can be considered invalid?

2. Whether in the facts and circumstances of these cases, if can be held that the AO did not bring on record the prima facie evidence for invoking jurisdiction and initiation of proceedings u/s. 158BD of the Act?

3. Whether in the facts and circumstances of these cases the assessments finalized u/s. 158BC, read with section 143(3) of the Act can be considered as assessments without mentioning section 158 BD and without the satisfaction of the Act and hence, without proper jurisdiction?

4. Whether in the facts and circumstances of these cases, the aforesaid questions which wee not raised by the assessees can be considered while deciding these appeals by the ITAT.

5. Whether in the facts and circumstances of these cases, the issues can be decided on merit after declaring the impugned assessments u/s. 158BC, read with section 143(3) as without proper jurisdiction?”

2. These questions do not arise from the dissenting orders of the ld Members and hence, the Third member has not given any findings on these issues.

3. In ITA No. 161/Gau/2004, following question was referred to for the opinion of the ld Third Member:

“Whether in the facts and circumstances of these cases the income of Rs. 8021/- and Rs. 69,136/- was liable to be assessed as undisclosed income of the assessee M/s. 3 R (ITA No. 161/Gau/2004) for the assessment years 1997-98 and 1998-99 respectively?”

4. The Third Member has agreed with the view taken by the ld Judicial Member. Therefore, in view of majority opinion, the appeal of the assessee is treated as partly allowed.

5. In ITA No. 162/Gau/2004, the following questions were referred to for the opinion of the ld Third Member:

“1. Whether in the facts and circumstances of the case, the income of Rs. 23,981/- and Rs. 7,388/- respectively for the assessment years 1995-96 and 1996-97 were liable to be assessed in the block assessment of the assessee?

2. Whether in the facts and circumstances of these cases the income of Rs. 1,05,302/- and Rs. 2,44,034/- for the assessment years 1997-98 and 1998-99 respectively were liable to be assessed in the block assessment?

3. Whether in the facts and circumstances of the case, the income declared in the belated returns filed after the date of search by the assessee were liable to be fully deducted from the income of the respective assessees for the relevant periods? (ITA No. 161/Gau/2004 and ITA No. 162/Gau/2004)”

6. The Third Member has agreed with the view taken by the ld Accountant Member. Therefore, in view of majority opinion, the appeal of the assessee is treated as partly allowed.

7. In the result, appeals filed by the assessees are partly allowed.

Leave a Reply