- Bookmark
- Share
- CaseIQ
Lakshmi Jewellary v. Deputy Commissioner Of Income-Tax
Summary of Judgment: R. Jayasimha Babu, J.
Factual and Procedural Background
The appellant is a firm engaged in the jewellery business. A search of the appellant's premises was conducted on 28 and 29 September 1995. An assessment was made within the legally allowed period on 30 September 1996. The appellant challenged the assessment before the Tribunal. The Tribunal upheld some additions made by the Assessing Officer and set aside other additions on the ground that the report relied upon by the Assessing Officer had not been furnished to the appellant prior to making those additions. The appellant raised several legal questions which were argued before this Court; the appeal was admitted and disposed of by the order summarized here.
Legal Issues Presented
- Whether, under section 158BG of the Income-tax Act, the Commissioner must give a hearing to the assessee before approving an Assessing Officer's draft assessment order submitted under section 158BG(a).
- How the "block period" under section 158B is to be computed — specifically, whether the block period includes the previous year in which the search was conducted (up to the date of search) together with nine preceding years, or is otherwise to be interpreted.
- Whether the one-year limitation in section 158BE(1)(a) prevents the appellate authority (the Tribunal) from remanding a defective assessment to the Assessing Officer after the expiry of that one-year period.
- Whether unexplained cash credits in the books of the assessee must be treated as income under section 68 of the Income-tax Act when the explanations are not satisfactory or absent.
Arguments of the Parties
Appellant's Arguments
- The Tribunal erred in holding that the Commissioner need not give a hearing to the assessee before approving the Assessing Officer's draft assessment order under section 158BG(a); the appellant contended that approval by the Commissioner should follow a hearing of the assessee.
- Under the definition of "block period" in section 158B(a), the block period should include the previous year in which the search was conducted up to the date of the search and nine preceding years (the appellant emphasized the word "includes" in the definition and sought to relate it to the specification of ten assessment years).
- The Tribunal lacked authority to remand the matter to the Assessing Officer after the one-year period specified in section 158BE(1)(a) had elapsed; once the one-year period for assessment expired, the Tribunal could not enable fresh exercise of assessment powers long after expiry.
- Under section 68, cash credits recorded in the books of the assessee should be accepted as having been properly made under the head in which the credit appears (i.e., cash credits should not be treated as income unless lawful grounds exist to do so).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Director of Inspection of I.T. v. Pooran Mall & Sons, [1974] 96 ITR 390 (SC) | That limitation prescribed for making the initial order is for the initial order alone and does not limit the power of the higher forum to examine and correct the initial order. | The Court relied on this principle to hold that the one-year limitation in section 158BE(1)(a) governs only the Assessing Officer's obligation to complete assessment and does not prevent the Tribunal from remanding a defective assessment to the Assessing Officer for proper decision. |
| Appropriate Authority v. Varshaben Bharatbhai Shah, [2001] 248 ITR 342 (SC) | Illustrates that the higher forum may remand matters to the appropriate authority despite limitations applicable to the initial order, under provisions of the Income-tax Act. | The Court cited this authority to support the proposition that appellate or higher forums can remit defective orders for fresh consideration and that limitation periods for initial orders do not provide immunity from further orders by appellate authorities. |
Court's Reasoning and Analysis
The Court addressed each contested point in sequence and applied the statutory language and existing authorities as follows.
1. Section 158BG — Hearing before the Commissioner
The Court examined section 158BG and concluded that there is no obligation on the Commissioner to give a hearing to the assessee at the stage when the Assessing Officer submits the draft assessment order to the Commissioner for prior approval. The Court characterized submission of the draft assessment order to the Commissioner as a "purely internal matter" in which no hearing or notice to the assessee is contemplated. The proviso to section 158BG requires that the assessment order be passed after securing the previous approval of the Commissioner, but it does not require the Commissioner, at the stage of approving the draft, to hear the assessee. Accordingly, the Tribunal's view on this point was held to be correct.
2. Computation of the "block period" under section 158B
The Court set out and analyzed the definition of "block period" in section 158B(a), noting that the definition has two parts: (i) the block period comprises the previous years relevant to ten assessment years preceding the previous year in which the search was conducted, and (ii) the block period "includes" in the previous year in which the search was conducted the period up to the date of commencement of such search. The appellant's reliance on the word "includes" to extend the specification of ten assessment years to incorporate part of the previous year of the search was rejected. The Court reasoned that the phrase "preceding the previous year" makes clear that the ten assessment years referred to are the previous years preceding the previous year in which the search was conducted, and therefore no part of that previous year can be regarded as part of the "previous years relevant to the ten assessment years." The later words "and includes" were read as adding the additional period (up to the date of search in the year of search) to the block period. The Tribunal's computation — ten previous years preceding the previous year of search plus the period in the previous year up to date of search — was held to be correct.
3. Effect of limitation in section 158BE(1)(a) on appellate remand
The Court observed that section 158BE(1)(a) prescribes the period within which the Assessing Officer must complete the assessment (one year from the end of the month in which the last authorisation for search was executed, for the specified period). The Court held that this limitation applies only to the Assessing Officer's duty to make the assessment within that time and does not fetter the appellate authority (the Tribunal) from remanding a defective assessment to the Assessing Officer. The appellate authority retains power to uphold, set aside, modify or remit an assessment order. Relying on Supreme Court decisions (including the cited precedents), the Court emphasized that limitation for the initial order ensures prompt action and prevents uncertainty for the assessee, but does not create immunity from further orders if the initial assessment is defective. Consequently, the Tribunal was within its powers to remand certain matters to the Assessing Officer for re-assessment even though the one-year period had elapsed.
4. Section 68 and treatment of cash credits
The Court recited section 68 and noted the Tribunal's fact-finding that explanations offered by the assessee were either not furnished or, where furnished, were not satisfactory for certain items. Under the plain terms of section 68, where a sum is found credited in the books and the assessee offers no explanation or an explanation that is not satisfactory in the opinion of the Assessing Officer, that sum may be charged to income-tax as the income of that previous year. The Court concluded that in the factual context of this case the Assessing Officer was entitled to treat unexplained or unsatisfactorily explained cash credits as the assessee's income, and the Tribunal properly accepted that treatment. There was no error in that finding.
Conclusion of analysis
Having considered the statutory language and applicable authorities, the Court found none of the appellant's submissions to be meritorious.
Holding and Implications
Holding: The appeal is dismissed.
Implications:
- The Tribunal's rulings were upheld: the Commissioner is not required to give a fresh hearing to the assessee at the stage of approving a draft assessment submitted under section 158BG(a); the computation of the block period under section 158B was correctly made as consisting of the ten previous years preceding the previous year of the search plus the period in the year of search up to the date of commencement of the search; the Tribunal lawfully remanded defective parts of the assessment to the Assessing Officer despite the one-year limitation in section 158BE(1)(a); and unexplained or unsatisfactorily explained cash credits could be taxed under section 68.
- The direct legal effect is that the Assessing Officer may proceed to redo the assessment on remitted items (subject to the Tribunal's directions) and the upheld additions treated as income under section 68 remain valid.
- The Court's decision applies the existing principles that limitation periods for initial orders do not deprive appellate forums of their power to remit defective orders; the opinion does not announce or purport to create a novel legal precedent beyond applying established principles to the facts of this case.
End of summary based exclusively on the provided opinion.
R. Jayasimha Babu, J.:— Several questions have been raised by the appellant. We have heard counsel for the appellant at length. We have also heard counsel for the Revenue. The appeal is admitted and is also being disposed of by this order.
2. There was a search in the premises of the appellant on the 28th and 29th of September, 1995. The appellant is a firm, which carries on business in jewellery. After the search, an assessment was made within the period allowed by law, on the 30th of September, 1996. The assessment so made was challenged before the Tribunal. The Tribunal upheld some of the additions made, and with regard to some others it set aside the additions that had been made as before making such additions the report which the Assessing Officer had relied upon had not been furnished to the appellant. Counsel for the appellant submitted that the Tribunal has erred firstly in the manner in which it has considered section 158BG of the Income-tax Act by holding that the Commissioner, before making an order approving the order of assessment made by the Assessing Officer in exercise of his powers under section 158BG(a), need not give a hearing to the assessee. This submission, though superficially raising a question of law, is really bereft of any substance. A bare perusal of section 158BG would show that no such obligation is cast on the Commissioner. The order of assessment, no doubt, must be made after giving an opportunity to the assessee. It is the case of the assessee that even after such opportunity had been given by the Assessing Officer, the draft assessment order which is required to be submitted by the Assessing Officer to the Commissioner can be approved by the Commissioner only after hearing the assessee and after such approval the assessment has to be finalised.
3. The act of submitting the draft assessment order to the Commissioner is a purely internal matter and at that stage no hearing is contemplated and no notice to the assessee is necessary. The proviso to section 158BG only requires that the assessment order be passed after securing the previous approval of the Commissioner. The Tribunal was quite right in the view it took with regard to section 158BG of the Act.
4. The second submission made before us by learned counsel for the appellant is regarding the manner in which the block period is to be computed under section 158B of the Act. It is his submission that the block period, as defined in section 158B(a), would include the year in which the search was conducted up to the date of search and nine preceding years. Learned counsel laid emphasis on the word “includes” used in the definition and sought to relate that term to the specification of ten assessment years made in the earlier part of the definition.
5. It is necessary to set out the definition of “block period” given in the statute.
“158B. In this Chapter, unless the context otherwise requires,—
(a) ‘block period’ means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted under section 132 or any requisition was made under section 132A, and includes, in the previous year in which such search was conducted or requisition made, the period up to the date of the commencement of such search or, as the case may be, the date of such requisition.”
6. The opening part of this definition specifies that “block period” means the previous years relevant to ten assessment years, which precede the previous year in which the search was conducted under section 132 or any requisition was made under section 132A. Having so specified, a further addition is made for a block period by the latter part of the definition, which states that it would also include in the previous year in which the search was conducted or requisition made, the period up to the date of the commencement of such search or the date of requisition. The definition, could have been worded with greater clarity. However, the definition must be understood with the aid of the language used therein. The definition appears to be in two parts. First, it says that it means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted or requisition made. Thereafter, an addition is made to that period by stating that the block period also includes in the previous year in which the search was made, the period up to the date of search. The submission made by counsel for the appellant that the word “includes” should be related to the specification to the previous years relevant to ten assessment years is difficult to accept. Reference to “the previous years relevant to the ten assessment years” is followed by the words “preceding the previous year”. It is, therefore, clear that no part of the previous year in which the search was conducted can be regarded as forming part of the “previous years relevant to the ten assessment years” referred to in the opening part of the definition. The words “and includes”, which occur in the later part of the definition are words which can only be regarded as relevant to the term “block period” as the inclusion of the additional period to which reference is made after the words “and includes” can only be for the purpose of regarding that period also as forming part of the block period.
7. The Tribunal was, therefore, right in holding that the computation of the block period had been made properly as including within it the ten previous years relevant to the ten assessment years preceding the date of search plus the period up to the date of the search in the previous year in which the search was conducted.
8. The next submission made was that the Tribunal has not given full effect to the period of limitation prescribed in section 158BE(1)(a). The submission was that the period of one year from the date of search having elapsed long before the date on which the Tribunal decided the appeal, the Tribunal had no authority to remand the matter back to the Assessing Officer thereby enabling him to exercise powers in relation to the assessment, long after the expiry of the period of one year specified in section 158BE(1)(a).
9. Section 158BE(1)(a) reads thus:
“158BE. (1) The order under section 158BC shall be passed—
(a) within one year from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997.”
10. This section only specifies the period within which the Assessing Officer must complete the assessment. It does not come in the way of the appellate authorities, who find the assessment order to be defective for any reason, remanding the matter to the Assessing Officer for making a proper order in relation to the matters with respect to which the matter is remanded by the appellate authority. The limitation of one year is only for the assessment and it is not a limitation which fetters the discretion of the appellate forum. There can be no dispute and there is none regarding the extent of the power of the appellate authority that it has the power not only to uphold or set aside the assessment order but also has the power to modify or remit.
11. The apex court in more than one decision, under other provisions of the Income-tax Act, including those in Chapter XX-C, has held that the limitation prescribed for making the initial order is for the making of that order alone and is not in the nature of limiting the power of the higher forum, which is empowered to examine the correctness of the initial order, and preventing it from exercising its powers. (Director of Inspection of I.T v. Pooran Mall and Sons, [1974] 96 ITR 390 (SC) also Appropriate Authority v. Varshaben Bharatbhai Shah, [2001] 248 ITR 342, wherein the Supreme Court remanded the matter to the appropriate authority). The limitation prescribed is to ensure that the assessee is not kept in the dark and kept guessing as to what will happen and also to ensure that the Assessing Officer pays prompt attention to the record before him and makes up his mind as to the nature of the assessment order that is required to be made in the given circumstances. The specification of one year is not to provide an immunity to the assessee from any further order being made in the event the assessment order made is found for any reason defective by the higher forum.
12. The Tribunal, therefore, was well within its powers in directing the Assessing Officer to redo the assessment in respect of certain items, after giving a copy of the report that it had relied on, to the assessee. There was no breach of section 158BE in making that order. The last point urged by counsel is with regard to the Tribunal's decision to sustain some of the additions that had been made. It was submitted that under section 68 of the Act cash credits made in the books of the assessee should be accepted as having been properly made under the head under which the credit was made.
13. Section 68 of the Act reads as under:
“68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”
14. The Tribunal has found that the explanation offered by the assessee before the Assessing Officer was not a satisfactory explanation in respect of some items and, with respect to certain others no explanation at all was offered. Section 68, in the context of the facts of this case, clearly enabled the Assessing Officer to treat such unexplained cash credits as the income of the assessee. That is how it has been treated and the Tribunal was not in error in accepting such treatment given to such cash credits by the Assessing Officer as being proper and legal. There is no error in that finding.
15. None of the submissions made for the appellant are thus worthy of acceptance. The appeal is, therefore, dismissed.
Alert