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CaseIQ

Commissioner Of Income Tax v. Bluechip Construction Co (P)

Delhi High Court

Oct 25, 2007

Judgment

CaseIQ

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Factual and Procedural Background

A search was conducted at the premises of the assessed company and at the residential premises of one of its directors, Mr. P.K. Dang, on 15th September 1995. Following the search, notices were issued and the assessed filed a return under Section 158BC of the Income-tax Act, 1961 for Rs. 3,20,134. An assessment order was passed on 30th September 1996. The assessed appealed to the Income-tax Appellate Tribunal ("the Tribunal"), which on 29th January 2001 set aside the assessment order and remanded the matter to the Assessing Officer (AO). A fresh assessment was then made on 31st March 2003. The assessed again appealed, and the Tribunal disposed of that appeal by an order dated 27th April 2005 in which it accepted all contentions urged by the assessed. The Revenue is aggrieved by the Tribunal's order dated 27th April 2005 and has brought an appeal under Section 260A of the Act.

The court's consideration focused primarily on five specific monetary additions made by the AO and deleted by the Tribunal: (i) Rs. 26,10,500 credited in bank accounts; (ii) Rs. 4,95,045 received as commission through director P.K. Dang; (iii) Rs. 8,51,000 (related to the director's peak statement); (iv) Rs. 4,00,000 (payments to Mr. Baljeet Yadav of M/s Noble Data Processing, part of a larger disputed payment); and (v) Rs. 17,00,000 alleged investment in property No. 45-D, Sainik Farms.

Legal Issues Presented

Whether deposits of Rs. 26,10,500 appearing in the assessed's bank accounts, made prior to the search, constituted "undisclosed income" for the purposes of Chapter XIV-B / Section 158BA(3) when such amounts were reflected in bank accounts (and in some findings, in books of accounts).
Whether the Tribunal was correct in law in deleting the addition of Rs. 4,95,045 on the ground that such assessment would amount to double assessment in the hands of the assessed (explicitly framed in the opinion).
Whether an addition of Rs. 8,51,000 in the hands of the assessed could stand when a peak statement of director P.K. Dang had already resulted in a peak addition (and a final assessment) in his hands.
Whether the balance disputed amount of Rs. 4,00,000 (out of total payments to Mr. Baljeet Yadav) could be taxed where the Tribunal found the amount reflected in books and partly paid out of the assessed's bank account.
Whether an addition of Rs. 17,00,000, made on the ground that the property (No. 45-D, Sainik Farms) cost not less than Rs. 50 lakhs, was sustainable in a block assessment when no documentary or DVO evidence during the search supported such valuation.

Arguments of the Parties

Revenue's Arguments

Section 158BA(3) requires that amounts be corroborated by entries in books of account or other documents; deposits of cash into the assessed's bank accounts should be treated as undisclosed income because they were not corroborated in the assessed's books.
The assessed would not have disclosed the deposited amounts in its returns (specifically referenced to returns for the assessment year 1995-96), implying those amounts were undisclosed.
With respect to the Rs. 8,51,000, the Revenue contended (for the first time before the court) that there was nothing in the Tribunal's order to indicate that this amount was included in P.K. Dang's peak statement.

Assessed's Arguments

With respect to the bank deposits totaling Rs. 26,10,500: even if books of account were not maintained, the amount was disclosed in the assessed's bank accounts and therefore could not be treated as undisclosed income for the purposes of Chapter XIV-B / Section 158BC.
On the Rs. 4,95,045 commission: the assessed's counsel conceded that the Tribunal's view (that deletion was justified as double assessment) was not tenable and accepted that the amount should be taxed in the hands of the assessed after excluding an expenditure amount of Rs. 1,74,911.
On the Rs. 4,00,000 payments to Baljeet Yadav: the amount was reflected in the books of account and Rs. 3,00,000 of it was paid from the assessed's bank account.
On the Rs. 17,00,000 property addition: the assessed's counsel relied on precedents (CIT v. Manoj Jain and CIT v. Jupiter Builders (P) Ltd.) to argue that Chapter XIV-B is a self-contained code for search cases and that additions cannot be made on the basis of a DVO report when no evidence was found during the search to show payment of consideration in excess of the disclosed amount.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT v. Manoj Jain	That Chapter XIV-B of the Income-tax Act is a self-contained code for assessment in search cases and no addition can be made on the basis of a DVO report when no evidence was found during the search to show payment of consideration in excess of the disclosed amount.	The court relied on this principle to conclude that there was no basis for the AO to make an addition of Rs. 17 lakhs in the block assessment where the AO had not even referred the matter to the DVO and no documentary evidence from the search supported undervaluation.
CIT v. Jupiter Builders (P) Ltd.	Same principle as above: Chapter XIV-B is self-contained; additions based on DVO when no evidence from search is available are not permissible in block assessments.	The court applied this principle to hold that the addition of Rs. 17 lakhs in respect of the Sainik Farms property was without basis and could not be sustained in the block assessment.

Court's Reasoning and Analysis

The court considered each of the five contested additions seriatim and analysed the legal principles and factual findings in the record. The court emphasized the statutory scheme of Chapter XIV-B (block assessments) and the specific statutory language in Section 158BA(3) as to what constitutes "disclosed" or "undisclosed" income for block assessment purposes.

(i) Rs. 26,10,500 (bank credits)

The court read Section 158BA(3) as requiring that an amount be disclosed either in the books of account or in some other documents maintained by the assessed. Bank accounts qualify as such documents.
Because the deposits were reflected in the assessed's bank accounts (and the Tribunal also noted reflection in books of accounts), the court held they could not be treated as undisclosed income under Chapter XIV-B merely because the AO claimed lack of corroborative evidence as to receipt or source.
The court placed the burden on the Revenue to prove that the assessed would not have disclosed the amounts in its returns; it found the Revenue had not discharged this heavy burden beyond oral submissions.
The court noted that questions about the source of receipts are matters for regular assessment under Section 143(3), not for treating amounts as undisclosed under Chapter XIV-B.
Conclusion: the deletion by the Tribunal of the addition in respect of this amount did not raise a substantial question of law.

ii) Rs. 4,95,045 (commission received through director)

The Tribunal had deleted this addition on the ground that its assessment would amount to double assessment in the hands of the assessed.
The assessed's counsel conceded that the Tribunal's view was not tenable and accepted that the amount was taxable in the hands of the assessed after excluding expenditure of Rs. 1,74,911.
The Tribunal's order did not contain a finding that the expenditure of Rs. 1,74,911 had in fact been incurred by the assessed.
The court remanded the matter to the Tribunal to determine whether Rs. 4,95,045 minus Rs. 1,74,911 should be taxed in the assessed's hands. The court explicitly answered the framed substantial question of law in the negative — i.e., against the Tribunal's deletion and in favour of the Revenue.

iii) Rs. 8,51,000 (related to director P.K. Dang)

The court examined the assessment order dated 28th March 2002 in respect of P.K. Dang, which had considered his peak statement and resulted in a peak addition of Rs. 28,85,195.75; that order was accepted by P.K. Dang and became final.
The Tribunal proceeded on the factual basis that the amount in question was covered by P.K. Dang's peak statement and had been taxed in his hands; the court held that once the amount was covered and accepted in the director's assessment, no further addition was warranted in the assessed company's hands.
The Revenue's contention before the court (raised for the first time) that the Tribunal's factual conclusion was unsupported was rejected on procedural grounds: if the Revenue had doubts about the Tribunal's factual conclusion, it should have applied to the Tribunal under Section 254(2), which it did not do.
Conclusion: the Tribunal's deletion on this point was proper; no substantial question of law arises.

iv) Rs. 4,00,000 (payments to Baljeet Yadav)

The Tribunal found that the amount was reflected in the assessed's books of account and that Rs. 3,00,000 of the amount was paid from the assessed's bank account.
The court reiterated that in block assessments the relevant inquiry is whether amounts were disclosed (in books or other documents such as bank accounts), not whether the assessed can explain the source of the income via corroborative evidence — the latter is for regular assessment.
Accordingly, the Tribunal's deletion of the addition of Rs. 4,00,000 was sustained; no substantial question of law arises.

v) Rs. 17,00,000 (alleged investment in property No. 45-D, Sainik Farms)

The AO assumed, without basis, that the property's cost of acquisition would not be less than Rs. 50 lakhs and therefore, for the assessed's 50% share, added Rs. 17 lakhs (in addition to Rs. 8 lakhs already disclosed).
The Tribunal found that no document was found during the search to show that the property was undervalued by the assessed; the AO did not even refer the matter to a DVO.
The court relied on the cited precedents (CIT v. Manoj Jain and CIT v. Jupiter Builders (P) Ltd.), noting that Chapter XIV-B is a self-contained code and additions cannot be made on the basis of a DVO report when no evidence was found during the search to establish that consideration paid exceeded the disclosed amount.
Given that the AO had no basis and had not obtained a DVO report, the court agreed with the Tribunal that the Rs. 17 lakhs addition could not be sustained in the block assessment.
Conclusion: the addition was deleted; no substantial question of law arises.

The court disposed of the appeal in accordance with these analyses and directed that the parties appear before the Tribunal on 3rd December 2007.

Holding and Implications

Appeal disposed of as above.

Direct holdings and consequences for the contested items (as reflected in the opinion):

Rs. 26,10,500 credited in bank accounts: Deletion of the addition was sustained — bank account entries (and where present, books of account) satisfy the disclosure requirement under Chapter XIV-B / Section 158BA(3); no substantial question of law arises.
Rs. 4,95,045 (commission): The Tribunal's deletion on the ground of double assessment was held to be incorrect. The court remanded the matter to the Tribunal to determine whether the net amount (Rs. 4,95,045 minus Rs. 1,74,911) should be taxed in the hands of the assessed; the court answered the framed substantial question of law in the negative (in favour of the Revenue).
Rs. 8,51,000: Deletion of the addition in the assessed's hands was upheld because the amount was covered by the director P.K. Dang's peak statement and taxed in his final assessment; no further addition was warranted.
Rs. 4,00,000 (payments to Baljeet Yadav): Deletion upheld because the amount was reflected in books and bank accounts; no substantial question of law arises.
Rs. 17,00,000 (property investment): Deletion upheld because the AO had no documentary basis, did not obtain a DVO report, and Chapter XIV-B precludes making such additions when no evidence was found during the search; no substantial question of law arises.

Broader implications: The opinion applies the principle that, for block assessments under Chapter XIV-B, amounts reflected in books of account or other documents (such as bank accounts) cannot be treated as "undisclosed income" solely because the AO cannot establish the source; issues of source and corroboration may be addressed in regular assessments. The opinion also underscores that additions based on presumed valuation without DVO reference or search-found evidence are not sustainable in block assessments, consistent with the cited precedents. The court did not purport to lay down a new precedent beyond its application of existing principles.

Administrative direction: The parties were directed to appear before the Tribunal on 3rd December 2007.

Show all summary ...

1. The Revenue is aggrieved by an order dt. 27th April, 2005 passed by the Tribunal, Delhi Bench 'C in IT(SS)A No. 136/Del/2003 relevant for the block asst. yr. 1986-87 to 14th Sept., 1995.

2. A search was carried out in the premises of the assessed company and in the residential premises of one of its directors Mr. P.K. Dang on 15th Sept., 1995. On the basis of the search, notices were issued to the assessed who filed its return under section 158bc of the it act, 1961 ('the act') for an amount of Rs. 3,20,134. An assessment order was passed on 30th Sept., 1996 but since the assessed was not satisfied with that order, it preferred an appeal before the Income-tax Appellate Tribunal ('the Tribunal') and by an order dt. 29th Jan., 2001 the Tribunal set aside the assessment order and remanded it back to the file of the AO. The AO then passed a fresh assessment order on 31st March, 2003 against which the assessed filed another appeal, which came to be disposed of by the order under appeal, that is, 27th April, 2005. In the order passed by the Tribunal on 27th April, 2005, all the contentions urged by the assessed were accepted and that is how the Revenue is before us in appeal under Section 260A of the Act.

3. We are primarily concerned with five amounts in respect of which the assessed succeeded. These are dealt with in seriatim.

(i) An addition made by the AO to the extent of Rs. 26,10,500 in respect of a credit appearing in the bank account of the assessed.

It is clear from a reading of the assessment order as well as the order passed by the Tribunal that the amount of Rs. 26,10,500 related to deposits made by the assessed in three bank accounts viz. Bank of India (Saket), Bank of India (Greater Kailash, Part-II) and a third account in Bank of India. All these deposits were made prior to the date of the search, that is, 15th Sept., 1995.

Learned Counsel for the Revenue has drawn our attention to Section 158BA(3) of the Act to contend that the cash amount, though deposited in the bank accounts of the assessed, was undisclosed income since it was not corroborated by entries in its books of accounts.

We are not in agreement with the view canvassed by learned Counsel for the Revenue. What Section 158BA(3) requires is that the amount should be disclosed either in the books of accounts or in some other documents maintained by the assessed. In the present case, even if it is assumed that the assessed was not maintaining books of accounts, the fact is that the amount was disclosed in the bank account maintained by the assessed and to that extent it cannot be described as undisclosed income.

The further contention of learned Counsel for the Revenue is that the assessed would not have disclosed this amount in its returns and to that extent the amount has to be treated as its undisclosed income. We do not think that this matter can be treated in as simple a manner as that. Apart from the fact that the amount was disclosed in the bank account, there is nothing to support the argument of learned Counsel for the Revenue that the assessed would not have disclosed this amount in its returns, particularly for the asst. yr. 1995-96 for which the last date would have been 30th Nov., 1995. To substantiate such an argument, the burden is on the Revenue and it is an extremely heavy burden but the Revenue has made no serious attempt to discharge this burden except in the oral submissions made by learned Counsel. We find this unacceptable.

The Tribunal has noted that not only was the amount reflected in the bank accounts of the assessed but it was also reflected in the books of accounts maintained by the assessed. The doubt appears to have arisen in this case because of the view of the AO that there is no corroborative evidence to show the receipt of this amount. Whether the assessed can give a satisfactory explanation for the receipt of amount may have to be considered by the AO in a regular assessment under Section 143(3) of the Act. What is required under the provisions of Chapter XIV-B of the Act is that the income should be undisclosed-the assessed is not required to explain the source of that income. For the purposes of a block assessment, it is enough if the amount was disclosed by the assessed in its bank accounts. Merely because the assessed may not be able to show the source of income does not convert the amount into the undisclosed income of the assessed for the purposes of Section 158BC of the Act.

The Tribunal has noted that no evidence was found during the course of the search to show that the credits were the undisclosed income of the assessed but in the view that we have taken, we need not go into this aspect of the matter. No substantial question of law arises.

(ii) An amount of Rs. 4,95,045 has been added to the income of the assessed being commission received by it through its director P.K. Dang. The substantial question of law that has arisen in this regard is :

"Whether the Tribunal was correct in law in deleting the addition of Rs. 4,95,045 on the ground that the assessment on this amount to a double assessment in the hands of the assessed ?"

Learned Counsel for the assessed fairly states that the view expressed by the Tribunal in this regard is not tenable and there was no question of any double assessment of this amount. He frankly submits that this amount is liable to be taxed in the hands of the assessed after excluding the expenditure of Rs. 1,74,911.

We find from a perusal of the order of the Tribunal that there is no finding given by it where the assessed had in fact incurred the expenditure of Rs. 1,74,911 and, therefore, we think it is appropriate if the matter to this extent is remanded to the file of the Tribunal to determine whether the amount of Rs. 4,95,045 minus Rs. 1,74,911 is to be taxed in the hands of the assessed.

We answer this question in the negative, in favor of the Revenue and against the assessed.

(iii) The third amount that we are concerned with is an addition of Rs. 8,51,000. We find that insofar as the director of the assessed, that is, P.K. Dang is concerned, an assessment order was made in this respect under Section 158BC of the Act. The assessment order is dt. 28th March, 2002 and on a perusal of para 12 of that order, the peak statement of P.K. Dang was considered and a peak amount of Rs. 28,85,195.75 was added in his hands. This assessment order was accepted by P.K. Dang and it has become final. Under the circumstances, the Tribunal is right in its conclusion that once the amount is covered by the peak statement of P.K. Dang, taxed accordingly and accepted by him, no further addition was warranted in the hands of the assessed.

Learned Counsel for the Revenue contends that there is nothing in the order of the Tribunal to suggest that the amount of Rs. 8.51 lakhs was included in the peak statement of P.K. Dang. This argument has been raised before us for the first time and it touches upon the factual determination made by the Tribunal, which appears to have proceeded on the basis that this amount was included in the peak statement of P.K. Dang. If the Revenue had any doubt about this factual conclusion, it could have moved an application before the Tribunal under Section 254(2) of the Act, which it did not. It is, therefore, too late in the day for learned Counsel for the Revenue to contend that this amount was factually not included in the peak statement of P.K. Dang.

We may note that learned Counsel for the assessed disputes this submission made by relying on the paper book that was before the Tribunal. However, we do not think it necessary to go into this aspect of the matter in view of what we have stated above. No substantial question of law arises.

(iv) The fourth dispute relates to an amount of Rs. 4 lakhs in respect of payments made to one Mr. Baljeet Yadav of M/s Noble Data Processing. A total amount of Rs. 18,70,000 was paid to Baljeet Yadav, out of which Rs. 50,000 was actually received. An amount of Rs. 14,20,000 was added to the income of the assessed on a protective basis, but it was found covered by the peak statement of P.K. Dang. The balance amount of Rs. 4 lakhs is in dispute before us. The Tribunal found that this amount is reflected not only in the books of accounts of the assessed but in fact an amount of Rs. 3 lakhs out of this was paid out of the bank account of the assessed.

Once again, the error committed by the AO lies in considering whether the assessed was able to explain the source of this income through corroborative evidence or not. As we have already noted above, this is not the correct approach. What is required to be considered for the present purposes is whether the amount was disclosed or not. Since the amount was disclosed not only in the books of accounts of the assessed but also in other documents, namely, the bank accounts of the assessed, the Tribunal rightly held that the amount of Rs. 4 lakhs deserves to be deleted from the income of the assessed. No substantial question of law arises.

(v) Finally, an addition of Rs. 17 lakhs has been made by the AO on the ground of alleged investment in property bearing No. 45-D, Sainik Farms.

In respect of this amount, the Tribunal held that no document was found during the course of the search to show that the property was undervalued by the assessed. Moreover, we find from a perusal of the assessment order that the AO has presumed that the cost of acquisition of the house property would not be less than Rs. 50 lakhs. Since the assessed had a 50 per cent share in the property, an amount of Rs. 17 lakhs was added (an amount of Rs. 8 lakhs having already been disclosed). There is absolutely no basis given by the AO in arriving at the conclusion that the property should be valued at not less than Rs. 50 lakhs.

Learned Counsel for the assessed has drawn our attention to CIT v. Manoj Jain and CIT v. Jupiter Builders (P) Ltd. . In both these decisions, it has been held by this Court that since Chapter XIV-B of the Act is a self-contained code with regard to assessment of search cases, no addition can be made on the basis of a DVO report when no evidence has been found during the course of the search to establish that the assessed has paid more than the disclosed consideration in purchase of the property.

In the present case, apart from anything else, the AO has not even referred the matter to the DVO and, therefore, there is absolutely no basis on which the addition of Rs. 17 lakhs has been made to the income of the assessed. We are, therefore, in agreement with the view expressed by the Tribunal that the addition of Rs. 17 lakhs could not have been made in the block assessment in respect of the assessed. No substantial question of law arises.

4. The appeal is disposed of as above.

5. The parties will appear before the Tribunal on 3rd Dec, 2007.