Calcutta H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law and had material to hold that the loan of Rs. 50,000, which was genuinely borrowed by the assessee from a private limited company, Trientra Commerce and Trade (P) Limited, allegedly represented the undisclosed income of the assessee for the block period as defined in s. 158B(a) of the IT Act, 1961 ?

Counsel Appeared

J.P. Khaitan, for the Assessee : M.P. Agarwal, for the Revenue

JUDGMENT

ASHIM KUMAR BANERJEE, J. :

This appeal is directed against the judgment of the learned Tribunal, dt. 24th Jan., 2000. The basic issue raised by the appellant in this appeal is whether the genuineness of the loan in question can be considered under the block assessment, though the loan in question has been duly accounted for the regular books of account found during the time of search. The assessee being an individual obtained loan from a limited company under the Companies Act, 1956, who is also an assessee under the said Act, 1961. There had been search and seizure resulting in block assessment of the assessee. During the block assessment, the assessee was called upon to explain the advance taken, the assessee has filed the confirmation letter of loan including its income-tax file numbers of the creditor of the limited company which advanced the loan to the assessee. The authority, however, being not satisfied with such explanation wanted details of the persons from whom the money was taken by the said limited company without reopening the assessment with regard to the said limited company and ultimately held that the said loan was a fictitious one and was to be considered as undisclosed income of the assessee during the block period under consideration. The order of assessment was challenged before the Tribunal on the ground that since the source of the money had been proved, the assessee should not be made responsible, even if the loan creditor was not able to prove its sources. Before the Tribunal the question was also raised to the extent whether the said loan could be treated as undisclosed income under the Chapter XIV-B of the Act, 1961. The Tribunal was of the view that the AO had the power under s. 158BA of the Act, 1961 to tax the amount and it makes no difference whether the material is found during the course of search or is brought on record subsequently or whether it has a connection with the material available or found in the course of search.

4. Being aggrieved by the order of the Tribunal, this Court has been approached by the assessee under s. 260A of the said Act of 1961 and on being approached the following questions have been framed for consideration :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law and had material to hold that the loan of Rs. 50,000, which was genuinely borrowed by the assessee from a private limited company, Trientra Commerce and Trade (P) Limited, allegedly represented the undisclosed income of the assessee for the block period as defined in s. 158B(a) of the IT Act, 1961 ?

Whether, on the facts and in the circumstances of the case, the Tribunal has any material to justify its finding and conclusion that the assessee has failed to discharge the onus to prove the genuineness of the said loan creditor amounting to Rs. 50,000 by endorsing the view of the AO that the loan creditor was used only as shadow company and the money had come from some individual who had no means to advance the money ?

Whether, on the facts and in the circumstances of the case, the Tribunal relied on irrelevant materials and ignored relevant evidence in holding that the sum of Rs. 50,000 was the income of the assessee from undisclosed source for the said block period on the alleged ground of failure of the assessee to prove the source of the source and whether such finding is otherwise unreasonable and/or perverse ?’

5. Two questions now evolve herein which, according to us, are relevant for consideration : Is the AO entitled to question the loan which is a subject-matter of a regular assessment, while making block assessment ? Even if the AO is entitled to question the said transaction whether it can be decided against the assessee, on the ground that the assessee has failed to prove the creditworthiness of the source of the source.

6. Mr. J.P. Khaitan, learned advocate, appearing for the assessee, in support of the appellant’s case, cited four decisions which are as follows : (i) Shah Wallace & Co. Ltd. vs. Asstt. CIT (1999) 154 CTR (Cal) 105 : (1999) 238 ITR 13 (Cal); (ii) Unreported decision in APOT No. 682 of 1999, dt. 17th Nov., 2000, Dy. CIT vs. Shaw Wallace & Co. Ltd. [reported at (2001) 165 CTR (Cal) 489]; (iii) S. Hastimal vs. CIT (1963) 49 ITR 273 (Mad) : TC 42R1233; and (iv) CIT vs. Daulat Ram Rawatmull 1972 CTR (SC) 411 : (1973) 87 ITR 349 (SC) : TC 54R.301. It is true that there has been some misunderstanding of the relevant provision in view of the divergent views taken by the different High Courts prior to the incorporation of the Explanation under s. 158BA(2). By incorporating the said Explanation, the issue has now become res integra. Mr. M.P. Agarwal, learned advocate, appearing for the Revenue authority, has tried to contend that even by incorporation with said Explanation the AO is still empowered to question the loan while passing the block assessment irrespective of the fact that the same income is assessable in regular assessment. Statutory interpretation means the process by which the Courts seek to ascertain the meaning of the legislature through the medium of authoritative forms in which it is expressed. Interpretation differs from construction in view of the former is of finding out the true sense of any form and the other is the drawing of conclusion respecting subjects that lie beyond the direct expression of the text. A statute is a creature of the legislature. Every statute has its preamble, it has objects and reasons for which it was enacted. To find out the correct meaning of a particular provision of the statute, it is the duty of the Court of law to examine not only the words of the said provision but also the background in which such law is enacted. Every statute must be given a logical meaning and harmonious construction. The words used in the statute are not used for nothing. Each and every word has its significance. It is a duty of the judiciary to interpret the same for its implementation as and when they are approached.

Here we have been invited to interpret the Explanation inserted by the Finance (No. 2) Act, 1998, incorporated in s. 158BA(2) of the IT Act, 1961 (hereinafter referred to as “the said Act 1961″). The said Explanation is quoted below : For the removal of doubts, it is hereby declared that— (a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period; (b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period; (c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period.” As we have said at the outset that every statute has to be understood not only by the words of the said provision but also the background in which such law is enacted. The subject Explanation to s. 158BA became necessary because of the divergent views of the different High Courts on this issue. Hence, we are in total agreement with Shaw Wallace & Co. Ltd.’s case (supra) where the Division Bench has held that the said Explanation is nothing but clarificatory which was necessitated because of the divergent views. In fact the Explanation to s. 158BA has stated with these words “for the removal of doubts” so the doubt expressed by different High Courts are removed by incorporating the said Explanation.

12. Now the question comes what does this Explanation mean. Clause (a) of the Explanation makes it clear that the block assessment is in addition to the regular assessment in respect of each previous year included in the block period; (b) means total undisclosed income relating to the block period cannot be tagged with regular assessment; (c) states that the income under Chapter XIV-B, i.e., block assessment shall not be included in regular assessment and other than undisclosed income is assessable in regular assessment under s. 143(3) of the Act. On a composite reading of the said three parts of the Explanation it is crystal clear that the legislature thought it fit to make a distinction between the block assessment and the regular assessment. As has been held by the Division Bench in Shaw Wallace & Co. Ltd.’s case (supra) that there are three types of income within the meaning of the said Act of 1961, i.e., incomes which are offered for taxation, incomes which are shown in the return but deductions have been claimed wrongly; and undisclosed income. The AO while dealing with regular assessment is free to examine the veracity of the return as well as the claims made by the assessee with regard to exemption and/or deduction, those can be considered under s. 143(3) of the said Act of 1961, whereas the third income being “the undisclosed income” is taxed and by way of block assessment resulting in search and seizure. Such block assessment is made under s. 158BA. The logic behind the two different modes of assessment, according to us, is that concealment of income and claiming deduction or exemption of taxes in respect of a disclosed income cannot be treated at par. The former is an offence which goes to the root of the matter and the other is on the basis of the cases shown by the assessee where the AO is free to accept the justification shown or reject the same. The said two types of cases cannot be treated at par. Hence, we hold that the AO was not entitled to question the said loan in blockassessment which is a subject-matter of the regular assessment. Hence, the AO was wrong in holding that the said sum can be taxed in block assessment although the same featured in the regular books of accounts. Similarly, the Tribunal also committed error in upholding the decision of the AO.

13. As the loan creditor is an assessee under the Act of 1961 in whose assessment the loan advanced had been accepted by the Revenue authority, the AO was wrong in holding the assessee liable to pay tax on that loan money taken from that assessee. In the result, we hold that the AO was wrong in holding that the said sum of Rs. 50,000 advanced by the loan creditor was an undisclosed income of the assessee and consequently the Tribunal also committed error in upholding the decision of the AO. In the result appeal is allowed.

Y.R. Meena, J : I Agree.

[Citation : 248 ITR 562]