Karnataka H.C : Whether, on the facts and circumstances of the case, the findings arrived at by the Tribunal for cancelling the block assessment in question are perverse being contrary to the materials on record and have been arrived at on conjectures and surmises ?

High Court Of Karnataka

DCIT vs. H.V. Shantharam

Sections 158B, 158BA, 260A

Asst. Year Block period 1989-90 to 1999-2000

G.C. Bharuka & S.B. Majage, JJ.

IT Appeal No. 147 of 2002

22nd January, 2003

Counsel Appeared

Ranjit Kumar Murarka with E.R. Indra Kumar, for the Appellant : G. Sarangan with E.S. Kiresur, for the Respondent.

JUDGMENT

G.C. BHARUKA, J. :

This Departmental appeal has been filed under s. 260A of the IT Act, 1961 (in short, the Act) against the order dt. 31st Oct., 2001, passed by the Income-tax Appellate Tribunal, Bangalore Bench ‘B’, in IT(SS)A No. 12/Bang/99. It pertains to a block assessment made against the assessee for the period 1989-90 to 1999-2000 made under s. 158BC of the Act. The substantial question of law which has fallen for our consideration is :

“Whether, on the facts and circumstances of the case, the findings arrived at by the Tribunal for cancelling the block assessment in question are perverse being contrary to the materials on record and have been arrived at on conjectures and surmises ?”

Foundational facts

2. The assessee is an individual. At the material time he was the managing director of M/s Mayura Hotels (P) Ltd. and M/s Swathi Hotels (P) Ltd., Bangalore, He was also a partner in Hotel Mayura in Bellary and M/s Shanthakumar Ganeshlal Enterprises, Bangalore. He was also carrying on a proprietorship hotel business in the name and style M/s New Prakash Bhavan at Bangalore as a Kartha of his HUF. He was being regularly assessed for the income derived from these concerns as also the other sources disclosed by him.

3. On the basis of some information that the assessee had made unaccounted investments, search under s. 132 of the Act was conducted in his premises on 27th May, 1998. During search, unaccounted investments in the form of shares, cash certificates, Indira Vikas Patras and fixed deposits were found. Therefore, all such certificates and deposit receipts were seized. Photocopies of the inventory prepared at the time of seizure containing details of investments, the date of such investments and the amounts, have been placed before us. These details are not in dispute.

4. On 5th June, 1998, statement of the assessee was recorded under s. 132(4) of the Act wherein he admitted that he had made undisclosed investments during the block period. Based on his statement, a further search was conducted in his premises on 9th July, 1998. Subsequently, a notice was issued to him under s. 158BC of the Act requiring him to file return for the block period in question. The return was filed on 27th Oct., 1998, in Form 2B as prescribed under the IT Rules, 1962 (in short, the Rules) showing Rs. 72,00,000 as the total undisclosed income of the block period. For computing the undisclosed income, the assessee had taken into account the income assessed for the asst. yrs. 1989-90 to 1997-98 and the income of Rs. 1,11,92,450 for the asst. yr. 1998-99 for which he was yet to file his regular return and Rs. 5,00,000 estimated income for the asst. yr. 1999-2000.

5. Two days later, on 29th Oct., 1998, the assessee filed his regular return for the asst. yr. 199899 as well showing his total taxable income at Rs. 1,11,92,450. The AO completed the regular assessment for the asst. yr. 1998-99 by accepting the returned income under s. 143(3) of the Act. Still the assessee preferred an appeal against the order which was dismissed by the CIT(A). The assessee did not prefer to go in any further appeal. Therefore, the regular assessment order for the year 1998-99 attained its finality.

6. So far as the block assessment is concerned, after due notice to the assessee and on hearing him, assessment order was passed on 27th Jan., 1999, assessing him on a total income of Rs. 80,81,358. The assessee assailed the block assessment order before the CIT(A), who granted partial relief by order dt. 23rd April, 1999. Consequent to this relief, the income from undisclosed sources was reduced to Rs. 77,51,986. The assessee questioned the order of the CIT(A) before the Tribunal. The Tribunal accepting the plea of the assessee that the entire undisclosed income was covered by the regular assessment made for 1998-99, cancelled the block assessment. Reasons assigned by the Tribunal.

7. It is not in dispute that the assessee had produced a cash book/day book before the AO for the period 1st April, 1997 to 31st March, 1998, being the previous year pertaining to the asst. yr. 1998-99. This book contained two entries on 7th April, 1997. The credit side showed cash receipts of Rs. 90 lakhs and the debit side reflected the investment of entire Rs. 90 lakhs in the form of Bank F.Ds, IVPs, and other investments. This entry reads as under: “Receipts Payments xxxx xxxx xxxx

8. It is of relevance to notice here that while recording the statement of the assessee under s. 132 (4) of the Act on 5th June, 1998, the DDIT by specifically bringing the above entries to the notice of the assessee enquired from him whether these pertained to unaccounted investments found during search and seizure effected on 27th May, 1998. The questions and answers in this regard have been duly noticed by the CIT(A) in para 4.3 of his order. The sum and substance of the answer given by the assessee was that the investment found during search and seizure were not covered by the above entry dt. 7th April, 1997, made in the cash book/day book produced by him which he had shown as income in his regular return filed for the asst. yr. 1998-99. Admittedly, none of the investments discovered during search and seizure were made on 7th April, 1997. All such undisclosed investments were made either prior to 1st April, 1997, or in the month of June, 1997 and thereafter. Therefore, if the books of accounts claimed to have been maintained by the assessee in his regular course is accepted genuine, then the undisclosed investments cannot be co-related with the entry made on 7th April, 1997. On the other hand, if the entry is held to be an afterthought or bogus then also the investments detected during search and seizure remained unaccounted. Though in the assessment order there was no discussion about the correctness or otherwise of the above entry, the CIT(A) considered this aspect in all possible details in paras 13 and 14 of his order. Keeping in view the materials on record, the CIT(A) held that the entries relating to Rs. 90 lakhs made in the cash book produced by the assessee were interpolated after search. But, curiously, the Tribunal in para 24 of the order has recorded a finding that -” … the assessee, in this case, has recorded on 7th April, 1997, and again on 31st March, 1998, as already stated, the disputed investments as also the income from such investments.” We hardly find any ground to sustain this finding because, admittedly, none of the investments detected during search and seizure can be co-related with the entry made on 7th April, 1997. Further, admittedly, undisclosed income has not been found recorded in the books of accounts so produced. The Tribunal, in order to cancel the block assessment has relied on the following circumstances: “(i) The assessee was under tremendous mental tension after seizures were effected, therefore, he had filed a wrong return for the block period showing undisclosed income of Rs. 72 lakhs; (ii) The admissions so made in the return cannot be held to be conclusive; (iii) The assessee cannot be subjected to double taxation.” In our considered opinion, none of the above circumstances can be of any avail to the assessee because even if the assessee is found to be suffering from “tremendous mental pressure”, the fact remains that he had made investments worth Rs. 72 lakhs and those were not recorded in the books of accounts, This being the situation, the assessee clearly became liable to be assessed for the block period in question in terms of the provision contained in Chapter XIV-B which contains ss. 158B to 158BH. Clause (a) of s. 158B as it stood at the material time reads as under: “Sec. 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 s. 132 or any requisition was made under s. 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; xxxxxx”

14. In the present case, the search was conducted on 27th May, 1998, and 9th July, 1998. Therefore, the block period for the assessment contained all ten assessment years being from 1989-90 to 1999-2000.

15. Further, cl. (b) of s. 158B defines ‘undisclosed income’ and the same reads as under: “(b) ‘undisclosed income’ includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false.”

16. Sec. 158BA provides for assessment of undisclosed income as a result of search. This provision reads as under: “158BA Assessment of undisclosed income as a result of search.—(1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th June, 1995, a search is initiated under s. 132 or books of account, other documents or any assets are requisitioned under s. 132A in the case of any person, then the AO shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter. (2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in s. 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not. Explanation : 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. (3) Where the assessee proves to the satisfaction of the AO that any part of income referred to in sub-s. (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under sub-s. (1) of s. 139 for any previous year has not expired, and such income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period.”

17. In the present case, the assessee, in order to escape the liability of tax under block assessment, heavily relied on sub-s. (3) of s. 158BA. According to this sub-section, if the assessee is able to satisfy the AO that the income referred to in sub-s. (1) of s. 158BA related to an assessment year for which the previous year had not ended or the date of filing of the return of income under sub-s. (1) of s. 139 for any previous year had not expired, and such income or transactions relating to such income were recorded on or before the date of search or requisition of books of accounts, the said income shall not be included in the block period.

18. In the present case, so far as the investments which were made during the previous year pertaining to the asst. yr. 1998-99 and were detected during search are concerned, the last date for filing the return had not expired. But, as already noticed by us, the investments so detected were not found to have been recorded in the books of accounts produced by the assessee. This being the factual situation, the assessee could not have escaped the liability of being assessed for the block period for all the investments detected during search. The Tribunal has conveniently ignored this material aspect and by taking into account totally irrelevant considerations, has taken the view that the undisclosed income found during search and set forth by the assessee in his block return, was squarely covered by the income disclosed by him in his regular return for the asst. yr. 1998-99. Consequently, the Tribunal took the view that sustaining of the block assessment would amount to double taxation and, therefore, cancelled the block assessment in its entirety, The conclusion and finding arrived at by the Tribunal is clearly perverse and cannot be sustained in law.

19. Sri Sarangan, learned senior counsel appearing for the assessee, as a last limb of his argument submitted that the present appeal being one under s. 260A of the Act, it is not permissible for this Court to interfere with the findings of the Tribunal which according to him are purely of facts. In support of his submission, he relied on the judgment of the Supreme Court in the case of Santosh Hazari vs. Purushottam Tiwari (2001) 170 CTR (SC) 160 : (2001) 251 ITR 84 (SC). We entirely agree with Sri Sarangan that if the finding recorded by the Tribunal is of fact and is based on relevant materials on record and has been arrived at on appreciation of evidence, then certainly this Court cannot interfere with such a finding. But, here, the situation is otherwise. In this case, the Tribunal has recorded a finding contrary to the documentary evidence available on record and further by acting on surmises and conjectures. Therefore, this finding falls in the realm of perversity which certainly gives rise to a question of law.

20. In the above context, Sri Ranjit Kumar Murarka, learned senior counsel appearing for the Department, has rightly brought to our notice a recent judgment of the Supreme Court in the case of Kulwant Kaur & Ors. vs. Gurdial Singh Mann (2001) 4 SCC 262 wherein in the context of s. 100, CPC, it has been held that: “……….while it is true that in a second appeal a finding of fact, even if erroneous, will generally not be disturbed but where it is found that the findings stand vitiated on wrong test and on the basis of assumptions and conjectures andresultantly there is an element of perversity involved therein, the High Court in our view will be within its jurisdiction to deal with the issue. This is, however, only in the event such a fact is brought to light by the High Court explicitly and the judgment should also be categorical as to the issue of perversity vis-a-vis the concept of justice. Needless to say however, that perversity itself is a substantial question worth adjudication—what is required is a categorical finding on the part of the High Court as to perversity…”

21. In support of the above proposition, the Supreme Court also referred to s. 103 of CPC which reads as under: “Sec. 103.—In any second appeal, the High Court may, if the evidence on the record is sufficient, determine any issue necessary for the disposal of the appeal,— (a) which has not been determined by the lower appellate Court or by both the Court of first instance and the lower appellate Court, or (b) which has been wrongly determined by such Court or Courts by reason of a decision on such question of law as is referred to in s. 100.”

22. The Supreme Court has taken the view that— “..the requirements stand specified in s. 103 and nothing short of it will bring it within the ambit of s. 100 since the issue of perversity will also come within the ambit of substantial question of law as noticed above. The legality of finding of fact cannot but be termed to be a question of law. We reiterate however, that there must be a definite finding to that effect in the judgment of the High Court so as to make it evident that s. 100 of the Code stands complied with.” Sri Murarka, learned senior counsel for the Department, submitted that in view of the above judgment of the Supreme Court, if this Court comes to the conclusion that the finding of the Tribunal is perverse, then the law laid down in the context of s. 100 of the CPC equally applies to appeals preferred before this Court under s. 260A of the Act. In the context of the above jurisdictional issue, Sri Sarangan relied on sub-s. (1) of s. 260A of the Act whereas Sri Murarka has relied on sub- s. (7) thereof. We quote both the sub-sections: “260A (1) An appeal shall lie to the High Court from every order passed in appeal by the Tribunal, if the High Court is satisfied that the case involves a substantial question of law. xxxx (7) Save as otherwise provided in this Act, the provisions of the CPC, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.” Keeping in view the above provisions, in our opinion, the law laid down by the Supreme Court in the case of Kulwant Kaur & Ors. (supra) clearly applies to appeals preferred before this Court under s. 260A of the Act as well.

25. Sri Sarangan, at the end, made efforts to persuade us to remand the case to the Tribunal for fresh consideration particularly in view of para 28 of the Tribunal’s order which reads as under: “In the light of the decision we have reached on the validity of the assessment made in this case, we do not feel it necessary to go into the merits of any of the additions or with regard to the levy of interest under s. 158BFA of the Act.”

26. In our opinion, keeping in view the facts of the present case, there is no occasion on our part to remand the case to the Tribunal because when once it is found that the investments detected during search have not at all been recorded in the books of accounts, there hardly remains any other aspect to be determined by the Tribunal on merits of the assessment. Similarly, the leviability of interest under s. 158BFA of the Act is merely consequential and confers no discretion on any authority to remit or reduce the same. For these reasons, nothing remains for the Tribunal to decide in the matter.

27. Accordingly, the order passed by the Tribunal is set aside. The appeal is allowed. Parties to bear their own costs.

[Citation : 261 ITR 435]

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