High Court Of Telangana And Andhra Pradesh
CIT Vs. Jaihind Cycle Co.
Section : 69
L. Narasimha Reddy And Challa Kodanda Ram, JJ.
IT Tribunal Appeal No. 58 Of 2001
July 16, 2014
JUDGMENT
L. Narasimha Reddy, J. – The respondent is a company undertaking various business activities. It has been filing returns year after year and was also paying the tax. The business premises of the respondent and the places of other connected persons and agencies were searched on November 13, 1996. Certain undisclosed income and other items were found. Based on the same, the assessing authority made a block assessment for a period of five years covering 1993-94 to 1997-98. Various items which were said to have been suppressed were shown in the block assessment.
2. The respondent filed fresh returns showing undisclosed income of Rs. 18,45,000 and expressed willingness to pay tax thereon. However, the assessing authority did not agree with that. He passed a detailed order of assessment dated November 28, 1997, covering the entire block period. The net additions were shown at Rs. 1,33,69,570. The penal tax of Rs. 80,21,742 under section 158BA read with section 113 of the Act at the rate of 60 per cent. was levied. The tax paid for the corresponding period being Rs. 5,00,000 was given credit to and the liability of the respondent was fixed at Rs. 75,21,742.
3. Aggrieved by the order passed by the assessing authority, the respondent filed an appeal in I. T.(SS)A. No. 84/Hyd/1998 before the Hyderabad Bench of the Income-tax Appellate Tribunal (for short “the Tribunal”). It was pleaded that the assessing authority made several additions without any basis and that the tax imposed against it is excessive. Through its order dated June 19, 2000, the Tribunal partly allowed the appeal reducing the tax liability of the respondent to Rs. 32,00,000. The said order is challenged in this appeal filed under section 260A of the Act.
4. Sri S. R. Ashok, learned senior counsel for the Income-tax Department, submits that the assessing authority dealt with each and every item that was added in the assessment in detail, by referring to the relevant provisions of law but the Tribunal has ignored all of them and reduced the figures indiscriminately. He contends that even if the total turnover corresponding to the undisclosed income, arrived at by the Tribunal, viz., Rs. 6,23,69,417 is to be taken as correct, the tax liability would be phenomenal, if one applies the provisions of section 69 of the Act. He contends that hardly any valid reasons were furnished in reducing the tax liability to less than 50 per cent.
5. Sri S. Ravi, learned senior counsel, on the other hand, submits that the assessing authority went on adding figures without any factual foundation in the books of account and that the figures were shown beyond any reasonable proportion. He submits that the Departmental representative himself has indicated that the undisclosed income to be taken at Rs. 50,00,000 and the appellant cannot plead to the contrary. Learned counsel further submits that whatever may be the method of application of section 69 of the Act in the regular assessments, a different approach is warranted when it comes to the question of block assessments.
6. The block assessment against the respondent was made under Chapter XIV-A of the Act. Though the method of arriving at the conclusions and the figures may differ in such an exercise, ultimately the procedure that is followed for the making allowances and other aspects is required to be the same, as though it is a regular assessment. This is evident from section 158BH of the Act. The principal distinguishing feature is about the rate of tax. As against the stipulated rate of tax which is around 30 per cent. depending upon the order of assessment, the percentage of tax for block assessment is 60 per cent. under section 158BA of the Act.
7. The assessing authority had made several additions to the income and the corresponding investments or turnovers of the respondent. A broad reference was made to certain books in respect of some items and as regards others, it was more a case of inference. Ultimately, he arrived at the conclusion that the net addition in the context of levy of tax would be Rs. 1,33,69,570 and imposed tax accordingly.
8. In the appeal before the Tribunal, several contentions were urged by the respondent. They ranged from the lack of any material for the conclusions arrived at by the assessing authority, to the doubt on the correctness of the method of computation. The issue was so complicated that during the course of hearing the Departmental representative himself suggested that the income of the respondent can be taken at Rs. 50,00,000. Since it has emerged from the Department itself, it can be treated as starting point for arriving at a proper conclusion, in this behalf.
9. Section 69 of the Act plays an important role in the matter of determining the liability of an assessee, whenever undisclosed income and investments are noticed. It is too simple a thing, to be restated that the income would be the result of an investment or turnover. If any undisclosed income of an assessee is noticed ; section 69 prescribes the procedure, to be followed. It reads :
“69. Unexplained investments.—Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.”
10. Once an assessing authority notices an undisclosed income, an obligation arises for the assessee, to explain the source of the investment, which has yielded the income. For example, if the assessing authority finds that there is Rs. 5,00,000 of undisclosed income and the nature of business is such that it needs an investment of about Rs. 60,00,000 to yield the income of Rs. 5,00,000 in an assessment year, the assessee would be under the obligation to explain the source of that Rs. 60,00,000. If he fails to do so, section 69 of the Act mandates that the entire amount of Rs. 60,00,000 shall be treated as income, itself. In other words, the amount which is otherwise investment, gets transformed into the income. The consequences are phenomenal, particularly when the block assessment is done. However, they are sequelly attributable to the acts and omissions on the part of the assessee.
11. Notwithstanding the limitations in the context of hearing an appeal under section 260A of the Act, we left it open to the learned counsel for the respondent to explain the source of investment in respect of the undisclosed figures. Since that is not forthcoming, the only way out is to fall back upon the figures indicated by the Departmental representative, viz., the undisclosed income of Rs. 50,00,000, as the income irrespective of the investment which is needed to yield that income or the absence of explanation of the source thereof.
12. We, therefore, allow the appeal in part and hold that the respondent shall be under an obligation to pay the tax on the undisclosed income of Rs. 50,00,000 in the place of Rs. 32,00,000, as determined by the Tribunal. There shall be no order as to costs.
[Citation : 367 ITR 421]
