May 03, 2018
Case name: Commissioner of Income Tax, Chennai v. S. Ajit Kumar
Date of Judgment: May 02, 2018
Brief Facts of the case
The appellant herein is the Revenue whereas the respondent is the assessee. A search was conducted by the Income Tax Department in the premises of the assessee and thereafter there was a survey in the premises of Elegant Constructions and Interiors Ltd. (hereinafter referred to as ‘M/s. ECIL’) – the builder and interior decorator who constructed and decorated the house of the assesse. Pursuant to the same, the fact that the assessee having engaged the above contractor for construction of the house came out. At the same time, from the survey in the builder’s premises, the fact of the assessee having paid Rs 95,16,000/- to M/s ECIL in cash was revealed which was not accounted for.
Pursuant to completion of Block assessment, the Assessing Officer held that the said amount was liable to be taxed as undisclosed income of the block period. However, later on the Division Bench of the Madras High Court set aside the Block assessment order. Aggrieved by the High Court’s order the Appellant approached the Supreme Court contending that the High Court failed to consider that the information gathered as a result of search is not the details of appointment of interior decorator rather it is information regarding the cash payments made over and above the cheques payments and not accounted by the assessee.
Hence, the issue that fell for consideration was whether in the light of present facts and circumstances of the instant case, the material found in the course of survey in the premises of the builder could be used in Block Assessment of the assessee?
In appeal, the Two-Judge Bench of the Supreme Court allowed the appeal and made the following observations with reference to the aforesaid issue:
- That Section 153A of the Income Tax Act, 1961 (Assessment in case of search or requisition) provides the procedure for completion of assessment where a search is initiated under Section 132 of the IT Act or books of account or other documents or any asset are requisitioned under Section 132A of the IT Act (power to requisition books of accounts). That it is a cardinal principle of law that in order to add any income in the block assessment, evidence of such must be found in the course of the search under Section 132 of the IT Act or in any proceedings simultaneously conducted in the premises of the assessee, relatives and/or persons who are connected with the assessee and are having transaction/dealings with such assessee.
- With reference to the facts of the instant case, the Court observed that during the course of search, certain evidence were found which showed that the assessee had indulged in understatement of his real income relating to the block period. Consequently, a notice under Section 158BC of the IT Act (procedure for block assessment), was issued to the assessee and he was asked to file block assessment. However, the assessee filed return admitting the undisclosed income as “NIL”. Hence, he had not disclosed the payment of Rs. 95,16,000/- in cash made to M/s. ECIL.
- That the method of calculating the undisclosed income of the block period is provided under Section 158BB of the IT Act (computation of undisclosed income of block period). On perusal of the said statutory provision, it is evident that for the purpose of calculating the undisclosed income of the block period, it can be calculated only on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence.
- That Section 158BB of the IT Act has prescribed the boundary which has to be followed. No departure from this provision is allowed otherwise it may cause prejudice to the assessee. Needless to say that it is the cannon of tax law that it should be interpreted strictly.
- That the power of survey has been provided under Section 133A of the IT Act. Therefore, any material or evidence found/collected in a Survey which has been simultaneously made at the premises of a connected person can be utilized while making the Block Assessment in respect of an assessee under Section 158BB of the IT Act read with Section 158 BH of the IT Act. The same would fall under the words “and such other materials or information as are available with the Assessing Officer and relatable to such evidence” occurring in Section 158BB of the IT Act.
- That in the present case, the Assessing Officer was justified in taking the adverse material collected or found during the survey or any other method while making the Block Assessment.
The entire case can be accessed here.