REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 10164 of 2010
Commissioner of Income Tax, Chennai ….Appellant(s)
Versus
S. Ajit Kumar
…. Respondent(s)
WITH
CIVIL APEAL NO. 10917 OF 2013
CIVIL APPEAL NO. 4449 OF 2015
CIVIL APEAL NO. 5255 OF 2015
CIVIL APPEAL NO. 10165 OF 2010
J U D G M E N T
R.K. Agrawal, J.
1) This appeal has been filed against the impugned
judgment and order dated 22.11.2006 passed by the High
Court of Judicature at Madras in Tax Case (Appeal) No. 2620
of 2006 whereby the Division Bench dismissed the appeal filed
by the appellant herein while upholding the decision passed
1
by the Income Tax Appellate Tribunal (for short “the Tribunal”)
dated 28.04.2006. Along with this appeal, other appeals are
also tagged. Since the moot question in all these appeals is
same, all these appeals would stand disposed off through this
common judgment.
Brief facts:-
Civil Appeal No. 10164 of 2010
2) In order to appreciate the facts of the present case in the
appropriate manner, purpose would be served if we mention
the facts in a summarized way which is as under:-
a) The appellant herein is the Revenue whereas the
respondent is the assessee.
b) A search was conducted by the officers of the Income
Tax Department in the premises of the assessee on
17.07.2002 which was concluded on 21.08.2002. On the same
date, 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 assessee at
Valmiki Nagar.
2
c) 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.
d) The Assessing Officer, vide order dated 31.08.2004, after
having regard to the facts and circumstances of the case,
completed the block assessment and, inter alia, held that the
said amount is liable to tax as undisclosed income of the block
period.
e) Being aggrieved with the order dated 31.08.2004, the
assessee filed an appeal before the Commissioner of Income
Tax (Appeals). Learned CIT (Appeals), vide order dated
15.02.2005, held that it was due to the search action that the
Department had found that the assessee had engaged the
services of M/s. ECIL. Hence, the order of block assessment
was upheld.
f) Being dissatisfied, the assessee brought the matter before
the Tribunal by way of an appeal. The Tribunal, vide order
3
dated 28.04.2006, set aside the decisions of the Assessing
Officer and learned CIT (Appeals) and allowed the appeal.
g) Being aggrieved, the Revenue filed an appeal before the
High Court. The High Court, vide order dated 22.11.2006,
dismissed the appeal.
3) Consequently, the Revenue has filed this instant appeal
before this Court.
4) Heard the arguments advanced by learned senior counsel
for the parties and perused the relevant records of the case
placed before us.
Point(s) for consideration:-
5) The short point for consideration which arises in this appeal
is as to 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?
Rival contentions:
6) At the outset, learned senior counsel for the Revenue
contended that the High Court failed to consider that the
information gathered as a result of search is not the details of
4
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.
Further, it was also contended that it is the standard practice
in the Department that when a search takes place in the case
of an assessee, many related business premises are
simultaneously covered under survey. Learned senior counsel
further contended that though it is called a survey, it is very
much part of the search process and the inquiry and
investigation is one process. This is to be distinguished from
the surveys which are stand-alone surveys, totally
unconnected to any search. In order to substantiate his claim,
learned senior counsel has referred to a decision of this Court
in Assistant Commissioner of Income Tax and Another vs.
Hotel Blue Moon (2010) 3 SCC 259 and contended that the
impugned decision of the High Court is liable to be set aside.
7) Per contra, it is submitted by learned senior counsel for
the assessee that the High Court rightly dismissed the appeal
of the appellant after placing reliance on the decision of the
Madras High Court in Commissioner of Income Tax vs. G.K.
5
Senniappan 284 ITR 220. It was also submitted that the fact
of cash payment found in survey conducted at the premises of
M/s ECIL does not fall within the ambit of Block Assessment.
Learned senior Counsel has relied upon the following
decisions, viz., Commissioner of Income Tax vs. S. Ajit
Kumar (2008) 300 ITR 152 (Mad.), Commissioner of Income
Tax vs. N.K. Laminates Pvt. Ltd. (2014) 365 ITR 211 (All.),
Commissioner of Income Tax vs. Bimal Auto Agency (2009)
314 ITR 191 (Gauhati), Commissioner of Income Tax vs.
Khushlal Chand Nirmal Kumar (2003) 263 ITR 77 (MP),
Commissioner of Income Tax vs. Dr. Rattan Kumar Singh
(2013) 357 ITR 35 (All.), Commissioner of Income Tax,
Chennai vs. S. V. Sreenivasan (2017) SCC Online 17211
(Mad.), Commissioner of Income Tax vs. Pinaki Misra
(2017) 392 ITR 347 (Delhi), Commissioner of Income Tax vs.
R.M.L. Mehrotra (2010) 320 ITR 403 (All.), Sree Meenakshi
Mills Ltd. vs. Commissioner of Income Tax, Madras (1957)
21 ITR 28 (S.C.), Commissioner of Income Tax vs. P.V.
Kalyanasundaram (2007) 294 ITR 49 (S.C.), Commissioner
of Income Tax vs. Smt. Anita Chouhan (2008) 296 ITR 691
6
(M.P.) and Commissioner of Income Tax, Punjab vs. Indian
Wollen Textiles Mills (1964) 51 ITR 291. Learned senior
counsel finally submitted that in view of the above decisions,
this appeal deserves to be dismissed at the threshold.
Discussion:-
8) In the present case, the period for Block Assessment is
01.04.1996 to 17.07.2002. Section 153A of the Income Tax
Act, 1961 (for brevity “the IT Act”) 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.
9) 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. In the present case,
the moot question is whether the fact of cash payment of Rs
7
95.16 lakhs can be added under the head of the undisclosed
income of the assessee in block assessment.
10) In the instant case, the office and residential premises of
the assessee searched on 17.07.2002 and finally concluded on
21.08.2002. 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
from 01.04.1996 to 17.07.2002. Consequently, a notice dated
25.02.2003, under Section 158BC of the IT Act, was issued to
the assessee and he was asked to file block assessment. In
reply to such notice, the assessee filed return on 11.08.2003,
admitting the undisclosed income as “NIL”.
11) In the present case, it is admitted position that the cost
of investment was disclosed to the Revenue in the course of
return filed by the assessee. The assessee also disclosed the
detail of transaction between the assessee and M/s ECIL in
the assessment year 2001-2002. However, he had not
disclosed the payment of Rs. 95,16,000/- in cash made to
M/s. ECIL.
8
12) The method of calculating the undisclosed income of the
block period is provided under Section 158BB of the IT Act. It
would be appropriate to re-produce the relevant part of
Sections 158BB and 158 BH of the IT Act which is as follows:
“158BB. Computation of undisclosed income of the
block period.-(1) The undisclosed income of the block
period shall be the aggregate of the total income of the
previous year failing within the block period computed,
in accordance with the provisions of this Act, on the
basis of evidence found as a result of search or
requisition of books of account or other documents
and such other materials or information as are
available with the Assessing Officer and relatable
to such evidence, as reduced by the aggregate of the
total income , or, as the case may be, as increased by
the aggregate of the losses of such previous year
determined……
158BH. Application of other provisions of this Act –
Save as otherwise provided in this Chapter, all other
provisions of this Act shall apply to assessment made
under this Chapter.”
(Emphasis supplied by us)
13) On a perusal of the above 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
9
evidence. Section 158BB 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.
14) However, Section 158BH of the IT Act has made all other
provisions of the IT Act applicable to assessments made under
Chapter XIVB except otherwise provided under this Chapter.
Chapter XIV B of the IT Act, which relates to Block
Assessment, came up for consideration before this Court in
Hotel Blue Moon (supra) wherein it has been held as under:
“18. Chapter XIV-B provides for an assessment of the
undisclosed income unearthed as a result of search without
affecting the regular assessment made or to be made. Search
is the sine qua non for the block assessment. The special
provisions are devised to operate in the distinct field of
undisclosed income and are clearly in addition to the regular
assessments covering the previous years falling in the block
period. The special procedure of Chapter XIV-B is intended
to provide a mode of assessment of undisclosed income,
which has been detected as a result of search. It is not
intended to be a substitute for regular assessment. Its scope
and ambit is limited in that sense to materials unearthed
during search. It is in addition to the regular assessment
already done or to be done. The assessment for the block
period can only be done on the basis of evidence found as a
result of search or requisition of books of accounts or
documents and such other materials or information as are
available with the assessing officer. Therefore, the income
assessable in block assessment under Chapter XIV-B is the
income not disclosed but found and determined as the result
10
of search under Section 132 or requisition under Section
132-A of the Act.
28. Section 158-BH provides for application of the other
provisions of the Act. It reads:
“158-BH. Application of other provisions of this Act.-
Save as otherwise provided in this Chapter, all other
provisions of this Act shall apply to assessment
made under this Chapter.”
This is an enabling provision, which makes all the
provisions of the Act, save as otherwise provided, applicable
for proceedings for block assessment. The provisions which
are specifically included are those which are available in
Chapter XIV-B of the Act, which includes Section 142 and
sub-sections (2) and (3) of Section 143.”
15) 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 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
Section158 BB of the Act. In the present case, the Assessing
Officer was justified in taking the adverse material collected or
11
found during the survey or any other method while making the
Block Assessment.
16) In view of the foregoing discussions, we are of the
considered opinion that the decisions relied upon by learned
senior counsel for the assessee do not lay down the correct
law.
17) In the result, all the appeals succeed and are allowed.
The impugned orders are set aside and the orders passed by
the Assessing Officer making the Block Assessment are
restored. However, the parties shall bear their own cost.
…….....…………………………………J.
(R.K. AGRAWAL)
…….…………….………………………J.
(ABHAY MANOHAR SAPRE)
NEW DELHI;
MAY 2, 2018.
12
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 10164 of 2010
Commissioner of Income Tax, Chennai ….Appellant(s)
Versus
S. Ajit Kumar
…. Respondent(s)
WITH
CIVIL APEAL NO. 10917 OF 2013
CIVIL APPEAL NO. 4449 OF 2015
CIVIL APEAL NO. 5255 OF 2015
CIVIL APPEAL NO. 10165 OF 2010
J U D G M E N T
R.K. Agrawal, J.
1) This appeal has been filed against the impugned
judgment and order dated 22.11.2006 passed by the High
Court of Judicature at Madras in Tax Case (Appeal) No. 2620
of 2006 whereby the Division Bench dismissed the appeal filed
by the appellant herein while upholding the decision passed
1
by the Income Tax Appellate Tribunal (for short “the Tribunal”)
dated 28.04.2006. Along with this appeal, other appeals are
also tagged. Since the moot question in all these appeals is
same, all these appeals would stand disposed off through this
common judgment.
Brief facts:-
Civil Appeal No. 10164 of 2010
2) In order to appreciate the facts of the present case in the
appropriate manner, purpose would be served if we mention
the facts in a summarized way which is as under:-
a) The appellant herein is the Revenue whereas the
respondent is the assessee.
b) A search was conducted by the officers of the Income
Tax Department in the premises of the assessee on
17.07.2002 which was concluded on 21.08.2002. On the same
date, 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 assessee at
Valmiki Nagar.
2
c) 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.
d) The Assessing Officer, vide order dated 31.08.2004, after
having regard to the facts and circumstances of the case,
completed the block assessment and, inter alia, held that the
said amount is liable to tax as undisclosed income of the block
period.
e) Being aggrieved with the order dated 31.08.2004, the
assessee filed an appeal before the Commissioner of Income
Tax (Appeals). Learned CIT (Appeals), vide order dated
15.02.2005, held that it was due to the search action that the
Department had found that the assessee had engaged the
services of M/s. ECIL. Hence, the order of block assessment
was upheld.
f) Being dissatisfied, the assessee brought the matter before
the Tribunal by way of an appeal. The Tribunal, vide order
3
dated 28.04.2006, set aside the decisions of the Assessing
Officer and learned CIT (Appeals) and allowed the appeal.
g) Being aggrieved, the Revenue filed an appeal before the
High Court. The High Court, vide order dated 22.11.2006,
dismissed the appeal.
3) Consequently, the Revenue has filed this instant appeal
before this Court.
4) Heard the arguments advanced by learned senior counsel
for the parties and perused the relevant records of the case
placed before us.
Point(s) for consideration:-
5) The short point for consideration which arises in this appeal
is as to 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?
Rival contentions:
6) At the outset, learned senior counsel for the Revenue
contended that the High Court failed to consider that the
information gathered as a result of search is not the details of
4
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.
Further, it was also contended that it is the standard practice
in the Department that when a search takes place in the case
of an assessee, many related business premises are
simultaneously covered under survey. Learned senior counsel
further contended that though it is called a survey, it is very
much part of the search process and the inquiry and
investigation is one process. This is to be distinguished from
the surveys which are stand-alone surveys, totally
unconnected to any search. In order to substantiate his claim,
learned senior counsel has referred to a decision of this Court
in Assistant Commissioner of Income Tax and Another vs.
Hotel Blue Moon (2010) 3 SCC 259 and contended that the
impugned decision of the High Court is liable to be set aside.
7) Per contra, it is submitted by learned senior counsel for
the assessee that the High Court rightly dismissed the appeal
of the appellant after placing reliance on the decision of the
Madras High Court in Commissioner of Income Tax vs. G.K.
5
Senniappan 284 ITR 220. It was also submitted that the fact
of cash payment found in survey conducted at the premises of
M/s ECIL does not fall within the ambit of Block Assessment.
Learned senior Counsel has relied upon the following
decisions, viz., Commissioner of Income Tax vs. S. Ajit
Kumar (2008) 300 ITR 152 (Mad.), Commissioner of Income
Tax vs. N.K. Laminates Pvt. Ltd. (2014) 365 ITR 211 (All.),
Commissioner of Income Tax vs. Bimal Auto Agency (2009)
314 ITR 191 (Gauhati), Commissioner of Income Tax vs.
Khushlal Chand Nirmal Kumar (2003) 263 ITR 77 (MP),
Commissioner of Income Tax vs. Dr. Rattan Kumar Singh
(2013) 357 ITR 35 (All.), Commissioner of Income Tax,
Chennai vs. S. V. Sreenivasan (2017) SCC Online 17211
(Mad.), Commissioner of Income Tax vs. Pinaki Misra
(2017) 392 ITR 347 (Delhi), Commissioner of Income Tax vs.
R.M.L. Mehrotra (2010) 320 ITR 403 (All.), Sree Meenakshi
Mills Ltd. vs. Commissioner of Income Tax, Madras (1957)
21 ITR 28 (S.C.), Commissioner of Income Tax vs. P.V.
Kalyanasundaram (2007) 294 ITR 49 (S.C.), Commissioner
of Income Tax vs. Smt. Anita Chouhan (2008) 296 ITR 691
6
(M.P.) and Commissioner of Income Tax, Punjab vs. Indian
Wollen Textiles Mills (1964) 51 ITR 291. Learned senior
counsel finally submitted that in view of the above decisions,
this appeal deserves to be dismissed at the threshold.
Discussion:-
8) In the present case, the period for Block Assessment is
01.04.1996 to 17.07.2002. Section 153A of the Income Tax
Act, 1961 (for brevity “the IT Act”) 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.
9) 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. In the present case,
the moot question is whether the fact of cash payment of Rs
7
95.16 lakhs can be added under the head of the undisclosed
income of the assessee in block assessment.
10) In the instant case, the office and residential premises of
the assessee searched on 17.07.2002 and finally concluded on
21.08.2002. 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
from 01.04.1996 to 17.07.2002. Consequently, a notice dated
25.02.2003, under Section 158BC of the IT Act, was issued to
the assessee and he was asked to file block assessment. In
reply to such notice, the assessee filed return on 11.08.2003,
admitting the undisclosed income as “NIL”.
11) In the present case, it is admitted position that the cost
of investment was disclosed to the Revenue in the course of
return filed by the assessee. The assessee also disclosed the
detail of transaction between the assessee and M/s ECIL in
the assessment year 2001-2002. However, he had not
disclosed the payment of Rs. 95,16,000/- in cash made to
M/s. ECIL.
8
12) The method of calculating the undisclosed income of the
block period is provided under Section 158BB of the IT Act. It
would be appropriate to re-produce the relevant part of
Sections 158BB and 158 BH of the IT Act which is as follows:
“158BB. Computation of undisclosed income of the
block period.-(1) The undisclosed income of the block
period shall be the aggregate of the total income of the
previous year failing within the block period computed,
in accordance with the provisions of this Act, on the
basis of evidence found as a result of search or
requisition of books of account or other documents
and such other materials or information as are
available with the Assessing Officer and relatable
to such evidence, as reduced by the aggregate of the
total income , or, as the case may be, as increased by
the aggregate of the losses of such previous year
determined……
158BH. Application of other provisions of this Act –
Save as otherwise provided in this Chapter, all other
provisions of this Act shall apply to assessment made
under this Chapter.”
(Emphasis supplied by us)
13) On a perusal of the above 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
9
evidence. Section 158BB 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.
14) However, Section 158BH of the IT Act has made all other
provisions of the IT Act applicable to assessments made under
Chapter XIVB except otherwise provided under this Chapter.
Chapter XIV B of the IT Act, which relates to Block
Assessment, came up for consideration before this Court in
Hotel Blue Moon (supra) wherein it has been held as under:
“18. Chapter XIV-B provides for an assessment of the
undisclosed income unearthed as a result of search without
affecting the regular assessment made or to be made. Search
is the sine qua non for the block assessment. The special
provisions are devised to operate in the distinct field of
undisclosed income and are clearly in addition to the regular
assessments covering the previous years falling in the block
period. The special procedure of Chapter XIV-B is intended
to provide a mode of assessment of undisclosed income,
which has been detected as a result of search. It is not
intended to be a substitute for regular assessment. Its scope
and ambit is limited in that sense to materials unearthed
during search. It is in addition to the regular assessment
already done or to be done. The assessment for the block
period can only be done on the basis of evidence found as a
result of search or requisition of books of accounts or
documents and such other materials or information as are
available with the assessing officer. Therefore, the income
assessable in block assessment under Chapter XIV-B is the
income not disclosed but found and determined as the result
10
of search under Section 132 or requisition under Section
132-A of the Act.
28. Section 158-BH provides for application of the other
provisions of the Act. It reads:
“158-BH. Application of other provisions of this Act.-
Save as otherwise provided in this Chapter, all other
provisions of this Act shall apply to assessment
made under this Chapter.”
This is an enabling provision, which makes all the
provisions of the Act, save as otherwise provided, applicable
for proceedings for block assessment. The provisions which
are specifically included are those which are available in
Chapter XIV-B of the Act, which includes Section 142 and
sub-sections (2) and (3) of Section 143.”
15) 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 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
Section158 BB of the Act. In the present case, the Assessing
Officer was justified in taking the adverse material collected or
11
found during the survey or any other method while making the
Block Assessment.
16) In view of the foregoing discussions, we are of the
considered opinion that the decisions relied upon by learned
senior counsel for the assessee do not lay down the correct
law.
17) In the result, all the appeals succeed and are allowed.
The impugned orders are set aside and the orders passed by
the Assessing Officer making the Block Assessment are
restored. However, the parties shall bear their own cost.
…….....…………………………………J.
(R.K. AGRAWAL)
…….…………….………………………J.
(ABHAY MANOHAR SAPRE)
NEW DELHI;
MAY 2, 2018.
12
