COMMISSIONER OF INCOME TAX, CHENNAI versus S. AJIT KUMAR
[2018] 5 S.C.R. 710, Supreme Court of India, 2018
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
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SUPREME COURT REPORTS
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COMMISSIONER OF INCOME TAX, CHENNAI
v.
S. AJIT KUMAR
(Civil Appeal No. 10164 of 2010)
MAY 02, 2018
[R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.]
Income Tax Act, 1961 –  s. 158BB, 158 BH and 133A –
Undisclosed income of the block period – Computation of – Search
conducted in the premises of assessee by the Income Tax Department
– Concurrently survey conducted in the premises of the builder who
constructed the house of the assessee – Cash payment of Rs 95.16
lakhs found in the course of survey in the premises of the builder –
If could be used in Block Assessment of the assessee – Held: It can
be added under the head of the undisclosed income of the assessee
in block assessment – Assessing Officer was justified in taking the
adverse material collected or found during the survey or any other
method while making the Block Assessment – Thus, the orders passed
by the Assessing Officer restored.
Allowing the appeals, the Court
HELD: 1.1 On a perusal of Section 158BB of the Income
Tax Act, 1961, 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. 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. It is the cannon of tax law that it should be interpreted
strictly. [Para 13] [717-A-B]
1.2 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
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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 Section158BB of the Act. 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 impugned orders are
set aside and the orders passed by the Assessing Officer making
the Block Assessment are restored. [Paras 15, 17] [718-C-D, F]
Assistant Commissioner of Income Tax and Another v.
Hotel Blue Moon (2010) 3 SCC 259 ; Commissioner of
Income Tax v. G.K. Senniappan 284 ITR 220 ;
Commissioner of Income Tax v. S. Ajit Kumar (2008)
300 ITR 152 (Mad.) ; Commissioner of Income Tax v.
N.K. Laminates Pvt. Ltd. (2014) 365 ITR 211 (All.) ;
Commissioner of Income Tax v. Bimal Auto Agency
(2009) 314 ITR 191 (Gauhati) ; Commissioner of
Income Tax v. Khushlal Chand Nirmal Kumar
(2003) 263 ITR 77 (MP) ; Commissioner of Income
Tax v. Dr. Rattan Kumar Singh (2013) 357 ITR 35
(All.) ; Commissioner of Income Tax, Chennai v. S. V.
Sreenivasan (2017) SCC Online 17211 (Mad.) ;
Commissioner of Income Tax v. Pinaki Misra (2017)
392 ITR 347 (Delhi) ; Commissioner of Income Tax v.
R.M.L. Mehrotra (2010) 320 ITR 403 (All.) ; Sree
Meenakshi Mills Ltd. v. Commissioner of Income Tax,
Madras (1957) 21 ITR 28 (S.C.) ; Commissioner of
Income Tax v. P. V. Kalyanasundaram (2007) 294 ITR
49 (S.C.) ; Commissioner of Income Tax v. Smt. Anita
Chouhan (2008) 296 ITR 691 (M.P.) ; Commissioner
of Income Tax, Punjab v. Indian Wollen Textiles Mills
(1964) 51 ITR 291  – referred to.
Case Law Reference
          (2010) 3 SCC 259
referred to
Para 6
COMMISSIONER OF INCOME TAX, CHENNAI v. S. AJIT
KUMAR
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284 ITR 220
     referred to
Para 7
(2008) 300 ITR 152 (Mad.)
     referred to
 Para 7
(2014) 365 ITR 211 (All.)
     referred to
 Para 7
(2009) 314 ITR 191 (Gauhati)    referred to
 Para 7
(2003) 263 ITR 77 (MP)
     referred to
 Para 7
(2013) 357 ITR 35 (All.)
     referred to
 Para 7
(2017) 392 ITR 347 (Delhi)
     referred to
 Para 7
(2010) 320 ITR 403 (All.)
     referred to
 Para 7
(1957) 21 ITR 28 (S.C.)(2007)    referred to
 Para 7
294 ITR 49 (S.C.)
     referred to
 Para 7
(2008) 296 ITR 691 (M.P.)
     referred to
 Para 7
(1964) 51 ITR 291
     referred to
 Para 7
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 10164
of 2010.
From the Judgment and Order dated 22.11.2006 of the High Court
of Judicature at Madras in Tax Case (Appeal) No. 2620 of 2006
WITH
Civil Appeal No.10165 of 2010, Civil Appeal No. 10917 of 2013,
Civil Appeal Nos.4449 and 5255 of 2015.
K. Radhakrishnan, Yashank Adhyaru, R.V. Easwar, Sr. Advs.,
Rupesh Kumar, Shekhar Vyas, Mrs. Anil Katiyar, B.V. Balaram Das,
K.V. Mohan, R.K. Raghavan, K.V. Balakrishnan, Kunal Cheema, Apoorv
Shukla, Rubal Bansal, Ranjit B. Raut, Mrs. Bina Gupta, Advs. for the
appearing parties.
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The Judgment of the Court was delivered by
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 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.
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
COMMISSIONER OF I.T., CHENNAI v. S. AJIT KUMAR
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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 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 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.
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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. 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 (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
COMMISSIONER OF I.T., CHENNAI v. S. AJIT KUMAR
[R. K. AGRAWAL, J.]
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question is whether the fact of cash payment of Rs 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.
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)
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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 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
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:
COMMISSIONER OF I.T., CHENNAI v. S. AJIT KUMAR
[R. K. AGRAWAL, J.]
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“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 Section 158BB of the Act. 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.
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.
Nidhi Jain
                               Appeals allowed.