Case: COMMNR. OF INCOME TAX, CHENNAI Vs. M/S. S. AJIT KUMAR THR. ITS MANAGING DIRECTOR

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) 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 ofIn 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 assesseewhich 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.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 thepremises, 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 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 theConsequently, the Revenue has filed this instant appeal before this Court.

Court's reasoning:
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. Inthe present case, the moot question is whether the fact of cash payment ofs can be added under the head of the undisclosed income of the assessee in blockDuring 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 incomeIn 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 yearHowever, he had not disclosed the payment of Rs. 95,16,000/in cash made to M/s.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 interpretedHowever, 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 thisThe 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 thesuch other materials or information as are available with the Assessing Officer and relatable to suchin Section158 BB 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 BlockIn 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.