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

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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.  

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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

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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

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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.

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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

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(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

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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.   

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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

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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

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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

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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.  

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