ACIT, Ernakulam V. Shri George Joseph, Cochin

ITSSA 173/COCH/2005

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 9487 (ITAT-COCHIN)
• Duration Of Justice: 4 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 12-03-2010
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 26-11-2009
• Assessment Year: misc
• Appeal Filed On: 27-10-2005
• Court: TRIBUNAL
• Department Lawyers: A K THATTAI
• Assessee Lawyers: K K CHANDRASEKHARAN
• Keywords: Block assessment
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.VIJAYAKUMARAN & SHRI SANJAY ARORA I.T.(S&S)A.NO.173/COCH/2005 BLOCK PERIOD: 1991 - 92 TO 2000 - 01 THE ASSIST. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1) RANGE-2,ERNAKULAM. VS. S HRI GEORGE JOSEPH, KOCHI-35. PA NO.ACLPJ 7945A (APPELLANT) ( RESPONDENT ) APPELLANT BY SHRI A.K. THATTAI CIT,DR RESPONDENT BY SHRI KK CHANDRASEKHARAN O R D E R PER N.VIJAYAKUMARAN,J.M: THIS BLOCK ASSESSMENT APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-II, KOCHI, DATED 16-08-2005. THE BLOCK ASSESSMENT YEAR IS 1 991-92 TO 2000-01. 2. THE FACTS RELEVANT ARE THAT THE ASSESSEE IS AN INDIVIDUAL. A SEARCH UNDER SECTION 132 OF THE ACT WAS CONDUCTED ON 13-08-2000 IN THE CASE OF ONE SHRI COR NELI PETER PARAKKAL HOUSE, CHERIAPAZHAMPILLY THURUTHU, GOTHURUTHU, NORTH PARUR AND CASH AMOUNTING TO RS.35 LAKHS WAS SEIZED. CONSEQUENT UPON THE SEARCH, NOTICE U/ S.158BD WAS ISSUED TO THE ASSESSEE ON 18-9-2002. THE ASSE SSEE IT(SS)A NO. 173/COCH/2005 2 FILED THE RETURN OF INCOME IN FORM NO.2B, I.E. THE BLOCK RETURN ADMITTING UNDISCLOSED INCOME OF RS.60,082/- FOR THE BLOCK PERIOD RELEVANT TO 1-4-1990 TO 13-8-2000. HOWEVER, THE ASSESSING OFFICER WHILE FRAMING THE BLOCK ASSES SMENT ADDED THE UNDISCLOSED INVESTMENT BY WAY OF ALLEGED CAPITAL CONTRIBUTION OF RS.4 LAKHS IN THE FIRM OF M/S.THOTT AKKATTU DISTILLERIES. THE SECOND ADDITION IS ON THE CAPIT AL GAIN AS CHARGEABLE IN VIEW OF THE AGREED TRANSFER PRICE OF 16/100 SHARES WORTH RS.15 LAKHS AND THE DEDUCTION OF INVES TMENT COST GIVEN TO THE ENTIRE SALE CONSIDERATION. THE ASSESSABLE CAPITAL GAIN FOR THIS BLOCK ASSESSMENT COMES TO RS. 11LAKHS, AS COMPUTED BY THE ASSESSING OFFICER. AGGRIEVED BY THIS ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY WHO DELETED TH E ABOVE ADDITIONS, AGAINST WHICH THE REVENUE IS IN APPEAL B EFORE THE TRIBUNAL TOGETHER WITH A MEAGER SUM OF RS.30,300/- WHICH WAS ALSO DELETED FROM THE UNDISCLOSED INCOME, WHICH WAS FROM THE ALLEGED UNDISCLOSED SOURCE. 3. THE LD. COMMISSIONER OF INCOME-TAX, DR, VEHEMENT LY ARGUED THAT THE INVESTMENT OF RS.4 LAKHSS MADE BY T HE ASSESSEE WAS WITHOUT ANY SOURCE OF EXPLANATION. T HEREFORE, THIS SUM OF RS.4 LAKHS HAS TO BE TAKEN AS UNDISCLOS ED INCOME IT(SS)A NO. 173/COCH/2005 3 AS IT WAS NOT DISCLOSED UNDER ANY OTHER KNOWN MODE FOR THE PURPOSE OF DISCLOSURE. THE LD. CIT, DR, THEREFORE , SUBMITTED THAT THIS SUM OF RS. 4 LAKHS IS TO BE CHA RGED AS UNDISCLOSED INCOME, WHICH IS THE AMOUNT INTRODUCED BY THE ASSESSEE AS HIS CAPITAL CONTRIBUTION IN THE FIRM. 4. COMING TO THE CAPITAL GAIN CHARGEABILITY OF RS.1 1 LAKHS, THE LD. DR RELIED ON THE FINDINGS OF THE ASSESSING OFFICER WHO FOUND THAT THE ASSESSEE HAS ALSO FILED CONFIRMATION LETTER THAT POST DATED CHEQUES WERE RECEIVED AS SALE CONSI DERATION AND ON THE EVIDENCE THE ASSESSING OFFICER MADE IT A CLEAR CUT ADDITION THAT THE AGREED TRANSFER PRICE OF 16/100 S HARES WAS RS.15 LAKHS AND AGREEMENT TO SALE OF THE SHARES WER E DATED 31-12-1993. EVEN IF THIS PROOF TO BE VOID, THERE I S NO REASON TO QUESTION THE QUANTIFICATION OF THE SALE V ALUE AS THE OTHER REMAINING PARTNERS ALREADY RECEIVED THEIR RES PECTIVE SHARES OF TRANSFER CONSIDERATION OF SHARES THERE FORE, THE ASSESSING OFFICER PROCEEDED ON THE COMPUTATION OF C APITAL GAIN AND FINALLY CHARGED RS. 11 LAKHS TO BE BROUGHT FOR THIS BLOCK PERIOD. THE LD. COMMISSIONER OF INCOME-TAX FURTHER SUBMITTED THAT THE CLAUSE 9 OF TEHE PARTNERSHIP DAT ED 28-1- 1995 CLEARLY SATISFIES THAT THE TRANSFER WHICH POST ULATES WITH THE PROFIT/LOSS SHARING RATIO IS IN THE SAME RATIO AS CAPITAL IT(SS)A NO. 173/COCH/2005 4 CONTRIBUTION. THEREFORE, THE TRANSFER OF 16% SHARE OF FIVE PERSONS IS BASED ON THE PARTNERSHIP DEED AND THE CA PITAL GAIN HAS BEEN CHARGED ACCORDINGLY WHEN THE DEDUCTI ON OF INVESTMENT COST FOR THE PURPOSE OF QUANTIFYING THE CAPITAL GAIN. THE LD. COMMISSIONER OF INCOME-TAX THEREFOR E, SUBMITTED THAT THE ORDER OF THE CIT(APPEALS) IS NOT JUSTIFIED AS THIS BLOCK ASSESSMENT MADE BY THE ASSESSING OFFI CER IS IN ACCORDANCE WITH LAW. THEREFORE, THE LD. DR PRAYED FOR THE REVERSAL OF THE ORDER OF THE CIT(APPEALS) AND RESTO RATION OF THE ASSESSMENT ORDER. 5. IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE INITI ALLY WOULD SUBMIT THAT THE ISSUANCE OF NOTICE U/S.158BD IS ILL EGAL. THE LD. COUNSEL WENT FURTHER TO SUBMIT THAT THE ASSESSM ENT FOR THE BLOCK ASSESSMENT CAN ONLY BE DONE ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OR BOOKS OF ACCOUNTS OR DOCUMENTS AND SUCH OTHER MATERIALS O R INFORMATION AS ARE AVAILABLE WITH THE ASSESSING OFF ICER. THE EVIDENCE FOUND AS A RESULT OF SEARCH IS CLEARLY REL ATABLE TO SECTION 132 OR 132A. FOR THAT PROPOSITION HE REL IED ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS.RAVIKANT JAIN REPORTE D IN 250 ITR 141. THE LD. COUNSEL FURTHER SUBMITTED THAT IN IT(SS)A NO. 173/COCH/2005 5 THE BLOCK ASSESSMENT PROCEDURE WHICH IS INTENDED TO PROVIDE IS A MODE OF ASSESSMENT ON UNDISCLOSED INCOME WHICH HAS BEEN DETECTED AS A RESULT OF RESEARCH. THEREFORE, THE SCOPE OF BLOCK ASSESSMENT IS LIMITED TO THE MATERIALS UN- EARTHED DURING THE SEARCH. IN OTHER WORDS, THE ASSESSME NT FOR THE BLOCK PERIOD CAN ONLY BE DONE ON THE BASIS OF EVIDE NCE FOUND AS A RESULT OF SEARCH, WHICH WERE AVAILABLE WITH TH E ASSESSING OFFICER. HERE, IN THIS CASE, NO INCRIMI NATING MATERIAL HAS BEEN UNEARTHED SO AS TO INVOKE THE BLO CK ASSESSMENT PROCEEDINGS. 6. FURTHER, THE LD. COUNSEL WOULD SUBMIT THAT IT IS A CASE OF 158BD ASSESSMENT AS THIS ASSESSEE IS NOT A PERSO N SUBJECTED TO SEARCH. THE PERSON ACTUALLY SUBJECTE D TO SEARCH U/S.132 IS ONE SHRI CORNELI PETER. THE SEA RCH WAS CONDUCTED ON 13-8-2000 AND THE CASH AMOUNTING TO RS .35 LAKHS ALONE WAS SEIZED. NO INCRIMINATING MATERIAL WAS SEIZED OR UNEARTHED SO AS TO SATISFY THE ASSESSING OFFICER TO COME TO A CONCLUSION THAT THE UNDISCLOSED INCOME OF A THIRD PARTY IS BROUGHT TO THE KNOWLEDGE OF THE DEPARTMENT SO AS TO INVOKE THE PROVISIONS OF SECTION 158BD ASSESSMENT I N THE CASE OF A THIRD PARTY, I.E. THE ASSESSEE HEREIN. THE LD. COUNSEL RELIED ON THE DECISION OF THE HONBLE SUPRE ME COURT IT(SS)A NO. 173/COCH/2005 6 IN THE CASE OF MANISH MAHESWARI REPORTED IN 289 ITR 324 . THEREFORE, THE LD. COUNSEL SUBMITTED THAT THE BLO CK ASSESSMENT ITSELF IS INVALID AND THIS ISSUE WAS RAI SED BEFORE THE LD. CIT(APPEALS) BUT THE LD. CIT(APPEALS) DECI DED THE APPEAL ON MERITS INSTEAD OF DECIDING THIS APPEAL ON PROCEDURAL MATTERS. 7. ON MERITS ALSO THE LD. COUNSEL FOR THE ASSESSEE WOULD SUBMIT THAT SECTION 45(4) WILL NOT BE APPLICABLE AS AT THE RELEVANT POINT OF TIME THE FIRM WAS DISSOLVED. TH E FIRM CONTINUED ITS BUSINESS WITHOUT ANY TRANSFER OF THE PROPERTY. EVEN IT IS TAKEN, THE ASSESSEE HAS RELINQUISHED THE SHARE IN THE PARTNERSHIP FIRM AFTER RECEIVING THE COMPENSATI ON, THE AMOUNT OF RECEIPT IS CAPITAL INCOME NOT LIABLE TO T AX IS THE ARGUMENT OF THE LD. COUNSEL. THE LD. COUNSEL FURT HER RELIED ON THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. KUNNUMKULAM MILL BOARD257 ITR 544 TO SUPPORT THE CONTENTION THAT IF A PARTNER RETIRES HE DOES NOT TRANSFER ANY RIGHT IN T HE IMMOVABLE PROPERTY IN FAVOUR OF A SURVIVING PARTNER BECAUSE HE HAD NO SPECIFIC RIGHT WITH RESPECT TO THE PROPER TIES OF THE FIRM. UNDER THE GIVEN SET OF CIRCUMSTANCES WHEN A PARTNERSHIP IS RECONSTITUTED BY ADDING A NEW PARTNE R, THERE IT(SS)A NO. 173/COCH/2005 7 IS NO TRANSFER OF ASSETS WITHIN THE MEANING OF SECT ION 45(4) IS THE RATIO OF THE DECISION OF THE HONBLE KERALA HIGH COURT RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. TAK ING ALL THE DECISIONS IN SUPPORT, THE LD. COUNSEL FOR THE ASSES SEE WOULD SUBMIT THAT THIS CAPITAL GAIN IS NOT CHARGEABLE EVE N ON MERITS ALSO. 8. COMING TO THE INVESTMENT OF RS.4 LAKHS, WHICH WA S ADDED, THE ASSESSEE EXPLAINED THAT SOURCE FOR THE I NITIAL INVESTMENT IN THE FIRM WAS PROPERLY EXPLAINED AND P ROOF WITH RELEVANCE TO ENTRIES IN BANK PASS BOOK. THE LD. C OUNSEL FURTHER SUBMITTED THAT THIS INCOME WAS NOT DETECTED DURING THE COURSE OF SEARCH. THEREFORE, THEE LD. COUNSEL FOR THE ASSESSEE WOULD SUBMIT THAT THE ENTIRE ASSESSMENT IS ILLEGAL WITHOUT EVALUATING THE EXPLANATION AND EVIDENCES. THEREFORE, HE PRAYED FOR THE DISMISSAL OF THE REVEN UES APPEAL. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PRE CEDENTS. FIRST OF ALL THE CONTENTION OF THE ASSESSEE THAT TH E ASSESSMENT U/S.158BD IS INVALID IS THE GROUND TAKEN BY THE ASSESSEE BEFORE THE FIRST APPELLATE AUTHORITY. TH E DECISION IT(SS)A NO. 173/COCH/2005 8 OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF NEW INDIA ASSURANCE CO. LTD. VS. COMMISSIONER OF INCOME-TAX 1 31 ITR 844 WHEREIN THE HONBLE HIGH COURT HAS HELD THAT EVEN CROSS APPEALS AND CROSS OBJECTIONS WERE NOT FILED T HE MATTER MAY BE AGITATED BEFORE THE TRIBUNAL. THIS DECISIO N SUPPORTS THE PRELIMINARY OBJECTION RAISED BY THE LD. COUNSEL FOR THE ASSESSEE. COMING TO THE FULL BENCH DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF A ELECTRICITY CO.LTD. VS. COMMISSIONER OF INCOME-TAX REPORTED IN 199 ITR 351, WHEREIN THE POWER OF INCOME-TAX APPELLATE TRIBUNAL TO PERMIT THE ADDITIONAL GROUND TO BE RAISED IS POSTUL ATED. AS PER SECTION 251, INCOME-TAX APPELLATE TRIBUNAL HAS JURISDICTION TO PERMIT THE ADDITIONAL GROUND TO BE RAISED BEFORE IT, EVEN THOUGH THIS MAY NOT ARISE FROM THE ORDER OF THE AAC SO LONG AS THOSE GROUNDS ARE IN RESPECT OF THE SUBJECT MATTER OF THE ENTIRE PROCEEDINGS. THIS D ECISION OF THE FULL BENCH OF THE BOMBAY HIGH COURT IS ALSO EMP OWERS THE TRIBUNAL TO ACCEPT THE PLEA OF THE LD. COUNSEL TO RAISE THE OBJECTION AGAINST THE VALIDITY OF 158BD ASSESSMENT BEFORE US. 10. AFTER HEARING THE RIVAL SUBMISSIONS ON THE VALI DITY OF 158 BD ASSESSMENT, WE ARE OF THE VIEW THAT THE DECI SION OF IT(SS)A NO. 173/COCH/2005 9 THE APEX COURT IN THE CASE OF MANISH MAHESWARI IS D IRECTLY APPLICABLE. SEARCH WAS ADMITTEDLY ON ONE SHRI COR NELI PETER ON 13-08-2000. THIS ASSESSEE WAS NOT SUBJECTED TO SEARCH. 158BD ASSESSMENT RELATES TO THE PROCEDURE OF FRAMIN G BLOCK ASSESSMENT IN RESPECT OF TAXING UNDISCLOSED INCOME OF ANY OTHER PERSON. THIS CAN BE PERMITTED ONLY WHEN THE ASSESSING OFFICER IS SATISFIED THAT ANY UNDISCLOSED INCOME BELONGS TO ANY PERSON OTHER THAN THE PERSONS WITH R ESPECT TO WHOM SEARCH WAS MADE IS THE CONDITION PRECEDENT FOR INVOKING 158BD. FURTHER MORE, THOSE DOCUMENTS SHALL BE HANDED OVER TO THE ASSESSING OFFICER HAVING JURISDI CTION OVER SUCH OTHER PERSON AND SUCH ASSESSING OFFICER SHALL PROCEED AGAINST SUCH OTHER PERSON AND THE PROVISIONS OF THI S CHAPTER ARE APPLIED. SO CONDITION PRECEDENT THAT THERE MUS T BE A SEARCH MATERIAL WHICH IS SATISFIED THE INITIAL ASSE SSING OFFICER AND THAT UNDISCLOSED INCOME BELONGS TO ANY OTHER PE RSON WAS THERE. UNDER THE ABOVE CIRCUMSTANCES, THE DE CISION OF THE APEX COURT IN THE CASE OF MANISH MAHESHWARI IS DIRECTLY APPLICABLE AND WE HAVE NO HESITATION IN REJECTING T HE GROUNDS OF THE REVENUE IN TOTALITY AS 158BD ITSELF IS INVALID AND REQUIRES TO BE ANNULLED IN TOTO. IT(SS)A NO. 173/COCH/2005 10 11. HOWEVER, WE REFUSE TO ACCEPT THE PRAYER OF THE LD. COUNSEL THAT THERE CANNOT BE ANY UNDISCLOSED INCOME , AS THE ASSESSEE HIMSELF HAS FILED 2B RETURN FOR THIS BLOCK ASSESSMENT ON 6-11-2002 ADMITTING UNDISCLOSED INCOM E OF RS.60,082/- WHICH IS FOR THE BLOCK PERIOD FROM 1-4- 1990 TO 13-08-2000 AND IN VIEW OF THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX VS. SHELLY PRODUCTS REPORTED IN 261 ITR 367. THEREFORE, WE REJECT THE CONTENTION OF THE LD. COUN SEL FOR THE ASSESSEE REGARDING THIS UNDISCLOSED INCOME ALSO SHO ULD BE TAKEN AS NIL. THUS, THE PRAYER OF THE LD. COUNSEL DESERVES TO BE REJECTED. 12. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. SD/- SD/- (SANJAY ARORA) (N.VIJAYKUMARAN) ACCOUNTANT MEMBER JUDICIAL M EMBER ERNAKULAM, DATED THE 12 TH MARCH,2010. PM. COPY FORWARDED TO: 1. THE ACIT, CIRCLE-2(1), RANGE-2, ERNAKULAM. 2. SHRI GEORGE JOSEPH, 40/4606, LUCKY STAR BUILDING, M ARKET ROAD, KOCHI-682 035. 3. CIT(A)-II, KOCHI 4. CIT,KOCHI 5. D.R. IT(SS)A NO. 173/COCH/2005 11