Mr. Tippu Sultan, Bangalore V. ACIT, Bangalore

ITSSA 9/BANG/2012

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 0293 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-09-2014
• Assessment Year: misc
• Appeal Filed On: 01-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C H SUNDARAO
• Assessee Lawyers: S PARTHASARATHY
• Keywords: Depreciation; Business expenditure; Residential status; Search and seizure; Question of law; Block assessment; Unabsorbed depreciation
• Section: 69C; 32; 147; 131; 132; 144; 139

Judgement Text

ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 1 OF 34 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE ABENCH, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER S.NO IT(SS)A NO. APPELLANT PAN RESPONDENT 1 7/BANG/2012 MR.MOHD. KHASIM, NO. 217/55, 11 TH CROSS WILSON GARDEN BANGALORE AJQPS 0787 D ACIT, CENTRAL CIRCLE 2(2) BANGALORE 2 8/BANG/2012 MR. IMTIAZ PASHA, NO. 217/55, 11 TH CROSS WILSON GARDEN BANGALORE ABZPP 2650 B -DO- 3 9/BANG/2012 MR. TIPPU SULTAN, NO. 217/55, 11 TH CROSS WILSON GARDEN BANGALORE AAACT 6198 D - DO - 4 10/BANG/2012 MR. CHAND PASHA, NO. 217/55, 11 TH CROSS WILSON GARDEN, BANGALORE AGRPP 7236 J - DO - BLOCK PERIOD W.E.F1.4.1991 TO 29.05.2011 ASSESSEE BY: SHRI S. PARTHASARATHY, ADVOCATE DEPARTMENT BY: SHRI C.H.SUNDARAO, CIT, (DR) DATE OF HEARING: 01/09/2014 DATE OF PRONOUNCEMENT: 26/ 09/2014 O R D E R PER RAJPAL YADAV, J.M. THE PRESENT APOPEALS ARE DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST THE COMMON ORDER OF THE LEARNED CI T (A) DATED 22.03.2012 PASSED FOR THE BLOCK PERIOD STARTING FRO M 1.4.1991 AND ENDING ON 29.05.2011 ON THE APPEALS OF APPELLAN TS. SINCE A COMMON QUESTION OF LAW AND FACTS IS INVOLVED IN ALL THE APPEALS, THEREFORE, WE HEARD THEM TOGETHER AND DEEM IT APPRO PRIATE TO ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 2 OF 34 DISPOSE OF THEM BY THIS COMMON ORDER. THE GROUNDS O F APPEAL TAKEN BY THE APPELALNTS ARE NOT IN CONSONANCE WITH RULE 8 OF THE ITAT RULES, THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. IN BRIEF THEIR COMMON GRIEVANCE IS THAT THE LEARNED CI T (A) HAS ERRED IN CONFIRMING THE PENALTY IMPOSED UPON THEM U /S 158BFA(2) OF THE INCOME TAX ACT, 1961. 2. THE FACTS ON ALL VITAL POINTS ARE COMMON IN ALL THE APPEALS. THEREFORE, FOR THE FACILITATIVE REFERENCE, WE ARE T AKING UP THE FACTS FROM THE APPEAL OF SHRI MOHD. KHASIM FOR WHICH THE LEARNED REPRESENTATIVES HAVE ADDRESSED THEIR ARGUMENTS. THE ADUMBRATED FACTS ARE THAT A SEARCH AND SEIZURE OPER ATION WAS CARRIED OUT U/S 132 OF THE INCOME TAX ACT AT ALL TH E APPELLANTS ON 29 TH MAY, 2001. ALONG WITH THE APPELLANTS, PREMISES OF ONE M/S DOMICILE DEVELOPERS LTD ALONG WITH THE PREMISES OF ASSESSEES WERE ALSO COVERED. DURING THE COURSE OF S EARCH, INCRIMINATING DOCUMENTARY EVIDENCE WERE FOUND AND S EIZED. IN ORDER TO GIVE A LOGICAL END TO THE PROCEEDINGS, A N OTICE U/S 158BC DATED 8.5.2002 WAS SERVED UPON THE ASSESSEE ON 21.5 .2002. THE ASSESSEES WERE DIRECTED TO FILE RETURN OF INCOME WI THIN 30 DAYS FROM THE DATE OF NOTICE. SHRI MOHD. KHASIM HAD FILE D HIS RETURN OF INCOME 18/06/2002 DECLARING NIL UNDISCLOSED INCO ME. SIMILARLY THE OTHER APPELLANTS HAVE ALSO DECLARED N IL INCOME. NOTICES U/S 143(2) AND 142 (1) WERE ISSUED AND SERV ED UPON THE ASSESSEE. THE CASE OF THE ASSESSING OFFICER IS THAT SHRI MOHD. KASIM ALONG WITH HIS WIFE MS. NASEEMUNISA AND FAMIL Y MEMBERS NAMELY SHRI TIPU SULTAN, SHRI CHAND PASHA, SHRI IMT IAZ PASHA, SHRI MOHAMMED ALI (4 SONS OF SHRI MOHD. KHASIM), AN D MS. SHABANA TAJ (DAUGHTER OF SHRI MOHD. KHASIM) JOINTLY PURCHASED A LAND MEASURING ABOUT 3 ACRES AND 7 GUNTAS SITUATE D IN SURVEY ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 3 OF 34 NOS. 181 AND 182 AT BILEKANAHALLY, BERUR HOBLI WAS PURCHASED DURING 1994-95. ACCORDING TO THE ASSESSING OFFICER THIS LAND WAS PURCHASED IN INDIVIDUAL NAMES. EACH FAMILY MEMBERS HAVE ENTERED INTO AN AGREEMENT FOR SALE OF THIS LAND WIT H M/S DOMICILE DEVELOPERS ON 8 TH NOV. 1996. ASSESSING OFFICER HAS NOTICED THE DETAILS OF THESE AGREEMENTS IN PARAGRAPH NO.3. ACCO RDING TO ASSESSING OFFICER, THERE WERE THREE AGREEMENTS FOUN D AT THE PREMISES OF M/S DOMICILE DEVELOPERS. THE FIRST AGRE EMENT IS DATED 8.11.1996, 2 ND AGREEMENT IS DATED 22.11.1999 AND ONE MORE AGREEMENT IS DATED 15.3.1997. IN ALL THESE THR EE AGREEMENTS, DIFFERENT SALE CONSIDERATIONS HAS BEEN AGREED BETWEEN THE PARTIES. ACCORDING TO THE AGREEMENT DAT ED 8.11.1996, THE LAND WAS AGREED TO BE SOLD FOR A CON SIDERATION OF RS.1.27 CRORES, OUT OF THAT RS.67.00 LAKHS WAS RECE IVED BY THE RESPECTIVE VENDORS AND RS.60.25 LAKHS IS STILL TO B E RECEIVED FROM M/S DOMICILE DEVELOPERS. AS PER THE AGREEMENT DATED 22.11.1999, THE SALE CONSDIERATION WAS SETTLED AT RS.4,65,50,000/-, THE VENDOR HAS PAID RS.4,13,00,00 0/- AND THE BALANCE WAS PAYABLE AT RS.52,50,000/-., AS PER THE THIRD CALCULATION, THE SALE CONSIDERATION WAS SETTLED AT RS.5,53,21,000/-. THE INVESTIGATION TEAM HAS RECORD ED THE STATEMENT OF SHRI NAVED, MANAGING DIRECTOR OF DOMI CILE DEVELOPERS ALLEGED VENDEE AND MR. CHOTU SAB AND MR. TIPU SULTAN. MR. TIPU SULTAN WAS ALSO PUT TO CROSS EXAMI NATION BY MR. NAVED DURING THE INVESTIGATION ITSELF. ACCORDIN G TO THE ASSESSING OFFICER IN THE CROSS EXAMINATION, MR. TIP U SULTAN HAD AGREED THAT THEY HAVE RECEIVED RS.2.75 CRORES AS TH E SALE CONSIDERATION FROM THE VENDEE. HOWEVER, DURING THE ASSESSMENT PROCEEDINGS HE HAS RE-RETRACTED FROM HIS EARLIER VE RSION. HE HAS FILED A LETTER BEFORE THE AUTHORITIES FOR RETRACTIO N FOR HIS ALLEGED ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 4 OF 34 ADMISSION. THE ASSESSING OFFICER OBSERVED THAT M/S DOMICILE DEVELOPERS HAD CLAIMED AN EXPENDITURE OF RS.2.834 C RORES ON ACCOUNT OF LAND PURCHASED. THUS, ON THE BASIS OF TH E ENTRIES MADE BY THE VENDEE IN ITS BOOKS OF ACCOUNTS, HE CON STRUED THAT THE LAND WAS SOLD FOR A SUM OF RS.2.83,01,868/- AFT ER DEBTING THE COST OF LAND AND OTHER PAYMENT FOR EVICTION, BROKER AGE ETC. HE CALCULATED THE CAPITAL GAIN ASSESSABLE IN THE HANDS OF EACH APPELLANTS. 3. ON THE OTHER HAND, THE STAND OF THE APPELLANTS W AS THAT AT THE TIME OF PURCHASE OF THE LAND, A PARTNERSHIP FIR M IN THE NAME AND STYLE OF M/S TIPU SULTAN & CO. WAS CONSTITUTED ON 3.4.1996. THE FIRM HAS CREDITED THE PARTNERS A/C WITH THE VAL UE OF THE LAND BROUGHT IN AS THEIR SHARE. IT HAS BEEN FILING REGUL AR RETURN OF INCOME, BUT NO INCOME HAS BEEN OFFERED ON SALE OF T HE PROPERTY AS ON DATE AND IT WAS TREATED AS STOCK-IN-TRADE. TH E AMOUNTS RECEIVED FROM M/S DOMICILE DEVELOPERS IS TREATED AS AN ADVANCE. THE 2 ND SUBMISSIONS OF THE APPELLANTS WAS THAT AS PER THE AGREEMENT DATED 8.11.1996, THE SALE CONSIDERATION W AS SETTLED AT RS.1.27 CRORES. THE ASSESSEES HAD RECEIVED RS.67.00 LAKHS THROUGH ACCOUNT PAYEE CHEQUES WHICH HAS BEEN DULY S HOWED. SHRI MOHD. KHASIM HAS RECEIVED A SUM OF RS.5.00 LAK HS THROUGH CHEQUE NO.557308 DATED 20.10.1996 DRAWN ON VIJAYA B ANK, AUSTIN TOWN BRANCH. SIMILAR IS THE POSITION WITH RE GARD TO OTHER VENDORS. THE EXISTENCE OF OTHER AGREEMENTS WERE NOT SPECIFICALLY DENIED, BUT IT WAS CONTENDED THAT THEY PUT THE SIGN ATURE ON ASKING OF THE VENDEE WHO WANTS TO DENOTIFY THIS LAN D FROM PARK ZONE AND WANTS TO AVAIL LOANS ETC. WHEN STATEMENT O F SHRI TIPU SULTAN AND MR.CHOTU SAB WAS RECORDED U/S 132(4), TH EY DISCLOSED SALE CONSIDERATION OF RS.1.27 CRORES ONLY . IT IS ALLEGED ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 5 OF 34 THAT AT ABOUT 2.00 AM IN THE NIGHT ON 30.05.2001, T HEY WERE BROUGHT AT THE PREMISES OF M/S DOMICILE DEVELOPERS AND THERE DURING THE CROSS EXAMINATION A DISCLOSURE WAS OBTAI NED FOR A SALE CONSIDERATION OF RS.2.75 CRORES. SHRI NAVED, P ARTNER OF M/S DOMICILE DEVELOPERS CROSS EXAMINED MR. CHOTU SAB AL SO. WE WILL BE DISCUSSING THESE EVIDENCES IN THE LATER PART OF THE ORDER. THE ASSESSING OFFICER WAS NOT CONCLUSIVELY SATISFIED TH AT THE VENDEE HAS MADE PAYMENT TO THE ASSESSEE. IT IS ALSO PERTIN ENT TO MENTION HERE THAT THE SALE DEEDS WERE NOT EXECUTED. UNLESS SALE DEED WAS BEING EXECUTED, THE DEVELOPER M/S DOMICILE DEVELOPER WILL NOT BE IN A POSITION TO CREATE THIRD PARTY RIG HT IN THE PROPERTY EVEN AFTER DEVELOPMENT. ASSESSING OFFICER HAS ASSES SED THE ALLEGED CAPITAL GAIN ON PROTECTIVE BASIS IN THE HAN DS OF THE ASSESSEE, HIS FINDINGS IN THIS REGARD READ AS UNDER : 3.7 THE ONUS IS ON M/S DOMICUILE DEVELOPERS TO PRO VE THAT THE PAYMENTS HAVE BEEN MADE AS THEY HAVE CLAIMED AN EXPENDITURE OF RS.2,83,01,868/- ON ACCOU NT OF LAND PURCHASE. AS ON DATE, THEY ARE UNABLE TO PR OVE. BUT HOWEVER, CONSIDERING THE CONTRADICTORY STANDS M R. CHOTU SABS FAMILY HAS BEEN TAKING AT VARIOUS POINT S OF SEARCH AND ASSESSMENT PROCEEDINGS, AN AMUNT OF RS.2,83,01,868/- IS BEING TREATED AS THE AMOUNT RECEIVED BY THE FAMILY MEMBERS AND THE GAINS ARE BE ING ASSESSED ON A PROTECTIVE BASIS IN THE HANDS OF FAMI LY MEMBERS. THE COMPUTATION OF CAPITAL GAIN READ AS UNDER: TOTAL CONSIDERATION RECEIVED RS.2,83,01,868 LESS:COST OF LAND RS.23,65,000 OTHER PAYMENTS FOR EVICTION, BROKERAGE ETC RS.50,91,541 RS.74,56,591 SHORT TERM CAPITAL GAINS RS.2,08,45,277 ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 6 OF 34 4.1 THIS SHORT TERM CAPITAL GAIN IS APPORTIONED ON A PROPORTIONATE BASIS AS PER THEIR LAND HOLDINGS HELD AS A SHARE BY THE VARIOUS INDIVIDUALS. 5. THE ASSESSEE OWNS 18 GUNTAS OF LAND. THEREFORE, THE UNDISCLOSED INCOME WORKED OUT TO BE RS.29,54,448/-. UNDISCLOSED INCOME AS EXPLAINED ABUT RS.29,54,448 TAXABLE INCOME RS.29,54,448 TAX THEREON @ 60% RS.17,72,669 ADD:SURCHARGE @ 2% RS. 35,453 TOTAL TAX PAYABLE RS. 18,08,122 4. THE ADDITION SO MADE HAS BEEN CONFIRMED UP TO TH E HON'BLE HIGH COURT. DURING THE COURSE OF HEARING, IT WAS PO INTED OUT THAT SLPS HAVE BEEN FILED BEFORE THE HON'BLE SUPREME COU RT BUT THE LEARNED DR INFORMED IN THE COURT THAT THE SLPS HAVE ALSO BEEN DISMISSED. ASSESSING OFFICER HAS INITIATED THE PENA LTY PROCEEDINGS U/S 158 BFA(2) ON THE GROUND THAT THE A SSESSEES HAVE FAILED TO DISCLOSE THE TRUE UNDISCLOSED INCOME IN THE SHAPE OF CAPITAL GAIN. THE ASSESSING OFFICER HAS IMPOSED A PENALTY OF RS.18,08,122/- IN THE CASE OF SHRI MOHD. KHASIM. TH E PENALTIES HAVE ACCORDINGLY BEEN COMPUTED IN THE CASES OF OTHE R ASSESSEES. THE OPERATIVE PART OF THE PENALTY ORDER READ AS UND ER: 7. IT IS TO BE MENTIONED HERE THAT APART FROM MENTIONING THE ABOVE, THE ASSESSEE IN HIS LETTER FI LED 20.11.2009 HAS NOT SUBMITTED ANY EXPLANATION FOR THE SHOW CAUSE NOTICE, INSPITE OF THE FACT THAT THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER HAS BEEN UPHELD BY BOTH THE APPELLATE AUTHORITIES. IT IS VERY MUCH APPARENT THAT THE ASSESSEE HAS NO EXPLANATION TO OFFER FOR THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER AGAINST WHICH THE PENALTY PROCEEDINGS U/S 158BFA(2) WERE INITIATED. THIS IS A FIT CASE FOR LE VY OF PENALTY U/S 158BFA(2). THE MAXIMUM PENALTY ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 7 OF 34 LEVIABLE IS RS.54,24,366/- AND THE MINIMUM PENALTY LEVIABLE IS RS.18,08,122/-. I HEREBY LEVY PENALTY O F RS.18,08,122/- (RUPEES EIGHTEEN LAKHS EIGHT THOUSAND ONE HUNDRED TWENTY-TWO ONLY) BEING THE MINIMUM PENALTY LEVIABLE IN THE CASE U/S 158BFA(2) OF THE I.T. ACT, 1961. 8. THIS ORDER IS PASSED AFTER OBTAINING APPROVAL OF THE ADDL. CIT, CR-2, BANGALORE VIDE LETTER NO.25/ADDL.CIT-CR-2/2009-10 DATED 29.01.2010. ISSUE DN & CHALLAN ACCORDINGLY. 5. WITH THE ASSISTANCE OF THE LEARNED REPRESENTATIV ES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. BEFORE EMBARKING UPON AN INQUIRY, AS TO PENALTY U/S 158BFA(2) CAN BE IMPOSED UPON THE ASSESSEE OR NOT IN THE GIVEN FACTS AND CIRCUMSTANCE S, WE THINK IT APPROPRIATE TO BEAR IN MIND CERTAIN BASIC PRINCIPLE S OF COMPUTATION OF INCOME IN THE BLOCK PERIOD AND PERCE PTIONAL DIFFERENCES BETWEEN THE OPERATIVE FORCE PENALTY PRO VISIONS IMPOSABLE U/S 158BFA(2) VIS--VIS SECTION 271(1)(I) (C). THUS IN ORDER TO ADJUDICATE THIS QUESTION WE HAVE TO UNDERS TAND THE METHOD OF DETERMINING UNDISCLOSED INCOME IN A BLOCK ASSESSMENT AND SCOPE OF BLOCK ASSESSMENT. SECTIONS 158B(B) AND 158BB PROVIDE THE DEFINITION OF UNDISCLOSED INC OME AND ITS COMPUTATION FOR THE BLOCK PERIOD. THESE PROVISIONS READ AS UNDER: '158B(B) UNDISCLOSED INCOME INCLUDES ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY INCOME BASED ON ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS, WHERE SUCH MONEY, BULLION, JEWELLERY, VALUABLE ARTICLE, THING, ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT OR TRANSACTION REPRESENTS WHOLLY OR PARTLY INCOME OR PROPERTY ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 8 OF 34 WHICH HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSES OF THIS ACT OR ANY EXPENSE, DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS ACT WHICH IS FOUND TO BE FALSE. 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 YEARS FALLING 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 AO 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 YEARS, DETERMINED, (A) WHERE ASSESSMENTS UNDER S. 143 OR S. 144 OR S. 147 HAVE BEEN CONCLUDED (PRIOR TO THE DATE OF COMMENCEMENT OF THE SEARCH OR THE DATE OF REQUISITION), ON THE BASIS OF SUCH ASSESSMENTS; (B) WHERE RETURNS OF INCOME HAVE BEEN FILED UNDER S. 139 (OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-S. (1) OF S. 142 OR S. 148) BUT ASSESSMENTS HAVE NOT BEEN MADE TILL THE DATE OF SEARCH OR REQUISITION, ON THE BASIS OF THE INCOME DISCLOSED I N SUCH RETURNS; (C) WHERE THE DUE DATE FOR FILING A RETURN OF INCOM E HAS EXPIRED, BUT NO RETURN OF INCOME HAS BEEN FILED, (A) ON THE BASIS OF ENTRIES AS RECORDED IN THE BOOK S OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUISITION WHERE SUCH ENTRIES RESULT IN COMPUTATION OF LOSS FOR ANY PREVIOUS YEAR FALLING IN THE BLOCK PERIOD; OR (B) ON THE BASIS OF ENTRIES AS RECORDED IN THE BOOK S OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEFORE THE DATE OF THE SEARCH ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 9 OF 34 OR REQUISITION WHERE SUCH INCOME DOES NOT EXCEED THE MAXIMUM AMOUNT NOT CHARGEABLE TO TAX FOR ANY PREVIOUS YEAR FALLING IN THE BLOCK PERIOD; (CA) WHERE THE DUE DATE FOR FILING A RETURN OF INCOME HAS EXPIRED, BUT NO RETURN OF INCOME HAS BEEN FILED, AS NIL, IN CASES NOT FALLING UNDER CL. (C); (D) WHERE THE PREVIOUS YEAR HAS NOT ENDED OR THE DATE OF FILING THE RETURN OF INCOME UNDER SUB-S. (1 ) OF S. 139 HAS NOT EXPIRED, ON THE BASIS OF ENTRIES RELATING TO SUCH INCOME OR TRANSACTIONS AS RECORDED IN THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUISITION RELATI NG TO SUCH PREVIOUS YEARS; (E) WHERE ANY ORDER OF SETTLEMENT HAS BEEN MADE UNDER SUB-S. (4) OF S. 245D, ON THE BASIS OF SUCH ORDER; (F) WHERE AN ASSESSMENT OF UNDISCLOSED INCOME HAD BEEN MADE EARLIER UNDER CL. (C) OF S. 158BC, ON THE BASIS OF SUCH ASSESSMENT. EXPLANATION.FOR THE PURPOSES OF DETERMINATION OF UNDISCLOSED INCOME, (A) THE TOTAL INCOME OR LOSS OF EACH PREVIOUS YEAR SHALL, FOR THE PURPOSE OF AGGREGATION, BE TAKEN AS THE TOTAL INCOME OR LOSS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT WITHOUT GIVING EFFE CT TO SET OFF OF BROUGHT FORWARD LOSSES UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SUB-S. (2) OF S. 32 : PROVIDED THAT IN COMPUTING DEDUCTIONS UNDER CHAPTER VI-A FOR THE PURPOSES OF THE SAID AGGREGATION, EFFECT SHALL BE GIVEN TO SET OFF OF BROUGHT FORWARD LOSSES UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SUB-S. (2) OF S. 32; (B) OF A FIRM, RETURNED INCOME AND TOTAL INCOME ASSESSED FOR EACH OF THE PREVIOUS YEARS FALLING WITHIN THE BLOCK PERIOD SHALL BE THE INCOME ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 10 OF 34 DETERMINED BEFORE ALLOWING DEDUCTION OF SALARY, INTEREST, COMMISSION, BONUS OR REMUNERATION BY WHATEVER NAME CALLED TO ANY PARTNER NOT BEING A WORKING PARTNER : PROVIDED THAT UNDISCLOSED INCOME OF THE FIRM SO DETERMINED SHALL NOT BE CHARGEABLE TO TAX IN THE HANDS OF THE PARTNERS, WHETHER ON ALLOCATION OR ON ACCOUNT OF ENHANCEMENT; (C) ASSESSMENT UNDER S. 143 INCLUDES DETERMINATION OF INCOME UNDER SUB-S. (1) OR SUB-S. (1B) OF S. 143. (2) IN COMPUTING THE UNDISCLOSED INCOME OF THE BLOCK PERIOD, THE PROVISIONS OF SS. 68, 69, 69A, 69B AND 69C SHALL, SO FAR AS MAY BE, APPLY AND REFERENCES TO FINANCIAL YEAR IN THOSE SECTIONS SHALL BE CONSTRUED AS REFERENCES TO THE RELEVANT PREVIOUS YEAR FALLING IN THE BLOCK PERIOD INCLUDING THE PREVIOUS YEAR ENDING WITH THE DATE OF SEARCH OR OF THE REQUISITION. (3) THE BURDEN OF PROVING TO THE SATISFACTION OF TH E AO THAT ANY UNDISCLOSED INCOME HAD ALREADY BEEN DISCLOSED IN ANY RETURN OF INCOME FILED BY THE ASSESSEE BEFORE THE COMMENCEMENT OF SEARCH OR OF THE REQUISITION, AS THE CASE MAY BE, SHALL BE ON THE ASSESSEE. (4) FOR THE PURPOSE OF ASSESSMENT UNDER THIS CHAPTER, LOSSES BROUGHT FORWARD FROM THE PREVIOUS YEAR UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SUB-S. (2) OF S. 32 SHALL NOT BE SET OFF AGAINST THE UNDISCLOSED INCOME DETERMINED IN THE BLOCK ASSESSMENT UNDER THIS CHAPTER, BUT MAY BE CARRIED FORWARD FOR BEING SET OFF IN THE REGULAR ASSESSMENTS.' 6. EXPOUNDING THE SCOPE OF THE BLOCK ASSESSMENT AND INCLUSION OF UNDISCLOSED INCOME, THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. RAVI KANT JAIN (2001) 167 CTR ( DEL) 566: ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 11 OF 34 (2001) 250 ITR 141 (DEL) HAS OBSERVED THAT THE SPEC IAL PROCEDURE OF CHAPTER XIV-B IS INTENDED TO PROVIDE A MODE OF A SSESSMENT OF UNDISCLOSED INCOME, WHICH HAS BEEN DETECTED AS A RE SULT OF SEARCH. AS THE STATUTORY PROVISIONS GO TO SHOW, IT IS NOT INTENDED TO BE A SUBSTITUTE FOR REGULAR ASSESSMENT. 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 A S ARE AVAILABLE WITH THE AO. EVIDENCE FOUND AS A RESULT O F SEARCH IS CLEARLY RELATABLE TO SS. 132 AND 132A. SIMILARLY HO NBLE RAJASTHAN HIGH COURT HAS EXPLAINED THE SCOPE OF BLO CK ASSESSMENT AND DETERMINATION OF UNDISCLOSED INCOME IN CIT VS. RAJENDRA PRASAD GUPTA (2001) 166 CTR (RAJ) 83 : (20 01) 248 ITR 350 (RAJ). THE FOLLOWING OBSERVATIONS ARE WORTH TO NOTE : 'HOWEVER, UNDER THE SCHEME OF THE PROVISIONS FOR BLOCK ASSESSMENT, IT IS APPARENT THAT IT RELATES TO ASSESSMENT OF UNDISCLOSED INCOME OF THE ASSESSEE EXCLUDING THE INCOME SUBJECTED TO REGULAR ASSESSMENT IN PURSUANCE OF THE RETURNS FILED BY THE ASSESSEE FOR SUCH PERIOD. IT IS ALSO APPARENT FROM THE PERUSAL OF S. 158BB THAT THE RETURNS ARE ALSO REQUIRED TO BE FILED IN PURSUANCE OF THE NOTICE UND ER S. 158BC(A) AND THE ASSESSMENT IS TO BE FRAMED ON THAT BASIS IN THE LIGHT OF MATERIAL THAT HAS COME I NTO POSSESSION OF THE ASSESSING AUTHORITY DURING THE COURSE OF SEARCH WHICH IS THE FOUNDATION OF THE PROCEEDINGS. THAT BEING SO, THE CORRECTNESS OR OTHERWISE OF THE RETURNS FILED IN PURSUANCE OF THE NOTICE UNDER S. 158BC(A) HAS TO BE EXAMINED WITH REFERENCE TO THE MATERIAL IN THE POSSESSION OF THE ASSESSING AUTHORITY HAVING NEXUS TO ASSESSMENT OF UNDISCLOSED INCOME WHICH IS WITH THE ASSESSING AUTHORITY, AND PREMISE OF SUCH PROCEEDINGS. IF THE RETURNS FILED BY THE ASSESSEE DO NOT ACCORD WITH TH E MATERIALS WHICH ARE ALREADY IN THE POSSESSION OF TH E ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 12 OF 34 AUTHORITY, IT CAN BE ESTIMATED TO THE BEST JUDGMENT BY THE ASSESSING AUTHORITY ON THE BASIS OF THE MATERIAL IN HIS POSSESSION. HOWEVER, THE ASSESSING AUTHORITY IS NOT CONFERRED WITH POWER TO MAKE ESTIMATION OF INCOME DE HORS THE MATERIAL IN HIS POSSESSION, WHILE MAKING REGULAR ASSESSMENT ORDER UNDER S. 158BB. IT HAS TO BE BORNE IN MIND THAT PROCEEDINGS UNDER SS. 158BB AND 158BC ARE THAT OF UNDISCLOSED INCOME. THEREFORE, THE PROCEEDING CARRIES WITH IT A PRESUMPTION THAT RETURNS FILED IN PURSUANCE OF SUCH PROCEEDINGS ARE OF UNDISCLOSED INCOME AND NOT NECESSARILY IN ACCORDANCE WITH THE BOOKS OF ACCOUNTS. ITS VERIFICATION HAS TO BE SEARC HED OUTSIDE REGULAR BOOKS WITH REFERENCE TO MATERIAL TH AT HAS BEEN FOUND DURING SEARCH. THAT MAKES IT IMPERATIVE TO ADJUDICATE THE RETURN WITH REFERENCE TO MATERIAL THAT HAS COME IN THE POSSESSION OF THE ASSESSING AUTHORITY DURING THE COURSE OF SEARCH PROCEEDINGS AND ON WHICH BASIS THE BELIEF ABOUT THE EXISTENCE OF UNDISCLOSED INCOME IS ENTERTAINED BY T HE ASSESSING AUTHORITY INVITING INVOCATION OF SS. 158B B AND 158BC. THE ENQUIRY INTO THE CORRECTNESS OF SUCH RETURNS WITH REFERENCE TO MATERIAL SO FOUND HAS NEXUS WITH THE OBJECT OF THE SPECIAL PROVISIONS, TO ADJUDICATE WHETHER THE ASSESSEE IS STILL HONESTLY DISCLOSING HIS INCOME CORRECTLY AFTER INCRIMINATING MATERIAL HAS BEEN FOUND IN THE POSSESSION OF THE REVENUE AUTHORITY BEFORE SUCH RETURNS CAN BE REJECTED AND THEREAFTER TO FRAME ASSESSMENT ESTIMATING THE INCOME LIABLE TO TAX TO THE BEST OF JUDGMENT ON THE BASIS OF THE MATERIAL THAT IS AVAILABLE WITH HIM.' 7. THE HONBLE BOMBAY HIGH COURT HAD ALSO AN OCCASI ON TO EXAMINE THE CONCEPT OF BLOCK ASSESSMENT IN CIT VS. VINOD DANCHAND GHODAWAT (2000) 163 CTR (BOM) 432 : (2001) 247 ITR 448 (BOM), WHEREIN IT WAS FOUND THAT AN ASSESSEE HA D CONSTRUCTED A BUNGALOW AND INCURRED AN EXPENSE OF R S. 4,16,000. THEREAFTER SEARCH WAS CARRIED OUT AND THE AO REFERRED ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 13 OF 34 THE VALUATION OF THE BUNGALOW TO THE DEPARTMENTAL V ALUER WHO DETERMINED THE VALUE OF THE PROPERTY AT RS. 6,66,00 0 AND THE AO ADDED THE DIFFERENCE TO THE INCOME OF THE ASSESSEE AS UNDISCLOSED INCOME. THE TRIBUNAL HAS DELETED THE ADDITION ON TH E GROUND THAT ADDITION WAS NOT MADE ON THE BASIS OF THE MATE RIAL GATHERED DURING THE COURSE OF SEARCH, RATHER ALL THESE INFOR MATIONS WERE AVAILABLE TO THE AO AT THE TIME OF REGULAR ASSESSME NT. HE OBTAINED THE DVOS REPORT SUBSEQUENT TO THE REGULAR ASSESSMENT, THEREFORE, ADDITION IS MADE BEYOND THE SCOPE OF BLO CK ASSESSMENT. THE HONBLE JURISDICTIONAL HIGH COURT U PHELD THE DELETION MADE BY THE TRIBUNAL. 8. THE TRIBUNAL MUMBAI BENCH IN THE CASE OF SUNDER AGENCIES VS. DY. CIT (1997) 59 TTJ (MUMBAI) 610 : ( 1997) 63 ITD 245 (MUMBAI) HAS MADE EXTREMELY LUCID ENUNCIATION O F LAW ON THE SUBJECT AND WE CANNOT DO BETTER THAN TO EXTRACT SOME OF THE OBSERVATIONS MADE IN THAT DECISION; '23. THERE ARE ADEQUATE SAFEGUARDS PRESENT AGAINST ANY POSSIBLE MISUSE OF THE PROVISION OF SEARCH AND SEIZURE. CHAPTER XIV-B WAS INTRODUCED IN ORDER TO MAKE PROCEDURE OF ASSESSMENT OF SEARCH AND FOR REQUISITION CASES MORE EFFECTIVE. UNDER THE PROVISIONS OF THIS CHAPTER THE UNDISCLOSED INCOME DETECTED AS A RESULT OF SEARCH INITIATED OR REQUISI TION MADE AFTER 30TH JUNE, 1995 BE ASSESSED SEPARATELY AS INCOME OF THAT BLOCK OF TEN PREVIOUS YEARS. THE PROVISION WAS INTRODUCED TO STREAMLINE THE PROCEDURE CONCERNING THE SEARCH MATTERS. IT IS ABUNDANTLY CLEAR FROM THE PERUSAL OF THE PRESCRIPTION OF S. 158BA THAT WITHIN THE PALE OF CHAPTER XIV-B ASSESSMENT COULD BE MADE ONLY IN RESPECT OF THE UNDISCLOSED INCOME. SUCH UNDISCLOSED INCOME MUST COME AS A RESULT OF ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 14 OF 34 SEARCH. THIS SECTION DOES NOT PROVIDE A LICENCE TO THE REVENUE FOR MAKING ROVING ENQUIRIES CONNECTED WITH THE COMPLETED ASSESSMENT. IT IS BEYOND THE POWER OF THE AO TO REVIEW THE ASSESSMENTS COMPLETED UNLESS SOME DIRECT EVIDENCE COMES TO THE KNOWLEDGE OF THE DEPARTMENT AS A RESULT OF SEARCH WHICH INDICATES CLEARLY THE FACTUM OF UNDISCLOSED INCOME. WITHOUT SUCH EVIDENCE OR MATERIAL THE AO IS NOT EMPOWERED TO DRAW ANY PRESUMPTION AS TO THE EXISTENCE OF UNDISCLOSED INCOME. A PRESUMPTION IS AN INFERENCE OF FACT DRAWN FROM OTHER KNOWN OR PROVED FACTS. IT IS RULE OF LAW UNDER WHICH COURTS ARE AUTHORIZED TO DRAW A PARTICULAR INFERENCE FROM A PARTICULAR FACT, UNTIL AND UNLESS THE TRUTH OF SUCH INFERENCE IS DISPROVED BY OTHER EVIDENCE. WE FIND THAT THE SCHEME OF CHAPTER XIV-B DOES NOT GIVE POWER TO THE REVENUE TO DRAW THE PRESUMPTION IN REGARD TO THE UNDISCLOSED INCOME. THE AO COULD PROCEED ON THE BASIS OF MATERIAL DETECTED AT THE TIME OF SEARCH AND THE EVIDENCE GATHERED. UNDER S. 132(4), THE AUTHORIZED OFFICER MAY, DURING THE COURSE OF SEARCH OR SEIZURE, EXAMINE ON OATH ANY PERSON WHO IS FOUND TO BE IN POSSESSION OR CONTROL OF ANY BOOKS OF ACCOUNT, DOCUMENTS, MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THI NG AND ANY STATEMENT MADE BY SUCH PERSON DURING SUCH EXAMINATION MAY THEREAFTER BE USED IN EVIDENCE IN ANY PROCEEDING UNDER THE ACT.' 9. FROM THE ABOVE IT IS CLEAR THAT UNDISCLOSED INCO ME IN BLOCK ASSESSMENTS HAS TO BE DETERMINED ON THE BASIS OF TH E SEIZED MATERIAL. THUS FOR ASSESSING AN ASSESSEE FOR A BLOC K PERIOD THERE SHOULD BE A SEARCH CONDUCTED UNDER S. 132. THE SEAR CH ONLY WOULD INFUSE JURISDICTION TO AN AO OVER THE ASSESSE E. THE NEXT STEP FOR THE AO IS TO SERVE A NOTICE UPON THE ASSES SEE UNDER S. 158BC INVITING IT FOR FURNISHING THE RETURN. WHEN T HE RETURN IS BEING FURNISHED THE AO WAS REQUIRED TO ISSUE NOTICE UNDER S. 142(2) OR UNDER S. 143(2) ETC. AND COMPUTE THE UNDI SCLOSED ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 15 OF 34 INCOME OF THE ASSESSEE. IF SUCH RETURN WAS NOT FILE D THEN ON THE BASIS OF THE SEIZED MATERIAL AO WOULD COMPUTE THE U NDISCLOSED INCOME FOR THE BLOCK PERIOD. 10. THE SCHEME OF THE BLOCK ASSESSMENT INDICATES T HAT ASSESSEE HAS TO COMPUTE ITS UNDISCLOSED INCOME FOR THE PURPOSE OF FILING A BLOCK RETURN ON THE BASIS OF SEIZED MAT ERIAL. IF HE FAILED TO COMPUTE THE TRUE UNDISCLOSED INCOME ON THE BASIS OF THE SEIZED MATERIAL AND THE AO DETERMINED A DIFFERENT U NDISCLOSED INCOME THAN THE ONE DISCLOSED BY THE ASSESSEE, THE ASSESSEE WOULD BE LIABLE TO PENALTY UNDER S. 158BFA(2). 11. THE SECOND PROVISO APPENDED WITH S. 158BC(1) P ROHIBITS AN ASSESSEE TO REVISE ITS RETURN FILED FOR THE BLOCK P ERIOD. THUS IN RESPONSE TO A NOTICE UNDER S. 158BC IF AN ASSESSEE HAD FILED THE RETURN OF INCOME, IT CANNOT REVISE THAT RETURN. 12. WE ALSO DEEM IT APPROPRIATE TO TAKE NOTE OF TH E PENALTY PROVISIONS U/S 271(1)(I)(C) WHERE PENALTY I S BEING IMPOSED UPON AN ASSESSEE FOR CONCEALING INCOME OR F URNISHING INACCURATE PARTICULARS OF INCOME. SECTION 271 READ AS UNDER: FAILURE TO FURNISH RETURNS, COMPLY WITH NOTICES, CONCEALMENT OF INCOME, ETC. (1). IF THE ASSESSING O FFICER OR THE COMMISSIONER (APPEALS) OR THE CIT IN THE COU RSE OF ANY PROCEEDINGS UNDER THIS ACT, IS SATISFIED THA T ANY PERSON (A) AND (B)******** (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 16 OF 34 HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY. (I) AND (INCOME-TAX OFFICER,)******** (III) IN THE CASES REFERRED TO IN CLAUSE (C) OR CLA USE (D), IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, A SUM W HICH SHALL ASSTT. YEAR 2000-01 NOT BE LESS THAN, BUT WHI CH SHALL NOT EXCEED THREE TIMES, THE AMOUNT OF TAX SOU GHT TO BE EVADED BY REASON OF THE CONCEALMENT OF PARTICULARS OF HIS INCOME OR FRINGE BENEFIT THE FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME OR FRINGE BENEFITS: EXPLANATION 1.- WHERE IN RESPECT OF ANY FACTS MATER IAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSO N UNDER THIS ACT, (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER(APPEALS) OR THE CIT TO BE FALSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AN D FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE A ND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIA L TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE (C) OF THIS SUB- SECTION, BE DEEMED TO REPRE SENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEE N CONCEALED'. 13. A BARE PERUSAL OF THIS SECTION WOULD REVEAL TH AT FOR VISITING ANY ASSESSEE WITH THE PENALTY, THE ASSESSING OFFICE R OR THE LEARNED CIT(APPEALS) DURING THE COURSE OF ANY PROCE EDINGS BEFORE THEM SHOULD BE SATISFIED, THAT THE ASSESSEE HAS; (I) CONCEALED HIS INCOME OR FURNISHED INACCURATE PARTIC ULARS OF INCOME. AS FAR AS THE QUANTIFICATION OF THE PENALTY IS CONCERNED, THE PENALTY IMPOSED UNDER THIS SECTION C AN RANGE IN BETWEEN 100% TO 300% OF THE TAX SOUGHT TO BE EVADED BY THE ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 17 OF 34 ASSESSEE, AS A RESULT OF SUCH CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS. THE OTHER MOST I MPORTANT FEATURES OF THIS SECTION ARE DEEMING PROVISIONS REG ARDING CONCEALMENT OF INCOME. THE SECTION NOT ONLY COVERED THE SITUATION IN WHICH THE ASSESSEE HAS CONCEALED THE I NCOME OR FURNISHED INACCURATE PARTICULARS, IN CERTAIN SITUAT ION, EVEN WITHOUT THERE BEING ANYTHING TO INDICATE SO, STATUT ORY DEEMING FICTION FOR CONCEALMENT OF INCOME COMES INTO PLAY. THIS DEEMING FICTION, BY WAY OF EXPLANATION I TO SECTION 271(1)( C) POSTULATES TWO SITUATIONS; (A) FIRST WHETHER IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME UNDER THE PROVI SIONS OF THE ACT, THE ASSESSEE FAILS TO OFFER AN EXPLANATION OR THE EXPLANATION OFFERED BY THE ASSESSEE IS FOUND TO BE FALSE BY THE ASSESSING OFFICER OR LEARNED CIT(APPEALS); AND, (B) WHERE IN RESPECT OF ANY FACT, MATERIAL TO THE COMPUTATION OF TOTAL INCOME U NDER THE PROVISIONS OF THE ACT, THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE EXPLANATION AND THE ASSESSEE FAILS TO PROVE THAT SU CH EXPLANATION IS BONA FIDE AND THAT THE ASSESSEE HAD DISCLOSED AL L THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATIO N OF THE TOTAL INCOME. UNDER FIRST SITUATION, THE DEEMING FICTION WOULD COME TO PLAYA IF THE ASSESSEE FAILED TO GIVE ANY EXPLANATIO N WITH RESPECT TO ANY FACT MATERIAL TO THE COMPUTATION OF TOTAL IN COME OR BY ACTION OF THE ASSESSING OFFICER OR THE LEARNED CIT( APPEALS) BY GIVING A CATEGORICAL FINDING TO THE EFFECT THAT EXP LANATION GIVEN BY THE ASSESSEE IS FALSE. IN THE SECOND SITUATION, THE DEEMING FICTION WOULD COME TO PLAY BY THE FAILURE OF THE ASSESSEE T O SUBSTANTIATE HIS EXPLANATION IN RESPECT OF ANY FACT MATERIAL TO THE COMPUTATION OF TOTAL INCOME AND IN ADDITION TO THIS THE ASSESSE E IS NOT ABLE TO PROVE THAT SUCH EXPLANATION WAS GIVEN BONA FIDE AND ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATIO N OF THE TOTAL ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 18 OF 34 INCOME HAVE BEEN DISCLOSED BY THE ASSESSEE. THESE T WO SITUATIONS PROVIDED IN EXPLANATION 1 APPENDED TO SE CTION 271(1)(C) MAKES IT CLEAR THAT THAT WHEN THIS DEEMIN G FICTION COMES INTO PLAY IN THE ABOVE TWO SITUATIONS THEN TH E RELATED ADDITION OR DISALLOWANCE IN COMPUTING THE TOTAL INC OME OF THE ASSESSEE, FOR THE PURPOSE OF SECTION 271(1)(C) WOUL D BE DEEMED TO BE REPRESENTING THE INCOME IN RESPECT OF WHICH INAC CURATE PARTICULARS HAVE BEEN FURNISHED. 14. THE PENALTY ON THE APPELLANTS HAS BEEN IMPOSED U/S 158BFA. LET US TAKE NOTE OF THESE PROVISIONS. THE RELEVANT PROVISIONS ARE AS FOLLOWS : '158BFA. (1) WHERE THE RETURN OF TOTAL INCOME INCLUDING UNDISCLOSED INCOME FOR THE BLOCK PERIOD I N RESPECT OF SEARCH INITIATED UNDER S. 132 OR BOOKS O F ACCOUNT, OTHER DOCUMENTS OR ANY ASSETS REQUISITIONE D UNDER S. 132A ON OR AFTER THE 1ST DAY OF JANUARY, 1997, AS REQUIRED BY A NOTICE UNDER CL. (A) OF S. 1 58BC, IS FURNISHED AFTER THE EXPIRY OF THE PERIOD SPECIFI ED IN SUCH NOTICE, OR IS NOT FURNISHED, THE ASSESSEE SHAL L BE LIABLE TO PAY SIMPLE INTEREST @ ONE PER CENT OF THE TAX ON UNDISCLOSED INCOME DETERMINED UNDER CL. (C) OF S . 158BC FOR EVERY MONTH OR PART OF A MONTH COMPRISED IN THE PERIOD COMMENCING ON THE DAY IMMEDIATELY FOLLOWING THE EXPIRY OF THE TIME SPECIFIED IN THE N OTICE, AND (A) WHERE THE RETURN IS FURNISHED AFTER THE EX PIRY OF THE TIME AFORESAID, ENDING ON THE DATE OF FURNIS HING THE RETURN; OR (B) WHERE NO RETURN HAS BEEN FURNISH ED, ON THE DATE OF COMPLETION OF ASSESSMENT UNDER CL. ( C) OF S. 158BC. (2) THE AO OR THE CIT(A) IN THE COURSE OF ANY PROCEEDINGS UNDER THIS CHAPTER, MAY DIRECT THAT A PERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHAL L NOT BE LESS THAN THE AMOUNT OF TAX LEVIABLE BUT WHI CH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SO LEVIABLE IN RESPECT OF THE UNDISCLOSED INCOME DETERMINED BY THE AO UNDER CL. (C) OF S. 158BC : ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 19 OF 34 PROVIDED THAT NO ORDER IMPOSING PENALTY SHALL BE MA DE IN RESPECT OF A PERSON IF (I) SUCH PERSON HAS FURNISHED A RETURN UNDER CL. (A) OF S. 158BC; (II) THE TAX PAYABLE ON THE BASIS OF SUCH RETURN HAS BEEN PAID O R, IF THE ASSETS SEIZED CONSIST OF MONEY, THE ASSESSEE OFFERS THE MONEY SO SEIZED TO BE ADJUSTED AGAINST T HE TAX PAYABLE; (III) EVIDENCE OF TAX PAID IS FURNISHE D ALONG WITH THE RETURN; AND (IV) AN APPEAL IS NOT FI LED AGAINST THE ASSESSMENT OF THAT PART OF INCOME WHICH IS SHOWN IN THE RETURN : PROVIDED FURTHER THAT THE PROVISIONS OF THE PRECEDING PROVISO SHALL NOT APPLY WHERE THE UNDISCLOSED INCOME DETERMINED BY THE AO IS IN EXCESS OF THE INCOME SHOWN IN THE RETURN AND IN SUCH CASES THE PENALTY SHALL BE IMPOSED ON THAT PORTION OF UNDISCLOSED INCOME DETERMINED WHICH IS I N EXCESS OF THE AMOUNT OF UNDISCLOSED INCOME SHOWN I N THE RETURN. 15. ON A COMPARATIVE STUDY OF THE SCHEME OF ASSESSM ENT OF UNDISCLOSED INCOME FOR THE PURPOSE OF BLOCK PERIOD, PENALTY IMPOSSIBLE U/S 271(1)(I)(C) AND PENALTY IMPOSSIBLE ON THE UNDISCLOSED INCOME IN THE BLOCK PERIOD, WE FIND THA T INCOME FOR THE BLOCK PERIOD HAS TO BE DETERMINED ON THE BASIS OF MATERIAL SEIZED DURING THE COURSE OF SEARCH. THIS MATERIAL W AS TO BE SUPPLIED TO THE ASSESSEE BEFORE HE COULD BE ASKED T O SUBMIT HIS RETURN IN RESPONSE TO THE NOTICE ISSUED U/S 158BC M EANING THEREBY THE MATERIAL GOADS ANY PERSON TO COMPUTE TR UE UNDISCLOSED INCOME. THE MATERIAL IS ALREADY AVAILAB LE WITH THE ASSESSING OFFICER. FROM THAT VERY MATERIAL, TRUE AN D UNDISCLOSED INCOME HAS TO BE COMPUTED BY THE ASSESSEE AND TO BE DISCLOSED IN THE BLOCK RETURN IN RESPONSE TO THE NOTICE RECEI VED U/S 158BC. THUS THERE IS A PERCEPTIONAL DIFFERENCE IN THE OPER ATIVE FORCE OF SECTION 271(1)(I)(C) VIS--VIS SECTION 158BFA(2). T HE CHARGE AGAINST THE ASSESSEE U/S 158BFA(2) COULD BE, WHY TH EY FAILED TO COMPUTE TRUE DISCLOSED INCOME OUT OF THE SEIZED MAT ERIAL. ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 20 OF 34 WHETHER THE ASSESSEES HAVE MADE A DELIBERATE ATTEMP T TO DISCLOSE NIL UNDISCLOSED INCOME OR THEY HAVE SUFFIC IENT REASONING FOR FORMING BELIEF THAT NO UNDISCLOSED INCOME IS AV AILABLE IN THEIR HANDS WHICH IS TO BE DISCLOSED IN RESPONSE TO THE N OTICE RECEIVED U/S 158BC. 16. IN THE LIGHT OF THE ABOVE PROPOSITION, LET US CONSIDER THE FACTS OF THE PRESENT CASE. WE ARE CONSCIOUS OF THE FACT THAT ADDITIONS HAVE BEEN MADE BY THE ASSESSING OFFICER A ND THOSE ADDITIONS HAVE BEEN CONFIRMED BY THE CIT (A), ITAT AND BY THE HON'BLE HIGH COURT. TO THAT EXTENT BEING A SUBORDIN ATE APPELLATE AUTHORITY, TRIBUNAL CANNOT QUESTION THE QUALITY OF EVIDENCE OR WHETHER THOSE CONCLUSIONS COULD BE ARRIVED OR NOT. IT IS ALSO EQUALLY UNDISPUTED POSITION THAT THE PENALTY PROCEE DINGS IS AN INDEPENDENT PROCEEDING, WHERE THE EVIDENCE CAN BE R E-APPRAISED BUT AGAIN THAT COULD NOT AUTHORIZE THE TRIBUNAL TO TAKE A CONTRADICTORY VIEW IN THE PENALTY PROCEEDINGS WITH REGARD TO INFERENCE OF FACTS ARRIVED AT IN THE QUANTUM PROCEE DINGS AND UPHELD BY THE HON'BLE HIGH COURT. 17. THE QUESTION BEFORE US IS, WHETHER AT THE TIME OF FILING THE RETURN, A MAN OF ORDINARY PRUDENCE CAN FORM A BELIE F THAT HE HAS NO UNDISCLOSED INCOME ON THE BASIS OF SEIZED MATERI AL SUPPLIED TO HIM. WHETHER SUCH FORMATION OF BELIEF IS A BONAFIDE ONE HAVING REGARD TO THE MATERIAL ON THE RECORD OR IT IS MEREL Y A PERFORMA EXPLANATION. IT IS TO BE KEPT IN MIND THAT IF A CLA IM WAS NOT MADE IN THE RETURN, THEN THE ASSESSEE WOULD BE FORECLOSI NG HIS RIGHT TO DISPUTE THE CLAIM AND WOULD ACCEPT THE STAND OF THE REVENUE. THE HON'BLE SUPREME COURT IN THE CASE OF RELIANCE P ETRO ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 21 OF 34 PRODUCTS LTD [2010] 322 ITR 158 (SC) HAS OBSERVED T HAT MAKING INCORRECT CLAIM DOES NOT AMOUNT TO CONCEALMENT OF P ARTICULARS, BECAUSE THE ASSESSEE WANTS TO TAKE A PARTICULAR STA ND ON THE GIVEN FACTS. 18. LET US CONSIDER THE EVIDENCE AVAILABLE ON THE R ECORD. THE EVIDENCE PUT INTO SERVICE BY THE REVENUE CONTAINS C OPY OF THE SUPPLEMENTARY AGREEMENT DATED 22.11.1999 FOUND AT T HE PREMISE OF M/S DOMICILE DEVELOPERS. THE STATEMENT O F SHRI NAVED, MANAGING PARTNER IN M/S DOMICILE DEVELOPERS RECORDED U/S 132(4) OF THE INCOME TAX ACT. THE DETAILS OF PA YMENTS AMOUNTING TO RS.2,82,07,000/- SUPPLIED TO THE ASSES SEE, AND THE ADMISSION OF TWO APPELLANTS DURING CROSS EXAMINATIO N CONDUCTED AT THE PREMISES OF DOMICILE DEVELOPER ON THE DATE O F SEARCH. CONTRARY TO THIS, THE STAND OF THE APPELLANTS IS TH AT THEY HAVE ENTERED INTO AGREEMENTS WITH M/S DOMICILE DEVELOPER S LTD ON 08.11.1996. THESE ARE THE INDEPENDENT AGREEMENTS BE TWEEN THE FAMILY MEMBERS OF THE APPELLANTS AND DOMICILE DEVEL OPERS. ACCORDING TO THESE AGREEMENTS, THE SALE CONSIDERATI ON SETTLED BETWEEN THE ASSESSEE AND THE DEVELOPER WAS RS.1,27, 00,000/-, A SUM OF RS.67.00 LAKHS WAS RECEIVED AND THE BALANCE WAS TO BE RECEIVED. SHRI MOHD. KHASIM WAS CROSS EXAMINED BY S HRI NAVED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HOWEVE R, IT IS NOT DISCERNIBLE WHETHER SHRI NAVED WAS PUT FOR CROSS EX AMINATION OR NOT. 19. LET US TAKE THE NOTE OF THE RELEVANT CLAUSES OF THE AGREEMENT AS WELL AS THE REPLIES IN RESPONSE TO THE QUESTION. THE FIRST DOCUMENT IS THE COPIES OF AGREEMENTS DATED 8. 11.1996 ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 22 OF 34 WHICH WERE ENTERED INDIVIDUALLY BY THE FAMILY MEMBE RS OF THE ASSESSEE WITH DOMICILE DEVELOPERS. ON PAGE NO.63 OF THE PAPER BOOK, COPY OF THE AGREEMENT OF SALE BETWEEN MOHD. K HASIM AND MR. NAVED ARE AVAILABLE. THE CONSIDERATION CLAUSE R EAD AS UNDER: .. AND WHEREAS, THE PURCHASERS HAVE APPROACHED THE VENDOR TO PURCHASE THE SCHEDULE LAND FOR A TOTA L SALE CONSIDERATION AMOUNT OF RS.19,60,000/- (RUPEES NINETEEN LAKHS AND SIXTY THOUSAND ONLY) FREE FROM A LL ENCUMBRANCES, CHARGES, LITIGATIONS ETC; AND WHEREAS, THE VENDOR HAS AGREED TO SELL THE SCHEDULE LAND TO THE PURCHASERS FOR THE AFORESAID S ALE CONSIDERATION AMOUNT OF RS.19,60,000/- (RUPEES NINETEEN LAKHS AND SIXTY THOUSAND ONLY) FREE FROM A LL ENCUMBRANCES, CHARGES, LITIGATIONS, ETC. AND SUBJEC T TO THE TERMS AND CONDITIONS CONTAINED HEREUNDER: NOW THIS AGREEMENT OF SALE WITNESSETH AS HEREUNDER: 1. THE PURCHASERS HAD PAID AN ADVANCE AMOUNT OF RS.5,00,000/- (RUPEES FIVE LAKHS ONLY TO THE VENDOR BY CHEQUE BEARING NO.557308 DATED 20.10.1996 DRAWN ON VIJAYA BANK, AUSTIN TOWN BRANCH, BANGALORE; .. SIMILAR CLAUSES ARE AVAILABLE IN THE AGREEMENTS OF OTHER VENDORS. 20. THE NEXT RELEVANT ITEM IS THE SUPPLEMENTARY AGR EEMENT DATED 22.11.1999 WHICH IS BEING PUT IN SERVICE BY T HE REVENUE. THE CONSIDERATION CLAUSE IN THIS AGREEMENT READ AS UNDER: WHEREAS THE VENDORS ABOVE NAMED HAD ENTERED INTO AN AGREEMENTS OF SALE ON DIFFERENT DATES INDIVIDUAL LY WITH THE PURCHASES ABOVE NAMED IN RESPECT OF THE PROPERTY BEARING SY. NOS. 181 & 182, SITUATED AT BILEKAHALLI VILLAGE, BEGUR HOBLI, BANGALORE MEASURI NG 3 ACRES, 7 GUNTAS EXCLUDING 1 GUNTA OF KARAB LAND, AN D IN PART PERFORMANCE OF AGREEMENTS OF SALE. THE VENDORS ABOVE NAMED HAVE RECEIVED A TOTAL PART SALE ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 23 OF 34 CONSIDERATION OF RS.4,13,00,000 FROM OUT OF TOTAL S ALE CONSIDERATION OF RS.4,65,50,000/- BALANCE SALE CONSIDERATION OF RS.52,50,000/- IS TO BE PAYABLE. THIS AGREEMENT CONTAINS THE RIGHTS OF THIRD PERSONS ALSO TO WHOM PAYMENTS WERE MADE AND THEY WERE WITH HELD BY THE V ENDEE. IT IS RELEVANT TO TAKE NOTE OF THESE CLAUSES ALSO: 1. CLAIM OF B.V. SAMPATH IT IS AGREED BY THE VENDORS THAT THE PURCHASERS AR E ENTITLED TO HOLD A SUM OF RS.17,40,000/- WHICH AMOU NT THEY HAVE ALREADY PAID TO B.V. SAMPATH APART FROM A SUM OF RS.6,60,000/- PAID TO HIM BY THESE VENDORS I N ORDER TO AVOID ANY INCONVENIENCES IN CONSTRUCTION. HOWEVER, IN CASE B.V. SAMPATH WINS THE DISPUTE, THE VENDORS HAVE NO CLAIM ON IT. OTHERWISE IT IS THE RESPONSIBILITY OF THE PURCHASERS TO REALIZE A SUM O F RS.17,40,000/- WHICH THEY PAID TO B.V.SAMPATH AND P AY THE SAME TO THESE VENDORS. HOWEVER, THE SUM OF RS.6,60,000/- PAID BY THESE VENDORS TO B.V.SAMPATH HAS TO BE REALIZED FROM HIM BY THEM ON THEIR OWN. 2. CLAIM OF M/S MANJOG BUILDERS IN RESPECT OF THE AFORESAID CLAIM OF M/S MANJOG BUI LDERS, THE VENDORS HAD EARLIER NEGOTIATED WITH THE SAID FI RM FOR RESOLVING THE DISPUTE AND HAD COMMITTED TO PAY A SU M OF RS.30.00 LAKHS TO ITS PROPRIETREX BUT HAD NOT PAID THE SAME IN VIEW OF THE FACT THAT A SUIT IN OS 1595 OF 1999 FILED BY THE SAID FIRM IS PENDING BEFORE CITY CIVIL COURT, BANGALORE AS SHE DID NOT WITHDRAW THE SAID CASE. IN VIEW OF THE ABOVE FACT THE VENDORS HAVE AGREED T O PERMIT THE PURCHASERS TO HOLD A SUM OF RS.30.00 LAK HS FROM OUT OF THE BALANCE SALE CONSIDERATION AMOUNT S UBJECT TO THE RESULT OF THE CASE. HOWEVER, THE VENDORS HAVE REQUESTED THE PURCHASERS TO RELEASE A SUM OF RS.5.00 LAKHS FROM OUT OF THE AFOR ESAID SUM OF RS.30.00 LAKHS, WHICH IS AGAIN ADJUSTABLE SU BJECT TO THE RESULT OF THE CASE IN THE FOLLOWING MANNER: ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 24 OF 34 A) IN CASE, M/S MANJOG BUILDERS WINS THE ABOVE CASE, THE VENDORS ARE NOT LIABLE TO CLAIM THE AFORESAID SUM OF RS.30.00 LAKHS FROM THE PURCHASERS AND THE VENDORS ARE BOUND TO RETURN THE AFORESAID SUM OF RS.5.00 LAKHS ALREADY PAID AS STATED SUPRA. IF M/S. MANJOG BUILDERS LOSES THE ABOVE CASE, AND ALSO IF THE VENDORS WIN THE CASE FILED BY ONE MR. RAMANNA NOW PENDING BEFORE THE HIGH COURT OF KARNATAKA WHICH WAS EARLIER DECIDED IN VENDORS FAVOUR IN THE KARNATAKA APPELLATE TRIBUNAL THE VENDORS ARE ENTITLED TO RECEIVE A SUM OF RS.30.00 LAKHS LESS RS.5.00 LAKHS (ALREADY PAID) AFTER DEDUCTING LITIGATION EXPENSES FROM THE BALANCE SALE AMOUNT 21. THE THIRD EVIDENCE IS A LIST OF PAYMENTS EXHIBI TING THE PAYMENTS MADE BY M/S DOMICILE DEVELOPERS; THEY READ AS UNDER. IT CONTAINS DATE OF PAYMENTS FROM 3.4.1997 TO 22.1. 1998. THIS LIST WAS CONFRONTED TO THE ASSESSEE AND THESE AMOUN TS WERE TAKEN INTO CONSIDERATION BY THE ASSESSING OFFICER. S.NO DATE NAME OF THE PERSON AMOUNT 1 11.09.97 ASSAD A/C 1,50,00,000.00 2 21.01.98 SAUDI RIYALS 1,00,000.00 3 19.01.98 SELF 1,00,000.00 4 19.01.98 SELF 1,00,000.00 5 11.01.98 AKRAM 5,00,000.00 6 02.01.98 JAVEED BTM 3,50,000.00 7 02.01.98 JAVEED BTM 15,00,000.00 8 02.01.98 JAVEED BTM 15,00,000.00 9 11.12.97 MAHADEVAPPA ULC 2,50,000.00 10 22.08.97 IMTIYAZ 2,00,000.00 11 22.08.97 ASHRAF 5,00,000.00 12 22.08.97 NAMEER SHARIFF 1,00,000.00 13 22.08.97 SADATH 2,00,000.00 14 22.08.97 RAFI BAIG 5,00,000.00 15 06.06.97 PRAKASH 70,000.00 ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 25 OF 34 16 17.04.97 SELF 5,00,000.00 17 16.04.97 SELF 5,00,000.00 18 16.04.97 SELF 5,00,000.00 19 03.04.97 RIYAZ 2,00,000.00 20 03.04.97 RIYAZ 2,00,000.00 21 03.04.97 SELF 2,00,000.00 22 03.04.97 SELF 2,00,000.00 23 97 SHANKAR 2,00,000.00 24 97 BV SAMPATH 5,00,000.00 25 97 FAYAZUDDIN 4,00,000.00 26 97 SELF 6,00,000.00 27 97 SELF 1,00,000.00 28 97 NAVNEETH 3,00,000.00 29 97 SUNIL 3,00,000.00 30 97 PRAKASH 4,00,000.00 31 97 CHANDRASHEKAR 5,00,000.00 32 97 SELF 4,55,000.00 33 97 YELLAPPA 2,00,000.00 34 97 IMTIYAZ 8,45,000.00 35 97 SELF 1,00,000.00 36 97 SELF 1,00,000.00 TOTAL AMOUNT STATED TO HAVE BEEN PAID THROUGH BANK CHEQUE 2,82,70,000.00 22. LET US TAKE NOTE OF THE QUESTIONS AND REPLIES P UT TO SHRI NAVEED IN HIS STATEMENT U/S 132(4). STATEMENT U/S 132(4) DATED 29.05.2001 NAVEED S/O SAYED GHOUSE: Q.NO.5 PLEASE STATE THE SALE CONSIDERATION IN RESPE CT OF THE LANDS PURCHASED FROM MOHD. KASIM AND HIS FAMILY MEMBERS ON WHICH DOMICILE DEVELOPERS HAS CONSTRUCTED 308 FLATS AND HOW MUCH AMOUNT HAS BEEN PAID SO FAR TO THEM? ANS. THE SALE CONSIDERATION IS RS.4,65,50,000/-. WE HAVE BEEN PAID A SUM OF RS.2,75,00,000/- APPROXIMATELY TO MR. MOHD. KASIM AND HIS FAMILY ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 26 OF 34 MEMBERS THROUGH CASH AND CHEQUES. A SUM OF RS.1,38,00,000/- HAS BEEN DEBITED ON ACCOUNT OF DEVELOPMENT CHARGES, CONSTRUCTION CHARGES, PAYMENT OF ON ENCROACHERS AND OTHER INCIDENTAL EXPENSE S, WHICH HAVE BEEN INCURRED BY US, WHICH ACTUALLY SHOULD HAVE BEEN INCURRED BY CHOTU SAB AND HIS FAMILY MEMBERS. A SUM OF RS.52,50,000/- IS STILL PAYABLE TO SRI CHOTO SAB AND OTHERS, PROVIDED THE LEGAL DISPUTES ARE DECIDED IN HIS FAVOUR. Q.NO.6. DO YOU HAVE ANY EVIDENCE THAT A SUM OF RS.2,75,00,000/- AS PER THE ABOVE STATEMENT HAS BEE N PAID TO MR.CHOTU SAB AND OTHERS? ANS. I DO NOT HAVE ANY DOCUMENTARY EVIDENCE IN THE FAMILY WRITTEN AGREEMENT IN THIS REGARD WITH THE AB OVE PERSONS. ALL THESE PAYMENTS ARE PROPERLY RECORDED I N THE BOOKS OF ACCOUNTS OF DOMICILE DEVELOPERS. THESE PAYMENTS ARE MADE BOTH BY CHEQUES AND CASH. FOR SOME CASH PAYMENTS, WE HAVE OBTAINED THE RECEIPTS. Q.NO.7. I AM SHOWING YOU THE ORIGINAL COPY OF THE SUPPLEMENTAL AGREEMENT DT. 22.11.99 AT BANGALORE BETWEEN MOHD.KHASIM ALIAS CHOTU SAB AND SIY OTHERS (VENDORS) AND M/S DOMICILE DEVELOPERS, REPRESENTED BY YOU AND SRI JAVEED, PR. WHEREIN THERE IS NO MENTION REGARDING THE DEVELOPMENT CHARGES ETC, AMOUNTING TO RS.1,38,00,000/- STATED TO HAVE BEEN INCURRED BY M/S DOMICILE DEVELOPERS AND INCLUDED IN THE PAYMENT OF PART SALE CONSIDERATION OF RS.4,13,00,000/-. PLEASE GO THROUGH THE ABOVE AGREEMENT AND EXPLAINED THE REASONS (VIDE DOCUMENTS NO.A/NBD/01 DT. 29.5.01). ANS. YES, I SUBMIT THAT THE SAME HAS NOT BEEN FIGUR ING IN THE SUPPLEMENTARY AGREEMENT DT. 22.11.1999 EVEN THOUGH BY THAT TIME WAS ALMOST COMPLETED AND THE ABOVE EXPENSES HAVE ALREADY INCURRED. Q. NO.8 DID LAND OWNERS, MR. CHOTU SAB AND OTHERS HAVE INCURRED ANY EXPENDITURE FOR DEVELOPMENT OF LAND, CONSTRUCTION OF WALL OR ROADS ETC.? ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 27 OF 34 ANS. THEY HAVE NOT INCURRED ANY EXPENDITURE ON ACCOUNT OF DEVELOPMENT OF LAND OR ANY OTHER IMPROVEMENT AND THEY HAVE HANDED OVER THE LAND DURING 1996-97 THROUGH GPA. THE ENTIRE LAND AS IS WHERE IS CONDITION. Q.NO.14. FROM THE EVIDENCES IN THE FORM OF AGREEMEN T ENTERED WITH MR.CHOTU SAB AND OTHERS, AND FROM YOUR OWN STATEMENT, IT IS SEEN THAT THE AMOUNT SHOWN IN THE AGREEMENT, AMOUNTING TO RS.4,65,50,000/- APPEARS TO BE NOT REFLECTED CORRECTLY IN THE PROFIT AND LOSS ACCOUNT AND THE BOOK OF A/C.WHICH ARE AUDITED BY THE C.A. WHAT DO YOU SAY? ANS. THE BOOKS WERE AUDITED BY M Y CA BY MR. H.K. DOGRA IN RESPECT OF DOMICILE DEVELOPERS. THE STATEM ENT AND THE BOOKS HAVE BEEN PREPARED WITHOUT CONSIDERING THE ABOVE AGREEMENTS, BUT BASED ON THE ACTUAL EXPENSES INCURRED BY DOMICILE DEVELOPERS. 23. ANALYSIS OF THE ABOVE EVIDENCES AS WELL AS THE ASSESSMENT ORDER INDICATE THAT THE ASSESSING OFFICER HAS USED THE DISCLOSURE MADE BY MR.CHOTU SAB ALIAS MOHD. KHASIM DURING THE COURSE OF SEARCH. ACCORDING TO THE ASSESSING OFFICER, HE AND HIS SON TIPU SULTAN WERE CROSS EXAMINED IN THE PRESENCE OF SHRI NAVEED AND THEY HAVE ADMITTED THE SUM OF RS.2.75 CRORES AS THE SALE CONSIDERATION RECEIVED BY THEM. THE OTHER EVIDENCE IS THE COPY OF THE SUPPLEMENTARY AGREEMENT AND THE DISCLOSURES MAD E BY SHRI NAVEED. A PERUSAL OF THE STATEMENT OF SHRI NAVEED W OULD SUGGEST THAT HIS CONCERN HAS NOT GIVEN EFFECT TO THE SUPPLE MENTARY AGREEMENT INTO THE BOOKS OF ACCOUNTS. IT IS EXPLICI TLY CLEAR FROM THE REPLY TO THE QUESTION NO.14. HE HAS DISCLOSED I NCURRENCE OF RS.1.38 CRORES TOWARDS DEVELOPMENT CHARGES WHICH IS PART OF THE TOTAL CONSIDERATION SETTLED AT RS.4.65 CRORES IN TH E SUPPLEMENTARY AGREEMENT. BUT THIS FIGURE WAS NOWHER E MENTIONED IN THE AGREEMENT. IT WAS A CONTRADICTION EMERGES OUT ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 28 OF 34 IN HIS STATEMENT. FOR THE DEVELOPERS, IT WAS AN EXP ENDITURE WHICH IS OF ALLOWABLE NATURE. THEREFORE, THE STAND OF THE DEVELOPER WOULD ALWAYS BE THAT IT HAS INCURRED EXPE NDITURE. AS FAR AS DISCLOSURE MADE U/S 132(4) IS CONCERNED, IT IS ADMISSIBLE ONLY AGAINST THE INTEREST OF SHRI NAVEED AND BOUND DOMICILE DEVELOPERS AND NOT THE ASSESSEE. AGAINST THE ASSESS EES, IT IS A CORROBORATIVE PIECE OF EVIDENCE SUGGESTING THEY HAV E RECEIVED AN AMOUNT AS PER THE SUPPLEMENTARY AGREEMENT. BUT ONUS IS UPON THE REVENUE TO PROVE THAT THEY HAVE ACTUALLY RECEIV ED. 24. THE ASSESSEES HAVE BEEN CONFRONTED WITH A LIST OF PAYMENTS EXTRACTED (SUPRA). ON A PERUSAL OF THEIR DETAILS IT REVEALED THAT THEY PERTAIN TO 1997 TO 1998. AT THAT POINT OF TIME , THE AGREEMENTS DATED 8.11.1996 WAS ONLY IN OPERATION. SUPPLEMENTARY AGREEMENT DID NOT SEE THE LIGHT OF TH E DAY, THEN HOW THE BUILDER CAN SUPPOSE TO MAKE THE PAYMENTS TO THE APPELLANTS. THERE WAS NO NOTING IN THE INDIVIDUAL A GREEMENTS THAT VENDORS WOULD RECEIVE MORE PAYMENTS. IT IS TO BE SEEN THAT WITHOUT EXECUTION OF ANY ENFORCEABLE AGREEMENT, NO BUILDER WOULD MAKE THE PAYMENTS TO VENDORS. THE ALLEGED SUPPLEMENTARY AGREEMENT IS A COMMON AGREEMENT, IT T ALKS ABOUT THE EARLIER INDIVIDUAL AGREEMENT AND ALLEGES THAT A S A PART PERFORMANCE OF THOSE AGREEMENTS, DEVELOPER HAS PAID RS.4.13 CRORES. BUT THE AGREEMENTS DID NOT STIPULATE THAT C ONSIDERATION. WE HAVE EXTRACTED THE CONSIDERATION IN THOSE AGREEM ENTS. THIS ASPECT IS TO BE APPRECIATED IN THE LIGHT OF REPLY G IVEN BY SHRI MOHD. KHASIM. SHRI NAVEED HAS CONFRONTED HIM ABOUT THE PAYMENTS BUT HE HAD DENIED SUCH SUGGESTIONS. HE DEP OSED THAT NO EXPENDITURE SHOULD BE INCURRED IN HIS ACCOUNT AN D ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 29 OF 34 SUPPLEMENTARY AGREEMENT WAS PREPARED BY SHRI NAVEED THEY HAVE SIGNED IT WITHOUT READING. BUT WHAT WAS THE OB LIGATION UPON THE BUILDER TO PAY OVER AND ABOVE AGREED AS PER AGR EEMENTS DATED 8.11.1996. WAS THERE ANY ORAL UNDERSTANDING, NO SUCH EVIDENCE CAME ON THE RECORD. IT IS HIGHLY IMPOSSIBL E THAT A BUILDER WOULD GIVE RS.4.13 CRORES (WITHOUT ANY WRIT ING), INSTEAD OF RS.1.27 CRORES SETTLED AS PER THE AGREEMENT. 25. LET US EVALUATE THE REPLIES GIVEN BY SHRI MOHD. KHASIM. WHENEVER SHRI NAVEED HAS SUGGESTED ANYTHING ON THE BASIS OF HIS DISCLOSURE MADE DURING THE COURSE OF SEARCH, TH E REPLIES GIVEN BY SHRI KHASIM ARE CATEGORICAL AND HE HAS DEN IED THE ALLEGATIONS. HE HAS SPECIFICALLY ALLEGED THAT SUPPL EMENTARY AGREEMENT WAS SIGNED WITH A VIEW TO ENABLE DOMICILE DEVELOPERS TO OBTAIN LOAN. STATEMENT U/S 131 EXAMINATION OF MR. MD. KASIM BY MR. NAVEED OF M/S DOMICILE DEVELOPERS. NAVEED. WAS IT AN AGRICULTURAL LAND AT THE TIME OF SALE?. KASIM. YES IT WAS AN AGRICULTURAL LAND. NAVEED. DID I NOT GOT YOUR SAME LAND CONVERTED TO RESIDENTIAL STATUS AND PAID THE BETTERMENT CHARGES AND CONVERSION CHARGES TO THE AUTHORITIES?. KASIM. I HAVE PAID THE BETTERMENT CHARGES AND HANDED OVER THE PROPERTIES TO YOU. NAVEED. THE STATEMENT GIVEN BY YOU THAT THE AGREEMENT DT. 22.11.1999 WAS FOR HAVING RECEIVED A CONSIDERATION OF RS.4.13. CRORES WAS ONLY IN GOOD F AITH AND FURTHER STATING WITH THE INTEREST OBTAINING LOA N FROM THE BANK. THIS STATEMENT IS ABSOLUTELY FAKE AN D MISLEADING. DID I TELL YOU THAT YOU ARE SIGNING THI S AGREEMENT FOR AVAILING LOAN OR FOR CANVASSING? ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 30 OF 34 KASIM. YES YOU TOLD ME. NAVEED. DO YOU KNOW THAT I BEING A BPA HOLDER AND AN AGREEMENT HOLDER IS NOT ENTITLED FOR OBTAINING T HE BANK LOANS. KASIM. I DO NOT KNOW AND I AM NOT AWARE OF IT. NAVEED. WAS IT NOT YOUR PROPERTY UNDER THE PARK ZON E UNDER BDA AND WHICH I GOT IT DENOTIFIED. WAS IT A F ACT. KASIM: YES IT IS A FACT NAVEED. WERE MR. SHANKAR AND MR.MAHADEVAPPA NOT YOUR AGENTS FOR GETTING THE LAND CONVERTED TO WHOM MONEY HAS BEEN PAID BY ME AS PER YOUR GUIDELINE? KASIM. MR. SHANKAR AND MR. MAHADEVAPPA ARE THE REAL ESTATE BROKERS WHO WERE INVOLVED IN THE PARK Z ONE DENOTIFICATION. I HAD ASKED MR.NAVEED TO MAKE PAYMENTS BUT NOT UNDER MY AMOUNT. NAVEED. IN THE SUPPLEMENTARY AGREEMENT DT. 22.11.1999 WERE YOU HAVE ACKNOWLEDGED RECEIPT OF RS.4.13 CRORES SAYING IT WAS FOR THE PURPOSE OF BAN K LOAN, WHERE IS THE NECESSITY OF MENTIONING IN THE S AME DOCUMENTS THE LITIGATIONS OF MR.B.V.SAMPATH AND MANJOG BUILDERS? KASIM. THE AGREEMENTS WAS PREPARED BY YOU AND WE HAVE SIGNED WITHOUT READING THE SAME. 26. THE ASSESSING OFFICER ON EVALUATION OF THESE EV IDENCES FAILED TO REACH ON A FIRM CONCLUSION. HE HAS ASSESS ED THE INCOME ON PROTECTIVE BASIS. THE FINDINGS RECORDED BY THE A SSESSING OFFICER IN PARAGRAPH NO.3.7 IN THIS REGARD IN THE C ASE OF SHRI MOHD. KHASIM READ AS UNDER: 3.7 THE ONUS IS ON M/S DOMICUILE DEVELOPERS TO PRO VE THAT THE PAYMENTS HAVE BEEN MADE AS THEY HAVE CLAIMED AN EXPENDITURE OF RS.2,83,01,868/- ON ACCOU NT OF LAND PURCHASE. AS ON DATE, THEY ARE UNABLE TO PR OVE. BUT HOWEVER, CONSIDERING THE CONTRADICTORY STANDS M R. CHOTU SABS FAMILY HAS BEEN TAKING AT VARIOUS POINT S OF SEARCH AND ASSESSMENT PROCEEDINGS, AN AMUNT OF RS.2,83,01,868/- IS BEING TREATED AS THE AMOUNT ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 31 OF 34 RECEIVED BY THE FAMILY MEMBERS AND THE GAINS ARE BE ING ASSESSED ON A PROTECTIVE BASIS IN THE HANDS OF FAMI LY MEMBERS. THE COMPUTATION OF CAPITAL GAIN READ AS UNDER: TOTAL CONSIDERATION RECEIVED RS.2,83,01,868 LESS:COST OF LAND RS.23,65,000 OTHER PAYMENTS FOR EVICTION, BROKERAGE ETC RS.50,91,541 RS.74,56,591 SHORT TERM CAPITAL GAINS RS.2,08,45,277 4.1 THIS SHORT TERM CAPITAL GAIN IS APPORTIONED ON A PROPORTIONATE BASIS AS PER THEIR LAND HOLDINGS HELD AS A SHARE BY THE VARIOUS INDIVIDUALS. 5. THE ASSESSEE OWNS 18 GUNTAS OF LAND. THEREFORE, THE UNDISCLOSED INCOME WORKED OUT TO BE RS.29,54,448/-. UNDISCLOSED INCOME AS EXPLAINED ABUT RS.29,54,448 TAXABLE INCOME RS.29,54,448 TAX THEREON @ 60% RS.17,72,669 ADD:SURCHARGE @ 2% RS. 35,453 TOTAL TAX PAYABLE RS. 18,08,122 27. ONE OF THE MAJOR EVIDENCE AGAINST THE ASSESSEE IS THAT CHOTU SAB AN D TIPPU SULTAN HAVE ADMITTED RECEIPT O F RS.2.75 CRORES DURING THE CROSS EXAMINATION AT THE TIME OF SEARCH IN THE PRESENCE OF SHRI NAVEED. NO DOUBT, THE DISCLOSURES OR ADMISSION MADE U/S 132(4) OF THE INCOME TAX ACT DURING THE SE ARCH PROCEEDINGS IS ADMISSIBLE EVIDENCE BUT NOT A CONCLU SIVE ONE. THIS PRESUMPTION OF ADMISSIBILITY OF EVIDENCE IS A REBUT TABLE ONE AND IF AN ASSESSEE IS ABLE TO DEMONSTRATE WITH THE HELP OF SOME MATERIAL THAT SUCH ADMISSION WAS EITHER MISTAKEN, U NTRUE OR UNDER THE MISCONCEPTION OF FACTS, THEN ONLY ON THE BASIS OF SUCH ADMISSION, NO ADDITION IS REQUIRED TO BE MADE. IT I S TRUE THAT ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 32 OF 34 ADMISSIONS BEING A DECLARATION AGAINST AN INTEREST ARE GOOD EVIDENCE, BUT THEY ARE NOT CONCLUSIVE AND PARTIES A LWAYS AT LIBERTY TO WITHDRAW THE ADMISSION BY PROVING THAT T HEY ARE EITHER MISTAKEN OR UNTRUE. IN LAW RETRACTED CONFESSION EVE N MAY FORM THE LEGAL BASIS OF ADDITION, IF THE ASSESSING OFFIC ER IS SATISFIED THAT IT WAS TRUE AND WAS VOLUNTARILY MADE. BUT BASI NG THE ADDITION ON A RETRACTED DECLARATION SOLELY WOULD NO T BE SAFE. IT IS NOT STRICT RULE OF LAW BUT IT IS ONLY A RULE OF PRU DENCE. AS A GENERAL RULE OF PRACTICE, IT IS UNSAFE TO RELY UPON THE RETRACTED CONFESSION WITHOUT CORROBORATIVE EVIDENCE. ACCORDIN G TO THE APPELLANTS THE ALLEGED STATEMENT WAS RECORDED AT 2. 00 AM IN THE NIGHT AT THE PREMISES OF M/S. DOMICILE DEVELOPERS. THEY WERE EXAMINED IN THE VILLAGE. THEREAFTER THEY WERE BROUG HT TO THE PREMISES OF DOMICILE DEVELOPERS. THIS SITUATION IS TO BE VISUALIZED IN THE BACKGROUND OF INTELLECTUAL COMPAT IBILITY OF THESE TWO PERSONS VIS--VIS THE AUTHORIZED OFFICER WHO RE CORDED THE STATEMENT AND WHO HAS CROSS EXAMINED THE ASSESSEE B EING A TRAINED REVENUE OFFICER AND A BUSINESSMEN ENGAGED I N CONSTRUCTION AND DEVELOPMENT OF PROPERTIES. THE POS SIBILITY OF LAYMAN TO COME UNDER THE INFLUENCE OF MORE INTELLEC TUAL PERSON UNDER ANY ALLUREMENT ETC., CANNOT BE RULED OUT. 28. THUS THE QUESTION IN THE LIGHT OF TWO SETS OF E VIDENCE WAS WHETHER IT WAS CONCLUSIVE TO ANY PERSON TO SAY, WHA T COULD BE THE TRUE UNDISCLOSED INCOME?, WHETHER THE ASSESSEES HAVE ACTUALLY RECEIVED THE AMOUNT AS ULTIMATELY DETERMIN ED IN THE ASSESSMENT ORDER, UPHELD BY THE HON'BLE HIGH COURT OR IT GIVES AN IOTA OF DOUBT THAT THEY HAVE NOT RECEIVED. IF TH E ASSESSEES HAVE DISCLOSED, THESE AMOUNTS IN THEIR UNDISCLOSED INCOME, THEN ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 33 OF 34 THEY WOULD BE RESTRAINED TO REVISE THE RETURN AS PE R THE SCHEME OF THE ACT. THEY WILL NOT BE ABLE TO DEFEND THEIR S TAND, THAT THEY HAVE NOT RECEIVED THE AMOUNT. THIS ASPECT IS MORE D ISCERNIBLE FROM THE CONCLUSIONS OF THE ASSESSING OFFICER, WHEN HE TREATED THIS INCOME IN THE HANDS OF THE ASSESSEE ON PROTECT IVE BASIS. ASSESSING OFFICER HIMSELF WAS NOT SURE THAT THESE A RE THE INCOME ONLY ASSESSABLE IN THE HANDS OF THE ASSESSEE AND IN THE HANDS OF PAYER IT IS TO BE ALLOWED AS BUSINESS EXPENDITURE. 29. DURING THE COURSE OF HEARING, ONE MORE ASPECT W AS POINTED TO US THAT IN THE HANDS OF M/S DOMICILE DEVELOPERS THIS PAYMENT WAS ALLOWED AS BUSINESS EXPENDITURE BY THE TRIBUNAL . HOWEVER, THE REVENUE HAS CHALLENGED THE ORDER OF THE TRIBUNA L AND THE APPEAL BEARING ITA NO.57/12 HAS BEEN ADMITTED BY TH E HON'BLE HIGH COURT. THE QUESTION RAISED BY THE REVENUE IN I TS APPEAL IS AS UNDER. 1. WHETHER THE APPELLATE AUTHORITIES WERE CORRECT IN HOLDING THAT THE SUM OF RS.2,83,01,868/- REFLECTED IN THE PROFIT & LOSS A/C. AND THE BOOKS OF ACCOUNTS OF THE ASSESSEE AS PAYMENT MADE TO MR. CHOTU SAB AND HIS RELATIVES FOR PURCHASE OF LAND SHOULD BE ACCEPTED IN ITS ENTIRETY EVEN THOUGH THE FINDING AR E BASED ON MERE CONJUNCTURE AND SURMISES WHEN PROOF OF RS.1,27,00,000/- ONLY WAS SHOWN AND THE BALANCE RS.1,56,01,868/- HAD NOT BEEN PROVED BY THE ASSESSEE BY ADDUCING ANY COGENT EVIDENCE AND CONSEQUENTLY RECORDED A PERVERSE FINDING?. THE HON'BLE HIGH COURT HAS ADMITTED THE APPEAL CONS IDERING SUBSTANTIAL QUESTION OF LAW. IN THIS BACKGROUND OF FACTS WHEN REVENUE IS NOT SURE WHETHER THE PAYER HAS ACTUALLY INCURRED THE ITSSA 7 8 9 10 OS 2012 MOHD KHASIM BANGALORE PAGE 34 OF 34 EXPENDITURE TOWARDS PURCHASE OF LAND, WHETHER THE A LLEGED CAPITAL GAIN IS CONCLUSIVELY TO BE ASSESSED IN THE HANDS OF THE ASSESSEE OR IT IS A PROTECTIVE ADDITION, THEN HOW I T BE EXPECTED FROM THE LAYMAN TO COMPUTE TRUE UNDISCLOSED INCOME EQUIVALENT TO THE AMOUNT ULTIMATELY DETERMINED BY THE ASSESSIN G OFFICER IN THE ASSESSMENT ORDER, IN THESE FACTS AND CIRCUMSTAN CES. THEREFORE, WE ALLOW ALL THE APPEALS AND DELETE THE PENALTY. 30. IN THE RESULT APPEALS FILED BY THE ASSESSEES AR E ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER, 2014. SD/- SD/- (ABRAHAM P. GEORGE) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 26 TH SEPTEMBER, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE