Sree Rama Medical & Surgical Agencies V. The Commissioner of Income Tax, Vijayawada

ITTA/21/1999

AI Insights

The case revolves around the application of Chapter XIV-B of the Income Tax Act, 1961, concerning the assessment of undisclosed income following a search and seizure operation at the premises of M/s. Sree Rama Medical & Surgical Agencies. The Income Tax Department initiated proceedings under this chapter after allegedly discovering undisclosed income during the operation. The appellant contested that all credits were disclosed in their books and that the proceedings under Chapter XIV-B were not applicable. The Tribunal and lower authorities had upheld the Department's view, leading to the appeal in the High Court. The High Court, after reviewing the materials and the legal provisions, concluded that the assessment under Chapter XIV-B was not applicable as the alleged undisclosed income was already recorded in the books of account.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 814390 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 29-12-2011
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Assessment proceedings; Block assessment; Cash Credits; Search and seizure; Undisclosed income
• Section: 148; 132; 158BC; 158B(b); 158BG; 158BB; 158BA

Judgement Text

" THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B. LOKUR AND THE HON’BLE SHRI JUSTICE SANJAY KUMAR ITTA No. 21 OF 1999 DATED:29-12-2011 Between: M/s. Sree Rama Medical & Surgical Agencies, Kurnool … Appellant And The Commissioner of Income Tax, Vijayawada … Respondent THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B. LOKUR AND THE HON’BLE SHRI JUSTICE SANJAY KUMAR ITTA No. 21 of 1999 JUDGMENT: (per the Hon’ble the Chief Justice Shri Madan B. Lokur) 1. The following substantial questions of law have been framed for our consideration: 1. Whether in the facts and circumstances of the case the resort to assessment under Section 158BG read with sections 158BB and 158BA is within the jurisdiction of the assessing authority? 2. Whether there was denial of reasonable opportunity to the appellant for the reason that after the creditors were examined by the assessing officer in the presence of the Managing Partner of the appellant, no opportunity was given to the appellant to explain the statements or to cross examine them? 2. The assessee carries on the business in wholesale distribution of medicines. There were four partners of the assessee firm, but due to differences, the firm was dissolved and a new partnership was constituted by the partners on 09-11-1994 under the name and style of M/s. Sree Krishna Medical and Surgical Agencies. 3. On 05-01-1996, a search and seizure operation was conducted in the business premises and residential premises of the assessee and its partners under Section 132 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). 4. It is alleged that some incriminating material was recovered relating to the assessee and as per the appraisal report, undisclosed income relatable to the block period 1985-86 to 1995-96 was found to the extent of Rs.27,82,682/-. 5. Accordingly, the assessing officer initiated proceedings under Chapter XIV-B of the Act by issuing a notice to the assessee. Thereupon, the assessee filed its returns disclosing an income of Rs.23,280/- relevant for the assessment year 1995-96 and Rs.64,000/- relevant for the assessment year 1996-97. 6. In the assessment proceedings, the contention of the assessee, which was negatived by the authorities below including the Income Tax Appellate Tribunal (the Tribunal), was that all the credits which were the subject matter of the assessment were disclosed in the books of accounts of the assessee. As such, there was no undisclosed income within the meaning of Section 158B(b) of the Act and, therefore, the question of making an assessment for the block period did not arise. It was submitted that since the credits under consideration were already mentioned in the books of accounts, they could have been the subject matter of a regular assessment or at best proceedings under Section 148 of the Act. It was consequently submitted that the provisions of Chapter XIV-B would not apply to the facts of the present case. 7. The contention on behalf of the Revenue, which was accepted by the Tribunal, was that there was sufficient information and material found during the course of search and seizure operation to initiate proceedings under Section 158BC of the Act. It was submitted that material was unearthed during the search and seizure operation which led to the conclusion that the assessee had some undisclosed income and that is why proceedings were initiated against the assessee under Chapter XIV-B of the Act. 8. We have gone through the order passed by the Tribunal and find that what has actually transpired is that the assessment of the assessee has effectively been reviewed with reference to the books of account of the assessee. On a review of the material on record, the Tribunal upheld the view of the assessing officer that there were some undisclosed cash credits. 9. It is now well settled by a catena of decisions rendered by various Courts that for the purposes of invoking the provisions of Chapter XIV-B of the Act, it is necessary that the undisclosed income should have been unearthed as a result of the search operation. If there is no material to show that there was some undisclosed income, the assessing officer cannot, in the garb of applying the provisions of Chapter XIV-B reopen the assessment of the assessee or conduct an inquiry into the affairs of the assessee. 10. On the facts of this case, it is quite clear that the cash credits, subject matter of decision by the Tribunal, were found in the books of account. There is nothing to suggest to the contrary either in the assessment order or in the order of the Tribunal that the books were not maintained properly or that some material outside the books of account was found which led to the conclusion that the books were not maintained properly or that there was some undisclosed income in the hands of the assessee. 11. The law does not permit the assessing officer to reopen the assessment in a case such as the present where the information sought to be utilized against the assessee has already been disclosed in the books of account of the assessee. 12. We are, therefore, of the view that the first substantial question of law must be answered in the negative, in favour of the assessee and against the Revenue. 13. In the view that we have taken, the second substantial question of law does not arise and, therefore, we decline to answer it. 14. The appeal is disposed of on the above terms. 15. The miscellaneous application also is disposed of. MADAN B. LOKUR, CJ SANJAY KUMAR, J 29-12-2011 ks "