INCOME TAX = order of block assessment = Therefore, the income assessable in block assessment under Chapter XIV-B is the income not disclosed but found and determined as the result of search under Section 132 or requisition under Section 132-A of the Act.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 11 found during the survey or any other method while making the Block Assessment.

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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