IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 18.4.2007
CORAM
THE HON'BLE MR.JUSTICE P.D.DINAKARAN
AND
THE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA
T.C.(A).No.385 of 2007
The Commissioner of Income Tax
Central I
Chennai. .. Appellant
Vs.
R.M.Patel (HUF) .. Respondent
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Appeal under Section 260A of the Income Tax Act, 1961
against the order of the Income Tax Appellate Tribunal,
Madras 'B' Bench dated 18.8.2006 in IT(SS)A No.55/Mds/2003
for the block period 1988-89 to 1997-98 and 1.4.1998 to
5.11.1998.
-----
For Appellant : Mr.J.Narayanasamy, Jr.S.C.
J U D G M E N T
(Delivered by P.D. DINAKARAN, J.)
The above tax case appeal is directed against the order
of the Income-tax Appellate Tribunal in IT(SS)A
No.55/Mds/2003 dated 18.8.2006.
2.1. The relevant assessment is block period of 1988-89
to 1997-98 and 1.4.1998 to 5.11.1998. The assessee is a
Hindu Undivided Family (in short ‘HUF’). A search under
Section 132 of the Income Tax Act was carried out at the
residential and business premises of the Karta of the HUF,
viz. Ratanshi Patel and his brother Khimji M Patel between
5.11.1998 and 30.11.1998. During the search, it was found
that HUF assessee had a timber trading business by name Ram
Plylam during the assessment years 1996-97, 1997-98 and 1998-
99. The materials seized indicated that the assessee had
also undisclosed income from the business and therefore,
notice under Section 158BD of the Act was issued to the
assessee on 13.6.2000, as the proprietor of the concern Ram
Plylam. In response to the notice, the assessee filed a
return in Form 2B on 3.7.2000 declaring undisclosed income
as nil.
2.2. Later, in response to the notice under Sections
142(1) and 143(2), the assessee was heard and an explanation
was offered that the material seized during the search were
in no way connected to the assessee. But, the Assessing
Officer, without appreciating the explanation offered by the
assessee, passed an assessment order under Section 158BD
read with 158BC and 143(3), computing the undisclosed income
as under,
Asst.Year 1996-97 Rs.3,83,941/-
Asst.Year 1997-98 Rs. 82,365/-
Asst.Year 1998-99 Rs.1,51,603/-
Asst.Year 1999-2000 Rs. 29,951/-
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Total undisclosed income Rs.6,47,860/-
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demanding income tax thereon at 60%, which worked out to
Rs.43,88,716/- and proposed to initiate penalty proceedings
under Section 158BFA(2) of the Act.
2.3. Aggrieved by the said assessment order, the
assessee preferred an appeal before the Commissioner of
Income Tax, who, by order dated 24.12.2002, held that the
seized materials referred to by the Assessing Officer
related to Sri Raghuveer Timbers and Sri Muralikrishna &
Co., as there was no indication in the seized materials
about the suppression of sales by the business concern of
the assessee, viz. Ram Plylam and that the Assessing Officer
was not correct in invoking Section 158BD of the Act. It
was further held that the Assessing Officer had not computed
the undisclosed income based on the materials, but merely on
the basis that the family members of the assessee had moved
before the Settlement Commission disclosing additional
income by offering gross profit at 8% and held that the same
cannot be a valid reason for invoking Section 158BB of the
Act, inasmuch as Section 158BB, as amended by Finance Act,
2002 with retrospective effect from 1.7.1995 contemplates
that the undisclosed income shall be computed in accordance
with the provisions of that Act on the basis of evidence
found as a result of search and such other material or
information as were available with the Assessing Officer and
relatable to such evidence. Accordingly, the Commissioner
has held that there was no basis for passing an order under
Section 158BD read with Sections 158BC and 143(3) of the Act
for the alleged undisclosed income.
2.4. On further appeal by the Revenue, the Income Tax
Appellate Tribunal, by order dated 18.8.2006, partly allowed
the appeal. Hence, the above appeal raising the following
substantial questions of law.
(i) Whether in the facts and circumstances of the
case, the Tribunal was right in holding that the
addition of gross profit could be made only in
respect of one of the assessment years in the
block?
(ii) Whether in the facts and circumstances of the
case, the Tribunal was right in holding that the
undisclosed income cannot be assessed as no
material relating to the assessee was found during
the search, even though information was arrived at
during the block assessment of the related
concerns?
3. Concededly, the seized materials did not relate to
the assessee. On the other hand, what is contemplated under
Section 158BB is that the undisclosed income shall be
computed only in accordance with the provisions of the Act
on the basis of evidence found as a result of search and
such other material or information which are relating to
such material. If the material seized do not, in any way,
connects the assessee indicating that the assessee had any
undisclosed income, it may not be proper to proceed against
the assessee under Section 158BD read with Sections 158BC
and 143(3) of the Act without any basis whatsoever,
especially in the absence of any material indicating any
suppression of sales or suppression of income by the
assessee.
4. If that be so, we do not have any hesitation to
hold that the undisclosed income cannot be assessed in the
absence of any material collected during the search relating
the assessee and that the Revenue cannot proceed on the
basis of such material which is not related to the assessee
invoking Section 158BD read with Sections 158BC and 143(3)
of the Act for assessing the undisclosed income during the
block period of 1988-89 to 1997-98 and 1.4.1998 to
5.11.1998. If the Revenue could able to substantiate that
the return filed by the assessee for the assessment years
1996-97, 1997-98 and 1998-99 does not disclose the correct
income, they are at liberty to take appropriate action only
with respect to the relevant assessment years, as rightly
held by the Tribunal.
Finding no substantial question of law, the appeal
stands dismissed.
kpl
[PRV/10288]
