Srl Mangaram Choudary [HUF] v. THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA

WDGMENT: (per Hon,ble Sri.htstice Narsing Rao Nandikonda) This appeal is filed arising out of the order, dated

28.O2.2OO8 in IT (SS) A No.65/Hyd/2O05 passed by the iearned Income Tax Appellate Tribuna_l, Bench "B" Hyderabad (for short, 'the Tribunal') for the Assessment years 1997- 199g to 2003_

2. The brief facts of the case are that_ the appellant has been engaged in the business of purchase and sale of gold and silver articles under the name and st5rle of M/s.Choudhary Jewellery ald Silver Palace. It is stated that as ori today, the appellant is looking after the business as Karta of Hindu Undivided Famrly (HUF). While so, a survey was conducted under Section 133 A of the Income Tax Act, i96l (for short, the Act, 196 1') on 2I.O3.2O03 at the business premises of the appellant and found excess stock of gold a,d silver articres worth Rs.47,97,837 /- and the szune was admitted bv the ) 2 PSXJ&NNRJ |TTA 775 2008 appellant in his sworn statement. Pursuant to the sarne, a warrant of search under Section 132 of the Act, 196 1 was issued by the Director of Income Tax (Investigation), Hyderabad, which was executed on the appellant on 21.03.2003 and the same was lrnally concluded on 25.O4.2OO3. His statement was also recorded under Section 132 (4) of the Act, 1961 on 21.O3.2OO3 arrd again on 26.03.2003, wherein he admitted that there is excess stock of gold and silver articles worth Rs-47 ,97 ,837 /-, which was not disciosed in the regular books of accolrnts.

3. In the affrdavit frled in support of the petition, it is stated that in response to the notice, dated ll.O7.2OO3, issued under Section 158 BC of the Act, 1961, the appellant ftled income tax returns on 18.09.2003 for the block period of

01.O4.1996 to 21.03.2003 showing hndisclosed income' as'NIL' He further stated that he also filed regular income tax returns for the Assessment Year 2OO3-2OO4 showing the total income at Rs.47,28,O77/- which includes sum Rs-46,O3,947 l- being tndisclosed income' of gold and silver articles detected during the course of survey proceedings. It is further case of the I I PSKJ&NiIRJ |TTA 275 2008 appellaxt that though the unaccounted gold and silver articles were detected and admitted by him as hndisclosed income, during the course of survey proceedings, the same are not liable for tax in regular assessment proceedings. But, without considering the same, the Assessing Offrcer held that the unaccounted gold and silver articles worth Rs.47,33,192/- is liable to be taxed under Section 158 BC of the Act. 1961 and erroneously passed the impugned order.

4. It is further case of the appellant that aggrieved by the order, dated 28.06.2004, passed by the Assessing Offrcer under Section 158BC of the Act, 1961 for the block period 01.04.1996 to 21.O3.2OO3 and the appeal No.O139/CIT (A)_ YI/2O04-OS filed against the order, dated 28.O6.LOO+ pr"""d under Section 143 (3) of the Act, 1961 for the Assessment year 2OO3-2OO4, the appellant hled appeals before the Commissioner of Income Tax (Appeals)-Vl, Hyderabad. The Commissioner of Income Tax placing reliance on the judgment of High Court of Delhi in L.R.Gupta v. Union of Indiar held that ,Undisclosed ' tga trR :2 ) 4 P5K,J&NNRJ ITTA 275 2008 .,] Income' means it was hid.den from the Department and if Department was aware of its existence then it was not undisclosed income and hnally the Commissioner concluded that the income which was already detected in the course of survey under Section 133A ofthe Act, 1961 cannot be treated as hndisclosed income' for the purposes of search under Section l32oftheAct,lg6landaccordingly,allowedtheappeals' Aggrieved by the order passed by the Commissioner' the Department hled arr appeal vide Appeal No'IT (SS) A No.65/Hyd,12005 before the Income Tax Appellate Tribunal' Bench 'B', Hyderabad, and the said appeal was allowed observing that the excess unaccounted stock sha1l be liable to be 6gg.i.ved by assessed in block assessment proceedings o.tly. I the same, the present appeal is frled by the appellant'

5. Heard Ms.Vaishnavi Ambadipudi, learned counsel representing Sri S.Ravi, learned Senior Counsel appearing for the appellant ald Sri P.Murali Krishna, learned standing counsel for Income Tax, appearing for the respondent' - 5 PSKJ& IIRJ |TTA ?75 2008

6. Learned counsel for the appellant has argued and contented that the arnount of Rs.47,97,837 l- cannot be treated as l-rndisclosed income' as deflned in sub-section (1) (b) of Section 1588 of the Act 196 1, it cannot be taxed. The said Section reads as follows: '1588 Definitions-In this Chapter, unless the context otherwise require- (a) .... (b) "undisclosed income" includes any money, bullion, jewellery or other valuable artir:le or thing or any income based on any entr!, in the books of account or other documents or transactions, where such money, bullion, jewellery, valualtle article, thing, entry. in the books of account or other document or tralsaction represents wholly or partty income or properq., which has not been or would not have been disctosed for the purposes of this Act [or aly expense, deduction or allowalce claimed under this Act which is found to be false]" She further argued that only the income which hal to be taxed is under sub-section (1) of Section 1588 of the Act, 1961, which r cia(ts ias t(Jlluw s f-1r -----

15888. CoEputatioE of utdisclosed income of the block period.- (1| The 'undisclosed income' of the block period shall be the aggregate of the total-inconre 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 \yith rhe Assessing Ofllcer arld relatable to such evidence], as 6 PSKJ&NNRJ tl't a,275,2A)g reduced by the aggregate of the total ilrcome' or as the case may be' as increased by the aggregate of the losses of such previous Years' determined-

7. The said Provlslon makes it clear that the hndisclosed income' for the block period i'e'' from O1'04' 1996 to 2l.03.2003shouldbecomputedonthebasisofevidence adduced. She further argued that the appellant has disclosed the trndisclosed income' during survey before initiating search proceedings. Hence' the same cannot be taken as hndisclosed income, and she supported the order passed by the learned Commissioner of Income Tax (Appeals)' In support of her contentions, she also placed reliance on the judgment of High of Madras in case of Smt' Sivabala Devi v' ACIT2'

8. Per contra'learned Standing Counsel ior Income Tax Department appearing for the respondents vehemently argued and supported the order passed by the Income Tax Appellate Tribunal Bench 'B', HYderabad' He further contended that the 196l Prescribes a sPecial procedure for Assessment of search cases (i'e'' cases where of Income Tax Act, provlslons ' roo+ 8g tto 133 vlo l/ 7 PSKJ&NflRJ |TTA 275 2008 search is initiated under Section 132) for search initiated after

30.06.1995 alcl on or before 31.OS.2003, in which .Undisclosed Income' has been found. No such kind of special procedure is prescribed for making assessment on the basis of information collected during the course of survey under Section 133A of the Act, 1961.

9. It is an admitted fact that the appellant. being Hindu Undivided Family, engaged in the business of purchase and sale of gold and silver articles under the name and style of M/s. Choudhary Jewellery and Silver palace. It is also not in dispute that there was a survey operation conducted on 21.O3.2OO3 under Section 133,4 of the Act, 1961, in the business premises of M/s. Choudhary Jewellery A by the Income Tax officials. During the survey., they found excess stock of gold and silver articles worth Rs.47 ,97,g32 / , which was not accounted in the regular books of accounts maintained by the appellant arrd he also failed to explain the source bf investment of excess gold and s ver at the time of survey. It is also not in dispute that after excess stock was tSitrr". palace I 8 PSKJ&NNRJ rrTA 275 2008 found, a warrant under Section 132 A of the Act, 1961 was issued and the sarne was concluded on 25.03'2003 and the respondents found cash of Rs.9,840/- and 15,319'67 gms of gold and 124.624 kgs of silver. It is not in dispute that the same was not seized for the reason that the appellalt undertook to pay the entire amount of tax Rs.28.80 lakhs relatable to the value of excess stock of Rs-48 lakhs, admitted \rndisclosed income'. A notice under Section 158 BC of the Act, 196 1 was issued on 1 1.07.2003 and pursuant to the said notice, the appellant f,rled returns for Block Period Ol 'O4 '1996 to 2I.O3.2OO3. Thereafter, the appellant also frled regular returns for the Assessment Year 2OO3-2O04 on 18'09'2003 showing total incorne of Rs.47,28,o77 /- which included Rs.46,bQ,947/- being unexplained investment in gold ald silver articles disclosed at the time of search admitting undisputed income as 'Nif in the status of Hindu Undivided FamilY. 9 PSKJ&NNRJ |TTA 275 2m8

10. No doubt, as per the Judgment of High Court of Madras in Commissioner of Income Tax v. Sivabala Dewi3 at paragraph Nos.61 arrd 62 it was held as under:

61. It will be worthwhile to refer to the principles laid down bv the hon'ble Supreme Court while working out ihe provisions under Chapter XI\t B of the Act for making block assessment of ''undisclosed income". In the decision reported in Asst, CIT v. Hotel BIue Moon (2010) 321 ITR 362 (SC), where the hon,bte Supreme Corrrt has held as under in paragraph l2 (page 3(;g): "12. Chapter XIV-B provides for an assessment ol the undisclosed income unearthed as a result o[ search $ithout affecting the regular assessment made or to bc rnade. 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 coverilg 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 substituted for regular assessment, Its scope arld 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 account 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 ald determined as the result of search under section 132 or requisition under section 132A of the Act.',

62. Similarly in the decision reported in Manish Maleshrvan v. Asst. CIT (2OO7) 2a9 ITR 341 (SC), it has been hetd as under in paragraph 11 (page 348); "11 The condition precedent for invoking a btock assessment is that a search has been conducted '1zorr1 z:z crR ::z 10 PSKJ&NNRJ |TTA 275 2008 I -.1 under section 132, or documents or assets have been requisitioned under section 132A- The said provision would apply in the case of ar-ry person in respect of whom search has been carried out under section 132A or documents or assets have been requisitioned under section 1324. Section 158E}D, however, provides for taking recourse to a block assessment in terms of section 1588C in respect of any other person, the conditions precedent wherefor are : (i) satisfaction must be recorded by the Assessing Officer that arry undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 of the Act ; (ii) the books of account or other documents or assets seized or requisrtioned had been handed over to the Assessing Officer having jurisdiction over such other person ; ald {iii) the Assessing OIIicer has proceeded under section 1588C against such other person."

11. He also relied on the judgment of the Honlcle Supreme Court in Commissioner of lncome Tax' Chennai v. S.Ajit Kumar (in Civil appeal Nos. 10917 of 2013, 4449 of 2015, 5255 of2015 and 10165 of2OlO) wherein the Honle Supreme Court was pleased to allow all the appeals vide judgment dated, O2.O5.2O18 and at pa-ragraph Nos.8, 10 arrd. 12 of the said Judgment, it was held as under: 8) In the present case, the period for Block Assessment is 01.04. 1996 to 77 .O7.2OO2. Section 153,4. of the Income Tax Act, 1961 (for brevity "the IT Act") provides the pro cedure for completion of assessment where a search is initiated under Section 132 of the IT Act or books of account or - 11 PSXJ&NNRJ rTTA 275 2008 other documents or any asset are Section l324 of the lT Act. requisitioned under 10) In the instant case, the office and residential premises of the assessee searched on 17.07 -2OO2 and hnally concluded on 21.O8.2OO2. During the course of search, certain evidence were found which showed that the assessee had indulged in under statement of his real income relating to the btock period from 01.04_1996 to 17.O7.2OO2. Consequently, a notice dated 25.02.20O3. under Secrron 1588C of the IT Act, was issued to the assessee and he was asked to hle block assessment. ln reply to suc1.r notice, the assessee filed return on 11.08.2003. admitting the undisclosed income as .NIL-" 12) 'lhe me(hod of calculating the undisclosed income of the block period is provided under Section ISSBB of tJle lT Act. It woukl be appropriate to re-produce the relevant part of Sectrons I 58BB and 158 BH of the IT Act which is as lollows: t "lsaBB. Computation of undisclosed income ofthe block period. -(t ) The undisclosed income of the block period shall be the aggregate of the total income of the previous vear fajling within the block period computed, in accordanr;e \vith the provisions of tllis Act, on the basis o[ evidnnce found as a result of search or requisition o[ books of account or other documents arrd such other materials or information as are available with thc Assessing ()fficer and relatable to such evidence, as reduced by the aggregate of the totat income o. ^" tf,r, case may lre. as increased by tlle aggregate of the losses o, such previou s year determined...... 158BH. Application of other provisions of this Act _ Save as other-\r.ise provided in this Chapter, all other P5K,J&NNR,l trra 275 2008 l provisions of this Act shall apply to assessment made under this ChaPter." (Emphasis suPPlied) L2. The method of calculating the hndisclosed income' of the block period is provided under Section 15888 of the Act' 1961. It would be appropriate to re-produce the relevant part of Sectionsl58BBandl58BHoftheAct'1961'whichreadsas under: "15aBB. Computation of undisclosed income of the block period.-(1) The undisclosed ilcome of t}re block period shall be the aggregate of the total income of the previous year 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 artd such other materials or information as are available with the Assessing Offrcer and relatable to |uch evidence, as reduced by the aggregate of the total -"oti or, as the case may be, as increased by the aggregate of the losses gf such previous year determined ' ' 158BII. Application of other provisions of this Act Save as otherwise provided in this Chapter, atl other provisrons of apply to assessment made under this this Act shall Chapter." lEaphask suPPlted) 13 PSKJ&N RJ ITTA 275 200a

13. Admittedly, in the present case, the appellalt herein filed Income Ta_x Returns on 18.09.2003 for the block period i.e., on O1.04. 1996 to 21.O3.2OO3 and thereaJter, the appellant also f,rled regular returns for the Assessment year 2003_2004 on 18.09.2003 showing total income at Rs.47,2g,OT7/,, whrch included Rs.46,03,947 / , the hndisputed income, as .NIL,. But, the case of the appeilalt is that all along amount of Rs.47,33, 192 / cannot be treated as an trndisclosed income, as defined in clause (b) of Section lSgB of the Act, 196 1, as such it cannot be taxed. \

14. There is no dispute that basing on the evidence which is found during search and seizure operation, the assessee has not accounted for the gold and silver articles amotrnting to Rs.47,97,g15/-. But, according to the appellant, the hndisclosed income,was treated as NIL and he also paid regular income tax returns on 1g.O9.2003 in the status of Hindu Undivided Familt. for the Assessment year 2003_2004 showing total income of Rs.47,2g,0ZZ /-, which included Rs.46,O3,947 / the hndisclosed amount. The Assistant Commissioner of 14 PSKJ&NNRJ |TTA 275 ZOO8 ! Income Tax at paragraph No'S of the Assessment Order' dated 2A.06.2004, it was held as under: 'Thus a combined reading of the dehnition of 'undisclosed income' as also the provisions of charging section mandates that any income represented by unaccounted assets found as a result of search is required to be assessed only as per the provisions contained in Chapter- XIVB but not under regular procedure l have' therefore' no hesitation in my mind to tax the income relatable to excess stock found as a result o[ search under the provisions of Chapter-XIVB of the Act Hence' the contention of the assessee that the income is assessable in the regular return is rejected." As per definition 1588A (2) of the Act 1961' the total undisclosed income relating to the block period shall be charged to tax' at the rate specihed in Section 1 13, as income of the block period - As per 158BA (2) (c) - the income assessed shall not be included in the regular assessment of any previous year included in the block period' 15. In the present case, admittedly' the appellant has not included the hndisclosed income' in the returns hled by him for the block Period 01.04'1996 to 21.03.2003 and showing the same as 'NIL.' The assessee has to prove the sarne before the Assessing Officer that the transaction relating to 'undisclosed income' was recorded in the books of account or other records maintained in the normal course. Further, aS the aSSeSSee has not accounted for investment of excess gold a-nd silver articles of ,./ 15 PSK,J&I{NRJ tfiA-215 200a Rs.46,O3,947 / rn the regular bool<s of accounts, the Assessment proceedings were initiated under Section 158BC of the Act, 196 I

16. Admitedly, the said gold and silver articles were not recorded, the income assessed shall not be included in the regrlar assessment of any previous year included in the block period, as such the contention of the appeltant that the Tribunal has commrtted error in comtng to the conclusion that the appellalt is liable to be assessed under Section 15gBA of the Act, 196 1 and not Section 156 (3) of the Act ca_nnot be accepted and the income has to be assessed in the block assessment period. \

17. The proviso to Section lSgBA3 of the Act, 1961 would not be applicable to the case of the appellant as such, this bench is of the opinion that the arguments made by learned counsel for the appellant cannot be accepted and the substaltial question of lalr, is answerecl in favour of the revenue ald we do not find arty error committed by the Tribunal in passrng the I I 16 PsKJ&NNRJ ITTA 275 2008 \ irnpugned order and there are no grounds to interfere with the same.

18. Accordingly, the Income Tax Tribunal Appeal is dismissed conhrming the order, dated 28'02'2008 in IT (SS) A No.65/Hydl2O05 passed by the learned Income Tax Appellate Tribunal, Bench 'B' Hyderabad. There shall be no order as to COSTS Miscellaleous petitions, if any, pending in this appeal shall stand closed. //TRUE COPY// dt K . SRINIVASA RAO OINT REGISTRAR ECTION OFFICER To, I 2 ) 4 5 6 Ks/PSL The lncome Tax Appellate Tribunal, Hyderabad "B' The Commissioner of lncome Tax (Appeals)-Vl, Hyd era bad The Asst.Commissioner of lncome Tax, Circle-1 'l (1), Hyddrabad One CC to Sri S.Ravi, Advocate (OPUC) One CC to Srl P.Murali Krishna, Advocate (OPUC) Two CD Copies nch, Hyderabad I HIGH COURT I DATED:21t0BtZ02S t //'--.: t. C, E1 '1.',-... .>:\ ^..... (" 24 sEP zffi JUDGMENT t),.- ITTA.No.275 of 2008 DISMISSING THE I.T.T.A WITHOUT COSTS. [0 1\t