Commissioner of Income TaxCentral I, Chennai v. R.M.Patel (HUF)

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 18.4.2007CORAMTHE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJAT.C.(A).No.385 of 2007 Commissioner of Income TaxCentral I, Chennai...AppellantVs.R.M.Patel (HUF)..RespondentAppeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras 'B' Bench dated18.8.2006 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 and Lr.No.ITA.No.68/2002-2003 dated24.12.2002 of the Commissioner of Income Tax (Appeals) Central - I,Chennai - 34, and the Assessment order 27.06.2002 in PA.No./GI.No.AAAHR3390C from the Deputy Commissioner of Income Tax Central Circle I(1)Chennai - 34. 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.

The relevant assessment is block period of 1988-89 to 1997-98and 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 theHUF, viz. Ratanshi Patel and his brother Khimji M Patel between 5.11.1998and 30.11.1998. During the search, it was found that HUF assessee had atimber trading business by name Ram Plylam during the assessment years1996-97, 1997-98 and 1998-99. The materials seized indicated that theassessee had also undisclosed income from the business and therefore, notice under Section 158BD of the Act was issued to the assessee on13.6.2000, as the proprietor of the concern Ram Plylam. In response to https://hcservices.ecourts.gov.in/hcservices/ the notice, the assessee filed a return in Form 2B on 3.7.2000 declaring undisclosed income as nil. 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 theassessee. 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 incomeas under, Asst. Year1996-97Rs.3,83,941/-Asst. Year1997-98Rs. 82,365/-Asst. Year1998-99Rs.1,51,603/-Asst. Year1999-2000Rs. 29,951/- -------------Total undisclosed incomeRs.6,47,860/-=============demanding income tax thereon at 60%, which worked out to Rs.43,88,716/- and proposed to initiate penalty proceedings under Section158BFA(2) of the Act.2.

Aggrieved by the said assessment order, the assessee preferred an appeal before the Commissioner of Income Tax, who, by order dated24.12.2002, held that the seized materials referred to by the AssessingOfficer 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 SettlementCommission 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 relatableto 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.

On further appeal by the Revenue, the Income Tax AppellateTribunal, by order dated 18.8.2006, partly allowed the appeal. Hence, the above appeal raising the following substantial questions of law. https://hcservices.ecourts.gov.in/hcservices/ (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.