BY TIOL News Service

NEW DELHI, APR 26, 2018: THE ISSUE is - Whether the expression 'evidence found' can be restricted only to a tangible document found during the search assessment proceeding. NO is the answer.

Facts of the case:

A search and seizure operations u/s 132 was carried on in the case of BSL Group and the assessee wherein, certain incriminating documents and material were found and seized. While referring to the assessee's books of accounts, the Revenue noted that the assessee was carrying on benami business in the name of M/s. Universal Enterprises, M/s. Vishal Vyapar, M/s. Kumar Traders, M/s. Nutan Enterprises, M/s. Krishna Traders and M/s. Evergreen Corporation. The Revenue found that based on the seized papers, the said benami entities had unaccounted for turn-over of over Rs.26,35,25,144/-. While recording statement u/s 132(4), the assessee had admitted that without having any reason, Mr. Kamlapati Singhania had given him and his HUF gifts of Rs. 50,00,000/- and Rs.10,00,000/-, respectively. The assessee himself had not given gift during the last 10 years. Subsequently u/s 131, the assessee had again accepted and admitted that the said gifts were bogus and had offered the same to be taxed. Pursuant to notice u/s 158BC, the assessee had filed block return for the block period accepting and declaring an undisclosed income.

During the block assessment proceedings, the assessee retracted his admission on bogus gifts, asserting that the gift given by Mr. Rama Pati Singhania was genuine and not procured. Mr. Singhania, a regular assessee with the Department, had sold his residential flat at Bombay for which he had obtained clearance. Mr. Singhania had duly disclosed the gift in his assessment proceedings. Since, the assessee had to attend a family function, admissions recorded and were dictated confession, extracted and feigned. However, the AO rejected the contention that the confession was extorted under coercion, pressure and duress observing that the retraction and explanation justifying the gift was given for the first time in March, 2002. Again, 40 days post the search, the assessee had confessed that the gifts were bogus and should be considered as 'undisclosed income' in the presence of his Counsel. Therefore, the AO made an addition treating the said gifts as bogus and undisclosed income. On appeal, the CIT(A) affirmed the additions made by the AO. On further appeal, the Tribunal had deleted the entire additions made on account of the gifts and the commission.

the High Court held that,

++ for the purpose of Chapter XIV-B, the expression 'undisclosed income' has been specifically defined. Sec. 132 relates to pre-search requirements and Chapter XIV-B incorporated a special procedure for post search assessment in respect of "undisclosed income". Definition ascribed to "undisclosed income" would guide and govern the applicability of Chapter XIV-B or the block assessment proceedings. Difference in clause Sec. 132(c) and expression undisclosed income defined u/s 158B(b) was highlighted in the case of Shailendra Mehto after referring to observations made in the case of N.R. Paper and Board Limited and Others.

++ evidence can be both - documentary or oral. Sec. 3 of the Evidence Act, 1872 states that evidence means and includes all statements which the Court permits or requires to be made before it by witnesses, in relation to matters of the fact under enquiry, and such statements are oral evidence. Documents, including electronic records, produced for the inspection of the Courts, are called documentary evidence. The decision made in the case of Harjeev Aggarwal, confounds the confusion and does not help us resolve conundrum and enigma of "undisclosed income". In the first portion of the decision, the oral testimonies recorded u/s 132(4) on a standalone basis without reference to other material discovered during search and seizure operations cannot be treated as evidence and form the basis of addition as undisclosed income in the block assessment. Mere admission during the search on oath cannot result in addition as undisclosed income. This was notwithstanding Explanation to Sec. 132(4) inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989;

++ in the context of Sec. 158BB(1) r/w Sec. 158B(b), it was observed that despite the explanation, oral statement would be relevant and used only if incriminating document or material was found during the search and seizure operation and not by itself as incriminating evidence and gathered during search. Noticeably contrary view has been taken by the Kerala High Court in the case of CIT vs. M/s Hotel Meriya.

++ the word 'found' is elastic and can be given varied meaning and need not be restricted to a physical object found. The expression 'evidence found' could in the context of the block assessment include an incriminating statement on oath. Statements on oath could be with reference to entries in the statement of accounts, including bank accounts or may well refer to acceptance or admission on utilization of unaccounted for money/income for which physical/material and documents have been destroyed and were not available/found, or were already in knowledge of the Revenue and, therefore, were not 'found' for the first time. "Evidence found" could well be oral evidence that would mandate addition as undisclosed income. The word 'found' is past and past participle of 'find', which means to discover by chance or deliberately. It is normally associated with discovery of information or a fact and in the context of investigation, detection of someone in a wrong, lie or a crime. The word 'found', therefore, in natural and normal context would in the context of 'evidence found' include oral evidence or a statement made on oath and is not confined and restricted to tangible material in form of documents or papers or an article. It is, in this context, the AO could refer to the facts or evidence as found as a result of search and further inquiries thereupon;

++ in the present case, Revenue would submit that papers and documents were found, which indicated that the assessee had not disclosed income from six benami concerns. Books of account would also include the pass-books or statement of bank accounts. Oral statement was and should not be read in isolation, as assessee at the first and initial stage had accepted that the gift of Rs.50,00,000/- was not genuine, and was a subterfuge. Oral evidence and documentary material was collected during the course of search regarding the undisclosed income. It is relevant that the assessee in his block return had declared undisclosed income, i.e. unaccounted income, to the tune of Rs. 86.82 lacs;

++ having recorded our prima facie reservation on the view expressed on "books of accounts" and more particularly on "oral statement " not being evidence found, we are inclined to refer the question of interpretation of the term 'undisclosed income' for the purpose of block assessment to a larger bench to resolve and iron out differences and bestow and bring clarity. The view expressed in the case of Harjeev Aggarwal on the issue cannot be treated as evidence found during the course of search could be considered and re-appraised. Larger bench could so examine the issue and question whether it would be appropriate and proper, when addition made in block assessment is deleted and knock down for "technical" grounds, for the Tribunal and Court to direct that the addition should have been made in regular/normal assessment in terms of Sec. 153(6). The appeals would be accordingly placed before the Acting Chief Justice for being referred to a Larger Bench for deciding the issues and questions hereinbefore noticed.

(See 2018-TIOL-791-HC-DEL-IT)