By TIOL News Service

NEW DELHI, MAY 02, 2018: THE issue is - Whether materials collected during Survey u/s 133A, conducted at the assessee's premises simultaneously with Search Operation, can be utilised for block assessment u/s 158BB r/w Sec 158BH. YES is the verdict.

Facts of the case

The Revenue conducted a Search 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. ( ‘M/s. ECIL’) - the builder and interior decorator who constructed and decorated the house of the assessee at Valmiki Nagar. The Survey revealed that the assessee had engaged the contractor for construction of the house. At the same time, the survey also led to unearthing of the fact of the assessee had paid Rs 95,16,000/- to M/s ECIL in cash and the same was not accounted for.

The Assessing Officer completed the block assessment and held that the said amount was liable to tax as undisclosed income of the block period. The CIT(A) upheld the AO's order. The Tribunal set aside the CIT(A) order. The HC also rejected the appeal of the Revenue.

On appeal, the Apex Court held that,

++ it is a cardinal principle of law that in order to add any income in the block assessment, evidence must be found in the course of the search u/s 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 95.16 lakhs can be added under the head of the undisclosed income of the assessee in block assessment;

++ 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 return for the block period. In reply to such notice, the assessee filed return on 11.08.2003, admitting the undisclosed income as "NIL";

++ 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.

++ the method of calculating the undisclosed income of the block period is provided under Section 158BB of the IT Act. On a perusal of the relevant 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 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;

++ 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;

++ 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 found during the survey or any other method while making the Block Assessment;

++ we are of the considered opinion that the decisions relied upon by senior counsel for the assessee do not lay down the correct law;

++ the orders passed by the Assessing Officer making the Block Assessment are restored. However, the parties shall bear their own cost.

(See 2018-TIOL-171-SC-IT)