Case Law Details
Dinakara Suvarna Vs DCIT (Karnataka High Court)
The appeals before the Karnataka High Court concerned the validity of reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961 for Assessment Years 2005-06, 2006-07 and 2007-08, and the addition made under Section 69B towards alleged unexplained investment in property.
The assessee, an individual engaged in contract works, had originally filed returns of income for the relevant assessment years. A search under Section 132 was conducted at the residential premises of Shri Ashok Kumar Chowta, during which a diary containing details of payments allegedly made to the assessee was seized. Subsequently, a survey was conducted at the assessee’s business premises, and his statement was recorded. The assessee agreed to offer 8% of additional receipts as income but did not file revised returns. Thereafter, the Assessing Officer issued notices under Section 148, completed reassessment proceedings, and made additions. The Commissioner (Appeals) partly allowed the appeals, following which both the assessee and the Revenue approached the ITAT. The Tribunal partly allowed the appeals and cross-objections and reversed the deletion of the addition under Section 69B for Assessment Year 2007-08.
Read SC Judgment in this case: Section 147 Reopening Invalid Where Section 153C Applies: SC
Before the High Court, the assessee challenged the reopening under Section 147, contending that the reassessment was entirely based on material seized during the search of a third party. It was argued that the proper statutory procedure was under Section 153C, which overrides the normal reassessment provisions, and not under Section 147. Reliance was placed on decisions holding that where incriminating material relating to another person is found during a search, proceedings must be initiated under the special provisions governing search assessments.
The Revenue contended that the seized diary contained the assessee’s signature and that the reassessment was justified in view of the assessee’s admission and the material recovered during the search.
The High Court observed that no proceedings had been initiated under Section 153C, although the Revenue’s case was founded on material seized from the premises of a third party. Referring to the principles laid down in Manish Maheshwari and IBC Knowledge Park (P.) Ltd., the Court held that Section 153C is the appropriate provision in such circumstances. The Court further noted that the Assessing Officer had not recorded satisfaction regarding escapement of income and had based the reopening primarily on the assessee’s statement. Relying on the principle that an admission is an important piece of evidence but not conclusive, the Court held that the mandatory conditions for reopening under Section 147 had not been satisfied. Accordingly, the questions relating to the validity of the reassessment were answered in favour of the assessee.
On the issue of the Section 69B addition of Rs. 28,75,500, the High Court noted that the addition was based solely on entries in the seized diary allegedly showing payment of cash over and above the consideration recorded in the registered sale document. The Court observed that the author of the diary had died before the search, there was no corroborative evidence, and the relevant entries had not been relied upon in the case of Shri Ashok Kumar Chowta, from whose premises the diary had been seized. The Commissioner (Appeals) had deleted the addition on these grounds, whereas the Tribunal restored it by relying on the assessee’s signature in the diary.
The High Court held that the Tribunal’s reversal was unsustainable. It reiterated that an admission cannot be treated as conclusive evidence and also noted the contention that a statement recorded under Section 133A does not carry evidentiary value as a sworn statement. In the absence of corroborative evidence and considering that the seized entries were not used in the case of the searched person himself, the Court held that the addition under Section 69B could not be sustained.
The High Court allowed the appeals, answered all the substantial questions of law in favour of the assessee and against the Revenue, and set aside the reassessment and the addition under Section 69B.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
These appeals have been admitted to consider following questions of law:
” a) whether the Tribunal is correct in law in upholding the action of the assessing officer in reopening the assessment under Section 147 of the Act for the assessment years 2005-06, 2006-07 and 2007-08 on the facts and circumstances of the case?
b) Whether Tribunal erred in law in not holding that there was no reason to believe that income escaped assessment and all mandatory conditions to reopen the assessment under Section 147 of the Act were not satisfied on the facts and circumstances of the case?
c) Whether the Tribunal was correct in law in reversing the deletion made by the Commissioner of Income Tax [Appeals] of the addition under Section 69B in respect of alleged unexplained investments made in properties of Rs. 28,75,500/- for the assessment year 2007-08 on the facts and circumstances of the case? ”
2. Brief facts of the case are, the assessee is an individual who carries out contract works. He filed returns of income for the assessment years 2005-06 to 2007-08 as follows:
| AY | Original return of income |
| 2005-06 | 3,94,513 |
| 2006-07 | 18,09,501 |
| 2007-08 | 14,37,560 |
3. A search was conducted under Section 132 of the Income Tax Act, 1961 (‘the Act’ for short) in the residential premises of one Shri. Ashok Kumar Chowta and among other documents and papers, a diary was also seized. It contained details of payments made by Shri. Ashok Kumar Chowta to the assessee. On April 21, 2009, a survey was conducted in the business premises of the assessee and his statement was recorded on May 11, 2009 and the assessee agreed to offer 8% additional receipts as income but did not file his revised return of income. On March 26, 2010, the Assessing Officer issued notice under Section 148 of the Act and called upon the assessee to show cause as to why the amount agreed to be offered to tax was not declared in the returns of income. On April 12, 2010, the assessee filed his return of income and declared the same income as filed in the original return of income. The case of the assessee was selected for scrutiny by issuing notice under Section 143(2) of the Act. The assessee vide letter dated May 30, 2010 objected on the ground that there was no reason to believe that the income chargeable to tax had escaped assessment. On December 24, 2010, the Assessing Officer passed Assessment orders for the assessment years 2005-06 to 2007-08. Assessee challenged it before the CIT (A)1. By common order dated March 16, 2012, CIT (A) partly allowed the appeals. The assessee and the Revenue preferred appeals against the said order before the ITAT2. Against the appeal preferred by the Revenue, the assessee preferred cross objections. By its judgment dated August 14, 2014, the Tribunal partly allowed the appeals and cross objections filed by the assessee. The appeal preferred by the Revenue for the assessment year 2007-08 was partly allowed and dismissed the appeals for other assessment years.
Questions No.(a) & (b):
4. Shri. Chadrashekar, learned advocate for the appellant submitted that these two questions are interlinked and the issue is with regard to validity of reopening the assessment under Section 147 of the Act for the assessment years 2005-06, 2006-07 and 2007-08. He submitted that reopening of assessment under Section 147 of the Act, based on a search conducted in the residence of Shri. Ashok Kumar Chowta, is unsustainable, because, the right procedure in such case is the one prescribed under Section 153C of the Act. In support of his contention, he placed reliance on Manish Maheshwari Vs. ACIT3 and Commissioner of Income Tax Vs. IBC Knowledge Park (P.) Ltd.4 and argued that Section 153C start with a non-obstante clause relating to normal assessment procedure covered by Sections 139, 147, 148, 149, 151, and 153 of the Act in respect of searches made after May 31, 2003 as Section 153C has been amended with effect from June 1, 2003 and search in this case has been conducted on February 13, 2009.
5. The sum and substance of Shri. Chandrashekar’s argument is, Revenue ought to have followed the procedure contemplated under Section 153C because, it’s case is based on material found during the search of the premises of one Shri. Ashok Kumar Chowta.
6. In reply, Shri. Aravind submitted that Chowta had offered a lump-sum income. The ITAT has recorded that the assessee had affixed his signature in the seized diary. He argued that even though Mr.Chowta is not taxed, in view of assessee’s admission, the order passed by the Assessing Officer does not call for any interference.
7. We have carefully considered rival contentions and perused the records.
8. In Manish Maheshwari, the Hon’ble Supreme Court of India has held as follows:
“10. Law in this regard is clear and explicit. The only question which arises for our consideration is as to whether the notice dated 6-2-1996 satisfies the requirements of Section 158-BD of the Act. The said notice does not record any satisfaction on the part of the assessing officer. Documents and other assets recovered during search had not been handed over to the assessing officer having jurisdiction in the matter.
11.No proceeding under Section 158-BC had been initiated. There is, thus, a patent non-application of mind. A prescribed form had been utilised. Even the status of the assessee had not been specified. It had only been mentioned that the search was conducted in the month of November 1995. No other information had been furnished. The provisions contained in Chapter XIV-B are drastic in nature. It has draconian consequences. Such a proceeding can be initiated, it would bear repetition to state, only if a raid is conducted. When the provisions are attracted, legal presumptions are raised against the assessee. The burden shifts on the assessee. Audited accounts for a period of ten years may have to be reopened.”
9. In IBC Knowledge Park, this Court has held in para 50 that Section 153C is parimateria with Section 158BD considered in Manish Maheshwari. The Assessing Officer, in his order dated 24.12.2010 for assessment year 2005-06 has held in para 4.2 that reasons formed to reopen the assessment on the basis of assessee’s voluntary depositions and seized materials are in order and further that assessee’s objection on that aspect has been rejected by his order dated June 7, 2010.
10. Admittedly no proceedings were initiated under Section 153C of the Act. Thus, there is patent non-application of mind. It is relevant to note that the author of the diary Smt. Soumya Shetty had passed away prior to the date of search. It was argued on behalf of the Revenue that Shri. Ashok Kumar Chowta had offered tax on lump-sum income.
11. Further, the Assessing Officer has not recorded his satisfaction with regard to escapement of income. On the other hand, he has based Revenue’s case entirely on the statement of assessee. Assessee has placed reliance on Pullangode Rubber Produce Co.Ltd.Vs. State of Kerala5 and rightly urged that assessee’s admission cannot be a conclusive evidence. Therefore, these two questions merit consideration and require to be answered in favour of the assessee and against the Revenue.
Re. Question No.(c):
12. The issue in this question is addition of Rs.28,75,500/- by the Assessing Officer under Section 69B of the Act as unexplained investment. Shri. Chandrashekar argued that the addition has been made on the basis of the entries found in the diary seized during search of Shri. Chowta’s premises. The assessing officer came to the conclusion that assessee had paid cash over and above the amount shown in the registered document.
13. Aravind for the Revenue contended that the ITAT has rightly reversed the finding recorded by the CIT (Appeals) on the ground that there was no dispute that the properties had been acquired by the assessee from Shri. Ashok Kumar Chowta.
14. We have perused the order passed by the CIT (Appeals) and ITAT. It is held therein that the entries in the seized diary could not be relied upon because Smt. Soumya Shetty had passed away and there was no corroborating evidence. The CIT (Appeals) has held that it was travesty of justice that the relevant entry has not been used in Shri. Ashok Chowta’s case but it has been used in assessee’s case who is a third party to the proceedings. The ITAT while reversing the finding of CIT (Appeals) has relied upon the signature of assessee in the seized diary. Admittedly, the author of the diary had passed away. The addition has been made in the case of assessee based on the entries in the diary but the said entries have not been used in the case of Shri. Chowta. As recorded hereinabove, the Hon’ble Supreme Court in the case of Pullengode Rubber Produce Co.Ltd.’s case has held that admission is an important piece of evidence but it cannot be said to be conclusive. Shri. Chadrashekar also placed reliance on Commissioner of Income-tax vs. S.Khader Khan son6 and contended that a statement recorded under Section 133A of the Act is not given any evidentiary value because the officer is not authorised to administer oath and to take any sworn statement. Therefore, in view of the fact that the author of the diary had passed away and relevant entry has not been used in the case of Shri. Chowta himself, reversing the findings of the CIT (A) by the ITAT is not sustainable. Hence, this question is also answered in favour of the Assessee and against the Revenue.
15. In the result, the following:
ORDER
i. Appeal allowed.
ii. Questions No.1, 2 and 3 are answered in favour of the Assessee and against the Revenue.
No costs.
Notes:
1 Commissioner of Income Tax (Appeals) – VI
2 Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru
3 289 ITR 341
4 (2016) 69 taxmann.com 108
5 (1973)91 ITR 18(SCC) PARA 4
6 (2008) 300 ITR 157
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