Principles for reckoning of limitation period for completion of block assessment under provisions of S 158 BE- conclusive proof is required to show that seized documents disclose concealment of any income but assessee and not disclosed : ITAT
NEW DELHI, DEC 17, 2007 : THE facts of the case and grounds of appeal are as follows :
This is an appeal by the assessee M/s Twenty First Century Finance Ltd, against the Order of CIT(A) relating to the block period 1987-88 to 1997-98.
The assessee is a company mainly engaged in the business of investment in shares and finance. A search and seizure operations u/s 132(1) of the Income Tax Act, was conducted at the various business premises of the Mesco Group and also at the premises of its auditors M/s A.R. Associates, between the period 26.2.97 to 1.5.97.
The assessee is a company related to the aforesaid group. During the search, various books of accounts and loose papers were found and seized. From the seized documents seized from H1, Zamrud Pur Community Centre, Kailash colony, New Delhi, it was found that the assessee with other co-owners had purchased a shop at South Extension in F.Y. 1994-95 for a consideration of Rs. 1.40 crores. It was also found that payment of Rs. 50 lacs was made by cheque and payment of Rs. 90 lacs was made in cash. Since the evidence gathered during the search indicated prima facie concealment of income by the assessee, notice u/s 158 BD of the I.T.Act, after recording detailed reasons on 10.3.99 was issued on 10.03.1999, requiring the assessee to file its return of undisclosed income for the block period. The notice was duly served upon the assessee on 16.3.99. In response to that, return for the block period was filed by the assessee on 10.5.2000 declaring total undisclosed income at Rs. 76,800/-. The learned DCIT by an order dated 21.9.2001, computed the undisclosed income of the assessee at Rs. 32,35,56,800/ =. The assessee being aggrieved had preferred an appeal before the ld CIT(A) who vide her ex parte order dt. 14.3.2002 dismissed the appeal. Hence the present appeal by the assessee the Tribunal.
The additional ground raised by the assessee in this regard reads as follows.
“That the impugned assessment framed by CC-6, vide order dt 21.9.01 is without jurisdiction, being barred by limitation as provided u/s 158 BE of the Act.”
A reading of the provisions contained in s. 158 BE(2) of the Act shows that in case search and seizure operations u/s 132 of the Act were initiated after 1.1.1997, the assessment has to be completed within two years from the end of month in which notice u/s 158 BD is served on the assessee, excluding the time taken for submitting the special audit report as per the orders u/s 142 (2A) of the Act, which in any case should not exceed 6 months.
A plain reading of the provisions makes it clear that firstly it is the AO who fixes the time limit for obtaining and furnishing of the report of Special Audit by the assessee. Secondly, it is only the AO who can extend the time limit for furnishing the report of Special Audit by the assessee. .Non compliance empowers the AO to proceed to make a Best Judgment Assessment in terms of S.144 (1)(b) of the Act and also to prevent the use of the provisions of S.142 (2A) as a means to get the benefit of an extended period of limitation by the AO.
The first issue to be decided is as to what is the period of time that has to be excluded in the present case as per Expln.-1 (ii) to Sec. 158-BC. It is clear that the direction to complete the Special Audit was given to the assessee on 18.12.2000. The time limit given was 60 days from that date, i.e. the report ought to have been obtained on or before 17.2.2001.By letter dt. 14.3.2001, the AO extended the time by 45 days i.e. the time was extended upto 30.4.2001.On 30.4.2001 the time was extended by another 30 days by the A.O. i.e. the report was to be filed on or before 30.5.2001.On 10.5.2001, JCIT wrote a letter to the assessee extending period of time by 30 days i.e. upto 31.5.2001.The AO extended the period by 15 days i.e. up to 16.6.2001.
The tenor of the extension to 16.06.2001 by the AO clearly shows that he had allowed an overall period of 180 days from 18.12.2000. Therefore, the period from 18.12.2000 to 16.6.2001 is to be excluded in terms of Explanation to section 158 BE of the Act. As a result of which the period of limitation expired on 28.9.2001, whereas the instant assessment had been framed on 21.9.2001.
The Tribunal has held that the fact that AO made some statement regarding limitation cannot amount to estoppel. The period of limitation has to be computed in accordance with the relevant provisions of law. It is therefore held that the assessment order is not barred by the limitation stipulated u/s 158 BE of the Act, and consequently the same is held to be valid. The ground of appeal of the assessee is dismissed.
As regards the Search and Seizure, in the course of search of MIL a sale deed of a property was found which showed that the said property was acquired by 6 persons for Rs. 50 lacs. The assessee is also one co-owner of the said property having paid consideration to the extent of Rs. 7 lacs. Some other documents seized in the course of search revealed that the actual sale consideration paid for purchase of this property was Rs. 1.40 crores. Rs. 90 lacs had been paid apart from what was recorded in the sale deed. It is consequent to the above discovery’ that proceedings u/s 158 BD were initiated against the Assessee.
There were basically three additions to the assessment order. The first addition challenged in this appeal is the addition of Rs. 12,60,000/- made by the AO. The assessee’s share was arrived at based on his overall share in the property i.e. 7/50 was determined at Rs. 90 lacs x 7/50 = Rs. 12,60,000/.This amount was held as ‘unexplained investment’ and was added to the income of the assessee as undisclosed income relating to A.Y. 1995-96.On appeal by the assessee, the CIT(A) confirmed the order of the AO, hence the present ground of appeal by the assessee before the Tribunal.
The burden of proving that, the assessee made investments which is not recorded in the books of accounts is on the AO and that the AO had not discharged his burden in this regard. The Tribunal found though in the circumstances there was prima facie evidence to show that some investment over and above what was recorded in the books had been made, it cannot be concluded in the absence of conclusive proof. The AO ought to have summoned the seller and examined them as requested by the assessee, and also confronted the assessee regarding the surrender made by the other co-owners. Therefore the tribunal deemed that it is fit and proper to remand this issue to the AO for fresh consideration. The relevant ground of appeal of the assessee is treated as allowed for statistical purpose.
The second addition challenged in this appeal is an addition of Rs. 22,20,000/= made by the A.O. It was submitted that the conclusion in the appraisal report was that the shares were held by the promoters in the benami names of some persons and that conclusion cannot lead to the inference that the assessee made unexplained investments in purchase of these shares, particularly that for the A.Y. 1993-94 the assessee had filed a return of income as early as 30th March, 1995 wherein due disclosure had been made regarding purchase of these shares. It was also noted that in regular assessment, no addition has been made on account of such purchases.
The tribunal has held that the addition made by the AO and sustained by the CIT(A) is without any basis. The conclusion that certain shares of Mid East India Ltd. were held in the benami names of others by the promoter, directors of the company cannot give rise to any undisclosed income in the hands of the assessee. The assessee had purchased these shares. These purchases had been duly reflected in the books of accounts of the assessee. The purchases were affected on 11.9.92. In the return filed for the A.Y. 1993-94 the assessee claims to have disclosed all these transactions. Secondly it has not been established that the assessee failed to explain the source with regard to investment made in purchase of these shares.In the circumstances the tribunal has held that the addition deserves to be deleted and the same is directed to be deleted.
The third important issue that arises for consideration is the validity of an addition of Rs. 32 crores made by AO as undisclosed income of the assessee. In the assessment of undisclosed income made under Chapter XIV B additions will have to be made only on the basis of material found in the course of search which disclosed that the assessee has earned income which has not been disclosed.
The tribunal based on the facts came to the view that the AO has not even spelt out the basis on which he has arrived at Rs. 32 crores as undisclosed income of the assessee. The question of disclosure of income would come only when there is conclusive evidence to show that the assessee earned some income. With regard to the discrepancy in stock in trade as per the balance sheet as on 31.3.96 and stock of shares worked out by the AO as on 31.12.95, the tribunal was of the view that the AO has not made any investigation with regard to the transactions in the intervening period between 31.12.1995 to 31.12.1996. Moreover, transactions as recorded in the seized document shows lesser investment in shares where as the balance sheet as on 31.3.96 shows a higher investment as stock in trade. As to on what basis the AO came to the conclusion that Rs. 5.40 crores is undisclosed income is not spelt out in the order of assessment.
Therefore the tribunal held that the addition of Rs. 32 crores made by the AO has no basis. The Commissioner of Income Tax (Appeals) (A) erred in confirming the order of the AO on this issue and directed that the said addition be deleted.