CIT Vs Jeet Construction Company (Supreme Court of India)
The matter arose from proceedings relating to the block assessment years 1997-98 to 2003-04 involving a partnership firm engaged in the business of civil construction. A search and seizure operation under Section 132 of the Income Tax Act, 1961 was conducted on 23.12.2002 at the residential premises of the firm’s working partners and at the firm’s business premises. During the search, books of account and other materials relating to the firm were seized. Since the seized material required verification, the Assessing Officer (AO) issued a notice under Section 158BD on 16.09.2004, which was served on 20.09.2004. As the assessee could not produce books of account and vouchers, the AO rejected the books and estimated the income for the block period by applying an 8% rate, determining income at ₹51,44,968 without granting credit for income already returned by the assessee.
Read HC Judgment in this case: Section 158BD Additions Cannot Rest on Assumptions Without Search Evidence: Allahabad HC
The assessee challenged the assessment before the Commissioner of Income Tax (Appeals). By order dated 13.08.2007, the CIT(A) deleted the addition of ₹51,44,968 on the ground that Section 44AD was not applicable to the facts of the case. However, the addition relating to illegal commission payments aggregating to ₹5,88,500, along with levy of surcharge and credit of prepaid taxes, was confirmed.
Both the assessee and the Revenue preferred appeals before the Income Tax Appellate Tribunal (ITAT). By order dated 11.11.2008, the ITAT dismissed the Revenue’s appeal concerning all additions except the estimated income of ₹51,44,968 and remanded the matter to the AO for fresh examination. The Tribunal directed the AO to compute income under Section 158BD(1) and reconsider the issue relating to unexplained expenditure of ₹5,88,500 in accordance with its observations.
In the remand proceedings, the AO passed a fresh assessment order on 31.12.2009 making additions of ₹3,82,66,276 towards unexplained expenditure, ₹1,00,00,000 on account of suppression of receipts and inflation of expenses, and ₹6,38,500 towards illegal payments. After allowing credit of ₹4,00,000 disclosed in the block return, the assessment was completed by determining undisclosed income accordingly.
The assessee again appealed before the CIT(A). By order dated 16.03.2011, the CIT(A) upheld the initiation of proceedings under Section 158BD and the completion of assessment but deleted the addition of ₹6,38,500 representing commission paid by the assessee.
Both parties again approached the ITAT. The assessee filed ITA No. 26 (Del) of 2011 and the Revenue filed ITA No. 28 (Del) of 2011. By order dated 31.10.2011, the ITAT allowed the assessee’s appeal and dismissed the Revenue’s appeal. The Tribunal held that income which had already been assessed or for which returns had already been filed could not be treated as undisclosed income. It also recorded that the AO, instead of determining undisclosed income under Section 158BD, had merely totalled figures appearing in various seized annexures, which, according to the assessee, related to contract work already undertaken. The Tribunal found that no evidence had been recovered during the search to establish that the assessee had carried on construction business outside its books of account. It further held that the remand order did not permit the AO to treat every entry appearing in the seized documents as undisclosed income. According to the Tribunal, although the earlier remand required assessment under Section 158BD based on seized material, the AO had enhanced the taxable income from the earlier addition of ₹51,44,968 to ₹4,82,66,276, thereby placing the assessee in a more adverse position, which the Tribunal held was not permissible in law. The Tribunal also held that additions under Section 158BD could not be made merely on the presumption that the assessee had earned undisclosed income or incurred expenditure outside the books of account.
The Revenue challenged the ITAT’s orders before the Allahabad High Court under Section 260A of the Income Tax Act. In Income Tax Appeal No. 604 of 2012, the High Court admitted the appeal on substantial questions of law relating to deletion of additions of ₹3,82,66,276, ₹1,00,00,000 and ₹6,38,500, and subsequently framed additional questions concerning reversal of concurrent findings. In Income Tax Appeal No. 81 of 2013, the High Court admitted the Revenue’s appeal concerning deletion of penalty imposed under Section 158BFA(2).
The Revenue thereafter filed Special Leave Petitions before the Supreme Court against the High Court judgment. The Supreme Court condoned the delay and dismissed the Special Leave Petitions.
While considering the appeals, the Supreme Court noted that the Tribunal had recorded findings that the additions made by the AO and confirmed by the CIT(A) were based only on assumptions and not on any material recovered during the search and seizure. The Supreme Court also noted the Tribunal’s categorical finding that additions could not be made merely on the presumption that the assessee had earned undisclosed income or incurred expenditure outside the books of account. Treating these findings as findings of fact requiring no interference, the Supreme Court held that the appeals lacked merit. The appeals were dismissed, and the questions of law were answered in favour of the assessee and against the Revenue.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Delay condoned.
The special leave petitions are dismissed.
Pending application(s), if any, stands disposed of.
