Rajender Kumar Garg vs Deputy Commissioner Of Income Tax
1996 Latest Caselaw 1038 Del

ORDER

Ravinder Singh, A.M.

This is an appeal by the assessee against the block assessment order for the period of previous years, from 1-4-1986 to 14-12-1996, passed under section 158BC of the Income Tax Act, 1961.

2. The facts of the case are that a search and seizure operation in the case of assessee was carried out on 24-12-1996, at his residence at House No. 148, M.P. Enclave, Delhi, This search was in consequence of the statement of one Shri Kanta Parsad (during the search operation under section 132 at his residence) that it was Shri Rajender Garg, who was his friend who had, in fact, sold his immovable property located at 39 Chanderlok, Pitampura, Delhi. In a statement, dated 24-12-1996, Shri Kanta Prasad also stated that the sale consideration in respect or the above property by way of drafts and cash was received by the assessee in question" at the former's residence. It was also stated by Shri Kanta Prasad that the brother of the assessee Shri Satpal Garg had assisted his brother Shri Rajender Garg in the property transaction. Based on this information, the residence of Shri Satpal Garg was covered by search and seizure operation. The assessee in question was served with a notice under section 158BC which was issued on 14-1-1997 in response to which return of income for block assessment in Form No. 2B was filed on 23-12-1997 declaring undisclosed income as nil. Notice under section 142(1) and a questionnaire both, dated 27-11-1997 were served on the assessee requiring him to furnish his clarifications and explanations duly supported by corroborating evidence. The assessing officer completed the block assessment and passed order on 30-12-1997 computing the undisclosed income at Rs. 1,07,60,653. The major addition was made on the basis of an agreement made on 16-9-1996 between the assessee and three other persons, namely, Shri Rajender Kumar, Shri Raj Guru and Shri Kulwant Rai for the sale of property bearing House No. 39 at Chanderlok, Pitampura, Delhi, measuring 361 sq. yds. at a total consideration of Rs. 1.10 crores. Before adding profit on account of this property, the assessing officer examined on oath, the said Shri Kanta Prasad, (friend of the assessee) Shri Satpal Garg, the brother of the assessee and Shri Gurucharan Singh, property dealer from M/s Nova Properties. The case of the revenue is that all these three persons in one way or the other had confirmed the taking place the sale of the property at the consideration found in the agreement. He contended that the assessee voluntarily stated the sale consideration at Rs. 38 lakhs at the time of search and the return under section 139(1) was also filed declaring the same amount as full value of the consideration.

2. The facts of the case are that a search and seizure operation in the case of assessee was carried out on 24-12-1996, at his residence at House No. 148, M.P. Enclave, Delhi, This search was in consequence of the statement of one Shri Kanta Parsad (during the search operation under section 132 at his residence) that it was Shri Rajender Garg, who was his friend who had, in fact, sold his immovable property located at 39 Chanderlok, Pitampura, Delhi. In a statement, dated 24-12-1996, Shri Kanta Prasad also stated that the sale consideration in respect or the above property by way of drafts and cash was received by the assessee in question" at the former's residence. It was also stated by Shri Kanta Prasad that the brother of the assessee Shri Satpal Garg had assisted his brother Shri Rajender Garg in the property transaction. Based on this information, the residence of Shri Satpal Garg was covered by search and seizure operation. The assessee in question was served with a notice under section 158BC which was issued on 14-1-1997 in response to which return of income for block assessment in Form No. 2B was filed on 23-12-1997 declaring undisclosed income as nil. Notice under section 142(1) and a questionnaire both, dated 27-11-1997 were served on the assessee requiring him to furnish his clarifications and explanations duly supported by corroborating evidence. The assessing officer completed the block assessment and passed order on 30-12-1997 computing the undisclosed income at Rs. 1,07,60,653. The major addition was made on the basis of an agreement made on 16-9-1996 between the assessee and three other persons, namely, Shri Rajender Kumar, Shri Raj Guru and Shri Kulwant Rai for the sale of property bearing House No. 39 at Chanderlok, Pitampura, Delhi, measuring 361 sq. yds. at a total consideration of Rs. 1.10 crores. Before adding profit on account of this property, the assessing officer examined on oath, the said Shri Kanta Prasad, (friend of the assessee) Shri Satpal Garg, the brother of the assessee and Shri Gurucharan Singh, property dealer from M/s Nova Properties. The case of the revenue is that all these three persons in one way or the other had confirmed the taking place the sale of the property at the consideration found in the agreement. He contended that the assessee voluntarily stated the sale consideration at Rs. 38 lakhs at the time of search and the return under section 139(1) was also filed declaring the same amount as full value of the consideration.

3. It was contended by the learned counsel for the assessee that the case of assessee was covered under section 158B(A) which provides for exclusion of income relating to an assessment year for which the previous year has not ended or the. date of filing the return under section 139(1) has not expired. It was the case of the learned counsel that since the property in question was sold on 24-12-1996, the same day on which the search and seizure operation were undertaken, the assessing officer had no jurisdiction to include any income based on the sale of that property in the block assessment. He further drew our attention towards section 15813B(1)(d) wherein it is provided that where the previous year has not ended or the date of filing the return under section 139(1) has not expired, the income for that period cannot be included in the undisclosed income of the block period. On the legal aspect of this issue, it was submitted by the learned counsel that since the assessee was never subjected to income-tax earlier, and no books- of accounts etc., were required 6 to be maintained and the assessee had himself voluntarily filed a return within the time allowed under section 139(1) declaring total consideration at Rs. 38 lakhs, there was no case for revenue to income this transaction within the ambit of Chapter-XIV-B.

3. It was contended by the learned counsel for the assessee that the case of assessee was covered under section 158B(A) which provides for exclusion of income relating to an assessment year for which the previous year has not ended or the. date of filing the return under section 139(1) has not expired. It was the case of the learned counsel that since the property in question was sold on 24-12-1996, the same day on which the search and seizure operation were undertaken, the assessing officer had no jurisdiction to include any income based on the sale of that property in the block assessment. He further drew our attention towards section 15813B(1)(d) wherein it is provided that where the previous year has not ended or the date of filing the return under section 139(1) has not expired, the income for that period cannot be included in the undisclosed income of the block period. On the legal aspect of this issue, it was submitted by the learned counsel that since the assessee was never subjected to income-tax earlier, and no books- of accounts etc., were required 6 to be maintained and the assessee had himself voluntarily filed a return within the time allowed under section 139(1) declaring total consideration at Rs. 38 lakhs, there was no case for revenue to income this transaction within the ambit of Chapter-XIV-B.

4. On the merits of the case, it was submitted by the learned counsel for the assessee that the department had computed undisclosed income on the basis of an agreement to sell the property at a consideration of Rs. 1.10 crores which had no legal validity as such for the very simple reason that it was not signed by the buyers. He drew our attention towards that agreement which contained names of three persons as buyers and also it was for the sale of the property as one composite unit. As against this, the learned counsel took us through two sale deeds, viz., one for the ground floor for a consideration of Rs. 4.80 lakhs sold to four persons, namely, Shri Darshan Kumar, Shri Rameshwar Dass, Shri Om Prakash and Shri Raj Kumar; and the other for first floor at a consideration of Rs 4.50 lakhs sold to Shri Rajender Kumar. It was contended by the learned counsel that there was no identity between the names as included in the sale deeds on one hand and the agreement of sale on which the department was placing reliance on the other hand. It was further stated that as against sale of the. property as one composite unit according to the agreement, the said property was actually sold in two components by way of two separate registered sale deeds. It was the case of the assessee that the property in question was purchased only one-and-a-half year back at a consideration of Rs. 8 lakhs and there was no justification in assuming that the very same property might have been sold for Rs. 1-10 crores within a very same property might have been sold for Rs. 1.10 crores within a very short span of time. It was also contended by the learned counsel that the department proceeded to make addition on the basis of statements of Shri Kanta Prasad, Shri Satpal Garg and Gurucharan Singh which was never confronted to the assessee. It was further stated on behalf of the assessee that the department had not got the property valued from any valuer nor arrived at the estimate of the price which it might have fetched on the date of sale.

4. On the merits of the case, it was submitted by the learned counsel for the assessee that the department had computed undisclosed income on the basis of an agreement to sell the property at a consideration of Rs. 1.10 crores which had no legal validity as such for the very simple reason that it was not signed by the buyers. He drew our attention towards that agreement which contained names of three persons as buyers and also it was for the sale of the property as one composite unit. As against this, the learned counsel took us through two sale deeds, viz., one for the ground floor for a consideration of Rs. 4.80 lakhs sold to four persons, namely, Shri Darshan Kumar, Shri Rameshwar Dass, Shri Om Prakash and Shri Raj Kumar; and the other for first floor at a consideration of Rs 4.50 lakhs sold to Shri Rajender Kumar. It was contended by the learned counsel that there was no identity between the names as included in the sale deeds on one hand and the agreement of sale on which the department was placing reliance on the other hand. It was further stated that as against sale of the. property as one composite unit according to the agreement, the said property was actually sold in two components by way of two separate registered sale deeds. It was the case of the assessee that the property in question was purchased only one-and-a-half year back at a consideration of Rs. 8 lakhs and there was no justification in assuming that the very same property might have been sold for Rs. 1-10 crores within a very same property might have been sold for Rs. 1.10 crores within a very short span of time. It was also contended by the learned counsel that the department proceeded to make addition on the basis of statements of Shri Kanta Prasad, Shri Satpal Garg and Gurucharan Singh which was never confronted to the assessee. It was further stated on behalf of the assessee that the department had not got the property valued from any valuer nor arrived at the estimate of the price which it might have fetched on the date of sale.

5. On the other hand. the learned departmental Representative submitted that there was no dispute as regards the question that the assessee was not subjected to tax earlier and hence was not maintaining any account books, etc. It was submitted by the learned departmental Representative that there was no question of excluding the profit from the said property from the block assessment for the reason that section 158BA(3) refers to the income or the transactions relating to such income which are recorded on or before the date of search. Since the agreement included sale consideration of Rs. 1.10 crores and the sale deeds were registered just for Rs. 9.30 lakhs, the case of the assessee was very much covered within the scope of Chapter XIV-B. On merits of the case, it was submitted by the learned departmental Representative that the assessing officer had made this addition after making a thorough investigation on this issue. He not only recorded the statements of the brother and the friend of the assessee, but also brought on record the statement of the property dealer who was instrumental in the finalisation of the sale of the said property having admitted that the transaction was finalised for Rs. 1. 10 crores. Summing up his contentions he stated that the assessing officer had rightly made the addition.

5. On the other hand. the learned departmental Representative submitted that there was no dispute as regards the question that the assessee was not subjected to tax earlier and hence was not maintaining any account books, etc. It was submitted by the learned departmental Representative that there was no question of excluding the profit from the said property from the block assessment for the reason that section 158BA(3) refers to the income or the transactions relating to such income which are recorded on or before the date of search. Since the agreement included sale consideration of Rs. 1.10 crores and the sale deeds were registered just for Rs. 9.30 lakhs, the case of the assessee was very much covered within the scope of Chapter XIV-B. On merits of the case, it was submitted by the learned departmental Representative that the assessing officer had made this addition after making a thorough investigation on this issue. He not only recorded the statements of the brother and the friend of the assessee, but also brought on record the statement of the property dealer who was instrumental in the finalisation of the sale of the said property having admitted that the transaction was finalised for Rs. 1. 10 crores. Summing up his contentions he stated that the assessing officer had rightly made the addition.

6. We have considered the rival submissions in the light of material placed before us. First of all, we shall take for consideration the legal ground raised by the learned counsel for the assessee on this issue. Before arraying at only conclusion, it is important to refer to the provisions of section 158BA(3) as under :

6. We have considered the rival submissions in the light of material placed before us. First of all, we shall take for consideration the legal ground raised by the learned counsel for the assessee on this issue. Before arraying at only conclusion, it is important to refer to the provisions of section 158BA(3) as under :

"(3) Where the assessee proves to the satisfaction of the assessing officer that any part of income referred to in sub-section (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 for any previous year has not expired, and such income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period."

7. The provisions contained in section 15813)3(1)(d) are almost to the same effect. A bare perusal of section 158BA(3) makes it clear that in order to be covered under this section, it is necessary that the income or the transactions relating to such income are recorded on or before the date of search in the books of accounts or other documents maintained in the normal course. Since, the assessee was not subjected to income-tax at any earlier occasion, the question of maintaining books of accounts does not arise. Now, the only thing that remains in the said section is the word "documents". It thus brings us to the conclusion that if the assessee is to be covered under section 158BA(3), the transaction must be included in the documents on or before the date of search. The "document" in the present case are "agreement to sell" and registered sale deeds. As per the 11 agreement to sell, the consideration is stated at Rs. 1.10 crores. Whereas registered sale deeds contained the figure of sale consideration at Rs. 9.30 lakhs and further the assessee, at the time of search stated that the property in question was sold for Rs. 38 lakhs. Thus, the three figures that emerge from this are Rs- 1.10 crores, Rs. 9.30 lakhs and Rs. 38 lakhs. Since the assessee himself stated that the sale consideration was Rs. 38 lakhs, and the 'document'' in the shape of registered sale deeds indicated the figure of Rs. 9.30 lakhs only as the sale consideration. It is the case of the assessee that the agreement was only a draft agreement which could not be converted into actual sale as against this the property was actually sold as per registered sale deeds for Rs. 9.30 lakhs. Hence the existence of undisclosed income cannot be denied. It the case of the assessee had been that he had received Rs. 1.10 crores, as it was found recorded in the agreement, obviously, the case of assessee would not have been covered under Chapter XIV-R In the like manner if only the sale deed of Rs 9.30 lakhs had been found without there being the existence of the agreement to sell at Rs. 1. 10 crores and also without the statement of the assessee that the sale consideration was Rs. 38 lakhs, then also the transaction relating to this issue would not have formed part of the undisclosed income since the assessee himself admitted the sale consideration at Rs. 38 lakhs at the time of search and the sale consideration of Rs. 9.30 lakhs is recorded in the sale deeds, the case very much falls within Chapter XIV-13.

7. The provisions contained in section 15813)3(1)(d) are almost to the same effect. A bare perusal of section 158BA(3) makes it clear that in order to be covered under this section, it is necessary that the income or the transactions relating to such income are recorded on or before the date of search in the books of accounts or other documents maintained in the normal course. Since, the assessee was not subjected to income-tax at any earlier occasion, the question of maintaining books of accounts does not arise. Now, the only thing that remains in the said section is the word "documents". It thus brings us to the conclusion that if the assessee is to be covered under section 158BA(3), the transaction must be included in the documents on or before the date of search. The "document" in the present case are "agreement to sell" and registered sale deeds. As per the 11 agreement to sell, the consideration is stated at Rs. 1.10 crores. Whereas registered sale deeds contained the figure of sale consideration at Rs. 9.30 lakhs and further the assessee, at the time of search stated that the property in question was sold for Rs. 38 lakhs. Thus, the three figures that emerge from this are Rs- 1.10 crores, Rs. 9.30 lakhs and Rs. 38 lakhs. Since the assessee himself stated that the sale consideration was Rs. 38 lakhs, and the 'document'' in the shape of registered sale deeds indicated the figure of Rs. 9.30 lakhs only as the sale consideration. It is the case of the assessee that the agreement was only a draft agreement which could not be converted into actual sale as against this the property was actually sold as per registered sale deeds for Rs. 9.30 lakhs. Hence the existence of undisclosed income cannot be denied. It the case of the assessee had been that he had received Rs. 1.10 crores, as it was found recorded in the agreement, obviously, the case of assessee would not have been covered under Chapter XIV-R In the like manner if only the sale deed of Rs 9.30 lakhs had been found without there being the existence of the agreement to sell at Rs. 1. 10 crores and also without the statement of the assessee that the sale consideration was Rs. 38 lakhs, then also the transaction relating to this issue would not have formed part of the undisclosed income since the assessee himself admitted the sale consideration at Rs. 38 lakhs at the time of search and the sale consideration of Rs. 9.30 lakhs is recorded in the sale deeds, the case very much falls within Chapter XIV-13.

8. As regards the assessee's contention that he voluntarily declared sale consideration at Rs. 38 lakhs at the time of search, it is to be kept in mind that the search at the assessee's premises took place in consequence to the search at the residence of Shri Kanta Prasad wherein he categorically stated about the transaction and the involvement of the assessee's brother in the transaction. As a sum of around Rs. 13 lakhs was found from the resident of the assessee's brother who deposed that it pertained to the assessee on account of sale of the property, the assessee came out with a declaration of Rs. 38 lakhs as sale consideration under compelling circumstances.

8. As regards the assessee's contention that he voluntarily declared sale consideration at Rs. 38 lakhs at the time of search, it is to be kept in mind that the search at the assessee's premises took place in consequence to the search at the residence of Shri Kanta Prasad wherein he categorically stated about the transaction and the involvement of the assessee's brother in the transaction. As a sum of around Rs. 13 lakhs was found from the resident of the assessee's brother who deposed that it pertained to the assessee on account of sale of the property, the assessee came out with a declaration of Rs. 38 lakhs as sale consideration under compelling circumstances.

9. Now, coming to the merits of the case, it is obvious that the agreement to sell was not signed by any of the buyers and further it contained the names of three persons as the buyers, whereas the actual sale deeds contained the name of 5 persons in total. Further the sale of the said property took place in two lots, one for the ground floor and the other for the first floor. There is also force in the arguments of the learned counsel that none of the buyers as per sale deeds or proposed buyers as per the agreement were examined by the assessing officer for establishing the factum of undisclosed income and further no valuation was got (lone by the department to establish that the consideration as stated in the agreement represents the real value of the property. Under these circumstances, we are of the view that no cognizance can be taken of this agreement to sell. Even otherwise it is the case of the assessee that the statements of the three persons used against him were not confronted to him. Therefore, these statements deserve to be excluded from consideration while the issue.

9. Now, coming to the merits of the case, it is obvious that the agreement to sell was not signed by any of the buyers and further it contained the names of three persons as the buyers, whereas the actual sale deeds contained the name of 5 persons in total. Further the sale of the said property took place in two lots, one for the ground floor and the other for the first floor. There is also force in the arguments of the learned counsel that none of the buyers as per sale deeds or proposed buyers as per the agreement were examined by the assessing officer for establishing the factum of undisclosed income and further no valuation was got (lone by the department to establish that the consideration as stated in the agreement represents the real value of the property. Under these circumstances, we are of the view that no cognizance can be taken of this agreement to sell. Even otherwise it is the case of the assessee that the statements of the three persons used against him were not confronted to him. Therefore, these statements deserve to be excluded from consideration while the issue.

10. The immediate next question, which then arises is that, what is the amount of undisclosed income in this transaction, it any. Answer to this question can be easily obtained from the statement of the assessee at the time of search wherein he admitted sales consideration at Rs. 38 lakhs and further the return filled by him under section 139(1) wherein he had shown the sale consideration at Rs. 38 lakhs.

10. The immediate next question, which then arises is that, what is the amount of undisclosed income in this transaction, it any. Answer to this question can be easily obtained from the statement of the assessee at the time of search wherein he admitted sales consideration at Rs. 38 lakhs and further the return filled by him under section 139(1) wherein he had shown the sale consideration at Rs. 38 lakhs.

11. Under these circumstances, we direct the assessing officer to compute the undisclosed income on account of this. transaction by taking sale consideration at Rs. 38 lakhs. Further argument of the learned counsel that the assessee has filed the return under section 139(1) declaring the consideration at Rs. 38 lakhs, which is being processed by the department in the case of regular proceedings and it any income out of it is included in block assessment, it will amount to double taxation of the same income has no force in so far as the computation of undisclosed income under section 158BC is concerned. The income resulting from this transaction to the extent indicated above constitutes undisclosed income and forms part of the block assessment. However, the assessee is free to take recourse to the legal provisions accordingly to remedy the situation.

11. Under these circumstances, we direct the assessing officer to compute the undisclosed income on account of this. transaction by taking sale consideration at Rs. 38 lakhs. Further argument of the learned counsel that the assessee has filed the return under section 139(1) declaring the consideration at Rs. 38 lakhs, which is being processed by the department in the case of regular proceedings and it any income out of it is included in block assessment, it will amount to double taxation of the same income has no force in so far as the computation of undisclosed income under section 158BC is concerned. The income resulting from this transaction to the extent indicated above constitutes undisclosed income and forms part of the block assessment. However, the assessee is free to take recourse to the legal provisions accordingly to remedy the situation.

12. In the next ground, the assessee has challenged the inclusion of unexplained bank entries in his undisclosed income amounting to Rs. 5,60,653 spread over the assessment years 1989-90, 1992-93 to 1996-97. During the course of assessment proceedings, the assessee was called upon to explain the source of deposit,, in bank accounts No. 3732 with Allahabad bank and a/c No- 6117 with State bank of India, Inderlok. The total deposits in these accounts amounted to P's. 14,18,965 for the block period, out of which the assessee had explained details in respect of Rs. 8,58,312. The assessing officer treated the balance amount of RS 5,60,563 as undisclosed income of the assessee under section 69A of the Income Tax Act. The learned counsel, for the assessee contended that the assessing officer had not given adequate opportunity to the assessee so as to explain the nature of deposits in the bank accounts. It was further contended that the assessing officer was in hurry to complete the assessment because the limitation was setting in shortly. The questionnaire for the block assessment was served in the month of November, 1997 whereas the assessment itself was completed on 13-12-1997. It was thus, contended by the learned counsel that the assessing officer had included in the undisclosed income of the block period, the amounts of deposits in the bank accounts of the assessee which were very much explainable, But the assessee could not explain due to paucity of time. The learned departmental Representative fairly conceded that the assessee should be given an other opportunity to explain the entries of deposits in these bank accounts.

12. In the next ground, the assessee has challenged the inclusion of unexplained bank entries in his undisclosed income amounting to Rs. 5,60,653 spread over the assessment years 1989-90, 1992-93 to 1996-97. During the course of assessment proceedings, the assessee was called upon to explain the source of deposit,, in bank accounts No. 3732 with Allahabad bank and a/c No- 6117 with State bank of India, Inderlok. The total deposits in these accounts amounted to P's. 14,18,965 for the block period, out of which the assessee had explained details in respect of Rs. 8,58,312. The assessing officer treated the balance amount of RS 5,60,563 as undisclosed income of the assessee under section 69A of the Income Tax Act. The learned counsel, for the assessee contended that the assessing officer had not given adequate opportunity to the assessee so as to explain the nature of deposits in the bank accounts. It was further contended that the assessing officer was in hurry to complete the assessment because the limitation was setting in shortly. The questionnaire for the block assessment was served in the month of November, 1997 whereas the assessment itself was completed on 13-12-1997. It was thus, contended by the learned counsel that the assessing officer had included in the undisclosed income of the block period, the amounts of deposits in the bank accounts of the assessee which were very much explainable, But the assessee could not explain due to paucity of time. The learned departmental Representative fairly conceded that the assessee should be given an other opportunity to explain the entries of deposits in these bank accounts.

13. We have heard both the sides. It is obvious that the assessing officer completed the assessment within a short period from the date of issue of questionnaire to the assessee. It would be in the interest of justice if the order of the assessing officer on this issue is set aside. We, therefore, restore this issue to the file of assessing officer with direction to decide it afresh, after affording opportunity of being heard to the assessee.

13. We have heard both the sides. It is obvious that the assessing officer completed the assessment within a short period from the date of issue of questionnaire to the assessee. It would be in the interest of justice if the order of the assessing officer on this issue is set aside. We, therefore, restore this issue to the file of assessing officer with direction to decide it afresh, after affording opportunity of being heard to the assessee.

14. In the result, the appeal is partly allowed for statistical purposes.