Commissioner Of Income Tax vs Shri Mukesh Luthra
2011 Latest Caselaw 2982 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

+            ITA No.1115 of 2009 with ITA No.1122 of 2009

                                            Reserved On: May 18, 2011.
%                                         Pronounced On: June 03, 2011.

                          ITA No.1115 of 2009

      COMMISSIONER OF INCOME TAX                              . . . Appellant

                          through :           Ms. Prem Lata Bansal, Sr.
                                              Advocate with Mr. Deepak
                                              Anand, Advocate.

                                 VERSUS

      SHRI MUKESH LUTHRA                                    . . .Respondent

                          through:            Mr. Ajay Vohra with Ms. Kavita
                                              Jha and Mr. Somnath Shukla,
                                              Advocates.

                          ITA No.1122 of 2009

      COMMISSIONER OF INCOME TAX                              . . . Appellant

                          through :           Ms. Prem Lata Bansal, Sr.
                                              Advocate with Mr. Deepak
                                              Anand, Advocate.

                                 VERSUS

      SHRI MUKESH LUTHRA                                    . . .Respondent

                          through:            Mr. Ajay Vohra with Ms. Kavita
                                              Jha and Mr. Somnath Shukla,
                                              Advocates.

CORAM :-
    HON'BLE MR. JUSTICE A.K. SIKRI
    HON'BLE MR. JUSTICE M.L. MEHTA

      1.     Whether Reporters of Local newspapers may be allowed
             to see the Judgment?
      2.     To be referred to the Reporter or not?



ITA No.1115 of 2009 and ITA No.1122 of 2009               Page 1 of 10
       3.     Whether the Judgment should be reported in the Digest?

A.K. SIKRI, J.

1. On 18.05.2001, ITA No.1115 of 2009 was admitted on the

following substantial question of law:

"Whether order passed by ITAT is perverse in law and on facts when it deleted the addition of `92,29,561/- ignoring the material fact that said concern was a dummy concern and that the money was reflected in the regular books of accounts though found during the course of search and therefore, the addition could be made only in the regular assessment."

2. The question of law in ITA No.1112 of 2009 is the same except

the quantum of addition.

3. As the counsel for the parties were ready to argue the matter

finally at that stage itself, the hearing also took place

immediately after the admission of the appeal. The counsel for

the parties took time to file the written submissions which have

been filed as well. The dispute which has given rise to the

aforesaid substantial question of law can be traced from the

following events.

A search was carried in the case of the assessee on

30.08.2001. The assessee is a Director and one of the major

shareholders of M/s CCIL which is in the business of running of

health care centre under the name and style of M/s VLCC. The

assessee is also proprietor of M/s Shine International & Fashion

dealing in export of garments. The assessee filed the block

return on 31.12.2002 declaring undisclosed income at NIL.

Block assessment was completed on31.10.2003 at undisclosed

income for the block period at `10,19,594/-.

4. In the course of block assessment proceedings, AO was noticed

that there is a concern M/s Globe Meditech in the name of Shri

Rajesh Khurana and this concern was in fact controlled by the

assessee, Shri Mukesh Luthra. It was also noted by the AO that

to investigate the case further, assessment in the case of Shri

Rajesh Khurana for Assessment Years 1999-20000 to 2001-02

were reopened and on analysis of various evidences listed in

detail in the case of Shri Rajesh Khurana. In the said order,

passed on 27.02.2004, it was held that M/s Globe Meditech is,

in fact, a dummy concern of Shri Mukesh Luthra, but operated

in the name of Shri Rajesh Khurana. The AO reproduced the

entire assessment order of Shri Rajesh Khurana in the

assessment order for the present two assessment years in the

name of the assessee. The AO added the income of

`92,29,561/- in Assessment Year 2001-02 and `66,87,523/- in

Assessment Year 2002-03 in the hands of the assessee on

substantive basis which were added in the hands of Shri Rajesh

Khurana on protective basis. The assessee carried the matter

in appeal before the CIT (A) in both the years.

5. In Assessment Year 2001-02, the CIT (A) set aside the

assessment that any undisclosed income for the period covered

by search can be assessed only under Section 158BC of the

Income Tax Act (hereinafter referred to as „the Act‟). It was

observed by him that if regular assessment is pending

pertaining to the block period, only such income should be

considered in the regular assessments, the detail of which is

disclosed in the books of account maintained in the normal

course of business by the assessee. Even on merits, the

addition was deleted as it was held by CIT (A) that no evidence

had been found to assume that the assessee is the owner of

M/s Globe Meditech. The CIT (A) opined that the onus was on

the AO to prove that M/s Globe Meditech belongs to the

assessee, but the AO had not brought on record any material

which could establish that the profits out of the business of M/s

Globe Meditech were enjoyed by the assessee either through

direct or circumstantial evidence. On this basis, it was held by

CIT (A) that he was unable to accept the AO‟s view that what is

apparent is not real and that Shri Rajesh Khurana is the

benamidar of Shri Mukesh Luthra. On this basis, he deleted the

addition in Assessment Year 2001-02. In the Assessment Year

2002-03, he deleted the addition by following his order in

Assessment Year 2001-02.

6. The Department/Revenue preferred appeal before the Income

Tax Appellate Tribunal (hereinafter referred to as „the Tribunal‟)

against the aforesaid findings of the CIT (A) deleting the

addition for both the assessment years. The Tribunal has

repelled the challenge laid by the Department concurring with

the opinion of the CIT (A) that the matter could be gone into

and examined in the course of block assessment and addition

could be made in those proceedings if the AO was in a position

to establish that M/s Globe Meditech was a dummy concerned

of the assessee. For this reason, the Tribunal did not go into

the merits.

7. It is in this backdrop the issue that has arisen for consideration

is whether addition could be made in the regular assessment

proceedings as done by the AO or it could be the subject

matter of block assessment proceedings alone.

8. In an endeavour to demonstrate that the course of action taken

by the AO was valid and justified, Ms. Prem Lata Bansal,

learned Senior Counsel appearing for the Revenue argued that

search at the premises of the assessee was conducted on

30.08.2001 and much thereafter belated return for the

Assessment Year 2001-02 was filed on 31.12.2002. It is during

the block assessment proceedings that the AO noticed that

there was a concern M/s Globe Meditech in the name of Shri

Rajesh Khurana which was, in fact, controlled by the assessee

herein. Since the entries were recorded in the regular books of

account maintained for M/s Globe Meditech and Shri Rajesh

Khurana, proprietor thereof regularly filing the returns declaring

the income earned from M/s Globe Meditech, as far as Shri

Rajesh Khurana is concerned, the assessment in respect of

Assessment Years 1999-2000, 2000-01, 2001-02 were

reopened under Section 148 of the Act, which resulted in

passing of the reassessment orders on 27.02.2004 making

protective assessment in his hands. According the learned

Senior Counsel, since the entries were recorded in the regular

books of account of M/s Globe Meditech, insofar as Shri Rajesh

Khurana its sole proprietor is concerned, no addition could be

made by the AO for the block assessment year and therefore,

proceedings were rightly initiated under Section 148 of the Act.

According to her, such a course of action was in conformity with

the judgment of this Court in the case of Commissioner of

Income Tax Vs. Ravi Kant Jain [250 ITR 141], wherein it is

held that the block assessment under Chapter XIV of the Act is

not intended to be a substitute for regular assessment. It was

also contended that unless and until the transactions were

examined in the hands of M/s Globe Meditech, the AO could not

have made any additions in the hands of the present assessee,

Shri Mukesh Luthra. She argued that in a sense, in the case of

the present assessee, the AO has only lifted the veil and found

out that M/s Globe Meditech actually belonged to the assessee

and not Shri Rajesh Khurana. Otherwise, all the entries have

been recorded in the books of account maintained in a regular

manner by M/s Globe Meditech. Therefore, the AO was justified

in making the additions in the regular assessment.

9. Mr. Ajay Vohra, learned counsel appearing for the respondent,

on the other hand, sought to justify the orders of the Tribunal

which has held that such a course of action was available only

in the block assessment. His submission was that as per

provisions of Chapter XIV-B, in the block assessment, additions

can be made for income which is relatable to evidence

unearthed during the course of search. Any other income

would be outside the purview of block assessment and can only

be added in the regular assessment proceedings. Conversely,

in the regular assessment, no addition can be made for income

which has its genesis in materials found during the course of

search. In other words, block assessment and regular

assessment are mutually exclusive. While in the block

assessment, addition can only be made for undisclosed income

discovered during the course of search, such income cannot be

the subject matter of regular assessment. He referred to the

judgment of this Court in the case of Commissioner of

Income Tax Vs. Jupiter Builders P. Ltd. [287 ITR 287

(Del) and the judgment of the Gujarat High Court in the case of

N.R. Paper and Board Limited and Ors. Vs. Deputy

Commissioner of Income Tax [234 ITR 733].

10. He argued that in the present case, the apparent position is

that M/s Globe Meditech is the proprietary concern of Shri

Rajesh Khurana. On the basis of evidence alleged to be found

during the course of search, it is the allegation of the Revenue

that the apparent is not the real, viz., that M/s Globe Meditech

is not owned/controlled by Shri Rajesh Khurana but is a dummy

concern of the respondent assessee. Such an allegation raised

by the Revenue is sought to be substantiated by documents

alleged to be found during the course of search at the premises

of the respondent assessee. In that view of the matter, such

addition, if otherwise sustainable, could only be made in the

block assessment proceedings.

11. We have considered the respective submissions.

12. We are of the firm view that the view taken by the Tribunal is

not proper in law. Learned Counsel for the Revenue is right in

her contention that it is not a case where any evidence was

unearthed during the course of the search. In fact, it was

during block assessment proceedings the AO noticed that M/s

Globe Meditech was in fact controlled by the assessee herein,

though one Mr. Rajesh Khurana was shown as the proprietor of

the said firm. Otherwise, entries were recorded in the regular

books of accounts maintained by M/s Globe Meditech and Sh.

Rajesh Khurana was even filing the income tax return

declaring his income earned from M/s Globe Meditech as its

proprietor. It was thus a case of lifting of the veil by the

Assessing Officer and this could be done in the regular

assessment proceedings, insofar as the assessee is concerned.

At the same time, protective assessment is made at the hands

of Mr. Rajesh Khurana in whose case the assessment is

reopened under Section 148 of the Act as that was the only

course of action available qua Rajesh Khurana.

13. We, therefore, set aside the order of the Tribunal. Since the

Tribunal has not gone into the merits of the additions made by

the AO, the matter is remitted back to the Tribunal to decide as

to whether M/s Globe Meditech was a dummy concern of the

assessee herein and the order of the CIT (A) dealing with the

addition holding that the assessee herein was not the

benamidar is correct or not. The question of law is answered in

the aforesaid terms, without any order as to cost.

14. The appeal is disposed of accordingly.

(A.K. SIKRI) JUDGE

(M.L. MEHTA) JUDGE JUNE 03, 2011 pmc/skb