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Glimpses of Supreme Court Rulings
Kishor Karia
Chartered Accountant
Atul Jasani
Advocate
8 Income from undisclosed sources — Should be taxed in the
year of receipt — Matter remanded for fresh adjudication.
[Fifth Avenue v. CIT, (2009) 319 ITR 132 (SC)]
The appellant, a registered partnership firm consisted of 15
partners. The firm was being managed by three partners by name, Irfan Razak, K.
Rahman Khan and Sadath Ali Khan. The firm constructed a commercial complex known
as ‘Fifth Avenue’ consisting of ground + three floors. The building consisted of
82 commercial shops. The building was under construction till the end of
January, 1993. Different shops were sold by the firm under different sale deeds
to several buyers. On January 5, 1993, exercising the powers u/s.132 of the
Income-tax Act, M/s. India Builders Corporation (which was also a partnership
firm) was searched. During the search, a document pertaining to the
appellant-firm was seized. Based on the documents seized during the search
conducted in the premises of one of the partners of the appellant-firm, the
proceedings were initiated. According to the Revenue, while selling different
portions of the building apart from the sale consideration shown in the sale
deeds, the firm had also received additional sale consideration by cash which
had not been accounted and the consideration shown in the sale deeds were
received by the firm through cheques. An enquiry was conducted and the Assessing
Officer held that the unaccounted income of the assessee-firm had to be brought
to tax. Accordingly, the appellant-firm was called upon to pay tax
Rs.1,52,49,240 and also ordered for separate penalty proceedings u/s.271(1)(c)
of the Act challenging the order passed by the Assessing Officer. The appellant-assessee
filed an appeal before the Commissioner of Income-tax (Appeals). The
Commissioner of Income-tax (Appeals) after hearing the parties allowed the
appeal on the ground that the document seized was not while conducting a search
on the premises of the assessee and there was nothing to show that unaccounted
money was received by the firm and that the computer printout could not be
linked with the transaction pertaining to the appellant. Therefore, the appeal
filed by the assessee was allowed by the Commissioner of Income-tax (Appeals),
against which, the Revenue took up the matter in appeal before the Tribunal,
Bangalore Bench. The Tribunal, Bangalore Bench, after examining the legality and
the correctness of the order passed by the Assessing Officer and so also the
order passed by the Commissioner of Income-tax (Appeals) came to the conclusion
that even though the document was seized from the premises of a partner of the
appellant-firm — India Builders Corporation, as the document was pertaining to
the appellant-firm and that the seizure of the document from the premises of
India Builders Corporation had not been denied by the appellant-firm,
considering the provisions of S. 3(18) of the General Clauses Act and also the
presumption attached u/s.132(4A) of the Income-tax Act, held that the partners
of the appellant-firm have received unaccounted money in cash and the same had
to be brought into assessment. According to the Tribunal, the statement of Mr.
Ziaulla Sheriff disclosed that he was a partner of 10% share and his son, Yunuz
Zia, was also a partner of 10% share and Irfan Razack was the main partner
managing the affair of the firm and that Irfan Razak was examined on February
24, 1993. In his evidence he had denied the receipt of cash on behalf of the
appellant-firm, but he had admitted the contents of the seized printout
material. Relying upon the evidence of Irfan Razak, the Tribunal came to the
conclusion that the partners of the firm accepted the contents of the printout
taken from the computer in respect of the appellant-firm from India Builders
Corporation and, therefore, came to the conclusion that the Commissioner of
Income-tax (Appeals) has committed an error in allowing the appeal. Accordingly,
the order passed by the Commissioner of Income-tax (Appeals) was set aside and
the order passed by the Assessing Officer was restored.
The Karnataka High Court in the appeal filed before it held
that even though the appellant-firm’s premises was not searched, when an
important document was seized by the authorities from the premises of the
partners of the appellant-firm, it was for the appellant to show that the
appellant or any of its partners did not receive such money by way of cash which
had not been disclosed in the return filed by the appellant. When the appellant
was contending that it had not received cash from the purchasers and that the
sale consideration shown in the sale deeds alone was paid to the appellant, the
onus was on the appellant to examine its partners to dispel such contentions.
When the appellant had admitted the seizure of the documents in question from
the premises of its partners, Ziaulla Sheriff and Yunus Zia, it was for them to
explain that this particular document was not pertaining to the partnership
concern of the appellant and it is also for them to show under that
circumstances the said document was in possession of its partners and similarly
it was for them to show the said document had nothing to do with the business
activities of the appellant. It was held that the Tribunal was justified in
reversing the finding of the Commissioner of Income-tax (Appeals).
The High Court however noted that the Tribunal while
considering the matter pertaining to penalty proceedings initiated u/s.272(1)(c)
of the Income-tax Act had remanded the matter to the Assessing Officer to
ascertain and give a finding whether the entire unaccounted money of
Rs.2,32,28,173 was received in the A.Y. 1993-94 and whether the same was
received by the partners of the appellant-firm on different dates and that the
amount so received had to be spread over based on the actual receipt of the
money in different assessment years. Relying upon the order of the Tribunal
rendered in penalty proceedings, it was contended before the High Court that
even in quantum appeal, the matter had to be reconsidered by the Assessing
Officer in order to ascertain whether the amount of Rs.2,32,28,173 was received
by the partners of the firm during the A.Y. 1993-94 or not.
The High Court observed that the search material showed that
payments were made on different dates. The High Court found that the entire
unaccounted money had been brought into tax for the A.Y. 1993-94, which in fact
was not fully correct. The High Court was therefore, of the view that the order
passed by the Assessing Officer had to be set aside and the matter had to be
remanded to the Assessing Officer to find out whether Rs.2,32,28,173 was
received by the partners of the appellant-firm during the A.Y. 1993-94 or not,
and based on such finding, the assessment had to be completed. The High Court
held that it was for the appellant and his partners to explain and produce
relevant documents before the Assessing Officer to show that when and how the
aforesaid amount of Rs.2,32,28,173 was received by them. If the partners of the
appellant-firm were unable to produce any material evidence, then it was for the
Assessing Officer to complete the assessment, treating that the amount had been
received by the partners of the appellant-firm during the A.Y. 1993-94 only. The High Court further held that in view of the assessment being set aside,
at the request of the assessee, the assessee would not raise any question of
limitation.
In an
appeal before the Supreme Court it was con-tended by the appellant that the
High Court had failed to answer the question as to whether the amount allegedly
paid by the purchasers on different dates to the managing partners of the firm
could be brought to tax in the hands of the appellant firm. The Supreme Court
found merit in the contention of the appellant, but as the other question was
remanded by the High Court to the Assessing Officer, the Supreme Court also
remanded the issue to the Assessing Officer for fresh consideration in accordance
with law.
