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From the Courts »
  Vatsala Shenoy vs. JCIT (Supreme Court)
  Vatsala Shenoy vs. JCIT (Supreme Court)
 M.K.Overseas Pvt. Ltd. Vs. Pr.Commissioner Of Income Tax-06
 Arshia Ahmed Qureshi Vs. Pr. Commissioner Of Income Tax-21
 CHAUDHARY SKIN TRADING COMPANY Vs. PR. COMMISSIONER OF INCOME TAX-21
  Sushila Devi vs. CIT (Delhi High Court)
  Vatsala Shenoy vs. JCIT (Supreme Court)
 Deputy Director Of Income Tax Vs. Virage Logic International
 Commissioner Of Income Tax-3 International Taxation Vs. Virage Logic International India
 Pr. Commissioner Of Income Tax-06 Vs. Moderate Leasing And Capital Services Pvt. Ltd.
 ITO vs. Vikram A. Pradhan (ITAT Mumbai)

COMMISSIONER OF INCOME TAX, CENTRAL-1, NEW DELHI Vs. SHAILENDRA MAHTO
November, 22nd 2014
*        IN THE HIGH COURT OF DELHI AT NEW DELHI

+                          INCOME TAX APPEAL NO. 127/2012
                                                 Reserved on :        1st August, 2014
                                               Date of decision: 11th November, 2014
         COMMISSIONER OF INCOME TAX, CENTRAL-1, NEW DELHI
                                                      ..... Appellant
                     Through Mr. Rohit Madan, Mr. P. Roychaudhury
                     & Mr. Akash Vajpai, Advocates.

                     versus
         SHAILENDRA MAHTO                       ..... Respondent
                     Through Mr. Ajay Burman & Mr. Aditya
                     Swarup, Advocates.

                           INCOME TAX APPEAL NO. 128/2012
         COMMISSIONER OF INCOME TAX, CENTRAL-1, NEW DELHI
                                                     ...... Appellant
                     Through Mr. Rohit Madan, Mr. P. Roychaudhury
                     & Mr. Akash Vajpai, Advocates.
                     versus
         SIMON MARANDI                              ..... Respondent
                     Through Mr. Ashok Sikka, Advocate.

                           INCOME TAX APPEAL NO. 131/2012
         COMMISSIONER OF INCOME TAX, CENTRAL-1, NEW DELHI
                                              ..... Appellant
                                    Through Mr. Rohit Madan, Mr. P. Roychaudhury
                                    & Mr. Akash Vajpai, Advocates.

                     versus
         JHARKHAND MUKTI MORCHA
                                                                ..... Respondent
                                    Through Ms. Prem Lata Bansal, Sr. Advocate
                                    with Mr. Ram Avtar Bansal & Mr. Naman
                                    Nayak, Advocates.
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                   Page 1 of 59
                           INCOME TAX APPEAL NO. 133/2012
         COMMISSIONER OF INCOME TAX, CENTRAL-1, NEW DELHI
                                                      ..... Appellant
                     Through Mr. Rohit Madan, Mr. P. Roychaudhury
                     & Mr. Akash Vajpai, Advocates.
                     versus
         SHIBU SOREN
                                                    ..... Respondent
                     Through Ms. Prem Lata Bansal, Sr. Advocate
                     with Mr. Ram Avtar Bansal & Mr. Naman
                     Nayak, Advocates.

                           INCOME TAX APPEAL NO. 137/2012
         COMMISSIONER OF INCOME TAX, CENTRAL-1, NEW DELHI
                                                      ..... Appellant
                      Through Mr. Rohit Madan, Mr. P. Roychaudhury
                      & Mr. Akash Vajpai, Advocates.
                      versus
         SURAJ MANDAL                                ..... Respondent
                      Through Ms. Pratiksha Sharma, Advocate.
         CORAM:
         HON'BLE MR. JUSTICE SANJIV KHANNA
         HON'BLE MR. JUSTICE V. KAMESWAR RAO


SANJIV KHANNA, J.:

         These appeals by the Revenue, Commissioner of Income Tax,
Central-1, New Delhi, are being disposed of by this common judgment as
identical and connected issues arise for consideration. The impugned order
dated passed by the Income Tax Appellate Tribunal (,,Tribunal, for short)
is dated 2nd September, 2011 and is a common order to the five cases. By
order dated 4th September, 2012, the following substantial questions of law
were admitted for hearing:-

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012        Page 2 of 59
              "(i) Did the Tribunal fall into error in holding that the
              amount brought to tax by the AO is not undisclosed
              income?
              (ii) Did the Tribunal fall into error in setting-aside the
              findings of lower authorities that the amounts
              deposited by the assessees with the bank were not
              taxable as income?"
2.       These appeals pertain to block assessment periods of ten years
beginning from 1st April, 1986 to 26th April, 1996 in the case of Shibu
Soren, Suraj Mandal, Shailender Mahto and Simon Marandi. In the case of
the said respondent-assessees, notice under Section 158BC of the Income
Tax Act, 1961 (,,Act, for short) was issued. In the case of Jharkhand
Mukti Morcha party (,,JMM, for short), notice under Section 158BD read
with Section 158BC was issued and the block assessment period is from 1st
April, 1986 to 27th September, 1996.

3.       In the block assessment proceedings of the individual assessee, the
Assessing Officer had made the following additions:-

                                 Name of
      ITA No.                                            Block Period    Additions (Rs.)
                                 Assessee
                                                         01.04.1986 to
      133/2012                Shibu Soren                                 1,16,38,824/-
                                                          26.04.1996
                                                         01.04.1986 to
      128/2012              Simon Marandi                                  53,53,620/-
                                                          26.04.1996
                                Shailendra               01.04.1986 to
      127/2012                                                             84,12,349/-
                                  Mahto                   26.04.1996
                                                         01.04.1986 to
      137/2012                Suraj Mandal                                1,86,34,834/-
                                                          26.04.1996

4.       In the case of Jharkhand Mukti Morcha, the Assessing Officer
assessed the total income for the block period as Rs.2,36,19,160/- on
protective basis out of which undisclosed income of Rs.1,29,98,449/- was
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                      Page 3 of 59
assessed on protective basis in the regular assessment proceedings under
Section 143(3) of the Act for the Assessment Year 1994-95. The
undisclosed income of the assessee for the block period added on
protective basis was Rs.1,06,20,711/-. The break-up of the total income
computed in the block assessment on protective basis as per paragraph 8 of
the impugned order is as under:-
     Financial Year          Deposits (Rs.)             Interest (Rs.)   Total (Rs.)
     1987-88                 Nil                        Nil              Nil
     1991-92                 Nil                        Nil              Nil
     1992-93                 10,27,348/-                16,124/-         10,46,472/-
     1993-94                 38,15,332/-                74,918/-         38,90,250/-
     1994-95                 1,33,60,000/-              5,29,016/-       1,38,89,016/-
     1995-96                 23,95,000/-                10,38,853/-      34,33,853/-
     1996-97                 Nil                        1,60,569/-       10,60,569/-
     1997-98                 Nil                        32,000/-         32,000/-
     Upto 27.09.1997                                                     2,36,19,160/-

5.       The respondent-assessees preferred appeals before the Tribunal and
have succeeded with the block assessment proceedings being annulled or
declared void on the ground that the additions made did not represent
undisclosed income and should not have been made in the block
assessment orders. These additions could have been only made in
regular/normal assessment proceedings under Section 143(3) or Section
147 read with Section 148 of the Act, as the amounts/additions made did
not represent undisclosed income as defined in Section 158B(b) read with
Sections 158BA(2), 158BB(1) etc. of the Act. In the case of JMM, it was
held that as no incriminating evidence was found during the course of
search in the case of the searched persons, i.e. Shibu Soren, Suraj Mandal,
Shailendra Mahto and Simon Marandi, there cannot be any evidence,
which justified invoking provisions of Section 158BD of the Act. In the

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                       Page 4 of 59
absence of incriminating evidence, block assessment proceeding against
JMM, were a nullity and bad being contrary to law.

6.       Search warrants under Section 132(1) of the Act were issued and
executed on Punjab National Bank, Naoroji Nagar, New Delhi on 26th
April, 1996, in respect of Savings Bank Accounts (SB A/cs, for short) and
Fixed Deposit Receipt Accounts (FDRs, for short) which are detailed as
under:-

     Account Nos.            Name(s) of the Holder
     194                     Shibu Soren, Rupi, Hemant and Basant
     19100                   Shibu Soren, Rupi, Hemant and Basant
     197                     Simon Marandi and Shushila Hansda
     19037                   Simon Marandi and Shushila Hansda
     196                     Shailendra Mahto and Abha Mahto
     18983                   Shailendra Mahto and Abha Mahto
     17108                   Suraj Mandal
                             Suraj Mandal, Shibu Soren, Simon Marandi and
     195/spl
                             Shailendra Mahto
                             Suraj Mandal, Shibu Soren, Simon Marandi and
     18914
                             Shailendra Mahto

These SB A/cs and FDRs were in the name of the four individual
assessees, jointly and individually. These accounts were placed under
prohibitory orders under Section 132(3) of the Act.                     Subsequently,
jurisdiction of the five respondent-assessees was transferred to Additional
Commissioner of Income Tax (Central), Circle-6, New Delhi under
Commissioner of Income Tax, Delhi, Circle-I as per order under Section
127 of the Act dated 2nd December, 1996.                     Thereafter, notices under
Section 158BC were issued to the individual assessees and notice under
Section 158BD read with Section 158BC of the Act was issued to JMM.



ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                   Page 5 of 59
Legal Provisions and Interpretation

7.       In order to appreciate and decide the legal controversy, it would be
appropriate to first reproduce relevant provisions of Chapter XIV-B
"Procedure for Assessment and Search Cases", which would be applicable
to the respondent-assessees. These are Sections 158B clause (b), 158BA,
158BB, 158BC and 158BD of the Act.                             The said provisions post
amendment vide Finance Act, 2002 with retrospective effect from 1 st July,
1995, read as under:-

              "Section 158B. In this Chapter, unless the context
              otherwise requires, -
              xxx
              (b) "undisclosed income" includes any money, bullion,
              jewellery or other valuable article or thing or any
              income based on any entry in the books of account or
              other documents or transactions, where such money,
              bullion, jewellery, valuable article, thing, entry in the
              books of account or other document or transaction
              represents wholly or partly income or property which
              has not been or would not have been disclosed for the
              purposes of this Act, or any expense, deduction or
              allowance claimed under this Act which is found to be
              false.
                                                (underlined portion was inserted by
                                           Finance Act, 2002 w.r.e.f. 1st July, 1995)

              xxx
              158-BA. Assessment of undisclosed income as a
              result of search.--(1) Notwithstanding anything
              contained in any other provisions of this Act, where
              after the 30th day of June, 1995 a search is initiated
              under Section 132 or books of account, other
              documents or any assets are requisitioned under
              Section 132-A in the case of any person, then, the
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                              Page 6 of 59
              Assessing Officer shall proceed to assess the
              undisclosed income in accordance with the provisions
              of this Chapter.
              (2) The total undisclosed income relating to the block
              period shall be charged to tax, at the rate specified in
              Section 113, as income of the block period irrespective
              of the previous year or years to which such income
              relates and irrespective of the fact whether regular
              assessment for any one or more of the relevant
              assessment years is pending or not.
              Explanation.--For the removal of doubts, it is hereby
              declared that--
              (a) the assessment made under this Chapter shall be in
              addition to the regular assessment in respect of each
              previous year included in the block period;
              (b) the total undisclosed income relating to the block
              period shall not include the income assessed in any
              regular assessment as income of such block period;
              (c) the income assessed in this Chapter shall not be
              included in the regular assessment of every previous
              year included in the block period.
              (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.
                                              (underlined portion was inserted by
                                  Finance Act (No.2), 1998 w.r.e.f. 1st July, 1995)

              xxx

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                            Page 7 of 59
              158-BB. Computation of undisclosed income of the
              block period.--(1) The undisclosed income of the
              block period shall be the aggregate of the total income
              of the previous years falling within the block period
              computed, in accordance with the provisions of this
              Act, on the basis of evidence found as a result of search
              or requisition of books of account or other documents
              and such other materials or information as are available
              with the Assessing Officer and relatable to such
              evidence], as reduced by the aggregate of the total
              income, or as the case may be, as increased by the
              aggregate of the losses of such previous years,
              determined,--
              (a) where assessments under Section 143 or Section
              144 or Section 147 have been concluded prior to the
              date of commencement of the search or the date of
              requisition, on the basis of such assessments;
              (b) where returns of income have been filed under
              Section 139 or in response to a notice issued under sub-
              section (1) of Section 142 or Section 148 but
              assessments have not been made till the date of search
              or requisition, on the basis of the income disclosed in
              such returns;
              (c) where the due date for filing a return of income has
              expired, but no return of income has been filed,--
              (A) on the basis of entries as recorded in the books of
              account and other documents maintained in the normal
              course on or before the date of the search or requisition
              where such entries result in computation of loss for any
              previous year falling in the block period; or
              (B) on the basis of entries as recorded in the books of
              account and other documents maintained in the normal
              course on or before the date of the search or requisition
              where such income does not exceed the maximum
              amount not chargeable to tax for any previous year
              falling in the block period;


ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                Page 8 of 59
              (ca) where the due date for filing a return of income
              has expired, but no return of income has been filed, as
              nil, in cases not falling under clause (c);
              (d) where the previous year has not ended or the date
              of filing the return of income under sub-section (1) of
              Section 139 has not expired, on the basis of entries
              relating to such income or transactions as recorded in
              the books of account and other documents maintained
              in the normal course on or before the date of the search
              or requisition relating to such previous years;
              (e) where any order of settlement has been made under
              sub-section (4) of Section 245-D, on the basis of such
              order;
              (f) where an assessment of undisclosed income had
              been made earlier under clause (c) of Section 158-BC,
              on the basis of such assessment.
              Explanation.--For the purposes of determination of
              undisclosed income,--
              (a) the total income or loss of each previous year shall,
              for the purpose of aggregation, be taken as the total
              income or loss computed in accordance with the
              provisions of this Act without giving effect to set off of
              brought forward losses under Chapter VI or
              unabsorbed depreciation under sub-section (2) of
              Section 32:
              Provided that in computing deductions under Chapter
              VI-A for the purposes of the said aggregation, effect
              shall be given to set off of brought forward losses
              under Chapter VI or unabsorbed depreciation under
              sub-section (2) of Section 32;
              (b) of a firm, returned income and total income
              assessed for each of the previous years falling within
              the block period shall be income determined before
              allowing deduction of salary, interest, commission,
              bonus or remuneration by whatever name called:

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                 Page 9 of 59
              Provided that undisclosed income of the firm so
              determined shall not be chargeable to tax in the hands
              of the partners, whether on allocation or on account of
              enhancement;
              (c) assessment under Section 143 includes
              determination of income under sub-section (1) or sub-
              section (1-B) of Section 143.
              (2) In computing the undisclosed income of the block
              period, the provisions of Sections 68, 69, 69-A, 69-B
              and 69-C shall, so far as may be, apply and references
              to "financial year" in those sections shall be construed
              as references to the relevant previous year falling in the
              block period including the previous year ending with
              the date of search or of the requisition.
              (3) The burden of proving to the satisfaction of the
              Assessing Officer that any undisclosed income had
              already been disclosed in any return of income filed by
              the assessee before the commencement of search or of
              the requisition, as the case may be, shall be on the
              assessee.
              (4) For the purpose of assessment under this Chapter,
              losses brought forward from the previous year under
              Chapter VI or unabsorbed depreciation under sub-
              section (2) of Section 32 shall not be set off against the
              undisclosed income determined in the block
              assessment under this Chapter, but may be carried
              forward for being set off in the regular assessments.
                                             (underlined portion was inserted by
                                       Finance Act, 2002 w.r.e.f. 1st July, 1995.
                               Prior to its substitution, clause (c) read as under,
               "(c) where the due date for filing a return of income has expired
                                but no return of income has been filed, as nil")

              xxx
              158-BC. Procedure for block assessment.--Where
              any search has been conducted under Section 132 or
              books of account, other documents or assets are

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                            Page 10 of 59
              requisitioned under Section 132-A, in the case of any
              person, then,--
              (a) the Assessing Officer shall--
              (i) in respect of search initiated or books of account or
              other documents or any assets requisitioned after the
              30th day of June, 1995 but before the 1st day of
              January, 1997, serve a notice to such person requiring
              him to furnish within such time not being less than
              fifteen days;
              (ii) in respect of search initiated or books of account or
              other documents or any assets requisitioned on or after
              the 1st day of January, 1997 serve a notice to such
              person requiring him to furnish within such time not
              being less than fifteen days but not more than forty-
              five days,
              as may be specified in the notice a return in the
              prescribed form and verified in the same manner as a
              return under clause (i) of sub-section (1) of Section
              142, setting forth his total income including the
              undisclosed income for the block period:
              Provided that no notice under Section 148 is required
              to be issued for the purpose of proceeding under this
              Chapter:
              Provided further that a person who has furnished a
              return under this clause shall not be entitled to file a
              revised return;
              (b) the Assessing Officer shall proceed to determine
              the undisclosed income of the block period in the
              manner laid down in Section 158-BB and the
              provisions of Section 142, sub-sections (2) and (3) of
              Section 143, Section 144 and Section 145 shall, so far
              as may be, apply;
              (c) the Assessing Officer, on determination of the
              undisclosed income of the block period in accordance
              with this Chapter, shall pass an order of assessment and

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                 Page 11 of 59
              determine the tax payable by him on the basis of such
              assessment.
              xxx
              158-BD. Undisclosed income of any other person.--
              Where the Assessing Officer is satisfied that any
              undisclosed income belongs to any person, other than
              the person with respect to whom search was made
              under Section 132 or whose books of account or other
              documents or any assets were requisitioned under
              Section 132-A, then, the books of account, other
              documents or assets seized or requisitioned shall be
              handed over to the Assessing Officer having
              jurisdiction over such other person and that Assessing
              Officer shall proceed against such other person and the
              provisions of this Chapter shall apply accordingly."

8.       Section 158B(b) is a definition provision for the purpose of the said
Chapter, which defines the term "undisclosed income". It is an inclusive
definition and is subject to the context otherwise requiring a different
interpretation. Undisclosed income for the purpose of the Chapter could
include any money, bullion, jewellery or other article, valuable article or
thing or even income based on entry in books of accounts and other
documents of transactions, which had not been or would not have been
disclosed for the purposes of this Act. By retrospective amendment
inserted by Finance Act, 2002 with effect from 1st July, 1995, any expense,
deduction or disallowance claimed under the Act, which was found to be
false was also treated as undisclosed income. An inclusive definition is to
be read broadly and in a wide manner and should not be given a restrictive
meaning. The expression "undisclosed income" with effect from 1st July,
1995, therefore, would mean and include any false expenditure, deduction
or allowance claimed under the Act but was found to be false, or any

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012              Page 12 of 59
money, bullion, jewellery, valuable article or thing, that had not been or
would not have been disclosed and also included any income based on
entry in the books of accounts or other documents, which had not been
disclosed or would not have been disclosed for the purposes of this Act.
The crucial and singularly pre-eminent expression used in the said clause is
"has not been or would not have been disclosed" for the purposes of this
Act. We shall be subsequently referring to, in detail, the judgment of the
Supreme Court in Assistant Commissioner of Income Tax, Chennai vs. A.
R. Enterprises, (2013) 3 SCC 196, but suffice at this stage, it is to notice
and reproduce the following paragraph from A. R. Enterprises (supra):-

              "17. The genesis of the issue before us lies within the
              folds of this section. Sections 158-BD and 158-BC,
              along with the rest of Chapter XIV-B, find application
              only in the event of discovery of "undisclosed income"
              of an assessee. "Undisclosed income" is defined by
              Section 158-B as that income "which has not been or
              would not have been disclosed for the purposes of this
              Act". The legislature has chosen to define "undisclosed
              income" in terms of income not disclosed, without
              providing any definition of "disclosure" of income in
              the first place. We are of the view that the only way of
              disclosing income, on the part of an assessee, is
              through filing of a return, as stipulated in the Act, and
              therefore an "undisclosed income" signifies income not
              stated in the return filed. Keeping that in mind, it seems
              that the legislature has clearly carved out two scenarios
              for income to be deemed as undisclosed: (i) where the
              income has clearly not been disclosed, and (ii) where
              the income would not have been disclosed. If a
              situation is covered by any one of the two, income
              would be undisclosed in the eyes of the Act and hence
              subject to the machinery provisions of Chapter XIV-B.
              The second category viz. where income would not have
              been disclosed, contemplates the likelihood of
              disclosure; it is a presumption of the intention of the
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                 Page 13 of 59
              assessee since in concluding that an assessee would or
              would not have disclosed income, one is ipso facto
              making a statement with respect to whether or not the
              assessee possessed the intention to do the same. To
              gauge this, however, reliance must be placed on the
              surrounding facts and circumstances of the case."
9.       The aforementioned paragraph, interprets Section 158B(b) of the
Act and lays core and primary emphasis/stress on the phrase, ,,has not been
and would not have been disclosed. This part of the definition effectuates
and underlines the object of the block assessment proceedings is to bring to
tax what was not taxed or would not have been taxed including wrong
deduction or disallowance claimed and allowed earlier. The retrospective
amendment is an indication that even the entries recorded in the books of
accounts or other documents of transaction could become subject matter of
undisclosed income if found to be false and accordingly deduction or
disallowance should not have been allowed or claimed.

10.      Section 158BA(1) of the Act begins as a non-obstante provision
giving primacy to the procedure prescribed under Chapter XIV-B of the
Act to the exclusion of other provisions of the Act where search was
conducted after 30th June, 1995 up to 31st May, 2003 (see Section 158BI of
the Act), or books of accounts or other documents of the assessee had been
requisitioned in the aforesaid period.                   Sub-section (2) stipulates that the
rate of tax as specified in Section 113 shall apply to income calculated for
the block period irrespective of the previous years to which the income
relates and irrespective of the fact whether regular assessment for any one
or more assessment years was pending or not. Explanation which was
inserted by the Finance (No. 2) Act, 1998 with retrospective effect from 1st
July, 1995 is a cause of some debate, as do the subsequent amendments by

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                        Page 14 of 59
Finance Act, 2002 again with retrospective effect from 1st July, 1995. The
amendments incorporated by the Finance Act, 2002 reflect the position that
there was a greater clarity and understanding, regarding block assessment
proceedings when the Finance Act, 2002 was enacted. It reflects the march
of law, as there was greater and better appreciation and the amendments
negate the ill effects and problems noticed in practice (This aspect has been
also examined below with reference to the decision in N.R. Paper and
Board Ltd & Ors versus Deputy Commissioner of Income Tax (1998) 234
ITR 733 (Guj.)). Coming back to the explanation inserted by the Finance
Act (No. 2) Act, 1998 with retrospective effect from 1st July, 1995, it
declares for removal of doubt that assessment under Chapter XIV-B shall
be in addition to regular assessment for each of the previous year in the
block period; total undisclosed income in the block period would not
include income included in regular assessment; and income assessed under
Chapter XIV-B shall not be included in the regular assessment of previous
years. The aforesaid explanation supports in view that there would be two
assessments in the cases of search or when Section 132A is invoked, i.e.
normal/regular assessments under Section 143(1) or (3) of the Act; and
Chapter XIV-B or block assessment. Further, income included in the block
assessment would not be included in the normal assessment and similarly
income included in the normal assessment would not be included in the
block assessment. We shall be referring to several judgments relied upon
by the counsel for the respondent assessee which have decided the
controversy whether income should be assessed in the normal assessment
or block assessment by primarily relying upon the said explanation. This
indeed is the correct interpretation accepted by the Courts. Thus there can
be regular and block assessments for the same period. The next question is

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012         Page 15 of 59
what could be included or the scope and ambit of block assessment and
regular assessment. The answer lies in conjoint and harmonious reading of
the Sections 158B(b) and 158BB of the Act.

11.      Section 158BB of the Act is a procedural provision which deals with
computation of undisclosed income but is also a substantive provision
because it seeks to define what is to be included and can be made a subject
matter of the block assessment. Sub-section (1) refers to the evidence
found as a result of search or requisition of books of accounts or other
documents and such other information as was available with the Assessing
Officer and relatable to such evidence. It postulates that evidence found as
a result of search or requisition of books of accounts or documents as well
as other information relatable to such evidence could be taken into
consideration for the purpose of undisclosed income for the block period.
The income so calculated shall be increased or reduced by the aggregate of
total income or loss of previous years which have been determined where
assessment under Section 143/144/147 of the Act had concluded prior to
the date of commencement of search or date of requisition; but, where
returns of income have been filed under Section 139/142(1)/148 of the Act,
then such increase or reduction shall be done on the basis of income
disclosed in such returns. Section 158BB(2)(b) of the Act is indicative that
the returned income, where assessment had not been concluded or made,
the returned income would be treated as disclosed income and any other
income on the basis of evidence found during the course of search or
requisition of books of accounts or documents with other evidence
relatable to such evidence would be treated as undisclosed income and
accordingly made subject matter of the block assessment. The controversy
that would remain is whether in view of the said clause (b) where
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012         Page 16 of 59
assessments were pending, additions in block assessment could still be
made where no material or evidence was found in the search relatable to
the disclosed income declared in the return, or the addition should be made
in regular assessment. Preponderance of the judicial opinion appears to be
in favour of the normal or regular assessment and not for additions under
the head ,,undisclosed income in the block assessment. Of course, this
would not apply where material has been found during the course of search
or on further enquiry relatable to such material or in cases where expense,
deduction or allowance claimed under the Act was found to be false. In
such cases, additions could be made under sub-section (1) to Section
158BB of the Act.

12.      At this stage, it will be relevant to also refer to Section 158BA(3) of
the Act. Sub-section (3) to Section 158BA of the Act relates to a part of the
year which had not ended or when the date of the filing of the return under
Section 139(1) had not expired. In such cases, income of the transactions
recorded on or before the date of search or requisition of books of accounts
or other documents, etc., would not be included in the block period. The
said sub-section has to be read along with Section 158B(b) which defines,
,,undisclosed income. On harmonious construction, it follows that said
entry in the books of accounts should not be false, otherwise they would be
covered under the head ,,expense, deduction or allowance which is found to
be false.

13.      ,,False or ,,falsehood is a strong word and much narrower than the
word or term ,,incorrect or ,,legally unsustainable. ,,False or ,,falsehood
refers to element of mens rea or bad mental intention and would not relate
to claims which might be wrong because of legal interpretation or has to be

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012            Page 17 of 59
disallowed because of technical defect and similar reasons. However, as
noticed below, this question does not arise for consideration in the present
case.




14.      Clause (c) of Section 158BB(1) of the Act as enacted was substituted
by Finance Act, 2002 with retrospective effect from 1 st July, 1995. The
substituted clause (c) deals with cases where due date of filing of returns of
income had expired but no return of income had been filed, when either of
the two conditions were satisfied. As per sub-clause (A) of clause (c),
income for the block assessment would be computed on the basis of entries
as recorded in the books of accounts and other documents maintained in
normal course where such entries result in computation of loss for any
previous year falling in the block period. Sub-clause (B) would only apply
in a case where the income, as a result of entries in the books of accounts
and other documents maintained in normal course on or before the date of
search or requisition did not exceed maximum amount not chargeable to
tax. Clause (ca) deals with cases not covered by clause (c) i.e. when no
return of income had been filed, but income was taxable. Thus, where the
due date of filing of return had lapsed but no return had been filed and
computation was not at a loss or below the taxable limit, income as per the
books of accounts shall be treated as ,,nil, even if as per the books of
accounts and other documents maintained in normal course, the income
disclosed was above the taxable limit. In such cases, irrespective of the
figures in the books of accounts or documents, income has to be by default,
taken as ,,nil. Clause (ca) would apply only when the date of filing of
return has expired and return of income has not been filed.



ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012          Page 18 of 59
15.      Clause (d) would apply to cases where previous year has not ended
or date of filing of return under Section 139(1) has not expired. In such
cases income has to be computed on the basis of entries relevant to such
income or transactions recorded in the books of accounts or other
documents maintained in the normal course on or before the date of search.

16.      We need not, for the purpose of present examination, refer to clauses
(e) and (f) which deals with cases where there has been settlement order
under Section 245D(4) or an earlier search assessment under Section
158BC under clause (c) has been made. Explanation clauses (a) and (b) are
not relevant, but clause (c) of the explanation is of some relevance. The
said clause stipulates that assessment under Section 143 includes
determination under Section 143(1) or Section 143(1B). Thus, summary
assessments are also treated as regular/normal assessment for the purpose
of Section 158BB. Sub-section (2) to Section 158BB states that provisions
of Section 68, 69, 69A, 69B and 69C shall apply and references to financial
year in the said sections will be construed as reference to relevant previous
year in the block period including previous year ending with the date of
search. Sub-section (3) states that the burden of proving that undisclosed
income has already been disclosed in the return filed before the
commencement of search, or the date of requisition of documents, shall be
on the assessee. We are not concerned and are not required to deal with
sub-section (4) to Section 158BB of the Act.

17.      Section 158BC of the Act relates to procedure for block assessment
and postulates issue of notice for filing of return for block assessment.
The first proviso states that in such cases, no notice under Section 148 was
required. Thus, it does away with the requirement of notice under Section

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012          Page 19 of 59
148 and recording of reasons for the same. The said proviso is to be read
with sub-section (1) to Section 158BA which gives an overriding primacy
to Chapter XIV-B. Second proviso states that no revised return for block
assessment can be filed. Clause (b) of Section 158BC states that the
Assessing Officer shall proceed to determine undisclosed income for the
block assessment period and provisions of Sections 142, 143(2), 143(3),
144 and 145 shall apply and as per mandate of clause (c), block assessment
order has to be passed and tax payable has to be determined. As per clause
(d), the assets seized under Section 132 or requisitioned under Section
132A have to be accordingly dealt with in accordance with Section 132B.

18.      Section 158BD of the Act deals with assessment of undisclosed
income of a person who has not been searched or person whose books of
accounts or other documents or assets were not seized or requisitioned
under Section 132A. It requires that the Assessing Officer of the person
who was searched or books of accounts or documents requisitioned, should
record a satisfaction note that undisclosed income belonging to a third
person had been seized or had been uncovered and in such cases the assets,
books of accounts, documents etc. should be handed over to the Assessing
Officer having jurisdiction over such other person, who shall proceed
under Section 158BC and accordingly provisions of Chapter XIV-B shall
apply. This provision has been interpreted recently by the Supreme Court
in Commissioner of Income Tax ­ III vs. Calcutta Knitwears, Ludhiana,
(2014) 6 SCC 444, where it has been observed as under:-

              "38. We would certainly say that before initiating
              proceedings under Section 158-BD of the Act, the
              assessing officer who has initiated proceedings for
              completion of the assessments under Section 158-BC
              of the Act should be satisfied that there is an
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012          Page 20 of 59
              undisclosed income which has been traced out when a
              person was searched under Section 132 or the books of
              accounts were requisitioned under Section 132-A of
              the Act. This is in contrast to the provisions of Section
              148 of the Act where recording of reasons in writing
              are a sine qua non. Under Section 158-BD the
              existence of cogent and demonstrative material is
              germane to the assessing officers' satisfaction in
              concluding that the seized documents belong to a
              person other than the searched person is necessary for
              initiation of action under Section 158-BD. The bare
              reading of the provision indicates that the satisfaction
              note could be prepared by the assessing officer either at
              the time of initiating proceedings for completion of
              assessment of a searched person under Section 158-BC
              of the Act or during the stage of the assessment
              proceedings. It does not mean that after completion of
              the assessment, the assessing officer cannot prepare the
              satisfaction note to the effect that there exists income
              tax belonging to any person other than the searched
              person in respect of whom a search was made under
              Section 132 or requisition of books of accounts was
              made under Section 132-A of the Act. The language of
              the provision is clear and unambiguous. The legislature
              has not imposed any embargo on the assessing officer
              in respect of the stage of proceedings during which the
              satisfaction is to be reached and recorded in respect of
              the person other than the searched person."

Facts of he present case and applicable provisions
19.      It would be now relevant to refer to the facts of the present cases, the
finding of the Tribunal and contentions of the parties. Shailendra Mahto,
Suraj Mandal and Simon Marandi had never filed income tax returns under
Section 139 of the Act between 1st April, 1986 and 26th April, 1996. They
were never assessed to tax for the said period. Shailendra Mahto, in fact,
did not file returns even on issue of notice under Section 158BC of the Act.
Shibu Soren filed return for assessment year 1994-95 on 31st March, 1996.
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                Page 21 of 59
The due date for filing of return for the assessment year 1994-95 was 30th
June, 1994. The said return certainly cannot be treated as return under
Section 139(1) and, therefore, would be inconsequential for the purpose of
computing income earned in a regular/normal assessment. In order to take
the said return on record, the Assessing Officer was required to issue notice
under Section 147 or 148 of the Act. But the said notice was not required
in the factual matrix of the present case because of the search on 26 th April,
1996. As far as JMM is concerned, as noticed above, notice was issued
under Section 158BD read with Section 158BC and block assessment order
was passed for the period 1st April, 1986 to 26th September, 1996. The
JMM had not filed returns from 1988 to 1992 and return for assessment
year 1992-93 and 1993-94 were filed on 12th July, 1996 and return for the
assessment year 1992-93 and 1993-94 was filed on 12th July, 1996 pursuant
to notice under Sections 147/148 of the Act and for the assessment year
1994-95 the return was filed on 31st March, 1996. This again was after the
due date for filing of return for that assessment year. However, as the case
of JMM would fall in a different category, it is being accordingly dealt
with.

20.      The block assessment orders in the case of individual assessees
would show that the major and substantial amount of undisclosed income
relates to the period between 1st April, 1993 and 31st March, 1994. It was
in this period that substantial deposits were found in the bank accounts.
The details and deposits in a bank in each of the four cases of the
individual assesses was as under:-

      ITA No.         Name of the                  Assessment   Amount
                      Assessee                     Year         Deposited (Rs.)
      127/2012 Shailendra Mahto 1994-95                         46,52,500/-
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                        Page 22 of 59
      128/2012 Simon Marandi                       1994-95        40,52,500/-
      133/2012 Shibu Soren                         1994-95        37,52,500/-
                                                   1992-93        9,00,000/-
      137/2012 Suraj Mandal                        1993-94        6,90,000/-
                                                   1994-95        37,52,500/-
                                                          Total   1,78,00,000/-

21.      In view of the aforesaid factual position, in the present case sub-
clause (ca) of Section 158BB(1) would be applicable as no return of
income was filed by the individual asseessee before the due date of filing
of return. The income returned accordingly would be treated as NIL inspite
of the entries, if any, in the books of accounts or documents. It is correct
that Shibu Soren had filed return for the assessment year 1994-95 on 31st
March, 1996, but this would be a return under Section 139(4) of the Act
which permits filing of a belated return, but it would not be a return under
Section 139(1) of the Act. Therefore, this return cannot be treated as a
return filed before the due date. Possibly, the respondent assessees could
have also claimed applicability of clause (c) to Section 158BB in relation
to the year of search, but, the onus to prove that benefit of clause (c) would
be applicable is on the individual assessee.

22.      We would, now, like to reproduce the legal position as elucidated in
A. R. Enterprises, (supra), wherein the Supreme Court has observed :-

              "Hence, the computation of "undisclosed income" for
              the purposes of Chapter XIV-B has to be construed in
              terms of the "total income" received, accrued, arisen;
              or which is deemed to have been received, accrued or
              arisen in the previous year, and is computed according
              to the provisions of the Act. According to section
              139(1) of the Act, every person who is assessable
              under the Act, must file a return declaring his or her
              total income during the previous year on or before the
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                        Page 23 of 59
              due date, for assessment under section 143 of the Act.
              Hence, the 'disclosure of income' is the disclosure of
              the total income in a valid return under section 139,
              subject to assessment and chargeable to tax under the
              provisions of the Act. It is important to bear in mind
              that total income is distinct from the estimated income,
              upon the basis of which, advance tax is paid by an
              assessee. Advance tax is based on estimated income,
              and, hence, it cannot result in the disclosure of the total
              income assessable and chargeable to tax."
It is clearly stated in the aforesaid paragraph that due date of filing of
return for the purpose of Section 158BB would be return filed in
accordance with Section 139(1) of the Act. This would obviously not
include a belated return filed under Section 139(4) of the Act. In the facts
of the present case, Section 158BB(1)(d) would not be applicable as it
refers to the previous year which has not ended or the date of filing of
return under Section 139(1) has not expired. However, clause (d) also
supports the construction and interpretation that due date of filing of return
refers to Section 139(1) and not Section 139(4). Time for filing of return
for assessment year 1994-95 under Section 139(1) had expired on or about
30th June, 1994 and the return filed by Shibu Soren and for that matter by
JMM party relating to assessment year 1995-96 was not under Section
139(1) of the Act.

23.      In the present case, the block assessment period in the case of
individual assessees, as noticed above, is 1st February, 1986 to 27th
September, 1996, the date of search being 26 th September, 1996. Thus, the
date of search was after the application of the retrospective amendments
with effect from 1st July, 1995 made by the Finance Act, 2002. Decision
of the Supreme court in A.R. Enterprises (supra) would indicate that the
retrospective amendments w.e.f. 1st July, 1995 made by Finance Act, 2002,
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                  Page 24 of 59
were made applicable, as the search had taken place on 22nd February,
1996 and the undisclosed income pertained to the period relevant to the
assessment year 1995-96, the due date for filing of the return of which was
on or before 31st October, 1995. However, the question of retrospective
amendment and whether it would be applicable even for the period prior to
1st July, 1995, when the search had taken place after 1 st July, 1995, was not
specifically addressed and answered. Before us also neither the assessee
nor the Revenue had raised this contention. The order of the Tribunal is
also silent in this regard.

Whether additions made relate to undisclosed income? Reasoning of
the Tribunal and the errors made.

24.      As has been noticed above, undisclosed income with reference to the
bank accounts pertain to entries made during the period relevant to the
assessment year 1994-95, i.e. the year ending 31st March, 1994 or even
earlier as in the case of Suraj Mandal.                      However, for these years regular
returns of income were not filed. As held in earlier paragraphs in view of
earlier clause ,,c and substituted clause ,,c and ,,ca to Section 158BB(1),
the failure to file return of income for the relevant year, the due date of
which had expired, would have its consequences and if the individual had
"undisclosed income" which was taxable, Chapter XIV-B procedure would
apply. In view of the earlier discussion, it has to be held that in view of the
amended provisions as well as unamended provisions, legal conclusions
and finding of the Tribunal are incorrect. In the subsequent paragraphs we
will examine and answer whether the findings of the Tribunal can be
sustained, on the ground that "undisclosed income" became "disclosed"
when the Revenue became aware of the "undisclosed income" as the bank
accounts and the entries therein had come to their information and
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                          Page 25 of 59
knowledge. Reliance was placed on the fact that in the statements of
individual assessee recorded before the date of search, accounts were
acknowledged but it was claimed that the money deposited therein was
sourced from and belonged to JMM.

25.      This also requires us to examine the contention raised by the
respondent assessee, which has been upheld by the Tribunal, that no
material or evidence was found during the search and thus there was no
undisclosed income relatable to the block assessment period. The Tribunal
has upheld the said contention on the basis of statements on oath under
Section 131 of the Act, of Suraj Mandal, Shibu Soren and Simon Marandi
on 14th March, 1996 and that of Shailendra Mahto on 18th and 19th of
March, 1996 wherein the aforementioned individuals had deposed on the
amount lying in the various SB A/cs and FDRs maintained in the Punjab
National Bank, Nauroji Nagar, New Delhi.

26.      Section 132(1) of the Act authorizes search and seizure operations.
As per clause (a) search may be authorised when the designated authority
in consequence of information in his possession, has reason to believe that
a person concerned has not produced or caused to be produced books of
accounts or documents, i.e. he has omitted or failed to produce or caused to
be produced books of accounts and other documents, in response to notice
under Section 131(1) or 142(1) of the Act. Clause (b) expands the scope of
clause (a) to enable search of a person to whom summon or notice as
aforesaid has been or might be issued would not produce or cause to be
produced books of accounts or documents. A further requirement being
that the books of accounts or documents should be useful or relevant for
the proceedings under the Act. Clause (c) deals with third set of cases

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012         Page 26 of 59
where a person is in a possession of money, bullion, jewellery or any other
valuable article or thing which wholly or partly represents income or
property which has not been or would not be disclosed. The expression
,,would not be disclosed was added by Taxation Laws (Amendment) Act,
1975 with effect from 1st October, 1975. Clause (c) does not deal with
books of accounts or documents but with income and property whereas
books of accounts and documents are referred to in sub-clauses (a) and (b).
Legality of a search cannot be examined by the Tribunal or during the
course of assessment proceedings and this court while exercising
jurisdiction as an appellate forum has to assume that the search was valid.
Validity of search can be examined under writ jurisdiction as an order or
warrant of search under Section 132 is an administrative order and is not
amenable to correction or challenge in the appellate proceedings under the
Act. Further, the search under Section 132 can be assessee based as well as
premises based as is clear from clause (i) to Section 132 (1) which
authorizes entry and search in any building, place etc. It is obvious that a
search can be assessee based.                      In the present case, accounts of the
respondent individual assessees in Punjab National Bank, Naoroji Nagar,
New Delhi (PNB, for short) were subjected to search. In a way, therefore,
it was a premises based search relating to the assessee in question. In
paragraph 30 of the impugned order, the Tribunal has held as under:-

              "In the present case, the search was conducted only on
              various bank accounts of these assesses with PNB,
              Nauroji Nagar, New Delhi, and details of such FDR
              and saving bank account which were subjected to
              search are noted by the A.O. on page 7 of the
              assessment order in the case of Shri Shibhu Soren. This
              table has been reproduced by us in para 2 above.
              Hence, in our consider opinion, all other additions
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                    Page 27 of 59
              made by the A.O., in the Block assessment of these four
              persons are liable to be deleted for this reason alone
              that these are not based on evidence count as a result of
              search and there is no requisition of books of accounts
              and other documents in the present case. All these other
              additions are made on the basis of material and
              information available with the A.O. as per post search
              enquiry but these other material and information are
              not shown to be relatable to any alleged evidence
              found in the course of search and hence, all other
              additions made by the A.O. in these Block assessment
              orders are not sustainable. We are taking this view by
              respectfully following various judgement of Hon'ble
              High Court of Delhi cited by Ld. AR as has been noted
              by us in para 14 above..."
27.      Before we deal with the said findings we would also like to
reproduce paragraphs 32 to 37 of the impugned order passed by the
Tribunal:-

              "32. Now, regarding the addition made by the A.O.
              with reference to deposits in various bank accounts and
              FDRs with PNB, Nauroji Nagar, New Delhi, there are
              two relevant aspects. One aspect is this that whether the
              money deposited in the bank is income of the assessee
              and the second aspect is this that even if it accepted
              that the money deposited in these bank accounts and
              FDRs is income of the assessee, whether such income
              can be added in the Block assessment. Regarding the
              first aspect, this is the explanation given by the Ld. AR
              on merits of this addition that the amounts deposited in
              these bank accounts is the money of the party i.e.
              Jharkhand Mukti Morcha (JMM) and not of the assesse
              and hence, no addition is called for on account of these
              deposits in PNB, Nauroji Nagar, New Delhi also.
              Before deciding this aspects, we feel that second aspect
              is needed to be decided first and the first aspect will be
              require to be decided only if is found that addition can
              be made in the Block assessment in respect of these
              deposits in the bank even if it is accepted that it is
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                 Page 28 of 59
              income of the assessee. Hence, we proceed to decide
              the second aspect first and for doing so, we assume that
              the money deposited in, Nauroji Nagar branch of PNB
              represents income of the assessee.

              33.       Regarding this aspect that no addition can be
              made in Block assessment with respect to various
              deposits in Nauroji Nagar branch of PNB even if it is
              an income of the assessee, we first take note of facts of
              the present case, which are, relevant for deciding this
              aspect. It was submitted by the Learned A.R. of the
              assessee that these bank accounts were duly disclosed
              by the assesses in the statement recorded by ADI
              (Investigation) under section 131 of the Income Tax
              Act, 1961 on 14.03.1996 and on other dates of March
              1996. It is submitted that a copy of these statements
              given by these four persons is available on record and
              an English version of these statement is also famished
              in the paper book. It is submitted that in reply to
              Question No. 3, it was stated by Shri Shibhu Soren that
              he has two bank accounts out of which one is in PNB,
              Nauroji Nagar, New Delhi and other is in State Bank of
              India, Sansad Bhavan, New Delhi. It was also stated by
              him that his wife has no bank account and he does not
              know of any bank account of his younger son. The
              other Question was as to whether he can explain the
              source of these bank accounts. FDRs and investment in
              the car and in reply, it was submitted that FDR of Rs.
              30 lacs in his name and other FDR of Rs. 30 lacs in the
              name of himself and three other MPs are out of the
              funds of JMM Party. It was also submitted that similar
              statement was recorded of Shri Simon Marandi also by
              the ADI (Investigation) on the same date i.e.
              14.03.1996 and he also stated in reply to Question No.
              10 that he has one bank account in his name with PNB,
              Nauroji Nagar, New Delhi. It was also stated that he
              does not remember the account number and there is one
              more account in the same branch of PNB which is in
              the joint name of himself, Shri Shibhu Soren, MP, Shri
              Suraj Mandal, MP and Shri Shailandra Mahto, MP and
              it was also submitted that copies of bank statement of
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                Page 29 of 59
              both these bank accounts will be supplied within one
              month and if there is any other bank account in addition
              to these two bank accounts, he will send the copy of
              such bank accounts also. When this question was
              raised, as to what are the details of FDRs with PNB,
              Nauroji Nagar, New Delhi as per Question No. 11, it
              was submitted in reply that complete details will be
              provided within one month. One more question was
              raised as per the information of the department he has
              deposited on 01.08.1993, Rs. 12 lacs and Rs. 21 lacs
              with PNB, Nauroji Nagar, New Delhi, in FDR and
              there is deposit of Rs. 10,000/- in a joint saving bank
              account number 18914 in the joint name of Shri
              Shibhu Soren, Shri Simon Marandi and Shri
              Shailendra Mahto and there is one FDR No. 195, of
              Rs. 30 lacs in the joint name of these four persons. In
              reply, it was submitted that these are the money of
              JMM Party which are lying in the joint saving bank
              account and joint FDRs in the name of four MPs and
              also the FD in his personal name.

              34. When this query was raised as to why the amount
              in question was not deposited in the bank account in
              the account of the party JMM, it was submitted in
              reply that it was done as per the decision of the party
              which was taken prior to 01.08.1993. This query was
              also raised as to from where the money came with the
              party, and in reply, it was submitted that they are
              running agitation for separate Jharkhand state and for
              this purpose, they are getting donation in this respect
              and as per the decision of the party, the money was
              deposited in their personal accounts. This query was
              also raised as to whether they have names and
              addresses of the persons who have given the donation
              to the party and in reply, it was submitted that there
              are coupons and receipts and they have the names of
              MLAs, MPs, etc. who collected these donations from
              the general public but they do not have individual
              names of the public.


ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012               Page 30 of 59
              35.       Statement of Shri Shailendra Mahto was also
              recorded by ADI (Investigation) under section 131 on
              18.03.1996. In that statement, in reply to Question No.
              3, it was submitted by Shri Shailendra Mahto that there
              is one bank account with State Bank of India,
              Parliament Annexe, New Delhi which is in his name
              and it was opened in the year 1990 when he was
              elected as MP. It was also submitted that there is one
              saving bank account No. 18983 with PNB, Nauroji
              Nagar, New Delhi and this is in his name and was
              opened on 27.08.1993. It was also submitted that he
              has asked for statement from the bank and he can give
              the details after going through the bank statement.
              When query was raised regarding FDRs with the bank
              it was submitted that there is one FDR at PNB, Nauroji
              Nagar, New Delhi and the FDR No. is 196 dated
              01.08.1993 and it was also submitted that an amount of
              Rs. 39.80 lacs was deposited in the FDR and
              subsequently on 08.10.1993 an amount of Rs. 20 lacs
              was transferred from his FDR account to saving bank
              account No. 18983. When he was regarding the source
              of the deposits of Rs. 39.80 lacs in the FDR it was
              replied that this money is belonging to the JMM Party
              and the same was collected by the party as donation in
              various public meetings and since he was General
              Secretary of the party, this amount was deposited in his
              name in the bank.

              36.      Similarly, statement of Shri Suraj Mandal was
              also recorded by ADI (Investigation), New Delhi under
              section 131 on 14.03.1996. Question No. 4 was
              regarding details of bank accounts of himself and his
              family members. In reply he has narrated full details of
              various bank accounts which include even account
              with State Bank of India, Karmatand which is in his
              name and there is one account with State Bank of India
              at Patna, Vidhan Sabha Branch in which his salary as
              MLA was being deposited. It was also submitted that
              there is one account with the State Bank of India,
              Godda Branch and it was also submitted that there is
              one account with State Bank of India, Sansad Bhavan
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012               Page 31 of 59
              branch where his salary as MP was being deposited. It
              was also submitted that there is one saving bank
              account in his name with PNB, Nauroji Nagar, New
              Delhi in which the money lying was of JMM Party. It
              was also submitted that there is joint saving bank
              account with PNB, Nauroji Nagar, New Delhi which is
              in joint name four JMM MPs. It was also submitted
              that there is one FDR in his hand and in the name of
              his wife at SBI Karmatand and 2nd FDR with PNB in
              the joint name of himself and other three JMM MPs.
              When the question was raised regarding the balance in
              various bank accounts, it was stated by him regarding
              SBI Karmatand, SBI Vidhan Sabha Branch and SBI
              Godda and SBI Sansad Bhavan Branch. Regarding
              PNB, Nauroji Nagar, New Delhi, it was submitted that
              in that account, Rs. 46 lacs was deposited in the year
              1993 which may be around Rs. 52 lacs on the date of
              statement after including interest and this money is
              belonging to the party, i.e., JMM Party. It was also
              stated that there is one joint account with same branch
              of PNB in the joint name of four MPs and Rs. 10,000/-
              was deposited in the bank account in the beginning.

              37. From the above narration of these four statements
              recorded by ADI (Investigation) in March, 1996, i.e.,
              prior to the date of search, it is clear that all these four
              MPs have clearly brought out relevant facts and they
              have duly disclosed the fact of various bank accounts
              with PNB, Nauroji Nagar, New Delhi and from some of
              the statements, it is also coming out that even before the
              statements were recorded, concrete information was
              available with the department regarding the existence of
              these bank accounts, amounts and money deposited in
              these bank accounts along with relevant dates of such
              deposits because in some of the question itself, details
              of the bank account along with date and amount of
              money deposited etc. were stated and query was raised
              for its source etc. and these facts show that full details
              were available with the department."


ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                   Page 32 of 59
28.      The aforesaid reasoning of the Tribunal is core of the impugned
decision and would indicate that the Tribunal has only decided the second
aspect, i.e. whether or not the deposits in Punjab National Bank, Naoroji
Nagar, New Delhi could have been made subject matter of addition as
undisclosed income in the block assessment proceedings.             Thereafter,
reference was made to statements recorded under Section 131 on 14th
March, 1996 and on 18th and 19th of March, 1996. The gists of the
statements given by different assessees have been quoted. What is clearly
noticeable is that the assessees throughout had pleaded and claimed that the
money deposited in the bank accounts did not belong to them but was
money of JMM. Thus, the Tribunal has come to the conclusion that before
the date of search, the full relevant facts had been brought to and duly
disclosed and, therefore, the deposits would not and cannot be treated as
undisclosed income under Section 158B(b) read with Section 158BB.
According to us, the aforesaid conclusion of the Tribunal is clearly
fallacious for several reasons which are elucidated below:-

      (1) Statements recorded under Section 131 of the Act were pre-cursor to
         the search and cannot be read in isolation without reference to
         attending circumstances. The attending circumstances in the present
         case were that no return of income had been filed by the individual
         assessees for the block period except return by Shibu Soren for the
         assessment year 1994-95 which was filed on 31st March, 1996 under
         Section 139(4), i.e. beyond the time or due date and a few days
         before search. Enquiries had then started.

      (2) The stand taken by each of the four individual assessees, was that the
         money in the FDRs and SB A/cs did not belong to them but
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012            Page 33 of 59
         belonged to JMM, a political party. The said factum had to be
         verified and ascertained. In case the money belonged to four
         assessees, it would be their undisclosed income. In addition, the
         legal effect and impact of Section 158BB, when no return of income
         has been filed, as elucidated by the Supreme Court in the case of
         A.R. Enterprises (supra) is to the contrary.
    (3) If evidence and material found during search and subsequent
         enquiries established that the money belonged to the individual
         assessee, and not JMM, the amount would be undisclosed income
         under Section 158B(b) of the Act.
    (4) A factual impact or consequence of a search is to unearth
         material/evidence and ascertain true and correct facts. In spite of the
         statements recorded under Section 131 of the Act, it is not unusual or
         uncommon for an assessee to change his stand and stance during the
         course of the assessment proceedings. Further the truth or veracity of
         the statements, had to be verified i.e. whether the money belonged to
         the individual assessees or to a political party JMM. This required
         evidence like examination and verification of entries in the Bank
         Accounts; the beneficiaries who were recipients/credited money
         from the bank accounts; how was the money utilized; whether the
         individual assessees or their family members were also beneficiaries
         of utilization etc. This required documents and evidence. This aspect
         was highlighted and was argued on behalf of the Revenue before the
         Tribunal as is ascertainable from paragraph 24 of the impugned
         order wherein the contention of the Revneue was noticed. For the
         sake of convenience we are reproducing paragraph 24 of the
         impugned order:-

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012            Page 34 of 59
              "24. Regarding this contention that the income as
              already disclosed under section 131 on 14.03.1996 and
              hence there is no undisclosed income, it was submitted
              by her that statement made under section 131 of the
              Income Tax Act, 1961 during pre search inquiry which
              resulted in issuance of search warrant cannot be deemed
              to be true and full disclosure of undisclosed income and
              the same in any case is not true and full disclosure. She
              submitted that as per Section 158B(b)undisclosed
              income is gold, bullion, money etc. or income which has
              not been or would have not been disclosed for the
              purpose of the act. She submitted that admittedly, no
              return has ever been filed by these assessee and thus,
              there is no question of lying disclosed in the present
              cases. She submitted that mere statement as a part of pre
              search inquiry cannot amount to disclosure of income
              possessed by the assessee chargeable to tax. She
              submitted that the main issue is whether such income
              was ever disclosed by the assessee at any stage."

      (5) Noticeably, JMM had not filed income tax returns for any of the
         assessment years subject matter of the block assessment order,
         except return filed on 12th July, 1996 in response to the notice under
         Section 148 of the Act that relating to the assessment years 1992-93
         and 1993-94. As far as the individual assessees are concerned, none
         of them filed the income tax returns under Section 139 apart from
         Shibu Soren who filed a return for the assessment year 1994-95 on
         31st March, 1996 under Section 139(4), i.e. belated return. This
         return was subsequently revised on 23rd April, 1996 i.e. 3 days
         before the search at Punjab National Bank, Nauroji Nagar, New
         Delhi which was made on 26th April, 1996.

29.      In continuation of the said searches in the case of individual
assessee, search and seizure operations under Section 132(1) of the Act
were conducted at the office and residential premises of M/s Anjali Jain &
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                Page 35 of 59
Associates, Chartered Accountants, located at Ranchi, Patna and other
places in Bihar and Jharkhand where books of accounts of the political
party JMM were seized. The JMM was issued notice under Section 158BD
of the Act on 20th January, 1997.                      The block assessment order under
Section 158BD read with Section 158BC records that JMMs income for
block period was protectively assessed at Rs.2,36,19,160/- out of which
Rs.1,29,98,449/- was assessed on protective basis in the regular assessment
proceedings for the assessment year 1994-95 and the balance amount of
Rs.1,06,20,711/- was assessed as undisclosed income for the block period.

30.      The assessment order in the case of individual assessees record the
basis and reasons that the money in the SB A/cs and FDRs did not belong
to JMM, who had claimed that the money was received as donations.
Reasons given by the Assessing Officer were based on the search
material/evidence which included material/evidence collected during and
after the search at M/s Anjali Jain & Associates. These can be crystallised
as under:-

      (A)JMM Party did not require money for party activities in Delhi;
      (B) There was no justification in opening bank account in the individual
         names, if the money belonged to the party;
      (C) Shailendra Mahto in his statement under Section 164 of the Code of
         Criminal Procedure, 1973 before the Metropolitan Magistrate
         accepted that money in his SB A/cs and FDRs belonged to him and
         was received for voting in the Parliament in the no confidence
         motion moved in July, 1993. He also accepted that Suraj Mandal
         and Shibu Soren had received similar amounts;


ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                     Page 36 of 59
    (D) The purported resolution passed by JMM on 11th July, 1993, was
         disbelieved for various reasons including (a) there was no reason
         and cause for JMM to give personal loan to individuals; (b) no
         interest had been paid; (c) alleged resolution for loan was self-
         serving and belatedly attested thus indicating that it was a sham and
         was "introduced" subsequently; (d) books of accounts of JMM did
         not reveal any loan account; (e) in the return filed by JMM on 31st
         March, 1996 for assessment year 1994-95, Rs.30,00,000/- relating to
         FDRs in the joint holding of the four ,,individual assessees was not
         included; (f) Sushil Kumar who had introduced the four ,,individual
         assessees to the bank, in his statement had confessed that the money
         was brought in suitcase which carried slips of Canara Bank,
         Bangalore, hence the money did not represent alleged donations; (g)
         donation slips as propounded were printed later on and not during
         the relevant period by M/s. Seth Art Printers. M/s R.R. Papers
         Stores, Bokaro could not have printed the donation slips as
         suggested; (h) donation receipts did not mention names of the person
         who had received the donation or the name of the donor; (i) one S.
         Bhattacharya who had joined JMM in April, 1994, could not have
         handled the donations in July, 1993 as was pleaded; (j) Ms. Anjali
         Jain, CA had accepted and admitted that she did not verify the
         donation coupons. (k) books of accounts etc. including the cash
         books allegedly recovered and seized were prepared and written
         belatedly and were not contemporaneously recorded; (l) cash books
         for assessment years 1993-94 consisted of three sets, locally bound.
         It bore signature of S. Bhattacharya dated 2nd April, 1993 whereas he
         had joined the party in April, 1994. In some entries in the cash book

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012          Page 37 of 59
         for the financial year 1993-94, the year mentioned and written was
         1995; (m) The Central Forensic Science Laboratory (CFSL) report
         revealed and opined that the ledger and cash book were interpolated.

31.      We would now, like to reproduce paragraph 29 of the impugned
order which reads as under:-

              "29.      We have considered the rival submissions,
              perused the material on record and have gone through
              the judgements cited by both the sides. As per the
              provisions of section 158BA (2) and its Explanation,
              the Block assessment under chapter XIV-B is in
              addition to the regular assessment and if any addition is
              made in such regular assessment or is required to be or
              is eligible to be made in the regular assessment then
              such income cannot, be added in the Block assessment
              . This is by now, a settled position of law that in the
              case of Block assessment proceedings, addition can be
              made on the basis of evidence found as a result of
              search or requisition of books of accounts or other
              material and such other material or information which
              are available with the A.O. and are relatable to such
              evidence found as a result of search- he is also a settled
              position by now that for the purpose of addition in the
              block assessment under chapter XIV-B, which will
              result into levy of higher rate of tax of 60%,
              incriminating material found in course of search is to
              be considered and not each and every thing found in
              course of search. For example, regular books of
              account maintained by a businessman are also found in
              course of search but those books are not considered to
              be incriminating material because existence of regular
              books is in the knowledge the revenue although its
              contents are not known to the revenue. But still, in
              relation to entries in those books, no addition is to be
              made in the Block assessment and addition, if any, is to
              be made in regular assessment only. This is also a
              settled position that whether regular assessment is
              actually made or not or whether any addition in
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                 Page 38 of 59
              regular assessment made or not is also not relevant
              and if any addition is required to be made in regular
              assessment, it cannot be added in Block assessment
              only for this reason that no regular assessment was
              made or that no addition was made in such regular
              assessment. In the present case, neither any return of
              income was filed by the assessee under section 139
              nor any notice was issued by the concerned A.O.
              under section 142(1) or under section 148 asking the
              assessee to file a return of income and only notice
              issued was under section 158BC. In the backdrop of
              this legal and factual position, now we examine the
              other facts of the present case."
32.      We would like to deal with the said reasoning sentence wise and in
detail. Observation that the block assessment is in addition to regular
assessment is correct, but the finding that any addition is required to be or
is eligible to be made in the regular assessment cannot be added in the
block assessment as a universal affirmative proposition is incorrect. It
would depend upon whether or not the income concerned is undisclosed
income as defined in Section 158B(b) read with applicable subsection to
Section 158BB of the Act. We have already dealt with the observations of
the Tribunal and highlighted the ratio decidendi of the decision of the
Supreme Court in A.R. Enterprises (supra). As recorded above, Section
158B(b) is to be read along with applicable clause of Section 158BB of the
Act. Similarly, the observations with regard to regular books of accounts
would depend upon the factual position. In the present case, no books of
accounts were maintained by the individual assessee and books of accounts
maintained by JMM party have been subject matter of severe adverse
comments and observations as to their authenticity. In A.R. Enterprises
(surpa), it has been clearly observed that books of accounts might be
relevant with reference to the year in which search had taken place or
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012             Page 39 of 59
where there was still time to file the return of income for the concerned
assessment year. It might be relevant were the return of income for the
period included in the block assessment stands filed. However, where due
date for filing of the return has expired, consequences may be different.
Similarly, observation whether the regular assessment was actually made
or not, is not uniformly correct and would depend upon the facts whether
the due date of filing of return under Section 139(1) has expired but no
return of income has been filed, as non-filing of return may have its own
consequence. Nature and source of money on how it was earned,
explanation offered etc. would also make a considerable difference. In a
given case, depending upon the factual matrix, it could represent
undisclosed income. This aspect has not been considered and regarded by
the Tribunal though it is noticed that no return under Section 139(1) had
been filed by the individual assessees.

33.      Thus, there is a fundamental fallacy in the reasoning given by the
Tribunal to hold that no addition could have been made in the block
assessment proceedings for want of undisclosed income. The Tribunal
ignored the position that the four individual assessees had not filed returns
of income and therefore, Section 158BB(1) clause(ca) of the Act would be
attracted. The said clause has to be harmoniously read with Section
158B(b) of the Act. Further statements of the four individual assessees were
recorded on 14th March,1996/19th March,1996, but they, i.e. the ,,individual
assessees had claimed that the money lying in the SB A/cs or the FDRs
belonged to JMM and did not belong to them. Thus, the factum that the
details of SB A/cs and the FDRs were made available would not make any
difference. The search undertaken had revealed several incriminating
evidence/material relating to the opening and operation of bank accounts
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012         Page 40 of 59
and on how the money was utilized, etc. These details were relevant to
examine and consider the contention of the respondent individual assessee
that the money did not belong to them but to the political party, JMM. It
would be, therefore, incorrect or improper to state that the search did not
reveal or unearth relevant material or evidence relating to undisclosed
income as defined under Section 158B(b) of the Act.

34.      This takes us to the judgments relied upon by the counsel for the
assessee and we would like to examine whether the findings recorded
above deviate from the legal position elucidated in these judgments in light
of the decision of the Supreme Court in A.R. Enterprises (supra). We
would first begin with the judgment of the Gujarat High Court in N.R.
Paper and Board Ltd. & Ors. (supra). At the outset, we notice that this
judgment does not take into consideration the retrospective amendment
made by Finance Act 2002 w.r.e.f. 1st July, 1995. In the said case, writ
petitions were filed by persons who had been subjected to search and
block assessment orders, on the ground that once block assessment orders
had been passed, notice under Section 143(2) of the Act, for regular/normal
assessment cannot be issued and sustained. The High Court held that there
could be both regular or normal assessment and assessments under Chapter
XIV B of the Act, recording the reason that Chapter XIV-B was a specific
provision in search cases and provides for assessment of undisclosed
income as a result of search, and these proceedings do not disturb the
regular/normal proceedings already made for previous year.            Block
assessment proceeding were only intended to sniff out what had remained
hidden and had not been disclosed by the assessee.           There was no
overlapping in the nature of block assessment made of undisclosed income
and regular/normal assessment under Section 143 (3) of the Act. Specific
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012        Page 41 of 59
reference was made to sub-section (2) to Section 158BA of the Act.
Similarly with regard to the pending regular assessment proceedings, it was
stated that they would not be frozen or substituted by block assessment of
undisclosed income. The aforesaid observations will be applicable for the
period even after 1st July, 1995, subject to the legislative intendment to the
contrary on the scope and ambit of the block assessment in view of the
amended provisions as has been observed by the Supreme Court in A.R.
Enterprises (supra). Further, in the case of individual assessees, there were
no pending proceedings on the date when the block assessment notice was
served and it in this context that the decision of the Supreme Court in A.R.
Enterprises (supra) is more apposite. N.R. Paper & Board Ltd. (supra) did
not deal with the situation where no return of income had been filed and
due date of filing of return for the said period had expired. It is clear that
the Gujarat High Court in the said case was not examining the legal
consequence and scope and ambit of undisclosed income in such cases,
which is clear from the following paragraphs:

           "If the pending regular assessment proceedings were to be
           frozen and got substituted by the assessment of the
           undisclosed income of the block period, the Legislature
           would have been specific on that aspect and would have
           made it clear that the pending regular assessment proceedings
           should be dropped. The provisions of this Chapter do not
           either expressly or by necessary implication even remotely
           indicate that the regular assessment proceedings of a previous
           year covered in the block period, were required to be stayed
           or dropped or substituted by the proceedings of this Chapter.

              Under sub-section (3) of section 158BA, where the
              date of filing the return of income under section 139(1)
              for any previous year has not expired, and the income
              of that previous year or the transactions relating to such
              income are duly recorded, then such income is not
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                 Page 42 of 59
              required to be included in the block period. This
              obviously means that the regular assessment of that
              previous year which has remained pending, will
              proceed notwithstanding that it was falling in the block
              period. The same would be the case where the block
              period includes only a part of the previous year of
              which the return is filed for regular assessment, and the
              regular assessment can proceed notwithstanding that
              the undisclosed income for a part of that previous year
              was within the block period."




35.      There is another reason why we have referred to the decision in N.R.
Paper & Board Ltd. (supra) at the first instance. The Tribunal in the
impugned order has specifically referred and quoted the following passage
from the decision of the Supreme Court in L.R. Gupta and Ors. Vs. Union
of India & Ors. [1992] 194 ITR 32 :-

              "Sub-clause (c) refers to money, bullion or jewellery or
              other valuable articles which, either wholly or partly,
              should have been the income of an assessee which has
              not been disclosed for the purpose of the Act. The said
              sub-clause pertains only to movable and not
              immovable assets. Secondly, it pertains to those assets
              which, wholly or partly, represent what should have
              been his income. The expression income "which has
              not been, or would not be, disclosed for the purposes
              of the Income-tax Act" would mean that income which
              is liable to tax but which the assessee has not returned
              in his income-tax return or made known to the Income-
              tax Department. The sub-clause itself refers to this as
              "undisclosed income or property". In our opinion, the
              words "undisclosed", in that context, must mean
              income which is hidden from the Department. Clause
              (c) would refer to cases where the assessee knows that
              the movable asset is income or represents income
              which is taxable but which asset is not disclosed to the
              Department for the purpose of taxation. Those assets
              must be or represent hidden or secreted funds or assets.
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                Page 43 of 59
              Where, however, the existence of the money or asset is
              known to the Income-tax Department and where the
              case of the assessee is that the said money or valuable
              asset is not liable to be taxed, then, in our opinion, the
              provisions of sub-clause (c) of section 132(1) would
              not be attracted. An assessee is under no obligation to
              disclose in his return of income all the moneys which
              are received by him which do not partake of the
              character of income or income liable to tax. If an
              assessee receives, admittedly, a gift from a relation or
              earns agricultural income which is not subject to tax,
              then he would not be liable to show receipt of that
              money in his income-tax return. Non-disclosure of the
              same would not attract the provisions of section 132
              (1) (c). It may be that the opinion of the assessee that
              the receipt of such amount is not taxable may be
              incorrect and, in law, the same may be taxable but
              where the Department is aware of the existence of such
              an asset or the receipt of such an income by the
              assessee, then the Department may be fully justified in
              issuing a notice under section 148 of the Act, but no
              action can be taken under section 132(1)(c). An
              authorisation under section 132(1) can be issued if
              there is a reasonable belief that the assessee does not
              want the Income-tax Department to know about the
              existence of such income or asset in an effort to escape
              assessment. Section 132(1)(c) has been incorporated in
              order to enable the Department to take physical
              possession of those movable properties or articles
              which are or represent undisclosed             income or
              property. The words "undisclosed income" must mean
              income which is liable to be taxed under the provisions
              of the Income-tax Act but which has not been disclosed
              by an assessee in an effort to escape assessment. "Not
              disclosed" must mean the intention of the assessee to
              hide the existence of the income or the asset from the
              Income-tax Department while being aware that the
              same is rightly taxable."



ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                 Page 44 of 59
36.      L.R. Gupta's case (supra) related to validity of search under Section
132 and whether pre-conditions stipulated in sub-section (1) clauses (a), (b)
and (c) were satisfied. While examining clause (c) to Section 132(1) of the
Act, the Supreme Court observed that what was disclosed and was known
to the department was not hidden and could not be treated as undisclosed
income, either wholly or partly. The said observations were made in the
context of clause (c) to Section 132(1) of the Act. Search and seizure has
serious and deleterious consequences as it impinges on the right of privacy.
In N.R. Paper and Board Ltd. (supra), reference was also made to clause
(c) to Section 132(1) and similarity of the two expressions ,,undisclosed
income or property mentioned in Section 132(1) clause ,,c and Section
158B(b) of the Act was duly noticed but the Bench clarified that "the
concept of undisclosed income as defined in clause (b) to Section 158B of
the Act, is however, wider and different as we will later notice" (see page
740 of the ITR publication). The said sentence, however, it appears was
not highlighted before the Tribunal and, therefore, not considered. Thus
this decision holds that it would not be correct to apply the ratio or
reasoning in the aforesaid paragraph of L.R. Gupta (supra) to the block
assessment. This is correct and right as the scope and confines of block
assessment has been highlighted by the Supreme Court in A.R. Enterprise
(supra) and is broader and wider. Section 158B(b) has to be read with
158BB(1) harmoniously. Apposite would be to refer to the following
observations in N.R. Paper & Board Ltd. (supra), which read:

           "In cases where appeals, revisions and references are decided
           from regular assessment orders of the previous years included
           in the block period, the decisions may have the effect of
           disturbing the assessment made by the Assessing Officer. The
           provisions of sub-sections (1) and (2) of section 153,
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012          Page 45 of 59
           prescribing the time limit for making orders of assessment do
           not apply to assessments, reassessments or recomputations
           made in consequence of or to give effect to any finding or
           direction contained in an order made under section 250, 254,
           260, 262, 263 or 264 or in an order of any court in a
           proceeding otherwise than by way of appeal or reference as
           laid down in section 153(3)(ii) of the Act. Obviously,
           therefore, the regular assessment already made will have to be
           brought in tune with such orders or may even have to be done
           de novo, if so ordered, in which event it would amount to a
           regular assessment still pending. For example under section
           251, the Commissioner of Income-tax (Appeals) may confirm,
           reduce, enhance or annul the assessment or he may set aside
           the assessment and refer the case back to the Assessing
           Officer for making a fresh assessment. The Tribunal has, in
           deciding appeals, wide powers to pass orders thereon as it
           thinks fit, as provided in section 254(1). After decision on the
           questions of law by the High Court or the Supreme Court, the
           Tribunal has to pass such orders as are necessary to dispose of
           the case conformably to such judgment, as provided in section
           260 of the Act. The Commissioner also has revisional powers
           under section 263 to enhance or modify the assessment, or
           cancel it and direct a fresh assessment. All these may entail
           changes in the original assessment or fresh regular
           assessments in respect of the previous years falling in the
           block period. The fact that block assessment of undisclosed
           income is pending or is made, will not take away all these
           statutory powers, the exercise of which would affect the
           regular assessments already made or may entail fresh regular
           assessment for a previous year falling in the block period for
           assessment of undisclosed income. It would produce startling
           results of denuding all these authorities of their statutory
           powers in respect of the regular assessments made or to be
           made for the previous years falling in the block period. That
           surely is not intended by the Legislature and no such
           disastrous result is contemplated by introducing special
           procedure for assessment of searchcases in Chapter XIV-B.
           The special procedure for assessment of undisclosed income
           as a result of search, which is intended to target that income or
           property which has not been or would not have been disclosed
           for the purposes of the Act, is not meant to provide an
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012             Page 46 of 59
           insulation to such assessees from the consequences of regular
           assessments made or to be made for any previous year falling
           under the block period. The powers of regular assessment are
           kept intact and so are all the appellate, revisional and other
           powers affecting such regular assessment and all the statutory
           consequences flowing from the exercise of such powers
           would follow along side of this special assessment procedure
           devised for dealing with the undisclosed income as a result of
           search. It, therefore, follows that in the inquiry under section
           143(3) for regular assessment which was pending when the
           block assessment was made, the Assessing Officer who
           comes across evidence and material which was not found or
           made available in the process of block assessment, cannot
           ignore the same and he will be duty bound to make the
           regular assessment taking into account such evidence and
           material gathered in the enquiry under section 143(3) to
           ensure that proper assessment of total income is made and tax
           determined on the basis of such assessment. An assessee who
           had not disclosed and did not intend to disclose income or
           property, which fact is detected in the search, cannot acquire
           immunity from being assessed to still other income or
           property which did not come to surface as his undisclosed
           income from the evidence found and material available at the
           time of the block assessment, but is now found by virtue of
           the enquiry made under section 143(2)(iii) of the Act for
           regular assessment showing that the assessee had understated
           the income or had computed excessive loss or underpaid tax
           even after taking into account the fact that his undisclosed
           income for the block period was separately assessed and
           taxed at the higher rate of 60 per cent was charged thereon.
           The immunity from levy of penalties attached to the
           undisclosed income determined in the block assessment have
           no relevance to the levy of interest and penalties that may
           follow the regular assessment in respect of understatement of
           income or computation of excessive loss made by the
           assessee, which are not relatable to the undisclosed income
           determined and taxed in the separate proceedings."

37.      The aforesaid paragraph notices that undisclosed income relating to
block period has to be taxed at 60% as per the rate prescribed under
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012            Page 47 of 59
Section 113 of the Act, irrespective of the fact whether regular assessment
for any one or more years was pending. Reference was specifically made
to the immunity from specified interest and penalty contemplated by
Section 158BF but only in respect of undisclosed income determined in the
block assessment and had no bearing on the assessment made otherwise i.e.
the regular/normal assessment. However, the legal position underwent a
change with the enactment of Section 158BFA by way of Income Tax
(Amendment) Act, 1997 w.e.f. 1st January, 1997 in respect of searches
undertaken under Section 132 or requisition under Section 132A on or after
1st January, 1997, authorising levy of interest and penalty in certain cases.
However, Section 158BFA would not be applicable as the search in the
present case was prior to 1st January, 1997.

38.      At this stage, we would now like to deal with and examine
judgments of the Delhi High Court. In CIT vs. Ravi Kant Jain [2001] 250
ITR 141 (Del), this Court dismissed the appeal filed by the Revenue
holding that there was difference between regular assessment and block
assessment under Chapter XIV B. The Assessing Officer in the block
assessment order had proceeded without enumerating and really addressing
himself to the scope of Chapter XIV B and Section 158BB of the Act. He
had relied upon report of the special auditor who had given a different
colour to the existing facts/details which were already a subject matter of
regular/normal assessments of the relevant years. There was no search
material to justify and interfere with the regular assessments. It is clear
from the said decision that the court was dealing with the situation where
regular assessments were made dealing with certain aspects and the block
assessment order reversed the said findings recorded in the regular
assessments without there being any searched material to justify the
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012         Page 48 of 59
different stance. The only basis for reversing the regular assessment was
the report of the special auditor.

39.      In CIT vs. Vishal Aggarwal [2006] 283 ITR 236(Del), it was noticed
that the assessee had filed returns disclosing gifts and had furnished
necessary documents in support. There was search and seizure operation,
(it appears subsequently) in the premises of the assessees father, but no
incriminating material was found relating to the assessee. The Assessing
Officer had resorted to Section 158BC (possibly, read with Section
158BD) and treated the gift as concealed income and attempt at laundering
money. There was no material or information which was discovered to
indicate that the gifts were bogus and/or represented undisclosed income.
No such material information or document was found even in the post
search enquiry. Further the post search enquiry was unconnected with the
searched material or information. Thus, the gifts which had already been
declared in the returns filed, it was held were outside the preview of the
block assessment. This decision will not help the individual assessee in the
present case as we have noticed that they had not filed returns of income.
We have already referred to the material found as a result of search and
how and in what manner it related to the question whether income/entries
lying in bank accounts belonged to and represented undisclosed credit or
assets of the individual assessee.

40.      In CIT vs. Jupiter Builders Pvt. Ltd. [2006] 287 ITR 287 (Del),
there is a detailed discussion on the provisions of Chapter XIV B, and it
has been held that the said chapter was applicable to undisclosed income
i.e. income which had not been or would not have been disclosed and such
income should be unearthed as a result of search or requisition. The block

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012        Page 49 of 59
period in the said case was from 1987-88 to 1997-98, and the additions
related to the assessment years 1993-94, 1994-95, 1995-96 and 1997-98.
Addition of Rs.4,00,000/- relating to the assessment year 1993-94 was an
expense which had been debited in the Profit & Loss A/c, which was
accepted by the Revenue in the regular assessment. The assessee had also
produced documents and confirmations of the recipient. Similarly, in the
assessment year 1994-95, payments received from buyers and the receipts
and documents produced were duly noticed in the regular assessment. For
the aforesaid two years, no material was found during the search to show
that the accounts or entries of Rs.4,00,000/- each were bogus or were not
genuine. With regard to assessment year 1995-96, a wrong addition of
Rs.50,000/- was made and the same was deleted. Assessment year 1997-
98 was the year in which the search had taken place and in the block
assessment order addition of Rs.28,92,000/- was made. With regard to
addition of Rs.1,00,000/-, it was noticed that addition had been made in
case of a third party and the appellate authorities were justified in deleting
the addition in the hands of the assessee. Another addition of Rs.2,20,000/-,
it was noticed was deleted primarily on facts. The last addition of
Rs.25,00,000/- made on estimate basis towards unexplained investment in
immovable properties, was also deleted on the ground that it was based on
the report of the valuation officer and the assessee had relied upon proviso
to Section 142A that the Assessing Officer could not have referred the
matter for valuation. Since no valuation had been ordered, neither the
Assessing Officer was competent as an expert to make the assessment and
that too in proceedings under Chapter XIV-B. This court in the said case
has observed that Chapter XIV B was not concerned with the income
which has already been disclosed and in respect of which regular

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012          Page 50 of 59
assessment proceedings stood concluded, were pending or in respect of
which time for filing of return on the date of search/requisition had not
expired. In the last set of cases, entries should be duly recorded in the
books of account before the date of search. Thus block assessment
proceedings cannot be used as an opportunity to re-open, the concluded
assessment or reassess return of income by a fresh look at disclosed facts
and figures unless they were found to be false in the case of search or
requisition. In the present case, no return of income under Section 139(1)
of the Act was filed by the individual assessees and, therefore, there was no
disclosure of income. Further, facts were unearthed during the search and
related subsequent enquiries to show that the stand of the individual
assessees in the statements recorded under Section 131 of the Act were not
correct and rather false as per the assertions made by the Assessing Officer.
In Jupiter Builders Pvt. Ltd. (supra) it has been held that the regular
assessment proceedings and block assessment proceedings operate in
different fields, a legal ratio which is undisputed and with which we
respectfully agree. Further the term ,,undisclosed income stands for that
income which had not been disclosed or had been concealed and unearthed
or has nexus and relatable to information and material gathered in search
and subsequent enquiries thereafter. Scope and what should be treated as
,,undisputed income has to be determined with reference to Section 158B
clause (b) and 158BB of the Act. In the present case, as no return of
income had been filed under Section 139(1) and incriminating material was
found during the search,                as such "the undisclosed entries" would be
,,undisclosed in the light of the statutory provisions and as elucidated by
the Supreme Court in the case of A.R. Enterprise (supra).


ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012               Page 51 of 59
41.      In CIT vs. Vivek Dougall [2008] 305 ITR 270 (Del.), search was
conducted in the premises of a person named Gulati on 8 th July, 1999 and
certain documents were seized. Subsequently, a notice was issued to the
assessee in question under Section 158BC, who filed return declaring NIL
undisclosed income. However, much before the date of search, the assessee
had filed regular return for assessment year 1988-89 and had disclosed
certain amounts received as non-compete fee and claimed that they were
not chargeable to tax. In the block assessment proceedings, the Assessing
Officer brought the said amount to tax, holding that the same was actually
paid for change of shareholding and even otherwise ,,non compete fee was
a revenue receipt and, therefore, chargeable to tax. The court held that the
said addition could not have been made in the block assessment
proceedings as the entire facts were disclosed by the assessee well before
the search carried out in the premises of Gulati and, therefore, the same
could not have been made a subject matter of the block assessment but
could be examined only in the regular assessment. In the said case,
noticeably regular return of income had been filed disclosing full facts and
a position was taken. Nothing to indicate that the position taken or facts
stated were false was unearthed during the search. In the present case, no
return under Section 139(1) of the Act had been filed. Further,
incriminating material as per the Assessing Officer was found during the
course of search and has been relied upon in the block assessment order.

42.      In CIT vs. Mukesh Luthra [2011] 337 ITR 41 (Delhi), the Revenue
was successful in appeal filed before the High Court, as it was held that the
addition should have been made in the regular assessment proceedings and
not as ,,undisclosed income in the block assessment. In the said case,
search had taken place on 30th August, 2001 and the block assessment
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012         Page 52 of 59
order was passed on 31st October, 2003. Subsequently, during the course of
assessment proceedings/orders passed in the case of a third person, it was
observed and came to the knowledge of the Revenue that a concern stated
to be belonging to that third person was in fact a benami concern of the
searched person i.e. the respondent assessee in the appeal before the High
Court. Thereafter in the regular assessment order dated 27 th February,
2004, substantive addition on account of income earned from the benami
concern was made in the hands of the respondent assessee therein and
protective assessment was made in the assessment order passed in the case
of the third person. On appeal, these additions were deleted by the first
appellate authority and the order was confirmed by the Tribunal who held
that the issue should have been examined in the block assessment order and
not in the regular assessment. The merits of the addition were not
examined. This Court observed that during the search no evidence was
unearthed relating to the concern in question, to show that the assessee was
the benami owner and the income earned represented or was his income.
The Revenue, therefore, succeeded in the High Court on the basis that the
question of benami ownership came to the light and their knowledge after
passing of the block assessment order. In the said case, in fact proceedings
under Sections 147/148 were initiated pursuant to the said new information
and facts. The said decision is, therefore, clearly distinguishable and does
not support the case of respondent assessees herein.

43.      Now we would like to deal with the decisions of other High Courts
cited before us by the counsel for the assessee. CIT vs. Shambhulal C.
Bachkaiwala [2000] 245 ITR 488 (Guj.) follows the decision in N.R.
Paper and Board Ltd. (supra) pointing out distinction between undisclosed
income which could be made subject matter of block assessment
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012        Page 53 of 59
proceedings and normal income which could be a subject matter of the
regular assessment. In CIT vs. N.T. John [2003] 259 ITR 224, a Division
Bench of the Kerala High Court reversed the judgment of the Single Judge
reported as [1997] 228 ITR 214, relying upon N.R. Paper and Board Ltd.
(supra) and decision of the Calcutta High Court in Caltradeco Steel Sales
(P) Ltd. vs. Deputy CIT [2000] 243 ITR 643 (Cal), holding that Chapter
XIV-B was for assessment of undisclosed income found as a result of
search and assessment under Section 143(3) pertains to disclosed income,
i.e. income which has already been declared in the return or when it
pertains to the period for which due date of filing of return has not expired,
income was already included and shown in the books of accounts. This
judgment also does not, go against what we have held or support the
assessees contention. The Kerala High Court in CIT vs. Smt. C. Sabira
[2011] 338 ITR 226 (Ker.), went into several questions including the
addition made on estimation towards cost of construction in the block
assessment order. The assessee had duly shown the cost of construction in
the regular returns. It was observed that the undisclosed income must be
determined on the basis of undisclosed income unearthed during the search
and also which were relatable to such evidence. During the search, no such
material or information came to light to justify the finding about cost of
construction that was estimated. In the present case, we have noticed that
during the course of the search, as noticed in the block assessment orders,
several material/evidence came to light which would show that amounts
deposited or entries in the bank accounts belonged to the assessee and not
to the party, JMM. Further, individual assessees had not filed returns of
income for the relevant period, for which due date under Section 139(1)
had long lapsed.

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012          Page 54 of 59
44.      In the last, we will deal with three judgments of the Madras High
Court. In Commissioner of Income Tax versus G.K. Senniappan, (2006)
284 ITR 220 (Mad), the appeal filed by the Revenue was dismissed on the
ground that there was a pre-search survey in which incriminating material
was found but this material could not have been utilised in the block
assessment         proceedings.           The     reason      elucidated    being   that    this
material/information was available with the Revenue at the time of search.
With all due respect, we have reservations and cannot agree with the
aforesaid broad proposition. It is not uncommon or unknown that surveys
could and do lead to search operations, when conditions of sub-section (1)
to    Section       132      of     the     Act      are     satisfied.    Such   water    tight
compartmentalization and interpretation may not be justified, as search
operations are undertaken only when there is information or basis
regarding undisclosed income etc. Presence and knowledge of the said
perceptible information may well be a pre-requisite for conducting search.
Logically and as a sequitur if the ratio in G.K. Senniappan (supra) is
strictly applied, no block assessment can be made in respect of
information/material available at the time of search and even when this
information/material was the foundation of the search. In fact, when full
and complete details/documents are available, search may not be required
or necessitated. The expression "undisclosed income" would refer to the
disclosures made by the assessee in the form of return of income of the past
years or entries in the books of accounts and documents of the current year,
when due date has not expired. Something which is hidden and not
disclosed by the assessee, would not lose and forego its character as
undisclosed income because the Revenue authorities have come to know or
have collected some or partial information or details regarding the said

ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012                           Page 55 of 59
undisclosed income at any time before or prior to the search. However, if
the material found during the survey has nothing to do with the material
and evidence found during the course of search, the position may be
different, depending upon the factual matrix. Moreover, in the present case
there was no prior survey resulting in the search and we have already dealt
with the contention that statements under Section 131 of the Act were
recorded and whether this constituted information and knowledge to
comprehend and hold that "income" had been disclosed and have rejected
the said contention for the various reasons set out in paragraph Nos.28 to
30 above.

45.      Commissioner of Income Tax versus S. Ajit Kumar , (2008) 300
ITR 152 (Mad) was a case of a survey on an interior decorator/builder, who
had constructed the assessees house. The allegation was that the assessee
had paid more than Rs.95 lacs to the contractor/interior decorator in cash,
which was duly recorded in his books, but in the books of the assessee only
cheque payments were recorded. The search and the survey were
conducted on the same day, but the High Court held that at the time of the
search the factum that the house was constructed/built was known to the
Revenue and the factum that cash payments were made came to the
knowledge during the course of survey. It was held that the material or
information found during the course of survey operation, was not relatable
to any material found during the course of search. The High Court relied
upon the decision in the case of G.K. Senniappan (supra). Again with
respect, we have reservations on the ratio recorded in the said judgment on
the question of undisclosed income, which can be made subject matter of
block assessment. The fact that search and survey were conducted on the
same day showed that they were related. Undisclosed income can be
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012        Page 56 of 59
computed also on the basis of such other material or information as are
available with the Assessing Officer. This would and should include
information and material when search and survey operations are
undertaken at the same time, though it may not include survey operations
unconnected with the search. There could possibly be other exceptions
also. The answer would be case and fact specific. Even otherwise, as
noticed while examining the judgment in the case of G.K. Senniappan
(supra), the position in the present appeals is different as individual
assessee had not filed returns of income and hostile and culpable material
and information was found during the course of the search. These two
decisions were followed by the Madras High Court in Commissioner of
Income Tax versus P.K. Ganeshwar, (2009) 308 ITR 124 (Mad) though
the said judgment also makes reference to decision in Ravi Kant Jain
(supra) which we have already examined above. The assessee in his block
assessment return had declared Rs.36.10 lacs as undisclosed income.
However, in the block assessment order, Rs.2.56 crores were added,
relying upon investigation that followed the search as a letter was found
that led to discovery of fixed deposits in the name of fictitious persons
amounting to Rs.2.83 crores. The additions were deleted on the ground
that undisclosed income was not detected as a result of search but by
investigation which followed the search. In the said decision except for
following earlier judgments in S. Ajit Kumar and G.K. Senniappan B
(supra) does not lay down any ratio or observation, which detracts or
affects the legal conclusion and the findings recorded by us.

46.      In different paragraphs, we have dealt with the appeal in the case of
JMM. As noticed above, the Tribunal allowed the appeal of the assessee
JMM, asserting that no incriminating material evidence/information was
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012          Page 57 of 59
gathered/found during the course of search in the case of the individual
assessees. This aspect has been dealt with in great detail above. Moreover,
in the case of JMM notice under Section 158BD read with Section 158BC
of the Act was issued and there was also a search of the premises of M/s
Anjali Jain and Associates, Chartered Accountant and Auditor of JMM
where books of accounts and other documents were found and seized.
Subsequently, during investigation, statements of different persons referred
to above, were recorded to ascertain and decipher whether the money
deposited in the bank accounts had any connection or belonged to JMM or
the said money was undisclosed income of the individual assessees.
Assessment in the hands of JMM was on a protective basis. The Tribunal
has not considered and examined the said evidence and has also not gone
into the question whether and if in case no addition could be made in the
hands of the individual assessee, substantive addition on the basis of the
said evidence or material could be sustained in the hands of JMM. Of
course, in case substantive addition in the hands of the individual assessee
stands finally affirmed, the protective addition in the hands of the JMM
would dissipate and would not be sustainable.

47.      During the course of hearing, learned counsel appearing for the
individual assessees/JMM had stressed that other points and grounds were
raised before the Tribunal but these have not been adjudicated upon and
decided, as the appeals were allowed on the preliminary ground; there was
no undisclosed income which could be made subject matter of block
assessment and additions, if any, could be made only in the regular/normal
assessment. Learned counsel for the Revenue accepts the said position.
We also notice that the Tribunal has not gone into and examined the merits.


ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012        Page 58 of 59
Thus, an order of remand would be justified and is required as other issues
on merits etc. have to be examined.

48.      At this stage, we also record that it will be open to the Revenue to
argue and contend before the Tribunal in case certain additions cannot be
made in the block assessment proceedings, liberty should be granted to
make the said addition by resort to Section 147 of the Act or the question
whether additions can be made in accordance with law in the
regular/normal assessment proceedings should be left open. If any such
contention is raised by the Revenue, the same will be considered and dealt
with in accordance with law.

49.      In view of the aforesaid discussion, we answer the substantial
questions of law mentioned in the first paragraph of this judgment in
favour of the Revenue and against the respondent-assessee. We also pass
an order of remand for decision on other issues and merit. Observations
made in this decision are for the purpose of deciding the present appeal,
and additions and other issues on merits will be examined as per the facts
and material on record.

50.      To cut short any delay, parties are directed to appear before the
Income Tax Appellate Tribunal on 15th December, 2014, when a date of
hearing will be fixed.

                                                               (SANJIV KHANNA)
                                                                   JUDGE


                                                             (V. KAMESWAR RAO)
                                                                    JUDGE
NOVEMBER 11, 2014
KKB/VKR/NA/LRs
ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012               Page 59 of 59

 
 
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