ITTA/21/1999 of SREE RAMA MEDICALANDSURGICAL AGENNCIES KUN Vs COMMR OF INCOME TAX VIJAYAWADA on 29 December 2011

1. The following substantial questions of law have been framed for our consideration:

1. Whether in the facts and circumstances of the case theresort to assessment under Section 158BG read withsections 158BB and 158BA is within the jurisdiction of theassessing authority?

2. Whether there was denial of reasonable opportunity tothe appellant for the reason that after the creditors wereexamined by the assessing officer in the presence of theManaging Partner of the appellant, no opportunity wasgiven to the appellant to explain the statements or to crossexamine them?

2. The assessee carries on the business in wholesale distribution ofmedicines. There were four partners of the assessee firm, but due todifferences, the firm was dissolved and a new partnership wasconstituted by the partners on 09-11-1994 under the name and style ofM/s. Sree Krishna Medical and Surgical Agencies.

3. On 05-01-1996, a search and seizure operation was conducted inthe business premises and residential premises of the assessee and itspartners under Section 132 of the Income Tax Act, 1961 (hereinafterreferred to as ‘the Act’).

4. It is alleged that some incriminating material was recoveredrelating to the assessee and as per the appraisal report, undisclosed income relatable to the block period 1985-86 to 1995-96 was found tothe extent of Rs.27,82,682/-.

5. Accordingly, the assessing officer initiated proceedings underChapter XIV-B of the Act by issuing a notice to the assessee. Thereupon, the assessee filed its returns disclosing an income ofRs.23,280/- relevant for the assessment year 1995-96 and Rs.64,000/-relevant for the assessment year 1996-97.

6. In the assessment proceedings, the contention of the assessee,which was negatived by the authorities below including the Income TaxAppellate Tribunal (the Tribunal), was that all the credits which were thesubject matter of the assessment were disclosed in the books ofaccounts of the assessee. As such, there was no undisclosed incomewithin the meaning of Section 158B(b) of the Act and, therefore, thequestion of making an assessment for the block period did not arise. Itwas submitted that since the credits under consideration were alreadymentioned in the books of accounts, they could have been the subjectmatter of a regular assessment or at best proceedings under Section148 of the Act. It was consequently submitted that the provisions ofChapter XIV-B would not apply to the facts of the present case.

7. The contention on behalf of the Revenue, which was accepted bythe Tribunal, was that there was sufficient information and materialfound during the course of search and seizure operation to initiateproceedings under Section 158BC of the Act. It was submitted thatmaterial was unearthed during the search and seizure operation whichled to the conclusion that the assessee had some undisclosed incomeand that is why proceedings were initiated against the assessee underChapter XIV-B of the Act.

8. We have gone through the order passed by the Tribunal and findthat what has actually transpired is that the assessment of the assesseehas effectively been reviewed with reference to the books of account ofthe assessee. On a review of the material on record, the Tribunalupheld the view of the assessing officer that there were some undisclosed cash credits.

9. It is now well settled by a catena of decisions rendered by variousCourts that for the purposes of invoking the provisions of Chapter XIV-Bof the Act, it is necessary that the undisclosed income should have beenunearthed as a result of the search operation. If there is no material toshow that there was some undisclosed income, the assessing officercannot, in the garb of applying the provisions of Chapter XIV-B reopenthe assessment of the assessee or conduct an inquiry into the affairs ofthe assessee.

10. On the facts of this case, it is quite clear that the cash credits,subject matter of decision by the Tribunal, were found in the books ofaccount. There is nothing to suggest to the contrary either in theassessment order or in the order of the Tribunal that the books were notmaintained properly or that some material outside the books of accountwas found which led to the conclusion that the books were notmaintained properly or that there was some undisclosed income in thehands of the assessee.

11. The law does not permit the assessing officer to reopen theassessment in a case such as the present where the information soughtto be utilized against the assessee has already been disclosed in thebooks of account of the assessee.

12. We are, therefore, of the view that the first substantial question oflaw must be answered in the negative, in favour of the assessee andagainst the Revenue.

13. In the view that we have taken, the second substantial question oflaw does not arise and, therefore, we decline to answer it.

14. The appeal is disposed of on the above terms.

15. The miscellaneous application also is disposed of.

MADAN B. LOKUR, CJ

29-12-2011

ks

SANJAY KUMAR, J