COMMISSIONER OF INCOME TAX Vs. H.M. CONSTRUCTIONS

JUDGEMENT

(1.) THESE two appeals are filed by the Revenue under S. 260A of the IT Act, 1961 (hereinafter called the 'Act'). They have been admitted to consider the following substantial questions of law on 29th Aug., 2007 :

(2.) THE material facts of the case leading up to these appeals with reference to the rank of the parties before the Tribunal are as follows : The assessee is a partnership firm having two partners with 50 per cent share each, carrying on the business in real estate. The premises of the assessee was searched under S. 132 of the Act. Proceedings under S. 158BC of the Act was initiated for the block period 1st April, 1991 to 29th May, 2001 having regard to the material found at the time of search and satisfaction was recorded by the AO. It was found that AO found that assessee had filed original return showing fixed deposits as security for the asst. yr. 1995-96 for availing the loan and these fixed deposits were found to be in fictitious names and the same was treated as undisclosed income of the assessee by the AO. The assessee had earned interest on fixed deposits and the same had not been declared in the original return and this was treated as undisclosed income of the assessee amounting to Rs. 9,05,894. It was found in the course of search that assessee when purchasing Sy. Nos. 59, 62, 71 and 73 of Huskur village, Bangalore, had registered the sale deeds for Rs. 8,25,000 (Rs. 3 lakhs per acre). As per the agreement to sell, the sale price was fixed for Rs. 13 lakhs per acre and this was admitted by the sellers. Therefore, difference of money between the agreement of sale and sale deed was brought to lax as undisclosed income in a sum of Rs. 30,35,750. It was also found that the assessee, for the asst. yr. 1999-2000 declared a sum of Rs. 38,15,000 by filing return of income and the premises No. 7/1, Sampangi Tank Road. Bangalore was purchased by the assessee as per the return on 25th March, 1995 for Rs. 2,23,27,309 and was shown as stock-in-trade at Rs. 2,27,13,565. In the return for the asst. yr. 1999-2000, assessee showed No. 7/1, Sampangi Tank Road, Bangalore to have been sold for Rs. 1,05,33,250 and claimed a loss of Rs. 1,21,80,315 and a sum of Rs. 65 lakhs was shown as advance received. The claim that the property was sold to four persons Sri Sharavana, Sri Venkatesh, Smt. Saroja and Sri G Anand was found to be false. In fact, amount of Rs. 65 lakhs was received from these persons. The property continuing in possession of the assessee and no registered sale deed had taken place. These four persons stated that the transaction was sham. It was also found that development agreement was prepared to avoid tax and the loss claimed was found to be false. Further, the amount was received by the assessee. Both the amounts were treated as undisclosed income under ss. 158B(b) and 158BB of the Act and brought to tax in the block period amounting to Rs. 1,21,80,315 and Rs. 65 lakhs respectively. The AO found that the belated returns were filed declaring the amount of Rs. 24,82,420 and the amount declared in the belated return was treated as undisclosed income as per S. 158BB of the Act in a sum of Rs. 24,82,420. Being aggrieved by the order passed by the AO dt. 29th May, 2003, the appeal was preferred before the CIT(A)-VI Bangalore in IT Appeal No. 263/Asstt. CIT CC-2(3)/CIT(A)-VI/2003-04. The appellate authority by order dt. 31st Dec., 2004 held that addition of Rs. 70 lakhs as undisclosed income should be deleted and treated as unexplained investment for the asst. yr. 1995-96; the interest on fixed deposit of Rs. 9,05,894 should be brought to tax by reopening assessments for the asst. yr. 1995 96; the addition of Rs. 30,35,750 regarding purchase of land as undisclosed income was upheld and regarding bogus losses amounting to Rs. 1,21,80,315 + Rs. 65 lakhs, was upheld and the amount declared in the belated return amounting to Rs. 24,82,420 was upheld and the finding of the AO that the said amount should be treated as undisclosed income was confirmed. Being aggrieved by the said order passed by the appellate authority dt. 31st Dec., 2004, the appeals were filed by the Revenue in ITA No. 533/Bang/2005 and IT(SS)A No. 21/Bang/2005 and cross-objections were filed by the assessee in C.O. No. 66/Bang/2005. The Tribunal by order dt. 21st April, 2006 upheld the finding of the appellate authority that addition of Rs. 70 lakhs as undisclosed income should be deleted and treated as unexplained investment for the asst. yr. 1995-96. The finding that the interest on fixed deposit (Rs. 9,05,894) should be brought to tax by reopening the assessments for the asst. yr. 1995-96 was upheld and so far as money payment made for purchase of land amounting to Rs. 30,35,750, the matter was remitted back to the AO to reconsider the evidence and record the fresh finding. So far as bogus loss and cash amounting to Rs. 1,21,80,315 + Rs. 65,00,000, the matter was remitted back to the AO to reconsider the evidence and permit cross-examination and to redo the issues in regular assessment and not block assessments, The Tribunal held that amount declared in the belated return amounting to Rs. 24,82,420 should not be brought to tax in block assessments and further held that search was conducted on 1st June, 2002 and in view of proviso to S. 113 of the Act, no surcharge could be levied and set aside the order passed by the appellate authority and the AO. Being aggrieved by the order passed by the Tribunal, these appeals are filed by the Revenue.

(3.) THE learned counsel appearing for the Revenue submitted that substantial questions of law (1) and (2) are to be answered in favour of the Revenue as the order of the Tribunal holding that bogus loss and receipt of cash amounting to Rs. 1,21,80,315 and Rs. 65,00,000 should be treated in regular assessments and not in block assessments and in setting aside the order passed by the appellate authority and the AO treating the amount declared in the belated return in a sum of Rs. 24,82,420 as undisclosed income are clearly erroneous. He has taken us through the order passed by the AO, appellate authority and the Tribunal pertaining to the above two substantial questions of law. He further submitted that so far as exemption of surcharge is concerned, the decision rendered in CIT vs. Vatika Township (P) Ltd. (2009) 221 CTR (SC) 409 : (2009) 17 DTR (SC) 353 : (2009) 314 ITR 338 (SC) is referred to a Larger Bench and appropriate orders can be passed subject to the result of the said decision. The learned counsel for the Revenue has relied upon the decision in CIT vs. Rajiv Bhatara (2009) 222 CTR (SC) 209 : (2009) 19 DTR (SC) 225 : (2009) 310 ITR 105 (SC) wherein it has been held that even without the proviso to S. 113 of the Act which was inserted vide Finance Act, 2002 w.e.f. 1st June. 2002 surcharge was leviable on the tax and the proviso to S. 113 is clarificatory in nature.