COMMISSIONER OF INCOME TAX Vs. AMBAY ABHUSHAN BHANDAR

JUDGEMENT

(1.) THIS application under section 256(2) of the Income Tax Act, 1961, has been filed by the Commissioner, Jaipur, requiring us to direct the Income Tax Appellate Tribunal (hereinafter referred to as the 'Tribunal'), to state the case and refer the following questions, which are said to be questions of law, arising out of the Tribunal's order for the block period 1 -4 -1985 to 27 -9 -1995 in ITSSA No. 1894/Jp/1996 :

(2.) THESE questions arise out of the block assessment made in the case of the assessee under section 158BC of the Income Tax Act, 1961, which is a special procedure provided for the assessment in such cases. For the aforesaid block period, the assessing officer has made an assessment of the income from undisclosed sources at Rs. 1,27,61,240. The assessment was made for the status of an association which was constituted of four persons. Respondent, M/s. Ambey Abhushan Bhandar was not assessed in the status of a firm as claimed by it, but was assessed in the status of Association of Persons, constituted of Hemraj Kasliwal, Rajendra Kasliwal, Kamlesh Kasliwal and Arvind Kasliwal, their income from undisclosed sources was assessed as opening capital of members of Association of Persons, the amount included profit for the period ending on 21 -5 -1995, profit for the period ending 22 -5 -1995 to 26 -9 -1995, creditors, cash and silver. This order was appealed against before the Tribunal by the assessee. The Tribunal after considering various aspects of the matter and after laying down foundation for consideration, reduced the income from undisclosed sources for the block period from Rs. 1,27,61,240 to Rs. 20,47,562. Apart from the above additions, an addition of Rs. 11,03,000 was also made on account of unexplained cash credits, out of which a sum of Rs. 10,62,000 was also deleted by the Tribunal by holding that the source of deposit has not been explained, but the provisions of section 68 cannot be invoked for assessment for the block period under section 158B and also held that the assessee could only be assessed in the status of a Association of Persons. The Tribunal agreeing with the findings of the assessing officer that the assessment in the status of Association of Persons was right, further held that since the members of the existing firm were also members of the Association of Persons, two independent assessment cannot be made against the firm and the Association of Persons while reducing the addition from Rs. 1,27,61,240 to Rs. 20,47,562.

(3.) HAVING heard learned counsel for the parties, we are of the opinion that since the Tribunal has proceeded on the basic premises that a particular amount can be considered in a block period only with some material with the assessing officer suggesting the same relates to undisclosed income and in the absence of any material and without primary facts relating to the transaction, any amount duly disclosed in the books, no addition is possible in block assessment, thus, declined to consider the effect of legal fictions enacted by the legislature under various provisions of the Income Tax Act, particularly, sections 68, 69, 69A, 69B and 69C of the Act, which have been made applicable to the proceedings of block assessment under section 158BB(2) of the Act. In the aforesaid circumstances, the central question that requires consideration while searching for answer to various questions which have been suggested by the revenue, is whether in resorting to block assessment, where an assessing officer finds in the books of assessee any cash credits which have not been explained or explanation furnished by the assessee is not found satisfactory, the deeming provision under section 68 can be invoked ? Or where the assessee has been found to be in possession of the assets and source of their acquisition is not satisfactorily explained, still the statutory presumption raised about such cash credit value of assets, found in the possession of assessee or investments found to have been made by the assessee to be income of a particular year of the assessee, can be raised or cannot be pressed into service ? This question needs consideration of various statutory provisions relating to the provisions for assessment, the legal fictions created by the statute and the effect of specific provisions of section 158BB and other provisions enacted in Chapter -XIV -B. These considerations, in our opinion, cannot be considered to be a question of fact. The construction of various provisions of an enactment always gives rise to a question of law and not question of fact, is a principle which need not to be elaborated. However, we are of the opinion that first seven questions suggested by the revenue are only different aspects of one question, which can be considered by reframing the question. The question No. 8 too, in our opinion, is not a question of fact but a question of law. In our opinion, the following two questions of law arise out of the Tribunal's order, which govern the entire controversy;