CIT vs C. Sivanandan

C.N. Ramachandran Nair, J.—This appeal is filed by the Revenue challenging the order of the Tribunal declaring the income escaping assessment made u/s 147 of the IT Act (hereinafter referred to as the Act for short) on the Respondent Assessee for the asst. yr. 1992-93 as invalid.

We have heard learned senior counsel appearing for the Revenue and Shri. Arun Raj, learned Counsel appearing for the Respondent Assessee.

Return filed by the Assessee for the asst. yr. 1992-93 was initially processed u/s 143(1)(a) and thereafter a scrutiny assessment was made u/s 143(3) of the Act. A search was carried out in the residential and business premises of the Assessee on 25th Nov., 1998 and block assessment u/s 158BC was made for the block period from 1st April, 1988 to 25th Nov., 1998. In the block assessment specific additions were made for the asst. yr. 1992-93 representing arbitration award amount received by the Assessee and also interest on various bank deposits maintained in the names of Assessees relatives. It is pertinent to note that the AO assessed only the interest from these deposits as Assessees income and the deposit amounts in the names of the relatives were not assessed as undisclosed income of the Assessee for the year 1992-93 which fell within the block period.

When the block assessment was challenged in appeal, the CIT(A) upheld the Assessees claim that arbitration amount was included in the income originally returned and 8 per cent of which was assessed as estimated income from contract receipts and so much so there is no scope for treating arbitration amount later received as undisclosed income. So far as assessment of interest from various bank deposits held in the names of relatives of the Assessee is concerned, the CIT(A), except for a small amount of interest attributable to 1/3rd of the deposit amount maintained in the name of the Assessees deceased mother, all other additions were cancelled. In short, the block assessment was substantially allowed in appeal by the CIT(A), and the only addition retained is 1/3rd of the interest income received, in respect of the bank deposit that was in the name of Assessees deceased mother. There is also a clear finding by the CIT(A) that deposits in various banks were not undisclosed income of the Assessee because those deposits belong to the family members of the Assessee. The Departments second appeal against the order of the CIT(A) before the Tribunal was unsuccessful. In between, after the CIT(A)s order, the AO initiated proceedings u/s 147 and income escaping assessment was made for the asst. yr. 1992-93 assessing the deposit amounts in the six bank deposits maintained in the names of Assessees relatives, details of which were collected in the course of search made u/s 132 of the Act, as escaped income of the Assessee.

When the Assessee filed appeal against the income escaping assessment completed u/s 147, the CIT(A) cancelled the same for the reason that additions of same amounts were considered while making block assessment and after dropping the proposal to assess the deposit amounts as undisclosed income, only interests from such deposits were assessed as income of the Assessee which itself was substantially cancelled in the appeal filed against the block assessment. When second appeal was filed by the Revenue before the Tribunal, the Tribunal held that reassessment completed u/s 147 is only a result of change of opinion of the AO. Consequently, they upheld the CIT(A)s order, who cancelled the income escaping assessment, against which this appeal is filed.

Learned senior counsel appearing for the Revenue contended that there is no change of opinion on the part of the AO as found by the Tribunal, and according to him, the AO is free to make income escaping assessment, no matter a block assessment u/s 158BC was completed covering this year also. Learned Counsel appearing for the Assessee, on the other hand, relied on the decision of the Allahabad High Court in Vishwanath Prasad Ashok Kumar Sarraf Vs. Commissioner of Income Tax and Others, and a decision of the Bombay High Court in Smt. Mira Ananta Naik and Ors. v. Dy. CIT (Inv.) and Ors. (2008) 15 DTR (Bom) 8, and contended that income assessed in a block assessment u/s 158BC cannot be again brought to tax u/s 147 after the appellate authority cancels or modifies the block assessment. We find force in the contention of the Assessee because in this case, the income assessed u/s 147 i.e. the amount covered by deposit receipts maintained in banks, were considered in the block assessment and at that time, the AO treated only interest income as income of the Assessee and not the deposit amounts as such, as undisclosed income of the Assessee. However, when the CIT(A) cancelled the block assessment holding that bank deposits were that of family members of the Assessee and therefore interest income therefrom could not be assessed in his hands, the AO tried to bring to tax the deposit amounts itself by invoking the powers .under Section 147 of the Act. Even though block assessment u/s 158BC and income escaping assessment u/s 147 can probably be made for the same period, on different basis, we do not think assessments could be successively made one after another for the same period under these provisions based on the same materials. Once materials are gathered either during search u/s 132 or during survey u/s 132A, it is up to the AO to make block assessment u/s 158BC or if he feels that income escaping assessment is called for u/s 147, it is upto him to elect between the two and make assessment under the provision he finds appropriate. However, once the AO, after conducting search and based on materials gathered during search u/s 132, proceeds to make block assessment u/s 158BC; then he cannot, based on the same materials which in this case is deposit amounts found during search, proceed to make income escaping assessment u/s 147 after block assessment was cancelled by the first appellate authority. The AO obviously cannot get over the findings in the order of the first appellate authority against a block assessment by invoking powers u/s 147. During block assessment, the AO obviously considered as to whether bank deposits in the names of family members of the Assessee found during search represent his undisclosed income but accepted the Assessees contention that the same belong to his family members. Rightly or wrongly only the interests from these deposits were assessed as part of undisclosed income of the Assessee for the block period. In appeal, the CIT(A) cancelled the assessment on interest income. We are of the view that the AO cannot after cancellation of block assessment by the CIT(A) proceed to make an income escaping assessment for assessing the very same bank deposits as escaped income. We do not think the AO has jurisdiction to assess the very same amount, which was considered and given up while making block assessment. Even though learned standing counsel submitted that deposit amounts were not considered in block assessment, we cannot accept it because when interest from the same deposits were assessed as undisclosed income of the block period, it can be legitimately assumed that the officer considered the deposit amounts for assessment but gave up the same. In this context, the findings of the Tribunal that reassessment u/s 147 is a result of change of opinion of the AO, cannot be said to be illegal or incorrect because what was not treated as undisclosed income in block assessment is later treated as escaped income in another round of assessment under a different provision of the Act (s. 147) which in our opinion is impermissible. We, therefore, uphold the order of the Tribunal and dismiss the Departmental appeal.