Commissioner of Income Tax, Jaipur vs Ambay Abhushan Bhandar

Balia, J.

(1). This application u/s 256(2) of the Income Tax Act, 1961, has been filed by the Commissioner of Income Tax, Jaipur, requiring us to direct the Income Tax Appellate Tribunal (for short 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 27.9.95 in ITSSA No. 1894/JP/1996:

"Whether on the facts and in the circumstances of the case as well as in law, the Appellate Tribunal was justified in:

(i) deleting the addition of Rs. 10,62,000/- out of the addition of Rs. 11,03,000/- observing that the addition in respect of regular credits were not warranted in as much as no material was available with the AO justifying the addition and primary facts relating to these credits stood duly disclosed in the regular books notwithstanding the fact that the assessee could not prove the genuineness of loans claim and recording of loans in regular books is not enough evidence for not making addition in view of specific provisions of Section 158B(b)/158BB(I) and 158BB(2) of the Income Tax Act?

(ii) not holding that in view of not proving the genuineness of the cash credits and provisions of Section 158BB(2) of the I.T. Act, provisions of Section 68, 69, 69A, 69B and 69C of the I.T. Act were clearly applicable even while completing the block assessment u/s 158BC of the I.T. Act and, therefore, the AO was fully justified in making the addition of Rs. 10,62,000/-;

(iii) not holding that in view of section 158B(b)/158BB(I), there is not bar in considering and making additions on the basis of entries appearing in regular books/statement of affairs, bank account etc. and in computing of total income in accordance with the provisions of Chapter IV & VI of the IT Act on the basis of evidence found as a result of search or requisition of books of accounts or documents and other material or information as are available with the AO and, therefore, the AO was justified in making addition of Rs. 10,62,000/-;

(iv) in setting aside the addition of Rs. 41,000/- for examining the creditor on his affidavit notwithstanding the fact that no affidavit of the creditor was filed during assessment proceedings, as contended before the ITAT;

(v) In reducing the addition of Rs. 1,27,61,240/- to Rs. 20,47,562/-;

(vi) in not holding that the assessee could not prove its case in regard to various additions viz. Rs. 56,91,094/-, 10,43,562/- and Rs. 50,30,667/-made by the AO and sought to rely on various evidences which were not produced7furnished before the AO and, therefore, the matter required to be restored to the file of AO for want of verification/cross tally, and accordingly in not setting aside the assessment;

(vii) in not holding that the contention raised on behalf of the assessee as mentioned in para 16 of the ITAT''s order that all the evidences related to loans were produced before the CIT was totally incorrect and in any case to examine such evidences, the matter required to be restored back to the file of the AO; and,

(viii) in holding that although the AO was right in adopting the status of the assessee as that of AOP as against status of firm taken in regular asstt. but the entity was the same notwithstanding the fact that since both the assessments are in separate status no benefit u/s 158BB of the I.T. Act is available to the assessee but as allowed by the ITAT while reducing income from Rs. 1,27,61,260- to Rs. 20,47,562/-"

(2). These questions arise out of the block assessment made in the case of the assessee u/s 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. Respondents, 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 AOP, constituted of Hemraj Kasliwal, Rajendra Kasliwal, Kamlesh Kasliwal and Arvind Kasliwal, their income from undisclosed sources was assessed as opening capital of members of A.O.P., the amount included profit the period ending on 21st May, 1995, profit for the period ending 22.5.95 to 26.9.95, Creditors, cash and sliver.

(3). 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 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 u/s 158B and also held that the assessee could only be assessed in the status of a A.O.P. The Tribunal agreeing with the findings of the Assessing Officer that the Assessment in the status of AOP 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 AOP while reducing the addition from Rs. 1,27,61,240/- to Rs. 20,47,562/-.

(4). An application was moved before the Tribunal u/s 256(1) of the Income Tax Act by the Commissioner of Income Tax for referring the aforesaid questions to this Court for its opinion, which has been rejected by the Tribunal vide its order dated, 28.1.99, hence, this application.

(5). 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 u/s 158BB(2) of the Act. In the aforesaid circumstances, the central question that requires consideration while searching for answer to various questions while 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 u/s 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 investment 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?

(6). This question needs consideration of various statutory provisions relating to the provisions for assessment, the legal fictions created by 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.

(7). 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 refraining 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:

" 1. Whether, in the facts and circumstances of the case, the Tribunal was justified in holding that the legal fictions created under various provisions of the Act, specifically provided u/s 158BB(2) are not applicable when assessment is made as block assessment u/s 158B; if so, what is its effect on various deletions made by the Tribunal.

(2) Whether in the facts and circumstances of the case, the Tribunal was justified in holding that once the assessment has been made in the status of Association of Persons constituting certain persons, a firm constituted of the same persons cannot be assessed as an independent unit?

(8). The Tribunal''s order rejecting application u/s 256(1) is therefore, erroneous.

(9). Accordingly, this application is allowed and we direct the Tribunal to state the case and refer the aforesaid two questions to this Court for its opinion.

(10). No order as to costs.