Addition for Undisclosed Investments in Shares During Block Assessment is valid if Assessee failed to discharge burden of Proof

Summary in Key Points:

Issue: Whether the assessee can be held liable for undisclosed investments in shares found during a search operation when they claim the investment was made outside the block assessment period, but fail to provide evidence to support their claim.
Facts: A search operation was conducted at the assessee’s residence, and share certificates were found. The assessee claimed that the investment for these shares was made in 1994, outside the block period of 1997-98 to 2002-03, and that the transaction was a sham. However, they failed to provide any evidence to support this claim.
Decision: The ITAT upheld the Assessing Officer’s decision to treat the value of the shares as undisclosed income for the financial year in which they were found, as the assessee failed to discharge the burden of proving that the investment was made outside the block period.

Analysis:

The ITAT ruled in favor of the revenue department, emphasizing the following:

Burden of Proof: The initial burden of proof lies with the assessee to establish their claim that the investment was made outside the block period.
Lack of Evidence: The assessee failed to provide any evidence to support their claim that the investment was made in 1994 and that the transaction was a sham.
Deemed Income: In the absence of evidence to the contrary, the value of the shares found during the search is deemed to be the assessee’s income for the financial year in which they were found.

Important Note: This case highlights the importance of maintaining proper documentation and evidence to support claims made before tax authorities. When an assessee claims that an investment was made outside the relevant period, they must provide sufficient evidence to substantiate their claim. Failure to do so can result in the value of the investment being treated as undisclosed income, leading to tax liabilities and penalties. This case serves as a reminder to taxpayers to maintain accurate records and be prepared to provide evidence to support their claims during tax assessments.

HIGH COURT OF TELANGANA

Gyan Kumar Agarwal INDL

Asst. Commissioner of Income-tax

ALOK ARADHE, CJ.
and J. SREENIVAS RAO, J.

ITTA Nos. 47and 48 of 2008, 188 and 196 of 2012

DECEMBER 23, 2024

A.V. Krishna Koundinya for the Petitioner. Kmamata for the Respondent.

JUDGMENT

1. Ms. K.Mamata Choudary, learned Senior Standing Counsel for Income Tax Department appears for the respondent.

2. I.T.T.A. No.47 of 2008 and I.T.T.A. No.48 of 2008 are filed against the common order dated 19.10.2007 passed by the Income Tax Appellate Tribunal, Hyderabad Bench ‘A’ in I.T. (S.S.) A.No.137/Hyd/2005 and I.T. (S.S.) A.No.138/Hyd/2005.

3. I.T.T.A. No.188 of 2012 and I.T.T.A. No.196 of 2012 are filed against the common order dated 28.02.2006 passed by the Income Tax Appellate Tribunal, Hyderabad Bench ‘B’ in I.T. (S.S.) A.No.151/Hyd/2005 and I.T. (S.S.) A.No.139/Hyd/2005.

4. These appeals filed under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) were admitted on the following substantial question of law:

“Whether on the facts and circumstances of the case, the Tribunal erred in holding that the assessee had not discharged the burden of proof and rebutted the presumption available to the revenue under Section 132(4A) of the Income Tax Act, 1961 while confirming the addition made by the Assessing Officer?”

5. A common substantial question of law arises for consideration in these appeals. Therefore, these appeals were heard analogously and are being decided by this common judgment. For the facility of reference, facts from I.T.T.A.No.47 of 2008 are being referred to infra.

6. On 21.01.2003, search and seizure operations under Section 132 of the Act were conducted at the residential premises of assessee namely Mr. Sunil Kumar Agarwal, his brother Mr. Gyan Kumar Agarwal and other members of his family. In the said search and seizure operation, photo copies of share certificates of M/s. Jivika Leasing and Finance Limited were noticed. The said share certificates are in the name of the assessee, Mr. Gyan Kumar Agarwal and members of his family. In order to verify the source of genuineness for investing in the shares, notice under Section158 BD of the Act, dated 04.07.2003 was issued. In response, the assessee filed return of income for the block period of Assessment Years from 1997-98 to 2002-03 and for the period from 01.04.2002 to 21.01.2003 in Form No.2B on 04.08.2003 declaring undisclosed income as ‘NIL’. The assessee and his family members stated before the Assessing Officer that entire investment for allotment of shares on the nonexisting persons was a sham transaction and further submitted that the investment was made in the year 1994 only. Therefore, investment made by the assessee in the year 1993-94 does not fall within the block period and there cannot be any addition with regard to the investment made in the shares.

7. The Assistant Commissioner of Income Tax after due verification of the records and after considering the reply submitted by the assessee, passed assessment order on 28.01.2005 holding that the assessee’s undisclosed income for the block period is Rs.6,54,200/- and after deducting the tax, the assessee is liable to pay balance tax for an amount of Rs.4,12,158/- and penalty under Section 158 BC and 158 BD of the Act. Aggrieved by the said order, the assessee filed appeal before the Commissioner of Income Tax (Appeals)-I, Hyderabad and the appellate authority dismissed the appeal by its common order dated 22.08.2005. Thereupon, the assessee filed appeal vide I.T. (SS) A.No.137/Hyd/2005 before the Income Tax Appellate Tribunal, Hyderabad Bench ‘A’ and the same was dismissed on 19.10.2007. In the above said factual backdrop, the assessee has approached this Court by filing this appeal.

8. Learned counsel for the assessees submitted that the assessee himself admitted that the purchase of shares in M/s. Jivika Leasing and Finance Limited in fictitious names and the entries were recorded in the books of accounts of the Company for the assessment year 1995-96 and the transaction fell outside purview of the block period. It is further submitted that in the absence of any evidence, the Assessing Officer came to conclusion that the undisclosed income is for the block period i.e., 1997-98 to 2002-03 and for the period 01.04.2002 to 21.01.2003 is perverse. It is contended that the Commissioner of Income Tax (Appeals)-I, Hyderabad and Tribunal affirmed the order of Assessing Officer without properly considering the grounds of the appeal.

9. It is contended that the assessee invested in the shares in the year 1994 in the name of fictitious persons who are not in existence, therefore, it falls beyond the block period. It is submitted that the assessee discharged his initial burden to prove the factum that the undisclosed income not pertaining to the above said block period. In spite of the same, the Tribunal erred in holding that the assessee has not discharged the burden, is contrary to the evidence on record.

10. Per contra, learned Senior Standing Counsel for Income Tax Department submitted that the Assessing Officer after due verification of the records passed the order on 28.01.2005 by giving cogent findings and the said order was confirmed by the Commissioner of Income Tax (Appeals)-I, Hyderabad and further the appellate Tribunal also dismissed the appeal and confirmed the orders of the Commissioner of Income Tax (Appeals)-I, Hyderabad. It is also argued that the findings of fact recorded by the Assessing Officer of Income Tax as well as the Tribunal do not suffer from any infirmity warranting interference of this Court in these appeals under Section 260A of the Act.

11. We have considered the rival submissions made by both sides and have perused the record. The main grievance of the assessee is that he invested in the shares in the year 1994 in the name of fictitious persons who are not in existence and the same falls beyond the block period concerned. The Tribunal while dismissing the appeal specifically held that the investment made by the assessee had not been disclosed to the Income Tax Department even in the earlier assessment years. It was further held that as per Section 158 BB(2), in computing the undisclosed income of the block period, the provisions of Sections 68, 69, 69A, 69B and 69C of the Act will apply and the reference to the financial year in those Sections shall be construed as reference to the relevant previous year falling in the block period including the previous year ending with the date of search or requisition. The Tribunal after considering the provisions of Section 69B of the Act held that the assessee was found to be the owner of the valuable article and the amount of investment on such valuable article shall be deemed to be the income of the assessee in the financial year in which such valuable article was found.

12. Admittedly, the search operation took place on 21.01.2003 and the revenue authorities found the share certificates and the assessee was the owner of the valuable article i.e., share certificates. The record discloses that the assessee has not placed any iota of evidence to establish that the investment was made in the year 1994. It is trite law that the initial burden lies upon the assessee to prove the claim that the investment was made in the year 1994 and the same is not pertaining to the block period. The findings of fact recorded by the authorities under the Act are based on meticulous appreciation of evidence on record.

13. The appellate Tribunal while dismissing the appeal, confirmed the order of the Commissioner of Income Tax (Appeals)-I, Hyderabad as well as the order of the Assessment Officer, by giving cogent reasons taking into account of the provisions of the Act.

14. This Court in an appeal under Section 260A of the Act cannot interfere with the findings of fact until and unless the same are shown to be perverse or based on no evidence. The findings of fact recorded by the authorities cannot be termed as perverse.

15. In view of the preceding analysis, the substantial question of law is answered against the assessees and in favour of revenue.

16. In the result, we do not find any merit in these appeals.

The same fails and are hereby dismissed. No costs.