Block Assessment Validly Includes Post-Search Inquiry Material Relatable to Search Evidence.

Issue

Whether an assessment of undisclosed income under Section 158BC for the block period can be based solely on evidence found during the search, or if the Assessing Officer (AO) is also entitled to rely on information and material gathered during “post-search enquiries” that are relatable to the evidence found during the search.

Decision

The Supreme Court dismissed the Special Leave Petition (SLP) filed by the assessee, thereby upholding the High Court’s judgment.
The High Court had held that the assessment of undisclosed income is not restricted strictly to the material found at the moment of the search.
The AO can and must look into other information and material gathered during post-search enquiries and other proceedings, provided such material is relatable to the evidence found during the search.
Therefore, a block assessment is legally required to be made on the basis of both the result of the search and the consequences of the evidence found (i.e., the subsequent inquiry findings).

Key Takeaways

Scope of Section 158BB: The computation of undisclosed income is not a static exercise limited to the search day. It includes the logical investigative conclusion of the leads found during the search.
Nexus is Required: While post-search material is admissible, there must be a direct nexus or link (“relatable to”) between the new material and the evidence originally found during the search. It cannot be a fresh, unrelated fishing expedition.

Undisclosed Income from Benami Liquor Vends Confirmed Based on Statements and Documents.

Issue

Whether undisclosed income can be added to the assessee’s block assessment on the grounds that they were the real owner of “ghost” or “benami” liquor companies, based on statements of employees and rent agreements found during the search, especially when cross-examination failed to rebut these findings.

Facts

A search was conducted at the assessee’s premises for the block period 1986-1996.
Incriminating material was found indicating unaccounted sales from liquor vends.
Statements: During the search, several persons working at these vends stated that they were salesmen and that the assessee was their real employer and owner, despite the vends being in the names of other companies.
Documents: Rent agreements for the premises were found in the name of a company but were signed by the assessee as a contractor.
The assessee was given the opportunity to cross-examine almost all the persons whose statements were relied upon.

Decision

The Supreme Court dismissed the assessee’s SLP, confirming the orders of the High Court and the Tribunal.
The High Court had held that since the cross-examination of the witnesses did not yield anything contrary to their original statements (identifying the assessee as the owner), a valid inference could be drawn that the assessee earned undisclosed income through these “ghost” and “benami” companies.
The assessment order making the addition was found to be correct and factually supported.

Key Takeaways

Substance Over Form: In search cases, the department looks beyond the registered name of a business (the “benamidar”) to identify the beneficial owner. Evidence like who signed rent agreements or who employees identify as “boss” is critical.
Value of Cross-Examination: While the right to cross-examine is a defense, if the witnesses stick to their statements during cross-examination, that evidence becomes solid proof against the assessee.
Benami Transactions: This case reinforces that income earned through entities created merely on paper (ghost companies) to hide the real owner’s identity is fully taxable in the hands of the beneficial owner (the assessee).

SUPREME COURT OF INDIA

Mange Ram Mittal

Commissioner of Income-tax^*

J.B. PARDIWALA and K.V. Viswanathan, JJ.

SLP (CIVIL) Diary No(s). 7734 of 2025^†

OCTOBER 17, 2025

Rajiv Shakdher, Sr. Adv., Rajiv K. Garg, Ashish Garg, Vineet Garg, Lalit Nagar, Anurag Sharma, Advs. and T. L. Garg, AOR for the Petitioner.

ORDER

1. Delay condoned.

2. Having heard the learned senior counsel appearing for the petitioner and having gone through the materials on record, we find no good ground to interfere with the impugned order passed by the High Court.

3. The Special Leave Petition is, accordingly, dismissed.

4. Pending application(s), if any, shall stands disposed of.

Akshay Bhan, Sr. Adv., Shantanu Bansal, Dr. Deepak Jindal, Yugank Goyal, Advs., Sanay Bansal, Sr. Adv. and Ms. Gauri Neo Rampal, Senior Standing counsel for the Appearing Parties.

ORDER

Sanjeev Prakash Sharma, J. – These two appeals are preferred against the order dated 18.08.2006 passed by the Special Bench-B, comprising three Members of the Income tax Appellate Tribunal, New Delhi.

2. Brief facts of the case are that a search was conducted on 28.06.1996 at the residential premises of the assessee and undisclosed income as found. The Assistant Commissioner of Income Tax, Circle, Hisar passed the additional assessment Order under Section 132(1) of the Income Tax Act, 1961 (for short, ‘the Act’) on 27.06.1997. The appeal filed by the assessee before the Income Tax Appellate Tribunal was referred to a three Judges Bench of the Tribunal. The learned Tribunal partly allowed the appeal on 18.08.2006 and many of the additions made by the assessing officer were not accepted. It is against that order that the Revenue and the Assessee are in appeals before this Court.

3. So far as IT A No. 51 of 2007 preferred by Mr. Mange Ram Mittal is concerned, we find the points raised by learned counsel for the appellant therein are that the assessment was made only on the basis of material uncovered during search. The Parliament had enacted a separate Chapter-XIV-B of the Act laying down the special procedure for assessment of search cases which is a self contained code. The amount to be subject to tax under the said chapter should have direct nexus with the material discovered during the course of such search operations alone. The assessment should be restricted only to the evidence found during the course of search. The words are relatable to such evidence, added with retrospective effect to Section 158-BB of the Act from 01.07.1995, and re-enforced with the legal position that was not relatable to the evidence found as a result of search ought not be included in the computation of undisclosed income. We find that the Tribunal has, therefore, examined the meaning and scope ofphraseology “such other materials or information as are available with the Assessing Officer and relatable to such evidence”.

4. For the purpose of considering the aforesaid aspect, it would be apposite to quote Section 158-BB (1) of the Act as it stood on 01.07.1995, which is as under:-

Computation of undisclosed income of the block period.

158BB. (1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, “[in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence), as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined,-

(a)

where assessments under section 143 or section 144 or section 147 have been concluded “[prior to the date of commencement of the search or the date of requisition], on the basis of such assessments;

(b)

where returns of income have been filed under section 139 Thor in response to a notice issued under subsection (1) of section 142 or section 148] but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns;

(c)

where the due date for filing a return of income has expired, but no return of income has been filed,-

(A) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such entries result in computation of loss for any previous year falling in the block period; or

(B) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such income does not exceed the maximum amount not chargeable to tax for any previous year falling in the block period;

(co)

where the due date for filing a return of income has expired, but no return of income has been filed, as nil, in cases not falling un under clause (c);]

(d)

where the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years;

(e)

where any order of settlement has been made under sub-section (4) of section 245D, on the basis of such order;

(f)

where an assessment of undisclosed income had been made earlier under clause (c) of section 158BC, on the basis of such assessment.

Explanation. For the purposes of determination of undisclosed income,-

(a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of “[this Act] without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32:

[Provided that in computing deductions under Chapter VI-A for the purposes of the said aggregation, effect shall be given to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32;]

(b)of a firm, returned income and total income assessed for each of the previous years falling within the block period shall be the income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called “[to any partner not being a working partner]:

Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the partners, whether on allocation or on account of enhancement;]

(c) assessment under section 143 includes determination of income under sub-section (1) or sub-section (IB) of section 143. ”

5. We find that the words which have been added are rightly interpreted by the Tribunal to include two types of material which may be considered by the assessing officer. First, the material found during search and relatable to such evidence and the second part is such other materials or information as are available with the Assessing Officer. Thus, apart from the evidence which may be collected and noticed during search, if the assessing officer has any other information and such other material with him, which is relatable to such evidence, the same can also be looked into for the purpose. Therefore, an assessment under Section 158-BC of the Act is required to be made both on the basis of result of search as well as post search enquiry and other proceedings which are in the nature of consequences of the evidence found as a result of search. The Tribunal has, therefore, succinctly and vividly observed as under:-

“Thus, at every point where any money, bullion, jewellery or other valuable articles or thing is found during the course of search the question is required to be answered, does it constitute what has not been or would not have been disclosed for the purposes of the Income- tax Act. There is not much problem in arriving at what has not been disclosed in relation to the returns of income that have already been filed as on the date of the search in question. If any money, bullion, jewellery or other valuable article or thing or any income is required to be disclosed for the purposes of Income-tax Act in any return of income but not disclosed, they would constitute basis for “undisclosed income”. More difficulty arises in cases where the returns of income have not been filed but the due date for filing the return of income has not expired or where the return of income itself has not fallen due. In such cases it is not a question is not of what has not been disclosed but of what would not have been disclosed for the purposes of the Act. Answer to that question would depend on the facts and circumstances of each case. “

6. We, therefore, reject the submissions made by learned counsel for the assessee.

7. The next submission of learned counsel for the assessee that the affidavit of the employees have not been considered. It is argued that the assessee was not provided sufficient opportunity and fair hearing has not been provided to him.

8. We find that plethora of other material and partnership-deeds were found at the residence of the assessee during the search and written documents containing names and father’s name of persons who are mentioned as partners in the partnership-deed relating to M/s Mittal and Company, M/s Shanker Lal & Company and original challans of license fee running into crores paid to Excise Department were also found. Large number of documents relating to correspondence with Excise Department, police cases, court cases relating to the firms carrying out liquor business, which were not in the name of the assessee, have also been found from his premises.

9. Copies of number of maps of godowns and vends, which were operated by various companies were also recovered from his premises. There were 7+9+7 truck loads recovered from three different places. Stock position of various liquor vends was also found. During the courses of search, statements of number of persons were also recorded, who stated that they were salesmen working in those vends. The assessee was their employer and real owner of the vends. Merely because the license was issued by the Excise Department for various liquor vends, income from which the learned assessing officer has found to be undisclosed income of the assessee cannot absolve the concerned assessee. We agree with the Tribunal that the assessing officer is not flattered by the technical rule of evidence and if he reaches to the conclusion that the vends are all being owned and managed by the concerned person singularly through employees, merely because the licenses are not in the name of the concerned assessee, it would not make any difference to reach to the conclusion that there is undisclosed income.

10. We also find that there is cross-examination of almost all persons, whose statements were relied upon, was afforded to the assessee and after the cross-examination was conducted when nothing contrary to the earlier statements was emerged and in some cases the assessee did not even come forward to cross-examine, the inference could be drawn. There was also a document of rent agreement for premises taken on record in the name of one M/s Chander Bhan Om Parkarsh and Company, which was signed by the assessee as a contractor. Thus, the Tribunal has found that there was undisclosed income of the assessee which he was earning through ghost and benami companies, which were running on the properties taken on rent by him. The assessment order was found to have been correctly re-assessed by the three Judges Bench of the Tribunal.

11. During the course of arguments, learned counsel for the appellant- Mange Ram Mittal does not press the issue relating to constitution of special bench of three Judges by the President of IT AT.

12. For the reasons recorded above, the appeal filed by the assessee is dismissed.

IT A No. 243 of 2008

13. ITA No. 243 of 2008 has been filed by the Commissioner of Income-Tax, Hisar, against the order of the ITAT dated 18.08.2006.

14. We find that the appeal filed by the Revenue also deserves to fail as we have already noticed that special bench of three Judges of the ITAT has examined the case on facts and there is no substantial question of law which emanates from the order passed by the Tribunal. Pure findings of fact are immune from challenge in appeals under Section 260A of the Income Tax Act as has been held by Hon’ble the Supreme Court in Mangalore Ganesh Beedi Works v. Commissioner of Income-Tax (SC). Therefore, the appeal filed by the Revenue is also dismissed.

15. Accordingly, both appeals are dismissed.

16. No costs.