Material Found during Survey in the Premises of Person Connected to the Assessee Can Be Used in Block Assessment of the Assessee: Supreme Court [Read Judgment]

In CIT vs. S. Ajit Kumar, the Supreme Court held that the material found in the course of survey in the premises of a person connected to the assessee could be used in Block Assessment of the assessee.

Upon a search conducted in the premise of the assessee and a survey conducted in the premise of his builder and interior decorator, the Revenue had reasons to believe that the assessee had understated his real income relating to a block period. From the survey in the builder’s premises, the fact of the assessee having paid Rs.95.16 Lacs to the Builder in cash was revealed which was not accounted for. Consequently, he was asked to file block assessment and the assessee filed it as NIL. The Assessing Officer (A.O) held in his order that the amount found at the builders’ was liable to tax as undisclosed income of the block period. Aggrieved, assessee appealed before the Commissioner of Income Tax Act (Appeals) (CIT(A)) who upheld the order. The Tribunal however, set aside the decisions of the A.O and the CIT(A). The High Court dismissed the Revenue’s appeal and they thereafter approached the Supreme Court.

The Counsel for the Revenue argued that the High Court failed to consider that the information gathered as a result of search is not the details of appointment of interior decorator rather it is information regarding the cash payments made over and above the cheques payments and not accounted by the assessee. Further, it was also contended that it is the standard practice in the Department that when a search takes place in the case of an assessee, many related business premises are simultaneously covered under survey. The counsel further contended that though it is called a survey, it is very much part of the search process and the inquiry and investigation is one process.

The Counsel for the assessee submitted that the fact of cash payment found in survey conducted at the premises of the builder does not fall within the ambit of Block Assessment. To support his argument, he cited various case laws.

The Bench comprising of Justice R.K. Agrawal and Justice Abhay Manohar Sapre noted that Section 158BB of the Income Tax Act, 1961 provides for the computation of Undisclosed income of the block period and such calculation can be only on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the A.O and relatable to such evidence. The bench also noted section 158BH which is an enabling provision, make all the provisions of the Act, save as otherwise provided, applicable for proceedings for block assessment.

“The power of survey has been provided under Section 133A of the IT Act. Therefore, any material or evidence found/collected in a Survey which has been simultaneously made at the premises of a connected person can be utilized while making the Block Assessment in respect of an assessee under Section 158BB read with Section 158 BH of the IT Act. The same would fall under the words “and such other materials or information as are available with the Assessing Officer and relatable to such evidence” occurring in Section158 BB of the Act. In the present case, the Assessing Officer was justified in taking the adverse material collected or found during the survey or any other method while making the Block Assessment.” observed the bench.