1. This appeal by the revenue under Section 260A of the Income Tax Act, 1961 (the 'Act') challenges the order dated 1st January 1999 passed by the Income Tax Appellate Tribunal (the 'Tribunal). The impugned order dated 1st November 1999 of the Tribunal disposed of the appeal for the block assessment period 1st April 1986 to 10th October 1996.
2. This appeal was admitted on 14th February 2000 on the following substantial questions of law:
1. Whether on the facts and in the circumstances of the case, and on a correct interpretation of Section 158B, 158-BA and 158-BB, the Tribunal was right in law in holding that the sum of Rs. 69,298/-could be assessed under Chapter XI-VB of the Act as undisclosed income of the assessee, when it was not disputed that the said sum represented the disclosed income of the assessee during the block period for which no returns were required to be filed as the said disclosed income was below the limit of income chargeable to tax under the Act?
2. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 69,298/-was to be assessed under Chapter XI-VB of the Act as undisclosed income of the assessee, when it was not disputed that the said sum represented items of income disclosed in the bank accounts and other records of the assessee?
3. Whether on the facts and in the circumstances of the case, the Tribunal erred in upholding the assessment of Rs. 69,298/- in the hands of the assessee?
4. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 6,79,300/- was to be assessed under Chapter XI-VB of the Act as undisclosed income of the assessee, when the sid sum represented jewelery that had been acquired by the assessee's father and father-in-law on the occasion of her marriage?
5. Whether on the facts and in the circumstances of the case, the Tribunal erred in upholding the assessment of Rs. 6,79,300/- in the hands of the assessee, when the said sum represented jewellery that had been acquired by the assessee's father and father-in-law, who both produced irrefutable material which admittedly showed that the same had been acquired by them from their disclosed income and wealth?
6. Whether on the facts and in the circumstances of the case, the Tribunal erred in upholding the assessment of Rs. 6,79,300/- in the hands of the assessee, without any material whatsoever and contrary to the material on record?
3. On 27th August 1996, a search was conducted upon the appellant. Consequent to the search, the respondent assessee was called upon to explain the jewelery of Rs. 12.69 Lakhs found in her possession and also unexplained personal expenditure. So far as the jewelery is concerned, the petitioner explained the source of its receipt. However the Assessing Officer did not accept the explanation and made an addition of Rs. 12.69 Lakhs
4. Besides, the Assessing Officer held that the respondentassessee has a very high standard of living and estimated her personal expenses at Rs. 10,000/- per month from the date she attained majority i.e. 11th August 1990 and also estimated expenses incurred on her engagement and marriage at Rs. 7.90 Lakhs making an addition of Rs. 20.59 Lakhs determining the total undisclosed income at Rs. 21.77 Lakhs.
5. Being aggrieved, the appellant preferred an appeal to the Tribunal. The Tribunal accepted the appellant's explanation in respect of jewelery found in her possession to the extent of Rs. 4.95 Lakhs as being duly supported by purchase invoices. However, the explanation with regard to balance amount of Rs. 6.79Lakhs of jewelery was not accepted. The explanation of respondent-assessee that she received jewelry worth Rs. 1.20Lakhs from her father and jewelery worth Rs. 4.57 Lakhs from her father-in-law was not accepted on account of failure to produce invoices supporting the purchases of jewelery by the respondent's father and father-in-law respectively. Consequently the amount of Rs. 6.79 Lakhs was added as part of undisclosed income for the purposes of block assessment being unexplained investments under Section 69 of the Act. So far as undisclosed income attributed to her personal expenses, engagement and marriage expenses are concerned were also deleted. However the contention that in determining the undisclosed income that the maximum nontaxable limit for each year should not be included, was not accepted in view of Section 158BB(1)(c) of the Act. Therefore except for Rs. 48 Thousand which relates to Assessment Year 1997-98 for which return was to filed, the benefit of non taxable limits was not extended to the Appellant.
6. Being aggrieved, this appeal has been filed. The appeal can broadly divided into two issues:
(a) First issue raised in Question Nos. 1 to 3 is in respect of maximum nontaxable limit of income for each year is not to be included in undisclosed income; and
(b) Second issue raised in Question Nos. 4 to 8 is in respect of jewelery in appellant's possession is being taxed as unexplained investment under Section 69 of the Act.
First Issue Question- Nos. 1 to 3:
7. Mr. Mistry, learned Senior Counsel for the Appellant points out that Section 158BB of the Act has been amended by Finance Act, 2002 with retrospective effect from 1 July 1995 as relevant is as under:
"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) …..........
(b) …..........
[(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 requision 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;
(ca) where the date for filing a return of income has expired, but no return of income has been filed, as nil, in cases not falling under clause
(c);]
(d) …...........”
8. In view of the above, it is his submission that so far as question nos.1 to 3 are concerned, the Assessing Officer as well as the Tribunal have in computing the undisclosed income for the block period have also taken into account the amount of income which were reflected in the regular books of accounts. Aggregate of which was not chargeable to tax during the regular assessment proceedings. Thus the benefit of reducing the undisclosed income in the block period aggregating to Rs. 69,298/- be extended to the petitioners.
9. As against the above, Mr. Suresh Kumar, the learned Counsel for the revenue submits that the benefit of retrospective amendment would not be available to the petitioners for the period prior to 1 July 1995. Besides, it is also submitted that the appellant has not satisfied the condition precedent viz. the support of entries in her books for Rs. 69,298/- for availing the benefit of the retrospective amendment in Section 158BB(1)(C)(B) of the Act.
10. We have considered the submissions. At the time when the impugned order of the Tribunal was passed, no fault could be found with the same in not extending the benefit of income not chargeable to tax during the regular assessment proceedings while computing undisclosed income for block period. This was on account of the appellant's failure to file a return of income and the unamended sub-section (c) of Section 158BB(1) of the Act excluded the benefit of any reduction in undisclosed income. However the amendment by Finance Act, 2002 replaced/substituted the original sub-section (c) of Section 158BB(1) of the Act by a new sub-section (c) consisting of sub-sections (A), (B) and (ca) of the Act. As a consequence of the aforesaid amendment with retrospective effect from 1995,where the due date of filing the return has expired and no return has been filed, yet the total undisclosed income for the block period would interalia be reduced by aggregate of total income to the extent such income does not exceed the maximum amount not chargeable to tax for any previous year falling in the block period. However the same is subject to the condition that such income not chargeable to tax is determined on the basis of entries recorded in the books of account and other documents maintained in the normal course on or before the date of the search. It is only when the appellant is able to satisfy the condition precedent in Section 158BB(1)(c)(B) of the Act would such income be reduced in determining the aggregate of the total undisclosed income for the block period. In the absence of there being any such entries in the books and/or memorandum the appellant's case would fall under the substituted sub-section (ca) of Section 158BB(1) of the Act and no amount of income would be reduced on the above account to determine the aggregate of total undisclosed income. In the present facts, in view of the law as prevailing prior to the retrospective amendment of 2002 w.e.f. 1995, none of the authorities determined the issue whether the amount of Rs. 69,298/- was arrived at on the basis of entries in the books of account and other documents maintained by the appellant before the search. Therefore though the retrospective amendment to Section 158BB of the Act by the Finance Act, 2002 would be applicable in case of the appellant, the benefit of the same would be available only on the appellant satisfying the authorities that the amount of Rs. 69,298/- is duly supported by entries in books of account or such other memorandum. This exercise could be carried out by the Assessing Officer while giving effect to this order. It is only on satisfaction of the aforesaid condition precedent would the benefit of Rs. 69,298/- be extended to the appellant resulting in reduction of total undisclosed income to the above extent.
11. Moreover, the submission of Mr.Suresh Kumar that the benefit of retrospective amendment will not be available prior to 1995 cannot be accepted. This for the reason that Section 158BB of the Act came into the statute book as part of Chapter XI-VB of the Act only with effect from 1 July 1995. Consequently the retrospective amendment by Finance Act, 2002 with effect from 1 July 1995 would also extend to undisclosed income covering the period of Assessment Years 1987-88 to 1995-96. In the above circumstances, while answering the First Issue (Question nos.1 to 3),in favour of the appellant, we make it clear that the same is subject to the appellant satisfying the Assessing Officer that the amount of Rs. 69,298/- which is sought to be reduced is arrived at on the basis of entries recorded in the books of account and/or other memorandum maintained in the normal course before the date of the search.
Second Issue - Question Nos. 4 to 8:
12. Mr. Mistry, learned Sr. Counsel of the Appellant points out that the jewelery of Rs. 6.79 Lakhs was received by her on the occasion of her marriage from her father and father-in-law. This was the explanation offered by her in respect of the jewelry in her possession. The authorities under the Act have not disputed the fact that the jewelery had been received by respondent-assessee from her father and fatherinlaw. However, the explanation that has been offered by her father and father-in-law is not accepted by the authorities under the Act on account of their failure to produce purchase invoices in respect of the jewelery. It is submitted that once the assessee has explained the source of the jewelery in her possession being gifts received on the occasion of her marriage from her father and father-in-law and the Assessing Officer does not dispute the same, it is then not open to him to disbelieve the explanation without any cogent reason. It is particularly emphasized that Section 69 of the Act gives discretion to the Assessing Officer to deem the same to be an income of assessee. However such discretion must be exercised taking into account the surrounding circumstances in support of the explanation offered by the respondentassessee.
13. As against the above, Mr. Suresh Kumar, learned Counsel for revenue submits that the Tribunal in impugned order has accepted the appellant-assessee's explanation resulting in the benefit of Rs. 4.59 Lakhs of jewelery to the appellant. However where there was no evidence to indicate that her father or father-in-law had purchased jewelery to be gifted to the appellant on the occasion of her marriage the benefit was not extended. Thus the Tribunal was justified in not accepting the explanation of the respondent-assessee. Therefore no interference is warranted.
14. We find that the explanation offered by the respondentassessee to her possession of jewelery of Rs. 6.57 Lakhs was that the same was gifted to her on occasion of her marriage by her father and fatherinlaw. This explanation was not contested by the father and fatherinlaw. The authorities accepted the source of the jewelery in her possession. However, the Tribunal was not satisfied with the evidence produced by her father and father-in-law. This cannot be lead to be conclusion that the explanation offered by the respondent-assessee in respect of the jewelery in her possession is not satisfactory. In the normal course of human conduct, on occasions such as marriage the parents and parents-in-law of a bride do normally gift jewelery to the bride. On occasion such as this, it is not possible to expect the bride to ask for evidence of bills/invoices to support the purchase of the jewelery. One has to proceed on the basis that it is genuine. Thus her explanation that she received the jewelery as gifts from her father and father-in-law is sufficient explanation of the jewelery in her possession and the gifts are not denied by her father and father-in-law. We are of the view that invocation of Section 69 of the Act is these facts is completely unwarranted.
15. Therefore the Second Issue (Question Nos. 4 to 8) is answered in favour of the appellant and against the revenue.
16. Appeal disposed of in above terms. No order as to costs.