Commissioner of Income Tax, Calicut v. Shri K.P. Rashidali

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: Manjula Chellur, CJ
A. M. Shaffique, J.
Judgment Date: 2014-01-06
Court Decision / Holding: Appeal dismissed; Tribunal’s order sustained; no irregularity found in ITAT’s approach to limit undisclosed income to Rs 5,00,000.
Final Disposition: Appeal dismissed; Tribunal’s order upheld.

Parties to the Case

Appellants / Petitioners

The Commissioner of Income Tax, Calicut

Respondents

Shri K.P. Rashidali, Aminas, Near Mankav Post, Calicut, Pin- 673 007

Legal Representation & Advocates

Counsels for Petitioners

• Sri. Jose Joseph, SC, for Income Tax

Counsels for Respondents

• Adv. Sri. K.A. Salil Narayanan

Case Synopsis & Summary

The Kerala High Court heard ITA No. 266 of 2010 challenging the order of the Income Tax Appellate Tribunal (ITAT) in IT(S&S)A No. 31/Coch/2006 dated 20 January 2010, relating to a block assessment for the years 1996-97 to 2001-02. A seizure of Rs 5,00,000 under a warrant of authorization issued under Section 132A of the Income Tax Act formed the central material. A block return under Section 158BC declaring undisclosed income of Rs 50,000 was filed. The Assessing Officer estimated the undisclosed income at Rs 21,58,720, applying a 10% profit rate on estimated sales, which the CIT(A) reduced to Rs 13,57,500 with undisclosed income at Rs 80,000. The ITAT, however, held that the undisclosed income could be assessed only on the basis of the seized amount (Rs 5,00,000) in the absence of other corroborating material. It relied on the decision in Commissioner of Income Tax v. J.K. Narayanan (293 ITR 220) to hold that mere statements cannot justify additions. The Department’s contentions about the source of the Rs 5,00,000 and the appellant’s explanations for that sum were not found to provide independent material for further additions. The High Court found no irregularity in the Tribunal’s approach and dismissed the appeal, upholding the ITAT’s order that only Rs 5,00,000 could be treated as undisclosed income for the block period.

Provisions of Law Cited

Section 132A, Income Tax ActSection 158BC, Income Tax Act

Legal Doctrines & Maxims

No addition to undisclosed income without corroborating material; reliance on material beyond the taxpayer's statement is required (as per CIT v. J.K. Narayanan, 293 ITR 220)
Block assessment principles require material substantiating undisclosed income to justify additions

Submissions & Arguments

Contentions of Appellants / Petitioners

The revenue contends that the undisclosed income can be estimated based on the seizure and the basis of the AO’s computation, supported by the block assessment framework under Section 158BC and the alleged corroborative material; reliance on Narayanan’s principle underscores that material beyond a mere statement is necessary to justify additions. The department argues that the sources for the seized Rs 5,00,000—including sale proceeds from NRIs and other remittances—provide a basis for computing undisclosed income beyond the amount seized, which the ITAT purportedly should have acknowledged.

Contentions of Respondents

The respondent asserts the lack of independent material beyond the seized Rs 5,00,000 and the taxpayer’s explanations for the source of funds; the statement of the respondent alone cannot justify additional undisclosed income; the Tribunal’s reliance on Narayanan is correct in requiring material to support any additions; therefore, no further additions should be made beyond the seized amount.

Cited Precedents (1)

Case Name	Citation	Treatment	Explanation
Commissioner of Income Tax v. J.K. Narayanan	293 ITR 220	Positive	The High Court relied on Narayanan to endorse that additions cannot be based solely on a taxpayer’s statement; material beyond the statement is required, which supported the ITAT’s approach.

Extracted Judgment Text

Exact text extracted from official judgment records.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** **MONDAY, THE 6TH DAY OF JANUARY 2014/16TH POUSHA, 1935** ## **ITA.No. 266 of 2010 ( )** **-----------------------(AGAINST THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN IT(S & S)A.31/COCH/2006 DATED 20-01-2010)** **------------------------------------** ## **APPELLANT/RESPONDENT:** **-------------------------------------------** **THE COMMISSIONER OF INCOME TAX, CALICUT.** ## **BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX** ## **RESPONDENT/APPELLANT:** **---------------------------------------------** **SHRI.K.P.RASHIDALI, AMINAS, NEAR MANKAV POST, CALICUT, PIN- 673 007.** **BY ADV. SRI.K.A.SALIL NARAYANAN** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 06-01-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **sts** **I.T.A.NO.266/2010** ## **APPENDIX** ## **PETITIONER'S ANNEXURES:** **ANNEX A COPY OF THE ASST. ORDER DATED 26/08/2002 ANNEX B COPY OF THE CIT(A)'S ORDER DATED 02/02/2006 ANNEX C COPY OF THE ITAT'S ORDER DATED 20/01/2010** **RESPONDENT'S ANNEXURES: NIL** **/TRUE COPY/** **P.A.TO.JUDGE** **sts** ## **MANJULA CHELLUR, CJ & A.M.SHAFFIQUE, J. * * * * * * * * * * * * *** I.T.A.No.266 of 2010 ---------------------------------------Dated this the 6[th] day of January 2014 ## **J U D G M E N T** ## **MANJULA CHELLUR,CJ** The revenue is before us aggrieved by the order of Income Tax Appellate Tribunal in IT(S&S) A.No.31/Coch/2006 dated 20/01/2010. Though the Tribunal disposed of appeal of the respondent along with other person by name K.P.Asif Rahman, now we are only dealing with the appeal pertaining to present respondent. 2. The facts that led to filing of the present appeal are as under: On the information received from Sub Inspector of Police, Nallalam Police Station, Calicut a sum of ` 5,00,000/came to be seized from the respondent under the warrant of authorisation under Section 132A of the Income Tax Act. When a notice was served on respondent under Section I.T.A.No.266/2010 2 158BC, block return came to be filed declaring undisclosed income of ` 50,000/-. However, the Assessing Officer, based on the statement of the respondent recorded, proceeded to estimate the profit at 10% for the assessment years and arrived at ` 21,58,720/- for the assessment years between 1996-97 to 2001-2002. Aggrieved by the same, appeal came to be filed before CIT(Appeals). CIT(Appeals) was of the view that only ` 13,57,500/- was to be taken into consideration and opined that undisclosed income would be ` 80,000/-. Aggrieved by the same, respondent approached the Tribunal. 3. Admittedly, it was not a case where such operations were done during which certain materials came to be disclosed including recording of statement of the respondent assessee. The department proceeded to estimate the undisclosed income only on the basis of seizure of ` 5,00,000/- from the person of respondent. Admittedly, there was an explanation also for the source of ` 5,00,000/- I.T.A.No.266/2010 3 found in the hands of the respondent assessee that is sale proceeds of goods bought from NRIs, accumulated savings, certain amounts received from father, gold loan taken from South Malabar Gramin Bank and loan taken from Urban Bank in the name of mother, amount remitted on various occasions by demand drafts from Qater and NRE remittances as the respondent was working earlier in Arab countries. According to the department, the source of income was not properly explained by the assessee. Therefore, there was justification in the opinion formed by the Assessing Officer in arriving at undisclosed income figure on estimation of profit rate compared to the sales estimation for the previous assessment years. 4. The test applied by the Tribunal was whether the statement and the disclosure of facts by the respondent could be the basis for estimation or computation of undisclosed income by the assessing authority. By placing reliance in the case of Commissioner of Income Tax v. I.T.A.No.266/2010 4 J.K.Narayanan [(293) ITR 220] the Tribunal opined that unless material comes out based on such material and in the absence of such material, there cannot be any addition to the undisclosed income based on the details given in the statement of the respondent. Therefore, whatever additions made by the authorities by virtue of statement of the respondent were disallowed by the Tribunal finding that there was no justification to bring such amounts as undisclosed income. Therefore, the Tribunal ultimately opined except ` 5,00,000/- in the hands of the respondent, no additions could be allowed and hence proceeded to opine that the computation has to be only the income found in the hands of the respondent and this alone would form undisclosed income of the assessee for the block period. 5. Apparently, there is no other material placed before us convincing that additions made by the Assessing Officer were justified. Except the statement of the respondent, no other material was forthcoming to form an I.T.A.No.266/2010 5 opinion to make additions by the Assessing Officer. In that view of the matter, we find no irregularity or illegality in the orders of the Tribunal and accordingly the appeal is dismissed. (sd/-) **(MANJULA CHELLUR, CHIEF JUSTICE)** (sd/-) **(A.M.SHAFFIQUE, JUDGE)** jsr 07/01/2014 I.T.A.No.266/2010 6 I.T.A.No.266/2010 7