Income Tax Act, 1961

--Search and seizure--Block assessment Computation of undisclosed income--The assessee was a partnership firm. There was a search of its premises under section 132 on 17-12-1999 and on the basis of the materials found and seized, notice under section 158BC was issued whereby the assessee was called upon to furnish a return of income in the prescribed form, for the block period from 1-4-1989 to 17-12-1999. The assessee filed the block return. Thereafter, several hearings took place and eventually by block assessment order, the assessee's total undisclosed income was computed at Rs. 3,69,27,587. This consisted of several additions as undisclosed income. The assessment order itself does not contain the break-up or other details of the additions and these are all appended to the assessment order as annexure. The assessee filed an appeal to the Commissioner (Appeals) who restricted the addition to Rs. 2,67,87,137 on the basis that this amount represented the peak investment made by the assessee in different construction projects undertaken by it. The benefit of telescoping was given to the assessee, which resulted in a relief of Rs. 1,01,39,950. The assessee and the revenue filed cross, appeals to the Tribunal and the Tribunal allowed the appeal of the assessee and dismissed the appeal of the department. Held: The judgment of the Supreme Court in the case of P. R. Metrani 2006 TaxPub(DT) 1868 (SC) : (2006) 287 ITR 209 (SC), no doubt, held that the presumption was not available to the assessing officer while completing the assessment and that it was limited to the prior proceedings in connection with the search. However, there was a later statutory amendment; section 292C was introduced by the Finance Act, 2007 with retrospective effect from 1-10-1975. The phrase 'in any proceeding under this Act' under sub-section (1) of section 292C is important. They permit the assessing officer to invoke the presumption that the seized documents belonged to the person searched, that the contents of the seized documents/books of account are true and that the signature of every other part of the books of account or documents which purports to be in the handwriting of any particular person are in that person's handwriting, etc., even in the assessment proceedings. After the insertion of the section, the judgment of the Supreme Court cited above can no longer be called in-aid to hold that the presumption is not available to the assessing officer in making the assessment. The Tribunal has reasoned that the seized papers are loose papers and not books of account. This court is unable to appreciate the significance or sequitur of the statement made by the Tribunal. The Tribunal does not dispute that there existed a correlation; but, it yet held that the correlation alone was not sufficient to make the impugned additions. This observation was sought to be supported by some reasons. An examination of those reasons shows that they are far from convincing. The Tribunal held on the basis of the judgment of the Supreme Court in the case of P. R. Metrani (supra) that the presumption about the truth and genuineness of the contents of the seized documents and its handwriting was not available to the assessing officer in the course of the assessment proceedings. This position has now been nullified by the retrospective amendment. Even otherwise, this court does not find any merit in the conclusion of the Tribunal that the correlation between the seized material and the books of account, on which reliance was placed by the assessing officer, was not sufficient for the purpose of making the additions. In any case, this court is unable to approve the approach of the Tribunal to the extent that it has been held by it that the statements made during the search are of no use in the assessment proceedings. What can at best be stated is that the presumption under section 132(4A) was not available to the assessing officer on the basis of the seized documents, but merely because the partners were not examined by the assessing officer at the time of the assessment, it cannot be stated that no reliance can be placed on them for the purpose of making additions.