Hemant Sausarkar, Judicial Member

And B.R. Kaushik, Accountant Member

IT Appeal No. 89 (Gauhati) of 2005

[Block Period 1-4-1994 to 26-9-2001

August 13, 2007

Section 158BD, read with section 158BC, of the Income-tax Act, 1961 – Block assessment in search cases – Undisclosed income of any other person – Block period 1-4-1994 to 26-9-2001 – In course of search conducted at premises of one ‘A’, statements of ‘D’ were recorded – On basis of her statements, Assessing Officer formed an opinion that son of ‘A’, i.e., assessee, was owner of a school and college and ‘D’ and ‘T’ had been used as benamidars – Accordingly, Assessing Officer added income from school and college to income of assessee and completed his assessment under section 158BD, read with sections 158BC(b) and 144 – Admittedly, ‘A’ had started a school several years earlier and assessee as principal thereof had a role to play in start of XI and XII classes in that school – However, no material direct, documentary or circumstantial was brought on record to establish that assessee was owner of school and college and further, in none of statements recorded during search was it alleged that assessee owned that school – Whether burden to prove that property in question stood in a benami name and assessee was its real owner, was on revenue and it having failed to discharge its said onus, impugned assessment in name of assessee was not justified – Held, yes

FACTS

One ‘A’ was owner of St. Peter’s School. In the course of a search carried on his premises, statement under section 132(4) of ‘D’ was recorded. She claimed to be a teacher and after 1987 full-fledged vice-principal of the school and ‘A’ was stated to be its owner. As regards ownership of the St. Peter’s College, she claimed that she along with ‘T’ was the owner of college having 50 per cent share each. In the course of assessment proceedings, ‘D’ was again examined and she stated that her assistant ‘T’ was operating accounts of the school and that the assessee was principal of the School and was carrying job on honorary basis. In her subsequent statement, ‘D’ pointed out that she was running the school and the college on the basis of written permission given by ‘A’. However, in view of the contradictory nature of statements, the Assessing Officer observed that ‘D’ and ‘T’ had been used as benamidars of the assessee who was the real owner of the school and the college, and completed assessment of the assessee under section 158BD read with section 158BC(b) and 144. On appeal, the Commissioner (Appeals) asked the Assessing Officer to make enquiry on certain points. The Assessing Officer did not file any report or reply to the queries. The Commissioner (Appeals) took note of a letter written by the assessee to the Joint D.P.I., Government of Meghalaya seeking permission for starting class XI and XII and other letter to Director, Higher & Technical Education. Meghalaya for starting degree classes, and observed that same were written by him in his capacity as principal of the institution, and only showed that he had the administrative control of the institution which was required by a principal. The Commissioner (Appeals) further found that bank account was operated upon jointly by the assessee and ‘T’ and observed that the financial control exercised through the joint operation of the account was not good enough material to hold that the assessee was the owner of the institution. Thus, the Commissioner (Appeals) allowed the appeal of the assessee. On revenue’s appeal, the Judicial Member agreed with the order of the Commissioner (Appeals) and dismissed the appeal. However, the Accountant Member was of the view that when no reply was received from the Assessing Officer to the queries raised by the Commissioner (Appeals), the Commissioner (Appeals) was wrong in deciding the issue without making necessary enquiries. Therefore, he did not agree with the view of the Judicial Member and directed that the matter be remanded. In view of the said difference of opinion between the two Members, the matter was referred to the Third Member.

HELD (Per Third Member)

It is well settled rule of law that apparent State of Affairs is real unless contrary is proved. The burden of proving that property stands in a benami name is always on the person who alleges it. In the instant case, the revenue was trying to prove a case that ‘D’ and ‘T’ were benamidars of the assessee and the assessee was the real owner of school and college. The burden was on the revenue to prove this fact. However, no material, direct documentary or circumstantial, had been placed on record to establish that the assessee was the owner of school and college. There was no doubt that his father ‘A’ started St. Peter’s School several years earlier and that the assessee as Principal had a role to play in start of XI and XII classes in that school. But these facts were not sufficient to treat the assessee as owner of the school and college. [Para 8]

The Assessing Officer, for holding the assessee as owner of the school and college, had relied upon other facts and circumstances in the annexures.

(a) Annexure-1 showed order of Inspector of Schools, Shillong showing constitution of management committee of the School. In the said constitution, the assessee was shown as Headmaster-Joint Secretary. ‘A’ was shown as donor and ‘D’ as Teachers’ Representative.

(b) Annexure-2 contained details of inspection report and threw no light on the ownership of the property.

(c) Annexure-3 was letter dated 25-11-1989 from ‘A’, Principal of St. Peter’s School to ‘D’ Headmistress. In the letter, she was authorized to open classes for higher education as per her wish and use the school at no cost.

(d) Annexure-4 was copy of salary receipt register which showed receipt of salary mainly by ‘B’.

(e) Annexures 5,6 and 7 were letters from the assessee to Joint D.P.I, Shillong, Directors Higher and Technical Education, Government of Meghalaya, Shillong and to the Director of College Development Council, Shillong, respectively, relating to permission for starting classes XI and XII and college. In all those letters written by the assessee it was clear that those were written as principal of the institution. [Para 8.1]

Apart from above, the assessment order was full of extracts from statement of ‘D’, ‘T’ and those of the assessee which contained contradictions. But in no statement it was stated or alleged that the assessee was owner of the school. [Para 8.2]

It was, therefore, clear from the record that neither possession nor control over the management of school/college or over the management or utilization of income or document of title or through other evidence, it was proved that the assessee was the owner of the school/college. It was to be remembered that in the instant case, the revenue authorities had used their longest arm of search which yielded no cogent material to establish their case. Thereafter, proceedings under section 158BC were taken. Then, the assessee was served with a notice under section 158BD. It was not shown nor it was recorded that satisfaction held to be a pre-requisite for initiating valid proceedings under section 158BD by the Supreme Court was ever recorded. Therefore, the proceedings were bad in law. Be that as it may, the Assessing Officer did not make any efforts to establish the case of a benamidar of ownership. On the facts of the case, there was no justification to allow any further opportunity to the revenue to have a second inning to carry investigation which may or may not yield any result. The revenue had not asked for any such opportunity as was clear from the grounds of appeal raised by them before the Tribunal. In fact, according to the revenue, they had already collected clinching evidence regarding ownership. It was, therefore, clear that the Accountant Member had allowed an opportunity to the revenue which they did not ask for and were not interested in the background as according to them, case of benamidar already stood proved. Therefore, the order proposed by the Accountant Member was not justified. The reasons for the above view could once again be summarized as under:-

(i) It was a search case and proceedings under section 158BC had already been taken. Longest arm available to the revenue had already been utilized. Jurisdiction under section 158BD were not legally assumed.

(ii) Burden of proof to establish case of benamidar as asserted by the revenue was not discharged. This was held by the Commissioner (Appeals) in unequivocal terms and not disputed by both the Members of the Tribunal.

(iii) The Commissioner (Appeals) again as per letter dated 5-8-2004 allowed one more opportunity to the Assessing Officer to carry on further investigation. Nothing was done. It was reasonable to infer that either further inquiry was not possible or did not yield any fruitful result. This inference was possible from the grounds of appeal raised by the revenue before the Tribunal.

(iv) The revenue had not asked for nor had shown that they had any material in their possession which could be usefully utilized if the matter was remanded to the Assessing Officer. Remand for a roving inquiry was not permissible.

Therefore, on facts there was no question of remand for providing another opportunity or another inning to the revenue to collect further material. The Accountant Member, had gone overboard by attaching too much importance to the dates of communication, which were clearly available on record. He had, however, not considered other important circumstances on record, relating to burden of proof, etc. It was not the duty of appellate authority, i.e., the Commissioner (Appeals) or the Tribunal to collect material and make out case for and on behalf of the revenue. It is a separate issue if material available on record is not properly considered by the Assessing Officer and the Commissioner (Appeals) is required to invoke his powers to correct an error or conclusion as is warranted by facts and circumstances of the case. Such were not the facts in the instant case. There was no material which could have been used against the assessee. The second inning was being proposed to be given by the Accountant Member to find out material in support of the case of the revenue by making further investigation and inquiry. The same was uncalled for. [Para 8.3]

Therefore, the proposed order passed by the Judicial Member was to be accepted. [Para 9]