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Commissioner of Income Tax, Chennai v. S. Ajit Kumar

Civil Appeal · 2018 INSC 439Decided 2 May 2018
Civil Appeal No. 10164 of 2010
Justice R.K. Agrawal · Justice Abhay Manohar Sapre

Background

The Income Tax Department searched the assessee's premises and simultaneously surveyed the premises of a builder who had constructed the assessee's house. The survey revealed the assessee had paid Rs. 95,16,000 in unaccounted cash to the builder. The Assessing Officer treated this as undisclosed income in a block assessment, which was upheld by the Commissioner (Appeals) but later set aside by the Income Tax Appellate Tribunal and the Madras High Court, who held that material from a survey (as opposed to the search itself) could not be used in a block assessment. This appeal, along with four other tagged appeals raising the identical legal question, was taken up together and decided by one common judgment.

Decision Breakdown

The Supreme Court held that material or evidence found during a survey conducted simultaneously at the premises of a person connected to the assessee (such as the builder here) can validly be used while making a block assessment of the assessee under Section 158BB read with Section 158BH of the Income Tax Act. Such material falls within the phrase "other materials or information... relatable to such evidence" found during the search. The Court disagreed with the Tribunal and High Court's narrower view and restored the Assessing Officer's block assessment order. All the tagged appeals, including this one, were allowed, with parties bearing their own costs.

Lesson Learnt

Evidence gathered from a simultaneous survey of a third party connected to a taxpayer (such as a contractor or builder) can be lawfully used by tax authorities to assess the taxpayer's undisclosed income, even though a "survey" and a "search" are technically distinct powers under the Income Tax Act.

Official source (sci.gov.in)View Judgment (PDF)

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