2007 (2) TMI 185 - HC - Income Tax

Substantial question of law - challenging the Order passed by the Income-tax Appellate Tribunal - Block assessment - Search operation u/s 132 - seized agreement to sell marked as AD 46 - cash found - addition made by the Assessing Officer - HELD THAT - It is an admitted fact that the present assessee had not signed the agreement in question and since the assessee had not signed the agreement, no liability can be attributed qua that agreement towards the assessee since he is not party to the agreement till he had signed the same. The mere fact that this agreement was found in the possession of the assessee does not lead us anywhere. We find no hesitation in holding that this addition of Rs. 17,00,892 made by the Assessing Officer is based on surmises and guess work. Addition on account of cash found in the bed room of the assessee at the time of search - The assessee has not disputed this recovery. However, the case of the assessee is that this represented cash remaining from the withdrawal from his bank account from time to time and a sum was received by cheque No. 345947 and the assessee has furnished cash flow statement to this effect also. It has been held by the Tribunal that in the instant case the withdrawals shown by the assessee are far in excess of the cash found during the course of search proceedings. No material has been relied upon by the Assessing Officer or the CIT(A) to support their view that the entire cash withdrawals must have been spent by the assessee and accordingly, the Tribunal rightly held that the assessment is legally not sustainable u/s 158BC of the Act and the same was rightly ordered to be deleted. Thus, no fault can be found with the view taken by the Tribunal. Thus, the order of the Tribunal does not give rise to a question of law, much less a substantial question of law, to fall within the limited purview of section 260A of the Act, which is confined to entertaining only such appeal against the order which involves a substantial question of law. Accordingly, the present appeal is, hereby, dismissed.

Summary

Issues:
1. Appeal challenging block period assessment under the Income-tax Act, 1961.
2. Addition of undisclosed income based on seized agreement and cash found during search.
3. Discrepancy in explanation of cash found in the bedroom of the assessee.
4. Interpretation of substantial question of law in the context of the case.

Issue 1:
The Revenue filed an appeal challenging the block period assessment under the Income-tax Act, 1961, pertaining to the order passed by the Income-tax Appellate Tribunal. The case involved a search operation at Usha India Ltd., where an agreement to sell was seized, mentioning an earnest money amount. The Assessing Officer added 50% of the earnest money to the assessee's income, alleging equal sharing with his brother. The assessee's appeal was dismissed by the Commissioner of Income-tax (Appeals), but the Income-tax Appellate Tribunal ruled in favor of the assessee.

Issue 2:
Regarding the addition of undisclosed income based on the seized agreement, the Tribunal found the Assessing Officer's approach to be based on surmises and guesswork. As the assessee had not signed the agreement, no liability could be attributed to him. The Tribunal emphasized that assessments cannot be made on imagination and guesswork, directing the deletion of the added amount from the assessee's income.

Issue 3:
The dispute over the cash found in the bedroom of the assessee revolved around the explanation provided for its source. The Assessing Officer rejected the cash flow statement furnished by the assessee, suspecting alternative uses of the withdrawn amounts. However, the Tribunal found the Assessing Officer's and Commissioner of Income-tax's orders lacking in supporting evidence to justify the assumption that the withdrawn cash had been spent. Consequently, the Tribunal deemed the assessment of the cash amount as legally unsustainable under the Income-tax Act, leading to its deletion.

Issue 4:
The interpretation of substantial question of law in the case was crucial. The Tribunal's decision was upheld, emphasizing that the order did not give rise to a substantial question of law falling within the limited purview of section 260A of the Act. The judgment cited various legal precedents to define substantial questions of law, highlighting the importance of substantiality and legal clarity in such matters.

In conclusion, the High Court dismissed the appeal, affirming the Tribunal's decision and emphasizing the necessity of substantial legal questions in appeals under the Income-tax Act.