2009 (5) TMI 564 - AT - Income Tax

Block period assessment Addition of income - In the assessment order passed by the AO under s. 158BC(c) on 30th Nov., 2004, the total undisclosed income was assessed (in the case of M/s Shri Lakshmi Finance) at Rs. 16,17,915 - . The learned Authorised Representative explained that in the present case the very first requirement of non-disclosure of the material did not arise because the assessee had disclosed the transaction in its regular books of account The modus operandi revealed by the evidence found during the search was that the assessee-firms were suppressing the interest and other income and that such undisclosed income was being introduced in the regular books of account as deposits/loans in bogus names Appeal are dismissed

Summary

Issues Involved:
1. Legality of the order passed under section 158BC read with section 143(3).
2. Treatment of disclosed transactions as 'undisclosed income'.
3. Validity of statements/confessions made during the search and their retraction.
4. Applicability of the definition of 'undisclosed income' under section 158B and computation under section 158BB.
5. Relevance of precedents cited by both parties.

Detailed Analysis:

1. Legality of the order passed under section 158BC read with section 143(3):
The assessee-firms challenged the order passed under section 158BC read with section 143(3), arguing that it was opposed to law, facts, and circumstances of the case. The CIT(A) upheld the AO's action, which was contested by the assessee in the present appeal. The Tribunal found that the assessment was conducted in accordance with the relevant provisions of the Act, particularly sections 158BC and 143(3).

2. Treatment of disclosed transactions as 'undisclosed income':
The assessee-firms contended that the deposits and interest shown in regular returns could not be treated as 'undisclosed income' for block assessments. They argued that the transactions were disclosed in their regular books of account and thus did not qualify as 'undisclosed income' under the Act. However, the Tribunal noted that during the search, it was discovered that the firms were suppressing part of the interest and other income, which was introduced in the books as deposits/loans in bogus names. The Tribunal concluded that the evidence found during the search revealed a modus operandi of concealment of income, justifying the treatment of these amounts as 'undisclosed income'.

3. Validity of statements/confessions made during the search and their retraction:
The statements made by the firm's representatives during the search were retracted after one and a half years. The Department contended that these retractions were not supported by any evidence. The Tribunal emphasized that the statements recorded during the search were crucial evidence and that the retractions lacked credibility due to the absence of supporting evidence.

4. Applicability of the definition of 'undisclosed income' under section 158B and computation under section 158BB:
The Tribunal examined the definition of 'undisclosed income' under section 158B and the computation method under section 158BB. It was noted that 'undisclosed income' includes any income based on entries in the books of account or other documents/transactions that represent income not disclosed for tax purposes. The Tribunal found that the evidence from the search, including statements and post-search inquiries, clearly showed that the firms were not disclosing part of their income. This undisclosed income was introduced as deposits/loans in the books, fulfilling the criteria under sections 158B and 158BB.

5. Relevance of precedents cited by both parties:
The assessee relied on several precedents, including CIT vs. Ansal Buildwell Ltd., arguing that the transactions were disclosed and thus should not be treated as 'undisclosed income'. However, the Tribunal distinguished the facts of these cases from the present case, noting that the evidence found during the search in the current case directly indicated a concealment of income. The Tribunal also referenced other relevant cases, such as Promain Ltd. vs. Dy. CIT and Mange Ram Mittal vs. Asstt. CIT, to support its conclusion that the undisclosed income was correctly computed based on the evidence found during the search and related post-search inquiries.

Conclusion:
The Tribunal upheld the orders of the CIT(A) in all five cases, dismissing the appeals filed by the assessee-firms. The Tribunal concluded that the arguments put forward by the learned Authorised Representative lacked merit, and the evidence found during the search justified the treatment of the amounts as 'undisclosed income' under the relevant provisions of the Income Tax Act.