2010 (12) TMI 731 - AT - Income Tax

Seach and seizure - Block assessment - Undisclosed income - the fact of the assessee becoming a major on 7.1.2000 is borne out by the assessee s date of birth, which finds mention in the return of income in Form 2B as duly verified and filed by the assessee - The fact of the assessee being a minor for a part of the block period, and for which the assessee adverts to the mention of her date of birth on the return form itself, would not operate to disqualify or imbue the notice, issued on a major, with legal infirmity - assessee s undisclosed income upto the date of her minority be, for the purpose of its assessment under the Act, included in the computation of undisclosed income of her father, who also stands assessed in respect of undisclosed income for the relevant block period.

Issues Involved:
1. Validity of block assessment proceedings and issuance of notice under section 158BD read with section 158BC.
2. Satisfaction of the Assessing Officer regarding material found during the search.
3. Assessment of income for the period when the assessee was a minor.
4. Legality of estimating undisclosed income.
5. Quantum of undisclosed income assessed.
6. Levy of surcharge on the assessed tax.

Detailed Analysis:

1. Validity of Block Assessment Proceedings and Issuance of Notice:
The assessee contested the validity of the block assessment proceedings, arguing that the notice under section 158BD read with section 158BC was issued without any material found during the search linking her to undisclosed income. The assessee also highlighted her minor status during some of the previous years. The tribunal found no infirmity in the issuance of the notice, emphasizing that the definition of 'assessee' under the Act does not exclude minors. The tribunal upheld the notice's validity, stating that the assessment for the block period had to be framed on her by issuing the notice in her name, despite her being a minor during part of the block period.

2. Satisfaction of the Assessing Officer:
The assessee argued that the required satisfaction regarding undisclosed income was not recorded properly. The tribunal noted that the Assessing Officer of the assessee's father had sufficient material to infer undisclosed income of the assessee. The satisfaction was evident from the assessment order of the person searched, and no specific format is required for recording such satisfaction. The tribunal found the satisfaction to be prima facie and manifest in the assessment order, thus validating the initiation of proceedings under section 158BD.

3. Assessment of Income for the Period When the Assessee Was a Minor:
The assessee contended that she had no known source of income during the relevant period and was a minor. The tribunal clarified that any income assessable as undisclosed income, not arising from personal labor or skill, should be included in the hands of the parent with the higher income. The tribunal rejected the applicability of the decision in CIT v. Smt. (P.K.) Noorjahan, stating that the assessee had resources to purchase the plot, and the reality of the circumstances should be considered. The tribunal directed that the assessee's undisclosed income up to the date of her minority be included in her father's computation of undisclosed income.

4. Legality of Estimating Undisclosed Income:
The assessee challenged the estimation of undisclosed income, arguing that it cannot be made on an estimate basis. The tribunal held that there is no legal bar on the Assessing Officer's power to frame an assessment based on relevant materials and cogent inferences. The tribunal emphasized that the principles governing the assessment of income remain the same, whether for disclosed or undisclosed income.

5. Quantum of Undisclosed Income Assessed:
The assessee did not point out any specific infirmity in the orders of the authorities below regarding the quantum of undisclosed income assessed. The tribunal adjusted the purchase price of the land to Rs.54,000 per cent instead of Rs.60,100 adopted by the Revenue, considering a normal price increase. The tribunal also upheld the cost of construction as adopted by the Assessing Officer based on the valuation report submitted by the assessee. The tribunal found no merit in the assessee's contention regarding house warming expenses and other related claims.

6. Levy of Surcharge on the Assessed Tax:
The assessee argued against the levy of surcharge, stating that section 113 of the Act, which extended the levy of surcharge to assessments under section 158BC, is prospective. The tribunal referred to the decisions in CIT v. Suresh N. Gupta and CIT v. Rajiv Bhatara, which held the proviso to section 113 to be clarificatory and applicable to all assessments made under Chapter XIV-B. The tribunal upheld the levy of surcharge, noting that a favorable view by the apex court would lead to rectification.

Conclusion:
The tribunal partly allowed the assessee's appeal, directing that the undisclosed income up to the date of the assessee's minority be included in her father's computation of undisclosed income. The tribunal upheld the validity of the block assessment proceedings, the estimation of undisclosed income, and the levy of surcharge on the assessed tax.

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