2011 (9) TMI 325 - HC - Income Tax

Undisclosed income - Block assessment - Held that - in the entire scheme of arriving at the undisclosed income for the block period there is no scope for estimating the income. It should be on actuals. In other words the assessing officer cannot estimate the undisclosed income. - If it is a case of estimation of income it falls outside the said provision. In Section 158BB the Parliament has consciously used two words one computing and the other assessment . - The word computation is completely distinct and different from the word estimate which means the action of valuing or appraising an approximate calculation based on probabilities. - In the instant case admittedly the seized material showed undisclosed income for a period of 89 days. On that basis the assessing officer has estimated the undisclosed income for 365 days and then has arrived at the undisclosed income for two years. Such a computation of income based on estimation is contrary to the aforesaid statutory provision. - Decided in favor of assessee.

Summary

Issues:
1. Estimation of undisclosed income based on seized material.
2. Interpretation of Section 158BB for computation of undisclosed income.
3. Justification of the Tribunal's decision regarding undisclosed income.

Estimation of Undisclosed Income Based on Seized Material:
The case involved a private limited company engaged in saree processing, where a search revealed two types of delivery challans, one accounted for and the other unaccounted. The assessing officer estimated undisclosed income for two years based on a comparison of regular and unprinted delivery challans. The Tribunal found the seized material only provided quantitative information, leading to an estimate of sales price and damages. Despite the assessing officer's estimation, the Tribunal held that the undisclosed income should be based on evidence found during search. As the assessee admitted to unaccounted transactions and destroyed receipts, the Tribunal accepted the declared income of Rs. 10,00,000, considering factors like the young age of the entrepreneur and limited business duration.

Interpretation of Section 158BB for Computation of Undisclosed Income:
Section 158BB(1) mandates computing undisclosed income for the block period based on seized evidence and related information, without room for estimation. The distinction between "computation" and "estimate" is crucial, with computation involving precise calculation from available data. In contrast, estimation implies an approximate calculation based on probabilities. The assessing authority's role is to compute undisclosed income within the block period, not assess or estimate it. In cases where incriminating materials are found, and accounts are unavailable or destroyed, estimation may be necessary. However, when computation is required, it must rely on seized material.

Justification of the Tribunal's Decision Regarding Undisclosed Income:
The Tribunal's decision to accept the declared income of Rs. 10,00,000 as undisclosed income was upheld by the High Court. The Tribunal's reasoning, considering the seized material's limited scope, the entrepreneur's age and business experience, and the absence of undisclosed income for the previous assessment year, supported the conclusion. The Court emphasized that estimation of undisclosed income based on seized material for a longer period was contrary to statutory provisions. Therefore, the Tribunal's decision to restrict the undisclosed income to the declared amount was deemed appropriate, leading to the dismissal of the revenue's appeal.

This detailed analysis provides a comprehensive overview of the judgment, covering the issues of estimation of undisclosed income, interpretation of relevant legal provisions, and the justification for the Tribunal's decision.