2010 (10) TMI 808 - HC - Income Tax

Block assessment - unaccounted sales - First appellate authority took the view that the undisclosed income estimated by the Assessing Officer works out to 60 to 85 per cent of the turnover. Surprisingly he does not state what is the basis of his adopting the turnover of the assessee for each year of the block period which are not stated in the order. - Held that - neither the CIT (Appeals) nor the Tribunal has considered the appeal in the way they ought to have done that is by analysing the evidentiary value of the seized documents and the statements recorded and check whether the conclusions drawn by the Assessing Officer based on the evidence is tenable or not. When there is no proper exercise of jurisdiction by the first appellate authority particularly in a case of block assessment where undisclosed income has to be assessed based on evidence gathered on inspection in terms of section 158BB(1) of the Act the recourse open to us is only to set aside the orders issued in appeal by the Tribunal and that of the first appellate authority and remand the matter to the CIT (Appeals) for fresh decision.

Issues:
Block assessment under Income-tax Act based on undisclosed income; Correctness of estimation of income in block assessment; Justification of Tribunal's confirmation of CIT(A)'s order without reference to material evidence.

Analysis:
1. The appeal pertains to a block assessment for a partnership firm engaged in the manufacture and sale of wooden decorative items. The department discovered unaccounted sales by the firm, where bills reflected lower amounts than the actual sale prices. The firm also suppressed 99% of the price in its books. The Assessing Officer identified surplus unaccounted income deposited in various bank accounts of partners.

2. The firm disclosed additional unaccounted income for the block period. The Assessing Officer assessed undisclosed income significantly higher than the disclosed amount. The CIT (Appeals) made a minor addition to the undisclosed income, which was accepted by the firm. The department appealed the decision, challenging the modification of income estimation.

3. During the hearing, the department argued that the authorities did not consider seized materials and recorded statements as evidence. The firm contended that the questions raised were related to modification of undisclosed income, not substantial legal issues. The block assessment detailed the firm's income pattern before and after the search, showing a significant increase in undisclosed income.

4. The Court observed that the appellate authorities did not analyze the seized records or statements, which are crucial for a block assessment. The undisclosed income estimated by the Assessing Officer was a substantial portion of the turnover. The CIT (Appeals) estimated income without proper basis or reference to evidence, leading to an incorrect decision.

5. The key legal question was whether the Tribunal was justified in upholding the CIT(A)'s decision without considering material evidence as required by the Income-tax Act. The lack of proper analysis of evidence by the appellate authorities necessitated setting aside their orders and remanding the case for a fresh decision based on evidence gathered during search and survey.

6. The Court emphasized the importance of assessing undisclosed income based on seized documents and statements to ensure a fair and accurate block assessment. The firm's cash transactions and bank deposits were not properly considered in estimating income. The remand to the CIT (Appeals) was deemed necessary for a thorough reevaluation of the case based on relevant evidence.

7. Ultimately, the appeal by the revenue was allowed, overturning the Tribunal's decision and remanding the matter to the first appellate authority for a fresh decision. The Court stressed the need for a proper examination of evidence in block assessments to ensure a just and lawful determination of undisclosed income.

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