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2011 (9) TMI 751 - HC - Income TaxBlock assessment - Search - Undisclosed Income - Validity of notice issued under 158BC for assessment under 158BD - Held that - When proceedings are initiated in terms of Section 158BC against a person who is covered under Section 158BD and the notice to be issued is prescribed under the Act and in the absence of any prescription of a notice in a prescribed manner under Section 158BD the only notice that requires to be issued both under Sections 158B and 158BD is the notice which is prescribed. It is the notice prescribed under Section 158BC. Therefore, the contention that the assessment is under Section 158BD whereas notice issued under Section 158BC and therefore the entire proceedings in pursuance of such notice is void and is untenable. - Decided in favor of revenue. Undisclosed income versus opening capital - block assessment - held that - the said opening capital accrue to the assessees at a point of time anterior to the commencement of the block period, it cannot be treated as undisclosed income at all. The Tribunal was justified in directing deletion under that head. Estimation of income under block assessment - held that - When the Assessing Officer was calculating the gross sale receipts at the rate of Rs. 37/- per square feet, he forgot to take into consideration the cost of formation of layout, roads, drinking water and other expenses and other amenities. As is clear from his order, he has taken the cost of land as undisclosed and then made this calculation and reduced the cost of land and according to him the balance is the income which represents the undisclosed income. Therefore, the Tribunal was justified in setting aside the said finding.
Issues Involved:
1. Validity of notice issued under Section 158BC in respect of proceedings under Section 158BD. 2. Determination of undisclosed income during the block period. Issue-wise Detailed Analysis: Point No. 1: Validity of Notice Issued Under Section 158BC in Respect of Proceedings Under Section 158BD Background: The premises of certain entities were searched, and documents implicating the assessees were seized. Proceedings were initiated under Section 158BD, but the notice served was under Section 158BC. The Tribunal held that the notice issued under Section 158BC was void ab initio, rendering the assessment orders illegal. Revenue's Argument: The Revenue argued that Section 158BD did not require a separate notice and that the procedure prescribed under Section 158BC should be followed. They contended that the notice under Section 158BC was appropriate and valid. Court's Analysis: - Chapter XIV-B deals with special procedures for assessment in search cases, including Sections 158BA, 158BB, and 158BC. - Section 158BC mandates the service of notice to the person requiring them to furnish a return of income, including undisclosed income for the block period. - The court clarified that the amendment by Finance Act, 2002, which added "under Section 158BC," was clarificatory in nature. - It was held that the notice issued under Section 158BC in proceedings under Section 158BD was valid and not void ab initio. Conclusion: The Tribunal's finding that the notice issued under Section 158BC in respect of proceedings under Section 158BD is void ab initio was incorrect. The court ruled in favor of the Revenue on this point. Point No. 2: Determination of Undisclosed Income During the Block Period Background: The assessing authority framed assessment orders for the block period and issued a demand for payment of tax on the undisclosed income. The Tribunal set aside these orders, holding that there was no undisclosed income during the block period. Revenue's Argument: - The Revenue contended that the opening balance shown by the assessees was not supported by acceptable evidence and should be deemed as undisclosed income under Section 69. - They argued that the income from land transactions and other sources was not disclosed in the returns filed before the date of the search. Court's Analysis: - Opening Capital: The court noted that the opening capital shown as on 1-4-1985 could not be considered undisclosed income for the block period since it accrued before the block period began. - Land Transactions: The court found that the Assessing Officer's computation of undisclosed income from land transactions was based on assumptions and not on material seized during the search. The Tribunal was justified in setting aside these findings. - Transactions with M/s. Ramanashree Comforts: The court observed that the transactions were reflected in the returns filed before the search, and the assessing authority had no jurisdiction to include this income as undisclosed. - Transactions with M/s. Sripriya Promoters: The court held that the transactions were disclosed in the returns and did not constitute undisclosed income. - Diary Seizure: The court found that the diary entries did not justify treating the income as undisclosed at the hands of the assessees. Conclusion: The court ruled in favor of the assessees, holding that the Tribunal's findings on the absence of undisclosed income were based on legal evidence and did not suffer from any legal infirmity. Final Judgment: The court answered the first substantial question of law in favor of the Revenue and against the assessee, validating the notice issued under Section 158BC. The second substantial question of law was answered in favor of the assessee and against the Revenue, confirming the Tribunal's findings on the absence of undisclosed income. Consequently, the appeals were partly allowed.
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