2011 (11) TMI 491 - HC - Income Tax

Block assessment - Search and seizure - suppression of receipts towards the three contracts and finding of incriminating material - Tribunal annulled the order passed u/s 158 BD - Held that - Wherefore, in the absence of actual documents which were incriminating against the assessee for having undisclosed income, there was no material whatsoever to initiate proceedings against the assessee u/s 158BC r.w.s l58BD. Also, said firms which have made payment according to the Revenue, to the assessee, have deducted the tax at source and the same is intimated to the Department. Wherefore, when the Department had knowledge about the payment made to the assessee and deduction of tax made at source the said income cannot be said in be undisclosed. Further as no returns were filed in the block period, material on record reveals that returns have been filed in the block period. Therefore, tribunal has rightly annulled order passed u/s 158BD - Decided in favor of assessee.

Summary

Issues:
1. Appeal against the order passed by the Income Tax Appellate Tribunal.
2. Initiation of proceedings under Sec. 158BC R/w Sec. 158BD of the Income Tax Act.
3. Assessment of undisclosed income based on incriminating material found during a search.
4. Acceptance of completed contract method of accounting by the Revenue.
5. Justification of the Tribunal's decision to annul the order passed under Sec. 158BD of the Act.

Analysis:
1. The appeal was filed by the Revenue against the order passed by the Income Tax Appellate Tribunal, Bangalore Bench 'A', which set aside the order under Sec. 158BD of the Income Tax Act and the appeal filed by the assessee. The Tribunal found no incriminating material against the assessee, as payments received were subject to tax deduction at source and known to the Department. The completed contract method of accounting was accepted, leading to the conclusion that there was no undisclosed income. The Tribunal's decision was based on these findings.

2. The Revenue contended that incriminating material was found during a search, justifying the initiation of proceedings under Sec. 158BC R/w Sec. 158BD. The Revenue argued that despite tax deduction at source, the income was undisclosed as per the Assessing Officer's findings. The Revenue challenged the Tribunal's decision, stating that the original records did not support the conclusion of no undisclosed income.

3. The Court scrutinized the material on record and found that no actual incriminating documents against the assessee were seized during the search. The inventory of materials found was not sufficient to establish undisclosed income. The Court emphasized that the deduction of tax at source and intimation to the Department indicated that the income was not undisclosed. The Court cited previous judgments supporting this reasoning.

4. Despite arguments that no returns were filed for the block period, the Court noted that returns were indeed filed. The acceptance of the completed contract method of accounting by the Revenue in previous assessments indicated no undisclosed income. The Tribunal's decision to annul the order under Sec. 158BD was upheld, as the completed contract method was accepted, and no error or illegality was found in the Tribunal's decision.

5. The Court dismissed the appeal, ruling in favor of the assessee and holding that the Tribunal's decision was justified. The Tribunal's annulment of the order under Sec. 158BD was upheld, as the appeal lacked merit. The Court did not delve into the merits of the case, as an expression on merit would be academic in this context.