2012 (5) TMI 18 - HC - Income Tax

Question of law - Order of the tribunal cancelling assessment - Block assessment - Search and seizure - assessment based on evidence - held that - the contention raised by Senior counsel for the Revenue is that when assessment of undisclosed income is based on concrete evidence received from the documents and accounts seized from the residence of assessee and the film distributor above referred, the Tribunal s refusal to uphold the assessment without any basis or material is a perverse finding which gives rise to a question of law. We find force in this contention because when block assessment of any item is made based on evidence collected in the course of search, the assessment under Section 158BC read with Section 158BD is supported by statutory provision namely, Section 158BB of the Act. The Tribunal cannot cancel the assessment of undisclosed income if the same is based on tenable and acceptable evidence recovered in the course of search and which is not disproved by the assessee. - Decided in favor of revenue. Block assessment - AO computed undisclosed income movie-wise and the basis of addition is that the film distributor namely, Sri.P.D.Abraham of Swargachitra Films for whom assessee produced the film, has accounted payment of higher amount than what is shown as received by the assessee in his books of accounts. - held that - The assumption by the C.I.T.(Appeals) as well as by the Tribunal that without the confirmation statement by the assessees undisclosed income cannot be assessed based on evidence gathered on search is wholly unrealistic and contrary to statutory scheme for assessment of undisclosed income under Chapter XIV B of the Act. We, therefore, set aside the order of the Tribunal and that of the first appellate authority and restore the addition of Rs.10 lakhs being the undisclosed income from the film Manathevellitheru . Regarding addition of Rs. 10 lakhs - held that - The first appellate authority as well as the Tribunal deleted the addition by stating that assessee has not given statement to corroborate the unaccounted income. We do not know what more evidence is required other than the clandestine account received from the assessee - Decided in favor of revenue. No other ground raised by the Revenue gives rise to any substantial question of law. In the result, we allow the appeal in part by sustaining a total addition of Rs.22,20,959/- and confirming the order of the Tribunal cancelling the balance addition of Rs.78,64,811/-.

Summary

Issues Involved:
1. Validity of block assessment under Section 158BC and 158BD.
2. Evidentiary value of documents and statements seized during the search.
3. Deletion of additions by the Tribunal.
4. Specific additions related to undisclosed income from films "Manathevellitheru," "No.1 Snehatheeram Bangalore North," and "Pappayude Sontham Appoose."

Detailed Analysis:

1. Validity of Block Assessment under Section 158BC and 158BD:
The respondent-assessee, involved in film production and direction, was subjected to a search operation under Section 132 of the Income Tax Act, leading to block assessments under Section 158BC for the period 1988-89 to 1997-98. The court emphasized that block assessments must be based on evidence found during the search or requisition of books of account or other documents as per Section 158BB. The court highlighted that the evidence from related assessees, such as the film distributor, is admissible under Section 158BB, supporting the combined assessment under Sections 158BC and 158BD.

2. Evidentiary Value of Documents and Statements Seized During the Search:
The court noted that the Assessing Officer relied on accounts and statements seized from both the respondent-assessee and the film distributor. The court rejected the respondent's contention that evidence from the distributor should not be considered, affirming that such evidence is admissible under Section 158BB. The court emphasized that the Tribunal cannot cancel assessments based on tenable and acceptable evidence recovered during the search unless disproved by the assessee.

3. Deletion of Additions by the Tribunal:
The first appellate authority and the Tribunal deleted most additions made by the Assessing Officer, which the Revenue challenged. The court upheld that assessments based on concrete evidence recovered during the search should not be dismissed without substantial reason. The court found the Tribunal's refusal to uphold the assessment without any basis or material to be a perverse finding, giving rise to a question of law.

4. Specific Additions Related to Undisclosed Income from Films:
- "Manathevellitheru": The Assessing Officer added Rs.10 lakhs as undisclosed income based on a realisation statement showing Rs.85 lakhs received by the assessee from the distributor, while only Rs.65 lakhs was recorded in the assessee's books. The court found the deletion of this addition by the appellate authorities unjustified, emphasizing that clandestine accounts need not contain names and addresses for validation. The court restored the addition of Rs.10 lakhs.

- "No.1 Snehatheeram Bangalore North": Similar to the previous case, the Assessing Officer added Rs.10 lakhs based on a realisation statement showing Rs.82 lakhs received, while only Rs.66 lakhs was recorded. The court reversed the Tribunal's deletion, restoring the addition of Rs.10 lakhs, citing the validity of the documentary evidence and corroborative statements.

- "Pappayude Sontham Appoose": For the assessment year 1994-95, the Assessing Officer added Rs.2,20,959/- based on realisation statements showing substantial differences in amounts. The court upheld the addition, reversing the Tribunal's deletion, as the distributor's corroborative statement supported the higher realisation amount.

Conclusion:
The court allowed the appeal in part, sustaining total additions of Rs.22,20,959/- while confirming the Tribunal's cancellation of the balance addition of Rs.78,64,811/-. The court expressed concern over the Central Government's lack of measures to curb black money generation and circulation, emphasizing the need for prohibiting large cash transactions to combat economic issues like counterfeit currency circulation.