2010 (2) TMI 942 - HC - Income Tax

Block assessment - Unexplained, undisclosed investment - held that - a finding recorded by the Tribunal assuming it to be on a fact by the Tribunal to the effect that there was a Hindu undivided family and certain investments said to be explained by the assessee in whose returns it was found as unexplained to be the income of the Hindu undivided family and in turn gift given to the assessee is nothing short of a perverse finding or inference not tenable in law nor stipulated on material available. - the finding is clearly an illegal finding in law and we express our surprise and shock that a quasi-judicial authority like the Income-tax Appellate Authority should have exercised in a mechanic/ casual manner, to unsettle the settled legal principles to record and a find- ing of this nature in favour of the assessee when it was never warranted either on facts or in law - Decided in favor of revenue. Issue of period of limitation - held that - the assessee having actively participated in the proceedings, if not for joining issue at least for seeking further time for filing its returns and if the assessee had not thought it proper to raise the question of limitation before the very assessing autho- rity, it cannot be said that the assessee has got an opportunity to raise the question of limitation for the first time only before the Tribunal and that too only after the assessing authority passed the order. - assessee being quite aware of the fact that as on March 31, 1997, no block assessment order had been passed, and even as contended there was no possibility of passing a block assessment order, the contention that it was not within the knowledge of the assessee as to when the Assessing Officer would pass the block assessment order is not tenable - Decided against the assessee. Cross objection in second appeal - held that - even if a cross-objection is possible or permitted and assuming on such premise also cross-objection is definitely not permissible under section 260A of the Act based only on the language of sub-section (7) of section 260A and in the absence on any express enabling provision creating a right of cross-objection. It is on an over all examination of all these aspects, we hold that a cross-objection is not permitted in an appeal under section 260A of the Act. Valuation of property - held that - any unexplained investments, expenditure or an asset found in the hands of the assessee which is attributable to a search can definitely be brought to tax under the provisions of section 158BC of the Act as part of the block assessment and, therefore, we are of the view that the Tribunal has unnecessarily interfered with the findings of the Assessing Officer in accepting the valuation as indicated by the Depart- mental Valuation Officer. Unexplained investment - held that - It is not for the Assessing Officer to produce some negative evidence, but for the assessee who puts forth a claim, to make good the claim by producing evidence. If the assessee had claimed some amount had come back to him and that formed a reinvestment, etc., that stand should have been made good by the assessee and not disproved by the Assessing Officer. - Decided against the assessee. Peak Cash credit - bank account - held that - There can be only one peak and not several peaks, but in the very scheme of the income-tax assessments and the manner of computing undisclosed income, that too by the present method of the unexplained credits in the bank account, we do not find the method adopted by the Assessing Officer to be obnoxious enough to warrant interference by the Tribunal or to upset the same by us on the basis of arguments addressed by Sri Shankar, learned counsel for the assessee. It is for this reason we inevitably answer this question in favour of the Revenue and against the assessee and by setting aside this finding of the Tribunal and sustaining the finding of the Assessing Officer. Determination of cost of construction - difference between the cost of construction as ascertained by the Departmental Valuation Officer and as declared by the appellant - held that - the amount cannot constitute an undisclosed source of investment to treat it as an income on the premise of unexplained source for further investment. - Decided in favor of assessee.

Issues Involved:
1. Validity of the block assessment order under section 158BC of the Income-tax Act, 1961.
2. Attribution of undisclosed income to the assessee or the Hindu Undivided Family (HUF).
3. Valuation of property and unexplained investments.
4. Limitation period for passing the block assessment order under section 158BE.
5. Whether cross-objections are tenable in an appeal under section 260A of the Act.

Issue-wise Detailed Analysis:

1. Validity of the Block Assessment Order:
The block assessment order passed under section 158BC of the Income-tax Act, 1961, was challenged on the grounds of limitation and the attribution of undisclosed income. The Tribunal had set aside the assessment order, but the Revenue sought to restore it. The court examined whether the block assessment order was barred by limitation under section 158BE and whether the assessment was justified based on the evidence.

2. Attribution of Undisclosed Income to the Assessee or HUF:
The Tribunal had accepted the assessee's claim that the income was attributable to the HUF's money-lending activities. However, the court found this reasoning to be perverse and unsupported by evidence. The burden of proving the existence of the HUF and its income was on the assessee, not the Assessing Officer. The court held that the Tribunal's finding was illegal and unsustainable, and the income should be attributed to the assessee.

3. Valuation of Property and Unexplained Investments:
The valuation of the property and the unexplained investments were significant issues. The Tribunal had reduced the valuation determined by the Departmental Valuation Officer by allowing deductions for local rates and self-supervision charges. The court found that the Tribunal's reasoning was flawed and that the valuation by the Departmental Valuation Officer was justified. The court also rejected the assessee's claim of self-supervision as unsupported by evidence.

4. Limitation Period for Passing the Block Assessment Order:
The court examined whether the block assessment order was barred by limitation under section 158BE. The assessee argued that the assessment order passed on May 26, 1997, was beyond the permissible period. However, the court found that the period of limitation was elastic and could be extended based on the facts and circumstances of the case. The court held that the assessment order was not barred by limitation, considering the conduct of the assessee in seeking extensions for filing returns.

5. Cross-Objections in Appeals under Section 260A:
The court examined whether cross-objections are tenable in an appeal under section 260A of the Act. The court held that cross-objections are not permissible in appeals under section 260A, as it is akin to a second appeal under section 100 of the Code of Civil Procedure. The court emphasized that a right of appeal is a substantive right and cannot be inferred without an express provision.

Conclusion:
The court allowed the Revenue's appeals in part, setting aside the Tribunal's findings on the attribution of income to the HUF, valuation of property, and unexplained investments. The court upheld the block assessment order and rejected the assessee's claims of limitation and cross-objections. The court directed the Assessing Officer to correct the assessment order to the extent of excluding the addition of Rs. 3.10 lakhs, which was found to be attributable to the sale of a car. The court appreciated the quality assistance rendered by the counsel for both parties.

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