2013 (2) TMI 174 - HC - Income Tax

Block assessment - computation of period of Block - undisclosed income - Search - sum of Rs.50 lakhs detected as a loan given to Sri T. Balakrishna - which had not been recorded in the books of account - Held that - object of introducing Chapter XIV-B into the statute book is to ensure that the need for invoking reopening provision, viz., section 147 of the Act and a limitation placed therein are all in the interests of the Revenue - also counter productive for the Revenue and the purpose of providing a degree of protection to honest assessees, who had already filed their returns of income - Provisions of Chapter XIV-B call for a strict construction and not to either vaguely or loosely relieve an erring assessee from the rigour of these statutory provisions. If an undisclosed income is found to attract the provisions of Chapter XIV-B, then there is no escape for an assessee from the applicability and the consequences that follow on the application of this provision of law. As per the statutory provision, the exclusion of the income from assessment of block period, if it is attributable to the part of the accounting period of the year in which the search has been conducted, it is possible only of and only when the assessee has produced before the AO such of his books of account which are maintained in the normal course of business activity of the assessee, wherein is recorded the entries indicating the generation of income to the part of the accounting period and then only to exclude that part of the income from that segment of accounting period and allow the assessee to file a return excluding the income in the later assessment and not otherwise. In the present case, the assessee never made any offer for bringing to the notice of the Assessing Officer such a possibility by producing relevant material and in fact we find that the assessee is not even informed about the activity to the Revenue - Therefore this appeal is to be allowed against the order of the Appellate Tribunal being without any rhyme or reason and not in consonance with the statutory provisions and not even in consonance with the material on record - In favour of the Revenue

Issues Involved:
1. Treatment of Rs. 50 lakhs detected during the search as undisclosed income.
2. Preclusion of the Department from bringing Rs. 50 lakhs to tax in block assessment due to prior detection in a survey.

Issue-wise Detailed Analysis:

1. Treatment of Rs. 50 lakhs detected during the search as undisclosed income:

The primary issue revolves around whether the Rs. 50 lakhs detected during a search on July 19, 1999, can be treated as undisclosed income of the assessee for the block period. The Tribunal held that this amount, detected as a loan given to an individual named T. Balakrishna, could not be treated as undisclosed income since it was not recorded in the assessee's books of accounts. The Revenue argued that the assessee admitted to the loan transaction during the search, and thus it should be included in the block assessment.

The High Court found that the object of introducing Chapter XIV-B into the statute book was to ensure effective taxation of undisclosed income without the need for reopening provisions like section 147 of the Act. The Court emphasized that the provisions of Chapter XIV-B call for strict construction to prevent dishonest assessees from evading taxes. The Court concluded that the Tribunal's decision to exclude the Rs. 50 lakhs from the block assessment was not in consonance with the statutory provisions and the material on record. Therefore, the High Court set aside the Tribunal's order and restored the Assessing Officer's decision to include the Rs. 50 lakhs in the block assessment.

2. Preclusion of the Department from bringing Rs. 50 lakhs to tax in block assessment due to prior detection in a survey:

The second issue concerns whether the Department, being aware of the Rs. 50 lakhs from a survey conducted under section 133A of the Act on July 13, 1999, was precluded from bringing it to tax in the block assessment. The Tribunal had held that since the Department was already aware of this income before the search, it could not be treated as undisclosed income for the block period.

The High Court examined the statutory provisions, particularly section 158BB, which defines the computation of undisclosed income for the block period. The Court noted that the exclusion of income from block assessment is possible only if the assessee produces books of account maintained in the normal course of business, indicating the generation of income for the part of the accounting period. In this case, the assessee did not produce such books of account or inform the Department about his business activity. Consequently, the High Court found no scope for excluding any part of the Rs. 50 lakhs from the block assessment. The Court concluded that the Tribunal's order was based on a misunderstanding of the facts and law, and it restored the Assessing Officer's decision to include the entire Rs. 50 lakhs in the block assessment.

General Observations:

The High Court expressed concern over the quality of orders from the Tribunal, noting that many orders were non-speaking and unrelated to the facts of the case. The Court emphasized the need for strict construction of statutory provisions to prevent dishonest assessees from evading taxes. The Court also recommended a review of the recruitment process for Tribunal members to ensure competence and integrity.

Conclusion:

The High Court allowed the appeal, answering the substantial questions of law in favor of the Revenue and against the assessee. The Court directed the Registrar General to send copies of the judgment to relevant authorities, including the Law Commission of India and the Central Board of Direct Taxes, to ensure suitable legislative measures are taken to address the issues observed.

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