2014 (9) TMI 390 - HC - Income Tax

Block assessment - Books of accounts forming part of return - Whether the amount reflected in Books of Account forming part of returns of a particular AY can constitute the subject matter of the proceedings under Chapter-XIVB of the Income Tax Act Held that - Section 158B(b) of the Act defines the term undisclosed income Following the decision in Commissioner Of Income-Tax Versus Vinod Danchand Ghodawat 2000 (6) TMI 13 - BOMBAY High Court - only such adverse material, as was unearthed during the search, alone can be the basis for the purpose of block assessment, and not the one, that disclosed in the books of accounts in the earlier assessment years - there is no duty cast on the assessee to draw specific attention to each and every item of the books of accounts and it is for the ITO to draw conclusions, based on the record and material placed before him and elicit clarifications in the event of doubt - the amounts which were disclosed in the books of accounts for the earlier assessment years cannot be treated as undisclosed income, in the block assessment proceedings Decided in favour of assessee. Deduction on unaccounted cash payments - Whether an assessee is entitled to claim deductions or allowances in respect of amounts which are found as unaccounted cash payments in the course of search under the resultant block assessment Held that - The Tribunal was rightly of the view that the payments and receipts and the source of expenditure, have not been explained satisfactorily and it were not reflected in the books of accounts of the assessee - each of the amounts which are added by invoking Section 69C of the Act, did not form part of the books of accounts and that there was no proper explanation or supporting material, as to their source, in spite of opportunity was given to the appellant by the AO - Section 69C of the Act would take in its sweep, not only of the expenditure which was reflected in the books of accounts about also the other items of expenditure regarding which no proper explanation is forthcoming from the assessees, once they were discovered in the course of search and seizure Decided against assessee.

Issues:
1. Inclusion of items in block assessment already shown in regular returns.
2. Assessment of share holder as benami and its impact on company income.
3. Inference of all shareholders as benami based on one shareholder's statement.
4. Dismissal of appeal without adjudicating on additional evidence.
5. Claim for peak balance assessment instead of aggregate amount.
6. Retroactive or prospective nature of Section 69C amendment.
7. Deducting business expenditure from cash outside books.

Analysis:

Issue 1: Inclusion of items in block assessment already shown in regular returns
The appellant contested the addition of amounts already disclosed in regular returns as undisclosed income in block assessment. The High Court held that only adverse material discovered during search can form the basis for block assessment, not items disclosed in earlier returns. Citing precedents, the court ruled in favor of the appellant, stating that amounts in books of accounts for earlier years cannot be treated as undisclosed income in block assessment.

Issue 2: Assessment of share holder as benami and its impact on company income
The appellant argued that if a shareholder is deemed benami, only the real shareholder should be assessed for investments. The court examined this claim and held that the addition of amounts as undisclosed income in block assessment is unsustainable if the appellant is not legally capable of owning its own shares. The court ruled in favor of the appellant on this issue.

Issue 3: Inference of all shareholders as benami based on one shareholder's statement
The appellant questioned whether all shareholders can be deemed benami based on one shareholder's statement without individual examination. The court did not directly address this issue in the judgment provided.

Issue 4: Dismissal of appeal without adjudicating on additional evidence
The appellant raised concern about the Tribunal dismissing the appeal without considering additional evidence. However, the judgment did not delve into this issue in detail.

Issue 5: Claim for peak balance assessment instead of aggregate amount
The appellant sought assessment of peak amounts instead of aggregate amount based on transaction details. The court did not directly address this issue in the judgment provided.

Issue 6: Retroactive or prospective nature of Section 69C amendment
The appellant questioned the retrospective or prospective application of the Section 69C amendment. The court did not delve into this issue in the judgment provided.

Issue 7: Deducting business expenditure from cash outside books
The appellant claimed deductions for business expenditure paid in cash outside the books. The court examined the relevant provisions and held that undisclosed expenditure discovered during search can be deemed income, disallowing corresponding deductions. The court ruled against the appellant on this issue.

In conclusion, the High Court ruled in favor of the appellant on the first two issues regarding inclusion of items in block assessment and assessment of share holder as benami. The judgment did not address the remaining issues in detail, and the appeal was partly allowed with no costs awarded.

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