2014 (11) TMI 267 - HC - Income Tax

Taxability of income - Regular assessment or block assessment - Whether the Tribunal was correct in holding that after the search and in the consequential survey it was discovered that the assessee had adopted a modus operandi where there was separation of sales which could be brought to tax in regular assessments and not in Block assessment - Held that - During the search no undisclosed income was detected - No seizure of incriminating materials was made - It is only in the course of survey, the incriminating material was found - That material is not relatable to any incriminating material found during survey - on the basis of the incriminating material found in the course of survey merely because the same was put to the Assessee and his statement was recorded subsequent to the search, it cannot be held to be relatable to the Assessee - the authorities were justified in holding that the material found in the course of survey can become the subject matter of regular assessment and it cannot become the subject matter of Block assessment thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
1. Interpretation of whether sales separation can be taxed in regular assessment or block assessment post search and survey.

Analysis:
The judgment pertains to appeals filed by the Revenue against an order by the Income Tax Appellate Tribunal. The common question of law raised was whether the Tribunal was correct in determining that the Assessee's modus operandi, involving separation of sales, should be taxed in regular assessments rather than block assessment. The search under Section 132 of the Income Tax Act was conducted on the Assessee's residential premises, with subsequent surveys on different dates. No incriminating materials were found during the search, but during the survey in the business premises, materials related to a bank account with heavy deposits and withdrawals were discovered. The assessing authority estimated undisclosed income based on these findings and issued a block assessment order, which was challenged by the Assessee.

The first appellate authority set aside the block assessment order, stating that computing undisclosed income based on survey documents was impermissible. The Revenue appealed to the Tribunal, which upheld the appellate authority's decision. The Tribunal considered the amendments to Section 158 BB and ruled that income computed as undisclosed could not be taxed under block assessment if not detected during the search, directing it for regular assessment instead. The Revenue appealed this decision.

The High Court analyzed the case, noting that no undisclosed income was detected during the search, only during the survey. The incriminating material found during the survey was deemed unrelated to the search findings. Therefore, the Court agreed with the authorities that such material should be subject to regular assessment and not block assessment. Consequently, the Court dismissed the appeals, ruling in favor of the Assessee and against the Revenue.

In conclusion, the judgment clarifies the distinction between regular assessment and block assessment concerning undisclosed income discovered post-search and survey. It emphasizes the importance of the source of incriminating material in determining the appropriate assessment method, ensuring fair tax treatment based on the circumstances of discovery.