2014 (11) TMI 943 - HC - Income Tax

Application of section 254(2) Income remains undisclosed or not - Bar of limitation u/s 158BD - Whether the Tribunal is right in entertaining and allowing the application filed by the assessee u/s 254(2) and holding that amount of 13, 62, 865/- was not undisclosed income and further directing the AO to assess the amount while framing regular assessment for the AY 1995-96 and whether inclusion of proposed amount as undisclosed income for the block period is barred by Explanation (b) below sub-section (2) of Section 158BA read with section 139 (5) Held that - The assessee had filed return of income for AY 1995-96 showing total income at 101792 - Later on the assessee filed a revised return showing income of 14, 64, 657/- on 16.01.1996 including capital gain taking the sale price of land at 1821101 The Tribunal was rightly of the view that the Block period for the purpose of assessment has been taken as the period ending 5-1-1996 which is the date of search in the case of Shri B.B. Solanki (father of the assessee) and the assessee. The seized paper did contain reference to plots of land belonging to the assessee in relation to which cheque payments were received by the assessee and accounted for in his return filed in the normal course of business but there were also other notations on the seized paper which points to the transfer/payment of 45 lacs cash may be form the purchasers to Shri. Vijay C. Shah or to the assessee and as such the AO was justified in issuing notice u/s 158BD to the assesee on the basis of information which came into his possession consequent to the search and seizure operation in the case of Shri Vijay C. shah whose premises were searched on 22-10-1995 - the order u/s 158BD has also passed on 29- 1-1998 i.e. within one year from the date service of the notice u/s. 158 it is within the limitation provided in the Act and as such cannot be held to be time barred the order of the Tribunal is upheld Decided against revenue.

Summary

Issues Involved:
1. Interpretation of provisions under Section 254(2) of the Income Tax Act, 1961.
2. Application of Explanation (b) below sub-section (2) of Section 158BA read with Section 139(5) of the Act.

Analysis:

Issue 1: Interpretation of Section 254(2) of the Income Tax Act, 1961
The case involved a dispute regarding the treatment of an amount of Rs. 13,62,865 as undisclosed income of the assessee for the block period. The Tribunal allowed the application filed by the assessee under Section 254(2) and directed the Assessing Officer to assess the said amount while framing the regular assessment for the assessment year 1995-96. The revenue contended that the Tribunal erred in holding that the amount was not undisclosed income. The revenue relied on precedents to argue that the provisions under Chapter XIV-B for undisclosed income and regular assessment under Section 143(3) serve different purposes. The Court noted that the assessee had revised the return before receiving the notice under Section 158BD. The Tribunal found that incriminating evidence related to cash payments was found during a search, justifying the issuance of notice under Section 158BD. The Court upheld the Tribunal's decision, stating that the Tribunal did not commit any error in its order.

Issue 2: Application of Explanation (b) below sub-section (2) of Section 158BA read with Section 139(5)
The second substantial question of law raised in the appeal was whether the inclusion of the proposed amount of Rs. 13,62,865 as undisclosed income for the block period was barred by Explanation (b) below sub-section (2) of Section 158BA read with Section 139(5) of the Act. The respondent argued that Section 158BD was wrongly invoked in the case, as the assessee was already subject to a search action under Section 132. The respondent contended that the order passed under Section 158BD was legally flawed. The Court considered the arguments presented and found in favor of the respondent, stating that the appeal lacked merit and deserved to be dismissed.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision regarding the treatment of the amount as undisclosed income and finding that the invocation of Section 158BD was justified in the case.