2015 (1) TMI 103 - HC - Income Tax

Validity block assessment u/s 158BD search conducted in the premises and not against assessee - Notice served for suppression of income - Held that - Making of block assessments is a rare phenomenon - It is only in respect of the assessees who are suspected to have withheld the important information and thereby, the income, that the searches are made in ACIT Vs. HOTEL BLUE MOON 2010 (2) TMI 1 - SUPREME COURT OF INDIA it was observed that it is only when some material which did not form part of the books of account, the returns and the corresponding orders of assessment is unearthed in the course of search, that an order of block assessment can be passed - no search as such was conducted against the respondent - the proceedings under Chapter XIVB of the Act were initiated against him on the basis of the alleged discoveries in the course of search, conducted in the premises of M/s. Mahaveer Group of Companies - it is quite possible that if a search, conducted against one assessee reflects some facts and figures referable to another assessee, proceedings can be initiated against the latter also - the finding that there was suppression of the sale of gift articles worth ₹ 49,90,175/- by M/s. Mahaveer Group of Companies itself is not well-founded - in their books of account, the transactions were very much reflected - the respondent has shown the purchase of the gift articles not only in their books of account, but also in the returns - there did not exist any occasion or basis for the Department to initiate block assessment proceedings against the respondent- the order of the Tribunal is upheld Decided against revenue.

Issues:
1. Validity of block assessment under Chapter XIVB of the Income Tax Act.
2. Interpretation of Section 158BB of the Act.
3. Initiation of block assessment proceedings without a search against the respondent.
4. Consideration of evidence and disclosures in determining the need for block assessment.
5. Justification for initiating block assessment proceedings against the respondent.

Validity of Block Assessment under Chapter XIVB of the Income Tax Act:
The case involved the respondent, a liquor dealer, who faced block assessment proceedings under Chapter XIVB of the Income Tax Act. The respondent's income for the years 1992-93 and 1993-94 was initially reported as Rs. 4,490 and Rs. 20,540, respectively. However, a subsequent search revealed gift articles worth Rs. 49,90,175 sold to the respondent, leading to a block assessment covering the period 1987-88 to 1997-98. The Tribunal allowed the respondent's appeal, prompting the Revenue to file an appeal under Section 260A of the Act.

Interpretation of Section 158BB of the Act:
Section 158BB of the Act outlines the computation of undisclosed income for the block period. The provision requires a comparison of disclosed income in previous assessments with new evidence discovered during a search. The Court referred to precedents like ACIT Vs. HOTEL BLUE MOON and SRINIVASA FERRO ALLOYS LIMITED Vs. ASSISTANT COMMISSIONER OF INCOME TAX to emphasize that block assessments are warranted only when new material not previously disclosed is unearthed during a search.

Initiation of Block Assessment Proceedings without a Search against the Respondent:
The respondent did not undergo a search; instead, block assessment proceedings were initiated based on discoveries during a search of M/s.Mahaveer Group of Companies. The Court clarified that proceedings against an assessee can be initiated if information from one search relates to another assessee, provided the discovered income was not previously disclosed by the latter.

Consideration of Evidence and Disclosures in Determining the Need for Block Assessment:
The Court highlighted that the alleged suppression of sale by M/s.Mahaveer Group of Companies was unfounded, as the transactions were recorded in their books. Moreover, the respondent had documented the purchase of gift articles in their records and returns, which the Assessing Officer accepted in the earlier assessment. Therefore, the Court found no basis for initiating block assessment proceedings against the respondent.

Justification for Initiating Block Assessment Proceedings against the Respondent:
The Tribunal's decision to dismiss the appeal was upheld, as it correctly analyzed the lack of grounds for initiating block assessment proceedings against the respondent. The Court emphasized that the respondent had disclosed the relevant transactions, and the Department had no valid reason to proceed with punitive measures under Chapter XIVB of the Act.

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