2015 (2) TMI 729 - HC - Income Tax

Applicability of block assessments as per section 158BB - return of income had been filed by the assessee beyond the date prescribed under section 139(1) - Held that - It is clear that the income unearthed on the basis of evidence found as a result of search or requisition of the books of account or documents or such other materials or information available with the Assessing Officer and relatable to such evidence alone could be assessed so as to declare undisclosed income for all the six assessment years in the block period. The Tribunal has not examined the case in a proper perspective and in the light of the settled position of law. The income that has been disclosed by the assessee in the returns of income, other than the income unearthed as a result of search, cannot be treated as undisclosed income while assessing the income during the block period. Thus remand these appeals to the Tribunal to consider the appeals afresh in the light of the observations made in this judgment. - Decided in favour of revenue for statistical purposes. Agricultural income - Assessing Officer expressed doubt about the genuineness of this income from agriculture and having so observed did not accept the said claim and brought it to tax - appellate authority deleted the said addition as undisclosed income for the block period - Held that - It appears from the record and so also the orders passed by the appellate authority and the Tribunal that the agricultural income for 1995-96 was accepted by the Assessing Officer. Further, the income of ₹ 3,50,000 for the assessment year 1996-97, was deleted being undisclosed income for the block period. We do not find any reason to interfere with the orders passed by the appellate authority and the Tribunal, more particularly, in view of the fact that the agricultural income from the very same agriculture lands for the assessment year 1995-96 was accepted by the Assessing Officer. Hence, we confirm the findings of fact recorded by the appellate authority and the Tribunal. - Decided in favour of assessee. Deduction under section 54 and section 54F - what the assessees had transferred was their undivided share in the land and not the land plus residential house/apart ments - Held that - Section 54F provides that if the assessee has a residential house he cannot seek the benefit of long-term capital gain. Under this provision, merely because, the words residential house are preceded by article a would not, in our opinion, exclude a house shared with any other person. Even if the residential house is shared by an assessee, his right and ownership in the house, to whatever extent, is exclusive and nobody can take away his right in the house without due process of law. In other words, co-owner is the owner of a house in which he has share and that his right, title and interest is exclusive to the extent of his share and that he is the owner of the entire undivided house till it is partitioned. The analogy applied by the Tribunal based on the judgment of Banarsi Dass Gupta 1987 (4) TMI 7 - SUPREME Court , wherein, the Supreme Court considered the provisions contained in section 32 of the Act, in our opinion, would not apply to the facts of the present case. The right of a person, may be one-half, in the residential house cannot be taken away without due process of law or it continues till there is a partition of such residential house. Thus, we are unable to agree with the view expressed by the Tribunal on this issue and we set aside the findings recorded on this question of law - Decided against assessee. Valuation of closing stock - Valuation of closing stock of immovable properties should be treated as nil, as claimed by the assessee in view of the fact that the said properties were involved in litigation as held by tribunal - Held that - Though the reasons recorded by the Tribunal, in our opinion, are not happily worded, we are also of the view the question as regards the valuation of closing stock in respect of the land in litigation deserves to be considered afresh in the light of the settled position of law that the assessee, in such a situation, has a choice to value the stock at cost or market price, whichever is lower. None of the authorities have considered this question in a proper perspective. It was necessary to find out the value of the land at which it was purchased and the market price, at the relevant time, in the light of the fact that the property was in litigation, and then fix the liability. - Decided in favour of revenue for statistical purposes. Undisclosed income of the assessee during the block period - Tribunal held that the amounts standing to the credit of G. Anand having not been claimed as expenditure cannot be treated as undisclosed income of the assessee during the block period - Held that - Find ourselves in agreement with the findings recorded by the Assessing Officer and the appellate authority, which observed that the amount of ₹ 10,00,000 remained unexplained and treating the same as undisclosed income. It is also pertinent to note that the assessee has not only not disclosed the said amount but failed to file the return of income for the assessment year 1998- 99 before the search. In other words, he did not file the return of income for this assessment year within the time stipulated under section 139(1) and (4) of the Act. He also failed to maintain the books of account for the said assessment year and in this backdrop, the said amount of ₹ 10,00,000 has rightly been brought to tax. The Tribunal did not consider the materials on record in a proper perspective and has simply by single sentence in the order set aside the concurrent findings of fact recorded by the authorities below. Observation/finding in view of the facts and circumstances of the case, recorded by the Tribunal, is perverse and deserve to be set aside. - Decided in favour of revenue. Undisclosed investment towards purchase of NSC - AO make the said addition in the regular assessment proceedings - Tribunal reversed the findings holding that the assessee did not claim deduction in respect of the investment in NSC it would be out of the purview of the undisclosed income - Held that - Having regard to the quantum of amount and the findings recorded by the Tribunal, this substantial question of law was not seriously pressed. We are also not inclined to interfere with the order of the Tribunal in respect of the sum of ₹ 50,000 invested in NSC by the assessee. - Decided in favour of the assessee

Summary

Issues Involved:
1. Validity of income disclosed in returns filed beyond the due date under section 139(1) of the Act.
2. Acceptance of agricultural income declared by the assessee.
3. Eligibility for deduction under section 54 and section 54F of the Act.
4. Valuation of closing stock of immovable properties involved in litigation.
5. Treatment of amounts standing to the credit of G. Anand as undisclosed income.
6. Treatment of undisclosed investment in National Savings Certificates (NSC).

Detailed Analysis:

1. Validity of Income Disclosed in Returns Filed Beyond Due Date:
The first issue concerns whether income disclosed in returns filed after the due date prescribed under section 139(1) of the Income-tax Act can be taxed as undisclosed income in block assessments. The court examined the provisions under Chapter XIV-B, which deals with special procedures for assessment in search cases. It was clarified that the income unearthed during the search alone can be assessed as undisclosed income. The court remanded the matter to the Tribunal to reconsider the appeals in light of this interpretation, emphasizing that income disclosed in returns filed before the search, even if late, should not be treated as undisclosed income.

2. Acceptance of Agricultural Income:
The second issue pertained to the agricultural income declared by the assessee. The Assessing Officer doubted the genuineness of the agricultural income due to the lack of books of account and the nature of the assessee's primary business. However, since the agricultural income for the previous year was accepted, the appellate authority and the Tribunal deleted the addition of Rs. 3,50,000 as undisclosed income. The court upheld this finding, confirming the acceptance of the agricultural income.

3. Eligibility for Deduction under Section 54 and Section 54F:
The third issue involved the eligibility for deductions under sections 54 and 54F concerning capital gains. The Tribunal had allowed the deductions, interpreting "a residential house" to exclude shared interests. However, the court disagreed, stating that a co-owner's share in a residential house still constitutes ownership. Therefore, the court set aside the Tribunal's findings and ruled in favor of the Revenue, denying the deductions under sections 54 and 54F.

4. Valuation of Closing Stock of Immovable Properties:
The fourth issue related to the valuation of the closing stock of properties involved in litigation. The Tribunal had remanded the matter to the Assessing Officer for fresh examination, suggesting that the entire amount received should not be treated as income. The court agreed with the need for a fresh examination, emphasizing the necessity to consider the cost or market price, whichever is lower, and remanded the matter for reconsideration.

5. Treatment of Amounts Standing to the Credit of G. Anand:
The fifth issue was whether the amount standing to the credit of G. Anand should be treated as undisclosed income. The Assessing Officer and the appellate authority treated the unexplained amount of Rs. 10,00,000 as undisclosed income. The Tribunal had reversed this, stating it was not claimed as an expense. The court found this observation perverse and set aside the Tribunal's findings, ruling in favor of the Revenue and treating the amount as undisclosed income.

6. Treatment of Undisclosed Investment in NSC:
The last issue concerned an undisclosed investment of Rs. 50,000 in NSC. The Tribunal had reversed the findings of the Assessing Officer and the appellate authority, which had treated it as undisclosed income. The court, considering the quantum and the Tribunal's findings, did not interfere with the Tribunal's decision, ruling in favor of the assessee.

Conclusion:
The appeals were disposed of with specific directions for reconsideration and fresh examination on certain issues, while other findings were upheld or set aside based on the court's detailed analysis. There was no order as to costs.