2009 (1) TMI 79 - HC - Income Tax

Additions during block assessment AO made additions of agricultural income as undisclosed income for block period assessee plea is that entire amount of agricultural income has been disclosed to the Department through regular returns, well before the search no valid material produced by revenue to prove the contrary moreover, additions are not relatable to any material found during search hence, amount cannot be treated as undisclosed income for the purpose of making block assessment

Summary

Issues:
1. Whether undisclosed agricultural income claimed prior to a search can be treated as undisclosed business income?
2. Can undisclosed income generated in a family business be added to the agricultural income claim?

Issue 1:
The appeal involved the question of whether undisclosed agricultural income claimed prior to a search could be treated as undisclosed business income. The Assessing Officer found that the assessee had claimed agricultural income of Rs. 7,55,400 for the block period, but concluded that the claim was made without any material and introduced an unaccounted income generated in the business activity as agricultural claim. The Commissioner of Income-tax (Appeals) agreed with the assessee that the addition was not supported by any material found during the search and deleted the addition. The Income-tax Appellate Tribunal also dismissed the Revenue's appeal, stating that the disclosed amount in the returns prior to the search cannot be treated as undisclosed income for block assessment. The court upheld this decision, emphasizing that without valid material to prove otherwise, disclosed amounts prior to the search cannot be treated as undisclosed income.

Issue 2:
The second issue revolved around whether undisclosed income generated in the family business could be added to the agricultural income claim. The Revenue argued that non-maintenance of accounts for agricultural income by the assessee and evidence of unaccounted income in the family business justified adding the agricultural income claim as undisclosed business income. However, the court noted that the entire amount treated as agricultural income had been disclosed in regular returns filed before the search. As there was no valid material to contradict this disclosure, the court held that the disclosed amount could not be considered undisclosed income for block assessment purposes. Therefore, the court dismissed the appeal, stating that no substantial question of law was involved in this matter.

In conclusion, the High Court of Madras upheld the decision of the Income-tax Appellate Tribunal, ruling in favor of the assessee and dismissing the Revenue's appeal. The court emphasized that disclosed amounts in returns filed before a search cannot be treated as undisclosed income without valid material to prove otherwise.