2016 (6) TMI 959 - HC - Income Tax

Applicability of provisions of Section 158BD - block assessment - Whether ITAT was right in law in holding that provisions of Section 158BD can arise out of material or evidence found during the course of the survey proceedings under Section 133A ? - Held that - In the present case, admittedly, no evidence indicating charging of on money by the assessee on the sale of shop was found during the search. Only one document, viz. Deed of partnership, was found, which was not sufficient to prove the alleged irregularity on the part of assessee. Therefore, the Assessing Officer ought not to have considered this issue in block assessment proceedings and the Tribunal also committed serious error in invoking Section 158BD of the Act as the case would lie under Section 158BC of the Act. Consequently, the Question raised in this appeal is answered in the negative, i.e. in favour of the assessee and against the Revenue.

Summary

Issues:
Challenge to order under Section 260A of the Income-tax Act, 1961 based on the interpretation of Section 158BD - Whether undisclosed income should arise from evidence found during search action.

Analysis:
The case involved a Tax Appeal challenging an order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench, regarding the interpretation of Section 158BD of the Income-tax Act, 1961. The substantial question of law raised was whether the Tribunal was correct in holding that provisions of Section 158BD could arise from material or evidence found during survey proceedings under Section 133A of the Act. The facts revealed that a search was conducted at the assessee's premises, leading to the discovery of assets and issuance of a notice under Section 158BC to file income returns for the block period. The Assessing Officer added an amount to undisclosed income based on a survey at a third party's premises, alleging payment of "on money" in a shop sale transaction. The Tribunal set aside the CIT(A)'s order, prompting the present appeal by the assessee.

During the proceedings, it was noted that no evidence of "on money" receipt by the assessee was found during the search. The Assessing Officer's suspicion was based on seized material without specifying or discussing the supporting evidence. The addition of the amount was linked to a survey at the third party's premises, where a statement indicated payment of "on money." However, the Assessing Officer failed to establish how the assessee received this amount based on seized material, a crucial requirement in block assessment proceedings. The law mandates that undisclosed income must stem from search action evidence, and the Assessing Officer cannot assume jurisdiction without direct evidence indicating non-disclosure. As no substantial evidence was found during the search, invoking Section 158BD was deemed inappropriate, and the case should have been under Section 158BC.

Consequently, the Court ruled in favor of the assessee, quashing the Tribunal's order and restoring the CIT(A)'s decision. The appeal was disposed of accordingly, emphasizing the necessity for evidence-based jurisdiction in block assessment proceedings and the importance of direct evidence in determining undisclosed income.