2009 (4) TMI 73 - HC - Income Tax

Additions as undisclosed income accrual of income - M/s. Nalini Properties Pvt. Ltd. is a closely held company of the appellant - appellant was a party to the board resolution and in implementation of the board resolution, the account of the appellant was credited by the amount of Rs.3.17 crores - appellant agreed before the CIT (A) that it is difficult for him to prove that he has changed the method of accounting from mercantile system to cash -therefore, the amount of Rs.3.17 crores is to be taxed as undisclosed income in the block period

Summary

Issues:
1. Justification of addition of Rs.3.17 crores as undisclosed income in the hands of the appellant.
2. Method of accounting used by the appellant.
3. Validity of block assessment and taxation of undisclosed income.

Analysis:
1. The main issue in this case was whether the Tribunal was correct in upholding the addition of Rs.3.17 crores as undisclosed income in the appellant's hands. The appellant, a Director of a company, argued that since the amount was not actually received by him, it should not be taxed. However, the assessing officer considered the appellant to be following the mercantile system of accounting and taxed the amount on an accrual basis. The Tribunal agreed with this assessment, noting that the appellant had agreed before the CIT(A) that the amount should be treated as undisclosed income. The Tribunal also found that the appellant was involved in the decision to credit the amount to his account, leading to the conclusion that the addition of undisclosed income was justified.

2. The appellant claimed to be following the cash system of accounting, but later admitted that it would be difficult to prove this change in method. The appellant's argument that the accrual of income should be considered in regular assessment and not in block assessment was rejected by the Court. The Court emphasized that the appellant had not provided any material to support the claim of changing the accounting method. The Tribunal's finding that the appellant's company had credited the amount to his account based on a board resolution further supported the taxation of the undisclosed income.

3. The Court dismissed the appellant's appeal, stating that since the appellant had agreed before the CIT(A) that the amount should be treated as undisclosed income, challenging this decision on merits was not permissible. The Court highlighted that the appellant had failed to produce evidence to support his claim of changing the accounting method. Additionally, the close relationship between the appellant and the company, as well as the board resolution involving the appellant, reinforced the Tribunal's decision to tax the undisclosed income. Ultimately, the Court upheld the Tribunal's order to tax the undisclosed income of Rs.3.17 crores in the hands of the appellant during the block period.

This comprehensive analysis of the judgment addresses the key issues raised in the case and provides a detailed explanation of the Court's decision regarding the addition of undisclosed income, the method of accounting used by the appellant, and the validity of the block assessment for taxation purposes.