2021 (2) TMI 1141 - AT - Income Tax

Determining the undisclosed income - Search proceedings - A.R. submitted that the addition has been made on the basis of a balance sheet found during the course of search proceedings - HELD THAT - There are no corroborative evidences to show that the Balance sheet found during the course of search represents true nature of transactions. On the contrary, the assessee, being a limited company, has filed annual reports containing Balance sheets with Registrar of companies, which is based on books of accounts. Hence the balance sheet found during the course of search has to be considered as a dumb document only. In that view of the matter, the quantum of investment made as share application money in the above said company should be taken as ₹ 131 lakhs only. The assessee has claimed that he has invested ₹ 130 lakhs. Since the claim of the assessee is supported by the books of accounts, the same is required to be accepted. Assessee has explained the sources, major portion of which represents agricultural income and it has been declared to the revenue in the returns of income filed prior to the date of search. The revenue has not found any material to show that the agricultural income and other income declared by the assessee in the returns of income are false. Hence, we are of the view that the AO, in the block assessment proceedings, cannot tinker with the income/agricultural income already declared by the assessee in the returns of income filed prior to the date of search. Hence the sources for ₹ 130 lakhs also require to be accepted. Accordingly, in effect, there is no incriminating material available with the AO in support of the undisclosed income determined by him. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the entire amount of undisclosed income determined by him. Surcharge levied u/s 113 - HELD THAT - Since we have deleted the entire undisclosed income in the earlier paragraphs, the question of levying of surcharge has become academic. In any case, it is the submission of the assessee that the decision rendered in the case of Suresh N Gupta 2008 (1) TMI 396 - SUPREME COURT has since been modified by Hon ble Supreme Court in the case of Vatika Township ( 2014 (9) TMI 576 - SUPREME COURT Accordingly, in case if any need arise for levying of surcharge in the instant case, the law laid down by Hon ble Supreme Court in the case of Vatika Township (supra) needs to be followed. Interest u/s 158BFA(1) of the Act upto the date of original assessment order and not upto the date of assessment order passed in the set aside proceedings - HELD THAT - As rightly pointed out by Ld A.R, the order passed by the Tribunal earlier and the order passed by the AO in the set aside proceedings are continuation of original assessment proceedings. It is not a case of quashing of original assessment order and initiation of altogether new proceedings. Hence, we agree with the view expressed the Ld CIT(A) that the interest u/s 158BFA(1) should be charged upto the date of original assessment order, i.e., the expression date of completion of assessment under clause (c) of sec. 158BC should mean the original assessment order only. We further notice that there is no provision under the Act to extend charging of interest beyond the date of completion of the original assessment proceedings. Accordingly, we confirm the order passed by Ld CIT(A) on this issue.

Issues Involved:
1. Validity of search operations under Section 132 of the Income-tax Act, 1961.
2. Determination of "undisclosed income" at ?2.96 crores.
3. Levying of surcharge under Section 113 of the Act.
4. Computation of interest under Section 158BFA(1) of the Act.

Detailed Analysis:

1. Validity of Search Operations:
The Tribunal initially rejected the assessee's challenge to the validity of the search operations under Section 132, following the precedent set in C. Ramaiah Reddy’s case. However, the High Court of Karnataka later restored this legal issue to the Tribunal. At the hearing, the assessee chose not to press this legal ground, leading the Tribunal to dismiss the grounds relating to the validity of search proceedings as not pressed.

2. Determination of "Undisclosed Income" at ?2.96 Crores:
The primary contention was whether the AO was justified in determining the "undisclosed income" at ?2.96 crores. The AO based this on a balance sheet found during the search, which showed share application money of ?259 lakhs as of 31.3.1998. The AO concluded the total investment to be ?299 lakhs, which included amounts for FY 96-97, 97-98, and 98-99. The assessee explained the sources of these investments, including agricultural income declared in returns filed before the search. The AO, however, did not accept these sources, determining the undisclosed income to be ?266 lakhs.

The Tribunal noted that the balance sheet found during the search did not tally with the books of accounts and was prepared for a financial institution, making it a "dumb document." The Tribunal emphasized that block assessments should be based on evidence found during the search, not inferences or surmises. The Tribunal found that the AO's conclusions were based on assumptions without corroborative evidence. The Tribunal accepted the assessee's explanation of sources, including agricultural income declared in earlier returns, and directed the deletion of the entire amount of undisclosed income determined by the AO.

3. Levying of Surcharge under Section 113 of the Act:
The AO levied a surcharge under Section 113, which the CIT(A) upheld following the Supreme Court’s decision in Suresh N Gupta. However, since the Tribunal deleted the entire undisclosed income, the question of levying a surcharge became academic. The Tribunal noted that if the need to levy a surcharge arose, the law laid down in Vatika Township by the Supreme Court should be followed.

4. Computation of Interest under Section 158BFA(1) of the Act:
The AO charged interest under Section 158BFA(1) for the period up to the date of the fresh assessment order passed in the set-aside proceedings. The CIT(A) directed that interest should be charged only up to the date of the original assessment order. The Tribunal agreed with the CIT(A), stating that the original assessment proceedings were not quashed but continued, and thus, interest should be charged only up to the date of the original assessment order. The Tribunal confirmed the CIT(A)’s order on this issue.

Conclusion:
The appeal filed by the assessee relating to the legal issue of search validity was dismissed as not pressed. The appeal concerning the determination of undisclosed income was allowed, resulting in the deletion of the entire amount of undisclosed income. The appeal filed by the revenue regarding the computation of interest under Section 158BFA(1) was dismissed.

← Previous Next →