2003 (1) TMI 229 - AT - Income Tax

Summary

Issues Involved:
1. Legality of block assessments under Section 158BC/BD.
2. Satisfaction of the Assessing Officer (AO) under Section 158BD.
3. Whether the loans and gifts were disclosed in the returns filed prior to the search.
4. Justification of treating disclosed items as undisclosed income.

Detailed Analysis:

1. Legality of Block Assessments under Section 158BC/BD:

The appeals were directed against orders of the Assistant Commissioner of Income Tax (ACIT), Investment Circle, Allahabad, involving block assessments framed under Sections 158BC and 158BD. The search and seizure operations were conducted on 9th November 1995, at the premises of M/s Jalan Oil Distributors, M/s Jalan Enterprises, and Shri Radhey Shyam Jalan. The AO issued notices under Section 158BC/BD and completed block assessments, making respective additions based on seized evidence of loans and gifts.

2. Satisfaction of the Assessing Officer (AO) under Section 158BD:

The primary contention was whether the AO had satisfied the necessary conditions under Section 158BD before initiating proceedings. Section 158BD requires the AO to be satisfied that any undisclosed income belongs to a person other than the one searched. This satisfaction must be based on the material found during the search. The Tribunal referred to its previous decisions and other judicial precedents to emphasize that the AO's satisfaction should not be a mere formality but a positive satisfaction discernible from the material. The Tribunal found that in these cases, the necessary satisfaction under Section 158BD was not met, leading to the quashing of the assessment orders.

3. Disclosure of Loans and Gifts in Returns Filed Prior to the Search:

The assessees argued that the loans and gifts were shown in their income tax returns filed before the search. The Tribunal examined the returns and balance sheets for various assessment years and found that the loans and gifts were indeed disclosed. For instance:
- In ITA No. 1031/Alld/1997, the return for AY 1994-95 was filed on 26th October 1994, showing the loan.
- In ITA No. 1032/Alld/1997, the gift was shown in AY 1987-88, with the assessment framed under Section 143(1)(a) on 23rd November 1987.
- Similar disclosures were noted in other cases, with returns filed and assessments framed prior to the search.

4. Justification of Treating Disclosed Items as Undisclosed Income:

The Tribunal observed that the AO treated the loans and gifts as undisclosed income based on the sufficiency of reasons for their genuineness. However, since these items were already disclosed in the returns, the AO was not justified in treating them as undisclosed income. The Tribunal emphasized that the burden was on the AO to prove that these items were undisclosed, which was not met in these cases. Consequently, the AO misdirected himself in making additions in the block assessments.

Conclusion:

The Tribunal quashed all the assessment orders, concluding that the necessary satisfaction under Section 158BD was not met, and the AO was not justified in treating disclosed items as undisclosed income. The appeals of the assessees were allowed, and the block assessment orders were set aside.