2007 (2) TMI 246 - AT - Income Tax

Summary

Issues:
Challenging the order of the Commissioner of Income-tax (Central) for block assessment under section 158BC, invoking section 263, non-inclusion of returned income for assessment years 1997-98 and 1998-99, rejection of objections, jurisdiction under section 263, validity of returns filed by the assessee, inclusion of income in block assessment, applicability of two decisions, and jurisdiction of the CIT(Central).

Analysis:
The appellant challenged the order of the Commissioner of Income-tax (Central) regarding the block assessment under section 158BC, contending that the Commissioner wrongly invoked section 263 without satisfying the jurisdictional requirements. The issue arose due to the non-inclusion of returned income for assessment years 1997-98 and 1998-99, leading to a dispute over the validity of the assessment order. The appellant objected to the rejection of their objections by the Commissioner, raising concerns about the jurisdiction under section 263 and the correctness of the assessment.

The facts revealed that a search action against the assessee resulted in a block assessment under section 158BC, which was later challenged before the CIT (Appeals). Meanwhile, the Commissioner invoked section 263, claiming that certain amounts from returns filed by the assessee were omitted in the block assessment, deeming the omission as erroneous and prejudicial to revenue interests. The Commissioner's decision was based on the argument that the returns filed by the assessee were invalid and should have been included in the undisclosed income for block assessment purposes.

During the proceedings, the appellant argued that the returns filed by them, though invalid, were not undisclosed income as they were filed before the search action and taxes were duly paid. The appellant contended that the Commissioner lacked jurisdiction under section 263 as the assessment order was not erroneous or prejudicial to revenue interests. The Tribunal examined the returns, advance tax payments, and relevant legal principles to determine the validity of the Commissioner's actions.

Ultimately, the Tribunal held that the income declared in the returns filed by the assessee, despite being invalid, did not qualify as undisclosed income for block assessment. Citing legal precedents and the requirement for an assessment order to be both erroneous and prejudicial to revenue interests for section 263 to apply, the Tribunal concluded that the Commissioner lacked jurisdiction to invoke section 263. As a result, the Tribunal set aside and canceled the Commissioner's order, allowing the appellant's appeal based on the merits of the case.