2005 (1) TMI 328 - AT - Income Tax

Undisclosed Income - search and seizure operation - Block Assessment - genuineness of the loan - difference of opinion between the Members of the Bench - Third member Order - Whether, the amount credited in the account of Concept International in the regular books of account maintained by assessee, can be assessed as undisclosed income for the purpose of Chapter XIV-B while completing assessment u/s 158BC/254 of the Act, or not? - Per Gupta, Judicial Member - HELD THAT - As per Explanation to section 158BA(1) it is clearly mentioned that assessment made under this Chapter shall be in addition to the regular assessment in respect of previous year included in the block period. It is further mentioned in clause (b) that the total undisclosed income relating to the block period shall not include the income assessed in regular assessment as income of such block period. In clause (c), it is provided that the income assessed in this Chapter shall not be included in the regular assessment of any previous year, included in the block period. From these provisions, it is clear that if any amount has already been disclosed that cannot be questioned while completing the assessment under Chapter XIV-B. Therefore, in view of these facts and circumstances, we find that there was no justification on the part of Assessing Officer for making the addition of these amounts, which were already disclosed while filing the regular returns. Various case laws relied upon by the counsel of the assessee are in support of above view of ours. Accordingly, we delete the additions of Rs. 55,50,000. The other grounds are consequential. Therefore, the Assessing Officer is directed to alow consequential relief to the assessee. In the result, the appeal of the assessee is allowed. Per B.R. Jain, Accountant Member - In the case in hand, the undisclosed income is on the basis of material found as a result of search. Regular assessment was also not made nor it is shown that it was to be made. The insertion by the Finance Act, 2002 with retrospective effect 1-7-1995 in the definition of section 158B(6) which permitted to find out undisclosed income from regular books of account also where the assessee has been found to have claimed false expenses, deduction or allowance under the Income-tax Act, did not come for consideration of the Hon'ble Court while it took decision in the case of Ravi Kant Jain. Thus if there was material which was found as a result of search to indicate undisclosed income, merely because the entries were made in regular books will not preclude the jurisdiction of the Assessing Officer from making assessment under Chapter XIV-B of the Act. When the cash credits are not taxed in the relevant assessment years, that can be treated as undisclosed income and can be taxed after search in the block period. The irresistible conclusion to which I have reached is that the aggregate amount of Rs. 55 lakhs appearing as cash credits in the books of the assessee were rightly treated as unexplained by invoking provision of section 68 of the Act thereby treating the same as undisclosed income of the block period. The action and conclusion of the Assessing Officer is, therefore, upheld and the addition of Rs. 55 lakhs is directed to be sustained. As a result, the assessee's ground on this count stands rejected. In the result, the appeal of the assessee stands partly allowed. THIRD MEMBER ORDER - Amidst the confusion as to whether it is a loan or an income, it appears that it is an advance from customer for purchase of property. If it is an advance, then also it cannot be treated as income because it is merely an advance towards purchase of property and in no way the income of the assessee. The assessee also must have been under confusion whether such advance has to be treated as loan or advance, and hence the discrepancy that the ledger account reflects it as a loan account, whereas the balance sheet reflects it as sundry creditor. The crux of the matter is that the amount stood duly disclosed in the regular return of income. The Assessing Officer could have gone into its genuineness in the course of regular assessment proceedings. When the amount stood duly disclosed in the regular return of income, the Assessing Officer cannot resort to block assessment proceedings to go into its genuineness and subject to it to a higher rate of tax. It is unfair. Thus, I agree with the view taken by the learned Judicial Member to hold that the addition of Rs. 55 lakhs was not justified. The matter will now go to the regular Bench to give effect to the majority opinion.

Summary

Issues Involved:

1. Legitimacy of additions made by the Assessing Officer for the assessment years 1991-92, 1992-93, and 1994-95.
2. Whether the amount of Rs. 55 lakhs credited in the account of Concept International can be assessed as undisclosed income for the purpose of Chapter XIV-B.

Summary:

Issue 1: Legitimacy of Additions for Assessment Years 1991-92, 1992-93, and 1994-95

A search and seizure operation was conducted on 14/15-9-1995 u/s 132(1) of the Income-tax Act at the premises of the assessee. The initial assessment u/s 158BC was completed on 30-9-1996, determining undisclosed income at Rs. 2,01,58,230. This order was set aside by the Tribunal, and a fresh assessment was completed on 28-3-2002 at an income of Rs. 55,50,000. The assessee appealed against this order, arguing that the additions of Rs. 30,000 for 1991-92, Rs. 20,000 for 1992-93, and Rs. 55 lakhs for 1994-95 were unjustified as these amounts were disclosed in regular returns and no incriminating documents were found during the search. The Tribunal found that the amounts had been disclosed in regular returns and were shown in the balance sheet. Consequently, the Tribunal deleted the additions, stating that disclosed amounts cannot be treated as undisclosed income u/s 158BC.

Issue 2: Whether Rs. 55 Lakhs Credited in Concept International Account Can Be Assessed as Undisclosed Income

The Assessing Officer treated Rs. 55 lakhs as unexplained cash credits u/s 68, stating that the amount was not reflected in the balance sheet and the confirmation provided was not satisfactory. The Judicial Member held that the amount was disclosed in regular returns and should not be questioned in block assessment under Chapter XIV-B. The Accountant Member disagreed, stating that the credits were not assessed as income in any regular assessment and could be treated as undisclosed income based on the material found during the search. The matter was referred to a Third Member, who agreed with the Judicial Member, concluding that the amount was disclosed in the regular return, and the genuineness could have been questioned during regular assessments, not in block assessment proceedings. The Third Member emphasized that disclosed amounts in regular returns cannot be treated as undisclosed income for block assessments.

Conclusion:

The Tribunal allowed the appeal of the assessee, deleting the additions made by the Assessing Officer, and held that the disclosed amounts in regular returns cannot be treated as undisclosed income in block assessment proceedings.