2008 (2) TMI 470 - AT - Income Tax

Summary

Issues Involved:
1. Assessability of undisclosed income discovered during survey and converted into search.
2. Applicability of regular assessment proceedings u/s 143(3) vs. block assessment proceedings under Chapter XIV-B.

Summary:

Issue 1: Assessability of Undisclosed Income Discovered During Survey and Converted into Search

The Revenue contested whether the learned CIT(A) was correct in holding that the undisclosed income discovered during a survey, which was converted into a search u/s 132, should be assessed in regular assessment proceedings u/s 143(3) instead of under Chapter XIV-B.

Issue 2: Applicability of Regular Assessment Proceedings u/s 143(3) vs. Block Assessment Proceedings under Chapter XIV-B

The assessee, engaged in trading gold jewellery and silver articles, was subjected to a survey u/s 133A on 21st March 2003, which was converted into a search u/s 132 on the same day. During the survey and search, excess unaccounted stock was discovered, and the assessee admitted this as undisclosed income, agreeing to pay tax. The AO assessed this income under block assessment proceedings, while the CIT(A) held it should be assessed under regular assessment proceedings.

The Tribunal analyzed the provisions of the IT Act, distinguishing between the powers and procedures under sections 132 and 133A. It noted that survey operations u/s 133A are investigatory, while search operations u/s 132 are more comprehensive and can lead to block assessments. The Tribunal emphasized that the evidentiary value of statements recorded during a survey is not equivalent to those recorded during a search.

The Tribunal concluded that since the survey and search were conducted on the same day, the survey proceedings merged with the search proceedings. Therefore, the undisclosed income should be assessed under block assessment proceedings as the survey loses its independent identity once converted into a search.

Conclusion:

The appeal by the Revenue was allowed, determining that the excess unaccounted stock should be assessed in block assessment proceedings only.