2008 (7) TMI 472 - AT - Income Tax

Reopening of assessment of annulment of Block assessment - Notice issued u/s 158BC, after the search - Purchase of property and source of fund - Whether the CIT (A) is justified in directing the AO u/s 150 of Income-tax Act to reopen the assessment for the assessment year 1999-2000 after the block assessment was annulled? HELD THAT - We find that it is undisputed fact that block assessment order is passed by the AO thereby undisclosed income has been computed on the basis of the statement recorded during the search which was retracted by the persons. No evidence or material was found in the search which substantiates the undisclosed income computed by the AO. Even during the proceedings u/s 27D, the department had investigated the matter as regards advance taken by the assessee from 63 persons as source of fund to purchase the properties in question. From all these facts, it is clear that all necessary details and information were already with the department with respect to the purchase of the property and source of funds claimed by the assessee. In the case of Dang Co. (P.) Ltd. 2005 (1) TMI 328 - ITAT DELHI-A , Tribunal held that the assessee having duly disclosed the amount of credit in the accounts in regular return, AO could not go into its genuineness and treat it as undisclosed income in the block assessment. An amount of cash loan taken by the assessee-company from its director which was disclosed in the regular return and shown in the balance sheet could not be treated as undisclosed income in the block assessment under Chapter XIV-B. Therefore, we are of the view that when all the necessary and relevant information and details regarding the purchase of property and source of fund claimed by the assessee was already with the department before the date of search, then the action of the AO in computing the undisclosed income and treating the credits as bogus is not warranted and the same is not permitted under law for framing the block assessment. Therefore, we find no force or merit in the appeal of the revenue and the block assessment was rightly annulled because the AO was having no material or evidence to pass the block assessment order. Accordingly, the appeal of the revenue is dismissed. In the result, appeal by the assessee is allowed and the appeal by the department is dismissed.

Issues Involved:
1. Whether the Commissioner (Appeals) was justified in directing the Assessing Officer under section 150 of the Income-tax Act to reopen the assessment for the assessment year 1999-2000 after the block assessment was annulled.
2. Whether the Commissioner (Appeals) was justified in annulling the block assessment for want of jurisdiction.

Issue-wise Detailed Analysis:

1. Reopening of Assessment for the Assessment Year 1999-2000:

The primary issue in IT(SS) Appeal No. 90/07 was whether the Commissioner (Appeals) was justified in directing the Assessing Officer to reopen the assessment for the assessment year 1999-2000 under section 150 of the Income-tax Act after annulling the block assessment.

The facts of the case reveal that a search was conducted on the premises of the assessee-company and Shri Dharmaseelan on 3-11-2000. No incriminating documents indicating any bogus nature of advance were found. The assessee had purchased properties in Chennai through Court auction and claimed that the properties were purchased out of advances taken from 63 individuals. The Assessing Officer, dissatisfied with the source of funds, conducted an investigation and issued a notice under section 158BC, leading to a block assessment order computing a total undisclosed income of Rs. 1,60,00,000. The Commissioner (Appeals) annulled the block assessment, holding that the investigation could have been conducted without the search and that the additions did not emanate from evidence found during the search.

The Tribunal found that the additions in block assessment were made without any document or evidence found during the search but based on statements recorded during the search, which were later retracted. It was noted that the issue of advances from 63 persons was already pending with the authorities before the search. The Tribunal held that the appellate authority can give findings and directions only in respect of the year/period before that authority and cannot give directions for other years. Citing various judgments, including Rajinder Nath v. CIT and Foramer France, the Tribunal concluded that the Commissioner (Appeals) had no jurisdiction to direct the reopening of the assessment for the year 1999-2000. Consequently, the Tribunal set aside the directions given by the Commissioner (Appeals), allowing the appeal of the assessee.

2. Annulment of Block Assessment for Want of Jurisdiction:

In IT(SS) Appeal No. 91/07, the issue was whether the Commissioner (Appeals) was justified in annulling the block assessment for want of jurisdiction.

The search action at the premises of the assessee and the managing director was conducted on 3-11-2000, and a notice under section 158BC was issued on 7-11-2000. The assessee filed a return admitting an undisclosed income of Rs. 26 lakh. The Assessing Officer computed the total undisclosed income at Rs. 1,60,00,000, rejecting the confirmation letters and statements recorded during the assessment proceedings.

The Commissioner (Appeals) annulled the block assessment, observing that nothing was found during the search to indicate that the advances were bogus and that the details of the advances were already with the department before the search. The Tribunal upheld this view, noting that no evidence or material was found during the search to substantiate the undisclosed income computed by the Assessing Officer. It was highlighted that all necessary details regarding the purchase of property and source of funds were already with the department before the search. The Tribunal referred to the case of Dang & Co. (P.) Ltd., where it was held that amounts disclosed in regular returns could not be treated as undisclosed income in block assessments.

The Tribunal also cited the judgment of the Jurisdictional High Court in CIT v. G.K. Senniappan, which emphasized that materials or information available with the Assessing Officer must be related to evidence found during the search. The Tribunal concluded that the block assessment was not valid as the necessary information was already with the department, and the additions made by the Assessing Officer were not warranted. Thus, the appeal of the revenue was dismissed.

Conclusion:

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the directions given by the Commissioner (Appeals) to reopen the assessment for the year 1999-2000. The Tribunal also dismissed the appeal of the revenue, upholding the annulment of the block assessment for want of jurisdiction.

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