2003 (10) TMI 298 - AT - Income Tax

Summary

Issues Involved:
1. Whether the CIT(A) erred in deleting the undisclosed income of Rs. 3,06,990 from the block assessment.
2. Whether the income declared in the regular return filed after the search can be treated as undisclosed income.
3. Applicability of the decision in CIT vs. Shamlal Balram Gurbani to the present case.
4. Whether the interest and salary income disclosed by the firm prior to the search can be treated as undisclosed income of the assessee.

Detailed Analysis:

Issue 1: Whether the CIT(A) erred in deleting the undisclosed income of Rs. 3,06,990 from the block assessment.

The Department appealed against the CIT(A)'s order, which deleted the undisclosed income of Rs. 3,06,990 from the block assessment. The Department contended that the CIT(A) erred in relying on the decision of the Hon'ble Bombay High Court in CIT vs. Shamlal Balram Gurbani, arguing that the facts of the present case were distinct.

Issue 2: Whether the income declared in the regular return filed after the search can be treated as undisclosed income.

The assessee filed a regular return for the assessment year 1998-99 on 17th March 1999, a day after the search, declaring an income of Rs. 3,06,990. The AO treated this income as undisclosed for the block period. However, the CIT(A) noted that the return of the firm, M/s Zain Corporation, from which the assessee received interest and salary, was filed on 31st Oct 1998, within the due date under section 139(1). The interest and salary payments were disclosed in the firm's tax audit report and statement of income.

Issue 3: Applicability of the decision in CIT vs. Shamlal Balram Gurbani to the present case.

The CIT(A) relied on the decision in CIT vs. Shamlal Balram Gurbani, where the Bombay High Court held that income disclosed by a firm in its returns, including interest and salary to partners, could not be treated as undisclosed income of the partners. The CIT(A) reasoned that since the firm's return was filed within the due date and disclosed the payments to partners, the income could not be considered undisclosed for the purposes of block assessment.

Issue 4: Whether the interest and salary income disclosed by the firm prior to the search can be treated as undisclosed income of the assessee.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the income received by the assessee from M/s Zain Corporation was disclosed to the Department prior to the search. The Department did not find any incriminating material during the search to justify treating the salary and interest income as undisclosed. The Tribunal concluded that the CIT(A) rightly deleted the addition based on the decision in CIT vs. Shamlal Balram Gurbani.

Conclusion:

The Tribunal dismissed the Department's appeal, affirming that the interest and salary income received by the assessee from M/s Zain Corporation, disclosed in the firm's return filed before the search, could not be treated as undisclosed income. The Tribunal supported the CIT(A)'s reliance on the decision in CIT vs. Shamlal Balram Gurbani and found no merit in the Department's appeal.