2008 (10) TMI 326 - HC - Income Tax

Search and seizure income declared in revised return pertaining to other entities - It is a well-settled principle that when an assessee files any return or revised return he/she is always entitled to in law to show that the return filed is by bona fide mistake. It is therefore in principle cannot be argued that the assessee cannot refract from the returns or revised returns filed for the valid reason in law. Held that the Tribunal after considering the accounts of the entities came to the conclusion that the income reflected in the revised returns of the assessee pertains to all those entities. - Therefore a direction issued by the Tribunal preventing the Assessing Officer from scrutinizing the accounts of the above entities while assessing the income of the respondent does not appear to be valid in law and not based on any material on record. Hence the Assessing Officer is entitled to go into the accounts of the said entities to find out whether the income of the said entities have any nexus with the income of the respondent to fasten the tax liability if any on the respondent-assessee

Summary

Issues:
1. Validity of the revised return filed by the assessee for the assessment year 1986-87.
2. Whether the Tribunal had jurisdiction to entertain cross-objections filed by the assessee.
3. The correctness of the Tribunal's decision to exclude certain income from the assessee's total income.
4. Condonation of delay in presenting cross-objections by the Tribunal.

Issue 1: Validity of the revised return
The assessee filed a revised return for the assessment year 1986-87 after a raid by the Intelligence Wing, disclosing higher income than previously declared. The assessing authority assessed the income at a higher amount, leading to an appeal by the assessee to the Commissioner of Income-tax. The appellate authority remanded the matter for fresh consideration. The State filed appeals before the Tribunal against the order of remand, while the assessee filed a cross-objection contending that the revised assessment was null and that the disclosed income did not pertain to him. The Tribunal found that the income disclosed in the revised returns actually belonged to other entities, allowing the assessee to retract from the revised return.

Issue 2: Jurisdiction to entertain cross-objections
The State argued that the assessee should not be allowed to retract from the revised return, contending that the revised return should bind the assessee in law. However, the Tribunal found that the assessee had the right to retract from the revised return as the income disclosed in the revised returns belonged to entities other than the assessee. The Tribunal held that the assessee could continue with the cross-objection.

Issue 3: Correctness of excluding certain income
The Tribunal excluded the income of certain entities from the assessee's total income, based on the accounts produced by the assessee. While the Tribunal had sufficient material to exclude some income, it lacked material for other entities. The Court found that the Assessing Officer was entitled to scrutinize the accounts of these entities to determine their nexus with the assessee's income.

Issue 4: Condonation of delay
The State raised concerns about the Tribunal condoning the delay in presenting cross-objections without sufficient reasons. The Court did not find cogent reasons for condoning the delay, especially after the main appeal by the Revenue had been rejected. However, the Court upheld the Tribunal's decision on this matter.

In conclusion, the Court upheld the Tribunal's decision on the validity of the revised return, jurisdiction to entertain cross-objections, and the exclusion of certain income. However, the Court allowed the Assessing Officer to scrutinize the accounts of certain entities for tax liability determination. The Court also addressed the issue of condonation of delay, ultimately disposing of the appeals.