2010 (6) TMI 88 - HC - Income Tax

Block Assessment discloser of particulars - Whether in the facts and circumstances of the case, the Tribunal was right in holding that the particulars furnished by the assessee to the Department otherwise than by filing a return and on the basis of a notice, would amount to disclosure for the purpose of the Act? Held that - ITAT is not correct - Tribunal had proceeded on the footing that except such of those items noted by it in paragraph 46, in respect of the rest of items, the information was already disclosed by the respondent assessee in her communication dated 15.05.1995, and on that ground, the assessing authority s order was set aside, we are of the view, while setting aside the order of the Tribunal and as rightly stated by the learned standing counsel for the appellant it calls for a remittal of the matter back to the Tribunal for passing fresh orders on various items of undisclosed income found by the assessing authority other than what has been found by the Tribunal in paragraph 46 of its order.

Summary

Issues Involved:
1. Validity of the Tribunal's reliance on the assessee's reply to a Section 131 notice as a disclosure of income.
2. Compliance with the statutory provisions under Chapter XIV-B of the Income Tax Act for block assessment.
3. Whether the materials used for block assessment were unearthed during the search.
4. The Tribunal's decision to set aside the assessing authority's order based on the assessee's prior disclosure.

Detailed Analysis:

1. Validity of the Tribunal's reliance on the assessee's reply to a Section 131 notice as a disclosure of income:
The Tribunal held that the particulars furnished by the assessee in response to a Section 131 notice amounted to disclosure for the purpose of the Act. The appellant contended that such disclosure is not valid unless made through a return filed under Section 139(1). The court emphasized that the definition of 'undisclosed income' under Section 158B(b) and the computation method under Section 158BB(1) necessitate that undisclosed income be based on evidence found during a search. Therefore, the Tribunal's reliance on the assessee's reply to the Section 131 notice without a valid return was not justified.

2. Compliance with the statutory provisions under Chapter XIV-B of the Income Tax Act for block assessment:
The court examined the relevant provisions of Chapter XIV-B, including Sections 158B(b), 158BB, 158BC, and 158BD. It was noted that the determination of undisclosed income should be based on evidence found during a search. The court highlighted that the burden of proving prior disclosure of income lies with the assessee under Section 158BB(3). The Tribunal's decision was found to be inconsistent with these statutory requirements.

3. Whether the materials used for block assessment were unearthed during the search:
The court observed that the assessee did not dispute the seizure of materials during the search. The assessing authority's order referenced the Panchanama dated 20.03.1996, which documented the seized materials. The Tribunal's conclusion that the assessment was solely based on the assessee's reply to the Section 131 notice was found to be erroneous. The court emphasized that the assessment was based on materials seized during the search, as evidenced by the detailed order of the assessing authority.

4. The Tribunal's decision to set aside the assessing authority's order based on the assessee's prior disclosure:
The court found that the Tribunal erroneously set aside the assessing authority's order by accepting the assessee's contention that all information was disclosed in the reply dated 15.05.1995. The court reiterated that the disclosure of income must be made through a valid return filed before the due date. The Tribunal's reliance on the assessee's reply to the Section 131 notice was not supported by the statutory provisions. The court concluded that the Tribunal's order was unjustified and remitted the matter back to the Tribunal for fresh consideration based on the materials seized during the search.

Conclusion:
The court allowed the appeal, set aside the Tribunal's order, and remitted the matter back to the Tribunal to consider the assessing authority's order on merits with reference to each item of 'undisclosed income' based on the materials seized during the search. The question of law was answered in favor of the appellant, and all miscellaneous petitions were closed with no order as to costs.