2012 (2) TMI 115 - HC - Income Tax

Block assessment - cash found during the search conducted on 27.10.98 added u/s 68 assessee had earlier filed declarations under VDIS 1997, on 23.12.97 Tribunal deleted the addition in block assessment on ground that A.O. had made a similar addition in the regular assessment proceedings on protective basis Held that - Cash had been found at the time of search and was undisclosed income that can be brought to tax in the block assessment proceedings - Decided in favor of the Revenue.

Summary

Issues:
1. Interpretation of the Income Tax Act regarding block assessment period.
2. Treatment of undisclosed income found during search and seizure operations.
3. Validity of addition made by Assessing Officer in block assessment.

Analysis:

Issue 1: Interpretation of the Income Tax Act regarding block assessment period
The case involved the interpretation of the Income Tax Act, specifically relating to block assessment period from 1st April, 1988 to 27th October, 1998. The central question of law was whether the Income Tax Appellate Tribunal was correct in deleting an addition made by the Assessing Officer in the block assessment and directing him to treat the protective assessment as substantive. The High Court was required to provide clarity on the legal aspects of block assessment under the Income Tax Act.

Issue 2: Treatment of undisclosed income found during search and seizure operations
The respondent assessee, an individual working as a broker/agent in the aluminum market, had undergone a search and seizure operation under Section 132 of the Income Tax Act. During this operation, a cash amount of Rs.30,10,000 was found, which led to a dispute regarding its treatment as undisclosed income. The Assessing Officer contended that the cash amount was not reflected in the books of accounts and made an addition of Rs.25,43,145 as unexplained income during the block assessment proceedings.

Issue 3: Validity of addition made by Assessing Officer in block assessment
The Assessing Officer added Rs.25,43,145 as undisclosed income in the block assessment proceedings. However, the CIT(Appeals) deleted this addition, stating that the cash found was voluntarily disclosed by the assessee and should not be considered as undisclosed income. The Revenue appealed against this decision before the tribunal, which reversed the CIT(Appeals) finding. The tribunal held that the addition should not have been deleted as a similar addition was made in the regular assessment proceedings on a protective basis. The High Court upheld the tribunal's decision, stating that the undisclosed income found during the search operation could be taxed in the block assessment proceedings, thus ruling in favor of the Revenue and against the respondent assessee.

This detailed analysis of the judgment provides insights into the legal interpretation of the Income Tax Act, the treatment of undisclosed income, and the validity of additions made by the Assessing Officer during block assessment proceedings.