2013 (10) TMI 1023 - HC - Income Tax

Whether income unearthed or detected during the course of a search cannot be assessed in the block assessment on the ground that the assessee has disclosed the transactions in the regular books of account Held that - Reliance has been placed upon the judgment in the case of Asst. CIT v. Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT OF INDIA , wherein it was held that The special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. It is not intended to be substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. Therefore, the income assessable in block assessment under Chapter XIV-B is the income not disclosed but found and determined as the result of search under section 132 or requisition under section 132A of the Act. In the present case, there is a conclusive finding that the information sought to be relied upon by the Assessing Officer was already available in the balance-sheets or the books of account of the assessee. As such, the material obtained during the search did not lead to the unearthing of income - Assessing Officer merely had a change of opinion which led him to conclude that what was discovered during the search was undisclosed income. This change of opinion was neither warranted in law, nor could it form the basis of invoking the provisions of Chapter XIV-B of the Act Decided against the Revenue.

Summary

Issues:
1. Interpretation of undisclosed income in block assessment under the Income-tax Act, 1961.
2. Justification of assessing income unearthed during a search in block assessment.

Analysis:

Issue 1: Interpretation of undisclosed income in block assessment under the Income-tax Act, 1961:
The case involved a search and seizure operation under section 132(1) of the Income-tax Act, 1961, at the residential and business premises of the assessee. The notice under section 158BC of the Act was issued for filing a return of income for the block period. The Assessing Officer considered various items, including unexplained credits and interest accrued, as undisclosed income. However, the Tribunal found that all these items were reflected in the balance-sheets or books of account maintained by the assessee. The Tribunal concluded that the provisions of Chapter XIV-B of the Act, relating to undisclosed income, were not applicable in this case. The Tribunal's decision was based on the premise that if the material was already available to the Assessing Officer and not unearthed during the search, it could not be treated as undisclosed income for block assessment.

Issue 2: Justification of assessing income unearthed during a search in block assessment:
The Tribunal's decision was supported by legal precedents, including the judgments in CIT v. Vishal Aggarwal and CIT v. Vivek Dougall. These cases emphasized that if income was disclosed in the regular return before the search, it could not be considered as undisclosed income. The definition of undisclosed income under section 158B(b) of the Act was crucial in determining the scope of block assessment. The Supreme Court's ruling in Asst. CIT v. Hotel Blue Moon clarified that block assessment is meant for income detected as a result of search and is in addition to regular assessments. In the present case, the Court found that the Assessing Officer's reliance on already available information, without new findings during the search, did not meet the criteria for undisclosed income under Chapter XIV-B. Therefore, the Court upheld the Tribunal's decision, ruling in favor of the assessee and against the Revenue.

In conclusion, the judgment highlighted the importance of distinguishing between undisclosed income unearthed during a search and income already disclosed or available in books of account for block assessment purposes under the Income-tax Act, 1961. The decision underscored the necessity for the Assessing Officer to rely on new findings from the search operation to justify assessing income as undisclosed during block assessments.