2013 (12) TMI 545 - HC - Income Tax

Undisclosed income - Gifts from NRI relatives - Held that - The gifts received have been disclosedin the original return of income furnished u/s 139(1) - The search was made subsequent to such filing of return in which no incriminating evidence of undisclosed income was assessed - The Assessing Authority was wrong in concluding that the amounts shown as gift in the return constitute undisclosed income - Decided against Revenue.

Summary

Issues:
Challenge to order holding income not undisclosed.

Analysis:
The appeal was filed by the Revenue challenging the order of the Tribunal and Lower Appellate Authority, which held that the income shown in the assessee's return did not constitute undisclosed income. The case stemmed from a search operation under Section 132 of the Income Tax Act, 1961, in the case of a group of companies. The Assessing Officer alleged that gifts received by the assessee were not genuine and added the amount to the income for tax purposes. The Commissioner of Income Tax (Appeals) set aside the assessment order, stating that the Assessing Officer did not verify the truth about the gifts. The Appellate Authority accepted the case of the assessee, leading to the Revenue's appeal to the Tribunal, which dismissed the appeal. The substantial question of law was whether the gifts detected during the search could be treated as undisclosed income despite the identification of the donor, creditworthiness, and genuineness not being proven.

The material on record revealed that the assessee disclosed the gifts received from various donors in her returns. The Assessing Authority concluded that these gifts were not genuine. The key issue was whether the Assessing Authority could assess the assessee for the gifts as undisclosed income in block assessment proceedings. The definition of "undisclosed income" under Section 158B(b) of the Act was considered, which includes income not disclosed for tax purposes.

The judgment highlighted the special procedure for assessment of search cases under Chapter XIV-B. The Apex Court rulings emphasized that block assessment is for undisclosed income detected as a result of search and is in addition to regular assessments. The conditions precedent for invoking block assessment were discussed, emphasizing the need for a search under Section 132 and undisclosed income not reflected in filed returns. The judgment clarified that if income is disclosed in filed returns, it cannot be treated as undisclosed income.

In this case, the gifts in question were reflected in the returns filed by the assessee before the search, and no incriminating evidence of undisclosed income was found. The Assessing Authority erred in treating the gifts as undisclosed income. The Lower Appellate Authority and Tribunal were correct in setting aside the order. The substantial question of law was answered in favor of the assessee, and the appeal by the Revenue was dismissed for lack of merit.