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2014 (5) TMI 704 - HC - Income TaxBlock assessment - Return filed beyond the due date u/s 139(1) of the Act - Whether the Tribunal was justified in holding that in the Block period, for the AY 1994-95, 1996-97, 1998-99, 1999-2000 and 2000-2001, though the return of income had been filed by the assessee beyond the date prescribed u/s 139 (1) of the Act, the income disclosed cannot be brought to tax in the Block assessments as per section 158 BB of the Act Held that - Block assessment is not intended to be substitute for regular assessment - Its scope and ambit is limited in that sense of the materials unearthed during search - This is in addition to the regular assessment already done or to be done. The income unearthed on the basis of evidence found as a result of search or requisition of books of account or documents or such other materials or information available with the AO and relatable to such evidence alone could be assessed so as to declare undisclosed income for all the six assessment years in the block period - The Tribunal has not examined the case in proper perspective - The income that has been disclosed by the assessee in the returns of income, other than the income unearthed as a result of search, cannot be treated as undisclosed income while assessing the income during the block period thus, the matter is remitted back to the Tribunal for fresh adjudication Decided in favour of Revenue. Acceptance of agricultural income Failure to prove the carrying on of agricultural activity Held that - The Appellate Authority deleted the addition as undisclosed income for the block period - the agricultural income for 1995-96 was accepted by the AO - the income of Rs.3,50,000/- for the AY 1996-97, was deleted being undisclosed income for the block period there was no reason to interfere in the order of the Appellate Authority and the Tribunal Decided against Revenue. Availability of deduction u/s 54 and 54F of the act assessees had sold their undivided interest in the land - Capital gains derived Held that - Section 54F provides that if the assessee has a residential house he cannot seek the benefit of long term capital gain - Under this provision, merely because, the words residential house are preceded by article a would not exclude a house shared with any other person - Even if the residential house is shared by an assessee, his right and ownership in the house, to whatever extent, is exclusive and nobody can take away his right in the house without due process of law - co-owner is the owner of a house in which he has share and that his right, title and interest is exclusive to the extent of his share and that he is the owner of the entire undivided house till it is partitioned - The right of a person, may be one half, in the residential house cannot be taken away without due process of law or it continues till there is a partition of residential house the order of the Tribunal is set aside Decided in favour of Revenue. Valuation of closing stock of immovable property Held that - The Tribunal was of the view that the amount received may include both capital as well as profit, if any - treating the entire amount as income would also not be correct - the question as regards valuation of closing stock in respect of the land in litigation deserves to be considered afresh in the light of the settled position of law that the assessee, in such a situation, has a choice to value the stock at cost or market price whichever is lower - None of the authorities have considered this question in proper perspective - It was necessary to find out the value of the land at which it was purchased and the market price, at the relevant time, in the light of the fact that the property was in litigation, and then fix the liability thus, the matter is remitted back to the Tribunal for fresh adjudication - Decided in favour of Revenue. Treatment of undisclosed income - Amount standing in credit - Whether the Tribunal was justified in holding that the amount standing to the credit of G. Anand having not been claimed as expense cannot be treated as undisclosed income of the assessee during the block period Held that - The amount of Rs.10,00,000/- remained unexplained and treating the same as undisclosed income - the assessee has not only not disclosed the said amount but failed to file return of income for the AY 1998-99 before the search - he did not file return of income for this AY within the time stipulated u/s 139(1) and (4) of the Act - he also failed to maintain books of account for the AY thus, the amount of Rs.10,00,000/- has rightly been brought to tax - the Tribunal did not consider the materials on record in proper perspective and has simply by single sentence in the order set-aside the concurrent findings of fact recorded by the authorities below - the order of the Tribunal is set aside Decided in favour of Revenue.
Issues Involved:
1. Treatment of income disclosed in returns filed beyond the due date under Section 139(1) of the Income Tax Act. 2. Acceptance of agricultural income declared by the assessee. 3. Eligibility for deductions under Sections 54 and 54F of the Income Tax Act. 4. Valuation of closing stock of immovable properties involved in litigation. 5. Treatment of amounts credited to the account of G. Anand. 6. Treatment of undisclosed investment in National Savings Certificates (NSC). Detailed Analysis: 1. Treatment of Income Disclosed in Returns Filed Beyond the Due Date: The primary issue was whether the income disclosed in returns filed after the due date prescribed under Section 139(1) of the Income Tax Act could be treated as undisclosed income for the block period. The court examined the provisions under Chapter XIV-B, specifically the definitions of "undisclosed income" and the procedures for block assessment. It was held that only the income unearthed during the search could be assessed as undisclosed income. The income disclosed in returns filed before the search, even if filed beyond the due date, cannot be treated as undisclosed income. The matter was remanded to the Tribunal for reconsideration in light of these observations. 2. Acceptance of Agricultural Income Declared by the Assessee: The assessee declared agricultural income, which the Assessing Officer doubted due to the lack of supporting documents and the nature of the assessee's primary business. However, since the agricultural income for the previous year was accepted by the Assessing Officer, the court upheld the Tribunal's decision to accept the agricultural income declared by the assessee for the block period. 3. Eligibility for Deductions under Sections 54 and 54F: The issue was whether the assessee was eligible for deductions under Sections 54 and 54F for capital gains. The court found that the assessee had sold undivided shares in land, not a residential house, and thus was not eligible for Section 54. For Section 54F, it was determined that the assessee owned residential properties on the date of the transaction, disqualifying them from claiming the deduction. The Tribunal's interpretation that shared ownership did not constitute ownership was rejected, and the court ruled in favor of the revenue. 4. Valuation of Closing Stock of Immovable Properties Involved in Litigation: The assessee valued the closing stock of land involved in litigation as 'Nil.' The Assessing Officer and Appellate Authority disagreed, noting that the land had value despite the litigation. The Tribunal remanded the issue for fresh examination, and the court agreed, emphasizing the need to consider the market value and cost of the land. 5. Treatment of Amounts Credited to the Account of G. Anand: The assessee showed an amount of Rs.10,00,000 credited to G. Anand, which remained unexplained. The Tribunal's decision to exclude this amount from undisclosed income was overturned by the court, which found the Tribunal's reasoning perverse. The court upheld the Assessing Officer's and Appellate Authority's decision to treat the amount as undisclosed income. 6. Treatment of Undisclosed Investment in NSC: The assessee did not disclose an investment of Rs.50,000 in NSC in the regular return, explaining it was from funds of various firms. The Tribunal accepted this explanation, and the court, noting the small amount involved, did not interfere with the Tribunal's decision, ruling in favor of the assessee. Conclusion: The appeals were disposed of with specific directions for reconsideration on certain issues and upholding the Tribunal's decisions on others. The court emphasized the importance of assessing only the income unearthed during the search as undisclosed income and provided clarity on the treatment of agricultural income, deductions under Sections 54 and 54F, and the valuation of closing stock.
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