2014 (8) TMI 43 - HC - Income Tax

Block assessment u/s 158BA r.w 113 Source of investment not properly explained - Addition u/s 69 - once an assessing authority notices an undisclosed income, an obligation arises for the assessee, to explain the source of the investment, which has yielded the income - If he fails to do so, Section 69 of the Act mandates that the entire amount shall be treated as income, itself - Notwithstanding the limitations in the context of hearing an appeal u/s 260A of the Act, it is left open for the assessee to explain the source of investment in respect of the undisclosed figures - Since that is not forthcoming, the only way out is to fall back upon the figures indicated by the revenue, the undisclosed income, as the income irrespective of the investment which is needed to yield that income or the absence of explanation of the source assessee shall be under obligation to pay the tax on the undisclosed income of ₹ 50,00,000/- in the place of ₹ 32,00,000 Decided partly in favour of Revenue.

Summary

Issues:
1) Block assessment under Chapter-XIVA of the Income Tax Act.
2) Discrepancies in tax liability determination by assessing authority and Tribunal.
3) Interpretation of Section 69 of the Income Tax Act regarding undisclosed investments.
4) Obligation of assessee to explain the source of undisclosed income.

Analysis:
1) The respondent, a company engaged in business activities, underwent a block assessment covering five years after certain undisclosed income and items were found during a search. The assessing authority made additions to the income, resulting in a tax liability of &8377; 1,33,69,570/- with penal tax of &8377; 80,21,742/- levied. The Tribunal partially allowed the appeal, reducing the tax liability to &8377; 32,00,000/-. The appeal challenged the Tribunal's order under Section 260(A) of the Income Tax Act.

2) The Income Tax Department argued that the Tribunal indiscriminately reduced tax figures without proper basis, emphasizing that the tax liability based on undisclosed income should be higher. The respondent contended that the assessing authority added figures without factual basis, suggesting a lower undisclosed income amount. The differing approaches to tax calculation in regular assessments versus block assessments were debated.

3) Section 69 of the Income Tax Act was pivotal in determining the liability of the assessee concerning undisclosed investments. It mandates that unexplained investments made by the assessee could be deemed as income if not satisfactorily explained. The assessee is obligated to explain the source of investments leading to undisclosed income, failing which the entire amount could be treated as income.

4) The judgment highlighted the importance of the assessee explaining the source of investments yielding undisclosed income. In the absence of a satisfactory explanation, the undisclosed income amount indicated by the departmental representative, in this case, &8377; 50,00,000/-, was considered as the taxable income instead of the Tribunal's determined amount of &8377; 32,00,000/-. The judgment allowed the appeal partially, holding the respondent liable to pay tax on the undisclosed income of &8377; 50,00,000/-.