2014 (9) TMI 354 - AT - Income Tax

Undisclosed income in block assessment - Whether the amount being consideration received on surrendered of 1400 sq.ft. area from out of 3000 sq.ft. area in the building proposed to be constructed was rightly treated as undisclosed income in the block assessment Held that - The assessee has disclosed the amount in its block return of income - Though the assessee is not estoppal from taking a legal stands, the facts remains that the AO cannot be found fault with for accepting the return of income of the assessee assessee contended that the authorities were in know of the transaction prior to the search and hence the transaction in question cannot be brought tax in the block assessment, does not have any merit for the reason that the assessee filed the regular return of income for the A.Y. 1997-98 on 12.01.1999, which is after the date of search and in this return of income, she did not declare the receipt while declaring this amount in her block return of income Decided against assessee. Accrual of income - Compensation received for the loss of income cash basis of accounting - Held that - The amount was never paid to the assessee and the fact has been recorded in the agreement dated 25.09.2008 assessee contended that she follows the cash system of amount and the amount was taxable only on its receipt - the assessee has not received this amount or the interest till date - assessee as admitted that he was following the cash system of accounting and hence the amounts in question cannot be taxed as the same was not received - the assessee has never received the amount of ₹ 2.90 crores and as he also could not controvert the claim of the assessee, that she follows the cash system of accounting and also the fact that the assessee had offered to tax the balance consideration of ₹ 8.00 crores in the year 2009-10 for the transfer of the property at 25-A, Akbar Road, New Delhi in the A.Y. 2009-10 - the amount of ₹ 2.90 crores and interest thereon cannot be taxed in the hands of the assessee during the block period - No addition can be made on account of accrued interest thereon - as regards, the amount which pertains to undisclosed interest income on IDBI bonds for the AYs 1997-1998 to 1999-2000, no arguments were advanced and hence the findings of the FAA are confirmed Decided in favour of assessee.

Issues Involved:
1. Legality of the search operation and its jurisdiction.
2. Validity of additions made under Section 158BC.
3. Taxation of the amount received as consideration for surrendered property.
4. Taxation of compensation for delayed possession.
5. Applicability of Chapter XIV-B of the Income Tax Act.
6. Method of accounting followed by the assessee.
7. Estoppel against statute and the validity of block assessment.

Detailed Analysis:

1. Legality of the Search Operation and Its Jurisdiction:
The assessee contested the legality of the search operation conducted under Section 132 of the Income Tax Act, arguing that the search was illegal and the procedure laid down in law for issuing a warrant and conducting the search was not followed. The Commissioner of Income Tax (Appeals) did not adjudicate on this issue, citing a lack of jurisdiction.

2. Validity of Additions Made Under Section 158BC:
The Assessing Officer made several additions under Section 158BC, which were partly confirmed by the Commissioner of Income Tax (Appeals). The additions included Rs. 2.80 crores for the surrender of 1400 sq. ft. area, Rs. 2.90 crores as compensation for delayed possession, and Rs. 43,04,710. The assessee argued that these additions were beyond the scope of Chapter XIV-B as no incriminating material was found during the search.

3. Taxation of the Amount Received as Consideration for Surrendered Property:
The assessee received Rs. 2.80 crores for surrendering 1400 sq. ft. of the 3400 sq. ft. area in a building to be constructed by Gopal Das Estate & Housing Pvt. Ltd. The Assessing Officer treated this amount as undisclosed income. The Tribunal upheld this addition, stating that the assessee did not declare this amount in her regular return of income for the assessment year 1997-98, filed after the date of search. The Tribunal noted that the Revenue had material evidence of the transaction, and the assessee disclosed this amount in her block return of income.

4. Taxation of Compensation for Delayed Possession:
The assessee was to receive Rs. 2.90 crores as compensation for delayed possession of the property. The Tribunal found that this amount was never paid to the assessee, as confirmed by a settlement agreement dated 25.09.2008. The Tribunal accepted the assessee's contention that she followed the cash system of accounting, and therefore, the amount of Rs. 2.90 crores could not be taxed as it was not received. The Tribunal also noted that the balance sale consideration of Rs. 8.00 crores was offered to tax in the assessment year 2009-10.

5. Applicability of Chapter XIV-B of the Income Tax Act:
The assessee argued that the provisions of Chapter XIV-B were not applicable as no undisclosed income was found during the search. The Tribunal rejected this argument, stating that the disclosure for the purpose of Section 158B(b) can only be made by filing a return of income prior to the date of search, which the assessee failed to do. The Tribunal cited the judgment of the Madras High Court in Noorsingh Vs. Union of India and others, 249 ITR 378 (Madras), to support this view.

6. Method of Accounting Followed by the Assessee:
The assessee claimed to follow the cash system of accounting, which was supported by the Tribunal's observation in its September 2005 order. The Tribunal accepted this claim and concluded that the amounts in question could not be taxed as they were not received.

7. Estoppel Against Statute and the Validity of Block Assessment:
The Tribunal noted that the assessee disclosed the disputed amounts in her block return of income, and the Assessing Officer accepted this return. The Tribunal held that the assessee could not dispute the addition of these amounts as she had already disclosed them in her block return.

Conclusion:
The Tribunal upheld the addition of Rs. 2.80 crores as undisclosed income but deleted the additions of Rs. 2.90 crores and Rs. 43,04,710 on the grounds that these amounts were not received by the assessee and she followed the cash system of accounting. The Tribunal confirmed the findings of the First Appellate Authority regarding the undisclosed interest income on IDBI bonds amounting to Rs. 4,32,000. The order was pronounced in the open Court on 28.08.2014.

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