2014 (11) TMI 15 - HC - Income Tax

Scope of undisclosed income u/s 158BA and 158BB Transactions not recorded in the books of accounts - Whether the Tribunal was correct in holding that the additions of unexplained investment in shares, bullion etc., do not constitute undisclosed income and it was not liable to be brought to tax as per section 158BB or not Held that - The undisclosed income of the block period shall be the undisclosed income as defined u/s 158BA, BB and other documents and such other materials or information as are available with the AO and relatable to such evidence - the computation of undisclosed income of the block period is to be determined - The Tribunal has not looked into Section 158 BB (1) of the Act in coming to its conclusion thus, the matter is to be remitted back to the Tribunal for consideration in respect of the investments made in those four items Decided in favour of revenue.

Summary

Issues:
- Investments made by certain shareholders in M/s Bellaire Apartments Limited
- Investments made in M/s Syndicate Road Carriers
- Investments made in M/s Bullion Investments and Financial Services
- Cost of construction discovered during search

Analysis:
The High Court judgment pertains to an appeal by the revenue challenging a Tribunal's order that partially allowed the assessee's appeal, granting relief. The central issue revolved around whether the undisclosed income was correctly computed based on evidence gathered during search. The Tribunal held that undisclosed income must be detected as a result of search, and additions cannot be made without reference to search material. The Court identified two key questions for consideration: firstly, whether additions on unexplained investments constitute undisclosed income when not recorded in the books, and secondly, whether the department's prior knowledge of certain investments affects their classification as undisclosed income.

The definition of 'undisclosed income' under Section 158B (b) of the Income Tax Act was crucial in determining the scope of undisclosed income. The computation of undisclosed income for the block period was governed by Section 158BB, emphasizing evidence found during search or related materials. The Court highlighted the need to consider Section 158BB (1) in determining undisclosed income for the block period. The Tribunal's failure to apply this provision led to setting aside the order concerning the four investment items and remitting the matter for reconsideration, instructing the Tribunal to allow opportunities for the assessee, such as cross-examination of relevant persons.

In conclusion, the judgment emphasized the importance of evidence gathered during search in computing undisclosed income for the block period. The Court directed a reevaluation of the investments in question, stressing the necessity of adhering to the provisions of Section 158BB for accurate determination of undisclosed income.