2016 (12) TMI 248 - HC - Income Tax

Interpretation of the provisions of Section 158BB and Section 158B (b) - undisclosed income - Held that - The assessee has rightly relied on a decision of this Court in the case of Commissioner of Income Tax Vs. N.K. Laminates P. Ltd. reported in (2014 (4) TMI 565 - ALLAHABAD HIGH COURT ) wherein the Court has examined at length the provisions of Section 158B, 158BB and 158 BC of the Act which relate to undisclosed income and has come to the conclusion that the material which is not found at the time of search or as a result of requisition of books of account or other document, cannot be made the basis for determination of undisclosed income under Section 158(B)(B). It is necessary mandate of Section 158(B)(B) of the Act that any material which is found during the search itself should form the basis of any additions which may be made. The facts in this case are otherwise. The matter is therefore, concluded by the facts and even otherwise on merits the question is answered in favour of the assessee

Summary

Issues:
1. Interpretation of provisions of Section 158BB and Section 158B (b) of the Income Tax Act, 1961.

Analysis:
The appeal before the Allahabad High Court involved a challenge by the department against an order passed by the tribunal regarding a search and seizure operation conducted on the residential and business premises of the assessee. The primary issue revolved around the deletion of an addition of undisclosed income amounting to ?36,60,072/- by the Commissioner of Income Tax (Appeals). The Assessing Officer had added this amount based on the conclusion that a transaction involving the sale of shares was a sham transaction aimed at reintroducing undisclosed money into the regular books as capital gain receipts. The department contended that the Tribunal erred in upholding the deletion made by the Commissioner of Income Tax (Appeals).

Upon examining the facts, it was revealed that the post search enquiries and subsequent additions were not based on evidence found during the search operation, as required by Section 158BB. The statements recorded during the search did not provide concrete evidence to support the suspicion of the share transactions being bogus. Additionally, the assessee had disclosed the share transaction in the regular income tax return filed before the search, further undermining the basis for the addition of undisclosed income. The Tribunal confirmed the decision of the Commissioner of Income Tax (Appeals), emphasizing that the additions were not supported by new material or documents seized during the search.

The High Court referred to a previous decision in the case of Commissioner of Income Tax Vs. N.K. Laminates P. Ltd., which extensively analyzed the provisions of Section 158B, 158BB, and 158BC of the Act concerning undisclosed income. The Court concluded that material not found during the search or as a result of requisition of documents cannot be the basis for determining undisclosed income under Section 158B(B). It was emphasized that any material found during the search should form the basis for additions under Section 158(B)(B), which was not the case in this instance. Consequently, the Court dismissed the appeal, ruling in favor of the assessee and against the department, highlighting the lack of legal merit in the department's position.