2018 (12) TMI 1081 - HC - Income Tax

Addition of undisclosed income from the block assessment - non filing of returns by assessee - Held that - There was absolutely no reason to find it as undisclosed income, since the assessee had not filed returns for the said year, and the same was deleted from the block assessment. We do not find any reason to interfere with the same, since the AO himself could have considered the same at the time of filing of the return on the basis of the materials recovered on inspection. The Revenue s contention is that the assessee did not show it in the return of that year nor the AO assessed it. That is the folly committed by the AO since it was included in the block assessment; which definitely was not permissible. We, hence, answer the said question in favour of the assessee. Return filed by the assessee for the assessment year 1993-94 being belated (and hence non-est) - Held that - Government of India (Taxes) submits that the return filed belatedly is of no consequence and hence it has to be taken as undisclosed income. We agree with the said submission, but however, if the belated return is of no consequence, the undisclosed income has been returned by the assessee in a return filed on a notice issued after search. Hence, there is no warrant for adding on the income declared in a belated return. If at all, only ₹ 1,210 could have been added on being the excess income shown in the belated return. We do not think there is any warrant for making any such addition at this stage. The second question, hence, is answered in favour of the assessee. Addition made with respect to the deficiency in drawings in each of the years of block assessment - Held that - The estimation carried out by the Assessing Officer in the subsequent years is also found to be reasonable. The assessee s drawings had also increased in the said years and on a reasonable basis, there was an increase in the house-hold expenses estimated by the AO. Tribunal had deleted the same on the ground that additions have been made on an estimation basis. We do not think that the AO carrying out the block assessment is divested of the power of estimation which every assessment Officer carries with the office. Deficiency in the drawings for the years 1993-94, 1994-95 and 1995-96 are to be confirmed. We also notice that there was an addition made on deficiency in drawings in the year 1996-97 of ₹ 12,000/-. As we noticed with respect to the first question, the assessee had not filed return and the time for that had not reached at the time of inspection. In such circumstances, there is no warrant for making such an addition in that year. - Decided against the assessee.

Summary

Issues: Block assessment for the years 1993-94 to 1996-97; Deletion of undisclosed income from block assessment; Treatment of belated return as undisclosed income; Estimation of deficiency in drawings for block assessment years.

Analysis:

Deletion of Undisclosed Income (1996-97): The first issue pertains to the deletion of undisclosed income of &8377; 16,30,925/- from the block assessment for the year 1996-97. The Tribunal had deleted this addition, as the assessee had not filed returns for that year when the search was conducted. The Court upheld this deletion, stating that the Assessing Officer (AO) could have considered the undisclosed income at the time of filing the return based on the materials recovered during inspection. The Court found the inclusion of this income in the block assessment by the AO as impermissible, ruling in favor of the assessee and against the Revenue.

Treatment of Belated Return (1993-94): The second issue concerns the addition of &8377; 51,210/- for the year 1993-94, where the assessee had filed a belated return showing an income of &8377; 51,210/-. The Court agreed that a belated return is of no consequence, but noted that the undisclosed income was subsequently declared by the assessee in a return filed after a search notice. The Court found no justification for adding the income declared in the belated return, ruling in favor of the assessee and against the Revenue.

Estimation of Deficiency in Drawings: The final issue involves the addition made for deficiency in drawings for the block assessment years. The AO estimated the deficiency based on the assessee's personal expenses and drawings from the accounts. The Court found the AO's estimation reasonable and upheld the additions for the years 1993-94, 1994-95, and 1995-96. However, the Court deleted the addition for the year 1996-97, as the assessee had not filed a return and the time for filing had not elapsed during the inspection. The Court ruled in favor of the Revenue and against the assessee for this issue.

In conclusion, the Income Tax Appeal was allowed in part, with costs not imposed. The judgment addressed various legal aspects related to block assessments, undisclosed income, treatment of belated returns, and estimation of deficiencies, providing clarity on each issue raised in the appeal.