2019 (10) TMI 1003 - HC - Income Tax

Assessment on the basis of seized material and documents u/s 158BB(1) - Tribunal recorded a categorical finding that Assessing Officer instead of working out undisclosed income as per the provisions of Section 158 BD had totalled up amount mentioned in various annexures which according to the assessee are part of the contract work done by him - HELD THAT - Tribunal has recorded a finding in regard to the additions made by the AO which was confirmed by the CIT (Appeals) which was based only on mere assumption and not on any material recovered during search and seizure. The Tribunal had recorded a categorical finding that addition cannot be made merely on presumption that assessee had earned undisclosed income and incurred expenses outside books of account which need no interference being finding of fact the appeal lacks merit and is hereby dismissed .

Summary

Issues:
1. Addition of undisclosed income and expenses in block assessment.
2. Deletion of additions made by the Assessing Officer.
3. Legality of penalties imposed under Section 158 BFA (2) of the Income Tax Act.

Issue 1: Addition of Undisclosed Income and Expenses in Block Assessment:
The case involved two appeals arising from a judgment passed by the Income Tax Appellate Tribunal (ITAT) for the block assessment years 1997-98 to 2003-04. The primary issue was whether the additions made by the Assessing Officer were justified. The Tribunal found that the additions were based on presumption rather than concrete evidence recovered during search and seizure. It was noted that the Assessing Officer's approach of totaling amounts from various annexures without proper verification was incorrect. The Tribunal emphasized that income already assessed or disclosed cannot be treated as undisclosed income. The Assessing Officer's estimation of income and addition of expenses were deemed unjustified, leading to the dismissal of the Revenue's appeal.

Issue 2: Deletion of Additions Made by the Assessing Officer:
The Assessing Officer had made additions on account of unexplained expenditure, suppression of receipts, inflation of expenses, and illegal payments. The total undisclosed income added was challenged by the assessee before the CIT (Appeals) and subsequently before the ITAT. The ITAT, after thorough examination, concluded that the additions were made without proper evidence and were solely based on assumptions. The Tribunal directed the Assessing Officer to complete the assessment based on seized material rather than presumptions. The ITAT's decision to allow the assessee's appeal and dismiss the Revenue's appeal was based on the lack of concrete evidence supporting the additions made by the Assessing Officer.

Issue 3: Legality of Penalties Imposed under Section 158 BFA (2) of the Income Tax Act:
The case also involved penalties imposed under Section 158 BFA (2) of the Income Tax Act. The ITAT had deleted the penalty imposed by the Assessing Officer, stating that the conditions prescribed in the section were not fulfilled by the assessee. The Tribunal's decision to delete the penalty was challenged by the Revenue. However, the ITAT's finding that the penalty was unjustified was upheld by the High Court. The Court emphasized that penalties cannot be imposed without meeting the prescribed conditions, and in this case, the penalty was rightly deleted by the ITAT.

In conclusion, the High Court dismissed the appeals filed by the Revenue and ruled in favor of the assessee. The judgment highlighted the importance of concrete evidence in making additions during block assessments and emphasized the need to adhere to legal provisions when imposing penalties under the Income Tax Act.