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TMI Blog2021 (2) TMI 1141X X X X Extracts X X X X X X X X Extracts X X X X ..... r portion of which represents agricultural income and it has been declared to the revenue in the returns of income filed prior to the date of search. The revenue has not found any material to show that the agricultural income and other income declared by the assessee in the returns of income are false. Hence, we are of the view that the AO, in the block assessment proceedings, cannot tinker with the income/agricultural income already declared by the assessee in the returns of income filed prior to the date of search. Hence the sources for ₹ 130 lakhs also require to be accepted. Accordingly, in effect, there is no incriminating material available with the AO in support of the undisclosed income determined by him. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the entire amount of undisclosed income determined by him. Surcharge levied u/s 113 - HELD THAT:- Since we have deleted the entire undisclosed income in the earlier paragraphs, the question of levying of surcharge has become academic. In any case, it is the submission of the assessee that the decision rendered in the case of Suresh N Gupta [ 2008 (1) TMI 396 - SUPREME COURT] has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot been fulfilled and hence the search operation itself is illegal. On merits, the assessee contended the additions made by the AO in the block assessment order, which related to the disallowance of agricultural income shown by the assessee in his returns of income filed prior to search operations. 2.1 The Tribunal disposed of the appeal of the assessee in IT(SS)A No.4/Bang/2005 and the appeal of revenue in IT(SSA) No.15/Bang/2005, vide its order dated 29-06-2006. With regard to the legal issue relating to the validity of the search proceedings, the Tribunal rejected the same by following the decision rendered in the case of C Ramaiah Reddy in IT(SS)A 38/B/97 dated 19-03-2006, wherein it was held that the Tribunal had no jurisdiction to examine the authorisation of search. On the issues urged on merits, the Tribunal restored the issue to the file of the AO for adjudicating the same afresh. The assessee filed a miscellaneous application before the ITAT, which was numbered as MP No.52/Bang/2008. The addition made by the AO by disallowing agricultural income pertained to an investment made in a company as Share application money. The AO had taken the investment value as ₹ 2.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, the grounds urged on the legal issue relating to validity of search proceedings are dismissed as not pressed. 4. We shall now take up the appeal of the assessee numbered as IT(SS)A No.8/Bang/2011. The grounds urged by the assessee relate to the following issues:- (a) Whether the was justified in determining the undisclosed income at ₹ 2.96 crores. (b) Whether the AO was justified in levying surcharge u/s 113 of the Act. 4.1 The facts relating to the above said issues are stated in brief. During the course of search operations, the search officials found one Balance Sheet belonging to a company named M/s MRP Home Inn Private Limited for the financial year ending 31.3.1998 along with corresponding figure for the year ending 31.3.1997. The relevant documents are placed at pages 55 56 of the paper book. The assessee is the managing director of the above said company and his wife is the other director. The said financial statements were to have been signed by the directors and also by the auditor named Shri Mohan Balakrishnan on 31st August, 1998. The said financial statements disclosed that the above said company has received Share Application mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery for a value of ₹ 32.50 lakhs and other sources of income declared by the assessee to the extent declared. Accordingly, the AO determined the quantum of sources available with the assessee at ₹ 33.00 lakhs and accordingly determined the undisclosed income at ₹ 266 lakhs. 4.1 We have earlier noticed that the Tribunal had restored the issue of determination of agricultural income to the file of the AO. Vide the order passed by the Tribunal against the Miscellaneous application, the quantum of investment made in the above said company was also directed to be examined. Hence the AO passed two assessment orders to give effect to the order of the Tribunal. The first order came to be passed on 31.12.2007 in order to give effect to the order of the Tribunal and the second order came to be passed on 03.11.2009 to give effect to the order passed by the Tribunal against the miscellaneous application. The Ld A.R submitted that the assessee had preferred appeal before Ld CIT(A) against the assessment order dated 31.12.2007, but the same has been set aside to the file of the AO by Ld CIT(A), since the AO was required to pass the assessment order again consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.4 The Ld. A.R. submitted that the block assessment proceedings prescribed u/s 158BC of the Act is a code by itself and what can be assessed in the block period is the undisclosed income as defined in section 158B(b) of the Act. Further, as per provisions of section 158BB the undisclosed income should be determined on the basis of evidence found as a result of search and such other material as are available with the assessing officer and relatable to such evidence. Hence no income could be assessed as undisclosed income on the basis of inferences and surmises. The Ld. A.R. submitted that the above said balance sheet found during the course of search does not tally with the books of accounts maintained by the assessee. Further, the said document does not contain breakup details of share application money. Accordingly, he submitted that the said document is a dumb document. Further, it cannot be presumed that the assessee herein has invested entire amount of share application money shown in the balance sheet. 4.5 The Ld. A.R. submitted that, even if the said balance sheet is assumed to be correct for a moment, the assessee has explained the sources for making investments in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false. In the instant case, the dispute is with regard to the alleged investments made by the assessee in a company by way of share application money. We notice that the amount of share application money mentioned in the seized documents does not tally with the amount of share application money mentioned in the balance sheet approved in the annual general meeting/filed with the Registrar of Companies. Further, as stated by Ld. A.R., the seized document does not contain breakup details of share application money i.e. the details of persons who has invested the said amount. In the absence of break-up details of investors, we are of the view that the assessing officer has drawn conclusions only on surmises and conjectures that it is the assessee who has invested the money as share appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nally enacted w.e.f. 1st July, 1995 and as modified/changed through amendments, from time to time (in the relevant provisions), continues to retain its purpose, in that, a block assessment pertaining to a number of years remains distinct from an assessment under Section 143(3) pertaining to a single assessment year. Further, the amendment to section 158B(b) has enlarged the meaning of the term undisclosed income by including therein any expenses, deduction or allowance claimed under this Act, which is found to be false . However, this cannot be construed to mean that whatever has been left out in a regular assessment can be reassessed or re-examined with reference to those provisions which are relatable to an assessment u/s. 143(3). This is evident from A.R. Enterprises (supra), where the court held as follows: . . . Sections 158BD and 158BC, along with the rest of Chapter XIV-B, find application only in the event of discovery of undisclosed income of an Assessee. Undisclosed income is defined by Section 158B as that income which has not been or would not have been disclosed for the purposes of this Act . The legislature has chosen to define undisclosed incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment, additions made by the Department on the ground of undisclosed income was erroneous. 26. A larger, five member bench of the Supreme Court reiterated the distinctness of the procedure between normal assessments and block assessments, with specific reference to the charging section (of the Income tax), the reference to previous year as the income for which tax is levied and the special procedure for assessment of undisclosed income relatable to materials seized during a search, in CIT v. Vatika Township (P.) Ltd. [2014] 49 taxmann.com 249/227 Taxman 121/367 ITR 466 SC) in the following terms: Undisclosed income referred to in Chapter XIVB is not relateable to the previous year. On the contrary, it is for the block period which may be 6 years or 10 years, as the case may be. Consequently, as already mentioned, while analyzing the scheme of Chapter XIVB, such Chapter is a complete code in respect of assessments of 'undisclosed income'. Not only it defines what is undisclosed income, it also lays down the block period for which undisclosed income can be taxed. Further, it also lays down the procedure for taxing that income. It is very pertinent to note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO can only proceed on the basis of material detected at the time of search and the evidence gathered under section 132(4) only, and not otherwise. If seen in this light, the estimates of costs on the foreign travels of the assessee and his wife were not made during the course of the search pertaining to the block assessment, but through surmises based on the details found in the passports of the two assessees after requisitioning them from the passport office. Thus, the inference of escaped income is based upon materials gathered from extraneous sources and not from search. Section 158BB (subsequent to amendment by the Finance Act, 2002 w.e.f. 01.07.1995) states how the undisclosed income of the block period needs to be computed on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence on the basis of evidence. In Asstt. CIT v. Hotel Blue Moon [2010] 188 Taxman 113/321 ITR 362 (SC) held that block assessments are not intended to substitute regular assessment and its scope and ambit is limited in that sense to materials unearthed dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e view that the AO, in the block assessment proceedings, cannot tinker with the income/agricultural income already declared by the assessee in the returns of income filed prior to the date of search. Hence the sources for ₹ 130 lakhs also require to be accepted. Accordingly, in effect, there is no incriminating material available with the AO in support of the undisclosed income determined by him. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the entire amount of undisclosed income determined by him. 5. The next issue contested by the assessee relates to the surcharge levied u/s 113 of the Act. The AO had levied the surcharge u/s 113 of the Act and the Ld CIT(A) has confirmed the same following the decision rendered by Hon ble Supreme Court in the case of Suresh N Gupta (supra). Since we have deleted the entire undisclosed income in the earlier paragraphs, the question of levying of surcharge has become academic. In any case, it is the submission of the assessee that the decision rendered in the case of Suresh N Gupta (supra) has since been modified by Hon ble Supreme Court in the case of Vatika Township (367 ITR 466)(SC). Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in the order passed by it earlier had not quashed the assessment order. It had only restored the issues urged on merits for fresh consideration. Hence it is a case of continuation of original assessment proceedings only. He submitted that the provisions of sec.158BFA(1) permits charging of interest upto the date of original assessment order only. Accordingly he submitted that the Ld CIT(A) was justified in directing the AO to restrict the charging of interest upto the date of original assessment order. 6.5 We heard the parties on this issue and perused the record. The provisions ofsec.158BFA(1) existed at the time of passing of original assessment order read as under:- 158BFA. (1) Where the return of total income including undisclosed income for the block period, in respect of search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A on or after the 1st day of January, 1997, as required by a notice under clause (a) of section 158BC, is furnished after the expiry of the period specified in such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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