2003 (1) TMI 639 - AT - Income Tax

Block assessment under Chapter XIV-B can't be used without incriminating or seized search evidence; s.158BB requires search-based computation

ITAT held the appeals allowed, finding the AO erred in treating regular income shown in belated returns and amounts below the taxable limit as ... Block assessment in search cases Issues Involved:1. Validity of treating regular income shown in belated returns as undisclosed income.2. Applicability of block assessment provisions when no incriminating material is found during the search.3. Interpretation of 'undisclosed income' u/s 158B(b) and its computation u/s 158BB.Summary:1. Validity of treating regular income shown in belated returns as undisclosed income:The assessee contended that the regular income shown in belated returns filed after the search should not be treated as undisclosed income. The Assessing Officer (AO) had treated the income as nil for the years where no returns were filed before the search, as per the provisions of Chapter XIV-B and section 158BB(c). The Tribunal held that the AO erred in treating the regular income shown in belated returns as undisclosed income, as this income did not fall within the definition of 'undisclosed income' u/s 158B(b).2. Applicability of block assessment provisions when no incriminating material is found during the search:The assessee argued that no incriminating material was found during the search, and thus, the AO should have conducted a regular assessment instead of a block assessment. The Tribunal noted that block assessment must be based on seized/found assets or evidence. The Tribunal emphasized that the jurisdiction for block assessment arises only if there is evidence found during the search. Since no incriminating material was found against the assessee during the search, the AO should not have proceeded with the block assessment.3. Interpretation of 'undisclosed income' u/s 158B(b) and its computation u/s 158BB:The Tribunal examined the provisions of Chapter XIV-B, particularly sections 158B(b), 158BA, and 158BB. It was highlighted that 'undisclosed income' includes income not disclosed for the purposes of the Act, and the computation of such income must be based on evidence found during the search and other materials relatable to such evidence. The Tribunal referred to various judicial decisions, including those from the Hon'ble High Courts, which clarified that block assessment is intended to assess only the undisclosed income found as a result of the search. The Tribunal concluded that the AO's computation of undisclosed income was not based on evidence found during the search and thus was not in accordance with the statutory mandate.Conclusion:The Tribunal allowed the appeals, holding that the AO erred in treating the regular income shown in belated returns and income below the taxable limit as undisclosed income. The block assessment provisions were not applicable in the absence of incriminating material found during the search.