Tribunal rules disclosed income post-search cannot be excluded from undisclosed income

The Tribunal held that income disclosed in regular returns for the assessment year 1995-96, despite being assessed under section 143(3), could not be excluded from undisclosed income as returns were filed after the search. The Tribunal dismissed the appeals, affirming that income assessed post-search could not be reduced from undisclosed income of the block period. The appeals of the assessees were therefore dismissed, and the disclosed income was rightfully subjected to assessment under section 158BD read with section 158BC of the I.T. Act, 1961.

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Issues Involved:
1. Whether the income for the assessment year 1995-96 disclosed in the regular returns can be subjected to assessment under section 158BD read with section 158BC of the I.T. Act, 1961.

Detailed Analysis:

Issue 1: Assessment of Income for the Assessment Year 1995-96
The primary contention was whether the income for the assessment year 1995-96, already disclosed by the assessees in their regular returns, could be subjected to assessment under section 158BD read with section 158BC of the I.T. Act, 1961.

Facts:
A search and seizure operation was conducted at the residential and business premises connected to the assessees on 12-12-1995, concluding on 14-12-1995. Notices under section 158BD read with section 158BC were issued on 19-12-1996, and the assessees filed their returns on 2-12-1997. The income disclosed was treated as income from undisclosed sources by the Assessing Officer, and assessments were made under section 143(3) on 29-12-1997.

Arguments by the Assessees:
The assessees argued that since they had filed the returns under section 139 before the notice under section 158BD read with section 158BC was issued, the disclosed income should not be treated as undisclosed income. They relied on various Tribunal and High Court decisions, including:
- Nagin Das M. Gordadia v. Dy. CIT
- Nilesh R. Shah v. Asstt. CIT
- Smt. Shanti Rani v. Asstt. CIT
- Smt Sitadevi Daga v. Asstt. CIT
- Harishkumar J. Gupta v. Dy. CIT
- B.K. Agarwal v. Asstt. CIT
- Bhagwati Prasad Kedia v. CIT
- CIT v. Ravi Kant Jain
- CIT v. Vikram A. Doshi

Department's Argument:
The Departmental Representative contended that the cases cited by the assessees were prior to the amendments made by the Finance (No. 2) Act, 1998 and Finance Act, 2002, which had retrospective effect from 1-7-1995. The amendments clarified that the income assessed in regular assessments concluded before the date of the search or requisition should be reduced from the total undisclosed income of the block period.

Tribunal's Analysis:
The Tribunal noted that the cases relied upon by the assessees were not applicable post the amendments by the Finance Act, 2002. The Tribunal emphasized that the amended section 158BB(1)(a) specified that only the total income determined in assessments concluded before the date of the search or requisition could be reduced from the undisclosed income.

The Tribunal further clarified that the definition of 'undisclosed income' under section 158B(b) included income not disclosed or that would not have been disclosed for the purposes of the Act. Since the returns were filed after the search, the income was not disclosed before the search, thus falling within the definition of 'undisclosed income'.

Conclusion:
The Tribunal concluded that the income for the assessment year 1995-96, though assessed under section 143(3), could not be reduced from the undisclosed income as the returns were filed after the commencement of the search. The Tribunal dismissed the appeals, stating that the income assessed in regular assessments concluded after the date of the search or requisition could not be excluded from the undisclosed income of the block period.

Final Judgment:
The appeals of the assessees were dismissed. The income disclosed in the regular returns for the assessment year 1995-96 was rightly subjected to assessment under section 158BD read with section 158BC of the I.T. Act, 1961, as it was considered undisclosed income.

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