2003 (1) TMI 68 - HC - Income Tax

High Court overturns Tribunal's cancellation of block assessment, deems it legally flawed. Assessee held liable for undisclosed investments.

The High Court set aside the Tribunal's order canceling the block assessment, finding it perverse and unsustainable in law. The appeal was allowed, ... 'Whether, on the facts and circumstances of the case, the findings arrived at by the Tribunal for cancelling the block assessment in question are perverse being contrary to the materials on record and have been arrived at on conjectures and surmises ?' In our opinion, keeping in view the facts of the present case, there is no occasion on our part to remand the case to the Tribunal because when once it is found that the investments detected during the search have not at all been recorded in the books of account, there hardly remains any other aspect to be determined by the Tribunal on merits of the assessment. Similarly, the leviability of interest under section 158BFA of the Act is merely consequential and confers no discretion on any authority to remit or reduce the same. For these reasons, nothing remains for the Tribunal to decide in the matter. - Accordingly, the order passed by the Tribunal is set aside. Issues Involved:1. Legality of the Tribunal's findings in canceling the block assessment.2. The validity of the entries in the assessee's cash book/day book.3. The applicability of double taxation in the context of block assessment.4. The Tribunal's reliance on the assessee's mental state and its impact on the return filed.5. Jurisdiction of the High Court under section 260A of the Income-tax Act, 1961.Detailed Analysis:1. Legality of the Tribunal's findings in canceling the block assessment:The primary issue was whether the Tribunal's findings in canceling the block assessment were perverse and contrary to the materials on record. The Tribunal canceled the block assessment on the grounds that the undisclosed income was already covered by the regular assessment for the assessment year 1998-99. However, the High Court found that the Tribunal's conclusion was based on conjectures and surmises. The High Court noted that none of the investments discovered during the search were made on April 7, 1997, as recorded in the cash book/day book. Therefore, the Tribunal's finding that the undisclosed income was covered by regular assessment was not sustainable.2. The validity of the entries in the assessee's cash book/day book:The Tribunal accepted the entries in the cash book/day book produced by the assessee, which showed cash receipts and investments of Rs. 90 lakhs on April 7, 1997. However, the High Court found that these entries were either interpolated after the search or were bogus. The Commissioner of Income-tax (Appeals) had already held that the entries relating to Rs. 90 lakhs were interpolated after the search. The High Court agreed with this finding, stating that the investments detected during the search were not recorded in the books of account produced by the assessee.3. The applicability of double taxation in the context of block assessment:The Tribunal had canceled the block assessment on the grounds that sustaining it would amount to double taxation. However, the High Court found that this reasoning was flawed. According to section 158BA of the Act, the assessment of undisclosed income as a result of search is in addition to the regular assessment. The High Court clarified that the total undisclosed income relating to the block period should not include the income assessed in any regular assessment. Therefore, the Tribunal's view that sustaining the block assessment would amount to double taxation was incorrect.4. The Tribunal's reliance on the assessee's mental state and its impact on the return filed:The Tribunal had considered the assessee's claim that he was under tremendous mental tension after the seizures, which led him to file a wrong return for the block period. The High Court dismissed this argument, stating that even if the assessee was under mental pressure, the fact remained that he had made unaccounted investments worth Rs. 72 lakhs. The High Court emphasized that the assessee's liability to be assessed for the block period was clear under the provisions of Chapter XIV-B of the Act.5. Jurisdiction of the High Court under section 260A of the Income-tax Act, 1961:The High Court addressed the jurisdictional issue raised by the assessee's counsel, who argued that the High Court should not interfere with the Tribunal's findings of fact. The High Court clarified that it could interfere if the findings were perverse, based on wrong tests, assumptions, and conjectures. The High Court cited the Supreme Court's judgment in Kulwant Kaur v. Gurdial Singh Manti, which held that findings vitiated by perversity could be interfered with under section 100 of the Code of Civil Procedure. The High Court concluded that the same principle applied to appeals under section 260A of the Income-tax Act.Conclusion:The High Court set aside the Tribunal's order canceling the block assessment, finding it perverse and unsustainable in law. The appeal was allowed, and the parties were directed to bear their own costs. The High Court emphasized that the investments detected during the search were not recorded in the books of account, and therefore, the assessee could not escape liability for the block period. The High Court also dismissed the request to remand the case to the Tribunal, stating that no further aspects remained to be determined.