2000 (3) TMI 19 - HC - Income Tax

Tribunal's factual finding upheld: AO's block assessment lacked evidence for undisclosed income under ss.158BB/158BC in medical practice fees

Commissioner Of Income-Tax Versus Dr. M. KE Memon

The HC upheld the Tribunal, finding the AO's estimation of undisclosed income in the block assessment was without evidence or basis. The AO failed to ... Block Assessment - Search And Seizure - estimation of undisclosed income - fees recorded in the registration books exceeded the fees reflected in the cash book - difference between regular assessment u/s 143(3) and assessment under Chapter XIV-B​​​​​​​ - Assessee is a doctor by profession - source of income has been by way of medical examination fees charged for issuing medical fitness certificates for candidates going to Gulf countries - HELD THAT:- In the present matter, the Assessing Officer has not considered the fact that the fees of the professional in the ordinary course could not have remained static for the entire period commencing from April 1, 1986, to December 11, 1996. The Assessing Officer has also not considered that the assessee used to take a deposit of a fixed amount from each candidate. That on screening, if the assessee found the candidate to be unfit he used to retain Rs. 100 and return the balance amount. It is pointed out to us that if on a preliminary examination a candidate was suffering from a serious ailment then there was no necessity of the candidate undergoing further tests and in which event the assessee used to retain Rs. 100 and return the balance amount. None of the explanations have been considered by the Assessing Officer and, therefore, the Tribunal held that the estimation of income by the Assessing Officer was without any evidence/ basis. This is a pure finding of fact. We also agree with the said finding. Under section 158BB read with section 158BC, what is assessed is the undisclosed income of the block period and not the total income or loss of the previous year required to be assessed under regular assessment vide section 143(3). This exercise under section 143(3) for regular assessment stands on a different footing in contrast to the exercise undertaken by the Assessing Officer under Chapter XIV-B where the Assessing Officer has to assess only the undisclosed income. Therefore, the scope of regular assessment is quite different from the scope of assessment under Chapter XIV-B. The regular assessment is to ensure that the assessee had not understated the income or has not computed excessive loss or has not underpaid the tax in any manner whereas what is assessed under Chapter XIV-B is only the undisclosed income for the block. period and. not the income or loss of the previous year which is only done in the normal regular assessment under section 143(3). In a large number of cases we find that the above distinction is not kept in mind by the Assessing Officer. It is for this reason that we have spelt out the difference between the regular assessment and the block assessment under Chapter XIV-B of the Income-tax Act. Thus, the decision of the Tribunal is based on the facts of this case. Issues Involved: The judgment involves the assessment of undisclosed income u/s 158BC of the Income-tax Act, 1961 for the block period April 1, 1986, to December 11, 1996, based on additions made by the Assessing Officer. The main issues include the estimation of undisclosed income by the Assessing Officer, application of post-1993 income rates to the entire block period, and the difference between regular assessment u/s 143(3) and assessment under Chapter XIV-B.Estimation of Undisclosed Income: The appeal was filed against the judgment and order of the Income-tax Appellate Tribunal, where the Assessing Officer estimated the undisclosed income for the block period at Rs. 2.33 crores, while the assessee disclosed Rs. 75.60 lakhs. The Tribunal accepted the assessee's grounds for deletion of Rs. 47.28 lakhs, leading to the Department filing the appeal. The court found that the Assessing Officer's estimation lacked evidence and basis, especially in not considering factors like the impact of the Gulf war and the varying fees charged by the professional over the years.Application of Post-1993 Income Rates: The Tribunal found that the Assessing Officer incorrectly applied the post-1993 income rates to the entire block period from 1986 to 1996. The court agreed with this finding, emphasizing that the estimation of undisclosed income under Chapter XIV-B cannot be arbitrary and must consider the specific circumstances of the case. The court highlighted that the Assessing Officer cannot act arbitrarily in estimating undisclosed income and must take into account all relevant factors.Regular Assessment vs. Block Assessment: The judgment clarifies the distinction between regular assessment u/s 143(3) and assessment under Chapter XIV-B. It explains that while regular assessment ensures accurate reporting of income and tax payments, block assessment focuses solely on undisclosed income for the block period. The court emphasized that the Assessing Officer must understand and apply the different scopes of regular assessment and block assessment to avoid arbitrary estimations.Conclusion: The court dismissed the appeal, stating that no substantial question of law arose from the case. The judgment highlighted the importance of considering all relevant factors and circumstances while estimating undisclosed income under Chapter XIV-B, emphasizing the need for a non-arbitrary approach by the Assessing Officer. The decision was based on the specific facts of the case, underscoring the difference between regular assessment and block assessment under the Income-tax Act.