2010 (12) TMI 205 - AT - Income Tax

Tribunal validates block assessment notice under section 158BD, minor's income included. Surcharge levy upheld.

The Tribunal upheld the validity of block assessment proceedings, ruling that the notice issued under section 158BD was valid despite the absence of ... Search and Seizure - Assessment for block period – Undisclosed Income - Notice on minor - Held that: the fact of the assessee being a minor for a part of the block period, and for which the assessee adverts to the mention of her date of birth on the return form itself, would not operate to disqualify or imbue the notice, issued on a major, with legal infirmity. - the definition of an ‘assessee’ under the Act (section. 2(7)) does not exclude a minor. - the issue of notice u/s. 158BD not bad.Recording of satisfaction - the twin criterion for a valid initiation of proceedings u/s. 158 BD being that there must be materials found in search or evidence/s or information referable to those materials with the AO of the person searched or requisitioned to form a prima facie opinion that there is some income of the assessee for the block period and, further, which stands not disclosed or would not be disclosed to the Revenue, i.e., “undisclosed income’, by definition. - this satisfaction is impelling and manifest in the assessment order of the person searched.No known source of income during minor - The contention of the assessee having no known source of income during the relevant period is, in view of the deeming nature of section 69, of little consequence. The said provision, it needs to be appreciated, does not require for its application, a finding to the effect that assessee had some known source of income for the relevant period or prior thereto. If that be so, this argument could validly be taken by any ‘major’ assessee as well.Purchase of property in the name of near and ear ones - What would be more relevant for the purpose in the present case, is to see whether the assessee’s father had any source/s of income or not - No doubt, the Revenue has not proceeded against the assessee’s father in the matter, and which may have been detrimental to its case. However, section 64(1A) answers the situation, effectively precluding the adoption of a plea as being raised. - That is, a minor’s income, where not arising out of any personal labour or application of knowledge, skill, etc., as in the present case, is to be included in the computation of the total income of the parent whose income is higher.Increase in value - how the assessee’s adjacent plot could be valued at Rs. 7194 per cent, which would imply a price increase of 835% inside one year. So, however, a price increase of 10% per annum can be assumed as normal. The Revenue has also not furnished the guideline value of the property under reference, i.e., under the Stamp Act. We, accordingly, direct for the adoption of a purchase price at Rs. 54,000 per cent as against at Rs. 60,100 adopted by the Revenue.Levy of surcharge on assessed tax - apex court vide its decisions in the case of CIT v. Suresh N. Gupta (2008 -TMI - 40397 - SUPREME Court) and CIT v. Rajiv Bhatara (2009 - TMI - 32440 - SUPREME COURT); holding the proviso to section 113 to be clarificatory and curative in nature, so that it would therefore be applicable to all assessments made under Chapter XIV-B as per the rates specified in the relevant Finance Act, i.e., that applicable to the date of search.As such, the only mistake committed by the Assessing Officer; as it appears, on account of he being not cognizant of the minority status of the assessee, and which in our opinion should have been, on the issue having been raised before him, set right by the first appellate authority, is that the income for the years for which the assessee is a minor, ought to have been clubbed in the hands of her parent whose income is higher – Appeal is partly allowed Issues Involved:1. Validity of block assessment proceedings.2. Satisfaction of material found during the search.3. Assessment of undisclosed income for a minor.4. Assessment of undisclosed income on an estimate basis.5. Quantum of undisclosed income.6. Levy of surcharge on assessed tax.Detailed Analysis:1. Validity of Block Assessment Proceedings:The assessee contested the validity of the block assessment proceedings, questioning the issuance of notice under section 158BD read with section 158BC of the Income-tax Act, 1961. The primary contention was the absence of any material found during the search relating to the assessed undisclosed income. Additionally, the assessee argued that she was a minor during some of the previous years for which the undisclosed income was assessed. The Tribunal found that the assessee was a major on the date of the search and thus the notice issued was valid. The Tribunal also noted that the definition of an 'assessee' under the Act does not exclude a minor, and the assessment could be framed on her by issuing a notice in her name.2. Satisfaction of Material Found During the Search:The assessee argued that the required procedure for recording satisfaction with reference to the material found during the search was not observed. The Tribunal found that the Assessing Officer (AO) of the person searched had sufficient material and reasons to infer undisclosed income of the assessee. The satisfaction was evident from the assessment order of the person searched, and the Tribunal referred to the decision in the case of Subhan Javeed v. CIT to support this view. The Tribunal concluded that the contention of no material or information recovered during the search was contrary to the facts on record.3. Assessment of Undisclosed Income for a Minor:The assessee contended that she was a minor with no known source of income during the relevant period. The Tribunal clarified that any income assessable as undisclosed income, which did not arise from personal labor or application of skill, would be included in the hands of her parent whose income was higher. The Tribunal rejected the assessee's reliance on CIT v. Smt. (P.K.) Noorjahan, stating that the circumstances of the case were different. The Tribunal noted that the purchase of property by an earning member in the name of a minor is common and the income should be included in the hands of the parent under section 64(1A).4. Assessment of Undisclosed Income on an Estimate Basis:The Tribunal found no legal bar on the power of the AO to frame an assessment on an estimate basis, provided it was based on relevant materials and cogent inferences. The Tribunal referred to various decisions, including Hotel Kumar Palace v. CIT and Rajnik & Co. v. Asstt. CIT, to support this view. The Tribunal concluded that the provisions of law and principles governing the assessment of income remain the same, whether the assessment is of disclosed or undisclosed income.5. Quantum of Undisclosed Income:The assessee did not point out any specific infirmity in the orders of the authorities below. The Tribunal directed for the adoption of a purchase price at Rs. 54,000 per cent instead of Rs. 60,100 adopted by the Revenue. Regarding the cost of construction, the Tribunal found that the AO had adopted the value as per the valuation report submitted by the assessee. The Tribunal also noted that the house warming expenses were not agitated before the first appellate authority and thus were not maintainable before the Tribunal.6. Levy of Surcharge on Assessed Tax:The assessee argued that the levy of surcharge under section 113 of the Act, extended by the Finance Act, 2001, with effect from 1.6.2002, was prospective and not applicable to the block period ending on 21.09.2000. The Tribunal referred to the decisions in CIT v. Suresh N. Gupta and CIT v. Rajiv Bhatara, which held that the proviso to section 113 was clarificatory and curative in nature and thus applicable to all assessments made under Chapter XIV-B. The Tribunal concluded that the issue was decided in favor of the Revenue.Conclusion:The Tribunal directed that the assessee's undisclosed income up to the date of her minority be included in the computation of undisclosed income of her father. The appeal was partly allowed, with modifications to the assessment as directed.