2011 (7) TMI 669 - HC - Income Tax

Court ruling: Revenue wins on undisclosed income, benami investment; Assessee prevails on cash credit, post-due income, capital gains.

Commissioner of Income-Tax Versus Late HR. Basavaraj (by legal representative)

The court ruled in favor of the Revenue on questions regarding deletion of admitted undisclosed income, unexplained credit, undisclosed income from bank ... Block assessment-Deletion of the admitted undisclosed income of the assessee- admissions contradictaed by legal representatives- Held that:- In view of the admissions made, the same become binding. It also binds the legal representatives. Even though the admissions are sought to be retracted not by the person who made it but, by the legal representatives, it would still amount to an admission and would bind the legal representatives. A retraction can be made only on an error of law and not on facts. Also, legal representatives cannot retract admissions made by themselves.Further, undisclosed income should be computed on the basis of material record found during the course of search. It has also been held that where a return has been filed, the same income cannot be considered as an undisclosed income in the block assessment. Decided partly in favor of assessee. Issues Involved:1. Deletion of admitted undisclosed income.2. Deletion of unexplained credit.3. Deletion of undisclosed income from bank deposits.4. Deletion of unexplained payments for property acquisition.5. Deletion of unexplained cash credit.6. Deletion of benami investment in land.7. Deletion of income admitted post-due date.8. Capital gains from sale of shares and their inclusion in block assessment.Detailed Analysis:1. Deletion of Admitted Undisclosed Income:The Tribunal deleted the admitted undisclosed income of the assessee, raising questions about the correctness of this action. The Revenue contended that once the assessee admitted the undisclosed income, it could not be retracted. The legal representatives of the deceased assessee argued that admissions could be contested, and the liability to tax is determined by law, not admissions. The court held that admissions made by the deceased are binding on the legal representatives and cannot be retracted. The Tribunal's deletion of the admitted undisclosed income was deemed erroneous and contrary to law. Therefore, the court answered these questions in favor of the Revenue.2. Deletion of Unexplained Credit:The Tribunal deleted an addition of Rs. 15 lakhs representing unexplained credit, which the assessee had admitted. The Revenue argued that the assessee failed to account for the amount. The Tribunal held that the addition was not based on search material and could not be sustained merely on book entries. The court found that the Tribunal erred in its view, as the admission was made by the legal representatives themselves. The deletion was deemed unjust and opposed to the material on record. Therefore, the court answered this question in favor of the Revenue.3. Deletion of Undisclosed Income from Bank Deposits:The Tribunal deleted Rs. 18,41,159 representing undisclosed income in respect of deposits in Vysya Bank. The Revenue contended that the source of investment remained unexplained. The Tribunal found no error in the deletion, as the amount was reflected in the fund flow and the assessee had sufficient cash balance. The court agreed with the Tribunal's conclusion, answering this question in favor of the assessee.4. Deletion of Unexplained Payments for Property Acquisition:The Tribunal deleted an addition of Rs. 60 lakhs representing unexplained payments for acquiring property. The Revenue argued that the addition was based on seized material. The Tribunal found that the addition was based on suspicion and not supported by facts. The court disagreed with the Tribunal, stating that the seized material clearly disclosed the payments. Therefore, the court answered this question in favor of the Revenue.5. Deletion of Unexplained Cash Credit:The Tribunal deleted an addition of Rs. 39,68,357 representing unexplained cash credit. The Revenue argued that the addition was based on material found during the search. The Tribunal held that the addition was not based on search material but on further enquiries. The court agreed with the Tribunal, stating that the cash credit was explained and the addition was without basis. Therefore, the court answered this question in favor of the assessee.6. Deletion of Benami Investment in Land:The Tribunal deleted an addition of Rs. 8,16,000 representing benami investment in land. The Revenue argued that the investment was made in the name of an employee. The Tribunal found that the investment was made partly from borrowings and partly from the employee's own funds. The court agreed with the Tribunal's conclusion, answering this question in favor of the assessee.7. Deletion of Income Admitted Post-Due Date:The Tribunal deleted Rs. 13,51,130 brought to tax in the block assessment, which was admitted in the return filed after the due date. The court referred to a previous judgment stating that income declared in a regular return cannot be considered undisclosed income in the block assessment. Therefore, the court answered this question in favor of the assessee.8. Capital Gains from Sale of Shares:The Tribunal held that capital gains from the sale of shares could not be considered undisclosed income in the block assessment. The court referred to a previous judgment that supported this view. Therefore, the court answered these questions in favor of the assessee.Conclusion:The court answered questions Nos. 1 to 7, 9, 12, and 13 in favor of the Revenue, while questions Nos. 8, 10, 11, and 14 to 19 were answered in favor of the assessee.