Court rules income recorded in books pre-search date excluded from block assessment under Income-tax Act

The Court ruled in favor of the assessee in a case concerning the interpretation of section 158BB(1)(d) of the Income-tax Act for block assessment. The Court found that the income returned for the assessment year 1995-96 should be excluded from the block assessment if it was recorded in the books of account before the date of search. As there was no determination on whether the income was recorded in the books of account, the Court decided in favor of the assessee and directed further action by the Tribunal.

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Issues:
Interpretation of section 158BB(1)(d) of the Income-tax Act for block assessment.

Analysis:
The case involved a reference arising from the Income-tax Appellate Tribunal's order regarding the assessment under section 158BC of the Income-tax Act for the block period from April 1, 1985, to December 27, 1995. The Tribunal had allowed the assessee's claim by excluding a sum from the block assessment, which was the income returned by the assessee and assessed for the year 1995-96. The main issue was whether the Assessing Officer was justified in including this sum as undisclosed income for the assessment year 1995-96.

The Revenue contended that section 158BB(1)(d) does not authorize the exclusion of returned income but only income seen as accounted in the books of account by the assessee on or before the date of search. On the other hand, the assessee argued that the assessment was based on the income returned in the filed return for the assessment year 1995-96 and there was no finding that the amount was not recorded in the books of account before the date of search.

The Court analyzed provisions like section 158BA and 158BB, which provide for the exclusion of income of the previous year if certain conditions are met. It was noted that exclusion could only be granted if the income or transactions were recorded in the books of account before the date of search. The Court found that the crucial issue of whether the income returned for the assessment year 1995-96 was recorded in the books of account was not considered by any authority, including the Tribunal. While agreeing with the Revenue's argument in principle, the Court decided in favor of the assessee due to the lack of findings regarding the recording of income in the books of account.

Ultimately, the Court answered the question in favor of the assessee and directed the Registry to forward a copy of the judgment to the Tribunal for further action under section 260(1) of the Act.

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