2008 (4) TMI 306 - HC - Income Tax

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 ... Whether on an interpretation of clause (d) of S. 158BB(1) the Tribunal is right in holding that AO is not justified in including in the block assessment the sum as the undisclosed income for A.Y. 1995-96– time extended to file return for a particular year - In the absence of any finding by AO in the block assessment or by the Tribunal that the assessee has not entered the income returned for the year 1995-96 in the books of account or the transactions pertaining to the same in the books of account at least on the date of search and since the assessment is based on income returned, we have to assume that the assessee filed the return based on the books of account only – that year’s income to be included in block assessment - question is answered in favour of assessee 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.