2021 (2) TMI 784 - AT - Income Tax

Tribunal Invalidates Jurisdiction Under Section 158BC, Upholds Assessee's Exemption Claim

The Tribunal ruled in favor of the assessee, finding that the jurisdiction assumed under Section 158BC was invalid as the disclosed income had been ... Validity of proceeding u/s 158BC - block assessment order - exemption u/s 10 denied - AO determined the undisclosed income of the assessee for the block period treating the sales declared by the assessee from agricultural operations to be the unaccounted income - action of Ld. AO in treating the amount as non agricultural income and has further holding that joint venture agreement entered by the appellant are nothing but a device to channelise the income in the form of agriculture income - HELD THAT:- Undisclosed income so determined by the AO was already disclosed by the assessee in his regular returns - As the amounts were already disclosed in the regular assessment of the assessee from A.Y. 1996-97 to 2002-03, therefore, respectfully following the decisions, PINAKI MISRA & SANGEETA MISRA [2017 (3) TMI 276 - DELHI HIGH COURT] , M/S. PROMAIN LIMITED[2017 (12) TMI 920 - ITAT DELHI],N. LEELA KUMAR [2013 (11) TMI 1776 - KARNATAKA HIGH COURT],ANAND PRAKASH AGRAWAL [2014 (5) TMI 1005 - ALLAHABAD HIGH COURT],SMT. MUKTABEN J. PATIRA [2014 (11) TMI 803 - GUJARAT HIGH COURT] ,CALTRADECO STEEL SALES (P.) LTD. [1999 (8) TMI 18 - CALCUTTA HIGH COURT]we are of the considered opinion that the amounts already disclosed in such regular assessments are outside the purview of the definition of undisclosed income. The AO, in our opinion, has no jurisdiction to make the aforesaid additions u/s 158BC - Decided in favour of assessee. Penalty u/s 158BFA(2) being 100% of the tax leviable on the undisclosed income determined - HELD THAT:- As already decided the appeal filed by the assessee for the block period and the undisclosed income made by the AO and sustained by the CIT(A) has been deleted. Therefore, the very basis on which penalty was levied does not survive. Accordingly, the grounds raised by the assessee are allowed. Issues Involved:1. Legality of jurisdiction assumed under Section 158BC.2. Treatment of agricultural income as non-agricultural income.3. Qualification for exemption under Section 10 of the IT Act.4. Validity of block assessment proceedings.5. Legality of penalty under Section 158BFA(2).Detailed Analysis:1. Legality of jurisdiction assumed under Section 158BC:The assessee challenged the jurisdiction under Section 158BC, arguing that statutory jurisdictional conditions were not complied with. The Tribunal found that the AO and CIT(A) had wrongly assumed jurisdiction under Section 158BC since the income had already been disclosed in regular returns and accepted under Section 143(3). The Tribunal emphasized that regular assessment proceedings and block assessment proceedings are distinct, and income disclosed in regular returns cannot be treated as undisclosed income in block assessment unless new evidence is found during the search.2. Treatment of agricultural income as non-agricultural income:The AO treated the agricultural income declared by the assessee as non-agricultural income, alleging that the assessee was introducing unaccounted income under the guise of agricultural income. The AO based this on the lack of evidence of agricultural activities and statements from employees indicating minimal agricultural operations. However, the Tribunal noted that the agricultural income had been disclosed in regular returns and accepted in assessments under Section 143(3). The Tribunal found that the AO's conclusion was not supported by incriminating evidence found during the search and thus could not be treated as undisclosed income.3. Qualification for exemption under Section 10 of the IT Act:The AO and CIT(A) held that the assessee did not perform basic agricultural operations to qualify for exemption under Section 10. The assessee argued that agricultural operations were carried out and supported by various documents, including land revenue records, joint venture agreements, and irrigation details. The Tribunal agreed with the assessee, noting that the agricultural income had been accepted in regular assessments and that the AO's conclusion was based on post-search inquiries rather than evidence found during the search.4. Validity of block assessment proceedings:The Tribunal referred to several judicial precedents, including the Hon'ble Delhi High Court in CIT vs. Pinaki Misra, which held that block assessments should be based on material found during the search and not on documents or information obtained later. The Tribunal concluded that since the agricultural income was already disclosed in regular returns and accepted in assessments under Section 143(3), it could not be treated as undisclosed income in block assessment proceedings.5. Legality of penalty under Section 158BFA(2):The AO had levied a penalty under Section 158BFA(2) on the undisclosed income determined in the block assessment. Since the Tribunal deleted the addition of undisclosed income, the basis for the penalty did not survive. Consequently, the Tribunal allowed the assessee's appeal against the penalty.Conclusion:The Tribunal allowed the appeals filed by the assessee, setting aside the orders of the CIT(A) and directing the AO to delete the additions and penalties. The Tribunal emphasized that the income disclosed in regular returns and accepted in regular assessments could not be treated as undisclosed income in block assessment proceedings.