2000 (2) TMI 194 - AT - Income Tax

Tribunal decision: Appeal partly allowed, additions deleted, block assessment criteria clarified

The Tribunal partly allowed the appeal, deleting additions related to the nature of income from the sale of agricultural land but upholding the addition ... Search And Seizure Issues Involved:1. Validity of block assessment and the nature of income from sale of agricultural land.2. Addition of undisclosed income based on the assessee's surrender during search operations.Issue 1: Validity of Block Assessment and Nature of IncomeThe assessee was engaged in property dealing, primarily earning commission from property transactions. A search and seizure operation was conducted on the Kohli group and subsequently at the assessee's premises. The AO issued a notice u/s 158BC and appointed special auditors u/s 142(2A). The special auditors concluded that profits from the sale of agricultural land should be taxed as 'business income' rather than being exempt. The AO agreed, noting that the assessee had developed the land, indicating a business activity rather than an investment. The AO referenced the Supreme Court decision in Raja J. Rameshwar Rao vs. CIT, which supported this view. The AO also cited various Supreme Court decisions to justify reassessing the income under the correct head, despite earlier assessments treating it as capital gains. The AO assessed the income as 'business income' and added Rs. 41,24,406 as undisclosed income. The Tribunal, however, held that the block assessment should only include undisclosed income resulting from the search. Since the transactions were already recorded in the books and assessed in earlier years, the AO's addition was not justified. The Tribunal deleted the additions of Rs. 36,15,441 and Rs. 7,41,531.Issue 2: Addition of Undisclosed Income Based on SurrenderDuring the search, the assessee surrendered Rs. 20 lakhs as undisclosed income, which he later retracted, claiming it was made out of fear and misconception. The AO noted that the surrender was made over several statements and was corroborated by seized material. The AO added Rs. 22,18,744 as undisclosed income based on the assessee's admissions and the special auditors' report. The Tribunal upheld this addition, noting that the statements were made over multiple dates and were specific and corroborated by seized material. The Tribunal found no basis for the assessee's claim of coercion and confirmed the addition of Rs. 22,18,744.Conclusion:The appeal was partly allowed, with the Tribunal deleting the additions related to the nature of income from the sale of agricultural land but upholding the addition based on the assessee's surrender during the search.