TaxTMI 
TaxTMI 
2021 (2) TMI 1141
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.... raised a legal ground challenging the validity of search conducted u/s 132 of the Act contending that the conditions specified in that section have not been fulfilled and hence the search operation itself is illegal. On merits, the assessee contended the additions made by the AO in the block assessment order, which related to the disallowance of agricultural income shown by the assessee in his returns of income filed prior to search operations. 2.1 The Tribunal disposed of the appeal of the assessee in IT(SS)A No.4/Bang/2005 and the appeal of revenue in IT(SSA) No.15/Bang/2005, vide its order dated 29-06-2006. With regard to the legal issue relating to the validity of the search proceedings, the Tribunal rejected the same by following the decision rendered in the case of C Ramaiah Reddy in IT(SS)A 38/B/97 dated 19-03-2006, wherein it was held that the Tribunal had no jurisdiction to examine the authorisation of search. On the issues urged on merits, the Tribunal restored the issue to the file of the AO for adjudicating the same afresh. The assessee filed a miscellaneous application before the ITAT, which was numbered as MP No.52/Bang/2008. The addition made by the AO by disallowi....
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....ged on legal issue and since the assessee is not pressing the same now, there is no requirement of adjudicating those grounds. Accordingly, the grounds urged on the legal issue relating to validity of search proceedings are dismissed as not pressed. 4. We shall now take up the appeal of the assessee numbered as IT(SS)A No.8/Bang/2011. The grounds urged by the assessee relate to the following issues:- (a) Whether the was justified in determining the "undisclosed income" at Rs. 2.96 crores. (b) Whether the AO was justified in levying surcharge u/s 113 of the Act. 4.1 The facts relating to the above said issues are stated in brief. During the course of search operations, the search officials found one Balance Sheet belonging to a company named M/s MRP Home Inn Private Limited for the financial year ending 31.3.1998 along with corresponding figure for the year ending 31.3.1997. The relevant documents are placed at pages 55 - 56 of the paper book. The assessee is the managing director of the above said company and his wife is the other director. The said financial statements were to have been signed by the directors and also by the auditor named Shri Mohan Balakrishnan on 31st Au....
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....and the second order came to be passed on 03.11.2009 to give effect to the order passed by the Tribunal against the miscellaneous application. The Ld A.R submitted that the assessee had preferred appeal before Ld CIT(A) against the assessment order dated 31.12.2007, but the same has been set aside to the file of the AO by Ld CIT(A), since the AO was required to pass the assessment order again consequent to the order passed by the Tribunal against the miscellaneous application filed by the assessee. In the assessment orders passed to give effect to the direction of the Tribunal, the AO determined "undisclosed income" at Rs. 2.96 crores, i.e., the AO has determined the sources available with the assessee at Rs. 3.00 lakhs only as against Rs. 33.00 lakhs determined in the original assessment order. The AO rejected the claim of the assessee that the quantum of investment was Rs. 130 lakhs only and not Rs. 299 lakhs. 4.2 The assessee challenged the assessment order dated 03-11- 2009 by filing appeal before Ld CIT(A). The assessee challenged the quantum of undisclosed income determined by the AO; quantum of investment; interest charged u/s 158BFA(1) beyond the date of original assessme....
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....submitted that the said document is a dumb document. Further, it cannot be presumed that the assessee herein has invested entire amount of share application money shown in the balance sheet. 4.5 The Ld. A.R. submitted that, even if the said balance sheet is assumed to be correct for a moment, the assessee has explained the sources for making investments in share application money, major part of which is the agricultural income declared in the returns of income filed by the assessee prior to the date of search. It is pertinent to note that the search officials did not unearth any incriminating material to show that the sources by way of agricultural income and other income/receipts were not available with the assessee. Accordingly he submitted that the AO has rejected the claim of availability of sources merely on surmises. He submitted that the returns of income upto AY 1997-98 have been filed prior to the date of search and hence the details of income were already known to the revenue. In any case, the sources explained by the assessee would fully cover the actual investment of Rs. 130 lakhs. Accordingly, he submitted that there is no undisclosed income as per the definition giv....
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....ument does not contain breakup details of share application money i.e. the details of persons who has invested the said amount. In the absence of break-up details of investors, we are of the view that the assessing officer has drawn conclusions only on surmises and conjectures that it is the assessee who has invested the money as share application. Further, as pointed out by Ld A.R, the amount of share application money shown in the said balance sheet is Rs. 259 lakhs and not Rs. 299 lakhs as mentioned by the AO. The difference between the two figures have not been reconciled anywhere by the AO. In any case, the assessee has explained that the above said financial statement does not reflect true state of affairs and it has been prepared to furnish it to a financial institution, i.e., the said financial statement is not backed by any original books of accounts. It is an undisputed fact, the search officials also did not unearth any material to show that the transactions shown in the seized financial statements represent true transactions. No material was brought on record by the AO to disprove the claim of the assessee also. 4.9 Be that as it may, the assessee has furnished the de....
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....V-B, find application only in the event of discovery of "undisclosed income" of an Assessee. Undisclosed income is defined by Section 158B as that income "which has not been or would not have been disclosed for the purposes of this Act". The legislature has chosen to define "undisclosed income" in terms of income not disclosed, without providing any definition of "disclosure" of income in the first place. We are of the view that the only way of disclosing income, on the part of an Assessee, is through filing of a return, as stipulated in the Act, and therefore an "undisclosed income" signifies income not stated in the return filed. Keeping that in mind, it seems that the legislature has clearly carved out two scenarios for income to be deemed as undisclosed: (i) where the income has clearly not been disclosed and (ii) where the income would not have been disclosed. If a situation is covered by any one of the two, income would be undisclosed in the eyes of the Act and hence subject to the machinery provisions of Chapter XIVB. The second category, viz. where income would not have been disclosed, contemplates the likelihood of disclosure; it is a presumption of the intention of the As....
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.... respect of assessments of 'undisclosed income'. Not only it defines what is undisclosed income, it also lays down the block period for which undisclosed income can be taxed. Further, it also lays down the procedure for taxing that income. It is very pertinent to note at this stage that for this purpose, specific provision in the form of Section 158BA (2) is inserted making it a charging section. Thus, a diagnostic of Chapter XIVB of the Act leads to irresistible conclusion that it contains all the provisions starting from charging section till the completion of assessment, by prescribing special procedure in relation thereto, making it a complete Code by itself. Looking it from this angle, the character and nature of 'undisclosed income' referred to in Chapter XIVB becomes quite distinct from 'total income' referred to in Section 5. It is of some significance to observe that when a separate charging section is introduced specifically, to assess the undisclosed income, notwithstanding a provision in the nature of Section 4 already on the statute book, this move of the legislature has to be assigned some reason, otherwise, there was no necessity to make a pro....
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....ence on the basis of evidence. In Asstt. CIT v. Hotel Blue Moon [2010] 188 Taxman 113/321 ITR 362 (SC) held that block assessments are not intended to substitute regular assessment and its scope and ambit is limited in that sense to materials unearthed during search. Similarly, it was highlighted in CIT v. R.M.L. Mehrotra [2010] 186 Taxman 137/320 ITR 403 (All.), an assessment based on search alone that does not attribute material evidence found therein or other information available with the AO relating to such materials cannot constitute block assessment. In the light of the above analysis, it is held that the additions made on account of the foreign trips made by the assessees fell outside the jurisdiction of the AO under section 158BC. They were correctly deleted by the ITAT. ............ 34. ........................... The counsel for the Revenue, however, in the course of the present proceedings was unable to pinpoint any material, which had been found during the course of the search vis-a-vis the point at issue, thereby, the aforesaid figures arrived at cannot be brought to tax as "undisclosed income" in the block assessment, within the meaning of section 158BB(1). The....
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.... In any case, it is the submission of the assessee that the decision rendered in the case of Suresh N Gupta (supra) has since been modified by Hon'ble Supreme Court in the case of Vatika Township (367 ITR 466)(SC). Accordingly, in case if any need arise for levying of surcharge in the instant case, the law laid down by Hon'ble Supreme Court in the case of Vatika Township (supra) needs to be followed. 6. We shall now take up the appeal of the revenue in IT(SS)A No.9/Bang/2011. The revenue is aggrieved by the decision of Ld CIT(A) in directing the AO to compute interest u/s 158BFA(1) of the Act upto the date of original assessment order and not upto the date of assessment order passed in the set aside proceedings. Since we have deleted the entire undisclosed income in the earlier paragraphs, this question has become academic. In any case, we deal with this issue on academic interest. 6.1 The facts relating to the above said issue are set out in brief. The assessing officer had issued notice u/s 158BC of the Act on 19- 12-2001 directing the assessee to file the return of income in Form 2B within 30 days from the date of service of the notice. The assessee did not file return of inc....
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....a notice under clause (a) of section 158BC, is furnished after the expiry of the period specified in such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one and one fourth per cent of the tax on undisclosed income, determined under clause (c) of section 158BC, for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time specified in the notice, and- (a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or (b) where no return has been furnished, on the date of completion of assessment under clause (c) of section 158BC." A careful reading of above said provisions would show that the interest is chargeable upto the month ending on the date of completion of assessment, if the return of income was not filed in response to the notice issued u/s 158BC of the Act. In the instant case, the assessee did not file return of income and hence the AO had charged interest upto the date of completion of assessment in the original assessment order. 6.6 It is the case of the revenue that the original assessment order h....