2011 (9) TMI 132 - AT - Income Tax

Block assessment - Undisclosed income of any other person u/s 158BD - a search was conducted at the business and residential premises of one Sri Ashok Kumar who had purchased office premise on the 3rd floor in the building of Shree Ram Tower from the assessee - The seize paper No.177A shows that Sri Ashok Kumar had made a total payment of Rs. 13, 00, 000/- to the Assessee Company whereas the cost of the building as per the registered deed was shows only Rs. 5, 98, 000/- and remaining amount was paid as in black money - Thus there was sufficient material that the amount was escaped from assessment - Held that - The Tribunal vide its order dated 30.10.2001 (ITA No.270/LKO/2000) for the block period 01.04.1987 to 09.12.1997 in the case of Sri Ashok Kumar has set aside the assessment order and restored the matter back to the A.O. with the specific direction. In the meantime the stipulated period for initiating the proceeding under section 158 BD has expired so the income has escaped from the clutches of the tax - For this reason only the A.O. has initiated the proceedings under sections 148/147 of the Act which appears reasonable in the peculiar facts and circumstances of the case - Decided in favour of Revenue.

Summary

Issues Involved:
1. Justification of the ITAT in upholding the CIT(A)'s order and directing the Assessing Officer (A.O.) to proceed under section 158BD of the Income Tax Act, 1961.
2. Error in ITAT's appreciation of action taken under section 147 being in accordance with law.
3. Additional grounds raised by the appellant.

Issue-Wise Detailed Analysis:

1. Justification of ITAT in Upholding CIT(A)'s Order and Directing A.O. to Proceed Under Section 158BD:

The core issue revolves around whether the ITAT was justified in upholding the CIT(A)'s order, which annulled the assessment order and directed the A.O. to proceed under section 158BD instead of sections 147/148. The case involved the Assessee Company, engaged in construction, where the original assessment for the year 1993-94 was completed under section 143(3). Subsequently, a search at the premises of Shri Ashok Kumar revealed undisclosed payments to the Assessee Company. The A.O. initiated reassessment under section 147, estimating unaccounted money and making additions to the income. The CIT(A) held that the addition was based on information from a search, thus section 158BD was applicable, not sections 147/148. The ITAT confirmed this view, leading to the Department's appeal.

2. Error in ITAT's Appreciation of Action Taken Under Section 147:

The Department argued that the ITAT erred in not appreciating that the action under section 147 was lawful, as the A.O. received information about undisclosed income at a later stage. The Department contended that section 158BD is analogous to section 147 in procedure, and the A.O. had sufficient reason to believe income had escaped assessment, justifying the issuance of notice under section 148. The Department relied on the case of Janki Exports International, which held that section 158BD is analogous to section 147. The ITAT's decision to uphold the CIT(A)'s order was challenged on the grounds that the A.O.'s actions were justified under section 147.

3. Additional Grounds Raised by the Appellant:

The appellant sought to add, delete, or modify grounds during the appeal, which was permitted by the Court. The primary focus remained on whether the proceedings should have been under section 158BD or sections 147/148.

Court's Analysis and Judgment:

The Court examined the substantial question of law regarding the applicability of section 158BD versus section 147. It noted that section 158BD pertains to undisclosed income found during a search, which should be handed over to the A.O. having jurisdiction over the other person. The Court found that the A.O. had reason to believe income had escaped assessment based on seized documents showing undisclosed payments. The Court referenced the Supreme Court's stance that reopening assessments under section 147 requires strict adherence to the "reason to believe" standard, involving material evidence and a nexus to the belief of income escapement.

The Court upheld the A.O.'s action under sections 147/148, stating it was reasonable given the circumstances. It emphasized that section 158BD is analogous to section 147, supporting the A.O.'s decision. However, the Court noted that the Tribunal did not discuss the merits of the addition, as the focus was on procedural correctness.

Conclusion:

The Court answered the substantial questions of law in favor of the revenue department, against the assessee. It set aside the impugned order and remanded the matter to the Tribunal to decide on the addition strictly on merits, directing an expedited resolution within three months. The appeal was disposed of accordingly.