2010 (1) TMI 707 - HC - Income Tax

Undisclosed income under section 158B(b) - Appellants contended that it is true that the statements were recorded from the manager Shri R. Shanmugasundaram on 14th Nov. 2002 much prior to the search which was conducted on 28-11-2002. Section 158BB(1) was added (sic - amended) w.e.f. 1st July 2002 - In terms of the said section a provision for placing reliance on materials relatable to such evidence is also added. By that addition it could be seen that whatever materials which are available on the date of search including the material collected much prior to the search could also be the basis for the conclusion which could be arrived at by the Assessing Officer - That provision has also retrospective application from 1-7-1995. As the search was conducted on 28-11-2002 and on which date the statement of R. Shanmugasundaram was available with the Assessing Officer he is entitled to rely on the said statement as well as it is relatable to evidence - Since the same was shown in the return after search the statement relating to the deposit was not accepted by the Assessing Officer - Similar is the case of the statements of other creditors as well. This being a question of appreciation of evidence we are not inclined to go into the question particularly when this finding was accepted by both the CIT(A) as well as the Tribunal - Decided against the assessee

Summary

Issues:
1. Confirmation of block assessment on the consideration of 'undisclosed income' under section 158B(b) of the Act.
2. Conclusion of assessment of certain deposits and interest as undisclosed income based on sworn statements.
3. Affirmation of block Assessment referring to the retrospective amendment brought in Chapter XIV-B of the Act.

Issue 1:
The appellant challenged the Tribunal's confirmation of the block assessment based on the definition of 'undisclosed income' under section 158B(b) of the Act, despite the deposits and interest being part of regular returns filed before the search. The court noted that materials collected before the search could be relied upon under section 158BB(1) of the Act, which has retrospective application from 1-7-1995. Therefore, the Assessing Officer was entitled to consider such evidence, including statements obtained prior to the search. The court rejected the appellant's contention on this issue.

Issue 2:
The Tribunal's decision to treat certain deposits and interest as undisclosed income based on sworn statements was challenged. The court found that out of 31 creditors, eight creditors stated they did not have any deposits, leading to the conclusion that those deposits were not genuine. For the remaining creditors, their statements were recorded post-search, but the Assessing Officer rejected them as the creditors failed to provide sources for the deposited amounts. The court upheld this factual finding, stating that the evidence presented did not establish the legitimacy of the deposits. Therefore, the court dismissed the appellant's challenge on this issue.

Issue 3:
The appellant contested the Tribunal's affirmation of the block Assessment referring to a retrospective amendment in Chapter XIV-B of the Act, despite alleged misreading of the amendment by the respondent. The court found that the post-search enquiry should relate to materials found at the time of search. The court held that the evidence presented, including the statements of creditors, did not sufficiently prove the legitimacy of the deposits. As both the CIT(A) and the Tribunal accepted this finding, the court concluded that there was no merit in the appeals on this issue. Consequently, all questions of law were answered against the assessee and in favor of the Revenue, leading to the dismissal of the tax case appeals.