2008 (11) TMI 70 - HC - Income Tax

Fixed deposits in the fictitious names not detected during search but detected by investigation which was carried after the search Tribunal holding that the information not found during the course of search cannot be used to arrive at an undisclosed income under the block assessment as per section 158BB order of tribunal is justified

Summary

Issues:
1. Interpretation of block assessments under section 158BC
2. Consideration of issues in block assessment versus reassessment procedure
3. Use of information not found during search in block assessment
4. Admissibility of additional plea in a case

Interpretation of block assessments under section 158BC:
The case involved a search conducted under section 132 of the Income-tax Act, 1961, leading to the discovery of fixed deposits in fictitious names amounting to Rs. 2.83 crores. The assessee declared only Rs. 36.10 lakhs as undisclosed income for the block period. The Assessing Officer determined a substantial undisclosed income, including Rs. 2.56 crores. The appellate authority confirmed this assessment. However, the Tribunal held that the sum of Rs. 2.56 crores cannot be included in the undisclosed income of the block period as it was discovered not during the search but through subsequent investigation. This decision was challenged by the Department.

Consideration of issues in block assessment versus reassessment procedure:
The Department challenged the Tribunal's decision to exclude Rs. 21.70 lakhs from the undisclosed income. Both the assessee and the Department filed appeals before the Income-tax Appellate Tribunal. The Tribunal considered additional evidence filed by the assessee, despite objections by the Department, and rejected it. The Tribunal held that the undisclosed income found as a result of the search only should be the basis for block assessments, as per Chapter XIV-B of the Act. The Department appealed this decision.

Use of information not found during search in block assessment:
The Tribunal's decision was influenced by precedents like CIT v. G. K. Senniappan, where it was established that undisclosed income for the block period should be based solely on evidence found as a result of the search. Similarly, in CIT v. S. Ajit Kumar, it was held that information not related to materials found during the search operation cannot be the basis for additions in block assessments. These cases supported the Tribunal's decision against the Revenue.

Admissibility of additional plea in a case:
The Tribunal's rejection of the additional evidence led to a challenge by the assessee. The Tribunal's observations on the additional evidence's lack of impact on the claim were contested. The assessee argued that the Tribunal's remarks could prejudice them, especially since the regular assessment was still pending. The case was disposed of without costs, emphasizing the need for authorities to decide regular assessment proceedings independently of Tribunal findings.