ASSTT. C.I.T. vs. GAURANG B. SOLANKI

Facts

The Revenue is aggrieved by an order dated December 17, 1999, passed by the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench 'A'. The ITAT allowed an application filed by the assessee, Gaurang B. Solanki, under Section 254(2) of the Income Tax Act, 1961. The Tribunal directed that an amount of Rs. 13,62,865/-, representing capital gains from the sale of plots, should not be treated as undisclosed income for the block period (1986-87 to 1995-96 and period up to 05.01.1996). Instead, it was to be assessed in the regular assessment for Assessment Year 1995-96. This followed a search under Section 132, where plots were sold for Rs. 56,24,342/-, with Rs. 45 lakhs by cheque. An earlier order under Section 154 reduced the total undisclosed income to Rs. 59,42,186/-. The assessee had filed a revised return for AY 1995-96 before receiving a notice under Section 158BD.

Held

The High Court held that the Tribunal had not committed any error in passing the impugned order. The Court noted that the assessee had filed a revised return for AY 1995-96 showing capital gains before receiving the notice under Section 158BD. The Tribunal's observation that seized papers contained notations pointing to a cash payment of Rs. 45 lacs, potentially from purchasers to the assessee, justified the AO in issuing notice under Section 158BD based on information from a search in another case. The Tribunal also found the order under Section 158BD to be within the limitation period. Therefore, the Court answered the substantial questions of law in the affirmative, meaning against the revenue and in favour of the assessee. The appeal was dismissed.

Key Issues

1. Whether the Appellate Tribunal erred in law and on facts by entertaining and allowing the assessee's application under Section 254(2) of the Income Tax Act, 1961, holding that Rs. 13,62,865/- was not undisclosed income, and directing its assessment in the regular assessment for AY 1995-96? The Revenue argued that the Tribunal erred in allowing the Miscellaneous Application (M.A.) and in holding that the amount was not undisclosed income, contending that Section 158BD proceedings were justified. The Revenue relied on *N.R. Paper & Board Ltd. vs. Deputy Commissioner of Income-tax* [1998] 234 ITR 733, arguing that block assessment and regular assessment operate for different purposes. 2. Whether the inclusion of Rs. 13,62,875/- as undisclosed income for the block period is barred by Explanation (b) below sub-section (2) of Section 158BA read with Section 139(5) of the Act? The assessee supported the Tribunal's order, arguing that the Tribunal rightly excluded the capital gains from the block period assessment. The assessee contended that Section 158BD was wrongly invoked as the assessee himself was subject to a search under Section 132, and that the revised return was filed prior to the notice under Section 158BD.