Section 158BB doesn’t empower AO to ‘estimate’ undisclosed income: HC

Case Details: PCIT v. Janson Investments (P.) Ltd. - [2022] 138 taxmann.com 194 (Karnataka)

Judiciary and Counsel Details

• • Mrs. S. Sujatha & Ravi V. Hosmani, JJ.
  • Sanmathi E.I., Adv., for the Appellant.
  • A. Shankar, Sr. Counsel, Bhairav Kuttaiah & M. Lava, Advs. for the Respondent.

Facts of the Case

Assessee was a company carrying on the business of the real estate. Pursuant to the search action conducted on the assessee’s premises as well as at the residents of the Directors of the company, some incriminating materials were seized.

After the conclusion of the search operation, proceedings were initiated under section 158BC and called upon the assessee to file its undisclosed income. The block assessment proceedings were concluded by the order passed under section 158BC read with Section 143(3). The Assessing Officer (AO) made certain additions towards undisclosed income and investment.

On appeal, the CIT(A), as well as Tribunal, granted partial relief to the assessee. Aggrieved-AO filed the instant appeal before the High Court.

High Court Held

The Karnataka High Court held that the Co-ordinate Bench in the case of Gowri Gopal Textile Processing (P.) Ltd. [2011] 15 taxmann.com 394, had considered the computation of undisclosed income of the block period with reference to section 158BB.

The Court had observed that in the absence of the word “Computation” defined under the Income-tax Act, the meaning of the word has to be gathered from the scheme of the Act having regard to its ordinary grammatical meaning. The word “assessment” is the action of the AO for the determination of the amount of taxation, the scheme of charge, or taxation.
The term assessed as being flexible bears a very comprehensive meaning. Therefore, under section 158BB, the AO has to compute the undisclosed income falling within the block period. He is not expected to assess the undisclosed income.

Even in the event of undisclosed income when the books are not available or the books are destroyed or there is suppression of actual sales, AO is open to estimate only the income of the assessee after taking into consideration the totality of the circumstances.

List of Cases Reviewed

• • CIT v. Gowri Gopal Textile Processing (P.) Ltd. [2011] 15 taxmann.com 394/[2012] 204 Taxman 128 (Mag.) (Kar.) (para 12) followed.
  • Order passed by ITAT-Bangalore in IT (SS) Appeal No. 4 (Bang.) of 2014, dated 16-12-2016 (para 19) affirmed.

List of Cases Referred to

• • Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3 (SC) (para 9)
  • CIT v. Gowri Gopal Textile Processing (P.) Ltd. [2011] 15 taxmann.com 394/[2012] 204 Taxman 128 (Mag.) (Kar.) (para 10).