COMMISSIONER OF INCOME TAX Vs. BINOY MATHAI

JUDGEMENT

(1.) The reference case arises out of the order of the Tribunal disposing of the respondent/assessee s appeal against the assessment under Section 158BC of the IT Act for the block period 1st April, 1985 to 27th Oct., 1985 (sic-1995). A search was conducted in the premises of the assessee who is a medical practitioner, on 27th Oct., 1985 (sic-1995). Based on the materials gathered, assessment was made for the entire block period which included income assessable for the asst. yr. 1995-96. In the appeal filed by the assessee, the Tribunal noticed that the time for filing return for the asst. yr. 1995-96 was extended by the CBDT till 31st Oct., 1995 and therefore the assessee had time to file return for the asst. yr. 1995-96 as on the date of search. He therefore, allowed the assessee s claim by deleting from the income assessed for the block period so much of the income returned by the assessee and assessed for the year 1995-96 by granting the benefit of Section 158BB(1)(d) of the Act. At the request of the Department, the Tribunal has referred the following question for our decision:

(2.) Learned Counsel for the assessee, on the other hand, contended that there is no finding in the block assessment that the assessee has not recorded the amount in the books of accounts before the date of search and the assessment itself is based on the income returned in the return filed for the asst. yr. 1995-96. In order to appreciate the contentions, we have to refer to two provisions which are relevant for the disposal of this appeal. The same are extracted below:

(3.) We find from a combined operation of the above two provisions that income of the previous year for which time for filing return was not over as on the date of search, could be excluded only if such income or transactions pertaining to such income are recorded in the books of accounts or other documents maintained in the normal course of business on or before the date of search. Therefore, exclusion can be granted for the income of the previous year, in respect of which time for filing return was not due or not over, only if the assessee is found to have entered in the books of accounts such income or the transactions pertaining to such income on or before the date of search. Unfortunately, this crucial issue is not considered by any of the authorities including the Tribunal while disposing of the appeal. We are in agreement with the argument of the learned Counsel for the Revenue that even though time for filing return was not over as on the date of search, the assessee was entitled to exclusion only if he is found to have recorded the returned income or the transactions pertaining to such income in the books of accounts. Therefore, the order of the Tribunal excluding such income without a finding that the said income or transactions pertaining to such income were recorded in the books of accounts maintained by the assessee, at least on the date of search is not tenable. Even though in principle we uphold the contention of the Revenue, we are not inclined to remand the matter for verification of the books of accounts pertaining to the search that took place more than 13 years back. In the absence of any finding by the AO in the block assessment or by the Tribunal in the appellate order that the assessee has not entered the income returned for the year 1995-96 in the books of accounts or the transactions pertaining to the same in the books of account at least on the date of search and since assessment is based on income returned, we have to assume that the assessee filed return based on the books of account only.