2006 (2) TMI 231 - AT - Income Tax

Block Assessment - Undisclosed income - estimation of income - search and seizure operation - challenged the deletion of surcharge u/s 113 - HELD THAT - We are of the view that the AO while making the estimates for two years i.e. AY 1999-2000 and AY 2000-01 relied upon the seized Annexs. A-106 and A-72. But the AO has not given any basis for calculation of commission income @ Rs. 20, 000 per annum for these two years. The learned CIT(A) has deleted (sic-retained) the said addition of Rs. 40, 000 for AY 1999-2000 and 2000-01 and there is no dispute before us as regards sustenance of this addition by the learned CIT(A). As regards estimation of Rs. 1, 20, 000 pertaining to AY 1992-93 to AY 1998-99 we are convinced with the arguments of counsel for the assessee and the cases relied upon by him in that the AO does not have any material or evidence with him to make the assessment of undisclosed income and the undisclosed income cannot be computed on estimate basis on presumptions and surmises and assessment under Chapter XIV-B is different from the normal assessment Therefore the AO in the present case has framed the assessment while computing the undisclosed income for AY 1992-93 to 1998-99 without any material in possession and purely on conjectures and surmises. Hence the learned CIT(A) has rightly deleted the addition of Rs. 1, 20, 000. Thus ground No. 1 of the Revenue is dismissed. Deletion of surcharge u/s 113 - The counsel for the assessee has argued that the search in the present case was carried on 7th April 2000 i.e. prior to 1st June 2002. Finance Act 2002 had brought an amendment in s. 113 and surcharge was levied on block assessment from prospective effect and not from retrospective effect which further clarifies the intention of law-makers that surcharge has been levied w.e.f. 1st June 2002 and prior to this there was no surcharge. We are convinced with the arguments of counsel for the assessee and the decisions cited by him and are of the view that the search in the present case was carried on 7th April 2000 and amendment in s. 113 came into effect from 1st June 2002 which is from the prospective effect. Thus we are of the view that the amendment in s. 113 for levy of surcharge on block assessment has to be with prospective affect and therefore the learned CIT(A) has rightly deleted the surcharge u/s 113 levied by the AD in the present case. In the result the appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of additions of Rs. 1,20,000 made by AO on account of estimation of income.
2. Deletion of surcharge levied under Section 113 of the Income Tax Act.

Detailed Analysis:

Issue 1: Deletion of Additions of Rs. 1,20,000
The Revenue objected to the deletion of additions of Rs. 1,20,000 made by the AO based on papers seized during a search. The search was conducted at the premises of the assessee and related entities. The AO observed that some sales were not recorded in the regular books of account. The AO estimated a commission income of Rs. 20,000 per annum for eight years, totaling Rs. 1,60,000, based on seized records for two years and presumed destruction of earlier records.

The CIT(A) deleted the additions for six years (Rs. 1,20,000), retaining only Rs. 40,000 for two years, citing lack of material evidence for the earlier years. The CIT(A) emphasized that block assessments should be based on material found during the search, not on conjectures or surmises.

The Tribunal agreed with the CIT(A), noting that the AO lacked material evidence for the six earlier years and could not estimate income based on presumptions. The Tribunal cited several case laws supporting the principle that undisclosed income must be determined based on evidence found during the search. Consequently, the Tribunal dismissed the Revenue's ground, upholding the deletion of Rs. 1,20,000.

Issue 2: Deletion of Surcharge under Section 113
The Revenue challenged the deletion of surcharge levied under Section 113. The search was conducted before the amendment to Section 113, which introduced the surcharge with effect from 1st June 2002. The CIT(A) deleted the surcharge, stating that the amendment was prospective and not applicable to searches conducted before the effective date.

The Tribunal upheld the CIT(A)'s decision, agreeing that the surcharge could not be applied retrospectively. The Tribunal relied on various judgments, including the Supreme Court's ruling in K.M. Sharma vs. ITO, which established that taxing provisions imposing liability are presumed not to be retrospective unless explicitly stated.

Conclusion
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s deletion of Rs. 1,20,000 in estimated income for lack of evidence and the deletion of the surcharge under Section 113 due to its prospective application.