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2008 (11) TMI 299 - AT - Income TaxAssessment in block assessment u/s 158BB - Unexplained cash credits u/s.68 - Search and Seizure u/s 132 - identity and creditworthiness of the creditors not established - AO made addition u/s. 68 by applying a flat rate to the total deposits received by the bank - CIT(A) deleted the entire addition on the ground that the AO has not referred to any seized material while making addition in block assessment. HELD THAT:- The computation of undisclosed income of the block period in a block assessment must be related to evidence found as a result of search proceedings. The Finance Act, 2002, by the amendment to s. 158BB with retrospective effect from 1st July, 1995, added the words 'and relatable to such evidence. In the present case, the AO enquired into 225 depositors out of large number of depositors and found that 15 per cent depositors are not found at the given address. He applied the ratio of 35 to 225 i.e., 15 per cent to all the deposits made with the bank. Thus, it would cover those deposits as well, about which the assessee has not been asked even a single question. The right course would have been to consider the addition only in respect of those individual cases where identity of the depositors and nature and source of deposits was not established. addition u/s. 68 also has been made by estimate. We are of the considered view that such approach is not legally sustainable. Since in the assessment order, the AO has not discussed any individual deposit/credit but has applied a flat rate of 15 per cent, the question thereof being considered by the CIT(A) on individual basis is also not sustainable. Notwithstanding, as no material was found during the course of search, the addition proposed by the AO by applying a rate of 15 per cent on the total deposits received by the bank cannot be sustained. On that account also the order of the AO is required to be quashed. Therefore, on both accounts firstly, no material was found as a result of search which could indicate that deposits received by the bank are undisclosed income of the bank and secondly that addition u/s. 68 could not be made by applying a flat rate to the total deposits received by the bank, we confirm the order of the CIT(A) and dismiss the appeal filed by the Revenue.
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