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2005 (10) TMI 276 - AT - Income TaxBlock Assessment in search case - legality of initiation of search and seizure operation - quantification of undisclosed income on the basis of seized material - confessionary statement - whether the amount will be taxable in assessment year 1996-97 or in some other year - deduction for the expenditure incurred - HELD THAT - The document speaks of receipt in cash and also receipt by way of cheques. The receipts by way of cheques tally with the books of account. Therefore, it is a natural consequence that the receipt by way of cash have also been made. As we shall see subsequently, the date of receipt of cash is not material for deciding the assessment year in which the profits embedded in such receipts are to be taxed. Suffice it to say at the moment, the assessee is following project completion method and, therefore, all amounts, i.e., amounts received in cash as well as amounts received by way of cheques are taxable in the year in which project is completed or substantially completed. Therefore, the learned counsel's arguments on all three grounds fail. Accordingly, it is held that the document is not a dumb document but it is a speaking document and it pertains to the business transactions of the assessee. This conclusion is further fortified by answer to question No. 12 of Shri Akalank to the effect that the cash will be shown for 1996-97 assessment year as additional income over and above the book profits of Dhanvarsha Builders and Developers Pvt. Ltd. After this statement, the document becomes, in fact, an eloquent document regarding the receipt 'on money' of the assessee. It appears that no opportunity of cross examination has been given by the Assessing Officer to the assessee in this behalf. Therefore, the evidence gathered by him in respect of receipt of 'on money' is only a tentative evidence on which no firm conclusion can be drawn. If the learned DR's arguments regarding expenditure were to be accepted, then, the figures of cash receipts mentioned in the seized paper will also have to be ignored. Such course of action will be against the tenor of the evidence seized in the course of search operation, more particularly, when the evidence gives clear picture of the undisclosed income of the assessee. The other argument of the learned counsel was that provisions of section 40A(3) should be applied in respect of expenditure. It may be pointed out that we are on the issue of computation of income of the assessee de hors the books of account and on the basis of seized material. In such computation, provisions of section 40A(3) are not applicable because this is not the case of the assessee or the revenue that the computation of undisclosed income is on an exact basis as per seized documents and the books of account. The result of the aforesaid discussion is that the undisclosed income is to be quantified at Rs. 14.74 lakhs. Whether the amount will be taxable in assessment year 1996-97 or in some other year - The conduct of search and seizure operation in a particular year does not lead to an inference that the undisclosed income detected as a consequence thereof has to be taxed in the assessment year relevant to the previous year in which search was conducted. In other words, accounting of profits have yet to be made on the basis of method of accounting followed by the assessee. No elaborate discussion has been made in this regard in the assessment order. Therefore, it would be appropriate that this matter is restored to the file of the Assessing Officer to find out the method of accounting, namely, whether the assessee has been accounting the profits- (i) on year to year basis, (ii) on sale basis or (iii) on project completion method. The impugned undisclosed income of Rs. 14.74 lakhs may be brought to tax as per the method of accounting of the assessee. Accordingly, it is held that the undisclosed income of the assessee amounted to Rs. 14.74 lakhs, which is taxable as per the method of accounting followed by the assessee for recognition of the income. In the result, the appeal of the assessee is partly allowed, as discussed above.
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