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2010 (4) TMI 100 - HC - Income TaxUnexplained expenditure - Applicability of section 69C in block assessment – setting off of off interest and bank charges against interest income for determining benefit under Section 80 HHC – ambit and scope of sectin 41(1) – cessation of liability – deemed income - during the search and seizure operations, as indicated in para 3.1 of the order passed by the Commissioner of Income-tax (Appeals), no evidence was found indicating that the assessee had any undisclosed income. However, the Assessing Officer had directed the assessee to get its accounts audited as per the provisions of Section 142(2A) of the said Act. It is on the basis of the audit report prepared under Section 142(2A) of the said Act that the addition appears to have been made by the Assessing Officer. – held that - Clearly, Section 69C refers to the “source of the expenditure” and not to the expenditure itself. Consequently, the Assessing Officer was clearly wrong in treating the said expenditure as unexplained expenditure under Section 69C of the said Act and the lower appellate authorities were right in their conclusions in deleting the said addition - No material as such was found during the search and seizure operations and it is only in the special audit directed by the Assessing Officer, who was unable to find any material at the time of search, that the authenticity of the expenditures were doubted. We are of the view that both the lower appellate authorities correctly came to the conclusion that this was not a case where the addition would be justified in block assessment proceedings. question of netting of interest under section 80 HHC, the issue already stands decided in favour of the assessee and against the revenue by virtue of this court’s decision in the case of Commissioner of Income-tax v. Shriram Honda Power Equipment: [2008 -TMI - 2891 - HIGH COURT, DELHI] Regarding section 41(1) - One part deals with the question of extinguishment of the liability because the period of limitation had expired. The second part deals with the aspect that in the case of block assessment, the undisclosed income can be determined only on the basis of the material found during the search. Inasmuch as no material was found during the search to show that the liability was either bogus or had ceased to exist, the addition could not be made in the block assessment. We are not going into the first aspect of the matter because of our view on the second aspect. Since, nothing was found during the search, this, in itself, is sufficient to decide the matter in favour of the assessee.
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