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2019 (1) TMI 891 - HC - Income TaxUndisclosed investments - Additions based on balance-sheet submitted to the Bank for obtaining loan - Block assessment u/s 158BC - Block Period - undisclosed income detected under four separate heads of under-invoicing, undisclosed sales, investments in unaccounted purchases, and interest income - AO found that the undisclosed income was in excess of the undisclosed investments - Held that:- We have already found that there is lack of material insofar as the prior years of the block period, but the same has been held to be inconsequential, in so far as the A.O being conferred with the power to make assessment in the best of his judgment. The AO was perfectly justified in carrying out an assessment on the best of judgment, making estimations on the basis of the materials recovered. In the instant case a block period of 6 years. There is also no presumption insofar as the suppression having occurred only in the year in which the search was conducted. If at all, the presumption is otherwise insofar as the special procedure prescribed under Chapter XIV-B to assess undisclosed income for a block period, comprising of assessment years prior to the date of search, on the basis of the materials recovered at the search and other other evidences available before the AO relatable to such material. At the risk of repetition, it has to be noticed that the block assessment prescribed under Chapter XIV-B also confers power on the AO to make assessment on the best of judgment. Question Nos.(i) and (ii) are answered in favour of the Revenue and against the assessee. We hence set aside the order of the Tribunal and the first appellate authority and confirm the under-invoicing of sale bills at ₹ 90,50,924/-. Undisclosed purchases - There is no claim by the assessee that the Bank did not eventually grant the loan and even if it was so, it was incumbent upon the assessee to establish that the balance-sheet was not prepared in accordance with law and not based on the actual stock retained in the assessee's premises. The fact that there was a lesser stock at the end of the year only raises a presumption that the excess stock as disclosed in the balance-sheet and profit and loss account filed before the Bank was sold off in the intervening period. In such circumstances, there is absolutely no error in law on the AO relying on the same and adding on an undisclosed income on the basis of the unexplained investment in the unaccounted purchases. We, hence, answer question No.(iii) against the assessee and in favour of the Revenue. We also find that the reliance placed on the balance-sheet and profit and loss account as obtained from the Bank in pursuance of the enquiry conducted after the search was a material relatable to the suppression established on search. On the question of estimation made by the AO at the rate of ₹ 5 lakhs per year, we find the same to be unreasonable. As we have found, the unaccounted purchases would have been sold in the intervening period. Hence, in the very same assessment year in which the purchases were made, the sale has to be presumed and the profit on such sale has to be treated as undisclosed income of the assessee. We direct the AO to add gross profit at 10% to the unaccounted purchases and make addition of profit alone being ₹ 2,86,630/- especially since the unaccounted purchases has already been added on as an undisclosed income. We, hence, answer question No.(iv) partly in favour of the assessee and partly in favour of the Revenue. On the undisclosed interest income, we find that there is absolutely no basis for the AO to have taken the figures from the rough book and converted it into lakhs. We do not think, there is any basis for the additions made. We, hence, answer question No.(v) in favour of the assessee and against the Revenue and confirm the deletion of the undisclosed interest income made by the AO. Gifts and loans disclosed in the block returns of the Director - On question No.(vi) raised, we find on the aspects in which it was held in favour of the Revenue that the Tribunal had egregiously erred and acted in a perverse manner. We, hence, confirm the addition made by the AO. We also reduce from the total, NRE gifts and loans as disclosed from the block returns of the Directors, coming to ₹ 15,19,000/-. The appeal would stand partly allowed.
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