9911796707
TMI Blog2000 (1) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... ,600 and levied tax at the rate of 60 per cent. Aggrieved with the assessment, the assessee has filed this appeal before the Tribunal. 3. On behalf of the assessee, Shri K. Narayanan, chartered accountant submitted before us that the assessment made in this case was not valid assessment under s. 158BC in view of the fact that there was no undisclosed income to be added within the meaning of s. 158B(b). Drawing our attention to the definition of 'undisclosed income' as appearing in s. 158B(b), the learned representative submitted that there was no money, bullion, jewellery or other valuable articles found in the premises of the assessee during the search and further there was no material gathered in the search to point towards any undisclosed income. Shri Narayanan stated that the addition made in the assessment was also not on the basis of any entry in the books of accounts found as a result of the search. The learned representative contended that as there was no seizure of any valuables or books of accounts during the search the additions could have been made in a regular assessment under s. 143(3) and not in a block assessment under s. 158BC. Shri Gopakumar had been regularly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d so issuing notice under s. 158BC for the block assessment was void for want of jurisdiction. Shri Narayanan argued at length regarding the legality of the search and submitted that it was not a proper exercise of jurisdiction under s. 132 for searching the assessee's premises and in that sense also the assessment under s. 158BC was bad in law. 4. Per contra, Shri Amba Shankar Dev, the Departmental Representative found no merit in the contention that there was no undisclosed income to be added in the block assessment on the assessee. Even though there was no gold, jewellery or other valuable articles found at the time of search, the learned Departmental Representative stated that there was ample material gathered during the search pointing towards the undisclosed income of the assessee. Shri Amba Shankar Dev further stated that there was clear evidence to show that a sum of Rs. 89,390 being receipt from profession had not been disclosed in the returns filed by the assessee before the earlier years. He added that in the assessments, completed earlier there was no income from house property admitted by the assessee or assessed in his hands. But there were documents found at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case may be, as increased by the aggregate of the losses of such previous years as determined in the assessments. In the present case, it is true that in the search no money, bullion, jewellery or valuable articles found in the premises of the assessee. In the paper book filed by the learned representative of the assessee, there is the sworn statement of the assessee received by the AO on 18th Dec., 1996, at the time of the search (paper book-II, pp 32 to 43). It can be seen from questions 18 and 20 that in the course of the search documents were found pointing towards the undisclosed income of the assessee. The relevant questions and the assessee's answers appearing on pp 37 and 38 are reproduced below: "Q. 18 During the course of search we have noticed that you have posted a sum of Rs. 1,40,000 to the accountant Shri Baby to meet certain expenses on 23rd Sept., 1996. What is the source of this amount? Ans. If it is not out of my accounted income shown in the books of account maintained, it might be my unaccounted income. Q. 20. You have been getting rental income as per the documents found during the course of search. Since when have you been getting such income? Ans. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the course of the search materials were gathered which showed that the assessee was in receipt of rental income, which had not been disclosed for assessment purpose earlier and that there was clear omission to disclose the receipt of Rs. 89,390 from the profession. The decision in the above case does not support the assessee's plea for annulling the assessment on the ground that there was no undisclosed income detected during the search. 7. There was then the submission of the learned representative questioning the legality of the search operation in this case. In this connection, Shri Narayanan stated that proper enquiry should have been made and that the warrant issuing authority should apply his mind and come to the conclusion that there existed reason to believe that income had been concealed by the assessee. Apart from making a general observation that there should have been a proper application of mind before issuing the warrant authorising the search, the learned representative did not produce any material before us to show that the authority concerned had not made a proper exercise of the powers in issuing the warrant. In s. 253(1)(b) it is provided that any assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee's claim is that for the asst. yr. 1996-97 there should have been a regular assessment separately made under s. 143(3) without treating the income as part of the undisclosed income for the block assessment. The learned representative of the assessee submitted that in the case of Malayil Bankers vs. Asstt. CIT (1999) 152 CTR (Ker) 443 : (1999) 236 ITR 869 (Ker) the Kerala High Court has held that even after making a block assessment there could be made a regular assessment under s. 143(3). In that case, the High Court held that the contention that once an assessment had been framed for a block period under s. 158BC, the AO is debarred from framing an assessment under s. 143(3) could not be accepted. It may be mentioned here that by way of Explanation in s. 158BA, it is clarified by Finance (No. 2) Act, 1998, w.e.f. 1st July, 1998, that an assessment made under Chapter XIV-B is in addition to the regular assessment in respect of each previous year included in the block period. But that does not mean that in respect of an income returned after the date of the search, the assessment could be made only under s. 143(3) and that such income cannot be included in the block assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee that the sum of Rs. 8,58,995 returned by the assessee subsequent to the date of the search should not have been included in the block assessment under s. 158BC and that the same should have been considered only in a separate assessment to be made under s. 143(3). 12. The learned representative of the assessee then challenged the additions made in various years falling in the block period. It was contended that the addition of Rs. 45,000 for each year totalling Rs. 4,95,000 was on mere suspicion and guesswork without the support of any material gathered during the search. The addition had been made on the view that the purchase of certain household articles had been made out of unaccounted income estimated at Rs. 20,000 and that there was paucity of drawings to the extent of Rs. 25,000 for meeting the personal and household expenses. According to Shri Narayanan, the assessee had adequate amount with him for making the investment in the household articles and for meeting the personal domestic expenses. He drew our attention to the assessee's letter dt. 20th Dec., 1997, furnished in response to the letter issued by the AO on 12th Dec., 1997. Copies of these letters are availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by his wife out of her agricultural income. But then no details regarding the agricultural income of the wife had been furnished before the AO. Even the affidavit was filed only after the block assessment had been made. Though Shri Narayanan submitted before us that Smt. Shyamala Gopakumar was regularly assessed to agricultural income-tax, the details of such assessments were not made available either before the AO or before us also. The AO states that the assessee's drawings were meagre. But neither the Departmental Representative nor the assessee's representative could give the details regarding the drawings of the assessee during the 10 years considered in the block period, Suffice it to say that the addition of Rs. 45,000 for each year has been made on the basis of insufficient materials. It appears that the AO was making the assessment in a hurry to avoid the time-limit. But then that should not cause prejudice to the assessee. In the circumstances of this case we find it necessary to send the matter back to the AO for considering the drawings made by the assessee during the block period from Kumar Group and the cash contribution received from his wife. The AO will give the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., 1997. Shri Amba Shankar Dev admitted that the AO could not wait longer as the assessment was getting time-barred. In the circumstances of this case, we set aside the matter so that the AO will give the assessee reasonable time to furnish the letter of confirmation and then consider whether the source of the credits could be accepted as genuine. The AO will decide the matter accordingly. 17. For the asst. yr. 1997-98 there is addition of Rs. 1,00,000 as undisclosed income on account of a credit in the assessee's books of account. The credit is appearing on 1st March, 1996, in the name of Shri Akbar. The AO treated the amount as the assessee's undisclosed income in the absence of any confirmation from the creditors. Shri Narayanan submitted before us that the AO wanted the confirmation letter within a short time, but Shri Akbar was then out of station. It is stated that if adequate time is given the assessee would be able to furnish necessary confirmation in support of the credit. The learned Departmental Representative has no objection in giving the assessee a further opportunity to prove the credit. In the above circumstances we send the matter back to the AO for considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he extent of Rs. 3,27,000. There was similar claim of Rs. 2,34,110 for the financial year 1995-96. The AO noticed that the provisions had been created in the assessee's accounts only on the last day of the respective financial years. The AO accepted the claim of the assessee that from the provisions created for each year payments were made in the subsequent years. But the details of such payments were not furnished before the AO as the assessee's accountant had gone on leave. In the assessment, the AO disallowed the provision for expenses of Rs. 3,03,000 for the financial year 1993-94. As regards the years 1994-95 and 1995-96, the claim was allowed to the extent of Rs. 1 lakh. In the impugned order of assessment, the AO observed that when the assessee would be furnshing the details regarding actual payment for each year the order would be modified accordingly. On that basis additions have been made as under: Rs. Financial year 1993-94 3,03,000 Financial year 1994-95 2,27,000 Financial year 1995-96 1,34,000 20. The learned representative of the assessee submitted before us that the AO was not correct in making any disallowance in regard to the provisions for expenses. Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. We notice that in the present case, though in para 5(1) of the assessment order, the AO has stated that applying the provisions of s. 145(3) the total income is determined by disallowing the provisions, the AO has in fact made the disallowance for the reason that the assessee had not furnished the details regarding actual payment out of the provision for expenses created for different years. The assessee's claim is that he had to pay consultancy charges to various parties and that for each year the provision was created on the basis of the bills claims issued by them. The learned representative of the assessee submitted that in the earlier year also the assessee had been claiming deduction for the provision created for the expenses. According to him, none of the provisions were outstanding except one, i.e., Babuchand Engineers and that the amount was outstanding on account of non-receipt of fees from the clients. It was his contention that all the creditors had been subsequently paid. But then, that was exactly what the AO wanted to verify. In fact, it is made clear in the assessment order that if the assessee shows that the payments had been made as claimed in the provisions ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount had not been taken into account in computing the income of the assessee of the previous year of any earlier year. As a matter of fact it was not shown to be a trade debt of the assessee. We do not agree with the learned representative of the assessee that the disallowance could not be made in the block assessment, if no disallowance had been made in the original assessment and that too in a summary assessment under s. 143(1). It can be seen from s. 158BB that the computation of the undisclosed income of the block period is to be made in accordance with the provisions of Chapter IV. If under s. 36(2) falling in Chapter IV certain claim is not allowable in computing the income of the block period under s. 158BC, the same cannot be allowed as a deduction. 25. In the case of Microland Ltd. vs. Asstt. CIT (1999) 63 TTJ (Bang) 701 : (1998) 67 ITD 446 (Bang) Bangalore Bench of the Tribunal held that when the claim of allowance of certain expenses, liability or deduction was found to be bogus on the basis of materials discovered during search and seizure operation, the addition would have to be considered to be of the nature of undisclosed income as envisaged for the purpose of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns cited above, we hold that the AO was not correct in disallowing Rs. 2,39,730 as expenditure incurred on capital account. The addition on this account is, therefore, deleted. 29. For the asst. yr. 1997-98 the assessee has raised another ground against the addition of Rs. 20,000 as expenses on renovation. From the assessment order it can be seen that the AO has made the addition for the reason as under: "A lumpsum of Rs. 20,000 is seen provided for renovation. No details have been furnished. The C.A. representative is not able to inform me what kind of renovation has taken place. In the circumstances this amount is added back." The learned representative of the assessee submitted before us that the disallowance has been made on a wrong understanding of the facts and that the assessee had not made any claim for renovation. Drawing our attention to the details of the expenses charged to the P&L a/c as appearing on p. 30 of the paper book-I, Shri Narayanan submitted that there was no claim of renovation charges. The assessee had claimed Rs. 20,000 as consultancy charges, which the AO had wrongly taken as renovation expenses. The AO was not correct in making the addition as if t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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