TMI Blog2008 (11) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the business premises of the assessee at A-969, Indira Nagar, Lucknow and its branch at Transport Nagar, Kanpur. It was stated that the assessee was a primary society duly registered with Registrar of Co-operative Societies vide registration No. 330, dated 7-5-1986 under UP Co-operative Societies Act, 1965. It has also been granted licence by the Reserve Bank of India under Section 22 of the Banking Regulation Act, 1949 as applicable to co-operative societies. Thus, it is claimed that the assessee is functioning under dual control of Registrar of Co-operative Societies, Uttar Pradesh and Reserve Bank of India. While framing the block assessment and for acquiring jurisdiction for that purpose, the assessing officer has noted as under: The assessee has not filed the return of income. During the course of assessment proceeding it is found that assessee is operating fictitious account in Benami names which shows that it is violating the norms of banking system. It is providing the credit facilities to non-members also. Considering the above discrepancies the assessee is not allowed to claim deduction under Section 36(i)(viia) and deduction under Section 80P(2)(a) and 80P(2)(d). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson nor ledger account of these alleged depositors. 3. In reply to notice under Section 133(6) dated 6-10-2003 issued to one Charak Pathology, its partner Shri Ashwani Kumar Singh, stated that it has not invested any type of fund in any form in the Mansarovar Urban Co-operative Bank Ltd. It has not taken any financial assistance from this bank in any form. On the basis of the letter received from Charak Pathology dated 30-10-2003 assessing officer inferred that some of the account holders of this bank are fictitious. Thereafter, he arrived at the conclusion that Benami and fictitious account are being operated with full knowledge of banking authorities. As the ratio of unserved notices as compared to notices issued comes to about 15 per cent, the assessing officer felt that the addition @ 15 per cent of total depositors would be fairly reasonable. Hence he proposed following additions in respective assessment years as under: Total deposit during block period from (1-4-1995 to 18-10-2001) Rs. 1,25,97,83,610 Average deposit in each year Rs. 19,38,12,363 15 per cent of average deposit to be taken as unexplained deposit by bogus depositor of bank during block period di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation, 35 summons out of them returned unserved which worked out at 15 per cent of the total summons issued. This percentage was taken as basis for holding 15 per cent of the total deposits as non-genuine as also the interest paid thereon. 6. The learned Commissioner (Appeals) deleted the entire addition on the ground that the assessing officer has not referred to any seized material while making addition in block assessment. In this regard we refer to para 9 of his order as under: 9. In view of aforesaid, I have to conclude that assessing officer has not referred to any seized material or evidence found during the course of search which would forward his presumptions that assessee was operating fictitious accounts and giving loan to non-members. The addition on account of unexplained deposit is merely on the basis of non-service of few notices and addition is on a formula which at least I am not able to appreciate in a case of bank having more than 11,000 accounts. The assessing officer .may have had certain information in his possession from various authorities but the basis of addition in this case is merely non-service of the notices and in my opinion such is not enoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased later by the assessing officer. 9. Before us, the learned Departmental Representative submitted that during the course of search the authorised officer had seized account opening forms, specimen signature cards, application forms for making FDRs and forms for opening saving bank accounts. Many of these forms did not carry signatures, loans were given without ascertaining proper guarantees/securities. During the course of search it was noticed that bank keys of several lockers were not available, names, addresses of the locker holders were not furnished, many documents relating to account opening forms revealed that they contained signature of only one person indicating that several accounts were opened by one person only. He also submitted that several letters /summons issued to the depositors returned unserved indicating that the depositors are fictitious. On the basis of this material found as a result of search, the department conducted further inquiries and found the deposit bogus. Therefore, addition under Section 68 was made. It is not that final concealment should be proved from the seized documents, it can also be established by investigation which has been done by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the department in search are not the one which are undisclosed or which could not have been produced if called for the assessing officer or would have indicated undisclosed income of the assessee. It appears that the assessing officer has mixed up block assessment and regular assessment. There are clearly two domains of undisclosed income, one is that which is discovered on the basis of a scrutiny of regular books of account and investigation made thereafter. This falls for consideration in the regular assessment only. In other words, if a transaction indicating an income is found recorded in the regular books of account but on investigation results into an assessable income, then it will fall for consideration in the regular assessment but where on the basis of documents seized in the course of the search, the assessing officer was able to find material which indicated that the assessee has carried out transactions which could result into an assessable income, which was not disclosed in the regular return of income and which had not suffered taxation, and subsequent investigation snowballed and crystallized such income then such income would be considered for assessment in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was received, enjoyed or was under control of the assessee. Then such interest income and investment in the form of credit could be taxed in the block assessment. If in the course of the search some books of account were found which are not intended to be declared and which contained entries of deposits/credits and the assessee was not able to prove the nature and source thereof, then they can also be treated as assessees deemed income under Section 68 for the purposes of block assessment. When either of these two situations are not present and there is no material evidence found in the search showing the investment in the assessees bank as its own money or where undeclared books of account showing credits or deposits were not found in the search, the provisions of Section 68 could not be invoked in block assessment. Further, we notice that all the investigations were done by the assessing officer after the search which resulted in the impugned addition in the block assessment. But the post-search material collected by the assessing officer did not have relevance or connection with the seized material indicating undisclosed income. 13. Where an assessee presents regular books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the assessing officer and relatable to such evidence, as reduced by the aggregate of the total income, or, as the case may be, as increased by the aggregate of the losses of such previous years, determined,-- (a) where assessments under Section 143 or Section 144 or Section 147 have been concluded prior to the date of commencement of the search or the date of requisition, on the basis of such assessments; (b) where returns of income have been filed under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns; (c)where the due date for filing a return of income has expired, but no return of income has been filed,-- (A) on the basis of entries as recorded in the books of account and other documents maintained in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 143 includes determination of income under Sub-section (IB)of Section 143. 14. This issue has been highlighted by the Special Bench of the Tribunal in Mange Ram Mittal v. Asstt. CIT (2007) 289 ITR 112 (Del-Trib) (SB) (AT). The head notes are reproduced as under: The provisions of Chapter XTV-B of the Income Tax Act, 1961, relate to assessment of undisclosed income. For that purpose the provisions of Section 158BC lay down the procedure. The provisions of Section 158B(b) define what is undisclosed income and the provisions of Section 158BB lay down how undisclosed income has to be computed. The provisions of computation have two limbs, viz., (1) evidence found as a result of search, and (2) such other materials or information as are available with the assessing officer and relatable to evidence found as a result of search. After the insertion of the Explanation to Section 158BA(2) by the Finance (No. 2) Act, 1998 with retrospective effect from 1-7-1995, there is no dispute that the block assessment under Section 158BC is in addition to the regular assessment and not in substitution of the regular assessment and in the block assessment under Section 158BC only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Whether a search is carried out at business or residential premises, the entire mass of what is physically found at the searched premises cannot be said to be evidence found as a result of search. Under Section 158BB it is computation of undisclosed income of the block period and not the entire income of the block period. The provisions of Section 158B(b) clearly define undisclosed income as including any money, bullion, jewellery or other valuable articles or thing or any income which has not been or would not have been disclosed for the purposes of the Act. Therefore, not every article or thing or every piece of information found during the course of search can be called evidence found as a result of search. If any money, bullion, jewellery or other valuable article or thing or any income is required to be disclosed for the purposes of the Income Tax Act in any return of income but has not been disclosed, this would constitute basis for undisclosed income. Where the returns of income have not been filed but the due date for filing the return of income ,has not expired or where the return of income itself has not fallen due, the question of what would not have been disclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the assessees income from that source would constitute materials or information relatable to such evidence. Similarly, if for example, during the course of search an evidence is found as to inflation of a particular item of expenditure, the materials or information subsequently gathered by the assessing officer in order to find out the other instances of inflation of expenditure would be materials or information relatable to such evidence. In other words, if during the course of search only a part or portion of the picture is seen, the material or information gathered by the assessing officer to reasonably reconstruct the whole picture would be materials or information relatable to such evidence. It, therefore, follows that while it is not open to the assessing officer to investigate new items of undisclosed income, he is entitled to collect further materials or information so as to bring to the logical conclusion evidence found as a result of search. The burden of proof, however, on the assessing officer may be greater in block assessment proceedings than in regular assessment proceedings, in view of the fact that while regular assessment is made of income, block assessment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce sheet or squared up accounts. Once having done so, then onus is on the assessing officer to question to the assessee about nature and source of each credit, Wherever he does not do so, that is, in those cases of credits, where assessing officer does not ask any question from the assessee, then they are presumed to be accepted by the assessing officer as satisfactorily explained. There is no further liability on the assessee and the assessing officer cannot resort to addition of such items of. credits. Thus, where an assessee has large number of deposits in its books the assessing officer has to identify credits whose nature and source is required to be explained by the assessee. In other words, non-satisfactory nature of explanation of a credit cannot be presumed unless assessing officer asks the assessee to explain nature and source of a credit recorded in its books. Though the onus thereof is on the assessee, but finding to be given by the assessing officer has to be with respect to each individual amount credited in the books during the assessment year in question. There is no question of any estimation. In other words, there cannot be a case where the assessing officer finds ..... X X X X Extracts X X X X X X X X Extracts X X X X
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