TMI Blog2012 (6) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... it @ 10% by the AO is arbitrary, not proper, not correct and illusory as the comparison relied upon by the assessing officer is without any basis and not in any way nearer to the facts of the appellant's case. No material was found during the search which could show suppression of income, no estimation of undisclosed income of block period by resorting to Section 145 could be made - a lower rate of gross profit declared by the assessee as compared to the previous year, would not by itself be sufficient to justify any addition - there is a reasonable cause for declining in net profit rate explained by assessee and it is found to be genuine. The low profit rate itself cannot be the reason for rejecting the books of accounts more so in the block assessment. The addition is not based on seized material to estimate the turnover and thereby estimate the income. Similarly, expenditure claimed in the regular returns, cannot be disallowed in the block assessment consequent to the search action as the disallowance, and at the best, it could be the subject matter in regular assessment not in the block assessment. Estimation of income on contracts which are disclosed in the regular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for A.Ys. 1996-97, 1997-98 and 2000-01, the percentage of income admitted before depreciation as shown in the books of account was 11.57%, 10.57% and 10.53%, respectively. Since the income declared in these years was more than 10% of gross contract receipts, the trading results shown in the regular returns of income have not been disturbed. The percentage of income before depreciation shown in the A.Ys. 1998-99, 1999-2000, 2000- 01, 2001-02 and part period 1.4.2001 to 20.12.2001 was shown at 9.07%, 8.5%, 4.49% and 5.59%, respectively. In these years, the income has been estimated at 10% of the gross receipts. For estimating the income at 10% the Assessing Officer has cited two comparable cases viz., M/s. Prasad Company (PW) and M/s. SEW Construction Ltd. He has, therefore, estimated the undisclosed income from construction activity for the block period at Rs. 22,77,88,361. In addition to this, one more addition of Rs. 6,46,34,972 being interest accrued on amount advanced to Mr. V. Srinivasa Raju on the basis of calculations shown in the loose sheets has been made. Thus, the total undisclosed income for the block period has been computed at Rs. 29,24,23,330 by assessing officer as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income as per regular return of income before set-off of brought forward losses 7,62,72,822 Less: Unabsorbed depreciation of A.Y. 1999-00 as stated above.` 3,75,59,093 Balance of Income 3,87,13,729 Add: Undisclosed income as determined above 11,50,35,173 Total 15,37,48,902 Less 80(IA) deduction The assessee in the return of income claimed 80(IA) deduction representing profits from infrastructure projects at Rs. 9,48,72,688/-. This is as per audit report filed along with return of income. In the letter dated 9.1.04 after allocating expenditure relating to head office, the profits from infrastructure projects eligible for deduction u/s. 80(IA) was worked out to Rs. 6,40,04,966/-. 6,40,04,966 UNDISCLOSED INCOME OF THE YEAR 8,97,43,966 ----------- 8,97,43,936 1.401 to 20.12.01 (a) Interest receivable from Sri V. Srinivasa Raju for the period 1.4.01 to 20.12.01 as mentioned at para 6.4(d) 6.4(h) 1,03,38,256 (b) Undisclosed income e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails of which are as under: Loss making projects Loss (Rs.) 1997-98 1998-99 Essar Oils Ltd. 17,355,573 9,904,758 Mukund (Kalyani Steels Ltd.) 8,561,031 - White Field - 3,464,020 Chennai Airport - 1,849,880 Indira Airport - 1,963,363 Total loss 25,916,604 17,182,021 Turnover relating to the loss making projects 47,652,727 99,768,128 5. The assessee submitted the following explanation before the lower authorities: (i) In the case of Essar Oils Ltd., Gujarat, the contracts relate to the construction of factory buildings and townships. However, due to the financial problems, the oil refinery project could never be completed even till date. Right from the beginning the company Essar Oil Ltd., has violated all the terms of the contract including the payment of mobilisation advance. Some of the work bills are still due from Essar Oils Ltd. In view of the problems faced by the assessee-company, a claim was lodged before the Arbitrator for an amount of Rs. 3.67 crores. (ii) In the case of the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation is Rs. 14.46 crore which in terms of percentage works out to 5.59% which is also very low compared to income declared in other years. For these two periods, the CIT (A) given findings that the Assessing Officer appears to be perfectly justified in rejecting the books of account and resorting to the estimation of income as provided u/s. 145 of the I.T. Act. The explanation for low rate of profit for these years was filed by the assessee vide letters dated 14th October, 2003, 4th November, 2003, 18th November, 2003 and 4th December, 2003 filed before the Assessing Officer. It was explained that the company has been in the construction industry for more than two decades. The company for quite some years focussed its core activity in civil works consisting of mostly industrial/house structures. Besides such civil contracts, the company diversified its activities into cement industry, wind power, manufacture of cylinders and other incidental jobs. Heavy losses resulted in closure of its cement division during financial year 1999-2000. The company also started focussing on infrastructure projects because of its line of business in construction and contracts. Hence, in the initial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total coverage could not offset the increase which was between 20% to 25%. (f) The steep increase in bitumen price and diesel price were demonstrated in terms of statistics as follows: Bitumen price increase S. No. Year Rate (Rs) % of increase 1. October, 1999 7,965.95 2. June, 2000 10,835,33 36.02 3. June, 2002 10,562.50 32.60 Diesel price increase S. No. Year Rate per litre (Rs) % of increase 1. October, 1999 15.57 2. September, 2000 19.25 The steep increase in bitumen and diesel cost was not visualised at the time of bidding the project. The above tables would, therefore, confirm that the increased cost has its impact on the ultimate profits of the project as explained above. (g) Majority of the road works are abetting the villages. Due to local social problems, it is always the case labour from abetting villages has to be engaged at higher rate on daily basis besides our permanent labour. Added to this, peripheral works though not connected to mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1999-00 3,289,892,000 173,212,000 5.26 2000-01 4,532,501,000 249,134,000 5.49 2001-02 5,055,096,000 291,500,000 5.76 2002-03 5,156,383,000 423,285,000 8.20 It has, therefore, been contended that estimation of rate of net profit at 10% by the Assessing Officer is arbitrary, without any basis and not in any way nearer to the facts of the assessee's case. 10. The CIT(A) considered the submissions made by the assessee-company and also gone through the facts narrated in the block assessment order. He observed that analysis of seized documents have clearly indicated that the assessee-company was in the habit of inflating the expenses and thereby suppressing the income. This is clearly borne out from the statement given by the Managing Director u/s. 132(4) of the Income-tax Act, 1961. Analysis of the seized documents and the statement given by the Managing Director on 21.12.2000 is given in para 3.4 of assessment order. the gist of analysis of the seized documents and explanation given by the Managing Director is given below: Loose sheet No. 31: This seized document shows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be reflected in the books of accounts maintained by the company. whereas in the case of sheet 13 of annexure A/NCCL/5, total suspense amount mentioned as Rs. 23,39,167/- shall be reconciled with the petty cash books maintained. In the same sheet mentioned as 'loan Suribabu Rs. 1,00,000/-" and 'loan MKR Rs. 2,00,000/-" are the amount returned by them, hence they were deducted from the suspense balance in the same sheet. However, these loans will be reconciled with the books of account, otherwise, the same will be offered for taxation. Ans. to Q. No. 5): Krishnappa exchange account appearing in page No. 152 of annexure: A/NCCL/11 is relating to the real estate division account maintained by regional office of M/s. NCC Ltd., Bangalore, where Sri Krishnappa and M/s. NCCL have developed a property in Bangalore. The payments appeared in this page are relating to that development. The payments appeared in this page will be reconciled with the books of account maintained by the company. If there is any difference, the same will be offered to tax as undisclosed income in the hands of the appropriate persons during the course of proceedings. However, some of the figures appearing on p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, the CIT(A) was of the opinion that it would be fair and reasonable to apply net profit rate of 6.5% before depreciation as against 4.49% and 5.59% declared by the assessee for A.Y. 2001- 02 and part period from 1.4.01 to 20.12.01 respectively. He directed the Assessing Officer to compute the income accordingly. However, since for A.Y. 2000-01, the assessee has admitted undisclosed income of Rs. 35,00,000 the same should be adopted. For A.Y. 2001-02 the assessee has admitted undisclosed income at Rs. 62,11,980. For this year, if by applying rate of 6.5% of gross contract receipts and allowing rebate u/s. 80IA the undisclosed income works out lower than the undisclosed income admitted in the return, the undisclosed income admitted in the return should be adopted. For broken period from 1.4.01 to 20.12.01 the undisclosed income admitted is Rs. 2,01,39,149. By applying profit rate 6.5% of gross contract receipts amounting to Rs. 258.59 crore, the undisclosed income works out to Rs. 2,34,85,632 (Rs. 16,80,81,389 Rs. 14,45,95,757) and, therefore, the CIT(A) given a direction that the same should be adopted. 12. The facts relating to the addition of Rs. 6,15,03,415 being in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sider any income on notional and/or hypothetical basis, much less in the proceedings relating to the block assessment. In the of block assessment, only the real income should be considered on the basis of material found during the course of search proceedings but not notional income. In the case of interest, the uncertainty was established and the recovery of which is doubtful. In such a scenario, if it needs to be considered as an income it would only mean notional income. Even in respect of noting found on the loose sheets, when there is no evidence to show that such interest change materialised. Such notings cannot be relied upon to determine income relating to the block period. In the case of interest from Sri V. Srinivasa Raju, calculations were found but nowhere evidence for payment/receipt of such interest was found. Added to the above, Sri V. Srinivasa Raju confirmed that there was oral understanding that interest shall not be charged once the principal is fully disclosed. 14. The CIT(A) observed that the Assessing Officer basically given the following reasons for taxing the notional interest: (a) The assessee is following mercantile system of method of accounting and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08,999 1998-99 96,14,486 1999-00 1,02,54,391 2000-01 1,24,34,158 2001-02 72,06,699 Total 6,15,03,415 (e) When the assessee-company is debiting interest to loan accounts on mercantile basis and claiming as expenditure in the Profit and Loss A/c., it ought to have charged interest receivable on the advances made and credited to Profit and Loss A/c. especially when the written agreement provides for charging of interest on the advances made. It is well established that the assessee cannot follow mercantile system for payment of interest and cash system for receiving interest. Further the companies are required to follow only mercantile system of accounting both for expenses and receipts. (f) The guidelines issued by the ICAI are not binding on the department for determining the correct income of the year under the Income-tax Act. (g) The fact that the assessee charged interest on quarterly basis on the advances made to Sri V. Srinivasa Raju, and worked out the interest giving credit to the payments made by the assessee-company as reflected in pages 144 to 149 of the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tical accrual of income that has got to be taken into consideration but the real accrual of income". In the case of State Bank of Travancore vs. CIT (1986) 158 ITR 102 their Lordships of the Supreme Court reiterated the above mentioned principle of law by holding that "It is the income which has really accrued or arisen to the assessee that is taxable." In the present case, the income has neither accrued nor has arisen and as such, the same is not taxable in the block assessment. Accordingly, the CIT(A) directed the Assessing Officer to delete the addition of Rs. 6,15,03,415 from the block assessment. 16. Against the deletion of addition, the Revenue is in appeal and against sustaining of addition; the assessee is in appeal before us. 17. Regarding invoking the provisions of section 145 of the Income Tax Act in Block Assessment, the learned counsel for the assessee submitted that the Assessing Officer was of the view that the net profit percentage of the assessee was lower for the financial years 2000-01 and 2001-02 (forming part of the block period). The Assessing Officer resorted to estimate for 4 years, though he mentioned only two years in the show cause notice. In othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contract is awarded based on the lowest bid quotation. At the same time the participation in a bid depends upon several factors that weigh with reference to the conditions imposed in the tender schedule. Such conditions vary from tender to tender. (iv) The company has been in the construction industry from more than two decades. The company for quite some years focused its core activity in civil works consisting of mostly industrial/housing structures. The records reveal that up to the financial year 1996-97, the company's exposure in other sectors including infrastructure, irrigation, electrical, water works and railway works were practically not there and if it were there they are very nominal. (v) Besides such civil contracts, the company diversified its activities into cement industry, wind power, manufacturing of cylinders and other incidental jobs. Under the group concept, the promoters diversified into aquaculture in the name of M/s. NCC Bluewater Products Ltd., and finance in the name of M/s. NCC Finance Ltd. (vi) The heavy losses which lead to the financial troubles, resulted in hiving off its cement division during the financial year 1999-2000. The businesses of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of the major fluctuation in the items like steel, cement and other consumables. ix. Absence of escalation clauses in the some of the tenders. (xi) All the above key factors shall have their impact on the ultimate result in the project and most of the key factors cannot be visualized at the time of tender. The company's initiative while quoting the tender with the meagre profits ultimately ended up in losses in some of the projects. This factor effected the overall profitability of the company. (xii) During the financial years 2000-2001 and 2001-2002 (up to 31st December 2001) the company had incurred losses in certain major road projects. The details of such projects and losses are as follows: Major loss making projects Loss 2000-01 2001-02 MCC Road works 28141247 3426220 Road Work Bangalore 17171350 4359546 NHAI Haryana 0 14201346 BMP Bangalore 5569146 2196106 NGV Bangalore 23205995 9393679 Total 74087738 33576897 Add: Proportionate expenses of Head Office Regional Offices 4951011 3846 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e engaged at higher rate on daily basis besides our permanent labour. Added to this, peripheral works though not connected to main works had to be done as commercial expediency of the business to sail with the local elements without deterrence to our works. This also resultant in additional cost. 1. Explanation Project Wise (i) In the case of MCC road project and Road work Bangalore, the sub-contractor caused problems. The sub- contractor's failure lead the company to complete the work as per the tender norms. In view of that, the projects were delayed and there was a time over run. In view of the time factor the steep increase in bitumen and increase in other construction materials had hit the company very badly and resulted in losses. In view of these problems, there was a loss of Rs. 4. 52 crores in MCC road works and Rs. 0.78 crores in Road Work Bangalore. (ii) In the case of Haryana road project, the company was executing such large project for the first time. The coverage on cost of diesel, which is a major component in the project was not sufficient to meet the escalated amount. This could not offset the periodical increase in the diesel cost. The fact of increase. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company had appeared low. During the financial year 2000-01 and 2001-02 (up to 21st December 2001) the company had handled 81 projects and 70 projects respectively. Out of which, the major loss making projects are the five in number which were explained in detail as above. 19. In addition to these factors for low profitability, there is one more factor which had its impact on profitability. It pertains to the works undertaken by the company on sub-contract basis. To gain experience and to get eligibility to participate in future tenders, the company had undertaken certain works on subcontract basis. The turnover of such sub-contract works are Rs. 16.98 crores and Rs. 27.05 Crores relating to the financial years 2000-01 and 2001-02 (up to 31st December 2001) respectively. The turnover on subcontract basis done by the company is demonstrated in the following table. (Rs. in Crores) S. No. Name of the Contractee Nature of work Quantum of Work 2000-01 Quantum of Work 2001-02 (up to 31st Dec' 02 1 ONDEO DEGREMONT Water 0.49 3.13 2 MECON Road 6.34 12.43 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Other projects 103042910 10.03 121236841 8.58 Total 167047876 8.18 182018824 7.04 Major loss making projects 2000-01 2000-01 Loss Loss MCC road works 28141247 3426220 Road work Bangalore 17171350 4359546 NHAI Haryana 0 14201346 BMP Bangalore 5569146 2196106 NGV Bangalore 23205995 9393679 74087738 33576891 ADD: Proportionate Expenses of Head Office Regional Offices 4951011 3846170 79038749 37423061 22. The above data therefore reveal that to the exclusion of the losses on five projects, the profitability relating to the financial years 2000-01 and 2001-02 (up to 31st December 2001) in the other projects stood at 10.03% and 8.58% respectively. 23. The specific reasons for losses in such projects have been explained in detail. In addition to the specific reasons, there were several other factors which also contributed for the low profitability as an ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the financial years 2000-01 and 2001-02 (up to December 2001). c) Low profit margins : The company has quoted the low price and captured more works in the core sector and new sectors including roads and highways. The profitability is no doubt low, but the company, could increase its turnover double in the financial year 2001-02 (up to 31st December 2001) as compared to the year 1999-2000. d) High Administrative and Project Execution Cost : The company executing the projects all over the country. For the administrative convenience the company had established regional offices at a) Delhi, b) Mumbai, c) Chennai, d) Bangalore, e) Bhubaneshwer, f) Visakhapatnam. At any point of time, the project sites under execution will be around BO to 90. The regular employees on the rolls of the company are 1450 and NMRs is 200. In addition to these regular staff, the company should sail with constant labour problems. Unless the company maintains such an establishment, the growth cannot be sustained, and the consequent establishment expenditure, and its impact on the profits. 24. Taking into consideration the future works, especially in the area of road works and highways, the company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to stage. Conceptually and as in vogue the total project may either end up in profit and/or loss. In the case of Mukund (Kalayani Steels Ltd.,) Whitefiled - Bangalore, Chennai Airport and Indira Airport, were incurred losses during the financial year 1998-99, since these works were in initial stage in this financial year. The said works generated profits in the subsequent financial years, which was also revealing from the profits of that year. Site wise profit loss accounts were part of the assessment records. It is our submission that, once the losses in the above specified projects are as merged into the accounts considered, the average profit earned by the company would obviously be on low side. In other words, to the exclusion of such losses if the profitability of the other projects is considered, it is working out to 11.25% for the financial year 1997-98 and 10.62% for the financial year 1998-99. 26. Further, it was submitted that the comparable cases relied upon by the assessing officer (page 16 of the assessment order), to adopt the rate of net profit at 10%, do not bear any relevance to the facts of the appellant's case. Hence, it was contended that the comparison ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparison is not of like with like and to explain this point a statement is enclosed (As Annexure I /I). Hence, the basis of comparison suffers from several infirmities viz., (a) in respect of the line of business (b) in respect of the volume of turnover, profits (c) in respect of the area of operations and (d) in respect of comparison as to the quantum of profits as per the books of account vis-a-vis the incomes as per the return of income. 29. It was submitted that one contractor's concern cannot be compared with another contractor's concern as a thumb rule in a general way, as already submitted before assessing officer in detail in assessee s letter dated 9th January 2004. According to AR the submission made by the assessee has not been controverted by the Assessing Officer in his order under appeal. 30. Further it was contended by the AR that two concerns those are carrying on business in the appellant's line with other diversified areas of work connected with civil contracts etc., are (a) Simplex Concrete Piles (India) Ltd., situated at 1211 Nellie Sengupta Sarian, Kolkatta-700087 (b) Gammon India Ltd., Gammon House, Veer Savarkar Marg, Mumbai whose particulars would e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also not brought any further facts on record in his reply. 34. The comparable cases cited by the appellant establish the fact that the profit in this line of business when considered with the volume of business of the appellant that a net profit in the range of 4 to 5% is more reasonable and fair. Therefore the unilateral estimate @ 10% by resorting to the rejection of books is not warranted and contrary to the facts on record. 35. In this view of the matter, the AR contended that there is no case for the estimation of net profit at 10% coupled with the rejection of the books of account. 36. The Departmental Representative submitted that payments were being made outside the books of account generated through inflation of expenses. The most important documents related to payments made to piece rate workers/sub contractors. During the course search, certain TDS certificates were relating to payments made to piece rate workers/labour contractors were seized from the office premises of the assessee-company. The post-search enquiries conducted by the DDIT (Inv) confirmed that some of these contractors or piece rate workers either did not exist or were not available at the addre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. (b) he assessing officer shall proceed to determine the undisclosed income of the block period in the manner laid in Section 158BB and the provisions of the section 142, subsection (2) and (3) of section 143, section 144 and section 145, shall, so far as may be applied; 38. The provisions of Section 158BC(b) which have been amended by Finance Act, 2002 with retrospective effect from 1st July, 1995, as per which ss 144 and 145 have been specifically made applicable to block assessment. However, we make it clear that if no material was found during the search which could show suppression of income, no estimation of undisclosed income of block period by resorting to Section 145 could be made. In other words, where there is a material, such an estimation of income can be made. This view of ours is fortified by the Judgment of Jurisdictional High Court in the case of Rajnik Company Vs. ACIT (251 ITR 561) wherein held that once the suppression is established, estimate cannot be avoided. It is not necessary that addition should be limited to what is found during the search if the circumstance warranting an estimate. We have also noticed that Punjab Haryana High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny had undertaken some of the smaller projects especially the road works outside the state of Andhra Pradesh. To intrude into the competitive section like this, and to withstand the obvious competition from the established giants and multinationals, obviously the company had to quote the price in tenders either without a profit or with nominal profit. During the FY 2000-01 and 2001-02 (up to 31.12.2001) the company has incurred losses in certain major projects. The specific reasons for such losses are: (A) The desire to gain entry into the road project necessitated the company to quote low price in the bids. (B) The establishment cost of infrastructure for executing the road works was high. This is because of the need for establishment of machinery, manpower and related infrastructure and the expenditure related revenue incurred. (C) In spite of the best efforts the cost efficiency in the operations could not be achieved. (D) Added to the above for the road/highway works bitumen and diesel are the major components. During the financial years 2000-01, 2001-02 and subsequently there was a steep increase in the bitumen and diesel prices, which can never be visualized and muc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) ; M Durai Raj Vs. CIT (1972) 83 ITR 484 (Ker) ; Ramachandra Ramnivas Vs. State of Orissa (1970) 25 STC 501 (Orissa) ; Action Electricals Vs. Deputy CIT (2002) 258 ITR 188 (Delhi) and Kamal Kumar Saharia Vs. CIT (1195) 216 ITR 217 (Gau) indicate that the assessing officer is not fettered by any technical rules of evidence and pleadings, and he is entitled to act on material which is not acceptable in evidence in a court of law, but while making the assessment under the principles of best judgment, the Income Tax Officer is not entitled to act on material which is not acceptable as evidence in a court of law, but while making the assessment under the principles of best judgment, the assessing officer is not entitled to make a pure guess without reference to any evidence or material. There must be something more than a suspicion to support the assessment. Low profit in a particular year itself cannot be ground for invoking the provisions of Section 145 of I.T. Act. Further, if there was no challenge to the transactions reflected in the books of accounts, then it is not open to the assessing officer to contend that what is shown by the entries in the books of accounts is not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod . The special procedure of Chapter XIV-B is intnended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. It cannot be a substitute for regular assessment. In this case, the addition is not based on seized material to estimate the turnover and thereby estimate the income. Similarly, expenditure claimed in the regular returns, cannot be disallowed in the block assessment consequent to the search action as the disallowance, and at the best, it could be the subject matter in regular assessment not in the block assessment. For this purpose we place reliance on the following precedents: CIT v. N.R. Papers and Boards Ltd., 248 ITR 526 (Gauhati) "If prior to the date of search, the assessee had disclosed the particulars of income or expenditure either in the return or in the books of account or in the course of proceedings to the Assessing Officer or where the return had not become due, they are duty recorded in the regular books of account, then such Income cannot be treated as undisclosed income so as to tax a person ft the rate of Sixty per cent. Under Chapter XIV. CIT V. N.R. Papers and Boar'ds Ltd., 248 ITR 526 (Gauhati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the years 1993-94, 1994-95 and 1995-96. The Assessing Officer treated the income of the three years as the income of the block period. On appeal, the Tribunal found that the assessee's income from interest, salary and rent was reflected in the audited balance-sheet of the respective assessment years of the firm and, therefore, the Tribunal deleted the addition." On appeal the Hon'ble Bombay High Court did not find any reason to interfere with the findings of facts recorded by the Tribunal. It was held: "Held dismissing the appeal, that the conclusion of the Tribunal that there was no reason for treating the said income as undisclosed income for the purposes of block assessment was based on facts. No substantial question of law arose." CIT v. Vinod Danchand Ghodawat, 247 ITR 448 (Bom) "Where the value of the gold and silver articles. and jewellery had been disclosed in the assessee's wealthtax return which was accepted by the Department: Held that Chapter XIV-B of the Income-tax Act 1961, had no application to the facts of the case and the addition made by the Department on the ground of undisclosed income was erroneous. During the search, it was found that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of this Act and after the amendment by Finance Act, 2002 w.e.f. 1-7-1995 it includes also any expenses, deduction or allowance claimed under this Act which is to be found to be false. 41. In view of the above discussion, we are of the opinion that estimation of income on contracts which are disclosed in the regular books of accounts cannot be disturbed in the block period, and at best it could be the subject matter of regular assessment only. In view of this, we are inclined to hold that the CIT(A) is not justified in giving the direction to assessing officer for the Assessment Year 2001-02 and for part period from 01.04.2001 to 20.12.2001 to determine the undisclosed income at 6.5% before depreciation as against 4.49% for the assessment year 2001-02 and 5.59% for part period from 01.04.2001 to 20.12.2001 declared by the assessee. Accordingly, the ground raised by the assessee is allowed. 42. Now we will take up the issue relating to addition towards interest at Rs.6,15,03,415/- being receivable on funds advanced to Shri Srinivasa Raju, proprietor M/s Rachana Associates, Bangalore. According to learned counsel for the assessee, the CIT(A) ought have deleted entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sheets No. 136 to 153 containing the calculation of interest advanced to Shri V. Srinivasa Raju details to whom the money was advanced at Rs.440 lakhs. In view of this, we have to consider the seized material A/NCCL-1/1 to see whether it is enough to make addition. In our opinion, this document is only note book/loose slips. We have to look into the statement recorded u/s 132(4) or 132(4A) of the IT Act. The seized material A/NCCL-1/1 found during the course of search and the statement recorded is some piece of evidence to make an addition. The assessing officer has to establish the link between the seized material A/NCCL-1/1 and with other books of accounts of the assessee. It cannot be considered alone as conclusive evidence. The word may be presumed appear in section 132(4A) gives an option to the authorities concerned to presume the things. But it is rebuttable and it does not give a definite authority and conclusive evidence. The assessee has every right to rebut the same by producing the same in support of his claim. The entire case depends on the rule of evidence. The assessee has every right to shift the burden of proof. There is no conclusive presumption. In the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of interest in favour of the assessee. There is no evidence as to whether he paid the interest. The department cannot draw inference on the basis of suspicion, conjuncture and surmise. Suspicion, however strong cannot take place of material in support of the findings of the assessing officer. The assessing officer should act in a judicial manner, proceed with judicial spirit and should come to a judicial conclusion. The assessing officer is required to act fairly as a reasonable person and not arbitrarily and capriciously. Assessment made should have adequate material and it should stand on its own legs. The assessing officer without examining concerned party, who has received advance from the assessee, cannot come to the conclusion that the assessee has received interest. The basis for addition is only note book/loose slips. These note book/loose slips are unsigned documents. The assessing officer has not established nexus between the note book/loose slips with actual accrual/ receipt of interest. The note book/loose slips seized marked A/NCCL-1/1 found during the course of search is a dumb document having no evidentiary value, no addition can be made in the absence of corrobora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the income-tax Act takes into account two points of time at which the liability to tax is attracted, viz. the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a hypothetical income , which does not materialize. When income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipients, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account . 47. Further, we find that same view has been taken by the Apex Court in the case of CIT Vs. Motor Credit Corporation (127 ITR 572) and in the case of CIT Vs. Ferozpore Finance P. Ltd. (124 ITR 619 )(P H) . 48. In view of above discussion, we are of the opinion that the addition at Rs. 6,46,34,872/- towards accrual of interest is not justified and the entire addition is deleted. Being so, the this ground raised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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