TMI Blog2016 (5) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... section 40A(3) of the Act would be applicable in respect of payments made for the purchase of gold, exceeding the amount of ₹ 20,000, as such expenditure was found recorded in the loose sheets discovered during the course of search and seizure operations. Relying on the decision of this court, in M. G. Pictures (Madras) Limited v. Asst. CIT [2002 (4) TMI 16 - MADRAS High Court] the Appellate Tribunal had dismissed the appeal filed by the assessee. Having considered the reasons given by the Appellate Tribunal, we are fully convinced that there is no error in the impugned order passed by the Appellate Tribunal, dated June 16, 2006. In the given facts and circumstances of the case, it is clear that the provisions of section 40A(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brief facts of the case are as follows : 3.1. The appellant is the proprietor of A. R. C. Ganesh Kumar and Company dealing in gold jewellery. The Department had carried a search, in terms of section 132 of the Act, on May 23, 2003, simultaneously, at the residential, as well as at the business premises of the appellant, at Mayiladuthurai, Neyveli and at Chennai. 3.2. Consequent to the search operations, a notice, under section 158BC of the Act, had been issued, calling for the block return relating to the block period, from April 1, 1997 to March 31, 2003, and the part period, up to the date of the search, i.e., May 23, 2003, in Form-2B, within 45 days of the service of the notice. The notice, dated January 12, 2004, issued by the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f gold jewellery. As such, it could be seen that the purchase expenditure would be more than ₹ 20,000, adopting the rate of ₹ 500 per gram. Thus, the expenditure towards the entire purchase of gold jewellery would work out to 40,118.179 grams. The statutory disallowance of 20 per cent. of the said amount, as per section 40A(3) of the Act, is arrived at ₹ 40,11,818. The said amount is disallowed and added to the income returned by the asses see. 3.5. The assessee had challenged the said order passed by the Assessing Officer, before the Commissioner of Income-tax (Appeals) II, Chennai. The assessee had contended that, having noticed the fact that no books of account had been maintained and no profit and loss account had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase in which there was no search and seizure. As such, section 40A(3) could be applicable to the facts and circumstances of the present case. 3.8. Challenging the dismissal of the appeal, the assessee had preferred a second appeal before the Income-tax Appellate Tribunal, Chennai, B Bench, Chennai. Considering the various issues raised before it, the Appellate Tribunal had held in its order, dated June 16, 2006, that, while computing the undisclosed income of the block period, the provisions of section 40A(3) of the Act would be applicable in respect of the payments made for the purchase of gold exceeding ₹ 20,000, as such expenditure was found recorded in certain loose sheets discovered during the course of search and seizure op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated in the said section had not been satisfied, to make the disallowance, in the computation of undisclosed income. Having accepted the peak purchase for the purpose of assessment of undisclosed income, consequent to the seizure of the loose sheets, the disallowance under section 40A(3) of the Act was erroneous and incorrect and unsustainable in law. The Tribunal had failed to appreciate the fact that there was no evidence, whatsoever, to substantiate the fact relating to the purchase of gold jewellery, in cash, exceeding ₹ 20,000, even though certain loose sheets had been seized during the search and seizure operations. It was a mere inference of cash purchase and therefore, the disallowance is erroneous. It had been further stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no relation with the undisclosed income, or the entries not recorded in the books of account or documents unearthed during the search, such allowance cannot be treated as part of the undisclosed income. However, if such expenditure relates to undisclosed income found during the search, the disallowance under section 40A(3) of the Act, would be justified. The Tribunal had held that while computing the undisclosed income of the block period, the provisions of section 40A(3) of the Act would be applicable in respect of payments made for the purchase of gold, exceeding the amount of ₹ 20,000, as such expenditure was found recorded in the loose sheets discovered during the course of search and seizure operations. Relying on the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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