TMI Blog2008 (11) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... artment for the financial year 1994-95. As a result of search and seizure operation conducted under s. 132 of the Act on 6th March, 1997 at the business premises of the assessee firm, a notice under s. 158BC of the Act was issued and in compliance thereto, the assessee filed return of undisclosed income on 27th Nov., 1998 declaring nil undisclosed income. However, the AO in an order of block assessment made under Chapter XIV-B of the Act dt. 30th Dec., 1998, determined total undisclosed income of the assessee at ₹ 23,41,000 by making the addition ₹ 20,35,000 on account of alleged unexplained security deposits received by the assessee from its 170 employees and addition of ₹ 3,06,000 on account of inflated salary shown in respect of its 170 employees. On appeal, the CIT(A) vide an order dt. 10th March, 2000, restricted the addition to ₹ 5,00,000 and ₹ 46,800 out of additions made of ₹ 20,35,000 and ₹ 3,06,000 respectively. The Tribunal, on further appeal by the Revenue, in an order dt. 3rd March, 2005 restored the issue to the AO for fresh adjudication in accordance with law and after affording due and reasonable opportunity of being heard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been recorded by Addl. Director of IT under duress and undue pressure. Likewise, even the partner Shri Rajender Chamola also stated that security deposits had been received by the assessee firm from its 170 employees. Apart from the above, affidavits of other employees have also been filed wherein they accepted that they had given security to the assessee firm, but none of these employees are out of the 26 employees whose statements were recorded by the Addl. Director of IT earlier. It was also stated that the statements earlier recorded at the time of search were behind the back of the assessee and no opportunity of cross-examination was granted even during the course of the earlier assessment proceedings. It was thus submitted that there was no evidence as a result of search to allege that no (sic) unexplained security deposit had been received by the assessee firm. It was submitted that return of income for the financial year 1994-95 relevant to asst. yr. 1995-96 has been filed on 30th Oct., 1995 and the same had been accepted in an intimation under s. 143(1) of the Act wherein the entire security deposits received have duly been disclosed. It was therefore, contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t such transactions as recorded in the regular and audited books of account were duly disclosed in the return of income filed on 30th Oct., 1995, which was processed under s. 143(1) of the Act. There is no dispute on such fact situation of the case. The AO failed to bring any material or evidence on record and in the body of the impugned assessment order demonstrating such incriminating material found and seized in the course of search operation which had direct bearing on the issue of security deposits from the appellant s employees. Thus, the impugned addition doesn t sprout from the incriminating documents or material found and seized in the course of search operation. Thus, the factum of disclosure of such transactions in the regular books of account and subsequently in the return of income by the appellant, as discussed earlier and non-discovery of incriminating material as a result of search operation, clearly indicate that such transactions are beyond the pale of definition of the undisclosed income contained under s. 158B(b) of the Act, as the particulars of such transactions were recorded in the regular books of account and disclosed in the return of income before the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been given to the assessee. It was also submitted that in the fresh assessment proceedings the affidavits of the employees and statements of three employees recorded show that they had duly given security deposits to the assessee firm. It was contended that even the partner of the assessee in his fresh statement had stated that security deposits were received from 170 employees in accordance with trade practice and in view of the fact that return of income for asst. yr. 1995-96 wherein the entire security deposits received from 170 employees were shown, the AO ought to have held that there was no undisclosed income of the assessee. 6. The learned Departmental Representative, on the other hand, has contended that the evidence found as a result of search clearly establishes that there was undisclosed income of the assessee. The statements of three employees recorded in the course of fresh assessment proceedings cannot be relied upon as they were tutored. He placed reliance on the statement recorded of the assessee s partner at the time of search to contend that in light of the said statement, the assessee could not contend that there was no undisclosed income of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The undisclosed income of the block period shall be the aggregate of the 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 AO and relatable to such evidence........ Earlier, the words relatable to such evidence did not exist in the aforesaid statutory provision, and so any information could also form the basis for addition as undisclosed income. But now, as s. 158BB(1) stands amended vide Finance Act, 2002, w.r.e.f. 1st July, 1995, an information available with the AO, to form basis for addition in a block assessment, has essentially to be one related to or connected with the evidence/material found as a result of search/requisition, and it cannot be any information that may be available with the AO, being unrelated to or unconnected with the evidence found as a result of search. However, in the instant case, this addition has been made on the basis of the statements of present assessee and her two sons recorded during search but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mrs. Catherine Thomas vs. Dy. CIT (2008) 116 TTJ (Coch) 797 : (2008) 111 ITD 132 (Coch) has also held as under : 13. We have heard the parties. In this case, the said additions are made which are based on some of the admissions or statements of the deceased assessee during the course of search action under s. 132. The CIT(A) himself has come to the conclusion that the said additions are not based on any material and are only on pure assumption. The CIT(A) has also given the finding that that the AO has not made any attempt to quantify the household expenses for the year when the statement was made. The CIT(A) has further given the finding that there is merit in the assessee s contention that the estimate is illogical and baseless. The Revenue has not challenged this finding of the CIT (A) before us. 10. It is thus evident from the above that a consistent view that has been expressed in series of decisions is that the statements recorded by itself cannot constitute evidence found as a result of search for purpose of determining undisclosed income under Chapter XIV-B of the Act. Respectfully following the aforesaid principles, we hold that since in the instant case too, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not militate against the legal proposition relied upon by us in order to delete the addition in the instant appeals. 12. The next issue involved is in respect of addition of ₹ 3,06,000 on account of inflated salary. The AO had made the aforesaid addition on the basis of statements recorded of a few of the salesmen of assessee firm during the course of search and seizure operation wherein they had stated that they were actually drawing salary of ₹ 1,000 per month as against ₹ 1,200 per month recorded in the books of account of the assessee firm. Admittedly, there is no material or evidence found as a result of search to evidence the above. The CIT(A) however held that since the statements so recorded were of 26 employees out of 170 employees, only proportionate expenditure deserves to be disallowed and he, thus, restricted addition to ₹ 46,800 as against addition of ₹ 3,06,000 made by the AO. We have considered the respective submissions of the parties and the material on record, which are on same lines as noted earlier in relation to the first issue. On this aspect also, in our view, the legal proposition relied by us while deciding the earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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