TMI Blog2005 (3) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... (that is for the period April 1, 1986 to October 18, 1996). In the appeal memo, the Revenue has raised as many as seven substantial questions of law for consideration. However, having regard to the fact that in regard to the matters covered by questions Nos. (iii) and (vii), the Tribunal had set aside the issue and sent it back to the Assessing Officer and the Assessing Officer by order dated March 28, 2002, has already decided afresh questions Nos. (iii) and (vii), it was submitted that only questions Nos. (i), (ii), (iv), (v) and (vi) which are extracted below, remain for consideration: "(i) Whether, on the facts and circumstances of the case, the learned Tribunal was justified in law in holding that the matters disclosed in the returns filed for the relevant assessment years falling in the block period could not be investigated in the block assessment under section 158BC? (ii) Whether, on the facts and circumstances of the case, the learned Tribunal was justified in law in deleting the additions made for undisclosed household expenditure for the assessment years 1988-89 to 1996-97 and in directing the Assessing Officer to re-examine the issue of undisclosed household expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 as the cost of ticket to Dubai. The assessee, when asked to explain, stated that the expenditure was per year and not for a month. He also stated that his wife and mother had also drawn amounts for household expenses and there was no suppression of expenses or income. In regard to the ticket to Dubai, the explanation was that it was borne by his brother. The Assessing Officer found that the assessee had visited Dubai almost twice in a year and even the expenditure between Bhopal-Bombay and back and miscellaneous expenses may be around Rs. 10,000 per trip, or Rs. 20,000 per year. Relying on the said slip, the Assessing Officer concluded that the household expenses of Rs. 14,000 was per month and not per year. As the said slip did not bear any date, he treated the slip as relating to the year in which it was found, that is the accounting year 1996-97. Therefore, for the assessment year 1997-98, he calculated the household expenditure as Rs. 1,68,000. In regard to the previous years, he calculated the household expenses by deducting 10% per year from the expenditure determined for 1997-98 considering the inflation rate as 10%. He also added expenditure of Rs. 20,000 for Dubai visi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le article or thing or any income based on any entry in the books of account or other documents or transactions" (where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represent wholly or partly income or property which has not been or would not have been disclosed for the purposes of the Act) having regard to the definition of "undisclosed income" in section 158B(b) of the Act. The assessee further contended that in the returns with computation of income filed by him every year, he had shown the withdrawals towards household expenses and the same had been accepted by the Assessing Officer; and that once a particular issue had been examined by the Assessing Officer, it cannot be reopened by the Assessing Officer while framing the block assessment unless there is some incriminating evidence with regard to the income or claim of the assessee in a particular assessment year. It was contended that whatever document was seized in the course of search proceedings could be used only in respect of the assessment year to which it related and that on the basis of a document which related to a particular year the expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to regular assessment and block assessment are distinct and different and that while regular assessment under section 143(3) is to be framed on the basis of the return of income filed by the assessee before the Assessing Officer, block assessment is framed on the basis of material seized during the course of search; that having regard to the definition in section 158B(b) of the Act, "undisclosed income" is only that income which has not been or would not have been disclosed for purposes of the Act and the income declared in the return of income cannot be termed as undisclosed income for the purpose of Chapter XIV-B. The Tribunal held that the block assessment of undisclosed income should be computed as per the procedure laid down under section 158BB and due credit of the income declared and the claim raised in the regular return of income should be given by the Assessing Officer. The Tribunal further held that in the block assessment, the Assessing Officer should compute the undisclosed income on the basis of the documents and material seized during the course of search. Where the assessee had claimed withdrawal of household expenses every year while computing the total income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar assessment in respect of each previous year included in the block period; (b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period; (c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period." The term "undisclosed income" was defined thus in section 158B(b) at the time when the Assessing Officer made the block assessment on October 29, 1997, and when the Tribunal decided the appeal on May 21, 2001: "158B(i): 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other documents or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act." Subsequently, by the Finance Act, 2002, the following words were added with retrospective effect from July 1, 1995, at the end of the above definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income was much more than what was declared as income. The case on hand falls under the second category, which may be clarified by an example. An assessee manufactures a product at a cost of Rs. 60,000 per unit, sells it at Rs. 85,000 per unit and shows a trade discount of Rs. 20,000 per unit, and profit as Rs. 5,000 per unit. Subsequently, it is found that he had given only a trade discount of only Rs. 2,000 per unit and not Rs. 20,000. The difference of Rs. 18,000 per unit will have to be added as "undisclosed income". This is the first type of false claim of expense/ deduction/allowance. A person shows the net income in a year as Rs. one lakh and shows the household expenditure as Rs. 5,000 per month or Rs. 60,000 per year which is well within the net income. Subsequently, during a search, it is found that the actual household expenditure per month was Rs. 15,000 per month or Rs. 1,80,000 per year. The assessee is not in a position to explain the source of funds for such expenditure in excess of the known sources of funds/income. Necessarily, it has to be implied that the lesser household expenditure that was shown was false, that the income was much more and the unexplaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject to a deduction of 10 per cent, per year due to inflation) as the household expenditure and adding the same as undisclosed income. This did not rightly find favour with the Tribunal. There is absolutely no basis for assuming that the expenditure incurred during a particular month/year would be the expenditure during the previous 10 years also. The monthly household expenditure may depend on various circumstances. One important factor is the earning of income. There may also be sudden variations in the monthly household expenditure, having regard to cost of education, treatment of illness, travelling, etc. Except for such spurts in expenditure, normally household expenditure would depend upon the income. For example, if the monthly income was Rs. 5,000 during the first year, the expenditure is likely to be Rs. 4,000 per month; if the income was Rs. 10,000 per month during the second year, the expenditure is likely to be Rs. 8,000 per month; if the income was Rs. 15,000 during the third year, the expenditure is likely to be Rs. 12,000 per month; and if the income was Rs. 20,000 per month, during the fourth year, the expenditure is likely to be Rs. 16,000. In other words, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1995-96 1,05,110 1,33,980 1996-97 1,40,640 1,42,200 ----------------------------------------------- It will be seen that the figures of household expenditure (added by the Assessing Officer) appear to be wholly disproportionate to the income. The above figures demonstrate that the household expense determined for a particular month in a later year (assessment year 1997-98), cannot be the basis for determining the monthly household expenditure during the previous years when the income was considerably low. The Tribunal therefore has rightly held that in the absence of any material to show that there was a higher household expenditure (than disclosed while filing returns) during the previous assessment years, the Assessing Officer was not justified in estimating the household expenditure for the previous years by taking Rs. 14,000 (expenditure during 1997-98) as the base figure. The Tribunal has rightly restricted the use of the slip containing the details of the household expenditure to the year during which it has been found and rightly deleted the additions under the head of "unexplained (household) expenditure". We therefore answer Quest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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