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TMI Blog2005 (3) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 expenses for the assessment year 1997-98 afresh? (iii) . . . (iv) Whether, on the facts and circumstances of the case, the learned Tribunal was justified in law in deleting the addition of Rs. 14,673 made on account of suppression of net profit for the assessment year 1992-93? (v) Whether, on the facts and circumstances of the case, the learned Tribunal was justified in law in deleting the addition of Rs. 20,000 made on account of unexplained investment in fixed deposits in the name of Master Rahul Khatri, Ku. Kanchan Khatri and Smt. Sonia Manwani? (vi) Whether, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 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 visit for each year and arrived at the household expenditure plus Dubai expenditure as follows: -------------------------------------------- Sl. Assessment year Total household No. expenditure &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 1,56,080 10. 1996-97 1,71,200 11. 1997-98 1,18,000 -------------------------------------------- .... continued -------------------------------------------- Withdrawals Difference shown by the (determined assessee for as undisclosed household expenditure) expenditure while filing return -------------------------------------------- (4) (5) -------------------------------------------- Rs. Rs. 11,680 &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncriminating 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 expenditure of other assessment years could not be estimated. Apart from this legal contention, the assessee also contended that while estimating the household expenditure, the Assessing Officer had ignored the withdrawals made by his wife and his mother who were living with him and the fact that the expenditure in regard to visits to Dubai were borne by his brother, Purushottam Khatri. On the other hand, the Revenue contended that the Assessing Officer was entitled to estimate the expenditure during the entire block period on the basis of any document seized during the course of search if the assessee did not come forward with a satisfactory explanation. It was submitted that having regard to the provisions of section 158BB, the total income of the entire block period has to be determined as per the provisions of Chapter IV, on the basis of evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould 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 that has been accepted by the Assessing Officer, the same cannot be reopened or examined by the Assessing Officer while framing the block assessment, on the basis of the seized documents, which do not relate to that assessment year. The Tribunal further held that the seized documents, at best, can be used to estimate the household expenses for that assessment year to which it relates, but, while doing so, the Assessing Officer should have given due credit for the household expenses claimed by the assessee. The Tribunal also held that the Assessing Officer ought to have examined the details of withdrawals made by the family members of the assessee (and used towards household expenses) and given a finding thereon. As a consequence of its conclusion that the seized documents cannot be used for estimating the household expenses of other assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 definition of "undisclosed income" under section 158B(b): "or any expense, deduction or allowance claimed under this Act which is found to be false." The effect of the said amendment is clarified as follows in the explanatory note on the provisions relating to direct taxes contained in the Central Board of Direct Taxes Circular No. 8 of 2002, dated August 27, 2002, (see [2002] 258 ITR (St.) 13, 57): "61.2 The existing provisions of clause (b) of section 158B define undisclosed income, to include income or property which has not been or would not have been disclosed for the purposes of the Act, and which is represented by any money, bullion, jewellery or other valuable article or thing, or by any entry in the books of account or other document or any other transaction. It has been noticed that in some cases the appellate authorities have taken a view that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 unexplained part of household expenditure will have to be added as undisclosed income. This is the second type of fake expense/deduction/allowance. Both would fall under "any expense which is found to be false" occurring in section 158B(b). Therefore, where the search discloses any expenditure which is found to be false, appropriate additions can be made but what is relevant is the addition can be made only in regard to the income related to false claim of expenditure disclosed by the material unearthed during the search. Coming to the facts of this case, the only document that was found with reference to household expenditure is loose slip No. 7 which did not bear any date. It also did not state as to which period it related to. It merely gave details of household expenditure totalling to Rs. 14,000. In the absence of any indication as to which month or year to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is a normal tendency to spend more in proportion to the rise in income. But if the income is limited, the tendency is to limit the expenditure. Therefore, there is no logic in saying that a person who spent Rs. 16,000 in a month during the fourth year (when his income was Rs. 20,000 per month), would have spent the same sum of Rs. 16,000 per month during the first year also (subject to correction on account of inflation) when the income was hardly Rs. 5,000 per month. In matters relating to household expenditure, where normally the monthly expenditure tend to depend upon the income, it is not permissible to assess the expenditure during previous years, with reference to the expenditure during a later year (when income was more). While there can be no hard and fast rule as to the material on which income could be estimated, it can definitely be said that es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; (Rs.) ----------------------------------------------- 1987-88 44,494 66,640 1988-89 53,330 73,720 1989-90 80,768 73,150 1990-91 30,300 86,560 1991-92 39,210 1,03,930 1992-93 64,380 1,03,980 1993-94 1,64,525 1,14,170 1994-95 86,710 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment on the basis of the seized documents which do not relate to the assessment year. At the most, the seized document can be used to estimate the household expenses only for that assessment year to which it relates ..." The above observations should be understood in the context of house-hold expenses disclosed for a particular month during the year of search. Having stated as above, the Tribunal also observed- "The issue relating to the particular claim which has been raised by the assessee in the regular return of income and that return was duly assessed by the Assessing Officer, should not be reopened or re-examined by the Assessing Officer while framing the block assessment of the assessee." The above observation of the Tribunal should be understood in the context in which it was made. What the Tribunal meant was that where the assessee had disclosed the withdrawals of household expenses while computing the income and that has been accepted by the Assessing Officer, it cannot be re-opened while framing the block assessment, in the absence of any material to suspect or conclude that though the household expenses were higher, a lesser expense was shown. If para. 14 of the ..... 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