Telescoping of cash credits against undisclosed receipts and delayed block return interest must follow the applicable rate period.

Cash credits in regular books may be telescoped against the peak of undisclosed receipts in seized material where the facts show the same funds are being brought to tax and no separate source of income or assets exists. The text also states that interest for delayed filing of a block return must be charged at the rate applicable during the relevant period, and a later reduced rate cannot be applied retrospectively. On the stated facts, telescoping was accepted for the additions, while the interest rate was restored to 2% for the default period.

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Issues: (i) Whether additions made on the basis of cash credits in the regular books could be telescoped against the peak of undisclosed receipts found in the Dasti Bahi; (ii) Whether interest for delayed filing of block return was chargeable at 1% or 2% under the applicable provision.

Issue (i): Whether additions made on the basis of cash credits in the regular books could be telescoped against the peak of undisclosed receipts found in the Dasti Bahi.

Analysis: The additions arose from peak credits recorded in the regular books, while the block assessment also revealed undisclosed income in the Dasti Bahi. The factual finding accepted by the first appellate authority was that no other source of income or assets existed, and the amounts introduced in the names of alleged bogus creditors were sourced from the amounts already reflected in the Dasti Bahi. On those facts, the credits in the regular books were liable to be set off against the peak available in the Dasti Bahi by applying telescoping.

Conclusion: The telescoping was rightly allowed and the additions were validly deleted.

Issue (ii): Whether interest for delayed filing of block return was chargeable at 1% or 2% under the applicable provision.

Analysis: Interest under the provision governing delayed block returns depended on the rate applicable during the relevant period. For the period covering the assessee's default, the applicable rate was 2% per month, and the later reduced rate could not be applied retrospectively. The direction to levy interest at 1% was therefore contrary to the rate then in force.

Conclusion: Interest was correctly held chargeable at 2% and the direction to apply 1% was set aside.

Final Conclusion: The deletion of the cash-credit additions was sustained, but the rate of interest for delayed filing was restored to 2%, resulting in a partly allowed revenue appeal.

Ratio Decidendi: Where undisclosed receipts found in seized material and additions in regular books represent the same available funds, telescoping is permissible; and interest for delayed block return must be levied at the rate applicable during the relevant statutory period.

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