2021 (11) TMI 93 - AT - Income Tax

Tax Appeal Decision: Evidence-based claims upheld, key outcomes on losses, income estimation, and surcharge

Chandrahas & Co. Versus The Assistant Commissioner of Income Tax, Central Circle, Mangalore. (Vice-Versa)

Chandrahas & Co. Versus The Assistant Commissioner of Income Tax, Central Circle, Mangalore. (Vice-Versa) - TMI Issues Involved:1. Validity of the search and assessment order.2. Treatment of unrecovered advances for the purchase of fish as expenditure or business loss.3. Deletion of entire balances at bank amounting to Rs. 26,34,333.4. Levy of surcharge.5. Exclusion of income for AY 2000-01.6. Deletion of amount receivable on account of fish sales.7. Amounts due to Purse-sein Boats Owners.8. Prior period advances.9. Liabilities for purchases not paid.10. Bad debts.Issue-wise Detailed Analysis:1. Validity of the Search and Assessment Order:The assessee argued that the assessment order should be quashed as the search was invalid. However, this ground was not pressed during the hearing and was dismissed as not pressed.2. Treatment of Unrecovered Advances for the Purchase of Fish as Expenditure or Business Loss:The assessee claimed 60% of the advances given to boat owners as business loss since they were irrecoverable. The CIT(A) allowed partial relief by treating these advances as business losses under Section 28, not as bad debts under Section 36(1)(vii) r.w.s. 36(2). The Tribunal upheld that the advances made in the course of business should be allowed as business loss, emphasizing that the assessee had identified irrecoverable amounts during the statement recorded under Section 132(4).3. Deletion of Entire Balances at Bank Amounting to Rs. 26,34,333:The CIT(A) did not allow the assessee to retract from the disclosed income in the block return, stating that once a return has been filed disclosing certain incomes and taxes paid, it cannot be retracted. The Tribunal, however, allowed the assessee to estimate the net income at 5% of the deposit, citing similar cases where only the profit element of undisclosed turnover was taxed.4. Levy of Surcharge:The CIT(A) deleted the surcharge levied by the AO, reasoning that Section 113, which mandates surcharge, came into effect from 1.6.2002, while the search took place on 6.9.2000. The Tribunal upheld this view, stating that the surcharge provisions were not applicable during the period under consideration.5. Exclusion of Income for AY 2000-01:The CIT(A) excluded Rs. 96,105 for AY 2000-01, noting that the return was filed within the time allowed under Section 139(4). The Tribunal agreed, stating that income for AY 2000-01 included in the return filed by the assessee and not unearthed by the department cannot be considered as undisclosed income.6. Deletion of Amount Receivable on Account of Fish Sales:The AO added Rs. 21,24,326 receivable from debtors as undisclosed income. The CIT(A) allowed the claim that only the profit element should be taxed, as the cost of fish supplied was adjusted out of advances given to boat owners. The Tribunal upheld this, preventing double taxation on the same income.7. Amounts Due to Purse-sein Boats Owners:The CIT(A) allowed the assessee's claim for liabilities amounting to Rs. 11.57 lakhs, supported by seized material. The Tribunal upheld this decision, finding no infirmity in the CIT(A)'s findings.8. Prior Period Advances:The CIT(A) excluded advances amounting to Rs. 7,53,092 and Rs. 4,16,461, considering them outside the block period. The Tribunal upheld this, noting that the seized material supported the claim that these advances were prior to the block period.9. Liabilities for Purchases Not Paid:The CIT(A) allowed the assessee's claim of Rs. 3.87 lakhs for liabilities due for purchases, supported by the statement recorded during the search. The Tribunal upheld this decision, emphasizing the matching principle.10. Bad Debts:The Tribunal dismissed the grounds related to bad debts as infructuous, having already allowed the claim of the assessee as business loss to the extent of 60%.Conclusion:The appeal by the assessee was partly allowed, and the appeal by the revenue was dismissed. The Tribunal's decision emphasized the importance of substantiating claims with evidence and adhering to legal provisions while determining tax liabilities.