2003 (4) TMI 221 - AT - Income Tax

Tribunal allows appeal in part, limits undisclosed income, and clarifies surcharge exemption.

The Tribunal partially allowed the appeal, directing the AO to allow 75% of brokerage/commission as expenses and taxing the balance as undisclosed income. ... Block assessment in search cases - Undisclosed income Issues Involved:1. Addition of Rs. 7,49,266 in respect of brokerage earned during block period.2. Addition of Rs. 2,00,000 as estimated income from brokerage/commission business.3. Addition of Rs. 2,00,000 in respect of cash found during the search.4. Addition of Rs. 12 lacs by way of income from share transactions.5. Levy of surcharge over and above tax @ 60%.Summary:1. Addition of Rs. 7,49,266 in respect of brokerage earned during block period:The AO noted that the assessee earned total commission of Rs. 18,73,165 on a receipt basis but did not maintain regular books of accounts or details of expenditure. The AO estimated 60% of brokerage as expenses and proposed the remaining 40% as income. The assessee argued that similar businesses conducted by his father had expenses ranging from 75% to 80%. The Tribunal found the AO's estimate arbitrary and directed the AO to allow 75% of brokerage/commission as expenses and tax the balance as undisclosed income.2. Addition of Rs. 2,00,000 as estimated income from brokerage/commission business:The AO added Rs. 2,00,000 as 'unexplained brokerage' based on seized materials. The assessee contended that no estimate is possible in such assessment u/s 158BC. The Tribunal held that since the income was not found as a result of search based on any entry in material seized, no addition on an estimated basis can be made u/s 158BC. The addition of Rs. 2,00,000 was deleted.3. Addition of Rs. 2,00,000 in respect of cash found during the search:During the search, cash amounting to Rs. 3,58,139 was found, and the assessee admitted it as unexplained. The AO treated Rs. 2,00,000 as undisclosed income. The Tribunal agreed with the principle that undisclosed income can be taxed either on a source or application basis. Since the source taxed was less than the unexplained asset/expenditure found during the search, the AO's action was proper. This ground was dismissed.4. Addition of Rs. 12 lacs by way of income from share transactions:The AO noted share transactions during the block period and worked out peak investment at Rs. 12 lacs. The assessee objected, stating that only shares worth Rs. 1,64,600 were found. The Tribunal held that the scope of assessment u/s 158BC is limited to material found as a result of the search, and no estimate is permissible. The addition was restricted to the value of shares found, i.e., Rs. 1,64,600.5. Levy of surcharge over and above tax @ 60%:The AO charged a 10% surcharge. The Tribunal noted that the Finance Act, 1999, applicable at the time of the search, did not contain any provision for levy of surcharge. The amendment in Finance Act, 2002, which provided for surcharge, was prospective. The Tribunal held that no surcharge could be levied on the facts of the case.Conclusion:The appeal was partly allowed, with specific directions and deletions for each contested addition and the surcharge.