2005 (1) TMI 322 - AT - Income Tax

Tribunal grants deduction under Section 80L, dismisses additions on household expenses & jewelry.

The Tribunal allowed the assessee's appeal and dismissed the Department's appeal. It directed the AO to allow the deduction under Section 80L of the IT ... - Issues Involved:1. Deduction under Section 80L of the IT Act.2. Addition on account of household expenses.3. Addition on account of jewelry.4. Deletion of addition on account of cash in hand found during the search.5. Deletion of addition on account of investments in UTI, FDR, NSC, and savings accounts.Issue-wise Detailed Analysis:1. Deduction under Section 80L of the IT Act:The assessee contended that the interest income earned during the block period was below the taxable limit under Section 80L and Section 10(32) of the IT Act, and thus, should not be treated as undisclosed income. The AO and the CIT(A) did not allow the deduction, stating that no such deduction under Chapter VI-A of the IT Act is available for computing the income of the block period. However, the Tribunal held that the total undisclosed income should be computed in accordance with the provisions of the Act, allowing for deductions if they are not found to be false. The Tribunal directed the AO to allow the deduction under Section 80L in accordance with the law.2. Addition on account of household expenses:The AO added Rs. 1 lakh to the undisclosed income of the assessee, assuming that the assessee had not adequately withdrawn for household expenses. The CIT(A) sustained this addition, stating that the withdrawals for household purposes were on the lower side for certain financial years. However, the Tribunal found that the addition was made without any concrete basis or evidence. It was noted that the AO had not pointed out any specific instance of understated household expenses. The Tribunal, therefore, deleted the addition, emphasizing that estimations without evidence are not justified in block assessments.3. Addition on account of jewelry:During the search, jewelry worth Rs. 3,01,678 was found. The assessee explained that the jewelry was inherited and received as gifts. The AO made an ad hoc addition of Rs. 75,000, which was sustained by the CIT(A). However, the Tribunal found that both the AO and the CIT(A) did not provide any basis for the addition and did not rebut the assessee's explanation. Consequently, the Tribunal deleted the addition.4. Deletion of addition on account of cash in hand found during the search:During the search, Rs. 53,785 was found, out of which Rs. 45,000 was seized. The AO treated Rs. 45,000 as unexplained, stating that the books of M/s Partap Singh & Co. were not complete. The CIT(A) deleted the addition, accepting the assessee's explanation that the amount was withdrawn two days before the search. The Tribunal upheld the CIT(A)'s decision, noting that the AO had accepted the total withdrawals from M/s Partap Singh & Co., and thus, the specific withdrawal of Rs. 60,000 should also be accepted.5. Deletion of addition on account of investments in UTI, FDR, NSC, and savings accounts:The AO made an addition of Rs. 3,41,314, considering it unexplained investment. The CIT(A) deleted the addition, stating that the investments were properly explained through a cash flow statement, showing adequate sources from assessed income and withdrawals. The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) had verified the investments with the cash flow statement in the presence of the AO and found them to be adequately explained.Conclusion:The appeal filed by the assessee was allowed, and the appeal filed by the Department was dismissed. The Tribunal directed the AO to allow the deduction under Section 80L and deleted the additions made on account of household expenses and jewelry. The Tribunal also upheld the CIT(A)'s deletion of additions related to cash in hand and investments in UTI, FDR, NSC, and savings accounts.