2006 (9) TMI 225 - AT - Income Tax

Tribunal deletes undisclosed income additions, citing lack of proof & justification

Prabhudayal Agarwal. Versus Assistant Commissioner Of Income-Tax.

The Tribunal allowed the appeal, deleting all additions made by the lower authorities as undisclosed income for the block period. The addition of Rs. ... Search And Seizure Issues Involved:1. Addition of Rs. 60,98,200 as undisclosed income for the block period.2. Addition of Rs. 43,61,461 as undisclosed income.3. Addition of Rs. 17,426 as undisclosed income.Detailed Analysis:1. Addition of Rs. 60,98,200 as undisclosed income for the block period:The first issue concerns the addition of Rs. 60,98,200 as undisclosed income for the block period. The assessee's representative argued that the search at the assessee's residence revealed a paper (P-95) indicating a sale transaction of property. The total sale consideration was Rs. 1.08 crores, with Rs. 48,11,000 received initially and Rs. 24,89,000 paid via cheques. A balance of Rs. 35,00,000 was covered by a promissory note and post-dated cheques. The representative contended that the interest computed on Rs. 60,00,000 was merely a projection of potential losses due to delayed payments and not indicative of any actual interest or on-money received. The Revenue, however, argued that the seized paper indicated an on-money consideration of Rs. 60,00,000, suggesting the total sale consideration was Rs. 2,29,77,000.Upon reviewing the submissions and evidence, it was concluded that the seized paper P-95 did not substantiate the receipt of on-money. The computation of interest on Rs. 60,00,000 was deemed a projection of potential loss rather than an indication of actual receipt. The registered agreement of sale-cum-irrevocable general power of attorney showed the sale consideration as Rs. 1.08 crores, and there was no evidence of additional on-money. Thus, the addition of Rs. 60,98,176 as undisclosed income was deleted.2. Addition of Rs. 43,61,461 as undisclosed income:The second issue involved the addition of Rs. 43,61,461 as undisclosed income. The assessee had filed a regular return for the assessment year 2003-04, claiming Rs. 35,00,000 as a bad debt. The CIT(A) enhanced the assessment by including the net profit of Rs. 8,61,621 shown in the regular return as undisclosed income, arguing that no advance tax was paid.The Tribunal noted that the regular return filed by the assessee subsequent to the search could not be a basis for making additions in the block assessment. The Madras High Court's decision in CIT vs. G.K. Senniappan was cited, which held that undisclosed income for block assessment must be based on evidence found during the search. Since the P&L account filed with the regular return was not available during the search and was unrelated to any seized material, the addition of Rs. 43,61,621 was deemed unjustified and was deleted.3. Addition of Rs. 17,426 as undisclosed income:The third issue pertained to the addition of Rs. 17,426 as undisclosed income. The assessee had disclosed this amount in the P&L account filed with the regular return for the assessment year 2002-03, which was assessed by the AO under section 143(3). The CIT(A) included this amount as undisclosed income based on the P&L account.The Tribunal reiterated that the P&L account prepared and filed subsequent to the search could not be the basis for block assessment additions. As this document was neither found during the search nor related to any seized material, the addition of Rs. 17,426 was deemed unjustified and was deleted.Conclusion:The Tribunal allowed the appeal of the assessee, deleting all the additions made by the lower authorities as undisclosed income for the block period.