TaxTMI 
TaxTMI 
2008 (11) TMI 299
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....essing officer within the meaning of the provisions of Section 158BB(1). 1(d) In doing so, the learned Commissioner (Appeals)-III, Lucknow has erred in law and on fact in admitting the fresh evidence during the appellate proceedings, as additional evidence without giving any finding as to how the conditions enumerated in Rule 46A are satisfied. 2. The learned Commissioner (Appeals)-III, has erred in law and on facts in deleting the addition of Rs. 1,88,05,367 made by the assessing officer on account of interest on unexplained deposits without appreciating the facts of the case and material brought on record. 3. The learned Commissioner (Appeals)-III, Lucknow has erred in law and on facts in directing to give set off, of losses against income disclosed in the respective years without appreciating the provisions of the Explanations (a) (b) and (c) to Section 158BA(2) of the Income Tax Act, 1961. 4. That the order of the learned Commissioner (Appeals)-III, Lucknow being erroneous in law and on facts be vacated and the order of the assessing officer be restored. 5. That the appellant craves leave to amend anyone or more of the grounds of app....
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....uthorities. The assessee was repeatedly informed about the same and was asked to provide the correct addresses, so that the genuineness of the depositors could be verified. The bank provided new addresses of depositors in some cases. Despite of all efforts, the assessing officer noted that 35 notices still remained unserved even after deployment of Inspector for the purpose. The Inspector noted that in most of the cases other occupants were residing at the given addresses from last several years but the alleged depositors could not be found at that address. The modus operandi of the bank is that it accepts deposits and distributes loan without proper formalities and some loans are not even paid back. Vide letter dated 24-10-2003 assessee was asked to produce the persons/account holders to whom the notices could not be served for verification with their ledger account on 28-10-2003. But assessee neither produced any person nor ledger account of these alleged depositors. 3. In reply to notice under Section 133(6) dated 6-10-2003 issued to one Charak Pathology, its partner Shri Ashwani Kumar Singh, stated that it has not invested any type of fund in any form in the Mansarovar Urban....
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....ment was that the whereabouts of certain depositors are not known as summons could not be served on them. He selected 225 depositors on test check basis, issued summons to them for attending his office/for functioning information, 35 summons out of them returned unserved which worked out at 15 per cent of the total summons issued. This percentage was taken as basis for holding 15 per cent of the total deposits as non-genuine as also the interest paid thereon. 6. The learned Commissioner (Appeals) deleted the entire addition on the ground that the assessing officer has not referred to any seized material while making addition in block assessment. In this regard we refer to para 9 of his order as under: 9. In view of aforesaid, I have to conclude that assessing officer has not referred to any seized material or evidence found during the course of search which would forward his presumptions that assessee was operating fictitious accounts and giving loan to non-members. The addition on account of unexplained deposit is merely on the basis of non-service of few notices and addition is on a formula which at least I am not able to appreciate in a case of bank having more than ....
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....for making addition for the block assessment and found that all these persons are clearly identifiable. Out of these 35 cases the case of 6 persons were treated as genuine by the assessing officer himself and their deposits were released later by the assessing officer. 9. Before us, the learned Departmental Representative submitted that during the course of search the authorised officer had seized account opening forms, specimen signature cards, application forms for making FDRs and forms for opening saving bank accounts. Many of these forms did not carry signatures, loans were given without ascertaining proper guarantees/securities. During the course of search it was noticed that bank keys of several lockers were not available, names, addresses of the locker holders were not furnished, many documents relating to account opening forms revealed that they contained signature of only one person indicating that several accounts were opened by one person only. He also submitted that several letters /summons issued to the depositors returned unserved indicating that the depositors are fictitious. On the basis of this material found as a result of search, the department conducted furth....
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....d are part of regular books of account kept by the assessee. The assessee is under supervision and control of Registrar of Co-operative Societies as well as RBI. The documents referred to by the assessing officer and which were seized by the department in search are not the one which are undisclosed or which could not have been produced if called for the assessing officer or would have indicated undisclosed income of the assessee. It appears that the assessing officer has mixed up block assessment and regular assessment. There are clearly two domains of undisclosed income, one is that which is discovered on the basis of a scrutiny of regular books of account and investigation made thereafter. This falls for consideration in the regular assessment only. In other words, if a transaction indicating an income is found recorded in the regular books of account but on investigation results into an assessable income, then it will fall for consideration in the regular assessment but where on the basis of documents seized in the course of the search, the assessing officer was able to find material which indicated that the assessee has carried out transactions which could result into an asses....
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.... the regular books of account, the assessing officer has to show from the seized material that it was either the assessees undisclosed money which was routed in the books as credit or interest paid in the regular books of account by the assessee was received, enjoyed or was under control of the assessee. Then such interest income and investment in the form of credit could be taxed in the block assessment. If in the course of the search some books of account were found which are not intended to be declared and which contained entries of deposits/credits and the assessee was not able to prove the nature and source thereof, then they can also be treated as assessees deemed income under Section 68 for the purposes of block assessment. When either of these two situations are not present and there is no material evidence found in the search showing the investment in the assessees bank as its own money or where undeclared books of account showing credits or deposits were not found in the search, the provisions of Section 68 could not be invoked in block assessment. Further, we notice that all the investigations were done by the assessing officer after the search which resulted in the impu....
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....-matter of regular assessment. This aspect is clear from Section 158BB(1) which is reproduced as under: 158BB. Computation of undisclosed income of the block period.--(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the assessing officer and relatable to such evidence, as reduced by the aggregate of the total income, or, as the case may be, as increased by the aggregate of the losses of such previous years, determined,-- (a) where assessments under Section 143 or Section 144 or Section 147 have been concluded prior to the date of commencement of the search or the date of requisition, on the basis of such assessments; (b) where returns of income have been filed under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 but assessments have not been made till the date of search or requisition, on t....
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....eduction of salary, interest, commission, bonus or remuneration by whatever name called to any partner not being a working partner: Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the partners, whether on allocation or on account of enhancement; (c) assessment under Section 143 includes determination of income under Sub-section (IB)of Section 143. 14. This issue has been highlighted by the Special Bench of the Tribunal in Mange Ram Mittal v. Asstt. CIT (2007) 289 ITR 112 (Del-Trib) (SB) (AT). The head notes are reproduced as under: The provisions of Chapter XTV-B of the Income Tax Act, 1961, relate to assessment of undisclosed income. For that purpose the provisions of Section 158BC lay down the procedure. The provisions of Section 158B(b) define what is undisclosed income and the provisions of Section 158BB lay down how undisclosed income has to be computed. The provisions of computation have two limbs, viz., (1) evidence found as a result of search, and (2) such other materials or information as are available with the assessing officer and relatable to evidence found as a result of search. ....
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....urse of search action itself and nothing further can be added or supplemented by way of subsequent enquiry. Thus, an assessment under Section 158BC is required to be made both on the basis of result of search as well as such post-search enquiry and other proceedings that are in the nature of a logical consequence of the evidence found as a result of the search. Whether a search is carried out at business or residential premises, the entire mass of what is physically found at the searched premises cannot be said to be evidence found as a result of search. Under Section 158BB it is computation of undisclosed income of the block period and not the entire income of the block period. The provisions of Section 158B(b) clearly define undisclosed income as including any money, bullion, jewellery or other valuable articles or thing or any income which has not been or would not have been disclosed for the purposes of the Act. Therefore, not every article or thing or every piece of information found during the course of search can be called evidence found as a result of search. If any money, bullion, jewellery or other valuable article or thing or any income is required to b....
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....ome on the basis of evidence would constitute materials or information relatable to such evidence. For example, if during the course of the search an evidence is found to the effect that the assessee had income from a source not disclosed by the assessee, all further materials or information gathered by the assessing officer in regard to that source of income and for quantification of the assessees income from that source would constitute materials or information relatable to such evidence. Similarly, if for example, during the course of search an evidence is found as to inflation of a particular item of expenditure, the materials or information subsequently gathered by the assessing officer in order to find out the other instances of inflation of expenditure would be materials or information relatable to such evidence. In other words, if during the course of search only a part or portion of the picture is seen, the material or information gathered by the assessing officer to reasonably reconstruct the whole picture would be materials or information relatable to such evidence. It, therefore, follows that while it is not open to the assessing officer to investigate new items of undi....
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....of credits cannot be explained in generality. It can be explained individually. And, therefore, the assessing officer has to give opportunity to the assessee to explain nature and source of each credit specifically, and on failure, only that credits, about which assessees explanation was not found satisfactory, can be treated as assessees deemed income under Section 68. Of course, the onus is on the assessee to identify each credit in the whole lot of sundry creditors in the balance sheet or squared up accounts. Once having done so, then onus is on the assessing officer to question to the assessee about nature and source of each credit, Wherever he does not do so, that is, in those cases of credits, where assessing officer does not ask any question from the assessee, then they are presumed to be accepted by the assessing officer as satisfactorily explained. There is no further liability on the assessee and the assessing officer cannot resort to addition of such items of. credits. Thus, where an assessee has large number of deposits in its books the assessing officer has to identify credits whose nature and source is required to be explained by the assessee. In other words, non-sati....