TaxTMI 
TaxTMI 
2011 (3) TMI 95
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....d 1-4-1990 to 6-4-2000. The Assessing Officer in the course of the assessment made addition on account of claimed expenses being found to be in violation of section 40A(3) of the Act. It was observed that the seized material revealed that ledger containing the details of purchases made against cash payment exceeding Rs. 20,000 which could not be allowed and on that account addition towards undisclosed income had to be made. The assertion of the assessee was that on that account disallowance could not be made. The Assessing Officer did not accept this plea with the following observations : "I do not agree with the argument put forth by the assessee because the examination of seized material shows that cash book and ledger etc., have been maintained by the assessee. Although these cash book and ledger have not been maintained in normal course but it has been noted that the assessee had developed his own accounting system. It is noted that the balance sheet as on 4-4-2000 has been prepared after taking into account the expenses debited in cash book and ledger. Thus, the assessee has taken care of all expenses while preparing the balance-sheet. As the assessee has claimed the expens....
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....6,33,364 under section 40A(3) of the Income-tax Act, 1961 which is brought to tax in the hands of the present assessee." 4. The CIT(A) set aside the addition which view has been upheld by the Tribunal. It was held that section 40A(3) could not be invoked in the case of the assessee where block assessment was by estimate on the basis of GP rate. The finding recorded by the Tribunal is as under :- "We have considered the rival submissions and carefully gone through the material available on the record. The undisputed fact of this case is that a search was conducted at the residential premises of the partners of the assessee and the assessee declared an undisclosed income of Rs. 14,54,500 which was accepted by the Assessing Officer by stating that income so declared was in agreement with the information brought on record. However, the Assessing Officer invoked the provisions of section 40A(3) while passing block assessment order and made the impugned addition. Admittedly, the entries which were taken into consideration by the Assessing Officer were recorded in the books of account found during the course of search, however, no trading and profit and loss account was prepared to ....
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....w taken by the Tribunal. It was submitted that section 40A(3) could have no application to block assessment which was a complete Code by itself. Reliance has been placed upon the judgment of Gujarat High Court in Cargo Clearing Agency (Gujarat) v. Jt. CIT [2008] 218 CTR (Guj.) 541. It was also submitted that when assessment was made on the estimation of income by applying GP rate, section 40A(3) could not be invoked. For this proposition reliance has been placed upon the following judgments : (i) CIT v. Banwarilal Banshidhar [1998] 229 ITR 229 (All.); (ii) CIT v. Smt. Santosh Jain [2008] 296 ITR 3242 (Punj. & Har.); and (iii) CIT v. S. Mohammad Dharubudeen [2008] 4 DTR (Mad.) 218. 8. On due consideration of rival contentions, we are of the view that the question has to be answered in the negative, in favour of the revenue. 9. Chapter XIV-B was inserted in the Act by the Finance Act, 1995 providing special procedure for undisclosed income found during the search for the block period. The said Chapter lays down special procedure for the assessment and provides for special rate of tax. Section 158BH provides that unless o....
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....e has to correlate "undisclosed income" to each of the years in which income was earned by the assessee. It is true that under Chapter XIV-B, computation of regular income and computation of undisclosed income has to be worked out separately. However, to arrive at the figure of undisclosed income, the said parallel calculations have to converge in order to work out the difference between the first and the second aggregates of the total incomes/losses of the previous year, in which undisclosed income is taxed under section 113. Therefore, in our view, the concept of a charge on the "total income" of the previous year under the 1961 Act is retained even under Chapter XIV-B. Therefore, section 158BB which deals with computation of undisclosed income of the block period has to be read with computation of total income under Chapter IV of the 1961 Act. Once section 158BB is required to be read with section 4 of the 1961 Act, then the relevant Finance Act of the concerned year would automatically stand attracted to the computation under Chapter XIV-B. Section 158BB looks at section 113." 10. In M.G. Pictures (Madras) Ltd.'s case (supra) Madras High Court considered applicability of ....