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2012 (6) TMI 447

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....he assessee u/s. 145 of the Act for A.Ys. 1996-97, 1997-98 and 2000-01, the percentage of income admitted before depreciation as shown in the books of account was 11.57%, 10.57% and 10.53%, respectively. Since the income declared in these years was more than 10% of gross contract receipts, the trading results shown in the regular returns of income have not been disturbed. The percentage of income before depreciation shown in the A.Ys. 1998-99, 1999-2000, 2000- 01, 2001-02 and part period 1.4.2001 to 20.12.2001 was shown at 9.07%, 8.5%, 4.49% and 5.59%, respectively. In these years, the income has been estimated at 10% of the gross receipts. For estimating the income at 10% the Assessing Officer has cited two comparable cases viz., M/s. Prasad & Company (PW) and M/s. SEW Construction Ltd. He has, therefore, estimated the undisclosed income from construction activity for the block period at Rs. 22,77,88,361. In addition to this, one more addition of Rs. 6,46,34,972 being interest accrued on amount advanced to Mr. V. Srinivasa Raju on the basis of calculations shown in the loose sheets has been made. Thus, the total undisclosed income for the block period has been computed at Rs. 29,2....

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....1999-00 as stated above.` 3,75,59,093     Balance of Income 3,87,13,729   Add: Undisclosed income as determined above 11,50,35,173     Total 15,37,48,902     Less 80(IA) deduction The assessee in the return of income claimed 80(IA) deduction representing profits from infrastructure projects at Rs. 9,48,72,688/-. This is as per audit report filed along with return of income. In the letter dated 9.1.04 after allocating expenditure relating to head office, the profits from infrastructure projects eligible for deduction u/s. 80(IA) was worked out to Rs. 6,40,04,966/-. 6,40,04,966     UNDISCLOSED INCOME OF THE YEAR 8,97,43,966 -----------         8,97,43,936 1.401 to 20.12.01 (a) Interest receivable from Sri V. Srinivasa Raju for the period 1.4.01 to 20.12.01 as mentioned at para 6.4(d) & 6.4(h) 1,03,38,256     (b) Undisclosed income estimated from contract works as mentioned at para 5.5(p) 11,39,90,996 ------------         12,43,29,252   Income admitted by the assessee in the return of income for this A.Y. of Rs. 2,01,39,149 is deemed to have be....

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....,182,021 Turnover relating to the loss making projects 47,652,727 99,768,128 5. The assessee submitted the following explanation before the lower authorities: (i) In the case of Essar Oils Ltd., Gujarat, the contracts relate to the construction of factory buildings and townships. However, due to the financial problems, the oil refinery project could never be completed even till date. Right from the beginning the company Essar Oil Ltd., has violated all the terms of the contract including the payment of mobilisation advance. Some of the work bills are still due from Essar Oils Ltd. In view of the problems faced by the assessee-company, a claim was lodged before the Arbitrator for an amount of Rs. 3.67 crores. (ii) In the case of the other contract works, the works were spread more than one financial year. The contract works include several stages for example; civil works include earth work, escalation, ground levelling, basement, structural works, finishing works, sanitary, plumbing, electrical works and all other miscellaneous works. The bills are always submitted based on the progress of the work from time to time. The income has been recognised based on the percentage of wo....

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.... letters dated 14th October, 2003, 4th November, 2003, 18th November, 2003 and 4th December, 2003 filed before the Assessing Officer. It was explained that the company has been in the construction industry for more than two decades. The company for quite some years focussed its core activity in civil works consisting of mostly industrial/house structures. Besides such civil contracts, the company diversified its activities into cement industry, wind power, manufacture of cylinders and other incidental jobs. Heavy losses resulted in closure of its cement division during financial year 1999-2000. The company also started focussing on infrastructure projects because of its line of business in construction and contracts. Hence, in the initial years, the company had undertaken some of the smaller projects especially the road works outside the state of Andhra Pradesh. to intrude into the competitive sector like this, and to withstand the obvious competition from the established giants and multinationals, obviously the company to had to quite the price in tenders either without a profit or with nominal profit. During the financial year 2000-01 and 2001-02 (up to 31st December, 2001) the c....

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....creased cost has its impact on the ultimate profits of the project as explained above. (g) Majority of the road works are abetting the villages. Due to local social problems, it is always the case labour from abetting villages has to be engaged at higher rate on daily basis besides our permanent labour. Added to this, peripheral works though not connected to main works had to be done as commercial expediency of the business to sail with the local elements without deterrence to our works. This also resultant in additional cost. 9. It has been submitted by the assessee that the net profits estimated by the Assessing Officer at 10% was on the basis of two allegedly comparable cases cited by him in the block assessment order viz., Prasad & Co. (PW) and SEW Constructions. At no point of time in the course of assessment proceedings, were these two cases were put to the assessee for comments. Further, these two cases are not comparable since they are not in the same line of business as that of the assessee. These two firms carry on business of the construction mostly in the line of canals and dams whereas the assessee company is mostly in the business of housing and industrial construct....

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....iven below: Loose sheet No. 31: This seized document shows the details of amounts spent on behalf of head office for the period from 1.4.1999 to 31.3.2000. Total payment as per this loose sheet is Rs. 55 lakhs. Explanation of the Managing Director: I have gone through the seized material above and confirm the facts as true and correct. The amounts on the dates 26.7.99, 14.11.99, 6.9.99, 8.9.99 and 8.9.99 are in fact paid by the company but no reflected in the books of account. These amounts totalling to Rs. 55 lakhs are paid to various persons and these payments are related to the business of the company, NCCL and accordingly, I admit Rs. 55 lakhs as the undisclosed income of the block period in the hands of NCCL. Loose sheet No. 33: This seized document reflects the details of cost of land at Amravati project. As per the said document, the cost of the land is Rs. 22,49,510. Explanation of the Managing Director: I have gone through the above seized material and I confirm the facts mentioned therein are true and reflected correctly therein. The amount of Rs. 22,49,510 is paid in cash outside the books of account and the same is shown as amount paid in suspense. Accordingly, ....

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.... of the figures appearing on page No. 151 are nothing but repetition of payments appearing on page No. 152. All the figures appeared in page No. 151 are reconcilable with page No. 152. Ans. to Q. No. 11): Sheet Nos. 91, 92 and 93 of annexure: A/NCCL/37 comparing with the sheet No. 23 & 24 of annexure: A/NCCL/38 Are relating to certain expenditure incurred at the project office, Bangalore. the entire expenditure will be reconciled with the books of account of the company, the difference amounts will be offered for taxation in the hands of appropriate persons during the course of the proceedings. Sheet Nos. 99 & 100 of annexure: A/NCCL/37 are relating to certain income and expenditure. The same will be reconciled with the books of account maintained by the company and the difference, if any, will be offered for tax in the hands of appropriate persons during the course of the proceedings. 11. The CIT(A) observed from the above that payments were being made outside the books of account generated through inflation of expenses. The most important documents related to payments made to piece rate workers/sub contractors. During the course search, certain TDS certificates were relating to....

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....of Rs. 6,15,03,415 being interest receivable on funds advanced to Sri V. Srinivasa Raju, prop. Rachana Associates, Bangalore have been narrated at paras 6.1 to 6.4 of the assessment order. The assessee company entered into two MOUs dated 15.9.95 and 15.11.95 with Sri V. Srinivasa Raju, Prop. Rachana Associates for procuring lands at Kodigehalli and Nandi Hills, Bangalore. For this purpose, the assesseecompany advanced an amount of Rs. 440 lakhs between 28.12.1995 and 30.8.1996 to Sri V. Srinivasa Raju. Para 4 of the MOU dated 15.9.95 provided that in case the said Sri V. Srinivasa Raju fails to get the lands as per the understanding, he will repay the entire amount along with interest @ 20% p.a. from the date of receipt till the date of refund. Sri V. Srinivasa Raju could not procure the land as per the terms of understanding since some of the lands acquired by him were spread out and were not contiguous to take up any project. In such a scenario, the assessee-company rejected the offer and claimed refund of the amount along with interest. H however, in spite of best efforts, the assessee could realise Rs. 305.95 lakhs consisting of cheque payment and value of certain flats vested ....

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....thod of accounting and the income is chargeable to tax on accrual basis. (b) Clause 4 of the MOU dated 15.9.95 clearly provided for payment of interest at the rate of 20% p.a. In case of failure on the part of the agent to get the lands registered and such interest is payable from the date of receipt of advance by Shri V. Srinivasa Raju and till the date of refund of the amounts to the assessee-company. This is a written agreement executed on a stamp paper and binding on the parties. There is no dispute regarding the fact that Sri V. Srinivasa Raju failed to get the lands registered in the name of the assessee-company and hence decided to refund the advances received. As per the written agreement the advances are to be refunded with interest. (c) The claim that there was an oral understanding between the parties not to charge interest in case the principal amount is paid is without any basis and contrary to the facts contained in the written agreements and is clearly an afterthought to avoid admission of interest income and proper payment of tax. (d) Loose sheet numbered 136 to 153 of annexure marked A/NCCFL-I/1, seized from the office premises situated at Plot No. 41, Nagarjuna....

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....dmission of the same in the books of account is a clear omission of admission of income on the part of the assesseecompany and the same is, therefore, assessable as undisclosed income for the block period. (h) For the above reasons I treat the interest receivable of Rs. 6,15,03,415/- as undisclosed income of the assessee company for the block period along with a further sum of Rs. 31,31,557 interest chargeable for the period 1.10.01 to 20.12.01. Since the venture has been cancelled and Sri V. Srinivasa Raju was asked to refund the advances along with interest in the year 1997 and as the first instalment of amount of Rs. 40 lakhs was received on 21.8.97, the interest is held as accrued for the first time in the accounting year relevant for assessment year 1998-99 onwards and assessed as undisclosed income accordingly. 15. There is no dispute in the fact that the assessee-company has not been able to recover even the principal amount much less the interest calculated in the loose sheets No. 136 to 153 of annexure marked as A/NCCL-1/1 seized from the office premises situated at Plot No. 41, Nagarjuna Hills, Punjagutta, Hyderabad. According to the assessee, all these calculations wer....

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....hat the percentage of profit was less than 10%, he resorted to estimate the income. The learned counsel for the assessee submitted that a detailed explanation was filed before the Assessing Officer on 9th January 2004. The explanation substantiated the percentage of net profit derived by the assessee and as to why it was the correct rate of net profit as derived by the assessee. The said explanation takes into its fold only two financial years in respect of which the Assessing Officer has pointed out in the show cause notice. Such being the case the explanation covering the four years including that of the two years not mentioned by the Assessing Officer in the show cause notice is now submitted hereunder. 18. The learned counsel for the assessee drew our attentions to various letters filed before lower authorities viz. on 14th October 2003, 4th November 2003, 18th November 2003 and 4th December 2003 which are placed on record. The important contents of those letters ware as follows: (i) Clause (a) of the letter directs for submission of the details of contract receipts relating to business of infrastructure development projects. The details relating to such projects together wit....

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.... with the presence of multinational companies had liberalized the policies which helped the Indian companies to consider the infrastructure business, that increased progressively from 1997-98 onwards. (viii) The company had also started focusing on the infrastructure projects because of its line of business in construction and contracts. This focus takes its own time to be nearer to the prerequisite qualifications. Hence in the initial years, the company had undertaken some of the smaller projects especially the road works out side the state of Andhra Pradesh. To intrude into the competitive sector like this, and to withstand the obvious competition from the established giants and multinationals. Obviously the company had to quote the price in tenders either without a profit or with nominal profit. It is generally the case; the smaller projects have the disadvantage of huge administrative set up and operations of the company. The impact of the same would be on the net result. The company in that specific sector has to establish itself which would afforded it an opportunity to participate in further tenders for any works relating to that sector. (ix) In this direction, the company....

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....ause of the need for establishment of machinery, manpower and related infrastructure and the expenditure related revenue incurred. (C) In spite of the best efforts the cost efficiency in the operations could not be achieved. (D) Added to the above for the road/highway works bitumen and diesel are the major components. During the financial years 2000-01, 2001-02 and subsequently there was a steep increase in the bitumen and diesel prices, which can never be visualized and much less considered at the time of tender. Almost all the projects are not covered by the cost escalation/compensation clauses, especially MCC road work/ Bangalore road work thus due to the steep increase in bitumen/diesel prices the company had incurred loss of Rs. 3.15 crores and Rs. 2.16 crores respectively in those two projects. (E) Whereas, in the case of Haryana road project, the cost coverage on diesel at a rate of 5% on the total coverage could not off set the increase which was between 20% to 25%. (F) The steep increase in bitumen price and diesel price were demonstrated in terms of statistics as follows: Bitumen price increase S. No. Year Rate (Rs.) % of Incr. 1 October, 1999 7965.95  ....

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....m April 2001 to November 2001. During the period June 2000 to October 2000, the company had executed works value of Rs. 1O.25 crores against which in spite of best efforts of the company it could able to realized Rs. 1.61 crores only. Majority of the balance amount of Rs. 8. 65 crores was paid by the company during the financial year 2002-03. The delay in payments forced the company to stop the work and to look for alternative financials to meet the eventuality, which ultimately lead the company an interest burden of Rs.26. 78 lakhs against the UCO bank loan and Rs. 40 lakhs approximately against other loans diversified from other projects. In view of the delay in work, the fixed overheads and the establishment cost was incurred by the company. Due to these problems, the project had ended up with a loss of Rs.86 lakhs relating to the financial years 2000-01 and 2001-02 (up to 31st December 2001). (iv) In the case of NG V Bangalore project also, there was delay in payments from the client. There was a time over run of the project, due to that, there is further additional expenditure was incurred by the Company. Further, the company had maintained certain period even after the compl....

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....profitability of the other projects is considered, it is working to 10.03% for the financial year 2000-01 and 8.58% for the financial year 2001-02(up to 31st December 2001). On infrastructure projects, the company earned profit at 7.32% and 6.22% for the respective financial years. The average profitability of all the projects (including infrastructure and other projects) stood at 8.18% and 7.04% respectively. The summarized details are as follows: Details of turnover and profit thereon Particulars   Financial year 2000-01 Turnover % Financial year 2001- 02 (up to 31.12.01) Turnover % Turnover           Infrastructure projects   874228297   977107715   * Other projects   1167909756   1608759821     Total 2042138053   2585867536   Turnover excluding major loss making projects           Infrastructure projects   874228297   977107715   * Other projects   1027686673   1413217820     Total 1901914970   2390325535   * Includes Sub-contract turnover   169767068   270544422 ....

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....rnover and profitability of the company and also in order to maintain its minimum growth rate in the business activity, the company has gone for expansion/ diversification in its core activity of construction. Accordingly, the company has diversified into: i) Road projects ii) Water and Sewerage pipeline works iii) Electrical transmission & distribution lines. To capture works in diversified sectors, the company obviously quoted lesser rates. As such, the margins from the abovediversified sectors is low in the initial years 2000-01 and 2001-02 (up to 31st December 2001). Losses incurred on such works have been explained in detail. In view of diversification, the company also incurred expenditure for the diversified sectors, which include: i) Business development ii) Establishment of specialized divisions. iii) Recruitment of senior technical employees iv) Establishment of regional offices around the country. v) Procurement of new machinery. The diversification into new sectors and the consequent expenditure incurred for such diversification, had its impact on the profitability during the financial years 2000-01 and 2001-02 (up to December 2001). c) Low profit margins: Th....

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....n advance. Some of the work bills are still due from the company Essar Oils Ltd. In view of the problems faced by the Appellant Company, a claim was lodged before the Arbitrator for an amount of Rs. 3.67 Crores. A copy of Arbitration minutes and a brief note is enclosed. ii) In the case of the other contract works, the works were spread more than one financial year. The contract works includes several stages for example; civil works include earth work escalation, ground levelling, basement, structural works, finishing works, sanitary, plumbing, electrical works and all other miscellaneous works. The bills are always submitted based on the progress of the work from time to time. The income has been recognized based on the percentage of work completion. The fact remains that all the contract works may not end up in profits. At the same time each stage of any particular contract work may not result in profit from stage to stage. Conceptually and as in vogue the total project may either end up in profit and/or loss. In the case of Mukund (Kalayani Steels Ltd.,) Whitefiled - Bangalore, Chennai Airport and Indira Airport, were incurred losses during the financial year 1998-99, since the....

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....s appreciation is that even in those two cases, which the Assessing Officer considers as comparable, there is a glaring variation in the rate of net profit which ought to have been noticed by the Assessing Officer. The undisputed fact remains that both those concerns, carry on business in one line viz. construction of irrigation works such as dams, canals, etc. which is not strictly comparable with the business of the appellant. As to the percentage of net profit amongst the two concerns there is a variation of 4.15% approximately. Further, the Assessing Officer has taken into consideration for arriving at the percentage, the profit figures as per the profit and loss account. If the incomes returned by those two firms as per the income tax computation, are considered, the net profit rates are lower. In the appellant's case the Assessing Officer considered the net profits as per income tax computation. Hence, the comparison is not of like with like and to explain this point a statement is enclosed (As Annexure I & /I). Hence, the basis of comparison suffers from several infirmities viz., (a) in respect of the line of business (b) in respect of the volume of turnover, profits (c) in ....

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....h the two concerns. 33. The perusal of the above two explanations when considered in detail would therefore affirm the submission of the appellant that the estimation of the rate of net profit @ 10% by the assessing officer on the facts of the appellant's case is arbitrary, not proper, not correct and illusory. The comparison relied upon by the assessing officer is without any basis and not in any way nearer to the facts of the appellant's case. The assessing officer even in his reply submitted, to the appellant's written arguments did not controvert the facts brought on record by the appellant. He has also not brought any further facts on record in his reply. 34. The comparable cases cited by the appellant establish the fact that the profit in this line of business when considered with the volume of business of the appellant that a net profit in the range of 4 to 5% is more reasonable and fair. Therefore the unilateral estimate @ 10% by resorting to the rejection of books is not warranted and contrary to the facts on record. 35. In this view of the matter, the AR contended that there is no case for the estimation of net profit at 10% coupled with the rejection of the books of a....

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.... in view of amendment by Finance Act, 2002 to Section 158BC(b) of the I.T. Act which is retrospective effect from 01.07.1995 wherein there is insertion of Section 145 for the purpose of determining the undisclosed income. As per amendment to Section 158BC(b), the Section 145 could also be invoked by assessing officer for determining the undisclosed income. For clarity, we are reproducing the relevant section herein below: Section 158BC: Where any search has been conducted u/s 132 or books of accounts, other documents or assets are requisitioned u/s 132A in the case of any person, then - (a) ..... (b) he assessing officer shall proceed to determine the undisclosed income of the block period in the manner laid in Section 158BB and the provisions of the section 142, subsection (2) and (3) of section 143, section 144 and section 145, shall, so far as may be applied; 38. The provisions of Section 158BC(b) which have been amended by Finance Act, 2002 with retrospective effect from 1st July, 1995, as per which ss 144 and 145 have been specifically made applicable to block assessment. However, we make it clear that if no material was found during the search which could show suppression....

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....en in the construction industry for more than two decades. The company for quite some years focused its core activity in civil works consisting of mostly industrial/housing structures. Besides such civil contracts, the company diversified its activities into cement industry, wind power, manufacture of cylinders and other incidental jobs. Heavy losses resulted in closure of its cement division during financial year 1999-2000. The company also started focusing on infrastructure projects because of its line of business in construction and contracts. Hence, in the initial years, the company had undertaken some of the smaller projects especially the road works outside the state of Andhra Pradesh. To intrude into the competitive section like this, and to withstand the obvious competition from the established giants and multinationals, obviously the company had to quote the price in tenders either without a profit or with nominal profit. During the FY 2000-01 and 2001-02 (up to 31.12.2001) the company has incurred losses in certain major projects. The specific reasons for such losses are: (A) The desire to gain entry into the road project necessitated the company to quote low price in t....

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....erial to justify addition or profits. The ratio of the judgments in Dhakeswari Cotton Mills Ltd. Vs. CIT(1954) 26 ITR 775 (SC); Raghubar Mandal Harihar Mandal Vs. State of Bihar [1957] 8 STC 770 (SC); State of Kerala Vs. C.Velukutty (1966) 60 ITR 239 (SC); State of Orissa Vs. Maharaja Shri B P Singh Deo [1970] 76 ITR 690 (SC); Brijbhushan Lal Parduman Kumar Vs. CIT (1978) 115 ITR 524 (SC); Chouthmal Agarwalla Vs. CIT (1962) 46 ITR 262 (Assam); R.V.S. and Sons Dairy Farm Vs. CIT (2002) 257 ITR 764 (Mad); International Forest Co. Vs. CIT (1975) 101 ITR 721 (J&K); M Durai Raj Vs. CIT (1972) 83 ITR 484 (Ker); Ramachandra Ramnivas Vs. State of Orissa (1970) 25 STC 501 (Orissa); Action Electricals Vs. Deputy CIT (2002) 258 ITR 188 (Delhi) and Kamal Kumar Saharia Vs. CIT (1195) 216 ITR 217 (Gau) indicate that the assessing officer is not fettered by any technical rules of evidence and pleadings, and he is entitled to act on material which is not acceptable in evidence in a court of law, but while making the assessment under the principles of best judgment, the Income Tax Officer is not entitled to act on material which is not acceptable as evidence in a court of law, but while making the ....

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....8BA(2) postulates that assessment made under Chapter XIV-B shall be in addition to the regular assessment of each previous year included in the block period. Clause (b) of the explanation further clarified the position that the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of the related block period. Clause (c) puts a ban on treating any income assessed under the "Block Assessment" so as to form part of regular assessment of any previous year included in the "Block Period". The special procedure of Chapter XIV-B is intnended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. It cannot be a substitute for regular assessment. In this case, the addition is not based on seized material to estimate the turnover and thereby estimate the income. Similarly, expenditure claimed in the regular returns, cannot be disallowed in the block assessment consequent to the search action as the disallowance, and at the best, it could be the subject matter in regular assessment not in the block assessment. For this purpose we place reliance on the following precedents: ....

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....losed income-undisclosed transactions assessed in block assessment-tribunal finding transactions disclosed in return which were subject-matter of regular assessments-transactions in question not to be considered in block assessment - income;-tax act, 1961, ss. 143, 158b." CIT Vs. Shamlal Balram Gurbani, 249 ITR 501 (Bom) "A search was conducted at the residential premises of the assessee on March 25,1996, and a notice under section 158BC of the Income-tax Act, 1961, was issued; The assessee did not file the returns for the years 1993-94, 1994-95 and 1995-96. The Assessing Officer treated the income of the three years as the income of the block period. On appeal, the Tribunal found that the assessee's income from interest, salary and rent was reflected in the audited balance-sheet of the respective assessment years of the firm and, therefore, the Tribunal deleted the addition." On appeal the Hon'ble Bombay High Court did not find any reason to interfere with the findings of facts recorded by the Tribunal. It was held: "Held dismissing the appeal, that the conclusion of the Tribunal that there was no reason for treating the said income as undisclosed income for the purposes of bl....

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.... period. The "undisclosed income" for which the assessment is to be made is defined in section 158B(b) which include money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable articles, things, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act and after the amendment by Finance Act, 2002 w.e.f. 1-7-1995 it includes also any expenses, deduction or allowance claimed under this Act which is to be found to be false. 41. In view of the above discussion, we are of the opinion that estimation of income on contracts which are disclosed in the regular books of accounts cannot be disturbed in the block period, and at best it could be the subject matter of regular assessment only. In view of this, we are inclined to hold that the CIT(A) is not justified in giving the direction to assessing officer for the Assessment Year 2001-02 and for part period from 01.04.2001 to 20.12.2001 to determine the undisclosed income a....

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....irect evidence or conclusive evidence to prove to determine the undisclosed income. When the assessee gives an evasive reply to the assessing officer, he has no choice but to take estimation of the income. The only thing is it should be reasonable on the basis of material available on record. It should not be based on conjunctures and surmises. As of now material considered by the assessing officer for making the impugned addition is only the seized material marked as A/NCCL-1/1 which is loose sheets No. 136 to 153 containing the calculation of interest advanced to Shri V. Srinivasa Raju details to whom the money was advanced at Rs.440 lakhs. In view of this, we have to consider the seized material A/NCCL-1/1 to see whether it is enough to make addition. In our opinion, this document is only note book/loose slips. We have to look into the statement recorded u/s 132(4) or 132(4A) of the IT Act. The seized material A/NCCL-1/1 found during the course of search and the statement recorded is some piece of evidence to make an addition. The assessing officer has to establish the link between the seized material A/NCCL-1/1 and with other books of accounts of the assessee. It cannot be cons....

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....he seized material to the business of the assessee. The allegation of the Department is the seized material that reflected money advanced by the assessee and interest accrued thereon. But they are not able to unearth any background with regard to accrual of real income. Without any of these, the department has taken a view that the assessee has acquired the right to receive the interest. The department also not find any material from Shri V Srinivasa Raju which confirms the accrual or receipt of interest in favour of the assessee. There is no evidence as to whether he paid the interest. The department cannot draw inference on the basis of suspicion, conjuncture and surmise. Suspicion, however strong cannot take place of material in support of the findings of the assessing officer. The assessing officer should act in a judicial manner, proceed with judicial spirit and should come to a judicial conclusion. The assessing officer is required to act fairly as a reasonable person and not arbitrarily and capriciously. Assessment made should have adequate material and it should stand on its own legs. The assessing officer without examining concerned party, who has received advance from the....

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....eted assessment if so advised. But he cannot drag these items into the block assessment proceedings envisaged under Chapter XIV-B of the I.T. Act. In our opinion evidence available with the Assessing Officer as a result of search is to be used for the purpose of determining the undisclosed income of the block period. 46. Further, Hon'ble Supreme Court in the case of CIT Vs. Shoorji Vallabhadas and Co. (1962) 46 ITR 144 wherein held as follows: "Income Tax is a levy on income. No doubt, the income-tax Act takes into account two points of time at which the liability to tax is attracted, viz. the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a "hypothetical income", which does not materialize. When income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipients, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might,....