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2014 (11) TMI 565
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....nds as casual and non-recurring income? 3. T.C.(A) No.1245 of 2007 was admitted on the following substantial question of law: "Whether, on the facts and circumstances of the case, the Tribunal is right in holding that in a block assessment under Section 158BC of the Income Tax Act irrecoverable advances made in the course of money lending business cannot be allowed as a deduction in computing the assessable income?" 4.1. The facts in a nutshell are as under: A search was conducted under Section 132 of the Income Tax Act (for brevity, "the Act") on 24.9.1998 and certain incriminating documents were seized and heavy investments were noticed. Based on the materials, a notice under Section 158BC of the Act was issued and in response to the same, the assessee filed a return of income. 4.2. The rival claims of the assessee and the department and the findings rendered by the Original Authority, First Appellate Authority and the Tribunal on each of the issues raised is as under: OPENING CASH BALANCE - (C.M.A.No.1244 of 2007) 4.3.1. The assessee claimed Rs. 5,00,000/- as opening balance for the assess....
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.... Income Tax, Madurai, the cost of remodeling was taken as Rs. 4,40,000/- and the sum of Rs. 90,000/- was treated as undisclosed income, stating that it cannot be treated as capital receipt. 4.4.3. Aggrieved by the same, the assessee went on appeal to the Commissioner of Income Tax (Appeals), who held that the amount received by the assessee as honorarium from friends and family on resolution of disputes could be termed as casual and non-recurring type. Thus, he deducted a sum of Rs. 5,000/- under Section 10(3) of the Act and the balance amount of Rs. 85,000/- was brought to tax. 4.4.4. The assessee appealed to the Tribunal, which confirmed the order passed by the Commissioner of Income Tax (Appeals). BAD DEBTS - (C.M.A.No.1245 of 2007) 4.5.1. In the course of the search, it was found that there were certain entries showing that the assessee had given a sum of Rs. 3,50,000/- to one Pothiraj and it was stated by the assessee that he could not recover the said amount despite lodging of a complaint with the police. Thereafter, the said Pothiraj passed away and as a complete settlement towards the loan taken by Pothiraj, he took over 58 Cents of land at Kannanendal Village. ....
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...., **[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. ... ** Substituted for 'in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer' by the Finance Act, 2002, w.r.e.f. 1.7.1995.'" 7.2. According to the learned counsel for the assessee, the Assessing Officer made certain deductions for the years prior to 1988 as probable expenditure and, thus, came to the conclusion that the opening balance of Rs. 5,00,000/- as on 1.4.1988 is incorrect. Expatiating the said plea, he contended that as the department has accepted the sum of Rs. 5,00,000/- as opening balance, they cannot rely upon the so-called expenditur....
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.... upon the Court that the provisions of Section 158BB of the Act, as amended and even prior to the amendment brought in by Finance Act, 2002, would make no difference insofar as the present case is concerned, as the Assessing Officer has taken into consideration the cash flow statement as admitted by the assessee for the purpose of computation of undisclosed income for the block period. To buttress this argument, he relied upon the annexure to the assessment order and the summary, which are relevant to the present issue and read as under: I. Y.E. 31.3.1989 (Asst. Year 1989-90) a. Investments made as per Records/Materials 1. Drawings Rs.45,000.00 2. Investments Rs. NIL Total Rs.45,000.00 b. Sources available as per Records/Materials 1. Opening balnace of Rs. 5,00,000 in the TB - Taken at Rs. 2,50,000 as directed by the JCIT Range II, Madurai Rs.2,50,000.00 2. Salary Rs. 22,000.00 Rs.2,72,000.00 c. Excess fund available (A-B) Rs.2,27,000.00 II. Y.E. 31.3.1990 (Asst. Year 1990-91) ....
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....-) 38,498 (-) 28,551 NIL (-) 28,551 1995-96 7,12,605 22,240 7,34,845 NIL 7,34,845 1996-97 (-) 12,00,026 25,950 (-) 11,74,076 NIL (-) 11, 74,076 1997-98 14,22,600 26,100 14,48,700 NIL 14,48,700 1998-99 (-) 1,55,000 52,359 (-) 1,02,641 NIL (-) 1,02,641 Broken period 99-2000 40,94,897 17,730 41,12,627 NIL 41,12,627 Total 27,58,394.00 2,33,661 29,92,055.00 NIL 29,92,055.00 8.2. On the basis of this computation of undisclosed income, it was contended that the undisclosed income was determined after giving due weightage to the drawings for each of the block years. He pleaded that if there were drawings out of the funds for each block assessment year, the assessee cannot claim that the entire amount of Rs. 5,00,000/- remained as such till 1.4.1988, namely, the beginning of the block assessment. In support of this plea, he placed emphasis on the reasoning given in the assessment order, based on the cash flow statement furnished by the assessee, which is in the following terms: "On the opening balance of Rs. 5,00,000 (2 issue) I am....
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....the provision of Section 158BB of the Act is in relation to computation of undisclosed income for the block period and that is to be done in accordance with the provisions of the 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 of information as are available with the Assessing Officer and relatable to such evidence. 9.3. In this case, the Assessing Officer based on the cash flow statement and the statement of the assessee recorded consequent to the search held that the opening cash balance should be Rs. 2,50,000/- only. No doubt, we find that for drawing this inference the Assessing Officer has stated that some expenditure should be allowable for the previous years. We do not find any error in such a reasoning, given the statement of the assessee in the cash flow statement that for ten long years his drawing is around Rs. 50,000/- to Rs. 75,000/- during every block year. In view of the admission of the assessee that there is a drawing of certain amount during every block year, which we have already set out in the previous paragraphs, the assessee cannot claim that there was no drawing at all ....
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....235 (Mad.), was a case of no material found during the search; (iv) In the case of Commissioner of Income Tax v. R.M.Patel (HUF), [2008] 298 ITR 274 (Mad.), the seized material did not relate to the assessee and, therefore, the provisions of Section 158BB of the Act were held not be applicable. (v) The decision in Commissioner of Income Tax v. Ashok Khetrapal, [2007] 294 ITR 143 (Del.) is in relation to a case of no incriminating material found during the course of search; (vi) In the case of Commissioner of Income Tax v. Ganeshwar, [2009] 308 ITR 124 (Mad.), a Division Bench of this Court following the decision in CIT v. Ajit Kumar, [2008] 300 ITR 153 (Mad.) held that there was no material found during the course of search operation and, therefore, it cannot be the basis for making addition in the block assessment. Hence, all these decisions do not throw any light on the plea made by the assessee. 9.6. On the contrary, Mr.Swaminathan, learned Standing Counsel was at pains to point out a decision of the Kerala High Court in Vengat Bava v. Commissioner of Income Tax, [2009] 318 ITR 276 (Ker.). In the said decisi....
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.... Bangaru, [2012] 344 ITR 297 (Mad.) is of no assistance to the assessee herein, as the facts of the said case are different in entirety. In the said case, devotees out of natural love and affection and veneration voluntarily donated to the assessee and it was held that the amount received by the assessee were gifts and they were not considerations for his profession/vocation. 10.5. In the case on hand, the assessing Officer was of the view that Rs. 7,00,000/- has been expended towards renovation of the house and Rs. 3,50,000/- was claimed towards cost of material. That was accepted to some extent, except for Rs. 90,000/- Therefore, the onus would rest on the assessee to show as to how the sum of Rs. 90,000/- was received by him either in kind or in value. There being no material to substantiate that, the mere statement of the assessee is of no avail and the department was, in our considered opinion, justified in treating the balance amount of Rs. 85,000/- as undisclosed income, giving exemption to the extent of Rs. 5,000/- as per Section 10(3) of the Act. 10.6. In such view of the matter, the second question of law is answered against the assessee and in favour of the Revenue....
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....nt of such debt or part thereof is written off or of an earlier previous year, or (b) which represents money lent in the ordinary course of the business of banking or money - lending which is carried on by the assessee.' 14. From the above, it is clear that only bad debt written off by the assessee can be claimed as deduction. For claiming the deduction under this provision the assessee must establish that the debt in question has become bad debt. The very writing off of the bad debt in the books of accounts as bad is not sufficient to claim the deduction under this provision. The debt becomes bad not because the creditor assessee has decided to treat it so at a particular time, but because at a particular point of time it was no longer possible to recover such debt. The debtor had no means to recover the same and thereby recovery would not be possible and these facts are to be established by the assessee. 15. In the present case, the Assessee has not written off the bad debt in the books of accounts. The assessee has not furnished details like the date on which the debt has become bad and....