TaxTMI 
TaxTMI 
TaxTMI 
2010 (4) TMI 1245
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....y of being heard to the appellant and denying the basic principles of natural justice to the appellant. 2. The Id. CIT (A) erred in law and on facts in not appreciating the fact that the ld. A.O. had made the additions to the undisclosed income of the appellant without verifying whether the income sought to be added is included and is part of the books of accounts maintained in normal course of business and no evidence was detected during the course of search to point out any discrepancy in the same. 3. The ld. CIT(A) erred in law and on facts in confirming the addition to the extent of Rs. 10,81,030/- out of Rs. 47,17,272/- made by the ld. A.O. by denying exemption u/s 10(23C) of the Income Tax Act, 1961 for the A.Ys. 1999-00 and 2000-01. 4. The Id. CIT(A) erred in law and on facts in confirming the addition of Rs. 67,90,100/- made by the ld. A,O, on account of purchase of milk from M/s Shreeji Caterers. The ld CIT.(A) further erred in not appreciating the fact that no material was found during the course of search and the Id. A.O, had made the addition only on the basis of entries in the books of account regularly maintained, 5. The I....
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.... i. Ambe Vidhyalaya (Higher Secondary Science English) All the above schools were managed under the same trust i.e. the assessee. However, no registration under section 10(23(c) of the I T Act or under section 12A/12AA of the IT Act were obtained. Since there were no registration under section 12AA, the AO held that provisions of section 11 granting exemption to the assessee could not be invoked. When asked to explain as to why the income of the trust be not taxed, it was explained that assessee is running schools and its income is exempt under section 10(22) for which no separate registration or certification is required. There is no requirement of any approval of any authority. Even after amendment by Finance (No.2) Act, 1998 with effect from 1.4.99 income of the trust would not be taxable because income of each school is below Rs. 1 crore. Registration/Aproval of the institution would be required only where income of the institution or school would be above Rs. 1 crore. It was explained that each school is separately registered with Gujarat Primary Education Board or Gujarat Secondary Education Board and none of the schools had income above Rs. 1 crore. Therefo....
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....hown the income from Shreeji Caterers in Asst. Year 1998-99 and Asst. Year 99-00. I again confirm that I had not supplied any milk to any of the schools of Ambe Vidhyalaya, Sama Savli Road, Baroda and I had only shown the receipt from Ambe Vidhyalaya in the name of Shreeji Caterers and offered 5% net profit. Actually there was no receipt in my hand from Ambe Vidhyalaya, Sama Savli Road, Baroda in Asst. Year 98-99 and 99-00. Similarly, I had filed my original return of income for Asst. Year 2000-01 and Asst. Year 2001-02 on 26.7.01. But when your inquiry came in the case of Shreeji Caterers from Sheri Mahendrabhai R. Shah, he approached me to request me to file a revised return showing income from Shreeji Caterers for Asst. Year 2000-01 and Asst. Year 2001-02. I tried to accommodate him by giving this entry of Shreeji Caterers again in my IT return and I filed revised return of income for Asst. Year 2000-01 and Asst. Year 2001-02. Actually this was again bogus income shown by me in the name of Shreeji Caterers in Asst. Year 2000-01 and Asst. Year 2001-02 to help Sheri Mahendrabhai R. Shah. I confirm that my only source of income is from Roopa Travels and I do not get any other incom....
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.... but upheld the addition of Rs. 10,81,030/- as according to him assessee would not be entitled to exemption under section 10(23C). He in this regard upheld the arguments of the AO that receipts of the trust as a whole is to be seen for finding out whether provisions of section 10(23C)(vi) for taking approval of the prescribed authority (CCIT) could be needed or not. Since in the present case gross receipt of the trust from all the schools in AYs 1999- 2000 and 2000-01 are more than Rs. 1 crore and there is no approval from the prescribed authority then income of the trust would be taxable. 10. Regarding addition of Rs. 67,90,100/- being alleged bogus purchases from M/s Shreeji Caterer, ld. CIT (A) sustained the addition on the ground that purchases are bogus and as such addition can be made in block assessment. 11. Regarding addition under section 40A(3), ld. CIT (A) deleted the addition by holding that AO has reached a hasty conclusion without analyzing the nature of the bearer cheques which were recorded in the regular books of account. According to him such type of addition cannot be made in the block assessment. 12. The ld. AR, in respect of addition of ....
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....lar books of accounts of different schools and it is also not disputed by the department that any incriminating document was found showing that schools are receiving income over and above what is declared in the books of account. Therefore, merely because assessee trust was required to seek approval from the prescribed authority as per section 10(23C)(vi) and it has not been so obtained then its income cannot be brought to tax under block assessment. It will continue to be considered only in regular assessment and in case it is considered that such approval from the prescribed authority under section 10(23C)(vi) was required then this income could be assessed only in regular assessment. 16. Regarding addition of Rs. 67,90,100/- on account of purchase of milk, ld. AR submitted that no evidence has been found during the course of search showing that assessee has made bogus purchases. The statement recorded in post-search enquiries cannot bring the bogus alleged purchases into block assessment. Even otherwise statement of Shri Kishore Goswami cannot be relied upon because in the original statement he has clearly stated that he has actually supplied milk to the school which sta....
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....refore, it has been rightly assessed by the AO in the block assessment. 20. Regarding addition of Rs. 67,90,100/- ld. DR submitted that statement of Shri Kishore Goswami recorded clearly indicated that there was no supply of milk and it was only adjustment entries. 21. In respect of addition under section 40A(3) ld. DR submitted that such addition could be made in block assessment also. 22. We have considered the rival submissions and perused the material on record. Even though search and search operation was carried out in the premises of assessee trust but in fact no incriminating material was found during the course of search. A perusal of Panchnama indicated that search at M.S. Hostel of Ambe Vidhyalaya and Shreeji Education Trust certain printed pass books were found and certain books of account, cash books etc. were seized. But the block assessment order as such did not indicate that they were any way connected with any undisclosed income. The total receipts worked out by the AO as mentioned above were on the basis of audited books of accounts. Further purchases held to be bogus were also identified from regular books of accounts. Addition under section 40A(3) a....
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....le to such evidence" : the undisclosed income has to be computed on the basis of evidence found as a result of search and/or other materials or information relatable to such evidence. At the same time it cannot be concluded that "undisclosed income" to be computed under the provisions of section 158BC should be confined to the evidence found during the course of the search. Even after the amendment by the Finance Act, 2002, with retrospective effect from July 1, 1995, there is scope to let in other materials or information gathered by the Assessing Officers during the course of post-search enquiry, but such other materials or information as now clearly mandated by the Legislature must be relatable to evidence found as a result of search. The insertion of the words "relatable to such evidence" by the Finance Act, 2002, with retrospective effect from July 1, 1995, is intended to restrict the scope of material or information that may be relied upon by the Assessing Officer because it has to be relatable to evidence found as a result of search in the first instance. As long as there is an evidence of undisclosed income of the assessee, that would be sufficient to clothe the As....
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.... that has to be found as a result of search in the first instance. Thereafter it is only "materials" or "information" available with the Assessing Officer. The expression "materials" is of much wider import than the expression "evidence". The phraseology employed in section 143(3) indicates that what an assessee is required to produce on his own or on requisition by the Assessing Officer is "evidence" ; whereas what the Assessing Officer has to gather is "materials". The same distinction has been maintained in the provisions of section 158BB(1). What constitutes admissible evidence, material or information for the purpose of section 143(3) equally constitutes admissible evidence, material or information for the purposes of computation of undisclosed income in block assessment proceedings under section 158BC. There should be, in the first instance, "evidence" found as a result of search or requisition of books of account or other documents that may constitute the basis of computation of undisclosed income. That "evidence" may not be conclusive to arrive at the finding of undisclosed income and the Assessing Officer may supplement it with "materials" or "information" that he....
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....der the Indian Evidence Act and he may arrive at his finding not on the basis of any direct evidence of undisclosed income but on the basis of the cumulative effect of all the facts and circumstances relating to the proceedings before him. Any undisclosed income discovered by the Assessing Officer entirely on the basis of material or information gathered by him on his own without there being any relationship whatsoever with an evidence found as a result of search, cannot form part of undisclosed income to be brought to block assessment under the provisions of section 158BC." Similar view has been expressed by various courts as under :- 1. CIT v Ashok Dua (2009) 177 Taxman 494 (Delhi). The assessment in the block period can only be done on the basis of the evidence found as a result of Search. 2. Bhagbati Prasad Kedia -Vs- CIT 248 ITR 562 (Cal). During the block assessment, assessee was called upon to explain the advances taken from the company. The assessee filed confirmation of loans and letter from the company including Income tax File No. of the creditor. The Income tax authority held that the said loan was a fictitious one an....
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....ition thereon cannot be made under Chapter XIVB. 6. Shri Kirti Chandulal Oswal v. DCIT[2009] 317 ITR (A.T.) 0285- [ITAT-Pune] It is the mandate of the amended provisions of section 158BB(1) of the Income-tax Act, 1961, that the materials or information available with the Assessing Officer must "relate" to "such evidence". The words "such evidence" refer only to the evidence found in the course of search at the assessee's premises. Therefore, such other materials must be relatable to evidence found in the course of search at the premises of the assessee itself. There must be a direct nexus between the materials found in the course of search at the assessee's premises as well as the other materials gathered by the Assessing Officer from an extraneous source. If there is no such nexus then the addition would not be justified. 7. CIT v. Kishan Kumar [2009] 315 ITR 0204 [Raj] Section 158BC of the Income-tax Act, 1961, provides that the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143, sectio....
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....been disclosed for the purpose of the Act. The document recovered during the search represented a disclosed transaction of sale of property that had taken place for which T had been paid a commission. The falsity of the expense or deduction or allowance must necessarily be relatable to the document or transaction. As far as the assessee's case was concerned, the very first requirement of non-disclosure of the material was not satisfied because in fact the assessee had disclosed the transaction in its books of account and this was not disputed by the Revenue. The Tribunal had also held that the Assessing Officer had come to the conclusion on inadequate reasons. This was a finding of fact arrived at by the Tribunal based on the material on record. The facts considered by the Assessing Officer might raise a doubt with regard to the genuineness of the transaction, but that by itself was not enough. The facts must be relatable to the evidence available and not inferential. No perversity had been shown in the conclusions arrived at by the Tribunal. 10. CIT v. R. M. Patel (HUF) [2008] 298 ITR 0274- [Mad] What is contemplated under section 158BB of the Income-tax Act, 196....
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.... books of account found in the search, it cannot be inferred that those books/documents or evidence found in the search were relevant for making block assessment and, therefore, post search enquiry carried out by the AO could not relate back to those evidence and therefore, addition so proposed by the AO could not be accordingly justified. In fact any addition in the block assessment proposed by the AO must relate to evidence found as a result of search and then it can be further supported or strengthened by material collected during post search enquiry. Whatever material found in the search is not considered relevant then post search material collected by the AO cannot be said to be related to that evidence found as a result of search. The post search enquiry and material collected as a result thereof has to be co-related with the material found as a result of search on the basis of which addition is proposed and only then such addition can be sustained in block assessment. Merely because search is carried out at the premises of an assessee and certain irrelevant material or declared material or material containing transaction recorded in the books of accounts are seized that it d....
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.... be invoked and thereafter by virtue of section 115BH all other provisions of the Act would be applied to the assessment made under Chapter XIVB. Thus by virtue of section 115BH section 10 can be invoked by the AO. It is not other way round that first section 10 is invoked and thereafter it is decided as to whether income no exempted would be taxed under block assessment. What the AO has done in the present case is that he has considered that benefit of the provisions of section 10(23C)(iiiad) cannot be availed of by the assessee as it has not obtained the approval under section 10(23C)(vi) and, therefore, such income would be taxable under block assessment. This is incorrect proposition of law. If an income does not fall for consideration in the block assessment as in the present case then whether it gets exemption under section 10(22) or does not get exemption under section 10(23C)(iiiad) is not material. Even if income of the assessee is taxable on account of non-applicability of provisions of section 10(23C)(iiiad) on account of assessee not having an approval under section 10(23C)(vi) such income cannot be brought to tax in block assessment as no material is found during the c....
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....out the limit of Rs. 1 crore as prescribed in the relevant rules. If all the receipts from different heads or from different sources cannot be clubbed together then there is no reason to hold that all the receipts from different schools or institutions should be clubbed together for determining the receipts of the trust. It is not the receipt of the activities which is to be considered for determining the limit but it is the receipt of the institution alone has to be considered for determining the limit. If assessee is carrying out activities of imparting education by running different institutions then receipts of the activities as such should not be clubbed to determine the limit but it is a receipt of the individual institution or school, received by the trust which alone should be considered for determining the limit. If the receipt of individual school or institution is less than the prescribed limit then the case would be covered under section 10(23C)(iiiad). Even if the gross receipt from one activity carried out in different institution exceeds the prescribed limit but receipt of individual institution does not exceed the prescribed limit then still the case would be c....