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2005 (10) TMI 421 - AT - Income TaxBusiness expenditure - Cash credits - Block assessment in search cases - unaccounted receipts of three incomplete projects - whether section 68 is applicable to any entry in document or whether document can be called as book - bribe payments. HELD THAT - From the definition of undisclosed income, it is clear that income based on any entry in the books of account or document can be treated as undisclosed income. The Legislature in section 158B( b ) has used the words books of account or documents . Hence these two words do not carry the same meaning. A document may necessarily be not a book of account. Section 68 is applicable to any entry credited in the books of account. Section 158BB(2) has not enlarged the application of section 68 to an entry credited in the document. Books of account are not defined in Income-tax Act and hence, the word is to be interpreted as it is understood in common parlance. As per decision of Punjab High Court in the case of CIT v. Kartar Singh 1970 77 ITR 338 , books of account may include memorandum books. For the purposes of Explanation 5 to section 27(1)( c ), books of account would mean these books of account whose main object is to provide credible data and information to file tax returns. Section 68 is a deeming provision and it is to be strictly interpreted. Applicability of section 68 cannot be enlarged. Hence, section 68 is not applicable in respect of any entry in document. The Assessing Officer at page 18 of the order has mentioned that he is adding Rs. 38,12,790 as these are credits in the documents maintained by the assessee and hence, treated as unexplained credits under section 68 of the I.T. Act. Such document cannot be treated as book and section 68 is applicable in respect of entry in book. Therefore, the Assessing Officer was not justified in including it under section 68 of I.T. Act. Keeping in view the discussion on the issue of addition, it is held that the Assessing Officer was not justified in including the same u/s 68 of I.T. Act as that section has no application for an entry credited in document particularly when the amount received has been considered as available for explaining the unaccounted expenses. The action of the learned CIT(A) in deleting the addition is confirmed. Bribe Payment - In the instant case, the seized material indicate that payments are bribe. Such payments are in contravention of provisions of prevention of Corruption Act. Shri Raja Datta vide question No. 54 was asked as to why such bribe payment be not disallowed. Shri Raja Datta has not rebutted in his answer that these payments were not bribe. He stated on 20-2-2002 in answer to question No. 54 that if I.T. Act does not permit allowance of such expenditure then he has no objection for adding the same to his undisclosed income. In view of such factual position that payments represented bribe and considering the Explanation to section 37(1), it is held that learned CIT(A) was not justified in allowing the expenses. On this issue, the order of CIT(A) is reversed and that of Assessing Officer is restored. Undisclosed income of the block period - In the instant case, the returned income is reflected from the books of account and sale of property stands disclosed by virtue of filing application u/s 230A. Such income as shown in return is not undisclosed income as defined in section 158B( b ) and income also stands disclosed by way of filing return u/s 139(4). Section 158BB( ca ) mentions that no return of income is filed. While in the instant case return of income has been filed u/s 139(4). Hence, on this issue order of CIT(A) is confirmed and grounds of Appeal Nos. 11 and 13 are dismissed. In the result, all the appeals are partly allowed.
Issues Involved:
1. Unaccounted Receipts from Incomplete Projects 2. Bribe Payments 3. Inclusion of Regular Income for Assessment Year 1999-2000 in Undisclosed Income 4. Levy of Surcharge 5. Interest Rate under Section 158BFA Detailed Analysis: 1. Unaccounted Receipts from Incomplete Projects: The revenue contested the relief of Rs. 38,12,790 given by CIT(A) for unaccounted receipts from three incomplete projects. The Assessing Officer (AO) determined undisclosed income from seized documents and apportioned it equally among the four assessees. The AO treated the unaccounted receipts as cash credits under section 68 of the IT Act, as the assessees failed to provide customer-wise details. The CIT(A) deleted the addition, arguing that the unaccounted receipts had already been considered for explaining unaccounted expenses. The Tribunal held that section 68 is not applicable to entries in documents, and since the amount was used to explain unaccounted expenses, the CIT(A)'s deletion of the addition was confirmed. 2. Bribe Payments: The AO disallowed Rs. 1,38,500 for bribe payments under Explanation to section 37(1). The CIT(A) allowed the expense, stating that restrictive provisions should not apply to undisclosed income. The Tribunal disagreed, holding that section 158BB requires applying provisions of the Act, including Explanation to section 37(1). The CIT(A)'s allowance of bribe payments was reversed, and the AO's disallowance was restored. 3. Inclusion of Regular Income for Assessment Year 1999-2000 in Undisclosed Income: The AO included regular income for AY 1999-2000 in undisclosed income since the return was filed after the search. The CIT(A) directed the AO to exclude regular income from undisclosed income, as the income was reflected in regular books and advance tax was paid. The Tribunal confirmed CIT(A)'s order, noting that the income was not discovered during the search and was disclosed by filing the return under section 139(4). 4. Levy of Surcharge: The CIT(A) restricted the levy of surcharge to AY 2000-01, as surcharge was not applicable to earlier years. The Tribunal upheld CIT(A)'s order, noting that surcharge is not leviable for searches conducted before 1-6-2002. 5. Interest Rate under Section 158BFA: The CIT(A) directed the AO to charge interest at 1.25% instead of 2%, as the assessment was completed after the rate reduction effective from 1-6-2001. The Tribunal reversed CIT(A)'s order, holding that interest should be levied at the rate prevailing during the period of default, restoring the AO's decision to charge 2%. Conclusion: The appeals were partly allowed, confirming CIT(A)'s deletion of the addition for unaccounted receipts, reversing the allowance of bribe payments, confirming the exclusion of regular income for AY 1999-2000 from undisclosed income, upholding the restriction on surcharge levy, and restoring the AO's interest rate under section 158BFA.
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