2008 (7) TMI 847 - AT - Income Tax

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Determination of undisclosed income based on surmises and conjectures.
3. Taxation of debenture interest.
4. Taxation of dividend income.
5. Taxation of interest on short-term deposits.
6. Taxation of interest on money market securities.
7. Taxation of other interest income.
8. Taxation of rental income.
9. Taxation of income on account of suspense account.
10. Taxation of profits on sale of shares by the custodian.
11. Addition on account of assets found and seized (Lesha Steel shares).
12. Addition on account of alleged holding of shares (Apollo Tyres, ACC, G.E. Shipping).
13. Addition on account of alleged transaction with Growmore Investments.
14. Restriction of expenses claimed by the appellant.
15. Claim of credits for TDS.

Detailed Analysis:

1. Violation of Principles of Natural Justice and Surmises and Conjectures:
The appellant argued that the block assessment order violated principles of natural justice and was based on surmises and conjectures. These grounds were considered general and relevant for deciding the individual grounds of appeal.

2. Taxation of Debenture Interest:
The appellant contested the addition of debenture interest for three periods, arguing that the information was obtained from the custodian and not from material found during the search. The tribunal agreed, citing judicial precedents that undisclosed income must be based on material found during the search. The addition was deleted.

3. Taxation of Dividend Income:
Similar to the debenture interest, the dividend income was based on bank statements obtained from the custodian. The tribunal applied the same reasoning and deleted the addition.

4. Taxation of Interest on Short-term Deposits:
The interest on short-term deposits was also based on information from the custodian. The tribunal deleted this addition for the same reasons as the debenture interest.

5. Taxation of Interest on Money Market Securities:
The tribunal noted that the interest income was estimated based on disputed holdings and not on material found during the search. The addition was deleted.

6. Taxation of Other Interest Income:
This addition, based on information from the custodian, was deleted for the same reasons as the debenture interest.

7. Taxation of Rental Income and Income on Account of Suspense Account:
These additions were also based on information from the custodian. The tribunal deleted them, applying the same rationale as for the debenture interest.

8. Profits on Sale of Shares by the Custodian:
The tribunal found that profits on shares sold by the custodian, acting under the Special Court's direction, could not be considered undisclosed income. The addition was deleted.

9. Addition on Account of Assets Found and Seized (Lesha Steel Shares):
The tribunal noted that the appellant did not have an opportunity to inspect the shares before the assessment order was passed. The addition was set aside and remanded to the Assessing Officer for fresh consideration.

10. Addition on Account of Alleged Holding of Shares (Apollo Tyres, ACC, G.E. Shipping):
The tribunal remanded this issue to the Assessing Officer to allow the appellant to match the distinctive numbers of shares with the declaration made to the custodian.

11. Addition on Account of Alleged Transaction with Growmore Investments:
The tribunal found that the addition was based on assumptions and surmises, with no material evidence to support the Assessing Officer's conclusions. The addition was deleted.

12. Restriction of Expenses Claimed by the Appellant:
Since the tribunal did not sustain the additions in grounds Nos. 4 to 12, the question of allowing deduction of expenses did not arise. The issue was left to be considered in the set-aside proceedings if necessary.

13. Claim of Credits for TDS:
This ground was rendered infructuous as the related additions were deleted.

Conclusion:
The appeal was partly allowed, with several additions deleted and some issues remanded for fresh consideration. The tribunal emphasized the necessity for undisclosed income to be based on material found during the search and not on assumptions or information obtained from other sources.