2010 (8) TMI 674 - AT - Income Tax

Search and seizure - Block period assessment - The assessee would accordingly be entitled to deduction of the expenses added under section 69C provided nexus is established on the basis of seized materials between the cash payments made and the lands purchased and sold - The term set-aside or cancellation have been used in the phrase together and therefore the principles of eujesdem generis applies - In the case of CIT v Bhan Textile (P.) Ltd. (2008 -TMI - 4171 - DELHI HIGH COURT) - wherein it has been held that in case assessment is set aside the limitation as contemplated under section 153(2A) would apply - Accordingly Ground No. 1 raised by the assessee is dismissed Alleged payment to certain land owner - Ld. Counsel referred to Memorandum Possession Receipt contained at page 57 onwards and pointed out that the person from whom the assessee had purchased lands from land owners mentioned in this memorandum and thereafter the land was sold to Godrej Properties and Investments Ltd - The appellant on facts could not establish the said expenditure as business expenditure - this ground is allowed for statistical purposes Condonation of delay - 5 days was to be reckoned with reference to notice dated 6-7-1998 and not with reference to reply dated 29-9-1998 - He accordingly dismissed the assessee s appeal - In the result appeal filed by the assessee is partly allowed for statistical purposes

Summary

Issues Involved:
1. Period of Limitation for Passing the Order
2. Deduction under Section 37(1)
3. Telescoping of Deemed Income under Section 69C
4. Levy of Interest under Section 158BFA(1)

Issue-wise Detailed Analysis:

1. Period of Limitation for Passing the Order:

The assessee contended that the order dated 18-5-2007 was passed beyond the period of limitation provided under section 153 of the Income-tax Act. The CIT(A) dismissed this ground, observing that section 153(3)(ii) does not prescribe any time limit for completion of assessment to give effect to findings and directions contained in an order under sections 250, 254, 260, 262, 263, 264, or in an order of any court. The Tribunal upheld this view, noting that section 153(2A) applies only when the entire assessment is set aside or cancelled, which was not the case here. The Tribunal concluded that the provisions of section 153(3)(ii) were applicable, allowing the assessment to be completed without a prescribed time limit.

2. Deduction under Section 37(1):

The assessee's claim for deduction under section 37(1) for Rs. 32,92,196 was initially disallowed by the Assessing Officer and the CIT(A). The Tribunal had earlier restored the matter to the Assessing Officer to verify the nexus between cash payments made and lands purchased and sold. The Assessing Officer, however, did not accept the assessee's contention due to the lack of corroborative evidence. The Tribunal found that the Assessing Officer did not provide specific examples of discrepancies and thus directed a fresh examination of the matter, giving the assessee an opportunity to establish the nexus between the cash payments and the land transactions.

3. Telescoping of Deemed Income under Section 69C:

The assessee sought the benefit of telescoping Rs. 3,85,000 treated as deemed income under section 69C against the undisclosed income of Rs. 1 crore declared for the assessment years 1994-95 and 1995-96. The Tribunal had restored this issue to the Assessing Officer, who subsequently disallowed the claim due to the absence of corroborative evidence. The Tribunal, however, found that the availability of Rs. 3,85,000 out of the declared Rs. 1 crore could not be doubted and allowed this ground, noting that the outflow claimed was small compared to the inflow.

4. Levy of Interest under Section 158BFA(1):

The Assessing Officer imposed interest under section 158BFA(1) amounting to Rs. 6,62,923, based on the delay in filing the block return. The assessee argued that the notice dated 6-7-1998 was not received, and the return was filed within 45 days of the subsequent notice dated 17-9-1998. The CIT(A) and the Tribunal upheld the imposition of interest, noting that the notice dated 6-7-1998 was served on 21-7-1998, and the 45-day period should be reckoned from that date. However, the Tribunal directed the Assessing Officer to verify and exclude the period taken to obtain copies of seized records from the computation of interest.

Conclusion:

The appeal was partly allowed for statistical purposes, with directions for fresh examination of the deduction under section 37(1) and verification of the period for computing interest under section 158BFA(1). The Tribunal upheld the applicability of section 153(3)(ii) regarding the period of limitation and allowed the telescoping of deemed income under section 69C.