2010 (1) TMI 686 - AT - Income Tax

Cheques received from parties to secure advanced made to parties - Addition made on the basis of unencashed cheques - Unaccounted loans - AO says, the practice of taking cheques against supply orders is not convincing by its uncommon nature in this line of business. According to the AO, supply is made on credit basis for a period ranging from 15 days to 2 months - Held that - It is not in dispute that the cheques which were found in the course of search were cheques issued by various parties to whom advances were made in cash out of undisclosed income - Correct terminology has been used by the Tribunal in the brother s case and that is the amount which has not been recovered by the assessee is telescoped against the undisclosed income assessed on the basis of the same cheques - It is well established that on the same set of facts, a Co-ordinate Bench of the Tribunal cannot come to a diametrically opposite conclusion than arrived at in the earlier case - Decided in favor of assessee.

Issues Involved:
1. Deletion of addition of Rs. 10 lakhs as undisclosed income.
2. Deletion of addition of Rs. 5.75 lakhs as undisclosed income.
3. Charging of surcharge.

Detailed Analysis:

1. Deletion of Addition of Rs. 10 Lakhs as Undisclosed Income:
The first issue pertains to the addition of Rs. 10 lakhs, which the AO treated as undisclosed income based on cheques found during search and seizure proceedings. The AO's stance was that the cheques were obtained against loans, supported by the assessee's sworn statement. However, the assessee argued that the cheques were security for supply orders, which the AO did not accept due to lack of evidence. The CIT(A) deleted the addition, concluding that the cheques were related to business transactions and not loans, supported by documentation and correspondence between the parties involved. The Tribunal found that the CIT(A) did not adequately address the AO's findings and decided to set aside the CIT(A)'s order, remanding the issue back to the AO for fresh consideration.

2. Deletion of Addition of Rs. 5.75 Lakhs as Undisclosed Income:
The second issue involves the deletion of Rs. 5.75 lakhs, which the AO treated as undisclosed income based on loans advanced to various entities. The assessee contended that these loans had become irrecoverable. The CIT(A) accepted the assessee's plea, citing a similar decision in the case of the assessee's brother, where the Tribunal had allowed the telescoping of the amount claimed as bad debt against undisclosed income. The Tribunal, however, had differing opinions among its members. The learned JM argued for reconsideration by the AO, while the learned AM upheld the CIT(A)'s decision, citing the principle of stare decisis and consistency with the earlier Tribunal decision. The Third Member concurred with the learned AM, emphasizing that the facts were identical to the brother's case and that the CIT(A) was correct in deleting the addition. Consequently, the majority opinion upheld the deletion of Rs. 5.75 lakhs.

3. Charging of Surcharge:
The final issue pertains to the levy of surcharge. Both parties agreed that, based on the Supreme Court's decision in CIT vs. Suresh N. Gupta, surcharge could be levied even in cases where the search was conducted before 1st June 2002. Therefore, the Tribunal reversed the CIT(A)'s order and restored the AO's decision to levy the surcharge, directing that the quantum of surcharge would depend on the reassessment.

Conclusion:
The Tribunal's decision resulted in the partial acceptance of the Revenue's appeal. The deletion of Rs. 10 lakhs was remanded back to the AO for fresh consideration, the deletion of Rs. 5.75 lakhs was upheld based on majority opinion, and the levy of surcharge was restored as per the Supreme Court's ruling.

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