2011 (7) TMI 521 - HC - Income Tax

Levy of interest under Section 158BFA(I) - Escaped income - unaccounted expenditure - Held that - In so far as the expenditure of Rs.6,73,750-00 is concerned, it is not an expenditure incurred by the assessee at all. The slips on the basis of which the said claim is made, was not seized in the assessee s premises. They were seized in the premises of the partner of the assessee and categorically stated that the said amount do not relate to the assessee. There is nothing in those documents to connect those expenditure to the assessee. Thus when the said material was not seized at the time of search of the assessee s premises and in no way it is connected with the assessee, the same cannot be the subject matter of the block assessment. In so far as levy of interest is concerned, it is not in dispute that at the time of seizure, cash was seized and kept in the PD account. Without taking into consideration the aforesaid amount, interest is levied by the Assessing Authority up to the dale of filing of the return. It is in that context, it was held that when payment of interest is compensatory in nature, when the amount belonging to the assessee is also in possession of the Revenue it is kept in FD, the said payment is to be taken into consideration in order to determine the tax liability and thereafter they have to determine the delay in payment of tax which alone would give rise to payment of interest. In that regard the appellate Commissioner remanded the matter back to the Assessing Authority to consider that aspect and pass appropriate orders which order has been without any justification, interfered with by the Tribunal. In favour of assessee.

Summary

Issues:
1. Applicability of Section 158BA(3) for cash credits in regular books of account.
2. Addition of cash credit under Section 68 in block assessment or regular assessment.
3. Applicability of Section 158BB(2) for addition under Section 68 in block assessment.
4. Justification of upholding addition determined from slips in block assessment.
5. Application of Explanation to Section 37(1) for expenditure not claimed by the Appellant.
6. Levy of interest under Section 158BFA(I) for delay in filing return.

Issue 1 - Section 158BA(3) Applicability:
The Tribunal was questioned for not applying Section 158BA(3) to cash credits in the regular books of account for the assessment year 2000-01, where the return due date had not passed. The Commissioner of Income Tax (Appeals) found that since the credits were in the books and related to the assessment year 2000-01, no addition could be made in the block assessment. The Tribunal's decision was reversed, stating that disclosed income cannot be treated as undisclosed merely due to lack of substantiating evidence.

Issue 2 - Addition under Section 68:
The dispute arose regarding adding Rs.6.5 lakhs as cash credit under Section 68 in the block assessment. The Appellate Tribunal reversed the Commissioner's decision, leading to an appeal. The High Court held that the amount disclosed in the accounts, even if unverifiable, does not constitute undisclosed income under block assessment. Section 68 could be invoked in regular assessment if needed.

Issue 3 - Section 158BB(2) Application:
The question of whether Section 158BB(2) justifies adding under Section 68 in block assessment when credits are in the regular books was raised. The High Court found that if the material was not seized during the assessee's search and not connected to them, it cannot be part of block assessment.

Issue 4 - Addition from Slips in Block Assessment:
Regarding the addition of Rs.6,73,750 from slips found in a partner's premises, the High Court emphasized that without evidence linking the expenditure to the assessee, it cannot be included in block assessment. The Tribunal erred in interfering with the Appellate Commissioner's reasoned order.

Issue 5 - Application of Explanation to Section 37(1):
The Tribunal's decision to apply the Explanation to Section 37(1) for unclaimed expenditure was challenged. The High Court noted that without evidence linking the expenditure to the assessee, the addition was unjustified, and the Tribunal's decision was set aside.

Issue 6 - Levy of Interest under Section 158BFA(I):
Concerning the levy of interest under Section 158BFA(I) due to delay in filing the return, the High Court found that interest should be calculated after considering amounts seized and held in the PD account. The Tribunal's interference with the Appellate Commissioner's order was deemed unjustified.

In conclusion, the High Court allowed the appeal, setting aside the Tribunal's order and restoring the Appellate Commissioner's decision. The amounts excluded from block assessment could be subject to regular assessment proceedings if found to be escaped income, ensuring justice and proper assessment procedures.