2013 (2) TMI 295 - HC - Income Tax

Disallowance of expenditure incurred on coal and fuel - undisclosed income for the block period as provided u/s 158BB(1) - Held that - Assessment can be framed on the basis of material received during the course of search and seizure. Since the spiral pads, the basis of assessment in the year 2003-04 and 2004-05, were recovered during the search carried out on the residential and business premises of the appellants, the disallowance on account of excessive coal is based upon the material recovered during the search operations. In fact, CIT (Appeals) has given benefit to the assessee in respect of adding made in other years only for the reason that material taken in possession pertains to the year 2003-04 and 2004-05. No question of law arises on the basis of such finding of disallowance recorded by the CIT(A) and affirmed by the Tribunal. Disallowance of consumables - Held that - Tribunal has set aside the findings recorded by the CIT(A) on the basis of statement of Shri Raghuvir Singh Dhiman, Factory Manager, recorded on 28.09.2004 and also the payment of cheques shown in the account of other coal traders though the payment was made to M/s S.P. Industrial Corporation. It was found that material available on record suggests the invariability of the expenses claimed by the assessee under the impugned heads. Such finding is a finding of fact on the basis of the documents recovered during the process of search. No substantial question of law arises for consideration in the present appeals.

Summary

Issues:
1. Disallowance of expenses on estimate basis.
2. Justification of disallowance on suspicion basis.
3. Disallowance of expenditure on estimate basis.
4. Legality of estimation basis for undisclosed income.
5. Deviation from Principles of Consistency.
6. Legality and perversity of Tribunal's order.

Analysis:
1. The appeals raised questions regarding disallowance of expenses on an estimate basis. The appellant contested the disallowance based on the consumption of coal and other consumables. The Tribunal upheld the disallowance, citing the material recovered during search operations as the basis for estimation. The Commissioner of Income Tax (Appeals) reduced the disallowance amount for one year due to discrepancies in expenditure percentages. The court found no legal issue with the disallowance based on material evidence.

2. The appellant questioned the justification of disallowance on suspicion basis, arguing against the consistency of the expenses claimed. The Tribunal considered statements and payment records to support the disallowance. The court noted that the findings were based on factual evidence from the search process, leading to the dismissal of this issue for lack of legal grounds.

3. Another issue raised was the disallowance of expenditure on an estimate basis for consumables. The Tribunal reversed the Commissioner's decision based on factual findings from the search operation. The court concluded that no substantial legal question arose from this issue, as the decision was supported by evidence.

4. The legality of estimation basis for undisclosed income under Section 158BB was challenged. The court referenced previous judgments to clarify that assessments can be made based on material obtained during search operations. The disallowance in this case was deemed valid as it relied on evidence recovered during the search, leading to the dismissal of this issue.

5. Allegations of deviation from Principles of Consistency were made, questioning the Tribunal's decision. The court found no legal grounds to support this claim, as the authorities had based their decisions on factual evidence and search findings. This issue was dismissed for lack of legal merit.

6. The final issue raised the legality and perversity of the Tribunal's order. The court, after considering all arguments and evidence presented, dismissed the appeals. The judgment reaffirmed the Tribunal's decisions based on factual findings and legal principles, concluding that no substantial legal questions were raised to challenge the orders.

In summary, the court upheld the disallowances made by the authorities, emphasizing the importance of evidence and material obtained during search operations in determining expenses and undisclosed income. The appeals were dismissed, affirming the decisions of the Tribunal and the Commissioner of Income Tax (Appeals).