2013 (8) TMI 635 - HC - Income Tax

Search u/s 132 of the Income Tax Act - Block assessment - Addition on account undisclosed investment based on diary of the assessee - Held that - The Assessing Officer has made the addition in this case on the basis of the diary as if the assessee has advanced money to the farmers. The money so advanced will tantamount to be the investment made by the assessee which can be added only under section 69 in the year in which the advance has been made if it is undisclosed income of the assessee as defined u/s 158B(b). Therefore, we do not agree with the finding of the CIT(A) that computation of the income of a particular Assessment Year within the block period is not relevant. In our opinion, the income has to be first computed in a particular assessment year. If the income will not fall in a particular Assessment Year, it cannot form part of the undisclosed income. Assessee was asked to verify from the DR whether entries in Annexure A-10 were duly recorded in books of account. The D.R. after several sitting with the assessee filed written submissions and reiterated the findings of the Assessing Officer, at the outset, that the assessee has not maintained the regular books of accounts for the assessment year 1998-99, ignoring the fact that the assessment for the assessment year 1998-99 was completed under Section 143 (3). The A.R., however, could not explain the amount of Rs.10,000/-, Rs.15,000/-, Rs.7100/- and Rs.5000/- totalling Rs.1,27,100/-, which was not entered in the regular books of accounts and which was treated as undisclosed income. The assessee had maintained account on computers and that notice in Register A-10 sufficiently explained the entries except an amount of Rs.1,27,100/-, which was treated to be undisclosed income found during the course of search Decided against the Revenue.

Summary

Issues Involved:
1. Legality of ITAT's decision regarding entries in Annexure A-10 as undisclosed income.
2. Verification of entries in Annexure A-10 by the Assessing Officer (AO).
3. Basis of additions made by AO during each assessment year.

Issue-Wise Detailed Analysis:

1. Legality of ITAT's Decision Regarding Entries in Annexure A-10 as Undisclosed Income:
The revenue questioned whether the ITAT was legally correct in holding that all entries in Annexure A-10 could not be regarded as undisclosed income under Section 158B(b) of the Income Tax Act, 1961. The ITAT found that the entries in Annexure A-10 were not undisclosed income since they were recorded in the regular books of accounts. The Tribunal reduced the addition from Rs.1,04,98,275/- to Rs.1,27,100/-, stating that only the amount not recorded in the regular books could be treated as undisclosed income. The Tribunal's decision was based on the fact that the assessee had maintained accounts on computers and sufficiently explained the entries in Register A-10, except for Rs.1,27,100/-.

2. Verification of Entries in Annexure A-10 by the Assessing Officer (AO):
The revenue contended that the ITAT did not afford the AO an opportunity to verify the entries in Annexure A-10. The Tribunal noted that the books of accounts for the financial years 1997-98 and 1998-99 were found during the search and were in the possession of the revenue. The Tribunal emphasized that the AO could not rely on the entries in Annexure A-10 without verifying them against the regular books of accounts. The assessee had filed returns for the years ending on 31.3.1998 and 31.3.1999 before the search, and the balance sheets were approved by the Board of Directors and audited under Section 44AB.

3. Basis of Additions Made by AO During Each Assessment Year:
The revenue argued that the ITAT was incorrect in holding that the additions were made on an estimate basis and not based on evidence found during the search. The AO had added undisclosed hire charges and interest for various assessment years based on seized documents. For instance, the AO added Rs.94,73,289/- for A.Y. 1998-99 based on pencil entries in Annexure A-10, which were not shown in the regular books of accounts. Similarly, additional hire rents were added for A.Y. 1999-2000 and 2000-01 based on discrepancies in the number of bags stored and the disclosed rent. The Tribunal found that the AO's additions were not justified as the assessee had maintained computerized accounts, and the entries were incorporated in the regular books of accounts. The Tribunal only upheld the addition of Rs.1,27,100/- as undisclosed income.

Conclusion:
The Tribunal's findings were based on the evidence that the assessee had maintained regular books of accounts and computerized records. The Tribunal corrected the AO's errors and restricted the undisclosed income to Rs.1,27,100/-. The High Court upheld the Tribunal's decision, stating that the findings were factual and did not raise any substantial question of law. The income tax appeal was dismissed, confirming that the ITAT's decision was legally sound and based on proper verification of the records.