2020 (5) TMI 167 - AT - Income Tax

Validity of block assessment - income reported by the assessee is on presumptive basis u/s 44AE - as argued since the search warrant is in joint names, the assessment should have been made as an AOP and therefore, the present assessment in individual capacity of the assessee is bad in law - HELD THAT - This ground has no merit because of this reason that as per section 292CC recently inserted in the Income Tax Act, 1961 w.e.f. 01.04.1976, even in case of joint warrant, assessment has to be separate in individual names. Second technical objection is that search itself is illegal and therefore, the consequent block assessment is bad in law - Regarding this technical objection, we find that an Explanation had been inserted in section 132 by the Finance Act, 2017 w.r.e.f. 01.04.1962 to the effect that the reasons to believe recorded by the income tax authorities under this section shall not be disclosed to any person or any authority or the Appellate Tribunal. The assessee also has not produced any material in support of this ground and therefore, we do not find any reason to interfere in the order of CIT (A) on this issue. Income reported on presumptive basis u/s 44AE by assessee - compute cash available with the assessee towards explanation of source of various investment - whether depreciation should be added because the income declared by the assessee is after depreciation and hence, cash available is such declared income plus depreciation? - CIT (A) rejected this claim by saying that as per the assessee himself, depreciation is only a notional charge on profit and does not involve actual cash outgo and hence, depreciation being a notional charge cannot become source of real asset like cash and gold - HELD THAT -. In our considered opinion, this logic of CIT (A) is not proper. If the income declared by the assessee u/s 44AE only is considered as source of cash and gold found then the amount of depreciation allowable should be added to such accepted source because such income declared u/s 44AE is after reducing allowable depreciation from real cash income and therefore to work out the cash available with the assessee on account of such income should be such income and the amount of allowable depreciation. But there is no finding of AO or CIT (A) about the amount of depreciation allowable on these four trucks during the block period and therefore, we remit this matter back to AO to decide this issue after allowing reasonable opportunity of being heard to the assessee. These grounds are allowed for statistical purposes. Business advance made by the assessee in Anubhav Plantations and VGP Plantations as undisclosed income of block period - main argument is this that these are business advances and since these are not recoverable, it is allowable as business loss against this very addition made by the AO - CIT (A) has rejected this argument by holding that addition has to be made because source of such advances could not be explained by the assessee and regarding claim of it as business loss, no specific finding is given and this claim was rejected by saying that bad debts are allowable u/s 36 (1) (vii) on actual write off - HELD THAT - We feel that these findings of Chandrahas learned CIT (A) are also not sustainable because if the advances are given by the present assessee, its non recovery can be claimed as business loss by the present assessee only and it should be allowed if other pre requirements for claiming such loss is satisfied by the assessee. Actual write off in books is required to claim bad debts but the assessee is claiming it as business loss and not as bad debt u/s 36 (1) (vii). Such claim as bad debt is neither claimable nor allowable for this reason alone that the requirements of section 36 (2) cannot be satisfied for nonrecovery of trade advances. Hence, we will it proper to remand this matter also to the AO for a fresh decision about the claim of the assessee as business loss. We order accordingly and direct the AO to decide this issue by a speaking and reasoned order after affording adequate opportunity of being heard to the assessee. Ground is also allowed for statistical purposes. Interest charged u/s 158 BFA (1) should be deleted - HELD THAT - It is a settled position of law that chargeability of interest is consequential and therefore, this ground is rejected. Levy of surcharge - HELD THAT - In the case of CIT Vs Vatika Township 2014 (9) TMI 576 - SUPREME COURT it was held that levy of Surcharge by insertion of proviso to section 113 of Income Tax Act by Finance Act 2003 is prospective. In the present case, the block period ends on 06.09.2000 and therefore, surcharge cannot be levied in the present case. This ground is allowed.

Summary

Issues Involved:
1. Assessment made as an AOP due to a joint search warrant.
2. Deletion of interest charged under section 158 BFA (1).
3. Cancellation of levy of surcharge.
4. Erroneous and excessive addition made.
5. Computation of cash available based on income reported under section 44AE.
6. Justification of assessing business advances as undisclosed income.
7. Legality of search and consequent block assessment.

Analysis:

1. Assessment made as an AOP due to a joint search warrant:
The appeal raised concerns about the assessment being made in the individual capacity of the assessee instead of as an Association of Persons (AOP) due to a joint search warrant. However, the tribunal dismissed this objection, citing section 292CC of the Income Tax Act, which mandates separate assessments in individual names even with joint warrants. Therefore, the grounds challenging the assessment basis were deemed not maintainable.

2. Deletion of interest charged under section 158 BFA (1):
The additional ground raised by the assessee to delete the interest charged under section 158 BFA (1) was rejected based on the settled legal position that interest chargeability is consequential, leading to the dismissal of this ground.

3. Cancellation of levy of surcharge:
The assessee objected to the levy of surcharge, citing a judgment that deemed the levy prospective. The tribunal concurred, holding that as the block period ended before the surcharge provision came into effect, the surcharge could not be levied in the present case. Consequently, this ground was allowed.

4. Erroneous and excessive addition made:
The grievance regarding an erroneous and excessive addition was not pursued by the assessee during the hearing, leading to the inference that the ground was not pressed and was consequently dismissed.

5. Computation of cash available based on income reported under section 44AE:
The tribunal addressed the issue of computing cash available based on the income reported under section 44AE. It found fault with the CIT (A)'s reasoning that depreciation, being a notional charge, cannot be considered a source of real assets like cash and gold. The tribunal remitted the matter back to the Assessing Officer (AO) to determine the allowable depreciation on the trucks owned by the assessee during the block period, emphasizing the need for a reasoned decision after affording the assessee a fair hearing.

6. Justification of assessing business advances as undisclosed income:
Regarding the addition of business advances as undisclosed income, the tribunal disagreed with the CIT (A)'s rejection of the claim as a business loss. It highlighted that if the advances were given by the present assessee and were non-recoverable, they could be claimed as a business loss by the assessee itself, subject to meeting the necessary requirements. The matter was remanded to the AO for a fresh decision after providing the assessee with a proper opportunity to present their case.

7. Legality of search and consequent block assessment:
The tribunal addressed the objection raised regarding the legality of the search and the consequent block assessment. It noted the insertion of an Explanation in section 132 by the Finance Act, 2017, which restricted the disclosure of reasons to believe recorded by income tax authorities. As the assessee failed to provide any material supporting the claim of an illegal search, the tribunal upheld the CIT (A)'s order on this issue.

In conclusion, the appeal was partly allowed for statistical purposes, with specific grounds being dismissed, remitted, or allowed based on the detailed analysis of each issue raised in the judgment.