2005 (10) TMI 206 - AT - Income Tax

Block Assessment in search case - assessment completed on protective basis and addition made on substantive basis - Whether the assessee was having cash to that extent on the day when the two persons were intercepted by the police - HELD THAT - The cash was found in the possession of the two persons Shri Hitesh C. Shah and Shri Shailesh M. Bhil and it could be an income of those persons because of unsatisfactory explanation of the money but the two persons even as per the finding of the Assessing Officer were of no means, Shri Hitesh C. Shah being a peon drawing a salary of Rs. 1,200 per month and Shri Shailesh M. Bhil also a peon in Anand Group for the last three years drawing a present salary of Rs. 1,100 per month. Currency notes of Rs. 100, Rs. 50, Rs. 10 and Rs. 5 which were seized by the police are legal tender and any discrepancy in stating their exact denomination may not be a valid ground for making the addition because no account is normally kept for the exact denomination of notes available with a particular person. Therefore, in our opinion, if the cash is there with the assessee as per the books of account maintained and there is no other evidence that the same has been utilized elsewhere, no addition on that ground can be made in the hands of an assessee. We, therefore, hold that in the absence of any material that the cash shown in the cash book has been used by the assessee elsewhere and there was no possibility of that cash being available with the assessee, no addition can be made to the income of the assessee for some minor and insignificant variation about carrying the cash in specific denomination or about the timing of the person who carried the money for depositing in the bank. We, accordingly, delete the addition from the assessment of Anand Autoride Ltd. and the protective addition in the hands of Shri Shailesh M. Bhil and allow these two appeals on this ground. In the case of Anand Autoride Ltd., the other issue is for the addition of income for assessment years 1995-96 and 1996-97 on the ground that these returns have been filed late and another addition on account of salary was made in the case of Shri Shailesh M. Bhil. Since the basis for invoking the block assessment u/s 158BC read with section 158BD was the addition and that has been deleted by us as aforesaid, the addition of the returned income for assessment years 1995-96 and 1996-97 in the hands of Anand Autoride Ltd. and salary income in the hands of Shailesh M. Bhil cannot survive. These have to be processed in the regular assessment to be made against these assessees. In the result, both the appeals of the assessees are allowed.

Summary

Issues Involved:
1. Validity of the addition of Rs. 10 lakhs as unaccounted income.
2. Discrepancies in the statements regarding the source and handling of the cash.
3. Legitimacy of the cash balance recorded in the books of Anand Autoride Ltd.
4. Additional income assessments for the years 1995-96 and 1996-97.

Issue-wise Detailed Analysis:

1. Validity of the Addition of Rs. 10 Lakhs as Unaccounted Income:
The core issue pertains to the seizure of Rs. 10 lakhs by the traffic police from two employees of Anand Autoride Ltd. The Assessing Officer treated this amount as unaccounted income and added it to the income of Anand Autoride Ltd. on a substantive basis. The employees, Shri Hitesh C. Shah and Shri Shailesh M. Bhil, were assessed on a protective basis. The Tribunal examined the statements of the employees and the company's director, as well as the cash book records, and concluded that the cash balance of more than Rs. 10 lakhs was consistently recorded since 19-2-1996. The Tribunal found that the discrepancies in the statements were minor and did not affect the fundamental question of the availability of cash with the assessee. Consequently, the Tribunal held that the addition of Rs. 10 lakhs as unaccounted income was not justified and deleted the addition.

2. Discrepancies in the Statements Regarding the Source and Handling of the Cash:
The Assessing Officer noted several discrepancies in the statements of the employees and the director regarding the source and handling of the cash. These discrepancies included the timing of the cash collection, the denominations of the notes, and the reasons for carrying such a large amount in cash. The Tribunal acknowledged these discrepancies but deemed them insignificant in determining the availability of cash with the assessee. The Tribunal emphasized that the primary question was whether the assessee had the cash as recorded in the cash book, which was affirmed by the records.

3. Legitimacy of the Cash Balance Recorded in the Books of Anand Autoride Ltd.:
The Tribunal scrutinized the cash book of Anand Autoride Ltd., which showed a cash balance of Rs. 10,42,279.32 on 3-8-1996. This balance was carried forward from an opening balance on 1-4-1996. The Tribunal found that the cash balance was supported by a withdrawal of Rs. 9,90,000 from Catholic Syrian Bank Ltd. on 19-2-1996. The Tribunal concluded that the cash balance recorded in the books was legitimate and that there was no evidence to suggest that the cash had been used elsewhere. Therefore, the Tribunal held that the addition of Rs. 10 lakhs as unaccounted income was unwarranted.

4. Additional Income Assessments for the Years 1995-96 and 1996-97:
The Tribunal also addressed the issue of additional income assessments for the years 1995-96 and 1996-97. These assessments were based on the premise that the returns were filed late and included an addition of Rs. 3,200 on account of salary in the case of Shri Shailesh M. Bhil. Since the primary basis for invoking the block assessment under section 158BC read with section 158BD was the addition of Rs. 10 lakhs, which the Tribunal deleted, the additional income assessments for these years could not survive. The Tribunal directed that these assessments be processed in the regular assessment proceedings.

Conclusion:
The Tribunal allowed both appeals, deleting the addition of Rs. 10 lakhs from the income of Anand Autoride Ltd. and the protective addition in the hands of Shri Shailesh M. Bhil. The Tribunal also directed that the additional income assessments for the years 1995-96 and 1996-97 be processed in regular assessment proceedings.