2005 (5) TMI 242 - AT - Income Tax

Issues Involved:
1. Deletion of undisclosed income based on unaccounted transactions and seized documents.
2. Addition based on computer floppies.
3. Addition on account of income from special medical camps.
4. Addition for educational expenses of the assessee's son.
5. Addition for unexplained investment in building construction.
6. Addition for unexplained expenditure on a foreign trip of the assessee's son.
7. Addition for unexplained jewellery.
8. Levy of surcharge on tax on undisclosed income.

Detailed Analysis:

1. Deletion of Undisclosed Income Based on Unaccounted Transactions and Seized Documents:
The AO determined undisclosed income of Rs. 7,77,500 based on daily statements of receipts and expenditure seized during the search. The CIT(A) deleted this addition, stating that the estimation of income for the remaining period without incriminating documents was incorrect. The CIT(A) relied on various decisions that only entries found in seized documents could be considered for computing undisclosed income. The Tribunal restored this issue to the CIT(A) for reconsideration, emphasizing that the amendment to Section 158BC(b) allows for the application of Section 145 to block assessments, thus permitting estimation based on material found during the search.

2. Addition Based on Computer Floppies:
The AO made an addition of Rs. 11,09,802 based on data from computer floppies seized during the search, which showed unaccounted receipts for a limited period. The CIT(A) deleted this addition, arguing that there was no evidence of undisclosed income for the remaining period. The Tribunal restored this issue to the CIT(A) for fresh consideration, highlighting that the amendment to Section 158BC(b) allows for the application of Section 145 to block assessments.

3. Addition on Account of Income from Special Medical Camps:
The AO added Rs. 1,30,000 as undisclosed income from special medical camps. The CIT(A) deleted this addition, noting that the income from these camps was duly recorded in the books of Dr. A.L. Adlakha (HUF) and that no seized documents indicated undisclosed income. The Tribunal upheld the CIT(A)'s decision, finding no evidence that the income belonged to the assessee.

4. Addition for Educational Expenses of the Assessee's Son:
The AO added Rs. 1,00,000 for unaccounted educational expenses of the assessee's son. The CIT(A) deleted this addition, noting that the assessee had already surrendered Rs. 50,000 to cover unaccounted expenses and that no further incriminating material was found. The Tribunal upheld the CIT(A)'s decision, finding no basis for the additional Rs. 1,00,000.

5. Addition for Unexplained Investment in Building Construction:
The AO added Rs. 13,80,358 based on a DVO report estimating the cost of construction. The CIT(A) deleted this addition, noting that no material was found during the search indicating undisclosed income used for construction. The Tribunal upheld the CIT(A)'s decision, stating that no addition could be made based on the DVO report alone without evidence of unexplained investment.

6. Addition for Unexplained Expenditure on a Foreign Trip of the Assessee's Son:
The AO added Rs. 20,000 for unexplained expenditure on a foreign trip. The CIT(A) deleted this addition, noting that the expenses were accounted for in the bank statements. The Tribunal upheld the CIT(A)'s decision, finding no basis for the addition.

7. Addition for Unexplained Jewellery:
The AO added Rs. 2,04,147 for unexplained jewellery, doubting the claim that it was inherited. The CIT(A) deleted this addition, accepting the explanation and the registered will. The Tribunal upheld the CIT(A)'s decision, finding the explanation reasonable and supported by evidence.

8. Levy of Surcharge on Tax on Undisclosed Income:
The AO charged a surcharge on the tax on undisclosed income. The CIT(A) deleted the surcharge, citing Tribunal decisions that surcharge was not applicable for searches conducted before 1st June 2002. The Tribunal upheld the CIT(A)'s decision, confirming that surcharge was not leviable for searches before this date.

Conclusion:
Both appeals were partly allowed for statistical purposes, with several issues remanded to the CIT(A) for fresh consideration, particularly in light of the retrospective amendment to Section 158BC(b) allowing the application of Section 145 to block assessments. The Tribunal upheld the deletion of certain additions and the non-levy of surcharge.

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