2005 (9) TMI 223 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the AO's order.
2. Exclusion of FDRs worth Rs. 1,05,000 from undisclosed income.
3. Exclusion of interest amounting to Rs. 24,246 on the FDRs.
4. Credit for cash withdrawals of Rs. 73,000.
5. Credit for a deposit of Rs. 20,000 in the Bank of Baroda.

Detailed Analysis:

1. Legality of the AO's Order:
The assessee contended that the AO's order was illegal and arbitrary, which was confirmed by the CIT(A). The Tribunal did not specifically address this issue independently but evaluated the legality through the analysis of other grounds.

2. Exclusion of FDRs worth Rs. 1,05,000 from Undisclosed Income:
The assessee argued that the FDRs worth Rs. 1,05,000 were purchased before the block period, and thus should not be included as undisclosed income. The CIT(A) had directed the AO to reconsider this issue in light of information from the Bank of Baroda, confirming the FDRs were acquired on 11th Sept., 1985. The AO, however, did not grant relief, stating the assessee had declared this amount as concealed income for the assessment year 1990-91. The Tribunal referenced the Nagpur Bench decision in Sanmukhdas Wadhwani, which held that income not covered by the definition of undisclosed income cannot be taxed in block assessment merely because it was declared by the assessee. The Tribunal concluded that the FDRs, acquired prior to the block period, should not be included in the assessment for the block period and deleted the addition of Rs. 1,05,000.

3. Exclusion of Interest Amounting to Rs. 24,246 on the FDRs:
Similarly, the interest accrued on the FDRs amounting to Rs. 24,246 was also contested. The CIT(A) and AO had included this interest as undisclosed income. The Tribunal, applying the same rationale as for the FDRs, ruled that since the interest accrued before the block period, it should not be included in the block assessment. Thus, the addition of Rs. 24,246 was deleted.

4. Credit for Cash Withdrawals of Rs. 73,000:
The assessee claimed credit for cash withdrawals of Rs. 73,000 from the Bank of Baroda, which was utilized for deposits and an FDR. The AO did not give credit, arguing the withdrawals were made three years prior. The CIT(A) supported this view, stating the assessee must show actual utilization of the funds for the investments found undisclosed. The Tribunal found the assessee had sufficiently explained the source and utilization of the funds, referencing the wealth-tax assessment that accepted the availability of cash. Therefore, the Tribunal allowed the credit for the cash withdrawals of Rs. 73,000.

5. Credit for a Deposit of Rs. 20,000 in the Bank of Baroda:
The assessee argued that sufficient funds were available to explain the deposit of Rs. 20,000 in the Bank of Baroda on 20th May, 1995. The AO and CIT(A) treated this amount as unexplained. The Tribunal, after considering the assessee's explanations and the available funds, concluded that the assessee had adequately explained the source of the deposit. Consequently, the addition of Rs. 20,000 was deleted.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the additions of Rs. 1,05,000, Rs. 24,246, Rs. 73,000, and Rs. 20,000. The Tribunal also awarded costs of Rs. 5,000 to the assessee for unnecessary litigation, to be paid by the Revenue Department within one month.