2001 (3) TMI 247 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the block assessment order due to expiry of limitation.
2. Justification of additions made by the AO on account of low withdrawals.
3. Disallowance of expenditure on motor car and telephones.
4. Addition of undisclosed deposits in bank accounts.
5. Addition of unexplained jewellery.
6. Double addition of undisclosed income declared in the block return.
7. Addition based on notings in loose papers.
8. Addition of unexplained advance from M/s Vishesh Videotech.
9. Addition of unexplained source of foreign travels.
10. Disallowance of interest for non-professional loans.

Detailed Analysis:

1. Validity of the Block Assessment Order Due to Expiry of Limitation:
The assessee contended that the block assessment order was passed beyond the prescribed time limit under Section 158BE of the IT Act. The search was completed on 18th Dec 1996, and the assessment should have been completed by 31st Dec 1997. However, the AO argued that the search continued with further authorizations issued on 2nd Jan 1997 and concluded on 22nd Jan 1997. The Tribunal concluded that the assessment completed on 29th Jan 1998 was within the limitation period, as the last authorization was issued on 2nd Jan 1997.

2. Justification of Additions Made by the AO on Account of Low Withdrawals:
The AO made additions for low withdrawals, but the assessee argued that the withdrawals were reasonable given his modest living conditions. The Tribunal noted that the AO's additions were based on mere surmises and without material evidence. It was held that in a block assessment, additions must be based on material found during the search. The Tribunal deleted the addition of Rs. 4,15,733.

3. Disallowance of Expenditure on Motor Car and Telephones:
The AO disallowed a portion of motor car and telephone expenses, assuming personal use. The Tribunal held that in a block assessment, additions must be based on material evidence found during the search. Since the disallowances were based on assumptions and not on any specific material, the Tribunal set aside the disallowances.

4. Addition of Undisclosed Deposits in Bank Accounts:
The AO added Rs. 12,54,752 as undisclosed deposits. The assessee argued that some deposits were explained and others were double-counted. The Tribunal found that the AO had made the addition in a routine manner without considering specific explanations. The issue was set aside to the AO for re-examination based on specific contentions raised by the assessee.

5. Addition of Unexplained Jewellery:
The AO added Rs. 1,86,885 for unexplained jewellery. The assessee contended that the jewellery was recycled and already declared in earlier returns. The Tribunal noted that the jewellery found was less than what was declared in the returns. The issue was restored to the AO for fresh examination.

6. Double Addition of Undisclosed Income Declared in the Block Return:
The assessee declared Rs. 4,59,234 as undisclosed income in the block return, but the AO added the same amounts again. The Tribunal set aside the issue to the AO for proper verification to ensure no double addition.

7. Addition Based on Notings in Loose Papers:
The AO added Rs. 9,89,800 based on notings in loose papers. The assessee explained that some amounts were for corrected cheques for flat purchases and others were not related to him. The Tribunal deleted the addition of Rs. 6,92,000 related to flat purchases but upheld Rs. 2,97,800, directing the AO to consider set-offs against other intangible additions.

8. Addition of Unexplained Advance from M/s Vishesh Videotech:
The AO added Rs. 1,00,000 as an unexplained advance. The assessee argued that it was reflected in the balance sheet filed with the return. The Tribunal deleted the addition, noting that it was already declared in the regular return.

9. Addition of Unexplained Source of Foreign Travels:
The AO added Rs. 5,19,084 for unexplained foreign travel expenses. The assessee provided detailed explanations and evidence for some expenses. The Tribunal set aside the issue to the AO for re-examination based on the detailed explanations provided.

10. Disallowance of Interest for Non-Professional Loans:
The AO disallowed Rs. 36,000 as interest for non-professional loans based on the assessee's statement. The Tribunal deleted the addition, noting that it was already disallowed in regular assessment and should not be added again in the block assessment.

Conclusion:
The Tribunal partly allowed the appeal, setting aside several issues for re-examination by the AO and deleting certain additions made on assumptions and without material evidence. The judgment emphasized the necessity for additions in block assessments to be based on specific material found during the search.