2004 (1) TMI 303 - AT - Income Tax

Summary

Issues Involved:
1. Addition of unexplained cash transfer under Section 69A.
2. Addition on account of advance from debtors.
3. Addition of cash found but not seized during the search.

Detailed Analysis:

1. Addition of Unexplained Cash Transfer under Section 69A:
The first ground of appeal concerns the addition of Rs. 59,29,670 for the assessment year 1997-98 and Rs. 1,85,000 for the assessment year 1998-99 (part) made on account of unexplained cash transfer to the assessee. The AO invoked provisions of Section 69A based on entries in the personal diary of Sri K.D. Paul. The CIT(A) deleted the additions, accepting the explanation that the amounts were cash collections on behalf of ADPL and were reflected in the books of account. The Tribunal upheld CIT(A)'s decision, noting that there was no direct or circumstantial evidence to establish that Sri K.D. Paul had actually transferred Rs. 50,80,000 to the assessee. The Tribunal emphasized that tax liability cannot be based on suspicion and that the CIT(A) was justified in deleting the addition.

2. Addition on Account of Advance from Debtors:
The second and third grounds of appeal relate to the aggregate addition of Rs. 1,26,32,748 made by the AO on account of advances from debtors. The AO found certain advances recorded on loose papers during the search. The assessee explained that these were advances from retailers and wholesalers against future supplies. The CIT(A) verified the records and found that the advances were adjusted against sales recorded in the books of account. The Tribunal upheld CIT(A)'s findings, noting that the Inspector's report confirmed the practice of advance payments in the trade and that the advances had been adjusted against sales. The Tribunal also referenced the Gujarat High Court decision in CIT vs. Shambhulal C. Bachkaniwala and the Delhi Tribunal decision in Smt. Sheela Agarwal vs. Dy. CIT, supporting the view that additions in block assessment must be based on material found during the search.

3. Addition of Cash Found but Not Seized:
The final ground concerns the addition of Rs. 3,11,332 on account of cash found but not seized during the search. The assessee explained that the cash represented collections made by sales representatives and provided supporting documents. The AO rejected the explanation, noting that the documents were not part of the seized record. The CIT(A) found no justification for the addition, accepting the assessee's explanation. The Tribunal upheld CIT(A)'s decision, noting that the cash was part of normal business activity and was accounted for in the books. The Tribunal found no reason to reject the explanation and thus declined to interfere with CIT(A)'s order.

Conclusion:
In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the additions on all grounds. The Tribunal emphasized the need for direct or circumstantial evidence to support additions in block assessments and found that the explanations provided by the assessee were satisfactory and supported by the records.