2000 (3) TMI 176 - AT - Income Tax

Summary

Issues Involved:
1. Limitation for completion of block assessment.
2. Additions on account of cash credit and squared up accounts.
3. Addition on account of sarson business for the assessment year 1992-93.
4. Addition based on the Neelgagan Pad found and seized during search and seizure operation.
5. Addition relating to investment in the construction of building at Prathapur.

Summary:

1. Limitation for Completion of Block Assessment:
The assessee contended that the block assessment order dated 26th Dec, 1997 was barred by limitation, arguing that the search conducted on 11th Sept., 1995 should set the deadline for completion of the block assessment as 30th Sept., 1996, u/s 158BE(1). The Departmental Representative argued that the case fell u/s 158BD, making the time-limit for completion one year from the end of the month in which the notice was served (14th Dec, 1996). The Tribunal held that since the search was conducted on an individual and the block assessment was accepted under s. 158BC, the appellant could only be covered under s. 158BD, making the assessment within the limitation period as per s. 158BE(2).

2. Additions on Account of Cash Credit and Squared Up Accounts:
The AO added amounts to the undisclosed income of the assessee based on cash credits shown in the books during different years of the block period. The assessee argued that these credits were included in regular books, audited, and accepted by the Department in previous assessments. The Tribunal agreed with the assessee, stating that the AO stepped out of jurisdiction by doubting the genuineness of the cash credits without any material found during the search establishing undisclosed income. Consequently, these amounts were excluded from the undisclosed income.

3. Addition on Account of Sarson Business for the Assessment Year 1992-93:
The AO added Rs. 4,65,244 as undisclosed income based on unrecorded purchases and sales of sarson in the ledger. The assessee contended that the transactions were commission-based and not directly recorded in the ledger. The Tribunal found that the AO did not follow natural justice principles by not confronting the assessee with the Inspector's report. The issue was set aside to the AO for fresh decision after giving the assessee an opportunity to be heard.

4. Addition Based on the Neelgagan Pad Found and Seized During Search and Seizure Operation:
The AO treated sums based on entries in the Neelgagan Pad as undisclosed income. The assessee denied ownership of these papers and claimed inadequate opportunity to explain them. The Tribunal noted that the AO did not provide a basis for treating the amounts as undisclosed income and did not confront the assessee with the proposed addition. The issue was set aside to the AO for fresh decision after providing the assessee an opportunity to be heard.

5. Addition Relating to Investment in the Construction of Building at Prathapur:
The AO added Rs. 9,17,509 based on a valuation report, doubting the disclosed investment in the building. The assessee argued that the disclosed investments were accepted in regular assessments and no material found during the search indicated undisclosed investments. The Tribunal held that without any material found during the search, the AO was not justified in referring the matter to the DVO and making the addition. The addition was not warranted.

Conclusion:
The appeal was partly allowed, with several additions made by the AO being excluded or set aside for fresh consideration.