2003 (6) TMI 185 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the initiation of proceedings under Chapter XIV-B of the IT Act.
2. Source of funds for the cash payment of Rs. 74 lacs.
3. Treatment of the Rs. 12 lacs paid by cheque.
4. Credibility of the parties from whom advances were obtained.
5. Validity of the block assessment under Chapter XIV-B of the IT Act.

Detailed Analysis:

1. Legitimacy of the initiation of proceedings under Chapter XIV-B of the IT Act:
The search was conducted at the premises of Shri Arvind Seth on 1st Feb., 1999, and at the premises of the assessee on 2nd Feb., 1999. The assessee admitted to entering into an agreement for the purchase of property No. C-104, Naraina Vihar, New Delhi, for Rs. 86 lacs, with Rs. 12 lacs paid by cheque and Rs. 74 lacs in cash. The assessee contended that the amount was invested by himself, his wife, and his HUF out of explained sources and could not be regarded as undisclosed income. The Tribunal held that the undisclosed income, if any, should be considered in regular assessment based on books of account and returns filed by the parties, not in block assessment under Chapter XIV-B of the IT Act.

2. Source of funds for the cash payment of Rs. 74 lacs:
The assessee initially admitted that Rs. 60 lacs were paid out of the sale proceeds of unaccounted stock sold in the market. However, later, the assessee claimed that the amount was paid from known sources, borrowings, and advances against future commitments. The CIT(A) and AO found that the subsequent evidence produced by the assessee was fabricated to explain the source of investment. The AO examined the alleged creditors like M/s Jai & Associates, M/s Penguin Chits (P) Ltd., and M/s Parmeshwar Chits (P) Ltd., and found that the transactions were only book entries with no actual cash transaction, leading to the conclusion that the amount paid was out of undisclosed income.

3. Treatment of the Rs. 12 lacs paid by cheque:
The CIT(A) accepted the payment of Rs. 12 lacs by cheque and directed the AO to delete the same from the addition. The Tribunal upheld this decision, noting that the cheque amount of Rs. 12 lacs was not encashed, and thus, it did not have any real value.

4. Credibility of the parties from whom advances were obtained:
The advances from M/s Penguin Chits (P) Ltd., M/s Parmeshwar Chits (P) Ltd., and M/s Jai & Associates were scrutinized. The AO found that the deposits in the books of these companies were not genuine and were fabricated to explain the source of cash paid by the assessee. The Tribunal noted that the advances were duly reflected in the books of accounts of these companies, and if the AO could not verify the genuineness of the deposits, it should be considered as the undisclosed income of the companies, not the assessee.

5. Validity of the block assessment under Chapter XIV-B of the IT Act:
The Tribunal held that the block assessment under Chapter XIV-B was not justified as the investment was reflected in the books of account and returns filed by the parties. The Tribunal referred to the decision of the jurisdictional High Court in CIT vs. Ravi Kant Jain, which stated that undisclosed income should be considered in regular assessment. The Tribunal concluded that the AO did not make a valid case for treating the investment as undisclosed income for block assessment and deleted the addition.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the investment in the property was not undisclosed income and should be considered in regular assessment. The appeal of the Revenue was dismissed, upholding the deletion of Rs. 12 lacs paid by cheque.