2001 (5) TMI 148 - AT - Income Tax

Summary

Issues Involved:
1. Valuation of property and unexplained investment in house construction.
2. Disallowance of conveyance expenses, telephone expenses, depreciation, interest on car loan, and motor car expenses.
3. Claim of deduction under Section 80HHC.
4. Addition of unexplained cash credits.
5. Addition of unexplained investment in stock.
6. Charging of interest under Section 158BFA(1).
7. Set off of losses.

Detailed Analysis:

1. Valuation of Property and Unexplained Investment in House Construction:
The assessee challenged the addition based on the DVO's report, arguing that the cost of construction declared in the regular return, supported by the registered valuer, should be accepted. The Revenue contended that the CIT(A) erred in allowing deductions for PWD rate and self-supervision. The Tribunal found that the Department had no material evidence to show expenditure outside the books. The reference to the DVO was beyond the scope of Chapter XIV-B of the IT Act, and the statement by Shri Navrattan Duggar, not being a partner, could not bind the firm. Consequently, the Tribunal allowed the assessee's ground and rejected the Revenue's.

2. Disallowance of Conveyance Expenses, Telephone Expenses, Depreciation, Interest on Car Loan, and Motor Car Expenses:
The assessee argued that these disallowances were made on an estimation basis without any seized documents representing undisclosed income. The Tribunal found no material suggesting personal expenditure or undisclosed income and directed the AO to delete the disallowance.

3. Claim of Deduction under Section 80HHC:
The assessee contended that the AO erred in not allowing the deduction under Section 80HHC, despite the audit report being furnished before the search. The Tribunal noted that the entire turnover was export turnover, and the deduction under Section 80HHC should be allowed in computing the total income for the block period. The AO was directed to calculate the deduction and work out the total income accordingly, providing the assessee a reasonable opportunity to be heard.

4. Addition of Unexplained Cash Credits:
The AO treated certain cash credits as unexplained deposits, which the assessee contested, arguing that confirmations were furnished, and the AO did not summon the creditors. The Tribunal found no evidence of the AO asking for the production of creditors and restored the issue back to the AO for fresh examination, ensuring a reasonable opportunity for the assessee.

5. Addition of Unexplained Investment in Stock:
The assessee argued that the stock valuation should be at cost, not market rate, and claimed a reduction for profit margin. The Tribunal found that the AO did not justify rejecting certain purchases and sales, and the valuation at market rate was beyond the scope of Chapter XIV-B. The Tribunal directed the AO to recast the trading account, consider the purchases as genuine, and work out the undisclosed income based on cost, providing a reasonable opportunity to the assessee.

6. Charging of Interest under Section 158BFA(1):
The assessee claimed that interest should be charged for only one month due to a delay of 29 days in filing the return. The Tribunal restored the issue to the AO to verify the facts and charge the correct interest, ensuring a reasonable opportunity for the assessee.

7. Set Off of Losses:
The Revenue contended that the loss claimed by the assessee could not be set off against the block period income as the return was not due. The Tribunal found that the set-off of such loss was not permissible under the scheme of Section 158BB(1) and allowed the Revenue's ground, disallowing the set-off of losses.

Conclusion:
Both the appeals were partly allowed, with specific directions provided for each issue, ensuring compliance with legal provisions and giving reasonable opportunities to the assessee.