2002 (11) TMI 290 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance u/s 40A(3)
2. Addition on account of excess undisclosed income
3. Addition on account of peak credit of cash transactions found in seized diary

Summary:

1. Disallowance u/s 40A(3):
The Revenue challenged the CIT(A)'s direction to delete the disallowance of Rs. 62,224 and Rs. 47,345 made u/s 40A(3). The AO noticed cash payments made by the assessee in amounts less than Rs. 10,000 on the same day in multiple receipts, which he believed invoked s. 40A(3). The CIT(A) deleted the disallowance, relying on the Orissa High Court's decision in CIT vs. Aloo Supply Co. and opined that such disallowance could not constitute undisclosed income for Chapter XIV-B purposes. The Tribunal upheld the CIT(A)'s decision, referencing similar cases where disallowance u/s 40A(3) was held outside the ambit of Chapter XIV-B.

2. Addition on account of excess undisclosed income:
The Revenue contested the CIT(A)'s direction to delete an addition of Rs. 1,71,398 on account of excess undisclosed income. The Tribunal noted that a similar issue had been decided in favor of the assessee in a previous case, Dy. CIT vs. Sanmukhdas Wadhwani, and upheld the CIT(A)'s decision to adopt the undisclosed income at Rs. 8,28,607 instead of Rs. 10,00,000 as originally returned by the assessee.

3. Addition on account of peak credit of cash transactions found in seized diary:
The Revenue disputed the CIT(A)'s deletion of an addition of Rs. 51,90,000 made by the AO based on peak credit of transactions recorded in a seized diary. The AO treated the peak amount as undisclosed income, relying on the assessee's statement u/s 132(4). The assessee retracted the statement, claiming it was made under pressure and provided evidence of borrowings from creditors. The CIT(A) admitted additional evidence, including affidavits and VDIS declarations from creditors, and concluded that the transactions represented borrowings, not undisclosed income. The Tribunal upheld the CIT(A)'s decision, noting the prolonged search operations suggested coercion, and the assessee successfully retracted the statement with corroborating evidence.

Conclusion:
The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decisions on all issues.