2013 (7) TMI 842 - AT - Income Tax

Undisclosed income - Block assessment - CIT(A) deleted the addition - Held that - If the assessee proves that the alleged income is duly recorded on or before the date of search in the normal course in the books of account in respect of an assessment year for which the previous year has not ended then such income is not required to be included in the block period. In the present appeal the case of the Revenue was not that the assessee s personal books of account were seized at the time of search and in those set of books of account there was no entry of deposit of Rs.24,00,000/- on three different dates. The correct factual position was that no search action at all was carried out on the assessee. The assessee was directed to file the return of the block period consequence upon a search conducted on developer, viz., M/s. Vrindavan Developers. In that case of M/s. Vrindavan Developers a search was carried on 21.12.1999 and thereupon it was noted that a land was agreed to be sold by the assessee and in lieu received an advance consideration of Rs.24,00,000/-. That was the start point of action against the assessee. At that point when there was an apprehension of alleged unaccounted transaction in the eyes of Revenue Department then further investigation could have been done then and there. If the Revenue Department had failed to take appropriate measures then the assessee is at liberty to take the legal advantage of those fallacies. Certain measures were taken by the assessee, such as, deposit of advance-tax, entries in the personal set of books of accounts, fixed deposit in the bank, filing of the Income Tax Return and disclosure of capital gain pertaining to the said land, therefore assessee had wisely taken the legal advantage of the provision of the Act, especially when the Revenue had faulted in not taking a timely action. Therefore, in the absence of any cogent material this ground of the Revenue is hereby dismissed.

Issues Involved:
1. Deletion of addition of undisclosed income of Rs.37,00,000/-.
2. Validity of the assessee's retraction of his statement.
3. Treatment of the amount as undisclosed income for the block period.
4. The relevance of the personal books of accounts and fixed deposits.
5. The legal implications of the advance tax payments and the timing of the cash deposit.

Detailed Analysis:

1. Deletion of Addition of Undisclosed Income of Rs.37,00,000/-:
The primary issue in this case revolves around whether the learned CIT(A) erred in deleting the addition of undisclosed income of Rs.37,00,000/-. The Revenue argued that the assessee had admitted to an undisclosed income of Rs.24,00,000/- in a statement recorded under Section 131(1A) of the IT Act on 19th January 2000. This admission was based on a handwritten diary seized during a search at the premises of M/s. Vrindavan Developers, which indicated payments made to the assessee. The AO determined that 1/3rd of the total consideration for the land sale (Rs.1,13,00,000/-) was Rs.37,00,000/-, treating it as undisclosed income. However, the CIT(A) deleted this addition, concluding that the amount was already accounted for in the personal books of accounts and was not to be treated as undisclosed income for the block period.

2. Validity of the Assessee's Retraction of His Statement:
The assessee retracted his statement on the same day it was recorded, claiming that the amount was reflected in his personal books of accounts and not in his business accounts. The CIT(A) accepted this retraction, noting that the statement was not conclusive without corroborative evidence. The Revenue contested this, arguing that the statement was made voluntarily and was binding unless proven otherwise. The CIT(A) relied on several case laws to support the view that the statement alone, without corroborative evidence, was insufficient to establish undisclosed income.

3. Treatment of the Amount as Undisclosed Income for the Block Period:
The Revenue argued that the amount should be treated as undisclosed income for the block period since it was not recorded in the regular books of accounts at the time of the search. However, the CIT(A) found that the amount was deposited in the bank and accounted for in the personal books of accounts, thus falling outside the block assessment. The CIT(A) noted that the personal books of accounts were not found to be bogus, and the amount was disclosed in the regular income tax return, including the capital gain on the sale of land.

4. The Relevance of the Personal Books of Accounts and Fixed Deposits:
The CIT(A) concluded that since the impugned amount was recorded in the personal books of accounts and deposited in the bank as a fixed deposit, it should not be treated as undisclosed income. The Revenue disputed this, arguing that the cash deposit just one day before the statement was recorded indicated an afterthought. The CIT(A) dismissed this argument, stating that the personal books of accounts were legitimate and the amount was disclosed in the regular income tax return.

5. The Legal Implications of the Advance Tax Payments and the Timing of the Cash Deposit:
The Revenue pointed out that the advance tax payments were made only in March 2000, suggesting that the cash receipts were not recorded in the books as of the date of the search. The CIT(A) did not find this argument persuasive, noting that the assessee had taken measures such as depositing the amount in the bank, recording it in the personal books of accounts, and paying advance tax, which indicated that the amount was accounted for. The CIT(A) also emphasized that the assessee was not subjected to a search, and the action against him was based on the search conducted on M/s. Vrindavan Developers.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs.37,00,000/- as undisclosed income. The Tribunal agreed that the amount was recorded in the personal books of accounts and deposited in the bank, thus falling outside the block assessment. The Tribunal also noted that the Revenue failed to take timely action and did not provide sufficient evidence to contradict the assessee's claim. As a result, the ground of the Revenue was dismissed.

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