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2021 (11) TMI 93 - AT - Income TaxDeduction u/s.36(1)(vii) r.w.s. 36(2) - irrecoverable amount has been identified by the assessee and in the course of statement u/s. 132(4) the assessee offered 40% of such advances as undisclosed income of such advances - quantum of amount to be allowed in the assessee s appeal - HELD THAT - In the present case, the assessee advanced money to various fishermen without keeping any legal and proper documents and if the result of search was any loss to the assessee, then it has to be considered as business loss. Therefore, the assessee s claim has to be allowed in the absence of such enforceable books of account or legal documents. In the present scenario, even advances given with legal documents and securities were unable to be recovered and the assessee who has advanced money to various fishermen in the course of business activity which is undisclosed to the department, the claim of assessee has to be allowed as per statement recorded u/s. 132(4). The authorities cannot reject the statement recorded u/s. 132(4) without bringing any material on record to show that these debts are good so as to recovery from those persons. More so, there was no proper addresses available on record of these debtors so as to contact them for recovery. In this situation, we are of the opinion that these amounts are irrecoverable and the advances made during the course of business activity of the assessee has to be allowed as bad debts (business loss) and on recovery the same has to be taxed. The assessee has confirmed in his sworn statement recorded u/s. 132(4) on 13.10.2000 that 60% of advances made to Canoe and Porceine boat owners are bad debts. With these observations, we allow the grounds raised in appeal by the assessee and dismiss the relevant grounds in the revenue s appeal on this issue. Estimation of net income - HELD THAT - There is a bank balance of ₹ 26,07,363 and physical cash of ₹ 26,970 totalling to ₹ 26,34,333. It is an admitted fact that it is generated from sale transaction of fish. In our opinion, it is fair to estimate only net income at 5% of the deposit by placing reliance on the order of the Tribunal in the case of M.A. Siddique v. DCIT 2020 (8) TMI 835 - ITAT BANGALORE . Condoning the delay in filing block return for the purpose of interest u/s. 158BFA - HELD THAT - As mandatory and consequential in nature and to be computed accordingly in the light of the judgment in CIT Anr. v. Smt. Sire Kanwar Bai 2009 (12) TMI 569 - KARNATAKA HIGH COURT wherein it was held that the interest u/s.158BFA(1) is levied to compensate the Government for withholding the taxes by the assessee and therefore, interest is payable only on the sum found payable by the assessee as per the assessment order as reduced by the tax paid prior to the issue of notice or prior to the last date of filing of the return and it is also supported by the Supreme Court judgment in the case of R.C. Jewellers 2013 (12) TMI 317 - ALLAHABAD HIGH COURT Thus interest u/s. 158BFA(1) being consequential and mandatory in nature to be computed accordingly by the AO while passing giving effect order to our findings in this order. Assessment of undisclosed income as a result of search - Due date for filing the return of income u/s. 139(4) had not expired and assessee filed the return on 9.5.2001 - HELD THAT - The income for AY 2000-01 which is included in the return of income filed by the assessee and not unearthed by the department by way of any incriminating material cannot be considered as undisclosed income of the assessee. Therefore, the deletion of addition is justified. These grounds of the revenue are dismissed. Deletion of surcharge - HELD THAT - In this case, the CIT(Appeals) deleted the surcharge levied by the AO on the reason that search took place in this case on 6.9.2000 and section 113 of the Act was inserted w.e.f. 1.6.2002 and for the assessment year under consideration there was no provision so as to levy surcharge. In our opinion, the finding of the CIT(Appeals) is justified as section 113 of the Act came into effect from 1.6.2002 and search took place in this case on 6.9.2000 and the findings of the CIT(Appeals) are in line with the provisions of the above section. Hence, these grounds are dismissed. Amount receivable on account of fish sales - HELD THAT - Being so, the CIT(Appeals) allowed the claim of the assessee that only profit element of this transaction can be taxed as it would be an asset, since the total cost of fish sales was adjusted out of the advances given to the boat owners. This view of ours is supported by the judgment in the case of Smt. Daya Bai 1985 (1) TMI 39 - MADHYA PRADESH HIGH COURT wherein it was held that under the Income-tax Act, levy of tax twice on the same income is not permissible. In the present case, since the advances made to boat owners was subject to tax out of which fish was supplied and Same was sold and the sale proceeds was shown as receivables from debtors. Allowing relief to the assessee as bad debts / business loss out of advances given to the boat owners is a separate issue. It is because of certain advances given to the boat owners was allowed as business loss, that cannot lead to the conclusion that the entire amount of unaccounted sales is to be taxed. Accordingly, these grounds of the revenue are dismissed. Amounts due to boat owners - HELD THAT - As assessee explained that seized material CS/CS/1 regarding transaction of ₹ 35.47 lakhs is advances made to Purse-sein boat owners and also explained from the chartwise details of advances, there was liability of ₹ 11.57 lakhs which is sum due to the boat owners and credit has been given towards this amount. In our opinion, the outstanding liability due to boat owners and assessee s claim is supported by seized material. The same has to be allowed. We do not find any infirmity in the order of the CIT(Appeals). These grounds of the revenue are dismissed. Liabilities for purchases not paid - HELD THAT - It is an admitted liability on the part of the assessee and related receipt has been taxed in the hands of the assessee. Following the matching principle credit should be given on this account. The department cannot have any grievance on admission of this ground by the CIT(Appeals) as his power is coterminous. Accordingly, these grounds of the revenue are dismissed.
Issues Involved:
1. Validity of the search and assessment order. 2. Treatment of unrecovered advances for the purchase of fish as expenditure or business loss. 3. Deletion of entire balances at bank amounting to ?26,34,333. 4. Levy of surcharge. 5. Exclusion of income for AY 2000-01. 6. Deletion of amount receivable on account of fish sales. 7. Amounts due to Purse-sein Boats Owners. 8. Prior period advances. 9. Liabilities for purchases not paid. 10. Bad debts. Issue-wise Detailed Analysis: 1. Validity of the Search and Assessment Order: The assessee argued that the assessment order should be quashed as the search was invalid. However, this ground was not pressed during the hearing and was dismissed as not pressed. 2. Treatment of Unrecovered Advances for the Purchase of Fish as Expenditure or Business Loss: The assessee claimed 60% of the advances given to boat owners as business loss since they were irrecoverable. The CIT(A) allowed partial relief by treating these advances as business losses under Section 28, not as bad debts under Section 36(1)(vii) r.w.s. 36(2). The Tribunal upheld that the advances made in the course of business should be allowed as business loss, emphasizing that the assessee had identified irrecoverable amounts during the statement recorded under Section 132(4). 3. Deletion of Entire Balances at Bank Amounting to ?26,34,333: The CIT(A) did not allow the assessee to retract from the disclosed income in the block return, stating that once a return has been filed disclosing certain incomes and taxes paid, it cannot be retracted. The Tribunal, however, allowed the assessee to estimate the net income at 5% of the deposit, citing similar cases where only the profit element of undisclosed turnover was taxed. 4. Levy of Surcharge: The CIT(A) deleted the surcharge levied by the AO, reasoning that Section 113, which mandates surcharge, came into effect from 1.6.2002, while the search took place on 6.9.2000. The Tribunal upheld this view, stating that the surcharge provisions were not applicable during the period under consideration. 5. Exclusion of Income for AY 2000-01: The CIT(A) excluded ?96,105 for AY 2000-01, noting that the return was filed within the time allowed under Section 139(4). The Tribunal agreed, stating that income for AY 2000-01 included in the return filed by the assessee and not unearthed by the department cannot be considered as undisclosed income. 6. Deletion of Amount Receivable on Account of Fish Sales: The AO added ?21,24,326 receivable from debtors as undisclosed income. The CIT(A) allowed the claim that only the profit element should be taxed, as the cost of fish supplied was adjusted out of advances given to boat owners. The Tribunal upheld this, preventing double taxation on the same income. 7. Amounts Due to Purse-sein Boats Owners: The CIT(A) allowed the assessee's claim for liabilities amounting to ?11.57 lakhs, supported by seized material. The Tribunal upheld this decision, finding no infirmity in the CIT(A)'s findings. 8. Prior Period Advances: The CIT(A) excluded advances amounting to ?7,53,092 and ?4,16,461, considering them outside the block period. The Tribunal upheld this, noting that the seized material supported the claim that these advances were prior to the block period. 9. Liabilities for Purchases Not Paid: The CIT(A) allowed the assessee's claim of ?3.87 lakhs for liabilities due for purchases, supported by the statement recorded during the search. The Tribunal upheld this decision, emphasizing the matching principle. 10. Bad Debts: The Tribunal dismissed the grounds related to bad debts as infructuous, having already allowed the claim of the assessee as business loss to the extent of 60%. Conclusion: The appeal by the assessee was partly allowed, and the appeal by the revenue was dismissed. The Tribunal's decision emphasized the importance of substantiating claims with evidence and adhering to legal provisions while determining tax liabilities.
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