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TMI Blog2011 (3) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... n the course of the assessment made addition on account of claimed expenses being found to be in violation of section 40A(3) of the Act. It was observed that the seized material revealed that ledger containing the details of purchases made against cash payment exceeding Rs. 20,000 which could not be allowed and on that account addition towards undisclosed income had to be made. The assertion of the assessee was that on that account disallowance could not be made. The Assessing Officer did not accept this plea with the following observations : "I do not agree with the argument put forth by the assessee because the examination of seized material shows that cash book and ledger etc., have been maintained by the assessee. Although these cash book and ledger have not been maintained in normal course but it has been noted that the assessee had developed his own accounting system. It is noted that the balance sheet as on 4-4-2000 has been prepared after taking into account the expenses debited in cash book and ledger. Thus, the assessee has taken care of all expenses while preparing the balance-sheet. As the assessee has claimed the expenses, the disallowance under section 40A(3) has rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61 which is brought to tax in the hands of the present assessee." 4. The CIT(A) set aside the addition which view has been upheld by the Tribunal. It was held that section 40A(3) could not be invoked in the case of the assessee where block assessment was by estimate on the basis of GP rate. The finding recorded by the Tribunal is as under :- "We have considered the rival submissions and carefully gone through the material available on the record. The undisputed fact of this case is that a search was conducted at the residential premises of the partners of the assessee and the assessee declared an undisclosed income of Rs. 14,54,500 which was accepted by the Assessing Officer by stating that income so declared was in agreement with the information brought on record. However, the Assessing Officer invoked the provisions of section 40A(3) while passing block assessment order and made the impugned addition. Admittedly, the entries which were taken into consideration by the Assessing Officer were recorded in the books of account found during the course of search, however, no trading and profit and loss account was prepared to determine the income, but the income disclosed by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave no application to block assessment which was a complete Code by itself. Reliance has been placed upon the judgment of Gujarat High Court in Cargo Clearing Agency (Gujarat) v. Jt. CIT [2008] 218 CTR (Guj.) 541. It was also submitted that when assessment was made on the estimation of income by applying GP rate, section 40A(3) could not be invoked. For this proposition reliance has been placed upon the following judgments : (i) CIT v. Banwarilal Banshidhar [1998] 229 ITR 229 (All.); (ii) CIT v. Smt. Santosh Jain [2008] 296 ITR 3242 (Punj. & Har.); and (iii) CIT v. S. Mohammad Dharubudeen [2008] 4 DTR (Mad.) 218. 8. On due consideration of rival contentions, we are of the view that the question has to be answered in the negative, in favour of the revenue. 9. Chapter XIV-B was inserted in the Act by the Finance Act, 1995 providing special procedure for undisclosed income found during the search for the block period. The said Chapter lays down special procedure for the assessment and provides for special rate of tax. Section 158BH provides that unless otherwise provided in the said Chapter, all the provisions of the Act are applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned by the assessee. It is true that under Chapter XIV-B, computation of regular income and computation of undisclosed income has to be worked out separately. However, to arrive at the figure of undisclosed income, the said parallel calculations have to converge in order to work out the difference between the first and the second aggregates of the total incomes/losses of the previous year, in which undisclosed income is taxed under section 113. Therefore, in our view, the concept of a charge on the "total income" of the previous year under the 1961 Act is retained even under Chapter XIV-B. Therefore, section 158BB which deals with computation of undisclosed income of the block period has to be read with computation of total income under Chapter IV of the 1961 Act. Once section 158BB is required to be read with section 4 of the 1961 Act, then the relevant Finance Act of the concerned year would automatically stand attracted to the computation under Chapter XIV-B. Section 158BB looks at section 113." 10. In M.G. Pictures (Madras) Ltd.'s case (supra) Madras High Court considered applicability of section 40A(3) to assessment proceedings Chapter XIV-B and held :- "In our opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 153 of the Act and compares the same with special procedure for assessment of search cases under Chapter XIV-B of the Act it becomes apparent that the normal procedure laid down in Chapter XIV of the Act has been given a go by when Chapter XIV-B of the Act itself lays down that the said Chapter provides for a special procedure for assessment of search cases. The stand of revenue that section 158BH of the Act permits all other provisions of the Act to apply to assessment made under Chapter XIV-B of the Act does not merit acceptance." 12. The above observations are in conflict with the view expressed by Hon'ble the Supreme Court and the Madras High Court. We are, thus, unable to be persuaded by the said view. Accordingly, we hold that section 40A(3) applies to the proceedings to assessment under Chapter XIV-B. 13. As regards the said provision not being taken into account where assessment is by estimation basis on GP rate, the principle invoked in the judgments relied upon is not of universal application. If the estimated income impliedly takes into consideration the expenditure incurred, the said principle may apply. If the expenditures which are legally not permissible has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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