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TMI Blog2014 (11) TMI 565X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) No.1245 of 2007 was admitted on the following substantial question of law: "Whether, on the facts and circumstances of the case, the Tribunal is right in holding that in a block assessment under Section 158BC of the Income Tax Act irrecoverable advances made in the course of money lending business cannot be allowed as a deduction in computing the assessable income?" 4.1. The facts in a nutshell are as under: A search was conducted under Section 132 of the Income Tax Act (for brevity, "the Act") on 24.9.1998 and certain incriminating documents were seized and heavy investments were noticed. Based on the materials, a notice under Section 158BC of the Act was issued and in response to the same, the assessee filed a return of income. 4.2. The rival claims of the assessee and the department and the findings rendered by the Original Authority, First Appellate Authority and the Tribunal on each of the issues raised is as under: OPENING CASH BALANCE - (C.M.A.No.1244 of 2007) 4.3.1. The assessee claimed Rs. 5,00,000/- as opening balance for the assessment year 1989-1990 in the cash flow statement filed along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sum of Rs. 90,000/- was treated as undisclosed income, stating that it cannot be treated as capital receipt. 4.4.3. Aggrieved by the same, the assessee went on appeal to the Commissioner of Income Tax (Appeals), who held that the amount received by the assessee as honorarium from friends and family on resolution of disputes could be termed as casual and non-recurring type. Thus, he deducted a sum of Rs. 5,000/- under Section 10(3) of the Act and the balance amount of Rs. 85,000/- was brought to tax. 4.4.4. The assessee appealed to the Tribunal, which confirmed the order passed by the Commissioner of Income Tax (Appeals). BAD DEBTS - (C.M.A.No.1245 of 2007) 4.5.1. In the course of the search, it was found that there were certain entries showing that the assessee had given a sum of Rs. 3,50,000/- to one Pothiraj and it was stated by the assessee that he could not recover the said amount despite lodging of a complaint with the police. Thereafter, the said Pothiraj passed away and as a complete settlement towards the loan taken by Pothiraj, he took over 58 Cents of land at Kannanendal Village. 4.5.2. The Assessing Officer held that even though the assessee claims to have lent m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence], as reduced by the aggregate of the total income, or, as the case may be, as increased by the aggregate of the losses of such previous years, determined. ... ** Substituted for 'in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer' by the Finance Act, 2002, w.r.e.f. 1.7.1995.'" 7.2. According to the learned counsel for the assessee, the Assessing Officer made certain deductions for the years prior to 1988 as probable expenditure and, thus, came to the conclusion that the opening balance of Rs. 5,00,000/- as on 1.4.1988 is incorrect. Expatiating the said plea, he contended that as the department has accepted the sum of Rs. 5,00,000/- as opening balance, they cannot rely upon the so-called expenditure of the period prior to 1.4.1988 for disallowing the claim of opening balance of Rs. 5,00,000/-, and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, 2002, would make no difference insofar as the present case is concerned, as the Assessing Officer has taken into consideration the cash flow statement as admitted by the assessee for the purpose of computation of undisclosed income for the block period. To buttress this argument, he relied upon the annexure to the assessment order and the summary, which are relevant to the present issue and read as under: I. Y.E. 31.3.1989 (Asst. Year 1989-90) a. Investments made as per Records/Materials 1. Drawings Rs.45,000.00 2. Investments Rs. NIL Total Rs.45,000.00 b. Sources available as per Records/Materials 1. Opening balnace of Rs. 5,00,000 in the TB - Taken at Rs. 2,50,000 as directed by the JCIT Range II, Madurai Rs.2,50,000.00 2. Salary Rs. 22,000.00 Rs.2,72,000.00 c. Excess fund available (A-B) Rs.2,27,000.00 II. Y.E. 31.3.1990 (Asst. Year 1990-91) a. Investments made as per Records/Materials 1. Drawings Rs.57,000.00 III. Y.E. 31.3.1991 (Asst. Year 1991-92) a. Investments made as per Reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed income was determined after giving due weightage to the drawings for each of the block years. He pleaded that if there were drawings out of the funds for each block assessment year, the assessee cannot claim that the entire amount of Rs. 5,00,000/- remained as such till 1.4.1988, namely, the beginning of the block assessment. In support of this plea, he placed emphasis on the reasoning given in the assessment order, based on the cash flow statement furnished by the assessee, which is in the following terms: "On the opening balance of Rs. 5,00,000 (2 issue) I am of the opinion that the assessee is not entitled to get this benefit. First function was celebrated somewhere in 1979 and second function was celebrated in 1985. The assessee presumed that the moi receipts were kept intact till 1.4.88. The assessee was also not able to produce evidence in what form the moi receipts were kept. When he is receiving moi from various parties/relatives it is also mandatory on the part of the assessee to pay back to the parties/relatives on occasion like ear boring/house warming/marriage etc., if not more, an equal amount as moi. For the function the assessee would have spen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt, we find that for drawing this inference the Assessing Officer has stated that some expenditure should be allowable for the previous years. We do not find any error in such a reasoning, given the statement of the assessee in the cash flow statement that for ten long years his drawing is around Rs. 50,000/- to Rs. 75,000/- during every block year. In view of the admission of the assessee that there is a drawing of certain amount during every block year, which we have already set out in the previous paragraphs, the assessee cannot claim that there was no drawing at all prior to the block assessment period 1989-1990. 9.4. The contention of the learned counsel for the assessee that amount fixed as opening cash balance is based on no material itself cannot be countenanced, because the cash flow statement of the assessee is a record which speaks for itself. Nothing more is required for the Assessing Officer in the course of search to determine the opening cash balance and for computation of the undisclosed income for the block period. What is relevant for computation of undisclosed income under Section 158BB of the Act is not merely evidence found as a result of the search, but ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision Bench of this Court following the decision in CIT v. Ajit Kumar, [2008] 300 ITR 153 (Mad.) held that there was no material found during the course of search operation and, therefore, it cannot be the basis for making addition in the block assessment. Hence, all these decisions do not throw any light on the plea made by the assessee. 9.6. On the contrary, Mr.Swaminathan, learned Standing Counsel was at pains to point out a decision of the Kerala High Court in Vengat Bava v. Commissioner of Income Tax, [2009] 318 ITR 276 (Ker.). In the said decision, based on cash flow statement furnished by the assessee, certain additions towards unexplained investments and expenditure were made and additions to cash credit was also made. Under such circumstances, a Division Bench of the Kerala High Court held that when assessment is based on the materials gathered on inspection which showed proof of investment in landed properties and expenditure in the course of time under various heads, addition under Sections 68 and 69 of the Act is permitted in an assessment under Section 158BB read with Section 158BC of the Act. This is in line with the key word in Section 158BB of the Act that it sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld rest on the assessee to show as to how the sum of Rs. 90,000/- was received by him either in kind or in value. There being no material to substantiate that, the mere statement of the assessee is of no avail and the department was, in our considered opinion, justified in treating the balance amount of Rs. 85,000/- as undisclosed income, giving exemption to the extent of Rs. 5,000/- as per Section 10(3) of the Act. 10.6. In such view of the matter, the second question of law is answered against the assessee and in favour of the Revenue. BAD DEBTS - (C.M.A.No.1245 of 2007) 11.1. This issue relates to the advances made by the assessee to one Pothiraj to the tune of Rs. 3,50,000/- and his claim that it has become bad debt. It is on record that after the demise of Pothiraj, as a complete settlement towards the loan taken by Pothiraj, the assessee took over 58 Cents of land at Kannanendal Village worth about Rs. 64,600/-. 11.2. Even though the Assessing Officer brought to tax Rs. 3,50,000/- given as loan and Rs. 64,600/- being the value of land, the Commissioner of Income Tax (Appeals), directed deletion of Rs. 3,50,000/-. However, the Tribunal reversed the said finding relying up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot because the creditor assessee has decided to treat it so at a particular time, but because at a particular point of time it was no longer possible to recover such debt. The debtor had no means to recover the same and thereby recovery would not be possible and these facts are to be established by the assessee. 15. In the present case, the Assessee has not written off the bad debt in the books of accounts. The assessee has not furnished details like the date on which the debt has become bad and when the assessee has written it off as bad debt etc. In fact, there is no books of accounts at all in this case and there is no seized material to show that the debt has become bad. In the block assessment, undisclosed income has to be computed in accordance with the provisions of the Income-tax Act on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence. Where there is no evidence to suggest that the debt has become bad and the seized material also does not suggest that the debt has become bad, it cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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