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TMI Blog2016 (5) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Commissioner of Income-tax (Appeals)-II,. sustaining the disallowance, under section 40A(3) of the Income-tax Act, 1961, in the computation of "undisclosed income", under section 158BC of the Act. 3. The brief facts of the case are as follows : 3.1. The appellant is the proprietor of A. R. C. Ganesh Kumar and Company dealing in gold jewellery. The Department had carried a search, in terms of section 132 of the Act, on May 23, 2003, simultaneously, at the residential, as well as at the business premises of the appellant, at Mayiladuthurai, Neyveli and at Chennai. 3.2. Consequent to the search operations, a notice, under section 158BC of the Act, had been issued, calling for the block return relating to the block period, from April 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments, had been made by payment of cash and the details of the quantity contained in the loose sheets, in respect of each purchase, indicate that the quantity purchased is more than 40 grams of gold jewellery. As such, it could be seen that the purchase expenditure would be more than Rs. 20,000, adopting the rate of Rs. 500 per gram. Thus, the expenditure towards the entire purchase of gold jewellery would work out to 40,118.179 grams. The statutory disallowance of 20 per cent. of the said amount, as per section 40A(3) of the Act, is arrived at Rs. 40,11,818. The said amount is disallowed and added to the income returned by the asses see. 3.5. The assessee had challenged the said order passed by the Assessing Officer, before the Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a search and seizure case, where the addition had been made on the basis of the materials found, evidencing unaccounted purchase in cash. It could be distinguished from a case in which there was no search and seizure. As such, section 40A(3) could be applicable to the facts and circumstances of the present case. 3.8. Challenging the dismissal of the appeal, the assessee had preferred a second appeal before the Income-tax Appellate Tribunal, Chennai, "B" Bench, Chennai. Considering the various issues raised before it, the Appellate Tribunal had held in its order, dated June 16, 2006, that, while computing the undisclosed income of the block period, the provisions of section 40A(3) of the Act would be applicable in respect of the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 40A(3) of the Act, have no application to the facts of the case. The Tribunal had failed to appreciate that the pre-conditions incorporated in the said section had not been satisfied, to make the disallowance, in the computation of undisclosed income. Having accepted the peak purchase for the purpose of assessment of undisclosed income, consequent to the seizure of the loose sheets, the disallowance under section 40A(3) of the Act was erroneous and incorrect and unsustainable in law. The Tribunal had failed to appreciate the fact that there was no evidence, whatsoever, to substantiate the fact relating to the purchase of gold jewellery, in cash, exceeding Rs. 20,000, even though certain loose sheets had been seized duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is clear that where disallowance is made under section 40A(3) of the Act in respect of entries made in regular books of account, which have no relation with the undisclosed income, or the entries not recorded in the books of account or documents unearthed during the search, such allowance cannot be treated as part of the undisclosed income. However, if such expenditure relates to undisclosed income found during the search, the disallowance under section 40A(3) of the Act, would be justified. The Tribunal had held that while computing the undisclosed income of the block period, the provisions of section 40A(3) of the Act would be applicable in respect of payments made for the purchase of gold, exceeding the amount of Rs. 20,000, as such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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