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TMI Blog2022 (1) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of accounts as outstanding credits and the same were not written back by the assessee and hence, the Tribunal rightly justified the additions made by the assessing officer as undisclosed income under section 41(1) of the Act, which could not be faulted with, in the opinion of this court. See A.R. ENTERPRISES AND COMMISSIONER OF INCOME-TAX VERSUS BR. SHAH AND OTHERS [ 2013 (1) TMI 345 - SUPREME COURT] as held for the purposes of computation of undisclosed income under Chapter XIVB, an assessee can rebut the Assessing Officer's finding of undisclosed income by showing that such income was disclosed in the return of income filed by him before the commencement of search or the requisition. In other words, when section 158BB(3) is read with section 158B(b), which defines undisclosed income, we reach the conclusion that for income to be considered as disclosed income, the same should have been disclosed in the return filed by the assessee before the search or requisition - No substantial question of law. - Tax Case (Appeal) No. 1512 of 2008 - - - Dated:- 19-1-2022 - Honourable Mr. Justice R. Mahadevan And Honourable Mr. Justice Mohammed Shaffiq For the Appellant : M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the case of the assessee . Whereas, according to the appellant / assessee, the purchases made in the grey market were on adhoc basis and no single purchase exceeded the limit of ₹ 20,000/- and therefore, invoking the provisions of Section 40A(3) is only on presumption. The appellant / assessee also contended before the Appellate Authority that the assessing officer treated the four items of outstanding credits as income as on 31.03.2003 without application of mind to the provision of Section 41 (1) of the Act. Referring to Explanation I to Section 41 (1), which states that loss of expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts , it was contended that the outstanding credits can be treated as income by the Assessing Officer only based on the entries in the books of accounts made by the appellant / assessee and hence, the same cannot be the subject matter of addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest at ₹ 10,51,640/- u/s.158BFA is challenged. On examination of the facts and provisions of law, it is found that the interest u/s.158BFA is chargeable in case of the assessee. However, the AO is directed to re-compute the interest u/s.158BFA at the time of passing the appeal effect order. 5. Aggrieved by the order passed by the Appellate Authority, the Revenue preferred an appeal before the Tribunal and the appellant also filed cross objection. The Tribunal accepted the plea of the Assessing Officer and reversed the order passed by the appellate authority with the following observations: 3.5 Upon a careful consideration we find that it is not at all the Assessing Officer's case that these sums are being taxed u/s.41 (1). When certain trade liabilities of the assessee incurred in the normal course of trade are no longer payable, the same is liable to be included in the income of the assessee and the amount as such is taxable. For this proposition, we rely upon the decision of the Honourable Apex Court in the case of CIT vs. T.V. Sundaram Iyengar and Sons Limited, 222 ITR 344 (SC)..... On the anvil of aforesaid decision, these sums which were tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003-2004. With regard to the remaining entities, on account of the on-going business relationship, they were not reversed in the books of accounts. In any event, the outstanding credits had not been claimed as deduction in any previous years. While so, the Tribunal erred in holding that the sum of ₹ 11,14,465/- has to be treated as undisclosed income and the same is liable to tax. The learned counsel further submits that these amounts indicated in the books of accounts as outstanding credits and there was no other material recovered during the search to conclude that the same were undisclosed income under Chapter XIVB. Whenever addition is sought to be made as undisclosed income , it must be supported by material evidence seized during the search or it should emanate from the materials gathered during the search. In the absence of any material seized during the search to substantiate the addition, it cannot be legally sustainable. Further, the Assessing Officer, on assumption, concluded that the cessation of liability had occurred and therefore, the amounts have to be treated as undisclosed income, but he failed to note that cessation of tax liability is a subject matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd perused the materials placed before us. 11. Concededly, pursuant to the search as well as survey and initiation of the proceedings under section 158BC read with section 158BD, the appellant filed their return for the block period, admitting the total income at ₹ 1,02,00,000/-. The assessing officer, after completing the assessment, computing the total and undisclosed income at ₹ 1,85,47,438/- and raising a total demand of ₹ 62,07,740/-, after deducting the tax already paid by the assessee. The assessee went on appeal before the appellate authority, to whom, two main issues were raised viz., (i)disallowance under section 40A(3) to the tune of ₹ 72,32,972/- and (ii)certain outstanding credits amounting to ₹ 11,14,465/- were treated as income under section 41(1) of the Income Tax Act, 1961. There is no dispute that the first issue was decided in favour of the assessee by the appellate authority and the same was also confirmed by the Tribunal. Regarding the second issue, the appellate authority partly allowed the claim of the assessee by reducing the addition from ₹ 11,14,465/- to ₹ 1,56,776/-. However, the Tribunal set aside the said o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown as outstanding over a substantial period of time and the same were no longer payable by the assessee company, the assessing officer made those credits of ₹ 11,14,465/- as addition treating it as undisclosed income, the details of which are reproduced below: (i) S S Engineers Contracts - ₹ 8,27,914/- (ii) Sriram Sales Suppliers - ₹ 1,33,716/- (iii) Sri Amman Trading Co - ₹ 1,29,776/- (iv) Modern Packers - ₹ 23,060/- 14. It is the stand of the appellant / assessee that they were continuing business transactions with the aforesaid four companies and withholding certain amounts payable to them, due to incomplete work / dispute as regards the quality of materials supplied. However, with respect to the amount of ₹ 8,27,914/-, the same was offered to tax in the return filed for the assessment year 2003-04. In respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. In R.Rangasamy case, mentioned above, on the side of the Revenue, it was held by this court that the filing of returns by the assessee after the date of search and before issuance of notice under Section 158 BD of the Act would not in any manner make the return of income as valid and in such case, undisclosed income determined by the Assessing Officer cannot be said to be illegal. Paragraphs 10 and 11 of the said decision can be profitably extracted below: 10. We disagree with the contention of the assessee. For a case of non-filing of return would be one where the due date for filing a return of income has expired, but no return of income has been filed by the assessee. Section 158 BB of the Act states that in such case the undisclosed income has to be computed as given under (c) (A), (c) (B) and (c) (ca). Thus, the computation of undisclosed income of the block period shall be the aggregate of the income could be determined on the basis of the entries as recorded in the books of accounts. The computation of the undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period, computed in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X
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