Income Tax Appellate Tribunal - Cochin
Eastern Retreads (P) Ltd. vs Assistant Commissioner Of Income Tax on 17 November, 1998
Equivalent citations: (2000)66TTJ(COCH)839
ORDER
M. M. Cherian, A.M. This appeal is directed against the order passed by the Assistant Commissioner, Central Circle-II, Ernakulam under section 158BC of the Income Tax Act on the assessee, M/s Eastern Retreads (P) Ltd., Moovattupuzha for the block period from 1-4-1986 to 17-6-1996.
2. There was a search conducted by the department on 17-6-1996, in the business premises of the assessee-company and also in the residence of the directors. The assessee filed the return of income in response to a notice issued under section158BC. The assessing officer completed the assessment determining the total undisclosed income of the block period at Rs. 13,96,100. The additions have been made for the assessment years 1994-95 to 1997-98 mainly as credits, disallowance under section 40A(3) of the Income Tax Act and also estimated disallowance of commission payments. There is also addition of Rs. 10,000 as disallowance of motor car expenses, treating the same as undisclosed income for the assessment year 1994-95, even though the disallowance had been made earlier in the regular assessment completed on 4-3-1997 under section 143(3) of the Income Tax Act. The addition as undisclosed income of the block period on account of unproved cash credits was to the extent of Rs. 3,72,000 as under :
Rs.
Assessment year 1994-95 1,87,000 Assessment year 1995-96 1,85,000 3,72,000 For the assessment year 1995-96 there was also addition of Rs. 1,04,165 as undisclosed income representing the deposits in current account No. 186 with the State Bank of India, Avoli.
3. The assessee is in appeal before the Tribunal challenging the additions and the assessment of the undisclosed income of the block period at Rs. 13,96,100. Shri R. Krishnan, chartered accountant, appeared before us at the time of hearing of this case. Shri Amba Sankar Dev, the Senior Departmental Representative, appeared for the revenue.
4. The main contention of the learned representative of the assessee is that the assessment has been made without giving the assessee adequate opportunity to prove the source of the credits, as the assessing officer was in a hurry to complete the assessment before the time-barring date. Shri Krishnan pointed out that the assessing officer first issued a letter to the assessee on 15-5-1997, to explain the source of the credits and to furnish clarification on various matters and that the assessee gave the reply on 28-5-1997, and again another letter on 13-6-1997, giving clarification on all the points. The paper book filed before us by the learned representative contains copies of these letters. The assessment was completed on 23-6-1997, after getting the approval of the Commissioner of Income Tax, Central, Madras on 20-6-1997. The learned representative submitted that the assessing officer must have sent the draft assessment order and the file to the Commissioner of Income Tax, Central, Madras immediately after the receipt of the assessee's letter dt. 13-6-1997 without proper verification of the facts and applying his mind on the various points as clarified in the letter. It was his contention that the assessee was denied adequate opportunity to present the case, as the assessing officer has to complete the assessment after getting the approval of the Commissioner of Income Tax before 30-6-1997, He admitted that confirmation letters to prove the genuineness of some of the credits in the assessee's books of accounts could not be furnished on account of insufficient time available with the assessee. It was admitted that the letters confirming the credits in the name of Manoj Mathew, Beiju Joseph, Baby Verghese. P.A. Anto, Vincent Varghese, Reji Mathew, Vinaynath and Niza Zakeer were not furnished before the assessing officer. The paper book contains copies of the letters said to have been received from those persons. It was the contention of the learned representative that if the assessing officer had given more time, the assessee could have furnished evidence to show that all those were genuine credits. Shri Krishnan also raised another contention that the assessing officer was not correct in treating as undisclosed income of the block period any amount which was treated as disallowance under any provisions of the Income Tax Act. It was his contention that even if the expenditure was found as disallowable invoking the provisions of section 40A(3), the disallowance would not form the undisclosed income of the block period for the purpose of assessment under section 158BC. There was the further submission that the disallowance of Rs. 26,045 out of the advertisement expenses had been made without calling for any evidence. His argument was that in short, it was not a proper assessment of the undisclosed income in exercise of the powers under section 158BC.
5. We have given due consideration to the submissions on both sides and gone through the documents furnished by the assessee's representative in the paper book. At the outset, it appears that the assessing officer has made the assessment in a hurry as the order was to be passed before 30-6-1997, after getting approval of the Commissioner of Income Tax, Central, Madras, The assessing officer. took up the case for hearing and issued a detailed letter to the assessee on 15-5-1997, asking for clarification on various matters and also evidence in support of the credits appearing in the assessee's books. The assessee gave the reply on 28-5-1997, clarifying a number of points and stated that in support of the credits totalling Rs. 3,60,000 confirmation letter would be furnished later. Later, the assessee gave another letter on 13-6-1997 along with which letters of confirmation were filed from 12 persons. From the remaining creditors no letters were filed. The assessee got the confirmation letters from the remaining parties only later, but by that time the assessment was over and so the assessing officer could not act on those letters. It is clear that the assessing officer so could not wait any longer for the confirmation from the creditors as he had to rush with the assessment. Though the paper book filed before us contains copies of the confirmation letters, we do not accept the same without giving the assessing officer an opportunity to verify the genuineness and make enquiries. We are of the view that in the interests of justice, the matter should go back to the assessing officer so that the assessee would then get an opportunity to prove the remaining credits res genuine.
6. We also find merit in the contention of the learned representative that certain expenses have been disallowed without calling for any explanation or evidence from the assessee. Shri Krishnan submitted before us that the assessing officer was not correct in making the disallowance of Rs. 26,049 out of advertisement expenses without asking the assessee to furnish any evidence. He raised a strong plea before us that no clarification was sought from the assessee regarding the purpose for which the expenses had been incurred. In the paper book filed before us the assessee has included copies of the bills from various parties in support of the advertisement expenses, but then, we are of the view that it is for the assessing officer to make proper verification and for the assessee to prove that the entire expenses had been incurred for the purpose of the business. The matter should, therefore, go back to the assessing officer for consideration of the entire matter afresh.
7. Though on the whole the assessment is to be redone in a proper manner, we would like to make certain observations about the computation of the undisclosed income in this case. For the assessment year 1994-95 there is addition of Rs. 10,000 by way of disallowance of car running expenses. From p. 4 of the assessment order it can be seen that there was an earlier assessment for the assessment year 1994-95 on 4-3-1997, wherein Rs. 10,000 had been added as disallowance out of motor car expenses. It is the same addition that had been repeated in the block assessment. The result is that the sum of Rs. 10,000 which has suffered tax at the normal rate in the regular assessment under section 143(3) is now taxed at the rate of 60 per cent as the undisclosed income. We are of the view that this is not permitted by law. Similarly, for the assessment year 1996-97 there is addition of Rs. 4,73,514 under section 40A(3). From the assessment order it can be seen that there was a total sum of Rs. 23,67,570 as payment in cash exceeding Rs. 10,000. It was 20 per cent of the same that was disallowed under section 40A(3) and then treated as the undisclosed income for assessment under section 158BC. No doubt, if there was violation of the provisions of section 40A(3) there could be disallowance of the expenses in computing the total income, but then, the disallowance should be made in a regular assessment under section 143(3). In the view of the provisions of Explanation below 158BA(2), it is open to the assessing officer to make a regular assessment even in respect of any assessment year included in the block period and make disallowance under any provisions of the Income Tax Act. But such disallowance cannot be made in a block assessment, as in that case the assessee would be burdened with a higher rate of tax. As the procedure for assessment of the undisclosed income of the block period appears in a separate self-contained code, that assessment should be made strictly in accordance with the provisions in Chapter XIV-B. The addition on this account cannot be, therefore, sustained. The same observation is applicable in respect of the estimated disallowance out of the commission payment.
8. In the above circumstances, we set aside this assessment with the direction to the assessing officer to make a proper assessment of the undisclosed income of the block period after giving the assessee a further opportunity of being heard.