1. This appeal of the assessee is directed against the order of the CIT(A) I, Hyderabad, dt. 22nd Aug., 2005, and pertains to the block period 1997-98 to 2002-03 and upto 21st Jan., 2003.
2. The first issue that arises for consideration is regarding addition of Rs. 60,98,200 as undisclosed income for the block period. Shri Syed Jameeluddin, learned representative for the assessee, submitted that there was a search in the residential premises of the assessee and other members of his family on 21st Jan., 2003. During the course of search, the Revenue authorities found a paper, identified as P-95, from the residence of Shri Gyan Kumar Agarwal, son of the assessee.
According to the learned representative, the assessee purchased landed property at Sultan Bazar, Hyderabad, and intended to construct a commercial complex. The assessee entrusted the construction to M/s S.A.Builders and the construction was also started on the abovesaid property. Subsequently, the construction could not be completed and the assessee decided to dispose of the unfinished structure. One part of the land was sold to one Syed Mohd. Jafar. The rest of the property was sold to Shri Amir Singh. An agreement of sale-cum-irrevocable general power of attorney was executed by the assessee on 14th Oct., 2000 in respect of the land in favour of Shri Amir Singh. As per the said agreement, the total sale consideration was Rs. 1.08 crores. As on the date of execution of the agreement of sale-cum-irrevocable general power of attorney, the assessee received Rs. 48,11,000 from the purchaser towards part of the sale consideration. On the date of execution of the sale, the said Shri Amir Singh paid another sum of Rs. 24,89,000 by three cheques. The balance consideration of Rs. 35,00,000 was not paid on the date of execution of the agreement of sale-cum-irrevocable general power of attorney. However, the said Shri Amir Singh executed a promissory note for a sum of Rs. 35,00,000 and also gave post dated cheques for payment of the above said amount of Rs. 35,00,000.
3. The learned representative for the assessee further submitted that before execution of the agreement of sale-cum-irrevocable general power of attorney, there was an oral agreement between the assessee and Shri Amir Singh on 21st March, 2002. As per this oral agreement, Shri Amir Singh agreed to pay the entire sale consideration of Rs. 1.08 crores on or before 31st Aug., 2002. However, the purchaser could not pay the amount as per the oral agreement. On the date of oral agreement, i.e., 21st March, 2002, Shri Amir Singh paid a sum of Rs. 21,00,000 by way of four cheques and another amount of Rs. 27,11,000 was paid in the month of April, 2002. The learned representative further submitted that the AO disbelieved the case of the assessee and held that there was no oral agreement between the parties. The learned representative invited our attention to the paper book filed by the assessee and submitted that the advance amount of Rs. 21,00,000 paid by the purchaser on 21st March, 2002 was credited in the accounts of the assessee by Tamil Nadu Mercantile Bank. The assessee has produced a copy of the bank statement to show that the amounts were credited in the account of the assessee.
According to the learned representative, unless there is an oral agreement, Shri Amir Singh would not have paid any money to the assessee towards sale consideration. As per the oral agreement, the deed was registered on 14th Oct., 2002. On the 'date of registration of agreement of sale-cum-irrevocable general power of attorney, the assessee could realise an amount of Rs. 48,11,000. For the remaining amount of Rs. 59,89,000, Shri Amir Singh executed a promissory note for Rs. 35,00,000 and gave cheque for Rs. 24,89,000. The post dated cheques which accompanied the promissory note were not enchased by the assessee on the date of search. Admittedly, there was no clause in the agreement to pay interest on the outstanding amount except in the promote to pay interest towards the outstanding amount of Rs. 35,00,000. Moreover, the amount due under the promote was paid by post dated cheques without including any interest on the amount due under the promote. Therefore, there is no intention between the parties to pay any interest on the outstanding amount. However, since the payment was not made on or before 31st Aug., 2002 as agreed, the assessee made a computation to show to Shri Amir Singh the loss that may be suffered by the assessee due to non-payment of the amount within the schedule period. According to the learned representative, the interest neither accrued to the assessee nor was received by the assessee. Since there is no clause in the agreement for payment of interest, the assessee has no right to recover any amount towards interest. Therefore, according to the learned representative, the interest said to have been computed in the paper seized cannot be treated as undisclosed income. Furthermore, according to the learned representative, the AO found that there was on-money consideration of Rs. 60,00,000. According to the learned representative, there was no on-money consideration. The actual consideration for the transaction was only Rs. 1.08 crores and nothing more than that. The registered document clearly shows that the sale consideration was only Rs. 1.08 crores and nothing more than that.
4. The learned representative for the assessee further submitted that the assessee computed the interest just to show to Shri Amir Singh the losses that were suffered by the assessee. The interest was computed on Rs. 60,00,000 by rounding off the outstanding amount of Rs. 59,89,000.
The AO misunderstood this fact as if on-money consideration of Rs. 60,00,000 was paid by Shri Amir Singh. This rounded off figure of Rs. 60,00,000 was written on paper P-95. The learned representative invited our attention to p. 52 of the paper book and submitted that this is the paper seized from the premises of the assessee's son. The total outstanding amount of Rs, 59,89,000 was rounded off to the nearest figure of Rs. 60,00,000 and interest was computed from 1st April, 2002 to 31st Aug., 2002 at Nil. For the month of September, the interest was computed at the rate of 0.5 per cent. For the month of October, the interest was computed at the rate of 0.5 per cent Since Shri Amir Singh executed a pronote in respect of Rs. 35,00,000, the balance amount of Rs, 24,89,000 was taken for computation of interest at the rate of 18 per cent till the cheque given by the purchaser was realised. According to the learned representative, the cheque given by the purchaser on 14th Oct., 2002 was returned on several occasions and it was realised after repeated representation at the request of Shri Amir Singh.
Therefore, notional interest was calculated till the date of realisation Therefore, the pronote amount of Rs. 35,00,000 was not taken into account from 14th Oct., 2002. This amount was shown as pending. The lower authorities, according to the learned representative, misunderstood this paper as if the assessee received Rs. 60,00,000 on three occasions and the total sale consideration was Rs. 2,29,77,000.
5. The learned representative further submitted that the lower authorities have taken part of the contents of the seized document wherein the interest portion was computed, and omitted to take into consideration the other part where the amount was shown as pending.
According to the learned representative, the seized paper should be taken into consideration in toto or it should be rejected in toto. The Revenue authorities cannot take part of the seized paper into consideration at their convenience. The learned representative placed his reliance on the judgment of the Gujarat High Court in the case of Glass Lines Equipments Co. Ltd. v. CIT , and submitted that a document should be read as a whole and it is not permissible to accept part of the paper and ignore the rest of the paper. Therefore, according to the learned representative, either the Revenue should take the entire seized paper P-95 including the amount shown as pending, or reject the same in toto.
6. The learned representative again placed his reliance on the judgment of the apex Court in the case of CIT v. Orissa Corporation Pvt. Ltd. submitted that when the assessee furnishes an explanation to show that the total consideration was only Rs. 1.08 crores, and what was computed in the seized paper is just to show to the purchaser the loss suffered by the assessee and no right accrued to the assessee in respect of the interest, this explanation of the assessee cannot be rejected unreasonably in order to make addition as undisclosed income. According to the learned representative, the Department cannot reject a good explanation unreasonably and convert good proof into no proof. The learned representative again placed his reliance on the judgment of the Bombay High Court in the case of CIT v.Ace Bunders (P) Ltd. right to profit comes into existence, there is no accrual of profit to the assessee. According to the learned representative, in this case the assessee has no right to interest. Therefore, interest has not accrued to the assessee. Again, the learned representative placed his reliance on the judgment of the apex Court in the case of Umachaian Shaw & Bros.
v. CIT , and submitted that no addition should be made on the basis of surmises, conjectures and suspicion. According to the learned representative, surmises and suspicion cannot take the place of proof in assessment proceedings. Therefore, according to the learned representative, the addition of Rs. 60,00,000 towards on-money and interest of Rs. 98,176 is not justified.
7. On the contrary, Shri Siva Kumar, learned Departmental Representative, submitted that the seized paper P-95 shows the computation of interest made by the assessee. The learned representative invited our attention to the statement recorded during the course of search operation on 4th Feb., 2003 and submitted that Shri Gyan Kumar Agarwal, the assessee1 s son, admitted that this paper pertains to transaction with Shri Amir Singh. According to the learned representative, when the agreement was made on 14th Oct., 2002, the assessee could not expect the purchaser to pay the entire amount of Rs. 1.08 crores by 31st Aug., 2002. Moreover, the assessee has computed interest from 1st Sept., 2002 to 14th Oct., 2002 on Rs. 60,00,000. If really only Rs. 59.89 lakhs was unpaid on 14th Oct., 2002, why interest was reckoned on Rs. 60,00,000? Similarly, if it is rounded off, the assessee would not have computed interest on Rs. 24,89,000 from 14th Oct., 2002. Therefore, according to the learned representative, the contention that the outstanding amount of Rs. 59,89,000 was rounded off to Rs. 60,00,000 is not believable. According to the learned representative, the assessee received on-money to the extent of Rs. 60,00,000. That was why he computed interest on the said Rs. 60,00,000 till the date of registration at the rate of 0.5 per cent. According to the learned representative, as rightly observed by the AO, the total consideration was Rs. 2,29,77,000 and not Rs. 1.08 crores. Moreover, there was no oral agreement to pay the amount before the date of registration. Therefore, the lower authorities have rightly made the addition of Rs. 60,98,176.
8. We have considered rival submissions on either side and perused the material available on record. It is not in dispute that the assessee executed an agreement of sale-cum-irrevocable general power of attorney in favour of Shri Amir Singh on 14th Oct., 2002. The total sale consideration mentioned in the agreement is Rs. 1.08 crores. It is not in dispute that the seized document P-95 was found in the residential premises of the assessee's son, Shri Gyan Kumar Agarwal. A copy of the seized paper is available at p. 52 of the paper book of the assessee.
From 1st April, 2002 to 31st Aug., 2002, no interest was computed. For the month of September, interest was computed at the rate of 0.5 per cent. For October, the assessee computed for half of the month at the rate of 0.5 per cent. Further, the assessee computed interest from 14th Oct., 2002 to 26th Oct., 2002 on an amount of Rs. 24,89,000 at the rate of 18 per cent. Similarly, on an amount of Rs. 16,59,000, interest was computed from 26th Oct., 2002 to 28th Nov., 2002 at the rate of 18 per cent. From 28th Nov., 2002 to 20th Dec, 2002, the assessee computed interest on Rs. 8,29,000 at the rate of 18 per cent. Below these particulars, it is shown as if an amount of Rs. 35,00,000 was pending.
The case of the assessee is that an amount of Rs. 59,89,000 was pending as on 14th Oct., 2002 when the registered agreement of sale-cum-irrevocable general power of attorney was executed in favour of Shri Amir Singh. Out of this amount of Rs. 59,89,000, Shri Amir Singh gave four cheques for Rs. 24,89,000. In respect of the remaining amount of Rs. 35,00,000, a pronote was executed by Shri Amir Singh and post dated cheques were also given. The assessee has produced a copy of the pronote executed by Shri Amir Singh at p. 55 of the paper book. It is obvious that as on 14th Oct., 2002, when the assessee executed the registered deed, a sum of Rs. 48,11,000 was received and the balance amount of Rs. 24,89,000 was received by four cheques besides the pronote for Rs. 35,00,000. As seen from the agreement and other materials available in the paper book, the above said sum of Rs. 73,00,000 including the four cheques given on 14th Oct., 2002 (Rs. 48,11,000 + Rs. 24,89,000 = Rs. 73,00,000) was paid by Shri Amir Singh and his family members. Therefore, the total sale consideration of Rs. 1.08 crores was paid or adjusted by Shri Amir Singh. As on the date of search, the post dated cheques given along with the pronote were not realised and they were seized by the Department. The assessee has also produced a copy of the registered agreement of sale-cum-irrevocable general power of attorney in the paper book which is available at p. 37 of the paper book. The main contention of the Revenue is that there was no oral agreement for payment of money on or before 31st Aug., 2002 when the sale agreement itself was executed on 14th Oct., 2002. The assessee has produced a copy of the bank statement to show that a sum of Rs. 21,00,000 was credited in the month of March 2002 and another amount of Rs. 27,11,000 was credited in the account of the assessee, which was paid by Shri Amir Singh and his family members by cheque.
These facts are evidenced by the bank statement filed by the assessee, which is available at pp. 1 to 9 of the paper book. Therefore, unless and until there is an oral agreement, Shri Amir Singh would not have paid this amount to the assessee towards the sale consideration. The very fact that Shri Amir Singh and his family members paid the amount by cheque and the same was realised and credited in the assessee's bank account clearly establishes that there was an oral agreement between the assessee and Shri Amir Singh in respect of the sale of the above said land. Therefore, in our opinion, there was an oral agreement between the assessee and Shri Amir Singh before execution of registered deed on 14th Oct., 2002. The very fact that the substantial amount was paid by Shri Amir Singh before 14th Oct., 2002 establishes that there was an oral agreement and in pursuance of that oral agreement Shri Amir Singh paid the amount to the assessee and ultimately the assessee has executed the agreement of sale-cum-irrevocable general power of attorney in favour of Shri Amir Singh. Therefore, we do not find any justification on the part of the lower authorities in concluding that there was no oral agreement. In our opinion, there was an oral agreement between the assessee and Shri Amir Singh for sale of the land and in consequence thereof Shri Amir Singh and his family members paid a sum of Rs. 48,11,000 and the registered deed was executed on 14th Oct., 2002.
9. The next question for consideration is as to what was the sale consideration. According to the assessee, the sale consideration was Rs. 1.08 crores. The registered agreement of sale-cum-irrevocable general power of attorney shows that the total sale consideration was Rs. 1.08 crores. The assessee acknowledged receipt of Rs. 73,00,000 on the date of execution of the registered deed. Admittedly, Rs. 48,11,000 was received by the assessee and another sum of Rs. 24.89 lakhs was received by cheque on 14th Oct., 2002. In total, the assessee received Rs. 73,00,000 on the date of execution of the deed, i.e., on 14th Oct., 2002. The cheques for Rs. 24.89 lakhs were realised subsequently. But, the fact remains that Shri Amir Singh gave cheques for Rs. 24.89 lakhs on 14th Oct., 2002. It appears, the first cheque for Rs. 8,30,000 was realised on 28th Oct., 2002. The second cheque of Rs. 8,30,000 was returned unpaid on 27th Oct., 2002 and ultimately it was realised on 29th Nov., 2002. The third cheque for Rs. 8,29,000 was returned unpaid on 21st Dec, 2002 and 26th Dec, 2002 and it was ultimately realised on 25th March, 2003. Admittedly, the cheques given along with the pronote for Rs, 35,00,000 remained unrealised on the date of search. The seized paper P-95 shows the computation of interest. For the sake of convenience, we reproduce below the particulars contained in the seized paper P-95:60,00,000 04.04.02 to 31.08.2002 Nil60,00,000 September 2002 0.5% 30,00060,00,000 October 1/2 month 0.5% 15,00024,89,000 14.10.2002 to 26.10.2002, 13 days 18% 15,95716,59,000 26.10.2002 to 28.11.2002 34 days 18% 27,817 8,29,000 28.11.2002 to 20.12.2002 23 days 18% 9,402 _______ The assessee computed interest initially on Rs. 60,00,000. Thereafter, he restricted the amount to Rs. 24,89,000, Rs. 16,59,000, Rs. 8,29,000 etc. The case of the assessee is that for convenience the outstanding amount of Rs. 59.89 lakhs was rounded off to Rs. 60,00,000 and thereafter interest was computed. The contention of the Revenue is that Rs. 60,00,000 mentioned three times in the seized paper shows the receipt of on-money consideration and, therefore, this Rs. 60,00,000 was received in cash by the assessee. Therefore, we have to find out whether this seized paper establishes the fact of receipt of on-money of Rs. 60,00,000 or not? 10. As we have already discussed, as on 14th Oct., 2002 an amount of Rs. 59,89,000 was outstanding including the pronote and cheques given for Rs. 24,89,000. We have already concluded that there was an oral agreement between the parties for payment of the consideration before 31st Aug., 2002. When there was an oral agreement to pay money in advance and it was not paid, the assessee might nave computed and worked out probable loss suffered by him. The specific case of the assessee before the Tribunal is that just to show to Shri Amir Singh, the probable loss of interest was computed. However, no intention to charge interest on the outstanding amount of Rs. 59,89,000 (rounded off to Rs. 60,00,000). In our opinion, this explanation of the assessee appears to be reasonable and true. Had the amount been paid on or before 31st Aug., 2002, the assessee might have learned the interest by depositing the same in some other financial institution. Probably, to project this probable loss, the assessee might have computed and worked out the loss that might have been suffered by him. We have carefully gone through the registered agreement of sale-cum-irrevocable general power of attorney executed and registered on 14th Oct., 2002. This agreement does not speak of any interest payable by the purchaser, apart from the fact that a sum of Rs. 35,00,000 was adjusted towards the pronote. Therefore, if at all any interest is payable by the purchaser, it is to be paid only on the outstanding amount of Rs. 35,00,000, which is outstanding towards the pronote. Even this is doubtful, because the purchaser gave four cheques for Rs. 8,75,000 each for repayment of this Rs. 35,00,000. If at all any interest was payable, it would have been included in the post dated cheques received by the assessee. The very fact that the post dated cheques received by the assessee towards repayment of the pronote amount of Rs. 35,00,000 does not indicate any inclusion of interest clearly establishes that there was no intention between the parties to charge interest on the outstanding amount. In other words, the assessee has no right to demand interest on the outstanding purchase money.
11. When the assessee has no right to demand interest from the purchaser, mere unilateral calculation or computation of interest does not enable the assessee to recover any amount from the purchaser.
Therefore, in our opinion, the alleged computation of interest said to have been made by the assessee in the seized paper P-95 does not empower him to recover any interest from the purchaser Shri Amir Singh.
Moreover, human probability is to round off the figure whenever a fractional figure comes in. Admittedly, what was due as on 14th Oct., 2002 was Rs. 59,89,000. Out of this amount of Rs. 59,89,000, the purchaser paid Rs. 24,89,000 by way of three cheques and gave a pronote for the remaining Rs. 35,00,000. Therefore, technically speaking, the entire amount was paid on 14th Oct., 2002 and the assessee acknowledged the receipt of the money in the registered deed dt. 14th Oct., 2002.
Though technically no amount was due as per the registered deed dt.
14th Oct., 2002, in fact the assessee had to realise Rs. 59,89,000 from the purchaser. Therefore, in our opinion, the assessee rounded off Rs. 59,89,000 to the nearest figure of Rs. 60,00,000 and computed the interest. Moreover, besides the above paper, there is nothing on record to suggest that the assessee has received on-money of Rs. 60,00,000 over and above the sale consideration mentioned in the registered deed.
It is also pertinent to note that after 14th Oct., 2002, the assessee computed interest only on Rs. 24,89,000 arid not on Rs. 59,89,000. This is obvious because the balance amount of Rs. 35,00,000 was payable subsequently in the month of November, for which the purchaser has issued four post dated cheques. If the intention of the assessee was to compute the interest on the entire outstanding amount, then the outstanding Rs. 35,00,000, which was really outstanding, would have been included in the computation. Had the cheques been realised on the date of presentation immediately after execution of the deed, the necessity of computation of interest might not have arisen. It is a settled principle of law that the date of payment would always relate back to the date of presentation of the cheque provided the cheque was not returned unpaid. In this case, on two or three occasions the cheque was returned unpaid and it was realised subsequently. Therefore, the assessee was prevented from using the money in the period in which, the cheque was returned unpaid. Therefore, a normal prudent person would naturally compute losses that arose to him due to return of the cheque and due to non-payment of the amount as per agreement. In those facts and circumstances, in our opinion, the seized document P-95 does not show anything about the receipt of on-money of Rs. 60,00,000. The seized paper cannot be a basis to infer that the assessee has received on-money of Rs. 60,00,000. The seized paper P-95 does not suggest anything about the receipt of on-money. Moreover, no addition could be made on surmises and suspicion. As rightly pointed by the learned representative for the assessee, the entire seized paper should be taken into consideration or rejected in toto. Part of the particulars cannot be considered as held by the Gujarat High Court in the case of Glass Lines Equipments Co. Ltd. (supra). It is not permissible for the Revenue to accept a part of the paper and ignore the rest of the seized document.
12. This is a block assessment proceeding under Chapter XIV-A of the IT Act, 1961. Section 158BB(1) clearly says that the undisclosed income of the block period shall be the aggregate of total incomes of the previous years computed in accordance with the provisions of the Act on the basis of evidence found as a result of search or other documents or information available with the AO and relatable to such evidence. In this case, the only material available on record is the seized paper P-95. Merely because the assessee rounded off the figure and computed interest to which he has no legal right, it will not lead to any inference that the assessee has received on-money. The fact remains that as on 14th Oct., 2002, the assessee had to realise Rs. 59,89,000.
This is disclosed in the seized paper P-95. On 14th Oct., 2002, after receipt of pronote for Rs. 35,00,000, the assessee has taken only the balance amount of Rs. 24,89,000. Merely because the amount of Rs. 24,89,000 was not rounded to Rs. 25,00,000 and the amount of Rs. 59,89,000 was rounded to Rs. 60,00,000, it would not lead to any inference about the receipt of on-money as contended by the Revenue.
Therefore, it is very clear that the total consideration was only Rs. 1.08 crores and not Rs. 2,29,77,000. Therefore, in our opinion, there was no on-money transaction in this case and the total consideration was only Rs. 1.08 crores. Therefore, no addition is warranted towards on-money consideration.
13. As we have already observed, the assessee has no right to receive interest from the purchaser in pursuance of the agreement dt. 14th Oct., 2002. Even though a pronote was said to have been given on 14th Oct., 2002, the post dated cheques given by the purchaser for repayment of Rs. 35,00,000 clearly show that even on such pronote no interest was receivable by the assessee. Therefore, as rightly submitted by the learned representative for the assessee, the interest did not accrue to the assessee. Unless it accrued, as held by the Bombay High Court in the case of Ace Builders (P) Ltd. (supra), the same cannot be included in the total income for the purpose of taxation. This view of the Bombay High Court is also supported by the judgment of the apex Court in the case of CIT v. Ashokbhai Chhnanbhai . In view of the above, even the interest cannot be added as undisclosed income for the block period. Therefore, in our opinion, there is no justification on the part of the lower authorities in making addition of Rs. 60,98,176 as undisclosed income for the block period.
Accordingly, the same is deleted.
14. Now, coming to the next issue of addition of Rs. 43,61,461, the learned representative for the assessee submitted that the assessee has filed regular return of income claiming a sum of Rs. 35,00,000 as bad debt for the asst. yr. 2003-04, According to the learned representative, this amount of Rs. 35,00,000 claimed as bad debt for the asst. year 2003-04 was included in the total sale consideration of Rs. 1.08 crores. Once this amount was included in the sale consideration and it was claimed as bad debt in the regular return for the asst. yr. 2003-04, it cannot be treated as undisclosed income for the block period. According to the learned representative, the cheques given by the purchaser for Rs. 35,00,000 for repayment of the pronote executed on 14th Oct., 2002 could not be realised from Shri Amir Singh.
Therefore, it was claimed as a bad debt in the regular return and not in the block return. Therefore, this cannot form part of undisclosed income. According to the learned representative, the CIT(A) enhanced the assessment by making the addition. The net profit shown in the regular return was Rs. 8,61,621. This was taken as undisclosed income.
According to the learned representative, the CIT(A) was under the impression that since no advance tax was paid, it has to be treated as undisclosed income. If advance tax was not paid, it may be a ground to levy interest and other action permissible under the IT Act. However, for the purpose of adding an amount as undisclosed income, it should be relatable to the seized material. The regular return filed by the assessee subsequent to the date of search cannot be a basis for making any addition.
15. On the contrary, the learned Departmental representative submitted that the assessee filed return of income for the asst. yr. 2003-04 on 30th Sept., 2003 admitting a total income of Rs. 10,20,240 which includes a profit of Rs. 8,61,621 on the sale proceeds of Rs. 1.08 crores as per the agreement of sale. Since no advance tax was paid, the CIT(A) has rightly enhanced the assessment.
16. We have considered rival submissions on either side and perused the material available on record. Admittedly, the assessee has filed return of income for the asst. yr. 2003-04 on 30th Sept., 2003. The assessee has filed the P&L a/c claiming a bad debt of Rs. 35,00,000 and profit of Rs. 8,61,621. This P&L a/c filed by the assessee along with the regular return filed on 30th Sept., 2003 was taken as a basis for computing the undisclosed income for the block period by the CIT(A).
The question arises for consideration whether the P&L a/c filed by the assessee with the regular return subsequent to the date of search could be a basis for making 'addition. This issue was considered by the Madras High Court in the case of CIT v. G.K. Senniappan . In the case before the Madras High Court, there was a search operation. Simultaneously, there was also a survey. In the survey operation, some incriminating materials were found. On the basis of the incriminating materials found during the course of survey operation, the AO made addition in the block assessment as undisclosed income. When the matter came before the Tribunal, the Chennai Bench of the Tribunal held that for the purpose of block assessment, the undisclosed income shall be computed on the basis of evidence found during the course of search or material which is relatable to the evidence found during the course of search operation. Ultimately, the Tribunal held that the material found during the course of survey operation cannot be a basis for computing undisclosed income for the block period. This decision of the Chennai Bench of this Tribunal was confirmed by the Madras High Court in the case of G.K. Senniappan (supra). Therefore, it is very clear that whenever an undisclosed income is computed, it is always necessary to base the computation on the material seized during the course of search operation. For the purpose of making the addition of Rs. 43,61,621, the CIT(A) has taken as basis only the P&L a/c filed by the assessee for the asst. yr.
2003-04 on 30th Sept., 2003. This P&L a/c was not available on the date of search. It was also not relatable to any material found during the course of search. The assessee claimed the bad debt of Rs. 35,00,000 only in the regular return on the basis of the P&L a/c. Therefore, this subsequent statement found in the P&L a/c cannot be a basis for making an addition for the block period. Section 158BB(1) of the IT Act, 1961, says in categorical terms that the undisclosed income shall be relatable to the seized material. Unless the Revenue authorities found any material during the course of search operation regarding the claim of bad debt and profit learned on the transaction, no undisclosed income can be computed on the basis of the subsequent P&L a/c filed by the assessee along with the regular return on 30th Sept., 2003. In view of the above discussion, we do not find any justification in making the addition of Rs. 43,61,621. We, therefore, set aside the order of the CIT(A) and delete the addition of Rs. 43,61,621.
17. The next ground of appeal is regarding addition of Rs. 17,426. The learned representative for the assessee submitted that for the asst.
year 2002-03, the assessee filed the return of income on 30th Sept., 2003 showing the amount of Rs. 17,426 in the regular return. The income was assessed by the very same AO under Section 143(3) of the IT Act.
The learned representative has produced a copy of the assessment order dt. 4th March, 2005 passed by the very same AO. The assessee has clearly shown the profit of business or profession at Rs. 17,426. The CIT(A), on the basis of the P&L a/c filed by the assessee on 30th Sept., 2003, has included this Rs. 17,426 as undisclosed income.
According to the learned representative, this is a double addition both in the regular assessment as well as in the block assessment.
18. On the contrary, the learned Departmental Representative submitted that he is placing his reliance on the observations made by the CIT(A).
19. We have considered rival submissions on either side and perused the material available on record. The income of Rs. 17,426 was disclosed by the assessee in the P&L a/c filed by the assessee on 30th Sept., 2003 for the asst. year 2002-03. This document was neither relatable to the seized material nor found during the course of search operation. The P&L a/c was prepared subsequent to the search operation and it was filed along with the return of income for asst. year 2002-03 on 30th Sept., 2003. The AO computed the income in the regular assessment under Section 143(3) and passed the assessment order on 4th March, 2005. As we have discussed earlier in respect of addition of Rs. 43,61,621, the subsequent document or P&L a/c cannot be a basis for making any addition as undisclosed income for the block period. Therefore, in our opinion, the addition of Rs. 17,426 is not justified. Accordingly, the order of the CIT(A) is set aside and the addition of Rs. 17,426 is deleted.