Appeal Details
Counselvise Citation
[2011] 124 COUNSELVISE.COM (IT) 8060 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 10 month(s) 18 day(s)
Appellant
Respondent
Appeal Type
Income Tax (Search & Seizure) Appeal
Pronouncement Date
28-09-2011
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
D
Next Hearing Date
12-07-2010
Assessment Year
misc
Appeal Filed On
09-11-2006
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER IT(SS) NO. 246/MUM/2005 IT(SS) NO. 265/MUM/2006 (BLOCK PERIOD: 01.04.1995 TO 14.02.2002) M/S. UNITED PHOSPHOROUS LTD. DCIT, CENTRAL CIRCLE - 38 UNIPHOS HOUSE, 11-C.D. MARG ROOM NO. 112, AAYAKAR B HAVAN OPP. MADHU PARK, KHAR (WEST) VS. M.K. ROAD, MUMBAI 400020 MUMBAI 400020 PAN - AAACU 3440 P APPELLANT RESPONDENT IT(SS) NO. 242/MUM/2005 (BLOCK PERIOD: 01.04.1995 TO 14.02.2002) ACIT, CENTRAL CIRCLE - 38 M/S. UNITED PHOSPHOROUS L TD. ROOM NO. 112, AAYAKAR BHAVAN UNIPHOS HOUSE, 11-C.D. MARG M.K. ROAD, MUMBAI 400020 VS. OPP. MADHU PARK, KHAR (WEST) MUMBAI 400020 PAN - AAACU 3440 P APPELLANT RESPONDENT ASSESSEE BY: SHRI P.J. PARDIWALLA/ MS. VASANTI PATEL/SHRI KIRTI REVENUE BY: DR. B. SENTIL KUMAR DATE OF HEARING: 23.08.2011 DATE OF PRONOUNCEMENT: 28.09.2011 O R D E R PER B. RAMAKOTAIAH, A.M. IT(SS) NO. 246/MUM/2005 & IT(SS) NO. 242/MUM/2005 A RE CROSS APPEALS BY ASSESSEE AND REVENUE AGAINST THE ORDER O F THE CIT(A), CENTRAL VI, MUMBAI DATED 28.03.2006 AND IT(SS) NO. 265/MUM/2006 IS ASSESSEES APPEAL DIRECTED AGAINST THE ORDER OF THE CIT(A), CE NTRAL VI, MUMBAI DATED 14.08.2006. 2. IN IT(SS) NO. 246/MUM/2005 ASSESSEE HAS RAISED THE FOLLOWING THREE GROUNDS: - IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 2 I. VALIDITY OF SEARCH ACTION UNDER SECTION 132 OF THE ACT II. DISALLOWANCE TREATED AS UNDISCLOSED INCOME III. DISALLOWANCE OUT OF CLEARING & FORWARDING EXPENSES IN ITA NO. 242/MUM/2005 REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) WAS NOT CORRECT IN RESTRICTING DISAL LOWANCE FROM RS.1,53,53,036/- TO RS.93,82,411/- ON ACCOUNT OF CL EARING AND FORWARDING EXPENSE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) WAS NOT JUSTIFIED IN ACCEPTING THE CONTE NTION OF THE ASSESSEE WITH REGARD TO BIFURCATION OF CLEARING AND FORWARDING EXPENSES WITHOUT GIVING OPPORTUNITY TO THE ASSESSIN G OFFICER UNDER RULE 46A(3). 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) WAS NOT CORRECT IN DELETING ADDITION OF RS.60,00,000 ON ACCOUNT OF SALES PROMOTION EXPENSES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) WAS NOT CORRECT IN NOT APPRECIATING THAT THE UNDISCLOSED INCOME ON ACCOUNT OF SALES PROMOTION EX PENSES WAS ESTIMATED ON THE BASIS OF THE STATEMENT OF THE DIRE CTOR AND EMPLOYEES AND THE BOOKS OF ACCOUNTS. IT IS THEREFOR E WITHIN THE COPE OF CHAPTER XIV-B. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) WAS NOT CORRECT IN DELETING ADDITION OF RS.5,12,99,210 ON ACCOUNT OF COMMISSION PAYABLE ON EXPORTS. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) WAS NOT CORRECT IN NOT APPRECIATING THAT THE UNDISCLOSED INCOME ON ACCOUNT OF EXPORTS COMMISSION PAYABLE WAS ESTIMATED ON THE BASIS OF THE STATEMENT OF THE DIRECTOR AND EMPLOYEES, DOCUMENTS SEIZED AND THE ACTUAL FINDINGS MADE DURING THE BLOCK ASSESSMENT PROCEEDINGS. IT IS THER EFORE WITHIN THE SCOPE OF CHAPTER XIV-B. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) WAS NOT CORRECT IN DELETING ADDITION OF RS.84,24,970 ON ACCOUNT OF UNMOVED BALANCES. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) NOT CORRECT IN NOT APPRECIATING THAT THE ASSESSEE HA NOT PRODUCED ANY EVIDENCES IN SUPPORT OF ITS CLAIM THAT THESE DEBIT BALANCES HAD BEEN OFFERED TO TAXATION IN THE PRECEDING YEARS. IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 3 SINCE COMMON ISSUES ARE INVOLVED, THESE TWO APPEALS ARE CONSIDERED TOGETHER AND DECIDED BY THIS COMMON ORDER. ASSESSEE HAS NOT PRESSED GROUND NO. 1 PERTAINING TO VALIDITY OF THE SEARCH, HENCE IT IS TREATED AS WITHDRAWN. 3. BRIEFLY STATED, THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING OF PHOSPHORUS AND ITS COMPOUNDS AND PESTICIDES. THE OF FICE PREMISES OF THE ASSESSEE COMPANY AND THE RESIDENCES OF ITS DIRECTOR S WERE SUBJECTED TO SEARCH UNDER SECTION 132 OF THE ACT ON 14.02.2002. DURING THE COURSE OF SEARCH, SHRI JAI SHROFF, DIRECTOR OF THE COMPANY, D ECLARED UNDISCLOSED INCOME OF ` 10 CRORES AS UNDER: PARTICULARS AMOUNTS ( ` IN CRORES) (A) ON ACCOUNT OF CLEARING CHARGES: AS PER ANS. T O Q 4 1.50 (B) ON ACCOUNT OF SALES PROMOTION EXPENSES 0.50 (C) ON ACCOUNT OF COMMISSION PAYABLE ON EXPORTS 5. 00 (D) ON ACCOUNT OF UNMOVED BALANCES 0.50 TOTAL 7.50 ==== FURTHER TO THE ABOVE, I HAVE TO STATE THAT FEW PREM ISES BELONGING TO THE GROUP COMPANIES AS WELL AS M/S. UPL, ARE UNDER PROHIBITORY ORDERS UNDER SECTION 132(3) OF THE I.T. ACT, 1961, I AM NOT QUITE SURE OF ANY DISCREPANCIES IN BOOKS/COMMISSION OR OMISSIO NS, ETC. THAT MAY BE FOUND IN THE COURSE OF FURTHER SEARCH AND IN ORDER TO COVER UP FOR THE SAME, I HEREBY DECLARE THAT A SUM OF RS.2.5 0 CRORES ON ACCOUNT OF ABOVE IS BEING OFFERED IN VARIOUS HANDS OF THE GROUP COMPANIES. HOWEVER, IN THE RETURN FOR THE BLOCK PERIOD FILED O N 19 TH SEPTEMBER 2002 UNDISCLOSED INCOME OF ONLY ` 2 CRORES WAS DECLARED. IN A NOTE APPENDED TO THE SAID RETURN IT WAS STATED THAT THE RETURN FOR T HE BLOCK PERIOD WAS BEING FILED UNDER PROTEST SINCE THE PROVISIONS OF SECTION 132 DID NOT APPLY AS THE JURISDICTIONAL CONDITIONS TO BE FULFILLED FOR A VAL ID ACTION UNDER SECTION 132 WERE NOT PRESENT. THE ASSESSEE ALSO REQUESTED FOR F URNISHING TO THEM THE REASONS ON THE BASIS OF WHICH ACTION UNDER SECTION 132 WAS INITIATED. IN THE NOTES TO THE COMPUTATION OF INCOME OF BLOCK PERIOD IT WAS FURTHER SUBMITTED THOUGH UNDISCLOSED INCOME WAS DECLARED IN THE PRELI MINARY STATEMENT RECORDED UNDER SECTION 132(4), ON VERIFICATION OF T HE BOOKS OF ACCOUNT, IT WAS IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 4 NOTICED THAT THE ENTRIES ARE CORRECTLY REFLECTED IN THE BOOKS OF ACCOUNT AND THE AFORESAID DISCLOSURE OF `2 CRORE HAS BEEN MADE OUT OF ABUNDANT CAUTION. IT WAS FURTHER STATED THAT THE UNDISCLOSED INCOME O F ` 2 CRORE HAD BEEN OFFERED FOR THE BLOCK PERIOD AS A WHOLE AND THEREFO RE, YEAR-WISE BREAKUP WAS NOT GIVEN. OUT OF THE SAID AMOUNT OF ` 2 CRORE, AN AMOUNT OF ` 1,04,91,934/- WAS IN RESPECT OF EXPORT COMMISSION NO LONGER PAYAB LE AND THE BALANCE AMOUNT IS IN RESPECT OF CLEARING AND FORWARDING EXP ENSES AND OTHERS. THE A.O. ASSESSED THE UNDISCLOSED INCOME OF THE ASSESSE E AS UNDER: - (I) DISALLOWANCE OUT OF CLEARING AND FORWARDING E XPENSES ` 1,53,543,036 (II) DISALLOWANCE OUT OF SALES PROMOTION EXPENSES ` 60,00,000 (III) DISALLOWANCE OUT OF EXPORT COMMISSION ` 5,12,99,210 (IV) UNMOVED BALANCES TREATED AS INCOME ` 84,24,970 TOTAL ` 8,10,77,216 ============ 4. THE CIT(A), AFTER CONSIDERING ASSESSEES CONTENTION S BOTH ON GENERAL PRINCIPLES OF MAKING ADDITIONS IN BLOCK ASSESSMENT AND ALSO INDIVIDUAL ADDITIONS, PARTLY ALLOWED THE DISALLOWANCE OUT OF C LEARING AND FORWARDING EXPENSES AND DELETED THE ADDITIONS ON SALES PROMOTI ON EXPENSES, EXPORT COMMISSION AND UNMOVED BALANCES. REVENUE IN ITS GRO UNDS IS CONTESTING THE DELETION OF DISALLOWANCES MADE AND ASSESSEE IS CONTESTING THE PART CONFIRMATION OF DISALLOWANCE PERTAINING TO CLEARING AND FORWARDING EXPENSES. 5. DISALLOWANCE OUT OF CLEARING AND FORWARDING EXPENSE S : GROUND NO. 2 & 3 IN ASSESSEES APPEAL AND GROUND NO. 1 & 2 IN REVENUES APPEAL ARE WITH REFERENCE TO THE ISSUE OF DISALLOWANCE ON ACCO UNT OF CLEARING AND FORWARDING EXPENSES. THE BRIEF FACTS PERTAINING TO THIS ISSUE ARE THAT IN THE COURSE OF SEARCH, STATEMENT OF SHRI ADIYIL C. MENON , MANAGER ADMINISTRATION WAS RECORDED UNDER SECTION 132(4) IN WHICH SEARCH PARTY IDENTIFIED THAT THERE ARE CERTAIN IOUS OUTSTANDING AGAINST HIS NAME FOR CASH TAKEN. ON ENQUIRY IT WAS STATED THAT THE IOUS WERE DRAWN FOR MAKING PAYMENT BEING INCURRED FOR CLEARING AND FORWARDING OF IMPORT/ EXPORT CONSIGNMENTS AND CONVEYANCE AND TRAVELS. THE MODUS OPERANDI WAS EXPLAINED THAT THE VOUCHERS WERE PREPARED ON CONSIG NMENT BASIS AND ACCOUNTED AND THESE EXPENSES WERE INCURRED TOWARD C USTOMS CLEARANCE. IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 5 EVEN THOUGH THE VOUCHERS WERE FURNISHED, THE STATEM ENT INDICATES THAT SHRI ADIYIL MENON WAS UNABLE TO GIVE ANY DOCUMENTARY EVI DENCE OF PAYMENT AND NAMES OF THE RECIPIENTS OF THE SAME. ON A QUESTION ABOUT THE APPROXIMATE AMOUNT OF SUCH EXPENSES IT WAS STATED THAT THE EXPE NSES WERE TO THE TUNE OF ` 22 LAKH PER ANNUM AND IN ABOUT SIX YEARS IT WOULD C OME TO ABOUT RS.6.5 CRORE( SIC). ON THE BASIS OF THIS STATEMENT THE DIR ECTOR WAS CONFRONTED AND THE DIRECTOR, EVEN THOUGH STATED THAT THERE WERE NO SUPPORTING EVIDENCES TOWARD CLEARING CHARGES IT MAY BE NOTED THAT THE EX PENSES HAVE BEEN INCURRED AND IS IN THE COURSE OF THE BUSINESS OF TH E COMPANY. DUE TO LACK OF DOCUMENTARY EVIDENCES A SUM OF ` 1.5 CRORE WAS OFFERED AS INCOME OF THE BLOCK PERIOD. THE A.O., ON THE BASIS OF THE SEIZED PAPERS, PAGE 32 OF ANNEXURE A-3 AT KHAR OFFICE OF INTERIM AUDIT REPORT , QUESTIONED ASSESSEE WITH REFERENCE TO THE AUDIT OBSERVATIONS. ASSESSEE WAS ASKED TO FURNISH THE YEAR-WISE BRAKE UP OF EXPENSES UNDER THE HEAD CLEA RING AND FORWARDING EXPENSES AND OUT OF THE TOTAL EXPENSES OF ` 1771 CRORE AN AMOUNT OF ` 1.70 CRORE WAS IDENTIFIED AS EXPENSES INCURRED IN CASH. AS THERE IS NO SUPPORTING THIRD PARTY EVIDENCE WITH REFERENCE TO THE CASH EXP ENSES THE A.O. WAS OF THE VIEW THAT 10% OF THE CASH EXPENSES MUST HAVE BEEN I NCURRED FOR THE PURPOSE OF BUSINESS AND THE REMAINING AMOUNT OF ` 1.53 CRORE WAS TREATED AS UNDISCLOSED INCOME ON ACCOUNT OF UNVERIFIABLE CA SH EXPENSES. 6. THE CIT(A), AFTER CONSIDERING ASSESSEES CONTENTION S BOTH ON FACTS AS WELL AS ON LAW, CAME TO THE CONCLUSION THAT OUT OF THE TOTAL EXPENSES IN CASH AT ` 1,70,58,929/- CONSIDERED THAT 40% OF THE TOTAL CASH EXPENSES WAS TOWARDS CLEARING AND FORWARDING INCURRED IN CUSTOMS CLEARANCE WHICH IS FULLY DISALLOWABLE ON THE REASON THAT THESE ARE SPE NT FOR CUSTOM CLEARANCE AND NOT FULLY VOUCHED. WITH REFERENCE TO THE REMAIN ING EXPENSES, WHILE HOLDING THAT ESTIMATION OF UNALLOWABLE AND UNADMISS IBLE EXPENSES OF 90% IS UNREASONABLY HIGH, HE RESTRICTED THE SAME TO 25% OF THE BALANCE EXPENDITURE. THUS HE CONFIRMED AN AMOUNT OF ` 93,82,411/- WHEREAS THE BALANCE OF ` 59,70,625/- WAS GIVEN RELIEF. 7. AS CAN BE SEEN FROM THE GROUNDS REVENUE IS AGGRIEVE D NOT ONLY ON GIVING RELIEF OF ` 59,70,625/- BUT ALSO ADMITTING ADDITIONAL EVIDENCE AND IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 6 CONTESTED IN GROUND NO. 2 ADMISSION OF ADDITIONAL E VIDENCE UNDER RULE 46A(3). 8. AFTER CONSIDERING THE DETAILED ARGUMENTS OF THE LEA RNED D.R. AND THE LEARNED COUNSEL, WE ARE OF THE OPINION THAT AS FAR AS GROUND NO. 2 OF REVENUES APPEAL IS CONCERNED THERE IS NO ADDITIONA L EVIDENCE BUT ONLY THE STATEMENTS OF BIFURCATION OF EXPENDITURE, WHICH WAS ALSO CONSIDERED BY THE A.O. IN THE COURSE OF BLOCK ASSESSMENT. THEREFORE T HIS GROUND OF REVENUE DOES NOT ARISE AT ALL. WITH REFERENCE TO THE DISALL OWANCE OF THE AMOUNTS WE ARE OF THE VIEW THAT THERE IS NO EVIDENCE WITH REFE RENCE TO SPENDING OF EXPENDITURE WHICH WAS DISALLOWABLE UNDER SECTION 37 (1). WHAT THE SEARCH HAS YIELDED IS ONLY CERTAIN VOUCHERS WHICH WERE AVA ILABLE WITH THE ASSESSEE COMPANY DULY RECORDED IN THE BOOKS OF ACCOUNT. AS P OINTED OUT BY THE ASSESSEE BEFORE THE CIT(A) ASSESSEE HAS SPENT A TOT AL OF ` 1771 CRORE TOWARDS CLEARING AND FORWARDING EXPENSES BOTH FOR EXPORTS A S WELL AS IMPORTS. THE EXPENSES INCURRED IN CASH IN THE ENTIRE BLOCK PERIO D INCLUDING THE YEAR FOR WHICH ACCOUNTS ARE YET TO BE CLOSED WAS TO THE TUNE OF ` 1,70,58,929/-, WHICH IS HARDLY 0.001% OF THE TOTAL EXPENSES INCURR ED. AS SEEN FROM PARA 7.7 OF CIT(A)S ORDER THE CLEARING AND FORWARDING E XPENSES INCURRED HAVE BEEN BIFURCATED INTO OTHER EXPENSES LIKE EXPENSES A T DOCK AND EXPENSES AT CUSTOMS ETC.. THE CIT(A) ALSO GIVES A FINDING THAT THE A.O. ESTIMATION THE UNALLOWABLE AND INADMISSIBLE EXPENSES AT 90% IS UNR EASONABLE AND HIGH. THIS INDICATES THAT THE DISALLOWANCE WAS MADE PUREL Y ON THE BASIS OF UNVERIFIABLE NATURE OF THE EXPENDITURE BUT NOT DUE TO AVAILABILITY OF ANY INCRIMINATING MATERIAL IN THE COURSE OF SEARCH. THE RE IS NO EVIDENCE FOUND DURING THE COURSE OF SEARCH TO SHOW THAT CLEARING A ND FORWARDING EXPENSES WERE FALSE OR BOGUS. JUST BECAUSE THE VOUCHERS FOUN D DURING THE SEARCH SHOWED INCURRING OF CASH EXPENSES FOR CUSTOMS CLEAR ANCE THERE CANNOT BE ANY ADDITION TREATING THE SAME AS UNDISCLOSED INCOM E IN THE ASSESSMENT UNDER SECTION 158BC IN THE BLOCK PERIOD. THE ENTIRE EXPENDITURE CLAIM WAS ARISING OUT OF THE BOOKS OF ACCOUNT, WHICH WAS DULY MAINTAINED BY THE COMPANY AND EVEN THE IOUS, WHICH WERE ADVANCES TAKE N BY THE MANAGER TOWARDS VARIOUS CASH EXPENSES ITSELF WAS FULLY VOUC HED AND WAS ACCOUNTED FOR. THEREFORE, WE ARE OF THE VIEW THE DISALLOWANCE OF EXPENSES TOWARDS IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 7 CUSTOMS CLEARANCE DUE TO REASON OF UNVERIFIABLE NAT URE CANNOT BE MADE IN THE BLOCK ASSESSMENT. THE COMPANY HAS PROPER INTERN AL CONTROL AND THE INTERNAL AUDITOR ALSO SEEMS TO VERIFY MAJORITY OF T HE EXPENSES AND REPORT TO THE MANAGEMENT IN THE CASE OF ANY ADVERSE FINDING. IN FACT THE SEIZED PAPER WAS ONE SUCH INTERNAL AUDIT REPORT WHICH ITSELF STA TES THAT DEPOT OF SARKHEJ PROJECT OFFICE OF THE COMPANY FOR WESTERN REGION IN DICATE THAT AS EXPLAINED TO US DEPOT FOLLOWS THE PRACTICE OF MAINTAINING A R EGISTER GIVING FULL DETAILS OF EXPENSES REIMBURSED TO C&F AGENTS BUT SAME WAS N OT UPDATED. THIS OBSERVATION WAS ONLY WITH REFERENCE TO NOT UPDATING THE REGISTER BUT NOT WITH REFERENCE TO BOGUS EXPENDITURE OR FALSE EXPENS ES. THE FACTUM OF EXPENDITURE CANNOT BE DISPUTED AS ASSESSEE HAS INCU RRED THE EXPENDITURE, WHICH WAS NOT DOUBTED. THE ONLY REASON FOR DISALLOW ANCE WAS ON THE NATURE OF UNVERIFIABLE NATURE OF THE EXPENDITURE. CLEARING AND FORWARDING EXPENSES IN CASH ITSELF IS 0.001% OF THE TOTAL EXPENDITURE U NDER THE HEAD AND THESE EXPENSES INCURRED ON REIMBURSEMENT OF VARIOUS EXPEN SES TO C&F AGENTS ALL OVER THE COUNTRY. AS PER THE DETAILS GIVEN IN PARA 7.7 OF THE CIT(A)S ORDER THE EXPENSES IN CASH WAS BIFURCATED INTO OTHER EXPE NSES, EXPENSES AT DOCKS AND EXPENSES AT CUSTOMS. THE OTHER EXPENSES INCLUDE LABOUR, LOADING, SHIFTING, CRANE CHARGES, ETC. WHEREAS THE EXPENSES AT DOCKS MOSTLY INCLUDE FORWARDING, OPENING, PACKING, GROUNDING, EXAMINING, COMMUNICATION CHARGES, ETC. THE EXPENSES AT CUSTOMS MOSTLY INCLUD E CHARGES RELATED TO CUSTOM CLEARANCE AND LOADING AND UNLOADING OPERATIO NS FOR BOTH IMPORTS AND EXPORTS. IN NO WAY ONE CAN CONSIDER THAT OTHER EXPENSES AND EXPENSES AT DOCKS ARE FOR ANY SPEED MONEY PAID TO CUSTOMS AU THORITIES, IF ANY, WHICH MAY COME UNDER DISALLOWANCE UNDER SECTION 37(1) EXP LANATION. THERE IS NO SUCH EVIDENCE THAT ANY SPEED MONEY WAS PAID. AS PER THE BRAKE UP GIVEN OF THESE EXPENSES FOR A.Y. 2000-01 TO 2002-03 THE EXPE NDITURE INCURRED AT CUSTOMS WAS ONLY AT 38.95%. SO THE DISALLOWANCE OF THE BALANCE EXPENDITURE AT 25% BY THE CIT(A) AS WAS DONE IN PARA 7.9 CANNOT BE UPHELD AT ALL. THEREFORE THE EXPENSES PERTAINING TO THE BLOCK PERI OD QUANTIFIED BY HIM AT ` 10,33,867/- FOR OTHER EXPENSES CANNOT BE DISALLOWED AT ALL. WITH REFERENCE TO THE 40% OF THE CASH EXPENSES INCURRED AT CUSTOMS ALSO, THERE CANNOT BE ANY SPEED MONEY INVOLVED IN THESE AMOUNTS. THERE IS NO EVIDENCE WITH IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 8 REFERENCE TO PAYMENT OF SPEED MONEY. CONSIDERING TH E VOLUME OF ASSESSEES TRANSACTIONS AND THE PERCENTAGE OF CASH EXPENSES IN CURRED AT CUSTOMS IT CANNOT BE STATED THAT THIS ENTIRE EXPENSES WAS TOWA RDS UNLAWFUL PAYMENT. IN THE ABSENCE OF ANY EVIDENCE, WE ARE OF THE VIEW THAT THE ACTION OF THE CIT(A) IN DISALLOWING 40% OF THE CASH EXPENSES TOWA RDS CUSTOMS CLEARANCE ALONE CANNOT BE UPHELD. THEREFORE ASSESSEES GROUND NO. 3 WITH REFERENCE TO TREATMENT OF THIS AMOUNT AS UNDISCLOSED INCOME IS T O BE UPHELD AS THERE IS NO REASON TO TREAT IT AS SUCH. WITH REFERENCE TO GR OUND NO. 2 IT IS TRUE THAT THE EXPENDITURE WAS DISALLOWED AS UNVOUCHED. CONSEQ UENTLY, ON THE PRINCIPLES OF LAW AS WELL AS ON FACTS TREATMENT OF DISALLOWANCE OF CERTAIN PORTION OF THE EXPENSES INCURRED CANNOT BE CONSIDER ED AS UNDISCLOSED INCOME AS THE SAME WOULD NOT BE FALLING WITHIN THE DEFINITION OF CLAUSE (B) OF SECTION 158B. FOR THESE REASONS GROUND NO. 2 IS ALS O UPHELD. ACCORDINGLY GROUND NO. 2 & 3 RAISED BY ASSESSEE ARE ALLOWED AND GROUND NO. 1 & 2 RAISED BY REVENUE ARE DISMISSED. 9. ADDITION OF ` `` ` 60,00,000/- ON ACCOUNT OF SALES PROMOTION EXPENSES AND COMMISSION PAYABLE ON EXPORTS AT ` `` ` 5,12,99,210/- : GROUND NO. 3 TO 6 IN REVENUE APPEAL PERTAINS TO DELETION OF ADDITIO N OF ` 60,00,000/- ON ACCOUNT OF SALES PROMOTION EXPENSES AND COMMISSION PAYABLE ON EXPORTS AT ` 5,12,99,210/-. IN THIS GROUND NO. 4 & 6 ARE SIMILAR IN THE SENSE THAT REVENUE CONTENDS THAT THE LEARNED CIT(A) WAS NOT CO RRECT IN NOT APPRECIATING THAT THE UNDISCLOSED INCOME ON ACCOUNT OF SALE PROM OTION EXPENSES AND EXPORT COMMISSION PAYABLE WAS ESTIMATED ON THE BASI S OF THE STATEMENT OF THE DIRECTOR AND EMPLOYEES AND BOOKS OF ACCOUNT AND THEY ARE WITHIN THE SCOPE OF CHAPTER XIV-B. AS STATED IN THE EARLIER GR OUNDS, THE DISALLOWANCES WERE MADE ON AN ESTIMATION BASIS AND ON THE SO CALL ED SEIZED DOCUMENTS, WHICH WERE NOTHING BUT EXTRACTS OF THE ACCOUNTS OR REPORTS DERIVED THEREON. THERE ARE STATEMENTS RECORDED FROM VARIOUS MANAGERS AND ULTIMATELY FROM THE DIRECTOR BUT THERE IS NO INCRIMINATING MATERIAL AT ALL WITH REFERENCE TO DISALLOWANCE OF SALES PROMOTION EXPENSES AS WELL AS COMMISSION ON EXPORTS. AS FAR AS SALES PROMOTION EXPENSES ARE CONCERNED, I N THE EARLIER YEARS IN THE COURSE OF REGULAR ASSESSMENTS DISALLOWANCES ARE MAD E INVOKING PROVISIONS OF SECTION 36(3) R.W. RULE 6B CONCERNING WITH PRESE NTATION ARTICLES AND GIFT IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 9 ARTICLES ON THE BASIS OF THE DISALLOWANCES UNDER SE CTION 36(3) R.W. RULE 6B WHICH WERE PARTIALLY CONFIRMED IN THE REGULAR ASSES SMENTS OF THOSE YEARS. THE ADHOC DISALLOWANCE AT ` 20,00,000/- EACH FOR ASSESSMENT YEARS 1999- 2000, 2001-02 AND 2002-03 WERE MADE AS NO SUCH DISA LLOWANCES WERE MADE IN THE REGULAR ASSESSMENTS. THERE WAS NO MATER IAL FOUND DURING THE COURSE OF SEARCH AND THE ONLY JUSTIFICATION FOR THE A.O. FOR MAKING THE DISALLOWANCE AT ` 20,00,000/- PER YEAR TOTALLING TO ` 60,00,000/- WAS WITH REFERENCE TO THE ASSESSMENT ORDERS OF EARLIER YEARS IN WHICH THE PROVISIONS WERE INVOKED FOR DISALLOWANCE. WITH REFERENCE TO EX PORT COMMISSION THERE WERE SEIZED PAPERS WITH REFERENCE TO THE COMMISSION PAYABLE OF ` 5,12,99,210/- ON EXPORTS, WHICH WAS SEIZED FROM THE ASSESSEES KHAR OFFICE. THIS STATEMENT CONTAINS A LIST OF COMMISSION PAYABL E ON EXPORTS AS ON 31.12.2001 TO OVER 50 COMMISSION AGENTS WORLD-WIDE. THE RATE OF COMMISSION AS PER THIS STATEMENT VARIED FROM 1.055 TO 0.125%. THE A.O. AFTER EXAMINING THE DETAILS STATED THAT IF THESE CO MMISSION AGENTS HAVE RENDERED ANY SERVICE THERE WOULD HAVE BEEN SOME DOC UMENTARY EVIDENCE WITH REFERENCE TO THE SERVICES AND ALSO NOTED THAT THE COMMISSION PAYABLE WAS FOR A PERIOD OF ONE YEAR TO THREE YEARS AS ON T HE DATE OF SEARCH AND IT WAS UNLIKELY THAT OVERSEAS AGENTS WOULD WAIT FOR TH E RECEIPT OF COMMISSION FOR SUCH DURATION. FOR THESE REASONS THE EXPORT COM MISSION PAYABLE TO TOP 10 PARTIES AMOUNTING TO ` 4,12,99,210/- WAS TREATED AS UNDISCLOSED INCOME IN A.Y. 2002-03 UPTO 14.02.2003. 10. THE CIT(A) AFTER EXAMINING THE FACTS, VIDE PARA 9.9 CAME TO THE CONCLUSION THAT THE A.O. TRAVELLED BEYOND BOUNDS OF CHAPTER XIV-B TO CONVERT THE BLOCK ASSESSMENT PROCEEDINGS INTO REGUL AR ASSESSMENT PROCEEDINGS AND THE COMPLETE INFORMATION REGARDING COMMISSION PROVIDED WAS AVAILABLE AT THE TIME OF SEARCH. THE A.O. HAS N OT MADE OUT ANY ENQUIRIES WITH RBI, BANKS, CUSTOMS OR AGENTS TO SHOW THAT THE COMMISSION PROVIDED WAS FALSE. AS THERE WAS NO MATERIAL TO SHOW THAT TH E COMMISSION PROVIDED WAS FALSE. HE ALSO NOTED THAT THE COMMISSION DISALL OWED WAS ONLY WITH REFERENCE TO THE TOP 10 PARTIES, EVEN THOUGH THE CO MMISSION PAYABLE TO OTHER PARTIES WERE ALSO EQUALLY OUTSTANDING BUT NOT DISAL LOWED. HE WAS OF THE OPINION THAT THERE APPEARS TO BE SUBSTANCE IN THE C ONTENTION OF THE ASSESSEE IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 10 THAT THE DISALLOWANCE AS MADE MERELY TO PIN DOWN TH E ASSESSEE TO THE DECLARATION OF UNDISCLOSED INCOME MADE UNDER SECTIO N 132(4) WHICH WAS SUBSEQUENTLY RETRACTED. VIDE PARA 9.11 IT WAS ALSO FURTHER CONFIRMED THAT OUT OF THE COMMISSION OF ` 5.3 CRORE PAYABLE TO TOP 10 PARTIES AS ON 31.12.2001, EVERY AMOUNT HAS BEEN PAID EXCEPT AN AM OUNT OF ` 39.02 LAKH AND EVEN THIS AMOUNT WAS ALSO PAID IN DUE COURSE. T HEREFORE, THERE WAS NO QUESTION OF DISALLOWANCE OF ` 5 CRORE PAYABLE TO TOP 10 PARTIES. NOT ONLY THAT IT WAS ALSO ON RECORD THAT OUT OF THE COMMISSION PA YABLE AS ON 31.12.2001 AN AMOUNT OF ` 1.04 CRORE, WHICH SUBSEQUENTLY BECAME NOT PAYABLE W AS WRITTEN BACK IN THE BOOKS AND INCLUDED IN THE PROFI TS. THUS THE COMMISSION PAYABLE HAVE BEEN PROPERLY PROVIDED IN THE BOOKS AN D HAVING BEEN LARGELY PAID SUBSEQUENTLY AND WHEN IT BECAME NOT PAYABLE HA VING BEEN WRITTEN BACK, IT CANNOT BE STATED THAT THE COMMISSION PROVI DED IN THE BOOKS WAS FALSE. WE CONFIRM THE FINDINGS OF THE CIT(A) THAT T HERE IS NO LEGAL OR FACTUAL BASIS FOR DISALLOWANCE OF SALES PROMOTION COMMISSIO N EXPENSES OF ` 60,00,000/- AS WELL AS EXPORT COMMISSION OF ` 5.12 CRORE AND, THEREFORE, THE ORDERS OF THE CIT(A) ON THIS ISSUE ON FACTUAL BASIS ARE TO BE CONFIRMED. ACCORDINGLY GROUND NO. 3 & 5 ARE REJECTED. 11. LEGAL PRINCIPLES : WITH REFERENCE TO GROUND NO. 4 & 6 ON LEGAL PRINCIPLES, WE ALSO AGREE WITH THE FINDINGS OF THE CIT(A) ON LEGAL PRINCIPLES ON THE ISSUE OF ADDITION IN THE BLOCK ASSESSMENT. T HE FINDINGS OF THE CIT(A) ON THE LEGAL PRINCIPLES VIDE PARA 8.7 AND 8.8 ARE A S UNDER: - 8.7 I HAVE VERY CAREFULLY CONSIDERED THE MATTER. A PPARENTLY, NO EVIDENCE WAS FOUND AS A RESULT OF SEARCH TO INDICAT E THAT SALES PROMOTION EXPENSES INCURRED BY THE ASSESSEE WERE FA LSE OR BOGUS. VIDE THIS OFFICE ORDER U/S 250(4) DATED 13.01.2005 THE AO WAS REQUIRED TO FURNISH EVIDENCE, IF ANY, FOUND DURING THE SEARCH, TO SHOW THAT THE SALES PROMOTION EXPENSES CLAIMED WERE FALS E. VIDE REPLY DATED 8.2.2005 THE AO HAS NOT FURNISHED ANY SUCH EV IDENCE. EVIDENTLY, THE DISALLOWANCE HAS BEEN MADE BY THE AO ON THE BASIS OF SIMILAR DISALLOWANCES MADE IN THE REGULAR ASSESSMEN TS OF CERTAIN AYS FALLING IN THE BLOCK PERIOD. HOWEVER, THERE IS NO FINDING IN ANY OF THE SAID REGULAR ASSESSMENTS THAT SALES PROMOTION E XPENSES CLAIMED WERE FALSE. IN CERTAIN ASSESSMENT YEARS THE DISALLO WANCE WAS MADE UNDER RULE 6B ON TECHNICAL GROUNDS. IN CERTAIN OTHE R YEARS THE DISALLOWANCE WAS MADE AS THE AO FELT THAT A PART OF THE EXPENSE MAY NOT BE FOR BUSINESS PURPOSES. IN THE BLOCK ASSESSME NT IMPUGNED IN IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 11 THE INSTANT APPEAL, ANOTHER REASON GIVEN FOR THE DI SALLOWANCE IS THAT THE SAID EXPENSES WERE NOT FULLY VERIFIABLE. HOWEVE R, THERE IS NO FINDING OF THE AO THAT THE EXPENSES WERE FALSE. I Q UITE AGREE WITH THE APPELLANT THAT MAKING DISALLOWANCES ON THE BASIS OF VERIFIABILITY OF EXPENSES IS THE PROVINCE OF REGULAR ASSESSMENT U/S 143(3) AND NOT OF BLOCK ASSESSMENT U/S 158BC. UNVERIFIABILITY OF AN E XPENSE DOES NOT BY ITSELF MAKE IT FALSE. FOR AN EXPENSE TO BE FALSE IT HAS TO BE SHOWN WITH POSITIVE EVIDENCE THAT THE EXPENSE WAS NEVER I NCURRED OR THAT IT WAS DEFINITELY NOT INCURRED FOR PURPOSES OF THE BUS INESS OR WAS PATENTLY INADMISSIBLE. FAILURE ON THE PART OF THE A SSESSEE TO PROVE THE EXPENSES DOES NOT MAKE THE EXPENSE FALSE. THE SAID EXPENSE MERELY REMAINS UNPROVED. ON FACTS OF THE CASE IT IS CLEAR THAT NO EVIDENCE WAS FOUND AS A RESULT OF THE SEARCH TO SHOW THAT SA LES PROMOTION EXPENSES WERE FALSE. 8.8. THE LAW HAS COME TO BE WELL SETTLED THAT ADDIT IONS NOT FOUNDED ON EVIDENCE UNCOVERED BY SEARCH CANNOT BE THE SUBJE CT OF BLOCK ASSESSMENT UNDER THE PROVISIONS OF CHAPTER XIV-B. T HERE IS VIRTUAL UNANIMITY OF JUDICIAL OPINION IN THIS REGARD. I) THE GUJARAT HIGH IN THE CASE OF CIT VS N R PAPER S AND BOARDS LTD. (2001) 248 ITR 526 HAS QUOTED WITH APPROVAL TH EIR EARLIER DIVISION BENCH DECISION IN THE CASE OF N R PAPER AN D BOARD LTD. VS DY. CIT (1998) 234 ITR 733 WHERE IT WAS HELD THAT THE BLOCK ASSESSMENT OF UNDISCLOSED INCOME TO BE CHARGED AT A HIGHER RATE OF TAX PRESCRIBED WAS INDEPENDENT OF THE PENDING REGUL AR ASSESSMENTS AND IT OPERATED IN A DIFFERENT FIELD FROM THE ASSES SMENT OF UNDISCLOSED INCOME WHICH WAS NOT AND WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THE ACT. UNDISCLOSED I NCOME BY CHAPTER XIV-B IS CLASSIFIED SEPARATELY FOR THE PURPOSES OF ASSESSMENT AND IS REQUIRED TO BE WORKED OUT IN THE MANNER PRESCRIBED THEREIN AND TREATED TO A HIGHER RATE OF TAX. THIS PROCESS DID N OT DISTURB THE ASSESSMENTS ALREADY MADE, OF THE PREVIOUS YEARS, AN D WAS ONLY INTENDED TO SNIFF OUT WHAT HAD REMAINED HIDDEN AND NOT DISCLOSED BY THE ASSESSEE. THERE WOULD, THEREFORE, BE NO OVERLAP PING IN THE NATURE OF THE ASSESSMENT MADE UNDER THIS CHAPTER OF UNDISC LOSED INCOME AND THE REGULAR ASSESSMENT MADE U/S 143(3). II) THE JURISDICTIONAL BOMBAY HIGH COURT IN CIT VS DR. M.K.E. MENON (2001) 248 ITR 310 HELD THAT CHAPTER XIV-B LA YS DOWN A SPECIAL PROCEDURE FOR ASSESSMENT OF SEARCH CASES AN D PROVIDED FOR ASSESSMENT OF UNDISCLOSED INCOME AS A RESULT OF SEA RCH. UNDER SECTION 158 BB READ WITH SECTION 158 BC, WHAT IS AS SESSED IS THE UNDISCLOSED INCOME OF THE BLOCK PERIOD AND NOT THE TOTAL INCOME OR LOSS OF THE PREVIOUS YEAR REQUIRED TO BE ASSESSED U NDER REGULAR ASSESSMENT VIDE SECTION 143(3). THIS EXERCISE U/S 1 43(3) FOR REGULAR ASSESSMENT STANDS ON A DIFFERENT FOOTING IN CONTRAS T TO THE EXERCISE UNDERTAKEN BY THE AO UNDER CHAPTER XIV-B WHERE THE AO HAS TO ASSESS ONLY THE UNDISCLOSED INCOME. THEREFORE, THE SCOPE OF REGULAR ASSESSMENT IS QUITE DIFFERENT FROM THE SCOPE OF ASS ESSMENT UNDER CHAPTER XIV-B. THE REGULAR ASSESSMENT IS TO ENSURE THAT THE IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 12 ASSESSEE HAD NOT UNDERSTATED THE INCOME OR HAS NOT COMPUTED EXCESSIVE LOSS OR HAS NOT UNDERPAID THE TAX IN ANY MANNER WHEREAS WHAT IS ASSESSED UNDER CHAPTER XIV-B IS ONLY THE UN DISCLOSED INCOME FOR THE BLOCK PERIOD AND NOT THE INCOME OR L OSS OF THE PREVIOUS YEAR WHICH IS ONLY DONE IN THE NORMAL REGULAR ASSES SMENT U/S 143(3). III) IN THE CASE OF BHAGWATI PRASAD KEDIS VS CIT (2 001) 248 ITR 562 THE CALCUTTA HIGH COURT FOLLOWING ITS DECISION IN SHAW WALLACE & CO. LTD. (2001) 248 ITR 81 (CAL) HELD THAT EXPLANAT ION TO SECTION 158BA OF THE ACT MAKES IT CLEAR THAT THE LEGISLATUR E THOUGHT IT FIT TO MAKE A DISTINCTION BETWEEN THE BLOCK ASSESSMENT AND THE REGULAR ASSESSMENT. IN THE CASE OF REGULAR ASSESSMENT, THE AO IS FREE TO EXAMINE THE VERACITY OF THE RETURN AS WELL AS THE C LAIMS MADE BY THE ASSESSEE, WHEREAS THE UNDISCLOSED INCOME IS TAXED B Y WAY OF BLOCK ASSESSMENT AS A RESULT OF SEARCH AND SEIZURE. IV) IN THE CASE OF CIT VS RAVI KANT JAIN (2001) 250 ITR 141 (DEL) THE DELHI HIGH COURT HAS TAKEN THE VIEW THAT BLOCK ASSESSMENT .. IS NOT INTENDED TO BE A SUBSTITUTE FOR REGULAR ASSESSM ENT. ITS SCOPE AND AMBIT IS LIMITED IN THAT SENSE TO MATERIALS UNEARTH ED DURING SEARCH. IT IS IN ADDITION TO THE REGULAR ASSESSMENT ALREADY DO NE OR TO BE DONE. THE ASSESSMENT FOR THE BLOCK PERIOD CAN ONLY BE DON E ON THE BASIS OF THE EVIDENCE FOUND AS A RESULT OR REQUISITION OF BO OKS OF ACCOUNT OR DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION A S ARE AVAILABLE WITH THE AO. EVIDENCE FOUND AS A RESULT OF SEARCH I S CLEARLY RELATABLE TO SECTION 132 AND 132A. THE COURT HELD THAT INCOME BASED ON REPORT OF SPECIAL AUDITORS APPOINTED U/S 142(2A) CANNOT BE EQUIAT5ED WITH UNDISCLOSED INCOME DETERMINED ON THE BASIS OF SEARC H MATERIAL V) THE VARIOUS BENCHES OF ITAT HAVE, IN A CATENA OF CA SES, REITERATED THE ABOVE VIEWS: IN ESSEM INTRA-PORT SERVICES PVT LTD. (2000) 72 ITD 228 (HYD) IT WAS HELD THAT EVEN THOUGH UNDISCLOSED INCOME IS DEFIN ED IN AN INCLUSIVE MANNER, THE SCOPE AND EXTENT OF THE TERM UNDISCLOS ED INCOME FOR THE PURPOSES TO CHAPTER XIV IS CONTINGENT UPON THE FACT THAT THE UNDISCLOSED INCOME SHOULD BE BORNE OUT OF MATERIALS REPRESENTING INCOME OR PROPERTY WHICH HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED BY THE ASSESSEE FOR THE PURPOSES OF THIS ACT. WHEN CERTAIN INFORMATION AND DETAILS ARE ALREADY FURNISHED IN TH E RETURN OF INCOME OR STATEMENTS ACCOMPANYING THERETO, FILED BEFORE TH E DEPARTMENT, OR WHEN CERTAIN INFORMATION AND DETAILS ARE ALREADY RE CORDED IN THE BOOKS OF ACCOUNT MAINTAINED IN THE REGULAR COURSE O F BUSINESS, BASED ON WHICH RETURNS OF INCOME WOULD BE FILED IN NORMAL COURSE, THAT VERY SAME INFORMATION AND DETAILS CANNOT BE RE-EXAMINED IN THE COURSE OF BLOCK ASSESSMENT PROCEEDINGS TO ARRIVE AT ANY FRESH CONCLUSIONS, SO AS TO RESULT IN DETERMINATION OF UNDISCLOSED INCOME BASED ON THAT MATERIALS .. THUS, THERE ARE TWO ELEMENTS TO BE SA TISFIED SO AS TO BE TREATED AS UNDISCLOSED INCOME FOR THE PURPOSES OF T HIS CHAPTER, I.E. THE FACTUM OF NON DISCLOSURE ON THE PART OF THE ASS ESSEE SHOULD BE IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 13 EXISTING, AND THE SAID NON DISCLOSURE SHOULD HAVE B EEN BLOWN OUT AS A RESULT OF SEARCH ETC. U/S 132. THE SAME VIEW HAS BEEN TAKEN BY THE JURISDICTIONA L HIGH COURT IN CIT V V D GHODAVAT (2001) 247 ITR 448 (BOM ) AND IN CIT V VIKRAM A DOSHI 256 ITR 129 (BOM) AND BY MUMBAI ITAT IN THE CASE OF SUNDER AGENCIES VS DCIT (SUPRA) AND A A NADIADWA LA V DCIT 75 ITD 394 (BOM). THE SAME VIEW HAS BEEN TAKEN IN PARA KH FOODS LTD. VS DY.CIT (1998) 64 ITD 396 (PUNE); JK NARAYANAN (H UF) VS ACIT (1999) 68 ITD 104 (MAD); INDORE CONSTRUCTION (P) LT D. VS ACIT (1999) 71 ITD 128 (IND.) AND MANY OTHER CASES. THE ABOVE PRECEDENTS REVEAL A VIRTUAL UNANIMITY O F JUDICIAL OPINION THAT THE SCOPE OF BLOCK ASSESSMENT UNDER CH APTER XIV-B IS LIMITED TO BRINGING TO TAX ONLY SUCH INCOME AS IS F OUND TO BE UNDISCLOSED OR EXPENSES WHICH ARE FOUND TO BE FALSE ON THE BASIS OF THE EVIDENCE FOUND AS A RESULT OF SEARCH. BLOCK ASS ESSMENT PROCEEDINGS, THEREFORE, CANNOT TRAVEL BEYOND THE EV IDENCE DISCOVERED DURING SEARCH. BY IMPLICATION, SUCH PROCEEDINGS CAN NOT ADMIT OF ASSESSMENT OF UNDISCLOSED INCOME BASED ON OPINION. ASSESSMENT BASED ON OPINION IS THE PROVINCE OF REGULAR ASSESSM ENT U/S 143(3) BUT IS BEYOND THE PURVIEW OF BLOCK ASSESSMENT UNDER CHAPTER XIV-B OF THE ACT. IT HAS BEEN HELD BY THE M P HIGH COURT IN CIT V KHUSHLAL CHAND NIRMAL KUMAR, 263 ITR 77, THAT THE AMENDMENT MADE IN THE PROVISIONS OF S 158BB(I) BY FINANCE ACT 2002 W.R.E. F 1.7.1995 AS EXPLAINED IN CBDT CIRCULAR DATED 27.8.2002 DOES NOT ALTER THIS PROPOSITION. UNDISCLOSED INCOME CANNOT STILL BE ASS ESSED ON THE BASIS OF ANY EVIDENCE OTHER THAN THAT FOUND AS A RESULT O F SEARCH OR ANY MATERIAL OR INFORMATION RELATABLE TO SUCH EVIDENCE UNCOVERED DURING SEARCH. 12. AFTER CONSIDERING THE LEGAL PRINCIPLES, THE CIT(A) WAS OF THE OPINION THAT APPLICATION OF THE ABOVE PRINCIPLES TO THE FAC TS OF THE INSTANT CASE WILL LEAD TO IRRESISTIBLE CONCLUSION THAT THE A.O. HAD T RAVELLED BEYOND THE SCOPE OF CHAPTER XIV-B IN MAKING DISALLOWANCE OUT OF SALE S PROMOTION EXPENSES AND EXPORT COMMISSION EXPENSES IN THE BLOCK ASSESSM ENT. BY DOING SO THE A.O., SO TO SAY, CONVERTED THE BLOCK ASSESSMENT PRO CEEDINGS INTO REGULAR ASSESSMENT PROCEEDINGS. WE AGREE WITH THE ABOVE PRO POSITION MADE OUT BY THE CIT(A). SINCE THERE IS NO INCRIMINATING MATERIA L FOUND IN THE COURSE OF SEARCH, THERE IS NO BASIS FOR MAKING THE ABOVE DISA LLOWANCE IN THE BLOCK ASSESSMENT. 13. THE LEARNED D.R. HAS REFERRED TO THE MATERIAL FOUND IN THE SEARCH AND STATEMENT MADE IN THE COURSE OF SEARCH TO SUBMIT TH AT THE STATEMENTS CAN BE RELIED UPON FOR MAKING THE DISALLOWANCES AND REL IED ON THE DECISION OF THE IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 14 HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. HO TEL MERIYA 332 ITR 537. IN THE ABOVE SAID CASE IN THE COURSE OF SEARCH STAT EMENT WAS RECORDED FROM THE PARTNER AND EMPLOYEES THAT ASSESSEE WAS CONCEAL ING INCOME AMOUNTING TO 20% OF DISCLOSED TURNOVER BOTH ON LIQUOR SALES. THE AO MADE ADDITION ON BOTH LIQUOR AND FOOD SALES. IN APPEAL THE ITAT DELE TED THE ADDITIONS ON THE REASON THAT THERE WAS NO EVIDENCE AVAILABLE. ON THE SET OF FACTS THE HON'BLE KERALA HIGH COURT HEAD AS UNDER: - (I) THAT IT WAS NOT DISPUTED THAT THE ASSESSING O FFICER RECORDED THE STATEMENT OF THE PARTNER OF THE ASSESSEE AS WELL AS THE EMPLOYEES IN EXERCISE OF THE POWERS VESTED BY HIM UNDER SECTION 131 OF THE ACT. THE DOCUMENTS WERE ALSO SEIZED IN EXERCISE OF SUCH POWERS. IN THE ABOVE CIRCUMSTANCE, THE STATEMENT OF THE PARTNER AN D THE EMPLOYEES RECORDED BY THE ASSESSING OFFICER AS WELL AS THE DO CUMENTS SEIZED WOULD COME WITHIN THE PURVIEW OF THE EVIDENCE UNDER SECTION 158BB OF THE ACT READ WITH SECTION 3 OF THE EVIDENCE ACT AND SECTION 131 OF THE ACT. THEREFORE, SUCH EVIDENCE WOULD BE ADMISSIB LE FOR THE PURPOSE OF BLOCK ASSESSMENT. (II) THAT THE PARTNER OF THE ASSESSEE HAD IN UNAMBI GUOUS TERMS STATED THAT 20 PER CENT OF THE SALES OUT TURN WAS S UPPRESSED AND ONLY 80 PER CENT WAS RECORDED IN THE ACCOUNT BOOKS AND I T WAS THE PRACTICE FROM THE VERY BEGINNING. SO, IT WAS JUST A ND APPROPRIATE TO PRESUME THAT THERE WAS UNIFORM CONCEALMENT OF INCOM E IN ALL THE ASSESSMENT YEARS DURING THE BLOCK PERIOD. HENCE THE ASSESSEE WAS LIABLE TO BE ASSESSED DURING THE BLOCK PERIOD AT A UNIFORM RATE. (III) THAT THE STATEMENTS OF THE PARTNER AS WELL AS THAT OF THE PERSON INCHARGE OF THE BAR AND THE DOCUMENTS SEIZED WOULD REVEAL THAT CONCEALMENT OF INCOME WAS ONLY IN RESPECT OF THE SA LES OUTTURN OF THE LIQUOR ALONE. THERE WAS NO MATERIAL DISCLOSED TO SH OW THAT THE CONCEALMENT OF SALES OUTTURN WAS ALSO IN RESPECT OF THE OTHER FOOD ITEMS I.E., SNACKS, FOOD ITEMS, SOFT DRINKS, ETC. I N THIS VIEW OF THE MATTER, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING BLOCK ASSESSMENT AT A FLAT RATE OF 20 PER CENT OF THE TOT AL TURNOVER, BECAUSE DISCLOSURE OF THE SALES OUTTURN AT AN AVERAGE RATE OF 20 PER CENT WAS ONLY IN RESPECT OF LIQUORS. SO, IT WOULD BE JUST AN D APPROPRIATE TO HAVE A BLOCK ASSESSMENT ONLY IN RESPECT OF THE LIQUOR SA LES OUTTURN. THE SHARE OF THE LIQUOR SALES COULD BE DETERMINED AT 70 PER CENT OF THE TOTAL TURNOVER AND TAKING INTO ACCOUNT THAT 20 PER CENT LIQUOR TURNOVER WAS SUPPRESSED, 14 PER CENT OF THE TOTAL TURNOVER C OULD BE DETERMINED AS THE INCOME CONCEALED. 14. AS CAN BE SEEN FROM THE ABOVE, THERE SHOULD BE AD MISSION OF CONCEALMENT IN A STATEMENT WHICH CAN BE TAKEN AS BA SIS FOR CONSIDERING THE SAME IN THE BLOCK ASSESSMENT. IN THIS CASE THERE IS NOT ADMISSION AT ALL. IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 15 EVEN THE DIRECTORS STATEMENT DO INDICATE THAT THE E XPENDITURE WAS INCURRED AS FAR AS GROUND NO. 1 ON THE ISSUE OF CLEARING AND FORWARDING EXPENSES AND AS FAR AS THE EXPORT COMMISSION AND SALES PROMOTION ARE CONCERNED THESE DISALLOWANCES ARE MADE ON ADHOC BASIS WITHOUT ANY I NCRIMINATING MATERIAL. THE SALES PROMOTION EXPENSES, AS SEEN EARLIER, WAS BASED ON EARLIER DISALLOWANCES INVOKING SECTION 37(3) READ WITH RULE 6B AND EXPORT COMMISSION, EVEN THOUGH IT WAS PAID SUBSEQUENTLY, W AS DISALLOWED ON ADHOC BASIS IN THE CASE OF 10 TOP PARTIES JUST BECA USE IT WAS OUTSTANDING FROM ONE YEAR TO THREE YEARS, IN SPITE OF EXPLAININ G THE REASONS FOR OUTSTANDING AMOUNTS. WE ARE OF THE OPINION THAT AS THERE IS NEITHER ANY INCRIMINATING MATERIAL NOR ADMISSION OF ANY BOGUS O R FALSE EXPENSES, THE STATEMENT RECORDED UNDER SECTION 132(4) DOES NOT SU PPORT THE DISALLOWANCE OF EXPENSES AND TREATING IT AS UNDISCLOSED INCOME U NDER THE PROVISIONS OF SECTION 158B. EVEN THE ABOVE PRINCIPLES ALSO UPHELD BY THE HON'BLE HIGH COURT OF KERALA RELIED UPON BY THE LEARNED D.R. 15. IN THE CASE OF TCV ENGINEERING LTD. VS. ACIT 284 IT R 470 (MAD) THE HON'BLE MADRAS HIGH COURT HAS CONSIDERED THAT DISAL LOWANCE CANNOT BE CONSIDERED AS UNDISCLOSED INCOME UNLESS THERE IS A FINDING THAT THE EXPENDITURE WAS FALSE OR BOGUS. IT WAS HELD AS UNDE R: - THE WORDS OR ANY EXPENSE, DEDUCTION OR AL LOWANCE CLAIMED UNDER THIS ACT WHICH IS FOUND TO BE FALSE IN CLAUS E (B) OF SECTION 158B OF THE INCOME-TAX ACT, 1961, MAKE IT CLEAR THAT UNL ESS AND UNTIL THE SAID DEDUCTION CLAIMED BY THE ASSESSEE IS, FOUND TO BE FALSE BY THE REVENUE, THERE IS NO SCOPE FOR THE REVENUE TO TREAT THE DISALLOWANCE MADE UNDER SECTION 40A(2) AS UNDISCLOSED INCOME. TH E SCOPE OF SECTION 40A(2) IS TO DISALLOW ONLY UNREASONABLE OR EXCESSIVE PAYMENTS IN COMPUTING THE INCOME OF THE ASSESSEE. THE ASSESSEES MAIN BUSINESS WAS CIVIL EN GINEERING CONTRACTS. THE INCOME-TAX AUTHORITIES INITIATED PROCEEDINGS UN DER SECTION 132A ON THE DIRECTOR OF THE ASSESSEE-COMPANY. THERE WERE CERTAIN MATERIAL WHICH RELATED TO THE ASSESSEE AND THE ASSESSEE WAS SERVED WITH A NOTICE UNDER SECTION 158BD AND BASED ON SUCH NOTICE PROCEEDINGS WERE INITIATED AGAINST THE ASSESSEE. THE ASSESSEE A DMITTED UNDISCLOSED INCOME OF RS.1,41,04,160. WHILE COMPUTI NG THE BLOCK ASSESSMENT THE ASSESSING OFFICER DISALLOWED THE CLA IM ON ACCOUNT OF SUPERVISORY CHARGES UNDER SECTION 40A(2) AND TREATE D IT AS UNDISCLOSED INCOME. THE TRIBUNAL CONFIRMED THE DISA LLOWANCE AND HELD THAT THE SUPERVISORY CHARGES WERE NOT LEGITIMA TE BUSINESS IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 16 EXPENDITURE, THE INCOME WHICH WOULD HAVE OTHERWISE BEEN SHOWN WAS REDUCED AND CONSEQUENTLY IT LED TO UNDISCLOSED INCOME. ON APPEAL TO THE HIGH COURT: HELD THAT THE ASSESSING OFFICER HAD NOT GIVEN A FINDING THAT THE EXPENDITURE ON SUPERVISORY CHARGES CLAIMED BY T HE ASSESSEE WAS FALSE. THE ASSESSING OFFICER ONLY DISALLOWED THE EX PENDITURE UNDER SECTION 40A92) ON THE GROUND THAT THE EXPENDITURE W AS UNREASONABLE. THE DISALLOWANCE MADE UNDER SECTION 40A92) WOULD NO T BE CONSIDERED FOR THE PURPOSE OF MAKING BLOCK ASSESSME NT UNDER CHAPTER XIV-B UNLESS AND UNTIL THE REVENUE GAVE A C ATEGORICAL FINDING THAT THE WHOLE EXPENDITURE OF DEDUCTION WAS TOTALLY FALSE. IN THE ABSENCE OF A FINDING THAT THE SUPERVISORY CHARG ES WERE BOGUS OR FALSE, THE REVENUE COULD NOT TREATED IT AS UNDISCLO SED INCOME. THEREFORE, THE TRIBUNAL WAS NOT JUSTIFIED IN CONFIR MING THE DISALLOWANCE OF SUPERVISORY CHARGES, WHICH WERE DUL Y RECORDED IN THE ACCOUNTS REGULARLY MAINTAINED BY THE ASSESSEE A ND WHICH WERE NOT SEIZED OR REQUISITIONED EITHER UNDER SECTION 13 2 OR SECTION 132A. 16. THERE IS NEITHER INCRIMINATING MATERIAL NOR THERE IS ANY ADMISSION OF MODUS OPERANDI OF CONCEALMENT OR A FINDING BY AO TH AT THE EXPENDITURE CLAIMED WAS BOGUS OR FALSE IN THIS CASE. THEREFORE, WE ARE OF THE OPINION THAT THERE IS NO BASIS FOR MAKING THE ADDITION IN THE BL OCK ASSESSMENT OF THESE AMOUNTS, WHICH IN FACT ARE NOT EVEN BASED ON THE ST ATEMENT OF THE DIRECTOR OR EMPLOYEES. THEREFORE, GROUNDS NO. 4 & 6 ARE REJE CTED. 17. ADDITION OF UN-MOVED BALANCES AS INCOME: THE ISSUE OF UNMOVED BALANCES TREATED AS INCOME ARISES OUT GROUNDS NO. 7 & 8 RAISED BY REVENUE. BRIEFLY STATED, THE A.O. NOTICED THAT PAGE NO. 185 TO 190 OF THE LOOSE PAPER FOLDER NAMED ANNEXURE A5 TO PANCHANAMA DATED 14.02. 2002 WAS ANNEXURE TO THE INTERNAL AUDIT REPORT ON DEBTORS FOR F.Y. 20 01-02. IN THIS REPORT, THE AUDITORS HAVE LISTED UNMOVED BALANCES FOR DEPOTS AT DELHI, KUNDLI AND ZIRAKPUR. THE AUDITORS OBSERVED THAT PAYMENTS RECEI VED BUT NOT ACCOUNTED IN DELHI DEPOT AMOUNTED TO ` 12,27,167/- SIMILAR, FOR KUNDILI AND ZIRAKPUR DEPOT THESE AMOUNTS WERE ` 12,10,127/- AND ` 3,48,109/- RESPECTIVELY. THE A.O. REQUIRED THE ASSESSEE TO EXPLAIN THE UNMOVED BALANCES AND TO SPECIFY THE TREATMENT GIVEN TO THOSE DEBIT BALANCES WHERE A CCORDING TO THE AUDIT REPORT PAYMENTS RECEIVED WERE NOT ACCOUNTED FOR I N THE BOOKS OF ACCOUNTS OF THE ASSESSEE. IT WAS EXPLAINED BY THE ASSESSEE T HAT THE PAGES IN QUESTION WERE ANNEXURES TO THE REPORT OF THE STATUTORY AUDIT ORS REPORT FOR DELHI ZONE IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 17 WHICH WAS SEIZED AND WAS MARKED PAGE 64 TO 83 OF AN NEXURE A-3 TO PANCHANAMA. THE ANNEXURES TO THE AUDITORS REPORTS IN QUESTION CONTAINED VARIOUS REMARKS/OBSERVATIONS MADE BY THE AUDITORS O N UNMOVED BALANCES SUCH AS OLD BALANCES TO BE WRITTEN OFF, PAYMENT REC EIVED BUT NOT ACCOUNTED, DISCREPANCIES IN SHOWING THE THE DEBTORS ETC. IT WA S STATED BY THE ASSESSEE THAT NECESSARY ACTION HAD BEEN TAKEN TO RECTIFY SUC H MISTAKES/DISCREPANCIES. AS REGARDS THE AUDITORS OB SERVATION REGARDING PAYMENT RECEIVED BY NOT ACCOUNTED FOR, IT WAS AVERR ED THAT THE SAID MISTAKES WERE RECONCILED AND RECTIFIED SUBSEQUENTLY TO THE SATISFACTION OF THE AUDITORS. IN SUPPORT OF THESE AVERMENTS, THE AS SESSEE FURNISHED BEFORE THE A.O. THE REASONS FOR DISCREPANCIES AND THE REME DIAL MEASURES UNDERTAKEN. FORM THESE DETAILS THE A.O. NOTICED THA T EXCEPT FOR FOUR PARTIES OF DELHI DEPOT, THE REMEDIAL ACTION TAKEN WAS AFTER THE SEARCH ACTION. THE A.O. WAS OF THE VIEW THAT BUT FOR THE SEARCH, IT WA S VERY UNLIKELY THAT ASSESSEE WOULD HAVE TAKEN REMEDIAL ACTION IN RESPEC T OF PARTIES FROM WHOM PAYMENTS WERE RECEIVED BUT NOT PROPERLY RECORDED IN THE BOOKS. HE HELD THAT CORRECTIVE STEPS TAKEN BY THE ASSESSEE IN THE POST SEARCH PERIOD WERE AN AFTER THOUGHT AND, IN ANY CASE, WERE OUTSIDE THE PU RVIEW OF THE BLOCK PERIOD. THEREFORE, AMOUNTS RECEIVED BY ASSESSEE FROM VARIOU S PARTIES AT DELHI DEPOT AMOUNTING TO ` 10,95,276 (12,27,167 1,31,891) AT KUNDLI DEPOT AM OUNTING TO ` 12,10,127/- AND AT ZIRAKPUR DEPOT AMOUNTING TO ` 3,48,109/- WERE TREATED AS UNEXPLAINED INCOME OF THE ASSESSEE NOT R ECORDED IN THE BOOKS. 18. THE CIT(A), AFTER CONSIDERING THE EXPLANATION OF TH E ASSESSEE, DELETED THE SAME BY HOLDING AS UNDER: - 10.15 I HAVE CAREFULLY CONSIDERED THE MATTER AND FIND MYSELF IN AGREEMENT WITH THE APPELLANT. THERE IS NO DISPUTE T HAT THE PAPERS, COMPRISING INTERNAL AUDIT REPORTS, FOUND DURING THE SEARCH ON THE BASIS OF WHICH THE IMPUGNED ADDITION OF RS.84,25 LA KH HAS BEEN MADE, ALL RECORD TRADE DEBTORS OF THE ASSESSEE COMP ANY. IN THE MERCANTILE SYSTEM OF ACCOUNTING, INCOME ACCRUES AND IS ACCOUNTED AT THE POINT OF TIME THE SALE IS MADE IRRESPECTIVE OF REALISATION OF THE SALE PROCEEDS. SALES MADE ON CREDIT, THOUGH ACCOUNTED FO R AS INCOME CONTEMPORANEOUSLY WITH THE SALE TAKING PLACE, GIVE RISE TO TRADE DEBTORS WHICH IS AN ASSET OF THE BUSINESS. SINCE IN COME IS ALREADY ACCOUNTED AT THE TIME OF SALE, SUBSEQUENT COLLECTIO N OF THE SALE PROCEEDS IS MERELY REALIZATION OF THE TRADE DEBTORS AND DOES NOT IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 18 IMPACT INCOME. THUS, WHETHER OR NOT THE DEBT IS REC OVERED, IT CAN HAVE NO IMPACT UPON INCOME, UNLESS OF COURSE THE DE BT IS WRITTEN OFF AS A BAD DEBT, IN WHICH CASE INCOME GETS REDUCED. I N THIS VIEW OF THE MATTER THE AO APPARENTLY ERRED IN TREATING UNMOVED DEBIT BALANCES AS INCOME. THE AO ERRED IN NOT APPRECIATING THAT A DEBT BALANCE, UNLIKE CREDIT BALANCE WRITTEN OFF, CANNOT RESULT IN INCOME. LIKEWISE, THE AO ALSO ERRED IN TREATING PAYMENTS RECEIVED FRO M TRADE DEBTORS AS INCOME. RECEIPT OF PAYMENTS FROM DEBTORS CAN ONL Y YIELD INCOME BECAUSE IT IS NOTHING BUT SUBSTITUTION OF ONE ASSET (TRADE DEBTORS) WITH ANOTHER (CASH) INCOME ALREADY HAVING BEEN ACCOUNT ED FOR AT THE TIME OF SALES MADE TO THE DEBTOR PARTIES. FOR THESE REASONS, I AGREE WITH THE APPELLANT THAT THE AO ERRED IN TREATING UN MOVED TRADE BALANCES AND PAYMENTS RECEIVED FROM TRADE DEBTORS A S UNDISCLOSED INCOME OF THE ASSESSEE. ACCORDINGLY, THE ADDITION O F RS.84.25 LAKH IS LIABLE TO BE DELETED FOR THIS REASON ALONE. 10.16 BE THAT AS IT MAY, EVEN ON FACTS THE ADDITION MADE IS NOT CORRECT. APPARENTLY, THE AO ERRED IN CONCLUDING THA T CERTAIN PAYMENTS RECEIVED FROM DEBTORS HAD NOT AT ALL BEEN ACCOUNTED FOR. THIS IS NOT CORRECT. AS BROUGHT OUT BY THE ASSESSEE IN PARA 10. 13 ABOVE, THE PAYMENTS RECEIVED WERE ENTERED IN THE ASSESSEES BO OKS BUT WERE NOT PROPERLY ACCOUNTED FOR AGAINST THE OUTSTANDING DEBIT BALANCE OF THE PARTY. THUS, THE VERY PREMISE ON WHICH THE ADDI TIONS OF RS.10,95,276 (DELHI DEPOT). RS.12,10,127 (KUNDLI DE POT) AND RS.3,48,109 (ZIRAKPUR DEPOT) WERE BASED WAS NOT COR RECT. AS FOR THE ADDITIONS OF RS.17,00,000, RS.26,76,59 7 AND RS.13,94,861 FOR UNMOVED BALANCES, THE REASON GIVEN BY THE AO ON PAGE 22 (LAST LINE) OF THE ASSESSMENT ORDER THAT RE CEIPTS WERE NOT RECORDED IN THE BOOKS IS NOT CORRECT. THE RELEVANT SEIZED PAPERS DO NOT CONTAIN ANY SUCH INDICATION. THESE ARE JUST LISTS O F UNMOVED BALANCES IN WHICH THE STATUS OF VARIOUS TRADE DEBTS IS GIVEN . THERE IS NO MENTION THEREIN THAT PAYMENTS RECEIVED WERE NOT ACC OUNTED FOR. THUS, THE PREMISE ON WHICH THESE ADDITIONS ARE BASED WAS ALSO NOT CORRECT. 19. AFTER CONSIDERING THE SUBMISSIONS OF THE LEARNED D. R. AND THE LEARNED COUNSEL, WE CONFIRM THE ORDER OF THE CIT(A) AS THE ADDITION PER SE ITSELF WAS WRONG. AS RIGHTLY POINTED OUT BY THE CIT(A) THERE C ANNOT BE ANY ADDITION OF THE DEBTORS AMOUNTS WHICH WERE ALREADY OFFERED AS I NCOME IN THE EARLIER YEARS. THERE WAS THUS A FUNDAMENTAL MISTAKE COMMITT ED BY THE A.O. IN TREATING THE UNMOVED TRADE DEBTORS AS UNACCOUNTED I NCOME. MOREOVER, ON FACTS, THE CIT(A) ALSO EXAMINED AND FOUND THAT THE AMOUNTS HAVE BEEN DULY ACCOUNTED FOR. IN VIEW OF THE FACTS AS WELL AS THE REASON THAT TRADE DEBTORS WERE ADDED, WE CANNOT UPHOLD THE REVENUES CONTENTI ONS RAISED IN THE GROUNDS. IN FACT REVENUE SHOULD HAVE REFRAINED FROM CONTESTING THIS DELETION IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 19 BY THE CIT(A) ON FACTUAL BASIS ITSELF. FOR THESE RE ASONS, WE UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE GROUNDS RAISED BY REVE NUE. 20. BOTH THE LEARNED D.R. AND THE LEARNED A.R. IN THE A FORESAID ARGUMENTS RAISED VARIOUS LEGAL PRINCIPLES WHICH, WE ARE OF TH E VIEW, NEED NOT BE CONSIDERED IN DETAIL. SUFFICE TO SAY THAT ALL THE A RGUMENTS WERE CONSIDERED AND THE MATTER WAS DECIDED ACCORDINGLY. WE PLACE ON RECORD OUR APPRECIATION OF THE EFFORTS MADE BY THE COUNSELS IN EXPLAINING THE ISSUE IN DETAIL INCLUDING REFERRING TO VARIOUS DOCUMENTS IN THE PAPER BOOK FILED IN THIS REGARD. 21. WITH THESE OBSERVATIONS, ASSESSEES APPEAL IS ALLOW ED AND REVENUES APPEAL IS DISMISSED. ITA NO. 265/MUM/2006 22. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER GIVING EFFECT TO THE APPELLATE ORDER OF CIT(A)., CONSEQUENT TO TH E APPELLATE ORDER NO. CIT(A) CENT. VI/IT-216/2003-04 DATED 28.03.2005, WHICH WAS SUBJECT MATTER OF APPEAL BY BOTH ASSESSEE AND REVENUE IN THE TWO APPE ALS CONSIDERED EARLIER. THE A.O. HAS GIVEN EFFECT TO THE ORDER AS UNDER: IN VIEW OF APPELLATE ORDER NO. CIT(A) CENT. VI/IT- 216/2003-04, DATED 28.03.2005 OF THE CIT(A), CENTRAL VI, MUMBAI, UNDIS CLOSED INCOME OF THE ASSESSEE IS RECOMPUTED AS UNDER: UNDISCLOSED INCOME AS PER ORDER U/S 158BC 8,10,77 ,220 DT. 27.-02-2004 LESS: RELIEF AS PER THE CIT(A)S ORDER (A) CLEARING & FORWARDING EXPN (15353063-9382411) 5970625 (B) SALES PROMOTION EXPENSES 6000000 (C) EXPORT COMMISSION PAYABLE 51299210 (D) UNMOVED BALANCES 8424970 71694805 9382415 UNDISCLOSED INCOME IS TAKEN AT RS.2,00,00,000/- AS RETURNED BY THE ASSESSEE. 23. ASSESSEE CONTESTED BEFORE THE CIT(A) THAT THE RETUR N OF INCOME FOR THE BLOCK PERIOD FROM 01.04.1995 TO 14.02.2002 WAS SUBM ITTED AS AN ABUNDANT CAUTION DISCLOSING AN AMOUNT OF ` 2,00,00,000/- AND A NOTE WAS SUBMITTED IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 20 WITH THE RETURN THAT ON VERIFICATION OF THE BOOKS OF ACCOUNT IT WAS NOTICED THAT THE ENTRIES ARE CORRECTLY REFLECTED IN THE BOO KS OF ACCOUNT AND THE AFORESAID DISCLOSURE OF ` 2,00,00,000/- WAS MADE OUT OF ABUNDANT CAUTION. THE A.O. IN THE ORDER PASSED UNDER SECTION 158BC MA DE THE ADDITIONS ON CLEARING AND FORWARDING EXPENSES AT ` 1,53,53,063/-, SALES PROMOTION EXPENSES AT ` 60,00,000/- AS UNDISCLOSED INCOME AND ACCORDINGLY T HE UNDISCLOSED INCOME WAS DETERMINED AT ` 8,10,77,220/-.CONSEQUENT TO THE APPEAL ORDER BY THE CIT(A) THE TOTAL INCOME SHOULD HAVE BEEN DETERMINED AT ` 93,82,415/- BUT THE A.O. DETERMINED THE TOTAL INCOM E AT ` 2,00,00,00/-, WHICH INCOME ITSELF WAS OFFERED ON PROTECTIVE BASIS OF ABUNDANT CAUTION AND, THEREFORE, THE A.O. WAS NOT CORRECT IN DETERMINING THE UNDISCLOSED INCOME AT ` 2,00,00,000/- AND NOT AT ` 93,82,415/- BEING THE UNDISCLOSED INCOME CONFIRMED AS PER THE ORDER OF THE CIT(A). 24. THE CIT(A), HOWEVER, DID NOT INTERFERE WITH THE ORD ER PASSED BY THE A.O. ON THE REASON THAT UNDISCLOSED INCOME WAS VOLU NTARILY OFFERED BY THE ASSESSEE AND THE SAME HAS BEEN DISCLOSED IN THE RET URN BY THE ASSESSEE ITSELF AND VERIFIED IN THE MANNER PRESCRIBED AND TH E A.O. HAS ACCEPTED THE SAME. HIS ORDER IS THUS: I HAVE HEARD THE A.R. AND I HAVE GONE THROUGH THE O RDER GIVING APPEAL EFFECT PASSED BY THE A.O. AFTER GIVING THE A PPEAL EFFECT, THE A.O. HAS WRITTEN ONLY ONE SENTENCE THAT THE UNDISCL OSED INCOME IS TAKEN AT RS.2,00,00,000/- AS RETUNED BY THE ASSESSE E . THE A.O. HAS ACCEPTED THE UNDISCLOSED INCOME WHICH WAS VOLUNTARI LY OFFERED BY THE APPELLANT AND THE SAME HAS BEEN DISCLOSED IN TH E RETURN BY THE APPELLANT ITSELF, AND VERIFIED IN THE MANNER PRESCR IBED AND THE A.O. HAS ACCEPTED THE SAME. THEREAFTER FOR FURTHER ADDIT ION AS STIPULATED IN SECTION 143(2) HE HAS ISSUED NOTICES. THE APPELLANT AFTER THE SEARCH AND SEIZURE ACTION U/S. 132 HAD GOT ADEQUATE TIME TO CONSULT HIS C.AS/ADVOCATES AND OFFER A TRUE AND FULL DISCL OSURE OF CONCEALED INCOME, WHICH IN TURN SAVES HIM FROM PENALTY/PROSEC UTION. AS SUCH AFTER OFFERING THE UNDISCLOSED INCOME HE CANNOT TUR N AROUND AND SAY WHAT THE DEPARTMENT HAS CALCULATED NOW AS PER APPEA L ORDER IS HIS CONCEALED INCOME AND THE RETURNED INCOME MAY BE RED UCED. NEEDLESS TO MENTION THAT APPELLANT HAS NOT FILED ANY RECTIFI CATION PETITION DURING THE PENDENCY OF THE ASSESSMENT OR HAS NOT RE VISED ITS INCOME. AS SUCH I FIND NO REASON TO INTERFERE IN THE ORDER PASSED BY THE A.O. AS HE HAS TAKEN THE MINIMUM AMOUNT RETURNED AS THE INCOME OF THE APPELLANT. IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 21 25. CONTESTING THE ABOVE ORDER ASSESSEE HAS RAISED THE FOLLOWING GROUND:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOL DING THE ACTION OF THE ASSESSING OFFICER IN DETERMINING THE UNDISCLOSE D INCOME AT RS.2,00,00,000/- AS RETURNED INCOME INSTEAD OF RS.9 3,82,415/- AS COMPUTED AFTER GRANTING EFFECT TO THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS). 26. THE LEARNED COUNSEL SUBMITTED THAT THERE WAS A SEAR CH AS CONSIDERED EARLIER IN THE APPEAL AND IN THE COURSE OF SEARCH T HE DIRECTOR HAD DISCLOSED AN AMOUNT OF ` 10,00,00,000/- AS UNDISCLOSED INCOME UNDER SECTION 132(4) BUT ON EXAMINATION OF THE BOOKS OF ACCOUNT THEY FIN D THAT ALL THE ENTRIES WERE ACCOUNTED FOR IN THE BOOKS OF ACCOUNT, THEREFO RE, THERE WAS NO NEED FOR ADMITTING ANY UNDISCLOSED INCOME. HOWEVER, AS AN AB UNDANT CAUTION AN AMOUNT OF ` 2,00,00,000/- WAS OFFERED AS UNDISCLOSED INCOME, TH E FACT OF WHICH WAS STATED IN THE RETURN OF INCOME ITSELF. HE THEN REFERRED TO THE NOTES FORMING PART OF THE BLOCK RETURN PLACED IN THE PAPE R BOOK AT PAGE 17 WHEREIN ASSESSEE HAS STATED THE FOLLOWING: - NOTES FORMING PART OF BLOCK RETURN FOR THE PERIOD FROM 01 ST APRIL. 1995 TO 14 TH FEBRUARY, 2002. 1. THE RETURN FOR THE BLOCK PERIOD IS BEING FILED UNDE R PROTEST SINCE THE PROVISIONS OF SECTION 132 DO NOT APPLY IN AS MU CH AS THE JURISDICTIONAL CONDITIONS TO BE FULFILLED FOR A VAL ID ACTION UNDER SECTION 132 WERE NOT PRESENT. WE ARE CALLING UPON Y OU TO PLEASE FURNISH TO US THE REASONS ON THE BASIS OF WHICH THE ACTION UNDER SECTION 132 WAS INITIATED. 2. THE TOTAL INCOME DETERMINED ON AN ESTIMATED BASIS F OR THE YEAR ENDED 31 ST MARCH, 2002 AMOUNTS TO RS.29,49,36,010/-. THIS IS HOWEVER, SUBJECT TO TAX AUDIT UNDER SECTION 44AB AN D FINALISATION OF THE RETURN FOR THE ASSESSMENT YEAR 2002-2003. AS THE ACCOUNTS HAVE NOT BEEN DRAWN UP AS ON 14 TH FEBRUARY, 2002, THE INCOME FOR THE PERIOD 1 ST APRIL, 2001 TO 14 TH FEBRUARY, 2002 OF ` 25,85,74,039/- DECLARED IN THE BLOCK RETURN HAS BEE N COMPUTED ON THE PRO-RATA BASIS OF THE AFORESAID FIGURE OF RS .29,49,36,010/-. 3. THE UNDISCLOSED INCOME OF RS.2,00,00,000/- HAS BEEN OFFERED FOR THE BLOCK PERIOD AS A WHOLE AND THE YEAR-WISE BREAK -UP HAS ACCORDINGLY NOT BEING GIVEN. OUT OF THE AFORESAID A MOUNT OF RS.2,00,00,000/-, AN AMOUNT OF RS.1,04,91,934/- IS IN RESPECT OF EXPORT COMMISSION NO LONGER PAYABLE AND THE BALANCE AMOUNT IS IN RESPECT OF CLEARING AND FORWARDING EXPENSES AND OTH ERS. IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 22 4. IN THE PRELIMINARY STATEMENT RECORDED UNDER SECTION 132(4), THE UNDISCLOSED INCOME WAS BROKEN-UP UNDER THE FOLLOWIN G HEADS: (A) ON ACCOUNT OF CLEARING CHARGES RS. 1.50 CRORE S (B) ON ACCOUNT OF SALES PROMOTION RS. 0.50 CRORES (C) ON ACCOUNT OF EXPORT COMMISSION PAYABLE RS. 5.0 0 CRORES (D) ON ACCOUNT OF UNMOVED BALANCES RS. 0.50 CRORES (E) ON ACCOUNT OF GROUP COMPANIES RS. 2,50 CRORES RS.10.00 CRORES ON VERIFICATION OF THE BOOKS OF ACCOUNT IT IS NOTIC ED THAT THE ENTRIES ARE CORRECTLY REFLECTED IN THE BOOKS OF ACCOUNT AND THE AFORESAID DISCLOSURE OF RS.2,00,00,000/- HAS BEEN MADE OUT OF ABUNDANT CAUTION. 27. FURTHER HE ALSO REFERRED TO PAGE NO. 107 WHEREIN IN A SEPARATE NOTE WAS GIVEN TO THE A.O. IN THE COURSE OF ASSESSMENT P ROCEEDINGS, WHICH WAS AS UNDER: - NOTE IN RESPECT OF BASIS OF UNDISCLOSED INCOME : WE INVITE YOUR ATTENTION TO THE SEPARATE NOTE ON VA LIDITY OF SEARCH SUBMITTED EARLIER AND TO THE NOTES FORMING PART OF THE BLOCK RETURN FOR THE PERIOD 1-4-1995 TO 14-2-2002. AS STATED IN THE SAID NOTES, THE DISCLOSURE OF RS.2 CRORES HAD BEEN MADE OUT OF ABUN DANT CAUTION AND IT IS SUBMITTED THAT THE SAME IS NOT LINKED TO THE SEIZED MATERIAL. IN FACT, ON VERIFICATION OF THE BOOKS OF ACCOUNT AND T HE SEIZED MATERIAL, IT IS SUBMITTED THAT THERE IS NO ELEMENT OF UNDISCLOSE D INCOME WHICH CAN BE LINKED TO THE SEIZED MATERIALS. ACCORDINGLY, THE QUESTION OF FURNISHING DETAILS OF WORKING FOR THIS INCOME DOES NOT ARISE. 28. THEN THE LEARNED COUNSEL REFERRED TO THE ASSESSMENT ORDER PASSED BY THE A.O. WHEREIN HE DETERMINED THE UNDISCLOSED INCO ME ONLY WITH REFERENCE TO THE FOUR ITEMS OF DISALLOWANCE DETERMINING THE T OTAL UNDISCLOSED INCOME AT ` 8,10,77,216/- OUT OF WHICH AN AMOUNT OF ` 6,44,35,876/- PERTAINING UPTO 14.02.2002, I.E. ON THE DATE OF SEARCH FOR WHICH BO OKS OF ACCOUNT ARE DULY MAINTAINED AND AS PER THE PROVISIONS THE AMOUNTS CA NNOT BE CONSIDERED AS PART OF BLOCK ASSESSMENT. IT WAS HIS SUBMISSION THA T THE A.O. DID NOT CONSIDER THE AMOUNT OF ` 2,00,00,000/- DISCLOSED AS IT WAS DISCLOSED UNDER PROTEST AND NO ADJUSTMENT HAS BEEN MADE TO THE SAID DISCLOSED INCOME OF ` 2,00,00,000/- IN THE FINAL COMPUTATION OF UNDISCLOS ED INCOME, THEREFORE, THE QUESTION OF ACCEPTING THE RETURNED INCOME OF ` 2,00,00,000/- DOES NOT ARISE, AS THE SAME WAS NOT PART OF DETERMINATION OF UNDISCLOSED INCOME. IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 23 THEN HE REFERRED TO THE PROVISIONS OF SECTION 158BB REGARDING COMPUTATION OF UNDISCLOSED INCOME OF THE BLOCK PERIOD AND FURTH ER TO THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF NIRMALA L. MEHTA VS. CIT 296 ITR 1 WHEREIN THE HON'BLE BOMBAY HIGH COURT HAS UPHELD THE CONTENTION THAT NO CHARGE OF TAX CAN BE MADE EXCEPT ACCORDING TO LA W AND A CLAIM CAN BE MADE AT ANY POINT OF TIME THAT AN AMOUNT IS NOT TAX ABLE IN ACCORDANCE WITH THE PROVISIONS OF LAW. THE LEARNED COUNSEL ALSO FUR THER RELIED ON THE COORDINATE BENCH DECISION IN THE CASE OF BLOOM PACK AGING PVT. LTD. VS. DCIT ITA NO. 7129/MUM/2008 DATED 17 TH MAY 2010 WHEREIN IT WAS CONSIDERED AND THE A.O. WAS DIRECTED TO DETERMINE THE TOTAL IN COME LESS THAN THE RETURNED INCOME. 29. THE LEARNED D.R., HOWEVER, SUBMITTED THAT ASSESSEE HAD ADMITTED AN AMOUNT OF ` 2,00,00,000/- AND THE A.O., CONSEQUENT TO THE APPEA L PROCEEDINGS HAS ACCEPTED THAT RETURNED INCOME AS SU CH, HENCE THERE IS NO MISTAKE IN THE ORDER OF THE A.O. 30. WE HAVE CONSIDERED THE ISSUE. AS FAR AS THE RIGHTS OF THE ASSESSEE TO CONTEST THAT AN AMOUNT WAS NOT TAXABLE UNDER THE AC T HAS BEEN DETERMINED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF NIR MALA L. MEHTA VS. CIT 269 ITR 1. IN THAT CASE THE ASSESSEE ADMITTED THE L OTTERY INCOME RECEIVED FROM GOVERNMENT OF SIKKIM. THE A.O., HOWEVER, DID N OT GIVE CREDIT FOR THE AMOUNT DEDUCTED BY THE SIKKIM GOVERNMENT STATING TH AT THE SAME WAS NOT PAID INTO INDIAN TREASURY AND TAX WAS NOT DEDUCTED UNDER SECTION 199 OF THE I.T. ACT. IN THE REVISION PETITION FILED BY THE ASS ESSEE BEFORE THE COMMISSIONER CHALLENGING THE ASSESSMENT ORDER HER C ASE WAS THAT SHE SHOULD HAVE BEEN GIVEN CREDIT FOR TAX DEDUCTED AT S OURCE OF ` 62,088/-. AT THE TIME OF HEARING ASSESSEES RAISED ADDITIONAL GR OUNDS, INTER ALIA THAT NO TAX WAS PAYABLE BY ASSESSEE ON THE PRIZE MONEY OF T HE SIKKIM LOTTERY UNDER THE INCOME TAX ACT. THE COMMISSIONER MODIFIED THE O RDER OF THE A.O. ONLY TO THE EXTENT HOLDING THAT THE PRIZE MONEY OF THE LOTT ERY NEEDED TO BE REDUCED BY ` 62,088/- AS ASSESSEE DID NOT RECEIVE THE MONEY. THE COMMISSIONER HELD THAT THE ADDITIONAL GROUND REGARDING TAXABILITY UND ER THE INDIAN INCOME TAX IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 24 ACT COULD NOT BE PERMITTED TO BE RAISED AT THE STAG E OF HEARING OF THE REVISION. 31. ON A WRIT PETITION AGAINST THE ORDER HONBLE BOMBAY HIGH COURT HELD: (I) THAT MERELY BECAUSE THE ASSESSEE OFFERED THE PR IZE MONEY WON IN THE LOTTERY OF THE SIKKIM GOVERNMENT, TO TAX UNDER THE INCOME-TAX ACT, 1961, THAT WOULD NOT TAKE AWAY HER RIGHT TO CONTEND THAT THE PRIZE MONEY WAS NOT CHARGEABLE AND ASSESSABLE TO TAX UNDE R THE INCOME- TAX ACT IN THE REVISIONAL JURISDICTION , AND (II) THAT THE PRIZE MONEY WON BY THE ASSESSEE FROM THE LOTTERY OF THE GOVERNM ENT OF SIKKIM COULD HAVE BEEN CHARGED TO TAX ONLY IN ACCORDANCE W ITH THE THEN EXISTING INCOME-TAX LAWS IN THE STATE OF SIKKIM AND COULD NOT BE CHARGED TO TAX UNDER THE INCOME-TAX ACT, 1961. 32. THE HON'BLE HIGH COURT FURTHER HELD THAT THERE CANN OT BE ANY ESTOPPEL AGAINST THE STATUTE. ARTICLE 265 OF THE CONSTITUTIO N OF INDIA IN UNMISTAKABLE TERMS PROVIDES THAT NO TAX SHALL BE LEVIED OR COLLE CTED EXCEPT BY AUTHORITY OF LAW. ACQUIESCENCE CANNOT TAKE AWAY FROM A PARTY THE RELIEF THAT HE IS ENTITLED TO WHERE THE TAX IS LEVIED OR COLLECTED WI THOUT AUTHORITY OF LAW. THEREFORE, IT IS CLEAR THAT THERE SHOULD BE A CLEAR TAXING PROVISION IN ORDER TO DETERMINE THE UNDISCLOSED INCOME IN THE BLOCK PROCE EDINGS AS PER THE PROVISIONS OF THE ACT. 33. THE COORDINATE BENCH IN THE CASE OF BLOOM PACKAGING PVT. LTD. VS. DCIT ITA NO. 7129/MUM/2008 DATED 17 TH MAY 2010 ( WHERE ONE OF US AM WAS A PARTY) ON A SIMILAR ISSUE IN THE COURSE OF RE GULAR ASSESSMENT. IN THAT CASE THE A.O. DETERMINED THE TOTAL INCOME ON THE BA SIS OF THE RETURNED INCOME EVEN THOUGH THE COMPUTATION OF INCOME RESULT ED IN LESS THAN THE RETURNED INCOME. ON THE FOLLOWING GROUND COORDINATE BENCH CONSIDERED VARIOUS CASE LAW ON THE ISSUE AND HELD ( VIDE PARA 9 ONWARDS) AS UNDER: - 9. GROUND NO.4 READS AS UNDER: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOL DING THE ACTION OF DEPUTY COMMISSIONER OF INCOME-TAX IN DETE RMINING THE ASSESSED INCOME AT RS.3,73,32,930/- AS PER THE RETU RN OF INCOME SINCE THE ASSESSED INCOME AS COMPUTED BY HIM WAS LO WER THAN THE RETURNED INCOME. IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 25 THE ISSUE IN THIS GROUND IS PECULIAR, IN THE SENSE THAT THE ASSESSING OFFICER HAS SELECTED THE CASE FOR SCRUTIN Y AND DETERMINED THE TOTAL INCOME AT RS.2,39,83,053/- BY MAKING VARI OUS DISALLOWANCES IN THE ORDER. THE ULTIMATE DETERMINA TION OF THE TOTAL INCOME IS LESS THAN THE RETURNED INCOME AT RS.3,72, 32,930/-. CONSEQUENTLY, INSTEAD OF ACCEPTING THE TOTAL INCOME AS DETERMINED BY HIM IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER STATED THAT THE TOTAL INCOME BEING ASSESSED AT LOWER THAN THE RETU RNED INCOME, TOTAL INCOME FILED BY THE ASSESSEE AT RS.3,72,32,93 0/- WAS ACCEPTED. BEFORE THE CIT (A), IT WAS CONTENDED THAT THE VARIA TION IN THE TOTAL INCOME WAS NOT BECAUSE OF ANY CLAIM BY THE ASSESSEE BUT BECAUSE OF THRUSTING THE DEPRECIATION IN THE EARLIER YEARS BY THE REVENUE, THE ACTION OF WHICH RESULTED IN CARRY FORWARD OF HIGHER BROUGHT FORWARD LOSSES INCLUDING THE DEPRECIATION AT RS 12,13,63,43 1/-, WHICH WAS SET OFF BY THE ASSESSING OFFICER WHILE ARRIVING AT THE TOTAL INCOME AS AGAINST RS 9,58,64,595/- CLAIMED BY THE ASSESSEE. IT WAS THE ASSESSEES CONTENTION THAT THE DEPARTMENT ITSELF HA S SUO MOTU ALLOWED DEPRECIATION IN EARLIER YEARS AND ALLOWED H IGHER CARRY FORWARD LOSSES WHICH RESULTED IN TOTAL INCOME BEING LESS THAN THE RETURNED INCOME AND ASSESSEE SHOULD NOT BE MADE TO SUFFER BECAUSE OF SET OFF OF HIGHER CARRY FORWARD LOSSES. THE ASS ESSEE RELIED ON THE DECISION OF THE A P HIGH COURT IN THE CASE OF CIT V S BAKELITE HYLAM LTD 237 ITR 392 AND THE DECISION OF GUJARAT HIGH CO URT IN THE CASE OF GUJARAT GAS CO LTD VS JCIT 245 ITR 84. THE LEARNED CIT (A) HAS REJECTED THE ASSESSEES CLAIM STATING AS UNDER:- I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE AR BUT DO NOT FIND MERIT IN THEM. THE FACTS OF THE CASE LAWS QUOTED B Y THE APPELLANT ARE DISTINGUISHABLE. INFACT THE MATTER IS COVERED BY T HE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF LML LTD VS M K VENKATARAMAN, ACIT (1994) 205 ITR 585 (BOM). IN THIS CASE, THE H ONBLE BOMBAY HIGH COURT HAD THE OCCASION TO EXAMINE THE SCOPE OF SEC 143(3) OF THE ACT IN THE LIGHT OF CIRCULAR ISSUED ON THE SUBJECT BY THE CBDT (CIRCULAR NO.549 QUOTED IN 182 ITR(ST.) 1) AND HELD THAT NO REFUND C OULD BE GRANTED TO THE ASSESSEE WHILE COMPUTING THE ASSESSMENT UNDER SEC. 143(3). IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT, THE ACTION OF THE A.O IN THIS REGARD IS CONFIRMED. 10. THE LEARNED COUNSEL SUBMITTED THE FACTS AND IT WAS HIS CONTENTION THAT THE REVENUES ACTION IN EARLIER YEA RS ONLY HAS RESULTED IN INCREASE IN BROUGHT FORWARD LOSSES, WHICH HAVE B EEN SET OFF TO THE GROSS TOTAL INCOME THEREBY TOTAL INCOME ASSESSED RE SULTED IN LESS THAN THE RETURNED INCOME. IT WAS HIS SUBMISSION TH AT THE ASSESSING OFFICER IS BOUND BY HIS ACTION IN RE-DETERMINING TH E TOTAL INCOME BASED ON THE ASSESSEES OWN RECORD AND IS NOT CORRE CT IN ARRIVING AT THE TOTAL INCOME ON THE BASIS OF THE RETURNED INCOM E WHEN THE TOTAL INCOME, AS COMPUTED UNDER THE LAW IS LESS THAN THE RETURNED INCOME. HE REFERRED TO THE JUDGMENTS OF A P HIGH COURT AND GUJARAT HIGH COURT, RELIED UPON BEFORE THE CIT (A) AND ALSO DIST INGUISHED THE DECISIONS RELIED UPON BY THE LEARNED CIT (A). THE L EARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE DECISION OF HONBLE IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 26 SUPREME COURT IN THE CASE OF SHELLY PRODUCTS TO SUB MIT THAT THERE MAY NOT BE ANY REFUND SINCE THE RETURNED INCOME IS MORE AND NO SCRUTINY AFTER INTRODUCTION OF NEW ASSESSMENT PROCE DURE CAN RESULT IN THE REFUND, AS ISSUANCE OF NOTICE U/S 143(2) IS ONL Y WITH REFERENCE TO UNDER ASSESSMENT. CONSEQUENTLY, THE ASSESSING OFFIC ERS ACTION IS SUPPORTED BY THE DEPARTMENTAL REPRESENTATIVE. 11. WE HAVE EXAMINED THE ISSUE. IN THE CASE OF CIT VS SHELLY PRODUCTS 129 TAXMAN 271 OF HONBLE SUPREME COURT HA S HELD THAT TAX DEPOSITED BY THE ASSESSEE BY WAY OF ADVANCE TAX OR SELF- ASSESSMENT TAX, ON RETURNED INCOME CANNOT BE REFUND ED JUST BECAUSE VARIATION FRAMED TO REGULAR ASSESSMENT AFTER EARLIE R ASSESSMENT IS SET ASIDE OR NULLIFIED. IT WAS HELD IN THAT CASE TH AT, FAILURE OR INABILITY OF THE REVENUE TO FRAME A FR ESH ASSESSMENT SHOULD NOT PLACE THE ASSESSEE IN A MORE DIS-ADVANTAGEOUS P OSITION THAN HE WOULD HAVE BEEN IN IF A FRESH ASSESSMENT WERE MADE. IN A CASE WHERE THE ASSESSEE CHOOSES TO DEPOSIT, BY WAY OF ABUNDANT CAU TION, ADVANCE TAX OR TAX ON SELF-ASSESSMENT WHICH IS IN EXCESS OF HIS LI ABILITY ON THE BASIS OF THE RETURN FURNISHED OR, IF THERE IS AN ARITHMETICAL ER ROR OR INACCURACY, IT IS OPEN TO THE ASSESSEE TO CLAIM REFUND OF THE EXCESS TAX P AID IN THE COURSE OF THE ASSESSMENT PROCEEDINGS. HE CAN CERTAINLY MAKE SUCH A CLAIM BEFORE THE CONCERNED AUTHORITY CALCULATING THE REFUND. SIMILA RLY, IF THE ASSESSEE HAS, BY MISTAKE INADVERTENCE OR ON ACCOUNT OF IGNORANCE, INCLUDED IN HIS INCOME ANY AMOUNT WHICH IS EXEMPTED FROM PAYMENT OF INCOME -TAX, OR IS NOT INCOME WITHIN THE CONTEMPLATION OF LAW, HE MAY LIKE WISE BRING THIS TO THE NOTICE OF THE ASSESSING AUTHORITY, WHICH, IF SATISF IED, MAY GRANT HIM RELIEF AND REFUND THE TAX PAID IN EXCESS, IF ANY. SUCH MA TTERS CAN BE BROUGHT TO THE NOTICE OF THE CONCERNED AUTHORITY IN A CASE WHE RE A REFUND IS DUE AND PAYABLE, AND THE AUTHORITY CONCERNED, ON BEING SATI SFIED, SHALL GRANT APPROPRIATE RELIEF. IN CASES GOVERNED BY SECTION 2 40 OF THE ACT, AN OBLIGATION IS CAST UPON THE REVENUE TO REFUND THE A MOUNT TO THE ASSESSEE WITHOUT HAVING TO MAKE ANY CLAIM IN THAT BEHALF. I N APPROPRIATE CASES, THEREFORE, IT IS OPEN TO THE ASSESSEE TO BRING THE FACTS TO THE NOTICE OF THE CONCERNED AUTHORITY ON THE BASIS OF THE RETURN FURN ISHED, WHICH MAY HAVE A BEARING ON THE QUANTUM OF REFUND. AND THE CONCERNE D AUTHORITY, FOR THE LIMITED PURPOSE OF CALCULATING THE AMOUNT OF REFUND UNDER SECTION 240, MAY TAKE ALL SUCH FACTS INTO CONSIDERATION AND CALCULAT E THE AMOUNT TO BE REFUNDED. AS CAN BE SEEN, IN FACT THE DECISION SUPPORTS THE CLAIM OF ASSESSEE. WHERE THE TOTAL INCOME WAS RE-DETERMINED ACCORDING TO THE PROVISIONS OF THE ACT, CONSEQUENT TO THE ORDERS PASSED IN EARL IER YEARS THE ASSESSEE CAN CERTAINLY CLAIM BENEFIT. THE ISSUE BE FORE HONBLE BOMBAY HIGH COURT RELIED UPON BY THE CIT (A) IN THE CASE OF LML LTD VS VENKATARAMAN 205 ITR 585 (BOM) WAS WITH REFERENC E TO NOT GIVING CREDIT TO THE ASSESSEE IN EITHER OF THE ASSESSMENT YEARS. ON THE CLAIM OF THE ASSESSEE IN WRIT PETITION, THE HONBLE BOMBA Y HIGH COURT EXAMINED THE SCHEME, THE FACTS AND HELD AS UNDER:- HELD, THAT, ON THE FACTS, NEITHER FOR THE ASSESSM ENT YEAR 1989-90 NOR FOR THE ASSESSMENT YEAR 1990-91, HAD THE PETITIONERS BE EN GIVEN ANY CREDIT FOR THE TAX OF RS 49,65,878 ON INTEREST RECEIVED BY THE PETITIONERS FROM TWO COMPANIES WHICH HAD BEEN DEDUCTED AT SOURCE AND PAI D INTO TREASURY BY IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 27 THE TWO COMPANIES. IN ADDITION, THE PETITIONERS HA D BEEN REQUIRED TO PAY THIS TAX OF RS 49,65,878 FOR THE ASSESSMENT YEAR 19 89-90, BY ADJUSTING THIS AMOUNT AGAINST THE REFUND DUE TO THE PETITIONERS FO R THAT ASSESSMENT YEAR. FOR THE ASSESSMENT YEAR 1990-91 ALSO, THE REFUND HA D BEEN REFUSED BY ADJUSTING THIS AMOUNT AGAINST THE REFUND DUE TO THE PETITIONERS. THE INCOME-TAX AUTHORITIES COULD NOT RETAIN THE SAID SU M OF RS 49,65,878 TWICE OVER. 12. THE ISSUE WAS EXAMINED BY THE HONBLE BOMBAY HI GH COURT IN THE CONTEXT OF NOT GIVING CREDIT OF TAX DEDUCTED AT SOURCE EITHER IN ASSESSMENT YEAR 1989-90 OR IN ASSESSMENT YEAR 1990- 91 AND ON THIS FACTS, THE COURT HAS DIRECTED THE REVENUE TO GRANT REFUND AT THE STAGE OF 143(1)(A) AND WRIT PETITION WAS ALLOWED SUBJECT TO THE DIRECTIONS. HOWEVER, THERE IS NO PRINCIPLE LAID DOWN THAT NO RE FUND CAN BE GRANTED AFTER COMPLETION OF ASSESSMENT U/S 143(3). THIS JUDGMENT OF THE HONBLE BOMBAY HIGH COURT HAS BEEN CONSIDERED B Y THE A P HIGH COURT IN THE CASE OF CIT VS BAKELITE HYLAM LTD 237 ITR 392 WHEREIN IT WAS HELD:- (I) THAT UNDER CLAUSE (B) OF SUB-SECTION (3) OF SECTION 143 OF THE INCOME-TAX ACT, 1961, BEFORE ITS AMENDMENT WITH EFFECT FROM AP RIL 1, 1989, THE ASSESSING OFFICER HAD POWER TO DETERMINE THE TAX LI ABILITY AND ALSO TO REFUND THE EXCESS AMOUNT TO THE ASSESSEE. HOWEVER, AFTER AMENDMENT, WITH EFFECT FROM APRIL 1, 1989, THE LANGUAGE EMPLOYED BY THE LE GISLATURE UNDER SECTION 143(3) OF THE ACT DOES NOT IMPLICITLY SAY THAT THE ASSESSING OFFICER IS ENTITLED TO GRANT REFUND ALSO. HOWEVER, THIS DOES NOT MEAN THAT THE LEGISLATURE HAS WITHDRAWN THE POWERS OF THE ASSESSING AUTHORITY TO GRANT REFUND TO THE ASSESSEE IN APPROPRIATE CASES. THE PROVISIONS UNDE R SUB-SECTION (3) OF SECTION 143 OF THE ACT CANNOT BE READ IN ISOLATION. HAD IT BEEN THE INTENTION OF THE LEGISLATURE TO PREVENT THE ASSESSING AUTHORI TY FROM GRANTING REFUND TO THE ASSESSEE, THEN THE INSERTION OF SUB-SECTION (4) TO SECTION 143 OF THE ACT WOULD LOSE ITS SIGNIFICANCE. (II) THAT ON A READING OF CLAUSE (B) OF SUB-SECTION (4) OF SECTION 143 OF THE ACT, IT IS CLEAR THAT ON AN ASSESSMENT MADE UNDER S ECTION 143(1)(A) OF THE ACT, AND SUCH ASSESSMENT RESULTS IN A REFUND, IF SU CH REFUND EXCEEDS THE AMOUNT REFUNDABLE ON REGULAR ASSESSMENT MADE UNDER SECTION 143(3) OF THE ACT, THE WHOLE OR THE EXCESS AMOUNT SO REFUNDED SHA LL BE DEEMED TO BE THE TAX PAYABLE BY THE ASSESSEE. IN OTHER WORDS, IN TH E REGULAR ASSESSMENT, THE TAX LIABILITY IS DETERMINED ON THE BASIS OF GIV ING CREDIT TO ALL THE DEDUCTIONS THE ASSESSEE IS ENTITLED TO NOTWITHSTAND ING THE FACT THAT THE ASSESSMENT IS MADE UNDER SECTION 143(1)(A) OF THE A CT. UNDER CLAUSE (B) OF SECTION (4) OF SECTION 143, IT CANNOT BE SAID THAT THE LEGISLATURE DID NOT VISUALISE A SITUATION PERMITTING THE ASSESSING AUTH ORITY TO GRANT REFUND ALSO UNDER REGULAR ASSESSMENT IN FAVOUR OF AN ASSESSEE. (III) THAT, THEREFORE, THE ASSESSING AUTHORITY IS E NTITLED TO DETERMINE THE QUANTUM OF REFUND ALSO IN A REGULAR ASSESSMENT MADE UNDER SECTION 143(3) OF THE ACT WITH EFFECT FROM APRIL 1, 1989. NO QUES TION OF LAW AROSE FOR REFERENCE. 13. FURTHER, HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT GAS CO LTD VS JCIT 245 ITR 84 HAVE NOT ONLY CONSIDERED THE ABOVE TWO JUDGMENTS BUT ALSO EXAMINED THE POWERS OF CBDT IN I SSUING INSTRUCTIONS AND HELD AS UNDER: IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 28 THAT THE CIRCULAR IN QUESTION REFERS TO ASSESSMEN TS WHICH ARE TO BE MADE UNDER SECTION 143(3) OF THE ACT. THE CIRCULAR DIRECTS THAT IN A PARTICULAR TYPE OF CASES, I.E. IN SCRUTINY CASES AN D UNDER SECTION 143(3) OF THE ACT, THE INCOME CAN NEITHER BE ASSESSED AT A FI GURE LOWER THAN THE RETURNED INCOME NOR THE LOSS ASSESSED AT A FIGURE H IGHER THAN THE LOSS NOR FURTHER REFUND GIVEN EXCEPT WHAT WAS DUE ON THE BAS IS OF THE RETURNED INCOME. THUS, BY ISSUANCE OF CIRCULAR, THE QUASI-J UDICIAL OFFICER IS DIRECTED TO ASSESSEE CASES OF PARTICULAR NATURE IN A PARTICULAR MANNER. THE ASSESSING OFFICER BEING BOUND BY IT HAD ABDICATED HIS FUNCTIO N AND DID NOT ACT INDEPENDENTLY AND, THEREFORE, THERE WAS NO QUESTION OF ALTERNATIVE REMEDY WHICH WAS A FUTILE REMEDY. IN FACT, THE JURISDICTI ON HAD BEEN EXERCISED BY THE CENTRAL BOARD OF DIRECT TAXES BY ISSUING THE CI RCULAR AND, THEREFORE, THE ORDER OF THE ASSESSING OFFICER WAS WITHOUT JURISDIC TION. THE COURT HAD TO EXERCISE ITS JURISDICTION UNDER ARTICLE 226. THE O RDER OF THE ASSESSING OFFICER TO THE EXTENT IT STATED THAT THE TOTAL INCOME WOULD BE THE RETURNED INCOME, WAS TO BE SET ASIDE, WITH A DIRECTION TO THE ASSESS ING OFFICER TO MAKE ASSESSMENT WITHOUT KEEPING IN MIND THE CENTRAL BOAR D OF DIRECT TAXES CIRCULAR DATED OCTOBER 31, 1989. 14. AS CAN BE SEEN FROM THE SERIES OF JUDGMENTS ON THE ISSUE, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAS POWER S UNDER IT ACT TO RE-DETERMINE THE TOTAL INCOME ACCORDING TO THE PROV ISIONS OF LAW, WHICH MAY SOME TIMES RESULT IN BEING LESS THAN THE RETURNED INCOME, DUE TO VARIOUS CLAIMS AND ALLOWANCES. IN THIS CASE , AS ALREADY STATED, IT IS THE REVENUE WHICH HAS THRUSTED THE DE PRECIATION ON THE ASSESSEE IN EARLIER YEARS AND CONSEQUENT TO THAT TH E ASSESSEES CLAIM OF DEPRECIATION AND CARRY FORWARD OF LOSSES HAS VAR IED SUBSTANTIALLY. THE ISSUE OF THRUSTING THE DEPRECIATION IN EARLIER YEARS IS PENDING IN VARIOUS HIGHER FORUMS, BUT ON RECORD, THE ASSESSEE WAS ENTITLED FOR SET OFF OF HIGHER AMOUNT, WHICH THE ASSESSING OFFIC ER HAS ALLOWED CORRECTLY AND DETERMINED THE TOTAL INCOME, WHICH IN CIDENTALLY BECAME LESS THAN THE RETURNED INCOME. EVEN IN THIS ORDER, WE HAVE RESTORED SOME OF THE CLAIMS BACK TO THE ASSESSING OFFICER FO R FRESH CONSIDERATION, WHICH MAY RESULT IN VARYING THE TOTA L INCOME THAN WHAT WAS EARLIER DETERMINED. JUST BECAUSE THE TOTA L INCOME DETERMINED CONSEQUENT TO VARIOUS ORDERS OF HIGHER A UTHORITIES / CLAIMS LEGALLY ALLOWABLE RESULTS IN BEING LESS THAN RETURNED INCOME, IT DOES NOT MEAN THAT THE ASSESSING OFFICER HAS TO ACC EPT THE RETURNED INCOME IGNORING THE PROVISIONS OF THE IT ACT. EVEN IF THE RETURNED INCOME WAS ACCEPTED UNDER THE PROVISIONS OF SECTION 143(1) WITHOUT THERE BEING ANY SCRUTINY, THERE ARE VARIOUS OTHER P ROVISIONS OF SECTIONS 154, 155 ETC, WHEREIN CONSEQUENT TO THE OR DERS IN EARLIER YEARS, THE TOTAL INCOME CAN BE VARIED AS PER THE PR OVISIONS OF THE ACT. THEREFORE, WE ARE OF THE OPINION THAT THE FINDING G IVEN BY THE ASSESSING OFFICER IN DETERMINING THE TOTAL INCOME O N THE BASIS OF THE RETURNED INCOME, RATHER THAN ASSESSED INCOME IS NOT CORRECT AND, THEREFORE, IS LIABLE TO BE SET ASIDE. THE ASSESSIN G OFFICER IS DIRECTED TO DETERMINE THE TOTAL INCOME ACCORDING TO THE PROV ISIONS OF THE ACT, AFTER GIVING EFFECT TO VARIOUS ORDERS OF HIGHER AUT HORITIES OF EARLIER YEARS AND ALSO TO THIS ORDER. THE ASSESSING OFFICE R IS DIRECTED ACCORDINGLY. THE GROUND IS CONSIDERED ALLOWED. IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 29 IN THE ABOVE DECISION VARIOUS CASE LAW WAS ANALYSED WHICH ARE EQUALLY APPLICABLE IN THE PRESENT CASE. IN VIEW OF THE PROV ISIONS OF THE IT ACT, THERE CAN BE DETERMINATION OF INCOME UNDER THE PROVISIONS OF THE ACT LESS THAN THE RETURNED INCOME DUE TO VARIOUS FACTORS. THERE IS NO BAR IN DETERMINING THE TOTAL INCOME/UNDISCLOSED INCOME LESS THAN THE RETUR NED INCOME IF FACTS SO WARRANT. IN THIS CASE THE RETURNED INCOME WAS UNDER PROTEST/AS AN ABUNDANT CAUTION. 34. THE ISSUE CAN ALSO BE EXAMINED BASED ON THE PROVISI ONS FOR COMPUTATION OF UNDISCLOSED INCOME IN A BLOCK PERIOD AS PROVIDED UNDER CHAPTER XIV-B OF THE IT ACT 1961. SECTION 158BB IS THE RELEVANT PROVISION FOR COMPUTATION OF UNDISCLOSED INCOME OF THE BLOCK PERIOD. THE PROVISION IS AS UNDER: - COMPUTATION OF UNDISCLOSED INCOME OF THE BLOCK PERI OD . 158BB. (1) THE UNDISCLOSED INCOME OF THE BLOCK PERIOD SHA LL BE THE AGGREGATE OF THE TOTAL INCOME OF THE PREVIOUS YEARS FALLING WITHIN THE BLOCK PERIOD COMPUTED, 1 [IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT, ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARC H OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION AS ARE AVAILABLE WITH THE ASSESSING OFF ICER AND RELATABLE TO SUCH EVIDENCE], AS REDUCED BY THE AGGREGATE OF T HE TOTAL INCOME, OR AS THE CASE MAY BE, AS INCREASED BY THE AGGREGATE O F THE LOSSES OF SUCH PREVIOUS YEARS, DETERMINED, (A) WHERE ASSESSMENTS UNDER SECTION 143 OR SECTION 144 OR SECTION 147 HAVE BEEN CONCLUDED [PRIOR TO THE DATE OF COMME NCEMENT OF THE SEARCH OR THE DATE OF REQUISITION], ON THE BASI S OF SUCH ASSESSMENTS; (B) WHERE RETURNS OF INCOME HAVE BEEN FILED UNDER S ECTION 139 [OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1 ) OF SECTION 142 OR SECTION 148] BUT ASSESSMENTS HAVE NOT BEEN MADE TILL THE DATE OF SEARCH OR REQUISITION, ON THE BASIS OF THE INCOM E DISCLOSED IN SUCH RETURNS; (C) WHERE THE DUE DATE FOR FILING A RETURN OF INCO ME HAS EXPIRED, BUT NO RETURN OF INCOME HAS BEEN FILED, (A) ON THE BASIS OF ENTRIES AS RECORDED IN THE BO OKS OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUISITION WHE RE SUCH ENTRIES RESULT IN COMPUTATION OF LOSS FOR ANY PREVI OUS YEAR FALLING IN THE BLOCK PERIOD; OR IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 30 (B) ON THE BASIS OF ENTRIES AS RECORDED IN THE BO OKS OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUISITION WHE RE SUCH INCOME DOES NOT EXCEED THE MAXIMUM AMOUNT NOT CHARGEABLE TO TAX FOR ANY PREVIOUS YEAR FALLING IN THE BLOCK PERIOD; (CA) WHERE THE DUE DATE FOR FILING A RETURN OF INC OME HAS EXPIRED, BUT NO RETURN OF INCOME HAS BEEN FILED, AS NIL, I N CASES NOT FALLING UNDER CLAUSE (C);] (D) WHERE THE PREVIOUS YEAR HAS NOT ENDED OR THE DA TE OF FILING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 1 39 HAS NOT EXPIRED, ON THE BASIS OF ENTRIES RELATING TO SUCH I NCOME OR TRANSACTIONS AS RECORDED IN THE BOOKS OF ACCOUNT AN D OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEF ORE THE DATE OF THE SEARCH OR REQUISITION RELATING TO SUCH PREVI OUS YEARS; (E) WHERE ANY ORDER OF SETTLEMENT HAS BEEN MADE UND ER SUB- SECTION (4) OF SECTION 245D, ON THE BASIS OF SUCH O RDER; (F) WHERE AN ASSESSMENT OF UNDISCLOSED INCOME HAD B EEN MADE EARLIER UNDER CLAUSE (C) OF SECTION 158BC, ON THE B ASIS OF SUCH ASSESSMENT. EXPLANATION.FOR THE PURPOSES OF DETERMINATION OF U NDISCLOSED INCOME, (A) THE TOTAL INCOME OR LOSS OF EACH PREVIOUS YEAR SHALL, FOR THE PURPOSE OF AGGREGATION, BE TAKEN AS THE TOTAL INCOM E OR LOSS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF [THIS ACT] WITHOUT GIVING EFFECT TO SET OFF OF BROUGHT FORWARD LOSSES UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SUB-SECTION (2) OF SECTION 32: PROVIDED THAT IN COMPUTING DEDUCTIONS UNDER CHAPTER VI-A FOR THE PURPOSES OF THE SAID AGGREGATION, EFFECT SHALL BE G IVEN TO SET OFF OF BROUGHT FORWARD LOSSES UNDER CHAPTER VI OR UNABSORB ED DEPRECIATION UNDER SUB-SECTION (2) OF SECTION 32;] (B) OF A FIRM, RETURNED INCOME AND TOTAL INCOME ASS ESSED FOR EACH OF THE PREVIOUS YEARS FALLING WITHIN THE BLOCK PERIOD SHALL BE THE INCOME DETERMINED BEFORE ALLOWING DEDUCTION OF SALA RY, INTEREST, COMMISSION, BONUS OR REMUNERATION BY WHATEVER NAME CALLED [TO ANY PARTNER NOT BEING A WORKING PARTNER] : PROVIDED THAT UNDISCLOSED INCOME OF THE FIRM SO DETERMINED S HALL NOT BE CHARGEABLE TO TAX IN THE HANDS OF THE PARTNE RS, WHETHER ON ALLOCATION OR ON ACCOUNT OF ENHANCEMENT;] (C) ASSESSMENT UNDER SECTION 143 INCLUDES DETERMINA TION OF INCOME UNDER SUB-SECTION (1) OR SUB-SECTION (1B) OF SECTIO N 143. (2) IN COMPUTING THE UNDISCLOSED INCOME OF THE BLOC K PERIOD, THE PROVISIONS OF SECTIONS 68, 69, 69A, 69B AND 69C SHA LL, SO FAR AS MAY BE, APPLY AND REFERENCES TO FINANCIAL YEAR IN THO SE SECTIONS SHALL BE CONSTRUED AS REFERENCES TO THE RELEVANT PREVIOUS YE AR FALLING IN THE IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 31 BLOCK PERIOD INCLUDING THE PREVIOUS YEAR ENDING WIT H THE DATE OF SEARCH OR OF THE REQUISITION. (3) THE BURDEN OF PROVING TO THE SATISFACTION OF TH E ASSESSING OFFICER THAT ANY UNDISCLOSED INCOME HAD ALREADY BEEN DISCLO SED IN ANY RETURN OF INCOME FILED BY THE ASSESSEE BEFORE THE C OMMENCEMENT OF SEARCH OR OF THE REQUISITION, AS THE CASE MAY BE, S HALL BE ON THE ASSESSEE. (4) FOR THE PURPOSE OF ASSESSMENT UNDER THIS CHAPT ER, LOSSES BROUGHT FORWARD FROM THE PREVIOUS YEAR UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SUB-SECTION (2) OF SECTION 32 SH ALL NOT BE SET OFF AGAINST THE UNDISCLOSED INCOME DETERMINED IN THE BL OCK ASSESSMENT UNDER THIS CHAPTER, BUT MAY BE CARRIED FORWARD FOR BEING SET OFF IN THE REGULAR ASSESSMENTS . AS PER THE ABOVE PROVISION, THE UNDISCLOSED INCOME OF THE BLOCK PERIOD SHALL BE THE AGGREGATE OF THE TOTAL INCOME FALLING WITHIN THE BLOCK PERIOD COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT. FURT HER THE AMOUNTS ARE TO BE REDUCED BY THE TOTAL INCOME WHICH ARE EITHER ASSESS ED OR DECLARED IN THE RETURNS IN THE REGULAR ASSESSMENTS AS PER CLAUSE (A ) TO (F). THIS METHOD OF COMPUTATION DOES NOT CONSIDER RETURNED INCOME AS A BASIS FOR DETERMINATION OF UNDISCLOSED INCOME. AS PER THE PROVISIONS, THE A O HAS TO DETERMINE THE UNDISCLOSED INCOME IN ACCORDANCE WITH SEC 158BB. T HE ONLY REFERENCE TO THE RETURNED INCOME UNDER CHAPTER XIV-B IN THE PROC EDURE FOR ASSESSMENT OF SEARCH CASES IS UNDER THE PROVISIONS OF SECTION 158BFA WHILE CONSIDERING THE PENALTY. SECTION 158BFA(1) REFERS TO THE LEVY OF INTEREST WHEREAS PROVISIONS OF SECTION 158BFA(2) DETERMINES THE PENA LTY. THE PROVISIONS 158BFA(2) ARE AS UNDER: - 158FBA. (1) .. (2) THE ASSESSING OFFICER OR THE COM MISSIONER (APPEALS) IN THE COURSE OF ANY PROCEEDINGS UNDER THIS CHAPTER, M AY DIRECT THAT A PERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHAL L NOT BE LESS THAN THE AMOUNT OF TAX LEVIABLE BUT WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SO LEVIABLE IN RESPECT OF T HE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER UNDER CL AUSE (C) OF SECTION 158BC: PROVIDED THAT NO ORDER IMPOSING PENALTY SHALL BE MA DE IN RESPECT OF A PERSON IF (I) SUCH PERSON HAS FURNISHED A RETURN UNDER CLAUSE (A) OF SECTION 158BC; IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 32 (II) THE TAX PAYABLE ON THE BASIS OF SUCH RETURN HA S BEEN PAID OR, IF THE ASSETS SEIZED CONSIST OF MONEY, THE ASSESSEE OF FERS THE MONEY SO SEIZED TO BE ADJUSTED AGAINST THE TAX PAYA BLE; (III) EVIDENCE OF TAX PAID IS FURNISHED ALONG WITH THE RETURN; AND (IV) AN APPEAL IS NOT FILED AGAINST THE ASSESSMENT OF TH AT PART OF INCOME WHICH IS SHOWN IN THE RETURN : PROVIDED FURTHER THAT THE PROVISIONS OF THE PRECEDING PROVISO SHALL NOT APPLY WHERE THE UNDISCLOSED INCOME DETERMINED BY TH E ASSESSING OFFICER IS IN EXCESS OF THE INCOME SHOWN IN THE RETURN AND IN SUCH CASES THE PENALTY SHALL BE IMPOSED ON THAT POR TION OF UNDISCLOSED INCOME DETERMINED WHICH IS IN EXCESS OF THE AMOUNT OF UNDISCLOSED INCOME SHOWN IN THE RETURN.( EMPHASIS SUPPLIED) AS CAN BE SEEN FROM PROVISO (IV), IT MANDATES THAT ASSESSEE SHOULD NOT HAVE FILED AN APPEAL AGAINST ASSESSMENT OF THAT PART OF INCOME WHICH IS SHOWN IN THE INCOME. THIS INDICATES THAT ASSESSEE HAS A RIGH T TO CONTEST EVEN THAT PART OF THE INCOME WHICH WAS ADMITTED IN THE RETURN . THEREFORE DETERMINATION OF UNDISCLOSED INCOME IN THE BLOCK AS SESSMENT IS TO BE INDEPENDENTLY DONE WITHOUT REFERENCE TO ANY ADMITTE D INCOME IN THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE UNDER SECTION 158BC OR 158BD. RELIANCE ON RETURNED INCOME IS ONLY WITH REFERENCE TO CONSIDERING LEVY OF PENALTY BUT NOT WITH REFERENCE TO DETERMINATION OF UNDISCLOSED INCOME. THE DETERMINATION OF UNDISCLOSED INCOME IN A BLOCK ASSE SSMENT IS GOVERNED BY THE PROVISIONS OF SECTION 158BB AND HAS TO BE DETER MINED SEPARATELY KEEPING IN MIND THE OTHER PROVISIONS WITH REFERENCE TO UNDISCLOSED INCOME ON THE BASIS OF SEIZED MATERIAL. 35. AS SEEN FROM THE ASSESSMENT ORDER, THE A.O. ARRIV ED AT THE UNDISCLOSED INCOME AS PER PROVISIONS OF SECTION 158 BB, WHICH WAS SUBJECT MATTER OF APPEAL. ONCE THE AMOUNTS ARE EXAMINED AND THE CIT(A) GIVES RELIEF TO THAT PART OF UNDISCLOSED INCOME DETERMINED BY TH E A.O., THE A.O. IS BOUND TO RE-DETERMINE THE UNDISCLOSED INCOME ON THE BASIS OF SUCH CIT(A)S ORDER. THEREFORE, WE ARE OF THE OPINION THAT THE AS SESSING OFFICERS REFERENCE TO RETURNED INCOME AS UNDISCLOSED INCOME IS NOT ACC ORDING TO THE PROVISIONS OF LAW. NOT ONLY THAT AS STATED EARLIER, EVEN THOUG H ASSESSEE ADMITTED AN AMOUNT OF ` 10,00,00,000/- IN THE COURSE OF SEARCH UNDER SECTIO N 132(4), ON EXAMINATION OF THE BOOKS OF ACCOUNT AND OTHER STATE MENTS ASSESSEE SUBMITTED THAT THERE WAS NO UNDISCLOSED INCOME. HOW EVER, AS AN ABUNDANT IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 33 CAUTION IT RETURNED AN AMOUNT OF ` 2,00,00,000/-, THE BASIS OF WHICH WAS STATED IN A NOTE TO THE RETURN. AS PER THAT AN AMOU NT OF ` 1,04,91,934/- WAS IN RESPECT OF EXPORT COMMISSION NO LONGER PAYABLE. THIS AMOUNT ALSO WAS AN AMOUNT RECORDED IN THE BOOKS OF ACCOUNT AND ASSESSE E HAS TAKEN THE AMOUNT TO THE P & L ACCOUNT IN SUBSEQUENT YEAR, THE FACT OF WHICH WAS NOTED BY THE CIT(A) IN THE ORDER WHILE CONSIDERING THE DELETION OF EXPORT COMMISSION MADE BY THE A.O. (CONSIDERED IN GROUND N O. 5 & 6 OF REVENUES APPEAL ABOVE). THEREFORE, EVEN THIS AMOUNT WHICH WA S CONSIDERED FOR DECLARING ` 2,00,00,000/- WAS IN FACT BASED ON THE AMOUNTS WRIT TEN BACK TO THE P & L ACCOUNT IN THE BOOKS OF ACCOUNT. THEREFOR E, AS RIGHTLY POINTED OUT BY THE ASSESSEE, THERE IS NO BASIS FOR DETERMINING THE UNDISCLOSED INCOME EVEN ON THE RETURNED INCOME OFFERED AS PRECAUTIONAR Y MEASURE. 36. BOTH ON THE FACTS OF THE CASE AS WELL AS ON THE PR OVISIONS OF LAW INCLUDING INTERPRETATION OF VARIOUS PRINCIPLES OF L AW AS DISCUSSED ABOVE, THE ASSESSING OFFICERS ACTION CANNOT BE UPHELD. THE A. O. IS DIRECTED TO COMPLETE THE ASSESSMENT AS PER THE UNDISCLOSED INCOME DETERM INED CONSEQUENT TO THE APPELLATE ORDER. EVEN THE AMOUNT SUSTAINED BY THE C IT(A) WAS NOT UPHELD WHILE CONSIDERING ASSESSEES APPEAL ABOVE. THEREFOR E, THESE ORDERS MAY RESULT IN DETERMINING THE UNDISCLOSED INCOME AT NIL . THE A.O. IS DIRECTED TO DETERMINE THE UNDISCLOSED INCOME ACCORDINGLY WITHOU T REFERENCE TO ANY ADMITTED INCOME IN THE RETURN FILED UNDER PROTEST. APPEAL IS CONSIDERED ALLOWED. 37. IN THE RESULT, ITA NO. 246/MUM/2005 AND ITA NO. 265 /MUM/2006 ARE ALLOWED WHEREAS ITA NO. 242/MUM/2005 IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH SEPTEMBER 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 28 TH SEPTEMBER 2011 IT(SS) NO. 246, 265 & 242/MUM/2005 M/S. UNITED PHOSPHOROUS LTD. 3 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CENTRAL VI, MUMBAI 4. THE CIT CENTRAL III, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.
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