Sri Balaji Auto Financers, Tirupathi V. ACIT, Tirupathi

ITSSA 35/HYD/2005

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 9465 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 7 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 11-02-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 03-02-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VASUNDHARA SINHA
• Assessee Lawyers: C P RAMASWAMY
• Keywords: Unexplained investment; Business income; Depreciation; Bad and doubtful debts; Block assessment; Onus to prove
• Section: 68; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI G.C.GUPTA, VICE PRERSIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMBER IT(SS)A NO. 34/HYD/05 : BLOCK PERIOD 1-4- 95 TO 9-8-01. SRI K.V.CHOWDARY, TIRUPATHI. (PAN ACOPK0824E) V/S. ACIT, CENTRAL CIRCLE, TIRUPATHI. (APPELLANT) (RESPONDENT) IT(SS)A NO. 35/HYD/05 : BLOCK PERIOD 1-4- 95 TO 9-8-01. BALAJI AUTO FINANCERS, TIRUPATHI. (PAN AAIPS 1465 P) V/S. ACIT, CENTRAL CIRCLE, TIRUPATHI. APPELLANTS BY: SRI C.P. RAMASWAMY RESPONDENT BY : SMT VASUNDHARA SINHA O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER THESE APPEALS BY THE ASSESSEES ARE DIRECTED AGAINST SEPARATE ORDERS OF CIT (A), TIRUPATHI DATED 12-11-2004 AND 19 -11-2004 FOR THE BLOCK ASSESSMENT RELEVANT TO THE FINANCIAL YEARS 1995-96 TO 2000-01 AND BROKEN PERIOD OF 1-4-2001 TO 9-8-2001. SINCE IDE NTICAL ISSUES ARE INVOLVED IN THESE TWO APPEALS, THESE ARE TAKEN UP TOGE THER AND DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIEN CE. 2 2. FOR THE SAKE OF BREVITY, WE EXTRACT HEREUNDER THE GROUNDS RAISED IN IT(SS)A NO.34/HYD/2005 IN THE CASE OF K.V. CHOWDHAR Y. '1.1. THE CIT(A) ERRED IN NOT EXCLUDING THE CASH LOAN S TAKEN DURING THE YEAR ENDING 31-3-1996 FROM SRI P. SUBBA RAO AND SRI B. ERUKALAIAH OF RS.80,000 AND RS.1.0 LAKH, FROM THE UND ISCLOSED INCOME. 1.2. SIMILARLY, THE CIT(A) WENT WRONG IN NOT EXCLUDING TH E CASH LOANS TAKEN DURING THE YEAR ENDING 31-3-1997 FROM G. CHINNA SUBBARAYUDU, CH. VENKATESWARLU AND K. RAMAIA H AGGREGATING TO RS.2,61,000 FROM THE UNDISCLOSED INCOME. 2.1 THE CIT(A) ERRED IN REJECTING THE CLAIM OF THE ASSESSEE THAT THE SUMS OF RS.1,03,116 AND RS.79,000 BEING THE SWARNA PATRA FIXED DEPOSITS SHOULD BE DEDUCTED FROM THE UNDISCLOSED INCOME. 2.2 THE CIT(A) WENT WRONG IN OBSERVING THAT SUCH AMOUNTS DO NOT FORM PART OF UNEXPLAINED DIFFERENCE. 3.1 THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSI NG OFFICER IN ESTIMATING THE INCOME BRICK BUSINESS @ 15% ON SALES FOR THE PERIOD 1-01-01 TO 09-8-01 AT RS.7,91,131 AS REASONABLE. 3.2 THE CIT(A) OUGHT TO HAVE SEEN THAT THERE IS NO SEIZED MATERIAL ON WHICH THE ESTIMATE IS BASED AND THEREFORE IT COULD NOT BE TREATED AS UNDISCLOSED INCOME. 4.1 THE CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER T O DEDUCT THE INCOME OF RS.3,50,000 DISCLOSED UNDER THE VDIS '07. 3 4.2 THE CIT (A) ERRED IN REJECTING THE CLAIM WITHOUT CONSI DERING THE FACTS AND THE SUBMISSIONS MADE IN THE PROPER PERSPECTIVE. 4.3 ANY OTHER GROUND THAT MAY BE TAKEN UP AT THE TIME O F HEARING THE APPEAL, WITH THE PERMISSION OF THE TRIBUN AL.' 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDI VIDUAL AND IS A MANAGING PARTNER OF A PARTNERSHIP FIRM SRI BALAJI AUTO FINANCIERS AT TIRUPATHI. APART FROM THESE HE AND HIS FAMILY MEMBER S ARE DERIVING INCOME FROM BUSINESS OF BRICKS. THERE WAS A SEARCH U/S 132 OF THE INCOME-TAX ACT IN THE RESIDENTIAL PREMISES OF THE ASSESSEE ON 9TH AUGUST, 2001 WHEN CERTAIN DOCUMENTS AND BOOKS OF ACCOUNTS WERE SEIZED. CONSEQUENT ON THE SEARCH THE ASSESSING OFFICER ISSUE D A NOTICE U/S 158BC ON 21-1-2002 IN RESPONSE TO WHICH THE ASSESSEE FI LED A BLOCK RETURN OF INCOME ON 13-3-2002 ADMITTING AN UNDISCLOSED INCOME OF RS.15 LAKHS. IN THE COURSE OF THE BLOCK ASSESSMENT PROCEEDIN GS THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO EXPLAIN THE IN VESTMENT BALANCE ON THE DATE OF SEARCH IN THE BOOKS OF THE FIRM M/S. BALAJI AUTO FINANCIERS, TIRUPATHI. THE ASSESSEE FILED DETAILED EXPLA NATIONS AND STATEMENTS AND THE ASSESSING OFFICER HAS HOWEVER ERRONEOUSL Y ARRIVED AT THE UNEXPLAINED INVESTMENTS OF THE ASSESSEE IN THE PAR TNERSHIP FIRM FOR THE FINANCIAL YEARS ENDING 31-3-1996 AND 31-3-1997 A T RS.11,24,595 AND RS.8,97,224 RESPECTIVELY. SINCE THE ASSESSEE HAD ALREAD Y DISCLOSED AN UNDISCLOSED INCOME OF RS.12 LAKHS FOR THE FINANCIAL EN DING 31-3-1996 THE ASSESSING OFFICER DID NOT MAKE ANY ADDITION FOR THA T YEAR. HOWEVER, FOR THE YEAR ENDING 31-3-1997 THE ASSESSING OFFICER TREA TED THE SUM OF RS.8,97,224 AS UNDISCLOSED INCOME AND IN THIS CONNECTION IT IS SUBMITTED THAT IN THE COURSE OF THE BLOCK ASSESSMENT PROCEEDINGS THE ASSESSING 4 OFFICER DID NOT DISCUSS REGARDING THIS ASPECT OF THE MATTE R AND THEREFORE THE ASSESSEE COULD NOT OFFER ANY COMMENTS. AS SUBMITTED EA RLIER THE ASSESSEE AND HIS FAMILY MEMBERS HAVE BEEN CARRYING ON THE BUSINESS OF BRICKS AT FOUR DIFFERENT PLACED AND THE ENTIRE BRICKS AR E SOLD UNDER ONE COMMON BRAND NAME 'SBB' AND THE TOTAL SALES ACCOUNT IS MA INTAINED IN A CONSOLIDATED BOOK AND THE ASSESSEE AND HIS FAMILY MEMBER S HAVE BEEN REGULARLY FILING THE RETURNS OF INCOME AND DUE T O THE INACCURACIES IN THE ACCOUNTS MAINTAINED BY THEM THEY HAVE BEEN ADMITT ING A LUMP SUM AMOUNT AS INCOME FROM BRICKS BUSINESS. ON THE BASIS OF THE CONSOLIDATED SALES ACCOUNT THE ASSESSING OFFICER ESTIMATED THE INCOME FROM BRICKS FOR THE PERIOD COMMENCING FROM 1ST APRIL 200 1 TO THE DATE OF SEARCH VIZ., 9TH AUGUST, 2001 AT RS.7,58,581 AS AGAI NST RS.2 LAKHS ADMITTED BY THE ASSESSEE. THE ASSESSING OFFICER LEVIED SU RCHARGE AND INTEREST U/S 158 BFA (1) OF THE INCOME-TAX ACT. 4. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A), TIRUPATHI. THE L EARNED CIT (A) AFTER ELABORATELY DISCUSSING THE POINTS AT ISSUES, ALLOWED THE APPEAL OF THE ASSESSEE IN PART. 5. NOT SATISFIED WITH THE ORDER OF THE FIRST APPELLAT E AUTHORITY, THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD OFFERED UNDISCLOSED INCOME OF RS.15 LAKHS DURING THE COURSE OF SEARCH. THE ASSESSEE WAS NOT MAINTAINING PROPER BOOKS OF ACCOUNTS FOR THE BLOCK PERIOD AND AFTER ASCERTAINING LIABILITIES AND ASSETS POSITIONS, THE ASSESSEE HAS RETURNED UNDISCLOSED INCOME ON ESTIMATED BA SIS AT RS. 15 LAKHS WHICH WAS TO COVER ALL THE DEFICIENCIES POINTED OUT BY THE 5 ASSESSING OFFICER. IT IS ALSO SUBMITTED THAT HIS BROTHER SR I K.S. SRINIVASA CHOWDHARY ALSO FILED BLOCK RETURNS SHOWING UNDISCLOSED INCO ME OF RS. 5 LAKHS. BOTH THE ASSESSEE AND ASSESSEE'S BROTHER HAVE OFFERE D IN TOTAL RS.20 LAKHS WHICH IS EQUIVALENT TO THE COMMITMENT THEY HAVE MADE TO THE DDIT (INV.) AND HENCE HE PRAYED THAT RS.15 LAKHS CAN BE TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE FOR THE ENTIRE BLOCK PER IOD. IT IS ALSO SUBMITTED THAT THE ASSESSEE HAS DECLARED AN AMOUNT OF RS.4 LAKHS AS SUNDRY DEBTORS AND CASH BALANCE UNDER VDIS 1997 SCHEME AN D REQUESTED THE LOWER AUTHORITIES TO GIVE CREDIT OF THE SAME FROM UNDISCLOSED INCOME. IN SUPPORT OF VDIS, 1997 DECLARATI ON, HE FILED A COPY OF THE CERTIFICATE ISSUED U/S 68 (2) OF THE VDIS SCH EME DATED 16-6- 1998. 7. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT THE UNDISCLOSED INCOME OF THE ASSESSEE ARRIVED AT BY THE ASSESSING OFFICER B ASED ON THE ENTRIES IN THE BOOKS OF ACCOUNT. FURTHER, SRI K. SREEN IVASA CHOWDHARY, ASSESSEE'S BROTHER HAS SEPARATELY OFFERED RS. 5 LAKHS AS HIS UNDISCLOSED INCOME BEFORE THE DDIT(INV.) AND THE SAME WAS CONSIDERED AND TELESCOPED INTO THE UNDISCLOSED INCOME OF SRI SREENIVASA C HOWDHARY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HIMSE LF ADMITTED 15% NET PROFIT IN THE EARLIER YEAR FROM TH E BRICKS BUSINESS. WITH REGARD TO VDIS DECLARATION, THE LEARNED DR SUBMI TTED THAT NO DETAILS OR EVIDENCES WERE GIVEN TO THE AUTHORITIES BEL OW AS TO HOW SUCH SUNDRY DEBTORS DECLARED UNDER VDIS WERE REALIZED, WHE N REALIZED AND HOW IT HAS FOUND WAY INTO THE COMPUTERIZED ACCOUNTS STAT EMENT. IN THE ABSENCE OF THESE DETAILS, THE CLAIM OF THE ASSESSEE IS TO BE REJECTED. THE ADDITIONS MADE U/S 68 OF THE ACT ALSO HAVE TO BE CO NFIRMED BECAUSE THE ASSESSEE COULD NOT FURNISH ANY PROPER EVIDENCE OR SUBST ANTIATED 6 WITH THE SUPPORTING DOCUMENTS. HENCE, THE CIT (A)'S ORD ER IS CORRECT AND THE SAME IS TO BE CONFIRMED. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE WAS NOT MAINTAININ G PROPER INDIVIDUAL BOOKS OF ACCOUNTS AND ALSO NO VOUCHER FOR CONST RUCTION OF THE HOUSE WERE AVAILABLE OTHER THAN WHAT WAS SEIZED DURING SEARCH OPERATIONS. THE ASSESSEE AND HIS FIRM HAVE DECLARED RS.70 LAKHS IN TOTAL AS UNDISCLOSED FOR THE BLOCK PERIOD BEFORE THE DDIT(INV .). THE ASSESSEE FILED BLOCK RETURNS SHOWING RS. 15 LAKHS AS HIS UNDISCLOSED INCOME AND RS.70 LAKHS AS UNDISCLOSED INCOME OF HIS FIRM AND THE ASSESSEE' S BROTHER SRI K. SREENIVASA CHOWDHARY HAD ADMITTED AN UNDISCLOSE D OF RS. 5 LAKHS AND SAME WAS ACCEPTED BY THE ASSESSING OFFICER. IT IS UNDISP UTED FACT THAT THERE BEING NO INCRIMINATING DOCUMENTS OR EVIDEN CE FOUND OR SEIZED AT THE TIME OF SEARCH. WE FIND THAT THE ACTION OF THE ASSESSING OFFICER IN ESTIMATING THE INCOME FROM BRICK BUSINESS WITHOUT ANY COR RESPONDING ASSET BEING FOUND AT THE TIME OF SEARCH EITHER BY THE A SSESSEE OR BY THE FAMILY MEMBERS IS UNTENABLE IN THE BLOCK ASSESSMENT. IN OUR CONSIDERED VIEW, THE PROPER METHOD IN SUCH AN EVENT IS T O COMPARE THE CAPITAL AS ON THE OPENING DATE OF THE BLOCK PERIOD AND ON THE DATE OF THE SEARCH. IN OTHER WORDS, NET ASSETS BASIS IS THE RIGHT BASI S TO ARRIVE AT THE UNDISCLOSED INCOME OF THE ASSESSEE IN SUCH A SITUATION. THE ASSESSEE APPEARS TO HAVE RETURNED THE UNDISCLOSED INCOME AT RS. 1 5 LAKHS ON AN ESTIMATE BASIS AFTER ASCERTAINING THE ASSETS AND LIABILITI ES POSITION, WHEREAS THE ASSESSEE DECLARED BEFORE THE DDIT (INV.) THA T RS. 70 LAKHS IN TOTAL AS UNDISCLOSED INCOME IN HIS INDIVIDUAL CAPACITY AND IN THE HANDS OF HIS FIRM. SINCE, THE FIRM DECLARED AN UNDISCLOSED INCO ME OF RS.50 LAKHS FOR THE BOCK PERIOD BEFORE THE DDIT [INV], THE BALANCE AMOUNT OF RS.20 LAKHS IS TO BE TREATED AS UNDISCLOSED INCOME OF THE A SSESSEE IN HIS 7 INDIVIDUAL CAPACITY ON AN ESTIMATED BASIS TO COVER-UP ALL THE DEFICIENCIES POINTED OUT BY THE DEPARTMENT AND TO MEET THE ENDS O F JUSTICE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO TREAT RS.20 LAKHS AS UNDISCLOSED INCOME OF THE ASSESSEE FOR THE BLOCK PERIOD AS A GAINST RS.29,55,805 ARRIVED BY THE ASSESSING OFFICER AND GIVE CRE DIT FOR RS.4 LAKHS DECLARED UNDER VDIS SCHEME FROM THE SAID UNDISCLOSED INCOME OF THE ASSESSEE. THE NET UNDISCLOSED INCOME CHARGEABLE TO TAX SHALL BE RS.16 LAKHS. 9. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS ALLOWED I N PART. IT(SS)A NO. 35/HYD/05- SRI BALAJI AUTO FINANCIERS, TIRUPATHI. 10. BRIEF FACTS OF THE CASE ARE AS FOLLOWS. THE ASSESSEE IS A FIRM WHICH HAS COME INTO EXISTENCE ON 24-5-1995 I.E., RELEVANT TO THE ASSESSMENT YEAR 1996-97 AND THE ASSESSEE WAS MAINTAINING ACCOUNT IN D AY BOOKS AND LEDGERS, NOTE BOOKS ETC., WHICH WERE SEIZED BY THE D EPARTMENT. THE ASSESSEE WAS ALSO MAINTAINING ACCOUNTS IN COMPUTER FOR WHICH CPUS AND CD ROMS WERE SEIZED. HOWEVER, THE MANUAL ACCOUNTS AN D COMPUTER ACCOUNTS WERE NOT MATCHING EXACTLY AND THERE ARE SUBSTANTI AL DIFFERENCES BETWEEN THEM AND REGULAR RETURNS OF INCOME WERE FILED BASED ON MANUAL ACCOUNTS. THE ASSESSING OFFICER HAS QUANTIFI ED THE DIFFERENCE OF PROFIT IN COMPUTER ACCOUNT OVER MANUAL ACCO UNTS AT RS.1,04,95,728 FOR THE BLOCK PERIOD UP TO 31-3-2001 A ND THE ASSESSING OFFICER HAS QUANTIFIED INCOME FOR THE BROKEN BLOCK PERI OD OF 1-4-01 TO 9- 8-2001 AT RS.16,61,155/- AND THEREFORE TOTAL UNDISCLOSE D INCOME WAS DETERMINED AT RS.1,21,56,883. DURING THE COURSE OF SEAR CH ON 9-8- 2001, THE ASSESSEE FIRM HAD OFFERED VOLUNTARILY UNDISCLOS ED INCOME OF RS.50 LAKHS. HOWEVER, THE ASSESSEE FIRM FILED THE BLOCK RE TURN ON 13-3- 8 02 SHOWING UNDISCLOSED INCOME OF RS.70 LAKHS. IN RESPONSE TO THE SHOW CAUSE LETTER OF THE ASSESSING OFFICER THE ASSESSEE HAD OFFERED VARIOUS REASONS CONTESTING QUANTIFICATIONS BY THE ASSESSING OFFICER AN D VARIOUS PROTESTATIONS BY THE ASSESSEE FIRM INCLUDING CLAIMS FOR BAD DEBTS, DEDUCTIONS FOR EXPENSES ON ACCOUNT OF SWARNA PATRA FIXED DEPOSITS, ETC., WERE NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER. T HE ASSESSEE CLAIMED BAD DEBTS OF RS.58,01,602. THE ASSESSING OFFICER D ID NOT ACCEPT THE CLAIM SINCE THE SEIZED COMPUTER ACCOUNT PROGRAMME DID NOT CONTAIN THE ACCOUNT OF BAD DEBTS AND BAD DEBT WAS NOT WRITTEN O FF FROM THE COMPUTER ACCOUNT AND THE OTHER CLAIMS WERE NOT CONSIDERED BY THE ASSESSING OFFICER PRESUMABLY ON THE GROUND THAT THE ASSESSEE ACCEPTED THE INCOME DETERMINED BY THE P & L A/C IN THE COMPUTER SUBJECT TO DEDUCTIONS OF BAD DEBTS. BEFORE THE CIT(A), IT WAS SU BMITTED BY WAY OF WRITTEN SUBMISSIONS FILED VIDE THEIR LETTER DATED 29- 7-2004 WHICH ARE PARTLY REITERATION OF SUBMISSIONS MADE IN THE STATEMENT OF FACTS FILED ALONG WITH THE APPEAL. THE CIT (A) AFTER ELABORATE DISCUSSION, DIRECTED THE ASSESSING OFFICER TO RECOMPUTE THE UNDISCLOSED INCOME OF THE ASSESSEE BY REDUCING THE RETURNED INCOME OF RS.50,000 FOR ASSESSMENT YEAR 2001-02, BAD DEBTS OF RS.21,75,344, INTEREST ON SPFD RS.11,04,829, DEPRECIATION OF RS.3,00,964 AND INTEREST PAYABLE ON TIME DEPOSIT OF RS.1,15,121 AND HE ALLOWED THE APPEAL OF T HE ASSESSEE IN PART. 11. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE-FIRM RET URNED UNDISCLOSED INCOME OF RS.70 LAKHS AS AGAINST RS.50 LAKHS OFFERED BY THE ASSESSEE FIRM DURING THE SEARCH. THE ASSESSING OFFICER DETERM INED THE UNDISCLOSED INCOME OF THE ASSESSEE AT RS.1,21,56,883. IF T HE BAD DEBTS CLAIMED BY THE ASSESSEE AMOUNTING TO RS.58,01,602 IS ALLOW ED THE NET 9 UNDISCLOSED INCOME COMES TO RS. 63,55,281 AND IT IS THERE FORE PRAYED THAT THE ASSESSING OFFICER WENT WRONG IN NOT ACCEPTING THE BLOCK RETURN FILED BY THE ASSESSEE-FIRM AT RS.70 LAKHS. HE SUBMITTED THAT SECTION 36(1)(VII) OF THE INCOME-TAX ACT PERMITS AN ASSESSEE TO CL AIM BAD DEBT AS A DEDUCTION FROM THE PROFITS OF THE BUSINESS. THEREFO RE, THERE COULD BE NO REASON FOR DENYING THE ASSESSEE'S CLAIM. AS PER SECT ION 158BB OF THE ACT, THE ASSESSING OFFICER IS REQUIRED TO COMPUTE THE UNDISCLOSED INCOME OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME- TAX ACT. AS PER SECTION 158BH, ALL OTHER PROVISIONS OF INCOME-TAX SHALL APPLY TO EVEN FOR BLOCK ASSESSMENT PROCEEDINGS. HENCE, BAD DEBTS CLAIMED BY THE ASSESSEE ARE TO BE ALLOWED FOR COMPUTING THE UNDISCLOSED INCOME OF THE ASSESSEE. THE ASSESSEE HAS FILED SUITS AGAINST DEBTORS FOR RECOVERY OF ITS DUES. WRITE OFF IN THE BOOKS OF A CCOUNTS ONLY TAKES PLACE AT THE CLOSING OF THE ACCOUNTS I.E., AT THE TIME OF FINALIZATION OF ACCOUNT AND NOT ON A DAY TO DAY BASIS AS ASSUMED BY THE ASSE SSING OFFICER. IN THE CASE UNDER CONSIDERATION, THE SEARCH HAS T AKEN PLACE DURING THE MIDDLE OF THE PREVIOUS YEAR AND THE ASSESSMEN TS WERE FRAMED ON THE BASIS OF THE KATCHA PROFIT AND LOSS A/C P REPARED FOR THE PURPOSE OF EVALUATION OF PARTNERS' INTEREST IN THE FIR M. BEFORE FILING OF THE BLOCK RETURN, THE ASSESSEE FINALIZED THE ACCOUNTS AND B AD DEBTS WERE WRITTEN OFF IN THE AUDITED ACCOUNTS. HENCE, HE PRAYED THAT RS.70 LAKHS RETURNED BY THE ASSESSEE FIRM AS ITS UNDISCLOSED INCOME FOR THE BLOCK PERIOD IS TO BE SUSTAINED EVEN THOUGH AFTER ALLOWING T HE BAD DEBTS, THE UNDISCLOSED INCOME OF THE ASSESSEE FIRM COMES TO AROUND RS. 6 4 LAKHS. IN SUPPORT OF HIS BAD DEBTS CLAIM, HE RELIED ON THE DE CISION OF BOMBAY HIGH COURT IN THE CASE OF DIT (INTERNATIONAL TAXATION) VS. OMAN INTERNATIONAL BANK REPORTED IN 313 ITR 128 FOR THE PROPOSITION THAT THE ASSESSEE HAS NEITHER OBLIGATORY NOR BURDEN TO PROVE THAT DEBTS HAVE 10 BECOME BAD DEBTS AS LONG AS WRITING OFF WAS BONAFIDE AN D BASED ON COMMERCIAL WISDOM OR EXPEDIENCY. 12. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT IN THE CASE UNDER CONSIDERATION, THERE IS NO WRITTEN OFF DEBTS IN THE BOOKS OF ACCOUNT. WRITTEN OFF THE BAD DEBTS CAN BE AT ANY POINT OF TIME THE ASSESSEE NEED NOT WAIT FOR THE FINALIZATION OF THE ACCOUN TS. THE MATERIAL FOUND DURING THE COURSE OF SEARCH IS BOOKS OF ACCOUNT MAINT AINED BY THE ASSESSEE IN THE COMPUTER AND THE SAME IS AN EVIDENCE TO ARR IVE THE UNDISCLOSED INCOME OF THE ASSESSEE AND HENCE THE CLAIM OF TH E ASSESSEE IN RESPECT OF BAD DEBTS IS NOT JUSTIFIED. THEREFORE, T HE ORDERS OF THE LOWER AUTHORITIES MAY BE CONFIRMED. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF RIVAL PARTIES AN D PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE CIT(A) AFTER ACCEPTING THE EXPLANATION OF THE ASSESSEE THAT THE BAD DEBTS ARE T O BE WRITTEN OFF AT THE TIME OF FINALIZATION OF THE ACCOUNTS AND NOT ON A DAY TO DAY BASIS, ALLOWED BAD DEBTS AMOUNTING TO RS.21,75,344 AS AGAINST RS.58,01,602 CLAIMED BY THE ASSESSEE. THE REMAINING AMOUNT WAS NOT A LLOWED DEDUCTION AS BAD DEBTS BY THE CIT (A) ONLY ON THE GROU ND THAT THE ASSESSEE HAD NOT PROVED THAT THE SAID ACCOUNTS HAVE BECOME B AD WITH ANY DOCUMENTARY EVIDENCE. IN VIEW OF THE DECISION OF TH E BOMBAY HIGH COURT IN THE CASE OF OMAN INTERNATIONAL BANK (SUPRA), THE ASSESSEE ONLY HAS TO WRITE OFF THE AMOUNT IN THE BOOKS AS BAD DEBT AND THERE IS NO REQUIREMENT ON THE PART OF THE ASSESSEE TO PROVE THAT D EBTS HAD BECOME BAD. SINCE THE SEARCH WAS TAKEN PLACE IN THE MIDDLE OF THE PREVIOUS YEAR, WE AGREE WITH SUBMISSIONS OF THE LEARNED COUNSEL FO R THE ASSESSEE THAT THE WRITTEN OFF OF THE BAD DEBTS IN THE ACCOUNTS CAN BE AT THE END OF THE YEAR AFTER FINALIZATION OF THE ACCOUNTS AND NOT ON DAY TO DAY BASIS. 11 IN VIEW OF THE ABOVE, BAD DEBTS CLAIMED BY THE ASSESSEE IS TO BE ALLOWED U/S 36(1)(VII) OF THE ACT. HOWEVER, IF THE ENTIRE BAD DEBTS OF RS.58 LAKHS ARE ALLOWED AS DEDUCTION U/S 36(1)(VII) OF THE ACT, THE UNDISCLOSED INCOME OF THE ASSESSEE FOR THE BLOCK PERIOD COMES TO AROUN D RS.64 LAKHS SINCE, THE ASSESSEE RETURNED THE UNDISCLOSED INCOME O F THE BLOCK PERIOD AT RS.70 LACS, WE DIRECT THE ASSESSING OFFICER TO DE TERMINE THE UNDISCLOSED INCOME AT RS.70 LAKHS ONLY. 14. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEES ARE A LLOWED IN PART. ORDER PRONOUNCED IN THE COURT ON 11-2-2010. SD/- SD/- (G.C.GUPTA) (AKBER BASHA) VICE PRESIDENT. ACCOUNTANT MEMBER. DT/- 11TH FEB. 2010 COPY FORWARDED TO: 1. SRI K.V. CHOWDARY, 599, G-4, BALAJI COLONY, TIRU PATI & BALAJI AUTO FINANCIERS, D.NO.1-5-509 (5), FIRST FLOOR, BALAJI COLONY, TIRUPATHI. 2. ACIT, CENTRAL CIRCLE, TIRUPATHI. 3. COMMISSIONER OF INCOME-TAX, TIRUPATI. 4. COMMISSIONER OF INCOME TAX (A), TIRUPATI. 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. JMR* 12