C I T KOTA vs. VINOD KUMAR

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No.882/2008 The Commissioner Of Income Tax, Kota ----Petitioner Versus Shri Vinod Kumar @ Binod Kumar, Prop. M/s. Mannalal Ramnath, Saraffa Bazar, Baran ----Respondent For Petitioner(s) : Mrs. Parinitoo Jain with Ms. Shiva Goyal HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 23/04/2018 1. By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby tribunal has dismissed the appeal of the department and confirmed the order of CIT(A). 2. This court while admitting the appeal on 4.5.2009 framed following substantial question of law:- (i) Whether under the facts and circumstances of the case and in law the Tribunal was justified in upholding the order of CIT(A) of deleting the levy of surcharge u/s 113 for Rs.13,16,400/- contrary to the provisions of law? (ii) Whether under the facts and circumstances of the case and law the Tribunal was justified in upholding the order of CIT(A) of deleting the addition of interest of Rs.9,73,993/- levied u/s 158 BFA(1) being contrary to the mandatory provisions of law?

(2 of 19) [ITA-882/2008] (iii) Whether under the facts and circumstances of the case and in law the Tribunal was justified in upholding the order of the CIT(A) who deleted addition of Rs.4,70,000/- made on account of unexplained silver jewellery found during the course of search and which was surrendered by the assessee for taxation? (iv) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in upholding the order of the CIT(A) who deleted addition of Rs.2,00,000/- on account of unaccounted interest on unexplained advances against pawned jewellery found during the course of search and which was surrendered by the assessee for taxation? (v) Whether under the facts and in law the circumstances of the case and in law the Tribunal was justified in upholding the order of the CIT(A) who deleted addition of Rs.10,08,854/- made on account of interest earned on advanced even though such addition was based on seized material?” 3. The facts of the case are that a search was conducted at the business and residential premises of the assessee and his family members wherein incriminating documents, cash, jewellery and other valuables were found and seized. The assessee in response to notice issued u/s 158BC dt. 5.3.2001 filed return of income from the block period on 30.10.2001 declaring undisclosed income at Rs.93,29,083/-. A fresh notice u/s 158BC was issued on 29.8.2002, in reply thereto the assessee adopted the same return filed on 30.10.2001. The AO assessed the undisclosed income at Rs.1,29,06,650/- and accordingly made addition of Rs.35,77,567/- in the declared undisclosed income of the assessee. 4. Regarding question no.1, counsel for the appellant has taken us to the observations made by CIT(A) which reads as under:-

(3 of 19) [ITA-882/2008] Ground No.13 Ground No.13 has been taken against levy of surcharge of Rs.13,16,478/- at 17% on the tax of block period. The tax worked out on undisclosed income of the block period was increased by the amount of surcharge @ 17% of the tax. The appellant argued that there should no levy of surcharge on the tax calculated on the undisclosed income for the block period on the following reasons: 1) As per Sec. 113 of the Income Tax Act 1961, total undisclosed income of the block period determined u/s 158 BC shall be chargeable to tax at 60%. 2) The Finance Act 2002, has inserted the proviso w.e.f. June 1, 2002. The object of the amendment was to provide that the tax chargeable u/s 113 in the cases of block assessment on the undisclosed income shall be increased by the surcharge, if any, levied by any central act and was applicable in the assessment year relevant to the previous year in which the search was intitiated. 3) Thus, the proviso for levy of surcharge on the tax determined on undisclosed income of the block period was inserted w.e.f. 1.06.2002 only. 4) Hence, no surcharge was leviable on the tax determined for the search initiated before insertion of this proviso and therefore surcharge levied is illegal and wrong and may please be deleted. (ITAT JPR ITSSA/23/JP/2003) in the case of Mantri Katta and Co. vs. ACIT Central Circle III JPR. I have gone through the submissions of the ld. AR and also the provisions of Sec.113 of the Act. Sec. 113 was amended w.e.f. 1.6.2002. The said amendment is not applicable retrospectively. Surcharge means additional burden which was not apply retrospectively, without having specific provisions. As per CBDT circular (258 ITR Stt 61), it is evident that the said amendment is w.e.f 1.6.2002. When it is so, I find no justification in levy of surcharge. Thus, following the decision of the Hon’ble ITAT quoted above, I fully agree with the contentions of the ld. AR and hereby deleted the addition made on this account. Thus, the

(4 of 19) [ITA-882/2008] appellant gets relief of surcharge of Rs.13,16,478/-. 4.1 In this regard, the tribunal observed as under:- Ground No.8 26. The AO levied surcharge of Rs.13,16,478/- @ 17% on the tax of block period. The ld. CIT(A) has deleted this surcharge relying on the decision of Jaipur Bench of the Tribunal in the case of Mantri Katta & Co. vs. ACIT in ITSSA No.23/JP/2003 that provisions of Sec. 113 of the Act was amended w.e.f. 1.6.2002 and the said amendment is not applicable retrospectively. Thus the same cannot be applied retrospectively without having specific provision in this regard. Reference of CBDT Circular mentioned in 258 ITR Stt 61 has been made in support. This Bench has also been consistently following the same view. We, thus, uphold the first appellate order. Ground no.8 is rejected. 5. For question no.2, counsel for the appellant has drawn our attention to the following observations made by CIT(A) which reads as under:- Ground No.12 Ground No.12 has been taken against excess charging of interest u/s 158 BFA(1). Total interest charges Rs.9,73,993/-. In the assessment order, the AO has ordered to charge interest u/s 158BFA(1) of the IT Act amounted to Rs.9,73,993/-. During the course of hearing of the appeal the ld. AR in his written submission contended as follows:- 1) Notice u/s 158 BC of the IT Act, 1961 was issued on 5.3.2001 and was received on 14.3.2001 requiring the assessee to file his return of undisclosed income within 15 days of the receipt of notice. The return was filed on 30.10.2001.

(5 of 19) [ITA-882/2008] 2) The assessee applied for photocopies of seized records again and again, but the same was not supplied by the income tax dept. and hence he was unable to file the return of income in time. His inability to file B.P. return without photocopies was clearly mentioned in the applications filed. 3) Further, since the notice u/s 158 BC dt. 5.3.2001 was illegal as it required the assessee to file block period return within 15 days of receipt of notice, the ACIT issued fresh notice u/s 158 BC dt. 29.8.2002 giving time period of 20 days from receipt of notice to file block period return. Earlier return filed on 30.10.2001 was treated to have been filed in response to notice dt. 29.8.2002. Thus, the return filed on 30.10.2001 was well within time. 4) Hence, it is requested that interest u/s 158 BFA (1) may please be ordered not to be charged as there was no delay in filing the block period return.” Looking to the facts of the case that the fresh notice u/s 158 BC dt. 29.8.2002 was issued and the appellant has already filed return of block period on 30.10.2001 and the judgment of the Hon’ble ITAT Jaipur Bench, Jaipur in the case of M/s. Chokhi Dhani (ITSSA No.28 JP 2000). I am of the view that interest charged u/s 158 BFA (1) is illegal and wrong. Thus, the appellant gets relief on this account. 5.1 In this regard, the Tribunal has observed as under:- 29. Considering these aspects of the matter, the ld. CIT(A) following the decision of Jaipur Bench of the Tribunal in the case of Chokhi Dhani in ITSSA No.28/JP/2000 has deleted the addition with this observation that the assessee had duly filed return of block period on 30.10.2001 and for the delay on the part of the department in supplying the photocopies of the required documents, the assesee should not have been made liable for payment of interest. We subscribe our view with the ld. CIT(A) as it is very much evident from the record that the notice issued u/s 158BC dt. 5.3.2001 was not proper since therein assessee was required

(6 of 19) [ITA-882/2008] to file block period return within 15 days of receipt of notice. To correct the same, the AO issued another notice u/s 158BC on 29.8.2002 giving time period of 20 days from receipt of the notice to file block period return. In response thereto the assessee adopted the earlier return filed on 30.10.2001. It also appears that the assessee had applied for photocopies of seized records but for the same was not supplied by the department hence the assesee was unable to file the return of income for the block period in time. The ld. CIT(A) has, thus, rightly deleted the addition. The same is affirmed. Ground no.9 is, thus, rejected. 6. For question no.3, She has taken us to the order of the CIT(A) wherein it has been observed as under:- Ground No.3 Ground No.3 has been taken against addition of Rs.4,70,000/- on a/c of undisclosed investments in silver ornaments, during the block period. During the course of search, silver items weighing 118.362 k.g. were found at residential premises and 74.970 kgs. were found at business premises of the appellant. Silver ornaments found at the business premises of M/s. Mannalal Ramnath were found were explained saying that as on the date of search there was stock of 77.151 of silver ornaments, in the regular books of M/s. Mannalal Ramnath. The AO observed that out of silver ornaments found at residence ornaments weighing 61.736 kgs. belonged to M/s. Mannalal Ramnath and therefore, the AO made the addition of Rs.4,70,000/- being value of 61.736 kgs. of silver ornaments. He further observed that no documentary evidence was found regarding conversion of silver ornaments and the contention of the appellant is only after thought. During the course of hearing of the appeal the ld. AR in his written submission contended as follows:-

(7 of 19) [ITA-882/2008] “During the course of search, the following quantity of silver/silver ornaments was found at the residence and business premises of the assessee:- At Talabpara Residence : 118.362 kgs. At Mannalal Ramnath Shop : 74.97 kgs. _____________ 193.332 Kgs. _____________ The same was valued at Rs.7,600/- per kg totaling to Rs.14,69,322/- Source of Rs.193.332 kgs of silver/silver ornaments found was as under:- Declaration in the Wealth Tax returns earlier : 124.470 Stock as per regular books of M/s. Mannalal Ramnath, Baran : 77.151 Purchased in personal sets after Ass. Yr. 92-93 by different family members and shown in the return of income : 21.00 222.621 Less: Given to Yaswant Bhai for ujjalai 30.00 192.621 Thus, the silver found at the time of search stands explained. Minor difference in weight is due to some silver given to swarkars etc. 1) The learned ACIT distinguished the silver found at the residnece of the assessee into business silver and household. He considered part of silver found at the residence of the assessee as the business stock of M/s. Mannalal Ramnath, ignoring the total quantity of silver found at the residence, which was duly explained. The ACIT considered 61.736 kgs of silver found at be belonging to M/s. Mannalal Ramnath and made addition of Rs.4,70,000/-. 2) Regarding alleged investment by M/s. Mannalal Ramnath in silver found at the residence of assessee, the assessee vide letter dt. 16.12.2002 submitted as under:- “Late Sh. Ramswarup, father of the assessee, used part of silver/silver ornaments belonging

(8 of 19) [ITA-882/2008] to him and his family members which were lying idle with them being surplus and of old design, for business purpose sometimes, after converting them according to market requirements, when there was heavy demand in the market and the demand could not be met out of the business stock. The assessee also continued the same practice. a) The business of the assessee was looked after by his father Late Sh. Ramswarup upto 2.10.97 i.e. till his death and there after, the assessee looked after the business. The assessee was only 25 years of age at the time of death of his father and was not aware of the business affairs. At the time of search also, he was very much depressed and was in disturbed state of mind and could not explain the correct modus operandi followed by his father and continued him. His affidavit to this effect is enclosed. Under the above facts and circumstances no weightage should be given to his statement dt. 18.12.2000. b) Affidavit of Smt. Geeta Devi (mother) and Sh. Rajendra Kumar and Sh. Naveen Kumar (brothers) are enclosed eherewith stating that part of their silver/silver ornaments were used for business purpose by late Sh. Ramswarup and the same was continued till the time of search also. As whole of the family was living jointly, there was no problem in such arrangement and in the larger interest of the family, all members agreed to it. The silver/silver ornaments taken and used for business purpose were to be returned to them on demand in the form of bullion only. c) The assessee covert these ornaments/silver into items which were in regular demand in the market and kept them at his house. They were to be used only when there is heavy demand in the market. Till that time, the ornaments were kept at home only. d) As in the case of cash, whether found at business premises or at the residential premises, it is considered in total for explanation purposes. The nature of gold/silver/ornaments is also the same whether kept at business premises or residential premises, and it should be considered in total only. Form of gold and silver ornaments can be charged.

(9 of 19) [ITA-882/2008] e) Even on the date of search, no excess stock was found at the business premises of M/s. Mannlal Ramnath. Even at the residence also, only silver/silver ornaments already declared earlier; were found. There was no increase in the total quantity of ornaments. Only part of the declared ornaments of the family members were used to meet the demands of the business in the case of emergency, as these ornaments were lying idle at the residence. f) Thus, as no excess work has been found taking together in the stock found at residential and business premises, no addition can be made on the basis of doubts, surmises and conjectures. The very basis of assessment u/s 158BC under the search proceeding demand upon the material found during the course of search, as has been upheld by various judicial authorities. g) In this regard the assessee also rely on the following case laws:- Jai Kishan Agarwal Vs. ITAT 66 ITJ page 704 (ITAT Pune Bench) Held: It is customary in Hindu Society that children do get gifts on birthday, on festive occasion and on family function. There is no justification for impugned addition. Ravi Mathur and others vs. ACIT 22 Tax World 245 (Jaipur ITAT) Held: The amounts/income already disclosed in regular return cannot be the subject matter of scrutiny and assessment in absence of any incriminating material found during search. Lal Chand Agarwal vs. ACIT 21 Tax World 213 (Jaipur ITAT) Held: Jurisdiction of AO is limited and he is to confine himself to material/information found as a result of search while making block assessment (22 tax World 25 ITAT Jaipur). 4) As no excess stock of silver was found, the ACIT was wrong to make addition of Rs.4,70,000/- as undisclosed investment of the assessee for block period and the addition made may please be deleted.” I have meticulously gone through the assessment order, and also the contentions of the ld. AR I find sufficient force in the contentions of the appellant. The total quantity

(10 of 19) [ITA-882/2008] of silver ornaments declared by the appellant in the W.T. returns should be given due weightage. The W.T. returns have always been accepted in the past, and the Department cannot claim the same to be false, at this stage. It is admitted that the shape of silver ornaments have changed or the ornaments have been used for business purpose, as mentioned by the AO in his order. But the quantity of silver ornaments have not changed. No undisclosed investment have been detected by the AO, making the appellant liable for addition or tax. Thus, the addition of Rs.4,70,000/- is not found sustainable on fact as well as on law. The same is accordingly directed to be deleted with the relief to the appellant to that extent. This ground of appeal thus stand allowed. 6.1 The finding of the tribunal in this regard reads as under:- 7. We find substance in these submissions of the ld. AR and are also of the view that the ld. CIT(A) considering these submissions has rightly deleted the addition with this observation that total quantity of silver ornaments declared by the assessee in wealth tax return have always been accepted in the past and the department cannot claim the same to be false, at this stage that it is an admitted fact that the shape of silver ornaments have changed or the ornaments have been used for the business purposes as mentioned by the AO in the assessment order. Thus the quantity of silver ornaments had not changed. It has been further observed by him that no undisclosed investment have been detected by the AO, making the assessee liable for addition or tax. The first appellate order is comprehensive and reasoned one, we thus are not inclined to interfere therewith. The first appellate order is, thus, upheld. Ground no.1 is rejected. 7. For question no.4, she has taken us to the finding of CIT(A) which reads as under:- Ground No.5

(11 of 19) [ITA-882/2008] Ground No.5 has been taken against addition of Rs.,2,00,000/- on account of alleged interest earned on pawned advances and treating the same as undisclosed income of the block period. The facts are that the appellant used to give advances pawning of jewellery without recording in the regular books of accounts. Such total pawning advances totaling to Rs.9,37,000/- were surrendered and included in the undisclosed income by the appellant in his block period return. The AO observed that interest of Rs.2,00,000/- approximately must have been accrued on these advances upto the date of search, and therefore made addition, treating the same as undisclosed income of the block period. During course of hearing of the appeal, the ld. AR in his written submission contended as follows:- 1) During the course of search, pawning advances of Rs.9,36,130/- against pawned jewellery of Rs.16,97,287/- was found to be given by the assessee which were not recorded in the regular books of account. 2) The assessee surrendered an amount of Rs.9,39,730/- being pawned advances as undisclosed investment of the block period in the block period return. 3) Regarding interest earned on pawned advances, the assessee submitted at page 3 of letter dt. 27.8.2002 to the ACIT that the interest is received only at the time of settlement of account and release of pawned jewellery and therefore as and when the said jewellery would release on payment, the assessee would show the interest income. 4) Again vide letter dt. 2.12.2002 the assessee submitted as under:- a) The assessee used to give advances against pawning of jewellery for no fixed period or time interval. b) No interest was charged at the time of giving advance and interest was calculated and received only at the time of settlement of account. c) The assessee used to keep these advances on cash basis only. Till the final amount is not received from the borrower,

(12 of 19) [ITA-882/2008] there is always risk of bad debt. There is income only when the interest is realised and received on full payment. The assessee has nowhere debited the account of borrower by the amount of interest, treating the interest income on accrual basis. d) In these type of advances, it is a common practice prevalent everywhere to charge interest for the period of use of money from the borrower at the time of repayment. The assessee also filed an affidavit on Rs.10 stamp duly attested by a notary to this effect. e) Legal submission: a) Section 145(1) of the Income Tax Act, 1961, as amended by the Finance Act, 1995 w.e.f. 1.4.97 reads as under:- Income chargeable under the head Profits and gains of the business or profession on income from other sources’ shall subject to the provisions of sub sec.(2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.” b) Thus, from plain reading of sec.145(1), it is clear that the assessee can follow any of the system of accounting i.e. either cash system or mercantile system. Further, it has been held that a method of accounting adopted by a tax prayers consistently and regularly cannot be discarded by the department on the view that he should have adopted a different method of keeping accounts or of valuation. (United Commercial Bank vs. CIT (240 ITR 335) SC (1999). Held: Method followed consistently and accepted by revenue. Method was valid and could not be rejected. Hence, it is for the assessee to select the system of accounting to be followed by him. c) For the purpose of income tax, what is to be taxed is the real income which is to be deducted on the basis of accounting system regularly maintained by the assessee and that has been done by the assessee in the present case. d) In the case of CIT vs. Motor Credit Co. Pvt. Ltd. reported in 127 ITR page 572, the Hon’ble Madras HC has held as under:-

(13 of 19) [ITA-882/2008] “Where no income has resulted it cannot be said that income has assured merely on the ground that assessee had been following the mercantile system of accounting. Even if the assessee makes a debit entry to that effect, still no income can be said to have accrued to the assessee. If no income has materialised, there can be no liability to tax on hypothetered income. Thus, the question whether real income has materialized to the assessee has to be considered in the reference to commercial business realities of the situation in which the assessee has been placed. e) In Tax World XXVI page 44, the Hon’ble ITAT, Jaipur has held in the case of ACIT vs. Mohanlal Jaipuria that interest income cannot be taxed on accrual basis in the case of money lender who is continuously declaring income on cash basis. In the aforesaid case, also, no interest was credited on mercantile basis from the debtor who had borrowed money details were kept of receipts on cash basis only. The facts of the case are identical with that of the assessee. f) The Hon’ble Jodhpur Bench of ITAT has held in the case of ITO vs. Gopalaram Pema ram reported in XXIV Tax World page 412 that there cannot be any good reason for the AO to make departure from the earlier system of taxing interest income on receipt basis. Further, the Hon’ble ITAT, Jaipur in the case of Smt. Radha Bajaj vs. DCIT reported in XXIV Tax World at page 289 has categorically held that interest income cannot be taxed on accrual basis in a case wherein no such income was received during the block period upon the unrecorded advances and the AO shall be free to tax the interest income as and when it is actually realized in the future periods. g) In the case of CIT vs. EAET, Sundararaj reported in 99 ITR 226 (Mad.) it has been held by the Hon. H.C. that the assessee was entitled to employ one method of accounting for one part of his business and a different method, for another part of his business. In the present case, there is escapement of income from tax. The assessee has also not followed hybrid or mixed system of

(14 of 19) [ITA-882/2008] accounting. He has also followed one system of accounting for one set of business consistently as envisaged by Sec.145(1) CIT vs. Mudhoot Finance Corporation reported in 248 ITR page 704 (Kerala) 2001. 5) The assessee is regularly declaring the interest income on these advances in returns of income as and when received on cash basis for Ass. Yr. 2001-02 and onwards. 6) Even in the affidavit submitted to the DDIT for released of pawned jewellery dt. 15.1.2001 the assessee stated as under:- “The interest is payable at the time of repayment of the principle amount as per accounting system adopted by me. I have carefully considered the rival submissions. The appellant has suo motto surrendered the amount of pawning advances in his block period return. I find enough force in the contention of the ld. AR that in these kind of advances till the amount of advance is not returned, no interest is received. The appellant has kept his records on cash basis consistently. No entry of interest amount being debited in the amount of the borrower have been found by the AO. Further, the interest income has been offered for tax as and when it is received on cash basis. Thus, the interest income cannot be taxed twice. Moreover, the AO has estimated interest income at Rs.2,00,000/- without giving any basis of estimation. Such wild estimates that addition on hypothesis, assumptions cannot be made in the scheme of block assessment. I, therefore, delete the addition of Rs.2,00,000/- and decide this ground of appeal in favour of the appellant. Thus, the appellant get relief on this ground. 7.1 In this regard, the tribunal has observed as under:- 8. The AO made addition of Rs.2,00,000/- on account of alleged interest earned on pawned advances, treating the same as undisclosed income of the block period. The assessee used to give advances against pawning of jewllery without recording it in the regular books of account. In this regard Rs.9,37,000/- were surrendered against such

(15 of 19) [ITA-882/2008] total pawning advance. The AO observed that interest of Rs.2,00,000/- approximately must have been accrued on these advances upto the date of search and, therefore, made addition, treating the same as undisclosed income of the block period. The assessee submitted that the interest is received only at the time of settlement of account and release of pawned jewellery and, therefore, as and when the said jewellery would release on payment, the assessee would show the interest income. The assessee used to keep these advances on cash basis only. Till the final amount is not received from the borrower, there is always risk of bad debt. There is income only when the interest is realized and received on full payment. The assessee had nowhere debited the account of borrower by the amount of interest treating the interest income on accrual basis. In support, the assessee filed an affidavit. It was also submitted that as per section 145(1) it is clear that the assessee can follow any of the system of accounting i.e. either cash system or mercantile system. A method of accounting adopted by a tax payer consistently and regularly cannot be discarded by the department on the view that he should have adopted a different method of keeping accounts or of valuation. For the purpose of income tax, what is to be taxed is the real income which is to be deducted on the basis of accounting system regularly maintained by the assessee and that has been done by the assessee in the present case. Several decisions have been relied in support as referred at pages 17 & 18 of the first appellate order. Before us, the ld. DR while placing reliance on the assessment order submitted that the assessee has failed to establish that interest was received on cash basis. 9. The ld. AR on the other hand justified the first appellate order while reiterating the submissions made before the CIT(A). He further placed reliance on the following decisions:- N.R. Sirker vs. CIT, 111 ITR 281 (Gauh.), CIT vs. O.T. Rohman 180 ITR 183 (Gauh.), Rockwell Engineering Co. Ltd. vs. CIT 180 ITR 277 (Ker.), ACIT vs. Mohanlal Jaipura 26 Tax World 44, ACIT vs. Om Prakash Jain ITSSA No.42/8JP/2004 dt. 28.7.2006.

(16 of 19) [ITA-882/2008] 10. After having gone through the orders of the lower authorities in view of the arguments advanced by the parties, we are not inclined to interfere with the first appellate order as the ld. CIT(A) under the facts and circumstances of the case has rightly deleted the addition with this observation that in these kind of advances till the amount is not returned, it is a prevailing practice that no interest is received. The assessee had kept his records on cash basis consistently. No entry of interest amount being debited in the account of the borrower has been found by the AO. Further, the interest income has been offered for tax as and when it is received on cash basis. The first appellate order is, thus, upheld. Ground no.2 is rejected. 8. For question no.5, she has invited our attention to the finding of CIT(A) which reads as under:- Ground No.10 Ground No.10 has been taken against addition of Rs.10,08,854/- as interest earned on advances and treating the same as undisclosed income of the block period. The appellant surrendered undisclosed advances of Rs.73,41,033/- in his block period return. The AO observed that interest earned on these advances @ 2% p.m. has not been shown by the appellant in the block period return. There were six diaries in which such advances were recorded, and the appellant used to strike off from the diary the name of the borrower alongwith the amount of advance give to him when it is received back without mentioning the date. The AO, therefore, made total of such advances which were struck off amounting to Rs.42,01,894/-. The AO considered these advances to have remained with the borrower atleast for a minimum period of 12 months, therefore estimated interest on these advances at 24% p.a. and made addition of Rs.10,08,854/-. During course of hearing of the appeal the ld. AR in his written submission contended as follows:-

(17 of 19) [ITA-882/2008] 1) The assessee while filing block period return surrendered

an amount of Rs.73,41,033/- on account of other advances given to different parties out of regular book which was later on corrected to Rs.73,78,763/- on rechecking. 2) The advances were not given for any fixed period or fixed time interval. 3) No interest was charged at the time of giving advance and only the amount advanced was recorded with date in the account of borrower. The interest was calculated and received only at the time of final settlement of account. 4) From the perusal of seized diaries also, you will kindly note that transactions of payment and repayment only were recorded in them and no interest entry was made even in the accounts of borrowers from whom part payment was received. On receipt of full amount with interest, the account of the borrower was cancelled by drawing lines over it as no amount remained due from him. The learned ACIT has calculated interest at 2% per month after quantifying the entries struck off in the diaries. The date on which the entries were struck off has not been written in the diaries. The diaries have not been kept on any fixed basis i.e. calendar year, financial year or any other basis. Any estimation details made by the ACIT on different assumptions and only on imagination would be illegal and wrong. I have gone through the submissions givne by the AR. The addition of interest has been made on estimate basis, as there is no mention of date in the diary, for the return of advance by the borrower. Without date of advance and date on which the amount was returned, no interest can be calculated. There is no mention of the period for which diary is maintained. It is true that the appellant has earned interest on the amount advanced by him and repaid by the borrowers. But the same has already been considered in the form of assets found during the course of search. The appellant has not kept aside the amount of interest earned by him, in the form of any other asset, which is not found during the course of search, and not disclosed in the block period return making him liable for addition and tax. I

(18 of 19) [ITA-882/2008] therefore, find that this ground also merits acceptance and delete the addition of Rs.10,08,854/- made on sound basis. The appellant gets relief on this account. 8.1 In this regard, the tribunal has observed as under:- 20. The AO made addition of Rs.10,08,854/- as interest earned on advances and treating the same as undisclosed income of the block period. The assessee had surrendered undisclosed advances of Rs.73,41,033/- in his block period return. The AO observed that interest earned on these advances @ 2% p.m. has not been shown by the assessee in the block period return. There were six diaries in which such advances were recorded and the assessee used to strike off from the diary the name of borrower alongwith the amount of advance given to him when it was received back without mentioning the date. The AO accordingly made total of such advances, which were struck off amounting to Rs.42,01,894/-. The AO was of the view that these advances remained with the borrower at least for a minimum period of 12 months and, therefore, estimated interest on these advances @ 24% p.a. and made an addition of Rs.10,08,854/-. The assessee objected the same with the submission that he while filing block period return surrendered an amount of Rs.73,41,033/- on account of other advances given to different parties out of regular books which was later on corrected to Rs.73,78,763/- on rechecking. It was submitted that the advances were not given for fixed period or fixed time interval. No interest was charged at the time of giving advance and only the amount advanced was recorded with date in the account of the borrower. Interest can calculated and received only at the time of final settlement of account. From the perusal of the seized diary also. It was evident that transactions of payment and repayment only were recorded in them and no interest entry was made even in the accounts of the borrowers from whom part payment was received. On receipt of full amount with interest, the account of the borrower was cancelled by drawing lines

(19 of 19) [ITA-882/2008] over it as no amount remained due from him. It was submitted that the AO has calculated interest @ 2% per month after quantifying the entries struck off in the diaries. The diaries have not been kept on any fixed basis i.e. calendar year, financial year or any other basis. Any estimation, thus made by the AO had no basis. Considering these submissions, the ld. CIT(A) has deleted the addition. 9. In view of the concurrent findings recorded by CIT(A) and Tribunal, the issues are answered in favour of assessee and against the department. 10. The appeal stands dismissed. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J Brijesh 46.