ORDER
M.M. Cherian, A.M.
This appeal has been filed by the assessee, Shri S. Gopakumar, Kumar Group Total Designers, Ernakulam, against the order passed by the Asstt. Commissioner, Investigation Circle-1, Division I, Ernakulam, under section 158BC of the Income Tax Act, for the block period from 1-4-1986 to 19-12-1996.
2. The assessee is an architect by profession. He was carrying on the profession in partnership with his brother under the firm name, Kumar Group Total Designers, till June, 1993, and, thereafter in individual capacity. The department conducted a search under section 132 of the Income Tax Act at the business premises and the residence of the assessee on 18-12-1996 and 19-12-1996. In response to a notice issued under section 159BC on 9-4-1997, the assessee filed the return on 2-7-1997, admitting income of Rs. 2,44,306 for the block period from 1-4-1986 to 19-12-1996. The assessing officer completed the assessment under section 158BC on a total undisclosed income of Rs. 28,04,600 and levied tax at the rate of 60 per cent. Aggrieved with the assessment, the assessee has filed this appeal before the Tribunal.
3. On behalf of the assessee, Shri K. Narayanan, Chartered Accountant submitted before us that the assessment made in this case was not valid assessment under section 158BC in view of the fact that there was no undisclosed income to be added within the meaning of section 158B(b). Drawing our attention to the definition of ‘undisclosed income’ as appearing in section 158B(b), the learned representative submitted that there was no money, bullion, jewellery or other valuable articles found in the premises of the assessee during the search and further there was no material gathered in the search to point towards any undisclosed income. Shri Narayanan stated that the addition made in the assessment was also not on the basis of any entry in the books of accounts found as a result of the search. The learned representative contended that as there was no seizure of any valuables or books of accounts during the search, the additions could have been made in a regular assessment under section 143(3) and not in a block assessment under section 158BC, Shri Gopakumar had been regularly assessed to tax in the earlier years. For the assessment year 1996-97, he filed the return admitting income of Rs. 8,58,995 on 6-6-1997, even though the due date was 31-10-1996. According to Shri Narayanan, though there was delay in filing the sreturn of income, it could not be said that the assessee would not have disclosed the income of the assessment year 1996-97, but for the search by the department. It was contended that income of Rs. 8,58,995 admitted in the return filed for the assessment year 1996-97 should not have been held as the undisclosed income under section 158B(b). Shri Narayanan added that even though the return for the assessment year 1996-97 had been filed after the search, the assessment ought to have been made under section 143(3) and not under section 158BC. It was pointed out that in respect of the assessment year 1996-97, the assessee had paid advance tax of Rs. 25,000 and there was also deduction at source to the extent of Rs. 1,17,322. Relying on the decision in the case of J.K. Narayanan (HUF) v. Asstt. CIT (1999) 69 lTD 104) (Mad-Trib) (TM), the learned representative contended that the income declared in a return filed belatedly for the assessment year 1996-97 could not be considered as the undisclosed income for the block assessment. It was pointed out that in the above case, the Tribunal (Madras Bench) annulled the block assessment for the reason that there could be no undisclosed income for the purpose of assessment under Chapter XIV even though the return had been filed belatedly. Our attention was also drawn to the decisions of the Tribunal in Jaya S. Shetty v. Asstt. CIT (1999) 69 ITD 336 (Mumbai) and Indore Construction (P) Ltd. v. Asstt. CIT (1999) 71 ITD 128 (Ind-Trib). In the case of Jaya S. Shetty v. Asstt. CIT (supra) it was held that the undisclosed income was to be determined on the basis of evidence, documents, material and information found during the search and the same would have to be authentic, reliable and verifiable. In the other case of Indore Constructions (P) Ltd. (supra), it was held that if any material or information was found during the search, the assessing officer had to correlate them with the regular assessment and that section 158BA did not provide licence for making roving enquiries. In that case the Tribunal further held that there was no search made on the premises of the assessee and so issuing notice under section 158BC for the block assessment was void for want of jurisdiction. Shri Narayanan argued at length regarding the legality of the search and submitted that it was not a proper exercise of jurisdiction under section 132 for searching the assessee’s premises and in that sense also the assessment under section 158BC was bad in law.
4. Per contra, Shri Amba Shankar Dev, the Departmental Representative found no merit in the contention that there was no undisclosed income to be added in the block assessment on the assessee. Even though there was no gold, jewellery or other valuable articles found at the time of search, the learned Departmental Representative stated that there was ample material gathered during the search pointing towards the undisclosed income of the assessee. Shri Amba Shankar Dev further stated that there was clear evidence to show that a sum of Rs. 89,390 being receipt from profession had not been disclosed in the returns filed by the assessee before the earlier years. He added that in the assessments, completed earlier there was no income from house property admitted by the assessee or assessed in his hands. But there were documents found at the time of the search showing that the assessee had been getting rental income from 1994 at the rate of Rs. 2,750 per month for the flat in Choice Gardens. He further stated that in the return of income filed in response to the notice under section 158BC, the assessee had admitted undisclosed income of Rs. 2,44,306 for the block period and so there was no merit in the plea that there was no undisclosed income to be assessed under Chapter XIV. As regards the sum of Rs. 5,58,995 returned for the assessment year 1996-97 Shri Amba Shankar Dev pointed out that though the return of income was due on 31-10-1996, the assessee filed the return only on 6-6-1997, after the search and that too after issuing of the notice under section 158BC on 9-4-1997. Drawing our attention to section 158BB(c), the learned Departmental Representative submitted that the income declared in the return filed after the search was rightly considered as the undisclosed income of the block assessment. It was the contention of the learned Departmental Representative that there was ample evidence pointing towards the undisclosed income of the assessee and that the evidence had been gathered in the course of the search and so the assessment made under the provisions in Chapter XIV-B was valid in the eye of law.
5. We have considered the rival submissions and gone through the facts of the case. Section 158B(b) gives an inclusive definition of undisclosed income as any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article or thing entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of the Income Tax Act. Section 158BB provides for the computation of the undisclosed income of the block period. It is provided that the undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of Chapter IV, on the basis of the evidence found as a result of the search or requisition of the books of account or documents and such other materials or information as are available with the assessing officer, as reduced by the aggregate of the total income or as the case may be, as increased by the aggregate of the losses of such previous years as determined in the assessments. In the present case, it is true that in the search no money, bullion, jewellery or valuable articles found in the premises of the assessee. In the paper book filed by the learned representative of the assessee, there is the sworn statement of the assessee received by the assessing officer on 18-12-1996, at the time of the search (paper book-II, pages 32 to 43). It can be seen from questions 18 and 20 that in the course of the search documents were found pointing towards the undisclosed income of the assessee. The relevant questions and the assessee’s answers appearing on pages 37 and 38 are reproduced below :
“Q. 18. During the course of search we have noticed that you have posted a sum of Rs. 1,40,000 to the accountant Shri Baby to meet certain expenses on 23-9-1996. What is the source of this amount ?
Ans. If it is not out of my accounted income shown in the books of account maintained, it might be my unaccounted income.
Q. 20. You have been getting rental income as per the documents found during the course of search. Since when have you been getting such income ?
Ans. Yes, I have been getting rental income since 1-6-1994.
Q. 21. Why have you not shown this in your books of account and not reflected in the income-tax returns ?
Ans. It is an omission.”
The learned representative of the assessee is not correct in stating that there was no material gathered during the search on the basis of which any addition could be made as undisclosed income. In the case of J.K. Narayanan (HUF) relied on by the learned representative of the assessee, consequent to the search conducted in the premises of the assessee (HUF), a notice under section 158BC was issued and the assessee filed the return showing undisclosed income as nil. In the assessment order, the assessing officer discovered that all the investments had been considered in the hands of the assessee in his individual status and that the assessee (HUF) had failed to file the returns for the assessment years 1988-89 to 1993-94. The assessing officer held that the total income for those years should be treated as the undisclosed income of the block period under section 158BC(1)(c). In that case the Madras Bench of the Tribunal held that the search itself having not been able to discover or unearth any other income earned by the assessee (HUF) apart from what had already been considered in the assessment of the assessee (individual), there was actually no undisclosed income for the purpose of assessment under Chapter XIV-B. The entire assessment was based on the declaration of income by the assessee itself in the returns filed by it. In the face of such facts it would not be possible to say that what had been considered in the assessment order as undisclosed income of the HUF really represented the income not disclosed or meant to be disclosed to the department. It can be seen from the above that the facts in that case are entirely different and that the decision has no application to the facts in the present case.
6. The learned representative has relied on the decision in the case of Jaya S. Shetty v. Asstt. CIT (supra) for the contention that the undisclosed income is to be determined on the basis of evidence, documents, materials and information found during the search and that it has to be authentic, reliable and verifiable. There can be no dispute on the view that the undisclosed income is to be determined on the basis of the authentic, reliable and verifiable evidence gathered during the search. We have already seen that in the course of the search materials were gathered which showed that the assessee was in receipt of rental income, which had not been disclosed for assessment purpose earlier and that there was clear omission to disclose the receipt of Rs. 89,390 from the profession. The decision in the above case does not support the assessee’s plea for annulling the assessment on the ground that there was no undisclosed income detected during the search.
7. There was then the submission of the learned representative questioning the legality of the search operation in this case. In this connection, Shri Narayanan stated that proper enquiry should have been made and that the warrant issuing authority should apply his mind and come to the conclusion that there existed reason to believe that income had been concealed by the assessee. Apart from making a general observation that there should have been a proper application of mind before issuing the warrant authorising the search, the learned representative did not produce any material before us to show that the authority concerned had not made a proper exercise of the powers in issuing the warrant. In section 253(1)(b) it is provided that any assessee may appeal to the Tribunal against an order passed by the assessing officer under clause (c) of section 158BC, in respect of search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A after the 30-6-1995, but before the 1-1-1997. The warrant issued by the concerned authority under section 132(1) authorising the search is not an order that can be the subject-matter of appeal before the Tribunal. In other words, the legality of the search operation cannot be a matter of adjudication by the Tribunal. In the case of Indore Construction (P) Ltd. (supra) relied on by the learned representative, the assessee challenged the assessment on the preliminary ground that search had not been conducted in the business premises of the assessee-company and that the warrant of authorisation had been issued in the case of the director of the company. The Tribunal held that framing of assessment by issuing notice under section 158BC without search warrant and without conduct of search in the case of the company was void for want of jurisdiction. In the present case, it is nobody’s case that no search was made in the premises of the assessee or that there was no warrant of authorisation issued by the Commissioner. It is a different question as to whether the Commissioner was justified in issuing the warrant for conducting the search. As there was in fact a search conducted by the department under section 132 of the Income Tax Act, under a warrant issued by the Commissioner we hold that the assessing officer had the jurisdiction to make the assessment for the block period under section 158BC.
8. In the circumstances discussed above, we do not accept the assessee’s plea for annulling the block assessment under section 158BC for want of jurisdiction.
9. The assessee filed the return of income for the assessment year 1996-97 on 6-6-1997, admitting a total income of Rs. 8,58,995. The due date for filing the return of income for 1996-97 was 31-10-1996. But the assessee had not filed the return when the search was conducted on 19-12-1996. The notice under section 158BC for the block assessment was issued by the assessing officer on 9-4-1997. It was after the receipt of that notice that the assessee filed the return for the assessment year 1996-97 on 6-6-1997, admitting the total income of Rs. 8,58,995. The assessing officer included this amount also in the block assessment under section 158BC, with the resultant levy of tax at 60 per cent. The assessee’s claim is that for the assessment year 1996-97 there should have been a regular assessment separately made under section 143(3) without treating the income as part of the undisclosed income for the block assessment. The learned representative of the assessee submitted that in the case of Malayil Bankers v. Asstt. CIT (1999) 236 ITR 869 (Ker), the Kerala High Court has held that even after making a block assessment there could be made a regular assessment under section 143(3). In that case, the High Court held that the contention that once an assessment had been framed for a block period under section 158BC, the assessing officer is debarred from framing an assessment under section 143(3) could not be accepted. It may be mentioned here that by way of Explanation in section 158BA, it is clarified by Finance (No. 2) Act, 1998, with effect from 1-7-1998, that an assessment made under Chapter XIV-B is in addition to the regular assessment in respect of each previous year included in the block period. But that does not mean that in respect of an income returned after the date of the search, the assessment could be made only under section 143(3) and that such income cannot be included in the block assessment.
10. Section 158BB(1) providing for the computation of the undisclosed income of the block period in clause (c) states, “where the due date for filing a return of income has expired, but no return of income has been filed, as ‘nil’ meaning thereby that the deduction to be allowed for the income of that year from the aggregate of the total income of the previous years falling within the block period is ‘nil’ only. In other words, for the computation of the undisclosed income under section 158BB first the aggregate of the total income of the previous years falling within the block period is to be computed in accordance with the provisions of Chapter IV, on the basis of the evidence found as a result of search or requisition of the books of account or document and such other materials or information as are available with the assessing officer. That is to be then reduced by the aggregate of the total income as determined on the basis of the assessments already completed under section 143 or under section 144 or under section 147 and where for any year even after the due date for filing the return has expired, no return has been filed, deduction to be allowed towards the total income of that year will be ‘nil’.
11. For the assessment year 1996-97, the due date for filing the return had expired on 31-10-1996, and the return as filed only on 6-6-1997, even after the date of the search. The assessee is, therefore, not entitled to reduce the total income as returned for the assessment year 1996-97 from the aggregate of the total income of the previous years falling within the block period. The assessee himself has admitted Rs. 8,58,995 as the income for the assessment year 1996-97. At the time of making the block assessment on 31-12-1997, the assessing officer had the materials and information available with him, showing the income of Rs. 8,58,995 to be included in the block assessment. It is our considered view that the expression “such other materials or information as available with the assessing officer” is wide enough to cover the return of income filed by the assessee and lying in the assessment records. If the return of income for the assessment year 1996-97 had been filed prior to the date of the search, there would have been a case for not including the income admitted in that return as the undisclosed income of the block period. But that is not the case here. We are not inclined to agree with the learned representative of the assessee that the sum of Rs. 8,58,995 returned by the assessee subsequent to the date of the search should not have been included in the block assessment under section 158BC and that the same should have been considered only in a separate assessment to be made under section 143(3).
12. The learned representative of the assessee then challenged the additions made in various years falling in the block period. It was contended that the addition of Rs. 45,000 for each year totalling Rs. 4,95,000 was on mere suspicion and guesswork without the support of any material gathered during the search. The addition had been made on the view that the purchase of certain household articles had been made out of unaccounted income estimated at Rs. 20,000 and that there was paucity of drawings to the extent of Rs. 25,000 for meeting the personal and household expenses. According to Shri Narayanan, the assessee had adequate amount with him for making the investment in the household articles and for meeting the personal domestic expenses. He drew our attention to the assessee’s letter dated 20-12-1997, furnished in response to the letter issued by the assessing officer on 12-12-1997. Copies of these letters are available in the paper book-I at pages 17 to 24. The learned representative pointed out that in para 5(a) of the letter dated 20-12-1997, the assessee had made clear that the furniture, AC, oven, etc., had been purchased over a period of 8-10 years and from drawings from Kumar Group and also from sources of Mrs. Gopakumar. He stated that the assessee’s wife was getting agricultural income from large area of rubber plantations inherited from her family. In the paper book-II, at pages 79-84 there is a copy of an affidavit by Smt. Shyamala Gopakumar, wherein there is the mention of her agricultural land holdings and the income earnings. The Departmental Representative submitted before us that the affidavit had not been filed before the assessing officer before completing the assessment and that the assessing officer had no occasion to consider the availability of the agricultural income as the contribution from wife to the assessee Shri Gopakumar. The assessment order in this case was passed on 31-12-1997. Shri Narayanan admitted that the affidavit by Smt. Shyamala Gopakumar had been filed only subsequently in connection with the enquiries regarding the firm ‘Lake Paradise’ and the assessment of Smt. Shyamala Gopakumar. The assessing officer could not, therefore, consider whether the assessee had received any amount from his wife, which could be used for meeting the domestic expenses.
13. In para 6(1) of the assessment order it is stated :
“At the time of search an inventory of household articles such as furniture, TV, A.C., oven, etc., were taken and it was found that these articles are worth Rs. 2 lakhs. He has no explanation for the source nor he could correlate these purchases to the drawings. The drawings are very meagre. As he has no source, Rs. 20,000 each is added for each of the financial year coming in the block assessment.”
Shri Narayanan submitted that no inventory of the household articles was taken at the time of search, even though in his sworn statement the assessee had admitted the investment at Rs. 2 lakhs. It was in answer to question 3 in the sworn statement recorded on 18-12-1996 (vide page 34 of paper book II), that the assessee estimated the investment in the household articles at Rs. 2 lakhs.
14. Considering the rival submissions in regard to the additions, we find that the assessing officer has made the addition without considering the assessee’s claim regarding the drawings from Kumar Group and the contributions made by his wife out of her agricultural income. But then no details regarding the agricultural income of the wife had been furnished before the assessing officer.
Even the affidavit was filed only after the block assessment had been made. Though Shri Narayanan submitted before us that Smt. Shyamala Gopakumar was regularly assessed to agricultural income-tax, the details of such assessments were not made available either before the assessing officer or before us also. The assessing officer states that the assessee’s drawings were meagre. But neither the Departmental Representative nor the assessee’s representative could give the details regarding the drawings of the assessee during the 10 years considered in the block period. Suffice it to say that the addition of Rs. 45,000 for each year has been made on the basis of insufficient materials. It appears that the assessing officer was making the assessment in a hurry to avoid the time-limit. But then that should not cause prejudice to the assessee. In the circumstances of this case, we find it necessary to send the matter back to the assessing officer for considering the drawings made by the assessee during the block period from Kumar Group and the cash contribution received from his wife. The assessing officer will give the assessee a reasonable opportunity to furnish the relevant details and the evidence regarding the income contributed by the wife. On the basis of the materials to be furnished by the assessee, the assessing officer will consider whether any addition is to be made towards the investment in household articles and the inadequacy or the drawings for domestic expenses.
15. The assessee has challenged the addition of Rs. 45,000 as the undisclosed income of the assessment year 1996-97 on account of the credit in the S.B. account with Union Bank of India. There is a similar addition of Rs. 86,100 for the assessment officer 1997-98, i.e., upto 19-12-1996. Para 6(iv) of the assessment order deals with the addition. The assessee’s claim was that he had taken temporary loans from two persons, Mrs. Lalitha Sastry and Dr. Mathew, St. Joseph’s Hospital. The assessing officer treated the amount as the undisclosed income of the assessee for the reason that there were no confirmations from the alleged creditors. In this connection, Shri Narayanan stated that the assessee could not get the confirmation letters as the loans had since been closed and no amounts were outstanding. It was pointed out that in the assessee’s letter dated 20-12-1997, detailed explanation had been given regarding the source of the credits in the bank account. According to Shri Narayanan, if sufficient time was given the assessee could have furnished letter of confirmation from the creditors. The learned Departmental Representative submitted that when the credits were appearing in the assessee’s bank account it was for the assessee to prove that source of the credit with letters of confirmation. In the absence of confirmation, the assessing officer had no alternative but to treat the credits as the assessee’s income.
16. Having regard to the facts, we find that this matter also should go back to the assessing officer so that he will give the assessee reasonable time to furnish confirmation in respect of the credits. We find that the assessing officer first wrote to the assessee on 12-12-1997, calling for the source of the credits in the bank account. The assessee furnished his reply on 20th December In para 5 of the letter, the assessee expressed the difficulty in getting the confirmation from the creditors at short notice. It was stated that the assessee was trying to get the confirmation. But without waiting for the letter of confirmation the assessing officer completed the assessment on 31-12-1997. Shri Amba Shankar Dev admitted that the assessing officer could not wait longer as the assessment was getting time-barred. In the circumstances of this case, we set aside the matter so that the assessing officer will give the assessee reasonable time to furnish the letter of confirmation and then consider whether the source of the credits could be accepted as genuine. The assessing officer will decide the matter accordingly.
17. For the assessment year 1997-98, there is addition of Rs. 1,00,000 as undisclosed income on account of a credit in the assessee’s books of account. The credit is appearing on 1-3-1996, in the name of Shri Akbar (vide para 7 of the assessment order) The assessing officer treated the amount as the assessee’s undisclosed income in the absence of any confirmation from the creditors. Shri Narayanan submitted before us that the assessing officer wanted the confirmation letter within a short time, but Shri Akbar was then out of station. It is stated that if adequate time is given the assessee would be able to furnish necessary confirmation in support of the credit. The learned Departmental Representative has no objection in giving the assessee a further opportunity to prove the credit. In the above circumstances, we send the matter back to the assessing officer for considering the evidence the assessee would be producing in support of the credit. The assessing officer will decide the matter afresh after giving the assessee an opportunity to prove the credit with necessary evidence.
18. The assessee has then challenged the addition of Rs. 89,396 in the financial year 1991-92 as fees omitted to be accounted. In the return of income filed for the block period under section 158BC, the assessee declared a total sum of Rs. 2,44,306 as his income for the block assessment. This included Rs. 89,396 as fees from profession omitted to be accounted. In the assessment completed originally under section 143(1) this amount had not been included as the assessee had not taken credit for the receipt. It was the contention of the learned representative of the assessee before us that as there was no addition in the original assessment, the assessing officer was not justified in making the addition in the block assessment made subsequently. It was stated that during the search there was no material found in regard to the omission of the fees to the extent of Rs. 89,396. We are not inclined to agree with the learned representative of the assessee that no addition could be made in respect of an amount which had not been included in the original assessment. As pointed out by the learned Departmental Representative, the original assessment had been made under section 143(1) and so the assessing officer had no occasion to make any enquiries regarding the income from profession to be assessed in the hands of the assessee. As a matter of fact, the assessee does not dispute the receipt of fees of Rs. 89,396. Evidently this was omitted in the accounts. In the return of income for the block period the assessee himself had added the amount as fees omitted earlier. We do not accept the plea that in a block assessment the income that had been considered in the earlier assessment alone could be included. In the above circumstances, we see no reason to delete the addition of Rs. 89,396 in the undisclosed income of the block period.
19. The next ground in this appeal is concerned with the disallowance out of the claim for expenses as provided in the accounts. For the financial year 1993-94, there was the provision created for Rs. 3,03,000 as expenses by way of consultancy charges payable to other consultants on electrification, fire fighting, etc., and also to surveyers. For the financial year 1994-95 there was the claim to the extent of Rs. 3,27,000. There was similar claim of Rs. 2,34,110 for the financial year 1995-96. The assessing officer noticed that the provisions had been created in the assessee’s accounts only on the last day of the respective financial years. The assessing officer accepted the claim of the assessee that from the provisions created for each year payments were made in the subsequent years. But the details of such payments were not furnished before the assessing officer as the assessee’s accountant had gone on leave. In the assessment, the assessing officer disallowed the provision for expenses of Rs. 3,03,000 for the financial year 1993-94. As regards the years 1994-95 and 1995-96, the claim was allowed to the extent of Rs. 1 lakh. In the impugned order of assessment, the assessing officer observed that when the assessee would be furnishing the details regarding actual payment for each year the order would be modified accordingly. On that basis additions have been made as under:
Rs.
Financial year 1993-94
3,03,000
Financial year 1994-95
2,27,000
Financial year 1995-96
1,34,000
20. The learned representative of the assessee submitted before us that the assessing officer was not correct in making any disallowance in regard to the provisions for expenses. Shri Narayanan explained that the assessee had to pay consultancy charges for getting the services of various consultants. According to the learned representative, the assessee was making provision for the fees payable to them on the basis of their claims/bills. It was stated that all those parties were having running accounts with the assessee and that as and when payments were made their accounts were debited. Shri Narayanan stated that in the earlier years also the assessee was making provisions for their expenses in accordance with the hybrid system of accounts and that only for three years the assessing officer had made the disallowance. Shri Narayanan contended that in a block assessment the assessing officer was not correct in estimating the disallowance by applying the provisions of section 145 of the Income Tax Act. For that contention he has relied on the decision in the case of D.N. Kamani v. Dy. CIT (1999) 65 TTJ (Pat) (TM) 504. It was his contention that the assessee’s claim of the expenses was supported by bills and vouchers and so the assessing officer ought to have fully allowed the claim.
21. Per contra, the learned Departmental Representative supported the order of the assessing officer and submitted that the assessee was creating the provision on the last day of the accounting year and that if the expenses were supported by bills or vouchers there would have been the entries made in the accounts on different dates and not on the last day of the respective accounting year. According to the learned Departmental Representative, it was because the correct profit could not be ascertained without verifying whether the payments had been made that the assessing officer had to make the disallowance under section 145(3). Shri Amba Sankar Dev submitted that it was for the assessee to prove that the expenses as claimed had been actually incurred and that the provisions had been created for actual expenditure only. But the assessee had not furnished the details of the expenses incurred. The Departmental Representative submitted that if the assessee furnished the details of actual payments, the department would have no objection to allow the deduction and modify the assessment, as already made clear in the assessment order.
22. In the case of D.N. Kamani (HUF) v. Dy. CIT (supra) the Tribunal, Patna Bench held that the provisions of section 145 for estimating the income could be applied in regular assessment and not in block assessment under Chapter XIV-B. We notice that in the present case, though in para 5(1) of the assessment order, the assessing officer has stated that applying the provisions of section 145(3) the total income is determined by disallowing the provisions, the assessing officer has in fact made the disallowance for the reason that the assessee had not furnished the details regarding actual payment out of the provision for expenses created for different years. The assessee’s claim is that he had to pay consultancy charges to various parties and that for each year the provision was created on the basis of the bills claims issued by them. The learned representative of the assessee submitted that in the earlier year also the assessee had been claiming deduction for the provision created for the expenses. According to him, none of the provisions were outstanding except one, i.e., Babuchand Engineers and that the amount was outstanding on account of non-receipt of fees from the clients. It was his contention that all the creditors had been subsequently paid. But then, that was exactly what the assessing officer wanted to verify. In fact, it is made clear in the assessment order that if the assessee shows that the payments had been made as claimed in the provisions accounts, deduction would be allowed and the assessment order would be modified. While not approving the disallowance of Rs. 1 lakh for the financial years 1994-95 and 1995-96 and the entire provisions for the financial year 1993-94, we find it necessary to remit the matter to the assessing officer to give the assessee an opportunity to show the basis for which the provision for the expenses had been created. The assessee will produce the bills/vouchers issued by the parties for verification by the assessing officer and other evidence in support of the claim, that the payments had been made subsequently, leaving no amount as outstanding. The assessing officer will modify the assessment after verification of the expenses as claimed for different years.
23. In the next ground the assessee is disputing the disallowance of Rs. 1,02,000 claimed as bad debts for the financial year 1994-95. As can be seen from para 4 of the assessment order, the assessee’s claim of bad debt of Rs. 1,02,000 related to a new business, Form & Function. It was admitted that the amount had been spent for a new business started by the assessee’s brother and that it was not an expenditure incurred for the purpose of the assessee’s profession. But he could not recover the amount and so it was claimed as bad debt. The learned representative stated that the claim had been allowed in the original assessment. It was his contention that having allowed the claim originally the assessing officer was not justified in making the disallowance while making the block assessment under section 158BC. Shri Amba Shankar Dev, the learned Departmental Representative stated that it was a wrong claim of bad debt and that in the original assessment no disallowance had been made as the assessment was under section 143(1). He submitted that the condition under section 36(2) had not been fulfilled in regard to the debt and that it was not a trade debt taken into account in computing the income of any of the earlier years.
24. Having regard to the facts, we find that the assessee was not entitled to claim deduction for the sum of Rs. 1,02,000 as a bad debt. It has not been shown that the payment had been made by the assessee in the course of carrying on his profession. If the assessee had made the investment in a business belonging to his brother and the same could not be later recovered for whatever reason, the same cannot be considered as a bad debt falling under section 36(2). The debt amount had not been taken into account in computing the income of the assessee of the previous year of any earlier year. As a matter of fact it was not shown to be a trade debt of the assessee. We do not agree with the learned representative of the assessee that the disallowance could not be made in the block assessment, if no disallowance had been made in the original assessment and that too in a summary assessment under section 143(1). It can be seen from section 158BB that the computation of the undisclosed income of the block period is to be made in accordance with the provisions of Chapter IV. If under section 36(2) falling in Chapter IV certain claim is not allowable in computing the income of the block period under section 158BC, the same cannot be allowed as a deduction.
25. In the case of Microland Ltd. v. Asstt. CIT (1998) 67 ITD 446 (Bang-Trib) Bangalore Bench of the Tribunal held that when the claim of allowance of certain expenses, liability or deduction was found to be bogus on the basis of materials discovered during search and seizure operation, the addition would have to be considered to be of the nature of undisclosed income as envisaged for the purpose of assessment under section 158BC.
26. In the circumstances of the case, we confirm the disallowance of Rs. 1,02,000 claimed as bad debt for the financial year 1994-95.
27. In respect of the financial year 1995-96 the assessee has raised another ground of appeal against the disallowance of Rs. 2,39,730 out of the expenses on interior decoration., The assessee shifted his office to a new rented office at Karshaka Road, Ernakulam, and for the interior decoration there was the claim of total expenditure of Rs. 3,35,080. It was stated that the claim was supported by the bills issued by the Interior Decorators “Woodmanns”. Out of the total expenditure, the assessee had added back Rs. 95,350 as expenditure on capital account and claimed deduction for the balance amount of, Rs. 2,39,730 on revenue account. The assessing officer was of the view that the entire expenditure was of capital nature and thus he made disallowance of Rs. 2,39,730. Before the Tribunal, Shri Narayanan, the learned representative, submitted that from the details of the bills issued by Woodmanns, it could be seen that the expenditure was incurred on interior decoration and mostly on removable items like glass-shelf, notice board, filing rack, etc. Whatever capital items were involved, there was the disallowance of Rs. 95,350. In the paper filed before us by the learned representative, pages 25 and 26 contain the details of the items in respect of which ‘Woodmanns’ had issued the bills for the total sum of Rs. 3,35,080.
28. From the details we find that the expenditure was incurred mostly on decorations and removable items, which cannot be considered as assets of an enduring nature. It is seen that though the assessing officer had treated the sum of Rs. 2,39,730 as expenditure on capital account, depreciation was also not allowed. In the case of CIT v. Haridas Bhagath & Co. (P) Ltd. (1999) 240 ITR 169 (Mad), the Madras High Court held that expenditure incurred in providing extra amenities in leasehold premises is allowable as revenue expenditure, as no capital asset of enduring nature is brought into existence. In the case of CIT v. Kishanchand Chellaram (India) (P) Ltd. (1981) 130 ITR 385 (Mad) the Madras High Court held that on the building taken on lease expenditure incurred for partition wall, panelling construction, etc. would be of revenue nature. Having regard to the facts and considering the decisions cited above, we hold that the assessing officer was not correct in disallowing Rs. 2,39,730 as expenditure incurred on capital account. The addition on this account is, therefore, deleted.
29. For the assessment year 1997-98, the assessee has raised another ground against the addition of Rs. 20,000 as expenses on renovation. From the assessment order it can be seen that the assessing officer has made the addition for the reason as under
“A lumpsum of Rs. 20,000 is seen provided for renovation. No details have been furnished. The Chartered Accountant representative is not able to inform me what kind of renovation has taken place. In the circumstances, this amount is added back. ”
The learned representative of the assessee submitted before us that the disallowance has been made on a wrong understanding of the facts and that the assessee had not made any claim for renovation. Drawing our attention to the details of the expenses charged to the profit and loss account as appearing on page 30 of the paper book-I, Shri Narayanan submitted that there was no claim of renovation charges. The assessee had claimed Rs. 20,000 as consultancy charges, which the assessing officer had wrongly taken as renovation expenses.
The assessing officer was not correct in making the addition as if the assessee had claimed renovation charges of Rs. 20,000. As the addition has been made not on valid ground, we delete the disallowance.
30. In the result, this appeal filed by the assessee is partly allowed. The assessing officer will revise the assessment accordingly.
