The Commissioner Of Income Tax, Kota v. Shri Vinod Kumar @ Binod 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 VYASJudgment 23/04/2018 1.By way of this appeal, the appellant has assailed thejudgment and order of the tribunal whereby tribunal has dismissedthe appeal of the department and confirmed the order of CIT(A). 2.This court while admitting the appeal on 4.5.2009 framedfollowing substantial question of law:- (i) Whether under the facts andcircumstances of the case and in law theTribunal was justified in upholding the orderof CIT(A) of deleting the levy of surchargeu/s 113 for Rs.13,16,400/- contrary to theprovisions of law? (ii) Whether under the facts andcircumstances of the case and law theTribunal was justified in upholding the orderof CIT(A) of deleting the addition of interestof Rs.9,73,993/- levied u/s 158 BFA(1) beingcontrary to the mandatory provisions of law? (iii) Whether under the facts andcircumstances of the case and in law theTribunal was justified in upholding the orderof the CIT(A) who deleted addition ofRs.4,70,000/- made on account ofunexplained silver jewellery found during thecourse of search and which was surrenderedby the assessee for taxation? (iv) Whether under the facts and in thecircumstances of the case and in law theTribunal was justified in upholding the orderof the CIT(A) who deleted addition ofRs.2,00,000/- on account of unaccountedinterest on unexplained advances againstpawned jewellery found during the course ofsearch and which was surrendered by theassessee for taxation? (v) Whether under the facts and in law thecircumstances of the case and in law theTribunal was justified in upholding the orderof the CIT(A) who deleted addition ofRs.10,08,854/- made on account of interestearned on advanced even though suchaddition was based on seized material?”circumstances of the case and in law theTribunal was justified in upholding the orderof the CIT(A) who deleted addition ofRs.10,08,854/- made on account of interestearned on advanced even though suchaddition was based on seized material?” 3.The facts of the case are that a search was conducted at thebusiness and residential premises of the assessee and his familymembers wherein incriminating documents, cash, jewellery andother valuables were found and seized. The assessee in responseto notice issued u/s 158BC dt. 5.3.2001 filed return of incomefrom the block period on 30.10.2001 declaring undisclosed incomeat Rs.93,29,083/-. A fresh notice u/s 158BC was issued on29.8.2002, in reply thereto the assessee adopted the same returnfiled on 30.10.2001. The AO assessed the undisclosed income atRs.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 takenus to the observations made by CIT(A) which reads as under:- Ground No.13 has been taken against levy ofsurcharge of Rs.13,16,478/- at 17% on thetax of block period. The tax worked out on undisclosed income ofthe block period was increased by theamount of surcharge @ 17% of the tax. Theappellant argued that there should no levy ofsurcharge on the tax calculated on theundisclosed income for the block period onthe following reasons: 1) As per Sec. 113 of the Income Tax Act1961, total undisclosed income of the blockperiod determined u/s 158 BC shall bechargeable to tax at 60%. 4.Regarding question no.1, counsel for the appellant has takenus to the observations made by CIT(A) which reads as under:- Ground No.13 has been taken against levy ofsurcharge of Rs.13,16,478/- at 17% on thetax of block period. The tax worked out on undisclosed income ofthe block period was increased by theamount of surcharge @ 17% of the tax. Theappellant argued that there should no levy ofsurcharge on the tax calculated on theundisclosed income for the block period onthe following reasons: 1) As per Sec. 113 of the Income Tax Act1961, total undisclosed income of the blockperiod determined u/s 158 BC shall bechargeable to tax at 60%. 2) The Finance Act 2002, has inserted theproviso w.e.f. June 1, 2002. The object of theamendment was to provide that the taxchargeable u/s 113 in the cases of blockassessment on the undisclosed income shallbe increased by the surcharge, if any, leviedby any central act and was applicable in theassessment year relevant to the previousyear in which the search was intitiated. 3) Thus, the proviso for levy of surcharge onthe tax determined on undisclosed income ofthe block period was inserted w.e.f.1.06.2002 only. 4) Hence, no surcharge was leviable on thetax determined for the search initiated beforeinsertion of this proviso and thereforesurcharge levied is illegal and wrong andmay please be deleted. (ITAT JPRITSSA/23/JP/2003) in the case of MantriKatta and Co. vs. ACIT Central Circle III JPR. I have gone through the submissions of theld. AR and also the provisions of Sec.113 ofthe Act. Sec. 113 was amended w.e.f.1.6.2002. The said amendment is notapplicable retrospectively. Surcharge meansadditional burden which was not applyretrospectively, without having specificprovisions. As per CBDT circular (258 ITR Stt61), it is evident that the said amendment isw.e.f 1.6.2002. When it is so, I find nojustification in levy of surcharge. Thus,following the decision of the Hon’ble ITATquoted above, I fully agree with thecontentions of the ld. AR and hereby deletedthe addition made on this account. Thus, the 4.1In this regard, the tribunal observed as under:- Ground No.8 26. The AO levied surcharge ofRs.13,16,478/- @ 17% on the tax of blockperiod. The ld. CIT(A) has deleted thissurcharge relying on the decision of JaipurBench of the Tribunal in the case of MantriKatta & Co. vs. ACIT in ITSSA No.23/JP/2003that provisions of Sec. 113 of the Act wasamended w.e.f. 1.6.2002 and the saidamendment is not applicable retrospectively.Thus the same cannot be appliedretrospectively without having specificprovision in this regard. Reference of CBDTCircular mentioned in 258 ITR Stt 61 hasbeen made in support. This Bench has alsobeen 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 ourattention to the following observations made by CIT(A) whichreads as under:- Ground No.12 Ground No.12 has been taken against excesscharging of interest u/s 158 BFA(1). Totalinterest charges Rs.9,73,993/-. In the assessment order, the AO has orderedto charge interest u/s 158BFA(1) of the ITAct amounted to Rs.9,73,993/-. During the course of hearing of the appealthe ld. AR in his written submissioncontended as follows:- 1) Notice u/s 158 BC of the IT Act, 1961 wasissued on 5.3.2001 and was received on14.3.2001 requiring the assessee to file hisreturn of undisclosed income within 15 daysof the receipt of notice. The return was filedon 30.10.2001. 2) The assessee applied for photocopies ofseized records again and again, but the samewas not supplied by the income tax dept. andhence he was unable to file the return ofincome in time. His inability to file B.P. returnwithout photocopies was clearly mentioned inthe applications filed. In the assessment order, the AO has orderedto charge interest u/s 158BFA(1) of the ITAct amounted to Rs.9,73,993/-. During the course of hearing of the appealthe ld. AR in his written submissioncontended as follows:- 1) Notice u/s 158 BC of the IT Act, 1961 wasissued on 5.3.2001 and was received on14.3.2001 requiring the assessee to file hisreturn of undisclosed income within 15 daysof the receipt of notice. The return was filedon 30.10.2001. 2) The assessee applied for photocopies ofseized records again and again, but the samewas not supplied by the income tax dept. andhence he was unable to file the return ofincome in time. His inability to file B.P. returnwithout photocopies was clearly mentioned inthe applications filed. 3) Further, since the notice u/s 158 BC dt.5.3.2001 was illegal as it required theassessee to file block period return within 15days of receipt of notice, the ACIT issuedfresh notice u/s 158 BC dt. 29.8.2002 givingtime period of 20 days from receipt of noticeto file block period return. Earlier return filedon 30.10.2001 was treated to have been filedin response to notice dt. 29.8.2002. Thus,the return filed on 30.10.2001 was wellwithin time. 4) Hence, it is requested that interest u/s158 BFA (1) may please be ordered not to becharged as there was no delay in filing theblock period return.” Looking to the facts of the case that the freshnotice u/s 158 BC dt. 29.8.2002 was issuedand the appellant has already filed return ofblock period on 30.10.2001 and thejudgment 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 thatinterest charged u/s 158 BFA (1) is illegaland wrong. Thus, the appellant gets relief onthis account. 5.1In this regard, the Tribunal has observed as under:- 29.Considering these aspects of thematter, the ld. CIT(A) following the decisionof Jaipur Bench of the Tribunal in the case ofChokhi Dhani in ITSSA No.28/JP/2000 hasdeleted the addition with this observationthat the assessee had duly filed return ofblock period on 30.10.2001 and for the delayon the part of the department in supplyingthe photocopies of the required documents,the assesee should not have been madeliable for payment of interest. We subscribeour view with the ld. CIT(A) as it is verymuch evident from the record that the noticeissued u/s 158BC dt. 5.3.2001 was notproper since therein assessee was required to file block period return within 15 days ofreceipt of notice. To correct the same, the AOissued another notice u/s 158BC on29.8.2002 giving time period of 20 days fromreceipt of the notice to file block periodreturn. In response thereto the assesseeadopted the earlier return filed on30.10.2001. It also appears that theassessee had applied for photocopies ofseized records but for the same was notsupplied by the department hence theassesee was unable to file the return ofincome 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 theCIT(A) wherein it has been observed as under:- Ground No.3 Ground No.3 has been taken against additionof Rs.4,70,000/- on a/c of undisclosedinvestments in silver ornaments, during theblock period. 6.For question no.3, She has taken us to the order of theCIT(A) wherein it has been observed as under:- Ground No.3 Ground No.3 has been taken against additionof Rs.4,70,000/- on a/c of undisclosedinvestments in silver ornaments, during theblock period. During the course of search, silver itemsweighing 118.362 k.g. were found atresidential premises and 74.970 kgs. werefound at business premises of the appellant.Silver ornaments found at the businesspremises of M/s. Mannalal Ramnath werefound were explained saying that as on thedate of search there was stock of 77.151 ofsilver ornaments, in the regular books of M/s.Mannalal Ramnath. The AO observed that outof silver ornaments found at residenceornaments weighing 61.736 kgs. belonged toM/s. Mannalal Ramnath and therefore, the AOmade the addition of Rs.4,70,000/- beingvalue of 61.736 kgs. of silver ornaments. Hefurther observed that no documentaryevidence was found regarding conversion ofsilver ornaments and the contention of theappellant is only after thought. During the course of hearing of the appeal theld. AR in his written submission contended asfollows:- “During the course of search, the followingquantity of silver/silver ornaments was foundat the residence and business premises of theassessee:- 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 toRs.14,69,322/- Source of Rs.193.332 kgs of silver/silver ornamentsfound was as under:- Declaration in the Wealth Tax :124.470returns earlierStock as per regular books of M/s. :77.151Mannalal Ramnath, BaranPurchased in personal sets after :21.00Ass. Yr. 92-93 by different family members and shown in the return of income 222.62130.00 Less: Given to Yaswant Bhai for ujjalai 192.621 Thus, the silver found at the time of searchstands explained. Minor difference in weight isdue to some silver given to swarkars etc. 1) The learned ACIT distinguished the silverfound at the residnece of the assessee intobusiness silver and household. He consideredpart of silver found at the residence of theassessee as the business stock of M/s. MannalalRamnath, ignoring the total quantity of silverfound at the residence, which was dulyexplained. The ACIT considered 61.736 kgs ofsilver found at be belonging to M/s. MannalalRamnath and made addition of Rs.4,70,000/-. 2) Regarding alleged investment by M/s.Mannalal Ramnath in silver found at theresidence of assessee, the assessee vide letterdt. 16.12.2002 submitted as under:- “Late Sh. Ramswarup, father of the assessee,used part of silver/silver ornaments belonging to him and his family members which werelying idle with them being surplus and of olddesign, for business purpose sometimes, afterconverting them according to marketrequirements, when there was heavy demand inthe market and the demand could not be metout of the business stock. The assessee alsocontinued the same practice. a) The business of the assessee was lookedafter by his father Late Sh. Ramswarup upto2.10.97 i.e. till his death and there after, theassessee looked after the business. Theassessee was only 25 years of age at the timeof death of his father and was not aware of thebusiness affairs. At the time of search also, hewas very much depressed and was in disturbedstate of mind and could not explain the correctmodus operandi followed by his father andcontinued him. His affidavit to this effect isenclosed. Under the above facts andcircumstances no weightage should be given tohis statement dt. 18.12.2000. a) The business of the assessee was lookedafter by his father Late Sh. Ramswarup upto2.10.97 i.e. till his death and there after, theassessee looked after the business. Theassessee was only 25 years of age at the timeof death of his father and was not aware of thebusiness affairs. At the time of search also, hewas very much depressed and was in disturbedstate of mind and could not explain the correctmodus operandi followed by his father andcontinued him. His affidavit to this effect isenclosed. Under the above facts andcircumstances no weightage should be given tohis statement dt. 18.12.2000. b) Affidavit of Smt. Geeta Devi (mother) andSh. Rajendra Kumar and Sh. Naveen Kumar(brothers) are enclosed eherewith stating thatpart of their silver/silver ornaments were usedfor business purpose by late Sh. Ramswarupand the same was continued till the time ofsearch also. As whole of the family was livingjointly, there was no problem in sucharrangement and in the larger interest of thefamily, all members agreed to it. Thesilver/silver ornaments taken and used forbusiness purpose were to be returned to themon demand in the form of bullion only. c) The assessee covert these ornaments/silverinto items which were in regular demand in themarket and kept them at his house. They wereto be used only when there is heavy demand inthe market. Till that time, the ornaments werekept at home only. d) As in the case of cash, whether found atbusiness premises or at the residentialpremises, it is considered in total forexplanation purposes. The nature ofgold/silver/ornaments is also the same whetherkept at business premises or residentialpremises, and it should be considered in totalonly. Form of gold and silver ornaments can becharged. e) Even on the date of search, no excess stockwas found at the business premises of M/s.Mannlal Ramnath. Even at the residence also,only silver/silver ornaments already declaredearlier; were found. There was no increase inthe total quantity of ornaments. Only part ofthe declared ornaments of the family memberswere used to meet the demands of the businessin the case of emergency, as these ornamentswere lying idle at the residence. f) Thus, as no excess work has been foundtaking together in the stock found at residentialand business premises, no addition can bemade on the basis of doubts, surmises andconjectures. The very basis of assessment u/s158BC under the search proceeding demandupon the material found during the course ofsearch, as has been upheld by various judicialauthorities. g) In this regard the assessee also rely on thefollowing case laws:- Jai Kishan Agarwal Vs. ITAT 66 ITJ page 704(ITAT Pune Bench) Held: It is customary in Hindu Society thatchildren do get gifts on birthday, on festiveoccasion and on family function. There is nojustification for impugned addition. Ravi Mathur and others vs. ACIT 22 Tax World245 (Jaipur ITAT) Held: The amounts/income already disclosed inregular return cannot be the subject matter ofscrutiny and assessment in absence of anyincriminating material found during search. Lal Chand Agarwal vs. ACIT 21 Tax World 213(Jaipur ITAT) Held: Jurisdiction of AO is limited and he is toconfine himself to material/information found asa result of search while making blockassessment (22 tax World 25 ITAT Jaipur). 4) As no excess stock of silver was found, theACIT was wrong to make addition ofRs.4,70,000/- as undisclosed investment of theassessee for block period and the addition mademay please be deleted.” I have meticulously gone through theassessment order, and also the contentions ofthe ld. AR I find sufficient force in thecontentions of the appellant. The total quantity Held: The amounts/income already disclosed inregular return cannot be the subject matter ofscrutiny and assessment in absence of anyincriminating material found during search. Lal Chand Agarwal vs. ACIT 21 Tax World 213(Jaipur ITAT) Held: Jurisdiction of AO is limited and he is toconfine himself to material/information found asa result of search while making blockassessment (22 tax World 25 ITAT Jaipur). 4) As no excess stock of silver was found, theACIT was wrong to make addition ofRs.4,70,000/- as undisclosed investment of theassessee for block period and the addition mademay please be deleted.” I have meticulously gone through theassessment order, and also the contentions ofthe ld. AR I find sufficient force in thecontentions of the appellant. The total quantity of silver ornaments declared by the appellant inthe W.T. returns should be given due weightage.The W.T. returns have always been accepted inthe past, and the Department cannot claim thesame to be false, at this stage. It is admittedthat the shape of silver ornaments havechanged or the ornaments have been used forbusiness purpose, as mentioned by the AO inhis order. But the quantity of silver ornamentshave not changed. No undisclosed investmenthave been detected by the AO, making theappellant liable for addition or tax. Thus, theaddition of Rs.4,70,000/- is not foundsustainable on fact as well as on law. The sameis accordingly directed to be deleted with therelief to the appellant to that extent. Thisground of appeal thus stand allowed. 6.1The finding of the tribunal in this regard reads as under:- 7. We find substance in these submissions ofthe ld. AR and are also of the view that theld. CIT(A) considering these submissions hasrightly deleted the addition with thisobservation that total quantity of silverornaments declared by the assessee inwealth tax return have always beenaccepted in the past and the departmentcannot claim the same to be false, at thisstage that it is an admitted fact that theshape of silver ornaments have changed orthe ornaments have been used for thebusiness purposes as mentioned by the AOin the assessment order. Thus the quantityof silver ornaments had not changed. It hasbeen further observed by him that noundisclosed investment have been detectedby the AO, making the assessee liable foraddition or tax. The first appellate order iscomprehensive and reasoned one, we thusare not inclined to interfere therewith. Thefirst appellate order is, thus, upheld. Groundno.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 has been taken againstaddition of Rs.,2,00,000/- on account ofalleged interest earned on pawned advancesand treating the same as undisclosedincome of the block period. The facts are that the appellant used to giveadvances pawning of jewellery withoutrecording in the regular books of accounts.Such total pawning advances totaling toRs.9,37,000/- were surrendered andincluded in the undisclosed income by theappellant in his block period return. The AOobserved that interest of Rs.2,00,000/-approximately must have been accrued onthese advances upto the date of search, andtherefore made addition, treating the sameas undisclosed income of the block period. During course of hearing of the appeal, theld. AR in his written submission contended asfollows:- 1) During the course of search, pawningadvances of Rs.9,36,130/- against pawnedjewellery of Rs.16,97,287/- was found to begiven by the assessee which were notrecorded in the regular books of account. 2) The assessee surrendered an amount ofRs.9,39,730/- being pawned advances asundisclosed investment of the block period inthe block period return. During course of hearing of the appeal, theld. AR in his written submission contended asfollows:- 1) During the course of search, pawningadvances of Rs.9,36,130/- against pawnedjewellery of Rs.16,97,287/- was found to begiven by the assessee which were notrecorded in the regular books of account. 2) The assessee surrendered an amount ofRs.9,39,730/- being pawned advances asundisclosed investment of the block period inthe block period return. 3) Regarding interest earned on pawnedadvances, the assessee submitted at page 3of letter dt. 27.8.2002 to the ACIT that theinterest is received only at the time ofsettlement of account and release of pawnedjewellery and therefore as and when the saidjewellery would release on payment, theassessee would show the interest income. 4) Again vide letter dt. 2.12.2002 theassessee submitted as under:- a) The assessee used to give advancesagainst pawning of jewellery for no fixedperiod or time interval. b) No interest was charged at the time ofgiving advance and interest was calculatedand received only at the time of settlementof account. c) The assessee used to keep theseadvances on cash basis only. Till the finalamount is not received from the borrower, there is always risk of bad debt. There isincome only when the interest is realisedand received on full payment. The assesseehas nowhere debited the account ofborrower by the amount of interest, treatingthe interest income on accrual basis. d) In these type of advances, it is a commonpractice prevalent everywhere to chargeinterest for the period of use of money fromthe borrower at the time of repayment. Theassessee also filed an affidavit on Rs.10stamp duly attested by a notary to thiseffect. e) Legal submission: a) Section 145(1) of the Income Tax Act,1961, as amended by the Finance Act, 1995w.e.f. 1.4.97 reads as under:- Income chargeable under the head Profitsand gains of the business or profession onincome from other sources’ shall subject tothe provisions of sub sec.(2), be computedin accordance with either cash or mercantilesystem of accounting regularly employed bythe assessee.” b) Thus, from plain reading of sec.145(1), itis clear that the assessee can follow any ofthe system of accounting i.e. either cashsystem or mercantile system. Further, it hasbeen held that a method of accountingadopted by a tax prayers consistently andregularly cannot be discarded by thedepartment on the view that he should haveadopted a different method of keepingaccounts or of valuation. (United CommercialBank vs. CIT (240 ITR 335) SC (1999). Held: Method followed consistently andaccepted by revenue. Method was valid andcould not be rejected. Hence, it is for the assessee to select thesystem of accounting to be followed by him. c) For the purpose of income tax, what is tobe taxed is the real income which is to bededucted on the basis of accounting systemregularly maintained by the assessee andthat has been done by the assessee in thepresent case. d) In the case of CIT vs. Motor Credit Co.Pvt. Ltd. reported in 127 ITR page 572, theHon’ble Madras HC has held as under:- “Where no income has resulted it cannot besaid that income has assured merely on theground that assessee had been following themercantile system of accounting. Even if theassessee makes a debit entry to that effect,still no income can be said to have accruedto the assessee. If no income hasmaterialised, there can be no liability to taxon hypothetered income. Thus, the question whether real income hasmaterialized to the assessee has to beconsidered in the reference to commercialbusiness realities of the situation in whichthe assessee has been placed. d) In the case of CIT vs. Motor Credit Co.Pvt. Ltd. reported in 127 ITR page 572, theHon’ble Madras HC has held as under:- “Where no income has resulted it cannot besaid that income has assured merely on theground that assessee had been following themercantile system of accounting. Even if theassessee makes a debit entry to that effect,still no income can be said to have accruedto the assessee. If no income hasmaterialised, there can be no liability to taxon hypothetered income. Thus, the question whether real income hasmaterialized to the assessee has to beconsidered in the reference to commercialbusiness realities of the situation in whichthe assessee has been placed. e) In Tax World XXVI page 44, the Hon’bleITAT, Jaipur has held in the case of ACIT vs.Mohanlal Jaipuria that interest income cannotbe taxed on accrual basis in the case ofmoney lender who is continuously declaringincome on cash basis. In the aforesaid case,also, no interest was credited on mercantilebasis from the debtor who had borrowedmoney details were kept of receipts on cashbasis only. The facts of the case are identicalwith that of the assessee. f) The Hon’ble Jodhpur Bench of ITAT hasheld in the case of ITO vs. Gopalaram Pemaram reported in XXIV Tax World page 412that there cannot be any good reason for theAO to make departure from the earliersystem of taxing interest income on receiptbasis. Further, the Hon’ble ITAT, Jaipur in the caseof Smt. Radha Bajaj vs. DCIT reported inXXIV Tax World at page 289 has categoricallyheld that interest income cannot be taxed onaccrual basis in a case wherein no suchincome was received during the block periodupon the unrecorded advances and the AOshall be free to tax the interest income asand when it is actually realized in the futureperiods. g) In the case of CIT vs. EAET, Sundararajreported in 99 ITR 226 (Mad.) it has beenheld by the Hon. H.C. that the assessee wasentitled to employ one method of accountingfor one part of his business and a differentmethod, for another part of his business. In the present case, there is escapement ofincome from tax. The assessee has also notfollowed hybrid or mixed system of accounting. He has also followed one systemof accounting for one set of businessconsistently as envisaged by Sec.145(1) CITvs. Mudhoot Finance Corporation reported in248 ITR page 704 (Kerala) 2001. 5) The assessee is regularly declaring theinterest income on these advances in returnsof income as and when received on cashbasis for Ass. Yr. 2001-02 and onwards. 6) Even in the affidavit submitted to theDDIT for released of pawned jewellery dt.15.1.2001 the assessee stated as under:- “The interest is payable at the time ofrepayment of the principle amount as peraccounting system adopted by me. I have carefully considered the rivalsubmissions. The appellant has suo mottosurrendered the amount of pawningadvances in his block period return. I findenough force in the contention of the ld. ARthat in these kind of advances till the amountof advance is not returned, no interest isreceived. The appellant has kept his recordson cash basis consistently. No entry ofinterest amount being debited in the amountof the borrower have been found by the AO.Further, the interest income has been offeredfor tax as and when it is received on cashbasis. Thus, the interest income cannot betaxed twice. Moreover, the AO has estimatedinterest income at Rs.2,00,000/- withoutgiving any basis of estimation. Such wildestimates that addition on hypothesis,assumptions cannot be made in the schemeof block assessment. I, therefore, delete theaddition of Rs.2,00,000/- and decide thisground of appeal in favour of the appellant.Thus, the appellant get relief on this ground. 7.1In this regard, the tribunal has observed as under:- 7.1In this regard, the tribunal has observed as under:- 8.The AO made addition of Rs.2,00,000/-on account of alleged interest earned onpawned advances, treating the same asundisclosed income of the block period. Theassessee used to give advances againstpawning of jewllery without recording it inthe regular books of account. In this regardRs.9,37,000/- were surrendered against such total pawning advance. The AO observed thatinterest of Rs.2,00,000/- approximately musthave been accrued on these advances uptothe date of search and, therefore, madeaddition, treating the same as undisclosedincome of the block period. The assesseesubmitted that the interest is received onlyat the time of settlement of account andrelease of pawned jewellery and, therefore,as and when the said jewellery would releaseon payment, the assessee would show theinterest income. The assessee used to keepthese advances on cash basis only. Till thefinal amount is not received from theborrower, there is always risk of bad debt.There is income only when the interest isrealized and received on full payment. Theassessee had nowhere debited the account ofborrower by the amount of interest treatingthe interest income on accrual basis. Insupport, the assessee filed an affidavit. Itwas also submitted that as per section145(1) it is clear that the assessee can followany of the system of accounting i.e. eithercash system or mercantile system. A methodof accounting adopted by a tax payerconsistently and regularly cannot bediscarded by the department on the viewthat he should have adopted a differentmethod of keeping accounts or of valuation.For the purpose of income tax, what is to betaxed is the real income which is to bededucted on the basis of accounting systemregularly maintained by the assessee andthat has been done by the assessee in thepresent case. Several decisions have beenrelied in support as referred at pages 17 &18 of the first appellate order. Before us, theld. DR while placing reliance on theassessment order submitted that theassessee has failed to establish that interestwas received on cash basis. 9. The ld. AR on the other hand justified thefirst appellate order while reiterating thesubmissions made before the CIT(A). Hefurther placed reliance on the followingdecisions:- N.R. Sirker vs. CIT, 111 ITR 281 (Gauh.), CITvs. O.T. Rohman 180 ITR 183 (Gauh.),Rockwell Engineering Co. Ltd. vs. CIT 180ITR 277 (Ker.), ACIT vs. Mohanlal Jaipura 26Tax World 44, ACIT vs. Om Prakash JainITSSA No.42/8JP/2004 dt. 28.7.2006. 10. After having gone through the orders ofthe lower authorities in view of thearguments advanced by the parties, we arenot inclined to interfere with the firstappellate order as the ld. CIT(A) under thefacts and circumstances of the case hasrightly deleted the addition with thisobservation that in these kind of advances tillthe amount is not returned, it is a prevailingpractice that no interest is received. Theassessee had kept his records on cash basisconsistently. No entry of interest amountbeing debited in the account of the borrowerhas been found by the AO. Further, theinterest income has been offered for tax asand when it is received on cash basis. Thefirst appellate order is, thus, upheld. Groundno.2 is rejected. 8.For question no.5, she has invited our attention to thefinding of CIT(A) which reads as under:- Ground No.10 Ground No.10 has been taken againstaddition of Rs.10,08,854/- as interest earnedon advances and treating the same asundisclosed income of the block period. 8.For question no.5, she has invited our attention to thefinding of CIT(A) which reads as under:- Ground No.10 Ground No.10 has been taken againstaddition of Rs.10,08,854/- as interest earnedon advances and treating the same asundisclosed income of the block period. The appellant surrendered undisclosedadvances of Rs.73,41,033/- in his blockperiod return. The AO observed that interestearned on these advances @ 2% p.m. hasnot been shown by the appellant in the blockperiod return. There were six diaries in whichsuch advances were recorded, and theappellant used to strike off from the diary thename of the borrower alongwith the amountof advance give to him when it is receivedback without mentioning the date. The AO,therefore, made total of such advances whichwere struck off amounting to Rs.42,01,894/-.The AO considered these advances to haveremained with the borrower atleast for aminimum period of 12 months, thereforeestimated 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 asfollows:- 1) The assessee while filing block periodreturn surrenderedan amount ofRs.73,41,033/- on account of other advancesgiven to different parties out of regular bookwhich was later on corrected toRs.73,78,763/- on rechecking. 2) The advances were not given for any fixedperiod or fixed time interval. 3) No interest was charged at the time ofgiving advance and only the amountadvanced was recorded with date in theaccount of borrower. The interest wascalculated and received only at the time offinal settlement of account. 4) From the perusal of seized diaries also,you will kindly note that transactions ofpayment and repayment only were recordedin them and no interest entry was made evenin the accounts of borrowers from whom partpayment was received. On receipt of fullamount with interest, the account of theborrower was cancelled by drawing lines overit as no amount remained due from him. Thelearned ACIT has calculated interest at 2%per month after quantifying the entriesstruck off in the diaries. The date on whichthe entries were struck off has not beenwritten in the diaries. The diaries have notbeen kept on any fixed basis i.e. calendaryear, financial year or any other basis. Anyestimation details made by the ACIT ondifferent assumptions and only onimagination would be illegal and wrong. I have gone through the submissions givneby the AR. The addition of interest has beenmade on estimate basis, as there is nomention of date in the diary, for the return ofadvance by the borrower. Without date ofadvance and date on which the amount wasreturned, no interest can be calculated.There is no mention of the period for whichdiary is maintained. It is true that theappellant has earned interest on the amountadvanced by him and repaid by theborrowers. But the same has already beenconsidered in the form of assets found duringthe course of search. The appellant has notkept aside the amount of interest earned byhim, in the form of any other asset, which isnot found during the course of search, andnot disclosed in the block period returnmaking him liable for addition and tax. I therefore, find that this ground also meritsacceptance and delete the addition ofRs.10,08,854/- made on sound basis. Theappellant gets relief on this account. 8.1In this regard, the tribunal has observed as under:- therefore, find that this ground also meritsacceptance and delete the addition ofRs.10,08,854/- made on sound basis. Theappellant gets relief on this account. 8.1In this regard, the tribunal has observed as under:- 20. The AO made addition of Rs.10,08,854/-as interest earned on advances and treatingthe same as undisclosed income of the blockperiod. The assessee had surrenderedundisclosed advances of Rs.73,41,033/- inhis block period return. The AO observedthat interest earned on these advances @2% p.m. has not been shown by theassessee in the block period return. Therewere six diaries in which such advanceswere recorded and the assessee used tostrike off from the diary the name ofborrower alongwith the amount of advancegiven to him when it was received backwithout mentioning the date. The AOaccordingly made total of such advances,which were struck off amounting toRs.42,01,894/-. The AO was of the view thatthese advances remained with the borrowerat least for a minimum period of 12 monthsand, therefore, estimated interest on theseadvances @ 24% p.a. and made an additionof Rs.10,08,854/-. The assessee objectedthe same with the submission that he whilefiling block period return surrendered anamount of Rs.73,41,033/- on account ofother advances given to different parties outof regular books which was later oncorrected to Rs.73,78,763/- on rechecking.It was submitted that the advances were notgiven for fixed period or fixed time interval.No interest was charged at the time ofgiving advance and only the amountadvanced was recorded with date in theaccount of the borrower. Interest cancalculated and received only at the time offinal settlement of account. From theperusal of the seized diary also. It wasevident that transactions of payment andrepayment only were recorded in them andno interest entry was made even in theaccounts of the borrowers from whom partpayment was received. On receipt of fullamount with interest, the account of theborrower was cancelled by drawing lines over it as no amount remained due fromhim. It was submitted that the AO hascalculated interest @ 2% per month afterquantifying the entries struck off in thediaries. The diaries have not been kept onany fixed basis i.e. calendar year, financialyear 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) andTribunal, the issues are answered in favour of assessee andagainst the department. 10.The appeal stands dismissed. (VIJAY KUMAR VYAS),JBrijesh 46. (K.S.JHAVERI),J