Levy of Surcharge by insertion of proviso to section 113 of Income Tax Act by Finance Act 2003 is prospective.

This appeal is filed by the assessee and the same is directed against the order of learned CIT(A) – Mangaluru dated 28.01.2010.

2. In this appeal, the assessee has raised several grounds and several additional Grounds. As per Adpditional Grounds No. 1, the assessee has raised this technical objection that since the search warrant is in joint names, the assessment should have been made as an AOP and therefore, the present assessment in individual capacity of the assessee is bad in law. As per Additional Grounds No. 2, the assessee has raised this objection that that the interest charged u/s 158 BFA (1) should be deleted. As per Additional Grounds No. 3, the assessee has raised this objection that that the levy of surcharge should be cancelled. Various original grounds are raised on technical issue and on merit. Ground No.

1 is general. As per Ground No. 2, this is the request of the assessee that addition of Rs. 95,21,594/- is erroneous and excessive. As per Ground Nos. 3 to 6, this is the main grievance of the assessee that income reported by the assessee is on presumptive basis u/s 44AE and therefore, in order to compute cash available with the assessee towards explanation of source of various investments, depreciation should be added because the income declared by the assessee is after depreciation and hence, cash available is such declared income plus depreciation. As per Ground No. 7, this is a grievance of the assessee that assessing of Rs. 27,64,604/- being business advance made by the assessee in Anubhav Plantations and VGP Plantations as undisclosed income of block period is not justified. As per Ground No. 8 and 9, this is the grievance of the assessee that search itself is illegal and therefore, the consequent block assessment is bad in law.

3. Both sides were heard and their submissions are considered. We have also considered various written submissions filed by the learned AR of the assessee. First, we decide the technical objections. In our considered opinion, there is no merit in these objections. The first technical objection has no merit that since the search warrant is in joint names, the assessment should have been made as an AOP and therefore, the present assessment in individual capacity of the assessee is bad in law. This ground has no merit because of this reason that as per section 292CC recently inserted in the Income Tax Act, 1961 w.e.f. 01.04.1976, even in case of joint warrant, assessment has to be separate in individual names. The second technical objection is as per Ground No. 8 and 9 that search itself is illegal and therefore, the consequent block assessment is bad in law. Regarding this technical objection, we find that an Explanation had been inserted in section 132 by the Finance Act, 2017 w.r.e.f. 01.04.1962 to the effect that the reasons to believe recorded by the income tax authorities under this section shall not be disclosed to any person or any authority or the Appellate Tribunal. The assessee also has not produced any material in support of this ground and therefore, we do not find any reason to interfere in the order of CIT (A) on this issue. Therefore, we hold that these grounds are not maintainable.

4. Now we decide various issues raised on merit. As per Ground No. 2 of original grounds, this is the grievance of the assessee that the addition made is erroneous and excessive but the learned AR of the assessee did not make any argument in this regard and therefore, we infer that this ground is not pressed and dismissed accordingly.

5. As per Ground Nos. 3 to 6, this is the main grievance of the assessee that income reported by the assessee is on presumptive basis u/s 44AE and therefore, in order to compute cash available with the assessee towards explanation of source of various investments, depreciation should be added because the income declared by the assessee is after depreciation and hence, cash available is such declared income plus depreciation. We find that in para 20 of his order, it is noted by CIT (A) that in the written submissions filed on 19.01.2020, the assessee has stated that depreciation admissible during the block period on the four trucks owned by the assessee worked out to Rs. 17,44,442/- and it was argued that since depreciation did not involve cash outgo, this amount should be allowed as set off against the addition made against cash and gold found and seized during search. In next para, learned CIT (A) rejected this claim by saying that as per the assessee himself, depreciation is only a notional charge on profit and does not involve actual cash outgo and hence, depreciation being a notional charge cannot become source of real asset like cash and gold. In our considered opinion, this logic of CIT (A) is not proper. If the income declared by the assessee u/s 44AE only is considered as source of cash and gold found then the amount of depreciation allowable should be added to such accepted source because such income declared u/s 44AE is after reducing allowable depreciation from real cash income and therefore to work out the cash available with the assessee on account of such income should be such income and the amount of allowable depreciation. But there is no finding of AO or CIT (A) about the amount of depreciation allowable on these four trucks during the block period and therefore, we remit this matter back to AO to decide this issue after allowing reasonable opportunity of being heard to the assessee. These grounds are allowed for statistical purposes.

5. The next issue on merit is raised by the assessee as per Ground No. 7 in which this is a grievance of the assessee that assessing of Rs. 27,64,604/- being business advance made by the assessee in Anubhav Plantations and VGP Plantations as undisclosed income of block period is not justified. Awe find that in Paras 7 to 11 of his order, learned CIT (A) has noted about various arguments of the assessee against this addition of Rs. 27,64,604/- being business advance made by the assessee in Anubhav Plantations and VGP Plantations. The main argument is this that these are business advances and since these are not recoverable, it is allowable as business loss against this very addition made by the AO. Thereafter in paras 13 and 14 of his order, learned CIT (A) has rejected this argument by holding that addition has to be made because source of such advances could not be explained by the assessee and regarding claim of it as business loss, no specific finding is given and this claim was rejected by saying that bad debts are allowable u/s 36 (1) (vii) on actual write off and it can be claimed by the firm M/s * Co. and not by individual partner. We feel that these findings of Chandrahas learned CIT (A) are also not sustainable because if the advances are given by the present assessee, its non recovery can be claimed as business loss by the present assessee only and it should be allowed if other pre requirements for claiming such loss is satisfied by the assessee. Actual write off in books is required to claim bad debts but the assessee is claiming it as business loss and not as bad debt u/s 36 (1) (vii). Such claim as bad debt is neither claimable nor allowable for this reason alone that the requirements of section 36 (2) cannot be satisfied for non- recovery of trade advances. Hence, we will it proper to remand this matter also to the AO for a fresh decision about the claim of the assessee as business loss. We order accordingly and direct the AO to decide this issue by a speaking and reasoned order after affording adequate opportunity of being heard to the assessee. Ground No. 7 is also allowed for statistical purposes.

6. Next issue is as per Additional Grounds No. 2 where the assessee has raised this objection that that the interest charged u/s 158 BFA (1) should be deleted. Now it is a settled position of law that chargeability of interest is consequential and therefore, this ground is rejected.

7. Next issue is as per Additional Grounds No. 3 where the assessee has raised this objection that that the levy of surcharge should be cancelled. In a recent judgment dated 15-09-2014 of Hon’ble apex court rendered in the case of CIT Vs Vatika Township as reported in 367 ITR 446, it was held that levy of Surcharge by insertion of proviso to section 113 of Income Tax Act by Finance Act 2003 is prospective. In the present case, the block period ends on 06.09.2000 and therefore, surcharge cannot be levied in the present case. This ground is allowed.

8. In the result, the appeal of the assessee is partly allowed for statistical purposes. Pronounced in the open court on the date mentioned on the caption page.