Unaccounted expenditure to be set-off against unaccounted income despite Expl. to s. 37(1) & proviso to s. 69C. Govt. criticized for apathy towards black money
Pursuant to a search u/s 132, an assessments u/s 158BC was made and various additions were made. One of the issues was whether if the AO makes an addition of unaccounted income on the basis of seized records, he is required to give a deduction for the unexplained expenditure shown in the same records. HELD by the Court:
(i) The assessee was engaged in unaccounted business and the seized accounts showed unaccounted receipts and unaccounted expenditure. There is no justification for doubting the entries found in the seized records pertaining to expenditure while accepting the income found recorded therein. When the Department relies on the seized records for estimating undisclosed income, there is no reason why the expenditure stated therein should be disbelieved merely because there is no written agreement and that payments were not made through cheques or demand drafts. This would be unrealistic and not justified. The statute authorizes assessment of “undisclosed income” which has to be arrived at after allowing expenditure incurred by the assessee whether it be accounted in the regular books or not. The Explanation to s. 37(1) does not apply because the unaccounted business is not an “illegal business” and the proviso inserted to s. 69C by the Finance (No.2) Act, 1998 w.e.f. 1.04.1999 does not cover excess expenditure over accounted expenditure in business is covered by s. 69C itself.
(ii) We are constrained to observe about the effort made by us to persuade the Central Government to take steps to prevent generation and circulation of black money. Through a detailed interim order we appraised the Government that unless prohibition is introduced against cash dealings particularly in property sales in film industry and the like against at least for payments over a certain limit in cash, black money generation and circulation cannot be controlled because the disincentives on cash dealings contained under the various provisions of the Income Tax Act have failed to achieve the objective. Further, by prohibiting use of cash in major transactions terror and mafia funding and corruption could be arrested to a large extent. Above all, the worst enemy of our economy that is, circulation of high denomination counterfeit currencies (presently estimated at 7000 crores) could be prevented to a large extent. Unfortunately, the response of the Central Finance Ministry is not at all encouraging in as much as Government wants status quo to continue to the detriment of the economic interest of the country and the people as a whole. Our limitations while exercising appellate jurisdiction u/s 260A inhibit us from initiating any proceedings or issuing direction against the Central Government. However, we express our anguish on the attitude of the Central Government to have created this vicious situation and allow the same to continue.