Law:

Section:

Section 158B, read with section 40A(2), of the Income-tax Act, 1961 - Block assessment in search cases - Undisclosed income - Whether mere disallowance made under section 40A(2) could not be treated as undisclosed income - Held, yes - Whether disallowance made under section 40A(2) would not be considered for purpose of making block assessment unless revenue gives a categorical finding that whole expenditure of deduction is totally false - Held, yes FACTS The assessee's main business was of Civil Engineering Contracts, which included raising and levelling the earth with earth moving equipments, and raising the tank bunds, etc. The income-tax department initiated proceedings under section 132A on 'T', director of the assessee-company. There were certain materials which related to the assessee. Consequently, the assessee was served with a notice under section 158BD and based on such notice, proceedings were initiated on the assessee. The assessee filed a return of income on 25-3-1997, admitting undisclosed income of Rs. 1,41,04,160. It was found that for the assessment years 1994-95 and 1995-96, supervisory charges were paid by the assessee to T.C.V. at Rs. 24.68 lakhs and Rs. 33.67 lakhs respectively. The assessee was called upon to justify the payment of supervisory charges. The claim of the assessee was that T.C.V. was providing coordination, monitoring constantly in the execution of the contracts, making it cost effective, monitoring careful deployment of labour and machines and movement of machines from site to site including vehicles and even looking after administrative work like raising of bills, etc., and finally supervising the work of the site engineers and the staff. But for the supervisory work carried out by T.C.V., the turnover of Rs. 2.46 crores and Rs. 3.36 crores for the financial years 1994 and 1995 would not have been made possible. The Assessing Officer noted that the assessee was having administrative expenses which covered director's remuneration also; because of the fact that T.C.V. had no administrative facility other than 'T' and the work in fact having been done by the staff of the assessee, might be under the supervision of T.C.V., the…

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