Deepak R. Shah, Accountant Member. - This appeal by assessee is directed against the order of learned CIT(A)-VI, Bangalore, dated 30th Jan., 2004 in an appeal against assessment under section 158BC for the block period comprising assessment years 1990-91 to 26th April, 2000.

1.1 The assessee mainly challenges the two additions by way of income from chit business amounting to Rs. 4 lakhs and income from proprietary concern M/s Khusboo Enterprises of Rs. 6 lakhs.

2. A search was conducted at the premises of assessee and one Mr. Lalchand Balar on 26th April, 2000. During the course of search, it was found that the assessee has conducted 22 numbers of chits. On the basis of material found during search and the statement of assessee, an amount of Rs. 4 lakhs, being Rs. 50,000 for 8 assessment years, were considered as income by way of commission from chit business. The assessee during the course of search admitted as under :

"I admit that I had conducted 22 number of chits of various value between 1992 to 1998. The every second chit used to be taken by me without any discount. However, there have been expenditure incurred like gifts given to chit participants as well as chit drawn and collection charges. I have also incurred liability in indirect fashion on account of delayed remittances of participants as well as liability on account of non-collectible chit amounts. The capital receipt on account of second chit has been employed by me into real estate and other business conducted by me. However, to buy peace from the Department, I hereby declare an amount of Rs. 4 lakhs as undisclosed income on account of chit businesses conducted by me. I shall be paying taxes on this Rs. 4 lakhs as undisclosed income arrived by me after taking out all expenditure including non-collectible amount."

Before the Assessing Officer as well as CIT(A), the assessee submitted that there is no material found during search which suggests that every year the assessee has earned a sum of Rs. 50,000 for 8 years. Thus, the income of Rs. 4 lakhs is not correctly treated as undisclosed income for the block period. Secondly, he relied upon the decision of Hon’ble Andhra Pradesh High Court in the case of Commissioner Of Income-Tax v. Nataraj Finance Corporation.. [1988] 169 ITR 732 for the proposition that the income from chit is by way of income from oneself and hence applying the principle of mutuality, such income cannot be treated as undisclosed income even though declared by the assessee. Learned CIT(A) dismissed this ground holding that the assessee himself has admitted having conducted chit business. Material was found during search. The assessee was confronted by Assessing Officer. Since he himself has admitted having earned income of Rs. 4 lakhs, the addition was upheld.

2.1 Learned counsel for assessee, Shri Laxminarasimhan submitted that even though the assessee had admitted, still the income is to be treated as exempt on the principle of mutuality. There cannot be concession against the provision of law. If the income is exempt, even though it is admitted, the same has to be excluded, as the income is to be computed according to the provision of IT Act and not merely on the admission of assessee. He once again relied upon the decision of Hon’ble Andhra Pradesh High Court in the case of Nataraj Finance Corpn. (supra). He further relied upon the decision of Hon’ble Supreme Court in the case of Commissioner Of Income Tax, Bihar v. Bankipur Club Ltd. [1997] 226 ITR 97. He submitted that the business income from chit is income from oneself and since the assessee is contributory as well as beneficiary, the income cannot be treated as undisclosed income, as the same is not chargeable to tax.

2.2 Learned Departmental Representative, on the other hand, relied upon the appellate order. He submitted that only after conducting various enquiries and confronting with assessee’s seized material, the assessee has admitted the income of Rs. 4 lakhs. Thus, it cannot be said that the assessee was unaware about such income. What the assessee has received is business income and not merely dividend from such chits. Thus, principle of mutuality will not apply.

3. We have carefully considered the relevant facts and the arguments advanced. The only question to be considered is that even though admitted, whether the assessee can claim income of Rs. 4 lakhs as exempt on the principle of mutuality relying upon the decision of Hon’ble Supreme Court and that of Hon’ble Andhra Pradesh High Court (supra ). In the present case, it is seen that the assessee conducted various chits numbering 22 over several years. The assessee was one of the participants of the chits. The assessee is contributory as well. Whatever surplus arises in conducting the chits is distributed equally amongst the members-beneficiaries. What is the real nature of income is the assessee receiving dividend by conducting such chits. The dividend is nothing but the surplus arising by contributing into the chits and not by way of commission for conducting such chits. Hon’ble Andhra Pradesh High Court in the case of Nataraj Finance Corpn. (supra) held thus :

"An entity would be a mutual benefit association if all the participators to the common fund are also contributors and their identity is established. It is this basic principle that satisfies the test of mutuality. The contributors to the common fund and the participators in the surplus must be an identical body. That does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. What is required is that the members as a class should contribute to the common fund and participators as a class must be able to participate in the surplus."

Hon’ble Supreme Court in the case of Bankipur Club Ltd. (supra) quoted with approval the following passage from the book on the Law and Practice of Income-tax by Kanga and Palkhivala thus :

". . . The contributors to the common fund and the participators in the surplus must be an identical body. That does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. The Madras, Andhra Pradesh and the Kerala High Courts have held that the test of mutuality does not require that the contributors to the common fund should willy-nilly distribute the surplus amongst themselves : it is enough if they have a right of disposal over the surplus, and in exercise of that right they may agree that on winding up the surplus will be transferred to a similar association or used for some charitable objects. . . ."

In the present case, it is seen that various persons contributing (to) the chits are availing the combined contributed sum for a lesser sum called chit and the surplus arising is distributed amongst the chit contributors. Thus, the contributors to the common fund and the participators in the surplus are same persons. Hence, the principles of mutuality are squarely applicable. Applying the ratio laid down by Hon’ble Supreme Court as well as the Andhra Pradesh High Court, the income is not to be taxed but is to be exempted as the profit is made from oneself and not from others.

3.1 The Assessing Officer as well as learned CIT(A) has taxed the sum of Rs. 4 lakhs merely because the assessee agreed for the same. It is settled law that there cannot be any concession against the provision of law. Even though the assessee admitted but is able to demonstrate that the income admitted is either not his income or that such amount is not chargeable to tax, the same cannot be brought to tax merely on admission. Hon’ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 held thus :

"Entries made by the assessee in the accounts books treating a portion of the general expenditure as expenses towards immature plants and capitalizing such portion amount to an admission that the amount in question was laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income was derived during the previous year for the purpose of Explanations 2 to 5 of the Kerala Agrl. IT Act, 1950. Such admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the books of account do not disclose the correct state of facts."

Applying the above principle, we hold that though the assessee admitted the income of Rs. 4 lakhs, yet it clear that the income is not chargeable in view of the principle of mutuality and hence to be taken out of the purview of chargeable income under the Act. We accordingly delete the addition of Rs. 4 lakhs.

4. The next ground of appeal is against addition of a sum of Rs. 6 lakhs for the profit from proprietary concern of M/s. Kusboo Enterprises.

4.1 The appellant is proprietor of M/s Kusboo Enterprises. During the course of search, the account books for the block period pertaining to said concern were found and seized. During the course of search, the assessee admitted that the job work done in the name of M/s Kusboo Enterprises was not accounted for. The appellant during the course of search admitted a sum of Rs. 6 lakhs to be his undisclosed income from the said business. The same was accordingly brought to tax.

4.2 Learned counsel for assessee, Shri Laxminarasimhan submitted that admitting a sum of Rs. 6 lakhs was the immediate reaction of assessee. However, on correct appreciation of evidence and even considering the seized material, the net income from M/s Kusboo Enterprises is the sum of Rs. 5,03,412. Thus, the amount to be adopted as undisclosed income should be such sum of Rs. 5,03,412 and not the sum of Rs. 6 lakhs as admitted during the course of search.

4.3 Learned Departmental Representative, on the other hand, relied upon the appellate order. He submitted that since the assessee himself has admitted a sum of Rs. 6 lakhs and since the profit in the name of M/s Kusboo Enterprises was never disclosed, the same is to be treated as undisclosed income.

5. We have carefully considered the relevant facts and the arguments advanced. It is seen that on the date of search itself, the assessee admitted a sum of Rs. 6 lakhs being the profit in M/s Kusboo Enterprises as his income. However, it is impossible to compute the undisclosed income for the entire period of 1991-2000 in a momentous admission. On correct appreciation of books of account and even considering the undisclosed as well as seized document, the income of such concern is a sum of Rs. 5,03,412 only. The computation in this regard has been filed by the assessee, which is also filed before the lower authorities. The Assessing Officer should have taken cognizance of such correct income depicted in the books of account as well as in the seized material and should not have adopted the figure merely as per admission of assessee. The income for the period 1990-91 to 1999-2000 as recorded in the books of account is Rs. 3,94,302. Similarly, the additional sales as per seized document and the profit from such additional sales is Rs. 1,09,110. The total of these two gives the figure of Rs. 5,03,412. The Assessing Officer has not found such computation incorrect. It is settled law that undisclosed income can be computed only on the basis of material found as a result of search. We accordingly direct the Assessing Officer to restrict the profit as proprietor of M/s Kusboo Enterprises to a sum of Rs. 5,03,412 instead of the sum of Rs. 6 lakhs adopted.

In the result, the appeal is partly allowed.