2010 (11) TMI 951 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of loss claimed for the assessment year 2003-04.
2. Addition of on-money for all plots and estimation of the same.
3. Assessment of income from unrecorded receipts in the hands of the firm versus individual partners.
4. Allowability of ad-hoc unrecorded expenses.
5. Disallowance of consultancy charges paid to Shri Sridev Sharma.

Issue-wise Detailed Analysis:

1. Disallowance of Loss Claimed for the Assessment Year 2003-04:
The assessee firm, engaged in real estate, claimed a loss of Rs. 1,73,191/- for the assessment year 2003-04. A search operation revealed that the firm commenced its business in the financial year 2003-04, relevant to the assessment year 2004-05. The assessing officer disallowed the loss, treating it as prior period expenditure. The CIT(A) confirmed this, and the Tribunal upheld the disallowance, stating that the business had not commenced during the year under consideration.

2. Addition of On-Money for All Plots and Estimation:
The firm admitted a total income of Rs. 2,11,91,490/- for the assessment year 2004-05. During the search, it was found that the firm received on-money for plot sales, which was not recorded. The assessing officer made additions based on seized documents and statements, estimating unrecorded receipts. The CIT(A) provided partial relief by estimating unaccounted receipts for layout plots at Rs. 2,48,48,523/- and open plots at Rs. 2,47,55,874/-. The Tribunal confirmed the CIT(A)'s estimation method and upheld the additions based on seized documents and statements, rejecting the assessee's contention that the entire on-money should not be considered as income.

3. Assessment of Income from Unrecorded Receipts in the Hands of the Firm vs. Individual Partners:
The CIT(A) directed to assess the income from unrecorded receipts in the hands of the firm, M/s. Ahura Holdings, instead of the individual partners. The Tribunal upheld this decision, stating that the on-money receipts were related to the firm's business transactions and should be assessed in the firm's hands. The appeals by the individual partners were dismissed as the income was rightly assessed in the firm's hands.

4. Allowability of Ad-Hoc Unrecorded Expenses:
The assessee claimed ad-hoc unrecorded expenses, arguing that only the profit portion of unrecorded receipts should be considered. The Tribunal rejected this, stating that ad-hoc deductions cannot be allowed without evidence. The assessing officer was directed to re-examine the records and decide on the allowability of such expenses based on available evidence.

5. Disallowance of Consultancy Charges Paid to Shri Sridev Sharma:
The assessee claimed consultancy charges of Rs. 1,02,67,250/- paid to Shri Sridev Sharma. The assessing officer disallowed this due to lack of documentary evidence. The Tribunal remanded the issue back to the assessing officer, directing the assessee to prove the genuineness and reasonableness of the expenditure.

Conclusion:
- The appeal regarding the disallowance of loss for the assessment year 2003-04 was dismissed.
- The additions based on on-money receipts for various plots were largely upheld, with minor modifications.
- The income from unrecorded receipts was directed to be assessed in the hands of the firm, not the individual partners.
- The claim for ad-hoc unrecorded expenses was rejected, but the assessing officer was directed to re-examine the evidence.
- The disallowance of consultancy charges was remanded for further examination.

The Tribunal's decision was pronounced on 26.11.2010.