1997 (11) TMI 525 - AT - Income Tax

Summary

Issues Involved:

1. Admissibility and reliance on the statement recorded u/s 132(4) of the Income-tax Act, 1961.
2. Claim of expenses against the undisclosed income.
3. Assessment of "on-money" receipts and their inclusion in taxable income.

Summary:

1. Admissibility and reliance on the statement recorded u/s 132(4) of the Income-tax Act, 1961:

The assessee, a partnership firm engaged in construction and sale of flats, was subjected to a search on 9-3-1992, during which certain materials, including a diary, were seized. The partner, Jagdish N. Lodaria, admitted u/s 132(4) that the firm received cash over and above the agreed price for sale of flats, shops, etc., amounting to Rs. 80 lakhs. This statement was later retracted in the income return, declaring only Rs. 10,53,680 as undisclosed income. The Tribunal held that the statement made u/s 132(4) can be used as evidence under the Act, and the admission of receiving Rs. 100 per sq. ft. for 73,371 sq. ft. was valid. However, the Tribunal also considered the state of mind of the partner during the statement and allowed for the possibility of claiming expenses against the on-money received.

2. Claim of expenses against the undisclosed income:

The assessee claimed expenses amounting to Rs. 42,14,720, which were not initially mentioned during the search proceedings. These expenses included protection money, security charges, and other business-related disbursements. The Tribunal noted that while some expenses were supported by statements and independent verification, others lacked direct proof but were supported by circumstantial evidence such as newspaper reports. The Tribunal allowed expenses of Rs. 30 lakhs for protection money and vacating hawkers, Rs. 14,720 for pooja expenses, and an additional estimated expenditure of Rs. 1 lakh, totaling Rs. 30,14,720.

3. Assessment of "on-money" receipts and their inclusion in taxable income:

The Assessing Officer initially added Rs. 73,37,100 to the assessee's income based on the statement u/s 132(4). The Commissioner (Appeals) upheld this addition, rejecting the expenses claimed by the assessee. However, the Tribunal reduced the addition to Rs. 43,22,380 after allowing the aforementioned expenses. The Tribunal emphasized that the assessment should reflect the real income of the assessee, considering both the on-money receipts and the necessary business expenses incurred.

Conclusion:

The Tribunal partly allowed the appeal, reducing the addition to Rs. 43,22,380 after considering the admissibility of the statement u/s 132(4), the validity of the claimed expenses, and the assessment of on-money receipts. The decision balanced the evidentiary value of the statement with practical considerations of business expenses.