2012 (11) TMI 1136 - AT - Income Tax

Assessment u/s 153A - addition u/s 68 - Held that - Authorities below could have presumed that the assessee has spent the difference of amount in question somewhere as per cash in hand as per books of account and lesser cash as per seized documents but that would also not suffice to make addition under any of the above provisions because every person is at liberty to spend their own amount anywhere as per his choice because the assessee has not claimed any deduction in this case. Examining the case of the assessee from every possible angle we find the addition of Rs. 37, 30, 710/- wholly unjustified. Purchase of potatoes unexplained - Held that - In the absence of any incriminating material or evidence against the assessee we are of the view that the huge addition made against the assessee was merely based on presumption and assumptions of facts which cannot take place of legal proof. No evidence of purchase sales or unaccounted stock belonging to the assessee during the course of search or survey was found or established. Thus the assessee has been able to prove that the assessee acted only as a bailee and earned rental income. Thus the authorities below have acted against the assessee in haste in making substantive addition without any basis and without considering entire seized material. We therefore do not find any justification for the authorities below to make or confirm the addition of the aforesaid nature. We accordingly set aside the orders of the authorities below and delete the addition. Addition under the head diesel expenses - Held that - The diesel is used in generator which is necessary for running of cold storage due to frequent failure of electricity in the State of U.P. Therefore it was necessary component/expense for running the cold storage. Considering the above it would be reasonable and appropriate to restrict the addition by disallowing 5% of the expenses instead of 10% confirmed by the authorities below. Disallowance of petrol expenses and disallowance under the head depreciation on car for personal user - Held that - Addition appears to be excessive in nature We accordingly modify the orders of the authorities below and restrict the disallowance to 5% of the expenses on both these disallowances of expenses. The AO is directed to disallow 5% of expenses instead of 20%. These grounds of appeal of the assessee are partly allowed. Addition on account of addition under the head building - Held that - There were no reasons to discard the books of account merely because the same were not found during the course of survey. The AO should have verified each and every entry from the books of account of the assessee on this issue before making reference to the DVO. However no such findings have been given and the AO merely because the assessee did not produce bills and vouchers referred the matter to the DVO for estimating cost of construction - restore the matter to the file of the AO with direction to re-decide the issue by considering the books of account produced by the assessee

Issues Involved:
1. Validity of the assessment order under Section 153A(b) of the Income Tax Act, 1961.
2. Consistency in the method of accounting and maintenance of books of account.
3. Basis of the addition of Rs. 37,30,710/-.
4. Applicability of Section 153A to the facts of the case.
5. Validity of the addition of Rs. 37,30,710/- based on Annexure A-3/1.
6. Observations of the assessing officer in para 7.2 of her order.
7. Validity of the addition of Rs. 23,31,28,321/-.
8. Basis of the addition of Rs. 23,31,28,321/-.
9. Consideration of additional evidence and remand report.
10. Allegation of partners indulging in potato business.
11. Observations of the Commissioner of Income Tax (Appeal).
12. Failure to provide explanation for fresh queries raised by the assessing officer.
13. Alleged investment of Rs. 21,08,69,838/- based on seized papers.
14. Alleged profit of Rs. 2,22,58,483/-.
15. Consideration of the affidavit of the partner and past records.
16. Disallowance of Rs. 3,01,703/- under the head diesel expenses.
17. Disallowance of diesel expense @ 10%.
18. Disallowance of Rs. 77,099/- under the head petrol expenses.
19. Disallowance of Rs. 1,17,246/- under the head depreciation on car for personal use.
20. Addition of Rs. 5,47,928/- on account of addition under the head building.
21. Reference to DVO.
22. Penal interest under Section 234A, 234B, and 234C.
23. Right to take any fresh ground of appeal.

Detailed Analysis:

1. Validity of the assessment order under Section 153A(b) of the Income Tax Act, 1961:
The assessee challenged the assessment order dated 28.12.2011 passed under Section 153A(b) as unjustified and incorrect, arguing that the lower authorities failed to consider the real facts, evidences, books of accounts, past records, and cited cases. The Tribunal examined the facts and upheld the assessment order, noting that the search and seizure action under Section 132(1) was validly conducted, and the assessment was framed under Section 153A based on the seized materials.

2. Consistency in the method of accounting and maintenance of books of account:
The assessee argued that the books of account were maintained consistently in a recognized manner since the firm's inception and were accepted by the department year after year. The Tribunal noted that the assessee maintained regular books of account, which were audited and accepted in past assessments, and the principle of consistency should be upheld.

3. Basis of the addition of Rs. 37,30,710/-:
The addition of Rs. 37,30,710/- was based on a loose paper marked as Annexure A-3/1 found during the search, which showed a cash balance of Rs. 27,39,932.86. The AO compared this with the cash balance of Rs. 64,70,642.65 shown in the books, leading to the addition. The Tribunal found that the AO's comparison was flawed, as it was based on an artificial working and not on actual cash found or verified. The Tribunal deleted the addition, noting that it was based on presumptions and not supported by evidence.

4. Applicability of Section 153A to the facts of the case:
The assessee argued that the undisclosed income was not determined based on any search material, and the AO proceeded as if it was a normal assessment, making Section 153A inapplicable. The Tribunal upheld the applicability of Section 153A, as the assessment was framed based on seized materials found during the search.

5. Validity of the addition of Rs. 37,30,710/- based on Annexure A-3/1:
The assessee contended that Annexure A-3/1 was a rough, waste, and dumb document, and the addition based on it was unjustified. The Tribunal agreed with the assessee, noting that the document was not reliable evidence for making such a significant addition, and deleted the addition.

6. Observations of the assessing officer in para 7.2 of her order:
The assessee challenged the observations of the AO in para 7.2, arguing that they were incorrect and baseless. The Tribunal found that the AO's observations were not supported by evidence and were based on incorrect inferences. The Tribunal deleted the addition of Rs. 37,30,710/-.

7. Validity of the addition of Rs. 23,31,28,321/-:
The addition of Rs. 23,31,28,321/- was based on the AO's inference that the assessee's partners indulged in potato business, making an investment of Rs. 21,08,69,838/- and earning a profit of Rs. 2,22,58,483/-. The Tribunal found that the AO's inference was based on incorrect and arbitrary assumptions without any supporting evidence. The Tribunal deleted the addition, noting that the assessee's records and explanations were consistent and supported by evidence.

8. Basis of the addition of Rs. 23,31,28,321/-:
The AO based the addition on Annexure P-11 and P-13, which were alleged to be potato release registers without names and addresses of the owners. The Tribunal found that the AO's inference was incorrect, as the entries in these registers tallied with other seized registers (A-2/22, A-2/9, A-1/1 to A-1/5) and rent receipts, which contained complete details. The Tribunal deleted the addition.

9. Consideration of additional evidence and remand report:
The Tribunal considered the additional evidence and remand report, noting that the AO failed to verify all relevant registers and documents. The Tribunal found that the assessee's explanations and evidence were consistent and supported their claims, leading to the deletion of the addition.

10. Allegation of partners indulging in potato business:
The AO alleged that the partners indulged in potato business, but the Tribunal found no evidence to support this claim. The Tribunal noted that the assessee maintained proper records and rent receipts, and there was no indication of any unaccounted investment or profit from potato business.

11. Observations of the Commissioner of Income Tax (Appeal):
The Tribunal found that the CIT(A)'s observations were not supported by evidence and were based on incorrect inferences. The Tribunal deleted the addition of Rs. 23,31,28,321/-.

12. Failure to provide explanation for fresh queries raised by the assessing officer:
The Tribunal noted that the assessee provided explanations and evidence for the queries raised by the AO, but the AO failed to consider them properly. The Tribunal found the assessee's explanations consistent and supported by evidence, leading to the deletion of the addition.

13. Alleged investment of Rs. 21,08,69,838/- based on seized papers:
The Tribunal found that the alleged investment of Rs. 21,08,69,838/- was based on incorrect assumptions and not supported by evidence. The Tribunal deleted the addition, noting that the seized papers did not indicate any unaccounted investment by the assessee.

14. Alleged profit of Rs. 2,22,58,483/-:
The Tribunal found that the alleged profit of Rs. 2,22,58,483/- was based on incorrect assumptions and not supported by evidence. The Tribunal deleted the addition, noting that the assessee's records and explanations were consistent and supported by evidence.

15. Consideration of the affidavit of the partner and past records:
The Tribunal found that the affidavit of the partner and past records supported the assessee's claims and were consistent with their explanations. The Tribunal deleted the addition, noting that the AO's inferences were incorrect and not supported by evidence.

16. Disallowance of Rs. 3,01,703/- under the head diesel expenses:
The AO disallowed 10% of diesel expenses due to lack of supporting vouchers. The Tribunal found the disallowance excessive and reduced it to 5%, noting that diesel expenses were necessary for running the cold storage and were generally supported by vouchers.

17. Disallowance of diesel expense @ 10%:
The Tribunal reduced the disallowance of diesel expenses from 10% to 5%, finding the original disallowance excessive and noting that the expenses were necessary for the business.

18. Disallowance of Rs. 77,099/- under the head petrol expenses:
The AO disallowed 20% of petrol expenses for personal use. The Tribunal found the disallowance excessive and reduced it to 5%, noting that the vehicles were primarily used for business purposes.

19. Disallowance of Rs. 1,17,246/- under the head depreciation on car for personal use:
The AO disallowed 20% of depreciation on car for personal use. The Tribunal found the disallowance excessive and reduced it to 5%, noting that the vehicles were primarily used for business purposes.

20. Addition of Rs. 5,47,928/- on account of addition under the head building:
The AO made an addition based on the DVO's report. The Tribunal found that the AO did not reject the books of account, which contained day-to-day expenditure/investment records. The Tribunal set aside the addition and directed the AO to reconsider the issue based on the books of account.

21. Reference to DVO:
The Tribunal found that the reference to the DVO was not justified as the books of account were not rejected. The Tribunal set aside the addition and directed the AO to reconsider the issue based on the books of account.

22. Penal interest under Section 234A, 234B, and 234C:
The Tribunal noted that interest under Section 234A, 234B, and 234C is mandatory and consequential. The ground was dismissed.

23. Right to take any fresh ground of appeal:
The Tribunal noted that the ground was general and rejected it.

Conclusion:
The Tribunal allowed the appeal of the assessee in part, deleting the major additions of Rs. 37,30,710/- and Rs. 23,31,28,321/-, and reducing the disallowances under the heads of diesel expenses, petrol expenses, and depreciation on car for personal use. The Tribunal set aside the addition under the head building and directed the AO to reconsider it based on the books of account. The appeal was partly allowed.

← Previous Next →