2013 (8) TMI 987 - AT - Income Tax

Addition on the basis of admission obtained in the statement recorded u/s 133A - Held that - here is a circular of CBDT No. 286/2/2003, and dated 11/03/2003, which restrain the survey team from taking forcible surrender. The mere fact that the survey team collected cheques in respect of advance tax payable on such surrender, is self evidence of possible pressure which may have been exerted on the assessee.The assessee has filed detailed working of stock available on the date of survey, the copies of which are again enclosed in AR s paper book on page 28 to 36. The A.O. has made a addition of ₹ 25,68,277/- solely on the basis of the statement recorded at the time of the survey. This addition has been reduced by a sum of ₹ 3,24,000/- by correcting mistakes pointed out in the inventory, and has been sustained at ₹ 22,46,217/-. There are a raft of decision to the effect that solely on the basis of admission obtained in the statement recorded u/s 133A no addition can be made. - Decided in favour of assessee Disallowance of interest paid to the creditors - Held that - In fact a sum of ₹ 2.5 lacs was paid to S.P. Jain Management Institute, Mumbai, for the admission of his son in MBA. Later this amount was referred to the assessee who debited the same in his books in the name of S.P. Jain Management Institute instead of debiting his capital account. So the authorities guessed that this amount has been availed of without paying interest and therefore, an addition of ₹ 30,000/- as notional interest was made. Thus it is undisputedly found that there was a opening capital of ₹ 55,97,139/-and closing capital was of ₹ 75,52,870/- (APB 22) on which no interest has been claimed. In these circumstances, the charging of notional interest is not justified. The A.O. has not even been able to establish nexus between the two. - Decided in favour of assessee

Summary

Issues:
1. Addition of unaccounted income based on statement recorded during survey
2. Disallowance of interest paid to creditors
3. Charging of interest under sections 234B and 234C

Issue 1: Addition of Unaccounted Income
The appeal concerned the addition of unaccounted income by the Assessing Officer (A.O.) based on a statement recorded during a survey under section 133A of the Income Tax Act, 1961. The assessee admitted unaccounted income during the survey, but discrepancies arose regarding the treatment of excess stock. The A.O. rejected the explanations provided by the assessee and made additions to the income. The Commissioner of Income Tax (Appeals) confirmed part of the addition, leading to the second appeal. The Tribunal analyzed the circumstances and legal principles, emphasizing that mere statements recorded during a survey do not hold evidentiary value for making additions. Citing relevant case law and circulars, the Tribunal concluded that the addition based solely on the survey statement was not sustainable. Detailed reasons were provided for rejecting the addition related to excess stock, highlighting discrepancies in the inventory and lack of concrete evidence to support the A.O.'s decision. Ultimately, the Tribunal decided to delete the addition of the disputed amount from the assessee's income.

Issue 2: Disallowance of Interest Paid to Creditors
The second issue revolved around the disallowance of interest paid to creditors by the assessee. The A.O. made an addition of Rs. 30,000 as notional interest, suspecting that a specific amount paid to an institute was availed without interest payment. However, upon examination of the facts and evidence, the Tribunal found that the assessee had not claimed interest on significant capital amounts in his books. The Tribunal noted the absence of a clear nexus between the disputed amount and interest payment, leading to the decision to delete the addition of Rs. 30,000. Ground No. (2) of the appeal was allowed in favor of the assessee.

Issue 3: Charging of Interest under Sections 234B and 234C
Regarding the charging of interest under sections 234B and 234C of the Income Tax Act, the Tribunal acknowledged the mandatory nature of interest imposition but highlighted that the assessee was entitled to consequential relief. Consequently, the Tribunal held that this ground could not be allowed. The appeal was partly allowed, with the order pronounced in open court on a specified date.

This comprehensive analysis of the judgment covers the key issues addressed in the appellate tribunal's decision, outlining the legal reasoning and outcomes for each matter raised in the appeal.