2015 (9) TMI 1416 - AT - Income Tax

Unexplained credit / deposits /investment - Held that - The appellant had submitted the copies of assessment orders of both these persons for A.Y. 2007-08 and it is seen that the original investment amounting to ₹ 8,00,000/- had already been taxed in the hands of both these persons and therefore, the same cannot be taxed in the hands of the appellant again. Since all these accounts were in joint name, the sale proceeds were deposited in these bank accounts. As a result the appellant gets relief of ₹ 8,00,000/- in the principal amount of investment as already taxed in earlier assessment year. Since the appellant was not the owner of these mutual funds, the capital gain on maturity of mutual funds of ₹ 3,65,241/- as deposited in the impugned four bank accounts cannot be treated as income in the hands of the appellant because it was a kind of loan to the appellant. I, therefore, direct the AO to give relief of ₹ 11,65,241/- to the appellant as explained investment. Regarding fixed deposit with GSFC, it is seen from the details that the appellant had offered only interest income in the revised return of income. However, no cogent evidences or explanation were submitted during assessment proceedings to establish the investment in GSFC fixed deposits as explained investment and therefore, the AO is justified in treating the entire maturity amount as income of the appellant In respect of sundry debtors and inter bank transfer entries, it is observed that while framing the assessment the AO has duly taken care of the same while computing the income and hence there is no need to interfere in the action of the AO. To summarize out of the total addition of ₹ 55,64,745/- on account of unexplained investment, the appellant gets relief of ₹ 30,11,991/- (Rs. 18,46,750 ₹ 11,65,241) as discussed hereinabove and the addition of balanced amount of ₹ 25,52,754/- is sustained - Decided against revenue Adoption of 8% of the net profit on total turnover - Held that - We find that the Assessing Officer has applied Section 44AF but adopted 8% of the net profit on total turnover. Ld. CIT(A) has adopted profit @ 5% which in our considered view this has been rightly adopted. As the Assessing Officer has invoked the provision of Section 44AF, then Section 44AF specifies of 5% but not of 8%. The Assessing Officer should not have adopted profit @ 8%. Accordingly this ground of Revenue s appeal is also dismissed - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition of Rs. 30,11,991 made by the Assessing Officer on account of unexplained credit/deposits/investment in bank accounts treated as undisclosed income under Section 69 of the Income Tax Act.
2. Restriction of addition to Rs. 4,36,172 instead of Rs. 6,99,558 made by the Assessing Officer under Section 44AF of the Income Tax Act.

Detailed Analysis:

Issue 1: Deletion of Addition of Rs. 30,11,991 under Section 69
The Revenue contested the deletion of Rs. 30,11,991 by the CIT(A), arguing that the assessee had not disclosed certain bank accounts, leading the Assessing Officer (AO) to treat the total unrecorded investment of Rs. 55,64,745 as deemed income. The CIT(A), however, after reviewing the submissions and evidence, found that the deposits in the undisclosed bank accounts were primarily loans from friends and relatives, interest, and maturity proceeds of investments. The CIT(A) noted that the assessee had provided confirmations and bank statements for these transactions, which the AO did not rebut or investigate further. Consequently, the CIT(A) treated Rs. 18,46,750 as explained loans and Rs. 11,65,241 as explained investments, giving relief for these amounts. The remaining addition of Rs. 25,52,754 was sustained.

The Tribunal upheld the CIT(A)'s findings, noting that the Revenue had not provided any contrary material to dispute the CIT(A)'s factual determination. Thus, the ground of the Revenue's appeal was rejected.

Issue 2: Restriction of Addition under Section 44AF
The Revenue also contested the CIT(A)'s restriction of the addition to Rs. 4,36,172 instead of Rs. 6,99,558. The AO had estimated the net profit at 8% of the total turnover under Section 44AF. However, the CIT(A) adopted a net profit rate of 5.1%, aligning with the statutory provision of Section 44AF, which specifies a 5% profit rate, not 8%. The Tribunal agreed with the CIT(A), stating that the AO should not have adopted an 8% profit rate when Section 44AF specifies 5%. Therefore, this ground of the Revenue's appeal was also dismissed.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that provided relief for Rs. 30,11,991 and restricted the addition to Rs. 4,36,172, adhering to the statutory provisions and the evidence presented. The other grounds of the Revenue's appeal were deemed general and required no separate adjudication. The order was pronounced in open court on 11th September 2015.