2009 (9) TMI 973 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of accrued interest on investments in FDRs.
2. Deletion of addition on account of cash seized by police.
3. Deletion of addition on account of unexplained investment in CDs and instruments.
4. Deletion of addition on account of unexplained investment in diamonds.

Detailed Analysis:

1. Deletion of addition on account of accrued interest on investments in FDRs:

The issue pertains to the addition made by the AO on account of accrued interest on investments in Fixed Deposit Receipts (FDRs) for the assessment years 2001-02 to 2006-07. The AO argued that the interest should be taxed on an accrual basis under the mercantile system of accounting, despite the assessees consistently following the cash system of accounting. The CIT(A) deleted the addition, noting that the assessees had regularly employed the cash system for all sources of income, which had been accepted by the department in previous years. The CIT(A) emphasized that the choice of the accounting method lies with the assessee, as long as it is consistently followed. The Tribunal upheld the CIT(A)'s decision, referencing judicial precedents that support the assessee's right to choose their method of accounting.

2. Deletion of addition on account of cash seized by police:

The AO added the seized cash of Rs. 5,79,000/- to the income of the assessees, rejecting their claim that the cash belonged to Modheshwari (Matangi) Devsthan Trust, a charitable trust. The CIT(A) deleted the addition, accepting the assessees' explanation supported by documentary evidence, including the trust's audited accounts and tax returns. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not provide sufficient evidence to disprove the assessees' claim and that the explanation was consistent with the trust's financial records.

3. Deletion of addition on account of unexplained investment in CDs and instruments:

The AO added Rs. 83,368/- each to the income of the assessees, claiming that the CDs and instruments found during the police search were unexplained investments. The assessees contended that the CDs belonged to the trust and provided supporting evidence, including the trust's books of accounts. The CIT(A) deleted the addition, finding that the AO had not adequately considered the documentary evidence provided by the assessees. The Tribunal agreed with the CIT(A), emphasizing that the AO's decision was based on suspicion rather than concrete evidence.

4. Deletion of addition on account of unexplained investment in diamonds:

The AO added Rs. 13,500/- each to the income of the assessees, citing a discrepancy in the valuation of diamonds found during the police search. The assessees argued that the difference was due to varying valuation dates and methods. The CIT(A) deleted the addition, noting that the valuation differences were minor and that the AO had accepted the assessees' books of accounts for other purposes. The Tribunal upheld the CIT(A)'s decision, agreeing that the valuation discrepancy was an honest difference of opinion and that the AO should have accepted the assessees' recorded cost of acquisition.

Conclusion:

The Tribunal dismissed all the appeals filed by the Revenue, upholding the CIT(A)'s decisions on all issues. The Tribunal emphasized the importance of consistency in the method of accounting and the need for concrete evidence to support any additions made by the AO.