2011 (7) TMI 1270 - AT - Income Tax

Summary

Issues Involved:
1. Addition of unexplained investment in residential house.
2. Addition of unexplained payments and bogus credits.

Summary:

Issue 1: Addition of unexplained investment in residential house

The assessee, a contractor, filed his return declaring an income of G.53,122/-. A search u/s 132 of the Income Tax Act, 1961 was conducted, leading to the discovery of incriminating evidence. The Assessing Officer (AO) issued a notice u/s 153A, and the assessee filed returns for multiple years. The AO issued a notice u/s 143(2) regarding inadequate drawings, unexplained investment in a residential house, and unexplained cash credits. The AO found the total cost of construction of the residential house, co-owned by the assessee and his wife, to be G.13,86,690/-, while the assessee had shown only G.2,73,474/-. The AO made an addition of G.3,19,486/- as unexplained investment. The CIT(Appeals) confirmed this addition. However, the ITAT found that the total construction cost was G.13,64,864/-, as accepted in the case of the assessee's wife by the Chennai ITAT. The ITAT concluded that the difference was attributable to price escalation and deleted the addition.

Issue 2: Addition of unexplained payments and bogus credits

In another case, during the same search, the Department found jottings indicating unexplained payments by the assessee. The AO issued a notice u/s 153A, and the assessee filed a return of G.1,40,620/-. The AO proposed additions for inadequate drawings, unexplained payments, and bogus credits. The AO made additions based on jottings, treating G.2,90,000/- as unexplained expenditure u/s 69(c). The CIT(Appeals) confirmed the addition. The ITAT observed that the jottings alone, without corroborative evidence, could not justify the addition. The ITAT referred to case law, including CIT v. Atam Valves (P) Ltd and CIT v. Maulikkumar K. Shah, and concluded that the jottings were insufficient to make an addition u/s 69C. Consequently, the ITAT deleted the addition.

Conclusion:

Both appeals of the assessee were allowed, and the additions made by the AO and confirmed by the CIT(Appeals) were deleted.