2014 (9) TMI 1070 - AT - Income Tax

Validity of the proceedings initiated u/s 153A - Held that - The surrender no doubt was not acted upon by the assessee but the said fact cannot lead us from the irresistible conclusion that incriminating material was unearthed during search. No material has been placed before us to negate the aforesaid factual aspect as well as to support the claims of AR that the admission before the Revenue was not valid and hit by duress and coercion. Before we conclude this issue we consider it appropriate to note that the ld AR had also stated that no material Per-se was found pertaining to the year under consideration. However this argument also does not hold any water because once Section 153A is triggered on account of unearthing of incriminating material during search the AO is empowered to compute the total income for six assessment year prior to the year of search. There are no fetters or limitation under the statute so as to curtail the jurisdiction of the AO. G.P. addition - Held that - Since the AO for subsequent Assessment Year s has estimated GP rate of 15% we do not find any reason as to uphold the GP rate of 20% for this Assessment Year. So we restrict the GP rate at 15% for this Assessment Year and direct the AO to compute the trading addition by adopting the sales at 1 crore and GP rate at 15% for this Assessment Year. We thus allow the ground raised by the revenue and reject the ground raised by the assessee on this behalf. Addition u/s 41(1) - Held that - Since we have already upheld the rejection of books of account and estimated the income for the instant year there is no basis to make any further addition on the basis of entries found in the books of accounts. Even otherwise we may add here that the said addition is contrary to the judgment of Apex Court in the case of Commissioner of Income-tax Vs. Sugauli Sugar Works (P.) Ltd. (1999 (2) TMI 5 - SUPREME Court) . Addition of interest payment held to be not for the purpose of business - Held that - We dismiss this ground raised by the revenue as we have already estimated the income for the instant year and thus no separate disallowance is warranted so this Ground of revenue is dismissed. Unexplained investment in Farm House - Held that - The Hon ble Delhi High Court in the case of CIT Vs. Sakuntla Devi 2009 (3) TMI 5 - DELHI HIGH COURT held that where department has failed to collect any information or material to show that any consideration above and beyond the stated consideration has changed hands then it would be legally impermissible to draw adverse interference against the assessee. Following the above position we sustain the addition of Rs. 6, 65, 000/- out of total investment estimated by the AO of Rs. 91, 65, 000/-. As such addition of Rs. 1, 41, 250/- is sustained in the hands of the assessee and the balance addition against the assessee is deleted. Unexplained cash-credit - Held that - We find no infirmity in the conclusion made by the ld CIT(A) to the extent that even the ld counsel in the course of hearing could not demonstrate that the credit was confirmed by the creditor namely Mrs. Alka Bansal who claimed to be the proprietor of M/s Anand Jute company. A copy of the account signed by an accountant has been admittedly placed on record before us as well as the ld CIT(A). We note that the amount of Rs. 2 lakh has been received by Account Payee cheque and interest thereon has been paid to the creditor. Further PAN number of the creditor has also been furnished. In the said circumstances we are of the opinion that merely because confirmation has not been filed separately from the creditor itself would be amounting to deny the claim on hyper technical ground when other facts are not refuted by the department even in the course of hearing. In such circumstances we feel it appropriate to allow the claim of the assessee and delete the addition of Rs. 2 lakhs. Un-explained creditors - Held that - CIT(A) has held that there is cessation of liability on the ground that in respect of another creditor M/s. Royal Packaging the said sum has been offered as income. However we are of the opinion that the cessation of liability in respect of another creditor cannot be a ground or basis to assume cessation of liability in respect to this creditor we therefore delete the addition.

Issues Involved:
1. Validity of proceedings initiated under Section 153A of the Income Tax Act.
2. Rejection of books of accounts and estimation of sales and Gross Profit (GP) rate.
3. Addition under Section 41(1) of the Income Tax Act.
4. Unexplained investment in property (Farm House).
5. Unexplained cash deposits in bank accounts.
6. Addition on account of household expenses.
7. Addition on account of unexplained cash credits.
8. Addition on account of unsubstantiated sundry creditors and non-genuine current liabilities.
9. Interest levied under Sections 234A, 234B, and 234C.
10. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Validity of Proceedings Initiated under Section 153A:
The assessee challenged the validity of the proceedings initiated under Section 153A, arguing that there was no search warrant against the deceased assessee, and no incriminating material was found during the search. The Tribunal held that a valid search was conducted as the search warrant was issued in the name of the proprietorship concern of the assessee. The Tribunal also noted that Section 153A is triggered once incriminating material is found during the search, and the Assessing Officer (AO) is empowered to compute the total income for six assessment years prior to the year of search. The Tribunal dismissed the grounds challenging the validity of the proceedings under Section 153A.

2. Rejection of Books of Accounts and Estimation of Sales and GP Rate:
The AO rejected the books of accounts due to the non-production of sale bills, purchase bills, and vouchers for expenses. The AO estimated the sales and GP rate, leading to additions. The Tribunal upheld the rejection of books of accounts due to unverifiable entries. However, the Tribunal found the AO's estimation of the GP rate at 20% to be excessive and reduced it to 15%, aligning with the GP rate estimated for subsequent assessment years. The Tribunal directed the AO to compute the trading addition by adopting the sales at Rs. 1 crore and GP rate at 15%.

3. Addition under Section 41(1):
The AO made additions under Section 41(1) for cessation of liability. The Tribunal noted that the cessation of liability requires more than a unilateral act by the debtor and must be supported by evidence such as remission by the creditor or legal discharge of debt. The Tribunal deleted the addition under Section 41(1), following the Supreme Court's reasoning in the case of Commissioner of Income-tax Vs. Sugauli Sugar Works (P.) Ltd. (1999) 236 ITR 518 (SC).

4. Unexplained Investment in Property (Farm House):
The AO estimated the investment in the farm house, including the cost of land, construction, and landscaping, and apportioned it among the co-owners, leading to additions. The Tribunal found the AO's estimation to be largely unsupported by material evidence and sustained the addition only for the cost of landscaping. The Tribunal deleted the remaining addition, following the Delhi High Court's reasoning in the case of CIT Vs. Sakuntla Devi 316 ITR 46.

5. Unexplained Cash Deposits in Bank Accounts:
The AO made additions for unexplained cash deposits in bank accounts. The Tribunal upheld the addition to the extent that the cash deposits exceeded the available cash balance and income declared by the assessee. The Tribunal found the assessee's explanation for the source of deposits to be partially acceptable and restricted the addition accordingly.

6. Addition on Account of Household Expenses:
The AO estimated household expenses and made additions. The Tribunal found the AO's estimation to be excessive and upheld the lower estimation made by the CIT(A), considering the joint family living arrangement and the year of assessment.

7. Addition on Account of Unexplained Cash Credits:
The AO made additions for unexplained cash credits. The Tribunal found that the assessee had provided sufficient evidence, including PAN and interest payments, to substantiate the cash credits. The Tribunal deleted the addition, noting that the AO's rejection of the confirmation was hyper-technical.

8. Addition on Account of Unsubstantiated Sundry Creditors and Non-Genuine Current Liabilities:
The AO made additions for unsubstantiated sundry creditors and non-genuine current liabilities. The Tribunal restored these issues to the AO for fresh estimation, considering all relevant facts and providing the assessee with an opportunity to substantiate the claims.

9. Interest Levied under Sections 234A, 234B, and 234C:
The Tribunal noted that the interest levied under Sections 234A, 234B, and 234C is consequential in nature and would depend on the final computation of income after giving effect to the Tribunal's findings.

10. Initiation of Penalty Proceedings under Section 271(1)(c):
The Tribunal found the grounds regarding the initiation of penalty proceedings to be premature and dismissed them, noting that such proceedings would be considered separately based on the final assessment.

Conclusion:
The Tribunal partly allowed the appeals of both the assessee and the revenue, directing the AO to recompute the income and make necessary adjustments in line with the Tribunal's findings. The Tribunal emphasized the need for substantiating claims with evidence and rejected arbitrary estimations not supported by material facts.

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