2016 (8) TMI 1171 - AT - Benami Property

Addition on FDRs - Held that - We see no reason to agree with this course of action in view of specific provision in the Benami Transactions (Prohibition) Act 1988 specifically envisaging prohibition of the right to recover or defend any benami property as the finding section 2(c) therein to be a property of any client; moveable or immovable tangible or intangible including any right or interest in such property. Both the lower authorities ignored operation of this specific legislation. The Assessing Officer admittedly treats the actual investors to be assessee s benamidars. He also relies upon in a catena of case law. We find that none of them deals with the above stated Benami Act hereinabove. We accordingly hold that the Revenue s arguments supporting the impugned addition on the basis of the lower appellate authorities finding assessee s search statement and the fact that some of the impugned demand stands recovered from the FDRs in question does not form reason to deviate from the specific legislation hereinabove. We are further of the opinion that these FDRs in question have to be treated in the names of the specific investors therein who have already supported the impugned stand instead of holding the assessee as the real owner thereof merely because of the fact that the same have been found/seized from his premises in the course of search. We delete the impugned addition forming subject matter substantive ground.

Summary

Issues Involved:
1. Addition of accrued interest income on FDRs.
2. Addition of unexplained cash under section 69A.
3. Addition of un-reconciled expenses under section 69C.
4. Addition based on conditional disclosure of Rs. 67.80 lakhs.
5. Imposition of penalty under section 271(1)(c).

Detailed Analysis:

1. Addition of Accrued Interest Income on FDRs:
The assessee contested the addition of accrued interest on FDRs worth Rs. 1,76,46,465/- found during a search. The Assessing Officer (AO) treated these FDRs as benami investments of the assessee, adding accrued interest for the assessment years 2000-01 to 2006-07. The tribunal found that the FDRs were in the names of 128 different investors and held that the Benami Transactions (Prohibition) Act, 1988, prohibits treating these FDRs as the assessee's property. Consequently, the tribunal deleted the accrued interest additions, finding no basis to treat the FDRs as the assessee's unexplained investments.

2. Addition of Unexplained Cash under Section 69A:
The AO added Rs. 9,48,000/- found during the search as unexplained cash. The assessee claimed Rs. 6,38,800/- belonged to his sister, Ms. Rekhaben, which the tribunal rejected due to lack of evidence. However, the tribunal remitted the remaining sum of Rs. 3,09,200/- back to the AO for re-examination, as relevant books of accounts and reconciliation details were not properly considered.

3. Addition of Un-reconciled Expenses under Section 69C:
The AO added Rs. 11,85,758/- as un-reconciled expenses based on seized documents indicating unaccounted purchases and expenses. The assessee conceded Rs. 6,93,045/- as unexplained but contested the remaining Rs. 4,92,713/-. The tribunal found that this issue required further reconciliation and remitted it back to the AO for re-examination.

4. Addition Based on Conditional Disclosure of Rs. 67.80 Lakhs:
The Revenue's preliminary objection was based on the assessee's disclosure of Rs. 67.80 lakhs during the search. The tribunal noted that this disclosure was conditional and intended to cover any possible errors or omissions. Relying on precedents and CBDT Circular dated 10.03.2003, the tribunal held that the disclosure should be adjusted against the final taxable income, rejecting the Revenue's objection.

5. Imposition of Penalty under Section 271(1)(c):
The AO imposed a penalty of Rs. 10,40,070/- for concealment of income related to the additions of accrued interest, unexplained cash, and un-reconciled expenses. The tribunal, noting the deletion of the interest addition and partial remittance of other issues, found no basis for the penalty. It emphasized that mere disallowance or addition does not automatically result in penalty imposition, especially when the assessee provided explanations and evidence. Consequently, the tribunal upheld the CIT(A)'s decision to delete the penalty.

Conclusion:
- The assessee's appeals for the assessment years 2000-01 to 2005-06 were allowed.
- The quantum appeal for the assessment year 2006-07 was partly allowed.
- The Revenue's appeal seeking to revive the penalty was dismissed.