2016 (7) TMI 1316 - AT - Income Tax

Unexplained marriage expenses - not allowing set off of addition against surrendered income made by the assessee - Held that - In the absence of any specific material found against the assessee and in the absence of any basis for estimating addition of ₹ 1 lac, the addition of ₹ 1 lac is wholly unjustified. Accordingly, set aside the orders of the authorities below and delete the addition of ₹ 1 lac on account of unexplained marriage expenses. Further, the assessee made alternate claim that addition of ₹ 1 lac may be set off against additional income surrendered of ₹ 1 lac in the return of income. Since the addition on account of marriage expenses has been deleted, therefore, the alternate contention of the assessee has become infructuous and need no further adjudication. Addition on account of gross profit - Held that - Assessee surrendered ₹ 1 lac on account of discrepancies in the books of account, therefore, when authorities below have made addition of ₹ 1,24,214/- by rejecting the book results of the assessee, set off of ₹ 1 lac declared as additional income should be given to the assessee. Otherwise, it would amount to double addition. In this view of the matter, I set aside and modify the orders of authorities below and direct the authorities below to give set off of ₹ 1 lac to the assessee on account of additional income surrendered in the return of income on account of discrepancy in the books of account. It would result that addition of ₹ 1,24,214/- would be restricted to ₹ 24,214/- only. The Assessing Officer is, therefore, directed to make addition of ₹ 24,214/- only as against addition of ₹ 1,24,214/-. In the result, appeal of the assessee is partly allowed.

Summary

Issues:
1. Addition of unexplained marriage expenses and set off against surrendered income for A.Y. 2006-07.
2. Addition of gross profit and set off against surrendered income for A.Y. 2007-08.

Analysis:

Issue 1: Addition of Unexplained Marriage Expenses and Set Off for A.Y. 2006-07:
The Assessing Officer added ?1 lac as unexplained marriage expenses incurred by the assessee. The assessee contended that the expenses were already accounted for in previous years for his daughters' marriages. The CIT(A) upheld the addition based on loose slips found during a search. However, the ITAT found the addition unjustified as the seized papers did not conclusively prove the additional expenses. The ITAT accepted the assessee's explanation that the total expenses for both daughters' marriages were higher than the estimated amount. No specific basis was provided for the additional ?1 lac, leading to the deletion of the addition. The alternate claim for set off against surrendered income was deemed unnecessary post deletion of the addition.

Issue 2: Addition of Gross Profit and Set Off for A.Y. 2007-08:
The Assessing Officer made an addition of ?1,24,214 by estimating sales and applying a higher GP rate due to unrecorded transactions found during a search. The CIT(A) upheld the addition after rejecting the books of account under section 145(3). The ITAT found no challenge to the addition itself but allowed set off of the surrendered ?1 lac against the addition to avoid double taxation. The ITAT directed the authorities to restrict the addition to ?24,214, considering the surrendered amount. The appeal for this year was partly allowed.

In conclusion, the ITAT allowed the appeal for A.Y. 2006-07 and partly allowed the appeal for A.Y. 2007-08, emphasizing the need for proper justification and consideration of surrendered income for set off to prevent double taxation.