2016 (1) TMI 1323 - AT - Income Tax

Not allowing the surrendered amount to be considered as project cost - surrender was made on account of unexplained expenditure - Held that - Section 292C of the Act is quite clear that in case of any document found during the course of survey, the presumption is against the assessee to consider that the document is owned by the assessee. Though the presumption is a rebuttable one, but in the present case, nowhere at any stage the assessee had even tried to rebut the same. So far, the assessee is right in adding the said amount in its return of income. However, adding the said amount in its project cost will amount to taking the fact of surrendering the income to an unreal extent. The amount is considered to be of the nature of unexplained expenditure, the expenditure which were not recorded in the books of accounts, once the amount expanded were out of an undisclosed income of the assessee, the assessee after surrendering the same cannot ask for increase in project cost by this amount. The contention of the learned D.R. that by adding the surrendered income in the project cost on the one hand and paying taxes on such income on the other hand, would amount to nullifying the effect of surrender, as the assessee will take benefit of the same in succeeding year, is correct. In view of the above, the action of the Assessing Officer in not allowing the surrendered amount to be considered as project cost is found to be correct. Penalty u/s 271(1)(c) - Held that - We have upheld the action of the Assessing Officer in not treating the surrendered amount as part of the project cost. In this background, we also agree with the contention raised by the learned D.R. that only because the assessee has voluntarily surrendered the income, penalty could not be levied, is not a correct proposition. However, there are other reasons for which the penalty in such a case cannot be levied. Firstly, the assessee has filed its return of income including the surrendered income and has paid taxes on the same. The income has been assessed at the same amount. The only dispute is with regard to the amount being treated by the assessee as a part of its project cost. However, we do not find any reason to uphold the levy of penalty in such circumstances. The assessee has made a claim by treating the surrendered income as a part of its project cost, which has been declined by the Assessing Officer. There is a difference of opinion between the assessee and the Assessing Officer. This is neither a case of concealment of income, nor furnishing of inaccurate particulars. The assessee has disclosed every thing properly.

Summary

Issues Involved:
1. Treatment of surrendered amount as part of project cost.
2. Levy of penalty under section 271(1)(c) of the Income Tax Act.
3. Addition of cash difference found during survey.

Issue-wise Detailed Analysis:

1. Treatment of Surrendered Amount as Part of Project Cost:
The primary issue revolves around whether the Rs. 90,00,000/- surrendered by the assessee during the survey under section 133A of the Income Tax Act can be included as part of the project cost. The assessee argued that the surrendered amount, being unexplained expenditure, should naturally form part of the project cost. However, the Assessing Officer and the CIT (Appeals) disagreed, stating that the surrendered amount could only be treated as part of the project cost if it was utilized towards purchasing material/land or expenditure for the project, which the assessee failed to explain. The Tribunal upheld the CIT (Appeals)'s decision, emphasizing that adding the surrendered amount to the project cost would nullify the effect of the surrender, as it would reduce the tax liability in subsequent years, which is not permissible by law.

2. Levy of Penalty under Section 271(1)(c) of the Income Tax Act:
The Revenue appealed against the CIT (Appeals)'s decision to delete the penalty of Rs. 29,99,700/- levied under section 271(1)(c) for concealing income. The CIT (Appeals) had deleted the penalty, noting that the assessee had neither concealed income nor filed inaccurate particulars, and the surrender was made voluntarily with a condition of no penalty. The Tribunal agreed with the CIT (Appeals), stating that the dispute was merely about the treatment of the surrendered amount as part of the project cost and not about concealment or furnishing inaccurate particulars. The Tribunal referenced the Supreme Court's judgment in CIT Vs. Reliance Petroproducts Pvt. Ltd., supporting the view that penalty cannot be levied in such circumstances.

3. Addition of Cash Difference Found During Survey:
In another appeal, the issue was the addition of Rs. 49,31,277/- due to a discrepancy between the physical cash found during the survey and the cash as per books. The assessee explained that the cash difference was because Rs. 49,30,777/- was kept at the residence of a partner, which was not known to the person whose statement was recorded during the survey. The CIT (Appeals) accepted this explanation and deleted the addition, noting that the addition was made merely based on the statement without any discrepancy in the cash book. The Tribunal upheld the CIT (Appeals)'s decision, emphasizing the lack of evidence to contradict the assessee's explanation and the unclear capacity in which the statement was recorded.

Conclusion:
The Tribunal dismissed all appeals from both the assesses and the Revenue, upholding the CIT (Appeals)'s decisions on all issues. The surrendered amount cannot be included in the project cost, penalty under section 271(1)(c) was not justified, and the cash difference addition was rightly deleted. The judgments reflect a thorough analysis of the facts, proper application of legal principles, and adherence to established accounting practices and provisions of the Income Tax Act.