2011 (8) TMI 1293 - AT - Income Tax

Issues Involved:
1. Addition on account of alleged suppression of sale and purchases.
2. Addition on account of unexplained cash found during the search.
3. Addition on account of unexplained gold/precious stones.
4. Disallowance under section 40A(3) of the Income Tax Act.
5. Disallowance of construction and work-in-progress expenses.
6. Disallowance of taxi running expenses.
7. Addition on account of unexplained cash credits.
8. Addition on account of unexplained investment in the Global City Project.
9. Addition on account of unexplained cash deposits in bank accounts of benami persons.

Detailed Analysis:

1. Addition on Account of Alleged Suppression of Sale and Purchases:
The AO made an addition of Rs. 1,38,70,000 based on seized documents, which was confirmed by the CIT(A). The assessee contended that the documents were "deaf and dumb" and lacked evidentiary value. The Tribunal found that the AO did not establish that the assessee received excess consideration over the sale consideration shown in registered documents. Hence, no addition was warranted.

2. Addition on Account of Unexplained Cash Found During the Search:
The AO added Rs. 13,00,000 as unexplained cash, which was confirmed by the CIT(A). The assessee argued that the cash was reflected in the cash book prepared after the search. The Tribunal noted that the cash book was prepared based on available documents and bank statements, and the cash balance exceeded Rs. 10,00,000. Therefore, the addition was deleted.

3. Addition on Account of Unexplained Gold/Precious Stones:
The AO added Rs. 30,00,000 for unexplained gold and precious stones, which was reduced to Rs. 1,64,186 by the CIT(A). The Tribunal noted that the jewellery was within the limits prescribed by CBDT Circular No. 1916 and was explained with purchase bills. Hence, the addition was deleted.

4. Disallowance under Section 40A(3) of the Income Tax Act:
The AO disallowed Rs. 19,22,600 for cash purchases, which was reduced to Rs. 3,21,000 by the CIT(A). The Tribunal noted that the books of accounts were rejected, and the profit was estimated. Therefore, no separate disallowance under Section 40A(3) was warranted, and the addition was deleted.

5. Disallowance of Construction and Work-in-Progress Expenses:
The AO disallowed Rs. 1,50,00,000, which was reduced to Rs. 49,74,730 by the CIT(A). The Tribunal noted that the net profit rate disclosed by the assessee was reasonable, and the expenses were not fully verifiable. The Tribunal sustained a disallowance of Rs. 2,50,000, representing 1% of the turnover.

6. Disallowance of Taxi Running Expenses:
The AO disallowed Rs. 6,60,139, which was reduced to Rs. 3,96,083 by the CIT(A). The Tribunal noted that the receipts from the taxi business were accepted, and the expenses were reasonable. The Tribunal estimated the net profit from the taxi business at Rs. 2,00,000 and deleted the remaining addition.

7. Addition on Account of Unexplained Cash Credits:
The AO added Rs. 3,87,00,404 for unexplained cash credits, which was reduced to Rs. 73,61,000 by the CIT(A). The Tribunal noted that the assessee provided sufficient evidence to explain the cash credits, and the cash flow statements were reliable. Therefore, the addition was deleted.

8. Addition on Account of Unexplained Investment in the Global City Project:
The AO added Rs. 2,10,00,000 based on the assessee's statement during the search, which was confirmed by the CIT(A). The Tribunal noted that the project belonged to the company, and any undisclosed payments should be added in the company's hands, not the assessee's. Therefore, the addition was deleted.

9. Addition on Account of Unexplained Cash Deposits in Bank Accounts of Benami Persons:
The AO added Rs. 83,91,000 for cash deposits in benami accounts, which was reduced to Rs. 10,61,000 by the CIT(A). The Tribunal noted that the cash flow statements explained the cash deposits, and the memorandum of books of accounts was reliable. Therefore, the addition was deleted.

Conclusion:
The Tribunal allowed the appeal of the assessee partly and dismissed the appeal of the revenue. The additions on account of suppression of sales, unexplained cash, unexplained gold, disallowance under Section 40A(3), construction expenses, taxi expenses, unexplained cash credits, unexplained investment in the Global City Project, and unexplained cash deposits were deleted or reduced based on the evidence and explanations provided by the assessee.

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