2010 (5) TMI 499 - AT - Income Tax

Search and seizure - Undisclosed income - assessee made investments in LIC policies in the assessment year under appeal in her name and in the name of her husband - According to the award all the LIC policies have been given to the assessee of Rs. 20,00,000/- which were already purchased prior to the arbitration agreement and the award - Held that - The story set up by assessee that this amount was invested by the brother of the assessee after settlement through arbitration award is clearly afterthought and against all human probabilities. The contention of the assessee thus cannot be accepted. It is also unnatural conduct of the assessee and her brother that despite their father expired in September, 1993, the assessee and her brother suddenly awake up after expiry of around 10 years in 2003 for making reference for arbitration. The conduct of the assessee and her brother speak against themselves. The assessee has thus failed to explain the source of investments in purchase of LIC policies and amount received of Rs. 4,51,000/-. No earning of agricultural income is also proved. The alternate contention of the assessee has also no merit because the assessee has not disclosed any agricultural income in the assessment year under appeal. In the absence of any evidence of earning of agricultural income, the alternate contention of the learned Counsel for the assessee cannot be accepted. - Addition made by AO confirmed.

Issues Involved:
1. Treatment of Rs. 20,00,000/- invested in Life Insurance Policies as unaccounted and undisclosed income.
2. Addition of Rs. 4,51,000/- received by the appellant from her brother through arbitration award.

Issue 1: Treatment of Rs. 20,00,000/- invested in Life Insurance Policies as unaccounted and undisclosed income

The primary issue in ITA No.2797/Ahd/2006 for AY 2002-03 was whether the amount of Rs. 20,00,000/- invested in Life Insurance Policies by the appellant's brother should be treated as unaccounted and undisclosed income of the appellant. The appellant claimed that this amount was received from her brother as a settlement for her share of agricultural income and land owned by their father.

The Assessing Officer (AO) rejected the appellant's claim, noting several inconsistencies:
- The LIC policies were purchased prior to the arbitration award, suggesting no dispute existed between the appellant and her brother.
- Neither the appellant nor her brother had shown any agricultural income in their returns.
- There was no evidence of the brother's ability to earn or hold such a substantial amount from agricultural income.
- The arbitrator's award was deemed a fabricated story.

The CIT(A) upheld the AO's decision, emphasizing that the appellant and her husband were involved in substantial business activities, and the explanation provided lacked reliability. The CIT(A) also referenced Supreme Court decisions in CIT v. Durga Prasad More and Sumati Dayal v. CIT, which supported the Department's case by highlighting the improbability of the appellant's claims based on human conduct and surrounding circumstances.

The Tribunal concurred with the CIT(A), noting:
- The appellant and her brother failed to provide credible evidence of agricultural income or the source of funds for the LIC policies.
- The arbitration agreement and award appeared to be an afterthought, as the LIC policies were purchased well before these documents were created.
- The appellant's explanation did not stand up to the test of human probabilities, as outlined by the Supreme Court.

The Tribunal concluded that the Rs. 20,00,000/- invested in LIC policies was indeed unaccounted income of the appellant and dismissed the appeal.

Issue 2: Addition of Rs. 4,51,000/- received by the appellant from her brother through arbitration award

In ITA No.2798/Ahd/2006 for AY 2003-04, the issue was the addition of Rs. 4,51,000/- claimed to be received by the appellant from her brother through an arbitration award. The appellant contended that the amount was part of the settlement of her share of agricultural income.

The CIT(A) dismissed the appeal, referencing the findings and reasoning from the previous assessment year (2002-03). The Tribunal agreed with the CIT(A), noting that the facts and circumstances of the case were identical to those in the earlier appeal. The Tribunal reiterated that the appellant failed to provide credible evidence of the source of the funds and that the arbitration award was not a genuine document.

The Tribunal upheld the CIT(A)'s decision and dismissed the appeal, affirming that the Rs. 4,51,000/- was correctly added as undisclosed income of the appellant.

Conclusion

Both appeals by the appellant were dismissed, with the Tribunal confirming the findings of the CIT(A) and AO that the amounts in question were unaccounted and undisclosed income. The Tribunal emphasized the lack of credible evidence and the improbability of the appellant's explanations, aligning with established legal principles and Supreme Court precedents.

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