2012 (5) TMI 461 - AT - Income Tax

Addition of undisclosed income - assessee-firm is a builder and during this year, a survey action under section 133A of the Act was carried out on March 9, 2005 - Assessing Officer held that there is clear-cut shortage of income declared and finally the returned income and the assessee has not filed any explanation in this regard. The Assessing Officer worked out the regular income should have been 8 per cent - It was submitted by him that there is no dispute regarding the turnover declared by the assessee in the regular books. Regarding this aspect that amount declared in the course of survey was not added in the income to the extent of Rs. 20,76,537, it was submitted that this allegation is not correct and he submitted that audited accounts are available - the voluntarily disclosed income is only Rs. 1,75,00,000 less by Rs. 5 lakhs to the disclosed amount of Rs. 1,80,00,000 - Held that Profit before interest on partners capital and partners salary is shown by the assessee at Rs. 184.06 lakhs and the net income arrived at was Rs. 175.24 lakhs after allowing deduction of Rs. 1,81,369 on account of interest on partners capital and Rs. 7,00,000 on account of partners salary - Decided in favor of the assessee Addition u/s 154 made by the CIT(A) - In the present case, this is not the case of the Revenue that the partners of the assessee-firm are fictitious because in the statement of the partner, additional income of Rs. 180 lakhs was declared during the course of survey and it was duly shown in the return of income and the addition was made by the Assessing Officer on the basis of that statement only, which although is deleted, the fact remains that it is not a case of the Revenue that the partners of the assesseer-firm are fictitious - apex court in the case of CIT v. Orissa Corporation P. Ltd. 1986 159 ITR 78 (SC) - Held that this addition made by the Assessing Officer under section 68 is not sustainable in the light of this decision of the hon ble Supreme Court and in the light of the facts of the case, since confirmations along with addresses and permanent account numbers were made available by the assessee to the Assessing Officer and no effort was made by the Assessing Officer to pursue the loan creditors - Decided in favor of the assessee Regarding validity of assessment proceedings - this is the claim of the assessee that this notice said to have been issued by the Assessing Officer on June 20, 2006 was never served on the assessee but as per copy of the notice brought on record, there is some signature of some person although no name or date is appearing and hence, it is not coming out whether the same was served on the assessee or not - Appeals are allowed

Issues Involved:
1. Addition of Rs. 20,76,537 based on undisclosed income.
2. Addition of Rs. 70,40,000 regarding new capital introduced by partners.
3. Addition of Rs. 63,87,809 concerning fresh unsecured loans.
4. Validity of assessment proceedings due to alleged non-service of notice under section 143(2).

Detailed Analysis:

1. Addition of Rs. 20,76,537 Based on Undisclosed Income:
The Assessing Officer (AO) noted a discrepancy in the income declared by the assessee-firm, leading to an addition of Rs. 20,76,537. The assessee contended that the declared income included the additional income disclosed during the survey. The Commissioner of Income-tax (Appeals) [CIT(A)] partially accepted this, reducing the addition to Rs. 10,07,410 by estimating a 5% profit from regular business. However, the Income-tax Appellate Tribunal (ITAT) found that the AO did not reject the books of account and that the profit as per books should be accepted. The ITAT noted that the additional income of Rs. 1,80,00,000 was duly included in the profit and loss account, thus deleting the entire addition of Rs. 20,76,537.

2. Addition of Rs. 70,40,000 Regarding New Capital Introduced by Partners:
The AO added Rs. 70,40,000 under section 68, considering it unexplained. The assessee argued that the capital introduced by partners cannot be added to the firm's income, citing the Gujarat High Court decision in CIT v. Pankaj Dyestuff Industries. The ITAT agreed, stating that the AO could proceed against the partners individually if their explanations were unsatisfactory but could not add this amount to the firm's income. Consequently, the ITAT deleted this addition.

3. Addition of Rs. 63,87,809 Concerning Fresh Unsecured Loans:
The AO added Rs. 63,87,809 under section 68, claiming the assessee failed to prove the genuineness of the loans. The assessee provided confirmations, addresses, PANs, and other details of the loan creditors. The ITAT found that the AO made no further inquiries despite having sufficient information. Citing the Supreme Court decision in CIT v. Orissa Corporation P. Ltd., the ITAT held that the assessee had discharged its primary onus and deleted the addition.

4. Validity of Assessment Proceedings Due to Alleged Non-Service of Notice Under Section 143(2):
The assessee challenged the validity of the assessment on the grounds of non-service of notice under section 143(2). The ITAT noted that there was a signature on the notice but no clear evidence of service. However, since all additions made by the AO were deleted, the ITAT considered this issue academic and did not decide on it.

Conclusion:
The ITAT allowed the appeals filed by the assessee, deleting all contested additions. The appeal filed by the Revenue was dismissed. The ITAT emphasized the importance of proper verification by the AO and adherence to legal precedents in assessing unexplained income and loans. The order was pronounced on October 21, 2011.

← Previous Next →