2012 (9) TMI 41 - AT - Income Tax

Addition on account of cash payments - survey u/s 133A - Held that - As regards addition of Rs.5.00 lacs the assessee had explained the same as cash loans taken from Shri B.K. Sheena during April, 1998, which has also been confirmed by him giving his Permanent Account Number and addition only on the ground that cash was kept and payments were made much later is not justified in the absence of any material to show that cash loans had been utilized elsewhere - loans were reflected in the assessment records of Shri B.K. Sheena and source had been explained, addition could not have been made only on the ground that Shri B.K. Sheena had not been produced - thus the claim of loan of Rs.5.00 lacs requires fresh verification and accordingly restored back to the file of AO for fresh order - in favour of assessee for statistical purposes. Estimation of income - two sets of trading, P&L account showing different figures of net profit had been found in survey - income estimation made @8% by CIT(A)- Held that - As the trading-cum-P&L Account found at the time of survey was only projected and the word projected was clearly inscribed on it assessment based on projected turnover need to be rejected - once turnover is available as per audited accounts, income has to be estimated on a reasonable basis based on turnover as labour charges and purchases are not verifiable in the absence of books of accounts which have not been produced - estimation can not be made @8% under section 44AD which is applicable only in case of turnover not exceeding Rs.40.00 lacs and in the present case, turnover is Rs.2.80 crores - As the books of account for this year are not available and, therefore labour charges and purchases can not be cross verified and no comparative case for the current period has been brought to notice it would be reasonable to estimate net profit @ 6% this year - partly in favour of assessee. Allowability of expenses against royalty income by CIT(A) - income from lease of hotel - revenue appeal - Held that - The hotel building had been leased out along with furniture, fittings etc. for running the hotel. Therefore, income has been rightly assessed as income from other sources. No infirmity in the order of CIT(A) in allowing the claim of the assessee - against Revenue. Addition on account of House property - Held that - The AO had assessed income from Mangalore property without giving details of the property. Assessee has denied any property at Mangalore other than agricultural property income from which has been assessed as agricultural income. Under these circumstances addition on account of house property is not justified - in favour of assessee.

Summary

Issues Involved:
1. Addition on account of cash payments.
2. Charging of interest under sections 234A, 234B, and 234C.
3. Estimation of income.
4. Allowability of expenses against royalty income.
5. Addition on account of Mangalore property.

Issue-wise Detailed Analysis:

1. Addition on Account of Cash Payments:
The assessee contested the addition of Rs. 8.50 lacs, specifically Rs. 5.00 lacs claimed as a loan from Shri B.K. Sheena. The AO did not accept the genuineness of the loan due to lack of supporting documents and added the amount to the assessee's income. The CIT(A) confirmed the addition, noting the absence of Shri B.K. Sheena's testimony. The Tribunal found that the loan claim required fresh verification and remanded the issue to the AO for further examination.

2. Charging of Interest under Sections 234A, 234B, and 234C:
The assessee raised a dispute regarding the charging of interest under sections 234A, 234B, and 234C. However, this issue was not elaborated upon in the judgment, and thus, the details remain unspecified.

3. Estimation of Income:
The main dispute was the estimation of income following a survey that found discrepancies in the trading and P&L accounts. The AO estimated the net profit at 8% of the turnover, resulting in an assessed income of Rs. 98,59,200/-. The CIT(A) held that the income should be based on audited accounts and estimated the net profit at 8%. The Tribunal agreed with the CIT(A) that estimation was necessary but found 8% excessive. It revised the net profit estimation to 6%, considering the nature of the business and the absence of verifiable books of accounts.

4. Allowability of Expenses Against Royalty Income:
The assessee declared royalty income from leasing a hotel as income from other sources and claimed related expenses. The AO treated it as income from house property, allowing only a standard deduction. The CIT(A) accepted the assessee's claim, noting that the income had been assessed as income from other sources in previous and subsequent years. The Tribunal upheld the CIT(A)'s decision, agreeing that the income was rightly assessed as income from other sources.

5. Addition on Account of Mangalore Property:
The AO added Rs. 1.00 lacs as income from a Mangalore property, which the assessee denied owning. The CIT(A) deleted the addition due to the lack of details about the property in the assessment order. The Tribunal upheld the CIT(A)'s decision, finding no justification for the addition.

Conclusion:
The Tribunal's judgment addressed several key issues, resulting in partial relief for both the assessee and the revenue. The case was remanded for fresh verification on the loan claim, the net profit estimation was revised, and the nature of royalty income and the addition for the Mangalore property were resolved in favor of the assessee. The appeals were partly allowed, reflecting a balanced approach to the disputes raised.