2012 (9) TMI 50 - AT - Income Tax

Disallowance of claim of Agriculture income - Addition on account of undisclosed income - shortfall in the cash flow statement of Smt. Kadeeja, mother of one of the partners - Held that - Considering the specification provided by the rubber Board the undisclosed income has to be computed in accordance with provisions of chapter XIVB. Therefore, the income has to be computed on the basis of the material found during the course of search operation whereas in thus case the undisclosed income was computed on the basis of the cash flow statement filed by the assessee in the course of the assessment proceedings. In fact, AO disbelieved the cash flow statement in respect of the agricultural income and the balance was added as undisclosed income. In the absence of any material found during the course of search operation the assessing officer cannot make any addition - in favour of assessee. Addition on unexplained cash credit - Held that - As concerned persons in this case confirms that they has given the gold jewellery as capital investment in the firm, the addition if any has to be made only in their hands only and not in the hands of the firm. No material is found in the course of search proceedings that the entry found in the books of account with regard to the credit of gold jewellery is false, thus AO cannot make any addition with regard to the investment made in the partnership firm - in favour of assessee. Disallowance of depreciation - Held that - As the profit of the assessee was estimated at 5% of the turnover u/s 44AF and once the profit is estimated, all expenditure and allowances including depreciation are deemed to have been allowed, thus CIT(A) has rightly rejected the claim of the assessee for depreciation - against assessee. Addition being the value of jewellery brought in by the partners of the assessee firm - Held that - As the partners of the firm have disclosed incomes under VDIS 1997. Once the amount disclosed under VDIS, the same would be available for making further investment. It is not in dispute that the amount disclosed under VDIS was accepted by the competent authority. Therefore, the assessing officer cannot doubt the source of investment made at this stage - against revenue.

Issues:
1. Deletion of addition of Rs. 1,18,000 as undisclosed income in the hands of the firm.
2. Deletion of addition of Rs. 2,66,000 and Rs. 1,40,873 made as unexplained cash credit.
3. Dismissal of the ground of appeal regarding tax deducted at source.
4. Disallowance of depreciation to the extent of Rs. 10,83,853.
5. Deletion of addition of Rs. 16,04,721 being the value of jewellery brought in by the partners of the assessee firm.

Deletion of Addition of Rs. 1,18,000:
The issue arose from the deletion of the addition of Rs. 1,18,000 as undisclosed income in the hands of the firm due to a shortfall in the cash flow statement of Smt. Kadeeja. The assessing officer had estimated agricultural income lower than claimed, resulting in the deficiency being added as undisclosed income. However, the Tribunal held that without material found during the search operation, the assessing officer cannot make any addition. The Commissioner of Income-tax(A) rightly deleted the addition, confirming the order.

Deletion of Addition of Rs. 2,66,000 and Rs. 1,40,873:
Regarding the deletion of additions made as unexplained cash credit, the Tribunal found that in the absence of material found during the search operation, no addition could be made as undisclosed income. The entries in the books of account were confirmed by the creditors, and no evidence showed the entries were false. Therefore, the Tribunal confirmed the lower authority's decision to delete the additions.

Dismissal of Ground of Appeal on Tax Deducted at Source:
The ground of appeal regarding tax deducted at source to the extent of Rs. 63,507 was not pressed by the assessee and was dismissed accordingly.

Disallowance of Depreciation:
The issue involved the disallowance of depreciation claimed on assets additionally disclosed by the assessee. The Tribunal noted that once income was estimated under a specific section of the Act, all expenditure and allowances, including depreciation, were deemed to have been allowed. Since the income was estimated at 5% of the turnover, the Tribunal upheld the decision to reject the claim for depreciation.

Deletion of Addition of Rs. 16,04,721:
The addition of Rs. 16,04,721 as the value of jewellery brought in by the partners of the assessee firm was deleted by the Commissioner of Income-tax(A). The partners had disclosed incomes under VDIS 1997, and the amount was introduced as capital in the firm. The Tribunal agreed that once the amounts disclosed under VDIS were invested, there could be no addition as income. Therefore, the Tribunal confirmed the deletion of the addition by the Commissioner of Income-tax(A).

In conclusion, the Tribunal dismissed both the appeals of the revenue and the assessee, upholding the decisions made by the lower authorities on the various issues raised in the case.

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