2013 (2) TMI 576 - HC - Income Tax

Addition on the basis of cheques and hundis found during search Cheques and hundis were found in the residence of assessee in the name of one Shri Rakesh N.Patel AO Considered that these were the cash advances given by assessee to Shri Rakesh Patel on the security of the cheques and addition were made Held that - Addition was made only on the basis of presumption on the ground that the cheques were received on cash loan advances to Shri Rakesh Patel - There was no corroborative material for sustaining such presumption. This issue is purely factual in nature Against the revenue. Addition made on account of interest on loan cheque issued by one Shri Archit Shah was to the tune of Rs.13,50,000/- against the debit balance of Rs.12,14,072/- , difference was added by AO as the income of the assessee derived by way of interest on their loan advances Held that - department could not bring on record any material to show that the assessee actually received interest of Rs.1,35,928/- at any point of time Against the revenue. Addition on the basis of entries mentioned in the seized documents AO observed that on the seized paper, two amount respectively Rs.30 lacs and Rs.11 lacs were indicated, and on this basis additions were made Held that - addition was made only on the basis of the noting on the piece of papers without there being any evidence It is completely unjustifiable Against the revenue.

Summary

Issues:
1. Addition of Rs.12 lakhs based on signed cheques and hundis found during search action.
2. Addition of Rs.1,35,928/- on account of interest on loan.
3. Addition of Rs.41 lakhs based on entries in seized documents.

Analysis:

Issue 1:
The Assessing Officer added Rs.12 lakhs to the income of the respondent based on signed cheques and hundis found during a search. The respondent explained that the cheques were related to a guarantor situation and not cash advances to another individual. The CIT(Appeals) deleted the entire amount, citing lack of collateral evidence. The Tribunal upheld this decision, stating that the addition was based on presumption without corroborative material, and was purely factual. As there was no relevant material to support the addition, the Tribunal's decision was upheld.

Issue 2:
Regarding the addition of Rs.1,35,928/- as interest on a loan, the Assessing Officer treated the excess amount from a bounced cheque as undisclosed interest income. The CIT(Appeals) disagreed, noting that the recovery of the principal amount was doubtful and no interest had been charged. The Tribunal concurred, stating that no real income accrued to the assessee due to the dishonored cheque, and there was no material to show the receipt of interest. The Tribunal upheld the CIT(Appeals) decision, emphasizing that real income, not notional income, is assessable under tax laws.

Issue 3:
The Assessing Officer added Rs.41 lakhs based on entries in seized documents, alleging cash advances. The CIT(Appeals) found this addition unjustifiable and based on suspicion without material support, thus deleting the amount. The Tribunal agreed, stating that the Department failed to provide cogent material to prove unexplained investment by the respondent. As the addition lacked evidentiary support and was solely based on noting on paper, the Tribunal upheld the CIT(Appeals) decision, emphasizing the absence of substantial material to support the Department's claim.

In all three issues, the Tribunal and CIT(Appeals) concurred in favor of the respondent, highlighting the lack of concrete evidence and reliance on presumptions and suspicions by the Assessing Officer. The Tribunal emphasized the factual nature of the issues and the necessity for material support to justify income additions. The Tax Appeal was dismissed in each instance due to the absence of substantial evidence to warrant interference with the lower authorities' decisions.