2013 (10) TMI 609 - AT - Income Tax

Block assessment - Undisclosed income - Advance amount received - unaccounted assets - Held that - There has been no addition qua the cost of the construction of the project - which in fact is not the subject matter of dispute - in which case, the assessee could be considered to have been called upon to adduce evidence to substantiate its claim. The reliance on the valuation report is, thus, of little moment. Could, one may ask, the Revenue assess undisclosed income on the basis of valuation report consequent upon a search, case law on which is legion. The valuation report could be sought by the Revenue, in satisfying itself with regard to the construction cost as debited or claimed by the assessee per its regular books of account, or verifying the assessee s claim with regard thereto, even independent of a search or requisition. The said report becomes relevant in block assessment proceedings u/c. XIV-B and, accordingly, reliance thereon for assessment of undisclosed income becomes understandable, as where the assessee is found during search to have placed no value on some or a specific part of the construction, or some other defect in the assessee s claim discovered in search, viz. as where a difference or discrepancy is found with regard to the materials or the quality of goods used in construction, which is not consistent with that reflected per the books of account. It is in that case that the valuation report, pressed for by either party, in respect of its claim/s, may assume significance. The deduction of Rs.75.93 lakhs claimed and allowed to the assessee, it may be clarified, is not for under-valuation of the cost of project with reference to the regular books of account, but on account of it having established utilization of the money toward construction of the project, income from which is being brought to tax as undisclosed income, to that extent and, thus, deductible in computing the undisclosed income earned therefrom. The same is in our view rightly restricted by the Revenue to the sum as borne out of the materials as found as a result of search, i.e., Annexure A-1. The Revenue, by doing so, we may again clarify, is not in any manner certifying the construction cost of the project or in any manner validating the same at the said amount, i.e., in addition to the amount that may have been disclosed in its respect per the assessee s regular accounts, but only basing the assessee s claim for deduction in computing the undisclosed income, found to have been earned by way of on money on a project, against its utilization to the extent stands substantiated by the assessee with reference to the materials found as a result of search, which is the mandate of law - Decided against assessee.

Summary

Issues Involved:
1. Assessment of undisclosed income.
2. Admissibility of additional construction costs.
3. Addition of interest income from cash loans.

Issue-wise Detailed Analysis:

1. Assessment of Undisclosed Income:
The principal issue in these appeals is the assessment of undisclosed income. The assessees, who are brothers engaged in the construction business, developed a Shopping Complex during the relevant block period. They sold the sole selling rights for a major area of the project for Rs.1,07,08,423/-, which was not recorded in their books of account and thus formed part of the undisclosed income. The Revenue computed the undisclosed income by deducting the allowed expenditure from the unaccounted receipts, resulting in an income of Rs.36,16,524/-, which was then apportioned between the brothers.

2. Admissibility of Additional Construction Costs:
The assessees claimed additional construction costs of Rs.94.58 lakhs, which was contested by the Revenue. The admissibility of these costs, particularly for items like steel, cement, granite, and other materials, was the bone of contention. The Revenue restricted the claim to Rs.70.92 lakhs based on the seized material, while the CIT(A) allowed a further Rs.5.01 lakhs, accepting a total of Rs.75.93 lakhs. The Tribunal upheld the Revenue's restriction, emphasizing that undisclosed income should be based on evidence found during the search, as per established legal precedents.

3. Addition of Interest Income from Cash Loans:
Shri Sharad S. Ruia was found to have given cash loans on interest, totaling Rs.39.50 lakhs, with interest deducted upfront. The Revenue added the interest income of Rs.6,18,960/- to the undisclosed income, which was upheld by the CIT(A). The Tribunal found no merit in the assessee's claim to restrict the addition to the peak amount of Rs.27.69 lakhs, as the full amount of loans advanced was considered part of the undisclosed income from the construction business. The Tribunal also noted that the assessee had been allowed full telescoping benefit for the entire amount advanced, rendering the grievance untenable.

Conclusion:
The Tribunal dismissed the appeals, affirming the Revenue's computation of undisclosed income and the restriction of additional construction costs to the amounts evidenced by the seized material. The addition of interest income from cash loans was also upheld, with the Tribunal finding no merit in the assessee's claims. The decision was pronounced in the open court on 05/06/2013.