2014 (1) TMI 1394 - AT - Income Tax

Undisclosed income - Held that - Decision in Commissioner Of Wealth-Tax Versus BM Kanodia (HUF) 1990 (4) TMI 32 - ALLAHABAD High Court followed - The AO should consider all the evidences furnished at the time of assessment proceedings and otherwise - The AO should re-examine the Wealth tax Returns in which the said jewellery has been claimed to be disclosed - The issue has been restored for fresh adjudication. Disallowance u/s 14A - Held that - The assessee has maintained mixed funds for investments and the business activities - The assessee has earned exempt income on investments - The assessee has excess interest free funds adequate to earn the impugned exempt income - Decision in CIT vs. Reliance Utilities & Power Ltd 2009 (1) TMI 4 - HIGH COURT BOMBAY followed - The issue has been restored for fresh adjudication. Estimation of annual lettable value of property - Held that - The AO has not examined some of the relevant facts such as when the asset was acquired by the assessee, how the asset is reflected in the books of accounts for all the years, how the asset is being used over the years etc - If the books of accounts are found during the search action, at the impugned flat, that should undisputedly indicate that the premises is of business nature - If the books indicate the depreciable nature of the said premises, by figuring out from the depreciation schedule, the provisions of section 23 becomes irrelevant - The issue has been restored for fresh adjudication.

Issues Involved:
1. Non-consideration of revised return of income.
2. Addition of undisclosed income of Rs. 65,00,000/- on account of difference in value of jewelry.
3. Re-computation of disallowance under Section 14A of the Income Tax Act.
4. Addition of Rs. 3,00,000/- on account of estimated annual rent of assessee's flat.
5. Disallowance of Rs. 5,960/- on account of property maintenance expenses.
6. Taxation of additional income on account of advance given for purchase of land and excess stock.

Detailed Analysis:

1. Non-consideration of Revised Return of Income:
The assessee did not press this ground during the hearing. Consequently, this issue was dismissed as not pressed.

2. Addition of Undisclosed Income of Rs. 65,00,000/- on Account of Difference in Value of Jewelry:
The assessee was searched on 3.1.2008, and the jewelry was valued by a Government Approved Valuer. The discrepancy of Rs. 65 lakhs arose due to the valuation differences between the Wealth Tax returns and the Government Valuer's assessment. The assessee argued that the valuation should consider the actual cost price, including a specific solitaire diamond ring valued at Rs. 50.08 lakhs by the Government valuer, but its actual cost was Rs. 13,64,450/-. The Tribunal found merit in the assessee's arguments and directed the Assessing Officer (AO) to re-adjudicate the issue, considering the relevant Wealth Tax returns and verifying the cost of the jewelry, including the disputed solitaire diamond ring. The AO was instructed to provide a reasonable opportunity for the assessee to be heard and to base the assessment on actual evidence rather than statements and letters.

3. Re-computation of Disallowance under Section 14A of the Income Tax Act:
The assessee earned exempt income of Rs. 12,45,898/- and had debited interest expenditure of Rs. 14.84 lakhs. The AO applied Rule 8D of the IT Rules, resulting in a disallowance of Rs. 2,49,189/-. The assessee argued that it had adequate interest-free funds for the investments yielding exempt income. The Tribunal remanded the matter to the AO to re-adjudicate the issue afresh, considering the judgment in CIT vs. Reliance Utilities & Power Ltd, which favors the assessee if interest-free funds are more than borrowed funds. The AO was directed to provide a reasonable opportunity for the assessee to demonstrate the applicability of the cited judgment.

4. Addition of Rs. 3,00,000/- on Account of Estimated Annual Rent of Assessee's Flat:
The assessee claimed that the flat was used for business purposes, storing books of accounts, and housing an employee. The AO estimated the annual rent at Rs. 3 lakhs, which the CIT(A) upheld. The Tribunal found merit in the assessee's claim that the flat was used for business purposes and that the AO's estimation method was inappropriate. The matter was remanded to the AO to examine the usage of the flat, its reflection in the books of accounts, and its depreciable nature. The AO was directed to re-adjudicate the issue afresh, considering the business use of the premises and the presence of the employee.

5. Disallowance of Rs. 5,960/- on Account of Property Maintenance Expenses:
The assessee argued that no such expenditure was incurred or claimed in the return. The Tribunal found merit in the assessee's arguments and allowed this ground, stating that the CIT(A) erred in confirming the disallowance without proper consideration.

6. Taxation of Additional Income on Account of Advance Given for Purchase of Land and Excess Stock:
This ground was not pressed by the assessee during the hearing and was consequently dismissed as not pressed.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for re-adjudication of the issues related to undisclosed jewelry, disallowance under Section 14A, and estimated annual rent of the flat. The Tribunal emphasized the need for a fair assessment based on actual evidence and provided opportunities for the assessee to be heard.

← Previous Next →