2014 (3) TMI 71 - AT - Income Tax

Surrender of income during search u/s 132 of the Act - Addition made u/s 68 of the Act - Unexplained income - Whether the CIT(A) is justified in deleting the addition made by the AO on the basis of surrender made during the course of search Held that - CIT(A) has failed to consider the real issues and pecularities of surrender and book entries involved in the case - order of ld. CIT(A) cannot be sustained as there is no case of deleting the addition of ₹ 10 crores as if the effect is given to the CIT(A)'s order, then assessed income comes to a loss of ₹ 79,85,102/- as against income of ₹ 4,63,44,560/-. Even if the issue of percentage completion method is kept aside, there is absolutely no justification in the act of the assessee crediting an amount of ₹ 10 crores towards the surrender in its books of accounts - This is so because it is demonstratively apparent out of cash 'on money' of ₹ 9.41 crores appearing from seized papers an amount of ₹ 9.40 crors stands utilized leaving a meager balance of ₹ 60,350/- in hand as on 31-8-2007 - These figures are demonstratively mentioned by AO in his order - When assessee had only meager cash balance, it is not understandable as to how assessee can credit ₹ 10 crores in his books - Prima facie, there is no justification in the assessee's act of crediting an amount of ₹ 10 crores in its books of accounts - it may amount to income of the assessee as unexplained income in the absence of availability - the issues in question have not been properly considered by the CIT(A) thus, the order set aside and the matter remitted back to the AO for fresh consideration Decided in favour of Assessee.

Summary

Issues Involved:
1. Justification of deletion of Rs. 10,00,00,000/- addition by CIT(A).
2. Treatment of 'on money' received from sale of shops.
3. Application of percentage completion method.
4. Crediting of Rs. 10 crores in books despite meager cash balance.
5. Proper assessment and appellate authority's duty.

Issue-wise Detailed Analysis:

1. Justification of Deletion of Rs. 10,00,00,000/- Addition by CIT(A):
The revenue appealed against the CIT(A)'s order deleting the addition of Rs. 10 crores made by the AO based on a surrender during a search. The AO found that cash receipts were a regular feature in the assessee's business and that the Managing Director's statement confirmed the receipt of 'on money' from shop sales. The AO concluded that the entire Rs. 10 crores should be taxed in the assessment year 2008-09. However, the CIT(A) deleted the addition, stating that the nature of cash receipts was the same as the accounted sale consideration and should be taxed based on the percentage completion method. The revenue argued that the CIT(A) failed to properly apply his mind and relied on case laws without appreciating the facts.

2. Treatment of 'On Money' Received from Sale of Shops:
The AO found that the assessee received 'on money' from the sale of shops, which was not recorded in the books. The AO treated the entire amount of Rs. 10 crores as taxable income, while the CIT(A) held that the cash receipts were related to the sale of shops and should be taxed as business income. The CIT(A) noted that the source of cash receipts was traceable to the sale of shops, and the percentage completion method should be applied to determine the taxable income.

3. Application of Percentage Completion Method:
The assessee argued that it was following the percentage completion method and offered only 57.65% of the 'on money' received as income. The CIT(A) agreed with the assessee, stating that the project was only 57.65% complete and the income should be computed accordingly. The revenue contended that the entire Rs. 10 crores should be taxed in the year of receipt, as the cash was already utilized for unexplained expenditures.

4. Crediting of Rs. 10 Crores in Books Despite Meager Cash Balance:
The AO found that the assessee had only a meager cash balance of Rs. 60,350/- after utilizing the 'on money' received for unexplained expenditures. The revenue argued that the assessee's act of crediting Rs. 10 crores in its books was unjustified, as the cash was not available. The CIT(A) did not address this issue adequately, leading to the revenue's contention that the addition should be restored.

5. Proper Assessment and Appellate Authority's Duty:
The revenue cited the Supreme Court's mandate in Kapoor Chand Shrimal that appellate authorities must ensure a fair assessment and correct errors by lower authorities. The revenue argued that the CIT(A) failed to discharge this duty by not addressing the real issues and peculiarities of the case. The Tribunal found merit in the revenue's arguments and noted that the CIT(A) did not properly consider the issues, leading to the decision to set aside the matter back to the AO for a fresh assessment.

Conclusion:
The Tribunal concluded that the CIT(A) failed to consider the real issues and peculiarities of the case. The Tribunal set aside the matter back to the AO for a fresh assessment, providing the assessee with an opportunity to explain the entries in its books and ensuring a fair and proper assessment. The revenue's appeal was allowed for statistical purposes.