2014 (3) TMI 929 - AT - Income Tax

Addition made Valid explanation for sources of investment not made Held that - CIT(A) was of the view that the assessee explained usage of receipt which was used for payment to the landlords - the assessee has not explained the sources from whom he had received and the purpose for which it was received - In the absence of source and nature of expenditure, the receipt is to be considered as trading receipt and income on this is to be estimated, as the assessee estimated on other receipts, at 25% - Decided partly in favour of Revenue. Addition made u/s 69A of the Act Held that - The observation of the CIT(A) is not proper - When the amount is included in Form No. 26AS the CIT(A) is not proper to hold that the assessee received the amount from M/s. Jana Chaitanya Housing Ltd., and paid to the landlords and the assessee acted only as an agent - It is the mobilisation advance given to the assessee which is liable for TDS towards land development expenditure - When the assessee undertakes the land development, it cannot be said that the assessee carried out the work without element of profit - as it is a regular work carried on by the assessee, applying net profit rate as adopted by the assessee on regular trading receipts, the AO is directed to adopt 25% of the receipt as income of the assessee Decided partly in favour of Revenue.

Summary

Issues Involved:
1. Addition of Rs. 1,71,766 under section 69 of the Income-tax Act, 1961 for failure to provide a valid explanation for the sources of investment.
2. Addition of Rs. 20,00,000 under section 69A of the Income-tax Act, 1961 for undisclosed income received from M/s. Jana Chaitanya Housing Ltd.

Issue 1:
The first issue revolves around the addition of Rs. 1,71,766 under section 69 of the Income-tax Act, 1961 due to the appellant's failure to furnish a valid explanation for the sources of investment. The appellant received two cheques but did not adequately explain the source of the funds. The CIT(A) deleted the addition based on the explanation that the amount was used for payment to landlords. However, the Tribunal observed that the appellant did not clarify the sources from whom the amount was received and the purpose for which it was received. Consequently, the Tribunal estimated the income at 25% due to the lack of proper explanation, partially allowing the Revenue's ground.

Issue 2:
The second issue involves the addition of Rs. 20,00,000 under section 69A of the Income-tax Act, 1961 for undisclosed income received from M/s. Jana Chaitanya Housing Ltd. The AO noticed the receipt in Form No. 26AS but the appellant did not declare it as trading receipt. The appellant argued that the amount was received as commission for acting as an agent, not for contract works. The CIT(A) accepted the appellant's explanation based on confirmation letters and bank statements. However, the Tribunal disagreed with the CIT(A)'s decision, stating that the amount was liable for TDS as mobilization advance and should be considered income. The Tribunal directed the AO to adopt 25% of the receipt as the appellant's income, partially allowing the Revenue's ground.

In conclusion, the Tribunal partially allowed the Revenue's appeal concerning both issues, directing the AO to estimate the appellant's income at 25% for the undisclosed amounts in question.