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2014 (12) TMI 431 - AT - Income TaxAddition u/s 69 Allowability of expenses as cost of acquisition development Held that - Following the decision in M/s. Manas Greenland Pvt. Ltd., Hyderabad Versus Income Tax Officer (OSD) 2014 (12) TMI 399 - ITAT HYDERABAD the CIT(A) rightly of the view that assessees have made investments in fixed assets and the source of such investments was the inflow available on the Liability Side of the Balance Sheet - since the AO has not properly appreciated the facts, before the CIT(A), the source was explained, and the same was accepted by the CIT(A) - there cannot be any addition made in this year and even in the subsequent year, i.e. in the year of sale, the source of investment cannot be disputed - CIT(A) is not justified in giving direction to the AO to consider the source of investment in the year of sale - it is not a fit case for making the addition u/s 69 Decided in favour of assessee. Treatment of agricultural income Income from other sources or not Held that - Assessee s claim of agricultural income has been rejected only on the ground of lack of supporting evidence - it is the claim of assessee that assessee is having substantial agricultural land holding which it has leased out and agricultural operations is being carried on such land. It is also to be noted that assessee has claimed that similar income shown in the preceding AY has been accepted by AO in scrutiny assessment proceeding - the matter requires re-examination - If the assessee has been showing agricultural income from lease rentals from the same land in the preceding AY, which has been accepted by the department, then, there is no reason why it should be disallowed in the impugned AY - AO is directed to verify this aspect and decided the issue accordingly decided in favour of assessee. Opportunity for verification of fresh evidences provided to AO or not Held that - Only on the basis of materials available on record, which also formed part of assessment record, viz., return of income, balance sheet, P&L a/c, confirmation letters etc., CIT(A) has concluded that neither the development expenses can be treated as unexplained investment nor the increase in unsecured loans can be treated as unexplained credit - as there is nothing on record to suggest that CIT(A) has entertained additional/fresh evidence while deleting the addition, the claim of the revenue cannot be accepted Decided against revenue. Imposition of penalty u/s 221(1) r.w.s. 140A(3) Held that - Assessee have failed to pay self-assessment tax u/s 140A of the Act while submitting its return of income for the impugned AY - Therefore, assessees are to be treated as assessees in default u/s 140A(3) of the Act thereby making them amenable to imposition of penalty u/s 221(1) of the Act. Section 221(1) makes it clear that AO can impose penalty in a case where assessee has defaulted in making payment of the tax liability as a result of which he is to be treated as an assessee deemed to be in default - imposition of penalty u/s 221(1) is not automatic or mandatory - AO has been given discretion to impose penalty in an appropriate case whereas assessee has also been given an opportunity to satisfy AO that there is good and sufficient reasons for default in making payment - assessee has discharged the tax liability along with interest, liberal approach needs to be taken - imposition of penalty at such a high figure at the first instance is not justified - penalty @ 5% of the admitted tax liability would be reasonable Decided partly in favour of assessee.
Issues Involved:
1. Addition of Rs. 2,40,000 under Section 69 of the IT Act, 1961. 2. Treatment of agricultural income as 'income from other sources' and disallowance of Rs. 1,66,221 out of total expenditure of Rs. 1,76,221. 3. Deletion of additions by CIT(A) without verification of fresh evidence. 4. Imposition of penalty under Section 221(1) read with Section 140A(3) of the IT Act. Issue-wise Detailed Analysis: 1. Addition of Rs. 2,40,000 under Section 69 of the IT Act, 1961: The assessee, engaged in agricultural and allied activities, declared 'nil' income for AY 2007-08. The AO added Rs. 2,40,000 to the fixed assets as unexplained investment under Section 69 due to lack of supporting evidence. The CIT(A) found that the addition to the fixed assets was sourced from the funds on the asset side of the balance sheet and could not be treated as unexplained. However, the CIT(A) directed the assessee to provide complete details of expenses for future consideration. The Tribunal, following previous decisions, set aside the CIT(A)'s directions and held that the addition under Section 69 was not justified. 2. Treatment of Agricultural Income as 'Income from Other Sources' and Disallowance of Rs. 1,66,221: The AO treated the agricultural income of Rs. 6,63,125 as 'income from other sources' due to lack of evidence and disallowed the expenditure of Rs. 1,76,221. The CIT(A) confirmed this view but allowed Rs. 10,000 out of the disallowed expenditure. The Tribunal directed the AO to re-examine the matter, considering if similar income was accepted in previous years and to verify the expenditure claims. 3. Deletion of Additions by CIT(A) without Verification of Fresh Evidence: The department's appeals contended that the CIT(A) deleted additions based on fresh evidence without AO's verification. However, the Tribunal found that the CIT(A) relied on existing records like balance sheets and confirmation letters, not fresh evidence. Therefore, the Tribunal dismissed the department's appeals, holding that the CIT(A)'s deletions were justified. 4. Imposition of Penalty under Section 221(1) read with Section 140A(3): The assessees failed to pay advance tax or self-assessment tax for AY 2008-09 despite having substantial funds. The AO imposed penalties under Section 221(1) for default in tax payment. The CIT(A) confirmed the penalties, noting that the assessees had sufficient funds but chose not to pay taxes. The Tribunal acknowledged the default but reduced the penalty to 5% of the admitted tax liability, considering the subsequent payment of taxes with interest and the discretionary nature of Section 221(1). Conclusion: - Appeals in ITA Nos. 485 & 564/Hyd/2014 were allowed. - Appeals in ITA Nos. 486, 487, 488, 490, 491 & 494/Hyd/2014 were partly allowed. - Appeals of the department in ITA Nos. 715, 525 & 582/Hyd/14 were dismissed. Pronounced in the open court on 10/12/2014.
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