2014 (12) TMI 674 - AT - Income Tax

Estimation of book profits @ 8% on sale of plots and land Facts properly appreciated or not Held that - During the course of survey, the assessee himself has disclosed in a statement that he has received on-money on the sale of plots which was not recorded in the books - where the accounts of assessee are rejected, the AO is duty bound to make a fair estimation of the profit - the AO while estimating the profit has not given any basis for arriving at the net profit @ 8% - the order of the AO is defective, therefore, the matter is remitted back to the AO for fresh adjudication Decided in favour of assessee. Addition of unaccounted expenditure u/s 69C - Failure to explain source of the expenditure Held that - The assessment and enhancement of assessment has been framed on the basis of such statements coupled with material in the form of loose-papers collected during the course of survey - addition is made partly on the basis of the statement recorded during the course of survey proceedings - it is noticed that two statements of same person has been recorded, consisting of 18 questions and 22 questions respectively - there are glaring inconsistencies in two statements - only profit element embedded into the business receipt is to be taxed - additions cannot be made solely on the basis of survey statement - sale-deeds were executed in other years, therefore the authorities below were not justified in taxing the sale consideration in the years under consideration - there is no finding by the authorities below and no inquiry has been made as to when such properties were transferred to the respective buyers in terms of the provisions of Income Tax Act - actions of both the authorities below cannot be justified, however, there was no effective representation by the assessee and relevant information was not placed but the AO did not make further enquiry on the basis of material collected during the course of survey proceedings thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh adjudication Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 10,02,508/- by AO by estimating book results at 8% on sale of plots.
2. Addition of Rs. 5,49,00,000/- by AO under Section 69C for unexplained expenditure.
3. Enhancement of income by Rs. 9,68,00,000/- by CIT(A).
4. Initiation of penalty under Sections 271(1)(c), 271(1)(b), and 271F of the Act.

Detailed Analysis:

1. Addition of Rs. 10,02,508/- by AO by estimating book results at 8% on sale of plots:
The assessee contended that the authorities erred in confirming the addition without properly appreciating the facts. The CIT-DR supported the orders, arguing the book results were unreliable due to undisclosed transactions detected during the survey. The Tribunal noted that the assessee admitted to receiving 'on-money' not recorded in the books. The AO was justified in rejecting the book results but failed to provide a basis for the 8% profit rate. The Tribunal restored the issue to the AO for fresh adjudication with a directive to pass a speaking order on the profit rate.

2. Addition of Rs. 5,49,00,000/- by AO under Section 69C for unexplained expenditure:
The assessee argued that the addition was based solely on statements recorded during the survey, which is not permissible. The Tribunal reviewed the material and noted inconsistencies in the statements. The AO made the addition based on a statement that the assessee received Rs. 6.60 Crores as 'on-money' and incurred unaccounted expenses, resulting in a net profit of 15%. The Tribunal found that the AO and CIT(A) based their findings on different statements without independent inquiry. The Tribunal set aside the orders and directed the AO to make a de novo assessment, considering the actual number of plots sold and the profit element.

3. Enhancement of income by Rs. 9,68,00,000/- by CIT(A):
The CIT(A) enhanced the income based on a different statement from the survey, which indicated a higher number of plots sold and 'on-money' received. The Tribunal found that both the AO and CIT(A) relied on inconsistent statements and did not conduct independent inquiries. The Tribunal set aside the enhancement and directed the AO to reassess the matter, considering the actual facts and judicial pronouncements.

4. Initiation of penalty under Sections 271(1)(c), 271(1)(b), and 271F of the Act:
The Tribunal noted that no effective argument was made regarding the initiation of penalties under Sections 271(1)(c), 271(1)(b), and 271F. Consequently, these grounds were rejected. However, since the quantum appeal was set aside for a de novo assessment, the penalty levied by the Revenue did not survive. The Tribunal directed the AO to delete the penalty.

Conclusion:
In the quantum appeal (ITA No.4207/Ahd/2007), the Tribunal partly allowed the appeal for statistical purposes, directing a fresh assessment by the AO. In the penalty appeal (ITA No.1732/Ahd/2010), the Tribunal allowed the appeal, directing the deletion of the penalty.