2015 (7) TMI 171 - AT - Income Tax

Unexplained investment - blank cheques found during the search - AO had concluded that the appellant is engaged in money lending business - Held that - All the persons have confirmed that cheques have been handed over to the appellant only as a measure of security for supply of scrap or for the purpose of obtaining the loan, but all of them have denied having obtained any loan from the appellant. The statements given by those people remains uncontroverted. Though the AO is justified in entertaining doubt that the appellant is engaged in the business of money lending and the cheques have been obtained, only after the amounts were advanced since in the absence of any positive evidence in support of the appellant having lent money to the above persons, we are not in a position to confirm the addition. Accordingly, the additions are deleted - Decided in favour of assessee. Deduction u/s. 80U - Held that - As the claim was withdrawn before the AO and therefore, the CIT(A) is perfectly justified in rejecting the claim of the appellant. Hence, this ground of appeal is dismissed.- Decided against assessee.

Issues Involved:
1. Addition of amounts related to blank cheques found during search operations.
2. Addition of Rs. 44 lakhs related to advances received towards the sale of scrap.
3. Treatment of amounts received as commission income.
4. Disallowance of deduction under Section 80U for physical disability.
5. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Addition of Amounts Related to Blank Cheques Found During Search Operations:

The appellant contested the addition of Rs. 1,12,57,000 made by the Assessing Officer (AO) based on blank cheques and promissory notes found during search operations. The AO concluded that these cheques indicated the appellant was engaged in money lending. The appellant argued that the cheques were obtained as security for potential loans that were never advanced.

- M/s. Sree Ganesh Trading Co.: The AO found two cheques and a promissory note, but the proprietor confirmed the cheques were security for a scrap supply that never occurred. The Tribunal found no conclusive evidence of money lending and deleted the addition of Rs. 11,00,000.

- Sri Ram Pratap Agarwal: A cheque and promissory note for Rs. 7,00,000 were found, but the issuer denied receiving any loan. The Tribunal found no conclusive evidence and deleted the addition.

- M/s. Sangeetha Engineering Works: Cheques and promissory notes totaling Rs. 6,00,000 were found, but the issuer confirmed these were securities for a scrap supply that never occurred. The Tribunal deleted the addition due to lack of conclusive evidence.

- M/s. Raja Rajeswari Steel Traders: Cheques totaling Rs. 54,00,000 were found, but the issuer could not be located to confirm the transactions. The Tribunal deleted the addition due to insufficient evidence.

- M/s. Krishna Metals: A cheque for Rs. 4,00,000 was found, but the issuer confirmed it was security for a scrap supply that never occurred. The Tribunal deleted the addition.

- M/s. Agarwal Enterprises: A cheque for Rs. 3,57,000 was found, but the issuer confirmed it was security for a loan that was never advanced. The Tribunal deleted the addition.

- Other Entities (M/s. Padmavathi Motors, Sri Virendra Kumar Pandey, Smt. Sheela Agarwal, M/s. Venkateswara Scrap Merchants, Sri Manish Agarwal): All confirmed that cheques were securities for potential loans or scrap supplies that never materialized. The Tribunal deleted all related additions due to lack of positive evidence.

2. Addition of Rs. 44 Lakhs Related to Advances Received Towards the Sale of Scrap:

The appellant argued that the advances were common business practices for scrap trading. The Tribunal found the appellant's explanation plausible and deleted the addition.

3. Treatment of Amounts Received as Commission Income:

The appellant argued that amounts received were commissions, not sales. The Tribunal found the AO's treatment incorrect and directed that only commission income be considered for tax purposes.

4. Disallowance of Deduction Under Section 80U for Physical Disability:

The appellant claimed a deduction of Rs. 50,000 for physical disability but had withdrawn the claim before the AO. The Tribunal upheld the CIT(A)'s decision to disallow the deduction.

5. Initiation of Penalty Proceedings Under Section 271(1)(c):

The appellant argued against the initiation of penalty proceedings, stating no income was concealed, nor were inaccurate particulars furnished. The Tribunal found the appellant's explanation satisfactory and directed not to initiate penalty proceedings.

Conclusion:

The Tribunal partly allowed the appeal, deleting several additions due to lack of conclusive evidence and directing appropriate tax treatment for commission income. The disallowance of the Section 80U deduction was upheld due to the appellant's withdrawal of the claim. Penalty proceedings under Section 271(1)(c) were not initiated.

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