2015 (7) TMI 799 - AT - Income Tax

Validity of proceeding initiated under section 153C - Disallowance of 50% out of the expenditure claimed on the commission income - Held that - When the assessee has furnished the names of the persons to whom payments were made and the payments are through cheques, the details of which were before the A.O., nothing prevented him from making enquiry to ascertain the correctness of assessee s claim or genuineness of the expenditure. Moreover, when the A.O. accepted 50% of the expenditure claimed, there cannot be any doubt with regard to the fact that the expenditure was laid out wholly and exclusively for the purpose of business. The doubt entertained by the A.O. is only on the quantum of expenditure incurred. As stated earlier, the entire expenditure has been incurred through cheque payments. Therefore, the genuineness of the expenditure cannot be doubted without bringing positive evidence on record that the payments made through cheques were not on account of expenditure incurred for earning the commission income or they are bogus. There being no enquiry whatsoever by the A.O. in this regard, the addition made cannot be sustained. The Ld. CIT(A), in our view, while confirming the addition made by the A.O. instead of deciding the merits of the addition on the basis of facts has deliberated more on the issue, whether such addition can be made in a proceeding under section 153C of the Act. Therefore, there being no valid reason behind disallowance of 50% out of the expenditure claimed, we delete the additions made on this account in different assessment years. This ground in all the appeals are therefore allowed. Addition under section 69A of the Act - whether the amount allegedly received by the assessee from Shri Suresh Chand Agarwal towards sale of immovable property can be assessed under the Head Capital Gains ? - Held that - Reading of the assessment order as well as order of Ld. CIT(A) gives an impression that department has selectively relied upon the seized material while making the addition. While department has relied upon the unsigned letter dated 19.09.2010 and the receipts, it has completely ignored the agreement of sale, cancellation agreement and the undertaking by assessee and his wife to return back the money to Mr. Suresh Chand Agarwal, receipt executed by Mr.Suresh Chand Agarwal, which were also part of the seized material. Keeping aside for the moment assessee s claim that he never received the amount of ₹ 2.66 crores and also assuming that the contents of the unsigned letter dated 19.09.2010 and receipts are correct, however, on consideration of the entire seized material as a whole, the situation which emerges is, though the assessee might have received an amount of ₹ 2.66 crores from Mr. Suresh Chand Agarwal towards part sale consideration of the property but he was supposed to return back the money to Mr. Suresh Chand Agarwal once the transaction did not materialize and agreement of sale was cancelled. Therefore, the amount of ₹ 2.66 crores being a debt due to Mr. Suresh Chand Agrwal cannot be treated as income of assessee and his wife. Moreover, it is neither expected nor believable that inspite of the fact that the transaction fell through and property was ultimately sold to a third party, Mr. Suresh Chand Agarwal would have given up his right over such a substantial amount of money and kept quite without recovering it from the assessee. One cannot visualize such a situation as it is beyond human probability and normal human conduct. Therefore, even assuming that assessee might have received the amount of ₹ 2.66 crores from Mr. Suresh Chand Agarwal towards sale of property, it must be equally true that assessee has refunded back the money to Mr. Suresh Chand Agarwal on cancellation of agreement of sale. Receipt executed by Mr. Suresh Chand Agarwal, copy of which is at page No.23 of the paper book bears testimony to this fact. Therefore, the amount in question cannot be brought to tax even under the Head Capital Gain as the sale is not complete. Thus, looked at from any angle the amount of ₹ 1,33,00,000 is not taxable at the hands of the assessee. Accordingly, we direct the A.O. to delete the addition. This ground is allowed. - Decided in favour of assessee.

Issues Involved:
1. Validity of proceeding initiated under section 153C of the Act.
2. Disallowance of 50% out of the expenditure claimed on the commission income.
3. Addition of Rs. 1,33,00,000 under section 69A of the Act.

Issue-wise Detailed Analysis:

1. Validity of proceeding initiated under section 153C of the Act:
This issue was raised but not adjudicated upon as it became of academic interest due to the decisions on the merits of the additions.

2. Disallowance of 50% out of the expenditure claimed on the commission income:
The assessee, a Director of M/s. Talwar Mobiles P. Ltd., and M/s. Talwar Auto Garages P. Ltd., also derives income from commission. During a search and seizure operation, documents were seized revealing transactions leading to a notice under section 153C. The assessee claimed certain expenditures on commission income, but the Assessing Officer (A.O.) disallowed 50% of these expenses due to lack of evidence such as vouchers and details of commission payees. The A.O. held that the assessee did not establish that the expenses were incurred wholly and exclusively for business purposes. The Ld. CIT(A) confirmed this disallowance.

However, the Tribunal found that the assessee had provided names, cheque numbers, and amounts of commission paid, and the A.O. did not make any further enquiry into the genuineness of these payments. The Tribunal concluded that the disallowance was not justified as the A.O. accepted 50% of the expenditure, indicating that the expenses were for business purposes. Therefore, the Tribunal deleted the additions made on this account in different assessment years.

3. Addition of Rs. 1,33,00,000 under section 69A of the Act:
This issue pertains specifically to A.Y. 2009-2010. During the search and seizure operation, documents were found indicating a sale transaction of a property owned by the assessee and his wife. The A.O. added Rs. 1,33,00,000 to the assessee's income under section 69A, treating it as unexplained money based on unsigned documents and receipts indicating cash payments. The assessee denied receiving such cash payments.

The Tribunal noted that section 69A applies when the assessee is found in possession of unexplained money, which was not the case here. The unsigned documents and receipts were not sufficient evidence. The Tribunal also observed that the transaction did not materialize, and the property was sold to a third party later. The Tribunal concluded that the amount could not be taxed under section 69A or section 57 as proposed by the learned D.R. The Tribunal directed the A.O. to delete the addition.

Separate Judgments Delivered:
The issues and judgments for both Mr. Saral Talwar and Smt. Radhika Talwar were identical. The Tribunal followed the same reasoning and conclusions for both assessees, deleting the disallowances and additions made by the A.O. in all relevant assessment years.

Conclusion:
All appeals of the assessee were partly allowed, with the Tribunal deleting the disallowances of 50% of the expenditure on commission income and the addition of Rs. 1,33,00,000 under section 69A for both Mr. Saral Talwar and Smt. Radhika Talwar. The validity of the proceedings under section 153C was not adjudicated upon as it became of academic interest.

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