2015 (8) TMI 764 - AT - Income Tax

Investment in share capital by the family members of the assessee - CIT(A) deleted part addition - Held that - Assessing Officer is bound to follow the procedure prescribed for computing the undisclosed income for the block period. The CIT(A) found that the Assessing Officer has fully ignored the disclosure made by the respective family members under VDIS. He further found that the addition towards equity shares and share application money in the name of family members cannot be sustained. Accordingly, he deleted the addition to the extent of ₹ 1,99,64,950/-. The CIT(A) also failed to consider the provisions of section 158BB of the Act. The CIT(A) further found that the assessee could not satisfactorily explain the source of investment in the share application of M/s Diksaat Transworld Ltd. to the extent of ₹ 1,62,50,000/-. This Tribunal is of the considered opinion that in the absence of any seized material during the course of search operation, this amount of ₹ 1,62,50,000/- also cannot be treated as undisclosed income for the block period. At the best, it may be assessable in the regular assessment provided the time limit is available under the statutory provisions. This Tribunal is of the considered opinion that the total investment made by the assessee and his family members to the extent of ₹ 3,62,14,950/- was not supported by any of the search material, therefore, the same cannot be treated as undisclosed income for the block period. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the entire addition of ₹ 3,62,14,650/-. - Decided in favour of assessee. unexplained investment/deposit in City Union Bank - CIT(A) deleted part addition - Held that - When the assessee has received ₹ 13,40,22,400/- from M/s Indian Telephone Industries Ltd. towards the contract awarded for taking photographs for preparing electoral identity cards, this Tribunal is of the considered opinion that the assessee might have deposited the money from the above said amount received from M/s Indian Telephone Industries Ltd. It is pertinent to note that no material was found during the course of search operation and what was available with the Assessing Officer is only the bank statement. The assessee has explained the receipt of ₹ 13,40,22,400/- from M/s Indian Telephone Industries Ltd. which was not disputed by the Assessing Officer. In the absence of any other material to indicate that the assessee has deposited the undisclosed money in the bank account, this Tribunal is of the considered opinion that the entire amount of ₹ 1,69,27,817/- was deposited from the business receipt of the assessee, in other words, the money received from M/s Telephone Industries Ltd. Moreover, as observed by the CIT(A), the amount withdrawn to the extent of ₹ 1,50,00,000/- is also available with the assessee for deposits. Therefore, this Tribunal is of the considered opinion that the CIT(A) ought to have deleted the entire addition instead of restricting the same to ₹ 19,77,817/-. According, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the entire addition of ₹ 1,69,27,817/-. - Decided in favour of assessee. Unexplained investment in M/s Dimka Petro Products Ltd - CIT(A) deleted addition - Held that - From the order of the CIT(A) it appears that the dispute is with regard to land purchased by M/s Dimka Petro Products Ltd from M/s IDL Industries Ltd., Hyderabad. The assessee has not purchased any land. The payments were made by account payee cheques and demand draft. In fact, the payments were made from the accounts of the maintained at City Union Bank and Lakshmi Vilas Bank. The deposit made in the account was already considered and it was found that the same was made from the business receipt of the assessee. Therefore, the CIT(A) found that making a further addition with regard to payment made by the assessee to M/s IDL Industries Ltd would amount to double addition. Even the Assessing Officer has made addition only on the ground that the assessee has not maintained any proper accounts. The fact remains that the deposit made in the bank account was explained and the payments were made from the deposit made in the bank account by way of demand drafts and cheques. Therefore, this Tribunal is of the considered opinion that the CIT(A) has rightly deleted the addition of ₹ 85 lakhs. This Tribunal do not find any infirmity in the order of the lower authority. Accordingly, the same is confirmed.- Decided in favour of assessee. Unexplained interest payment -CIT(A) deleted addition - Held that - It is not in dispute that the loan was borrowed through cheque and the payment of interest was also made through cheque. M/s Mansi Mercantile Co. debited the interest in the account of the assessee on 24.2.2001. The transaction was entered in the books of account by way of journal entry. Since the loan was received by way of cheque and the payment of interest to the extent of ₹ 1,08,000/- was also paid by way of cheque, this Tribunal is of the considered opinion that the payment of interest to the extent of ₹ 1,08,000/- cannot be treated as from undisclosed source of the assessee. Therefore, the CIT(A) has rightly deleted the addition.- Decided in favour of assessee. Unexplained investment made in M/s Karishma Investments - Held that - This Tribunal is of the considered opinion that when admittedly ₹ 5 lakhs was paid from savings bank account of the assessee maintained with Central Bank of India, the CIT(A) ought to have deleted the same. In the absence of any other material to show that the assessee has earned the money from undisclosed source, this Tribunal is of the considered opinion that the CIT(A) ought to have deleted the entire addition of ₹ 15 lakhs. Accordingly, the order of the CIT(A) is set aside and the Assessing Officer is directed to delete the addition of ₹ 5 lakhs towards investment made by the assessee in M/s Karishma Investment.- Decided in favour of assessee. Cash payment to Shri Rakesh Sarin and transactions with S/Shri Thirunavukarasu and Karthikeyan and Jayaprakash - Held that - This Tribunal is of the considered opinion that that the material found during the course of survey operation cannot be a basis for making addition for the block period consequent to the search u/s 132A of the Act. In other words, in view of section 158BB(1) of the Act, the Assessing Officer has to confine himself only to the material found during the course of search operation and he cannot make addition on the basis of material found during the course of survey operation. In view of the above, this Tribunal is of the considered opinion that the addition is unwarranted. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition of ₹ 28,36,000/- for the block period. It is not in dispute that payment of ₹ 5,10,000/- was found by the Revenue authorities during the course of survey operation in the office of M/s Diksaat Transworld Ltd. No material was found during the course of search operation. In view of section 158BB(1), the Assessing Officer has to compute the undisclosed income for the block period on the basis of the material found during the course of search operation and the information which is relatable to the material found during the course of search operation. Therefore, this Tribunal is of the considered opinion that the material found during the course of survey operation cannot be a basis for making any addition. In view of the above, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition of ₹ 5,10,000/-. - Decided in favour of assessee. Disallowance of production expenses - Held that - This Tribunal is of the considered opinion that the investment of ₹ 53,17,300/- would have been made from the above said receipt. In the absence of any material to suggest that the assessee has earned any other income from any other sources, this Tribunal is of the considered opinion that making addition of ₹ 53,17,300/- is not called for. Apart from that, in view of the judgments of the Madras High Court in P. K. Ganeshwar (2008 (11) TMI 70 - MADRAS HIGH COURT ) and G. K. Senniappan (2006 (1) TMI 87 - MADRAS High Court ), in the absence of any material found during search operation, no addition can be made towards undisclosed income for the block period. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition of ₹ 53,17,300/-. Addition towards telecast rights - No doubt the Revenue authorities found payment of ₹ 3 lakhs during the course of search operation for obtaining telecast rights of two feature films Mustafa and Dr. Ambedkar . While considering the investment made by the assessee in production of the feature film, this Tribunal found that the assessee invested the same from the business receipts of ₹ 13,40,22,400/- received from M/s Indian Telephone Industries. The CIT(A) has confirmed the addition only to the extent of ₹ 2,25,000/-. This Tribunal is of the considered opinion that the assessee might have invested out of the business receipts of ₹ 13,40,22,400/- from Indian Telephone Industries. Therefore, no addition is called for. Accordingly, the orders of the lower authorities are set aside and addition of ₹ 3 lakhs is deleted. - Decided in favour of assessee. Addition towards investment in the jewellery - Held that - Admittedly, the Revenue authorities found two bills for purchase of jewellery to the extent of ₹ 1,35,000/-. The assessee claims that lot of jewellery was purchased during that period and he could not explain the source for purchasing jewellery to the extent of ₹ 1,35,000/-. Since the assessee himself admitted that he could not explain the source for purchase of jewellery to the extent of ₹ 1,35,000/-, for which receipt was found during search operation, this Tribunal do not find any infirmity in the orders of the lower authorities. Accordingly, the addition of ₹ 1,35,000/- towards purchase of jewellery is confirmed. - Decided against assessee. Purchase of industrial land at Ambattur - Held that - no material was found during the course of search operation with regard to purchase of property at Ambattur. Section 158BB(1) of the Act clearly says that unless and until there is a material found during the course of search operation, there cannot be any undisclosed income for the block period. The Assessing Officer, on the basis of the information furnished during the course of assessment proceedings, made addition of ₹ 10,57,000/-. This Tribunal is of the considered opinion that the addition may be made in the regular course in the regular assessment. However, no addition could be made for the block period since it was not supported by any seized material found during the course of search operation. - Decided in favour of assessee. Investment in Kottivakkan property - Held that - There cannot be any addition for the block period as undisclosed income in view of the language employed by the legislature in section 158BB(1) of the Act. Therefore, this Tribunal is of the considered opinion that the CIT(A) ought to have deleted the entire addition of ₹ 10,16,307/-. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the entire addition of ₹ 10,16,307/-. - Decided in favour of assessee. Investment made in the name of children - Held that - Assessing Officer has to compute the undisclosed income on the basis of the material found during the course of search operation and the information which is relatable to the material found during the course of search operation. The Assessing Officer is not referring to any of the search material in the assessment order. It is also not the case of the Revenue that any material was found during the course of search operation. In those circumstances, this Tribunal is of the considered opinion that the same cannot be taken as undisclosed income for the block period. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition - Decided in favour of assessee. Unexplained expenditure - Held that - Disallowance of 8% is very high, however, disallowance of 2% of the total claim of expenditure would meet the ends of justice. Accordingly, the orders of the lower authorities are modified and the Assessing Officer is directed to estimate the unexplained expenditure at 2% of the total expenditure claimed in M/s Rukmani Industries at ₹ 2,88,25,244/-. In other words, 2% of ₹ 2,88,25,244/- shall be treated as unexplained expenditure for the assessment year 2000-01. - Decided partly in favour of assessee. Unexplained cash credit u/s 69A - Held that - The assessee admittedly deposited ₹ 13,08,000/- in two bank accounts. A sum of ₹ 2 lakhs was deposited in Canara Bank on 21.9.2002 and another sum of ₹ 10 lakhs on 2.1.2003. With regard to cash deposit of ₹ 2 lakhs on 21.9.2002, the CIT(A) found that the assessee deposited ₹ 99,500/- from sundry debtors collection of ₹ 46,100/-, out of realization of loans and advances and another sum of ₹ 3000/- from refund of deposits. The balance of ₹ 3,08,000/- was confirmed by the CIT(A). The assessee could not substantiate the deposit of ₹ 3,08,000/- in Canara Bank on 21.9.2002. Therefore, this Tribunal is of the considered opinion that the CIT(A) has rightly confirmed the addition of ₹ 3,08,000/-. Now, coming to ₹ 10 lakhs, the CIT(A) found that the assessee has received a sum of ₹ 6,49,820/- in cash on sale of property on 11.12.2002. The CIT(A) found that the remaining balance or ₹ 3,50,180/- was not substantiated. The fact remains that the assessee s wife Smt. D. Meenakshi also received a sum of ₹ 3,61,011/- on sale of the very same property on 11.12.2002 and Shri N. Pradeep Kumar has also received a sum of ₹ 9,89,169/-. The fact remains that the assessee, his wife Smt. D. Meenakshi and Shri N. Pradeep Kumar are joint holders of the property and they have totally received ₹ 20 lakhs on sale of the property. Even though the assessee appears to have received ₹ 6,49,820/- the possibility of making use of the money which was received by his wife and Shri Pradeep Kumar for making deposit in Canara Bank cannot be ruled out. When the assessee has established that the property was sold for ₹ 20 lakhs, this Tribunal is of the considered opinion that the amount might have been used for making deposit in Canara Bank on 2.1.2003. Therefore, this Tribunal is of the considered opinion that the CIT(A) ought to have deleted the entire addition of ₹ 10 lakhs - Decided partly in favour of assessee.

Summary

Issues Involved:

1. Addition of Rs. 3,62,14,950/- towards investment in M/s Diksaat Transworld Ltd.
2. Unexplained investment/deposit in City Union Bank to the extent of Rs. 1,49,50,000/-.
3. Unexplained investment in M/s Dimka Petro Products Ltd. to the extent of Rs. 85 lakhs.
4. Interest payment to M/s Mansi Mercantile Co. to the extent of Rs. 1,08,000/-.
5. Addition of Rs. 5 lakhs towards investment made in M/s Karishma Investments.
6. Cash payment to Shri Rakesh Sarin and transactions with S/Shri Thirunavukarasu, Karthikeyan, and Jayaprakash.
7. Production expenses of Rs. 53,17,300/-.
8. Addition of Rs. 2,25,000/- towards telecast rights.
9. Addition of Rs. 1,35,000/- towards investment in jewelry.
10. Addition of Rs. 10,57,000/- towards purchase of industrial land at Ambattur.
11. Addition of Rs. 2,08,133/- towards investment in Kottivakkam property.
12. Investment made in the name of children amounting to Rs. 1,54,500/-.
13. Regular assessment for the assessment year 2000-01 regarding unexplained expenditure for taking photographs.
14. Addition of Rs. 13,08,000/- towards unexplained cash credit u/s 69A of the Act for the assessment year 2003-04.

Issue-wise Detailed Analysis:

1. Addition of Rs. 3,62,14,950/- towards investment in M/s Diksaat Transworld Ltd.:
The Tribunal found that the Assessing Officer (AO) made the addition without any seized material during the search operation. The CIT(A) had deleted part of the addition but sustained Rs. 1,62,50,000/-. The Tribunal held that in the absence of any seized material, the entire addition could not be treated as undisclosed income for the block period. The AO was directed to delete the entire addition of Rs. 3,62,14,950/-.

2. Unexplained investment/deposit in City Union Bank to the extent of Rs. 1,49,50,000/-:
The Tribunal noted that the AO made the addition based on bank deposits without considering the business receipts from Indian Telephone Industries Ltd. The CIT(A) had deleted part of the addition and sustained Rs. 19,77,817/-. The Tribunal found that the entire deposit was from business receipts and directed the AO to delete the entire addition of Rs. 1,69,27,817/-.

3. Unexplained investment in M/s Dimka Petro Products Ltd. to the extent of Rs. 85 lakhs:
The Tribunal observed that the payments were made through demand drafts and cheques from explained sources. The CIT(A) had deleted the addition, and the Tribunal upheld this decision, confirming that no addition was warranted.

4. Interest payment to M/s Mansi Mercantile Co. to the extent of Rs. 1,08,000/-:
The Tribunal found that the loan and interest payment were made through cheques and recorded in the books of accounts. The CIT(A) had deleted the addition, and the Tribunal upheld this decision.

5. Addition of Rs. 5 lakhs towards investment made in M/s Karishma Investments:
The Tribunal noted that the payment was made from the savings bank account of the assessee. The CIT(A) had sustained the addition due to the absence of a cash flow statement. The Tribunal held that the CIT(A) should have deleted the entire addition and directed the AO to delete the addition of Rs. 5 lakhs.

6. Cash payment to Shri Rakesh Sarin and transactions with S/Shri Thirunavukarasu, Karthikeyan, and Jayaprakash:
The Tribunal found that the material was found during a survey operation and not during the search. It held that the AO could not make additions for the block period based on survey material. The Tribunal directed the AO to delete the additions of Rs. 10 lakhs, Rs. 28,36,000/-, and Rs. 5,10,000/-.

7. Production expenses of Rs. 53,17,300/-:
The Tribunal found that the investment was made from business receipts and that no material was found during the search operation. The CIT(A) had confirmed the addition, but the Tribunal set aside the orders and directed the AO to delete the addition.

8. Addition of Rs. 2,25,000/- towards telecast rights:
The Tribunal noted that the investment was made from business receipts and no material was found during the search operation. The CIT(A) had confirmed the addition, but the Tribunal set aside the orders and directed the AO to delete the addition.

9. Addition of Rs. 1,35,000/- towards investment in jewelry:
The Tribunal upheld the addition as the assessee could not explain the source for purchasing jewelry, and the receipts were found during the search operation.

10. Addition of Rs. 10,57,000/- towards purchase of industrial land at Ambattur:
The Tribunal found that no material was found during the search operation. The addition could be made in regular assessment but not for the block period. The Tribunal directed the AO to delete the addition.

11. Addition of Rs. 2,08,133/- towards investment in Kottivakkam property:
The Tribunal noted that the investment was made by the assessee's wife and sister, who are independent assessees. The Tribunal directed the AO to delete the addition.

12. Investment made in the name of children amounting to Rs. 1,54,500/-:
The Tribunal found that no material was found during the search operation. The Tribunal directed the AO to delete the addition.

13. Regular assessment for the assessment year 2000-01 regarding unexplained expenditure for taking photographs:
The Tribunal found that the AO disallowed the expenditure based on suspicion and that the CIT(A) restricted the disallowance to 8%. The Tribunal held that 2% disallowance would meet the ends of justice and directed the AO to estimate the unexplained expenditure at 2% of the total expenditure claimed.

14. Addition of Rs. 13,08,000/- towards unexplained cash credit u/s 69A of the Act for the assessment year 2003-04:
The Tribunal found that the assessee had explained part of the deposits from the sale of property and other sources. The Tribunal directed the AO to delete the addition of Rs. 10 lakhs and upheld the addition of Rs. 3,08,000/-.

Conclusion:
The Tribunal dismissed the appeal of the Revenue and partly allowed the appeals of the assessee, directing the AO to delete several additions made for the block period and the regular assessment years.