2016 (1) TMI 1374 - AT - Income Tax

Undisclosed investments - provisions of section 55A read with rule 111AA applicability - joint purchase of property - Held that - In the instant case it is not in dispute that the assessees have jointly purchased the land alongwith the building for 30 lacs and thereafter the construction was carried on over a period of 3 years. Further it is correct that provisions of section 55A read with rule 111AA are not applicable in the instant case but at the same time we agree with the ld AR that similar factual matter was under consideration in case of Bimla Singh (2008 (10) TMI 62 - PATNA HIGH COURT) wherein the High court has allowed relief to the assessee in the matter of valuation of property. In the instant case the difference in the cost of construction as determined by the assessee and as determined by the DVO is only 9.14% and the construction has spread over a period of 3 years. Further given that the assessee has purchased the land alongwith building the explanation of the assessee that they had used some of the building material recovered from the old building while constructing the new building appears to be bonafide -addition made in the hands of both the assessees on account of undisclosed investment in the house property is hereby deleted - decided in favour of assessee. Addition on account of undisclosed investment in purchase of machinery in hands of Rajan Jhiriwal - Held that - Given the undisputed fact that the assessee had withdrawn a sum of 31, 85, 751 from its bank account. The explanation of the assessee that besides other expenses machinery worth only 25, 500 was also purchased out of said withdrawal appears reasonable. In light of this addition of 25, 500 is deleted and ground no. 2 is allowed. Levy of interest u/s 234B 19 lacs seized in course of search and deposited in the PD a/c - where there is an advance tax liability and there is a cash which is seized and lying in the PD a/c would the AO be empowered to adjust the same automatically or would that require a specific authorization from the assessee - Held that - It would be difficult to say that showing adjustment of seized cash against advance tax liability in the return of income tantamount to an authorization to the AO. Rather the said disclosure is akin to showing an intent to adjust and such adjustment is possible only on receipt of specific authorization. It is the letter dated 30.03.2011 filed by the assessee with the AO which authorizes the department to adjust the seized cash against advance tax liability. Accordingly we are of the view that the seized cash of 19 lacs should be adjusted against the advance tax liability and the said adjustment should be effective from the date of authorization i.e. 30.03.2011. The AO is accordingly directed to adjust seized cash against the advance tax liability effective 30.03.2011 and recompute the interest liability u/s 234B & 234C of the Act. Accordingly this ground is partly allowed.

Summary

Issues Involved:
1. Addition on account of undisclosed income.
2. Addition on account of undisclosed investment in machinery.
3. Levy of interest under sections 234B and 234C for not considering the adjustment of seized cash as advance tax.

Detailed Analysis of the Judgment:

1. Addition on Account of Undisclosed Income:
Both assessees, partners in M/s Rajan Jhiriwal, declared a construction cost of Rs. 1,09,06,256 for a house built over three financial years. The DVO estimated the cost at Rs. 1,19,03,284, resulting in a difference of Rs. 9,97,028. The AO added Rs. 97,794 to each assessee's income, being 50% of the variation for the subject year. The CIT(A) upheld the addition, stating the assessees did not provide independent evidence to support their claim that old building materials were used in the new construction.

During the hearing, the assessees argued that the 9.14% difference was due to estimation and cited the Patna High Court decision in Bimla Singh v. CIT, which held that minor differences in valuation should be ignored. They also contended that the DVO used CPWD rates instead of local PWD rates, leading to higher estimates, a point acknowledged by the Rajasthan High Court in CIT vs. Prem Kumar Murdia.

The Tribunal agreed with the assessees, noting the minor difference in cost and the use of old materials, and followed the Patna High Court's decision. The addition of Rs. 97,794 in the hands of each assessee was deleted.

2. Addition on Account of Undisclosed Investment in Machinery:
In ITA No. 73/JP/13, a paper found during a search indicated the purchase of machinery for Rs. 25,500. The assessee claimed it was bought using cash withdrawn for household expenses. The AO added the amount to the income, as the assessee could not provide documentary evidence. The CIT(A) upheld the addition due to the lack of an invoice linking the purchase to specific withdrawals.

The Tribunal noted the undisputed fact of withdrawals totaling Rs. 31,85,751 and found the explanation for the machinery purchase reasonable. The addition of Rs. 25,500 was deleted.

3. Levy of Interest Under Sections 234B and 234C:
Both assessees contested the interest levied under sections 234B and 234C, arguing that the seized cash of Rs. 19 lacs should be considered as advance tax. The AO did not adjust the seized cash against the advance tax liability, leading to the interest levy. The CIT(A) upheld the AO's decision, citing section 132B and a CBDT instruction that advance tax is not an existing liability.

The Tribunal noted the prospective nature of the explanation to section 132B, effective from 01.06.2013, and referred to the Punjab and Haryana High Court's decision in Arun Kapoor, which allowed adjustment of seized cash against advance tax liability. The Tribunal held that the assessee's letter dated 30.03.2011 constituted authorization for the adjustment and directed the AO to adjust the seized cash from that date and recompute the interest liability.

Conclusion:
The appeals were partly allowed, with additions on account of undisclosed income and machinery purchase being deleted, and the interest liability under sections 234B and 234C being recomputed after adjusting the seized cash from the date of authorization.