2016 (2) TMI 1181 - AT - Income Tax

Reopening of assessment - addition on the basis of certain entries from the Pen Drive seized from the possession of the partner of the assessee - Held that - Coming to the addition in assessment year 2002-03 I noted that the Tribunal has given a finding under para 6.26 in respect of the working of the peak credit by Chetan Gupta at 36, 89, 310/- to be correct and treated the same as undisclosed income for the assessment year 2002-03. The peak credit has been worked out as observed in this decision on the basis of the transaction recorded in the alleged Pen Drive. I therefore agree with the submission of ld. Senior Counsel that there cannot be any double addition. Accordingly delete the addition thus ground no.1 in assessment year 2002-03 is allowed. Deduction of expenditure disallowed - Held that - AO disallowed this expenses merely on ad hoc basis by observing that as the books of accounts could not be produced the expenses cannot be verified even though he did not dispute details of various expenses as demanded by him. It is not the case that the expenses have not been incurred wholly and exclusively for the purpose of business. This disallowance has been made just on ad hoc basis @ 15% of the expenses incurred. The Income-tax does not permit the AO to disallow the expenditure on ad hoc basis. Accordingly I delete this disallowance. Disallowance of depreciation - Held that - The provisions of section 147 empowers the AO to make the addition in respect of any other income which escaped the assessment provided addition has been made in respect of the income for which the reasons to believe were recorded. The Pen Drive has been found from Chetan Gupta during the course of search and seizure operation conducted by the Punjab Vigilance Bureau at Ludhiana pertaining to the Ludhiana City Centre scam. It is proved that the assessee was having office in Punjab. In the subsequent assessment year i.e. assessment year 2005-06 I noted that no such disallowance in respect of the depreciation was made by the AO while completing the assessment. Therefore set aside the order of the CIT (A) on this issue and delete the disallowance of depreciation

Summary

Issues:
1. Validity of notice issued u/s 148
2. Addition based on entries from Pen Drive
3. Disallowance of expenditure on ad hoc basis
4. Disallowance of depreciation for property at Jalandhar

Issue 1: Validity of notice issued u/s 148
In the assessment year 2001-02, the assessee did not press ground no.1 regarding the validity of the notice issued u/s 148, leading to its dismissal as not pressed.

Issue 2: Addition based on entries from Pen Drive
Ground no.2 in assessment year 2001-02 and ground no.1 in assessment year 2002-03 involved the addition of amounts based on entries from a Pen Drive seized from the partner of the assessee. The AO initiated proceedings u/s 147 and made additions in both years, which were confirmed by the CIT (A). The Tribunal noted a previous decision regarding a similar case and dismissed ground no.2 for assessment year 2001-02. For assessment year 2002-03, the Tribunal found the peak credit computed by the partner to be correct and deleted the addition, as there cannot be double addition.

Issue 3: Disallowance of expenditure on ad hoc basis
The disallowance of &8377; 2,82,804/- was challenged by the assessee in assessment year 2002-03. The AO disallowed 15% of the claimed expenditure on an ad hoc basis due to lack of produced books of accounts, even though the expenses were incurred for business purposes. The Tribunal held that such ad hoc disallowance is impermissible under Income-tax laws and deleted the disallowance, allowing this ground.

Issue 4: Disallowance of depreciation for property at Jalandhar
Regarding the disallowance of depreciation amounting to &8377; 48,255/- for a property at Jalandhar, the AO rejected the claim of the assessee without sufficient evidence of business use of the property. The CIT (A) upheld the disallowance, but the Tribunal disagreed, noting that the AO's decision lacked proper evidence and the original assessment was not completed under section 143(3). The Tribunal found no such disallowance in a subsequent assessment year and deleted the disallowance of depreciation, allowing this ground.

In conclusion, the appeal for the assessment year 2001-02 was dismissed, while the appeal for the assessment year 2002-03 was allowed based on the detailed analysis and findings on each issue presented in the judgment delivered by the Tribunal.