2017 (12) TMI 1633 - AT - Income Tax

Addition of undisclosed income - income estimated on hawala business of transporting cash from one place to another as per modus operandi as admitted by the assessee - Held that - The addition on estimate basis on mere presumption and surmises, that too, in a search assessment cannot be upheld. As correctly observed by the FAA, neither during the search and seizure operation any incriminating material was found to indicate that the assessee was involved in hawala transaction to justify addition in these assessment years nor the AO has brought any material or documentary evidence even during the post search proceedings to justify such estimation. Therefore, the addition made for A.Y.2007 08 to A.Y.2012 13 on estimate basis by extrapolating the entrie/ figures found in the seized material pertaining to A.Y.2013 14 is legally unsustainable. As far as A.Y.2013 14 is concerned, we find from the material on record that the assessee furnished a working as per which the addition which can be made considering the total working days even as per the rate of commission adopted by the Assessing officer at 0.30% per ₹ 1 lakh would be ₹ 12,00,000/ and ₹ 6,00,000/ if commission rate of 0.15% per lakh as adopted by the assessee is considered. Learned CIT(A) accepting assessee s claim has estimated the commission income for post search period at ₹ 6,00,000/ and sustained the addition to that extent. Conclusion of the First Appellate Authority to be on a reasonable basis hence, do not see any reason to interfere with the same. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition of undisclosed income estimated on hawala business.
2. Ignoring the principle of extrapolation of income as laid down by the Hon'ble Supreme Court.

Issue-wise Detailed Analysis:

1. Deletion of addition of undisclosed income estimated on hawala business:

The department filed appeals against the deletion of additions made by the Assessing Officer (AO) regarding undisclosed income from hawala business for Assessment Years (AY) 2007-08 to 2013-14. The AO had found cash amounting to ?82,22,200 during a search operation and a small diary indicating hawala transactions. The AO extrapolated the income based on the cash found and estimated the undisclosed income for the years under consideration.

The First Appellate Authority (FAA) found that the only documentary evidence available was an undated small diary containing two pages indicating transactions of ?40,00,000. The FAA concluded that the seized diary was a valid record to conclude that the assessee carried out hawala transactions but noted that the AO did not provide any material evidence to establish undisclosed income for the preceding years. The FAA accepted an addition of ?6,00,000 as additional income based on the seized document and deleted the remaining additions made by the AO for AY 2007-08 to 2012-13 due to lack of evidence.

2. Ignoring the principle of extrapolation of income as laid down by the Hon'ble Supreme Court:

The department argued that the AO was entitled to estimate the income of the assessee on a reasonable basis, relying on the principle of extrapolation of income as laid down by the Hon'ble Supreme Court in the case of Eusafali (90 ITR 271). The department contended that the frequent operations of the locker and the seized diary indicating transactions justified the AO's estimation of income.

The Tribunal observed that the AO did not have any incriminating material for the preceding years except the undated diary. The Tribunal noted that the assessee had owned up the cash found as undisclosed income for AY 2013-14 and had stopped the angadia activity post-search. The Tribunal concluded that the addition on an estimate basis for the preceding years was legally unsustainable due to the absence of any evidence.

For AY 2013-14, the Tribunal found that the assessee had furnished a working showing the addition that could be made based on the total working days and the rate of commission. The FAA had estimated the commission income for the post-search period at ?6,00,000 and sustained the addition to that extent. The Tribunal found the FAA's conclusion to be reasonable and upheld the same.

Conclusion:

The Tribunal dismissed all the appeals of the department, upholding the FAA's decision to delete the additions for AY 2007-08 to 2012-13 and sustaining the addition of ?6,00,000 for AY 2013-14. The Tribunal found that the AO's estimation of income for the preceding years was not supported by any material evidence and that the FAA's estimation for AY 2013-14 was reasonable.