2015 (11) TMI 1773 - AT - Income Tax

Assessment u/s 153A - addition u/s 68 - advance received from customers towards advances for sale of shops/flats - AO completed the assessment u/s. 143(3) - search action u/s. 132 - proof of incriminating material found in search - HELD THAT - Admittedly, in the instant case, the assessee during the course of original assessment proceedings has filed the details of advance received from customers towards advances for sale of shops/flats. The assessment order passed by the AO u/s. 153A r.w.s.143(3) does not speak of any incriminating material that was found during the course of search. Only the ADIT had conducted certain post search enquiries in respect of 4 persons out of the 13 persons mentioned by the AO according to which the persons are having income from agriculture only. Despite having bank accounts they have paid amount in cash and their credit worthiness is doubtful. In view of the above and in absence of any plausible evidence filed by the assessee during assessment proceedings to substantiate the genuineness of the transactions and credit worthiness of the persons who had given huge advances, the AO made addition of ₹ 2.30 crores u/s. 68. CIT(A) allowed relief of only ₹ 7 lakhs and sustained addition of ₹ 2,23,00,000/-. It is the submission of the assessee that since no incriminating material was found during the course of search, therefore, in view of the decision of Continental Warehousing Corporation . 2015 (5) TMI 656 - BOMBAY HIGH COURT and Murali Agro Products Ltd. 2010 (10) TMI 1052 - BOMBAY HIGH COURT AO could not have made any addition u/s. 68 of the I.T. Act in respect of advance from customers towards sale of flats/shops. Although the decision of the Hon ble Bombay High Court in the case of Murali Agro Products Ltd. (Supra) passed on 29-10-2010 was available at the time of completion of the assessment u/s. 143(3) r.w.s. 153A (passed on 31-12-2010) the same was neither brought to the notice of the AO nor before the CIT(A) for which the AO/CIT(A) have not considered the same. Similarly, the decision in the case of Continental Warehousing Corporation (Supra) was passed after the order of the CIT(A). Thus, the lower authorities have no occasion to consider the above 2 decisions and apply their mind which are being relied on by the Ld. Counsel for the assessee before us for the first time to the proposition that the AO could not have made any addition u/s. 68 in absence of any incriminating material found during the course of search. Under the aforementioned circumstances, we deem it proper to restore the issue to the file of the AO with a direction to decide the issue afresh - Additional ground by the assessee is accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Addition of advances received for flat/shop as unexplained cash credit under Section 68 of the Income Tax Act.
2. Charging of interest under Sections 234B and 234C of the Income Tax Act.
3. Admissibility of additional grounds raised by the assessee.

Detailed Analysis:

Issue 1: Addition of Advances Received for Flat/Shop as Unexplained Cash Credit under Section 68 of the Income Tax Act

Assessment Year 2006-07:
The assessee, an individual in the construction business, filed returns declaring an income of Rs. 28,95,310, which was later assessed at Rs. 55,59,980. Post a search operation under Section 132, the assessee declared an income of Rs. 1,57,59,977. During assessment, the AO noted that the assessee credited Rs. 2.30 crores in his books as advances for booking shops/flats. The AO found the creditworthiness of four individuals questionable and treated Rs. 1,26,50,000 as income under Section 68. Similarly, the genuineness of transactions with four other individuals was doubted due to cash payments and lack of plausible explanations, leading to an addition of Rs. 2.30 crores. The CIT(A) deleted Rs. 7 lakhs but sustained Rs. 2,23,00,000 due to insufficient proof of genuineness and capacity of creditors.

The Tribunal admitted an additional ground raised by the assessee, questioning the addition under Section 68 in the absence of incriminating material found during the search. The Tribunal referenced decisions from the Hon'ble Bombay High Court in Continental Warehousing Corporation and Murali Agro Products Ltd., emphasizing that no addition can be made under Section 68 without incriminating evidence found during the search. The Tribunal restored the issue to the AO for fresh adjudication, considering these legal precedents.

Assessment Year 2007-08:
The assessee declared an income of Rs. 40,57,427, later revised to Rs. 49,89,923 post-search. The AO added Rs. 1,17,96,773 as unexplained cash credit, received from Blue Pearl Properties Pvt. Ltd., based on post-search inquiries where the creditor denied such transactions. Additionally, Rs. 2,84,50,000 was added as unexplained cash credit due to lack of evidence for advances received from 88 individuals for a proposed project.

The CIT(A) upheld these additions, citing inadequate evidence to establish the genuineness and creditworthiness of the transactions. The Tribunal, admitting additional grounds, noted the absence of incriminating material during the search and restored the issues to the AO for fresh adjudication, considering the same legal precedents as in the previous year.

Issue 2: Charging of Interest under Sections 234B and 234C of the Income Tax Act

The Tribunal upheld the charging of interest under Sections 234B and 234C, stating that it is mandatory and consequential in nature.

Issue 3: Admissibility of Additional Grounds Raised by the Assessee

The Tribunal admitted the additional grounds raised by the assessee for both assessment years, acknowledging that these grounds were purely legal and did not require fresh investigation of facts. The Tribunal relied on various judicial decisions, including NTPC Ltd. v. CIT and Jute Corporation of India, to justify the admission of these grounds.

Conclusion:
The Tribunal restored the issues related to the addition of advances received for flat/shop as unexplained cash credit under Section 68 to the AO for fresh adjudication, considering the absence of incriminating material found during the search. The Tribunal upheld the charging of interest under Sections 234B and 234C and admitted the additional legal grounds raised by the assessee. The appeals were partly allowed for statistical purposes.