2014 (3) TMI 1148 - AT - Income Tax

Addition on account of undisclosed brokerage income - addition is solely based on the statements recorded u/s 132(4) - HELD THAT - No addition can be made solely on the basis of the statement recorded u/s 132(4) of the Act de hors any material found during search to support the same or any other substantial evidence gathered during post-search proceedings. The decisions mentioned in the written submissions are very much relevant for the purpose. The decision of ITAT Jodhpur Bench in the case of Chitra Devi vs ACIT 2002 (9) TMI 274 - ITAT JODHPUR is most relevant in this regard. Accordingly, we order to delete this addition. ADDITION U/S 68 - Addition on the basis of peak creditors - unexplained cash/capital employed in debtors - CIT(A) has confirmed the addition under the Provisions of Section 69B - HELD THAT - addition u/s 68 of the Act can be made only if any sum is found credited in the books of the assessee. A book means a collection of sheets of papers bound together with the intention that such binding shall be permanent and papers used are kept collectively in one volume. A book which contains successive entries of items maybe a good memorandum book but until those entries are totaled or balanced or both as the case may be, there is no reckoning and no accounts. A book which merely contains entries of items of which no account is made at any time, is not a book of account in a commercial sense. Thus the addition made u/s 68 is not justified. It is noticed that over and above the peak credit, the A.O. has further made an addition of ₹ 52,40,137/- on account of debtors exceeding the creditors. We have found that the peak determined by the A.O. is not correct, otherwise also, when once peak amount has been added then no separate addition is required. It seems that the A.O. has not properly prepared the list of debtors and creditors based on any logic CIT(A) has confirmed the addition under the Provisions of Section 69B - This section relates to investment made by the assessee in the acquisition of bullion/jewellery or other valuable articles but it does not speak about any investment in debtors. Moreover, Section 69B also stipulates the position where the investment exceeds the amount shown in the books of account. Since the assessee does not maintain any books of account wherein the debtors and creditors are reflected , therefore, this addition has also been wrongly made and upheld u/s 69B of the Act. Hence, in our considered opinion, only commission income has to be determined in this case and nothing more. Accordingly, we reverse the findings of the ld CIT(A) and order to delete the entire addition so made. Addition on account of interest income which is not the real income of the assessee - HELD THAT - We have found that the A.O. has failed to cause enquiry in respect of these parties. In our considered opinion, the A.O. has wrongly considered the entire credits and interest entries in the hands of the assessee. Accordingly, we are in agreement with the submission of the ld. AR and order to delete the addition added on account of notional interest. Unexplained money u/s 69A - HELD THAT - Surrender of peak amount of ₹ 52,40,137/-, we do not find and see any justification for treating the cash in question as unexplained. Such cash forms part of the peak amount surrendered by the assessee in A.Y. 2009-10 at ₹ 52,40,137/- and at ₹ 8,94,407/- in A.Y. 2010-11. In our considered opinion, no separate addition is called for on account of availability of cash. This can be out of the credits/ realization of debits of the peak amont of ₹ 52,40,137/- which has been surrendered in A.Y. 2009-10. It is also a fact that the cash found does not exceed the peak amount of ₹ 52,40,937/- which has been worked out for the period ending31-03-2009 whereas the cash has been found on a subsequent date i.e. 23-07-2009. Thus in the totality of the facts and circumstances of the case, there is no justification of treating the cash as unexplained. Consequently, the amount has been correctly deleted by the ld CIT(A). - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of action under Section 153A read with Section 143(3) of the Income-tax Act, 1961.
2. Addition of undisclosed brokerage income.
3. Addition based on peak creditors and unexplained cash/capital employed in debtors.
4. Addition of interest income.
5. Treatment of cash found during search as unexplained money under Section 69A.

Issue-wise Detailed Analysis:

1. Legality of Action under Section 153A read with Section 143(3):
The assessee challenged the legality of the action under Section 153A read with Section 143(3) of the Income-tax Act, 1961. However, this ground was not pressed by the assessee's representative during the hearing, and thus, it was dismissed as not pressed.

2. Addition of Undisclosed Brokerage Income:
The assessee contested the addition of Rs. 6,03,689/- as undisclosed brokerage income. The addition was based solely on the statements recorded under Section 132(4) during the search, without any supporting material or incriminating evidence. The assessee argued that the statements recorded at different times during the search were inconsistent and made under duress. The tribunal held that no addition could be made solely based on the statement recorded under Section 132(4) without any corroborative evidence. The tribunal referred to various case laws supporting this view and ordered the deletion of the addition, thereby partly allowing the assessee's appeal for A.Y. 2007-08.

3. Addition Based on Peak Creditors and Unexplained Cash/Capital Employed in Debtors:
For A.Y. 2009-10, the assessee challenged the addition of Rs. 3,21,31,893/- as income based on peak creditors and Rs. 32,42,597/- as unexplained cash/capital employed in debtors. The tribunal noted that the seized papers were rough and did not qualify as books of account. It was held that only commission income could be assessed in the hands of the assessee at 0.10% on the total credits of Rs. 91,67,81,272/-. The tribunal found the peak credit determined by the A.O. to be incorrect and ruled that no separate addition was required once the peak amount was added. The tribunal also found the addition under Section 69B to be unjustified as it pertains to investment in bullion/jewelry or other valuable articles, not debtors. Consequently, the tribunal ordered the deletion of the entire addition, allowing the assessee's grounds.

For A.Y. 2010-11, similar grounds were raised, and the tribunal applied the same reasoning to delete the additions of Rs. 1,39,84,591/- as peak creditors and Rs. 56,03,437/- as unexplained cash/capital employed in debtors. The tribunal also dismissed the Revenue's appeal on related grounds, upholding the deletion of the additions.

4. Addition of Interest Income:
The assessee contested the addition of Rs. 1,24,77,126/- (A.Y. 2009-10) and Rs. 1,40,92,524/- (A.Y. 2010-11) as notional interest income. The tribunal found that the A.O. had not provided any details or evidence of actual interest receipt and had wrongly considered the entire credits and interest entries in the hands of the assessee. The tribunal agreed with the assessee's submission that no notional interest could be added under Section 153A and ordered the deletion of the additions for both assessment years.

5. Treatment of Cash Found During Search as Unexplained Money under Section 69A:
The Revenue appealed against the deletion of Rs. 25,00,000/- added as unexplained money under Section 69A. The tribunal noted that the cash found during the search was part of the peak amount surrendered by the assessee in earlier years and did not exceed the peak amount. It was held that there was no justification for treating the cash as unexplained, and the deletion by the CIT(A) was upheld.

Conclusion:
The tribunal partly allowed the assessee's appeals for A.Y. 2007-08, 2009-10, and 2010-11 by deleting the additions made based on statements recorded under Section 132(4), peak creditors, unexplained cash/capital employed in debtors, and notional interest income. The Revenue's appeal for A.Y. 2010-11 was dismissed, upholding the deletion of the addition of unexplained money under Section 69A. The tribunal emphasized that additions must be supported by substantial evidence and corroborative material, not merely on statements or rough notations.