2017 (4) TMI 1450 - AT - Income Tax

Addition u/s 69 - unaccounted investment on the basis of document seized during the course of search - whether the unsigned, undated MOU and kachha chitthi can be taken as corroborative evidence against the assessee in order to make an addition? - HELD THAT - We find that it uses the word it may be presumed , which as rightly held in the case of CIT vs. Dharmendrasinh Waghela 2012 (10) TMI 1207 - GUJARAT HIGH COURT that the word may presume that such presumption is rebuttable in a situation if Revenue could not bring on record any material to prove that the seized material is corroborative for the addition. AO erred in making the addition of ₹ 5,27,50,000/- and ld. CIT(A) in restricting the addition at ₹ 2,55,00,000/- as it was based on undated, unsigned Memorandum of Understanding which, in our view, cannot be correlated with the assessee-firm as it was incorporated in the latter period to that of MoU stamp date nor can it be taken as corroborative evidence to make addition and also in the light of the fact that Revenue could not point out any error in the actual registered document dated 12.03.2008 entered into by the assessee-firm for the impugned land at Kalol - Appeal of the assessee is allowed and that of the Revenue is dismissed. Addition on account of unaccounted interest payment - HELD THAT - The alleged interest amount of ₹ 25,18,250/- only finds it place in diaries, but there is no actual payment on record. Assessee-firm had made a total disclosure of ₹ 163 lacs towards unaccounted income which, inter alia, includes ₹ 23 lacs shown in the return of income of Mr. Bhagwanbhai K. Ajara which is contended to have covered the alleged notional income also. CIT(A) was justified in deleting the impugned addition by observing that the diary contained the transactions of on-money of the project and the amount advanced to the assessee-firm was actually its own money and there cannot be any reason to charge interest on its own funds. More so ever, Mr. Bhagwanbhai K. Ajara had already offered a sum of ₹ 23 lacs for AY 2010-11, which will cover up the entire interest paid, if any, by the appellant and not recorded in the books of accounts. We, therefore, find no reason to interfere with the order of the ld. CIT(A). In the result, this ground of the Revenue is dismissed. Unaccounted collection/receipts on the basis of seized material which was not accounted for in the regular books of accounts - HELD THAT - Net profit rates offered is between 1.31% to 20%; whereas assessee has offered 20% net profit rate. CIT(A) has also followed the decision of the Income-Tax Settlement Commission but has not pointed out any error in the income estimation by the assessee. Even before AO also no such material was found to show that assessee has given a wrong calculation. CIT(A) has just made guess work of estimating 30% net profit rate. Even in the given facts and circumstances of the case and in view of the fact that the net profit rate offered by the assessee is much more than its normal gross profit and net profit rate consistently offered in its return of income and also in the given fact when the unaccounted turnover is not disputed by the Revenue Authorities, we are of the view that income offered by the assessee at 20% should have been accepted by the Assessing Authorities and no further addition was called for. We accordingly allow the ground of the assessee and dismissed that of the Revenue. Unexplained interest income - HELD THAT - CIT(A) has rightly deleted the impugned addition following the order of CIT(A) s order in the case of USCKP, wherein it has been held that AO has wrongly made an addition of unaccounted interest payment. As the impugned disallowance has been deleted in the hands of payer, there cannot be any addition in the hands of payee, i.e., assessee. As regard the balance amount of interest from others at ₹ 1,94,500/- is concerned, we accept the contentions of ld. Counsel that the impugned amount of ₹ 1,94,500/- forms part of total disclosure of ₹ 163 lacs made by USCKP which, inter alia, includes income from notings in assessee s diaries at ₹ 23 lacs. Therefore, no separate addition is called for in respect of such interest. In the result, ground No.1 of the Revenue s appeal for AY 200910 is dismissed and that of assessee s is allowed. Addition u/s 69 - unaccounted investments in the Samarpan Scheme - HELD THAT - When profit on such land deal has been taxed in USCKP s hands, then the Assessing Officer should have believed the fact that investment in such land was made by USCKP and not by assessee. We further find force in the contention of the assessee that the theory of equal contribution by each of the five persons mentioned by Shri Vikas Patel is also not acceptable since the profit on the said land deal has been offered in USCKP, wherein there are six partners. It is not possible to believe that five persons would invest in a land in the individual capacity but the profit on such land deal would be shared by six persons. We are, therefore, of the view that in the given facts and circumstances of the case and on the basis of seized records, investment in Samarpan Scheme was made by USCKP from the funds received from its members and therefore, the impugned addition is uncalled for in the assessee s hands. In the result, no interference is called for in the order of ld. CIT(A) who has rightly deleted the impugned addition

Summary

Issues Involved:
1. Addition under Section 69 for unaccounted investment.
2. Addition on account of unaccounted interest payment.
3. Addition on account of unaccounted collection/receipts.
4. Addition based on peak entries in seized diaries.
5. Addition related to Nicol land transactions.
6. Addition under Section 69 for unaccounted investments in Samarpan Scheme.

Issue 1: Addition under Section 69 for Unaccounted Investment

The main issue in IT(SS)A Nos. 436 & 440/Ahd/2012 pertains to the addition of ?5,27,50,000 under Section 69 of the Income-tax Act, 1961, based on an unsigned Memorandum of Understanding (MOU) seized during a search. The Assessing Officer (AO) concluded that the unaccounted payment for the purchase of land was ?5,27,50,000, while the registered sale deed showed only ?1,70,00,000. The CIT(A) partly allowed the appeal, reducing the addition to ?2,55,00,000 by applying a 40:60 ratio for cheque to cash payments. The Tribunal, however, found the unsigned and undated MOU to be a "dumb document" and not corroborative evidence, thus deleting the entire addition made by the AO and CIT(A).

Issue 2: Addition on Account of Unaccounted Interest Payment

For AY 2010-11, the AO added ?25,18,250 as unaccounted interest payment based on seized diaries. The CIT(A) deleted this addition, noting that the partner, Mr. Bhagwanbhai K. Ajara, was recording on-money transactions in the diary, which were already disclosed in the return of income. The Tribunal upheld the CIT(A)'s decision, agreeing that the interest payment was part of the on-money transactions already disclosed.

Issue 3: Addition on Account of Unaccounted Collection/Receipts

The AO made an addition of ?4,35,39,800 based on unaccounted turnover of ?5,44,39,800, while the assessee had offered ?109 lacs as income by applying a 20% net profit rate. The CIT(A) adopted a 30% net profit rate and sustained the remaining addition. The Tribunal found the 30% rate to be a mere guesswork and accepted the 20% net profit rate offered by the assessee, deleting the remaining addition.

Issue 4: Addition Based on Peak Entries in Seized Diaries

For AY 2009-10 and 2010-11, the AO made peak additions of ?66,36,750 and ?1,68,34,250 respectively based on seized diaries. The CIT(A) reduced these additions, noting that substantial money belonged to the firm Uma Shakti Corporation Kalol Project (USCKP). The Tribunal agreed with the CIT(A), noting that the peak additions were part of the unaccounted turnover already disclosed by USCKP, and thus deleted the additions.

Issue 5: Addition Related to Nicol Land Transactions

The AO added ?15,00,000 and ?26,20,000 for AY 2009-10 and 2010-11 respectively, based on entries in seized diaries. The CIT(A) deleted these additions, noting that the assessee was a broker and had already shown brokerage income from these transactions. The Tribunal upheld the CIT(A)'s decision, finding no corroborative evidence to support the AO's additions.

Issue 6: Addition under Section 69 for Unaccounted Investments in Samarpan Scheme

The AO added ?9,00,000 for unaccounted investments in the Samarpan Scheme based on a statement and a noting in the seized diary. The CIT(A) deleted this addition, noting that the investment was made by USCKP and not the assessee. The Tribunal upheld the CIT(A)'s decision, agreeing that the investment was made by USCKP from funds received from its members.

Conclusion:

In conclusion, the Tribunal allowed the appeals of the assessee and dismissed those of the Revenue, finding that the additions made by the AO were not supported by corroborative evidence and were based on assumptions and "dumb documents." The Tribunal upheld the CIT(A)'s decisions where appropriate, emphasizing the importance of corroborative evidence in making additions under the Income-tax Act.