2016 (11) TMI 1650 - AT - Income Tax

Disallowance of expenditure - Income is taxed out information arising out of seized material - HELD THAT - Details were furnished regarding expenses of ₹ 35.00 lakhs before the AO and the ld. CIT(A) also. The claim of expenses of ₹ 35.00 lakhs is against unaccounted receipts as per the same seized material of ₹ 156.12 lakhs as noted by the CIT (A) in para-3 reproduced above. This is not the case of AO that this claim of the assessee regarding expenses of ₹ 35.00 lakhs against unaccounted receipt of ₹ 156.00 lakhs is excessive or unreasonable. The objection is regarding supporting evidence. Un-accounted expenditure, supporting evidences may not be available in most of the cases but since the expenses are noted in the same seized material as per which the receipt is being taxed of ₹ 156.00 lakhs and the claim of such expenses is not excessive and unreasonable and no specific defect has been pointed out by the authorities below in the claim except asking for supporting evidence, we are of the considered opinion, that the assessee was able to establish the incurring of expenditure by way of notings in the seized material and furnishing of the details of the expenses item wise and this is not the case of the revenue that such details are not as per the notings in the seized material. Hence, we delete this disallowance. Accordingly, ground no.2 to 4 are allowed.

Summary

Issues Involved:
1. Maintainability of the Revenue's appeal due to low tax effect.
2. Disallowance of unaccounted expenditure claimed by the assessee.
3. Applicability of Section 40A(3) regarding cash payments exceeding the prescribed limit.
4. Interest under Sections 234B and 234C of the Income Tax Act.
5. Additional ground raised by the assessee regarding the claim of ?52 lakhs.

Detailed Analysis:

1. Maintainability of the Revenue's Appeal:
The revenue's appeal was dismissed due to the tax effect being below ?10 lakhs, as per the latest Board's instruction. The ld. DR of the revenue could not demonstrate that the tax effect exceeded ?10 lakhs. Consequently, the appeal was deemed not maintainable and dismissed for low tax effect.

2. Disallowance of Unaccounted Expenditure:
The assessee claimed ?35 lakhs as unaccounted expenditure against unaccounted receipts of ?156.12 lakhs. The CIT(A) upheld the AO's disallowance due to lack of supporting evidence. However, the Tribunal noted that the expenses were recorded in the same seized material as the unaccounted receipts, and the claim was not excessive or unreasonable. The Tribunal opined that supporting evidence might not be available for unaccounted expenditures but acknowledged the notings in the seized material. Thus, the disallowance was deleted, and the assessee's grounds were allowed.

3. Applicability of Section 40A(3):
The CIT(A) and AO observed that certain expenses, like earthwork and hut clearance, were incurred at the project's beginning and were not linked to extra work for flat purchasers. The Tribunal, however, emphasized that the expenses were noted in the seized material, and the claim was not excessive. The Tribunal did not find merit in applying Section 40A(3) to disallow the expenses since they were part of the seized material used to tax the unaccounted receipts.

4. Interest Under Sections 234B and 234C:
The assessee contested the interest charged under Sections 234B and 234C. The Tribunal held that this issue was consequential and would be addressed accordingly based on the final assessment.

5. Additional Ground Raised by the Assessee:
The assessee argued that the CIT(A) should have allowed the full claim of ?52 lakhs instead of ?13.34 lakhs. The Tribunal found that this claim did not arise from the assessment order, and the assessee could not controvert the CIT(A)'s finding. Hence, the additional ground was rejected.

Conclusion:
In the combined result, the revenue's appeal was dismissed for low tax effect, and the assessee's appeal was partly allowed, with the disallowance of ?35 lakhs being deleted. The additional ground raised by the assessee was rejected. The order was pronounced in the open court.