2014 (10) TMI 1029 - AT - Income Tax

Admission of fresh/new evidences filed by the assessee before the CIT(A) without satisfying the conditions laid down in Rule 46A(1) of the I T Rules 1962 - Assessment u/s 153A - HELD THAT - In the instant case the entire additional evidence has come on the record of the first appellate authority because the first appellate authority decided to examine the facts of the case in depth and adjudicate upon the matter on the basis of evidence and material thus gathered. The learned CIT(A) was empowered to do so under the provisions of Section 250(4). The results of enquiry conducted by him could either go to further cement the case made out by the assessing officer or to help out the assessee against the findings of the assessing officer. The mere fact that the results of the enquiries thus conducted supported the case of the assessee and not that of Revenue has no bearing on the jurisdiction and powers of the learned CIT(A). CIT(A) has confronted the assessing officer with the evidence thus received and the material thus gathered and allow the assessing officer to have his say in the matter vide remand report dated 29.4.2013 and being done so this dispute have no merits. No requirement in law that the first appellate authority should invariably consult or confront the assessing officer every time an additional evidence that was not filed before the assessing officer comes on the record of the first appellate authority. Where the additional evidence is obtained by the first appellate authority on its own motion, there is no requirement in law to consult / confront the assessing officer with such additional evidence. In such cases Sub-rule (2) of rule 46A requires the first appellate authority to allow the assessing officer a further opportunity to rebut the fresh evidence filed by the assessee. Even that requirement cannot be said to be a rule of universal application. If the additional evidence furnished by the assessee before the appellate authority is in the nature of clinching evidence leaving no further room for any doubt or controversy in such a case no useful purpose served on performing the ritual of forwarding the evidence / material to the assessing officer and obtain his report. In such exceptional circumstances the requirement of Sub-rule (3) may be dispensed with. No merit in the grounds raised by the Revenue and accordingly, the grounds raised by the Revenue in all these appeals are dismissed. Profit from own chity investment - AO arrived at the investment in own chits by taking the percentage growth of such investment from the AYs 2003-04 to 2004-05 as the basis of projection - AO further estimated the profit earned from own chits @ 10% - HELD THAT - According to the CIT(A), the AO has also worked out the year-wise investments and estimated income solely on the basis of the seized material A-21. The working of the assessee was also on the basis of the same seized material A-21 and on its verification, the AO has not pinpointed any deviation of the assessee from the seized material. Accordingly, he observed that the view of the AO that the assessee has to adduce further evidences to prove the loss in respect of own chitty investments was not in order. Accordingly, the CIT(A) was of the view that there was no discrepancy in the working furnished by the assessee. He also found that the assessee has admitted more investments in own chits than the figure worked out by the AO. Accordingly, he observed that the addition made by the AO on estimate basis towards profit from own chity investment was not justifiable. Being so, the CIT(A) observed that the addition of ₹ 1,39,264/- for the AY 2004-05 and to the extent of ₹ 74,329/- for the AY 2007-08 are to be made and deleted the balance addition of other AYs. Addition of the income from Kuri late fee - CIT(A) observed that no incriminating materials relating to the income from kuri late fee were found/seized during the course of search - HELD THAT - After considering the relevant material, the CIT(A) was of the opinion that there was no reason to disbelieve the submissions made by the assessee that other kuri income offered includes income from kuri late fee. The CIT(A) observed that the AO has made the addition only on pure guess work and not on the basis of any material found/seized during the course of search. Accordingly, the addition of ₹ 4,49,821/- made by the AO for the AY 2008-09 was deleted. We do not find any infirmity in the findings of the CIT(A) in deleting the addition; accordingly, the same is confirmed. The ground raised by the revenue is accordingly rejected. Disallowance of interest paid on deposits - AO found that the assessee firm has advanced funds to its sister concerns without charging interest and accordingly, he made proportionate disallowance in respect of interest paid on deposits @ 12% p.a and made addition to the total income for AYs 2002-03 to 2005-06 and AYs 2006-07 to 2008-09, no addition was made on this account since the entire interest paid was disallowed u/s 40(a)(ia) - HELD THAT - In this case, the addition was made by the AO without referring any seized material and the addition was only on presumption without any material to show that borrowed funds have been advanced to sister concerns during the relevant assessment years. In the absence of any material to suggest that the advance made to sister concerns were out of borrowed funds, the deletion of addition by the CIT(A) for the assessment year under consideration is justified. Accordingly, this ground raised by the revenue is accordingly rejected. Disallowance of interest claimed on housing loan - HELD THAT - In this case, admittedly, the amount borrowed by the partners was credited to the assessee s firm and the corresponding payment was also made by the assessee including interest payments. According to the AO, the interest was to be borne by the partners and it was wrongly claimed by the assessee firm. However, there is no material to suggest that the partners were derived any benefit out of the loans availed by the assessee firm. In the absence of any material to suggest the benefits derived by the partners in a personal capacity, we are not in a position to accept the claim of the revenue. Accordingly, this ground raised by the revenue is rejected. Excess interest received from money lending business - AO rejected the books of account and estimated the interest income from money lending business by taking weighted average of interest rate charged by the assessee firm - HELD THAT - AR is not able to controvert the findings of the CIT(A). The CIT(A) has considered the average opening and closing balances of the financial year so as to compute the interest income, which is an accepted method of assessment of income and advances when the day-to-day balances of loan is not available. Accordingly, he held that the addition on account of excess interest collected from customers has to be made only in respect of AYs 2002-03, 2004-05 and 2006-07 to 2008-09 and sustained the excess interest for AY 2002-02 - No reason to interfere with the findings of the CIT(A), which is confirmed. Addition on account of income from chitty business of foreman s commission - According to the AO, the assessee was not fully accounting the foreman s commission received from conducting chits - HELD THAT - On this issue, the assessee furnished reconciliation statement with regard to collection of the foreman commission before the CIT(A). The CIT(A), after going through the reconciliation statement observed that the foreman commission receivable for the AY 2002-03 was at ₹ 21,57,720 and for The AY 2008-09, it was ₹ 23,63,326/-. Accordingly, he sustained the addition towards undisclosed foreman commission at ₹ 8,800/- for the AY 2006-07 and ₹ 16,06,951/- for the AY 2008-09. The assessee could not controvert the above findings of the CIT(A). Disallowance u/s 40(a)(ia) - assessee has paid canvassing commission without deducing tax at source - HELD THAT - CIT(A) correctly observed that there was no dispute in respect of the disallowance u/s 40(a)(ia) and accordingly, the same was sustained. We do not find any infirmity in the order of the CIT(A) on this issue. Disallowance of profit from terminated kuries - AO assumed that the auction discount due to the subscribers who have forfeited kuries was kept as a liability in the balance sheet of the assessee firm, even after the termination of the chitties and the assessee firm has neither returned the auction discount nor offered the same as income in the return of income - HELD THAT - The assessee filed the detailed working of the profit from the terminated kuries. After going through the details furnished by the assessee regarding the outstanding of terminated kuries, he quantities it at ₹ 3,13,771/- and sustained the same and deleted the balance ₹ 31,11,054/ for the kuries which have not been terminated as on 31.3.2008. The CIT(A) given relief in respect of kuries which are not terminated . While doing so, the CIT(A) relied on the judgment of the Hon ble jurisdictional High Court in the case of Guruvijaya Kuri Co Ltd, 2008 (1) TMI 267 - KERALA HIGH COURT We do not find any reason to interfere with the findings of the CIT(A), which is confirmed. Profit computed by AO from seized materials - On comparison of the books of account seized during the course of search with the results shown in the return of income, it was found that these two sets of accounts do not tally - HELD THAT - According to the CIT(A) the seized books are not correct and complete and it do not reflect the true state of affairs of the assessee firm and hence he was of the view that a reasonable estimation to be done so as to compute the correct income of the assessee. Considering this, the CIT(A) taken the clue from section 44AF of the Act and estimated the net profit @ 5% of the turnover. We do not find any infirmity in the findings of the CIT(A), which is confirmed. Accordingly, the ground taken by the revenue for these three years is rejected. Non deduction of TDS u/s 194A/194C - HELD THAT - CIT(A) correctly observed that income of the assessee for the AYs 2006-07 to 2008-09 was estimated by the AO that there cannot be any further addition after estimating the income of the assessee as relying on TEJA CONSTRUCTIONS VERSUS ACIT 2009 (10) TMI 593 - ITAT HYDERABAD Agricultural income - CIT(A) concluded that it would be just and proper to disallow 25% of the declared agricultural income in the returns filed u/s. 153A - CIT(A) observed that the at the time of search, the assessee stated that he was getting Agrl. income from cultivated lands - HELD THAT - Admittedly, owning agricultural land was not doubted by the Department. There were evidences produced by the assessee suggesting agricultural income generated by the assessee in his land. Being so, since the Department have no evidence contrary to the evidence furnished by the assessee; therefore, it is not proper to hold that the assessee has shown other income in the form of agricultural income. Since evidence brought on record suggest that the agricultural income earned by the assessee; therefore, we do not find any reason to interfere with the findings of the CIT(A), which is confirmed as the reasons advanced by the assessee also bonafide for variation in the agricultural income claimed in the original return filed after the search action. Accordingly, this ground in the above Revenue appeals is dismissed. Disallowance of receipt from sale of trees - HELD THAT - The assessee was having landed properties where the trees were grown. The reason for rejection of the assessee s plea by the Assessing officer is that the certificate from the Revenue authorities was not produced before him. However, the AO has not doubted the certificate issued by the revenue authorities which suggest the availability of timber therein. Being so, it is natural to earn income from sale of trees. Accordingly, we do not find any reason to interfere with the order of the CIT(A) and the same is confirmed. This ground of the Revenue is rejected. Addition towards investments in fixed deposits/Investment in SB A/c.- HELD THAT - Considering the additional evidence and the remand report called for from the Assessing Officer and after receiving the comments from the Assessing Officer on the additional evidence given by the assessee, the CIT(A) was of the opinion that the explanation given by the assessee was proper since the assessee has properly substantiated the fixed deposit in the cash flow statement and therefore, the CIT(A) deleted the addition. The CIT(A) was satisfied with the explanation of the assessee regarding the source of fixed deposits. Being so, in the absence of any contrary evidence furnished by the Revenue, we are not in a position to reverse the findings of the CIT(A) and the same is confirmed. Accordingly, this ground in the above Revenue appeals is dismissed. Investment in immovable properties - HELD THAT - Assessees have furnished evidence before the CIT(A) and explained the investments in the properties in the cash flow statements. The CIT(A) had also called for remand report. After going through the remand report, the CIT(A) has observed that the unexplained investments in immovable properties were accounted for as fixed assets in the regular books of account of the firm in which the assesses were partners and the same cannot be considered as unexplained investment in immovable properties and it is to be excluded and the properties are owned by the assesses which are duly accounted for in the regular books of accounts. Being so, we have no hesitation in confirming the order of the CIT(A). This ground in all the Revenue appeals is rejected. Addition towards personal drawings - HELD THAT - AO estimated very huge drawings. Considering the drawings estimated by the Assessing Officer, the CIT(A) observed that for the assessment year 2005-06 to 2008-09, there is no necessity of any addition as the drawings admitted by the assesses is reasonable as there is drawings by other members of the family namely Lilly, Shju, Jaison, Sabu, Salu and Benny. For the assessment yea₹ 2002-03 and 2004-05, the CIT(A) modified drawings and sustained certain additions on this count. In our opinion, the drawings estimated by the CIT(A) is justified and accordingly, the same is confirmed. Being so, the ground in the above Cross Objections is dismissed. Investment in residential house - HELD THAT - According to the CIT(A), the assessee has not offered any explanation regarding the cost of furnishing at ₹ 1,93,410/- estimated by the Assessing Officer. The CIT(A) found that the submission of the assessee regarding pavement work and installation of gate was in order. Therefore, the cost of pavement work at ₹ 95,394/- and cost of gate at ₹ 11,825/- (Total ₹ 1,07,219) included in the valuation report of the Departmental Valuer shall not be treated as unexplained investment for the assessment year 2005-06. The CIT(A) further found that the other contentions such as own timber, procurement of bricks/tiles at reduced prices, cost of kennel, cost of horticultural work, cost of well, etc., were not proved by the assessee with sufficient evidences. Therefore, the CIT(A) deleted the additions accordingly.

Summary

Issues Involved:
1. Admission of fresh/new evidence by the assessee before the CIT(A) without satisfying Rule 46A(1) of the IT Rules 1962.
2. Profit from own chitty investment.
3. Addition of income from Kuri late fee.
4. Disallowance of interest paid on deposits.
5. Disallowance of interest claimed on housing loan.
6. Assessment of profit from own chits.
7. Excess interest received from money lending business.
8. Addition on account of income from chitty business of foreman's commission.
9. Disallowance u/s 40(a)(ia) of the Act.
10. Disallowance of profit from terminated kuries.
11. No search warrant and hence assessment is bad in law.
12. Treatment of agricultural income as income from other sources.
13. Addition towards personal drawings.
14. Investment in residential house.
15. Investment in immovable properties.
16. Unexplained investments in fixed deposits/Investment in SB A/c.

Detailed Analysis:

1. Admission of Fresh/New Evidence:
The first common ground in all these appeals is the admission of fresh/new evidence by the assessee before the CIT(A) without satisfying the conditions laid down in Rule 46A(1) of the IT Rules 1962. The Tribunal held that Rule 46A applies to evidence voluntarily furnished by an assessee but not to evidence requisitioned by the appellate authority. The Tribunal found that the CIT(A) was within his rights to call for additional evidence and remand reports to ensure a proper adjudication of the appeal. Thus, the Tribunal dismissed the Revenue's ground on this issue.

2. Profit from Own Chitty Investment:
The AO made additions based on the assumption that the assessee earned profits from investments in own chits. The CIT(A) found that for certain years, the additions were made purely on estimates without any incriminating material. The Tribunal upheld the CIT(A)'s decision, agreeing that the additions were not justified due to lack of evidence.

3. Addition of Income from Kuri Late Fee:
The AO projected late fees collected for six months to the entire year and other assessment years. The CIT(A) found no incriminating materials to support such additions and observed that the AO did not verify the disclosed amounts. The Tribunal confirmed the CIT(A)'s deletion of these additions.

4. Disallowance of Interest Paid on Deposits:
The AO disallowed interest paid on deposits, assuming the funds were advanced to sister concerns without charging interest. The CIT(A) found no incriminating material to support this disallowance and deleted the additions. The Tribunal upheld the CIT(A)'s decision.

5. Disallowance of Interest Claimed on Housing Loan:
The AO disallowed interest on a housing loan, assuming it was for personal use. The CIT(A) found that the loan was credited to the firm's account and used for business purposes. The Tribunal confirmed the CIT(A)'s deletion of the disallowance.

6. Assessment of Profit from Own Chits:
The Tribunal found that the CIT(A) was justified in deleting the estimated additions for certain years due to lack of incriminating material. For other years, the CIT(A) verified the working furnished by the assessee and found no discrepancies. The Tribunal upheld the CIT(A)'s decision.

7. Excess Interest Received from Money Lending Business:
The AO estimated interest income based on seized documents. The CIT(A) found the AO's method of applying a flat interest rate on closing balances unfair and opted for an average balance method. The Tribunal agreed with the CIT(A)'s approach and confirmed the decision.

8. Addition on Account of Income from Chitty Business of Foreman's Commission:
The AO worked out foreman's commission based on assumptions. The CIT(A) found errors in the AO's computation and accepted the assessee's reconciliations. The Tribunal upheld the CIT(A)'s decision.

9. Disallowance u/s 40(a)(ia) of the Act:
The AO disallowed payments for not deducting TDS. The CIT(A) observed that income was estimated by the AO, and no further additions were warranted. The Tribunal confirmed the CIT(A)'s deletion of the disallowance.

10. Disallowance of Profit from Terminated Kuries:
The AO treated outstanding balances from terminated kuries as income. The CIT(A) found that only balances from kuries terminated beyond three years should be considered. The Tribunal upheld the CIT(A)'s decision.

11. No Search Warrant and Hence Assessment is Bad in Law:
The assessee did not press this ground, and it was dismissed as not pressed.

12. Treatment of Agricultural Income as Income from Other Sources:
The AO did not accept the agricultural income claimed by the assessee. The CIT(A) found that the assessee provided sufficient evidence of agricultural operations and partially accepted the claims. The Tribunal confirmed the CIT(A)'s decision.

13. Addition Towards Personal Drawings:
The AO estimated higher personal drawings. The CIT(A) found the AO's estimates for certain years unreasonable and accepted the assessee's figures. The Tribunal upheld the CIT(A)'s decision.

14. Investment in Residential House:
The AO added the cost of construction based on a valuation report. The CIT(A) found that certain expenses were incurred post-search and deleted part of the addition. The Tribunal confirmed the CIT(A)'s decision.

15. Investment in Immovable Properties:
The AO treated the entire investment as unexplained. The CIT(A) found that the investments were accounted for in the firm's books and deleted the additions. The Tribunal upheld the CIT(A)'s decision.

16. Unexplained Investments in Fixed Deposits/Investment in SB A/c:
The AO added unexplained fixed deposits. The CIT(A) found that the assessee had properly explained the sources and deleted the additions. The Tribunal confirmed the CIT(A)'s decision.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on most issues, confirming the deletions of various additions made by the AO due to lack of incriminating evidence and proper explanations provided by the assessee. The appeals by the Revenue were dismissed, and the Cross Objections by the assessee were also dismissed.