1998 (2) TMI 612 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the addition of Rs. 1,47,91,840 to the undisclosed income of the assessee.
2. Justification for the assessing officer's reliance on a single piece of paper for determining unaccounted income.
3. Validity of deductions claimed by the assessee for payments made to previous organizers and land costs.
4. Determination of profit from unaccounted receipts and its taxation under Chapter XIV-B.

Issue-wise Detailed Analysis:

1. Legitimacy of the addition of Rs. 1,47,91,840 to the undisclosed income of the assessee:
The assessing officer computed the undisclosed income of the assessee at Rs. 1,47,91,840 based on a piece of paper found during a search operation. This paper indicated unaccounted income from the sale of a flat in Hare Krishna Apartment. The assessee had initially disclosed Rs. 17 lakhs as concealed income. The Tribunal found that the assessing officer's addition was primarily based on presumptions and assumptions derived from a single piece of paper, which was not justified under Section 158BC.

2. Justification for the assessing officer's reliance on a single piece of paper for determining unaccounted income:
The Tribunal noted that the entire controversy revolved around one piece of paper found during the search, reflecting unaccounted income of Rs. 2.30 lakhs. The assessing officer extrapolated this to estimate the total unaccounted income for the entire project. The Tribunal held that such an extrapolation was not justified, especially since the paper pertained to only one flat and not the entire project.

3. Validity of deductions claimed by the assessee for payments made to previous organizers and land costs:
The assessee claimed deductions for payments made to previous organizers (Rs. 38 lakhs), land costs (Rs. 21.91 lakhs), and construction costs (Rs. 158 lakhs). The Tribunal found that these costs were supported by evidence and should be allowed as deductions. The assessing officer's failure to allow these deductions was not justified, as these expenses were necessary for the project and were substantiated by the assessee.

4. Determination of profit from unaccounted receipts and its taxation under Chapter XIV-B:
The Tribunal emphasized that under Chapter XIV-B, only the undisclosed income, not the undisclosed receipts, should be taxed. The Tribunal referred to precedents, including the Mumbai Tribunal's decision in Sunder Agencies v. Dy. CIT and the Calcutta High Court's decision in CIT v. S.M. Orner, to support this view. The Tribunal concluded that the profit from unaccounted receipts should be reasonably estimated. The assessee's offer of 8% profit on the total receipts was considered fair and reasonable. Consequently, the Tribunal directed the deletion of the addition of Rs. 1,47,91,840, as the profit earned would be less than the Rs. 17 lakhs already disclosed by the assessee.

Conclusion:
The Tribunal allowed the appeal, concluding that the assessing officer's addition of Rs. 1,47,91,840 was not justified. The profit from unaccounted receipts should be reasonably estimated, and the deductions claimed by the assessee for payments made to previous organizers and land costs should be allowed. The assessee's disclosed income of Rs. 17 lakhs was deemed sufficient and reasonable.