2018 (2) TMI 2021 - AT - Income Tax

Undisclosed unaccounted cash transactions - Addition on the basis of rough cash books 1 2 found and seized during the course of search and also on the basis of admission of the assessee in the statement recorded u/s 132(4) - peak credit theory advocated by the assessee - HELD THAT - Peak cash credit theory advocated by the assessee cannot be accepted as it applies only in a case where the cash has been rotated several times by depositing and withdrawing from banks or used in the business. The basic idea behind the peak credit theory is to avoid double addition and to bring only the actual income of the assessee where there are large number of unexplained credit and debit entries. In the assessee s case, it is not the case. According to the assessee s admission, the transactions recorded in RCB 1 2 are transactions pertaining to its business activity and hence, the peak credit theory advocated by the assessee has been rejected. Second method suggested by the assessee to determine undisclosed income on the basis of estimation of reasonable profit on total receipts - The assessee has pleaded for 10% net profit on total receipts. There is no uniform yardstick for estimation of net profit. The estimation of net profit depends upon facts of each case and nature of business activity carried on by the assessee. The assessee is in the business of construction and development of flats. Normally, the net profit percentage in unaccounted transactions is quite more than the net profit in normally accounted transactions. In the case of construction business, the statute itself has provided for 8% net profit in cases of certain class of assesses where the turnover does not exceed specified limit. Though the provisions of section 44AD cannot be strictly applied to the facts of assessee s case, a clue from the said provision can be drawn to estimate net profit as the assessee s nature of business squarely fit into the class of assessee where the provisions of section 44AD applies. Therefore, keeping in view the facts and circumstances of this case and also drawing a clue from the provisions of section 44AD, further, considering the fact that these are unaccounted transactions, a reasonable net profit of 15% would meet the ends of justice. Therefore, we direct the AO to estimate net profit of 15% on total receipts quantified by the assessee. Denial of deduction u/s 80IB(10) in respect of housing project - AO disallowed deduction u/s 80IB(10) of the Act, on the ground that the assessee has not made any claim in original return filed u/s 139(1) and the fresh claim made in revised return filed u/s 153A cannot be accepted as the provisions of section 153A is for the benefit of the Revenue and hence, the assessee cannot make any fresh claim which was not made earlier - HELD THAT - If assessments are abated, then the AO is having jurisdiction to assess or reassess total income on the basis of return of income filed filed by the assessee u/s 153A, including incriminating material found as a result of search. Going by the same analogy, if the assessments are abated as on the date of search, the assessee is at liberty to file a true and correct return making a claim which was not made earlier in the original return filed u/s 139(1) if such claim is allowable under the Act. In this case, on perusal of the facts available on record, we find that the search took place on 29-09-2011, the dispute involved with regard to the claim of deduction u/s 80IB(10) pertains to AY 2009-10 to 2012-13. The assessment for the assessment year 2009-10 has been unabated / concluded as on the date of search as the time limit for issue of notice u/s 143(2) has been expired on 30-09-2010 even though no assessment has been framed u/s 143(3). Insofar as assessment year 2010-11 onwards, the time limit for issue of notice u/s 143(2) was due on 30-09- 2011, 30-09-2012 and 30-09-2013 and all the dates are after the date of search. Therefore, we are of the view that the assessment for AY 2009- 10 is unabated and AY 2010-11 onwards are abated and in view of the ratio of the Hon ble jurisdictional High Court in the case of Continental Warehousing Corporation (Nava Sheva) Ltd and Gurinder Singh Bawa, the assessee can make a fresh claim which was not made in the original return u/s 139(1) is abated assessments. Accordingly, the assessee is eligible for deduction u/s 80IB(10) as per the claim made in the return filed u/s 153A of the Act and hence, we direct the AO to admit the claim of the assessee and make a limited verification insofar as the observation of the CIT(A) with regard to the distance of the project before allowing the claim. In the result, the ground raised by the assessee insofar as deduction u/s 80IB(10) for the assessment year 2009-10 has been rejected and in respect of AYS 2010-11 to 2012-13 is allowed. Reduction in the value of closing stock - addition of income towards suppressed stock on the ground that the said claim was not supported by the letter from M/s Bombay Infrastructure Ltd. the assessee submitted before the AO that due to strained relations with the buyer, it could not able to get confirmation from the party - HELD THAT - Facts are not clear. The assessee claims that it has furnished necessary evidences to justify reduction in value of closing work-inprogress in respect of loss incurred on sale of City Centre Mall to M/s Bombay Infrastructure Ltd. The CIT(A), on the other hand, observed that the assessee has not filed any evidences. The assessee has filed various details to explain the loss. Therefore, we are of the considered view that the issue need re-examination from the AO in the light of evidence filed by the assessee; hence, we set aside the issue to the file of the AO and direct him to consider the evidence filed by the assessee and to decide the issue afresh in accordance with law after affording opportunity of hearing to the assessee. In the result, ground raised by the assessee is allowed, for statistical purpose. Assessment u/s 153A - interest on partners capital account received from partnership firms - AO made addition towards interest accrued but not due on partners capital account from partnership firm, M/s Akshar Developers on the ground that the assessee has included interest on capital in original return filed u/s 139 whereas excluded such interest in revised return filed u/s 153A without there being any material changes in facts - HELD THAT - The assessments which are pending as on the date of search shall abate and accordingly, the AO shall assess or re-assess the total income on the basis of regular books of account and other seized material found during the course of search. The sum and substance of the ratio of judgments of jurisdictional High Court is that in case of abated assessments, the scope of assessment is not limited to seized materials, but on the basis of regular books of accounts and return filed by the assessee. Going by the same analogy, when the AO is permitted to assess or re-assess total income on the basis of regular books of account and seized materials, the assessee also can make a fresh claim in respect of items which have not been claimed in the original return of income or make any deductions which were not claimed in the original return of income - if an assessment is abated, then the assessee can make a fresh claim including deduction or exclusion of any item of income if such exclusion or inclusion is in accordance with the provisions of Act. In this case, on the basis of information available on record, we find that the search took place on 29-9-2011and as on the date, the time limit for issue of notice u/s 143(2) for AY 2009-10 was expired on 30-09-2010. The assessment for AY 2009-10 was concluded / unabated and hence, the assessee cannot make any fresh claim or exclusion of income in the revised return u/s 153A of the Act. Accordingly, ground raised by the assessee for AY 2009-10 is rejected. Taxability of interest on capital - CIT(A) observed that for the AY 2011-12, the partnership firm M/s Akshar Developers has claimed interest on capital u/s 40(b) against profits in the statement of total income in original return filed u/s 139(1) and in a return filed in response to notice u/s 153A, the position remains same. The facts are contradictory to each other. Therefore, we are of the considered view that the issue needs to be re-examined by the AO in the light of contradictory facts and if the AO finds that the partnership firm has claimed interest on capital against from profits then certainly, the assessee cannot excluded interest on capital in its return of income. If the firm has not claimed interest on capital against its profits and reversed interest on capital by reducing it from work-in-progress, then certainly, exclusion made by the partners in their individual hands in revised return is in accordance with law. Therefore, we direct the AO to verify these facts and take an appropriate decision in the light of our observation above. Hence, the ground raised by the assessee for the AYs 2010-11 to 2-12-13 in both the assessee s case are set aside to the file of the AO. Short term capital gain and long term capital gain on the basis of original return of income filed u/s 139(1) - AO rejected the claim of the assessee on the ground that the assessee has failed to file any evidence in respect of recomputation of capital gain by filing necessary evidence to justify the date of acquisition of the property and also cost of improvement and reinvestment in purchase of another house property u/s 54 - HELD THAT - We find that the assessee has revised computation of capital gain in respect of sale of property and shifted short term capital gain declared in original return to long term capital gain in the revised return filed u/s 142(1) by changing the date of acquisition of property, according to which, the period of holding of asset is more than 36 months. As per the workings furnished by the assessee showing computation of capital gain as per original return of income filed u/s 139(1) and as per return filed u/s 142(1), there is a mismatch of date of acquisition of property, cost of acquisition and sale consideration. The assessee claims that while adopting cost of acquisition, it has inadvertently omitted to included registration charges and stamp duty. Similarly, the assessee claims that cost of acquisition was deducted twice from the sale consideration which resulted in double deduction and under statement of capital gain in respect of two shops. The assessee has filed various details to justify its arguments that the property has been purchased on 21-08-2007 by way of booking advance, however, in the return the date of acquisition has been taken as per registration of agreement. The facts are not clear. One side the AO claims that the assessee has not furnished any evidence to justify the date of acquisition of property, cost of improvement and exemption claimed in respect of 54F towards reinvestment in purchase of property. On the other hand, the assessee has filed various details including copies of agreement, sale deeds and letter of allotment for booking the flat. The assessee also filed a chart explaining various expenditure incurred in the assessment year 2009-10 for improvement of property. We do not know whether these documents have been furnished before the AO at the time of assessment proceedings or not. Therefore, we are of the considered view that the issue needs to be re-examined by the AO in the light of additional evidence filed by the assessee. Therefore, we set aside the issue to the file of the AO and direct him to examine the claim of the assessee in the light of additional evidence and if the assessee is able to justify the date of acquisition of the property on 21-08-2007 by filing necessary evidence, then the AO is directed to treat gain from sale of property under the head long term capital gain instead of short term capital gain. If the assessee has considered the date of acquisition on the basis of allotment letter without there being any agreement, then the holding period of the asset should be considered from the date of agreement but not from the date of allotment letter. Similarly, the assessee has claimed various expenditure to justify improvement to the asset. If the assessee is able to establish expenditure incurred with necessary evidences and also source, then the AO is required to examine the evidences before taking any decision to allow cost of improvement. If the assessee is able to justify the cost of improvement with necessary evidence, then the AO is directed to allow cost of improvement as claimed by the assessee.

Summary

Issues Involved:
1. Validity of the assessment order under section 143(3) read with section 153A without issuing notice under section 143(2).
2. Addition towards undisclosed unaccounted cash transactions.
3. Denial of deduction under section 80IB(10) of the Income-tax Act.
4. Reduction in the value of closing stock.
5. Addition of interest on capital accrued but not due from partnership firms.
6. Addition towards short term capital gain and long term capital gain based on original return of income.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3) read with Section 153A without Issuing Notice under Section 143(2):
The assessee challenged the validity of the assessment order on the grounds that the Assessing Officer (AO) did not issue a mandatory notice under section 143(2) of the Income-tax Act, which is required for carrying out assessment proceedings under section 153A. The assessee did not press this ground during the hearing, and thus, it was dismissed as not pressed.

2. Addition towards Undisclosed Unaccounted Cash Transactions:
The AO made additions towards unaccounted cash transactions based on rough cash books found and seized during the search and the admission of the assessee in the statement recorded under section 132(4). The assessee argued that the entries in the rough cash books included total cash receipts and payments of the group as a whole, not specific to the assessee firm alone, and suggested the application of peak credit theory or estimation of reasonable net profit. The AO rejected these arguments, and the CIT(A) upheld the AO's decision, stating that the admission of undisclosed income was voluntary and based on incriminating materials found during the search. The Tribunal directed the AO to estimate a reasonable net profit of 15% on total receipts quantified by the assessee.

3. Denial of Deduction under Section 80IB(10):
The AO disallowed the deduction claimed under section 80IB(10) on the grounds that the assessee did not claim it in the original return and that the assessee's housing project did not satisfy the conditions specified in section 80IB(10). The CIT(A) upheld the AO's decision regarding the fresh claim but differed on the merits, allowing proportionate deductions for eligible units. The Tribunal held that the assessee could make a fresh claim in abated assessments and directed the AO to admit the claim and verify the project's distance from the metropolitan limits.

4. Reduction in the Value of Closing Stock:
The AO added an amount towards suppressed stock due to the assessee's failure to furnish evidence of loss incurred on the sale of shops. The CIT(A) upheld the AO's decision, stating that the assessee did not provide evidence that the loss was not claimed in previous years. The Tribunal set aside the issue to the AO for re-examination in light of the evidence filed by the assessee.

5. Addition of Interest on Capital Accrued but Not Due from Partnership Firms:
The AO added interest on capital accrued but not due from partnership firms, which the assessee excluded in the return filed under section 153A. The CIT(A) upheld the AO's decision, stating that the amendment to the partnership deed was an afterthought. The Tribunal held that the assessee could make a fresh claim in abated assessments and directed the AO to verify if the partnership firm claimed interest on capital against profits.

6. Addition towards Short Term Capital Gain and Long Term Capital Gain:
The AO added short term capital gain and long term capital gain based on the original return, ignoring the revised return filed under section 142(1). The Tribunal set aside the issue to the AO for re-examination in light of additional evidence filed by the assessee, directing the AO to verify the date of acquisition, cost of improvement, and reinvestment in the new property.

Conclusion:
The Tribunal partly allowed the appeals for statistical purposes, directing the AO to re-examine certain issues and verify the claims made by the assessee in light of additional evidence. The Tribunal upheld the validity of the assessment order and the addition towards undisclosed cash transactions while providing relief on the deduction under section 80IB(10) and the addition of interest on capital based on further verification.