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2017 (3) TMI 1884 - AT - Income TaxAddition under the head paid up capital of 117 companies - search u/s. 132(1) - block assessment - AO has added the entire paid up capital of the 117 companies of the assessment order for the block period on the ground that the assessee could not state the exact paid up capital nor could he explain the source of the capital in the said companies to his satisfaction - CIT-A deleted the addition - HELD THAT - We concur with the view of the Ld. CIT(A) for deleting the addition made on this account because all the companies are separate legal entities and have been assessed separately and that the accounts of these companies are statutorily audited and moreover they have disclosed their paid up capital in their respective Balance Sheets every year and, therefore, cannot be termed as undisclosed income. Without bringing any evidence to show that the companies which are legal entities and assessed to tax every ear, have not disclosed the paid up capital or less paid up capital, the amount of paid up capital which have been disclosed in its balance sheet every year, ought not to have been fastened in the hands of the assessee. AO failed to bring on record that the entire amount of paid up capital as shown by the companies originated from the assessee s coffers and without making any enquiry from the said companies as to their respective paid up capitals and who were the share holders and without bringing any evidence on record to suggest that the paid up capital of those companies were funded only by the assessee, the AO ought not to have made the addition without any basis the addition made cannot be sustained. Therefore, we do not find any infirmity in the order passed by the Ld. CIT(A) and the same is hereby upheld. This ground of appeal of revenue is dismissed. Addition under the head income from undisclosed source - HELD THAT - As the credit entries in the books were related to AY 1995-96 to 1996-97, which have been assessed in the regular assessment, so assessee cannot be taxed again during the block assessment as held by Hon ble jurisdictional High Court in Caltradeco Steel Sales (P) Ltd. 1999 (8) TMI 18 - CALCUTTA HIGH COURT - DR at the time of hearing before us could not point out any infirmity in the order passed by the ld. CIT(A) so as to warrant our interference and, therefore, we are inclined to uphold the order of the Ld. CIT(A) and dismiss this ground of appeal of the revenue. Unexplained deposits - loose sheets of the blank cheques signed by the account holders found that the assessee had been indulging in name lending business - HELD THAT - The cash deposited in the proprietary concern does not belong to the assessee but belongs to the beneficiaries listed as annexure II to the assessment order. Therefore, the addition made by the AO is not on the basis of evidence or material to even remotely suggest that cash deposited in bank account belongs to assessee and the impugned addition is totally contradictory to the findings recorded at various places in the assessment order and the Ld. CIT(A) erred in not appreciating the aforesaid findings of the AO and has simply relied on a portion of the statement recorded which has been subsequently retracted by the assessee, cannot be the basis of confirmation of addition which has no legs to stand and, therefore, we are inclined to delete the addition. Advancing loans to the beneficiary companies - assessee had made a statement before the authorities below during the course of search which has definitely got evidentiary value - HELD THAT - We note that the AO himself has clearly made a finding that the assessee is not a man of means and he has also accepted the fact that he is only in the name lending and providing accommodation entry for a small commission. The illustration given by the AO is based on the material seized from the search and the modus operandi has been clearly spelled out by the AO, that is the basis on which the AO went ahead to add the income on protective basis and took steps to tax the beneficiaries listed out at Annexure-II to the assessment order. It has been brought to our notice that in the case of the beneficiary, that is M/s Trinetra Commerce Trade Pvt. Ltd., the addition on substantive basis was upheld by the Hon ble Calcutta high Court in 2016 (10) TMI 974 - CALCUTTA HIGH COURT . So, therefore, the addition based on statement alone which has been recorded when he was mentally disturbed cannot be sustained. In the light of the facts and circumstances of the case, the AO s order relying only on the statement of the assessee to fasten the liability on the assessee is unsustainable and, therefore, we are inclined to delete the addition made on this ground. Assessee has returned huge income pursuant to the notice u/s. 158BC - addition on protective basis - HELD THAT - we note that the AO himself finds that the assessee is a man of no means and was of the considered opinion that crores of rupees cannot belong to the assessee. Therefore, in the peculiar facts and circumstances of the case, merely became the assessee returned ₹ 7.10 cr. as income in a disturbed mental condition cannot be the bed-rock on which the assessment of income of the assessee can be made. In the peculiar facts and circumstances of the case, we set aside the addition of ₹ 7.10 cr. and in the interest of justice, this issue is restored back to the file of the AO to examine the seized material and then recompute the income of the assessee for the block period. The AO shall correlate the material seized based on which the AO shall arrive at the correct taxable income of the assessee for the block period. Appeal of the assessee is partly allowed for statistical purposes.
Issues Involved:
1. Deletion of addition of ?73,04,75,000/- under the head paid-up capital of 117 companies. 2. Deletion of addition of ?3,25,000/- under the head income from undisclosed sources. 3. Confirmation of addition of ?10,29,45,776/-. 4. Addition of ?10 crores based on the assessee's statement. 5. Addition of ?7,10,00,000/- based on the assessee's return filed under mental distress. Issue-wise Detailed Analysis: 1. Deletion of Addition of ?73,04,75,000/-: The AO added ?73,04,75,000/- as paid-up capital of 117 companies, suspecting the assessee of using these companies to introduce concealed income. The AO based this on the discovery of blank signed cheques and the assessee's inability to explain the source of the paid-up capital. However, the CIT(A) deleted this addition, noting that the companies had disclosed their paid-up capital in their respective balance sheets and were assessed separately. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO failed to provide evidence that the paid-up capital originated from the assessee's funds and did not conduct necessary inquiries with the companies involved. 2. Deletion of Addition of ?3,25,000/-: The AO added ?3,25,000/- as income from undisclosed sources based on credit entries in the assessee's books for AY 1995-96 and 1996-97. The CIT(A) deleted this addition, noting that these entries were already assessed in regular assessments for those years and could not be taxed again in the block assessment. The Tribunal upheld this decision, referencing the jurisdictional High Court's ruling in Caltradeco Steel Sales (P) Ltd. Vs. DCIT, which supports the CIT(A)'s stance. 3. Confirmation of Addition of ?10,29,45,776/-: The AO added ?10,29,45,776/- based on the cash deposits in the bank accounts of ten proprietary concerns linked to the assessee, suspecting the assessee of name lending. The CIT(A) upheld this addition, relying on the assessee's statement during search proceedings. However, the Tribunal deleted this addition, noting that the AO's findings indicated the cash belonged to beneficiary companies and not the assessee. The Tribunal emphasized the AO's own admission that the assessee was not a man of means, and the addition was contradictory to the findings. 4. Addition of ?10 Crores Based on Assessee's Statement: The AO added ?10 crores based on the assessee's statement during search proceedings, where he claimed to have earned this amount in AY 1992-93. The CIT(A) upheld this addition, considering the statement made under oath. However, the Tribunal deleted this addition, noting the assessee's mental distress during the period of the statement and the lack of corroborative evidence. The Tribunal highlighted the AO's findings that the assessee was only a name lender and not capable of earning such amounts. 5. Addition of ?7,10,00,000/- Based on Assessee's Return Filed Under Mental Distress: The AO added ?7,10,00,000/- based on the assessee's return filed under mental distress. The CIT(A) did not address this issue as it was not raised before him. The Tribunal admitted this issue as a legal question and noted that the AO himself found the assessee to be a man of no means. The Tribunal referenced Article 265 of the Constitution of India and the principle of "Rule of Law," stating that merely returning a higher income under distress does not justify the addition. The Tribunal set aside this addition and remanded the issue back to the AO to examine the seized material and recompute the income correctly. Conclusion: The Tribunal upheld the CIT(A)'s deletion of additions related to the paid-up capital of 117 companies and undisclosed income from credit entries. It deleted the additions based on the assessee's statements and mental distress, emphasizing the lack of corroborative evidence and the AO's own findings. The Tribunal remanded the issue of ?7,10,00,000/- back to the AO for a fresh examination.
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