2014 (8) TMI 1228 - AT - Income Tax

Unexplained investment u/s. 69B - addition was made by the AO on the basis of entries made in the diary which had been found in the course of search (of Ashok Kumar Chowta) which was seized - AO based on the entries in the seized diary came to the conclusion that the assessee had paid the aforesaid sums over and above the amount recorded in the registered document and accordingly treated the same as unexplained investment u/s. 69B - HELD THAT - The assessment is based purely on statement made at the time of Survey as well as on 11.5.2009 before the ADIT (Inv.) Mangalore which according to us is a conditional statement and cannot form the basis for making an assessment. In our view the assessee has been consistently taking a stand that the cash payments recorded in the seized diary was for procuring materials on behalf of Chowta and has nothing to do with the contract receipts of the assessee. Cash payments were only payments made to the assessee for procuring materials for Ashok Kumar Chowta and it has nothing to do with the contracts executed by the assessee for Ashok Kumar Chowta. In fact as we have already seen the assessee had affixed his signature in the seized diary only for the reason that the payments for contract work executed by the assessee would be realized by Ashok Kumar Chowta only if such signature is made by the assessee. This will be clear from answer by the assessee to question 27 in the statement recorded at the time of survey. Revenue has failed to bring in material on record to corroborate its conclusion that the entries found in the seized diary are unaccounted contract receipts of the assessee and therefore the profit element in executing such receipts has to be brought to tax. There was no basis for the CIT (A) to have come to a conclusion that 1.5% of the receipts as evidenced in the seized diary should be brought to tax in the hands of the assessee. We therefore uphold the order of the CIT (A) deleting the addition of 8% of the receipts as found in the seized diary however hold that the action of the CIT (A) in bringing to tax 1.5% of the cash receipts recorded in the seized diary was without any basis. There was no statement admitting any other income and the CIT(A) has based his conclusions in sustaining addition at 1.5% of cash receipts recorded in the seized diary based on an non-existent admission of other incomes not declared. Thus the relevant grounds of the assessee in its appeal as well as the cross objections are allowed while the appeals by the revenue on this aspect as raised in its appeals are dismissed. Addition made of investment in properties for A. Ys. 2007-08 - AO has made the addition based on the entries found in the seized diary - The assessee in the statement recorded on 11.05.2009 in reply to question no.9 has stated that the cash payments to Ashok Kumar Chowta for purchase of residential and commercial premises was adjusted against the contract amounts due to the assessee. There is thus an admission by the assessee with regard to cash payments for purchase of properties in the statement recorded on 11.05.2009. His only stand has been that the cash payments were adjusted against contract amounts due to the assessee. This admission continues to remain without being retracted or explained as incorrect admission. It is thus clear that there were cash payments for acquiring the aforesaid properties over and above what is recorded in the registered documents as well as the books of accounts. The entries in the seized diary only corroborate the fact that there were cash payments in acquiring the aforesaid properties. The fact that Soumya Shetty was not available to explain the entries in our view will not be material. The fact that the assessee made cash payments for acquiring these properties having been admitted it was incumbent upon the assessee to explain the source of funds for making the aforesaid cash payments. In our view the assessee has not given any valid explanation in this regard. This admission by the assessee remains uncontroverted through out. We are therefore of the view that the addition to this extent deserves to be sustained. Reopening of assessment u/s 147 - In the present case there was a search and recovery of seized diary which was new material based on which the Assessing Officer can entertain reason to believe regarding escapement of income - Similarly with regard to the decision of the Hon ble Punjab and Haryana High Court in the case of Paramjit Kaur 2007 (8) TMI 323 - PUNJAB AND HARYANA HIGH COURT the Assessing Officer in the present case after the survey had examined the assessee and on such examination the assessee offered to tax income but did not file return of income as agreed. In such circumstances the Assessing Officer entertained the belief regarding escapement of income and therefore it cannot be said that the reopening was not valid. Similarly the CBDT Instruction dt 10.03.2003 is only a direction not to take confession and it cannot be said that a reopening cannot be made on the basis of statement made at the time of search or survey. We are therefore unable to agree with the grounds raised by the assessee that reopening of assessment proceedings for A. Ys.2004-05 to 2008-09 was not proper.

Summary

Issues Involved:
1. Validity of initiation of reassessment proceedings under Section 147 of the Income Tax Act.
2. Addition of 8% of undisclosed contract receipts as income.
3. Sustaining addition at 1.5% of cash payments recorded in the seized diary.
4. Addition on account of unexplained investment in properties under Section 69B.

Detailed Analysis:

1. Validity of Initiation of Reassessment Proceedings under Section 147:
The Assessing Officer (AO) initiated reassessment proceedings based on documents seized during a search in the premises of Ashok Kumar Chowta, which indicated payments to the assessee. The AO issued notices under Section 148 for the assessment years (AYs) 2004-05 to 2008-09 and a notice under Section 143(2) for AY 2009-10. The AO concluded that there was reason to believe that income chargeable to tax had escaped assessment. The assessee challenged the validity of these proceedings, but the AO and subsequently the CIT(A) upheld the initiation, citing the Supreme Court's decision in Raymond Woollen Mills Ltd. and other relevant case laws. The Tribunal agreed with the AO and CIT(A), stating that the reopening was based on new material (seized diary) and was valid.

2. Addition of 8% of Undisclosed Contract Receipts as Income:
The AO added 8% of the undisclosed contract receipts, based on the assessee's statement during the survey and subsequent statement on 11.05.2009, where the assessee admitted to cash receipts not recorded in the books. However, the assessee later contended that these receipts were for procuring materials on behalf of Chowta and not for contract work. The CIT(A) deleted the 8% addition but sustained an addition of 1.5% of the cash receipts. The Tribunal upheld the deletion of the 8% addition, agreeing that the cash receipts were for material procurement and not contract receipts. The Tribunal found no basis for the CIT(A)'s 1.5% addition and deleted it as well.

3. Sustaining Addition at 1.5% of Cash Payments Recorded in the Seized Diary:
The CIT(A) had sustained an addition of 1.5% of the cash payments recorded in the seized diary, based on the assessee's statement that there were other small and negligible incomes. The Tribunal found that there was no such admission by the assessee and that the CIT(A)'s conclusion was without basis. The Tribunal deleted the 1.5% addition, stating that the cash payments were for material procurement and not for contract receipts.

4. Addition on Account of Unexplained Investment in Properties under Section 69B:
For AY 2007-08, the AO made additions for unexplained investments in three properties, based on entries in the seized diary indicating cash payments over and above the recorded amounts. The assessee denied making such payments, but the CIT(A) deleted the additions, stating that the entries were made by a deceased individual and lacked corroborative evidence. The Tribunal, however, noted the assessee's admission of cash payments in the statement recorded on 11.05.2009 and found that the entries in the seized diary corroborated this. The Tribunal sustained the additions for unexplained investments, as the assessee failed to explain the source of these cash payments.

Conclusion:
The Tribunal upheld the validity of the reassessment proceedings and the addition for unexplained investments in properties. It deleted the additions of 8% and 1.5% of the undisclosed contract receipts, concluding that the cash payments were for material procurement and not contract receipts. The appeals of the Revenue were partly allowed for AY 2007-08 and dismissed for other AYs, while the cross-objections and appeals of the assessee were partly allowed.