2018 (5) TMI 2165 - AT - Income Tax

Undisclosed interest - expenditure relating to the payment of interest and bad debts - While scrutinizing the seized material, AO found that the assessee has earned interest on loans and advances which have not been included in the returned income - HELD THAT - There is no denying that voluminous documents were impounded during the search proceedings. It is equally true that the seized material contained financial statements of the assessee and its group members. As mentioned elsewhere, these financial statements were in the form of consolidated trading profit and loss account and balance sheet of the assessee and its family members. There is no denying that on the basis of notings found in these seized material, the Assessing Officer has made various additions. When seized financial statements were made the basis for making additions, then the entries relating to expenditure in the form of interest payment and also bad debt written off cannot be ignored. The Revenue cannot add the credit side and ignore the debit side of the same document. We direct the Assessing Officer to allow the expenditure relating to the payment of interest and bad debts - AO is further directed to allocate the balance interest income if any in the ratio of 60 40 as done in the earlier year between the assessee and his brother Shri V.K. Gupta. Thus, Ground No. 4 of assessee s appeal is treated as allowed for statistical purposes. Addition of interest - The family group has already shown interest income of Rs. 2.06 crores in assessment year 2006-07 and the same has been accepted as such in the appellate order for assessment year 2006-07. Therefore, to this extent, deletion by the ld. CIT(A) is justified. In so far as the balance interest the same is calculated @ of 30% per annum on loans and advances of Rs. 5.49 crores which was given in assessment year 2006-07. Since in assessment year 2006-07 the addition of Rs. 5.49 crores have been deleted by the appellate authorities, there is no question of charging any interest on the said amounts. To this extent, deletion of Rs. 1.64 crores is upheld. The balance interest of Rs. 2.43 crores can also not be sustained as the Assessing Officer has presumed that the assessee must have given loan of Rs. 8.12 crores to various persons. Hence, deletion of the same is justified as the same has been added on assumption, surmises and conjectures. Accordingly, Ground No. 2 of Revenue s appeal is dismissed. Undisclosed amount received in sale property - HELD THAT - Considering the fact that the assessee was only holding 1/6th share in the said property, in our considered opinion, only 1/6th of the undisclosed sale consideration should be added in the hands of the assessee. Exhibit 210 shows that the assessee has incurred expenditure of Rs. 14,91,407/- on the said property and Exhibit 213 shows that expenditure of Rs. 7,16,961 has been incurred. After deducting these expenses, the Assessing Officer is directed to add 1/6th share from the balance undisclosed consideration to the income of the assessee. To this extent, grievance of the assessee is allowed. Determination of Tax Rate - HELD THAT - Since addition has been made as undisclosed income of the assessee, no benefit of special tax rate applicable to long term capital gain can be given. This plea of the assessee is dismissed. Loans appearing in the seized Ledger - HELD THAT - There is no denying that as per the consolidated balance sheet of earlier years, the assessee was having funds amounting to Rs. 11.11 crores. It is equally true that during the year, the assessee has received on money on the sale of property R-57, GK-1 and the same has been discussed in detail elsewhere. To this extent, the assessee has available funds with him. In so far as the balance amount of Rs. 14.85 crores is concerned, the same has been added only on the basis of the slips found at the time of search. It is true that in one of the slips noting are in the name of STPL which is nothing but trade name of the group of the assessee. In our understanding of the facts, one cannot give loan to oneself. Other names mentioned in the slip relate to the loans given to SRS and Realtech which are clear from the impounded documents. We, therefore, do not find any error or infirmity in the finding of the ld. CIT(A). Ground No. 1 is accordingly dismissed. Undisclosed investment in property - Taking a leaf out of the notings in these loose sheets, the Assessing Officer formed a belief that the assessee has purchased property - HELD THAT - It is true that these sheets were found from the premises of the assessee. It is equally true that the notings in the said loose sheets are neither here nor there. No logical inference can be drawn from the noting in these loose sheets. The loose sheet of papers are wholly irrelevant as evidence being not admissible u/s. 34 so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value - See V.C. Shukla 1998 (3) TMI 675 - SUPREME COURT Charging of interest u/s 234A - HELD THAT - As decided in assessee own case charging of interest u/s 234 of the Act is mandatory and consequential to the. appeal effect order. However, in the present case, the CIT (Appeals) has held that the interest u/s 234A not to charged for the period upto which the assessee was not provided copy of the seized material and in our humble understanding of law, this conclusion of the CIT (Appeals) is in accordance with the provisions of the Act and, therefore, we are unable to see any valid reason to interfere with the same and hence, we uphold the same. Whether undisclosed income of any assessee for any year has to be computed by comparing notings on the seized paper with returned income filed by the assessee? - As per section 132(4), the onus lies upon the assessee to explain them vis a vis their returned income. This onus has not been discharged. No merit in these submissions of the ld. DR because it is the settled proposition of law that a document should be read as a whole. No doubt the presumption is against the assessee in so far as any material found from the premises of the assessee is concerned, but at the same time, that material has to be considered as a whole. We find that the AO has taken support from the seized material and added the credit side as income of the assessee. In our considered opinion, AO should have also considered the debit side of the seized material. The Assessing Officer cannot blow hot and cold in the same breath. If the presumption is against the assessee in so far as the credit entries are concerned, then the presumption is also for debit side of the sheets impounded during the course of search. Hence, no interference is called for with the findings of the first appellate authority. Assessee appeal allowed.

Summary

Issues Involved:

1. Validity of assessment based on notices.
2. Allocation of income among family members.
3. Addition of undisclosed interest income.
4. Addition of undisclosed amount received from property sale.
5. Deletion of addition of loans and advances.
6. Deletion of addition on account of undisclosed investment in property.
7. Charging of interest under Section 234A of the Income Tax Act.

Detailed Analysis:

1. Validity of Assessment Based on Notices:

The assessee raised objections regarding the validity of the assessment based on two notices issued. The Tribunal referred to the coordinate bench's findings in the assessee's case for previous assessment years, which held that the assessment was valid as it was completed based on the first notice, and any error in the issuance of the second notice was a clerical mistake covered under Section 292B of the Income Tax Act. The Tribunal found no defect in the validity of the assessment and dismissed the assessee's grounds.

2. Allocation of Income Among Family Members:

The Tribunal addressed the issue of whether the income discernible from the consolidated balance sheets should be assessed solely in the hands of the late Shri Suraj Bhan Gupta. The Tribunal upheld the findings of the coordinate bench, which concluded that the income belonged to various individuals and group companies, not exclusively to the late Shri Suraj Bhan Gupta. The income was to be allocated between Shri S.K. Gupta and Shri V.K. Gupta in the ratio of 60:40, as agreed before the Company Law Board. The Tribunal dismissed the assessee's contention.

3. Addition of Undisclosed Interest Income:

The Assessing Officer added undisclosed interest income based on seized material. The Tribunal noted that the seized financial statements were used to make additions, and therefore, entries relating to interest payments and bad debts should also be considered. The Tribunal directed the Assessing Officer to recompute the undisclosed interest income by allowing deductions for interest payments and bad debts, and to allocate the balance interest income in the ratio of 60:40 between the assessee and his brother. The assessee's ground was allowed for statistical purposes, and the revenue's appeal on the deletion of Rs. 4.08 crores was dismissed.

4. Addition of Undisclosed Amount Received from Property Sale:

The Tribunal considered the addition of Rs. 5.06 crores on account of undisclosed amount received from the sale of property R-57, GK-1. The Tribunal found that the assessee held only 1/6th share in the property and had incurred expenses on it. The Assessing Officer was directed to add 1/6th of the undisclosed sale consideration after deducting the expenses incurred. The Tribunal dismissed the assessee's plea for the application of the special tax rate for long-term capital gains.

5. Deletion of Addition of Loans and Advances:

The Assessing Officer added Rs. 29.50 crores as loans and advances given outside the books of account. The Tribunal upheld the CIT(A)'s findings that the loans were given out of opening balances and sale proceeds of property R-57, GK-1. The Tribunal found no error in the CIT(A)'s deletion of the addition and dismissed the revenue's ground.

6. Deletion of Addition on Account of Undisclosed Investment in Property:

The Assessing Officer added Rs. 1.39 crores based on loose sheets found during the search, indicating a probable future investment. The Tribunal agreed with the CIT(A) that the loose sheets were dumb documents and deleted the addition. The Tribunal found no merit in the revenue's contention and dismissed the ground.

7. Charging of Interest Under Section 234A of the Income Tax Act:

The Tribunal upheld the CIT(A)'s decision that interest under Section 234A should not be charged for the period during which the assessee was not provided with a copy of the seized material. The Tribunal followed the decision of the Hon'ble Supreme Court in Anum M.H. Ghaswala vs. CIT and dismissed the revenue's ground.

Conclusion:

The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, directing the Assessing Officer to recompute the undisclosed interest income and make necessary adjustments as per the findings. The order was pronounced in the open court on 25.05.2018.