2018 (4) TMI 1969 - AT - Income Tax

Treatment of agricultural income as non agricultural income - search carried out u/s.132 and also survey u/s. 133A at the business premises of the assessee on 05/11/2009 - HELD THAT - The return of income for the assessment year 2004-05 was filed on 19/12/2010 showing agricultural income which was filed before the due date of filing the return of income. Whenever the assessee declared agricultural income in his return burden is on the assessee to show that income is actually earned from agricultural and not from other sources. In the present case there is no evidence placed with reference to the earning of agricultural income and corresponding expenditure incurred with reference to agricultural operations. The Assessing Officer has made a reasonable estimate on the basis of material seized. Being so for the assessment year 2004-05 the Assessing Officer treated the agricultural income and treated balance as non agricultural income. Before us also the assessee was not able to show any material to suggest that the entire income of Rs. 2, 20, 000/- for the assessment year 2004-05 is from only agriculture. Being so for the assessment year 200405 we have no hesitation to confirm the order of the CIT(A) on this issue. This ground of appeal of the assessee is rejected. Addition towards unexplained credit in the bank accounts of the assessee - The assessee is operating bank account in the name of his employees which was admitted by the assessee in his sworn statement recorded u/s. 132(4) of the Act which itself is an evidence. The assessee though agreed to treat the account as suppressed receipts the only plea was that the GP rate is to be considered on peak credit to estimate the income. In our opinion whenever any unexplained deposits is found in the name of the assessee then it is the duty of the assessee to explain the source of the same. In the present case the assessee is not able to lead any evidence on this. The whole deposits is to be considered as income of the assessee since the expenditure relating to the receipts has already been taken care of by the expenditure claimed in the assessee s regular books of accounts. Being so we are inclined to sustain the addition for the assessment year 2006-07. This ground of appeal for the assessment year 2006-07 is rejected. Deposit in the bank accounts represents suppressed sale - As such only profit element is to be considered. On the other hand the contention of the Ld. DR is that the employees in their statements u/s. 132(4) stated that these accounts were operated in the name of the employees and it is the income of the assessee. Admittedly in this case the assessee was not able to show it as trading profit of the assessee and incurring of any expenditure to earn this income. It means that it is concealed income of the assessee and all relevant expenditure relating to this income has already been taken care of in the regular books of account and there is no question of any further deduction out of this. The unaccounted deposit is to be considered as the income of the assessee and not the G.P on it. We do not find any infirmity in the order of the CIT(A) on this issue. Accordingly this ground of appeal of the assessee is for the assessment year 2008-09 is rejected. Undisclosed investment - Admittedly there is a reference of statement of Shri K.C. Thomas in the assessment order. The Assessing Officer adopted the value of the property at Rs. 1550 per cent on the basis of the statement of Shri K.C. Thomas of 5/11/2009 in whose favour the power of attorney was obtained. Further the land was purchased in the assessment year under consideration from 16 different owners and enquiry was not made with these persons regarding the extra payment. In our opinion it is appropriate to remit the issue to the file of the Assessing Officer with a direction to the assessee to furnish a copy of the statement of Shri K.C. Thomas and also to enquire with the respective seller and decide thereupon. With this observation we remit the issue to the file of the Assessing Officer for fresh consideration. This ground of appeal is allowed for statistical purpose. Valuation of the property after applying State PWD rates - The assessee had constructed a factory and office building at Vazhakad during the period 1.3.2005 to 1.4.2008. As per the report of the Valuation Office the total cost of construction was arrived at Rs. 1, 67, 92, 000/-. The assessee declared only a sum of Rs. 1, 14, 63, 115/- as the cost of construction. Thus there was a difference of Rs. 53, 28, 885/- between the valuation report furnished by the DVO and the cost of construction declared by the assessee. Further the Ld. AR submitted that the State PWD rates should be applied. If the assessee spent Rs. 20 lakhs after the assessment year 2008-09 then the difference would be only Rs. 14, 22, 641/- . In our opinion there is force in the argument of the Ld. AR with regard to the consideration of State PWD rates for valuation of the construction. To that extent we agree with the contention of the Ld. AR. Accordingly we direct the AO to re-work the valuation of the property after applying State PWD rates. Regarding the actual cost of construction the Ld. DR cannot have any objection. Hence this ground of appeal of the assessee is partly allowed for statistical purposes. Agricultural lease rent received - The documents produced by the assessee are in the form of Xerox copies of the lease agreements which is only self-serving and no importance is to be given. In view of the fact brought on record by the Assessing Officer and confirmed by the CIT(A) we have no hesitation in upholding the order of the lower authorities. Hence this ground of appeal for the assessment years 2007-08 and 2008-09 is rejected. Assessments u/s. 153A r.w.s. 153C - HELD THAT - We find no infirmity in the issue of notice u/s. 153A of the Act calling for filing of returns of income on 03/05/2010 for the assessment year 2004-05 to 2009-10. Being so we are not in agreement with the argument of the ld. AR that the issue of notice u/s. 153A is bad in law and thereafter framing of assessments u/s. 153A r.w.s. 153C of the Act. Addition made towards lease rent from property in Maharashtra as agricultural income - HELD THAT - The issue was dealt with in earlier paras wherein we held that it is only a make believe story so as to show the source of income to explain the investments. The facts of this case is also similar and the assessee created self serving documents towards introducing own cash in the garb of exempted agricultural income. No credence is to be given to the photocopies of the agreements filed by the assessee. Accordingly in our opinion the lower authorities are justified in rejecting the claim of the assessee in this case also. This ground of appeals of the assessee is dismissed. Additions towards suppression of sale - HELD THAT - CIT(A) considered 10% of GP on the suppressed sales in respect of entire turnover as income of the assessee. Generally we consider the entire turnover as suppressed income of the assessee. However in the present case CIT(A) considered only 10% of the GP on the suppressed sales as income of the assessee and he was very liberal. Since the Department is not in appeal before us there being no option before us we are inclined to confirm the order of the CIT(A) on this issue. This ground of appeals of the assessee is rejected. Refusal of the assessing authority to accept the claim of receipt of the assessee from Shri Ziad - HELD THAT - In this case the assessee has not brought on record cogent evidence to show that the said amount has been received from Shri Ziad. In the absence of specific evidence we are not in a position to accept the genuineness of the claim of the assessee. Hence this ground of appeals for both the years is rejected. Inflated expenditure to the extent of 10% - HELD THAT - At the time of search manager of the assessee stated that it was a normal practice of inflating expenditure at the time of finalization of the accounts which was evident from the materials seized from the premises of the assessee and the statement alongwith the return. Since there was evidence in the form of seized material to suggest inflation of expenditure the CIT(A) considered 10% of the gross profit as inflated expenditure. In view of this we do not find any infirmity in the order of the CIT(A). Accordingly we confirm the same. This ground of appeal of the assessee is dismissed. Addition made on the basis of seized material found during the search - As assessee has not placed any material contrary to this. Hence we do not find any infirmity in the order of CIT(A) and confirm the same. Unexplained investment and on the basis of valuation report filed by the DVO - HELD THAT - As there was no incriminating material or any statement of the assessee or his employee to indicate the fact of the under valuation of the machinery. In the absence of any incriminating material it is not possible for us to sustain the addition made by the Assessing Officer. In our opinion the deletion of addition made by the CIT(A) is justified and the same is confirmed. Accordingly this ground of appeal of the Revenue is rejected.

Summary

Issues Involved:
1. Treatment of agricultural income as non-agricultural income.
2. Addition towards unexplained credit in bank accounts.
3. Investment in Vazhakad property.
4. Investment in Hint Pub, Bangalore.
5. Investment in building.
6. Investment in Malampuzha Steel Rolling Mills.
7. Investment in Mahindra Holidays.
8. Agricultural lease rent received.
9. Loan from Shri Anil Thomas.
10. Loan received from Shri Rahiman.
11. Loan received from Smt. Rajeena.
12. Purchase of agricultural land at Vazhakad.
13. Validity of assessment u/s. 153A r.w.s. 153C.
14. Unexplained investment in machinery.

Detailed Analysis:

1. Treatment of Agricultural Income as Non-Agricultural Income:
The assessee declared various amounts as agricultural income for different assessment years. The Assessing Officer (AO) treated portions of these amounts as non-agricultural income due to lack of evidence supporting the agricultural income claims. The CIT(A) confirmed these additions. The tribunal upheld the AO's decision, citing the assessee's failure to provide substantial evidence.

2. Addition Towards Unexplained Credit in Bank Accounts:
For several assessment years, the AO identified unexplained credits in the assessee's bank accounts, which were confirmed by the CIT(A). The tribunal sustained these additions, noting that the assessee failed to explain the sources of these deposits.

3. Investment in Vazhakad Property:
The AO added Rs. 28,70,278/- as undisclosed investment in land based on discrepancies between the purchase price stated by the assessee and the actual payment. The CIT(A) reduced this addition to Rs. 23,36,227/-. The tribunal remitted the issue to the AO for fresh consideration, directing an inquiry with the respective sellers.

4. Investment in Hint Pub, Bangalore:
The AO added Rs. 67,00,000/- as undisclosed investment in M/s Tristar Investments based on seized documents and statements from employees. The CIT(A) upheld this addition. The tribunal confirmed the addition, rejecting the assessee's contention that the documents were not reliable.

5. Investment in Building:
The AO added Rs. 53,28,885/- as unexplained investment in building construction, based on a valuation report. The CIT(A) reduced this to Rs. 33,28,885/-. The tribunal directed the AO to re-work the valuation using State PWD rates and allowed the assessee's claim of Rs. 20 lakhs spent post-assessment year 2008-09.

6. Investment in Malampuzha Steel Rolling Mills:
The AO added Rs. 5 lakhs as unexplained investment. The CIT(A) confirmed this addition. The tribunal upheld the CIT(A)'s decision due to lack of evidence from the assessee.

7. Investment in Mahindra Holidays:
The AO added Rs. 1,73,135/- as unexplained investment, citing insufficient personal drawings to cover the investment. The CIT(A) confirmed this addition. The tribunal upheld the decision, noting the absence of evidence for sufficient drawings.

8. Agricultural Lease Rent Received:
The AO disallowed agricultural income claimed from lease rent, citing lack of legal validity of the lease agreements and other discrepancies. The CIT(A) confirmed this disallowance. The tribunal upheld the decision, finding the agreements to be self-serving and lacking credibility.

9. Loan from Shri Anil Thomas:
The AO added Rs. 3 lakhs as unexplained loan. The CIT(A) confirmed this addition. The tribunal upheld the decision due to the assessee's failure to provide evidence of the loan.

10. Loan Received from Shri Rahiman:
The AO added Rs. 10 lakhs as unexplained loan. The CIT(A) confirmed this addition. The tribunal upheld the decision due to lack of evidence.

11. Loan Received from Smt. Rajeena:
The AO added Rs. 12.50 lakhs as unexplained loan. The CIT(A) confirmed this addition. The tribunal upheld the decision due to lack of evidence.

12. Purchase of Agricultural Land at Vazhakad:
The AO added Rs. 2,23,200/- as unexplained investment based on discrepancies between the registered purchase price and the actual agreement. The CIT(A) confirmed this addition. The tribunal upheld the decision, citing the agreement as evidence.

13. Validity of Assessment u/s. 153A r.w.s. 153C:
The tribunal found no infirmity in the issue of notice u/s. 153A r.w.s. 153C, confirming the assessments based on seized documents and statements indicating suppressed sales and undisclosed investments.

14. Unexplained Investment in Machinery:
The AO added Rs. 75,50,000/- as unexplained investment based on a valuation report. The CIT(A) deleted this addition, finding no incriminating material or statements indicating under-valuation. The tribunal confirmed the CIT(A)'s decision.