2019 (9) TMI 1720 - AT - Income Tax

Admission of additional income in search - voluntary disclosures - Additional income admitted by virtue of service tax refund brought to tax u/s 41(1) - service tax refund accrued to the assessee in the assessment year under consideration or not? - HELD THAT - As during the course of search u/s 132 Department has not impounded any incriminating documents or materials against the assessee. The Director of the assessee company voluntarily admitted additional income that would cover up all issues arising on account of stock, cash in hand, various omissions, commissions, assets, jewellery valuable, documents and on any instances where the search party is not satisfied on the explanations and clarifications given by us on any issues may be on account of large number of whole-sellers, agents, distributors, sub-agents, retailers in their own capacity and enormous volume of transactions, etc. Moreover, it was made it clear before the investigating authorities that the above admission of additional income was declared in good faith with a spirit of cooperation with the department and to buy peace of mind with the clear understanding that no penalty shall also be imposed and no prosecution proceedings will be initiated against any of their group concerns or any of the family members. If the Department is prompted to bring to tax of the Service Tax Refund in view of the decision of the Hon ble Supreme Court, which was delivered on 24.10.2013, the same should have been taxed in the relevant to the assessment year 2014-15 or it can be taxed as and when the said sum or any part thereof is actually received by way of refund from the concerned authorities. AO has not discussed anything in the assessment order of receipt of service tax refund during the assessment year under consideration - Also service tax refund was not accrued to the assessee in the assessment year under consideration in lieu of the Hon ble Supreme Court s decision. The provisions of section 41(1) of the Act warrant taxation of the benefit obtained, whether in cash or in any other manner whatsoever or accrued. By virtue of the judgement of the Hon ble Supreme Court delivered on 24.10.2013 towards service tax refund, the Assessing Officer cannot held that the benefit of service tax refund accrues to the assessee in the assessment year 2015-16 automatically. Assessee also filed an undertaking before the AO by way of an affidavit that the actual receipt of the service tax refund will be offered to tax, we are of the considered opinion that the Assessing Officer was not factually and legally correct to bring the same to tax in the assessment year in which the assessee has not actually received the refund or accrued. Balance addition towards variation in additional income admitted - assessee has not advanced any argument or the assessee has furnished any material evidence on record. When the assessee was asked to explain with regard to the short fall in income that was admitted under section 132(4) of the Act being ₹.80,53,26,740/-, before the ld. CIT(A), the assessee has explained about service tax refund of ₹.77.80 crores only and no reply was given on the difference amount of ₹.80,53,26,740- ₹.77,80,00,000. Accordingly, the balance addition of ₹.2,73,26,740/- stands confirmed. Appeal filed by the assessee is partly allowed.

Summary

Issues Involved:
1. Addition of variation in additional income admitted by virtue of service tax refund under section 41(1) of the Income Tax Act, 1961.
2. Confirmation of the addition by the ld. Commissioner of Income Tax (Appeals).
3. Appeal challenging the additions/disallowances on various grounds.
4. Arguments presented by the assessee and the Department.
5. Analysis of the Tribunal on the addition towards variation in additional income admitted.
6. Decision on the balance addition towards variation in additional income admitted.

Analysis:

1. Addition of Variation in Additional Income:
The appeal challenged the addition of &8377;80,53,26,740 as a variation in additional income admitted due to a service tax refund, brought to tax under section 41(1) of the Income Tax Act. The assessee argued that the additional income admitted covered all issues arising from the search operation, and no incriminating material was found. The Tribunal noted that the assessee voluntarily admitted additional income of &8377;203 crores, but failed to explain the deficit amount of &8377;80,53,26,740 not admitted during the search. The Tribunal found that the service tax refund of &8377;77.80 crores was known to the assessee before the search operation, and the assessee's actions seemed preplanned to take advantage of the situation. The ld. CIT(A) confirmed the addition.

2. Confirmation of the Addition:
The ld. CIT(A) partly allowed the appeal filed by the assessee, but confirmed the addition towards the variation in additional income admitted. The Tribunal observed that the Department did not impound any incriminating material during the search. The assessee's explanation regarding the shortfall in admitted income was only related to the service tax refund of &8377;77.80 crores, with no response on the remaining amount. Consequently, the balance addition of &8377;2,73,26,740 was confirmed.

3. Appeal and Arguments:
The assessee challenged the additions/disallowances made in the assessment under section 143(3) r.w.s. 153B(1)(b) r.w.s. 92CA(6) of the Act. The appeal focused on various issues, including the variation in additional income admitted, unexplained expenditure, disallowance under section 14A of the Act, and unexplained cash. The ld. Counsel for the assessee argued against the addition towards the variation in additional income admitted, emphasizing the absence of incriminating material and the voluntary admission of additional income.

4. Tribunal's Analysis and Decision:
The Tribunal analyzed the facts, submissions, and orders of the authorities below. It noted the voluntary admission of additional income by the assessee and the lack of impounded incriminating material during the search. The Tribunal found that the service tax refund was known to the assessee before the search operation, and the actions of the assessee seemed planned to evade further investigation. The Tribunal concluded that the addition towards the service tax refund was unwarranted, as the benefit was not accrued in the relevant assessment year. The balance addition towards the variation in additional income admitted was confirmed, as the assessee failed to provide a satisfactory explanation for the shortfall.

In conclusion, the Tribunal partly allowed the appeal, deleting the addition related to the service tax refund but confirming the balance addition towards the variation in additional income admitted.

Order pronounced on 27th September 2019 in Chennai.