2016 (4) TMI 868 - AT - Income Tax

Unexplained investment - addition made simply on the basis of the statement recorded u/s. 133A - Held that - An admission by assessee during the search or survey proceedings cannot be considered as conclusive unless it is supported by corroborative evidence. With regard to investments on which, the statement was taken, there is no material identified during the survey operations so as to determine the unexplained investment at ₹ 70 Lakhs in the hands of the firm and ₹ 25 Lakhs in each of the partners hands. From the facts, it can be seen that except relying on the answer given by the Managing Partner to a question posed by the AO in the course of survey, no independent information/evidence/material was brought on record so as to support the additions made. Since there is no evidence corroborating the so called admission by assessee, we are of the opinion that the addition cannot be made simply on the basis of the statement recorded u/s. 133A. Discrepancies in respect of expenses and the percentage of net profit on estimation basis - disallowance of expenses - Held that - The addition made is on adhoc basis. Considering the submissions of the Counsel and facts of the case, we are of the opinion that unverifiable vouchers cannot be avoided in this line of business. Keeping that in view, we are of the opinion that a disallowance of ₹ 5 Lakhs will meet the ends of justice. Consequently, we restrict the disallowance to an amount of ₹ 5 Lakhs. Treating of the agricultural income as income from other sources - Held that - Assessee has offered an amount of ₹ 6.98 Lakhs from 17.25 acres of land and AO took agricultural income per acre ₹ 15,000/- per acre and allowed agricultural income to an extent of ₹ 2.58 Lakhs. Balance of the amount was treated as income from other sources . Ld. CIT(A) confirmed the same considering the facts of the case. 13.1. After considering the rival contentions, we do not see any reason to interfere with the order of the CIT(A). Assessee has not justified earning so much of agricultural income and the estimation by the AO is reasonable. Since no contradictory evidence is filed before us, we see no reason to interfere with the orders of the AO and CIT(A) on the issue. In the result, the grounds pertaining to agricultural income as income from other sources are rejected

Summary

Issues involved:
1. Additions made based on the statement recorded during survey proceedings.
2. Ad hoc addition of Rs. 10 Lakhs for discrepancies in expenses.
3. Treatment of agricultural income as 'income from other sources.'

Issue-wise Detailed Analysis:

1. Additions Based on Statement Recorded During Survey Proceedings:
The primary issue revolves around the additions made consequent to the statement recorded during the survey proceedings under section 133A of the Income Tax Act. The firm and its partners contested the additions of Rs. 70 Lakhs in the firm's hands and Rs. 25 Lakhs each in the individual partners' hands, arguing that there was no incriminating material impounded during the survey. The Assessing Officer (AO) made these additions solely based on the declaration made during the survey, despite the firm finalizing its books of account and offering a net profit of Rs. 18,01,200/-.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld these additions, stating that the appellant had voluntarily disclosed the amounts after full verification and that there was no coercion or undue influence during the survey. The CIT(A) reasoned that the appellant's delay in retracting the statement indicated an attempt to evade tax liability. However, the Tribunal found that the AO did not reject the books of account nor recorded any unaccounted investments, and there was no evidence to support the additions other than the statement made during the survey. The Tribunal referenced the Supreme Court's decision in CIT Vs. S. Khader Khan Son [352 ITR 480], which held that statements made during survey proceedings under section 133A do not have conclusive evidentiary value unless supported by corroborative evidence. Consequently, the Tribunal allowed the grounds raised by the assessees and deleted the additions.

2. Ad Hoc Addition of Rs. 10 Lakhs for Discrepancies in Expenses:
The AO made an ad hoc addition of Rs. 10 Lakhs to cover discrepancies in expenses, noting that various expenditures debited to the Profit & Loss Account were supported by self-made vouchers. The CIT(A) confirmed this addition, stating that the appellant had agreed to surrender the amount to avoid further scrutiny and that the discrepancies in the vouchers remained unproven during the appeal proceedings.

The Tribunal, however, found the addition to be on an ad hoc basis and noted that unverifiable vouchers are common in the construction business. The Tribunal considered the submissions and facts of the case and concluded that a disallowance of Rs. 5 Lakhs would meet the ends of justice, thereby restricting the disallowance to Rs. 5 Lakhs.

3. Treatment of Agricultural Income as 'Income from Other Sources':
In the case of one of the partners, the AO treated a portion of the agricultural income as 'income from other sources,' allowing agricultural income at Rs. 15,000/- per acre for 17.25 acres and treating the balance as non-agricultural income. The CIT(A) confirmed this treatment, and the Tribunal upheld the CIT(A)'s order, noting that the assessee failed to justify the higher agricultural income claimed and that the AO's estimation was reasonable.

Conclusion:
The Tribunal partly allowed the appeals in ITA Nos. 533/Hyd/2014 & 532/Hyd/2014, and fully allowed the appeal in ITA No. 534/Hyd/2014, pronouncing the order in the open Court on 29th February, 2016.