2016 (4) TMI 911 - AT - Income Tax

Addition towards additional income declared during the course of search - Held that - The additional income admitted by the assessee during the course of search is not supported by any material evidences gathered during the course of search. Though assessee admitted additional income of ₹ 18,28,000/- by stating that the income is offered to cover up inconsistencies in the past, the assessee has declared the said income in the hands of the T Ramakrishna(HUF) by declaring short term capital gains and income from other sources. Therefore, we are of the opinion that the A.O. was not correct in making separate additions of ₹ 18,28,000/-, when assessee has admitted the income in the hands of Shri T. Ramakrishna(HUF). The CIT(A) failed to appreciate the fact that the undisclosed income offered during search, was admitted in the hands of T Ramakrishna (HUF). The CIT(A), without appreciating the proper facts, confirmed the additions made by the AO. Therefore, we set aside the order passed by the CIT(A) and direct the A.O. to delete the additions. - Decided in favour of assessee Disallowance of income tax payable - A.O. was of the opinion that income tax is not a allowable deduction under sec. 40(a)(ii) - Held that - Admittedly, the assessee has estimated the income from construction project on estimation basis. To arrive at the income from the project, the assessee has prepared a P&L account and as per the financial statement prepared by the assessee, the assessee has claimed income tax payable for ₹ 11 lakhs as expenditure in the P&L account. Though profit is estimated, the assessee has claimed income tax payable of ₹ 11 lakhs, as expenditure in the profit & loss account, which cannot be allowed as a deduction u/s 40(a)(ii) of the Act. Therefore, we are of the opinion that the A.O. has rightly made additions of ₹ 11 lakhs towards income tax payable. The CIT(A) has rightly confirmed the additions made by the A.O. We do not see any error or infirmity in the order passed by the CIT(A). - Decided against assessee

Summary

Issues Involved:
1. Validity of assessment proceedings under section 143(3) read with section 153C of the Income Tax Act.
2. Addition of ?18,28,000 towards additional income declared during the search.
3. Disallowance of ?11 lakhs claimed as income tax payable.

Detailed Analysis:

1. Validity of Assessment Proceedings under Section 143(3) read with Section 153C:
The assessee challenged the validity of the assessment proceedings under section 143(3) read with section 153C of the Act. However, during the course of the hearing, the assessee's representative did not press these grounds. Consequently, these grounds were dismissed as not pressed.

2. Addition of ?18,28,000 Towards Additional Income Declared During the Search:
The primary issue was whether the additional income of ?18,28,000, admitted during the search, should be added to the income of the assessee company. The assessee argued that this amount was admitted to cover inconsistencies in the past and was declared in the name of Shri T. Ramakrishna (HUF), not in the company's name. The Assessing Officer (A.O.) added this amount to the company's income, stating it was related to business transactions and discrepancies in the company's books. However, the Tribunal found that the A.O. based the addition solely on the statement recorded under section 132(4) without any supporting material evidence. The Tribunal noted that the revised return filed by Shri T. Ramakrishna (HUF) included the additional income, and there was no indication in the statement that the income should be offered in the company’s name. The Tribunal, therefore, directed the A.O. to delete the addition of ?18,28,000.

3. Disallowance of ?11 Lakhs Claimed as Income Tax Payable:
The assessee claimed ?11 lakhs as an expenditure towards income tax payable in the profit and loss account. The A.O. disallowed this amount under section 40(a)(ii) of the Act, which prohibits the deduction of income tax paid or payable. The assessee contended that since the income was estimated, no separate additions should be made for any expenditure item in the profit and loss account. However, the Tribunal upheld the A.O.'s decision, stating that income tax is not an allowable deduction under section 40(a)(ii), even if the income is estimated. The Tribunal found no error in the CIT(A)'s confirmation of this disallowance and thus rejected the assessee's ground on this issue.

Conclusion:
The Tribunal partly allowed the appeal, directing the deletion of the ?18,28,000 addition but upheld the disallowance of ?11 lakhs claimed as income tax payable. The order was pronounced in the open court on 18.3.2016.