2016 (6) TMI 165 - AT - Income Tax

Unexplained purchase of diamond pins, jewellery and jewellery sets - Held that - From the above findings of the CIT(A), it is clear that jewellery in dispute was found recorded in the perosnal cash book of Shri N.K. Sharma and therefore, the Ld. C IT(A) has categorically held that no separate addition in the hands of the assessee company can be made. The Ld. C IT(A) observed that in the case of the individual in this group of cases, he had accepted cash flow statement prepared by the assessee was based upon the bank account deposits and withdrawals as well as various real estate transactions of purchases / sales. According to Ld. Counsel for the assessee, the cash flow statement clearly revealed the events which were verifiable in terms of bank withdrawals /deposits. The Ld. CIT(A) concluded that the jewellery was found recorded in the personal cash book of Shri N.K. Sharma, and therefore, no separate addition can be made in the hands of the company. Considering the above facts, we do not see any infirmity in the order of CIT(A) on this issue - Decided against revenue Addition on account of payment made to Sh. Jagdeep Singh from undisclosed sources - assessee contended that it was prevented by sufficient cause from producing the copy of statemtent of Shri Jagdeep Singh due to paucity of time since the assessment proceedings were taken up in November 2009 and the records were not traceable, thus the assessee requested the C IT(A) to admit the statement of Shri Jagdeep Singh recorded u/s 131 of the Act as an additional evidence - Held that - Revenue s appeal is without any merit and deserves to be rejected. There was no violation of Rule 46A of the I.T Rules, by the C IT(A). According to Ld. C IT(A), the assessee was prevented by sufficient cause from producing the statement of Shri Jagdeep Singh, recorded u/s 131 of the Act before the Assessing officer. At the same time, the C IT(A) has afforded an opportunity of being heard to the Assessing officer. The submissions together with the additional evidence submitted by the assessee were sent to the Assessing officer by CIT(A) for comments and after receiving the comments of the Assessing officer, the CITa has adjudicated the issue in accordance with law. CIT(A) has correctly observed that the issue whether any amount was paid on behalf of the company to Shri Jagdeep Singh has to be considered in the context of the pending civil litigation between Shri Jagdeep Singh and Shri Jagdish Arora. It is apparent from the records that Shri Jagadish Arora had filed a suit before the Additional Civil Judge, Derabassi to seek forfeiture of the amount which he had received from Shri Jagdeep Singh to the tune of ₹ 50 lakhs in respect of a deal they had entered into for purchase of land worth ₹ 3.75 crores. It is clear from the above narrated facts that Shri Yadwinder Sharma filed the affidavit before the Civil Court, Derabassi to support the case of Shri Jagdeep Singh. We fully agree with this observation of the CIT(A) that in fact no actual payment either in cash or in cheuqe had been made at all. In this regard, the statement of Shri Jagdeep Singh was recorded by the Assessing officer is relevant; wherein Shri Jagdeep Singh had categorically stated that no amount was actually borrowed from the assessee company as the entire deal for the purchase of land went into civil dispute before the Court. From the answer to Q.No.6 of the statement of Shri Jagdeep Singh, it is clear that no amount either in cash or cheque has been paid to Shri Jagdeep Singh. In fact, the cheque No. 133950 drawn on HDFC bank, Zirakpur dated 25.4.2005 from assessee company was returned within 10 days to Shri Yadwinder Sharma. Thus, in view of the above discussion, we are of the view that the Ld. C IT(A) was fully justified in deleting the addition - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of addition on account of unexplained purchase of diamond pins, jewellery, and jewellery sets.
2. Deletion of addition on account of payment made to an individual from undisclosed sources.
3. Admission of additional evidence at the appellate stage.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Purchase of Diamond Pins, Jewellery, and Jewellery Sets:

The Revenue challenged the deletion of additions made by the Assessing Officer (AO) totaling ?1,83,700/- for unexplained purchases of diamond pins, jewellery, and jewellery sets. The AO had added these amounts to the assessee's income, claiming the expenses were not recorded in the books of accounts. During a search operation, documents detailing these purchases were seized from the residential premises of the directors of the assessee company. The AO issued a show cause notice to the assessee, which was properly served, but no reply was filed by the assessee. Consequently, the AO treated these purchases as unexplained and added the amounts to the total income of the assessee.

On appeal, the CIT(A) deleted the additions, accepting the assessee's contention that the purchases were made by one of the directors, Shri Narinder Kumar Sharma, on his personal account. The CIT(A) found that the purchases were recorded in the personal cash book of Shri N.K. Sharma and not in the company's books. The CIT(A) concluded that no separate addition could be made in the hands of the company. The Tribunal upheld the CIT(A)'s order, noting that the jewellery was recorded in the personal cash book of Shri N.K. Sharma and that the cash flow statement prepared by the assessee was based on verifiable events in terms of bank withdrawals/deposits and real estate transactions. The Tribunal found no infirmity in the CIT(A)'s order and rejected the Revenue's ground on this issue.

2. Deletion of Addition on Account of Payment Made to an Individual from Undisclosed Sources:

The AO made an addition of ?1 crore on account of alleged payment made by Shri Yadwinder Sharma to Shri Jagdeep Singh from undisclosed sources. The AO relied on an affidavit filed by Shri Yadwinder Sharma in a civil court, which indicated that he had paid ?1 crore to Shri Jagdeep Singh in cash. The AO rejected the assessee's contention that the transaction was made by cheque, as there was no supporting bank account evidence. Consequently, the AO added ?1 crore to the assessee's income.

On appeal, the CIT(A) deleted the addition, finding that the affidavit was filed in the context of a civil dispute and that no actual payment was made. The CIT(A) noted that the affidavit and the cash book were meant to show the availability of funds, not actual transactions. The CIT(A) also considered the statement of Shri Jagdeep Singh, recorded by the AO, in which he stated that no amount was actually borrowed from the assessee company. The Tribunal upheld the CIT(A)'s order, agreeing that no actual payment was made and that the addition was unjustified. The Tribunal dismissed the Revenue's ground on this issue.

3. Admission of Additional Evidence at the Appellate Stage:

The Revenue challenged the CIT(A)'s decision to admit additional evidence at the appellate stage, arguing that the AO was not given the opportunity to examine the correctness and genuineness of the additional evidence. The CIT(A) admitted the statement of Shri Jagdeep Singh, recorded under Section 131 of the Income Tax Act, as additional evidence, noting that the assessee was prevented by sufficient cause from producing it earlier. The CIT(A) forwarded the additional evidence to the AO for comments and considered the AO's remand report before making a decision.

The Tribunal found no violation of Rule 46A of the Income Tax Rules by the CIT(A) and noted that the AO was given an opportunity to comment on the additional evidence. The Tribunal rejected the Revenue's ground on this issue, finding that the CIT(A) had acted in accordance with the law by admitting the additional evidence and providing the AO with an opportunity to respond.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order on all grounds. The Tribunal found that the jewellery purchases were recorded in the personal cash book of one of the directors and that no actual payment was made to Shri Jagdeep Singh. The Tribunal also found that the CIT(A) had properly admitted additional evidence and provided the AO with an opportunity to respond.

Order pronounced in the Open Court on 10.05.2016.