2016 (7) TMI 449 - AT - Income Tax

Application of section 145(3)- Held that - Consistently the books of accounts have been accepted by the revenue in the earlier years prior to search and in years subsequent to search proceedings. In these circumstances, we find that the Learned CITA had rightly rejected the action of the Learned AO in applying the provisions of section 145(3) of the Act and consequentially resorting to estimation of net profits for all the assessment years and accordingly we find no infirmity in the order of the Learned CITA. TDS u/s 194I - disallowance of rent paid to various co-owners - Held that - We find that the Learned AR was not able to furnish the original rent agreements or any other documents even before us to prove that the endorsement made in hand in the rent agreements have been duly authenticated by the various lessors by affixing their signatures in the rent agreement. Hence it could safely be concluded that the Learned AR was not able to produce any evidences to prove the existence of multiple co-owners except making an oral statement in this regard. We find that the Learned AR without discharging his onus to prove the veracity of the claim of deduction had only tried to simply shift the burden to the department by making the Learned AO to verify the facts from the landlord. We find that the primary onus lies on the assessee to prove and substantiate its claim which is not discharged in the instant case. Hence we find no infirmity in the order of the Learned CITA in this regard. - Decided against assessee Disallowance of rent paid to Kolkata Port Trust u/s 40 (a)(ia) - Held that - AR placed before us a copy of the certificate issued by the ACIT, TDS, Kolkata u/s 197(1) of the Act in Proceedings No. ACIT/TDS/Cir-58/Certificate u/s 197(1)/2005-06/7 dated 18.5.2005 directing all the payers to deduct 0% TDS on rental payments made to M/s Kolkata Port Trust and the said certificate shall remain in force up to 31.3.2006 until otherwise cancelled by the issuing authority. The Learned AR fairly submitted that this document was not furnished by the assessee before the lower authorities. Hence in the interest of justice and fair play, we deem it fit and appropriate, to set aside this issue to the file of the Learned AO, to verify the veracity of the certificate u/s 197(1) of the Act produced by the assessee and if the same is found to be correct, then the Learned AO is directed to allow deduction of rent paid to Kolkata Port Trust as there will be no obligation to deduct tax at source on the assessee for the Asst Year 2006-07. - Decided in favour of assessee for statistical purposes Addition made u/s 68 - Held that - An assessment has to be made on the basis of the material available on record. But, in the present case, presumptions have led the AO to a state of affairs where salient evidences were overlooked and the material on record was ignored. On the other hand, the AO has brought no Positive material on record to substantiate or support his conclusion that there was transfer of cash for obtaining the loans. In view of the above, the addition made by the AO is neither sustainable in law nor on facts - Decided in favour of assessee Addition on unexplained cash deposit - Held that - We find that the assessee had discharged its primary onus of disowning the document and the presumption as to ownership of the document in the course of search has been duly rebutted by it. Moreover, there was no other corroborative evidences found in the course of search or thereafter to prove the linkage or relation of the assessee with the concerned account holder and the cash deposits found credited in that bank account. We hold that had the Learned AO made corresponding verification with the concerned bank account of Shri Sarat Chandra Patra, that would have eventually led to the concerned party and the said party could have been asked to explain the sources of cash deposits in his bank account. We hold that merely by finding a pay in slip of a third party in the premises of the assessee during the search would not automatically lead to framing of an addition in the hands of the assessee when especially no other corroborative evidences were brought on record to establish the nexus and link of the assessee vis a vis the said seized document. In these circumstances, we hold that the Learned CITA is justified in deleting the addition - Decided in favour of assessee Addition towards cash payments Seized Document Reference ILRT /1 - Held that - The assessee claimed that the cash balances are sufficiently available on each date of funding to other godowns though it is recorded int the cash book on a subsequent date. The assessee had also stated before the Learned AO that it is ready to demonstrate the availability of cash balance for making payments to other godowns and what is maintained in the seized document is only memoranda records and hence the delay in recording the entries in the cash book on a subsequent date is quite natural. But this fact is very crucial which has not been the subject matter of examination by the revenue and substantiated properly by the assessee. We find in the facts and circumstances, deem it fit and appropriate, to set aside this issue to the file of the Learned AO, to decide this issue afresh, in accordance with law. - Decided in favour of assessee for statistical purposes. Addition towards payment through credit card - Held that - We hold that the assessee company being a non-natural person cannot have any personal element thereon and all the expenditure incurred thereon had to be construed only for official purposes - Decided in favour of assessee. Addition towards immovable property in Gurgoan - Held that - We find that the Learned CITA had given a categorical finding for deleting this addition by stating that the monies paid for purchase of immovable property at Gurgoan had been duly disclosed by the assessee in its balance sheet and hence there is no case for making any addition. The Learned DR could not controvert the factual findings given by the Learned CITA before us. - Decided in favour of assessee. Addition made towards Capital Expenditure - Held that - We find that the Learned CITA had given a categorical finding that the assessee had constructed a new four-storied commercial building on the rented premises for which building plan was also sanctioned from the local authority. We find that the case laws relied upon by the Learned AR were prior to the amendment brought in section 30 by the Finance Act 2003 with effect from 1.4.2004 and hence therefore not applicable for the Asst Year under appeal. Hence we hold that the expenditure incurred is capital in nature and admittedly the same is used for the purpose of business of the assessee and hence the assessee is entitled for depreciation thereon. The Learned AO is directed to grant depreciation on the same accordingly for this year. - Decided in favour of assessee. Addition towards Unexplained Expenditure Seized Document Reference ILRT /12 and ILRT/23 - Held that - We find that the seized documents contain the place where certain works were carried out / purported to be carried out with figures. It does not contain any date, mode of payment, name of the contractor who was engaged for the work etc. We find that the Learned AO had recorded a finding that a sum of ₹ 5,32,500/- indicated in the said seized document was towards the civil works carried out at the residence of Somani family at Alipore, Kolkata. Similarly for ₹ 1,50,000/- , the Learned AO had recorded a finding that the said seized document was towards the civil works carried out for Strand Bank Road office. Similarly he had recorded a finding tha a sum of ₹ 11,24,093/- indicated in the said seized document was towards the civil works carried out at the residence of Somani family at Alipore, Kolkata. The Learned AO had recorded a finding that these three payments were not recorded in the books of accounts of the assessee. These findings recorded by the Learned AO had not been controverted by the assessee before us. We find both the premises recorded in the seized document has got linkage and nexus with the assessee. We find that the primary onus lies on the assessee to disprove that the documents seized during search does not belong to it which has not been discharged by the assessee in the instant case. - Decided against assessee Addition as undisclosed income - Held that - We hold that the statement u/s 132(4) of the Act made by Shri Laxmi Narain Somani disclosing a sum of ₹ 9 Crores in the hands of the assessee without the consent of the assessee cannot be legally enforceable on the assessee. It is not in dispute that no incriminating documents or assets representing such undisclosed income of ₹ 9 Crores belonging to assessee were found in the search and seizure operations. We also find that the statement u/s 132(4) of the Act given by Shri Laxmi Narain Somani had been later retracted by him clearly adducing the reasons for the retraction. Hence no addition could be made in the hands of the assessee based on the statement of a third party which was later retracted.- Decided in favour of assessee. Addition towards cash and Jewellery - Held that - We find that no defects were pointed out by the Learned AO in the cash book and the details submitted by the Karta of HUF. We also find that the said HUF in its Balance sheet filed as on 31.3.2010 (Pg 186 of the paper book) had duly disclosed the cash seized of ₹ 3,00,000/- in its Balance Sheet. This itself goes to prove that the cash is owned by the HUF and hence the explanation given by the HUF that cash found belongs to them deserves to be accepted. No contrary evidence were brought on record by the revenue to disbelieve the same. Accordingly, we hold that the Learned CITA had rightly deleted the addition made towards cash found in the sum of ₹ 3,23,283/-. Apropos the addition made towards Jewellery in the sum of ₹ 97,70,729/- , we find from the above discussions that the jewellery found at the time of search was much less than the jewellery declared by the family members of the assessee and their HUFs in their wealth tax returns prior to search and wealth tax assessments on the returns so filed were completed u/s 16(3) of the Act accordingly for which evidences were submitted in the paper book filed by the assessee. The Learned CITA had recorded a categorical finding that there is no material on record that such jewellery declared before the date of search were subsequently sold or transferred by the assessee or their family members. We find that the revenue was not able to bring any contrary evidence to this before us. - Decided in favour of assessee. Non-granting of benefit of set off of Long Term Capital Loss - CIT(A) allowed the claim - Held that - We find that the Learned CITA had rightly granted the benefit of set off of carry forward long term capital loss of Asst Year 2004- 05 to be set off against the long term capital gain in Asst Year 2010-11 by placing reliance on the CBDT Circular supra and section 10 of General Clauses Act. Hence we find no infirmity in the order passed by the Learned CITA in this regard - Decided in favour of assessee.

Summary

Issues Involved:
1. Rejection of books of accounts and estimation of profits under Section 145(3) of the Income Tax Act.
2. Disallowance of rent paid to various co-owners under Section 40(a)(ia) of the Act.
3. Disallowance of rent paid to Kolkata Port Trust under Section 40(a)(ia) of the Act.
4. Addition under Section 68 of the Act for unexplained cash credits.
5. Addition towards cash payments based on seized documents.
6. Addition towards payment through credit card.
7. Addition towards investment in immovable property in Gurgaon.
8. Addition towards capital expenditure.
9. Addition towards unexplained expenditure based on seized documents.
10. Addition of ?9 crores as undisclosed income.
11. Addition towards cash and jewellery found during the search.
12. Non-granting of benefit of set-off of Long Term Capital Loss of Assessment Year 2004-05.

Detailed Analysis:

1. Rejection of Books of Accounts and Estimation of Profits under Section 145(3):
The AO rejected the books of accounts due to non-production of records destroyed in a fire and discrepancies in the records produced. The CIT(A) found that the AO did not consider the explanations and evidence provided by the assessee, including comparable cases and past accepted book results. The tribunal upheld the CIT(A)'s decision, noting that the AO's reliance on retracted statements and lack of incriminating evidence did not justify the rejection of books and estimation of profits.

2. Disallowance of Rent Paid to Various Co-owners under Section 40(a)(ia):
The AO disallowed the rent payment due to non-deduction of TDS, doubting the genuineness of the co-ownership. The CIT(A) upheld the disallowance as the assessee failed to provide authenticated evidence of co-ownership. The tribunal agreed with the CIT(A), emphasizing the assessee's failure to substantiate the claim.

3. Disallowance of Rent Paid to Kolkata Port Trust under Section 40(a)(ia):
The AO disallowed rent payments due to non-deduction of TDS. The assessee produced a certificate under Section 197(1) exempting TDS on these payments. The tribunal remanded the issue to the AO for verification of the certificate's authenticity.

4. Addition under Section 68 for Unexplained Cash Credits:
The AO added loans received from two companies as unexplained cash credits based on retracted statements. The CIT(A) deleted the addition, finding no corroborative evidence of cash transactions. The tribunal upheld the CIT(A)'s decision, noting the AO's reliance on assumptions and lack of positive material.

5. Addition towards Cash Payments based on Seized Documents:
The AO added cash payments recorded in seized diaries as undisclosed income. The CIT(A) partially sustained the addition, finding the assessee failed to verify the payments from the cash book. The tribunal remanded the issue for fresh examination, emphasizing the need for proper verification of cash balances.

6. Addition towards Payment through Credit Card:
The AO disallowed credit card payments as personal expenses. The CIT(A) allowed the business-related expenses but upheld the disallowance for lack of details on payments to a director. The tribunal deleted the disallowance, accepting the business purpose and regular accounting of the payments.

7. Addition towards Investment in Immovable Property in Gurgaon:
The AO added the investment as undisclosed income due to lack of supporting evidence. The CIT(A) deleted the addition, finding the investment duly reflected in the books and financed through bank loans. The tribunal upheld the CIT(A)'s decision.

8. Addition towards Capital Expenditure:
The AO disallowed renovation expenses on rented premises as capital expenditure without granting depreciation. The CIT(A) upheld the disallowance. The tribunal allowed depreciation on the capital expenditure, directing the AO to rework the written-down value.

9. Addition towards Unexplained Expenditure based on Seized Documents:
The AO added amounts recorded in seized documents as unexplained expenditure. The CIT(A) sustained the addition due to the assessee's failure to disprove the findings. The tribunal upheld the CIT(A)'s decision, noting the linkage of the premises to the assessee.

10. Addition of ?9 Crores as Undisclosed Income:
The AO added ?9 crores based on a retracted statement under Section 132(4). The CIT(A) deleted the addition, finding no corroborative evidence. The tribunal upheld the CIT(A)'s decision, emphasizing the lack of incriminating documents or assets.

11. Addition towards Cash and Jewellery Found during the Search:
The AO treated the cash and jewellery found as the assessee's undisclosed income. The CIT(A) deleted the addition, accepting the explanation and verification of ownership by family members. The tribunal upheld the CIT(A)'s decision, noting the jewellery declared in wealth tax returns exceeded the amounts found.

12. Non-granting of Benefit of Set-off of Long Term Capital Loss of Assessment Year 2004-05:
The AO denied the set-off due to late filing of the return. The CIT(A) allowed the set-off, citing CBDT's extension of the due date and relevant circulars. The tribunal upheld the CIT(A)'s decision.