2016 (7) TMI 730 - AT - Income Tax

Increasing sales consideration on account of dumb documents found - Held that - Addition on similar allegation in the hands of the purchaser payer has been deleted by the ld. CIT(A) and the order of the ld. CIT(A) has also been upheld by the ITAT, Allahabad and there is no further appeal by the Revenue. Therefore, similar issue attained finality in favour of the purchaser Shri Pradeep Kumar Baranwal and thus the allegation has no legs to stand that there was over and above DD payment amounting to ₹ 49,56,108/- as concealed income of the assessee and the same deserves to be taxed u/s 28 of the Act. In view of the above, we decline to uphold the action of the AO and impugned order wherein the addition made by the AO has been upheld and thus we demolish the same as and when it has been adjudicated by the ld. CIT(A), Varanasi that no over and above cash payment was made by Shri Pradeep Kumar Baranwal towards purchase of shop No. 123 in the Mall constructed by the assessee Company, then similar addition in the hands of the seller payee cannot be held as sustainable. Consequently, addition made by the AO and upheld by the ld. CIT(A) is dismissed. - Decided in favour of assessee Addition under the head other sources - whether there is no inextricable link between the FDs and the business of the assessee, therefore, the interest income earned from therefrom should be taxed under the head income from other sources ? - Held that - There were some fixed deposits by the assessee company with the bank and the assessee chose to utilise its FDs towards its obligations of keeping some margin money for bank guarantee. Therefore, we decline to accept allegation of the ld. CIT(A) that keeping some margin money for bank guarantee and having fixed deposits with the bank are two distinct and separate transactions. At the same time, we are satisfied that when the assessee chose to utilise its fixed deposits towards its obligation of keeping margin money towards it business obligation, then it has to be held that there is inextricable link between the fixed deposits and business obligation of keeping margin money. Hence the interest income has to be treated as business income and not income from other sources. - Decided in favour of assessee Income under the head business income - profitability calculation - Held that - AO assessed income from business viz calculation of profitability on project completion basis at ₹ 1,37,10,343/- whereas while passing order for A.Y 2009-10 he reduced the amount of ₹ 87,51,902/- as profit already declared for the preceding A.Y 2008-09 which is not a proper and correct approach of the AO. In view of the above noted facts and circumstances, we are in agreement with the conclusion of the ld. CIT(A) which granted relief to the assessee and directed the AO to give effect accordingly. We are unable to see any ambiguity or perversity or any other valid reason to interfere with the order of the ld. CIT(A). - Decided against revenue

Summary

Issues Involved:
1. Validity of reopening of assessment and issuance of notice under Section 147.
2. Increase in sales consideration based on documents found at a third party's premises.
3. Enhancement of income by the CIT(A) under Section 251.
4. Addition under the head 'other sources'.
5. Link between Fixed Deposits (FDs) and business operations.
6. Correctness of income reduction for the subsequent assessment year.

Issue-wise Detailed Analysis:

Validity of Reopening of Assessment and Issuance of Notice under Section 147:
The assessee challenged the validity of the reopening of assessment and issuance of notice under Section 147 of the Income-tax Act. However, during the hearing, the assessee's counsel conceded that if the Bench was satisfied with the merits of the case, the assessee would not press these grounds. Consequently, these grounds were dismissed.

Increase in Sales Consideration Based on Documents Found at a Third Party's Premises:
The CIT(A) upheld the AO's decision to increase the sales consideration of the assessee by ?49,56,108 based on documents found at the premises of a third party, Shri Pradeep Kumar Baranwal. The assessee argued that the total consideration was only ?30 lakhs, paid by draft, and provided an affidavit from Shri Pradeep Kumar Baranwal to support this claim. The ITAT noted that a similar addition in the hands of the purchaser (Shri Pradeep Kumar Baranwal) had been deleted by the CIT(A), Varanasi, and upheld by the ITAT, Allahabad. In the absence of any contrary order, the ITAT concluded that the addition in the hands of the seller (the assessee) was not sustainable and dismissed the addition.

Enhancement of Income by the CIT(A) under Section 251:
The CIT(A) enhanced the income of the assessee by ?4,18,472 based on the same documents. The assessee argued that since the main addition had been deleted in the case of the purchaser (Shri Pradeep Kumar Baranwal), the enhancement could not be sustained. The ITAT agreed, noting that the entire addition had been deleted in the case of the purchaser, and therefore, the enhancement in the hands of the seller was also not sustainable. The ITAT directed the AO to delete the enhanced amount, thus allowing the assessee's ground.

Addition under the Head 'Other Sources':
The CIT(A) upheld the AO's addition of ?2,87,028 under the head 'other sources', holding that there was no inextricable link between the FDs and the business of the assessee. The assessee argued that the interest earned from the FDs had a direct nexus with the business operations and should be taxed under the head 'business'. The ITAT accepted the assessee's contention, noting that the FDs were utilized towards business obligations, such as keeping margin money for bank guarantees. Consequently, the ITAT treated the interest income as business income and allowed the assessee's grounds.

Link between Fixed Deposits (FDs) and Business Operations:
For the subsequent assessment year (A.Y 2009-10), the CIT(A) upheld the AO's addition of ?3,04,939 as income from other sources, holding that there was no inextricable link between the FDs and the business operations. The ITAT noted that the facts and circumstances were similar to the previous year (A.Y 2008-09) and applied the same reasoning, treating the interest income as business income and allowing the assessee's grounds.

Correctness of Income Reduction for the Subsequent Assessment Year:
The CIT(A) directed the AO to reduce ?1,37,10,343, being the income assessed in A.Y 2008-09 under the head business income, instead of ?87,51,902 as reduced by the AO. The Revenue argued that the assessment order for A.Y 2008-09 had not reached finality. The ITAT upheld the CIT(A)'s decision, noting that the income assessed under the head business income in the preceding year should be reduced, not the total income. The ITAT found no ambiguity or perversity in the CIT(A)'s order and dismissed the Revenue's grounds.

Conclusion:
The appeals of the assessee for A.Ys 2008-09 and 2009-10 were allowed, whereas the appeal of the Revenue for A.Y 2009-10 was dismissed. The order was pronounced in the open court on 31.05.2016.