2016 (10) TMI 531 - AT - Income Tax

Undisclosed income - amount of cash on-money with respect to all the unsold stocks - Held that - There will always be some estimation and guess work while computing the undisclosed income of the assessee as the same had been kept hidden by the assessee from the Revenue which is within the special knowledge of the assesssee and may not be brought out completely before the authorities thus exact precision can never be reached in estimating undisclosed income the safe guard should be to ensure that guess work in estimating undisclosed income should not be arbitrary. In our considered view the ld. CIT(A) has taken a correct stand confirming and sustaining the assessment order passed by the AO vide his appellate orders dated 08-11-2011 as also we agree with the stand taken by the learned CIT(A) in his appellate order dated 08-11-2011 whereby he directed the AO that amount of cash on-money with respect to all the unsold stocks as at 31-03-2007 held by the assessee which the AO added in the undisclosed income of the assessee have to be eliminated from the chargeability to tax and the rest amount is to be brought to tax as undisclosed income of the assessee. We find no infirmity in the orders of the ld. CIT(A) whereby ld CIT(A) has upheld the assessment orders of the AO by confirming that the cash on-money was in-fact being received by the assessee in the previous year relevant to the impugned assessment year hence we uphold/sustain the appellate order dated 08-11-2011 passed by the ld. CIT(A) by dismissing the appeal of the assessee Unrecorded sales - Held that - As with respect to the sales recorded during the instant assessment year excluding sales which were of the unsold inventory of the last year which we have directed to include on money based on page 18 and back of page 18/annexure A-3 the additions shall be made on same proportion as were made in the assessment year 2007-08 in the ratio of sale to undisclosed income brought to tax as the conduct of the assessee is continuing as brought on record since 2005 meeting till the recording of statement on 14-03-2008 as set out above whereby conduct of the assessee based on preponderance of human probabilities points to the receipt of on money regularly by the assessee during the instant assessment year backed with booming real estate sector which itself is admitted by the assessee and quantification need to be done based on the empirical data of the immediately preceding year as the real estate boom continued during this instant assessment year . Keeping in view that the assessee has surrendered 1.25 crores during the search proceedings vide statement dated 14-03-2008 whichever figure as arrived at as per our above directions or surrendered amount of 1.25 crores whichever is higher of the two needs to be added as un-disclosed income as in our considered view the estimate of the undisclosed income has to be made which definitely need some guess work which of course should not be arbitrary while on the other hand the details of surrender amount of 1.25 crores is within the special knowledge of the assessee which details are not brought out by the assessee. The Revenue has made addition @ 20% on extrapolation which is also not sustainable in the instant case by reading in isolation in divorce to the total surrender of 1.25 crores as the addition has been made on the basis of the statement of partner dated 14-03-2008 which categorically stated that the surrender was to the extent of 1.25 crores and secondly revenue has not made any enquiry to bring on record cogent tangible incriminating material to prove that the assessee received 20% cash on all sales while empirical data of preceding year which led to the framing of the assessment order of the preceding year as confirmed by the learned CIT(A) which order of the learned CIT(A) we confirmed does not suggest that addition to the tune of 20% on the sales value were made by the Revenue as sustained by learned CIT(A) in immediately preceding assessment year 2007-08. Hence addition are to be sustained in the manner laid down by us in our above decision. We have considered the case laws relied upon by both the parties while arriving at the conclusions as set out above. We order accordingly.

Issues Involved:

1. Addition of unaccounted income based on presumptions and rough workings.
2. Validity of additions based on seized documents and rough calculations.
3. Justification of the addition of 'on-money' received from sales.
4. Extrapolation of 'on-money' earnings to subsequent years.
5. Treatment of unsold inventory in the context of 'on-money' receipts.

Issue-wise Detailed Analysis:

1. Addition of Unaccounted Income Based on Presumptions and Rough Workings:

The primary issue revolves around the addition of unaccounted income based on rough workings found during a search operation. The assessee argued that these rough workings were provisional and did not represent actual sales. However, the AO and CIT(A) contended that the rough workings, which matched the work-in-progress figures in the books, should also reflect actual sales figures as per Section 132(4A) of the Income Tax Act. The Tribunal upheld the view that the rough workings, which included terms like "Sales Realisation" and "Sales," indicated actual sales, justifying the addition of ?2,50,89,061 as unaccounted income for AY 2007-08.

2. Validity of Additions Based on Seized Documents and Rough Calculations:

The Tribunal examined the seized documents, particularly page 18 and its back, which contained detailed calculations of saleable areas and projected sales. The AO's reliance on these documents was challenged by the assessee, who claimed they were mere rough projections. The Tribunal, however, found that the figures of work-in-progress matched the books of accounts, and the terms used in the documents indicated actual sales. Thus, the Tribunal upheld the additions made by the AO, rejecting the assessee's contention that these were rough projections.

3. Justification of the Addition of 'On-Money' Received from Sales:

The assessee admitted to receiving 'on-money' from sales, which was not recorded in the books. This admission was corroborated by seized documents and the statement of a partner during the search. The AO added the difference between the projected sales in the seized documents and the recorded sales as unaccounted income. The Tribunal upheld this addition, noting that the assessee's explanation that the figures were rough projections was insufficient to rebut the presumption under Section 132(4A).

4. Extrapolation of 'On-Money' Earnings to Subsequent Years:

For AY 2008-09, the AO extrapolated the 'on-money' earnings based on the assessee's admission of receiving 20% 'on-money' over recorded sales. The AO added ?2,49,18,000 after accounting for the ?1.25 crores already disclosed by the assessee. The Tribunal found that the AO's approach of applying a flat 20% 'on-money' rate was not entirely justified without further corroborative evidence. The Tribunal directed that the 'on-money' component for unsold inventory from previous years should be included, but any additional 'on-money' should be based on empirical data from the preceding year.

5. Treatment of Unsold Inventory in the Context of 'On-Money' Receipts:

The Tribunal addressed the treatment of unsold inventory, directing that 'on-money' should not be added for unsold stock as of 31-03-2007. For AY 2009-10, the Tribunal noted that the search occurred before the previous year commenced, and no new tangible evidence was provided to suggest the continuation of 'on-money' practices post-search. Consequently, the Tribunal ordered the deletion of the addition of ?1,18,500 for AY 2009-10, as the Revenue failed to prove the continuation of the assessee's contumacious conduct post-search.

Conclusion:

The Tribunal upheld the additions for AY 2007-08 and partly for AY 2008-09 based on the seized documents and the assessee's admissions, while it deleted the addition for AY 2009-10 due to a lack of evidence of continued 'on-money' practices post-search. The Tribunal emphasized the need for corroborative evidence and empirical data to justify extrapolated additions in subsequent years.

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