2016 (10) TMI 882 - AT - Income Tax

Addition towards interest on money lending - Held that - The assessee himself offered interest income exorbitantly higher figure. When the assessee himself offered the higher rate of interest from money lending business, this Tribunal is of the considered opinion that estimating the interest income does not arise for consideration. Moreover, the estimation made by the Assessing Officer at 25% is highly arbitrary and without any supporting material. Therefore, this Tribunal is unable to sustain the estimation made by the Assessing Officer. When the assessee himself offered the interest income at higher rate, it may not be justified to estimate the interest income any further. Accordingly, the orders of the lower authorities are set aside and the addition made by the Assessing Officer is deleted. Income from agriculture - assessee filed the copy of patta and details of the crop cultivated - CIT(Appeals) rejected the claim of the assessee on the ground that the assessee has not produced bills or vouchers - Held that - When the assessee has filed the copies of the patta to substantiate the land holding and the details of the crop, the Assessing Officer is not justified in restricting the income from agriculture. Expecting bills and vouchers from the agriculturist for sale of agricultural produce is something which could not be produced by the ordinary agriculturist. The assessee is an individual and not maintaining any books of account. This Tribunal is of the considered opinion that when the assessee filed the copies of the patta and the details of the crop cultivated, the Assessing Officer is not justified in disallowing the claim of the assessee. Accordingly, the orders of both the authorities below are set aside and the addition made by the Assessing Officer as income from other sources is deleted. The Assessing Officer shall take the income declared by the assessee as income from agriculture. Loan received treated as undisclosed income - contention of the Revenue is that the assessee deposited the cash for issue of DD - Held that - No material is available on record to suggest that the assessee deposited the cash in the bank account of Shri Pugazhendi. The Assessing Officer on presumption observed that money belongs to the assessee was deposited. The fact remains that DD was issued from the account of Shri Pugazhendi. The cash was deposited to the account of Shri Pugazhendi. Therefore, it is for Shri Pugazhendi to explain the source for making deposit in his bank account. From the orders of the lower authorities it appears that the said Shri Pugazhendi was examined by the Assessing Officer and he confirmed the fact of giving the money to assessee. The Assessing Officer apparently disbelieved the statement of Shri Pugazhendi on the ground that a sum of ₹ 3 lakhs was entrusted to the assessee to maintain Shri Pugazhendi s mother. The fact remains that money was given by Shri Pugazhendi to the assessee by DD and the DD was issued from the bank account of the above said Shri Pugazhendi. Therefore, as observed earlier, addition, if any, has to be made in the hands of Shri Pugazhendi and not in the hands of the assessee. Accordingly, the orders of both the authorities below are set aside and the addition made by the Assessing Officer is deleted. Addition made towards investment in chits - Held that - AO estimated the assessee s contribution on the basis of the statement said to be recorded from one Shri Ramasamy. Other than this statement of Shri Ramasamy, no other material is available on record. The Assessing Officer presumed that the total contribution was ₹ 96 lakhs and the assessee s share was ₹ 16 lakhs. From the material available on record and the statement recorded from Shri Ramasamy, it appears that they are conducting 3 lakh and 5 lakh chits and each group had 20 members. The chit was conducted by a partnership firm consisting of six persons. Therefore, the contribution to the chit was made by 20 members and the firm consisting of six partners is acting as foreman. The contribution to chit was made by other members and not by the partners. Therefore, the addition made in the hands of the assessee is not justified. If at all any addition is to be made, it has to be made in the hands of 20 members who contributed / subscribed to the chits. Therefore, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, the orders of both the authorities below are set aside and the addition made by the Assessing Officer is deleted. Addition on account of sale of jewellery - Held that - In view of the smallness of the amount involved, the assessee cannot be blamed for non-production of bills and vouchers. Since the small time goldsmiths are also purchasing jewellery without issuing bills, the Assessing Officer is not justified in making addition. Accordingly, the orders of the lower authorities are set aside and the addition made by the Assessing Officer is deleted. Cost of construction - Held that - As rightly submitted by the Ld.counsel for the assessee, the addition made by the Assessing Officer is less than 15% of cost of construction. In fact, the cost of construction declared by the assessee is at ₹ 82,75,777/-, whereas, the Departmental Valuation Officer has valued at ₹ 90,81,900/-. Admittedly, the difference between the two is only less than 15%. The allowance for supervision and purchase of material by the assessee would go to reduce the cost of construction more than 20%. Therefore, this Tribunal is of the considered opinion that the addition made by the Assessing Officer towards cost of construction is not justified. Accordingly, the addition made towards cost of construction is deleted.

Summary

Issues Involved:
1. Addition towards interest on money lending.
2. Income from agriculture.
3. Loan received as undisclosed income.
4. Addition towards investment in chits.
5. Addition on account of sale of jewellery.
6. Cost of construction.

Detailed Analysis:

1. Addition towards interest on money lending:
The primary issue concerns the addition towards interest on money lending. The assessees argued that they had provided all necessary details regarding the hand loans and interest received. However, the Assessing Officer (AO) estimated the interest income at an arbitrary rate of 24 to 30%, which the assessees contended was unreasonable. The Tribunal observed that the assessees had shown hand loans and corresponding interest incomes in their balance sheets at rates around 17.6% to 17.7%. Given that the assessees had already offered interest income at higher rates, the Tribunal found the AO's estimation at 25% to be arbitrary and unsupported by material evidence. Consequently, the Tribunal set aside the lower authorities' orders and deleted the addition made by the AO.

2. Income from agriculture:
The next issue pertains to the income from agriculture. The assessees claimed agricultural income and provided necessary documents like patta and crop details. The AO disallowed the claim due to the absence of bills or vouchers. The Tribunal noted that agriculture remains an unorganized sector where expecting bills and vouchers is unreasonable. Given that the assessees had substantiated their land holdings and crop details, the Tribunal found the AO's disallowance unjustified. Therefore, the Tribunal set aside the lower authorities' orders and directed the AO to accept the declared agricultural income.

3. Loan received as undisclosed income:
The third issue involves a loan received from an individual, which the AO treated as undisclosed income. The assessees provided a confirmation letter from the creditor. The AO, however, suspected that the funds transferred via demand drafts were the assessees' own money routed through the creditor's account. The Tribunal observed that there was no material evidence to suggest that the assessees deposited cash into the creditor's account. Since the creditor confirmed the loan and the funds were transferred via demand drafts from the creditor's account, the Tribunal concluded that any addition should be made in the creditor's hands, not the assessees'. Thus, the Tribunal set aside the lower authorities' orders and deleted the addition.

4. Addition towards investment in chits:
The fourth issue concerns the addition towards investment in chits. The AO based the addition on a statement from a partner admitting unaccounted chit auctions. The assessees contended that the chit contributions were used for money lending investments. The Tribunal noted that the AO's estimation was based solely on the partner's statement without corroborative evidence. The contribution to the chits was made by 20 members, not the partners. Therefore, the Tribunal found the addition in the assessees' hands unjustified and set aside the lower authorities' orders, deleting the addition.

5. Addition on account of sale of jewellery:
The fifth issue relates to the addition on account of the sale of jewellery. The assessees claimed a capital loss from the sale but did not provide bills or vouchers. The AO estimated a cash credit due to the absence of documentation. The Tribunal acknowledged that while purchase bills might not be available, sale invoices should be. However, considering the small amount involved and the possibility of small-time goldsmiths purchasing jewellery without issuing bills, the Tribunal found the AO's addition unjustified. Thus, the Tribunal set aside the lower authorities' orders and deleted the addition.

6. Cost of construction:
The final issue involves the cost of construction. The assessees admitted a construction cost, but the Departmental Valuation Officer (DVO) estimated a higher amount, leading to an addition for unexplained investment. The Tribunal noted that the difference between the declared cost and the DVO's estimate was less than 15%. Considering allowances for supervision and material purchases, the Tribunal found the addition unjustified. Therefore, the Tribunal set aside the lower authorities' orders and deleted the addition.

Conclusion:
All the appeals of both the assessees were partly allowed for statistical purposes, with significant deletions of the additions made by the Assessing Officer. The Tribunal's detailed analysis provided relief to the assessees on multiple grounds, emphasizing the need for reasonable and supported estimations by the tax authorities.