2017 (4) TMI 101 - AT - Income Tax

Issue of set off of undisclosed profit against surrendered income - nature of directions issued by the Coordinate Bench in the first round of appeal and whether the same has been given duly effect to by the AO - Held that - Undisputedly, the impunged proceedings are set-aside proceedings with directions to consider the additional ground as submitted before the Co-ordinate Bench in terms of examining the set off of undisclosed profit of ₹ 1.28 Crores against the amount surrendered by the assessee. And in light of these directions, the AO has considered the submissions of the assessee and has stated that since the sale of Mahala property has happened on 3.7.2006, the profit arising from such sale of Mahala property amounting to ₹ 1.28 Crores (after considering the sale consideration of ₹ 3.76 Crores and cost of purchase of ₹ 2.48 Crores as per seized documents) has been worked out and the same was allowed set off against the surrender of stock of ₹ 2.8 Crores. In our view, the AO has rightly given effect to the directions of the Coordinate Bench and we see no infirmity in the same. At the same time, we are not in agreement with the findings of the ld CIT(A) where he states at para 4.3 (vi) of his order that set off OF sale proceeds would be available against the undisclosed stock surrender of ₹ 2.8 crores found at the time of search of sale proceeds realized out of books of ₹ 2.51 crores since there is no material/evidence on record that this amount was invested elsewhere and in view of the clear directions of the ld CIT(A) in his order dated 19.5.09. The reason for the same is that there is no such directions by the ld CIT(A) in the first round and that s precisely the reason why the assessee took the additional ground before the Coordinate Bench and which has been rightly given effect to by the AO. - Decided in favour of revenue

Summary

Issues Involved:
1. Set off of undisclosed profit from the sale of Mahala property.
2. Computation of income below the income declared in the return.
3. Exceeding powers by CIT(A) in allowing set off over the amount determined by appellate authorities.

Issue-wise Detailed Analysis:

1. Set off of Undisclosed Profit from the Sale of Mahala Property:
The Revenue contested the CIT(A)'s decision to allow a set off of ?2,51,60,000/- instead of ?1,28,00,000/- against the income assessed. The Tribunal noted that the matter had been previously remanded to the AO to consider the set off of undisclosed profit against the surrendered amount. The AO, following the Tribunal's directions, allowed the set off of ?1.28 crores against the undisclosed stock surrendered. However, the CIT(A) directed a set off of ?2,51,60,000/-, reasoning that the sale proceeds of the Mahala property should be set off against the surrendered stock since there was no evidence of the amount being invested elsewhere. The Tribunal disagreed with CIT(A)'s broader interpretation, emphasizing that the AO correctly followed the Tribunal's initial directive.

2. Computation of Income Below the Income Declared in the Return:
The Revenue argued that the CIT(A)'s directions led to the assessed income falling below the returned income. The Tribunal referenced its earlier decision, stating that the issue was not about reducing the returned income but about allowing the set off of undisclosed profit. The Tribunal reiterated that the AO's computation, which resulted in an assessed income lower than the returned income due to the set off, was in line with the legal principles and previous directions.

3. Exceeding Powers by CIT(A) in Allowing Set Off Over the Amount Determined by Appellate Authorities:
The Tribunal found that CIT(A) exceeded his powers by allowing a set off of ?2,51,60,000/- instead of ?1,28,00,000/-. The Tribunal noted that CIT(A) should have adhered to the specific directions given in the first round of appeal, which did not include such a broad allowance for set off. The Tribunal concluded that the AO had correctly implemented the Tribunal's directions by allowing the set off of ?1.28 crores and not the entire sale proceeds.

Conclusion:
The Tribunal set aside the order of CIT(A) and restored the AO's order, which correctly followed the Tribunal's directions from the first round of appeal. The appeal filed by the Revenue was allowed, emphasizing the importance of adhering to specific appellate directions and legal principles in computing taxable income and allowing set offs.