2017 (7) TMI 872 - HC - Income Tax

Undisclosed income for the purpose of Section 158BD read with Section 158BC - Held that - As regards the additions made by the AO relating to AYs 1993-94 and 1994-95 as unexplained capital, as already noted for both these AYs the Assessee s returns were picked up for scrutiny and assessment orders, after inquiry, were initially passed by the AO under Section 143 (3) of the Act. The AO s impugned order dated 15th November 1996 does not mention any incriminating material recovered during the search that would justify the above addition. What the AO has done is to again examine the Assessee s books of account and seek further explanation during the course of assessment, which exercise was already undertaken by the AO when the assessments for AYs 1993-94 and 1994-95 were completed originally under Section 143(3) of the Act. In the absence of any incriminating material justifying the same, the Court finds that the impugned order of the ITAT having deleted these additions does not call for any interference. Addition as balance of capital - there is no reference by the AO in the impugned order to any incriminating material. The case of the Revenue is that the original return filed by the Assessee for AY 1986-87 was not accompanied by the balance sheet and therefore, there was no occasion for the AO at that stage to have examined it or raised a query. In any event, the Court finds that the AO has not referred to any incriminating material as such which would justify the additions except by saying that no appropriate justification was shown by the Assessee regarding the opening balance in the capital account. As under Section 158 BB (1) (c) amounts that have been recorded in the books of accounts or other documents on or before the date of search would go to reduce the undisclosed income . Viewed in the above perspective, the amount balance of capital having already been disclosed in the balance sheet of the Assessee for the AY in question, the deletion of the said addition by the ITAT cannot be faulted. Unexplained cash credits in light of the explanation offered, it was necessary for the AO to have undertaken some inquiries before arriving at the above conclusion. The mere fact of a slip of paper showing bank balances was by itself insufficient for the AO to infer that the Assessee had routed his own money through the said creditors. The addition of such a large sum based on extremely tenuous material cannot be sustained in law. Therefore, the said additions were rightly deleted by the ITAT. The corresponding deletion of the interest amount is also, therefore, justified. Unexplained receipts on account of low household expenses for the block period, ₹ 1,63,490 on account of unexplained investment in a plot, ₹ 1,35,746 on account of deposit in the name of Ms. Archana Agarwal, wife of the Assessee and ₹ 2,33,425 on account of unexplained jewellery. The impugned order of the ITAT in regard to the deletion of each of the above additions is a detailed one which analyses the evidence with sufficient clarity. - Decided in favour of the Assessee and against the Revenue.

Summary

Issues:
1. Appeal against ITAT order dated 20th November, 2003.
2. Question of law framed by the Court.
3. Proceedings initiated under Section 158BC and 158BD.
4. Additions made by AO in assessment order.
5. Deletions and remand by ITAT.
6. Assessee's returns for various assessment years.
7. Scope of the present appeal.
8. Unexplained capital additions for AYs 1993-94 and 1994-95.
9. Balance of capital for AY 1986-87.
10. Definition of "undisclosed income" under Section 158B(b).
11. Unexplained cash credits and interest.
12. Explanation regarding unexplained cash credits.
13. Various other additions and deletions.
14. Justification for deletions by ITAT.
15. Detailed analysis of evidence by ITAT.
16. Court's decision and dismissal of the appeal.

Analysis:

1. The appeal was filed against an ITAT order from 2003, where the question of law was framed regarding the additions deleted by ITAT under Section 158BD and 158BC of the Income Tax Act, 1961. The proceedings were initiated based on a search conducted in 1995, leading to various additions made by the Assessing Officer in the assessment order.

2. The ITAT deleted several additions made by the AO, remanding one for fresh determination. The Assessee, a sole proprietor, had filed returns for different assessment years, with the appeal focusing on the deletions ordered by ITAT. The scope of the appeal was limited to examining the justifications for these deletions.

3. The additions related to unexplained capital for specific assessment years were scrutinized. The Court found that the AO did not provide incriminating material to support these additions, leading to their deletion by ITAT. The Assessee's explanations were accepted, and the additions were deemed unjustified.

4. The Court analyzed the definition of "undisclosed income" under Section 158B(b) and how it applied to the case. The additions made without concrete evidence were considered unwarranted, and the deletions by ITAT were upheld.

5. Significant deletions included unexplained cash credits and interest, where the AO's conclusions were based on insufficient evidence. The Assessee's explanations and supporting documents were deemed satisfactory, leading to the deletion of these additions.

6. Other additions, such as unexplained receipts, low household expenses, unexplained investments, and jewelry, were also examined. The ITAT's detailed analysis of the evidence supported the deletions of these additions, which were found to be justified.

7. Ultimately, the Court dismissed the appeal, ruling in favor of the Assessee and against the Revenue. The decision was based on the lack of perversity in the ITAT's order and the insufficient grounds for interference. No costs were awarded in the circumstances.