2017 (8) TMI 563 - AT - Income Tax

Difference in opening capital balance as per the Balance Sheet found during the course of survey at third party premises and balance sheet submitted during the course of assessment proceedings - survey u/s 133A - Held that - Merely because there were some discrepencies in the balance sheet, it cannot be said that all the entries in the said balance sheet were wrong. Moreso, when the difference relates to opening capital balance which is brought foreward from the previous year. In our view, what was relevant to examine is the previous year balance sheet and the closing balance in the capital account and how the same is supported by corresponding net assets position. Further, we note that the opening capital is ₹ 39,92,214 as reported in the balance sheet submitted during the assessment proceedings which is higher than the capital of ₹ 18,54,035 as per balance sheet found during the course of survey. Therefore, it is to be examined whether any fresh capital has been brought-in by the assessee in her books of accounts and which has not been reported. We are accordingly setting aside the matter to the file of the ld CIT(A) to examine the same afresh in light of above discussions and as per law. In the result, the ground of the revenue is allowed for statistical purposes. Differential amount between amount shown under the head renovation expenses as per Balance Sheet found during survey and Balance Sheet submitted during the assessment proceedings - Held that - The subject property is jointly owned by the assessee along with her mother-in law and total expenses of ₹ 54,40,605 have been incurred and 50% thereof have been debited to her mother-in law account. The expenses are supported by bills and vouchers and related payment details. The matter relating to estimation of construction expenses was also referred to the valuation officer and there is no deviation that has been brought on record in terms of expenses incurred and estimated by the valuation officer. In the result, there is no basis for making addition of ₹ 11,56,671 and the ground of revenue is dismissed. Undisclosed investment in construction of house property - Held that - CIT-A correctly held that estimated addition has been made by the AO on the ground that the payments made to beldar, labour etc. have not been shown by the appellant. It is, however, noted that the matter was referred to the valuation cell of the department. The valuation cell has not found any major discrepancy in the expenses declared by the appellant for construction of the house. Hence, the addition made only on the basis of some nothings on the paper cannot be justified Treating the rental income as income from undisclosed sources - Held that - The architect report supports the position of the assessee and remains un-rebutted before us. The valuation report didn t dwell upon the stages of construction as pointed out by the ld CIT(A). No other independent evidence has been brought on record to support the position of the Revenue. The AO apprehension might be correct but the same has to be supported by crediable evidence which is clearly absent in the present case. Moreso, the lease agreement and confirmation from M/s Gravita India ltd is on record to support the lease transaction and there is no adverse finding given by the AO in case of M/s Gravita India ltd. In light of the same, we do not see any infirmity in the order of the ld CIT(A) and the same is hereby confirmed. Hence, the ground of the revenue is dismissed.

Issues Involved:

1. Deletion of addition of ?21,46,179/- on account of difference in opening capital balance.
2. Deletion of addition of ?11,56,671/- on account of undisclosed investment in construction of property.
3. Deletion of addition of ?4,00,000/- on account of undisclosed investment in construction of house property.
4. Deletion of addition of ?20,00,000/- on account of income from undisclosed sources.

Issue 1: Deletion of addition of ?21,46,179/- on account of difference in opening capital balance

The Revenue challenged the deletion of an addition made by the AO due to a discrepancy between the opening capital balance in the balance sheet found during a survey and the balance sheet submitted during assessment proceedings. The AO added ?21,46,179/- based on the difference. The assessee argued that the balance sheet found during the survey was incomplete and the final balance sheet was prepared after necessary reconciliations. The CIT(A) accepted the assessee's explanation, noting that the balance sheet found during the survey had significant shortcomings and discrepancies, which were not rebutted by the AO. The Tribunal observed that the CIT(A) did not verify the opening capital balances with the assets as on 1.4.2008 and set aside the matter for fresh examination.

Issue 2: Deletion of addition of ?11,56,671/- on account of undisclosed investment in construction of property

The Revenue contested the deletion of an addition made by the AO based on the differential amount shown under renovation expenses in the balance sheet found during the survey and the balance sheet submitted during assessment. The assessee explained that the expenses were supported by documentary evidence and the valuation officer's report, which matched the expenses shown in the final balance sheet. The CIT(A) found that the balance sheet from the survey had discrepancies and the valuation officer's report supported the expenses declared by the assessee. The Tribunal upheld the CIT(A)'s decision, finding no basis for the addition.

Issue 3: Deletion of addition of ?4,00,000/- on account of undisclosed investment in construction of house property

The AO made an addition based on documents found during the survey showing payments for construction that were not reflected in the cash book. The assessee argued that these documents were maintained by the contractor and did not represent payments made by the assessee. The CIT(A) noted that the valuation officer did not find any major discrepancy in the expenses declared by the assessee. The Tribunal agreed with the CIT(A), finding no justification for the addition based on the documents.

Issue 4: Deletion of addition of ?20,00,000/- on account of income from undisclosed sources

The AO treated the rental income received by the assessee as income from undisclosed sources, arguing that the property was not in a condition to be rented and was let out to a company where the assessee's husband was a director. The assessee provided evidence of the rental agreement and the use of the property by the tenant. The CIT(A) accepted the assessee's explanation, noting that the valuation officer's report did not determine the stages of construction and the rental income was supported by the lease agreement and confirmation from the tenant. The Tribunal upheld the CIT(A)'s decision, finding no credible evidence to support the AO's position.

Conclusion:

The Tribunal partly allowed the Revenue's appeal for statistical purposes, setting aside the matter related to the opening capital balance for fresh examination and upholding the CIT(A)'s decisions on the other issues.

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