2017 (12) TMI 1355 - HC - Income Tax

Addition of commission - statement of the assessee was recorded under Section 132(4) - Held that - First of all, in view of the provisions contained in Section 132 (4), the Revenue was entitled to complete assessment based on the assertions made by the assessee. In this case, in answer to question No.16 the assessee himself had stated that he was receiving commission at the rate of ₹ 1000/- to 2000/- per lakh. Thereafter in answer to question No.28 the assessee again stated that he was receiving approximately ₹ 1500/- per lakh. It was on the basis of the statement made by the assessee under Section 132(4) that the First Appellate Authority reduced the rate of commission to ₹ 1500/- per lakh. Such a fixation of commission cannot be said to be vitiated for any reason. Secondly, the Tribunal was also factually wrong in stating that the assessee himself had claimed in response to question No.16 that the commission he was getting was ₹ 1000/- per lakh. On the other hand, the answer given by the assessee himself would show that what he has stated was that he was getting commission at the rate of ₹ 1000/- to 2000/- per lakh. Therefore, the conclusion of the Tribunal is untenable and we therefore set aside the finding with respect to the rate of commission and restore the finding of the First Appellate Authority. Unexplained cash credit - Held that - The facts found by the Tribunal itself show that the creditor of the assessee was one Aboobacker, Poothayil, a non-resident, who had a deposit in the Dhanalaxmi Bank, Muvattupuzha, against which he had availed a loan of ₹ 11 lakhs which was eventually transferred to the assessee. The facts being so, the assessee cannot be found to have failed in proving either the source of cash credit, the creditworthiness of the creditor or the genuineness of transactions. It was taking into account these three factors that the Tribunal has decided this issue in favour of the assessee. We have no reason to interfere with this finding of the Tribunal. Undisclosed investment in the construction of a building - rejections of books of accounts - Held that - Thought the Revenue contended that having considered the provisions contained in Section 142A, inserted by the Finance Act, 2004, it was not necessary for the assessing officer to have rejected the books of account to obtain report of the Valuation Officer. However, we cannot accept the said contention for the reason that Section 142A was inserted with retrospective effect from 15.11.1972. Despite the insertion of such provision, the above judgments were rendered by the Apex Court and other High Courts holding that rejection of the books of accounts was necessary for obtaining the report. In that view of the matter, the Tribunal s finding on these issues also cannot be interfered with. Therefore, this appeal is disposed of answering the first question of law in favour of the Revenue

Summary

Issues:
1. Variation in the rate of commission received by the assessee.
2. Unexplained cash credit of ?11 lakhs.
3. Undisclosed investment in the construction of a building.

Issue 1 - Variation in the rate of commission:
The Tribunal reduced the commission rate to ?1000 per lakh, differing from the assessee's statement of receiving around ?1500 per lakh. The High Court found that the assessee's statement under Section 132(4) was the basis for assessment, where the commission was initially accepted at ?2000 per lakh. The First Appellate Authority later reduced it to ?1500 per lakh. The High Court held that the Tribunal's fixation at ?1000 per lakh was incorrect as the assessee had stated a range of ?1000 to ?2000 per lakh, not a fixed amount. Therefore, the High Court set aside the Tribunal's decision and reinstated the First Appellate Authority's finding.

Issue 2 - Unexplained cash credit:
The assessee had a cash credit of ?11 lakhs, which the assessing officer considered explained based on a remand report. The Tribunal upheld this decision, noting that the creditor was a non-resident who transferred the amount to the assessee's account. The High Court agreed with the Tribunal, stating that the assessee had proven the source of the cash credit, the creditor's creditworthiness, and the genuineness of the transaction. Therefore, the High Court upheld the Tribunal's decision in favor of the assessee.

Issue 3 - Undisclosed investment in building construction:
The assessing officer referred the construction cost to the Departmental Valuation Officer, who valued it higher than the assessee's books. The Tribunal ruled in favor of the assessee, stating that since the books were not rejected, the valuation report was unnecessary. The High Court supported the Tribunal's decision, citing precedents that rejection of books was necessary before obtaining a valuation report. Despite the Revenue's argument regarding Section 142A, the High Court maintained that rejection of books was still required. Therefore, the High Court upheld the Tribunal's decision against the Revenue on this issue.

In conclusion, the High Court ruled in favor of the Revenue on the first question of law regarding the commission rate but favored the assessee on the other issues related to unexplained cash credit and undisclosed investment in building construction. The appeals were disposed of accordingly based on these findings.