2018 (6) TMI 546 - AT - Income Tax

Unexplained investments in construction - assessee explained source through withdrawals from the accounts of the partners from various concerns - Held that - There is no evidence found during the course of survey operation to disprove the claim of the assessee that the source of funds were from the amount withdrawn by the respective partners from various concerns - assessee also filed reconciliation statement - thus AO is not justified in making any addition on the basis of the statement said to be recorded by Shri Jayaprakash Narayanan - hence we do not find any reason to interfere with the order of the lower authority - Decided against revenue

Summary

Issues:
Appeals against CIT(Appeals) orders for assessment year 2012-13 regarding a sum of ?5 Crores towards construction of a hotel named "Hotel Apple Tree" in the hands of assessees.

Analysis:
The Revenue's contention was that the Assessing Officer made an addition of ?5 Crores in the hands of all assessees as they could not explain the source of this amount, despite finding investments in the hotel construction. The Revenue claimed that the accounts were prepared to accommodate the investment without valid sources. The Assessing Officer accepted ?4 Crores as sourced from a loan but questioned the remaining ?5 Crores. During a survey, a partner admitted to this additional income, which was not disclosed in the income tax return.

In response, the assessees argued that the investment of ?9 Crores in the hotel was not disputed, with ?4 Crores sourced from a loan and the remaining ?5 Crores from partner withdrawals. They contended that the Assessing Officer's doubts were solely based on a statement recorded during the survey, which lacked evidentiary value due to procedural irregularities. The assessees cited a Madras High Court judgment and CBDT circulars emphasizing the need for material evidence in such cases.

The Tribunal noted that the Revenue found investments of ?9 Crores by each assessee in the hotel, with ?4 Crores accepted as sourced from a loan. The remaining ?5 Crores were explained as withdrawals from partners' accounts, supported by a reconciliation statement. The Tribunal held that the statement recorded during the survey lacked evidentiary value as per the Madras High Court judgment and CBDT directives. The Assessing Officer's doubts were based solely on this statement, disregarding the reconciliation statement and account entries showing partner withdrawals for investment.

Ultimately, the Tribunal upheld the CIT(Appeals) decision, dismissing the Revenue's appeals and the assessees' cross-objections as the addition of ?5 Crores was deemed unjustified based on the lack of concrete evidence beyond the disputed statement. The judgment highlighted the importance of valid evidence in tax assessments and the need to adhere to procedural requirements during surveys to ensure fair treatment of taxpayers.