2018 (7) TMI 588 - AT - Income Tax

Addition on account of undisclosed income - estimation of rental income and chadawa income - Held that - In so far as chadawa income is concerned, estimation made by the Assessing Officer is without any basis and without going into the fact that the assessee was entitled for chadawa once in 18 years and, therefore, there was no reason for estimating the chadawa income for the year in which the assessee was never entitled to receive chadawa income. Therefore, the addition on account of chadawa income is uncalled for and the ld. CIT(A) has rightly deleted the same. Rental income - other family members was residing in the temple premises - assessment made by the Assessing Officer that once the premises was rented out, the same must have been rented out in the earlier assessment years also - Held that - No doubt, the basis of estimation of the rental income is the actual rent shown by the assessee as found in the rent agreement. What is taxed under the head income from house property is the Annual Let Out Value ALV of the house property and the ALV is determined as per section 23 of the Act wherein it has been provided that the ALV shall be the sum for which the property might reasonably be expected to let from year to year or the actual rent received/receivable. Thus, in the case in hand, the ALV has been estimated on the basis of actual rent received by the assessee in subsequent assessment years. But, at the same time, there is no evidence on record which could suggest that the properties were actually let out in the earlier assessment years. But the ALV has to be taxed and, therefore, to this extent, we agree with the ld. DR. Since the letting out of the property was discovered during the course of search and seizure proceedings, therefore, in our considered opinion, the ALV of the properties have been rightly treated as income of the assessee. We, accordingly, set aside the findings of the ld. CIT(A) to this extent and restore that of the Assessing Officer. - Decided partly in favour of assessee.

Summary

Issues involved:
1. Addition of undisclosed income of ?18,03,200.
2. Estimation of rental income and chadawa income for the block period.
3. Whether the Assessing Officer exceeded his powers by estimating income beyond seized material.

Detailed Analysis:
1. The primary issue in this case was the addition of undisclosed income amounting to ?18,03,200, which the Revenue sought to include based on the Assessing Officer's estimation. The Revenue contended that the ld. CIT(A) erred in deleting this addition. The Tribunal analyzed the facts of the case, which stemmed from a search operation under section 132 of the Income-tax Act, 1961. The search revealed incriminating documents related to rental income and unexplained cash, leading to the framing of an assessment. The Tribunal noted that the Assessing Officer had computed the total undisclosed income for the block period based on an estimation of rental income shown by the assessee in subsequent years.

2. The second issue revolved around the estimation of rental income and chadawa income for the block period. The Tribunal observed that the Assessing Officer had estimated the rental income and chadawa income for earlier assessment years where the assessee had not shown such income. The Tribunal found that the estimation of chadawa income was unjustified as the assessee was entitled to receive chadawa once in 18 years, making the addition on account of chadawa income unwarranted. However, concerning rental income, the Tribunal acknowledged that the Annual Let Out Value (ALV) of the properties, determined based on actual rent received in subsequent years, should be taxed. The Tribunal set aside the deletion of ALV addition by the ld. CIT(A) and restored it.

3. The final issue pertained to whether the Assessing Officer exceeded his powers by estimating income beyond the seized material. The ld. CIT(A) held that the AO should have restricted himself to the seized material and other information found during the search, without extrapolating income for the entire block period. The Tribunal concurred with this view, citing legal precedents, and directed the AO to re-calculate the income based solely on documents found during the search, without any estimation or extrapolation. The Tribunal partially allowed the Revenue's appeal, deleting the addition on account of chadawa income and confirming the addition on ALV of the house property.

In conclusion, the Tribunal's judgment addressed the issues of undisclosed income addition, estimation of rental and chadawa income, and the powers of the Assessing Officer in making such estimations based on seized material. The decision provided a detailed analysis of the facts, legal principles, and precedents to arrive at a balanced outcome, partially allowing the Revenue's appeal while clarifying the assessment methodology to be followed in such cases.