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2018 (8) TMI 60 - AT - Income TaxAddition in respect of undisclosed interest income on estimate basis - reassessment proceedings U/s 153A - Held that - When the Assessing Officer as well as the CIT(A) has accepted the fact that the assessee was suffering from the ailment and was undergoing the treatment of Tuberculosis during the period under consideration then the estimation made by the Assessing Officer as well as the confirmed by the ld. CIT(A) without any proper and reasonable basis and particularly in the reassessment proceedings U/s 153A is not permitted. Even the Assessing Officer has not worked out the income on basis of the funds available with the assessee and employed in the business activity by considering the corresponding application of income which was found during the course of search and seizure action as well as recorded in the books of account of the assessee. When the Assessing Officer has not found any significant discrepancy in the income offered by the assessee and corresponding application of income then there is no reason for not accepting the income offered by the assessee. Accordingly in facts and circumstances of the case when the addition was made by the AO purely on ad hoc estimation and without any tangible material the same is not sustainable and consequently is liable to be deleted. Hence we delete the addition made by the Assessing Officer and sustained by the ld. CIT(A) on this account. Accordingly ground No. 1 of the assessee s appeal is allowed and ground No. 1 of the revenue s appeal is dismissed. Interest chargeable U/s 234B after giving the credit of the amount in the PD account - cash seized during the search and seizure action is available for adjustment against the advance tax liability and consequently chargeability of interest U/s 234B - Held that - Accordingly in view of the binding precedents as well as the CBDT circular we do not find any error or illegality in the impugned order qua this issue. Hence this ground of revenue s appeal is dismissed. Addition made by the Assessing Officer on account of cash deposits in the bank account of employees of the assessee - Held that - in absence of any documentary evidence of operating of the bank accounts by the assessee the mere availability of cheque books with the assessee cannot be an evidence for making addition of the cash deposits in the accounts of these persons specifically when all these persons are regularly assessed to income tax. The assessee filed the return of income in support of explanation. Further the statement of one of these persons namely Shri Mahaveer Prasad Sharma was recorded by the search party U/s 132(4) and no such question was asked from the said person regarding the deposits in the bank account. Therefore when the assessee has discharged its onus by producing the return of income of these persons wherein the declared income was sufficient to cover the deposits made in the bank accounts then in the absence of any direct evidence or tangible material to disclose the fact that the cash deposit in the bank accounts of these persons belongs to the assessee the addition made by A.O. is not sustainable. The said deposit is subject matter of assessment in the hands of these persons accordingly in the facts and circumstances of the case we delete the addition made by the Assessing Officer on this account. Addition made on account of sale of jewellery by mother-in-law of the assessee treating the same as undisclosed income - Held that - once the amount was found duly credited in the bank account of Smt. Saraswati Devi Sharma and subsequently it was transferred in the account of the assessee then the transaction cannot be doubted. Even the source of credit in the account of mother in law is found during the search and seizure action. The assessee explained that during the last days of her life she was residing with the assessee and her daughter Smt. Kalawati Sharma wife of assessee and thus it is natural that all her belongings and valuables would be at the place of assessee. Accordingly in view of the above facts and circumstances of the case we are of the considered opinion that when the seized material itself shows the source of amount deposited in the bank account of Smt. Saraswati Devi Sharma by cheque and subsequent transfer from her account to the account of assessee the same cannot be treated as undisclosed income of the assessee. Accordingly we delete the addition made by the Assessing Officer on this account. Disallowance on account of short fall of fund and making excess investment - Held that - CIT(A) has recasted cash flow statement and found that there is no short fall of fund as per the revised fund flow statement. Moreover when we have already decided the issue of jewellery in favour of the assessee then the question of disallowance on account of short fall of fund and making excess investment does not arise. Accordingly in view of the facts and circumstances of the case we do not find any error or illegality in the impugned order of the CIT(A). Hence the grounds No. 1 and 2 raised in the revenue s appeal is dismissed.
Issues Involved:
1. Estimation of undisclosed interest income. 2. Adjustment of seized cash against tax liabilities and applicability of interest under Section 234B. 3. Addition on account of cash deposits in bank accounts of employees. 4. Disallowance of expenses found recorded in seized material. 5. Addition on account of sale of jewelry by mother-in-law of the assessee. 6. Deletion of addition on account of undisclosed investment excess over income for A.Y. 2013-14. Issue-wise Detailed Analysis: 1. Estimation of Undisclosed Interest Income: The primary issue revolves around the estimation of undisclosed interest income from a finance scheme known as the "100 days scheme." The Assessing Officer (AO) estimated interest income based on seized documents, leading to significant additions for various assessment years (AYs). The AO's estimation was challenged by the assessee, who argued that the income declared was based on actual earnings and supported by fund flow statements. The Income Tax Appellate Tribunal (ITAT) found that the AO's additions were based on ad hoc estimations without tangible material, particularly for periods where no seized material was available. Consequently, the ITAT deleted the additions made by the AO and sustained by the Commissioner of Income Tax (Appeals) [CIT(A)]. 2. Adjustment of Seized Cash Against Tax Liabilities and Applicability of Interest Under Section 234B: During the search, cash was seized, and the assessee requested its adjustment against tax liabilities. The AO adjusted the cash against the final tax liability after levying interest under Section 234B. The CIT(A) directed the AO to recompute the interest after giving credit for the seized cash, following various judicial precedents and CBDT Circular No. 20/2017. The ITAT upheld the CIT(A)'s decision, stating that the explanation to Section 132B, introduced by the Finance Act, 2013, is prospective and not applicable to the assessment years under consideration. 3. Addition on Account of Cash Deposits in Bank Accounts of Employees: The AO made additions based on cash deposits in the bank accounts of the assessee's employees, supported by signed cheque books found during the search. The assessee contended that these employees were handling cash and provided signed cheques as security. The ITAT found that the mere availability of signed cheque books did not substantiate the AO's claim that the cash deposits were undisclosed income of the assessee. The ITAT deleted the additions, noting that the deposits were subject to assessment in the hands of the respective employees. 4. Disallowance of Expenses Found Recorded in Seized Material: The AO disallowed expenses recorded in the seized material, claiming they were already recorded in regular books of account. The assessee argued that these expenses were not claimed in the regular books. The ITAT found that some expenses recorded in the seized material were not claimed in the regular books and required further verification. The ITAT set aside the issue to the AO for proper examination, allowing the claim for expenses not recorded in the regular books. 5. Addition on Account of Sale of Jewelry by Mother-in-law of the Assessee: The AO treated the sale proceeds of jewelry by the assessee's mother-in-law as the assessee's undisclosed income. The ITAT found that the sale bills were seized during the search, and the sale proceeds were credited to the mother-in-law's bank account. The ITAT held that the transaction could not be doubted, and the amount transferred from the mother-in-law's account to the assessee's account could not be treated as undisclosed income. The ITAT deleted the addition. 6. Deletion of Addition on Account of Undisclosed Investment Excess Over Income for A.Y. 2013-14: The AO made an addition for undisclosed investment excess over income based on a revised fund flow statement. The CIT(A) recasted the cash flow statement, finding no shortfall for the year under consideration. The ITAT upheld the CIT(A)'s decision, noting that the deletion of certain additions in earlier years resulted in no shortfall of funds. The ITAT dismissed the revenue's appeal on this ground. Conclusion: The ITAT provided a detailed analysis for each issue, often siding with the assessee, emphasizing the need for tangible evidence and proper verification before making additions. The judgment underscores the importance of basing tax assessments on concrete evidence rather than estimations or assumptions.
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