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2018 (11) TMI 1336 - HC - Income TaxSource of income from which the payments were made by the assessee to Commonwealth Trust - Satisfactory explanation for source - income generated from Abu Dhabi - Held that - We do not find any reason to sustain the said addition. We see that the Assessing Officer had proceeded on mere surmises and conjectures and had also stated that the assessee was not able to prove that the businesses abroad had not generated any income. The assessee cannot be asked to prove the negative. No material was recovered as to any income having been generated from the businesses abroad. We do not think that an estimation would be proper without any evidence at all. We, hence, uphold the order of the Tribunal deleting the addition from the income generated from Abu Dhabi. We immediately observe that the source found from such income, by the first appellate authority would however have to be reduced in view of the said finding; while considering the source for the real estate transaction. Assessee had claimed as source from sale of various items of the tile factory, namely timber, machinery etc. - The consideration shown in the agreement was for the building also. Before the sale was concluded, the assessee had obtained possession of the property and had also demolished the buildings and dismantled the plant and machinery and sold the same. The assessee submits that the same cannot be treated as his income. However, if the said amounts has to be treated as a source of income for the purpose of consideration, this definitely should be treated as an income at the hands of the assessee. At least, to the extent, it was treated as a source. In such circumstances, the same has to be treated as an undisclosed income for which the assessee would be liable to pay tax. Capital gains - There was a surrender of the land and buildings to the assessee on the basis of the agreement, since before the sale was concluded, the buildings were demolished and the plant and machinery dismantled and sold. The assessee, who had obtained possession of the land and building, had also effected sale of the same and had obtained ₹ 1,19,75,000/- which is treated as income for the previous assessment year. In such circumstances, the order of the Tribunal deleting the assessment with respect to capital gains has also to be set aside. The questions of law framed are answered in favour of the revenue and against the assessee; especially the one on perversity. The Tribunal without any application of mind and without reference to the facts acted in a perverse manner in having deleted the additions for undisclosed income for the three years and confining it to ₹ 50,00,00/- without any basis. We make it clear that we have gone into the facts only to avoid multiplicity of litigation by remanding the matter to the Tribunal as also noticing that the assessee is no more. The addition on undisclosed income for the years, with respect to the payments made to the Trust in pursuance of the sale agreement, the source of which was not convincingly proved,will be - (i) ₹ 71,50,100/- for the assessment year 2003-04, (ii) ₹ 66,14,500/- for the assessment year 2004-05 and (iii) ₹ 18,98,200/- for the assessment year 2005- 06. The addition on account of undisclosed income from Abu Dhabi will stand deleted as done by the Tribunal. The addition to income from sale of timber and demolished parts of the factory building and that on capital gains would stand restored; on capital gains confirming the modification/direction of the First Appellate Authority, to grant allowance of ₹ 2.5 lakhs as expenditure. We make it clear that the recovery can only be from the assets of the assessee as inherited by the legal heirs. - Decided against assessee.
Issues Involved:
1. Perversity of Tribunal's findings. 2. Tribunal's interference with the Assessing Officer's additions. 3. Modification of additions by the First Appellate Authority. 4. Deletion of income under specific heads by the Tribunal. 5. Assessment of undisclosed income for different assessment years. 6. Source of payments made to Commonwealth Trust. 7. Addition of business income from Abu Dhabi. 8. Addition on sale of teakwood. 9. Addition on short-term capital gains. Detailed Analysis: 1. Perversity of Tribunal's Findings: The Revenue raised a question on the perversity of the Tribunal's findings, arguing that the Tribunal acted perversely by deleting the additions made by the Assessing Officer (A.O) and the First Appellate Authority without any substantiating materials. The High Court found that the Tribunal acted without any application of mind and contrary to the facts and law, thereby supporting the Revenue's contention of perversity. 2. Tribunal's Interference with Assessing Officer's Additions: The Tribunal confined the addition for the three years to ?50,00,000/- without any evidence produced by the assessee to substantiate the source of income. The High Court upheld the Revenue's appeal, finding that the Tribunal's interference was unjustified and unsupported by evidence. 3. Modification of Additions by the First Appellate Authority: The First Appellate Authority had reduced the additions made by the A.O. The High Court scrutinized the modifications and found that the Tribunal's further modifications lacked proper reasoning and evidence, thereby restoring the additions made by the A.O with some adjustments. 4. Deletion of Income Under Specific Heads by the Tribunal: The Tribunal deleted the additions of income under the heads of business income from Abu Dhabi, sale of teakwood, and short-term capital gains. The High Court found that the Tribunal's deletion of these incomes was without proper reasoning and evidence, thus restoring the additions made by the A.O and the First Appellate Authority. 5. Assessment of Undisclosed Income for Different Assessment Years: - AY 2003-04: The A.O made an addition of ?91,05,100/- for undisclosed income, which the First Appellate Authority reduced to ?89,55,100/-. The Tribunal confined it to ?15,00,000/- without proper reasoning. The High Court reinstated the addition to ?71,50,100/- after allowing certain loans as valid sources. - AY 2004-05: The A.O added ?78,64,500/- as undisclosed income, which the First Appellate Authority reduced to ?62,14,500/-. The Tribunal confined it to ?15,00,000/-. The High Court reinstated the addition to ?66,14,500/- after considering valid sources. - AY 2005-06: The A.O added ?64,48,200/- as undisclosed income, which the First Appellate Authority reduced to ?55,47,200/-. The Tribunal confined it to ?20,00,000/-. The High Court reinstated the addition to ?18,98,200/- after considering valid sources. 6. Source of Payments Made to Commonwealth Trust: The assessee made payments to Commonwealth Trust over three years, claiming various sources such as loans and sale of materials. The High Court found that the assessee failed to convincingly prove the sources, leading to the restoration of additions made by the A.O with some adjustments for valid sources. 7. Addition of Business Income from Abu Dhabi: The A.O estimated business income from Abu Dhabi based on the assessee's frequent visits, which the First Appellate Authority reduced. The Tribunal deleted this addition, and the High Court upheld the deletion, finding no evidence of income generated from abroad. 8. Addition on Sale of Teakwood: The A.O added ?1,19,75,000/- as income from the sale of teakwood and other items, which the First Appellate Authority modified. The Tribunal deleted this addition, but the High Court restored it, finding the Tribunal's deletion perverse and unsupported by evidence. 9. Addition on Short-Term Capital Gains: The A.O added ?38,64,000/- as short-term capital gains, which the First Appellate Authority modified. The Tribunal deleted this addition, but the High Court restored it, confirming the modification/direction of the First Appellate Authority to grant an allowance of ?2.5 lakhs as expenditure. Conclusion: The High Court restored the additions made by the A.O and the First Appellate Authority for the assessment years 2003-04, 2004-05, and 2005-06, finding the Tribunal's deletions perverse and unsupported by evidence. The additions for undisclosed income were reinstated with specific adjustments for valid sources, and the deletion of business income from Abu Dhabi was upheld. The High Court emphasized that the recovery can only be from the assessee's assets inherited by the legal heirs.
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