2019 (5) TMI 1327 - HC - Income Tax

Addition u/s 69B - Amount of investments, etc., not fully disclosed in books of account - HELD THAT - As categorically recorded by the Tribunal that the agreement seized was only a photo copy of the original which was not seized from the assessee. The seller, buyer and the witnesses refused to identify the same. The assessee was neither a party nor witness to the agreement. The assessee was not related to either party. The assessee purchased the land directly from PISCO at the prevalent circle rate. In the purchase deed of the assessee, the rate was ₹ 4 crore per acre ₹ 2.50 lacs per marla as against that of ₹ 11.05 crore per acre as mentioned in the agreement seized. The land purchased by the assessee was different from that mentioned in the agreement seized. The burden was on the department to prove understatement of sale consideration which was not discharged. Thus, the presumption of the Assessing Officer could not lead to a conclusion of under investment by the assessee, liable for addition. - Decided against revenue. Disallowance of interest u/s 36(1)(iii) - CIT(A) recorded that the entire set of circumstances showed that the assessee had avoided to give data from the books of account to show the business use of interest bearing funds - HELD THAT - CIT(A) has observed that as available from the calculation chart given by the assessee, even the amount of capital of Shri Kulwinder Singh brought into the business was taken to be a part of the calculation, treating this amount to be funds available free of interest and that the capital is meant to earn profits and separate interest thereon to decide the issue of disallowance could not have been done. It was on this basis that the learned CIT(A) held that no interest was payable to the assessee on this amount . We do not find any error in the order of the learned CIT(A) - Decided against revenue.

Summary

Issues Involved:
1. Addition under Section 69B of the Income Tax Act for unaccounted and undisclosed investment.
2. Disallowance of interest under Section 36(1)(iii) of the Income Tax Act.
3. General question on the maintainability of the impugned order by the ITAT.

Issue-wise Detailed Analysis:

1. Addition under Section 69B of the Income Tax Act for Unaccounted and Undisclosed Investment:

The primary issue in these appeals revolves around the addition of ?2,27,00,000 made by the Assessing Officer (AO) under Section 69B of the Income Tax Act on account of undisclosed investment. The AO's addition was based on a photocopy of an agreement seized during a search at the residence of an accountant of M/s PISCO, which indicated a higher sale price for land than what was recorded by the assessee. The CIT(A) deleted this addition, stating that the evidence relied upon by the AO was not sufficient to prove that the assessee had understated the investment in the purchase of land. The Tribunal upheld the CIT(A)'s decision, emphasizing that the seized document was a photocopy and not directly related to the assessee. The Tribunal noted that the burden of proof to show understatement of sale consideration was on the department, which was not discharged satisfactorily. The Tribunal's findings included that the agreement was not identified by any party involved, and the assessee had purchased the land at the prevalent circle rate, paying due stamp duty. The High Court agreed with the Tribunal's findings, stating that the AO's presumption did not materialize into conclusive evidence against the assessee.

2. Disallowance of Interest under Section 36(1)(iii) of the Income Tax Act:

The second issue pertains to the disallowance of ?14,00,000 on account of interest under Section 36(1)(iii) of the Income Tax Act. The AO disallowed this amount, noting that the assessee had made interest-free advances to family members and sister concerns while debiting bank interest. The CIT(A) restricted this disallowance to ?10,95,795, taking into account the interest payable on certain credit balances. The Tribunal upheld the CIT(A)'s findings, noting that the assessee had failed to provide data from the books of account to show the business use of interest-bearing funds. The High Court found no error in the Tribunal's decision, agreeing that the CIT(A) had correctly calculated the disallowance based on the available evidence.

3. General Question on the Maintainability of the Impugned Order by the ITAT:

The additional question in ITA Nos. 92, 97, and 107 of 2018 regarding the maintainability of the impugned order was found to be general in nature. Given the findings on the first two issues, the High Court rejected this question as well.

Conclusion:

The High Court dismissed all six appeals, concluding that no substantial question of law arose. The Tribunal's decisions on both the addition under Section 69B and the disallowance of interest under Section 36(1)(iii) were upheld, as the findings were well-reasoned and supported by the evidence on record.