2019 (10) TMI 632 - AT - Income Tax

Unexplained cash - addition u/s 68 or 69A - HELD THAT - The assessee has produced a summarised statement of the cash book before us. On going through the cash book it is found that the assessee has recorded certain amounts with dates mentioning the name of the persons from whom cash was received. The assessee s case is that he received cash from prospective buyers of land and thereafter negotiated with the prospective sellers with a view to earn commission income. In addition to that there are certain transactions of cash received which did not bear any name. Such transactions will have to be presumed as done by the assessee for his own purpose. Once the assessee has purchased and sold certain pieces of land for outside customers it is only the profit element in such transactions which can be charged to tax. If certain amount of cash is received from buyers which is then handed over to sellers it is not the amount of receipt which can be added to the assessee s total income but only the profit element embedded in the transaction. In so far as the assessee s own transactions are concerned apart from profit element there will be certain capital investment also going into the purchase of said pieces of land which would also require addition. Total income for the years under consideration to be added on the basis of the unrecorded cash receipts found during the course of search is in three parts viz. the first being the maximum cash balance of 28, 71, 458/- and 5, 64, 910/- for the years in appeal; the second being the part of profit element of 55, 06, 787/- on sale of plots amounting to 8.09 crore as relating to the two years under consideration in addition to 1, 52, 969/- for the A.Y.2008-09 being extra profit sustained in the first appeal; and the third being profit of 14.07 lakh on remaining amounts of entries at Rs. 2.07 crore in the ratio of receipts of 2.08 crore and 7.95 crore for the A.Ys. 2007-08 and 2008-09 respectively. We therefore set-aside the impugned orders and remit the matter to the file of AO for examining and ensuring that these three elements are duly taxed in the total income of the assessee for the years under consideration. To the extent these three elements have been fully or partly offered by the assessee or sustained in the first appeals suitable reductions should be made.

Summary

Issues:
Assessment years 2007-08 and 2008-09 - Unexplained cash receipts and payments related to sale and purchase of land - Addition to total income by AO - Appeal by the Revenue against CIT(A) order reducing additions.

Analysis:
1. Background: The appeals by the Revenue pertain to assessment years 2007-08 and 2008-09 concerning unexplained cash transactions related to land sale and purchase discovered during a search action under section 132(1) of the Income-tax Act, 1961. The assessee submitted that all transactions noted in seized documents pertained to him.

2. AO's Observations: The Assessing Officer (AO) noted discrepancies in the cash transactions recorded by the assessee post-search. The AO required substantiation of cash receipts and payments related to land transactions, leading to additions of significant amounts to the assessee's total income for both years.

3. CIT(A) Decision: The CIT(A) reduced the additions made by the AO after considering the details provided by the assessee regarding cash balances, property-wise transactions, and profits earned from land sales. The Revenue challenged the reduction in the additions.

4. Judicial Analysis: The Tribunal analyzed the case, acknowledging that the cash book prepared by the assessee post-search contained details of transactions, including cash receipts from land buyers for commission purposes. The Tribunal emphasized that only the profit element from such transactions should be taxed, not the entire cash receipts.

5. Further Calculations: The Tribunal reviewed the CIT(A)'s calculations and identified additional unrecorded cash receipts that needed to be taxed. It directed the AO to ensure proper taxation of the peak cash balances, profits from land sales, and additional unrecorded cash receipts for the relevant years.

6. Final Decision: The Tribunal partially allowed the appeals, setting aside the CIT(A)'s orders and remitting the matter back to the AO for appropriate taxation of the identified elements in the assessee's total income for the respective years. Any amounts already offered or sustained in previous appeals should be adjusted accordingly.

In conclusion, the Tribunal's decision focused on ensuring the correct taxation of unexplained cash transactions related to land dealings for the assessment years 2007-08 and 2008-09, emphasizing the taxation of profit elements rather than entire cash receipts and directing the AO to re-examine and tax the identified elements appropriately.