2019 (11) TMI 457 - AT - Income Tax

Addition u/s 68 - presumption u/s 292C - unexplained advance - Incriminating material found during the search - HELD THAT - It is not in dispute that the assessee surrendered a sum of ₹ 30.00 lacs on account of incriminating material found during the search, therefore, the transaction of loan between two independent parties even if through the service of the assessee being broker cannot be thrust upon the assessee for want of taxing the same in the hands of the actual parties to the transaction. The reasoning of the A.O. and the ld. CIT(A) for making the addition is that if it is not assessed in the hands of the assessee then it would be a revenue loss as the complete particulars of Shri Naresh Kumar Maheshwari were not furnished by the assessee and therefore, the assessee is responsible for the loss of the revenue and liable to pay tax. There is no provision in the Act to deem such income which is otherwise not an income of the assessee. The documents in question clearly manifest the nature of the transaction and the parties to the transaction. Particulars of one of the parties were already available on the seized material and the revenue has already attempted to tax the said income in the hands of Shri Roshal Lal Sancheti but the ld. CIT(A) has deleted the said addition on the ground that a loan cannot be assessed to tax except it is unexplained credit U/s 68 of the Act. Therefore, the assessee being a broker cannot be held liable to pay tax on an income which does not arise or belong to the assessee. At the most, the income for providing the service as a broker can be taxed in the hands of the assessee for the transaction of loan which the assessee has already offered to tax as part of the surrendered income. Since the revenue failed to assess the said amount in the hands of the parties to the transaction, therefore, it was attempted to tax in the hands of the assessee on the basis of presumptive provisions of Section 292C of the Act. Once the seized documents are free from any ambiguity and the transaction is between the two independent parties then in such a situation, the said document reveals the transaction of loan cannot be presumed to be the document belongs to the assessee for the purpose of assessing the income being unexplained loan.- Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Addition of ?20,00,000 on account of unexplained advance based on seized documents.
2. Disallowance of brokerage/commission charges of ?20,000.

Analysis:

Issue 1: Addition of ?20,00,000 on account of unexplained advance
The assessee, engaged in finance and property brokerage, faced addition of ?20,00,000 by the Assessing Officer (A.O.) based on seized documents. The A.O. contended that failure to tax this amount would result in revenue loss. The A.O. also added ?20,000 as brokerage/commission charges. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition of ?20,00,000 but deleted the ?20,000 brokerage/commission charges. The assessee argued that the seized documents pertained to a loan transaction between third parties, not involving the assessee directly. The documents included a cheque and a letter indicating a loan between two independent parties. The A.O. invoked Section 292C of the Income Tax Act, placing the onus on the assessee to explain the seized documents. The Tribunal found that the loan transaction did not pertain to the assessee's income, as the parties involved were not disputed and the income was already offered for taxation as part of surrendered income. The Tribunal ruled that the addition made by the A.O. and upheld by the CIT(A) was not justified and deleted the addition.

Issue 2: Disallowance of brokerage/commission charges of ?20,000
The A.O. disallowed brokerage/commission charges of ?20,000, which the CIT(A) later deleted. The Tribunal observed that as the seized documents were clear about the nature of the transaction between independent parties, the income in question did not belong to the assessee. The Tribunal emphasized that the income for the brokerage service could be taxed in the hands of the assessee, but not the loan transaction amount. Since the revenue failed to tax the loan amount in the hands of the actual parties involved, attempting to tax it in the assessee's hands under Section 292C was deemed unjustified. Therefore, the Tribunal allowed the appeal of the assessee, ruling in favor of deleting the disallowed amount.

In conclusion, the Tribunal found that the addition made by the A.O. and upheld by the CIT(A) regarding the unexplained advance was not justified, as the transaction did not involve the assessee directly. The Tribunal also ruled in favor of deleting the disallowed brokerage/commission charges, emphasizing that the income in question did not belong to the assessee but to the parties involved in the loan transaction.