2019 (12) TMI 690 - AT - Income Tax

Undisclosed income u/s.158BA - Search and seizure operations u/s. 132 - HELD THAT - Based on the material unearthed by the Revenue during the search operations, it was found that certain expenses or deduction or allowances claimed by the assesssee was found to be false and a part of such expenses or deduction or allowances were also admitted to be sources for the expenditure unearthed from the same search operations in the cases of Mr. Mohan, Mrs Geethalakshmi, (w/o Mohan) and Sanjay Mohan (S/o Mohan). Therefore, these material fall within the scope of undisclosed income U/s.158BA viz any income based on any entry in the books of account or other documents or transactions, where such thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false . When the assessee itself admitted an undisclosed income based on part of the seized material , which had attained finality, then , it can not plead that the addition made based on the other part of the seized material, which were unearthed in the same search and seizure operations, would not fall as an undisclosed income within the scope of Section 158 BA. With regard to the genuineness of the transaction with M/s. J S Agency, as pleaded by the ld. Sr. Standing counsel, supra, the AO after due consideration of the seized material, the statements recorded at the time of search, the statement recorded from the parties subsequently and on due analysis of the additional evidence produced by the assessee has clearly recorded the reason as to why such claim cannot be accepted and how the assessee has failed to prove that the impugned payment was made to Mr.Selvam and Mr. Inbaraj. It is clear from the order of the CIT(A) that the assessee has not laid any material assailing the findings recorded by the AO and hence, the ld CIT(A) confirmed the impugned additions. Before us also, the assessee has not filed any material assailing the findings recorded by the lower authorities. Therefore, we do not find any reason to interfere with the orders of the lower authorities on the quantum. Therefore, the assessee s contention that the disallowance of expenses made by the AO cannot be treated as an assessment of an undisclosed income within the scope of Section 158 BA, is held as untenable. Thus, all the grounds of the assessee fail and therefore the assessee s appeal is dismissed.

Summary

Issues Involved:
1. Legitimacy of the disallowance of payments made to individuals aggregating to ?35,28,192.
2. Whether the disallowance of expenses can be treated as an assessment of "undisclosed income" within the scope of Section 158BA.

Detailed Analysis:

1. Legitimacy of the Disallowance of Payments:
The assessee, engaged in the business of earth moving, faced search and seizure operations under Section 132 on 22.03.2000, concluding on 26.06.2000. The assessee filed a Block Return declaring undisclosed income at Rs. Nil, but the block assessment determined the total undisclosed income at ?1,22,89,020. The dispute arose over the disallowance of payments made to three individuals totaling ?35,28,192, which the assessee claimed were for subcontract work executed individually by these parties. The Assessing Officer (AO) contended that some vouchers were not signed by the payees and deemed the transactions as one, restricting the expenses to ?64,83,831 and adding the balance ?35,28,192 as undisclosed income.

The assessee argued that the disallowance was wrongly upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] without appreciating the facts and law, emphasizing that the disallowance of expenses cannot be treated as "undisclosed income" under Section 158BA. The assessee produced the involved parties who confirmed the transactions, but the AO remained unconvinced, citing unsigned vouchers and inconsistencies in the statements.

2. Treatment of Disallowance as "Undisclosed Income":
During the search operations, certain unsigned cash vouchers were found. The Director of the assessee company admitted that these expenses were debited in the company accounts but the cash was utilized for other payments, initially offering ?87 lakhs as undisclosed income. Later, the assessee retracted but admitted ?47,67,030 as undisclosed income in a letter dated 27-06-2002, requesting it to be adjusted against other expenditures and investments.

The AO assessed the difference of ?35,28,192 as undisclosed income, which was upheld by the CIT(A) due to the lack of further evidence from the assessee. The AO's assessment was based on the seized material, statements recorded during the search, and additional evidence produced. The CIT(A) confirmed the AO's findings, noting the assessee's failure to substantiate the claims.

The Tribunal found that the material unearthed during the search operations indicated false expenses or deductions, which fall within the scope of "undisclosed income" under Section 158BA. The assessee's plea that the transactions do not constitute "undisclosed income" was deemed untenable as the assessee had already admitted part of the income based on the seized material. The Tribunal upheld the AO's and CIT(A)'s findings, dismissing the assessee's appeal.

Conclusion:
The Tribunal concluded that the disallowance of ?35,28,192 was justified and constituted "undisclosed income" under Section 158BA. The assessee's appeal was dismissed, and the order was pronounced on 11th December 2019 at Chennai.