2020 (5) TMI 201 - AT - Income Tax

Characterization of income - Unexplained investment u/s 69/69A or business income - HELD THAT -Income duly declared in the ITR filed u/s 139 which includes ₹ 475,000/ under appeal before the Bench. However, the only dispute is with regard to treating the same as unexplained money or unexplained investment u/s 69/69A by lower authorities and accordingly taxing the same under special rates of income or regular business income as offered by assessee. The provisions of Section 69 or 69A are not applicable in the facts of the case as far as the question of income from property transaction is concerned, which is in the nature of nature of business income as assessee is duly engaged in the business of real estate only. Even otherwise, the provisions of section 69 or 69A are applicable in case of unrecorded transaction or investment, whose nature and source is not explained. However, in the present case, the assessee has duly explained the nature and source of the transaction as well duly declared the same in its return of income. CIT(A) did not appreciate the submission made by assessee during assessment as well as appellate proceedings, which establishes that there is no case of any unexplained investment, money or income, as nature and source of the income is reflected and explained in the ITR filed, Balance sheet and profit loss account, itself, therefore, question of any income from any undisclosed source does not arise. We direct the A.O. to treat the income of ₹ 4.75 lacs as income from business. Addition u/s 69 - addition relying upon the statements recorded under section 132(4) - HELD THAT - assessee in its question to answer no. 13 stated that amount of cash short noticed were withdrawn from banks and savings out of income offered for tax and has been used for construction. This explanation even if considered to be true also explains the availability of source of funds. Thus, the source of construction was out of the declared income/sources and there was no additional or unexplained investment as no evidences relating to additional construction investment were found during search. There is no addition in the impugned assessment order on account of short cash found rather during assessment proceedings, the AO took entirely different stand of making impugned addition of ₹ 1 Crore for alleged investment of ₹ 1 crore by taking incorrect inference from the statement of the assessee recorded during search. No document/paper were found by the department in relation to alleged amount of ₹ 1 Crore used in construction activities which is unexplained. Furthermore the assessee has never admitted that he has incurred construction expenses out of books as alleged in the assessment order. It is also clear from the order of the A.O. and the ld. CIT(A) that they have never asked for any valuation report. Even otherwise, once there are no adverse findings in relation to the details of cost incurred in relation to construction provided, there is no necessity of valuation. Thus, very basis of impugned addition confirmed by Ld. CIT(A) is not justified. There is no adverse finding pointed out by the AO which establishes that there was no source of such investment, further no defects/mistakes were pointed out regarding the supporting evidences submitted by the assessee. Assessee made statement during the search and surrendered ₹ 100,00,000/ which is without any basis due to incomplete records, mistaken facts and believes. The department has not found any single evidence in relation to amount spent more than amount declared in construction activities before the A.O. and produced books of accounts before the AO, therefore, no adverse inference can be drawn in this regard. In view of the above discussion, we direct the A.O. to delete the addition so made. Assessment u/s 153A - deduction of interest expenditure disallowed - HELD THAT - A.O. has accepted the additional interest income offered without any seized documents during the course of search in the return filed u/s 153 A in para 5 of the assessment order but not allowed the legitimate deduction towards interest expenses wrongly short claimed while filing ITR u/s 139. The A.O. has rejected the claim of interest on unsecured loan with contention in Para no 5.3 at page no 3 of the order. We modify the orders of the lower authorit ies and direct the A.O. to restrict addition only to the extent of dif ference between the interest income offered and the interest expenses claimed. We direct accordingly.

Summary

Issues Involved:
1. Addition of ?4,75,000 as income from undisclosed sources.
2. Addition of ?1 Crore as unexplained investment in construction.
3. Interpretation of Section 115BBE and its retrospective application for AY 2017-18.

Issue-wise Detailed Analysis:

1. Addition of ?4,75,000 as income from undisclosed sources:
The assessee was engaged in real estate and had declared an income of ?118,11,569 in the ITR filed u/s 139. The AO treated ?1,18,11,569 as income from other sources u/s 69A and taxed it under Section 115BBE, considering it unexplained money. The CIT(A) deleted ?1,13,36,569 and upheld ?4,75,000 as undisclosed income u/s 69. The Tribunal found that the income of ?4,75,000 was part of the business income from property transactions, duly declared in the ITR, and not unexplained money or investment. The provisions of Section 69 or 69A were not applicable as the nature and source of the transaction were explained. The Tribunal directed the AO to treat ?4,75,000 as business income.

2. Addition of ?1 Crore as unexplained investment in construction:
The AO made an addition of ?1 Crore as unexplained investment in construction, based on the assessee's statement during the search. The Tribunal noted that no incriminating material was found during the search to support this addition. The Tribunal emphasized that an addition cannot be made solely based on a statement, especially when retracted and unsupported by evidence. The Tribunal cited various judicial precedents, including the Supreme Court's ruling in CIT Vs. S. Khader Khan Son, which held that an admission is not conclusive and can be rebutted. The Tribunal found that the AO did not establish any investment or its unexplained nature with corroborating evidence. The Tribunal directed the AO to delete the addition of ?1 Crore.

3. Interpretation of Section 115BBE and its retrospective application for AY 2017-18:
The Tribunal did not specifically address the retrospective application of Section 115BBE for AY 2017-18 in detail. However, it implicitly rejected the AO's application of Section 115BBE by treating the income of ?4,75,000 as business income and not unexplained income under Sections 69 or 69A.

Additional Grounds for AY 2012-13:
The assessee claimed that the lower authorities erred in rejecting interest expenses of ?1,14,746 and bank charges of ?57 against additional interest income of ?1,16,052 offered for tax. The Tribunal found that the assessee had rectified an apparent mistake by offering additional interest income and expenses. The Tribunal directed the AO to make an addition only to the extent of the difference between the interest income offered and the interest expenses claimed.

Conclusion:
The Tribunal allowed the appeal for AY 2017-18, directing the AO to treat ?4,75,000 as business income and delete the addition of ?1 Crore. For AY 2012-13, the Tribunal partially allowed the appeal, directing the AO to restrict the addition to the difference between the interest income offered and the interest expenses claimed.