2020 (8) TMI 5 - AT - Income Tax

Undisclosed investment - assessee has given advance for the property which was taken over by assessee s sister concern - AO has made the addition only because assessee has not shown the same in its sister concern in their balance sheet - HELD THAT - Assessee had given the amount as advance for the golf club road project, which is evidenced in the balance sheet of assessee as on 31.03.2005. Initially assessee wanted to take over the project from its sister concern which did not materialize, so the advance paid by assessee to landlord was adjusted with current account balance of sister concern M/s. Capital Construction Assessee in fact had shown the same under the head Loans and Advances and has included the amount in Advances recovered in cash or in kind in its balance sheet as on 31.03.2005 and the payment had been made by cheque for Golf Club Road Project. So, no addition was warranted u/s. 69B (undisclosed investment) of the Act. It is trite law that method of accounting cannot determine the true character of a transaction CIT Vs. MESSRS. SHOORJI VALLABHDAS AND CO 1962 (3) TMI 6 - SUPREME COURT . Assessee has given advance for the property which was taken over by assessee s sister concern and shown by assessee in its balance sheet and squared up in later year so no addition under section 69B of the Act is sustainable and therefore directed to be deleted. Addition u/s. 69C as undisclosed expenditure - assessee had to incur additional interest expenditure for buying property at Kalibari Lane - AO accepted the payment of interest to landlords given by cheque but according to AO, since the assessee failed to produce the parties he added the same u/s. 69C - HELD THAT - AO made the addition since assessee failed to produce the landlords to whom payments were made and Ld. CIT(A) made the addition since assessee did not produce the parties creditworthiness from whom the assessee sourced the cash for making the payment. Since according to assessee, it had made the payment of ₹ 3,55,000/- to six parties on 3 (three) different dates which were routed through cash book, and the AO having not examined the cash book even to determine whether the assessee had the cash balance to make the payment on three different dates, which is necessary to adjudicate the issue, it is remanded back to AO for de novo adjudication.

Summary

Issues:
1. Addition of undisclosed investment of ?3,87,000 as made by AO.
2. Addition of undisclosed expenditure of ?3,55,000 under section 69C of the Act.

Issue 1: Addition of undisclosed investment of ?3,87,000:
The AO added ?3,87,000 to the total income of the assessee as undisclosed investment, which was confirmed by Ld. CIT(A). The assessee had invested in a project and explained that the investment was made through a sister concern. The AO contended that since the investment was not reflected in the assessee's balance sheet, it constituted undisclosed investment. However, the ITAT noted that the amount was shown under "Loans and Advances" in the balance sheet and was later adjusted with the sister concern's account. The ITAT held that no addition under section 69B of the Act was warranted as the transaction was properly accounted for and directed the deletion of the addition.

Issue 2: Addition of undisclosed expenditure of ?3,55,000 under section 69C of the Act:
The AO added ?3,55,000 as unexplained expenditure under section 69C of the Act due to interest paid in cash for a property purchase. The assessee failed to produce the parties who received the cash payment, leading to an adverse inference by the AO. The Ld. CIT(A) upheld the addition citing lack of evidence on the creditworthiness of the parties. The ITAT observed that the payment was routed through the cash book and evidenced by receipts from the parties. The AO's decision was based on the failure to produce the parties, while the Ld. CIT(A) emphasized the lack of proof of creditworthiness. The ITAT remanded the issue back to the AO for fresh adjudication, highlighting the need to examine the cash book to determine the cash balance for the payments made.

Conclusion:
The ITAT allowed the appeal of the assessee for statistical purposes, setting aside the Ld. CIT(A)'s order and remanding the second issue back to the AO for fresh adjudication in accordance with the law. The ITAT considered the extraordinary situation of the COVID-19 pandemic and lockdown in the timeline of the judgment delivery.