2021 (1) TMI 55 - AT - Income Tax

Unexplained income relating to deposits in the account with ICICI Bank - HELD THAT - On careful perusal of the assessment order passed Under the wealth tax act by the income tax officer Ward 54 (2), New Delhi for assessment year 2008 09 the argument of the learned authorised representative is found correct. The assessee has been charged wealth tax on this sum of ₹ 5,598,734 being cash in hand as on 31st of March 2008. Therefore, for the purpose of making addition in assessment year 2009 10 assessee must be granted credit of utilisation of the above sum of ₹ 5,598,734/ . AO has made the addition of ₹ 6,055,367/ for not showing the source of the investment made by the assessee. Therefore, we direct the learned assessing officer to restrict the addition to the extent of only the difference between the unexplained investment of ₹ 6,055,003 and and 67 and the cash available as on the first day of the accounting year to the assessee of ₹ 5,598,734/-. Thus the learned AO is directed to retain the addition of only ₹ 456,633/ out of the total addition made of ₹ 6,055,367/ . Thus assessee gets relief of ₹ 5,598,734/ . Enhancement made by the learned CIT A - HELD THAT - CIT A must first issue a notice to the assessee proposing the reasons and the amount of enhancement of the income of the assessee. In the present case the learned CIT A has enhanced the income of the assessee without issuing any show cause notice. Therefore it is clearly in violation of the provisions of Section 251 (2) of the income tax act and therefore it cannot be sustained. Even otherwise the learned CIT A has provided 24 opportunities to the assessee to hear him on the merits of the addition made by the learned assessing officer. However, for the purpose of making enhancement he did not issue a single notice as provided u/s 251 (2) of the act which clearly shows that enhancement cannot be sustained. Addition for non-deduction of tax at source as well as for making payment in violation of the provisions of Section 40 A (3) - HELD THT - AO has rejected the books of accounts of the assessee, which is been upheld by the learned CIT A. Even otherwise when books of accounts have been rejected in toto by the learned assessing officer and same has been confirmed by the learned CIT A also, the income of the assessee has been assessed on the basis of total investment made compared with the amount of funds available with the assessee for making such investment, no disallowance u/s 40 (a) (ia) or u/s 40 A (3) of the act can be made. Even after granting the assessee the credit of the opening cash on hand available at the beginning of the year, the addition sustained by us also remains on the same basis. Therefore, assessee has not claimed any expenditure but is assessed on the basis of the amount available with him for making an investment during the year. Therefore, even otherwise the enhancement made by the learned CIT A is not sustainable. - Appeal of the assessee is partly allowed.

Summary

Issues involved:
1. Addition of unexplained income relating to deposits in the account with ICICI Bank
2. Addition of income from undisclosed sources
3. Enhancement based on provisions of sec. 40a(ia)/40A(3) of the Income Tax Act, 1961

Analysis:
1. The first issue pertains to the addition of unexplained income relating to deposits in the account with ICICI Bank. The Assessing Officer made an addition of &8377; 16,80,531 based on cash deposits and another addition of &8377; 43,74,830 for undisclosed sources of income. The CIT(A) confirmed both additions, stating that the assessee failed to show the source of investment in assets acquired. However, the ITAT Delhi found that the assessee had cash on hand from a previous assessment year, which should be credited to reduce the addition. The ITAT directed the assessing officer to restrict the addition to &8377; 456,633, granting relief to the assessee of &8377; 5,598,734.

2. The second issue relates to the addition of income from undisclosed sources. The Assessing Officer added &8377; 43,74,830 due to the mismatch between the investment made and the income declared by the assessee. The CIT(A) upheld this addition, citing the requirement for TDS deductions and disallowances under Sections 40a(ia) and 40A(3) of the Act. However, the ITAT found that the CIT(A) enhanced the income without issuing a show cause notice to the assessee, violating Section 251(2) of the Income Tax Act. The ITAT held that the enhancement was not sustainable as the assessee's income was assessed based on available funds for investment.

3. The third issue involves the enhancement made based on provisions of sec. 40a(ia)/40A(3) of the Income Tax Act, 1961. The CIT(A) directed the assessing officer to disallow certain expenses under these provisions, leading to an enhancement of &8377; 69,52,362 in the total income. The ITAT found that the CIT(A) did not issue a show cause notice before enhancing the income, contravening Section 251(2) of the Act. Additionally, the ITAT ruled that when books of accounts are rejected entirely, and income is assessed based on available funds for investment, disallowances under Section 40a(ia) or 40A(3) cannot be made. Therefore, the enhancement made by the CIT(A) was deemed unsustainable.

In conclusion, the ITAT Delhi partly allowed the appeal of the assessee, providing relief on the additions made and enhancements directed by the CIT(A).