2021 (2) TMI 663 - AT - Income Tax

Assessment of HUF - protective addition in the hands of the assessee - additional evidence - whether any notice u/s 142(1) was issued in respect of S.J. Bahadur HUF? - HELD THAT - There is no reason as to why the learned Assessing Officer had not taken the things to their logical conclusion by making necessary enquiries as to the nature of the receipt vis a vis the HUF and also why the request of the assessee to permit him to produce the additional evidence on this aspect was resisted. When it has come to the notice of the Ld. CIT(A) that it is only the protective assessment that is made in the hands of the assessee in view of the proposed proceedings against the HUF by issuance of notice under section 142 (1) of the Act to make substantive addition in the hands of the HUF, and no such notice under section 142 (1) of the Act was issued by the learned Assessing Officer, as admitted by the assessing officer in his remand report, the endeavour of the Ld. CIT(A) should be to allow the assessee to prove his contention with reference to the document, instead of proceeding with the matter and to hold that the receipt is taxable in the hands of the assessee basing on certain circumstances. When the assessee offered the direct evidence, findings of the authorities below basing on the circumstances does not appear to be proper, inasmuch as the endeavour of the authorities under the Income Tax Act shall be to assess the correct tax liability by affording an opportunity to the assessee. We are of the considered opinion that the additional evidence to be produced by the assessee shall be admitted and a view has to be taken by the learned Assessing Officer by proper appraisal of such material with reference to the submissions made by the assessee. We, therefore, admit the additional evidence, set aside the findings of the Ld. CIT(A) in respect of the addition which the assessee contends to pertain to the HUF, and remand the issue to the file of learned Assessing Officer to take a view after appreciating the material on record and affording an opportunity to the assessee to put forth his case on this aspect. Grounds of appeal of the assessee are accordingly allowed for statistical purpose. - Appeal of the assessee is allowed for statistical purpose

Summary

Issues:
1. Assessment of income in the hands of the assessee based on cash deposits.
2. Addition of income in the hands of the assessee due to lack of supporting documents.
3. Treatment of deemed interest income of HUF.
4. Refusal to admit additional evidence by the CIT(A).

Issue 1: Assessment of income in the hands of the assessee based on cash deposits

The assessee, an individual, filed an appeal challenging the order passed by the Commissioner of Income-tax for assessment year 2009-10. The Assessing Officer (AO) raised concerns regarding a cash deposit of ?23,34,400 in the assessee's bank account based on information received through Annual Information Return. The assessee claimed to have received this amount on behalf of a Hindu Undivided Family (HUF) for the sale of Timber and Foliage. The AO added the cash deposit to the assessee's income due to lack of supporting documentation, questioning the nature of the transaction between the assessee and the HUF. The AO also doubted the claim of managing the HUF's affairs without proper evidence.

Issue 2: Addition of income in the hands of the assessee due to lack of supporting documents

The AO observed discrepancies in the documents submitted by the assessee, including a confirmation letter from the HUF's Karta and an agreement for the sale of Timber and Foliage. The AO noted that the agreement was not legally binding as it lacked proper registration and witnesses. The AO added the sale proceeds to the assessee's income, disputing the agricultural nature of the income and questioning the transfer of funds to the assessee's personal account instead of the HUF's account.

Issue 3: Treatment of deemed interest income of HUF

The AO made an additional assessment of ?10,93,283 as deemed interest income of the HUF, which the CIT(A) later found to be baseless as there was no evidence to support the claim that the HUF would have earned interest income if the funds were deposited in a bank account. The CIT(A) directed the deletion of this addition, emphasizing that additions based on assumptions without proper evidence are not permissible under the law.

Issue 4: Refusal to admit additional evidence by the CIT(A)

The assessee attempted to produce additional evidence during the appeal proceedings, which the AO objected to, and the CIT(A) declined to admit. The CIT(A) upheld the additions made by the AO concerning the cash deposit and the deemed interest income. The assessee argued that the protective assessment made in the absence of a substantive assessment in the HUF's hands was unjustified and that the authorities should have allowed the submission of evidence to prove the income belonged to the HUF.

In conclusion, the ITAT Delhi allowed the assessee's appeal for statistical purposes, admitting the additional evidence and remanding the issue back to the Assessing Officer for proper appraisal and consideration of the material provided by the assessee to determine the correct tax liability regarding the disputed income related to the HUF.