2021 (4) TMI 1062 - AT - Income Tax

Unexplained income u/s.69A - Addition on the ground that seized material i.e. Annexure A/1 indicates the total money receipt on sale of various plots - addition of subsequent assessment year is made in case of Jayantibhai Virjibhai Babariya (partner of assessee) in his individual capacity - HELD THAT - We have noted that the AO made addition on the basis of seized documents by taking view that seized documents prima facie reflects the receipts of plot wise on-money in coded form. And that no explanation and evidences furnished by the assessee. The ld.CIT(A) while deleting the addition held that there is no evidence on record to establish that assessee firm was involved in plotting of the scheme. Further, the addition on the basis of Annexure A/1 has been made in case of Jayantibhai Virjibhai Babariya for A.Y. 2007-08 ( in individual capacity vide PAN AFHPB 0820 M). The firm was not in existence and it was formed by way of partnership deed dated 01.06.2007. Assessee vehemently submitted before us that the firm came in to existence vide partnership deed dated 01.06.2007. Before us, no contrary evidences or material is place to show that the assessee-firm was in existence during the impugned financial year, if the firm was not in existence during the impugned financial year no assessment can be made on the non-existent (still to be born) entity. Therefore, we affirm the order of ld. CIT(A) that addition of ₹ 3.16 crore in case of assessee-firm is unjustified, accordingly, grounds raised by the Revenue are dismissed for this sole reason. However, it is made clear that our observation in this case will not affect the additions made in individual capacity of partner of the assessee namely Jayantibhai Virjibhai Babariya, in subsequent assessment years, which has to be examined by lower authorities independently. Appeal of the Revenue is dismissed.

Summary

Issues Involved:

1. Deletion of addition of ?3,16,65,000/- made on account of unexplained income under Section 69A of the Income Tax Act, 1961.
2. Non-cooperation of the assessee during assessment proceedings.
3. Justification of the addition made by the Assessing Officer (AO).
4. Validity of the assessment made on a non-existent entity.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?3,16,65,000/-:

The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which deleted the addition of ?3,16,65,000/- made by the AO under Section 69A of the Income Tax Act, 1961, on account of unexplained income. The AO based the addition on seized documents from a search action at the premises of Shri Ankur Babariya, which allegedly indicated plot-wise cash amounts against the development of Shrushti Row House. The AO interpreted these documents as reflecting unaccounted income of ?3,16,65,000/- for the assessment year 2006-07.

2. Non-cooperation of the Assessee:

The AO noted that the assessee maintained a non-cooperative attitude throughout the assessment proceedings. Despite several opportunities, the assessee did not respond to notices under Sections 148 and 142(1) of the Income Tax Act. Consequently, the AO proceeded with an ex-parte assessment under Section 144 of the Act, concluding that the assessee failed to provide any explanation or evidence to counter the seized documents indicating unaccounted income.

3. Justification of the Addition by the AO:

The AO justified the addition by stating that the seized documents, which included ledger accounts and cash books, clearly showed plot-wise entries of cash collections for the Shrushti Row House project. The AO decoded these entries and concluded that the total cash receipts amounted to ?3,16,65,000/-. The AO argued that these amounts were neither reflected in the regular books of account nor explained by the assessee, thus treating them as unaccounted income for the relevant assessment year.

4. Validity of the Assessment on a Non-existent Entity:

The assessee contended before the CIT(A) that the firm was not in existence during the relevant assessment year 2006-07, as it was established only on 01.06.2007. The CIT(A) accepted this argument, noting that the addition on the basis of Annexure A/1 had already been made in the individual case of Jayantibhai Babariya for subsequent assessment years. The CIT(A) concluded that no addition could be made in the case of the assessee-firm for the assessment year 2006-07, as it was not in existence during that period.

Tribunal's Decision:

The Tribunal considered the submissions of both parties and reviewed the evidence. It affirmed the CIT(A)'s decision, noting that there was no material evidence to establish that the assessee-firm was involved in the plotting scheme during the relevant assessment year. The Tribunal also emphasized that the firm was not in existence during the financial year 2005-06, and therefore, no assessment could be made on a non-existent entity. Consequently, the Tribunal dismissed the Revenue's appeal and upheld the deletion of the addition of ?3,16,65,000/-.

Conclusion:

The Tribunal concluded that the addition of ?3,16,65,000/- in the case of the assessee-firm was unjustified, as the firm was not in existence during the relevant assessment year. The appeal by the Revenue was dismissed, and the order of the CIT(A) was affirmed. The Tribunal clarified that its observations would not affect the additions made in the individual capacity of the partner, Jayantibhai Babariya, in subsequent assessment years.