2021 (5) TMI 714 - AT - Income Tax

Undisclosed income as per disallowance on account of provisions - assessee was selected for limited scrutiny through CASS - CIT-A restricted the addition - addition on basis on a paper (loose sheet) found in possession one of the partners in the assessee firm during the course of search proceedings - HELD THAT - The absence of the above two steps shows that he made the addition causally and without actually going into the depth of the issue and reaching conclusive findings through proper examination of evidences persons. The 'Skelton' flats' rate is coming to ₹ 3200 to ₹ 3400/- per square feet itself while the 'completed' or 'fully furnished' flat is sold @ 4967/- which difference if not real, would involve an adverse finding from both the service tax department as well as the SRO for tax avoidance if some flats of same measurement are sold at different rates to 'accommodate' cash proceeds. No adverse findings have been gathered by the A.O. from these two departments in respect of the assessee's project. The service tax ledger account shows flat wise tax paid from 2011 to 2016 even on individual payments credited. Hence, just on the basis of one loose sheet of paper with miscellaneous, unconfirmed 86 uncorroborated notings, to make an addition is not fair as this would also mean a suppressed sale of of about 25% against the shown project revenue and jack up the profit to 30% (5.43% already shows) which appears to be astronomical as well as impractical on a single project. The addition dwells more in the realm of presumption than real. It is clear that the A.O.'s examination of the Annexure AS-2 was very casual and not based either on the possible further enquiries or workings or on the appreciation of statements and change in the status of several flats owners. He has just made a one sided assessment based only on the loose sheet without bringing on record the other corroborative evidences. The addition made by the AO based on the loose paper, which is not conclusive evidence and, therefore, the same is not sufficient to make the addition. We found that the ld. CIT(A) has passed a speaking and reasoned order discussing all the details of the case of the assessee, therefore, we do not find any reason to interfere into or deviate from the findings so recorded by the ld. CIT(A) and we uphold the same. This ground of the Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Restriction of addition made by the A.O. on account of undisclosed income.
2. Validity of the assessment order due to conversion from limited scrutiny to complete scrutiny.
3. Condonation of delay in filing the cross-objection by the assessee.

Issue-Wise Detailed Analysis:

1. Restriction of Addition Made by the A.O. on Account of Undisclosed Income:
The A.O. made an addition of ?1,85,30,430/- to the assessee's income based on a loose sheet found during a search at the premises of a partner. The loose sheet indicated a difference between the sale price of flats recorded in the books and those noted on the sheet. The CIT(A) restricted this addition to ?75,630/-, stating that the A.O.'s reliance on the loose sheet was not supported by corroborative evidence. The CIT(A) highlighted that the A.O. did not verify the details with the buyers or bring any additional evidence to prove that higher consideration was received outside the books. The CIT(A) noted that the loose sheet was a "dummy sheet" and that the actual transactions were recorded correctly in the books. The ITAT upheld the CIT(A)’s decision, agreeing that the addition was based on presumptions rather than concrete evidence.

2. Validity of the Assessment Order Due to Conversion from Limited Scrutiny to Complete Scrutiny:
The assessee argued that the A.O. erred in converting the limited scrutiny into complete scrutiny without having full facts and without following CBDT instructions. The CIT(A) did not quash the assessment order but provided relief by reducing the addition. The ITAT did not find it necessary to address this issue separately as it upheld the CIT(A)'s decision on the merits of the case, which effectively addressed the concerns about the scrutiny process.

3. Condonation of Delay in Filing the Cross-Objection by the Assessee:
The assessee filed a cross-objection with a delay of 6 days, citing medical reasons for the delay. The ITAT considered the explanation provided by the assessee, which included hospitalization and subsequent recovery period of a senior partner. The ITAT condoned the delay, emphasizing a liberal approach towards condonation of delay to ensure substantial justice, as long as the reasons are bona fide and not a device to cover laches.

Conclusion:
The ITAT dismissed both the appeal of the Revenue and the cross-objection of the assessee. The ITAT upheld the CIT(A)'s order, which restricted the addition from ?1,85,30,430/- to ?75,630/-, and found no reason to interfere with the CIT(A)'s detailed and reasoned order. The ITAT also condoned the delay in filing the cross-objection by the assessee, allowing it to be heard on merits.