2021 (7) TMI 834 - AT - Income Tax

Undisclosed income appearing in seized documents - assessee surrendered undisclosed income in statement u/s 132(4) - HELD THAT - As the assessee computed the undisclosed income appearing in seized documents, which has been accepted by the AO. The assessee has successfully demonstrated the error in statement and the Assessing Officer in the case of M/s Inspiration also accepted the computation of undisclosed income by the assessee. In the present case, the addition has been made for the difference of surrendered amount during the statement u/s 132(4) and amount declared in the returned income, just because the assessee surrendered said amount u/s 132(4). This addition has been made in complete disregard to the error pointed out by the assessee in surrendered amount. The seized documents are not related to the assessee. The direction given by the CIT(A) to take remedial action in the case of M/s Inspiration also goes to prove that, if any higher amount was to be assessed looking to the surrender, then it would have to be done in the case of M/s inspiration and not in the case of the assessee. We set aside the order of the lower authorities on the issue in dispute and delete the addition in the hands of the assessee. The grounds of the appeal of the assessee are accordingly allowed.

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) in framing the assessment order.
2. Addition of ?7,98,880/- due to the difference between the disclosure made at the time of search and the amount declared in the return.
3. Legality of treating ?7,98,880/- as undisclosed income.
4. Direction to take action against M/s Inspiration Enterprises (P) Ltd.
5. Charging of interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) in Framing the Assessment Order:
The assessee contended that the AO did not assume jurisdiction as per law while framing the assessment order. However, this issue was not elaborated upon in the judgment, suggesting that the tribunal did not find substantial merit in this ground.

2. Addition of ?7,98,880/- Due to the Difference Between Disclosure and Declaration:
The primary issue revolved around the addition of ?7,98,880/- made by the AO due to a discrepancy between the ?1 crore undisclosed income surrendered during the search and the ?92,01,120/- declared in the return. The AO observed that the assessee declared ?6 lakh in his own case and ?86,01,120/- in the case of M/s Inspiration Enterprises (P) Ltd., leaving a balance of ?7,98,880/- as undisclosed income.

The assessee argued that the surrendered amount was an estimate made to cooperate with the Department and not based on specific calculations. The tribunal noted that the assessee successfully reconciled the seized documents with the books of account, declaring the correct amounts in the respective cases. The tribunal emphasized that if an error in the surrendered amount is identified, it should be corrected, and the AO's addition of ?7,98,880/- was unjustified.

3. Legality of Treating ?7,98,880/- as Undisclosed Income:
The tribunal referred to the Delhi High Court's decision in the case of Dayawanti Vs. CIT, which held that statements made during search and seizure could be treated as incriminating material. However, the tribunal distinguished this case, noting that the assessee in the present case provided a reasonable explanation and reconciled the seized documents. The tribunal also cited the Supreme Court's decision in Pullangode Rubber & Produce Co Ltd, emphasizing that an admission is important but not conclusive, and it can be corrected if shown to be incorrect.

4. Direction to Take Action Against M/s Inspiration Enterprises (P) Ltd.:
The tribunal observed that the seized documents were related to M/s Inspiration Enterprises (P) Ltd., and any higher amount to be assessed should be done in the case of M/s Inspiration, not the assessee. The tribunal found the CIT(A)'s direction to take remedial action in the case of M/s Inspiration justified, reinforcing that the addition of ?7,98,880/- in the assessee's case was unwarranted.

5. Charging of Interest Under Sections 234A, 234B, and 234C:
The assessee contested the charging of interest under sections 234A, 234B, and 234C. The tribunal did not provide specific details on this issue, indicating that the primary focus was on the addition of ?7,98,880/-. Given the deletion of the addition, the charging of interest would likely be reconsidered accordingly.

Conclusion:
The tribunal set aside the lower authorities' orders and deleted the addition of ?7,98,880/- in the hands of the assessee. The grounds of the appeal were allowed, and the judgment emphasized the importance of accurate reconciliation of seized documents and the correction of errors in surrendered amounts. The tribunal's decision underscored that mere estimation during a search cannot be the sole basis for additions without proper verification and reconciliation.

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