2022 (3) TMI 1068 - AT - Income Tax

Undisclosed cash credit - unexplained cash deposits made in his various bank accounts during the previous year - HELD THAT - Since, the AO has accepted the turnover as well as Net-Profit shown by the appellant in his return of income, merely on the basis of making of deposits in bank accounts, no addition can be sustained specially in a circumstance when the appellant has fully explained the sources of each and every deposits made in his bank accounts and has also substantiated such sources with the documentary evidences. We find that by furnishing the various documentary evidences, the appellant has satisfactorily explained each and every cash deposit made by him in his bank accounts, AO could neither find any specific defect or discrepancy in the explanation of the appellant or any of the documentary evidences so furnished by him and also during the course of the survey proceedings carried out in the assessee s premises, no incriminating material for the year under consideration was found and even the AO has not made reference of any of the materials found during the course of the survey. We also find from the various statements furnished by the assessee that out of the total cash deposits made by the assessee in his bank accounts during the relevant previous year, cash deposits have been made out of receipts from customers towards sales/ booking advances and the remaining cash deposits have been made out of the cash withdrawals from bank accounts themselves. Find no infirmity in the finding given by the ld. CIT(A) for deleting the addition made by the AO on account of unexplained cash deposits u/s 68. Additional surrendered income not shown by the assessee in ITR - HELD THAT - We find that in the instant cases, the ld. AO based upon the material gathered during the course of the survey, has made separate additions and therefore, merely on the basis of the admission of the assessee, without having any other corroborative material on record, no addition could have been made. Accordingly, we find no infirmity in the findings of the CIT(A) in deleting the additions on this count for all the three assessment years. Reopening of assessment u/s 147 - As argued AO was not having/recorded any reason to believe that any income chargeable to tax had escaped assessment - assessee has also challenged the Notice u/s. 148 on the ground that he was not made aware of the purpose of the Notice whether it was for assessment or reassessment or re-computation of the income/loss/depreciation - HELD THAT - We note that in the case of the assessee, a Survey under s.133A had taken place on 21-09- 2012 and based upon the findings of the survey, a notice under s.148 was duly issued to the assessee after recording the reasons - AO has clearly mentioned in the body of the assessment order that before issuance of the notice, reasons were duly recorded - no infirmity in the action of the AO in invoking the provisions of s.148 in the instant case. We also find merit in the findings given by CIT(A) that since in the instant case, the assessee did not furnish a valid return, within the time prescribed in the notice u/s 148, there was absolutely no necessity for the ld. AO to issue any notice under s.143(2) of the Act to the assessee. - Decided against assessee. Addition of excess expenditure over income - HELD THAT - Appellant could be able to establish that the sum was received by him out of realization from customers - we also find that by way of furnishing the date wise details of cash withdrawals made by the appellant from his various bank accounts along with the copies of the bank statements, the appellant could said to able to substantiate his claim of meeting the sources of payments noted down in the diaries out of the cash so withdrawn. Upon going through the impounded diaries, the claim of the appellant to the effect that in such diaries, on payment sides, some jottings were made which were not pertaining to payments made to any outsiders, but were only pertaining to the transactions taken in-house i.e. between the clerk/cashier recording the transactions and the appellant or his wife. Thus, in our considered view, the appellant could be able to explain the sources of entire cash payments found noted in the diaries, for the assessment year under consideration. By furnishing ample of the documentary evidences, the appellant could said to be able to explain the sources of receipts jotted down in the diaries. Even otherwise, we find that while making the impugned addition, AO himself has admitted the sources of receipts in the hands of the appellant as noted down in the diaries. AO has made addition only because the sum of receipts made in such diaries was lesser than the sum of the payments so noted. We find that on the basis of the financial statements for the year under consideration, as furnished by the appellant, there is no case of excess or unexplained payment over the explained sources of receipts - In our opinion, the addition so made by the AO has no substance and the same has rightly been deleted unexplained payment over the explained sources of receipts. In such view of matter, in our opinion, the addition so made by the AO has no substance and the same has rightly been by the ld. CIT(A). Enhancement of income made by the CIT(A) - HELD THAT - We find that the assessee is in the business of real estate development and in such business, without finding any instance of receipt of any on-money, suppression of sales cannot be estimated. We note that neither the ld. AO nor the ld. CIT(A) could bring on record any specific instance in which the sales were not found recorded or fully recorded in the books of account of the assessee. We find that in the instant case, the assessee himself while furnishing his returns of income, has declared additional income . If the total taxable business income shown by the assessee in his returns of income are compared with the total turnover of the assessee, for A.Y. 2012-13, it works out to be 13.73% and for A.Y. 2013-14, the same works out to be at 22.43% which is quite higher than that estimated by the ld. CIT(A) at the flat rate of 15%. Thus, we find no merit in the action of the ld. CIT(A) in estimating the turnover as well as the net profit rate. Accordingly, the enhancement y made by the ld. CIT(A) for A.Y. 2012-13 and A.Y. 2013-14, are fully deleted Ad-hoc disallowance of various expenses claimed by the assessee - HELD THAT - Assessee has furnished the copies of the ledger accounts relating to the expenditure - DR could not find any specific defect or discrepancy in the various documentary evidences furnished by the assessee before us. We also find that the assessee has claimed expenditure in his Profit Loss Accounts in respect of project development expenses, salary to staff, office rent, power electricity, bank charges, brokerage Commission, advertisement etc. as per the details given in the Schedules to the audited Profit Loss Accounts filed before us - Nature of all the expenses are those which are necessarily required to be incurred by a real estate developer during the course of his business. Assessee has shown net profit @13.73% for A.Y. 2012-13 and @22.43% for A.Y. 2013-14 and considering the nature of business of the assessee, the same can be said to be quite reasonable. We find that during the Remand Proceedings, the ld. AO could not bring on record any specific expenditure which according to her was not allowable or was not supported by documentary evidences. The ld. AO merely on the guess work, has made the disallowance which is not permissible in the eyes of the law. Thus, we find no infirmity in the action of the ld. CIT(A) in deleting the entire ad-hoc additions. Bogus sundry creditors and advances against properties shown by the assessee - HELD THAT - Appellant could be able to establish the receipt of advances from various customers during the year under consideration. The appellant submitted that during the course of remand proceedings, he had furnished the details of advances lying as opening balance, details of advances received during the respective years giving break-up of advances received through banking channels and in the form of cash and as also, closing balances of creditors before the AO. Such details were also furnished before us during the course of the appellate proceedings. We also find merit in the contention of the appellant that since for the earlier years, he had opted for presumptive taxation under section 44D of the Act and therefore, he was not statutorily required to maintain any books of account but, mere non-maintenance of books of account for earlier years cannot, ipso facto, result into non-acceptance of claim of the appellant as regard to existence of the opening balance of creditors. The provisions of section 68, although not invoked properly by the AO without examining any books of account, also require the AO to examine each and every credit entry independently and any ad-hoc lump-sum addition, by taking a certain percentage of the total creditors, is neither warranted nor permissible Assessment order passed u/s 144 of the Act passed by the AO without serving any valid notice under s.143(2) - HELD THAT - We find ourselves in agreement with the findings of the ld. CIT(A) that during the course of the assessment proceedings as well as the first appellate proceedings, the assessee was given sufficient opportunity of being heard. We also find that on merits, the assessee has already been given substantial relief in respect of the entire additions made by the ld. AO in his order of assessment for A.Y. 2013-14 and therefore, the ground raised by the assessee has become academic in nature.

Summary

Issues Involved:
1. Deletion of addition on account of undisclosed cash credit.
2. Deletion of addition on account of additional surrendered income not shown in ITR.
3. Enhancement of income by CIT(A) for A.Y. 2012-13 and A.Y. 2013-14.
4. Deletion of addition on account of excess expenditure over income.
5. Deletion of addition on account of ad-hoc disallowance of various expenses.
6. Deletion of addition on account of bogus sundry creditors and advances against properties.
7. Validity of reassessment proceedings under section 148.
8. Validity of assessment order under section 144 without serving notice under section 143(2).

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Undisclosed Cash Credit:
The Revenue challenged the deletion of ?2,85,38,400/- made by the AO on account of unexplained cash deposits. The CIT(A) found that the assessee had explained the source of each cash deposit with documentary evidence, and the AO did not find any specific defect in these explanations. The Tribunal upheld the CIT(A)'s decision, noting that the AO's addition was based solely on ITS without any adverse material. The assessee's turnover and net profit were accepted by the AO, and no incriminating material was found during the survey.

2. Deletion of Addition on Account of Additional Surrendered Income Not Shown in ITR:
The Revenue's appeal against the deletion of ?30,00,000/-, ?50,00,000/-, and ?1,40,04,961/- for A.Y. 2011-12, 2012-13, and 2013-14 respectively was dismissed. The CIT(A) held that the surrendered income was already included in the assessee's declared income, and no separate addition was warranted. The Tribunal agreed, emphasizing that statements recorded under section 133A have no evidentiary value without corroborative material.

3. Enhancement of Income by CIT(A) for A.Y. 2012-13 and A.Y. 2013-14:
The CIT(A) had enhanced the income by estimating turnover and net profit, rejecting the assessee's books of account. The Tribunal found that the assessee's declared net profit rates were reasonable and higher than the CIT(A)'s estimates. It deleted the enhancements of ?25,88,306/- and ?11,96,353/- for A.Y. 2012-13 and A.Y. 2013-14 respectively.

4. Deletion of Addition on Account of Excess Expenditure Over Income:
The AO had added ?20,18,30,178/- based on diaries found during the survey, indicating higher expenditures than income. The CIT(A) and the Tribunal found that the diaries did not represent complete records and that the assessee had explained the sources of expenditures with documentary evidence. The addition was deleted.

5. Deletion of Addition on Account of Ad-hoc Disallowance of Various Expenses:
The AO had made ad-hoc disallowances of ?1,25,79,722/- and ?1,08,26,047/- for A.Y. 2012-13 and 2013-14 respectively. The CIT(A) deleted these disallowances, and the Tribunal upheld the deletion, noting that the AO's disallowances were without any cogent basis and the assessee had provided detailed explanations and documentary evidence for the expenses.

6. Deletion of Addition on Account of Bogus Sundry Creditors and Advances Against Properties:
The AO had made ad-hoc additions of ?9,10,11,278/- and ?4,96,06,927/- for A.Y. 2012-13 and 2013-14 respectively. The CIT(A) deleted these additions, finding that the assessee had substantiated the creditors with detailed explanations and documentary evidence. The Tribunal upheld the deletion, noting that the AO had not found any specific discrepancies in the evidence provided by the assessee.

7. Validity of Reassessment Proceedings under Section 148:
The assessee challenged the reassessment proceedings on the ground that the AO did not have/record any reason to believe that income had escaped assessment. The CIT(A) and the Tribunal found that the AO had recorded reasons and issued notice under section 148 appropriately. The reassessment proceedings were upheld.

8. Validity of Assessment Order under Section 144 Without Serving Notice under Section 143(2):
The assessee contended that the assessment order under section 144 was invalid as no notice under section 143(2) was served. The Tribunal found that sufficient opportunity was given to the assessee during the assessment and appellate proceedings. On merits, substantial relief was already granted to the assessee, making the ground academic. The ground was dismissed.

Conclusion:
The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals, upholding the CIT(A)'s decisions on various issues, including the deletion of additions on account of undisclosed cash credit, additional surrendered income, ad-hoc disallowances, and bogus sundry creditors, while also addressing the validity of reassessment and assessment proceedings.