2023 (1) TMI 760 - AT - Income Tax

Addition under the head short term capital gains - assessee received some additional onmoney payments - CIT-A deleted the addition holding that the Department did not have corroborative evidence to back the narration found in the parallel tally account seized during search - HELD THAT - Burden is now on the AO to prove that the assessee received some additional onmoney payments and considering the facts circumstances of the case we are of the view that the AO has not brought sufficient material on record against the assessee warranting the addition. Addition made by the AO is based on the assumption that Mr.Thampi has admitted transactions relating to other concerns, and therefore the impugned transaction should have taken place for what he found in the entry. This cannot be the right approach for making an addition when no other corroborative evidence is brought on record to show that the transaction happened for a higher amount and there were on-money transactions. In our view the CIT(A) has looked into the facts and circumstances of the case and has given a clear finding while deleting the additions. We therefore see no reason to interfere with the order of the CIT(A) with regard to this issue. Addition on account of loans taken from the Director Shri. C. C. Thampi on the ground that the source is not properly explained - AO has made the addition on the ground that the assessee had not furnish the relevant details to substantiate the source - HELD THAT - AO has not considered the submissions of the assessee that all contributions are made through proper banking channel as a foreign remittance from abroad and that Mr.Thampi is working abroad for last 30 years having involved in many business ventures in middle east. We notice that the assessee had submitted the annual reports of various entities in which Mr.Thampi is involved and the AO has rejected these on the ground that the annual reports pertain year ended 31.03.2012 and cannot considered for contributions made during 2007. AO has also alleged that the assessee is producing irrelevant details to divert the issue. We are unable to appreciate this stand of the AO for the reason that the assessee has submitted evidences in the form of bank statements where the entries of receipt on various dates are reflected and the annual reports are submitted to substantiate the various business interest of Mr.Thampi. These evidences cannot be rejected without verification and without any adverse finding to the contrary. AO has not conducted any further enquiry but has made the addition by stating that the credit worthiness is not proved in the manner in which it ought to have been proved. CIT(A) in our view has considered the facts and circumstances of the case correctly while deleting impugned addition and therefore we see no reason to interfere with the decision of the CIT(A). - Decided against revenue.

Issues Involved:

1. Deletion of addition under short-term capital gains.
2. Presumption of truth for entries in seized books of accounts.
3. Reliance on seized documents for other companies.
4. Communication of adverse contents in seized material to the assessee.
5. Basis for rejection of relevant entry in seized material.
6. Delay between payment of on-money and date of sale deed.
7. Addition towards unexplained credits under section 68 of the Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Short-term Capital Gains:
The CIT(A) deleted the addition under short-term capital gains, holding that the Department did not have corroborative evidence to back the narration found in the parallel tally account seized during the search. The AO had added Rs.7,59,54,600/- as short-term capital gain based on an entry in the Tally Accounting Software of Kent Constructions Pvt. Ltd., which indicated a higher consideration for the land sold by the assessee. The CIT(A) found that apart from the entry in the tally package, there was no corroborating evidence to prove that "on money" was paid to the assessee. The CIT(A) noted anomalies in the entry, such as the discrepancy between the recorded transaction and the alleged ledger entry, and concluded that the entries in the alleged ledger account were unreliable.

2. Presumption of Truth for Entries in Seized Books of Accounts:
The CIT(A) did not appreciate that entries in the books of accounts seized during a search are presumed to be true as per section 132(4A) of the Act. The AO had relied on the seized documents to make the addition, but the CIT(A) found that the AO did not provide the alleged incriminating material to the assessee, which is against the principles of natural justice. The CIT(A) emphasized that the burden was on the AO to prove that the assessee received additional "on-money" payments, which was not sufficiently established.

3. Reliance on Seized Documents for Other Companies:
The CIT(A) did not appreciate that the seized documents relied on by the AO were the basis for admission of receipt of on-money by two other companies promoted by Shri C.C. Thampy in their dealings with M/s. Kent Constructions (P) Ltd. The CIT(A) noted that the AO had not brought anything on record to show that the transaction actually happened for the amount mentioned in the entry and that the AO did not establish the nexus that the entry found during the course of the search belonged to the assessee.

4. Communication of Adverse Contents in Seized Material to the Assessee:
The CIT(A) pointed out that the adverse contents in the seized material, based on which the addition was made, were communicated to the assessee, and the assessee should have given a proper explanation before the AO. The CIT(A) found that the AO did not share the actual details of the material seized with the assessee, denying the assessee a proper opportunity to confront the allegations.

5. Basis for Rejection of Relevant Entry in Seized Material:
The CIT(A) mentioned that the relevant entry in the seized book refers to the payment of Rs. 2.2 crores by cheque from the account of Kent Constructions. The CIT(A) found that the AO had not made any finding of any cheque payment in the assessment order and that the decision of the CIT(A) was not based on any relevant material. The CIT(A) concluded that the entries in the alleged ledger account were unreliable and that the AO was not justified in basing his assessment on this entry alone.

6. Delay Between Payment of On-money and Date of Sale Deed:
The CIT(A) noted that there was a delay of six months between the payment of on-money as per the seized material and the date of the sale deed. The CIT(A) found it improbable and concluded that the AO had not explained why the alleged amount was received by Shri C.C. Thampi on behalf of the assessee company only and not some other concern.

7. Addition Towards Unexplained Credits under Section 68 of the Act:
The AO made an addition of Rs.3,44,00,000/- as unexplained credits under section 68 of the Act in the hands of the assessee, on the ground that the creditworthiness of Shri. C. C. Thampi was not properly established. The CIT(A) accepted the submissions of the assessee that the contributions were through proper banking channels and supported by corresponding entries in the bank statement of Mr.Thampi. The CIT(A) held that the AO was not justified in adding the amount of loan credit brought in by the Director of the company, Shri C.C. Thampi, in the hands of the appellant company.

Conclusion:
The Tribunal upheld the CIT(A)'s findings, noting that the AO did not bring sufficient material on record against the assessee to warrant the addition. The Tribunal found no reason to interfere with the CIT(A)'s order regarding both the issues of short-term capital gains and unexplained credits under section 68. The appeal filed by the revenue was dismissed.

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