2024 (3) TMI 1065 - AT - Income Tax

Unexplained opening balance of cash - unaccounted business receipts - Addition based on seized documents - assessee did not submit such details and failed to substantiate it claim with any supporting documents during the assessment proceedings - HELD THAT - Admittedly, the documents seized are not showing that the opening balance of ₹ 8.28 lakhs belongs to the beginning of the year, the documents seized is for part of the year. Therefore, the opening balance is result of the transaction of the year. Evident from the statement recorded of various persons and the document seized. The opening balance is stated to be a cash balance lying with the office of the 3/10/2020 at Mahape. The non-production of the documents for the full year cannot disentitle the assessee of the result of the transactions during the year. It is not the claim of the AO opening balance shown by the assessee on 3/10/2020 is higher than the amount of disclosure made or such balance as on 3/10/2020 is not available with the assessee from accounted source as well as from disclosure taken together.Assessee has already offered ₹ 27.74 crores, which is not denied. Therefore, assessee cannot be denied capitalization of such disclosure already made. Naturally, income will have the acquisition of the asset in the form of advances, cash on hand, and other assets. Statement recorded u/s 132 (4) of the staff, the director of the company and investigation/examination of the details during assessment proceedings categorically shown that the above sum is standing as opening balance in the seized documents as on 3/10/2020. On the issue of telescoping, honourable Supreme Court in S. NELLIAPPAN 1967 (5) TMI 6 - SUPREME COURT has categorically held that telescoping is a question of fact. Therefore, it is for the revenue to prove that the fund flow statement shown by the assessee is factually incorrect. It is for revenue to show that the telescoping is not available because amount of income earned by the assessee have already been invested in other assets. Such fact is not demonstrated before us.No infirmity in the order of the learned CIT A in granting the benefit of telescoping. Thus, taking into consideration all the factors of disclosure made by the assessee for which telescoping has been granted, fund flow statement of additional income offered consistent statement of director, staff, and submissions before the investigation Wing and the assessing officer, clearly establishes that the addition is correctly deleted. Decided in favour of assesee. Internal transfer of cash - Addition on account of internal transfers - HELD THAT - It is not shown that there is a change in the facts and circumstances of the case or any of the entries shown as internal transfer has not been recorded in one branch and other connected branch. Over and above the assessee has produced row wise and column wise transfer and receipt of fund between various entities that remains undisputed by the AO, it cannot be said that there is any income contained in the above transfer entries. In view of this, it is apparent that at least to the extent of Rs. 73,84,000/- with respect to the internal movement of funds pertaining to financial year 2020 21 relevant to impugned assessment year 2020 22, does not contain any income element. This fact has been categorically verified by the learned CIT A at least for this year Addition to be deleted. Addition on the ground that it pertains to the transaction of other concerns of the assessee group - HELD THAT - We find that only the disallowance of expenses was made and there is no separate addition further of any income. M/s. Ganadhish GNP is also assessed by The Deputy Commissioner of Income Tax, Central Circle 6 (1), Mumbai i.e., the same assessing officer who is assessing the assessee. Further, the above sum is offered by the group concerns as 'on money' received. That sister concern has in fact offered ₹ 13.65 crore 'on money' income from construction activity. Further, the claim of the assessee that sum of ₹ 3,50,000 has also been similarly assessed in the hands of M/s Roshani Enterprises, another group concern. In view of these facts, we do not find any infirmity in the order of the learned CIT A in deleting the addition of the income contained in the WhatsApp message which is already offered by the other group concern as per income, subject to verification by the ld. AO, therefore same cannot be added once again in the hands of the assessee. Accordingly, ground number 4 of the appeal is dismissed. Addition of opening cash balance - AO submits that assessee has failed to substantiate its claim with any documentary evidence that the opening balance and the receipts were out of the unaccounted income disclosed by the assessee - HELD THAT - It is fact that in search no such cash statements for other days of the year were found. Therefore, it is not an unusual presumption that those statement did not exist on the date of search. It is apparent that only the cash statement of 26/8/2020 was found. It may be possible that assessee must be maintaining all these statements for eachday, and which would be reported to the director of the company. However, that cannot go against the assessee that why cash statements of other days are not found. It is also the fact that for assessment year 2018 19 in assessment order dated 31/3/2023, AO has accepted that there are internal transfers of cash from one branch of the assessee to the other branch of the group. It is also the claim of the AO that no cash was seized of that magnitude during search. We find that search took place on 23/9/2021 and this Statement was found for the day 26/8/2020. Time of more than 11 months elapsed between the date of cash statement and the date of search. Naturally, such a magnitude of cash, which was recorded on 26/8/2020, could not have been found on the date of search on 23/9/2021. The reasons given by the learned CIT A in paragraph number 12 of his order is also sustainable. In view of this, we confirm the order of the learned CIT A in deleting the addition made by the learned assessing officer based on the cash statement pertaining to 26/8/2020. Accordingly, ground number 5 of the appeal stands dismissed. Addition u/s 69C - AO has made addition of the opening balance as well as the receipt as undisclosed income of the assessee and in the same document there are references of the expenditure, he further added such expenditure u/s 69C - HELD THAT - When there is an addition under section 69C of the act such unexplained expenditure, which is deemed the income of the assessee, should not be allowed as a deduction under any head of income. In the present case, assessee has incurred certain expenditure, which is found during search in the seized documents, the seized documents also show the amount of undisclosed income and the amount of expenditure incurred for earning such income. In those circumstances, the disclosure of undisclosed income shows the source of such expenditure. Therefore, naturally net income in the seized document can be assessed as income. If the approach of the ld. AO is accepted then in such case, Income and its application both are taxable as income. This is not correct. In view of this we do not find any infirmity in the order of the learned CIT A in deleting the addition. Addition based on seized document - During search WhatsApp image was found from the mobile phone which is an excel sheet where the name of various brokers, the rate of the land, number of cases handled by each of the broker and amount receivable for the transaction and total amount received until date along with the outstanding balance is mentioned - HELD THAT - The explanation of the assessee before the AO was same, such statement was also confirmed by the broker, the land transferred to the various parties did not belong to the assessee therefore naturally the sale consideration of that land could not be the income of the assessee. As the land does not belong to the assessee the rates mentioned in the column number 2 of the seized documents is irrelevant for the taxation in the hands of the assessee As the land does not belong to the assessee the rates mentioned in the column number 2 of the seized documents is irrelevant for the taxation in the hands of the assessee. The assessee has shown that this is the amount payable by these unit acquired to the MIDC, and sample cheques details is provided. Therefore, as the land is transferred by MIDC to the respective unit holders through all these brokers for which the assessee has received consultancy fees of ₹ 100,000/- for each unit, the whole of the sale transaction of the land cannot be taxed in the hands of the assessee. Merely because the assessee failed to provide the documentary evidence of payment of cheque by the unit acquired to the MIDC, the whole income cannot be taxed in the hands of the assessee when assessee is not shown to be the owner of such land. In the hands of the assessee, a sum of Rs. 2.81 crores have already been taxed on basis of this document. In view of this we do not find any infirmity in the order of the learned CIT A in deleting the total addition in the hands of the assessee. Allowance of expenses @ 30% out of unaccounted business receipts offered - HELD THAT - CIT A has categorically noted that assessee has incurred expenditure in its regular business at the rate of 28% to 62% and average net profit for all the years' amounts to 53% of the gross receipts. Further in the seized documents, unaccounted receipts were found of ₹ 23.67 crores and unaccounted expenditure was found at ₹ 7.19 crores which is almost 30.03% of the unaccounted receipts and therefore the claim of the assessee is reasonable and can be accepted that the gross receipts 30% of deduction should be allowed for the expenditure incurred by the assessee. Accordingly, we do not find any infirmity in the order of the learned CIT A which is based on the financial statements of the assessee for past year as well as based on evidence found during search in the seized material. Accordingly, ground number 10 of the appeal of the AO is dismissed. Addition on transaction not materialized - HELD THAT - Whether the transaction has materialized or not would be evident if Mr. Umang Jain has paid cheque of ₹ 5 lakhs and ₹ 135,000/- for the above land purchase. If such cheques were paid, it would be known for what land the above transaction has happened, and the addition in the hands of the assessee to the extent of ₹ 380,000 would be justified. However, such taxation would only happen if the transaction has materialized. Therefore, this issue needs an examination. In view of this, we restore this addition back to the file of the learned assessing officer with a direction to the assessee to substantiate its stand that the transaction has not materialized.

Summary

Issues Involved:
1. Addition of unexplained opening balance of cash.
2. Addition of internal transfer of cash.
3. Transactions from mobile document belonging to a third party.
4. Addition related to group concerns' transactions.
5. Addition of opening cash balance.
6. Addition u/s 69C for unrecorded expenses.
7. Addition of unaccounted business receipts.
8. Addition of unaccounted business income.
9. Allowance of expenses out of unaccounted business receipts.
10. Interest u/s 234A, 234B, and 234C.

Summary:

Issue 1: Addition of unexplained opening balance of cash
The AO added Rs. 8,28,903 as unexplained opening balance, citing lack of substantiation by the assessee. The CIT(A) deleted the addition, noting the assessee's explanation that the balance was from previously disclosed unaccounted income, supported by fund flow statements. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the telescoping of disclosed income.

Issue 2: Addition of internal transfer of cash
The AO added Rs. 7,384,000 for internal cash transfers, which the CIT(A) deleted, recognizing them as internal fund movements between branches. The Tribunal confirmed the deletion, noting the AO's acceptance of similar transactions in earlier years and the absence of any income element in the transfers.

Issue 3: Transactions from mobile document belonging to a third party
The AO added Rs. 16,24,51,306 as unaccounted business income based on a document retrieved from the director's mobile, allegedly belonging to Mr. Shailesh Patil. The CIT(A) deleted the addition, noting the document's ownership by Mr. Patil and the lack of evidence linking it to the assessee. The Tribunal upheld this decision.

Issue 4: Addition related to group concerns' transactions
The AO added Rs. 33,00,000 and Rs. 3,50,000, which the CIT(A) deleted, finding the amounts pertained to other group concerns. The Tribunal confirmed the deletion, noting the amounts were already included in the income of the respective group concerns.

Issue 5: Addition of opening cash balance
The AO added Rs. 13,41,22,306 as unexplained opening cash balance. The CIT(A) deleted the addition, accepting the assessee's explanation that the balance was from previously disclosed unaccounted income. The Tribunal upheld this deletion, citing the absence of any evidence to the contrary.

Issue 6: Addition u/s 69C for unrecorded expenses
The AO added Rs. 5,48,30,909 u/s 69C for unrecorded expenses. The CIT(A) deleted the addition, noting the expenses were part of the gross receipts already taxed. The Tribunal upheld this decision, finding no infirmity in the CIT(A)'s reasoning.

Issue 7: Addition of unaccounted business receipts
The AO added Rs. 13,09,93,119 based on seized documents. The CIT(A) deleted the addition, accepting the assessee's explanation that the amounts were cheque payments to MIDC, not cash receipts. The Tribunal upheld this deletion.

Issue 8: Addition of unaccounted business income
The AO added Rs. 5,95,00,000 based on loose papers. The CIT(A) confirmed Rs. 85,00,000 and Rs. 5,10,00,000 as unaccounted business income. The Tribunal restored the issue to the AO for re-examination, directing the assessee to produce evidence supporting its claim.

Issue 9: Allowance of expenses out of unaccounted business receipts
The AO disallowed the assessee's claim of 30% expenses out of unaccounted business receipts. The CIT(A) allowed the claim, noting the assessee's historical expense ratio and evidence from seized documents. The Tribunal upheld this decision.

Issue 10: Interest u/s 234A, 234B, and 234C
The CIT(A) confirmed the AO's action of levying interest u/s 234A, 234B, and 234C. The Tribunal noted this issue as consequential and dismissed it.

Conclusion:
The Tribunal upheld most of the CIT(A)'s deletions and remanded some issues back to the AO for re-examination. The appeal by the AO was dismissed, and the assessee's appeal was partly allowed for statistical purposes.