2018 (1) TMI 1747 - AT - Income Tax

Addition of cash payment made for acquisition of Studio Aesthetique - addition has been made on the basis of documents seized and voluntarily admitted by the assessee and her mother during the search - CIT(A) deleted addition - HELD THAT - We find that as evident in the material obtained by the Revenue during search and seizure, it was only with reference to the search and seizure material that Smt. Madhu Chopra gave a specific amount to various heads wherein the undisclosed income had been utilized. The assessee had also separately accepted the same. Hence, it cannot be said that this addition is not based upon any incriminating material found or searched. The so called retraction is by the mother of the assessee and the AO is correct in finding that there is no retraction whatsoever by the assessee. Hence, CIT (Appeals) has totally erred when he has held that the AO has made this addition without any evidence or arbitrary. CIT (Appeals) has himself erred and contradicted himself when he observes that no addition can be made on the basis of the loose papers. Thus, on one hand she is stating that there is no material and on the other hand she is stating that there are materials in the form of loose papers. Decided in favour of assessee. Unaccounted/undisclosed income in the form of Gifts - We find that it is clear that the assessee has received watch worth of Rs. 40 lacs from the same company and in the same agreement in which she has undertaken advertisements and promotional activities and has received remuneration of Rs. 1.4 crores. Hence, the addition as perquisite u/s. 28(4) has no infirmity. Furthermore, the statement of the assessee that the actual value of the watch is much less has rightly been rejected by the CIT(Appeals) has no corroboratory evidence in this regard has been produced. Accordingly, we do not find any infirmity in the order of the ld. Commissioner of Income Tax (Appeals) in this regard. Assessment u/s 153A - This addition is not based upon any incriminating material found during search for the document relied upon were impounded during survey. We find that in this case, the assessee has filed original return on 29.09.2008. Subsequently, this assessment has been done u/s. 153A pursuant to search and seizure. Now it is the settled law that in the case of CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. 2015 (5) TMI 656 - BOMBAY HIGH COURT dehorse any seized material/incriminating material found during search, addition in the case of abated assessments u/s.153A is not sustainable. We further note that this additional ground has been raised for the first time. It also needs reference to the factual records. Since, it is an important legal ground and goes to the root of the matter, we admit the additional ground and remit the issue to the file of the AO. The Assessing Officer is directed to consider the issue afresh.

Summary

Issues Involved:

1. Deletion of addition of Rs. 50 lacs by CIT(A) as undisclosed income for cash payment in acquisition of Studio Aesthetique.
2. Addition of Rs. 40 lacs as unaccounted income in the form of gifts from LVMH Watch and Jewellery India Pvt. Ltd.
3. Addition of Rs. 15 lacs as unaccounted income from professional remuneration from Ramee Royal Hotel, Dubai.
4. Addition of Rs. 4,64,000/- for perquisites from Ramee Royal Hotel, Dubai.
5. Addition of Rs. 14 lacs for notional rent for penthouse at Navkaran building.

Detailed Analysis:

1. Deletion of Addition of Rs. 50 lacs:

The Revenue challenged the CIT(A)'s decision to delete the addition of Rs. 50 lacs, which was initially added as undisclosed income based on documents seized during a search and the voluntary admission by the assessee and her mother. The CIT(A) had accepted the assessee's explanation that no cash payment was made for the acquisition of Studio Aesthetique, referring to the lack of documentary evidence and relying on the Supreme Court decision in CIT vs. Kalyanasundaram. However, the Tribunal found that the addition was based on incriminating material found during the search, and the retraction by the assessee's mother was not supported by the assessee herself. The Tribunal thus set aside the CIT(A)'s order and restored the addition made by the Assessing Officer.

2. Addition of Rs. 40 lacs as Unaccounted Income:

The Assessing Officer added Rs. 40 lacs as income, considering it as a perquisite under section 28(iv) of the Income Tax Act, as it was received as part of an endorsement agreement with LVMH Watch and Jewellery India Pvt. Ltd. The assessee claimed it was a gift received out of love and affection, which was rejected by the Assessing Officer on the grounds that a company, being an artificial person, cannot have such emotions. The CIT(A) upheld the addition, and the Tribunal agreed, noting that the watch was received as part of the same agreement under which the assessee was remunerated, and no evidence was provided to support the claim of a lower value for the watch.

3. Addition of Rs. 15 lacs as Unaccounted Income:

The Assessing Officer made an addition of Rs. 15 lacs based on seized documents indicating professional receipts from Ramee Royal Hotel, Dubai, which were not accounted for in the assessee's books. The CIT(A) confirmed this addition. However, the Tribunal noted that the addition was not based on any incriminating material found during the search, as the documents were impounded during a survey. The Tribunal remitted the issue back to the Assessing Officer to reconsider in light of the legal precedent set by the Bombay High Court in CIT vs. Continental Warehousing Corporation.

4. Addition of Rs. 4,64,000/- for Perquisites:

Similarly, the addition of Rs. 4,64,000/- for perquisites in the form of air tickets paid by Ramee Royal Hotel was also not based on incriminating material found during the search. The Tribunal remitted this issue back to the Assessing Officer for fresh consideration, following the same reasoning as in the previous issue.

5. Addition of Rs. 14 lacs for Notional Rent:

The Assessing Officer added Rs. 14 lacs as notional rent for the penthouse at Navkaran building, treating it as income from house property, as it was not used for business purposes. The CIT(A) upheld this addition. The assessee raised an additional ground arguing that this addition was not based on any incriminating material. The Tribunal admitted this ground and remitted the issue back to the Assessing Officer for reconsideration in accordance with the legal precedent.

Conclusion:

The Tribunal allowed the Revenue's appeal regarding the Rs. 50 lacs addition and remitted the assessee's appeal issues to the Assessing Officer for fresh consideration, emphasizing the requirement for additions to be based on incriminating material found during the search.