2023 (11) TMI 1327 - AT - Income Tax

Addition u/s 68 r/w section 115BBE - assessees declared undisclosed incomes as admitted in their respective returns filed in response to notices u/s 153A - while the assessee declared impugned income as Income from medical business/ profession , the AO characterized it as income u/s 68 read with section 115BBE because the assessee was unable to put forth any evidence in support of income from medical business/profession - CIT(A) deleted addition - HELD THAT - As in own case 2023 (3) TMI 1002 - ITAT INDORE for AY 2013-14 the story in that case is identical to present case before us. In that case also, the assessee surrendered income during survey; declared in return; allowed AO to complete assessment; and thereafter attempted to make withdrawal of income broadly on similar grounds/pleas as in the present case before appellate forum. This shows that the assessee-group is resorting to same practice i.e. making surrenders before search/survey teams; then disclosing income in return, maintaining silence till completion of assessment, thus stopping AO from making further probe; and ultimately attempting before judicial forums to get out of undisclosed income . We are not inclined to accept this kind of strategy. Case of assessee does not involve any issue like exempted/non-taxable income wrongly assessed by AO or any statutory deduction/relief available to assessee remained unclaimed before AO; the case is very much different in which not only the assessee is trying to undo his own action but also dislodge the entire action/adjudication done undertaken by search- authorities as well as AO. Also CIT(A) s order is also suffering from a basic and grave fallacy. In the grounds raised by revenue, it is strongly claimed that the CIT(A) has erred in allowing assessee s claim of withdrawal of surrender without confronting AO. We find that the CIT(A) must have, before overturning AO s order on a significant issue, at least confronted the AO. Since it was not done, there is a clear case of wrong adjudication by CIT(A). We are inclined to uphold the order of AO and reverse the order of CIT(A). Ordered accordingly. Thus, the grounds of revenue, are allowed. Addition on account of notional interest income - AO has made this addition for notional/hypothetical income of interest - CIT(A) has, however, deleted addition, by observing that the AO is not justified in bringing notional/hypothetical income to tax which was never earned by assessee - HELD THAT - We agree with the view taken by Ld. CIT(A). Therefore, these grounds are dismissed. Addition u/s 69B on account of unexplained investment - reliance on seized papers found during search - HELD THAT - As decided by CIT(A) AO was not justified in making addition of presumption basis and therefore, addition made by the AO is deleted. There is lacuna in the finding of the AO who even did not made any enquiry from the owner of the cheque. The entire addition has been made on sheer assumption and presumption basis. It is settled law that AO cannot make any addition merely on the basis of suspicion, however strong it may be. The AO is not justified in presuming certain facts without having anything to corroborate - AO has invoked provisions of section 69B of the Act which can be invoked when any assessee has made investment and is found in possession of any bullion, jewellery or other valuation articles only then the amount of investment shall be treated as deemed income of the assessee, however, in the instant case no such bullion, jewellery or other valuable articles was found in possession of the appellant. Decided in favour of assessee. Addition on account of unexplained jewellery - CIT(A) allowed more credit to assessee and given relief to assessee - HELD THAT - CIT(A) has correctly worked out the quantum of credit considering various sources of acquisition of jewellery by assessee/family members and arrived at a correct quantity of final difference. In fact, the CIT(A) has also made a conclusion against assessee whereby he has directed the AO to charge capital gain tax on negative difference (shortage of gold). Thus, the order passed by CIT(A) is a well-reasoned order and does not require any interference from us. Therefore, we uphold CIT(A) s order. These grounds of revenue are thus dismissed.

Summary

Issues Involved:

1. Exclusion of undisclosed income from total income.
2. Deletion of addition on account of notional interest income.
3. Deletion of addition on account of unexplained investment in jewelry.

Detailed Analysis:

Issue 1: Exclusion of Undisclosed Income

The primary issue in the appeals was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in excluding the undisclosed income from the total income of the assessees, which was initially admitted during the search proceedings under Section 132(4) of the Income Tax Act, 1961, and subsequently declared in the returns filed under Section 153A. The Assessing Officer (AO) had assessed this undisclosed income under Section 68 read with Section 115BBE, considering it as unexplained cash credits, as the assessees failed to substantiate their claim that the income was earned from the medical profession.

The CIT(A) allowed the exclusion of this income from the total income, accepting the assessees' plea that the surrender was made under undue stress and pressure, and the cash deposits were sourced from cash in hand available as per the books of accounts. The CIT(A) relied on various judicial pronouncements and CBDT Circular No. 14, which emphasizes that officers should not take advantage of the ignorance of taxpayers. However, the Tribunal found the CIT(A)'s decision flawed, emphasizing that the assessees themselves declared the income in their returns and did not retract or challenge the inclusion during the assessment proceedings. The Tribunal upheld the AO's assessment, reversing the CIT(A)'s order, citing the Supreme Court's decision in Banna Lal Jat Construction (P) Ltd. vs. DCIT, which held that a mere retraction without evidence is not permissible.

Issue 2: Deletion of Addition on Account of Notional Interest Income

The second issue involved the deletion of an addition of Rs. 10,00,000 made by the AO on account of notional interest income. The AO had added this amount as notional income, considering the assessees maintained a huge cash balance. The CIT(A) deleted this addition, stating that notional or hypothetical income, which was never earned by the assessee, cannot be brought to tax. The Tribunal agreed with the CIT(A)'s view, dismissing the revenue's grounds on this issue.

Issue 3: Deletion of Addition on Account of Unexplained Investment in Jewelry

The third issue pertained to the deletion of additions made by the AO under Section 69A for unexplained investment in jewelry. During the search, excess jewelry was found, and the AO made additions based on the statements recorded under Section 132(4), where the assessees admitted to undisclosed investments. However, the CIT(A) provided relief by considering the explanations and evidence submitted by the assessees, including valuation reports and purchase bills, which were not considered by the AO. The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) had correctly evaluated the evidence and provided a reasoned order.

Conclusion:

The Tribunal allowed the revenue's appeals concerning the exclusion of undisclosed income, reinstating the AO's assessment. However, it dismissed the revenue's appeals regarding the deletion of notional interest income and unexplained investment in jewelry, upholding the CIT(A)'s decisions on these issues. The Tribunal emphasized the need for substantial evidence to support retractions from admissions made during search proceedings and the importance of considering documentary evidence in assessing unexplained investments.