1998 (9) TMI 106 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the addition of Rs. 1,47,91,840 to the assessee's income.
2. Justification for the initial investment addition of Rs. 15 lakhs.
3. Validity of deductions claimed by the assessee.

Summary:

Legitimacy of the Addition of Rs. 1,47,91,840:
The assessee, engaged in yarn trading and manufacturing of grey cloth, was subjected to a search u/s 132 on 6th Oct., 1995, leading to the discovery of unaccounted investments and incriminating documents. The assessee disclosed Rs. 17 lakhs as concealed income, with an additional Rs. 2 lakhs by his brother. The AO computed the undisclosed income at Rs. 1,47,91,840, largely based on a piece of paper indicating unaccounted income from the sale of a flat in Hare Krishna Apartment. The assessee admitted to receiving "on money" for the project but argued that the AO's additions were based on assumptions and lacked justification. The Tribunal held that while the AO was justified in estimating income based on the seized paper, only the profit from unaccounted receipts could be taxed, not the entire receipts. The Tribunal found the AO's addition of Rs. 1,47,91,840 unjustified and directed its deletion.

Justification for the Initial Investment Addition of Rs. 15 lakhs:
The AO proposed an addition of Rs. 15 lakhs for the initial investment in the project. The assessee contended that there was no basis for this addition. The Tribunal agreed, noting that the AO failed to provide evidence for the initial investment claim. Even if such an investment was made, it would be deductible u/s 37 as a business expense.

Validity of Deductions Claimed by the Assessee:
The assessee sought deductions for payments made to previous organizers and for land and construction costs. The AO did not allow these deductions. The Tribunal found that the payments were substantiated by evidence, including VDIS certificates and valuation reports. The Tribunal held that these costs should be deducted from the unaccounted receipts to determine the profit, which would be less than the Rs. 17 lakhs disclosed by the assessee. The Tribunal emphasized that only the profit from unaccounted receipts could be taxed, aligning with the principle that undisclosed income, not receipts, is taxable u/s 158BC.

Conclusion:
The Tribunal allowed the appeal, directing the deletion of the addition of Rs. 1,47,91,840 and upholding the assessee's disclosed income of Rs. 17 lakhs as the taxable undisclosed income for the block period.