2001 (2) TMI 323 - AT - Income Tax

Summary

Issues Involved:
1. Unexplained credits and finance broking business.
2. Addition on account of shares found during search.
3. Addition on account of furniture/fixtures.
4. Addition on account of interest payable to various parties.
5. Deduction of business expenses as per seized diaries.

Summary:

1. Unexplained Credits and Finance Broking Business:
During the course of assessment proceedings, the AO scrutinized two diaries (Nos. 27 and 31) found during a search u/s 132, noting that the assessee had given loans to many persons. The assessee contended that he acted only as a finance broker, arranging finance from lenders for borrowers, and received brokerage as reflected in diary No. 31. The AO rejected this contention, holding that the entire finance belonged to the assessee due to the lack of details and confirmations from the lenders, resulting in an addition of Rs. 2,52,17,000 for unexplained credits. The CIT(A) partially agreed but restricted the addition to the peak amount in diary No. 27. The Tribunal found that the seized diaries were genuine u/s 132(4A) and supported the assessee's claim of being a broker. Consequently, the Tribunal deleted the addition of Rs. 2,52,17,000.

2. Addition on Account of Shares Found During Search:
Shares valued at Rs. 18,900, found during the search, were in the names of third parties. The assessee claimed these shares were given to him for sale by friends. Despite confirmations from these individuals, the AO added Rs. 18,900, assuming the assessee purchased the shares. The Tribunal found no evidence of purchase by the assessee and deleted the addition.

3. Addition on Account of Furniture/Fixtures:
The AO added Rs. 2 lakhs for undisclosed investment in furniture and fixtures based on the assessee's statement during the search. The CIT(A) confirmed the addition. The Tribunal upheld the addition, noting the assessee's admission and the lack of evidence to support the claim of no such investment.

4. Addition on Account of Interest Payable to Various Parties:
The AO added Rs. 95,620 for interest received, as reflected in diary No. 31. The Tribunal found that the diary also showed payments of interest to lenders, and thus, the interest of Rs. 95,620 was wrongly taxed. The addition was deleted.

5. Deduction of Business Expenses as per Seized Diaries:
The assessee sought deduction of business expenses recorded in the seized diaries, arguing that the entire brokerage income was offered for tax without considering expenses. The Tribunal admitted the additional ground but rejected it, stating that the assessee had already offered the brokerage income and it was too late to reassess the entries for expenses.

Conclusion:
The appeal was allowed in part, with significant deletions of additions made by the AO, based on the genuineness of the seized diaries and the nature of the assessee's finance broking business.