2024 (12) TMI 307 - AT - Income Tax

Unaccounted receipts - addition of cash component mentioned in the paper found in search - as addition entirely on the basis of a piece of paper found from the drawer of the table of one of the directors of the assessee and said paper contained details relating to sale price, cheque amount, cash amount of five flats - Whether the above said piece of paper can be considered to be a credible evidence in the eyes of law in order to prove the receipt of unaccounted money by the assessee in respect of all the flats sold by it? - HELD THAT - We are of the view that the AO did not have any credible material with him to support the impugned addition. As held in Metro Construction Company 2016 (1) TMI 1514 - BOMBAY HIGH COURT the AO could not have resorted to extrapolation on the basis of assumptions and presumptions, in the facts of the present case. Hence the entire addition is liable to be deleted. Since we have deleted the entire addition, the question of estimation of the profit on the above said amount does not arise. Disallowance of professional fees - assessee did not prove the nature of services rendered by the persons to whom the above said amount was paid - onus to prove - HELD THAT - There cannot be any dispute that the initial onus to prove the expenditure claimed by the assessee is placed upon the assessee. In the instant case, in our view, the onus has been discharged by the assessee by showing that the professional fee has been paid for a purpose, which is also corroborated from the financial statements. Payments have been made through banking channels and TDS has also been deducted. On the contrary, AO has disbelieved, as stated earlier, for the failure of the recipients to file return of income or to respond to the notices issued by the AO. In our view, in the facts and circumstances of the case, the assessee cannot be penalized for the failure, if any, of the recipients mentioned above. It is well settled proposition that the assessing officer cannot sit upon the arm chair of the business man and dictate the manner of conducting business. If the recipients of professional fees are able to arrange loan funds for the assessee, then a business man would necessarily pay fees. We notice that loan was obtained by the assessee from PNB Housing finance and the professional fees has been paid for negotiating the above said loan. Accordingly, we are of the view that the AO was not justified in disallowing the claim of payment of professional. Decided in favour of assessee.

Summary

Issues Involved:

1. Addition of alleged unaccounted income based on a piece of paper found during a survey.
2. Disallowance of professional fees claimed by the assessee.

Issue-wise Detailed Analysis:

1. Addition of Alleged Unaccounted Income:

The primary issue revolves around the addition of unaccounted income based on a piece of paper found during a survey operation conducted under section 133A of the Income Tax Act. This paper, found in the drawer of a director, contained details of the sale of five flats, including both cheque and cash payments. The Assessing Officer (AO) observed that only cheque payments were recorded in the books, leading to the presumption that the cash payments represented undisclosed income. The assessee contested this, stating that the mentioned flats were not ultimately purchased by the individuals listed on the paper.

The AO proceeded to estimate unaccounted receipts for 40 flats by comparing the agreement value with a grossed-up ready reckoner value, resulting in an addition of Rs. 7,73,15,067/- to the assessee's income. However, the CIT(A) held that only the profit element of the unaccounted sale consideration should be assessed, reducing the addition to Rs. 1,93,59,693/-.

Upon appeal, the Tribunal found that the piece of paper could not be considered credible evidence for the following reasons:
- The contents of the paper were not accepted by the assessee or its directors.
- There was no corroborative material provided by the AO to support the entries on the paper.
- The individuals listed did not purchase the flats, negating the presumption of cash receipt.
- Each sale was a separate contract, negotiated individually, with no basis to assume a consistent pattern of cash receipt.

The Tribunal also noted that the AO's inquiries with some buyers did not yield adverse findings, and no evidence was presented to show that buyers paid cash over the agreement value. The Tribunal referenced judicial precedents which emphasized the need for credible evidence to support additions for unaccounted income. Consequently, the Tribunal concluded that the AO lacked credible material to justify the addition of Rs. 7,73,15,067/- and directed its deletion, rendering the profit estimation by CIT(A) irrelevant.

2. Disallowance of Professional Fees:

The second issue concerns the disallowance of professional fees amounting to Rs. 27,25,000/-, paid to two individuals for arranging debt funding. The AO disallowed this expense, citing the lack of response from the recipients to notices and their failure to file returns of income. The CIT(A) upheld this disallowance.

The Tribunal, however, found that the assessee had adequately demonstrated the purpose of the professional fees, supported by bills and payment through banking channels with TDS deducted. The financial statements corroborated the need for professional services, as the assessee secured a significant loan from PNB Housing Finance during the relevant year. The Tribunal emphasized that the failure of the recipients to respond to notices or file returns should not penalize the assessee, especially when the professional fees were paid for legitimate business purposes. The Tribunal concluded that the AO was unjustified in disallowing the professional fees and directed its deletion.

Conclusion:

The Tribunal allowed the appeal of the assessee, deleting both the addition of unaccounted income and the disallowance of professional fees, while dismissing the appeal of the revenue. The judgment underscores the necessity for credible evidence and corroboration in tax assessments, particularly concerning unaccounted income and business expenses.