2012 (11) TMI 899 - AT - Income Tax

Addition on account of opening as cash in hand Assessee contended that the same is represented out of income earned prior to the block period - This is reflected in the cash flow statement filed by the assessee Held that - The assessee comes from an affluent family. She has her own properties and businesses at different places. She has different sources of income including agricultural income. In these circumstances it is not possible to hold that the assessee could not have an amount of Rs. 60,000/- as opening cash capital in her hands. The assessee has offered a plausible explanation that the amount was appropriated from her past income. This explanation is just and reasonable, which has been allowed. Addition on account of commission income Assessee has not maintain books & estimated income by way of commission at 10% of the annual turnover AO after allowing an expenditure of 40%, treated 60% as commission income of the assessee Held that - Non-maintenance of accounts is not so crucial, because the total turnover is always available. The AO has to compute the undisclosed income falling within the block period. He does not estimate or appraise the undisclosed income. Therefore, this addition made by the AO, purely on estimate basis, cannot be sustained in law. Hence deleted In favour of assessee Addition on account of sale proceeds of thorn trees as undisclosed income AO treated it as incidental income - the assessee has credited a sum of Rs. 20,000/- each year as income from sale of thorn trees but the same was not offered for taxation Held that - The assessee as a real estate developer has been developing properties by incurring expenditure. It is in the course of that developing that thorn trees were removed and they were sold for nominal amounts. The sale of thorn trees is not a regular activity of the assessee and the income therefrom does not constitute an independent source of income. As a matter of fact, it goes to reduce the expenses of the assessee in developing the land. Hence no justification in treating the amount as undisclosed income. In favour of assessee Disallowance of depreciation Air Conditioner Held that - The air conditioner was installed at the residence of the assessee and, therefore, the same cannot be considered as a business asset and therefore depreciation should be disallowed. We agree with the argument of the Revenue and this disallowance of Rs. 8,750/- is confirmed. In favour of revenue Income from property Assessee has a guest house due to litigation, the property could not be registered in the name of the assessee AO argues that the assessee has been running the guest house since 1993-94 and income therefrom has been returned so also the assessee has not maintained any books of account Held that - As the guest house property was not fully operational, there cannot be a case that the assessee was earning regular income by way of its commercial operation. The argument of the assessee that the operation of the guest house was only on a nominal level is to be accepted. Therefore, naturally, the receipts also would be very nominal. Anyhow, the assessee has to keep the property in a good condition. Therefore, it is necessary to see that whatever income the assessee had received from the operation of the guest house was in fact spent for the upkeep and maintenance of the guest house property. Therefore, it is obvious that the assessee had not received any taxable income from the said property. Delete the addition. In favour of assessee Addition on account of unexplained creditors/investment - A set of loans received from 42 persons - The amount of loan ranged from Rs. 16,000/- to Rs. 4 lakhs - The assessee could produce some creditors and could not produce the remaining creditors - AO found that many of the creditors did not have enough creditworthiness so as to advance amounts to the assessee Held that - As regarding big amounts from creditors, the assessee has proved the genuineness upto a reasonable level. The details of particulars were available with the department even before the search and even in the course of such. Therefore, unless they are rebutted with strong evidence, the genuineness of the credits cannot be doubted by citing general deficiencies in the conduct of the assessee. Hence addition deleted. In favour of assessee Addition on account of bogus claim of agricultural income AO s ground was that no evidence of doing agricultural operations was furnished by the assessee Assessee has not incurred any expense in relation to such income Held that - When the assessee is having agricultural property and offering agricultural income, the normal presumption is that the assessee is carrying on agricultural operations. It is to be seen that the assessee has offered net agricultural income on an estimate basis. Therefore, it is obvious that no separate expenditure account would be reflected in the particulars filed by the assessee. Hence delete the addition. In favour of assessee. Addition on account of undisclosed income Assessee receive certain sums from a firm where assessee is a partner - AO added this amount to the assessee s undisclosed income on the ground that no evidence was produced Held that - As rightly argued by the assessee, the disallowance could at best be applicable to the firm and not to the assessee. It is for the firm to prove the nature of income, whether agricultural income or not, in its hands. Firm and the assessee are different persons. Therefore, if there is a doubt in the source, it is for the firm to explain it. There is no justification in making an addition of in the hands of the assessee. It is accordingly deleted. In favour of assessee Addition on account of gifts received from relatives AO made addition for want of evidence Held that - This matter has been discussed in detail by the Tribunal in its earlier order. The situation has not so far improved by the arguments of the assessee. Therefore, we find that the addition is justified. It is accordingly confirmed. In favour of revenue Capital Gain On sale of small agricultural plot AO rejected the claim for want of evidence Assessee contended that land was agricultural in nature and therefore there cannot be levy of capital gains - Held that - Since no evidence produced by assessee. Addition confirms. In favour of revenue Addition on account of undisclosed income Cash in hand found during search u/s 132 AO added same as undisclosed income - Held that - In view of the total financial inflow and outflow of the assessee during the block period, it is very absurd to presume that the assessee could not have an amount of Rs. 30,000/- in her hands out of legitimate source of income. Therefore, we delete this addition of Rs. 30,000/-. In favour of assessee

Summary

Issues Involved:

1. Validity of block assessment under section 158BD.
2. Estimation of commission income.
3. Treatment of income from sale of thorn trees.
4. Disallowance of depreciation on air conditioner.
5. Estimation of income from Kodaikanal Guest House.
6. Treatment of unexplained investment/creditors.
7. Treatment of agricultural income.
8. Treatment of amounts received from M/s. MBS Granites.
9. Treatment of gifts received from relatives.
10. Treatment of capital gains from the sale of land.
11. Treatment of compensation received.
12. Treatment of cash found during the search.

Detailed Analysis:

1. Validity of Block Assessment under Section 158BD:
The Tribunal initially accepted the legal ground that the information and materials used by the Assessing Officer (AO) were already furnished to the Assistant Director of Income-tax (Investigation), Madurai, on 15-5-1995. Therefore, there was no "undisclosure" and the assessment was void ab initio. However, the High Court held that the communication made by the assessee did not amount to disclosure under Chapter XIV-B, and the matter was remitted back to the Tribunal for reconsideration.

2. Estimation of Commission Income:
The AO estimated the commission income at 60% of the receipts, resulting in an addition of Rs. 3,55,361/-. The Tribunal deleted this addition, citing the Karnataka High Court's judgment in CIT vs. M/s. Gowri Gopal Textile Processing Pvt. Ltd., which held that estimation of income is not permissible under section 158BB(1).

3. Treatment of Income from Sale of Thorn Trees:
The AO treated Rs. 1,16,000/- from the sale of thorn trees as undisclosed income. The Tribunal deleted this addition, stating that the sale proceeds were incidental to the real estate business and not an independent source of income.

4. Disallowance of Depreciation on Air Conditioner:
The AO disallowed Rs. 8,750/- claimed as depreciation on an air conditioner, stating it was installed at the residence. The Tribunal confirmed this disallowance.

5. Estimation of Income from Kodaikanal Guest House:
The AO estimated Rs. 10,85,000/- as income from the guest house. The Tribunal deleted this addition, noting the property was under litigation and not fully operational, and thus, regular income was improbable.

6. Treatment of Unexplained Investment/Creditors:
The AO added Rs. 75,16,875/- as unexplained investment/creditors. The Tribunal deleted this addition, stating the details of loans were available with the department before the search, and the genuineness of credits could not be doubted without strong evidence.

7. Treatment of Agricultural Income:
The AO disallowed Rs. 1,97,200/- claimed as agricultural income. The Tribunal deleted this addition, stating the existence of agricultural property and the presumption of carrying on agricultural operations.

8. Treatment of Amounts Received from M/s. MBS Granites:
The AO added Rs. 4,66,000/- received from M/s. MBS Granites as undisclosed income. The Tribunal deleted this addition, stating the disallowance could apply to the firm and not the assessee.

9. Treatment of Gifts Received from Relatives:
The AO disallowed Rs. 1,20,700/- claimed as gifts. The Tribunal confirmed this disallowance due to lack of evidence.

10. Treatment of Capital Gains from Sale of Land:
The AO added Rs. 1,50,650/- as capital gains from the sale of land. The Tribunal confirmed this addition due to lack of evidence supporting the assessee's claim that the land was agricultural.

11. Treatment of Compensation Received:
The AO added Rs. 9,50,000/- as income, stating it was not proved as compensation. The Tribunal deleted this addition, citing its earlier order.

12. Treatment of Cash Found During Search:
The AO added Rs. 30,000/- found during the search as undisclosed income. The Tribunal deleted this addition, stating it was plausible for the assessee to have such an amount from legitimate sources.

Conclusion:
The Tribunal partly allowed the appeal, deleting several additions made by the AO while confirming others. The judgment emphasizes the importance of substantiating additions with concrete evidence and the inadmissibility of income estimation under block assessment provisions.