2013 (1) TMI 423 - AT - Income Tax

Assessments u/s. 153A - search and seizure operation - items which have already been disclosed in the original return of income shall fall outside the scope of assessments u/s. 153A if no incriminating material relating thereto was found during the course of search - addition on Gifts/loans from relatives AY 2002-03 and 2003-04 - Held that - As per the legal position that these gifts/loans from relatives were disclosed by the assessee in the return of income filed & the department did not find any incriminating material to create any doubt about the genuineness of the same additions liable to be deleted. Gifts/loans from relatives AY 2006-07 and 2008- 09 - Held that - AO did not discuss anything about the materials or documents that were filed by the assessee to prove the genuineness of the gifts/loans received from relatives. The CIT(A) has also confirmed the said additions without actually examining or commenting upon the documents filed by the assessee thus passing a non speaking order - Thus the orders of tax authorities do not speak about the objective analysis if any carried on by them on the documents filed by the assessee. As the assessee has filed confirmation letters obtained from the donors/lenders along with the details of bank account etc. this issue requires fresh examination at the end of the Assessing Officer. Addition of loans/gifts received from friends - Held that - All these amounts have been assessed in the assessment years 2002-03 to 2004-05 assessment years fall in the category of concluded assessments. As noticed that the amounts received from Shri Siddique and Shri T. Mohammed find place in the balance sheet filed by the assessee and other gifts find place only in the cash flow statement. It is not clear as to whether the cash flow statements were filed along with the returns of income originally filed u/s 139 or they were filed along with the returns filed u/s. 153A. If any of the amount is disclosed for the first time in the returns of income filed u/s. 153A either in the Balance sheet or in the cash flow statement it is susceptible for verification in the assessment proceeding carried out u/s 153A even if the concerned assessment falls in the category of concluded assessments. Hence the facts relating to the items listed requires verification in order to find out the fact of time of disclosure i.e. whether they have already been disclosed to the department in the return of income filed u/s 139 prior to the date of initiation of search or not. Addition pertaining to discrepancy/deficiency in cash flow - assessee owned two vehicles and the income there from was offered by him as per the provisions of sec. 44AE - Held that - The tax authorities have made the assessment of the Depreciation amount without properly appreciating the accounting principles. In the instant case though the assessee has declared income from vehicles u/s 44AE the relevant section clearly states that the depreciation shall be deemed to have been allowed. Hence the net cash inflow from the operation of vehicles would be the amount of income computed as per the provisions of sec.44AE plus the depreciation allowable on those vehicles. Assessee was right as per the accounting principles in treating the depreciation amount as an item of cash inflow - direct the AO to delete the addition. Addition relating to sale of trees - Held that - As per the assessee this income was declared by him in the original return of income filed u/s 139 prior to the date of search. It is also stated that the department did not unearth any material to create any suspicion over the said income. Under these circumstances this item of income falls outside the scope of the provisions of sec. 153A. Disallowance of Foreign travel expenses - Held that - Though the assessee has disputed these additions yet no material was filed before us to substantiate his claim that the relevant expenses were sponsored by others. Amount received from the son of the assessee - age was barely 21 years at the time of search - Held that - Tax authorities have not brought on record the result of objective analysis if any carried on by them on the documents filed before them by the assessee. From the paper book filed by the assessee as noticed that the documents pertaining to the business carried on by assessee s son in abroad though relating to subsequent years have been filed. The said documents reveal about the success of the business carried on by him. Though he was of 21 years old at the time of search yet the fact remains that he was working/doing business abroad. The tax authorities should not take adverse view by considering his age. Tax authorities have not carried out any objective analysis but instead carried away by non-compliance of formalities under FERA Act - the addition made on this account in assessment years 2006-07 and 2007-08 requires fresh examination - restore the matter relating thereto the file of AO. Estimation of business income on account of suppression of sales - Held that - Since the assessee himself has deposed that the sales suppression was to the tune of 8% in our view it would be justifiable to determine the sales suppression at 8% of the total turnover for all the years under consideration particularly in view of the fact that the department did not seize any other material to make estimate of sales suppression in any other manner. It is pertinent to note that the very same methodology was adopted in the case of the company M/s South Malabar Steels & Alloys Pvt. Ltd sister concern also. Gross profit rate to be adopted for estimating the income for all the years - Held that - It would be just and reasonable if the Gross profit rate declared by the assessee in various years is adopted to determine the undisclosed income of the respective years. Undisclosed income set of against the additions made on account of investments - Held that - There cannot be any dispute that the addition of income as well as the expenditure incurred out of that income would result in double assessment of same income which is not intended by the statute. As per the sworn statement given by the assessee the undisclosed income has been utilised for the purchase of property and also in construction. Thus the plea of the assessee is that he has used the undisclosed income for purchase of property also. In the instant case the AO did not make any addition towards investment made in the purchase of any undisclosed property meaning thereby the assessee has accounted for all the properties purchased by him. The cash credits are generally introduced in the books only to bring sources for such investments. Hence if any addition is made towards unproved cash credits indirectly it indicates that the undisclosed income has been used as a source in the form of cash credit for making investments. Accordingly we are of the view that the undisclosed business income can also be given set off against cash credit addition also

Summary

Issues Involved:
1. Suppression of business income.
2. Gifts/loans from relatives.
3. Gifts/loans from friends.
4. Deficiencies in cash flow statement.
5. Addition towards sale of trees.
6. Foreign travel expenses.
7. Valuation of house property.
8. Amount received from son.

Detailed Analysis:

1. Suppression of Business Income:
The Assessing Officer (AO) noted suppression of sales based on the assessee's statement during the search, admitting to an 8% suppression. The AO used power consumption as a basis to estimate unaccounted production, but this was deemed arbitrary by the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) instead applied an 8% suppression rate uniformly across all years. The Tribunal directed that the total turnover be determined at 108% of the disclosed turnover, applying the gross profit rate declared by the assessee for each year to determine the undisclosed income.

2. Gifts/Loans from Relatives:
Additions were made for gifts/loans from relatives for the years 2002-03, 2003-04, 2006-07, and 2008-09. The Tribunal found that for 2002-03 and 2003-04, these additions should be deleted as no incriminating material was found. For 2006-07 and 2008-09, the matter was remanded to the AO for fresh examination of documents.

3. Gifts/Loans from Friends:
The AO added amounts received from friends as unverified loans/gifts. The Tribunal noted that items disclosed in the original returns should not be disturbed unless incriminating material was found. The issue was remanded to the AO to verify the time of disclosure and examine the documents objectively.

4. Deficiencies in Cash Flow Statement:
The AO added amounts for depreciation claimed as cash inflow, which was rejected. The Tribunal held that depreciation, being a non-cash expense, should be treated as an item of cash inflow, directing the AO to delete the additions.

5. Addition Towards Sale of Trees:
An addition of Rs. 75,000 for the sale of trees in 2002-03 was contested. The Tribunal found that this income was declared in the original return and no incriminating material was found, directing the deletion of the addition.

6. Foreign Travel Expenses:
The AO added foreign travel expenses based on passport entries, rejecting the claim that expenses were sponsored by others. The CIT(A) enhanced these amounts. The Tribunal upheld the additions as the assessee failed to substantiate the claim.

7. Valuation of House Property:
Additions were made based on the DVO's valuation using CPWD rates. The Tribunal noted that the jurisdictional High Court mandated State PWD rates for valuation. The issue was remanded to the AO for fresh examination in line with the High Court's decision.

8. Amount Received from Son:
The AO added amounts received from the assessee's son, questioning the son's capacity to provide such funds. The Tribunal found that the tax authorities did not conduct an objective analysis of the documents provided. The issue was remanded to the AO for fresh examination.

Conclusion:
The Tribunal provided a detailed examination of each issue, remanding several matters for fresh consideration by the AO, ensuring an objective analysis of the evidence and adherence to legal principles. The appeals were partly allowed for statistical purposes.