2013 (2) TMI 449 - AT - Income Tax

Proceedings u/s 153C - whether the initiation of proceedings u/s 153C is bad in law - Held that - In the case on hand, a joint venture agreement was found in which the assessee is a party. The assessee has certain rights and duties as per terms and conditions of this agreement. It cannot be said that the agreement does not belong to assessee Joint venture agreement belongs to all three parties including the assessee invoking the provisions of section 153C is not bad in law. - Decisions in the case of Vijaybhai N. Chandrani (2010 (3) TMI 770 - GUJARAT HIGH COURT) and in the case of Meghmani Organics Ltd. (2009 (1) TMI 344 - ITAT AHMEDABAD) distinguished - Decided against the assessee. Abatement only the assessments pending before the AO for completion shall abate and that under section 153A the issues decided in the assessment cannot be reconsidered and re-adjudicate, unless there is some fresh material found during the course of search in relation to such points - In this case, there is no incriminating material found or seized in the search Regular assessment made in case of the assessee will not abate. Addition u/s 68 - only joint venture agreement was found during the course of search Assessment was based on, the return of income, the documents attached with it and the books of account produced by the assessee Assessee has received all the loans through banking channels by way of crossed cheques and that interest has been paid to these parties and that the loans were repaid through banking channels by way of crossed cheques - Assessee has filed confirmation letters from each and every creditor, PAN, bank account copy of each of the lender/ creditor Assessee has proved the identity of the persons as well as the genuineness of the transactions. The assessee in this case has done all that he could to provide documentary evidences, in support of his claim that the credits are genuine No addition should be made u/s 68. In the case of Sarogi Credit Corporation 1974 (12) TMI 28 - PATNA HIGH COURT , and Rohini Builders 2001 (3) TMI 9 - GUJARAT HIGH COURT , it was held that it not for the assessee to prove the source of the source. The assessee was expected to prove the genuineness of the credits in his books of account only - All the three criteria i.e. identity of the person, the genuineness of the transaction as well as the capacity of the lenders are proved and in such circumstances, no addition can be made u/s 68 Consequently, the grounds of the assessee to allow interest expenses pertaining to these loans for both assessment years 2003-04 and 2004-05 as well as for the assessment year 2005-06 are allowed All the three appeals of the assessee are allowed. Undisclosed Sales The business premises of the assessee was surveyed u/s 133A of the Act on 05-01-2007. In the course of the survey, Mr. Mansukhbhai Sureja, partner of the assessee firm, had admitted that there were cash sale receipts amounting to ₹ 5 Crores in addition to cheque sale receipts amounting to ₹ 10.50 crores. The partners had offered to account the cash sale receipts in the books and to pay the tax on the same. Assessee responded that the declaration of ₹ 5 crores is towards regular sales in the project and not as profits of ₹ 5 crores for the assessment year 2007-08 - Addition made by the AO is incorrect Therefore, unless there is a finding to the effect that investment by way of incurring the cost in acquiring the goods which have been sold has been made by the assessee and that has also not been disclosed. In the absence of such finding of fact the question whether the entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative. The record goes to show that there is no finding nor any material has been referred about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales. As decided in Abhishek Corporation vs. DCIT 1998 (8) TMI 110 - ITAT AHMEDABAD-C , Even though it is established from seized documents that assessee was receiving premium/ on money on booking of flats belonging to third parties, entire receipts of on money /premium cannot be treated as undisclosed income of assessee; only net profit rate can be applied on unaccounted sales/receipts for making addition - Appeal filed by the Revenue is dismissed.

Issues Involved:
1. Validity of reopening of assessment under Section 153C.
2. Addition of unsecured loans under Section 68.
3. Disallowance of interest expenses related to unsecured loans.
4. Taxability of Rs. 5 crores declared during the survey for the assessment year 2007-08.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 153C:
The assessee argued that the reopening of assessment under Section 153C was invalid as no material belonging to the assessee was seized during the search at the premises of Gurinder Singh Bawa and his family concerns. The only document found was a joint venture agreement, which the assessee claimed did not belong to them but to Gunjyot Properties P. Ltd. The Tribunal held that the joint venture agreement belonged to all three parties involved, including the assessee, thus justifying the invocation of Section 153C. The Tribunal further noted that no incriminating material was found during the search, which is a prerequisite for reopening assessments that do not abate.

2. Addition of Unsecured Loans under Section 68:
The AO had made additions under Section 68 for unsecured loans received by the assessee, citing that the lenders did not respond to summons or the addresses were incomplete. The assessee provided confirmation letters, PAN, copies of income tax returns, bank statements, and balance sheets of the lenders. The Tribunal found that the assessee had discharged the burden of proof by providing sufficient documentation to establish the identity, genuineness, and creditworthiness of the lenders. The Tribunal cited several case laws, including Sarogi Credit Corporation vs. CIT and DCIT vs. Rohini Builders, to support its decision to delete the additions made under Section 68.

3. Disallowance of Interest Expenses Related to Unsecured Loans:
The disallowance of interest expenses was consequential to the addition of unsecured loans under Section 68. Since the Tribunal deleted the additions made under Section 68, it also allowed the interest expenses claimed by the assessee for the assessment years 2003-04, 2004-05, and 2005-06.

4. Taxability of Rs. 5 Crores Declared During the Survey for the Assessment Year 2007-08:
During the survey, the partner of the assessee firm admitted to unaccounted cash receipts of Rs. 5 crores and offered to pay tax on it. The AO added this amount to the income for the assessment year 2007-08. The assessee argued that it follows the project completion method of accounting and that the amount should be taxed in the year the project is completed. The Tribunal agreed with the assessee, noting that the declaration was towards total sales receipts and not net income. The Tribunal upheld the CIT(A)'s decision to delete the addition, emphasizing that the method of accounting regularly employed by the assessee should be followed.

Conclusion:
The Tribunal allowed all the appeals filed by the assessee, deleted the additions made under Section 68, allowed the interest expenses, and upheld the project completion method for accounting the Rs. 5 crores. The appeals filed by the Revenue and the cross objection filed by the assessee were dismissed.

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