2013 (2) TMI 477 - HC - Income Tax

Search and seizure Search u/s 132(1) conducted on 4.9.2002 - sale-deeds, Cash, Fixed Deposit, RBI Relief Bonds, purchase of jewellery in the name of family members were found ROI were filed, for the block period beginning from 1.4.1996 to 4.9.2002, in response to notice u/s 158BC declaring income as nil Additions were made by the AO on account of unexplained investment in construction, undisclosed income by way of sale consideration, undisclosed investment - Held that - Construction was made in the year of 1993 and In regular returns, the profit had been offered to tax and the same had been accepted by the Department - Also confirmed by the Ahmedabad Municipal Corporation, and therefore, cost was incurred before the block period and assessee offered 8% of such income of sale proceeds of shops in regular income tax returns. Details of bank deposits were made available and bank account of assessee s son was also disclosed - There were explained deposits in bank account which were part of regular transactions and which were not only disclosed but from the sale proceeds of the shops, profits was offered for tax by the assessee in the regular returns filed with the Income Tax Authority and therefore, it did not sustain such additions. With regard to the unexplained investment In the Statement of income of assessee that the income received on these investment were also disclosed in the regular return, of income prior to the date of search - Issue were decided in favour of assessee.

Issues:
1. Undisclosed income from sale consideration of Kunal Complex
2. Unexplained investment in construction of 3rd floor of Kunal Complex
3. Applicability of section 44AD of the Income Tax Act to builders
4. Acceptance of construction cost during statement recorded under section 131
5. Lack of evidence for explained bank deposits and construction cost
6. Source of investment in bank FDRs not explained
7. Treatment of unexplained investment in FDRs
8. Allocation of investments to family members
9. Disclosure of interest on FDRs and presumption of accounted source

Analysis:

Issue 1 - Undisclosed income from sale consideration of Kunal Complex:
The Tribunal noted the Assessing Officer's addition of undisclosed income and unexplained investment in the construction of the 3rd floor of Kunal Complex. The CIT(A) deleted both additions, citing that the profit from two floors of Kunal Complex was offered and accepted by the Department. The Tribunal upheld this deletion, emphasizing that the construction costs were incurred before the block period, and the deposits in bank accounts were regular transactions, not undisclosed income.

Issue 2 - Unexplained investment in construction of 3rd floor of Kunal Complex:
The Tribunal examined the details of the construction and bank deposits, concluding that the Assessing Officer's presumptions were unfounded. It found that the cost of construction estimated by the Assessing Officer was incorrect. The Tribunal also highlighted that the profits from the sale proceeds were disclosed in regular returns, leading to the deletion of the unexplained investment addition.

Issue 3 - Applicability of section 44AD to builders:
The Tribunal clarified that the provisions of section 44AD, applicable to civil contractors, were not relevant to the assessee, a builder. It emphasized that the assessee had already declared income from the sale of shops in Kunal Complex in regular tax returns.

Issue 4 - Acceptance of construction cost during statement recorded under section 131:
The Tribunal considered the statement recorded under section 131 regarding the construction cost, finding no discrepancies. It concluded that the Assessing Officer's assumptions were not supported by evidence.

Issue 5 - Lack of evidence for explained bank deposits and construction cost:
The Tribunal scrutinized the evidence provided by the assessee, including bank statements and construction details. It dismissed the Assessing Officer's claims of undisclosed income, emphasizing the regularity of transactions and the disclosure of profits in tax returns.

Issue 6 - Source of investment in bank FDRs not explained:
The Tribunal extensively reviewed the investments in bank FDRs, noting that the interest received was disclosed in regular tax returns. It considered the source of each FDR holder and found no discrepancies, leading to the deletion of the addition by the Assessing Officer.

Issue 7 - Treatment of unexplained investment in FDRs:
The Tribunal examined the investments in FDRs and ICICI Bonds, finding that the Assessing Officer's additions lacked merit. It upheld the CIT(A)'s decision and dismissed the Revenue's appeal due to the thorough examination of facts and lack of contradictory evidence.

Issue 8 - Allocation of investments to family members:
The Tribunal addressed the allocation of investments to family members, noting that the interest on FDRs was disclosed before the search date. It agreed with the CIT(A) and dismissed the Revenue's appeal based on the factual analysis and lack of substantial legal questions.

Issue 9 - Disclosure of interest on FDRs and presumption of accounted source:
The Tribunal emphasized the disclosure of interest on FDRs in regular tax returns. It considered the source of investments and the CIT(A)'s scrutiny, leading to the deletion of the Assessing Officer's additions based on the comprehensive examination of facts and legal provisions.

In conclusion, the Tax Appeal was dismissed as the adjudicating authorities had decided in favor of the assessee, with no legal questions arising from the factual findings. The Tribunal's detailed analysis and alignment with the CIT(A)'s conclusions led to the rejection of the Revenue's appeal.

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