2013 (6) TMI 600 - AT - Income Tax

Disallowance of 10% of unverifiable construction expenses - CIT(A) deleted the addition - Held that - AO made the addition on an estimate and adhoc basis, there is no finding, observation or material to justify such estimate which is purely an adhoc guess work. CIT(A) has rightly deleted the same. Against revenue. Addition of unexplained investment in the hands of assessee - Held that - The documents in question have been owned and explained by assessee s son already assessed at an undisclosed income of Rs. 2,16,42,960/-. The statement of shri Pawar has not been controverted. Besides the accounts of the son have been accepted by the AO except an adhoc addition of 10% expenses which has already been deleted. Once these evidences are not in question the explanation offered by the assessee and has son cannot be outrightly rejected. Mr. Pawar has confirmed the renegotiation of prices of plot thus buyer and seller both agree to the same price, comparable sale instances which are registered documents also support the price. Assessee s son Mr. Ashish Aggarwal being a building contractor, fact of construction of the house for Mr. Pawar is not in doubt, thus presumption u/s 292 C has been discharged by the assessee. Besides the deference if any emerges from the books of the assessees son and not the assessee himself. Further, the plot is not purchased by assessee alone but his wife also, a fact which has not been disputed. Thus, the incriminating document belongs to son and not assessee, discrepancy, if any, cannot be attributed to assessee. Further, the part of the plot ownership belongs to his wife for which also addition cannot be made in the hands of assessee. It is pertinent to appreciate that father and son have already paid taxes on undisclosed income of Rs. 2,16,42,960/-, there is no indication of existence of corresponding assets thus the possibility of telescoping also cannot be ruled out. Thus the impugned addition cannot be made in the hands of the assessee. Against revenue.

Summary

Issues Involved:
1. Addition sustained by CIT(A) regarding undisclosed consideration amounting to Rs. 36,50,000/-.
2. Deletion of addition of Rs. 2,41,601/- made on account of disallowance of 10% unverifiable construction expenses.
3. Restriction of addition from Rs. 43,42,669/- to Rs. 36,50,000/- on account of unexplained expenditure.

Issue-wise Detailed Analysis:

1. Addition sustained by CIT(A) regarding undisclosed consideration amounting to Rs. 36,50,000/-:

The assessee contested the addition of Rs. 36,50,000/- sustained by CIT(A), arguing that there was no evidence to show that the amount was actually paid by the assessee or his family members. CIT(A) observed that the AO committed an error in calculating the unexplained expenditure. The seized document indicated that Rs. 33,50,000/- was paid by the assessee and his family members, which was accounted for in their respective accounts. CIT(A) noted that the remaining Rs. 36,50,000/- could not be added as unexplained income since there was no evidence of payment during the previous year under consideration. However, the addition was confirmed in principle but reduced to Rs. 36,50,000/-.

2. Deletion of addition of Rs. 2,41,601/- made on account of disallowance of 10% unverifiable construction expenses:

The AO made an ad hoc disallowance of 10% of the construction expenses amounting to Rs. 2,41,601/-, citing the lack of regular books of account and supporting documents. CIT(A) deleted this addition, stating that the assessee and his son had disclosed additional income of Rs. 2,16,42,960/- and that further additions should only be made if there was evidence of actual income exceeding the disclosed amount. CIT(A) emphasized that income estimates should be cogent and not whimsical, and since the assessee's net profit was 8% of gross receipts, no separate disallowance was justified.

3. Restriction of addition from Rs. 43,42,669/- to Rs. 36,50,000/- on account of unexplained expenditure:

The AO added Rs. 43,42,669/- as unexplained expenditure based on a seized document indicating a plot purchase price of Rs. 70,00,000/-. CIT(A) restricted this addition to Rs. 36,50,000/-, considering the renegotiated price and the evidence provided by the assessee. The assessee argued that the plot was purchased for Rs. 25,65,000/- and that the remaining amount was related to a construction contract between the assessee's son and Mr. Pawar. The Tribunal noted that the documents and explanations provided by the assessee's son were consistent and supported by statements and accounts. The Tribunal concluded that the seized document pertained to the son's business and not the assessee, and that the addition could not be attributed to the assessee.

Conclusion:

The Tribunal upheld the deletion of the ad hoc addition of Rs. 2,41,601/- and allowed the assessee's appeal regarding the addition of Rs. 36,50,000/-, dismissing the revenue's appeal. The Tribunal emphasized that the evidence and explanations provided by the assessee and his son were consistent and adequately supported, and that the addition could not be made in the hands of the assessee. The order was pronounced in open court on 17/06/2013.