2013 (10) TMI 750 - AT - Income Tax

Lack of evidence for implicating Assessee - Assessee was alleged to be running a refund racket, wherein the assessee would solicit the refund in the cases of salaried employees with private organization in connivance with some CAs and trusts. According to the deposition made u/s 131 dated 17.01.1994, the assessee explained the modus operandi for such fraudulent refunds Held that - Search u/s 132 did not indicate anything adverse against the assessee with regard to the fraudulent refunds - There was no evidence despite the search operation against him - Only evidence that is the formation of basis of addition was statement recorded u/s 131, wherein the assessee had only explained the modus for claiming of fraudulent refund. In this statement also, the assessee had not admitted to have been the real beneficiary Addition made is deleted Decided against the Revenue. Additions u/s 69A and 69C - AO has added Rs.5,50,036/- on account of jewellery found at the time of search, Rs.90,000/- as unexplained cash found and Rs.5,00,000/- on account of furniture and fixtures inventorised at the time of search Held that - For Jewellery On the date of search, assessee was still a bachelor and the only lady in the house was his mother and since the entire jewellery found and seized were ladies, it actually belonged to his mother. Even in the remand report, the AO could not controvert this fact Cash Cash was duly reflected in the books of the firm and the books are with the department, therefore no addition can be made as the cash is not unexplained Investment in furniture and fixtures Submission by Assessee that flat belonged to the parents of the assessee, which was purchased in 1986 and the furniture & fixtures was also purchased around the same time or immediately thereafter. No separate evidence, indicating that the furniture & fixtures belonged to the assessee or the assessee spent his undisclosed money to acquire the same Decided against the Revenue. Addition on account of salary and commission - Assessee was a partner in M/s Aggarwal Trading Company and as per the Deed of Partnership, the assessee would receive Rs.48,000/- as salary and commission @ 2% of turnover (Rs.4,00,000/-, being 2% of Rs.2,00,00,000/- turnover) Held that - As per the arguments and on the basis of remand report of A.O., it has been held that salary be added @ 37500/- in place of 40000/- and no addition on account of commission be made Decided against the Revenue. Addition on account of commission out of Hawala loans Held that - Commissioner(A) concluded to tax 10% of Rs.89,602/- being alleged commission, out of hawala loan transactions earned by the appellant - The addition has been based primarily on the statement recorded under section 132(4), wherein the assessee has accepted to be having hawala business - Assessee has not been able to bring out any evidence, which could prove otherwise Order of Commissioner(A) confirmed.

Issues Involved:

1. Deletion of Rs.3,00,000/- on account of income from a refund racket.
2. Restriction of addition of Rs.45,000/- to Rs.9,912/- as income from Hawala business.
3. Deletion of Rs.3,04,930/- being income of a non-existent person.
4. Deletion of Rs.5,55,036/- u/s 69A for investment in jewelry.
5. Deletion of Rs.90,000/- u/s 69A for unexplained cash.
6. Deletion of Rs.5,00,000/- u/s 69A for investment in furniture and fixtures.
7. Assessment of salary income from M/s Agarwal Trading Co.
8. Deletion of Rs.4,00,000/- being commission income.
9. Taxation of consultancy income at Rs.35,000/- instead of Rs.95,000/-.
10. Taxation of interest and dividend income at Rs.10,269/- instead of Rs.35,000/-.
11. Addition of Rs.89,602/- being commission out of Hawala loan transactions.
12. Addition of Rs.30,00,000/- being income from refund rackets.

Issue-wise Detailed Analysis:

1. Deletion of Rs.3,00,000/- on account of income from a refund racket:
The assessee was alleged to be involved in a refund racket. The AO estimated the income at Rs.3,00,000/- based on presumptions and statements recorded u/s 131. The CIT(A) deleted the addition due to a lack of evidence. The ITAT upheld the CIT(A)'s decision, noting that no incriminating evidence was found during the search, and the addition was based on uncorroborated statements.

2. Restriction of addition of Rs.45,000/- to Rs.9,912/- as income from Hawala business:
The AO estimated Rs.45,000/- as income from Hawala transactions based on the assessee's statement. The CIT(A) reduced this to Rs.9,912/- based on actual earnings shown in the books. The ITAT sustained this finding, emphasizing that the addition should be based on factual evidence rather than estimates.

3. Deletion of Rs.3,04,930/- being income of a non-existent person:
The AO added Rs.3,04,930/- to the assessee's income on a substantive basis, suspecting the creation of non-existent entities. The CIT(A) directed the AO to delete this addition and assess the income in the hands of the non-existent persons. The ITAT endorsed this finding, noting that the CIT(A) had indirectly sustained the addition by directing the AO to recover taxes from the assessee if the non-existent persons were not found.

4. Deletion of Rs.5,55,036/- u/s 69A for investment in jewelry:
During a search, jewelry worth Rs.5,50,036/- was found and added under section 69A. The CIT(A) deleted the addition, noting that the jewelry belonged to the assessee's mother. The ITAT upheld this decision, as the AO could not provide evidence to the contrary.

5. Deletion of Rs.90,000/- u/s 69A for unexplained cash:
The AO added Rs.90,000/- as unexplained cash. The CIT(A) deleted this addition, as the cash was reflected in the books of M/s Aggarwal Trader. The ITAT sustained this finding, noting that the AO could not controvert the facts.

6. Deletion of Rs.5,00,000/- u/s 69A for investment in furniture and fixtures:
The AO added Rs.5,00,000/- as investment in furniture and fixtures. The CIT(A) deleted this addition, noting that the furniture belonged to the assessee's parents and was purchased in 1986. The ITAT upheld this decision, as there was no evidence indicating that the assessee spent undisclosed money on the furniture.

7. Assessment of salary income from M/s Agarwal Trading Co.:
The AO added Rs.48,000/- as salary income and Rs.4,00,000/- as commission income. The CIT(A) reduced the salary income to Rs.37,500/- and deleted the commission income, as the assessee did not receive it. The ITAT upheld this decision, noting that the books were maintained on a cash basis and no commission was paid.

8. Deletion of Rs.4,00,000/- being commission income:
The AO added Rs.4,00,000/- as commission income. The CIT(A) deleted this addition, as the assessee did not receive any commission, confirmed by the AO in the remand report. The ITAT sustained this finding, as there was no evidence to the contrary.

9. Taxation of consultancy income at Rs.35,000/- instead of Rs.95,000/-:
The AO estimated consultancy income at Rs.95,000/-. The CIT(A) reduced this to Rs.35,000/-, based on the actual number of returns filed and average fee per return. The ITAT upheld this decision, noting that the income estimated by the CIT(A) was reasonable.

10. Taxation of interest and dividend income at Rs.10,269/- instead of Rs.35,000/-:
The AO estimated interest and dividend income at Rs.35,000/-. The CIT(A) reduced this to Rs.10,269/- based on the bank statement. The ITAT upheld this decision, noting that the AO accepted in the remand report that the assessee did not receive any additional income.

11. Addition of Rs.89,602/- being commission out of Hawala loan transactions:
The AO added Rs.89,602/- as commission income from Hawala transactions. The CIT(A) reduced this to Rs.8,960/-, allowing 90% as expenses. The ITAT upheld this decision, noting that the addition was based on the same facts as in the case of Sanjay Enterprises, a sister concern.

12. Addition of Rs.30,00,000/- being income from refund rackets:
The AO added Rs.30,00,000/- as income from refund rackets. The CIT(A) deleted this addition, noting that the refunds were recovered from the employees, and no evidence indicated that the refunds accrued to the assessee. The ITAT upheld this decision, following its own order for the previous assessment year.

Conclusion:
Both departmental appeals for AY 1993-94 and AY 1994-95 were dismissed. The ITAT upheld the CIT(A)'s decisions on all grounds, emphasizing the need for factual evidence and rejecting additions based on estimates and uncorroborated statements.

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