2013 (10) TMI 825 - AT - Income Tax

Addition u/s 40A (3) Cash payment made on purchase of land - Held that - The CIT(A) failed to consider the submissions of the assessee that payment in cash was made through the agent for the purpose of buying of land - the payment was made to the agent who was required to make payment in cash for purchase of land on behalf of assessee is dealt with by the ld. CIT(A) - CIT(A) nowhere in his order has adverted to and decided this submission of the assessee - the decision of CIT(A) on this issue is not justified the same is hereby set aside - this being legal issue the same is restored back to the file of AO to verify the claim of the assessee that the payment was made to the agent for the purpose of buying the land and the person to whom the sale consideration was handed over in cash was acting as an agent to the assessee 0 The AO is directed to decide this issue afresh in the light of the provisions of Rule 6DD(k) of the IT Rules 1962 Decided in favour of Assessee. Disallowance of Expenses Unaccounted Income Disclosed Held that - It cannot be said that these expenses were incurred in respect of this income declared by the assessee in the course of survey - This cannot also be inferred that the assessee in claiming any deduction in respect of amount which was declared by the assessee during the course of survey thus proviso to section 69-C of the Act is not applicable in respect of these expenses - it is also required to be examined regarding the source of these expenses because if these expenses are not recorded in the books of accounts and the same is already paid then its source of payment requires explanation - the issue should go back to the file of AO for fresh decision - the order of the CIT(A) on this issue and restore this matter back to the file of AO. Addition as profit on sale of records Unaccounted Expenditure Held that - No separate addition was made by the AO in this regard and no material facts had been brought on record by him in respect of actual sale of plots and profit - In the absence of any evidence having been brought on record by the AO regarding actual sale and actual profit no such addition is justified - the observation of the AO that this amount might have been utilized for the purpose of incurring expenditure made out of books is on the basis of conjectures and surmises - the addition is not called for because no evidence has been brought on record by the AO regarding actual sale of plots - Decided in favour of Assessee. Enhancement made by CIT (A) Held that - The enhancement was made by the CIT (A) on this basis that the amount declared by the assessee in the course of survey was in respect of expenses incurred by the assessee out of undisclosed sources but in the books of accounts the assessee had not accounted for the expenses but the assessee has accounted for the income only and the same was shown as cash in hand which was used subsequently for other purposes - on this issue also the matter requires re-examination - the basis of accounting for these expenses has to be examined because the same may be accounted for by debiting to some capital asset and in that situation the enhancement is not justified Decided in favour of Assessee.

Summary

Issues Involved:
1. Addition of Rs.28,50,000/- under Section 40A(3) of the Income Tax Act for cash payment made for the purchase of land.
2. Addition of Rs.9,99,099/- on account of expenses claimed in the Profit and Loss account.
3. Estimation of an income of Rs.10,00,000/- on account of profit from the sale of plots.
4. Enhancement of income by Rs.16,00,000/- under Section 69C of the Income Tax Act and the initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Addition of Rs.28,50,000/- under Section 40A(3):
The Tribunal considered the rival submissions and noted that the CIT(A) failed to address the assessee's submission that the payment in cash was made through an agent for the purpose of buying land. The Tribunal found that the CIT(A) did not justify its decision as it did not consider whether the payment was made through an agent, as required under Rule 6DD(k) of the IT Rules, 1962. The Tribunal set aside the CIT(A)'s decision and remanded the issue back to the AO to verify the claim that the payment was made to an agent and to decide the issue afresh in light of Rule 6DD(k). The AO was directed to provide a reasonable opportunity of hearing to the assessee.

2. Addition of Rs.9,99,099/- on Account of Expenses:
The Tribunal noted that the AO disallowed the expenses claimed by the assessee on the grounds that they were incurred from unaccounted income and were related to business expenses for which no business income was shown. The CIT(A) upheld this addition, citing that the expenses were from unexplained sources and hence not allowable under Section 69C. The Tribunal found that the details of the expenses incurred by the assessee did not match the expenses for which the income of Rs.16,00,000/- was declared during the survey. The Tribunal held that the proviso to Section 69C was not applicable and remanded the issue back to the AO to examine the source of the expenses and whether they were recorded in the books of accounts after the survey. The AO was directed to verify the details and allow the expenses if they were validly incurred.

3. Estimation of Income of Rs.10,00,000/- on Account of Profit from Sale of Plots:
The Tribunal observed that the AO estimated the income from the sale of plots based on the statement of one of the partners, despite the assessee's explanation that the sales did not materialize. The Tribunal found that the AO did not bring any evidence on record to support the actual sale and profit. The Tribunal held that the addition was based on conjectures and surmises and was not justified. Therefore, the Tribunal allowed the ground in favor of the assessee.

4. Enhancement of Income by Rs.16,00,000/- under Section 69C and Penalty Proceedings:
The Tribunal noted that the CIT(A) enhanced the income by Rs.16,00,000/- on the basis that the amount declared during the survey was for expenses incurred from undisclosed sources, which were not recorded in the books. The Tribunal found that the matter required re-examination to determine whether the cash was utilized for the same expenses and whether separate deductions were claimed. The Tribunal set aside the CIT(A)'s order and remanded the issue back to the AO for fresh examination of the facts and evidences. The AO was directed to provide a reasonable opportunity of hearing to the assessee.

Conclusion:
The Tribunal allowed the appeal of the assessee for statistical purposes. The issues were remanded back to the AO for fresh examination and decision, with directions to verify the claims and provide a reasonable opportunity of hearing to the assessee. The Tribunal emphasized the need for proper verification and consideration of the facts and evidences presented by the assessee.