2014 (3) TMI 492 - AT - Income Tax

Addition made u/s 68 of the Act Held that - The assessing authority had treated the account as a running account, adding only the incremental flow of funds for the year as unexplained - No verification of the sort required, of the amounts in question was however made in the set aside proceedings, so that the direction by the tribunal remains to be complied with - The primary onus lies on the assessee - Its claim that all the entries, debit or credit, comprising the sums to be duly vouched, as by bank advices, and reflected in the bank s statement, shall however be required to be exhibited thus, the matter is remitted back to the AO for adjudication. Penalty u/s 271(1)(c) of the Act Held that - As the matter has been already remitted back to the AO for verification and fresh adjudication thus, the penalty levied cannot be survived the AO shall be at liberty at if deem fit, to initiate penalty proceedings. Addition made u/s 41(1) of the Act Held that - The decision in Mahindra and Mahindra Ltd. vs. CIT 2003 (1) TMI 71 - BOMBAY High Court followed - the waiver of a loan, where deployed for the acquisition of a capital asset, would not amount to income u/s.41(1), is completely misplaced - The waiver, if at all, could only be by the assessee - there is in fact no waiver of any loan or liability - the debtor being rather required to pay the entire sum as outstanding in his books, which is inclusive of the three credits under reference, to the assessee - the credit to the assessee s account is itself an admission of the liability to the assessee - the debt to the assessee company being proved with reference to the decision by a court of law, the same stood confirmed as the assessee s income for the relevant year - the account not appearing in the assessee s books of account nor it furnishing any explanation, much less satisfactory, as to the nature and source of its relevant asset/s in the form of a debt/s due to it - Section 69/69A/69B would have application thus, there is no merit in the assessee s case and uphold the addition, modifying the order to the extent it adverts to or draws on section 41(1) of the Act Decided against Assessee. Addition made - Profits on security transaction Held that - The reflection of the amounts in the loan account of Shri A. D. Narottam being in fact the very basis for the addition u/s.68 - the directions by the tribunal for the year are as apparent at variance with that for the earlier years - The Revenue is unable to show any infirmity in the order, being based on the factual findings in terms of the tribunal s order - the present proceedings arise out of the set aside proceedings, so that the directions by the tribunal, having since attained finality, shall obtain, and are binding on all authorities upto the tribunal thus, the order upheld Decided against Revenue.

Summary

Issues Involved:
1. Deletion of additions related to funds received from undisclosed sources.
2. Penalty proceedings under Section 271(1)(c).
3. Addition to income based on credits in the debtor's bank accounts.
4. Verification of additions as profits arising from security transactions.

Detailed Analysis:

1. Deletion of Additions Related to Funds Received from Undisclosed Sources:
The Revenue's appeals for A.Ys. 1989-90 and 1990-91 revolved around the deletion of additions amounting to Rs.16,75,86,084/- and Rs.27,08,000/- respectively, which were attributed to funds received from undisclosed sources. The assessee's transactions through the 'Bank of Karad Government securities sale and purchase a/c' were transferred to the loan account of Shri A. D. Narottam. The Tribunal had previously directed the Assessing Officer (A.O.) to verify the details of these transactions and their relation to the liability confirmed by the Special Court. However, the A.O. and the CIT(A) had differing interpretations of the Tribunal's directions. The Tribunal clarified that the primary onus was on the assessee to establish the identity of the impugned credits and their verification by the A.O. The matter was restored back to the A.O. for fresh adjudication, emphasizing the need for definite findings of fact.

2. Penalty Proceedings Under Section 271(1)(c):
The penalty appeals for A.Ys. 1989-90 and 1990-91 were linked to the quantum proceedings. Since the quantum additions were restored for verification, the penalties under Section 271(1)(c) did not survive. The Tribunal upheld the CIT(A)'s order, allowing the A.O. the liberty to initiate penalty proceedings in the set aside proceedings if deemed fit.

3. Addition to Income Based on Credits in the Debtor's Bank Accounts:
For A.Y. 1991-92, the assessee's appeal contested the addition of Rs.13,23,45,918/- based on credits in Shri H. K. Dalal's bank accounts. The Tribunal had previously remitted the matter back to the A.O. to verify the source of these credits. The A.O. found that the loan account in the name of the assessee in Shri H. K. Dalal's books was validated by the Special Court. The addition was confirmed as the assessee failed to reflect these amounts in its accounts or provide any explanation. The Tribunal upheld the addition, rejecting the assessee's reliance on the decision in CIT vs. Xylon Holdings Pvt. Ltd., as there was no waiver of any loan or liability.

4. Verification of Additions as Profits Arising from Security Transactions:
The Revenue's appeal for A.Y. 1991-92 involved three additions: Rs.17,69,64,610/-, Rs.99,31,857/-, and Rs.14,25,87,483/-, related to profits from security transactions. The Tribunal had previously directed the A.O. to verify if these amounts were reflected in the loan account of Shri A. D. Narottam. The CIT(A) deleted the additions based on the Tribunal's directions. The Tribunal upheld the CIT(A)'s order, noting that the primary facts were not in dispute and the directions by the Tribunal in the first round were binding.

Conclusion:
The Tribunal's order resulted in the dismissal of some appeals and allowed others for statistical purposes, emphasizing the need for verification and adherence to the Tribunal's previous directions. The detailed findings and directions for fresh adjudication highlighted the importance of proper verification and compliance with judicial directions in tax assessments and penalty proceedings.