2014 (10) TMI 351 - AT - Income Tax

Unexplained investment u/s 69C Whether the sum payable to employee and drawings of the year was more than sufficient to cover the expenses - Held that - Loose paper marked contains certain notings and an addition of ₹ 3,81,500/- has been made on these entries pertain to the calculation of interest on some advance given and therefore, he has worked out the principal amount of ₹ 3.50 lacs as advance after including interest amount of ₹ 31.500/- and thus he has made addition of ₹ 3,81.500 - the details of lockers in which cash amount has been deposited with reference to unaccounted finance business of the assessee is found mentioned - the assessee has not been able to get these amounts verified with reference to his regular books of account the order of the CIT(A) is upheld Decided against assesse. Undisclosed investment in construction of the house property - Explanation furnished and evidences adduced ignored Held that - Both parties have reiterated their earlier stand which is evident from the appellate order itself - the AO has proceeded in the wrong direction and has not relied upon DVO s report even after making reference to him and the DVO also made available his report during the assessment proceedings - local position is well settled regarding adoption of local PWD rates for valuation of the cost of construction etc. as decided in CIT vs. Hotel Joshi 1999 (11) TMI 56 - RAJASTHAN High Court - instead of CPWD rates for valuation of properly only local PWD rates should be adopted - Otherwise also, for self-supervision, deduction upto 20% is allowable depending upon different circumstances of a case - the assessee has claimed 20% deduction on account of difference in PWD rates as mentioned above and 15% on account of self-supervision - entire addition made by the AO in this account is to be deleted - the addition upheld by the CIT(A) on account of unexplained investment in the construction of house property is to be set aside Decided in favour of assesse. Claim of interest disallowed AO was of the view that the interest has not incurred by the assessee for business purposes Held that - Assessee contended that that the AO has wrongly appreciated the facts - the expenses were not claimed by the assessee either out of income declared under the head Income from Business or Profession or under the head Income from Other Sources - profit earned by the assessee from its proprietary concern M/s.Mannalal Surajmal at ₹ 9,32,726/- was considered for computing the income from Business and Profession and the interest received and credited in the personal profit and loss account, copy of which is enclosed has been separately disclosed under the head Income from other Sources - the assessee has never claimed the expenses out of the income computed for payment of tax. Claim of lumpsum disallowance out of various expenses Held that - The AO has made lumpsum disallowance on the reasoning that the expenses are not properly vouched and some element of personal usage is also involved in the expenses - the action of the AO is not based on any specific logic but based on loose subjective inference the AO has not brought on record any evidence that expenses claimed are bogus and inflated for non-business purposes - no addition can be made without supporting evidence only Decided against revenue. Addition of gold and silver jewellery Held that - There is no difference in the jewellery declared and found - The assessee has two sons who are not assessed under Wealth Tax Act and in view of the CBDT instruction dated 11-05-1994, credit has to be given in their hands also - This deduction comes to 200 gms of jewellery being 100 gms for each male members in the Wealth Tax Act filed upto assessment year 2008-09 and search took place on 24-08-2009 which is almost after expiry of 17 months contention of the assesse is accepted that during the period of 17 months, the acquisition of some jewellery in social ceremonies and other like occasions looking to the family of the assessee is not ruled out - As per CBDT instruction, the other family members also get credit upto 1800 gms as there are two married ladies and two male members relying upon Patti Devi vs. ITO 1999 (2) TMI 43 - KARNATAKA High Court - after considering the deduction on account of purity, the CBDT instruction and the value of the precious and semi precious stones jewellery available with the assessee can be treated as explained - the addition made on account of unexplained investment in the acquisition of jewellery is deleted Decided in favour of assesse. During course of search, no incriminating documents disclosing the alleged advances made by the assessee to various persons was found or seized - The Revenue found and seized cash lying in the private lockers and the same have already been offered by the assessee as an additional income in the return filed for the year under consideration which also covers with the withdrawal of deposits of cash in these lockers which is supported by pasted papers if they are taken into consideration - All these funds and the figures appearing are to be comprehended after suffixing two zero and this fact has been clearly admitted by the assessee and is still maintained. Assessee has duly shown the cash found and admitted as his business income from his regular business activities and further having paid tax and explaining the mode and manner of acquisition of such income in his return of income and during the assessment proceedings, the entire addition made on the basis of appreciation of these documents which are mainly on presumption and assumptions without there being any corroborative material on record deserves to be deleted, especially when the AO has neither appreciated the statements of the assessee properly as well as additional income offered by him Decided in favour of assesse. Loss disallowed under Income from other sources Held that - The assessee has claimed payment of interest paid as expenses and the loss under the head Income from other Sources at ₹ 9,06,470/- which is to be adjusted against others heads of income - The assessee is engaged in the finance brokerage activities and the income from such activities is reflected under the head Income from Business and the interest claimed under the head Income from other Sources is of similar nature Decided in favour of assesse.

Summary

Issues Involved:
1. Addition on account of undisclosed cash advance.
2. Addition on account of unexplained investment in house property.
3. Disallowance of interest expenses.
4. Disallowance of personal and unverifiable expenses.
5. Charging of interest under sections 234A, 234B, and 234D.
6. Addition on account of undisclosed jewellery and silver.
7. Addition on account of undisclosed cash advances and transactions.
8. Disallowance of loss under the head "Income from Other Sources."
9. Allowing the benefit of recycling and telescoping of the additions.

Detailed Analysis:

1. Addition on account of undisclosed cash advance:
The AO made an addition of Rs. 3,81,500 on account of undisclosed cash advance, which was reduced to Rs. 31,500 by the CIT(A). The Tribunal upheld the CIT(A)'s decision, stating that the assessee failed to get these amounts verified with reference to his regular books of account. The Tribunal dismissed both the assessee's and the Revenue's appeals on this issue.

2. Addition on account of unexplained investment in house property:
The AO made an addition of Rs. 1.11 crores for unexplained investment in house construction, which was partly deleted by the CIT(A). The Tribunal agreed with the assessee's argument that local PWD rates should be used instead of CPWD rates, and self-supervision deductions should be allowed. The Tribunal deleted the entire addition of Rs. 62,62,049 upheld by the CIT(A), thus allowing the assessee's appeal and dismissing the Revenue's appeal on this issue.

3. Disallowance of interest expenses:
The AO disallowed Rs. 2,81,685 of interest expenses, which was confirmed by the CIT(A). The Tribunal found that the assessee did not claim these expenses out of the income computed for payment of tax. Therefore, the disallowance was deleted, and the assessee's appeal was allowed on this issue.

4. Disallowance of personal and unverifiable expenses:
The AO made a lumpsum disallowance of Rs. 1.50 lakhs out of various expenses claimed in the profit and loss account on account of personal use, which was deleted by the CIT(A). The Tribunal found no evidence to support the AO's claim that the expenses were bogus or inflated. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue.

5. Charging of interest under sections 234A, 234B, and 234D:
The Tribunal found no infirmity in the CIT(A)'s order regarding the charging of interest under sections 234A, 234B, and 234D. The assessee's appeal on this issue was dismissed.

6. Addition on account of undisclosed jewellery and silver:
The AO made an addition of Rs. 59,70,358 for undisclosed jewellery and silver, which was partly confirmed and enhanced by the CIT(A). The Tribunal found that the jewellery and silver articles were explained as per the CBDT instruction and the decisions of various High Courts. The Tribunal deleted the entire addition of Rs. 56,99,767 for jewellery and Rs. 4,49,452 for silver, thus allowing the assessee's appeal on this issue.

7. Addition on account of undisclosed cash advances and transactions:
The AO made an addition of Rs. 14,64,25,495 for undisclosed cash advances, which was reduced to Rs. 7.47 crores by the CIT(A). The Tribunal found that the addition was based on assumptions and presumptions without corroborative material. The Tribunal deleted the entire addition, allowing the assessee's appeal and dismissing the Revenue's appeal on this issue.

8. Disallowance of loss under the head "Income from Other Sources":
The AO disallowed a loss of Rs. 9,06,470 under the head "Income from Other Sources," which was confirmed by the CIT(A). The Tribunal found that the interest claimed was of similar nature to the business expenses and should have been allowed as business expenditure. The Tribunal allowed the assessee's appeal on this issue.

9. Allowing the benefit of recycling and telescoping of the additions:
The Tribunal found no additions sustained out of which the benefit of recycling and telescoping could be given. The assessee's appeal on this issue was dismissed.

Conclusion:
The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals, providing relief on several issues including unexplained investments, interest expenses, and undisclosed jewellery and cash advances. The Tribunal emphasized the need for corroborative material and proper appreciation of facts in making additions.