2014 (10) TMI 391 - AT - Income Tax

Admission of additional evidence u/s 46A(1) Held that - A distinction has to be made between the evidence and material voluntarily furnished by an assessee in support of his appeal and the evidence/material requisitioned from an assessee by the FAA with a view to proper disposal of proceedings before him - While the provisions of rule 46A apply to the former, it will have no application to the latter - the entire additional evidence has come on the record of the FAA because the FAA decided to examine the facts of the case in depth and adjudicate upon the matter on the basis of evidence and material thus gathered there was no requirement in law that the FAA should invariably consult or confront the AO every time an additional evidence that was not filed before the assessing officer comes on the record of the first appellate authority - If the additional evidence furnished by the assessee before the appellate authority is in the nature of clinching evidence leaving no further room for any doubt or controversy in such a case no useful purpose served on performing the ritual of forwarding the evidence/material to the AO and obtain his report Decided against revenue. Profit from own chity investment Whether the assessee has not produced further evidences to prove the loss claimed in respect of certain AYs - Held that - The deletion of addition is justified as there was no incriminating material found or seized during the course of search to suggest the addition for the AY 2002-03 - For the AY 2003-04, the material relating to the investment in own chity was found for the month of Feb and March 2003 - Since these chits were not terminated during the relevant year, the CIT(A) was of the view that the AO has computed the income by projecting the investments found for two months against the whole year and further estimated the income at 10% - there is no need for estimating the income for the AY 2003-04 in view of the fact that the chity reflected in the seized material for the relevant year are not terminated as on 31.3.2003 - the CIT(A) is justified in deleting the addition of ₹ 3,00,905/ for the AY 2003-04 - there was loss from own chity investment as per the working furnished by the assessee - The entire working furnished by the assessee was forward to the AO for verification and report - there was no discrepancy in the working furnished by the assessee - the assessee has admitted more investments in own chits than the figure worked out by the AO - the addition made by the AO on estimate basis towards profit from own chity investment was not justifiable - the CIT(A) observed that the addition of ₹ 1,39,264/- for the AY 2004-05 and to the extent of ₹ 74,329/- for the AY 2007-08 are to be made and deleted the balance addition of other AYs the order of the CIT(A) is upheld Decided against revenue. Addition of income from kuri late fee Held that - CIT(A) rightly found that various items of income are clubbed together and disclosed in the respective financial statement - the CIT(A) was rightly of the opinion that there was no reason to disbelieve the submissions made by the assessee that other kuri income offered includes income from kuri late fee - the AO has made the addition only on pure guess work and not on the basis of any material found/seized during the course of search the order of the CIT(A) is upheld Decided against revenue. Interest paid on deposits disallowed Held that - The addition was made by the AO without referring any seized material and the addition was only on presumption without any material to show that borrowed funds have been advanced to sister concerns during the relevant assessment years - In the absence of any material to suggest that the advance made to sister concerns were out of borrowed funds, the deletion of addition by the CIT(A) is justified Decided against revenue. Interest claimed on housing loan Held that - The amount borrowed by the partners was credited to the assessee s firm and the corresponding payment was also made by the assessee including interest payments AO was of the view that the interest was to be borne by the partners and it was wrongly claimed by the assessee firm - however, there is no material to suggest that the partners were derived any benefit out of the loans availed by the assessee firm - In the absence of any material to suggest the benefits derived by the partners in a personal capacity, the claim of the revenue cannot be accepted Decided against revenue. Excess interest received from money lending business Held that - The CIT(A) has considered the average opening and closing balances of the financial year so as to compute the interest income, which is an accepted method of assessment of income and advances when the day-to-day balances of loan is not available the order of the CIT(A) is upheld Decided against assessee. Income from chitty business of foreman s commission Held that - The assessee furnished reconciliation statement with regard to collection of the foreman commission before the CIT(A) - The CIT(A), after going through the reconciliation statement observed that the foreman commission receivable for the AY 2002-03 was at ₹ 21,57,720 and for The AY 2008-09, it was ₹ 23,63,326 - he sustained the addition towards undisclosed foreman commission at ₹ 8,800/- for the AY 2006-07 and ₹ 16,06,951/- for the AY 2008-09 -The assessee could not controvert the above findings of the CIT(A) thus, the order of the CIT(A) is upheld Decided against revenue. Profit from terminated kuries disallowed Held that - The assessee filed the detailed working of the profit from the terminated kuries - after going through the details furnished by the assessee regarding the outstanding of terminated kuries, he quantities it at ₹ 3,13,771/- and sustained the same and deleted the balance ₹ 31,11,054/ for the kuries which have not been terminated as on 31.3.2008 - The CIT(A) given relief in respect of kuries which are not terminated relying upon COMMISSIONER OF INCOME-TAX Versus GURUVIJAYA KURI CO. LTD. 2008 (1) TMI 267 - KERALA HIGH COURT Co Ltd. the order of the CIT(A) is upheld Decided against assessee. Estimation of profit Proceedings u/s 153A Held that -Assessee was rightly of the view that the income tax assessment for the AYs 2002-03 to 2005-06 have been completed as on the date of search - In this case, the assessments for the AYs 2002-03 to 2005-06 had been completed under summary scheme u/s 143(1) and the time limit for issue of notice u/s 143(2) had expired as on the date of search - there was no assessment pending in respect of these AYs and in such a situation, there was no question of abatement relying upon M/s ALL CARGO GLOBAL LOGISTICS LTD Versus DEPUTY COMMISSIONER OF INCOME TAX 2012 (7) TMI 222 - ITAT MUMBAI(SB) Decided against assessee. Treatment of agricultural income Claim of agricultural income under return files as per section 153A Held that - Owning agricultural land was not doubted by the Department - There were evidences produced by the assessee suggesting agricultural income generated by the assessee in his land - since the Department have no evidence contrary to the evidence furnished by the assessee; therefore, it is not proper to hold that the assessee has shown other income in the form of agricultural income - Since evidence brought on record suggest that the agricultural income earned by the assessee, there was no reason to interfere with the findings of the CIT(A), which is confirmed as the reasons advanced by the assessee also bonafide for variation in the agricultural income claimed in the original return filed after the search action Decided against revenue. Receipt form sale of trees disallowed Held that - The certificates from revenue authorities furnished by the assessee as well as the remand report of the AO in connection with the claim of agricultural income, clearly shows that the assessee is having properties other than wetlands - the tree sale agreement properly described the name and address of the purchaser, the nature of trees and conditions of sale, schedule of payments and the data-wise receipt of payments by the assessee - evidences furnished by the assessee, in support of his claim, were in order - since the trees sold were naturally and spontaneously grown, no question of taxability of the receipt arises revenue has not doubted the certificate issued by the revenue authorities which suggest the availability of timber - it is natural to earn income from sale of trees Decided against revenue. Investment in immovable property Held that - The assessees have furnished evidence before the CIT(A) and explained the investments in the properties in the cash flow statements - The CIT(A) had also called for remand report - the CIT(A) has observed that the unexplained investments in immovable properties were accounted for as fixed assets in the regular books of account of the firm in which the assesses were partners and the same cannot be considered as unexplained investment in immovable properties and it is to be excluded and the properties are owned by the assesses which are duly accounted for in the regular books of accounts the order of the CIT(A) is upheld Decided against revenue. Addition of personal drawings Held that - The AO estimated very huge drawings - the CIT(A) observed that for the AY 2005-06 to 2008-09, there is no necessity of any addition as the drawings admitted by the assesses is reasonable as there is drawings by other members of the family namely Lilly, Shju, Jaison, Sabu, Salu and Benny the order of the CIT(A) is upheld Decided against assessee. Cost of furnishing the residential house - CIT(A) rightly found that no evidences were furnished regarding expenditure towards horticultural work, kennel and well - own timber was used in the construction and the bricks/tiles used in the construction were procured from the business concerns of the assessee group at reduced prices, were not supported by any evidence - the assessee has not offered any explanation regarding the cost of furnishing at ₹ 1,93,410/- estimated by the AO - the submission of the assessee regarding pavement work and installation of gate was in order - the cost of pavement work at ₹ 95,394/- and cost of gate at ₹ 11,825/- (Total ₹ 1,07,219) included in the valuation report of the Departmental Valuer shall not be treated as unexplained investment for the AY 2005-06 - the other contentions such as own timber, procurement of bricks/tiles at reduced prices, cost of kennel, cost of horticultural work, cost of well, etc. were not proved by the assessee with sufficient evidences the order of the CIT(A) is upheld Decided against assessee.

Summary

Issues Involved:
1. Admission of fresh/new evidence without satisfying Rule 46A(1).
2. Profit from own chitty investment.
3. Addition of income from Kuri late fee.
4. Disallowance of interest paid on deposits.
5. Disallowance of interest claimed on housing loan.
6. Validity of assessments without search warrant.
7. Assessment of profit from own chits.
8. Excess interest received from money lending business.
9. Addition of income from chitty business of foreman's commission.
10. Disallowance under Section 40(a)(ia) of the Act.
11. Addition of profit from terminated kuries.
12. Estimate of profit based on seized materials.
13. Treatment of agricultural income.
14. Disallowance of receipt from sale of trees.
15. Addition towards investments in fixed deposits/SB accounts.
16. Addition towards investments in immovable properties.
17. Addition towards personal drawings.
18. Addition towards cost of construction of residential house.

Issue-wise Detailed Analysis:

1. Admission of Fresh/New Evidence Without Satisfying Rule 46A(1):
The Tribunal observed that Rule 46A of the IT Rules restricts the right of the appellant to produce new evidence before the first appellate authority unless certain conditions are met. However, the appellate authority has the power to make further inquiries under Section 250(4) of the Act. In this case, the CIT(A) admitted new evidence after calling for a remand report from the AO. The Tribunal concluded that the CIT(A) acted within their powers and dismissed the Revenue's grounds on this issue.

2. Profit from Own Chitty Investment:
The AO estimated the profit from own chitty investments based on seized documents and projected figures. The CIT(A) found the additions for certain years to be purely on an estimate basis without evidence. The Tribunal upheld the CIT(A)'s decision to delete the estimated additions where no incriminating material was found and confirmed the deletion of additions for AY 2002-03 and 2003-04.

3. Addition of Income from Kuri Late Fee:
The AO projected the kuri late fee collected over six months to the entire year and made additions. The CIT(A) found no incriminating material to support these additions and observed that the AO did not verify whether the amounts were disclosed in the return of income. The Tribunal upheld the CIT(A)'s deletion of these additions.

4. Disallowance of Interest Paid on Deposits:
The AO disallowed interest on deposits where funds were advanced to sister concerns without charging interest. The CIT(A) deleted the disallowance, noting the absence of any seized material suggesting that borrowed funds were advanced to sister concerns. The Tribunal confirmed the CIT(A)'s decision.

5. Disallowance of Interest Claimed on Housing Loan:
The AO disallowed interest on a housing loan, assuming it related to partners' personal accounts. The CIT(A) found no material suggesting personal benefits to the partners and deleted the disallowance. The Tribunal upheld this decision.

6. Validity of Assessments Without Search Warrant:
The assessee argued that the assessments were invalid due to the absence of a search warrant. The Tribunal noted that the AR did not press this ground during the hearing, and it was dismissed as not pressed.

7. Assessment of Profit from Own Chits:
The Tribunal confirmed the CIT(A)'s decision to delete estimated additions for AY 2002-03 and 2003-04, finding no incriminating material to support these additions.

8. Excess Interest Received from Money Lending Business:
The AO estimated interest income based on seized documents and rejected the books of account. The CIT(A) found the average method for estimating interest income more appropriate and upheld additions only for certain years. The Tribunal confirmed the CIT(A)'s findings.

9. Addition of Income from Chitty Business of Foreman's Commission:
The AO worked out foreman's commission receivable and made additions. The CIT(A) found discrepancies in the AO's calculations and accepted the assessee's reconciliations. The Tribunal upheld the CIT(A)'s decision.

10. Disallowance Under Section 40(a)(ia) of the Act:
The AO disallowed payments where TDS was not deducted. The CIT(A) deleted the disallowance, noting that income was estimated by the AO. The Tribunal confirmed this decision.

11. Addition of Profit from Terminated Kuries:
The AO added outstanding balances from terminated kuries as income. The CIT(A) found that only balances from kuries terminated beyond three years should be added. The Tribunal upheld the CIT(A)'s decision.

12. Estimate of Profit Based on Seized Materials:
The AO prepared financial statements from seized books and found discrepancies. The CIT(A) found the seized books incomplete and estimated net profit at 5% of turnover. The Tribunal confirmed this approach.

13. Treatment of Agricultural Income:
The AO did not accept the agricultural income claimed by the assessee. The CIT(A) found the assessee's claims supported by evidence and reduced the disallowance. The Tribunal upheld the CIT(A)'s decision.

14. Disallowance of Receipt from Sale of Trees:
The AO disallowed receipts from the sale of trees due to lack of evidence. The CIT(A) found the assessee's claims supported by agreements and deleted the disallowance. The Tribunal confirmed this decision.

15. Addition Towards Investments in Fixed Deposits/SB Accounts:
The AO treated certain fixed deposits as unexplained investments. The CIT(A) found the assessee's explanations satisfactory and deleted the additions. The Tribunal upheld the CIT(A)'s decision.

16. Addition Towards Investments in Immovable Properties:
The AO added unexplained investments in immovable properties. The CIT(A) found the investments properly explained and deleted the additions. The Tribunal confirmed this decision.

17. Addition Towards Personal Drawings:
The AO estimated high personal drawings. The CIT(A) found the drawings admitted by the assessee reasonable for certain years and reduced the additions. The Tribunal confirmed the CIT(A)'s decision.

18. Addition Towards Cost of Construction of Residential House:
The AO adopted the cost of construction based on a Departmental Valuer's report. The CIT(A) found part of the costs incurred post-search and reduced the additions. The Tribunal upheld the CIT(A)'s decision.

Conclusion:
The Tribunal largely upheld the CIT(A)'s decisions, confirming deletions and reductions of various additions made by the AO, emphasizing the need for evidence and proper explanations in making such additions.