2015 (3) TMI 708 - AT - Income Tax

Legality and validity of the assessment made under Section 153A - Held that - On the ground of absence of any incriminating material relating to the assessee found at the time of search, relying on the order of the jurisdiction High Court of Andhra Pradesh in the case of Gopal Lal Bhadruka 2012 (6) TMI 657 - ANDHRA PRADESH HIGH COURT wherein it has been held that the AO can take into consideration material other than that discovered during search. We do not find any merit in the same, and the said ground is accordingly rejected. Disallowance under Section 40A(3) - assessee showed purchase of land related to real estate business amounting to ₹ 23,76,020 during the year, which comprised of cost of land of ₹ 21,60,180 and registration charges paid to government of ₹ 2,16,020 - Held that - It is the case of the assessee that the payments in question were made in villages where banking facilities are not available and as such, the same are covered by the exceptional circumstances envisaged in Rule 6DD(g) of the Income -tax Rules. In support of this plea, assessee has submitted details with respect to the names of the villages where the lands were purchased and also the list of major banks in Chittoor District. The Revenue authorities have rejected the plea of the assessee in this behalf by general observations. Since the assessee has furnished details of the villages and the details of the branches of major banks in Chittoor District, we deem it just and proper to set aside the impugned orders of the Revenue authorities on this aspect, and remit the matter to the file of the Assessing Officer for proper examination of the claim of the assessee that banking facilities were not available where lands have been purchased and payments have been made and consequently, these payments are covered by the exceptional circumstance envisaged in Rule 6DD(g) of the I.T. Rules - Decided in favour of assessee for statistical purposes. Disallowance of expenditure on adhoc basis - Held that - CIT(A), after considering all the facts and circumstances of the case and corresponding expenditure claimed and allowed in the earlier years, has restricted the disallowance made by the Assessing Officer at 10%. We find that the disallowance sustained by the CIT(A) is fair and reasonable and there is no justification for interference with the order of the CIT(A) on this issue. - Decided against assessee. Addition made by treating part of the agricultural income claimed by the assessee as income from other sources - Held that - Assessee inviting our attention to the details of the land holding of the assessee, submitted that the assessee was having land-holding around Tirupati region and agricultural operations were indeed carried on, and the agricultural income derived from such lands was duly certified by the MRO, as such, he pleaded that there was no justification for any disallowance to be made out of the agricultural income claimed by the assessee. Considering the extent of land holding and the claim of the assessee as to the agricultural operations carried thereon during the relevant period, we find it just and proper to set aside the impugned orders of the Revenue authorities and restore this issue to the file of the Assessing Officer for fresh examination this issue. The Assessing Officer is directed to verify the records of the agricultural land owned by the assessee and Adangal Patti and other records to ascertain the crops grown and the income derived by the assessee, and thereafter arrives at any reasonable amount of disallowance, if any, warranted out of the agricultural income claimed by the assessee - Decided in favour of assessee for statistical purposes. Unexplained cash credit - CIT(A) accepting the explanation of the assessee with regard to availability of agricultural income of ₹ 4,32,500 of the year 2001-02, restricted the addition made by the Assessing Officer to ₹ 2,63,000. As for the balance amount of ₹ 2,63,500 sustained by the CIT(A) as well, we find that the assessee claimed before the CIT(A) rental income and agricultural income of his mother as constituting the sources for the capital introduced on 1.4.2002 - Held that - Mere possession of agricultural land by the assessee s mother or her deriving substantial agricultural income there from does not establish the sources for the cash credit introduced by the assessee, unless it is established by the assessee that the said income of his mother constituted source for the capital introduced by him by way of cash. At the same time, the learned counsel for the assessee has also furnished before us, a cash flow statement, for explaining the sources of the capital introduced. These aspects of the matter have not been examined by the CIT(A) and the same have to be verified by the Assessing Officer. Considering totality of facts and circumstances of the case, we find it just and proper to remit this issue to the file of the Assessing Officer for re-deciding the same, after verifying the cash-flow statement furnished by the assessee and in the light of the explanation of the assessee with regard to the sources for the capital introduced by the assessee. He shall of course, re-decide this issue after giving reasonable opportunity of hearing to the assessee to substantiate his claim with regard to the sources, other than the agricultural income of ₹ 4,32,500 which has been accepted by the CIT(A).- Decided in favour of assessee for statistical purposes. Unexplained investment in purchase of land - Held that - We are in confirmity with the order of the CIT (A) as the claim of the assessee that it received back this amount of ₹ 3,50,00 on 1.11.2003 is not relevant. The assessee has not explained the source of this money and the AO has clearly pointed out that the cash book does not indicate either payment of ₹ 3.50 lakhs or subsequent receipt. Hence, the CIT (A) was right in holding that the payment of ₹ 3.50 lakhs is unexplained in the absence of satisfactory explanation. As regard the 2nd property, there is no evidence of subsequent payment or registration of this land in favour of assessee or his family members. The assessee has no offered explanation for the source of ₹ 50,000, hence we confirm the order of the CIT (A), in sustaining the addition of ₹ 50,000. Hence the sum of ₹ 4.00 lakhs is being held as unexplained investment. - Decided against assessee. Unexplained cash credit appearing in the books of the assessee - Held that - Since no evidence has been brought to our record that Smt. S. Basamma, mother of the assessee was having agricultural income and carrying out agricultural operations, for the past several years and had given the same to the assessee, we set aside this issue to the file of the AO to verify this fact and decide accordingly. - Decided against assessee. Addition as unexplained cash credit - Held that - The assessee has not furnished any details and the CIT (A) has rightly disallowed the claim as regarding the compensation for destruction of residential house and for being a political leader, we agree with the view of the CIT (A) that generally the amounts received from the Govt. in the form of cheque and not cash. The cash deposits of ₹ 2,00,523/- are also not explained by the assessee satisfactorily. Hence we confirm the order of the CIT (A) on this issue. - Decided against assessee. Unexplained investment in land ₹ 33,34,733 - Held that - We find that the ld counsel for the assessee has relied on the consolidated cash flow statement submitted in the paper book before us. The ld Counsel has pointed out to exact row and page of the cash flow statement from which the amounts paid as advances are made out of explained income. The assessee has also stated that in the case of Chinnagaritappa Naidu and Gopal Choudhary, E. Ramachandra Naidu, Thalluri Muniratnam Naidu, Balarami Reddy, A Muni Reddy and Others, the transactions are duly reflected in the books of accounts and income arising out of it was offered to tax in the return of income of the assessee for the year under consideration. Hence we are of the opinion that the advances made by the assessee are out of explained income of the assessee - Decided in favour of assessee. Contribution to chit fund - Held that - The AO held that the payment of the amount of ₹ 21,700/- and ₹ 25,000/- to Shri Chamundi Group of companies has not been explained and added the amount. During the appellate proceedings, the assessee stated that these amounts were installments towards purchase of residential plots and were subsequently refunded since permission for developing the plot were not received by them. The CIT (A) held that this does not explain the source of initial investment of ₹ 46,700 as unexplained investment and sustained the addition. It was submitted that in the consolidated cash flow statement at Row No.23 of page No.3, the amount is reflected. Hence we set aside this issue to the file of the AO to verify the same - Decided in favour of assessee for statistical purposes. Addition towards political expenditure - Held that - It was submitted that during the years under consideration, the assessee has made certain political expenditures amounting to ₹ 33,840 for AY 2008-09 and the same is reflected in the books of accounts of the assessee and is made out of the explained source of income. It was submitted that the AO made the addition based on the invoices found during the search which does not belong the assessee and contained names of some other parties not belong the assessee group. Since it was submitted by the ld Counsel that the same is reflected in the cash flow statement filed before us, we set aside the issue to the file of the AO to verify the cash flow statement - Decided in favour of assessee for statistical purposes. Unexplained expenditure towards son s education - Held that - The source for the amount of ₹ 17,10,000 (Rs.1.10 4.00 3.50 7.00 1.50) has been properly explained out of the total amount of ₹ 40,10,000. The balance of ₹ 23.00 lakhs (i.e. 40,10,000 - 17,10,000) which according to the assessee is a loan to be returned back in due course. Dr.Deepthi has submitted sworn affidavit in this regard. Therefore, we are convinced of the source of funds towards son s education expenditure. - Decided in favour of assessee. Addition towards silver and gold ornaments - Held that - It is a fact that the estimates found by the AO is for the original purchase of silver articles. Also during the search AO has not found physically any of these items. Hence, AO added the estimate as well as the purchase invoice for the same items which was not correct, not justified and bad in law. It was further submitted that the expenditure made by the assessee are out of the explained income of the assessee and his family and are duly reflected in the cash flow statements submitted before the CIT (A) and are again provided in the paper book. Therefore, we set aside this issue to the file of the AO to verify whether the amount of ₹ 12,30,743/- is shown before purchase of jewellery in the cash flow statement under application of funds. - Decided in favour of assessee for statistical purposes. Income from the sale of agricultural commodities - Held that - CIT (A) observed that the land documents with Pattadar Passbooks submitted by the assessee sum up to only 14 acres as supposed to 20.9 acres claimed in the agricultural income certificate. Hence the CIT (A) restricted the agricultural income to ₹ 15,000 per acre which worked to ₹ 2,10,000 and considered the balance of ₹ 1,50,000 as income from other sources. Since the assessee has not produced evidence for the ownership of the remaining (20.9 - 14 acres 5.1), we set aside the issue to the file of the AO to give one more opportunity to produce the land holdings and the proof for the income from the sale of agricultural commodities as well as the expenses incurred in the course of cultivating the land. - Decided in favour of assessee for statistical purposes. Advance for purchase of plywood and laminates - CIT (A) held that The appellant has reflected ₹ 35.89 lakhs towards house construction as on 31.03.2008 and hence the contention is accepted and the addition is deleted - Held that - We find that the construction account has shown an expenditure of ₹ 35.89 lakhs as on 31.03.2008. Hence payment of ₹ 1,95,000 being part of construction accounts is only a small portion of the entire amount spent towards construction. We find that the amount of ₹ 35.89 lakhs towards house construction has been reflected in the accounts of the assessee. Whether the amount has been paid towards granites or plywood and laminates, is not relevant as the payment is part of the construction account. Therefore, we confirm the deletion made by CIT (A) for an amount of ₹ 1,95,000/-. - Decided against revenue

Summary

Issues Involved:
1. Legality and validity of assessments under Section 153A.
2. Disallowance of expenditure on purchase of land under Section 40A(3).
3. Disallowance of other expenditure.
4. Treatment of agricultural income as income from other sources.
5. Addition on account of unexplained cash credits.
6. Treatment of long-term capital gains as income from business.
7. Unexplained investments in land.
8. Unexplained bank deposits.

Detailed Analysis:

1. Legality and Validity of Assessments under Section 153A:
The Tribunal addressed the legality of assessments made under Section 153A in the absence of any incriminating material found during the search. It was held that the Assessing Officer (AO) could consider material other than that discovered during the search, relying on the jurisdictional High Court's decisions. The Tribunal rejected the contention that the assessments were invalid due to the lack of incriminating material.

2. Disallowance of Expenditure on Purchase of Land under Section 40A(3):
The AO disallowed 1/5th of the land purchase expenditure made in cash, citing Section 40A(3). The Tribunal remitted the issue back to the AO for re-examination, directing the AO to verify the assessee's claim that banking facilities were not available in the villages where the land was purchased. The Tribunal emphasized the need to consider Rule 6DD(g) exceptions.

3. Disallowance of Other Expenditure:
The AO disallowed 20% of the total expenditure claimed due to the absence of vouchers. The CIT(A) reduced this disallowance to 10%, considering the nature of the business and past expenditure patterns. The Tribunal upheld the CIT(A)'s decision, finding the 10% disallowance fair and reasonable.

4. Treatment of Agricultural Income as Income from Other Sources:
The AO treated part of the agricultural income as income from other sources due to insufficient evidence of agricultural operations. The Tribunal remitted the issue back to the AO, directing verification of land records and agricultural income certificates to ascertain the genuineness of the agricultural income claimed.

5. Addition on Account of Unexplained Cash Credits:
The AO added amounts introduced in the capital account as unexplained cash credits. The CIT(A) provided partial relief, accepting explanations for some amounts while sustaining additions for others. The Tribunal remitted the issue back to the AO for re-examination, directing verification of cash flow statements and explanations provided by the assessee.

6. Treatment of Long-Term Capital Gains as Income from Business:
The AO treated the sale proceeds from agricultural land as business income instead of capital gains. The Tribunal held that the lands were agricultural, and the gains should be treated as capital gains, allowing the assessee's claim for exemption under Section 54B.

7. Unexplained Investments in Land:
The AO made additions for unexplained investments based on seized documents. The Tribunal found that some transactions were not concluded, and the properties remained in the names of the original owners. The Tribunal remitted the issue back to the AO for verification of the encumbrance certificates and other evidence provided by the assessee.

8. Unexplained Bank Deposits:
The AO added unexplained bank deposits to the income. The Tribunal found that the CIT(A) had not considered the opening bank balance and other relevant details. The Tribunal remitted the issue back to the AO for re-examination, directing consideration of all relevant evidence, including bank statements and explanations provided by the assessee.

Conclusion:
The Tribunal provided detailed directions for re-examination and verification of various issues by the AO, emphasizing the need for thorough consideration of evidence and adherence to legal provisions. The appeals were partly allowed for statistical purposes, with specific remand directions for each issue.