2015 (8) TMI 837 - AT - Income Tax

Addition on account of excess cash found during survey - CIT(A) deleted the addition - contention of the assessee is that one of the partners entered into the sale agreement and received advance from six parties as cash in part which was utilized for introducing capital into the firm and balance was utilized for improvement of house property of the partners - Held that - There is no dispute with regard to the fact that one of the partners of the assessee-firm has owned up the excess cash found during the course of survey subsequent to survey action. It is also not in dispute another partner surrendered the same as undisclosed income during the course of survey. Subsequently, the other partner retracted from his statement and claimed that the excess cash found was in fact capital introduced by other partner. The source of excess cash and unexplained expenses, being the advance received, the partner of firm upon entering into agreement to sale of immovable property. We agree with the view of ld.CIT(A) that so far as issue of taxability of amount introduced by the partners of firm is concerned, the AO has not made any inquiry to verify the veracity of explanation. The partner of firm claims to be his capital introduced into firm s account. So far as assessee-firm is concerned, it has an explanation although same is subject to further verification on the part of AO. The Revenue has not placed any material suggesting the explanation of assessee being false. Under these facts, we do not see any reason to interfere with the order of ld.CIT(A), same is hereby upheld - Decided against revenue. Addition on account of unaccounted excess stock - CIT(A) deleted the addition - Held that - Undisputedly, the assessee retracted from the statement recorded during the survey proceedings and offered explanation towards disclosure of ₹ 43,35,039/- out of total disclosure of ₹ 70,02,520/-. The explanation so offered was not accepted by the AO on the ground that purchase bill of ₹ 28,09,862/- and accounts were produced on 24/12/2009 when further verification was impossible due to time constraint. The ld.CIT(A) deleted the addition on the ground that the AO has not found any defects in the books of accounts maintained by the assessee. We do not agree with the reasoning of ld.CIT(A), as the AO has recorded that the purchase bill and related accounts were furnished only on 24/12/2009. Therefore, the AO had not examined the accounts and verified the genuineness of purchase bill. Under these facts, the ld.CIT(A) ought to have verified the veracity of purchase bill and examined the related accounts. The ld.CIT(A) could have sought remand report from the AO. Thus we set aside the order fo the ld.CIT(A) on this ground and restore this issue to the file of AO for decision afresh. The AO would verify the claim of the assessee that one of the purchase bill was not entered into the accounts on the date of survey and the same was recorded subsequently. The AO would also verify the genuineness of purchase bill by making necessary inquiry. Needless to say that the AO would grant sufficient opportunity to the assessee. - Decided in favour of revenue for statistical purpose

Issues Involved:
1. Deletion of addition on account of excess cash found during survey.
2. Deletion of addition on account of unaccounted expenses on houses.
3. Deletion of addition on account of unaccounted excess stock.
4. Acceptance of explanations on retractions and the timing of submission of evidence.

Detailed Analysis:

1. Deletion of Addition on Account of Excess Cash Found During Survey:
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 6,26,577/- made on account of excess cash found during the survey. It was argued that the cash was admitted as unaccounted income during the survey and no evidence was presented at that time. However, the CIT(A) observed that the explanation provided by the assessee, which included an agreement (Satakhat) produced later, was genuine. The CIT(A) noted that the AO did not verify the genuineness of the evidence provided and that there is no legal bar on cash transactions for property sales. The CIT(A) concluded that the excess cash was explained as capital introduced by a partner, hence the addition was deleted. The Tribunal upheld the CIT(A)'s decision, agreeing that the explanation regarding the source of the cash was plausible and the AO did not sufficiently verify the evidence.

2. Deletion of Addition on Account of Unaccounted Expenses on Houses:
The Revenue argued that the CIT(A) wrongly deleted the addition of Rs. 8,98,600/- for unaccounted expenses on houses, which was admitted by the assessee's partner during the survey. The CIT(A) found that the AO did not verify the genuineness of the evidence provided by the assessee, which explained the source of the funds used for house expenses. The Tribunal agreed with the CIT(A) that the AO should have verified the evidence and that the explanation provided by the assessee was reasonable. Therefore, the deletion of the addition was upheld.

3. Deletion of Addition on Account of Unaccounted Excess Stock:
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 28,09,862/- for unaccounted excess stock. The AO argued that the purchase bill was submitted late, and there was no time to verify its veracity. The CIT(A) deleted the addition, noting that the AO did not find any defects in the books of accounts and did not verify the purchase bill. The Tribunal found that the CIT(A) should have verified the purchase bill and related accounts and sought a remand report from the AO. The Tribunal set aside the CIT(A)'s order on this ground and remanded the issue back to the AO for fresh verification of the purchase bill and related accounts.

4. Acceptance of Explanations on Retractions and Timing of Submission of Evidence:
The Revenue argued that the CIT(A) erred in accepting the assessee's explanations regarding retractions and the timing of submission of evidence, which was claimed to be mala fide. The CIT(A) found that the AO did not verify the genuineness of the evidence provided by the assessee. The Tribunal agreed with the CIT(A) that the AO should have verified the evidence and that the explanation provided by the assessee was reasonable. The Tribunal upheld the CIT(A)'s decision regarding the retractions and timing of evidence submission, noting that the AO did not place any material suggesting the explanation was false.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the additions on account of excess cash and unaccounted expenses on houses, finding the explanations provided by the assessee reasonable. However, the Tribunal remanded the issue of unaccounted excess stock back to the AO for fresh verification. The Tribunal also upheld the CIT(A)'s decision regarding the acceptance of explanations on retractions and timing of evidence submission. The appeal of the Revenue was partly allowed for statistical purposes.

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