2016 (6) TMI 883 - AT - Income Tax

Unexplained expenditure u/s 69C - whether addition is unwarranted and not sustainable in the eyes of law as the profit from the execution of works contract @8% had been returned by the appellant under section 44AD? - From an analysis of section 44AD of the Act contained hereinabove, we have already held that the assessee had not incurred the expenses to the extent of 92 % of the gross receipts. Therefore, in the present case, the provisions of section 69C of the Act cannot be applied. Asking the assessee to prove to the satisfaction of the Assessing Officer, the expenditure to the extent of 92% of gross receipts, would also defeat the purpose of presumptive taxation as provided under section 44AD of the Act or other such provision. Since the scheme of presumptive taxation has been formed in order to avoid the long drawn process of assessment in cases of small traders or in cases of those businesses where the incomes are almost of static quantum of all the businesses, the Assessing Officer could have made the addition under section 69C of the Act, once he had carved out the case out of the glitches of the provisions of section 44AD of the Act. No such exercise has been done by the Assessing Officer in this case - Decided in favour of assessee Addition on account of unexplained cash credits - Held that - It is a fact on record that inspite of stating the donor to be a close relation, the assessee did not file any evidence other than confirmation in order to corroborate the assertion contained therein. - Decided against assessee Addition on undisclosed capital gains - Held that - The whole amount of sale consideration has been taxed by the Assessing Officer as capital gains without giving assessee any benefit with regard to cost of acquisition or cost of construction. It can be nobody s case that the assessee had acquired the property without paying any cost. Some value for cost of acquisition has to be given to the assessee. We observe that even in cases of properties acquired through gifts, etc. the cost of acquisition as incurred by the previous owner is given to the assessee. The fact of acquiring the plot from Dr.Rajan Sushant is evident from the office order of Himachal Pradesh Housing & Urban Development Authority dated 8.1.2003. The Assessing Officer as well as the CIT (Appeals) asked for Sale Deed, however, we see that this order is as good as a Sale Deed. However, the amount of purchase consideration is not coming out from this office order. The assessee stated that he purchased the property for ₹ 10 lacs and made the payments through account payee cheque. However, no evidence in this regard was shown to us. In view of this, we direct the Assessing Officer to give an opportunity to the assessee to produce the evidence in this regard and given resultant benefit of cost of acquisition as per law. With regard to the cost of construction it is observed that in all the three years, while adjudicating another issue, the Assessing Officer himself has accepted the cost of construction in very clean terms. In the Assessing Officer s order for assessment year 2006-07, an amount at ₹ 4 lacs as cost of construction has been accepted at page 4. Similarly, in assessment year 2007-08, and in assessment year 2008-09 the cost of construction at ₹ 16 lacs and ₹ 4 lacs respectively have been accepted by the Assessing Officer. Since the Assessing Officer himself has accepted these costs of construction, no different stand can be taken by him while making the addition. In view of this, we direct the Assessing Officer to delete the addition made on account of construction cost being taken at nil and also direct him to consider the cost of construction at ₹ 24 lacs while computing the capital gain. - Decided partly in favour of assessee for statistical purposes.

Issues Involved:
1. Addition of unexplained expenditure under Section 69C of the Income Tax Act, 1961.
2. Addition of unexplained cash credits under Section 68 of the Income Tax Act, 1961.
3. Addition of undisclosed capital gains.

Detailed Analysis:

1. Addition of Unexplained Expenditure under Section 69C:

The assessee, a civil contractor, declared profits under Section 44AD of the Income Tax Act, 1961, amounting to ?3,02,050 against gross receipts of ?37,75,444. The Assessing Officer inferred that the assessee incurred expenses of ?34,73,394 but observed a discrepancy with the cash flow statement showing ?18,49,264. The assessee explained that ?16,24,130 was paid from the bank account not reflected in the cash flow statement. The Assessing Officer added ?32,24,130 as unexplained expenditure under Section 69C due to lack of documentary evidence.

The CIT (Appeals) upheld the addition, stating the assessee failed to substantiate that the payments were related to the contract business. The assessee argued that under presumptive taxation (Section 44AD), the Assessing Officer cannot disturb the declared profits. The Tribunal noted that Section 44AD deems 8% of gross receipts as income, implying the remaining 92% as deemed expenditure. The Tribunal held that the Assessing Officer cannot make additions under Section 69C based on deemed expenditure without doubting the gross receipts. Therefore, the addition under Section 69C was not justified, and the ground was allowed in favor of the assessee.

2. Addition of Unexplained Cash Credits under Section 68:

The assessee had ?50,000 credited twice in his bank account, claimed as a loan received back. The Assessing Officer added ?1,00,000 under Section 68 due to lack of corroborative evidence. The CIT (Appeals) dismissed the assessee's appeal, noting the confirmation was undated and lacked supporting documents despite the close relationship between the assessee and the lender.

The Tribunal upheld the CIT (Appeals)'s decision, stating the assessee failed to discharge the onus of proving the genuineness and creditworthiness of the transaction. Thus, the addition of ?1,00,000 as unexplained cash credits was justified, and the ground was dismissed.

3. Addition of Undisclosed Capital Gains:

The assessee declared Long Term Capital Gain on the sale of a property but failed to provide documentary evidence for the cost of acquisition and improvement. The Assessing Officer considered the cost of acquisition and improvement as nil and taxed the entire sale proceeds of ?40,00,000 as Long Term Capital Gain, adding ?39,87,148 as undisclosed income.

The CIT (Appeals) upheld the addition, noting the assessee failed to provide primary facts and corroborative evidence. The Tribunal observed that some value for the cost of acquisition must be given, directing the Assessing Officer to allow the assessee to produce evidence and give the resultant benefit of the cost of acquisition as per law. Regarding the cost of construction, the Tribunal noted that the Assessing Officer had accepted the costs in previous assessment years and directed to consider ?24,00,000 as cost of construction while computing the capital gain. Thus, the addition for undisclosed capital gains was partly allowed in favor of the assessee.

Conclusion:

The appeals were partly allowed, with the Tribunal ruling in favor of the assessee on the issues of unexplained expenditure and undisclosed capital gains, while upholding the addition of unexplained cash credits.

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