2016 (8) TMI 208 - AT - Income Tax

Validity of invoking the provisions of section 153A by issuing a notice under Section 153A - Held that - The notice under Section 153A(1)(a) was issued on 24.9.2009 wherein the Assessing Officer has given time period for furnishing the return as 30 days from the date of service of notice. Even otherwise the period of 30 days provided by the Assessing Officer for furnishing the return of income is a reasonable period. Further the assessee furnished its return of income in response to the said notice under Section 153A only on 3.2.2010 which is more than 4 months after the date of issue of notice under Section 153A. In view of the facts and circumstances when the Assessing Officer has granted 30 days to furnish the return in response to the notice under Section 153A and thereafter the assessee furnished the return only after more than 4 months which was accepted by the Assessing Officer, the objection raised by the assessee is devoid of any merit or substance and therefore rejected. Invalid notice issued under Section 143(2) - Held that - The Assessing Officer has discussed this issue in para 6 and pointed out that in the return filed in response to the notice under Section 153A the assessee has declared les income than income declared in the original return filed under Section 139 of the Act and therefore the Assessing Officer took the total income returned by the assessee as declared in the original return while computing the total income. When the notice under Section 143(2) was issued after the return of income filed by the assessee in response to notice under Section 153A and further there was no time available to the Assessing Officer to issue notice on the original return of income then in the facts and circumstances of the case we find that the notice in question was issued only in respect of the return filed by the assessee under Section 153A of the Act. Hence this ground of the assessee is rejected. Income earned on sale of agriculture land - assessed as income from business instead of capital gains - deduction under Section 54B denied - Held that - We find that there is no tax effect even if the income from sale of this property is treated as STCG instead of business income treated by the Assessing Officer and the only difference is because of the claim under Section 54B of the Act. There is no dispute that the land in question was not used for agriculture purpose in the two years immediately preceding the date on which the transfer took place. Therefore mandatory condition of use of the land for agriculture purposes for two years immediately prior to the sale is not specified. Once the assessee failed to satisfy the condition under Section 54B for availing the deduction then the issue of treatment of the income as business income or STCG becomes academic in nature being revenue neutral. Accordingly, in the facts and circumstances of the case, we dismiss these grounds of the assessee s appeal. Addition on account of income for performing Pooja - Held that - The assessee in the statement had estimated the undisclosed income of ₹ 75 lakhs for 3 assessment years under consideration which matches the figures and amounts shown in the seized document relating to Pooja income of ₹ 35 lakhs, ₹ 20 lakhs and ₹ 20 lakhs for the Assessment Year 2006-07 to 2008-09 respectively. We find that there is no ambiguity in the statement of assessee regarding the Pooja income which has been clearly corroborated by the seized material. Thus when there is a sufficient evidence being seized material which corroborates the statement of the assessee recorded under Section 132(4) on 23.2.2009 then the subsequent retraction of the statement by the assessee withut any corroborating evidence cannot be accepted as the assessee has not explained the facts and circumstances under which he had admitted a wrong income in the statement and how the income shown in the seized material is not correct. Therefore mere retraction of statement without explaining the circumstances as well as corroborating evidence, it cannot be accepted being an after thought. Accordingly, we do not find any substance in this ground of the assessee and the same is dismissed. Addition on account of loan from Mr. Sunil Patil as unexplained credit - Held that - Though the assessee has submitted that the Assessing Officer accepted the credit in the name of Mr. Sunil Patil of ₹ 42 lakhs and there is no evidence or seized material found during the search to support the undisclosed income. However from the record produced before us, we find that the assessee has filed a return of income on 3.2.2010 along with the Balance Sheet wherein this amount of unsecured loan in the name of Mr. Sunil Patil has been shown and it is not clear whether this record was filed by the assessee along with the return of income filed on 24.11.2006 on which the assessment was completed for the year under consideration. Accordingly, we direct the Assessing Officer to verify whether this unsecured loan in the name of Mr. Sunil Patil was duly disclosed in the return filed on 24.11.2006 or during the assessment proceedings completed vide order dt.21.11.2008. This issue is set aside to the record of Assessing Officer for proper verification and re- adjudication. Disallowance made under Section 40A(3) - expenses claimed in excess of ₹ 20,000 - Held that - Assessing Officer made the addition under Section 40A(3) of the Act when the assessee has not furnished the details of the expenditure of more than ₹ 20,000 in cash. The Assessing Officer took the figures from the ledger account however, the assessee claimed that the amount was not claimed as a business expenditure therefore it cannot be disallowed. Further the assessee also claimed that this is a double addition of the same amount of ₹ 3 lakhs in the name of Smt. Vani Mahesh as the Assessing Officer has made an addition on additional investment under Section 69B of ₹ 3 lakhs. Since the relevant record has not been examined by the Assessing Officer and also not available before us therefore in the facts and circumstances of the case, we set aside this issue to the record of Assessing Officer for proper examination of the relevant record as well as the details to be filed by the assessee and then decide the same after affording an opportunity of hearing to the assessee. Addition made on seized material - whether the abbreviated or coded amounts written in the margins of the diary at page 75 of the seized material represents the amounts in lakhs or in thousands? - Held that - From the numbers written in the margin it is clear that the Assessing Officer took the first number being 19 as sum total of ₹ 18 lakhs ₹ 1 lakh, the payment made by the assessee on 7.8.2006 and on 8.8.2006 respectively. The other numbers mentioned in the margins are not recorded in the books of accounts therefore those were considered by the Assessing Officer as payment out of books. As it is apparent from these numbers written in the margin that a proper care was taken for distinguishing the amounts in thousands by putting a point (.) before the number as in the case of last number written as 0.5. Therefore the other numbers written in the margin with the dates clearly indicates the payment made by the assessee in lakhs. Therefore we do not find any error or illegality in the orders of the authorities below on this issue and confirm the addition of ₹ 19 lakhs as sustained by the CIT (Appeals). Addition under Section 69B of the Act being investment in Flat - Held that - We find merits in the submission of the learned Authorised Representative that when there is an addition on account of Pooja income for ₹ 20 lakhs for the year under consideration then the benefit of telescoping of the said amount shall be given against the addition of unexplained investment. Even otherwise if an addition of ₹ 20 lakhs was made by the Assessing Officer and was sustained by the CIT (Appeals) on account of unaccounted Pooja income then to the extent of the addition the source of investment stand explained. Therefore we direct the Assessing Officer to allow the telescoping benefit of the Pooja income against the addition if it is not allowed against some other addition. Income of sale of property - assessed as business income as against capital gains - Held that - There is no dispute that this land was purchased in the year 2004 and was sold in the year 2007 therefore the assessee retained this land for more than 3 years. It is not the case of the revenue that the land was shown as stock in trade. Therefore even if the land was shown as business asset and it was sold prior to the completion of construction work. It would not partake the character of business undertaking or asset on which depreciation is allowed. Therefore this land was sold as an individual asset and not as a particular unit of business of the assessee. Accordingly, we are of the view that the gain arisen from the sale of land will be assessed as Long Term Capital Gain (LTCG). However if any gain is earned on the construction part of the property, the same will be assessed as STCG. Accordingly, principally we allow the claim of the assessee and direct the Assessing Officer to accept the claim of LTCG to the extent of the land and if any gain is earned by the assessee on account of construction of the property, the same will be treated as STCG. Addition on account of contract receipts - Held that - We find that the assessee has offered the income from this project for the Assessment Year 2009-10. Therefore the addition made by the Assessing Officer from this project for the year under consideration is required to be reduced from the income for the Assessment Year 2009-10 to avoid double taxation of the same income. Accordingly, we direct the Assessing Officer to take necessary step in this aspect. Addition under Section 41(1) - amounts standing to the credit as on 31.3.2008 - Held that - We are of the view that if this amount of ₹ 22,444 is part of sum of ₹ 2,22,444 being an addition made by the Assessing Officer under Section 41(1) of the Act for the Assessment Year 2006-07 then this addition cannot be made for the year under consideration. Hence, we direct the Assessing Officer to verify the fact as pointed out by the assessee and then decide the same accordingly. Claim of setting off of STCG from sale of mutual fund units disallowed - Held that - We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. There is no dispute that the income from Mutual Fund in question is exempt under Section 10(35) of the Act therefore, any loss from the same source cannot be allowed to be set off against the taxable income. Accordingly, we do not find any error or illegality in the orders of the authorities below. Setting off of the income estimated by the Assessing Officer on percentage completion method for the Assessment Year 2008-09 against the income offered during the year on completion of the project - Held that - While dealing with an identical issue for the Assessment Year 2008-09, we have directed the Assessing Officer to set off the income assessed in the said assessment year based on the percentage of uncompleted project against the income of the project offered by the assessee on completion during the year under consideration. Accordingly this ground stand disposed off. Assessability of deposits in the names of the family member - Held that - We are of the view that the dates of deposits is matter of record as per the seized material available with the Assessing Officer and therefore if the deposits or part of the deposits were made in the earlier year then the addition to that extent cannot be made in the year under consideration. Accordingly, we direct the Assessing Officer to verify the dates of deposit in question and then decide this issue.

Summary

Issues Involved:
1. Validity of assessment under Section 153A due to non-offering an opportunity of being heard.
2. Validity of notice issued under Section 153A.
3. Validity of notice issued under Section 143(2).
4. Classification of income from the sale of agricultural land.
5. Addition on account of income for performing Pooja.
6. Addition on account of unexplained credit.
7. Disallowance under Section 40A(3).
8. Addition under Section 69B.
9. Classification of income from the sale of property.
10. Addition on account of contract receipts.
11. Addition under Section 41(1).
12. Rejection of set-off of short-term capital loss on sale of mutual funds.
13. Assessment of deposits in the names of family members.

Detailed Analysis:

1. Validity of Assessment under Section 153A:
The assessee contended that the assessment under Section 153A was invalid due to non-offering an opportunity of being heard before the Joint Commissioner granted approval. The Tribunal held that Section 153D does not require the Joint Commissioner to hear the assessee before granting approval. The approval by the Joint Commissioner was deemed valid, and the ground was rejected.

2. Validity of Notice Issued under Section 153A:
The assessee argued that the notice under Section 153A was invalid as it provided less than the statutory minimum period of 15 days for filing the return. The Tribunal found that Section 153A does not specify a minimum period for filing the return. The notice issued provided a reasonable period of 30 days, and the assessee filed the return after more than four months. This ground was also rejected.

3. Validity of Notice Issued under Section 143(2):
The assessee claimed that the notice under Section 143(2) related to the original return filed under Section 139, not the return filed under Section 153A. The Tribunal clarified that the notice under Section 143(2) was issued after the return filed in response to Section 153A and was not related to the original return. This ground was rejected.

4. Classification of Income from Sale of Agricultural Land:
The assessee reported income from the sale of agricultural land as capital gains and claimed exemption under Section 54B. The Assessing Officer treated it as business income. The Tribunal found that the land was not used for agricultural purposes for two years preceding the sale, disqualifying it for Section 54B exemption. The issue of classification as business income or short-term capital gains was deemed academic and revenue-neutral, leading to the dismissal of this ground.

5. Addition on Account of Income for Performing Pooja:
The assessee declared income from Pooja based on gross receipts. However, during the search, documents indicated higher income, which the assessee initially admitted but later retracted. The Tribunal upheld the addition based on seized documents and the initial statement, rejecting the retraction as an afterthought without corroborating evidence.

6. Addition on Account of Unexplained Credit:
The assessee failed to prove the genuineness of a loan from Mr. Sunil Patil. The Tribunal directed the Assessing Officer to verify whether this loan was disclosed in the original return filed on 24.11.2006. The issue was set aside for proper verification and re-adjudication.

7. Disallowance under Section 40A(3):
The Assessing Officer disallowed expenses exceeding ?20,000 paid in cash. The assessee claimed these amounts were not business expenditures. The Tribunal set aside the issue for re-examination by the Assessing Officer, directing a proper verification of the relevant records.

8. Addition under Section 69B:
The Assessing Officer added ?15 lakhs as unexplained investment in a flat. The Tribunal allowed the benefit of telescoping the addition against unaccounted Pooja income of ?20 lakhs, directing the Assessing Officer to adjust the addition accordingly.

9. Classification of Income from Sale of Property:
The sale of Moodabidiri property was treated as business income by the Assessing Officer. The Tribunal held that the land, retained for more than three years, should be treated as a long-term capital asset. The gain from the land sale was to be assessed as long-term capital gains, while any gain from construction was to be treated as short-term capital gains.

10. Addition on Account of Contract Receipts:
The Assessing Officer added income based on the percentage completion method. The Tribunal directed the Assessing Officer to adjust this addition against the income offered by the assessee on project completion in the subsequent year to avoid double taxation.

11. Addition under Section 41(1):
The Assessing Officer added ?22,444 as credits no longer payable. The Tribunal directed verification to ensure this amount was not part of an earlier addition of ?2,22,444 under Section 41(1) for the Assessment Year 2006-07.

12. Rejection of Set-off of Short-term Capital Loss on Sale of Mutual Funds:
The Tribunal upheld the disallowance of set-off of short-term capital loss against business income, as the income from mutual funds was exempt under Section 10(35).

13. Assessment of Deposits in the Names of Family Members:
The Tribunal directed the Assessing Officer to verify the dates of deposits in family members' names to ensure the correct assessment year for the addition, considering the possibility that some deposits were made in earlier years.

Conclusion:
The Tribunal provided a detailed analysis of each issue, upholding the validity of assessments and notices, confirming some additions based on seized documents, and directing re-verification for others. The Tribunal also allowed the benefit of telescoping where applicable to avoid double taxation.