2017 (9) TMI 1515 - AT - Income Tax

Addition on the basis of an entry found in the books of third party - entry found in the bahi of third party - Held that - The word Cosmos cannot ipso facto be interpreted to represent the name of the assessee which is M/s. Cosmos Infra Engineering Ltd . There may be any party, company or firm with the initial name Cosmos and it does not show in any manner that the said entity belongs to the assessee-company only. Further, that there was no evidence that the assessee has involved into any transaction with any entity of M/s. Mahesh Mehta group. The entire addition has been made on assumption and presumption basis. CIT-A made an observation that it was not on record that as to what was the version of M/s. Mahesh Mehta group about this entry recorded in the bahi found at his residence. Under such circumstances when even the third party from whose premises the alleged documents were found, has not confirmed that the said entry belong to the assessee, there was no question of any assumption or belief that the entry belonged to the assessee. any entry found on loose papers in the premises of the third party without any corroborative evidence, cannot be made basis for addition in the case of the assessee. During the course of search at the premises of the assessee, no incriminating material relating to the above stated entry had been found. We, therefore, do not find any justification on the part of the lower authorities to make addition - Decided in favour of assessee.

Summary

Issues:
1. Addition of ?40 lakhs based on an entry in the books of a third party.
2. Levy of interest under sections 234, 234B, and 234D.

Analysis:

Issue 1: Addition of ?40 lakhs based on an entry in the books of a third party
The appeal was against the Commissioner of Income-tax (Appeals) order confirming the addition of ?40 lakhs based on an entry in a third party's books. The Assessing Officer observed unaccounted transactions between the parties. However, during the reopened assessment, the assessee denied any involvement in the transactions. The Commissioner of Income-tax (Appeals) upheld the addition, leading to the appeal. The Tribunal noted that the entry in question was found in a third party's records, not conclusively linked to the assessee. The absence of incriminating evidence during searches at the assessee's premises further weakened the case. The Tribunal concluded that the addition lacked a legal basis and ordered its deletion.

Issue 2: Levy of interest under sections 234, 234B, and 234D
Since the Tribunal deleted the ?40 lakhs addition, the consequential levy of interest under sections 234, 234B, and 234D was also set aside. The Tribunal's decision on the primary issue rendered the interest levy moot. Therefore, the interest levied was also deemed unsustainable and was consequently overturned.

In conclusion, the Tribunal ruled in favor of the assessee, overturning the addition of ?40 lakhs and the consequential interest levy. The decision highlighted the importance of concrete evidence and legal basis for making additions to an assessee's income, emphasizing the need for corroborative evidence and a direct link to the taxpayer to sustain such additions under the law.