2017 (12) TMI 248 - AT - Income Tax

Nature of income - agricultural income - Held that - The assessee is the owner of agricultural land and has claimed to have grown similar crops, we are inclined to direct the AO to accept ₹ 10,000 per acre as agricultural income. This issue is also treated as partly allowed. Disallowance of the assessee s claim of deduction u/s 80C - Held that - As gone through the certificate issued by the Bank of India and find that the loan is given for purchase of a flat. The nature of the said flat purchased by the assessee, is not mentioned in the certificate. It could be a residential flat also. In view of the same, we deem it fit and proper to remand this issue to the file of the AO with a direction to verify the nature of the property, and if it is found to be a residential property purchased by the assessee against which the assessee has been given loan by the Bank of India, then irrespective of the use of the building, the claim of deduction u/s 80C of the Act shall be allowed in respect of the repayment of the principal amount, of course subject to the maximum limit. Thus, the grounds of appeal for all the A.Ys on this issue are treated as allowed for statistical purposes. Enhancement of income as accretion to capital - Held that - The assessee has not been maintaining any books of account prior to the date of search and has prepared the capital a/c and statement of affairs only from the A.Y 2005-06 onwards. It is seen that from the A.Y 2005-06 onwards, the assessee has shown opening capital and there is increase in capital year after year. The source is also explained as income from chit fund business and past savings. We therefore, deem it fit and proper to remand this issue in both the A.Ys to the file of the AO for verification of the above sources for increase in the capital. Addition made as unexplained investment based on the documents other than relating to chits, found during the course of search - Held that - We find that the documents now filed by the assessee are only bank statements and the encumbrance certificates which are issued by the bank authorities and the govt. agencies respectively. In our opinion, these documents, being third party records, can be admitted. Similarly, for the A.Y 2011-12 also, the assessee has filed the additional evidence being the Bank A/c copy and the encumbrance certificate for the very same property. Therefore, we are inclined to admit the additional evidence filed by the assessee and remit the same to the file of the AO for verification and we direct the AO to consider the allowability of the assessee s claim in accordance with the law. In the result, assessee s ground of appeal for the A.Ys 2010-11 & 2011-12 against these additions are treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Addition of amounts mentioned in promissory notes as unexplained cash credits.
2. Treatment of agricultural income as "income from other sources."
3. Disallowance of the assessee’s claim of deduction under Section 80C.
4. Enhancement of income as accretion to capital.
5. Addition of unexplained investment based on documents found during the search.
6. Addition of unexplained cash credit for the A.Y 2009-10.
7. Addition under Section 69 for A.Ys 2010-11 and 2011-12.
8. Revenue's appeal concerning deletion of addition under Section 69 for A.Y 2008-09.

Detailed Analysis:

1. Addition of Amounts Mentioned in Promissory Notes as Unexplained Cash Credits:
During the search, promissory notes were found, and the AO added the amounts as unexplained cash credits. The CIT (A) treated these as unexplained investments under Section 69. The ITAT referred to a similar case (A. Pandu Ranga Reddy) and remanded the issue to the AO for further enquiry to ascertain the nature of transactions. The AO was directed to verify whether the promissory notes were for securing chit business or actual cash advances.

2. Treatment of Agricultural Income as "Income from Other Sources":
The AO treated the agricultural income as "income from other sources" due to lack of evidence. The ITAT referred to a similar case and directed the AO to accept ?10,000 per acre as agricultural income, considering the assessee owned agricultural land and claimed to grow crops.

3. Disallowance of the Assessee’s Claim of Deduction under Section 80C:
The AO disallowed the deduction under Section 80C due to lack of proof for LIC payments and the nature of the housing loan. The CIT (A) accepted the LIC payments but disallowed the housing loan deduction, questioning the residential nature of the property. The ITAT remanded the issue to the AO to verify if the loan was for a residential property and allow the deduction if proven.

4. Enhancement of Income as Accretion to Capital:
The CIT (A) observed an increase in capital and treated it as unexplained investment under Section 69. The assessee claimed the increase was due to gifts and past income. The ITAT remanded the issue to the AO for verification of the sources of capital increase.

5. Addition of Unexplained Investment Based on Documents Found During the Search:
For various A.Ys, the AO made additions based on property documents found during the search. The assessee claimed these were reflected in HUF returns or funded by past savings. The ITAT upheld some additions due to lack of evidence but remanded others for verification of the assessee's claims regarding capital and sources of investment.

6. Addition of Unexplained Cash Credit for the A.Y 2009-10:
The AO added amounts paid to educational institutions as unexplained cash credits. The assessee claimed these were reflected in HUF returns or funded by an uncle. The ITAT confirmed the addition due to lack of evidence.

7. Addition under Section 69 for A.Ys 2010-11 and 2011-12:
The AO treated amounts mentioned in various documents as unexplained investments. The assessee claimed these were loans secured by property. The ITAT admitted additional evidence (bank statements and encumbrance certificates) and remanded the issue to the AO for verification.

8. Revenue's Appeal Concerning Deletion of Addition under Section 69 for A.Y 2008-09:
The CIT (A) deleted an addition, accepting the assessee’s claim that an agreement of sale was security for chit business. The ITAT remanded the issue to the AO for verification, following a similar case (A. Pandu Ranga Reddy).

Conclusion:
The assessee’s appeals for A.Ys 2005-06 to 2011-12 were partly allowed, and the Revenue’s appeal for A.Y 2008-09 was allowed for statistical purposes. The ITAT directed further verification and enquiry by the AO on various issues, ensuring the assessee is given a fair opportunity to present evidence.