2018 (5) TMI 228 - AT - Income Tax

Addition u/s. 69/69A - unexplained cash payment - Held that - In the present case section 69A which is more aptly applicable. This is as not only is the assessee found to have incurred expenditure during the relevant year, the same stands met by payments in cash during the relevant year. It is only these cash payments, and not the total expenditure actually incurred, on account of it being unexplained as to source thereof, which is brought to tax as its income. No correlation between expenditure incurred and the payments in cash, so that they pertain to specific item/s of expenditure, has been made at any stage, including before us, with in fact, the cash being paid in round figures while the expenditure is in odd figures. In the absence of any correlation and, in fact, apparent contradiction, the assessee s case is without any factual basis. The assessee s next argument is, again, only to be stated to be rejected. It is pleaded that as the partners had surrendered a total of ₹ 54 lacs, the same be telescoped against the addition that may stand to arise in the case of the assesseefirm. This is as it is they who made the cash available to the firm, which commenced operations during the current year, i.e., in June, 2006. The income referred to and offered by the partners is for AY 2009-10, which is the second year in appeal before us. How could the income generated, even if translating into cash, during the previous year relevant to AY 2009-10, be conceivably available during the relevant year, i.e., f.y. 2006-07. The ld. AR had no answer. Finally, the assessee s states that there has been some duplication in arriving at the figure of ₹ 9.92 lacs. This is as the same figure of cash expenditure gets included both from the account of the expenditure as well as of the vendor, i.e., from whom the relevant goods/services stand sourced. We were taken through the relevant sheet by the ld. AR, to exhibit the same. We find this as correct. Also, it was shown by him that in a couple of cases, the payment made in April, 2007 has been also included while casting the total payment for which addition has been made.We, therefore, subject to the verification by the A.O. in the matter, direct for the deletion of the addition to the extent of the said duplication, clearly specifying the same in his order, as well as of the addition qua cash payments made after March 31, 2007. - Decided partly in favour of assessee Unexplained expenditure - Held that - Considering from the stand-point of the source of expenditure, the document explains the source of cash, being from the project owners in the main, and from the partners (specified by name, with their respective amounts). In fact, none of the documents listing the expenditure, save three, list the dates on which the same is incurred. How could then it be said that the same is incurred during the relevant previous year, i.e., f.y. 2008-09, even as that before 26.06.2008 would get explained on the basis of the receipt and expenditure statement. The three documents refer to a date post 26.06.2008, so that the expenditure does not pertain to these projects, and is thus liable to be added as unexplained expenditure u/s. 69C. The amounts per the three documents aforesaid totals to ₹ 11,660/-. An addition to this extent is thus confirmed, and the balance directed for deletion.

Issues Involved:
1. Sustainability of additions under sections 69/69A of the Income Tax Act.
2. Validity of the assessment based on material found during the search of a related party.
3. Applicability of sections 69 and 69A to the facts of the case.
4. Duplication in the calculation of unexplained expenditure.
5. Telescoping of surrendered income by partners against additions in the firm's case.
6. Unaccounted receipts and expenditures for the assessment year 2009-10.

Issue-Wise Detailed Analysis:

1. Sustainability of Additions under Sections 69/69A:
The primary issue in these appeals is the sustainability in law of the additions made under sections 69/69A of the Income Tax Act for unexplained expenditure. For AY 2007-08, the addition was ?9.92 lacs, and for AY 2009-10, it was ?6.10 lacs. The assessee, a partnership firm in civil construction, was assessed based on incriminating material found during a search at the premises of a related party.

2. Validity of the Assessment Based on Material Found During the Search of a Related Party:
The argument that no search was conducted at the assessee's premises or its partners was deemed inconsequential. The assessment was based on material found during the search of a related party, M/s. Khanna Pahwa Associates. The initiation of proceedings under section 153C was not under challenge, as the assessee’s counsel did not press Grounds 1 and 7 of the Appeal.

3. Applicability of Sections 69 and 69A to the Facts of the Case:
The assessee argued that sections 69 and 69A were not applicable. However, the Tribunal found that the expenditure on building materials and services, paid in cash and not recorded in the books, clearly fell under section 69A. The section deems unexplained money, bullion, or valuable articles as income if not satisfactorily explained. Alternatively, section 69C, which deals with unexplained expenditure, could also apply. The Tribunal emphasized that the exercise of power should be referable to a jurisdiction that confers validity upon it.

4. Duplication in the Calculation of Unexplained Expenditure:
The assessee claimed duplication in the calculation of unexplained expenditure. The Tribunal found merit in this argument. The assessee demonstrated that some cash expenditures were included twice, both from the account of the expenditure and the vendor. The Tribunal directed the Assessing Officer (AO) to verify and delete the addition to the extent of duplication and cash payments made after March 31, 2007.

5. Telescoping of Surrendered Income by Partners Against Additions in the Firm's Case:
The assessee argued for telescoping the surrendered income of ?54 lacs by the partners against the firm's additions. The Tribunal rejected this argument, noting that the income referred to by the partners was for AY 2009-10 and could not be available during AY 2007-08.

6. Unaccounted Receipts and Expenditures for the Assessment Year 2009-10:
For AY 2009-10, the addition was based on unaccounted receipts and expenditures. The AO added ?6.10 lacs as the difference between the unaccounted receipt of ?12.15 lacs and unexplained expenditure of ?6.10 lacs. However, the Tribunal found that the same document showed a loss of ?2.59 lacs on the Anil Seth project and a total loss of ?1.71 lacs when considering another project. The Tribunal directed the deletion of the addition except for ?11,660/- related to three documents with dates post-26.06.2008, which were confirmed as unexplained expenditure.

Conclusion:
The assessee's appeals were partly allowed. The Tribunal directed the AO to verify and delete the duplicate additions and confirmed a minor addition for unexplained expenditure for AY 2009-10. The order was pronounced in the open Court on February 08, 2018.

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