2018 (5) TMI 802 - AT - Income Tax

Addition u/s 68 - additions on the basis of seized documents - Held that - AO in his personal assessment proceedings did not make any addition on this account yet the Director of the company had affirmed under oath in writing that such loans were already considered by the Assessing Officer and therefore the Assessing Officer should have examined the assessment records of Director instead of holding that such verification was not coming out from assessment order. We further find that Assessing Officer in the case of the assessee and in the case of Director were same therefore expression of ignorance by the Assessing Officer is not valid. No infirmity in the order of CIT(A) with respect go ground No. 1 raised by Revenue and we dismiss the same. Addition u/s 68 - transfer of cash from office to house - Held that - The assessee during the appellate proceedings and before the Assessing Officer had explained that the cash belonging to the group was retained by the Director Shri W. H. Siddiqui who used to keep the amount in safe custody at his home. The debits and credits appearing in the ledger account are nothing but the transfer of cash from office to house and vice versa. Had AO considered debits appearing in the ledger account before the dates of credits no addition would have been called for. We further find that assessee had explained and reconciled each and every entry in excess of 50, 000/- recorded in the impounded documents. The details of explanation made by the assessee to Assessing Officer is placed at paper book pages 15 to 18 but Assessing Officer instead of accepting the reconciliation chose to make the addition and which learned CIT(A) has rightly deleted. Addition on account of interest paid in cash - Held that - This amount of interest related to interest on amount of 3, 34, 000/- which the Director of the assessee had owned up and for which we have already decided in favour of assessee. The Director of the company in the same affidavit had also owned up the payment of interest on such loans. The learned CIT(A) has also noted that Shri W. H. Siddique has filed affidavit accepting the interest on loan which was paid by him in his personal capacity from whom the unsecured loan was obtained. Violation of provisions of section 40A(3) - Held that - The appellant company as withdrawals have been made from the account of a group concern. We further find that a major portion of disallowance u/s 40A(3) relates to details in the ledger account marked as A-52. These debits have already been held to be transfer of cash from office to house of Director. The Assessing Officer made the additions on account of debits in the ledger account u/s 40A(3) of the Act whereas the credits in the ledger account have been added as additions u/s 68. CIT(A) has rightly appreciated the facts and has rightly allowed the relief. In view of the above we do not find any infirmity in the order of learned CIT(A) therefore ground is No. 4 is dismissed. Addition u/s 69C - Held that - As regards the expenses recorded in the books of Drosia Interiors the learned CIT(A) has made a categorical finding that such expenses have been booked in the books of that company therefore we do not find any infirmity in the order of learned CIT(A) to that extent. However the further relief given by CIT(A) to the extent of 16, 54, 555/- in the form of project expenses needs verification at the end of the Assessing Officer who would check as to whether project expenses debited under the above said head matches with the entries in the impounded document. For the limited purpose of examination by AO we direct Assessing Officer to verify the above expenses from the impounded documents and decide accordingly. Estimation of income from projects - Assessing Officer had made this addition on the basis of application of 5% profit on total cost of construction - Held that - CIT(A) has deleted this addition by holding that the method of valuation of work-in-progress was consistent and therefore he has rightly held that there was no justification in estimating the profit @5% on the work-in-progress. The assessee had just capitalized the work-in-progress and had not earned any income from it as the assessee had not made any sales which fact is verifiable from copy of profit loss. In view of the above this ground is also dismissed.

Issues Involved:
1. Deletion of addition made under Section 68 of the IT Act, 1961 for ?3,34,000/-
2. Deletion of addition made under Section 68 of the IT Act, 1961 for ?18,65,060/-
3. Deletion of addition on account of interest paid on cash loan for ?1,21,250/-
4. Deletion of addition under Section 40A(3) of the IT Act, 1961 for ?30,46,780/-
5. Deletion of estimation of addition under Section 69C of the IT Act, 1961 for ?23,77,162/-
6. Deletion of estimation of income from projects for ?7,81,705/-

Detailed Analysis:

1. Deletion of Addition under Section 68 for ?3,34,000/-
The Assessing Officer (AO) made an addition of ?3,34,000/- under Section 68, which was claimed to be received by a director in his personal capacity. This was supported by an affidavit from the director. The CIT(A) deleted the addition, noting that the AO did not cross-examine the director or verify the director's assessment records. The Tribunal upheld the CIT(A)'s decision, stating that the AO's expression of ignorance was invalid as the AO for both the assessee and the director was the same.

2. Deletion of Addition under Section 68 for ?18,65,060/-
The AO added ?18,65,060/- based on a document indicating cash loans received from a director. The assessee explained these were amounts brought back from the director's residence, originally withdrawn from a sister concern's bank account. The CIT(A) found that the cash in hand of the group was more than the amounts received and that the AO ignored debit entries in the ledger. The Tribunal upheld the CIT(A)'s findings, noting that the AO did not consider the full context of the ledger entries.

3. Deletion of Addition on Account of Interest Paid on Cash Loan for ?1,21,250/-
The AO added ?1,21,250/- for interest paid on a cash loan. The CIT(A) noted that the director had accepted responsibility for this interest in an affidavit. The Tribunal upheld the CIT(A)'s decision, stating that the AO did not cross-examine the director and that the interest was paid in the director's personal capacity.

4. Deletion of Addition under Section 40A(3) for ?30,46,780/-
The AO made additions based on cash payments noted in a document, claiming they violated Section 40A(3). The CIT(A) found these were not expenses claimed in the profit and loss account but were personal expenses of the director or related to other concerns. The Tribunal upheld the CIT(A)'s findings, noting that the amounts were not claimed as business expenses and some entries were not related to the assessee company.

5. Deletion of Estimation of Addition under Section 69C for ?23,77,162/-
The AO added ?23,77,162/- under Section 69C, treating these as unexplained investments. The CIT(A) found these were expenses incurred by various assessees on various projects and were accounted for in the books of the respective companies. The Tribunal upheld the CIT(A)'s findings but directed the AO to verify project expenses of ?16,54,555/- from impounded documents.

6. Deletion of Estimation of Income from Projects for ?7,81,705/-
The AO estimated a 5% profit on the total cost of construction, adding ?7,81,705/-. The CIT(A) deleted this addition, noting the assessee consistently followed the project completion method and no defects were pointed out in the books of accounts. The Tribunal upheld the CIT(A)'s decision, confirming that the method of valuation was consistent and no sales were made to justify the profit estimation.

Conclusion:
The Tribunal partly dismissed and partly allowed the Revenue's appeal for statistical purposes. The deletions made by the CIT(A) were largely upheld, with a directive for the AO to verify specific project expenses.

← Previous Next →