2018 (5) TMI 1026 - AT - Income Tax

Addition on account of cash surrendered at the time of survey - Held that - We are of the view that assessee is a medical practitioner and it receives fees from the patients. It is normal that the patient is accompanied by his/her relatives, thus, the difference in name per se cannot be a ground to reject assessee s explanation. Further, assessee has filed reconciliation regarding the difference in the amount. Another reason which appears to us is logical that the dispute was of non-inclusion of an amount of ₹ 17,98,122/-. This amount having been included in the cash book by the assessee, post survey in the books of account and thus form part of the income declared in the return. The same amount cannot be added again and hence addition of the same amount on the above reasoning is not justified. - Decided in favour of assessee Addition on account of the difference in stock at the time of the survey - Held that - this issue has arisen as the survey team did not appreciate the fact that stock in the trail balance as per the tally software represents the opening stock of the year and does not represent the stock of the day. The survey team on the basis of this, worked out the difference of ₹ 3,99,951/- and on being confronted the assessee being a doctor and not aware of the facts accepted the same and agreed to offer as income at the time of the survey. But later on, on examination, he could point out the error. Thus, this amount cannot be added as income of the assessee. It is a settled law, an amount offered or surrendered under a mistaken belief cannot be a ground for making addition - Decided in favour of assessee Addition on account of business promotion expenses - denial by receiver of payment of any receipt - cross-examination denied - Held that - The basis for drawing adverse inference against the assessee is the statement of Mr. Hardeep Bisht. Since, cross-examination of Mr. Hardeep Bisht has not been given to the assessee, the said statement cannot be used against the assessee. Cross-examination is an important aspect of appreciation of evidence. Mere denial by a person in the statement may not be sufficient to lead to the conclusion that the transaction is not genuine. Such person need to be confronted with the other evidences such as signature, etc. to find out the truth. In the absence of cross-examination, the statement recorded at the back of the assessee cannot be relied upon. Thus remit this issue back to the AO with a direction that he will allow cross-examination of Mr. Hardeep Bisht before relying upon the same for rejecting the claim of the assessee. - Decided in favour of assessee for statistical purpose. Addition on account of electricity expenses disallowed invoking explanation below Section 37(1) on the ground that such expenses are penal in nature - Held that - This payment has been made by the assessee to the municipality for use of the electricity for commercial purposes. The assessee is carrying on its profession in a residential property. However, since the property is being used for profession, the corporation consider the use as commercial and hence levy commercial charges. Accordingly, in our view such charges cannot be considered to be a penalty so as to fall in the Explanation to Section 37(1) of the Act. Hence, the addition in dispute is deleted - Decided in favour of assessee Addition on account of Sundry Creditors - Held that - Addition to the extent of ₹ 5,07,741/- in respect of the difference in the opening balance cannot be sustained in the year under consideration. CIT(A) was justified in directing the AO to examine the opening balance and delete the addition of ₹ 5,07,741/- on account of the difference in the opening balance. Accordingly, we uphold the order of the CIT(A). Denial of exemption u/s 54 - long term capital gain in respect of the residential property sold - use of the property as relevant criteria to consider the eligibility of the benefit - Held that - The property sold by the assessee during the year was first floor and barsati floor. The said property was a residential property as is evident from the lease deed as well as other documents confirming to the fact that the first floor and barsati floor was constructed as residential and the other facts analysed herein above. There is no evidence that the said property has been reconstructed as commercial property. In fact it is not the case of the AO. Accordingly, we hold that the property sold by the assessee during the year was residential property and hence assessee is entitled for exemption under section 54 of the Act. We are also in agreement with the alternative contention of the learned AR that the use of the property is not the relevant criteria to consider the eligibility of the benefit of section 54 of the Act. There is no such condition that the property should be occupied as a residence for claiming the exemption. As against this it may be relevant to mention that section 54B providing for exemption in respect of agriculture land specifically provides that such agriculture land was being used for agricultural purposes. In the absence of any such specific condition in Section 54, no such condition can be read. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the CIT(A) order.
2. Addition of ?17,98,122/- on account of cash surrendered during the survey.
3. Addition of ?3,99,951/- on account of stock surrendered during the survey.
4. Disallowance of ?24,24,650/- on account of business promotion expenses.
5. Disallowance of ?5,14,867/- on account of electricity expenses.
6. Setting aside the issue of addition of ?5,07,741/- on account of sundry creditors.
7. Disallowance of ?70,00,000/- on account of exemption claimed under Section 54 of the Act.

Detailed Analysis:

1. Validity of the CIT(A) Order:
Grounds No. 1 and 8 were general in nature and did not require specific adjudication.

2. Addition of ?17,98,122/- on Account of Cash Surrendered:
The AO added ?17,98,122/- stating it was not included in the return despite being surrendered during the survey. The assessee argued that this amount was recorded post-survey and included in the return. The Tribunal found that the receipts from February 1 to February 7, 2009, were included post-survey in the books of accounts and thus, the amount was part of the income returned. The Tribunal held that the addition was not justified as it would result in double addition and deleted the addition.

3. Addition of ?3,99,951/- on Account of Stock Surrendered:
The AO added ?3,99,951/- due to a discrepancy in stock figures. The assessee contended that the stock figure in the trial balance represented the opening stock, not the stock as of the survey date. The Tribunal noted that the survey team misunderstood the stock figure and the addition was based on a mistaken belief. The Tribunal deleted the addition.

4. Disallowance of ?24,24,650/- on Account of Business Promotion Expenses:
The AO disallowed the expenses based on a statement from Mr. Hardeep Bisht, who denied issuing the invoices. The assessee was not given an opportunity for cross-examination. The Tribunal emphasized the importance of cross-examination and remitted the issue back to the AO to allow cross-examination of Mr. Bisht before making any decision.

5. Disallowance of ?5,14,867/- on Account of Electricity Expenses:
The AO disallowed the expenses considering them penal in nature. The assessee argued that these were charges for commercial use of electricity. The Tribunal held that such charges were not penalties and thus did not fall under the Explanation to Section 37(1) of the Act. The Tribunal deleted the addition.

6. Setting Aside the Issue of Addition of ?5,07,741/- on Account of Sundry Creditors:
The AO found a discrepancy in the opening balance of sundry creditors. The CIT(A) directed the AO to verify the opening balance discrepancy and allow proportionate relief. The Tribunal upheld the CIT(A)'s order, noting that the opening balance difference could not be added in the current year.

7. Disallowance of ?70,00,000/- on Account of Exemption Claimed Under Section 54:
The AO denied the exemption, stating the property sold was not residential. The assessee provided documents showing the first floor and barsati floor were residential. The Tribunal found the AO's findings factually incorrect and held that the property sold was residential. The Tribunal directed the AO to allow the exemption under Section 54, emphasizing that the use of the property at the time of sale was not relevant for claiming the exemption.

Conclusion:
The Tribunal allowed the appeal partly for statistical purposes, deleting several additions and remanding one issue for further examination. The Tribunal's decision emphasized the importance of proper evidence, cross-examination, and factual accuracy in tax assessments.