2018 (6) TMI 609 - AT - Income Tax

Additions on account of undisclosed investment - Addition been done suddenly on the basis of admission of ex-partner of the firm before the Investigation Wing - Held that - The statements of the ex-partner cannot be said to be a conclusive evidence of the firm having made a payment of ₹ 53 lacs through undisclosed means for acquisition of sand ghat - also the statement has been obtained from an ex-partner of the firm who is no longer partner in the firm for the last many years - CIT(A) has relied upon the CBDT Circular No. 286/2003/IT dated 10.03.2003 which states that efforts should be made by revenue official to obtain credible evidence and obtaining admission de hors evidence should be avoided - thus additions should be deleted. Additions towards income earned from undisclosed investment - Held that - The addition of income earned from the investment is also solely based upon the admission by the ex-partner with no credible evidence - thus applying the same basis the addition by the AO here also is not sustainable - Decided in favor of assessee.

Summary

Issues Involved:

1. Deletion of addition of ?53,00,000/- on account of undisclosed investment in the sand ghat.
2. Restriction of addition of ?10,00,000/- on account of income earned from the undisclosed investment to ?1,91,890/-.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?53,00,000/- on Account of Undisclosed Investment in the Sand Ghat:

The Revenue appealed against the deletion of an addition of ?53,00,000/- by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Assessing Officer (AO) had reopened the assessment based on a report from the DDIT(Inv.), which included a statement from an ex-partner of the assessee firm admitting an investment of ?53,00,000/- for acquiring a sand block. The AO added this amount to the assessee's income, considering it an undisclosed investment.

Upon appeal, the CIT(A) deleted the addition, noting that the AO's decision was solely based on the ex-partner's admission without any corroborative evidence. The CIT(A) highlighted that the actual amount of ?33,45,386/- was accounted for in the books and supported by bank statements. The CIT(A) also referenced a retraction letter from the assessee clarifying that the demand drafts were business transactions reflected in the books. The CIT(A) emphasized the lack of independent evidence to substantiate the ?53,00,000/- figure and cited the CBDT Circular No. 286/2/2003/IT, which advises against relying solely on confessions of undisclosed income without credible evidence.

The Tribunal upheld the CIT(A)'s decision, agreeing that the addition was based on an uncorroborated statement from an ex-partner, which was not supported by any independent evidence. The Tribunal referenced the Supreme Court's ruling in CIT vs. S. Khader Khan Son [2013] 352 ITR 480 (SC), which states that additions cannot be made solely based on statements without corroborative material. The Tribunal found no infirmity in the CIT(A)'s reliance on the CBDT Circular and the deletion of the ?53,00,000/- addition.

2. Restriction of Addition of ?10,00,000/- on Account of Income Earned from the Undisclosed Investment to ?1,91,890/-:

The AO had added ?10,00,000/- as income earned from the undisclosed investment based on the ex-partner's admission. The assessee, however, had offered an additional net profit of ?4,40,000/- on an estimated turnover of ?59,00,000/- in the return filed in response to the notice under section 148.

The CIT(A) granted partial relief, noting that the net profit percentage for the year under consideration should be estimated at 10.7%, based on the average net profit percentages for the years 2005-06 to 2008-09. This calculation resulted in a net profit of ?6,31,890/-, leading the CIT(A) to restrict the addition to ?1,91,890/- and grant relief for ?8,08,110/-.

The Tribunal upheld the CIT(A)'s decision, noting that the addition was again based solely on the ex-partner's admission without credible evidence. The Tribunal found the CIT(A)'s approach of estimating the net profit percentage based on historical data to be fair and reasonable, and thus, upheld the restriction of the addition to ?1,91,890/-.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the ?53,00,000/- addition and the restriction of the ?10,00,000/- addition to ?1,91,890/-. The Tribunal emphasized the necessity of corroborative evidence for additions based on statements and supported the CIT(A)'s reliance on the CBDT Circular and historical net profit percentages.