2018 (8) TMI 1041 - AT - Income Tax

Additions u/s 69A - promissory notes issued to various persons - undisclosed source of investments - additions based on statement made during survey - Held that - In the back ground of fact emanating out of the statement given in the survey proceedings as well as for the reason that nowhere during the course of proceedings before lower authorities as well as before us, the assessee has been able to demonstrate with the help of bills issued for credit sales from the shop which could be linked to the promissory notes found during the course of survey - alleged promissory notes are having no connection with the sundry debtors of the assessee and the amounts indicated in the alleged promissory notes are actually the part of the money lending business of the assessee and this business was consistently carried out by the assessee along with the business of retail trade of GC sheets and PVC pipes. Assessee through his written submission has tried to assert the fact that no addition is called for the alleged promissory notes as the debtors at the close of the year can be reconciled to the amount outstanding at the paying of the year, amount received during the year as well as received after the close of financial year 2002-03 but all these details rather than solving the issue and making it more complicated to arrive on a conclusion. Considering the issue, business income, agriculture income, a portion of the addition so made deleted. - Additions for remaining amount confirmed - Decided partly in favor of assessee. Additions u/s 69A - alleged investment in purchases - assessee does not maintain the regular books of accounts and is filing Income Tax return following the provisions of Sec. 44AF of the Income Tax Act since last so many years. - Held that - Even though the assessee is not maintaining regular books of accounts but he has submitted the figure of closing stock in the statement of financial affairs. - The amount of stock is much more than sales shown by the assessee - This clearly establishes that the assessee was engaged in making sales out of record which was not disclosed in the total turnover shown in the return of income. - Based on reverse calculation, additions confirmed by the CIT(A) sustained - Decided against the assessee.

Summary

Issues Involved:
1. Addition of ?7,15,900 for unaccounted investments in promissory notes.
2. Addition of ?99,848 on account of interest on promissory notes.
3. Addition of ?1,37,864 for unaccounted purchases.

Issue-Wise Detailed Analysis:

1. Addition of ?7,15,900 for Unaccounted Investments in Promissory Notes:
The primary issue revolves around the addition of ?7,15,900 for alleged unaccounted investments in promissory notes found during a survey conducted under section 133A of the Income Tax Act. The assessee contended that these promissory notes were actually sundry debtors from sales not realized in time. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] did not accept this explanation, leading to the addition.

The Tribunal noted that the assessee failed to link the promissory notes with sundry debtors through credible evidence such as bills or statements. The Tribunal also observed that the assessee had a history of money lending alongside his retail business. The Tribunal partially allowed the appeal by deleting ?5,41,770 from the addition, recognizing it as explained investment, but confirmed the remaining addition of ?1,74,730 as unaccounted investment in the money lending business.

2. Addition of ?99,848 on Account of Interest on Promissory Notes:
The second issue concerns the addition of ?99,848 as interest income on the promissory notes. The assessee argued that he followed a receipt basis for interest income and had already declared ?20,000 in his return. The Tribunal accepted the assessee's contention for a set-off and reduced the addition to ?79,848, thus partly allowing the appeal on this ground.

3. Addition of ?1,37,864 for Unaccounted Purchases:
The third issue pertains to the addition of ?1,37,864 for unaccounted purchases based on documents seized during the survey. The assessee claimed that he followed the provisions of section 44AF, which prescribes a presumptive income scheme for retail traders, and thus no separate addition for unaccounted purchases should be made.

The Tribunal analyzed the financial statements and noted discrepancies in the closing stock and purchases, which indicated that the assessee was engaged in off-record sales. The Tribunal upheld the CIT(A)'s decision, confirming the addition of ?1,37,864 for unaccounted purchases.

Conclusion:
The Tribunal's decision resulted in a partial allowance of the appeal. The addition of ?7,15,900 for unaccounted investments in promissory notes was reduced to ?1,74,730, and the addition of ?99,848 for interest was reduced to ?79,848. However, the addition of ?1,37,864 for unaccounted purchases was confirmed in full. The order was pronounced in the open court on 02.08.2018.