2018 (11) TMI 1429 - AT - Income Tax

Addition being the difference between the income surrendered and the income shown in the return of income - Held that - As noted in para number 4.3.4 where the assessee has stated that he had sold of all the machinery to scrap dealers and there were no machineries with him, however the department found Guthka making machinery being operated with generator sets and raw materials as well as finished goods in the appellant s premises. In the statement dated 17/12/2000 , date the assessee admitted that he was not only having the such machinery but also surrendered ₹ 35 lakhs towards investment in the machinery and unaccounted income from the said activity for assessment year 2009-10 and ₹ 2 lakhs for assessment year 2008 09. This was also confirmed by submitting a letter dated 26/9/2008. Assessee also did not submit in the letter that why is he disclosing income and its application both. Further, the assessee has also disclosed major sums for miscellaneous income for which no break up was given. Assessee has never explained his disclosure before AO. For the reasons given by the learned commissioner Appeals in para number 4.3.5 also we are not inclined to interfere in the orders of the lower authorities and therefore the addition of ₹ 2 lakhs is confirmed. Accordingly, ground number one of the appeal of the assessee is dismissed. Disallowance with respect to loss of two proprietary concerns - Held that - AO found that machineries of Guthka were running in business premises of assessee on generator, these two facts goes a long way to show that the business of the proprietary concern is not closed. Further in this year, business income is taxed as a part of disclosure, then where from these income is generated other than these two proprietary business of the assessee, is not shown. It is also unfair to tax the income as business income, and not to grant benefit of losses resulting out of expenses of that income. In view of this, we are not inclined to uphold the orders of the lower authorities and therefore we direct the learned assessing officer to allow the loss because of business losses of the proprietary concern. In the result ground number two of the appeal of the assessee is allowed. Disallowance of expenses of personal nature - Held that - Before the learned commissioner appeals the assessee produced the profit and loss account of one proprietary concern but not of the second proprietary concern. The expenditure in the nature of the copy charges of hard disk are not appearing either in the profit and loss account of any of the proprietary concerns. This expenditure has been debited in the appellant s individual income and expenditure account. The learned commissioner appeals has noted that the total income and expenditure account claim of the assessee shows that assessee has claimed the expenditure of ₹ 115130/ towards hard disk copy charges in interest expenditure. Out of these the assessing officer disallowed only ₹ 5 6130/ . In absence of the complete details filed before the lower authorities, as mentioned by the learned commissioner of income tax appeals we do not interfere in the finding of lower authorities on disallowance of ₹ 5 6130 out of the total expenditure incurred by the assessee. Penalty u/s 271AAA - Held that - It was not shown by the revenue that whether the assessee was given an opportunity to explain the source of the undisclosed income and specify the manner in which the undisclosed income, surrendered during the course of search, had been derived. Therefore, the issue is squarely covered in favour of the assessee by the decision of the honourable Delhi High Court in case of principal CIT vs Emirates Technologies Private Limited. 2017 (8) TMI 387 - DELHI HIGH COURT . We direct the learned assessing officer to delete the penalty of ₹ 3.5 lakhs under section 271 AAA - Decided in favour of the assessee.

Issues Involved:
1. Confirmation of addition of ?2,00,000 as the difference between the income surrendered and the income shown in the Return of income.
2. Confirmation of disallowance of ?2,09,901 with respect to loss of two proprietary concerns.
3. Confirmation of disallowance of ?56,130 held to be expenses of personal nature.
4. Confirmation of penalty of ?3,50,000 under section 271AAA of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of ?2,00,000:
The assessee contended that the surrender of ?35 lakhs included income from years other than the year under consideration, and the surrendered amount covered assets and income, leading to double taxation. The Assessing Officer (AO) added ?2 lakhs, noting that the assessee disclosed ?33 lakhs instead of ?35 lakhs surrendered. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, citing the assessee's failure to explain the reduction. The Tribunal confirmed the addition, agreeing with the lower authorities that the assessee did not justify the reduction from ?35 lakhs to ?33 lakhs. Thus, the ground of appeal was dismissed.

2. Confirmation of Disallowance of ?2,09,901:
The assessee argued that the proprietary concerns were operational in the preceding year, and the interest on loans should be allowed as business expenditure. The AO disallowed the loss, stating the businesses had ceased. The CIT(A) upheld this disallowance. However, the Tribunal found that the businesses were operational, as evidenced by the presence of machinery and business income taxed as part of disclosure. The Tribunal directed the AO to allow the loss of ?2,09,901, thus allowing this ground of appeal.

3. Confirmation of Disallowance of ?56,130:
The assessee claimed the expenses as business expenditure, but the AO disallowed ?56,130, considering them personal in nature. The CIT(A) upheld this disallowance, noting the lack of detailed evidence. The Tribunal agreed with the lower authorities, observing that the expenses were not substantiated as business-related. Consequently, this ground of appeal was dismissed.

4. Confirmation of Penalty of ?3,50,000 under Section 271AAA:
The AO imposed a penalty of ?3.5 lakhs for undisclosed income, which the CIT(A) confirmed. The assessee argued that the disclosure was made to avoid litigation and that the manner of earning the income was explained. The Tribunal noted that the revenue did not show whether the assessee was given an opportunity to explain the source and manner of the undisclosed income. Citing precedents from the Delhi High Court and other jurisdictions, the Tribunal held that the penalty was not justified and directed its deletion. Thus, this ground of appeal was allowed.

Conclusion:
The appeal was partly allowed, with the Tribunal confirming the addition of ?2 lakhs and the disallowance of ?56,130, while allowing the loss of ?2,09,901 and deleting the penalty of ?3.5 lakhs.

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