2020 (12) TMI 19 - AT - Income Tax

Unaccounted cash receipts - on money for the additional work executed - statement recorded u/sec. 132(4) relied upon for making the addition - whether the entire additional receipt constitute income or not when unaccounted expenditure is also involved? - CIT(A) deleted the addition holding that the assessee has received the on money for the additional work executed by them and the entire receipts cannot be treated as income - HELD THAT - AO made the addition solely on the basis of statement recorded u/sec. 132(4) without considering the other issues and facts involved in construction with regard to the additional expenditure related to construction of flats. No other evidence was brought on record by the AO to controvert the statement regarding receipt of additional receipts for additional work carried out by the assessee. This fact was supported by the information found from the table of the Accountant indicating the additional receipt as well as expenditure. The assessee has explained during the course of assessment proceedings that the additional income of ₹ 750/- per sq.ft. was accepted without taking into consideration of the land owners share. The assessee from the beginning explained that the additional receipts were received for earning the additional work. All these facts and circumstances support that only profit required to be brought to tax but not the entire receipts. The assessee had admitted the income @ 30% on additional receipts which appears to be fair and reasonable.The AO cannot make addition solely on the basis of statement u/sec. 132(4) without considering the entire facts and the expenditure, therefore we do not find any reason to interfere with the order of the ld.CIT(A) and the same is upheld and the appeal of the Revenue is dismissed for both the assessment years. Addition u/s 147 - As argued that the assessment made u/sec. 143(3) r.w.s. 147 is bad in law - HELD THAT - . During appeal hearing, ld.DR did not place the reasons recorded by the AO for reopening the assessment before us. However, as seen from the assessment order the assessee has accepted the additional income u/sec. 132(4) on the basis of information collected by the AO during the search proceedings thus there was escapement of income and hence, we hold that reopening of assessment by issue of notice u/sec. 148 is valid.

Summary

Issues Involved:
1. Deletion of addition made by the AO based on the statement recorded u/sec. 132(4) of the Income Tax Act, 1961.
2. Validity of framing the assessment u/sec. 147 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by the AO:
The primary issue in these appeals was the deletion of additions made by the Assessing Officer (AO) based on the statement recorded under section 132(4) of the Income Tax Act, 1961. The AO had inferred that the assessee received unaccounted sale consideration based on Whatsapp messages found during a search operation and statements recorded from the accountant and the assessee. The AO treated the entire unaccounted receipts as undisclosed income and brought them to tax.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the additions, holding that the additional receipts were for carrying out additional works executed by the assessee and that the entire additional receipts could not be treated as income solely based on the statement recorded under section 132(4) without corroborating evidence. The CIT(A) found that the income admitted by the assessee at 30% on additional receipts was reasonable and directed the AO to accept the same.

The Tribunal upheld the CIT(A)'s decision, stating that the AO made the addition solely based on the statement recorded under section 132(4) without considering the additional expenditure related to the construction of flats. The Tribunal observed that no other evidence was brought on record by the AO to counter the statement regarding additional receipts for additional work. The Tribunal concluded that only the profit required to be brought to tax, not the entire receipts, and found the income admitted by the assessee at 30% on additional receipts to be fair and reasonable.

2. Validity of Framing the Assessment u/sec. 147:
The assessee challenged the validity of framing the assessment under section 147, contending that no search or survey proceedings were conducted on the business premises of the assessee and that the statement recorded under section 132(4) could not be the sole basis for reopening the assessment without corroborating evidence.

The CIT(A) dismissed the appeal, holding that the AO had valid reasons to believe that income had escaped assessment based on the material available, including the additional receipts and income admitted by the assessee and the buyers' statements. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had accepted the additional income under section 132(4) based on information collected during the search proceedings, thus justifying the reopening of the assessment.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue and the cross objections filed by the assessee, upholding the CIT(A)'s decision to delete the additions made by the AO and validating the reopening of the assessment under section 147. The Tribunal emphasized that the entire additional receipts could not be treated as income without considering the related expenditure and that the income admitted by the assessee at 30% on additional receipts was fair and reasonable.