2021 (2) TMI 1095 - AT - Income Tax

Estimation of income - income from inflation of expenses - Assessment u/s 153A - search operation u/s.132 certain loose papers and digital forms were found and seized - HELD THAT - It is not in dispute that assessee had resorted to inflation of expenses by making certain cheque payments and receiving back cash in return. It is not in dispute that the said cash had already also been utilised for the purpose of meeting business related expenses by the assessee. In this background what is to be taxed is only the left over portion of the cash remaining with the assessee on this subject mentioned transaction, being the profit element, which has been already accepted by the Hon ble Income Tax Settlement Commission at 12% vide its order dated 28/06/2018 in assessee s group company cases. CIT(A) ought to have followed the same in view of identical facts in the assessee herein also. Accordingly, we direct the ld. AO to make an addition @12% of inflation of expenses for the relevant assessment year in line with the direction of the Hon ble Income Tax Settlement Commission in assessee s group company cases. Addition towards on-money - addition u/s.68 towards on-money received by the assessee for sale of flats - HELD THAT - It is not in dispute that the assessee had incurred certain business expenses out of such on-money which are kept outside the books of accounts. Hence, it will be just and fair that only the profit element embedded on any such undisclosed transaction could be brought to tax on an estimated basis. The assessee had already pleaded that on-money transactions were offered by the assessee s group concerns @12% of on-money receipts before the Hon ble Income Tax Settlement Commission and the same has been accepted by the Settlement Commission. Hence, the data and information was indeed available with the ld. CIT(A) to have some rational basis to make profit estimation in the hands of the assessee herein by following 12% thereof from the order of Hon ble Income Tax Settlement Commission. Accordingly, we direct the ld. AO to add only 12% of on-money receipts as undisclosed income of the assessee for the year under consideration.

Summary

Issues:
1. Addition of income from inflation of expenses for A.Y.2013-14.
2. Addition towards on-money for A.Y.2014-15.

Issue 1: Addition of income from inflation of expenses for A.Y.2013-14:
The Appellate Tribunal considered whether the ld. CIT(A) correctly confirmed the addition of ?5,34,819/- as income from inflation of expenses for A.Y.2013-14. The Tribunal noted that the assessee did not appear, and after reviewing the material, found that parallel books of accounts showed expenses inflated through cheque payments and receiving cash back. The ld. AO sought to add ?21,39,275/- as inflation of expenses, while the assessee proposed adding 8% on a without prejudice basis. The Tribunal observed that the Hon'ble Income Tax Settlement Commission accepted 12% of the expenditure as income in the group cases. The ld. CIT(A) made an adhoc disallowance at 25% of inflated expenses, which the Tribunal deemed incorrect. They directed the ld. AO to add @12% of inflation of expenses in line with the Settlement Commission's direction in group company cases, partially allowing the assessee's appeal.

Issue 2: Addition towards on-money for A.Y.2014-15:
Regarding the addition of ?55 lakhs towards on-money for A.Y.2014-15, the Tribunal reviewed the ld. AO's decision to tax the net on-money received of ?2,20,00,000/- under Section 68 as unexplained cash credit. The Tribunal noted that the ld. CIT(A) recognized that only the profit element of on-money could be taxed, not the entire receipts. The ld. CIT(A) estimated the profit element at 25%, limiting the addition to ?55 lakhs instead of the full amount. The Tribunal found that the assessee's group offered 12% of on-money receipts as income before the Settlement Commission, which was accepted. They directed the ld. AO to add only 12% of on-money receipts as undisclosed income for the year, partially allowing the assessee's appeal.

In conclusion, the Appellate Tribunal partially allowed the appeals of the assessee concerning the addition of income from inflation of expenses for A.Y.2013-14 and the addition towards on-money for A.Y.2014-15, directing the ld. AO to make adjustments based on the Settlement Commission's directions in the group company cases.