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2021 (9) TMI 992 - AT - Income TaxSale of TMT scrap treating the same as unexplained income - HELD THAT - The assessee s explanation with regard to interest in the loose sheet i.e. blue diary found during the course of search was that it was for the purpose of memory and the addition could not have been made solely on the basis of loose paper which is against the well settled law in this regard - the entire alleged receipt could not partake character of profit. The profit element embedded into such receipt could be subjected to tax. There is no ambiguity under law that no addition can be made merely on the basis of loose paper without being substantiated by any corroborative evidence. In the present case, undisputedly, one of the entries of ₹ 75,000/- was found to be duly recorded in the books of accounts, therefore, in the agreement with the contention of the learned DR that such figures found on loose sheet could not be imaginary. Whether the entire receipt is correctly taxed or only the profit element should have been taxed. Admittedly, the AO has not invoked section 69/69A - only profit element should have been taxed - direct the AO to restrict the addition @ 10% of the gross receipts. This ground of assessee s appeal is partly allowed. Disallowance of expenditure, where payment has been made in cash exceeding ₹ 20,000/- .- HELD THAT - Agreement with the contention of the Ld. DR that the assessee was required to demonstrate that the payments which has been made in excess of ₹ 10,000/- fall under any of the exception as provided u/s 40(3) of the Act and Rules framed thereunder. Hence, the findings of the authorities below are affirmed. The ground of the assessee s appeal is dismissed. Ad-hoc disallowance - HELD THAT - We find merit in the contention of the assessee that both the additions has been made on the basis of surmises only. AO has made disallowance purely on the basis of guess work - AO is hereby directed to delete the addition on account of notional interest and ₹ 50,000/- made on account of ad-hoc disallowance out of car, telephone and salary of staff and other expenses. Thus, the ground no.2(iii) and ground no.2(iv) of the appeal are allowed.
Issues:
1. Reopening of assessment without valid reasons 2. Addition of unexplained income, expenses, notional interest, and ad-hoc disallowance Analysis: Issue 1: Reopening of assessment without valid reasons The appeal challenged the initiation of proceedings under sections 147/148 of the Income Tax Act, 1961 without valid reasons for believing in income escapement and passing an order without providing recorded reasons. The tribunal dismissed this ground as no arguments were presented during the hearing. Issue 2: Addition of unexplained income, expenses, notional interest, and ad-hoc disallowance The Assessing Officer (AO) made various additions to the income of the assessee based on findings during a survey operation and subsequent assessment proceedings. The AO added an amount on account of unrecorded sale of TMT scrap, expenses incurred on insurance and electricity, notional interest on transactions with a specific trader, and ad-hoc disallowance of certain expenses. The tribunal analyzed each addition separately. - Unexplained Income Addition: The tribunal found that the addition of the entire amount based on a loose diary entry was not justified. It was established that only the profit element should be taxed, and the AO was directed to restrict the addition to 10% of the gross receipts. - Expenses Disallowance: The AO disallowed certain expenses made in cash exceeding a specified amount. The tribunal upheld this disallowance as the assessee failed to demonstrate that the payments fell under exceptions as per the Act. - Notional Interest and Ad-hoc Disallowance: The tribunal concluded that both these additions were made on conjectures and guesswork without specific findings by the AO. Therefore, the AO was directed to delete the additions made on account of notional interest and ad-hoc disallowance. In conclusion, the tribunal partly allowed the appeal of the assessee, directing the AO to make adjustments as per the tribunal's findings.
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