2021 (10) TMI 1207 - AT - Income Tax

Additions of varied amounts on account of unaccounted on-money - Seized material in search - whether the whole amount of on-money received can be subjected to taxation or only the income embedded therein can be brought to tax in the facts of the case? - HELD THAT - Undisputed fact that certain seized materials were found in the course of search showing unrecorded receipts and consequently, a disclosure of this amount was made in aggregate in various assessment years by way of statement recorded u/s 132(4) of the Act at the time of search. The assessee, however, has offered the net profit elements whereas the Revenue has attempted to tax the gross amount in tune with deposition made in the statement on behalf of the assessee- company at the time of search. In the course of search, certain loose-papers were found showing unaccounted receipts. The assessee readily surrendered the aforesaid receipts as undisclosed income of the assessee. Apart from the loose-papers of incriminating nature, the search team could not lay on hands on any excess cash of serious amount, nor could unearth any unaccounted assets or investment to corroborate the unaccounted gross receipts in question. Besides, the deposition made in statement u/s 132(4) suggests that the amount generated by way of gross receipts have been ploughed back in the business of the assessee. Question No.13 of the statement under Section 132(4) clearly vouches this significant aspect. In this factual backdrop, the case made out on behalf of the assessee that only the profit element embedded in the gross receipt is susceptible to tax cannot be brushed aside. We find merit in the plea of the assessee that the Assessing Officer was not justified in bringing to tax the whole amount of unrecorded receipts. In the light of judicial precedents cited above and many more, entire gross receipts cannot be brought to tax. The action of the assessee to restrict the inclusion of unaccounted income in ROI to the extent of profit embedded in such unaccounted receipts cannot be faulted in the facts and circumstances of the case. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of unaccounted on-money
2. Validity of statements made under Section 132(4)
3. Taxability of gross receipts vs. net profit element

Detailed Analysis:

1. Addition of Unaccounted On-Money:
The assessee, engaged in real estate, faced search and seizure operations under Section 132 of the Income-tax Act, 1961, on 19.09.2016. During the search, loose papers and incriminating documents were found, indicating unaccounted receipts. The Director of the assessee-company voluntarily surrendered ?12,17,00,900/- as unaccounted income. However, the assessee declared only ?1,05,90,100/- as additional income in the Return of Income (ROI), arguing that only the net profit element from the unaccounted receipts should be taxed. The Assessing Officer (AO) rejected this explanation, considering the entire surrendered amount taxable, leading to an addition of ?11,11,10,800/- across different assessment years.

2. Validity of Statements Made Under Section 132(4):
The AO and the Commissioner of Income-Tax (Appeals) [CIT(A)] relied heavily on the statements made under Section 132(4), which were not retracted by the assessee. The AO argued that the statements, being voluntary and without coercion, carried evidentiary value and should be used as the basis for taxation. The CIT(A) upheld this view, stating that the lesser declaration in the ROI amounted to an unjustified retraction.

3. Taxability of Gross Receipts vs. Net Profit Element:
The Tribunal examined whether the entire amount of on-money received should be taxed or only the net profit embedded within. The assessee argued that the gross receipts were ploughed back into the business, and only the profit element should be taxed. The Tribunal noted the absence of significant excess cash or unaccounted assets found during the search, supporting the assessee's claim. The Tribunal referenced several judicial precedents, including the Hon'ble Gujarat High Court's decision in DCIT Vs. Panna Corporation, which held that only the profit element in unaccounted receipts is taxable.

Judgment:
The Tribunal concluded that the AO was unjustified in taxing the entire gross receipts. The Tribunal found merit in the assessee's plea that only the net profit element should be taxed, in line with judicial precedents. Consequently, the Tribunal set aside the CIT(A)'s order and deleted the additions made by the AO, allowing the assessee's appeals.

Result:
All the captioned appeals of the assessee were allowed, with the Tribunal ordering the deletion of the additions made by the AO. The judgment was pronounced on 26/10/2021.