2021 (12) TMI 99 - AT - Income Tax

Estimation of income on investment - estimated notional addition at the rate of 6% on the investment - addition being entry fee @ 6% on the investment by the assessee in the shares of unlisted companies treating the assessee as an entry operator and that the assessee is not showing any income which according to him is against the normal human behavior - HELD THAT - Considering the fact that no such addition has been made in the preceding or in the subsequent assessment years on account of notional income on investment @ 6% as adopted by the A.O. in the instant case and upheld the Ld. CIT(A), therefore, respectfully following the decision of the Hon ble Supreme court in the case of Excel Industries Ltd., 2013 (10) TMI 324 - SUPREME COURT thus hold that the Ld. CIT(A) is not justified in sustaining the addition made by the A.O - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the addition of ?14,53,800/- as notional income at the rate of 6% on the investment of ?2,42,30,000/- was justified.
2. Whether the assessee was correctly treated as an entry operator.
3. Application of the rule of consistency in tax assessments.

Issue-wise Detailed Analysis:

1. Justification of Notional Income Addition:
The primary issue was whether the addition of ?14,53,800/- as notional income at the rate of 6% on the investment of ?2,42,30,000/- was justified. The Assessing Officer (A.O.) argued that the assessee had made substantial investments in unlisted companies without receiving any income, which was against normal human behavior. The A.O. applied a 6% rate, common for entry operators, to estimate the income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, noting that the company showed very nominal receipts and income, mostly in cash, and did not change its investment pattern despite no returns.

2. Treatment of the Assessee as an Entry Operator:
The A.O. and CIT(A) treated the assessee as an entry operator, based on the observation that the assessee made significant investments without any income, which was deemed imprudent. The CIT(A) emphasized that the assessee's claims were unsubstantiated and that the small income declared, mostly in cash, did not justify the genuineness of the business operations.

3. Rule of Consistency:
The assessee argued that no such addition was made in preceding or subsequent assessment years, and the Revenue had no material to prove otherwise. The Tribunal found merit in this argument, noting that the income declared in prior years (A.Ys. 2011-12, 2012-13, and 2013-14) was accepted without such additions. The Tribunal referenced the Supreme Court decision in Commissioner of Income Tax vs. Excel Industries Ltd., which held that income cannot be levied on hypothetical income and emphasized the importance of consistency in tax assessments.

Conclusion:
The Tribunal concluded that the addition of ?14,53,800/- as notional income was not justified, citing the rule of consistency and the absence of such additions in other assessment years. The Tribunal set aside the order of the CIT(A) and directed the A.O. to delete the addition, allowing the appeal of the assessee.