2006 (6) TMI 417 - AT - Income Tax

Tax Appeal Win: Deletion of Rs. 6,07,830 'On Money' Addition u/s 44AD Due to Lack of Evidence.

The ITAT allowed the appellant's appeal, deleting the addition of Rs. 6,07,830 for 'on money' to the assessable income. The ITAT held that under section ... Civil construction business - survey conducted u/s 133A - receipt of 'on money' - deemed income assessable under the provisions of section 44AD - income declared more than 8%, AO can increase the percentage of profit u/s 44AD? - HELD THAT:- It is not the case of revenue that the total receipts of the assessee exceeded Rs. 40 lakhs so as to say that the income of assessee is not assessable u/s 44AD of the Act. There is no material on record to show that all the expenditure incurred in respect of civil work were duly claimed by the assessee and the receipt of 'on money' was the net income of the assessee particularly when assessee has not maintained the books of account, or they have not been produced or relied upon by the assessee. There is no material with the department to arrive at a conclusion that for receiving 'on money' assessee did not incur any expenditure. As pointed out earlier, that the only base for the revenue to assess the 'on money' in its entirety, is the statement of partner recorded during the course of search. As per the decision in the case of Paul Mathews & Sons v. CIT [2003 (2) TMI 25 - KERALA HIGH COURT] no evidentiary value can be attached to such statement unless it is supported by some material. In this view of the situation, it can be held that there is no material with the department to make addition of 'on money' in its entirety and what is assessable u/s 44AD is 8% of the gross receipt or more profits shown by assessee in its return of income. In the present case assessee has shown income of more than 8% therefore, no addition can be made by Assessing Officer while working u/s 44AD of the Act. Thus, it is held that no addition could be made to the income of assessee and, therefore, addition made is deleted - In the result, appeal filed by the assessee is allowed. Issues Involved:1. Addition of Rs. 6,07,830 for 'on money'.Issue-Wise Detailed Analysis:1. Addition of Rs. 6,07,830 for 'on money'Background:The appellant, a partnership firm engaged in the construction and sale of premises, was subject to a survey under section 133A of the Income Tax Act on 25th February 1997. During the survey, a diary was found indicating that the firm received 'on money'-additional sales consideration-of Rs. 30 per sq.ft. for residential flats and Rs. 65 per sq.ft. for office premises, totaling Rs. 6,07,830.Proceedings:The Assessing Officer (AO) issued a show-cause notice to the appellant, questioning why the 'on money' of Rs. 6,07,830 should not be added to their income. The appellant argued that the net profit shown was 9.56% of the total sale consideration, which was higher than the 8% required under section 44AD of the Act. They contended that only the profit rate should be applied to the 'on money', not the entire amount.Assessment and Appeal:The AO rejected the appellant's submission and computed the assessable income at Rs. 5,94,547, including the 'on money'. The CIT(A) upheld this assessment. The appellant, aggrieved by this decision, filed an appeal before the ITAT.Legal Arguments:The appellant argued that under section 44AD, only 8% of the gross receipts should be taxed, and since their declared income was higher than 8%, no additional tax should be imposed. They cited the ITAT decision in Kishor Mohanlal Telwala v. Asstt. CIT, which held that only 8% of 'on money' should be taxed. They also argued that statements made during surveys are not binding, referencing the Supreme Court's decision in Shri Kishan v. Kurukshetra University and other relevant cases.ITAT's Analysis:The ITAT noted that the appellant's total receipts, including 'on money', did not exceed Rs. 40 lakhs, making them eligible for assessment under section 44AD. The ITAT emphasized that under section 44AD, the AO cannot assess income exceeding 8% of gross receipts unless the appellant declares a higher income. The ITAT also highlighted the difference between statements recorded under section 133A and those under section 132(4), noting that statements under section 133A do not have evidentiary value unless supported by material evidence.Conclusion:The ITAT concluded that the addition of Rs. 6,07,830 based solely on the partner's statement during the survey was not justified. There was no material evidence to support the full addition of 'on money'. The ITAT held that only 8% of the gross receipts, or the higher amount declared by the appellant, should be taxed under section 44AD. Since the appellant's declared income was more than 8%, no additional tax was warranted.Judgment:The appeal filed by the appellant was allowed, and the addition of Rs. 6,07,830 was deleted.