2012 (3) TMI 598 - AT - Income Tax

Tribunal adjusts tax assessments for 2006-07 and 2007-08, allowing appeals on commission income and cash credits.

The tribunal partially allowed the appeals of the assessee in a tax matter for the assessment years 2006-07 and 2007-08. The tribunal made adjustments to ... Estimation of income based on material under proceedings under section 153A - Reliance on statements recorded during search for estimation - Seasonal business and limitation of estimation to period supported by seized material - Burden on assessee to prove identity, creditworthiness and genuineness of cash credits - Treatment of security deposit as capital receipt on lease of immovable property - Reference to Valuation Officer without rejecting books of account - Assessment-year specific turnover extrapolation from seized material - Remand to assessing officer for verification of source of fundsEstimation of income based on material under proceedings under section 153A - Reliance on statements recorded during search for estimation - Seasonal business and limitation of estimation to period supported by seized material - Assessment-year specific turnover extrapolation from seized material - Amount of commission income to be taken as income from commission business for assessment year 2006-07 - HELD THAT: - Search-seized material (showing transactions from 01-12-2006 to 19-01-2007 comprising 33 transactions per day for 50 days) and statements recorded were the primary material. The assessee consistently stated that the business is seasonal (December-April) and gave varying figures for commission (Rs.1,000 to Rs.2,000 per lakh). In absence of corroborative material to show year-round operations or a higher commission rate, the Tribunal accepted the lower end of the assessee's own contemporaneous statement and confined estimation to the period supported by seized material and the seasonal period. Applying commission at Rs.1,000 per lakh on turnover established from seized material produced income of Rs.6,17,917 for AY 2006-07, which the Tribunal directed the assessing officer to adopt. [Paras 8, 9, 10, 11]Commission income for AY 2006-07 fixed at Rs. 6,17,917 and the CIT(A)'s order modified accordingly.Burden on assessee to prove identity, creditworthiness and genuineness of cash credits - Addition of Rs. 11 lakhs as unexplained cash credit from Aboobaker Poothayil for assessment year 2006-07 - HELD THAT: - The assessee produced bank records and passport copy showing the creditor had obtained a bank loan which was credited to his account and the same amount was given to the assessee by cheque. The assessing officer's remand report accepted the credit as explained. The Tribunal distinguished the facts from P. Mohanakala (where funds stemmed from suspicious multiple names) and held that where the creditor's deposit and loan stand in the creditor's name and the cheque from the creditor to the assessee is established, the source for the creditor's deposit is a matter for the revenue to pursue against the creditor. In absence of material casting doubt on the genuineness, identity and creditworthiness, the addition could not be sustained. [Paras 12, 15, 16]Addition of Rs. 11 lakhs as unexplained cash credit deleted for AY 2006-07.Treatment of security deposit as capital receipt on lease of immovable property - Addition of Rs. 3 lakhs received as rent/security deposit treated as income for assessment year 2006-07 - HELD THAT: - The assessee produced the rent agreement and rent account showing receipt by account payee cheque and included rent in return. The Tribunal held that an advance/security deposit received for parting with interest in immovable property under a lease is a capital receipt and not assessable as income. In these circumstances, the receipt characterized as security deposit could not be taxed as income. [Paras 17, 18, 19]Addition of Rs. 3 lakhs treated as security deposit deleted.Reference to Valuation Officer without rejecting books of account - Addition of Rs. 16,19,079 as unexplained investment in building based on DVO valuation for assessment year 2006-07 - HELD THAT: - The Tribunal noted that the assessee maintained books of account for the construction and there was no rejection of those books by the assessing officer. Following the Apex Court in Sargam Cinema, reference to the DVO without first rejecting the books of account was held to be misconceived. In absence of any defect pointed out in the books of account, the DVO valuation could not be used to make an addition. [Paras 20, 23, 24]Addition of Rs. 16,19,079 based on DVO valuation deleted.Assessment-year specific turnover extrapolation from seized material - Quantum of agricultural income to be accepted for assessment year 2006-07 - HELD THAT: - Assessee owned more than five acres including rubber plantation; revenue did not dispute landholding but challenged proof of cultivation and quantum. Tribunal found AO's estimate of Rs.75,000 from five acres to be very low given Kerala's fertility and monsoon; in absence of concrete material from assessee about detailed cultivation, Tribunal nonetheless assessed a reasonable agricultural income at Rs.2,00,000 for five acres, modifying earlier orders. Resulting disallowance confirmed was Rs.1,00,000. [Paras 25, 27]Agricultural income for AY 2006-07 assessed at Rs.2,00,000 (net disallowance confirmed Rs.1,00,000).Estimation of income based on material under proceedings under section 153A - Seasonal business and limitation of estimation to period supported by seized material - Assessment-year specific turnover extrapolation from seized material - Amount of commission income to be taken as income from commission business for assessment year 2007-08 - HELD THAT: - No direct material for turnover in AY 2007-08 existed; Tribunal relied on established facts for AY 2006-07 that the business is seasonal (five months) and that 50 days' transactions represent 33 transactions per day. Extrapolating to five months (150 days) produced turnover of Rs.18,53,75,100; applying commission at Rs.1,000 per lakh (consistent with findings for AY 2006-07) yielded commission income of Rs.18,53,751 which the Tribunal directed the assessing officer to adopt for AY 2007-08. [Paras 28, 29]Commission income for AY 2007-08 fixed at Rs. 18,53,751 and the lower orders modified accordingly.Burden on assessee to prove identity, creditworthiness and genuineness of cash credits - Addition of Rs. 20 lakhs credited by Shri Afsal P.Y. for assessment year 2007-08 - HELD THAT: - During remand the assessing officer found that the amount was received from the assessee's sister and brother in law and traced to the account of P.A. Abdulla; the assessing officer accepted the genuineness and creditworthiness of the transaction for the assessee. The Tribunal held that inability of the assessee to explain the source of deposit in the third party's account (P.A. Abdulla) was not a proper ground to disallow the credit in the assessee's hands where the deposit stood in that third party's name and funds were shown to have been routed to the assessee. In absence of material showing the assessee's funds were earlier deposited in that third party's account, addition could not be sustained. [Paras 31, 34]Addition of Rs. 20 lakhs from Shri Afsal P.Y. deleted.Remand to assessing officer for verification of source of funds - Addition of Rs. 10 lakhs credited by Shri M. M. Abdul Kareem for assessment year 2007-08 - HELD THAT: - There was a factual dispute whether the creditor had withdrawn funds from his NRO/NRE overdraft account and then deposited cash on the same day; lower authorities did not examine bank records on this point. The Tribunal held that this factual aspect requires verification by the assessing officer and therefore set aside the addition and remitted the matter to the assessing officer for fresh examination and decision after giving the assessee opportunity. [Paras 35, 38]Addition of Rs. 10 lakhs from Shri M. M. Abdul Kareem set aside and remanded to the assessing officer for verification and fresh decision.Burden on assessee to prove identity, creditworthiness and genuineness of cash credits - Addition of Rs. 20 lakhs credited by Shri M. K. Hamsa for assessment year 2007-08 - HELD THAT: - Records established that the creditor obtained a sanctioned demand loan from State Bank of India which was credited to his NRE SB account and that the creditor issued the cheque to the assessee from that account. The assessing officer's remand findings established identity, creditworthiness and genuineness; in absence of contrary material indicating that the funds belonged to the assessee, the Tribunal found no justification for addition. [Paras 39, 40]Addition of Rs. 20 lakhs in the name of Shri M. K. Hamsa deleted.Burden on assessee to prove identity, creditworthiness and genuineness of cash credits - Addition of Rs. 10 lakhs credited by Aboobaker Poothayil for assessment year 2007-08 - HELD THAT: - For AY 2007-08 the assessing officer's remand report accepted the credit as explained (amount routed through banking channels and sourced to FCNR deposit). The Tribunal, applying the same reasoning adopted for AY 2006-07 on identical facts and distinguishing P. Mohanakala, found that the assessee discharged the onus regarding identity, creditworthiness and genuineness. Consequently, the addition was unsustainable. [Paras 41, 44]Addition of Rs. 10 lakhs in the name of Aboobaker Poothayil deleted for AY 2007-08.Final Conclusion: Both appeals are partly allowed: for AY 2006-07 commission income is fixed at Rs.6,17,917; addition of Rs.11 lakhs (Aboobaker) deleted; Rs.3 lakhs rent/security deposit deleted; DVO-based addition of Rs.16,19,079 deleted; agricultural income fixed at Rs.2,00,000 (net disallowance confirmed Rs.1,00,000). For AY 2007-08 commission income is fixed at Rs.18,53,751; additions of Rs.20 lakhs (Afsal) and Rs.20 lakhs (M.K. Hamsa) deleted; Rs.10 lakhs (Aboobaker) deleted; Rs.10 lakhs (M.M. Abdul Kareem) remanded to the assessing officer for verification and fresh decision. Issues Involved:1. Addition of Rs. 24 lakhs towards commission income on an estimate basis for AY 2006-07.2. Addition of Rs. 11 lakhs as unexplained cash credit from Aboobaker Poothayil for AY 2006-07.3. Addition of Rs. 3 lakhs received from Joseph Albert towards rent deposit for AY 2006-07.4. Addition of Rs. 16,19,079 as unexplained investment in the building based on the valuation report for AY 2006-07.5. Disallowance of Rs. 2,25,000 out of the agricultural income disclosed by the assessee for AY 2006-07.6. Estimation of commission income to the extent of Rs. 56 lakhs for AY 2007-08.7. Disallowance of four credits totaling Rs. 60 lakhs for AY 2007-08.8. Addition of Rs. 10 lakhs as unexplained cash credit from M.M. Abdul Kareem for AY 2007-08.9. Addition of Rs. 20 lakhs in respect of credit appearing in the name of M.K. Hamsa for AY 2007-08.10. Addition of Rs. 10 lakhs as unexplained cash credit from Aboobaker Poothayil for AY 2007-08.Summary:1. Addition of Rs. 24 lakhs towards commission income on an estimate basis for AY 2006-07:The tribunal found that the estimation of commission income for the entire year was unjustified as the business was seasonal, conducted from December to April. The commission was recalculated at Rs. 1,000 per lakh, resulting in an estimated income of Rs. 6,17,917 for the period of 50 days. The tribunal directed the assessing officer to take the income from commission business at Rs. 6,17,917 for AY 2006-07.2. Addition of Rs. 11 lakhs as unexplained cash credit from Aboobaker Poothayil for AY 2006-07:The tribunal found that the assessee had satisfactorily explained the source of the Rs. 11 lakhs credit, which was a loan against a fixed deposit. The identity, creditworthiness, and genuineness of the transaction were established. The addition of Rs. 11 lakhs was deleted.3. Addition of Rs. 3 lakhs received from Joseph Albert towards rent deposit for AY 2006-07:The tribunal found that the amount received was a security deposit for lease and not income. The rent agreement and the inclusion of rent in the return of income supported this. The addition of Rs. 3 lakhs was deleted.4. Addition of Rs. 16,19,079 as unexplained investment in the building based on the valuation report for AY 2006-07:The tribunal held that without rejecting the books of account, the reference to the valuation officer was misconceived. Following the judgment of the Apex court in Sargam Cinema vs Commissioner of Income-tax, the addition based on the valuation report was deleted.5. Disallowance of Rs. 2,25,000 out of the agricultural income disclosed by the assessee for AY 2006-07:The tribunal found that the estimation of agricultural income at Rs. 75,000 was very low. Considering the fertile land in Kerala, the tribunal estimated the income at Rs. 2 lakhs from 5 acres of land, modifying the disallowance to Rs. 1 lakh.6. Estimation of commission income to the extent of Rs. 56 lakhs for AY 2007-08:The tribunal found that the business was seasonal and estimated the turnover for five months at Rs. 18,53,75,100. The commission was calculated at Rs. 1,000 per lakh, resulting in an estimated income of Rs. 18,53,751. The assessing officer was directed to take the commission income at Rs. 18,53,751 for AY 2007-08.7. Disallowance of four credits totaling Rs. 60 lakhs for AY 2007-08:For the credit of Rs. 20 lakhs from Afsal P.Y., the tribunal found that the source was satisfactorily explained. The addition was deleted. The credit of Rs. 10 lakhs from M.M. Abdul Kareem was set aside for further examination regarding the withdrawal from the NRO overdraft account. The credit of Rs. 20 lakhs from M.K. Hamsa was found to be satisfactorily explained, and the addition was deleted. The credit of Rs. 10 lakhs from Aboobaker Poothayil was also satisfactorily explained, and the addition was deleted.8. Addition of Rs. 10 lakhs as unexplained cash credit from M.M. Abdul Kareem for AY 2007-08:The tribunal set aside the issue for further examination regarding the withdrawal from the NRO overdraft account.9. Addition of Rs. 20 lakhs in respect of credit appearing in the name of M.K. Hamsa for AY 2007-08:The tribunal found that the credit was satisfactorily explained, and the addition was deleted.10. Addition of Rs. 10 lakhs as unexplained cash credit from Aboobaker Poothayil for AY 2007-08:The tribunal found that the credit was satisfactorily explained, and the addition was deleted.Conclusion:Both appeals of the assessee were partly allowed. The tribunal modified the orders of the lower authorities and directed the assessing officer to make the necessary adjustments as per the findings.