2012 (5) TMI 461 - AT - Income Tax

ITAT allows appeals on undisclosed income, capital, loans, stresses proper verification

Sarjan Corpn. Versus ACIT

Sarjan Corpn. Versus ACIT - [2012] 14 ITR 140 Issues Involved:1. Addition of Rs. 20,76,537 based on undisclosed income.2. Addition of Rs. 70,40,000 regarding new capital introduced by partners.3. Addition of Rs. 63,87,809 concerning fresh unsecured loans.4. Validity of assessment proceedings due to alleged non-service of notice under section 143(2).Detailed Analysis:1. Addition of Rs. 20,76,537 Based on Undisclosed Income:The Assessing Officer (AO) noted a discrepancy in the income declared by the assessee-firm, leading to an addition of Rs. 20,76,537. The assessee contended that the declared income included the additional income disclosed during the survey. The Commissioner of Income-tax (Appeals) [CIT(A)] partially accepted this, reducing the addition to Rs. 10,07,410 by estimating a 5% profit from regular business. However, the Income-tax Appellate Tribunal (ITAT) found that the AO did not reject the books of account and that the profit as per books should be accepted. The ITAT noted that the additional income of Rs. 1,80,00,000 was duly included in the profit and loss account, thus deleting the entire addition of Rs. 20,76,537.2. Addition of Rs. 70,40,000 Regarding New Capital Introduced by Partners:The AO added Rs. 70,40,000 under section 68, considering it unexplained. The assessee argued that the capital introduced by partners cannot be added to the firm's income, citing the Gujarat High Court decision in CIT v. Pankaj Dyestuff Industries. The ITAT agreed, stating that the AO could proceed against the partners individually if their explanations were unsatisfactory but could not add this amount to the firm's income. Consequently, the ITAT deleted this addition.3. Addition of Rs. 63,87,809 Concerning Fresh Unsecured Loans:The AO added Rs. 63,87,809 under section 68, claiming the assessee failed to prove the genuineness of the loans. The assessee provided confirmations, addresses, PANs, and other details of the loan creditors. The ITAT found that the AO made no further inquiries despite having sufficient information. Citing the Supreme Court decision in CIT v. Orissa Corporation P. Ltd., the ITAT held that the assessee had discharged its primary onus and deleted the addition.4. Validity of Assessment Proceedings Due to Alleged Non-Service of Notice Under Section 143(2):The assessee challenged the validity of the assessment on the grounds of non-service of notice under section 143(2). The ITAT noted that there was a signature on the notice but no clear evidence of service. However, since all additions made by the AO were deleted, the ITAT considered this issue academic and did not decide on it.Conclusion:The ITAT allowed the appeals filed by the assessee, deleting all contested additions. The appeal filed by the Revenue was dismissed. The ITAT emphasized the importance of proper verification by the AO and adherence to legal precedents in assessing unexplained income and loans. The order was pronounced on October 21, 2011.