2013 (10) TMI 609 - AT - Income Tax

Tribunal upholds Revenue's undisclosed income assessment for construction business brothers

Sharad S. Ruia Versus The A. CIT – Cent. Cir. 34, Aaykar Bhavan, Mumbai

Sharad S. Ruia Versus The A. CIT – Cent. Cir. 34, Aaykar Bhavan, Mumbai - TMI Issues Involved:1. Assessment of undisclosed income.2. Admissibility of additional construction costs.3. Addition of interest income from cash loans.Issue-wise Detailed Analysis:1. Assessment of Undisclosed Income:The principal issue in these appeals is the assessment of undisclosed income. The assessees, who are brothers engaged in the construction business, developed a Shopping Complex during the relevant block period. They sold the sole selling rights for a major area of the project for Rs.1,07,08,423/-, which was not recorded in their books of account and thus formed part of the undisclosed income. The Revenue computed the undisclosed income by deducting the allowed expenditure from the unaccounted receipts, resulting in an income of Rs.36,16,524/-, which was then apportioned between the brothers.2. Admissibility of Additional Construction Costs:The assessees claimed additional construction costs of Rs.94.58 lakhs, which was contested by the Revenue. The admissibility of these costs, particularly for items like steel, cement, granite, and other materials, was the bone of contention. The Revenue restricted the claim to Rs.70.92 lakhs based on the seized material, while the CIT(A) allowed a further Rs.5.01 lakhs, accepting a total of Rs.75.93 lakhs. The Tribunal upheld the Revenue's restriction, emphasizing that undisclosed income should be based on evidence found during the search, as per established legal precedents.3. Addition of Interest Income from Cash Loans:Shri Sharad S. Ruia was found to have given cash loans on interest, totaling Rs.39.50 lakhs, with interest deducted upfront. The Revenue added the interest income of Rs.6,18,960/- to the undisclosed income, which was upheld by the CIT(A). The Tribunal found no merit in the assessee's claim to restrict the addition to the peak amount of Rs.27.69 lakhs, as the full amount of loans advanced was considered part of the undisclosed income from the construction business. The Tribunal also noted that the assessee had been allowed full telescoping benefit for the entire amount advanced, rendering the grievance untenable.Conclusion:The Tribunal dismissed the appeals, affirming the Revenue's computation of undisclosed income and the restriction of additional construction costs to the amounts evidenced by the seized material. The addition of interest income from cash loans was also upheld, with the Tribunal finding no merit in the assessee's claims. The decision was pronounced in the open court on 05/06/2013.