2014 (10) TMI 1029 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions, rejects Revenue's appeals, and deletes additions by AO. Assessee's explanations accepted.

The Deputy Commissioner of Income Tax, Central Circle, Trichur Versus M/s New Kerala Investments, M/s St Francis Clay Works, M/s Edassery Ceramics, Shr. E.T. Devassy, Shri E.D. Jaison, Shri E.D. Benny, Smt. K.D. Lilly, Shri E.D. Shaju,

The Deputy Commissioner of Income Tax, Central Circle, Trichur Versus M/s New Kerala Investments, M/s St Francis Clay Works, M/s Edassery Ceramics, Shr. ... Issues Involved:1. Admission of fresh/new evidence by the assessee before the CIT(A) without satisfying Rule 46A(1) of the IT Rules 1962.2. Profit from own chitty investment.3. Addition of income from Kuri late fee.4. Disallowance of interest paid on deposits.5. Disallowance of interest claimed on housing loan.6. Assessment of profit from own chits.7. Excess interest received from money lending business.8. Addition on account of income from chitty business of foreman's commission.9. Disallowance u/s 40(a)(ia) of the Act.10. Disallowance of profit from terminated kuries.11. No search warrant and hence assessment is bad in law.12. Treatment of agricultural income as income from other sources.13. Addition towards personal drawings.14. Investment in residential house.15. Investment in immovable properties.16. Unexplained investments in fixed deposits/Investment in SB A/c.Detailed Analysis:1. Admission of Fresh/New Evidence:The first common ground in all these appeals is the admission of fresh/new evidence by the assessee before the CIT(A) without satisfying the conditions laid down in Rule 46A(1) of the IT Rules 1962. The Tribunal held that Rule 46A applies to evidence voluntarily furnished by an assessee but not to evidence requisitioned by the appellate authority. The Tribunal found that the CIT(A) was within his rights to call for additional evidence and remand reports to ensure a proper adjudication of the appeal. Thus, the Tribunal dismissed the Revenue's ground on this issue.2. Profit from Own Chitty Investment:The AO made additions based on the assumption that the assessee earned profits from investments in own chits. The CIT(A) found that for certain years, the additions were made purely on estimates without any incriminating material. The Tribunal upheld the CIT(A)'s decision, agreeing that the additions were not justified due to lack of evidence.3. Addition of Income from Kuri Late Fee:The AO projected late fees collected for six months to the entire year and other assessment years. The CIT(A) found no incriminating materials to support such additions and observed that the AO did not verify the disclosed amounts. The Tribunal confirmed the CIT(A)'s deletion of these additions.4. Disallowance of Interest Paid on Deposits:The AO disallowed interest paid on deposits, assuming the funds were advanced to sister concerns without charging interest. The CIT(A) found no incriminating material to support this disallowance and deleted the additions. The Tribunal upheld the CIT(A)'s decision.5. Disallowance of Interest Claimed on Housing Loan:The AO disallowed interest on a housing loan, assuming it was for personal use. The CIT(A) found that the loan was credited to the firm's account and used for business purposes. The Tribunal confirmed the CIT(A)'s deletion of the disallowance.6. Assessment of Profit from Own Chits:The Tribunal found that the CIT(A) was justified in deleting the estimated additions for certain years due to lack of incriminating material. For other years, the CIT(A) verified the working furnished by the assessee and found no discrepancies. The Tribunal upheld the CIT(A)'s decision.7. Excess Interest Received from Money Lending Business:The AO estimated interest income based on seized documents. The CIT(A) found the AO's method of applying a flat interest rate on closing balances unfair and opted for an average balance method. The Tribunal agreed with the CIT(A)'s approach and confirmed the decision.8. Addition on Account of Income from Chitty Business of Foreman's Commission:The AO worked out foreman's commission based on assumptions. The CIT(A) found errors in the AO's computation and accepted the assessee's reconciliations. The Tribunal upheld the CIT(A)'s decision.9. Disallowance u/s 40(a)(ia) of the Act:The AO disallowed payments for not deducting TDS. The CIT(A) observed that income was estimated by the AO, and no further additions were warranted. The Tribunal confirmed the CIT(A)'s deletion of the disallowance.10. Disallowance of Profit from Terminated Kuries:The AO treated outstanding balances from terminated kuries as income. The CIT(A) found that only balances from kuries terminated beyond three years should be considered. The Tribunal upheld the CIT(A)'s decision.11. No Search Warrant and Hence Assessment is Bad in Law:The assessee did not press this ground, and it was dismissed as not pressed.12. Treatment of Agricultural Income as Income from Other Sources:The AO did not accept the agricultural income claimed by the assessee. The CIT(A) found that the assessee provided sufficient evidence of agricultural operations and partially accepted the claims. The Tribunal confirmed the CIT(A)'s decision.13. Addition Towards Personal Drawings:The AO estimated higher personal drawings. The CIT(A) found the AO's estimates for certain years unreasonable and accepted the assessee's figures. The Tribunal upheld the CIT(A)'s decision.14. Investment in Residential House:The AO added the cost of construction based on a valuation report. The CIT(A) found that certain expenses were incurred post-search and deleted part of the addition. The Tribunal confirmed the CIT(A)'s decision.15. Investment in Immovable Properties:The AO treated the entire investment as unexplained. The CIT(A) found that the investments were accounted for in the firm's books and deleted the additions. The Tribunal upheld the CIT(A)'s decision.16. Unexplained Investments in Fixed Deposits/Investment in SB A/c:The AO added unexplained fixed deposits. The CIT(A) found that the assessee had properly explained the sources and deleted the additions. The Tribunal confirmed the CIT(A)'s decision.Conclusion:The Tribunal upheld the CIT(A)'s decisions on most issues, confirming the deletions of various additions made by the AO due to lack of incriminating evidence and proper explanations provided by the assessee. The appeals by the Revenue were dismissed, and the Cross Objections by the assessee were also dismissed.