2014 (8) TMI 1228 - AT - Income Tax

Tribunal validates reassessment, adjusts undisclosed receipts, and allows revenue appeals for AY 2007-08

Sri Dinakara Suvarna Versus The Deputy Commissioner of Income Tax, Central Circle, Mangalore And Vice-Versa

Sri Dinakara Suvarna Versus The Deputy Commissioner of Income Tax, Central Circle, Mangalore And Vice-Versa - TMI Issues Involved:1. Validity of initiation of reassessment proceedings under Section 147 of the Income Tax Act.2. Addition of 8% of undisclosed contract receipts as income.3. Sustaining addition at 1.5% of cash payments recorded in the seized diary.4. Addition on account of unexplained investment in properties under Section 69B.Detailed Analysis:1. Validity of Initiation of Reassessment Proceedings under Section 147:The Assessing Officer (AO) initiated reassessment proceedings based on documents seized during a search in the premises of Ashok Kumar Chowta, which indicated payments to the assessee. The AO issued notices under Section 148 for the assessment years (AYs) 2004-05 to 2008-09 and a notice under Section 143(2) for AY 2009-10. The AO concluded that there was reason to believe that income chargeable to tax had escaped assessment. The assessee challenged the validity of these proceedings, but the AO and subsequently the CIT(A) upheld the initiation, citing the Supreme Court's decision in Raymond Woollen Mills Ltd. and other relevant case laws. The Tribunal agreed with the AO and CIT(A), stating that the reopening was based on new material (seized diary) and was valid.2. Addition of 8% of Undisclosed Contract Receipts as Income:The AO added 8% of the undisclosed contract receipts, based on the assessee's statement during the survey and subsequent statement on 11.05.2009, where the assessee admitted to cash receipts not recorded in the books. However, the assessee later contended that these receipts were for procuring materials on behalf of Chowta and not for contract work. The CIT(A) deleted the 8% addition but sustained an addition of 1.5% of the cash receipts. The Tribunal upheld the deletion of the 8% addition, agreeing that the cash receipts were for material procurement and not contract receipts. The Tribunal found no basis for the CIT(A)'s 1.5% addition and deleted it as well.3. Sustaining Addition at 1.5% of Cash Payments Recorded in the Seized Diary:The CIT(A) had sustained an addition of 1.5% of the cash payments recorded in the seized diary, based on the assessee's statement that there were other small and negligible incomes. The Tribunal found that there was no such admission by the assessee and that the CIT(A)'s conclusion was without basis. The Tribunal deleted the 1.5% addition, stating that the cash payments were for material procurement and not for contract receipts.4. Addition on Account of Unexplained Investment in Properties under Section 69B:For AY 2007-08, the AO made additions for unexplained investments in three properties, based on entries in the seized diary indicating cash payments over and above the recorded amounts. The assessee denied making such payments, but the CIT(A) deleted the additions, stating that the entries were made by a deceased individual and lacked corroborative evidence. The Tribunal, however, noted the assessee's admission of cash payments in the statement recorded on 11.05.2009 and found that the entries in the seized diary corroborated this. The Tribunal sustained the additions for unexplained investments, as the assessee failed to explain the source of these cash payments.Conclusion:The Tribunal upheld the validity of the reassessment proceedings and the addition for unexplained investments in properties. It deleted the additions of 8% and 1.5% of the undisclosed contract receipts, concluding that the cash payments were for material procurement and not contract receipts. The appeals of the Revenue were partly allowed for AY 2007-08 and dismissed for other AYs, while the cross-objections and appeals of the assessee were partly allowed.