2018 (9) TMI 1325 - HC - Income Tax

High Court Tax Ruling on Undisclosed Income and Cash Payments: Key Takeaways

The High Court held that the amount of ? 42 crores received by the assessee was taxable as undisclosed income, rejecting the argument that it was a ... Block Assessment - Undisclosed income u/s 158BA - whether in the course of search under Section 132, the material throwing new light on otherwise concluded assessments are disclosed and seized? - Held that:- Referring to the mandate of Section 158B(b), the sum of ₹ 42 lakhs brought to tax by the AO in the entire circumstances of the case was reasonable given the materials seized, the survey conducted and the statements recorded during the course of assessment proceedings. All these clearly reveal that the security deposit was a mere camouflage or a devise to postpone tax liability towards an uncertain date, at the convenience of the assessee. Clearly, the amount received pursuant to the agreement and the conveyances executed thereafter, showed that the intent of the parties was to treat it as a final consideration payable and paid in presenti. For these reasons, the first question is to be answered in favor of the Revenue Whether the seized diary per se could result in the addition of ₹ 30 crores? - Held that:- The assessee’s explanation consistently was that ₹ 30 crores was towards internal and external development charges. This was an aspect which could be easily decided by securing relevant information from the statutory authority, i.e. HUDCO who received the payments. Independent corroboration of these too could have been sought otherwise the relevant books of account could have been checked. Furthermore, the statute does not compel the Revenue to raise a presumption; even when a tax authority does so, the sole basis of an addition entirely hinging upon the interpretation of certain figures in a diary would be flawed. For these reasons, this Court is of the opinion that since the inference drawn with respect to findings are based on essentially factual materials which were analyzed by the CIT and the ITAT, there is no reason to interfere with those findings. This question is accordingly answered against the Revenue and in favor of the assessee. Addition denoting unaccounted cash reflected in the seized cash slips - Held that:- this question pertains to pure finding of fact which concerns inferences to be drawn on the basis of material found. The CIT(A) and the ITAT felt that the amounts reflected in the seized slips were fully explained in the relevant cash balances found in the books of accounts and the bank statements of the assessee. Furthermore, the ITAT has remitted the issue with respect to verification of the extent of addition after having upheld the CIT(A)’s order. Thus, the question only is whether the sum to be added back is ₹ 6,35,525/- or something more. Given the intensely factual nature of analysis, the Court is of the opinion that there is no substantial error calling for interference. This question of law is, therefore, answered in favor of the assessee Addition of commission payable - Held that:- The facts clearly indicate that ₹ 92 lakhs was claimed as commission payable to Televista and reflected duly in the documents and books filed along with the returns. These was subjected to normal assessment at the time when they were reported. The block assessment did not bring out any fresh material except the invoices for the AO to deduce any further undisclosed income. In these circumstances, the addition made by the AO was, in the opinion of this Court, correctly set aside by the lower appellate authorities. This question of law too is answered against the Revenue Issues Involved:1. Whether the Tribunal was correct in law in holding that the amount of Rs. 42 crore was taken by the assessee as security and cannot be termed as undisclosed income.2. Whether the Tribunal was correct in law in deleting the addition of Rs. 30 crore made by the Assessing Officer on account of unexplained cash payment.3. Whether the Tribunal was correct in law in reducing the addition of Rs. 45,08,971/- to Rs. 6,35,525/- made by the Assessing Officer on account of unaccounted cash recorded in seized cash slips.4. Whether the Tribunal was correct in law in deleting the addition of Rs. 92 lacs made by the Assessing Officer on account of commission paid to M/s. Televista Electronics Limited.5. Whether the order passed by the Income Tax Appellate Tribunal is perverse in law as well as on facts in respect of the items referred to in the questions hereinabove.Detailed Analysis:Re: Question No.1The core issue was whether Rs. 42 crores received by the assessee was a security deposit or undisclosed income. The Assessing Officer (AO) argued that the amount was taxable as it was a sale consideration disguised as a security deposit to defer tax liability. The CIT(A) and ITAT had differing views, with the ITAT ultimately siding with the assessee, stating that the amount was disclosed in regular assessments and thus could not be treated as undisclosed income. The High Court, however, found that the AO's findings were justified, noting that the terms of the agreement and subsequent actions indicated that the amount was indeed a sale consideration. The court held that the security deposit was a device to postpone tax liability, answering this question in favor of the Revenue.Re: Question No.2This issue involved an addition of Rs. 30 crores based on a seized diary indicating cash payments for land acquisition. The AO inferred that this amount was paid in cash outside the books. The CIT(A) and ITAT found that the diary entries and subsequent statements were insufficient to conclusively prove the cash payments. The High Court agreed, stating that the AO's reliance on the diary and assumptions without concrete evidence was flawed. The question was answered against the Revenue and in favor of the assessee.Re: Question No.3The AO added Rs. 45,08,971 based on seized cash slips, which was later reduced to Rs. 6,35,525 by the CIT(A). The ITAT upheld the CIT(A)'s decision, noting that the cash balances were explained through the company's books and bank statements. The High Court found no substantial error in these factual findings and upheld the ITAT's decision, answering this question in favor of the assessee.Re: Question No.4The AO added Rs. 92 lakhs, questioning the commission paid to M/s. Televista Electronics Limited, suspecting it was not genuine. The CIT(A) and ITAT found that the commission was duly reflected in the books and subjected to normal assessment. The High Court agreed, noting that no fresh material was brought to light in the block assessment to warrant the addition. This question was answered against the Revenue and in favor of the assessee.Re: Question No.5This general question of the Tribunal's order being perverse was partly answered in favor of the Revenue concerning Question No.1. The High Court found sufficient factual basis for the other findings, thus holding no unreasonableness or perversity in the Tribunal's decisions on Questions 2, 3, and 4. The appeal was partly allowed, with no order on costs.Conclusion:The High Court's judgment involved a detailed examination of the facts and legal principles surrounding undisclosed income, cash payments, and the validity of claimed expenses. The court upheld the Revenue's contention on the first issue while siding with the assessee on the remaining issues, thereby providing a balanced resolution based on the evidence and legal standards.