2021 (9) TMI 396 - AT - Income Tax

Tribunal Partially Allows Appeals, Deletes Additions; Penalties Under Section 271(1)(c) Deleted

The Tribunal allowed the appeals partly, deleting additions for unaccounted expenditure to M/s Advaita Interiors and unsecured loans for one assessment ... Addition u/s 69C - Unaccounted expenditure paid to M/s Advaita Interiors - HELD THAT:- The assessee had supplied goods to that entity and M/s Advaita Interior was sundry debtors for the assessee. This being so, there could be no occasion to presume that there was payment in cash by the assessee to the said party. AO could not appreciate the issue properly and went on to making addition of double amount while framing the assessment. Therefore, this addition is not sustainable. We delete the same. The ground stand allowed. Unaccounted investment in Shares - Addition u/s 69 - seized documents reflected details of shares held by the assessee - HELD THAT:- We find that the assessee has declared Short-Term Capital gain on sale of shares for ₹ 3.88 Lacs in the return of income. Upon perusal of computations, we find that all these shares were sold by the assessee during this year and the resultant gain / loss were taken into account while computing short-term capital gains and the same has already been offered to tax. This being so, the investments as mentioned on the seized document could not be termed as unexplained investment. The gains / loss on shares very much formed part of the computation of income and therefore, this addition is not sustainable. By deleting this addition, we allow this ground of appeal. Estimation of business income - material available during the search and seizure operation for making an assessment of the undisclosed income of the assessee - HELD THAT:- For the purpose of computing income under section 153A / 153C of the Act, Ld. AO is required to confine himself only to the material found during the course of search or not. In reply to this question, the Hon’ble Court held that AO could take into consideration material other than what was available during the search and seizure operation for making an assessment of the undisclosed income of the assessee. Thus, this decision is distinguishable from assessee's case on facts - we find that the addition which could be made, was to be only with reference to incriminating material found during the course of search action. Since this addition is not with reference to any incriminating material, the same is not sustainable. By deleting the addition, we allow this ground of appeal. The appeal stand partly allowed in terms of our above order. Addition of estimation of business income in response to notice u/s 153A - HELD THAT:- The statutory time limit to issue notice u/s 143(2) had already expired and no proceedings were pending against the assessee on the date of search. Therefore, the additions which could be made was to be only with reference to incriminating material as found during the course of search action. We find that no such specific reference has been made by AO in the assessment order while making the addition - AO, at para-10, has simply alleged that the assessee has accepted accommodation entries for bogus loans and therefore, the loans could not be accepted as genuine - there is no specific reference to any seized material to show that the loans taken by the assessee from the lenders was its own unaccounted money. The unsecured loans very much formed part of the assessee’s financial statements as placed on record. Therefore, respectfully following the binding judicial precedents of CIT Vs. Continental Warehousing Corporation [2015 (5) TMI 656 - BOMBAY HIGH COURT] we delete both the additions. The appeal stands partly allowed. Assessment u/s 153A - Addition of unsecured loan & addition of estimation of business income - HELD THAT:- We find that this year is also a case of non-abated assessment year and therefore, the addition which could be made was to be with reference to incriminating material only. We find that no incriminating material has been found so far as the estimation of business income is concerned. Therefore, the addition of ₹ 2.50 Lacs is not sustainable. Issues Involved:1. Unaccounted expenditure paid to M/s Advaita Interiors.2. Unaccounted investment in shares.3. Estimation of business income.4. Addition of unsecured loans.5. Unaccounted expenditure on foreign trips.6. Penalty under Section 271(1)(c).Detailed Analysis:1. Unaccounted Expenditure Paid to M/s Advaita Interiors:Upon perusal of seized documents, the Assessing Officer (AO) noted that the assessee made a cash payment for interior work to M/s Advaita Interiors, leading to an addition of Rs. 2.94 Lacs as unexplained income under Section 69C. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the addition. However, the Tribunal found that M/s Advaita Interiors owed the assessee's proprietor concern, M/s Mayur Ply-N-Veneers, Rs. 1,47,158, not vice versa. The AO misinterpreted the situation, resulting in an incorrect addition. Therefore, the Tribunal deleted the addition, allowing the assessee's ground.2. Unaccounted Investment in Shares:Seized documents indicated the assessee held shares worth Rs. 21.03 Lacs in M/s Orbit Securities Private Ltd. as of 22/01/2004, leading to an addition under Section 69. The CIT(A) upheld this addition. However, the Tribunal found that the assessee had already declared short-term capital gains on these shares in the original return of income. Since the gains/losses were accounted for in the computation of income, the investments could not be termed unexplained. Thus, the Tribunal deleted the addition, allowing the appeal.3. Estimation of Business Income:The AO estimated the business income at Rs. 1.50 Lacs due to the lack of information from the assessee, which was confirmed by the CIT(A). The Tribunal noted that the original return declared a business income of Rs. 1,29,487, and no proceedings were pending at the time of the search. Following the Bombay High Court's decision in CIT Vs. Continental Warehousing Corporation, the Tribunal held that no addition could be made without incriminating material found during the search. Therefore, the Tribunal deleted the addition, allowing the appeal.4. Addition of Unsecured Loans:For AY 2005-06 and 2006-07, the AO added unsecured loans of Rs. 18,21,953 and Rs. 43,34,700 respectively, alleging bogus capital contributions and lack of requisite details from the assessee. The CIT(A) upheld these additions. The Tribunal found no specific reference to seized material indicating the loans were unaccounted. Following judicial precedents, the Tribunal deleted the additions for AY 2005-06. For AY 2006-07, the Tribunal restored the issue back to the CIT(A) for reconsideration, directing the assessee to substantiate the loans.5. Unaccounted Expenditure on Foreign Trips:For AY 2006-07, the AO added Rs. 2 Lacs for unexplained expenditure on foreign trips, based on documents found during the search. The CIT(A) upheld this addition. The Tribunal confirmed the addition, noting it was based on incriminating material and the assessee failed to explain the source of expenditure. The estimation of Rs. 2 Lacs was deemed fair and reasonable.6. Penalty under Section 271(1)(c):Penalties were imposed for AYs 2004-05 to 2006-07 based on quantum additions. Since the Tribunal deleted most of the additions or restored issues for reconsideration, the consequential penalties did not survive. The addition of Rs. 2 Lacs for foreign trips was an estimated addition, thus no penalty was justified. The Tribunal deleted the penalties for all years, allowing the appeals.Conclusion:The appeals for ITA Nos. 3798 to 3800/Mum/2013 were partly allowed, and the penalty appeals for ITA Nos. 1475 to 1477/Mum/2016 were allowed in terms of the Tribunal's order. The order was pronounced on 1st September 2021.