2022 (8) TMI 1274 - AT - Income Tax

Tribunal Upholds Tax Authority's Decision on Undisclosed Income

M/s Admire Realtors Private Ltd. Versus DCIT, Central Circle, Varanasi, U.P.

The Tribunal upheld the Assessing Officer's decision to treat the consultancy income as undisclosed income under Section 68 of the Income-tax Act. The ... Addition u/s 68 - Levy of tax u/s 115BBE - unexplained cash credit - unaccounted and undisclosed cash/money/income - depositing cash in bank during demonetization period - HELD THAT:- Assessee has failed to justify that consultancy income claimed by it to have earned during the year under consideration was genuine consultancy income earned by it, and rather the assessee has converted unaccounted and undisclosed cash under the garb of alleged consultancy income and we hold that no such consultancy services were rendered by the assessee. Assessee failed to provide identity and creditworthiness of the persons giving cash to it towards alleged consultancy services and genuineness of the transaction could also not been proved by the assessee, and we have no hesitation in holding that it is the unaccounted and undisclosed money/income which has been brought into the books of the assessee under the garb of consultancy income, and this entire transaction of consultancy income was coloring device adopted by assessee to give legitimacy to its unaccounted and undisclosed cash/money/income by depositing cash in bank during demonetization period, to avoid old demonetized bank notes held by it from becoming valueless as legal character of old bank notes of denomination of Rs. 500 and Rs. 1000 were withdrawn, owing to demonetization announced on 08th November, 2016. We have observed that both the authorities have passed well reasoned, detailed and speaking order, and we are not inclined to interfere with the orders passed by authorities below, and we confirm the appellate order passed by ld. CIT(A). CIT(A) rightly relied upon decision of Hon’ble Supreme Court in the case of Sumati Dyal [1995 (3) TMI 3 - SUPREME COURT] and Durga Prasad More [1971 (8) TMI 17 - SUPREME COURT] as the claim of consultancy income set up by the assessee is a coloring device adopted by the assessee to convert its unaccounted and undisclosed money which was going to become valueless due to bank notes of Rs. 1000 and Rs. 500 ceased to be legal tender, due to demonetization announced on 08th November, 2016. The authorities below have rightly invoked provisions of Section 68 and made additions to the income of the assessee as the amount stood credited in books of accounts of the assessee, and the assessee failed to satisfy the mandate of Section 68, as identity and creditworthiness of the payer is not proved nor genuineness of the transaction of alleged consultancy income was proved. Once Section 68 is invoked, then AO has rightly applied tax-rate provided within provisions of Section 115BBE of the 1961 Act. So, far as expenses claimed by the assessee are concerned, we are of the considered view that the assessee could not show that it was engaged in any business or profession whatsoever, and in our considered view, the assessee is not entitled for claim of deduction of expenses claimed by it. We do not find any merit in the appeal filed by the assessee in which now stand dismissed. Issues Involved:1. Legitimacy of the income assessed as undisclosed income.2. Basis of additions made by the Assessing Officer (AO).3. Maintenance and verification of books of accounts.4. Applicability of Section 68 of the Income-tax Act.5. Allowance of business expenses.6. Consideration of submissions and case laws by lower authorities.7. Application of tax rate under Section 115BBE.Detailed Analysis:1. Legitimacy of the Income Assessed as Undisclosed Income:The assessee claimed professional receipts of Rs. 8,29,500/- as consultancy income. However, the AO observed that the income declared was disproportionate compared to previous years and was received primarily before the demonetization period. The AO concluded that the receipts were from undisclosed sources, treating them as unexplained cash credits under Section 68.2. Basis of Additions Made by the AO:The AO's additions were based on the following observations:- Sudden and abnormal increase in income during the demonetization period.- Lack of detailed information on the receipts, such as address, PAN, and scope of consultancy services.- No supporting evidence for expenses claimed.- Similar patterns of cash deposits and receipts among eleven group companies.- Non-maintenance of proper records as required under Section 44AA of the Income-tax Act.3. Maintenance and Verification of Books of Accounts:The assessee failed to produce books of accounts before the AO and CIT(A). The AO noted that despite being a private limited company, the assessee did not maintain proper records to substantiate its income and expenses, violating the provisions of the Companies Act and the Income-tax Act.4. Applicability of Section 68 of the Income-tax Act:The AO invoked Section 68, treating the consultancy receipts as unexplained cash credits due to the failure of the assessee to prove the identity, creditworthiness, and genuineness of the transactions. The AO relied on several judicial precedents, including decisions by the Supreme Court, to support the addition under Section 68.5. Allowance of Business Expenses:The AO disallowed the expenses claimed by the assessee, noting that the assessee did not provide sufficient evidence to justify the expenses. The AO observed that the expenses claimed were not proportionate to the income declared and were used to disguise the receipt of unexplained cash credits.6. Consideration of Submissions and Case Laws by Lower Authorities:The CIT(A) upheld the AO's order, agreeing with the observations and conclusions drawn. The CIT(A) noted the lack of rising trends in the assessee's receipts, the improbability of the business pattern, and the failure to maintain proper records. The CIT(A) also referred to the Supreme Court judgments in the cases of Durga Prasad More and Sumati Dayal, emphasizing the need to consider the surrounding circumstances and human probabilities.7. Application of Tax Rate Under Section 115BBE:The AO applied the tax rate of 60% under Section 115BBE, which was upheld by the CIT(A). The CIT(A) explained that Section 115BBE was applicable as the assessee failed to explain the source of receipts to the satisfaction of the AO. The section imposes a higher tax rate on unexplained income, ensuring that defaulting assessees are subjected to stringent tax provisions.Conclusion:The Tribunal dismissed the appeal, agreeing with the findings of the AO and CIT(A). The Tribunal held that the assessee failed to justify the consultancy income and prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal confirmed the addition under Section 68 and the application of the tax rate under Section 115BBE, emphasizing that the assessee used the consultancy income as a device to convert unaccounted cash during the demonetization period. The Tribunal also disallowed the business expenses claimed by the assessee, noting the lack of evidence and the improbability of the business pattern.