1999 (8) TMI 114 - AT - Income Tax

Tribunal overturns tax addition based on inadequate evidence, stresses need for concrete proof

VIKAS DEVELOPERS. Versus ASSISTANT COMMISSIONER OF INCOME TAX.

VIKAS DEVELOPERS. Versus ASSISTANT COMMISSIONER OF INCOME TAX. - TTJ 086, 273, Issues:Assessment of undisclosed income based on property sale rates seized during search; Justification of addition by AO; Validity of rates adopted by AO for assessment; Lack of evidence for understatement of sale consideration; Assessee's explanation for varying property rates; Maintenance of proper books of account for profit estimation in absence of evidence.Analysis:1. The case involved the assessment of undisclosed income for a partnership firm in the construction and development business during the block period of asst. yrs. 1986-87 to 1996-97 following a search operation in Feb. 1996.2. The AO initiated assessment proceedings after determining the income for the block period up to the search date and made an addition of Rs. 21,19,883 based on property sale rates from agreements seized during the search, considering Rs. 600 per sq. ft. for residential flats and Rs. 1,000 per sq. ft. for commercial shops.3. The assessee challenged the addition, arguing that the seized agreements accurately reflected the transactions, with no evidence of receiving more than stated in the agreements. The AO's arbitrary adoption of rates was unjustified, as confirmed by statements from purchasers and lack of material showing understatement.4. The Tribunal noted that no evidence of on-money transactions was found during the search, and statements from purchasers supported that the agreed rates were paid. Relying on the Supreme Court's judgment in K.P. Varghese vs. ITO, the Tribunal deleted the addition due to the absence of evidence of understatement.5. The Departmental Representative highlighted differing rates charged to customers within the same project, attributing variations to payment terms, location, and other features. The Tribunal acknowledged valid reasons for rate differences, considering factors like payment terms, location, and customer bargaining power.6. The Departmental Representative argued that the assessee failed to explain rate differences adequately and suggested estimating profits due to improper bookkeeping. However, the Tribunal rejected this argument, emphasizing the need for evidence to support additions in search cases under Chapter XIV-B.7. Consequently, the Tribunal deleted the addition of Rs. 21,19,883, rejecting the AO's justification based on estimated rates and lack of evidence for understatement, allowing the appeal. Legal contentions challenging the order under s. 158BD were not examined due to the favorable decision on the addition.In conclusion, the Tribunal ruled in favor of the assessee, emphasizing the importance of evidence and proper justification for additions in search cases, ultimately deleting the disputed addition of undisclosed income.