2025 (8) TMI 968 - AT - Income Tax

Additions upheld for undisclosed land income from 'Lokpriya' book; unexplained commission, flat investment, s.194C TDS sustained; telescoping credit deletes donations

ITAT (Hyderabad - AT) upheld additions for undisclosed income from land transactions based on seized 'Lokpriya' book and related statements, and sustained ... Undisclosed income from land transactions - Addition based on statement of employees and the assessee - transactions on the basis of ‘Lokpriya’ book - HELD THAT:- We reject the arguments of assessee on the ground that, the addition made by the AO is not only on the basis of statement of Employee or the Appellant, but, it is based on the documents found during the course of survey, where a clear explanation has been given by the Author of the document with reference to the cash received from various parties for the purpose of land transactions. This fact has been further strengthened by the cross-examination of Mr. Raghava Rao, where, in a statement recorded u/s 131 of the Act, he has admitted payment of money to the assessee for land transactions. Further, the assessee had also in his initial statement has admitted that, he has developed 10 acres of land and received 200 plots from Mithra Associates and the amount recorded in the books pertains to the land transactions. Although, the assessee claims that, statement given by the employee and assessee has been subsequently withdrawn by filing a retraction statement, in our considered view, the retraction filed by the assessee without any valid explanation, cannot be accepted. Moreover, as per the legal presumption contained u/s 132(4A) of the Act, when a document or books of accounts are found in the possession of an assessee in the course of search or survey, it will be presumed that, such documents belongs to searched-person and the contents of such documents are true and further, the signature or every other part of such document is in the handwriting of any particular person AO has rightly made addition towards undisclosed income from land transactions on the basis of ‘Lokpriya’ book found and impounded during the course of survey. The learned CIT(A) after considering the relevant facts, has rightly sustained addition made by the Assessing Officer. Thus, we are inclined to uphold the order of the learned CIT(A) on this issue and reject the ground taken by the assessee. Unexplained cash credits - whether credits in the bank accounts of the assessee are standalone transactions pertains to uncounted income of the assessee or it was out of unaccounted income from land transactions? - We find that, the transactions recorded in the ‘Lokpriya’ book and credits appearing in the bank account of employees are pertains to same period. Further, upon verification of credits in the bank account, we find that, there are periodical cash deposits and other credits and also periodical withdrawals from the said bank accounts. Since, there is a nexus between the credits in bank account of the employees and entries recorded in ‘Lokpriya’ book, in our considered view, the arguments of the assessee that, credits in bank account of employees is out of receipts recorded in the ‘Lokpriya’ book is acceptable. Further, upon perusal of withdrawal from bank account, the Assessing Officer himself has admitted the fact that, the assessee has withdrawn amounts from bank account of the employees for the purpose of construction of B.Ed College and also for construction of M/s. Vinoba Nagar Development Society. From the observations of the Assessing Officer, it is undisputedly clear that, there is a nexus between the undisclosed income from land transactions as per ‘Lokpriya’ notebook and credits in the bank account of the employees. Thus, arguments of the assessee that, telescoping benefit should be given to additions made towards credits in bank account against addition made towards undisclosed land transactions should be allowed. Thus, we direct to the Assessing Officer to allow the benefit of telescoping towards additions made on account of unexplained cash credit towards additions made on account of undisclosed income from land transactions on the basis of ‘Lokpriya’ notebook found during the course of survey. Addition towards donation from undisclosed income - The assessee has paid Rs. 5,00,000/- donation to CBIT for getting admission to his son in BE course. Although, initially the assessee claims to have explained the source out of money received from 10 individuals and also furnished their names, but, could not substantiate his claim with relevant evidences. Even before us, the assessee could not furnish any details to substantiate his claim that, 10 people have paid Rs. 50,000/- each towards donation. Therefore, we cannot accept the argument of the assessee. Further, in so far as alternative argument of the assessee that, if at all, the addition is sustained towards donation paid to CBIT, then, benefit of telescoping should be allowed out of addition made towards undisclosed income from land transactions, in our considered view, the Assessing Officer has made addition towards undisclosed income from land transactions which is available with the assessee to explain the source for donation paid to CBIT. Further, the benefit of telescoping can be allowed, in case, any addition is made towards income and expenditure on the basis of seized material. Since, the addition towards donation is also from the very same seized material, which is the basis for making addition towards undisclosed income from land transactions, in our considered view, the alternative submission of the assessee for the benefit of telescoping should be accepted. Thus, we direct the Assessing Officer to allow benefit of telescoping out of undisclosed income from land transactions to donation paid to CBIT for Rs. 5,00,000/- and delete the addition. Addition towards commission from land settlements - During the course of assessment proceedings, the assessee has taken a new argument and claimed that, amount mentioned in his statement is not Rs. 45 lakhs, but, it is only Rs. 4-5 lakhs and further, the amount pertains to financial year 1999- 2000 and was already admitted in the return of income filed for the relevant assessment year in the capacity of G. Rajender Reddy and others Partnership Firm - HELD THAT:- We find that, the subsequent averments of the assessee that, the amount mentioned in the settlement is not Rs. 45 lakhs and it is only Rs. 4-5 lakhs is only an afterthought, without any supporting evidence. Therefore, the same cannot be accepted. In so far as argument of the assessee that, this amount pertains to financial year 1999-2000 and the same was admitted in the Firm’s return is also devoid of merit going by the date of formation of the Firm and subsequent PAN taken by the Firm by filing application in the year 2009. Therefore, we are of the considered view that, there is no error in the addition made by the Assessing Officer towards undisclosed income from commission because, the assessee could not explain the said transaction with relevant details to prove his claim that, said income has been already offered to tax. The learned CIT(A) after considering relevant facts, has rightly sustained the addition made by the AO. Thus, we are inclined to uphold the order the learned CIT(A) and reject the ground taken by the assessee. Unexplained investment in purchase of Flat held in the name of son of the assessee - Although, the assessee claims to have paid consideration for purchase of Flat out of amount received from HUF, but, going by the ITRs filed by the HUF for the relevant assessment years, we find that, HUF has reported very meagre income, which is not sufficient to explain investment made in purchase of house property. Further, the assessee also could not be able to justify the amount received from his wife and mother. In absence of any evidence, the arguments of the assessee that, source for purchase of property, is out of amount received from HUF, mother and wife cannot be accepted. AO after considering the relevant facts, has rightly made the addition towards unexplained investment in purchase of property and the CIT(A) after considering the relevant facts, has rightly sustained the addition made by the Assessing Officer. Addition towards donation from undisclosed income - In the present case, there is no dispute with regard to the fact that, the addition made by the Assessing Officer towards donations, out of undisclosed income, is neither supported by any evidence nor based on admission of the assessee. Therefore, the addition made by the Assessing Officer towards donation from undisclosed income cannot be sustained. Assuming for a moment, the donations out of undisclosed income need to be sustained, still the assessee can get the benefit of telescoping towards additions made on account of undisclosed income from land transactions, where the Assessing Officer has made addition of Rs. 2,69,73,000/- for the year under consideration. If we consider the addition towards undisclosed income from land transactions, which is sufficient to explain the so-called donations paid to M/s. Vinobha Nagar Development Society. Therefore, on this count also, addition made by the Assessing Officer cannot be sustained. The learned CIT(A) without considering the relevant facts, has simply sustained the addition made by the Assessing Officer. Therefore, we set-aside the order of the learned CIT(A) and direct the Assessing Officer to delete the addition made towards donation from undisclosed income. Addition on account of advertisement expenses - assessee has failed to deduct TDS u/sec.194C - We find that, assessee except making oral statement that, payment made to individual person does not exceed the specified limit by furnishing ledger account, but, could not file any evidence to justify his case that, amount debited under the Head “Advertisement Expenses” does not come under the provisions of sec.194C of the Income Tax Act, 1961. Therefore, we are of the considered view that, there is no error in the reasons given by the learned CIT(A) to sustain the addition made by the Assessing Officer towards advertisement charges. Thus, we are inclined to uphold the order of the learned CIT(A) and reject the ground taken by the assessee. 1. ISSUES PRESENTED and CONSIDERED 1. Whether the addition of undisclosed income from land transactions based on seized book ('Lokpriya' book) found during search is justified. 2. Whether the addition of unexplained cash credits in bank accounts of employees is sustainable and whether telescoping benefit can be allowed against undisclosed income from land transactions. 3. Whether addition of donation amounts paid from undisclosed income is justified and if telescoping benefit applies. 4. Whether addition of commission income from land settlement is justified. 5. Whether addition of unexplained investment in purchase of house property (flat) held by son is justified. 6. Whether disallowance of advertisement expenses under section 40(a)(ia) of the Income Tax Act, 1961 is justified due to non-deduction of TDS. 7. Whether the Assessing Officer and appellate authorities have properly applied legal principles, considered evidences, and addressed submissions made by the assessee in respect of the above additions. 2. ISSUE-WISE DETAILED ANALYSIS 1. Addition of Undisclosed Income from Land Transactions Based on Seized 'Lokpriya' Book - Legal Framework and Presumptions: Section 132(4A) of the Income Tax Act, 1961 presumes that documents found in possession of the searched person belong to him and their contents are true. Section 114 of the Indian Evidence Act allows presumptions based on admissions. The Court relies on these statutory presumptions to treat the seized book as relevant and material evidence. - Court's Interpretation and Reasoning: The seized 'Lokpriya' book contained 381 machine-numbered pages with entries recording receipts from various persons related to land transactions. Statements of the book's author (employee) and the assessee initially admitted the entries pertain to receipts for allotment of land and land disputes settlement. Subsequent attempts by the assessee to attribute these receipts to a partnership firm or a development society were rejected as afterthoughts, unsupported by documentary evidence. The firm was formed after the transactions commenced, PAN was obtained much later, and returns were filed belatedly, indicating the firm's status was fabricated to avoid tax liability. The assessee failed to reconcile entries or substantiate expenditure claims from the seized book. - Key Evidence and Findings: Statements recorded during search, cross-examination of third parties (e.g., Mr. Raghava Rao), and the seized book itself corroborate the existence of undisclosed receipts. The assessee's inconsistent explanations and failure to produce corroborative evidence weakened his case. - Treatment of Competing Arguments: The assessee's argument that the receipts pertain to the firm or the Vinoba Nagar Development Society was rejected due to lack of documentary proof and timing of firm formation and PAN application. The claim of expenditure out of receipts was not substantiated by detailed reconciliation or evidence. - Conclusion: The Court upheld the addition of undisclosed income from land transactions as per the seized 'Lokpriya' book entries, rejecting the assessee's contentions and afterthoughts. The addition was quantified as per the entries for the relevant assessment years. 2. Addition of Unexplained Cash Credits in Bank Accounts of Employees and Telescoping Benefit - Legal Framework and Presumptions: Statements recorded under section 132(4) and the presumption under section 132(4A) apply. The unexplained credits in bank accounts operated by employees but admitted to belong to the assessee are subject to addition. - Court's Interpretation and Reasoning: The bank accounts of four employees contained credits admitted to be the assessee's unaccounted money. The assessee's claim that these credits belong to the partnership firm was rejected on grounds of firm formation date, late PAN application, and belated return filing. The Court found a nexus between the credits in bank accounts and receipts recorded in the 'Lokpriya' book. - Key Evidence and Findings: Statements of the employees and the assessee, analysis of bank accounts, and the seized book entries collectively establish the credits as unaccounted income. The withdrawals from these accounts were linked to construction and society expenses, further evidencing the source and use of funds. - Treatment of Competing Arguments: The assessee's argument that the credits are part of firm income and already assessed was rejected due to lack of documentary evidence and timing inconsistencies. The Court accepted the assessee's submission for telescoping benefit, recognizing that the cash credits and undisclosed land income relate to the same source. - Conclusion: The addition of unexplained cash credits was upheld but with direction to allow telescoping benefit against the addition for undisclosed land income to avoid double taxation. 3. Addition of Donation Amounts Paid from Undisclosed Income and Telescoping Benefit - Legal Framework and Precedents: Donations paid out of undisclosed income are liable to be added back to income. However, additions solely based on statements without corroborative evidence are not sustainable as per judicial precedents. - Court's Interpretation and Reasoning: The assessee paid Rs. 5,00,000/- and Rs. 50,00,000/- as donations to educational and development societies. The assessee claimed these were paid from amounts received from friends or as donations to registered societies. The Assessing Officer made additions due to lack of evidence on source and nature of donations. - Key Evidence and Findings: No documentary evidence was produced to substantiate the source of donations or that the payments were genuine donations. The statements of the assessee were vague and did not specify dates, mode of payment, or corroboration by donors. - Treatment of Competing Arguments: The Court rejected the additions for lack of evidence but allowed telescoping benefit against undisclosed income from land transactions, reasoning that if donations were paid from undisclosed income, the same income had already been added. - Conclusion: Additions for donations were deleted due to lack of evidence, but telescoping benefit was directed to avoid double addition if donations were paid from undisclosed income. 4. Addition of Commission Income from Land Settlement - Legal Framework and Precedents: Income admitted in statements but not offered to tax is liable to addition. Subsequent contradictory explanations without evidence are not accepted. - Court's Interpretation and Reasoning: The assessee admitted receipt of Rs. 45 lakhs commission in statements recorded under section 131, but later claimed it was Rs. 4-5 lakhs pertaining to an earlier year and offered in firm's return. The Court rejected this as an afterthought due to lack of evidence and timing inconsistencies of firm formation and PAN application. - Key Evidence and Findings: Statements under oath clearly admitted receipt of Rs. 45 lakhs in the relevant year. No documentary evidence supported the assessee's later claim of lower amount or prior assessment. - Treatment of Competing Arguments: The Court rejected the assessee's alternative contentions as unsupported by evidence and upheld the addition. - Conclusion: The addition of Rs. 45 lakhs commission income was upheld as undisclosed income. 5. Addition of Unexplained Investment in Purchase of House Property Held by Son - Legal Framework and Precedents: Unexplained investments are liable to be added to income unless adequately explained with evidence of source. - Court's Interpretation and Reasoning: The assessee admitted investment in flat purchased by son, claiming source as HUF funds and contributions from wife and mother. The Court found the HUF income insufficient and no evidence was produced to substantiate contributions from wife and mother. - Key Evidence and Findings: Returns of HUF showed meagre income; no evidence was produced for other claimed sources. The admission of investment by the assessee was considered sufficient to link the investment to him. - Treatment of Competing Arguments: The Court rejected the assessee's claim for lack of credible evidence and upheld the addition. - Conclusion: The addition towards unexplained investment in house property was upheld. 6. Disallowance of Advertisement Expenses under Section 40(a)(ia) for Non-Deduction of TDS - Legal Framework and Precedents: Section 40(a)(ia) disallows expenditure where tax is deductible at source but not deducted. However, if payments to individuals do not exceed the prescribed threshold, TDS is not required. - Court's Interpretation and Reasoning: The Assessing Officer disallowed advertisement expenses for non-deduction of TDS. The assessee claimed payments were below threshold limits and produced ledger extracts. The Court found no evidence beyond oral statements and ledger extracts to prove payments were below threshold. - Key Evidence and Findings: No documentary proof was furnished to establish that individual payments were below threshold limits for TDS deduction. - Treatment of Competing Arguments: The Court held that mere ledger extracts without supporting evidence are insufficient to disallow the addition. - Conclusion: The addition towards advertisement expenses was sustained as the assessee failed to prove non-applicability of TDS provisions. 7. Consideration of Submissions and Application of Legal Principles by Authorities - The Court noted that the Assessing Officer and CIT(A) had considered the seized documents, statements recorded under sections 131 and 132(4), and other evidences. The assessee's inconsistent explanations, afterthoughts, and failure to produce documentary evidence were duly considered and rejected. - The Court emphasized the statutory presumptions under section 132(4A) and the evidentiary value of statements recorded during search/survey. - The Court also relied on judicial precedents holding that additions based solely on statements without corroborative evidence cannot be sustained, applying this principle to donation additions. - The Court found that the authorities below passed reasoned orders addressing the submissions and evidence, rejecting the assessee's grounds where unsupported. - Conclusion: The Court found no error in the application of law or appreciation of facts by the authorities below except in respect of donation additions, where deletion was warranted for lack of evidence.