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AO not permitted to make additions in respect of already concluded assessments, where no adverse materials found during search

Mumbai ITAT held In the case of Shri Uday C Tamhankar that the submission of assessee that the assessment years up to 2006-07 falls in the category of concluded assessments, i.e., assessments of those years were not pending on the date of initiation of search is a valid submission.
Brief of the Case

Mumbai ITAT held In the case of Shri Uday C Tamhankar that the submission of assessee that the assessment years up to 2006-07 falls in the category of concluded assessments, i.e., assessments of those years were not pending on the date of initiation of search is a valid submission. Hence, in our view, the assessing officer could not have made these additions for AY 2004-05 to 2006-07 in the absence of any incriminating materials. Additions made by the AO, after accepting the additional disclosure of Rs.20.00 lakhs, would result in double assessment, since it is stated that the assessee has not capitalised the above said amount in his books of accounts.

The assessee has duly disclosed the income voluntarily offered by him in the returns of income filed in response to the notices issued u/s 153A of the Act. During the course of penalty proceedings also, the assessee has offered the explanation to that effect and the said explanation was not found to be false. The revenue has noticed/seized all the materials available with the assessee and no incriminating material supporting the additional disclosure was found. Under these set of facts, we are of the view the tax authorities are not justified in presuming that the additional disclosure voluntarily made by the assessee shall constitute concealed income warranting penalty u/s 271(1)(c) of the Act.

Facts of the Case

The assessee is a dentist and carries on his profession from different places and also through different hospital names. He was subjected to search and seizure operations on 17-01-2008. On the very same day, some of his concerns were also surveyed u/s 133A of the Act. During the course of search operations, cash balance of Rs.1,13,57,110/- was found as against the book balance of Rs.9,10,548/-. In the statement recorded from him u/s 132(4) of the Act, he admitted the excess cash balance of Rs.1,04,68,512/- as his unaccounted income. The assessee agreed to offer a sum of Rs.1,25,00,000/- (including excess cash balance) as his income. The AO completed the assessment after making some additions on account of disallowance of expenses on account of car & telephone expenses, addition u/s 69C and relating to estimated professional income. The AO also initiated penalty proceedings u/s 271(1) (c) for concealment of income and u/s 271AAA for additional offer of income by the assessee.

Contention of the Assessee

 The ld counsel of the assessee submitted that the car expenses disallowed by the assessing officer include proportionate amount of depreciation and interest on car loan. He submitted that both the items are statutory deductions prescribed under the Act and hence the disallowance of the same was not justified. In this regard, he placed reliance on the decision rendered by the co-ordinate bench of Mumbai Tribunal in the case of Mukesh K Shah (2005)(92 ITD 349). He also submitted that the assessee has offered additional income of about Rs.20.00 lakhs in order to cover up any other deficiencies. He submitted that the assessee has not capitalized the above said disclosure in his books of account. Accordingly he submitted that all the disallowances are to be telescoped against the additional disclosures.

Further submitted that the assessments of the assessment years up to AY 2006-07 were not pending as on the date of initiation of search and hence the AO was not justified in making the additions in those years without there being any incriminating materials. In this regard, he placed reliance on the decision rendered by the special bench of Tribunal in the case of All Cargo Global logistics Ltd (137 ITD 287).

With regard to the penalty u/s 271(1) (c) levied on the additional income surrendered by the assessee, the Ld A.R submitted that the assessee has offered excess amount of about Rs.20.00 lakhs voluntarily and the revenue did not seize any material to support the said disclosure. He submitted that the revenue has seized excess cash balance of Rs.1.04 crores and the said amount was offered as assessee’s income in AY 2008-09. The Ld A.R submitted that the voluntary surrender should not be construed as concealment of income, in the absence of any incriminating material. The Ld A.R also submitted that the assessee has offered the same in the returns of income filed u/s 153A of the Act and they were also accepted by the AO. Accordingly he submitted that there is no difference between the returned income and assessed income in sec. 153A proceedings and hence there is no presumption of concealment of income. He placed reliance on the decision rendered by the Delhi bench of Tribunal in the case of Prem Arora Vs. DCIT (2012)(78 DTR(Del)(Trib) 91).

With regard to penalty levied u/s 271AAA, the assessee contended that he has complied with the conditions prescribed in sec. 271AAA (2) of the Act. He placed reliance on the decision rendered by the Cuttack bench of Tribunal in the case of Ashok Kumar Sharma Vs. DCIT (2012)(149 TTJ (Ctk)(UO) 33).

Contention of the Revenue

The ld counsel of the revenue submitted that the assessee has admitted additional income for various years in the statement recorded from him u/s 132(4) of the Act. Accordingly he submitted that there were incriminating materials available with the AO and hence the impugned additions were made by him.

In support of addition on account of estimated professional income, he supported the estimation made by AO. He placed reliance on the decision rendered by Hon’ble Punjab & Haryana High Court in the case of Ved Prakash Vs. CIT (265 ITR 642) to support the estimation made by the assessing officer.

In support of penalty proceedings u/s 271(1) (c), he submitted that the assessee has undisclosed income, which is within his personal knowledge, by way of additional disclosure. He submitted that the assessee would not have disclosed additional income, had there been no search. Accordingly, he contended that the additional disclosure made by the assessee is liable for penalty u/s 271(1) (c) of the Act. He placed reliance on the decision rendered by Delhi bench of Tribunal in the case of JRD Stock Brokers (P) Ltd Vs. ACIT (2009)(124 TTJ 566).

In support of penalty proceedings u/s 271 AAA, it was submitted that the assessee did not specify the manner in which the undisclosed income was derived.

 Held by CIT (A)

The CIT (A) confirmed the additions relating to disallowance of expenses and also the additions made u/s 69C of the Act. He, however, deleted the additions relating to estimated professional income on the reasoning that there is no material to support the inference drawn by the assessing officer.

In relation to penalty u/s 271 AAA, CIT (A) observed that the assessee has not disclosed the manner in which the undisclosed income was earned and accordingly confirmed the penalty.

Held by ITAT

Admittedly, these are estimated disallowances made out of expenses that were already claimed in the original return of income filed by the assessee. The assessee has submitted that the assessment years up to 2006-07 falls in the category of concluded assessments, i.e., assessments of those years were not pending on the date of initiation of search. Hence, in our view, the assessing officer could not have made these additions for AY 2004-05 to 2006-07 in the absence of any incriminating materials.

We accept the alternative contentions of the assessee and hence the additions made by the AO, after accepting the additional disclosure of Rs.20.00 lakhs, would result in double assessment, since it is stated that the assessee has not capitalised the above said amount in his books of account.

In relation to addition made u/s 69C, we have already noticed that the assessee has offered additional income of about Rs.20.00 lakhs over and above the excess cash balance found during the course of search. It is also an admitted fact that the revenue did not seize any other incriminating material which compelled the assessee to make this disclosure. Hence the additional income of about Rs.20.00 lakhs was a voluntary offer. We notice that the disallowances of expenses as well as the addition made u/s 69C of the Act formed a small part of the above said amount of Rs.20.00 lakhs, thus leaving huge balance remaining to be adjusted. We notice that the assessing officer has made the additions u/s 69C of the Act without examining the claim of availability of sources out of drawings made by the assessee and his wife.

In context to revenue appeal regarding deletion of estimated professional income, we found that there is no dispute with regard to the fact that the revenue did not unearth any incriminating material, which could suggest that there was under billing or evasion of professional receipts. The revenue only stumbled with excess cash balance and the same was surrendered as income of the year in which the search took place. The assessee offered the same as his professional income. In our view also, the assessing officer misguided himself by presuming that the entire undisclosed cash balance represents his professional fee collected during the financial year relevant to the assessment year 2008-09.

We also notice that the assessing offer has assessed the net profit on the alleged suppressed professional receipts, meaning thereby, the assessing officer has presumed that the assessee would have suppressed corresponding expenses also. Again it is only a guess work only, unsupported by any material. Similarly, the average daily collection estimated by the AO was also mere guess work. In effect, there is no material available with the AO to show that the assessee has suppressed professional receipts as well as expenses in order to substantiate the estimation made by him.

The case referred by the ld counsel of the revenue does not support them because in this case additions were confirmed on the ground wherein materials were found during the course of search. However, in the instant case, no material relating to suppression of professional fee receipts was found.

In relation to penalty proceedings u/s 271 (1) (c), we notice that the decision in the case of JRD Stock brokers (P) Ltd. (2009)(124 TTJ 566) has been rendered in the context of penalty levied u/s 158BFA of the Act. Further, we notice that the assessee therein did not disclose additional income in the return of income filed by it u/s 158BC of the Act. Further it is stated that the undisclosed income was discernible from the seized materials. Where as in the instant case, the penalty has been levied u/s 271(1)(c) of the Act, the assessee has disclosed additional income in the return of income filed by him and further there was no seized material to support the additional disclosure made by the assessee.

In relation to penalty proceedings u/s 271AAA, there is no dispute with regard to the fact that the assessee has disclosed the undisclosed income as his professional income and the same has been accepted by the assessing officer. In fact, the assessing officer has proceeded to estimate the professional income of the preceding years on the basis of the above said disclosure. Hence, we are of the view that the decision rendered by the Cuttack bench in the above said case squarely applies to the facts prevailing in the instant case. We also notice that the Nagpur bench of Tribunal has also taken identical view in the case of Concrete Developers V/s ACIT in ITA No.381/Nag/2012 dated 20.3.2013. The assessee has complied with all the three conditions specified in sec. 271AAA (2) of the Act and accordingly, the penalty levied by the AO u/s 271AAA (1) of the Act is liable to be deleted.

Accordingly, all appeal of the assessee allowed.

Categories: Income Tax
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