2012 (5) TMI 761 - AT - Income Tax

Summary

Issues Involved:
1. Estimation of Net Profit (NP) by CIT(A).
2. Failure of the assessee to maintain books of accounts and vouchers.
3. Justification of expenses claimed by the assessee.
4. Applicability of Section 69C of the Income-tax Act, 1961.
5. Relief granted by CIT(A) based on the principle that to earn income, one has to spend money.

Summary:

1. Estimation of Net Profit (NP) by CIT(A):
The Revenue contended that the CIT(A) erred in estimating NP at 55% of the total receipts of Rs. 1,12,24,000/- without appreciating that the assessee failed to prove the source and availability of funds to substantiate his claim of having incurred expenses of Rs. 72,95,600/-. The CIT(A) estimated the NP at 55% of the total receipts, resulting in an income of Rs. 61,73,200/- and a net addition of Rs. 22,44,800/-.

2. Failure of the Assessee to Maintain Books of Accounts and Vouchers:
The assessee admitted to not maintaining any books of accounts. The only authenticated documents were the bank accounts and the account maintained with M/s Shipra Estates Ltd. The Revenue argued that the assessee failed to maintain any record or vouchers to support his claim of expenses, and the AO was justified in taking an adverse view as per Section 114 of the Indian Evidence Act.

3. Justification of Expenses Claimed by the Assessee:
The CIT(A) partly allowed the claim of the assessee, acknowledging that to earn income, one has to spend money. However, the Revenue argued that the CIT(A) allowed relief without any corroborative and cogent evidence. The assessee relied on a fund-flow statement, but there was no entry in the bank account demonstrating the availability of funds for incurring the claimed expenses. The AO allowed some expenses based on assertions made by the assessee but found no evidence to support the claim of the remaining expenses.

4. Applicability of Section 69C of the Income-tax Act, 1961:
The Revenue argued that the CIT(A) failed to appreciate that the assessee, having failed to prove the availability of funds for meeting the alleged expenditure, should have had the amount disallowed u/s 69C of the Act as unexplained expenditure.

5. Relief Granted by CIT(A) Based on the Principle that to Earn Income, One Has to Spend Money:
The CIT(A) granted relief to the assessee based on the principle that to earn income, one has to spend money. However, the Tribunal found that the CIT(A)'s findings were based on surmises and conjectures without any corroborative evidence. The Tribunal reversed the CIT(A)'s findings and restored the AO's findings, emphasizing that the burden of proof lies on the assessee to support his claim with cogent and corroborative evidence.

Conclusion:
The Tribunal allowed the appeal of the Revenue, reversing the CIT(A)'s findings and restoring the AO's findings. The order was pronounced in the Open Court on 10th May, 2012.