TMI Blog2012 (11) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable. The AO has to compute the undisclosed income falling within the block period. He does not estimate or appraise the undisclosed income. Therefore, this addition made by the AO, purely on estimate basis, cannot be sustained in law. Hence deleted In favour of assessee Addition on account of sale proceeds of thorn trees as undisclosed income – AO treated it as incidental income - the assessee has credited a sum of Rs. 20,000/- each year as income from sale of thorn trees but the same was not offered for taxation – Held that:- The assessee as a real estate developer has been developing properties by incurring expenditure. It is in the course of that developing that thorn trees were removed and they were sold for nominal amounts. The sale of thorn trees is not a regular activity of the assessee and the income therefrom does not constitute an independent source of income. As a matter of fact, it goes to reduce the expenses of the assessee in developing the land. Hence no justification in treating the amount as undisclosed income. In favour of assessee Disallowance of depreciation – Air Conditioner – Held that:- The air conditioner was installed at the residence of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gricultural property and offering agricultural income, the normal presumption is that the assessee is carrying on agricultural operations. It is to be seen that the assessee has offered net agricultural income on an estimate basis. Therefore, it is obvious that no separate expenditure account would be reflected in the particulars filed by the assessee. Hence delete the addition. In favour of assessee. Addition on account of undisclosed income – Assessee receive certain sums from a firm where assessee is a partner - AO added this amount to the assessee’s undisclosed income on the ground that no evidence was produced – Held that:- As rightly argued by the assessee, the disallowance could at best be applicable to the firm and not to the assessee. It is for the firm to prove the nature of income, whether agricultural income or not, in its hands. Firm and the assessee are different persons. Therefore, if there is a doubt in the source, it is for the firm to explain it. There is no justification in making an addition of in the hands of the assessee. It is accordingly deleted. In favour of assessee Addition on account of gifts received from relatives – AO made addition for want of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 2,31,098/- and paid tax of Rs. 1,38,659/-. 4. Later on, the Assessing Officer issued notice under section 143(2) on 29-5-1997 and set in motion the process of assessment of undisclosed income in the case of the assessee. The Assessing Officer found that the assessee is the proprietrix of three business concerns, namely M/s.Bharani Yolkam International, M/s. Bharani Real Estate and Sri Bala Co. M/s.Bharani Yolkam International is doing business as commission agent for M/s.The Karur Co-operative Handloom Export Production Project Limited. The said business was said to be commenced from the assessment year 1984-85. The rate of commission entitled for the assessee was 10%. The assessee claimed various expenditure in respect of the said business in the form of salary, rent, electricity and other establishment charges and had shown certain amounts as income from the said concern for all the assessment years included in the block period. But the Assessing Officer was of the view that the assessee has worked out the income and expenditure on an estimate basis and therefore the income disclosed by the assessee for the various years from the said business concern cannot be acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome against the work in progress for the reason that the main business of real estate did not commence. The Assessing Officer relying on various court decisions, including that of the Hon ble Supreme Court in Tuticorin Alkali Chemicasls vs CIT (227 ITR 172) held that the rentals constituted income and treated such receipts as undisclosed income of the assessee. A total amount of Rs. 10,85,000/- has been adopted as the undisclosed income of the assessee on this ground. The details are as below:- Assessment Year Amount 1993-94 Rs. 2,50,000/- 1994-95 Rs. 2,75,000/- 1995-96 Rs. 3,00,000/- 1996-97 (upto 19.1.96) Rs. 2,60,000/- Rs. 10,85,000/- It is to be stated that the above income has been worked out by the Assessing Officer on an estimate basis and not on the basis of exact accounts. 7. As per the statements and details furnished by the assessee, the source of investments made by her in various businesses was availed by way of loans from about 42 persons. She has furnished the details of those persons from whom she availed such loans. According to the Assessing Officer, the genuineness of those loans was not proved and accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Year Amount 1991-92 Rs. 10,986/- 1992-93 Rs. 7,669/- 1993-94 Rs. 1,112/- 1994-95 Rs. 18,771/- Rs. 38,538/- 11. While considering the undisclosed income for the assessment year 1991-92, the Assessing Officer has rejected the claim of the assessee that she had received a loan of Rs.2 lakhs from P.C.Palaniswamy of Erode for making investments in Sri Bala Co and M/s.Bharani Real Estate. This loan of Rs.2 lakhs is also added by the assessing authority as undisclosed income. 12. While mentioning about M/s.Bharani Real Estate, we have mentioned that the assessing officer has accepted the income as returned by the assessee. Accordingly, he has treated Rs. 1242 as the undisclosed income of the assessee for the assessment year 1993-94. In the case of the same business, the assessee has claimed a depreciation of Rs. 15,228 for the assessment year 1994-95 in respect of an air conditioner. The Assessing Officer held that the air conditioner was installed in assessee s residential house and therefore the same could not be allowed. The said amount of Rs. 15,228/- was also treated as the undisclosed income of the assessee. 13. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer and the same is treated as the assessee s undisclosed income. 17. A sum of Rs. 32,150/- was found in the course of search. Out of the above sum, the Assessing Officer treated Rs. 30,000/- as the undisclosed income of the assessee for the assessment year 1996-97. 18. As seen from the above paragraphs, the Assessing Officer has worked out the undisclosed income in the case of the assessee by estimating commission income; disbelieving the gifts received by the assessee; disallowing the opening capital; treating the cash found in the course of search as undisclosed income; disallowing a portion of the agricultural income returned by the assessee; treating the guest house income as undisclosed income; treating the loan amounts as undisclosed income; agricultural share income from M/s.MBS Granites treated as undisclosed income; income from sale of thorn trees treated as undisclosed income, etc., etc. at Rs. 1,15,75,840/-. 19. The abstract of the undisclosed income as computed by the Assessing Officer is extracted below:- Asst. Year Total Admitted Undisclosed 1986-87 Rs. 1,11,610/- -- Rs. 1,11,610/- 1987-88 Rs. 23,516/- -- Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assistant Director of Income tax (Investigation) at Madurai. The remaining additions were considered by the Tribunal on merits. Some additions were confirmed and the others were deleted. In that manner the appeal was disposed of by the Tribunal through its order dated 14-2-2003. 24. The Revenue was aggrieved by the legal proposition made by the Tribunal that the reply dated 15-5-1995 filed by the assessee to the Assistant Director of Income-tax (Investigation) at Madurai amounted to disclosure for the purpose of Chapter XIV-B. It was the case of the Revenue that the description of the items made in the said letter does not amount to disclosure as contemplated in the provisions of law arranged under that Chapter. Therefore, the order of the Tribunal was taken in appeal under section 260A of the Income tax Act, 1961, before the Hon ble jurisdictional High Court at Madras. The Hon ble High Court disposed of the said appeal filed by the Revenue through the judgment of their Lordships delivered on 24-6-2010. After considering the issue in a very detailed manner, the Hon ble High Court held that the communication made by the assessee in her letter dated 15-5-1995 to the Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch has been allowed. Accordingly this addition is deleted. 29. Ground No.8 related to the issue of Rs. 3,55,361/- added by the Assessing Officer on an estimate basis in respect of commission income. The assessee was running a business concern under the name and style of M/s.Sri Bharani Yolckms Internationals, which was earning commission income from orders placed with M/s.Karur Co-op. Handloom Export Production Project Ltd. right from the assessment year 1984-85. The assessee is not maintaining any regular books of account in respect of these transactions. The assessee estimated income by way of commission at 10% of the annual turnover. The Assessing Officer on the other hand, after allowing an expenditure of 40%, treated 60% as commission income of the assessee. It is how the addition of Rs. 3,55,361/- has been made by the assessing authority. In the present case, non maintenance of accounts is not so crucial, because the total turnover is always available, as the transactions are with M/s.Karur Co-op. Handloom Export Production Project Ltd. Only for the reason that the assessee has not maintained proper accounts towards expenditure, it is not justified to estimate the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted. 30. The next ground No.9 deals with the estimated addition of Rs. 38,538/- against commission income. For the reasons stated in the above paragraph, this estimated addition of Rs. 38,538/- is deleted. 31. Ground Nos.10 and 11 raised by the assessee are against the addition of Rs. 1,16,000/- made by the Assessing Officer in the context of sale proceeds of thorn trees. The case of the Revenue is that the assessee was not maintaining any books of account for her real estate business. In the profit and loss account for the assessment years 1991-92 to 1997-98 filed after the search, the assessee has credited a sum of Rs. 20,000/- each year as income from sale of thorn trees but the same was not offered for taxation on the ground that the real estate business has not commenced and that it would only go to reduce the work-in-progress. The Assessing Officer has treated it as incidental income, following the principle laid down by the Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. vs. CIT, 227 ITR 172. Since the thorn trees are not cultivated by the assessee, it will not form part of agricultural income, as held by the Hon ble Supreme Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken over. Due to litigation, the property could not be registered in the name of the assessee. The Revenue argues that the assessee has been running the guest house since 1993-94 and income therefrom has been returned so also the assessee has not maintained any books of account. It is in these circumstances, according to the Revenue, that estimation of income was warranted and as such the addition of Rs. 10,85,000/- has been made. The case of the assessee is that the property was never fully functional because of the dispute between the assessee and the seller of the property. Even the title of the property was not transferred in the name of the assessee. The litigation reached upto the Hon ble Supreme Court. Meanwhile certain irregular income was received by the assessee by operating the guest house in a very nominal way and such negligible income was actually used for maintaining the guest house property. 34. There is no dispute regarding the basic fact that the guest house property was under litigation and the assessee could not get the title transferred in her name. This dispute in fact prevented the assessee from improving the facilities at the guest house and making it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditworthiness so as to advance amounts to the assessee. It is in these circumstances that the Assessing Officer has disbelieved the credits/loans and made the addition of Rs. 75,16,875/-. The detailed submissions and explanations of the assessee in this regard are made in paragraph 13 of the statement of facts available on record. In short, it is the case of the assessee that she has taken loans from 42 persons for business purposes. The assessee had filed confirmation letters before the Assessing Officer in support of those credits. She could also produce some of the creditors before the Assessing Officer. Those creditors were examined. It is only for the reason that the Assessing Officer has disbelieved them, the additions were made. 36. We considered this matter very seriously. A set of loans received from twelve persons like Balu, Vijaya, Sriramulu totaled to Rs. 13,16,000/-. The amount of loan ranged from Rs. 16,000/- to Rs. 4 lakhs. The biggest amount of Rs. 4 lakhs comes from Dhaman Prakash (Dharmabal Associate). The reason pointed out by the Assessing Officer to disbelieve the credits is not convincing. The relevant particulars, such as income-tax assessment, etc., may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. It is also the case of the Assessing Officer that no expenses also have been found to be debited towards earning such income. We considered this issue. There is no dispute regarding the holding of properties by the assessee. It is also undisputed that the property is agricultural property. When the assessee is having agricultural property and offering agricultural income, the normal presumption is that the assessee is carrying on agricultural operations. Disclosure of agricultural income itself is prima facie evidence of carrying on agricultural operations. The next objection of the Assessing Officer is that the assessee has not debited expenses towards agricultural operations. It is to be seen that the assessee has offered net agricultural income on an estimate basis. Therefore, it is obvious that no separate expenditure account would be reflected in the particulars filed by the assessee. In these circumstances we find that there is no justification in rejecting the claim of the assessee towards agricultural income. Accordingly, the addition of Rs. 1,97,200/- is deleted. 39. In ground No.17 the argument of the assessee is against the addition of Rs. 4,66,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs. 1,50,650/-. It is the case of the assessee that the land was agricultural in nature and therefore there cannot be levy of capital gains. This claim was rejected by the Assessing Officer for want of evidence. It was also the argument of the assessee that it was offered for assessment for the assessment year 1996-97 in regular return. But there is no evidence. In these circumstances we confirm the addition of Rs. 1,50,650/-. 42. Ground Nos.21 and 22 relate to the arguments of the assessee against the addition of Rs. 9,50,000/-made by the Assessing Officer towards compensation received by the assessee. This issue was considered by the Tribunal in its earlier order dated 14-2-2003. After considering the issue in detail the Tribunal has held that the addition of Rs. 9,50,000/- is not justified. As there is no change in the position, we hold that the addition of Rs. 9,50,000/- is not warranted. It is accordingly deleted. 43. Ground No.23 relates to the addition of Rs. 30,000/- made by the Assessing Officer. This amount of Rs. 30,000/- was the cash found at the time of search. This was added by the Assessing Officer as undisclosed income. In view of the total financial inflo ..... 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