Income tax - Figures mentioned in loose sheet cannot be automatically treated as incriminating material, for initiating reopening: ITAT
By TIOL News Service
HYDERABAD, DEC 16, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether figures mentioned in loose sheet can automatically be treated as undisclosed income / incriminating material, so as to initiate reopening proceedings. NO IS THE ANSWER.
Facts of the case:
The Assessee-company is engaged in infrastructure development projects. For the year under consideration, original assessment was completed on a total income of Rs. 2,08,20,880/-. However, consequent to search and seizure operation on the premises of Managing Director, the AO sought to reopen the assessment by issuing notice u/s 148. In response to the said notice, assessee-company contended that the papers having been found in the course of search at the residence of MD, assessment could not be reopened. This contention of assessee was dismissed. In the assessment order, a document was produced to highlight that a cash payment of Rs.1 Crore is recorded in Venkat Akkinani’s account. D.V. Naidu, MD of assessee-company, had stated on oath that the entire document belong to the financial transaction i.e., payment made to Venkat Akkineni towards purchase of property situated at Hyderabad. In the statement it was admitted that an agreement was entered into between D. Srinivas and Akkinani Nageswara Rao, whereby the subject property was agreed to be purchased by assessee-company at Rs. 2,000/- per sq ft with a subjective condition of re-fixing the rate on the date of buying and on buying additional space area. Since D.V. Naidu admitted that the payments were made to Venkat Akkineni towards purchase of flat but, the source of payment of Rs. 1 Cr having not been explained, the same was added to the total income of assessee-company as ‘unexplained investment’.
On appeal, the CIT(A) was of the opinion that MD of assessee-company admitted in his sworn statement that the said amount was paid prior to Mar 26,2003. There was no dispute with regard to the fact that property was purchased by assessee-company. Therefore, payment of Rs. 1 Cr recorded in the document pertained to the amount paid by assessee and hence, the same deserves to be added. With regard to the claim that the notice did not pertain to assessee-company, the CIT(A) observed that the seized document itself showed that substantial payments out of the total consideration were paid by assessee company through Pay Order and Cheque.
ITAT held that,
++ the plea of the assessee all through, was that no payment was made by the assessee-company during the previous year relevant to the assessment year under consideration. The loose sheet was obtained in the residential premises of D.V. Naidu which does not indicate that the assessee-company made a payment of Rs. 1 Cr. In fact in the same sheet, another sum of Rs. 10 lakhs was shown to have been paid to the seller, but it was offered to tax in the hands of D. Srinivas and neither any comment was made by AO in that regard nor added in the hands of assessee-company, which is an indication that the figures mentioned in the loose sheet need not automatically be treated as undisclosed income of assessee. In other words, it cannot be treated as an incriminating material so as to initiate proceedings u/s 148 in the hands of the assessee, as rightly pointed by Gujarat High Court in the case of Varshaben Sanatbhai Patel vs. ITO - 2015-TIOL-2627-HC-AHM-IT. Decision of the ITAT "B" Bench, Hyderabad also, in a way, supports the stand of the assessee;
++ Having regard to the circumstances of the case, we are of the view that there is no incriminating material in the possession of the AO to reopen the assessment originally completed u/s 143(3) and, even till date, there was no material to indicate that the impugned sum is referable to the amount paid by the assessee-company, apart from the fact that the date of payment is not specified. Though it can be assumed that the payment was made between the date of agreement of sale and prior to Mar 26, 2003 and hence it may fall within the accounting year relevant to the A.Y. 2003-04. On a conspectus of the matter, we hold that the AO has not made out a case for either reopening of an assessment or for making an addition of Rs. 1 Cr in the A.Y. 2003-04 and accordingly we set aside the orders passed by the AO.
(See 2017-TIOL-1749-ITAT-HYD)
