By TIOL News Service

NEW DELHI, DEC 04, 2017: THE issue before the Bench is - Whether a draft MoU can be the basis for making addition, when it was unsigned and not accompanied by corroborative evidence. NO is the answer.

Facts of the case:

The Assessee-a proprietor of M/s. Ferns 'N' Petals, was engaged in the sale of fresh flowers and other related products. A search and seizure operation was conducted in the premises of the Ferns 'N' Petals Group. On the basis of documents recovered during the search operation, a notice u/s 153A was issued to the Assessee. Thereafter, another notice along with questionnaire u/s 143(2) and 142(1) were also issued. In the course of the assessment proceeding, the AO noted that as per the P&L account, the Assessee had claimed a substantial amount on account of franchisee commission. Accordingly, the Assessee was asked to furnish copies of accounts of the franchisees with their complete addresses. However, the same was not revealed. During the course of search, the Assessee made a disclosure on account of change in the method of accounting of franchisee fees and undisclosed franchisee fees for the FY during which the search was conducted. On the basis of the said statement, the AO estimated the undisclosed income at a certain percentage of the amount of disclosure made by the Assessee in her statement u/s 132(4). Further, no statement was made by the Assessee herself. A statement was made u/s 133A by Shri Pawan Gadia who was working at M/s. Satya Farms as Vice-President since August, 2001 and was supervising the work of the various companies/concerns of the Assessee.

On Assessee's appeal, the additions made by the AO were found by the CIT(A) to be based on surmises and suspicion. Aggrieved by the CIT(A)'s order, appeals were filed both by the Revenue and the Assessee before the Tribunal. On following the decisions of this Court in Kabul Chawla and Lata Jain, the Tribunal held that the assumption of jurisdiction u/s 153A for the AYs under consideration was bad in law. The Tribunal also noted that the addition for the said AY was based on the seized documents. Accordingly, it was held that the assessment for the AY 2004-05 u/s 153A was valid. Consequently, Revenue's appeal was dismissed on merits and the corresponding appeal of the Assessee was dismissed for non-prosecution since none appeared for the Assessee before the Tribunal.

High Court held that,

++ so far as the question relating to admission of additional evidence under Rule 46A; addition on account of undisclosed franchisee commission and addition on account of suppression of income from the self controlled outlets are concerned, the previous decision for another AY, in the Assessee’s case cover the same, no question of law arises;

++ the other questions relate to the additions made as non-refundable security of Rs. 65,000/-, amount of Rs. 28,470 as expenses and Rs. 4,00,000/- which authority found to be accounted for and it was held by the CIT(A) and Tribunal to be not taxable. The MOU was merely a draft and not signed by the parties and they were not accompanied by the corroborative evidence. Addition of Rs. 45,74,503/- on account of unexplained investment in stock u/s 69, which was deleted by CIT(A) and upheld by the Tribunal, the Court is of the opinion that no question of law arises as these are only finding of facts. The appeal cannot be entertained as no question of law arises.

(See 2017-TIOL-2507-HC-DEL-IT)