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October 28, 2023

Addition unsustainable since the contested sum was turned in and approved by the Settlement Commission

Addition unsustainable since the contested sum was turned in and approved by the Settlement Commission

Fact and issue of the case

This appeal has been filed by the Revenue against order passed by the ld.Commissioner of Income Tax(Appeals)-12, Ahmedabad [hereinafter referred to as “Ld.CIT(A)”] under section 250(6) of the Income Tax Act, 1961 (“the Act” for short) dated 20.5.2019pertaining to the Asst.Year 2017-18.

At the outset, it was stated that solitary grievance of the Revenue relates to the deletion of addition made by the AO on account of unexplained expenditure under section 69C of Rs.2,54,73,420/-. The said addition, it was pointed out, emanated from noting in a diary found during search conducted on the assessee’s premises, which diary marked as Annexure A/1 and which allegedly contained details of receipts and payments. The assessee, it was stated, is partner in a partnership firm, M/s. Laxmi Constructions. Search operation under section 132 of the Act was conducted at the residential premises of the assessee, and simultaneous survey operation under section 133A of the Act was carried out at the business premise of M/s. Laxmi Construction on 21.10.2016. The partnership firm had filed a petition before the Settlement Commission and offered income on account of noting in this diary for settlement. The ld. Pr. CIT, Ahmedabad in his report under Rule 9 had stated that proceedings under section 153A are on-going in the case of partner Shri Shyamsundar R. Agrawal, and impact of the seized material found during the course of search shall be taken into consideration at the time of finalization. The assessee had objected to the same, and thereafter the order was passed by the Settlement Commission accepting the income returned by the assessee on account of unaccounted expenditure to the tune of Rs.1,66,98,800/- pertaining to the noting in the diary found during the search at the assessee’s premises.

During assessment proceedings, the assessee had not disclosed any income on account of noting in the impugned diary on the ground that this stood disclosed and accepted in the settlement petition of the partnership firm. But the AO did not agree with the same for the reason that the ld. Pr. CIT in his report under Rule 9 had categorically stated that the impact of diary would be considered during the course of assessment of the assessee, and also for the reason that the assessee had admitted to the transactions pertaining to his unaccounted income and expenditure. Accordingly, he made an addition of Rs.2,54,73,420/-.

The contents of the diary were explained to us in a summarized form as under:

i) Total amount of all transactions (Payments, Receipts, repetitive entries etc.) : Rs.3,91,33,420/-

ii) Amount Revised as per Order Sheet dated 04/12/2018 (after eliminating duplicate entries : Rs.2,54,73,420/-

iii) Total Amount of payments of Seized Diary (as per ITSC Application : Rs.1,66,98,800/-

iv) Total Amount of Receipts of Seized Diary (as per ITSC Application : Rs.1,45,23,900/-

v) Other Amounts (such as sub-totals, c/f balances, amount not considered by AO, rough notings etc. : Rs.12,50,720/-

Referring to the above, it was explained that total of notings of transactions in the diary amounted to Rs.3,91,33,420/-, which after eliminating duplicate entries the total impact came to Rs.2,54,73,420/- which included payment of Rs.1,66,98,800/- and receipt of Rs.1,45,23,900/-. The partnership firm had surrendered the higher of the payments and receipts, being Rs.1.66 crores, to the Settlement Commission, while the AO had made addition to the income of the assessee of the total entries found in the diary amounting to Rs.2,54,73,720/-.

Observation of the court

As is evident from the above the Ld.CIT(A) has found that the assessee did not admit to the notings as relating to him in his personal capacity. During the course of hearing, our attention was drawn to the statement recorded of the assessee reproduced at page no.3 of the assessment order. It was pointed out therefrom that in response to question no.27 where the assessee was asked whether noting in the diary were recorded in his books of accounts, the assessee has responded by saying that they were not recorded in the regular books of accounts; that some of the expenses recorded in the diary related to his household expenses, and some related to the business of the assessee. Thus it is evident that there was no categorical admission by the assessee of the notings in the diary as all pertaining to him in his personal capacity, on the contrary he had stated that it related to his business also.

Moreover, the Ld.CIT(A) has found that all income relating to entries noted in the diary stood disclosed by the partnership to and accepted by the settlement commission. This fact is not disputed before us. In the light of the same we agree with the ld.CIT(A) that the objection of the ld. Pr. CIT to the ITSC being overruled by acceptance of income by ITSC, the said objection was irrelevant to merit any consideration while framing assessment in the hands of the assessee.

In the light of the above where the assessee had stated the notings in the diary as relating to his business and which stood disclosed by its partnership firm to the settlement commission, who in turn accepted the same also, we find no reason to interfere in the order of the Ld.CIT(A) deleting the addition made in the hands of the assessee finding the said income to be doubly assessed to taxed. In view of the above, we do not find any merit in the grounds raised by the Revenue before us. All the grounds raised by the Revenue being Ground No.1 to 5 raised by the assessee are accordingly rejected.

In the result, appeal of the Revenue is dismissed.

Order pronounced in the Court on 11th October, 2023 at Ahmedabad.

Read the full order from here


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