The Income Tax Appellate Tribunal (ITAT) Kolkata has clarified that in case seized papers showed that the taxpayer acted only as a broker between lenders and borrowers, then only brokerage income attributable to finance broking activities could be added as undisclosed income of the taxpayer, and no addition could be based on disclosure petition alone, unless there were corroborative materials.
The Division Bench comprising Pradip Kumar Chobey (Judicial Member) and Rajesh Kumar (Accountant Member) from the tabulation prepared by the AO himself of statement recorded wherein the AO himself stated the names of the borrowers and lenders, the amounts, duration, rate of interest and have also referred to number of specific seized papers without mentioning the source either in the disclosure petition or in the assessment order much less in the remand report too. In fact, the said disclosure was bereft of any corroborative material and was not coming out of any seized papers.
Referring to the CBDT Circular dated March 10, 2000, which stated that no addition should be made on confessions, but addition should be based on the seized material, the Bench questioned that when the closing balance or peak also never exceeded Rs. 1.93 crores, then how the figures of Rs. 20.00 crores were arrived at.
The Bench noted that the disclosure petition, which was not only retracted but also otherwise, there was no material for namesake to support the figures taken as income. Thus, it opined that the addition cannot be based on a disclosure petition alone unless there are corroborative materials.
The Bench also pointed out that the substantial disclosure before the settlement commission regarding cash financial transactions done through the respondent clearly established that the respondent was only a finance broker. This was fortified by the fact that the seized documents were issued by actual borrowers in favour of the lenders, and the names of the borrowers have also been stated therein.
Briefly, the respondent (taxpayer), a finance broker, deriving income by way of director remuneration, commission, brokerage and interest, filed her ITR declaring a loss, which was accepted. Thereafter, a search was conducted, leading to the seizure of some incriminating documents. The AO noted that the respondent had disclosed Rs. 20 crores on account of undisclosed income before the Investigation Wing, which she denied, and after being furnished a copy of said statement, retracted it. Not convinced with the explanation of being only a broker, the AO made an addition under section 153A/143(3) of the Income Tax Act, primarily based on the disclosure and also referring to certain seized documents.
On appeal, the CIT(A) noted from the seized material that the respondent was described as a middleman between the lender and the borrowers. However, observing that the AO had not found any substantial asset with the respondent to match the figure of Rs. 20 crores assessed as undisclosed income, he opined that the respondent’s income consisted of the brokerage, and only her commission could be added. Accordingly, additions on account of undisclosed income were sustained only for brokerage income.
Appearances:
Sanat Kumar Raha, for the Appellant/ Revenue
S.M. Surana, for the Respondent/ Taxpayer
