No Addition can be made on Basis of Mere Projections of Future Earnings without Actual Receipt or Accrual: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, held that no addition could be made merely on the basis of projected future earnings where there was neither actual receipt nor accrual of income in favour of the assessee

The assessee, Rakesh Aggarwal, was subjected to search proceedings under Section 132 following a search conducted on the Dalmia Landmark Group. During the search, certain sheets titled “Aexited” and “B. Exited & Remitted Offshore” were seized from the residence of the assessee.

According to the Assessing Officer, the documents contained details relating to interest income and projected commission/bonus receivable by the assessee from entities connected with the Dalmia Group. Consequently, an addition of Rs. 3.17 crore was made under Section 69A of the Income Tax Act.

During the proceedings, the assessee submitted that the seized sheets merely contained projected calculations of future earnings prepared while contemplating resignation from Dalmia Family Office Trust and did not reflect any actual receipt of funds.

However, the Assessing Officer rejected the explanation and observed that the amount represented bonus/commission due from the employer. The AO rejected the explanation as an “afterthought” and held that the alleged bonus/commission was taxable on accrual basis as part of salary income.

On appeal, the CIT(A) deleted the addition after observing that the amount of Rs. 3.17 crore had neither been received by the assessee nor accrued to him during the relevant assessment year. The CIT(A) further noted that the employer had neither claimed the amount as expenditure nor created any provision in its books for payment of such alleged commission or bonus.

Aggrieved, the Revenue filed an appeal before the Tribunal contending that the seized documents and the statement recorded under Section 132(4) clearly established accrual of commission income in favour of the assessee.

The Tribunal comprising Anubhav Sharma (Judicial Member) and Manish Agarwal (Accountant Member) observed that no material had been brought on record to establish actual payment of Rs. 3.17 crore or existence of any enforceable legal right enabling the assessee to claim such amount, and no document evidencing payment by the employer or receipt by the assessee was found either during the search or during the assessment proceedings.

The Tribunal held that the alleged amount merely represented hypothetical estimations and not “realincome” chargeable to tax, and accordingly upheld the deletion of the addition of Rs. 3.17 crore.

The Revenue’s appeal was dismissed.

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