2014 (7) TMI 675 - AT - Income Tax

Bogus accommodation entries Held that - The assessee has enclosed copies of account, income tax and assessment particulars, balance-sheet of all the parties in support of these entries under the certificate below the index of the paper book that those were filed before the authorities below and with this submission that all these entries have been duly recorded in the books of accounts and there is no case of any adverse inference - the AO has not bothered himself to verify the correctness of the documents filed by the assessee in support of the genuineness of the claimed unsecured loan from the companies - assessee had furnished the primary evidences, like copy of account, income tax return and assessment particulars as well as balance-sheets of all the parties with this submission that all these entries are duly recorded in the books of accounts and that the entire loan amount was paid through cheques/drafts - the initial burden to establish the genuineness of the claimed unsecured loan was discharged by the assessee - onus was shifted on the AO to dislodge those primary evidences as unreliable evidences to establish his allegation that these were nothing but accommodation entries only - an addition cannot be made merely on the basis of statements recorded during search or survey surrendering an amount for the addition unless it is corroborated by further evidence. CIT(A) has rightly held the action of the AO in making the addition u/s 68 of the Act as unjustified Relying upon CIT Vs. Lovely Exports (P) Ltd 2008 (1) TMI 575 - SUPREME COURT OF INDIA - even if the share application money received by the appellant company is from alleged bogus shareholder, whose identity is produced by the appellant company, the revenue can always proceed against such shareholders and if necessary re-open their individual assessment - CIT(A) has passed a comprehensive and reasoned order after discussing the case of the parties on issue in details Decided against Revenue. Adjustment of unexplained expenses against credits Held that - The contention of the assessee cannot be accepted that entries made in the ledger account are rough work as the entries are narrative mentioning the date, mode of payment page no of folio with the amount debited and credited as well as the balance - the surrender made by Shri R. C. Goyal was corroborated with the annexure found during the course of survey which was confronted with him and thereafter Shri R. C. Goyal had surrendered the amount for tax - CIT(A) has thus rightly upheld the action of the AO with the finding that the AO has arrived at the figure after verification - CIT(A) has however following settled principle of law and accountancy, has held that the benefit of netting cannot be denied to the assessee - the statement recorded during the survey was also on the basis of the netting principle - CIT(A) was justified in sustaining the addition to the extent of the net amount Decided against Revenue. Undisclosed cash receipts Held that - Retraction was made by the assessee and as such the survey statement is even otherwise not admissible - there was totaling mistake of significant nature, it was necessary and obligatory for the AO to bring relevant facts and evidence in support of allegation about receipt of cash - It is self-evident that in the referred document, neither there is reference to any cash receipt or any details relating to name of the party or name of the properties - the principle of natural justice and real income and in the absence of details of the parties and properties in respect of which alleged cash was stated to have been received, there could be no ground for any addition on the basis of vague and unsubstantiated notings Relying upon CIT Vs. Anil Bhalla 2010 (2) TMI 7 - DELHI HIGH COURT - no addition could be made on the basis of mere jotting on paper in the absence of independent material or proper enquiry or investigation - the order of the AO and CIT(A) cannot be upheld Decided in favour of Assessee.

Summary

Issues Involved:
1. Deletion of addition on account of bogus accommodation entries.
2. Adjustment of unexplained expenditure against unexplained credits.
3. Addition on account of alleged undisclosed cash receipt of Rs. 6,65,00,000.
4. Addition on account of alleged unexplained entries in seized annexures A-17 and A-18.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Bogus Accommodation Entries:
The Revenue questioned the deletion of Rs. 7,10,55,000/- added on account of bogus accommodation entries. During a survey, the Director of the assessee company admitted to receiving accommodation entries from various fake companies amounting to Rs. 7,10,55,000/-. However, the assessee retracted this statement, claiming it was made under duress and without corroborating evidence. The AO added the amount under Section 68 of the Act, but the CIT(A) deleted the addition, accepting the assessee's explanation and supporting documents, including balance sheets, income tax returns, and confirmations from the lender companies. The Tribunal upheld the CIT(A)'s decision, emphasizing that additions cannot be based solely on statements made during surveys without corroborative evidence, as per the CBDT Circular No. 286 dated 10/3/2003 and various judicial precedents, including CIT Vs. Lovely Exports (P) Ltd and CIT Vs. S. Khader Khan Son.

2. Adjustment of Unexplained Expenditure Against Unexplained Credits:
The AO made an addition of Rs. 1,58,92,460/- on account of unexplained cash credits and expenditures found in the seized cash book and ledger. The CIT(A) partially upheld the addition, allowing the netting of unexplained expenditure of Rs. 47,79,600/- against unexplained receipts of Rs. 1,11,12,860/-, resulting in a net addition of Rs. 63,33,260/-. The Tribunal upheld the CIT(A)'s decision, noting that the entries in the seized annexures were not rough but detailed and narrative, justifying the netting principle.

3. Addition on Account of Alleged Undisclosed Cash Receipt of Rs. 6,65,00,000:
During the survey, a handwritten sheet indicating cash receipts of Rs. 6,65,00,000/- was found, and the Director admitted this amount was not included in the regular books. However, the assessee later retracted this statement, and the AO added the amount based on the survey statement. The CIT(A) upheld the addition, but the Tribunal found that the addition was based on a mistaken totaling in the seized annexure, which actually amounted to Rs. 3,05,00,000/-. The Tribunal emphasized that survey statements without corroborative evidence are insufficient for additions, as per judicial precedents like CIT Vs. Anil Bhalla and CIT Vs. S. Khader Khan Son. Therefore, the Tribunal deleted the entire addition of Rs. 6,65,00,000/-.

4. Addition on Account of Alleged Unexplained Entries in Seized Annexures A-17 and A-18:
The AO added Rs. 1,58,92,460/- based on unexplained entries in the seized annexures. The CIT(A) allowed netting of unexplained expenditure against unexplained receipts, resulting in a net addition of Rs. 63,33,260/-. The Tribunal upheld this decision, noting that the entries were detailed and narrative, and the AO had verified the amounts before making the addition. The Tribunal found no reason to disturb the CIT(A)'s decision, which was based on a thorough examination of the evidence.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, emphasizing the need for corroborative evidence to support additions based on survey statements and the importance of adhering to principles of natural justice and real income. The Tribunal's decision was pronounced on 12th June 2014.