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2017 (7) TMI 1319 - AT - Income TaxAddition u/s 68 - peak credit addition - applying 0.50% by the AO on the sales respectively - HELD THAT - CA appointed by the CBI prepared the audit report without confronting the same to the assessee. AO issued notice u/s 133(6) to some of the debtors and creditors and most of these parties were verified by the AO. It is only in the case of three creditors that the notices issued u/s 133(6) were returned unserved. Out of the three concerns M/s Stads Ltd was struck-off from the Register of Companies and the second concern M/s Pashupati Fabric Ltd was under liquidation before commencement of reassessment proceedings. AO has not brought to the notice of the assessee that the notices sent to these parties were returned unserved and proceeded to frame the assessment believing these parties to be non-genuine. It is also submitted that before the AO, the necessary documents could not be produced because the records were in the custody of CBI. FAA has comprehensively considered various facts and contention of the assessee and came to the conclusion that the addition of ₹ 10,00,523/- were made on the basis of peak credit which was wrong as the assessee has fully disclosed all the transactions in its books of account. CIT(A) also deleted the addition at the rate of 0.5% of the total sales on the ground that the assessee has fully disclosed the sales and purchases in its books of account and whatever profit or loss earned on these transactions were duly calculated and filed before the AO in the return of income. We are inclined to agree with the conclusion drawn by the CIT(A) . Accordingly , the appeal of the revenue department is dismissed. Addition u/s 68 in respect of unsecured loans from Pashupati Fabric Ltd. - HELD THAT - The confirmation on account was also filed before the ld.CIT(A). The ld. CIT(A) has also recorded the findings of facts that the said buyer M/s Pashupati Fabric Ltd has paid up share capital of ₹ 91,21,77,200/- and therefore, the creditworthiness of the said party was not in doubt and finally deleted the addition after examining the various documents in the paper book which proved the transaction to be genuine and the advances was adjusted in the subsequent years and thus deleted the addition. In our opinion, the order of the ld.CIT(A) on this point is very reasoned order which call for no interference on our part as the FAA has allowed the appeal of the assessee by observing that the addition by the AO was made on the wrong understanding of facts that unsecured loan was received by the assessee whereas as a matter of facts the advance were received against the sale of software which was finally supplied on 8.5.2006. We, therefore, uphold the order of he ld.CIT(A) by dismissing the ground raised by the revenue.
Issues Involved:
1. Legitimacy of proceedings under section 147 of the Income Tax Act. 2. Deletion of additions made by the Assessing Officer (AO) on the basis of peak credit and percentage of sales. 3. Justification of the AO’s reliance on the CBI/ACB report and the CA's scrutiny report. 4. Verification of transactions and confirmations from debtors and creditors. 5. Admissibility of additional evidence by the assessee. 6. Determination of whether the assessee was engaged in providing accommodation entries. 7. Deletion of addition of ?35 lakhs under section 68 of the Act. Issue-wise Detailed Analysis: 1. Legitimacy of Proceedings under Section 147 of the Income Tax Act: The assessee challenged the proceedings under section 147 of the Act. However, the tribunal first addressed the revenue's appeals regarding the deletion of additions on merit. 2. Deletion of Additions Made by the AO on the Basis of Peak Credit and Percentage of Sales: The AO added ?10,00,523/- as peak credit and ?53,32,075/- by applying 0.5% on the total sales, alleging that the assessee was engaged in providing hawala entries. The CIT(A) deleted these additions, noting that the appellant’s transactions were genuine and supported by necessary documents, statutory audits, and confirmations from parties. The tribunal upheld this deletion, agreeing with the CIT(A) that the AO’s conclusions were based on assumptions without proper evidence. 3. Justification of the AO’s Reliance on the CBI/ACB Report and the CA's Scrutiny Report: The AO relied on a report from the CBI/ACB and a Chartered Accountant’s scrutiny report, which suggested that the assessee was involved in providing accommodation entries. The CIT(A) found that these reports were based on unilateral scrutiny without independent verification from third parties. The tribunal agreed, noting that no incriminating documents were found during the CBI search, and the AO did not conduct independent inquiries. 4. Verification of Transactions and Confirmations from Debtors and Creditors: The AO issued notices under section 133(6) to various parties, and some notices were returned unserved. The CIT(A) noted that the assessee provided confirmations and other documents, and the AO did not inform the assessee about the non-service of notices. The tribunal found that the AO’s inquiries were insufficient and upheld the CIT(A)’s decision to delete the additions. 5. Admissibility of Additional Evidence by the Assessee: The CIT(A) admitted additional evidence from the assessee, noting that the documents were in CBI custody during the assessment. The tribunal agreed that the conditions for admitting additional evidence under Rule 46A were satisfied. 6. Determination of Whether the Assessee was Engaged in Providing Accommodation Entries: The CIT(A) concluded that the assessee’s transactions were genuine, supported by statutory audits and confirmations. The tribunal upheld this finding, noting that the AO did not establish that the transactions were false or sham and that the assessee’s books were regularly maintained and audited. 7. Deletion of Addition of ?35 Lakhs under Section 68 of the Act: The AO added ?35 lakhs as unsecured loans from Pashupati Fabric Ltd. The CIT(A) found that this amount was an advance against the supply of software, not an unsecured loan, and the assessee provided necessary confirmations and documents. The tribunal upheld the CIT(A)’s deletion of this addition, agreeing that the AO’s conclusion was based on a misunderstanding of facts. Conclusion: The tribunal dismissed the revenue’s appeals, upholding the CIT(A)’s deletions of additions and confirming the genuineness of the assessee’s transactions. The assessee’s appeals challenging the reopening of assessments were dismissed as infructuous. The order was pronounced on 7th July 2017.
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