2015 (4) TMI 1278 - AT - Income Tax

Additions made u/s. 68 - unexplained cash credit - HELD THAT - In the facts of the case of Empire Builtech Pvt. Ltd. 2014 (2) TMI 135 - DELHI HIGH COURT the summon issued were returned unserved with a remark no such company even the Inspector went to the address and confirmed that no such company exist however in the case in hand there is no evidence on record to show that physical verifications were done by the Officer. On the contrary we find that there is no adverse inference drawn in respect of affidavit filed by the assessee in support of establishing the genuineness of the share capital. A close perusal of the submissions made by the assessee during the course of the assessment proceedings show that the transactions have been made in cheque duly reflected in the bank statements and we find that no adverse inferences have been drawn in this respect nor we find that any verification from the bank have been made by the AO for making the impugned addition. The entire addition have been made only on the basis of admission of the Director during the course of search proceedings. Admission was made on 9.9.2010 and retracted by the Director on the very next day i.e. 10.9.2010. Further the addition is based on the surmises that assessee was taking bogus purchase bills and the cash was reintroduced in the form of share capital. However there is no demonstrative evidence brought on record which could justify the additions made by the AO. We set aside the order of the Ld. CIT(A) and direct the AO to delete the additions made u/s. 68 - Decided in favour of assessee Bogus purchases through accommodation bills - whether assessee s case falls in the first category or second category? - HELD THAT - n all probability the assessee s case falls in the first category i.e. goods have been purchased from one party and bills have been taken from another party and there is physical movement of goods - there is no adverse inference in so far as sales are concerned. If the assessee had not purchased goods then how it has effected the sales - because the assessee is trading in pharmaceutical products which have batch Nos. embedded on it and it cannot be sold without performing the formalities of FDA and other relevant laws relating to the pharmaceutical business. One thing is clear that assessee was actually purchasing goods and selling them. We have also gone through the audited statement of accounts. We find that the trading results are quantified and so also the closing stock. No adverse inferences have been drawn in these respect. The additions have been made purely on presumptions and surmises and the statement of third party i.e. M/s. Globe Pharma and others who may be providing accommodation bills but the trading account of the present assessee do not show anything which could suggest that the purchases are bogus as there is no adverse inferences in so far as sales are concerned. Without purchases there cannot be any sales. Considering all these facts in totality we do not find any merit in respect of the additions made on account of alleged bogus purchases which are based merely on the statements backed by no cogent/demonstrative material evidences on record. - Decided in favour of assessee Alleged 2% commission on account of getting accommodation bills - HELD THAT - Since we have categorically held that the additions on account of bogus purchases cannot be sustained on the facts of the present case and accordingly we have deleted the same there remains no reason why the addition on account of alleged 2% commission should be sustained. We therefore direct the AO to delete the addition made on account of alleged 2% commission in entirety Addition @5% of alleged cash discount which the assessee might have earned on making cash payment on account of purchases - HELD THAT - Since the AO presumed that the assessee is making purchases on down payment the assessee must have earned 5% discount on cash purchases. This entire presumption of facts in itself show that the entire addition has been made on conjectures/assumption. There is no demonstrative material evidence on record to show that the assessee has been made cash purchases and has earned cash discount. We therefore direct the AO to delete the additions made on this account from all the assessment years under this appeal. Addition on account of alleged peak cash credit for A.Y. 2010-11 - HELD THAT - Elsewhere we have categorically held that there is no demonstrative evidence to justify the additions made on account of bogus purchases/accommodation bills. We therefore do not find any reason for upholding this addition. We therefore direct the AO to delete the addition on this account.

Summary

Issues Involved:
1. Addition on account of introduction of share capital treated as unexplained cash credit under Section 68 of the Act.
2. Addition on account of unproved and bogus purchases under Sections 37(1) and 69C of the Act.
3. Addition on account of commission @ 2% paid for purchasing accommodation bills, treated as unexplained expenditure under Section 69C.
4. Addition on account of cash discount @ 5% on account of cash purchases taxed as undisclosed income of the assessee.
5. Application of Section 153A of the Act.

Issue-wise Detailed Analysis:

1. Addition on account of introduction of share capital treated as unexplained cash credit under Section 68 of the Act:
The Assessing Officer (AO) issued a notice under Section 153A and completed the assessment under Section 143(3) read with Section 153A, making additions for unexplained cash credits. The AO raised specific queries regarding the introduction of share capital, demanding extensive documentation such as board meeting minutes, bank statements, dividend details, and justifications for share premium. The assessee provided detailed replies, including confirmations from shareholders, bank statements, and affidavits. Despite these submissions, the AO dismissed the explanations, citing reasons such as the return of summons unserved and the alleged reintroduction of cash received from bogus bills as share capital. The CIT(A) confirmed the AO's additions. However, the Tribunal found that the assessee had provided sufficient evidence to discharge its onus under Section 68, such as PAN details, bank statements, and affidavits from shareholders. The Tribunal also noted that the AO did not conduct further verification or inquiry into the evidence provided. Consequently, the Tribunal directed the AO to delete the additions made under Section 68 for all assessment years under appeal.

2. Addition on account of unproved and bogus purchases under Sections 37(1) and 69C of the Act:
The Revenue alleged that the assessee obtained bogus purchase bills from entities like M/s. Globe Pharma. Initially, one of the directors admitted to additional income on account of bogus purchases but retracted the statement the next day. The Tribunal considered the possibility that the assessee might have purchased goods from one party and taken bills from another, ensuring physical movement of goods. This was supported by the fact that there were no adverse inferences regarding sales, and the trading results were quantified with no discrepancies in the closing stock. The Tribunal concluded that the additions were based on presumptions and lacked cogent evidence, leading to the deletion of additions on account of bogus purchases/accommodation bills for all assessment years under appeal.

3. Addition on account of commission @ 2% paid for purchasing accommodation bills, treated as unexplained expenditure under Section 69C:
The AO made additions for alleged 2% commission on accommodation bills. Since the Tribunal had already deleted the additions on account of bogus purchases, it found no reason to sustain the addition for the alleged commission. The Tribunal directed the AO to delete the addition for the alleged 2% commission in its entirety for all years under appeal.

4. Addition on account of cash discount @ 5% on account of cash purchases taxed as undisclosed income of the assessee:
The AO presumed that the assessee must have earned a 5% discount on cash purchases. The Tribunal found this presumption to be based on conjectures without any demonstrative evidence. There was no material evidence to show that the assessee made cash purchases and earned cash discounts. Therefore, the Tribunal directed the AO to delete the additions made on this account for all assessment years under appeal.

5. Application of Section 153A of the Act:
The assessee objected to the application of Section 153A, arguing that no evidences were found during the search. The Tribunal allowed the appeal based on the peculiar facts of the case and did not find it necessary to decide on the application of Section 153A or the issue of admission and retraction of statements made during the search.

Conclusion:
The Tribunal allowed the appeals filed by the assessee and dismissed the cross appeals filed by the Revenue, directing the AO to delete all the contested additions. The judgment emphasized the importance of substantial evidence and proper inquiry by the AO before making additions under Sections 68, 37(1), and 69C of the Act.