2018 (12) TMI 1927 - AT - Income Tax

Assessment u/s 153A - Gross profit on bogus purchases - CIT(A) has confirmed the addition merely on the ground that the.assessee could not produce, evidence regarding transportation of goods from Mumbai to Nagpur and for further sale of the purchased goods - HELD THAT - A perusal of the assessment order shows that no incriminating material was found in the case of assessee during the course of search Proceedings showing that the purchases made from the three parties was bogus - the assessment in the appellant's case was unabated/completed assessment and therefore any addition in the appellant s case could be made only on the basis of incriminating material found during the course of search. AO has not pointed out any defect in the purchase bills and other evidences produced by the appellant nor has he given any findings that the payment made by appellant to the aforesaid parties through banking channel is not genuine nor the AO has brought any evidence on record to prove that the appellant has received back cash from the aforesaid parties in lieu of payment made through banking channel. The Ld. AO has not rejected appellant's books of accounts - AO has simply relied on information supplied by sales tax authority that the so-called sellers have provided bogus bills on commission - addition is completely based on conjecture and surmise. Further when evidence clearly proves purchases as genuine, merely because the evidence of transportation is not available in case of jewellery which could easily be carried in person, it cannot be held that there is no evidence of transportation especially when the said goods have been held in closing stock and declared as such in the books of accounts - do discrepancies except the statement of the said supplier before the sales tax authorities were brought on record by the AO and that the said addition amounted to double addition as the said goods were already recorded in the regular books of accounts and were included in the closing stock which was considered for arriving at the gross profit offered for taxation. AO, failed to bring on record any other evidences, except statements before the sales tax authorities to prove that the said purchases are non-genuine and accordingly we delete the addition towards gross profit on alleged bogus purchases for AY. 2012-13. Additions towards share capital and share premium u/s 68 - assessee has failed to offer any explanation with regard to the credits found in the nature of share capital and share premium - On perusal of the facts available on record, we find that the assessee has filed enormous details in respect of subscribers to the share capital and the evidences filed by the assessee categorically proves that subscribers to the share capital are companies having financial position to establish creditworthiness. Therefore, considering the facts and circumstances of the case and also relying upon the case laws discussed above, we are of the view that the AO was erred in making addition towards share capital and share premium u/s 68 of the Act. CIT(A), after considering relevant submissions has rightly deleted the addition made by the AO towards share capital and share premium. We do not find any error or infirmity in the order of the CIT(A); hence, we are inclined to uphold the findings of the CIT(A) and dismiss the ground taken by the revenue. Addition on account of closing stock u/s 69 - difference price of gold and jewellery as per Jilaba Software and books of accounts maintained in tally software - Addition un-explained closing stock on the basis that the column in the Jilaba Software represent Purchase Price - HELD THAT - In absence of any defects pointed in books, and also when the search operation could not establish any unaccounted stock, merely for the reason of difference in price of stock items in one software which is used for monitoring stock movement, such a huge addition cannot be made towards unexplained investments in stock, that too when assessee has clarified the said difference and also the software developer clarified that the data in Jilaba software cannot be considered as true. Therefore, we are of the considered view that the AO was erred in making addition towards unexplained stock. AO has made addition for the sole reason it the valuation of few top items of closing stock (Minus date Null ) on the basis of value in Jilaba data was examined. AO has misconstrued the column sale value so as to arrive at purchase cost of stock, as the assessee had explained the same as per which the name itself suggest that it is not a purchase cost. The Assessing Officer s opinion that the sale value shown is constant and hence it is purchase cost in case of closing stock and accordingly assessing officer made addition on the basis of total of Column of all items, gets contradicted by the actual data as reproduced below, i.e. there are many cases where value of the Tag Key is changing and hence cannot be construed as purchase cost. CIT(A), has apprised the facts in right perspective before coming to the conclusion that the AO was erred in making addition towards difference stock u/s 69 - DR has-not been able to point out any discrepancy during the hearing of the above appeal nor has been able to contradict the fetter submitted by the Assessee from the jilaba software company, Clearly stating that the in the Jilaba software, cannot be considered as purchase price as contended by the AO - we are of the view that the AO was erred in making additions towards unexplained stock u/s 69. Addition on account of loans u/s 68 - HELD THAT - We find that the Id. CIT(A) thoroughly examined the issue in the light of facts brought out by the assessee and also various case laws brought to his knowledge before coming to the conclusion that the assessee has produced all the required evidences, has paid interest, deducted TDS and repaid the loans during the same financial years and as the AO has not brought on any evidance except the said statement. Therefore, we are of the considered view that, the AO was erred in making addition towards unsecured loan u/s 68 of the Act, when all three ingredients provided in said section has been proved with necessary evidences - DR failed to bring on record any evidences to controvert the findings of Id. CIT(A). When addition is made on the basis of third party statements, the AO ought to have furnished such statements for the assessee for its rebuttal. In this case, the AO had made additions without confronting such statements in violations of principles of natural justice. We find that just because the bank statement of M/s. Halduar showed numerous transactions, it could not be held that the said company did not have credit worthiness especially when the said company was an NBFC company and would not like to keep its funds blocked in the direct account, when it could easily utilize its funds for earning income as the Companies are compulsorily required to keep funds in current account on which no Interest is received. We further noted that just because the said company was taken over at much reduced price it cannot be said that the said company lacked credit worthiness especially when the company not only had proved the source of its fund but source of source also. There may be several reasons due to which the directors are forced to sale the companies and adhering to strict RBI guidelines in case of NBFC companies is one of them. We are of the considered view that the said loan amount could not be added under the first proviso to Section 68 as also that the identity, creditworthiness and genuineness of the transactions are proved. Hence, we direct the AO to delete the addition on account of loan received from M/s. HLFPL in both the years. - Decided in favour of assessee.

Summary

Issues Involved:
1. Gross profit addition on bogus purchases.
2. Additions towards share capital and share premium under Section 68.
3. Addition on account of unexplained investment in closing stock under Section 69.
4. Addition on account of loans under Section 68.

Detailed Analysis:

Gross Profit Addition on Bogus Purchases:
The Assessing Officer (AO) made additions for gross profit on bogus purchases based on statements from sales tax authorities indicating that the parties issued bogus bills. The assessee provided evidence such as ledger accounts, purchase bills, stock entries, and bank statements. However, the AO relied solely on the sales tax authority's statements without providing cross-examination opportunities to the assessee. The ITAT upheld the CIT(A)'s decision to delete these additions for assessment years 2009-10 and 2010-11, citing that no incriminating material was found during the search, and the assessments were unabated. For AY 2012-13, the ITAT deleted the addition, noting that the AO failed to provide conclusive evidence that the purchases were non-genuine.

Additions Towards Share Capital and Share Premium Under Section 68:
The AO added amounts received as share capital and premium, treating them as unexplained cash credits under Section 68. The assessee provided extensive documentation to prove the identity, genuineness, and creditworthiness of the subscribers. The CIT(A) deleted these additions for AY 2010-11 and 2011-12, as no incriminating material was found during the search, and the assessments were unabated. For AY 2012-13, the CIT(A) also deleted the addition, noting that the assessee had provided sufficient evidence to prove the genuineness of the transactions and the creditworthiness of the subscribers. The ITAT upheld the CIT(A)'s decision, emphasizing that the AO's addition was based on assumptions and not on concrete evidence.

Addition on Account of Unexplained Investment in Closing Stock Under Section 69:
The AO made substantial additions based on the difference in stock valuation between the Jilaba software and the books of accounts. The assessee explained that the Jilaba software was used for inventory management and not for accounting purposes. The CIT(A) deleted these additions, noting that the AO's reliance on the Jilaba software data was misplaced and that the software developer had clarified that the data could not be used for stock valuation. The ITAT upheld the CIT(A)'s decision, stating that the AO had not pointed out any discrepancies in the stock quantity and that the assessee had adequately explained the differences in stock valuation.

Addition on Account of Loans Under Section 68:
The AO added loan amounts received by the assessee, treating them as unexplained cash credits under Section 68. The assessee provided documentation such as PAN, bank statements, and financial statements of the creditors to prove the identity, genuineness, and creditworthiness of the transactions. The CIT(A) deleted these additions, noting that the assessee had discharged its burden of proof and that the AO had not provided any concrete evidence to the contrary. The ITAT upheld the CIT(A)'s decision, emphasizing that the AO's addition was based on assumptions and not on concrete evidence.

Conclusion:
The ITAT dismissed the appeals filed by the Revenue for AY 2010-11 to 2015-16 and allowed the appeals filed by the assessee for AY 2012-13, 2014-15, and 2015-16. The judgments highlighted the importance of concrete evidence and adherence to legal principles, such as providing cross-examination opportunities and not making additions based on assumptions.