2023 (2) TMI 1202 - AT - Income Tax

Validity of assessment u/s 153A - disallowance of bogus purchase and unexplained cash credit u/s 68 - As alleged assessment is being beyond six assessment years provided u/s 153A - HELD THA - Wherever search under section 132 of the Act is initiated or requisition u/s 132A is made after the 01/04/2017 and the escaped income is likely to be Rs. 50 lakh or more notice u/s 153A could be issued up to 10 assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. We find that in the instant case search was conducted on 06/11/2019 and income assessed for instant assessment year i.e. AY 2013-14 is more than 50 lakhs therefore notice u/s 153A could have been issued up to the 10 assessment years preceding the assessment year 20-21. AO has validly issued notice u/s 153A of the Act in respect of the instant assessment year 2013-14. Thus the ground No. one of the cross objections of the assessee is accordingly dismissed. Assessment order passed u/s 153A as barred by limitation - Merely not uploading the instant assessment order on the income tax portal by 12.13 AM on 1/10/2021 it cannot be established that assessment order was not passed within the period of limitation. If the assessment order is served within a reasonable period from the expiry of the limitation of passing the assessment order it is presumed that same was passed within the period of the limitation. The assessee has not brought on record any evidence that said assessment order was received beyond a reasonable period from the expiry of the limitation. In absence of any such documentary evidences the allegations of the assessee are rejected. Bogus purchases - whether there was any incriminating material qua the addition of bogus purchase in the year under consideration? - We find that the (a) information in the form of statement of the supplier parties (b) absence of evidence in support of transport/delivery of material etc. from the assessee during the course of search proceeding, (c) none found at the premises of the supplier parties by the Inspector during verification etc. evidences when seen in totality constitute material which is incriminating in nature. The entries in books of account regarding purchase are false which also becomes an incriminating material for the purpose of invoking provisions of section 153A of the Act. Therefore we uphold the finding of the Ld. CIT(A) that qua the addition of bogus purchase their existed incriminating material. The cross-objection No. 3 of the assessee with respect to qua the bogus purchases is accordingly disallowed. Estimation of income - When the purchases are admittedly bogus then disallowance in such cases will depend on the facts and circumstances of the case and no uniform formula can be applied across the cases. When it has been categorically established that the amount of bogus purchases is debited to P L by fictitious tax invoices and the respondent assessee failed to establish the consumption of such goods in the execution of civil contract by adducing such stock movement records to the satisfaction of Ld. AO. then taxing such bogus purchases GP rate of goes against the principles of taxation embedded in chapter VI of the Act and against the ratio laid down in N K Proteins Ltd 2017 (1) TMI 1090 - SC ORDER and PCIT Vs Pinaki D Pinani 2020 (1) TMI 700 - BOMBAY HIGH COURT for the reason we are of the considered view that the Ld. AO was right in making 100% disallowance towards bogus / hawala purchases and thus we are inclined to uphold the order of assessment and reverse the order the Ld. FAA. Addition in respect of unsecured loans - disallowance of interest expenses in respect of those unsecured loan parties which have been held as unexplained by the AO - HELD THAT - As decided in NRA IRON STEEL PVT. LTD. 2019 (3) TMI 323 - SUPREME COURT merely filing of primary evidence by an assessee is not sufficient to discharge its onus u/s 68 of the Act when seen the finding of the AO during field enquiry and investigation and particularly the financial strength of creditor. In the instant case also no documents other than primary evidence like PAN ITR ledger account etc. have been filed by the assessee. Neither the parties were found at their address during field enquiry during search proceedings and nor have been produced by the assessee in assessment and remand proceedings. In our opinion the decisions relied upon by the ld CIT(A) are of no assistance to the assessee. The assessee has failed to discharge its onus of establishing Identity credit worthiness and genuineness of transaction. We set aside the order of ld CIT(A) on the issue of addition to the extent of 18 unsecured loan creditors. Since we have upheld the credit from those unsecured loan parties as unexplained the corresponding addition for interest is also upheld. Disallowance of subcontract expenses - department conducted on the spot enquiry but the contractors were not found in existence at their given address - During proceedings before theCIT(A) assessee produced parties before the Assessing Officer in remand proceeding and thus ld CIT(A) deleted the disallowance - HELD THAT - We find that by way of producing those parties before the Assessing Officer identity of the parties got established but the requirement of evidence in support of the services rendered by the those sub-contract parties has not been discharged by the assessee. In the circumstances we feel appropriate to restore this issue to back to the file of the AO for deciding afresh after considering the submission and evidence by assessee in support of services rendered by those sub-contractor parties. The ground of the Revenue is accordingly allowed for statistical purpose.

Summary

Issues Involved:

1. Addition on account of bogus purchases.
2. Addition under Section 68 in respect of unsecured loans.
3. Disallowance of interest expenses on unsecured loans.
4. Validity of assessment under Section 153A.
5. Time-barred assessment order under Section 153A.
6. Addition of subcontract expenses.
7. Credit for TDS.

Detailed Analysis:

1. Addition on Account of Bogus Purchases:

The Revenue challenged the deletion of Rs. 48,04,750/- on account of bogus purchases. The assessee had shown purchase expenses and was asked to substantiate these purchases during the search proceedings. The search team identified 13 parties with deficiencies in their purchase documentation. Statements from the suppliers indicated that they had issued bogus bills. The AO made additions based on these findings, but the Ld. CIT(A) deleted the additions for some parties and sustained a 5% addition for others. The ITAT upheld the AO's findings, noting that the assessee failed to prove the genuineness of the transactions, and restored the AO's addition.

2. Addition under Section 68 in Respect of Unsecured Loans:

The AO made additions for unsecured loans from 29 parties, citing lack of sufficient evidence and findings from search proceedings indicating that some parties were accommodation entry providers. The Ld. CIT(A) deleted the additions for some parties, noting no transactions during the relevant period, and for others, citing that the assessee had discharged its onus under Section 68. The ITAT, however, found that the assessee failed to establish the identity, creditworthiness, and genuineness of the transactions, and restored the AO's additions.

3. Disallowance of Interest Expenses on Unsecured Loans:

The AO disallowed interest expenses on the unsecured loans deemed non-genuine. The Ld. CIT(A) deleted these disallowances for the same reasons as the principal loan amounts. The ITAT, aligning with its findings on the unsecured loans, upheld the AO's disallowance of interest expenses.

4. Validity of Assessment under Section 153A:

The assessee contended that the assessment under Section 153A was void as it was beyond the six-year period. The ITAT found that the Finance Act 2017 allowed assessments up to ten years if the escaped income was likely to be Rs. 50 lakh or more. Since the search was conducted on 06/11/2019 and the income assessed was over Rs. 50 lakh, the notice under Section 153A was valid.

5. Time-Barred Assessment Order under Section 153A:

The assessee argued that the assessment order was time-barred. The ITAT noted that the order was dated 30/09/2021, within the extended period allowed by the Taxation and other laws ordinance, 2020. The assessee's claim that the order was not uploaded immediately was rejected, as the order was presumed to be passed within the limitation period if served within a reasonable time.

6. Addition of Subcontract Expenses:

The AO disallowed subcontract expenses due to deficiencies in documentation and non-existence of subcontractors at their given addresses. The Ld. CIT(A) deleted the disallowance after the subcontractors appeared during remand proceedings. The ITAT restored the issue to the AO for fresh verification, noting that the identity of the subcontractors was established, but the evidence of services rendered was not adequately provided.

7. Credit for TDS:

The Ld. CIT(A) directed the AO to allow credit for TDS after verification. The ITAT found this direction unchallenged by the Revenue and dismissed the ground as infructuous.

Conclusion:

The ITAT upheld the AO's findings on bogus purchases and unsecured loans, restoring the additions made. The ITAT also validated the assessment under Section 153A and dismissed the assessee's claims of the assessment being time-barred. The issue of subcontract expenses was remanded for fresh verification, and the direction for TDS credit was upheld. The cross-objections by the assessee were dismissed, and the Revenue's appeals were partly allowed.