2023 (3) TMI 1484 - AT - Income Tax

Estimation of income - Unapproved purchases and sales - determining the profit on the alleged unproved purchases at 10% and the unproved sales at 5% - reliance on incriminating materials found in the course of search - HELD THAT - In the present case, as it is noticed that there is no evidence to prove the alleged unproved purchases or unproved sales and as there is no evidence in any manner found in the course of search or post search enquiry or in the course of assessment proceedings to show that the sellers and buyers were bogus, no addition on account of said unproved purchases or unproved sales can be made in the hands of the assessee. This view also supports from the fact that in the statement recorded, which has been extracted above, various registers and facts have been brought to question such entries in the registers and such invoices have not been shown to be not recorded in the regular books of account of the assessee and there is neither any allegation that the books of account were produced subsequent to search whereas it is an admitted fact that the regular books of account were found on tally in the course of search. Estimating 10% of the alleged unproved purchase and 5% of the alleged unproved sales - As we have categorically held that the addition per se of alleged unproved purchases and unproved sales cannot be made in the hands of the assessee, the question of estimation of the profit on the same no more survive. Even otherwise, the ld CIT(A) in his wisdom having rejected the books of account, could have at best estimated the income of the assessee for the whole year, he could not estimate the profit merely on the alleged undisclosed sales or unproved purchases. In these circumstances, this issue is decided in favour of the assessee and the addition as confirmed by the CIT(A) in respect of 10% profit estimated on the unproved purchases and 5% profit on the unproved sales stands deleted. Cash creditors - As in respect of appeal in the case of Bajarangbali Steel Industries Ltd. as it is noticed that the AO has not given the assessee the copy of the statement recorded in the course of survey action u/s. 133A of Avighna Vyappar Pvt Ltd. the issue in that appeal is restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity to cross examine the said Shri Dilip Das. Coming to the arguments of CIT (OSD) in respect of Bajarangabali Steel Industries Ltd., wherein, the statement of Satyendra Kumar Thakur has been recorded - Admittedly, Shri Satyendra Kumar Thakur has categorically admitted to the transaction. AO has stated that on the basis of field enquiry, he has treated the transaction as bogus. However, on perusal of paper book shows the statement of profit and loss account of M/s. Arnav Financial Services Private Limited for the year ended 31.3.2020, wherein, the interest income itself has been shown at Rs. 1,10,47,708. The TDS itself is of Rs. 10,97,278 and refund is Rs. 9,40,330/-. In respect of Vaikunth Motor Finance Ltd., Pvt Ltd., for the year ended on 31.3.2020, the interest income has been shown at Rs. 1,39,15,130/-, refund has been claimed, wherein, TDS is nearly Rs. 13,51,487/-. Thus, clearly, in respect of loan creditors of Arnav Financial Services Private Limited and Vaikunth Motor Finance Ltd., Pvt Ltd., evidences substantially proves in favour of the assessee that these are companies with substantial holdings, financial capabilities and consequently, creditworthiness, genuineness and identity stands proves and consequently, addition is not called for. Loan creditors - Admittedly, there is no evidence available with the Revenue in the form of any statement recorded from any of the Directors to controvert the evidence in the form of income tax returns filed, confirmation letters filed, deduction of TDS on the interest paid and the interest income offered by such loan creditors for the relevant assessment years, consequently the additions are unsustainable and the same stand deleted.

Summary

Issues Involved:
1. Estimation of profit in respect of 'unproved purchases' @10%.
2. Estimation of profit in respect of 'unproved sales' @5%.
3. Addition representing cash credits being loans received by the respective assessees from various entities.

Summary:

Issue 1: Estimation of Profit in Respect of 'Unproved Purchases' @10%

The assessee argued that the purchases were made through cheques, supported by invoices, and recorded in the stock register, with no defects found. The AR cited the Supreme Court decision in Odeon Builders Pvt. Ltd., emphasizing that disallowances based solely on third-party information without further scrutiny are invalid. The Tribunal found no evidence of concealment or bogus transactions in the search or post-search inquiry, and thus, the addition of 10% profit on 'unproved purchases' was deleted.

Issue 2: Estimation of Profit in Respect of 'Unproved Sales' @5%

The assessee contended that all sales were duly recorded and supported by banking transactions, with no incriminating evidence found. The AR referenced the Delhi High Court decision in Agson Global (P.) Ltd., which held that no addition is warranted in the absence of incriminating evidence. The Tribunal noted that the AO relied on unverified information and failed to conduct independent inquiries. Consequently, the addition of 5% profit on 'unproved sales' was deleted.

Issue 3: Addition Representing Cash Credits as Loans from Various Entities

The assessee argued that loans were genuine, supported by documentation, and no incriminating evidence was found during the search. The AR highlighted that interest was paid, TDS deducted, and returns filed by the loan creditors. The Tribunal observed that the AO did not provide any statements or evidence to prove the loans were bogus. In the case of Bajrangbali Steel Industries Pvt. Ltd., the Tribunal restored the matter to the AO for re-adjudication after granting the assessee an opportunity to cross-examine the concerned parties. For other assessment years, the Tribunal found the loans genuine and deleted the additions.

Conclusion:

The Tribunal ruled in favor of the assessee, deleting the additions related to 'unproved purchases' and 'unproved sales' due to lack of evidence. The matter of cash credits for Bajrangbali Steel Industries Pvt. Ltd. for the assessment year 2019-20 was remanded for further examination, while other additions were deleted based on the genuineness of the transactions. The appeals were allowed accordingly.