2017 (2) TMI 108 - AT - Income Tax

Addition under section 69C - information obtained from the Sales Department - addition confirmed as parties did not respond to notices issued under section 133(6) - Held that - AO has not brought on record any material evidence to conclusively prove that the said purchases are bogus. Mere reliance by the AO on information obtained from the Sales Department or on statements/affidavits of the 12 parties before the Sales Tax Department or that these parties did not respond to notices issued under section 133(6) of the Act, would not in itself suffice to treat the purchases as bogus and make the addition under section 69C of the Act. If the AO doubted the genuineness of the said purchases, it was incumbent upon him to cause further inquiries in the matter in order to ascertain the genuineness or otherwise of these transactions. Without causing any further enquiries to be made in respect of the said purchases, the AO cannot make the addition under section 69C of the Act by merely relying on information obtained from the Sales Tax Department, the statements/ affidavits of third parties, without the assessee being afforded any opportunity of cross examination of those persons for non-response to information called for under section 133(6) of the Act. In the factual matrix of the case on hand, where the AO failed to cause any enquiry to be made to establish his suspicions that the said purchases are bogus, the assessee has brought on record documentary evidences to establish the genuineness of the said purchase transactions, the action of the AO in brushing aside these evidences cannot be accepted. - Decided in favour of assessee Deemed dividend under section (2)(22)(e) - Held that - On identical facts was before the Coordinate Bench of the Tribunal in the assessee s own case for A.Y. 2009-10, wherein the Coordinate Bench dismissed Revenue s appeal on this issue holding that the authorities below erred in law in treating the advance given by the company to the assessee by way of compensation to the assessee for keeping his property as mortgage on behalf of the company to reap the benefit of loan as deemed divined within the meaning of section 2(22)(e) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition under Section 69C of the Income Tax Act as unexplained expenditure.
2. Addition on account of deemed dividend under Section 2(22)(e) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition under Section 69C of the Income Tax Act as unexplained expenditure:

The Revenue challenged the deletion of ?96,45,645/- added under Section 69C of the Act by the CIT(A). The AO based the addition on information from the Sales Tax Department, which indicated that certain parties issued bills without delivering goods. Notices issued under Section 133(6) to these parties were returned undelivered, and the assessee failed to produce these parties before the AO. The AO, therefore, treated the purchases as bogus and added the amount as unexplained expenditure.

The CIT(A) deleted the addition, relying on the Bombay High Court's decision in CIT vs. Nikunj Eximp Enterprises Pvt. Ltd., which held that non-appearance of suppliers before the AO does not automatically render purchases as bogus if payments were made through banking channels and proper documentation was maintained.

The Tribunal upheld the CIT(A)'s decision, noting that the AO did not provide substantive evidence to prove the purchases were bogus. The assessee had submitted purchase invoices, bank statements, and stock registers to support its claim. The Tribunal emphasized that the AO's reliance on third-party statements without allowing cross-examination and without further inquiries was insufficient to justify the addition under Section 69C. Consequently, the Tribunal dismissed Revenue's grounds on this issue.

2. Addition on account of deemed dividend under Section 2(22)(e) of the Income Tax Act:

The Revenue contested the deletion of ?1,23,75,485/- added as deemed dividend under Section 2(22)(e) by the CIT(A). The AO had treated loans taken by the assessee from M/s Giriraj Civil Developers Pvt. Ltd., where the assessee held more than 10% equity, as deemed dividend.

The CIT(A) deleted the addition, and the Tribunal upheld this decision, referencing the assessee's own case for A.Y. 2009-10, where a similar issue was decided in favor of the assessee. The Tribunal cited the Calcutta High Court's decision in Pradeep Kumar Malhotra, which distinguished between loans given as a shareholder and those given for business considerations. The Tribunal found that the loan in question was given for business purposes, as the assessee had provided collateral security benefiting the company. Therefore, the loan did not qualify as deemed dividend under Section 2(22)(e). The Tribunal also referenced decisions from the Delhi High Court and Bombay High Court supporting this view. Consequently, the Tribunal dismissed Revenue's grounds on this issue.

Conclusion:

The Tribunal dismissed the Revenue's appeal for A.Y. 2010-11, upholding the CIT(A)'s order on both issues. The Tribunal's decision was based on the lack of substantive evidence from the AO to prove the purchases were bogus and the established legal precedent distinguishing business loans from deemed dividends.