2017 (10) TMI 1151 - AT - Income Tax

Addition unexplained expenditure u/s 69 - bogus purchases - Held that - The addition was restricted on the basis of profit ratio of the impugned purchased (Rs.2159 8572/-). We have noticed that ld. Commissioner (Appeals) has restricted the addition on the basis of profit element embedded in the bogus purchases. We are of the considered opinion that under Income Tax Act only real income can be taxed by the Revenue. We may further conclude that even if the transaction is not verifiable, the only taxable is the taxable income component and not the entire transaction. And after considering the facts of the case and the rival contentions of the parties we are of the opinion that in order to fulfil the gap of revenue leakage the disallowance of reasonable percentage of such purchases would meet the end of justice. The Hon ble Bombay High Court in CIT Vs Hariram Bhambhani 2015 (2) TMI 907 - BOMBAY HIGH COURT held that revenue is not entitled to bring the entire sales consideration to tax, but only the profit attributable on the total unrecorded sales consideration alone can be subject to income tax. In the result this ground of appeal raised by revenue is dismissed. Addition on account of difference in TDR - Held that - The original owner of TDR was one Shri Ramesh Shah Partner of M/s Sumer Corporation who had obtained DRC from Bombay Municipal Corporation (BMC). The assessee filed copy of agreements, ledger accounts of the assessee in the books of Premleela Investment and the confirmation of the opening balance with Premleela Investments to substantiate their contention. The actual transaction for purchase of TDR was examined by the learned Commissioner (Appeals) and also examined the value of transaction entered by the assessee as well as the value of agreement between seller Premleela Investments and come to the conclusion that the value of agreement is ₹ 1,99,02,636/- and deleted the addition. We have seen that the learned Commissioner (Appeals) verified the facts and the consideration paid by the assessee for purchase of TDR from Premleela Investments. The learned DR has not been able to bring any incriminating fact or evidence to discard the finding of learned Commissioner (Appeals). Thus, we do not find any merit in the grounds of appeal raised by the revenue. In the result this ground of appeal raised by revenue is dismissed.

Summary

Issues:
1. Addition of unexplained expenditure on account of bogus purchases
2. Disallowance made on account of difference in Transfer of Development Right (TDR)

Issue 1: Addition of unexplained expenditure on account of bogus purchases

The appeal by the revenue was directed against the order of Commissioner (Appeals) for assessment year 2011-12, challenging the restriction of the addition of unexplained expenditure to a specific amount under section 69 of the Income Tax Act. The assessing officer had made additions on account of bogus purchases, which the Commissioner (Appeals) restricted after considering various arguments. The revenue contended that the assessee failed to provide evidence to substantiate the purchases and did not produce parties for verification. However, the assessee argued that it had provided relevant documents and details, and the assessing officer did not conduct an independent inquiry. The Commissioner (Appeals) restricted the addition based on profit ratio and the principle that only real income can be taxed. The Tribunal dismissed the revenue's appeal, citing precedents and the need to address revenue leakage.

Issue 2: Disallowance made on account of difference in Transfer of Development Right (TDR)

The second issue pertained to the deletion of the addition on account of the difference in TDR. The revenue argued that the assessing officer's decision should be upheld as the assessee did not provide sufficient details during assessment proceedings. On the other hand, the assessee maintained that all necessary information was furnished, and the Commissioner (Appeals) granted relief after verifying the facts. The Tribunal examined the transactions related to TDR purchases, agreements, and payments made by the assessee. It noted that the Commissioner (Appeals) had thoroughly reviewed the evidence and found no reason to overturn the decision. Consequently, the Tribunal dismissed the revenue's appeal on this issue as well.

In conclusion, the Tribunal upheld the decision of the Commissioner (Appeals) in both issues, dismissing the revenue's appeal. The judgment emphasized the importance of substantiating transactions and the principle of taxing only real income under the Income Tax Act.