2017 (10) TMI 1212 - AT - Income Tax

Addition on account of share prices and premium received from six companies - Bogus transactions with shell companies - Held that - The enquiries undertaken by the Assessing Officer in the first round do not indicate that the Assessing Officer successfully examined if all the Directors of all these six companies along with all the Directors of assessee Company are financially interfaced. The financial activities of six companies were not deeply probed by the Assessing Officer. Assessing Officer merely spoken about meager income of the six companies. Assessee s submissions relates to the floating of joint venture was not thoroughly examined. Assessing Officer never examined the details of the violations if any in clearing the new business venture. The fact relating to inflow of funds amounting to ₹ 1.5 Crore proposed involving the said companies were not examined by Assessing Officer. Therefore, we are of the view that Assessing Officer failed to bring out the facts for deciding if the said six companies constitutes Shell Companies . Assessing Officer is directed to gather relevant facts and examine the persons involved in these transactions involving the inflow of ₹ 1.5 crore. These enquiries are necessary to arrive at the correct judgment on the genuineness of the transactions. Assessing Officer shall grant reasonable opportunity of being heard to the Assessee. Without going into merit of documents placed by assessee and without going into the correctness of the addition of the said amount of ₹ 1.5 Crore, we are of the view that the grounds raised by the assessee are required to be remanded to the file of Assessing Officer for fresh adjudication Non deduction of tds - payments involved in purchasing raw materials - Held that - CIT(A) discussed the fact of non-requirement of effecting the TDS on the payments made for purchasing raw materials/finished goods from Shreeya Industries and Viana Lime Industries. The CIT(A) also gave findings that the provisions of section 194C of the Act are not applicable to the transactions of purchased goods from the said two vendors. He accordingly granted relief to the assessee on this count. We find that the same is reasonable and it does not recall for any interference. As such, we proceed to dismiss grounds of appeal raised by the Revenue and accordingly, the same is dismissed.

Issues Involved:
1. Addition of ?1.5 Crore on account of share prices and premium received from six companies.
2. Violation of Rule 46A of the Income Tax Rules, 1962 by CIT(A) for not granting an opportunity to the Assessing Officer when additional evidences were admitted.
3. Addition of ?9,00,000/- under Section 40(a)(ia) of the Income Tax Act for short payment of TDS.
4. Addition of ?4,02,07,541/- under Section 40(a)(ia) for non-deduction of TDS on payments for raw materials.

Issue-Wise Detailed Analysis:

1. Addition of ?1.5 Crore on account of share prices and premium received from six companies:
The Assessing Officer (AO) made an addition of ?1.5 Crore to the income of the assessee, suspecting the genuineness of the share premium received from six companies. The AO noted that the six companies shared a common address and had meager incomes, leading to the conclusion that the transactions were suspicious. The CIT(A) confirmed this addition, considering the companies as "Shell Companies" created for accommodation entries. The Tribunal, however, found that the AO did not conduct a thorough investigation into the financial activities of these companies and the nature of the transactions. Therefore, the Tribunal remanded the issue back to the AO for fresh adjudication, directing a comprehensive enquiry into the facts and granting the assessee a reasonable opportunity to present their case.

2. Violation of Rule 46A of the Income Tax Rules, 1962 by CIT(A):
The Revenue contended that the CIT(A) violated Rule 46A by not granting the AO an opportunity to examine the additional evidence submitted by the assessee. The Tribunal noted that the CIT(A) should have allowed the AO to review the additional evidence. Consequently, the Tribunal remanded the issue back to the AO for a fresh examination, ensuring compliance with Rule 46A and providing the AO an opportunity to review the additional evidence.

3. Addition of ?9,00,000/- under Section 40(a)(ia) for short payment of TDS:
The AO made an addition of ?9,00,000/- under Section 40(a)(ia) for short payment of TDS. The CIT(A) found that the actual shortfall in TDS was only ?90,000/-, not ?9,00,000/-, and accordingly restricted the addition to ?90,000/-. The Tribunal agreed with the CIT(A)'s decision, finding it reasonable and not requiring interference. Therefore, the Tribunal dismissed the Revenue's ground on this issue.

4. Addition of ?4,02,07,541/- under Section 40(a)(ia) for non-deduction of TDS on payments for raw materials:
The AO made another addition of ?4,02,07,541/- under Section 40(a)(ia) for non-deduction of TDS on payments for raw materials purchased from Shreeya Industries and Viana Lime Industries. The CIT(A) granted relief to the assessee, noting that TDS was not applicable to these payments as they were for raw materials and not for job processing charges. The Tribunal upheld the CIT(A)'s decision, agreeing that the provisions of Section 194C and Section 40(a)(ia) were not applicable to these transactions. Consequently, the Tribunal dismissed the Revenue's ground on this issue as well.

Conclusion:
The Tribunal allowed the assessee's appeal for statistical purposes, remanding the issue of ?1.5 Crore addition back to the AO for fresh adjudication. The Revenue's appeal was dismissed, upholding the CIT(A)'s decisions on the issues of ?9,00,000/- and ?4,02,07,541/- additions. The Tribunal emphasized the need for a thorough investigation and compliance with procedural rules in the adjudication process.

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