2017 (11) TMI 576 - HC - Income Tax

Addition on account of bogus payment for purchasing land - addition being commission paid for giving accommodation entries - Held that - The question which has been posed for our consideration is whether the tribunal is justified in deleting the additions which was made by AO as well as CIT(A) being commission paid by it to M/s. Mrigiya Electronics Industries Pvt. Ltd. for giving accommodation entries was justified when the company was involved in providing accommodation entries after charging commission for the same. In view of the observations that the price of the land was paid with other entry in the bank and there is nothing to show that cash receipt was shown by the assessee. Thus we are in complete agreement with the view taken by the CIT(A) and Tribunal. No case is made out for interference. The issues are answered in favour of the assessee and against the department.

Summary

Issues Involved:
1. Whether the tribunal was justified in deleting the addition of ?7,59,67,000/- made by the Assessing Officer on account of bogus payment shown by the assessee to M/s. Mrigiya Electronics Industries Private Limited for purchasing land.
2. Whether the tribunal was justified in deleting the addition of ?15,19,340/- being commission paid by the assessee to M/s. Mrigiya Electronics Industries Private Limited for giving accommodation entries.

Issue 1: Deletion of Addition of ?7,59,67,000/-
The Assessing Officer (AO) had added ?7,59,67,000/- to the income of the appellant, alleging it to be a bogus payment made to M/s. Mrigiya Electronics Industries Pvt. Ltd. (MEIPL) for purchasing land. The AO's inference was based on the fact that MEIPL had no recorded activity of land purchase or sale in its audit report and had shown only a loss in its profit and loss account. The AO also noted that the payments made by MEIPL to landowners were in cash, and there was no substantial evidence to support the transaction's genuineness.

The tribunal, however, found that the payments made by the appellant to MEIPL were through banking channels and supported by bank statements, agreements, and confirmations from MEIPL. The tribunal noted that the AO did not provide any evidence showing that the cash withdrawn by MEIPL was returned to the appellant. The tribunal also observed that the AO's conclusion was based on the general confession of MEIPL's director, which was later retracted and did not specifically pertain to the transactions with the appellant. The tribunal concluded that the transaction was genuine and supported by valid documentation, and therefore, the addition made by the AO was unjustified.

Issue 2: Deletion of Addition of ?15,19,340/- as Commission
The AO also added ?15,19,340/- to the appellant's income, alleging it to be a commission paid to MEIPL for providing accommodation entries. The AO's basis for this addition was the statement of MEIPL's director, who admitted that the company was involved in providing accommodation entries for a commission. However, this statement was retracted later.

The tribunal found that the AO did not provide any specific evidence linking the commission payment to accommodation entries related to the appellant. The tribunal noted that the payments were made through banking channels and were supported by valid agreements and confirmations. The tribunal also observed that the AO failed to establish any direct nexus between the cash withdrawn by MEIPL and its return to the appellant. The tribunal concluded that the commission payment was genuine and supported by valid documentation, and therefore, the addition made by the AO was unjustified.

Conclusion:
The High Court upheld the tribunal's decision, agreeing that the AO's additions were based on insufficient and unsubstantiated evidence. The court found that the transactions were supported by valid documentation and banking records, and there was no evidence to show that the cash withdrawn by MEIPL was returned to the appellant. The court dismissed the appeal, ruling in favor of the assessee and against the department.