2018 (8) TMI 347 - HC - Income Tax

Unexplained cash credit under Section 68 - Held that - Tribunal, on examination of facts, has come to the conclusion that the investment made by the shareholders is not hit by Section 68 of the Act. It records, that the entire basis of the Revenue s case is based on surmise that the respondent was taking bogus purchase bills and cash was introduced in the form of share capital without any evidence in support. Therefore, the view taken by the impugned order of the Tribunal on facts is a possible view. Addition of 5% of cash purchases as profit by way of discount - Held that - As submission on behalf of the appellant-Revenue is not supported by any material on record. It proceeds, as held by the impugned order of the Tribunal, purely on the basis of surmise that the cash purchases would necessarily involve a discount which has been offered to and availed of, by the respondent-assessee. This submission is not backed by any cogent or demonstrative evidence. Addition of 2% as unexplained expenses by way of commission/service charges paid for arranging accommodation bills - Held that - There is no challenge to the impugned order of the Tribunal holding that the additions on account of bogus purchases is not sustainable. In such a case, there is no reason why the 2% commission would have been allegedly paid on accommodation bills. Thus, there is no unexplained expenditure as even according to the Revenue, before us, there are no bogus purchases. Thus, the view taken by the Tribunal in the present facts is a possible view and therefore this Question does not give rise to any substantial question of law

Summary

Issues:
- Challenge to impugned order under Section 260A of the Income Tax Act, 1961 for Assessment Years 2005-06 to 2011-12.
- Deletion of addition under Section 68 of the Act without substantiating genuineness of transactions, identity, and creditworthiness of shareholders/investors.
- Deletion of addition of 5% cash purchases as profit without proving identity and genuineness.
- Deletion of addition of 2% unexplained expenses for commission/service charges.

Analysis:

Issue 1: Challenge to Impugned Order
The Appeals under Section 260A of the Income Tax Act challenged the common impugned order dated 17th April, 2015 passed by the Income Tax Appellate Tribunal (the Tribunal) for Assessment Years 2005-06 to 2011-12. The Revenue raised questions regarding the deletion of additions made under Section 68 of the Act and the deletion of cash purchases and unexplained expenses. The Tribunal allowed the respondent's appeal on the issues raised by both parties, leading to the Revenue's appeal before the High Court.

Issue 2: Deletion of Addition under Section 68
The Revenue contested the deletion of addition under Section 68 of the Act, arguing that the respondent failed to establish the identity and creditworthiness of shareholders. However, the High Court found that the respondent provided PAN numbers, affidavits, and other evidence to establish the identity and creditworthiness of the shareholders. The Court also noted that the requirement to explain the source of funds for investments in shares was introduced from April 1, 2013, and prior to that, the burden was discharged by the respondent. The Court concluded that the objection regarding creditworthiness did not hold, as the evidence presented was sufficient.

Issue 3: Deletion of 5% Cash Purchases
The Revenue challenged the deletion of the addition of 5% cash purchases as profit, claiming that cash purchases would involve a discount. However, the High Court found no supporting evidence for this claim and agreed with the Tribunal's decision that the Revenue's argument was based on surmise without concrete evidence. Therefore, the Court upheld the Tribunal's decision on this issue.

Issue 4: Deletion of 2% Unexplained Expenses
The Assessing Officer had made an addition for 2% commission paid for obtaining accommodation bills, treating it as unexplained expenditure. However, since there was no challenge to the Tribunal's decision that the additions on bogus purchases were not sustainable, the High Court found no basis for the 2% commission. As there were no bogus purchases, the Court concluded that the view taken by the Tribunal was reasonable, and this issue did not give rise to any substantial question of law.

In conclusion, the High Court dismissed all five Appeals, upholding the Tribunal's decisions on the issues raised by both the Revenue and the respondent.