2018 (12) TMI 1252 - AT - Income Tax

Addition on account of disallowance of expenses - CIT(A) deleted the disallowance - Held that - Assessee during the course of assessment proceedings has filed various details including ledger account of the expenses a finding given by CIT(A) and not controverted by DR. AO never raised any further query to examine the genuineness of the expenses. No specific remark in respect of any defect or shortcomings in maintaining of details has been made by the Assessing Officer. Since the accounts of the assessee are audited under the companies Act 1956 and u/s 44 AB of the Income Tax Act 1961 therefore in absence of any defect brought on record by the Assessing Officer the disallowance made by him by estimating the disallowance of expenditure of 50% of such expenses is uncalled for - decided against revenue. Deemed dividend addition u/s 2(22)(e) - Held that - No infirmity in the order of the CIT(A) deleting the addition from the hands of the assessee and directing the Assessing Officer to make the addition in the hands of the share holders by following the decision of CIT Vs. Ankitech Private Limited (2011 (5) TMI 325 - DELHI HIGH COURT) which has been upheld by Hon ble Supreme Court in the case of CIT Vs. Madhur Housing Development Company 2017 (10) TMI 1279 - SUPREME COURT OF INDIA - decided against revenue. Addition on account of inflated purchases - Held that - The entire addition by disallowing of 40% of the purchases in our opinion is not justified when the books of account are not rejected. We find the Hon ble Gujarat High Court in the case of Yunus Haji Fazawala Vs. CIT 2016 (2) TMI 1204 - GUJARAT HIGH COURT has held that action of the Assessing Officer in disallowing 25% of purchases by doubting its genuiness without rejecting the books of account cannot be sustained. The order of the Tribunal confirming the disallowance was accordingly reversed. Since in the instant case also the books of account are not rejected therefore action of the CIT(A) in deleting such addition is justified. Further we find merit in the findings of the CIT (A) that if the action of the Assessing Officer is accepted then profit of the assessee will be 32.9 % for A. Y. 2013-14 and 56.09% for A.Y. 2014-15 which is illogical and absurd. Order of the CIT(A) on this issue is just and proper. Protective addition on account of cash and seized - assessee submitted that since the substantive additions has already been made in the hands of Mr. Moin Akhtar Qureshi - Held that - No infirmity in the order of the CIT(A) deleting the addition made Assessing Officer. We find while deleting the same the ld. CIT(A) has given the finding that substantive addition has already been made in the hands Mr. Moin Akhtar Qureshi as mentioned by the Assessing Officer himself. Since he has deleted the addition with certain directions therefore the same being in order we do not find any infirmity in the same. Accordingly the ground raised by the revenue is dismissed. Addition based on documents found and seized during the search proceedings - bogus purchases - Held that - When the assessee was making regular transaction with M/s. Jajit Industries and making purchases from M/s. Hari Mohan Enterprises M/s. Bajrang Traders and M/s Gurunanak Traders. The Assessing Officer should have called for details from the said parties and should have verified the transactions if any over and above the figures mentioned in the seized documents. In our opinion the Assessing Officer cannot estimate the unaccounted purchase and sale for assessment year 2013- 14 based on the material found in the search proceedings relating to AY 2014-15 - restore the issue to the file of the Assessing Officer with a direction to obtain information from the parties regarding transactions carried on by the assessee during the above 2 years.

Issues Involved:
1. Disallowance of Expenses
2. Deemed Dividend u/s 2(22)(e)
3. Inflated Purchases
4. Protective Addition of Cash Seized
5. Estimation of Profit on Sales and Purchases

Detailed Analysis:

1. Disallowance of Expenses:
The Assessing Officer (AO) disallowed 50% of the expenses claimed by the assessee, totaling ?22,29,092/- for AY 2013-14 and ?19,05,653/- for AY 2014-15, citing the lack of supporting bills/vouchers. The CIT(A) deleted these additions, noting that the AO had not found any defects in the books of accounts, which were duly audited. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not raise further queries to verify the genuineness of the expenses and failed to bring any defects on record.

2. Deemed Dividend u/s 2(22)(e):
The AO added ?6,43,198/- for AY 2013-14 and ?51,72,955/- for AY 2014-15 as deemed dividend under section 2(22)(e), arguing that the directors had substantial shareholdings in the companies involved. The CIT(A) deleted these additions, relying on the Delhi High Court's decision in CIT vs Ankitech Pvt. Ltd., upheld by the Supreme Court, which stated that such receipts should be taxed in the hands of the shareholders, not the recipient company. The Tribunal agreed with the CIT(A), dismissing the revenue's appeal.

3. Inflated Purchases:
The AO disallowed 40% of the purchases, totaling ?5,00,10,163/- for AY 2013-14 and ?9,30,49,922/- for AY 2014-15, claiming they were inflated/bogus. The CIT(A) deleted these additions, noting that the AO did not conduct any verification or raise objections to the details provided by the assessee. The Tribunal upheld the CIT(A)'s decision, pointing out that the AO did not reject the books of accounts and that the profit margins resulting from the AO's disallowance were unrealistic.

4. Protective Addition of Cash Seized:
The AO made a protective addition of ?1,00,000/- in the hands of the assessee for cash seized during a search, which was already substantively added in the hands of Mr. Moin Akhtar Qureshi. The CIT(A) deleted this protective addition, and the Tribunal upheld the CIT(A)'s decision, noting that the substantive addition had already been made.

5. Estimation of Profit on Sales and Purchases:
The AO estimated profits on sales to M/s Jagatjit Industries Ltd. and purchases from other parties based on seized documents, resulting in additions of ?83,85,628/- for AY 2013-14 and ?42,53,909/- for AY 2014-15. The CIT(A) upheld these additions but directed the AO to reduce the disclosed profit from the estimated profits. The Tribunal found merit in the assessee's argument that extrapolation based on isolated instances was not justified without further verification. The Tribunal restored the issue to the AO to verify transactions and decide based on facts and law.

Conclusion:
The Tribunal dismissed the revenue's appeals and partly allowed the assessee's appeals, directing the AO to verify transactions and decide accordingly. The Tribunal emphasized the need for proper verification and rejected the AO's arbitrary disallowances and additions.

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