2019 (1) TMI 344 - AT - Income Tax

Assessment u/s 153A - addition u/s 68 - unsecured loans as well as introduction of capital by the partners - Held that - The transactions were duly recorded in the books of account and available with the AO. - Neither in the assessment order nor in the order of the ld. CIT (A) there is any mention or finding that the additions have been made by the AO on the basis of any incriminating material found during the course of search and seizure in the case of the assessee. The AO has solely relied upon the report of the Investigation Wing Kolkata and statement of one Shri Anand Sharma recorded by the Investigation Wing during the survey under section 133A of the Act. Therefore, even if the information/report of the Investigation Wing Kolkata is considered as a relevant evidence, the same cannot be regarded as incriminating material unearthed during the course of search and seizure under section 132 of the IT Act in case of the assessee. In the case in hand, the AO himself has not claimed any incriminating material found during the search and seizure in the case of the assessee. Accordingly, the additions made by the AO while passing the assessment orders under section 153A for the assessment years 2010-11 to 13-14 are not sustainable and accordingly the same are liable to be deleted. Addition u/s 68 - receipt of unsecured loans - accommodation entry - Held that - There is no dispute that the AO was not having any evidence or even any statement to impugn the transactions as bogus accommodation entries. Further, the assessee has produced all the relevant supporting documentary evidence as we have reproduced in the foregoing paras as referred by the ld. A/R of the assessee and these creditor companies were subject to regular assessments and scrutiny assessments under section 143(3). As at the time of granting of loans to the assessee the companies were having sufficient funds. Further, we have already recorded the details of repayment made by the assessee of these loans and once regular repayment was there even prior to the date of search, then the transactions cannot be doubted as nothing can be achieved by taking the loan and then repaying the same through banking channel even if there is corresponding channelization of cash. As discussed earlier AO has not pointed out any discrepancy in the financial statements or in the bank account statements of the loan creditors to show that there was deposit or introduction of the cash prior to giving the loan to the assessee, accordingly, addition to be deleted. Addition on account of partners capital received from four parties - Held that - the finding of the ld. CIT (A) are based on the facts as well as the documentary evidence produced by the assessee whereas the AO has not brought on record any contrary evidence except the allegation made in the report of the Investigation Wing Kolkata. Therefore, the documentary evidences brought by the assessee cannot be negated merely on the basis or allegation made in the report which is nothing but narration of the statements recorded of certain persons. The report of the DDIT Investigation cannot substitute the documentary evidence. No error or illegality in the order of the ld. CIT (A) qua this issue. Typographical error in the finding of the AO/CIT (A) on account of late delivery charges of ₹ 12 lacs - Held that - It is apparent that there is a mistake in the amount recorded by the ld. CIT (A) while giving the finding in para 7.3.3. Accordingly, we modify the said part of the order of the ld. CIT (A) and disallowance made by the AO of ₹ 4,23,19,238/- is deleted. Addition after rejection of books of account - Fall in GP - Held that - t in the facts and circumstances of present case, account books are maintained as they were ordinarily maintained years after years and which were found to yield a fair result. Mere deviation in GP rate cannot be a ground for rejecting books of account, and entering realm of estimate and guesswork. Lower GP rate shown in the books of account during current year and fall in GP rate was justified and also admitted by the Assessing Officer as well as CIT(A) as well as the Tribunal. Fall in GP rate lost its significance. Having accepted the reason for fall in GP rate, namely, stiff competition in market and also that huge loss caused in particular transaction, neither the rejection of books of account was justified nor resort to substitution of estimated GP by rule of thumb merely for making certain additions. We are, therefore, of the opinion that the findings arrived at by the Tribunal suffers from basic defect of not applying its mind to the existing material which were relevant and went to the root of the matter. When all the data and entries made in the trading account were not found to be incorrect in any manner, there could not have been any other result except what has been shown by the assessee in the books of account. - Appeal decided against revenue

Issues Involved:
1. Validity of reassessment under section 153A for want of incriminating material.
2. Addition under section 68 of the Income Tax Act for unexplained unsecured loans and partners’ capital.
3. Denial of benefit of telescoping, recycling, and rotation of funds.
4. Disallowance of late delivery charges as penal in nature.
5. Rejection of books of accounts and lump sum trading addition.

Issue-Wise Detailed Analysis:

1. Validity of Reassessment under Section 153A for Want of Incriminating Material:
The Tribunal considered whether the reassessment under section 153A was valid in the absence of incriminating material found during the search. The Tribunal held that for completed assessments not abated by search, additions could only be made based on incriminating material found during the search. The Tribunal cited various judgments, including the Delhi High Court's decision in Kabul Chawla, which held that in the absence of incriminating material, the completed assessment could only be reiterated. The Tribunal found that the AO had made additions based on information from the Investigation Wing, Kolkata, without any incriminating material found during the search. Hence, the additions made by the AO were held to be without jurisdiction and liable to be deleted.

2. Addition under Section 68 of the Income Tax Act for Unexplained Unsecured Loans and Partners’ Capital:
The Tribunal examined the additions made under section 68 for unexplained unsecured loans and partners’ capital. The AO had made additions based on statements from third parties and information from the Investigation Wing, Kolkata. The Tribunal noted that the assessee had provided all necessary documentary evidence, including confirmations, bank statements, and financial statements of the loan creditors and partners. The Tribunal emphasized that the AO had not provided the assessee with an opportunity to cross-examine the witnesses whose statements were relied upon. Citing the Supreme Court's decision in Andaman Timber Industries and other relevant case laws, the Tribunal held that the denial of cross-examination violated the principles of natural justice. Consequently, the additions made by the AO were deleted.

3. Denial of Benefit of Telescoping, Recycling, and Rotation of Funds:
The Tribunal addressed the issue of denial of benefit of telescoping, recycling, and rotation of funds. Since the primary additions under section 68 were deleted, the Tribunal found that the issue of telescoping became infructuous and did not require further adjudication.

4. Disallowance of Late Delivery Charges as Penal in Nature:
The Tribunal considered the disallowance of late delivery charges claimed by the assessee. The AO had disallowed these charges, treating them as penal in nature. The Tribunal noted that the late delivery charges were on account of contractual obligations with government departments and not for infraction of law. The Tribunal referred to its earlier decisions in the assessee's own case for previous assessment years, where similar disallowances were deleted. Consequently, the Tribunal upheld the CIT(A)'s decision to allow the deduction of late delivery charges.

5. Rejection of Books of Accounts and Lump Sum Trading Addition:
The Tribunal examined the rejection of books of accounts and the lump sum trading addition made by the AO. The AO had rejected the books for non-maintenance of quantitative details and made an arbitrary addition. The Tribunal observed that the AO had not found any specific defects in the books of accounts or discrepancies in the stock records. The Tribunal emphasized that mere non-maintenance of day-to-day quantitative details could not justify the rejection of books and arbitrary addition. The Tribunal upheld the CIT(A)'s decision to delete the lump sum trading addition, noting that the assessee's gross profit rate was better than the previous year and the AO had accepted the book results in earlier assessments.

Conclusion:
The Tribunal allowed the appeals of the assessee, deleting the additions made by the AO under section 68 and disallowing the late delivery charges. The Tribunal also upheld the deletion of the lump sum trading addition and found the reassessment under section 153A invalid in the absence of incriminating material. The appeals of the revenue were dismissed.

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