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2019 (5) TMI 1261 - AT - Income TaxAddition made u/s.68 - un-served notices issued u/s.133(6) - HELD THAT - The assessee is not only provided all the relevant documentary evidences but even the Assessing Officer in the remand report mentioned that he personally inspected 9 out of those 10 disputed creditors, meaning thereby existence of these creditors are established. As decided in M/S. ORCHID INDUSTRIES PVT. LTD. 2017 (7) TMI 613 - BOMBAY HIGH COURT assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. See ORISSA CORPORATION PVT. LIMITED 1986 (3) TMI 3 - SUPREME COURT and M/S. GAGANDEEP INFRASTRUCTURE PVT. LTD. 2017 (3) TMI 1263 - BOMBAY HIGH COURT - Decided in favour of assessee.
Issues Involved:
1. Whether the addition of ?1,55,35,633/- under Section 68 of the Income Tax Act, 1961, due to non-genuine expenses to sub-contractors, was justified. 2. Whether the CIT(Appeals) erred in not appreciating the evidences provided by the assessee regarding the sub-contractors. 3. Whether the CIT(Appeals) erred in disallowing the amount under Section 37, ignoring the fact that some accounts only had opening balances with no transactions during the year. 4. Whether the CIT(Appeals) ignored various evidences and relied arbitrarily on the Inspector’s enquiry. 5. Whether the CIT(Appeals) misinterpreted replies made in the statement by Shri Vijay Sharma. Issue-Wise Detailed Analysis: 1. Addition under Section 68 of the Income Tax Act, 1961: The Assessing Officer (AO) issued notices under Section 133(6) to 52 creditors, out of which 10 notices were returned un-served. The AO added ?1,67,04,633/- as deemed income under Section 68, stating that the expenses to these sub-contractors were not genuine. The assessee argued that the notices were returned because the sub-contractors were mostly out of station, and provided confirmation letters, postal addresses, PAN, income tax returns, and other documents. The AO’s remand report confirmed the personal verification of 9 out of the 10 sub-contractors. The Tribunal concluded that the existence of 51 out of 52 creditors was established, and mere un-served notices could not render the transactions non-genuine. The Tribunal set aside the addition under Section 68, following the precedent set by the Supreme Court in Commissioner of Income Tax Vs. Orissa Corporation (P). Ltd. and other relevant case laws. 2. Appreciation of Evidence: The assessee provided various evidences including details of work done by the sub-contractors, measurement details, confirmations, PAN, income tax returns, bank accounts, and TDS certificates. The AO and CIT(A) did not fully appreciate these evidences. The Tribunal noted that the documentary evidences were sufficient to establish the genuineness of the transactions and creditors, thus the disallowance was not justified. 3. Disallowance under Section 37: The CIT(A) disallowed the amount under Section 37, ignoring that some accounts only had opening balances with no transactions during the year. The Tribunal observed that the assessee had discharged the burden of proving the identification of sub-contractors, the source of credit, and the genuineness of transactions. Therefore, the disallowance under Section 37 was deemed arbitrary and was deleted. 4. Reliance on Inspector’s Enquiry: The CIT(A) relied on the Inspector’s enquiry, which the assessee claimed was arbitrary. The Tribunal found that the documentary evidence provided by the assessee was sufficient to establish the genuineness of the transactions. The Tribunal held that reliance on the Inspector’s enquiry without considering the provided evidences was not justified. 5. Misinterpretation of Statements: The CIT(A) allegedly misinterpreted the replies made in the statement by Shri Vijay Sharma. The Tribunal did not find substantial grounds to uphold the disallowance based on these statements and concluded that the addition was not warranted. Conclusion: The Tribunal set aside the order of the CIT(A) and allowed the grounds raised by the assessee. The appeal was partly allowed, and the disallowance/addition of ?1,55,35,633/- was deleted. The Tribunal emphasized the importance of documentary evidence and personal verification over un-served notices in determining the genuineness of transactions.
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