2019 (8) TMI 984 - AT - Income Tax

Addition u/s 68 - Recovery of the sale consideration of the goods sold by the assessee - the notices issued u/s 133(6) were returned with the postal remarks left or not existence - human probability - HELD THAT - There is no dispute with regard to purchase and import of mobile phones by the assessee from China. The major portion of the imported mobile phones was sold when the goods were in transit by way of high sea sales. Such sale is supported by the sales agreement duly attested by Notary Public. The custom authorities have approved the high sea sales agreement. The custom clearance documents of such goods show that the delivery of goods was taken by the buyer on high sea sales. On these surrounding circumstances, the only conclusion based on human probability that can be drawn is that the buyer of goods on high sea sales who has already taken the delivery of goods from custom authorities would make the payment for such goods. AO was not right in concluding that the high sea sales are not genuine. Section 68 would also not be applicable in respect of recovery of sales consideration. Once the assessee sold the goods, the buyer of the goods becomes the debtor of the assessee and any receipt of money from him is the realisation of such debt and therefore, we are of the opinion that in respect of recovery of sale consideration, Section 68 cannot be applied. No justification for upholding the addition of ₹ 59,51,29,517/-. The same is deleted. Addition u/s 68 - appellant company failed to prove the genuineness of the unsecured loans - HELD THAT - AO has made the assessment in a hurried manner. No discussion with regard to the evidences filed by the assessee i.e., the confirmation of the creditors and their income tax details. The assessee has agreed before us to produce Shri Dharmender Rathee before the AO. It would meet the ends of justice if the orders of authorities below on this point are set aside and matter is restored to the file of the AO. We order accordingly and direct the AO to consider all the evidences produced by the assessee in this regard. We further direct him if after considering the evidences produced by the assessee he requires the presence of Shri Dharmender Rathee, he will give a suitable date and direct the assessee to produce him. Thereafter, he will re-adjudicate the matter in accordance with law after considering all the evidences as have been produced or as may be produced by the assessee before him.Needless to mention that he will allow adequate opportunity of being heard to the assessee. Disallowance of petty cash expenses - HELD THAT - Section 69C would come into play only when the AO doubts the source of incurring such expenditure. In this case, there is no doubt with regard to the source of such expenditure because the same is duly debited in the assessee s books of account. Therefore, Section 69C is wrongly applied by the AO for the purpose of disallowance of expenditure. Now coming to the allowability of the expenditure, it was stated by the learned counsel that the AO has never asked the assessee to produce the vouchers of the expenditure. He did not raise any query before making above disallowance and no adequate opportunity of being heard was allowed to the assessee - it would meet the ends of justice if the orders of authorities below on this point are also set aside and restored to the file of the AO.

Issues Involved:
1. Confirmation of addition under Section 68 or 69C of the Act regarding high sea sales.
2. Confirmation of addition under Section 68 of the Act regarding unsecured loans.
3. Confirmation of disallowance of petty cash expenses under Section 69C.

Issue 1: Confirmation of Addition under Section 68 or 69C of the Act Regarding High Sea Sales

The assessee appealed against the confirmation of the addition of ?59,51,29,517/- made by the Assessing Officer (AO) on the grounds of non-genuine high sea sales. The AO questioned the genuineness of sales made to four parties, as the notices issued under Section 133(6) were returned unserved and the sales were mostly in cash. The AO disallowed the amount under Section 68, which pertains to cash credits, and alternatively under Section 69C, which deals with unexplained expenditure.

The Tribunal noted that the assessee provided comprehensive documentation, including high sea sales agreements approved by customs authorities and proof of delivery taken by buyers. The Tribunal found that the AO's application of Section 68 was incorrect because it pertains to cash credits, not sales, and Section 69C was inapplicable as there was no unexplained expenditure. The Tribunal also highlighted the contradiction in the AO’s acceptance of trading results while rejecting the sales. The Tribunal concluded that the high sea sales were genuine, supported by documentary evidence from customs authorities, and deleted the addition.

Issue 2: Confirmation of Addition under Section 68 of the Act Regarding Unsecured Loans

The assessee contested the addition of ?1,02,00,000/- under Section 68, which the AO made on the grounds that the assessee failed to prove the genuineness of unsecured loans from four directors. The AO’s decision was based on the non-appearance of Shri Dharmender Rathee, who was claimed to have purchased shares from the directors, providing them with funds for the loans.

The Tribunal observed that the AO did not thoroughly examine the evidence provided by the assessee, such as confirmations and tax details of the creditors. The Tribunal noted that the AO did not clarify the service of summons to Shri Dharmender Rathee. The Tribunal remanded the matter to the AO for reconsideration, directing the AO to review all evidence and, if necessary, request the presence of Shri Dharmender Rathee, ensuring adequate opportunity for the assessee to present their case.

Issue 3: Confirmation of Disallowance of Petty Cash Expenses under Section 69C

The assessee challenged the disallowance of ?11,03,294/- in petty cash expenses. The AO disallowed the expenses under Section 69C, citing the lack of vouchers and verification. Section 69C applies when the source of expenditure is unexplained, not when the genuineness of the expenditure itself is in doubt.

The Tribunal found that the AO incorrectly applied Section 69C as there was no dispute regarding the source of the expenditure, which was recorded in the assessee’s books. The Tribunal also noted that the AO did not provide the assessee with an opportunity to produce vouchers. The Tribunal remanded the issue to the AO for reconsideration, directing the AO to allow the assessee to present the necessary evidence and then decide the matter afresh.

Conclusion:

The Tribunal deleted the addition regarding high sea sales, remanded the issue of unsecured loans for reconsideration, and remanded the disallowance of petty cash expenses for fresh adjudication, ensuring the assessee is given adequate opportunity to present their case. The appeal was deemed allowed for statistical purposes.

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