2020 (1) TMI 476 - AT - Income Tax

Allowability of the expenses incurred out of the estimated income - Addition on account of alleged sales on protective basis - HELD THAT - We find that the Tribunal has restored the matter back to the file of the Assessing Officer to determine the issue of allowability of the expenses incurred out of the estimated income of 2% against the claim of the assessed which is 0.25% to 0.5%. Addition in the hands of the assessee on protective basis , we find that the addition has been confirmed by the Ld. CIT(A) on the grounds that no evidence has been produced to prove that substantive assessment has been made in the hands of M/s Reliance Industries Limited. Before it has been submitted that the addition has been made in substantive capacity in the case of M/s Reliance Industries Ltd. The Assessing Officer is hereby directed to verify the records of M/s Reliance Industries Ltd. and a form that this amount has been added, and give relief in the case of this assessee for the AY 2007-08. Appeals of the assessee are allowed for statistical purposes.

Issues Involved:
1. Determination of taxable income.
2. Reliance on estimates versus seized material.
3. Application of Section 145(3) of the Income Tax Act, 1961.
4. Estimation of undisclosed income based on balance sheet figures.
5. Treatment of certain sums as income without basis.
6. Addition on account of alleged sales on a protective basis.

Detailed Analysis:

1. Determination of Taxable Income:
The authorities determined the taxable income of ?16,01,569/- against the returned income of ?13,56,553/- for AY 2006-07. For AY 2007-08, the issue was similar but with different amounts. The Tribunal found that the additions were based on identical facts and arguments as in the case of Konichiva Builders Ltd., where the matter was restored to the AO to determine the issue of allowability of expenses incurred out of the estimated income.

2. Reliance on Estimates Versus Seized Material:
The assessee argued that the order under Section 143(3) read with Section 153A of the Income Tax Act, 1961, was based on estimates rather than seized material. The Tribunal noted that the AO relied on statements from Shri S.K. Gupta and other documentary evidence, which indicated that the assessee was engaged in providing accommodation entries rather than genuine business activities.

3. Application of Section 145(3) of the Income Tax Act, 1961:
The authorities applied Section 145(3) to reject the assessee's books of account, citing the failure to produce regular books and the lack of supporting infrastructure for genuine business activities. The Tribunal upheld this application, noting that the assessee did not vehemently press this issue and that the rejection was justified based on the evidence of accommodation entries.

4. Estimation of Undisclosed Income Based on Balance Sheet Figures:
The AO estimated undisclosed income based on balance sheet figures, adding ?2,50,859/- and ?3,50,710/- for AY 2006-07. The Tribunal found that the AO's estimation of income at 2% was based on statements from Shri S.K. Gupta, who admitted to charging a commission of 1.5% to 2% for providing accommodation entries. The Tribunal directed the AO to allow expenditure incurred to earn this income, provided the assessee could prove it with cogent material.

5. Treatment of Certain Sums as Income Without Basis:
The authorities treated a sum of ?10,00,000/- as income without any basis, material, or evidence. The Tribunal, following the precedent set in Konichiva Builders Ltd., restored the issue to the AO to determine the allowability of expenses incurred for earning the income from accommodation entries.

6. Addition on Account of Alleged Sales on a Protective Basis:
For AY 2007-08, the assessee contested the addition of ?25 lakhs on account of alleged sales to M/s Reliance India Ltd. on a protective basis. The Tribunal directed the AO to verify whether the addition had been made substantively in the case of M/s Reliance Industries Ltd. and to provide relief to the assessee if it had been.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the AO to re-examine the allowability of expenses incurred for earning the income from accommodation entries and to verify the substantive addition in the case of M/s Reliance Industries Ltd. The judgment emphasized the need for cogent material to support claims of expenditure and the consistency of applying legal principles across similar cases.

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