2020 (8) TMI 659 - AT - Income Tax

Addition on account of unexplained cash credit u/s 68 - assessee discharged its onus to prove genuineness of the loan transactions and creditworthiness of the lenders or not? - HELD THAT - Assessee had filed additional evidences before CIT(A) to substantiate genuineness of the loan transactions and the lenders. The assessee filed bank statements of the creditors along with PAN details and confirmations. CIT (A) has brushed aside evidences filed by the assessee and confirmed the addition. We deem it appropriate to restore this issue back to the file of AO for deciding the issue afresh after considering additional evidences filed by the assessee before the CIT (A). AO before re-adjudicating this issue shall grant reasonable opportunity of hearing to the assessee in accordance with law. The ground No.2 of the appeal is allowed for statistical purpose. Rejection of Claim of write off of project expenses - assessee has amortized project cost that was shelved due to change in specifications, over a period of ten years - HELD THAT - After being unsuccessful before the Assessing Officer and the CIT (A), the assessee carried the issue in appeal before the Tribunal.The Co-ordinate Bench after considering the facts allowed the assessee s claim of amortization. The facts in the impugned assessment year are identical. For parity of reasons we direct the AO to delete the addition and allow write off of proportionate (10%) expenditure. The ground no. 3 of the appeal is allowed, accordingly. TP Adjustment - assessee has declared cost plus @10% margin on the sales made to it s AE in UK - TP adjustment by estimating profit margin @15% on the basis of GP declared in subsequent assessment year - HELD THAT - Merely for the reason that the assessee has declared higher GP in subsequent year, current year GP should not be estimated by adopting the same. Further, the case of assessee is that 15% GP in subsequent year has been computed after inclusion of sale of assets, etc. and hence, it does not depict correct picture of operating profits. We further observe that the assessee has also failed to furnish complete details as required under transfer pricing provisions. Arm s Length Price of the transaction with AE has to be determined by applying one of the method prescribed under the provisions of section 92C. Under the facts of the case, we deem it appropriate to restore the issue back to the file of Assessing Officer for de-novo adjudication after affording reasonable opportunity of hearing to the assessee, in accordance with law. The findings of authorities below on this issue are set aside and the ground No.4 of the appeal is allowed for statistical purpose.

Summary

Issues Involved:
1. Disallowance under section 43B.
2. Addition on account of unexplained cash credit under section 68.
3. Disallowance of unproved expenditure.
4. Transfer Pricing Adjustment.

Issue-wise Detailed Analysis:

1. Disallowance under section 43B:
The appellant did not press this ground. Consequently, the tribunal dismissed this ground of appeal.

2. Addition on account of unexplained cash credit under section 68:
The assessee contested the addition of ?4,60,000/- made under section 68, which included loans from Ms. Titli Thind and Ms. Anita Chavan. The assessee provided additional evidence such as bank statements and PAN details to substantiate the genuineness of the transactions. The CIT(A) ignored these additional evidences and confirmed the addition. The tribunal found it appropriate to restore this issue to the Assessing Officer (AO) for fresh adjudication, considering the additional evidence provided. The AO is directed to provide a reasonable opportunity of hearing to the assessee.

3. Disallowance of unproved expenditure:
The assessee claimed a write-off of ?3,77,965/- as project expenses due to changes in specifications by Indian Railways. The CIT(A) disallowed this claim, but the tribunal noted that a similar claim was allowed in the subsequent assessment year by the tribunal. Therefore, for consistency, the tribunal directed the AO to allow the write-off of the proportionate expenditure.

4. Transfer Pricing Adjustment:
The AO made a TP adjustment by estimating a profit margin of 15% based on the subsequent financial year, whereas the assessee declared a margin of cost plus 10%. The tribunal observed that the AO's basis for the 15% margin included non-operating gains, which did not reflect the true operating profit. The tribunal restored this issue to the AO for a de-novo adjudication, requiring the AO to apply one of the methods prescribed under section 92C of the Act and provide a reasonable opportunity of hearing to the assessee.

General Ground:
The fifth ground of the appeal was general in nature and did not require adjudication.

Conclusion:
The appeal of the assessee was partly allowed. The tribunal emphasized the extraordinary circumstances due to the COVID-19 pandemic, which justified the delay in pronouncement of the order beyond the usual 90-day period. The tribunal's decision was pronounced on June 22, 2020.