2021 (2) TMI 361 - AT - Income Tax

Validity of Proceedings u/s 153C - unaccounted transactions recorded in computer system in the name of M/s.Vikas Bearing and Wires was belonged to Mr. Dinesh R Mehta and the transactions recorded in regular books of account was carried out by him as proprietor of M/s.Vikas Bearing and Wires - protective addition made by Assessing Officer towards unaccounted closing stock and unaccounted receivables of M/s. Vikas Bearing and Wires, Coimbatore, proprietary concern of assessee - HELD THAT - Transactions undertaken in the name of M/s. Vikas Bearing and Wires, Coimbatore happened through paper company M/s. A N Engineering Company is fully controlled and operated by Mr. Dinesh R Mehta and assessee had no control on transactions which happened outside books of account, since as per seized documents and corroborative statements, transactions were not undertaken by assessee. All documentary evidences show that transactions happened outside books are maintained separately by Mr. Dinesh R Mehta in the name of fictitious entity M/s. A N Engineering Company. Mr. Dinesh R Mehta also maintained separate ledger for unaccounted transactions. The entries found in M/s. A N Engineering Bearing ledger account maintained by Mr. Dinesh R Mehta were tallied - unaccounted transactions maintained in the computer system under the name of M/s. A N Engineering Company is not at all belonged to the assessee. Further, data found in computer was kept in the premises of Mr. Dinesh R Mehta and was seized during course of search from his premises. In this case, documents found during the course of search from the premises of Mr. Dinesh R Mehta clearly indicate that unaccounted transactions recorded in the name of M/s. Vikas Bearing and Wires was carried out by Mr. Dinesh R Mehta and assessee has no role on it. This fact is further strengthened by bank account opened by Mr. Dinesh R Mehta at City Union Bank, Coimbatore with account no.3067 which coincides with registration of M/s. Vikas Bearing and Wires, Coimbatore. The said bank account has deposits by way of clearing and withdrawal by cash. The transactions recorded in HDFC bank account are part of regular returns filed by assessee. Further, during the course of search, it was found that transactions recorded in M/s. A N Engineering Company relatable to account No.3530 maintained with City Union Bank, Coimbatore and operated by Mr. Dinesh R Mehta. Thus, it could be seen that all transactions that are routed through M/s. A N Engineering Company and maintained in computer found during the course of search are transactions not relatable to the assessee. AO during third round of litigation without recording any change in facts and circumstances of the case and also bringing on record any new evidence suggests unaccounted stock in trade was originally added in the hands of Mr. Dinesh R Mehta would belong to the assessee and taxable in the hands of Mr.Raju P Mehta . In our considered view, the Assessing Officer has exceeded his power in going beyond the directions of Tribunal without any findings regarding issue of ownership of business and consequent unaccounted stock in trade and receivables, more particularly, when Mr. Dinesh R Mehta, himself has owned up and admitted business right from date of search while recording statement u/s. 132(4) and also subsequent confirmation by way of letter to the Assessing Officer. Assessing Officer has erred in making additions even on protective basis in the hands of assessee towards stock in trade and receivables, when various evidences coupled with statement of Mr. Dinesh R Mehta recorded during the course of search clearly established the fact that Mr. Dinesh R Mehta is owner of M/s. Vikas Bearing and Wires, Coimbatore and unaccounted transactions recorded in computer system in the name of M/s. A N Engineering Company, a fictitious entity is not belonged to assessee. Protective addition made on account of balance with M/s. A N Engineering Company - AO has made addition spread over three assessment years starting from assessment year 2002-03 on the basis of incriminating materials found during the course of search in the name of M/s. A N Engineering Company on the ground that under the account titled RPM outstanding amount lying unpaid to the assessee - HELD THAT - ao has erred in making addition towards balance with M/s. A N Engineering Company on the basis of single side entry made in the books of M/s. A N Engineering Company on which assessee does not have any control. It is not the case of Assessing Officer that in the books of assessee corresponding credit entry to justify debit balance of ₹20,06,686/- under the account titled RPM in the books of M/s. A N Engineering Company. Therefore, we are of the considered view that additions made by Assessing Officer towards balance with M/s. A N Engineering Company on the basis of incriminating materials found during the course of search in the hands of assessee on protective basis is incorrect. Hence, we direct the Assessing Officer to delete addition made. Addition made towards cash credit in bank account - HELD THAT - We find that assessee has failed to explain source of income for remaining cash deposit although assessee claims that source of cash deposits is out of liquidation of debtors, but failed to file any evidence to prove that cash deposit is out of realization of debtors. Hence, we are of the considered view that there is no error in the findings recorded by learned CIT(A) to sustain additions made by Assessing Officer towards cash deposit. We reject grounds taken by assessee. Addition of cash credit in bank account - HELD THAT - At the time of hearing, learned AR for assessee except making argument that additions made by Assessing Officer towards credit found in capital account is not made out of seized material has failed to file any evidence to prove source of income for credit amounting to ₹1,10,000/- . Therefore, we are of the considered view that there is no error in the findings recorded by learned CIT(A) to sustain addition made by A.O towards credits found in capital account. Unexplained cash deposits in bank account - HELD THAT - We find that except stating that additions made by Assessing Officer towards cash deposit is not made out of seized material and is on the basis of return of income filed by assessee has not filed any evidence to prove source of income for cash deposit of ₹5,00,000/- made in Union Bank of India. Therefore, we are of the considered view that there is no error in the findings recorded by learned CIT(A) to confirm additions made by Assessing Officer towards cash deposit with Union Bank. Addition towards compounding fee, cash credit in bank account , credit in personal trial balance, credit in personal book and remuneration received - HELD THAT - There is no error in the findings recorded by learned CIT(A) to confirm additions on various accounts. We are inclined to uphold findings of learned CIT(A) and reject grounds taken by assessee. Additions made towards depreciation on car and finance charges on car loan - HELD THAT - Once the transactions recorded in books of account of M/s. A N Engineering Company is held to be not taxable in the hands of assessee, depreciation on car and finance charges cannot be taxed on protective basis in the hands of assessee, when substantive addition was made in the name of Mr.Dinesh R Mehta. CIT(A), without appreciating the facts simply confirmed additions made by Assessing Officer. Hence, we direct the Assessing Officer to delete protective addition made towards depreciation on car and finance charges on car loan in the hands of assessee for both assessment years. Addition of cash credit in bank account, credit in personal book and difference in remuneration - HELD THAT - Assessee at the time of hearing except stating that additions made by Assessing Officer are not based on any incriminating material found during the course of search, has failed to file any evidence to prove source of income for credits found in SB account and personal account and also failed to explain difference in remuneration . We are, therefore of the considered view that learned CIT(A) was right in confirming additions made by Assessing Officer towards cash credit in bank account, credit in personal book and difference in remuneration. Cash found during the course of search, profit from M/s.Vikas Bearing and Wires, new sundry creditors and sundry creditors with transactions - HELD THAT - Once protective addition made towards stock in trade receivables is held to be not taxable in the hands of assessee , the other protective additions made towards cash found during the course of search, profit from M/s.Vikas Bearing and Wires and new sundry creditors and sundry creditors with transactions cannot be sustained in the hands of assessee. Therefore, we are of the considered view that learned CIT(A) has erred in confirming additions made by Assessing Officer on protective basis towards cash found and other additions. We reverse findings of learned CIT(A) and direct Assessing Officer to delete protective addition made towards cash found during the course of search, profit from VBW and new sundry creditors and sundry creditors with transactions. However, in respect of additions made towards cash credit in bank account of Union Bank of India, assessee has failed to explain source of income for cash deposits amounting to ₹3,67,900/- with any evidences. Addition of interest received - HELD THAT - It is admitted that assessee has not admitted interest income in the return filed for relevant assessment year. Therefore, addition made towards interest income is upheld.

Summary

Issues Involved:
1. Validity of Notice under Section 153C.
2. Protective Additions towards Unaccounted Stock and Receivables.
3. Additions towards Balance with M/s. A&N Engineering Company.
4. Additions towards Cash Credit in Bank Accounts.
5. Additions towards Various Credits in Personal Books and Capital Accounts.
6. Additions towards Depreciation on Car and Finance Charges on Car Loan.
7. Additions towards Cash Found During the Course of Search and Sundry Creditors.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 153C:
The assessee challenged the notice issued under Section 153C by filing a writ petition before the Hon’ble High Court of Madras. The High Court directed the Assessing Officer (AO) to provide copies of certain statements recorded from Mr. Dinesh R Mehta, which were the basis for the notice. The assessee filed the return of income in response to the notice and the AO completed the assessment within the stipulated time. The tribunal upheld the validity of the notice and the assessment was not barred by limitation.

2. Protective Additions towards Unaccounted Stock and Receivables:
The AO made protective additions towards unaccounted stock and receivables found in the name of M/s. Vikas Bearing and Wires, Coimbatore. The assessee argued that the business and transactions belonged to Mr. Dinesh R Mehta, who had admitted ownership during the search. The tribunal found that the unaccounted transactions recorded in the computer system were controlled by Mr. Dinesh R Mehta and not the assessee. The tribunal directed the AO to delete the protective additions made in the hands of the assessee for the assessment years 2001-02 to 2005-06.

3. Additions towards Balance with M/s. A&N Engineering Company:
The AO made additions based on a debit balance shown in the name of RPM in the books of M/s. A&N Engineering Company, assuming it referred to the assessee. The tribunal found that M/s. A&N Engineering Company was a fictitious entity controlled by Mr. Dinesh R Mehta, and there was no evidence to prove that the debit balance belonged to the assessee. The tribunal directed the AO to delete the addition of ?20,06,686/- for the assessment years 2002-03 to 2004-05.

4. Additions towards Cash Credit in Bank Accounts:
The AO made various additions towards unexplained cash credits found in the assessee’s bank accounts. The tribunal upheld the additions where the assessee failed to explain the source of income for the cash deposits. For instance, for the assessment year 1999-2000, the tribunal upheld the addition of ?1,54,400/- as the assessee failed to provide satisfactory evidence for the cash deposits.

5. Additions towards Various Credits in Personal Books and Capital Accounts:
The AO made additions towards credits found in personal books and capital accounts of the assessee. The tribunal upheld the additions where the assessee failed to provide evidence to prove the source of income. For example, for the assessment year 2001-02, the tribunal upheld the addition of ?1,10,000/- towards credits found in the capital account of M/s. Vikas Bearing and Wires.

6. Additions towards Depreciation on Car and Finance Charges on Car Loan:
The AO disallowed expenses claimed under depreciation on car and interest paid on car loan on a protective basis, assuming the business was controlled by Mr. Dinesh R Mehta. The tribunal found that the transactions recorded in the regular books were carried out by the assessee as the proprietor of M/s. Vikas Bearing and Wires. The tribunal directed the AO to delete the protective addition towards depreciation on car and finance charges on car loan for the assessment years 2003-04 and 2004-05.

7. Additions towards Cash Found During the Course of Search and Sundry Creditors:
The AO made various additions on a protective basis towards cash found during the search, profit from M/s. Vikas Bearing and Wires, and new sundry creditors. The tribunal held that the protective additions could not be sustained in the hands of the assessee as substantive additions were made in the hands of Mr. Dinesh R Mehta. The tribunal directed the AO to delete the protective additions. However, the tribunal upheld the addition of ?3,67,900/- towards unexplained cash deposits in the bank account for the assessment year 2005-06.

Conclusion:
The tribunal provided a detailed analysis of each issue and directed the AO to delete various protective additions made in the hands of the assessee, while upholding certain additions where the assessee failed to provide satisfactory evidence. The appeals filed by the assessee for the assessment years 1999-2000, 2001-02 to 2005-06 were treated as partly allowed.