2021 (3) TMI 469 - AT - Income Tax

Assessment u/s 153A - estimation of value of accommodation entries and then 15% disallowance thereof resulting into addition - HELD THAT - The assessee-company has submitted that it has never had any business with the companies named by Shri Rami As in his statement Shri Jaymesh Rami has stated that he was Director of the five companies which were engaged in the business of providing entry and the assessee has not any transaction with those companies. Detailed finding given by the Ld.CIT(A) that Shri Jaymesh R.Rami had also given the list of entities to whom he has provided accommodation entries and noticed that he has not mentioned the name of the assessee-company anywhere for providing accommodation entries. During the course of assessment proceedings, assessee has also provided the list of parties from whom it has made major purchases to the amount of ₹ 21,62,78,302/- during the year under consideration and none of the party contained in the list which was mentioned by Shri Jaymesh Rami as accommodation provided entities. In respect of payment of ₹ 6,43,406/-, the assessee has filed a copy of bill issued by M/s.Rami Brothers (Labour Contractors) of ₹ 7,91,406/- being the labour charges from soil filling at site and the payment was made by A/c. Payee Cheque for this work. It is noticed that the ld.CIT(A) has correctly mentioned in his finding that Assessing Officer has not established by any cross-verification that the aforesaid bill was bogus. The Assessing Officer has computed the accommodation entries amount at the rate of 0.25% on hypothetical manner without any basis and relevant evidences.CIT(A) has further held that Assessing Officer in the case of entry provider had considered that amount credited in his bank account as value of accommodation entries including one pertaining to the assessee of ₹ 6,43,406/-. The Ld.CIT(A) is also justified in stating that Assessing Officer has neither made any independent enquiry from the suppliers nor allowed any cross-examination of the third party though specifically demanded by the assessee-company and made the additions based on hypothesis, conjectures and suspicion. - Decided against revenue. Disallowance of labour charges for soil filling from M/s.Rami Brothers - HELD THAT - On perusal of the bill, it is noticed that this bill was raised on 07/03/2011 pertaining to FY 2010-11 which clearly demonstrates that this expenditure was not claimed during the year under consideration. However, it is noticed that in his finding the Ld.CIT(A) has concluded that AO of the Central Circle-2(4), Ahmedabad has considered the amount credited in the bank account of Shri Rami as value of accommodation entries. Since in the case of the assessee the payment of ₹ 6,43,406/- was considered as accommodation entries and it is noticed that assessee has not reconciled this payment with outstanding amount of ₹ 7,91,406/- as per invoice raised for labour charges, therefore we restrict the disallowance to the extent of ₹ 6,43,406/-. Thus, this ground of appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Deletion of addition made on account of estimation of accommodation entries.
2. Failure to appreciate the decision of the AO based on binding decisions.
3. Disallowance of expenditure claimed by the assessee.

Issue-Wise Detailed Analysis:

1. Deletion of Addition Made on Account of Estimation of Accommodation Entries:
The Revenue challenged the deletion of ?3,86,04,360/- added by the AO based on the estimation of accommodation entries at ?25,73,62,400/-. The AO reopened the assessment upon receiving information that the assessee had paid ?6,43,406/- to Shri Jaymesh Rami, who admitted to providing accommodation entries. The AO treated this payment as commission and extrapolated it to estimate inflated expenditure. However, the CIT(A) found that the AO did not provide concrete evidence linking the assessee to the accommodation entries. The CIT(A) noted that the assessee had legitimate transactions with M/s. Rami Brothers for soil filling services, supported by invoices and payments made by cheque. The CIT(A) concluded that the AO's estimation was baseless and unsustainable, reducing the addition to ?7,91,406/- for the actual transaction amount.

2. Failure to Appreciate the Decision of the AO Based on Binding Decisions:
The Revenue argued that the AO's decision was based on binding precedents, including the Gujarat High Court's decision in M/s. Vijay Protien Ltd. vs. CIT and ITAT decisions in similar cases. The CIT(A) reviewed the evidence and found that the AO had not identified any purchases from the companies associated with Shri Jaymesh Rami. The CIT(A) emphasized that the AO's decision lacked independent verification and was based on assumptions. The CIT(A) highlighted that the AO had not allowed cross-examination of Shri Jaymesh Rami, whose affidavit did not mention the assessee. The CIT(A) relied on the Supreme Court's decision in Dhakeshwari Cotton Mills Ltd., which prohibits assessments based on pure guesswork without evidence.

3. Disallowance of Expenditure Claimed by the Assessee:
The assessee contested the disallowance of ?7,91,406/-, arguing that no such expenditure was claimed during the relevant year. The CIT(A) restricted the addition to ?7,91,406/- based on the invoice for labour charges from M/s. Rami Brothers. However, the invoice dated 07/03/2011 pertained to the previous financial year (FY 2010-11). The Tribunal noted that the AO had treated the payment of ?6,43,406/- as accommodation entries without reconciling it with the outstanding amount. Consequently, the Tribunal restricted the disallowance to ?6,43,406/-, aligning with the actual transaction amount.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the majority of the addition made by the AO, finding that the AO's estimation lacked a factual basis. The Tribunal also partially allowed the assessee's appeal, reducing the disallowance to ?6,43,406/-. The Tribunal emphasized the need for concrete evidence and independent verification in making such additions. The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed.