2021 (10) TMI 86 - AT - Income Tax

Correct head of income - Capital gain OR business income - conversion of capital asset into stock in trade - HELD THAT - It is settled law that there can be no estoppel against law. Moreover, statement of Mr. Sudhir Dhingra reproduced in the assessment order also refers to section 45(2) and therefore, how can the taxability of income be brought into force in this year merely on the basis of statement of the main promoter when section 45(2) itself provides for the taxability in the year of sale of stocks. Moreover, Mr. Sudhir Dhingra stated in his statement to offer income in previous year relevant to AY 2015-16 as can be seen from para (v) of CIT(A) s order page 121 and not in the year under appeal. In our considered opinion, obtaining completion certificate of the project from the Appropriate Authority as on 8.5.2013 does not ipso facto give rise to any business income. As read/seen considered the objections raised by the first appellate authority which in our considered opinion are more or less on the same lines as adopted by the assessing officer. We do not concur with such observations and findings recorded by the first appellate authority and we thus hold that the addition as long term capital gain and made in the assessment order and confirmed by the first appellate authority do not stand to the test of law and are not justified on the facts and circumstances of the case and hence we delete the above said both the additions and allow the grounds of appeal of the assessee. Bogus of job work - HELD THAT - Contention of CIT(A) that evidence filed by the assessee selfserving documents and circumstantial evidence leads to the conclusion of A.O. that Sh. Mohinder Kumar Garg was an old employee of the assessee company cannot take the case of revenue anywhere. It would be enough for us to say that voluminous documentary evidences filed by the assessee to which we have made elaborate reference above are clearly establishing the genuineness of the job work expenses. In the face of direct documentary evidences, how can the so called circumstantial evidences be relied. Documentary evidences filed by the assessee before the lower authorities which have been referred by CIT(A) in his appeal order to which reference has also been made in the written submissions filed by the assessee and to which out attention was drawn clearly establish that job work expense claimed by the assessee to have been paid to M/s Sai Exports are quite genuine and established. In the result, the grounds of appeal in the appeal of the assessee are allowed. Non genuine purchases of fabric made by the appellant - HELD THAT - We do not want to burden our order by repeating the whole hosts of documentary evidences filed in this case which establish that the purchases made by the assessee from the above said two suppliers are genuine purchases. We have gone through the observations made by CIT (A) in his appeal order and we do not agree with them. Opening of the bank account by the suppliers in the same bank in which assessee had bank account is not something which is unusual as it may be necessary for the smoothness of the banking and avoid the loss of time in collecting the cheques etc. We find that the burden to prove purchases was very well discharged by the assessee. There is no incriminating material found as a result of search in respect of purchases fabric made by the appellant from M/s Super Connection India P. Ltd. other companies and whatever has been mentioned in the form of statements cannot be regarded as incriminating material. Even the survey proceeding referred in the assessment order does not indicate any incriminating material. Disallowance u/s 14A - assessee company has shown dividend income on mutual fund / shares and balance was deleted by CIT(A) - HELD THAT - It is seen that there is exempt income only to the extent of ₹ 49,301/- and for this reason also, disallowance under section 14A could not have exceeded this amount in view of the decision of Joint Investment Ltd. 2015 (3) TMI 155 - DELHI HIGH COURT and hence we uphold the order of CIT(A) to this extent.

Issues Involved:
1. Jurisdiction under Section 153A.
2. Addition of capital gain and business income under Sections 45(2) and 28.
3. Addition on account of bogus expenses claimed with respect to M/s Sai Export.
4. Addition on account of bogus expenses claimed with respect to M/s Shri Ram Exports.
5. Addition on account of bogus purchases from M/s Akansha Fashion and M/s Jindal Fashion.
6. Addition on account of unexplained transactions recorded in seized documents.
7. Disallowance under Section 14A.
8. Approval under Section 153D.
9. Charging of interest under Section 234B.
10. Deletion of addition on account of bogus expenses by M/s Palwal Enterprises.
11. Deletion of disallowance of product development expenses.

Detailed Analysis:

Jurisdiction under Section 153A:
The grounds related to the assumption of jurisdiction under Section 153A were not pressed by the assessee's counsel and hence were dismissed.

Addition of Capital Gain and Business Income:
The assessee converted a plot of land into stock-in-trade, leading to a dispute over the taxability of capital gains and business income. The AO added ?1,55,38,830 as capital gain and ?39,96,76,340 as business income, arguing these should be taxed in the year of conversion. However, the Tribunal held that under Section 45(2), the capital gain and business income should be taxed in the year the stock is sold, not the year of conversion. Since the stock was sold in a later year (AY 2017-18), the additions for the year under appeal were deleted.

Addition on Account of Bogus Expenses - M/s Sai Export:
The AO disallowed ?7,28,980 claimed as job work expenses to M/s Sai Export, citing lack of incriminating material found during the search. The Tribunal found that the job work was genuine, supported by documentary evidence such as invoices, payment through cheques, and tax deductions. Hence, the addition was deleted.

Addition on Account of Bogus Expenses - M/s Shri Ram Exports:
The AO disallowed ?7,98,79,360 claimed as job work expenses to M/s Shri Ram Exports, based on statements and lack of incriminating material. The Tribunal found the job work genuine, supported by evidence like invoices, payments through cheques, and other documentation. The addition was deleted.

Addition on Account of Bogus Purchases - M/s Akansha Fashion and M/s Jindal Fashion:
The AO disallowed ?15,41,15,599 for purchases from M/s Akansha Fashion and M/s Jindal Fashion, citing lack of incriminating material. The Tribunal found the purchases genuine, supported by documentary evidence and payments through banking channels. The addition was deleted.

Addition on Account of Unexplained Transactions:
The AO disallowed ?26,48,09,191 and ?1,85,11,715 for purchases from M/s Super Connection and other companies, citing statements and lack of incriminating material. The Tribunal found the purchases genuine, supported by documentary evidence and payments through banking channels. The addition was deleted.

Disallowance under Section 14A:
The AO disallowed ?3,95,42,400 under Section 14A, but CIT(A) confirmed only ?49,301, the amount of exempt income. The Tribunal upheld CIT(A)'s decision, noting that disallowance under Section 14A cannot exceed the exempt income.

Approval under Section 153D:
The ground regarding approval under Section 153D was not specifically argued before the Tribunal and was therefore rejected.

Charging of Interest under Section 234B:
The ground related to charging interest under Section 234B was deemed consequential.

Deletion of Addition on Account of Bogus Expenses - M/s Palwal Enterprises:
The AO disallowed ?11,93,649 claimed as job work expenses to M/s Palwal Enterprises, but CIT(A) deleted the addition. The Tribunal upheld CIT(A)'s decision, finding no error in allowing the expenses.

Deletion of Disallowance of Product Development Expenses:
The AO disallowed ?13,73,86,146 as deferred revenue expenses, but CIT(A) deleted the addition. The Tribunal upheld CIT(A)'s decision, noting that the issue was previously decided in favor of the assessee by higher courts.

Conclusion:
The Tribunal allowed the assessee's appeals on most grounds, deleting significant additions made by the AO, and dismissed the revenue's appeal, upholding CIT(A)'s deletions of certain disallowances.

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