2022 (2) TMI 584 - AT - Income Tax

Assessment us 153A - Addition of cash credits u/s 68 - Unsecured Loans and Disallowance of Interest Paid thereon u/s. 69C - assessment pursuant to search operations carried out u/s. 132 - HELD THAT - As in response to the return of income furnished by the assessee u/s. 139(1) of the Act no notice u/s. 143(2) of the Act was issued in the case of the appellant and therefore the income so shown in the return u/s. 139(1) had attained finality prior to the date of the search. Thus we find that the impugned addition on account of unsecured loans and interest payments thereon have been made by the AO in a completed assessment year i.e. A.Y. 2016-17 in respect whereof the time limit for issuance of notice under s.143(2) of the Act had already got expired and as such no assessment proceedings were pending on the date of search. In such eventuality the A.Y. 2016-17 cannot be considered as an abated assessment year. We also note that Ld.AO while making the impugned additions has also referred to some statements of Mr Mukesh Jhanwar and Mr. H.P. Agrawal recorded during the course of search but same were subsequently retracted during the course of the assessment proceedings and thus the same cannot be equated to incriminating material No addition could have been made by the AO in the assessee s income without having recourse to any incriminating material. Accordingly we are inclined to delete the additions. Addition u/s 68 - We are of the considered opinion that the assessee could successfully establish the identity of all the loan creditor companies the genuineness of the loan transactions carried out with such companies and as also the creditworthiness of such loan creditor companies beyond all doubts by furnishing all the necessary documentary evidences. Further it is also an undisputed fact that the AO except relying upon the retracted statements and some list of so-called shell companies has not brought any positive material on record to discredit the explanation and various documentary evidences furnished by the assessee. In such eventuality in our view the ld. CIT(A) was fully justified in deleting the additions Out of Books Cash Sales u/s. 69A - HELD THAT - We find that the assessee has raised the Ground against the action of the ld. CIT(A) in not deleting the addition made by the AO u/s. 69A of the Act despite giving a specific finding that the AO was not justified in invoking the provisions of s.69A of the Act in its case as the addition was related to the finding of some suppressed sales in books of account and not related to any unaccounted money bullion jewellery or valuable article or thing. We do not find merit in this contention of the assessee and instead we are in full agreement with the finding given by the ld. CIT(A) in his Order that mere mentioning of a wrong section by the AO would not ipso facto render the entire addition as illegal especially in a circumstance that such an addition has been made by the AO on the basis of some incriminating material. In such circumstances we are not inclined to allow this ground of the assessee. Trading additions in its income without first rejecting the books of account by invoking the provisions of s.145(3) - HELD THAT - These grounds of the assessee have no merit for the reason that the AO before making the impugned additions had issued a specific show-cause notice to the assessee requiring it to make its explanation on the subject issue. The AO after taking due consideration of the reply of the assessee has made the impugned additions on the subject issue. Thus in such circumstances merely because the AO has not quoted the specific section for making the subject additions in the assessee s income the entire addition cannot be regarded as illegal. Thus in our opinion the ld. CIT(A) has rightly dismissed this ground of the assessee. Net profit estimation - trading additions in its income without first rejecting the books of account by invoking the provisions of s.145(3) - HELD THAT - We modify the orders of both the lower authorities and direct the Assessing Officer to work out profit of undisclosed sales transactions from trading business aggregating to Rs. 3, 55, 27, 000/- and Rs. 2, 56, 52, 000/- respectively for A.Y. 2016-17 and A.Y. 2017-18 by applying a net profit rate of 3.5% instead of the net profit rate estimated by the ld. CIT(A) at 15%. Cash sales to retailers - HELD THAT - We find that the AO during the course of the assessment proceedings had required the assessee company to furnish its explanation on such seized cash vouchers and in respose the assessee company furnished a statement before the AO containing the details of vouchers seized and corresponding recording thereof on various dates in the regular books of account of the assessee. Before the ld. CIT(A) as well as before us the assessee company has demonstrated that the entire seized cash vouchers were duly recorded in the regular books of account of the assessee for the year under consideration and therefore there was no case of suppression of sales on this count. In our view merely because the sales were made in cash no adverse cognizance can be made if such sales have been found duly recorded in the regular books of account of an assessee. In such circumstances we do not find any reason to interfere with the action of the ld. CIT(A) in deleting the entire addition Unaccounted Cash Receipt from Syndicate - AO while making the subject addition has invoked the provisions of s. 69A - HELD THAT - We find that the assessee has raised the Ground for A.Y. 2017-18 against the action of the ld. CIT(A) in not quashing the addition made by the AO u/s. 69A of the Act merely by holding that quoting of wrong section would not make the entire addition as non-genuine. We do not find merit in this contention of the assessee and instead we are in full agreement with the finding given by the ld. CIT(A) in his Order that mere mentioning of a wrong section by the AO would not ipso facto render the entire addition as illegal especially in a circumstance that such an addition has been made by the AO on the basis of some incriminating material. In such circumstances we are not inclined to allow this ground of the assessee. Profit of undisclosed sales transactions - Keeping in view the totality of facts and circumstances of the case we modify the orders of both the lower authorities and direct the Assessing Officer to work out profit of undisclosed sales transactions aggregating to Rs. 30, 00, 000/- by applying a net profit rate of 3.5% instead of the net profit rate estimated by the ld. CIT(A) at 15%. Hawala Transaction u/s. 69A - HELD THAT - We find merit in the contentions of assessee that mere finding of the messages in the personal mobile of an employee of the company regarding some alleged hawala transactions without bringing on record any corroborative material to establish such transactions cannot lead to any concrete conclusion against the assessee that it had carried out such hawala transactions - As against such alleged hawala transactions no fresh unsecured loans have been found credited in the books of account of the assessee company for the subject assessment years. We also find that no such document or material was found or seized during the course of the search pertaining to the earlier years from which it could have been inferred that the assessee company was involved in such scrupulous activities. We also note that the AO has not conducted any independent enquiry to unearth and correlate the contents of the mobile messages with the financial affairs of the assessee company. In such circumstances no adverse inference could have been drawn by the lower authorities against the assessee company. We are therefore of the view that the entire additions deserve to be deleted Applicability of Section 115BBE in respect of additions made in A.Y. 2017-18 and A.Y. 2018-19 - HELD THAT - In view of the above categorical findings of the ld. CIT(A) and our examination of the fact that additions confirmed by us in the hands of assessee are arising out of the business carried out and do not fall under any of the provisions of as referred in section 115BBE of the act .Thus we do not find any merit in the grounds raised by the Revenue.

Summary

Issues Involved:
1. Unexplained Cash Credits u/s. 68 on account of Unsecured Loans and Disallowance of Interest Paid thereon u/s. 69C.
2. Out of Books Cash Sales u/s. 69A.
3. Unaccounted Cash Receipt from Syndicate.
4. Hawala Transaction u/s. 69A.
5. Applicability of Section 115BBE in respect of additions made in A.Y. 2017-18 and A.Y. 2018-19.

Issue-wise Detailed Analysis:

1. Unexplained Cash Credits u/s. 68 on account of Unsecured Loans and Disallowance of Interest Paid thereon u/s. 69C:
The Revenue challenged the deletion of additions by the CIT(A) for unsecured loans and disallowance of interest expenses for various assessment years. The Tribunal noted that the AO relied on loose papers and audit reports seized during the search. The assessee provided necessary documentation to establish the identity, genuineness, and creditworthiness of the loan creditors. The Tribunal found that the AO did not conduct any independent inquiries and relied on retracted statements, which were not corroborated by any incriminating material. The Tribunal upheld the CIT(A)'s decision to delete the additions, concluding that the assessee had discharged its onus under Section 68 and the AO had failed to provide contrary evidence. Consequently, the Tribunal dismissed the Revenue's appeals on this issue and allowed the assessee's appeal for A.Y. 2016-17.

2. Out of Books Cash Sales u/s. 69A:
The Revenue and the assessee both contested the CIT(A)'s partial relief on additions for unaccounted sales. The AO based the additions on digital data seized from the assessee's employee's computer. The Tribunal agreed with the CIT(A) that the data pertained to sales of liquor purchased from other dealers and not the assessee's own production. The Tribunal held that only the net profit from such sales should be added to the assessee's income. The Tribunal modified the CIT(A)'s decision by reducing the net profit rate from 15% to 3.5%, considering the nature of trading transactions. The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals on this issue.

3. Unaccounted Cash Receipt from Syndicate:
The AO added Rs. 30,00,000 for cash receipts from a syndicate based on digital documents. The CIT(A) granted partial relief, confirming Rs. 4,50,000. The Tribunal found that the AO's reliance on digital data without corroborative evidence was insufficient. The Tribunal noted that the assessee had provided explanations and evidence, including complaints against counterfeiters. The Tribunal concluded that the entire addition was unjustified and directed the AO to delete the remaining addition. The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal on this issue.

4. Hawala Transaction u/s. 69A:
The AO made additions for alleged hawala transactions based on messages found on an employee's mobile. The CIT(A) confirmed the additions. The Tribunal noted that the employee had retracted his statement and provided an affidavit stating the transactions were personal. The Tribunal found no evidence linking the transactions to the assessee's business. The Tribunal held that the AO's reliance on the messages without corroborative evidence was insufficient. The Tribunal directed the AO to delete the additions for hawala transactions. The Tribunal allowed the assessee's appeals on this issue.

5. Applicability of Section 115BBE in respect of additions made in A.Y. 2017-18 and A.Y. 2018-19:
The AO applied higher tax rates under Section 115BBE for certain additions. The CIT(A) held that the provisions of Section 115BBE were not applicable as the additions did not fall under Sections 68, 69, 69A, 69B, 69C, or 69D. The Tribunal agreed with the CIT(A) that the additions were business-related and not covered by Section 115BBE. The Tribunal dismissed the Revenue's appeals on this issue.

Conclusion:
The Tribunal dismissed the Revenue's appeals for A.Y. 2015-16 to A.Y. 2018-19 and partly allowed the assessee's appeals for A.Y. 2016-17 and A.Y. 2017-18, and fully allowed the assessee's appeal for A.Y. 2018-19.