2022 (3) TMI 67 - AT - Income Tax

Addition u/s 68 - Bogus loans - identity, genuineness and creditworthiness of the company which advanced unsecured loan to the assessee company, could not be confirmed - HELD THAT - Shri Ram Yadav was not a director of M/s White Collar Management Services Pvt. Ltd. and therefore his statement, in our opinion, has no evidentiary value. The list of the companies named by Shri Ram Yadav, which has been reproduced by the Assessing Officer nowhere shows that he was a director of M/s White Collar Management Services Pvt. Ltd. We further find, the assessee during the course of assessment proceedings has filed confirmation from the said party, copy of which is placed at page 192 of the paper book. The assessee has filed copy of ITR, coy of bank statement of the said party reflecting the receipt and payment of loan and balance sheet as on 31.03.2011 and Form-16 for TDS deducted on interest. Not a single document furnished by the assessee has been proved to be false or untrue by the lower authorities. Under these circumstances and in view of the overwhelming evidences filed by the assessee during the course of assessment proceedings, which are not found to be false or untrue, we hold that the Ld. CIT(A) is not justified in sustaining the addition shown by the assessee as loan which has been repaid in the subsequent year and much before the date of search. Accordingly, the order of the Ld. CIT(A) is set-aside and ground of appeal 4, 5 and 6 are allowed. Disallowance of interest - HELD THAT - AO in the instant case, disallowed the interest treating the loan as bogus. Since we have already held that the loan is not bogus and since we have allowed the grounds raised by the assessee on this issue, therefore, the disallowance of interest made by the Assessing Officer and sustained by the Ld. CIT(A) is directed to be deleted. The ground of appeal no.7 filed by the assessee is accordingly allowed. Addition u/s 69C - assessee company purchased gold coin and could not explain the source of such cash purchase - HELD THAT - We do not find any infirmity in the order of the Ld. CIT(A) on this issue in sustaining the addition as unexplained expenditure u/s 69C of the Act. However, the request of the assessee for telescoping of above expenditure out of the income sustained out of bogus purchases finds merit. The Hon ble Delhi High Court in the case of CIT vs. Sonal Construction 2012 (11) TMI 11 - DELHI HIGH COURT has accepted the theory of benefit of telescoping. We, therefore, held that the assessee is entitled to the benefit of telescoping of the addition of unexplained expenditure of ₹ 4,22,975/- out of the additions mere on account of bogus purchases, etc. The ground of appeal no.7 is accordingly partly allowed. Addition being 25% of the purchases - directing the Assessing Officer to restrict the same @ 20% in case of the parties which are found to be in existence by the Ward Inspector - HELD THAT - It is an admitted fact that the sales declared by the assessee have not been disturbed. The assessment order indicates that letters were served upon certain parties which proves their existence. The books of account were also audited and auditors have not given any adverse remarks. All the payments have been made through banking channels. The assessee had produced the stock register showing relevant entries of the items purchased and issued for consumption in job work and the items were tallying and no discrepancy in the stock was found at the time of survey. Under these circumstances, we are of the considered opinion that disallowance of 20% of the purchases appears to be on the higher side especially when some of the parties to whom letters were issued were served and the payments have been made through banking channel. Considering the totality of the peculiar facts and circumstances of the instant case, the disallowance of 2% of the total purchases under the facts and circumstances of the case, in our opinion, will meet the ends of justice. Addition of commission expense u/s 69C - HELD THAT - Since we have held that entire purchases cannot be considered as bogus since the sales have not been disturbed and some of the parties to whom letters were issued are existing in the given address and no discrepancy was found in the stock at the time of survey and the stock register was tallying with quantitative details, therefore, estimation of commission for the entire purchases, in our opinion, is not justified. At the same time, the conduct of the assessee is not above board. Considering the totality of the facts and circumstances of the case, we are of the considered opinion that lump sum addition of ₹ 50,000/- on estimate basis under the facts and circumstances of the instant case will meet the ends of justice. Telescoping of addition u/s 68, u/s 69C against additions on account out of bogus purchases - HELD THAT - Referring to the decision of Hon ble Delhi High Court in the case of CIT vs.Sonal Construction r 2012 (11) TMI 11 - DELHI HIGH COURT has accepted the theory of benefit of telescoping. We, therefore, hold that the assessee is entitled to the benefit of telescoping of the addition on account of unexplained expenditure of ₹ 4,25,975/- out of the additions made on account of bogus purchases, etc. The ground of appeal no.15 is accordingly allowed. Addition of unsecured loan - HELD THAT - Since, the assessee has accepted and repaid the loan through banking channel, due taxes has been deducted on the interest so paid and the amount has been repaid prior to the date of search and the assessee has filed relevant documents before the AO evidencing the identity and creditworthiness of the loan creditor and genuineness of the transaction and since all the documents were filed before the AO and nothing has been proved to false or untrue, therefore, we are of the considered opinion that the ld. CIT(A) is not justified in sustaining the addition made by the AO. Accordingly, we set-aside the order of the Ld. CIT(A) and direct the AO to delete the addition.

Summary

Issues Involved:
1. Validity of assessment proceedings under section 153A.
2. Addition under section 68 for unsecured loans.
3. Disallowance of interest on unsecured loans.
4. Addition under section 69C for unexplained expenditure.
5. Disallowance of purchases as bogus.
6. Addition on account of commission expenses.
7. Benefit of telescoping.
8. Addition under section 69A for unaccounted income.

Detailed Analysis:

Validity of Assessment Proceedings under Section 153A:
The assessee challenged the initiation and continuation of assessment proceedings under section 153A in the absence of any incriminating material found during the search. The Tribunal noted that the jurisdiction under section 153A is triggered due to the availability of incriminating material emanating from the search. The Hon’ble Delhi High Court in CIT vs. Anil Kumar Bhatia has ruled that once section 153A is invoked, the Assessing Officer has the power to make assessments for all six years and compute the total income, including undisclosed income. Hence, the Tribunal dismissed the grounds challenging the validity of the assessment proceedings.

Addition under Section 68 for Unsecured Loans:
The Assessing Officer made additions under section 68 for unsecured loans received from M/s White Collar Management Services Pvt. Ltd. and M/s Vigilant Paper Pvt. Ltd., citing lack of identity, genuineness, and creditworthiness. The Tribunal found that the assessee provided sufficient documentary evidence, including confirmation of accounts, bank statements, and repayment details through banking channels. The Tribunal noted that the statements relied upon by the Assessing Officer did not directly implicate the transactions in question. Therefore, the Tribunal deleted the additions made under section 68 for both loans.

Disallowance of Interest on Unsecured Loans:
The interest disallowed by the Assessing Officer was directly linked to the alleged bogus loans. Since the Tribunal held that the loans were genuine, the disallowance of interest was also deleted.

Addition under Section 69C for Unexplained Expenditure:
The Assessing Officer made additions for unexplained expenditure on the purchase of gold coins and other expenses. The Tribunal upheld the addition for the purchase of gold coins but allowed the benefit of telescoping against the additions made for bogus purchases. For other unexplained expenditures, the Tribunal directed the Assessing Officer to verify the details and give appropriate telescoping benefits.

Disallowance of Purchases as Bogus:
The Assessing Officer disallowed a percentage of purchases as bogus based on statements from entry providers. The Tribunal noted that the sales were not disputed, and the assessee maintained proper stock records. It held that disallowing 20-25% of purchases was excessive and directed the Assessing Officer to restrict the disallowance to 2% of the total purchases, considering the peculiar facts and circumstances of the case.

Addition on Account of Commission Expenses:
The Assessing Officer made additions for commission expenses related to bogus purchases. The Tribunal found the commission rate of 0.55% to be on the higher side and directed the Assessing Officer to restrict the addition to a lump sum of ?50,000 on an estimate basis.

Benefit of Telescoping:
The Tribunal accepted the assessee’s request for telescoping benefits, allowing the set-off of unexplained expenditures and commission expenses against the additions made for bogus purchases. The Tribunal emphasized the logical consistency in treating cash generated from out-of-books transactions as available for other out-of-books expenditures.

Addition under Section 69A for Unaccounted Income:
The Assessing Officer made additions under section 69A for unaccounted income based on seized documents. The Tribunal upheld these additions, noting the lack of satisfactory explanations from the assessee regarding the discrepancies found in the seized documents. However, it allowed the benefit of telescoping for these additions as well.

Conclusion:
The Tribunal provided a detailed analysis of each issue, allowing partial relief to the assessee by deleting some additions, reducing the disallowance percentages, and granting telescoping benefits. The Tribunal emphasized the importance of documentary evidence and logical consistency in assessing the genuineness of transactions.