2022 (7) TMI 1297 - AT - Income Tax

Rejection of books of accounts - addition to the gross profit - HELD THAT - The books of accounts of the assessee have been rejected mainly in absence of books of accounts, bills vouchers etc. produced before the AO and on the allegation of accommodation entry transactions carried out with M/s Mirah D cor group entities. Before us, the assessee has submitted that during the year under consideration there was no transaction with M/s Mirah Group entities. This fact of vital importance, has not been verified by the AO in absence of books of accounts and bills and vouchers etc. produced by the assessee. Now before us, in written submissions, the assessee has expressed willingness to produce books of accounts, bills vouchers etc. for verification by the AO. We feel it appropriate to restore the issue-in-dispute to the file of the Assessing Officer for deciding afresh. The ground No. one of the appeal is accordingly allowed for statistical purposes. Addition in respect of loans which have been held as cash credit u/s 68 - AO held that assessee failed to establish (i) identity of the loan provider (ii) creditworthiness of loan providers and (iii) genuineness of the transactions, and therefore he held those loans as unexplained cash credit in terms of section 68 - assessee filed a letter before the CIT(A) wherein the assessee had requested for filing additional evidences, because those evidences could not be filed before the Assessing Officer.HELD THAT - We find that in the case of M/s Sunrise Associate 2022 (7) TMI 934 - ITAT MUMBAI in view of retraction of statement by Sh. Gautam Bhanwarlal Jain, has restored the matter of addition u/s 68 , back to the Assessing Officer for re-examination. DR could not controvert that there was limited time frame in which the assessee was asked to provide the information and before the assessee could file the said information, the assessment order was passed on 22/12/2017. In our opinion, the assessee fulfils the circumstances under Rule 46A(1)(d) i.e. no sufficient opportunity, therefore additional evidences are eligible for admission. Since in respect of the ground No. 1 of the appeal, we have already restored the issue-in-dispute to the file of the Assessing Officer and therefore, for avoiding multiplicity of simultaneous proceedings, instead of restoring the matter to the file of Ld. CIT(A), we feel it appropriate to restore the issue GP Estimation - estimation of the brokerage income - HELD THAT - Assessee has declared gross profit @ 5.12% on the transactions recorded in the books of account - AO has treated those very transactions related to M/s M/s Mirah Group as transaction of providing accommodation entry without any real business but has not excluded the income offered by the assessee from said transactions of business. AO has separately made addition @ 2% on the very same transaction on which the AO has declared gross profit rate of 5.12%. In our opinion, a separate addition for the brokerage or commission is not required in the facts of the case. The commission or brokerage @ 2% can be considered as generated from accommodation entry transactions, which subsumes in the gross profit @ 5.12% already declared by the assessee. The only difference is of characterization of the source of the income which according to the AO is from the issuing accommodation entry bills whereas according to the assessee profit has been earned from business activity recorded in books of account. Thus lower authorities are not justified in making addition over and above the income @ 5.12% offered by the assessee from business transaction

Issues Involved:
1. Rejection of books of accounts and estimation of business income.
2. Addition of cash credits under section 68 of the Income Tax Act.
3. Set-off of losses to be carried forward.
4. Consideration of retraction of statements in relation to loans.
5. Addition of brokerage income.
6. Addition of interest expenses.

Issue-wise Detailed Analysis:

1. Rejection of Books of Accounts and Estimation of Business Income:
The Assessing Officer (AO) rejected the books of accounts due to the absence of bills, vouchers, and other supporting documents. The AO estimated an addition of ?68,94,265/- at 5% of sales recorded in the books, based on the director's admission of accommodation entries with the Mirah Group. The CIT(A) upheld this addition. The Tribunal noted that the assessee failed to produce the books of accounts but expressed willingness to do so. Consequently, the issue was restored to the AO for fresh verification, emphasizing the need for substantial justice.

2. Addition of Cash Credits under Section 68 of the Income Tax Act:
The AO added ?2,35,00,000/- as unexplained cash credits from loans received from four entities, citing lack of creditworthiness and genuine business activity, supported by third-party statements. The CIT(A) dismissed the assessee's additional evidence under Rule 46A. The Tribunal, acknowledging the limited time given to the assessee to provide information, restored the issue to the AO for re-examination, including verification of additional evidence and examination of the parties involved.

3. Set-off of Losses to be Carried Forward:
The assessee's claim for set-off of carry-forward losses was dismissed by the CIT(A) as the addition issues were unresolved. The Tribunal deemed this issue academic at present, pending the AO's fresh decision on the restored issues. Thus, the ground was dismissed as infructuous.

4. Consideration of Retraction of Statements in Relation to Loans:
For AY 2014-15, the assessee contended that the CIT(A) erred in not considering retraction statements of certain individuals related to loan transactions. The Tribunal restored the issue to the AO for fresh examination, aligning with its decision in AY 2013-14, where similar issues were remanded for re-examination.

5. Addition of Brokerage Income:
For AY 2014-15, the AO added ?36,63,718/- as brokerage income at 2% of sales, despite the assessee declaring a gross profit of 5.12%. The Tribunal held that the brokerage income was subsumed in the declared gross profit, thus no separate addition was warranted. The ground was allowed, setting aside the lower authorities' orders.

6. Addition of Interest Expenses:
For AY 2014-15, the AO added interest expenses related to loans from entities deemed to provide accommodation entries. The Tribunal, following its decision on cash credits, restored these issues to the AO for fresh adjudication, ensuring consistency in handling related matters.

Summary for AY 2015-16:
The AO estimated brokerage income at 5% of sales, while the assessee declared a gross profit of 6.97%. The Tribunal found the brokerage income subsumed in the gross profit, negating the need for separate addition. Similarly, the addition of ?17,18,44,093/- as unexplained cash credits was restored to the AO for fresh examination, consistent with the Tribunal's approach in earlier years.

Conclusion:
The Tribunal allowed the appeals partly for statistical purposes, restoring key issues to the AO for fresh verification and decision, ensuring the principles of natural justice and thorough examination of facts and evidence.

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