2023 (1) TMI 1216 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - bogus LTCG - As argued no incriminating material found during the course of search and therefore, no addition can be made in the hands of the assessee - HELD THAT - During the course of search, the long-term capital gain earned by the assessee claimed as exempt under section 10 (38) of the act was found recorded in the books of account of these non-genuine companies. The statement recorded of the assessee under section 132 (4), assessee himself has explained whole modus operandi of the scheme and admitted that long-term capital gain claimed by the assessee and his family members and the companies is bogus, non-genuine and all out of many political and fraudulent transactions. Nothing is required to be unearthed during the course of search as more than enough incriminating material was already available with the search party confronted to the assessee were admitted having the unaccounted income. It is always not necessary that there have to be some paper trail, which should have been found during the course of search for making an addition. The statement made by the assessee confirming the information, admitting the unaccounted income, explaining the modus operandi of earning such income, naming the parties involved in such activity shows clear-cut evidences of earning unaccounted income. Therefore, we do not find any infirmity in the order of the learned CIT A the extent holding that that the addition of unaccounted long-term capital gain which is proved to be bogus is based on material found during the course of search and satisfies all the conditions prescribed under section 153A - no merit in the cross objections of the assessee, hence it is dismissed. Telescoping of the gross profit addition in the hands of this assessee company - The appeal filed by the learned assessing officer is allowed for statistical purposes setting aside back to the file of the learned CIT A to give clear-cut finding as to how merely an addition of ₹ 6 crores is enough where as bogus long-term capital gain earned is more than ₹ 120 crores. The learned CIT A is also directed to give a specific finding year wise, amount twice, assessee wise with reasons that how telescoping of the long-term capital gain earned by individuals and companies can be subsumed in a meager addition of ₹ 6 crores in the hands of Hazel Mercantile Ltd. Addition u/s 14A r.w.r. 8D - HELD THAT - CIT A held that there is no dispute on applicability of section 14 A, the assessee is not given its working for the computation of disallowance, therefore the satisfaction recorded by the learned AO is correct. However, he held that the investment made by the assessee in its subsidiaries and where share capital and free reserve of the assessee stands at ₹ 616 crores, which is far in excess of the investment made in those subsidiary companies. Therefore he confirmed the disallowance only with respect to 0.5% of the administrative expenditure to ₹ 174634/ . No infirmity is pointed out. Therefore, the action of the learned CIT A cannot be found fault with. Ground number 7 of the appeal of the assessee for assessment year 2014 15 is dismissed. These findings also apply to the assessment year 2015 16. Disallowance of 10% of business promotion expenses - In absence of any details furnished by the assessee, disallowance was confirmed. As we also do not have any other details, we do not have any hesitation in confirming the disallowance. Ground number 8 is dismissed. For other years, also the above finding covers the issue against the assessee. Addition with respect to certain transactions pertaining to one-company Sumilon industries Ltd - assessee argued seized paper is merely a loose paper and irrelevant and inadmissible as evidence - HELD THAT - CIT A considered the seized documents and held that an amount of ₹ 50 lakhs is written by hand against the above company and further there is an Angadia expenses on 30 July 2015 which clearly shows that assessee has sent the above amount through courier and commission is paid for the same. Accordingly applying the provisions of section 292C he confirmed the addition. We do not find any infirmity in the order of the learned CIT A as the seized documents clearly shows the nature of the payment, the amount paid, the party to whom it is paid and the courier details showing the commission how it is paid. Therefore, the addition deserves to be confirmed. Appeal filed by the assessee for all these years are dismissed and appeal of the learned assessing officer are allowed for statistical purposes.

Summary

Issues Involved:
1. Bogus Long-Term Capital Gains (LTCG) claims under Section 10(38) of the Income Tax Act.
2. Unaccounted commission payments for arranging accommodation entries.
3. Incriminating material found during the search and its admissibility.
4. Protective vs. substantive additions in the hands of different entities.
5. Telescoping of income between individuals and companies.
6. Disallowance under Section 14A and business promotion expenses.

Detailed Analysis:

1. Bogus Long-Term Capital Gains (LTCG) Claims:
The primary issue was the claim of LTCG under Section 10(38) by three assessees, which the Revenue found to be bogus. The investigation revealed that the assessees had shown LTCG from share transactions with ten companies, which were accommodation entries. The Joint Commissioner of Income Tax filed appeals against the deletion of these additions by the Commissioner of Income Tax (Appeals) [CIT (A)].

2. Unaccounted Commission Payments:
The Assessing Officer (AO) added 5% of the LTCG as unaccounted commission paid to entry operators Mr. Natwar and Mr. Girish Zaveri. The CIT (A) deleted these additions, leading to appeals by the Revenue.

3. Incriminating Material Found During Search:
The search on 10th September 2015 led to the discovery of incriminating material, including statements under Section 132(4) where the assessee admitted to bogus LTCG. The assessees later retracted these statements. The CIT (A) held that the retraction was an afterthought and confirmed the existence of incriminating material.

4. Protective vs. Substantive Additions:
The CIT (A) made protective additions in the hands of Hazel Mercantile Ltd. and deleted the additions in the hands of individuals to avoid double taxation. The Revenue challenged this, arguing that the addition should be made substantively in the hands of the individuals.

5. Telescoping of Income:
The CIT (A) allowed telescoping of income by holding that the unaccounted income from Hazel Mercantile Ltd. subsumed the bogus LTCG shown by the individuals. The Tribunal found this reasoning unsustainable due to the gross mismatch in amounts and lack of evidence supporting such telescoping.

6. Disallowance Under Section 14A and Business Promotion Expenses:
For AY 2014-15 and 2015-16, the CIT (A) confirmed part of the disallowance under Section 14A related to administrative expenses but reduced the amount. The Tribunal found no infirmity in this decision. Additionally, the CIT (A) confirmed the disallowance of 10% of business promotion expenses due to lack of details.

Tribunal's Decision:
1. Bogus LTCG and Commission Payments: The Tribunal set aside the CIT (A)'s decision and remanded the matter back to the CIT (A) to provide a reasoned finding on how the bogus LTCG is subsumed in the gross profit addition in Hazel Mercantile Ltd. The appeals by the AO were allowed for statistical purposes, and the cross objections by the assessees were dismissed.

2. Incriminating Material: The Tribunal upheld the CIT (A)'s finding that there was enough incriminating material found during the search to justify the additions.

3. Protective vs. Substantive Additions: The Tribunal directed the CIT (A) to reconsider the additions and provide a detailed explanation on the telescoping of income.

4. Disallowance Under Section 14A and Business Promotion Expenses: The Tribunal confirmed the CIT (A)'s decision on these disallowances.

Conclusion:
The Tribunal allowed the Revenue's appeals for statistical purposes and dismissed the cross objections of the assessees. The CIT (A) was directed to re-examine the telescoping of income and provide a detailed, reasoned order. The Tribunal upheld the existence of incriminating material and confirmed the disallowance under Section 14A and business promotion expenses.