2023 (4) TMI 83 - AT - Income Tax

Deduction claim as selling expenses while computing the long term capital gain on transfer/sale of shares - CIT-DR vehemently argued that the CIT(A)'s herein has erred in deleting the impugned addition despite the fact that it is a clearcut instance of the assessee having availed/given accommodation entries of bogus compensation to the foregoing twin entities - HELD THAT - It emerges from the CIT(A)'s detailed discussion that he has given much a weightage to the search action involving the recipient entities followed by the post-search enquiries and assessment in their respective cases to observe that the same had not yielded any incriminating material so far as the impugned claim is concerned. All this constrains us to observe that the CIT(A) ought to have independently examined the genuineness of the assessee's impugned claim in light of the above prima facie suspicious circumstances rather than discussing the search action in case of the twin recipient companies wherein the instant issue neither emanated from the alleged incriminating material nor there was any dispute to the said limited extent. Faced with this situation, we deem it appropriate that the CIT(A) needs to re-examine this sole issue independently vis- -vis genuineness of the assessee's claim in the given facts and circumstances afresh - Revenue's sole substantive ground succeeds for statistical purposes.

Summary

Issues Involved:
1. Whether the CIT(A) erred in directing the AO to delete the addition of Rs. 7,84,00,000/- made by disallowing the deduction claimed by the assessee as selling expenses while computing the long-term capital gain on transfer/sale of shares.
2. Whether the cancellation agreement and the subsequent payment of Rs. 7,84,00,000/- were colorable devices to minimize tax liability.

Detailed Analysis:

Issue 1: Deletion of Addition by CIT(A)
The Revenue contended that the CIT(A) erred in directing the AO to delete the addition of Rs. 7,84,00,000/- claimed by the assessee as selling expenses. The assessee argued that the amount was a genuine expenditure incurred due to the cancellation of agreements with Nilesh Steel & Alloys Pvt. Ltd. and Dhanlaxmi TMT Bars Pvt. Ltd. The CIT(A) accepted the assessee's claim, noting that the payments were made through banking channels and were duly accounted for in the financial statements of the recipient entities. The CIT(A) also observed that both recipient entities had offered the amounts to tax in their respective returns, and the AO had not provided any evidence to prove that the transactions were sham or colorable devices.

Issue 2: Allegation of Colorable Device
The Revenue argued that the cancellation agreements were colorable devices to minimize tax liability, citing the absence of stamp duty and the lack of court proceedings for dispute settlement. The CIT(A) rejected this argument, stating that the agreements were notarized and made on stamp papers, and the payments were made through banking channels. The CIT(A) further noted that the AO failed to bring any corroborative evidence to support the claim that the agreements were sham. The CIT(A) also highlighted that the recipient entities were subjected to search operations, which did not yield any incriminating evidence against the transactions.

Tribunal's Decision:
The Tribunal observed that the CIT(A) had given undue weightage to the search action involving the recipient entities and failed to independently examine the genuineness of the assessee's claim. The Tribunal directed the CIT(A) to re-examine the issue independently, considering the prima facie suspicious circumstances, and provide three effective opportunities of hearing to the assessee. The Tribunal allowed the Revenue's appeal for statistical purposes, emphasizing the need for a thorough re-examination of the facts and circumstances.

Conclusion:
The Tribunal remanded the case back to the CIT(A) for a fresh examination of the genuineness of the assessee's claim regarding the deduction of Rs. 7,84,00,000/-, directing a detailed and independent assessment of the issue. The Revenue's appeal was allowed for statistical purposes, and no other grounds or arguments were raised before the Tribunal.