2023 (4) TMI 271 - AT - Income Tax

Disallowance for purchase from three parties - as the notices sent u/s 133(6) to the parties were not served and the assessee submitted the ledger accounts which were not signed - CIT- A deleted addition - HELD THAT - During the course of appellate proceedings, the assessee submitted the signed ledger confirmation of all the parties that showed the details of purchases and mode of payment, the copies of the bills raised by these parties were also produced along with permanent account number of the supplier entities. All the suppliers also submitted an affidavit that they had supplied material to the assessee and his proprietary concerns. These details were sent by the CIT (A) for the examination to the learned Assessing Officer and assessee was asked to reconcile the corresponding sales against the purchases. Assessee submitted such detail and based on this, CIT (A) deleted the addition with respect to the above three parties. With respect to VA Inamdar, the Assessing Officer did not give any adverse comment. With respect to Geetesh Co., the proprietor of the firm appeared before the AO and confirmed the supply of goods. Similar is the case with respect to Lucky Enterprises. CIT (A) noted that when there are sales, purchases are bound to be there and therefore, it cannot be disallowed. No infirmity in the order of the learned CIT (A) to that extent. Accordingly, ground no.1.1 and 1.2 of the appeal deserves to be dismissed. CIT (A) enhanced the addition by invoking the provision of Section 40A(3) - CIT (A) noted that though the purchases are genuine, however, the payments for such purchases have been made in violation of Section 40A (3) - We find that even in the genuine purchase if it violates the Provisions of Section 40A (3) separate disallowance can be made despite allowing the deduction of purchase. We do not find any infirmity in the order of the learned CIT (A) in invoking the provision of Section 40A (3) of the Act despite deleting the disallowance with respect to unverified purchases. Power of CIT for enhancement u/s 251 - Enhancement of income by CIT-A - Addition u/s 40A (3) and cash transportation expenses - Addition for cash payment in transportation expenditure which is not in violation of the provisions of section 40A (3) of the act but the payment are made in cash and the learned CIT A has disallowed 25% of such expenses - Receipt from Lodha dwellers private limited - Addition u/s 68 - Undisclosed income from luster engineering company - Enhancement based on personal balance sheet and profit and loss account filed during the course of appellate proceedings - HELD THAT - As powers under section 251 are, indeed, very wide ; but, wide as they are, they do not go to the extent of displacing powers under, say, sections 147, 148, and 263 of the Act. In the present case, the issues on which notice u/s 251 is issued were not at all before ld AO or in Assessment proceedings or were part of Assessment order. The only sum in these proceeding was the addition on account of Lodha Dwellers Pvt Ltd where in we have already upheld the powers of the ld CIT (A) u/s 251 of the Act, as it was part of the Assessment order itself. Therefore, those items, which were not part of the ROI, Assessment proceedings or Assessment order, cannot be considered by the ld CIT (A) for enhancement. Right course would have been to intimate ld AO to issue notice u/s 148 of the Act or to propose revision u/s 263 of the Act. In view of the above , we quash the enhancement to the extent other issues other than income from Lodha Dwellers Pvt Ltd Not find that the whole of the sum received by the assessee from Lodha dwellers is chargeable to tax in the hands of the assessee because, there were many encroachers who have confirmed received payment for removing such encroachment. Accordingly, we find that the sum of 20% added in the hands of the assessee is sufficient to be taxed in the hands of the assessee . Accordingly this ground of appeal is allowed

Issues Involved:
1. Validity of service of notice.
2. Validity of assessment proceedings.
3. Interpretation and application of sections 40A(3) and 68.
4. Reliance on third-party statements without cross-examination.
5. Enhancement of income by CIT (A).
6. Assumptions and surmises in the order of AO and CIT (A).
7. Specific additions and disallowances made by AO and CIT (A).

Detailed Analysis:

1. Validity of Service of Notice:
The first ground of appeal by the assessee challenges the validity of the service of notice, claiming it renders the entire assessment void ab initio. However, no arguments were advanced on this issue, leading to its dismissal.

2. Validity of Assessment Proceedings:
The second ground of appeal questions the validity of the assessment proceedings conducted by the AO and CIT (A). Similar to the first ground, no arguments were advanced, resulting in its dismissal.

3. Interpretation and Application of Sections 40A(3) and 68:
The assessee contested several disallowances and additions under sections 40A(3) and 68. The Tribunal examined each issue in detail:

a. Transportation Charges:
The AO disallowed Rs. 4,435,916 as unproved transportation charges. The CIT (A) deleted this disallowance but noted cash payments exceeding Rs. 20,000, leading to an enhancement of Rs. 291,330 under section 40A(3). Additionally, 25% of Rs. 14,70,327 was disallowed due to inadequate details. The Tribunal upheld the disallowance of Rs. 291,330 but deleted the 25% disallowance of Rs. 367,581, finding it contradictory to the CIT (A)'s earlier acceptance of the expenses as genuine.

b. Purchases:
The AO disallowed Rs. 2,87,26,562 as unproved purchases. The CIT (A) allowed the deduction but invoked section 40A(3) for cash payments, enhancing the disallowance by Rs. 5,433,800. The Tribunal remitted the issue back to the AO for fresh verification, directing the assessee to substantiate the payments.

c. Hiring Charges:
The AO disallowed Rs. 6,302,742 under section 37. The CIT (A) deleted this but added Rs. 85,000 under section 40A(3) for cash payments. The Tribunal remitted this issue back to the AO for fresh verification.

d. Cash Deposits:
The AO added Rs. 1,050,000 under section 68 for unexplained cash deposits. The CIT (A) retained Rs. 525,000. The Tribunal found the assessee had sufficient cash withdrawals to cover the deposit and directed the deletion of Rs. 525,000.

e. Undisclosed Income from Lodha Dwellers Pvt. Ltd.:
The AO added Rs. 1,44,76,220 as undisclosed income. The CIT (A) reduced this to Rs. 13,387,820, rejecting affidavits submitted by the assessee. The Tribunal found the assessee had already offered Rs. 2,416,230 as income and directed the AO to retain this amount, deleting the balance.

f. Undisclosed Income from Luster Engineering Company:
The AO added Rs. 92,400 as undisclosed income. The CIT (A) confirmed this, and the Tribunal upheld the addition.

4. Reliance on Third-Party Statements Without Cross-Examination:
The assessee argued that the AO and CIT (A) erred in relying on third-party statements without offering cross-examination. The Tribunal did not find specific arguments or evidence to support this claim, leading to its dismissal.

5. Enhancement of Income by CIT (A):
The CIT (A) made several enhancements to the assessee's income. The Tribunal examined the powers of the CIT (A) under section 251 and found that while the CIT (A) could enhance income based on matters arising out of the assessment proceedings, he could not introduce a new source of income not considered by the AO. Consequently, the Tribunal quashed enhancements unrelated to the original assessment proceedings.

6. Assumptions and Surmises in the Order of AO and CIT (A):
The assessee claimed that the AO and CIT (A) based their orders on assumptions and surmises. The Tribunal evaluated the evidence and found that while some additions were justified, others lacked sufficient basis, leading to partial relief for the assessee.

7. Specific Additions and Disallowances:
The Tribunal provided detailed rulings on each specific addition and disallowance, resulting in partial relief for the assessee and the remand of certain issues back to the AO for fresh verification.

Conclusion:
The Tribunal dismissed the appeal of the AO and partly allowed the appeal of the assessee, providing detailed directions for fresh verification and deletion of certain additions. The order was pronounced in the open court on 08.02.2023.

← Previous Next →