2023 (6) TMI 867 - AT - Income Tax

Estimation of income - Bogus purchase expenses - CIT(A) directed the AO to restrict disallowance of purchases to 5% of the total purchases made from seven (7) parties - HELD THAT - Even though, we uphold the action of the Ld. CIT(A), it is not on the reason given by the Ld. CIT(A) but on the ground that since the sale figure have not been disturbed by the AO, and CIT(A) has given a finding of the fact that the assessee was Government contractor and has completed the projects namely undertaken by it for BMC MCGM and on successful completion of work/contract has received the payments from them, the presumption drawn is that the assessee might have procured the material for execution of work from the grey market and have approached these accommodation entry providers-(seven parties) for accommodation bills by giving commission to them, for saving some money. Therefore, the gross profit (GP) only need to be added (profit embedded in the bills procured from entry providers which is prevalent in the line of business). Therefore, we uphold the action of the Ld. CIT(A) and dismiss the appeal of the revenue. Addition u/s 68 - bogus unsecured loans - unsecured loan payment from Late Shri Lavji N. Shah - CIT-A deleted the addition - HELD THAT - CIT(A) gave finding of fact that after perusal of the bank statement of Late Lavji, that there was sufficient balances in his bank accounts before giving loan to the assessee firm. CIT(A) also found that there was no cash deposit in the bank account before advancing the loan to the assessee firm. And that the loan transaction was through the regular banking channel. CIT(A) was of the view that the creditworthiness of the Late Shri Lavji N. Shah also stands proved. And therefore according to him section 68 of the Act cannot be invoked against the assesse and was pleased to hold that the assessee has brought on record necessary evidences to prove genuineness of the unsecured loan payment from Late Shri Lavji N. Shah and therefore deleted the addition made u/s 68 of the Act, which action of the Ld. CIT(A) is sustained because the Ld. CIT(A) has taken the decision on the basis of facts which could not be assailed before us. Since no perversity can be attributed to the action of Ld. CIT(A), we uphold the action of Ld. CIT(A) deleting the addition. And therefore, we dismiss this ground of appeal of the revenue.

Summary

Issues Involved:
1. Deletion of addition on account of bogus purchase expenses.
2. Deletion of addition on account of bogus unsecured loans.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Bogus Purchase Expenses:

The revenue appealed against the deletion of Rs. 68,94,145/- on account of bogus purchase expenses for AY 2019-20. The assessee had filed a return declaring an income of Rs. 4,36,19,460/-. During a search operation on M/s. Skyway Infra projects Pvt. Ltd., it was revealed that the assessee and its group companies were involved in bogus billing and accommodation entries. The AO scrutinized the assessee's purchases and found deficiencies in the documentation provided. The AO disallowed purchases worth Rs. 70,93,473/- due to the inability to substantiate the genuineness of the purchases. The Ld. CIT(A) partially allowed the appeal, deleting Rs. 31,06,886/- related to purchases from three parties and restricting the disallowance to 5% for the remaining Rs. 39,86,587/-.

The Ld. CIT(A) based his decision on the fact that the assessee was a government contractor, had completed projects for BMC and MCGM, and received payments from these agencies. The AO did not disturb the sales figures. The Ld. CIT(A) concluded that the purchases were genuine but might have involved accommodation bills for saving some money. Therefore, only a 5% disallowance was justified. The tribunal upheld the Ld. CIT(A)'s decision, noting that the AO had not disturbed the sales and the projects were completed and certified by competent authorities.

2. Deletion of Addition on Account of Bogus Unsecured Loans:

The revenue also appealed against the deletion of Rs. 2,21,04,615/- added by the AO under section 68 of the Income Tax Act on account of bogus unsecured loans for AY 2019-20. The AO found lapses in the documentation provided by the assessee to substantiate the unsecured loans. The assessee produced some creditors before the AO, but the AO added the loans to the income as the lenders failed to clarify the source of funds.

The Ld. CIT(A) deleted the addition, noting that the assessee had provided necessary documentation, including income tax returns and proof of repayment. The Ld. CIT(A) found that the parties were identifiable, and the transactions were through banking channels. The AO's adverse inference was based on the lenders' failure to prove the source of funds, but the Ld. CIT(A) held that the assessee had proved the identity, creditworthiness, and genuineness of the transactions. The tribunal upheld the Ld. CIT(A)'s decision, finding no perversity in the action of the Ld. CIT(A).

Conclusion:

The tribunal dismissed the revenue's appeals for both AY 2018-19 and AY 2019-20, upholding the Ld. CIT(A)'s decisions on both issues. The cross-objections filed by the assessee were also dismissed as they were not pressed. The order was pronounced in the open court on 27/02/2023.