2023 (6) TMI 1111 - AT - Income Tax

Undisclosed sale receipts/ on money Receipt - HELD THAT - The entire basis of the AO was based on the presumption and conjectures, and the addition therefore was not justified more particularly, when no incriminating material in relation to undisclosed sale was found during the search. Therefore, we completely agree with the ld.CIT(A) that the addition made on account of undisclosed sale receipts was totally unjustified. The deletion of addition made by the ld.CIT(A) therefore on account of undisclosed sale receipts is accordingly upheld. Unsecured Loans Interest on Unsecured Loans - CIT- A deleted the addition - HELD THAT - Clearly the very basis with the Department of unsecured loans being bogus accommodation entry for unaccounted sales of the assessee no longer survives, on the addition made of unaccounted sales being deleted by us above. And added to it the fact that no material was found during search evidencing the Revenues stand. The finding of the AO that the unsecured loans were bogus accommodation entries is based merely on surmises and conjectures and is not sustainable more particularly when the assessee has been found by the Ld.CIT(A) to discharge its onus of proving the genuineness of the transactions. CIT(A), we find, noted that the assessee had filed all evidences to prove genuineness of the transaction. With regard to the unsecured loans taken by the assessee in Asst. Year 2014-15 from Vansh Glass P. Ltd. The ld.CIT(A) has recorded a categorical finding of the fact that this amount was offered for settlement by Param Enterprise, an entity of the group searched. The above factual finding of the ld.CIT(A) have not been controverted by the ld.DR before us. Therefore we are in complete agreement with the Ld.CIT(A) that there was no basis or material with the AO for treating the unsecured loans of the assessee as being accommodation entries. Decided in favour of the assessee. Net Profit estimation - addition by CIT-A by estimating net profit earned by the assessee at the rate of 17.5% as against 16% declared by the assessee on the basis of disclosure made by other group concerns in their Settlement Application filed - HELD THAT - An estimated net profit rate was applicable only in the circumstances where books of accounts of the assessee were found to be not reliable and rejected by the Department. In the present case, both the ld.CIT(A) and even ITAT have found no infirmity in the books of accounts of the assessee. As no infirmity found in the books of accounts of the assessee. In the absence of any infirmity there is no reason to reject book results and estimate net profit rate. Accordingly, net profit applied at the rate of 17.5% of the turnover disclosed in the books of the assessee, is held to be untenable in law, and addition made on account of the same is directed to be deleted in both the years. The assessee s appeal in both the years is accordingly allowed.

Issues Involved:

1. Legality of Additions in Absence of Incriminating Material
2. Unexplained Cash Credits and Interest Disallowance
3. Unrecorded Sales Receipts/On-Money
4. Net Profit Estimation

Summary:

Issue 1: Legality of Additions in Absence of Incriminating Material

The Tribunal addressed the appeals arising from assessments framed following a search action under Section 132 of the Income Tax Act on 07.01.2014. The primary contention of the Revenue was that the CIT(A) erred in deleting additions made in the absence of any incriminating material found during the search. The CIT(A) had relied on the jurisdictional High Court's ruling in Pr. CIT Vs. Saumya Construction P. Ltd., which held that no additions could be made in unabated assessments without incriminating material. The Tribunal upheld the CIT(A)'s decision, noting that the factual findings regarding the absence of incriminating material were unchallenged by the Revenue.

Issue 2: Unexplained Cash Credits and Interest Disallowance

For the assessment years 2013-14 and 2014-15, the AO had made additions under Section 68 for unexplained loans and disallowed interest on these loans. The CIT(A) deleted these additions, noting that no incriminating material was found during the search and the assessee had provided sufficient evidence to prove the genuineness of the loans. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Revenue's basis for treating the loans as accommodation entries was not supported by any material evidence found during the search.

Issue 3: Unrecorded Sales Receipts/On-Money

The AO had made additions for unrecorded sales receipts based on a statement from a key person of another group entity and a document found during the search. The CIT(A) deleted these additions, noting that the statement pertained to a different entity and the document was not incriminating. The Tribunal agreed with the CIT(A), stating that the AO's addition was based on presumptions and conjectures without any direct evidence. The Tribunal upheld the deletion of the additions for unrecorded sales receipts for both assessment years.

Issue 4: Net Profit Estimation

The CIT(A) had estimated the net profit of the assessee at 17.5% of the turnover based on disclosures made by other group entities to the Settlement Commission. The Tribunal disagreed with this approach, stating that an estimated net profit rate was only applicable when the books of accounts were found unreliable and rejected, which was not the case here. The Tribunal directed the deletion of the addition made on this basis for both assessment years.

Conclusion:

The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeals, upholding the CIT(A)'s deletion of additions for unexplained cash credits, interest disallowance, and unrecorded sales receipts while rejecting the net profit estimation. The cross-objection of the assessee was dismissed.

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