2024 (4) TMI 742 - AT - Income Tax

Addition of bogus sales - difference in opinion between learned Members constituting the bench - matter referred to third member - Accountant Member has given a clear cut finding that no addition u/s 68, whereas, Judicial Member has returned a finding that the addition has to be made u/s. 69 - whether, the ingredients of section 68 of the Act are satisfied to sustain the disputed additions? and whether additions in dispute can alternatively made u/s. 69? - assessee is a resident partnership firm stated to be engaged in the business of trading in bullion, jewellery etc. HELD THAT - As far as the salesalleged to have been made to bogus entities controlled by entry operator Shri Sonu Punjabi, it is observed that in course of assessment proceeding as well as before the First Appellate Authority the assessee has furnished various documentary evidences, such as, party wise details of purchase and sale for the entire year, VAT returns and VAT assessment orders, item wise stock register and purchase invoices, confirmation from the suppliers, audited books of accounts, quantitative tally of purchase and sale etc. It is also a fact that the suppliers from whom the assessee purchases gold/bullion confirmed the transactions in response to notices issued u/s. 133(6) of the Act. Pertinently, no deficiency or discrepancy was found either in the books of accounts maintained by the assessee or the documentary evidences furnished. This is so because, neither the AO nor the FAA have returned any adverse inference, either in relation to the books of accounts maintained by the assessee or the documentary evidences furnished. Merely, because the notices issued u/s. 133(6) and summons issued u/s. 131 returned unserved or remained unanswered, cannot lead to the conclusion that sales are bogus, when there are overwhelming documentary evidences brought on record in the form of audited books of accounts, stock register, item wise purchase and sales, VAT return, VAT assessment order accepting the sale transactions to demonstrate that the assessee indeed has effected the sales. In respect of sales made to M/s. RBPL the addition in our view was made purely on conjectures and surmises - Admittedly, the AO has not found any discrepancy or deficiency in the books of accounts and stock register maintained by the assessee. Thus, when the assessee has maintained item wise purchase and sale details as well as stock register and, moreover neither in course of survey any stock discrepancy was found nor any unaccounted cash was found, certain sales cannot be treated as bogus. Similar is the factual position qua the sales effected to M/s. Olivia Tradelinks India P. Ltd., and M/s. S.S Overseas, as, the assessee has furnished all documentary evidences to prove the identity, creditworthiness and genuineness of transaction. Thus, the assessee has sufficiently discharged the initial burden cast upon it to prove the credit entries appearing in the books of account. Once it is established that the initial burden cast upon the assessee has been discharged, the burden shifts to the Assessing Officer to conclusively prove that the credit entries appearing in the books of accounts are unexplained in terms with section 68 of the Act. In the facts of the present appeal, the Assessing Officer has failed to do so. As rightly observed by Accountant Member, since the Assessing Officer has started the computation of income with the returned income of the assessee, it goes to prove that the entire trading account shown in the financial statement filed with the return of income has been accepted by the Assessing Officer. Also agree with learned Accountant Member that once the sales made by the assessee are supported by stock register, sale bills, payments through banking channel and sales have not only been disclosed in VAT returns but stand duly verified and accepted by VAT Department, such sales cannot be treated as bogus, so as to enable the Assessing Officer to invoke the provisions of section 68 of the Act. Thus, addition made u/s. 68 of the Act was rightly deleted. Addition u/s 68 v/s 69 - In the facts of the present appeal, it is an admitted factual position that the disputed transactions are duly recorded in the books of accounts of the assessee. Therefore, at the very threshold the provisions of section 69 will not get attracted. In fact, Revenue fairly accepted aforesaid factual and legal position. In any case of the matter, both the Assessing Officer and learned First Appellate Authority have proceeded on the premise that the credit entries appearing in the books of account are unexplained cash credit u/s. 68 - It is quite patent and obvious that provisions contained u/s. 68 and 69 of the Act operate in different situations and conditions therein are also different. Therefore, when it was never the case of the Department that the disputed addition has to be treated as unexplained investment u/s. 69 of the Act, at the second appellate stage, a new dimension cannot be given to the disputed issue by converting the addition from section 68 to section 69, that too, without providing an opportunity of being heard to the assessee. More so, when applicability of section 69 was never within the purview of the Tribunal and not even the case of the Department. Revenue, though, had fairly agreed that provisions of section 69 cannot get attracted, however, he urged and pleaded that the addition made u/s. 68 of the Act should be sustained - aforesaid contention of learned Standing Counsel is unacceptable considering the fact that the mandate given to me as Third Member is very limited in its scope and I have to agree with the view expressed by one of the Members. In the facts of the present appeal, learned Accountant Member has given a clear cut finding that no addition u/s 68 of the Act can be made. Whereas, learned Judicial Member has returned a finding that the addition has to be made u/s. 69 of the Act. In other words, learned Judicial Member impliedly agrees that the addition could not have been made u/s. 68 of the Act. Thus, in third member view, there is no disagreement between the learned Members with regard to applicability of section 68 of the Act to the disputed addition. Ratio laid down in the decisions referred to by learned Accountant Members clinches the issue in favour of the assessee. Thus, additions made u/s. 68 of the Act are unsustainable as agreeing with the view expressed by learned Accountant Member.

Summary

Issues Involved:
1. Whether the CIT(A) erred in confirming the addition made by the Assessing Officer on account of alleged bogus sales.
2. Whether the additions in dispute can alternatively be made u/s 69 of the Act.

Summary:

Issue 1: Alleged Bogus Sales and Unexplained Cash Credit u/s 68

The core issue is whether the addition made u/s 68 of the Act for alleged bogus sales can be sustained. The assessee, a partnership firm engaged in trading bullion and jewelry, filed its return of income declaring Rs. 17,10,646/-. A search and seizure operation u/s 132 revealed large cash deposits in various bank accounts, including M/s. Ringing Bells Pvt. Ltd. (RBPL), which were allegedly transferred to the assessee. The Assessing Officer (AO) concluded that sales worth Rs. 49,19,43,623/- to 44 entities controlled by an entry operator were bogus, treating them as unexplained cash credit u/s 68. Additionally, sales to RBPL, M/s. Olivia Tradelinks India P. Ltd., and M/s. S.S Overseas were also treated as bogus, leading to a total addition of Rs. 72,15,97,386/-.

The CIT(A) confirmed the addition, but the Accountant Member of the Tribunal found the assessee had established the identity and creditworthiness of the purchasers and the genuineness of the transactions, thus deleting the addition. The Judicial Member, however, viewed the sales as bogus and suggested the addition should be made u/s 69 of the Act.

Issue 2: Applicability of Section 69

The Judicial Member proposed converting the addition from u/s 68 to u/s 69, which pertains to unexplained investments not recorded in the books of accounts. However, the Third Member highlighted that the disputed transactions were recorded in the books, making section 69 inapplicable. The Third Member agreed with the Accountant Member that the addition u/s 68 was unsustainable, as the assessee had provided sufficient documentary evidence, and no discrepancy was found in the books of accounts.

Conclusion:

The Third Member concluded that the additions made u/s 68 of the Act are unsustainable and agreed with the Accountant Member's view. The matter was directed to be placed before the regular bench for passing a confirmatory order as per the majority view.