2024 (6) TMI 72 - AT - Income Tax

Addition as unexplained income - assessee has taken certain accommodation entries - addition made on lack of proof regarding the nature of transactions creditworthiness of the parties and the genuineness of the transactions - HELD THAT - AO while treating the entire transaction as unexplained has gone by the premise that since these are all accommodation entries and therefore the entire purchases are by way of sales or by way of income payment received against loans / advances and payment made against loan received are unexplained. Such premise first of all has no basis and he has not even examined or there is any categorical information or enquiry by the ld. AO that either the purchases are bogus or sales are bogus or assessee has not given any loan in the earlier years or advances. If all these entries are declared in the books of accounts and nature of transactions are nowhere in the nature of unexplained loan or credit we fail to understand how the addition can be made. Accordingly on merits we do not find any reason to confirm the order of the ld. AO and ld. CIT(A). Accordingly the addition is deleted. Decided in favour of assessee.

Issues Involved:
1. Reopening of assessment u/s 148.
2. Addition of Rs. 3,08,47,239/- as unexplained income.

Summary:

Reopening of Assessment u/s 148:
The assessee challenged the reopening of assessment u/s 148 on various grounds. The case was reopened based on information received from DCIT Central Circle-4(2), Mumbai, indicating that the assessee was a beneficiary of accommodation entries arranged by Shri Hasmukh Mehta. The AO issued a notice u/s 148, believing that the income of Rs. 3,08,47,239/- had escaped assessment due to the assessee's failure to disclose all material facts.

Addition of Rs. 3,08,47,239/-:
The AO added Rs. 3,08,47,239/- to the assessee's income, treating it as unexplained. The assessee provided detailed explanations and supporting documents for each transaction, arguing that these were legitimate business transactions. The AO, however, rejected these explanations, citing the lack of proof regarding the nature of transactions, creditworthiness of the parties, and the genuineness of the transactions.

Findings:
1. Pioneer Insurance Pvt. Ltd (Rs. 650564/-): The transaction was income/brokerage received and already declared in the profit and loss account. The tribunal found no basis for treating it as unexplained.

2. H.J.Thakkar Properties Pvt. Ltd (Rs. 500000/- & Rs. 900000/-): These were repayments of advances given in earlier years. The tribunal held that the return of loan could not be treated as unexplained credit.

3. Infrasoft Technologies Pvt. Ltd (Rs. 12,13,488/-, Rs. 20,25,311/- & Rs. 20,14,896/-): These were income/brokerage received and declared in the profit and loss account. The tribunal found no basis for treating them as unexplained.

4. Anirudha Enterprises (Rs. 50,00,000/-): This was an advance received, supported by confirmation and bank statements. The tribunal held that the AO should have inquired further rather than treating it as unexplained.

5. Pioneer Investment Ltd (Rs. 5,80,980/-): This was income/brokerage received and declared in the profit and loss account. The tribunal found no basis for treating it as unexplained.

6. ADF Foods Pvt. Ltd (Rs. 9,00,000/-): This was a finance expense included in the profit and loss account. The tribunal found no basis for treating it as unexplained.

7. Stac International (Rs. 12,00,000/-): This was a short-term advance given by the assessee. The tribunal found no basis for treating it as unexplained.

8. K. Sevnatilal & Co. (Rs. 52,36,000/- & Rs. 63,26,000/-): These were purchases of goods supported by purchase bills and bank statements. The tribunal found no basis for treating them as unexplained.

9. K. Sevantilal & Co. (Rs. 44,00,000/-): This was a sale of goods included in the revenue from operations. The tribunal found no basis for treating it as unexplained.

Conclusion:
The tribunal found that the AO's premise for treating the transactions as unexplained was unfounded. The transactions were legitimate business activities, duly declared in the books of accounts. Consequently, the addition of Rs. 3,08,47,239/- was deleted. The issue of the validity of reopening was treated as academic since the addition was deleted on merits.

Result:
The appeal of the assessee was allowed.

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