2015 (1) TMI 358 - AT - Income Tax

Deletion on bogus sundry creditors transaction unexplained expenses or not relief granted without proper justification - Held that - Revenue contended that the CIT(A) has granted relief to the assessee without proper justification - the AO has made his findings and it is also apparent from examination of records that the assessee has not conducted any business activity during the year - There was no purchase and sales during the year under consideration - some transactions are there in respect of sundry creditors and sundry debtors - the AO has made examination and found that they are not genuine - The ledgers in the name of M/s. Shilpashree Saree and M/s. S.S Textiles in the books of the assessee company revealed that some payments were given by cheques - The Bank Manager was requested to furnish the copies of the cheques issued to M/s. Shilpashree Saree and M/s. S.S Textiles - The copies of the cheques as collected from the Bank ascertained that the assessee did not issued cheques to M/s. Shilpa Shree Saree and M/s. S.S Textiles, but issued to M/s. Kalna Machines Pvt. Ltd and Vikash Chowdhury, one of the directors of the assessee company. CIT(A) has found that the AO was being asked to enquire the transactions - the powers of the CIT(A) are coterminus with that of the AO - If the AO has failed to perform the necessary examination, then it was incumbent on the CIT(A) to make necessary verification and satisfy himself - CIT(A) has drawn adverse inference by finding that the AO has not made proper examination - CIT(A) has observed that even if the business is held to be a sham affair and the receipts are held to be bogus, it is beyond the stretch of imagination that the other parts of the trading account/profit and loss from other sources - this not a proper finding in Kapurchand Shrimal Vs. CIT 1981 (8) TMI 2 - SUPREME Court it has been held that it is the duty of the appellate authority to correct the lacuna in the proceedings of the authorities below and also to remit the matter, if required - this is not correct as the CIT(A) has not given proper findings after due examination the matter is to be remitted back to the AO for verification Decided in favour of revenue.

Summary

Issues involved:
Appeal against order deleting additions on account of bogus sundry creditors, debtors, and unexplained stock. Validity of business activity, consideration of fresh evidence during appeal stage, and justification of additions made by the AO.

Analysis:
1. Validity of Business Activity:
The AO found no business activity by the assessee in the relevant assessment year. Despite claims of purchases and sales, the AO concluded that the transactions were not genuine. The AO highlighted discrepancies in payments made to suppliers, lack of proper business establishment, and circulation of money back to the director and his family. Consequently, the AO added amounts as unexplained expenditure and income from undisclosed sources.

2. Consideration of Fresh Evidence:
During the appellate proceedings, the ld.CIT(A) obtained a remand report from the AO. The ld.CIT(A) noted the failure of the AO to verify certain transactions and addresses despite requests. The ld.CIT(A) deleted the additions, stating that the assessee had informed about business closure and address changes. The ld.CIT(A) emphasized that the AO's additions were unjustified and unwarranted, as the appellant had shown availability of funds and provided explanations for the transactions.

3. Justification of AO's Additions:
The revenue appealed against the ld.CIT(A)'s order, arguing that relief was granted without proper justification. The Tribunal observed that the AO's findings indicated no business activity by the assessee and questioned the genuineness of the transactions. The Tribunal noted discrepancies in payments to suppliers and discrepancies in the AO's examination. Citing a Supreme Court case, the Tribunal emphasized the duty of the appellate authority to correct lacunae in proceedings and remit the matter if necessary.

4. Decision and Remittance to AO:
The Tribunal found that the ld.CIT(A) had not provided proper findings after examination and remitted the matter to the AO for fresh consideration. The AO was directed to verify all transactions, consider the assessee's submissions, and provide a fair opportunity for the assessee to be heard. The appeal of the revenue was allowed for statistical purposes.

In conclusion, the judgment addressed the issues of business activity validity, consideration of fresh evidence, justification of AO's additions, and the remittance of the matter for further examination by the AO. The Tribunal emphasized the importance of proper verification and examination in tax assessments and the duty of appellate authorities to ensure fairness in the proceedings.