2017 (11) TMI 625 - AT - Income Tax

Rejection of books of accounts - Addition on account of the recoveries to be made by NSEL - Held that - No specific defects in the maintenance of books of accounts by the assessee have been pointed out. The assessee filed copy of the ledger account of the assessee in the books of accounts of NSEL showing assessee has to recover margin money of ₹ 44.56 crores from NSEL and some amount is mentioned in the trail balance as due to the assessee, so there is no question of making any recovery against the assessee. The authorities below have made and confirmed the addition against the assessee because the assessee could not file confirmation accounts from NSEL as on the date. When the assessee was not Member of NSEL during the period from 01.08.2013 to 31.08.2013, the period the recovery, where is a question of filing confirmation from NSEL in this regard. If the AO wanted to make the addition of impugned amount against the assessee, the AO should have examined NSEL and M/s Sharp and Tannan Associates. However, the AO did not make any investigation from them so as to make any addition of the impugned amount against the assessee. Since the AO failed to make proper investigation into the matter and no basis have been shown for making the addition on account of the recoveries to be made by NSEL, the AO failed to discharge the onus upon him to make the addition of the aforesaid nature. There cannot be negative onus on assessee to prove it has not made purchases from NSEL in dispute. No evidence of any sham purchases/transactions have been brought on record. No evidence of any purchase made by assessee from NSEL have been brought on record. The above discussion clearly prove that the AO without any basis rejected the books of accounts of the assessee and without bringing any evidence or material on record, made the addition of the impugned amount. Even during the course of hearing of the appeal, the AO was present in the Court but could not provide any evidence or material so as to sustain the orders of the authorities below. In such circumstances, we do not find it appropriate to remand the matter to the AO for fresh investigation as is argued by the Ld. DR. No justification for the authorities to have rejected the books of accounts of the assessee u/s 145(3) of the Act or to make an addition of ₹ 338.40 crores. We accordingly, set aside the orders of the authorities below and delete the addition of ₹ 338.40 crores. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Rejection of books of accounts under Section 145(3) of the Income Tax Act.
2. Addition of ?338.40 crores as allegedly payable by the assessee to NSEL.
3. Addition of ?287.48 crores as allegedly payable by another assessee to NSEL.

Issue-Wise Detailed Analysis:

1. Rejection of Books of Accounts under Section 145(3) of the Income Tax Act:

The Assessing Officer (AO) rejected the books of accounts of the assessee, citing unreliability due to discrepancies and alleged sham transactions on the NSEL platform. The assessee countered that all transactions were genuine, supported by necessary documentation, and conducted through banking channels. The AO's rejection was based on a report by M/s Sharp and Tannan Associates, which indicated recoveries from the assessee. However, the Tribunal found that the AO failed to substantiate the rejection with concrete evidence or material discrepancies in the books of accounts. The AO did not record statements from responsible persons at NSEL or M/s Sharp and Tannan Associates, nor did he provide the assessee with an opportunity for cross-examination. Consequently, the Tribunal concluded that the rejection of books under Section 145(3) was unjustified.

2. Addition of ?338.40 Crores as Allegedly Payable by the Assessee to NSEL:

The AO added ?338.40 crores to the assessee's income, based on the report by M/s Sharp and Tannan Associates, which showed this amount as recoverable by NSEL from the assessee. The assessee argued that they were not members of NSEL after 31.03.2013, and the report pertained to a period beyond this date (01.08.2013 to 31.08.2013). The Tribunal noted that the NSEL only provided a platform for transactions and did not engage in direct sales or purchases. The AO failed to clarify the nature of the transactions or provide evidence of any purchases or loans from NSEL. The Tribunal emphasized that any material collected at the back of the assessee must be confronted and cross-examined, which was not done in this case. The Tribunal found no basis for the addition and deleted it, citing a lack of evidence and improper investigation by the AO.

3. Addition of ?287.48 Crores as Allegedly Payable by Another Assessee to NSEL:

Similar to the first case, the AO added ?287.48 crores to another assessee's income, based on the same report by M/s Sharp and Tannan Associates. The issues and arguments were identical to those in the first case. Both parties agreed that the decision in the first case should be followed for this case as well. The Tribunal, applying the same reasoning, set aside the orders of the authorities below and deleted the addition.

Conclusion:

The Tribunal found that the AO's rejection of the books of accounts and the additions made were not supported by concrete evidence or proper investigation. The Tribunal emphasized the need for confronting and cross-examining any material collected at the back of the assessee. Consequently, the Tribunal set aside the orders of the authorities below and deleted the additions of ?338.40 crores and ?287.48 crores, allowing both appeals of the assessee.