2018 (8) TMI 189 - AT - Income Tax

Validity of the additions made u/s 153A - Held that - All the additions made by the AO in the assessment years 2006-07, 2007-08 and 2008-09 are beyond the scope of assessment u/s 153A, because assessments for these assessment years had attained finality before the date of search and no incriminating material or seized documents were found qua these additions. Accordingly, additions made by the AO are quashed on this ground. 1/5th disallowance of business expenses on adhoc basis - Held that - The very nature of these expenses debited shows that they have been incurred during the normal course of business and without pointing out any specific defect in the nature of expenses or specifying that such expenses were either for non-business purpose or for personal use, no adhoc disallowance can be made or sustained, especially when entire books of accounts and vouchers have been produced for scrutiny before the AO. Thus, we do not find any infirmity in the order of the Ld. CIT (A) for deleting such an addition and same is affirmed and accordingly, the disallowance of business expenses is dismissed. Admittedly similar reasoning has been given by the AO for similar kind of expenses in the assessment year 2010-11 and 2011-12, therefore, our reasoning given above will apply mutatis mutandis for these two years also Bogus purchase made from M/s. Kiran Furniture - during the course of survey made in the case of M/s Nitin Enterprises was found to be engaged in providing bogus bills and one of its partner has given a statement that assessee was also given the bogus bill and has received cheque from the assessee for the said bills in lieu of cash for the same amount returned back to the assessee - Held that - The assessee has made the payment to the party through banking channels and simply relying upon the statement of one of the partner that cash has been returned in lieu of cheque cannot be accepted without such a person being subjected to cross examination. Even otherwise also such a statement itself loses its credibility and evidentiary value, when the firm itself has taken a legal action for recovery of same dues from the assessee on the purchases made for which it has issued the bills. Not only that, there has been amicable settlement of dues and payment has been made by the assessee to the said party. In light of these evidences filed before Hon ble High Court in the suit proceedings, the statement of the partner gets mitigated and no credence can be given to such a settlement. The detailed finding of the CIT (A) on this issue as incorporated above is not only based on correct appreciation of facts but also in law, therefore, the said finding is affirmed and the addition made by the AO on account of bogus purchase is deleted. Addition on account of unexplained purchases made from M/s. Kiran Furniture - Held that - The assessee has furnished various evidences and documents as enlisted by the CIT (A) to prove the genuineness of the purchases made and simply because, the notices issued by the AO to the said party has not been replied back, it cannot be held that either the said parity has not rendered any services to the assessee or the invoices raised by the said party is fictitious or the identity of the said party cannot be established. Moreover the payments have been made to the said party through cheques on which TDS has been deducted. All these facts ostensibly leads to conclusion that payment has been made to the assessee to the said party for receiving the services at various projects and such a payment cannot be held to be non genuine. Addition deleted Unexplained cash - Held that - Although whatever cash was found from the possession of the assessee the same was found to be reflected in the books of accounts. The assessee in the course of search itself has categorical stated that the cash in the form of foreign currency belonged to M/s. GL Litmus Events Pvt. Ltd., and without any other material to hold that the foreign currency belong to the assessee AO has held to be undisclosed income of the assessee. Even the Panchnama also shows the joint name of assessee and M/s. G.L. Litmus Events Pvt. Ltd. and how this adverse inference has only been drawn by the assessee is not understood. The copy of confirmation from M/s. G.L. Litmus Events Pvt. Ltd. confirming the entire facts and other catena of documents which have been filed before the AO has neither been considered nor any has been rebutted by the AO. Accordingly, observation and finding of the Ld. CIT (A) based on facts and material on record that the foreign currency does not belong to the assessee but to M/s. G.L. Litmus Events Pvt. Ltd. cannot be disturbed and accordingly the order of CIT(A) affirmed. Additional account of scrap sales and low declaration of income - Held that - We find it very difficult to appreciate the stand taken by the AO and Ld. CIT (A) to estimate on adhoc basis, the sale of scrap material outside the books of account either by applying 50 % or 20%. More so, when all the invoices and details of services provided and purchases were duly supported by invoice and recorded in the books of accounts; and neither the books nor the trading results including valuation of scrap made has been disturbed. None of the authorities have examined this issue in a proper perspective. Therefore, in the interest of justice we feel that this issue needs to be remanded back to the file of the AO, who shall see; firstly, whether the stocks which are reflected in the books of account are part of stock as on 31st March, 2011 or not and if so, then no addition should be made; secondly, if the stock taken on rent has been returned back then also no addition on account of alleged sale of scrap should be estimated; and lastly, the AO shall examine whether any part of the scrap which has been sold in the subsequent year has been accounted for or not. With this direction this matter is remanded back to the AO, who shall give proper opportunity of hearing to the assessee to substantiate its contention alongwith the documentary evidences. In the result grounds raised by the assessee as well as by the revenue on this score are treated as partly allowed for statistical purpose. Disallowance on account of low declaration of income - only reason for adding the income of ₹ 11,84,424/- by the Revenue was that DDA has informed AO that payments have been made to the assessee at ₹ 90,23,654/-, whereas the assessee has only accounted for ₹ 78,39,230/- - Held that - Assessee was awarded contract with DDA to provided installation of signage at different sites for Common Wealth Games. The assessee s contention has been that there were certain objections raised by the DDA and the final quantum of the bill amount that would be passed was not certain till the closing of the financial year 31st March, 2011. Accordingly, the assessee has shown the balance receipt of ₹ 11,84,424/- as receivable. Once the amount was received, the assessee has disclosed it as its income in the next financial year relevant to the assessment year 2012-13, which fact has neither been disputed by the AO nor by CIT (A). Once the amount has been offered to tax in the subsequent year, we do not find any reason to again tax the same amount in this year. Accordingly, we hold that the addition made on account of declaration of income from DDA amounting to ₹ 11,84,424/- under the facts and circumstances of the case cannot be added as income of the assessee as the same has already been offered to tax in the subsequent year.

Summary

Issues Involved:
1. Disallowances and additions challenged by the Department and the assessee.
2. Validity of additions under section 153A.
3. Disallowance of business expenses.
4. Alleged bogus purchases from M/s. Nitin Enterprises.
5. Unexplained purchases from M/s. Kiran Furniture.
6. Addition on account of unexplained cash.
7. Addition on account of scrap sales.
8. Disallowance on account of low declaration of income.

Detailed Analysis:

1. Disallowances and Additions:
The Department challenged various disallowances and additions for assessment years 2006-07 to 2011-12, including personal expenses, bogus purchases, unexplained purchases, disallowance under section 40A(3), unexplained cash, and disallowance on account of tour, traveling, repairs, and depreciation on cars. The assessee also challenged additions for assessment year 2011-12 related to scrap sales and low declaration of income.

2. Validity of Additions under Section 153A:
The assessee argued that the additions made by the AO were beyond the scope of section 153A as no incriminating material was found during the search. The Tribunal allowed the assessee's petition under Rule 27, stating that the respondent can challenge the validity of additions under section 153A. The Tribunal held that additions for assessment years 2006-07, 2007-08, and 2008-09 were beyond the scope of section 153A as the assessments had attained finality before the search and no incriminating material was found.

3. Disallowance of Business Expenses:
The AO disallowed business expenses on an ad-hoc basis, claiming they were personal in nature. The CIT(A) deleted the disallowance, stating that the AO did not point out any specific non-business expenses. The Tribunal upheld the CIT(A)'s order, finding no infirmity in the deletion of the disallowance.

4. Alleged Bogus Purchases from M/s. Nitin Enterprises:
The AO disallowed purchases from M/s. Nitin Enterprises based on a survey and statement from the partner, claiming the purchases were bogus. The CIT(A) deleted the addition, noting that the AO did not provide the assessee an opportunity to cross-examine the partner and failed to consider the legal suit filed by M/s. Nitin Enterprises for recovery of dues. The Tribunal upheld the CIT(A)'s order, emphasizing the importance of cross-examination and the legal proceedings that substantiated the genuineness of the purchases.

5. Unexplained Purchases from M/s. Kiran Furniture:
The AO disallowed purchases from M/s. Kiran Furniture due to non-compliance with notices under section 133(6). The CIT(A) deleted the addition, noting that the assessee provided substantial evidence, including invoices, TDS certificates, and confirmations. The Tribunal upheld the CIT(A)'s order, finding the evidence sufficient to prove the genuineness of the purchases.

6. Addition on Account of Unexplained Cash:
The AO added unexplained cash found during the search as the assessee failed to provide confirmation. The CIT(A) deleted the addition, noting that the cash belonged to foreign nationals working for another entity sharing the premises. The Tribunal upheld the CIT(A)'s order, finding no evidence to substantiate the addition.

7. Addition on Account of Scrap Sales:
The AO estimated scrap sales at 50% of the purchase value, while the CIT(A) reduced it to 20%. The Tribunal remanded the issue back to the AO for re-examination, directing verification of stock records and whether any part of the scrap was sold in subsequent years.

8. Disallowance on Account of Low Declaration of Income:
The AO added the difference between the amount billed to DDA and the amount accounted for by the assessee. The CIT(A) upheld the addition. The Tribunal deleted the addition, noting that the amount was offered to tax in the subsequent year.

Conclusion:
The Tribunal dismissed the Department's appeals and partly allowed the assessee's appeal, remanding the issue of scrap sales back to the AO for re-examination.