2019 (1) TMI 347 - AT - Income Tax

Addition on account of cash received out of regular books of accounts - additions based on documents found in survey u/s 133A - Held that - Loose sheets are only dumb documents without any corroborative evidence. Assessee has submitted that all its purchases from Choudhury Hydrocarbon (P) Ltd. were duly recorded in its books of accounts and no unaccounted money is received. The loose sheets which were taken the base for addition by the Assessing Officer have not been corroborated by any further evidence. We note that neither Assessing Officer nor the ld. CIT(A) has brought any cogent evidence on record to show that the receipt to the tune of ₹ 13,40,331/- is out of unaccounted money. We note that neither the AO nor the CIT(A) has tried to cross-verify the alleged transaction by doing independent enquiry, hence, in the absence of said enquiry addition should not be made solely on the basis of loose sheets. Case of DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 7, HYDERABAD VERSUS M. AJA BABU, HYDERABAD. 2014 (4) TMI 1087 - ITAT HYDERABAD to followed. - Decided in favour of assessee. Disallowance in respect of Long Term Capital Loss suffered by Assessee Company on sale of equity shares of its group companies - group of the Assessee is gaining by collusive transactions leading to fictitious loss as the shares of group companies had been sold at a price much lower than its market value without the dynamics of market force - Held that - AO was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances, human conduct, and preponderance of probability without bringing on record any legal evidence against the assessee in respect of the market value of the shares vis- -vis price bargained by the parties. That is, ld AO failed to bring any cogent evidence on record to show that price bargained by the parties to compute capital gain is not correct. CIT- A was wrong in confirming the aforesaid disallowance wrongly relying on the concept of fair market value of the transactions referred to in section 45(2) and Section 45(4) which has no relevance to the facts of this case relating to transfer of shares on actual sale value/price bargained. Considering all we are unable to uphold the stand of the Revenue. Hence, we are inclined to accept the arguments tendered by counsel of the assessee in this respect. No hesitation to hold that the impugned addition sustained by the CIT(A), is not justified and accordingly addition made on this count is directed to be deleted. - decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?13,40,331 on account of cash received out of regular books of accounts.
2. Disallowance of Long Term Capital Loss of ?1,04,40,635 on the sale of equity shares of group companies.

Detailed Analysis:

1. Addition of ?13,40,331 on account of cash received out of regular books of accounts:

The assessee filed a return of income declaring ?77,29,760, later revised to ?2,15,10,270. During scrutiny, the Assessing Officer (AO) found loose sheets indicating cash receipts from Chowdhury Hydrocarbon Pvt. Ltd. totaling ?13,40,331, which were not reflected in the regular books of accounts. Consequently, the AO added this amount to the assessee's income.

The assessee appealed, arguing that the AO made no independent verification of the transactions and relied solely on loose sheets without corroborative evidence. The CIT(A) upheld the AO's addition.

Upon further appeal, the Tribunal noted that the loose sheets were "dumb documents" without corroborative evidence. The Tribunal referenced the case of M. Aja Babu, Hyderabad Vs. DCIT, where it was held that additions based on uncorroborated loose sheets are not justified. The Tribunal concluded that neither the AO nor the CIT(A) provided cogent evidence to support the addition and thus deleted the addition of ?13,40,331.

2. Disallowance of Long Term Capital Loss of ?1,04,40,635 on the sale of equity shares of group companies:

The AO disallowed the Long Term Capital Loss of ?1,07,99,741 on the sale of shares of International Tar Refiners Pvt. Ltd. to Yaana Apparels Pvt. Ltd., suspecting collusive transactions. The AO did not question the capital gain of ?3,39,106 from other group company transactions but disallowed the loss, suspecting it was fictitious due to the shares being sold below market value.

The CIT(A) upheld the AO's disallowance, citing that the transactions were collusive and lacked market force dynamics.

The Tribunal, however, found that the transactions were part of an internal corporate restructuring, with shares transferred to Yaana Apparels Pvt. Ltd. as part of a genuine transaction. The Tribunal noted that the AO's decision was based on suspicion without concrete evidence. The Tribunal referenced the Supreme Court case of K.P. Varghese Vs. ITO, which held that capital gains should be computed based on the price bargained by the parties, not market value. The Tribunal also cited the Delhi ITAT case of Haldiram Manufacturing Co. Pvt. Ltd., which supported the assessee's stance.

The Tribunal concluded that the AO failed to provide evidence that the sale consideration was incorrect and that the CIT(A) wrongly relied on the concept of fair market value. The Tribunal directed the deletion of the addition of ?1,07,99,741.

Conclusion:

The appeal filed by the assessee was allowed, resulting in the deletion of the additions of ?13,40,331 and ?1,07,99,741. The Tribunal emphasized the need for corroborative evidence and the principle that capital gains should be computed based on the price agreed upon by the parties involved.