2019 (9) TMI 383 - AT - Income Tax

Addition u/s 68 - loan amount / advance money - accommodation entries - transactions with an entity who was unregistered firm, the Stock Exchange Board of India, SEBI had barred its director from capital market - HELD THAT - Action of SEBI has no bar on the issue before us as all these are subsequent developments than the relevant accounting period and more so when we are adjudicating identity, genuineness and creditworthiness of the assessee s advance payments received from the said entity. - further, the mere fact of the said entity not having filed its return does not prove not fatal to the assessee s explanation proving identity, genuineness and creditworthiness of the advance receipts. Additions towards alleged bogus loan - HELD THAT - Assessee; holder of RNI licence on behalf of M/s Disha Productions Media Pvt. Ltd as an individual, had received the impugned sum from M/s Darpan Publication. One of the said entity director (supra) also appeared and confirmed the assessee s case before the AO to this effect. We conclude in this fact that the lower authorities have erred in treating the impugned sum in assessee s hands as unexplained cash credits. The same is directed to be deleted. Disallowance u/s 40A - cash payments - HELD THAT - AO remand report itself is very very clear that none of the assessee s cash payments has exceeded the threshold limit of ₹20,000/- during the course of a day so as to trigger the impugned disallowance. We therefore delete the same for this precise reason alone. Disallowance of business expenditure treated as bogus - it was submitted that, assessee has shown gross profit @ 35% on the impugned cost of disallowance which has gone up to 67% giving rise to an absurd result in case both the lower authorities action is upheld. - HELD THAT - The fact also remains that the assessee himself has not been able to prove one to one matching of impugned material purchases and the respective payee s books. We therefore deem hold in this peculiar factual backdrop that a lump sum addition of ₹7 lac would meet the ends of justice with a rider that the same shall not be taken as a precedent any other case or assessment year; as the case may be

Issues Involved:
1. Disallowance of donation/subscription and entertainment expenses.
2. Addition of loan amount from M/s Chakra Infrastructure Ltd. (CIL) as unexplained cash credits under Section 68 of the Income Tax Act, 1961.
3. Alleged bogus loan addition from M/s Disha Productions and Media Pvt. Ltd.
4. Disallowance under Section 40A(3) for cash payments.
5. Disallowance of business expenditure as bogus.

Detailed Analysis:

1. Disallowance of Donation/Subscription and Entertainment Expenses:
The appellant did not press for the first two substantive grounds challenging the correctness of the lower authorities' action disallowing donation/subscription and entertainment expenses of ?1,445/- and ?12,075/-, respectively. These grounds were dismissed as not pressed.

2. Addition of Loan Amount from M/s Chakra Infrastructure Ltd. (CIL) as Unexplained Cash Credits under Section 68:
The primary issue was the addition of ?6,44,95,068/- as unexplained cash credits under Section 68 of the Act. The Assessing Officer (AO) issued a Section 133(6) notice to CIL, which was returned undelivered. Despite the appearance of CIL's director before the AO, essential documents like profit and loss account, balance sheet, and bank statement were not provided. The AO concluded that the transaction's genuineness was not proved, leading to the addition.

The CIT(A) upheld the AO's decision, highlighting issues like the non-filing of returns by CIL's director, the unregistered sale agreement, SEBI's barring of CIL's director from the capital market, and police investigations against CIL. The assessee argued that the amount was part of an advance payment for a sale agreement, but the AO and CIT(A) found the agreement unregistered and the transaction not genuine.

The Tribunal, however, found that the lower authorities erred in not accepting the genuineness of the unregistered sale agreement. It was noted that the assessee had provided sufficient evidence, including ledger accounts and confirmations, indicating the transaction's genuineness. The Tribunal also observed that the addition under Section 68 should only apply to transactions within the relevant accounting period. The Tribunal directed the deletion of the impugned addition.

3. Alleged Bogus Loan Addition from M/s Disha Productions and Media Pvt. Ltd.:
The assessee's fourth substantive ground was the addition of ?71,57,971/- as bogus loans. The Tribunal found that the assessee had provided sufficient evidence, including an RNI license agreement, accounting confirmations, and ITR acknowledgments, indicating that the amount was received legitimately. The Tribunal directed the deletion of this addition.

4. Disallowance under Section 40A(3) for Cash Payments:
The Tribunal addressed the disallowance of ?9,60,669/- under Section 40A(3) for cash payments made to Shri J.P. Singh. The AO's remand report clarified that none of the cash payments exceeded the threshold limit of ?20,000/- during a single day. The Tribunal, therefore, deleted the disallowance.

5. Disallowance of Business Expenditure as Bogus:
The final issue was the disallowance of ?50,50,700/- as bogus business expenditure. The Tribunal noted that the assessee had provided detailed evidence of bills, confirmations, and payments made through banking channels. However, the assessee could not prove one-to-one matching of the impugned material purchases and the respective payees' books. The Tribunal deemed it appropriate to make a lump sum addition of ?7 lakhs out of the disallowed amount, emphasizing that this should not set a precedent for other cases or assessment years.

Conclusion:
The Tribunal partly allowed the assessee's appeal, directing the deletion of the additions related to unexplained cash credits and bogus loans, while making a lump sum addition for the disallowed business expenditure. The disallowance under Section 40A(3) was also deleted. The order was pronounced in open court on 06/09/2019.

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