2021 (6) TMI 978 - AT - Income Tax

Assessment u/s 153A - assessee has failed to prove the genuineness of the expenditure incurred - HELD THAT - There are incriminating material found during the course of search coupled with the statement of the entry operators which clearly proved that the assessing officer has rightly assumed the jurisdiction and asked the assessee to prove the identity creditworthiness and genuineness of the subcontractors who perform the work and whose expenditure has been booked by the assessee in the profit and loss account. As the addition has been made u/s 37 (1) of the act as the assessee has failed to prove the genuineness of the expenditure incurred, therefore they have been rightly disallowed by the learned assessing officer and confirmed by the learned and CIT appeal respectfully following the decision of the honourable Delhi High Court in case of Modi stone Ltd 2011 (5) TMI 26 - DELHI HIGH COURT . As the addition/disallowance has not only been made only on the basis of the statement of Mr Praveen Agarwal but on the part of the failure of the assessee to prove the genuineness of the work carried out - there is no requirement of giving any opportunity of cross-examination of Mr Praveen Agarwal to the assessee s as the addition is not solely been made on that basis. AO has made the addition in the hence of the assessee on protective basis and the learned CIT A has confirmed the addition in the hence of the assessee on substantive basis by disallowing the expenditure, we set-aside the whole issue back to the file of AO to verify that if the addition has been made on substantive basis in the hands of PACL Ltd and assessee has already been charged tax on the income, then the addition of disallowance of the expenditure in the hence of the assessee requires to be deleted as it will amount to double addition of the same income. Even otherwise the real beneficiary of this accommodation entry is PACL Ltd. If the substantive addition has not been sustained or made in the hence of the PACL Ltd then the order of the learned CIT A deserves to be confirmed and addition is required to be made in the hence of the assessee - Appeal filed by the assessee is set-aside to the file of the learned assessing officer with above direction.

Summary

Issues involved:
1. Jurisdiction of assessment order under section 143(3) r.w.s. 153A of the IT Act.
2. Cross-examination request denial and addition based on statement under section 132(4) of the IT Act.
3. Enhancement of assessment order without notice under section 251(2) of the IT Act.
4. Confirmation of addition of ?125,00,00,000 under section 37(1) of the IT Act.
5. Addition of commission and disallowance of expenses.

Analysis:

Issue 1: Jurisdiction of assessment order under section 143(3) r.w.s. 153A of the IT Act
The appeal challenged the assessment order passed by the Ld. CIT (Appeals) under section 143(3) r.w.s. 153A of the IT Act as illegal, without jurisdiction, and null and void. The appellant contended that the assessment order was final under section 143(3) of the IT Act and requested the quashing of the order. The ITAT upheld the jurisdiction of the assessing officer based on incriminating material found during a search operation, including statements by an accommodation entry provider. The ITAT emphasized the need for the assessee to establish the genuineness of expenses, supporting the assessment order.

Issue 2: Cross-examination request denial and addition based on statement under section 132(4) of the IT Act
The appellant sought cross-examination of a witness whose statement was used as a basis for the assessment. However, the request was denied, leading to objections regarding the legality of the assessment order. The ITAT ruled that the addition was not solely based on the witness statement but also on the failure of the assessee to prove the genuineness of the work carried out. Therefore, the denial of cross-examination did not invalidate the assessment.

Issue 3: Enhancement of assessment order without notice under section 251(2) of the IT Act
The appellant contested the enhancement of the assessment order without a notice under section 251(2) of the IT Act. The ITAT found that the enhancement was justified as the assessing officer had the authority to decide on the treatment of expenses based on the genuineness established by the assessee. The ITAT directed the assessing officer to verify the substantive basis of the addition in the hands of the relevant party to avoid double taxation.

Issue 4: Confirmation of addition of ?125,00,00,000 under section 37(1) of the IT Act
The CIT (Appeals) confirmed the addition of ?125,00,00,000 in the hands of the assessee under section 37(1) of the IT Act due to the failure to establish the genuineness of the expenditure. The ITAT upheld this decision, emphasizing the statutory obligation to disallow expenses when genuineness is not proven, following relevant court decisions.

Issue 5: Addition of commission and disallowance of expenses
The CIT (Appeals) deleted the addition of commission as it was based on estimation without incriminating material. The ITAT upheld this deletion, emphasizing the need for concrete evidence for additions. The ITAT set aside the issue of disallowance of expenses to verify if the addition was made on a substantive basis in the hands of the relevant party to avoid double taxation.

In conclusion, the ITAT addressed various legal issues raised by the appellant, providing detailed analysis and rulings on each matter, ultimately setting aside the appeal to the assessing officer for further verification based on the directions provided.