2022 (3) TMI 220 - AT - Income Tax

Addition u/s.68 - AO rejected the contention on the ground that the assessee could not furnish L.R. Receipt Numbers, Freight/Transport receipts etc - HELD THAT - View point of the AO that the entire gross commission was chargeable to tax. Here is a case in which the assessee suo motu offered income from Turmeric trading activity - AO has not only taxed this income but also made an addition of ₹ 13.12 lakh on account of gross commission income from Sh. Bharat Nilakhe. He went a step further by also adding a sum when received from Sh. Bharat Nilakhe on account of profit from sale and purchase of turmeric, which also included a sum in the name of Sh. Kailash Gidwani HUF account. In view of the fact that the transactions of the assessee concerning purchase and sale of Turmeric were genuinely conducted through Sh. Bharat Nilakhe, in the same way in which he did with other more than 100 traders in Sangli, genuineness of all of which has been accepted by the Department, there is no logic in making or sustaining the additions in the hands of the assessee, which are just off shoot of such a trading activity. These additions are directed to be deleted. Addition of deemed dividend u/s.2(22)(e) - CIT(A) directed the AO to verify his records and if the transaction related to previous year relevant to the assessment year 2009-10, then no addition should be made - HELD THAT - It is seen that the assessee contended before the ld. CIT(A) that the sum in question was received and taxed in the immediately preceding year. CIT(A) sent the matter back to the AO for carrying out necessary verification in this regard, which ought to have been done by him alone because now there is no power with the CIT(A) to restore the matter to the AO. DR failed to bring on record any material contrary to the assessee s claim as made before the ld. CIT(A) that the sum was received during the earlier year from M/s Apeksha Impex Ltd. therefore, order to delete the addition.

Summary

Issues:
1. Addition of ?13,12,990 under section 68 of the Income-tax Act, 1961.
2. Addition of ?17,67,880 related to Turmeric trading activity.
3. Addition of ?11,79,895 under section 2(22)(e) of the Act.

Issue 1: Addition of ?13,12,990 under section 68 of the Income-tax Act, 1961:
The appellant declared total income from Turmeric trading, with the AO treating the entire gross profit as unexplained cash credit under section 68. The AO observed lack of evidence supporting the Turmeric trading activity. The appellant claimed the activity was conducted through a third party, Sh. Bharat Nilakhe, who explained the transactions. The AO, however, added the amount as unexplained income. The Tribunal noted that the appellant offered ?8.40 lakh for taxation, mainly earned through Turmeric trading with Sh. Bharat Nilakhe. The AO's addition of ?13.12 lakh was deemed unjustified, especially when similar transactions with other traders were accepted as genuine. The Tribunal directed deletion of the addition.

Issue 2: Addition of ?17,67,880 related to Turmeric trading activity:
The AO added ?17,67,880 as the appellant's income, received from Sh. Bharat Nilakhe, on account of profit from Turmeric trading. The Tribunal found the AO's reasoning flawed, especially since transactions with Sh. Bharat Nilakhe were accepted as genuine for other traders. The Tribunal noted the appellant's genuine disclosure of transactions and directed deletion of the addition.

Issue 3: Addition of ?11,79,895 under section 2(22)(e) of the Act:
The appellant received ?11,79,895 from a company, treated as deemed dividend under section 2(22)(e) due to shareholding. The appellant claimed the amount was received and taxed in the previous year. The CIT(A) directed verification by the AO, who failed to provide contrary evidence. The Tribunal ordered deletion of the addition, considering the amount was already taxed in the preceding year.

In conclusion, the Tribunal allowed the appeals, directing the deletion of all contested additions. The judgments emphasized the importance of genuine disclosures and consistency in tax treatment across similar transactions.