2022 (11) TMI 1189 - AT - Income Tax

Assessment u/s 153C - Whether separate satisfaction has been recorded by the A.O. of the searched person by complying the provisions of Section 153C? - HELD THAT - As per Apex Court in the case of Super Malls Pvt. Ltd. 2020 (3) TMI 361 - SUPREME COURT and the satisfaction recorded by the ACIT, Central Circle- 21 who is the common AO of the searched person and the other person, the ground raised by the assessee are liable to be dismissed. Search and seizure operation - Satisfaction though recorded was not based on the material relevant to the year in question and also the additions made were not based on the incriminating material found and seized during the course of search u/s 132. Disallowance of purchases u/s 40A(3) - addition on account of purchases of milk made by the AO - HELD THAT - CIT(A) has cogently brought on record about the fact of genuineness of the payment and applicability of Rule 6DD along with the relevant case laws. Under the above mentioned facts and circumstances, the CIT(A) held that action of AO u/s 40A(3) is not upheld. Since, no addition has been made by the AO under this section holding that the addition has been made on account of unexplained purchases, any adjudication by the Tribunal would be only academic in nature. Addition on account of unexplained purchases - CIT(A) has recorded the detailed statement of all the purchase parties on oath and came to a conclusion that the identity, genuineness and creditworthiness of the parties has been proved beyond doubt. Hence, the identity, genuineness and creditworthiness of all the parties from whom purchases were made were proved beyond doubt. Hence, no addition is called for on this account. Ad-hoc estimation of GP @ 0.20% on sales by the CIT(A) - We find that the ld. CIT(A) himself held that there is no reason for doubting the purchases made and payment made in cash being the parties are identified and accepted that they have made sale to the appellant in cash and there is no doubt as regard to genuineness of corresponding sales effected by the appellant and rightly deleted the addition on account of unexplained purchases. CIT(A) has verified the purchases by recording statement of suppliers of milk during the appellate proceedings in presence of AO and it is not the case of any inflation in price of the milk purchased by appellant as nothing incriminating was brought on record. Therefore, the action of the CIT(A) to resort to ad-hoc estimation of GP @ 0.20% of total sales is arbitrarily and mechanical. Hence, the action of the ld. CIT(A) cannot be supported and is liable to be deleted.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained purchases.
2. Disallowance under section 40A(3) of the Income Tax Act.
3. Validity of assumption of jurisdiction under section 153C.
4. Ad-hoc disallowances of certain expenses.
5. Addition on account of deemed dividend under section 2(22)(e).

Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Purchases:
The Revenue challenged the deletion of an addition of Rs. 59,37,13,167/- made by the Assessing Officer (AO) for unexplained purchases. The Commissioner of Income Tax (Appeals) [CIT(A)] substituted this with a Gross Profit (GP) addition of 0.20%, amounting to Rs. 12,53,273/-. The ITAT upheld the CIT(A)'s decision, noting that the identity, genuineness, and creditworthiness of the suppliers were satisfactorily proven through detailed statements and documentation. The CIT(A) had recorded the suppliers' statements on oath, confirming the transactions.

2. Disallowance Under Section 40A(3):
The AO had proposed disallowance under section 40A(3) for cash payments exceeding Rs. 20,000/-, but no separate addition was made under this section. The CIT(A) found that the payments were covered by the exemptions under Rule 6DD, as they were made on holidays or outside banking hours. The ITAT concurred, referencing the Supreme Court's judgment in Attar Singh Gurmukh Singh vs. ITO, which supports the CIT(A)'s findings. The ITAT noted that no addition under section 40A(3) could survive when a flat GP rate is applied.

3. Validity of Assumption of Jurisdiction Under Section 153C:
The assessee challenged the validity of the AO's assumption of jurisdiction under section 153C, arguing that the mandatory requirement of recording satisfaction by the AO of the searched person was not met. The ITAT examined the satisfaction note and found that it was recorded by the AO of the assessee, not the searched person. Citing the Delhi High Court's ruling in Pr. Commissioner of Income Tax, Delhi Vs. N. S. Software (Firm) and the Supreme Court's judgment in CIT Vs. Calcutta Knitwears, the ITAT held that the assessment under section 153C was invalid due to the lack of proper satisfaction recording.

4. Ad-Hoc Disallowances of Certain Expenses:
The AO made ad-hoc disallowances of transportation, administrative, and paddy husk expenses. The CIT(A) reduced these disallowances, and the ITAT upheld the CIT(A)'s decision, finding that the disallowances were not based on any incriminating material found during the search. The ITAT referenced the Delhi Tribunal's decision in ACIT Vs. Anush Finlease & Construction (P.) Ltd., which requires that additions must be based on incriminating material relevant to the assessment year in question.

5. Addition on Account of Deemed Dividend Under Section 2(22)(e):
For the Assessment Year 2008-09, the AO added an unsecured loan as deemed dividend under section 2(22)(e). The CIT(A) deleted this addition, noting that the assessee was neither a registered nor beneficial shareholder of the lending company. The ITAT upheld this decision, referencing the CIT(A)'s observation that the addition was already made in the hands of the director, and thus, could not be added again in the hands of the assessee company.

Conclusion:
The ITAT quashed the assessment orders for AY 2007-08, 2008-09, and 2009-10, and dismissed the Revenue's appeals. The ITAT upheld the CIT(A)'s deletion of additions for unexplained purchases, disallowances under section 40A(3), and deemed dividend. The ITAT also confirmed that the AO's assumption of jurisdiction under section 153C was invalid due to improper recording of satisfaction.