2023 (2) TMI 1007 - AT - Income Tax

Assessment u/s 153A - Unexplained cash credit u/s.68 - Identity, creditworthiness and genuineness of the transactions could not be proved by the assessee - incriminating material relating to the year under consideration was found and seized during the course of the search proceedings conducted u/s.132 or not? - CIT-A deleted addition - A.Y. 2012-13 - HELD THAT - We concur with the view taken by the CIT(Appeals) that now when the assessee company on the basis of clinching documentary evidence which had not been dislodged or disproved by the A.O by placing on record any document/material proving to the contrary, therein, established the identity and creditworthiness of the investor companies a/w. genuineness of the transactions of receipt of share capital/premium from them, therefore, there was no justification on the part of the A.O in summarily brushing aside the duly substantiated explanation of the assessee company and treating the amount as an unexplained cash credit u/s.68 of the Act. Also, the Ld. D.R in the course of the proceedings before us had neither placed on record any such material/evidence which would disprove or dislodge the aforesaid observation of the CIT(Appeals), nor has brought to our notice any perversity in the view so arrived at by him. We, thus, finding no justifiable reason to dislodge the well-reasoned observations of the CIT(Appeals), approve the same. Thus, the Grounds of appeal No.(s) 1, 2 and 8 raised by the revenue being devoid and bereft of any merit are dismissed. Addition u/s.41(1)(a) - CIT-A deleted addition - HELD THAT - We are unable to persuade ourselves to concur with the view taken by the A.O that the aforesaid liability in question was to be held as having ceased u/s.41(1)(a) of the Act. As the assessee had discharged the majority of its outstanding liability towards the aforesaid contractor, viz. M/s. Pragmatic Builders Pvt. Ltd. during F.Y.2012-13 to F.Y.2015-16 and an amount only was outstanding as payable in the running account of the aforesaid party on 18.05.2016, therefore, in our considered view the CIT(Appeals) had rightly observed that there was no justification for the A.O to have dubbed the liability in question as a ceased liability u/s.41(1) of the Act. Accordingly, finding no infirmity in the view taken by the CIT(Appeals), we uphold his order to the extent he had vacated the addition. Thus, the Grounds of appeal No.(s) 9 and 10 raised by the revenue are dismissed. Assessment u/s 153A - Addition u/s 68 - A.Y.2013-14 - HELD THAT - The assessee company had filed its original return of income u/s.139(1) of the Act on 29.09.2013, declaring an income . Search and seizure operations u/s.132 of the Act were conducted on the assessee company on 19.09.2016. On the date of the aforesaid search proceedings i.e. on 19.09.2016 as no assessment or reassessment proceedings were pending in the case of the assessee company, and also, the time limit for issuance of notice u/s. 143(2) of the Act for the year under consideration i.e. A.Y.2013- 14 had expired way back on 30.09.2014, therefore, as observed by the CIT(Appeals), and, rightly so, it was a case of an unabated assessment. We, thus, in light of the aforesaid facts concur with the view taken by the CIT(Appeals), that as per the 2nd proviso to Sec. 153A of the Act, in a case where no assessment or reassessment is pending on the date of search u/s. 132 of the Act, then, in absence of any incriminating material found and seized during the course of said proceedings relating to the year under consideration i.e A.Y 2013-14, no addition could have been made in the hands of the assessee company. No infirmity in the view taken by the CIT(Appeals) uphold the same to the said extent. Thus, the Grounds of appeal No.(s) 3 4 raised by the revenue are dismissed in terms of our aforesaid observations. Addition u/s 68 - unexplained cash credit - identity and creditworthiness of the investor company not proved - HELD THAT - we concur with the view taken by the CIT(Appeals) that now when the assessee had on the basis of clinching documentary evidence duly discharged the onus as was cast upon it as regards proving the identity and creditworthiness of the investor company, as well as the genuineness of the transaction of having received share capital/premium from the investor company, therefore, the same could not have been summarily dislodged by the A.O without placing on record any material proving to the contrary. We, thus, in terms of our aforesaid observation uphold the order of the CIT(Appeals) who in our considered view had rightly vacated the addition. Addition u/s 68 - assessee company had claimed to have received cash from 5 different parties as advance towards sale of shops - claim of the assessee that as the aforesaid sale agreement was cancelled, therefore, the cash advance was returned back to the aforementioned parties - aforesaid claim of the assessee did not find favor with the A.O for the reason that both the agreements i.e sale agreement and the cancellation agreement were executed on plain paper - CIT-A deleted addition - HELD THAT - As observed by the CIT(Appeals), and, rightly so, now when the assessee while discharging the initial onus that was cast upon it as regards proving the nature and source of the cash deposits in its books of accounts, had in support of his claim filed with the A.O copies of agreements, viz. sale agreement/cancellation agreement, therefore, there was no justification for the A.O in rejecting the same without placing on record any material disproving the authenticity of the aforesaid claim. Our aforesaid view is supported by the judgment of the Hon ble High Court of Chhattisgarh in the case of Pawan Kumar Agrawal, 2017 (4) TMI 1602 - CHHATTISGARH HIGH COURT In fact, we are in agreement with the CIT(Appeals) that the A.O had even failed to do the bare minimum that was required on his part, i.e, making verifications or calling for the necessary details from the aforesaid five parties with whom the assessee had claimed to have carried out the transaction in question. Ad-hoc disallowances @10% out of labour expenses, disallowance @20% out of telephone expenses, travelling expenses and conveyance car expenses - HELD THAT - Admittedly, as the A.O while working out the disallowance had proceeded with in a whimsical manner and neither pointed out the very basis for working out the disallowance, nor referred to any such expenditure which was not supported by vouchers/bills, therefore, as observed by the CIT(Appeals), and, rightly so, no part of assessee s claim for deduction of such expenditure could have been disallowed in absence of any specific defect having been pointed out by the A.O. We, thus, in terms of our aforesaid observations uphold the order of the CIT(Appeals) to the extent that he had vacated the respective ad-hoc disallowances that were made by the A.O while framing of the original assessment u/s.143(3) dated 28.03.2016, which, thereafter was repeated by him while framing the assessment vide his order passed u/s 153A r.w.s 143(3) of the Act, dated 26.12.2018. Thus, the Ground of appeal raised by the revenue is dismissed. Addition u/s 69A - unaccounted money in the garb of the said loan transaction - HELD THAT - There have been a realization of investments/loans and cash and bank balance of Rs.2.03 crore by the aforesaid investor company, viz. M/s. Extent Vinimay Pvt. Ltd. during the period relevant to the year under consideration i.e. A.Y.2015-16. On the basis of the aforesaid facts, we concur with the view taken by the CIT(Appeals) that now when the loan of Rs.2.03 crore (supra) received by the assessee company from the aforesaid lender, viz. M/s Extent Vinimay Pvt.Ltd. was made out of the realization of investments/loans which had been held by the department to be genuine in the hands of the investor company i.e M/s. Extent Vinimay Pvt. Ltd. for A.Y.2011-12, then the same by no means could have been held as the assessee s unexplained money u/s.69A.

Summary

Issues Involved:
1. Addition of unexplained cash credit under Section 68.
2. Addition under Section 68 based on identity, creditworthiness, and genuineness of transactions.
3. Additions in non-abated assessment years without incriminating material under Section 153A.
4. Reliance on third-party statements without cross-examination.
5. Retraction of statements recorded under Section 132(4).
6. Validity of additions based on retracted statements.
7. Locus standi of AO in questioning share application money.
8. Addition under Section 41(1)(a) for cessation of liability.
9. Acceptance of fresh evidence/grounds in respect of cessation of liability under Rule 46A.
10. Ad-hoc disallowances of expenses.

Detailed Analysis:

1. Addition of unexplained cash credit under Section 68:
The CIT(A) deleted the addition of Rs.10.59 crore made by the AO on account of unexplained cash credit under Section 68. The CIT(A) observed that the assessee had provided sufficient documentary evidence to substantiate the identity and creditworthiness of the investor companies and the genuineness of the transactions. The AO's reliance on third-party statements without cross-examination was found to be unjustified.

2. Addition under Section 68 based on identity, creditworthiness, and genuineness of transactions:
The CIT(A) held that the assessee had provided sufficient evidence to prove the identity and creditworthiness of the investor companies and the genuineness of the transactions. The AO's addition under Section 68 was deleted as the AO had not provided any material to disprove the assessee's claims.

3. Additions in non-abated assessment years without incriminating material under Section 153A:
The CIT(A) observed that no incriminating material was found during the search proceedings, and therefore, no addition could be made in respect of the non-abated assessment years. The CIT(A) relied on various judicial pronouncements, including the Delhi High Court's decision in Kabul Chawla, to support this view.

4. Reliance on third-party statements without cross-examination:
The CIT(A) found that the AO had relied on third-party statements without providing the assessee an opportunity to cross-examine those parties. This was held to be a violation of the principles of natural justice, and the CIT(A) deleted the additions made on this basis.

5. Retraction of statements recorded under Section 132(4):
The CIT(A) accepted the retraction of the statement recorded under Section 132(4) by Shri Ashok Jain, a director of the assessee company. The CIT(A) observed that the AO had not provided any corroborative evidence to support the statement, and therefore, the addition based on the retracted statement was deleted.

6. Validity of additions based on retracted statements:
The CIT(A) held that the AO could not rely solely on the retracted statement of Shri Ashok Jain without any corroborative evidence. The CIT(A) deleted the additions made on this basis, relying on various judicial pronouncements, including the Supreme Court's decision in Vinod Solanki.

7. Locus standi of AO in questioning share application money:
The CIT(A) held that the AO had no locus standi to question the genuineness of the share application money received by the assessee company. The CIT(A) observed that the assessee had provided sufficient evidence to prove the genuineness of the transactions, and the AO had not provided any material to disprove the assessee's claims.

8. Addition under Section 41(1)(a) for cessation of liability:
The CIT(A) deleted the addition of Rs.1.64 crore made by the AO under Section 41(1)(a) for cessation of liability. The CIT(A) observed that the assessee had provided evidence of payments made to the creditor, and therefore, the liability had not ceased.

9. Acceptance of fresh evidence/grounds in respect of cessation of liability under Rule 46A:
The CIT(A) accepted the fresh evidence provided by the assessee regarding the cessation of liability. The CIT(A) observed that the evidence was necessary to arrive at a just decision, and therefore, the addition made by the AO was deleted.

10. Ad-hoc disallowances of expenses:
The CIT(A) deleted the ad-hoc disallowances made by the AO on account of labor charges and other expenses. The CIT(A) observed that the AO had not pointed out any specific defect in the assessee's claim for deduction of expenses and had made the disallowances on an ad-hoc basis.

Conclusion:
The Tribunal upheld the CIT(A)'s order, deleting the additions made by the AO under various sections, including Section 68 and Section 41(1)(a). The Tribunal concurred with the CIT(A) that the AO had not provided any material to disprove the assessee's claims and had relied on third-party statements without cross-examination. The Tribunal also upheld the CIT(A)'s view that no addition could be made in respect of non-abated assessment years without incriminating material found during the search proceedings.