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2025 (4) TMI 1036 - AT - Income TaxAddition u/s 68 - unsecured loan received by the assessee - assessee has mismanaged his loan received and repayments made and has also failed to offer proper explanation with regard to the loans shown in his balance sheet hence the creditworthiness of lender and genuineness of transaction remained unverified - CIT(A) deleted addition - HELD THAT - The assessee has claimed that the loan from the above parties were received in earlier years and there is no case of any inflow or credit of funds in the year under reference thus negating the applicability of section 68 of the Act and rendering the addition as factually incorrect. The copies of confirmed ledger account of parties are placed and copy of bank statement are placed. Appreciating the ledger account it can be seen that the loan from Mr. Ajay Katara was taken in FY 2015-16 and loan from Mr. Kumar Bombay (Director of M/s. Panorma Studios P. ltd.) was taken in FY 2016-17 and other than cheque reversal entry there is no case of any fresh credit in the year under reference. The CIT(A) after verifying the factual position including bank statement and confirmed ledger account of the parties deleted the addition by giving a factual finding to the effect that the loan transactions do not pertain to the year under consideration. In fact even in the ground as raised the assessing officer has not disputed the factual position. Thus in absence of any credit in the year under consideration the provision of section 68 of the Act do not apply and order of ld. CTI(A) needs no interference. Part disallowance of claim of cost and denying benefit of indexation by computing short term capital gain as against long term capital loss computed by the assessee in respect of sale of property - HELD THAT - We find that the CIT(A) after examining the documentary evidences in support of purchase of property at A1/1 Loha Mandi Ghaziabad and appreciating the overall position held that the said property was long term capital asset and rejected the action of AO in making addition of Rs. 54, 65, 640/- on account of STCG. The CIT(A) accepted the computation of Long term capital loss (LTCL) of Rs. 32, 54, 636/- in respect of the said property after considering benefit of indexation. CIT(A) upheld the action of AO in restricting the claim of exemption u/s 54 and the same is not in dispute in this appeal. Accordingly we are of the considered view that the CIT(A) rightly computed the net taxable LTCG at Rs. 1, 47, 82, 585/- as against Rs. 2, 18, 40, 380/- computed by the assessing officer. Rejection of books of account u/s 145(3) and estimation of gross profit - Bogus purchases - HELD THAT - AO has accepted sales made out of purchases made from M/s. Panna lal Co. and the goods purchased from M/s. Panna lal Co. were sold at a profit thus the allegation of bogus purchase suppression of profit or manipulation is self destructive. There is substance in the contention that no discrepancy was found in the stock record at the time of search which was physically verified thus the allegation of manipulation and bogus purchase is not justified. The reliance of ld. AR on the decision of this Tribunal in the case of Gorja Steel Processors 2024 (10) TMI 1651 - ITAT DELHI is squarely applicable as under identical circumstances and purchases made from the very same party the rejection of books of account and estimation of Gross profit was held to be invalid. Thus the allegation of bogus purchases rejection of books of account and consequential addition based on estimation of gross profit to the extent as also sustained by the ld. CIT(A) deserve to be deleted. The ground is sustained.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this appeal arising from assessment proceedings under sections 143(3), 153A, 68, 69C, and 145(3) of the Income Tax Act, 1961, include:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Addition under Section 68 on Unsecured Loans Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. The AO must establish that the credit is unexplained or the assessee has failed to prove the genuineness of the transaction and creditworthiness of the lender. Court's Interpretation and Reasoning: The loans in question, amounting to Rs. 13,50,000/- and Rs. 25,00,000/-, were shown as unsecured loans from Mr. Ajay Katara and Mr. Kumar Bombay respectively. The assessee contended these loans were received in earlier years, not in the year under consideration, and supported this with confirmed ledger accounts and bank statements. The AO did not dispute the factual position of no fresh credit during the relevant year. Key Evidence and Findings: Ledger accounts and bank statements demonstrated that the loans were taken in FY 2015-16 and FY 2016-17, with no fresh credits in the assessment year. The CIT(A) relied on these documents to conclude that the transactions did not pertain to the year under consideration. Application of Law to Facts: Since section 68 applies only to unexplained credits in the relevant assessment year, and no fresh credit was found, the provision was not applicable. Treatment of Competing Arguments: The Revenue did not dispute the factual findings regarding the timing of loans, thus weakening its case. Conclusion: The deletion of addition under section 68 was upheld as the loans were not credited in the year under consideration. Issue 2: Addition on Account of Capital Gains and Claim of Exemption under Section 54 Legal Framework and Precedents: The classification of capital gains as short-term or long-term depends on the period of holding of the asset. Section 54 provides exemption on long-term capital gains if reinvested in specified assets. Court's Interpretation and Reasoning: The AO computed short-term capital gains (STCG) by disallowing part of the cost of acquisition and denied indexation benefits, contrary to the assessee's claim of long-term capital loss (LTCL). The assessee submitted documents including ledger accounts and purchase deeds establishing the property as a long-term capital asset. Key Evidence and Findings: Documentary evidence placed before the CIT(A) showed the holding period and cost of acquisition, supporting the claim of LTCL and entitlement to indexation. Application of Law to Facts: The CIT(A) accepted the property as a long-term capital asset and allowed the benefit of indexation, recalculating the taxable capital gains accordingly. Treatment of Competing Arguments: The AO failed to rebut documentary evidence and reiterated his original findings without fresh analysis in the remand report. Conclusion: The CIT(A)'s decision to delete the addition of Rs. 54,65,640/- on account of STCG and accept the computation of LTCG was upheld, with the net taxable capital gain fixed at Rs. 1,47,82,585/-. Issue 3: Rejection of Books of Account under Section 145(3) and Estimation of Gross Profit Legal Framework and Precedents: Section 145(3) allows the AO to reject books of account if they are not maintained regularly or are unreliable. Estimation of income is permissible if books are rejected. However, rejection must be based on cogent evidence of unreliability. Court's Interpretation and Reasoning: The AO rejected the books on the basis of alleged bogus purchases from M/s Panna Lal & Co., relying on third-party search statements and inferred manipulations. The assessee furnished detailed documentary evidence including purchase and sales invoices, transport bills, e-way bills, bank statements, and stock statements demonstrating genuineness of transactions and profit earned. Key Evidence and Findings: The Tribunal noted that the AO did not point to any specific deficiency in the documentary evidence or books. The goods were sold at a profit, payments were routed through banking channels, and GST compliance was evident. No incriminating material was found during search to support bogus purchase allegations. Application of Law to Facts: The Tribunal relied on a precedent where similar facts led to the invalidation of book rejection and estimation of gross profit. It held that the AO's rejection was based on lack of information rather than proof of unreliability, and the CIT(A)'s reduction of gross profit rate from 4% to 3.16% was arbitrary and not supported by cogent reasoning. Treatment of Competing Arguments: The AO's reliance on statements recorded at odd hours and third-party search material was found to be insufficient. The CIT(A)'s general observations without detailed analysis were criticized. Conclusion: The rejection of books and consequent additions based on estimation of gross profit were deleted. Issue 4: Addition under Section 69C on Notional Commission Legal Framework and Precedents: Section 69C deals with unexplained expenditure. Addition on notional commission requires a basis that the expenditure was incurred without explanation. Court's Interpretation and Reasoning: Since the allegation of bogus purchases was negated, the consequential addition of notional commission at 1% on such purchases was also unsustainable. Application of Law to Facts: Without a foundation of bogus purchases, the notional commission addition had no basis. Conclusion: The addition under section 69C was deleted. Issue 5: Validity of Assessment Order without Proper Approval and DIN Legal Framework and Precedents: Section 153D mandates prior approval before assessment under section 153A. CBDT Circular No. 19/2019 requires issuance of Document Identification Number (DIN) for validity of orders. Court's Interpretation and Reasoning: The assessee raised cross objections challenging the validity of the assessment order on grounds of lack of approval under section 153D and absence of DIN. Findings: These grounds were not pressed by the assessee before the Tribunal and hence were not adjudicated upon. 3. SIGNIFICANT HOLDINGS "In absence of any credit in the year under consideration, the provision of section 68 of the Act do not apply and order of ld. CIT(A) needs no interference." "The CIT(A) rightly computed the net taxable LTCG at Rs. 1,47,82,585/- as against Rs. 2,18,40,380/- computed by the assessing officer." "No discrepancy was found in the stock record at the time of search which was physically verified, thus the allegation of manipulation and bogus purchase, is not justified." "The AO has failed to justify the rejection of books of account and on the other hand, the CIT(A) has failed to consider the relevant pleas of the assessee and to make an ad hoc assessment." "The allegation of bogus purchases, rejection of books of account and consequential addition based on estimation of gross profit to the extent also sustained by the ld. CIT(A) deserve to be deleted." "Once the books of account were rejected u/s 145 and profit was estimated, there remains no ground or basis for making separate addition u/s 69C as the same is of duplicate nature and already included in the income so estimated." The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross objections, thereby affirming the deletion of additions on unsecured loans, capital gains computation, rejection of books of account, and notional commission additions, while leaving unadjudicated the issues relating to procedural irregularities concerning approval under section 153D and issuance of DIN.
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