2016 (2) TMI 1161 - AT - Income Tax

Tribunal affirms CIT(A)'s decisions on share capital, unaccounted transactions, stock shortage, and job charges.

Harshwardhan Gems Pvt. Ltd. Versus Income-tax Officer, Wd-12 (3), Kolkata And Vice-Versa

The Tribunal upheld the CIT(A)'s decision to delete the addition of share capital under Section 68, as the assessee proved the identity, genuineness, and ... Additions u/s 68 - increase in share capital, while the assessee has failed to establish the genuineness of the transactions - unaccounted purchase transactions and restricting the profit element to the extent of 13.39%. - Held that: - In the given facts the AO had not brought any material or evidence which would indicate that the share applicants were (a) benamidars or (b) fictitious persons or (c) that any part of the share capital represented the company's own income from undisclosed sources. In view of the facts and precedent before us, we are of the view that CIT(A) has rightly deleted the addition and we confirm the order of CIT(A) on this issue. Regarding unaccounted purchase transactions - Held that:- AO issued summons u/s. 131 to Uttam Ray and Chinu Ray, who denied the diaries belonged to them but accepted that the contents of details of job work were undertaken by them and these diaries are maintained by assessee company on their behalf. - In view of the above and facts and circumstances, we are of the view that the CIT(A) has acted on the remand report of the AO and re-worked the unaccounted purchase and treating the same restricted the addition by applying profit rate. We find no infirmity in the order of CIT(A) and hence, the same is confirmed. This issue of assessee as well as revenue is dismissed. Issues Involved:1. Deletion of addition of share capital under Section 68 of the Income-tax Act.2. Treatment of unaccounted purchase transactions and profit element.3. Treatment of shortage of stock found during the survey.4. Disallowance of job charges for non-deduction of TDS under Section 40(a)(ia).Issue-wise Detailed Analysis:1. Deletion of Addition of Share Capital under Section 68:The first issue concerns the deletion of an addition of Rs. 65,50,000 made by the Assessing Officer (AO) under Section 68 of the Income-tax Act. The AO added the amount as undisclosed cash credit, questioning the genuineness of the share capital increase and the premium charged. The assessee provided details of shareholders, including PAN, addresses, and bank details. The AO issued notices under Section 133(6) and recorded statements from some shareholders but was not satisfied with their creditworthiness.The CIT(A) deleted the addition, relying on the Delhi High Court's decision in CIT v. Divine Leasing & Finance Ltd., which outlined that the assessee must prove the identity, genuineness of the transaction, and creditworthiness of subscribers. The Tribunal upheld the CIT(A)'s decision, noting that the assessee provided sufficient evidence, including PANs, bank details, and confirmations from shareholders, and that the AO did not find any defects in these documents.2. Treatment of Unaccounted Purchase Transactions and Profit Element:The second issue involves the treatment of unaccounted purchase transactions recorded in impounded documents (HG-4, HG-30, and HG-31). The AO added Rs. 99,14,006 as unaccounted purchases and applied a gross profit rate of 13.39%, resulting in an undisclosed profit of Rs. 13,27,485.The CIT(A) recalculated the unaccounted purchases at Rs. 6,76,562 and estimated the profit at Rs. 90,591, following a remand report from the AO. The Tribunal upheld the CIT(A)'s decision, agreeing that the profit element should be considered rather than the entire unaccounted purchase value.3. Treatment of Shortage of Stock Found During Survey:The third issue pertains to the treatment of a shortage of stock found during the survey, valued at Rs. 23,45,278. The AO treated the shortage as sales and added the amount to the income. The CIT(A) restricted the addition to the profit element, applying a gross profit rate of 13.39%, resulting in an addition of Rs. 3,14,033.The Tribunal upheld the CIT(A)'s decision, noting that the discrepancy in stock should be treated as sales, but only the profit element should be added to the income.4. Disallowance of Job Charges for Non-Deduction of TDS:The final issue involves the disallowance of job charges paid to Karigars for non-deduction of TDS under Section 40(a)(ia). The CIT(A) deleted the disallowance, noting that none of the payments exceeded Rs. 20,000 per transaction or Rs. 50,000 in total for any Karigar, thus not attracting the provisions of Section 194C.The Tribunal found no infirmity in the CIT(A)'s decision, confirming that the payments did not exceed the threshold limits for TDS deduction under Section 194C, and hence, the disallowance was unjustified.Conclusion:The Tribunal dismissed both the revenue's and the assessee's appeals, confirming the CIT(A)'s decisions on all issues. The judgments were based on the sufficiency of evidence provided by the assessee, adherence to legal precedents, and correct application of tax provisions.