2018 (10) TMI 1857 - AT - Income Tax

Tribunal Upholds CIT(A) Decisions, Emphasizes Evidence & Legal Principles

ITO 20 (2) (3), Mumbai Versus Karan R. Shah And Vice-Versa.

The Tribunal upheld the CIT(A)'s decisions in restricting various additions made by the AO, citing lack of substantiation and procedural irregularities. ... Estimation of income - bogus purchases - additions were restricted @ 12.5% by CIT-A - HELD THAT:- Payments were made through account payee cheques and the AO himself has not ruled out the possibility, that the assessee might have made these purchases from grey markets from some other parties by investing unaccounted cash. As per the factual position, the sale proceeds of said goods have been duly accounted for in the books and offered to tax. CIT(A) had correctly concluded that addition of entire purchase amount cannot be made in the present case, rather a reasonable percentage of such purchases in order to fulfill the gap of any revenue leakage was applied. Thus, the additions were restricted @ 12.5% of the alleged purchases. No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld.CIT(A). Payments to persons specified in section 40A(2)(b) - CIT(A) in deleting the addition made by the AO as unproved penalty and sustaining only 20% of the said expenditure - HELD THAT:- CIT(A) after correctly appreciating the facts of the present case had concluded that the assessee had made payments to M/s. Pancharatna Plastics. Even the auditors in their tax audit report had made an observation that the assessee had made payments to persons specified in section 40A(2)(b) which prompted the AO to call for the information/details in relation to this expenditure. Although the assessee had furnished the details of expenditure, however the AO disallowed the entire expenditure u/s 40A(2)(b) on the ground that no corroborative evidence was furnished. The Ld. CIT(A) correctly concluded that if no corroborative evidence in relation to this expenditure was coming forth from the assessee then, the AO ought to have disallowed this expenditure under section 37 and not under section 40A(2)(b). CIT(A) also correctly appreciated that the question of disallowance would arises only where there is excessive payment of expenditure to such person who are referred in clause (b) of section 40A (2) of the Act and in the instant case, it is the father of the appellant. In this case, the transactions were between sister concerns in regular course and they have not paid any amount to each other towards expenses warranting the additions under section 40A(2)(b). As per the provisions, the additions can only be made if excessive or unreasonable was spent. But the AO had disallowed the entire expenditure without substantiating the quantum of unreasonable or excessiveness. Under section 40A(2)(b) only such excessive and unreasonable expenditure paid to specified person is disallowable. Therefore, Ld. CIT(A) correctly confirmed the additions to 20% of alleged disallowance. - Decided against revenue. Addition u/s 69C - Unexplained purchases - discrepancy between the accounts of the assessee and the said M/s Lanscape Enterprise - HELD THAT:- CIT(A) after correctly appreciating the facts of the present case had concluded that as per the facts, the assessee made purchases from M/s Landscape Enterprises and since, there was a discrepancy between the accounts of the assessee and the said M/s Lanscape Enterprise, therefore additions u/s 69 C were made. Ld. CIT(A) after appreciating the factual position had rightly concluded that the assessee has on his part substantiated the details of purchases made by him from the said M/s. Landscape Developers and has also substantiated the payments made by cheques to the said M/s. Landscape Developers. The assessee had also reconciled the figures of purchases and payments with the said party and had arrived at negligible difference of ₹ 4,624/- as against the total purchase transaction of ₹ 43,25,579/-. Therefore, deleted the disallowance made by AO correctly. - Decided against revenue. Unexplained Expenditure U/s 69 - survey at the residential premises of the assessee, Laptop belonging to assessee’s brother was found and impounded - HELD THAT:- CIT(A) after correctly appreciating the facts of the present case had concluded that during the survey at the residential premises of the assessee, Laptop belonging to assessee’s brother Mr. Kevin Rajendra Shah was found and impounded. On the basis of various print outs, the additions were made although, assessee had denied to have incurred such expenditure but AO rejected the stand of the assessee. The Ld. CIT(A) after considering the factual position and the submission made by the assessee, had rightly concluded that the survey team had exceeded their jurisdiction by entering the residential premises of the assessee and Kelvin R. Shah was in no way connected with the activities of the assessee CIT(A) had correctly mentioned that AO had disregarded assessee’s own books of accounts which were regularly maintained and assessee is also regularly assessed to tax. It was correctly appreciated that AO had just taken the print-outs from the laptop Mac-book of one Mr. Kevin Rajendra Shah, the younger brother of the assessee who had nothing to do with the business activities of the assessee and had proceeded to make an add back to the appellant's returned income as Unexplained Expenditure U/s 69 of the Act. The income based on such guess work has no place in law and the same requires to be deleted. - Decided against revenue. Addition based on survey proceedings - mention of expenses in Mac-book of Brother and found at Brother's place - HELD THAT:- AO had disregarded assessee’s own books of accounts which were regularly maintained and assessee is also regularly assessed to tax. As per the facts of the present, the AO had just taken the print outs from the laptop Mac book of one Mr. Kelvin R. Shah, younger brother of the assessee who had nothing to do with the business activity of the assessee. The addition made by the AO was based on guess work which has no place in law. The Ld. CIT(A) while reaching to the conclusion had correctly relied upon the judgment of Hon’ble Supreme Court in the case of CIT Vrs. S. Khader Khan [2013 (6) TMI 305 - SC ORDER] Addition u/s 69C - during the course of survey operations under section 133A of the Act, a loose document was impounded which depicts expenditure purported to have been incurred by the assessee - HELD THAT:- When dumb document like the present loose sheet of paper is recovered and the Revenue wants to make use of it, then the onus rests on the Revenue to collect cogent evidence to corroborate the noting therein. Since in the present case, the Revenue has failed to corroborate the noting by bringing some cogent material on record to prove conclusively that the noting in the seized paper reveal the unaccounted expenditure incurred by the assessee. Thus the impugned addition was made by the AO on grossly inadequate material or rather no material at all and as such, deserves to be deleted. Issues Involved:1. Restriction of addition of Rs. 1,02,83,050 to Rs. 12,85,382.2. Deletion of addition of Rs. 16,12,075 made by AO as unproved expenditure.3. Deletion of addition of Rs. 2,66,362.4. Restriction of disallowance of bogus purchases of Rs. 7,09,387.5. Deletion of addition of Rs. 3,77,000.6. Deletion of addition of Rs. 13,65,000.7. Deletion of addition of Rs. 3,27,23,780.8. Deletion of addition of Rs. 61,58,000.9. Addition of Rs. 65,00,000 under section 69C.Issue-wise Detailed Analysis:Ground No. 1: Restriction of Addition of Rs. 1,02,83,050 to Rs. 12,85,382The Tribunal upheld the CIT(A)’s decision to restrict the addition of Rs. 1,02,83,050 to Rs. 12,85,382. The CIT(A) noted that the goods purchased were consumed for carrying out the works allotted to the assessee by MCGM. The CIT(A) relied on the judgment in CIT vs. Nikunj Eximp Enterprises (P) Ltd., which held that merely because suppliers did not appear before the AO, the purchases could not be rejected as bogus. The AO did not provide an opportunity for cross-examination of the parties or bring adverse material on record. The Tribunal found no reason to interfere with the CIT(A)’s findings and dismissed the revenue’s ground.Ground No. 2: Deletion of Addition of Rs. 16,12,075 as Unproved ExpenditureThe CIT(A) found that the AO disallowed the entire expenditure under section 40A(2)(b) without substantiating the quantum of unreasonable or excessive expenditure. The CIT(A) concluded that only 20% of the alleged expenditure should be disallowed, amounting to Rs. 3,22,414. The Tribunal agreed with the CIT(A)’s reasoning and dismissed the revenue’s ground, finding no new facts or contrary judgments.Ground No. 3: Deletion of Addition of Rs. 2,66,362The CIT(A) deleted the addition of Rs. 2,66,362 made by the AO under section 69C, noting that the assessee had substantiated the details of purchases and payments made by cheques to M/s Landscape Developers. The difference in the purchase transaction was negligible. The Tribunal upheld the CIT(A)’s decision, finding no reason to interfere with the findings.Ground No. 4: Restriction of Disallowance of Bogus Purchases of Rs. 7,09,387The CIT(A) restricted the disallowance to 12.5% of the alleged purchases, amounting to Rs. 96,398, noting that the assessee had provided confirmation of account and ledger copies. The Tribunal found no reason to interfere with the CIT(A)’s findings and dismissed the revenue’s ground.Ground No. 5 to 7: Deletion of Additions of Rs. 3,77,000, Rs. 13,65,000, and Rs. 3,27,23,780The CIT(A) deleted the additions made under section 69C, noting that the survey team exceeded their jurisdiction by entering the residential premises and impounding a laptop belonging to the assessee’s brother, who had no connection to the assessee’s business activities. The CIT(A) relied on several judgments, including CIT vs. S. Khader Khan Son, to conclude that the additions based on guesswork had no place in law. The Tribunal upheld the CIT(A)’s findings and dismissed the revenue’s grounds.Ground No. 8: Deletion of Addition of Rs. 61,58,000The CIT(A) deleted the addition of Rs. 61,58,000, noting that the AO disregarded the assessee’s regularly maintained books of accounts and based the addition on printouts from the laptop of the assessee’s brother, who had no connection to the business activities. The CIT(A) relied on judgments, including CIT vs. S. Khader Khan Son, to conclude that the addition based on guesswork was not sustainable. The Tribunal upheld the CIT(A)’s findings and dismissed the revenue’s ground.Ground No. 9: Addition of Rs. 65,00,000 under Section 69CThe Tribunal condoned the delay in filing the assessee’s appeal and admitted it for hearing on merits. The Tribunal found that the AO made the addition based on a loose slip impounded during the survey, which did not mention any date or financial year. The Tribunal noted that the AO made the addition based on assumptions and presumptions without corroborating the document. The Tribunal relied on the decision in ACIT vs. M/s. Layers Exports Private Limited and other judgments to conclude that the loose slip was a dumb document with no evidentiary value. The Tribunal deleted the addition of Rs. 65,00,000 and allowed the assessee’s ground.Conclusion:The Tribunal dismissed both the revenue’s appeals and allowed the assessee’s appeal, finding no reason to interfere with the CIT(A)’s well-reasoned and judicious findings.