2017 (12) TMI 195 - AT - Income Tax

Tribunal orders thorough investigation into transactions, directs examination of trail and evidence for undisclosed income

Income-tax Officer, Ward 12 (1), New Delhi Versus M/s. Ganpati Hydro Power Pvt. Ltd. (formerly Ganpati Retails Pvt. Ltd.)

The Tribunal allowed the Revenue's appeal, setting aside the issue to the Assessing Officer for a comprehensive inquiry into the genuineness of ... Undisclosed income - bogus sale purchase transactions - providing accommodation entries - Held that:- In the present case the sales recorded by the assessee has been shown in the disguised manner as regular income of the assessee whereas it is not so, because the assessee has failed to prove the purchases of the goods. On looking at the whole transaction, it is apparent that assessee is showing sales to some parties to suit their convenience without recovering money from them and in fact they are showing the amount due to assessee company as loans and advances. Therefore, it amounts to providing an accommodation entry to those parties as loans and advances in the guise of purchases booked by them. Though it is not the case of reopening but assessment, hence the higher burden lies on the assessee to prove genuineness of purchase and sales - merely because the purchases and sales have been shown in the books of accounts when they are shrouded with the non-genuineness does not help the assessee. It is a revelation that company without having any substances has got the outstanding credit of ₹ 35 crores for purchases. As a final fact finding authority we cannot close our eyes to the startling facts reveled before us. The ld AR has objected to the report of the ld AO placed before us wherein the transactions of the assessee were detailed for last three years. We do not hesitate to reject the objection of the assessee. In fact the report of the Ld AO has demonstrated the modus operandi of the assessee company prevailing for consecutive three years. Matter remanded back to AO - the ld. AO may examine the whole trail of these transactions of purchase and sales and find out the real beneficiaries of all these unusual transactions of purchase and sales entered by assessee without flow of consideration. Appeal of the revenue is allowed for statistical purposes. Issues Involved:1. Deletion of addition of Rs. 35,12,58,126/- by CIT(A) as undisclosed income introduced under the garb of sales.2. Assessment of the genuineness of transactions related to purchases and sales of fabrics.3. Examination of the conversion of debtors to loans and advances.4. Compliance with procedural requirements and adequacy of evidence provided by the assessee.Detailed Analysis:1. Deletion of Addition by CIT(A):The Revenue's primary contention was that the CIT(A) erred in deleting the addition of Rs. 35,12,58,126/- made by the Assessing Officer (AO), which was considered as undisclosed income introduced under the garb of sales. The CIT(A) observed that the AO did not clearly specify under which provision of law the sales amount could be added as income when it was already offered in the profit and loss account. The CIT(A) noted that if both purchases and sales were bogus, the resultant profit would also be bogus, leading to no taxable income. The CIT(A) also emphasized that the conversion of debtors to loans and advances did not result in any new funds or assets being introduced into the appellant's accounts.2. Genuineness of Transactions:The AO observed that the assessee's transactions involved purchases worth Rs. 35,11,19,546/- and sales worth Rs. 35,12,58,126/-. Major sales were made to two parties, and the addresses of these parties were the same as the seller from whom the assessee made significant purchases. The AO noted that no cash or bank transactions were made during the year, and no direct or indirect expenses were incurred by the assessee for its business. The AO concluded that the transactions were sham and were entered into to introduce unaccounted money into the books of accounts. The CIT(A), however, found that the AO failed to discharge the onus of proving that the transactions were not genuine and that the value was passed on to the persons shown as loans and advances.3. Conversion of Debtors to Loans and Advances:The CIT(A) addressed the issue of converting debtors to loans and advances, stating that both appear on the asset side of the balance sheet and mere switching does not give rise to income. The AO's observation that the assessee did not maintain a bank account and had a capital of only Rs. 1,00,000/- was considered by the CIT(A), who found no evidence of new funds or assets being introduced into the appellant's accounts. The CIT(A) directed the AO to ensure compliance with sections 269SS and 269T regarding the conversion of debtors to loans and advances.4. Procedural Compliance and Evidence:The AO noted that the assessee's compliance was delayed, and the details provided were insufficient for thorough examination. The AO relied on case laws to support the conclusion that the transactions were not genuine. The CIT(A) found that the AO did not provide adequate evidence to support the addition of sales as undisclosed income. The Tribunal observed that the CIT(A) accepted the assessee's submissions without addressing the AO's findings adequately. The Tribunal set aside the issue to the AO for a detailed examination, directing the assessee to produce evidence of the transactions and the movement of goods.Conclusion:The Tribunal allowed the Revenue's appeal for statistical purposes, setting aside the issue to the AO for a comprehensive inquiry into the genuineness of the transactions and the real beneficiaries. The AO was directed to examine the entire trail of transactions, ensuring proper opportunity for the assessee to present evidence. The Tribunal emphasized the need for a thorough investigation to ascertain the true nature of the transactions and the involvement of any undisclosed income.