2019 (9) TMI 144 - AT - Income Tax

Tribunal overturns income addition and penalty, stresses burden of proof in tax cases

M/s. Nozaki Finance And Investment Private Ltd. Versus DCIT, Circle-7 (1), Mumbai.

The Tribunal allowed the assessee's appeals, directing the deletion of the interest income addition and the penalty. The Tribunal emphasized the need for ... Addition of interest amount on which TDS was deducted - Addition made on the basis of the information contained in AIR and on the basis of the ledger of the payer - difference in interest income reported by the assessee and interest income reflected in the books of PRMPL(payer) - assessee disputes the correctness of the details contained in the said documents - HELD THAT:- Evidence cannot be used against the assessee unless assessee is given a chance to rebut the same. In the present case, the AIR and the ledger details of PRMPL were reflecting higher income than what was reported by the assessee in its return of income which went against the assessee. The amount reported in AIR or as per books of account of PRMPL cannot be treated as income of the assessee. Burden thereafter shifts on AO to establish the fact that the contents of the document relied upon by him is in fact true with supporting evidence. AO was very well empowered to summon the party, call for additional details from the parties to establish how that income pertained to the assessee and when the same was paid to the assessee. AO has not carried out any such exercise to rebut the contention of the assessee that they have not received any higher sum than what has been reported in its books of account. AO has the power to pass on the information to the Assessing Officer having jurisdiction over PRMPL to find out the correctness of claim of interest expenditure of the PRMPL and if not found to be correct, the same could be added to the income of the PRMPL. The mere fact that TDS has been deducted on a particular amount cannot ipso facto lead to an inference that assessee has a right to receive and has in fact, received the corresponding amount when the assessee disputes the correctness of the said figure. The presumption is applicable when the deduction of TDS is followed-up by the actual payment to the party and not applicable in cases wherein there is no receipt of amount by the parties as there is no right to receive the said amount. AIR and ledger of the PRMPL reflects higher amount, no addition can be made based on the said evidence when the AO has not rebutted the contention of the assessee that no amount over and above what is recorded in the books of the assessee have been ever received by the assessee. - Decided in favour of assessee. Issues Involved:1. Addition of Rs. 2,16,12,329/- as interest income.2. Admission of additional evidence under Rule 46A.3. Burden of proof regarding actual receipt of interest income.4. Penalty under Section 271(1)(c).Detailed Analysis:1. Addition of Rs. 2,16,12,329/- as Interest Income:The central issue was whether the addition of Rs. 2,16,12,329/- as interest income, based on discrepancies between the assessee's books and the payer's books, was justified. The assessee reported interest income of Rs. 41,72,766/- from PRMPL and Rs. 19,837/- from ZMPL, while the AIR and payer's ledger indicated higher amounts. The Assessing Officer (AO) added the difference as notional interest income. The Tribunal found that the AO failed to prove that the assessee actually received the higher amount. The Tribunal noted that the burden of proof lies with the Department to show that the assessee received more than reported.2. Admission of Additional Evidence under Rule 46A:The CIT(A) rejected affidavits from the assessee's CA and Vice-President as additional evidence under Rule 46A, stating they could have been presented earlier. The Tribunal disagreed, emphasizing that evidence must be considered, especially when used against the assessee. The Tribunal criticized the AO for not making further inquiries to verify the assessee's claims.3. Burden of Proof Regarding Actual Receipt of Interest Income:The Tribunal highlighted that the burden shifts to the Department to prove that the assessee received higher interest income than reported. The AO relied solely on the AIR and payer's ledger without further verification. The Tribunal stated that the AO should have summoned the payer or sought additional details to substantiate the claim. The Tribunal concluded that the mere issuance of TDS certificates does not prove actual receipt of income.4. Penalty under Section 271(1)(c):The penalty was imposed based on the addition of Rs. 2,15,64,964/- as interest income. Since the Tribunal deleted this addition, the basis for the penalty no longer existed. Consequently, the Tribunal directed the deletion of the penalty.Conclusion:The Tribunal allowed the assessee's appeals, directing the deletion of the interest income addition and the penalty. The Tribunal emphasized the need for the Department to provide concrete evidence when disputing the assessee's reported income and criticized the AO for not conducting thorough inquiries. The Tribunal's decision underscores the importance of fair evidence consideration and the burden of proof in tax assessments.