2023 (8) TMI 881 - AT - Income Tax

Tribunal upholds reassessment, deletes additions by AO for unexplained expenditure, loans.

MP Ferrous And Non Ferrous India Pvt. Ltd. Versus Dy. Commissioner of Income Tax Circle–7 (2) (2), Mumbai

The Tribunal upheld the initiation of proceedings under section 147 but deleted the additions made by the AO for the assessment years 2009-10 and 2010-11. ... Reopening of assessment u/s 147 - assessee is one of the beneficiaries of the accommodation entries receipt by entity - plea of the AR that the reassessment proceedings have been initiated entirely based on the satisfaction borrowed from the Investigation Wing and no independent inquiry was conducted by the assessee to come to the aforesaid conclusion - HELD THAT:- As on the basis of information received from the investigation wing, reassessment proceedings in the case of the assessee were initiated. As also well settled that sufficiency or correctness of the material is not a thing to be considered at the stage of recording the reasons. As a result, we find no infirmity in the reassessment proceedings initiated by the AO u/s 147 of the Act. Accordingly, ground no. 1 in assessee’s appeal, raised as an additional ground, is dismissed. Addition u/s 68 - As evident from the record, the Revenue has doubted the existence of this entity and has claimed that this entity to be only a paper entity that works to issue accommodation entries. The aforesaid documents prove to the contrary as not only details of the loan by Bhoomidevi Credit Corporation Ltd. to the assessee is recorded in the financial statements of the aforesaid entity, similar details are corroborated from the ledger account of Bhoomidevi Credit Corporation Ltd. in assessee’s books. Since the assessee has proved the existence of Bhoomidevi Credit Corporation Ltd., we find no merits in the findings of AO which were upheld by the learned CIT(A). Accordingly, the addition made by the AO and upheld by the learned CIT(A) is deleted and grounds raised by the assessee on merits are allowed. Issues Involved:1. Validity of proceedings initiated under section 147 of the Income Tax Act, 1961.2. Addition of INR 14,00,000 as unexplained expenditure under section 68 of the Act.3. Addition of unsecured loan as unexplained investment under section 69 of the Act.4. Validity of interest paid on unsecured loans as business expenditure.5. Documentary evidence substantiating the genuineness of loan transactions.Summary:1. Validity of Proceedings Initiated under Section 147:The assessee contended that the notice issued under section 148 on 31.03.2016 lacked tangible material indicating failure to disclose all material facts necessary for assessment. The Tribunal, referencing the Hon'ble Supreme Court's decision in NTPC Ltd vs CIT, admitted this as an additional ground. The Tribunal found that the reassessment proceedings were initiated based on information received from the ADIT (Investigation)-1, Rajkot, which constituted new and tangible material. Citing ACIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd, the Tribunal upheld the validity of the reassessment proceedings, stating that the sufficiency or correctness of the material is not to be considered at the stage of recording the reasons.2. Addition of INR 14,00,000 as Unexplained Expenditure:The AO added INR 14,00,000 to the total income of the assessee under section 68, based on the statement of the director of Bhoomidevi Credit Corporation Ltd. (BCCL), who admitted to providing accommodation entries. The Tribunal found that the assessee had provided sufficient documentary evidence, including the ledger account and bank statements, proving the genuineness of the loan transaction. The Tribunal held that the Revenue's claim that BCCL was a paper entity was unfounded, as the existence of BCCL was substantiated by the financial statements and ledger accounts. Consequently, the addition made by the AO was deleted.3. Addition of Unsecured Loan as Unexplained Investment:The Tribunal found no merit in the AO's findings, which were upheld by the CIT(A), regarding the unsecured loan being treated as unexplained investment. The documentary evidence provided by the assessee substantiated the genuineness of the loan transaction, leading to the deletion of the addition.4. Validity of Interest Paid on Unsecured Loans as Business Expenditure:The Tribunal noted that the assessee had paid interest on deposits to BCCL by account payee cheques, which was allowed as business expenditure. The Tribunal found no inconsistency in the assessee's claim and upheld the validity of the interest paid as business expenditure.5. Documentary Evidence Substantiating the Genuineness of Loan Transactions:The Tribunal emphasized that the assessee had furnished comprehensive documentary evidence, including the ledger account, bank statements, and financial statements of BCCL, substantiating the genuineness of the loan transaction. The Tribunal found no merit in the Revenue's claim that BCCL was a paper entity and deleted the additions made by the AO.Assessment Year 2010-11:For the assessment year 2010-11, the Tribunal adjudicated similar issues as in the assessment year 2009-10. The Tribunal upheld the initiation of proceedings under section 147 but directed the deletion of the addition on account of the loan transaction. The addition on account of commission expenses by treating the loan transaction as bogus was also deleted.Conclusion:Both appeals by the assessee for the assessment years 2009-10 and 2010-11 were allowed. The Tribunal upheld the initiation of proceedings under section 147 but deleted the additions made by the AO, finding that the assessee had provided sufficient documentary evidence substantiating the genuineness of the loan transactions.