2023 (2) TMI 1416 - AT - Income Tax

Appeal dismissed; additions converted to business income deleted where profits declared as short-term capital gain and advances unsupported

Income Tax Officer-3 (1) Indore Versus M/s. Parametric Trading Pvt. Ltd.

ITAT, Indore upheld the CIT(A)'s deletions and dismissed the appeal. The tribunal found the addition treating a shown profit as business income ... Correct head of income - addition on account of short term capital gain treating as business income - HELD THAT:- Perusal of the contract notes establishes this particular fact that the assessee had entered into above transaction during the year under consideration and from the aforesaid transaction, the assessee had earned profit - assessee has shown the shares as investment in the balance sheet. The assessee further filed the computation of income and the return of income for the year under consideration, from which, it further appears that the assessee had offered the said profit as short term capital gain. Addition is found to be no longer sustainable as the same was offered by the assessee as short term capital gain in the return of income. This is nothing but double taxation. Deletion of the impugned addition made by the CIT(A) is, therefore, found to be just and proper so as to warrant interference. Thus, this ground of appeal is found to be devoid of any merit and hence dismissed. Addition for outstanding amount for A.Y 2009-10 recovered as per BRS - HELD THAT:- We find that a remand report was called for from the Ld. AO whereupon the Ld. AO in its remand report duly accepted these entries represented the amount of cheque deposited in the bank accounts in the earlier year and duly accounted in the books of account in the earlier year but the same was admittedly cleared in the current year. As the result whereof the assessee’s case made out to this effect that the said amount could not be added in the hands of the assessee in the current year as the same was not received in the current year seems to be acceptable. Addition was not found to be sustainable and therefore, deleted by the Ld. CIT(A). We do not find any ambiguity in such order of deletion of addition for the reason already discussed hereinabove. The same is, therefore, upheld. Receiving advance and/or loan from various parties by the assessee the said fact was further confirmed by the entries shown in the books of account of the assessee which is also filed before us and verified by us too. In that view of the matter, the addition was found to be not sustainable and thus deleted which according to us is just and proper so as to warrant interference. The same is, thus, upheld. Advance received against the order is concerned, it is apparent on record that the Ld. AO examined the bank statement and found that these were entries for payments and receipts and somewhere journal entries. Furthermore, these entries were duly recorded in the books of the assessee in respect to sale/purchase or advances against sale/purchase receipt/return. When the said fact has been admitted by the Ld. AO in his remand report, upon verification of the said entries and found the same in the books of accounts of the assessee, in our considered opinion, the Ld. CIT(A) rightly deleted the addition made by the Ld. AO. There is no reason to interfere with the said order. This ground of appeal is, thus, found to be devoid of any merit and dismissed. Advances given - AO admitted in his remand report that the assessee has duly accounted sale transactions in the books. Same was further confirmed by various parties. Relevant to mention that Ld. AO further noted the remand report that the total of credit entries cannot be considered as total income of the assessee company. As the Ld. AO has duly examined the debit and credit entry in the bank statement and admitted in its remand report that the assessee duly accounted the said transaction in the books of accounts, the addition made by the Ld. AO has been found to be not sustainable and, therefore, deleted by the Ld. CIT(A) found to be justified without any ambiguity so as to warrant interference. This ground of appeal is, thus, dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether admission of additional evidence under Rule 46A of the Income-tax Rules was permissible and correctly allowed by the first appellate authority. 2. Whether additions made by the Assessing Officer under Section 68 of the Income-tax Act to the extent of Rs.1,48,92,31,583/- (comprising application money for shares; outstanding for earlier year recovered as per bank reconciliation; advances received; advances received against order; receipts against advances given; material sales; and a wrongly repeated addition) were sustainable - specifically challenges to deletions of additions in respect of: (a) outstanding for earlier year recovered as per BRS (Rs.23,67,56,210); (b) advances received (Rs.79,60,000); (c) advances received against order (Rs.24,85,75,000); and (d) receipts against advances given (Rs.76,43,79,291). 3. Whether short term capital gain of Rs.13,53,654/- declared as capital gain could be re-characterised by the Assessing Officer as business income leading to an addition (and whether such re-characterisation resulted in double taxation). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admission of additional evidence under Rule 46A Legal framework: Rule 46A of the Income-tax Rules permits the admission of additional evidence by the appellate authority in exceptional circumstances as per statutory procedure and judicial practice governing admission of fresh documents on appeal. Precedent treatment: No specific precedent was cited in the judgment; the Tribunal considered the parties' submissions and the conduct of the Revenue in not strongly opposing admission. Interpretation and reasoning: The Tribunal noted absence of substantial challenge from the Revenue against the CIT(A)'s exercise of power under Rule 46A and observed that the Revenue's counsel chose to contest merits rather than the admissibility of evidence. Given lack of strong opposing submissions and the record of documents relied upon at the remand and appellate stages, the admission was treated as proper. Ratio vs. Obiter: Ratio - where the revenue does not substantially dispute admissibility and appellate authorities follow Rule 46A procedure, admission will not be disturbed. Obiter - none beyond factual reliance. Conclusion: The Revenue's ground challenging admission of additional evidence under Rule 46A was dismissed. Issue 2 - Additions under Section 68: components challenged (outstanding recovered per BRS; advances received; advances against order; receipts against advances given) Legal framework: Section 68 addresses unexplained cash credits where sums credited to books by persons other than the assessee require explanation as to source; Assessing Officer may make additions if explanation is unsatisfactory. The proper inquiry entails examination of books, bank statements, vouchers, confirmations and remand reports. Precedent treatment: No precedents were cited or relied upon in the judgment. The Tribunal treated the Assessing Officer's remand report and subsequent verification as determinative of factual issues. Interpretation and reasoning - outstanding for earlier year recovered as per BRS (Rs.23,67,56,210): The Assessing Officer, on remand, accepted that the cheque deposits related to earlier year transactions which were accounted in the earlier year's books but cleared from bank in the current year. The Tribunal accepted the AO's factual acceptance in remand report and the CIT(A)'s deletion, reasoning that funds not received in the current year cannot be added to current year income. Interpretation and reasoning - advances received (Rs.79,60,000): The remand report accepted these amounts as advances/loans from various parties, and book entries corroborated the same. The Tribunal relied upon book entries and AO's concession to uphold deletion of addition. Interpretation and reasoning - advances received against order (Rs.24,85,75,000): Examination of bank statements and journal entries demonstrated that these were recorded in the books as sale/purchase or advances against sale/purchase/receipt/return. With AO's admission in remand report and verification of book entries, the Tribunal concluded the CIT(A) rightly deleted the addition. Interpretation and reasoning - receipts against advances given (Rs.76,43,79,291): AO's remand report acknowledged sale transactions were duly accounted in the books and that total credit entries could not be equated to total income; parties confirmed transactions. The Tribunal held deletion justified where AO admitted accounting and verification supported the assessee's position. Ratio vs. Obiter: Ratio - where remand proceedings and AO's own factual admissions establish that entries are earlier-year receipts, advances properly recorded, or accounted sale transactions, additions under Section 68 are unsustainable. Obiter - emphasis that grossing up of credit entries without considering corresponding debits and documentary evidence is improper. Conclusions: The CIT(A)'s deletions in respect of the challenged components (items b, c, d, e in the assessment breakup) were upheld; Revenue's appeals against these deletions were dismissed as devoid of merit. Issue 3 - Characterisation of Rs.13,53,654: short term capital gain versus business income Legal framework: Income must be assessed under appropriate heads (capital gains vs. profits and gains of business/profession) based on nature of transactions, frequency, intention, treatment in books and supporting documents such as contract notes; Assessing Officer must have material to recharacterise declared capital gains as business income. Precedent treatment: No precedent was cited; Tribunal relied on documentary record and averments in return and computation. Interpretation and reasoning: The assessee declared the amount as short term capital gain in the return and in the computation; share transactions were supported by contract notes, dates of purchase and sale, quantities, purchase cost and sale price, and the shares were shown as investments in the balance sheet. In remand proceedings the assessee furnished detailed working and supporting documents. Although the AO initially reported non-furnishing of documents, the remand record contradicted that and showed the requisite documentation. The Tribunal observed that treating the same amount again as business income would result in double taxation since it had already been offered as short term capital gain. Ratio vs. Obiter: Ratio - where documented transactions supported by contract notes, shown as investments and offered as capital gain in return and computation, recharacterisation to business income without cogent contrary material is not sustainable; re-attribution leading to double taxation must be avoided. Obiter - caution that AO's initial contrary observation was corrected on remand and reliance on remand materials is appropriate. Conclusion: The deletion of the addition of Rs.13,53,654/- (short term capital gain treated as business income) was upheld; Revenue's challenge was dismissed. Overall Disposition The Court upheld the first appellate authority's admission of additional evidence under Rule 46A and affirmed deletions of the contested additions under Section 68 and the re-characterisation challenge of short term capital gain; the Revenue's appeal was dismissed in entirety.