2023 (7) TMI 1202 - AT - Income Tax

Addition u/s 68 - accommodation entry taken - initial Burden to prove - HELD THAT - The initial burden is on the assessee. We find that to discharge the initial burden the assessee has submitted copies of ITR bank statements confirmations and affidavits acknowledging receipt of share certificates from the 10 investors companies. We find that the AO has failed to probe / conduct scrutiny of the documents so furnished and could not point out any fault in the documentary evidences so furnished. No material was brought on record by the AO to show that the affidavits filed by the directors of the investors companies were not genuine. No enquiries were conducted about the contents of the affidavits even during the remand proceedings the AO did not make any attempt to discredit the affidavit. The result is that the contents of the affidavits have not been disputed. Applicants were present at the given addresses against whom action could have been taken. In our considered opinion there is no material whatsoever on record for doubting the veracity of the statements made in the affidavits and if the deponents have also not been subjected to cross-examination for bringing out the validity of their statements then authorities would not be justified in doubting the correctness of the statement made by the deponents in the affidavits. Entire addition is based upon the statement of alleged entry operator Himsanshu Verma but he was never produced for cross-examination. The onus of ensuring his presence was on the AO but even the AO showed his inability to produce Himsanshu Verma for cross-examination. Thus assessee has successfully discharged the onus cast upon it by the provisions of section 68 - Decided in favour of assessee. Estimation of profit - deemed profit computed @ 8% of gross revenue from finishing work - HELD THAT - As without rejecting the books of account the AO has grossly erred in estimating the profit which is against the ratio laid down in the case of National Industrial Corporation Limited 2002 (8) TMI 93 - DELHI HIGH COURT . Since the addition is solely based on estimation without rejecting the books of accounts we do not find any merit in the impugned addition the AO is directed to delete the same. Ground No.3 is allowed.

Summary

Issues involved:
The issues involved in the judgment are:
1. Addition of Rs. 3,00,00,000 under section 68 of Income Tax Act without providing opportunity for cross-examination.
2. Addition of Rs. 45,000 as unexplained cash deposit in bank.
3. Addition of Rs. 12,80,000 as deemed profit without proper scrutiny of accounts.
4. Imposition of penal interest under sections 234B and 234C of Income Tax Act.
5. Any other ground raised during the hearing.

Issue 1: Addition of Rs. 3,00,00,000 under section 68 of Income Tax Act:
The appellant challenged the addition of Rs. 3,00,00,000 made by the Assessing Officer under section 68 of the Income Tax Act. The appellant argued that the addition was confirmed without providing a copy of the statement by 'another assessee' and without the opportunity for cross-examination. The appellant contended that the identity, creditworthiness, and genuineness of the transactions were established, but the addition was based solely on the statement of 'another assessee'. The Tribunal held that the AO failed to probe the documents furnished by the appellant and did not discredit the affidavits submitted. The Tribunal emphasized the importance of cross-examination and found no merit in the addition, directing its deletion.

Issue 2: Addition of Rs. 45,000 as unexplained cash deposit:
The AO added Rs. 45,000 as unexplained cash deposit in the bank without considering that the amount was from cash in hand. The Tribunal noted that the AO did not discuss the regular books of accounts of the assessee and made the addition based on estimation without rejecting the books of accounts. Citing precedent, the Tribunal directed the AO to delete the addition as it was solely based on estimation.

Issue 3: Addition of Rs. 12,80,000 as deemed profit:
The AO added Rs. 12,80,000 as deemed profit computed at 8% of gross revenue without discussing the regular books of accounts. The Tribunal held that without rejecting the books of account, the AO erred in estimating the profit, contrary to established precedent. Consequently, the Tribunal directed the AO to delete the addition as it was solely based on estimation.

Issue 4: Imposition of penal interest and penalty proceedings:
The AO imposed penal interest under sections 234B and 234C of the Income Tax Act and initiated penalty proceedings under section 271(1)(c). The Tribunal directed the AO to levy interest as per relevant provisions of the law, considering it as consequential in nature.

The Tribunal partly allowed the appeal, directing the deletion of the additions related to the unexplained cash deposit and deemed profit. The Tribunal found no merit in the addition under section 68 and directed its deletion. The imposition of penal interest was upheld, and the appeal was partly allowed on 26.07.2023.