2025 (7) TMI 101 - AT - Income Tax

Addition on account of creditors appearing under loans advances - AO has doubted the genuineness of the advances shown in the books of account of the assessee solely on the ground that the assessee was not having stock of land to be sold to these parties and therefore the question of making the advances by the parties is highly suspicious and unbelievable - As argued it was not possible for the assessee to submit the confirmation from these parties as they were not traceable due to some criminal cases registered against them HELD THAT - The assessee has shown the helplessness to produce confirmation from these parties due to the reason that these persons were absconding due to criminal cases pending against them and this fact is not disputed by the Department and rather confirmed by the Department by producing this news material on a criminal case registered against the Managing Director of Heera Gold Exim (P) Ltd. In any case when there was no material produced or brought on record to show that there was actual sale of land to these parties and the assessee has suppressed the sale consideration to avoid the tax then the advances received through proper banking channel cannot be treated as unaccounted sale. At the most if the AO was satisfied that these advances are not a genuine transaction then the addition could have been made u/s 68 to the extent received during the year. AO has not doubted the transfer of money by these parties in favour of the assessee but the reporting of the transactions in the books of account by the assessee under advances from these parties was doubted by the AO on the premise that the assessee is receiving the consideration over and above the consideration reported and declared in the books of account and sale deeds. It is pertinent to note that in the case of suppression of consideration the excess amount is received as own money not through banking channel. Once the AO fails to co-relate these amounts with specific sale indent between the assessee and these parties then this cannot be treated as unaccounted sale consideration. Thus the addition was confirmed by the learned CIT(A) for want of the documentary evidence to substantiate the loan and advances and to establish the identity creditworthiness and genuineness of the transaction. These conditions as referred by the CIT(A) are required to be satisfied in case of cash credit u/s 68 whereas the AO has not doubted the transaction of transfer of the amounts by these persons but doubted the nature of payment. Thus in the absence of any sale incident title deed or any other material the advances shown by the assessee cannot be treated as sales. Therefore in the absence of allegation of any own money received these advances cannot be treated as unaccounted sale. Hence the addition made by the AO on this account is deleted. Advances received from the customers - Addition u/s 68 - addition made for want of the confirmation from these parties - assessee produced ledger account bank account statement and confirmation of these parties to show that the amounts were received from these parties as an advance through banking channels and also furnished the PAN of some of these parties - HELD THAT - It is pertinent to note that the assessee produced the sale deeds to show the actual sale of the land to these parties in subsequent years and the sale consideration was adjusted against the advances received by the assessee. Once the sale deed is registered then the identity and creditworthiness of the parties cannot be disputed as the amounts were received by the assessee against the sale of land. Only in respect of some of the persons belonging to the Heera Group the assessee could not submit confirmation due to the reason that criminal cases were registered against those persons and therefore the assessee was unable to file the confirmation from those persons. Once the identity of these persons are not in dispute and the amounts were received through banking channels then not filing confirmation in some isolated cases due to a Bonafide reason explained by the assessee would not lead to the conclusion that the transaction of advances are not genuine when the other records prima facie establish the genuineness of the transaction. Accordingly when the assessee has produced the supporting evidence including the confirmation in majority of the cases then non-production of the confirmation in 2 or 3 cases cannot change the nature of the transaction. Hence in the totality of the facts and circumstances the additions sustained by the learned CIT(A) merely on the ground of non-furnishing of the confirmation of some of the parties due to unavoidable circumstances for the assessee the addition is not justified - Decided in favour of assessee. Unaccounted sale consideration of plots - Non-admission of sales revenue - CIT(A) has deleted the addition by considering the fact that some of the sales are not related to the A.Y under consideration but pertains to the A.Y 2018-19 and for remaining sales the assessee has filed the revised computation wherein only the profit or loss element was considered as income of the assessee as against the entire sale consideration - HELD THAT - It is clear that the assessee has duly admitted in the statement recorded u/s 132(4) of the Act that there was a mistake in reporting the sale and consequently disclosed sales of Rs. 1, 83, 84, 000/-. AO has simply rejected the said factual details filed by the assessee and revised the computation solely on the ground that the assessee has admitted additional income in this regard in the statement and affidavit filed by the assessee. It is pertinent to note that if a statement recorded u/s 132(4) or u/s 131 as well as statement made in the affidavit is contrary to the actual facts then the facts which are duly supported by the undisputed evidence in the shape of registered sale deed are required to be considered and not the statement which is found to be incorrect and contrary to the actual facts. Further it is not in dispute that this amount is shown as advances by the assessee and duly reflected in the balance sheet and since the assessee has not reported this amount as sale the same was shown as part of the closing stock of the assessee. Therefore only the profit element could be assessed as income of the assessee from these transactions because the cost of the land was already part of the closing stock. Accordingly when the facts brought on record as well as undisputed documentary evidence are considered by the learned CIT(A) while deciding this issue then we do not find any reason to interfere with the findings given by the CIT(A) based on correct facts. Disallowance u/s 40(a)(ia) - Non-remittance of TDS on purchase of land in the Govt. Account - CIT(A) deleted addition - HELD THAT - Revenue has not disputed this fact that the seller of the land M/s. Neelanchal Roadways (P) Ltd has considered the sale consideration as part of its income for the A.Y 2016-17 and paid the tax on the same. The assessee furnished the certificate/information regarding the return of income filed by the seller and therefore once the recipient of the amount has offered the said amount to tax then in view of the 2nd proviso to section 40(a)(ia) r.w.s. 1st proviso to section 201(1) of the I.T. Act 1961 no disallowance is called for u/s 40(a)(ia) of the Act. Even otherwise when the assessee has not paid the TDS amount in the govt. account then the recipient of the amount cannot avail the TDS credit being not reflected in 26AS. Accordingly we do not find any error or illegality in the impugned order of the learned CIT(A) and the same is upheld. Addition towards the advances shown from the customers - as per AO these advances are not shown against any sale agreement for any identified plots of land - assessee could not produce any sale/purchase document/agreement to substantiate the claim that this amount was received as advance against the same - HELD THAT - It is pertinent to note that this addition was made by the AO based on the transaction recorded in the books of account and not on the basis of any incriminating material. PAN of Shri Mohammad Shaik Hussain was submitted by the assessee during the course of assessement proceedings and thereafter the assessee has taken confirmation letter from Shri Mohd.Shaik Hussain and Aadhar No. of Smt. Gausia Begum which were annexed to the application made under Rule 46A of the I.T. Rules 1962 which were forwarded to the Assessing Officer for remand report then this statement of the learned CIT (A) while confirming the addition is found to be contrary to the record. Decided in favour of assessee. Addition of sum surrendered in the statement made u/s 132(4) of the Act - voluntary disclosure made by the Managing Partner and also confirmed by subsequent affidavit - CIT(A) has deleted the addition while considering the fact that there was no incriminating material to show any undisclosed income in the hand of the assessee resulting the disclosure as income as well as relying upon the various judgments and CBDT Circular dated 10/03/2003 - HELD THAT - When the Department has failed to refer any incriminating material to corroborate the amount surrendered by the Partner of the assessee firm then the addition made solely on the basis of the statement of the partner without any description of the nature of the undisclosed income or any transaction resulting any undisclosed income is not sustainable in law. Accordingly we do not find any error or illegality in the impugned order of the learned CIT(A). Thus ground of the Revenue s appeal is dismissed. Unaccounted sale - Addition deleted by the learned CIT(A) - HELD THAT - As it is apparent from the details of the transaction itself that the Assessing Officer has made the addition of this amount without excluding the opening balance of the advances. We have considered an identical issue for the A.Y 2016-17. Therefore in view of our findings on this issue for the A.Y 2016-17 we do not find any error or illegality in the impugned order of the learned CIT(A).

Summary

The core legal questions considered by the Tribunal in these cross appeals arising from assessments framed under section 143(3) read with section 153A of the Income Tax Act, 1961 for the assessment years 2016-17 and 2017-18 include:

1. Whether the initiation of proceedings under section 153A was valid in the absence of an actual search conducted at the premises of the assessee-firm, given that the search was conducted at the residential premises of its partner and not at the firm's premises.

2. Whether advances and creditors appearing in the books of account represent genuine transactions or are to be treated as unexplained cash credits or unaccounted sale consideration liable to be added to income under section 68 or other provisions.

3. The evidentiary value and effect of statements recorded under section 132(4) and affidavits filed by partners of the firm admitting unaccounted income, and whether such admissions can be the sole basis for additions.

4. The correctness of additions made by the Assessing Officer towards unexplained cash credits and unaccounted sale proceeds, and the legal principles governing the burden of proof on the assessee to establish identity, creditworthiness, and genuineness of transactions.

5. The applicability of disallowance under section 40(a)(ia) for failure to remit deducted tax at source (TDS) despite deduction, and the interpretation of provisos to sections 201(1) and 40(a)(ia) in cases where the payee has paid tax directly.

6. The treatment of additional evidence filed before the Commissioner of Income Tax (Appeals) and the applicability of Rule 46A of the Income Tax Rules, 1962 concerning the admission of such evidence.

Issue-wise Detailed Analysis:

1. Validity of Proceedings under Section 153A in Absence of Search at Firm's Premises

The assessee contended that the proceedings under section 153A were invalid as no search was conducted at the firm's premises; the search was only at the residential premises of its partner. The CIT(A) had held that the firm's name appearing in the Panchanama drawn at the partner's residence amounted to a search on the firm. The assessee argued that a survey under section 133A is distinct from a search under section 132 and that mere mention of the firm's name in the warrant or Panchanama does not amount to a search on the firm.

The Tribunal noted that these legal contentions were academic in nature since the cross appeals were decided on merits. The Tribunal did not find it necessary to interfere with the CIT(A)'s findings on this issue as no substantive prejudice was demonstrated by the assessee.

2. Additions on Account of Creditors Appearing under Loans & Advances (Asset) and Advances from Customers

The Assessing Officer made additions totaling Rs. 1,44,86,500/- and Rs. 94,50,000/- respectively for amounts shown as advances or loans from customers, treating them as unexplained credits or unaccounted sale consideration. The additions were sustained by the CIT(A) primarily on the ground that the assessee failed to furnish confirmation letters, PAN details, or other documentary evidence to establish the identity, creditworthiness, and genuineness of the transactions.

The assessee submitted that these amounts were credited through proper banking channels by parties who were absconding due to criminal cases, and hence confirmations could not be obtained. The assessee also pointed out that in subsequent years, land was sold to some of these parties, and sale deeds were produced to substantiate the genuineness of transactions. The assessee relied on several Supreme Court decisions emphasizing that once the assessee discharges the primary onus by showing transactions through banking channels and identity of parties, the burden shifts to the Department to disprove genuineness.

The Department argued that absence of confirmation and non-availability of land for sale cast doubt on the genuineness of advances, and that the amounts were utilized by partners as withdrawals, indicating unaccounted income.

The Tribunal analyzed the facts and held that the additions were made without any incriminating material seized during search and based solely on suspicion. Since the advances were through banking channels and sale deeds were produced for subsequent transactions, the advances could not be treated as unaccounted sale consideration. The Tribunal deleted the additions made by the Assessing Officer and upheld the partial deletion by the CIT(A), directing deletion of Rs. 1,31,46,000/- and confirmation of Rs. 94,50,000/- only where documentary evidence was lacking. Subsequently, the Tribunal deleted the confirmed addition of Rs. 94,50,000/- as well, on the ground that non-furnishing of confirmation due to bonafide reasons cannot lead to adverse inference when other supporting evidence exists.

3. Treatment of Statements Recorded under Section 132(4) and Affidavits Admitting Unaccounted Income

The Revenue relied on statements recorded under section 132(4) and affidavits filed by partners admitting receipt of unaccounted sale consideration (Rs. 1,83,84,000/- for AY 2016-17 and Rs. 2.5 crores for AY 2017-18) to justify additions.

The CIT(A) deleted these additions holding that a statement recorded under section 132(4) cannot be the sole basis of assessment and that in the absence of incriminating material or corroborative evidence, such admissions are not conclusive. The assessee argued that these admissions were induced and retracted subsequently, and relied on Supreme Court decisions and CBDT circulars cautioning against undue emphasis on such admissions.

The Tribunal agreed with the CIT(A), noting that the statements related primarily to partners and not the firm, and no incriminating material was found in the firm's premises. The Tribunal held that mere admissions without corroborative evidence cannot sustain additions and deleted the additions based on these statements and affidavits.

4. Additions under Section 68 for Unexplained Cash Credits and Burden of Proof

The Assessing Officer made additions under section 68 for unexplained cash credits where the assessee failed to establish identity, creditworthiness, and genuineness of creditors. The CIT(A) deleted substantial additions where the assessee produced confirmations, PAN, ledger extracts, and bank statements, but confirmed additions where such evidence was lacking.

The assessee challenged the confirmation of additions where it had produced PAN and confirmation letters but the CIT(A) held otherwise due to procedural lapses. The Tribunal found this approach inconsistent and directed deletion of additions where the assessee had furnished sufficient evidence, emphasizing that once the primary onus is discharged by the assessee with credible documentary evidence, the addition cannot be sustained without contrary material from the Department.

5. Disallowance under Section 40(a)(ia) for Non-Remittance of TDS

The Assessing Officer disallowed 30% of expenditure amounting to Rs. 12,76,50,000/- under section 40(a)(ia) for failure to remit deducted TDS to the Government account, despite deduction having been made. The assessee contended that the payee had paid tax directly and furnished a certificate to that effect, invoking the first proviso to section 201(1) and the second proviso to section 40(a)(ia).

The Tribunal analyzed the provisions of sections 201(1), 40(a)(ia), and 191, and the interplay between them. It applied the doctrine of harmonious construction to reconcile apparent conflicts, holding that where the payee has paid tax and filed return, the deductor is not deemed to be an assessee in default under section 201(1). Consequently, the disallowance under section 40(a)(ia) is not applicable. The Tribunal directed deletion of the disallowance, noting that the Revenue did not dispute that the payee had offered the sale consideration as income and paid tax.

6. Admission of Additional Evidence under Rule 46A

The assessee filed additional evidence before the CIT(A) to substantiate the genuineness of advances and loans, which the Revenue challenged as being afterthoughts without sufficient cause. The CIT(A) admitted the evidence and directed the Assessing Officer to verify and submit a remand report.

The Tribunal upheld the admission of such evidence under Rule 46A, considering the reasons for non-submission before the Assessing Officer and the bonafide nature of the evidence. The Tribunal emphasized that the Assessing Officer had not produced any material to disprove the genuineness of transactions once the evidence was furnished.

Key Evidence and Findings:

• Bank statements and ledger extracts showing receipt of advances through banking channels.
• Registered sale deeds evidencing sale of land against advances in subsequent years.
• Confirmation letters and PAN/Aadhar details of creditors and customers.
• Statements and affidavits made by partners admitting unaccounted income, which were later retracted and unsupported by incriminating material.
• CBDT circulars and judicial precedents cautioning against reliance solely on confessional statements.

Application of Law to Facts and Treatment of Competing Arguments:

The Tribunal applied settled principles that the burden lies on the assessee to prove identity, creditworthiness, and genuineness of credits under section 68, and once discharged by credible evidence, the onus shifts to the Department. The Tribunal rejected additions based solely on suspicion or admissions without corroborative evidence. The Tribunal harmonized conflicting statutory provisions relating to TDS defaults to avoid penalizing the assessee when the payee has discharged tax liability. The Tribunal also recognized the procedural rights of the assessee to produce additional evidence before the appellate authority under Rule 46A.

Significant Holdings:

"Mere admission in the statement recorded under section 132(4) of the Act cannot be the sole basis for making additions in the absence of any incriminating material found during search or survey proceedings."

"Where the assessee discharges the primary onus by producing confirmation letters, PAN details, ledger extracts, and bank statements evidencing receipt of advances through banking channels, the additions under section 68 cannot be sustained without contrary material from the Department."

"In cases where the payee has paid tax directly and filed return, the deductor is not deemed to be an assessee in default under section 201(1) of the Act, and consequently, disallowance under section 40(a)(ia) is not applicable."

"The provisions of sections 191 and 201(1) of the Act must be harmoniously construed to avoid conflicting results and to give effect to both provisions."

"The assessee is entitled to produce additional evidence before the Commissioner of Income Tax (Appeals) under Rule 46A of the Income Tax Rules, 1962, if sufficient cause is shown for non-submission before the Assessing Officer."

Final Determinations:

• The appeals filed by the assessee challenging additions on account of unexplained advances and unaccounted sale consideration were allowed in part, with deletions of additions where the assessee furnished adequate evidence.
• Additions based solely on admissions under section 132(4) and affidavits were deleted due to lack of corroborative incriminating material.
• The disallowance under section 40(a)(ia) for non-remittance of TDS was deleted on the ground that the payee had paid tax and filed returns, and the deductor was not in default.
• The Revenue's appeals challenging deletion of additions were dismissed.
• The validity of assessment proceedings under section 153A was not interfered with, as the appeals were decided on merits.