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2017 (2) TMI 108 - ITAT MUMBAI

2017 (2) TMI 108 - ITAT MUMBAI - TMI - Addition under section 69C - information obtained from the Sales Department - addition confirmed as parties did not respond to notices issued under section 133(6) - Held that:- AO has not brought on record any material evidence to conclusively prove that the said purchases are bogus. Mere reliance by the AO on information obtained from the Sales Department or on statements/affidavits of the 12 parties before the Sales Tax Department or that these parties di .....

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ion 69C of the Act by merely relying on information obtained from the Sales Tax Department, the statements/ affidavits of third parties, without the assessee being afforded any opportunity of cross examination of those persons for non-response to information called for under section 133(6) of the Act. - In the factual matrix of the case on hand, where the AO failed to cause any enquiry to be made to establish his suspicions that the said purchases are bogus, the assessee has brought on recor .....

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e advance given by the company to the assessee by way of compensation to the assessee for keeping his property as mortgage on behalf of the company to reap the benefit of loan as deemed divined within the meaning of section 2(22)(e) of the Act. - Decided in favour of assessee - ITA No. 5194/Mum/2014 - Dated:- 31-1-2017 - Shri Jason P. Boaz, Accountant Member and Shri Ram Lal Negi, Judicial Member For The Appellant : Shri T.A. Khan For The Respondent : Shri Vijay Mehta ORDER Per Jason P. Boaz, A. .....

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assessee was determined at ₹ 25,11,68,150/- in view of the following additions/disallowances: - (i) Unexplained Expenditure u/s. 69C ₹ 96,45,645/- (ii) Disallowance u/s. 40(a)(ia) ₹ 26,301/- (iii) Disallowance u/s. 14A r.w. Rule 8D ₹ 56,439/- (iv) Addition on account of deemed dividend u/s. 2(22)(e) ₹ 1,23,75,485/- 2.2 Aggrieved by the order of assessment dated 14.03.2013 for A.Y. 2010- 11, the assessee preferred an appeal before the CIT(A)-35, Mumbai challenging th .....

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eal, raising the following grounds as under challenging both the issues on which the learned CIT(A) allowed relief to the assessee: - "1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of ₹ 96,45,645/- made u/s 69C of the Act as unexplained expenditure. 2. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in relying upon judgments of the CIT vs. Nikunj Eximp Enterprises Pvt. Ltd. without appre .....

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es of the case and law, the Ld CIT (A) has grossly erred in deleting the disallowance made by the AO overlooking the explicit finding of the investigation carried out by the Sales Tax Department and corroborated by the enquiries of the AO. 5. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting the addition of ₹ 1,23,75,485/- which was made by invoking the provisions of section u/s 2(22)(e) of the income tax act by treating the loan taken by the app .....

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. The appellant prays that the order of the Ld.CIT(A) on the above grounds be set aside and that of the A.O be restored. 8. The appellant craves leave to amend or alter any ground or add a new ground. 4. Grounds 1 to 4 - Addition under section 69C of the Act 4.1 In these grounds (supra), Revenue assails the impugned order of the learned CIT(A) in deleting the addition of ₹ 96,45,645/- made under section 69C of the Act as unexplained expenditure by erroneously relying on the decision of the .....

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ed on the finding of the investigation carried out by the Sales Tax Department of Government of Maharashtra. The learned D.R. was heard in support of the grounds raised by Revenue and strong reliance was placed by him on the order of the AO on this issue. 4.2 Per contra, the learned A.R. of the assessee submitted that there was no error in the finding of the learned CIT(A) in the impugned order on this issue in deleting the addition under section 69C of the Act in view of following the binding d .....

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on the decision of the Hon'ble Bombay High Court in the case of Nikunj Eximp Enterprises Pvt. Ltd. (supra) and other decisions of the ITAT, Mumbai Benches held that addition made by the AO under section 69C of the Act as unexplained expenditure is unsustainable and thereby dismissed Revenue, appeal. 4.3.1. We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. The facts that emerge from the record are that .....

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t the assessee had made purchases from the following dealers, the list/details of which are as under: - Sr. No. Name of the Party Amount of alleged purchase (Rs. ) 1 Balaji Traders 25,35,745/- 2 Big Trade Agency Pvt. Ltd. 4,04,487/- 3 Blue Nile Enterprises 2,62,259/- 4 Dharmesh Trading Co. 13,32,097/- 5 Naman Enterprises 2,55,162/- 6 Om Enterprises 5,87,835/- 7 Pooja Corporation 3,83,095/- 8 Ramanand Sales Pvt. Ltd. 2,85,709/- 9 Riddhi Siddhi Trading Co. 13,55,826/- 10 Shubh Sales Corporation 2, .....

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turned to the assessee in cash for a small commission. Notices issued by the AO under section 133(6) of the Act to these parties were in most cases returned unserved by the postal authorities with the remark left or not known . To ascertain the genuineness of such purchases amounting to ₹ 96,45,645/- the AO required the assessee to show cause as to why the aforesaid purchases should not be treated as unexplained expenditure. In reply thereto, the assessee in letter dated 13.03.2013, claime .....

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ipts; that the said 12 parties from whom purchases were allegedly made did not attend in response to notices issued under section 133(6) of the Act; the said parties were not produced by the assessee and placed reliance on the statements, depositions, affidavits made before the Sales Tax Department. In that view of the matter, the AO treated the purchases from the aforelisted 12 parties (supra) amounting to ₹ 96,45,645/- as unexplained expenditure under section 69C of the Act in respect of .....

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e appellant in this regard. The main contention of the A.O. is that: (i) There is information available from the Sales Tax Department, Govt. of Maharashtra; (ii) The said persons have given deposition before the Sales Tax Department that they have only provided entries and have not actually supplied any material; (iii) The said parties could not be produced by the appellant; (iv) The notices sent were either returned back with the comment 'left', 'closed' or 'none appeared .....

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llant has given its facts regarding sale and the payments actually made which the AO has not disputed to highlight the point that the AO is not disputing the source of the expenditure by accepting the bank statement but is only doubting the existence of the parties to whom such payments have been made. It is also the appellant's contention that the A.O. has nowhere disputed the factum of sales. To this extent I am in agreement with the appellant that since the appellant has fulfilled its onu .....

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ot provide any substantive or credible evidence to establish that the list of allegedly suspicious suppliers on the website of Sales Tax Department was found to be sham, the appeal of the appellant is accepted. 4.3.4 On an appreciation of the material on record, it is evident from the order of assessment that it is primarily on the basis of information/details obtained from the Sales Tax Department, Government of Maharashtra that the AO issued the show cause notice to the assessee to explain the .....

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hat the assessee had filed copies of purchase invoices; extracts of stock ledger showing entry/exit of materials, copies of bank statements to evidence that payments for these purchases were made through normal banking channels, etc. to establish genuineness of the aforesaid purchases. From the record it is evident that the AO has not doubted the sales affected by the assessee and therefore it would be logical to conclude that without corresponding purchases being made, the assessee could not ha .....

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C of the Act. If the AO doubted the genuineness of the said purchases, it was incumbent upon him to cause further inquiries in the matter in order to ascertain the genuineness or otherwise of these transactions. Without causing any further enquiries to be made in respect of the said purchases, the AO cannot make the addition under section 69C of the Act by merely relying on information obtained from the Sales Tax Department, the statements/ affidavits of third parties, without the assessee being .....

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Further the Hon'ble Bombay High Court in the case of CIT vs. Ashish International (ITA No. 4299 of 2009) (Bom) has held that the genuineness of the statements relied upon by Revenue is not established when the assessee disputes the correctness thereof and has not been afforded opportunity to cross examine these parties. Moreover, when the payments for the said purchases to the said 12 persons is through proper banking channels and there is no evidence brought on record by the AO to establish .....

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ed above, we find no reason for interference in the order of the learned CIT(A) and consequently uphold her order deleting the addition of ₹ 96,45,645/- made under section 69C of the Act as unexplained expenditure in respect of the aforesaid purchases. Consequently, ground 1 to 4 of the Revenue s appeal are dismissed. 5. Grounds 5 & 6 - Deemed dividend under section (2)(22)(e) of the Act 5.1 In these grounds (supra), Revenue assails the impugned order of the learned CIT(A) in deleting .....

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e s relied upon. The learned D.R. was heard and without elaborating on the grounds raised, placed reliance on the order of the AO in the matter. 5.2 Per contra, the learned A.R. of the assessee submitted that there was no error in the order of the learned CIT(A) in deleting the addition of deemed dividend made by the AO under section 2(22)(e) of the Act. According to the learned A.R. the very same issue of deemed dividend on identical facts, as in the year under consideration, was before the Coo .....

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he case of CIT vs. Nagin Das M. Kapadia (1989) 177 ITR 398 (Bom) upheld the action of the learned CIT(A) in deleting the addition made under section 2(22)(e) and thereby dismissed Revenue s appeal on this issue. It was also submitted that another Coordinate Bench in the assessee s own case for A.Y. 2011-12 in its order in ITA No. 6865/Mum/2014 dated 21.09.2016 followed the earlier order for A.Y. 2009-10 and dismissed Revenue s appeal in the matter. It was submitted that, in short, this issue is .....

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the assessee s own case for A.Y. 2009-10, wherein the Coordinate Bench dismissed Revenue s appeal on this issue; holding as under at paras 6 & 7 thereof as under: - 6. We have heard the rival contentions, perused the relevant findings of the authorities below and the material available on record. It is undisputed fact that the assessee has offered his own asset valuing more than ₹ 2 crores as a collateral security to the bank so that the loan/credit facilities is available to the comp .....

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held to be attracted. Under the deeming provisions of sub-clause (e) of section (2(22), a distinction has to be made in the cases, where the loan and advance has been given to shareholder merely because such a person is a beneficial owner of shares and from the cases where loan or advance has been given as the matter of commercial consideration which has been given as the matter of commercial consideration which has benefited the company from such a shareholder i.e., the loan or advance has bee .....

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earned counsel for the parties and after going through the aforesaid provisions of the Act, we are of the opinion that the phrase by way of advance or loan appearing in sub-clause (e) must be construed to mean those advances or loans which a shareholder enjoys for simply on account of being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the votin .....

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e conferred upon the company by such shareholder. In the case before us, the assessee permitted his property to be mortgaged to the bank for enabling the company to take the benefit of loan and in spite of request for the assessee, the company is unable to release the property from the mortgage. In such a situation, for retaining the benefit of loan availed of from Vijaya Bank if decision is taken to give advance to the assessee such decision is not to give gratuitous advance to its shareholder .....

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