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Facts
The Revenue filed an appeal against the CIT(A)'s order deleting additions made on account of bogus share premium and estimated gross profit on understated sales. The additions were based on a survey conducted under section 133A. The assessee disclosed loans received, and the assessment was completed with additions.
Held
The Tribunal held that the assessee discharged its onus under section 68 for share capital and premium additions, as the AO accepted the verified documents and sources of funds in remand proceedings. For understated sales, the Tribunal found the AO's method of extrapolation baseless and not justified by law.
Key Issues
Whether the CIT(A) was justified in deleting additions related to bogus share premium and understated sales; whether the AO erred in rejecting books of account and estimating income based on extrapolation.
Sections Cited
133A, 68, 145, 143(3)
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Income Tax Appellate Tribunal, “D” BENCH MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the Revenue is against the order of Ld. CIT(A)- 51, Mumbai vide order no. ITBA/APL/S/250/2024-25/1066914048(1), dated 23.07.2024, passed against the assessment order by Deputy Commissioner of Income Tax, Circle-12(3)(2), Mumbai, u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 27.12.2019, for Assessment Year 2017-18.
Grounds taken by the Revenue are reproduced as under: 1. Whether, on the facts and in the circumstances of the case and in law, the Ld CIT(A) was justified in directing the Assessing Officer to delete the addition made u/s, 68 of the Income Tax Act, 1961 on account of bogus share premium even though the creditworthiness of the M/s. Warner Metalic Pvt. Ltd. and M/s. Agnikal Vyapar Private Limited is not proven beyond reasonable doubt.
2. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in directing the Assessing Officer to delete the addition made u/s, 68 of the Income Tax Act, 1961 even though the modus operandi of the transactions among M/s. Warner Metalic Pvt. Ltd., M/s. Agnikal Vyapar Private Limited, M/s. Ashwin General Merchant Pvt. Ltd and the assessee company reeks of layering of the unexplained money 3. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in directing the Assessing Officer to delete the addition made u/s. 68 of the Income Tax Act, 1961 on account of bogus share premium received by the assessee by using colourable devices which has been held illegitimate by the Hon'ble Supreme Court in the case of Mc Dowell & Company Limited vs The Commercial Tax Officer in Civil Appeal No. 570 of 1983. 4. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in directing the Assessing Officer to delete the addition made u/s. 68 of the Income Tax Act, 1961 on account of bogus share premium even though the assessee has not discharged the burden placed upon him under sec.68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. 5. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in directing the Assessing Officer to delete the addition made u/s. 68 of the Income Tax Act, 1961 on account of bogus share premium even though the Hon'ble Delhi High Court in the case of Commissioner Of Income Tax vs Nr Portfolio Pvt Ltd. on 22 November, 2013 held that Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details are not sufficient as the genuineness, creditworthiness, identity are deeper and obtrusive? 6. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in wrongly relaying on remand report of Assessing Officer without proper appreciating the findings of the Assessing Officer during the assessment proceedings and statement recorded of Director of Company during the Survey u s. 133(A) of the Act. 7. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition on account of understatement of sales ignoring the finding/material impounded during the Survey proceedings w/s. 133(A) of the Act? 8. Whether, on the facts and in the circumstances of the case and in law, the L.d.CIT(A) erred in not appreciating that assessee could not provide reconciliation of its financial statement and AO was right in rejecting the books of account u/s. 145 of the Income Tax Act, 1961 considering the material impounded during the Survey conducted u/s 133(A) of the Act
Registry has noted delay of 2 days in filing the present appeal by the revenue before the Tribunal. In this respect, in the application for condonation of delay, ld. CIT DR submitted that last date to file the present appeal was on 21.09.2024. However, it was Saturday and the next day was Sunday, when the office was closed. The appeal was therefore filed on 23.09.2024. Hence, this delay of 2 days. Considering this submission and explanation, the said delay is condoned and the appeal is taken up for adjudication.
Brief facts of the case are that assessee is engaged in the business of trading in infant products with the brand name “Mee n Moms”. Survey was conducted on the assessee under section 133A on 23.09.2016 wherein certain loose papers were found and impounded and on the basis of these documents, assessee made a disclosure in respect of certain loans received by it. Thereafter, return of income was filed on 02.11.2017, reporting total income at ₹6,38,84,354/-. Assessment was completed at total assessed income of ₹ 20,66,66,310/- by making the following additions: i. Share capital and premium received from Agnikal Vyapar Pvt Ltd – Rs.3,31,42,084/- ii. Share capital and premium received from Warner Metallic Pvt Ltd – Rs.2,58,67,969/- iii. Estimated gross profit on understated sales – Rs.8,37,71,903/-
Aggrieved, assessee went in appeal before the Ld. CIT(A) who after elaborate discussion on the submissions made by the assessee corroborated by documentary evidences, gave his fact-based findings, deleting the additions so made by the ld. Assessing Officer. Aggrieved, revenue is in appeal before the Tribunal.
We have heard both the parties and used the material placed on record. We have also given our thoughtful consideration to the fact- based observations and findings arrived at by the ld. CIT(A). We have also perused the remand report furnished by the ld. Assessing Officer to the ld. CIT(A). This report dealt only with the first issue relating to addition made towards share capital and premium from two parties. It is silent on the second issue relation to addition made on account of gross profit estimation on understated sales.
On the first issue relating to addition u/s 68 towards share capital and premium from the aforesaid two parties, assessee could not furnish certain documents which were submitted at the first appellate stage. Ld. CIT(A) called for remand report from the ld. Assessing Officer which is placed on record. In the remand report, ld. Assessing Officer accepted the admission of additional evidences furnished by the assessee. He also verified the source of funds received by the investing companies and cross verified the same by issuing notices u/s 133(6) which were duly complied with by the investing companies. Ld. Assessing Officer acknowledged the fact of furnishing of relevant and necessary documents by the two investing companies which includes, their confirmation letters, ITRs, bank statements, audited financial statements, valuation reports and details of source of source for funds invested. No adverse inference is drawn by the ld. Assessing Officer in the remand report in respect of share capital and premium from the said two parties.
It is further noted that the said two investing companies are existing shareholders of the assessee from past several years fact of which has never been disputed. Thus, their identity cannot be challenged. Further, part of the share capital and premium resulted out of conversion of unsecured loans from these investor companies into equity capital and another part as fresh investment. For the infusion of fresh funds, source of source was explained which has been accepted by the ld. Assessing Officer in the remand proceedings as stated in the report. Furthermore, these investing companies are based at Mumbai and not from Kolkata, which was evidently demonstrated by the assessee by furnishing their details from the MCA portal.
Considering the above stated facts duly supported by corroborative documentary evidences which have been accepted and verified by ld. Assessing Officer in the remand proceedings and nothing otherwise brought on record before us to controvert the same, we find that assessee has discharged its onus casted u/s 68 of the Act. Accordingly, we find no reason to interfere with the findings arrived at by the ld. CIT(A) on this issue whereby addition of Rs.5,90,10,053/- has been deleted. Grounds raised by the revenue in this respect are dismissed.
On the second issue relating to addition of gross profit estimated on understated sales, ld. Assessing Officer noted that in the profit & loss statement drawn upto the date of survey, sales accounted were of Rs.84,64,05,136/- whereas the overall sales for the year under consideration was reported at Rs.133,08,66,428/- which is disproportionate to the period, pre and post survey. Based on his assumption of disproportionality, ld. Assessing Officer rejected the books of account and worked out total sales for the year at Rs.169,28,10,272/-, that is by taking twice the amount of sales accounted upto the date of survey. Accordingly, he computed the understated sales of Rs.36,19,43,844/-, that is difference of Rs.169,28,10,272/- and Rs.133,08,66,428/-. He then, after giving 50% benefit for sales on account of demonetization period, applied the reported GP rate of 46.29% to arrive at an addition of Rs.8,37,71,903/- to the total income of the assessee.
In this respect, assessee evidently demonstrated that sales upto the date of survey included branch transfers of Rs.29,28,57,985/-. Correct sales upto the date of survey excluding branch transfers was Rs.55,35,47,151/- only. Perusal of the profit and loss statement of the assessee upto the date of survey evidently shows separate amounts for branch transfers which forms part of Rs.84,64,05,136/- taken by the ld. Assessing Officer as the total sales for extrapolation for the whole year. Ld. Assessing Officer has completely ignored the branch transfer figure which gets excluded when the financial statement is drawn for the whole year for the purpose of compliance and reporting as well as computing the business profit for the year. Assessee reported total sales of Rs.128,26,99,934/- for the year in its audited financial statements and accordingly included the business profits in its computation and return so filed.
We do not find any justification on the part of ld. Assessing Officer of doubling the figure found in the profit and loss account on the date of survey to extrapolate it for the whole year and reject the books of account to apply gross profit percentage on such an extrapolation which is baseless. There cannot be any comparison of sales between pre and post survey period to extrapolate in such a linear proportion. Such a mathematical approach based on presumption cannot lead to determination of actual and real income for bringing it to tax under the Act. It is a settled law that no addition can be made on the basis of suspicion and guess work. The very foundation of rejecting the books of account of the assessee fails owing to fallacious approach of ld. Assessing Officer. Thus, ld. Assessing Officer has erred in rejecting the books of account and thereby estimating the business income of the assessee by extrapolating the figures. Nothing is brought on record before us to controvert the fact-based findings arrived at by the ld. CIT(A) on this issue. Book results disclosed by the assessee in its audited financial statements and business income thereby reported in the return of income is to be accepted. Accordingly, we do not find any reason to interfere with the observations and findings of ld. CIT(A) whereby addition of Rs.8,37,71,903/- has been deleted. Grounds raised by the revenue in this respect are dismissed.
In the result, appeal of the revenue is dismissed.
Order is pronounced in the open court on 07 April, 2025