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Facts
The assessee, engaged in veneer trading, filed an income return for AY 2016-17. Information was received regarding involvement in fraudulent activity and bogus transactions of Rs. 89,53,637/- with M/s. Smart Art Graphics Pvt. Ltd. The Assessing Officer (AO) reopened the case and added the entire transaction amount to the assessee's income.
Held
The Tribunal held that since the books of account were not rejected and the sales were already recorded and offered to tax, adding the entire sale consideration would lead to double taxation. However, considering the lack of complete verifiable evidence for the genuineness of the transactions, the Tribunal deemed it fit to estimate profit.
Key Issues
Whether the addition of Rs. 89,53,637/- as income, being sales already recorded in the books, is sustainable, and whether the AO was justified in invoking Section 68 and disallowing the entire amount.
Sections Cited
250, 147, 144, 250, 148, 234A, 234B, 234C, 68, 144B
AI-generated summary — verify with the full judgment below
Before: SHRI SANJAY GARG & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the assessee emanates from order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) dated 28.01.2025 by the Commissioner of Income-tax (Appeals), NFAC, Delhi [in short, “CIT(A)”] for assessment year (AY) 2016-17.
The grounds of appeal
raised by the assessee are as under: “1. The assessment order passed u/s.147 r.w.s 144 of Income tax Act by the AO and confirmed by the first appellate authority u/s.250 is bad in law and deserved to be uncalled for.
2. The AO as well as first appellate authority has erred in law and on facts in making and confirming respectively the addition of Rs.89,53,637/-. The same deserves to be deleted.
3. The AO has earned in law and on facts in charging interest u/s.234A, 234B and 234C of the IT Act. The same should be uncalled for.
2016-17 Sunil Kumar Mehta 4. The appellant craves to reserve his right to add, alter, amend or delete any ground of appeal during the course of hearing.”
3. Brief facts of the case are that the assessee is engaged in trading business of veneer which is run under the name of ‘Viva Composite N Veneer’ and the assessee also earned commission income during the FY 2015-16. The assessee filed the return of income for the AY 2016-17 on 24.06.2016 declaring total income at Rs.18,33,190/-. In this case, a piece of information was received through department’s Insight portal uploaded by ITO (Inv), Surat on 28.06.2021, in connection with the TEP in the case of Shri Paresh Dave, Addl. Director, Health Department of Govt. of Gujarat. The DDIT, Unit – 1(3), Ahmedabad informed that Shri Paresh Dave was involved in the fraudulent activity and had become partner in many firms/companies and that M/s. Smart Art Graphics Pvt. Ltd. was one of such companies. On further investigation and from the data available in the TDS returns available with various DDOs of the State Govt., certain vendors/key persons were identified to be major recipient of various contracts repetitively year after year. M/s. Smart Graph Advertising Pvt. Ltd. had been one of such vendors who had been in receipt of multiple contracts year after year from various state govt. departments.
4. During the course of survey action at the office premises of M/s. Smart Graph Art Advertising Pvt. Ltd., certain loose paper files, writing pads, receipt books and digital data were found and impounded. On verification of the aforesaid impounded material, it was seen that assessee, Shri Sunil 2016-17 Sunil Kumar Mehta Kumar Mehta (Prop. of Viva Composite N Veneer) was one of the beneficiaries of bogus purchases and had made bogus transactions amounting to Rs.89,53,637/- with M/s. Smart Art Graph Advertising Pvt. Ltd. On the basis of this information and after recording reasons to believe that income has escaped assessment, case of the assessee was reopened after following due procedure and notice u/s.148 of the Act was issued to the assessee. Subsequently, assessee was requested to furnish details/documentary evidence in respect of the aforesaid transactions amounting to Rs.89,53,637/-, vide notices/show cause notice issued during the assessment proceedings. In compliance of the same, the assessee submitted that the transactions amounting to Rs.89,53,637/- entered with M/s. Smart Art Graph Advertising Pvt. Ltd. had already been shown as sales on which tax was already charged in the Income tax return filed by the assessee for the relevant AY 2016-17. Therefore, addition in this regard should not be made since it would amount to double taxation. It was further submitted that the transactions amounting to Rs.89,53,637/- were not accommodation entries as the transactions were entered at arm length price and also the balance of M/s. Smart Art Graph Advertising Pvt. Ltd. was settled at year end. Assessee also furnished ledger of M/s. Smart Art Graph Advertising Pvt. Ltd.
The AO further asked the assessee to furnish details forming the basis of arriving to the ‘Arm Length Price’. In compliance, assessee stated 2016-17 Sunil Kumar Mehta that he was engaged in trading business which means that assessee used to purchase goods from one vendor and sell same to customer after adding some percentage of profit. In case of transaction with M/s. Smart Art Graph Advertising Pvt. Ltd. also, same practice was followed by the assessee. In this transaction also, assessee bought the goods and sold it to M/s. Smart Art Graph Advertising Pvt. Ltd. after adding certain percentage of profit. To support the same, purchase bills of such goods which were delivered at the premises of the assessee and the delivery challans of goods being received by the assessee, which were later sold to M/s. Smart Art Graph Advertising Pvt. Ltd., were attached by the assessee along with sales invoices.
The submissions along with evidence furnished by the assessee were perused by the AO. He, however, noticed that the assessee without executing any contract, supplied commodities worth Rs.89,53,637/- to M/s. Smart Art Graph Advertising Pvt. Ltd., which was more than 10% of the sales of the assessee during the FY 2015-16. Moreover,the delivery challans submitted by the assessee were without stamp/seal of the receiving company (M/s. Smart Art Graph Advertising Pvt. Ltd.), thereby lacking proof of delivery of material supplied by the assessee. In the absence of documentary evidence and proper explanation, amount of Rs.89,53,637/- was added to the total income. Accordingly, assessment order u/s.147 rws 144 rws 144B of the Act was passed on 25.05.2023 wherein total income of the assessee was determined at Rs.1,07,86,827/-.
2016-17 Sunil Kumar Mehta 7. Aggrieved by the aforesaid assessment order dated 25.05.2023, assessee preferred appeal before CIT(A). During appellate proceedings, the CIT(A) concurred with AO in holding that the claim of the assessee regarding the genuineness of the transaction of Rs.89,53,637/- stood unsubstantiated since he failed to produce corroborative documentary evidence in support of his claims. In view of the same, the CIT(A) dismissed the appeal of the assessee.
Aggrieved by the order of CIT(A), assessee filed present appeal before the Tribunal. The learned Authorized Representative (ld. AR) of the assessee submitted that the assessee had already shown the transaction amounting to Rs.89,53,637/- entered with M/s. Smart Art Graph Advertising Pvt. Ltd. as sales on which tax was already paid in the ITR filed by the assessee for the relevant AY 2016-17. Therefore, the ld. AR contended that the transaction which is already offered for tax should not be added back to the income of the assessee. The ld. AR further stated that the assesseewas engaged in trading business wherein he used to purchase goods from vendors and sell the same to customer after adding some percentage of profit. In case of transaction with M/s. Smart Art Graph Advertising Pvt. Ltd. also, same practice was followed by the assessee. The ld. AR also stated that for the want of documentary evidence, viz., supply contract, the addition was made to the income of the assessee which is not acceptable. According to the ld. AR, this stand of the AO does not seem to be genuine because it 2016-17 Sunil Kumar Mehta was always a mutual understanding and relations between the assessee and the parties so there was no contract made with the concerned party. As regarding the query raised by the AO that delivery challans furnished by the assessee were not having any seal or stamp of the receiving company, the ld. AR submitted that the AO failed to appreciate that aforesaid delivery challans were containing signature of the authorized person of the receiving company. According to ld. AR, such signature was sufficient.
The learned Senior Departmental Representative (ld. Sr. DR) for the revenue, on the other hand, relied upon the order of the lower authorities and requested to uphold the order of CIT(A). He submitted that the assessee failed to discharge the burden of proving genuineness of the transaction.
We have heard both sides and perused the materials placed on record. The issue for consideration is whether the addition of Rs.89,53,637/- , being the value of sales already recorded in the books, can be sustained as income u/s 68 or as unexplained income. We find that neither the AO nor the CIT(A) has rejected the books of account of the assessee. The AO has not recorded any adverse finding regarding the correctness or completeness of the books maintained by the assessee. Once the books are not rejected and sales are recorded therein, such recorded figures cannot be treated as unexplained or non-genuine without cogent evidence to the contrary.The Hon’ble Gujarat High Court in case of CIT v. President Industries, 258 ITR 2016-17 Sunil Kumar Mehta 654 (Guj.) upheld the view of the ITAT, Ahmedabad that the entire sale proceeds could not have been added as income of the assessee but only to the extent the estimated profits embedded in the sales for which the net profit rate was adopted entailing addition of income on the suppressed amount of sales. 10.1 The assessee has consistently maintained that the impugned sales of Rs.89,53,637/- have already been offered to tax as part of total turnover. This factual assertion was not controverted by the AO. On the contrary, the AO’s finding acknowledges that the transactions were part of sales, though doubted for genuineness.Even assuming for a moment that the transactions were non-genuine, once sales are already credited in the profit and loss account, the income element thereof has already been taxed. Making a further addition of the entire sale consideration would tantamount to taxing the same income twice, once as business income and again as unexplained cash credit, which is not permissible. It is well-settled law that section 68 applies to unexplained credits appearing in the books of the assessee. In the present case, the entries are part of sales, not unexplained cash credits. Therefore, invoking section 68 of the Act is not proper. The AO’s reliance on the absence of a formal contract is misplaced. In a trading business, transactions are often concluded through purchase orders and verbal commitments, especially between regular parties.
2016-17 Sunil Kumar Mehta 10.2 However, we also note that the assessee has failed to produce complete, verifiable evidence to establish the genuineness of the underlying purchases and deliveries. The assessee’s explanation also remains general in nature without specific supporting evidence. In view of the above facts, it is evident that the genuineness of the transactions remains partially unverifiable. Considering the nature of the business, the pattern of transactions and the deficiencies in documentary evidence, it would not be just and proper to uphold the entire addition made by the AO. At the same time, keeping in view the possibility of suppression of sales figures or introduction of unaccounted income in the garb of such transactions, we are of the considered opinion that some estimation of profit is warranted to meet the ends of justice and to plug possible leakage of revenue.Therefore, considering the totality of facts and circumstances of the case, we deem it fit to restrict the addition to 10% of the disputed amount of Rs.89,53,637/-, which reasonably represents the possible profit element embedded in the said unverifiable transaction. The AO is directed to add Rs.8,95,364/- and delete the remaining addition. The grounds are accordingly partly allowed.
The charging of interest u/s 234A, 234B, and 234C is consequential. The Hon’ble Supreme Court in case of Anjum M. H. Ghaswala, 255 ITR 1 (SC) has held that levy of interest is mandatory. The AO shall recompute the same in accordance with law. Accordingly, the ground is dismissed.