ANAND PRAKASH,GHAZIABAD V. ACIT, CENTRAL CIRCLE, GHAZIABAD, GHAZIABAD

CO 53/DEL/2024

AI Insights

The case involves an appeal by the Revenue against the order of the Commissioner of Income-tax (Appeals)-3, Noida, which had deleted certain additions made by the AO in the assessment of Anand Prakash for the year 2018-19. The additions pertained to unsecured loans and undisclosed capital gains, among others. The Tribunal examined the evidence presented, including bank statements and ledger accounts, and found that the loans in question were not credited in the year under consideration, thus section 68 of the Act did not apply. Additionally, the Tribunal agreed with the CIT(A)'s decision to treat the property sale as a long-term capital asset, allowing the assessee's claim of exemption under section 54 of the Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 102498 (ITAT-DELHI)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Other Referred Cases: Gorja Steel Processors v. DCIT (ITA No. 2905 to 2907/Del/22 dated 08/10/2024)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAVED AKHTAR
• Assessee Lawyers: SATYAJEET GOEL; PRATEEK GUPTA
• Keywords: Capital asset; Cost of acquisition; Bogus purchase; Gross profit estimation; TDS; Search and seizure; Bogus
• Section: 201; 54; 132; 153A; 68; 69C; 139; 145; 145(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: A : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No.2180/Del/2024 Assessment Year: 2018-19 ACIT, Central Circle, Ghaziabad. Vs Anand Prakash, R-2/83, Raj Nagar, Ghaziabad, Uttar Pradesh – 201 001. PAN: ADDPP5884B CO No.53/Del/2024 (ITA No.2180/Del/2024) Assessment Year: 2018-19 Anand Prakash, R-2/83, Raj Nagar, Ghaziabad, Uttar Pradesh – 201 001. PAN: ADDPP5884B Vs ACIT, Central Circle, Ghaziabad. (Appellant) (Respondent) Assessee by : Shri Satyajeet Goel, Advocate & Shri Prateek Gupta, CA Revenue by : Mr. Javed Akhtar, CIT, DR Date of Hearing : 12.02.2025 Date of Pronouncement : 16.04.2025 ORDER PER ANUBHAV SHARMA, JM: This appeal is preferred by the Revenue against the order dated 06.03.2024 of the Commissioner of Income-tax (Appeals)-3, Noida (hereinafter referred to ITA No.2180/Del/2024 CO No.53/Del/2024 2 as the Ld. First Appellate Authority or ‘the Ld. FAA’, for short) in Appeal No.CIT(Appeals)/Kanpur-4/11102/2017-18 arising out of the appeal before it against the order dated 29.09.2021 passed u/s 143(3)/153A of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the DCIT, Central Circle, Ghaziabad (hereinafter referred to as the Ld. AO). 2. Heard and perused the record. A search and seizure operation u/s 132 of the Act was conducted on 30.08.2018 at the residential as well as at the business premises of the assessee comprising M/s P.S Enterprises Group of cases and the search warrant was in the name of Shri Anand Prakash. Notice u/s 153A was issued to the assessee who has filed return on 30.07.2020 declaring income of Rs.32,23,430/- as was filed u/s 139 of the Act. The assessee is in the business of trading of iron and steel in the name and style of M/s National Steel Suppliers. During the assessment proceedings, various additions were made and certain additions were sustained by the ld.CIT(A) for which the assessee is not in appeal and certain additions were deleted for which the Revenue is in appeal. The Cross Objections have also been filed by the assessee. For convenience, the grounds are reproduced below:- 2.1 Grounds of appeal of the Assessee: “1. Whether on facts and circumstances of the case and in law, the Ld. CIT(A)-3, Noida has erred in deleting the addition of Rs. 38,50,000/- made u/s 68 of the Act on account of unsecured loan received by the assessee without considering the facts that the assessee has mismanaged his loan received and repayments made and has also failed to offer proper explanation with regard to the loans shown in his balance sheet, hence, the ITA No.2180/Del/2024 CO No.53/Del/2024 3 creditworthiness of lender and genuineness of transaction remained unverified. 2. Whether on facts and circumstances of the case and in law, the Ld. CIT(A)-3, Noida has erred in deleting the addition of Rs. 54,65,640/- and restricting the another addition to the extent of Rs. 1,47,82,585/- from Rs. 2,18,40,380/- made by Assessing Officer on account of undisclosed capital gain without considering the facts that the assessee has failed to produce documentary evidences in support of his claim. 3. Whether on facts and circumstances of the case and in law. the Ld. CIT(A)-3, Noida has erred in restricting the addition to Rs. 1,07.49,347/- out of total addition of Rs.1,89,00,277/-, by directing the AO to apply GP rate at 3.16% as against 4% as applied by the AO, without considering the facts that the AO had recomputed the gross profit @ GP of 4% by making local enquiries of the similar line of business where average GP rate was found to be 4% and also that the assessee himself has shown GP rate of 4% in some previous years. 4. Whether on facts and circumstances of the case and in law, the Ld. CIT(A)-3, Noida has erred in determining the bogus purchase at Rs.17,86,21,173/- instead of Rs. 21,18.42,096/- as determined by the AO and restricting the addition to Rs.17,86,210/- as against the addition of Rs.21,18,420/- made by the Assessing Officer on account of commission @1% on bogus purchase of Rs.21,18,42,096/-, without appreciating the facts that the AO had rightly adopted the alleged bogus purchases at Rs. 21,18,42,096/-. The assessee during the course of assessment proceedings had failed to furnish any documentary evidence that alleged bogus purchases included GST and the GST had duly been accounted for. 5. That the appellant craves leave to add alter, adduce or amend or any ground or grounds on or before the date of hearing of appeal.” 2.2 Grounds of the Cross Objections of the assessee: “1(1) That on the facts and circumstances of the case, the Id. CIT(A) has grossly erred in upholding the rejection of books of account merely based on allegation of bogus purchase even though the same is not supported from any Incriminating material found during the course of search u/s 132 of the Act. (ii) That the allegation of bogus purchase being baseless and not supported from any credible evidence, the entire basis of rejection of audited books of account u/s 145 is non-existent and devoid of merits. ITA No.2180/Del/2024 CO No.53/Del/2024 4 (iii) That in the absence of any dispute with regard to the correctness of trading results and there being no adverse material or documents on record to dispute the genuineness of sales, purchases and stock, the rejection of books of account merely on the allegation of bogus purchase is arbitrary and wholly unjustified. 2. That even otherwise, the ld. CIT(A) was not justified in estimating gross profit @3.16% without any cogent reasoning and same is arbitrary and highly excessive. 3(i) That on the facts and circumstances of the case, the Ld. CIT(A) has grossly erred in upholding addition of Rs.17,86,210/- u/s 69C on the alleged ground of commission @1% on the bogus purchases even though the same is purely on hypothetical basis and not sustainable. (ii) That in any case, once the books of account were rejected u/s 145 and profit was estimated, there remains no ground or basis for making separate addition u/s 69C as the same is of duplicate nature and already included in the income so estimated. 4. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the validity of the assessment order u/s 143(3)/153A even though the same was passed without proper approval u/s 153D of the Act. 5(i) That on the facts and circumstances of the case, the Ld. CIT(A) was not justified in upholding the assessment order even though the same was passed without quoting or generating mandatory Document Identification Number (DIN). (ii) That the assessment order having been passed in direct contravention to CBDT Circular No. 19/2019 dated 14.08.2019 which clearly states that the order issued without DIN shall be treated as invalid and deemed to have never issued, the assessment order is invalid and bad in law. 6. That the appellant craves leave to add, amend, alter or forgo any or all of the grounds as may be necessary and in the interest of justice.” 3. The Ground No.1 of the revenue is against deletion of addition of Rs.38,50,000/- u/s 68 respect of unsecured loan of Rs. 13,50,000/- and Rs. 25,00,000/- standing in the name of Mr. Ajay Katara and Mr. Kumar Bombay (Director of M/s. Panorma Studios P. Ltd.) respectively. The assessee has ITA No.2180/Del/2024 CO No.53/Del/2024 5 claimed that the loan from the above parties were received in earlier years and there is no case of any inflow or credit of funds in the year under reference thus negating the applicability of section 68 of the Act and rendering the addition as factually incorrect. The copies of confirmed ledger account of parties are placed at PB Pg 27 and 32 respectively and copy of bank statement are placed at PB Pg 28 to 31 and PB Pg 34 to 36. Appreciating the ledger account, it can be seen that the loan from Mr. Ajay Katara was taken in FY 2015-16 and loan from Mr. Kumar Bombay (Director of M/s. Panorma Studios P. ltd.) was taken in FY 2016-17 and other than cheque reversal entry, there is no case of any fresh credit in the year under reference. The CIT(A) after verifying the factual position including bank statement and confirmed ledger account of the parties deleted the addition by giving a factual finding to the effect that the loan transactions do not pertain to the year under consideration. In fact, even in the ground as raised the assessing officer has not disputed the factual position. Thus in absence of any credit in the year under consideration, the provision of section 68 of the Act do not apply and order of ld. CTI(A) needs no interference. 4. The Ground No. 2 raised by the revenue is against deletion of addition of Rs. 54,65,640/- made on account of part disallowance of claim of cost and denying benefit of indexation by computing short term capital gain as against long term capital loss computed by the assessee in respect of sale of property. The brief background is that in the year under consideration, the assessee sold ITA No.2180/Del/2024 CO No.53/Del/2024 6 two properties and claimed exemption u/s 54 of the Act in respect of net long term capital gain. However, the assessee asserts to have inadvertently claimed short term capital loss of Rs. 16,62,658/-in respect of property at A1/1, Loha Mandi, Ghaziabad as against long term capital loss. The issue falls for consideration is regarding sale of property at A1/1, Loha Mandi, Ghaziabad. The AO while disregarding the plea of correct computation of capital gain, instead computed short term capital gain (STCG) at Rs. 38,02,980/- as against returned Short term capital loss (STCL) of Rs. 16,62,658/- by disallowing part claim of cost of acquisition. Hence, the conversion of STCL to STCG resulted in net addition of STCG of Rs. 54,65,640/- (Rs. 38,02,980 + Rs. 16,62,658). Further, the AO restricted the claim of exemption u/s 54 to Rs. 1 crore as against Rs. 2.70 crores thereby assessing net taxable capital gain at Rs. 2,18,40,380/- which consisted of LTCG of Rs. 1,80,37,400/- and STCG of Rs. 38,02,980/-. The assessee before CIT(A) explained the facts and placed on record documentary evidence in support of the position that the property at A1/1, Loha Mandi, Ghaziabad was a long term capital asset and hence the gain/loss on sale of such property is assessable accordingly based on impeccable documents such as ledger account and purchase deed in support of claim of cost and period of holding. The said documents are before us at PB Pg 39 to 137. Ld. AR has pointed that even in the remand report reproduced at Page 15 -19 (relevant Pg 17) of the CIT(A) order, the assessing officer has merely reiterated the finding in the assessment order and failed to consider or rebut the documentary evidences ITA No.2180/Del/2024 CO No.53/Del/2024 7 filed by the assessee. We find that the CIT(A) after examining the documentary evidences in support of purchase of property at A1/1, Loha Mandi, Ghaziabad and appreciating the overall position, held that the said property was long term capital asset and rejected the action of AO in making addition of Rs. 54,65,640/- on account of STCG. The CIT(A) accepted the computation of Long term capital loss (LTCL) of Rs. 32,54,636/- in respect of the said property after considering benefit of indexation. 5. Further, the CIT(A) upheld the action of AO in restricting the claim of exemption u/s 54 and the same is not in dispute in this appeal. Accordingly, we are of the considered view that the CIT(A) rightly computed the net taxable LTCG at Rs. 1,47,82,585/- as against Rs. 2,18,40,380/- computed by the assessing officer. 6. The Ground No. 3 of the revenue’s appeal and Cross Objection No. 1& 2 raised by the assessee are regarding rejection of books of account u/s 145(3) and estimation of gross profit. The revenue in its ground has challenged the application of lower GP rate @ 3.16 % as against 4% estimated in the assessment order whereas the assesses in his Cross Objection has challenged the rejection of books of account u/s 145(3) of the Act on the misconceived and false ground of bogus purchases. The necessary facts of the case are that while framing assessment, the AO rejected the books of account u/s 145(3) and estimated gross profit @4% on the alleged ground that the purchases made by ITA No.2180/Del/2024 CO No.53/Del/2024 8 the assessee from group company M/s. Panna Lal & Co are non-genuine. The allegation of bogus purchases was based on inference drawn from third party search which ld. AR has claimed to be unsubstantiated as the assessee had filed complete details and documents in support of genuineness of purchases and its subsequent sales. Ld. AR submitted that the assessing officer without disputing the correctness of the documentary evidences and without pointing out any infirmity or deficiency in the audited books of account, rejected the same u/s 145(3) of the Act on arbitrary basis. The CIT(A) upheld the rejection of books of account u/s 145(3) of the Act which now are alleged to be general and vague finding. However, as the CIT(A) restricted the rate of gross profit @3.16% as against 4% applied by the assessing officer the revenue is also aggrieved. 7. Ld. AR has submitted that as it is a case of search and no incriminating material has been found in support of any defect in the books of account. The ledger account of assessee in the books of M/s. Panna Lal& Co. relied upon by the assessing officer has been found during third party search and only contains recorded entries and as such the same is neither incriminating nor relevant in the proceeding’s u/s 153A. It is also submitted that the reliance placed on the statement of the assessee is misconceived as the content of the statement which was recorded at 2:30 am in the night does not make out any case of infirmity in the books of account and merely affirms the fact of recording of purchase and corresponding sales in the books of a/c. The complete details of purchase from ITA No.2180/Del/2024 CO No.53/Del/2024 9 M/s. Panna lal & Co. and corresponding sales alongwith stock details were furnished before AO vide letter dated 07/08/2021 and copy of same was also brought on record at time of arguments before us. Ld. AR also relied the complete invoice-wise details of goods purchased, goods transport bill and party- wise sale invoices are placed at PB Pg 149 to 469. The summary sheet of goods purchased and sold is at PB Pg 257 to 261. Further, the stock statement is at PB Pg 462 wherefrom it can be seen that the goods were sold at a profit. Both purchases and sales were subjected to GST and are supported from documentary evidence in the form of e-way bill and goods transport bill. The payments were made through banking channel and transportation charges were subject to TDS deduction by the assessee. 8. After going through the impugned assessment order, we find that the AO has not pointed out any deficiency in the documentary evidences of the assessee and to the contrary the AO has observed that about non-furnishing of details by the assessee. Then the AO has accepted sales made out of purchases made from M/s. Panna lal & Co. and the goods purchased from M/s. Panna lal & Co. were sold at a profit thus the allegation of bogus purchase, suppression of profit or manipulation is self destructive. There is substance in the contention that no discrepancy was found in the stock record at the time of search which was physically verified, thus the allegation of manipulation and bogus purchase, is not justified. The reliance of ld. AR on the decision of this Tribunal in the case ITA No.2180/Del/2024 CO No.53/Del/2024 10 of Gorja Steel Processors v. DCIT (ITA No. 2905 to 2907/Del/22 dated 08/10/2024) is squarely applicable as under identical circumstances and purchases made from the very same party, the rejection of books of account and estimation of Gross profit was held to be invalid. The relevant finding is reproduced hereunder : “7. After giving thoughtful consideration to the material on record and the submissions, we are of the considered view that the ld. tax authorities have rejected the books of account of the assessee on the basis of lack of information and not on the basis that any discrepancy was found in the books of account to show that the same were not maintained in regular course of business. The AO has primarily relied the statements recorded during search operation and certain facts as had come up during pre-search inquiry to draw the conclusion that the assessee was indulging in manipulating the books of account by making bogus purchase/sales, under-invoicing, taking bogus advances in order to reduce its profits and to introduce their undisclosed income. In para 5.11, the AO has mentioned of the fact that a reply dated 24.04.2021 was filed explaining the nature of business of the assessee and the reasons for low GP. The copy of this reply dated 12.04.2021 is made available at pages 297 to 303 of the paper book and, further, the documents attached with this reply have been made available at pages 304 to 404 of the paper book. 7.1 We find that in its reply the assessee had given an account of the reasons for low GP and NP. A copy of capital account of Aditya Kumar Garg in the account of M/s Gorja Steel Processors was filed. The list of creditors giving their names, addresses, PANs and the amounts payable was filed and it was mentioned that the confirmations have already been filed with the main reply. It was mentioned in this reply that ledger account of expenses incurred in excess of Rs.5 lakhs have already been submitted earlier. It was specifically mentioned that the soft copy of the account books are also in the hard disk seized during the search and opportunity was sought to be informed of the date and time when complete print outs are to be produced for examination. The detailed print outs of the purchase register and sales register duly confirmed was enclosed. The bank ledger from the books of the assessee was enclosed with narration of all the debit and credit entries. It was mentioned in this reply that the ITA No.2180/Del/2024 CO No.53/Del/2024 11 month-wise GP and NP ratio cannot be worked out in such a short time period because of continuity of the trading activities normally at the month end, there may be goods in transit as well that has to be worked out. The detailed purchase and sales register was enclosed party-wise and date-wise. It was mentioned that the ledger accounts of all the parties from whom purchases are made have been already submitted in the reply filed on 22.03.2021. The ledger account of M/s Panna Lal & Company and M/s P.S. Enterprises duly certified was enclosed and it was informed that no transaction had taken place with M/s National Steel Suppliers and M/s Aryaman Ispat Pvt. Ltd. The assessee vide this reply, had also enclosed copies of bills/vouchers, transportation slips, bilty, e-way bills and other documentary evidences in respect of purchase and sale of materials. 7.2 Thus, it was not justified on the part of the AO to observe that the assessee has nothing to say on the query raised to hold that books of account are not reliable. It appears that before the CIT(A) all these aspects were brought on record. However, the CIT(A) preferred to sustain the observations of the AO with very general observation and showing generosity gave relief to the assessee by reducing the GP rate from 4% as considered by the AO to 3% in those years in which GP rate is not already shown above three years. It seems to be more an act of benevolence rather than an exercise of quasi judicial function. Such ad-hocism has no place in law when otherwise assessee had provided all the relevant pieces of financials and records. The Ld. Tax authorities seems to have taken a short cut of rejecting the books of accounts instead of showing due indulgence to the material before them and point specific instances of misreporting income or expenses in the books. 8. Thus, we are of the considered view that at one end the AO has failed to justify the rejection of books of account and on the other hand, the CIT(A) has failed to consider the relevant pleas of the assessee and to make an ad hoc assessment. The grounds No. 4 and 5 as raised deserves to be sustained.” 9. Thus the allegation of bogus purchases, rejection of books of account and consequential addition based on estimation of gross profit to the extent as also sustained by the ld. CIT(A) deserve to be deleted. The ground is sustained. ITA No.2180/Del/2024 CO No.53/Del/2024 12 10. The Ground No. 4 of the revenue’s appeal and Cross Objection No. 3 filed by the assessee are regarding addition u/s 69C on ground of notional commission @1% on alleged bogus purchases. This ground is of consequential nature and as there is no case of any bogus purchase from M/s. Panna Lal & Co., the addition of commission u/s 69C being of notional nature too deserves to be deleted. 11. The Cross Objection No. 4 and 5 were not pressed. As a consequence of aforesaid determination of grounds above the appeal of Revenue is dismissed and CO is partly allowed. Order pronounced in the open court on 16.04.2025. Sd/- Sd/- (NAVEEN CHANDRA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 16th April, 2025. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "