FABULOUS NIVESH PVT. LTD.,NEW DELHI V. ACIT, CENTRAL CIRCLE- 13, NEW DELHI

ITA 569/DEL/2019

AI Insights

Fabulous Nivesh Pvt. Ltd. appealed against the order of the Commissioner of Income Tax (Appeals)-XXVI, which confirmed the addition of Rs.67,39,130/- as unexplained investments and non-genuine sales. The company argued that the additions were arbitrary and excessive, and contested the expansion of the scope of limited scrutiny without proper approval. The Tribunal found that the Assessing Officer had not provided corroboratory evidence for the non-genuineness of all transactions and noted contradictions in the assessment order. Consequently, the Tribunal deleted the addition related to the sales of shares but upheld the addition concerning unexplained investments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126747 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR DHANESTA
• Assessee Lawyers: MANOJ KATARUKA
• Keywords: Unexplained investment; Bogus; Principal; Mismatch in sales turnover; Subsequent Assessment; HRA; Trading in Shares; Commissioner; Commissioner of Income Tax; Purchases; Transactions; Material evidence; Deleted; Suspicions; Expenses claimed; Explanation; Legal and bad in law
• Section: 143(3); 119

Judgement Text

" 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’: NEW DELHI BEFORE SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER AND SHRI AVDHESH KUMAR MISHRA, ACCOUNTANT MEMBER ITA No.569/Del/2019, A.Y. 2015-16 Fabulous Nivesh Pvt. Ltd. 1, Zamrudpur Community Centre, Kailash Colony, New Delhi PAN: AACCM2031Q Vs. Assistant Commissioner of Income Tax, Central Circle-13, Room No. 355, 3rd Floor, E-2, ARA Centre, Jhandewalan Extn., New Delhi (Appellant) (Respondent) Appellant by Sh. Manoj Kataruka, Advocate Respondent by Sh. Rajesh Kumar Dhanesta, Sr. DR Date of Hearing 28/01/2025 Date of Pronouncement 25/04/2025 ORDER PER AVDHESH KUMAR MISHRA, AM This appeal of the assessee for the Assessment Year (hereinafter, the ‘AY’) 2015-16 is directed against the order dated 19.11.2018 of the Commissioner of Income Tax (Appeals)-XXVI, New Delhi [hereinafter, the ‘CIT(A)’]. 2. The assessee has raised following grounds: - “1. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to confirm the addition made by the A.O. of Rs.67,39,130/- as unexplained investments on the reason that the Sundry Debtors are fictitious is contrary to the settled principles of law and the addition is arbitrary, excessive and illegal. ITA No.569 /Del/2019 Fabulous Nivesh Pvt. Ltd. 2 2. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to confirm the addition of Rs.67,39,130/- made by the A.O. as unexplained investments by partly treating the bogus Sundry Debtors of A.Y. 2014-15 is against the settled principles of law and the addition is arbitrary, excessive and illegal. 3. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to hold that the sales for AY 2014-15 & 2015-16 were not genuine on the basis of expenses debited in the Profit & Loss Account is contrary to the material evidences on record and contrary to the expenses claimed and debited in the Profit & Loss Account and therefore, the addition confirmed by the Ld. CIT(A) of Rs.67,39,130/- is illegal and bad in law. 4. That on the facts and in the circumstances of the case the action Ld. CIT(A) to confirm the assessment made by the AO by rejecting the scope of limited scrutiny having being expanded by the AO without prior permission is in violation of the provisions u/s 119 of the Act and the assessments is illegal and bad in law. 5. That the assessment framed by the AO and confirmed by the Ld. CIT(A) is unjust. legal, arbitrary and excessive.” 3. The relevant facts giving rise to this appeal are that the assessee, claiming income derived from sale of shares and cotton knitted Fabrics, filed its Income Tax Return (hereinafter, the ‘ITR’) on 25.09.2015 declaring income of Rs.7,787/-. The case was selected for limited scrutiny on following four parameters: i. Low income in comparison to very high investments. ii. Low income in comparison to high loans/advances/investment in shares iii. Large increase in investment in unlisted equities during the year iv. Mismatch in sales turnover reported in Audit Report and ITR ITA No.569 /Del/2019 Fabulous Nivesh Pvt. Ltd. 3 The consequential assessment was completed at income of Rs.67,46,920/- by making addition of Rs. 67,39,130/-. The relevant para of the assessment order reads as under: - “5. It is noted from the assessment order passed u/s 143(3) of the 1.T. Act, 1961 for the A.Y. 2014-15 by the same office that assessee is a mere name lender and acts as a conduit for parties/beneficiaries behind the company and as such a conclusion was drawn that what is apparent is not real and the assessee company has not done any actual sale or actual purchase. The relevant para of the aforesaid order is as under: “On verification of the statement of affairs of the assessee company for the current year as well as earlier assessment year for which debtors are available on record, following facts emerges: -  The assessee company has hardly any business during the past few years.  Sales and purchases of fabrics and shares were purchased/sold to selective parties keeping huge Sundry debtor in the balance sheet.  Despite having stock of cotton knitted fabrics, no sign of commensurate expenses on account of rent, maintenance etc. is visible.  Despite some sales claimed to have effected during the year, n transportation cost found as debited in the P&L A/c.” From, the above it is clear that sundry debtors of Rs 29,65,130/- created from fictitious sale made during the A.Y. 2014-15 has no worth and only book entry. In view of conclusions drawn in the assessment order passed u/s 143(3) of the I. T. Act, 1961 for the A.Y. 2014-15 assessee was asked to furnish explanations in respect of current year sale/purchase transaction vide this office letter dated 28/11/2017, relevant portion of which reads as under: “2 This may be mentioned that based on immediately preceding years observation, it is found that your claim of purchases, sales as well stock having no genuineness. There is nothing available to hold otherwise for the current assessment year as well. In such a situation, ITA No.569 /Del/2019 Fabulous Nivesh Pvt. Ltd. 4 all receipts from trade receivable liable to be added to your total income as unexplained. You are requested to explain your position in this regard.\" In response the Ld. A/R of the assessee filed his submission on 05/12/2017. Relevant portion of his submission is as under: \"During the year consideration company traded in shares & securities and Cotton Knitted Fabrics. The details of sales & Purchase in shares & Cotton Knitted Fabrics along with respective Sale & Purchase bills are enclosed as per Annexure \"B\" the respective sales proceeds and purchase value has been debited to the party a/c in the books of accounts maintained by the company the amount payable and or receivable from the parties has been either received or adjusted against amount due or receivable from them. The whole transactions are genuine routine business transaction.\" From, the perusal of the above submission it can be said that assessee has failed to submit any fresh evidence in support of his claim that sale is genuine From the details submitted by the assessee for the current year and placed on record same facts emerged as was emerged in the immediate previous year i,e. i) Sales and purchases of fabrics and shares were purchased/sold to selective parties keeping huge Sundry debtor in the balance sheet, ii) despite having huge stock of cotton knitted fabrics, no sign of commensurate expenses on account of rent, maintenance etc., and iii) despite some sales claimed to have effected during the year, no transportation coat found as debited in the P&L A/c. And, from the aforesaid facts it is clear that assesses has not carried any business during the current year also. From, the above it is clear that sundry debtors of Rs.37,74,000/- created from fictitious sale made during the year has no worth and only book entry. 6. Unexplained Source of Investment: During the year, assessee has purchased huge investments through book entry from its sundry debtors without any actual receipt payment transaction routed through bank. ITA No.569 /Del/2019 Fabulous Nivesh Pvt. Ltd. 5 Since, investment has been purchased from sundry debtors and sundry debtors of Rs. 29,35,130/- relating to A.Y. 2014-15 has been concluded as fictitious during the assessment proceedings of A.Y. 2014-15 and since, current year sale is also not genuine on same set of facts as discussed above, sundry debtors of Rs.37,74,000/- relating of current year is also fictitious and as such investment made during the year by the assessee company to the extent of aggregate of sundry debtors of A.Y. 2014-15 & Α.Y. 2015-16 of Rs.67,39,130/- is hereby treated as not genuine and as such added to the returned income of the assessee.” 3.1 Aggrieved, the assessee filed appeal before the CIT(A), but did not succeed. 4. At the outset, the Ld. Counsel raised the issue of limited scrutiny. It was submitted that the AO had travelled beyond the scope of limited scrutiny without taking any approval of the Commissioner/Principal Commissioner of the Income Tax. to buttress his arguments, the Ld. Counsel placed emphasis on the CBDT Instruction No.7/2014 and Instruction No.5/2016. Further, he contended that the taxability of sundry debtors of Rs.29,35,130/- as on 31.03.2014 and sundry debtors of Rs.37,74,000/- as on 31.03.2015 by the AO did not fall under any of the four parameters, as mentioned above, of limited scrutiny. Therefore, he argued that the action of the AO should be held void ab-initio as the assessment had been completed in disregard to the CBDT instructions with respect to limited scrutiny wherein it had been instated that the Assessing Officer (hereinafter, the ‘AO’) should not travel beyond the parameters for which the case was picked up for limited scrutiny unless the case is converted into complete scrutiny with the prior approval of the Commissioner/Principal Commissioner of the Income Tax. He submitted ITA No.569 /Del/2019 Fabulous Nivesh Pvt. Ltd. 6 that the AO had not converted this case for complete scrutiny after taking approval of the Commissioner/Principal Commissioner of the Income Tax. Therefore, the AO could not travel beyond the parameters of the limited scrutiny. Thus, the addition on the score of non-genuine debtors was not justified. Hence, he prayed for setting aside the impugned order and annulling of the assessment order. 4.1 The Ld. Counsel contended that the AO had taxed the sundry debtors of Rs.29,35,130/- existing as on 31.03.2014 relevant for the AY 2014-15 on the reasoning that the current year’s purchases being bogus had been shown to have been paid through book entries against sundry debtors existing as on 31.03.2014. Since these sundry debtors existing as on 31.03.2014 were non- genuine; therefore, the purchases made during the relevant year to the extent of sundry debtors existing as on 31.03.2014 were also bogus being fictitious book entries. Further, the AO, holding that the current year’s sales were non- genuine; therefore, the current year’s sales resulting into sundry debtors of Rs.37,74,000/- were also non-genuine being fictitious book entries, taxed the entire year’s sales. 4.2 The Ld. Counsel drew our attention to the fact that the entire assessment order of the relevant year was based on the finding in the assessment order in AY 2014-15. The AO had not brought any adverse finding based on any corroboratory evidence. The assessment order was based on conjecture and surmises only as it contained contradictory facts as under: ITA No.569 /Del/2019 Fabulous Nivesh Pvt. Ltd. 7 i. The AO had wrongly held that this year’s sales had resulted any sundry debtor out of sales disclosed in the Profit & Loss account as evident from Note 7 of the Balance Sheet. ii. This year, cotton fabric purchases are minimal. Trading in shares were major sales. The sales of this year as per Note 10 of the Profit & Loss Account are as under: - Details of products sold 31.03.2015 (Rs.) 31.03.2014 (Rs.) Cotton Fabric 84,000/- 2,535,030/- Shares 3,690,000/- 430,100 Total 3,774,000 2,965,130/- iii. The assessee had already offered income embedded in sale of Rs.37,74,000/- disclosed in the Profit & Loss account. Then taxing sales again would tantamount to double taxation. iv. The AO had also taxed the purchases of Rs.29,35,130/- as detailed above. Then taxing sales to this extent again would tantamount to double taxation. v. Taxing of sundry debtors of preceding year in the current year would be contrary to the principle of accounting and taxation. The AO’s action of taxing sundry debtors of preceding year and also sundry debtors of current year in the relevant year demonstrated non-application of mind on the part of the AO. vi. The AO, even raising suspicions as detailed above in the AY 2014-15, had accepted the returned income as per the ITR of the AY 2014-15 in ITA No.569 /Del/2019 Fabulous Nivesh Pvt. Ltd. 8 the scrutiny assessment (the assessment order dated 30.12.2016 was placed on the record). Then this year’s case being based on the finding of the assessment order for the AY 2014-15 should have met same fate. vii. When the AO had not given any adverse finding, in the assessment order of the AY 2014-15, that the sundry debtors of Rs.29,35,130/- were bogus, the same could not be held otherwise in the subsequent assessment order. 5. We have heard both parties and have perused the material available on the record. The assessment order passed in this case has clearly held that the entire business transactions including trading and investments in shares are bogus/non-genuine. Therefore, such finding, being broad, is held falling within the following parameters of limited scrutiny: i. Low income in comparison to very high investments. ii. Low income in comparison to high loans/advances/investment in shares iii. Large increase in investment in unlisted equities during the year Therefore, the issue raising scope of limited scrutiny is decided against the assessee and in the favour of the Revenue. 6. The AO, in the assessment order passed in this case, has held that the entire business transactions including trading and investments in shares are bogus/non-genuine. Therefore; in such circumstances, the AO should have taken pains to gather various details of real beneficiaries for passing such ITA No.569 /Del/2019 Fabulous Nivesh Pvt. Ltd. 9 information to the AOs of beneficiaries for remedial measure. Once the AO has held the assessee’s business as non-genuine, then the accommodation entry, if any, given through the Profit & Loss account and Balance Sheet should have been taxed in the hands of the beneficiaries as per the law. We find merit in the arguments of the Ld. Counsel as the anomalies/ contradictions/factual inconsistencies pointed out by him as mentioned above in para 4.2 of this order; prima-facie, are convincing. When the AO had not held the sundry debtors of Rs.29,35,130/- existing as on 31.03.2014 as bogus/fictitious in the scrutiny assessment order of the AY 2014-15 even after questioning the same cannot be held as bogus/fictitious in subsequent order of the relevant year. 7. The AO has not given specific finding pointing out any bogus transaction in the relevant year with the help of any corroboratory evidence. Further, we find that the AO on one hand has held that the entire business transactions including trading and investments in shares are bogus/non- genuine, then no addition on account of purchases and sales treating then real and genuine can be made in the hands of the assessee. We are not able to persuade ourselves that how such contradictions will go together. As far as the addition on account of sundry debtors Rs.29,35,130/- for AY 2014-15 is concerned, we are of the considered view that the same cannot be taxed in the relevant year even if it is fictitious in nature. The current year sale of the shares i.e. Rs.37,74,000/- has not resulted any sundry debtor. The ITA No.569 /Del/2019 Fabulous Nivesh Pvt. Ltd. 10 assessment order does not pin-point say any adverse material regarding the sale of shares. Further, the Revenue has not brought any material on the record to demonstrate that the trading of shares is non-genuine. Therefore, the addition of Rs.37,74,000/- cannot be sustained. Accordingly, the addition of Rs.37,74,000/- is deleted. 8. In the result, the appeal of the assessee is partly allowed as above. Order pronounced in open Court on 25th April, 2025 Sd/- Sd/- (YOGESH KUMAR U.S.) (AVDHESH KUMAR MISHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 25th/04/2025 Binita, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT/PCIT 4. CIT(Appeals) 5. Sr. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "