Revenue Failed to Establish Business Transactions as Non-Genuine: ITAT Deletes Addition on Fictitious Sundry Debtors [Read Order]
The tribunal ruled that the Revenue cannot treat business transactions as non-genuine or fictitious without bringing specific corroboratory evidence to the record, especially when the taxpayer provides documentary proof of business activity.
The Delhi Bench of the Income Tax AppellateTribunal (ITAT) deleted an addition of ₹98,56,165 and held that the Assessing Officer (AO) failed to prove that the assessee was a mere name lender or that its sales and purchases were sham entries.
Brawny Nivesh Pvt. Ltd. (assessee) is a company that filed its return for the Assessment Year 2015-16. During the assessment proceedings, the AO relied on observations from the preceding year (A.Y. 2014-15) to allege that the assessee was a conduit for beneficiaries and that its business of trading in cotton fabrics and shares lacked genuineness.
The AO observed a lack of commensurate expenses for rent and transportation in the Profit & Loss account. The AO treated the investment made during the year as non-genuine to the extent of the aggregate sundry debtors from A.Y. 2014-15 (₹29,47,215) and A.Y. 2015-16 (₹69,08,950), totaling to ₹98,56,165.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) upheld the addition, agreeing with the AO that the transactions were prima facie sham due to the absence of basic commercial features.
Aggrieved by the CIT(A)’s order, the assessee filed an appeal before ITAT. The counsel for the assessee argued that the assessee had indeed incurred freight, transportation, and rent expenses during the year, contrary to the AO's findings.
The counsel stated that evidence of sales and purchase bills for both cotton fabrics and equity shares was submitted but ignored by the lower authorities. The counsel also stated that a perusal of the balance sheet showed that the trade receivable/sundry debtors balance as of March 31, 2015, was actually 'Nil'.
The two-member bench comprising Mahavir Singh (Vice President) and Brajesh Kumar Singh (Accountant Member), noted that the Revenue had not brought any material on record to demonstrate that the trading was non-genuine.
The bench relied on a coordinate bench decision in the case of Fabulous Nivesh Pvt. Ltd., which involved similar facts. The Bench observed the AO did not provide a specific finding or corroboratory evidence to pinpoint any bogus transaction in the relevant year.
It was also observed that sundry debtors existing as of the end of the previous year (A.Y. 2014-15) cannot be held as fictitious in a subsequent year if they were not concluded as such in that year's scrutiny assessment.
The tribunal noted that it is a contradiction to hold business transactions as non-genuine while simultaneously making additions based on those very sales figures. It was concluded that the addition was not sustainable and accordingly deleted the sum of ₹98,56,165. The appeal of the assessee was partly allowed.
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