TaxTMI 
TaxTMI 
TaxTMI 
2008 (10) TMI 253
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....ting the addition of Rs. 51,65,820 being investment in purchases from Adbros Electro Tech, a division of Haryana Wool & Allied Industries (P) Ltd., in which four directors of the assessee company were members, without any supporting evidence. The source of investment was not disclosed by the assessee despite of opportunities provided to the assessee. (ii) deleting the addition of Rs. 1,00,04,855 made on account of bogus cash sale entries in its account books without appreciating the fact that the assessee failed not only to prove the genuineness of cash sales to various parties, it failed even to prove their existence and that the payments were all received in cash, through agents. 4. The facts concerning the transactions involved in ground Nos. 1 and 2, which have been reproduced above, are as under. 4.1 The assessee had shown addition to the capital to the tune of Rs. 52,17,190 [Rs. 57,17,000 as per CIT(A)]. During the course of assessment proceedings the AO required the assessee to explain the source of capital, identity and creditworthiness of the persons and genuineness of the transactions. 4.2 The assessee had also made investment of Rs. 1,87,89,000 in the shares of M/s ....
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.... of the same was furnished. He also observed that not a single transaction of purchase and sale of books was through the bank. Thus he concluded that since the assessee had failed to explain the source of this cash, the transactions were sham. 4.8 On examination of the details of sale of books noted in ledger, the AO found that the assessee had shown sales to the tune of Rs. 1,00,04,855 whereas purchases from Adbros Electro Tech as per invoice Nos. 1 to 109 were only to the tune of Rs. 51,65,820. The assessee co-related the transactions of receipt of cash on the sales to the transfer of amount to the three concerns namely Hare Shree Finance Ltd.; M/s Gurshant Engineering Co. (P) Ltd. and Haryana Wool & Allied Industries (P) Ltd. 4.9 The explanation of the assessee before the AO was that it had invested Rs. 55,90,300 in the shares of Haryana Wool & Allied Industries; Rs. 21,80,000 in Hare Shree Finance Ltd.; and Rs. 98 lacs in Gurshant Engg. Co. (P) Ltd. against the debit balance recoverable from these companies. On going through the transactions recorded in the books of account of the assessee, the AO concluded that the assessee had followed a clever device of introducing cash in....
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....y of the goods on behalf of their clients and the payments were received in cash from them. 4.14 On behalf of the assessee reliance was also placed on the order of the Tribunal in the case of Racmann Springs (P) Ltd. v. Dy. CIT (1995) 52 TTJ (Del) 660 : (1995) 55 ITD 159 (Del); as also on the decision of Hon'ble Delhi High Court in the case of CIT v. Steller Investment Ltd. [1991] 192 ITR 287. 4.15 The learned CIT(A) after going through the entire material observed that the main thing to be examined was as to whether the shareholders existed and if the assessee is able to establish that shareholders existed and that they had made investment for purchase of shares, then the burden placed upon the assessee to prove the credit is discharged. It was pointed out that unlike cash credits, for investment in share capital, assessee was not required to prove the creditworthiness of the shareholders and was required only to prove the existence of the shareholders and the money having been received from them. The learned Counsel alternatively argued that even if the purchases and sales were not held to be genuine and the same were considered to be on account of the assessee, then only t....
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....s from M/s Haryana Wool & Allied Industries (P) Ltd. the vouchers of purchases are very much with the appellant and are stated to be in Departmental custody. With that it would not have been difficult to prove that the transactions of purchases are spurious. There is no such proof brought on record. Evidence remains uncontroverted. There is investment of cash which are directly supported by book entries and cash generated in the account of the relevant companies. How could the entries in the books of account be rejected without proper proof or evidence. The appellant is right in pleading that investment in share capital to cash creditor and sundry debtor cannot be akin. The learned Counsel for the appellant has relied on the decision of Hon'ble Delhi High Court in CIT v. Steller Investment Ltd. for the proposition that it would be adequate proof to establish the existence of the shareholder and money having been received from them is well founded. In the circumstances additions made are not tenable and is hereby deleted. (Relief of Rs. 51,65,820 + Rs. 1,00,04,855 = Rs. 1,51,70,675). Thus ground Nos. 1 and 2 succeed. 5. The learned Departmental Representative has challenged the....
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....of his argument he placed reliance on the order of Tribunal reported in (1995) 52 TTJ (Del) 660 : (1995) 55 ITD 159 (Del) (supra). The learned Counsel also submiitted that the assessee got price of its goods from the agents and credited money from them, hence it was not required to follow them or to trace out their addresses. According to him, the money received by the assessee on account of the purchases made by the assessee was invested in the shares. He further argued that if in the cases of purchasers the amounts of purchases have been accepted and there is no closing stock and further the accounts being audited then in the case of the assessee seller, same transactions cannot be doubted. The learned Counsel also pointed out that on account of similar transactions in the asst. yr. 1996-97 also additions were made under Sections 68 and 69 of the IT Act which were deleted by the learned CIT(A) and the deletion was upheld by the Tribunal by rejecting the grounds taken by the Revenue against such deletion. In this regard the learned Counsel made reference to the decision of Tribunal Delhi Bench "B", dt. 26th June, 2006 rendered in ITA No. 521/Del/2000. 7. We have carefully conside....
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....r considering the above arguments and after going through the entire material the Tribunal justified the deletion of addition by the learned CIT(A). The relevant observations of the Tribunal as given in para 6 of the order are as under: We have carefully considered the rival submissions. We find that the addition of Rs. 3,59,53,000 made by the AO under Section 68 does not tally with the findings of fact made by the AO himself. The entire case of the learned AO has been that the assessee has made mere books entries without any transaction having actually occurred or taken place. That being so there is no question of any addition under the provisions of Section 68. Even otherwise, the heading of Section 68 is 'Cash credits'. In the case of the assessee no cash has been received. Even if we assume that the provisions of Section 68 would apply in every case where any sum is found credited in the books of an assessee, the source is immediately explained by corresponding entries made in the books of accounts of alleged purchases from the share applicants themselves. The learned AO cannot rely upon one part of the same transaction while disputing the genuineness of another part ....
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.... duly reflected in its books of account. Similarly sales made by the assessee to three concerns were also reflected in the books of account of the purchasers. The Department has not disputed these entries in the cases of these purchasers and has accepted the transactions as genuine in the cases of those who have purchased the same from the appellant. Furthermore, the appellant has not shown or taken credit for any closing stock. That meant that the entirety of the purchases has been expended in the sales as recorded in the books of accounts. Even the auditor has not questioned the veracity of the book version. It is futile to argue that in open bids carried out through auctions there will be no cash involvement. The vouchers for purchases and sales continue to be retained in Departmental custody after the seizure and no material has been produced to indicate any falsity and inaccuracy therein. Be that as it may, the law on the point of unproved sales is that only the GP can be added if any adverse view is required to be taken. The assessee by its act has done just that. There is nothing on record to suggest or show that by way of sales appellant had received anything else other tha....
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....nction has been sought to be introduced for the purpose of Section 37 by specifying the nature of the building to be a guesthouse. The intention of the legislature is clear and unambiguous : the intention was to exclude from deduction the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purpose of a guesthouse of the nature indicated in Sub-section (4) of Section 37. If the legislature had intended that deduction would be allowable in respect of all types of buildings/accommodations used for the purpose of the business or profession, then the legislature would not have felt the need to amend the provisions of Section 37 so as to make a definite distinction with regard to buildings used as guest houses as defined in Section 37(5) and the provisions of Sections 31 and 32 would have been sufficient for that purpose. When the language of a statute is clear and unambiguous, the Courts are to interpret the same in its literal sense and not to give a meaning which would cause violence to the provisions of the statute. 16. As per the above observations the deduction on account of expenditure incurred on guesthouse on repair and maintenance etc.....
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....nsit written off without appreciating the fact that the goods in transit were not lost/destroyed requiring write off but were in fact adjusted towards duty, penalty etc. 19. The assessee had claimed deduction of Rs. 40,26,166 on account of goods in transit earlier written off. In the note to the balance sheet the assessee had stated, "goods worth Rs. 40,26,166 lying with Bombay Port Trust, since 1922 were not cleared from the authorities as they have raised demand of Rs. 55,00,000 towards custom's duty and Rs. 8,50,000 as other charges", which was to be satisfied. Similar note was given in the preceding years. The AO has observed that the liability if any was unascertained but still the assessee had written off this amount which it had suo motu shown to be a contingent liability. It was found that in tax audit report also this liability has been shown to be contingent. On this basis the AO held that there was no basis for deduction in this year. He thus disallowed the claim of the assessee. 20. In appeal, the learned CIT(A) has reversed the order of AO and has allowed the claim of the assessee by deleting the disallowance, by observing as under: 25. In view of the fact that....
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....18 lacs to M/s Hare Shri Finance Ltd.; Rs. 27.65 lacs to Gurshant Engg. Co. (P) Ltd. and Rs. 35 lacs to Haryana Wool & Industries (P) Ltd., all associate concerns of the assessee. The cash advanced was subsequently adjusted against the allotment of shares of those companies to the assessee as under: (i) Shares of Haryana Wool & Allied Industries (P) Ltd. Rs. 55,90,300 (ii) Shares of M/s Hare Shri Finance Ltd. Rs. 21,80,000 (iii) Shares of Gurshant Engg. Co. (P) Ltd. Rs. 98,00,000 2.1 The assessee explained to the AO that the cash introduced in the books had been received on sale of legal books, which the assessee had purchased for a sum of Rs. 51,65,820 from Adbros Electro Tech, a division of Haryana Wool & Allied Industries (P) Ltd. in which the four directors of the assessee company were members. The purchases had been made as per invoices from serial Nos. 1 to 109. The AO on examination of details noted that not a single transaction of purchase and sale of books had been made otherwise than by cash. The AO, therefore, asked the assessee to give details of the parties to whom the books had been sold. The assessee explained that the books had been sold to various p....
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....der that availability of cash for investment in purchase of books was supported by entries in the books of accounts. There was no legal compulsion for making purchases and sales through bank account. In para 12 of his order, he further observed that purchases were supported by purchase vouchers and evidence was uncorroborated. The purchase therefore could not be taken as spurious. The entries in the books of accounts could not be rejected without proper evidence. It was also observed by him that existence of shareholders was established and money received from them was well founded. After making these observations, he deleted both the additions aggrieved by which the Revenue is in appeal. 3. Before the Tribunal, the learned Authorised Representative for the assessee reiterated the submissions made before the lower authorities. He also placed heavy reliance on the decision of the Tribunal in assessee's own case in asst. yr. 1996-97 in ITA No. 521/Del/2000 which according to him covered the case of the assessee. The learned senior Departmental Representative on the other hand supported the orders of the AO. 4. I have perused the records and considered the rival contentions care....
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.... the same had been sold at unusually high margin of about 100 per cent. There is no evidence to establish sale. Not only sale is not established, surrounding circumstances clearly support the view that these are not genuine transactions. In any case, the source of cash deposits is not substantiated by proper evidence and, therefore, the same has been rightly treated as income of the assessee under Section 68. 4.1 The order of CIT(A) is quite vague and deserves to be rejected. The CIT(A) seems to be of the view that the transactions entered in the books cannot be rejected without proper evidence. This, in our view is not correct. Transactions cannot be explained by mere entry in the books. Entries have to be substantiated by the assessee by proper supporting evidence. The burden is on the assessee to explain the entries with proper evidence. In this case, burden is particular high because transactions are from the sister concern and are quite unusual and unrelated to the main line of business and on which unusually high profit margin of about 100 per cent has been shown. The purchase vouchers can be easily procured from the sister concern because of their close relationship. And ev....
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....h credit not explained satisfactorily and, therefore the decision of the Tribunal in the earlier year, will be of no help to the assessee. In view of the foregoing discussion, the addition of Rs. 1,00,04,855 made by the AO on account of cash deposits is upheld and the order of CIT(A) on this point is reversed. 4.3 The decision of the Tribunal in asst. yr. 1996-97 (supra) may however, be relevant in relation to source of investment in purchase of books if the same is explained as cash received against allotment of shares to different parties because in case, the allotment is genuine, availability of cash on this account has to be accepted following the decision of the Tribunal (supra). However, the position in this regard is not clear whether the cash was received from the parties to whom the shares of assessee companies were allotted. No doubt the assessee during the year issued fresh share capital worth Rs. 57,17,000 to three associate concerns but it is not clear from the records that they had made payment by cash. Therefore, the source of investment in purchases is not clear from the order of the AO and CIT(A) and this aspect is required to be examined afresh and is accordingly....
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....ts of the case are that assessee described as 'a loss making company' again showed loss of Rs. 36,30,930 in return for the asst. yr. 1995-96 filed on 30th Nov., 1995. The AO took it as a scrutiny case and issued notice under Section 143(2) of the IT Act (hereinafter referred as Act) to the assessee which was served on 23rd July, 1996 for hearing on 14th Aug., 1996. This notice was not responded to. Thereafter about a dozen similar notices were issued to the assessee to explain various investments and also addition of cash in accounts. As per p. 1 of the assessment order, the assessee either did not appear on the date fixed or asked for an adjournment. Just four days before the assessment was getting time-barred, it submitted a written letter dt. 26th March, 1998. Having not complied with the notices of the AO, the assessment was made on the basis of material on record. 2.1 The AO, on scrutiny of accounts, found that the assessee had shown to have purchased books from its sister-concern Adbros Electro Tech, a division of Haryana Wool & Allied Industries (P) Ltd., for a sum of Rs. 51,65,820 which were allegedly sold for Rs. 1,00,04,855. The transaction of purchase and sale w....
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....i) Foreign travelling as claimed 15,391 (iii) Expenses of earlier year as claimed 86,825 (iv) Collaboration fee as claimed 3,76,179 - 15,25,388 15,25,388 (-) 23,59,506 B. Income from capital gains as per para 9. 25,868 C. Income under the head other sources (i) Cash introduced as discussed in para 3.3 1,00,04,855 (6) (11) Cash credit as discussed in para 7. 1,90,710 1,02,21,433 1,02,21,433 78,61,927 R.O. 78,61,930. 3. The assessee impugned above additions in appeal before the CIT(A), who after consideration of facts and the circumstances of the case, held that cases cited by the AO had no application to the facts of the case. The learned CIT(A) did not see any device adopted by the assessee to avoid tax liability. According to him, additions made in the assessment were untenable. He found that allotment of the shares was actually made. According to the learned CIT(A), failure of six parties to comply with letters under Section 133(6) cannot ipso facto cloud the other evidence establishing genuineness of the transactions. He accepted that appellant was a loss making company yet whether cash surplus for investment was actually available with it or not was to be settled not hypot....
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....larly, sales made by the assessee to three concerns were also reflected in books of accounts of the purchasers. The Department had not disputed these entries in the cases of these purchasers and have accepted the transaction as genuine. The appellant has further not taken any credit for any closing stock. That showed that entire purchases were recorded as sales in the books of account. The learned JM further observed that even the auditor has not questioned the veracity of book version. It was futile to argue that in open bids carried out through auction, there would be no cash involved. He further observed that vouchers for purchase and sales continued to be retained in Departmental custody after seizure and no material had been produced to indicate any falsity and inaccuracy therein. The learned JM further held that law on the point of unproved sales was that only GP could be added if any adverse view was required to be taken. There was nothing on record to suggest or show that by way of sales appellant had received anything else, other than what has been shown in accounts. No discrepancy was noted. Further more part of sales were accepted and there was no objectionable material ....
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....a single instance of sale. There is no evidence regarding delivery of books to buyers and this finding of AO remained uncontroverted. Adverse comments of the AO regarding purchase and sale of books have gone uncontroverted. He observed that sale of the books was not established. Therefore, source of cash deposit is not substantiated and rightly treated as income under Section 68. The learned AM further observed that order of CIT(A) was quite vague and deserved to be rejected. He disagreed with the CIT(A) that transaction could be explained by mere entry in books. Entries have to be substantiated by the assessee by proper supporting evidence. The learned AM did not rely upon purchase vouchers as according to him such, "vouchers can be easily procured from the sister concern because of their close relationship." 7. The learned AM also distinguished the order of the Tribunal passed in ITA No. 521/Del/2000 in the case of the assessee for asst. yr. 1996-97. After considering facts and circumstances of the case he held that that case was distinguishable and did not apply to the facts of the present case. The distinguishing features have been noted by the learned AM in the impugned order....
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....ss of transactions. The assessee was further asked to explain investment in shares amounting to Rs. 1,87,89,000. But right upto the completion of assessment, requisite information was not furnished. Only at the fag end on 26th March, 1998, one letter was filed on behalf of the assessee. In the said letter, the assessee stated that it had made sale of books in cash. The assessee was specifically asked to explain the source of cash introduced vide order sheet entries dt. 31st Oct., 1997, 10th Nov., 1997, 23rd March, 1998, 25th March, 1998 and 26th March, 1998. In its letter dt. 26th March, 1998, it was explained that cash sales were made and delivery of books were given to the agents of buyers who were spread outside Delhi. The assessee gave names of six buyers, noted at pp. 2 and 3 of the assessment order belonging to Ahmedabad, Rajkot and Ludhiana. However, when letters were sent to these parties under Section 133(6), these were received back with postal remarks that no person at the address given by the assessee was available. No particulars of these or other buyers were furnished in spite of repeated opportunity provided to the assessee. The AO further noted that auditors of the ....
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....d order of the learned AM. He supported the proposed order of learned AM. He also argued that facts recorded in the proposed order of learned JM are incorrect. It was further argued that decision of Tribunal in the case of the assessee for asst. yr. 1996-97 had no application. The said case related to the share capital whereas the present case relates to introduction of cash in books of accounts which the AO had asked the assessee to explain in terms of Section 68. In the absence of satisfactory explanation, the amount was treated as assessee's income from undisclosed sources and accordingly addition of Rs. 1,00,04,855 was justified. 12. As regards question Nos. 2 and 3, the learned Departmental Representative relied upon proposed order of learned AM. 13. Shri K. Sampath, learned Counsel for the assessee, on the other hand, read out the order of the AO and proposed order of the learned JM. He argued that the assessee and M/s Haryana Wool & Allied Industries were operating from the same premises and, therefore, there was no demonstrative evidence of delivery of books. The purchase and sale of books was supported by vouchers, which stood seized with the Revenue Department. The ....
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....f the fact that presumption of truth is attached to them. It was further contended that Section 68 of the IT Act had no application to cash sales. For this proposition, he placed reliance on the decision of Tribunal, Delhi Bench in the case of Racmann Springs (P) Ltd. v. Dy. CIT (1995) 52 TTJ (Del) 660 : (1995) 55 ITD 159 (Del). Shri Sampath further argued that it was not shown that 100 per cent profit on sale of books was extraordinary profit. The seller is further not obliged to prove the identity of the purchaser or his background as it is not his concern. The seller is interested only in his profits. Reverting to the proposed order of learned AM, Shri Sampath contended that learned AM was wrong in saying that heavy burden lay on the assessee to show that it was possible to make 100 per cent profit. In fact, learned AM had gone even beyond the assessment order and challenged delivery of books. He further submitted that other reasons given by learned AM for deciding against the assessee were mere surmises and conjectures and not facts borne out from the record. Shri Sampath accordingly supported proposed order of the learned JM which was read out extensively. 15. In the alternat....
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.... by the assessee. In other words, the truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of account can be gone into by the ITO. 18. The AO while rejecting the claim relating to purchase and sale of books and introduction of Rs. 1,00,04,855 has taken into consideration the following circumstances: (i) That assessee did not co-operate during the course of assessment proceedings and rendered no plausible explanation relating to introduction of cash of Rs. 1,00,04,855 alleged to represent the sale of books. (ii) That assessee could not furnish details of the parties to whom books were sent. (iii) That six parties claimed to have purchased books and paid cash through their agents were not found at their addresses when letters were sent to them under Section 133(6) of the IT Act. Details of other parties were not made available. (iv) That in such large transaction of alleged sale of Rs. 1,00,04,855, there was not a single sale through the banking channels. All the transactions were carried in cash. (v) That the assessee could not explain how extraordinary profit of about 100 per cent was earned on the sale of books all....
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....has accepted the transactions as genuine in the cases of those who have purchased the same from the appellant". The aforesaid observations have been strongly contested by the learned Departmental Representative. It has been pointed out that right from the very beginning the Revenue has been strongly contesting purchase and sale of books as claimed by the assessee. Entries relating to purchases and sales, particularly the introduction of cash, was to be proved by the assessee under Section 68. I agree with aforesaid objection of the Revenue. The Revenue as stated by the learned Departmental Representative, has all along been contesting the claim and there was nothing "undisputed" as observed by learned JM. The claim of sale of books is shrouded by a number of suspicious circumstances pointed out by the AO which have not been satisfactorily explained by the assessee. Having regard to cumulative effect of all the circumstances, I am inclined to hold that assessee has not been able to establish that cash of Rs. 1,00,04,855 represented sale proceeds of books. I do not find any substance in the finding of learned CIT(A) that sales should be accepted as it is recorded in the books of acco....
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.... exercise by merely observing that the assessee has shown Rs. 1,00,04,855 as income but its claim that the same represent sale proceeds of books is not accepted and income will be treated as income from "undisclosed sources". In the present case, introduction of cash of Rs. 1,00,04,855 could be held to be income from "undisclosed sources". As the amount already stood credited to the books of account of the assessee as income, the matter was required to be left by recording an appropriate finding as indicated above. There is no addition of above amount in the computation of the income. In the circumstances the question of deletion of Rs. 1,00,04,855 cannot arise. The effective addition made is Rs. 51,65,820 as noted above and no addition of Rs. 1,00,04,855. Therefore, relief of Rs. 1,00,04,855 cannot be allowed to the assessee. This position unfortunately has not been taken into account by the learned CIT(A) or by the learned JM. The question of sustaining addition of Rs. 51,65,820 is being separately considered under question Nos. 2 and 3. I, therefore, hold that there is no addition of Rs. 1,00,04,855 in the assessment order. The amount stood already credited in the P&L a/c. It is....