TaxTMI 
TaxTMI 
2012 (6) TMI 81
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....led an additional ground which is a legal ground with reference to benefit of telescoping in respect of additions made on income basis vis-à-vis additions made on expenditure/investment basis. Since this is a legal issue and does not require any examination of facts, the additional ground after discussion with the Departmental Representative and considering his objections was allowed following the principles laid down by the Hon'ble Supreme Court in the case of National Thermal Power Corporation Ltd vs. CIT, 229 ITR 383. 4. Ground No.1 is as under: "The learned CIT (A) Central-III Mumbai erred in confirming the addition of Rs.1,50,25,864/- to the income of the appellant on account of alleged unexplained investment with HMA Group". 5. This ground relates to treatment of Rs.1,50,25,864/- as unexplained investment. The related facts in brief are that assessee is a manufacturer of denim jeans and was covered by search and seizure action on 12.12.2002. During the course of search certain bills relating to the HMA group were found with the assessee and hence the HMA group was covered by a survey u/s. 133A. The HMA group comprising M/s. HMA Interlinings Pvt. Ltd., M/s. HMA....
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....has to be a real sale supported with delivery challans but only not reflected in the books of accounts of the parties." 7. He, therefore, made the addition of Rs1,19,94,864/- and Rs30,31,000/-, against which assessee preferred appeal before CIT(A). 8. During the course of appeal proceedings before CIT(A), the confirmation of M/s. HM Interlining Pvt. Ltd. together with an affidavit of Shri Manohar Ahuja was filed to substantiate that no actual sales were made by the HMA Group to assessee either on 13.04.1999 or on 09.12.2000 and that the bills in question had been mere accommodation bills. As these documents had not been filed before the AO during the course of assessment proceedings and therefore constituted fresh evidence, the matter was sent in remand to the AO. In the remand report after examination of the documents as above, the AO has concluded that "Mere submission of affidavit is not sufficient to denounce the facts gathered during the search. The delivery challans have been signed the assessee giving sufficient proof for the purchase of the goods. The letter of credit is also very concrete evidence proving the payment male to the firms involved in the transactions.....
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....o bill correlation was not possible as the outstanding comprised a large number of small bills. It was also pointed out that both assessee company and parties concerned had confirmed that the bills in question were accommodation bills during the course of search itself. Moreover, the contention of AO that the bills were reflecting unaccounted purchases as above was not substantiated by evidence found during the search as no excess stock of interlinings was found, and neither any evidence of cash sales of Interlinings nor any excess cash found. It was further pointed out that the bill in question were dated 13.04.1999 and 09.02.2000 and on the date of search, i.e., on 12.12.2002, the books of account of both parties were closed and audited, and the return of income had also been filed. Therefore, it was pointed out that the bills could not have been the actual bills for purchases, but were accommodation bills. It was also submitted that the transactions of purchaser had never been denied by the assessee. The only difference was that the transactions had taken place on earlier dates and the bills in question merely represented earlier transactions against which no payments were made.....
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....ses were made and the loan from the bank further confirms the fact that the transactions were actual, genuine transactions, where delivery of goods was also taken and this fact acknowledged even before a third party, i.e. the bank. The onus is therefore, definitely on the appellant to prove that the transactions were not real as claimed by it because the seized bills in question clearly establish the contrary of purchase made and delivery taken of goods worth Rs.1.50 crores. The appellant's failure and inability to establish a nexus between purchases as per purported accommodation bills and the recorded purchases can only lead to one logical conclusion namely that the purchases are out of book purchases and hence represent unexplained investment. It is the appellant's case that the entry in its books of the L/C's discounted against outstanding as well as the entry of repayment, both before the date of search, proved that the bills in question were merely accommodation bills and did not reflect any real transactions as no prudent person would record payments against purchases without recording purchases. The appellant's contention is absolutely baseless because unrecorded purchases ....
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....ed and amounts were settled, by the time search action was taken which indicates that these are only accommodation bills and not unaccounted purchases. Further it was contended that correlation bill to bill was not feasible as explained before the authorities as assessee had to undertake discounting of bills to the extent of amount outstanding. Consolidated bills were given without there being any purchase of goods. Therefore, addition on this account is not warranted. 12. The learned Departmental Representative however, reiterated the contention of the Revenue and particularly the findings of the CIT (A) that in the absence of correlation of unrecorded purchases with regard to purchases, no way establishes that purchases reflected in the bills are entered in the regular books of account. 13. We have considered the issue. As can be seen from the facts stated above, there is no dispute with reference to the fact that these transactions have occurred in 1999-2000 and the so called bills were discounted by the Bank and proceeds thereon were adjusted with the existing outstanding amounts in books without there being any debit or credit towards the purchase or sale. This supports ....
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....9,58,697/- (out of Rs.52,95,960/-) made on account of alleged unaccounted sales to M/s. Liberty Marketers" 15. Ground No.2 relates to the addition of Rs52,95,960/- as unaccounted sales to M/s. Liberty Marketers. The related facts in brief are that during the course of search, correspondences between assessee and M/s. Liberty Marketers and Siyaz & Zulfikar indicated sales made by assessee to the two parties, which are considered as unaccounted. AO made the addition of Rs.52,95,760/- relying on the following seized documents: Seized Document Amount(Rs.) Party Pages 87 to 92 of A-1 23,37,203 Siyaz & Zulfikar Page 80 of A-1 4,72,477 Siyaz & Zulfikar Pages 70 to 72 of A-1 1,72,565 Liberty Marketers Pages 75 to 79 of A-1 20,13,803 Liberty Marketers 16. The above seized documents, apart from other loose papers, also contain ledger accounts of assessee as appearing in the books of M/s. Liberty Marketers and Siyaz & Zulfikar and some of them bear the caption "UNACCOUNTED ASHAPURA". This led the AC to prima-facie conclusion that the transactions were unrecorded. Assessee denied any transactions with Siyaz and Zulfikar, and confirmed that it ....
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.... & Zulfikar but only with M/s. Liberty Marketers and therefore the name of Siyaz & Zulfikar did not appear in the books of account of assessee at all. This was substantiated by the fact that no bills raised by Siyaz & Zulfikar were found with the assessee company during the search. It was emphasized that it was M/s. Liberty Marketers, which was accounting the transactions with M/s. Ashapura Garment in two names namely M/s. Liberty Marketers and Siyaz & Zulfikar, as borne out was that bills numbers recorded in the name of Siyaz & Zulfikar by M/s Liberty Marketers in the seized documents were the same as those recorded by assessee in its books in the name of M/s. Liberty marketers and the cheque numbers noted against these bills were also matching with the cheque numbers recorded against bills entered by M/s. Liberty Marketers in the name of Siyaz & Zulfikar. It was pointed out that purchases to the extent of Rs 23,37,203/- were covered by similar entries, which had been booked by M/s Liberty Marketers in the name of Siyaz & Zulfikar but had been booked by assessee in the name of M/s. Liberty Marketers. 19. During the course of the appellate proceedings, the CIT (A) examined the t....
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....ose papers were available with assessee. As the matters were disputed and contentions were not accepted, considering that no inquiry was made with the Liberty Marketers and further no examination of the actual details were undertaken by AO, we are of the opinion that the addition cannot be sustained without examining the facts of transactions between the parties. Therefore, accepting the prayer of assessee, we set aside the matter to the file of AO to make necessary inquiries with M/s Liberty Marketers and give an opportunity to assessee to cross examine, if required. In case any of the transactions are found to be unaccounted consequent to the inquiry, AO may consider the assessee alternate submission of bringing it to tax the profit element involved in the sales, as the entire sales proceeds cannot be taken as income following the decision in the case CIT vs President Industries 258 ITR 654( Guj). With these directions, the issue in Ground No.2 is restored to the file of AO for further examination of the amounts to the extent confirmed by the CIT (A). 22. Ground No.3 is as under: "The learned CIT (A) erred in confirming the addition of Rs.78,16,200/- being alleged undisclos....
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....uted fact was that assessee was regularly taking loans from Late Shri Ajay Thakkar Group by cheque, which were reflected in the books of account and therefore it could be ruled out, in view of the documentary evidences relating to payment of interest in cash found during the search, that cash loans also were not taken. 25. The AO has therefore concluded as under :- "The loans which were taken in cheque from the said group was paid back by cheque. Importantly, the interest thereon was also paid by cheque only and TDS was also seen to have been deducted. Therefore, it logically follows that the interest paid in cash was for loans taken in cash only. Here it may be observed that Smt. Bhavana Thakkar has also admitted in her statement of having given cash loan to the assessee. Therefore, it is logically conclusive that interest which was paid in cash was for the cash loans taken by the assessee. It is also well known fact in the market that Shri Ajay A. Thakkar used to give cash loans to various parties in the market. Therefore, it is not out of place that the assessee had taken cash loan from tie said party." 26. He therefore, made the addition of Rs70,51,963/- as interest an....
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....the end of the year. It was the contention that the document in question found on the computer was nothing but a working of the probable loans to be taken and up-front interest calculated thereon. It was further submitted that around the same dates, loans of different amounts had been taken on which up-front interest was paid to late Shri Ajay Thakkar, which was duly accounted for in the books of accounts. A chart was filed giving date wise details of the actual loans taken, up-front interest paid thereon as against the working of interest found as per seized documents as above. Further, attention was also drawn to the fact the outstanding principle and interest amount as appearing in the books of account of assessee was Rs3,77,17,172/- which higher than Rs.3,41,82,125/- worked out by the Mumbai Police after examining the books of account of late Shri Ajay Thakkar as well as other documents found with him. Therefore, it was stated that no addition called for. It was further stated with regard to the addition of Rs.1,40,83,714/- made on account of repayment of cash loan, that no documents whatsoever were found during the course of search indicating repayment of loan in cash and even....
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....kkar 110,500 176,000 127803 23.2.00 2,000,000 6.3.00 Ajay A.Thakkar 276,000 220,000 127894 3.3.00 2,500,000 26.4.00 Bhavana A.Thakkar 275,500 440,000 102287 26.4.00 5,000,000 5.5.00 Bhavana A.Thakkar 275,500 440,000 102329 3.5.00 5,000,000 11.5.00 Bhavana A.Thakkar 28,000 44,000 102362 10.5.00 500,000 1.8.00 Bhavana A.Thakkar 275,500 440,000 105360 2.8.00 5,000,000 5.8.00 Ajay A Thakar 275,500 440,000 105384 4.8.00 5,000,000 12.8.00 Ajay A Thakar 275,500 440,000 105415 8.8.00 5,000,000 18.8.00 Ajay A Thakar 275,500 440,000 105435 14.8.00 5,000,000 2.9.00 Ajay A Thakar 275,500 440,000 105518 31.8.00 5,000,000 7.9.00 Ajay A Thakar 165,300 264,000 107001 6.9.00 3,000,000 9.9.00 Bhavana A. Thakkar 110,200 176,000 107017 7.9.00 2,000,000 13.9.00 Ajay A Thakar 330,500 528,000 107033 8.9.00 6,000,000 13.9.00 Ajay A Thakar 82,650 42,000 94854 15.9.00 1,500,000 20.12.00 Ajay A Thakar 551,000 440,....
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....umentary evidence substantiating repayment in cash of the loan of Rs 1.40 crores, and on the basis of the fact that the AO has made the addition of this amount on the basis of surmises, the addition of Rs.1.40 crores is deleted". 31. The learned Counsel referring to the table considered by the CIT (A) submitted that even though there were amounts said to be paid in cash what exactly happened was that the said party deducts amount upfront but, all transactions were by cheque only. There are no cash loans, nor there are any payments in cash. What the documents seized from assessee's computer was only calculations of up-front interest on the loan amount. It was stated that assessee had borrowed funds from the said party and was paying amounts by way of cheques to the said party and there is no cash transactions at all. It was further submitted that crime branch has made inquiry and the matter was sub-judice. Therefore, addition of amounts without any findings cannot be sustained. It was further submitted that the cross examination was not allowed and books of account of Mr.Ajay Thakkar were not verified by AO. It was submitted that some of the loans were taken from Smt. Bhavana Tha....
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....T (A) erred in confirming the addition of Rs.63,46,000/- being the alleged unaccounted sales relating to Hyderabad Depot". 34. The related facts in brief are that during the course of search, the backup of the computer was taken from Hyderabad depot of assessee, which contained a statement giving quantitative details of sales and sales returns, as well as the balance of stock at the Hyderabad depot of assessee. On analysis, AO found that sales of 6346 pairs of jeans as per the statement, was not recorded in the books of assessee. The AO has reproduced the reply of assessee in response to the show cause as to why addition not be made on account unaccounted sale in the assessment order, the gist of it being as under :- (a) The statement in question was merely reflecting stock transfer to Mumbai to Hyderabad and not actual sales. Copies of challans showing that 6346 pairs of jeans had been sent as samples from Mumbai to Hyderabad were filed in substantiation. (b) It was explained that it was in order to capture the market in Hyderabad that such a large number as 6246 pairs of jeans had been sent as samples. (c) A without prejudice contention was also made namely that even ....
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....les for display in various show rooms, which was not taken as sales. Learned Counsel drew our attention to the sales statement made therein to submit that out of 6346 No. of items transferred to Branch the Branch accounted sales of 2698 Nos. only with 1102 returned. There was also purchase return from the Branch to Head Office. Even this aspect was also not taken into consideration by AO. It was his submission that transfer to Branch cannot be considered as unaccounted sales. However, without prejudice it was submitted that if at all any addition is to be considered that can only be considered on the items shown as sales that is 2698 Nos., the cost of which at the company price is only Rs.500/- and not Rs.1000/- as adopted by AO as a retail price. It was submitted that the addition can be restricted to the above amount as admitted by assessee in the course of the assessment proceedings. It was also further submitted that only profit can be brought to tax and not the entire sales proceedings. 37. We have considered the issue. The dispute is with reference to the goods sent to Branch considered as unaccounted sales of the HO on the basis of the statement obtained from the Branch o....
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.... are that during the proceedings, excess stock of 501 pairs of jeans was found at the Hyderabad depot which in the name of M/s. Prem Trading Co. and unaccounted in assessee's books. It was assessee's contention that the stock found did not relate to assessee but was counterfeit being sold by one of the staff at Hyderabad, using the brand name of the company and the company had registered a legal complaint with the Trade & Registry Department much before the date of search. As this fact was not brought out before the AO, the matter was sent in remand before the AO. In the remand report the AO has stated that as the stock was found in the premises of the assessee and the same was not recorded in the books of account, there was no merit in the contention of assessee. The CIT (A) confirmed the same. 40. It was submitted by the learned Counsel that in the transactions with the said Prem Trading Company was considered by AO as unaccounted. The only addition is made on account of excess stock found in the course of survey on 13/03/2003 whereas the search in the premises occurred on 12/12/2002 and the block period ends on 12/12/2002. It was the preliminary objection of the learned Couns....
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.... remand report was asked from AO and after considering the remand report and documents filed, the CIT (A) considered that credits from M/s Mehta Engineering Company and M/s Judicial Member Mehta (HUF), M/s Arihant Enterprises were accepted as genuine whereas the loans received from M/s Manisha Trading Co. and M/s Ashok Textiles were not accepted. To that extent the cash credits were confirmed. 44. It was the contention of assessee's Counsel that all these cash credits were available in the books of account and there was no incriminating material found during search and assessee had furnished the necessary details before AO. The objection raised by the learned Counsel is that since there is no incriminating material, the addition cannot be made in the block assessment. He relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Vikaram Joshi, 256 ITR 129. The Departmental Representative however, relied on the orders of the CIT (A). 45. We have considered the issue. As far as the examination of credits are concerned, these credits are found in the books of account and is a subject matter of inquiry in the regular assessments. In the case of CIT vs. Vikram ....
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....e provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with AO and relatable to such evidence)... (ii) On the facts and in the circumstances of the case and in law, the learned CIT (A) has erred in deleting the addition of Rs.1,40,83,713/- made on account of repayment of principal component of loan in cash. (iii) On the facts and in the circumstances of the case and in law the learned CIT (A) has erred in deleting the addition made by AO under section 68 on account of unexplained cash credit (and interest thereon) from M/s Mehta Engg. Co., M/s J.M. Mehta, HUF and M/s Arihant Enterprises without appreciating the fact that the onus cast on assessee to prove the credit worthiness of the creditors and the genuineness of the transactions was not discharged by assessee at any stage of the proceedings before AO". 48. Ground No.(i) is general in nature. 49. Ground No.(ii) pertains to the deletion of Rs.1,40,83,713/- made on account of repayment of principal component of loan in cash. This aspect was discussed vide Ground No.3 in assessee's appea....