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TaxTMI 
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TaxTMI 
2015 (7) TMI 47
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....ommon stand of the parties before the Bench that the arguments made therein would fully apply to the issues arising in ITA No.-2926/Del/2013 also. Accordingly in view of the above stated factual position the facts relatable to 2007-08 Assessment year are being referred to wherein the grounds raised by the Revenue in ITA No.2453/Del/2013 read as under:- 1. "On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 1,47,78,159/- out of total addition of Rs. 2,68,11,454/- made by the Assessing Officer on account of undisclosed income out of regular books of account of the assessee. 2. The order of the CIT(A) is erroneous and is not tenable on facts and in law. 3. The appellant craves leaves to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal." 2. The Ld. AR appearing on behalf of the assessee submitted that although qua the re-opening the assessee has raised Ground Nos.-1-3 in 2007-08 Assessment year however on account of the instructions received from his client he would be confining his arguments only on the merit of the additions for both the years as the assessee does ....
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.... above and in the alternative the learned CIT(A) has erred both on facts and in law in making an addition of Rs. 99,73,187 on account of minimum capital required to carry on the business, without there being any basis for the same. 11. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in applying debtors to sales ratio of 35.86% even without ascertaining the nature of the transactions for computing the capital requirement. 12. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in taking aggregate of sale of two years while computing capital requirement of Rs. 99,73,187/- for the year under consideration. 13. That the appellant craves leave to add, amend or alter any of the grounds of appeal." 3. The relevant facts of the case are that a search and seizure operation u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as "Act" ) was carried out by the Investigation Wing on 26.02.2009 on Shri Ram Hari Ram Group of cases. It is a matter of record that the case of the present assessee amongst others was also covered u/s 133A of the Act during the course of the search and surve....
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....t details of M/s Smridhi Sponge as well as list and names and addresses of its Directors including the mailing address of M/s Smridhi Sponge. 3.3. Taking note thereof, the AO accordingly issued notice u/s 133(6) of the Act at the given address of M/s Smridhi Sponge requiring the said concern to furnish copy of the ledger account for the business carried out with M/s Delco India Pvt. Ltd. The notice was received back unserved with the remark "left". In view of these facts, the AO considering that the entries on the pages which the assessee was required to explain and co-relate with its books of accounts remained unverifiable and unexplained, he concluded that in the absence of any verification the assessee company had relations with M/s Smridhi Sponge and was dealing in business with it out of its books of account. Summary of entries/transactions on page 11 -14 of the seized documents was extracted by him in para 6.2 of the assessment order and addition was made as undisclosed income u/s 68 in view of the following facts:- "Page no. 14 & 13 contains transactions of purchases and payment made to Smridhi Sponge during A.Y. 2007-08 are recorded. The summary compiled are transactions ....
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....n of Rs. 20,60,108, however I have my own reservations with the AD's action of adding the entire sale proceeds as income outside the books of accounts of Rs. 2,78,11,454 and giving benefit of just Rs. 10,00,000 on account of purchases. When any person makes both, sales and purchases outside the books of accounts (as is the case now), there is always some money locked up in debtors and he does require some minimum amount with himself, to carry on the business outside the books of accounts, because business is a continuous activity and all the purchases and sales does not happens on one single day. Therefore when documents suggests that an assessee has made sales and purchases both outside the books, than in that case, in my humble view by applying the accounting concept of peak theory or telescoping, two additions are called for i.e. (a) one on account of gross profit earned and (b) minimum capital requirement to carry the business activity outside the books of accounts. 7.16 To arrive at the capital required to carry business outside the books of accounts, I find from the appellant financial accounts that during the year under consideration the Debtors to Sales Ratio is....
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....bsp; Rs.99,73,187 4,71,68,832  ....
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....nbsp; Rs.83,75,435 The appellant thus gets a relief of Rs. 1,47,78,159 (Rs.2,68,11,454 minus Rs. 20,68,108 minus Rs. 99,73,187), out of the total addition of Rs. 2,68,11,454 made in Assessment year 2007-08." 5. Aggrieved by this finding, both the assessee and the Revenue are in appeal before the Tribunal. 6. The Ld. AR addressing his appeal submitted that in his arguments he would not only....
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.... it was submitted were supported by documents at pages 63 to 65 from the ROC site and the income tax official site. These evidences given to the AO, it was submitted in appeal were further supplemented by moving a petition under Rule 46 A dated 29.10.2012 before the CIT(A). However to revert back to the evidence before the AO, attention was invited to the following submissions dated 26.11.2010 before the AO:- - "That assessee company has never undertaken any transaction with M/s Smridhi Sponge - That assessee company is not aware of where about of M/s Smridhi Sponge. - That details found during survey might be of some one who visited the assessee's office and used the assessee's computer for mail of the account found or might have left the some one unknowingly." 6.2. Attention was further invited to the very same page i.e paper Book page 61 so as to submit that the assessee carrying out a search through the internet became aware of certain relevant information which it was presumed that the department would be interested in to reach the true facts of M/s Smridhi Sponge. Accordingly it was submitted that the following specific information was shared with the....
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....bsp; (emphasis provided) 6.3. Inviting attention to Paper Book pages 44-47 which is a copy of the seized document wherein reference is made to payment by two specific cheque numbers by some concern called "Galaxy",....
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....ring search in respect of M/s. Smridhi Sponge." &nbs....
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....nd jurisdiction of assessing officer as available in official records of I.Tax Site. * Particulars of M/s Galaxy Exports (P) Ltd. and name of the Bankers, its address and account no."M/s Galaxy" has issued two cheques of Rs. 25 lacs and Rs. 15 lacs respectly to M/s Simridhi Sponge and its details has been given at page no 11 of Annexure A-1 of seized documents. * Thus assessee on one hand categorically dismissed that it never had any dealing with M/s Simridhi sponge ans also filed affidavit to confirm of having no relationship with M/s Simridhi Sponge and one other hand also provided sufficient details regarding where about of M/s Simridhi Sponge with evidence. However, AO never dispose of the objection raised by the assessee regarding having any transaction with M/s Simridhi Sponge. Thus AO has failed and here to the applicable provision of I.Tax Act." &....
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....p; (emphasis provided) 6.5. In the above background, it was his submission that it is surprising that despite these facts, the AO insists that the assessee is answerable for explaining the transactions found on its computer with M/s Smridhi Sponge. The assessee's answer has all along been on record as no transactions were ever done by the assessee with the said concern who was a stranger to the assessee. It was his submission that the assessee has done what it could have done best in the circumstances where he is called upon to explain the transactions of a stranger. It was submitted that the assessee has never said that the documents were not found from its computer. The explanation has repeatedly been offered that some person may have used the computer to email or take a print out or whatever and the unconnected facts of M/s Smridhi Sponge may have remained on its computer but the facts remains that the assessee had no interaction with the said concern. Apart from the fact that the specifi....
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....from the consequences of the additions on unrelated facts has all along given relevant facts searched diligently on the official government sites and made available to the department. It was his submission that it is presumed that the search and seizure efforts of the department are for the purposes of unearthing undisclosed income, thus where as per the seized documents transactions found from the assessee's premises transactions with the said concern is denied the denial remains unrebutted the assessee on the other hand demonstrates the connections of M/s Smridhi Sponge with M/s Galaxy why is there a reluctance with the department to proceed against them. The payments therein it was submitted admittedly were made in cheques and also by cash by various parties, particulars of two of them are available with the Revenue instead of acting on them the efforts have been viewed by the Revenue with suspicion and the assessee is criticized for coming out with new facts. It was his submission that when a person is put in such a situation to defend himself on the basis of some document unconnected with it then will not that person make an all out effort and endeavour seeking the help of fri....
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....uest of the assessee's representative who visited them at Jamshedpur office after receipt of the assessment order." 6.7. In this background, petition to file fresh evidence before the CIT(A) was moved, copy of the same it was stated is at page Nos.-70-75 of the Paper Book filed. The assessee assailed the repeated adamancy of the AO before the CIT(A) for not carrying out the due and necessary enquiries in the manner which he was supposed to make. The following submission before the CIT(A) extracted from page 70 of the Paper Book relied upon are extracted hereunder for readyreference:- "That AO issued notice u/s 133(6) at the given address of M/s Smridhi Sponge at Calcutta almost after a year (after providing him such details) and that too at the address of the company at Calcutta, however, no notice appeared to have served to directors despite their address was provided to AO. During the assessment proceedings assessee provided following details about M/s Smridhi Sponge Ltd. 1. Particulars of the company given address of Registered office of the company, year of incorporation etc. 2. PAN of company as available at l.Tax Site. 3. Particulars of directors viz; name resi....
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....owever, on 25.10.12 following address of M/s Smridhi Sponge Ltd. is available at ROC site. Room No. 3AB, 3rd Floor, Bishnu Residency 193, Netaji Subhash Road Kolkata, West Bengal-700040 It is quite possible that alleged company changed the address during the period from 13.09.2010 to before the date of service of notice u/s 133(6) of I.T. Act.  ....
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....ess of the company is the same which assessee has provided to AO viz; 23, Netaji Subhash Road, Kolkata. " 6.10. Inviting attention to the Index of the Paper Book filed, it was submitted that the assessee in the form of additional evidence has placed the following details and evidence before the ACIT:- 11. "Copy of Application of Additional Evidence filed before ACIT dated 29.10.2012 Page 70-76 - Form 23AC of Samridhi Sponge Ltd. Page-77-82 - Copy of Balance Sheet of Samridhi Sponge Ltd. for the year ended 31st March 2007 Page 83-102 - Copy of Form 23ACA of Samridhi Sponge Ltd. 103-106 - Copy of Form 20B along with Annual Return 107-119 - Detail of Registered Office & Share Capital of (a) Samridhi Sponge Ltd. 120-121 (b) Galaxy Ex....
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....rate that M/s Smridhi Sponge had interactions with M/s Galaxy Exports whose complete particulars like that of Smridhi Spogne are filed alongwith bank details, PAN details etc why does the Revenue it was questioned not want to look into these unimpeachable evidences. Referring to the detailed evidences on record it was his submission that the Revenue instead of making due and necessary enquiries has chosen to pick on a soft target that is the assessee who is connected to a jewellers business as the assessment order itself demonstrates that the search was primarily conducted on the Sri Ram Hari Ram Group of cases and one of the Directors of the assessee is related to the said Group. 6.13. Inviting attention to the judgements relied upon by the CIT(A), it was his submission that they have been wrongly applied on facts. In support of the arguments made, the Ld. AR had filed his written submission and the arguments were advanced on the basis of the same, accordingly for the sake of brevity the reliance placed in Ld. AR's own words is reproduced hereunder:- S.No. Assessee Ld. AO Remarks At the time of Assessment Letter dated. 26.11.2010 (PB pg. 62) -Official Address of the S....
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....ssee said that Letter dated 11.10.2012 has been received. 4. Assessee has never said that this reply had been received on 11.10.2012. (i) CIT vs Babu Mohan lal AryaSmarak Educational Trust (High Court of Allahabad) ITA No.-303 of 2013; (ii) ACIT vs Vatika Greenfiled (P.) Ltd. ITAT Delhi [2009] 121 TTJ 208 Delhi; (iii) ACIT vs Dr. Kamla Prasad Singh 3 ITR 533 [2010] ITAT Patna Bench; (iv) CIT Panchkula vs M/s Khosla Ice & General Mills, Punjab & Haryana High Court 2013 (1) TMI 451; (v) ACIT vs Buldana Urban Co-op Creidt Society Ltd. 23 ITR (Trib) 411; and (vi) Alliance Hotels vs ACIT 142 ITD 270 (Mumbai Tribunal. 6.14. Referring to the seized documents it was submitted that a perusal of the same would show that the business in the case of M/s Smridhi Sponge was conducted by cheque as well as cash and clinching particulars of M/s Smridhi Sponge and atleast one other concern with whom it interacted with namely M/s Galaxy Exports is available with the Revenue and despite this for reasons best known to the concerned officers they repeatedly show no desire or effort to bring those concerns within the tax net and not bothering with the fact that as a result of....
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....s of the assessee it was submitted have been strongly deprecated by the CIT(A) who has rightly dis-believed the confirmation belatedly relied upon stated to be from M/s Smridhi Sponge Ltd., copy filed at Paper Book page 136 relied upon by the assessee dated 11.10.2012. Referring to the impugned order it was submitted that the assessee's version has rightly been rejected and has been fully addressed by the CIT(A) in para 7.3 & 7.4 of his order so as to hold that the assessee is not disclosing the true facts in para 7.5. Heavy reliance was placed on these findings in para 7.5. For ready-reference, these are reproduced hereunder:- 7.5 "The computer print outs of documents found and impounded during the survey from the appellant's premises and the entries recorded therein clearly show that the appellant is not disclosing the true state of its affairs and dealing with Smridhi Sponge and is not coming out with clean breast. The initial onus as per section 292C of the Income Tax Act is on the appellant to explain the nature of the transaction recorded on the paper found from his premises." 7.1. Accordingly on the basis of these facts and the judgements of the Hon'ble Delhi High Cou....
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....d was as per the ROC records and there is no change in any particular of the M/s Smridhi Sponge Ltd. in the public domain demonstrated by the downloaded print outs from the ROC site. The addresses of Kolkata and Jamshedpur Main office and factory office respectively continued to remain the same on the site. Addressing the information provided as confirmation of the assessee's version by the Director of M/s Smridhi Sponge Ltd. dated 11.10.2012 it was stated the CIT(A has viewed this too with suspicion. Inviting attention to Paper Book pages 130 and 131, it was submitted would bring out the following facts which were brought to the notice of the CIT(A) and were again relied upon heavily on behalf of the assessee:- "The assessee also made efforts to directly contact the company (M/s Smridhi Sponge Ltd.)/director vide its letter 20.09.2012. The letter was addressed to one of the director Sh. Om Prakash resident of 20, Tube Rose Lane, Ashiana Garden Sorari Jamshedpur. Assessee also sent its representative to factory located at Mohitpur, Sini Distt, Seraikela KHARSWA JHARKHAND. However, no initial response was received regarding traction if any M/s Smridhi Sponge Limited had with the as....
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....; For Smridhi Sponge Ltd. &n....
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....bsp; Director" The assessee is making all efforts to pursue M/s Smridhi Sponge Ltd to sent the above letter directly to the department with the copy endorsed to the assessee. However, it appears that unless any communication is made by department address to SSL even in the form of a copy of earlier's letter sent by AO u/s 133(6) of the I.T. Act with endorsement to the assessee, SSL is reluctant to respond to the department directly. &nb....
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....(Delhi) relied upon by the Revenue wherein addition u/s 69C for unrecorded unexplained expenditure had been made. Reliance was also placed on Hiren Vasantlal Shah v. Assistant Commissioner of Income Tax [2012] 19 taxmann.com.241 (Guj.) and Commissioner of Income-tax v. Sonal Constructions 28 taxmann.com 127 (Delhi) for the proposition that the seized documents constitute undisclosed income of the assessee in terms of section 292C of the Act so as to justify the addition made. 9.2. Further relying upon the principle laid down by the Apex Court in the case of Dhakeshawari Cotton Mills vs CIT 26 ITR 775 (SC) and Homi J Gheesta vs CIT 41 ITR 135 (SC) it was submitted that there was no need for the department to prove by way of a direct evidence that the specific sum was an income in the hands of the assessee as the AO is not fettered by technical rules of evidence and he is entitled to act on material which may not be accepted as evidence in a Court of law and since the documents were found from the premises of the assessee, the burden of proving that it was not so was cast upon the assessee. For which purpose, reliance was placed upon section 106 & 144 of the Indian Evidence Act. The....
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....uments do not pertain to the assessee. The statement made as per record has also been supported by an affidavit. These facts are found recorded in the assessment order itself. Alongwith the denial supported by an affidavit the assessee as per its reply dated 26.11.2010 is also found to have provided the assessment details of the said company along with the names of the Directors and the mailing address of the said concern. The detailed reply on record has also been reproduced in the earlier part of this order and stands unrebutted on record. These facts are also evidenced from para 6 of the assessment order and reproduced hereunder:- 6. "During the course of survey, loose papers were found and impounded from the business premises of the assessee company as Annexure A-2. At page no.11 to 14 of Annexure A-1, these pages are in respect of transactions with M/s Smridhi Sponge. The assessee was asked to furnish the details of these entries on each of the pages and correlate with the books of accounts. In response, the assessee submitted that these do not pertain to it, and has filed affidavit in support of its contention. The assessee has also submitted the assessment details of M/s Sm....
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....sent at the fag end of the assessment proceedings as per submissions of the assessee before the CIT(A), reproduced in the earlier part of this order. The copies of Directors Report, the Auditors's Report; Copy of form 23ACA of M/s Smridhi Sponge Ltd.; copy of Form 20B along with annual return filed before the ROC disclosing its authorized share capital etc. were also filed; details of registered office and the details of authorized share capital of M/s Smridhi Sponge Ltd. and M/s Galaxy Exports (P). Ltd. as per record at pages 70 to 123 were also filed. The record shows that the CIT(A) confronted the said evidence to the AO who as per record issued notice u/s 133(6) to the changed address at Kolkata of M/s Smridhi Sponge Ltd. and also to the branch/factory premises at Jamshedpur. These notices as per record also came back unserved. This fact was duly confronted to the assessee. The record shows that in its re-joinder to the Remand Report the assessee vide its reply dated 13.02.2013 has again carried out a fresh search on the web from the ROC site etc. and stated that the details of registered office and share capital of M/s Smridhi Sponge Ltd. as per page 128 to 132 along with the ....
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.... from the director why the same was informed now on 13.01.2013, and was not attached with, when the application under Rule 46A was filed at the appellate stage on 22.10.2012, when he provided the new address of Smridhi Sponge at Jamshedpur and the copy of Rule 46A application was filed with the AD and AD was requested to make the inquires with the Smridhi Sponge at their new address at Jamshedpur. 7.4 The so called alleged confirmations letter dated 11.10.2012 having procured from the director of Smridhi Sponge and not filed with the undersigned with the Rule 46A application on 29.10.2012 and even on any of the subsequent dates of hearings viz. 12.12.2012, 14.01.203, 28.01.2013 and 12.01.2013, clearly shows that all is not well the appellant state of affairs, as on the one hand he states that they had no dealing with Smridhi Sponge and on the other hand they had the new addresses as well as able to contact the Director of Smridhi Sponge." &nbs....
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....it may, in any proceeding under this Act, be presumed- (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested. (2) Where any books of account, other documents or assets have been delivered to the requisitioning officer in accordance with the provisions of section 132A, then, the provisions of sub-section (1) shall apply as if such books of account, other documents or assets which had been taken into custody from the person referred to in clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1) o....
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....; Copy Of the extracts taken from internet enclosed." 1. "Further enquiry on internet sites reveals following details regarding one of the name appeari....
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.... (emphasis provided) 10.6. A perusal of the same shows that the assessee denied having any transaction with M/s Smridhi Sponge Ltd. and made a claim that it may have belonged to someone who may have visited the assessee's office. The present case is not only a case of simple denial but the denial is on affidavit. The assessee as per record is also found to have made efforts to trace the said concern. The internet search conducted admittedly as per record has made a mention of spec....
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....culars available in the public domain procured through the internet searches from the ROC and the official income tax sites as per print outs of the downloads are relied upon. The fact that these were unimpeachable third party evidences that too from the official government sites goes without saying. In these facts, merely sending notices to the addresses provided on the ROC site cannot be said to be rebutting the evidence on record namely that M/s Smridhi Sponge, assessed to tax in a specific jurisdiction in Kolkata manufacturing M.S.Ingot and Sponge Iron, having specific address as per ROC site receiving payments in cash and cheque as per the seized documents qua which presumption u/s 292C operates towards their correctness; wherein two specific cheques were honoured by Punjab National Bank at Jamshedpur whose account number was "1021"; , branch code and factum of the payments made on behalf of the M/s Galaxy Exports as the same "Galaxy" found mentioned at Paper Book page 47 (Seized documents) also dealing in "Iron Ore" were provided; where the names and addresses of the Directors of both the companies; their authorized share capital; details of their balance sheets as per ROC si....
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....buttable onus and on facts the same has been discharged. The onus thus having shifted to the department castes a duty upon the Revenue to act upon the information made available to them and take action thereon. As far as the assessee is concerned, the income has wrongly been assessed in its hands. There is nothing in the seized documents or anywhere also on record to show that the assessee was dealing in undisclosed transaction with M/s Smridhi Sponge. The judgements relied upon by the tax authorities and the parties before the Bench proceed on facts peculiar to their own as such do not require a detailed mention. Suffice it to say that in the case of Sonal Construction, the document under question was not a computer print out but a handwritten document which was claimed by another partner to be in the handwriting of another partner; the handwritten document was accepted as relatable to the assessee by the other partner who claimed to recognize the handwritten note reflecting undisclosed transaction in specific projects of the said company. Similarly in the facts of Hiren Vasantlal Shah, the assessee accepted the seized document as rough working in his own handwriting however it wa....