TaxTMI 
TaxTMI 
2016 (4) TMI 551
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....ar Trehan Rs. 20 lacs , to whom notices were subsequently issued u/s 133(6) which remained uncomplied with and amounts remain unexplained; and the CIT(A) relied on entirely different submission of the assessee that alleged loans were raised from persons other than these. 2) The CIT(A) has erred in deleting the addition of Rs. 1,06,99,740/- made by AO by estimating the commission income @1% of total purchases of Rs. 1,06,99,74,009/- by establishing that the assessee was not running regular business but only providing accommodation entries since assessee failed to substantiate sales; taken together with the fact that negligible expenditure has been shown to be incurred in a business of purported sale of Rs. 180 crore, and in view of it being factually ascertained that there was no/ negligible regular business activity being carried out by the assessee." 2. The brief facts of the case are that the assessee is a partnership firm comprising of two partners, Shri Anand Swaroop Malik and Smt. Ranjna Malik since 01.04.2006. The assessee firm is stated to be engaged in the business of bullion, gold, silver jewellery, ornaments and also in diamond jewellery and precious stones. H....
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....he assessee is engaged in providing accommodation entries and added 1% as commission amounting to Rs. 1,06,99,740/- on total purchases made. 4. Further, the Assessing Officer found that one of the partners Shri A.S. Malik has introduced fresh capital of Rs. 36 lacs. On being asked for the source of capital introduction, the assessee submitted that the source of capital of Sh. Anand Swaroop Malik are loans from M/s PRJ Automobiles Pvt. Ltd, (Rs. 14,00.000), M/s BNT Associates Ltd. (Rs.7,00,000/-) and Captain Vijay Kumar Trehan (Rs.20,00,000/-). Notices u/s 133(6) of the I.T. Act were issued to these parties for verification of loan transactions with the partner or assessee. The requisite informations have not been received from M/s PRJ Automobiles Pvt. Ltd. and M/s BNT Associates Ltd. directly. The notice u/s 133(6) issued to M/s BNT Associates Ltd. has received back unserved with the comments "no such company at such address". However, as per explanation of entries of saving account of Sh. A. S. Malik with India Overseas Bank submitted by the AR of the assessee, Sh. Malik received Rs. 7,00,000/- + Rs. 7,00,000 from PRJ and Rs. 7,00,000/- from BNT out of which Rs. 20,95,000/- was....
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....of the appellate order. For the sake convenience, the relevant paras of the impugned order are reproduced as under : 8.1. It is observed that the Assessing Officer has added part of the capital introduced by the partner, Sh. A.S, Malik, by treating it as unexplained income of the firm routed through its partner, on the ground that the assessee could not satisfactorily explain the sources of entries in the bank account of the partner. This, however, cannot be taken as a ground for making such addition in the hands of the firm in the absence of any cogent reasons or evidence to the contrary brought on record and in view of the well settled position of law on this issue. 8.2. It has been submitted by the Ld. Counsel in this regard as follows: a) During the course of the assessment proceedings, the Assessing Officer enquired on addition to partner's capital a/c and asked for certain confirmations which were duly submitted. b) Copy of bank statement of the partner, Mr. Anand Swaroop Malik, from where the amounts were given to the appellant firm was also duly submitted. c) The AO asked for details of following credit entries, which were du....
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....ssed as undisclosed income in the hands of the firm. If the AO doubted the genuineness of the source of the partners, he should have considered the same in the hands of the partners only and not in the hands of the firm." * In CIT vs. Metachem Industries (2000) 245 ITR 160 (MP), it was held: "Once the firm has satisfactorily explained that the credit entries in the name of partners represents the amount invested by them the burden of proof stood discharged and the amount cannot be treated as income of the firm under s. 68." * In Smt Shanta Devi vs. CIT (1998) 171 ITR 532 (P&H), it was held: "Books have to be the books of the assessee himself and not of any other assessee. Addition in respect of cash credit found in the books of partnership firm in which assessee was a partner, cannot be made in the assessee's hands." * In CIT vs. Value Capital Services Pvt. Ltd. (2008) 307 ITR 334(Del), the Hon'ble High Court of Delhi has held that: "There was an additional burden cast on the revenue to prove that the investment made by the applicant actually emanated from the coffers of the assessee so as to enable it to be treated as undisclose....
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....e, and in view of it being factually ascertained that there was no/ negligible regular business activity being carried out by the assessee. 12. We have heard the ld. DR and perused the orders passed by the authorities below and we are of the view that the ld. CIT(A) has adjudicated and decided the issue involved in ground No. 2 from para No. 7.1 to 7.5 from page No. 18 to 29 of the impugned order. For sake of convenience, relevant paras of the impugned order are reproduced as under : "7.1. It is observed that the Assessing Officer has made the addition @ 1% of the total purchases made by the assessee by assuming that the assessee was engaged in the business of providing bogus accommodation entries, primarily on the ground that most of the sales were made in cash and the assessee had deposited cash in its bank account before making the payment by cheque against the purchases. This, however, cannot be taken as a ground, let alone a sufficient one, for making such addition in the absence of any cogent reasons or evidence to the contrary brought on record. It is also a well settled position of law that the AO cannot proceed to make an arbitrary addition and base his conclus....
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....osure of labour charges separately in the Profit & Loss A/c. This practice is prevalent amongst all bullion and jewellery traders including the appellant. Hence, the Ld. AO's basis of opinion is factually wrong. No details of cash sales made to customers. The Ld. AO stated that the appellant was not able to give details of persons to whom cash sales were made amounting to Rs. 105 crore. This is the normal trading pattern of bullion traders or jewellers, or for that matter, any retail trader. Also, there is no requirement under any law to have the details of such customer. Whenever a customer goes for buying any article from any retail or wholesale shop, store or mall, the owner gives him the desired product on receipt of cash. If the shopkeeper wants to have details of the customers to whom he makes cash sales, it would not be feasible at all. In the appellant's case too, majority of sales is in cash, and in cash sales, the identity of the customer cannot be known to the appellant, as the goods are delivered on receipt of cash. Invariably in all cash sales of jewellery or bullion, be it banks, MMTC or any other big jeweller, more than 95% of the sale is in....
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.... S. K. Impex 1241, Gali Kucha Bagh, Chandni Chowk, Delhi 110006 13,39,77,226/- 5 Gagan Jewellers 11/2426, Beadon Pura, Karol Bagh, New Delhi 110005 27,56,638/- 6 Others (below Rs. 25 lakh each) 53,34,167/- Total 106,99,74,049/- The following facts prove beyond doubt that the appellant has made purchases, which are all genuine: The firm is established since more than last 30 years and doing the same business since inception. The details of purchases made (party-wise) were filed with the Ld. AO as above, which he never doubted and even sent enquiries u/s 133(6) to all and most of them responded to the same. The appellant has banker's cash credit limit of more than Rs. 5 Crore and bank officials visit the premises of the appellant's premises on regular basis for inspection etc. and the stocks are hypothecated to the bankers. If purchases are held bogus as stated by the Ld. AO, then how are the bankers hypothecating the stocks, as the stocks are there as a result of purchases only. Enquiries were made by the AO from the bankers and nothing adverse was found. All payments were made by A/c....
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.... It has, thus, been submitted that considering all the above submissions and especially as all the parties have confirmed their transactions and all payments were made by a/c payee cheques, the purchases are proven beyond doubt. Enquiry by the Inspector. The Ld. AO formed his opinion on the basis of inspector's report too. However, it is submitted that the report of the inspector is totally false and without any basis, which is substantiated as below; The inspector visited 1st Floor of the premises at 161, Hardhiyan Singh Road, Gaffar Market, Karol Bagh, New Delhi, and found no business activities. The inspector is correct that there was no business activity at the 1st Floor, as the business activities of the appellant are not at 1st floor but are at the 2nd floor. Hence, the total report of the inspector is factually wrong as he did not visit the premises of the appellant at all and gave a wrong report. Recently taken photographs of the premises of the appellant are enclosed to substantiate that business is being carried at second floor. Photographs of the related concern (M/s Anishka Jewellers) at ground floor are also enclosed to sub....
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....ka Jewellers is a sole proprietorship concern of Mr. Pankaj Malik, son of partner of the appellant. M/s Anishka Jewellers is registered with MMTC Ltd., a government undertaking, under OGL Gold scheme. The appellant is not registered with MMTC Ltd. under OGL Gold scheme and it purchases gold from MMTC Ltd. through M/s Anishka Jewellers. As M/s Anishka Jewellers made certain purchases on behalf of the appellant from MMTC Ltd., it requested the appellant to make the payment for the same directly to MMTC, which the appellant did. In fact, most of the payments were made by the appellant directly to MMTC for purchase of gold. The payments have invariably been made through account payee cheques only. Income Tax department in the case of M/s Anishka Jewellers, Prop. Pankaj Malik, has accepted its sales, vide its assessment order u/s 143(3) for A.Y. 2008-09. If its sales are held genuine by IT department, how can the corresponding purchases be held as non-genuine? Copy of the assessment order passed u/s 143(3) in case of M/s Anishka Jewellers is enclosed to substantiate the same. It has, thus, been submitted that in view of the above facts, all the purchases from ....
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....nts of the appellant are duly audited by a chartered accountant, to which the AO never objected or held in doubt. Books of account and sales invoices were produced before the AO which he never rejected or held in doubt. Bankers advanced CC limits to the appellant to the tune of Rs. 5 Crore, and the AO made enquiries from the bankers and found nothing adverse. Details of quantity-wise purchases/sales were duly audited under Form 3CD, which also the AO never held in doubt. The AO sent various enquiries and notices u/s 133(6) to creditors, employees, bankers, etc. and all responded and the AO found nothing adverse. It has further been submitted that the Ld. AO relied on the inspector's report which was factually incorrect as he had visited wrong premises, as brought out earlier. Further, the Ld. AO has not even mentioned any provision of law under which the income was estimated by him. The Ld. AO estimated income at 1% of the purchases/ though almost all purchases were made by a/c payee cheques and virtually all of them have confirmed their transactions with the appellant, and major payments were made to MMTC Ltd., a government undertaking. 7.4.....