2018 (8) TMI 1199

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.... "Reasons for the belief that income has escaped assessment: As per the information placed on records, since the digital evidence establishes that M/s Murudeshwar Ceramics Ltd. inflated expenses using the assessee's name as under :- Labour charges paid : Rs.4316170/- Transport charges paid : Rs. ---   The cash book of the assessee reveal that expenses were incurred in cash and are supported by self-made vouchers only. Further, during the search, copies of return of income of nine concerns which includes M/S SHRINGAR ENTERPRISES, the assessee, their original PAN cards, blank cheque books signed by partner, rubber stamps were found at the office of M/s Murudeshwar Ceramics Ltd at Murudeshwar Bhavan, 604-B, Gokul Road, Hubli. In his sworn statement Sri.M.I. Myakalmardi confirmed that the said nine concerns were subcontractors of M/s Murudeshwar Ceramics Ltd. He also confirmed that the activities of the said nine concerns are carried out from the office of M/s Murudeshwar Ceramics Ltd. Some of the partners of the nine concerns confirmed that they have not actually carried out any. activities. Thus, this concern received huge amounts....

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....in case of M/s. Murudeshwar Ceramics Ltd. on the basis of statements recorded during the search as well as during the assessment proceedings of M/s. Murudeshwar Ceramics Ltd. It is manifest from the reasons that what persuaded to the AO to form the belief is that during the search copies of return of income of 9 concerns including the assessee their PAN Card, Cheque books, rubber stamps were found at the office of the M/s. Murudeshwar Ceramics Ltd. and some of the partners of the 9 firms had admitted that no activity was actually carried out by them. However in the reasons recorded the AO has not mentioned that whether the partner of the assessee has accepted this fact of no activity was carried out. Rather the statement of Shri Karunakar Narayan Shetty partner of the assessee firm was recorded on 07.01.2014 in the assessment proceedings of M/s. Murudeshwar Ceramics Ltd. wherein the relevant questions put by the AO and answers given by the partner are reproduced as under: 14. Please explain the charges for supplying labourers to MCL? Ans: It can be divided into 4 or 5 categories consisting of the following: 1. Labour unskilled 2. Loading and unlo....

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....s Ans: Sri Mykalmaradi, helps us in maintaining the accounts as it is not a full time job. 20. Who looks after the payment to the labourers? Ans: Sri Mykalmaradi makes the payment to the labourers. Salary goes directly to the respective bank account, for a few people cash is paid as they do not have a bank account. 21. How many labourers do you supply to MCL in a year? Ans: It depends on the no. of shifts run by MCL it ranges between 50 to 300 per month. 22. Whether the bills & vouchers are being maintained for providing services to M/s. MCL Ans: Yes, bills and vouchers are being maintained for providing services to M/s MCL. 23. I am showing you the sworn statement recorded u/s 132(4) of the IT Act, 1961 from Sri M.I. Mykalmaradi son of Sri Irappa during the course of search proceedings at Murudeshwar Bhavan, Gokul Road, Hubli on 17/2/2012 ? Ans: In the above statement, regarding the business activities of Mookambika Enterprises, Mr. Mykalmaradi has stated as follows: " The partners are Sri Uday N Shetty and Sri Karunakar N Shetty. Even though the address mentioned in the bank account....

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.... above claim" In this regard furnish your explanation along with the details of contract work carried out by you and the details of amount received through fund transfers from M/s. MCL. Also explain the details regarding the revised working of the correct amount of contract & sub-contract amounts for different for the Assessment years mentioned above after reducing the fund transfer transactions with relevant bank entry or other evidence. Please furnish the ledger account copies of M/s. MCL for the above transaction as appearing in your books of accounts for the above period. Ans: I am enclosing the account copy of MCL in our books for the F.Y. 2005-06 to 2011-12. Q.No. 25: During the search at office premises at Murudeshwar Bhawan, 604-B, Gokul Road, Hubli on 17.02.2012, it was also found that the following documents / and details of various concerns pertains to your concerns were found at premises of Murudeshwar Bhawan a. Several blank and signed cheque leaves b. Acknowledgment for returns of income and Original Form 3 CD reports c. Original PAN Cards, rubber stamp seals, and letter heads of above concerns ....

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....o explained that since the entire activity was carried out at the premises of M/s. Murudeshwar Ceramics Ltd. therefore, the assessee was keeping all the relevant record at the said place though the registered office of the assessee was at Ashok Nagar, Hubli. In the answer to question no. 25 it is stated that the office at Murudeshwar Bhawan is the administrative office from which the business activity is carried out and hence the records were found at that place. It was also explained that the salary payment to the labours were made directly to their bank account and only in case of few people cash was paid. Similar situation was in case of transport expenses. The entire details of debit credit and balances were matching with the books of accounts of the assessee. Therefore it is clear that in the assessment proceedings of M/s. Murudeshwar Ceramics Ltd. the statement of the partners of the assessee was recorded and the entire evidence and record in respect of the business activity of the assessee including payment received and made by the assessee were produced. This evidence and fact was already available on the record when the notice u/s. 148 were issued by the AO on 27.03.2014. ....

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.... expenditure incurred in cash the AO made the said adhoc disallowance. Keeping in view the nature of activity carried out by the assessee right from development of quarry, transportation of clay through tractors, loading and unloading charges which is bound to incur some part of the expenditure on these activities in cash as paid to the labourers and tractor owners. 11. Hence in view of the peculiar facts of the case of the assessee the reasons recorded by the Assessing Officer have no direct and live nexus with the belief formed that the income assessable to tax has escaped assessment. A conclusive proof is not required at the stage of forming the belief but there must be some tangible material on the basis of which a reasonable belief can be formed that the income assessable to tax has escaped assessment. Accordingly, when nothing incriminating against the assessee was either found or recorded in the reasons for reopening leading to the formation of opinion that the assessee has not carried out any business activity and the entire claim of expenditure is bogus then the reopening on the basis of a general and vague statement as recorded in the reasons which even does not indica....