TaxTMI 
TaxTMI 
2019 (6) TMI 650
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....9,520 2005-06 01. 11. 2005 19,44,010 2006-07 31. 10. 2006 39,88,400 2007-08 - 78,19,910 2008-09 07. 10. 2008 89,99,530 2009-10 02. 09. 2009 1,37,83,200 2010-11 01. 09. 2010 9,49,98,660 2. 1. A search u/s 132 was carried out in assessee's case on 15. 10. 2009. During the course of search, certain incriminating documents were found and seized by the Income Tax department. Consequent to the search action, the AO issued notice u/s 153A of the Act and completed the assessments u/s 143(3) r. w. s. 153A of the Act on total income as under : A. Y. Total Income Declared u/s 153A of the Act (Rs. ) Total income assessed by the AO (Rs. ) 2004-05 9,19,520 36,92,753 2005-06 81,44,910 97,94,846 2006-07 1,21,31,540 1,49,00,948 2007-08 2,10,19,910 2,51,73,613 2008-09 3,82,99,530 5,83,09,459 2009-10 4,85,01,045 7,48,30,872 2010-11 9,49,98,660 25,06,85,958 Subsequent to the completion of assessments, the assessee went on appeal before the CIT(A) and the Ld. CIT(A) allowed the appeals partly. Against the order of the CIT(A), the assessee filed the appeals before the....
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....in the case of search assessments, the AO is not permitted to make the additions without having the incriminating material. Therefore, we find force in the argument of the Ld. AR, hence, the additional ground raised by the assessee is admitted. 6. Advancing the arguments on additional ground, the Ld. AR submitted that the AO made the additions from the A. Y. 2004-05 to 2008-09 which were not made on the basis of any incriminating material but made on assumptions or from the information already available in the books of accounts or on the basis of presumptions and assumption. The Ld. AR further submitted that the quantum of addition made in each A. Y. from the A. Ys. 2004-05 to 2008-09 without having seized material is summarized as under : A. Y. Addition (Rs.) 2004-05 27,73,233 2005-06 16,30,835 2006-07 26,69,408 2007-08 41,53,703 2008-09 2,04,25,430 6. 1. The Ld. AR argued that in the above assessments for the A. Y. 2004-05 to 2008-09, the additions were made either from the information already available in the assessment record or by assumptions and presumptions. The Ld. AR further argued that in respect of interest disallowance and the c....
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....ome, the Ld. DR argued that it is not correct to say that the AO made the assessment in respect of undisclosed business income on pure assumptions and presumptions. During the course of search, the AO found certain irregularities and collected the information leading to conclusion that the assessee is involved in unaccounted sales, therefore, the Ld. DR vehemently supported that the estimated undisclosed business income is made on the basis of incriminating material and the information which was collected by the department during the course of search. The Ld. DR further argued that had the search was not conducted, the department would not have come know the issue of undisclosed sales. Therefore, the Ld. DR argued that undisclosed income estimated by the AO required to be upheld as the same was made on the basis of incriminating material or information available at the time of search. 8. We have heard both the parties and perused the material placed on record. At the outset, the issue relating to undisclosed business income which is heavily pressed by the Ld. DR required to be examined to find out whether the addition is based on incriminating material or not? The facts of the c....
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.... office of M/s Bharathi Soap Works. (ii) M/s Bharathi Soap Works is not maintaining any stock register of packing material. (iii) There is no uniformity in the consumption of electricity vis-à-vis production of finished goods. (iv) Chemicals allegedly traded by M/s Annam Traders and M/s Meenambal Agencies were at the factory premises of M/s Bharathi Soap Works. (v) Excess cash balance was found the day of search, for which the appellant could not give any satisfactory reply. (vi) During the course of search, there was shortage of raw material and excess quantity of finished goods, which suggested unaccounted production. From the above observations, the AO believed that the trading activity in the name of M/s Meenambal Agencies is a mere façade and the raw material traded in the name was utilized by Bharathi Soap Works for unaccounted manufacture and sale of soaps. No other evidence or the incriminating material was available during the course of search indicating the sales outside the books of accounts. In the case of Annam Traders and M/s Meenambal Agencies, no defects were noticed either by the AO of the assessee or th....
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....found during the course of search with regard to suppression of sales and the AO also did not give any finding by conducting independent enquiries basing on the sales tax assessment order. Therefore, the additions made by the AO relating to the suppression of sales, cash credits and the disallowance u/s 40(a)(ia) cannot be held to be based on incriminating material. 8. 3. With regard to the addition of Rs. 12,27,488/- for the A. Y. 2006-07, the assessee had agreed for the addition in the original assessment which was not disputed by the assessee during the appellate proceedings. Therefore, we hold that the items of interest disallowance, cash credits, estimation of undisclosed business income, disallowance u/s 40(a)(ia), addition towards suppression of sales and agreed additions are not based on the incriminating material found during the course of search. 9. The next issue is whether the AO is permitted to make the addition u/s 153A without the basis of incriminating material in the case of completed assessments. As already discussed earlier in this case, search was conducted u/s 132 on 15. 10. 2009 for the A. Y. 2004-05 to 2008-09. The assessee filed the return of income an....
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....eld as under : 25. We therefore hold that the scope of the proceedings u/s. 153A in respect of assessment year for which assessment have already been concluded and which do not abate u/s. 153A of the Act, that the assessment will have to be confined to only incriminating material found as a result of search. The next aspect to be considered is as to when returns of income filed u/s. 139 of the Act are shown to have been accepted without an intimation u/s. 143(1) of the Act or without any notice issued u/s. 143(2) of the Act within the time limit contemplated by the proviso thereto, can be said to be assessment proceedings concluded that have not abated u/s. 153A of the Act. Section 153A of the Act, uses the expressing "pending assessment or reassessment". When a return is filed and when neither an acknowledgement or intimation u/s. 143(1)of the Act is issued nor a notice u/s. 143(2) of the Act is issued within the time limit laid down in the proviso to Secc. 143(2) of the Act, the proceedings initiated by filing the return are closed. In the present case, the period for issuing the notice u/s 143(2) elapsed. Therefore the process has attained the finality which can only be....
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....itted to make the disallowance without having the supporting incriminating material in the case of completed assessments. Accordingly, the additions made by the AO for the A. Y. 2004-05 to 2008-09 relating to the interest disallowance, cash credits, estimation of undisclosed business income, disallowance u/s 40(ia) and the addition towards suppression of sales are unsustainable and accordingly deleted. Appeals of the assessee for the A. Ys 2004-05 to 2008-09 are allowed. I. T. A. No. 173/Viz/2014, A. Y. 2009-10 10. In this appeal, the assessee raised four grounds in total. Ground No. 1 is related to the disallowance of interest of Rs. 32,379/-. The AO during the assessment proceedings found that the assessee had claimed the interest of Rs. 32,379/- on loan of Rs. 10 lakhs taken from Sundaram Finance Ltd on 03. 06. 2005 which was used for purchase of property admeasuring 703 sq. yds at Brodipet, Guntur for a sum of Rs. 30,52,000/-. The AO asked the assessee as to why the expenditure of Rs. 32,379/- should not be disallowed and in response, the assessee submitted that the said site was used as parking place for vehicles, stock boxes, scrap etc. , hence, argued that the expendit....
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....O cannot conclude that the loan is not genuine and credit worthiness is not proved. The Ld. CIT(A) is also incorrect in holding that mere submission of PAN and confirmation letter is not sufficient to hold that the loan is genuine. Once the confirmation letters are placed before the AO, it is for the AO to establish that the creditor has no capacity to make the advance and the loan is ingenuine. It is also incorrect to hold that every assessee should run behind the creditors and parade them before the AO after furnishing the confirmation letters. Therefore, having filed the confirmation letters with PAN and the address, we hold that the assessee has discharged the burden and there is no case for making addition. Accordingly, we set aside the order of the CIT(A) and delete the addition made by the AO u/s 68 of the Act. Accordingly, the appeal of the assessee on this ground is allowed. 14. The next issue is the addition u/s 68 relating to loans taken from the following creditors. S. No Date Cash/DD/Cheque Name of Creditor Amount Rs. 1 16. 05. 2008 Cheque Chakka Chalamaiah 100000 2. 09. 04. 2008 Cheque Sri Balaji Marketing Services 1,....
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....d. 17. Ground No. 3 is related to the addition towards un accounted business income of Rs. 55,86,630/-. During the assessment proceedings, the AO observed that the assessee is engaged in the business of manufacturing of soaps and washing powders in the brand name XXX as well as other names like Blue Diamond and Saregama etc. through the proprietory concern M/s Bharathi soap works. The assessee is also major partner in the firm M/s Annam Traders with 75% share. Annam Traders has also given its address as factory premises of M/s Bharathi Soap Works. Therefore, the AO held that the soap material and chemicals purchased by Annam Traders and Meenambal Agencies were used by Bharathi Soap Works for manufacturing soaps and detergents and finished products in the form of soaps, washing powers etc. were sold outside the books of accounts. The facts are discussed in details in this order in para No. 8. 17. 1. Since the AO viewed that the assessee is indulging in sales outside the books of accounts, the AO called for the explanation by issue of show cause notice as to why the income on sales outside the books of accounts should not be estimated and the assessee filed the reply objecting ....
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....ga Prasad More 110713 82 ITR 50 (SC) and Sumathi Dayal & Vs CIT {1995} 214 ITR 801 (SC), it is considered that chemicals traded by N/s Annam Traders M/s Meenombai Agencies amounting to Rs. 3,93,33,219/- are utilized by assessee for unaccounted production. Grass profit on this amount (c) 50% which is the rate admitted by assessee is applied to arrive at unaccounted income Rs. 1,84,86,613/- of assessee for the year. It is added to taxable income of assessee for the year. In view of discussion prima facie assessee has concealed his particulars of income, furnished inaccurate particulars of income for which penalty proceedings u/s 271(1)(c) are initiated separately. " In the same manner the AO made the addition Rs. 1,05,91,037/- for the A. Y. 2010-11. 18. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld. CIT(A) prima facie agreed with the view of the AO that the assessee has made the unaccounted sales, manufactured the unaccounted production out of the purchases made from the Annam Traders and Meenambal Agencies. However, the CIT(A) reduced the estimated profit at Rs. 55,86,630/- for the A. Y. 2009-10 and Rs. 32,13,706/- for the A. Y. 201....
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....clams made by the appellant during the appellate proceedings are very relevant. The appellant has stated as under: i) In the regular books of. accounts of M/s Bharathi Soap Works, the price of raw material consumed is net of CENVAT, which is in the region of 12% to 15% . Thus, , gross profit reflected in its trading account is arrived after taking into account the CENVAT credit. For unaccounted purchases/trading purchases, there would be no CENVAT credit and hence gross profit percentage would be reduced by the amount of CENVAT credit. ii) Unaccounted sales would also be through the regular network of dealers, distributors and retailers and hence expenditure on saIes, commission etc, would also have to be incurred, which has not been taken into account by the Assessing Officer. iii) The Assessing Officer has also not taken into account that some of the chemicals carry VAT @5% to 12 ½ %, which should be deducted from the profits estimated. iv) M/s Annam Traders have filed returns of income and shown net profit of over 1% in various years. No credit for the same has been given. v) Finally, the appellant has stated that while admitti....
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....n regarding VAT on sales of chemicals is erroneous in that, unaccounted sales do not have an element of sales tag or VAT since they are not being routed through the regular books of accounts. Keeping the above in view, the G. P. rate adopted by the Assessing Officer is being reduced by 15% , i. e. 12% CENVAT + 1% net profit of firms + 2% sales expenses. Finally, the appellant has stated that he should have been given credit for additional income offered u/s132(4) as well as in the return of income on account of the business of Bharathi Soap Works. The Assessing Officer has also agreed that this additional income admitted by the appellant is as a result of evidence gathered regarding unaccounted production and has in fact relied on this as critical evidence. Hence, the absence of documentary proof has to be juxtaposed against the attendant facts and circumstances, which point towards discrepancies in the contention of the appellant. As discussed above, the probabilities of the case indicate that chemicals shown as purchased by M/s. Annam Traders and M/s. Meenambal Agencies have actually been utilized by M/s Bharathi Soap Works, whether for production or otherwise, Hence, income on a....
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....ther in the factory premises or in the business premises of the assessee evidencing the unaccounted sales made by the assessee. There was no evidence of suppression of sales by M/s Annam Traders or Meenambal Agencies found during the course of search or survey operations conducted in the business premises of the assessee. M/s Meenambal Agencies and Annam Traders were assessed to tax and there is no evidence found by the AO or defects found by the AO to indicate the unaccounted sales. Merely because of minor discrepancies found which are very normal in the business, adverse inference cannot be drawn which is prejudicial to the interest of the assessee. The assessee has already explained that goods related to Annam Traders and Meenambal Agencies are kept in the sheds in front side of the area of Bharati Soap Works, where different godowns were located. The godowns of Annam Traders, Meenambal Agencies and of the assessee are clearly demarcated as identifiable. Bharati Soap Works godowns are situated in the far behind area of the shed, the observation of the AO that the goods relating to Annam Traders and Meenambal Agencies were delivered at the premises of the assessee of M/s Bharati ....
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....Meenambal Agencies were diverted to the assessee outside the books of accounts should lead to either rejection of books of accounts in the concerned assessments or should result in addition on account of unaccounted sales in the hands of respective persons, but not in the hands of the assessee. The inference of the AO that the assessee is using the raw material of Annam Traders and Meenambal Agencies leads to conclusion that Annam Traders and Meenambal Agencies are either transferring or selling the goods to the assessee outside the books of accounts which should lead to inference that Annam Traders and Meenambal Agencies are suppressing the sales or over stating the purchases. No such fact was brought on record by the AO. If there is such eventuality, the assessments of Annam Traders and Meenambal Agencies required to be modified basing on the evidences. In the instant case, the AO observed that there is shortage of raw material and excess stock of finished goods which is not uncommon since the raw material is used for finished product. Since the assessee is not maintaining the day to day stock register, shortage of raw material leads to excess quantity of finished goods. Short....
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....owards unexplained business income. The issue is discussed in detail in appeal No. 173/Viz/2014 for the A. Y. 2009-10 in this order and allowed the assessee's appeal on this ground. Accordingly, the appeal of the assessee is allowed as discussed in detail in A. Y. 2009-10 and the order of the Ld. CIT(A) is set aside. 25. Ground No. 3 is related to the confirmation of addition of Rs. 26,00,000/- by the Ld. CIT(A) out of total addition of Rs. 1,91,95,000/- towards unexplained cash credits. During the assessment proceedings, the AO found the cash credits to the extent of Rs. 1,91,95,000/- and was brought to tax as income from other sources, since the assessee failed to furnish the evidence with regard to genuineness, identity and the credit worthiness of the creditors the AO made the addition u/s 68 of the act. On appeal before the CIT(A), the Ld. CIT(A) confirmed the addition of Rs. 26,00,000/- consisting of Rs. 15,00,000/- loan taken from M/s Mangal Kiran Securities Ltd. and Rs. 11,00,000/- received from M/s Sri Venkateswara Agencies, M/s Sreedhar Agences, Smt. K. Ammani, M/s Sarveshwara Agencies and M/s Kalyanaram Agencies since the assessee failed to furnish the strong evidence....
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....nd silver items and sustained the addition of Rs. 24,19,000/- as unaccounted income. 29. Against the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. 30. We have heard both the parties and considered the submissions made by the assessee as well as the department. Though the assessee has not raised the ground for allowing telescopic benefit of the unexplained cash credits, gold and silver, unexplained investment in jewellery and silver articles it is a fact that the assessee has admitted the additional income of Rs. 13. 21 crores and the Ld. CIT(A) allowed the telescopic benefit for unexplained cash found representing Rs. 11. 12 crores and the unexplained jewellery items for Rs. 1. 10 crores and the balance remained was Rs. 99,00,000/- for which the assessee is entitled for application of income. The Ld. DR has objected for telescopic benefit since the ground was not raised. The Ld. AR's argument cannot be rejected since the assessee has raised a general ground also stating that any other ground may be urged at the time of hearing. Therefore, the argument made by the assessee required to be addressed. In the instant case, the Ld. CIT(A) sustained the ad....