AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 650
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Tribunal. I. T. A. Nos. 168-172/Viz/2014, A. Y. 2004-05 to 2008-09 The assessee filed the appeals challengin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 cash credits, the expenditure is debited to the P&L a/c and the information is available in the books of accounts. Estimation of undisclosed business income was also not based on any seized ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch, 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 case as available from the Ld. CIT(A)'s order in para No. 8. 7. 1. are as under: The appellant through its proprietary concern M/s Bharathi Soap Works produces soaps, washing powders etc. u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....;-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 the concerned AO in the books of accounts maintained by the Annam Traders and Meenambal Agencies. No material was found during the search evidencing the suppression of sales or inflation of purchases. The Ld. CIT(A) also in his order in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g 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 and the time limit for issue of notice u/s 143(2) are as under : A. Y. Date of Filing the return of income Time limit for issue of notice u/s 143(2) 2004-05 01. 11. 2004 By 01. 05. 2005 2005-06 01. 11. 2005 By 01. 05. 2006 200....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch. 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 assailed u/s 148 or 263 of the Act. It can thus be concluded that making of an addition in an assessment under section 153A of the Act, without the backing of incriminating material, is unsustainable even in a case where the original assessment on the date of search stood completed by absence of issue of intimati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 expenditure is allowable as business expenditure. The AO observed that the factory premises located at Gorantla village which is 8 km away from the vacant site purchased by the assessee, hence, the explanation of the assessee was unbelievable and no supporting evidence was furnished by the assessee. Therefore, the AO disallowed the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....editor 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 1,00,000 3. 30. 05. 2008 Cheque Sri Venkateswara Agencies 1,00,000 Total Rs. 3,00,000 During the course of assessment proceedings, the AO has asked the assessee to prove the genuineness of the cash credits, but the assessee failed to furnish the evidence to prove the identity of the creditor, credit worthiness and gen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 for the addition on account of unaccounted sales and submitted that no unaccounted sales were made by the assessee. Disbelieving the reply filed by the assessee, the AO held that the raw material and the chemicals traded by Annam Traders and Meenambal Agencies were used by the assessee and the resultant finished product was sold outside the books of accounts. The AO comput....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4,86,613/- 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. 2010-11. For the sake of clarity and convenience, we extract relevant part of the order of the Ld. CIT(A) which reads as under : para 6. 6 to 6. 7 "6. 6. I have perused the assessment order as well as the submissions made by the appellant. It is true that the search and seizure action at the premises of the appellant including the factory of M/s. Bharathi Soap Works did not yield ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ses/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 admitting undisclosed income during his statement u/s 13(4), the appellant offered Rs. 1. 97 crores as undisclosed income from his business (M/s Bharathi Soap Works) for various years and this undisclosed income was on account of manufacture of soaps and was related to the discrepancies in power consumption, deficit stock of raw material and excess quantity of finished goods detected during the course of search. 6. 7. Thus, I am in agree....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 account of such additional chemicals purchased should be taxed in the hands of M/s Bharathi Soap Works. However, while determining income from unaccounted production, credit for such income already offered in the return shall have to be given. For the present assessment year, the chemical purchases in the books of M/s Annam Traders and M/s Meenambal Agencies were Rs. 2,11,82,075/- The Assessing Officer has adopted G P rate at 50% of the sam....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y 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 Soap Works is incorrect. Merely because of some cash credits, non maintenance of daily stock register, lack of uniformity in consumption of electricity, excess cash balance, shortage of raw material and excess finished goods does not lead to unaccounted sales in the hands of the assessee. The Ld. AR argued that the entire addition made by the AO is pure guess work and unsustainable, hence requested to set aside the order of the Ld. CIT(A) an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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. Shortage of raw material and excess quantity of finished goods should have been addressed by the AO independently in the hands of the assessee for the respective assessment years. Similarly, non-maintenance of day to day stock register and packing material should have been a good reason for rejection of books of accounts and estimation of income. The AO did not bring on record any case which is having more profit than the assessee and the AO has not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 to support the credits which is agitated in this appeal. 26. During the appeal hearing, the Ld. AR submitted that during the search and seizure action conducted by the department, the assessee has admitted additional income of Rs. 13. 21 crores to cover the cash found during the course of search. Actual cash found was Rs. 11,12,89,350/- and out of the balance amount of Rs. 2. 09 crores, the Ld. CIT(A) allowed telescopic benefit of Rs. 1. 10 crore....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 addition of Rs. 26 lakhs representing cash credits and Rs. 24,19,000/- relating to unexplained investment in jewellery and silver articles. The assessee had admitted the additional income of Rs. 13. 21 crores and the Ld. CIT(A) has allowed the telescopic benefit for cash found and seized amounting to Rs. 11. 12 crores and gold and silver items for 1. 12 crores leaving the balance of Rs. 98 lakhs. On close scrutiny of the Ld. CIT(A) order it is observed tha....