AI Drafter 
TaxTMI 
TaxTMI 
2019 (11) TMI 148
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....e hands of the assessee company for AY 2013- 14, 2014-15, 2015-16, 2016-17 and 2017-18. In case of AY 2017-18 there is also a separate addition other then the identical addition as mentioned in Ay 2012-13 , which would be dealt with by both the parties independent and separate manner as the facts and circumstances leading to that additions were different. For ascertaining the status of each of the assessment, it is important to note that on 21/3/2017 there was a search on this group including the assessee company. 3. Therefore, we cull out brief facts of the case which shows that assessee is a company [Appellant] who originally filed its return of income u/s 139 (1) of The Income Tax Act, 1961 (hereinafter referred to as The Act) on 31/10/2013 declaring income of INR 60285750/-. Assessment u/s 143 (3) of the act was made on 24/3/2015 at the assessed income of INR 245285750/-, wherein an addition of INR 185,000,000 was made because of unexplained share capital and share premium. 4. On appeal before the learned CIT-A, per order dated 31/3/2016, the above addition was deleted. Against this, ld AO did not prefer further appeal. So, assessment for assessment year 2012-13 was concl....
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.... confronted issue of share capital in his statement u/s 132 (4) of the act. In response to question number 22 in statement dated 22/3/2017, he stated that the amounts so received, as share capital is nothing but the assessee's own money that was routed back to the assessee company in the form of share capital. He submitted that assessee has paid through cheque to the depositors, who in turn made deposit of the above sum as share capital with the assessee company. The learned AO further noted that books of all these entities are maintained at the office of the assessee company, however, those books of accounts were not found. During the course of assessment proceedings, assessee was specifically asked to file the details of share capital and premium along with supporting evidences. On 14/11/2018, Assessee furnished chart showing name, address, correspondence address, share capital, share premium, total amount received from shareholders, confirmation, bank statement, ITR, . On verification of bank of these parties it was evident that it is own funds of the assessee, which has been routed through these parties by cheques, have been reintroduced in books of accounts of assessee as shar....
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....total addition of INR 175814034/- was made. 11. During the course of search, Managing director of the assessee company, Mr. Apresh Garg, in his statement recorded u/s 132 (4) on 22/3/2017, has admitted that it resorted to bogus sale/purchase transactions. The learned AO noted that assessee has undertaken these bogus sale and purchase transaction with these entities to inflate its expenses and suppress taxable income. Such suppression of income has been brought back in the form of share capital. He further noted that assessee has purchased in shell almonds from one company at an average purchase price of 4414 KG whereas the sale price to the same entity was 04/04/2004 KG on average and thus the loss of Rs. one per KG. Thus, the AO noted that Assessee Company is involved in bogus sales and purchases. There was also a shortage of stock by nearly INR 450 crore is against the stock recorded in it is of accounts. Thus 25% of the total purchase price from these parties were added to the total income of the assessee amounting to INR 353,24,93,127/-. 12. Thus, the total income of the assessee was assessed at INR 1 610849810/- against the returned income of INR 60285750/- per order dat....
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....ver up the profits of actual sale and purchases. Therefore he held that in such a situation, in the interest of natural justice, it would be reasonable that the trading results to the extent of sale and purchase from the fictitious entities are rejected u/s 145 (3) of the act and the gross profit on the same is estimated. Accordingly gross profit shown by the assessee from its books for different years/periods was recorded and for assessment year 2012-13 where the gross profit shown by the assessee was 16.20% from the other parties, he applied that rate on the sales with the alleged bogus parties and restricted the addition to the extent of INR 54,43,23,729/-. 16. Therefore, the learned AO as well as assessee both are aggrieved with the order of the learned CIT-A, are in appeal before us. 17. Similarly for AY 20-13-14 to 2017-18 following addition were made by the ld AO in assessment u/s 153A rws 143(3)of the Act for all these years:- 18. On appeal before the ld CIT (A) by the assessee , addition u/s 68 on account of share capital were confirmed and addition on account of bogus purchases was restricted to the extent of the appropriate profit rate on such purchases as per f....
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....m of Rs. 48.,20.0.0,000/- had already been examined and considered in the original assessment order passed u/s 143(3) of the Act dated 24-03-2015 wherein out of the sum of Rs. 48.20 crores, a sum of Rs. 18.50 crores was added to the income of the assessee and on appeal by the assessee, the preceding learned CIT(A) vide his order dated 31- 03-2016 had deleted the said addition made by the learned AO and the department had not filed any further appeal before the Hon'ble ITAT in this regard and as such, this issue has attained finality, therefore no addition could have been made in the absence of any incriminating documents. 3b. That on the facts and in law the Ld. CIT(A) erred in confirming the action of the learned AO in adding the sum of Rs. 96,39,740/- as commission paid for arranging the share capital money without any evidence found in the course of search evidencing any such payment, more so when the transaction does not relate to the present assessment year. 3c. That on the facts and in law, no incriminating material was found in relation to the share capital issued during the year to invoke the provisions of section 68 of the Act in an assessment made u/s 15....
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.... basis for the same nor any evidence having found in the course of search for drawing such adverse conclusions. 6b. That on the facts of the case and in law, the Ld. CIT(A) erred in treating the transactions with M/s Mahalaxmi Traders, M/s Shree Balaji Enterprises, M/s Vikas International, M/s Vishal Traders and M/s Rustagi Exim Pvt Ltd as bogus and thereby computing GP on the sales to them @ 16.20%, being the GP wrongly calculated by the AO on the other transactions accepted as genuine by him. 6c. That on the facts of the case and in law, the Ld. CIT(A) erred in accepting the incorrect GP @ 16.20% as calculated by AO and applying the same on the alleged bogus sales made to the alleged bogus parties. 6d. That on the facts of the case and in law, the Ld. CIT(A) erred in assuming that the appellant had made sales to other parties and had booked them in the name of bogus parties when no such evidence was found in the course of search nor such allegation was made by the learned AO in the assessment order. 6e. That on the facts of the case, the Ld. CIT(A) erred in not giving cognizance to the replies filed by the alleged bogus parties in response to t....
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....17-18 where in ground no 1 is with respect to addition of sales u/s 68 of Rs. 77.40 Crores deleted by the ld CIT (A). 23. The assessee has made an application for admission of additional ground of appeal for assessment year 2012-13 to A.Y. 2017-18 identically "Additional Ground of Appeal 1. That on the facts and in the circumstances of the case and in law, the CIT (A) erred in rejecting the books of 's account of the assessee by invoking section 145 (3) of the income tax act, 1961 in relation to the transactions with the alleged related party the order on the basis of surmises and conjectures although the search and seizure operation u/s 132 (1) in case of the assessee, the assessment proceedings and enquiry conducted by the AO u/s 142 (2) as the further enquiry conducted by the learned CIT (A) u/s 250 (4) did not lead to any adverse material whatsoever contrary to the entries recorded in the regular books of accounts of the assessee. 2. That further, the CIT (A) erred in invoking section 145 (3) of the act without complying with the mandatory requirement of law of issuing prior show cause notice and allowing the assessee and about opportunity of being heard....
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....entative submitted that assessment u/s 143 (3) is concluded by order dated 24/3/2015. The search took place in case of the assessee on 21/3/2017. Therefore, the assessment for this year remains concluded hence it does not abate. He also submitted that accordingly for assessment year up to AY 2015-16 are unabated assessments, Therefore, any addition or adjustment to the total income of the assessee can only be made if there is any incriminating material found during the course of search. Thus, he stated that in absence of any incriminating material found, the concluded assessment could not be disturbed even after search. He further submitted that addition u/s 68 of the income tax act or addition of unaccounted purchases made by the learned AO for assessment year 2012-13 to A .Y. 14-15 are without any incriminating material. He referred to copies of panchnama placed at page number 1-89 of the paper book 1 to show that no incriminating material was found during the course of search. Therefore, he submitted that learned assessing officer cannot make any addition. However, he hastened to add that the learned assessing officer has mainly referred to the seizure of photocopies of few blan....
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....5, he referred to plethora of judicial precedents. He further placed into service the decision of the honourable Supreme Court in case of CIT vs. Sinhgad technical education society (2017) 397 ITR 344 (SC) wherein it has been held that where as per the provisions of section 153C of the act, incriminating material which was seized had to be pertaining to assessment year in question and the documents which were seized did not establish any co-relation document - wise with those assessment years, then order passed for initiation of proceedings u/s 153C should be quashed. He further referred to the decision of the honourable Delhi High Court in case of principal Commissioner of income tax, Delhi-2 vs. Best infrastructure (India) private limited and others in ITA number 11/2017 to 22/2017 (2017) 397 ITR 82 (Delhi) which is in fact, carrying with the decision of the honourable Delhi High Court in CIT vs. Kabul Chawla (supra). He further referred to the decision of the honourable Delhi High Court in case of principal Commissioner of income tax vs. Dharampal Premchand Ltd (2017) 99 CCH 2002 wherein it has been held that when there was no incriminating material seized, each of assessment ye....
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....y themselves constitute incriminating material for the purpose of assessment u/s 153A of the act. He further relied upon the decision of the coordinate bench in Brahmputra Finlease (private) Ltd in ITA number 3332/del/2017 dated 29/12/2017 to support his contention. He even otherwise submitted that that the managing director of the company retracted his statement immediately on 24/3/2017. He referred to the copy of retraction placed at page number 169-171 of the paper book number 1. He further referred to the circular number F. NO. 286/2/2003-IT (INV) dated 10/3/2003 and 286/98/2013-IT dated 18/12/2014. He further referred to the decision of the honourable Gujarat High Court in principal Commissioner of income tax vs. Sayumya construction private Ltd (2016) 387 ITR 529 (Gujarat). He further submitted that information gathered with regard to the share application money are the entries with respect to the sum is received by the assessee which are duly disclosed in the regular books of accounts of the assessee and therefore are part of the regular records of the assessee. Hence, it cannot be considered as an incriminating material. He further submitted that the copies of the power of ....
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....r stated that the unaccounted money of the assessee had been routed through various companies in the form of share capital. In fact, he stated that the share capital received from the impugned entities represented amount from the books of the assessee company from the disclosed sources rooted through these entities and received in back in the form of share capital. He submitted that the ultimate source of share application money received by the assessee was from the disclosed source of the assessee itself the transactions were verifiable from the bank account of the party as well as from the bank account of the assessee as the source of money is the assessee himself. Therefore, he submitted that there is no unaccounted money flowing from the assessee to the depositors but the accounted money is flowing to the depositors. He otherwise submitted that the statement of the managing director was retracted. With respect to the amount of INR 149,200,000 he submitted that it was initially paid by the assessee from it disclosed bank account to Mahalaxmi traders as advance, which was written back by Mahalaxmi trader's assessee to the assessee therefore no addition u/s 68 on this court could ....
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....ion report dated 20/12/2008 was once again reiterated by the AO and also the additional Commissioner of income tax, CR-7 in the deviation meeting held on 28/12/2018, the minutes of such meeting were enclosed at page number 381-385 of paper book-1, even after consideration of the reply dated 24/12/2018 of the Deputy Director Of Income Tax (Investigation). Thus the learned AR vehemently stated that when the assessing officer and his superior both are of the view that no addition can be made in the hands of the assessee u/s 68, the whole addition was made on account of the opinion of the deputy director of income tax (investigation) as recommended in the appraisal report. He therefore submitted that assessing officer was not satisfied that addition is deserves to be made u/s 68 of the income tax act. In view of this, he submitted that the addition could not be made u/s 68 in the hands of the assessee. 34. With respect to the issue of bogus purchases from 3 different concerns, the learned assessing officer has relied upon the statement of the managing Dir recorded u/s 132 (4) of the act dated 22/3/2017 to hold that sales and purchases with the alleged parties are bogus, the learned ....
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....ese parties have been sold to other parties and the sales made to these parties the goods have been purchased from other parties. Thus, he submitted that one leg of the transaction is accepted as correct by the assessing officer and the other leg of the transaction is held to be bogus. He thus submitted that such addition could not be made. He further submitted that when i. the assessee maintains the detailed stock register showing quantity wise detail of each item, ii. purchases are vouched, iii. sales are vouched, There is no reason that this addition can be made in the concluded assessment or even in the open assessment. Coming to the order of the learned CIT-A, he submitted that, the learned CIT-A has found an innovative way, not provided in the income tax act, by invoking the provisions of section 145 (3), without verification of the books of accounts, rejects part of the books of accounts, applies the gross profit rate of the other transactions other than with these parties to the alleged transactions from the tainted parties and makes the addition on account of gross profit. He submitted that above addition has been made by the learned CIT-A ....
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....hoc disallowance of 25% of the purchases from the alleged parties was made by the learned assessing officer on mere direction contained in the appraisal report contrary to his own independent view expressed in the deviation report that addition on account of bogus purchases result into the reduction of the returned income. This fact itself shows that, even otherwise, even if the parties are accepted to be alleged bogus parties, the assessee has shown high profit in the return of income with respect to the transaction of purchase and sales from these parties. Thus, he submitted that in the concluded assessment, the addition is made without any incriminating material and in open assessment (abetted assessment); the addition was made without any evidence and contrary to the deviation report of the assessing officer. 35. He further submitted that the additional grounds raised by the assessee are on this point where the learned CIT-A has rejected the books of accounts of the assessee partially without issue of any show cause notice for providing an opportunity of being heard to the assessee before invoking provisions of section 145 (3) of the act. He referred to the provisions of sec....
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....d against the assessee. He stated that the learned CIT-A while selectively rejecting the trading results in relation to the transactions with the alleged related parties has accepted the trading results of the remaining transaction with the other parties and worked out the gross profit ratio for the assessment year 2012-13 to 2017-18. The above gross profit ratio is showing of Iran's of 16.20 percentage for assessment year 2012-13 to 4.13 percentage for assessment year 2014-15. He further stated that the learned CIT-A has once again selectively accepted the gross profit ratio only for the those years where the same appeal is to be higher side and rejected the gross profit ratio for the years where the same appears to be lower side and thus has reached at the result which is not sustainable in law. He submitted that the learned CIT-A selectively rejected the gross profit ratio on transaction with other parties for assessment year 2014-15 is not sufficient and adopted the average of the gross profit ratio of the preceding 2 years instead for making the addition. He therefore submitted that the learned CIT-A has accepted one methodology in one assessment year for computing the gross p....
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....al found during the course of search thus the learned CIT-A is also correct in holding that the addition u/s 68 with respect to the share capital has been made on the basis of incriminating material found during the course of search u/s 153A of the act and therefore the addition is sustainable on this ground. 38. He further stated that assessee is engaged into the large-scale transaction of bogus sales/purchases with various entities and in statement recorded u/s 132 (4) on 22/3/2017 of the managing director all the concerns were found to be associated with the assessee and the books of accounts on all these are also maintained at the office of the target company. The companies also submitted that all sale and purchases are at the instructions of Mr. Rajesh Garg, the accountant of the assessee. He submitted that these companies do not have any independent existence. He further stated that during the course of search the physical stock position of the appellant company was also not telling with the stock recorded in its books of accounts, which further strengthens the fact that the appellant was involved in bogus, sale purchase transactions. He further referred to the transaction....
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....apital. He therefore submitted that in view of this submission the order of the learned CIT-A is based on sound analysis based on the facts available on record and based on incriminating material found during the course of search. With respect to the share capital, he relied upon the decision of the honourable Supreme Court in case of principal Commissioner of income tax vs. NRA iron and steel (2019) 103 taxmann.com 48, decision of the honourable Delhi High Court in NDR promoters private limited (2019)-TIOL-172-HC-Del- IT. He also relied on plethora of judicial precedents on the issue of taxability of share capital. On the issue of the validity of the statement recorded u/s 132 (4) of the income tax act he further referred to the decision of the honourable Delhi High Court prominently in Smt Dayawanti vs. CIT (2016) 75 taxmann.com 308 (Delhi) wherein it has been held that where inferences drawn in respect of undeclared income of the assessee was revised on basis of materials found as well as statements recorded by the assessee son in course of search operations and assessee had not been able to show as to how estimation made by the assessing officer was arbitrary or unreasonable, a....
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....pheld. 42. The learned authorised representative in rejoinder submitted a point wise rebuttal on the issue raised by the learned departmental representative. With respect to the argument of the learned AR about the seizure of the copies of the blank signed transfer forms, power of attorney et cetera relating to share capital and premium received by the assessee constituting an incriminating material found during the course of search, he submitted that originals were never found at the premises of the assessee during the course of search. He submitted that such originals are always with the shareholder and not with the issue company. He submitted that photocopies of the transfer form duly signed by the holder of the shares, undated, without the name of the transferee, without share transfer fees paid thereon, does not have any evidentiary value as such evidence, document cannot be acted upon. He further submitted that photocopy of a document cannot be an evidence. He further stated that in the deviation report by the assessing officer, these evidences were not held to be incriminating evidence. The AO in deviation report has categorically held that the share capital is examined d....
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....have any evidentiary value. Even otherwise, he submitted that even if the statement recorded u/s 132 (4) retraction is not considered, assessee has submitted evidence of overwhelming nature such as :- i. bank statements of alleged parties, ii. funds flow showing inflow and outflow of funds, iii. Deviation report of the learned assessing officer wherein he conclusively held that the ultimate source of share application money received by the assessee was from disclosed sources of the assessee itself iv. All such transactions are verifiable from the bank accounts, v. source of said capital is directly traced to the bank account of the assessee, vi. absence of any cash movement, vii. Complete confirmation of parties with the ITR, bank statements etc Therefore, addition u/s 68 is not warranted. He further stated that even in the statement, managing director did not say that it is the unaccounted money of the assessee, he stated that the assessee has rooted its own accounted money through banking channel for bringing in share capital, therefore, source of money is the bank account of the assessee and no unaccounted money i....
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.... all the seized paper referred to in the assessment order are found in originals or were photocopies of the original. The bench made it clear that it wanted to know whether the blank share transfer forms and other forms with respect to the share capital are found and seized in original or mere photocopies. 47. The bench further raised a specific query to the learned DR, where the learned assessing officer was also present during the course of hearing, to know that why a deviation report was filed by the assessing officer and whether any such procedure is laid down or not. 48. The bench further asked the learned CIT DR as well as the learned assessing officer to clarify that in view of the deviation report as well as the appraisal report are differing, then, how the additions are ultimately made in the assessment order. 49. To all these queries, the learned assessing officer submitted a letter dated 6/8/2019. 50. On the 1st issue whether all the seized papers referred to in the assessment order are photocopies or are in original, the learned assessing officer stated that the documents related to unrelated blank share application forms and associated documents such as aff....
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....s well as informational information gathered during the course of assessment proceedings. He reiterated that assessment was made after considering all the facts and findings of the case. He extensively referred to all the addition as made in the assessment order. Thus, it was once again contended that addition has been correctly made. 53. We have carefully considered the rival contentions as well as perused the orders of the learned assessing officer and learned CIT-A. For all these years, there are 2 types of additions made by the learned assessing officer. (1) The 1st addition is with respect to the issue of share capital under section 68 of the income tax act. (2) The 2nd issue is with respect to the bogus purchases and thereby addition of the appropriate percentage on such bogus purchases in the hands of the assessee. Additions of both these types are identically made in 6 different assessment years assessments framed under section 153A of the act. They are starting from assessment year 2012-13 and ending on assessment year 2017-18. Out of above 6 assessment years, 3 assessment years i.e. Assessment Year 2012-13, 2013-14 and 2014-15 are concluded assessm....
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....mium." 56. During the course of search, in the statement of Mr Apresh garg in question number 16 with respect to the share capital he stated that though he does not remember the exact information about the shareholders but whatever share capital and save premium has been received by the appellant company is basically the money out of the companies sale proceeds which have been rooted back through banking channel through the shareholders which included the employees of the company as well as his other companies. Further, in response to question number 22 of his statement he submitted Trail of the funds from the assessee company through cheque to Vishal traders and from Vishal traders to Mrs Balaji traders and from Shri Balaji traders to the assessee company in the form of share capital. He further stated that the assessee gave cheque to Vishal traders, Vishal traders passed on the cheque to Balaji traders and Balaji traders introduced the same some to the assessee company in the form of share capital. Therefore, it is apparent that involve of the transaction there is no unaccounted income of the assessee, which has been introduced in the books of accounts of the company as share ....
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....e found in case of 12 shareholders and in case of balance 24 shareholders, no evidences whether incriminating or otherwise were found during the course of search. 58. In the decision of coordinate bench in ACIT, Central Circle-5, New Delhi Vs M/s Gee Ispat Pvt. Ltd., A-28, Sector 19, Rohini, Delhi-110085 [ITA No. 4256/Del/2014 : Asstt. Year : 2005-06 ITA No. 4257/Del/2014 : Asstt. Year : 2006-07 ITA No. 4258/Del/2014 : Asstt. Year : 2007-08 ITA No. 4259/Del/2014 : Asstt. Year : 2008-09 dated 31/5/2018 ] identical documents were found in Original and bench held that they were not incriminating in nature. In para no 18 (f) it was argued by the ld DR that "f) Search at the assessee's premises led to the seizure of blank, share transfer forms duly signed by the allottees and affidavits of some of the companies/persons who were shown as investors in the share capital of the assessee company e.g. pages 9,10,12,15,16, 33, 34, 55, 56, 61 and 62 of annexure AA- 1 are blank sign share transfer forms of some of the share allottee companies such as M/s NEPC Industries Ltd, M/s Telstar Editing Pvt. Ltd, and M/s Softgate Technologies Pvt. Ltd, etc" But in para no para no 24 th....
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....8/09/2010, thus, it is undisputed that assessment was completed prior to the date of search. 4.9 Now regarding the second condition, the Ld. CIT(DR) has mentioned that documents impounded from the premises of Sh. M.L. Aggarwal, Chartered Accountant, during the course of survey proceeding are incriminating material found during the course of search. We do not agree with the contention of the Ld. CIT (DR) that these materials like blank shares transfer forms etc could be termed as found during the course of search at the premises of the assessee. The survey proceedings carried out at the premises of the Chartered Accountants, ML Aggarwal are separate from the search proceedings carried out at the premises of the assessee. There is no concept of group of assessee in Income-tax assessments. Each assessee is treated separately. If any material is found during the course of search from the premises of one assessee, it can be used against another assessee either under section 153C or under section 148 of the Act depending on material belonging to or pertaining to that another assessee but it cannot be termed as material found during the course of the search of another assessee fo....
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.... No. 4 of above Annexure A-10 contains record of 30 lakhs in the name Mr. A Singhal and M.L. Aggarwala dividing into 25 lakhs and 5 lakhs respectively. On this page the name of Sudarshan Casting P. Ltd. is also written. During the course of search and post search investigation, the assessees of this group have not been able to explain the above entries satisfactorily. Though these entries are to be dealt with in relevant cases but this also proves the fact that this group is engaged in bring back their unaccounted/undisclosed income in the guise of share capital/share application money." 4.11 We find that the Item No. (i) contains recording in the name of "Shri Shyam Trexim & Fincom Pvt. Ltd". The Assessing Officer has nowhere brought on record how the said recording on the page relates to the addition in question of share capital. The Ld. CIT(DR) also could not explain as how the said recording was related to the addition in question made in respect of alleged unexplained share capital. She only stated that said recording on the page reflected accommodation entry obtained by the 'Brahmaputra Group' and but no documentary evidence regarding the claim that th....
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....arma. On perusal of the entire statement of Sh. Sampat Shrama, we do not find any mention of any incriminating material qua the addition made. 4.14 Further, in the case of Best Infrastructure (India) Private Limited (supra) the question of law framed is as under:' "Did the ITAT fall into error in holding that the additions made under Section 68 of the Income Tax Act, 1961, on account of the statements made by the assessee's Directors in the course of search under Section 132 of the Act were not justified ?" 4.15 In the said case, a search was conducted in case of Mr. Tarun Goyal and Best Group Companies. During the course of search, Sh Tarun Goel admitted of having provided accommodation entry to the best group companies. The Director of the Best group of companies, Sh Anu Aggarwal also surrendered ı 8 crore during the course of search against share capital and share premium. Another Director, Sh. Harjit Singh in his statement also concurred with the statement of Sh. Anu Aggarwal. In the case, the learned CIT-(A) held that evidence does not mean only documentary evidence and the statement under section 132(4) of the Act is an important evidence colle....
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....ns. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the Assessing Officer to make a block assessment merely because any admission was made by the Assessee during search operation. 4.17 The Hon'ble High Court in the above case further noted that the statement recorded under section 132(4) of the Act may be used for making the assessment but only to the extent it is relatable to the incriminating evidence/material unearthed or found during the course of search. The Hon'ble High Court also cited the decision of CIT Vs. Sh. Ramdas Motor Transport, (1999) 238 ITR 177 of Hon'ble Andhra Pradesh High Court, where it is explained that in case no unaccounted documents or incriminating material is found, the powers under section 132(4) of the Act cannot be invoked. ....
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.... statements under section 132(4) of the Act, the court held that the statement do not constitute as incriminating material. In the instant case, neither is there any statement of any accommodation entry operator claiming that any entry was not provided nor any director has admitted that assessee obtained accommodation entry. Thus, the case of the assessee is on better footing then the case of Best Infrastructure (I) P. Ltd (supra). In such facts and circumstances, respectfully following the decision of the Hon'ble Delhi High Court in the case of best infrastructure (India) private limited (supra), we do not have any hesitation to hold that the statement under section 132(4) of Sh. Sampat Sharma cannot be treated as incriminating material found during the course of search. In the result, we hold that addition of share capital in the year under consideration has been made without relying on any incriminating material found during the course of search." 60. On identical facts in 2018 (3) TMI 1598 - ITAT DELHI M/S BRAHMAPUTRA REALTORS (P) LTD. VERSUS DY. COMMISSIONER OF INCOME-TAX, it was held that all such documents even though they were found to be in original in all thos....
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....not show any transactions. Had there been any transaction recorded on blank share transfer forms, receipts regarding any money or transfer in favour of any person, it would have made them suspicious. The entries in those forms are not at all made, but are merely blank. The assessee has given detailed explanation why they were found at the place of assessee. The Assessing Officer has not examined the signatories of these documents to arrive at the true nature of the transactions. The Assessing Officer is just making an assumption that these are the documents which would have been used by the assessee for transferring those shares in the name of the promoters or their group concerns at a price which is far less than the price of shares issued. It is not the case of the Assessing Officer that either such shares are subsequently transferred at lower price, or such shares stood disposed of by the investor companies. In view of this, the case of the Revenue is merely based on assumption and surmises ." 63. Therefore apparently compared to all those decisions cited above which are referred by the learned authorised representative where such forms and documents were found in original, t....
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....The financials of the proprietorship were obtained which shows in proceeding assessment year 2011-12 it's return of income was at Rs. 3,90,540/- and assessment year 2014-15 return of income was at Rs. 10,28,742/- In assessment year 2016-17 return of income was at Rs. 15,85,400/-. The A.O. was of the view that M/s. Mahalaxmi Traders has no financial worth to make investment in assessee company. During the course of search, proprietor of M/s. Mahalakshmi Traders in his statement recorded on 22nd March, 2017 under section 132(4) denied to have made any investment in assessee company. The A.O. accordingly made the addition of the impugned amount. The A.O. also made addition of Rs. 34,47,334/- on account of assessee company paid commission @ 2% for obtaining the entry on account of share capital. The Ld. CIT(A) confirmed the addition. 67. In assessment year 2013-14, assessee has raised Ground No.3, challenging similar addition of Rs. 49,99,50,000/- on account of unexplained cash credit under section 68 of the Income Tax Act and sum of Rs. 99,99,000/- as commission paid for arranging the share capital. The A.O. noted that assessee company has received share capital from M/s. Balaj....
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....assessee has raised Ground No.1 challenging the addition of Rs. 55,47,74,700/- on account of unexplained credit under section 68 of the I.T. Act and addition of unexplained commission of Rs. 1,10,95,448/-. The A.O. similarly noted that in assessment year under appeal the assessee received Rs. 37,60,99,650/- from M/s. Rustagi Exim Pvt. Ltd., and Rs. 17,86,74,750/- from M/s. Vishal Traders on account of share capital. Addition under section 68 of the I.T. Act was made. Further addition was made of Rs. 1,10,95,448/- on account of commission paid @ 2% for arranging the share capital/premium. Similarly the statement of Mr. Arpesh Garg was reproduced in the assessment order. The Ld. CIT(A) confirmed the addition. 71. In A.Y. 2017-2018, the assessee has raised Ground Nos.1 and 2 challenging the addition of Rs. 52,23,87,900/- on account of unexplained share capital received from M/s. Rustagi Exim Pvt. Ltd., amounting to Rs. 52,23,87,900/- which was added under section 68 of the I.T. Act. Further addition was made with respect to commission paid @ 2% for arranging the above share capital/ premium. Addition was made of Rs. 1,04,47,758/-. The A.O. similarly referred to the statement of Mr.....
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....tion of the transaction the assessee company has transferred Rs. 54.56 crores to M/s. Rustagi Exim Pvt. Ltd., which has been routed back to the assessee company in the form of share capital/premium which also suggest that source of the funds introduced in the shares is assessees itself. Similarly, in A.Ys. 2014-15, 2015-16, 2016-17, the details filed by the assessee would show that ultimate source of the share application money received by the assessee was from the disclosed source of the assessee itself. The transactions are verifiable from the bank account of both the parties. The assessee also filed confirmation of both the parties supported by their bank statements. In some cases, assessee company has routed its own fund directly from the share application money transactions. In those cases sources are apparently proved. As the source of the share capital/premium can be traced directly to bank accounts of the assessee company and there is no cash movement, therefore, addition of entire share capital/premium of Rs. 365.28 crores is not justified and may lead to highpitched assessments. He has further submitted that A.O. in the deviation report has expressed that no addition coul....
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.... and source of investment because the details are voluminous in nature as filed in the Paper Books No.7A to 7E. The summary of the transfer of funds with documentary evidences filed in the paper book is reproduced as under : A. "Details of Share Application received from alleged related parties for A.Y. 2012-13: Share Application received from Mahalaxmi Traders (MT):Rs. 14,92,00,000/- B. Details of Share Application received from alleged related parties for A.Y. 2013- 14: (1) Share Application received from Sri Balaji Enterprises (SBE): Rs. 15,20,00,000/- (2) Share Application received from Vishal Traders (VT) : Rs. 34,79,50,000/- C. Details of Share Application received from alleged related parties for A.Y. 2014- 15: 1. Share Application received from Vishal Traders (VT): Rs. 65,30,99,000/- Particulars Amt. paid by AGPL to VT either directly or indirectly via intermediaries (intm) 2. Share Application received from Rustagi Exim Pvt. Ltd. (REPL)-Rs. 9,55,55,000/-. 3. Share Application received from Vikas International (VI)-Rs. 6,48,90,000/- D. Details of Share Application received from alleged....
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....ssee itself, which was ultimately introduced in the share of share capital/premium, therefore, there was no justification to hold that assessee would have paid any commission @ 2% for arranging the above share capital/premium The A.O. in A.Y. 2012-2013 has referred to statement of Shri Manoj Gupta, Proprietor of M/s. Mahalaxmi Traders whose statement was recorded during the course of search in which he has stated that he has not made any investment in assessee company. However, it is not clear from the Orders of the authorities below whether copy of such statement was supplied to assessee for rebuttal or whether he was produced before A.O. for cross-examination on behalf of the assessee. Since nothing is clear from the assessment order, therefore, any statement recorded at the back of the assessee, cannot be read in evidence against the assessee unless it is confronted to assessee and right of cross-examination have been provided by the A.O. to assessee to cross-examine that statement. We rely upon the Judgments of Hon'ble Supreme Court in the cases of Kishanchand Chellaram 125 ITR 713 (SC) and Andaman Timber Industries 281 CTR 214 (SC). 78. It is interesting to note that in the....
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....e assessee. This was confirmed by the Commissioner of Incometax (Appeals). On further appeal to Tribunal the Tribunal held that the phraseology of section 68 of the Income tax Act, 1961, was clear, that the Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year, that the legislative mandate is not in terms of the words "shall be charged to income-tax as the income of the assessee of that previous year", that the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as income of the assessee. The Tribunal found that the assessee had discharged the initial onus which lay on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/ permanent account numbers and the copies of assessment orders wherever readily available, that it had also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee was not expected ....
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.... and no question of law arose out of that finding." 81. The Hon'ble Delhi High Court in the case of CIT vs. Victor Electrodes Ltd., [2010] 329 ITR 271 (Del.) held as under : "Held, dismissing the appeal, that it had not been disputed that the share application money was received by the assessee by way of account payee cheques, through normal banking channels. Admittedly, copies of applications for allotment of shares were also provided to the Assessing Officer. It was not the case of the Revenue that the share applications were not signed on behalf of the applicant-companies and were forged documents. It was also not the case of the Revenue that the shares were not actually allotted to the companies. If the Assessing Officer had any doubt about the identity of the share applicants, he could have summoned the directors of the applicant-companies. No such attempt was, however, made by him. Therefore, the Commissioner (Appeals) and the Tribunal were justified in holding that the identity of the share applicants and the genuineness of the transactions had been established by the assessee. The amount was not assessable under section 68." 82. The Hon'ble Delhi High Court i....
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....enuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke section 68. One must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the "source of source". The assesseecompany was engaged in the business of financing and trading of shares. For the assessment year 2001-02 on scrutiny of accounts, the Assessing Officer found an addition of Rs. 71,75,000 in the share capital of the assessee. The Assessing Officer sought an explanation of the assessee about this addition in the share capital. The assessee offered a detailed explanation. However, according to the Assessing Officer, the assessee failed to explain the addition of share application money from five of its subscribers. Accordingly, the Assessing Officer made an addition of Rs. 35,50,000/- with the aid of section 68 of the Act, 1961 on account of unexplained cas....
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....ove. We may also note that during the course of hearing of these appeals, A.O. was present in the Court, but, did not make any adverse comment upon the documentary evidences filed in the paper book filed by the assessee. The A.O. thus, failed to conduct scrutiny of the documents at assessment stage and merely suspected the transaction between the Investor Companies and the assessee company despite the fact that in the deviation report the A.O. expressed doubts in making addition into the matter. It may also be noted here that no cash have been reported to have been deposited in the accounts of the assessee, the Investor Companies and other related parties. Considering the totality of the facts and circumstances of the case and material on record, we are of the view that assessee has been able to prove that it has received genuine amounts which is routed through various companies. Therefore, there was no justification to make any addition under section 68 of the I.T. Act. Further, there is no evidence on record that assessee paid any amount on account of commission for arranging any transaction because it was a genuine transaction between the parties. Therefore, there is no justific....
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....also but with similar or different parties. He further noted that the above facts have clearly been strengthened from the stock position as noticed to be short by nearly INR 4 50 crore is against the stock recorded in its books of accounts. Therefore he reached at a conclusion that the assessee has booked bogus purchases in its books of accounts to inflate its expenses and to reduce it taxable profit therefore, taking a reasonable view of the bogus purchases of INR 3 532493127/- from the above said parties were disallowed to the extent of 25%. Therefore the addition of Rs. 883123282/- was made. This addition was made as suggested in the appraisal report. Similar additions were also made for assessment year 13-14 to 2017-18. 89. In the deviation report submitted by the assessing officer with the approval of the additional Commissioner of income tax as per letter dated 20/12/2018 in para number 4 placed at paper book page number 368 onwards, the learned AO stated as under:- "4. Bogus Purchases a) with regard to the addition proposed of INR 9,418,600,000 in respect of bogus purchases, during the course of assessment, the assessee filed extensive details in respect....
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....of the purchases being bogus as suggested in the appraisal report. Under the circumstances, if both the purchases and the sales in such a situation are to be treated as bogus then it will lead to a reduction in the returned income of the assessee instead of an addition which will be detrimental to the interest of revenue. f) Further keeping in mind the bogus transactions in the case of the assessee, the transactions relating to financial year 2016-17 with various parties have been examined in notice the transactions of sales and purchases have been made in the following manner:- i. with M/s Agarwal Enterprises - purchases and sales have been shown at INR 1 34.06 and 134.23 respectively ii. with M/s Kajuwala - purchases and sales have been shown at INR 347,700,000 and INR 162,800,000 iii. with M/s ASM Traxim purchases and sales have been shown at INR 827.33 crores and INR 7 72.01 crores g) the above transactions are suggesting that the assessee company is involved in bogus sales and purchases, which has also been observed by you. The similar trends have also taken place in earlier years also but with similar or different parties. The abov....
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....lear that according to the assessing officer the addition made on account of the bogus purchases is not sustainable as no deviation was found in the purchases recorded by the assessee and confirmatory letter is as well as enquiry letters responded u/s 133 (6) of the act. This fact is also confirmed as per the report of the assessing officer in the deviation meeting. It is also interesting to note that in the remand report the assessing officer has dropped the point of stock shortage of 450 crores. 92. Further, due to above divergent views expressed by the assessing officer in the assessment order, deviation report and remand report, the bench requested the assessing officer to show the relevant paragraph of the appraisal report from which the above addition has been made. Appraisal report was produced before the bench and it was found that in para number 4.3.7 the investigation wing has mentioned that the above addition is required to be made in order to protect the interest of revenue. No evidences of bogus purchases were found during the course of search except the statement of the managing director. We have already discussed that the statement of the managing director did not....
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.... Ground no 4 for Ay 2013-14 and Ground no 4 of Ay 2014-15 are allowed. 95. With respect to abated assessment years 9 i.e. AY 2015-16 , 2016-17 and 2017-18 it is also apparent that that assessee has purchased less a sum of goods then sold to those parties. In the deviation report the assessing officer has categorically held that if, the purchases are to be removed from the books of accounts from those parties, then necessarily on the same allegation the sales is also required to be removed from the regular books of accounts, which would lead to assessing the assessee at less than the income returned by it. This fact has also evident from noting the fact that total sales made by the assessee to these parties for assessment year 2012-13 to 2017-18 is INR 3 6206089783/- and purchases made from this parties is INR 3 6021417848/-, therefore the assessee has shown the profit from these transactions for all these years of INR 1 84671935/-. It is highly unusual that if the purchases are allegedly bogus then how assessee will show higher profit from these purchases in its books of accounts. Thus the allegation of the learned assessing officer as well as the learned CIT-A. That by booking ....
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....ntage and 9.41 percentage. He applied the average, which is 12.80 percentages to the sales for that year for making an addition. For assessment year 2017-18 the gross profit on transactions other than alleged related parties were found to be 6.02 percentage however the learned CIT-A did not apply that ratio but made an addition of INR 4 87053/- as there was loss. Therefore, wherever it was beneficial to the revenue, the learned CIT-A applied higher percentages and made the addition. Wherever it was against the revenue, he applied average gross profit of last 2 years or made on ad hoc addition. Thus, it is apparent that the learned CIT-A was not at all consistent in his approach. 100. The next question that has been raised before us by the additional grounds that the learned CIT-A has invoked the provisions of section 145 (3) of the act. The contention raised was that AO did not find any defects in the books of accounts or method of accounting employed by the assessee. Thus, the AO did not reject the books of accounts of the assessee but accepted them as showing the correct profit. Specifically provisions of section 145 (3) was red before us again and again by the learned authori....
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....hereinafter. 101. Coming to the 1st issue whether the learned CIT-A is empowered to reject the books of accounts, which has not been done so by the learned assessing officer. The above question is squarely covered against the assessee by the decision of the honourable Supreme Court in CIT vs Macmillan (1958) 33 ITR 182 (SC). Therefore, according to us, the CIT appeal is empowered to reject the books of accounts where the AO has failed in performing his duty. According to section 145 (3) of the income tax act it is the duty of the assessing officer in each and every case to satisfy himself about the correctness or completeness of the accounts of the assessee and adoption of the method of accounting regularly. If AO has failed to do that, there can be no fetters on the right of the 1st appellate authority to do so. However the same criteria applies to the 1st appellate authority also which applies to the assessing officer while rejecting the books of accounts under section 145 (3) of the act. 102. However, it is required to be noted that in the deviation proceedings the learned assessing officer has given an alternative option to apply the provisions of section 145 (3) of the i....
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....hase consideration to the alleged parties and receipt of sale consideration from the alleged parties are through account payee cheques. There is no allegation from the side of the learned assessing officer or the learned CIT-A that books of accounts of the assessee are either incorrect or incomplete. The allegation that booking the purchases has resulted into the reduction of the profits of the assessee has also been negated by the learned assessing officer himself during the deviation proceedings as well as in remand proceedings. Before rejecting the book results, the revenue authorities are duty-bound to find patent, latent and glaring defects in the books of accounts. In the present case, no such exercise or attempt has been made by the revenue authorities but the simply relied on the statement of the managing director, which was later on retracted and was also not on the point of booking the bogus expenditure. Thus, we are of the view that the rejection of the books of accounts by the learned CIT-A is not in accordance with the law. 105. Even otherwise, once the books of accounts of the assessee are rejected, then profit, has to be estimated on the basis of the proper materi....
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.... are infructous as we have deleted the addition relying on decision of Hon. Delhi High court in those years, hence dismissed. Consequently Ground no 1 for Ay 2012-13, Ground no 1 for Ay 2013-14, Ground no 1 for Ay 2014-15 , Ground no 1 for Ay 2016-17 are dismissed. 108. Now we come to the 3rd issue pertaining to the assessment year 2017-18 of addition u/s 68 on account of cash deposited in banks post demonetization. The brief facts of the issue is that post demonetization, between 9/11/2016 to 30/12/2016, assessee deposited cash in the following bank accounts. Name of the bank amount in crores Bank of India 79.99 Canara Bank 4 Central bank of India 4 Central bank of India 0.0 8 IDBI Bank 2.99 Indian overseas Bank 14.75 Indian overseas Bank 1.65 Punjab national bank 63.56 109. The explanation of the promoter director of the assessee company with respect to the cash deposit was taken understatement u/s 132 (4) on 22/3/2017. With response to question number 29 of his statement he was asked to state the source of the case of deposited. The assessee replied that the source of most of the case of deposited is sales proceeds. He ....
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.... average monthly cash deposit pre demonetization is INR 4 2.35 crores whereas the actual cash deposited is Rs. 180.53 Crores. 110. During the course of assessment proceedings, the assessee was asked to explain the source of the cash deposit of INR 175.57 crores and invite should not be considered as unexplained money as income of the assessee. The assessee submitted a detailed letter dated 20/11/2018 wherein it was submitted that total cache of INR 1 75.28 crore was deposited in the bank accounts post demonetization between 9/11/2016 to 31st/12/2016 is only INR 1 75.57 crores. The source of cash deposit was explained to be the proceeds arising from the cash sales made by the assessee, which is duly accounted for in the books of the assessee on the credit side of the profit and loss account. The statement of the assessee was further supported by the audited books of account of the assessee, bank wise summary of cash deposits, copies of the bank statement and details of monthly cash sales and cash deposits for the earlier years. The learned assessing officer treated a sum of INR 1 50.53 crores after giving credit of INR 3 0 crores as disclosed under PMGKY. The ld AO noted that pat....
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....stock as per books of account. As on 08.11.2018, the Assessee had a cash balance of Rs. 113.03 crores whereas on the date of demonetization, the Assessee had deposited cash in bank of Rs. 13.99 crores only. The AO opined that as on the date of demonetization the Assessee had legitimate cash balance of Rs. 13.99 crores only. It was further alleged that the average monthly cash deposits pre-demonetization was Rs. 42,35,05,714/- whereas the actual cash deposits for two months post demonetization was Rs. 1,80,53,24,000/-. The AO thus opined that cash of Rs. 180.53 Crore deposited in the bank accounts during demonetization period allegedly represented unexplained cash not commensurate with the regular pattern of cash pre-demonetization. Accordingly, after giving credit of Rs. 30 crores declared under PMGKY, the balance cash of Rs. 1,50,53,24,000/- was treated as unexplained cash credit u/s 68 of the Act. 111. The assessee agitated this issue in the appeal before the learned CIT-A. The learned CIT-A observed that out of total cash deposits during 09.11.2016 to 30.12.2016 (i.e. the demonetization period) of Rs. 1,80,53,24,000/- (actual cash deposits during the said period was Rs. 1,75,....
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....tization period) as Rs. 180.53 crores instead of the actual deposits of Rs. 175.28 crores during the said period. While arriving at the said figure of Rs. 180.53 crores, the Revenue Authorities have erroneously considered the total cash deposits between 09.11.2016 to 31.12.2016(i.e. including the cash deposits of Rs. 5.25 crores on 31.12.2017 in new currency notes) instead of the actual cash deposited during the demonetization period of Rs. 175.28 crores. 113. It is submitted that since the impugned addition u/s 68 was made by the AO on account of cash deposited in the bank accounts in the wake of demonetization, only the demonetized old currency notes deposited into the bank accounts during the demonetization period were required to be taken into account even if, for the sake of argument, the allegations of the AO were deemed relevant. Pursuant to demonetization announced by the Government of India on 08.11.2016, the RBI stipulated that the demonetized old currency notes of Rs. 1000 & Rs. 500 could be deposited into the banks only between 10th November 2016 until the closing of banking hours on 30th December 2016. The AO has however erroneously also included the cash deposited ....
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....The customers usually pay in cash and as such, the Assessee normally has sufficient cash balance throughout the year. The cash received against such cash sales is subsequently deposited into the banks from time to time as per the convenience of the Assessee. ii. Cash sales & corresponding cash deposits into the bank accounts of the Assessee have been a regular feature of the Assessee's business since the past several years. The same is clearly borne out from the details of cash sales and cash deposits made by the Assessee in the past Financial Years viz. F.Ys 2014-15 & 2015-16 filed before the A.O. The same trend has also continued after the demonetization period i.e. in January to March 2017. This implies that the business of the Assessee was normal even after demonetization and there was no unusual trend in the cash sales or cash deposited in the banks. The fact that cash sales and cash deposits in banks are regular features of the Assessee's business (in the predemonetization, demonetization and post demonetization period) has not been controverted by the Revenue Authorities and is clearly explicit from the data on record. iii. The Assessee maintains regular bo....
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....ge 5 of his Deviation Report noted as follows: "f) During the course of assessment proceedings, the assessee has submitted that the cash deposited during demonetization also included the sales made during Diwali which was on 30th October, 2016 when the sale of dry fruits increases every year as compared to other months. The version of the assessee on the above appears to be an acceptable contention since distribution of dry fruits during Diwali is a normal and acceptable phenomenon." vii. It was further explained that pursuant to demonetization announced by the Hon'ble Prime Minister on 08.11.2016, persons holding old five hundred rupee currency notes and thousand rupee currency notes were required to deposit the same into their bank accounts or post office accounts from 10th November 2016 until the close of banking hours on 30th December 2016. viii. That accordingly, the Assessee was mandatorily required to deposit its entire cash in hand to the extent it comprised of old demonetized 500 & 1000 currency notes into the banks between 10.11.2016 to 30.12.2016. ix. Apart from the above, the cash deposited during the demonetization period (i.e. 09.11.2016 to ....
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....ummer months. Thus, the cash deposits arising out of cash sales of summer months are not comparable with the cash deposits during the winter months. Similar trend is also noted in the past F.Ys 2014-15 & 2015-16 as evident from above table. xii. With regard to the alleged unusual GP ratio as per tally data of 25.2% for 01.04.2016 to 08.11.2016, 40.8% for 09.11.2016 to 31.12.2016& 7.9% for 01.01.2017 to 20.03.2017, it was explained that the tally data was incomplete and not finalized until the time of search on 21.03.2017. The accounts were incomplete and various entries pertaining to expenses etc. were pending as on the date of search, which were made subsequently at the time of finalization of accounts. The GP Margin as per Audited Financial Statements for F.Y. 2016-17 is 6.01%, which is at par with the GP% of the past years. xiii. Further, with respect to deposits of Rs. 13.99 crores on 10.11.2016 as against total cash in hand of Rs. 113.99 crores on the date of demonetization, it was explained that banks do not accept such huge amount of cash on the same day. The Assessee was advised by the banks to deposit the said amount in tranches. In consonance with the ad....
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....H WITHDRAWL FROM BANK FOR THE SAID PERIOD 310000 681122731 TOTAL AMT. RS 1811425923 LESS :- CASH DEPOSITED IN BANKS FROM 09/11/2016 TO 30/12/2016 (see pgs 112-113 of PB-2): IN OLD DEMONETIZED CURRENCY NOTES ( 500 & 1000 NOTES) 1118698000 IN NEW CURRENCY NOTES AND NON-DEMONETIZED CURRENCY NOTES (see pgs. 149-150 of PB-2) 634126000 1752824000 58601923 LESS :- CASH EXPENSES FROM 09/11/16 TO 30/12/16 1072227 CLOSING CASH BALANCE AS ON 30/12/2016 57529696 xvii. The books of account of the Assessee have been audited by an independent Auditor and have not been rejected by the AO u/s 145(3) of the Act. The stock position depicted in the books of account has thus been accepted by the Department. The cash sales were made out of the accounted stock accepted as such by the Department. It is not the case of the Department that the physical stock found in the course of search was in excess of the book stock, which could have probably indicated/hinted at the possibility of recording o....
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.... CASH SALES FOR THE YEAR 1,83,46,54,328 2,55,94,26,635 1,52,29,15,423 2,37,49,83,211 4,12,57,04,347 6,33,33,21,552 CASH WITHDRAWAL FROM BANK FOR THE YEAR 1,57,00,000 5,45,00,000 9,28,45,000 9,08,00,000 20,96,35,000 3,55,85,770 1,91,88,62,744 2,66,74,63,162 1,66,97,84,425 2,50,46,09,038 4,36,87,51,036 6,40,77,84,398 LESS :- TOTAL CASH DEPOSITED IN BANKS DURING THE YEAR 1,84,18,16,318 2,60,71,58,700 1,58,68,73,600 2,42,70,47,200 4,28,25,20,400 6,33,80,14,000 CASH EXPENSES FOR THE YEAR 2,35,09,899 62,80,460 4,40,84,998 4,41,50,149 4,73,53,560 1,57,46,613 CLOSING CASH BALANCE AS ON 31ST MARCH 5,35,36,527 5,40,24,002 3,88,25,827 3,34,11,689 3,88,77,076 5,40,23,785 xxi. It is pertinent to note that while the A.O. has accepted the cash deposited in the bank accounts in the following periods to be sourced out of cash sales recorded in the books of the Assessee viz: • Cash deposited in the banks in the past Financial Years 201....
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....of the Assessee. xxvi. No incriminating material was found in course of search to even remotely suggest that the Assessee had indulged in any other unaccounted business activity leading to any unaccounted income as alleged by the Revenue Authorities. Further, such allegation was not even established by the Revenue Authorities in the course of the search assessment proceedings by conducting any inquiry/investigation by following the procedure laid down u/s 142(2) & 142(3) of the Act. Thus, bald allegation of the Departmental Authorities that the cash deposited during the demonetization period had arisen from some undisclosed source not reflected in the books of account as against the accounted cash sales claimed in the audited books of account dehors any credible evidence/material on record is unsustainable both in law and on facts. Addition so made by the AO deeming the impugned cash deposits arising out of accounted cash sales as unexplained cash credits merely on the basis surmises & conjectures is fallacious and deserves to be deleted. xxvii. Reference in this connection is craved to the case of Lalchand Bhagat Ambica Ram Vs. CIT (1959) 37 ITR 288 (SC) which is....
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....as part of its business cash balance of at least Rs. 1,50,000 in the shape of high denomination notes on 12th Jan., 1946, when the Ordinance above-mentioned was promulgated. The Tribunal came to the conclusion that the nature of the source from which the appellant derived the remaining 141 high denomination notes of Rs. 1,000 each remained unexplained to its satisfaction. It accordingly ordered that the addition be reduced from Rs. 2,91,000 to Rs. 1,41,000. On the said facts, the Hon'ble Supreme Court held that-the Tribunal having held that books of assessee were genuine which showed a cash balance of Rs. 3,10,681 on the relevant date; the Tribunal could not have accepted the cash balance of Rs. 1,50,000 out of the value of high denomination notes of the value of Rs. 2,91,000 and treated the balance Rs. 1,41,000 as income from undisclosed sources. It was held that in doing so, The Tribunal had indulged in conjectures and surmises and acted without any evidence or upon a view of facts which could not reasonably be entertained. The relevant excerpts from the order of the Hon'ble Apex Court are reproduced hereunder: If the entries in the books of account in regard to the bala....
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....onclusion it did merely by applying the rule of thumb in which event the finding of fact reached by it was such as could not reasonably be entertained or the facts found were such as no person acting judicially and properly instructed as to the relevant law could have found, or the Tribunal in arriving at its findings was influenced by irrelevant considerations or indulged in conjectures, surmises or suspicions in which event also its finding could not be sustained. [para 19] As the conclusion of the ITO was thus either perverse or vitiated by suspicions, conjectures or surmises, the finding of the Tribunal was equally perverse or vitiated if the Tribunal took count of all these probabilities and without any rhyme or reason and merely by a rule of thumb came to the conclusion that the possession of 150 high denomination notes of Rs. 1,000 each was satisfactorily explained by the appellant but not that of the balance of 141 high denomination notes of Rs. 1,000 each.[para 20] Therefore, the Tribunal in arriving at the conclusion in the present case indulged in suspicions, conjectures and surmises and acted without any evidence or upon a view of the facts which could....
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....ore convenient for counting, for making payments and for other purposes and no material has been placed to show that the explanation offered by the assessee was one which was inherently improbable or one which could not be accepted. The so-called estimate made by the Tribunal was based on no reason and was a mere guess. In fact there was no justification in the circumstances of the case for making an estimate at all. The assessee had a large cash balance which could very conveniently include the 45 high denomination notes encashed by him. The explanation offered by the assessee was not unreasonable and nothing has been said which could justify its being rejected as unreasonable. On the other hand the so-called estimate by the Tribunal is based on no reason and is purely arbitrary and cannot be upheld as legal." xxx. Further, the Hon'ble Allahabad High Court in the case of Kanpur Steel Co. Ltd. Vs. CIT (1957) 32 ITR 56 (All)opined as under: "when the assessee-company had given an explanation which was reasonable, the IT authorities could have been entitled to treat the sum of Rs. 32,000 as income from undisclosed sources only if there was some other material from w....
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....monetization period as arising out of unexplained sources(as against the accepted position in the past and the subsequent periods) is to somehow trigger the provisions of section 115BBE read with section 68 of the Act to the income already offered for tax by the Assessee (as cash sales) at a higher rate of tax of 77.25% (i.e. flat rate of 60% plus surcharge @ 25% on such tax and cess as applicable) on gross basis (without any deduction/allowance). In fact the treatment of the cash deposits as unexplained cash credits u/s 68 by the A.O has resulted in double taxation of the same amount, once in the form of cash sales already offered to tax by the Assessee at the rate of tax applicable to companies and again by way unexplained cash credit on deposits arising from such sales u/s 68 at higher rates specified u/s 115BBE. Section 115BBE of the Act is a machinery provision to levy tax on income and it should not enlarge the ambit of section 68 of the Act to create a deeming fiction to tax any sum already credited/offered to tax as income. Section 68 of the Act traditionally applies to unexplained 'cash credit' like loans, deposits, advances, share capital, etc. and not to sums already off....
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....sfaction merely on the basis of surmises and conjecture. The AO is bound under law to act reasonable and just while framing any satisfactory opinion surrounding the explanation offered by the taxpayer. From the facts of the case at hand, it is clear that the A.O has acted unreasonably and capriciously in rejecting the genuine explanations offered by the Assessee in respect of the impugned cash deposits as unsatisfactory solely with the aim of fastening exorbitant tax liability on the Assessee-Company under the garb of unexplained cash credit u/s 68 of the Act. Such recourse primarily hedged on surmises, conjecture, assumptions, presumptions and whims of the Revenue Authorities is clearly unwarranted and the additions so made is unsustainable in the eyes of law and thus deserves to be quashed. 116. In view of the above, it is prayed that the addition made by the A.O (and partly sustained by the CIT (A)) u/s 68 on account of cash deposited in banks during the demonetization period may kindly be deleted. 117. The learned CIT DR briefly referred to the announcement of the scheme of demonetization on 8/11/2016 and stated that the assessee has deposited huge amount of cash in its b....
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....learned CIT-A has upheld the addition to the extent of only INR 7 3.13 crores instead of addition made by the learned assessing officer of INR 1 50.53 crores he submitted that the learned CIT-A has wrongly granted relief to the extent of INR 13.99 crores and INR 63.41 crores. He submitted that whether the amount is deposited in the currency or old currency the addition is required to be made. The learned CIT-A has held that as INR 6 3.41 crores are deposited in the new currency no addition is required to be made in the hands of the assessee. He further submitted that merely because the amount is credited to the profit and loss account as sales the addition thereon couldn't be deleted. 119. We have carefully considered the rival contention and perused the orders of the lower authorities. Admittedly assessee has deposited INR 1 80.53 crores during the post-demonetization between 9/11/2016 to 30/12/2016. The assessee has disclosed INR 3 0 crores under Pradhan Mantri Garib Kalyan Yojna (PMGKY). Therefore learned AO made an addition of INR 1 50.53 crores as income of the assessee u/s 68 of the income tax act. The main reason for such addition was that during the course of search proc....
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.... the above chart, it is seen that out of total cash deposit of 175.28 crores, a sum of INR 634,100,000 was in respect of new notes of INR 2000, 500 and changed old notes of Rs. hundred, 50, 20 and INR 10 and the balance of INR 1,118,700,000 related to old currency. The trend of cash deposit transaction was compared with immediately preceding year i.e. financial year 2015-16, the total cash deposits out of the sails for the same period were 17 4,00,00,000 and the real position of earlier years is as under:- Financial year 2014-15 Financial year 2015 -16 Financial year 2016 -17 Cash sales Deposit Cash sales Deposit Cash sales Deposit 237.50 242.70 412.57 428.25 633.33 634.00 b) The monthly rent of cash sales and cash deposit transactions for the period of financial year 2014-15, 2015-16 and 2016-17 are as under:- month financial year 2014-15 Financial year 2015-16 Financial year 2016-17 Cash Sales Deposit Cash Sales Deposits Cash Sales Deposits April 27.15 25.82 42.70 42.05 58.48 45.66 May 8.51 10.71 23,55 21.72 61.92 57.49 June 12.95 4.7....
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....tively iv. further from the analysis of cash holdings from 1/11/2016 revealed the following scenario date opening cash balance cash deposit in bank closing balance 1/11/2016 88.12 crores - 95.60 crores 3/11/2016 102.39 4.45 103.90 4/11/2016 103.90 4.15 99.75 5/11/2016 99.75 5.50 108.11 7/11/2016 108.05 5.0 109.24 8/11/2016 109.24 3.65 113.03 10/11/2016 113.03 13.99 98.52 11/11/2016 98.90 16.88 81.64 From the analysis of the above letter, it can be seen and concluded that 1) 13/11/2016 cash holding was of INR 1 02.39 crores in hand out of which only INR 4.45 crore cash has been deposited in the bank, which suggest that legitimate cash holding was to the extent of INR 4.45 crore 2) similarly, on 4/11/2016 to 7/11/2016 (before demonetization) assessee has deposited small amount of cash (in terms of volume of cash) in bank despite having huge cash in hand and large amount of bank loans 3) on the demonetization day i.e. on 8/11/2016 closing cash holding was INR 1 13.03 crores out of which assessee deposited only INR 1 3.99 crores in ban....
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....he contention that INR 6 3.41 crore deposited in respect of new notes of INR 2000-500 and old notes of Rs. 100, 50, 20 and 10 represents accounted income of the assessee is not acceptable. Further it was stated that no evidence was provided by the assessee to show that INR 1 3.99 crores represent legitimate cash in hand. Therefore, benefit of INR 1 3.99 crore cannot be given to the assessee. Therefore, the entire amount of cash deposits post-demonetization remains unexplained. 121. In response to the above in the deviation meeting dated 28/12/2018 the assessing officer stated as under:- "a) with regard to cash sales of INR 1 75.28 crores (during 8/11/2016 to 31/12/2016) sum of INR 63 .41 crore was the new currency notes of INR 2000/- and INR 500/- denomination. In this respect, the assessee has furnished evidence i.e. bank deposit slips to prove this. As per DDIT (INV), unit-7 (4), Delhi White this letter dated 24/12/2018 "the contention that INR 6 3.41 crore deposited in respect of new notes of INR 200, 500 and on change old notes of Rs. hundred, 50, 20 and 10 represents accounted income of the assessee is not acceptable." It is to be stated that the case sales even in....
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....e in new currency notes of INR 2000 and INR 500 and old currency notes of Rs. hundred, INR 5 0, INR 2 0 and INR 10. The assessee has paid INR 3 0 crores under the PMGKY capital scheme during the post-search proceedings is declared during the search proceedings, therefore, the benefit of INR 3 0 crores was allowed out of INR 1 80.53 crores, accordingly INR 1,505,300,000 was added to the total income of the assessee. Further, there was huge difference in cash deposits of current year and cash deposits in past 2 years." 124. When assessee approached the learned CIT-A, he dealt with the whole issue as per paragraph number 5.4 of his order as under:- "5.4 I have considered the facts and circumstances of the case, submission of the appellant and perused the AO's order. I find that it is not understood as to why the cash of such a huge amount was kept by the appellant at its premises as on 9/11/2016 as only INR 1 3.99 crore was deposited into the bank account on 8/11/2011 but the balance of Rs. 99.04 crore was not deposited into the bank account. The appellant has not explained the necessity for keeping the cash in hand of such a huge amount whereas huge amount of ban....
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.... there is a booking of sales, which is non-existent and thereby unaccounted money of the assessee in old currency notes (SBN) have been pumped into as unaccounted money. The instruction dated 21/02/2017 that the assessing officer basic relevant information e.g. monthly sales summary, relevant stock register entries and bank statement to identify cases with preliminary suspicion of back dating of cash and is or fictitious sales. The instruction is also suggested some indicators for suspicion of back dating of cash else or fictitious sales where there is an abnormal jump in the cases during the period November to December 2016 as compared to earlier year. It also suggested that abnormal jump in percentage of cash trails to on identifiable persons as compared to earlier histories will also give some indication for suspicion. Non-availability of stock or attempts to inflate stock by introducing fictitious purchases is also some indication for suspicion of fictitious sales. Transfer of deposit of cash to another account or entity, which is not in line with the earlier history. Therefore, it is important to examine whether the case of the assessee falls into these parameters are not. ....
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....lted in to jump of Rs. 221.34 Cr resulting in to increase by 53.66 %. The % increase in sales in F Y 2105-16 compared to F Y 2014-15 of 73.74 % and % increase in sales in FY 2016-17 is only 53.66 %. Thus in the year of demonetization % increase in sales in less than earlier year. Growth in sales compared to earlier two years in case of the assessee shows similar trend. Thus, it cannot be said that assessee has booked non-existing sales in its books post demonetization. ii. Sales in November 2014 was Rs. 16.49 Crores where as sales in November 2015 was Rs. 45.18 crores, Thus resulting in to jump in sales of Rs. 28.69 Cr. The Jump In sales of November 2015 from Rs. 45.18 crores to sales in November 2016 of Rs. 47.73 crores was meager sum of Rs. 2.55 crores. Comparative Jump sales in November 2015 was 173 % where as comparative jump in sales of November 2016 of Rs. 47.73 Crores to sales of November 2015 of Rs. 45.18 Crore was meager 5.64 %. Thus compared to earlier years there is no substantial increase in sales of November 2016 (Post demonetization). There is no higher booking of sales by the assessee compared to earlier years which can justify the stand of the revenue that ....
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.... in the business of the assessee beyond pre demonetization and post demonetization. vii. It is not the case of the revenue that assessee has not shown the relevant stock register before the assessing officer. The assessee has maintained the complete stock tally in its accounting software. Such books of accounts are audited, quantitative records produced before the tax auditor, such quantitative records are certified by tax audit and no questions have been raised by the assessing officer. Thus, it cannot be said that the figures of sales and purchases are not supported by the quantity details. viii. Another ground cited by the A.O in support of the impugned addition is that the stock position was short by nearly Rs. 450 crores as against the stock recorded in the books of account. While alleging so, the A.O has completely overlooked the fact that the godown of the Assessee at Agson Global Logistics Park, Sonepat, Haryana wherein a part of the stock of the Assessee was stored was not covered under the search action. The stock lying at the said premises was not taken into consideration while arriving at the physical stock as on the date of search, thus resulting in t....
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....ized and therefore various adjustment like depreciation, interest and provisions for expenses were made after the close of the financial year. Therefore, it was submitted that gross profit shown by those tally data could not be compared with the data of audited accounts of earlier years. Assessee also submitted that if the GP ratio of all the years including financial year 2016-17 (Assessment Year 2017-18) is more or less same and there was no variation in the gross profit ratio. Therefore, comparison of the gross profit ratio with unaudited data of the current year with the audited data of the previous year cannot be made. However, there was a categorical statement of the assessee that if the audited accounts of the current year with the audited accounts of the previous year are compared there is no deviation in the gross profit ratio declared by the assessee. Subsequent to this submission, there is no further enquiry by the assessing officer. Assessee submitted that gross profit for assessment year 2015-16 is 6.41%, for assessment year, 2016-17 is 4.19% and for assessment year, 2017-18 it is 5.85%. The assessee also compared the net profit ratio, which is 0.72%, 0.81% and 1.35% c....
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.... the learned AO himself stated that there is an element of suspicion that the assessee has made introduction of unaccounted cash in its books of accounts in the wake of Demonetization. However, he hastened to add that at the same time the Cash sales to the certain acceptable extent as per the business trend of the assessee company could not be ruled out. He neither made any attempt by making independent enquiry is to strengthen his suspicion into sound fact, nor he accepted the explanation of the assessee. He simply proceeded to make the addition. As per our analysis of the cash sales, which is as per the business trend of the assessee company only. xii. Further, it is not the case of the revenue that sales booked by the assessee in the newly introduced currency are bogus. It is accepted by the AO in deviation report that such addition, which is on account of sale in the new currency, cannot be added. xiii. With respect to the opening balance of INR 1 3.99 crores the learned assessing officer himself agreed during the deviation proceeding that such addition cannot be made. When such holding of cash as per the books of accounts was found correct, there is no reason....
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.... garments. Therefore it was submitted that the funds available to the assessee are either repayable on a predefined term and or are having very small rate of interest. Therefore, it cannot have any relationship with the holding of cash on hand. xvii. Now the cardinal issue that requires to be discussed is that the assessee is maintaining its books of account in Tally software. It also maintains its stock register in that software. The various pages of the appraisal report and the printouts found during the course of search shows that assessee maintains the books of account of the large number of companies of its group or associates in the tally software. At page number 123 of 198 of part a of appraisal report, at the time of the search the gross profit margin of the assessee was 4-6% only. It was also stated that since the figures reported in the audited balance sheet and ITR are not matching with the tally records, the authenticity of the books of accounts of the assessee company is doubtful. It also recorded that the debt or in respect of transaction's voluminous, there are large number of bank accounts, use cases thereby making it complex. Thus the appraisal report sugg....
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....s dismissed. 128. Accordingly, all these appeals are disposed off as 6 appeals of the assessee are partly allowed and 6 appeals of the ld AO are dismissed. Order pronounced in the open court on 31/10/2019. ============= Document 1 SIN 1 Particulars of Additions made by the A.O Addition u/s 68 on a/c of share capital and premium received from: (i) Outsiders/ unrelated parties A.Y. 2012-13 A.Y. 2013-14 A.Y. 2014-15 A.Y. 2015-16 A.Y. 2016-17 A.Y. 2017-18 48,19,87,00 0 (ii) From alleged associated parties: Mahalaxmi 14,92,00,00 15,20,00,00 Traders 0 0 65,30,99,00 24,81,49,80 17,86,74,75 Sri Balaji 34,79,50,00 0 0 0 52,23,87,90 Enterprise Vishal Traders 0 9,55,55,000 6,48,90,000 11,60,00,10 37,60,99,65 0 0 0 Rustagi Exim P. Ltd Vikas 2,31,66,700 International 81,35,44,00 (iii) From alleged 65,43,53,70 49,99,50,00 0 36,41,49,90 55,47,74,40 52,23,87,90 unknown parties 0 0 0 0 0 2 Total addition u/s 68 on account of share 1,62,70,880 capital/ premiu....
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.... AGPL in the form of share 4,85,00,600 application. TOTAL Less: Amount adjusted against goods Amount received towards share application form MT 18,90,80,663 14,98,50,600 6,50,600 14,92,00,000 Document 5 Particulars On 18.03.2013 : (i) AGPL paid to Rustagi Exim Pvt. Ltd. (ii) Rustagi Exim Pvt. Ltd. paid to Sri Balaji Enterprises in form of share (iii) Sri Balaji Ent. paid to AGPL the application Between 28.03.2013: 26.03.2013 to (i) AGPL paid to Sri Balaji Enterprises (ii) Sri Balaji Enterprises paid to AGPL in the form of share application. (iii) AGPL paid to Vishal Trader (iv) Vishal Traders paid to Sri Amount paid by AGPL to SBE either directly or indirectly via intermediaries (Payment by AGPL to Intermediaries) Rs. 1,50,00,000 Amt. received by AGPL as Share Application from (Payment to SBE) Rs. SBE Rs. 30,00,000 Paper Book Ref. Following Book No.-7B: docs enclosed in Paper (i) Confirmation of Sri 30,00,000 Enterprises Annexure-A. 5,89,40,280 1,05,50,000 4,83,91,200 3,34,00,000 Balaji (ii) Complete Tra....
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....ween 18.02.2013 to 19.02.2013 AGPL paid to Rustagi Exim Pvt. Ltd. Rustagi Exim paid to RJ Cold Storage Pvt. Ltd. RJ Cold Storage Pvt Ltd. paid to Vishal Traders (iv) Vishal Traders paid to AGPL in the form of share application Between 25.02.2013 to 26.02.2013 (i) AGPL paid to Vishal Traders (ii) Vishal Traders paid to AGPL in the form of share application Between 25.02.2013 to 27.02.2013 (i) AGPL paid to Rustagi Exim Pvt. Ltd. Rustagi Exim paid to RJ Cold Storage Pvt. Ltd. RJ Cold Storage paid to Vishal Traders (iv) Vishal Traders paid to AGPL in the form of share application. Between 27.02.2013 to 13.03.2013 (i) AGPL paid to Vishal Traders (ii) Vishal Traders paid to AGPL in the form of share application Between 18.03.2013 to 22.03.2013 (i) AGPL paid to Rustagi Exim Pvt. Ltd. (ii) Rustagi Exim paid to RJ Cold Storage (iii) RJ Cold Storage paid to Vishal Traders (iv) Vishal Traders paid to AGPL in the form of share application On 25.03.2013 AGPL paid to Vishal Traders 1,50,00,000 1,50,60,000 6,60,83,900 1,48,34,500 2,90,00,000 1,48,3 4,500 4,06,0 0,000 3,10,....
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....9.2013 (i) (ii) AGPL paid to Rustagi Exim Pvt. Ltd., Rustagi Exim Pvt. Ltd. Paid to AGPL in the form of share application. Rs. 9,78,46,415 TOTAL Amt. received by AGPL as Share Application from REPL Rs. 9,55,55,000 9,78,46,415 9,55,55,000 Paper Book Ref. Following docs enclosed in Paper Book No.-7E: (i) Confirmation of Rustagi Exim Pvt. Ltd.: Annexure A (ii) Complete Trail of Funds: Pg. 1 Relevant bank statements of parties evidencing concerned movement of funds: Pgs.2-18 Document 13 Particulars: Amt. paid by AGPL to VI Amt. received by AGPL as Share Application from VI Between 04.04.2013 to 1.10.2013 AGPL paid to Vikas International (iii) (iv) Vikas International paid to AGPL in the form of share application. Rs. 6,82,39,975 TOTAL Rs. Paper Book Ref. Following docs enclosed in Paper Book No.-7C: Confirmation of Vikas International Annexure A Complete Trail of Funds: Pg. 1 (i) 6,48,90,000 (ii) (iii) 6,82,39,975 6,48,90,000 Relevant bank statements of concerned parties evidencing movement of funds: Pgs.2-....