TaxTMI 
TaxTMI 
2021 (1) TMI 10
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....imilar, so same were heard together and are being disposed off by way of this consolidated order. AY 2013-14- ITA No.3993/Del/2019 3. We will first take up the appeal for the assessment year 2013-14 in ITA No 3993/Del/2019. The grounds of appeal raised are reproduced as under: 1. That the Commissioner of Income-tax (Appeals) ['CIT(A)'] erred on facts and in law in not holding that the assessment completed vide order dated 29.12.2017 under section 143(3) r.w.s. 153A of the Income-tax Act ('the Act') is beyond jurisdiction, bad in law and void-abinitio. 2. That the CIT(A) erred on facts and in law in not appreciating that the assessment order passed under section 143(3)/ 153A was passed in gross violation of provisions of section 153D of the Act inasmuch as the statutory approval of the JCIT, if any, was not provided to the appellant, and thus the assessment completed is beyond jurisdiction and bad in law. Without prejudice: 3. That the CIT(A) erred on facts and in law in upholding addition of Rs. 23,03,77,859 made by the assessing officer under section 69C of the Act treating purchase of milk in cash under the nomenclature "milk purchases ta....
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....s of appeal no.2, the appellant had argued that the assessment order dated 29.12.2017 passed by the assessing officer ('AO') u/s 153A was in violation of section 153D of the Act and thus beyond jurisdiction and bad in law. Section 153D provides that order u/s 153A of the Act cannot be passed by the assessing officer (below the rank of Joint Commission) without prior approval of the Joint Commissioner. At the end of the assessment order dated 29.12.2017 passed u/s 153A/ 143(3), the AO has remarked that the order was passed by taking approval from Joint CIT u/s 153D of the Act vide letter dated 29.12.2017. 6. In this regard, the appellant had submitted that copy of approval u/s 153D from JCIT was not provided to it, which is in gross violation of the principles of natural justice. It has been pleaded before us that in absence of copy of approval being granted, it is reasonable to conclude that requisite sanction was not obtained by the AO or the approval/ sanction obtained may not be proper and consequently, the assessment order passed is without jurisdiction, illegal and bad in law and liable to be quashed. The appellant further submitted that the assessment order is passed on....
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....required in the statute is the approval of JCIT which was available on record and the detail have been mentioned in the assessment order also and there is no statutory requirement under the law that copy of such approval or opportunity of hearing is to be given to the assessee. Accordingly, Ground no.2 as raised by the appellant is dismissed. 9. In grounds of appeal nos.3 to 3.5 the appellant has challenged the addition of Rs. 23,03,77,859 made under section 69C in respect of cash purchases of milk, namely 'Milk Tanki Purchases'. The appellant is stated to be one of the reputed manufacturers and exporters of milk and milk products like Skimmed Milk Powder, Full Cream Milk Powder, Dairy Whitener, Milk Fat, Paneer, Liquid Milk and Desi Ghee. The appellant-assessee supplies its products under the brand name of "Param Premium". Purchase of milk by the appellant from several producers is classified under various heads, viz.; (a) Milk purchases 'tanki' where under farmers from nearby villages come with their milk production to the appellant's factory and at times milk is stated to be delivered by one representative farmer in tanki on behalf of group of farmers. Payments to....
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....ayments made against such tanki purchases. Assessing Officer in his order has observed that the appellant did not file contact details of farmers from whom tanki purchases were made, complete detail of stock was not filed, etc., and thus, sources of milk tanki purchases made in cash does not stand substantiated. Based on the said allegation, addition of Rs. 23.03 crores on account of milk tanki purchases has been made by the AO u/s 69C of the Act. The assessing officer further held that the aforesaid sum is also disallowable under section 40A(3) of the I.T. Act since huge cash payments to traders were made in violation of that section (and not to farmers covered under Rule 6DD as stated by the appellant) for purchases of milk. 12. On first appeal, the appellant filed detailed submissions alongwith various documents before the CIT (A), for assessment years 2008-09 to 2014-15 combined. Complete details of stock, details of each farmer, payments made to them day wise etc. were placed on record. The submissions were remanded by the CIT (A) to the assessing officer for comments thereon. During the course of remand proceedings, the AO had required the appellant to produce various f....
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.... purchases on the ground that the same was made at relatively low rates. For the said reasons, addition of milk tanki purchases under section 69C of the IT Act was upheld by the CIT (A) holding the same to be bogus. 14. That apart, it was held by the CIT(A) that Rule 6DD of the IT Rules, which provides for exceptions to applicability of section 40A(3) of the IT Act cannot be invoked as the persons examined by the AO were clearly of trade dispensation and cannot be said to be agriculturists nor can other constraints of not having banking channels be seen. On examination of factual details by the CIT(A), a sum of Rs. 45,30,989 was found to be paid in cash against the tanki purchases which were in violation of section 40A(3) of the Act. No separate disallowance for the same was however made since entire tanki purchases stood added back under section 69C of the IT Act. 15. The ld. Senior Counsel, Mr. Ajay Vohra appearing on behalf of the appellant argued that at the threshold itself the aforesaid addition cannot be sustained since provisions of section 69C of the IT Act are not applicable to expenditure/ amount duly recorded in the books of account. He submitted that section 69C ....
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.... 17. Apart from the aforesaid legal submission, the Ld. Sr. Counsel also made various alternative submissions. His second limb of submission was that purchases made were genuine and there were no reasons for doubting the tanki purchases made by the appellant in cash. In this context, the modus operandi for milk purchases tanki was explained by him in the following manner: * Farmers from nearby villages having limited milk production come to the assessee's factory and sell their daily milk production to the assessee. Sometimes, one head/ select farmer from the village collects all the milk and sends the same to the assessee's factory. In case where head/ select farmer of the village collects and gets the milk, assessee keeps record of the select farmer of each village but not of the individual farmers, considering that the regular purchase/ dealing is made with the select farmer on behalf of the individual farmers. In the books of accounts, the assessee makes a common entry of purchases in order to avoid multiple and numerous ledgers. * At the time milk is received at the factory gate, the milk is weighed and tested for quality of milk. A quality slip is generated....
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.... that purchases made by the assessee are clearly recorded in the books and are fully verifiable. Further, it was submitted by the appellant that the Ahmedabad Bench of the Tribunal in the case of Gamdiwala Dairy vs. ACIT: 136 TTJ 33 noted similar system of milk procurement by the assessee engaged in the dairy business. It was vehemently contended the aforesaid process is being adopted by the assessee for the last several years and has always been accepted in the past years. It was also submitted that other milk purchases (other than tanki purchases) are also substantially/ largely in cash but are not disputed by the Department. It is further submitted that the assessee has been dealing with same farmers' year on year, which has not been doubted by the assessing officer in preceding and even subsequent years (AY 2015-16 onwards). In this context, the Ld. AR relied upon the principle of consistency laid down in Radhasoami Satsang v. CIT: [1992] 193 ITR 321 (SC) and reiterated in CIT v. Excel Industries Ltd.: [2013] 358 ITR 295 (SC) and other decisions. 20. As regards the findings/ allegations of the Assessing Officer and Ld. CIT(A) that purchases were bogus since; (i) assessee fai....
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....t milk purchase tanki is primarily skimmed milk which has no fat content and thus the value/rate of such milk is bound to be low. 22. It was next submitted by the ld. Senior Counsel that the appellant had more than sufficient cash generated from substantial undoubted cash sales to source the purchases and details of cash sales and withdrawals to fund total cash sales is placed at pages 72 of the paper book filed by the assessee. It was also argued that milk procured through 'milk tanki purchases' is used to produce only Skimmed Milk Powder (SMP) and milk procured via other modes is usually not utilized for manufacture of SMP; therefore, SMP could not have been produced if there were no milk tanki purchases. A quantitative summary chart of milk and milk products has been filed at pages 70 to 71 of paper book, and from perusal of which it is noticed that total quantity of milk procured by way of 'milk tanki purchases' is utilized in manufacturing of SMP. It was thus argued that since, the quantity and sale of SMP has been accepted/ not doubted by the Revenue, the sales and corresponding purchases have been reported in returns filed before the sales tax/ VAT authorities, to allege ....
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....uly audited by the auditors and no adverse comment/ qualification thereon has been given; (ii) the books of account are accepted as correct and complete and have not been rejected by the assessing officer; and (iii) the Revenue department has accepted the history of book results declared by the assessee. Support was also drawn from the fact that if the aforesaid alleged tanki purchases are to be considered as bogus, then the GP ratio would increase drastically which defies logic and the consistently accepted GP ratio over the years, which supports the fact that purchases were genuine. In support reliance in this regard was placed on the decision of the jurisdictional Delhi High Court in the case of CIT v. Paradise Holidays 325 ITR 13 (Del.) wherein the Court held that the accounts which are regularly maintained in the course of business and are duly audited, free from any qualification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that the same are incorrect or unreliable. The Hon'ble Court further observed that the onus was upon the Revenue to show that either the books of account maintained by the assessee were incorrect or ....
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.... purchases have been made from farmers, which is outside purview of disallowance under section 40A(3) of the Act [refer Tum Nath Shaw vs ACIT: 175 ITD 45 (Kol-Trib.)]. 29. The Ld. DR, on the other head, vehemently relied upon the orders of the authorities below. He further submitted that addition under section 69C of the IT Act was rightly made by the assessing officer since the assessee failed to produce supporting evidences and failed to justify cash milk purchase tanki and that he could not establish cash payments. It was submitted that since the assessee was claiming expenses towards purchases, the onus was entirely on the assessee to establish the genuineness of the purchases. It was also contended that the claim of the appellant of having made purchases from farmers is not established in this regard, reliance was placed on the statements recorded during the first appellate proceedings. It was further submitted that the appellant should have, when called upon, produced the suppliers of milk to establish genuineness of the purchases made, which has not been done. It was contended that the supplier produced could not demonstrate the capacity to supply milk and hence the claim....
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....books of account and is reflected in the audited financial statements, wherein total purchases including Milk Tanki Purchases have been debited to the profit and loss account. Secondly, these purchases are duly reflected in ledger account forming part of regular books of account placed before the Assessing Officer and also acknowledged by him and the entire source of purchases are duly recorded in the books of account. Once the source of purchases are duly recorded in the books of account, ostensibly, then source of such purchase/ expenditure stands established, because it has been incurred out of the funds shown in the books of account. In such a case, at the threshold, addition under section 69C cannot be resorted to, because the source of such expenditure stands duly explained from the funds available in the books of account and it cannot be held that purchases have been made outside the books of account. This proposition is in conformity with the judgement of Hon'ble Jurisdictional High Court in the case of CIT versus Radhika Creation (supra). 32. The case of the Revenue is that the genuineness of the purchases could not be established merely for the reason that the payme....
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....ties have also been placed in the paper book on which our attention was drawn. Lastly, after the milk is sent for processing and for other milk products, same is entered as stock and is recorded in the stock register maintained by the assessee. When the milk or the milk products are sold, the relevant sale register and invoice are maintained. In support of these purchases, the assessee has filed weighment/ quality slips generated at the time of receipt of milk in the factory, copies of milk receipts issued by the assessee and the details of milk brought by the farmers including the weight and amount, details of ledger account of the parties from whom purchases and sales have been made; monthly summary of milk purchase made from the farmers of different villages, month wise payment, stock details and quantity of milk products manufactured, etc. 33. In none of the above details, the Assessing Officer has found any discrepancy or has found any fault, that the same is either not explainable or is not corroborated with other records. If the quantity of purchases are verifiable from other records maintained by the assessee and no discrepancy or defect has been found in the stock regis....
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....n such cash itself forms the source of purchases which too has been recorded in the books of account. It has been stated before us that the milk tanki purchases were used only to produce skimmed milk powder and substantial sale of skimmed milk powder have been made shown in the books of account. Without any purchase such huge quantity of tanki milk, skimmed milk powder could not have been sold. In support, quantitative summary chart of milk and milk products have also been filed before us which goes to show that entire milk tanki have been utilized for manufacturing of skimmed milk powder. Once the sales have been accepted, then corresponding purchases cannot be doubted especially when all the purchases and sales are recorded in returns filed before the VAT authorities. We agree with the contention of Mr. Vohra that assessee could not have made admitted sale without having made the disputed purchases especially when sales quantity and value has been accepted, and therefore, we hold that the corresponding purchases cannot be disallowed. 36. Lastly, if the Assessing Officer has not rejected the books of account or the trading result, then Assessing Officer cannot tinker with the g....
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....ven to employees and the paper was merely in the nature of a rough estimate. 40. On further appeal, the CIT(A) upheld the addition made on the ground that the details in the annexure appears to be salary paid outside books of accounts. The CIT (A) held that the AO in the remand report submitted that the appellant did not submit any documentary evidence or explanation against the addition of Rs. 8,11,239/- and therefore, in absence of any details/ evidence or explanation the Ld. Assessing Officer was justified in adding the amount of Rs. 8,11,239/- from the head salary difference to the assessee income for the year under consideration, which has been made based on a seized document. 41. During the course of arguments, the Ld. Senior Counsel for the appellant submitted that vide letter filed before the assessing officer (page 113 of paper book), the appellant explained that the said seized document is in nature of rough jottings and is dumb document inasmuch as it was stated that: (a) the author of the document is not known; (b) the document do not bear any signature; and (c) contains mere rough jottings as 'salary difference'. It was submitted that the jottings merely relate t....
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....and discussed by the Tribunal in assessee's own case on the same issue, and no material difference has been pointed out by the Department, therefore the finding of the Tribunal will act as precedence and this year also. Accordingly, respectfully following the earlier year orders the addition of Rs. 8,11,239/- is deleted. 45. In ground of appeal no.5 the appellant has challenged addition of expenses of Rs. 4,14,120/- made by the AO under section 69C of the IT Act and affirmed by the CIT(A) on the ground that the same were not accounted in books of account. During the course of search, certain vouchers for expenses were seized. The same were marked as Page Nos. 114 to 127 of Annexure A6 pertaining to party PD-2 (placed at pages 159-171 of paper book). The assessing officer made addition of aforesaid amount of Rs. 4,14,120/- holding that the same were expenses incurred outside books of accounts. The CIT (A) affirmed the addition. 46. During the course of arguments, the Ld. Sr. Counsel submitted that the pages/ material relied by the assessing officer are not incriminating material and further submitted that papers (first paper) contain rough jottings with heading 'legal ex....
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.... of the assessee during the course of search, then it is presumed to be belonging to such person only. Though this presumption is rebuttable but such a rebuttal has to be based on certain cogent evidences and explanation, which in our opinion has not been discharged by the assessee. Therefore, the addition of Rs. 4,14,120/- is confirmed. 48. In ground of appeal no.6 the appellant has challenged the action of the assessing officer/ CIT (A) in levying and computing interest under sections 234A, 234B and 234C of the IT Act. 49. It is submitted by the appellant that levy of interest is incorrect for the reason that: (a) Interest under section 234A of the Act has been erroneously computed for the period of 99 months, as against delay of merely 8 months after time allowed to file return in response to notice under section 153A of the IT Act since assessee was required to file return under section 153A of the IT Act within 15 days from notice dated 26.05.2015 and in response to which letter/ return was filed on 11.01.2016 and (b) Interest under section 234C of the IT Act is required to be computed basis returned income, which is not correctly computed. Further, interest under sectio....
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....t; (ii) that assessed/ accepted sale could not have been made by the appellant in absence of the disputed purchases. 2.3 That the CIT(A) erred on facts and in law in not appreciating that provisions of section 69C of the Act is not applicable on expenses duly recorded in the books of accounts and in respect of which source(s) was duly established. 2.4 That the CIT(A) erred on facts and in law in not applicating that the aforesaid purchases of milk from farmers fell under the exceptions provided under Rule 6DD of Income-tax Rules and thus not hit by rigors of section 40A(3) of the Act. 3. That on facts and circumstances of the case, disallowance to the extent of Rs. 5,87,652 (Rs. 1,86,55,635*0.0315) by applying gross profit ratio to alleged unexplained balances of sundry creditors, alleging the same to be suppressed profits element in respect of unexplained balances/ purchases was not deleted. 4. That the CIT(A) erred on facts and in law in affirming the action of the assessing officer in making disallowance of Rs. 89,29,854 under section 69C of the Act on the ground that certain expenditure incurred towards packing material was not accounted/ rec....
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....essed by the appellant and thus, dismissed as not pressed. 55. In ground of appeal no.4, the appellant has challenged addition of Rs. 89,29,854 under section 69C of the IT Act on the ground that certain expenditure incurred towards packing material was not accounted or recorded in the books of accounts. The facts in brief qua this issue are that during the course of search, certain loose papers were seized which were marked as Page Nos. 6 to 22 of Annexure A7 seized from party PD-2. The said annexure contained some details of transactions with several parties towards purchase of packing material such as name, purchase amount, TDS, cash, cheque, etc. On the basis of the said papers, the assessing officer held that amount shown under column 'cash' was expenditure incurred outside the books of accounts. Accordingly, the same was treated as unexplained expenditure under section 69C of the IT Act and added to income of the assessee. The addition was upheld by the CIT (A) observing that the appellant failed to offer any substantive explanation in this regard. 56. The Ld. Sr. Counsel for the appellant submitted that the assessee purchases packing material from several vendors for....
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....rden to establish that such income is chargeable to tax is on the assessing officer. Reliance in this regard was placed on the decision of the apex Court in the case of CBI v. V.C. Shukla &Ors.: (1998) 3 SCC 410, wherein the Court held that the contents of a diary impounded from a third party could not by itself be the basis of making any addition and the same requires corroboration by independent material/ evidence. The said decision has been, followed in Common Cause (A registered Society) vs. Union of India: 394 ITR 220 (SC). It has also been submitted that any allegation of movement of money must be corroborated by evidence supporting such allegation for making addition, in absence of which no addition could be made [Shankerlal Nebhumal (HUF) V. DCIT: 80 TTJ 69 (Ahd.) affirmed in DCIT V. Jivanlal Nebhumal (HUF): 182 CTR 370, Kences Foundation (P) Limited: 289 ITR 509 (Mad), Ramesh K. Shah v. DCIT: 82 TTJ 827 (Bang)]. 59. We have heard the rival submissions and perused the relevant finding given in the impugned order as well as the material referred to before us, the addition has been made u/s.69C on the ground that certain expenditure incurred towards packing material has no....
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....count. Moreover, when packing material is used only for product for sale and sales have been accepted, then there can be no inference that assessee must have sold packing material outside the books also. Under these circumstances, we do not find that addition of Rs. 89,29,854/- is called for. 61. In ground of appeal no.5, the appellant has challenged addition of Rs. 14,37,410 made in the assessment order on the basis of Annexure BB1 seized from Party PD-2, copy whereof is placed at pages 278 to 287 of paper book as unaccounted sales not recorded in the books of accounts. The assessing officer noted that when during the post search enquiries, the assessee was asked to explain the contents of these pages, the assessee submitted that the annexure contained detail of milk sale prepared by a small sale depot in-charge and the same is a rough note maintained by the depot in charge for his ease, on the basis of which no adverse inference should be drawn. 62. The assessing officer did not accept the contention of the assessee, since date wise entries have been made with narrations given against each entry. The assessing officer further held that these pages relates to the month of Fe....
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.... and has relied upon ITAT decision where in principle it has been held that no addition could be made on the basis of noting/jottings recorded in the loose paper which is dump documents. But no where it has been pointed out, whether the same seized document or annexure was subject matter of examination or consideration by the Tribunal. However, we agree with the alternate contention that, since addition on account of gross profit ratio on alleged unexplained balances of sundry creditors as suppressed profit element in respect of unexplained balances/ purchases, which was challenged vide ground no.3, is not pressed, therefore, no separate addition qua the sales outside the books can be made. On this ground the addition made by the Assessing Officer is deleted. 66. In ground of appeal no.6, the appellant has challenged addition of Rs. 35,72,166 made by relying on pages 68,70,74 of Annexure 9 found from PD-3 and addition of Rs. 65,14,988 as per pages 38 to 44 of Annexure A2 found from PD-3 as unexplained difference between receipts and payments recorded in the said documents, which has been upheld by the CIT(A). 67. Before us, the Ld. Sr. Counsel submitted that the aforesaid sei....
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....any infirmity in the order of the Assessing Officer that the differences remain unexplained and the onus cast upon the assessee has not been discharged. Accordingly, amount of Rs. 35,72,166/- and Rs. 65,14,988/- is confirmed. 70. In ground of appeal no.7, the appellant has challenged two additions made under section 69C of I.T. Act, i.e. of Rs. 25,85,554/- on the basis of Page No. 54 of Annexure A7 pertaining to party PD-2 as expenses are not recorded in books of account and of Rs. 15,10,648/- on the basis of Page Nos. 55 to 81 of Annexure A7 on the ground that expense vouchers seized are not reflected in the books of account and hence are unaccounted expenditure. The additions have been upheld by the CIT (A). 71. As regards addition of Rs. 25,85,554/- on the basis of Page No. 54 of Annexure A7, the Ld. Counsel submitted that the seized annexures are merely handwritten rough noting on papers wherein certain amounts are mentioned against which short descriptions of items are given and merely some names and amounts are written. Similar arguments were made that the paper(s) are in the nature of unauthenticated dumb documents, author whereof is not known and the document/ paper d....
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....uchers shows that cash return was received back from the said parties. It has been submitted before us that the factum of such cash payment and receipt have been duly recorded in the books of account for which copy of ledger account have also been placed at pages 340 to 345. If the aforesaid expenses have duly been accounted for the books of account as reflected in ledger accounts and which has not been doubted or rejected by the Assessing Officer, then no addition can be made u/s.69C. The judgments relied upon by the Ld. Counsel also supports the same proposition. 76. In ground of appeal no.8, the appellant has challenged the addition of Rs. 9,78,194 made as un-reconciled balance between the seized manual ledger account of parties and the books of account, treating the same as unaccounted sales. 77. In the assessment order, the assessing officer referred to Annexure A-24 seized from the party PD-2 at the corporate office, Param Tower, Pusa Road, New Delhi, which contains the names of various parties without any address. It was observed that on top of these pages "ledger" is written and on each and every page against the name of party credit and debit balances are shown and a....
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....should have at all been added. 79. The Ld. DR vehemently supported the orders of the lower authorities and contended that the AO has rightly made addition only in respect of un-reconciled sales, which the AR has not been able to explain and hence there is no reason to delete the addition made. 80. After considering the aforesaid submissions and perused the relevant material placed on record, the amount of Rs. 9,78,194 /- added as un-reconciled balance between seized manual ledger account of parties and the books of account has been treated as unaccounted sales. It has been clarified and explained by the ld. Senior counsel that the seized paper are manual ledgers maintained for convenience, wherein business transaction with various parties are recorded including the opening balance, sales made during the year, payment received and the closing balance. It was used for immediate reference and then after correction entries are recorded in books of account. Once the two entries are verifiable form party wise ledger account appearing in books of account; Ledger account of various bank accounts maintained by the assessee; and Bank statements showing receipts of sales made, then such....