TaxTMI 
TaxTMI 
2021 (2) TMI 667
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....10/2019 641/Lkw/2019 16/10/2019 643/Lkw/2019 16/10/2019 2. All these appeals involve similar issues and these were heard together therefore, for the sake of convenience a common and consolidated order is being passed. The grounds of appeal taken by various assessees in these appeals relate both on merits as well as on legal issues. However, at the time of hearing, Learned counsel for the assessee argued grounds only on legal issues, which, in various appeals, are reproduced as under: I.T.A. No.630/Lkw/2019 "1. That the Ld. Commissioner of Income Tax (Appeals)-IV, Kanpur has erred in law and on facts in sustaining the addition of Rs. 1,00,00,000/- made by the Ld. AO u/s 68 of the Income Tax Act,1961, on account of alleged share capital amounting to Rs. 8,00,000/- and alleged share premium amounting to Rs. 92,00,000/-, without appreciating that no incriminating material, document(s)/evidence was found from the premises of the appellant (searched person) during the course of search, therefore, firstly, the impugned assessment made u/s 153A of the Income Tax Act, 1961 and secondly the addition for alleged unexplained share capital are illegal, voidab- i....
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....e, firstly, the impugned assessment made u/s 153A of the Income Tax Act, 1961 and secondly the addition for alleged unexplained expenditure are illegal, void-ab-initio, bad in law and liable to be quashed/deleted. 6. That the learned CIT(A) has erred in law and on facts in sustaining the impugned additions made by the Assessing Officer and ignoring the fact that the Assessing Officer has neither confronted any incriminating material/statement nor provided an opportunity to cross examine the persons of the Rich Group, whose statement(s) were relied upon by the Assessing Officer thus, the inference drawn were arbitrary, unilateral and are also illegal and unsustainable in law and on facts." I.T.A. No.633/Lkw/2019 "1. That the Ld. Commissioner of Income Tax (Appeals)-IV, Kanpur has erred in law and on facts in sustaining the addition of Rs. 2,00,00,000/- made by the Ld. AO u/s 68 of the Income Tax Act,1961, on account of alleged share capital amounting to Rs. 20,00,000/- and alleged share premium amounting to Rs. 1,80,00,000/-, without appreciating that no incriminating material, document(s)/evidence was found from the premises of the appellant (searched per....
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....he fact that the Assessing Officer has neither confronted any incriminating material/statement nor provided an opportunity to cross examine the persons of the Rich Group, whose statement(s) were relied upon by the Assessing Officer thus, the inference drawn were arbitrary, unilateral and are also illegal and unsustainable in law and on facts. I.T.A. No.634/Lkw/2019 "1. That the Ld. Commissioner of Income Tax (Appeals)-IV, Kanpur has erred in law and on facts in sustaining the addition of Rs. 1,99,99,980/- made by the Ld. AO u/s 68 of the Income Tax Act,1961, on account of alleged share capital amounting to Rs. 44,44,440/- and alleged share premium amounting to Rs. 1,55,55,540/-, without appreciating that no incriminating material, document(s)/evidence was found from the premises of the appellant (searched person) during the course of search, therefore, firstly, the impugned assessment made u/s 153A of the Income Tax Act, 1961 and secondly the addition for alleged unexplained share capital are illegal, voidab- initio, bad in law and liable to be quashed/deleted." 2. That the learned CIT(A) has erred in law and on facts in sustaining the addition of Rs. 5,0....
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.... No.637/Lkw/2019 "1. That the Ld. Commissioner of Income Tax (Appeals)-IV, Kanpur has erred in law and on facts in sustaining the addition of Rs. 1,50,00,000/- made by the Ld. AO u/s 68 of the Income Tax Act,1961, on account of alleged share capital amounting to Rs. 15,00,000/- and alleged share premium amounting to Rs. 1,35,00,000/-, without appreciating that no incriminating material, document(s)/evidence was found from the premises of the appellant (searched person) during the course of search, therefore, firstly, the impugned assessment made u/s 153A of the Income Tax Act, 1961 and secondly the addition for alleged unexplained share capital are illegal, voidab- initio, bad in law and liable to be quashed/deleted." 2. That the learned CIT(A) has erred in law and on facts in sustaining the addition of Rs. 3,75,000/- made by the learned Assessing Officer u/s 69C of the Income Tax Act,1961 on account of alleged unexplained expenditure @ 2.5%, in respect of share capital and share premium, without appreciating that no incriminating material, document(s)/ evidence was found from the premises of the appellant (searched person) during the course of search, therefore, ....
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....ting that no incriminating material, document(s)/evidence was found from the premises of the appellant (searched person) during the course of search, therefore, firstly, the impugned assessment made u/s 153A of the Income Tax Act, 1961 and secondly the addition for alleged unexplained share capital are illegal, voidab- initio, bad in law and liable to be quashed/deleted." 2. That the learned CIT(A) has erred in law and on facts in sustaining the addition of Rs. 2,50,000/- made by the learned Assessing Officer u/s 69C of the Income Tax Act,1961 on account of alleged unexplained expenditure @ 2.5%, in respect of share capital and share premium, without appreciating that no incriminating material, document(s)/ evidence was found from the premises of the appellant (searched person) during the course of search, therefore, firstly, the impugned assessment made u/s 153A of the Income Tax Act, 1961 and secondly the addition for alleged unexplained expenditure are illegal, void-ab-initio, bad in law and liable to be quashed/deleted. 3. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur, has erred in law and on facts in sustaining the treatment of profit in wholesa....
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....d in law and liable to be quashed/deleted. 2. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur, has erred in law and on facts in sustaining the arbitrary addition of Rs. 5,339/- made by the A.O., being the alleged commission paid @ 2% on the gross profit from wholesale trading of cloth treated as unexplained expenditure under section 69C of the IT. Act, 1961, merely on surmises and conjectures, without appreciating that no incriminating document(s)/evidence was found in the course of search relating to the above addition in the assessment passed u/s 153A of the Income Tax Act,1961. 6. That the learned CIT(A) has erred in law and on facts in sustaining the impugned additions made by the Assessing Officer and ignoring the fact that the Assessing Officer has neither confronted any incriminating material/statement nor provided an opportunity to cross examine the persons of the Rich Group, whose statement(s) were relied upon by the Assessing Officer thus, the inference drawn were arbitrary, unilateral and are also illegal and unsustainable in law and on facts." I.T.A. No.678/Lkw/2019 1. That the Ld. Commissioner of Income Tax (Appeals)-4, K....
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.... it was prayed that the appeals of the assessees may be allowed following the above Tribunal order. 4. Learned D. R. fairly agreed that the legal issues involved in these appeals are covered in favour of the assessee by the above said Tribunal order. However, she placed reliance on the orders of the authorities below and also relied on the written submissions already filed and taken note of by the Tribunal in the above said Tribunal order. 5. We have heard the rival parties and have gone through the material placed on record. We find that a search & seizure operation was carried out on the group of assessees on 23/08/2016 and in the earlier appeals which were decided by the Tribunal vide order dated 16/12/2020, the Tribunal had made a finding of fact that in assessment year 2013-14, the additions could not have been made as additions were not made on the basis of material found during the course of search and the assessments in those years had already stood completed. In the present case, the years involved are assessment years 2012-13 and 2014-15. In respect of I.T.A. No.633 & 634 for assessment years 2012-13 and 2014-15, the assessments stood completed on the date of search....
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....on the document marked as BK-2 which was seized by the search party from some other group and there the search took place almost one year before the date of search on the present assessees. The findings of the Tribunal are contained in para 5 of the order, which for the same of completeness, are reproduced below: "5. We have heard the rival parties and have gone through the material placed on record. We find that the first argument of Learned counsel for the assessee was that in case of completed assessments, the addition cannot be made if there is no incriminating material. In this regard Learned counsel for the assessee had submitted that in the year 2013-14 and 2015-16 the assessments stood completed and there was no incriminating material found during the search. In this respect the Bench had asked both the parties to furnish the material which was impounded during the search and which both the parties had filed with the Bench which we have examined and have compared with the material used by Assessing Officer in assessment order. We found that none of the material seized during the search was used by the Assessing Officer for making addition and instead had relied on ....
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....ver, the above findings clearly indicate that the accommodation entries of Long Term Capital Gain and unsecured loans were obtained by the individuals mentioned in the assessment order and there is no mention that the assessees had taken any entry of Long Term Capital Gain or unsecured loans from the companies of Shri Shashwat Agarwal. This fact is further corroborated from the fact that the Assessing Officer in the case of the assessees did not make any addition on account of Long Term Capital Gain or unsecured loans but he made the additions by holding the sale and purchase of cloth which was purchased from Rich Group of Companies to be bogus. All these facts demonstrate that the Assessing Officer had not made the addition on the basis of any incriminating document but had made the addition on account of bogus sale and purchase of cloth for which no document was found during the course of search. Even otherwise, the documents relied on by the Assessing Officer were found at the premises of the companies of Shri Shashwat Agarwal wherein the search was carried out on 28/04/2015 and there too the incriminating material, as mentioned in the assessment order, was a diary iden....
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....the assessment years 2001-02 to 2006-07. No addition was made for the assessment year 2006-07, although a disclosure was made. Before the Commissioner (Appeals), the assessee produced additional evidence under rule 46A of the Income-tax Rules, 1962, which included copies of franchisee agreements. A rejoinder was filed by the assessee. On analysis of the additional evidence, the Commissioner (Appeals) held that the accounts of the assessee had been tax audited and that no adverse remarks had been made by the tax auditors. He further held that the Assessing Officer had not rejected the books of account of the assessee. Accordingly, he held that the disallowance of the franchisee commissions paid were unsustainable and deleted the additions made. He deleted the additions made on account of payment of rent, non-refundable security, income from self-controlled outlets and reduced the addition made on account of closing stock. He also deleted the additions of undisclosed income, made on account of franchisee fee, accepting the contention of the assessee that there was no disclosure made for earlier years, or any evidence unearthed during the search by the Department that such franchisee ....
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....s found from the premises of the assessee therefore, the additions cannot be made in the case of completed assessments which in this case is appeal for assessment year 2013-14 wherein in I.T.A. No.510 the assessment order was already passed u/s 143(3) on 22/03/2016 which is before the search date of 23/08/2016, copy of assessment order is placed at pages 51 to 54 of the paper book. Similarly in I.T.A. No. 515, the assessment was completed u/s 143(3) vide order dated 23/03/2016, the copy of which is placed at pages 54 to 57 of the paper book. Similarly in I.T.A. No.517 relating to assessment year 2013- 14, the assessment order u/s 143(3) dated 30/03/2016, a copy of which is placed in paper book at pages 52 to 56. Therefore, the assessments in these cases stood completed. Learned counsel for the assessee had though argued that the assessment for assessment year 2015-16 also stood completed but in our opinion the appeals for assessment year 2015-16 cannot be said to be completed as time for issue of notice u/s 143(2) was still available to the Department which was upto 30/09/2016 whereas the search took place on 23/08/2016 which means that there was time ava....
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....ved inferences: A search was conducted on 23.08.2016 (concluding on 25.08.2016) and despite almost 27 months passed from the said date, no enquiry except from Shri Ankur Gupta 2-3 questions were asked during the course of search at the office of M/s. Radhey Radhey Ispat Pvt. Ltd. Group, about the cloth trading, no meaningful enquiry was done from any responsible person of the assessee group till now. However, in the Show Cause Notice based on third party information, that to never confronted to the assessee for rebuttal/explanation, pre-conceived inferences have been drawn relating to the cloth trading done by the assessee. 2) Twisting of Facts: Certain facts mentioned in the Show Cause Notice are not part of assessment record of the assessee or M/s. Radhey Radhey Ispat Pvt. Ltd. Group of cases. For example cloth trading up to 30.06.2017 was not subjected to any VAT/Sales Tax still inference has been drawn by saying that no information could be obtained from Sales Tax Department. Further, the assessee group as a whole and assessee in particular was dealing in wholesale business of unbranded cloth, which has high margin, compared to branded cloth trading. ....
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....to Sales Tax information not received from Sales Tax Department in the case of third party referred to in your show cause notice is neither relevant nor meaningful in the present case. Further, a copy of VAT Registration, annual return and copy of order etc. of the assessee company has already been filed with earlier replied. iv) Godown: The assessee group has taken 2 godowns and 5 shops on rent as per details given below: Godown/shop No. Premises No. Owner of shop/Godown Tenant of shop/ godown 1 to 5 (five shops) 2 godowns 122/325 Plot No. 17, Fazalganj, Kanpur Sigma Casting Ltd 122/225, Plot No. 17, Fazalganj, Kanpur. 1.Shree Radhey Radhey Ispat Pvt. Ltd. 2.Kundan Casting (P) Ltd. 3.Paras Casting & Alloys Pvt. Ltd. 4.Sadahari Shakti Pvt. Ltd. The assessee company was authorized (Licensed) user of godown and shops for its cloth trading business besides using the same for other business activity(ies), hence the space required for holding of stock from time to time was sufficient and have been unnecessarily ignored to draw adverse inference in the show cause notice. v) Stock not existent at the time of survey/searc....
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....your requirement and satisfy your goodself in terms of your referenced show cause notice. 11. In support of claim of cloth trading, the assessees had filed all the information and documents such as purchase bills, sale bills, copy of account of parties to whom sales were made and copy of account of parties from whom purchases were made. Similarly copy of bank account from where the payments were made/received were filed. Similarly VAT documents/returns wherein the sales of cloth was declared were also filed. In fact the assessees had submitted as much information and details as was possible. The Assessing Officer rejected all the evidences and on the basis of adverse material, which was not confronted assessees, made the additions. Under these circumstances, the Lucknow Bench of the Tribunal vide order dated 16/12/2020 has decided the issue by holding as under: 6. The other common legal ground argued by Learned counsel for the assessee in all appeals is that the Assessing Officer has not provided opportunity to the assessees for cross examination of third parties on whose statements the addition was made and sustained by the authorities. 7. The relevant grou....
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....ther Rich Group of companies. Rich Group of companies consisting of 14 companies and individuals namely Shri Ashish Agrawal and Shri Shashwat Agarwal, have been established to accommodation entry provider in the form of profit through bogus sales and purchase transactions, unsecured loans, bogus Long Term Capital Gain and subscription of share capital at premium to the party by accepting undisclosed cash and commission. The facts were established during the course of survey/ search & seizure operation as well as assessment proceedings of Rich Group of cases and most importantly it was also held by Hon'ble Allahabad High Court during the course of hearing of Writ Petitions filed by Rich Group of companies. The alleged transactions in cloth trading by Rich Group of companies could not be verified from their books of account and sales tax department as well. Further, you have also failed to prove that genuineness of transactions in cloth trading during the course of assessment proceedings, which is evident from the following facts: • All the purchases have originated from one of Rich Group of companies and again the same was sold to Rich Group companies only.....
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....uding its brand name etc. In its reply assessee stated that it dealt in unbranded goods and the same were identified from resources point or their popular name, but failed to give details of resource point or popular name. • The rate of the cloths mentioned in the different invoices are unreasonably high and seems to be unrealistic. • That no correspondence trail through paper, e-mail, whatsapp or phone etc. has been seen during the course of search as well as assessment proceedings. • Though Kanpur is the oldest and biggest hub (Mandi) of whole sale cloth trading, it is surprising to note that all the suppliers and customers of the assessee are only companies of Rich Group. • From the details provided by you it is found that no manpower has been engaged in the huge trading activities in cloth, which shows that the transaction claimed in cloth trading are only paper/bogus transactions. In view of the above facts, it is crystal clear that alleged cloth trading shown in your books of account is only book entries and bogus in nature. Hence, you are required to show cause as to why net of bogus sale and purchase credited in y....
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....s, in the Show Cause Notice, firstly adverse inference has already been drawn by presuming that the assessee had no retail outlet, shop or retailers to deal with. Similarly certain questions relating to business activities were asked from Manager (Accounts) Mr. Ankur Gupta, who was not at all concerned with sales, purchases or management of inventory etc. of the cloth trading done by the assessee. All these issues clearly show that facts in the present show cause have been twisted to suit your convenience, whims and fancies. Overall, management of cloth trading on wholesale basis was done by Shri Navin Jain, Director. 3)Dencndence on search in the case of Rich Group of Companies: The Show Cause Notice primarily rests on/around a search and High Court Proceedings of Shri Ashish Agarwal and Shri Shashwat Agarwal and Rich Group of Companies. Firstly their reference in the present proceedings is uncalled for and secondly the orders, documents, other information relied upon and mentioned in the Show Cause Notice and likely to be used against the noticee were never confronted to the assessee in accordance with standard operating procedure followed under the Income Tax L....
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.... cloth trading was discontinued by the assessee and some other assessee group companies with effect from 31.03.2016, but the search/survey was conducted in M/s. Radhey Radhey Ispat Pvt. Ltd. Group on 23.08.2016, i.e. almost after gap of 5 months, hence in the course of search, no stock of cloth was found. As aforesaid the assessee was engaged in wholesale trading of cloth and therefore, question of finding out samples or some stock of cloth, is totally irrelevant as alleged in the Show Cause Notice. Margin of Profit; As aforesaid the assessee and other group companies were dealing with unbranded cloth on wholesale basis, which had very good and higher margin than branded cloth trading. It is not understood how the same was found unreliable. Staff It is also not correct that the assessee company did not deploy proper staff for wholesale trading in unbranded cloth during the relevant years. Following staff members were engaged in wholesale trading of unbranded cloth: S.N. Name of the Staff Work looked after Designation Salary 1. Mr. Ankur Gupta Accounts Deptt. Manager 35,500/- 2. Mr. R.S. Chauhan Marketing/Sal....
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....of a report from the Assessing Officer of Rich Group of companies and has not carried out any independent investigations for holding the transactions of cloth trading as bogus. The judgment of Hon'ble Allahabad High Court has been passed on the writ petition filed by two companies belonging to Rich Group. These companies had prayed to the Hon'ble High Court to quash the search due to warrant of authorization, satisfaction note and incriminating material etc. The Hon'ble court has dismissed the writ petitions by holding that the companies were taking cash from some parties and were giving cheques to other parties and therefore, Hon'ble court had held that these companies were doing money laundering in the form of unaccounted cash. In the findings the Hon'ble court has nowhere commented on the activities of cloth trading being undertaken by these companies. Moreover, the fact remains that either there was no statement of companies denying cloth trading with the assessees and if there was one then same has not been confronted to the assessees for cross examination despite specific request of the assessee. The entries of purchases and sales are supported by....
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....ted 16th May, 2014 relied on the self-same reasoning and dismissed the appeal of the revenue. Likewise, the High Court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT. 5. In these circumstances, the Review Petitions are dismissed." 11. Similarly we find that Hon'ble Supreme Court in the case of Andman Timber Industries vs. CIT, vide order dated 2nd September, 2015 allowed relief to the assessee by holding that right of cross examination is an important right available to the assessee and not providing opportunity to cross examine will amount to violation of principles of natural justice. The findings of Hon'ble Supreme Court are reproduced below: "Insofar as the plea of the appellant that it was not allowed to cross-examine the dealers whose statements were relied upon by the Adjudicating Authority in passing the orders, the Tribunal rejected its plea in the following manner: "6. The plea of no ....
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.... to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited,, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause notice. We, thus, set as....