TaxTMI 
TaxTMI 
2021 (5) TMI 716
X X X X Extracts X X X X
X X X X Extracts X X X X
....60/- (i.e. 4.21% of Rs. 37,19,11,156/-) made by the AO to gross prof it on application of average GP rate of 10.18% for last 3 years after rejection of books of accounts u/s 145(3) of the Income-tax Act, 1961. 3. The Ld. CIT(A) has erred in deleting the disallowance of Rs. 6,56,774/- and Rs. 2,86,649/- made by the AO on account of employee's contribution towards PF and ESI respectively u/s 36(1)(va) r.w.s. 2(24)(x) of the Income-tax Act, 1961 on account of payment being made after specified date. 4. The Ld. CIT(A) has erred on facts in deleting the addition of Rs. 2,72,210/- made by the AO on account of discrepancies in seized material at page no.121 of Annexure A-2. 5. The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 83,18,322/- made- by the AO on account of non-confirmation of sundry creditors u/s 68 of the Income-tax Act, 1961. 6. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 19,50,000/- estimated on account of gross profit of AC boxes sold out of books." 3. In CO No. 01/Del/2018, following grounds raised by the assessee: "1. That having regard to the facts and circumstances....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hout having any material in this regard and the same is bad in law. 6. The reason given by the Assessing Officer for addition of GP was that the assessee could not explain the shortage of cash found during the course of search. The cash as per the books of accounts of the assessee company was shown at Rs. 38,14,104/- as on 13.05.2014 whereas during the course of search cash amounting to Rs. 2,000/- was found at the business premises of the assessee company. According to the AO, the assessee was duty bound to keep books of accounts and cash of the business at the business premises only. The AO stated that assessee cannot keep the cash out of the business / factory premises and in this backdrop since there was a deficit of cash found as on date of search, he rejected the books of accounts of the assessee. 7. The ld. CIT (A) deleted the addition holding that the AO was not justified in rejecting the books of accounts. 8. We have gone through the record and unable to accept with the contention of the AO that the cash has to be necessarily kept at the office premises only disregarding the explanation of the assessee that the amounts have been kept with the Manager owing to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed. Sundry Creditors /Non-confirmation of accounts: 13. During the course of assessment proceedings, it was observed by the AO that assessee company has shown sundry creditors for an amount of Rs. 10,17,93,801/-. Out of the total sundry creditors confirmations could not be received by the AO from following three parties as mentioned by the AO at page 6 of the assessment order, which were having a credit balance of Rs. 83,18,322/-. The AO asked the assessee to furnish the same as per order sheet entry dated 2.12.2016 and 19.12.2016, but the same also could not be furnished by the assessee during the course of assessment proceedings. Therefore, the AO invoked the provisions of section 68 and made an addition of Rs. 83,18,322/- in respect of following three parties: i) M/s. R.G. Industries Rs. 12,90,236/- ii) M/s. Standard Plastics Rs. 13,63,733/- iii) M/s. Bheron Enterprises Rs. 56,64,353/- 14. Before the ld. CIT (A), the assessee submitted as under: "Ld. AO asked the assessee company to furnish confirmations of sundry creditors on 2.12.2016. In respect of following three sundry creditors assessee company could not receive confirmations as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... account for the period 1.4.2014 to 31.3.2015 of M/s. Standard Plastics with their address, as appearing in the books of the assessee. PB 181 is copy of the ledger account for the period 1.4.2015 to 31.3.2016 of M/s. Standard Plastics as appearing in the books of the assessee to prove the genuineness of the transactions. PB 182-235 are copies of the purchases bills for purchases made by the assessee from M/s. Standard plastics to prove the genuineness of the transactions and identity of the said party. These bills specify their TIN details and description of the material supplied by them to the assessee company. PB 435-436 is confirmation of account for the period 1.4.2013 to 31.3.2014 given by M/s. Standard Plastics with their PAN details, contact number to prove the genuineness of the transactions with the said party. PB 437-438 is confirmation of account for the period 1.4.2014 to 31.3.2015 given by M/s. Standard Plastics, with their PAN details to prove the genuineness of the transaction with the said party. PB 439 is confirmation of account for the period 1.4.2015 to 31.3.2016 given by M/s. Standard Plastics, with their PAN details ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ince, no contrary evidences were gathered by the revenue and the case being an assessment conducted in consequence to a search, inspite of which there is conspicuous absence of any material to make the addition, we decline to interfere with the order of the ld. CIT (A). Gross Profit of AC Boxes: 16. The relevant part of the Assessment Order is as under: "6.1 As mentioned above, impounded documents u/s 133A(3) from the survey premises of the assesseee located at plot no. 92, secgtor-7A, SIDCUL, Haridwar, Utrakhand on 13.05.2014 were found which have been inventoried as annexure LP-1 to LP-7. Page No. 1 to 185 of impounded document LP-2 and page no. 23 to 31 & 35 to 43 of impounded document LP-5 reveal that assessee has manufactured AC boxes and sold to M/s. Anchor Electricals Ltd. It is worthwhile to point out from the page no. 24 to 31 & 35 to 43 of LP-5 that these transactions were recorded on the letter head of M/s. Azure Switchgear Pt. Ltd. It is also noticed from page no. 35 of annexure LP-5 that name of M/s. Electromech was found recorded at the top. "Azure to Electromech" was found written on the impounded documents clearly indicate that the assessee is carryin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....He also left the services and it is very difficult to produce him. It is further submitted that both of the employees of the company are of a very low rank and had too little knowledge to make any statement. Their statements are not reliable. 3. The proprietor of Eletromech Industries has been summoned separately who will in his term produce necessary statements. It is further submitted that Mr. Mohit Talwar the proprietor of Electromech Industries started his business activities in the premises of the assessee company from December, 2012 onward and worked from there till December, 2013. The assessee company had not derived any income from Electromech Industries. Electromech Industries used only a part of the premises of the assessee company and not utilized any kind of machinery. The assessee company also manufacture wire and cables in main part of the premises Plot No. 92, Sector 1, HE, SIDCUL, Ranipur, Haridwar in which Mr. Mohit Talwar also use a portion of the premises. Total sales of the manufacturing from this unit was arrived of Rs. 52,74,378/- (including in total turnover of Rs. 3918,92,823/- in assessment year 2014-15) and expe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....investment and gross profit amount following working is done. 6.8 The cost of per AC boxes was quoted as Rs. 50 to Rs. 54. Based on this the average cost of Rs. 52/- is taken as cost price of per AC box. As per the3 statement of Sh. Ojha as above, the average cost of per AC box was quoted of Rs. 52/- while it was sold @ Rs. 65/- per piece. It means that the profit on AC boxes purchases is of Rs. 13/- per piece. Gross profit is worked out to 20% (13x100/65). Since the documents were related to some months of fy 2012-13, 2013-14 & 2014-15, the addition on gross profit will be made in every year related to the year in which relevant impounded document found, i.e. FY 2012-13, 2013-14 & 2014-15. Further, the initial investment of purchases of AC boxes was taken as two months of purchases in the AY 2013-14. Purchases of a year was worked to Rs. 78,00,000/- (no. of pieces = 500 x sale price of single piece - 52 x average days in a year = 300). Thus, the two months' purchase was worked to Rs. 13,00,000/- (purchases of a year = Rs. 78,00,000/12 x 2 months). Similarly, on the basis of profit of Rs. 13/- and purchases of Rs. 52/- per piece, sales of a year was worked to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of the assessee's factory premises provided to him in a friendly manner since his son Mr. Mohit Talwar was one of the friend of one of the director of the assessee company and assessee company was also having with the said concern some business transactions. Therefore, in the interest of business expediency, that preference be given to the work of the assessee, one of the director of the assessee company allowed the father of Shri Mohit Talwar to use small portion of its factory premise. In fact any of such papers found during the course of survey carried out from the portion so occupied by M/s. Electromech Industiees, belongs to them only. Assessee company categorically denied any business interest in business carried out by father of Shri Mohit Talwar under the name M/s. Electromech Industries. It was also explained that neither any investment was made by the assessee company in the said business of Mr. Talwar, nor any income of any nature was received by assessee from them. It was explained that Mr. Talwar carried out his business activities from the said portion from December, 2012 to December, 2013 only. However, Ld. AO also relied on the statement recorded during ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as under:- 1. Ld. AO has mentioned in para 6.3 at page 7 of the impugned order that purchase of raw material were not found recorded in the books of the assessee and considered the initial investment on account of purchases of AC boxes in the FY2012-13 relevant to Av 2013-14. In reply it is submitted that first of all when the documents on the basis of which the Id. AO has made up his mind to consider the same in the hands of the assessee were dumb documents and do not belong to the assessee. Therefore, question of recording any investment in purchase of any item when no such purchase was made by the assessee company, for any material, which does not belong to the assessee does not arise. Assessee has explained in detail during the course of assessment proceedings, that only a portion of his premises was provided to M/s. Electromech Industries in a friendly manner and was used by the said party for only a year or so and the said party in fact was just storing some of its not usable material there, which was sent by the said party to the assessee's premises from their premises wherefrom the said M/s. Electromech Industries was doing actual business. These ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted. Nothing contrary could be brought on record by the Ld. AO to prove his contention that any letter head of the assessee company was used by M/s. Electromech Industries, which has any transaction recorded of any nature which belong to / pertain to the assessee. Therefore, just for the reason some waste letter head of the assessee company if was used by M/s. Electormech Industries as a rough paper, the adverse opinion formed by the Id. AO is just on whims and surmises and may kindly be excluded from consideration. 4. Ld. AO has stated that M/s. Electromech Industries never disclosed this premises as its business premises in any record produced / submitted before any authority. In reply it is submitted assessee company allowed M/s. Electromech Industries to use a small portion of its factory premises just for some storage purpose and for not doing any business from the said premises. No electricity, water etc. or any other amenity was being used by the said party in the small portion occupied by them. Therefore, when no business was run by the said party from the said portion occupied for a small period, there does not appear to be any reason for showing....