TaxTMI 
TaxTMI 
2021 (10) TMI 722
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....together and a consolidated order is being passed for the sake of convenience and brevity. 3. Although, these appeals filed by the Revenue and Assessee contain multiple grounds of appeals. However, at the time of hearing, we have carefully perused all the grounds raised by the Revenue as well as by the Assessee. Most of the grounds raised by the Revenue as well as assessee, are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of Revenue and the assessee as well. With this background, we concise and summarise, common grounds raised by the Revenue and Assessee, as follows: 4. Concise and common grounds of appeal raised by the Revenue, assessment year wise, are as follows: (i) Admitting additional evidence in relation to the addition made on account of cash profit without giving the opportunity to the Assessing Officer to offer his comments which is in contravention of provisions of Rule 46A of the Income Tax Rules. a) ASSESSMENT YEAR 2007-08 b) ASSESSMENT YEAR 2008-09 c) ASSESSMENT YEAR 2009-10 d) ASSESSMENT YEAR 2010-11 (ii) ....
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.... found between physical inventory taken on date of search and stock record. (This ground relates to assessment year 2010-11). 6. First, we shall take Revenue's appeal. Concise and common Ground No.1 raised by the Revenue is reproduced below for ready reference: i) Admitting additional evidence in relation to the addition made on account of cash profit without giving the opportunity to the Assessing Officer to offer his comments which is in contravention of provisions of Rule 46A of the Income Tax Rules. a) ASSESSMENT YEAR 2007-08 b) ASSESSMENT YEAR 2008-09 c) ASSESSMENT YEAR 2009-10 d) ASSESSMENT YEAR 2010-11 7. In this ground, Revenue has objected that ld.CIT(A) has admitted additional evidence, in respect of cash profit earned by the assessee and the Assessing Officer has not been given opportunity to offer his comments, which is in contravention of provisions of Rule 46A of the Income Tax Rules. We have heard both the parties on this preliminary issue and gone through order of the ld.CIT(A) and his findings for assessment years 2007-08 to 2010-11 and observed that assessee has not submitted additional evidences during the appellate proceedi....
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....tain monthly Profit and Loss Account of assessee company from April 2006 to June 2009 along with working of monthly reports. The Assessing Officer has reproduced monthly Profit and Loss Account for April 2006 to June 2006 from seized papers in Assessment Order for understanding the contents of the page and modus operandi of assessee The copy of seized Profit and Loss Account for the period ended on 30th April, 2006 reproduced by the Assessing Officer, is as under: Profit and Loss Account for the period ended 30.04.2006 Sales (MT) Production (MT) 2816.113 Local 296.268 Export 3121.281 Total 3520.476 Apr. 2006 PARTICULARS Apr. 2006 58162840 LOCAL SALES (Before Rebate, comm. Etc) 20654 340706 Rebate, Discount., Commissioner. Etc 121 57822134 NET SALES (After Rebate etc.) 20533 6220192 EXPORT SALES 20995 477455 EXPORT ENTITLEMENTS 1612 1318204 Direct Export Expenses 4449 5379443 NET EXPORT SALES (After Rebate etc.) 18157 63201577 TOTAL SALES 20307 30160 MISC. INCOME 10 63231737 TOTAL INCOME 20316 712....
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.... officer's argument for making impugned addition in A.Y. 2007-2008 to 2010-11 is similar. The Assessing officer has referred to various seized material found during the course of search which includes monthly profit & loss account from 1st April 2006. It was held by Assessing Officer that on the bottom of such monthly profit & loss account, under the head of " Quantitative Details in Closing various Disputes", against the description of 'raw materials', 'Chem', 'sales ac' and ' com' , certain figures are reflected which is nothing but cash profit generated by assessee not shown in Profit & loss account. The Assessing Officer has also referred to certain loose papers found (like Page 66,135,191 of Annexure BS -2) from the assessee's premises wherein summary of Profit & loss account for year wise is found which contains details like month, book profit of plant and turbine and under one column of 'cash' or 'dep' , figures notes equates to summation of figure mentioned under " Quantitative Details in Closing various Disputes" found in loose paper containing month wise profit & loss account referred (supra). Hence Assessing Officer has....
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....n of Rs. 54,14,508/- [Rs. 58,99,386 - Rs. 4,84,878]. Aggrieved, the Revenue is in appeal before us against the addition, deleted at Rs. 54,14,508/- and Assessee is in cross appeal before us against the addition sustained by ld CIT(A) to the tune of Rs. 4,84,878/-. 12. Shri Sreenivas T. Bidari, Learned DR for the Revenue, took the Bench through assessment order and stated that order passed by the assessing officer is quite reasonable. Thus, ld DR has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 13. On the other hand, Shri P.M.Jagasheth, Learned Counsel of the assessee, begins by pointing that assessee has explained the contents of the loose papers by letter dated on 18.11.2011. The Assessing Officer has made entire addition ignoring the submissions filed by the assessee, on 18.11.2011. The ld.Counsel contended that various loose papers found during the search, were nothing but merely MIS Sheets prepared at the end of each month based on the data's then available in the system without reference to the actual figure in the financial books. The ld.Counsel pointed o....
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....g Officer and confirmed by the ld.CIT(A) needs to be deleted. 15. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that ld Counsel has explained the Bench about the nature of loose sheets, on the basis of which Assessing Officer has made addition and the mode of preparation of such MIS sheet, which only gives the estimated profit and argued that actual profit as per audited accounts is always more than what is reflected in the summary sheet prepared year wise from the loose monthly working sheets, hence no further addition is called for. The learned Counsel has explained that figures noted against 'sales' under the head "Quantitative Details in Closing various Disputes" appearing in monthly profit and loss account, found in seized material, reflects disputed sales, as the accounts department was expecting certain claims and discount besides the clear sales for the period but such sale is already recorded in financial statements, ....
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....ount. The above aspects, after analyzing the seized records, comparing with the audited books of account, the following finding is given: (i) From the month-wise MIS Sheets with progressive details of production and sales, the quantitative details of production and sales and also the details from audited accounts are as under: A.Y. Relevant page No. of seized material Production in MT as per seized material Sales quantity as per seized material Production as per audited annual account Sales as per audited annual accounts 2007-08 BS-2/168 50706.272 50425.07 50706.270 50387.609 2008-09 BS-6/53 55649.412 55476.602 55649.412 55471.686 2009-10 BS-14/142 60075.319 59972.399 60075.319 59972.399 (ii)Opening and closing stock of finished goods for the FY 2006- 07 relevant to A.Y. 2007-08 mentioned in BS-2/193 of seized data is tallied with audited annual accounts. The closing stock of finished goods noted in such seized paper is for 439.38 MT which is similar to quantity of closing stock of finished goods mentioned in audited annual accounts. Further, opening stock of finished goods mentioned in such s....
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....counted sales on the basis of noting of 'sales account' under the head 'quantitative details in closing various disputes', the assessee has submitted the bill-wise, date-wise, party-wise, month-wise amount of disputed sales whereas claims have been settled by allowing rebate from financial statements and such figures are exactly tallying with figures noted in sales under the head 'quantitative details in closing various disputes'. The month-wise chart as narrated above were cross verified from the party's ledger account and rebate account and it is found that the alleged sales which the Assessing Officer has treated as cash sales and not accounted for in the books of account are duly found recorded in financial books of account. This fact also gets strength from the fact that from the quantitative details of the sales the disputed sales in quantity were not reduced; only the sale value of such disputed sales where claims were to be received, was deducted from sales figures. The assessee has submitted party-wise details of sales before the Assessing Officer which also includes sales mentioned under the head 'quantitative details in closing various dis....
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....4 20. In view of the above facts, ld CIT(A) held that it is established beyond doubt that alleged sales noted under the head 'quantitative details in closing various disputes' is found duly recorded in sales in the financial accounts and in no way the same can be considered as cash sales resulting in cash profit to the assessee. When there was no unaccounted production and sales, there cannot be unaccounted cash profit on account of suppressed sales. Therefore, ld CIT(A) held that Assessing Officer was not justified in making addition on cash profits allegedly generated from cash sales which was not proved by the Assessing Officer by any corroborative evidence. 21. With regards to addition of raw material consumption , it was observed by ld CIT(A) that assessee has sold mixed waste and other raw material in cash as noted in certain sheets. The cash sales of raw material (waste) are noted on following seized sheets: A.Y. Seized material Month Amount of sale (Rs.) 2009-2010 BS4/8 April 2009 226755 2009-2010 BS4/41 May 2009 126000 2009-2010 BS4/7 June 2009 132123 Total 484878 ....
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....ng the clear data with regard to the claim on account of these sales hence, no figures were mentioned as expenses on account of claim while preparing the MIS reports but in the later year 2008- 2009 and 2009-2010 with experience of working and knowing the facts about the claims to be raised by the parties from time to time, the tentative figures of these estimated claims were mentioned as misc. expenses in these MIS working sheets. 23. We note that all sales are duly recorded in the books, duly supported by sales bills and delivery challans, reflected in excise records and in monthly excise returns and in RG 1 register . Production is duly supported by production register and monthly production statement by factory and entry in RG 1 register. All purchases are duly supported with GRN, Delivery challan of party and transport LR copy, Purchase bills, Entry in form IV of excise reflecting total purchases for the month. All purchases are recorded in purchase inward register at the time of arrival. In form IV, assessee company provides details of opening stock, purchases, consumption and closing stock on monthly basis to excise department. Assessee is filing monthly excise returns, e....
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....nded the order passed by the ld CIT(A). We note that ld CIT(A) has considered the basis of the addition made by the Assessing Officer in all the three assessment years and also the documents and explanation submitted by the assessee. It is found that an ad hoc estimated addition of Rs. 2,00,000/- made in assessment year was without verifying the actual purchases from M/s. Mahavir Sales Corporation. The assessee has submitted all the relevant documents, purchase bills, delivery challans and the details of payments made to the supplier M/s Mahavir Sales Corporation. The assessment of M/s Mahavir Sales Corporation was also finalized by the same Assessing Officer. The Assessing Officer simply made the addition on ad hoc basis without relying upon any admissible evidence of inflation of purchases by the assessee. The addition was made without any basis and on ad hoc basis only. The similar additions were made by Assessing Officer in A.Ys. 2004-05 to 2006-07, wherein ld CIT(A), vide his order dated 31st August, 2012 in Appeal No. CIT(A) II/CC-III /286 to 288/2011-12, similar additions made by Assessing Officer were deleted.In view of the above facts, we note that Assessing officer was no....
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....ng as follows: "8.5 I have carefully considered the assessment order and the submission filed by the appellant. The Assessing Officer has compared stock of finished goods, chemicals and waste as per books of account of appellant with physical stock and found during the course of search and made aggregate addition of Rs. 53,09,056. "8.6 The Assessing Officer has observed that finished goods of Rs. 3,47,426 was found during the course of search whereas the stock as per books of account was of 3,94,901 kgs., hence he has made addition of Rs. 11,74,549 for differential stock of 47,475.10 kgs being shortage of stock found during the course of search(though Assessing Officer has used word excess stock in assessment order). The appellant has argued that as quantity of finished goods recorded in books of account tallies with quantity of finished goods as per Excise records being RG-1, no addition can be made as appellant cannot sell any goods without recording entry in Excise register. This argument of appellant cannot be accepted as during the course of search physical stock of finished goods was taken with the help of appellant's own employees and signature of emplo....
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....000 kgs and rate of 100 per kg whereas stock as per books of account was 2,958 kgs and rate per kg was Rs. 102.80. The Authorised Officer has considered book value of stock at Rs. 3,04,082 (2958 x 102.80) whereas stock, as per inventory was considered at 30,000 only though actual figure works out to Rs. 3,00,000 (3,000 x 100). This appears to be clerical mistake on part of Authorised Officer while preparing panchnama of inventory and actual figure of raw material being FIXLINK was required to be considered at Rs. 3,00,000 and not Rs. 30,000 hence addition made by Assessing Officer to the extent of Rs. 2,70,000 is reduced. (ii).The appellant has argued that Authorised Officer has not considered various chemicals of Rs. 21,13,558 while taking stock during the course of search though such stock was lying at factory premises. The appellant has submitted details of such stock along with purchase bills, date of purchase, copy of good receipt note and LR. The statement showing major chemicals not considered by Authorised Officer as submitted by appellant is reproduced at para - 8.3 herein above. On careful consideration of detailed submissions made by appellant and copy of panchn....
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....d officer has considered the valuation of stock of chemicals at basic value and not as per landing cost shown in books of account which includes basic value increased by central Sales Tax (CST), Freight, Insurance, handing charges etc. The ARs have argued that as quantity of such stock as per books of account and stock as per inventory taken during the course of search tallies with each other, no addition can be made for difference in valuation for reasons stated supra. The details of such items of chemical is summarised in tabular chart at para 8.3 herein above. I have carefully considered the panchnama prepared at the time of search, purchase bills for relevant chemical purchases as well as working of landing cost of such material computed by appellant alongwith supporting evidences and the contention of appellant that there is no difference in quantity of chemical recorded in books of account and stock as per inventory prepared at the time of search is found correct. Further, authorized officer has adopted the basic value from purchase bills while computing value of stock at the time of search but has not increased such value by other expenditure like sales tax, freight, insuran....
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....as Authorised officer has applied average weight per bundle/bale to work out actual physical stock whereas appellant has considered actual weight per bundle/bale depending upon the consignment in its reconciliation. For e.g. Stock of "Imp News & pains" is for 770 bundle for which authorized officer has considered average weight per bundle at 900 and has arrived at physical stock of 6,93,000 kgs whereas appellant has considered 609 bundles of same; stock having average weight of 900 per bundlge, 110 bales having weight of 555 per bundle and 51 bales having weight of 615 per bale and for aggregate of 770 bales, stock has been computed at 6,40,513 resulting into shortage of stock. In this case, though appellant has purchased same product with same seller being V.G. Rec, Amsterdam, weight per bale is different which is clearly reflected in purchase bills as well as other documentary evidences. Similar is the case for other types of waste products. These evidences support the explanation of appellant that for each product, standard weight per bale cannot be adopted but stock as on the date of search is required to be considered after adopting actual weight per bill is found correct and ....
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.... allowed. 35. Concise and Common ground no.5 raised by the Revenue is reproduced below: (v) Deleted the addition of Rs. 27,67,500/- being bogus purchases made on the basis of statements recorded during the course of Search. 36. This ground relates to addition on account of inflation of purchases. The Assessing Officer has observed that during the course of search, Page no. 123 of Annexure BS-12, was seized, which contain invoice of Gautam Enterprises (Division of Gautham Exim Pvt. Ltd.) dated 03/07/2009, which shows purchase of super white cutting for an amount of Rs. 27,67,500/-. The Assessing Officer has mentioned that in statement of Shri R. Balasubramanian, Chief Executive of M/s Gautam Enterprises, recorded on 24/07/2009, wherein he has admitted that there was no real business transaction and mere accommodation bills have been issued and the funds received has been returned back to Gayatri and Kherani Paper Mills. Therefore, assessing officer was of the view that these purchases are not real therefore, he made addition to the tune of Rs. 27,60,500/-. 37. Aggrieved by the order of the Assessing Officer, the assesse carried the matter in appeal before the ld.CI....
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....nt has not included purchase of Rs. 27,60,500/ from Gautam Enterprise in its Books of Account. Further, in the ledger account of Gautam Enterprise, only financial transaction pertaining to such sum is recorded which suggests that funds received by said party from bank has been transmitted to appellant and after certain period such amount has been paid by appellant through its regular bank account. Thus, argument of appellant regarding accommodation entry, appears to be correct and as appellant has not claimed any purchase from Gautam Enterprise for Rs. 27,60,500/- as expenditure while computing Profit & Loss Account for current assessment year, purchase shown in bill cannot be added to the total income of appellant as bogus purchase more particularly when entire transaction is settled through cheques. Based on this factual position, we are not inclined to accept the contention of the Assessing Officer in any manner and the addition made by Assessing Officer for Rs. 27,60,500/- was rightly deleted by ld CIT(A), therefore, we dismiss the concise and common ground no.5 raised by the Revenue. 40. In the result, Concise and Common ground no.5 raised by the Revenue is dismissed. 41....
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....eady noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, ld Counsel defended the order passed by the ld CIT(A). During the appellate proceedings, ld CIT(A) has examined the seized documents on the basis of which impugned addition of Rs. 2.75 crores has been made by assessing officer. The Assessing Officer has referred to seized paper being page No. 13 page No. 14 and 19 found during the course of search wherein at the lower portion of page No. 13 under the nomenclature "NRI/GSP difference", five figures aggregating to Rs. 1.75 crores have been mentioned and on page No. 14, monthly expenses of Rs. 1 crore (40 lacs+ 20 lacs + 40 lacs) has been mentioned. The Assessing Officer has considered these noting, as unexplained expenditure and sales realisation not offered to tax. On the other hand, assessee has mainly argued that these notings pertaining to Rs. 1.75 crore are for comparison of expenditure between appellant company and NR Paper Industries (NRI) being the company of director's brother and these notings do not reflect any cash expenditure or receipt hence no addition is called for.The ld CIT(A) observed about remaining addition of....
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.... of the relevant seized documents show that the amounts mentioned therein relate to some expenditure, in the absence of any other evidence found during the course of search or brought on record by the AO to show that the said expenditure was actually incurred by the assessee, the same cannot be added to the undisclosed income of the assessee by invoking provisions of s. 69C - Assessee explained that the said entries represented estimates made by employees in respect of proposed expenditure - There is no evidence on record to rebut/controvert the said explanation - Additions not sustainable." 46. The ld CIT(A) further relied on the judgment of Hon'ble Gujarat High Court in case of CIT V/s Maulik Kumar K. Shah 307 ITR 137, wherein it was held as under: "The assessee had constructed certain shops. There was a search at the assessee's premises and a diary was seized in which the assessee had estimated rates of these shops. The assessee had booked/sold 35 shops as on date of search. Because of the difference in rates as mentioned in the seized paper and the books of account, the Assessing Officer calculated the 'on-money' and made addition accordingly. ....
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....s mentioned on page No.19, hence argument of appellant that backside of page No.19 is duplicating page of 14 cannot be accepted. However, on the loose paper found during the course of search, on the basis of which Assessing Officer has made impugned addition shows "fixed expenditure" which suggest that this paper is prepared for monthly fixed expenditure. In this loose paper details like payment made in cash, name of the party to whom various payments have been made, date of the transaction has not been mentioned which leads to conclusion that this is a dumb document having no financial implication. These entire loose papers nowhere suggests that appellant has made unexplained expenditure or expenditure are paid in cash nor Assessing Officer has brought any other evidence which can prove that these are notings for payment in cash but addition has been made on presumption basis. On careful consideration of entire facts and respectfully following decision referred hereinabove, the remaining addition of Rs. 1 crore is deleted. This way, ld CIT(A) has deleted the entire addition of Rs. 2.75 crore made by the Assessing Officer. We do not find any infirmity in the above findings of ld CI....
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....r hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 55. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that Assessing Officer has disallowed expenditure u/s 14A of the Act applying rule 8D of the Act. For A.Y. 2007-2008, learned Counsel has argued that no disallowance u/s 14A can be made in current year, as rule 8D is applicable from A.Y. 2008-2009, as held by Hon`ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. 328 ITR 81 (BOM). Therefore, we delete the addition of Rs. 5,12,276/- pertaining to assessment year 2007-08. 56. We note that for remaining assessment years, that is, assessment year 2008-09 to assessment year 2010-11, assessing officer made disallowance of expenses relating to exempt income as per rule 8D read with section 14A of the Act. However, ld Counsel ....
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....ssued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis....