TaxTMI 
TaxTMI 
2023 (4) TMI 367
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..../investments and unaccounted cash to the extent of Rs.1,20,99,549/- and Rs.4,06,485/- respectively, without considering the right and proper perspectives the explanations substantiated by the cogent, credible and authentic evidences along with the audited books of accounts placed on the records of the AO to establish the fact of non-existence of any unaccounted stock or goods and/or cash and hence, liable to be quashed. (2) On the facts and in the circumstances of the case as well in law, the CIT (Appeals)-1, Surat erred in confirming the action of the AO to invoke the provisions of Section 145(3) of the Act to reject the audited books of accounts, without pointing out any specific defect or discrepancy in the books of accounts and method of accounting consistently followed by the appellant and hence, liable to be struck down. (3) On the facts and in the circumstances of the case as well in law, the CIT (Appeals)-1, Surat erred in confirming the addition made by the AO on account of alleged unaccounted purchases of goods to the extent of Rs. 54,26,422/- and hence, not justified. (4) On the facts and in the circumstances of the case as well in law, the CIT....
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....3,187/-. As per written submission made by your authorized representative in my office on 10.12.2012, you have included details of stock of cloth at item no. (3) of 112 are details on page no.6 of covering letter. As per details which are numbered from page 1 to 335, page no. 25 to 30 covers the details of stock maintained by you from 01.04.2009 to 31.03.2010 under the head of "General Stock Register (meters)". It shows the stock of cloth in meters maintained day to day basis of; opening stock, Grey cloth purchase, cloth sent to mill for processing and balance of stock of cloth on each day. More particularly on page no. 30 of stock register as referred above, the stock of cloth as on 17.02.2010 & 20.02.2010 is reflected of at 3,12,878.13 meters. During the course of survey proceedings you have disposed on oath that there, was stock of Rs.1,85,23,187/- which comes to 11,57,699 meters at the rate of Rs. 16 per .meter as acknowledged by you in inventory S.F. 1/1 signed by you on that day. In this way, your stock of cloth was 11,57,699 meters on the day of survey i.e. on 18.02.2010. Your stock of same day i.e. 17.02.2010 and 20.02.2010 shows the total stock of 3,12,878 meters only. It ....
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....for verification of the day to day purchase of raw materials and finished goods, the raw materials i.e. Grey Cloth sent to milts for printing, day to day the finished goods returned back from the mills, sales of finished goods recorded day to day and accordingly the closing stock of Grey Cloth and finished goods at the time of survey as also at the end of the financial year. In furtherance to his retraction, I am also furnishing herewith all the purchase bills, gate passes, challans as also payments made for purchases from various parties and job work charges for the value addition work of printing done by the mills. Thus, form the above record, which was available on the very day of survey, proves beyond doubt that there is no purchases made outside the books of accounts and hence, there is no case of investment in alleged unaccounted stock of goods. As a matter of fact, the Question No. 14 itself is a vague and baseless in as much as the concerned authorized officer has referred the actual stock in quantity and its quality as per books of accounts, but the amount derived by him at his sweet will has been referred kindly see Annex BF 1 (SL No. (1) to (4), from shop and SL. No. (1)....
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....ed by the authorized officers at 19,13,921 mtrs. (as per Annex. SF 1/1) so as to reach the figure of disclosure at their desired level. V. The rate mater taken at Rs.16/- taken for all kinds of stock of goods is also baseless and more speculation of the authorized officers, moresowhen there is no evidence found during the course of survey as to the sale of finished goods (ready suits) at the rate of Rs.16/- per meter nor any evidence available with the officers as to the same rate of Rs.16 per Mtr. applied for grey cloth (Taka) of 14,24,196 Mtrs. As a matter of fact, from the purchase bills and sales bills furnished herewith, you will find the true fact as to the rate per Mtr. which is very below the speculative rate of Rs.16/- per Mtrs. taken by the Authorized officers. These itself proves beyond doubt that the disclosure obtained by the authorized officers is in the garb of unaccounted investment in stock of goods and unaccounted cash. In the light of the above illegalities, I have to request you to consider in the true and right perspectives the regular books of accounts and other books records maintained by the assessee produced before you for verification. It is the w....
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.... these primary evidences cannot be disowned/altered or misrepresented by making an affidavit as in case of assessee. The main issue of an affidavit is that disclosure of unaccounted income was made forcefully. The contention made through an affidavit is not acceptable because in any case, person has grievance, then he will not keep silence and make such deposition after 822 days. In this situation an affidavit made after 822 days is nothing but after thought and no evidential value to take note of it. This affidavit is selfserving statement on part of assessee. While offering explanation in respect of unaccounted stock, reply dated 15.03.2013 assessee states that the assessee retracted the statement given on 19th Feb 2010 which is not found acceptable for reasons described in foregoing paras. The other contentions of having made that no purchase out of books, statement under undue coercion, mental torture, threaten and harassment have remained only allegations to brush aside tax liability. 7. The assessing officer noted that all legal procedure of impounding of books, its retention and approval of Chief CIT, Surat are well followed which the assessee has never questioned till da....
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....races of threat or coercion and based on discrepancies notices at the time of survey about excess stock & cash. No timely retraction was made by AO or rather no grievance against irregularity or coercion has been expressed except filing an affidavit after 822 days of survey. Above all in the affidavit the assessee has made scores of allegation without having produced any corroborative evidence to back them up, so affidavit is nothing but a self-serving document devised by assessee to avoid his legitimate tax liability. Inventory of cash & stock prepared at the time of survey was duly confronted to the assessee at the time of survey & he only made a voluntary disclosure of income, so there is no violation of Board's instruction F.No.286/2/2003-IT (Inv.II). At the time of survey, admittedly books were incomplete [Q.N0.6&9] and therefore, subsequently were prepared & audited will not help the cause of the assessee. The very fact that excess stock & cash found at the time of survey has not been incorporated in the books of a/c will make these (books) unreliable & incomplete. The accuracy of stock taking & cash could have been challenged by the assessee only at the time of survey or....
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....t is incorrect and that the assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts, vide decision of the apex court in Pulkngode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 ; (ii) In contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker.); (iii) The expression "such other materials or Information as are available with the Assessing Officer" contained in section 158BB of the Incometax Act, 1961, would include the materials gathered during the survey operation under section 133A, vide CIT v. G. K. Senniappan [2006] 284....
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....repared up to the date of survey, therefore it was an excess cash. The Ld. Counsel also stated that audited books of accounts were produced before the Assessing Officer during the assessment proceedings and the Assessing Officer did not find any mistake so far excess cash of Rs.4,06,485/- is concerned, therefore there should not be addition on account of excess cash. Besides, Ld. Counsel also submitted that in so far excess cash of Rs.4,06,485/- is concerned, the department does not have power to take statement on oath. 17. On the other hand, Learned Departmental Representative (Ld. DR) for the Revenue submitted that Assessing Officer can take a statement during the survey proceedings; however there is a bar to take statement on oath. That is, to take statement is permitted, but statement on oath is not permitted. However, just to administrate the oath at the time of taking the statement does not vitiate the contents of the statement. No doubt, there is no provision in section 133A of the Act to take a statement on oath, however there is a provision to take statement and just because oath has administrated does not mean that contents of the statement vitiated on account of oath ....
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....hat both the lower authorities made/sustained addition based on documents and evidences and based on retraction of statement. Both the authorities, in their respective orders, have discussed the issue based on documents and evidences and based on retraction of statement. Thus, Ld. DR pointed out that issue of retraction of statement was there before the Assessing Officer and as well as before ld CIT(A), hence Ld. CIT(A) has not taken different stand. The Ld. DR pointed out that Ld. CIT(A) has also discussed the documents and evidences, in his order, which is evident with para para 7.1.1, the ld. CIT(A), wherein he held as follows: "....Inventory of cash & stock prepared at the time of survey was duly confronted to the assessee at the time of survey & he only made a voluntary disclosure of income, so there is no violation of Board's instruction F. No. 286/2/2003- IT(Inv.II). At the time of survey, admittedly books were incomplete [Q.No.6&9] and therefore, subsequently books of a/cs were prepared & audited will not help the cause of the assessee....." 20. Therefore, Ld. DR pointed out that ld. CIT(A) has not adjudicated the issue merely based on the retracted statement bu....
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.... was not made at earlier stage because in assessee's family, a relative had died and the responsible person who is going to retracted the statement got disturbance and therefore delay has occurred to retract the statement'. Hence, we are of the view that such 'restriction is invalid. 23. We note that Hon`ble Supreme Court in the case of Dr. Partap Singh v. Director of Enforcement 155 ITR 166(SC) held that illegality of the search does not vitiate the evidence collected during such illegal search. The Hon`ble Supreme Court in the case of Pooran Mal v. Director of Inspection (Inv.) 93 ITR 505 (SC) held that even though the search and seizure were in contravention of provision of section 132, material seized would liable to be used against person from whose custody it was seized. Hence, the documents found in survey can be used against assessee even if statement on oath is retracted by the assessee. In assessee`s case the addition was made by AO based on the documents and evidences collected during survey.We also note that such admission on oath can be retracted by the assessee only if the circumstances such as threat, coercion, undue pressure etc. is established by the assessee. B....
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....ing officer, the reconciliation statement, showing differences and items of differences, between audited books of accounts and unaudited books of accounts at survey, about stock and cash in hand. For statistical purposes, the ground no.1 of the assessee is treated as allowed. 26. In the result, ground no.1 raised by the assessee is allowed for statistical purposes. 27. Ground No.2 raised by the assessee relates to rejection of books of accounts under section 145(3) of the Act. 28. We have heard both the parties. The Ld. Counsel for the assessee submitted that books of accounts of the assessee were audited and the Assessing Officer without pointing out any mistake in the audited books of accounts rejected the books of accounts under section 145(3) of the Act which is not tenable in the eye of law. On the other hand, Ld. DR for the Revenue submitted that during the course of survey unaccounted stock and cash were deducted by the survey team which remained to be explained and incorporated in the books of accounts. Besides, there were unverified purchases in the case of the assessee which were not recorded in the books of accounts and therefore the Assessing Officer came to th....
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....31. Brief facts qua the issue are that for verification of purchases of grey cloth i.e. raw material of business, notices u/s 133(6) of the I.T. Act, 1961 were issued. Out of these, in 36 cases notices returned unserved by postal authorities and in 50 cases the notices u/s 133(6) were served but there was no confirmation from each party. In view of these, assessee was asked to explain the same vide AO notice dated 04.03.2013. In response to show cause notice for unexplained amount of expenses of purchases, the submission dated 16.03.2013 furnished copies of ledgers of parties from whom purchases are made. These details are from page no. 26 to 71 of submission. It is pertinent to note that there is no copy of bank statement provided by the assessee in which name of party who sold the grey cloth and accepted payment through cross account payee cheque or draft is reflected in it. From the copy of ledger from the books of assessee no conclusion can be drawn for satisfying the genuineness of transactions. The copies of ledgers are signed by assessee only and not by the party who sold grey cloth to assessee. As required under section 40A(3) of the I.T. Act, all the payment to these parti....
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.... Jay Fabrics Rs. 2,55,720/- Total Rs.28,82,709/- (i)Amount of purchases proposed to be disallowed vide show cause notice dated 04.03.2013 Rs.5,12,93,518/- (ii)Considered as 10 confirmations received from party of Purchases from the date of issue of show cause till date of order. Rs.47,98,575/- (iii)Considered on account of written submission made on 18.03.2013 Rs.28,82,709/- Therefore, assessing officer made net disallowance at (Rs.5,12,93,518 - Rs.47,98,575- Rs.28,82,709 ) Rs.4,36,12,234/- 32. On appeal, the ld. CIT(A) has corrected apparent mistake (bona fide error committed by AO) and then restricted the disallowance to 12.5% of purchases of Rs.4,34,11,380/- and accordingly, the addition was sustained by Rs.54,26,422/- (i.e. 12.5% of Rs.4,34,11,380/-), by observing as follows: "Discussion and appellate decision: 10.1 At the outset, I would like to point out an apparent error committed by the AO while computing the amount of disallowance at Rs.4,36,12,234/- on page 14 of the assessment order. On the top of this page, the AO has held that in the case of M/s. Krishna Enterprise & M/s. Avi Enterprise from wh....
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....d by AO in remand proceedings from concerned Bank about the name of party. Bank A/c No., Name & Branch of Bank in whose a/c these cheques ultimately got deposited, State Bank of Patiala informed the names of party, Name of Bank & Branch without A/c No. The AO has enclosed the copy of Bank's reply with Remand Report wherein he has mentioned that Bank has not confirmed the payment details about 5 parties aggregating payments of Rs.9,22,624/-. Thus claim of the appellant is not entirely true. On the other hand, since the AO issued notices u/s,133{6) of the Act, he has all the more reason to doubt the genuineness of purchases because notice u/s.133(6} either returned unserved or remained uncompleted. During remand proceedings lapse, the present AO asked the assessee to provide' current addresses of the purchase parties which was declined by the AR of the assessee. The AR has cited decision of Delhi High Court in M N Securities Pvt. Ltd. (supra) to stress upon-that noncompliance to notice u/s.133f 6J/131 is not a lawful ground to make disallowance. Although proposition is somewhat more of a technical nature rather than based on facts of the case. It is somewhat unusual that even....
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....ed provision of 69C. In fact AO has nowhere referred about this section and in fact made disallowance out of purchases treating them unverifiable. Finding of excess stock & cash by itself is good ground for rejection of books of a/c especially when such excess stock & cash has not been incorporated in the books. Hence, the action of the AO u/s. 145(3) of the Act was rightly held justified in earlier paras. The books of accounts found at the time of survey were incomplete these books have been prepared subsequently; therefore, not finding any discrepancy has a very little significance. It was held in the case of ACIT Vs. Shrikrishan Malpani 32 Taxworld 122 (JPR) holding that alleged bogus purchase is defect in maintenance of books of a/cs and therefore, the books of a/cs rightly rejected. Further in the case of Gem Paradise Case ITA/700/JP/2009 dated 18.12.2009 holding that even after providing Sale Tax No., PAN & payment through account payee cheque since assessee was not able to prove genuineness of the purchases which were found to be non-existent at the given address, rejection of accounts is justified and correct profit cannot be deduced from such unverifiable books of accounts....
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.... assessee. Besides this, in that case payments were made by cross cheques and not by account payee cheques and it was established that cheques were encashed by party itself and accordingly money had come back to the assessee. No such extreme adverse facts are present in the case under It was held that in such circumstances, onus to prove purchases was on the assessee, which could be discharged 'strong, cogent and clinching evidence in view of denial by all the parties and-coupled with other circumstantial evidences. Yet, it was held that the whole amount could not be treated as undisclosed income as the material had been received by the assessee and used in its business. Therefore, the addition was restricted to 25% of the purchase price as it was held that the whole exercise was done with a view to inflate the expenditure. Such was the situation in the decision delivered in the case of Vijay Proteins (supra). 10.7 However, in this case, I find that the book results of the assessee for this year are almost in line with the book results of the earlier years. However, there is no corroborative evidence to support that the bills from impugned parties were as per market va....
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....but were purchased from open market. The Hon'ble High Court upheld the disallowance sustained by Hon'ble ITAT @ 12.5% out of such purchase amount observing that there was no reason to interfere in the order of ITAT. Hence, the finding of the Hon'ble ITAT has been finally upheld by Hon'ble High Court of Gujarat. On perusal of these case laws, I have noticed that the facts of the present case are somewhat similar if not identical because the appellant has maintained the quantitative tally and goods were sold by earning profit thereon so the disallowance @ 12.5% seems quite reasonable and justified to me. As discussed in para 10.1 of this order, the AO committed an error of not allowing relief against purchase of Rs.2,00,854/- from M/s. Krishna Enterprise which he held as genuine in the order. Thus, assessee is allowed relief on this count and decision is restricted to balance addition of Rs.4,34,11,380/- of this case are slightly better than of Vijay Proteins (supra) and g the decisions of Hon'ble Gujarat High Court (discussed supra), it will be fair and reasonable to restrict the disallowance to 12.5% of the purchase price mentioned in the bills instead ....
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....ences furnished by assessee. The ld. CIT-DR for the Revenue supported the order of AO. The ld. CIT-DR submits that Investigation Wing, Mumbai made a search on Bhanwarlal Jain Group. During the search and after search, the Investigation Wing made a thorough investigation and concluded that Bhanwarlal Jain Group and his associates including his sons were indulging in managing about 70 benami concerns. The benami concerns were engaged in providing accommodation entries. The assessee is one of the beneficiaries of such accommodation entries. In the transaction of accommodation entries, the documentary evidences are created in such a way, so that the bogus transaction is looks like genuine transaction. In bogus transaction, the fabricated evidences are always maintained perfectly. The assessee has obtained accommodation entry only to inflate the expenses and to reduce the ultimate profit. No stocks of diamonds were found at the time of search on Bhanwarlal Jain Group. The assessee has shown a very meagre gross profit (GP) @ 0.78% and not net profit (NP) at 0.02%. The ld. CIT(A) restricted the addition to the extent of 12.5% which is on the lower side. The ld. CIT-DR for the revenue pray....
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....onfirmation purchases invoices, accounts of the parties, bank statement of assessee showing transaction to the banking channel. The AO has not made any comment on the documentary evidence furnished by assessee. The AO solely relied upon the statement of third party and the report of Investigation Wing. The report of wing and the statement of Bhanwarlal Jain were not provided to the assessee. The AO has not disputed the sales of assessee. No sale is possible in absence of purchase. The books of accounts were not rejected. The AO made the disallowance of entire purchases. The assessing officer not provided cross examination of the alleged hawala dealers. The disallowances sustained by the Ld. CIT(A) @ 12.5% of the impugned purchases, is on higher side and deserve to be deleted in total. The ld.AR of the assessee submits that entire purchases shown by assessee are genuine. In without prejudice and alternative submissions, the Ld. AR for the assessee submits that in alternative submission, the disallowance may be sustained on reasonable basis. To support his various submission, the ld.AR for the assessee is relied upon case laws: 1 M/s Andaman Timber industries VsCommissioner ....
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.... find that the assessee has raised objection against the validity of the reopening before the AO. The objections of the assessee was duly disposed by AO in his order dated 09.02.2015. The assessee raised ground of appeal before ld CIT(A) while assailing the order of AO on reopening. The ld CIT(A) while considering the ground of appeal against the reopening held that the AO has received report from investigation wing Mumbai, which indicate that the assessee is beneficiary of the accommodation entry operators. The accommodation entry provider admitted before investigation wing that he has given such entry to various persons; based on such report the AO has reason to believe that the income of the assessee has escaped assessment and thus the action of AO in reopening is justified. 18. We find that the Hon'ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd Vs DCIT (supra) while considering the validity of similar notice of reopening, which was also issued on the basis of information of investigation wing that they have searched a person who is engaged in providing accommodation entries, held that where after scrutiny assessment the assessing officer received i....
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....s, concluded that the 100% disallowance of purchase is not justified. We also find that the ld.CIT(A) also considered the decision of jurisdictional High Court in Mayank Diamonds Pvt. Ltd. (supra) and compared the fact of the present case with the facts in Mayank Diamonds Pvt Ltd (supra) and noted that assessee in that case was also engaged in the trading of polished diamonds. The ld CIT(A) noted that in that case the AO made disallowance of entire bogus purchase and on first appeal before CIT(A) the disallowances were maintained. However, the Tribunal gave partial relief to the assessee directing to sustain the addition @12% of such bogus purchases. And on further appeal, the Hon'ble High Court sustained Gross Profit Rate @ 5% being average rate of profit in industry. 20. Now adverting to the facts of the present case, the ld.CIT(A) held that in some other similar cases; though he had sustain 5% of Gross Profit Rate, considering the fact that where Gross Profit shown by those assessee's are more than 5%. However, in the present case, the assessee has merely shown Gross Profit Rate only at 0.78% of turnover, accordingly, the ld. CIT(A) was of the view that disallowance....
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....37. In the result, ground no.3 raised by assessee is partly allowed. 38. Ground No.4 raised by the assessee relates to addition to Rs.19,46,000/-, on account of unexplained cash credit under section 68 of the Act. 39. The Ld. Counsel for the assessee, at the time of hearing submitted that all loans were repaid in the subsequent years. However, the Ld. Counsel did not produce the Bank statement before the Bench to verify the fact that loans were repaid in the subsequent years. However, ld Counsel also stated that it is difficult to submit the bank statement and audited accounts of the respective parties immediate, therefore matter may be set-aside to the file of the Assessing officer for further verification and the assessee will produce the bank statement, audited accounts, and other necessary documents, if any, to prove cash credit. Therefore, ld Counsel contended that one more opportunity should be given to the assessee to plead this issue before assessing officer. 40. On the other hand, Ld. DR for the Revenue submitted that bank statement is an important piece of evidence to establish whether loan amount was repaid in the subsequent year or not. The assessee has not sub....