TaxTMI 
TaxTMI 
2023 (7) TMI 399
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....e orders passed by Ld CIT(A) on the issues decided against each of them. 4.0 In the appeals of the assessee, certain common issues are agitated, which are described below:- (a) Partial confirmation of addition relating to alleged bogus purchases. (b) Partial confirmation of addition relating to Corporate Guarantee commission. (c) Partial confirmation of Cash income as per seized materials (d) Disallowance of Salary paid to Jain family 4.1 The assessee is agitating following individual issues in AY 2017-18:- (a) Cash royalty as per seized materials (b) Excess expenses in seized materials assessed u/s 69C of the Act. 4.2 The assessee is agitating following individual issues in AY 2018-19. (a) Salary paid in cash to employees (g) Cash transferred through Angadias 5. The revenue is in appeal on the relief granted by Ld CIT(A) in respect of following issues in both the years, i.e., the issues urged by the revenue are common in both the years:- (a) Relief granted in respect of addition relating to alleged bogus purchases (b) Relief granted in respect of addition relating to Corporate Gua....
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....of the suppliers. The DGCEI has given a finding that the assessee has actually procured the materials. The ld A.R further submitted that the AO himself has observed that the assessee could have procured materials from other sources and have got accommodation bills from these suppliers. This observation of the AO shows that the receipt of materials by the assessee was not doubted by him. 6.4 The Ld A.R further submitted the Ld CIT(A) held that the entire purchases could be disallowed only when the materials have not been received by the assessee. Accordingly the Ld CIT(A) has held that, if the assessee could prove the receipt of materials, then only the incremental gross profit should be added. The Ld CIT(A) further observed that the manufacturing loss disclosed by the assessee would prove whether the materials have been received or not, i..e, if the materials have not been actually received, the assessee would be showing more manufacturing loss in order to tally the quantity details. He submitted that the Ld CIT(A) has given a finding that the manufacturing loss declared by the assessee is within the prescribed limit of Standard Input Output Norms (SION) published by the DGFT, G....
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....ness. (b) Geolife Organis (ITA No.3699/Mum/2016 dated 05-05-2017). In this case, this assessee was engaged in metal business. (c) Timex Art Decor P Ltd (ITA No.7293 & 7294/Mum/2017 dated 18- 10-2019). Accordingly, in the alternative, the assessee pleaded that the addition may be restricted to 2% of the value of purchases. 6.7 The Ld D.R, on the contrary, supported the orders passed by the assessing officer. He submitted that the Ld CIT(A) has relied upon the report given by DGCEI regarding consumption of materials, but did not examine the quantity details. He further submitted that the assessee has claimed that lorries registered in other states have been used for transportation of materials, which is not permitted. Hence transportation of materials has not been proved. The assessee has not furnished the details of octroi payments. Accordingly, he submitted that the purchases made from the accommodation bill providers cannot be said to have been proved by the assessee. Accordingly, he submitted that the AO has rightly disallowed entire amount of purchases and the same should be retained and the orders passed by Ld CIT(A) on this issue should be reversed. ....
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....efore AO- para 12 of assessment order. g. Second layer investigation into supplier of supplier is not futile since it constitute hardly negligible part of total purchases made by the assessee's supplier. h. Material accepted from above parties accepted by excise from 2013 till 2018. i. Thus, the allegation of AO that parties are not genuine is incorrect. j. Further, it is submitted that the entire raw material has been actually received by the assessee and the same has been consumed by the assessee for manufacturing purpose. Details of the consumption have been duly submitted before AO during assessment proceedings. The manufactured goods have been further exported by the assessee. The assessee has submitted the entire evidence to support the receipt of material, consumption of the same and its output which has been exported. Further, the assessee has also submitted the input output ratio wherein the average manufacturing/burning loss in respect of main product 'billets' is 7.14% as against standard of 10% prescribed by DGFT. The same is placed at page no. 75 of the paperbook. AO has mechanically rejected the same on the ground that n....
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....ed gross profit rate chart before Ld CIT(A) as under:- A.Y G.P rate 2013-14 17.47% 2014-15 17.37% 2015-16 17.43% 2016-17 18.80% 2017-18 17.77% 2018-19 17.16% The average rate of gross profit declared by the assessee is more than 17%, which was stated to be more than the industry average. The Ld A.R submitted that the above said contention is evidenced by the Transfer Pricing Study conducted by the assessee, wherein the international transactions have been bench marked under TNM method. It is stated that the Transfer pricing officer has accepted the T.P study, meaning thereby, the TPO has accepted the gross profit margin of the assessee to be at par or more than the industry average. Under these set of facts, we are of the view that the Ld CIT(A) was justified in holding that the assessee has actually received materials and hence disallowance of entire amount of purchases is not justified. When the receipt of materials is accepted, the AO's reliance on the statements given by the suppliers or employee/other persons shall become insignificant. 6.13 We notice that the Ld CIT(A), having held so, has proceeded to hold that the assessee wou....
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....Ld CIT(A) in all these years and direct the AO to restrict the addition on account of non-genuine purchases to 2% of the value of alleged bogus purchases in both the years under consideration. 7. The next common issue urged by both the parties in both the years relate to the transfer pricing adjustment in respect of Commission on Corporate Guarantee given to the Associated Enterprises by the assessee. 7.1 The assessee had provided Corporate Guarantee to its Associated Enterprises for the loan taken by them. The assessee contended before TPO that the same is a Share holder activity and hence it cannot be considered as an International Transaction. The TPO did not accept the contentions of the assessee. By considering the rate of commission charged by State Bank of India, the TPO made transfer pricing adjustment @ 1.50% of the Guarantee amount given by the assessee. 7.2 The ld CIT(A) noticed that an identical TP adjustment made in the assessee's own case in AY 2010-11 has been adjudicated by the Tribunal and the Guarantee Commission was restricted to 0.50% by following the decision rendered by the Hon'ble Bombay High Court in the case of Everst Canto Cylinders Ltd (2015)(58 ....
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....ssessed the deficit amount of Rs. 39,23,385/- as income of the assessee in AY 2017- 18. We shall deal with this addition in the ensuing paragraphs. 8.2 The Ld CIT(A) granted partial relief to the assessee in respect of addition of Rs. 13.08 crores, i.e., he noticed that there are receipts and payments from/to the same person and hence he held that only net amount of the transactions entered with particular person should be assessed as income. The details of relief granted by the Ld CIT(A) is tabulated below:- Sr.No. Name of persons AY 2017-18 AY 2018-19 1 Rajvilas 2,06,500 - 2 Contractors 1,33,00,000 42,05,000 3 H O Kumar 11,00,000 20,00,000 Total 1,46,01,500 62,05,000 The revenue is challenging the above said relief granted to the assessee by Ld CIT(A) in both the years. In addition to the above, the Ld CIT(A) noticed that the director Shri Neeraj Raja Kochhar has offered a sum of Rs. 96.00 lakhs as undisclosed cash income in his return of income. The Ld CIT(A) gave set off of the same also. This relief is not being challenged by the revenue. The assessee is seeking further relief in respect of this addition.....
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....ed to tax. However, the tax authorities have taxed entire revenue receipts ignoring revenue expenses. He submitted that the seized document is not corroborated with any evidence. Since both the revenue receipts and expenses are not supported by any other evidences, the Ld A.R contended that only net income out of those receipts/expenses should be assessed. Accordingly, the Ld A.R contended that the revenue expenses noted in the documents should be deducted from the addition sustained by Ld CIT(A). 8.6 The Ld A.R further submitted that the assessee would be entitled for telescoping benefit of the addition made towards alleged bogus purchases against the addition made on the basis of seized documents. He submitted that the assessing officer has disallowed entire amount of alleged bogus purchases, which has been reduced to 6% of the value of purchases by the Ld CIT(A). He submitted that the case of Ld CIT(A) is that the assessee has purchased goods from one source and obtained bills from another source. Accordingly, it has been presumed that the assessee would have made profits under this process, which has been estimated @ 6% of the value of purchases by Ld CIT(A). He submitted th....
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.... 1 Cash Received from Shilan Returnable 5,00,000 5,00,000 Hemant Jindal from CMO Cover 1,80.000 1,80,000 Other Received (bhave : Darshan] 1,60,000 1.60,000 Suresh Lodha Against Loan 25L 1,00,000 1,00,000 Total 4,77,07358 38,94,915 64,58,885 1,80,89,622 1,26,02,176 1,72,52,529 2,47,96,471 13,08,01,956 Cash (Expense) Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Total Rajvilas paid suman/cmd 2,06,500 14,00,000 26,00,000 83,70,000 37,20,000 15,80,000 23,00,000 2,01,76,500 Excise 10,24,500 49,27,150 38,79,080 61,03,700 1,62,01,600 3,21,36,030 Bertz 2,00,000 19,00,000 21,00,000 Vashnav Mega adv/Refundable Amt 10,00,000 9,50,000 6,00,000 25,50,000 RK-SLIP &....
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....53,28,228 2,22,07,387 13,08,01,956 8.9 On a perusal of the above said table, we notice that the assessing officer has assessed the entire cash receipts aggregating to Rs. 13,08,01,956/- in assessment years 2017-18 and 2018-19. In principle, the assessee has also accepted the same, even though this statement was not corroborated with any other evidences. We noticed earlier that the above said receipts and payments consisted of both capital items and revenue items. 8.10 We noticed that the assessee has agreed to offer entire receipts as its income. According to ld A.R, the offer was so made in order to buy peace and avoid litigation. The principle of taxation requires that the income component alone can be brought to tax under the authority of law. We noticed that the assessee has made a plea before Ld CIT(A) in respect of this addition, i.e., the assessee has claimed that the receipts and payments recorded against the name of a person should be netted off. We noticed that the Ld CIT(A) has accepted the above said contentions of the assessee and accordingly given following relief in both the years:- Sr.No. Particulars of receipts AY 2017-18 AY 2018-19 1 ....
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....educed from this disallowance. We notice that this document contains following items, which are revenue in nature:- Revenue Receipts AY 2017-18 AY 2018-19 Mill Scale Sale 2,18,38,054 43,95,102 Other sale 21,83,746 2,26,200 Mil Sale Advance --- 1,09,80,546 TOTAL RECEIPTS 2,40,21,800 1,56,01,848 Revenue Expenses Other Expenses 41,75,591 26,75,315 Six month Gift Cover 41,25,000 Diwali Laddu Maker 2,75,000 Sales team incentive 17,80,600 Monthly cash salary 13,63,109 Monthly Cash Salary 1,00,000 TOTAL EXPENSES 1,18,19,300 26,75,315 The Ld A.R has contended that what could be taxed is the income, found in the seized document. In our view, if the revenue receipts and revenue expenditure disclosed in the seized document have not been accounted for in the books of account, then what could be taxed is the net income arising after deducting revenue expenditure from the revenue income, since only income element is taxable under the Act. 8.14 Accordingly, we find merit in the contentions of the L....
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....on made on the basis of seized document in both the years, since the same constitutes source for the receipts shown in the seized document. Accordingly, we modify the order passed by Ld CIT(A) and direct the AO to allow deduction of Rs. 3,18,35,503/- in AY 2017-18 and Rs. 45,22,235/- in AY 2018-19 by way of telescoping benefit. 8.17 Accordingly, the addition made on the basis of seized document should be reduced by further amount of Rs. 5.00 lakhs on account of rotation funds in the name of Shilan in AY 2017-18, revenue expenses quantified for both the years (supra) and addition made towards alleged bogus purchases mentioned above in both the years. We order accordingly. 9. By disposing all the three common issues, the appeal of the department stands disposed of. 10. There is one common issue in the appeals filed by the assessee in both the years. It relates to the addition of Rs. 19,00,000/- and Rs. 29,65,000/- relating to disallowance of salary paid to Jain Family. The above said amount consisted of salary paid to following persons:- Name of Person AY 2017-18 AY 2018-19 Sangitha Jain (wife of Shri Ramkumar Jain, CFO) 10,00,000 19,75,000 Shubam Jain (....
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.... lakhs relating to cash royalty payment found in a seized material. One of the seized documents contained entries regarding payment of Rs. 15.00 lakhs (Rs.10 lakhs paid on 17-01-2017 and Rs. 5.00 lakhs paid on 04-03-2017) to a contractor named M/s Krishanand Infrastructure Ltd (Mr Kapil Tiwari). The assessing officer took the view that the above said payment is in addition to the amount of Rs. 13.08 crores found noted in another seized document. Accordingly, the AO assessed the above said amount of Rs. 15.00 lakhs as unexplained expenditure u/s 69C of the Act. The ld CIT(A) confirmed the same. 11.1 We heard the parties on this issue and perused the record. The Ld A.R submitted that the above said payment has been included in the expenditure of Rs. 13.08 crores mentioned in another seized document. He submitted that the payments mentioned as "MIDC Road" "contractors" and "other expenses" may include the above said amount of Rs. 15.00 lakhs. We noticed earlier that the assessee has paid Rs. 10.00 lakhs in January, 2017 and Rs. 5.00 lakhs in March, 2017. From the seized document, we notice that the payments to "contractors" and "MIDC Road" were not made in January, 2017 and March, ....
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.... per accounting principles. Hence there is merit in the submissions of the Ld A.R that overall picture should be considered. We also find merit in the submissions that there may be mistakes in making entries in the months of March, 2017 to May, 2017, i.e., it may be due to clerical or typographical mistakes. Accordingly, we are of the view that the AO was not justified in making addition on the basis of uncorroborated seized document. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition. 13. We shall now take up the individual issues agitated by the assessee in AY 2018-19. The first issue relates to the addition of Rs. 64,80,000/-, being cash salary paid to employees. 13.1 One of the search materials seized contained details of salary paid to certain employees by way of cash. The same is enclosed in page 192 of the paper book. The employees are Shri Sureshchandra Lodha, Shri Anuj Jain, Shri Jitendra Garg and Shri Radha Ballabh Sodhani. The said document was confronted with Shri Neeraj Raja Kochhar, wherein he accepted that certain portion of salary is paid in cash. Accordingly, the AO made addition of Rs. 64,80,000/- ....
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.... 4000 to 5000 employees are employed. Hence, we are of the view that the AO could not have placed reliance on the above said statement for making any addition without bringing any other material on record to support his case that the cash was actually paid as stated in the Statement. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition made in AY 2018-19. 14. The next individual issue agitated by the assessee in AY 2018-19 relates to the addition of Rs. 2,29,40,000/- relating to cash transferred through Angadias. It consists of two items, viz., domestic transfer of funds amounting to Rs. 2.00 crores and transfer of funds abroad amounting to Rs. 29,40,000/-. 14.1 We shall first take up the addition relating to Rs. 2.00 crores. During the course of search, the Whatsapp messages from the personal mobile phone of Shri P Nandakumar (Senior Purchase manager of the assessee company) were examined and it contained messages for transfer of funds through angadias. In the statement taken from Shri P Nandakumar, he admitted that a total sum of Rs. 2.00 crores have been transferred through hawala channels from February, 2017 to ti....
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....urrendered by the assessee. The impugned addition of Rs. 2.00 crores has been on the basis of whatsapp messages found in the phone of an employee, but no corroborative evidences were found that the messages were actually acted upon. Thus both the additions are based on two different documents, which do not have any base/support. We notice that the CMD has, from the beginning, has mentioned that the amount of Rs. 2.00 crores forms part of Rs. 13.08 crores offered by him. We notice the AO has rejected the same on the reasoning that specific whatsapp entries did not find place in the seized document. We have earlier extracted the seized document, wherein the payments made to "Rajvilas" have been noted down. It is not mentioned as to how the money so given was used. It is the submission of the assessee the payment so made would include the amount of Rs. 2.00 crores. Hence, it is possible to infer that the cash transactions stated in the seized document and whatsapp messages are one and the same. We also notice that there is no other material available to prove that the above said explanation is not correct. Accordingly, in the facts and circumstances of the case, we are of the view tha....