TaxTMI 
TaxTMI 
2023 (8) TMI 436
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....vity, grounds of appeal filed in ITA No. 880/Chny/2022 for the Asst. Year 2015-16 are reproduced as under: 1. The order of the learned CIT(A) in so far as it is against the Appellant is contrary to law, erroneous and unsustainable on the facts and in the circumstances of the case. 2. The learned CIT(A) is erred in not appreciating that without reason to believe and without warrant of authorization required to be issued in the case of the appellant, search & seizure and subsequent proceedings including issuance of notice U/s 153C is bad in law. 3. The learned CIT(A) is erred in not appreciating that the illegalities in conducting search and seizure proceedings as against the appellant is bad in law. 4. The leaned CIT (A) ought to have held that issuance of notice u/s 153C of Income Tax, 1961 and subsequent assessment proceedings are without authority and without jurisdiction on any and each of the following grounds; a. The transfer of file from jurisdiction Namakkal to Central Circle, Chennai is not in accordance with law as laid down u/s 127 of income Tax, 1961. b. As per section 132(1) r/w 132(9A) of Income Tax, 1961 the materi....
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.... Sec 153D on any and each of the following grounds: a. The approval u/s. 153D of Income Tax Act, 1961 which is contrary to the deviation note endorsed by learned Addl. Commissioner and the approval was given mechanically and without application of mind particularly when the Assessing Officer declined to provide a copy of the deviation note during remand proceedings. b. The approval has not been accorded as per the procedure laid down under F.No: 286/161/2006-IT (Inv.II) dated 22/12/2006. c. The learned Addl. Commissioner neither discussed the illegalities raised by the Appellant nor applied his mind that the Assessing Officer also failed to consider independently the illegalities agitated by the Appellant in the draft assessment order while according the approval, thereby the approval and assessment order fails. d. While giving the approval, the Addl. Commissioner failed to apply his mind that in the draft assessment order, the Assessing Officer has indicted the Appellant based on certain evidence which have not been raised in the Show Cause Notice. This apparent flaw on the part of Addi. Commissioner makes the approval and assessment order illeg....
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....ils. l. While giving the approval, the Addi. Commissioner failed to apply his mind that the Assessing Officer has rejected the Special audit report without approval of the sanctioning authority who has ordered the Special audit and failed to appreciate reason for rejection is untenable, thereby the approval and the assessment order fails. m. While giving the approval, the Addl. Commissioner failed to apply his mind that the Assessing Officer has not examined and given any appropriate finding in the draft assessment order (final assessment order) as to who has maintained or made entries in the "Erandaam Thall", which is instrumental for imposing undisclosed income, in a situation where there are contradicting statements recorded u/s 132(4) of Income Tax Act, 1961, in this regard, as detailed above, thereby the approval fails. n. While giving the approval, the learned Addl. Commissioner failed to apply his mind that the electronic devices namely "Erandaam Thaal" which have been the instrumental for arriving undisclosed income have not been vouched by the person namely Karthikeyan from whom the said device has been seized, thereby approval fails. o.....
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....eliable for making addition u/s 69C of Income Tax Act, 1961. 13. The learned CIT(A) erred in upholding the legal validity of the satisfaction recorded by the assessing officer for assuming the jurisdiction to issue notice u/s 153C ignoring the fact that there is under reporting of income in comparison to the net profit as per seized tally account is not borne out by the facts on record as the returned income is higher than the said net profit as evident from the satisfaction note itself. 14. Each ground is requested to be read independently and without prejudice to each other. 15. The Appellant craves leave to add to, alter, amend or vary the aforesaid grounds of appeal at or before the time of hearing. 16. That the appellant prays leave to adduce such further evidence to substantiate its case as the occasion demands." 3. The revenue has, more or less raised common grounds of appeal for the Asst. Year 2010-11, 2015-16 to 2018-19. Therefore, for the sake of brevity, grounds of appeal filed in ITA No. 906/Chny/2022 for Asst. Year 2010-11 are reproduced as under: 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneo....
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.... total cash of Rs. 16 Crores was found &seized in this group which proved that the assessee has generated asset in the form of cash over the years. As such, satisfaction of the conditions mentioned in the fourth proviso to Sec.153A (1) r.ws 153C were recorded before issue of notice u/s. 153C. 4. The ld.CIT(A) erred in deleting the addition of Rs. 3,10,93,420/- made toward undisclosed income, being the difference of income reported between ITR and total actual income quantified as per tally data seized plus net of bogus purchases and sale through bought notes 4.1 The Ld.CIT(A) erred in failing to appreciate that Smt. R.Anandhi, in her sworn statement u/s. 1324) dated 07/07/2018 admitted that the difference between the income as per tally accounts and income reported in ITRs was the unaccounted income generated. The CIT(A) erred in failing to appreciate that the statements were recorded without any coercion or undue influence. The retractions of statements are merely after thought and without any basis. 4.2 The Ld.CIT(A) failed to appreciate that the use of bought notes for inflation of purchases has been confirmed by Smt. R.Anandhi, CA in her sworn stateme....
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....ed in the business of trading of eggs, dhal, oil and sugar. The main product supplied by the appellant during the period was Egg (hen) which was supplied as per the terms of the contract entered with ICDS and Noon Meal Scheme of Govt. of Tamil Nadu. The appellant also supplies dhal, palmolin oil and sugar, etc., to Tamil Nadu Civil Supplies Corporation through tenders and also to other buyers. The assessee Company has filed return of income u/s 139(1) of the Income Tax Act, 1961 for all assessment years. 5. A search and seizer, u/s. 132 of the Income Tax Act, 1961 was conducted on 5-7-2018 in the premises of the appellant at Chinnaveppanatham Vasanthapuram Post, Namakkal in connection with the case of Mr T.S. Kumarasamy/K. Nalinasundari. During the course of search on 5-7-2018, a statement u/s 132(4) is said to have been recorded from Mr. T. Gnanasekaran Accounts Manager. Further, the registered office premise of the Appellant situated at Kuttakadu, Rasipuram, Namakkal was searched on 05.07.2018 and a statement u/s 132(4) is said to have been recorded from the same Mr. Gnanasekaran. Subsequently, searches at both the premises were finally concluded on 06.07.2018 as per the panch....
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....rned from bogus bought note purchase and sales for assessment years 2010-11, 2015-16 to 2018-19. Similarly, the AO had also made additions towards income generated from transaction with dummy entities for the assessment years 2017-18 & 2018-19. 6. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the ld. CIT(A), the assessee has challenged the assessment order passed by the AO u/s. 143(3) r.w.s. 153C of the Act, on various grounds, including legality of search conducted and consequent assessment proceedings, jurisdiction of the AO in assessing the income of the assessee, satisfaction recorded by the AO for issue of notice u/s. 153C of the Act for assessment years 2010-11, 2015-16 to 2018-19. The assessee had also challenged approval granted by the Additional/Joint Commissioner in terms of section 153D of the Act, on the ground that before according approval, the authority did not apply his mind to relevant materials and books of accounts found during the course of search which vitiates the entire assessment proceedings. The assessee had also challenged additions made by the AO towards under reporting of income as per seized tally....
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....sment year. But, for 2016-17 to 2018-19, the CIT(A) held that notice issued u/s 153C of the Act, is invalid on the ground that conditions prescribed for issue of notice are not satisfied. Further, the CIT(A), had also deleted additions made by the AO towards under reporting of income, being difference between net profit as per seized tally accounts and income reported in ITR filed for the assessment years 2010-11, 2015-16 to 2018-19, by holding that the assessee could able to reconcile difference between total income reported in ITR filed for the relevant assessment year and net profit as per seized tally data. Similarly, the CIT(A) deleted additions made by the AO towards undisclosed income on account of transaction from bought note purchases and bought note sales for Asst. years 2016-17 and 2017-18 on the ground that undisclosed income computed by the assessee is not based on incriminating material found during the course of search, because the seized bought notes does not belong to the assessee. The CIT(A) had also deleted additions towards bogus purchases through dummy entities for assessment year 2017-18 and 2018-19. But, the ld. CIT(A) has enhanced the assessment and directed....
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.... In this regard, the counsel submits that the transfer of appellant file is within the jurisdiction of Chief Commissioner of Income Tax, Trichy and DGIT, Chennai, when the transfer of the case has been initiated by DGIT, Chennai by invoking his jurisdiction vide his letter dated 08.10.2018 addressed to CCIT, Trichy, however, the transfer order was passed by PCIT Salem under the direction of DGIT and this proves that no agreement existed between officers of equal rank, which is against law and the transfer is non-exist as per law. Even assuming that PCIT, Salem having the jurisdiction there is no agreement among the equals namely PCIT, Salem and PCIT, Central-2., Chennai. In the absence of explicit understanding/agreement, the transfer of the case is lacking jurisdiction. Further, ACIT Circle-1 Namakkal from whom the case is transferred is subordinate to PCIT Salem. The DCIT Central Circle 2(1), Chennai, to whom the case is transferred, is subordinate to PCIT Central 2, Chennai, and not to PDIT (Inv) Chennai. There is no agreement established between PCIT Salem and PCIT Central-2, Chennai. In this regard, reliance is to be placed on the decision of the Hon'ble Supreme Court in the c....
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....e, the very edifice of the assessment order viz., notices u/s 153C of the Act itself is invalid and non-est in law, the consequential orders passed by the assessing officer is required to be quashed since the orders are passed by the Assessing Officer without determining the valid jurisdiction as per the provisions of the law. 11. The ld. CIT-DR, Shri. M. Rajan, on the other hand supporting order of the CIT(A) submits that the assessee has made various allegations on procedure followed in conducting search and seizure operations in light of certain circulars issued by CBDT and argued that search proceedings and consequent assessment orders passed by the Assessing Officer are illegal. But, if you go through counter affidavit filed by the revenue before the Hon'ble High Court of Madras in reply to Writ appeal filed by the assessee, it is very clear that the Department has followed due procedure in conducting search, impounding incriminating documents and recording statements. Further, various lapses pointed out by the assessee are in the nature of procedural mistakes which can be cured. Therefore, for those procedural lapses, it cannot be held that whole search proceedings are inv....
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.... assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so and after recording his reasons for doing so, transfer any cases from one or more Assessing Officers subordinate to him to any other Assessing Officer also subordinate to him. On careful examination of provisions of section 127 of the Act, it is very clear that the power to transfer cases from one Assessing Officer to another Assessing Officer is rest with the Principal Director General or Principal Chief Commissioner and thus, in our considered view the assessee cannot call in question the powers vested with the authorities to transfer the cases in a manner convenient to the Department. However, the only requirement is to give an opportunity to the assessee of being heard in the matter, wherever it is possible to do so. In the present case, it is not even the case of the assessee that the procedure laid down u/s. 127 of the Act has not been followed. Therefore, we are of the considered view that there is no merit in objection raised by the assessee on the issue of transfer of cases u/s. 127 of the Act and thus, grounds of appeal filed by the assessee on this issue are dismissed for al....
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.... the Act. But, fact remains that during the course of search, huge incriminating material was found and seized which clearly established necessity of issue of notice u/s. 153A and 153C of the Act and thus, we are of the considered view that the arguments of the assessee on this issue is nothing but hypothetical and thus, we reject the grounds taken by the assessee on this issue for all assessment years. 14. In so far as the issue of jurisdiction of assessing officer, the assessee challenged the issue in light of provisions of section 124 of the Income tax Act, 1961. The assessee submits that although the appellant has raised the jurisdiction issue before the Assessing Officer, the Assessing Officer has decided the question of jurisdiction contrary to provisions of section to 124(2) of the Act, which is in violation of section 124 of the Act. We find that, provisions of section 124 deals with jurisdiction of Assessing Officer in terms of any direction or order issued under sub-section (1) or sub-section (2) of section 120 of the Act. As per sub-section (2) of section 124 of the Act, where a question arises under this section as to whether an Assessing Officer has jurisdiction to ....
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....ly on 09.09.2020 as evidenced from Mahazarnama. However, the statement was recorded from Mr. Gnanasekaran, as if he has gone through said documents. From the above, it is very clear that the statement recorded from the employee was only under coercion. In so far as statement of Mr. Vannkannan, recorded on 08.07.2018, he has been asked to confirm the statement of Mr. Gnanasekaran in question no 19 and for which he stated that the statement recorded from Mr. Gnanasekaran is confirmed. The counsel for the assessee submits that the statement relied by the Assessing Officer for quantification of undisclosed income fails and the other statements does not have any value, as such statement are in no way related to the quantification of any amount of undisclosed income. Thereby, passing order by placing reliance on those statements is unsustainable. 16. The Counsel for the assessee further submits that the sole basis for the Assessing Officer to make additions towards under reporting of income being difference between net profit as per seized tally accounts and net profit as per ITR filed for relevant assessment year is statement recorded from Mr. Gnanasekaran. But, fact remains that Mr.....
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....to writ petition filed by the assessee submits that the retractions made by the assessee and other associated persons are without basis and not backed by any credible evidences because admission of undisclosed income in the statements is with regard to incriminating material found during the course of search. The ld. DR referring to the decision of Hon'ble High Court of Madras in the case of T.S. Kumarasamy vs ACIT [98] 65 ITD 188 (mad) submits that, when assessee fails to prove coercion or duress or any ground for the involuntary statement then subsequent retraction without any evidence cannot be considered and in this regard relied upon the decision of Hon'ble Supreme Court in the case of Shri. Surjeet Singh Chhabravs. UOI [1997] 1 SCC 508. 18. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We have given our thoughtful consideration to the arguments of the ld. Counsel of the assessee in light of relevant provisions of the Act and facts brought on record. The Assessing Officer has rejected retraction statement of appellant and his employees on the ground that retraction has been filed after lapse of mor....
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....nces like incriminating material found during the course of search, then the contents of those statements needs to be considered in light of retraction, if any filed by the assessee and reasons given for filing said retractions. At the same time, it has to be kept in mind that merely because a statement is retracted, it cannot become a statement which is involuntarily or unlawfully obtained. For any retraction to be successful in the eyes of law, the assessee needs to show as to how the statement recorded earlier does not states the true facts or that there was coercion, inducement or threat while recording the statements. Therefore, from the above, it is very clear that retraction of a statement should not be rejected merely because the assessee has given admission during the course of search. In our considered view, although admission is an important piece of evidence, but it is not conclusive and it is open to the assessee to show that it is incorrect. 20. At this stage, it is relevant to refer to the decision of Hon'ble Supreme Court, in the case of Pullangode Rubber Produce Co. Ltd vs State of Kerala [1973] 91 ITR 18, where it has been clearly held that admission is an extr....
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....7(p) of assessee appeal for assessment year 2015-16 to 2018-19 is approval granted u/s. 153D of the Act, and consequent assessment proceedings are bad in law and void ab initio and is not valid as per law. The ld. Counsel for the assessee submits that granting approval under section 153D of the Act is not a mere formality, but, it is a supervisory act which requires proper application of administrative and judicial skill by the Addl.CIT on the application of mind and this exercise should be discernible in the orders of the approval under section 153D of the Act. The obligation of the approval of the Approving Authority is of two folds; on one hand, he has to apply his mind to secure the Department against any omission or negligence by the A.O. in taxing right income in the hands of right person and in right assessment year and on the other hand, approving authority is equally responsible and duty bound to do justice with the tax payer by granting protection against arbitrary or baseless tax liability on the Appellant. The approving authority under section 153D is required to apply his mind to such material on record before granting his approval, otherwise, it will be invalid and ba....
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....e, the Addl. CIT, Central Range-2, as the sanctioning authority, took an altogether different stand by discarding her own judgment in giving directions to the draft assessment orders. Under Sec. 153D, it is the duty of the Addl. CIT to act in accordance with law, to apply mind while granting approval. The duty cast is to examine the record during searches, and, thereafter accord the statutory approval. Therefore, the manner and the material on the basis of which the approval was granted was mechanical and without application of mind. 23. The counsel for the assessee further submits that the primary duty while granting approval under Sec.153D of the Act, is to see that the draft order does not suffer from legal infirmity and that proper investigation has been conducted to unravel the facts. By doing so, not only the interest of the revenue is to be protected but also with the object of not causing undue tax burden and harassment to the appellant. If there was absence of explanation from Appu Direct Pvt. Ltd in respect of excel sheets, then directions cannot be given to make addition as unexplained expenditure in the hands of the appellant without carrying out verification through....
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....dopted by the assessing officer in the assessment order subsequently passed by him is contradictory to the opinion expressed by him in the deviation note and does not reflect his independent application of mind and the order so passed by him is untenable in law. The appellant contended that the stand taken by the AO in the assessment orders, which were passed subsequent to the framing of deviation note by him, is clear evidence of extraneous undue influence brought upon him to change his stand. The assessments so framed by the AO cannot be construed as reflective of independent application of mind by the AO and the said orders are liable to be regarded as legally unsustainable for this reason. 25. The Counsel for the assessee further submits that the forced withdrawal of the deviation note amounted to investigation wing directing the AO to frame the assessment in a manner that would protect the revenue's interest. The appellant placed reliance on the decision of Hon'ble Delhi High Court in the case of Agson Global (P.) Ltd [2022] 134 taxmann.com 256 (Delhi), wherein it was held that the assessing officer shifted his position in the assessment order vis-à-vis the deviation....
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....d assets and the seizure of documents is admissible. Thus, the assessment orders not in conformity with section 153D of the Act, is illegal and unsustainable under law. 27. The ld. CIT-DR, Shri. M. Rajan, on the other hand supporting the order of the CIT(A) submits that provisions of section 153D of the Act, deals with prior approval of the Joint Commissioner/Additional Commissioner before passing the assessment order and in this case, there is no dispute with regard to the fact that the assessment order has been passed with prior approval from the Range head in terms of section 153D of the Act. Further, the Counsel for the assessee claims that there is no proper approval as required u/s. 153D of the Act and such argument has been placed on the basis of correspondence between the Assessing Officer and the Addl. CIT, Range Head. From the arguments of the assessee, it appears that there was lot of deliberations on draft assessment order passed by the Assessing Officer, in light of various incriminating material found during the course of search and appraisal report submitted by the DDIT-(Inv.) on various issues including additions to be made towards undisclosed income on account o....
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....ficer to resubmit the draft assessment order. Therefore, it cannot be said that approval granted u/s. 153D of the Act, is mechanical and without application of mind. Further, the assessee rest his arguments solely on the basis of deviation note stated to have been submitted by the Assessing Officer proposing to make modifications to the unaccounted income suggested in the appraisal report and the endorsement by the Addl. Commissioner on said deviation note before forwarding the same to the Investigation Wing for their comments. But, fact remains that the assessee could not produce so called deviation note submitted by the Assessing Officer, to the Range head to prove their claim. Further, during appellate proceedings, the CIT(A) called for remand report on the issue and in response, the Assessing Officer submitted that deviation note being extended part of the appraisal report, is confidential in nature and thus, same cannot be shared with the assessee or any appellate authority. In our considered view, internal correspondence between the Assessing Officer and the investigation officer is confidential and extended part of appraisal report, which cannot be shared with the assessee. ....
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....153A(1) are not satisfied. 31. The Counsel for the assessee, Shri. D Anand, Advocate on the other hand supporting order of the ld. CIT(A) submits that in order to invoke provisions of fourth proviso to section 153A(1) of the Act, the first and foremost condition is undisclosed income in excess of prescribed limit, which is absent in the present case. Further, the CIT(A) negated observations of the Assessing Officer with regard to conditions for imposing fourth proviso to section 153A(1) of the Act, and held that income declared under PMGKY and IDS scheme cannot be construed as asset and further cash seized during search pertains to assessment year in which date of search falls, but same cannot be extrapolated to previous assessment years. The Counsel for the assessee further submits that apart from issuing notices u/s 153C for six AYs immediately preceding the AY relevant to the previous year in which search was conducted, the AO issued notices u/s 153C for AY 2010-11 which is beyond the said 6 AY and completed the assessment for assessment year 2010-11 u/s 153C r.w.s 143(3) and made addition towards underreporting of income without there being any evidence with the Assessing Of....
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....itions spelt out in the fourth proviso in the assessment order. On careful examination of the satisfaction note, it is noticed that the assessing officer has relied on certain factual observations found during search to come to the conclusion that the books of accounts or other documents or evidence found during the search have revealed that income represented in the form of asset exceeding Rs 50 lakhs has escaped assessment for the relevant assessment years. On careful examination of reasons given by the Assessing Officer to assume jurisdiction for Asst. year 2010-11, we find that as per the "Erandamthall" found during the search, the assessee has been making undisclosed/inadmissible expenditure over the years regularly and there has been generation of undisclosed income through bogus bought note and dummy entities. The unaccounted cash has been kept in the business of the assessee, which is a going concern and its group as working capital which is an investment/ asset. Therefore, the Assessing Officer opined that the threshold limit of Rs 50 lakhs is met for the assessment year or in the assessment years. 34. As regards the reference made to the "Erandamthall" which was seized....
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....tion 153C of the Act, that the income should have escaped assessment for the relevant assessment year or years only. It goes without saying that the cash seized during the search conducted in FY 2018-19 cannot be construed by any reasoning or logic to be representing income escaping assessment for AY 2010- 11. Similarly, the declaration made under PMGKY is not in relation to any specific assessment year or years and there was no such requirement also under PMGKY. As regards the declaration made under IDS, it is noticed that the same was made for AY 2015-16 alone. Moreover, it has been clearly laid down in section 199-1 of Chapter IX-A of The Taxation Law (Second Amendment) Act, 2016 dealing with the tax and investment regime under PMGKY that the amount of undisclosed income declared under PMGKY shall not be included in the total income of the declarant for any assessment year under the Income Tax Act, 1961. In view of the said specific statutory prohibition, the action of the assessing officer in relying on the declaration made by the appellant under PMGKY to draw inference regarding income escaping assessment for assessment year 2010-11 is in violation of the specific provisions o....
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....reported in ITR and income as per seized tally account without appreciating fact that the electronic device sized vide ANN/VP/ED/S2 contains consolidated entries in respect of bought note purchases and sales. In the assessment also, the additions towards undisclosed income was made on the basis of net of bogus purchases and sales. Therefore, from the above it is very clear that incriminating material seized have bearing on the determination of undisclosed income for assessment year 2015-16 to 2018-19 and thus, notice issued u/s. 153C is on sound footing. Further, the Assessing Officer has recorded satisfaction in light of incriminating material found during the course of search which includes Erandamthall, which clearly established undisclosed income belongs to the assessee. Further, there is enough material in the possession of the Assessing Officer including the Erandamthall which contains unaccounted expenditure of appellant and other group companies, which is having a bearing on undisclosed income of the appellant for these assessment years. From the above, it is very clear that the Assessing Officer has rightly recorded satisfaction note which is supported by incriminating mat....
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....e annexure ANN/KRR/CFI/CO/B&D/S contains the bought note of M/s Christy Friedgram Industry only but not belongs to the assessee. From the above, it is very clear that the Assessing Officer could not have examined and verified the bought notes. Therefore, he submits that the legal sustainability of the satisfaction note is required to be determined on the basis of actual contents of the satisfaction note recorded by the Assessing Officer. In this case, if you go through satisfaction note recorded by the Assessing Officer in light of incriminating material referred to in the said satisfaction note, it is abundantly clear that the Assessing Officer does not verified the incriminating material to arrive at a satisfaction that there is undisclosed income for these assessment years. The ld. CIT(A) after considering relevant facts in their order clearly held that there is no incriminating material in the possession of the Assessing Officer to arrive at a satisfaction that there is undisclosed income for these assessment years to issue notice u/s. 153C of the Act and thus, rightly held that notice u/s. 153C of the Act is invalid and consequent Assessment order passed u/s. 143(3) r.w.s. 153....
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....T.S. Kumrasamay., as evidenced by the relevant seizure annexure enclosed to Panchnama dated 09.07.2018 in respect of the said premises. On perusal of the seizure annexure ANN/VP/ED/S, it is noticed that the contents of the electronic device seized at Sl.No.2 of ANN/VP/ED/S have been imaged, along with the contents of electronic device seized at Sl.No.1 and 3 of the said annexure, into a hard disk and the said hard disk have been seized and shown at Sl.No.8 of the same seizure annexure. Once the data available in electronic device is imaged, working copies are prepared for the purpose of accessing the data in the course of recording the statements, it is evident that working copies have been prepared from the imaged disk. The handing over of the seized electronic device ANN/VP/ED/S-2 by the assessing officer of the searched person to the assessing officer of the appellant has to be seen in the said context and such handing over has to be construed as handing over of the working copy of the imaged data of the original seized electronic device. In view of this, we are not inclined to agree with the contention of the appellant that the assessing officer could not have examined and veri....
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....n, since the seized material ANN/VP/ED/S-16 did not contain tally accounts of the appellant for AY 2016-17 to 2018-19 and the seized material vide ANN/KRR/CFI/CO/B&D/S-1-13 did not contain the bought notes of the appellant for the said AYs or any other AYs. The counsel for the assessee took us to paper book and explained that in seized electronic device, tally accounts and bought notes belongs to assessee was not found. From the above, it is clear that it was not possible for the assessing officer to examine the tally accounts for AY 2016-17 to 2018-19 and bought notes for the above period for arriving at the satisfaction for the purpose of underreporting of income between the returns filed for the said assessment years in comparison to the net profit reflected in the corresponding tally accounts. Further, the assessing officer while recording satisfaction has not referred to any evidence contained in the seized material received by him from the assessing officer regarding booking of bogus purchases and sales by the appellant through dummy entities as listed in the satisfaction note. Therefore, we are of the considered view that the satisfaction note recorded by the Assessing Offic....
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....faction note has been prepared in a standard mechanical format and it does not provide any details about the books of accounts which allegedly belong to the Assessee Firm. The AO's note nowhere reflects whether any document seized, on application of his mind, disclosed that it belonged to the assessee, and if so, its prima facie nature. Therefore, it was held that, the failure of the AO to record a specific satisfaction as to how the recovered material belonged to the assessee in the note that preceded the notice issued under it, vitiates the assessments. 46. The Hon'ble Delhi High Court in PEPSI FOODS PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX (90 CCH 0059) (Del HC), while quashing the notice under section 153C held that Section 132(4A)(i) clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search it may be presumed that such document belongs to such person. It is similarly provided in Section 292C(1)(i), whenever a document is found from a person who is being searched the normal presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut said presumption a....
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.... 2018-19 is deletion of additions towards under reporting of income being difference between net profit as per seized tally data and ITR filed for assessment year 2010-11, 2015-16 to 2018-19 and addition on account of net of bogus bought note purchases and bought note sales for assessment year 2015-16 & 2016-17 and also addition on account of net of bogus purchases and sales from dummy entities for assessment year 2017-18 & 2018-19. 50. The brief facts with regard to the impugned dispute are that the AO has made additions towards difference in profit as shown in the return of income filed by the appellant and income as per seized tally account on the ground that the assessee has under stated net profit for assessment years 2010-11, 2015-16 to 2018-19. The details of difference computed by the Assessing Officer are as follows: AY Income as per seized tally(In. Rs) Income as per ITR (In. Rs) Unaccounted income (In.Rs) 2010-11 11,90,330 1,67,37,040 1,55,46710 2015-16 6,58,68,130 6,60,00,000 1,31,875 2016-17 8,46,79,820 8,49,99,999 3,20,182 2017-18 7,77,42,660 7,77,00,000 2,57,344 2018-19 11,40,73,496 11,40,99,650 ....
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.... 54. In so far as assessment years 2015-16 to 2018-19, as pointed out by the ld. Counsel for the assessee, from ITR filed for these assessment years that difference between income as per ITR and income as per seized electronic device is due to the depreciation provided as per section 32 of the Act, for assessment year 2015-16 to 2017-18 and for assessment year 2018-19 it was due to disallowance of interest on TDS, EPF and GST. From the above, it is very clear that there is no difference between net profit as per seized electronic device and net profit reported in ITR filed for relevant assessment years. The ld. Counsel for the assessee took us to paper book which contains ITR filed for the assessment year 2015-16 to 2018-19 and explained, how the Assessing Officer fundamentally went wrong and from the explanation of the assessee, we find that the difference noticed by the Assessing Officer is on account of providing depreciation and disallowance of certain inadmissible expenses and thus, we are of the considered view that the assessee has explained difference noticed by the Assessing Officer with necessary evidences. The CIT(A) after considering relevant facts rightly deleted ad....
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....there was no stock register for financial year 2014-15 & 2015-16 and further, he is in possession of stock register for assessment year 2017-18 & 2018-19 only. A statement from M. Vannakannan, DGM (Accounts) was also recorded and he was asked to furnish the quantity details of Maize purchases since financial year 2008-09 onwards. In response, he submitted that quantitative details of maize purchases are available in tally from financial year 2017-18 and for earlier years only purchase value has been entered in the tally without keying in the quantitative details. 57. During the course of assessment proceedings, the Assessing Officer analyzed details of consumption of major raw materials taken from Mr. M. Yuvaraj, Deputy Manager (Production) and on analysis, it was noticed that purchases through bought notes in cash were at higher market price and simultaneously sales for the same is also booked at a much lower price. The Assessing Officer on the basis of various incrimination material found during the course of search, coupled with statement recorded from various persons, observed that bogus purchases were booked though bought notes. In order to verify and understand the veracit....
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....n documentation and variation in quantities of purchases and consumption in production process. But, the AO disregarded explanation and made additions. 59. The ld. CIT(A), after considering relevant submissions of the assessee and also taken note of reasons given by the Assessing Officer to make additions towards undisclosed income arising out of bogus bought note purchases and sales, held that the finding of the AO that the appellant indulged in bogus bought note purchases and corresponding bogus sales to suppress its income is unsustainable on facts. The CIT(A) directed the Assessing Officer to delete additions made for AYs 2015-16 to 2016-17 towards the unaccounted income arising from bogus bought note purchases and corresponding sales by holding that the observation of the Assessing Officer with regard to weighment slip, GRN and lorry receipt is hypothetical, because if you go through the process employed by the assessee for purchase of raw materials, it was very clear that bought note purchases are directly procured from farmers on 'as is where is' condition which are not supported by documents like weighment slips, GRN and lorry receipts like purchases from traders. The CI....
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....in the bought note as direct purchases from farmers and these bogus bought note are annexed with sampling details slip printed in pink colour without any entry in the sample register. The Assessing Officer has clearly brought out the fact of using single lorry number for many bought notes and for bogus purchases only a consolidated entry made day wise in the tally without any supporting documents. 61. The ld. Counsel for the assessee Shri. D. Anand, Advocate, supporting the order of the CIT(A) submits that the sole basis for the Assessing Officer to make additions towards unaccounted income arising out of bought note purchases and sales is sworn statement of Mr. Gnanasekaran & Mr. Thiruvenkata Prabhu, obtained during the course of search under coercion which were all subsequently retracted and said statements cannot be considered as valid evidence for making additions. The Counsel for the assessee further submits that the Assessing Officer completely erred in rejecting the purchase made under bought note and AMPC and the sales made through agents in the market without understanding the business model of the assessee. Further, the Assessing Officer has made additions towards unac....
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....e without weighment slip and good receipt note (GRN). The assessing officer referred to the statement of Shri. Rajaram Mohan, GM (Purchase & commodities), wherein he explained the purchase process followed by the appellant group and the documentation maintained with regard to the same and stated that the bought note purchases for which the weighment slip and GRN have not been found are required to be treated as bogus purchases. In this regard, we find that the purchase process and the related documentation as explained by Shri. Rajaram Mohan pertained to the purchases made from registered dealers/manufacturers only and the same is not applicable to purchases made through bought notes, in view of the fundamental difference in the nature of the said two types of purchases. None of the said steps in the purchase process explained by Shri. Rajaram Mohan are relevant for the purchases made from the farmers at the farm level by making payment in cash, in view of the completely different commercial nature of the said purchases. 63. Further, bought notes are used for making purchases of agricultural commodities from the farmers through their agents at the farm level itself on "as is whe....
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....the assessing officer observed that the test certificate issued by the testing lab in the case of genuine purchases is in blue colour and the details of the concerned sample and the test result is entered in the sample register, while test certificate issued in the case of bogus bought note purchases is annexed with "sampling details" slip in pink colour and no details of the same are entered in the sample register. In this regard, the counsel explained that no quality control test is carried out at all in respect of bought note purchases at the stage of receipt of goods. The "sample for lab test" slip in blue colour is used for sampling of materials purchased from registered dealers & FCI and the "sampling details" slip in pink colour is used when the raw materials are issued for production. Similarly, the pink slip contains details such as shift/batch number, number of batch mixes, number of bags, quantity of total production, quantity taken for sampling etc., which clearly shows that the same is used for testing the raw material at the time of issuing such material for production. Therefore, the observations of the Assessing Officer to drawn adverse inference against the assesse....
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....letter dated 07.07.2022. However, no details regarding quantification of bogus purchases and sales have been furnished by the assessing officer in the remand report. The assessing officer was once again requested by CIT(A) vide letter dated 27.07.2022 to furnish the commodity wise and transaction wise details of bogus purchases and bogus sales, to enable the assessee to defend itself and also to enable the CIT(A) to adjudicate the relevant grounds of appeal. However, no details regarding quantification of bogus purchases and sales have been furnished by the assessing officer in the remand report. From the above, it is very clear that the addition towards unaccounted income arising from bogus bought note purchase and sales for AYs 2015-16 and 2016-17 is merely based on the statement of Shri. Gnanasekaran and without the verification of its correctness by the assessing officer and without affording opportunity to the appellant to explain the adverse material in violation of principles of natural justice and thus, addition cannot be sustained". We further noted that the assessing officer did not make any enquiries with the suppliers from whom the bought note purchases have been made o....
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....ditions made by the Assessing Officer towards unaccounted income arising from bogus bought note purchases and sales for assessment year 2015-16 & 2016-17. Thus, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the revenue. 68. The next issue that came up for our consideration from ground no 3 to 3.3 of revenue appeal for assessment year 2017-18 & 2018- 19 is addition of undisclosed income arrived by the learned Assessing Officer on account of purchase inflation through dummy entities for assessment years 2017-18 and 2018-19. The brief facts of the impugned dispute are that the assessee is engaged in trading of Eggs, Dhal and Sugar etc. and supplies to the Government under the ICDS and Noon Meal Scheme. Apart from the above, the company is into the trading of agro commodities. The Assessee procures eggs from small and medium farmers at the farm gate on as is where is basis, as well as through traders. The eggs so procured are then subjected to grading in order to match the contract specifications. The eggs which do not comply with specifications are removed from the lot and the remaining lot is sent for dispatch. The average percentage of reject....
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....f manipulation of books of accounts, he stated that bogus purchases and bogus sales have been booked to reduce the profit of the appellant, as per the directions of Shri. Vannakannan and Shri. Maheswaran. In response to Q. No 16, he stated that the cash purchase and cash sales were substituted by the purchases and sales through dummy entities created for the said purpose. In response to Q. No 17, he stated that there won't be actual movement of goods with regard to such purchases and only entries are made in the books and payments are made through bank. He furnished a list of dummy entities with which bogus purchases and sale entries are made by the appellant in response to Q.No.18. He was requested to quantify the year wise unaccounted income of the appellant based on the responses given by him regarding bogus purchases and sales and in response to Q. No 19, he furnished the following quantification of undisclosed income with regard to AY 2017-18 and 2018-19 involving purchases and sales through dummy entities: AY Quantum of addition (in Rs.) Remarks 2017-18 88,41,79,695/- Net of bogus purchase & bogus sales using dummy entities 2018-19 95,20,41,762/- Ne....
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....the Assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee challenged additions made by the Assessing Officer towards undisclosed income arising out of purchases and sales through dummy entities in light of retraction filed by various employees, whose statement was the basis for the Assessing Officer to make additions. The assessee had also furnished various evidences to negate the observations of the Assessing Officer with regard to contents of various statement recorded from various employees on the issue of dummy entities. The CIT(A), after considering relevant submissions of the assessee and also taken note of various facts deleted additions made by the Assessing Officer towards unaccounted income arising out of purchases and sales through dummy entities by holding that the reasons given by the Assessing Officer to make additions towards difference between purchases and sales through dummy entities is unsustainable on facts. Being aggrieved by the CIT(A) order, the revenue is in appeal before us. 72. The CIT-DR, Shri. M, Rajan, submits that the CIT(A) is erred in deletion of addition made towards unaccounted income in respect of....
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....olely on the basis of statements of various employees ignoring the fact that the persons who gave statements have withdrawn/retracted from their statement with valid reasons and thus, those statements cannot be considered as valid evidence for making addition. The ld. Counsel for the assessee further submits that the findings of the Assessing Officer with regard to dummy entities is factually incorrect because the sole basis for the Assessing Officer to arrive at adverse inference against the assessee is statements of various employees however, fact remains that those statements have been retracted and thus, same cannot be considered as valid evidences. The CIT(A) after considering relevant facts has rightly deleted additions made by the Assessing Officer and their order should be upheld. 74. We have heard both the parties, perused the material available on record, and gone through orders of the authorities below. The Sole basis for the Assessing Officer to make additions towards unaccounted income arising from bogus purchases through dummy entities is statement recorded from Shri. M Karthikeyan on the date of search on 07.07.2018 and computation of unaccounted income from bogus....
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....assessee. 75. We further noted that during the course of assessment proceedings, the assessee had sought for the break up details for the above said quantum of addition, but the same was not provided to the assessee even after repeated requests. Further, during the appellate proceedings, the Ld.CIT(A) had also sought for the break- up of the details on two occasions viz. 17.05.2022 and 27.07.2022 and even then, the assessing officer was unable to furnish the same. It is significant to note that the assessment order is completely silent regarding the entities to whom the alleged bogus sales were made and the reasons and specific evidences found during the search to hold that the said entities are dummy entities. The assessing officer made a sweeping observation that the said sales were made to dummy entities, without even adverting to who the said dummy entities are and what are the features/characteristics which made them liable to be treated as dummy entities. The assessing officer has solely and merely relied on the statements of employees of the appellant concern that bogus sales are booked for the purpose of matching the quantity of bogus purchases through dummy entities and....
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....deficiencies in the documentation maintained by the appellant in respect of the alleged bogus purchases from dummy entities, which can support his inference regarding the bogus nature of the said transactions. The assessment order is completely silent regarding this aspect, particularly when the assessing officer highlighted the non-availability of party weighment slips, goods receipt note, lorry freight slip, sample for lab test slip and entries in sample register with regard to the bought note purchases which were considered as bogus by him in AY 2015-16 and 2016-17. Similarly, the assessment order is silent regarding the differentiation in the type of lab test report between the actual purchases and bogus purchases, in respect of the purchases made from alleged dummy entities. Therefore, we are of the considered view that no adverse evidence was found during the search in respect of the documentation maintained by the appellant in respect of purchases made from registered dealers, which could reveal that the purchases made from alleged dummy entities are bogus as opposed to the purchases made from other registered dealers. 78. We further noted that it was the claim of the ass....
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.... pertain to the appellant and that the same pertain to the office of the auditor. The appellant also stated that none of the returns of income of the alleged dummy entities were filed using the said IP address and email id. The appellant furnished the copies of the acknowledgement of the returns of income of the dummy entities for AY 2017-18 in support of his explanation. In this regard, on verification of the acknowledgement of the returns of income of the appellant, it was noticed the said returns were not filed from the IP address quoted by the assessing officer in the assessment order. The Ld.CIT(A) has held that on verification of acknowledgement of returns of income of the dummy entities, it is noticed that their returns were also not filed from the said IP address and concluded that the allegation made by the assessing officer in the assessment order in this respect is factually incorrect. 80. With regard to the matter of partners of the 28 entities and the 1317 individual suppliers of such entities are either the employees/ex-employees of the appellant or his group concerns or their friends or relatives, the appellant explained during the course of the assessment proceed....
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....d rely more on registered dealers for his procurement which are entities owned by former employees and this was considered to bring business advantage as the appellant is assured of loyalty and preference in supply, in a market which is often affected by fluctuations in supply and price. Further, the appellant also derives the business advantage of better credit period from such entities. The supplier entities have given preference to procurement from friends and relatives of the partners or the employees of the appellant having agricultural operations as it would allow them to avail credit facility from such persons due to their personal acquaintance. Therefore, from the above it is not correct to draw any adverse of the purchases made from the 28 entities based on the fact that former employees of the appellant are the partners of the said entities and those entities are in turn making purchases from individual suppliers who are either employees or former employees of the appellant or their relatives or friends. 82. In the assessment order, the assessing officer placed reliance on seizure of the complete set of pre-signed cheque books of all the 28 entities and 1317 individual....
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....f the Investigation Wing upon having a reason to suspect the existence of undisclosed income. In fact, the condition precedent to arrive at the satisfaction to issue search warrant invariably begins with the phrase that the person who is in possession of undisclosed income would not come forward to produce such documents, etc., when asked to do so in the normal course. Therefore, power has been conferred under the aforesaid section to be exercised before the search and seizure operation with a view to collect the necessary information with regard to the intended search and seizure operation. Clearly, the purpose of issuing summons u/s 131(1A) is for pre-search enquiries. If after completion of the search the DDIT/ADIT issues summons u/s 131(1A), it means that he suspects that the person has concealed the income. If no action is taken after recording the statement u/s 131(1A), it is to be concluded that there is no reason to suspect that income has been concealed as there cannot be an occasion in law to virtually carry out the same act once again by the same authorities by issuing summons u/s 131(1A), after having exercised the powers as mentioned u/s. 132. In this case, if you go t....
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....ng the summons, without a single absentee. From the above, it is clear that their presence was ensured through application of some mode and degree of pressure and further, this feature of ensuring the presence of the said persons without formal prior issue of summons lends substantial credence to the averments made by the said 1307 persons in their affidavits filed before the special auditor. Further, as could be seen from the details furnished above, as high as 352 statements are shown to have been recorded on a single day by one officer. The number of statements recorded per day is very high in respect of all the officers, baring the statements recorded on the last day i.e 29.08.2018. Considering the fact that the statements contained 21 questions each, it is not possible to record more than 30 statements by an officer in a day even if it is considered liberally that each statement may consume 20 minutes and the exercise was carried out continuously without a break for 10 hours in a day. The fact that the number of statements recorded by an officer in a day is abnormally high compared to the said reasonable number, the only conclusion that can possibly be drawn is that the statem....
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....that the pre-signed cheque books are in his custody. It is therefore apparent from the said statements that the pre-signed cheque books were not available in the corporate office premises of searched person (Christy Friedgram Industry). However, the same were subsequently shown to have been found and seized at the corporate office premises of searched person (Christy Friedgram Industry) on 04.08.2018. From the above, it appears that the seizure of the pre-signed cheque books and ATM cards of the 1307 individual suppliers shown to have been made from the corporate office premises of CFI cannot be considered to be beyond any shadow of doubt. Similarly, the statements of the said 1307 persons to the effect that their bank accounts were being operated by CFI and other group concerns cannot be regarded as voluntary and reliable, particularly for the purpose of drawing any adverse conclusion against the appellant. Having regard to these critical aspects, which have a significant bearing on the integrity and reliability of the relevant seized material and the statements, it is held that the said evidences cannot be taken into cognizance for arriving at any adverse inference against the ap....
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....ation of the process of finalisation and auditing of accounts and the relevant standards on auditing. 87. The Revenue has challenged the findings of the Assessing Officer on the ground that the CIT(A) failed to appreciate that Smt. Anandhi, Shri. Vannakannan and Shri. Vijayananthan had admitted in their statements that the assessee has suppressed income by creating bogus purchases and sales through dummy entities. In this regard, it is noted that all the 3 persons had retracted their statements and it was accepted retractions of statements of various persons as valid on the ground that the statements were rendered under mistaken belief of facts, wherever it was found based on the evidences available in the seized material that the contents of the statements are factually erroneous/contrary to the seized material. The revenue has not specifically rebutted the said findings of the CIT(A). The revenue has also contended in the grounds of appeal that the CIT(A) failed to appreciate that partners of 28 dummy entities and 1317 individual suppliers are the employees/ex-employees/ their relatives/friends and erred in accepting the explanation of the assessee that they were encouraged to....
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....considered view that the revenue fails to bring on record any evidences to counter the findings of facts recorded by the ld. CIT(A). 89. In this view of the matter and considering facts and circumstances of this case, we are of the considered view that the finding of the assessing officer that the appellant indulged in bogus purchases through dummy entities and corresponding bogus sales to suppress its income is unsustainable on facts. The CIT(A) after considering relevant facts has rightly deleted additions made by the Assessing Officer and thus, we are inclined to uphold the findings of the ld. CIT(A) and direct the assessing officer to delete the additions of Rs. 88,41,79,695/- & Rs. 95,20,41,762/- for AY 2017-18 and AY 2018-19 respectively, towards the unaccounted income arising from bogus purchases and sales through dummy entities. 90. The next issue that came up for our consideration from assessee appeal for the assessment year 2015-16 to 2018-19 is enhancement of assessment and consequent addition u/s 69C of the Act, towards unexplained expenditure quantified by the special auditor in their second audit report submitted u/s 142(2A) of the Income Tax Act, 1961. 91. T....
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.... the Act, by taking into account total unexplained expenditure quantified at Rs. 2056.76 crores on the basis of Erandamthall. Further, said sum of Rs. 2056.76 Crores has been treated as total undisclosed income of Shri. T.S. Kumarasamy and three group entities. Since, the AO, has assessed undisclosed income of Rs. 1351, 84, 23, 278/- in the hand of Shri. T.S. Kumarasamy and three other group entities on the basis of admission in the statements recorded u/s 132(4) of the Act, on account of under reported income, being difference between net profit as per seized tally accounts and income as per ITR filed for relevant assessment years, unaccounted income from bought note purchases and bought note sales and also unaccounted income arising out of purchases through dummy entities, and the balance amount of unexplained expenditure of Rs. 687.25 Crores (Rs. 2056.76 Cr Minus Rs. 1351.84 Cr) has been added u/s. 69C of the Act, in the hands of Shri. TS Kumarasamy for Asst. Years 2009-10 to 2018-19. Before the first appellant authority, Shri. T S Kumarasamy challenged addition made by the AO towards unexplained expenditure u/s 69C of the Act. The CIT(A), for the reasons stated in their appella....
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....s must and further, no explanation from the assessee for source of said expenditure. In this case, both conditions are not satisfied, which is evident from the fact that the CIT(A) made additions only on the basis of special audit report. But, fact remains that the very same special auditor in his report observed that entries in ErandamThall were neither speaking one nor supported by corroborative evidences regarding actual incurring of such expenditure and hence, additions made on the basis of observation of the special auditor is incorrect and unsustainable in law. 94. The Ld. CIT-DR, Shri. M. Rajan, submits that the Assessing Officer has made quantification of unexplained expenditure at Rs. 2056.76 crores and has also made additions of Rs. 687.25 crores in the hands of Shri. TS Kumarasamy. However, the CIT(A) without any valid reason deleted additions made u/s. 69C of the Act in the hands of TS Kumarasamy and enhanced the assessment on the basis of special audit report, where the auditor has quantified unexplained expenditure of Rs. 211.37 crores without any basis. The CIT(A) without appreciating fact that unexplained expenditure quantified by the special auditor is unscienti....
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....tself is enough to hold that said addition cannot be made in the hands of the assessee. Further, when the AO himself was of the opinion that said expenditure is only pertains to M/s CFI, it is incorrect of the part of the CIT(A) to assume something which is not the case of the AO and make additions in the hands of the assessee. Therefore, on this ground itself enhancement of assessment and consequent addition towards unexplained expenditure u/s 69C in the hands of the assessee cannot be sustained. Be that as it may, it is important to see reasons given by the CIT(A) to delete addition u/s 69C in the hands of Shri. T.S. Kumarasamy. The ld. CIT(A) directed the AO to delete addition u/s 69C for the reasons that, when the appellant requested the AO during the course of the assessment proceedings to provide the details of the working of the alleged unaccounted expenditure of Rs. 2056.76 crores from the contents of Erandamthall for necessary verification and explanation, the AO failed to provide the details of working of unexplained expenditure. Further, during appellate proceedings, the CIT(A), called upon the Assessing Officer to furnish necessary workings for arriving at unaccounted e....
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....ument even fail to qualify as a books of accounts, because it cannot be identifiable to any person or entity. This special auditor further observed that 90% entries recorded in Erandamthall are identified/matched with regular books of account of four entities. Form the above, it appears that it is a parallel day book maintained for all entities together to have a complete track on various transaction of the assessee. The fact that more than 90% entries are identified with regular books of accounts itself is a strong reason to discard or reject Erandamthall for the purpose of assessment. Further, the special auditor made all effort to reconcile books of the assessee with Erandamthall and where ever possible identified the entries in Erandamthall with books of accounts. For remaining entries in Erandamthall, the special auditor observed that those entries are not identifiable to any individual assessee or entity. The source of debit or receipt of money is not identified, whether it is received in cash or bank. Further, there is no details with regard to nature of debit/receipt whether it is a capital, loan or income. Further, there is no details as to from whom and for what purpose t....
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....tification and matching of the sources for the inflow of funds in the said excel sheets with the books of accounts of the assessee, including bank accounts;(b) Identification and matching of the expenses with the books of accounts of the assessee.(c) Whether the identified bank accounts and the sources for the inflow of funds have been disclosed in the books of accounts and consequently offered for taxation in the returns.(d) Assessee wise sources for the inflow of funds in the said excel sheets. The Special auditor submitted his report regarding the examination of Erandamthall and findings in respect thereof. The Special Auditor stated that the examination of 'ErandamThall' was carried out in tune with the scope of work specified in the AO's reference. The Auditor further stated that though the entries in the Erandamthall make it fit enough to be treated as a dumb document when examined in the light of accounting principles and widely accepted accounting concepts, he made certain assumptions in order to carry out the scope of work as entrusted by the AO to compare and match the entries of Erandamthall with the books of accounts of the appellant and 3 other group entities. The spec....
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....of the entity with which it was found matching. viii. Substantial inflows of Erandamthall were identified and matched with the withdrawal from the bank accounts and such entries have been marked as "cash withdrawal" under the column "nature of entry" in the consolidated file. ix. On sample basis, it was observed that the inflow entries of Erandamthall such as "Ganesh canvases", "Mahaveer& Pradeep", "Logesh", etc., are found matching to the nearest approximation with the cash withdrawals reflected in the books of account. Such entries have been marked as "cash withdrawal" under the column "nature of entry" in the consolidated file shown in Annexure 4. x. On sample basis, it was observed that the inflow entries of Erandamthall such as "Salem Foods", "Elayaperumal", "Waste Sales", "Green Trading & Co", etc., are found matching to the nearest approximation with the cash sales reflected in the books of account. Such entries have been marked as "cash sales" under the column "nature of entry" in the consolidated file shown in Annexure 4. xi. With respect to the entry in Erandamthall with the narration "cash withdrawn: Syn + KVB + IBNallur + IB + SBI" on....
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....outflow entries marked as "unidentified" under the column "nature of entry" in the consolidated file in Annexure 4 were found to be not matching with the seized tally books of account of the 4 entities and the same are extracted and shown separately in Annexure 8. These entries are termed as "disallowable". ii. The identified entries marked in the consolidated sheet enclosed as Annexure 4 are found matching with the books of account of the respective entities. The comparison of summary of marked entries in the column "nature of entries" in Annexure 4 with that of summary of cash inflow and cash outflow of the 4 entities extracted from the seized tally data for the respective years is provided in Annexure 7. It is observed that the value of the tally extract is higher than the value arrived in Erandamthall for both the cash inflow and cash outflow, which establishes that the entries in Erandamthall are subsumed in the seized tally data. iii. It is observed that there is no separate sources of fund for the Erandamthall, other than the sources available in the books of account of the 4 entities. iv. It is observed that the identified bank accounts and source....
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....ities as per the seized tally books of accounts. (The entity wise and year wise summary of disallowances as per the special audit report is provided in the table shown below point (c) at para 461 of appellate order). iv. The entire possible inflow / outflow of funds have been included in the books of accounts of the 4 entities for which a special audit report has already been submitted earlier on 03.12.2020. In the said report, the undisclosed income has been estimated at 1.50% of the total turnover of each entity for the relevant assessment years, keeping in view huge cash transactions involved for various financial years for the said 4 entities in their business. In the case of Christy Friedgram Industry and Suvarnabhoomi Enterprises Pvt Ltd, the undisclosed income has been estimated in the said manner only for the period after the demonetization in November 2016 as the said entities have made disclosures under PMGKY for the earlier period. (The details of the assessment year wise estimation of undisclosed income in respect of each entity made in the first special audit report dt 03.12.2020 are provided in the tables shown below point (d) at para 461 of the appellate ord....
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.... an expert in financial and accounting matters. However, having proposed examination of contents of Erandamthall by the special auditor and having assigned the said work to the special auditor, the AO completely ignored the special auditor's report dated 15.04.2021 while completing the assessments. The AO did not even mention the fact that a report was called for from the special auditor on the said issue. The AO remained completely silent with regard to the said report and its contents. The AO did not make any discussion in the assessment order regarding the reasons for not accepting the said report. In this factual background, the disregarding of the report of the special auditor obtained subsequently without assigning any reasons for the same is inexplicable and the said action of the AO only adds strength to the appellant's contention regarding the mechanical manner of adopting the quantification of unaccounted expenditure made during the course of search, without addressing various objections and contentions of the appellant. The report of the special auditor obtained by invoking the provisions of the Act could not have been ignored and disregarded by the AO, without specifyin....
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....elaborate and well defined manner having regard to the accounting principles and concepts and the wide experience of the special auditor in probing financial transactions. Every step followed by the special auditor in accordance with the said methodology has been reduced to writing in the special audit report and the output at each step has been provided in separate annexures to the audit report, which is a clear indication of the transparent manner in which the said exercise was carried out. On making such meticulous and painstaking exercise as per the scope of work, the special auditor has identified and matched a large number of cash inflows into Erandamthall with the corresponding withdrawals from the bank accounts of the 4 entities, the cash sales of the said entities and other sources in the books of account of the said entities. The special auditor has also identified and matched a large number of cash outflows from Erandamthall with the corresponding business expenses recorded in the books of account by way of purchases, direct expenses and indirect expenses. The special auditor has furnished the identified and matched nature of each entry of cash inflow and cash outflow in....
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....e of each entity in the aggregate cash outflow of the 4 entities in their books of account for the relevant assessment years. 105. The assessee has strongly opposed addition of unexplained expenditure of Rs. 211.37 crores and apportioned to four entities and for all assessment years. According to the assessee, though scientific examination of the Erandamthall and conclusions drawn by the special auditor in his report is acceptable, but estimation of disallowable expenses made in the report is not acceptable as the same is based on assumptions stated in the report. Further, the appellant objected to the adoption of the unaccounted expenditure of the 4 entities including the appellant at Rs. 211.37 crores based on the report of the special auditor on the ground that it was only an estimate made by the special auditor. We have carefully gone through arguments of the assessee in light of observations of the special auditor, and we find that although, various assumptions made by the special auditor are logical, reasonable and in tune with normal characteristics associated with cash transactions, but when it comes to treating unidentified entries in Erandamthall as unexplained expendi....
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....evidence. The appellant contends that an electronic record is not admissible as evidence if all the conditions laid down in section 65B of Indian Evidence Act are not complied with and if a certificate u/s 65B(4) is not issued regarding the satisfaction of the said conditions as held by the Hon'ble Supreme Court in the cases of Anwar P.V Vs. P K Basheer AIR 2015 SC 180 and Arjun PanditraoKhotkar Vs. KailashKushanrao Gorantyal and Ors 220 SCC Online SC 571. In the case of the appellant, though certificate u/s 65B(4) was prepared during the search, the same does not represent a valid certificate since it is signed by a person other than Sri. P. Karthikeyan though it is prepared in the name of Sri.P. Karthikeyan and it is claimed to be signed by him. The signature found therein is completely different from the signature of Sri.P. Karthikeyan found in the panchnama dated 06.07.2018 and seizure annexures dated 05.07.2018 pertaining to the search at his residence. It is submitted that the said invalid certificate should not be taken into consideration and consequently, the electronic record represented by Erandamthall is inadmissible as evidence due to non-compliance with the mandatory r....
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....are not supported by corroborative evidence regarding actual incurring of such expenditure, it is submitted that no addition can be made u/s 69C based on the said entries. 109. We have given our thoughtful consideration to reasons given by the ld. CIT(A) in light of arguments of the assessee and we ourselves do not subscribe to the reason given by the CIT(A) to direct the AO to sustain additions of Rs. 211.37 crores u/s 69C of the Act, on the basis second audit report of special auditor for the simple reason that even though the special auditor made all effort to reconcile books of the assessee with Erandamthall and where ever possible identified the entries in Erandamthall with books of accounts, but for remaining entries in Erandamthall, the special auditor observed that those entries are not identifiable to any individual assessee or entity. The source of debit or receipt of money is not identified, whether it is received in cash or bank. Further, there are no details with regard to nature of debit/receipt whether it is a capital, loan or income. Further, there are no details as to from whom and for what purpose the amount is received. Similarly in respect of credit or paymen....
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....n total and made additions on the basis of statements of employees towards unexplained expenditure u/s. 69C of the Act, in our considered view, the Assessing Officer has miserably failed and missed an opportunity to determine the true and correct undisclosed income of the assessee in respect of unexplained expenditure. In our considered view, when the Assessing Officer or CIT(A) is making additions u/s. 69C of the Act, the burden of proof is on the revenue, because if you go by the provisions of section 68 to 69C of the Act, where addition is made u/s. 68 of the Act, the burden is on the assessee to explain the source of the credit. But, in cases falling u/s. 69, 69A, 69B and 69C of the Act, the words used therein goes to show that before any of these sections can be invoked, the conditions precedent as to the existence of any investment or expenditure must be conclusively established by evidence and/or material on record by the Assessing Officer. If the revenue cannot, or fails to prove, there cannot be any addition. The primary onus is thus, on the revenue. In the present case, if you go through the findings of the special auditor in their audit report issued u/s. 142(2A) of the ....
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....assessee to get the accounts audited by an Accountant in terms of provisions of section 142(2A) of the Act. The Assessing Officer with prior approval of the Principal Commissioner of Income-tax, appointed M/s. Ramesh & Company, Chartered Accountants for auditing the books of accounts of the assessee and to submit their report with regard to correctness of books of accounts maintained by the assessee for the purpose of computing taxable income. The Special Auditor in light of scope of audit assigned to them, has submitted their audit report for assessment year 2015-16 to 2018-19 and also prepared financial statement for the above period and submitted their report on 03- 12-2020. Further, the Assessing Officer has also called for special audit report from the auditor on seized electronic device Erandumthall. The Special Auditor vide their report dated 15.04.2021, submitted their audit report on correctness of Erandamthall and also verified the entries recorded therein. The Assessing Officer rejected Special audit report submitted by the auditor by stating that the special audit report suffers from infirmities in so far as the Special Auditor had to rely on the information furnished b....
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....arch. The ld. CIT-DR further submits that the special auditor is not privy to the confidential findings of the search and he could not provide a true and correct picture of accounts of the assessee as the modus operandi of manipulation employed by the assessee was not in the domino of knowledge of the special auditor. Further, the special auditor has employed various assumptions in preparing financial statements and also adopted financial year 2008-09 as base year and build accounts for rest of assessment years. Therefore, the audit report submitted by the special auditor cannot give true and correct undisclosed income of the assessee and thus, the Assessing Officer has rightly rejected special audit report while completing assessment, but the CIT(A) without appreciating relevant facts accepted special audit report in total which is incorrect. 113. The ld. Counsel for the assessee Shri. D. Anand, Advocate, supporting the order of the CIT(A) submits that it was the department and the Assessing Officer who had sought the special audit of the books of accounts of the assessee by stating that special audit of books of accounts is required considering the voluminous data and complexi....
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....hom the appellant had transactions of purchases, sales, expenses etc., in accordance with the Standards on Auditing (SA)-505 prescribed by the Institute of Chartered Accountants of India. Such confirmations were sought in the normal course of the auditing process in accordance with auditing standards, as the terms of reference of the special audit included preparation of audit report in form 3CD and notes to accounts apart from preparation of final accounts. From the above, it is clear that the said reason cited by the AO for rejection of the report of the special auditor is not based on proper appreciation of the auditing process. In any case, the confirmations obtained by the special auditor and the conclusions drawn by him based on the same with regard to the transactions recorded in the books of accounts, do not place any restriction on the powers of the AO to make enquiries and gather any adverse evidences in respect of the said transactions for drawing different conclusions. However, the AO has not conducted a single enquiry with the suppliers of the alleged bogus purchases or the buyers of the alleged bogus sales and has merely sought to rely on the statements of the employe....
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.... taken into consideration, instead of the seized tally accounts, which are incomplete and inaccurate. 116. As regards the remarks of the AO that the special auditor made backward working of consumption of raw materials based on the quantum of production shown by the appellant and that the same is not acceptable since the search has shown that the appellant manipulated its accounts to inflate purchases. In this regard, it is to be observed that the special auditor has not made any backward working with regard to consumption of raw material. The methodology adopted by him for verification of the consumption of raw materials has been detailed by the special auditor in the notes to accounts given separately for each assessment year in Annexures 1 to 10 of the special audit report. The special auditor stated therein that the consumption of raw material for production of weaning food, blend of critically processed material etc., as shown in the seized tally accounts of the assessee was cross verified with the formulations of respective products as per the terms of the tender document. The special auditor stated that the yield of each raw material used in the production has been comput....
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....on of the revenue that the CIT(A) erred in holding that the rejection of first special audit report by the AO is not sustainable is false, baseless and total non-application of mind by the AO. 117. We further noted that the revenue has not furnished even a single reason in support of its contention that the CIT(A) erred in holding that disregarding the second special audit report by the AO is not legally sustainable. Further, the AO himself proposed for obtaining a report from the special auditor u/s 142(2A) with regard to the contents of Erandamthall vide his letter dated 05.04.2021 addressed to Pr.CIT and the approval for the same was accorded by the Pr.CIT vide letter dated 07.04.2021. This report was sought in continuation of the earlier special audit report submitted by the special auditor vide report dated 03.12.2020 with regard to finalisation of the accounts of the appellant and 3 group entities. As could be seen from the proposal submitted by the AO, it was considered necessary by him to refer the matter of examination of the contents of Erandamthall with reference to the books of accounts of the appellant and 3 entities of the group to the special auditor, in view of t....
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....he provisions of the Act could not have been ignored and disregarded by the AO, without specifying the reasons for doing so in the assessment orders. Although, the AO gave various reasons for rejection of special audit report, but in our considered view, the reasons given by the AO are vogue and found to be incorrect from the discussions in previous paragraphs. Therefore, we are of the considered view that the AO is completely erred in rejecting first and second special audit report. 118. The power to direct the assessee to get its accounts audited u/s. 142(2A) of the Act is with the Assessing Officer. The Assessing Officer having regard to the complexity involved in accounts of the assessee and in the interest of revenue can direct for special audit and such direction can be issued with prior approval from the Pr. CIT. The procedure laid down for making reference to the special auditor indicates that it is only when complexity in accounts is found, that an expert of accountancy having specialized skill is engaged to examine the books of accounts. The special auditor appointed by the Department is from the panel of special auditors maintained by the Department and such panel has....