TaxTMI 
TaxTMI 
2021 (10) TMI 1432
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....3) of the Act 2. The issues being common, interlinked and similar and arising from a common order of CIT(A), all the captioned Revenues' appeals in respect of the captioned assessee have been heard together and are being disposed of by this common order. 3. The Revenue has raised several grounds in its appeals some which transcends to all the assessment years in appeal beginning from A.Y. 2006-07 upto 2009-10. The grounds are thus clubbed & consolidated for various years for the sake of convenience of adjudication. 4. As per its grounds of appeal, the Revenue has broadly challenged the relief granted by the CIT(A) on two counts; (1) additions of Rs. 4,56,00,000/- (A.Y. 2006-07), Rs. 95,00,000/- (A.Y. 2007-08) & Rs. 1,78,50,000/- (A.Y. 2009-10) invoking the provisions of Section 68 of the Act in respect of receipt of share application/share capital; & (2) additions of different amounts on account of suppression of yield and unaccounted productions/sales in each assessment year from A.Ys. 2007-08 & 2008-09. 5. As per its cross objections for the various assessment years in question spanning over A.Ys. 2006-07 to 2009-10, the assessee has primarily raised a legal objec....
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.... assessment order for AY 2006-07. Similar additions towards low yields were made towards low yields in other assessment years also. 7. Aggrieved, the assessee preferred appeal before the CIT(A) challenging the aforesaid additions in all these years. 8. The assessee filed detailed submissions before the CIT(A) and the documentary evidences to substantiate its claim on both issues; namely, (i) additions under s. 68 of the Act on account of share application money & (ii) additions on account of low yield of finished product. A legal objection was simultaneously raised on jurisdiction under S. 153A in respect of assessments unabated and concluded prior to search. The CIT(A) took note of factual and legal submissions so made and found merit in the plea of the assessee on both issues involved on merits. However, the legal objections of the Assessee questioning jurisdiction under S. 153A was discarded. 9. The CIT(A) addressed the first issue on additions made by the AO under S. 68 of the Act on merits in favour of the assessee for which the relevant operative para reads as under: "5. I have carefully gone through the assessment order and submissions of the appellant. As ....
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....r such allegation. It is not the case of the A.O. that the search team did visit the Registered Office premises of the appellant company and had asked a specific query to the appellant company's representative with regard to maintenance of statutory records and that the appellant company's representative failed to produce the Statutory Records or registers or expressed their inability to produce the same or had admitted that no such records are being maintained. I find that on one hand, the A.O made the allegation, however, without bringing on records its basis and on the other hand, the A.O. did not also adhere to the appellant company's specific request to verify the statutory records that are being maintained by the appellant company, such an action of the A.O. has made the assessment order vitiated by one sided conclusion by the A.O. I have carefully perused the statement of Ms. Jaswinder Kaur Mission recorded on 21.6.2011, from the perusal of said statement, I find that the said employee of group company did show Members Register, share certificates and counterfoils of the appellant company and therefore, the allegation of the A.O appears to be baseless. Neither fr....
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.... submitted that Antariksh Commerce Private Limited is a group company, the appellant has placed on record, copy of assessment order in the case of Antariksh Commerce Private Limited for the assessment year 2005-06 and 2008-09. 5.5 It is seen that Antariksh Commerce Private Limited was assessed u/s. 143(3) r.w.s 147 and even as on 31.3.2005, the said company had share capital and reserves of Rs. 23.62 crores. Apart from the audited financial statements in support of credit worthiness of the said company, I am convinced that no adverse view can be taken regarding identity or credit worthiness of the said company when the said company has been duly assessed and the share capital and reserves i.e. the net worth of the said company was duly accepted in scrutiny assessment proceedings and the said company had sufficient means to invest even prior to the period covered under present search proceedings, in the factual matrix of this case, I am convinced that the appellant has not only explained the source of receipt of share application/capital money, the appellant has also explained the source of source by placing on record assessment order in the case of its subscriber company n....
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.... can be added in the present search assessment proceedings as the same are beyond the period covered under the present search assessment proceedings. 5.8 The appellant has submitted that Welfit Fasions Private Limited is a company, the appellant has placed on record, copy of assessment order in the case of Welfit Fasions Private Limited for the assessment year 2005-06. 5.9 It is also seen that the appellant was assessed in the past and case of assessment year 2006-07 and 2007-08 was under scrutiny assessment u/s. 143(3) and in the said assessment proceedings, the addition to share application/share capital was duly accepted as genuine. 5.10 It is seen that Welfit Fasions Private Limited was assessed u/s. 143(3) and the ITO, Ward-2(4), Kolkata recorded a specific finding that the said company had share capital of Rs. 53,50,000/- and reserve and surplus of Rs. 4,72,50,000/- as on 31.3.2005. I find that ITO, Ward-2(4), Kolkata was satisfied with the genuineness of addition to share capital and reserves of Welfit Fasions Private Limited inasmuch as no adverse inference was drawn by ITO, Ward-2(4), Kolkata with regard to said addition to share capital and rese....
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....greement with the submissions of the appellant that the same A.O has accepted the addition to Preference Share Capital in the case of Mahamaya Steel Industries Limited received from Escorts Finvest Private Limited & Antariksh Commerce Private Limited and therefore, the identity and creditworthiness of Escorts Finvest Private Limited & Antariksh Commerce Private Limited were undisputedly accepted and genuineness of addition was also duly accepted, hence, there cannot be any reason to take a contrary view in the case of appellant. The A.O cannot be permitted to take two divergent views on same set of facts and on same set of evidences, when the same A.O undisputedly accepted the genuineness of addition to share capital of Mahamaya Steel Industries Limited, there was no reason for him to take a contrary view in the case of the appellant. 5.13 It is an undisputed fact that the names, addresses and assessment particulars of the investors, their active status as per the website of Ministry of Corporate Affairs and bank statement of the applicants had been furnished by the appellant before the AO. It is further observed that the share application/capital money has been received b....
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....with the facts in the case of the appellant. I am convinced that the decisions relied upon by the appellant are certainly applicable in the case of the appellant as the facts are not only similar but identical. The appellant has also relied upon the decision of the Hon'ble Supreme Court and jurisdictional High Court which cannot be ignored. The A.O has referred to the notices issued under section 133(6) which have been returned un-served in some of the cases. It is seen that in the subsequent paragraph, the A.O himself has given the particulars of receipt of replies from the investors, therefore, in my considered view, no adverse inference can be drawn against the appellant for mere non service of notices initially, I have carefully perused the explanation submitted by the appellant in respect of cases where the notices remained unserved, the submissions of the appellant are found to be convincing. It is further observed that no further enquiry or investigation has been conducted by the AO to corroborate or support the conclusions drawn in the assessment order so as to assess the share capital money as the undisclosed income of the appellant company. In my considered opinion, a....
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....t the affidavits filed by the Directors of the investor- companies were not genuine. No enquiries were conducted about the contents of the affidavits. The A.O did not make any attempt to discredit the affidavits. The result is that the contents of the affidavits have not been disproved. It also shows that the parties (deponents) were present at the given addresses against whom action could have been taken. No material was brought on record by the A.O independently of the information received, if any, from the investigation wing of the Income Tax Department to show that the monies represented the appellant's undisclosed income. 5.17 The Hon'ble Supreme Court in CIT vs. Lovely Export, 216 ITR 198 SC and the Delhi High Court in Divine Leasing and Finance Limited, (2008) 299 ITR 268 have held that in the case of money received towards share capital only the identity of the shareholders needs to be proved and once that is established and it is also shown that the money did in fact come from them, it is not for the assessee to prove as to how the share applicants came to be in possession of the money. In the light of the above discussion, I am inclined to agree with the ....
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....nce with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre- meditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden pl....
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.... (q) Commissioner of Income-tax v. Siri Ram Syal Hydro Power (P.) Ltd.[2011] 196 TAXMAN 441(Delhi); (r) Commissioner of Income-tax v. Orbital Communication (P.) Ltd. [2010] 327 ITR 560 (DELHI); (s) Commissioner of Income-tax-I v. Himatsu Bimet Ltd. [2011] 12 taxmann.com 87 (Guj.); 5.21 I am convinced that the appellant has been able to establish the identity and creditworthiness of the subscribers as also the genuineness of the transactions. In my considered opinion, the ratio of the aforesaid judgements of the Hon'ble Supreme Court in Lovely Exports and that of jurisdictional High Court are certainly binding in nature on all the revenue authorities and courts etc. and further, the judgement of the jurisdictional High Court as well as that of the Hon'ble Supreme Court in Lovely Exports has been rendered on identical facts. Hence, it is impermissible to deviate from the ratio laid down therein and against the law of judicial precedents. I am convinced that the action of the A.O in making the addition in respect of even those sums which were refunded is illegal as the same is clearly beyond the purview of Section 68. In view of the above and ....
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..... 9.3 The appellant has submitted that despite repeated requests made before the A.O, the basis of adopting yield in the case of appellant at 60% was not provided. With a view to make the comparison of yield declared by other assessees engaged in similar line of business, information regarding yield was sought from the office of DCIT-1(2), Raipur vide letter dated 22.04.2014. The information was received from the Office of DCIT-1(2), Raipur vide letter dated 25.04.2014. 9.4 The yield declared by the appellant and information regarding yield declared by other assessees, as received from the DCIT-1(2), Raipur, was compared with reference to the uniform and standard yield adopted by the A.O. The results of the comparison so made are as under:- Sl No. Name of Comparable assessee assessed in Circle 1(2), Raipur F.Y. Yield (%) Benchmark taken by AO Yield (%) of Appellant A.Y. 2008-09 1 Gopal Sponge & Power Pvt. Ltd. 2007-08 48.86 60.00 48.36 2 GR Sponge & Power Ltd. 2007-08 51.76 60.00 48.36 3 Shri Nakoda Ispat Pvt. Ltd. 2007-08 52.6....
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....le. 9.5 Thereafter, with a view to make comparison of financial results of the appellant with other assessees engaged in similar line of business, Letter was issued to DCIT-1(2), Raipur on 28.04.2014. The desired documents were received from the DCIT-1(2), Raipur vide letter dated 26th May, 2014. 9.6 I have carefully gone through the Tax Audit Reports, audited financial statements and assessment orders passed by the DCIT-1(2), Raipur in the case of other assessees referred supra. From the perusal of said assessment orders, it was gathered that no adverse inference was drawn in the case of those assessees that were assessed in the past in the office of DCIT-1(2), Raipur on the issue of lower yield, and in fact declared less yield than that declared by the appellant. In none of the comparable case received from DCIT-1(2), Raipur, such standard yield of 60% was adopted despite of the fact that all the comparable cases declared yield much less than 60% and even less than that declared by the appellant. 9.7 I have carefully analyzed the financial results of the appellant and a comparison of GP and NP rate was drawn between GP and NP rate declared by the appell....
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....shmi Sponge Iron & Power Industries Ltd 2007-08 34167 84683.42 40.35 Average Yield for FY 2007-08 2007-08 34167 84683.42 40.35 48.36 1 Gopal Sponge & Power Pvt. Ltd. 2008-09 48990 95910 51.08 2 M/S Sunil Sponge & Private Limited 2008-09 33027.4 64035.721 51.58 3 M/S Baldev Alloys Private Limited 2008-09 16959.19 31471.605 53.89 Average Yield for FY 2008-09 2008-09 98976.59 191417.326 51.71 56.35 9.8 I have carefully compared the financial results of the appellant company with the financial results of other comparable cases as received from DCIT-1(2), Raipur. As is self explanatory from the details tabulated above, in my considered view, the financial results declared by the appellant are found to be better in comparison to all the comparable instances in terms of GP rate as well as NP rate and even in terms of yield. It is also observed that there is no direct co-relation between GP rate and yield, for instance, the yield declared by Rashmi Sponge Iron & Power Industries Ltd. in financial year 2007-08 is 40.35% wh....
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....f clearance, Excise duty payable etc. In Form ER-6, the appellant furnished the details on monthly basis viz. Description of principal inputs, Quantity code, Opening balance, Receipt, Taken for use in the manufacture of dutiable and exempted finished goods, Removed as such for export or for home consumption, Closing balance, Finished goods manufactured out of input, Quantity code of finished goods, Quantity of finished goods manufactured. 9.10 It is seen that the excise returns in Form ER-1 and ER-6 filed by the appellant on monthly basis are duly acknowledged and bears the seal and signature of the Central Excise Authority. The appellant was asked to produce the excise records maintained on daily basis. The appellant did produce the excise records in Form-IV and RG-1 for raw material and finished goods respectively for all the years under consideration. On test check of excise records maintained on daily basis with the figures of production, consumption of raw material and closing stock of finished goods and raw material shown in Form-ER-1 and ER-6, it was found that the same are tallying and thus, were found to be satisfactory. The entries in the excise records for mater....
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....ty utilization cannot be said to be lower as presumed by the A.O. on the basis of incorrect interpretation of facts. (3) Regarding variation in consumption of coal and Iron ore, in my considered view, the same may lay foundation for raising suspicion, however, at the same time, it is settled principle of law that suspicion, howsoever grave it may be, cannot take place of the evidence. On an independent appreciation of reasons explained by the appellant for variation in yield i.e. for variation in consumption of coal and iron ore, I find the explanation of the appellant to be convincing, particularly, when the appellant has brought on record certificate from registered valuer which is placed in the paper book at Page no. 8 of Volume 7 of the Paper Book in the case of appellant. The A.O. has not brought on record any evidence to disbelieve the certificate of registered valuer who is duly approved u/s. 34AB of the Wealth Tax Act, 1957 vide order dated 06.07.2011. As per the said certificate of the registered valuer, the average yield of sponge iron unit using Iron ore and coal as raw material may vary from 40 to 60% and coal consumption may vary from 1.60 to 2.1 MT d....
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....ld not be vague, indefinite, distinct or remote. If there is no rational or intangible nexus between the material and the satisfaction that a person has 'undisclosed income', the conclusion would not deserve acceptation. Then the satisfaction is vitiated. 9.14 In the instant case, the A.O has completely failed to record the reasons based on material available as the A.O has not referred to even a single seized document which could be regarded as incriminating document and used as an evidence to even remotely support the conclusion of the A.O. The A.O seems to have blown out of proportion merely on the basis of mathematical and mechanical calculations. The A.O has laid too much emphasis on statistics, those statistics which cannot be said to have been gathered as a result of search only. The statistics relied upon by the A.O are those which are quite routinely called for even during the regular assessment proceedings u/s. 143(3). The A.O has not stated what according to him should have been the average consumption of coal, iron ore etc. Another fact noticed is that the case of the appellant was under scrutiny assessment for two consecutive years i.e. in A.Y....
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....ge & Power Limited, in other words, the Group companies had to purchase sponge iron from the open market so as to cater to the raw material requirement in their SMS Division. The preponderance of probabilities suggests that the group companies were always short of sponge iron and therefore, the allegation of the A.O. that the appellant has sold sponge iron appears to be unreasonable in as much as why would a person go for backward integration (Sponge Iron Unit) and then sell its own intermediary product and at the same time buy the same product from the open market. It is a matter of common knowledge that the businessman goes for backward integration when he is able to produce the goods indigenously at a cost lower than the purchase cost from market. The A.O has duly accepted the purchase of sponge iron by the group companies that are recorded in their books of accounts and consumed in SMS Division of group companies, therefore, it is hard to believe that the appellant must have sold its product i.e. sponge iron which, in fact, is an intermediary product from the perspective of the group as a whole. 9.18 I have carefully gone through the statement of Mr. M.R. Atri, Preside....
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....he low yield in comparison to the benchmark adopted by the A.O basis whereof is still in the dark and hasn't come on the surface, in the absence of any cogent reasons could not, by itself, have been a ground to hold that proper income of the appellant cannot be deduced from the accounts maintained by it and consequently, could not have been a ground to reject the accounts invoking section 145(3) of the Act. The variation in yield and consumption of power etc. could be for various reasons. There is no finding by the A.O that actual quantity of finished goods sold by the appellant was more than what it was shown in the accounts books on the strength of documentary evidence. 9.21 Had there been scientific methodology in place for measurement of inputs, in my considered view, it is only the accuracy level of statistics which will increase, however, it is hard to believe that merely due to scientific methodology for measurement of inputs, the yield of the appellant will also increase, the imagination of the A.O is too farfetched and devoid of logic. I find no merit in the allegation of the A.O that absence of scientific methodology for measurement of inputs is leading to an....
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....essment year involved was 2005-06 and the assessee had offered additional income in assessment year 2008-09. However, ratio of the principles decided that (i) when the A.O. has not considered the assessee's explanation by merely mentioning that it is not found to be acceptable and (ii) when Excise Department has accepted the yield and when the department has no other material to prove that the assessee has indulged in unaccounted sales no addition is called for, are squarely applicable in this case. 9.23 Similarly in the case of ACIT vs. M/s. Super Iron & Steel Pvt. Ltd., which is one of the comparable cases cited above, in ITA No. 139 to 141/BLPR/2010, the jurisdictional Bench of Hon'ble ITAT had an occasion to decide similar issue and the Hon'ble Tribunal has observed as under:- "6. After hearing the rival submissions and perusing the material on record we find that the assessee is engaged in the business of manufacturing of MS Ingots with Sponge Iron as the main raw material. According to the AO there was no basic document regarding consumption of raw material and production of finished goods were maintained by the assessee in the factory premises. ....
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....ted belief of suspicion; even though the suspicion rests on the high pedestal of bona fides cannot stand the scrutiny of law. The facts and circumstances of the present case reveal that the A.O just brushed aside the objections/submissions and contentions raised by the appellant and evidences placed on record. The A.O has made mechanical addition of the difference between the unaccounted production/sales worked out on the basis of 60% yield suspected by the A.O that must have been achieved by the appellant. The assessment order conclusively indicates that the addition has been made out of some lurking suspicion based either on rumours or on something less serious than that. 9.26 The A.O has merely referred to variations based on mathematical calculations viz Variation in coal, iron ore, this may well be the basis of suspicion, however, these cannot per se constitute the basis of the addition, though it can very well be a starting point for further investigation. In Lalchand Bhagat Ambica Ram vs. CIT: (1959) 37 ITR 288, the Supreme Court disapproved the practice of making additions in the assessment on mere suspicion and surmises or by taking note of the "notorious practice....
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....and other evidences placed on record and the explanation was found to be satisfactory and it is also a matter on record that the A.O has also not pointed out any infirmity in the explanation of the appellant and nor did the A.O bring on record any documentary evidence or reasoning to negate the submissions/explanation of the appellant. It is also an undisputed fact that in the case of the appellant neither any diary or loose paper was found which indicates that the appellant did indulge into unaccounted sales and earned such hefty amount of income. The facts in the case of the appellant are much better than the facts before the Hon'ble HIGH COURT OF GUJARAT in Commissioner of Income Tax Vs. Maulikkumar K. Shah (2008) 307 ITR 137 (Guj). 9.32 I find that even non maintenance of stock register is not fatal as held in Commissioner of Income Tax Vs. Jacksons House (2010) 39 DTR (Del) 212 : (2011) 198 TAXMAN 385. 11.35. Similar view was taken in M. Durai Raj Vs. Commissioner of Income Tax (1972) 83 ITR 484 (KER). 9.33 On the matter of recording the consumption of raw material going in to klin and quantity of production coming out from klin, in my considered opinion,....
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....O. has not come across any material defect in accounts so as to hold that any profit has been suppressed. It is also not the case of the A.O that the appellant has not followed the mercantile system of accounting. It is also not the case of the A.O that the appellant has not followed any particular accounting standards which are notified by the Central Government. It is also not in dispute that the appellant has maintained books of account regularly and these are duly audited u/s. 44AB of the I.T. Act and the quantitative details were prepared and were duly audited. If the stock register was not maintained by the appellant, that may put the A.O on guard against the falsity of the return made by the appellant and persuade him to carefully scrutinize the account books of the appellant. The low yield in comparison to the benchmark adopted by the A.O, in the absence of any material pointing towards falsehood of the account books, could not by itself be a ground to reject the account books u/s. 145(3) of the I.T. Act, 1961 much less a ground to make estimated addition. I find that there is no dispute with regard to the fact that the appellant has maintained quantitative details. In the ....
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....ious persons associated with the appellant company and Mahamaya Group were recorded and in those statements, no incriminating material was there which could be termed as evidence on the basis of which the undisclosed income could be computed. Certain documents were seized, but there was nothing in those materials relating to sales which could establish that appellant had undisclosed income. Therefore, in my considered view, it is unreasonable to estimate the suppressed sales on the basis of undisclosed yield. It cannot be said that there is always standardized yield during the search period. 9.39 As a matter of fact the Search Team could not come across any evidence of unaccounted sales, in my considered opinion, had there been any unaccounted sales, the same would have been detected by the Search Team. The case of the appellant also finds support from the decision of the jurisdictional Tribunal i.e. ITAT, BILASPUR BENCH in Chhattisgarh Steel Casting (P) Ltd. Vs. Assistant Commissioner of Income Tax (2008) 8 DTR (Bilaspur) (Trib) 14. 9.40 The significance of tangible evidence is indicative from the fact that in Commissioner of Income Tax Vs. Vishal Rubber Products....
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....es without any evidence. The mere possibility of the appellant getting higher yield would be a matter of pure conjecture. Commissioner of Agricultural Income Tax Vs. M.J. Cherian (1979) 117 ITR 371 (KER) 9.44 I find no merit in the action of the A.O in rejecting the books of accounts merely due to the reason that the yield achieved by the appellant is less than the yield percentage i.e. 60% which has not been achieved even by other assessees engaged in similar line of business, the A.O has not brought on record the manner in which he worked out the yield of 60%. The A.O has no evidence in his possession to indicate that the quality of raw material used by the appellant in all these 7 years was uniform and standardized one. The Hon'ble Madras High Court took judicial note of such facts in C. ARUMUGASWAMI NADAR vs. COMMISSIONER OF INCOME TAX (1961) 42 ITR 237 (MAD). 9.45 The facts in the case of the appellant are akin to the facts before the Hon'ble High Court of Assam in Harakchand Arakchand Radhakisan vs. Commissioner of Income Tax (1962) 46 ITR 196 (ASSAM). The Hon'ble High Court of Delhi has laid down certain principles on rejection of books of accou....
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....variation in yield can even be a ground for rejection of books of accounts was decided by the Hon'ble High Court of Jammu & Kashmir in International Forest Co. Vs. COMMISSIONER OF INCOME TAX 1975 CTR (J&K) 88 : (1975) 101 ITR 721 (J&K). Where AO had failed to bring on record any cogent material to show quantum of sales of assessee out of books of accounts, then addition made by revenue on estimated basis was not justified, this was held in COMMISSIONER OF INCOME TAX vs. MAHAN MARBLES (P) LTD. by Hon'ble High Court of Rajasthan vide order dated 9th January, 2013 (2013) 354 ITR 238 (Raj). 9.51 It is not the case of the A.O that the stock records and inventory of the appellant or the quantity of production and sales declared by the appellant in its books of accounts was not accepted by the other Revenue Authorities such as Sales Tax Department or the Excise Department. The case of appellant finds support from the decision of Hon'ble High Court of Gujarat in COMMISSIONER OF INCOME TAX vs. SANJAY OIL CAKE INDUSTRIES (2005) 197 CTR (Guj) 520 : (2005) 149 TAXMAN 190: 9.52 I am convinced with the reasons for variation in power consumed in comparison to the pro....
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....1) 12 ITR 444 (Ahd)(Trib). 9.56 Under similar facts, the Hon'ble ITAT CHANDIGARH BENCH in Assistant Commissioner of Income Tax Vs. A.K. Alloys P. Ltd. vide order dated 29th February, 2012 (2012) 17 ITR (Trib) 424 (Chandigarh) has decided in favour of assessee. The extrapolation of figures for estimation of income has been held to be unsustainable in Evergreen Bar & Restaurant Vs. Additional Commissioner of Income Tax (2008) 6 DTR (Mumbai)(Trib) 56. 9.57 In my considered view, there was no ground for the A.O to reject the books of accounts of the appellant u/s. 145, however, even if it is assumed that there was sufficient ground for rejecting the books of accounts, the assessment had to be made to the best of his judgement. As to how the best judgment assessment should be made, the leading decision on the point is the one rendered by the Privy Council in CIT vs. Laxmi Narain Badridas (1937) 5 ITR 170 (PC) : TC11R. 192, reversing Laxmi Narain Badridas vs. CIT (1934) 2 ITR 246 (Nag) : TC11R.201 and approving Abdul Baree Chowdhury vs. CIT (1932) 5 ITC 352 (Rang). In this decision rendered under the provisions of the 1922 Act, it was observed : "He (the assessing a....
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.... CIT (1977) 108 ITR 372 (Cal) : TC11R.254 huge additions were made by the ITO on the ground that the assessee had inflated the purchase prices of goods and a major portion of the addition was sustained by the Tribunal without furnishing any basis of its own estimate. The Calcutta High Court held that the order of the Tribunal being arbitrary, the same could not be sustained. In Ganga Prasad Sharma vs. CIT (1981) 132 ITR 87 (MP) : TC11R.285 the Madhya Pradesh High Court emphasized that while making a best judgment assessment, the basis of computation should be disclosed by the ITO. In CIT vs. Ranicherra Tea Co. Ltd. (1994) 207 ITR 979 (Cal) : TC11PS.3, the ITO rejected the loss return and determined the loss at nil on default of assessee to produce books of account. No basis for computation was disclosed by the ITO. It was held by the Calcutta High Court that the ITO acted illegally. As assessment has to be completed on the basis of records and material available before the AO and personal knowledge and excitement on events and extraneous facts should not lead the AO to a State of affairs where the salient/primary/direct evidences are overlooked and should not influence the AO for r....
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.... appellant gets relief of Rs. 14,52,32,036/-. A.Y. Amount (Rs.) 2007-08 72,19,622.00 2008-09 5,37,41,146.00 2010-11 1,84,88,252.00 2011-12 6,57,83,016.00 11. As noted earlier, while adjudicating the issues involved in favour of the assessee on factual matrix, the legal objection of the Assessee on jurisdiction under S. 153A concerning AY 2006-07 to 2009-10 in question was however seen with disfavour and decided against the assessee by the CIT(A). 12. The Revenue is aggrieved by the relief granted to the assessee on merits by the CIT(A) on both the issues of (i) additions under s. 68 of the Act towards share application money; & (ii) suppression of production based on lower yield and corresponding unrecorded sales in all the captioned appeals. 13. The Assessee, on the other hand, has filed cross objections challenging the legitimacy of additions/disallowances dehors any reference to incriminating documents in unabated assessments covering AY 2006-07 to AY 2009-10 in question. 14. When the matter was called for hearing, the learned CIT-DR for the Revenue, at the outset, strongly relied upon the factual matrix discussed in assessment....
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....search and seizure operation under s. 132(1) of the Act was carried out on the residential and business premises of various companies and its Directors on 21.06.2011. However, significantly, no search action was carried out at the registered office of the assessee company where the share certificates, relevant statutory records are kept as required in law. No adverse information in relation to share applicants were found in the course of search. It was further asserted that no document relating to various assessment years in question were either found or seized which can be branded to be incriminating in nature indicating presence of any undisclosed income. The cash found in search was meager having regard to the scale of operations. The documents found and seized were of routine nature maintained in the ordinary course of business which naturally will be found in the business premises. The documents found supports the entries made in the books. Hence, the assessments for AYs 2006-07 to 2009-10 in question which stood concluded and remained unabated is barred by principles of finality and could not be disturbed by the AO in the absence of the incriminating material. 15.2. To but....
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.... SC; (i) ACIT & Anr. vs. Madhuri Sunil Kotecha & Anr, (2016) 55 CCH 0187, ITAT Pune Bench; (j) Trilok Chand Chaudhary Vs. ACIT, (2019) 56 CCH 0435, ITAT Delhi Bench; (k) Commissioner of Income Tax Vs. Deepak Kumar Agrawal & Ors., (2017) 398 ITR 586(Bom); (l) PCIT Cental-3 Vs. Anand Kumar Jain, TS-105-HC-2021(Del); (m) Principal Commissioner of Income Tax Vs. Dipak Jashvantlal Panchal, (2017) 397 ITR 153 (Guj); (n) Rajat Minerals (P) Ltd. vs. DCIT (2020) 114 taxmann.com 536 (Ranchi) 15.3. On merits, the learned Counsel for the assessee submitted that it is a matter of record that assessee has filed several documentary evidences of subscribers before the AO to support the nature and source of share application money: (a) PAN, Address, Name (b) COI, MOA, AOA (c) Audited Financial Statement (d) Income Tax Return (e) Bank Statement (f) Share Application Form (g) Payment received through banking channel (h) Details of payment received 15.4. Moving further, the learned counsel for the assessee submitted that the assessee has made several pro-active requests b....
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....merits, it will be desirable to adjudicate the pertinent legal objection of overwhelming nature raised on behalf of the assessee which goes to the root of the matter and affects the very foundation of additions/disallowances in dispute. The legal question that arises as per cross objection is whether while making assessment under s. 153A of the Act, the Revenue is entitled to interfere with an already concluded (and not abated) assessment passed either under s. 143(1) of the Act or under s. 143(3) of the Act and not pending at the time of search, in the absence of incriminating documents unearthed as a result of search?. As a corollary, the scope and ambit of assessment proceedings in search cases under s. 153A of the Act is put under scanner. 16.2. In the first appeal, the CIT(A) dismissed the legal ground of jurisdiction by observing as under: "16. I have carefully gone through the assessment order and submissions of the appellant. Where a search has been initiated u/s. 132 of the Act, the A.O. is entitled to issue notice for six assessment years immediately preceding the year in which search has been initiated. As such, the assessment for those six assessment years s....
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....Delhi High court was dismissed by the Hon'ble Supreme Court in Pr. CIT vs. Meeta Gutgutia (2018) 96 taxmann.com 468 (SC). 16.3.2. Similar view that no additions could be made on the basis of material collected after search and in the absence of any incriminating evidence found or seized during search has been endorsed by the Hon'ble Gujarat High Court in Pr. CIT vs. Sunrise Finlease (P.) Ltd. (2018) 89 taxmann.com 1 (Guj.). 16.3.3. The Hon'ble Gujarat High Court in Pr. CIT vs. Saumya Constructions Pvt. Ltd. (2016) 387 ITR 529 (Guj) also declined to agree with the plea on behalf of the Revenue that the new procedure provided under s. 153A of the Act is different from earlier procedure provided under s. 158BC r.w.s. 158BB of the Act and consequently, the plea of the Revenue that there is no condition in Section 153A of the Act that additions should be made strictly on the basis of evidence found during the course of search was not approved. The Hon'ble Gujarat High Court analyzed the position of law and took note of several judicial precedents and concluded that completed assessments can be interfered with by the AO while making the assessment under s. 153A of t....
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....ecedents as laid down by the Hon'ble Bombay High Court, Delhi High Court & Gujarat High Court as also various benches of Tribunal, the correct legal position in respect of the assessments under s. 153A of the Act may be summarized as follows: (i) the scope of assessment under s. 153A of the Act is limited to the incriminating evidence found during the search and no further in so far as unabated assessments are concerned; & (ii) unless there is incriminating material qua each assessment years to which additions are sought to be made in respect of concluded assessments, the assessment under s. 153A of the Act by making additions/disallowances would be vitiated in law. 16.5. As discussed in length, the issue has been dynamic and a matter of legal interpretation. We are governed by the schematic interpretation given to provisions of Section 153A of the Act by different Hon'ble Courts. In the light of judicial fiat reading down the scope and spectrum of assessment under s. 153A of the Act in narrower compass, the position of law is explicitly clear. In the absence of any connection with the incriminating material unearthed in search proceedings of assessee, additions/disallow....
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....8 & 2009-10 as unexplained cash credit. The CIT(A), however, after taking extensive note of observations made in the assessment order and also oral & written submissions made on behalf of the assessee, found merit in the plea of the assessee and reversed the additions so made. 19.1. The findings of the CIT(A) dealing with the issue has been reproduced in the preceding paragraph 9 of this order. 19.2. On perusal of the order of the CIT(A), it is noticed that CIT(A) has recorded a finding on fact that additions on account of share application money has been made without any reference to the incriminating material detected in the course of search. The CIT(A) has recorded various observations on the issue of share application money in A.Y. 2006-07, A.Y. 2007-08 & 2009-10 as summarized hereunder: "The A.O. did not pay any heed to the requests seeking supply of results of inquiry conducted if any for arriving at such conclusions. Furthermore, the Ld. ARs pointed out that assessments in the case of promoters/directors and family members were made in most of the cases but no such view even to support his own passing remarks was offered. Detailed explanations were submitted w....
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....hiness envisaged in law. The bank statements, audited financial statement and confirmations were analyzed. The source of the investment was thus found to be explained satisfactorily in the facts of the case. It was further noted that the credit for share application money was accepted in the regular assessment under 143(3) concerning A.Y. 2006-07 & 2007-08 prior to search after making enquiries. The subscriber co. namely Antariksh Commerce Pvt. Ltd. and Escort Finvest Pvt. Ltd. were found to be group cos. The assessments of the subscriber companies carried out under S. 143(3)/143(3) r.w.s. 147 were noted. It was further noted the same AO in the case of other group concern accepted the creditworthiness of these cos. for subscription of Pref. share capital. The adverse inference drawn by the AO was found to be unsubstantiated and in the realm of suspicion, surmises and conjectures. On legal position, the CIT(A) has referred to large number of judicial pronouncements. Without reiterating the different facets analyzed by the CIT(A), We find complete force in his view. After detailed examination, the CIT(A) eventually set aside the additions made by the AO under s. 68 in the unabated se....
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....entions of the assessee are that even if it is momentarily assumed that the yield shown by the assessee is less than industrial average, in the absence of any corroborative material, the adverse inference remains unsubstantiated. Even if, it is assumed that production facilities and resources even not utilized optimally or efficiently, this by itself will not entitle the AO to allege unaccounted production by presuming higher yield by some mathematical calculation. With reference to the tabular statement at page nos. 59 to 70 of the paper book in conjunction with first appellate order it was submitted that despite repeated requests, the AO completely failed to point out any suppression of production based on any cogent and incriminating material in his possession against the assessee. The low yield in comparison to the benchmark adopted by the AO could not be the basis to reject the books of accounts under s. 145(3) of the Act without bringing any material on record pointing out towards falsehood in the accounts. The search team could not come across any unaccounted sales as recorded in para 9.38 of the first appellate authority. The inventory appearing in the elaborate excise reco....
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....basis for arriving at the standard yield of 60% has not been disclosed despite repeated requests on behalf of the assessee. The CIT(A) himself attempted to work out the average yield in the industry based on data available from the department but failed to arrive at this so called standard figure of 60%. (iii) Comparison of yield declared by the other assessee engaged in the similar line of business was carried out as tabulated in para 9.4 of the appellate order. On the basis of such comparison, arithmetical mean of yield stands at 53.97% in respect of other parties vis-à-vis 59.40% shown by the assessee. It was also found by the CIT(A) that yield declared by the different parties in the same year is not uniform and every party has declared a different yield. Likewise, there is a wide variation in the yield of one year with another year in other cases as well. Not even a single comparable instance was found declaring yield of 60% adopted by the AO. The yield achieved by the assessee is generally more than average industry yield. (iv) Financial results of the assessee as well as other parties engaged in similar line of business was also compared as discussed....
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.... (viii) The statement of Shri Rishikesh Dixit recorded on 21.06.2011 was taken note of from which it was gathered that the aforesaid Director stated in clear terms that the quantity recorded in the loose slips tallies with the quantity recorded in the regular books of accounts and excise records. These loose slips are destroyed after it becomes redundant with the passage of time. The CIT(A) further observed that neither in the show cause notice nor in the assessment order, there is any whisper of any such loose papers which bears the figure of production and which the appellant failed to reconcile with the entries in the regular books of accounts and excise records/returns. (ix) The alleged low yield in comparison to benchmark of 60% adopted by the AO is the basis whereof is still in dark and not known, cannot in itself provide a ground to reject the books of accounts without showing any defect in books by tangible evidence. (x) The AO has merely proceeded on the basis of suspicion and conjunctures. It is trite that suspicion howsoever strong cannot take place of proof. (xi) The CIT(A) in para 9.22 onwards analyzed the decision rendered by the co-ordina....