AI Drafter 
TaxTMI 
TaxTMI 
2023 (5) TMI 1428
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....the assessee GM Modular Pvt. Ltd. for assessment year 2014-15 to 2019-2020. 2. Briefly stated, facts of the case are that the assessee was engaged in business of manufacturing of electrical switches and accessories. A search action u/s. 132 of the Income-tax Act, 1961 (in short 'the Act') was carried out in the case of the assessee along with residences of the Director and other group concern on 13/11/2019. Consequently, notices u/s. 153A of the Act were issued for the assessment years relevant to the search period and those were completed by the Assessing Officer assessments u/s. 153A of the Act after making various additions inter alia(i) addition on account of undisclosed business income by applying Gross profit ratio on unaccounted turnover ;(ii) Addition on account of accommodation entry of unsecured loan u/s. 68 of IT. Act ;(iii) Addition on account of unexplained expenditure u/s. 69C of the I.T. Act- ;(iv) Interest on accommodation entry of unsecured loan ;(v) Commission for arranging accommodation entry of unsecured loan ; (vi) Addition on account of disallowance of unverified labour services ;(vii) Addition on account of personal expenditure of etc. 3. We find that i....
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....ncome tax department, which was submitted by the learned departmental representative (DR). 3.2 In first set of appeals i.e. for AY 2014-15 to AY 2018-19, the assessee filed appeals before the ld CIT (A) against the assessment order passed u/s. 153A of the Act and challenged validity of reassessment u/s. 153A of the Act on the ground that no incriminating material was found during the course of search. The Ld. CIT (A) accordingly deleted the additions made by the Assessing Officer except for the assessment year 2015-16 wherein, the assessee also declared/offered undisclosed income in respect of transactions as reflected in Annexure A-2 to A-4 found from the residence of one of the directors, which were not recorded in regular books of accounts. 4. Before us, the Revenue has challenged the relief granted to the assessee by the Ld. CIT (A) for AY 2014-15 to AY 2018-19 holding that no incriminating material was found during the course of search qua the additions deleted. 4.1 Before us, the assessee has also challenged the validity of the reassessment passed u/s. 153A of the Act, utilizing material found during the course of the search at third party i.e. Director of the assess....
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....sdictional ground and goes to the root of the matter, same can be raised at any point of time, including in application under rule 27 of the ITAT Rules and in support of above proposition, he relied on the decision of the Hon'ble Jurisdictional Bombay High Court in the case of Mr. Peter Vaz and Mr. Edgar Braz Afonso v. ACIT (2021 (4) TMI 605). 5.2 We have heard rival submission of the parties on the issue of admissibility of application under Rule 27 of the ITAT Rules. We may note that against the order of the Ld. First Appellate Authority, only Revenue has preferred these appeals and assessee has not preferred any appeals or cross-objections. The assessee has filed only application under Rule 27 of the ITAT Rules. Regarding the admissibility of the application of the assessee, it is relevant to reproduce said Rule as under: "The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him." (emphasis supplied externally) 5.3 Before us, the Ld. Departmental Representative (DR) referred to Rule 27 and submitted that said rule can be invoked by the respondent assessee in respect of any of the grounds d....
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.... entitled to take a new ground not agitated in the court below by leave of the court, there appears to be no reason why a respondent in support of the decree in his favour passed by the lower court should not be entitled to agitated a new ground and subject to the same limitation. A Division Bench of the Allahabad High Court has taken a similar view in Kanpur Industrial Works v. Commissioner of Income-tax. That judgment has considered the position of an appeal under section 33 of the Income-tax Act along with the relevant Rules and that of an appeal under the Code of Civil Procedure and the provisions of Order XLI, rule 22. The judgment holds that when the department files an appeal for an increase in the assessed income, the subject-matter of the appeal is the increase claimed by the department and the assessee can urge any ground of defence even though it might have been rejected by the Appellate Assistant Commissioner for showing that there should be no increase. It has further held that that the assessee is not liable to be assessed at all is a ground for showing that there should be no further assessment and the department's appeal can therefore be resisted on that ground ....
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....r would stand and would have full effect in so far as it is against the respondent. The Tribunal refused to allow the assessee to take up allowed to be urged and succeeded, the Tribunal would have not only to dismiss the appeal, but also to set aside the entire assessment. The point would have served as a weapon of defence against the appeal, but it could not be made into a weapon of attack against the order in so far as it was against the assessee." 5.4 The Ld. DR also referred to the decision of the ITAT, Ahmedabad in the case of DCIT v. Sandip M Patel ITA Nos. 866 to 871 and 1016 and 1339 (Ahd.) of 2008 to support that the Rule 27 sanction defendant only to support order of the Ld. CIT (A) and not permitting to attack the judgment of the LD CIT(A). The Ld. DR submitted that respondent may support the verdict of the First Appellate Authority and side by side can argue against any of the ground held against him, but not on any of the ground which has not been adjudicated by the Ld. CIT(A). The relevant finding of the Tribunal(supra) is reproduced as under: "3.5 From the above reproduction few important points of law emerges, to be highlighted so as to resolve the ....
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....s of drafting of an order, there is a possibility of taking an adverse view by rejecting any of the argument or the grounds of defence taken. (9) Lastly, how a respondent can support "any of the grounds decided against him as worded in Rule 27?. But the Hon'ble Courts have removed this confusion by explicitly mentioning that the judgment being favourable but could have an adverse finding or reasoning and that ground though against the respondent can be defended in Rule 27, nevertheless by supporting the final verdict. The interpretation of the word "grounds" is in wider sense because the same is not at par with the "ground" of appeal. 3.6 On this issue, there is one more decision pronounced by the Hon'ble Bombay High Court in the case of B.R. Bamasi (supra), wherein the assessee wanted to raise a new point as a ground of defence in the appeal but stopped to raise due to the reason that such new point may affect the validity of the entire assessment proceedings. The Court has said that the point would have served as a weapon of defence against the appeal, but it could not be made a weapon of attack against the order insofar as it was against the assessee. Relevant p....
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....t filed cross-objection with regard to the portion of the decree which had gone against him to urge in opposition to the appeal of the plaintiff a contention which if accepted by the trial Court would have necessitated the total dismissal of the suit, but the decree insofar as it was against him would stand. The judgment of the Tribunal in our case clearly shows that, although the assessee wanted to raise a new point as a ground of defence in the appeal, he specifically stated that he wanted to rely upon it only for the purpose of having the appeal by the Department for enhancement in income-tax dismissed. But even if the assessee had not made such a statement, the above judgment shows that the assessee would be entitled to raise a new ground, provided it is a ground of law and does not necessitate any other evidence to be recorded the nature of which would not only be a defence to the appeal itself but may also affect the validity of the entire assessment proceedings. If the ground succeeds, the only result would be that the appeal would fail. The acceptance of the ground would show that the entire assessment proceedings were invalid, but yet the Tribunal which hears that appeal w....
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....gal issue was altogether an independent as well as a separate issue, then the issue decided in favour of the assessee which are to be supported but w/s. 27 of Appellate Tribunal Rules. The applicability as also the operation of Sec. 253(4) of IT. Act (i.e. the procedure of filing of cross-objection) is distinct than the area of operation of Rule 27. In any case, provisions of Rule 27 and the provisions of Sec. 253(4) do not over-lap each other; rather operate in two different situations. Admittedly, right now, we are not on the adjudication of a cross-objection but on the question of granting permission to argue an independent legal ground under the shelter of Rule 27 of the Tribunal Rules." 5.5 The Ld. DR also referred to the decision CIT, New Delhi (Central) v. ADward Keventer (Successor) Pvt. Ltd. (1980) 123 ITR 200 (Del) and submitted that while the appellant should not be made to suffer and be deprived of the benefit given to him by the lower authorities, where the other side has not appealed, equally the procedural Rules should not be interpreted or applied so as to confer on the appellant a relief to which he cannot be entitled if the points decided in his favour on the s....
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.... not entitled to raise a ground so as to work adversely to the appellant and in his favour." 5.7 The Ld. DR further referred to the decision in the case of CIT v. Infracon Pvt. Ltd., 2015 64 taxmann.com 472 (Delhi) wherein it is held that Rule 27 of the ITAT Rules would not extend to permitting the respondent to expand the scope of an appeal and assail the decision on issues, which are not subject matter of the appeal. 5.8 However before us, the Ld. Counsel of the assessee has referred to the decision of the Hon'ble Jurisdictional High Court in the cases of Peter Vaz v. CIT, [2021] 436 ITR 616 (Bom.) wherein following substantial question of law was raised before the Hon'ble High Court : "Whether in the facts and circumstances of the present case, it was open to the appellant/assessee to have supported the orders of the Commissioner (Appeals), based on the ground that the jurisdictional parameters prescribed under section 153C of the I.T. Act were not fulfilled, even without the necessity of filing any cross objections?" 5.9 The Hon'ble Jurisdictional High Court after analyzing the provisions of Rule 27 of the ITAT Rules held that the issue which was not raised be....
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....3 required the Assessing Officer to be satisfied that the books of the accounts belonging to the assessees who were proposed be proceeded with under section 153C ought to have been found, as a precondition for any action under section 153C of the IT Act. For this purpose, he compared the provisions of Section 153C as amended up to 2020, in which, there is a significant departure. Amended provisions, which did not apply to the present case, provided that the action under section 153C was competent even if the books of accounts "pertaining to" and belonging to the assessee were found during the search under section 132 upon a person not referred to in Section 153A of IT Act. He submitted that this was an issue of law and therefore, the ITAT should have permitted the assessees to raise this issue even without the necessity of filing any cross-objections. He referred to Rule 27 of the Appellate Tribunal Rules, 1963 to contend that this Rule gives a right to the Respondent Page | 11 Shri Shaunak Jitendra Parikh, A.Y. 1999-2000 Shri Jay Ketan Parikh, A.Y. 1999-2000 Shri Raj Hiten Parikh, A.Y. 1999-2000 Shri Milan Kavin Parikh, A.Y. 1997-1998 & Shri Milan Kavin Parikh, A.Y. 1999-2000 in a....
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....'s appeal and even set aside the penalty in its entirety. Therefore, the assessee did not have to appeal. The position in law is well settled that the cross-objections, for all intents and purposes. would amount to an appeal and the cross objector would have the same rights which an appellant has before the Tribunal. Since the assessee did not have to appeal, the ITAT could not have insisted upon the filing of cross- objections as a precondition for permitting the assessee to assail the finding of concealment. 35. The Division Bench referred to the provisions of section 253 of the IT Act and after analyzing the scheme held that on a plain reading of the provision, it transpires that the party had been granted an option or a discretion to file cross objections. In case a party having succeeded before the CIT (Appeals) opts not to file cross-objection even when an appeal is preferred by the other Page | 12 Shri Shaunak Jitendra Parikh, A.Y. 1999-2000 Shri Jay Ketan Parikh, A.Y. 19992000 Shri Raj Hiten Parikh, A.Y. 1999-2000 Shri Milan Kavin Parikh, A.Y. 1997-1998 & Shri Milan Kavin Parikh, A.Y. 19992000 party, from that, it is not possible to infer that the said party ha....
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....n his favor. A memorandum of cross-objections is needed only if the respondent claims any relief which had been negatived to him by the trial Court and in addition to what he has already been given by the decree under challenge. The Hon'ble Supreme Court, therefore, held that the respondent in the appeal had every right to canvas the correctness of the finding on the bar of Order II Rule 2 rendered by the trial Court. 38. In the present case, it is not as if the issue of nonfulfillment of jurisdictional parameters of Section 153C was raised but rejected by the CIT (Appeals). Such an issue was not raised before the CIT (Appeals). Having regard to the provisions of Rule 27 of the Appellate Tribunal Rules, 1963 is also the provisions of section 260A(7) read with Order XLI Rule 22 of CPC as interpreted by the Hon'ble Supreme Court in S. Nazeer Ahmed (supra) we think that the ITAT should not have precluded the assessees from raising the issue in the appeals instituted by the Revenue, even without the necessity of filing any cross-objections. Accordingly, the additional substantial question of law is required to be answered in favor of the Appellants/assessees and agains....
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....e Act. Further, We find that the prior to amendment by way of Finance Act, 2015 w.e.f. 1/6/2015, where the Assessing officer of searched person is satisfied that any money, jewellery or other valuable articles or documents seized from searched person belonged to third or other person, then the Section 153C of the Act could be invoked in the hand of third or other person for making assessments. 6.3 W.e.f. 1/6/2015 the proceedings u/s. 153C can be invoked in the hands of third or other person, if the Assessing officer of searched person is satisfied that: (a) any money, bullion, jewellery or other valuable article or things seized or requisitioned, belongs to or (b), any books of account or documents, seized or requisitioned pertains or pertain to, or any information contained therein, relates to the third person or other person. 6.4 The assessing officer of searched person is required to be hand over the said assets or material or documents to the Assessing Officer having jurisdiction over such other person, in accordance with the provision of section 153C of the Act. Thus, for invoking section 153C of the Act the Assessing Officer of the searched person has ....
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.... in case of unabated assessment no addition could have been made except with the aid of the incriminating material found during the course of the search of the assessee. 7.1 In the assessment year 2015-16, the Ld. CIT (A) has upheld the existence of the incriminating material qua the addition of undisclosed income based on suppression of the sales, whereas for AYs 2014-15 and 2016-17 to 2018-19, held that no incriminating material exist qua the addition of suppression of sales. Appeal: ITA No. 3034/Mum/2022 for AY 2015-16 7.2 Therefore, now, we take up the appeal of assessment year 2015-16 for adjudication. The grounds of appeal raised by the Revenue for assessment year 2015-16 are accordingly reproduced as under: 1. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) -48, Mumbai is right in holding that no incriminating material was found to sustain the addition. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) -48, Mumbai is right in deleting the entire additions of Rs. 45,38.03,980/- made in the assessment order only on the ground that no incriminating material was found to sustain the ....
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.... accommodation entry of unsecured loan of rupees 2,40,00,000/- held as unexplained cash credit under section 68 of the Act (iii) unexplained expenditure under section 60 9C of the act for(a) interest on accommodation entry of unsecured loan of rupees, 31,22,296/- (b) commission for arranging accommodation entry of unsecured loan of Rs. 60,000/- (iv) disallowance of unverified labour services of Rs. 78, 27, 700/- (v) personal expenditure of Rs. 63, 496/- 8.0 Regarding the additions of accommodation entry of unsecured loan [ items no. (ii) and (iii) above], the Assessing Officer recorded the information in respect of unsecured loan parties and observed as under: (i) EssarIndia Ltd: Kolkata Investigation Directorate in its Investigation report (Ref:F.NO 75A/2015-16/257-273 dated 27.04.2015 of Pr.DIT (Inv.), Kolkata) had given the finding that the company M/s Esaar(India) Ltd is a penny scrip and it is being used to provide accommodation entries to various beneficiaries through rigging of shares. The name of the company also features in the list of confirmed shell companies as circulated by FIU IND. The Entry operators and Exit provi....
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....ay Poddar had accepted that the company is a penny stock company and is in the business of providing accommodation entries. A survey action us 133A of the Income-tax Act. 1961 was carried out at the registered address of the company on 13.11.2019. Statement of Mr. Mayank Singh, the CFO of the company was recorded us 131 of the Income-tax Act, 1961 on 15.11.2019. Mr. Mayank Singh in his statement has accepted that Mr. Goutam Bose is now the Managing Director of the company. Statement of Mr. Goutam Bose was recorded by DDIT (Inv) Kolkata on 27.05.2015. Mr. Goutam Bose in his statement has accepted that he is a dummy director in the company and has no idea about the affairs of the company. An opportunity was given to the assessee i.e. Mr. Jayantilal Jain, Promoter of GM Group on 12.01.2020, to produce the party to verify its claim that the unsecured loan is genuine. But the assessee failed to produce the party and thus failed to discharge its onus to explain the source of credit. (iv) Tanaya Vincom P Ltd : A survey action us 133A of the Income-tax Act, 1961 was carried out in the premises of the company M/s TanayaVincomPt Ltd on 13.11.2019. The survey authorization c....
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.... (iii) the proceedings us 153A of the Act do not empower the Assessing officer to re-adjudicate the settled issues again, unless fresh incriminating material for the relevant year is found during the course of search proceedings. (iv) the Assessing officer does not have jurisdiction to make additions/disallowances which are not based on relevant incriminating material found during the course of search proceedings. (v) in the case of completed/un-abetted assessments, where no incriminating material is found during the course of search, the assessment w/s 1534 of the Act is to be made on originally assessed/returned income and no addition or disallowance can be made de hors the incriminating evidence for the relevant year are recovered during the course of search. (vi) Any admission or confession needs corroboration with evidence. In order to make a genuine and legally sustainable addition on the basis of admission or confession during search action, it is necessary that some incriminating material must have been found to correlate the undisclosed income with such statement. (vii) Any statement recorded under section 132(4) cannot be consider....
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....he unsecured loan parties in period prior to search and post search period and also survey carried out independently under section 133A of the Act. The learned counsel of the assessee on the other hand submitted that sh Kumar Pal Banda has already retracted from his statement and there was no corroborating material to his statement. Regarding the statement of the Jayantilal Jain, it was submitted that same was recorded in post search proceeding and not part of search proceeding. Regarding surveys under section 133A of the Act also he submitted that same were conducted independently and cannot be said as part of the search proceeding in the case of the assessee. 8.3 On perusal of the observation of the Assessing Officer reproduced above, we find that he has referred mainly to the information gathered in respect of unsecured loan parties in proceedings carried out prior to the search the case of the assessee. For example, in the case of 'Essar India Ltd', the Assessing Officer has referred to the letter of Principal director of Income-tax (Investigation) alleging the Essar India Ltd as accommodation entry provider, which is dated 27/04/2015, i.e. much prior to the date of the sear....
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....have been made without the aid of the incriminating material. The Ld. CIT (A) has deleted the addition of Rs. 1,75,00,000/- based on the ratio of the decision of the Hon'ble Bombay High Court (supra) and other decisions cited by him. For the assessment year under consideration, no assessment was pending as on the date of the search and therefore it is a case of non-abated assessment and therefore, we have to only examine the issue whether there was any incriminating material found during the course of the search qua the additions made. In the year under consideration the Assessing Officer has made three additions, firstly of Rs.1,75,00,000/- on account of accommodation entry of unsecured loan under section 68 of the act, secondly for the interest of Rs.14,45,626/- in respect of said accommodation entry of unsecured loan, thirdly, on account of commission paid of Rs.75,000/-for arranging accommodation entry of unsecured loan. All the three additions are related to the single issue of unsecured loans held as unexplained cash credit under section 68 of the Act. Therefore, the issue-in-dispute before us is whether any incriminating material qua the addition of unsecured loan made ....
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....sdirected himself in determining the tax liability, on going through the order of the Tribunal, we find that the case of the assessee was decided on the basis of his own sworn statements dated 29.8.2006 and 10.10.2006 and admitted documents. We extract that portion of the order as has been recorded by the Assessing Officer in paragraph (11), which clinches the whole issue: 11. Therefore, reliance is placed on the admission of the assessee at the time of search, which is reproduced as under: Sworn statement of Shri Kishore Kumar dt. 29.8.2006: 'Qn. 11: I am showing you the three print-out of amounts totaling to Rs. 52,73,920 (Rs.3,31,336 + Rs. 15,05,158 + Rs. 34,37,427). Please explain this? Ans: These are the details of loans given by me to various parties as mentioned in the printouts. This is a separate business carried out by me which was not included in the income-tax returns filed by me. Qn. 12: Please explain the source for the total outstanding amounts which are given by you? Ans: The loans totaling to Rs. 52,73,920 given to various parties as per the list were from my undisclosed income. I agree t....
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....ncome Tax v. Girish Chaudhary, [2008] 296 ITR 619 to plead that loose sheets of papers should not be taken as a basis for determining undisclosed income. However, in the case on hand, loose sheets found during the search are not the sole basis for determining the tax liability. It is a piece of evidence to prove undisclosed income. The printout statements of undisclosed income is not disputed by the assessee and in his sworn statements it is accepted. In fact, he admitted that outstanding loans to be recovered are in the range of Rs. 25 Lakhs to 30 Lakhs. We find no error in the procedure followed by the Assessing Officer on admitted facts. The entire exercise by the department to bring to tax undisclosed income, we find has been generous and simple. There appears to be no confusion in the quantification of the tax liability and we uphold the order of the Tribunal. 8.1.2 The decision in the case of B Kishore Kumar (supra) is therefore distinguishable on facts. In view of decision of the Hon'ble Delhi High Court in the case of Best Infrastructure p Ltd (supra), it is undisputed that merely on the basis of the confession u/s. 132(4) of the Act, without any other corrobo....
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....ed that at the time he was not able to provide the details as he had to check it. 8.5 Regarding the issue whether the information gathered during independent survey u/s. 133A of the Act constitute as the incriminating material found during the course of search, the Tribunal in the case of M/s G-Nine modular p Ltd in ITA No. 3214/Mum/2022 and others Observed as under: 8.5 We note that in the case of 'Ella Fintex Co. P ltd', the assessee was intimated regarding negligible profit of said company and directors of the said company being non-filer of ITR. Further it was intimated that the area in which said unsecured loan party located was a well-known hub of shell companies. In our opinion, certain information regarding the unsecured loan party gathered by the investigation wing pre search period and thereafter confronted the same to the key person of the assessee company during the course of search, cannot be said that incriminating material was found during the course of the search qua the addition. Similar observations have been made in respect of the other unsecured loan parties. Further, independent survey was carried out in the case of 'Ella Fintex Co Pvt Ltd' and....
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.... course of other actions i.e. like survey or by the action of other agencies, then, the provisions to deal with those materials or observations, are different from the provisions u/s. 153A of the Act. 8.6 Respectfully, following above finding of the Tribunal (supra), we hold that there is no incriminating material qua the addition of unsecured loans u/s. 68 of the Act and related additions of interest and commission expenses thereon for obtaining those unsecured loans. 9.0 Regarding unverified labour job work expenses, also the Ld. Assessing Officer made observation as under: "4) Addition on account of unverified labour-Job Work:- (i) M/s GM Modular Pt Ltd and Mis Goldmedal Electricals Pvt Ltd are among the leading manufacturers of the switches, cables and other electrical accessories in India. The main persons of the company M/s GM Modular Pvt Ltd and M/s Goldmedal Electricals Pt Ltd are Shri JayantilalOtmal Jain and Shri JugrajOtmal Jain respectively. The both of the concerns are runned by family members. During the course of Search action us 132 of the Income-fax Act, 1961 in the office premises of Ms Goldmedal Electricals Pvt Ltd and subsequent verificat....
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.... notice dated 20.01.2021 as to why the unverified Purchase and Labour/job work as per the above assessment year wise should not be considered as unverified expenditure and should not be disallowed and added to your total income." 9.1 The Assessing Officer further in para 4.2 of the assessment order held the job work charges paid to 3 firms namely M/s Hirasons, M/s Satyam Plast and M/s Shivam Enterprise as nongenuine based on the statement of 'Sh Rahul Dinesh Jha', an employee of the assessee company recorded on 14/11/2019 during the course of the survey proceedings. The Assessing Officer has reproduced relevant question-and-answer in impugned assessment order. But we find that in his statement, he has nowhere admitted that those job work charges were not genuine. He simply stated that original bills were maintained at head office at Andheri. During the course of search action, the statement of Sri Rahul Dinesh was confronted to sh Jayantilal Jain, promoter of the company, but he took time for responding. Thus, the statement of shri Rahul Dinesh and Jayantilal are not incriminating information qua the addition. Therefore, same cannot be basis for making addition in the year under....
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....e seized documents double digits were suppressed while recording the actual transactions. The Assessing officer analysed the diaries and held that the assessee carried unaccounted business and transactions recorded in those diaries are related to that unaccounted business. The assessee in the return of income filed in response to notice u/s. 153A for AY 2015-16 offered undisclosed income of Rs. 10,14,21,500/- applying net profit rate on the gross sales transactions appearing in the said seized documents, whereas the Assessing Officer applied gross profit rate on the unaccounted sale transactions of Rs. 275,73,04,969/-recorded in diaries for AY 2015-16 and made addition of the unaccounted income of Rs. 51,97,51,986/-. 12.2 On further appeal, the Ld. CIT (A) following the judicial precedents, restricted the addition to the extent of the net profit on unaccounted sales, which was offered by the assessee in return of income and therefore, the addition made by the Assessing Officer was deleted observing as under: "5.4 In my considered view, the only question to be decided here is whether on the unaccounted turnover (as reflected from the seized documents for F....
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.... instead of gross profit to assess the income from undisclosed sales. Further, the Hon'ble Tribunal has also held that the net profit rate shall be that which the assessee had disclosed in its regular books of account the said Assessment Year on recorded sales. The relevant headnotes of the decision are as below: Assessment of suppressed sales - Gross profit or net profit - HELD THAT: As relying on MAN MOHAN SADANI [2007 (10) TMI 246 - MADHYA PRADESH HIGH COURT), BALCHAND AJIT KUMAR. (2003 (4) TMI 76 - MADHYA PRADESH HIGH COURT] and SHRI HARIRAM BHAMBHANI (2015 (2) TMI 907 BOMBAY HIGH COURT] we direct the AO to assess the income from undisclosed sales in question by applying the net profit rate in place of the "gross profit rate" as undisclosed sales. The net profit rate shall be that which the assessee had disclosed in its regular books of account for the said Assessment Year on recorded sales. In the result, this ground of the assessee is allowed in part. 5.5 Respectfully following the binding decision of the Hon'ble Jurisdictional High Court and other judicial pronouncements, I do not have any option but to held that under the existing circumstances, ad....
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....r books accounts, in such cases for allowing the benefit of the estimated indirect expenses, net profit rate might be invoked on the trading turnover recorded out the books of accounts, but where there are no evidence to suggest that any indirect expenses have been incurred by the assessee for carrying out transactions out of books of accounts, only gross profit rate can be applied. 12.4 On the contrary, the Ld. Counsel of the assessee relied on the order of the Ld. CIT (A) and submitted that profit on the transactions recorded in seized documents should be restricted to the net profit only. In support of his contentions, he relied on the decision of the in the case ACIT v. M/s SSOM and SSSMD Industries IT(SS) A Nos. 16 & 271/CTK/2014 and CO No. 34/CTK/2014. He also relied on the decision of the Kolkata Bench of the Tribunal in the case of New Barh Jewellers v. ITO in ITA No. 1302 & 1303/Kol/2017. 12.5 We have heard rival submission of the parties on the issue in dispute and peruse the relevant material on record. As far as the issue of the existence of incriminating material qua the addition is concerned, same is not in dispute before us. The only dispute is i....
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....n the basis of the undisclosed stock of the business. The question arises as to whether the discrepancy in stock addition or the gross profit embedded therein is to be considered for addition. The issue has been settled by the following judgement relied upon by the representatives of the assessee passed by the jurisdictional High Court with the following observations :- "The assessee's appeal before the Commissioner (Appeals) failed and by an order of August 25, 2014, the assessment order of March 28, 2013 was upheld. The Commissioner looked into the facts, the statements made by or on behalf of the assessee and the books of the assessee that had been looked into at the time of survey which the assessee subsequently claimed I.T.A. No. 1290/Kol/2017 Assessment Year: 2007-08 I.T.A. No. 1291/Kol/2017 Assessment Year: 2009-10 Barh Jewellers had been lost or destroyed and, in respect whereof, no complaint had been lodged by the assessee. On facts, the Commissioner (Appeals) found no grounds to interfere with the quantum of excess stocks discovered by the assessing officer in course of the survey. The Commissioner also agreed with the assessing officer as to the qu....
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.... According to the Appellate Tribunal the value of the entire quantity of additional stocks that were discovered in course of the survey operation could not be regarded as the additional income of the assessee and amenable to tax. There was a specific ground taken before the Appellate Tribunal which was a legal question, as to whether the undisclosed purchase could be taken as the additional income without reference to the possible sale of the paddy when converted. The assessee refers to a judgment of the Gujarat High Court reported at 388 ITR 377. The principle enunciated in such judgment is that when undisclosed purchases of such nature are discovered, it is only the profit embedded in the transaction which can be added to the total income. The Gujarat High Court relied on some of its previous judgments to hold that "not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee." In the circumstances and particularly since the factual findings rendered by the Commissioner (Appeals) as to the quantum of additional stocks have now been restored, the order impugned on the methodology for the ascert....
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.... directed to apply net profit rate on the undisclosed sales observing as under: "10. The ratio of the judgment in CIT vs. Balchand Ajit Kumar (supra) is that the total undisclosed sales of Rs. 1,58,75,339/- in this case could not be recorded as profit of the assessee. The net profit rate had to be adopted and once it was adopted, it could not be said that there was perversity of approach. Whether the rate was low or high would depend on each case. While following the aforesaid decision rendered by Hon'ble Madhya Pradesh High Court in CIT vs. Balchand Ajit Kumar (supra), the ld. CIT (A) estimated the profit @ 22% and worked out addition to the total income of the assessee to the tune of Rs. 34,92,575/-. 11. Following the law laid down by Hon'ble Madhya Pradesh High Court in CIT vs. Balchand Ajit Kumar (supra), we are of the considered view that total sales of Rs. 1,58,75,339/- cannot represent the income of assessee on account of undisclosed sales which is price received by the seller of the goods for the acquisition of which the assessee has already incurred the cost. So, in the given circumstances, the only way out is to adopt the net profit by the....
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....he course of search and survey proceedings and seized.. 3.3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) -48, Mumbai is right in deleting the entire additions of Rs. 34.47.72.080% made in the assessment order without appreciating the facts that the assessment was made on the basis of various incremental documents were found and seized from the residence of Mr. Kumarpal Banda, the director of the company M/s GM Modular Pvt. Ltd at 2203, 22nd Floor, Oberoi Springs, Link Road, Andheri (W). Mumbai-400053, labeled as Annexure A-2, A-3 and A-4 Statement of Mr.Kumarpal Banda, the director of the company M/S GM Modular Pt Ltd was recorded us 132(4) of the Income-tax Act, 1961 during the search proceedings". 4. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) -48, Mumbai is right in holding that no incriminating material was found to sustain the addition without appreciating the fact that the assessee himself submitted before Ld. CIT (A) that on the basis of incriminating material found during the course of search which were labeled as Annexure A-2, A-3 and A-4 the assessee had offered a sum of Rs. ....
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....t is apparent that this addition is not linked with any incriminating material found during the search pertaining to AY 2014-15. The addition is based on the seized record related to AY 2015-16. (i) Addition of unsecured loans u/s. 68 of the Act amounting to Rs. 2,00,00,000/- From the assessment order, it is also observed that the appellant, during F.Y. 2013-14 relevant to AY 2014-15 had shown unsecured loans from two parties namely, M/s Kamalakshi Finance Corporation (Rs. 50,00,000/-) and M/s NCL Research and Financial Services Ltd (Rs. 1,50,00,000/-). The loan taken from these two parties are treated by the AO as nongenuine. The appellant also submitted during the assessment proceedings that there exists no incriminating material which suggests that the unsecured loans were bogus and accordingly no addition in this regard could have been made. Since the loan from these two parties form part of the regular books of accounts, in my considered view, there is no basis to treat it forming part of incriminating material found during the course of search proceedings. (iii) Disallowance of interest expenses of Rs. 10,02,740/- paid to lender b....
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....sessment year 2019-20. In the assessment order passed for the year under consideration under section 153A of the Act, the Assessing Officer has made following three additions/disallowances: (a) disallowance for unverified purchases of Rs. 9,47,53,780- (b) disallowance for unverified labour expenses of rupees for, 73, 42, 487/- (c) disallowance for employee's contribution to PF/ESI deposited after due date under relevant act amounting to Rs. 26, 72, 885/- 16.1 In the grounds raised before us, the Revenue has challenged finding of the Ld. CIT (A) in respect of the disallowance of unverified purchases of Rs.9,47,53,780/- and disallowance of employee's contribution to PF/ESI amounting to Rs.26,72,885/-. 17.0 The facts in brief qua the ground Nos. 1 (one) and 2(two) of the appeal are concerned, we find that during the course of the search proceeding in the case of M/s Goldmedal Electrical's private limited(i.e.a concern related to assessee), the search team found that purchases from certain parties were remained unverified. Out of those parties, three parties namely M/s Hirasons, M/s Satyam Plast and M/s Shivam Enterprise also featured in the list o....
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....91 Total 16,35,87,378 6,88,14,297 0 23,24,01,675 Grand total 60,74,85,381 36,07,23,911 32,54,09,012 1,29,36,18,304 16.2 Out of the above purchases from three parties, the Assessing Officer verified the purchases of Rs.60,74,85,381/-for the period of post introduction of the e-way bill as corresponding transport of the goods was duly verified from the website of GST portal. The relevant finding of the Assessing Officer is reproduced as under: "(ix) The analysis of these purchases have been made as under: 1. Purchases from 3 parties for FY 2017-18 onwards for which E way Bill is available is of an amount Rs. 60,74,85,381/-: The E way bill mentions the transport details like transporter name with Vehicle Numbers. The numbers given in the E way bill were verified form the Transport Ministry website of Vahan on test check basis and the said vehicles were found to be Goods vehicle. E way Bill is a contemporary document and is generated from the website of GST portal. E way Bill is a contemporary document and is generated from the website of GST portal. The E way Bill is a co....
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....hus unexplained. (ii) Goods purchased from M/s Satyam Plast for an amount of Rs. 27,50,81,870/-: The invoices were checked on sample basis. It did not contain verification stamp from stores department. For these purchases, assessee submitted that watchmen Inward register is not available. There is no proof of delivery of goods in absence of watchman inward register and E way bill. Thus in absence of verifiable document for delivery of Goods the purchase of Rs. 27,50,81,870/-remains unverified and thus unexplained. ii) Goods purchased from Ms Shivam Enterprises for an amount of Rs. 6,88,14,2971-: The invoices were checked on sample basis. It did not contain verification stamp from stores department. For these purchases, assessee submitted that watchmen Inward register is not available. There is no proof of delivery of goods in absence of watchman inward register and E way bill. Thus in absence of verifiable document for delivery of Goods the purchase of Rs. 6,88, 14,297/-remains unverified and thus unexplained. Thus as discussed above, purchases of Rs. 68.58 Crores out of total purchase of Rs. 129.36 Crores i....
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....fore the ld CIT(A). The ld CIT (A) called for comments of the Assessing Officer on those submissions. After considering the submission of the assessee, the Ld. CIT (A) has given his comment on the observation of the Assessing Officer and deleted the addition of observing as under: 5.7 It is observed that during the year under consideration, the Appellant had made following payments to three parties on account of purchases, in the following manner: (i) M/s. Shivam Enterprises- Rs.4,30,97,258 (ii) M/s. Satyam Plast- Rs. 3,46,01,997 (iii) M/s. Hirasons- Rs. 1,70,54,525 TOTAL Rs. 9,47,53,780 5.8 The impugned disallowances were made as in the opinion of the AO, the purchases were unverified expenditure. The issue has been discussed in para 1.2, of the assessment order in the following manner- "(i Various statements recorded in the case of Gold Medal Group and discrepancies pointed out in respect of recording of above purchases clearly establish that these Groups are involved in recording non-genuine purchases/labour job work in its books of accounts. It was found that there are 3 common parties who feature in the list of vend....
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....Rs. 34,22,36,756/-remains unverified and thus unexplained. ii) Goods purchased from M/s Satyam Plast for an amount of Rs. 27,50,81,870/: The invoices were checked on sample basis. It did not contain verification stamp from stores department. For these purchases, assessee submitted that watchmen Inward register is not available. There is no proof of delivery of goods in absence of watchman inward register and E way bill. Thus in absence of verifiable document for delivery of Goods the purchase of Rs. 27,50,81,870/-remains unverified and thus unexplained. iii) Goods purchased from M/ Shivam Enterprises for an amount of Rs. 6,88,14,297/-: The invoices were checked on sample basis. It did not contain verification stamp from stores department. For these purchases, assessee submitted that watchmen Inward register is not available. There is no proof of delivery of goods in absence of watchman inward register and E way bill. Thus in absence of verifiable document for delivery of Goods the purchase of Rs. 6,88,14,297/-remains unverified and thus unexplained. Thus as discussed above, purchases of Rs. 68.58 Crores out ....
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....ollowed throughout the organisation for all the purchases made over the period of time and hence watchmen register is not maintained as the same is not mandated under any law and the management didn't feel suitable to maintain the same. The watchmen register was started to be maintained by the company from 01.10.2018 which was verified by the search party during search/survey action. However, cognizance of the same cannot be drawn to the purchases/transaction/ business done by the appellant company prior to that period comparing the same with that. 5.9.4 In my considered view, if before 01.10.2018, the management of the appellant company had uniform policy of not maintaining watch man register and the same was uniformly followed throughout all departments/ sections of for all purchases made over the period, the absence of such registers cannot form the basis for disallowance, if other registers viz, sale and purchase registers, stock registers support impugned purchases. Tagging requirement of stock registers with these three parties only and overlooking other parties is, in my opinion, is not justifies. 5.9.5 As far as electronic way bill viz. E-Way Bill is c....
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....." Comment on the Observation of the AO:- 5.10.1 In this regard, the appellant has submitted that it has already furnished the numerous documents and details available with the appellant company before the AO to substantiate the claim of the aforesaid expenditures incurred. These documents are again submitted during the appellate proceedings. Briefly these are. i. Purchase Invoices as received from the Vendors: It is explained that based on the requirements as placed in the PO by the appellant company, they sent the goods to the required warehouse/factors premises of the assessee company along with the copy of the Tax Invoice incorporating the details of the goods sold by the vendor, Vehicle details through which goods is transported, premises at which goods is transported etc. ii. Stock register of each of the stocks purchased from alleged concerns: According to the appellant, once the Goods are received at the premises of the assessee company, an entry is being made in the Material Inward Register maintained by the stock keepers maintaining the details of the goods and materials received at the premises. The copy of the stock inward an....
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....urchases were found. The Assessing Officer has noticed that no inward register of watchmen in respect of those purchases was found. Before the Assessing Officer, it was explained by the assessee that requirement of e-way bill was made applicable under the GST rules from 03/06/2018 only and therefore prior to that there was no requirement of maintaining e-way bill under the relevant law. Regarding the inward watchman register also it was explained by the assessee that at the relevant time there was no policy/procedure of maintaining watchmen inward Register. The Assessing Officer disregarded the submissions. We find that Ld. CIT (A) after taking into those submissions has correctly deleted the disallowance made by the Assessing Officer. We do not find any infirmity in the finding of the Ld. CIT (A) on the issue in dispute, and accordingly, we uphold the same. The ground Nos. 1(one) and 2 (two) of the appeal of the Revenue accordingly dismissed. 17.0 In ground No. 3 (three), the Revenue has challenged the deletion of disallowance of employee's contribution to PF/ESI amounting to Rs.26,72,885/- deposited after the due date of the payment under the relevant act. The Ld. CI....
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....ain the addition without appreciating the facts that the assessment order was passed after carefully analyzing the seized material and evidences found during the course of search and survey proceedings and seized. 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) -48, Mumbai is right in deleting the entire additions of Rs. 2,72,63,970/- made in the assessment order without appreciating the facts that the identity, genuineness and creditworthiness of the lenders were not established after giving ample opportunity to the assessee. 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) -48, Mumbai is right in allowing the appeal filed by the assessee by relying on the decision of the Hon'ble Bombay High Court in the case of CIT v. Continental Warehousing Corporation [2015 374 ITR 645] ignoring the fact that appeal is pending before the Hon'ble Supreme Court of India of this issue of 'power conferred by section 153A of the Act which was not adjudicated upon. 19.0 Briefly stated facts of the case are that assessee was also subjected to search action under section 132 of the Act on 13/11/2019 along with th....
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....ugned AY, which got abated. 6.3 It is observed that the AO has remained silent on the issue of any incriminating material found and/or seized during the search action, based on which the impugned additions are made. The Id. ARs, on the other hand, has emphatically stated that the impugned additions are not based on any material found/seized during the course of search action at the premises of the appellant. The appellant has also relied on a no. of judicial decisions on this issue. 6.4 On perusal of the impugned assessment order, it is evident that the Ad has not referred to any seized material found during the course of search to make the impugned additions. The original return of income, in this case was filed on 30.11.2014. The due date for issuing notice us 143(2) was 30.09.2015, which had already expired on the date of search i.e., 13.11.2019. Since, the proceedings for A.Y. 2014-15 had not abated, the contention of the Id. ARs that the AO was empowered to make additions based on the incriminating material found and seized during the course of search operation, appears to be true, as held in a no. of judicial decisions including the decision of jurisdictiona....
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....onclusion- In the present case, additions have been made on account of accommodation entry of unsecured loan of Rs. 2,50,00,000/-, as unexplained expenditure us. 69C due to interest on accommodation entry of unsecured loan of Rs. 18,30,674/-, as unexplained expenditure us. 69C due to commission for arranging accommodation entry of unsecured loan of Rs. 62,500/- and as addition u/S. 43B of Rs. 3,70,800/-. As stated above, the AO has not brought on record through the assessment order or through any communication regarding any incriminating document or material found or seized during the Search and Seizure action us 132 of the Act, which can be linked /correlated with the impugned additions made. Considering the totality of the facts and circumstances of the issues involve, I am of the considered opinion that these additions cannot survive de hors the incriminating evidences as held in the above binding judicial decisions. The A is accordingly directed to delete the impugned additions made in the assessment order. Thus, the grounds of appeal no. 1 & 2 are allowed." 20.3 Before us the learned departmental representative relied on the finding of the Assessing Offi....
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....cals Pt Ltd on 11.01.2020 to produce the party to verify its claim that the unsecured loan is genuine. But the assessee failed to produce the party and thus failed to discharge its onus to explain the source of credit. The assessee vide its submission dated 03.02.2021 has tried to explain the Identity, genuineness and creditworthiness of the transactions of loan, however the same is not acceptable as the facts remains that the promoter of G.M. Group has failed in producing the lenders for verification. Further, the lender parties have accepted in their statement that they are involved in providing accommodation entries. All the relevant extract/documents were supplied/communicated to the assessee to substantiate the claim of genuineness of loan, however it has failed in discharging its onus. The parties are not available on their addresses. The assessee failed in producing the parties for verification. The financial credentials as discussed above also indicate that the lenders have no creditworthiness to provide such huge amount of loan. Merely filing of return by lenders are not sufficient to prove their creditworthiness. In view of the above fi....