TaxTMI 
TaxTMI 
2023 (9) TMI 1674
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....dication. 3. The Revenue has raised following grounds for the assessment year 2010-11: 1. The order of the ld.CIT(A) is contrary to the provisions of the Income Tax Act, Rules and facts of the case. 2. The CIT(A) has deleted the additions made by the Assessing Officer under the head special salary, additional salary, management salary, special management salary, commission etc. The learned CIT(A) failed to note the sworn statement given by the Executive Director, D Kabilan , one of the Directors on 17.11.2015. 3. (a) The learned CIT(A) deleted the additions made to the contractors on the ground that they are labourers and TDS deduction is not applicable to such payments. The seized materials verification reveal that the payments were made under salary head and not under contract head. Further from the verification of the materials it is observed that the EPF deduction is made to the labourers who are working under the contractors. Mere coverage of staff of the contractors under EPF does enable them to claim as labourers. (b) The learned CIT(A) has erred in disallowing the addition by subscribing to the views of the representative that they are....
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....rials on record, the unaccounted bought note was given at Rs. 1,74,32,430/- However, the assessee in his explanation along with ledger copies has submitted bought note for Rs. 1,71,32,430/-. 5. In respect of disallowance of expenditure, by cash purchase of copra from Shajahan and his concerns at Rs. 12,85,000/- for the A.Y. 2011-12 and Rs. l,61,15,268/- 2012-13, the assessee has furnished the evidence before the Assessing Officers for the discrepancy found. The same explanation was also furnished before the ADIT, thereby also enclosing copy of assessee's ledger copy with the supplier. The reason appears was non enclosure of certain purchases on account of weight shortage and inferior quality thereby raising debit notes on those defective items, but the supplier entered it as cash receipt. The evidence was derived only by way of ledger extracts. The observation of the learned CIT(A) the assessee has offered purchases from bogus bought notes could have little relevance in this matter. In assessment year 2012-13, the Revenue has raised following grounds: 1. The order of the ld.CIT(A) is contrary to the provisions of the Income Tax Act, Rules and facts of the c....
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....dition on the ground that the payment for purchase made through RTGS and the AO has not proved the cash payment by the assessee and also purchase of copra was not refuted. It is further opined that there is no incriminating seized materials of evidential value while making disallowance u/s. 40A(3) was made. In this connection, it is pertinent to note that the assessee Shri D. Kabilan on his sworn stated dated 17.11.2015 has not named Shajahan and his group of five concern, as his regular supplier of copra though he has named other six parties as his regular suppliers. Shajahan has deposed the modus operandi i.e. he used to issue bearer cheque for all the parties who deal with him to enable them to encash the cash for further payment to the persons who supplied copra. It clearly signifies that the payments are received through RTGS from M/s. VVD & Sons and the end-user of the RTGS payment was not proved beyond doubt. Therefore, second appeal. 6. The learned CIT(A) has allowed the appeal on the ground that there found to be assessee maintained tally software till April 2011 and from May, 2011 it had adopted SAP software for its accounting purpose. While, the AO has mistakenl....
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....tion to be made in the assessments framed u/s.153A on the basis of seized materials, the SLP filed by the Revenue has been accepted the Hon'ble Apex Court in the case of Pr. CIT Vs. Gahoi Foods Pvt. Ltd (117 Taxmann.com 118) and is still pending, thus the issue has not attained finality. 1.3 The ld. CIT(A) erred in failing to appreciate that there is no express provision in the Act that the additions made in the search assessment can be made only on the basis of seized materials. 5. Brief facts of the case are that the assessee, M/s. VVD and Sons (P) Limited is engaged in manufacture & sale of coconut oil & gingili oil, in operating wind mill and also in letting out ware-house etc. The assessee originally filed its return of income for the assessment year 2010-11 on 30.09.2010 admitting a total income of Rs..8,01,28,368/-. A search and seizure operation under section 132 of the Income Tax Act, 1961["Act" in short] was conducted on 17.11.2015 in the group cases of M/s. VVD and Sons (P) Ltd. During the course of search, several incriminating documents relating to unaccounted transactions were unearthed and seized. A notice under section 153A of the Act dated 27.....
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....hat during the course of search operation, difference was found in physical stock and book stock which constitute incriminating material. Once incriminating material is found, Ld. AO is duty bond to issue notice u/s 153A and make assessment or reassessment of total income for specified period. The Ld. CIT-DR also submitted that salary payments have been disallowed on the basis of statement recorded from the director of the assessee-company. To support the same, Ld. CIT-DR relied on the recent decision of Hon'ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. (149 Taxmann.com 399). The Ld. CIT-DR submitted that the issue in AY 2010-11 is salary disallowance and disallowance of contractual payment for want of TDS u/s 40(a)(ia) and the factual findings recorded by Ld. CIT(A), in the impugned order, is not acceptable. 8.2 The Ld. AR, on the other hand, supported the impugned order and submitted that the additions are not based on any incriminating material and therefore, no such addition could have been made by Ld. AO as held by Hon'ble Delhi High Court in the case of CIT V/s Kabul Chawla (380 ITR 573) which has been approved by Hon'ble Supreme Court in Abhisar Buildwell P....
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....the basis of addition. Without credible evidence, the Department cannot make addition purely based on the confessions made during search/survey operation as envisaged by the CBDT vide instruction F.N. 286/2/2003 dated 10.03.2003 and reiterated by the Board vide its letter dated 18.12.2014. 8.6 So far as incriminating material is concerned, in the case of PCIT v. Abhisar Buildwell (P) Ltd. (supra), the Hon'ble Supreme Court has held as under: 14. In view of the above and for the reasons stated above, it is concluded as under: (i) that in case of search under section 132 or requisition under section 132A, AO assumes jurisdiction for block assessment under section 153A; (ii) all pending assessments/reassessments shall stand abated (iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) in case no incriminating material is unearthe....
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....chine charges as follows: Name Contract Amount (Rs.) Neethirajan Filling charges 33,15,968 Uthirapandi Unloading, drier charges 12,84,616 Navaneethan Filling charges 7,23,416 Total 53,24,000 Since the assessee has not deducted tax at source on the above payments of Rs..53,24,000/- to contractors for the assessment year 2010- 11, the Assessing Officer invoked the provisions of section 40(a)(ia) of the Act and made the disallowance. Similarly, the Assessing Officer disallowed Rs..66,43,701/- for the assessment year 2011-12 and Rs..87,42,300/- for the assessment year 2012-13. 9.1 The assessee carried the matter in appeal before the ld. CIT(A). While deleting the addition, the ld. CIT(A) has observed as under: 6.4 Coming to the ground relating to payment made to contractors without making TDS, it is submitted by the AR that the contract-labourers are in the muster roll of the appellant and are covered by the ESI/PF Act. Deductions towards ESI/PF have also been duly made and deposited to the respective accounts. It is a general practice to issue a bearer cheque to the head-labour, who will in turn make payments to the in....
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.... disallowance towards payment made to contractors for want of TDS. Before the ld. CIT(A), the AR of the assessee has submitted that the contract-labourers are in the muster roll of the assessee and are covered by the ESI/PF Act. Deductions towards ESI/PF have also been duly made and deposited to the respective accounts. It is a general practice to issue a bearer cheque to the head-labour, who will in turn make payments to the individuals. This has been scrupulously followed in all the four contract-labourers' cases. In fact they are the regular workers borne in the muster roll of the assessee. In fact, the above fact was brought to the notice of the Assessing Officer during assessment proceedings. As regards the payments made to these four people, TDS provisions were not attracted, as the entire payments do not relate to them only and it is to be disbursed further to the workers coming under their control. After considering the submissions of the AR of the assessee, the ld. CIT(A) has observed that the assessee has directly paid labour charges to the labourers through the head labourer and all the labourers are borne in the Provident Fund records of the assessee. When all the l....
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.... wrongly mentioned in the assessment order as Rs..1,74,32,430/-, thereby adding a further sum of (Rs..1,74,32,430 - 1,71,32,430) Rs..3,00,000/- was not called for. Considering the above facts, we find that the ld. CIT(A) has correctly deleted the addition of Rs..3,00,000/-, which was erroneously added to the total income of the assessee. Thus, the ground raised by the Revenue is dismissed for AY 2011-12. 11. With regard to the deletion of addition made towards disallowance of expenditure by cash purchase of copra, in the assessment year 2012-13, the Assessing Officer has observed as under: 8. Purchase of copra from Shajahan group concerns, Palakkad, Kerala by cash payment : During the course of search conducted in the residential premises of Shri M. Shajahan on 17-11-2015, the ledger account of M/s. VVD & Sons P. Ltd. in the books of M/s. Achu Traders, Appu Traders, Shajahan Traders, Madeena Traders and Alfas Traders for various financial years were found and seized as per Annexure: ANN. PCMS/B&D/Loose Sheet/S dated 17-11-2015. While verifying the said ledger accounts, it was found that M/s. VVD & Sons P Ltd. had purchased copra from all the aforesaid concerns ....
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.... such an addition. It is a trite law that any material or evidences collected at the back of the assessee has no evidentiary value unless opportunity of cross examination was given. Even otherwise, the appellant has booked purchases through bogus bought notes, which were offered for taxation in the return filed after search in response to notice under section 153A and this being so, there was absolutely no necessity for the appellant to omit the purchases from Mr. Shajahan. In view of the above, the addition for the AY 2011-12 (Rs. 12,85,000) and 2012-13 (Rs.1,61,15,268) is deleted. This ground of appeal for both the AYs is allowed. 11.2 Aggrieved, the Revenue is in appeal before the Tribunal for the assessment year 2012-13. 11.3 The Ld. CIT-DR submitted that the payments were made in cash in violation of the provisions of section 40A(3) of the Act and the assessee could not afford any plausible explanation. 11.4 The Ld. AR, on the other hand, submitted that all the payments were made through banking channels and there was no violation of the provisions of Sec.40A (3) as alleged by Ld. AO. 11.5 The Ld. AR further submitted that no material was seized from the a....
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....from the financial year: 2011-12. Particularly, the assessee-company had shown bulk purchases from the following traders from Kerala : 1. Achu Traders, Palakkad 2. Appu Traders, Palakkad 3. Madeena Traders, Palakkad. 4. Alfas Traders, Palakkad. 5. Shajahan Traders, Palakkad. 6.2 For the financial year: 2011-12, total purchase of copras to the tune of Rs.26,56,64,328/- was shown to have been purchased from the above-said five traders. Totally, for various assessment years, an amount of Rs.107,64,57,214/- was claimed as copra purchases from these trading concerns in Kerala. Enquiries revealed that all the aforesaid five concerns are run by Shri M. Shajahan and his wife Smt. .S. Niharbanu. Post-search investigations revealed that both Shri Shajahan and his wife Smt. Niharbanu are not real traders dealing in the business of copra and none of the above concerns are engaged in the business of trading copra. They are mere name-lenders for which some commission is paid to them. Actually, M/s. VVD & Sons made purchases of copras from trades at Pollachi and invoices for these purchases are obtained from the above-said concerns. This pract....
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...." Further Shri Shajahan has stated in his above sworn statement recorded on 23.12.2015 in reply to Q. No. 5, about the method adopted for supply of copra to M/s. VVD & Sons and M/s. VVD's mode of payment for the supply made by Shajahan as follows: 6.4 He has stated that Shri Natarajan, Senthil and Chinna are the three persons who had purchased copra in and around Pollachi and on their direction Shri Shajahan has prepared sales invoices for the specified quantity, the rate as fixed by M/s. VVD & Sons Pvt. Limited. Thereafter, he has prepared purchase bill in his concern name M/s. Appu Traders, M/s. Achu Traders, M/s. Alfas Traders, M/s. Madeena Traders and M/s. Shajahan Traders at the rate as reduced by 0.25 paise per kg. After raised the purchase bills, he has logged into Kerala commercial tax website and used to upload the transaction as inter-state purchase and prepared sales invoices in favour of M/s. VVD & Sons (P) Limited for the same quantity of copra in the firms names at the rate as increased by 0.25 paise per kg. After preparing sales bills in favour of Ms. VVD & Sons (P) Limited he has stated to have handed over the sales invoices to the persons name....
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....yment through RTGS for the above supply of copra he would receive a SMS and then he would withdraw the amount by presenting the self bearer cheque signed by Shajahan, which is already available with him. Similar, is the case with Shri Rengaraj @ Senthil in respect of copra purchase and supply to M/s. VVD & Sons. 6.8 During the course of search on 17.11.2015 certain books such as a note book (Kasthuri book) were found seized vide Ann/PC/MS/B&D/S dated 17.11.2015 containing bank account numbers and cheque books details maintained by the Shri Shajahan. However, During the search assessment proceedings it was found on verification of the said note and cheque books seized that though the bank accounts have been opened in Shajahan's firms names were actually maintained and operated by the above three persons as detailed below. Name of the trader Bank Account No. Operated by Alfas Traders IDBI 000451 to 000500 Natarajan Alfas Traders ICICI Pollachi 016726 to 016750 Natarajan Alfas Traders IDBI 169091 to 169140 Natarajan Appu Traders Axis Bank 025521 to 025535 Chinna Appu Traders Axis Bank 037427 to 037425 ....
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....d above, during search assessment proceedings, further necessary actions were made by way of deputing this office Inspector to examine and verify the instruments of payments as available in the records of various banks in Pollachi and on verification made , it was found from the sample instruments for payment made by VVD Company towards copra purchases found that almost all the instruments were only self-bearer cheques and not account-payee cheques, given by Shajahan to the three persons namely Natarajan, Senthil and Chinna, which were encashed by them. The copies of self cheques issued by Shri Achu Traders, Madeena Traders issued Shri Shajahan to the three persons are incorporated below, as a sample of proof for having verified the instruments issued by Shri Shajahan [scan copy of cheque] 6.11 Even though VVD& Sons P Ltd. claims that all the payments are only through RTGS, the same has not been proved by the three persons and Shri Shajahan because during the hearing, they did not provide the necessary details of the farmers from whom copras wee purchased by them, this leads to raise a suspicion whether the copras were really purchased from farmers or someone else. If t....
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....g accommodation entries for sales, issuing self bearer cheques and not an account payee cheque or account payee bank draft to the three persons, which clearly brings to light the real intention of VVD & Sons to inflate the purchases for evasion of income tax. 6.14 One more fact is again recollected from the statement recorded from Shri Shajahan that the main broker of M/s. VVD & Sons, Shri KADASAMY has only contacted the three persons for placing orders for purchase of copras and not Shri Shajhan and also the payments of RTGS for the said supply are also en-cashed by the three persons only and not Shajahan, to whom the money was meant. By seeing all the facts of the case, it is very clear Shajahan is not real the supplier of copras to M/s. VVD & Sons. The real suppliers are the three persons who had obtained copras from farmers and supplied through Shajahan to M/s.VVD & Sons. By doing so, primarily, M/s. VVD & Sons hasbenefited in a way by avoiding payment of sales tax to Tamil Nadu Government. Secondly, the three persons have made payments to the farmers at Pollachi by withdrawing from the bank accounts maintained by Shajahan's concerns on presenting of self bearer ch....
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....ncerns, as supplier of copras. 6.18 As per the above discussion it is very clear that the assessee company has violated the provisions of the Sec. 40A(3) of the Act, with regard to the purchase of copras claimed by it to have been made from Shri Shajahan and his group concerns. Therefore, the entire transaction amount involved therein amounting to Rs. 24,74,00,745/- considered for substantive addition in the hands of M/s. VVD & Sons. 12.1 The assessee carried the matter in appeal before the ld. CIT(A) for the assessment year 2012-13. After considering the submission of the assessee, the ld. CIT(A) has observed as under: 6.4. Now coming to the ground relating to disallowance made u/s. 40A(3) the facts are to be crisply brought out to know the exact modus operandi adopted by the appellant. The appellant used to acquire copra from wherever they are available at competitive price with an eye on the quality of the same also. As per the invoices raised by the Kerala supplier, payments are made by the appellant through RTGS. The AR submitted that the AO had gone through the books of account of Kerala supplier and found that cash payments were made. Any how the fact re....
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....ales tax as well as income tax return treating as sales to the assessee. In this circumstances, he cannot be treated as an agent of the company. In spite of the above explanation if you proposed to consider them as an agent please provide an opportunity of cross examination to the assessee. So I request you to accept the fact that the payments are made by RTGS to the Shajahan group. No cash payment was made from the company. So the addition for violation of Sec. 40A(3) is not acceptable and could not be added. --------------------------------------------------------------------------------------- The seized material or evidences collected at the back of the appellant has no evidentiary value unless an opportunity of cross examination is given. Even after thorough investigation by Investigation team, there is absolutely no evidence brought on record to prove that part of the amount paid by RTGS came back to the appellant. Any disallowance under section 40A(3) can be considered only in the case of group concerns of Shri Shajahan and not in the hands of the appellant. The AR also brought to the notice of the undersigned that similar addition on this....
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....ties and not from Kerala parties as claimed by the assessee. The Pollachi parties were paid in cash which justifies invocation of section 40A(3) of the Act. 12.4 The Ld. AR, on the other hand, controverted the same and submitted that the purchases were evidenced by copies of invoices. All the payments were made to Kerala parties through RTGS. All these parties were filing Sales Tax return. Considering all these evidences, the impugned additions have been deleted. 12.5 We have considered the rival contentions. The case of the assessee is that the assessee used to acquire copra from wherever they are available at competitive price with an eye on the quality of the same. As per the invoices raised by the Kerala suppliers, payments were made by the assessee through RTGS. However, the Assessing Officer disallowed the entire expenditure by holding that the assessee made bogus purchase. On appeal, the ld. CIT(A) has noted from the assessment order that the Assessing Officer has admitted the fact that payments were made through RTGS. Moreover, the Assessing Officer has not made a mention in the assessment order that for the purchase of copra, cash payments were made by the assessee a....
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....ross Profit = Unaccounted purchases Rs. 1,46,33,106 ---------------------------------------------------------------------- X (GP Ratio) 26.16 [100 minus GP Ratio i.e. 26.16] = Rs.51,84,210/ The gross profit on undisclosed production out of unaccounted copra purchases for the financial year 2011-12 relevant to the Assessment Year: 2012-13 is worked out, as above, at Rs.51,84,210/-. This as to be added. Thus, the total addition works out to Rs.1,98,17,3 16/- i.e. expenditure incurred on account of unaccounted and undisclosed income - Rs.1,46,33,106 plus Gross Profit on the same - Rs.51,84,210/-. 13.1 On appeal, the ld. CIT(A) has observed as under: 6.9. The next ground relates to addition of Rs, 1,98,17,316/ (Rs.1,46,33,106 plus gross profit Rs.51,84,210/-) towards alleged undisclosed purchases: The AR submitted with regard to the above addition as under: The appellant till April 2011 was maintaining the accounts in Tally system. From May 2011 it switched over to SAP system of accounting. The AO took the value of purchases as appearing in the SAP from May 2011 to March 2012 (i.e., for 11 months) and compared the figures of p....
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....icer, by mistake compared the 11 months' figures of the assessee with that of 12 months' figures of the parties. Naturally there is every likelihood of arriving at a variation. Based on this (wrong) methodology the Assessing Officer arrived at the suppression of purchases. Thus, the ld. CIT(A) has observed that the addition was due to erroneous adoption of purchase figures, the Assessing Officer made an huge unwanted addition and thus, the ld. CIT(A) was reluctant to sustain the addition. We also find that the Assessing Officer was not able to establish suppression of purchases made by the assessee. It was mere allegation of the Assessing Officer and on which no addition can survive. Accordingly, we confirm the order of the ld. CIT(A) on this issue and dismiss the ground raised by the Revenue. 14. The last ground raised in the appeal of the Revenue for the assessment year 2012-13 relates to purported suppression of closing stock. In the assessment order, the Assessing Officer has observed as under: 10. Closing stock variation as per SAP vs. Return of income: During the search operation, it was noticed that the assessee-company is utilizing SAP software ....
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....r SAP was Rs. 11,31,93,820/- whereas the actual stock was Rs. 8,84,01,709/- In the case of copra and coconut oil, the value of the stock is higher in balance sheet. Hence the actual closing stock value is correct." The assessing officer never bothered to examine the above reply with reference to the records maintained by the appellant, but he simply stated in the assessment order that the reply was not acceptable without giving reasons for nonacceptance. It is seen that the assessing officer merely followed the appraisal report without independent application of mind and without conducting sufficient enquiries regarding the submission made by the appellant. After considering the reply of the appellant with reference to the records maintained by the appellant, I find that the reply is acceptable in respect of facts and figures submitted by the appellant and the appellant was free to follow the weighted average method for SAP and cost price method for income tax purposes. On going through the details contained in the SAP system of accounting, it is seen that there is no suppression of stock as wrongly concluded by the AO. Accordingly the closing stock as on 31.3.201....