TaxTMI 
TaxTMI 
2023 (9) TMI 1674
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....g 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 labourers having regular PF subscription and for the convenience the payme....
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....tion 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 case. 2. The CIT(A) has deleted the additions made by the Assessing Officer under the head special salary, additional salary, m....
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....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 mistakenly taken the figure for 12 months instead of 11 months figures and compared with the supplier's books, lead to mismatch between the tally system and SAP system of acco....
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....t. 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 27.12.2016 was issued to the assessee and in response thereto, the assessee has filed its return of income for the assessment year 2010-11 on 27.01.2017 admitting a total income of Rs..9,58,25.049/- which includes the....
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....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 Pvt. Ltd. (149 Taxmann.com 399). The Ld. AR submitted that the salary payment has been disallowed merely on the statement without verifying the factum of rendering of services. Similar salary payments made by the assessee to same parties, has been accepted in ....
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.... 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 unearthed during course of search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessment/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material fo....
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....tors 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 individuals. This has been scrupulously followed in all the four contract-labourers' cases. In fact they are the regular workers borne in the acquaintance roll of the appellant. 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 ....
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.... 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 labourers are treated as person directly employed by the assessee for the purpose of PF Act and merely because the wages are disbursed through the head labourer for convenience, it cannot be said that there was an element of contract involved. No incriminating material like contract agreement, etc. was brought on record. Further, the ld. CIT(A) has observed that the Assessing ....
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....s 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 by cash on various dates ranging from April, 2011 to July, 2011. The details of such cash purchases made during FY: 2011-12 relevant to A Y: 2012-13 are as under: Name of the party Rs. Appu Traders 10,31,396 Achu Traders 38,44,058 Shajahan Traders 93,50,320 Madeena Traders 7,40,000 Alfas Traders 11,49,494 Total 161,15,268 During the post-search investigation, when Shri D. Kab....
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.... 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 assessee but the additions are merely on the basis of material seized from third parties. 11.6 It was also submitted that the opportunity of cross-examination was never provided to the assessee and the said material was not confronted. Therefore, these additions could not be sustained in law. 11.7 We have heard the rival contentions, perused the orders of authorities below. In the assessment order, the Assessing Officer made the additions based on the entries in the ledger acco....
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....s.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 practice was resorted to by the assessee-company to avoid 5% sales-tax which is levied by the Government of Tamil Nadu, if they are purchased within Tamil Nadu. This fact was accepted by Shri G. Ananthakrishnan, a full time employee of M/s. VVD & Sons (P) Limited in his sworn statement recorded on 17.11.2015 while answering to Q. No. 8 of the which is reproduced as under: The copra purchased from various traders in pollachi would come M/s. VVD & Sons, as if they were sent from kerala parties. I do not know about the details of Pollachi Trade....
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....ders, 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 namely Chinna. Natarajan, Senthil, who were waiting at Kerala Check post. Thereafter, the lorry driver carrying the copras had driven the lorry with goods into Kerala and stayed there for an hour and after one hour, again the lorry driver with load copra returns to Tamil Nadu with the sales bills drawn by Shri Shajahan in favour of Ms. VVD & Sons. He has stated to have not known the details of where the copras were supplied. He has also stated that with the raising of purchase bills and thereafter raising sales invoices in favour of Ms VVD & Sons, his work is done/over. For which work done Shajahan he has stated to have received a ....
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....d 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 Chinna Appu Traders Axis Bank 053276 to 053358 Chinna From the above it is very clear that Shri Shajahan has opened bank accounts in his traders names but were operated by the three persons at Pollachi. It is also confirmed from their sworn statements that the sms regarding the payment made through RTGS by M/s. VVD & Sons has also received by the three persons. Moreover, the said three persons only have withdrawn the payments credited through RTGS by presenting the self cheques issued by Shajahan. After withdrawing the payments from RTGS, the three persons have made in turn payments to the farmers from whom they have purchased the copras and commission to Shri Shajahan, who is a commission agent....
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....he 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 they had purchased from farmers, the onus lies on Shajahan and the three persons to prove that the purchases were from In the absence of farmers details, it could be construed that all the RTGS payments said to be made by M/s. VVD & Sons have not at all reached the farmers either. Shri Shajahan has also stated in his statements that he has worked as commission agent alone, for which he has stated to have received his commission part. In this circumstances, it is not ascertainable whether the entire RTGS payment has been received by Shri Shajahan or the three persons or other then the four persons. 6.12 From the above facts it is not ascertainable as to who is the final and actual with receiver of the RTGS payments made by VVD & Sons. In s....
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....liers 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 cheques issued by Shajahan. This scheme of action attracts the provision of Section 40A(3) because the identity of the RTGS payments made in the various bank accounts of Shajahan firms (namely M/s. Achu Traders, M/s. Alfas Traders, Madeena Traders, Shajahan Traders, Achu Trades) have not been brought into limelight by the three persons and Shri Shajahan. In the absence of such an identity of farmers (suppliers of copra) the entire payment made to Shri Shajahan through RTGS is considered as payment made in violation of Section 40A(3) of the I.T. Act. 6.15 The assessee's authorized representative has filed his reply on 20.12.2017 regarding the purchases of copra from Shajahan group concerns. The content of his reply were fully considered and the same are not acceptable. ....
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....llant 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 remains that the appellant paid the entire money only through RTGS and without appreciating these facts, resorted to disallowance u/s.40A(3) as if cash payments were made by the appellant. It is seen from the assessment order that the AO has admitted the fact that payments were made through RTGS. In fact the AO attached the photo copy of the bearer cheque issued by the Kerala supplier only and nowhere the AO has proved that appellant indulged in cash payment. The AO has not made a mention or proved that for the purchase of copra cash payments were made by the appellant. Likewise, the AO has also not refuted the purchase of copra. I am of the considered view that so long as the appellant has not made cash payments and all the payments were through RTGS, invoking the provisions of section 40A(3) is not correct and henc....
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....o 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 count has been made in the case of M/s.Appu Traders, Achu Traders, Shajahan Traders, Madina Traders and Alfa Traders. The disallowance under section 40A(3) cannot be made twice, once in the case of group concerns of Mr. Shajahan and again in the hands of the appellant. The main contention of the appellant is that all the payments to group concerns of Mr. Shajahan were made by RTGS and the same is not disputed by the assessing officer. On the other hand the assessing officer relied on the books of accounts seized from the residential premises of Mr Shajahan without giving the opportunity of cross examination. As discussed in the preceding para the seized material or evidences collected at the back of the appellant has no evidentiary value unless the 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 R....
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....s 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 and moreover, the Assessing Officer has also not disputed the purchase of copra. In view of the above, the ld. CIT(A) has rightly observed that the disallowance by treating the RTGS payments as cash payment was not correct and consequently, deleted the addition of Rs..24,74,00,745/- for the assessment year 2012-13. 12.6 We also find that the Assessing Officer failed to establish that the assessee made purchases by paying cash. It is a fact that the entire payments were made by the assessee through RTGS to its agent. It is a mere allegation by the Assessing Officer that the assessee purchased the copras by paying cash. The assessee, in fact, made payments through RTGS only. In turn, the agents issued bearer cheques according to their convenience. Therefore, the Assessing Officer was not justified in invoking the provisions of section 40A(3) of the Act in the case of the assessee. Thus, we find no reason to interfere with the order passed by the ld. CIT(A) on this issue and acc....
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....he value of purchases as appearing in the SAP from May 2011 to March 2012 (i.e., for 11 months) and compared the figures of purchases as taken from the parties ledgers from April 2011 to March 2012 (12 months), In effect the AO by mistake compared the 11 months' figures of the appellant with that of 12 months' figures of the parties. Naturally there is every likelihood of arriving at a variation. Based on this (wrong) methodology adopted by the AO, he arrived at the suppression of purchases. Even the AO has brushed aside the reply given in this regard explaining the reasons for the variation with detailed reconciliation. Finally based on this wrong calculation, the AO arrived at the deemed gross profit and added the impugned sum. I have gone through the observation of the AO and the submissions of the AR. It is a fact that the appellant was all along maintaining Tally system of account till April 2011 and from May 2011 switched over to SAP system of accounting. The AO instead of taking 12 month figures has taken only 11 months figures and compared them with the suppliers' books of account for 12 months. Naturally the result wouldbe against the appellant due to omissio....
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....ring the search operation, it was noticed that the assessee-company is utilizing SAP software for their accounting system including inventory control and financial management. There is a discrepancy in value of closing stock as per SAP and return of income. On examination, it is found that the value of closing stock of raw materials, packing materials and finished goods as per the data extracted from the seized material differs from the value of closing stock as shown in the return of income for the FY 2011-12. The difference is furnished as under: As per SAP As per return of income Difference Chennai Tuticorin Total 3,34,41,092 7,97,33,443 11,31,74,535 8,84,02,000 2,47,72,535 The company has submitted the closing stock valuation statement for the F.Y 2011-12. It is nothing but the re-submission of the balance sheet break-up and there is no proper explanation for the difference between book stock and the returned stock. The addition on account of suppression in the value of closing stock is worked out at Rs.2,47,72,535/-. The entire amount of Rs.2,47,72,535/- is treated as suppression of stock and is added to the total income. 14.1 On appeal, the ld. CIT(A) has observ....