TaxTMI 
TaxTMI 
2025 (12) TMI 416
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....mited company which is engaged in the business of manufacturing and sale of Indian made foreign liquor. A search u/s 132 of the Act was conducted against SNJ Group on 06.08.2019, i.e., AY 2020-21. As a sequel to this search, the business premises of one M/s. Crystal Bottles located at Coimbatore was also subjected to search. According to the Revenue, the seized material which was found in the course of search at M/s Crystal Bottles contained information relating to the assessee and it was deduced that M/s. Crystal Bottles had facilitated inflation of expenses debited by the assessee, by raising bogus invoices for supply of old empty bottles and that the payments received by M/s. Crystal Bottles against such bogus invoices was returned back to the assessee in cash after deducting their commission @ 6% on the bogus bill value. The Ld. CIT(A) had noted that, the seized material was handed over to the AO of the assessee on 18-06- 2021 and that the satisfaction note was recorded by the AO on 24-06- 2021 i.e., AY 2022-23; and on the same date, notice(s) u/s 153C of the Act was issued upon the assessee for AYs 2018-19 to 2019-20. According to the AO, ordinarily having regard to the date o....
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.... income of the appellant company for the years under consideration. 6.7.4 Therefore, the AO has rightly assumed jurisdiction u/s 153C of the Act for the years under consideration ... " 4. Thereafter, the Ld. CIT(A) proceeded to adjudicate the appeals for these AYs 2018-19 & 2019-20 on their merits. The Ld. CIT(A) was of the view that the AO's action of making addition of the entire value of purchases alleged to be bogus, was not justified. After considering the submissions of the assessee along with the gamut of given facts of the case, the Ld. CIT(A) is noted to have rejected the books of accounts by invoking provisions of Section 145(3) of the Act and estimated the overall profit of the assessee at 10% of the turnover. The Ld. CIT(A) thus partly sustained the addition made by the AO on account of bogus purchases. Consequent to the rejection of books of accounts and estimation of profits, the Ld. CIT(A) deleted all other separate disallowance(s)/ addition(s) on account of Section 14A & sales promotion expenses made by the AO. Further, in AY 2018-19, the disallowance made by the AO on account of deduction claimed u/s 80G of the Act was deleted and the claim made u/s....
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.... She also invited our attention the notice issued by the AO u/s 142(1) of the Act dated 14-01- 2023 in the course of assessment proceedings conducted u/s 153C of the Act and pointed out that, the AO had identified the specific seized material was found from the premises of M/s Crystal Bottles which contained information relating to the assessee. The Ld. CIT, DR submitted that, the AO had also elucidated in that notice, the inference which was sought to be drawn from such seized material against the assessee. She further pointed out that, later on, a search action was conducted upon the assessee on 15-06-2022 when the impugned assessment(s) were pending and that the findings / material seized in the course of direct search on the assessee corroborated the information unearthed in the course of search at M/s Crystal Bottles. According to her all these facts considered cumulatively showed that, there was sufficient seized material in possession of the AO demonstrating impact on the determination of the income of the assessee and thus the AO had validly usurped jurisdiction u/s 153C of the Act. She thus vehemently supported the Ld. CIT(A)'s order dismissing this legal plea of the a....
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....#39;satisfaction note' for AYs 2018-19 & 2019-20, it is seen that, the AO had demonstrated a linkage between the material seized from the premises of M/s Crystal Bottles with the assessee and has also set out document-wise correlation with the specific assessment year and also quantified the amount(s) believed to be escaping tax in AYs 2018-19 & 2019-20. The AO had set out the specific contents of certain loose sheets containing details of invoices vis-a-vis filling status pertaining to the old bottle purchases made by the assessee. The AO is found to have also referred to specific excel sheets, ledger etc. seized from the premises of M/s Crystal Bottles, which contained information relating to the assessee. The AO has also pointed out that, the key person of M/s Crystal Bottles in his statement recorded u/s 132(4) of the Act had admitted to bogus purchases facilitated for the assessee. We thus note that, the AO of the assessee has objectively analyze and compartmentalize the incriminating material year-wise, as received from the AO of the searched person, and arrive at a categoric determination as to the year to which the incriminating material relates and issue notices only f....
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....ted upon SNJ Group on 06-08-2019 and in connection with the same, the business premises of M/s Crystal Bottles was also searched where incriminating material relating to the assessee was seized. On analysis of the seized material found from the premises of M/s Crystal Bottles along with the statement given by the key person of M/s Crystal Bottles u/s 132(4) of the Act, it was inferred that, they had facilitated inflation of expenses of the assessee by providing bogus invoices of purchase of old bottles. Relying upon the material seized from the premises of M/s Crystal Bottles which contained information relating to the assessee, the AO had reopened the assessment(s) of the assessee u/s 153C of the Act for AYs 2018-19 & 2019-20. During the pendency of the assessment proceedings which was initiated u/s 153C of the Act, a search u/s 132 of the Act was conducted upon the assessee on 15-06-2022, in the course of which several material viz., books of accounts, documents & electronic data, loose sheets, note books etc. was found and seized. According to the AO, the seized material inter alia contained details of suppression of income by the assessee by debiting bogus purchases from severa....
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....them in lieu of bogus invoices. The AO thereafter extracted the data of old-bottle supplier-wise purchase ledgers from the SAP software along with their off-set accounts of old bottle purchases. According to the AO, these vendors were not only supplying old bottles for which genuine invoices were being raised, but these same vendors were also providing bogus invoices to facilitate inflation of expenses of the assessee. This inference was drawn from the purchase ledgers, which according to the AO, contained entries both for genuine old bottle purchases and bogus old bottle purchases. In the AO's opinion, the actual old bottles purchased were accompanied by GRNs whereas the same was lacking in old bottle purchases. The AO accordingly deduced that, in case of bogus purchases, the bills were processed without GRN entry. The AO thereafter elaborately discussed the accounting processes followed by the assessee upon purchase of old bottles with screenshots of SAP system, invoices in light of the statements obtained from the accounts & audit staff. The AO inferred that wherever the purchases invoices were bogus, there was no movement from top to bottom for accounting and payment. Accor....
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....n assessee's own case for AYs 2020-21 to 2022-23. While adjudicating the cross appeals of the assessee and Revenue in ITA Nos. 1550-1552 &1817-1819/Chny/2025 for AYs 2020-21 to 2022-23, we have sustained the Ld. CIT(A)'s order rejecting the books of accounts u/s 145(3) and the action of estimation of profits at 10%, by observing as under :- 12. Overall therefore, we are in agreement with the Ld. CIT(A) that, there are indeed discrepancies in the books of accounts as rightly highlighted by the lower authorities, but it cannot be alleged that the entire value of purchases lacking GRNs, made from these genuine suppliers were bogus. The Ld. AR for the assessee has also tacitly acknowledged before us that, there were accounting anomalies in maintaining the books of accounts, but he contended that, these accounting anomalies cannot be ipso facto assumed to be falsification of entries, which requires strict proof of mens-rea, which is absent. He pointed out that the AO in the assessment order erroneously treated these accounting deficiencies to tantamount to false entries and thereby initiated penal action u/s 271AAD of the Act. At this juncture, it is imperative for us t....
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....dergo reconditioning for reuse, involves several steps to ensure that the bottles meet industry standards for hygiene, safety, and regulatory compliance. The bottles are sorted to separate those that are still in good condition from those that are damaged and cannot be reused. The bottles undergo an inspection process to assess their condition. Bottles with cracks, chips, or other defects are discarded. Bottles that pass the inspection are cleaned and sanitized before re-use. This ensures that there are no foreign substances or contamination inside the bottles. The bottles are washed to remove any remaining liquids, labels, or external dirt. This is usually done through a mechanical washing process. The bottles are then sanitized to remove any bacteria or contaminants. This is typically done using high-pressure water, steam, or chemical sanitizers that are safe for food-grade packaging. After cleaning and sanitizing, the bottles are thoroughly dried to avoid any moisture retention that could affect the new contents. 6.2.20 In this process, there are instances where the bottles, being fragile, break, resulting in a significant reduction in the number of bottles available fo....
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....e accounting anomalies, it can be reasonable construed that the books does not reflect the true affairs of the appellant company. 6.2.22 Further, the undersigned observes that neither the Investigation Officer nor the AO has made any specific findings that the appellant company has utilised the unaccounted income generated through alleged bogus purchases of old bottles in the form of unaccounted application of such income. During the course of the search conducted in the case of the appellant company and all other connected entities including the Managing Director and other key persons who were also subjected to search, the search team quantified an approximate amount of Rs. 392 Crores as bogus purchases made by the appellant during the FY(s) 2012-13 to 2022-23. It is significant to bring on record that neither the Investigation officer nor the AO were able to identify the corresponding application of the quantified bogus purchases in the form of any unaccounted asset or unaccounted expenditure or unaccounted investments. As evident in the assessment order, the AO has treated the purchases being held as bogus and disallowed the same. As per the discussion made supra, the a....
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....e undersigned has the authority to reject these books of accounts and determine the taxable income to ascertain the true taxable income of the appellant company for the year under consideration. The undersigned, in order to set right the issues related in determination of the profit element embedded in such purchases rejects the books of accounts in accordance to section 145(3) of the Act. 6.2.26 At this juncture it is appropriate to rely upon the decisions rendered by the Hon'ble Allahabad High Court in the case of Shri Venkteshwar Sugar Mills v. CIT(A) (2012) 341 ITR 588 (All) wherein the Hon'ble High Court has concurred with the decision of the ITAT in upholding the rejection of books of account maintained by the assessee when the same are not properly maintained. The relevant para of the judgment is extracted below for ready reference: "12. For the assessment year under consideration, the assessee has shown the G.P. rate 16.20 per cent. as against 33.44 per cent. in the previous assessment year. Thus, during the assessment year under consideration, the G.P. rate was low. The Commissioner of Income-tax (Appeals) discussed the facts and circumstances per....
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....cantile. Such method has to be followed keeping in view the accounting standard notified by the Central Government from time to time. In the absence of qualitative details, it is quite difficult to examine the sales of the assessee. The higher quality of a rice can be shown as sold at a lower rate in the bills. There was flaw in the maintenance of the details. Thus, the addition of Rs. 2,00,000/- on account of sale of rice has rightly been made. 10. Thus, order dated 28-3-2013 (A-3) passed by Income-tax Appellate Tribunal, Chandigarh Bench 'F does not require any interference by this Court." 6.2.28 In addition the Hon'ble Calcutta High Court in the case of Amiya Kumar Roy v. CIT (1994) 206 ITR 306 (Cal) has held that non maintenance of stock accounts is a substantial defect justifying an inference that the accounts were maintained in a manner from which the true and correct profits were not deducible. Relevant para of the judgment is extracted below for ready reference: "We would have been impressed with the contentions if the assessee had maintained the stock book showing stock tally. In that case, the accounts being fool proof, no addition could....
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....iva Tillers Pvt Ltd had reported net profit margins in the range of 1% to 6% and the profits reported by the assessee ranged between AYs 2019-20 to 2022-23 ranged from 5.38% to 7.69%. The Ld. AR further pleaded that, there was a significant reduction in profit margins in this industry on account of the nationwide lockdown imposed during the breakout of COVID pandemic which affected both the production as well as sales reduction in the prices of IMFL (Indian Made Foreign Liquor) by the purchasing agency, TASMAC, and therefore wants us to estimate the profits at 8% of the turnover. We find that, the Ld. CIT(A) had examined the foregoing figures & data along with the contentions of the assessee and having regard to the decision of jurisdictional High Court in the case of Empee Distilleries Ltd Vs. ACIT (supra), he had estimated the profit at 10%. The relevant findings of the Ld. CIT(A) are noted to be as under :- "6.2.31 Now, after having rejected the books of accounts, the issue before the undersigned is, the next question that arise is what will be the profits that can be attributable as income of the appellant company for the purpose of taxation with respect to the disallo....
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....e assessee through its employees. However, when questioned the employees had categorically admitted before the authorities that they were forced to sign on the dotted lines and, as such, there was no proof for such huge purchase forthcoming from the assessee. The proof adduced had been rejected as stated above. The Commissioner (Appeals) had rejected the claim of wastage of 4.50 per cent as on the higher side, however, it was found with the available material that it was not possible to quantify the purchase inflation of old bottles with accurate precision and the disallowance of 10 per cent would meet the ends of justice, and granted the relief in favour of the assessee barring the 10 per cent of disallowance." 6.2.34 In the light of the decision of the jurisdictional High Court and the consistent decision taken for the earlier years by the undersigned in the appellate order(s) passed u/s 250 of the Act for the AY(s) 2017-18, 2018-19 & 2019-20, the undersigned is of the view that the disallowance to the extent of 10% would meet the ends of justice. At the outset, the profit percentage in the business of manufacturing and sale of Indian Made Foreign Liquor (IMFL) can vary ....
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....irness, is of the view that an average rate of 10% of gross turnover would be appropriate to be considered as the net profit. Accordingly, the balance that requires to be considered in the hands of the appellant company for the years under consideration are quantified as under :- Sl No. Particulars as reported u/s 139 of the Act 2020-21 2021-22 2022-23 1 Gross turnover 494,87,70,663/- 433,11,64,415/- 433,97,34,105/- 2 Gross profit reported 134,29,04,502/- 123,67,91,836/- 111,95,11,678/- 3 Net Profit reported as per books 38,04,87,732/- 32,66,93,496/- 20,09,10,922/- 4 % of net profit 7.69 7.54 4.63 5. Balance that requires to be considered 10-7.69= 2.31% 10-7.54=2.46% 10-4.63=5.37% 6. % of turnover to be considered in the hands of the appellant 2.31% of 494,87,70,663 =Rs. 11,43,16,602/- 2.46% of 433,11,64,415 =Rs. 10,65,46,645/- 5.37 % of 433,97,34,105 =Rs. 23,30,43,721/- 6.2.37 Thus, for the AY(s) 2020-21,2021-22 & 2022-23 the disallowances of expenditure to the extent of Rs. 11,43,16,602/- Rs. 10,65,46,645/- & Rs. 23,30,43,721/- only needs to considered as bogus purcha....
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....t and the income is estimated to the best of judgment as per the provisions of section 144 of the Act, the said estimate is made in substitution of the business income that is to be computed in accordance with the provisions contained in sections 30 to 43D as laid down in section 29 of the Act. Consequently, all the deductions which are referred to in sections 30 to 43D of the Act are deemed to have been taken into account while making such an estimate. Useful reference in this regard may be made to the decision of Hon'ble Andhra Pradesh High Court in the case of Indwell Constructions Vs. CIT (232 ITR 776) and Hon'ble Allahabad High Court in the case of CIT vs Banwari Lal Banshidhar (229 ITR 229). In view of the foregoing, we do not agree with this plea of the Revenue. We thus do not see any infirmity in the order of the Ld. CIT(A) in deleting these separate additions, as the total income of the assessee had been estimated upon rejection of the books of accounts. Accordingly, the grounds raised by the Revenue in this regard stands dismissed. 18. The next issue raised by the Revenue is against the deletion of disallowance of deduction claimed by the assessee u/s 80G of th....
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....ssee. We find that the impugned disallowance was solely based on the statement of Shri Augustine Paulraj. Having perused his statement, it is seen that nowhere had Shri Augustine Paulraj stated that the donation made to M/s Radiant Institute of Technology was bogus or that it was returned back in cash. Rather, it is observed that in his answers to Q Nos. 25 & 26, he had categorically stated that, the assessee had paid donation to M/s Radiant Institute of Technology by cheque and that the donation was for educational purpose under their corporate social responsibility. We thus note that, there was nothing incriminating whatsoever contained in the statement of Shri Augustine Paulraj basis which any prudent person could construe the donation made by the assessee to M/s Radiant Institute of Technology to be not genuine. In fact, we find that, his statement supports the veracity of the impugned donation. The Ld. AR further brought to our notice that, M/s Radiant Institute of Technology was approved by the competent authority at the time of the donation had been made, and they held valid registration u/s 80G of the Act. For the aforesaid reasons, we find that, the Ld. CIT(A) had rightly ....