TMI Blog2014 (11) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... t be treated as unexplained in the hands of the assessee - since after filing of the primary evidence like confirmation of the share applicant, his PAN, bank statement of the firm under the proprietorship of the share applicant which remain the source of the investment in question, etc. the onus was shifted upon the AO to establish that after verification the confirmation and other documents were not found reliable - the AO was not justified in holding that the evidence filed in support by the assessee was not sufficient to establish the genuineness of the claim – the order of the CIT(A) is upheld – Decided against revenue. Transactions in fabric business are sham transactions or not – Held that:- CIT (A) has rightly appreciated the contention of the assessee that the AO was not justified in assessing the income represented by the cash deposits in the account of third party as undisclosed income in the hands of the assessee u/s 68 of the Act - What is taxable under the Income Tax Act, is income which has on its own been disclosed by the assessee - nothing prevents the assessee from venturing into new line of business if it results in earning of the profits - The purchaser and se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not mean that it must necessarily lead to additions to the sustained income – Decided against revenue - ITA No. 2172/DEL/2009, ITA No. 2861/DEL/2009 - - - Dated:- 14-3-2014 - SHRI I. C. SUDHIR, AND SHRI T. S. KAPOOR, JJ. For The Appellant :Shri Salil Agarwal Shri Selesh Gupta, Advocate For The Respondent :Ms. Meenakshi Vohra, DR ORDER PER I. C. SUDHIR, JUDICIAL MEMBER: ITA No.2861/Del/2009(Revenue s) In the appeal preferred by the revenue the first appellate order has been questioned on following grounds:- 1. The Ld. CIT(A) erred in law in deleting the addition of ₹ 3,50,000/- made u/s 68 with respect to the money claimed to have been received as towards share application without appreciating the facts and the circumstances of the case in the right perspective. 2. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition of ₹ 1,01,90,000/- made u/s 68 on account of transactions in fabric business established as sham transactions by the assessing officer. 3. The Ld. CIT(A) further erred in deleting the addition of ₹ 53,77,921/- made by adopting the average of the preceding two years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication for allotment of shares nor the shares were allotted by the assessee to the applicant. Despite opportunity the return of income for the assessment year 2005-06 of the applicant was not filed. The assessee also failed to explain the source of investment. The AO was thus justified in making the addition of ₹ 3,50,000/- u/s 68 of the Act in respect of the money claimed to have been received towards share application. The Ld. CIT(A) without appreciating the facts of the case in right prospective has deleted the addition. 5. Submission of the Ld. AR on the other hand remained that nowhere it is the allegation of the AO that the amount in question was accommodation entry. The assessee had filed sufficient evidence in support of the claimed investment like confirmation of the share application of Shri Rohit Kumar Gogia proprietor M/s R.K. Engineers, his PAN, his returns of income for the assessment years 2004-05, 2006-07, statement of banking account of M/s. R.K. Engineers and thereby the assessee had discharged its primary onus to establish the claim. He submitted that it is not relevant as to whether shares were allotted to the applicant or not. He submitted that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/- to listed concern. The Ld. CIT(A) has however deleted the addition in question placing reliance on several decisions including decision of Hon ble Supreme Court in the case of Lovely Export Pvt. Ltd. (supra) with this finding that the assessee company had filed confirmation of Shri R.K. Gogia proprietor R K Engineers, copy of return of income filed by him for the assessment year 2004-05 and asstt. Year 2006-07, copy of the bank statement of Allahabad Bank from where share application money was given to the assessee company by way of cheque to prove the genuineness of the transaction and in case AO was having any doubt he could have summoned the applicant to verify the genuineness of the claimed share application money. He has noted further that simply because the assessee could not file the copy of the return of income for the asstt. Year 2005-06 of the investor, the transaction cannot be treated as unexplained in the hands of the assessee. As per him it is not the duty of the assessee to ask the investor, whether he had filed the return of income for a particular year or not. Once the confirmation and PAN of the share applicant is filed by the assessee, the onus cast upon hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of the claimed transaction and made addition of ₹ 1,01,90,000/- u/s 68 of the Act on account of cash deposit made in the accounts of the parties from whom the assessee had shown purchase and sale of fabrics. The Ld. CIT(A) has deleted this addition on the basis that the assessee company had provided various supporting evidence to prove the identity of the parties and genuineness of the transaction, in the form of copy of sale and purchase bills as well as confirmation from the said purchaser and seller and making other observations. This action of the Ld. CIT(A) has been questioned before us. 8. In support of the ground Ld. DR has basically tried to justify the assessment Order on the issue. He submitted that while giving relief to the assessee on the claimed sham transaction, the Ld. CIT(A) has failed to appreciate that the concern parties were not found on the given address. Besides, the Ld. CIT(A) has also failed to appreciate the surrounding circumstances as observed by the AO. He has also not given any finding especially on the circular trading among the seller and purchaser i.e M/s. Hanung Quality Products Pvt. Ltd. and M/s Ocean Overseas. 9. The Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eby the payment received and paid by the assessee were duly found recorded. Considering these factual aspects, we are of the view that the Ld. CIT (A) has rightly held that the assessee had discharged its initial onus of establishing bonafide of the transaction of sale and purchase of fabrics by furnishing above stated evidence and declaring substantial profits thereon and, thereafter, the onus was shifted on Assessing Officer to dislodge those evidence. In the absence of such action on the part of the Assessing Officer in our view it was not justified by him to hold the amount deposited in the bank account of the seller as well as purchaser as assessee s own undisclosed income. 11. The Ld. CIT (A) was thus right in deleting the addition in question. The finding of the Ld. CIT (A) in this regard is thus upheld. The ground no.2 is accordingly recorded. Ground No.3 (Revenue) and Ground No. 1,1.1 to 1.4. (assessee) 12. In its ground no.3 Revenue has questioned the first appellate order in deleting the addition of ₹ 53,77,921/- made by adopting the average of the preceding two years G.P of 3.48 % after rejecting the books of account of the assessee on account of low G. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he placed reliance on the following decisions (i) McDowell Co. Ltd. vs. CTO 154 ITR 148 (SC) (ii) UOI vs. Azadi Bachao Andolan 263 ITR 706(SC). 16. The Ld. AR on the other hand submitted that while estimating the profit. The Assessing Officer has excluded transaction of fabrics and there was no basis for Ld. CIT (A) to apply G. P. rate at 1.5% in this regard he cited the decision of Hon ble Supreme Court in the case of CIT vs. Padamchand Ramgopal reported in 76 ITR 719 (Sc). He further submitted that it is an established proposition of law that even if books of account are rejected it is not necessary to make trading addition and placed reliance on the decision of Hon ble Rajasthan High Court in the case of CIT vs. Gotan Lime Khanij Udhyog (2002) 256 ITR 243 (Raj.). He submitted that the primary allegation of the Assessing Officer that the assessee had sold sister concern at lower price is not correct, since he has considered the sales of only one and half months out of the total sales made. In this regard he referred page no.11 of the assessment order. He referred page nos.67 and 84 of the paper book. At page no.67 of the paper book, the assessee has made availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er remained that during the year though there was rejection in excise duty from 16% to 8% on raw material, but the benefit of the same was not passed on by the suppliers as a result of which the assessee had to pay excise duty to the extent of ₹ 39 lac out of P L account, instead of adjusting against Mod vat, thereby affecting the trading results as against the payment of excise duty ₹ 0.08 lac during the immediately preceding year. In spite of adverse condition the assessee could not stop its manufacturing activity, as the same would have resulted in deterioration in the plant and machinery and also withdrawal of sales tax exemption and other expected state incentives, which were available to the backward areas of Punjab, if the assessee has stopped its manufacturing activity, it would have suffered loss of fixed expenses/ overheads and also have loss of services of continuing loyal employees. Against the observation of the Assessing Officer that trading the results were manipulated to avoid excise duty and sales tax payments, it was submitted by the assessee that its unit was exempt under sales tax law, during the year under consideration. It was stated that there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no dispute that payment of excise duty of ₹ 39lac included in the sales price will only for marginal impact on the operational results of the assessee, which will not bring down the gross profit to such an extent and that there were mismatch in the assessees monthly production figure and corresponding production expenses. 19. We are of the view that the Ld. CIT (A) rightly upheld the action of the Assessing Officer in rejecting the books of account u/s 145(3). But merely because books of account were rejected the action of the authorities below in estimating the profit by adopting a particular GP rate without assigning any reason in support resulting into the trading addition cannot be justified. The addition made by the Assessing Officer at ₹ 53,77,921/- and sustained by the Ld. CIT (A) at ₹ 35,02,280/- on account of trading addition applying an estimated gross profit rate without assigning the very basis, thus cannot be justified. In this regard, we find support from the decision of the Hon ble Rajasthan High Court in the case of CIT vs. Gotan Lime Khanij Udhyog (supra, wherein the Hon ble High Court has been pleased to hold that Section 145 of the I.T. Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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