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2015 (6) TMI 676 - ITAT MUMBAI

2015 (6) TMI 676 - ITAT MUMBAI - TMI - Rejection of books of accounts - addition on undisclosed income - whether the books of account of the assessee have been rightly rejected u/s 145(3) on the ground that assessee is showing bogus sale of milk in its book in order to suppress the production and sale of various high profit margin products manufactured by it and, therefore, estimation of income is justified? - Held that:- No specific defect or discrepancy has been highlighted by the AO nor any e .....

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nts are defective or not properly maintained in this year also. The principles of res judicata will not apply in such matters. Had it been so, then in assessee’s own case, for the assessment years 2009-10 & 2010-11, the department has not only accepted the books of account and book result but also its income from sale of milk. If in the subsequent year, the factum of sale of milk have been accepted then with the same logic, the finding of the assessment year 2006-07 and 2007-08 that there is no .....

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₹ 8,30,742/-, as submitted by the CIT(A) is deleted. - Decided in favour of assessee

Addition u/s 69A - Held that:- Cash was found from the residence of the Director Jasvinder Bajaj, wherein a sum of ₹ 7,34,000/- was found and ₹ 39,500/- was found from another Director, Shri Swaranjit Bajaj. At the time of search, it was claimed that there was cash in hand in the names of various persons including that of the assessee company, which aggregated at ₹ 32,72,780/-. .....

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ces same cannot be added in the hands of the assessee company, because the amount has not been found from the premises of the assessee company but from the residence of the Directors and the family members. Accordingly, we hold that no addition on account of unexplained cash can be made in the hands of the assessee company u/s 69A of the Act and hence, addition u/s 69A is deleted - Decided in favour of assessee. - ITA No. : 7965/Mum/2010 - Dated:- 11-6-2015 - Shri Sanjay Arora and Shri Amit Shuk .....

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s. Accordingly, Ground nos. 1 & 2 are treated as dismissed as not pressed. The other effective grounds raised by the assessee are as under: 3. On the facts and in the circumstances and in law, the learned CIT(A) erred in rejecting the books of accounts u/s 145(3) of the I.T. Act, although no defects were discovered at the time of Assessment proceedings. 4. On the facts and in the circumstances and in law, the learned CIT(A) erred in confirming the addition made of ₹ 8,30,742/- as estim .....

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the issue raised in ground no. 3 & 4 are that, the assessee is a company incorporated on 31st March, 2005 with main object of carrying on the business of manufacturers and traders in all kinds of dairy/Milk products through various retail outlets and its business premises. A survey operations were conducted on 8th March, 2007 u/s 133A, on the business premises and retail outlets which was converted into search u/s 132(1) on the same date. The search and seizure operation was carried out not .....

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ddition was made on the ground that the sale of milk products have been camouflaged as sale of milk to reduce the tax liability, after rejecting the books of accounts u/s 145(3). The said Srejection of books of accounts and estimation of income has been upheld upto the stage of the Tribunal in the second appeal for aforesaid assessment years. For the impugned assessment year the proceedings u/s 143(3) was initiated as this was the year of search and, therefore, the assessment proceedings was com .....

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t the assessee was showing huge quantity of sale of milk in its books of accounts but hardly any documentary evidences were found during the search/survey in support of the sale of milk. The AO has noted down the statement of Mr. Jaswinder Singh Bajaj, of the Director of the assessee company, which was recorded u/s 131 dated 09.05.2007 at the factory premises, the relevant questions posed by him and answers given thereto by the Director reads as under: Q. No. 9: During the course of survey actio .....

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ratio of each products vis-à-vis 1 liter of milk? Ans: We make all dairy products i.e. paneer, cream, mawa, ghee, Lassi and butter milk, shrikhand etc. The yielding ratio cannot be ascertained as the clarifications of these have been stated in earlier answers. Q.No. 11: Please submit the quantitative details of purchase of milk in liter of AY 2006-07 and 2007-08 along with quantitative details of all your products in liter/kgms. Ans: I shall submit the details of purchase of milk at the .....

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buys milk and manufactures various dairy products, which are sold through these outlets, however, there is no sale of milk from these retail outlets. In response to the show cause notice that the assessee does not deal in sale of milk as found during the course of search, the assessee submitted that its main business is in milk and milk products and the information gathered by the search party was based on statement given by some of the staffs, upon which Directors have already clarified that it .....

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ilk was found during the course of survey at the company s premises or at its various outlets and also the books of accounts and vouchers were not produced before the Investigation Wing. Further, the Director in his statement recorded on 09.05.2007, himself has stated that it is difficult to maintain inward register, production/consumption register and also outward register and, therefore, his claim that complete movement of analysis of milk is attached herewith is not reliable. The assessee s c .....

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te the income of the assessee and thereby made the addition of ₹ 8,30,747/- as undisclosed income of the assessee, as per his discussion and working in Para 9 to 9.2 of the assessment order. 5. Before the CIT(A), the assessee submitted that the details of milk purchase, quantity of milk converted into various milk products and quantity of milk directly sold was duly produced during the course of assessment proceedings. The day-to-day details of milk purchase, quantity of milk product produ .....

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course of Search and Survey operation no bills vouchers etc. were found and seized to prove that the assessee is selling milk as claimed in the books as claimed in the books of accounts. The books of Accounts were also not found during the search and never produced before Investigation wing. Statement of Shri Jaswinder Singh Bajaj director of the company was also recorded who has promised to submit the statement of sale and purchase of milk and admitted that no inward register, production/consum .....

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Neither the books of account, nor bill vouchers etc. were produced to substantiate its claim that milk was sold as claimed in the books of accounts. Since the director of the company has admitted that no quantitative details have been maintained and no inward and outward registers and consumption and production register has been maintained, therefore, it was a sufficient ground before the Assessing Officer to reject the books of accounts of the Assessee . 4.10 The second issue is regarding the e .....

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he income by adopting the method of difference of gross profit between milk sale and gross profit of other milk products sold by the assessee. Therefore the addition made of ₹ 8,30,742/- is confirmed. Ground of appeal is dismissed . 6. Before us, Ld. Counsel Shri Lalkaka submitted that the entire assessment order is based on premise and ground that certain statement were given by salesmen of the assessee company during the course of survey, negating the sales of milk and relevant books and .....

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d explanations were submitted by the assessee vide reply dated 07.10.2009. Not only that, the complete movement analysis of milk was also filed during the course of assessment proceedings. Even from the statement of the employees, it does not conclusively imply that milk has not sold because the bulk of the milk is sold directly through factory. In fact, it was clarified that the sale of milk has never been denied by the Directors or the Manager Sales. It was made clear to the concerned authorit .....

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ing form pages 46 to 105 of the paper book. The said details are also duly recorded in the books of accounts, which are not only audited but were also produced before the AO. He fairly admitted that in the assessment years 2006-07 and 2007-08, the Tribunal has decided the issue of rejection of books of accounts and estimation of net profit rate against the assessee. However, the said finding will not act as a res judicata and will not be applicable in the impugned assessment year for the reason .....

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e of milk not only quantity-wise but also valuewise. Instead of examining these details or carrying out any enquiry from the customers, whose names and details were given before the AO to whom the milk was sold and payments were received through account payee cheques, he has relied upon the uncorroborated statements of the employees and that no details were produced before the authorized officers. The entire reasoning of the AO for rejecting the books of accounts cannot be sustained in this year .....

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ssues which have not been properly considered or appreciated either by the Tribunal in the earlier years nor by the AO or CIT(A) in this year. He further relied upon the decision of Full Bench of ITAT Delhi in the case of Napar Drugs (P) Ltd. vs DCIT, reported in 98 ITD 285 (Del) and 3rd Member decision in the case of ITO vs Baker Technical Services Pvt Ltd, 126 TTJ (Mum) TM 455. wherein it has been held that if the subsequent Bench of the Tribunal finds that the facts and material on record and .....

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accounts maintained and also the Stock Register for the period 1st April, 2007 to 31st March, 2008 and also for the period subsequent to the search i.e. assessment years 2009-10 & 2010-11. In response, the assessee had furnished the details of stock register as maintained in tally , which gives the details of opening balance, purchase of milk, milk processed for milk products, consumption of milk products, sale of milk and closing balance. These details have been maintained on day-to-day ba .....

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ngs and order u/s 143(3) have been passed, wherein, not only the sale of milk but also the book results shown in the regular books of accounts have been accepted. The copy of the assessment orders for the AY 2009-10 & 2010-11 was filed by him. 8. On the other hand ld. CIT DR, submitted that once the Tribunal on the same issue has decided the matter and without there being any change in the facts and circumstances, the said decision should be followed or else the matter should be referred to .....

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ll/vouchers etc. were produced before the authorized officers at the time of survey to substantiate the claim of sale of milk. Even the Director of the company, at the time of survey has admitted that no quantitative details have been maintained and no inward and outward registers and fresh register has been maintained. This finding itself is sufficient for rejecting the books of accounts and has estimated the profit. Thus, he strongly relied upon the order of the AO as well as CIT(A) and also t .....

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it and, therefore, estimation of income is justified. First of all, we have to see what are the materials before the AO and the finding given by the authorities below for rejecting the books of account. From the order of the AO it is seen that the AO has referred to a statement of one of the Directors recorded u/s 131 on 09.05.2007, wherein, he was asked, whether the assessee company is having any inward register, production/consumption register and also the outward register. In response, it has .....

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m the retail shops. From these materials, the AO had come to the conclusion that assessee has shown bogus sale of milk in its book in order to suppress the production of other milk products, which have a higher margin. He has further noted that at the time of survey/search assessee could not produce registers, books of account and details of sale of milk. 11. On the contrary, the assessee before the AO vide letter dated 16.11.2009 had stated as under: Your query regarding the statements made by .....

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urnish the details in our earlier letter dated 06.10.2009. Further, I would like to state that I myself, my brother and my wife have shown trading in milk and the income generated in trading in milk is offered in the respective return of income . Thereafter, the assessee, again, vide reply dated 07.12.2009, submitted that some of the bulk sale of milk has been done to various established parties from whom payment has been received through account payee cheques. For the relevant financial year 20 .....

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e of milk cannot be dropped out rightly and all evidences are pages from pg. no. 37 to 39 . 12. Regarding the statement of the employees, the assessee had stated that the directors have never denied that there is no sale of milk. On the contrary, it was made clear to the concerned officers that the sale or supply of milk is done in the early hours of the morning, prior to the opening of the retail shops and the boys or staff was paid the incentive directly to execute the supplies. The sales have .....

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o. 4: What is your modus operandi of working for purchase and sales of the products and maintenance of records at your sales counter? Ans: Daily morning I open the shop with the help of my attendant. From the main shop located nearby at Punjab Sind Panner Centre, 622, Durga Niwas, Khar Pali Road, Khar (W), Mumbai -52, I received on an average on daily basis 20 kgs of Paneer for my sales counter. The manager at the Durga Niwas shop delivered me Paneer with a small sheet of white paper on which th .....

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ved, cash submitted and the balance paneer submitted. I prepare this sheet on daily working basis. The shop is open for all days in a week from 8.30 a.m. to 9.30 p.m. There is only counter sales and there is no home delivery, hotel delivery . The aforesaid clarification and the statement have not been rebutted by the AO with any material facts or evidence on record and have been rejected simply on the ground that some of the employees have denied the sale. 13. From the records and the replies fi .....

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ad been duly complied with, which is evident from the statement of purchase and sales appearing in the paper book Volume-I page 46 to 105; and further the second part, regarding maintenance of various registers, the same too have been clarified by letter filed before the AO that they are not only maintained but were filed also. Further when the assessee before the AO had claimed that bulk of sale of the milk have been given to established parties and payment have been received through account pa .....

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and by the statement of some of the sales man. The finding of the CIT(A) that no documentary evidences, neither the quantitative details nor the books of account or bills or vouchers were filed before the AO appears to be incorrect and contrary to the record and submissions filed before him, which is further evident from the replies filed before the AO and also the statement of purchase and sales filed before the AO. Such a sweeping statement of CIT(A) is not only uncorroborated but also divorc .....

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ister, which has been maintained on day-to-day basis, it is seen that assessee has recorded the date-wise opening balance of the milk; purchases made during the day; milk processed for milk products i.e. in the pipelines and machines; consumption for milk products; sales of milk and closing stock. All these details have been maintained on quantitative-wise and value-wise. From the perusal of the stock register, it is seen that so far as sale of milk is concerned, the quantity of sales is quite l .....

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lk products. These purchases and sales are also corroborated by the invoices raised by the assessee. It is further seen that majority of the milk purchased are either under process or have been used for manufacture of milk products for which there is no dispute either by the AO or by the CIT(A). The only allegation of the Department is that there is no sale of milk by the assessee. Such an allegation of the AO cannot be sustained, firstly, for the reason that the sale of milk has been duly shown .....

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or recording the entire transaction. No defect in these books of accounts and record have been pointed out either by the AO or by the CIT(A). Further, from the perusal of records it is observed that in the statement recorded of Shri Swaranjit Singh Bajaj, one of the Directors of the company on 08.05.2007, the following question regarding books of account were asked for which it was categorically stated that the books accounts have been regularly maintained. The relevant statement appears in the .....

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nd also by Mr. Gupta both of whom was not present in the premises today . Q. 9 What about books of accounts of the current financial year? Ans: The books of accounts are written on monthly basis on the basis of monthly paper pertaining to purchase and sales, paper of which have been sent to Khar for being checked by Mr. Jaswinder Singh Bajaj Computerized entries are, therefore, not being seen on computer at this premises as the papers are sent to Khar. Q. 11 What are the daily reports of product .....

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larly but due to the above two reasons the accounts were not there . Further, the relevant reply of the assessee filed before the AO vide letter dated 05.11.2009, 10.11.2009, 19.11.2009 & 7th December, 2009 reiterating the maintenance of books of account and the nature of details before the AO, are also reproduced hereunder: Letter dated 5th November, 2009 please note that as per your earlier questionnaire a question was put up whether the inventories are maintained in which we had specified .....

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hecked and verified from your side and further assistance or requirements shall be submitted on hearing from you. Stock summary for the years 2005-06, 2006-07 and 2007-08 are hereby attached for your kind perusal letter dated 10th November, 2009 "Moreover, we are hereby also submitting the item wise monthly summary of sales and purchase copies for the F.Y. 2005-06 Pages Nos. 7 to 58." Letter dated 19th November, 2009 "During the proceedings you had initiated some queries regarding .....

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proceedings. Hence we request you that the same should not be considered as stock registers whereas they are stock dispatch registers, any further query shall be answered on hearing from you." Letter dated 7th December. 2009, Para B Page 62 to 65 of Paper In the financial year 2005-06 sale of milk has been executed in the name of Punjab Sweet & Farsan the amount for the same was received by cheque, which is duly reflected in the books of accounts. The complete movement analysis of milk .....

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sale is made, hence cash sale of milk cannot be dropped out rightly. In the financial year 2007-08 sale of milk has been executed in the name of Asian Chemist Prop., Godrej Natures Basket - Kandivli, Kailash Parbat, Nanda Distributors, R. K. & Shashank Dairy the amount for the same was received by cheque, which is duly reflected in the books of accounts. The complete movement analysis of milk is also attached which is evident that there are also parties to whom cash sale is made, hence cash .....

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e early hours prior to the opening of the shop and the boys or the staff was paid the incentive directly who executed the supply, and the accounts for the same was not collaborated with the sales from the outlet but directly from the source i.e. from the factory and the pattern adopted for accounting purpose is not known to s as we paid the cash directly to the factory" which may have been misinterpreted during the course of investigation. It seem that you have already come to a conclusion .....

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nd if purchase is there and sale not executed, then where has the milk gone moreover the cash found during the course has been duly explained form the books of accounts, any further clarification shall be provided on hearing from you . 14. From all these replies and details, filed before the AO and reiterated several times, goes to show that neither the AO nor the CIT(A) had examined this issue in proper perspective. Accordingly, the reasons for rejecting the books of accounts in this year, sans .....

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results and make estimation of income under best judgment assessment. Simply relying upon the statements at the time of survey and non production of registers at that time cannot be the conclusive finding of fact, albeit can be the starting point of show cause and inquiry and then onus is heavily upon the assessee to controvert such information or material. Here in this case as discussed above, assessee has been able to controvert and substantiate the claim of sale of milk. Thus, the reasons gi .....

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ittedly, this is the case where the books pertaining to the production, issuance, consumption are not maintained by the assessee. Therefore, the finding of the CIT (A) on this issue is fair and does not call for any interference. Accordingly, ground no.3 is dismissed. 13. Ground no.4 relates to merits of addition of ₹ 12,15,244/- confirmed by the CIT (A) as per the estimations discussed above. We have already extracted the finding of the AO as well as the CIT (A) in the preceding paragraph .....

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k for dairy products was not substantiated, by the fact that there is no sale of milk as evidenced by way of filing bills. The AO / CIT (A) have categorically stated that the assessee failed to submit the details in support of the sale of milk to the tune of 12,15,244/-. Thus, the said assessee s failure clubbed with the statements of the employees given on oath became relevant. The arguments relating to the retraction of the said statements by the employees are not sustainable considering the f .....

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tiple statements of the employees together with circumstantial evidences of no supporting registers showing the consumption details of milk constitutes incriminating information pertaining to the business affairs of the assessee in general and milk and dairy products in particular. Accordingly, ground no.4 raised by the assessee is dismissed . 16. The Tribunal has decided the issue against the assessee on the premise and the ground that, the books pertaining to production, issuance and consumpti .....

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to submit detail in respect of sale of milk to the tune of ₹ 12,54,254/-. Here, in this year, there is no such material that assessee has failed to submit any details in support of sale of milk. On the contrary, the assessee had stated before the AO as well as CIT(A) that bulk sale have been made through account payee cheques and secondly, day-to-day sales have been recorded, were also produced before the AO. No specific defect or discrepancy has been highlighted by the AO nor any enquiry .....

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defective or not properly maintained in this year also. The principles of res judicata will not apply in such matters. Had it been so, then in assessee s own case, for the assessment years 2009-10 & 2010-11, the department has not only accepted the books of account and book result but also its income from sale of milk. If in the subsequent year, the factum of sale of milk have been accepted then with the same logic, the finding of the assessment year 2006-07 and 2007-08 that there is no sal .....

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377; 8,30,742/-, as submitted by the CIT(A) is deleted. 18. Coming to the next issue, i.e. addition of ₹ 8,73,500/- u/s 69A, the AO had noted that, during the course of search action at the residence of the Director Jasvinder Bajaj, a cash of ₹ 8,34,000/- were found. In response to the show cause notice to reconcile the cash found with the evidence, the assessee submitted that cash balance available with the assessee group and all the family members, as per cash book was ₹ 32,6 .....

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nd in the hands of the assessee company but in the hands of the Directors at their residences and if at all, any addition was called for, the same should have been considered in the hands of the Directors and the other family members. Since the search was conducted on the entire group and all the family members of the Directors therefore, cash held by the each family member will have to be taken into consideration and no addition can be made in the hands of the company. He further submitted that .....

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ly hence we are providing you details as per the cash in hand held by each individual & the company on the date of search i.e. 8/5/07 is as under: Jasvinder Singh Bajaj, the total cash in hand was ₹ 39058/- & Swaranjit Singh Bajaj, the total cash in hand was ₹ 190460/- & Bhupender kaur Bajaj, the total cash in hand was ₹ 268095/- & Gurpreet kaur Bajaj, the total cash in hand was ₹ 246898/- & Punjab Sind dairy products pvt ltd the total in hand was S .....

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s our accounted money and same is duly reflected in the cash with them. I hereby request your good self to kindly return the cash seized, along with the interest thereon, I hope that the above explanation is best to your satisfaction . 20. He further pointed out that the books of accounts of the Director, Jasvinder Bajaj and others have been accepted, which shows the cash balance of ₹ 39,058/-, and ₹ 1,92,460/- on the date of search itself. Further in the hands of the ladies of the f .....

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