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2015 (7) TMI 1019 - ITAT PUNE

2015 (7) TMI 1019 - ITAT PUNE - TMI - Disallowance of group gratuity insurance premium u/s.40A(9) - Held that:- Tribunal in assessee’s own case for A.Y. 2007-08 and A.Y. 2008-09 decided the issue against the assessee on the ground that no such approval has been received from the CIT till date. In view of the above and following the decision of the Coordinate Bench of the Tribunal in assessee’s own case for the preceding two assessment years, the grounds raised by the assessee on this issue are d .....

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en retracted subsequently, cannot be the basis of any addition in the hands of the assessee. In this view of the matter, we hold that the CIT(A) was not justified in sustaining the addition made by the Assessing Officer amounting to ₹ 16,83,500/- on account of unaccounted cash received by the assessee from Shri Rajendra S. Raka of M/s. Rajendra Trading Company. - Decided in favour of assessee.

Disallowance on account of loss on account of forgery - Held that:- The assessee compa .....

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Not even a Police FIR has been registered by the assessee nor any criminal complaint filed against the suspect. The loss does not pertain to the impugned assessment year as the first instalment of ₹ 14,40,000/- was made through RTGS on 19-03-2009. Accordingly AO was justified in disallowing the loss claimed by the assessee u/s.37(1) as well as 36(1)(vii). The assessee could not controvert any of the observations given by the CIT(A) to substantiate the allowability of the claim. In absence .....

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wo appeals filed by the assessee are directed against the separate orders dated 20-03-2013 of the CIT(A)-I, Pune relating to Assessment Years 2009-10 and 2010-11 respectively. For the sake of convenience both the appeals were heard together and are being disposed of by this common order. ITA No.1116/PN/2013 (A.Y. 2009-10) : 2. Grounds of appeal No.1 to 1.3 by the assessee relate to the order of the CIT(A) in confirming the disallowance in respect of group gratuity insurance premium of ₹ 50 .....

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appeal the Ld.CIT(A) upheld the action of the Assessing Officer for which the assessee is in appeal before us. 4. The Ld. Counsel for the assessee at the outset referred to the decision of the Tribunal in assessee s own case for A.Y. 2007-08 and A.Y. 2008-09 vide ITA Nos. 1043 & 1044/PN/2013 order dated 25-11-2014 and submitted that the Tribunal has decided the issue against the assessee on the ground that no such approval has been received from the CIT till date. In view of the above and f .....

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is Private Limited Company. A search action u/s.132 of the I.T. Act was conducted in the Malpani group of cases on 06-10-2009. Since warrant of authorisation u/s.132(4) of the I.T. Act was executed in the case of the assessee, the Assessing Officer issued notice u/s.153A of the I.T. Act which was duly served on the assessee. In response to the same, the assessee filed the return of income on 24-06-2010 disclosing total income of ₹ 2,31,00,278/- which is same as the income returned vide ori .....

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ct in the name of Gai Chhap Jarda. For last many years he used to purchase the bags of Gai Chhap Jarda from Sargam Retails Pvt. Ltd. @ ₹ 2,350/- per bag upto 31-12-2008 and that w.e.f. 01-10-2009 he started purchasing the same bags of Gaichhap Jarda from Malpani group s sister concern M/s. Fasttrack Packers Pvt. Ltd. @ ₹ 1,850/- per bag and that as a part of the said arrangement he was returning the cash @ ₹ 500/- per bag to M/s. Fasttrack Packers Pvt. Ltd. between 01-01-2009 t .....

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; 500/- per bag for 3367 bags. The Assessing Officer therefore confronted the assessee by putting the following questions : Your attention is drawn towards the fact that during the course of search action, Shri Rajendra S. Raka (Proprietor of M/s Rajendra Trading Company, Satana, Nashik) in his statement u/s 132(4) has deposed that he has been purchasing goods directly from the assessee company M/s Fasttrack Packers Pvt. Ltd. and has been giving substantial unaccounted cash to M/s Fasttrack Pack .....

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in cash. It was stated that it is impossible for him to pay ₹ 500/- per bag by way of cash since his margin was about ₹ 500/- per bag out of which he has to incur all the expenses for selling the goods. It was argued that his premises were also covered during the course of search action and no incriminating documents showing assessee s name has been found in his premises. Even during the survey in the assessee s premises no incriminating document was found. It was stated that initial .....

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) was recorded on 06-10-2009 and he had confirmed that he has returned the total cash of ₹ 49,24,500/- to the assessee M/s. Fasttrack Packers Pvt. Ltd. which is not recorded in his books and that under the said arrangement an amount of ₹ 16,83,500/- has been returned to the assessee during A.Y. 2009-10 @ ₹ 500/- per bag for 3367 bags. The Assessing Officer therefore again confronted the assessee by issuing the final show cause notice. The assessee in response to the same submit .....

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cted from the said statement. Assessee has also submitted affidavit of Shri Raka stating that he had wrongly stated that he paid ₹ 500/- per bag unaccounted cash to the Fast Track Packers Pvt. Ltd. in the initial statement recorded u/s.132(4) on 06-10-2009. He once again confirmed that he had not paid any unaccounted cash to company. 10. However, the Assessing Officer was not satisfied with the explanation given by the assessee. Distinguishing the various decisions cited before him and rej .....

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nt and the same was admitted/accepted by key person of the group Shri. Rajesh Malpani vide his statement dated 03/12/2009 recorded on oath u/s 132(4) of the IT Act. As per this modus operandi discovered by the Department, Malpani Group used to receive unaccounted cash back from its dealers, as the dealers were under the control and influence of the group. The instant case is one such example of receipt of unaccounted cash from one of its dealer Shri Rajendra S. Raka @ ₹ 500/- per bag of Ga .....

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of Gai Chhap Jarda. 3) When confronted with the evidences gathered during the Search, Shri. Raka, dealer of M/s FastTrack Packers Pvt Ltd (a concern of Group) admitted in his sworn statement u/s 132(4), that this was H windfall gain for him in the form of enhanced profit of ₹ 500/bag of Gai Chhap Jarda, but it was a part of an arrangement between him and Malpani Group ( he being under their influence and control, being their dealer), wherein he was required to return this cash @ ₹ 50 .....

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on the part of Shri Raka, of the fact of returning of cash @ 500/bag to M/s Fasttrack Packers Pvt. Ltd., is corroborated and substantiated by a number of irrefutable evidences gathered during the search. 6) The delayed, whimsical and unsubstantiated retraction on the part of Shri. Raka, is neither corroborated or substantiated through any evidence, nor any element of coercion could be attributed/proved while recording the statement u/s. 132(4), wherein the said admission was made by Shri. Raka. .....

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was submitted that Shri Rajendra S. Raka was appointed as dealer by the assessee company from 01-01-2009. In his initial statement recorded on 06- 10-2003 he had stated that he used to pay ₹ 500/- per bag to the assessee. However, within a span of 4 days from the original statement, the assessee vide letter dated 10-10-2009 requested the Investigating Officer to give him an opportunity of being heard in order to clarify certain facts which were incorrectly stated in the original statement. .....

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the assessee obtained dealership directly from the assessee. Accordingly, he entered into a settlement with Sargam Retails Pvt. Ltd. thereby paying a total sum of (Rs.15.20 lakhs @ ₹ 95/- per bag for 16000 bags) towards compensation in respect of non compete fees. It was clarified that at the time of survey Shri Rajendra S. Raka confused the said payment to be the alleged payment to the assessee which was incorrect. Thus, from January 2009 onwards, the assessee availed the goods at discoun .....

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d by it. All the sales made by M/s. Rajendra Trading Company have been made at a price of ₹ 2,350/- per bag. The assessment order of Shri Rajendra S. Raka for A.Y. 2009-10 was also brought to the notice of the CIT(A). 14. As regards the conclusion of the Assessing Officer that apart from purchase consideration of ₹ 1,850/- per bag stated in the books of M/s. Rajendra Trading Company, M/s. Rajendra Trading Company has made unaccounted payment of ₹ 500/- per bag to the assessee i .....

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without earning any profit. The assessee submitted that there is no justification on the part of the Assessing Officer to rely on the initial statement recorded of Shri Rajendra S. Raka without appreciating the fact that the same had been retracted by him later on. The statement given u/s.132(4) by Shri Rajendra S. Raka was wrong and it was given due to misunderstanding of the questions and the panicky state of mind. The assessee further argued that despite a search conducted at the business pr .....

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a. It was argued that it is the settled proposition of law that no addition can be made on the basis of the statement of a third party and particularly when such third party has also retracted from the said statement. 15. As regards the observation of the Assessing Officer that during the course of search proceedings in the case of Malpani group, the modus operandi of the generation of unaccounted cash receipts which has been unearthed has been accepted by the Malpani group and that the assessee .....

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ed that it is not in any way related to M/s. Sargam Retails Pvt. Ltd. Finally, it was argued that the statement of Shri Rajendra S. Raka may be relevant for deciding the case of Shri Rajendra S. Raka. However, on that basis no addition should be made in the case of the assessee in the absence of any incriminating evidence found as a result of the search. It was accordingly argued that no such addition should be made in the hands of the assessee. 16. However, the CIT(A) was not satisfied with the .....

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atement that cash payments were made to the assessee @ ₹ 500/- per bag has to be accepted as true and correct statement. The main witness in this case Shri Rajendra S. Raka had not obtained any statement or affidavit from the independent witnesses present during the recording of the statement in support of the plea that the statement was obtained by coercion or intimidation. 17. As regards the submission of the assessee that Shri Rajendra S. Raka had requested the Investigating Officer wit .....

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er dated 10-10-2009 cannot be held to be a genuine letter. 18. So far as the argument of the assessee that even during the course of search action conducted at the premises of the assessee company no incriminating document has been found in respect of the alleged unaccounted receipts from Shri Rajendra S. Raka, she noted that there was a clear admission of Shri Rajendra S. Raka who was covered in survey action by the Department simultaneous to the search action of Malpani group on being shown ev .....

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d also stated that since he was the dealer of Malpani group, it was as per the direction of that group that he had to show ₹ 1,850/- as purchase cost in books and pay the difference of ₹ 500/- per bag in cash to the assessee. Thus, the assessee is not correct in stating that no incriminating evidence was found during the course of search at its premises. She noted that the survey covered the business premises of Shri Rajendra S. Raka and therefore his deposition subsequently that he .....

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Pvt. Ltd. who is the recipient. Shri Rajendra S. Raka has offered to disclose additional income on this account. She further noted that Sargam Retails Pvt. Ltd. which was the main business concern of the Malpani group has approached the Settlement Commission following the search admitting that unaccounted income had been generated through the modus operandi of cash receipts not recorded in the books of account. 19. She noted that in his statement recorded u/s.131 on 27-01-2010 Shri Rajendra S. .....

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ment of Shri Rajendra S. Raka. It is also proved from the conduct of Sargam Retails Pvt. Ltd. by their consequential act of approaching the Settlement Commission. The modus operandi of cash component of sale with purchase has been sought to be disguised subsequently as payment against target discount by the dealer Shri Rajendra S. Raka which is undoubtedly under the control and influence of the Malpani group. 20. As regards the submission of the assessee that the statement has no value in absenc .....

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a result of the search but also in respect of all matters relevant for the purpose of any investigation connected with any proceeding under the Indian Income Tax Act, 1961. She further noted that the examination of the books of account with Sargam Retails Pvt. Ltd. the assessee and Shri Rajendra S. Raka, all of whom were covered during the course of search conducted simultaneously on 06-10-2009 at their respective premises, clearly show the discrepancy between the purchase price of ₹ 2,350 .....

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be heard again. In absence of any evidence to support the same the CIT(A) held that a statement voluntarily recorded under oath cannot be allowed to be disbelieved or rejected through a mere retraction and rethinking unless evidence is brought on record that undue influence or coercion was applied at the time of recording the initial statement. Relying on various decisions the Ld.CIT(A) held that the retraction by Shri Rajendra S. Raka is not be relied upon and the totality of the facts and cir .....

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ee is in no way related to the Malpani group. The assessee is only packing the material and not the manufacturer. The search took place in the case of Shri Rajendra S. Raka on 06-10-2009. Simultaneous search also took place in the case of the assessee as well as in the case of Malpani group. The Malpani group has not stated anything against the assessee. He submitted that initially Shri Rajendra S. Raka purchased the goods from Sargam Retails Pvt. Ltd. @ ₹ 2,350/- per bag which continued u .....

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, if any, can be made in the hands of the assessee on the basis of statement recorded of a third party provided the same is clear and supported with corroborative evidence. It cannot be on the basis of a statement which lead to anarchy. He submitted that when Shri Rajendra S. Raka purchased the goods at ₹ 1,850/- per bag and sells the same at ₹ 2,350/- per bag, there is margin of only ₹ 500/- per bag. Out of the same, he has to give ₹ 95/- per bag to Sargam Retails Pvt. L .....

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ot be made on the basis of mere statement of persons in absence of any corroborative evidence. He accordingly submitted that addition made in the hands of the assessee should be deleted. 25. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). He submitted that Shri Rajendra S. Raka has retracted his statement after a gap of 4 months and therefore such retraction has no evidentiary value which is after considerable time. Again referring to the letter a .....

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as the argument of the Ld. Counsel for the assessee that assessee has got nothing to do with Malpani group, he submitted that nothing has been brought on record to substantiate that assessee is not related to the Malpani group. He submitted that the same sets of people are the Directors in both the companies. Further, when Sargam Retails Pvt. Ltd. was supplying the material at ₹ 2,350/- per bag, M/s.Fasttrack Packers Pvt. Ltd., all of a sudden started supplying the same goods at ₹ 1 .....

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Referring to the decision of the Hon ble Supreme Court in the case of Sumati Dayal reported in 214 ITR 801 and various other decisions he submitted that the order of the CIT(A) should be upheld. 27. The Ld. Counsel for the assessee in his rejoinder referring to the order of the CIT(A) from pages 11 to 15 drew the attention of the Bench to page 15 of the order and submitted that the assessee had categorically stated that the shareholders of the assessee company and that of the Malpani group are .....

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r addressed to the ADIT is unsigned and undated and therefore such retraction has no evidentiary value, he submitted that even if the assessee had not retracted, then also no addition can be made in absence of any corroborative evidence. He submitted that the theory of probability cannot be applied for making addition in the hands of the assessee that too in a search case. 28. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A .....

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made by the Assessing Officer on the ground that Shri Rajendra S. Raka in his statement u/s.132(4) had confirmed the payment of ₹ 500/-per bag to the assessee from 01-01-2009 to 06-10-2009 and the amount received by the assessee was substantiated by a number of irrefutable evidences gathered during the search. Further, the modus operandi of the Malpani group had been disclosed before the Settlement Commisison and Shri Rajendra S. Raka was under the influence and control of the Malpani grou .....

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related to the Malpani group and therefore the modus operandi of the business transaction of the Malpani group unearthed during the search on the Malpani group had no bearing on the case of the assessee. It is also the case of the Ld. Counsel for the assessee that Shri Rajendra S. Raka had retracted from his statement recorded u/s.132(4), therefore, the Assessing Officer had no reason to place reliance on the statement recorded u/s.132(4). 29. We find some force in the arguments advanced by the .....

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as under : Q.5 Please explain the reason for demanding the opportunity of bearing heard. A.5 During the course of search action at my business premises, my statement was recorded on 6-10-2009 and 7-10-2009. Subsequently, I have went through the statement as provided to me and also the seized material and my accounts. I realised that I have made mistakes in stating the correct facts as I was to answer the questions instantly without studying the accounts and seized material thoroughly. Q.6 Explai .....

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rgam Retails Pvt. Ltd., our concwern has been billed at ₹ 2350 per bag for Gai chap, Jarda. This is after deduction of ₹ 95 towards the Target Discount. As per the rules framed by the Company with effect from 01/04/2008, as we could not achieve the target and due to failure of other terms, we paid the cash of about ₹ 6.50 lacs in for the period of April 2008 to Dec., 2008 as against the Target Discount to Malpani Group from the cash collected on behalf of them on sales made thr .....

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not paid any cash to Fast Track Packers (P) Ltd. or Mr. Sachin Palod. Q.7 You have already stated in your earlier statement that you have paid ₹ 49,24,500/- to Fasttrack Packers Private Limited. A.7 Since I was little tense at the time of search, and was not in possession of the accounts and seized documents from different premises, my replies were not totally as per facts. Earlier our gross margins were about ₹ 500/- per bag out of which ₹ 95/-per bag were collected on behalf .....

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ade any cash payments to Fasttrack Packers Private Limited. 30. As regards the observation of the Ld.CIT(A) at para 6.5 of her order that evidence of Challan bearing No.242 Bundle Z-2 dated 07- 08-2009 seized from the office of the assessee at Malpani house, Sangamner evidencing payment of ₹ 12,16,387/- by M/s. Rajendra Trading Company to the assessee is concerned, we find the office address of the assessee as mentioned in the assessment order is at 48/1, Kasara Dumale, Akola Road, Sangamn .....

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group could not be controverted by the Ld. Departmental Representative. We find the assessee before the CIT(A) has categorically stated that it is in no way related to the Malpani group which is borne out from the order of the CIT(A). We find the Ld. CIT(A) at page 15 of her order has extracted the submission of the assessee and the relevant portion of the same reads as under : 5.11. Lastly, the assessee would like to submit that the learned A.O. has stressed on the fact that in the course of s .....

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ectors and shareholders of the assessee company are different. It is to be noted that directors of the assessee company are nowhere related with the partners, directors, company and partnership firms of the Malpani group. It is further clarified that the control, management and source of funds of the appellant company are totally independent. The assessee also states that it is not in any way related to M/s. Sargam Retails Pvt. Ltd. Therefore, it is submitted] that the learned A.O. is not justif .....

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ands of the assessee. 31. We further find merit in the submission of the Ld. Counsel for the assessee that when Shri Rajendra S. Raka has purchased the goods from the assessee @ ₹ 1,850/- per bag and sells the same at ₹ 2,350/- he makes profit of R.500/- only per bag, out of the same pays ₹ 95/- per bag to Sargam Retails Pvt. Ltd., as compensation and also pays income-tax on the profit. Therefore, there is no surplus to the extent of ₹ 500/- per bag to be given to the ass .....

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eceived any unaccounted cash, therefore, merely on the basis of statement given by Shri Rajendra S. Raka, which has been retracted subsequently, cannot be the basis of any addition in the hands of the assessee. In this view of the matter, we hold that the CIT(A) was not justified in sustaining the addition made by the Assessing Officer amounting to ₹ 16,83,500/- on account of unaccounted cash received by the assessee from Shri Rajendra S. Raka of M/s. Rajendra Trading Company. We according .....

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d the grounds raised by the assessee have been dismissed. Following the same ratio, the grounds raised by the assessee on this issue are dismissed. 35. Grounds of appeal No. 2 to 2.8 by the assessee relate to the order of the CIT(A) in confirming the disallowance of ₹ 36 lakhs made by the Assessing Officer on account of loss on account of forgery. 36. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings noted that Schedule 21 of the Audit .....

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iving advance is one of the objects of the assessee company the Assessing Officer held that the said loss is not an allowable expenses for the business purpose of the assessee. He therefore directed the assessee to substantiate the claim made by it. It was argued that the loss has occurred for the business purpose and therefore the same should be allowed as a deduction. The decision of Hon ble Bombay High Court in the case of CIT Vs. Sasoon J. David and Company reported in 146 ITR 390 was relied .....

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ut clearly a capital expenditure. Relying on the decision of the Hyderabad Bench of the Tribunal in the case of VST Industries Ltd. Vs. ACIT reported in 6 taxmann.com 86 where it has been held that to claim debt as bad debt and as a deduction it should be in the respect of business which is carried on by the assessee in the relevant assessment year the Assessing Officer rejected the claim of deduction of ₹ 36 lakhs treating the same as a capital loss. 38. In appeal the Ld.CIT(A) upheld the .....

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