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2015 (12) TMI 1182 - DELHI HIGH COURT

2015 (12) TMI 1182 - DELHI HIGH COURT - TMI - Addition of 25% undisclosed sales - Held that:- Revenue, has produced a chart to show the difference between the figures of sales as per the AISR and the figures of sales given in the return of income. The difference is 15 to 20%. The Court is unable to accept the rough and ready method of determination of the percentage of the difference in the two sales figures. The exercise must be done at the micro level. Individual invoices have to be examined t .....

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es was rightly deleted. - Decided in favour of the Assessee and against the Revenue.

Commodities speculation - ITAT deleted the addition - Held that:- It is not understood why the AO undertook this exercise to arrive at a notional figure. On the other hand, in the impugned order of the ITAT, it has been noted that the Assessee announced several schemes, one of which was distribution of gold chains on the birthday of Mr. Dharam Pal Gulati, to the dealers who achieved certain targets. T .....

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e been brought on record since the statements made had been retracted. As rightly pointed out by the ITAT, the conclusion of the AO that the Assessee was engaged in the speculative business in agricultural commodities and gold was based on surmises and not on the basis of any credible evidence. The Court therefore holds that the deletion by the ITAT of the addition on the ground of speculative trading was for cogent and valid reasons. - Decided in favour of the Assessee and against the Revenue. .....

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engaged in the procurement of haldi and chillies. Further Mr. Rakesh Gupta, learned counsel for the Assessee informs that Mr. Trehan has paid the tax along with the interest in terms of the order of assessment of his return which has attained finality. - Decided in favour of the Assessee and against the Revenue.

Disallowance of advertisement expenditure - ITAT deleted the additionHeld that:- MDH deals primarily in household products. The contention of MDH that Mr. Dharam Pal Gulati .....

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see and against the Revenue.

Addition under the head “Income Expenditure Investments” - Held that:- The revenue frankly states that he has been unable to ascertain how the said question arises in the concerned AYs. It may also be noticed that certain amounts attributed to the Assessee have in fact been brought to tax in the hands of Mr. Trehan and therefore, their addition in the hands of the Assessee was not justified.- Decided in favour of the Assessee and against the Revenue.

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on 28th November 2006 itself. The ITAT also referred to the CBDT Instruction dated 10th March 2003 in this regarding making it mandatory that in the absence of discrepancy in the search inventory of the stock, no addition can be made. In the circumstances, the Court holds that the ITAT was justified in holding that the AO should have brought material in the form of inventory on record, if he wanted to make an addition of ₹ 11 crores. The ITAT, therefore, rightly deleted the said addition. .....

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Section 260A of the Income Tax Act, 1961 (Act) are by the Revenue and pertain to the Assessment Years ( AYs ) 2001-02 to 2007-08. The Assessee is Mahashian Di Hatti Ltd. ( MDH ) The impugned orders of the Income Tax Appellate Tribunal ( ITAT ) challenged in the these appeals are (i) the Order dated 29th October 2010 for AYs 2001-02 to 2004-05 and (ii) the Order dated 17th August 2012 for AYs 2005-06 to 2007-08. 2. At the time of admission of these appeals on 27th January 2015, the following ques .....

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usion with respect to disallowance of advertisement expenditure? 3. Additionally in ITA Nos. 83 of 2013, 91 of 2013 and 211 of 2013, the following three further questions were framed: 5. Did the ITAT err in directing deletion of amounts added on account of unproved transactions, made by the AO, on the basis of seized material? 6. Did the ITAT fall into error in directing the deletion of amounts added as income by the AO under the head of 'Income Expenditure Investments' and the amounts r .....

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search and seizure operation was undertaken of the MDH group on 22nd November 2006 under Section 132 of the Act. The search took place in the business premises of the MDH at Kirti Nagar in Delhi as well as its factory in Gurgaon. The search also simultaneously took place in the premises of Mr. Rajiv Gulati, Director of MDH at Vasant Vihar, New Delhi, the premises of Mr. Prem Arora, who was the main broker of MDH and Mata Chanan Devi Hospital which was being looked after by Mr. Sushil Kumar Treha .....

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es of Mr. Prem Arora. Some papers from the premises of Super Delicacy containing hand-written entries, a bunch of loose papers serially numbered regarding sales of Financial Year 2000-01 to 2004-05 titled as All India Sales Report of MDH ( AISR ), and certain papers pertaining to Gold Ornaments A/c of MDH were also seized. The statements made during the search were subsequently retracted. 6. The Assessing Officer ( AO ) in the assessment order dated on 31st December 2008 for AY 2001-02 to 2004-0 .....

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h September 2010 by the AO in respect of the AYs 2005-06, 2006-07 and 2007-08. Apart from the above additions, certain other additions were made on account of unproved transactions of MDH viz., unexplained entries, unexplained payments/balance, investment in the construction of a school building at Vyadgi in Karnataka, speculation in gold and the additions on account of the arms length price. 7. Against the aforementioned assessment order dated 31st December 2008, the Assessee appealed before th .....

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T. However, as regards the deletion of the addition on account the unaccounted purchases, no appeal was filed. 8. By a common order dated 29th October 2010 both the Assessee s and the Revenue's appeals for AYs 2001-02 to 2004-05 were disposed of by the ITAT. 9. As regards the order of the AO for AYs 2005-06, 2006-07 and 2007-08, the matter was carried by the Assessee before the Dispute Resolution Panel ( DRP ). Thereafter, the appeals were filed by the Assessee before the ITAT which were dis .....

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2001-02 to 2004-05, there was no difference between the figures reported in the monthly income sales ( MIS ) report and the sales as per the books of accounts. Further it was noticed that the Assessee has been following this accounting policy consistently. It was noticed that trade discounts were being allowed at a regional level all over the country and only the net amount of sales was taken to the Assessee s books of accounts. The Assessee was also allowing 2% discount on cash payments. These .....

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SR and the figures of sales given in the return of income. The difference is 15 to 20%. The Court is unable to accept the rough and ready method of determination of the percentage of the difference in the two sales figures. The exercise must be done at the micro level. Individual invoices have to be examined to see what the actual discounts allowed for the transactions were. This appears to be the exercise undertaken by the ITAT before it came to the conclusion that there was no difference betwe .....

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s speculation Mr. Madan referred to the order of the AO which has extensively set out the statements made by Mr. Rajiv Gulati, Mr. Dharam Pal Gulati, Mr. Sushil Kumar Trehan and Mr. Prem Arora. In particular, reference is made to the statement of Mr. Rajiv Gulati, where he is supposed to have admitted to the Assessee having engaged in speculative trading. There is also a reference to the speculative trading in gold. Mr. Madan further relied on the decision of the Allahabad High Court in Dr. S.C. .....

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Tax (supra) dealt with a situation where statements were made during the course of a survey under Section 133A of the Act. The probative value of the statement made before the Court under Section 132 (4) and the effect of its retraction stands on a different footing. As noted by the Gujarat High Court in Kailash Ben Manhar Lal Chokshi v. CIT (supra) what requires to be looked into is the explanation offered by the Assessee after retracting his statement. If credible evidence is produced which c .....

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r that the Assessee was engaged in speculative trading . In fact for arriving at a figure of so called speculative purchase , the AO took the alleged amount surrendered by the Assessee by multiplied it by the ratio of the sales turnover during the AY in question and the sales turnover for the year of search. It is not understood why the AO undertook this exercise to arrive at a notional figure. On the other hand, in the impugned order of the ITAT, it has been noted that the Assessee announced se .....

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ut that if the Revenue wanted to rely on the surrender of certain amount made by the Directors after the search, the necessary evidence should have been brought on record since the statements made had been retracted. As rightly pointed out by the ITAT, the conclusion of the AO that the Assessee was engaged in the speculative business in agricultural commodities and gold was based on surmises and not on the basis of any credible evidence. The Court therefore holds that the deletion by the ITAT of .....

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o the statement recorded of Mr. Sushil Kumar Trehan who is supposed to have effected sales and purchases without delivery. The AO held that the income so generated through speculative activity in commodities is not reflected in the books of accounts of MDH Ltd. The CIT (A) concurred with the AO and affirmed the addition. 16. However, the ITAT has reversed the finding and deleted the addition after noticing that the additions had been made in this regard in the hands of Mr. Sushil Kumar Trehan. F .....

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n, they could not be again taxed in the hands of Assessee by way of disallowance of the expenditure. 17. The Court is unable to find any error in the approach of the ITAT in the matter. Indeed if the amount has already been taxed at the hands of Mr. Sushil Kumar Trehan it is not understood how it could be brought to tax again in the hands of the Assessee by disallowance of the expenditure. Moreover the papers on the basis of which addition was made were found in the office of Mr. Sushil Kumar Tr .....

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that the Assessee had been unable to prove that it was towards the promotion of the products in the market place and that it was allowable as a legitimate business deduction. The AO disallowed 20% of the total expenditure in each year since according to the AO, expenditure was incurred to promote Mahashaya Dharam Pal Gulati, the CMD of MDH. 19. MDH deals primarily in household products. The contention of MDH that Mr. Dharam Pal Gulati is a pioneer of packaged spices in India and has built the b .....

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the additional three questions framed in ITA Nos. 93 of 2013, 91 of 2013 and 211 of 2013, Question No. 5 is of a general nature. Question No. 6 concerns an amount added under the head Income Expenditure Investments but counsel for the revenue frankly states that he has been unable to ascertain how the said question arises in the concerned AYs. It may also be noticed that certain amounts attributed to the Assessee have in fact been brought to tax in the hands of Mr. Trehan and therefore, their ad .....

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