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2016 (4) TMI 551 - ITAT DELHI

2016 (4) TMI 551 - ITAT DELHI - TMI - Purchases doubtful - Estimation of commission income @1% of total purchases - as per AO the assessee was not running regular business but only providing accommodation entries since assessee failed to substantiate sales - CIT(A) deleted the addition - Held that:- The assessee has furnished VAT return and VAT audit report. The total turnover declared before the VAT authorities are tallied with the turnover declared in the Income-tax return. The assessee has ta .....

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their WDV has gone down. The AO has computed 1% income on total purchases on estimate basis whereas the accounts of the assessee have been audited by the Chartered Accountant and submitted the tax audit report in appropriate form and the Assessing Officer has not disturbed the financial results. The sales and purchase invoices were produced before the AO, but he did not reject any single paper and accepted the same. He issued notice u/s. 133(6) to the creditors, bankers and all have responded to .....

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Accountant Member: This is an appeal filed by the Revenue against the order of ld. CIT(A)- XXVI, New Delhi dated 11.07.2011 on the following grounds : "1) On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting addition of ₹ 23,95,000/- made by AO by treating source of accretion to capital amount by Sh. A.S. Malik as unexplained cash credit relying on additional evidence not brought on record during assessment proceedings without allowing an opportunity to the .....

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assessee that alleged loans were raised from persons other than these. 2) The CIT(A) has erred in deleting the addition of ₹ 1,06,99,740/- made by AO by estimating the commission income @1% of total purchases of ₹ 1,06,99,74,009/- by establishing that the assessee was not running regular business but only providing accommodation entries since assessee failed to substantiate sales; taken together with the fact that negligible expenditure has been shown to be incurred in a business of .....

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filed his return of income on 30.09.2008 declaring income of ₹ 2,56,020/-. The case was selected for scrutiny and notice issued and served upon the assessee. The assessment was completed with addition of ₹ 1,06,99,740/- on account of commission earned on providing accommodation entries and ₹ 23,95,000/- on account of unexplained income in the form of capital introduction by partner Shri Anand Swaroop Malik. During the above assessment year, the total turnover was ₹ 106,6 .....

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5/- Kundan Mal Roop Chand Jewellers Pvt. Ltd. Rs.8,70,297/- Uni Gold Jewel Craft Rs.26,74,554/- Gollu Chain House Rs.3,96,040/- Kangan Jewellers Rs.99,010/- Others including cash sales Rs.105,94,67,328/- Purchases: S.K. Impex Rs.13,39,77,226/- Kalyan Lakshmi Overseas Rs.2,31,19,421/- N K Gold Medallion Pvt. Ltd. Rs.3,37,42,654/- Anishka Jewellers Rs.87,10,43,943/- Gagan Jewellers Rs.27,56,638/- Other including customer Rs.53,34,167/- 3. During the relevant previous year, the assessee has made to .....

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etails of the purchasers to whom the sales were made sating that the purchasers may deny the deals to cover up its own undisclosed transactions of unaccounted money. The assessee has made 99.32% of total sales in cash to about 1500 purchasers. On the basis of above, the AO concluded that the assessee is engaged in providing accommodation entries and added 1% as commission amounting to ₹ 1,06,99,740/- on total purchases made. 4. Further, the Assessing Officer found that one of the partners .....

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ations have not been received from M/s PRJ Automobiles Pvt. Ltd. and M/s BNT Associates Ltd. directly. The notice u/s 133(6) issued to M/s BNT Associates Ltd. has received back unserved with the comments "no such company at such address". However, as per explanation of entries of saving account of Sh. A. S. Malik with India Overseas Bank submitted by the AR of the assessee, Sh. Malik received ₹ 7,00,000/- + ₹ 7,00,000 from PRJ and ₹ 7,00,000/- from BNT out of which &# .....

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iven. Hence, the source of addition to capital by Sh. A. S. Malik and utilization of capital were held to be doubtful. However, considering the details and explanation given by the AR of the assessee, an amount of ₹ 12,05,000/- (Rs.5000 + ₹ 7,00,000 + ₹ 5,00,000) which remained with the assessee out of the loans received by the partner, was treated as capital introduction by Sh. A. K.. Malik and the remaining amount of ₹ 23,95,000/- (Rs.36,00,000 - ₹ 12,05,000) was .....

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Revenue has preferred this appeal before the Tribunal. 6. The learned DR relied on the order of the AO and the contentions raised by the Revenue in the grounds of appeal. He submitted that the AO has passed a reasoned order and the same does not require any interference. 7. The present case lastly came up for hearing before the Bench on 08.10.2015. On the request of DR, the case was adjourned for 14.01.2016 in the presence of both the parties. On the date of hearing, neither the assessee nor its .....

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e, the relevant paras of the impugned order are reproduced as under : 8.1. It is observed that the Assessing Officer has added part of the capital introduced by the partner, Sh. A.S, Malik, by treating it as unexplained income of the firm routed through its partner, on the ground that the assessee could not satisfactorily explain the sources of entries in the bank account of the partner. This, however, cannot be taken as a ground for making such addition in the hands of the firm in the absence o .....

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pellant firm was also duly submitted. c) The AO asked for details of following credit entries, which were duly submitted by the appellant: Amount Date Instrument No. Name of Person from whom received Remarks 700000/- 28.04.2007 83888 PRJ Automobiles P. Ltd. PAN:AAACP8091K Bank statement and confirmation were placed on record. 700000/- 30.04.2007 482364 BNT Associates Ltd. PAN:AABCB1103F Bank statement and confirmation were placed on record. 700000/- 30.04.2007 438726 Kunth Properties P. Ltd. PAN .....

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ts sources (of the partner) are as given below: f) The appellant has explained its source of capital which, in any case, the AO had never held in doubt, i.e., the amount introduced in the appellant firm is from the partner's bank account Further, the source of the source, though not required by law, is also proved as brought out above. g) All the payments were received through a/c payee crossed cheques through proper banking channels and are duly accounted for in the books of account, which .....

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ble them to advance the money. 8.3. The Ld. Counsel has also placed reliance on the following case laws which are found to be well in support of his case: • In CIT vs. Taj Borewells (2007) 291 ITR 232 (Mad), it was held: "The assessee firm had explained the source of the capital and hence the same cannot be assessed as undisclosed income in the hands of the firm. If the AO doubted the genuineness of the source of the partners, he should have considered the same in the hands of the part .....

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imself and not of any other assessee. Addition in respect of cash credit found in the books of partnership firm in which assessee was a partner, cannot be made in the assessee's hands." • In CIT vs. Value Capital Services Pvt. Ltd. (2008) 307 ITR 334(Del), the Hon'ble High Court of Delhi has held that: "There was an additional burden cast on the revenue to prove that the investment made by the applicant actually emanated from the coffers of the assessee so as to enable it .....

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s above. The addition of ₹ 23,95, OOO/- made on this count is, accordingly, hereby deleted. 9. After going through the aforesaid facts and findings on the issue in dispute, the ld. First appellate authority has passed the well reasoned order on the basis of documentary evidence and as per law. The appellant has filed paper book on 11.03.2013 containing pages 1 to 163. He placed reliance on the following case laws : (i). CIT vs. Taj Borewells (2007) 291 ITR 232 (Mad), (ii).CIT vs. Metachem .....

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the partners and not in the hands of the assessee firm. Therefore, there is no question of additional evidence. Therefore, no interference is called for in the well reasoned order passed by the CIT(A). We uphold the impugned order on the issue involved in ground No. 1. 11. On ground No. 2, the ld. DR relied upon the order of the AO and submitted that the AO has passed the reasoned order, which needs no interference and the ld. CIT(A) has erred in deleting the addition of ₹ 1,06,99,740/- ma .....

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rried out by the assessee. 12. We have heard the ld. DR and perused the orders passed by the authorities below and we are of the view that the ld. CIT(A) has adjudicated and decided the issue involved in ground No. 2 from para No. 7.1 to 7.5 from page No. 18 to 29 of the impugned order. For sake of convenience, relevant paras of the impugned order are reproduced as under : 7.1. It is observed that the Assessing Officer has made the addition @ 1% of the total purchases made by the assessee by ass .....

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t the AO cannot proceed to make an arbitrary addition and base his conclusion purely on conjecture and surmises. It is also observed that the Assessing Officer has no evidence or material whatsoever on record to support any such theory. 7.2. It has been submitted by the Ld. Counsel in this regard that the facts of the case are that the appellant is a partnership firm conducting the business of trading in gold bullion having its principal place of business at 161, Gaffar market, Karol Bagh, New D .....

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the books of account are sham, as the sales have been made in cash, cash has been deposited in bank before making payment for purchases by cheque, and no expenditure has been claimed on advertisement, security guard etc. Holding, without any basis or material, that the appellant is conducting the business of giving bogus accommodation entries and allegedly earning a commission of 2% of the amount thereof, but keeping in view the possible expenses, estimated the commission @ 1% on total purchase .....

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n Jewellers but no labour charges were shown in P & L A/c. It is pertinent to note that the appellant's trading consists of gold bullion which forms nearly 98% of his total turnover. From Gagan Jewellers too, there was trading in gold of more than 60%; and in gold trading there is no question of any labour charges. In jewellery trading, all sales/purchases are inclusive of labour charges, hence there is no question of any disclosure of labour charges separately in the Profit & Loss A .....

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the details of such customer. Whenever a customer goes for buying any article from any retail or wholesale shop, store or mall, the owner gives him the desired product on receipt of cash. If the shopkeeper wants to have details of the customers to whom he makes cash sales, it would not be feasible at all. In the appellant's case too, majority of sales is in cash, and in cash sales, the identity of the customer cannot be known to the appellant, as the goods are delivered on receipt of cash. I .....

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which he never doubted. The appellant has banker's cash credit limit of more than ₹ 5 Crore and bank officials visit the premises of the appellant's premises on regular basis for inspection etc. and the stocks are also hypothecated to the bankers. Regular sales statements are verified by the bankers to enable the CC limits. VAT returns evidencing the sales were produced before the Ld. AO and required VAT was duly paid by the appellant on regular basis, which the AO never held in d .....

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eturns. The banks, VAT authorities, insurance companies, etc. all dealing with the appellant have found them genuine for the last more than 30 years. The very basis of the Ld. AO that non-availability of details of customers to whom cash sales is made, makes the sales non-genuine is totally baseless and without any logic. Purchases are doubtful. The Ld. AO stated that sales are doubtful as purchases itself are doubtful. Details of purchases asked by the AO (party-wise above ₹ 25 lakh) were .....

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agan Jewellers 11/2426, Beadon Pura, Karol Bagh, New Delhi 110005 27,56,638/- 6 Others (below ₹ 25 lakh each) 53,34,167/- Total 106,99,74,049/- The following facts prove beyond doubt that the appellant has made purchases, which are all genuine: The firm is established since more than last 30 years and doing the same business since inception. The details of purchases made (party-wise) were filed with the Ld. AO as above, which he never doubted and even sent enquiries u/s 133(6) to all and m .....

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und. All payments were made by A/c payee cheques to the creditors from whom purchases were made, which the AO has taken on record. Major purchases of ₹ 87 Crore approx. were made from M/s Anishka Jewellers, Prop. Pankaj Malik, (a related concern), as they are registered with MMTC Ltd. for purchase of bullion. In fact, most of the payment was made to MMTC by the appellant itself. The Ld. AO has stated that .purchase from MMTC (a government concern) made through a/c payee cheques is bogus, w .....

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O has also stated that though appellant made cash sales of ₹ 105 Crore, but Anishka Jewellers has made cash sales of only 15.75 Crore out of total sale of ₹ 128 Crore. It may be noted that Anishka Jewellers has made sales of ₹ 87 Crore approx. to the appellant itself which was not in cash. The Ld. AO has also stated that the notice was returned unserved in the case of M/s Kalyan Laxmi Overseas. To the appellant's knowledge, the Ld. AO had made enquiries from the appellant&# .....

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registered with MMTC Ltd., a government undertaking under OGL Gold scheme. All payments on account of M/s Kalyan Laxmi Overseas were made to MMTC Ltd. directly. M/s Kalyan Laxmi Overseas was registered with VAT authorities. Copy of its VAT registration is enclosed to substantiate the same. Ledger A/c of M/s Kalyan Laxmi Overseas is enclosed, which was duly settled during the year. It has, thus, been submitted that considering all the above submissions and especially as all the parties have conf .....

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spector is correct that there was no business activity at the 1st Floor, as the business activities of the appellant are not at 1st floor but are at the 2nd floor. Hence, the total report of the inspector is factually wrong as he did not visit the premises of the appellant at all and gave a wrong report. Recently taken photographs of the premises of the appellant are enclosed to substantiate that business is being carried at second floor. Photographs of the related concern (M/s Anishka Jewellers .....

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could not see it? VAT audit was conducted by the VAT department at the appellant's premises and they found the business done, but the inspector could not as he had visited the wrong premises. The appellant is a member of Karol Bagh Jewellers' Association and the certificate stating the same is placed on the wall of the premises of the appellant, which the inspector did not observe. Copy of the certificate regarding same is enclosed. The inspector stated that he did not find the stock on .....

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tor cannot be relied upon at all as he visited the wrong premises and all his observations are based on the wrong premises. Deposit in cash before issue of cheque. The Id. AO has stated that the appellant has deposited cash before issue of cheque for purchases. It is to be noted that the appellant's major sales are in cash and the sale proceeds are being regularly deposited in bank. When sale is in cash, then cash would naturally be deposited in the bank to clear the dues and to pay for purc .....

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government undertaking, under OGL Gold scheme. The appellant is not registered with MMTC Ltd. under OGL Gold scheme and it purchases gold from MMTC Ltd. through M/s Anishka Jewellers. As M/s Anishka Jewellers made certain purchases on behalf of the appellant from MMTC Ltd., it requested the appellant to make the payment for the same directly to MMTC, which the appellant did. In fact, most of the payments were made by the appellant directly to MMTC for purchase of gold. The payments have invaria .....

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the purchases from M/s Anishka Jewellers are genuine. Expenses to run the business. The Ld. AO is of the opinion that the appellant did not incur certain essential expenses to run the business, hence the firm is bogus. The appellant's submissions in this regard are as below: Furniture & fixture and its maintenance - The AO has stated that value of furniture and its maintenance cost is very low. It is submitted that the appellant firm is very old and operating from this premises since 19 .....

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he appellant's more than 98% trading is in bullion for which advertisement is not required. The appellant knows how to conduct his business and has been doing so successfully since years. Hence, the AO's observation is not correct. Expenses on security guard - The AO has stated that there are no expenses on security guard. The AO never asked all these questions to the appellant otherwise the appellant would have surely replied. The partner of the appellant firm has three valid weapon lic .....

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ds? The employees responded in a simplistic manner by writing on a plain paper and delivering the same personally to the AO's office. What else did the Ld. AO expect is not understandable. Computing income on estimate basis. The Ld. AO has, thus, computed the income of the appellant on estimate basis without considering the following facts: The accounts of the appellant are duly audited by a chartered accountant, to which the AO never objected or held in doubt. Books of account and sales inv .....

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submitted that the Ld. AO relied on the inspector's report which was factually incorrect as he had visited wrong premises, as brought out earlier. Further, the Ld. AO has not even mentioned any provision of law under which the income was estimated by him. The Ld. AO estimated income at 1% of the purchases/ though almost all purchases were made by a/c payee cheques and virtually all of them have confirmed their transactions with the appellant, and major payments were made to MMTC Ltd., a gove .....

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d in law. 7.5. In view of the above discussion, it is hereby held that the Assessing Officer was not justified in making addition as above. The addition of ₹ 1/06,99,7407- made on this count is, accordingly, hereby deleted. The Assessing Officer is, accordingly, hereby directed to take the appellant's income from business at ₹ 2,56,020/- as declared in its return of income. 13. After going through the aforesaid facts and findings on the issue in dispute, the ld. First appellate a .....

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