TMI Blog2011 (11) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... oner (Appeals) in Paras-2.3.1 to 2.3.7, of the impugned order dated 29th March 2010, for assessment year 2005-06, are extracted below for ready reference:- 2.3.1 . The undisputed facts are that the appellant, a private limited company, is a retailer in artificial jewelries and accessories. Search and seizure action u/s.132(1) of the act was undertaken on 11/4/2007 at the premises of the appellant, wherein, certain materials, loose papers, documents, valuables etc. were seized. During the previous years relevant to A.Y. 2005-06 and 2006-07 the appellant had shown certain purchases from certain persons, who were available at the given address at the time of service of notices issued Ld. Assessing Officer and the appellant could not produce these parties for verification before the Ld. Assessing Officer. Consequently, Assessing Officer treated such purchases as bogus purchases and 25% of such purchases were disallowed, following the decision of Hon be ITAT Ahmedabad Bench in the case of Vijay Protines Ltd. Vs. ACIT (supra). On the other hand, it is case of the appellant that the appellant had developed bar code and computerized internal control system which recorded all the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer has accepted the aforesaid accounts while holding the grey market purchases and observing that all purchased goods are accounted for in the books and are accounted for in the books and are either sold or lying in the closing stock. Ld. Assessing Officer has not pointed out any discrepancy in the appellant s books of accounts. Ld. AR has further argued that the appellant was never provided a copy of alleged statement of Mr. K.K. Gupta. which has been heavily relied upon by the Ld. Assessing Officer. Moreover, Ld. Assessing Officer never gave any opportunity to the appellant to cross-examine the said Mr.K.K. Gupta. Therefore the statement made, if any by the said Mr. K.K Gupta has no evidentiary value and Ld. Assessing Officer has erred in law and in facts while making additions on the basis of such nonevidentiary statement. Ld. AR has also further relied an the following case laws (i) Ambeshwari Grih Nirman Sahakari Samiti Ltd. (2003) 78 TTJ 94 (Jai); (ii) Jagdamba Trading Company Vs. ITO (2007) 107 TTJ 398; (Jodhpur) 2.3.3 It is noticed that the appellant had given the working of peak investment in the grey market purchases before the Ld. Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 (Del.) had deleted the disallowance of purchases on the reasons that the assessee had regularly maintained and tax audited its books of account and no irregularity was pointed out in the assessment, thus rejection of books U/s. 145 was erroneous. It was also held that revenue had not conducted any enquiry to prove contrary that the materials were not received by the assessee. No material evidences were found nor seized during Search Seizure action. There was no material evidence brought on record by the revenue to establish that cash was received by the assessee against its cheque payment made towards purchases. The consumption of rice husk in milk processing was established by the assessee and consumption ratio was proved. Appellant s case is argued as very much similar to the said case of Milk Foods Ltd.(supra). I also find considerable force in the decisions cited by Ld. AR and as discussed in the preceding paragraphs and in his written submissions filed before me. 2.3.6 Having regard to the facts and circumstances of the case and light of the various decisions including the most recent decision of Hon ble High Court in the case of Totaram B Sharma Vs. ITO is (supra), it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. rate disclosed in the returns of income I hold that a conservative disallowance of 2% GP rate on grey market purchases would meet the ends of justice in addition to the taxation of ₹ 639,123/- for A.Y. 2005-06 and ₹ 20,71,694/- for A.Y. 2006-07 on account of peak investments in grey market purchases confirmed by me. On the other hand, Ld. Assessing Officer s disallowance @ 25% is not based on any evidence nor any documents nor any incriminating materials and such estimate is arbitrary, unreasonable and irrational and cannot be sustained in toto. Therefore, the addition made by the Ld. Assessing Officer is restricted to ₹ 6,39,123/- plus two percent of gross profit on grey market purchases as discussed above for A.Y. 2005-06. However, the same being a little more than the addition of ₹ 6,78,592/- made by the Ld. Assessing Officer, I confirm addition of ₹ 6,78,592/- in A.Y. 2005-06. However, in A.Y. 2006-07, the addition shall be reduced to ₹ 20,71,694/- plus two percent of gross profit on grey market purchases as discussed above. Ground Nos. 1 to 3 for A.Ys 2005-06 2006-07 are accordingly partly allowed. 4. For assessment years 2005-06, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Departmental Representative stated that he can do so. Reliance was placed on the judgment of Hon'ble Supreme Court in National Thermal Power Corporation v/s CIT, , [1998] 229 ITR 0383. He also relied on the judgment of Hon'ble Delhi High Court in CIT v/s La Medica, 117 Taxman 628 (Del.) and it was submitted that when the assessee fails to prove the bonafide of the seller, from whom it claimed to have purchased raw material, the question of partly allowing the expenditure does not arise. On a query from the Bench, the learned Departmental Representative submitted that the Tribunal can enhance the assessment and disallow a greater amount than what the Assessing Officer has disallowed in the assessment order and in support of this proposition, he relied on the judgment of Hon'ble Supreme Court in CIT v/s Assam Travels Shipping Services, [1993] 199 ITR 001 (SC). The Bench expressed its prima facie view that such additional grounds challenging the finding of the Assessing Officer cannot be filed by the Assessing Officer himself. Learned Departmental Representative, in response, continued his arguments on merit and submitted that 3.40% of the total purchases of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition is given by the assessee and, hence, there cannot be any dispute in the same. 8. Alternatively and without prejudice, the Assessing Officer has rightly followed the judgment of Hon ble Ahmedabad High Court in Vijay Proteins Ltd. v/s ACIT, [1996] 058 ITD 0428 (Ahd.) and the Commissioner (Appeals) has wrongly reduced the same by 2%. If the assessee was to give gain 2%, no bogus purchases need to be booked. 9. Learned Counsel, Mr. Vijay Mehta, on behalf of the assessee, submitted that the Tribunal has no power to enhance the assessment. In support of his arguments, he relied on the following case laws:- ACIT v/s Ms. Aishwarya K. Rai, [2010] 127 ITD 0204 (Mum.); ITO v/s Anant Y. Chavan, (2009) 126 TTJ 984 (Pune); Mcorp Global P. Ltd. v/s CIT, [2009] 309 ITR 0434 (SC); and Mahendra Mahendra Ltd. v/s DCIT, (2009) 313 ITR (AT) 263 (SB) 10. He submitted that the Assessing Officer has given certain factual findings and these factual findings were confirmed by the Commissioner (Appeals) and that under those circumstances, it was not open for the learned Departmental Representative to argue against these factual findings. He distinguished the judgments of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has inflated its purchases by certain percentage, the question of peak addition does not arise. That the telescoping benefit should be given to the addition sustained. That the telescoping benefit should be given of the profit assessed this year into the undisclosed investments of the subsequent year. That the telescoping should be allowed in the undisclosed stocks offered by the assessee. In support of his arguments, he relied on the following case laws:- CIT v/s K.S.M. Guruswamy Nadar Sons, [1984] 149 ITR 0127 (SC); CIT v/s Jawanal Gemaji Gandhi, [1985] 151 ITR 0353 (Bom.); and ACIT v/s Dharamdas Agarwal, [1983] 144 ITR 0143 (MP). 12. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record, as well as the case laws cited before us, we hold as follows:- 13. We first deal with the additional ground sought to be raised by the learned Departmental Representative. To recapitulate the facts, the Assessing Officer has come to a conclusion that the assessee was not able to substantiate 3.4% of purchases made. As the sales are not in dispute, and as the assessee has reconcil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, 154 and 263, etc. but all these sections have certain time-limits within which these sections can be invoked. Whether it is a rectification of a mistake, or initiation of proceedings for income escaping assessment, or even a revision proceeding everything must be completed within the prescribed time-limit. To suggest that even a proceeding before the Tribunal is a continuation of assessment proceedings and, therefore, the AO can be allowed to make up for his deficiencies will amount to rendering all these time-limits as nugatory and redundant. it is indeed not open for the Tribunal to take away the benefit given by the AO. When the AO decided to grant deduction under s. 80-113(10) in respect of residential units it was t well-considered and conscious decision on his part to have granted the benefit of deduction. With the benefit of hindsight this benefit of deduction might have been little more generous than what is found to be admissible by the Tribunal, but then the decision of the Tribunal has not yet reached finality and it is not an end of the route so far as legal developments in that regard are concerned.-It is not the scheme of the Act that entire assessment is open befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer s own finding of fact. 19. Coming to the judgment of Hon'ble Supreme Court in Assam Travels Shipping Services (supra), it has been held that the appellate ACIT was wrong in taking the view that he had no power to enhance penalty and in such circumstances, the Tribunal had the power to remand the case to the authority competent to make an order in accordance with law. This is not a case where the factual findings of the Assessing Officer are disputed by the Revenue at the stage of the Tribunal without any further material and remand sought. In our opinion, this case does not apply to the facts of the present case. 20. The Hon'ble Supreme Court in Bhavana Chemicals Ltd. (supra) was not inclined to go into the question as the matter was remanded. It held that it was not necessary to examine the question of the power of Tribunal in this matter. 21. Thus, this case does not come to the rescue of the Revenue. Under these circumstances, we reject the arguments of the Revenue that it be permitted to file additional grounds challenging the findings of the Assessing Officer and to enhance the disallowance to 100%. We consider only the grounds of appeal that are fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.8 of his order, is extracted in Para-3 above. We uphold those findings and dismiss the Revenue s appeal. 24. Coming to the decision of Ahmedabad Bench of the Tribunal in Vijay Proteins Ltd. (supra), the facts are different as that was a case of an oil mill. It was not the trading activity. In fact, it was engaged in the business of producing edible oil. The Tribunal had considered various factors such as yield of oil, etc. While coming the a conclusion that purchases of oil cake from 33 bogus suppliers should be added in full. It was a case where the assessee company had failed to prove genuineness of transactions. The facts in the present case are different and the assessee, in this case, has demonstrated that there is a one-to-one co-relation between purchases and sales. We have gone through the judgment of Hon'ble Delhi High Court in La Medica (supra). That was a case where the Assessing Officer treated the value of raw material as assessee s income. This was also a case of a manufacturer of allopathic medicines and it was not a case of a trader. The Hon ble Court held that it was not open to the Tribunal to make out a third case, which was not even the case of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances, benefit of telescoping in respect of unaccounted income earned by the appellant during A.Y. 2005- 06 and 2006-07 cannot be given against the unaccounted stock found in the subsequent previous year relevant to A.Y. 2007-08. Ld. Assessing Officer s action in rejecting the benefit of telescoping for A.Ys. 2005-06 and 2006-07 is confirmed for the aforesaid reasons. Ground No.4 is accordingly dismissed. 29. In our considered opinion, when it is the case of Revenue that certain funds were generated in a particular year by the assessee by inflation of purchases, then, the logical conclusion would be that such surplus funds were utilised for investments in stock, assets, expenditure, etc. This is the principle that was laid down by various Courts of law. We refer to the following case laws for this proposition:- CIT v/s K.S.M. Guruswamy Nadar Sons [1984] 149 ITR 0127 (Mad.); and CIT v/s Jawanal Gemaji Gandhi, [1985] 151 ITR 0353 (Bom.). 30. As this exercise has to be done afresh by the Assessing Officer, we set aside this ground to the file of Assessing Officer for adjudication afresh in accordance with law. Thus, this ground is allowed for statistical purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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