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2016 (9) TMI 1144 - ITAT DELHI

2016 (9) TMI 1144 - ITAT DELHI - TM - Deduction u/s 80IC - allegation that sales have been inflated in order to claim deduction u/s 80IC of the Act - Held that:- A.O held that the assessee has not been able to explain the source of cash deposits in his bank account of ₹ 7,77,86,000/- and he added the same u/s 68 of the Act as unexplained and consequently, he dismissed claim of deduction u/ 80IC of the Act on this amount i.e. ₹ 7,77,86,000/-. Since by the earlier part of the order we .....

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me from other sources and denying deduction u/s 80IC of the Act is set aside and the A.O is directed to examine and verify the claim of the assessee regarding cash sales, for deduction u/s 80IC of the Act. We also direct the A.O to verify and examine the cash sales in the light of commercial tax payment, raw material consumed and stock register verification, if any, after considering the submissions of the assessee and after providing due opportunity of hearing for the assessee. - Decided in fav .....

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uring assessment proceedings. Further move the impugned cash sales can be verified from the respective purchasers and other related offices including the commercial tax deptt. The disallowance of cash sales and not treating the amount 2% of total sales as income from eligible unit have been made without considering the entire relevant evidence and explanation of the assessee and the issue of cash sales detailed verification and examination of all related documentary and circumstantial evidence. .....

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ance and addition and it is also on the assessee to justify and explain the situations wherein huge cash sales was made and cash was deposited to bank account which is 40 KM away from the office of the assessee. The assessee may also submit all other relevant details pertaining to transportation, commercial tax payment and purchasers to establish its claim of cash sales. With there observations issue restored to the file of the AO for de novo adjudication. - No disallowance u/s 14A of the Ac .....

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ainst the order of the ld. CIT(A)- XVIII, New Delhi dated 26.11.2012 in first appeal No. 195/10-11 pertaining to A.Y 2008-09. 2. The assessee has raised the following grounds of appeal: 1. The assessment made U/s 143(3) and the additions/disallowance made by the Assessing Officer are illegal, bad in law & without jurisdiction. 2. That in view of the facts and circumstances of the case, the CIT(A) erred on facts and in law in upholding the action of the AO in making enquiries and making addit .....

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ase the books have been illegally and wrongly rejected and the said rejections of books of account cannot be justified by any material on record. 4. The AO/ CIT(A) has erred in fact and in law in treating the Cash Sales as income from other sources and also erred in not allowing deduction U/s 80IC to the appellant. 5. That in view of the facts and circumstances of the case CIT(A) erred on facts and in law in uphold the action of the assessing officer in not allowing the deduction U/s 80IC. The C .....

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he CIT(A) erred on facts and in law in giving the direction to the AO to verify the genuineness of sales made in the earlier Assessment Year 2006-07 & 2007-08 is illegal, bad in law and without jurisdiction. The said direction of the CIT(A) is beyond jurisdiction and is liable to be deleted 8. The additions / disallowances made are unjust, unlawful, without jurisdiction and are also highly excessive. The CIT(A) has wrongly & illegally upheld the addition of ₹ 7,77,86,000/-. 9. The .....

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e unjust, unlawful and based on mere surmises and conjunctures. The additions made cannot be justified by any material on record. 12. That the explanation given evidence produced, material placed and available on record has not been properly considered and judicially interpreted and the same do not justify the additions/ allowances made. 13. That the impugned Assessment Order passed by the Assessing Officer is against the principles of natural justice and the same has been passed without affordi .....

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l on record. The ld. AR submitted that the ld. CIT(A) erred in upholding the addition in respect of issue which was not covered by the AIR Information and the impugned addition on account of treating the cash sales as income from other sources and not allowing the deduction u/s 80IC of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] is against the CBDT Instructions. The ld. AR pointed out that the ld. CIT(A) also erred in upholding the rejection of books of acco .....

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test of allowability of deduction u/s 80IC of the Act. 4. Per contra, the ld. DR of the Revenue strongly supported the action of the A.O and it was contended that the cash sales was not proved and hence the A.O was quite justified in making disallowance in this regard and the first appellate authority upheld the order of the A.O by considering all relevant facts of the case as well as legal propositions on the issue, 5. On careful consideration of the above, we note that as per the chart filed b .....

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t and cutting of ₹ 31,61,800/- which comes to total sum of ₹ 15,02,70,267/- as claimed by the assessee, this chart shows month wise cash and credit sales out of which credit sales have been accepted but cash sales have been disputed by the A.O by alleging that the sales have been inflated in the month of March 2008 wherein total cash sales recorded is around 50% of total cash sales. The A.O also alleged that cash creditors have been regularly introduced in the books of accounts as sa .....

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be deposited. The ld. AR also pointed out that the A.O noted that no details of cash sales on total sales of ₹ 99,91,440/- [ex UA] is on record. The ld. AR vehemently pointed out that all details regarding HDFC Bank A/c and cash sales were submitted before the A.O and it has not been objected by the A.O and the ld. CIT(A) and he also drew our attention towards assessee s paper book pages 121 to 123, 124 to 125 and 190 to 197 to support this contention. 7. In reply, the ld. counsel of the .....

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of the assessee. 8. At the outset, we may point out that as per section 145(3) of the Act, the A.O is empowered to reject books of accounts of the assessee in certain conditions viz (i) where the A.O is not satisfied about the correctness or completeness of the accounts of the assessee or (ii) wherein the method of accounting provided in sub-section (1) of section 145 of the Act has not been regularly followed by the assessee or the ld. CIT(A), (iii) income has not been computed in accordance w .....

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ate of section 145(3) of the Act, to establish that any of the conditions therein has been found in the case of the assessee validly enabling the A.O to reject the books of accounts of the assessee. Since books of accounts have been rejected without following due procedure as mandated by Section 145(3) of the Act and without affording due opportunity of hearing to the assessee. Thus, conclusion of the authorities below in rejecting books of accounts is set aside and this issue is returned to the .....

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ales. We further observe that it is a regular practice of the assessee to make huge cash sales which is also apparent from the chart submitted before the A.O wherein huge cash sales in earlier and subsequent A.Ys have been accepted by the A.O without any dispute. Thus, we are inclined to hold that the disallowance and addition made on the basis of incorrect facts and flouting the well accepted rule of consistency cannot be held as sustainable and thus we dismiss the same. At the same time, we al .....

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sessee regarding cash sales in the light of documentary evidence and explanation of the assessee. We may point out that the Tribunal cannot examine and verify the facts which were not confronted and considered by the authorities below during assessment and first appellate proceedings. Thus, in our considered opinion this issue requires afresh consideration, examination and verification at the end of the A.O. Thus the same i.e. issue of cash sales is restored to the file of the A.O for afresh de .....

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he Act on both kinds of sales either cash or credit and there is no valid reason to deny the same only on the cash sales for the period under consideration. The ld. AR also showed us details and particulars showing that the cash and credit sales for all purposes, including deduction u/s 80IC of the Act have been accepted in earlier years from A.Y 2005-06 to 2007-08 and also in the subsequent years. i.e from A.Y 2010-11 to 2013-14 and also filed copies of assessment orders framed u/s 143(3) of th .....

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clear that the A.O firstly held that the sales have been inflated in order to claim deduction u/s 80IC of the Act. Thereafter, in the subsequent part, the A.O also held that the assessee has not been able to explain the source of cash deposits in his bank account of ₹ 7,77,86,000/- and he added the same u/s 68 of the Act as unexplained and consequently, he dismissed claim of deduction u/ 80IC of the Act on this amount i.e. ₹ 7,77,86,000/-. Since by the earlier part of the order we ha .....

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s and treating cash sales as income from other sources and denying deduction u/s 80IC of the Act is set aside and the A.O is directed to examine and verify the claim of the assessee regarding cash sales, for deduction u/s 80IC of the Act. We also direct the A.O to verify and examine the cash sales in the light of commercial tax payment, raw material consumed and stock register verification, if any, after considering the submissions of the assessee and after providing due opportunity of hearing f .....

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O ignored the fact that the assessee filed copy of the said statement of account with HDFC Bank. The ld. AR also contended that the allegation of the A.O that all cash bills have been prepared are also not sustainable because in the accounts duty is segregated and if one person is doing cash billing the naturally all cash bills would be prepared by that person. The ld. AR also contended that if all cash bills have been prepared by a person, then it cannot be presumed that these bills relating to .....

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hus, it cannot be doubted only because the amount was not deposited into a nearby bank account. The ld. AR further contended that in para 4.1(e) , the A.O made bald allegations without bringing out any event or comparable of similar entity by wrongly holding that the assessee has shown very high gross profit ratio and the production figures shown is very high taking into account the consumption of electricity and fuel and the percentage of raw material over finished goods is also higher that the .....

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unt which was revealed by the AIR information and the copy of same account was not submitted before the AO then it was quite just and proper to make disallowances and additions in this regard. The ld. DR also pointed out that the AO rightly considered the low consumption of raw materials, and fuel in proportion to finished goods and when the cash was deposited in bank 40 KM away leaving the near bank then the AO was quite correct and justified in disallowing the cash sales. 16. The ld. Counsel f .....

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no valid reason to disallow sales and disallow total sales. 17. On careful consideration of above, at the outset, we observe that the authorities below categorically noted that the assessee did not submit copy of bank statement with HDFC Bank with which the impugned proceeds of cash sales was deposited. Per contra, it is contended by the ld. Counsel of the assessee that the assessee submitted all relevant documents including copy of the bank statement with HDFC bank during assessment proceeding .....

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the percentage of the consumption of fuel and raw materials in proposition to finished goods and will also take into consideration the percentage of gross profit ratio of other similar unit, if any, in the similar factual conditions. We may point out that without considering the relevant evidence, details and explanation alongwith earlier and subsequent year financial results and GP ratio of the assessee and similar unit in similar location the Aon cannot make disallowance and addition and it is .....

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rected to adjudicate the same after affording due opportunity of hearing to the assessee and without being prejudiced from the earlier assessment and impugned first appellate order of the CIT(A). Accordingly, ground Nos. 6 to 9 of the appeal of the assessee are allowed for statistical purposes. Ground No. 10 to 13 of assessee 18. Apropos these grounds, the ld. Counsel for the assessee reiterated submissions of the assessee dated 10.8.2011, as reproduced by the CIT(A) in para 8 of the impugned or .....

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est Ltd. vs. CIT-IV vide ITA No. 749/2014 order dated 2nd September, 2015 and contended that if there is no exempt income then no disallowance u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 can be made. 19. The Ld. DR supported the action of the AO as well as first appellate order of CIT(A). However, he could not controvert his factum that there was no exempt income for the assesee out of investment in shares and ratio of decision of Hon ble High Court (supra) favours assesse .....

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