TMI Blog2017 (12) TMI 1394X X X X Extracts X X X X X X X X Extracts X X X X ..... TMI 1028 - GUJARAT HIGH COURT] Disallowance of depreciation on certain steel material - Held that:- We have noted that we have already held that the assessment order for AY 2008-09 and 2009-10 passed under section 143(3) read with section 153A as invalid, thus any consequence arise thereon has also become invalid. Even otherwise there is no material on record that the information on record that said machine or equipment for which depreciation was claimed is not put to use. The disallowance of depreciation on steel material under consideration is based on the addition on account of said alleged bogus purchase, which we have already deleted. Hence, the disallowance of depreciation is also to be deleted. Addition on ex-gratia payment made to Mr Madhav Hari Kale in cash - Held that:- We have seen that despite explaining the fact that Mr. Madhav H Kale was not in their employment, the assessing officer has not bring any material on record the facts to prove it otherwise. Even before us no contrary material is placed before us or any contrary law is brought in our notice. We have seen that the learned Commissioner (Appeals) granted relief to the assessee after considering the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) failed to appreciate that :- i) the answers given by Shri V.D. Mhaiskar in recording his statement u/s.132(4) were subject to verification of the records, documents, etc.; ii) all the purchases from M/s. Karma Industries Ltd. and its associate concerns are genuine beyond doubt and supported by sufficient materials; iii) the purchase of steel is backed by corresponding consumption in the projects undertaken by the Appellant; iv) the Appellant has successfully demonstrated that the impugned steel was used in the projects undertaken by the Appellant; v) the gross/net profit ratio shown by the Appellant is quite reasonable; vi) nothing has been brought on record by the ld. AO that money has exchanged the hands in lieu of payment made for these purchases by account payee cheques; and vii) the AO did not provide copy of materials and statements relied upon by him nor allowed any opportunity to the Appellant to cross examine those parties who have been believed to have provided the alleged accommodation bills. vii) The AO did not provide copy of materials and statements relied upon by him nor allowed any opportunity to the Appellant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of ₹ 80,63,26,270/-. A survey seizure and search action was also conducted on 21 July 2011 at the residence and office of Mr. Rajesh Mehta, Managing Director of M/s Karma industries Ltd (KIL). KIL is engaged in trading of steel and equipment of construction. During this course of search action, the statement of Shri Rajesh Mehta was recorded, wherein he had stated that KIL had not supplied any material to the assessee and only provided accommodation entries in the nature of bogus bills. The assessing officer passed the assessment order under section 143(3) rws 153A on 28 March 2014 determining the total income of assessee at ₹ 81,93,44,962/-. The assessing officer while framing assessment made the addition of ₹ 1,27,63,427/- under section 69C on account of bogus purchases and addition of ₹ 2,55,269/-on account of commission expenses on the said bogus purchases. On appeal before Commissioner (Appeals) the validity of the assessment order under section 143(3) read with section 153A as well as additions under section 69C and commission thereon was upheld. Thus, further aggrieved by the order of Commissioner (Appeals) the assessee has filed present appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted on 20 December 2010 determining total income of assessee at ₹ 80,63,26,270/-. A search action was conducted on 21 July 2011. Thus, the assessment for the relevant assessment year remains unabated. It is settled law that the assessing officer has power to make the addition in the unabated assessment only on the basis of incriminating material found and seized during the search action carried under section 132. The assessing officer nowhere has the specified in the assessment order that any incriminating material was found at the premises of assessee during the search on 21 July 2011, for the relevant assessment year under consideration. The assessing officer relied upon the statement of Mr Rajesh Mehta, MD of KIL. Admittedly, the assessing officer proceeded to make the assessment under section 153A read with section 143(3). No notice under section 153C was issued to the assessee. The assessing officer was relying upon the statement of third-party recorded during the search action on the third-party. In our view while making the assessment on the basis of a statement of third-party the assessing officer should have recorded the satisfaction before issuance of notice under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In our considered view, the addition in the unabated assessment can only be made only on the basis of incriminating material for a particular year. The Hon ble Supreme Court in a recent decision in CIT Vs Singhad Technical Education Society in Civil Appeal No. 11080 of 2015 dated 29 august 2017 held that addition in unabated assessment can only be made on the basis of incriminating material for that particular year. Since no incriminating material was seized during the search for the year under consideration, thus, no addition in the unabated assessment can be made. Hence, the assessment order passed by AO by making addition on account of disallowance u/s 69C of the Act in the assessment order passed under section 143(3) rws 153A is invalid. In the result, the ground no.1 of appeal raised by assessee is allowed. 7. As we have allowed the Ground No.1 of the appeal holding that the assessment order passed u/s 143(3) r.w.s. 153A of the Act dated 28.03.2014 is invalid, in our view the further the discussion on other grounds of appeal became academic. 8. In the result, appeal of the assessee is allowed. ITA No. 4735/Mum/2016 for AY 2009-10 by assessee 9. In ITA No. 473 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s found in the course of the search. c) In reaching to the conclusion and confirming such addition made by the AO, the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 4. The ld. CIT(A) erred in holding that the ground raised disputing initiation of penalty proceedings u/s.271(1)(c) of the Income Tax Act, 1961 is premature. The Appellant denies its liability for such penalty. 10. The Ground No.1 of the appeal is identical to the ground No.1 of ITA No. 4736/Mum/2016 for AY 2008-09, which we have already allowed. The facts of the appeal for the year under consideration are similar as no incriminating material was seized in the search under section 132 carried on 21.07.2011 for the year under consideration. The assessment u/s 143(3) was already completed on 28.04.2011, which remained unabated. Considering the similarity of the fact with the appeal for AY 2008-9, which we have already held as invalid and the facts for the year under consideration are not at variance, the appeal for the year under consideration is also allowed with simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 2.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of ₹ 64,83,2406/ - made by the AO to the income of the Appellant by way of disallowing depreciation on certain materials (steel) used in fixed assets on the plea that the purchases from M/s Karma Industries Ltd. and its associate concerns are bogus. b) The ld. CIT(A) failed to appreciate that:- i) the answers given by Shri V.D. Mhaiskar in recording his statement u/s.132(4) were subject to verification of the records, documents, etc.; ii) all the purchases from M/s. Karma Industries Ltd. and its associate concerns are genuine beyond doubt and supported by sufficient materials; iii) the purchase of steel is backed by corresponding use in the fixed assets; iv) nothing has been brought on record by the ld. AO that money has exchanged the hands in lieu of payment made for these purchases by account payee cheques; and v) the AO did not provide copy of materials and statements relied upon by him nor allowed any opportu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the projects undertaken by the Appellant; iv) the gross/net profit ratio shown by the Appellant is quite reasonable; and v) nothing has been brought on record by the ld. AO that money has exchanged the hands in lieu of payment made for these purchases by account payee cheques. c) In reaching to the conclusion and confirming such addition the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 5.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition to the extent of ₹ 13,88,698/- made by the AO to the income of the Appellant on account of alleged commission charges on alleged accommodation entries. b) The ld. AO failed to appreciate that your Appellant has not paid any commission to M/s. Karma Industries Ltd. and its associate concerns nor any evidence was found in the course of the search. c) In reaching to the conclusion and confirming such addition made by the AO the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchases from Karma Industries Ltd. and its associate firms. The assessee during the course of search action showed their inability to provide proof for genuineness of purchase. 13. The assessing officer issued show cause notice dated 10.02.2012 to the assessee as to why the purchases from KIL and its associate should not be treated as bogus. The assessee filed its reply dated 18.02.2014 and contended that the material purchased during the relevant period had been consumed in different project executed by assessee namely Mumbai- Pune, Nagpur- Hyderabad, Kolhapur and Surat- Dahisar Project. The assessee further submitted reconciliation along with chart with ratio of material. The assessee also furnished the working of the estimated cost for bidding purpose, certificate form lender s Bank, i.e STUP Consultant, certificate from independent Engineer appointed by National High Way Authority (NHAI) i.e. Intercontinental Consultant and Technocrats Pvt Ltd. All the purchases were made through account payee Cheques. The contention of the assessee was not accepted by the assessing officer on the grounds that the assessee claimed that the transporting charges were born by dealers. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cion dealers in the website of Sale Tax Department Government of Maharashtra, who are indulged in issuing bogus bill without delivery of any goods and material. The assessee was asked to show cause as to why the purchases from these parties should not be treated as unexplained expenditure. In response to the notice the assessee submitted that purchases made from these parties are genuine assessee has also submitted the bills, vouchers for these parties and stated that all payments were made to these parties by cheques. The contention of the assessee was not accepted by the assessing officer holding that payment by account payee cheque is not a full-fledged proof for the claim of purchases. The assessing officer concluded that assessee could not produce the delivery challans, lorry receipts, mode of transportation and evidence of octroi. The assessing officer on the basis of his observation and on the basis of report of Sale tax Department disallowed the aggregate of the total purchases of ₹ 19,20,799/- under section 69C. 17. The assessing officer by treating the purchases from Karma industries Ltd as accommodation entry by rejecting the contention of assessee concluded t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion at the rate of 12.5% of purchases for ₹ 31,24,70,714/-, from Karma industries Ltd, for the project of Surat-Dahisar and Kolhapur project, still confirmed the addition on account of commission payment for ₹ 66,75,088/-. It was further argued that no disallowance on account of depreciation was warranted as the assessee has fully proved the genuineness of purchases the assets by documentary evidences. The assessing officer has not brought any material on record. The assessing officer merely relied upon the third-party information without giving any opportunity for crossexamining those parties, on the basis of those statements the additions on account of bogus purchases was made. During the search action when the statement of VD Mhaisker Managing Director of assessee was recorded, it was categorically stated the statement was subject to verification of record. The Managing Director never admitted about the availing of accommodation entry from Karma Industries Ltd. Even otherwise the statement was retracted vide letter dated 16 December 2011. The assessing officer was duly informed that the business of Assessee Company is spread over three States that are Gujarat, Mahar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities have not disputed this fact throughout in their proceedings. There was no element of revenue leakage in the purchase of assessee. The learned AR of the assessee prayed for deleting the entire additions on account of bogus purchases, disallowance of depreciation as well as addition on account of alleged commission payment. In support of his submission the learned AR of the assessee relied upon various following decision of Mumbai Tribunal; (i) Manibandra Metals and Tubes Vs ITO (ITA 4359/M/2016), (ii) ITO Vs Mithailal D Mutha ( ITA 558/M/2016) (iii) ITO Vs Takhtmal Bhuralal (ITA 4526 to 4528/M/2014) (iv) ITO Vs Hiren Shantilal (ITA 715 to717/M/2015) (v) ACIT Vs Vishal P Mehta ( ITA 5313/M/2013) (vi) ITO Vs Ashok Talreja (HUF) ( ITA 4629/M/2014,3393,6663 to 6664,/M/2013), (vii) Kamal P Aggarwal Vs ITO ( ITA 3537, 3538 3540/M/2016) (viii) Telco Marketing Vs ITO ( ITA 3394, 3395/M/2014) (ix) DCIT Vs Rajiv Kalathil ( ITA No. 6727/M/2012) (x) ITO Vs Paresh Arvind Gandhi( ITA 5706/M/2013) and (xi) ITO Vs Sajay V Dhruv (ITA 5089/M/2014) 20. On the other hand the ld DR for the revenue supported the order of the authorities below. It was argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of material. The assessee also filed the working of the estimated cost for bidding purpose, certificate from his Banker/ lender s Bank, i.e STUP Consultant. Certificate from independent Engineer appointed by National High Way Authority (NHAI) i.e. Intercontinental Consultant and Technocrats Pvt Ltd. All the purchases were made through account payee Cheques. The assessing officer was not accepted by the contention and the evidences of assessee, on the grounds that the assessee claimed that the transporting charges were born by dealers. The assessing officer recorded that from the enquiries from the RTO office, it was revealed that the majority of vehicles allegedly used for transportation are owned by the assessee itself. If the assessee was using its own vehicle while it was claiming that transport charges born by the dealer. The assessing officer further concluded that no delivery challans were found during a search and seizure proceeding. Further the vehicles other than the vehicle owned by the assessee were not utilized for transportation of material or that some vehicles number provided by assessee belongs to the Government authorities and some to the private parties. The priva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee also explained the typographical mistake in the Registration number of vehicles used in transportation of the Steel, details of which are available in the paper book filed in appeal for AY 2008-09. The perusal of the details of Registration number of vehicles reveals that the mistake in writing is very minor which may occur due to human error. The assessee furnished the certified copies of the Registration Certificate (RC) and photographs of the vehicles and the evidence how the Tipper was used for transportation. The assessee also furnished explanation of the discrepancies recorded by assessing officer. On the written submission of assessee, the ld. Commissioner (Appeals) sought the comments of assessing officer. The assessing officer filed his comment / remand report dated 25.10.2016. In the remand report the assessing officer disputed the contention of the assessee and relied on his findings. After considering the submission of the assessee and the material on record the ld. Commissioner (Appeals) concluded that there are good and sufficient reasons to hold that so far as project of Surat- Dahisar and Kolhapur are concerned, the purchase of steel cannot be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of justice. Similar view was taken by Hon ble Gujarat High Court in CIT Vs Simit P Seth [2013(356 ITR 451)] and by Hon ble Bombay High Court in Hariram Bhambani ITA No 313 of 2013. The facts of the decision in N. K. Proteins (supra) relied by ld. DR for the revenue are at variance. In the said case the assessee was trader. During the search action in that case blank signed cheques books and numbers of vouchers were found on the basis of which the transaction was treated bogus. However, in the present case the assessee has given sufficient evidences to substantiate its purchases. Moreover, no incriminating material was found during the search at the premises of the assessee. The addition of alleged bogus purchased are based on third party information. No yardstick formula can be applied while assessing the amount of revenue leakage. Moreover, the revenue has not disputed the consumption of steel. Thus, respectfully following the decision of Hon ble Gujarat High Court in CIT Vs Simit P Seth supra and by Hon ble Bombay High Court in Hariram Bhambani supra, the disallowance of cost of purchases of steel is restricted to 5% of the impugned purchases only. The assessing officer is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the assessee. The ld. Commissioner (Appeals) has not appreciated the fact that Asian Steel Traders has confirmed the transaction. Hence, keeping in view the facts that we have already sustained the disallowance of purchases from Karma Industries Ltd Steel at 5% of the purchases. Thus, further keeping in view the similar material was shown to have purchases from Asian Steel Traders, hence, the disallowance on steel from Asian Steel Traders is also restricted at 5% of the purchases (of ₹ 7,62,206). In the result the ground of appeal is partly allowed. 25. Ground No. 4 relates to the sustaining the addition of ₹ 19,20,799/-. During the assessment the assessing officer noticed that the assessee has shown the purchases from Darshna Corporation for ₹ 2,449/- and the Tulsiani Trading Private Limited for ₹ 19,18,350/-. The assessee was asked to show cause as to why the purchases from these parties should not be treated as unexplained expenditure as, the names of these two parties are appearing in the list of suspicion dealers in the website of Sale Tax Department Government of Maharashtra, who are indulged in issuing bogus bill without delivery of any goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries Ltd. on purchases of ₹ 33,37,54,424/- and worked out disallowance of ₹ 66,75,088/-. However, the ld Commissioner ( Appeals) restricted the addition to ₹ 13,88,698/- holding that the disallowance has already been restricted to 12.5% of purchase value hence, the commission payment was restricted accordingly. We may note that we have already restricted the disallowance on the alleged bogus purchases at 5% of the impugned purchases. The disallowance is restricted only to avoid the possibility of the revenue leakage. As we have already concluded that the lower authority failed to bring any adverse, cogent incriminating material to show the facts that the assessee indulged in availing accommodation entry by making payment of commission. There is no material on record to substantiate the finding of the assessing officer. Hence, the order of ld Commissioner (Appeals) for partial sustenance of the addition on account of alleged commission of ₹ 13,88,698/- is also deleted. In the result this ground of appeal is allowed. 27. Ground No. 6 relates to interest under section 234B and 234C and ground No.7 relates to initiation of penalty under section 271(1) (c). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of appeal: 1.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition to the extent of ₹ 3,63,32,119/ - made the AO to the income of the Appellant on account of unexplained expenditure u/s.69C treating the purchases of steel from M/ s. Karma Industries Ltd. and its associate concerns as bogus in respect of Surat-Dahisar Project being profit element embedded in such purchases of ₹ 29,06,56,949/- @ 12.5% of the purchase value. b) The ld. CIT(A) failed to appreciate that :- i) the answers given by Shri V.D. Mhaiskar in recording his statement u/s.132(4) were subject to verification of records, documents, etc.; ii) all the purchases from M/ s. Karma Industries Ltd. and its associate concerns are genuine beyond doubt and supported by sufficient materials; iii) the purchase of steel is backed by corresponding consumption in the projects undertaken by the Appellant; iv) your Appellant has successfully demonstrated that the impugned steel was used in the projects undertaken by the Appellant; v) the gross/net profit ratio shown by the Appellant is quite reasonable; vi) nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mandatory. The Appellant denies its liability for such interest. 5) The ld. CIT(A) erred in holding that the ground raised disputing initiation of penalty proceedings u/s.271(1)(c) of the Income Tax Act, 1961 is premature. The Appellant denies its liability for such penalty. 33. Ground No. 1 of the appeal relates to restricting the disallowance of purchases at 12.5%. We have seen that ground No.1 of the appeal is similar as raised in appeal for AY 2010-11. Considering the facts that we have already restricted the disallowance on account of alleged bogus purchases at 5% of such purchases. Considering the similarity of the facts for the under consideration the disallowance for this year is also restricted at 5% of the impugned purchases (i.e. 5% of ₹ 29,06,56,049/-) with similar observation. In the result this ground of appeal is partly allowed. 34. Ground No.2 relates to confirming the disallowance of depreciation on certain material (steel). We have seen that this ground of appeal is identical to the ground No. 2 of appeal for AY 2010-11. Considering the facts that we have already allowed the similar ground of appeal in favour of assessee holding that all additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, whether the Ld. CIT(A) was justified in taking only 12.5% of the total amount of bogus purchases as income and thus allowing 87.5% of such total amount of purchases as expenditure in contravention of the provisions of section 37 of the Act? 3. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is justified in reducing the proportionate amount of addition whereas, the AO had added the amount attributable to payment of commission without which the assessee could not have managed accommodation entries represented by bogus purchases? 39. The Ground No.1 to 3 of the appeal raised by the revenues relates restricting the disallowance of purchases of steel from Karma Industries Ld and its alleged associate concerns to 12.5%. We have seen all the ground of appeal raised by revenue is against partial sustaining of the disallowance for purchases of steel material. Considering the facts that we have already partly allowed the appeal grounds of appeal and restricted the disallowance at 5% of the alleged bogus/ disputed purchases. Hence, the grounds of appeal raised by revenue in its cross appeal are dismissed. 40. In the result the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5128/M/2016 for AY 2012-13 by revenue . 45. The revenue it its appeal for AY 2012-13 has raised following grounds of appeal; ( 1) Whether on the facts and in the circumstances of the case and in law the learned Commissioner (Appeals) is justified in deleting the addition made by AO of ₹ 32,00,000 / on ex-gratia payment made to Mr Madhav Hari Kale in cash without taking into consideration the fact that the fact of payment made by assessee to Mr Madhav Hari Kale has not been disputed or denied by the assessee ?. (2) Whether on the facts and in the circumstances of the case and in law the learned Commissioner (Appeals) is justified in deleting the addition without appreciating the fact that Mr Madhav Hari Kale, in his recorded the statement had himself accepted that apart from regular Selby he had received exploration of ₹ 32,00,000/- in cash, which fell under unexplained expenditure under section 69C in the case of assessee ? . 46. The brief facts related to the grounds of appeal raised by the venue are that while framing assessment the assessing officer noticed that during the course of such action in the group of assessee, Mr Madhav Hari Kale in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t their employee and as such there was no occasion for making ex-gratia payment to him. There was no material before the assessing officer for making the addition of such income. The assessee explained that Madhav Hari Kale was corporate head of IRB Group. The learned Commissioner (Appeals) examined the statement of Madhav Hari Kale recorded during the search action. The learned Commissioner (Appeals) observed that Madhav Hari Kale did not name the assessee as his employer but only disclosed the amount of ₹ 32 lakhs as per e-mail Annexed at page 34 of Annexure -1 for taxation. The learned Commissioner (Appeals) further observed that assessing officer has not brought anything on record to shows that he was in the employment of assessee and was paid such amount by way of ex- gratia payment in cash during the relevant period. The learned Commissioner(Appeals) also recorded in his observation that assessing officer has not discussed the explanation furnished by the assessee before him, whether the assessee in its submission made before assessing officer during assessment has admitted or denied the fact of employment of Madhav Hari Kale. And in case Madhav Hari Kale is not in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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