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TMI Blog2018 (12) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income Tax (Appeals) erred in not appreciating that the AO had erred in issuing the notice u/s. 148 inspite of the fact that there was no income chargeable to tax which had escaped assessment and while doing so he amongst others failed to appreciate that: a. The appellant had made a true and full disclosure of all material facts necessary for the assessment; b. The notice was issued only on the basis of the statements illegally recorded during the course of survey proceedings u/s. 133A; c. Report of Financial Investigation Unit in the case of a third party could not form basis to believe that there was income chargeable to tax which had escaped assessment in the case of the appellant; d. In the reasons recorded in writing for reopening of assessment, there is no mention that the notice was issued after taking approval u/s. 151 of the Act. 3. The learned Commissioner of Income Tax (Appeals) erred in disallowing the expenditure of Rs. 11,92,65,022/- inspite of the fact that the appellant has proved with evidence that the expenses were incurred wholly and exclusively for the purposes of appellants business. 3. As common grounds are involved in all the years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T requiring assessee to file revised return as per Statement recorded during survey. On 12/03/2012 letter to ADIT bringing on record the affidavit and declaration of retraction. Again on 14/03/2012 assessee gave a letter to ACIT intimating that the statement recorded during survey was retracted and hence there was no requirement to pay any further taxes. 8. On 16/07/2012 AO issued notice u/s.148 and assessee filed return pursuant to notice u/s.148. Assessee also asked for the copy of the survey report. However on 25/09/2012, there was a letter of AO stating that survey report is confidential. Thereafter, AO submitted to the assessee copy of reasons recorded for reopening dated 12/07/2012. Assessee filed objection to reopening. 9. Before the AO on 08/03/2013 assessee filed three submissions dated 8/3/2013. First submissions with respect to sample contract with client Gremachlnfr. Ltd. Second Submissions with respect to Ledger A/c. of the Nine suspicious party. Third submission giving co-relation between client and suspicious vendor and submitted invoice of the vendors. Assessee also filed submissions of bank statement relating to the nine suspicious parties and explaining the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that he is not aware of the day to day publicity related work assigned by clients to be carried out by various departments of assessee company, he was forced to admit the pre typed statements wherein it was stated that no work is done for clients and these are mere accommodation entries. Inspite of the fact that he was not ready to give the statement till the arrival of Shri Vivek Suchanti, MD of assessee company, who was supposed to return Mumbai from Delhi, but gave the statement in view of the following reasons: a. Firstly survey officials were not ready to wait till the arrival of Shri Vivek Suchanti, MD of the assessee company and were in haste in getting the statement of Shri Parag Sanghvi so that the authorized officer allow the employees of assessee company to go home after office hours who were detained in office by survey team since morning. b. Secondly the survey team was consistently putting a lot of mental pressure torture so that he admit that assessee company has availed accommodation entries only against booking of expenses. c. Thirdly the statement given by Shri Parag Sanghvi is against his wishes, out of threat & coercion and taken in the absence of Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ante dated and have been taken under undue pressure and force. In this regard our attention is drawn to the statement recorded of Shri Parag Sanghvi & Shri Vivek Suchanti, a perusal of which it is crystal clear that both the statements are same in verbatim. This proves that the survey team has taken the admission of both Shri Parag Sanghvi & Shri Vivek Suchanti by force. It is submitted that had it not been by pressure or force both the statement cannot be same in verbatim. This proves that the AO has taken the statement under undue force/pressure. Because of which there was no option left with Shri Parag Sanghvi & Shri Vivek Suchanti but to retract the admission made before survey team by filing an affidavit. As per learned AR, the reasons of the retraction affidavit of Mr Suchanti are as under. Shri Vivek Suchanti, MD in his affidavit retracted his statement because * No oath was administered to him prior to recording of statement * He was forced by the authorized officer to append his signature on the statement * As stated in his affidavit, he had succumbed and agreed to sign whatever was * placed in front of him but subject to the condition that the authorized officers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior to his reaching office awaiting his signatures. * He therefore retracted the statement that the deposition was not without undue influence but was without his free consent/will in fact the statement was signed after succumbing to undue pressures. 16. From the series of events narrated above it was submitted that the AO has merely disallowed expenses on the basis of admission made before survey team by Shri Vivek Suchanti & Parag Sanghvi without bringing on record any adverse or cogent evidence. Here it is vehemently submitted that the statement has got no evidentiary value and addition cannot & should not be sustained in view of the following further facts and submission: 17. Shri Vivek Suchanti has already stated that different transaction has been carried out for the clients of assessee company by vendor companies and the parties after verification of the work done have made payment to assessee company. Therefore one has to read the statement in totality and in comprehensive manner as Mr Vivek Suchanti is looking after overall activities, different departments of the assessee company carrying which is spread all over India. The selection process of vendor, place & activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are companies). 21. Assessee had furnished before lower authorities the Name, Address, PAN, Service Tax Registration Number, CIN (in case they are companies] of vendors. Moreoever, during the course of assessment assessee company explained the process of assigning work to vendors The process of assigning work to vendors was explained as under: * The assessee company finalizes the modus operandi with their clients to whom they are rendering publicity campaign services. * Trained company officials of assessee company are deployed to supervise the publicity campaign, (i) * The work done by the vendors are then get verified and approved by clients for whom assessee company is rendering publicity campaign services. * Finally the assessee company receives payment from their clients and in turn disburse the amount to vendors as agreed. 22. From the record we found that Publicity campaign work was carried out in mofussil area and tier two cities through vendors are identified by Mr. Om Prakash Paharia and supervised by assessee company's officials which is the regular practice & system followed by the assessee company. Assessee company executes the publicity campaign wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be paid to the persons who had carried out the work, my associates Mr, Jayesh Shah and Mr. Dinesh Pareek would ask Mr. Rajendra Bhimrajka to make the payments after collecting payments from appellant company for which he used to raise bills on appellant company. On receipt of payments by cheque frem appellant company Mr. Rajendra Bhimrajka would make payments to the various service providers." 26. The manner in which the publicity campaign is being carried out, it is clear that there is no occasion for the assessee company to know Shri Rajendra Bhimrajka therefore the assessee company does not know or have any direct contact with Mr. Rajendra Bhimrajka. Therefore the statement of Shri Rajendra Bhimrajka has no relevance for disallowing the expenses, so incurred by the assessee companies. 27. Sample copy of vendor bill put before us along with supporting which has been shown to Ld AO during the course of assessment proceedings, which clearly suggest that assessee company carried out publicity campaign activities viz. putting up of banners, posters, display boards, wall painting, road shows, market survey, event management, convening conferences and meeting of investors and broke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-2013 by Service Tax Department. During the said service tax audit reconciliation of service tax returns with books of accounts for above mentioned financial years has been done and no discrepancy of whatsoever nature has been pointed by the service tax department. 34. Reliance was placed by Ld. AR on the following judicial pronouncements, wherein it is held that unless corroborative evidence are found during the course of survey, search and seizure action addition cannot be made merely on the basis of statement recorded. 35. Apex Court in the case of Andaman Timber Industries v. CCE (2015) 281 CTR 241 (Bom)(HC) and Kishanchand Chellaram v. CIT (1980) 125 ITR 713 (SC) held that the department is bound to give the assessee an opportunity to controvert evidence and cross examine the evidence on which the department places its reliance. A failure in providing the same can result in the order being a nullity. The Bombay High Court in H.R. Mehta vs. ACIT (2016) 387 ITR 561 (Bom.)(HC) has held that while making addition under s. 68, the A.O. had relied upon some evidence collected in that behalf including statement on oath said to have been made on behalf of persons whose identity was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee on the projects where suspicion parties were involved and it was highlighted that net profit during these years were higher as compared to the projects where suspicion parties were not involved. Hence, where all primary details regarding vendors has been provided by the assessee, consumption has been proved, payments are through banking channels and receipts are not doubted by the AO, then expenses cannot be disallowed merely because service providers have not appeared. For this purpose, reliance was placed on following judicial pronouncements. (i)) Babulal C. Borana vs. ITO (2006) 282 ITR 251 (Bom.) (HC) Where the identity of the persons from whom goods are purchased has been explained, payment are made by A/c. payee (cheques, transactions are recorded in books, no addition can be made. (ii) CIT vs. Smt. Anju Jindal (2016) 387 ITR 418 (P&H)(HC)[Para 4] (Paper Book No. II Pg. No.807-809) No addition of purchases can be made when parties have not responded to notice u/s. 133(6). (iii) CIT vs. Hi Lux Automotive P. Ltd. (2009) 183 Taxman 260 (Delhi)(HC)[Para 10] (Paper Book No. II Pg. No. 810-815) Assessee having made payment of raw material purchase from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge sales of earlier 5 years - 218% 338% 183% 262% 226% Gross Profit 12.99% 9.87% 9.25% 12.91% 12.31% 14.48% Net profit Before Tax 2.28% 5.27% 5.69% 4.01% 5.51% 4.96% Increase in net profit before tax as compared to average of earlier 5 years - 2.99% 3.41% 1.73% 3.22% 2.68% 45. As per learned AR one can see from the above chart that because the assessee company had lowered its gross profits margin the assessee company has managed to increase its sales by 218% in Assessment Year 2007-08 ie from Rs. 35.74 Crores to Rs. 113.64 Crores and even after lowering its margin the assessee company has managed to increase its overall net profit before tax by 2.99% ie from 2.28% to 5.27% which clearly demonstrates that no disallowance is to be called for in the said Assessment year . In these years genuine vendor bills has been treated as accommodation bills &addition has been made. 46. On the other hand, learned DR relied on the orders of lower authorities and contended that as per observation of AO and CIT(A) during the course of survey assessee has conceded that they were taking bill from bogus suppliers. Accordingly lower authorities have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking statements of Managing Director in the middle of the night by keeping female employees at the office premises waiting which is on record and this itself shows that there was an atmosphere of fear and coercion to get statements as desired by the department . 49. CIT(A) has held that assessee has not appeared before the AO on various occasions. In reply assessee submitted that during the assessment, the assessee Company had produced relevant primary details of vendor like Name, Address, PAN, Service Tax Registration No before the AO during assessment proceedings & also all the payments made to the said vendor company are by a/c payee cheque The assessing officer could have found the latest address from these sources however instead of fulfilling their duties they asked the assessee to produce the latest address of vendor company with whom they have dealt with two years back. 50. It was also argued by learned AR that the assessing officer has himself in point no 24 page no 14 stated that the ward inspector vide his report dated 18.03.2013 had stated that on enquiry it was found that the referred companies have left the premises as per the address given by the assessee more t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and his associates used to coordinate with persons identified by them and ask them to execute the work for clients of the assessee. 52. It was also brought to our notice that Assessing Officer has not questioned Shri Om Prakash Paharia as to whether he has assigned work to the above entity. The affidavit of Shri Omprakash Paharia has not been found false. Hence, the expenses incurred by assessee cannot be disallowed outrightly. AO has not examined Shri Omprakash Paharia. In this respect proposition laid down by the Hon'ble Supreme Court in the case of Mehta Parikh & Co., (supra) are to be applied, wherein it was held that when an affidavit is filed, the same cannot be rejected unless deponents are examined. Affidavit is valid until found false. In the affidavit so filed Shri Omprakash Paharia has stated that Concept group of companies was regularly in need of persons in semi urban rural and mofussil areas for execution of their clients work assignment & that he used to be contacted by the officials of concept group for approaching various persons who can assist in carrying out the said activity. 53. We also observe that department has recorded statement of Shri Rajendra Bhimr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht on record by the AO. Retraction statement of CFO is also placed in the paper book. 56. Our attention was invited to the statement of Shri Vivek Suchanti wherein Shri Vivek Suchanti had answered that there was no Unaccounted cash and that expenses were wholly and exclusively incurred for the purpose of business & that necessary contemporary evidence by way of bills /vouchers are maintained by middlemen agents were also available in the office premises however the answer given by Mr Vivek Suchanti was wrongly mentioned in statement of oath, the declaration of which has been given in retraction statement hence the statement at the time of survey has been recorded erroneously. Subsequently Mr. Vivek Suchanti also retracted from the statement which is also placed on the record. 57. The entire order of the AO indicate that he has only relied on statement of Mr Parag Sanghvi and Mr. Vivek Suchanti which appears to be given under coercion and fear and which was also later retracted and the AO has not collected any corroborative evidence to prove that assessee company has inflated the expenditure by passing accommodation entries. Judicial pronouncement clearly states that "Unless corro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management of business activities. 60. Even as per the boarding pass Mr. Vivek Suchanti reached Mumbai Airport at around 10:35 pm. After collecting his baggage etc.,which normally takes around 15-20 minutes he would have come out from airport ie by 10.55 pm .and if he takes eastern Free Way route it normally takes 1 hr and western express highway route it takes 1 hr 10 minutes that at night time there is heavy traffic on the said routes because of trucks passing through so it proves that the assessing officers claim that he could reach office by 11.15 or 11:30 appears to be not correct. 61. We also observe that the admission of both the persons has been taken not on the basis of any incriminating material or documents. The question mentions certain information disclosed to them but no such information was disclosed. Infact, Assessee has not been given statement of Mr. Jignesh Patel on the basis of which survey was carried on. The loose papers impounded were invoices of various parties. Assessee vide letter dated 15/12/2011 have duly explained the invoices to the survey party. There is no adverse inference on impounded material brought on record by the Ld A.O. 62. It was also con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32.47 Crores 32.86 Crores 6 1.74 Crores 35.74 crores Gross 16.22% 14.82% 12.29% 12.61% 11.48% 12.99% profit Net Profit before Tax 2.69% 0.47% 1.88% 0.77% 3.94% 2.28% 1) Statement of profitability for Assessment year 2007-08 to 2011-12 is as under Particulars Assessment Year 2007-08 Assessment Year 2008-09 Assessment Year 2009-10 Assessment Year 2010-11 Assessment Year 2011-12 Sales 113.64Crores 1 56.39 Crores 10 1.04 Crores 129.40Crores 11 6.63 Crores 'Gross profit % 9.87 9.25 12.91 12.31 14.48 Net profit Before tax % 5.27 5.69 4.01 5.51 4.96 2) Statement of increase / decrease in sales /Net profit when Compared to average of earlier 5 years is as under Particulars Assessment Assessment Assessment Assessment Assessment Year Year Year Year Year 2007-08 2008-09 2009-10 2010-11 2011-12 Increase in sales (Rs.) compared to average sales of 77.90 Crores 120.65 Crores 65.30 Crores 93.66 Crores 80.90 Crores earlier 5 years Increase in sales %compared to average sales of earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars has increased by 2.68% ie from 2.28% to 4.96%. 71. However we observe that the net profit before tax for all the Assessment Years has increased when compared with average of net profit of earlier 5 years which shows that even after lowering its profit margin the company was able to increase its overall profit when compared to Average of earlier 5 years. 72. In view of the above discussion, we conclude that no addition can be made merely on the basis of statement unless same is corroborated by documentary evidence. From the record we also observe that corresponding income booked by the assessee has not been disputed by lower authorities meaning thereby, income earned corresponding to the expenditure alleged to be bogus has been duly accepted by the lower authorities. Under these facts and circumstances, entire expenditure so incurred which is duly supported by income declared by assessee and accepted by Department cannot be declined. Keeping in view the totality of facts and circumstances of the case vis-à-vis average profit declared by the assessee in the earlier five years which is 12.99% it is very relevant to find out if any lower income has been shown by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74. In the A.Y.2011-12, the gross profit shown by the assessee was 14.48% as against average gross profit rate of 12.99%. Since the gross profit shown by assessee in the A.Y.2011-12 was more than the average gross profit, no addition on account of alleged bogus expenses is warranted. We direct accordingly. Concept Production Ltd., (ITA No.3026/Mum/2016) 75. From the record we found that comparative statement of profitability for the A.Y.2009-10, 2010-11 when no disallowance has been made on account of accommodation bills, and vis-à-vis 2011-12 when addition was made on the ground of accommodation bill, works out as under:- Particular For assessment year 2009-10 For assessment year 2010-11 Average of past 2 Years For Assessment year 2011-12 Sales & Services Cost of Sales 1394107 1282044 21005431.5 19537707 11199769.25 10399875.5 8,28,03,188.00 8,03,25,668.00 Gross Profit 1,12,063.00 14,87,724.50 7,99,893.75 24,77,520.00 GP% 8.04% 7.08% 7.14% 2.99% 76. Assessee had declared GP rate of 2.99% in the A.Y.2011-12 wherein addition has been made by the AO. If we compare it with the average profitability for the past two years which is 7.14% the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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