TMI Blog2018 (12) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... responding to the expenditure alleged to be bogus has been duly accepted by the lower authorities. Entire expenditure so incurred which is duly supported by income declared by assessee and accepted by Department cannot be declined. Taking 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 assessee in any of the years to ascertain the additions warranted - addition can be restricted to the difference in gross profit declared by the assessee during the years under consideration as compared to the average gross profit rate of earlier five years which is 12.99%. - Decided partly in favour of assessee. - ITA No.2800/Mum/2016, ITA No.2801/Mum/2016, ITA No.2802/Mum/2016, ITA No.2803/Mum/2016, ITA No.2804/Mum/2016, ITA No.3026/Mum/2016 And ITA No.2805/Mum/2016 - - - Dated:- 14-11-2018 - SHRI R.C.SHARMA, AM AND SHRI SANDEEP GOSAIN, JM For The Assessee : Dr. K. Shivram / Shri Rahul Hakani For The Revenue : Shri H.N. Singh ORDER PER SANDEEP GOSAIN (J.M): These are the appeals filed by the assessee against the order of CIT(A)-4, Mumbai dated 11/02/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Proceedings were carried out in the case of assessee Group on the basis of statement of one Mr. Jignesh Patel Statement of Mr. Parag Sanghvi, CFO of the assessee Company was recorded during the course of survey. In his reply to Question No.4 he stated that assessee Co. has taken accommodation entries from bogus Entities as named in the reply for AY 2007-2008 to 2011-12. Thereafter, statement of Shri Vivek Suchanti, Managing Director of the assessee Co. was recorded. In his reply to Question No.4 he also stated that assessee Co. has taken accommodation entries from bogus Entities and in order to buy peace of mind, to avoid protracted litigation and penal consequences as per the Income tax Act, 1961, he offered the following as the additional income in the respective companies Asst. Year Name of the company Additional Income (Rs.) 2007-08 Concept Communication Ltd. 11,92,65,022 2008-09 Concept Communication Ltd. 15,34,75,543 2009-10 Concept Communication Ltd. 8,39,76,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 013 whose name was mentioned by Mr. Omprakash. However, A.O. has relied upon the statement of Shri Rajendra Bhimrajka for holding that assessee had taken accommodation entries from certain 7 entities mentioned by him. However, the assessee was not provided with opportunity of cross-examination of Shri Rajendra Bhimrajka. Also, statement of Rajendra Bhimrajka was not confronted to Mr. Omprakash Paharia. Moreso, when MD of assessee Mr. Vivek Suchanti had denied knowledge of Mr. Rahendra Bhimrajka it was incumbent upon AO to give cross-examination of Mr. Rajendra Bhimrajka to assessee. However, the AO has not brought any material on record to connect various entities mentioned by Mr. Rahendra Bhimrajka with him. Furthermore, the assessee had demanded at the time of Assessment copy of Statement of Mr Jignesh Patel on whose statement survey was undertaken also copy of survey report prepared by Survey Officer. However, till date the assessee has not been provided with the same. Without properly appreciating assessee s contention, AO passed assessment order u/s. 143(3) making addition of entire expenses of ₹ 11,92,65,022/- pertaining to nine suspicious parties on the ground of admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 Shri Vivek Suchanti, MD of assessee company who is the key person of the company. d Fourthly the so called forceible statement of Parag Sanghvi has got no evidentiary value as the same has been retracted by filing affidavit's and declaration on the following premises that. No oath was administered to him prior to recording of statement He was forced by the authorized officer to append his signature on pre-typed statement His answers to question nos. 4,5,6,7 and 8 are wrong, incorrect and untrue. He retracted the statement on the ground that the deposition was made by fear, coercion and undue influence and was without his free will or consent. In fact the statement was signed only after succumbing to undue coercion, pressure and threat 13. As per learned AR Dr. Shivram, Shri Vivek Suchanti, MD of assessee company who had gone to Delhi for official work was supposed to return after 2 days has to return back same day late night on 23/11/2011 at 12.10 am becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer 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 add one more question in the statement as to whether all expenses debited to books of account have been incurred for the purpose of the business of assessee company. He was told that the authorized officer has acceded to his request, but without his knowledge posed the question in a different language which read as under: Q7. Kindly explain as to where the unaccounted cash is utilized 14. In response to the aforesaid question, he answered that there was no unaccounted cash and the expenses debited in the books of account are wholly and exclusively incurred for the purposes of business. He also clarified that the necessary contemporary evidence by way of bills/vouchers maintained by the middleman agents are available in the office premises and that the same can be produced for your verification. But the authorized officers recorded his answer differently as under, Ans. Sir, the unaccounted cash is used for various purposes of business Thus, he state and affirm th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 activities, nature of PR activities are decided by respective departments of assessee company after consultation with various clients. Since it is a routine matter and is not looked on day to day basis by Shri Vivek Suchanti, MD of assessee company. 18. There is a contractual agreement between the assessee company and the vendors for the works to be done unless the work is done how could the assessee company can receive the payment. Moreover the parties for whom the assessee company has done the publicity work they have inturn made the payment to assessee company and that too after due verification about the work done. The reliance placed by the AO on statement of Shri Rajendra Bhimrajka has no relevance because it has been taken behind the back of the assessee and even after several request made to survey officials by assessee company to provide the copy of statement of Shri Rajendra Bhimrajka the same was not provided, rather they used to pressurize the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 work in rural, B grade cities and satellite towns through their network of contact persons. Assessee company has submitted the notarized affidavit of Shri Om Prakash Paharia dated 19.03.2013. In the said affidavit he has broadly stated how publicity campaign activities have been carried out i.e. identification of vendors, collection of payments and distribution of payments to vendors. The AO has simply read the affidavit and drawn adverse inference for the sake of disallowance of expenses which is not only incorrect but unjustified too. This attitude of the Assessing Officer prove that he has passed the assessment just to disallow the vendor bills by relying on the statement of Shri Rajendra Bhimrajka. It is pertinent to mention that the assessee company does not know him at all. Copy of affidavit given by Shri Om Prakash Paharia was placed on record. 23. In the affidavit given, Shri Om Prakash Paharia has clealy stated the details of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings, 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 brokers etc by providing necessary evidence. 28. From the above explanation and supporting provided, it was contended by Ld. AR that the expenses has actually been incurred by the assessee company. 29. From the record, we found that the assessee company deal with various corporate companies and the business activities carried out with various number of vendors spread over rural mofussil and satellite cities. The modus operandi i.e. selection of vendors and have carried out work through known business intermediaries, their business activities are supervised by company officials which is then approved by clients of assessee company -there does not remain any doubt that no work has been carried out. Further assessee company has submitted the affidavit of Shri Om Prakash Paharia stating how the work is being carried out. Assessee company does not carry any authority to enforce presence of vendors officially but assessee compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 not disclosed. It was held that assessee was bound to be provided with the material used against him apart from being permitting him to cross-examine the deponents by the department. This not having been done, addition was not sustainable. 36. Furthermore, Hon ble Supreme Court in CIT v Sunita Dhaddha SLP(Civil) No 9432/2018 dtd 28/3/2018 (SC) wherein it was held that if the AO wants to rely upon documents found with third parties, the presumption u/s 292C against the assessee is not available. As per the principles of natural justice, the AO has to provide the evidence to the assessee grant opportunity of cross-examination. Secondary evidences cannot be relied on as if neither the person who prepared the documents nor the witnesses are produced. The violation of natural justice renders the assessment void. The Dept cannot be given a second chance. 37. It was also argued by learned AR that the affid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. 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 two parties by means of A/c. payee cheques and produce bank statement showing the payments. No addition could be made if suppliers not found. (iv) CIT vs. Nangalia Fabrics Pvt. Ltd. (2014) 220 Taxman 17(Mag.) (Guj.)(HC)[Para 3] (Paper Book No. II Pg. No. 816-819) 41. In this case the AO held that as the parties from whom the purchases were allegedly made by the assessee could not be located, they were bogus and an addition had to be made u/s 68 in the hands of the assessee. The CIT(A) and . Tribunal deleted the addition on the basis that the purchases could not be held to be bogus as corresponding sales had been effected by the assessee. 42. Our attention was also invited to the fact that the AO has also disputed the service tax element which was not claimed as deduction. Our attention was also invited to the extract of the Indian Newspaper Society Press Handbook wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ₹ 35.74 Crores to ₹ 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 correctly added the same to the income of the assessee. 47. We have considered rival contentions and carefully gone through the orders of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord 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 than 2-3 years which the CIT (A) has not mentioned in his order which itself proves that the above referred company were in existence an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 Bhimrajka, however, statement of Rajendra Bhimrajka was not confronted to Mr. Omprakash Paharia. Moreso, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion 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 corroborative evidence are found during course of survey, search seizure addition cannot be made mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ached 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 contention of learned AR that statement recorded u/s 133A of the Income tax Act on oath ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Average 5 years Sales 24.34 Crores 27.28 Crores 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 Cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -09 67. The sales for the Assessment year 2008-09 when compared with Average sales of earlier 5 years has increased by 338% ie from ₹ 35.74 crores /-to ₹ 156.39 Crores /- however gross profit % has decreased by 3.74% % ie from 12.99% to 9.25%. but one can see that net profit before tax % when compared with average net profit before tax of earlier 5 years has increased by 3.41% ie from 2.28% to 5.69%. Assessment Year 2009-10 68. The sales for the Assessment year 2009-10 when compared with Average sales of earlier 5 years has increased by 183% ie from ₹ 35.74 crores /-to ₹ 101.04 Crores /- however gross profit % has decreased by 0.08% ie from 12.99% to 12.91% but one can see that net profit before tax % when compared with average net profit before tax of earlier 5 years has increased by 1.73% ie from 2.28% to 4.01%. Assessment Year 2010-11 69. The sales for the Assessment year 2010-1I when compared with Average sales of earlier 5 years has increased by 262% ie from ₹ 35.74 crores to ₹ 129.40 Crores however gross profit % has decreased by 0.68% % ie from 12.99% to 12.31% but one can see that net profit before tax % when compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24,33,74,961.00 20,38,92,062.00 27,28,26,455.00 23,24,05,662.00 32,46,60,467.00 28,47,70,613.00 32,85,88,540.00 28,71,60,635.00 61,73,72,260.00 54,64,95,501.00 35,73,64,536.60 31,09,44,894.60 Gross Profit 3,94,82,899.00 4,04,20,793.00 3,98,89,854.00 4,14,27,905.00 7,08,76,759.00 4,64,19,642.00 GP% 16.22% 14.82% 12.29% 12.61% 11.48% 12.99% Comparative Statement of Profitability for the Years 2006-07 to 2010-11 with Average Profitability of past years are as under:- Particular For the year 2007-2008 For the year 2008-2009 For the year 2009-2010 For the year 2010-2011 For the year 2011-12 Disallowance As Per AO Less Service tax 11,92,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 result will be as under:- Particular For the year 2011-2012 Amount(Rs) Disallowance As Per AO Less Service tax 4,88,60,694.00 37,60,694. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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