TMI Blog2018 (12) TMI 1252X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of the share holders by following the decision of CIT Vs. Ankitech Private Limited (2011 (5) TMI 325 - DELHI HIGH COURT) which has been upheld by Hon’ble Supreme Court in the case of CIT Vs. Madhur Housing Development Company [2017 (10) TMI 1279 - SUPREME COURT OF INDIA] - decided against revenue. Addition on account of inflated purchases - Held that:- The entire addition by disallowing of 40% of the purchases in our opinion is not justified when the books of account are not rejected. We find the Hon’ble Gujarat High Court in the case of Yunus Haji Fazawala Vs. CIT [2016 (2) TMI 1204 - GUJARAT HIGH COURT] has held that action of the Assessing Officer in disallowing 25% of purchases by doubting its genuiness without rejecting the books of account cannot be sustained. The order of the Tribunal confirming the disallowance was accordingly reversed. Since in the instant case also the books of account are not rejected, therefore, action of the CIT(A) in deleting such addition is justified. Further we find merit in the findings of the CIT (A) that if the action of the Assessing Officer is accepted then profit of the assessee will be 32.9 % for A. Y. 2013-14 and 56.09% for A.Y. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , these were heard together and are being disposed of by this common order. 2. The facts of the case, in brief are that the assessee M/s. Forum Sales (P) Ltd. is engaged in providing corporate gifting solutions to various companies. Search seizure and survey operations under section 132/133A of the Income Tax Act, 1961 were conducted on 15.02.2014 and subsequent dates in the case of the assessee alongwith other cases of the AMQ Group at various residential business premises. In response to notice u/s 153 A of the Act, the assessee filed the return of income of ₹ 75,88,078/- on 24.07.2015 for A. Y. 2013-14. Similarly for A. Y. 2014-15 the assessee filed return of income on 30.11.2014 disclosing total income of ₹ 66,53,882/-. On the basis of the material seized during the course of search and on the basis of the submissions made by the assessee, the Assessing Officer completed the assessment determining the total income at ₹ 74,33,6920/-for A.Y. 2013-14 and ₹ 11,11,66,320/- for A. Y.2014-15. The assessee filed appeal before the CIT(A) who gave part relief to the assessee. Aggrieved with such part relief, the assessee and the Revenue are in appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly arbitrary, illogical and without considering the nature and size of the business of the assessee. It was argued that the assessee has filed all the bills and vouchers alongwith copy of the ledger accounts of the expenses and such expenses are incurred wholly and exclusively for the purpose of business. Therefore, the addition made by the Assessing Officer is not at all justified. 7. Based on the arguments advanced by the assessee the Ld. CIT(A) deleted the addition by observing as under :- 15.3 I have considered the facts of the issue and found that the AO has made the disallowances only on the basis that only copy of ledger accounts were provided by appellant to him but failed to provide bills/vouchers and books of account for these expenses. On the other hand, the appellant has submitted that vide letter dated 21.12.2016, it submitted necessary details/explanation/ledger accounts of all the expenses. It is further submitted that all the expenses are genuine and reasonable and the AO has failed to find any defect in the claim of these expenses. However, the perusal of the letter dated 09.12.2016 of AO and its reply dated 21.12.2016 in regards to the details of aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived an amount of ₹ 6,43,198/- from M/s. Juneja Marketing Pvt. Ltd. in A.Y. 2013-14 [Rs.51,72,955/- from M/s. Juneja Marketing Pvt. Ltd. and M/s. AMQ Agro India Pvt. Ltd. in A. y. 2014-15]. It was further observed by him that the directors namely Mr. Moin Akhtar Qureshi and Ms. Nasreen Moin Qureshi have the substantive share holdings in all above companies and all other conditions for treating this payments as deemed dividend u/s 2(22) (e) of the Act in the hands of the assessee are satisfied. Rejecting the various explanation given by the assessee, the Assessing Officer made addition of ₹ 6,43,198/- to the total income of the assessee u/s 2 (22) (e) of the I. T. Act, 1961. 12. Before CIT(A) it was argued that the Assessing Officer during the course of assessment proceedings has not issued any show cause notice for the alleged addition made u/s 2 (22) (e) of the I. T. Act. It was argued that the maximum balance outstanding during the year in case of M/s. Juneja Marketing was ₹ 4,77,837/- whereas the Assessing Officer has made the addition of ₹ 6,43,198/-. The Assessing Officer has not properly appreciated the facts of the case and made the addition. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before the Tribunal. 15. The Ld. DR referring to the following decisions submitted that the deletion made by the CIT(A) is not proper. 1. Miss P. Sarada Vs CIT [96 Taxman 11,229 ITR 444, 144 CTR 209] 2. CIT Vs Miss. P. Sarada [21 Taxman 94] 3. Gopal and Sons (HUF) Vs CIT [2017] 77 taxmann.com 71 (SC) 4. CIT Vs Muukundray K. Shah [2007] 160 Taxman 276 (SC)/[2007] 290 ITR 433 (S C) / [2007] 209 CTR 97 5. Puneet Bhagat Vs. ITO (157 ITD353) 6. Addl. CIT Vs. Shri Chandrakant V Gosalia [2015-TIOL-1187-ITATMUM] 7. Sunil Kapoor Vs. CIT [2015] 63 taxmann.com 97 (Madras) / [2015] 235 Taxman 279 (Madras) 8. Shashi Pal Agarwal Vs. CIT [2015] 54 taxmann.com 289 (Allahabad)/[2015] 229 Taxman 307 (Allahabad) / [2015] 370 ITR 720 (Allahabad) 9. Star Chemical (P.) Ltd. Vs CIT [72 Taxman 279, 203 ITR 11, 114 CTR 185] 10. CIT Vs. Sunil Chopra [ 2011] 12 taxmann.com 496 (Delhi)/[2011] Taxmann 316 (Delhi)/[2-11] 242 CTR 498 (Delhi). 11. M. Amareswara Reassessment order V. Dy. CIT [157 ITD 657 / 136 DTR 153 /178 TTJ 700] 16. The Ld. Counsel for the assessee on the other hand strongly relied on the order of the CIT(A). 17. We have considered the rival arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly made addition of ₹ 5,00,10,163/- to the total income of the assessee. 20. Before CIT (A) it was argued that in the present case not a single defect has been pointed out in the books of accounts and therefore its completeness and correctness cannot be doubted and hence the same cannot be rejected. It was argued that a perusal of the entire assessment order would reveal that the books of accounts have not been rejected. Being that the position the disallowance of purchases made in the assessment order is not sustainable. For the above proposition the decision in the case of Gujarat High Court in the case of Yunus Haji Ibrahim Fazawala Vs. CIT 70 taxmann.com 93 (Guj.). was relied upon where it was held that the action of the assessing officer in disallowing 25% of purchases by doubting its genuineness without rejecting books of accounts cannot be sustained. The order of the Tribunal confirming the disallowance was reversed on the ground of perversity. 20.1 It was is submitted that the appellant during the course of assessment proceedings vide its reply letter dated 21.12.2016 has submitted copy of ledger accounts of all the parties along with the name and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objection on these documents and details containing therein. He has made disallowances only on the basis of a sweeping and general remark that in absence of bills/vouchers, 40% of purchases are treated inflated/bogus. Moreover, as already discussed in above paragraphs, in the case of M/s Hari Mohan Enterprises, M/s Bajrang Traders and M/s Guru Nanak Traders, though the actual goods were not transferred but the payments were made in cheque M/s Forum Sales Pvt. Ltd Appeal Nos. 524 to 527 and 474 to 476/16-17 A.Yrs. 2008-09 to 2014-15 which was, in terms, received from M/s Jagatjit Industries Ltd. Thus even if all the purchases are treated on the same pattern, the source of these purchases are explained, being received from the purchaser party. Moreover, the appellant has failed to find any defect in the audited books of account of appellant and without rejecting the books of account, such disallowance of purchases is not justified. As shown by appellant in its submissions that net profit of 4.96% and 3.51% has been shown in A.Y. 2013-14 and A.Y. 2014-15 respectively but after making the disallowance as per AO, these profits would reach to 37.92% and 56.69%, which is illogical and abs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the name and address of the parties from purchases were made. The relevant observation of the Assessing Officer at para 6 of the Assessing Officer is as under :- 6. During the course of assessment proceedings, notice u/s 142(1) of the IT Act, 1961 alongwith questionnaire was issued on 09.12.2016, the assessee was asked to furnish purchase bills for all year alongwith name of major party from whom purchase made above ₹ 2 lacs in all seven F.Yrs. (FY 2007-08 to FY 2013- 14). In this regard, assessee vide its letter dated 21.12.2016 has submitted that: in respect of parties from whom purchase above ₹ 2,00,000/- has been made during the AY2008-09 to 2014-15. In this regard copy of ledger account of parties from purchase above ₹ 2,00,000/- has been made during the AY 2008-09 to AY 2014-15 is enclosed ' Assessee was also asked through notice u/s 142(1) of the IT Act, 1961 dated 09.12.2006 to furnish name and address of sundry creditors and confirmation from sundry creditors above 1 Lakh. In response to this assessee filed its reply on 21.12.2016, which contains only purchase amount, name and address of party. Not a single confirmation or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the revenue has been dismissed. Following similar reasoning this ground by Revenue is dismissed. 31. Ground of appeal No.3 is reads as under :- The Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of ₹ 9,30,49,922/- on account of inflated purchases. 32. After hearing both the sides. We find the above ground is identical to ground of appeal No.3 in ITA No.3248/Del/2018. We have already decided the issue and the ground raised by the revenue has been dismissed. Following similar reasoning, this ground raised by the Revenue is dismissed. 33. Ground of appeal No.4 is reads as under :- The Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the protective addition of ₹ 1,00,000/- on account of cash and seized. 34. The facts of the case, in brief, are that during the assessment proceedings the Assessing Officer observed that during the search proceedings, cash of ₹ 14,50,000/- was found to which the assessee company failed to explain the source of the said cash. As per Assessing Officer, out of this cash, the addition of ₹ 13,50,000/- has already been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,85,628/- by estimating profit on the sales made by the appellant during the relevant assessment year to M/s Jagatjit Industires ltd on the basis of seized document Annexure A-2/ party D-l page No.90, 109 8i 108, which pertain to AY 2014-15 8i not AY 2013-14. 2.1 That the Ld. CIT (A) erred in holding that entire sales made to M/s Jagatjit Industries ltd during the year was in the nature of bogus sales 8i estimating profit @7.825% on such sales without realising that estimation of profit had to be restricted to only those transactions which are reflected in seized material. 2.2 That the CIT (A) has erred in not considering the submission of the appellant that on the basis of alleged seized document, the addition should be made by calculating estimated profit on the transaction reflected in the seized material above and not on the entire sales made to M/s Jagatjit Industires ltd during the assessment year under appeal. 2.3 That the CIT (A) has erred in not adjucating the issue of reducing the element of percentage of profits already disclosed in the regular books of account out of the additions sustained of ₹ 83,85,628/- in the absence of which the net addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission of the appellant that on the basis of alleged seized document, the addition should be made by calculating estimated profit on the transaction reflected in the seized material above and not on the entire sales made to M/s Jagatjit Industires ltd during the assessment year under appeal. 2.3 That the CIT (A) has erred in not adjucating the issue of reducing the element of percentage of profits already disclosed in the regular books of account out of the additions sustanined of ₹ 42,53,909/- in the absence of which the net addition sustained in the hands of the appellant can not be ascertained. 3. That the appellant craves leave to add, alter, modify any of the grounds at the time of hearing or before the hearing. 38. In ITA No. 2471/Del/2018, the ground No. 1 and 4 being general in nature are dismissed. Similarly in ITA No. 2471/Del/2018 ground No. 1 and 3 being general in nature, therefore dismissed. 39. So far as the other grounds are concerned, the facts of the case, in brief, are that the Assessing Officer on the basis of the documents found and seized during the search proceedings observed that the assessee has received cheques of ₹ 18,93,528 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO calculated the average at 7.825% and applied it on the transactions of ₹ 10,71,64,580/- made by it with the aforesaid parties and computed the profit at ₹ 83,85,628/- and added the same to the income of assessee. Similar addition has been made by AO in respect of transactions entered into with M/s Bajrang Traders and M/s Guru Nanak Traders amounting to ₹ 54,80,758/- in the year under consideration. 40. Before CIT(A) the assessee made elaborate submissions challenging addition made by the Assessing Officer. However the Ld. CIT(A) was not satisfied with the arguments advanced by the assessee and upheld the action of the Assessing Officer by observing as under :- 13.4 I have considered the facts of the issues, basis of additions made by AO and submissions of appellant. As can be seen from the transactions entered into as per the documents seized during the search proceedings, there is a certain pattern of receiving the cheque amounts from one party in the name of sales, transferring it to other party in the name of purchases and receiving it back after deduction of commission @2% or 2.5% and returning back the cash to the first party which had issued che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d parties. Since the different rates of profit have been shown in the seized documents, taking average by the AO of these rates is reasonable and justified. In view of this, I uphold the profits of ₹ 83,85,628/- and ₹ 54,80.758/- worked out by AO. However, since the appellant has already disclosed some element of profit in its regular books of account, same has to be reduced from the aforesaid profits. The AO is directed accordingly. This ground is partly allowed. 41. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal. 42. The Ld. Counsel for the assessee submitted that addition has to be restricted to seized material only and extrapolation of seized documents is not legally permitted. The Assessing Officer cannot estimate the unaccounted receipts for all transactions with JIL in one assessment year for other assessment years based on isolated instance of 3 seized documents reflecting transactions of meagre value without any cogent material available for the other transactions with the same party for same and different assessment years and without any statement/deposition of any of the office bearers of the assessee compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation of additional capitation fees collected. Relying on various other decisions, he submitted that the order of the CIT(A) be set aside. 46. The Ld. Counsel for the assessee further submitted that the seized documents on the' basis of which the alleged additions have been made pertained to the financial year relevant to the assessment year 2014-15, therefore, there is no reason for applying any adverse inference in making addition in the AY 2013-14 when there is no incriminating document found in relation to AY 2013-14. 47. The Ld. Counsel for the assessee submitted that the assessee be allowed credit of profit already disclosed in the regular books of the accounts of the assessee. The AO has not considered the element of profit already disclosed in these transactions before estimating the unaccounted profit on these transactions. Although the Ld. CIT(A) considered the fact that there is an element of disclosed profit, however the percentage of profit/ amount of profit has not been ascertained. In the absence of the same the net addition to be sustained on the basis of method of computation adopted in the assessment order cannot be ascertained. 48. He sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to ₹ 32,650/- returned the balance amount of ₹ 17,96,072/- to the assessee, who after deducting an amount of ₹ 1,35,578/- towards its commission has refund the cash amount back to M/s. Jagjit Industries. The Assessing Officer accordingly found other transactions of similar nature wherein the assessee has received cheques from Jagjit Industries and made payment M/s. Bajrang Traders and M/s. Gurunanak Traders and cash portion was refunded to M/s. Jagjit Industries. The Assessing Officer accordingly computed profit at ₹ 83,85,628/- in case M/s. Jagjit Industries and ₹ 54,80,758/- on account of purchases from M/s. Bajrang Traders and M/s. Gurunanak Traders. Similarly he made addition of ₹ 42,53,909/- in assessment year 2014-15 on account of sales made to M/s. Jagjit Industries. It is the submission of the Ld. Counsel for the assessee that the seized documents pertain to A.Y. 2014-15 and therefore, no addition could have been made on account those seized documents in A. Y. 2013-14 in absence of any incriminating material. So far as assessment year 2014-15 is concerned, he submitted that the addition has to be restricted to seized the document onl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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