TMI Blog2019 (6) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Therefore, merely scrutinizing the confirmation letter, the AO cannot conclude that the loan is not genuine and credit worthiness is not proved. CIT(A) is also incorrect in holding that mere submission of PAN and confirmation letter is not sufficient to hold that the loan is genuine. Once the confirmation letters are placed before the AO, it is for the AO to establish that the creditor has no capacity to make the advance and the loan is ingenuine. It is also incorrect to hold that every assessee should run behind the creditors and parade them before the AO after furnishing the confirmation letters. Therefore, having filed the confirmation letters with PAN and the address, we hold that the assessee has discharged the burden and there is no case for making addition. Accordingly, we set aside the order of the CIT(A) and delete the addition made by the AO u/s 68 Addition u/s 68 relating to loans taken from creditors - HELD THAT:- The assessee has filed the confirmation letters in respect of Sri Venkateswara Agencies with a clear address. The creditor also has furnished the income tax assessment details along with copy of the bank account. In the bank account copy of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of undisclosed business income and allow the appeals of the assessee Unexplained investment in jewellery and silver articles - Addition of cash credit - CIT(A) allowed telescopic benefit which was admitted by the assessee under the head unaccounted income on account of business gifts being gold and silver items and sustained the addition as unaccounted income - HELD THAT:- On close scrutiny of the Ld. CIT(A) order it is observed that the additional income admitted by the assessee was towards generation of income, but it is not linked to application of income towards the investments and expenditure. During the appeal hearing, the Ld. DR also could not make any submission or argument to support that the balance amount of ₹ 98 lakhs was already allowed the telescopic benefit in respect of any other asset or application of income towards expenditure or any other asset. Since the assessee has admitted additional income till the date of search and the items found during the course of search in respect of gold and silver articles were acquired before date of search and similarly the cash credits were also introduced in the books of accounts before the date of search, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax department. Consequent to the search action, the AO issued notice u/s 153A of the Act and completed the assessments u/s 143(3) r. w. s. 153A of the Act on total income as under : A. Y. Total Income Declared u/s 153A of the Act (Rs. ) Total income assessed by the AO (Rs. ) 2004-05 9,19,520 36,92,753 2005-06 81,44,910 97,94,846 2006-07 1,21,31,540 1,49,00,948 2007-08 2,10,19,910 2,51,73,613 2008-09 3,82,99,530 5,83,09,459 2009-10 4,85,01,045 7,48,30,872 2010-11 9,49,98,660 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual verification. The Ld. AR further submitted that the various courts and the tribunals have consistently held that the AO is not permitted to make the addition without having the basis of incriminating material in the case of assessments made u/s 153A r. w. s. 143(3). In the instant case, the AO has made the additions without having any reference to the seized material. Hence, the Ld. AR requested for admission of additional ground. 4. On the other hand, the Ld. DR vehemently opposed the admission of additional ground. 5. We have heard both the parties and perused the materials placed on record. The additional ground raised by the assessee was not raised before the Ld. CIT(A) due to inadvertence. As submitted by the Ld. AR there were precedents by Hon ble High Courts and the coordinate benches, wherein, it was held that in the case of search assessments, the AO is not permitted to make the additions without having the incriminating material. Therefore, we find force in the argument of the Ld. AR, hence, the additional ground raised by the assessee is admitted. 6. Advancing the arguments on additional ground, the Ld. AR submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch assessment. The Ld. AR argued that all the above additions were made without having the seized material in the A. Ys. 2004-05 to 2008-09 and the same required to be deleted. 7. On the other hand, the Ld. DR submitted that as per the provisions of the Act, the AO is authorized to make the assessment u/s 153A of the Act for the six assessment years preceding the assessment year in which search was conducted and also the assessment year in which the search was conducted i. e. current assessment year, not withstanding anything contained in the provisions of section 139 to 147, 148, 149 and 151 of the Act. Therefore, the Ld. DR submitted that even in the case of the assessments completed u/s 143(1) or 143(3), the AO is bound to issue notice u/s 153A, once search is conducted and to assess or reassess the total income in respect of each assessment year following with such six assessment years. Therefore, the Ld. DR argued that the contention of the Ld. AR that the assessment should not be made without the basis of seized material for the assessments within the block of six years is erroneous and argued that the AO has rightly made the assessments which required to be u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that all the goods traded by M/s Annam Traders and M/s. Meenambal Agencies were delivered at the factory premises of M/s Bharathi Soap Works but there was no evidence to suggest that these chemicals were moved out of the premises of M/s Bharathi Soap Works, such as delivery challan, vehicle number etc. The Assessing Officer hence came to the belief that the chemicals purported to have been sold by these firms were in actual fact utilized by M/s Bharathi Soap Works, Guntur for manufacturing soaps/detergents and such finished goods were being sold outside the books of accounts. The Assessing Officer has noted that the following facts and circumstances give rise to the belief that the trading activity in the firms M/s Annam Traders and M/s Meenambal Agencies is a mere facade and the raw material traded in their names is actually utilized by M/s Bharathi Soap Works for unaccounted manufacture and sale of soaps. 8. 1. From the assessment order, the Ld. CIT(A) s order and from the submissions made by the Ld. AR, it is observed that the AO held that the assessee is indulging in sales outside the books of accounts due to the following observations : (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not supported by any evidence or the incriminating material found during the course of search. Therefore, we hold that the observations of the AO as well as the Ld. CIT(A) and the arguments of Ld. DR are only presumptions which gave rise to suspicion that the assessee is indulging in unaccounted trading activity. In the absence of any documentary evidence to establish that the assessee is making unaccounted sales, we are unable to accept the contention of the AO and the Ld. CIT(A)and the arguments of Ld. DR that the estimation of undisclosed income is based on the incriminating material. Accordingly, we reject the argument of the Ld. DR. 8. 2. With respect to interest disallowance, the same was declared in the regular return of income and claimed by the assessee as a deduction. The cash credits were part of the books of accounts. The disallowance u/s 40(a)(ia) is also part of the expenditure which was debited to Profit Loss account and necessary entries were made in the books of accounts. The addition towards suppression of sales also is neither the result of independent finding of the AO nor on the basis of material found during the course of search. The Sales T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itation on 30. 09. 2009 for all the impugned assessment years including 2008-09 as mentioned above. Therefore, assessments for the A. Y. 2004-05 to 2008-09 stands concluded and in case of completed assessments as held by this Tribunal in the case of P. Ramaraju vide I. T. A. No. 424-426/Viz/2013 dated 31. 07. 2017, the AO is not permitted to make the addition without the having the incriminating material. The coordinate bench of ITAT relied on the decision of Y. V. Anjaneyulu Vs. DCIT, Central Circle, Vijayawada in I. T. A. 513 and 514/Viz/2013 while giving the above ruling. The Tribunal also considered the decision of S. S. Hari PrasadBhararia Vs. DCIT, Central Circle-1, in ITA Nos. 435 to 441/Vizag/2014 dated 9. 9. 2016 for reaching the conclusion that the additions cannot be made in the search assessments without having the incriminating material. While giving the decision in the case of Shri P. Rama Raju supra the coordinate bench has considered the decisions of the Tribunal and Hon ble High court in the following cases. (a) L. Suryakantham Vs. ACIT, in ITA Nos. 300 to 305/Vizag/2012, (b) All Cargo Global Logistics Ltd. Vs. DCIT (2012) 137 ITD 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e limit laid down in the proviso to Sec. 143(2) of the Act, results in an assessment proceedings and where such assessment proceedings are completed prior to the date of search then they do not abate in terms of the Second Proviso to section 153A(1) of the Act. The decision of the ITAT Kolkata Bench rendered in the case of Shri Bishwanath Garodia (supra) on identical facts of the case as that of the Assessee in the present case, clearly supports our conclusions as above. 26. In the light of the discussion above, our conclusion is that in the present case, the issue dealt with by the AO in the assessment order u/s. 153A of the Act, could not and ought not to have been examined by the AO in the assessment proceedings u/s. 153A of the Act as the said issue stood concluded with the assessee's return of income being accepted prior to the date of search and no notice having been issued u/s. 143(2) of the Act within the time limit laid down in that section. Such assessment did not abate on the date of search which took place on 28. 3. 2008. In respect of assessments completed prior to the date of search that have not abated, the scope of proceedings u/s. 153A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest of ₹ 32,379/- and added back to the income. Against the order of the AO, the assessee went on appeal before the CIT(A) and the Ld. CIT(A) confirmed the addition. 11. Against the order of the Ld. CIT(A), the assessee is in appeal before us. During the appeal hearing, the Ld. AR did not furnish any evidence to support the claim that the site was used for the purpose of business. Therefore we do not find any reason to interfere with the order of the Ld. CIT(A) and the same is upheld. 12. Ground No. 2 is related to the addition of ₹ 17,00,000/- on account of cash credits sustained by the Ld. CIT(A). Out of the above addition of ₹ 17. 00 lakhs, a sum of ₹ 15. 00 lakhs was received from Shri J. Ashok. During the course of assessment proceedings, the AO found that a sum of ₹ 15,00,000/- was found credited in the bank account of the assessee on 16. 09. 2008. The assessee explained the source as loan given by Shri J. Ashok. The assessee also filed the confirmation letter from the creditor. However, the AO disbelieved the genuineness of the cash credit and added back to the income. Against the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. 09. 04. 2008 Cheque Sri Balaji Marketing Services 1,00,000 3. 30. 05. 2008 Cheque Sri Venkateswara Agencies 1,00,000 Total ₹ 3,00,000 During the course of assessment proceedings, the AO has asked the assessee to prove the genuineness of the cash credits, but the assessee failed to furnish the evidence to prove the identity of the creditor, credit worthiness and genuineness of the transaction, therefore, the AO made the addition of ₹ 3 lakhs as unexplained cash credits u/s 68 of the Act. 15. The assessee went on appeal before the CIT(A) and the Ld. CIT(A) called for the remand report. The AO conducted necessary enquiries in the appeal proceedings and submitted the remand report. On the basis of the remand report the Ld. CIT(A) deleted the addition re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soaps and detergents and finished products in the form of soaps, washing powers etc. were sold outside the books of accounts. The facts are discussed in details in this order in para No. 8. 17. 1. Since the AO viewed that the assessee is indulging in sales outside the books of accounts, the AO called for the explanation by issue of show cause notice as to why the income on sales outside the books of accounts should not be estimated and the assessee filed the reply objecting for the addition on account of unaccounted sales and submitted that no unaccounted sales were made by the assessee. Disbelieving the reply filed by the assessee, the AO held that the raw material and the chemicals traded by Annam Traders and Meenambal Agencies were used by the assessee and the resultant finished product was sold outside the books of accounts. The AO computed the chemicals traded by Annam Traders and Meenambal Agencies to the estimated amount of ₹ 3,93,33,219/- for the A. Y. 2009-10 and inferred that said material was utilized by the assessee for its own production for sales outside the books of accounts. The AO estimated 50% of the estimated material of ₹ 1,84,86,613/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the same manner the AO made the addition ₹ 1,05,91,037/- for the A. Y. 2010-11. 18. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld. CIT(A) prima facie agreed with the view of the AO that the assessee has made the unaccounted sales, manufactured the unaccounted production out of the purchases made from the Annam Traders and Meenambal Agencies. However, the CIT(A) reduced the estimated profit at ₹ 55,86,630/- for the A. Y. 2009-10 and ₹ 32,13,706/- for the A. Y. 2010-11. For the sake of clarity and convenience, we extract relevant part of the order of the Ld. CIT(A) which reads as under : para 6. 6 to 6. 7 6. 6. I have perused the assessment order as well as the submissions made by the appellant. It is true that the search and seizure action at the premises of the appellant including the factory of M/s. Bharathi Soap Works did not yield conclusive documentary evidence of unaccounted production of finished goods. However, discrepancies were noticed both in the stock of raw materials as well as in the stock of finished goods This could not have been possible in case the production was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the regular network of dealers, distributors and retailers and hence expenditure on saIes, commission etc, would also have to be incurred, which has not been taken into account by the Assessing Officer. iii) The Assessing Officer has also not taken into account that some of the chemicals carry VAT @5% to 12 %, which should be deducted from the profits estimated. iv) M/s Annam Traders have filed returns of income and shown net profit of over 1% in various years. No credit for the same has been given. v) Finally, the appellant has stated that while admitting undisclosed income during his statement u/s 13(4), the appellant offered ₹ 1. 97 crores as undisclosed income from his business (M/s Bharathi Soap Works) for various years and this undisclosed income was on account of manufacture of soaps and was related to the discrepancies in power consumption, deficit stock of raw material and excess quantity of finished goods detected during the course of search. 6. 7. Thus, I am in agreement with the Assessing Officer that the attendant facts and circumstances of the case indicate strong probabilities tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer has also agreed that this additional income admitted by the appellant is as a result of evidence gathered regarding unaccounted production and has in fact relied on this as critical evidence. Hence, the absence of documentary proof has to be juxtaposed against the attendant facts and circumstances, which point towards discrepancies in the contention of the appellant. As discussed above, the probabilities of the case indicate that chemicals shown as purchased by M/s. Annam Traders and M/s. Meenambal Agencies have actually been utilized by M/s Bharathi Soap Works, whether for production or otherwise, Hence, income on account of such additional chemicals purchased should be taxed in the hands of M/s Bharathi Soap Works. However, while determining income from unaccounted production, credit for such income already offered in the return shall have to be given. For the present assessment year, the chemical purchases in the books of M/s Annam Traders and M/s Meenambal Agencies were ₹ 2,11,82,075/- The Assessing Officer has adopted G P rate at 50% of the same in view of the fact that the G P rate in the books of M/s Bharathi Soap Works was 50% of purchases. However, as discusse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscrepancies found which are very normal in the business, adverse inference cannot be drawn which is prejudicial to the interest of the assessee. The assessee has already explained that goods related to Annam Traders and Meenambal Agencies are kept in the sheds in front side of the area of Bharati Soap Works, where different godowns were located. The godowns of Annam Traders, Meenambal Agencies and of the assessee are clearly demarcated as identifiable. Bharati Soap Works godowns are situated in the far behind area of the shed, the observation of the AO that the goods relating to Annam Traders and Meenambal Agencies were delivered at the premises of the assessee of M/s Bharati Soap Works is incorrect. Merely because of some cash credits, non maintenance of daily stock register, lack of uniformity in consumption of electricity, excess cash balance, shortage of raw material and excess finished goods does not lead to unaccounted sales in the hands of the assessee. The Ld. AR argued that the entire addition made by the AO is pure guess work and unsustainable, hence requested to set aside the order of the Ld. CIT(A) and delete the addition. 20. On the other hand, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther transferring or selling the goods to the assessee outside the books of accounts which should lead to inference that Annam Traders and Meenambal Agencies are suppressing the sales or over stating the purchases. No such fact was brought on record by the AO. If there is such eventuality, the assessments of Annam Traders and Meenambal Agencies required to be modified basing on the evidences. In the instant case, the AO observed that there is shortage of raw material and excess stock of finished goods which is not uncommon since the raw material is used for finished product. Since the assessee is not maintaining the day to day stock register, shortage of raw material leads to excess quantity of finished goods. Shortage of raw material and excess quantity of finished goods should have been addressed by the AO independently in the hands of the assessee for the respective assessment years. Similarly, non-maintenance of day to day stock register and packing material should have been a good reason for rejection of books of accounts and estimation of income. The AO did not bring on record any case which is having more profit than the assessee and the AO has not rejected the books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- by the Ld. CIT(A) out of total addition of ₹ 1,91,95,000/- towards unexplained cash credits. During the assessment proceedings, the AO found the cash credits to the extent of ₹ 1,91,95,000/- and was brought to tax as income from other sources, since the assessee failed to furnish the evidence with regard to genuineness, identity and the credit worthiness of the creditors the AO made the addition u/s 68 of the act. On appeal before the CIT(A), the Ld. CIT(A) confirmed the addition of ₹ 26,00,000/- consisting of ₹ 15,00,000/- loan taken from M/s Mangal Kiran Securities Ltd. and ₹ 11,00,000/- received from M/s Sri Venkateswara Agencies, M/s Sreedhar Agences, Smt. K. Ammani, M/s Sarveshwara Agencies and M/s Kalyanaram Agencies since the assessee failed to furnish the strong evidence to support the credits which is agitated in this appeal. 26. During the appeal hearing, the Ld. AR submitted that during the search and seizure action conducted by the department, the assessee has admitted additional income of ₹ 13. 21 crores to cover the cash found during the course of search. Actual cash found was ₹ 11,12,89,350/- and out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as well as the department. Though the assessee has not raised the ground for allowing telescopic benefit of the unexplained cash credits, gold and silver, unexplained investment in jewellery and silver articles it is a fact that the assessee has admitted the additional income of ₹ 13. 21 crores and the Ld. CIT(A) allowed the telescopic benefit for unexplained cash found representing ₹ 11. 12 crores and the unexplained jewellery items for ₹ 1. 10 crores and the balance remained was ₹ 99,00,000/- for which the assessee is entitled for application of income. The Ld. DR has objected for telescopic benefit since the ground was not raised. The Ld. AR s argument cannot be rejected since the assessee has raised a general ground also stating that any other ground may be urged at the time of hearing. Therefore, the argument made by the assessee required to be addressed. In the instant case, the Ld. CIT(A) sustained the addition of ₹ 26 lakhs representing cash credits and ₹ 24,19,000/- relating to unexplained investment in jewellery and silver articles. The assessee had admitted the additional income of ₹ 13. 21 crores and the Ld. CIT(A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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