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2019 (5) TMI 1704

..... full particulars of the purchaser on the cash sale bills when the quantity as recorded in the books of account is not in dispute, then the sale transactions of the assessee without any other contrary record or finding cannot be doubted. AO has also doubted the genuineness of the godown rent, however, for rejection of books and estimation of income by applying the GP, the said item is not relevant as it is not part of the trading account. We find that the minor adverse remarks by the AO without pointing out a specific and material defect in the books of account cannot be a reason for rejection of books even otherwise if the claim of expenditure is not found to be genuine otherwise the same can be disallowed but it cannot be a reason for rejection of books of account. AO was not justified in rejecting the books of account by invoking the provisions of section 145(3) and consequent estimation of income by the AO by applying the GP as declared in the immediately preceding year without considering the average of past history which should be at least 3 to 5 years. Hence the orders of the authorities below qua this issue are set aside and the trading addition made by the AO is deleted. Ad .....

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..... ted 20th November, 2017 of ld. CIT (A), Ajmer for the assessment year 2012-13. The assessee has raised the following grounds :- 1. On the facts and in the circumstances of the case and in law, ld. CIT (A) erred in confirming the action of ld. AO in rejecting the books of accounts by invoking provisions of section 145(3) of the Income Tax Act, 1961 on the observation of decline in GP rate by completely ignoring the manifold increase in turnover, thus the action of ld. AO deserves to be hold bad in law and consequent addition deserves to be deleted. 1.1. That ld. CIT (A) has further erred in confirming the trading addition of ₹ 5,13,878/- by estimating turnover at ₹ 11,00,00,000/- as against turnover of ₹ 10,53,89,705/- declared by assessee and further erred by applying GP rate of 0.80% on such estimated turnover. Appellant prays addition so confirmed deserves to be deleted. 2. On the facts and in the circumstances of the case and in law, ld. CIT (A) erred in confirming the disallowance of ₹ 50,000/- out of disallowance of ₹ 1,00,000/- made by ld. AO, without pointing out any specific discrepancy in the books of accounts. It is thus prayed disallowance s .....

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..... been cooperative during the course of assessment proceedings. In order to examine the veracity of facts, assessee has been asked to produce books of accounts vide issue of notice u/s 142(1) on 5.3.2015 and the case was fixed for 12.3.2015, however on the given date no body appeared and produced books of accounts. The assessee had also been issued summons u/s 131 of the Income Tax Act, to know the exact nature of his business, however, he did not bother to attend the proceedings nor has the reply been filed by the assessee for non compliance of the summons. When Shri Amit Goyal & Rajeev Kumar attended to produce books of accounts, in reply to show cause issued, he submitted that the assessee had fallen ill and hence he did not comply with the summons issued where as the discreet enquiry of the Inspector of the Ward revealed that the assessee was not ill and he had been going to his A.R s office regularly. In support of the claim made by the A.R no medical certificate has been submitted. Thus implying that the assessee has been non cooperative and he has been absconding so that by way of investigation the true nature of his business would not be revealed. 2.1. Apart from the cond .....

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..... that the books were rejected by the AO primarily for the reason that GP rate declared by the assessee has declined during the year under consideration in comparison to the immediately preceding year. The AO has also observed that the assessee is not maintaining itemwise stock register and the claim of godown rent is also not found genuine. The ld. A/R has contended that the assessee is maintaining regular books of account following the mercantile method of accounting regularly employed on year to year basis. The books of account were subjected to audit as per the provisions of section 44AB of the IT Act and no irregularity was found by the auditor. As regards the decline in GP rate, it was submitted that due to the bulk supply to M/s. RSWM with the condition that the assessee has to supply goods at the door step and bear the cost of freight, the assessee has incurred an expenditure of ₹ 6,98,586/- on this account. Further, when the turnover of the assessee was increased for more than 3 times, then a marginal decline in GP rate is natural and normal. The AO has not disputed the bulk supply to M/s. RSWM on the condition of supply at door step of the purchaser. Therefore, once .....

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..... s in respect of bulk supply to M/s. RSWM and, therefore, due to the cost of freight of ₹ 6,98,586/- borne by the assessee in the said supply order, the GP rate declined for the year under consideration. We further note that the AO has compared the GP declared by the assessee with the GP of immediately preceding year. However, the turnover for the year under consideration has increased manifold from ₹ 3.44 crores in the preceding year to ₹ 10.53 crores during the year under consideration. This increase in the turnover is also due to the bulk supply made to M/s. RSWM. Therefore, when the AO has not disputed this fact of bulk supply and freight cost borne by the assessee then the reasons explained by the assessee cannot be rejected without any contrary facts or material. Another reason for rejecting the books of account found by the AO is non verification of the valuation of closing stock and sale bills. We find that the assessee is not a manufacturer but trader of TMT bars and, therefore, once the quantity of purchase, sale and closing stock is duly recorded in the stock register then the item-wise maintenance of stock register is not a necessary condition. The book .....

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..... A) which is not permissible under the law. In support of his contention, he has relied upon the decision of Hon ble Andhra Pradesh High Court in case of Indwell Constructions vs. CIT, 232 ITR 776 (AP). The ld. A/R has further submitted that the disallowance was made solely on the presumption without giving a finding that the claim of expenses was on higher side, therefore, such disallowance on ad hoc basis is not justified when the assessee has declared the turnover of ₹ 10.53 crores during the year under consideration. 8. On the other hand, the ld. D/R has submitted that there is no dispute that the assessee has not produced any supporting bills or vouchers to show that the said expenditure was incurred wholly and exclusively for the purpose of business of the assessee, therefore, the disallowance restricted by the ld. CIT (A) to ₹ 50,000/- is just and reasonable. He has relied upon the orders of the authorities below. 9. We have considered the rival submissions as well as the relevant material on record. We find that the AO has discussed this issue in para 3 as under :- 3. Disallowance from the expenses debited in profit & loss account. In profit & loss accoun .....

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..... ed to the investigation carried out by the DDIT Kolkata and information received vide letter dated 12th January, 2015 wherein it was stated that M/s. Punit Oils & Chemicals Ltd. and M/s. Tanish Tradecom Pvt. Ltd. were engaged in providing bogus entry for loan, long term capital gain and assessee has received bogus loans from these companies. The AO accordingly proposed to make an addition under section 68 of the IT Act and issued a show cause notice to the assessee. After considering the reply of the assessee, the AO has made the addition of ₹ 3,00,00,000/- under section 68 by treating the same as unexplained cash credit. In appeal, the assessee raised various objections that the report of the Investigation Wing of Kolkata was considered without supplying the copy to the assessee. The ld. CIT (A) then asked the AO to submit the report and after considering the report of the AO as well as further investigation carried out by the AO through DDIT, Kolkata Wing, the ld. CIT(A) has confirmed the addition made by the AO. 11. Before us, the ld. A/R of the assessee has submitted that the AO has treated the loan transaction as accommodation entry on the basis of report received fr .....

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..... ssessee during the course of assessment proceedings. Moreover, nowhere in the assessment order, ld. AO has specified that Shri Anand Sharma has anywhere admitted the assessee to be the beneficiary of the alleged entry providing activity. Your honours would appreciate that such statements were recorded behind the back of assessee and not in the assessment proceedings of the assessee and in some other case. In such scenario, ld. AO was duty bound to make further specific enquiries during assessment proceedings in the case of assessee and further to provide assessee with the opportunity to cross examine him. It is a settled preposition of law that opportunity to cross examine is one of the basic principles of natural justice and not providing assessee with it amounts to gross violation of the principles of natural justice and renders entire proceedings void. He has relied upon the decision of Hon ble Supreme Court in case of Andaman Timber Industries vs. CCE, (2016) 15 SCC 785 (SC) and submitted that the statement relied upon by the AO without giving the opportunity of cross examination by the assessee cannot be a basis for assessment order and addition made by the AO. He has also rel .....

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..... enquiry to find the genuineness of the transaction and creditworthiness of the loan creditors. The enquiry conducted from the concerned banks revealed that these loans were given by loan creditor companies from the same branch of Karnataka Bank Ltd situated at Kolkata and the immediate source of loan was RTGS from the Bank of Baroda, Branch C-Scheme, Jaipur. This fact revealed in the enquiry further gives the reason to the AO to find out the genuineness of transaction. The AO then considered the investigation carried out by the DDIT Kolkata in case of search of Shri Anand Sharma and found that the loan creditor companies are operated by Shri Anand Sharma and engaged in providing bogus entry for loan/LTCG. It is settled proposition that as per the provisions of section 68 of the IT Act, the initial burden is on the assessee to establish the genuineness of the transaction, creditworthiness and identity of the creditor. Thus the identity and capacity of the creditor to advance the money has to be established by producing some cogent evidence. Similarly, the genuineness of the transaction is also required to be established from the fact that the creditor was having the capacity and cre .....

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