TMI Blog2020 (12) TMI 1064X X X X Extracts X X X X X X X X Extracts X X X X ..... y various Hon'ble courts including Supreme Court in the case of Andman Timber Industries [ 2015 (10) TMI 442 - SUPREME COURT] . Moreover, we find that the Assessing Officer had made the additions on the basis of a report from the Assessing Officer of Rich Group of companies and has not carried out any independent investigations for holding the transactions of cloth trading as bogus. The assessee has recorded the entries of sales and purchase in its books of account and has duly disclosed the items of sales and purchase in the profit loss account and has duly disclosed the profit earned on the trading in the profit loss account and has offered the same as business income. The assessee has furnished as much information as possible to justify its claim about the transactions of cloth being genuine. Under these circumstances, Hon'ble Supreme Court in the case of CIT vs. Odeon Builders Pvt. Ltd. [ 2019 (8) TMI 1072 - SUPREME COURT] has decided the issue in favour of assessee. Additions deleted. - ITA Nos.510 to 512/LKW/2019, ITA Nos.513 & 514/LKW/2019, ITA Nos.515 & 516/LKW/2019, ITA Nos.517 & 518/LKW/2019, ITA No.526/LKW/2019 - - - Dated:- 16-12-2020 - Shri. A. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax (Appeals)-4, Kanpur, has erred in law and on facts in sustaining the adverse inferences drawn by the A.O. in respect of business of trading in cloth, without bringing any cogent material on record and confronting the same to the appellant, thus, the inferences drawn are arbitrary, unilateral and are also illegal and Unsustainable in law and on facts. 6. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur, has erred in law and on facts in sustaining the arbitrary addition/disallowance made by the Ld. AO amounting to ₹ 7,56,495/-, being the alleged commission paid @ 2% on the net profit in wholesale trading of cloth treated as unexplained expenditure from undisclosed income under section 69C of the I.T. Act, 1961 in the assessment passed u/s 153A of the Income Tax Act,1961. 7. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur, has erred in law and on facts in sustaining the arbitrary addition of ₹ 7,56,495/- made by the A.O. being unexplained expenditure from undisclosed income under section 69C of the I.T. Act, 1961, merely on surmises and conjectures, without appreciating that no incriminating document(s)/evidence was found in the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill hold good for rest of the appeals. Explaining the facts of the cases, Learned counsel for the assessee submitted that a search took place on the assessees on 23/08/2016 wherein no incriminating material was found during the search. But the Assessing Officer made the additions on the basis of documents found during search on a different assessee and in this respect our attention was invited to the order of the Assessing Officer specifically from pages 8 to 11 where the Assessing Officer has referred to search seizure operation conducted on 28/04/2015 on the companies of Shri Shashwat Agarwal. Learned counsel for the assessee submitted that the Assessing Officer in the order itself has mentioned that a diary identified as BK-2, containing ledger account of different parties, was found and seized at the premises of Shri Shashwat Agarwal from where he observed that the searched group was engaged in the accommodation entries of Long Term Capital Gain / unsecured loans to various parties. It was submitted that the Assessing Officer in the case of Shri Shashwat Agarwal observed that the name of Navin Jain and his family members, belonging to Sigma Group of companies, was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the additions sustained by learned CIT(A) are not in accordance with law as held by Hon'ble Supreme Court in the case of Andaman Timber Industries vs. Commissioner of Central Excise 281 CTR 241 (SC) which was followed by Lucknow Bench of the Tribunal in the case of Morning Glory Infra Limited vs. DCIT in I.T.A. No.72/Lkw/2018. 2.3 Without prejudice to the above, Learned counsel for the assessee submitted that on merits also the assessee has a strong case as assessee was dealing in wholesale cloth trading business since assessment year 2011-12 and in none of the years the addition was made. It was submitted that even in assessment year 2013-14 the assessment was completed u/s 143(3) and no addition was made on account of trading in wholesale business of cloth. Moreover, it was submitted that Hon'ble Supreme Court in the case of CIT vs. Odeon Builders Pvt. Ltd. [2019] 110 Taxmann.com 64 (SC) has held that no addition can be made on the basis of third party information gathered by the Investigation Wing of the Department which has not been submitted to further verification by the Assessing Officer and he had not provided copy of such statement to the assessee and thus, de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of the assessees and therefore, on that basis the Assessing Officer has rightly made the addition and which the CIT(A) has rightly upheld. Without prejudice it was submitted that Hon'ble Allahabad High Court in the case of CIT vs. Raj Kumar Arora [2014] 367 ITR 517 (All) has held that there is no requirement of incriminating material for invoking the provisions of section 153A. As regards the reliance placed by Learned counsel for the assessee on the judgment of Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla [2016] 380 ITR 573 (Del), Learned D. R. submitted that Department has not accepted the decision of Hon'ble Delhi High Court in the case of Kabul Chawla and moreover the SLP was dismissed by Hon'ble Supreme Court due to low tax effect. As regards reliance placed by Learned counsel for the assessee on the judgment of Hon'ble Supreme Court in the case of Meeta Gutgutia, the Learned D. R. submitted that Department has not accepted the decision and has filed SLP in the case of Continental Warehousing Corporation which has been admitted and therefore, it was submitted that the judgment of Hon'ble Allahabad High Court in the case of Raj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nafter referred to as Act) took place at the business premise of the appellant Co. and the residential premises of the Directors of the Company, on 23.08.2016 which continued up to 25.08.2016 and as a result of search, notices u/s 153A were issued in the case of appellant for A/Ys 2012-13 to 2016-17. 2) The appellant is engaged in the business of manufacturing and trading of M S Ingots and also wholesale trading in cloth. 3) Original return of income for A.Y. 2013-14 was filed by the appellant on 23.10.2013 declaring net income at ₹ 25,70,020/-. 4) Assessment u/s 143(3) was framed by the Learned Assessing Officer at a total income of ₹ 29,82,960/- vide assessment order dated 22.03.2016. Copy of assessment order has been placed at pages 51 to 54 of the paper book. 5) Return of income filed along with Audited set of accounts, copy of the income tax return and Tax Audit Report have been placed at pages 1 to 50 of the paper book. 6) A notice u/s 153A was issued by the A.O. on 03.04.2018, and thereafter Assessment u/s 153A r.w.s. 143(3) was made by the Learned Assessing Officer computing total income at ₹ 3,85,81,232/- and provision in Sec. 115 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness. 12) The appellant is in appeal before the Hon'ble Bench against upholding of the action of the Learned Assessing Officer by the Learned Commissioner of Income Tax (Appeals) (supra). 13) While framing the assessment, the Learned Assessing Officer has solely relied on certain communication received by him from the Deputy Commissioner of Income Tax, Central Circle-1, Kanpur, vide letter No. DCIT/CC-1/KNP/Misc/18-19/ 699 dated 06.12.2018 being the Assessing Officer of Rich Group of cases which has been reproduced by the A.O. from pages 7 to 12 of the assessment Order. 14) The A.O. has observed that during the course of search of Rich Group of cases, on 28.04.2015, certain documents were found particularly, a reference has been made to a ledger, seized and inventorised as Annexure BK-2, which allegedly transpires that Rich Group of cases along with appellant company were involved in circular trading of cloth. 15) As per the Learned Assessing Officer, the transaction(s) relating to purchase and sale of cloth were only in the nature of book entries and there was no actual business transaction and from this he inferred that the profit declared by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23) Any adverse inference drawn on the basis of the document seized from the possession of any third party, except by resorting to the laid down procedure provided u/s 153C of the Act, while framing assessment u/s 153A of the Income Tax Act, 1961 is bad in law. Your Honour's kind attention is drawn to the ratio propounded in the following judgments: - 395 ITR 526 Pr. CIT vs Meeta Gutgutia 380 ITR 573 (Del) CIT vs Kabul Chawla 380 ITR 571 (Del) CIT vs Kurele Paper Mills 352 ITR 493 (Del) CIT vs Anil Kumar Bhatia 374 ITR 645 (Bom) CIT vs Continental Warehousing Corpn. 386 ITR 483 (Bom) CIT vs Gurinder Singh Bawa 392 ITR 501 (Del) Pr. CIT vs Smt. Ania Rani 397 ITR 344 (SC) CIT vs Singhad Tech. Edu. Society Thus the impugned assessment is illegal and unsustainable in law and on facts. 24) Alternatively and without prejudice to the legal issue, the inference drawn by the Learned Assessing Officer and upheld by the Learned Commissioner of Income Tax (Appeals)-4, Kanpur that the profit declared by the appellant company in trading of cloth is unexplained cash credit and is liable to be taxed u/s 68 of the Act is de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Commissioner of Income Tax (Appeals) in treating the profit on trading of cloth as an alleged unexplained cash credit liable to be charged to tax u/s 68 of the Act is arbitrary, unjustified, against law facts and the same deserves to/be treated as Income from Business from an established source. 33) Before I close, I will once again like to reiterate that there is not even a whisper of finding of any material relating to trading in cloth, not to speak of incriminating material, found and seized during the course of search at the appellant's premises which has been discussed by the Learned Assessing Officer in coming to the conclusion that the business of purchase and sale of cloth be treated as alleged unexplained cash credit. 34) The only reference of a document inventorised as BK-2 seized from the premises of Rich Group of Companies and that too does not relate to trading of cloth therefore, in my humble view cannot be made as a basis for drawing such an adverse inference. 35) Facts for A/Y 2015-16 are identical to the facts for A/Y 2013-14. Return of income was filed on 27.10.2015 and intimation us 143(1) was passed on 03.05.2016. Assessment for this y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted with such information/material and allowed opportunity for cross examination. 4) ln the present case, specific requests were made by the appellant from time to time seeking cross examination but the same was denied completely. Reliance in this regard is placed on the following decisions:-. a)Judgment of Hon'ble Supreme Court in the case of Andaman Timber Industries Vs. Commissioner of Central Excise 281 CTR 241 (copy enclosed), wherein it was held as under: ......not allowing assessee to cross-examine witnesses by Adjudicating Authority through statements of those witnesses were made as basis of impugned order, amounted in serious flaw which make impugned order nullity as it amounted to violation of principles of natural justice. It was to be borne in mind that order of Commissioner was based upon statements given by two witnesses. Even when Assessee disputed correctness of statements and wanted to cross-examine witnesses, Adjudicating Authority did not grant opportunity to Assessee. In impugned order passed by Adjudicating Authority it was specifically mentioned that such opportunity was sought by Assessee, however, no such opportunity was granted. Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re disallowance was based on 3rd party information gathered by the Investigation Wing of department, which had not been independently subjected to further verification by Assessing Officer and he had not provided copy of such statements to appellant, thus, denied the opportunity of cross examination to appellant, who on the other hand had prima facie discharged initial burden of substantiating purchases through cheques, VAT Registration of Sellers and their Income Tax Return -he held that purchases made by the appellant was respectfully and disallowance was to be deleted..... In the absence of giving of opportunity to cross examine, it is to be believed that the addition made by the Ld. A.O. is based merely on presumptions, without any independent enquiry or finding contrary to the submissions made by the appellant. It is, thus, respectfully prayed that the action of the Learned Commissioner of Income Tax (Appeals) in upholding the action of the Learned Assessing Officer of treating the additions as a deemed income rather than a normal business income is totally unwarranted, unjustified both in facts and on law and deserves to be negated. DEPARTMENT S WRITTEN SUB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h court in CIT Vs K.P. Ummer (Ker)(rendered in February 2019). 6 Section 153C is a mechanism to assess the income of other person based on any material found someone else's search, when no proceedings u/s 153A could be initiated in case of such other person . Thus, 153C is only an alternative machinery to initiate assessment proceedings based on seized material in case of other person where there is no search initiated. But, once search itself is initiated and proceedings u/s 153A are pending, then the alternative mechanism of assessment u/s 153C does not get invoked even if any material is found in respect of searched person in a search initiated in case of some third-party, because the substantive provision for making assessment u/s 153A is already available to assess such income too. 7 Even section 153C provides for assumption of the jurisdiction to issue notice for assessment of total income in case of other person' but the actual assessment has been specifically provided to be in the same manner as provided u/s 153A. This means that 153C is only a machinery provision to assume jurisdiction and the substantive provision for assessment is 153A only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial or recording any satisfaction w.r.t availability of seized material before issue of notice u/s 153A. In my opinion, the intention of legislature in allowing so could be that the initiation of search itself is subject to recording of satisfaction u/s 132(1) by the PDIT(Inv) on grounds that: (i) Upon issue of summons u/s 131(1), the assessee has failed to produce or would not produce the books of accounts or other documents so requisitioned; or (ii) The assessee is in possession of money, bullion jewellery, article or thing which represents wholly or partly in come has not been or would not be disclosed for the purposes of the Act. 2. The conjoint reading of section 153A and 132(1) would clearly imply that a satisfaction to issue notice u/s 153A is already deemed to be imported from the satisfaction recorded by PDIT(Inv) at the time of issuing warrants u/s 132(1). The existence of satisfaction recorded by PDIT(Inv) is liable to be challenged before courts. Hence, until such satisfaction for issue of warrants u/s 132(1) are held invalid by any court, the satisfaction recorded by PDIT(lnv) shall continue to hold the fort for purposes of 153A also and it is for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nough to include every kind of enquiry/examination for discovery, quantification and assessment of any income wholly or partly for the purposes of the Act. Hence, the process of 'assessment of total income' u/s 153 A can neither be restrictive nor have a different connotation for assessment under section 153A vis a vis 143(3) or 147.As per the scheme under the Act, the satisfaction recorded u/s 132(1) and the results of search are intended to be brought to a logical conclusion by initiating the proceedings u/s 153 A without any further act of the AO. Hence it is in the scheme of the Act that after issuance of notice u/s 153 A, the next action of the AO which must follow is the examination of all aspects, for which a search has been initiated. Hence, it cannot be said that the AO u/s 153A cannot proceed to examine the books of accounts or documents, entries which were produced before him subsequently, wherein might also represent income wholly or partly, which has not been disclosed for the purposes of the Act. In the case of ACIT Vs M/s A R Enterprises 1 SCR 295(SC) the court held that the only way of disclosing income is through filing a return and therefore an undi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to an absurd consequence whereby the powers granted to issue notices u/s 153A would be rendered otiose in cases which got abated for any particular AY. In the absence of any seized material, AO may not be able to proceed to make any assessment of any other item of total income implying that the process of making assessment of total income as envisaged in section 153A fails in abated cases. However, a statute can never be interpreted in a manner to make it redundant. 7. Further, the Court in case of CIT Vs Neeraj Jindal (2017) 393 ITR 1 (Delhi) held that the penalty u/s 271(l)(c) can be levied only on the income assessed over and above the return filed u/s 153A even when the assessee offered additional income over and above the earlier return .filed u/s 139. While holding the Delhi High Court observed in para (ix) as under: (ix) Thus, it is clear that when the A.O. has accepted the revised return filed by the assessee under Section 153'A, no occasion arises to refer to the previous return filed under Section 139 of the Act. For all purposes, including for the purpose of levying penalty under Section 271(1)(c) of the Act, the return that has to be looked at is the one f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no nexus to seized material but claimed for the first time in return u/s 153 A. 8. Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of search, or on the basis of any other post-search material or information available with the AO though such assessment cannot be arbitrary. The provisions section of 147 and section 153A, though have different conditions to assume jurisdiction but both operate to make the assessment of total income only. The Memorandum explaining the provisions of Finance (No. 2) Bill of 2009 while inserting explanation 3 to section 147 reads as under: Some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent. Therefore to articulate the legislative intent clearly, explanation 3 has been inserted in section 147 to provide that assessing officer may examine, assess or reassess any issue relevant to income whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y anomalous situation, the only view could be taken is that u/s 153A, the total income including income based on seized documents as well as any other source is required to be assessed. 11. There is divergence of judicial opinion on the question of whether assessment u/s 153A can be restricted to only the incriminating material seized during the search or whether the AO can also take a view based on something which might be noticed otherwise during the course of assessment proceedings u/s 153A? Some of the conflicting opinions expressed in judicial verdicts are as under: (a) Allahabad High Court in Raj Kumar Arora 367 ITR 517 has held that there is no requirement of incriminating material for invoking provisions of 153A. (b) The Delhi High Court in Kabul Chawla 380 ITR 573(Del) held that assessment u/s 153A on an issue could not have been made unless backed by some incriminating material found during the search. The department has not accepted the decision in case of Kabul Chawla and the SLP was filed was subsequently withdrawn due to low tax effect. (c) However, the same Delhi High Court in case of Dayawanti Gupta Vs CIT 390 ITR 496(Del) in para 16 has ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o; on best judgment with reference to the business or profession carried on by the assessee. We have also held in Commissioner of Income Tax v. Orma Marble Palace P(Ltd) [ITA 19 of 2011] that a dishonest assessee would not keep evidence of his dishonesty to be discovered after a long time or even a short time. Hence there is no assumption possible that in any of the prior years in which assessments were not regularly completed and the time for the same has expired, there could be additions only on the basis of materials recovered relevant to those years. The returns filed in pursuance to a notice under Section 153A is also to be treated as a return filed under Section 139.Hence, we cannot agree with the Tribunal that the assessments carried out under Section 153A for the prior years in which the due date for notice under Section 143(2) has expired, can only be with reference to incriminating materials recovered on search . We do not think that the intention in providing for abatement of pending proceedings and the revival of the same, if the proceedings under 153A(1) are eventually set aside; was to provide for a separate procedure for the years in which the notice period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 115JB was not justified in order under section 153A as no incriminating material was found concerning said addition had to be rejected -Held, yes. (g) Sunny Jacob jewelers and wedding center Vs DCIT362 ITR 664(Ker) Whether there is no requirement under provisions of Act requiring department to collect information and evidence for each and every year for six previous years in order to initiate proceedings under section 153A - Held, yes (h) CIT Vs Anil Kumar Bhatia 352 ITR 493(Delhi) Whether even if assessment order had already been passed in respect of all or any of those six assessment years, either under section 143(1)(a) or section 143(3) prior to initiation of search/requisition, still Assessing Officer is empowered to reopen those proceedings under section 153A without any fetters and reassess total income taking note of undisclosed income, if any, unearthed during search - Held, yes. Similar View upheld in E.N. Gopakumar [2016] 75 taxmann.com 215 (Kerala) (i) CIT-II Vs continental warehousing corporation 235 Taxman 568(SC) The High Court by impugned order held that no addition can be made in respect of assessments which have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of any fact claimed earlier but coming to notice during search; vi)falsity of nature of entries already recorded in books of accounts, (vii) absence of books being found during search making the claims made in return already filed as suspicious ;or viii) absence of the office/business premises as claimed during returns filed or any other documents, etc. Even a statement given during search u/s 132(4) can be incriminating. The apex court in PCIT Vs Best Infrastructure (India) P Ltd 94 Taxmann.com 115 (SC)has admitted an SLP by revenue against the order of High Court wherein the High Court had held that the statement offering income for one year would be incriminating for the year for which disclosure has been made and not the six years for the purpose of section 153A. In the case of ACIT Vs M/s A R Enterprises 1 SCR 295(SC) also the court held that the only way of disclosing income is through filing a return and therefore an undisclosed income signifies income not stated in the return filed. In short, any fact/evidence which could suggest that the documents/transactions claimed or submitted in any earlier proceedings were not genuine, or recorded unsubstantiated facts/ transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: 270A (10): The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:- (a) Misrepresentation or suppression of facts; (b) Failure to record investments in the books of account; (c) Claim of expenditure not substantiated by any evidence; (d) Recording of any false entry in the books of account; (e) Failure to record any receipt in books of account having a bearing on total income; and (f) Failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply. Thus, if during assessment proceedings, the AO finds existence any of the above facts as mentioned u/s 270A(10), the incidence of misreporting will be triggered thereby making the earlier recorded entries/earlier admitted documents and evidence itself to be incriminating in nature on account of such entries being hit by misreporting. Thus, the event of misreporting itself is incriminating. If it were held not to be so, then the purpose of 153A/153C would be defeated as it would fail to prevent the mischief of misreporting i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute incriminating material enough to make an assessment of income and fasten the tax liability as held by in Sumati Dayal Vs CIT 214 ITR 801(SC). It will therefore include any circumstantial material also, which directly or indirectly, proves that the earlier evidence submitted was only a make belief and such new material has a bearing on the assessment of total income of any assessee, even if such income was earlier admitted as correct in absence of any such adverse facts available at the time of earlier assessment. 5. We have heard the rival parties and have gone through the material placed on record. We find that the first argument of Learned counsel for the assessee was that in case of completed assessments, the addition cannot be made if there is no incriminating material. In this regard Learned counsel for the assessee had submitted that in the year 2013-14 and 2015-16 the assessments stood completed and there was no incriminating material found during the search. In this respect the Bench had asked both the parties to furnish the material which was impounded during the search and which both the parties had filed with the Bench which we have examined and have compare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shwat Agarwal were engaged in providing accommodation entries of bogus Long Term Capital Gain, unsecured loans etc. to various parties and there is no mention of bogus transactions of cloth. Moreover, the above findings clearly indicate that the accommodation entries of Long Term Capital Gain and unsecured loans were obtained by the individuals mentioned in the assessment order and there is no mention that the assessees had taken any entry of Long Term Capital Gain or unsecured loans from the companies of Shri Shashwat Agarwal. This fact is further corroborated from the fact that the Assessing Officer in the case of the assessees did not make any addition on account of Long Term Capital Gain or unsecured loans but he made the additions by holding the sale and purchase of cloth which was purchased from Rich Group of Companies to be bogus. All these facts demonstrate that the Assessing Officer had not made the addition on the basis of any incriminating document but had made the addition on account of bogus sale and purchase of cloth for which no document was found during the course of search. Even otherwise, the documents relied on by the Assessing Officer were found at the premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 004-05, the Assessing Officer also made an addition on account of stock. The Assessing Officer estimated the undisclosed income, on account of franchisee fee, at a certain percentage for the assessment years 2001-02 to 2006-07. No addition was made for the assessment year 2006-07, although a disclosure was made. Before the Commissioner (Appeals), the assessee produced additional evidence under rule 46A of the Income-tax Rules, 1962, which included copies of franchisee agreements. A rejoinder was filed by the assessee. On analysis of the additional evidence, the Commissioner (Appeals) held that the accounts of the assessee had been tax audited and that no adverse remarks had been made by the tax auditors. He further held that the Assessing Officer had not rejected the books of account of the assessee. Accordingly, he held that the disallowance of the franchisee commissions paid were unsustainable and deleted the additions made. He deleted the additions made on account of payment of rent, non-refundable security, income from self-controlled outlets and reduced the addition made on account of closing stock. He also deleted the additions of undisclosed income, made on account of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of completed assessments, the addition can be made only on the basis of incriminating material found during search. We have already held that no incriminating material was found from the premises of the assessee therefore, the additions cannot be made in the case of completed assessments which in this case is appeal for assessment year 2013-14 wherein in I.T.A. No.510 the assessment order was already passed u/s 143(3) on 22/03/2016 which is before the search date of 23/08/2016, copy of assessment order is placed at pages 51 to 54 of the paper book. Similarly in I.T.A. No. 515, the assessment was completed u/s 143(3) vide order dated 23/03/2016, the copy of which is placed at pages 54 to 57 of the paper book. Similarly in I.T.A. No.517 relating to assessment year 2013-14, the assessment order u/s 143(3) dated 30/03/2016, a copy of which is placed in paper book at pages 52 to 56. Therefore, the assessments in these cases stood completed. Learned counsel for the assessee had though argued that the assessment for assessment year 2015-16 also stood completed but in our opinion the appeals for assessment year 2015-16 cannot be said to be completed as time for issue of notice u/s 143(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signed of the I.T. Act for assessment year 2012-13 to 2017-18. From the perusal of records and the details furnished by you, it is noticed that you have claimed to have made purchases and sales of cloth as per details given below: Assessment year Total purchases (Rs.) Total Sales (Rs.) 2012-13 39,84,04,295 48,75,48,301 2013-14 25,11,10,095 28,87,36,832 2014-15 26,90,31,480 32,17,14,504 2015-16 50,02,71,240 59,97,21,277 2016-17 49,99,04,843 61,30,18,425 2017-18 44,83,60,330 48,07,39,041 During the course of assessment proceedings you have been asked to submit various information, explanations and evidences about the transactions of purchase sale of cloth business. From the facts provided by you, it is crystal clear that alleged cloth trading is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey Radhey Isptal Pvt. Ltd. and also its signatory, stated that cloth trading has been conducted in Sigma Casting Ltd. Shree Radhey Radhey Ispat Pvt. Ltd. from financial year 2011-12 and in M/s Kundan Casting Ltd. during financial year 2012-13 and 2013-14 but failed to give any details as to where stock of cloth was being stored as no trace of any cloth whatever was found during the search. Thus the assessee could not susbstantiate the alleged cloth trading during the search seizure operation. During the search seizure operation at 122/235, Fazalganj, Kanpur no stock of cloth was found and even sample of cloth was also not found. The assessee was also asked to submit name of the retailers, where the cloth traded by it, is available for end users, it simply replied that it did not deal with retailers. It is highly improbable that the assessee group companies which are having huge turnover of around 1000 crore from financial year 2011-12 to 2016- 17, did not bother to know where cloths traded by it are being sold to end users (customers). A business man cannot be so indifferent about the product, he is dealing in, when he is earning net profit of around 15%. Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inferences; A search was conducted on 23.08.2016 (concluding on 25.08.2016) and despite almost 27 months passed from the said date, no enquiry except from Shri Ankur Gupta 2-3 questions were asked during the course of search at the office of M/s. Radhey Radhey Ispat Pvt. Ltd. Group, about the cloth trading, no meaningful enquiry was done from any responsible person of the assessee group till now. However, in the Show Cause Notice based on third party information, that too never confronted to the assessee for rebuttal/explanation, pre- conceived inferences have been drawn relating to the cloth trading done by the assessee. 2)Twisting of Facts; Certain facts mentioned in the Show Cause Notice are not part of assessment record of the assessee or M/s. Radhey Radhey Ispat Pvt. Ltd. Group of cases. For example cloth trading up to 30.06.2017 was not subjected to any VAT/Sales Tax still inference has been drawn by saying that no information could be obtained from Sales Tax Department. Further, the assessee group as a whole and assessee in particular was dealing in wholesale business of unbranded cloth, which has high margin, compared to branded cloth trading. Whereas, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion not received from Sales Tax Department in the case of third party referred to in your Show Cause Notice is neither relevant nor meaningful in the present case. Further, a copy of VAT Registration, Annual Return and copy of order etc. of the assessee company has already been filed with earlier replies. iv) Godown; The assessee group has taken 2 godowns and 5 shops on rent as per details given below: Godown/Shop No. Premises No. Owner of Shop/Godown Tenant of Shop/ Godown 1 to 5 (Five shops) 2 Godowns 122/325 Plot No. 17, Fazal Ganj Kanpur Sigma Casting Ltd., 122/225, Plot No. 17, Fazalganj, Kanpur l)Shree Radhey Radhey Ispat Pvt. Ltd. 2)Kundan Casting (P) Ltd. 3)Paras Casting Alloys Pvt. Ltd. 4)Sadahari Shakti Pvt. Ltd. The assessee company was authorized (Licensed) User of Godown and shops for its cloth trading business besides using the same for other business activity(ies), hence the space required for holding of stock from time to time was sufficient and have been unnecessarily ignored t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances narrated above and detailed explanation given on each point raised in the show cause notice proposing to invoke provision in section 68 and 69C of the Income Tax Act, 1961 and to treat cloth trading as Bogus and alleged commission paid thereon as unexplained expenditure is devoid of merits, unfounded and based merely on bald hypothesis therefore, no adverse inference deserves to be drawn on this account. We hope that the above details/information will meet your requirement and satisfy your goodself in terms of your referenced Show Cause Notice. 9. From the above questionnaire and reply to the questionnaire, it is clear that the authorities below have not cited any statement of the parties from whom the purchases and sales were made wherein they had denied these transactions and if there are any statements of these parties wherein they had denied these transactions, such statements were not made available to the assessee for cross examination. The assessee in para 3 of the above reply had specifically requested to confront all information and documents etc. but no such opportunity was granted to assessee. The argument of Learned D. R. that since the Hon'ble Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) has decided the issue in favour of assessee by holding as under: 1. Delay condoned. 2. We have perused the review petition and find that the tax effect in this case is above ₹ 1 crore, that is, ₹ 6,59,27,298/-. Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax effect in this case is less than ₹ 1 crore. 3. However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of ₹ 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating: Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possessio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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