TMI Blog2021 (12) TMI 551X X X X Extracts X X X X X X X X Extracts X X X X ..... ly has been followed by the assessing officer without adverting to the facts available on record which prove that exports were made by the assessee company to Hong Kong entity. Even the finding of Transfer Pricing Officer in AY 2010-11 cannot be ignored when he records that exports executed by the assessee company to its associated enterprise was short of arms length price by ₹ 3,64,43,842/-. Had there been no activity done by Hong Kong Entity, how could such finding be arrived at by TPO in the first place? Exports were made under the government policies and as per Import Export regulations and this cannot be ignored. There is nothing on record to suggest that the statement of Ms. Chanchal Bhutani was given to the assessee even. Thus, there is nothing before us to take a view different from the view taken by Commissioner of Income Tax (Appeal) and thus we dismiss all these grounds raised by Revenue in this regard. Addition u/s 69C - unexplained purchases - addition based on document found in search from third party - HELD THAT:- Addition was made on the basis of the documents not found from the assessee s possession and control but were made on the basis of the documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order passed by Commissioner of Income Tax (Appeal) 29, New Delhi s order dated 29.2.2016 (hereinafter as CIT(A) ). Departmental grounds of appeal and assessee s cross objections are reproduced as under: 1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 1,21,84,826/-, made by the AO on the ground that M/s Alchem International (HK) Ltd., which is a 100% subsidiary of the assessee Company, without appreciating the fact that a legal fa ade was created by the assessee by forming the above Company at Hongkong, which is a tax heaven, with the purpose of diversion of its profit to its 100% subsidiary at Hongkong. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 1,21,84,826/- without appreciating the detailed evidences and reasoning discussed in the assessment order for holding that the effective management and control of M/s Alchem International (HK) Ltd., which is a 100% subsidiary of the assessee Company, was in India. 3. That on the facts and in the circumstances of the case, the Ld. CIT(A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company to explain the seized documents found from his possession. 8. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 31,69,91,238/-, made by the AO on account of unexplained purchases u/s 69C on the basis of the documents seized from Sh. R.P. Yadav, consultant of the assessee company, on the ground that no corroborative evidence was found without appreciating the fact that few documents pertaining to the assessee company were seized from the residence of Sh. R.P. Yadav, which establishes that he used to keep documents of assessee at his residence, and from the bare perusal of the seized documents it is evident that these pertained to the undisclosed cash purchases made by the assessee company through Sh. R.P. Yadav. 9. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 3,03,704/- made on account of prior period expenses, without appreciating the fact that the assessee has added back prior period expenses of only ₹ 1,36,418/- out of ₹ 4,40,122/- by netting of the prior period ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussed this issue at page 20-42 of the assessment order whereas CIT(A) has dealt this issue at page 35- 48, 83-106 and recorded his finding at page 113-120 of the appeal order. 3. Case of the Revenue made in the assessment order and argued by CIT(DR) is that profit earned by Hongkong Subsidiary of the assessee in fact is the profit of the assessee as the it was 100% subsidiary and this legal fa ade was created by the assessee and effective management and control of the subsidiary company was in India. Ld. CIT(DR) relied upon the assessment order and also raised the contentions contained in the departmental grounds of appeal. On the other hand, Ld. AR on behalf of the assessee relied upon the submissions made before CIT(A) and reproduced in the assessment order and supported with the documents contained in the paper book and also relied upon the findings recorded in the order of the learned first appellate authority. 4. We have considered the entire material before us. Findings recorded by Ld. CIT (A) relating to these grounds of appeal are as under: 14.13 -As discussed earlier, first of all it was not established that the control and management of AIHK is done wholly f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HK can be clubbed in the hands of appellant, which is a separate legal entity. Further, the AO has taken only the profit part leaving the expenditure incurred by Hongkong company, thereby accepting the claim of expenditure incurred by AIHK. Even if AIHK is considered as Indian resident, separate proceedings are required in the hands of AIHK to assess its profit in India. 5. It is evident that Hongkong entity was a separate legal entity and was registered in Hong Kong. There are enough evidences which show that the Hongkong entity was doing the business and was subject to Hongkong laws. Transfer Pricing Officer has found the transactions between the assessee company and Hongkong entity at arms-length which also establish that the transactions between the assessee company and Hongkong entity were genuine business transactions. There is no evidence brought on record to prove that the control and management of Hongkong entity was being done wholly from India. In any case, even if control and management of Hongkong entity had been found situated wholly in India, though this is not the proved case of Revenue, yet the profit of Hongkong entity could not be clubbed with the profits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The addition was made by the assessing officer under section 69C on the ground that this much value of purchases was unexplained purchases based on the documents seized from Shri R P Yadav, consultant of the assessee company. 6.1 Departmental Representative relied upon the assessment order whereas counsel for the assessee relied upon the submissions reproduced in the appeal order and also the findings recorded by CIT(A) in his order. 7. After considering the material before us, we do not find any merit in the appeal of the Revenue in this regard. The findings recorded by first appellate authority are as under: 13.8 The appellant vehemently argued that the documents are not related to it, but to Mr. RP Yadav and it is to be explained by him. Since Mr. Yadav has not categorically stated that this documents belongs to the unaccounted/cash purchases of the appellant and also deposed before AO and provided affidavit in this regard. Therefore, appellant stated that since the documents are not found and seized from the premises of company and Sh. Yadav has not stated that since the document gives a detail of unaccounted purchase of Gloriosia seed, procured on behalf of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r drug manufacturing and sold to various drug manufacturing companies, mainly in the international market. Any excess sale to them has to be recorded through the export process, where no such infirmity was noticed. If these seeds are sold in the market without processing, the indication/evidence of same should have been found during search, however no such evidence was found or brought on record. It is not shown by the AO that how such alleged unaccounted purchase of raw material were utilized by the appellant in the absence of any excess production/stock found. 13.11 It is stated that all the payments have been made through cheques and no proof of cash given by appellant to Mr. Yadav has been found. Thus the documents seized from the premises of Mr. RP Yadav has no bearing with the purchases/cash payments of the appellant and should not be used against it as nothing corroborative or incriminating document has been found nor any independent evidence has been brought on record. Further, there is no mandate given by the appellant to Sh. RP Yadav to distribute cash to such farmers and nothing has been stated by Mr. Yadav in this regard. Sh. RP Yadav though working as consultant o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. 13.14 Mr. RP Yadav has stated that the seized documents were the proforma accounts maintained by his part time accountants for limited purpose of performance of his supervisory duties for appellant and others and confirmed that these documents did not represent the purchase transactions of appellant and does not represent any payment by cash for procurement of seeds. The AO could not substantiate that the notings in the documents seized pertains to the purchase made by appellant in cash. Therefore, the additions were made on the conjecture and surmises that the seized documents represents the cash payments for purchase made by appellant out of books without any basis. No adverse inference can be made on the basis of seized documents as per the ratio laid down in various cases, some of them are mentioned above. 13.15 -To sum up, it is seen from the submissions by the appellant and looking to the facts and circumstances of this case and law that the addition has been made on the basis of standalone document found and seized from Mr. RP Yadav, who is consultant/employee of the company and the sum and substance of the document is not proved by any corroborative evidence as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents not found from the assessee s possession and control but were made on the basis of the documents founds from Shri R.P.Yadav and these documents were owned up by him. This admission that these documents were owned and belonged to him only was admitted by Shri Yadav during the course of search and also in his statement recorded in the assessment. Name of another entity namely Jas Impex too is appearing on these documents and thus merely on some papers the name of the assessee is appearing does not mean that these documents or contents of these documents relate to the assessee. Statement of Vice President of the assessee company reproduced in the assessment order also mentions that 90% of the total purchases of the assessee company are through Jas Impex. No enquiry has been made from M/s Jas Impex and nothing has been shown to that effect to us. Statement of the son of Mr. R P Yadav has also been reproduced by the AO in the assessment order and there is nothing that he was made available for assessee s cross examination. To rely on the statement of the son of Mr. Yadav more than on the statement of Mr. Yadav him self is quite strange. In our considered opinion, the addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 of the departmental appeal was made on the basis of the documents seized from shri R P Yadav. Though we have affirmed the order of CIT(A) in deleting the said addition yet we choose to dispose this legal ground raised by the assessee in its cross objection. 18. Ld. Counsel for the assessee relied upon the decision of coordinate bench in the case of Trilok Chand Chaudhary vs. ACIT ITA 5870/Del/2017 dated 20.8.2019 and placed a copy of that on record and submitted that the facts being identical, the addition could not be made without observing the jurisdictional conditions of section 153C as the documents were seized in some other search namely search of Shri R P Yadav and not of the assessee. On the other hand, Ld. CIT (DR) opposed this argument and argued that there is no substance in the legal argument. 19. We have heard the counter arguments and have taken ourselves to the panchnama held on record and also gone through the decision cited. It is noticed that though search on the assessee and search on Shri R P Yadav took place simultaneously but name of either of them is not mentioned in the respective panchnamas. Thus, documents found and seized from the premises of Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t document seized from the premises of Sh. Ashok Chaudhary cannot be considered u/s 153A is absurd and is accordingly rejected. 5.6 In our opinion, the finding of the Ld. CIT(A) is not based on correct appreciation of law. The reasoning of the Ld. CIT(A) is that there cannot be two simultaneous assessment under section 153A and other under section 153C of the Act. This reasoning is faulty. The assessment under section 153C could have been made after completion of the assessment under section 153A of the Act. The Act has provided separate provisions for making assessment in case of material found in the course of the search from the premises of the assessee as well as the material found in the course of search at the premises of the third party. The Assessing Officer is required to follow the procedure laid down in the Act for making the assessment and he cannot devise his own procedure for shortcut methods. In our considered opinion, when the case of the assessee is covered under the provision of section 153 of the Act and if reliance is placed on the incriminating material found during the course of search of third-party, then provision of section 153C of the Act would be ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person] [and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person [for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and] for the relevant assessment year or years referred to in subsection (1) of section 153A]:]. 15. Thus, when during the course of search of an assessee any books, document or money, bullion, jewellery etc. is found which relates to a person other than the person searched, then the Assessing Officer of the person searched shall hand over such books of account, documents, or valuabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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