TMI Blog2022 (3) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... eted prior to the date of search without any incriminating material or documents found during the course of search. This has been categorically held so by the Hon ble jurisdictional High Court in the case of CIT vs. Kabul Chawla AND [ 2015 (9) TMI 80 - DELHI HIGH COURT] AND Meeta Gutgutia Prop. M/s. Ferns N Petals [ 2017 (5) TMI 1224 - DELHI HIGH COURT] - Thus additions which have been made by the AO right from AYs 2009-10 to 2013-14 are beyond the scope of assessment u/s 153A and, therefore, the same are directed to be deleted. Statement of third party - Inference drawn on the basis of the statement of a third party in a different search, the same cannot be considered to be an incriminating material found during the course of search in the case of assessee. It is not a case here that any incriminating statement of any of the Director or any of the employee of the assessee company was recorded u/s 132(4) based on which any adverse inference has been drawn, albeit it is a statement of different person unrelated to the assessee during the course of another search of a third party, M/s. Hari Iron India Limited. Thus, his statement solely cannot be the basis for any addition i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med assessees are against the separate orders passed by the ld. CIT (APPEALS)-XXVI, New Delhi for the quantum of assessment passed under section 153A/143(3) of the Income-tax Act, 1961 (for short the Act ) for the Assessment Years 2009-10 to 2015-16. 2. In various grounds of appeal, the assessee has mainly challenged the following additions:- RATHI SPECIAL STEELS LTD. ITA No. Assessment Years Addition made by the Ld. AO Amount (in Rs.) 1163/Del/2018 2009-10 Undisclosed income on sales made to M/s. Hari Iron India Ltd. 31,61,395/- 1258/Del/2018 2010-11 Undisclosed income on sales made to M/s. Hari Iron India Ltd. 4,84,675/- 1259/Del/2018 2011-12 Undisclosed income on sales made to M/s. Hari Iron India Ltd. 4,96,572/- 1260/Del/2018 2012-13 1. Undisclosed income on s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Difference in stock found during the course of search and as per books 17,67,071/- 3. Since, in all the years in the case of both the assessees, issues are identical arising out of similar facts and similar findings of the AO and ld. CIT (A), therefore, the same were heard together and are being disposed off by way of this consolidated order. 4. The facts in brief are that, a search and seizure operation was conducted on 20.01.2015 at different premises of the assessee and accordingly, proceedings u/s 153A were initiated for the AYs 2009-10 to 2015-16. Admittedly, at the time of search, assessments for the AYs 2009-10 to 2013-14 were unabated assessments, i.e., the assessments were completed and not pending on the date of search in view of Second Proviso to section 153A. Only the AY 2014-15 was pending assessment and AY 2015-16 is the assessment for the year of search. 5. On merits, the entire controversy revolves around addition on account of undisclosed income on sales made to one party, M/s. Hari Iron India Limited. As culled out from the assessment orders, a separate search u/s 132 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. But in case if the sale is made in W i.e. without bills I receive my commission in cash from the client and Rathi Bars/Rathi Special Steels Ltd. either takes the cash directly from the client or Sh. Anurag Rathi requests me to tell the client to make payment directly to ingot supplier like Munna Rathi, Jhanardhan Beriwal, Alok Goenka amongst others. At other times, Sh. Anurag Rathi requests me to ask the client to make the cash payment directly to scrap supplier like Vijay Pal, Sandeep, Mahavir amongst others. Q.25 How much is your commission as a distributor? Ans. My commission is usually around ₹ 150 per metric ton. Q.26 Which are the companies to whom you are a distributor of Iron Steel Bars? Ans. I am the distributor for the following companies in the field of Iron Steel Bars : 1. Rathi Bars Limited 2. Rathi Special Steels Limited 3. Vinayak Rathi Steel Rolling Mills Pvt. Ltd. 4. Monnet Ispat Limited Q.28 What is the turnover of your company M/s. Hari Iron India Limited? Ans: During the last 2-3 years, it has revolved around 30 crores. Q.29 What is the quantum of sales in W' during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny without bills and not booked in the books of accounts of the assessee company In this regard, we hereby further submit that search action u/s 132 of the act was made by the Income Tax Department at the office premises of Assessee Company and not a single iota of documents was found during the course of search which can indicate that Assessee Company has made sales out of book of accounts i.e. without bills to the said party. Further with regards to the statement of Amit Gupta we hereby submit that the statement in the absence of any incriminating material found during the search may be based on the dictates of the search officials In absence of any incriminating material such statement could not be treated as genuine and could not be used against the assessee company. Further coming to the statement of Amit Gupta, he has stated that the word 'W' has been written where sales have been made without bills but during the course of search, not a single entry/sales have been found which states the word 'W and it is seems that the same is only the story scripted during the course of search and without corroborating the same with any documentary evidence found during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound during the course of search relating to these transactions. Without prejudice to the submission made above, we hereby submit that no any addition could be made in case of the assessee as the assessee has not entered into any such transactions during the years under consideration and even otherwise no any purchases in this regards, has been entered into the books of accounts of the assessee company, no any expenses relating to such sales have been entered into the books of accounts of assessee company; then in such circumstances, any addition to the income of the assessee company, without any corroborating evidences, without any incriminating material found during the course of search in this regard and without confronting the statement of Amit Gupta with the assessee company. 7. Ld. AO however held that the statement of Amit Gupta has huge evidentiary value as the same was recorded u/s 132(4) and in support, he has cited various decisions in his assessment order. Thereafter, he has proceeded to make the estimate of sales outside the books of account in the ratio of 30%/70% and applied profit rate as disclosed by the assessee and worked out the undisclosed income out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009-10 Undisclosed income on sales made to M/s. Hari Iron India Ltd. 1,66,325/- 2010-11 Undisclosed income on sales made to M/s. Hari Iron India Ltd. 4,84,675/- 2011-12 Undisclosed income on sales made to M/s. Hari Iron India Ltd. 4,96,572/- 2012-13 Undisclosed income on sales made to M/s. Hari Iron India Ltd. 5,27,142 2013-14 Undisclosed income on sales made to M/s. Hari Iron India Ltd. 5,91,847/- 2014-15 Undisclosed income on sales made to M/s. Hari Iron India Ltd. 2,66,423/- 9. Similarly, in the case of Rathi Bars Limited, the AO has made addition on account of undisclosed income on sales in the following manner :- Assessment Years Addition made by the Ld. AO Amount (in Rs.) 2009-10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial and documents found during search, the addition made were outside the search materials as fresh assessment or reassessment are against the -provision of section 153A of the Act itself as such the assessment passed making additions outside search materials changing his opinion from the earlier orders passed by the Department is illegal and bad in law. The issue of existence of incriminating material has to be considered in totality. The assessee cannot hide behind seizure or non seizure of documents. The same has to be construed with the trade practices and the expected action on part of an independent entity in normal circumstances. The AO and this appellate forum too have to construe the incriminating material in a harmonious fashion. Hon'ble Delhi High Court has also reiterated in many rulings that action u/s 153A is bound to be initiated in such situations. Therefore, this action of the AO is in tune with judgment of Hon'ble Delhi High Court in CIT (C)-III v. Kabul Chawla (Delhi) [2015] 380 ITR 573. The same is further strengthened by the judgment of Hon'ble Delhi High Court in the case of Dayawanti Gupta v. CIT in ITA Nos.357, 358, 359/2015 and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self being part of the seized records whereby gram by gram quantity of sales made by the assessee company has been recorded and by perusal of the same your goodself will find that no any sales has been made by assessee company without bills and not booked in the books of accounts of the assessee company. In this regard we hereby further submit that search action u/s 132 of the act was made by the income tax department t the office premises of assessee company and not a single iota of document was found during the course of search which can indicate that assessee company has made sales out of books of accounts I.e. without bills to the said party, further with regards to the statement of Amit Gupta we hereby submit that the statement in the absence of any incriminating material found during the search may be based on the dictates of search officials in absence if of any incriminating material such statement could not be treated as genuine and could not be uses against the assessee company .Further coming to the statement of Amit Gupta he has stated that word 'w' has been written where sales have been made without bills but during the course of search .not a single entry/sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke estimated additions to the income of assessee company by relying on the statement of Amit Gupta without corroborating the same with any incriminating material found during the course of search relating to these transactions without prejudice to the submission made above. We hereby submit that no any addition could be made in case of the assessee has not entered into any such transactions during the years under consideration and even otherwise no any purchases in this regards .has been entered into the books of accounts of the assessee company .no any expenses relating to such have been entered into the books of accounts of assessee company; then in such circumstances any addition to the income of assessee company, without confronting the statement of Amit Gupta with the assessee company. The learned AO while rejecting the above submission has made the follow observations and has cited the case laws in support of his contention. Your honour, the case laws cited by the ld AD are not applicable to the facts legality of the case. The third party has made admission on this count and it is unlikely that the assessee appellant would concede this pint. The AO has also d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he possession of the AO as part of the seized records, whereby gram by gram quantity of sales made by the assessee has been duly recorded. He further submitted that the AO who was in possession of entire books of account including excise record of the assessee, and no discrepancy has been found or detected which could have been remotely correlated with the statement of Amit Gupta. In absence of any rejection of books of account, neither the sales can be estimated nor can any profit rate be applied. Once the trading account has been accepted including the figures of debit and credit side, there is no scope for estimating any GP or NP rate. 12. Ld. Counsel further submitted that the AO nowhere has rebutted any of the contentions raised by the assessee in his reply (which has been incorporated supra) and not a single incriminating document was found in any of the year relating to M/s. Hari Iron India Limited. He has also not cross verified from M/s. Hari Iron India Limited nor given any opportunity to cross-examine Sri Amit Gupta. Regarding one of the documents which has been mentioned by the AO in his concluding paragraph as incorporated above with regard to papers recovered fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such unaccounted sales. Income arising out of such sales as well as capital deployment is being calculated as under: Asst. Year Sales remained out of books (A) Profit earned (taking manufacturing GP i.e. 5.86% as disclosed in regular books for relevant previous year) (B) Total sales made during the year (C) Capital Employed (including share premium) (D) Undisclosed Capital (e) [A/C x D] 2015-16 41,95,493 2,45,856 2,64,49,254 34,18,74,995 5,41,963 Thus, total profit on undisclosed sales comes to ₹ 2,45,856/- and total undisclosed capital required to affect the sales calculated at ₹ 5,41,963/- but as an addition has already been made during the last years on account of undisclosed sales and capital to the extent of ₹ 99,37,494, no further addition lie on account of capital. So, addition on account of income arising out of sales comes to the extent of ₹ 2,45,856/- is added to the total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be used for making the additions in the hands of the assessee on the assessment made u/s 153A. 15. On the other hand, ld. CIT DR for the Revenue though did not rebut the assessee s contention that no incriminating material found during the course of search in the case of the assessee, however, he submitted that the statement recorded u/s 132(4) even though in a different search has a great evidentiary value and AO can utilize such information gathered from the statement to use against the assessee. In his statement, he has categorically stated that he has been making sales to parties through the assessee companies partly without bills. Therefore, AO has rightly concluded that the assessee was making undisclosed sales to various parties for which AO has estimated the profit rate as disclosed by the assessee on its disclosed sales. In support of his contention that statement recorded u/s 132(4) has a great evidentiary value, he has referred to Hon ble Allahabad High Court in case of Sterling Machine Tools vs. Commissioner Of Income-Tax 122 ITR 926 (All.) and various other judgments. For the Finally, he strongly relied upon the order of the AO. DECISION 16. We have he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1523 Delhi High Court; (viii) Smt. Jami Nirmala vs. The Pr.CIT, Bhubaneswar and Ors. dated August 10, 2021 2021 (8) TMI 594 Orissa High Court; and (ix) Pr. CIT vs. Gahoi Dal 7 Oil Mills 2019 (7) TMI 1050 Madhya Pradesh High Court. 17. Thus, at the threshold, the additions which have been made by the AO right from AYs 2009-10 to 2013-14 are beyond the scope of assessment u/s 153A and, therefore, the same are directed to be deleted. 18. Now, coming to the adverse inference drawn on the basis of the statement of a third party in a different search, the same cannot be considered to be an incriminating material found during the course of search in the case of assessee. It is not a case here that any incriminating statement of any of the Director or any of the employee of the assessee company was recorded u/s 132(4) based on which any adverse inference has been drawn, albeit it is a statement of different person unrelated to the assessee during the course of another search of a third party, M/s. Hari Iron India Limited. Thus, his statement solely cannot be the basis for any addition in the case of the assessee. Otherwise also, from a bare perusal of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order wherein various errors were pointed out. However, the ld. AO has made addition of ₹ 58,40,136/- after observing and holding as under :- Observation and Conclusion The submission of the assessee has been considered but found to be devoid of merits. The assessee has submitted that the survey team has not taken the inventory of stock on actual basis instead it has been argued that the stock has been inventorised on estimation basis only. This contention of the assessee could not be accepted as the survey team has inventorised the stock in the presence of the employees of the assessee company. Further, the assessee has submitted a detailed calculation of stock based in the ISI standards defined for a certain description of Steel Bars and bas submitted that difference between the inventory of Finished Stock of Steel Bars on the basis of such standards and the Inventory of Stock of Finished Goods as per the Stock register has been reduced, This contention of the assessee could not be accepted as no documentary evidence substantiated its claim could have been furnished by the assessee during the course of assessment proceedings. Moreover, it is also found tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on alleged difference in stock and accepted the calculation and reconciliation filed by the assessee. His relevant finding and observation for the sake of ready reference is reproduced hereunder :- The appellant has submitted in ground 4 that the AO erred in making addition of ₹ 58,40,136/- on account of difference in stock calculated based on estimation basis applying universally the different diameter goods as having the same length and weight. The appellant premises was covered in search and inventory was taken. The physical inventory has been taken by weighing item of one dimension and projecting the same on other similar items the appellant maintains inventory basis weight of the produce in specific category and there are small variations in diameters of the product being process based variations. The excise record and the sale bills etc are all as per the weight of the lot in transaction and it may have variations at times. The margin of error is not ruled out but based on submissions and the material placed on record, it is clear that the inventory variations cannot be determined precisely by only projecting the dimensions and weight of one item on other sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 40,73,065/- instead of ₹ 58,40,136/- therefore, this addition should also be deleted. 23. However, from the perusal of the assessment order, we find that AO has made addition of ₹ 40,73,065/-on account to excess stock of raw material and ₹ 17,67,071/- on account of different items of stock as incorporated above. The ld. CIT (A) has deleted the addition of ₹ 40,73,065/- and regarding the amount of suppressed sales and income from such sales of ₹ 17,67,071/-, he has not given any separate finding albeit has held that unaccounted sales has already been confirmed by him. However, there is no clarity on this addition of ₹ 17,67,071/-, therefore, we are of the opinion that ld. CIT (A) should decide this issue clearly and assessee may substantiate this issue before the ld. CIT (A). Accordingly, this ground relating to ₹ 17,67,071/- is remanded back to the file of the ld. CIT (A). 24. Lastly, in the case of M/s. Rathi Special Steel Ltd., the assessee has raised an issue of ₹ 9,39,813/- which is an addition on undisclosed income on the sales made out of books on the information received from Excise Department for AY 2012-13 perta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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