TMI Blog2022 (4) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... y Limited [ 2021 (10) TMI 1158 - BOMBAY HIGH COURT] held that issuance of notice is the preliminary step which enables the assessee to effectively deal with the case made out by the revenue. Section 153A provides that an assessment has to be made under the said section only on the basis of seized material u/s 132 or 132A, in the absence of such details in the notice issued under the said section, the assessee is not in a position to appreciate which return of income should be filed in response to the notice issued u/s 153A, whether the original return of income filed or revised return of income. As held that the Hon ble Court held that nothing prevented the revenue from mentioning in the notice the basis for issuing the notice u/s 153A so that the assessee could comply with the same as prescribed. Thus the notice issued u/s 153A is bad in law and the assessment made by issue of improper notice is also bad in law - Decided in favour of assessee. Whether basis of reassessment is statement recorded of labour contractors and the statement recorded are prima facie not the incriminating materials? - As relying on LATE SH. RAJ PAL BHATIA OTHERS [ 2010 (11) TMI 1010 - DELHI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his order that the absence of the written contracts will not make the transactions bogus and the ladies did not visit the factories because their spouses/son were carrying out the business and the respective spouse/son have already confirmed the same by filing proper affidavits. By considering the findings of the Ld.CIT(A) and facts on record, we have no hesitation to confirm the decision reached by the Ld.CIT(A). Therefore, we do not see any reason to interfere with the above findings and accordingly ground raised by the revenue is dismissed. Credit card payments - We observe that Assessing Officer has made the disallowance on the basis of adhoc without their being any basis, merely because the assessee incurred such huge expenses, it does not mean that it is not for the business. The Assessing Officer should have verified the same in detail before making any such disallowances. The courts have held that the adhoc disallowances cannot be made without their being any basis. The credit cards facilities are given to the Directors and other employees only facilitating payments of expenses to be made on behalf of the company. Therefore, we direct AO to allow the total expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served on the assessee. In response, the assessee filed its return of income on 09.02.2019, declaring the total income as declared in the original return of income. Notices u/s 143(2) and 142(1) were issued and served on the assessee. In response, AR of the assessee attended and filed the relevant information as called for. 5. During assessment proceedings, the Assessing Officer observed that assessee had claimed labour contractor charges and based on the investigation made by the Investigation Wing relating to this issues. They made certain enquiries regarding Labour Contract expenses and found the following parties as suspicious: - Sr. No Name of the person Name of the Proprietary concern amount(Rs 1. Sheela Singh Shiv Shakti Enterprises 2,99,79,939/- 2. SampaBalaram Das Tanushree Arts 87,52,116/- 3. Anita Durgesh Agarwal Shreeji Enterprises 99,26,354/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the sale proceeds on sale of old machinery/looms includes cash part of 28% and the rest is recorded in the books of account. Accordingly, he observed that the assessee had sold loom amount to ₹.45 lakhs. Therefore, he made addition of 28% of the above sales value as undisclosed income. (4500000/72*28) ₹.17.50 lakhs. Alongwith with the above addition, he also calculated unexplained brokerage @2% on the above sale of machinery to the extent of ₹.125,000/-. 9. Aggrieved, the assessee preferred an appeal before CIT(A) 54, Mumbai and raised a legal issue that the disallowance was made without any incriminating material found during the search proceedings also filed the detailed submissions relating to the disallowances and additions made by the Assessing Officer. After considering the submissions of the assessee, he rejected the legal issue raised by the assessee with the observation that prima facie, there existed incriminating documents in the form of statements of the above mentioned 5 persons. With regard to issues on the additions made by the AO, Ld.CIT(A) deleted the addition made in the labour contract expenses with the following observations: - 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had taken the services of the aforementioned four parties. All the four parties have confirmed receiving payments from the assessee and have filed their returns of income. As alleged by the AO, there are certain cash withdrawals from the bank accounts of these parties but there is nothing suspicious about this as the assessee had to make payments to the labour by cash. The AO appears to have made the addition merely on the basis of presumptions and surmises without any concrete evidence against the assessee. The objections of the AO are that there is no written contract agreement between the assessee and these parties but that itself will not convert the contract into a bogus one. Similarly, the fact that these ladies has not visited the factory premises of the assessee should not be taken against the assessee as the business has been looked after by other members of the families of these ladies who have already given affidavits confirming the activity. In the light of the facts discussed above, the transactions of the assessee with these parties cannot be termed as accommodation entries. The AO is directed to delete the addition made. This ground of appeal is ALLOWED. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perated by Shri Ajay Arora, Both these groups are managed and operated by two different individual. The offices of these two groups are located at different floors of same building. Employees of these two groups are different and there is no common employee working for both group. The nature of products manufactured by both the group are different in their quality, style and design. In the case of M/s. D'd cor Home Fabrics group, a document containing receipt of cash on sale of old loom machinery was found and seized from premises of M/s. D'd cor Home Fabrics group. The statement of Shri Sandeep Galagali, an employee of D'd cor Home Fabrics group was recorded during the search, in which he admitted having received cash over and above the cheque receipts on sale of the old machinery by D' d cor Home Fabrics group. In the case of the appellant, no documents pertaining to receipt of cash has been found. The statement of none of the directors or employees of D' d cor Home Export were recorded on the issue of receiving cash on sale of machinery. The entire facts and circumstances indicate that during the course of search no incriminating documents/material rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e partners of assessee-firms was invalid in the absence of admitted handwriting-AO did not brother to verify fair price of the property while submitting remand report called for the CIT(A)}-Specific bank transactions referred to by the AO have not been cross verified with the exact amounts shown as investments in the documents seized from A Group-Addition rightly deleted by Tribunal (iii) CIT vs Concorde Capital Management Co Ltd [334 ITR 346] Search and Seizure-Block assessment in search cases-No incriminating material found during search-Addition towards undisclosed income on the basis of statement of a third party not sustainable (iv) DCIT vs Mahendra Ambalal Patel [40 DTR 243 Guj] Income from undisclosed sources-Addition-Validity-Addition made towards sale of land based on the statement of third party-No opportunity of cross-examination of said third party afforded to assessee despite request-Tribunal rightly deleted addition made by AO on the basis of bald statement of said party, there being no supporting evidence found in the course of search-Nothing on record to establish that land on sale of which payment was made to assessee, belonged to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he names followed by immediate withdrawal of cash. c. The onus lies on the assessee to prove the expenses incurred by it on labour contract payments were genuine and the services were genuinely used but the assessee had failed in proving its genuineness. d. There existed no contractual agreement between the assessee and the labour contractor parties, in absence of which huge expenses incurred which is also against the normal commercial practices. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in reducing the additions made on account of credit card expenses being personal in nature from 10% to 5% hence, given relief of ₹ 23,75,585/-, even though the Ld. CIT(A) accepted the use of credit card for various personal expenses and the assessee during the appellate proceedings failed to substantiate that the expenses made through credit card were for the purpose of business. 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of undisclosed income of ₹ 17,50,000/on account of sale of old machinery / looms which in the search action revealed to be rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces in a completed assessment year. In absence of such jurisdictional requirement, the assessment order passed u/s 143(3) r.w.s. 153A of the Act does not sustain; hence, the assessment order passed by the AO shall be quashed. In support of this proposition, Your Honours attention is drawn to recent judgment of Hon'ble Bombay High Court in the case of Underwater Services Company Limited vs ACIT 1(2021) 5 NYPCTR 898 (Bom) - Bombavl wherein the Hon'ble High Court has held that 2. We have considered the notice dt. 29th Nov., 2018 which is impugned in this petition. The notice is very brief and is bereft of any particulars. The same reads as under: PAN AY Dated Notice No. AAACS9177M 29.11.2018 ITBA/AST/S/153 A/2018-2019/10 13898034(1) Sir/Madam/M/s, In pursuance of provisions of s. 153A of the IT Act, 1961, you are hereby required to prepare true and correct return of your total income for the asst. yr. 2012-13 in the prescribed form and manner as per r, 12 of IT Rules, 1962 setting forth such other particulars as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this petition should have mentioned whether the seized material was under s. 132 or books of account, other documents or any assets are requisitioned under s. 132A. The notice is absolutely silent as could be seen from above. The notice says you are required to prepare true and correct return of income and setting forth such other particulars . Petitioner had filed their returns for the assessment year in question, which they thought was the true and correct return of income and that it contained ail other particulars prescribed. If respondent felt that was not enough and petitioner should file a fresh true and correct return of income because of the search, then respondent should certainly indicate in its notice what were the seized material under s. 132 or books of accounts or other documents or any assets requisitioned under s. 132A. Otherwise an assessee would file a copy of what it had filed earlier, which respondent anyways had in its file. Petitioner has also been seeking from respondent to make available copy of the alleged incriminating material found/seized during the search based on which the notice has been issued. Mr. Chhotaray states that such material has been g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is submitted that reliance of CIT(DR) on these bills does not have any impact on the above jurisdictional ground of the assessee. In view of the above facts and principles laid down by the jurisdictional High Court, we prays that the order passed u/s 143(3) r.w.s. I53A of the Act making disallowance / addition therein shall be quashed. Departments appeal [ITA 1697/Mum/2021] Ground 1: Disallowance of ₹ 5.58 Crores being payments made to four contractors namely Anita Agarwal (Prop of Shreeji Enterprises), Sampa Balaram Das (Prop of Tanushree Arts), Sheela Singh (Prop Shiv Shakti Enterprises) and Manjuladevi Jha (Prop of Jay Ambe enterprises). The order of CIT(A) is challenged by the department on following grounds: (i) Payment to labour contractors are accommodation entry as they have admitted on oath the they had no knowledge for which payments were made to them (ii) Deposits of cheques in the name is followed by withdrawal of cash (iii) There is no contractual agreement between assessee and labor. We submit that disallowance has been made on the basis of statement recorded of wives of the contractors. The proprie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ampa Balaram Das The services rendered by M/s. Tanushree Arts is of mending on schifli embroidered fabrics. Statement of Smt. Sampa Balaram Das was recorded u/s131 of the Act. Copy is filed at page 176 to 179 of paper book. The operative part of the statement recorded are stated as under: Q9. Please state the detail of your business activities and the address of your business office Ans. Sir, I have a proprietary business in the name of M/s. Tanushree Arts. As per my knowledge, M/s. Tanushree Arts is in the business of contract work of embroidery work which is of mending of embroidered fabrics and address of the business office is my residence itself. And Sir, all the business activities is managed by husband Shri Balaram Das and I do not know all the details of the business activities Q. 10. Do you maintained books of account of your proprietorship M/s. Tanushree Arts? If yes, please provide your books of account. Ans. Sir, as I have mentioned above, I do not know about books of account as all these are managed by my husband Q. 11. Have you ever visited the premises of M/s. D 'Decor Home Fabrics Private Ltd At G-15/1 2, M1DC, Tar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Jai Ambe Enterprises is mending of Multi Embroidered fabrics Statement Smt. Manjula Devi has been recorded u/s 131 of the Act is filed at page 186 to 188 of paper book wherein she has admitted that she provides laborers to the assessee. The question and answer reads as under: Q.5 Please give details of your sources of income. Ans. My source of income sis business income from proprietorship business namely M/s. Jay Ambe Enterprises. Q.6 Please state the nature of business being run by you in name of M/s. Jay Ambe Enterprises. Ans. The business in the name of M/s.Jay Ambe Enterprises is being run by my son Sachin Jha. I am not involved in running the business. All answers regarding the business can be given only by Sachin Jha. An affidavit of Shri Sachin Jha is filed at page 548 to 55 1 of paper book wherein he has confirmed on oath that (i) M/s. Jai Ambe Enterprises provides laborers to the Appellant for mending on multi embroidered fabrics (ii) he regularly visits the factory premises of the Appellant (iii) he provides laborers for mending work on multi embroidery fabrics as on today also. The assessee further submits that since las ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Galagali. In our respectful submission, Shri Sandeep Galagali is not the employees of assessee company. The assessee company is owned and operated by Shri Sanjay Arora whereas Shri Sandeep Galagali is employee of M/s. D'decor Home Fabrics Private Limited which is owned and managed by Shri Ajay Arora (brother of Shri Sanjay Arora). Statement of Shri Sandeep Galagali has been filed during the course of hearing. In his statement, in response to question no 11. he has stated that he only knows D'decor Home Fabrics Pvt Ltd which is not the assessee company but a company owned and managed by Shri Ajay Arora. Therefore, in our respectful submission the statement recorded of Shri Galagali has no link with the case of the assessee: thus, the same cannot be relied upon to make the addition in the case of the assessee. Moreover, no material, whatsoever, have been found during the search at the premises of the assessee which could even remotely suggest that the assessee has received cash on sell of machinery. Besides, there is no statement of any person related to assessee where this issue has been raised. Thus, the assessee plead that the order of C1T(A) shall be upheld and dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively deal with the case made out by the revenue. Further, the section 153A provides that an assessment has to be made under the said section only on the basis of seized material u/s 132 or 132A, in the absence of such details in the notice issued under the said section, the assessee is not in a position to appreciate which return of income should be filed in response to the notice issued u/s 153A, whether the original return of income filed or revised return of income. As held that the Hon ble Court held that nothing prevented the revenue from mentioning in the notice the basis for issuing the notice u/s 153A so that the assessee could comply with the same as prescribed. 17. Therefore, the issue under consideration is exactly similar to the issue raised in the case of Underwater Services (supra), hence the notice issued u/s 153A is bad in law and the assessment made by issue of improper notice is also bad in law, accordingly we follow the direction of the Hon ble Jurisdictional High Court decision and accordingly we hold the assessment made u/s 143(3) r.w.s 153A is bad in law. Therefore, the additional ground raised by the assessee is allowed. 18. Further, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reassessment is bad in law, still we prefer to address the grounds raised by the revenue for the completeness. 23. With regard to Labour contract expenses, we observe that the Assessing Officer made the addition on the basis of the statement recorded from the four labour contractors, who are proprietors of the concerns. The Investigation Wing found in the above statements which was recorded during search that the concerns were registered in the name of spouses but the actual activities were carried by their spouses, further they found that most of the records and labour activities were controlled by the assessee itself. Based on the above findings, the Assessing Officer treated the same as incriminating material and proceeded to make the additions. This issue was adjudicated by Ld.CIT(A) on merits in his order that the Assessing Officer proceeded to make the addition merely relying on the statements, a perusal of the statement reveals that the four parties have admitted doing labour contract work for the assessee, however in the subsequent statements they have displayed ignorance of the activities are undertaken. In the statement they have disclosed that their spouses and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. With regard to credit card payments, we observe that Assessing Officer has made the disallowance on the basis of adhoc without their being any basis, merely because the assessee incurred such huge expenses, it does not mean that it is not for the business. The Assessing Officer should have verified the same in detail before making any such disallowances. The courts have held that the adhoc disallowances cannot be made without their being any basis. The credit cards facilities are given to the Directors and other employees only facilitating payments of expenses to be made on behalf of the company. Similar view was also expressed by ITAT Delhi bench in the case of ACIT Central Circle-13 Vs Swastik Pipes Ltd (2018) 98 taxmann.com 420. (refer para 32 of the order). Therefore, we direct AO to allow the total expenses claimed by the assessee. 26. With regard to sale of Loom and commission expenditure, we observe that the basis for making such addition is the findings of Investigation wing in the case of D d cor Home Fabrics Pvt. Ltd, which is owned and managed by Shri Ajay Arora. The findings is based on the statement of one of the employee of the above said company. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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