TMI Blog2022 (11) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... paid relevant VAT on said purchases. The assessee had also made 90% of payments against said purchase through proper banking channel. Although, the assessee has made small portion of payment by cash in excess of prescribed limit, but in our considered view, payment made by the assessee does not hit by provisions of Sec.40A(3) of the Act, because, any payment made to a cottage industry is excluded u/r.6DD(f) of IT Rules. Therefore, we are of the considered view that the AO is erred in invoking the provisions of Sec.40A(3) of the Act, for payments made in cash in excess of prescribed limit, even though, the case of the assessee comes u/r.6DD(f) of IT Rules. As regards remaining purchases on which payment made through proper banking channel, the assessee had filed complete details including name and address of the person from whom purchase was made, payment details and also filed relevant VAT returns to prove that said purchases were declared to Commercial Tax Authorities and paid applicable VAT - additions made by the AO cannot be sustained. CIT(A) after considering relevant facts has rightly deleted additions made by the AO and thus, we are inclined to uphold the findings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reported that Sri.GJeba, for the F.Y 2012- 13, claims that he had received Rs.8,50,960 only, whereas the Ledger shows a gross receipt of Rs.15,18,300, VAT deducted was at Rs.72,300 and net paid was Rs.14,46,000. 3.2 The learned CIT(A) failed to appreciate that the in the remand report the AO has in his submission clearly reported that Shri Rajesh Kumar, for the F.Y. 2012- 13, claims to have received of Rs.9,36,00, whereas the enclosed ledger shows the net amount atRs.14,32,000. 3.3 The learned CIT(A) failed to appreciate that the assessee had inflated the purchases in the ledger account furnished as the vendors were dependent on the assessee for their livelihood as the vendors have deposed that the ledger extracts enclosed along with their confirmation letters were taken from the assessee only as they do not maintain proper books of accounts 3.4 The learned CIT(A) having called for a remand report from the AO, did not consider the discrepancies and differences pointed out by the AO in the report, between the purchases claimed by the assessee and the ledger accounts furnished by the very same assessee and the claim of the vendors, though it was clearly brought out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealers amounting to Rs.5,25,66,330/- to total income. The relevant findings of the AO are as under: During the year under consideration, the AR stated that the assessee purchased stones worth Rs.5,25,66,330/- from unregister dealers and furnished the details of the mode of the payment as under: 1 Payment through banking channel Rs. 4,73,26,975 2 Payment by Cash (wherein each payment is less than Rs.20,000/-) Rs. 10,95,793 3 Payment by Cash (wherein each payment is more than Rs.20,000/-) Rs. 41,43,562 Total 5,25,66,330 From the above in respect of payments of Rs.41,43,562/- no deduction should be allowed in respect of such cash expenditure as per provision of sec. 40A(3) of the IT Act. However, this is subject to the condition that the purchases are genuine. It is also not clear why the payments are being made in cash if the assessee was having bank accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly stated that no transaction were done with. Smt. A Gandhimathi. Also summons issued to Nachimutthu and Verakumar by the DDIT(Inv.), Coimbatore were returned un-served due to insufficient addresses. Also the postal addresses given by the assessee in respect of Kasi and Aayakannu are not clear. These findings were confronted to the assessee who did not have any further submission to be made. During the course of scrutiny proceedings, the AR also stated that the VAT was paid by the assessee on behalf of the suppliers. It is not clear why the assessee should pay VAT on behalf of the suppliers. It casts a doubt on genuineness of the purchases. This therefore appears to be last minute attempt to prove the purchases as genuine. However, such a stance is selfserving and not corroborated by third party confirmations. Also the assessee is unable to furnish any invoices from the unregistered suppliers, delivery Challan, weightment receipt and mode of transportation with vehicle number. In view of the above and as the assessee is unable to furnish the full details and establish the genuineness of these purchases, the entire purchases of Rs.5,25,66,330/- are treated as bogus p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand taken by the appellant was that when there were no incriminating documents seized in the course of search at the premises of M/s. Butterfly Gandhimathi Appliances P Ltd, (the main person) relating to such other person (here the appellant) issuance of notice u/s. 153C is not legally correct. 5.2 The AR further contended that even in the satisfaction note it has been clearly mentioned that there was only a survey operation u/s. 133A. This clearly renders the issuance of notice u/s. 153C not sustainable. 5.3. As can be seen from the records, the action (survey u/s. 133A) in the case of the appellant was not consequent to unearthing of any incriminating documents during search in the case of the main person. This inference is drawn from the fact that both the search in the main case and the survey in the appellant's case were conducted simultaneously and on the same day. 5.4 The invocation of the provisions of Sec. 40A(3) should not have been done in a case where notice u/s. 153C has been issued and any addition / disallowance should be backed by incriminating documents. Further, in the instant case most of the recipients are small time sellers and are illitera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO. In this regard, he relied upon the following judicial precedents: 1. CIT v. Anil Kumar Bhatia [2012] 24 Taxmann.com 98, Delhi. 2. Kamlesh Bhai Dhamashibha Patel v. CIT [2013] 31 Taxmann.com 50, Gujarat. 3. Canara Housing Development Co. v. DCIT [2014] 49 Taxmann.com, 98 Karnataka. 4. CIT, Thichur v. St. Francis Clay D cor Tiles [2016] Taxmann.com 234, Kerala 5. E.N.Gopakumar v. CIT [2016] 75 Taxmann.com 215, Kerala 9. The Ld.AR for the assessee, on the other hand, supporting the order of the Ld.CIT(A) submitted that during the course of search in the case of M/s.BGAL, nothing was found which belongs to the assessee and her business. However, the AO has framed assessment u/s.153C of the Act, only on the basis of statement recorded from Mr.V.M.Seshadri, Managing Director of M/s.BGAL, even though, nothing against assessee was made out from said statement. Further, the AO alleged that M/s.BGAL inflated purchases made from assessee, but the fact remains that no addition on this regard was made in the assessment of M/s.BGAL, which is evident from the order of Income Tax Settlement Commission, where the application filed by the assessee has been accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shadri, Managing Director of M/s.BGAL. No other incriminating material was found and seized during the course of search which suggest undisclosed income belongs to the assessee. Further, even if you go through statement u/s.132(4) of the Act, recorded from Mr.V.M.Seshadri, Managing Director of M/s.BGAL, he never accepted inflation of purchases made from the assessee, but what he was stated in the statement is that for one lot of purchases, they have paid Rs.20/- per piece extra when compared to purchases from other parties, which is once against based on demand and supply and requirement of the business. Therefore, from the above statement nothing can be found that any undisclosed income or money or jewellery or bullion etc., belongs to the assessee was found during the course of search. Therefore, in our considered view, in absence of any incriminating material found during the course of search of other person, the AO cannot initiate proceedings u/s.153C of the Act, and complete assessment, when a simultaneous survey u/s.133A of the Act, was carried out on very same day in the case of the assessee. 11. No doubt, material found during the course of search can be used while fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-money while answering questions to statement recorded during the course of search. All along the director as well as the employees made a general statement about receipt of on-money with reference to a question posed by the Investigation wing without any reference to particular seized material found as a result of search. Similarly, the AO has taken circumstantial evidence of cash and unexplained jewellery found during the course of search to argue that the assessee is in the habit of suppression of sales by showing under valuation which was used in its business, but on perusal of cash and other assets found during the course of search it was very clear that the cash was found from 112-122, Hira Bhavan, Rajaram Mohan Roy Road, Prarthana Samaj, Mumbai, which was common premises for four entities of the assessee group and that the total cash found from various premises was almost equivalent to cash balance maintained in the books of account. Although, there is a difference of cash balance of Rs.25,86,687, the same has been offered to tax in the hands of directors and also M/s Rohan Developers Pvt Ltd. Neither the Panchanama drawn during the course of search nor the statement record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant financial years. Therefore, AO was erred in estimating adhoc onmoney received from sale of flats on the basis of statement of some employees even after such statement has been retracted and a/so nothing on record to indicate that the assessee is in receipt of on-money. (Para 16) ITAT has accepted the fact that if the date of search, i.e. on 26-05-2011 is considered, the assessment for AY 2009-10 is unabated, because the assessment for the impugned assessment is completed u/s 143(3) on 31- 12-2009 and further, no proceedings of whatsoever was pending as on the date of search. Once an assessment is unabated as on the date of search, it is a settled law that no addition can be made in absence of any incriminating material found as a result of search. There is no doubt of whatsoever with regard to the reference of incriminating material found during the course of search to addition made by the AO with regard to the estimation of 30% on-money on total sales declared by the assessee. Therefore, the addition made by the AO towards estimation of on-money for AY 2009-10 cannot be sustained. In this case, there is no clarity with regard to date of receipt of receiving the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 153C of the Act, was only survey u/s.133A of the Act, conducted is legally incorrect. 13. Having said so, let us come back to additions made towards purchases from unregistered dealers. The assessee has declared said purchases to Commercial Tax Authorities and paid VAT applicable to URD purchases. The assessee claimed that it has purchased wet grinders and accessories from unregistered dealers who are mainly a cottage industry situated in remote areas. The assessee further claimed that they do not have any VAT registration and PAN. Therefore, merely for the reason of non-furnishing of confirmation from them, additions cannot be made, more particularly when the assessee has filed all details including invoices for purchases, payment by cheque and VAT returns filed for relevant months which contains details of URD purchases. We find that as claimed by the assessee wet grinders and accessories were purchased from unregistered dealers who were mainly a cottage industry without any VAT registration and PAN. Therefore, the assessee has declared purchases made from unregistered dealers in the VAT returns filed for the respect month and paid relevant VAT on said purchases. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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