TMI Blog2022 (11) TMI 1189X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, no addition has been made by the AO under this section holding that the addition has been made on account of unexplained purchases, any adjudication by the Tribunal would be only academic in nature. Addition on account of unexplained purchases - CIT(A) has recorded the detailed statement of all the purchase parties on oath and came to a conclusion that the identity, genuineness and creditworthiness of the parties has been proved beyond doubt. Hence, the identity, genuineness and creditworthiness of all the parties from whom purchases were made were proved beyond doubt. Hence, no addition is called for on this account. Ad-hoc estimation of GP @ 0.20% on sales by the CIT(A) - We find that the ld. CIT(A) himself held that there is no reason for doubting the purchases made and payment made in cash being the parties are identified and accepted that they have made sale to the appellant in cash and there is no doubt as regard to genuineness of corresponding sales effected by the appellant and rightly deleted the addition on account of unexplained purchases. CIT(A) has verified the purchases by recording statement of suppliers of milk during the appellate proceedings in prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchases. 4. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in adjudicating the addition made under section 40A(3) of the Act when the assessee had not taken any ground in this respect. 5. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in misinterpreting the provisions of Rule 6DD of the I.T. Rules read with section 40A(3) of the Act and in observing that no disallowance u/s 40A(3) can be made in case of GP addition, when the AO had not made any GP addition. 6. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in restricting the disallowance of 30% of transportation expense to 10% only without appreciating that the assessee had itself agreed to disallowance of 20% of transportation expense in the regular assessment of A.Y. 2005-06. C.O No. 26, 27, 28/Del/2016 3. Grounds in CO No.26/Del/2016 for ready reference: 1. That in the facts and circumstances of the case, the Ld. CIT(A) erred in law in upholding the validity of assumption of jurisdiction by the AO under section 153C of the Income tax Act, 1961 (hereinafter referred as the Act ) even without complyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act on income of the assessee. As per the A.O., the case of the assessee has been covered u/s 153C of the Act. Accordingly, notice u/s 153C was issued on 26/09/2011 and the assessment was completed on 28.03.2013 u/s 153C. 5. Aggrieved by the additions made in the assessment orders , the assessee has preferred appeals before the ld. CIT(A), wherein the assessee apart from challenging the assessment order on merit, has also challenging the validity of assumption of jurisdiction by the A.O u/s 153C of the Act. 6. The three separate assessment orders have been passed u/s 153/144 of the Act on 28/03/2013 for the Assessment Year 2007-08, 2008-09 2009-10 respectively by computing the total income of the assessee as under:- S. No Particulars of the disallowance made by the A.O. A.Y 2007-08 A.Y 2008-09 A.Y 2009-10 1 Unexplained Purchases 59,37,13,167 88,69,78,986 127,31,85,097 2 Administrative distribution exp (less: Transportation exp.) 8,74,293 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Note 11. The Ld. CIT(A) while dealing with the appeal and on analyzing the above facts based on the material on record found that there was nothing on record to suggest that A.O. of the searched party did not prepare the satisfaction note u/s 153C in the case of the assessee as alleged by it. 12. The Hon ble Delhi High Court in the case of Pr. Commissioner of Income Tax, Delhi Vs. N. S. Software (Firm) [2018] 93 taxman.com 21 (Delhi) in an identical situation the Jurisdictional High Court held that even if the Assessing Officer of the searched person is the same as Assessing Officer person to whom document belonged, separate satisfaction notes must be recorded and since Assessing Officer failed to record specific satisfaction as to how recovered material belonged to assessee, assessment u/s 153C was unjustified. The relevant portion is reproduced as under:- 23. This court concurs with the impugned order. In the present case, the Ld. AO has not explained steps taken by him to determine that the seized material belonged to the Assessee Firm. The satisfaction note has been prepared in a standard mechanical format and it does not provide any details about the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he file of the searched person that he has done so. However, the same is for administrative convenience and the failure by the AO of the searched person to make a note in the file of the searched person, will not vitiate the proceedings u/s 153C. If the AO of the searched person and the other person is the same, it is sufficient for the AO to note in the satisfaction note that the documents seized from the searched person belonged to the other person. Once the note says so, the requirement of s. 153C is fulfilled. In such case, there can be one satisfaction note prepared by the AO, as he himself is the AO of the searched person and also the AO of the other person. However, he must be conscious and satisfied that the documents seized/recovered from the searched person belonged to the other person. In such a situation, the satisfaction note would be qua the other person. The requirement of transmitting the documents so seized from the searched person would not be there as he himself will be the AO of the searched person and the other person and therefore there is no question of transmitting such seized documents to himself. 16. The relevant part of the order of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer of the other person. However, as observed hereinabove, he must be conscious and satisfied that the documents seized/recovered from the searched person belonged to the other person. In such a situation, the satisfaction note would be qua the other person. The second requirement of transmitting the documents so seized from the searched person would not be there as he himself will be the Assessing Officer of the searched person and the other person and therefore there is no question of transmitting such seized documents to himself. 17. Hence, in keeping in view the facts of the case and the judgment of the Hon ble Apex Court and the satisfaction recorded by the ACIT, Central Circle- 21 who is the common AO of the searched person and the other person, the ground raised by the assessee are liable to be dismissed. Ground No. 2 3 18. The Ld. Counsel for the assessee contended that, the search was conducted on 17/09/2010 and satisfaction u/s 153C had been recorded by the A.O. in the case of the assessee for the AY 2007-08 to 2009-10 on 26/09/2012. The Ld. A.O while framing the assessment for the AY 2007-08 to 2009-10 made additions of unexplained purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said documents might 'pertain' to the Assessees, they did not belong to them. Therefore, one essential jurisdictional requirement to justify the assumption of jurisdiction under Section 153 C of the Act was not met in the case of the two Assessees. 31. As regards the second jurisdictional requirement viz., that the seized documents must be incriminating and must relate to the AYs whose assessments are sought to be reopened, the decision of the Supreme Court in Commissioner of Income Tax-III, Pune v. Sinhgad Technical Education Society (supra) settles the issue and holds this to be an essential requirement. The decisions of this Court in CIT-7 v. RRJ Securities (2016) 380 ITR 612 (Del) and ARN Infrastructure India Limited v. ACIT [2017] 394 ITR 569 (Del) also hold that in order to justify the assumption of jurisdiction under Section 153 C of the Act the documents seized must be incriminating and must relate to each of the AYs whose assessments are sought to be reopened. Since the satisfaction note forms the basis for initiating the proceedings under Section 153 C of the Act, it is futile for Mr Manchanda to contend that this requirement need not be met for initiation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 to 2009-10 cannot be sustained by applying the ratio laid down in the case of ACIT, Vs. Anush Finlease Construction (P.) Ltd. [2019] 104 taxmann.com 295 (Delhi-Trib.), PCIT Vs. Index Securities (P.) Ltd. [2017] 86 taxmann.com 84, CIT Vs. Kabul Chawla (380 ITR 573). Thus, it is clear that the satisfaction though recorded was not based on the material relevant to the year in question and also the additions made were not based on the incriminating material found and seized during the course of search u/s 132. 24. Accordingly, Ground No. 2 3 of the C.O. No. 26, 27 28/Del/2016 filed by the assessee are allowed. 25. In the result, the assessment order passed for the AY 2007-08, 2008-09 2009-10 are liable to be quashed. 26. For the sake of completeness, we have gone through the additions made by the AO and the merits of the issues. The AO has treated the purchases u/s 40A(3) but no addition has been made under this section. The same purchases have been treated as unexplained purchases owing to purported lack of identity, genuineness and creditworthiness of the parties from whom the milk purchase was made. Aggrieved with the addition on account of purchases of mil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anhidhar (1998) 229 ITR 232 (HC - All.). 30. Thus, the ld. CIT(A) has cogently brought on record about the fact of genuineness of the payment and applicability of Rule 6DD along with the relevant case laws. Under the above mentioned facts and circumstances, the CIT(A) at page no. 285 held that action of AO u/s 40A(3) is not upheld. Since, no addition has been made by the AO under this section holding that the addition has been made on account of unexplained purchases, any adjudication by the Tribunal would be only academic in nature. Addition on account of unexplained purchases: 31. The ld. CIT(A) has recorded the detailed statement of all the purchase parties on oath and came to a conclusion that the identity, genuineness and creditworthiness of the parties has been proved beyond doubt. The relevant part of the order of the ld. CIT(A) dated 12.06.2015 page no. 264 265 para (xvii) and (xviii) pertaining to this issue are as under: All the parties who did not turn up during 153C proceedings were summoned u/s 131 by him and their statements were recorded in the presence of AO, Shree Rajesh Kumar, ACIT, Central Circle-15, New Delhi who failed to point out any anom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses are on the similar lines of the A.Y. 2007-08. The ld. CIT(A) has also dealt the issues in the similar manner after examination of the parties u/s 131 in the presence of the Assessing Officer concerned. Hence, we decline to interfere with the order of the ld. CIT(A) on this issue. 36. With regard to ad-hoc estimation of GP of 0.81% of the sales for the A.Y. 2008-09 and 0.50% on the sales for the A.Y. 2009-10 we hold that the adjudication and the ratio held for the A.Y. 2007-08 is applicable mutatis mutandis. ITA No. 5472/Del/2015 : A.Y. 2008-09 Deemed dividend u/s 2(22)(e) 37. On this issue, we find that the assessee did not hold any shares in M/s AIMS Promoters Pvt. Ltd., therefore, the assessee is neither the registered nor beneficial shareholder of M/s AIMS Promoters Pvt. Ltd. 38. Further, the ld. CIT(A) has observed on page 324 325 of the appellate order that .the AO was totally unwarranted in adding the unsecured loan, treating it as deemed dividend u/s 2(22)(e) when the assessee company was not a registered shareholder in M/s AIMS Promoters Pvt. Ltd. Even otherwise the above issue was decided by me against the assessee s company director Shri Malook ..... X X X X Extracts X X X X X X X X Extracts X X X X
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