TMI Blog2023 (6) TMI 1167X X X X Extracts X X X X X X X X Extracts X X X X ..... operations. See S. Khader Khan Son [ 2007 (7) TMI 182 - MADRAS HIGH COURT] We hold that addition on account of undisclosed difference in stock discrepancy cannot be made merely on the basis of the statement given by the partner at the time of survey without any corroborative evidences found in the course of survey. In this case the assessee explained that there is no discrepancy in stock along with various evidences and explanations and, therefore, the ld. CIT (Appeals) has rightly deleted the addition of Rs. 4,00,84,677/- (4,29,63,309 - 28,78,632). Thus, the order of the ld. CIT (Appeals) is sustained to this extent. Ground No. 2 of grounds of appeal of Revenue is rejected. Bogus fabrication expenses - Merely because the summons could not be served, in our opinion, the addition cannot be sustained. The assessee in respect of these fabrication expenses furnished copies of bills, copies of ledger account, copy of Form 16A issued to the fabricators wherein the assessee has deducted TDS and remitted to the Govt. account. All these evidences cannot be brushed aside simply because the summons issued to the parties could not be served. There may be various reasons for non-servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case and in law, the CIT(A) has erred in sustaining the addition of Rs. 28,78,632/- in respect of the parties from whom the Appellant had purchased material or availed the services, simply for the reason that summon could not be served to the parties. 2.1 That on the facts and circumstances of the case and in law, the CIT(A) in upholding the addition of Rs. 28,78,632/- allegedly on account of undisclosed income from other sources did not appreciate the ground realities of the business of the Appellant. 3. The Revenue in its appeal has raised the following substantive grounds of appeal:- 1. That, in facts and circumstances of the case, Ld. CIT(A) has erred in deleting the addition of disallowance of interest expenses of Rs. 63,70,992/-. 2. That in facts and circumstances of the case, Ld. CIT(A) has erred in restricting the addition of Rs. 4,29,63,309/ to the extent of Rs. 28,78,632/. 4. First we take up the appeal of the Revenue. Ground No. 1 of the Revenue s appeal is in respect of deletion of disallowance of interest expenses of Rs. 63,70,992/-. 5. Brief facts are that the Assessing Officer in the course of assessment proceedings noticed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y covered both on facts and in law by the judgement of Hon ble Bombay High Court in the case of CIT Vs. Reliance Utilities [313 ITR 340 (Bom)]. The ld. Counsel for the assessee referring to page 329 of the paper book which is the balance sheet as on 31st March, 2011 submits that the assessee had own funds to the extent of Rs. 14,21,00,000/- as at the beginning of the previous year which stood at Rs. 12,91,00,000/- as on 31.03.2011. Therefore, the ld. Counsel submits that once it is clear that the eventuality on own funds at the beginning of the year and at the end of the year far exceeded the loans advanced which facts have not been controverted by the Assessing Officer the ratio of the Hon ble Bombay High Court in the case of CIT Vs. Reliance Utilities (supra) clearly applies and, therefore, there can be no disallowance of interest on the ground that advances were given out of interest bearing funds. The ld. Counsel further submits that an identical disallowance was made by the Assessing Officer in the case of the assessee for the assessment year 2009-10, similar submissions of the assessee were accepted by the ld. CIT (Appeals) and the appeal of the Department was dismissed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. 11. As could be seen from the above the principle laid down by the Hon ble Bombay High Court is, if there are funds available both interest free and over-draft and/or loans taken then a presumption would arise that investments would be out of the interest free funds generated or available with the assessee if the interest free funds were sufficient to meet the investments. In the case on hand admittedly the interest free funds available at the beginning of the year i.e. as on 1.04.2010 stood at Rs. 14,25,00,000/- and at the end of the year as at 31.03.2011 the interest free funds stood at Rs. 12,91,00,000/- which are far more than the loan/advances of Rs. 8,10,10,000/- given by the assessee and, therefore, the presumption would be that the loan/advances given by the assessee during the year under consideration is out of interest free funds available with the assessee by applying the principle laid down by the Hon ble Bombay High Court. We also find that an identical issue was decided by the Tribunal in as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esulting in unexplained stock of Rs. 6,50,11,523/- which the assessee did not consider the same in the return of income filed. A show cause notice was issued by the Assessing Officer and the assessee submitted that the survey team apart from preparing inventories of stock had taken a print out of profit and loss account available as on 6.09.2010 and in this P L account the closing stock was depicted at Rs. 4,91,06,399/- which is the value taken by the survey team which was compared with the figure of stock of inventories by them on 6.09.2010 at Rs. 11,41,17,922/-. The assessee submitted that subsequent to survey in the course of audit of accounts undertaken the P L account for the period 1.04.2010 to 6.09.2010 was prepared after recording all the transactions for this period and in the P L account the assessee has shown the correct stock as on 6.09.2010 at Rs. 6,10,63,622/- and, therefore, there is no discrepancy in the matter of stock inventorised by the survey team on 6.09.2010 and the correct figure of stock has been shown by the assessee on 6.09.2010 in the audited books of account. 14.2 The assessee contended that goods worth Rs. 33,82,315/- were received from S.A.M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the stock which was inventorized at the premises of SAM Design, A-36, Hans Complex, Noida, which is the proprietary concern of Shri Mukesh Sharma at Rs. 2,57,46,000/- was over-valued and the correct valuation in terms of stock in quantity and value should have been taken at Rs. 1,92,34,153/- and thereby arose excess valuation to the extent of Rs. 65,11,846/-. Therefore, it was explained that if all these are considered the stock as on 6.09.2010 was more than what has actually been inventorized by a small margin of Rs. 5,08,761/- and, therefore, there can be no addition by way of income from undisclosed sources on account of alleged discrepancy in the stock. 17. However, not convinced with the replies, submissions and evidences furnished by the assessee the Assessing Officer made addition of Rs. 4,29,63,309/- as unexplained stock after giving credit of Rs. 2,20,51,214/- which stock was lying with customs warehouse awaiting for shipment. The Assessing Officer treated the balance of Rs. 15,71,064/- as part of stock as on 6.09.2010 i.e. the date of survey. 18. The assessee preferred appeal before the ld. CIT (Appeals) and furnished various evidences and the ld. CIT (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Finance Ltd. Vs. ITO [(2017) TIOL 188 (Bom)] [(SLP dismissed by the Hon ble Supreme Court vide order dated 5.07.2017 in SLP (Civil) No. 11784/2]. 20.1 The ld. Senior Advocate, Shri C. S. Aggarwal, appearing for the assessee submits that on 06.09.2010 a survey u/s 133A of the Income Tax Act had been conducted at the business premises of the assessee firm. The survey team had prepared stock inventories of the stocks found at the various business premises as is tabulated below:- SI. No. Premises Value Type of stock Activity carried out 1. A -36, Hosiery Complex, Noida 2,57,46,000.00 Unprocessed Fabric (Meters) Dyeing and printing of fabric 2. Stock at Customs 2,36,22,278.00 Finished Goods (Pcs) --- 3. A 38 Sector -83, Noida 74,52,053.00 WIP (Pcs) Stitching, finishing and Packing 4. A-110, Sector - 65, Noida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the assessee had also provided complete details of all the transactions entered by it and also explained that there was no discrepancy in the value of stocks found and inventorised on the date of survey. Thus by implication, it had retracted the statement made by Shri V. P. Sachdeva which had been given by him on complete misconception of facts and was based on the facts projected to him by the survey team. That, during the course of assessment proceedings the assessee had made following written submissions before the learned Assessing Officer and in the aforesaid submissions, it had been submitted that there was no discrepancy in the value of stocks found and the entire stocks found at the time of survey is fully accounted for. The aforesaid submissions made by the appellant had been supported by the documentary evidences filed at the time of the assessment. It had been submitted that on the date i.e. on 06.09.2010 when the Profit Loss Account had been prepared from the computerised accounts, certain transactions had remained to be entered in the books of accounts. The various reasons which had lead to non-recording of the transactions had also been explained as is evident fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al) not entered in the Books of Accounts on the date of survey. 16,77,967 5. Dying expenses not entered in the Books of Account on the date of survey. 16,41,764 6. Difference in fabric stock as inventories by the survey team and actual stock lying at M/S. SAMTEX DESINZ. 65,11,846 8,31,29,067 3,09,88,855 Add: Cost of stock exported up to 06.09.2010 and not entered till the date of survey. 1,76,08,784 1,76,08,784 Less: Value of Stock in hand as per books of account on the date of survey. 4,85,97,639 4,91,06,399 Difference in Reconciliation of stock on the date of survey as per accounts at the time of survey after entered in the books of accounts. 5,08,760 Note: In the reframed accounts on the date of survey, the stock in hand after adjustments e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of stocks reflected in its Profit Loss Account, (despite the fact there had been an exports made of stocks of the value of Rs. 1,76,08,784/-, which had already been entered) the Assessing Officer did not even exclude the same despite the fact said stock was not available on the date of survey as the same had already been exported. This would have resulted into reduction of stocks from Rs. 4,91,06,399/- to Rs. 3,14,97,615/-. This fact alone it is submitted as has been highlighted is sufficient to establish that the assessee had not entered certain transactions in the ledger account and as such on account of non-entering of such transactions in the ledger account, the value of stocks (which had been adopted) held on the date of survey as per the books of account was erroneous. 22.4 The ld. Counsel submits that it is also necessary to note that after the assessee had furnished return of income after due audit, the learned AO has accepted not only the results as reflected in the Profit Loss account but has also made no adverse comments or rejected the books of accounts maintained by it in the normal course of business. Thus in brief, it is submitted that the claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. 20.10.2015 409-410 3. 20.10.2015 411-438 4. 04.12.2015 439-442 23.2 The learned CIT (Appeals) after hearing the appellant and after carefully examining the evidence tendered by the assessee before the ld. Assessing Officer and also before him, directed the learned AO to submit a report after verification. 23.3 The learned Assessing Officer in compliance thereto submitted a remand report on 29.02.2016 (Pg. 1434-1441 of PB-5). In the Remand Report the learned Assessing Officer (at Pg. 1436-1438 of PB-5) had stated as under: Details of Fabrication Expenses not recorded by the assessee on the date of the survey: Rs. 1,53,48,825/- We have gone through the reconciliation statement submitted by the assessee at page 56 of Volume 4 of the paper book. The assessee has further submitted a copy of his Fabrication ledger account for the period 15.06.2010 to 06.09.2010 at pages 57 to 74 of Volume 4 of the paper book wherein the bills have been accounted for post the date of the survey though the goods relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Salarpur, Bhangel, Noida. 1,97,807/- 11. M/s. M. F. Fashion. G. No.-1, H. No.- 43, Rahul Vihar, Near Y R School, Behind Green Hotel, Ghaziabad. 3.04,317/- 12. M/s. M. K. Garments Finishers. A 113, Sec.-20, Noida. 4,39,982/- 13. M/s. Malik Enterprises. Village Chigarsi, sector 63. 2.71,875/- 14. M/s. Mohan Fab A-39/40, Shiv Durga Vihar, Lakarpur, Faridabad, Haryana. 2,69,202/- 15. M/s. N. K. Finishing. 23, VDS Market, Sector 93, Noida. 1,41,320/- 16. M/s. Pravesh Kaj House. B-165, New Ashok Nagar, Delhi. 1.80.681/- 17. M/s. Rajni Kaj Centre. B-165, New Ashok Nagar, Delhi. 1,94,284/- 18. Reliance Enterprises. 38/7. Sharma Market, Harola, sector - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such value of stocks as had been found are well explained and does not represent unexplained stocks. The appellant thus submitted that the Assessing Officer was wholly satisfied not only with the explanation tendered by the assessee but also the claim that all such stocks had physically been received by it from the suppliers before the date of survey but they remained to be entered in the ledger account. 24.3 Similarly he also accepted that no disallowance of any of the two sums of expenditure incurred and disallowed in the order of assessment warrants a disallowance. 25.1 However, the learned CIT (Appeals) again called for remand report directing the learned Assessing Officer (Pg. 1448- 1449 of PB 5) to issue summons u/s 131 of the Act to all the parties who had filed their respective confirmation u/s 133(6) of the Act etc. etc. to re-verify the transactions entered by the assessee in its books of accounts (which had remained to be posted). 25.2 In compliance thereto the learned Assessing Officer after complying with his directions had submitted another report dated 09.05.2017, a copy of which appears at Pg. 1458-1515 of PB-5). 25.3 On receipt of the second Remand Repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-1943 4. 06.08.2018 1947 5. 01.03.202 1954-1559 6. 17.03.2020 1984-1986 27. The learned CIT (Appeals) thus after analysing the assessee's submissions and the report of the learned Assessing Officer found that the assessee had been able to establish with sufficient evidence that all the stocks found at the time of survey which had not been entered till the date when the Profit Loss Account had been prepared from the computerised books of accounts could not be held to be undisclosed stocks, since the assessee has been able to demonstrate with evidence that the discrepancy in the value of stocks had occurred as a result of non-entering of transaction in the ledger account. He thus held that the learned Assessing Officer went wrong without assigning any reason in making addition of Rs. 4,29,63,309/-. However, while so doing in respect of the expenditure incurred by the assessee in respect of fabrication expenses' which sums had not been entered in the books of accounts and aggregated to Rs. 1,53,48,825 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in the preceding years also. In fact, during the instant year, prior to survey and even after survey, such fabricators had been providing their services. It is well known fact that such fabricators are belong to an un-organised sector and also small time tailors. The assessee had led necessary evidences to support that the expenditure incurred and debited should be included in the value of stocks found at the time of survey and said sum had been incurred by it for the purpose of manufacture of garments. The assessee had furnished in respect of the aforesaid fabricators party account ledger wherein the value and the bill nos. of the fabric purchased and claimed by the assessee in its submissions and copies in respect of whereof had been submitted in Vol. 4. In fact, it had duly been verified by the Assessing Officer that the said parties were regularly receiving payments from the assessee during the Financial Year 2010-11. (Pg. 46) of CIT(A)'s order) However, while sending the Second report, the learned Assessing Officer stated that summons had been issued u/s 131 of the Act to 21 parties who had sent the ledger account in response to the notice. However summons could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2010 30.08.2010 06.09.2010 26.10.2010 25.11.2010 27.12.2010 21.01.2011 Cheque 1. Respective Bill 2. Copy of Account in our books at Page No- 614 TO 617 Paper Book-3, Form 16A-Page No-625 to 626. 4 CHAUHAN ENTERPRISES Inside Gate, Sharma Market Salarpur Bhangel, Noida. 1,37,257.00 1160 1182/ 28.07.2010 30.07.2010 26.10.2010 25.11.2010 Cheque 1. Respective Bill 2. Copy of Account in our books at Page No- 641 Paper Book-3, Form 16A-Page No644. 5 DEEPAK KAJ HOUSE B-165, New Ashok Nagar, Delhi. 1,27,835.00 1024, 1018, 1025/ 30.06.2010 15.07.2010 31.07.2010 06.09.2010 26.10.2010 25.11.2010 Cheque 1. Respective Bill 2. Copy of Account in our books at Page No- 647 to 649 Paper Book-3, Form 16A-Page No-650. 6 FASHION MAKERS C-188 1st Floor Sec. 10, Noida. 1,15,973.00 181 184/ 25.08.2010 31.08.2010 27.12.2010 Cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm 16A-Page No-869 to 870. 13 RELIANCE ENTERPRISES 1,63,029.00 164, 75, 74, 86, 90, 95, 315, 301, 91, 339, 333, 349, 358, 365, 362/ 15.06.2010 28.06.2010 29.06.2010 05.07.2010 14.07.2010 15.07.2010 07.08.2010 14.08.2010 26.08.2010 31.08.2010 06.09.2010 26.10.2010 Cheque 1. Respective Bill 2. Copy of Account in our books at Page No- 873 to 877 Paper Book-3, Form 16A-Page No-888 to 889. 14 SIDDIQUL EXPORT Rz- 524/24, Tughlakabad Extn., New Delhi 110 019. 4,02,768.00 100, 101, 109, 110, 108, 112, 114, 120, 113, 116, 115/ 15.06.2010 30.07.2010 14.08.2010 30.08.2010 17.08.2010 06.09.2010 26.10.2011 25.11.2011 Cheque 1. Respective Bill 2. Copy of Account in our books at Page No- 767 to 769 Paper Book-3, Form 16A-Page No-771. TOTAL : 2594300.00 30.2 It is submitted that from the aforesaid table it would be seen that despite the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and claimed is tabulated here below:- Sl. No Name and address of supplier. Amount of expenditure incurred. Date and Bill No. Date of payment. Mode of payment. Evidences. 1 AVERY DENNISON ACCESSORIES Plot No. 6B, 1st Main Road, Kiadb, Phase-I, Basnglore. 1,57,183.00 664854, 666328, 666130, 666131, 666132, 666133, 666134, 666129, 666128, 667772, 667769, 667770, 667773, 667776, 667774, 667771, 670252/ 17.08.2010 24.08.2010 23.08.2010 27.08.2010 04.09.2010 27.09.2010 11.10.2010 27.11.2010 Cheque 1. Respective Bill 2. Copy of Account in our books at Page No- 1306 to 1318 Paper Book-4. 2 HITKARI ACCESSORIES G-7, Shreejee Complex, Sharma Market, Harola, Noida. 1,27,143.00 3354, 3598 3348, 3602 3421, 3619 3423, 3611 3469, 3600 3450, 3605 3494, 3638 3491, 3662 3507, 3660 3508, 3641 3530, 3670 3531, 3672 3535, 3726 3562, 3700 3576, 3752 3577, 3751 3765/ 14.08.2010 18.08.2010 19.08.2010 20.08.2010 21.08. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . P. Sachdeva and statement given has no evidentiary value. Reliance was placed on the decision of the Hon ble Madras High Court in the case of CIT Vs. S. Khader Khan Son [(2008) 300 ITR 157 (Mad)]. The ld. Sr. Counsel for the assessee submits that the decision of the Hon ble Madras High Court has also been affirmed by the Hon ble Supreme Court in CIT Vs. S. Khader Khan Son [(2013) 352 ITR 480 (SC)] by dismissing the appeal of the Revenue. 36. Heard rival submissions, perused the orders of authorities below and the evidences furnished before us. The assessee is a firm engaged in the business of manufacturing and export of ready-made garments filed its return of income on 30.09.2011 declaring loss of Rs. 83,38,278/-. A survey was carried out at various business premises belonging to the assessee on 6.09.2010 wherein stock of Rs. 11,41,17,922/- was inventorised as against declared stock of Rs. 4,91,06,399/- resulting in unexplained stock of Rs. 6,50,11,523/- which the assessee did not consider the same in the return of income filed. A show cause notice was issued by the Assessing Officer and the assessee submitted that the survey team apart from preparing inventories of stock had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 1,53,48,825/- which related to actual expenditure up to 6.09.2010 was not recorded. Similarly it was submitted that expenditure in the unaudited P L account in respect of Dying bills was shown at Rs. 2,71,25,037/- and in the audited P L account it was shown the actual expenditure at Rs. 2,87,66,801/- and the difference of Rs. 16,41,764/- could not be recorded in the unaudited P L account and in support the assessee submitted the details of bills for the same. 37.2 Similarly the assessee submitted that expenditure in the unaudited P L account in respect of dying accessories bills was shown at Rs. 1,00,25,720/- and in the audited P L account it was shown the actual expenditure at Rs. 1,17,03,688/- and the difference of Rs. 16,77,967/- could not be recorded in the unaudited P L account and in support the assessee submitted the details of bills for the same. 38. Further the assessee contended that the stock which was inventorised at the premises of SAM Design, A-36, Hans Complex, Noida, which is the proprietary concern of Shri Mukesh Sharma at Rs. 2,57,46,000/- was over-valued and the correct valuation in terms of stock in quantity and value should have been t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer for conducting further enquiries by issue of summons under section 131 to all the parties who filed their confirmations under section 133(6) of the Act issued by the Assessing Officer. The Assessing Officer submitted remand report dated 9.05.2017 considering both the remand reports and the comments therein the ld. CIT (Appeals) restricted the addition to Rs. 28,78,632/-. While restricting the addition as above the ld. CIT (Appeals) has given his findings as under:- C) Conclusions in the two remand reports and my comments. 1st remand report. The following are the relevant extracts of the Assessing Officer's remand report dt. 29.02.2016 containing conclusions of the verifications conducted by him: Fabric and not recorded by the assessee on the date of the survey: All the above stated parties submitted their party account ledger of the assessee for the F.Y 2010-11 wherein the value and the bill numbers of the fabrics purchased and as claimed by the assessee in its reconciliation statement were verified, one by one, in entirety from the copies of bills as submitted by the assessee at pages 22 to 55 of volume 4 of the Paper Book. It was noted from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded by the assessee on the date of the survey: All the above stated parties submitted their party account ledger of the assessee for the F.Y. 2010-11 wherein the value and the bill numbers of the fabrication expenses and as claimed by the 4 assessee in its reconciliation statement were verified, one by one, in entirety from copies of bills submitted by the assessee at pages 540 to 832 in Volume 5 of the paper book. It was also noted from the Account statements submitted by the above named parties that they were regularly receiving payments from the assessee during the FY 2010-11. Dyeing expenses not recorded by the assessee on the date of the survey: The above stated party/ M/s Samtex Desinz | submitted their party account ledger of the assessee for the F.Y. 2010-11 wherein the value and the bill numbers of the dyeing expenses and as claimed by the assessee in its reconciliation statement were verified in entirety from copies of bills submitted by the assessee at pages 580 to 536 in Volume 4 of the paper book. It was also noted from the Account statements submitted by the above named parties that they were regularly receiving payments from the assessee during the F.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these bills are nothing but an afterthought and reconstruction. (v) Again at page 45 para 13.2.2.9, Rather, the response of the parties that have appeared in the remand proceedings appears to be tutored.....All in all the bills that assessee has relied upon as its evidence are just accommodation entries. (vi) At page 47 para 13.2.3.6, The authentic cross verification of which is not possible. On perusal of these bills the observations are also recorded above. It appears the bills produced are just accommodation entries (vii) The Assessing Officer at page 49 para 13.2.4.4 states yet again that : . These have been generated and entered in the books only to make the unaccounted stock look like accounted one. Such clear afterthought and reconstruction is a systematic design only to evade the due tax liability that has been determined during the survey. (viii) At page 55 para 11, the AO once again brings out her contention of the books of accounts being manipulated. Therefore, it was easiest possible way available with the assessee to manipulate the stock/purchase records.......... (ix) The AO has in para 14.4 of his remand report has stated The bill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. V. P. Sachdev, partner in the Assessee Firm. The said statement was recorded u/s 133A of the Act, during the course of survey operation on 06.09.2010, which has been held as nonbinding provided an explanation can be offered by the Assessee. In the present case, the Assessee with all supporting evidences has provided full explanation on the discrepancy in actual stock and the book stock noted by the Survey team on the date of the survey. The right of the Assessee to offer explanation cannot be taken away by simply pointing out that unrecorded bills were not mentioned in the statement recorded u/s 133A of the Act. What is important is the fact and the explanation provided and not the timing of recording of the unrecorded bills. Hon'ble Apex Court in the case of Uma Charan Shaw v. CIT 37 ITR 271 SC has observed that A suspicion however strong cannot take the place of evidence. The Assessing Officer has cited the case of Napar Drugs (P) Ltd. vs DCIT 98 ITD 285 of the Hon ble Delhi High Court to state.....the fall scope of picture which emerges has to be taken cognizance of However in this case the facts are different, as in this case the Revenue found blank sale deed, share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the said party about the following expenses: a. Fabrication bills not recorded in unaudited P L A/c though goods fabricated till 06.09.10 (as per para 12) Rs. 1,53,48,825.42 b. Expenditure on accessories recorded subsequently though material received till 06.09.10 (as per para 13) Rs. 16.77,967.55 c. Dyeing bills recorded subsequently though material received till 06.09.10 Rs. 16,41.764.05 1.7. The appellant was asked to furnish the details of purchases from M/s SAM Overseas for earlier two years and the next year to study the pattern of deviation if any, and the same angle may be inquired by you during the remand proceedings. The AO conducted in inquiries in the following manner as reported in his remand report dated 29.02.2016. (1) Details of fabric purchased Local Central) not recorded by the assessee on the date of the survey : Rs. 3,43,26,387/-. We have gone through the Fabric Reconciliation statement submitted by the assessee on page 21 of Volume 4 of the paper book wherein bills not accounte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the parties whose fabrication bills were reported by the assessee in its reconciliation statement and the aggregate value of whose bills as mentioned by the assessee was in excess of Rs. 1.00 lakh. The names and addresses of the said parties are as under: S.No Name of the Party Address Value of Transaction Verified 1. M/s. A.S. Textiles. B-29, 1st Floor, Sec. 10, Noida. 1.09,196/- 2. M/s. Abdul Sattar. Vill. Choura Gaon, Sec. 22, Noida. 2,39.301/- 3. M/s. Anamika Enterprises. C-1, Old Maujpur, (Near Subzi Mandi Punchayatghar) 1.37,929/- 4. M/s. Aryan Enterprises. Gadi Road Village Mamura, Sector-66, Near Ambedkar ITI Institute, Opp. Sector-64, Noida. 1.23,170/- 5. M/s. Babli. Chitra Colony, Bhangel, PH-II, Noida. 1.59,906/- 6. M/s. Balaji Export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93,74,634/- (iii) Details of Accessories Purchased Local Central) not recorded by the assessee on the date of the survey : Rs. 16,77,967/- We have gone through the reconciliation statement submitted by the assessee on pages 537 to 539 of Volume 5 of the paper book wherein bills not accounted for as on the date of the Survey, though received before the said date, have been detailed to show a reconciliation between the physical stock reported by the survey team and the one noted by them from the Profit Loss Account taken before commencement of the survey. In order to verify the claim of the assessee, we proceeded to issue notices u/s 133(6) of the Income Tax Act to the parties whose Accessories purchase bills were reported by the assessee in its reconciliation statement and the aggregate value of whose bills as mentioned by the assessee was in excess of Rs. 1.00 lakh. The names and addresses of the said parties are as under: S.No Name of the Party Address Value of Transaction Verified 1. M/s. Hitkari Accessories. G-7, Shree Ji Comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. No. Particulars Notice u/s 133(6) Issued to Response to notice u/s 133(6) (i) In Fabric Purchase Expenses 3,43,26,387.00 3 Parties 3,43,26,387.001 All 3 Parties 3,43,26,387.00 (ii) In Fabrication Expenses 1,53,48,829.00 21 Parties (93,74,631.00) All 21 Parties (93,74,631.00) (iii) In Accessories Purchase 16,77,967.00 6 Parties (10,63,562.00) All 6 Parties (10,63,562.00) (iv) In Dyeing Expenses. (16,41,764.00) 1 Party (16,41,764.00) 1 Party (16,41,764.00) 24 remand report In case of 2nd remand proceedings the appellate authority directed the Assessing Officer to issue summons to all the parties who filed their respective confirmations u/s 13316) during the 1st remand proceedings. The Assessing Officer issued summons u/s 131 to all such parties and reported the compliances in her remand report 09.05.2017 as under: Fabric unrecorded bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut made submission in the office. 2. M/s. Reliance Enterprises. 38/7, Sharma Market, Harola, Sec. 5, Noida. 1,63.029/- Summons not delivered. 3. M/s. S.A.M. Overseas. B-76, Sector 83, Noida. 49,94,922/- Summons delivered party appeared with books of accounts 4. M/s. Shyamji Computer Embroidery. 341/A/8, St. No. 1, Near Balaji Tent House, Kanti Nagar, Delhi-51. 5.02,585- Summons delivered party appeared with books of accounts 5. M/s. Anamika Enterprises. C-1, Old Maujpur, (Near Subzi Mandi Punchayat Ghar) New Delhi-53. 1.37,929/- Summons delivered but party did not appear. 6. M/s. Deepak Kaj House. B-700, 1st Floor, New Ashok Nagar, Delhi-96. 1,27,835/- Summons not delivered. 7. M/s. M. F. Fashion. G. No. 1, H. No. 43, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fab. 39/40, Shiv Durga Vihar, Lakkarpur, Near Lakkarpur Railway Crossing, Faridabad-121009, Haryana. 2.69.202/- Summons not delivered. 20. M/s. N. K. Finishing. 23, VDS Market, Sector : 93, Noida. 1.41.320/- Summons not delivered. 21. M/s. Siddiqui Export. RZ-2077/27, Basement, New Pahari Tughlakabad, Extn., New Delhi. 4.02.770/- Summons not delivered. TOTAL : 93,74,631/- Out of the unrecorded sums of Rs. 1,53,48,825/-, summons u/s 131 of the Act were issued to 21 parties whose unrecorded transactions as claimed by the Assessee aggregated to Rs. 93,74,631/-. Summons were delivered to 7 parties whose transactions aggregated to a sum of Rs. 67,80,325/-. The unrecorded bills with rest of the 14 parties aggregated to a sum of Rs. 25,94,306/-.The AO did not take the investigation to its logical end and therefore it cannot be held against the Assessee, as has been held by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties whose transactions aggregated to a sum of Rs. 7,79,236/. The unrecorded bills with rest of the 2 parties aggregated to a sum of Rs. 2,84,326/-The AO could have used the Revenue machinery available to get the transactions verified but did little other than issuing summons u/s 131 of the Act, which cannot be held against the Assessee, as has been held by the Hon ble Supreme Court in the case of Orissa Corporation Pvt Ltd. 159 ITR 78 (SC), where it was held that the index numbers of the parties was in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee did not pursue the matter further in those circumstances the assessee could not do any further...............Instead of his own inability to perform the duty assigned to him was attributed by the Assessing Officer in drawing adverse view in the matter against the assessee. Dying Expenses unrecorded bills: Rs. 16.41.764/: S.No Name of Party Address Transaction Value Summons Delivery Status 1. M/s. Samtex Desinz. A-36, Hosiery Complex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by both these parties, their books of accounts for AY 2010-11 were produced along with other documents, but also the statements of the authorised person recorded by the Assessing Officer. S.No Name of the Party Transaction Nature Amount (Rs. ) 1. M/s. S.A.M. Overseas, Prop of Mr. Ved Prakash Sachdev Fabric Expenses. 3,38,02,315.00 2. M/s. S.A.M. Overseas, Prop of Mr. Ved Prakash Sachdev Fabrication Expenses. 49,94,922.00 3. M/s. Samtex Desinz Prop of Mr. Mukesh Sharma. Dyeing Printing Expenses. 16,41,764.00 TOTAL : 4,04,39,001.00 In case of Orissa Corporation Pvt. Ltd. 159 ITR 78 SC), Hon'ble Supreme Court held that if the assessee discharges its burden that lay on him to provide the details of the parties with whom it had dealt with, then the onus of verification of transactions shifts on the Assessing Officer to use the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ething more than bare suspicion to support the assessment under Section 23(3). In view of the above discussions and respectfully followings the decisions of Hon'ble Supreme Court in case of Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) and in the case of Dhakeshwari Cotton Mills Ltd. vs. CIT 26 ITR 775 (SC, I am of the opinion that only to the extent to such cases where summons u/s 131 could not be served and for which it can be said that the assessee did not discharge its onus, can be taken as expenses non verifiable. Therefore the addition in respect of unexplained stock is restricted to Rs. 28,78,632/- and the ground no. 2 is partly allowed. 9. Ground no 4 pertains to the denial of opportunity of being heard. From perusal of the assessment order it seen that Shri Maneesh Mehra, CA and AR appeared on behalf of the assessee on various dates and the information called for has been filed and the case was discussed with him. Therefore, there is no merit in the claim of the appellant that the opportunities were not given. Hence the claim of the appellant is rejected and this ground of is dismissed. 43.1 The ld. CIT (Appeals) has passed a well-reasoned order on appreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the disclosed income was assessable as lawful income of the assessee. Since there was no material on record to prove the existence of such disclosed income or earning of such income in the hands of the assessee, it could not be said that the Revenue had lost lawful tax payable by the assessee. 5.1. In the decision in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [(1973) 91 I.T.R. 18], the Apex Court held that an admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect. 5.2. Where a survey was conducted in the premises of the assessee, a medical practioner, and a statement was recorded from him, in which the assessee surrendered additional income and pursuant to the same, the assessing officer reopened the assessment, but during the course of which the assessee retracted the additional income offered and contended that the statement was the result of duress, which was not accepted by the assessing officer and also by the Tribunal holding that the statement is valid and that it was made without duress, a Division Bench of the Allahabad High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same has no evidentiary value. The Division Bench of the Kerala High Court, appreciating the stand taken by the assessee and after referring to Section 133A of the Act, held as hereunder: .. we find that the power to examine a person on oath is specifically conferred on the authorised officer only under section 132(4) of the Income-tax Act in the course of any search or seizure. Thus, the Income-tax Act, whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas section 133A does not empower any Income-tax Officer to examine any person on oath. Thus, in contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income-tax Department. Similarly, while recording statement during the course of search seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also, assessing officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders. 7. From the foregoing discussion, the following principles can be culled out:- (i) An admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of accounts do not correctly disclose the correct state of facts, vide decision of the Apex Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [(1973) 91 I.T.R. 18]; (ii) In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any useful purpose if such contentions are not based upon credible evidence collected in the course of search and survey operations. This decision of the Hon ble Madras High Court has also been upheld by the Hon ble Supreme Court in CIT Vs. S. Khader Khan Son (supra) wherein the Hon ble apex court dismissed the civil appeal filed by the Revenue. 45.1 Therefore, we hold that addition on account of undisclosed difference in stock discrepancy cannot be made merely on the basis of the statement given by the partner at the time of survey without any corroborative evidences found in the course of survey. In this case the assessee explained that there is no discrepancy in stock along with various evidences and explanations and, therefore, the ld. CIT (Appeals) has rightly deleted the addition of Rs. 4,00,84,677/- (4,29,63,309 - 28,78,632). Thus, the order of the ld. CIT (Appeals) is sustained to this extent. Ground No. 2 of grounds of appeal of Revenue is rejected. 45.2 The case laws relied by the ld. DR have no application to the facts of the assessee s case and they are distinguishable on facts. In the case laws relied on by the ld. DR the assessee did not give any satisfactory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, we direct the Assessing Officer to delete the addition of Rs. 28,78,632/- sustained by the ld. CIT (Appeals). 47. Coming to assessee s appeal the only ground left for adjudication is in respect of sustaining the disallowance of Rs. 30,76,482/- being the commission paid to foreign agents. In the course of assessment proceedings the Assessing Officer noticed that the assessee has debited an amount of Rs. 30,76,482/- on account of export commission paid. The assessee was required as to why TDS on over-seas commission has not been deducted and why it should not be considered as assessee in default for non-deduction of TDS as per the provisions of section 195 of the Act. The assessee submitted that the export commission paid outside India for procuring sales is not taxable in India and, therefore, the provisions of section 195 of the Act have no application. However, the Assessing Officer relying on the decision in the case of Transmission Corporation of India Vs. CIT [239 ITR 587 (SC)] and V. Acz. Pvt. Ltd. Vs. CIT [189 taxmann.com 232 (Del)] held the assessee was liable to deduct TDS on export commission paid to non-resident/outsiders and since the assessee did not deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whom the commission had been paid are non-residents and does not have a PE in India. In fact it had been contended that the expenditure as had been incurred was for services rendered outside India. 50.4 However, the Assessing Officer in Para 6.6 of his order held that, commission paid to non-resident is an income deemed to accrue or arise in India within the meaning of section 9 of the Act and thus the assessee was liable to have deducted the tax at source on the expenditure incurred as commission paid by it to the non-residents. 51. On appeal the learned CIT (Appeals) has confirmed the findings of the learned Assessing Officer in para 7.7 at Pg. 28 of his order. He has held that after considering the assessee's submission dated 01.03.2020 (Pg. 1952 to 1969 of PB) and 17.03.2020 (Pg. 1970 to 1991 of PB) since the assessee has not produced any agreement entered by it with outsiders/non-resident agents to whom the commission had been paid was subject to deduction of tax at source. In support he relied upon the order of the AAR in the cases of: (i) Shell India Markets Pvt. Ltd. (2012) (ii) Perfetti Van Melle Holding (2012) (iii) SKF Boilers Driers Pvt. Ltd. (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) income by way of fees for technical services payable by - (a) the Government or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April 1976, and approved by the Central Government] Explanation 1 For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976 shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date] Explanation 2. - For the purposes of this clause fees for technical services means any considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n.com 350 (Jaipur-Trib.)] v. Deputy Commissioner of Income-tax Vs. Mc Fills Enterprise (P). Ltd. [(2019) 101 taxmann.com 212 (Ahmedabad-Trib)]. 52.6 While concluding with the aforesaid submissions, the assessee-appellant seeks to rely upon the recent decision of the Income Tax Appellate Tribunal Delhi Bench in the case of Apurva Goswami vs. DDIT, Chandigarh reported in [196 ITD 10] wherein it was held that commission payments made by assessee to non-resident agents/service providers for rendering services like sales promotion, marketing publicity and procuring sales order etc. was not FTS but business profit and in absence of permanent establishment of these service providers in India, such commission payments were not taxable in India. 53. In fact the learned Assessing Officer in his remand report dated 29.02.2016 at Pg. 1440 had admitted that the expenditure incurred is allowable expenditure. The said report reads as under:- (C) Foreign Commission disallowed u/s 40(a)(i): Rs. 30,76,4827- We have examined the additional evidence submitted by the assessee in the form of the copies of the agreements between the overseas agents and the assessee. The language as contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive Vs. ACIT (supra) the Delhi Tribunal held that mere rendering of service of procurement of orders by a non-resident company for Indian company does not fall in the category/consultancy services as explained in Explanation (2) to section 9(1)(vii). We also observe that in the case of Pure Software Pvt. Ltd. (supra) the co-ordinate bench of the Delhi Tribunal held that payment made by the assessee to foreign entities for rendering sales procurement abroad could not be regarded as royalty or fees for technical services and thus the said payment was not taxable in India. 58. Further we also observe that the Assessing Officer in his remand report dated 29.02.2016 observed as under:- (C) Foreign Commission disallowed u/s 40(a)(i): 30,76,4827- Rs. We have examined the additional evidence submitted by the assessee in the form of the copies of the agreements between the overseas agents and the assessee. The language as contained in the said agreements is indicating of a simple arrangements between the assessee and its agents wherein they are not charging a fee from the assessee for any Technical Services. They are merely responsible for identifying new buyers and introducing th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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