9911796707
TMI Blog2023 (6) TMI 1167X X X X Extracts X X X X X X X X Extracts X X X X ..... e been deducted under section 195 of the Income tax Act, 1961 ("the Act"). 1.1. That on the facts and circumstances of the case and in law, the CIT(A) did not appreciate that the commission paid to foreign agents was not chargeable to tax in India within the meaning of respective DTAAS. 1.2 That on the facts and circumstances of the case and in law, the CIT(A) in upholding the disallowance has erred in not adjudicating on the additional evidence being the agreements with foreign agents, though the remand report of the Assessing Officer was called for. 2. That on the facts and circumstances 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had sufficient interest free funds available with it for making advances to sister concerns and other related parties. 8. The ld. DR strongly supported the order of the Assessing Officer. 9. The ld. Counsel for the assessee submits that the present matter is fully 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle, therefore, would be that 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 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/ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn 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 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 matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn 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. 16. Further the assessee contended that 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 shipmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed reliance on the following decisions in support of his contentions :- (i) Raj Hans Towers (P.) Ltd. Vs. CIT [(2015) 373 ITR 09 (Del)]; (ii) Pr. CIT Vs. Avinash Kumar Setia [(2017) 395 ITR 235 (Del)]; (iii) M/s. Pebble Investment & 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 1,55,22,000.00 WIP (Pcs) Stitching, finishing and Packing 5. C-53, Hosiery Complex, Noida 33,06,198.00 WIP (Pcs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 from Para 7.1 (Pg. 91 of the PB). It had further been submitted that even the stocks lying in customs had been included in the inventory prepared at the time of survey, despite the fact that the sale thereof had already been recorded in the ledger account of the export sales. It had thus been contended before the learned Assessing Officer that while preparing the inventory of the stocks of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exceeds by Rs. 5,08,760/-which is on account of merely valuation difference. As such, it had been prayed that the declared results, be accepted. 22.1 That in spite of the above submissions made by the assessee from time to time (and duly supported by the necessary documentary evidences), the learned AO, framed an assessment after including in the income, a sum of Rs. 4,29.63,309/- instead of Rs. 6,50,11,523/-, as had erroneously and on misconception of facts been offered in the statement of Shri V. P. Sachdeva. In other words, the learned AO had allowed only a deduction of Rs. 2,20,51,214/-, the value of the sales recorded by the assessee in the books of accounts and was lying at the customs for clearance. This is evident from para 5.1 at Pg. 19 of his order. 22.2 The learned Assessing Officer however in respect of remaining value of stocks of an aggregate value of Rs. 4,29,63,309/- had made addition. The findings in respect thereof are recorded in para 5 of his order. It would be seen therefrom that no reason whatsoever ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 assessee that it had purchased fabrics, incurred fabrication expenses, purchased accessories and certain dying expenses had not been entered, had completely been side tracked and overlooked by the learned Assessing Officer. 22.5 The ld. Counsel submitted that the assessee had also stated that there is a difference in the value of fabric stock as inventorised by the survey tem; whereas actual stock was lying at M/S. SAMTEX DESINZ. In fact, it had also been contended that the value of stocks inventorised at A-36, Hosiery Complex, Noida at Rs. 2,57,46,000/- was not based on physical verification. The detailed submissions in respect thereof has been extracted by the AO in para 9.3 at Pg. 10 of his order. It had been contended that quantity and value of the stocks lying at the aforesaid premises was only of Rs. 1,92,34,153.78 and not of Rs. 2,57,46,000/- and thus the difference of Rs. 65,11,846/- had erroneously been included in the value of stocks allegedly found at the time of survey, which had been prayed to be excluded. Thus the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a summary of Fabrication Charges/Expenses at pages 75 to 76 of Volume 4 of the paper book to show a party wise detail of Fabrication Charges reconciliation between the physical stock reported by the survey team and the one noted by them form 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 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 Rs1.00 lakh. The names and addresses of the said parties are as under: Sl. No. Name of the Party. Address. Value 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 Sabzi Mandi, Punchayatghar) New Delhi-53. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for payments to its in-house labour force. Apart from the above, notices for value Rs. 7.10.969/- were not issued to various parties whose aggregate billing as detailed by the assessee in its appeal papers was less than Rs. 1.00 lakhs due to the sheer voluminous nature of the transactions involved albeit of very small value." 24.1 From the aforesaid report it is submitted it would be evident that the learned Assessing Officer was satisfied that there was no discrepancy of the value of stocks found at the time of survey. In fact, the discrepancy had occurred only as a result of non-posting the transactions entered by it in its ledger account. 24.2 Similarly, in his remand report dated 29.02.2016 the learned Assessing Officer accepted all the contentions of the assessee that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT (Appeals) are as under: Before the learned Assessing Officer Sl. No. Date Pages. 1. 30.01.2014 99. Before the learned CIT (Appeals) Sl. No. Date Pages. 1. 04.12.2015 439-442 2. 21.11.2017 1672 3. 27.11.2017 1942-1943 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors. Such fabricators have been fabricating the garments for the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & 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 1. Respective Bill 2. Copy of Account in our books at Page No- 676 to 677 Paper Book-3, Form 16A-Page No-680. 7 KHALEEQ AHEMAD CHAUHAN Inside Gate, Sharma Market Salarpur Bhangel, Noida 1,97,807.00 1306, 1307 1310, 1309 1312, 1316 1318,1326 1325, 1328 1329, 1330 1331, 1332 129 130/ 15.06.2010 30.06.2010 05.07.2010 31.07.2010 20.08.2010 21.08.2010 30.08.2010 26.10.2010 & 10.11.2010 Cheque 1. Respective Bill 2. Copy of Account in our books at Page No- 706 to 712 Paper Book-3, Form 16A-Page No-721 to 722. 8 MALIK ENTERPRISES Village Chigarsi Sector-63, Noida. 2,71,875.00 10/ 30.06.2010 09.09.2010 2610, 2010 25.02.2011 28.02.2011 Cheque 1. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter period of the same financial year, as is tabulated as Annexure 'B'. 31. Ld. Counsel submitted that at Pg. 49, the learned CIT (Appeals) has referred to figure of Rs. 28,33,607 (which includes a sum of Rs. 2.84.326/-) for purchase of accessories. The aggregate value of accessories found at the time of survey was Rs. 16,77,967. The assessee has furnished a chart at pages 1967 to 1968 (PB-6), which provides the details of expenses incurred on purchase of accessories and the evidence furnished in support of the purchases. 32. The appellant in support of its claim has tabulated fabricator wise details of expenditure incurred and claimed along with the evidence furnished before the learned Assessing Officer on the basis of which he himself in his remand report dated 29.02.2016 had held that the expenditure claimed has been established as genuine. 33. It is thus submitted that it is not denied that the assessee had exported the goods after fabrics purchased by it was fabricated. The fabricated material admittedly been exported outside India. Thus the submission of the assessee is that merely because fabricators to whom the payments made by account payee cheques had not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the claim that there is no difference in stocks the ld. CIT (Appeals) has rightly deleted the addition of Rs. 28,78,632/-. The ld. Sr. Counsel further submitsthat simply because the summons could not be served on some of the parties there is no justification in sustaining the addition to the extent of Rs. 28,78,632/- by the ld. CIT (Appeals). The ld. Sr. Counsel for the assessee in so far as the statement recorded by the survey team from Shri V. P. Sachdeva offering difference in the value of closing stock of Rs. 6,50,11,523/- as income of the assessee. It is submitted that the statement recorded under section 133A of the Act during the course of survey has no evidentiary value when the assessee proves with documentary evidences that in fact there is no discrepancy in stocks. The ld. Sr. Counsel submits that as a matter of fact when the survey team took out the P & L account computer of the assessee as on the date of survey on 6.09.2010 there were pending bills to be recorded and the books were unaudited. The ld. Sr. Counsel submits that when the books were audited after recording all the transactions in the books of accounts the assessee explained that there is no discrepancy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown by the assessee on 6.09.2010 in the audited books of account. 37.1 We observed that the assessee contended that goods worth Rs. 33,82,315/- were received from S.A.M. Overseas, a proprietary concern during the period 2.08.2010 to 31.08.2010 and in the unaudited P & L account taken on 6.09.2010 the said purchases of fabric was not recorded although the said goods have been received in the premises of the assessee by 6.09.2010. Similarly fabric purchased from Dhanlakshmi Export Syndicate on 4.08.2010 and 6.08.2010 though received on the said dates were not recorded in the unaudited P & L account which amounted to Rs. 3,43,26,387/- . The assessee also submitted that the survey team inventorised the vinished goods lying at customs at Rs. 2,36,22,278/- and this was not available at the factory at the time of survey on 6.09.2010 as they have already been dispatched to Bombay Port for export. Therefore, it was submitted that the stock was not depicted in unaudited P &L account. It was submitted that out of goods of stock valued at Rs. 2,36,22,278/- stock worth Rs. 20,51,214/- were converted into sales by 6.09.2010 and is supported by shipping bills, copies of the same were furnishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k as on 6.09.2010 i.e. the date of survey. 40. The assessee preferred appeal before the ld. CIT (Appeals) and furnished various submissions and evidences and the ld. CIT (Appeals) called for remand reports from the Assessing Officer twice. After analyzing the remand reports submitted by the Assessing Officer dated 29.02.2016 and 9.05.2017 restricted the addition to Rs. 28,78,632/- and deleted the balance addition of Rs. 4,00,84,677/-. 41. We observe that in the course of proceedings before the ld. CIT (Appeals) the assessee furnished various evidences and submissions justifying the reconciliation of stocks made by the assessee to show that there is no discrepancy in the stocks and, therefore, the addition is not warranted. The ld. CIT (Appeals) called for the remand report vide letter dated 11.01.2016 from the Assessing Officer on the evidences and explanations furnished in the course of hearing before him. The Assessing Officer furnished remand report dated 29.02.2016 after examining the details of fabric purchased (local and central) not recorded by the assessee on the date of survey amounting to Rs. 3,43,26,387/- and the details of fabrication expenses not recorded by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the purchases and payments made by the assessee respectively and summarise as below: Rs. in Lakhs Particulars FY 2008-09 FY 2009-10 FY 2010-01 FY 2011-12 FY 2012-13 Purchases/Credits 2680.58 3170.79 2346.04 1057.45 160.45 Payment/Debits 1188.55 3187.81 2290.62 2648.14 131.92 We noticed that there has been a regular flow of purchases as well as payments against the said purchases between the two parties and we conclude that there appears to be no question on the genuineness of the transactions between the said parties. Fabrication Expenses not recorded by the assessee on the date of the survey; Al para (13)(ii) of his remand report the AO in his findings states: "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 submissions and copies submitted in Volume 4 of the paper book at pages 77 to 477 were verified, one by one, in entirety. It was also noted from the Account statements submitted by the above named parties that they were regularly receiving payments from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05.2017 has stated that the Assessee has constructed, manipulated the books, as is stated at page 29 para 10.5 : ......... only show that the assessee in the meanwhile has constructed, manipulated the books and colored the findings of the survey team to its own benefit." (ii) The Assessing Officer has further stated at page 36 para 13.2.1.3 that: The books of accounts that assessee is presenting today with additional entries which were not present/recorded in books that the partner twice confirmed as updated books written up to date are not the true books of accounts. In fact it appears that these are not manipulated. These no doubt present manipulated picture." (iii) The Assessing Officer at page 38 para 13.2.1.7 states: In view of the undersigned documents produced are simply self created and self serving documents with no evidentiary values. These are construction/afterthought to make the unaccounted stock found during the survey proceedings look like accounted one" (iv) At page 40 para 13.2.1.12. The books of the proprietorship SAM Overseas remain open and the assessee has used the same to take bills in order to accommodate the unaccounted stock found. In light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is and devoid of any solid proof. The AO has not been able to produce even a single evidence in support of her claims of the books being constructed and manipulated. The Assessing Officer has tried in vain to convince in her remand report albeit without offering any kind of support or solid evidence in support of her claims that the Assessee used the time to "construct, manipulate the books and colored the findings of the survey team to its own benefit. The AO could not produce even an iota of evidence in suppurt of her claim on manipulation of books of accounts. The law is settled here as the cases are decided not on presumptions but on evidence. In my opinion the remand report dt. 09.05.2017 of the AO is not only inconclusive but is also devoid of any material substance to prove the claims. Therefore in my opinion the remand report dt. 29.02.2016 is inconclusive as the Assessing Officer who clearly wasn't able to make a case by unearthing evidences but instead tried to reply on presumptions which are not acceptable in the eye of law. The remand report dt. 09.05.2017 is full of assumptions, is presumptive and without any conclusion based on solid evidence. The Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the investigation task at hand instead of just casting a shadow of suspicion on the evidence produced and submitted by the Assessee. Simply by stating that the evidences "appear constructed and manipulated doesn't go to prove that indeed these are. D] Response to notices u/s 133(6) and Summons u/s 131 and comments on the way the inquiries were conducted by the Assessing Officer during remand proceedings 1st Remand report The appellate authority vide letter dated 11.01.2016 had directed the Assessing Officer to conduct the following: (I) Verify the contentions made during the assessment proceedings and give a categorical finding about the explanation of the appellant that there was no discrepancy in the stock as per the inventory made by the survey team and the stock as per books. (ii) On perusal of the explanation, it is seen that an amount of Rs. 3,38,02.315/- were purchased from its sister concern M/s SAM Overseas. In this connection, you are directed to make necessary inquiries about the genuineness of claim of purchases of M/s SAM Overseas out of which Rs. 3,38,02,315/- was claimed to have been sold to the appellant. (III) Further, necessary inquiries should also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 to the said bills had been received by the assessee from its vendors before the date of the survey The assessee has further submitted a summary of Fabrication Charges/Expenses at pages 75 to 76 of Volume 4 of the paper book to show a party wise detail of Fabrication Charges 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essories 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 Complex, Sharma Market, Harola, Noida. 1.27,143/ - 2. M/s. Digamber Trim Point. G-5, Shree Krishna Complex, Sharma Market, Harola, Sec. 5, Noida. 2,18,031/- 3. M/s. Paras Tapes Co. (Regd.) 3797, GaliBarna, Sadar Bazar, Delhi. 2.21,951/- 4. M/s. Sethi Pooja Buttons. Shop No. 6, Street No. 9, 1043, Akash Deep Complex, Govindpuri, Kalkaji, Delhi. 1.57.704/- 5. M/s. KannujiMathu Mal & Sons. 2721, Chowk Rai Ji, Nai Sarak, Roshanpura, Chandni Chowk, Delhi-110006. 1,81,550/- 6. M/s. Avery Dennison. Plot No. 6-B, 1st Main Road, Kiadb, PH-I, Bangalore. 1.57,183/- TOTAL : 10,63,564/- (lv) Details of Dyeing Expenses but not recorded by the assessee on the date of the survey : Rs. 16,41,764/-. We have gone through the reconciliation statement by the assessee on pages 478 to 479 of Volume 4 of the paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; Total 3,43,26,387/- It is seen from the above chart that summons to all 3 parties was delivered and thus the identity of all parties was confirmed. Verification and recording of statement for 1 party i.e. M/s S.A.M. Overseas (Prop) was done which constitutes 98.47 % of the bills under reconciliation. The Assessing Officer did not exercise his powers to get the remaining parties to appear on delivery of the summons u/s 131 of the Act. 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 AO to use the machinery available to him to complete the investigation at hand. The Assessee in the case at hand, had discharged its onus and if the AO has failed to carry out and complete the task at hand, he cannot take shelter behind the fact that some parties to whom the summons were delivered did not appear. Fabrication unrecorded bills: 1.53.48.825/-: S.No Name of Party Address Transaction Value Summons Delivery Status 1. M/s. Balaji Exports. 111B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rossing, 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 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of Party Address Transaction Value Summons Delivery Status 1. M/s. Samtex Desinz. A-36, Hosiery Complex, Noida. 16.41,764/ - Summons delivered & party appeared with books of accounts TOTAL : 16.41,764/ - Summons u/s 131 of the Act was issued to the sole party as mentioned above for verification which delivered and the party appeared in response to record its statement. Therefore the notices issued by the AO u/s 131 for conducting inquiries to verify the genuineness of claim of expenses and response to such notices are being summarised under: S.No Particulars Summons u/s 131 served and party complied. Summons u/s 131 served and party did not comply. Summons u/s not served. (i) Fabric Purchase Expenses (total 3,43,26,387) Summon u/s 131 issued to 3 parties (3,43,26,387) 1 party M/s. SAM Overseas 3,38,02,315/- 2 parties. (5,24,072) NIL (ii) Fabrication Expenses (total 1,53,48,829) Summon u/s 131 issued to 21 parties (93,74,631) 5 parties. (63,38,079) 2 parties. (44,22,46) 14 parties. (25,94,306) (iii) Accessories Purchase Expenses (total 16,77,967) Summon u/s 131 issued to 6 parties (10,63,562) 2 parties. (3,99,581) 2 parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y has not been received by the AO in response to summons. The AO cannot draw adverse inference merely because reply has not been received. Submission of the reply in an independent enquiry being carried out by the AO by issue of summons, from the person concerned directly is not in the hands of the assessee. The Assessing Officer may be justified in certain circumstances when notice is not served or when an adverse reply is received but merely non-receipt of reply can't be a justification for drawing adverse inference. In the present case during the 2nd remand proceedings the AO, apart from issuing notices under section 131, did not pursue the matter further. In those circumstances the assessee could not do anything further. Though the strict rule of evidence are not applicable to the income tax proceedings but at the same time it does not mean that no evidences are required Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. vs. CIT 26 ITR 775 (SC) where the Hon'ble Court has held as under: "As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income tax Officer is not fettered by technical rules of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o explained that it was only on account of mere valuation difference. Therefore, since the assessee has given its explanation along with evidences to prove that there is no discrepancy in stocks the addition cannot be made merely based on a statement given during survey operations under section 133A of the Act in the course of survey. 43.2 The Hon'ble Madras High Court in the case of CIT Vs. S. Khader Khan Son (supra) held that the statement given in the course of survey is not a conclusive piece of evidence and addition cannot be made based on the statement of partner during survey proceedings recording undisclosed income of the firm when it was subsequently retracted. 43.3 The Hon'ble High Court also explained the difference between sections 133A and 134 of the Act and held as under:- "4. In the instant case, there was a survey operation conducted under Section 133A of the Act in the assessee's premises and a statement was recorded from one of the partner. Assuming there were discrepancies and irregularities in the books of accounts maintained by the assessee, an offer of additional income for the respective assessment years was made by the parnter of the firm. But, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to examine a person on oath, has expressly provided for it, 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 recorded under section 133A of the Act is not given an evidentiary value, vide a decision of the Kerala High Court in Paul Mathews and Sons v. Commissioner of Incometax [(2003) 263 I.T.R. 101]. 5.4. The scope of Sections 132(4) and 133A also came up for consideration before the Kerala High Court in Paul Mathews and Sons v. Commissioner of Income-tax [(2003) 263 I.T.R. 101]. In the said case, the assessee therein made an attempt to draw a distinction between the two provisions, viz., Sections 132(4) and 133A. According to the assessee, there is no provision to administer oath or to take any sworn statement and that a mere admission or an acquiescence cannot be a foundation for an assessment and that any statement given durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 133A cannot be taken into consideration while determining the undisclosed income in respect of block assessment as per section 158BB, as the same has no evidentiary value. 5.6. Again, when an identical question whether the material found in the course of survey in the premises of the builder could be used in the block assessment of the assessee, came up for consideration before this Division Bench in an unreported case in T.C.(A) No.2620 of 2006, this Court, by order dated 22.11.2006, of course, following the earlier decision of this Court in G.K.Senniappan's case reported in (2006) 284 I.T.R. 220, while confirming the order of the Tribunal, answered the question in favour of the assessee, in limine. 6. What is more relevant, in the instant case, is that the attention of the Commissioner and the Tribunal was rightly invited to the circular of the Central Board of Direct Taxes dated 10.3.2003 with regard to the confession of additional income during the course of search and seizure and survey operations. The said circular dated 10.3.2003 reads as follows: " Instances have come to the notice of the Board wher assessees have claimed that they have been forced to confess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would include the materials gathered during the survey operation under Section 133A, vide Commissioner of Income-tax v. G.K.Senniappan [(2006) 284 I.T.R. 220]; (iv) The material or infomration found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this Court in T.C.(A) No.2620 of 2006 (between Commissioner of Income-tax v. S.Ajit Kumar); (v) Finally, the word "may" used in Section 133A (3)(iii) of the Act, viz., "record the statement of any person which may be useful for, or relevant to, any proceeding under this Act, as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under Section 133A are not conclusive piece of evidence by itself. 8. For all these reasons, particularly, when the Commissioner and the Tribunal followed the circular of the Central Board of Direct Taxes dated 10.3.2003, extracted above, for arriving at the conclusion that the materials collected and the statement obtained under Section 133A would not automatically bind upon the assessee, we do not see any reason to interfere with the order of the Tribunal. Accordingly, fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that the ld. CIT (Appeals) sustained the addition which comprises as under:- (a) Out of fabricated expenses Rs. 25,94,306 (b) Out of accessories purchased Rs. 2,84,326 Total : Rs. 28,78,632 46.2 We observe that the expenses incurred for fabrication which was given on job work by the assessee sustained by the ld. CIT (Appeals) only for the reason that the summons issued were not served on the parties. 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-service of summons on the parties. The assessment year involved in this case is 2011-12 and the financial year is 2010-11. The summons were issued in the year 2017 in the course of remand proceedings to the parties whereby there is a considerable gap of time and the parties might have moved out or close ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 30.01.2014 had however directed the assessee to show cause why the expenditure incurred and claimed as commission be not disallowed, since the assessee had failed to deduct the tax at source as provided u/s 40(a)(i) of the Income Tax Act. 50.2 In response thereto, it had been submitted by the assessee vide its submissions dated 05.02.2014 (P. 317-321) that the said sum of expenditure incurred is not a sum chargeable to tax in India and also that none of the payees had a PE in India and as such the sum of expenditure incurred and claimed does not fall within the ambit of section 40(a)(i) of the Act. The appellant had submitted that the amount of the expenditure incurred was neither royalty nor was a fee for technical services within the meaning of Explanation below the section. In support it had relied upon the following judgments:- (1) CIT s. Cooper Engineering Ltd. [68 ITR 457 (Bom.)] (ii) Vijay Ship Breaking Corporation vs. CIT [314 ITR 309 (SC)] (iii) Al Nisr Publishing [239 ITR 879 (AAR)] (iv) British Gas India Pvt. Ltd. in Re. [287 ITR 421], [239 ITR 879 (AAR)] 50.3 It is submitted that the aforesaid 'persons' to whom the commission had been paid are non-re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred was since for technical services rendered outside India, is an income deemed to accrued and arise in India and was thus chargeable to tax. 52.3 The assessee-appellant had relied on the judgment of the Apex Court in the case of CIT vs. Toshoku, [125 ITR 525] wherein it had been held that commission amount earned by non-resident persons for the services rendered outside India cannot be deemed to be income which had either accrued or arose in India. The assessee had also relied upon the following judgments: (a) Corborandum & Co. Vs. CIT [108 ITR 335 (SC)] (b) Ind. Telesoft Pvt. Ltd. [267 ITR 725 (AAR)] 52.4 Thus the core question is whether the services rendered by the commission agents could be regarded as technical service fee as defined in Explanation (2) of section 9(1)(vii) of the Act which reads as under: 9. (1) The following incomes shall be deemed to accrue or arise in India:- ....... (vii) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicial pronouncements: i. Digi Drives (P.) Ltd. VS. Assistant Commissioner of Income Tax [(2021) 123 taxmann.com 4 (Delhi-Trib)] wherein it was held that mere rendering of service of procurement of export orders by a non-resident company for Indian company does not fall in category of managerial/consultancy services as explained in Explanation 2 to section 9(1)(vii). ii. Pure Software (P) Ltd. vs. Income-tax Officer [(2019) 109 taxmann.com 95 (Delhi-Trib.)] wherein it was held that payment made by assessee-company to foreign entities for rendering sales procurement services abroad, could not be regarded as royalty or fee for technical services and, thus, said payment was not taxable in India. iii. Rajinder Kumar Aggarwal (HUF) Vs. Deputy Commissioner of Income-tax [(2021) 131 taxmann.com 252 (Delhi-Trib.)] iv. Deputy Commissioner of Income-tax Vs. JLC Electromet (P.) Ltd. [(2022) 140 taxmann.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 Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents were appointed as selling agents of the assessee over-seas for the purpose of procuring orders, arrange for sample approvals, follow up on payments, to do liasoning with buyers and to do other works as are incidental to the above. We observe that the agents are paid equivalent to certain percentage in some cases 5% and in in some cases 7% of FOB value of each order. We observe that the agreements did not provide for any technical services to the assessee except for procuring orders for which certain percentage of commission on value of orders was paid. In other words, what was paid by the assessee was simply a commission to the non-resident agents and their income is not chargeable to tax in India. Therefore, the observation of the ld. CIT (Appeals) that the commission paid to foreign agents has to be taxed as FTS is not sustainable. 57. We observe that in the case of D. G. Drive 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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