TMI Blog2023 (7) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... :- Mere certain discrepancy at the entry gate cannot be a basis of rejection of entire books results for three assessment years, when no other incriminating evidence was find at the time of search. Thus we do not approve the rejection of books of account. The discloser made by director of the assessee has been honoured in its true spirit. The assessee disclosed Rs. 1.00 crore each for AY 2012- 13 2013-14 and Rs. 13.00 Crore for AY 2014-15 and if further addition by approving the rejection of books of account is sustained, the net profit would be unrealistic. Another reason to disapprove the action of AO in rejection of books result of assessee as same assessing officer completed the assessment of one of the purchase party u/s 153A r.w.s 143(3) and all their sale and purchase are accepted as genuine and no variation / addition in their return of income was made, thereby accepted their return income vide assessment order dated 18/11/2015. Thus addition sustained by ld CIT(A) to the extent of 5% of the impugned purchases will not survive. Assessee appeal allowed. - IT(SS)A Nos. 40, 41, 42, 43 And 115/Srt/2021 And IT(SS)A Nos. 44, 45, 50 And 122/Srt/2021 - - - Dated:- 12-5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company engaged in the business of manufacturing and trading of textile. A search action under Section 132 of the Income Tax Act, 1961 (in short, the Act) was carried out on 18/02/2014 in case of Laxmipati Group Surat. The assessee is one of the entity covered in the said search action. Consequent upon such search action, notice under Section 153A of the Act was issued and served on 15/09/2014 for filing return of income for various assessment years. In response to notice under Section 153A, the assessee filed its return of income for AY 2011-12 on 18/12/2014 declaring income of Rs. 2.12 crores. The Assessing Officer after serving notice under Section 143(2) proceeded for assessment. During the assessment, the Assessing Officer noted that during the course of search and seizure action at the factory premises of assessee at A/24 and A/26 to A/32, Central Park, GIDC, Pandesara, Surat, the purchase bills issued by M/s Delta Tex Trade Pvt. Ltd., Dhruti Fabrics Pvt. Ltd., Ujwal Trendz Pvt. Ltd., Acharya Polyfab Pvt. Ltd., Shreekant Designer Pvt. Ltd. and M/s Vashudhara Fashions Pvt. Ltd. were found. The purchase bills were suspect as doubtful for the reasons that there were various disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. During the assessment, notice under Section 133(6) of the Act was issued to all six concerns, replies were received from all these parties. 4. The Assessing Officer also issued notice to the parties from whom these six companies have purchased their goods, which in turn has been claimed to have purchased by assessee. The Assessing Officer recorded the summary of all six companies. For M/s Delta Tex Trade Pvt. Ltd., the Assessing Officer recorded that they furnished their reply and submitted that the purchases were made from 88 parties over the period of F.Y. 2009-10 to 2013-14. Further notice under Section 133(6) were sent to 88 parties for seeking their confirmation about the purported sale to M/s Delta Tex Trade Pvt. Ltd., mode of delivery of goods and proof of transportation. Out of 88 parties, 72 different parties filed their confirmation about the sales to M/s Delta Tex Trade Pvt. Ltd. Mode of delivery was disclosed as through tempo. The Assessing Officer recorded that no evidence of such claim was filed. Notice issued for M/s Dhruti Fabrics Pvt. Ltd., the Assessing Officer noted that notice under Section 133(6) were issued to 28 parties, 11 parties have filed their comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plot No. A-25 is very narrow, so no vehicle can enter inside the gate, whereas free moment of vehicle is possible in the main factory gate and explained that the difference in inward register as different or dissimilar is not a discrepancy. The assessee also explained method of guarding of gates by security guard and supervisor. On receipt of goods at plot No. A-25, which is jointly locked but look after by one person, on receipt of goods, first it is confirmed that the goods belonged to assessee or not, if it is found, then the goods is verified, after verification of stock, details of goods are noted in the inward sheet available, once the inward sheets accumulate at gate, they are filed in the same box file in which inward sheet of main gate are filed. Thus, there is no such serious discrepancies, such difference is merely the working by different security guards. On non-receipt of reply from various suppliers, the assessee explained that the assessee has purchased fabrics from six entities, which have confirmed in reply to notice under Section 133(6) of the Act and further confirmation from their suppliers were also received in majority of cases. On-going through the reply of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on the issue of rejection of books of account, submitted that the twin condition for rejection of books provided in Section 145(3) is not satisfied. There is no reason for rejection of books of account which are complete and correct. The books of account are accurate and maintained as per accounting standard. The completed assessment for A.Y. 2009-10, 2010-11 and 2011-12 clearly established the correctness and completeness of books of account. The proof of delivery/transportation is the record of suppliers and not of assessee company. Even if there are some defect in the books of supplier and not in the books of assessee. So the assessee prayed for accepting the books entry and their correctness. 6. In without prejudice submission, the assessee contended that even if the purchase is bogus, it is not the total amount of purchases which is to be brought to tax but the real profit embedded in such purchases is to be brought to tax as has been held by the Hon ble Gujarat High Court in CIT Vs. Simit P Seth (2013) 38 taxmann.com (Gujarat). The assessee also relied on various other cases. 7. The Assessing Officer after considering the submission of assessee held that during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 15.00 crores as additional income from business. At the time of search, assessment for A.Y.2011-12 was not pending and was completed under scrutiny on 24/01/2014. The additional income offered by the assessee was earned from the business. The assessee gave a bifurcation of disclosure of Rs. 15.00 crores, out of which Rs. 1.00 crore was declared for A.Y. 2012-13, Rs. 1.00 crore for A.Y. 2013- 14 and remaining Rs. 13.00 crores for A.Y. 2014-15. The search was suspended and prohibitory order was passed under Section 132(3) of the Act and search was finally concluded on 10/04/2014. 9. Consequent upon search action, notice under Section 153A of the Act was issued on 15/09/2014. In response to notice, the assessee filed its return of income for A.Y. 2011-12 at Rs. 2.12 crores on 18/12/2014. On the rejection of books of account, the assessee stated that during the year, the assessee has shown gross profit @ 18.52% on turnover of Rs. 153.14 crores as against the gross profit @ 18.15% on turnover of Rs. 107.91 crores in immediately preceeding year. The assessee maintained proper stock register relating to grey stock and finished stock which is supported by tax audit report in Form 3CD. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he duty of Assessing Officer to point out the incompleteness in the account. The Assessing Officer cannot reject the books of account solely on the basis of third party record. The confirmation of all these supplies were filed and their statement under Section 131 of the Act was also recorded. No adverse inference can be drawn against the assessee. The twin condition prescribed for rejection of books of account as per Section 145(3) of the Act are not satisfied. There was no reason for rejection of books of account, which are correct and complete. The completed assessment for A.Y. 2009-10, 2010-11 and 2011-12 testifies and certifies the correctness and completeness of books of account. The proof of delivery or transportation insisted by the Assessing Officer is not the record of assessee but record of supplier, so even if there is some defect, it is in the books of supplier. The assessee reiterated that the assessment for A.Y. 2009-10 to 2011-12 was already completed under Section 143(3) at the time of search and books result were accepted after due verification including the purchases. So no addition can be made in such assessment year. 11. On the disallowance on account of bog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce @ 18% of the purchases from all six parties. The assessee submitted that all purchases from the parties were received at the factory gate. All purchases are recorded in inward sheet of the assessee company. All invoices are duly stamped for security check. All invoices are entered in the inward register and stock register. No discrepancy in the stock was found during the search. All purchases are supported by bills and payments were made through account payee cheques. There is no cash withdrawal from the bank account of supplier. The purchases from all the parties were duly confirmed. There is no mistake in the inward register maintained at gate. The assessee also made explanation of various observation of Assessing Officer. On the allegation of Assessing Officer that five parties who were Kolkata based entity, the assessee submitted that all appeared in response to the summons. Statement of their Director was recorded. It was submitted that Kolkata is a hub for fancy fabrics and Mucca for Indian sarees, so the assessee company procured finished fabrics from Kolkata to prepare latest designer sarees. All the observations made against these parties were explained by Shri Amit Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition if any is to be made it should not be more than 2% of total purchases. The assessee despite making without prejudice submission reiterated that such submission is without prejudice though, they still insist that there is no defect in their books of account and no addition should be made. To support their contention that no addition in the concluded assessment can be made as no evidence of bogus purchases were found for assessment year wherein the assessment has already been concluded. To support of their various other contentions, the assessee relied upon the following decision; CIT Vs Kabul Chawla 93 CCH 210 (Delhi), CIT Vs Continental Warehousing Corporation (Nhava Sheva) Ltd. 58 taxmann.com 78 (Bom), DCIT Vs Creative Trendz Pvt. Ltd. 272 273/Ahd/2016, dated 13/11/2020, CIT Vs Kashiram Textile P Limited (2007) 160 TAXMAn 4 (Guj), CIT Vs M.K. Brother (1997) 30 TAXMAn 547 (Guj), Rohit Kumar Kapadia Vs PCIT (2018) 94 taxmann.com 324 (Gujrat), ACIT Vs Kishan Lal Jewels Private Limited (ITANo. 229 of 2011 Delhi HC), 15. The ld. CIT(A) after considering the contents of assessment order and the submission of assessee, all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial relief to the assessee. Similar relief was granted in all other years. 18. Aggrieved by the order of ld. CIT(A), both the parties have file their respective appeals before the Tribunal. The assessee has challenged the order of ld. CIT(A) in confirming the addition to the extent of 5% of the disallowance of purchases and likewise, the revenue has assailed the order of ld. CIT(A) in granting relief to the extent of 13% of disputed purchases 19. We have heard the submissions of learned Authorized Representative (ld.AR) for the assessee and the learned Commissioner of Income Tax- Departmental Representative (ld. CIT-DR) for the revenue and have gone through the orders of lower authorities carefully. 20. The ld. AR of the assessee submits that the search was carried out on 18/02/2014. On the date of search, the assessment for A.Y. 2010-11 and 2011-12 was completed. No material or evidence of criminating material qua such completed assessment were found during the course of search action. During the search action, certain infirmities/ discrepancies in inward register sheet for the period of August, 2013 to February, 2014 was recorded by the search party. Admittedly, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed during the assessment and almost all the supplier s suppliers have confirmed the sales to the supplier of assessee. 22. On the addition of bogus purchases sustained to the extent of 5% of impugned purchases, the ld. AR of the assessee submits that apart from five parties, who supplied goods to Delta Tex Trade Pvt. Ltd., all were summoned under Section 131 of the Act. The common Director in all five supplies of assessee confirmed that they supplied goods. The ld. AR of the assessee by referring the assessment order, invited our attention at para No. 5.1 of assessment order wherein the Assessing Officer recorded that 88 notices were issued to the suppliers of Delta Tex Trade Pvt. Ltd. All notices under Section 133(6) were duly served. Out of 88 notices, 72 suppliers filed their replied before the Assessing Officer. The ld. AR of the assessee submits that there is no allegation of Assessing Officer that the notices sent to the suppliers of Delta Tex Trade Pvt. Ltd were returned back, in fact, all notices were duly served. If some of the suppliers has not responded, the assessee cannot be held liable. The ld. AR of the assessee submits that the assessment of Delta Tex Trade Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of Assessing Officer that five companies were Kolkata based companies which was not found at the time of survey action at their addresses. The ld. AR of the assessee submits that Shri Amit Singhal attended the assessment proceedings who is common Director in all five companies. His statement was recorded under Section 131 wherein he has confirmed the sales to the assessee. He also confirmed that he runs his business from Surat and was in the process for transferring his registered office to Surat. All the companies were ultimately shifting to Surat after taking necessary permission and the Company Law Board, West Bengal for shifting their registered office. Before shifting their office all were supplying goods to the assessee. The ld. AR of the assessee submits that during the assessment as well as at first appellate stage, the assessee furnished complete explanation about such adverse remark of the Assessing Officer. The lower authorities have not disregarded the explanation furnished by the assessee. The ld. AR of the assessee further submits that after appreciating the evidence filed by assessee, the ld. CIT(A) accepted that the purchases are not bogus, despite the fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record, (i) Show cause notice dated 19/01/2016 issued by Assessing Officer, (ii) Reply of assessee dated 27.01.2016 to show cause notice, (iii) Statement of Sanjay Sarawagi recorded under Section 131 of the Act., (iv) Statement of Rakeshkumar Govind Sarawagi recorded under Section 132(4) of the Act., (v) Letter dated 31.03.214 filed by assessee company, (vi) Statement of Ravi Khetan, Admin Head recorded u/s 132(4) of the Act., (vii) Assessment order in case of assessee passed u/s 143(3) for A.Y. 2011-12 dated 18.2.2104, (viii) Assessment order in case of assessee passed u/s 143(3) for A.Y. 2010-11, dated 25.05.2014, (ix) Purchase invoices of suppliers and inward register of assessee company showing the inward entries, (x) Sample invoices of another concern having same standard format invoice as supplied by the suppliers., (xi) Stock statement submitted with bank., (xii) Working of GP and NP ratio for A.Y. 2009-10 to 2014-15, (xiii) Factory map showing two gates, (xiv) Acknowledgement of return of income alongwith computation of income filed in response to notice u/s 153A for A.Y. 2010-11 to 2013-14. (xv) Acknowledgement of return of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (MCA) to shift the registered address to Surat. (xxxiii) Acknowledgement of return of income alongwith computation of income of above companies for A.Y. 2011-12 to 2014-15. 26. On the other hand, the ld. CIT-DR for the revenue supported the order of Assessing Officer. The ld. CIT-DR for revenue submits that a search was carried out on the premises of assessee. During the search action, certain bills were doubtful. Such fact is recorded by Assessing Officer in para 4 of the assessment order. The Assessing Officer noted that bills and vouchers of six supplier parties were not correctly entered at the entry gate of assessee. The entries of the inward register were not matching with the dates and serial numbers. No vehicle numbers were mentioned in the register. The bills of all six companies were looking similar so far as fonts and manner of printing, no bills were found alongwith delivery challan. During the course of investigation, Mr. Babulal Prahlad Sarshwat who is proprietor of Jay Matadi Fashion attended on behalf of Smt. Shardadevi Sarashwat who is the proprietor of Jai Durga Silk Mills. His statement was recorded who have disclosed about the bogus bills to Delta Tex Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the submissions of both the parties and have gone through the order of lower authorities. We have also deliberated on various case laws relied by the lower authorises as well as by le representatives. It is undisputed fact that search action 132 was carried out on the premises of assessee on 18/02/2014. On the date of search, the assessment of AY 2010-11 and 2011-12 was already completed under section 143(3). Assessment for AY 2010-11 was completed on 25.05.2012 under section 143(3) and for AY 2011-12 was completed on 24.01.2014 under section 143(3). No incriminating material or evidence was found for AY 2010-11 and 2011-12. The only incriminating evidence claimed the searched party relates to the inwards entry on the register maintained at the gate of factory for the period of August 2013 to February 2014 only. The assessing officer nowhere mentioned in the assessment orders passed under section 153A/143(3) for AY 201-11 2011-12 about any incriminating material found during search action on 18.02.2014. Discrepancy, if any in the inward register found at the gate for the period 2013 to 2014 only. Now it is settled position under law that no addition can be made in the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31 5,55,39,131 82,05,314 2014-15 10,74,10,950 13,00,00,000 5,42,20,615 0 0 Total 15,64,25,585 2,90,07,107 33. Ground No.1 in all appeals for AY 2012-13 to 2014-15 relates the rejection of books of accounts and estimating addition @ 18%, which was reduced to 5% by ld CIT(A). Other Ground of appeal on merit, in all appeals, by assessee is against sustaining to the extent of 5% and by revenue in granting relief of 13% to the assessee. First we shall deal with this issue of rejection of books of account. The assessing officer rejected the books of account by taking view that material question raised against certain purchases is not satisfied. The books of assessee does not represent the reliable result. The explanation provided by the assessee regarding claim of genuinenity of purchases are not plausible. All the evidences lead to believe that the purchases are not genuine. The purchase register found at the time of search was doctored. Some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect the books of account if he is not satisfied about the correctness or completeness of the books of account or where method of accounting cash or mercantile not been followed regularly or the accounting standard notified by the Central Government have not been regularly followed by the assessee. however, before rejecting he should record his satisfaction that he is not satisfied about the correctness and completeness of account. Similarly, the assessing officer should not rely on third party statement, which has not been cross verified cannot be the basis to disturb the correctness and completeness of account, there might be system of malice which the assessee account would be suffering. It is the duty of Assessing Officer to point out the incompleteness in the account. The Assessing Officer cannot reject the books of account solely on the basis of third party record. The system of accounting of the assessee was not questioned either by the search party or by assessing officer. All the particulars of purchase including vouchers were available nothing abnormal was found by search team. Opening and closing balances was tallied at the time of search. Proper stock register was mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for AY 2012- 13 2013-14 and Rs. 13.00 Crore for AY 2014-15 and if further addition by approving the rejection of books of account is sustained, the net profit would be unrealistic. We also find third reason to disapprove the action of assessing officer in rejection of books result of assessee as same assessing officer completed the assessment of one of the purchase party namely Delta Trade tax Private Limited under section 153A read with section 143(3) and all their sale and purchase are accepted as genuine and no variation / addition in their return of income was made, thereby accepted their return income vide assessment order dated 18/11/2015. Fourthly, the assessee has made discloser of Rs. 15.00 Crore and the assessee has claimed benefit of telescoping of income on extra declaration, if telescoping is allowed the impugned addition will not survive. Hence, ground No. 1 of the appeal raised by assessee in AY 2012-13, 2013-14 2014-15 is allowed. 39. Ground No. 2 in assessees appeal in all three assessment years against the addition of 5% and in revenues appeal are against sustain to that extent. Considering the facts that we have allowed the ground No. 1 in all the years, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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