TMI Blog2023 (7) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in all these years and direct the AO to restrict the addition on account of non-genuine purchases to 2% of the value of alleged bogus purchases in both the years under consideration. TP Adjustment - Commission on Corporate Guarantee given to the Associated Enterprises by the assessee - HELD THAT:- We notice that the co-ordinate bench of Tribunal has examined an identical issue in the assessee s own case in AY 2010-11 wherein as restricted the rate of commission at 0.50% of the value of loan actually availed by the Associated Enterprises. Tribunal has followed the decision rendered in the case of Everest Canto Cylinders Ltd [ 2015 (5) TMI 395 - BOMBAY HIGH COURT] No reason to interfere with the decision so taken by Ld CIT(A) on this issue. Accordingly we uphold the same in both the years. Unexplained income u/s 69A - Addition towards Cash income shown in seized materials - HELD THAT:- There are receipts and payments noted against the name of Shilan . The impugned document was seized from his chamber only. We notice that a sum has been received in November, 2016 with the noting cash received from Shilan Returnable . We also notice that a sum has been paid to Shilan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the payments to contractors and MIDC Road were not made in January, 2017 and March, 2017. The payment towards other expenses was Rs. 2,58,885/- in January, 2017 and Rs. 17,05,787/- in March, 2017. Hence the amount of Rs. 10.00 lakhs noted to have been paid in January, 2017 cannot be said to have been included in the seized document. Under the same principle, we are of the view that it cannot be inferred that the amount of Rs. 5.00 lakhs was also included in that document. Accordingly, we do not find any merit in the contentions of the assessee. Excess of expenditure over receipt in the month of March, 2017 - Hence there is merit in the submissions of the Ld A.R that overall picture should be considered. We also find merit in the submissions that there may be mistakes in making entries in the months of March, 2017 to May, 2017, i.e., it may be due to clerical or typographical mistakes. Accordingly, we are of the view that the AO was not justified in making addition on the basis of uncorroborated seized document. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition. Addition being cash salary paid to employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jain And Pratik Jain For the Department : Shri Manoj Kumar ORDER PER BENCH:- The cross appeals filed by the assessee relate to the assessment years 2017-18 and 2018-19 and they are directed against the orders passed by Ld CIT(A)-51, Mumbai. 2. The facts relating to the case are discussed in brief. The assessee is engaged in the business of manufacture and sale of stainless steel products. A search and seizure action was carried in the hands of the assessee and its associates on 13.7.2017. Consequent thereto, the assessments of the years under consideration were completed by the AO u/s 153A r.w.s 143(3) of the Act. 3. In the appellate proceedings, the Ld CIT(A) allowed the appeals of the assessee in part. Hence both the parties have filed these appeals before the Tribunal challenging the orders passed by Ld CIT(A) on the issues decided against each of them. 4.0 In the appeals of the assessee, certain common issues are agitated, which are described below:- (a) Partial confirmation of addition relating to alleged bogus purchases. (b) Partial confirmation of addition relating to Corporate Guarantee commission. (c) Partial confirmation of Cash inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting the addition to 6% of value of alleged bogus purchases. The revenue is in appeal challenging the relief granted. 6.3 The Ld A.R submitted that the AO has disallowed the purchases presuming that they are bogus. In this regard, he has placed reliance on the statements given by some of the suppliers, financial profiles of suppliers, use of outstation vehicles for transportation of goods, survey findings of two parties. He also relied upon the statement given by an employee named Shri P. Nandakumar, who has stated that the various suppliers have given only bills to the assessee. However, the AO did not give credence to the enquiry conducted by DGCEI on identical allegations of providing accommodation bills and the examination by him with some of the suppliers. The DGCEI has given a finding that the assessee has actually procured the materials. The ld A.R further submitted that the AO himself has observed that the assessee could have procured materials from other sources and have got accommodation bills from these suppliers. This observation of the AO shows that the receipt of materials by the assessee was not doubted by him. 6.4 The Ld A.R further submitted the Ld CIT(A) he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from others. In this kind of situation, as observed by Ld CIT(A), only incremental profit should be added. He submitted that the incremental profit rate of 6% estimated by Ld CIT(A) is very much on the higher side. He submitted that the assessee has shown gross profit rate of 17% during these years and the said profit rate has been accepted by the Transfer pricing officer under Transactional Net Margin Method, since the said profit rate is at par with the rate of profit declared by the comparable companies. He submitted that, in the following cases, the Tribunal has restricted the addition to 2% of the value of purchases:- (a) Suman Gupta vs. ACIT (ITA No.4774/Mum/2014 dated 23.8.2017). In this case, this assessee was engaged in Steel business. (b) Geolife Organis (ITA No.3699/Mum/2016 dated 05-05-2017). In this case, this assessee was engaged in metal business. (c) Timex Art Decor P Ltd (ITA No.7293 7294/Mum/2017 dated 18- 10-2019). Accordingly, in the alternative, the assessee pleaded that the addition may be restricted to 2% of the value of purchases. 6.7 The Ld D.R, on the contrary, supported the orders passed by the assessing officer. He submitted that the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andra Shekhar Nair who allegedly was carrying out business of certain suppliers is incorrect since he was not a director in any of the said suppliers at the time of search and he has duly retracted the same before AO. Similarly, other suppliers have nowhere given clear statement that they are engaged in providing accommodation entry. d. No evidence of any cash payments/receipts were found at the premises of the suppliers as well as assessee. e. Allegation of use of outside state vehicle may be violation, of Motor Vehicle Rules; however, same has no bearing on income tax. f. Further, the suppliers were called for cross examination and all have confirmed to have supplied material before AO- para 12 of assessment order. g. Second layer investigation into supplier of supplier is not futile since it constitute hardly negligible part of total purchases made by the assessee's supplier. h. Material accepted from above parties accepted by excise from 2013 till 2018. i. Thus, the allegation of AO that parties are not genuine is incorrect. j. Further, it is submitted that the entire raw material has been actually received by the assessee and the same has been consumed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the preceding paragraph. As observed earlier, the manufacturing loss declared by the assessee is a relevant factor to determine whether the assessee has received materials or not. We notice that the Ld CIT(A) has given a finding that the manufacturing loss declared by the assessee was within the prescribed limit of SION published by DGFT, Government of India. We also notice that the DGCEI has also conducted search in order to find out whether the assessee has actually received material against the alleged accommodation bills and he has given his opinion that the materials have been received. 6.12 We notice that the assessee has furnished gross profit rate chart before Ld CIT(A) as under:- A.Y G.P rate 2013-14 17.47% 2014-15 17.37% 2015-16 17.43% 2016-17 18.80% 2017-18 17.77% 2018-19 17.16% The average rate of gross profit declared by the assessee is more than 17%, which was stated to be more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances, no disallowance of purchases is called for. However, since some of the suppliers have stated that they have not supplied the materials and since the AO DGCEI has opined that the assessee might have procured materials from others, it is possible that the assessee could have made some profit in such an exercise. Hence, in order to take care of revenue leakages, if any, some addition is called for. We notice that the addition has been restricted to 2% in the following cases:- (a) Suman Gupta vs. ACIT (ITA No.4774/Mum/2014 dated 23.8.2017). In this case, this assessee was engaged in Steel business. (b) Geolife Organis (ITA No.3699/Mum/2016 dated 05-05-2017). In this case, this assessee was engaged in metal business. (c) Timex Art D cor P Ltd (ITA No.7293 7294/Mum/2017 dated 18- 10-2019). Accordingly, we modify the order passed by Ld CIT(A) in all these years and direct the AO to restrict the addition on account of non-genuine purchases to 2% of the value of alleged bogus purchases in both the years under consideration. 7. The next common issue urged by both the parties in both the years relate to the transfer pricing adjustment in respect of Commission on Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the period from November, 2016 to May, 2017 relating to the business activities of the assessee. The aggregate amount of receipts/payments was Rs. 13.08 crores. The assessing officer assessed the above said amount as unexplained income u/s 69A of the Act in the two assessment years as mentioned below:- A Y 2017-18 - Rs. 8,87,52,956 A Y 2018-19 - Rs. 4,20,49,000 Total - Rs.13,08,01,956 Since the entire receipts were assessed as income of the assessee, the AO did not make any separate addition for the payments of equal amounts except for the payments made in March, 2017. The AO noticed that, in March, 2017, the aggregate cash payments was Rs. 1,65,25,561/-, while the aggregate cash receipts was Rs. 1,26,02,176/-, which resulted in excess payments over receipts amounting to Rs. 39,23,385/-. Hence the assessing officer assessed the deficit amount of Rs. 39,23,385/- as income of the assessee in AY 2017- 18. We shall deal with this addition in the ensuing paragraphs. 8.2 The Ld CIT(A) granted partial relief to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process, the assessee has accepted the noting as unexplained income in order to buy peace from the department and to avoid protracted litigation. 8.4 He submitted that the Ld CIT(A), while examining the contents of the documents, has noticed that there were receipts and payments with the same persons. Accordingly, the Ld CIT(A) has accepted the plea of the assessee that, only the net receipts shown against a person should be considered as unexplained income, since the receipt from him should be considered as having funded by the payments made to him/vice versa. He submitted that the Ld CIT(A) has identified receipts/payments with three persons, as mentioned in the table above and granted relief to the assessee. Accordingly, the Ld A.R contended that the relief so granted by the Ld CIT(A) was justified. He further submitted that the Ld CIT(A) has omitted to give identical relief in respect of cash paid/received from Shri Shilan. He submitted that the assessee would be entitled for further relief of Rs. 5.00 lakhs against the transactions entered in the name of Shri Shilan. 8.5 The Ld A.R further contended that the seized document contains both revenue receipts and revenue expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e details of receipts and payments, as tabulated by the AO in the assessment order:- Cash Received (Income) Name Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Total Mil Scale Sale 39,08,905 21,03,415 48,76,805 85,78,209 23,70,720 23,96,018 19,99,084 2,62,33,156 Other Sale 17,297 5,41,500 82,080 13,41,413 2,01,456 34,800 1,91,400 24,09,946 Mil Sale Adv/Mukesh _ 57,16,426 52,64,120 1,09,80,546 HO Kumar 3,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-17 Mar-17 Apr-17 May-17 Total Rajvilas paid suman/cmd 2,06,500 14,00,000 26,00,000 83,70,000 37,20,000 15,80,000 23,00,000 2,01,76,500 Excise 10,24,500 49,27,150 38,79,080 61,03,700 1,62,01,600 3,21,36,030 Bertz 2,00,000 19,00,000 21,00,000 Vashnav Mega adv/Refundable Amt 10,00,000 9,50,000 6,00,000 25,50,000 RK-SLIP 14,00,000 14,00,000 Anna Shankhe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,08,00,000 3,08,00,000 Sales Team incentive (april to sept 16) 17,80,600 17,80,600 Monthly cash salary oct 2016 13,63,109 13,61,109 Monthly cash salary Nov 2016 anuj 1,00,000 1,00,000 Old requirement paid 25,85,417 25,85,417 RD Sodani (40000) Chawala (25000) 6,50,000 6,50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents mentioned in the name of Mr. Shilan. 8.11 We noticed earlier that this addition has been made on the basis of a piece of paper and the assessee has accepted the entries made therein. It is also not the case of the revenue that the entries noted down in the seized papers are supported by any other evidence. In the said document, some of the entries of receipts and payments have been recorded against the very same name. Since the document contains receipts and payments against the name of very same persons, it is quite possible that what was received earlier has been returned back subsequently or what was given earlier has been received back subsequently. When there is circulation of cash with the same person, in our view, there is merit in the contention of the assessee that only net amount out of the receipts/payments noted against a particular person should be treated as income of the assessee. Accordingly, we agree with the view taken by Ld CIT(A) that only the net amount should be considered as undisclosed income. Accordingly, Ld CIT(A) was justified in granting netting off benefit against the three persons mentioned in the table above. 8.12 We noticed that there are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... document have not been accounted for in the books of account, then what could be taxed is the net income arising after deducting revenue expenditure from the revenue income, since only income element is taxable under the Act. 8.14 Accordingly, we find merit in the contentions of the Ld A.R. Since both revenue income and expenditure has been stated to have been done outside the books, it is justifiable to assess only the net income arising from these entries. We notice that the entire revenue receipts have already been taxed. Now what is required to be done is to deduct the revenue expenses from the income already assessed. We have noticed and listed out in an earlier paragraph that the revenue expenses relating to AY 2017-18 and 2018-19 are Rs. 1,18,19,300/- and Rs. 26,75,315/- respectively. We also notice that the aggregate amount of expenses in each year is more than the revenue receipts of that year. Accordingly, we are of the view that the above said expenditure should be deducted from the revenue receipts and only net revenue income should be taxed. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction of Rs. 1,18,19,300/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. By disposing all the three common issues, the appeal of the department stands disposed of. 10. There is one common issue in the appeals filed by the assessee in both the years. It relates to the addition of Rs. 19,00,000/- and Rs. 29,65,000/- relating to disallowance of salary paid to Jain Family. The above said amount consisted of salary paid to following persons:- Name of Person AY 2017-18 AY 2018-19 Sangitha Jain (wife of Shri Ramkumar Jain, CFO) 10,00,000 19,75,000 Shubam Jain (D/o Ramkumar Jain, CFO) 9,00,000 9,90,000 19,00,000 29,65,000 We notice that an identical addition was made in respect of salary paid to Smt Ramita Jain (another daughter) and Smt Sangitha Jain (wife) by the AO in AY 2014-15 and 2015-16 and the same was deleted by the Tribunal with the following observations:- 7.6 At the same time, we notice that Ms Ramita Jain is a qualified engineer. She is running her own concern providing financial consultancy. Smt Sangitha Jain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 lakhs as unexplained expenditure u/s 69C of the Act. The ld CIT(A) confirmed the same. 11.1 We heard the parties on this issue and perused the record. The Ld A.R submitted that the above said payment has been included in the expenditure of Rs. 13.08 crores mentioned in another seized document. He submitted that the payments mentioned as MIDC Road contractors and other expenses may include the above said amount of Rs. 15.00 lakhs. We noticed earlier that the assessee has paid Rs. 10.00 lakhs in January, 2017 and Rs. 5.00 lakhs in March, 2017. From the seized document, we notice that the payments to contractors and MIDC Road were not made in January, 2017 and March, 2017. The payment towards other expenses was Rs. 2,58,885/- in January, 2017 and Rs. 17,05,787/- in March, 2017. Hence the amount of Rs. 10.00 lakhs noted to have been paid in January, 2017 cannot be said to have been included in the seized document. Under the same principle, we are of the view that it cannot be inferred that the amount of Rs. 5.00 lakhs was also included in that document. Accordingly, we do not find any merit in the contentions of the assessee. Accordingly, we confirm the addition of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct the AO to delete this addition. 13. We shall now take up the individual issues agitated by the assessee in AY 2018-19. The first issue relates to the addition of Rs. 64,80,000/-, being cash salary paid to employees. 13.1 One of the search materials seized contained details of salary paid to certain employees by way of cash. The same is enclosed in page 192 of the paper book. The employees are Shri Sureshchandra Lodha, Shri Anuj Jain, Shri Jitendra Garg and Shri Radha Ballabh Sodhani. The said document was confronted with Shri Neeraj Raja Kochhar, wherein he accepted that certain portion of salary is paid in cash. Accordingly, the AO made addition of Rs. 64,80,000/- on the basis of the search material in AY 2018-19 u/s 69C of the Act. The Ld CIT(A) confirmed the same. 13.2 The contentions of the assessee in this regard are summarized below:- (a) The said document is a sheet prepared containing the proposal prepared by HR department for promotion of various employees of the company in near future. In support of this submission, the Ld A.R placed reliance on the heading for the various columns, which inter alia includes following headings:- (i) Existing designat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred through Angadias. It consists of two items, viz., domestic transfer of funds amounting to Rs. 2.00 crores and transfer of funds abroad amounting to Rs. 29,40,000/-. 14.1 We shall first take up the addition relating to Rs. 2.00 crores. During the course of search, the Whatsapp messages from the personal mobile phone of Shri P Nandakumar (Senior Purchase manager of the assessee company) were examined and it contained messages for transfer of funds through angadias. In the statement taken from Shri P Nandakumar, he admitted that a total sum of Rs. 2.00 crores have been transferred through hawala channels from February, 2017 to till date. Another statement was taken from Shri Anant Ravji Dabholkar, the officer working under Shri P Nandakumar was recorded, who also admitted that he has handled unaccounted cash. The assessee submitted that the above said amount of Rs. 2.00 crores is part of the transactions recorded in another seized document relating to Rs. 13.08 crores, which was added by the AO. However, the said explanation of the assessee was rejected by the AO. Accordingly, the AO came to the conclusion that the above said amount of Rs. 2.00 crores is related to the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entries did not find place in the seized document. We have earlier extracted the seized document, wherein the payments made to Rajvilas have been noted down. It is not mentioned as to how the money so given was used. It is the submission of the assessee the payment so made would include the amount of Rs. 2.00 crores. Hence, it is possible to infer that the cash transactions stated in the seized document and whatsapp messages are one and the same. We also notice that there is no other material available to prove that the above said explanation is not correct. Accordingly, in the facts and circumstances of the case, we are of the view that the above said explanation of the assessee merits acceptance. 14.6 In order to substantiate the above said contentions, the Ld A.R has also furnished a reconciliation statement reconciling the payments recorded in the name of Rajvilas with the whatsapp messages relating to hawala transfers as under:- Month Rajvilas Cash balance Hawala transfer as per statement of P Nandakumar Total cash available Opening balance considering notings for earlier mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a private messages between Shri Nandakumar and Shri Amit Mehra. Hence the AO was not justified in making addition for unexecuted transaction in the hands of the assessee company. 15.2 The Ld D.R, on the contrary, supported the order passed by Ld CIT(A) on this issue. 15.3 We heard the parties on this issue and perused the record. First of all, we notice that this addition has been made on the basis of whatsapp messages exchanged between an employee of the assessee company and Shri Amit Mehra. Secondly, both the employees of the assessee company, Shri Amit Mehra and Shri Neeraj Raja Kochchar, i.e., all the concerned persons have denied the execution of the transaction. Thirdly, in the said messages, it is nowhere mentioned that funds of the assessee company are involved in the transactions. All these factors cumulatively show that the assessee cannot be involved/implicated in respect of this transaction merely on the reasoning that the whatsapp messages are between the employee of assessee company and Shri Amit Mehra, son in law of CMD. As submitted by Ld A.R, it could be a private and independent transaction, unconnected with the assessee company. Accordingly, we are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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