TMI Blog2023 (10) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... t be said that there was an element of contract involved. No incriminating material like contract agreement, etc. was brought on record. CIT(A) has observed that the AO was misled by the statement given by Shri Murugesan as reported in the appraisal report and never bothered to examine the liability of the assessee to deduct tax at source independently with reference to the facts of the case. CIT(A) has rightly deleted the disallowance made u/s 40(a)(ia) of the Act by holding that the assessee has directly engaged labourers borne in the Provident Fund records and made payments through the head labourer and therefore, there was no liability to TDS. CIT(A) has rightly deleted the disallowance made u/s 40(a)(ia) of the Act and thus, the ground raised by the Revenue is dismissed for the all the assessment years under appeal. Addition towards variation in stock during the course of search proceedings, a sworn statement was recorded on 19-11- 2015 from director of the assessee-company - CIT(A) has observed that AO had mistakenly considered the (+) as excess stock and arrived at the value of such notional stock and thereby calculated the value and added the same as excess stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that the assessee was in the business for the past several years and has acquired a reputation for its products. It was further observed that in order to get high quality of end product (oil), it is essential and unavoidable for the assessee to acquire high standard of copra for crushing and consequently it has to pay a higher price. Without taking into account this basic requirement for consideration, indulging in an exercise to make such an addition was not correct. The ld. CIT(A) has further observed that neither the investigation team nor the AO has brought any material on record to show that part of the purchase price was received back by the assessee. We find no reason to interfere with the order passed by the ld. CIT(A) on this issue. Difference in closing stock as per SAP vs. Return of income - AR submitted that the variation was only due to the fact that the assessee switched to SAP based accounting software - HELD THAT:- As considering the above addition in the closing stock, for the assessment year 2012-13, the addition on account of telescopic effect was made in the assessment years 2013-14 and 2015-16 for ₹.21,33,110/- and ₹.32,25,318/- respecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance u/s 40(a)(ia) with regard to the non-deduction of tax at source in respect of payments made towards labour payment - whether the recipient has disclosed the payment received in his return of income and paid tax thereon? - HELD THAT:- Once the recipient has disclosed the payment in his return of income, the assessee is not liable for TDS. As per proviso to section 201(1) where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under section 139 of the Act taking into account such sum for computing income in such return of income and has paid the tax due on the income declared by him in such return of income. In this case, the contractor Mr. Chandrasekar has declared the receipt of payment in his return of income for which relevant material evidence was furnished before the authorities below. Just because Mr. A. Chandrasekar filed his return of income for the AYs 2013-14 and 2014-15 belatedly, it is not correct to disallow the payment made by the assessee. Under the above fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e coverage of staff of the contractors under EPF does enable them to claim as labourers. (b) The learned CIT(A) has erred in disallowing the addition by subscribing to the views of the representative that they are labourers having regular PF subscription and for the convenience the payment is made through head labourers. It is pertinent to note that during the course of search proceedings, Shri S Murugesan, Accountant has categorically deposed that entire sum was paid to the respective contractors were given payment through bearer cheques, without effecting TDS. The assessee's claim that the labours are enrolled for EPF and payments routed through head labourers and which fall within the purview of TDS provision does not have any merits. 4. The learned CIT(A) has deleted the addition on the ground that the payment for purchase made through RTGS and the AO has not proved the cash payment by the assessee and also purchase of copra was not refuted. It is further opined that there is no incriminating seized materials of evidential value while making disallowance u/s. 40A(3) was made. In this connection, it is pertinent to note that the assessee Shri D. Kabilan on his swor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterials it is observed that the EPF deduction is made to the labourers who are working under the contractors. Mere coverage of staff of the contractors under EPF does enable them to claim as labourers. (b) The learned CIT(A) has erred in disallowing the addition by subscribing to the views of the representative that they are labourers having regular PF subscription and for the convenience the payment is made through head labourers. It is pertinent to note that during the course of search proceedings, Shri S Murugesan, Accountant has categorically deposed that entire sum was paid to the respective contractors were given payment through bearer cheques, without effecting TDS. The assessee's claim that the labours are enrolled for EPF and payments routed through head labourers and which fall within the purview of TDS provision does not have any merits. 4. The learned CIT(A) has deleted the addition on the ground that the payment for purchase made through RTGS and the AO has not proved the cash payment by the assessee and also purchase of copra was not refuted. It is further opined that there is no incriminating seized materials of evidential value while making disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined that it is simple arithmetical adjustment made for the F.Y. 2014-15 and 2015-16 and the reworking of A0 on notional basis without any proof of sale of excess stock and consequent receipt of cash is not a proper conclusion and hence deleted this addition. It is submitted that, though the quantification of stock under this head for the F.Y. 2010-11 to 2013-14 are made based on the calculation with reference to F.Y. 2014-15 and 2015-16 on the basis of seized materials. Therefore, further appeal. 5. The learned CIT(A) has deleted the addition on the ground that the payment for purchase made through RTGS and the AO has not proved the cash payment by the assessee and also purchase of copra was not refuted. It is further opined that there is no incriminating seized materials of evidential value while making disallowance u/s. 40A(3) was made. In this connection, it is pertinent to note that the assessee Shri D. Kabilan on his sworn stated dated 17.11.2015 has not named Shajahan and his group of five concern, as his regular supplier of copra though he has named other six parties as his regular suppliers. Shajahan has deposed the modus operandi i.e. he used to issue bearer cheque f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e market committee. Second appeal is suggested to consider the issue on merits. In assessment year 2016-17, the Revenue has raised following grounds: 1. The order of the ld.CIT(A) is contrary to the provisions of the Income Tax Act, Rules and facts of the case. 2. (a) The learned CIT(A) deleted the additions made to the contractors on the ground that they are labourers and TDS deduction is not applicable to such payments. The seized materials verification reveal that the payments were made under salary head and not under contract head. Further from the verification of the materials it is observed that the EPF deduction is made to the labourers who are working under the contractors. Mere coverage of staff of the contractors under EPF does enable them to claim as labourers. (b) The learned CIT(A) has erred in disallowing the addition by subscribing to the views of the representative that they are labourers having regular PF subscription and for the convenience the payment is made through head labourers. It is pertinent to note that during the course of search proceedings, Shri S Murugesan, Accountant has categorically deposed that entire sum was paid to the respecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncludes the undisclosed income of ₹.1,12,45,946/- for purchase of coconut through bought-notes now offered in the return of income filed in response to notice under section 153A of the Act. During the search, it was noticed that the following payments were made to family members as 'Salary' during for the F.Y 2012-13 relevant to the assessment year 2013- 14 under the heads: Salary details Amount in (Rs.) Management salary 23,93,020 Management salary Veg. Oil Divn. 4,01,283 Additional special salary 62,81,760 Addl. Commission charges 37,18,240 Special salary 79,61,639 Commission charges 45,61,851 Total 2,53,17,793 6. After scrutinizing the books of account of M/s. VVD Sons (P) Ltd. as well as considering the sworn statement recorded from Shri D. Kabilan, one of the directors of the assessee company, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not examined the individuals (recipients) separately to bring on record and to prove that either they did not render any service warranting any payments or that the payments are not commensurate with the services rendered by them. This amply proves that the addition was made as per the appraisal report without independent application of mind and without making independent enquiries in a mechanical manner. Hence I am of the considered view that the payments made are not of personal nature and have been incurred due to business exigency. In view of the above, the addition of Rs. 2,25,23,490 (AY 2013-14), Rs. 2,23,08,498/- (AY 2014-15) and Rs. 1,75,36,048/- (AY 2015-16) under this head is deleted. Hence this ground of appeal, for the AYs 2013-14, 2014-15 and 2015-16 is allowed. 8. Aggrieved, the Revenue is in appeal before the Tribunal. 8.1 The Ld. CIT-DR submitted that impugned addition has been made on the basis of statement recorded form the director of the assessee-company. 8.2 The Ld. AR, on the other hand, supported the impugned order and submitted that the salary payment has been disallowed merely on the basis of statement without verifying the factum of renderin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructions notified by the CBDT. However, we proceed to decide the issues on merits also. 8.4 With regard to the deletion of additions made by the Assessing Officer under the head special salary, additional salary, management salary, special management salary, commission, etc. the only contention of the Department was that the ld. CIT(A) failed to note that the sworn statement given by the Executive Director, D. Kabilan, one of the Directors on 17.11.2015. Before us, the ld. DR also submitted that impugned addition has been made on the basis of statement recorded form the director of the assessee-company. In view of the decision in the case of PCIT v. Abhisar Buildwell Pvt. Ltd. (supra), the statement recorded from Shri Kabilan alone is not sufficient to make addition in the absence of any incriminating material evidence unearthed during the course of search. However, in the appellate order, the ld. CIT(A) has observed that the Assessing Officer did not examine the nature of services rendered by them and did not record a finding that that the remuneration paid was unreasonable and excessive compared to similar services in other cases. This onus of proof lies on the assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal before the ld. CIT(A). While deleting the addition, the ld. CIT(A) has observed as under: 6.2. Coming to the ground relating to payment made to contractors without making TDS, it is submitted by the AR that S/Shri Uthirapandi, Navaneethan, Easakkimuthu, Veerapandi and Kumar are the head-labourers and the workers under them are in the muster roll of the appellant and are covered by the ESI/ PF Act. Deductions towards ESI/PF have also been duly made and deposited to the respective accounts. It is a general practice to issue a bearer cheque to the head-labour, who will in turn make payments to the individuals. This has been scrupulously followed in all the five contract-labourers' cases. In fact they are the regular workers borne in the acquaintance roll of the appellant. As regards the payments made to these five people, TDS provisions were not attracted, as the entire payments do not relate to them only and it is to be disbursed further to the workers coming under their control. The AR further stated that it was brought to the notice of the assessing officer during assessment proceedings that the appellant paid labour charges to the labourers through the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te u/s. 139. Accordingly the disallowance made for the AYs 20 15-16 (Rs.30,63,385- 30% of Rs. 1,02,11,284) 2016-17 (Rs.77,16,274) is hereby deleted. This ground of appeal for the above two AYs is allowed. 9.2 Aggrieved, the Revenue is in appeal before the Tribunal. The Ld. CIT-DR submitted that the payments were contractual in nature which would require TDS u/s 194C of the Act. 9.3 On the other hand, the ld. Counsel for the assessee has strongly supported the order passed by the ld. CIT(A). 9.4 We have heard the rival contentions, perused the materials available on record and gone through the orders of authorities below. In the assessment order, the Assessing Officer made disallowance towards payment made to contractors for want of TDS. Before the ld. CIT(A), the AR of the assessee has submitted that the contract-labourers are in the muster roll of the assessee and are covered by the ESI/PF Act. Deductions towards ESI/PF have also been duly made and deposited to the respective accounts. It is a general practice to issue a bearer cheque to the head-labour, who will in turn make payments to the individuals. This has been scrupulously followed in all the four contract-labo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t oil was prefixed as 63%, whereas the actual production is higher than that of 63% leading to discrepancy. The said discrepancy is noted in the books of accounts as vain . Also, it was noticed that there was invariable excess stock in the physical inventory ranging from 500 to 1000 litres than the stock as per computerized SAP for each year. The details of adjustment entries made for the earlier period prior to F.Y 2014- 15 could not be obtained during the course of search proceedings. Therefore, based on the available data for the complete financial year of 2014-15, the total quantity of adjustment entries for the F.Y 2008-09 to 2013-14 were calculated as below: Total quantity of coconut oil sold for F.Y 2014-15: 1,08,89,160.28 litres. Adjustment entries made for excess stock F.Y 2014-15: 6,033.49 litres. Ratio (10889160.28/6033.49): 0.00055408 Accordingly, applying the multiplying factors i.e. the above ratio was worked out for the A.Y 2013-14 at 5335.58 X Rs. 95 [multiplying factor:0.0005541]. Thus, the Assessing Officer has worked out the value of excess stock adjusted by way of recording fake entries in the books of account for the A.Y 2013-14 at ₹.5,06,880/- and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned through the same. By following the same methodology the AO reworked the excess and notional stock for the earlier AYs viz., 2010-11 to 2015-16 also. In the circumstances, the AR pleaded for deletion of the entire addition made in all the AYs i.e. 2010-11 to 2016-17. I have gone though the elaborate submissions made by the AR. It is an admitted fact that the output of oil as a result of crushing copra would depend on the quality of the raw material. The result may vary and the quantity of output may go up or come down. As per the AR this variation has been booked as (+) or (-). The AO had mistakenly considered the (+) as excess stock and arrived at the value of such notional stock and thereby calculated the value and added the same as excess stock. As pointed out by the AR and as seen from the order of assessment, the AO has not anywhere brought on record that such excess stock was sold in the market and resultant unaccounted income was earned. The standard yield of oil of 63% fixed by the appellant was to monitor the quality of copra for internal purposes and it does not mean that the appellant did not account the actual production in excess of 63%. The actual production w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63% fixed by the assessee was to monitor the quality of copra for internal purposes and it does not mean that the appellant did not account the actual production in excess of 63%. The actual production whether more or less than 63% was accounted in the stock book and further shown as sales in the Profit and Loss Account. In view of the above facts, the ld. CIT(A) has held that there was no excess stock and the consequent addition made on the notional excess stock is nothing but an illusion and accordingly, deleted the additions made by the Assessing Officer for all the assessment years under appeal. Thus, we find no infirmity in the order passed by the ld. CIT(A) on this issue and the ground raised by the Revenue is dismissed for all the AY under appeal. 11. With regard to the disallowance of expenditure violating the provisions of Section 40A(3) and bogus purchase made by the company, in the assessment order for the assessment year 2013-14, the Assessing Officer has observed as under: Disallowance of expenditure violating the provisions of Section 40A(3) and bogus purchase made by the company: It was found during the course of search operation that M/s. VVD and Sons (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the traders in Kerala who supply copras to M/s. VVD Sons viz. 1. Achu Traders, Palakkad 2. Appu Traders, Palakkad 3. Madeena Traders, Palakkad. 4. Alfas Traders, Palakkad. 5. Shajahan Traders, Palakkad The actual purchases made Pollachi were shown as if they were bought in Kerala. Shri Shajahan has also admitted that he acts as a 'commission agent' only for raising of bogus invoices in his four traders' name and sales invoices to M/s. VVD sons, which are verifiable with reference to the statements recorded from Shri Shajahan during the search on 17.11.2015 in Q.No. 2 3 which are reproduced as under: I have been working as a copra commission agent from 2003 to various companies, after the demise of my father, I am also an agent of M/s. VVD Sons Pvt. Limited. Apart from being commission agent for copra, I am also an agent for rice, softwood sand, cement pipe, sand etc. I used to supply copras required for VVD Sons through Senthil, Natarajan and Chinna(herein after called three persons ) from Pollachi to VVD Sons. In order to avoid sales tax levied by Tamil Nadu Shri Kandasamy, the broker of VV Sons, asked me to rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has supplied the copras in the capacity of a commission agent alone and not as a seller. This fact is also confirmed from the above mentioned facts and also from the statements recorded from the three persons Shri Chinna, Natarajan and Senthil. 6.5 During the search assessment proceedings while recording sworn statement recorded u/s. 131 from shri Gothandapani @ Chinna on 16.11.2017 it is ascertained that shri Gothandapani has made purchases of copra from farmers at Pollachi and supplied copras to M/s. VVD Sons from his own concern name i.e. M/s. Sree Karpagam traders through Shri Kandasamy, the broker of M/s. VVD Sons, who is a Tuticorin based broker for VVD Sons. 6.6 Also it is ascertained from Shri Natarajan that he has purchased copras from farmers at Pollachi and supplied copras to M/s. VVD Sons, on information given by Shri Kandasamy, the broker of M/s. VVD Sons. For this supply the payment is sent to Shajahan in the names of M/s. Alfas Traders, M/s. Madeena Traders in the bank accounts opened in the said concerns name of Shri Shajahan at Pollachi. Shri Natarajan has stated that a self bearer cheque singed by Shajahan would be available with him always ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... major role in supplying the copra to VVD Sons, the three persons have failed to disclose the farmers' identity such as name, address, quantity purchase, PAN No. Whether any returns filed in their names, bank account details of the farmers made by them. It is worth to mention the three persons have made note of purchase of copra from farmers in loose sheets only, that would be destroyed by them then and there, as averred by them in their statement. The said three persons stated during hearing that they do not maintained any books of accounts for such a voluminous purchase of copras and supply. It is surprised to note that the purchases made by the three persons from farmers runs into crores of rupees but during search as well as search assessment proceedings the three including Shajahan failed to disclose the farmers particulars, which is a significant information in ascertaining the real truthfulness of the sales them to M/s. VVD Sons. 6.8 From the above narration, it is found that Shri Shajahan and his concerns are not real suppliers of copra from his firms run by Shri Shajahan are found to be only colorable devices used by the assessee-company M/s. VVD Sons P. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a situation as regard to copra purchases said to have been made remained doubtful as to who is the real supplier of copra to VVD Sons, since Shajahan and the three persons remains silent and stated throughout the proceedings that they are only the agents for supplying copras by getting only commission payment. 6.12 From the findings made as discussed in the earlier paragraphs, a fact is obvious that Shri Shajahan has been paid by the VVD Sons only a sum of 1000/- to 2500/- per load as his part of commission. Shri Shajahan was asked to raise fake purchase invoices to M/s. VVD Sons and provide sales accommodation entries, for which act he has been paid commission. The entire payment towards fake purchase of copras from Shajahan including the commission paid for raising such fake invoices are considered unlawful u/s. 37(1) of the I.T. Act, which warrant disallowance of the same. Further As per the provisions of Section 40A(3) of the Income Tax Act, 1961 where the assessee-company incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day otherwise than by way of an account payee cheque drawn on a bank or an account-payee ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cceptable. An amount of Rs. 21,09,09,180/- is disallowed and added u/s 40A(3) towards violation of the provisions of the said Section for the A.Y 2012-13, since the payments towards purchase from Shajahan were made through bearer-cheques and not through account payee cheques or account-payee demand drafts as required u/s 40A(3). 6.16 It is abundantly clear that actually no sale of copra took place between M/s. Appu Traders and M/s. VVD Sons. Only in order to reduce the tax liability as well as to avoid provisions of Sec. 40A(3) , M/s. VVD Sons had resorted to a kind of dubious method, as if through purchases were made from Shajahan and his group concerns. The whole exercise is only a colourable device employed by M/s. VVD Sons to reduce the tax liability by utilizing the name of Shajahan and his group concerns, as supplier of copras. 6.17 Tax planning must be a legitimate provided it is within the framework of law. The assessee company had employed colourable devices, which cannot be part of its tax planning and it cannot encouraged or entertained on the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It could be conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the appellant. Likewise, the AO has also not refuted the purchase of copra. I am of the considered view that so long as the appellant has not made cash payments and all the payments were through RTGS, invoking the provisions of section 40A(3) is not correct and hence the resultant disallowance also is uncalled for. Further, the main contention of the appellant is that all the payments to the group concerns of Mr. Shajahan were made by RTGS and the same is not disputed by the AO. On the other hand, the assessing officer relied on the books of accounts seized from the residential premises of Mr Shajahan without giving an opportunity to the appellant for cross examination. In this regard, a copy of the letter addressed by the AR to the AO is reproduced below: [attached copy of the letter] The AR submitted that seized material or evidences collected at the back of the appellant has no evidentiary value unless an opportunity of cross examination is given. Even after thorough investigation by Investigation team, there is absolutely no evidence brought on record to prove that part of the amount paid by RTGS came back to the appellant. Any disallowance under section 40A(3) can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted. 11.6 We have considered the rival contentions. The case of the assessee is that the assessee used to acquire copra from wherever they are available at competitive price with an eye on the quality of the same. As per the invoices raised by the Kerala suppliers, payments were made by the assessee through RTGS. However, the Assessing Officer disallowed the entire expenditure by holding that the assessee made bogus purchase. On appeal, the ld. CIT(A) has noted from the documents produced before the him as was furnished to the Assessing Officer that all the payments to the Kerala supplier were through banking channel i.e. RTGS. The Assessing Officer has also not disputed this fact. From the evidence available, the ld. CIT(A) noted that bearer cheques were issued only by the Kerala supplier to his clients. The issuance of bearer cheque by the Kerala supplier does not in any way disprove the claim of the assessee that they sent the entire payment through RTGS. If the Kerala supplier issued bearer cheques, then action at best can be taken only at their end and not in the hands of the assessee. Thus, the ld. CIT(A) has held that disallowance in the case of the assessee is not war ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F.Y 2012-13 relevant to the Assessment Year 2013-14 was arrived at Rs. Rs. 57,38,39 7/- (for a quantity of 4904613.18 on an inflated rate of 1.17 per kg), The said amount of Rs. Rs. 57,38,39 7/- I- is treated as bogus purchase from Shajahan group concerns for the A.Y 2013-14. The same is disallowed and added. 12.1 Similarly, the Assessing Officer made disallowance towards bogus purchase of copra for the assessment year 2014-15 of ₹.1,08,59,175/- and for the assessment year 2015-16 of ₹.1,13,40,886/-. 12.2 On appeal, with regard to the deletion of addition made towards bogus purchase and rate variation, the ld. CIT(A) has observed as under: 6.5. The next ground relates to bogus purchase and rate variation: The AO resorted to the impugned addition based on the illogical conclusion that there is rate variation in the purchase of copra resulting in inflation of purchase price. The AR explained the reason for rate variation and attributed the same to quality of copra acquired. Depending on the quality of the copra prices tend to vary from supplier to supplier. Without taking into consideration this basic fact, the AO resorted to the impugned addition. The AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there is no scope of presumption or assumptions and the additions have to be based on concrete evidences only. 12.6 We have considered the rival submissions. In the assessment order, the Assessing Officer has observed that there is rate variation in the purchase of copra resulting in inflation of purchase price. After considering the submissions of the assessee, the ld. CIT(A) has observed that the assessee was in the business for the past several years and has acquired a reputation for its products. It was further observed that in order to get high quality of end product (oil), it is essential and unavoidable for the assessee to acquire high standard of copra for crushing and consequently it has to pay a higher price. Without taking into account this basic requirement for consideration, indulging in an exercise to make such an addition was not correct. The ld. CIT(A) has further observed that neither the investigation team nor the Assessing Officer has brought any material on record to show that part of the purchase price was received back by the assessee. Accordingly, the ld. CIT(A) has held that the addition was made purely based on doubt, suspicion, assumption and surmis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's above plea is considered and the same is acceptable. Owing to this, the addition on account of suppression in the value of closing stock is worked out at Rs. 21,33,110/-. This sum is treated as suppression of stock for the Assessment Year: 2013-14 and is added to the total income. 13.1 Similarly, the Assessing Officer made addition towards difference in closing stock as per SAP vs. Return of income for the assessment year 2015-16 at ₹.32,25,318/-. 13.2 On appeal, the ld. CIT(A) has observed as under: 6.9. The last ground relates to AY 2013-14 to 2015-16 purported suppression of closing stock. The AR submitted that during the FY 2011-12 the appellant company switched over from Tally system of accounting to SAP system of accounting. The AO was of the view that there is variation in the value of stock as per SAP system and the value of stock reported in the return of income. The appellant duly given a reconciliation statement and reasons for the difference before the AO. Unfortunately this was not considered properly. The appellant vide its letter dated 14/ 12/2017 submitted as under 5. At the end of the financial year, the actual value of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted in the AY 2012-13, the addition on account of telescopic effect made for the AYs 2013- 14 and 2015-16 for Rs. 21,33,110/- and Rs. 32,25,318 respectively is hereby deleted. This ground of appeal for both the AYs is hereby allowed. 13.3 Aggrieved, the Revenue is in appeal before the Tribunal for both the assessment years 2013-14 and 2015-16. 13.4 The Ld. CIT-DR supported the computations made by Ld. AO. However, ld. AR submitted that the variation was only due to the fact that the assessee switched to SAP based accounting software. 13.5 We have considered the rival contentions. In the assessment order, the Assessing Officer has noted that there is variation in the value of stock as per SAP system and the value of stock reported in the return of income. Accordingly, the assessee has duly submitted the reconciliation statement and reasons for the difference before the Assessing Officer, which was unfortunately not considered. Before the ld. CIT(A) the assessee has produced copy of the actual value of closing stock (with quantity) as furnished to the Central Excise Department. After considering the detailed written submission filed by the assessee as was submitted befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marketing and agricultural business Government of Tamilnadu. The entire purchases were made by remitting cash in the respective market committee with 1% cess levied by the committee. During the post search also, when enquired about the purchase made from market committee, Shri Kabilan, one of the Executive Director of VVD Sons has not given any proper evidence/explanation. Even during the course of search assessment proceedings, the assessee company did not gave any explanation about the cash purchase made from market committee. In the absence of any corroborative evidence about the cash purchase of Rs. 1,36,46,648/- from market committee the undisclosed production out of unaccounted copra purchase from market is arrived by adopting the gross profit ratio adopted at 20.16%. The gross profit of undisclosed production out of unaccounted copra purchases for the A.Y. 2015-16 is worked out at Rs. 2,09,10,485/-. A total sum of Rs. 3.45,57,133/- is treated as income earned out of unaccounted and undisclosed income of the assessee company and hence added to the total income. 14.1 Similarly, the Assessing Officer made addition of ₹.4,53,75,915/- for the assessment year 2016-17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stretch of imagination this gross profit can be achieved. In the AY 2016-17, such purchases have been taken at Rs. 4,53,75,915/- and no gross profit has been worked out and surprisingly added the entire purchase cost. It is needless to say that the value of purchases made from the traders, who participated in the auction conducted by the Market Committee, has already been booked in the regular accounts. Thus it can be seen that the AO indulged in a futile exercise in making the impugned addition. After going through the various documents produced by the appellant such as Permit to move the copra from the market committee to the appellant, proof of cess payment by the successful bidder etc. which were furnished before the AO during assessment proceedings, I am of the view that the explanation offered by the appellant are plausible. The permit to move the copra from the place of origin to the place of destination that is the factory of the appellant etc. has been gone through. Even admitting but not accepting for a while that the appellant had indulged in purchases from market committee directly, neither the Investigation Team nor the AO has found out any corroborative document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... traders, which purchases were duly accounted. Without understanding these modalities the Assessing Officer came to the conclusion that the assessee had purchased copra from market committee and accordingly the impugned addition was made. Based on this wrongful conclusion, the Assessing Officer also calculated deemed gross profit. The ld. CIT(A) has further observed that for the AY 2015-16 the purported total purchases from the market committee had been taken at ₹.1,36,46,648/-. The gross profit arrived at on this illusory purchase was computed at ₹.2,09,10,485/-. This is to say the gross profit has been worked out at 153.22%. Thus, it was observed that by no stretch of imagination this gross profit can be achieved. In the AY 2016-17, such purchases have been taken at ₹.4,53,75,915/- and no gross profit has been worked out and surprisingly added the entire purchase cost. It is needless to say that the value of purchases made from the traders, who participated in the auction conducted by the Market Committee, has already been booked in the regular accounts. Thus it is clear that the Assessing Officer indulged in a futile exercise in making the impugned addition. By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a sum of Rs. 3,40,000/- per acre. It was also seen that the company has paid Rs. 14,70,655/- as cash to Sri K Srinivasan, While raising a specific question in this aspect Shri D. Kabilan, vide his sworn statement in answer 6 has stated that the amount of Rs. 14.70.655/- is the difference between the actual sale consideration agreed and the guidelines value prescribed by the Government. Sri Kabilan has agreed to admit the said amount as undisclosed income for the respect assessment year. Therefore, the payment of on money for the purchase of land at Rs. 14,70,655 and the brokerage paid by cash of Rs. 2,98,000/- are brought to tax for the A.Y, 2015-16. 15.1 On appeal, the ld. CIT(A) has observed as under: 6.6. The next ground relates to addition on account of alleged on-money payment in acquisition of land. This addition relates to the AY 2015-16. The facts are that the company has purchased 5.96 Acre of land at Meliyur Village for Solar power project for Rs. 6,27,420/- on 23.01.15. Apart from that, the payment details are given below: Rs. On money payment 14,70,655 B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as offered substantial additional income for AYs 2010-11 to 2016-17 towards bogus bought notes as per the details given below: Bought Note Purchase offered in the return of income filed in response to notice u/s. 153(A) Sl.No. AY Rs . 1 2010-11 14268681 2 2011-12 17132430 3 2012-13 6935852 4 2013-14 11245946 5 2014-15 15874995 6 2015-16 19948175 7 2016-17 11315448 Total 96721527 Considering the above offer, AR requested that such additional income can be telescoped against on-money payment assessed by the AO. The AR's submissions have been considered. It is a fact that the appellant had made the payments for the acquisition of the immovable property through accounted source only, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer during assessment proceedings and the assessee proved to the satisfaction of the Assessing Officer that no unaccounted money was involved. However, the Assessing Officer erroneously added the sum of ₹.17,68,655/- as on-money payment, including brokerage of ₹.2,98,000/-. The ld. CIT(A) has observed that while resorting to the said addition, the Assessing Officer has not examined the vendor and recorded any sworn statement to bring on record that the vendor received any on-money payment. In the absence of any corroborative evidence supported by any sworn statement from the vendor, the ld. CIT(A) was convinced with the explanation offered by the assessee. Further, the ld. CIT(A) has observed that the assessee has offered substantial additional income for AYs 2010-11 to 2016-17 towards bogus bought notes to the extent of ₹.9,67,21,527/-. Under the above facts and circumstances, the ld. CIT(A) has rightly deleted the addition of ₹.17,68,655/- and thus, we find no infirmity in the order passed by the ld. CIT(A) on this issue. 16. The assessee has preferred Cross Objections for the assessment years 2013-14 and 2014-15 challenging confirmation of addition tow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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