TMI Blog2024 (4) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... on in this regard. Therefore, the addition sustained by the ld CIT(A) is hereby directed to be deleted and the ground of appeal is allowed. Unexplained investment u/s 69 - HELD THAT:- Useful reference can be drawn to the decision of the Hon ble Supreme Court in case of Anantharam Veerasinghaiah Co [ 1980 (4) TMI 2 - SUPREME COURT] where the Lordships have held that where an intangible addition is made to the book profits during an assessment proceeding, it is on the basis that the amount represented by that addition constitute the undisclosed income of the assessee. It was held that that income is as much a part of real income as that disclosed in the account books, has the same existence and could be available to the assessee as the books profits could be and may constitute a fund from which the assessee may draw subsequently for meeting expenditure or introducing amount in his books. It was held that the mere availability of such fund cannot in all cases imply that the assessee has not earned further secret profits. It is for the taxing authority in each case to determine whether the unexplained cash deficit and the cash credits can be reasonably attributable to a pre-existing fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g details: Sl.No. Appeal No. Name of assessee CIT(Appeal/s) Order dt. Asst. Year 1. ITA No. 307/Chd/2022 M/s Seo Lehenga House CIT(A)-5, Ludhiana 19/01/2022 2013-14 2. ITA NO. 308/Chd/2022 M/s Seo Lehenga House CIT(A)-5, Ludhiana 19/01/2022 2015-16 3. ITA NO. 309/Chd/2022 M/s Seo Lehenga House CIT(A)-5, Ludhiana 19/01/2022 2016-17 4. ITA NO. 310/Chd/2022 M/s Seo Lehenga House CIT(A)-5, Ludhiana 19/01/2022 2017-18 5. ITA NO. 618/Chd/2022 M/s Seo Lehenga House CIT(A)-5, Ludhiana 11/07/2022 2018-19 6. ITA NO. 617/Chd/2022 M/s Seo Bridal Studio Pvt. Ltd. CIT(A)-5, Ludhiana 08/07/2022 2018-19 2. All these appeals were heard together and are being disposed off by this consolidated order. Firstly, we shall deal with the appeal of the assessee in ITA No. 307/Chd/2022 pertaining to Assessment Year 2013-14, wherein the assessee has raised following grounds of appeal: 1. a) That the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the addition on account of unexplained expenditure u/s 69 amounting to Rs. 3,32,371/- being the commission paid on bogus purchases and sales by the company. b). Without prejudice to above ground of appeal, the Ld. CIT(A) has failed to appreciate that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusal of the material seized during the course of survey, it was found that the assessee has made bogus purchases amounting to Rs. 8,74,87,448/- and bogus sales amounting to Rs. 9,10,72,110/- through broker Shri Satish Kapoor to whom cash commission was paid on the total amount of bogus purchase and sales. It was further stated by the AO that Shri Shivam Singla, partner of the assessee firm has admitted in his statement recorded on oath dt. 13/04/2018 that the entire bogus purchase and sale were made though Shri Satish Kapoor to whom the cash commission was paid and which was never accounted for in regular books of account. 6.2 It was further stated by the AO that summons were issued to Shri Satish Kapoor which remained uncomplied with and the actual rate of commission could not be verified. Thereafter, a show cause was issued to the assessee as to why commission @ 1% on total amount of bogus purchase and sale amounting to Rs. 17,85,59,558/- which comes to Rs. 17,85,596/- should not be treated as unexplained expenditure under section 69C of the Act. 6.3 In response, the assessee submitted that they have paid commission at the rate of 0.25% on total bogus purchase and sale which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sales with other concern amounting to Rs. 13,29,48,751/- which amounts to Rs. 5,31,795/- was brought to tax as unexplained expenditure under section 69C of the Act. 8. Now coming to the findings of the Ld. CIT(A). The Ld. CIT(A) has stated that the assessee has submitted that it had admitted commission payment @ 0.25% voluntarily and argued that the Revenue has not proved at any stage that it had paid commission beyond 0.25% and the broker Shri Satish Kapoor, through whom the bogus purchase and sale were made, was not cross examined in spite of various requests. The Ld. CIT(A) further took note of the assessee s submission that the gross profit shown by the assessee is more than the amount of the commission which has been brought to tax by the AO. However the said submission was not found convincing for the reason that the assessee was doing genuine business also and the profit for which was taxable. However the contention regarding the rate of commission @ 0.25% was found acceptable for the reason that nothing has been brought on record by the AO to show the exact amount of commission payment by the assessee. The Ld. CIT(A) therefore upheld the commission payment @ 0.25% of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been accounted for in its books of accounts and the commission payment to the broker is therefore duly covered by the quantum of gross profit already offered to tax. The factum thereof has not been disputed by the Revenue and at the same time, both the lower authorities have failed to give due effect to the same. On perusal of records, it is noted that the assessee has disclosed gross profit at the rate of 1.60% on bogus sales of knitted cloth which comes to Rs 14,57,154/- and therefore, the commission for procuring the bogus purchase and sale amounting to Rs 5,31,795/- as so determined by the AO stand covered by the said gross profit of Rs 14,57,154/- and there cannot be any separate addition in this regard. Therefore, the addition of Rs 332,371/- sustained by the ld CIT(A) is hereby directed to be deleted and the ground of appeal is allowed. 13. In Ground No. 2, the assessee has challenged the sustenance of addition of Rs. 58,58,524/- on account of unexplained investment under section 69 of the Act. 14. In this regard, briefly the facts of the case are that during the course of search, certain documents referred to as Annexure-A2 were seized from the House No. 1017, Garewal Colon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the assessee carried the matter in appeal before the Ld. CIT(A). 15.1 The Ld. CIT(A) referred to the contention of the assessee that these are part of the rough Trial Balance and the fact that the assessee has voluntarily surrendered a sum of Rs. 82,00,000/- in stock and sundry receivables at the time of original survey under section 133(3). The Ld. CIT(A) also referred to the fact that the assessee has stated that out of the total unexplained entries of Rs. 1,28,09,583/-, the entries/purchases totaling Rs. 51,50,402/- have been duly shown in the purchase account of the assessee which were got verified during the appellate proceedings by the Inspector of Income Tax who in his report has stated that purchase amounting to Rs. 46,52,059/- have been recorded in the regular books of account of the assessee. The Ld. CIT(A) accordingly held that the balance amount of Rs. 81,57,524/- remained unexplained. 15.2 In this regard, referring to the contention of the assessee that the same is covered by the initial surrender of Rs. 82,00,000/- at the time of survey on 26/10/2012, the Ld. CIT(A) referred to the contents of the surrender letter and stated that the surrender against the stock was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has recorded his findings which read as under: The facts of the case, the basis of addition made by the A.O. and the arguments of the AR during the appellate proceedings have been considered. The AR has submitted that during the assessment, the assessee explained this issue to the AO mentioning that detailed record of all the traded items was maintained and *** the searched party did not find any discrepancy in the quantity of stock maintained as per books of accounts and further submitted that the valuation was done on estimation basis by applying average price, whereas there is no method in accountancy called average price for valuation of closing stock. It is also submitted that the department had made valuation of 805 pieces of Lehanga at average rate of Rs. 24,175/- per piece (at Rs. 1,94,60,875/-) which is the rate for stitched/completed Lehanga, whereas the assessee was having stock of 512 unstitched Lehanga, the rate of which was Rs. 6,096/- per piece as per valuation done by the department also and accordingly argued that the value has been wrongly increased by an amount of Rs. 92,56,448/-. The AR enclosed the bill for stitched and unstitched Lehanga in support of the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons for the same assessment year. In this regard, useful reference can be drawn to the decision of the Hon ble Supreme Court in case of Anantharam Veerasinghaiah Co vs CIT (1980) 123 ITR 457 where the Lordships have held that where an intangible addition is made to the book profits during an assessment proceeding, it is on the basis that the amount represented by that addition constitute the undisclosed income of the assessee. It was held that that income is as much a part of real income as that disclosed in the account books, has the same existence and could be available to the assessee as the books profits could be and may constitute a fund from which the assessee may draw subsequently for meeting expenditure or introducing amount in his books. At the same time, it was held that the mere availability of such fund cannot in all cases imply that the assessee has not earned further secret profits. It is for the taxing authority in each case to determine whether the unexplained cash deficit and the cash credits can be reasonably attributable to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that year. In the instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the addition has been made by the AO on account of alleged payment of commission on bogus purchase and sales forming part of the audited books of account wherein the assessee has already disclosed profit of Rs. 40,40,351/-. 26.1 It was submitted that the facts and circumstances of the case are identical as in Assessment Year 2013-14 and the submission made therein may be duly considered while deciding the grounds of appeal. 26.2 It was submitted that the AO has made an addition of Rs. 3,32,986/- @ 0.40% on total bogus purchase and sale which has been brought down to Rs. 208,116/- @ 0.25% by the ld CIT(A). It was submitted that since the assessee has already offered the profit of Rs. 40,40,351/- which was never realized at first place therefore the addition of Rs. 208,116/- is liable to be set off against the said income already offered to tax. 27. Per contra, the Ld. DR has fairly admitted that the facts and circumstances are identical as in A.Y 2013-14 and has relied on the order of the lower authorities. 28. We have heard the rival contention and perused the material available on the record. We find that the assessee has been contending right from the assessment proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciate that the assessee has already disclosed the profit of Rs. 59,66,942/ on the bogus purchases and sales, which were never made and, thus, the addition of Rs. 4,67,441/- is liable to be set off against the such income already offered. 2. That the Ld. CIT(A) has erred in confirming the addition of Rs. 75,427/-by applying the gross profit @ 5.35% on the amount of Rs. 14,09,154/-. 3. That the Ld. CIT(A) has erred in confirming the addition of Rs. 8,83,826/- on account of rough jottings as unexplained expenditure. 4. That appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 34. Regarding Ground No. 1 wherein the addition of Rs. 4,67,441/- being the commission paid on bogus purchases and sales have been sustained by the Ld. CIT(A), the assessee has reiterated the submission as made in the Assessment Year 2013-14 and it was submitted that the facts and circumstances of the case are identical wherein the assessee has already disclosed the profit of Rs. 59,66,942/- on the bogus purchase and sales which were never made and therefore the addition of Rs. 4,67,441/- may be allowed to be set off against the income already offered t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , wherein the assessee has raised following grounds of appeal: 1. a) That the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the addition on account of unexplained expenditure u/s 69 amounting to Rs. 4,90,995/- being the commission paid on bogus purchases and sales by the company. b). With prejudice to above ground of appeal, the L.d. CIT(A) has falled to appreciate that the assessee has already disclosed the profit of Rs. 43,10,127/- on the bogus purchases and sales, which were never made and, thus, the addition of Rs. 4,90,995/- is liable to be set off against the such income already offered. 2. That the Ld. CIT(A) has erred in confirming the addition of Rs. 1,56,000/- account of rough jottings as unexplained expenditure. 3. That appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 42. Regarding Ground No. 1 wherein the addition of Rs. 4,90,995/- being the commission paid on bogus purchases and sales have been sustained by the Ld. CIT(A), the assessee has reiterated the submission as made in the Assessment Year 2013-14 and it was submitted that the assessee has already disclosed the profit of Rs. 43,10, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in confirming the following additions: i) Addition of Rs. 6,13,202/- As per para 4.5.1, Pages 36 to 38 of the order of CIT(A). ii) Addition of Rs. 3,02,542/- As per para 4.6.2, Pages 38 to 39 of the order of CIT(A) iii) Addition of Rs. 59,235/- As per para 4.6.4, Pages 40 to 42 of the order of CIT(A) iv)Addition of Rs. 7,56,000/- As per para 4.6.5, Pages 42 to 43 of the order of CIT(A). v) Addition of Rs. 12,60,606/- As per para 4.7.1, Pages 44 to 45 of the order of CIT(A). vi) Addition of Rs. 750/- As per para 4.7.2, Page 45 of the order of CIT(A). 4. That the Ld. CIT(A) has erred in confirming the following additions. i) Addition of Rs. 1,49,464/- As par para 4.8.1 of the order of CIT(A) ii) Addition of Rs. 97,648/- As par para 4.8.3, page 48 of the order of CIT(A) iii) Addition of Rs. 98,136/- As par para 4.8.4, page 49 of the order of CIT(A) iv) Addition of Rs. 8,05,798/- As per para 4.8.1, Page 49 50 of the order of the order of CIT(A) 5. Without prejudice to ground No. 3 4, the Ld, CIT(A) should have allowed the benefit of sum available with the assessee to the tune of Rs. 1,49,664/-, 97,648/-, 98,136/- and 8,05,798/- against the addition of unexplained expenditure. 6. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 53. We have heard the rival contentions and perused the material available on the record. In view of the limited prayer raised on behalf of the assessee which we find acceptable, the gross profit addition and addition towards unexplained expenditure are both sustained and at the same time, gross profit addition is directed to be set off against unexplained expenditure and only the remaining amount to be brought to tax. In the result, ground no. 3 4 are dismissed as not pressed and ground no. 5 is allowed. 54. In the result, the appeal of the assessee is partly allowed. 55. Now we shall deal with the appeal of the assessee in ITA No. 617/Chd/2022 pertaining to Assessment Year 2018-19, wherein the assessee has raised following grounds of appeal: 1. a). That the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the addition on account of unexplained expenditure u/s 69 amounting to Rs. 78,726/-being the commission paid on bogus purchases and sales by the company. b). With prejudice to above ground of appeal, the Ld. CIT(A) has failed to appreciate that the assessee has already disclosed the profit of Rs. 3,80,237/- on the bogus purchases and sales, which were never mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... give due effect to the same. On perusal of records, it is noted that the assessee has disclosed gross profit at the rate of 2.39% on bogus sales of knitted cloth which comes to Rs 380,237/- and therefore, the commission for procuring the bogus purchase and sale amounting to Rs 125,962/- as so determined by the AO stand covered by the said gross profit of Rs 3,80,237/- and there cannot be any separate addition in this regard. Therefore, the addition of Rs 78,726/- sustained by the ld CIT(A) is hereby directed to be deleted and the ground of appeal is allowed. 59. Regarding Ground No. 2 during the course of hearing, the Ld. AR submitted that the department at the time of search has valued the stock at Rs. 2,46,80,750/-. It is also a matter of fact that another valuation was made at Rs. 2,37,78,482/-. The Assessee has submitted that the stock as on date of search in the books of accounts was to the tune of Rs. 1,77,43,710/-. Thus, there was difference in stock of Rs. 69,37,040/-. During the course of assessment proceedings, detailed submissions were given but the same were not accepted completely by the AO. Detailed working of dead stock of Rs. 42,20,000/- was also given before the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order. Even if we look at the valuation as so stated at page 33 of APB, we find that it is unclear whether the same has been taken cognizance of by the survey team or for that matter, the AO during the assessment proceedings and in any case, it talks about valuation of stock as per average weighted price method for two quarters which has been duly addressed by the ld CIT(A) where he has held that the stock has to be valued at cost after reducing the gross profit rate. Therefore, we find no merit in the said contention. In the result, we do not find any justifiable basis to interfere with the order of the ld CIT(A) where he has sustained the addition of Rs 17,22,325/- and the same is hereby upheld and the ground of appeal taken by the assessee is dismissed. 63. Ground No. 3, 4, 5 and 6(a) were not pressed during the course of hearing, at the same time in terms of ground no. 6(b), it was submitted that the assessee be allowed set off of unexplained expenditure of Rs. 6,73,458/- against the confirmation of addition of Rs. 10,966/- on account of GP Rate. 64. We have heard the rival contention and perused the material available on the record. In view of the limited prayer raised on be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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