9911796707
TMI Blog2025 (5) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... he grounds taken in the cross appeals, it would first be relevant to cull out the basic facts of the case and effect of law in brief in respect of certain AYs. Search u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was conducted against the assessee, on 14.02.2023. Consequent to the search, the AO issued notices u/s 148 of the Act for AYs 2016-17 to 2021-22, pursuant to which, the assessments under section (hereinafter referred to as "u/s.") 147/143(3) of the Act were completed all dated 27.03. 2024. Further, the AO also completed the scrutiny assessment for AY 2022-23 u/s 143(3) of the Act on 27.03.2024. The summary of the additions/disallowances in Rupees made by the AO which are in dispute in the cross- appeals for AYs 2016-17 to 2022-23 are as follows: - Issues AY 201617 AY 201718 AY 201819 AY 201920 AY 202021 AY 2021-22 AY 2022-23 Addition of Unaccounted cash collected from customers for sale of flats 1,87,27,107 2,52,19,672 3,53,50,730 2,61,86,252 8,06,82,126 10,71,58,995 24,95,02,394 Addition of cash collected from sale of plots in Project Residencia - - - - - 79,09,970 23,38,625 Addition u/s 43CA for short admission of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Customer Relationship Managers ('CRMs') that they were using a term "EB" for certain payments which are received in respect of the flat / plot sold / booked. Upon enquiry in the course of search, it was initially explained that the term 'EB' was an acronym for 'Extra Budget'. Later on, the concerned employee Smt. Karthiga, CRM staff from whose possession this excel sheet was found, gave her sworn statement u/s 132(4) of the Act, in which while answering to Q.No.13 put forth to her, she had admitted that the term "EB" means "Extra Benefits" and further in response to Q.No.15, she stated that "EB" means payment received in cash and not recorded in tally and EB payments received were communicated to the accounts team for reporting purpose. The Authorized Officer noted that, this explanation was also corroborated by the WhatsApp conversation between Smt. Karthiga and Accounts staff, Ms. Pinki. The Authorized Officer is noted to have sought an explanation regarding this particular WhatsApp conversation at Q No. 17 and Smt. Karthiga is noted to have confirmed the conversation between herself and Smt. Pinki and explained that, she had communicated to Smt Pinki that, on 17.11.2021, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been placed before the CEO, Shri. T.N. Madan, who also confirmed the statements of the above persons and admitted that cash received from the customers which were recorded as "EB" was not accounted in the books of accounts. Thereafter, the statement of the Managing Director, Shri Varun Manian was recorded u/s 132(4) of the Act on 15.02.2023 who in his answer to Q. No. 21 also confirmed that EB means "Extra Budget" which comprises of cash component and other extra payments made. In addition, he also confirmed the depositions of Smt. Rajeswari, Smt. Pinki, Smt. Karthiga, Shri. TN Madan and others. Further, on compilation of the data from the seized material, the search team ascertained that the assessee had received a total amount of Rs. 83,23,20,157/- in cash, during the period from FY 2013-14 to 2022-23, which was termed as "EB" in the seized data. The relevant break-up is noted to be as follows: - Asst Year Unaccounted cash receipts from various projects 2015-16 Rs.1,97,05,945/- 2016-17 Rs.2,34,08,884/- 2017-18 Rs.3,12,40,213/- 2018-19 Rs.3,53,50,730/- 2019-20 Rs.3,27,32,815/- 2020-21 Rs.10,08,52,658/- 2021-22 Rs.13,39,48,744/- 2022-23 Rs.24,95,02,394/- TOTAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who confirmed the statement of Smt. Karthiga and also had WhatsApp conversation with her regarding collection of "EB" was submitted to have given such a statement under coercion and therefore the assessee urged that her statement was also not reliable. It was explained that, the employees would have misunderstood the regular individual cash collections of less than Rs. 2 lacs which was also accounted in the books of accounts to represent unaccounted cash and thus gave statements under mistaken belief and confusion. According to the assessee, the Managing Director, Shri Varun Manian had also retracted his statement in which he had also highlighted infirmities in the data found from possession of Smt. Karthiga and therefore it was submitted that the purported electronic data was not reliable. 4.7 The AO however is noted to have rejected the explanation put forth by the assessee and has set out his detailed reasons for the same in the impugned order. The AO is observed to have inter alia stated that, the persons whose statements had been recorded have deposed their answers while recording the statement u/s 132(4) of the Act with reference to the facts as per the seized material and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficates u/s 65B of the Act prior to the seizure of such electronic records. The AO is noted to have extracted the said certificate obtained u/s 65B of Indian Evidence Act, 1872 in the impugned order as well. Before us, the Ld. AR for the assessee was unable to controvert this certificate or point out the fallacy therein. We accordingly agree with the Ld. CIT(A) that there was no non-compliance with the provisions of Section 65B of the Indian Evidence Act, 1872 and therefore this preliminary contention of the assessee stands rejected. 4.10 The next plank of assessee's argument was that, the contents of the seized material were not reliable and that the Managing Director had retracted his statement and therefore no addition was otherwise permissible on account of undisclosed cash receipts from sale of flats. Assailing the action of lower authorities, the Ld. AR had argued that, the statements of Smt. Karthiga & Smt. Pinky which formed the main basis of the impugned addition was not reliable. He pointed out that, Smt. Karthiga was a customer relationship staff who was only involved in day-to-day miscellaneous tasks of handling and resolving the queries of the customers raised and obt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lower authorities. As noted by the lower authorities, the electronic data including whatsapp conversations and excel sheets indeed related to the assessee's business activities and pertained to the actual units sold and therefore the contents thereof could not be discarded. The notings therein suggests that, it contained detailed project and unit-wise data, and the "EB" heading, in light of the statements of the employee/s, suggests the assessee collected cash payments over and above the declared sale consideration. The assessee was neither able to offer plausible explanation for these "EB" notings nor was the assessee able to demonstrate the purported extra work carried out in relation to these units. We thus countenance the following findings of the Ld. CIT(A) rejecting the assessee's contention objecting to the reliability of these seized material and the statements given by the employees and Managing Director: - "6.5.16 The undersigned has carefully examined the above submission of the appellant. There is no doubt that during the course of search that incriminating material in the form of electronic devices were found and seized. The reliance of such electronic device ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stated that this entire receipt constitutes the undisclosed income of the assessee. Also, later on, in the return(s) of income filed in response to notice(s) issued u/s 148 of the Act, the assessee is noted to have admitted and offered to tax 20% of the cash collections by way of the income element embedded therein and paid taxes thereon as well. The case of the Revenue however is that, the entire on-monies collected upon sale of flats ought to be brought to tax. According to us, however, it cannot be a matter of an argument in the given facts of the present case that, the amount as receipts/sales by itself would represent the income of the assessee. For this, we gainfully rely on the following findings rendered by the Hon'ble Gujarat High Court in the case of CIT Vs President Industries (258 ITR 654). "3. Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner (Appeals) and the Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under section 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incurred out of these cash collections and therefore the benefit of same should not be given and thus the entire proceeds ought to be taxed as undisclosed income of the assessee. In this regard, we find that, on same set of facts, similar contention was raised by the Revenue before this Mumbai Tribunal in the case of M/s. Prime Developers Vs ACIT (ITA Nos.175 - 178/Mum./2010 by order dated 22.03.2013) viz., the set-off/benefit of expenses against on-monies shouldn't be allowed as the assessee was unable to substantiate the incurrence of expenses with evidences. This Tribunal is noted to have rejected this plea of the Revenue and upheld the assessee's plea for estimation of profit element embedded in on-monies by observing as under: - "42. Scope of Reasonable Expenditure: Assessee needs to expend in order to earn income/profit and it is basic and universal principle in any business. This principle applies to both accounted and unaccounted profits. In a case of unaccounted profits, due to its very nature of unaccounting, normally, the parties do not maintain evidences and therefore, evidencing such unaccounted evidences is impossibility. Probably, for this reason, the courts have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted payments. The above decision of this Tribunal is noted to have been upheld by the Hon'ble Gujarat High Court and the SLP filed against the judgment before the Hon'ble Supreme Court was also dismissed and reported in 265 ITR 37. The relevant findings of Hon'ble Apex Court is noted to be as follows: "Dismissed the special leave petition filed by the Department against the judgment dated January 21, 2002 of the Gujarat High Court in ITA No. 52 of 2002 whereby the High Court dismissed the Department's appeal on the ground that no substantial question of law arose. The question of law raised in the appeal before the High Court was whether the Appellate Tribunal's finding while directing the Assessing Officer to tax only 8 per cent of the unaccounted on money receipt instead of fully taxing it, in the absence of any evidence of expenditure, could not be stated to be perverse." 4.17 We further find that a similar view had been taken by the Hon'ble High Court of Gujarat in the case of PCIT, Surat Vs. Anupam Organiser (2020) (9) TMI 973. In its said order the Hon'ble High Court relying on its earlier order passed in the case of DCIT vs Panna Corporation (74 DTR 89), had obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his was after looking into the statement filed by the assessee as to the net profit from the four projects, in which, there was found suppression of sale consideration. The net profit worked out to 14.47% as per the statement of the assessee and the Tribunal directed adoption of 15% as profits and hence the undisclosed income for the purpose of levy of tax. 6. We do not see any infirmity in the said direction. We specifically notice sub-section (2) of Section 158B of the Act, which defines "undisclosed income" as including inter alia any income based on an entry in the books of accounts or other documents or transactions representing whole or part of the income, which has not been or would not have been disclosed for the purposes of this Act. The provision does not permit tax to be levied on the entire receipt of money by an assessee and also does not deem undisclosed income to be the entire undisclosed receipts, revealed on search or otherwise. 7. Here, the sale consideration, which was detected on search and seizure, was not reflected in the books of accounts nor the profit returned as income for the subject years. The sale consideration was also for the purchase of apartment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unaccounted cash receipts were found. In such a scenario, the best option available before the undersigned is to estimate the profit margin that can be attributed as additional business income for the respective assessment years. Naturally any estimation should have some basis. The Income Tax Act, 1961 provides certain presumptive provision(s) to tax income when books of accounts are not maintained. Some of these are envisaged in section 44AD, 44AAD of the Act wherein the income is allowed to be estimated upon percentage. The provisions of section 44AD allows to taxation @ 8% of total receipts as taxable income. Whereas in section 44AAD of the Act, tax is not a fixed rate; it is based on the presumptive income calculated at 8% or 6%, and then the individual tax rates are applied based on total receipts. Thus, the undersigned placing reliance upon the above judicial decisions of the view that only the profits embedded in such receipts should be taxed and not the entire receipts as a whole and therefore disagrees to the action of the AO in adding the entire cash receipts. During the course of appellate proceedings, the appellant has made a submission in this regard, the relevant ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27,80,69,230/- --- 24,95,02,394/- 4,99,00,478 24,95,02,394/- 6.5.33 It is observed that for the AY 2018-19, the AO has brought on record the claim of the assessee about the admission of Rs. 70,70,146/-. In this regard the AR contended that during the course of assessment proceedings, the Computation of total income was reworked and the additional income offered was incorporated and the consequent taxes were paid, whereas in the assessment proceedings completed the re-working of additional income admitted was not considered by the AO. Further, the AR during the course of appellate proceedings, submitted that on the basis of the survey conducted on 24.01.2019, the AO issued a notice u/s 148 of the Act on 05.04.2022 and the assessee filed the return of income in response to the notice issued u/s 148 of the Act on 04.05.2022 which is before the date of search. Consequent to the search u/s 132 of the Act on 14.02.2023, the AO issued another notice u/s 148 of the Act, however, the assessee could not file any return in response to the second notice issued u/s 148 of the Act on account of technical glitches. Therefore, the assessee admitted 20% of the EB quantified during the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d computation by admitting Rs. 70,70,146/- being 20% of unaccounted cash receipts, therefore, the undersigned is constrained to sustain (20% of Rs. 3,53,50,730/- of the addition made by the AO) Rs. 70,70,146/- and the AO is directed to delete the balance amount of Rs. 2,82,80,584/- for the AY 2018-19. Similarly for the AY 2022-23, the appellant company has not admitted additional income in the return of income filed u/s 139 of the Act, however the appellant, during the course of assessment proceedings has admitted additional income of Rs. 4,99,00,478/- being 20% of the unaccounted cash receipts from various projects for the AY 2022-23 in the revised computation. Therefore, the undersigned is constrained to sustain 20% of24,95,02,394/- of the addition amounting Rs. 4,99,00,478/- and the AO is directed to delete the balance amount of Rs. 19,96,01,916/- for the AY 2022-23." 4.24 The Ld. CIT, DR appearing before us was unable to controvert the above estimation exercise conducted by the Ld. CIT(A). We also note that, the Constitutional Courts in their wisdom have generally estimated profit element in the range of 8% to 12.5% on the cash receipts involved in the business of real estate. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same, we thus countenance the Ld. CIT(A)'s action of estimating the profits embedded in the impugned cash receipts at 12.5%. Hence, we see no reason to interfere with the order of Ld. CIT(A) on this issue. Accordingly, these grounds raised by the Revenue and cross objections of the assessee are dismissed. 6. Issue 3: Addition u/s.43CA Ground Nos. 6 for the Revenue's appeal and Ground Nos. 4 to 8 of the assessee's appeal for AY 2021-22 Ground Nos. 6 for the Revenue's appeal and Ground Nos. 4 to 8 of the assessee's appeal for AY 2022-23 6.1 This ground relates to addition made by way of deemed sales consideration in relation to plots sold at the project "Residencia" in terms of Section 43CA of the Act. Briefly stated the facts relating to this issue are that, the AO had observed that, the assessee had sold 23 plots out of the 190 plots at project "Residencia" which was below the guideline value of Rs.2500/- per sq.ft. The AO accordingly tabulated the actual sale consideration of these 23 plots and the deemed sales consideration as per guideline value in terms of Section 43CA of the Act and added the differential sum of Rs. 51,36,281/- & Rs. 58,75,349/- in AYs 2021-22 & 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AY 202223 is at Rs. 31,06,100/- as against the addition of Rs.51,36,281/- & 58,75,349/- contemplated by the AO. Therefore, out of the addition of Rs.51,36,281/- & 58,75,349/- for the AY(s) 2021-22 & 2022-23 a sum of Rs. 41,37,325/- & Rs. 31,06,100/- are hereby sustained and the AO is directed to delete the balance addition of Rs.9,98,956/- & Rs.27,69,249/- for the AY(s) 2021-22 & 2022-23 respectively." 6.2 Aggrieved by the above order of the Ld. CIT(A), both the assessee and Revenue are in appeal before us. 6.3 Heard both the parties. We first take up the addition made u/s 43CA of the Act in relation to the 15 out of the 23 plots which were deleted by the Ld. CIT(A). Before us, the Ld. CIT, DR appearing for the Revenue was unable to controvert the factual finding of the Ld. CIT(A) that, the actual sale rates of these 15 plots in question fell within the tolerance range of 10% (20% for the period 12.11.2020 to 30.06.2021) as set out in first & second proviso to Section 43CA of the Act. We thus see no reason to interfere with the order of the Ld. CIT(A) deleting additions to the extent of Rs. 9,98,956/- & Rs. 27,69,249/- in the AYs 2021-22 & 2022-23 respectively. 6.4 Now we tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y law. 9. For the aforesaid reasons, the order under challenge is set aside. 10. The impugned order including orders passed by the CIT(A) and the assessing officer are all set aside. The matter is remanded to the assessing officer. He shall refer the matter to the departmental valuation officer in accordance with law. After such valuation is made, the assessment shall be made de novo in accordance with law. 6.5 In view of the above therefore, we deem it appropriate to restore the instant issue back to the AO with a direction to refer the matters to the DVO and accordingly frame the assessment on this limited issue de novo and in accordance with law. 7 Issue 4: Addition made on account of unaccounted cash sales of scrap Ground Nos. 4 for the Revenue's appeal and Ground Nos. 2 of the assessee's appeal for AY 2021-22 Ground Nos. 4 for the Revenue's appeal and Ground Nos. 2 of the assessee's appeal for AY 2022-23 7.1 These grounds relate to addition made by the AO on account of unaccounted sale of scrap. The facts as noted are that, in the course of search, a pen drive was found from the possession of Shri Ananda Padmanabhan, DGM, Purchase Department which inter alia contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds would not fully reach the coffers of the assessee. Reason being, there is no fixed or rationale basis for ascertaining the price of scrap. The scrap is usually valued by the vendor at the time of removal and the scrap price communicated by the employee(s) to the head office is generally accepted at its face value. It is common in such businesses that, the scrap is sold partly in cheque and cash and that, the cheque component ordinarily reaches the assessee and portion of the cash proceeds are siphoned off by the employee(s) selling the scrap. We thus find force in the assessee's submission that, the excel sheet found from the possession of employee, Shri Ananda Padmanabhan may have been maintained by him for his own personal records and it is not necessary that the cash notings found therein would have been fully passed on by him to the assessee. The Ld. AR further pointed out that, Shri Ananda Padmanabhan also left the company immediately post search without any explanation, which further strengthens the assessee's case that, these cash proceeds from scrap sale were never received by it. On this aspect, we find that, the Ld. CIT(A) has examined the gamut of facts, as discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement recorded u/s 132(4) of the Act is noted to have stated that M/s PK Vaduvammal was genuinely supplying steel to the assessee but at the same time was also issuing bogus invoices. He is noted to have explained that, the genuine invoices were identifiable based on the corresponding transport challans and weighment slips and that the bogus invoices did not have these supporting documents. He thus is noted to have stated that, excel sheet contained details of the payments made through cheque for both genuine and bogus purchases and cash recovered from the supplier. ShriAnanda Padmanabhan is noted to have provided the details of bogus invoices booked in the name of M/s PK Vaduvammal, which aggregated to Rs.31,13,06,763/- for AY2020-21 to AY 2022-23 (infra) [reference made by AO in respect of FY 2022-23 (AY 2023-24) is not considered/discussed, since it is not the relevant year before us]. It is observed that, the search team had also confronted Shri. P.C. Shyamsundar, Partner in M/s. PK Vaduvammal, who in his statement recorded u/s 131 of the Act, is noted to have confirmed the version of ShriAnanda Padmanabhan and also affirmed the following details of bogus invoices issued to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in principle that the purchases identified by Shri Ananda Padmanaban and also confirmed by Shri. P.C. Shyamsundar, Partner in the supplier M/s. PK Vaduvammal was bogus, but held that only the profit element embedded therein was to be brought to tax. The Ld. CIT(A) is found to have accepted the assessee's offer of 15% of the value of purchases as well as made an additional upward adjustment/addition of 2% of the value of purchase making it at 17% of the value of purchase. Being aggrieved by the order of the Ld. CIT(A), both the assessee and the Revenue are in appeal before us. 8.4 We have heard both the parties. From the facts placed before us, it is noted that, the search team had found electronic data which contained details of the purchases made by the assessee from M/s PK Vaduvammal. When enquired in the course of search, the employee of the assessee, Shri Ananda Padmanaban is noted to have also admitted and identified the bogus purchases made from M/s PK Vaduvammal and that he didn't retract from his statement. Thereafter, the search team made independent enquiry u/s 131 of the Act from the supplier as well, who also confirmed the statement of Shri P.C. Shyamsunder. We agree i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation thereto. In this regard, we may gainfully refer to the decision of the Hon'ble Gujarat High Court in the case of CIT Vs Bholanath Polyfab (P.) Ltd. (355 ITR 290) wherein similar issue was involved. In that case also, it is noted that this Tribunal was of the opinion that the purchases might have been made from bogus parties but the purchases themselves were not bogus. Considering such a situation, this Tribunal was of the opinion that not the entire amount of purchases but the profit margin embedded in such amount would be subjected to tax. On appeal by the Revenue, the Hon'ble High Court is noted to have upheld this finding of the Tribunal. 8.6 We find that the above decision was followed with approval by the Hon'ble jurisdictional Madras High Court in the case of CIT Vs SPL Infrastructure Limited (274 taxman 292). In the decided case, the assessee was engaged in the business of development of civil infrastructure. The assessee had incurred expenses by way of payments made to sub-contractors. According to the AO, the assessee was unable to discharge the identity, credibility and genuineness of the Sub Contractors and therefore disallowed the entire expenditure. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings of the learned Commissioner of Income-tax (Appeals) as well as the learned Tribunal. 13. It is well known that where the books of accounts maintained by the contractors are not accepted by the Department, the estimation of profit made on the basis of history of Gross Profit rate and Net Profit rate of the Assessee in the previous years or comparable cases of contractors can be made. Once such profit rates are compared, the additions on account of non-confirmation or non-production of the Sub-Contractors, etc. is totally irrelevant and cannot be made. 14. In the hierarchy of the fact-finding bodies created under the Income-tax Act, obviously the findings of the Assessing Authority stand superseded for all purposes, by the findings of the higher appellate authorities. Unless glaring perversity in the findings of the appellate authorities are pointed out and established by the Revenue in the Appeals filed by them under section 260A of the Act, there is nothing for the High Court or Constitutional Courts to do in such matters. The findings of fact arrived at by the Authorities below are binding on the High Court under section 260A of the Act, unless the perversity as aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed by others in the same line of trade. He, therefore, submits that the appeal deserves to be allowed and the substantial question of law deserves to be answered in favour of the revenue. .... 6. We find that the respondent/assessee is a private limited company engaged in business of civil contract. During the assessment year 200910 the assessee executed two projects as 'sub contractor' on behalf of M/s. Hindustan Steel Works Ltd. and M/s. Engineering Projects of India Ltd. for construction of road under 'Prime Minister Gramin Sadak Yojana and construction of central jail at Vishalgarh, Tripura'. During the assessment year in question the assessee had made purchase of Rs.13,85,34,422/- from various parties which were claimed as deduction in its profit and loss account. The details of parties were furnished during the assessment proceedings. The assessing officer issued notice under Section 133(6) of the Income Tax Act, 1961 (hereinafter referred to such Act, 1961) to the parties for verification of the transaction with the assessee. Assessing officer found certain mismatch in the figure of purchase disclosed by the assessee from the parties and the reply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al before us on the basis of which determination of net profit at the rate of 8% in the line of trade of the respondent/assessee can be said to be perverse or insufficient under the facts and circumstances of the present case. The findings recorded by the CIT(A) and the ITAT for applying the net profit rate of 8% on the gross receipts under the contract, cannot be said to suffer from any apparent illegality in the facts and circumstances of the present case." 8.9 Applying the ratio decidendi laid down in the above decision (supra), if in the present case, the purchases from M/s. PK Vaduvammal were disallowed as done by AO, then the profits of the company before the disallowance and after the disallowance would throw distorted and incorrect results. In this case, we find that the genuinity of certain bills/invoice from M/s. PK Vaduvammal are under cloud, not the quantity of purchases, since it has been put to use as noted at Para No.8.5 (supra) Hence, the AO's action of disallowing the purchases from M/s. PK Vaduvammal, in the facts of the instant case was unjustified. We thus agree with the Ld. CIT(A) that a reasonable profit qua such bogus purchases was to be brought to tax in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. So much is clear by the decision of this court. In particular, the court has also taken a similar view in the case of CIT v. Vijay M. Mistry Construction Ltd. [2013] 355 ITR 498 (Guj) and in the case of CIT v. Bholanath Poly Fab (P.) Ltd. [2013] 355 ITR 290 (Guj). The view taken by the Tribunal in the case of Vijay Proteins Ltd. v. Asstt. CIT [1996] 58 ITD 428 (Ahd.) came to be approved. 8. If the entire purchases were wholly bogus and there was a finding of fact on record that no purchases were made at all, counsel for the Revenue would be justified in arguing that the entire amount of such bogus purchases should be added back to the income of the assessee. Such were the facts in the case of Pawanraj B. Bokadia (supra). 9. This being the position, the only question that survives is what should be the fair profit rate out of the bogus purchases which should be added back to the income of the assessee. The Commissioner adopted the ratio of 30 per cent of such total sales. The Tribunal, however, scaled down to 12.5 per cent. We may notice that in the immediately p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of law arises from the impugned Judgment and Order of the Tribunal. The appeal, therefore, fails and is accordingly dismissed. 8.12 Identical view is noted to have been expressed by the Hon'ble Gujarat High Court in the case of Pr.CIT Vs Late R.M. Jain (L/H L.R. Jain) in TA No. 721 of 2024 dated 25.03.2025. 8.13 Following the above decisions (supra) which are found to be applicable on the given facts of the present case, we accordingly uphold the action of Ld CIT(A) that only the profit element embedded in these bogus purchases ought to be assessed to tax. Coming to the issue of estimation of the profits, on the given facts according to us, the Ld. CIT(A) has rightly estimated it at 17% of the value of purchase, which is found to be fair & reasonable and therefore, no further addition was warranted in this regard. 8.14 For the reasons set out above, we don't see any reason to interfere with the order of Ld. CIT(A) in this regard and thus uphold the same. Accordingly, these grounds of the Revenue and the cross objections of the assessee stands dismissed. 9. Issue 6: Addition on account of salary paid to Viswanathan without services Ground Nos. 3 for the Revenue's appeal fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. The case of the Revenue is that, once Smt.Viswanathan had admitted in her statement that she was not doing any work for the assessee and that she was being paid salary because she was a family member, then the action of AO disallowing the salary payment(s) was justified, since the salary expense(s) was not business but personal in nature. The Ld. AR has however has rightly pointed out that, disallowance could not have been solely based on the statement of Smt.Viswanathan and that some corroborative evidence ought to have been brought on record to justify the impugned disallowance. We note that, the Ld. CIT(A) had taken cognizance of the educational qualification of Smt.Viswanathan and the work profile explained by the assessee. The Ld. CIT(A) having regard to her work profile, also noted that her daily attendance was not necessitated and that she could have indeed worked from home as well. He also took note of the Form 16 issued by the assessee and the PF contributions made from the monthly salary. Having taken note of these contemporaneous material and evidences placed on record by the assessee disproving on fact the statement obtained by the search team from Smt.Viswanathan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 40A(2) of the Act provides for disallowance only to the extent that an expenditure is considered excessive or unreasonable and not the entire amount paid as salary. In the present case the AO has not established that the salary paid to Smt. Laxmi Viswanathan was excessive compared to fair market rates for similar work. In the absence of such exercise, a blanket disallowance of the entire salary is not justified. 6.8.9 In the back drop of the above findings, it is clear that the AO's disallowance is based solely on the sworn statement recorded during the search and without any corroborative evidence. The undersigned is of the view that the AO has not demonstrated as to how the salary was excessive or unreasonable under Section 40A(2) of the Act. Accordingly, all the grounds raised by the appellant upon this issue are hereby treated as allowed and the AO is directed to delete the disallowance of salary expenses for all the years under consideration." 9.3 The above findings of the Ld. CIT(A) are noted to be supported by the CBDT Instruction F.No. 286/98/2013-IT(Inv.II) wherein the Board has also directed that no addition/ disallowance should not made solely based on admissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which could be discovered u/s 37 / 40A(3) of the Act. It is trite law that the statement recorded u/s 133A of the Act (survey) cannot be equated with the statement recorded u/s. 132 (search) and evidentiary value of statement recorded u/s 133A of the Act [survey] stands on a lower pedestal and the statement u/s. 133A of the Act cannot be even recorded on oath, which if recorded cannot be admissible/relied upon or acted upon. For this we rely on the decision of the Hon'ble Supreme Court in the case of CIT vs Khader Khan Son (352 ITR 480)wherein it has been held that section 133A does not empower any income tax authorities to examine any person on oath, hence any such statement lacks evidentiary value and any admission made during the survey cannot by itself be made the basis of addition. We thus countenance the following findings of the Ld. CIT(A) in this regard, which are as under:- "6.4.6 The undersigned has carefully examined the issue under consideration. While going through the assessment order, it can be seen that the AO has contemplated the disallowance only based upon the statement recorded u/s 133A of the Act. During the course of survey, the appellant has admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO is not expected to record the statement u/s 133A of the Act. It is significant to bring on record upon the validity of statement recorded during the course of survey. The Hon'ble High Court of Kerala in the case of Paul Mathews & Sons vs Commissioner of Income Tax (2003) 263 ITR 101 (Ker.), has observed that "though Section 133A of the Act enables an Income Tax authority to record statement of any person which may be useful in the course of the said proceedings but the same does not authorize him for taking any sworn statement." The Hon'ble High Court had observed that a statement recorded u/s 133A of the Act is not to be given any evidentiary value because the officer recording such statement is not authorized to administer oath and take any sworn statement which alone has evidentiary value in the eyes of law. Also, the order of the ITAT, Raipur Bench in the case of Tikam Das Jivnani Vs. Assistant Commissioner of Income Tax, Smt. Neetu Sharma Vs. DCIT-1(1) & Smt. Asha Sharma Vs. DCIT-1(1) ITA Nos.351 & 352/RPR/2016 ITA No.28/RPR/2014 dated 11.10.2021, after relying on a host of judicial pronouncements, had held, that "a statement recorded during the course of survey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of the CBDT Instruction No. 286/2/2003-IT(Inv) dated 10.03.2003 wherein the Board had instructed as follows: "Instances have come to the notice of the Board where assessee have claimed that they have been forced to confess the undisclosed income during the course of search and seizure and survey operation. Such confession, if not based upon credible evidence, are later retracted by the concerned assessee while filing returns of income. In these circumstances, such confessions during the course of search and seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Department. Similarly, while recording statement during the course of search and seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also. Assessing Officers should rely upon the evidences/materials gathered during the course of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee before us is on much better footing as there is no admission made u/s 132(4) of the Act, which otherwise carries evidentiary value. Rather, the impugned addition has been made based on admission made u/s 133A of the Act, which as held by us above, does not carry any evidentiary value. 10.7 Our above view is further supported by the decision of the Hon'ble Delhi High Court in the case of CIT v. Dhingra Metal Works (328 ITR 284). In the decided case also, a survey was conducted upon the assessee and the partner had admitted to additional income in his statement u/s 133A of the Act to cover for discrepancies found in stock. Later on the assessee was able to reconcile the physical stock with the books of accounts and accordingly did not offer the additional income so disclosed in the return of income. The AO did not accept the plea of the assessee and made addition by relying upon the statement given during the course of survey. On appeal, the Hon'ble High Court upheld the order of the appellate authorities deleting the addition by holding that the addition could not have been made by solely relying on the statement obtained u/s 133A of the Act. The findings of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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