DCIT C.C. 3(2) `, MUMBAI vs. M/S. VIRAJ PROFILES LTD, MUMBAI

PER BENCH:- The cross appeals filed by the assessee relate to the assessment years 2017-18 and 2018-19 and they are directed against the orders passed by Ld CIT(A)-51, Mumbai.

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4.2 The assessee is agitating following individual issues in AY 2018-19. (a) Salary paid in cash to employees (g) Cash transferred through Angadias

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(b) Relief granted in respect of addition relating to Corporate Guarantee Commission and (c) Relief granted in respect of addition relating to Cash income as per seized materials.

6.1 The first common issue relates to the addition made on account of alleged bogus purchases. Since the Ld CIT(A) has given partial relief, both the parties are in appeal before us on this issue. During the course of search proceedings, it was noticed that the assessee has purchased goods from M/s Saj Trading Company, M/s SPA Heights P Ltd and M/s Manohar Manak Alloys P Ltd. The revenue carried out enquiries from these parties either u/s 131 of the Act or by taking survey and search operations u/s 133A/132 of the Act. From the result of these investigations, the revenue came to the conclusion that these entities have provided only accommodation bills without actually supplying materials. In this regard, the AO placed reliance on the statements given by some of the suppliers and also statement given by the employees of the assessee concern. Accordingly, the AO disallowed entire purchases amount of Rs.32,53,94,174/- and Rs.22,61,11,767/- made from these parties respectively in AY 2017-18 and 2018-19.

6.2 In the appellate proceedings, the Ld CIT(A) restricted the addition to 6% of the value of above said purchases. The assessee is aggrieved with the decision of Ld CIT(A) in restricting the addition to 6% of value of alleged bogus purchases. The revenue is in appeal challenging the relief granted.

6.3 The Ld A.R submitted that the AO has disallowed the purchases presuming that they are bogus. In this regard, he has placed reliance on the statements given by some of the suppliers, financial profiles of suppliers, use

4 Viraj Profiles Limited of outstation vehicles for transportation of goods, survey findings of two parties. He also relied upon the statement given by an employee named Shri P. Nandakumar, who has stated that the various suppliers have given only bills to the assessee. However, the AO did not give credence to the enquiry conducted by DGCEI on identical allegations of providing accommodation bills and the examination by him with some of the suppliers. The DGCEI has given a finding that the assessee has actually procured the materials. The ld A.R further submitted that the AO himself has observed that the assessee could have procured materials from other sources and have got accommodation bills from these suppliers. This observation of the AO shows that the receipt of materials by the assessee was not doubted by him.

6.4 The Ld A.R further submitted the Ld CIT(A) held that the entire purchases could be disallowed only when the materials have not been received by the assessee. Accordingly the Ld CIT(A) has held that, if the assessee could prove the receipt of materials, then only the incremental gross profit should be added. The Ld CIT(A) further observed that the manufacturing loss disclosed by the assessee would prove whether the materials have been received or not, i..e, if the materials have not been actually received, the assessee would be showing more manufacturing loss in order to tally the quantity details. He submitted that the Ld CIT(A) has given a finding that the manufacturing loss declared by the assessee is within the prescribed limit of Standard Input Output Norms (SION) published by the DGFT, Government of India. The Ld CIT(A) also relied upon the findings of DGCEI, wherein it was found during the search conducted by them that the assessee has received materials from other parties, while the bills were issued by different parties. Under these set of facts, the Ld CIT(A) restricted the addition to 6% of the value of purchases in all the above said years.

6.5 The Ld A.R further submitted that the assessee has furnished all the details to prove the genuineness of purchases. He further submitted that the statement given by the employee was general in nature and not with regard

5 Viraj Profiles Limited to any specific bills and his statement has been denied by the CMD Shri Neeraj Raja Kochhar. He further submitted that the AO has also relied upon a statement given by a person named Shri Chandra Shekar Nair, which has later been retracted by him. Hence his statement cannot be relied upon. In any case, the above said person was not director in any of the suppliers concerns when he made the statement. He further submitted that the search team could not find any material to show that the cheque payments made towards alleged bogus purchases have been flowed back to the assessee in the form of cash. He further submitted that the Excise department, which examines the production details of the assessee, did not find fault with the books of accounts of the assessee. Accordingly, the Ld A.R contended that the entire disallowance made by the AO should have been deleted by the Ld CIT(A).

6.6 In the alternative, the Ld A.R submitted that the AO himself has observed that the assessee has received materials from one source and obtained bills from others. In this kind of situation, as observed by Ld CIT(A), only incremental profit should be added. He submitted that the incremental profit rate of 6% estimated by Ld CIT(A) is very much on the higher side. He submitted that the assessee has shown gross profit rate of 17% during these years and the said profit rate has been accepted by the Transfer pricing officer under Transactional Net Margin Method, since the said profit rate is at par with the rate of profit declared by the comparable companies. He submitted that, in the following cases, the Tribunal has restricted the addition to 2% of the value of purchases:- (a) Suman Gupta vs. ACIT (ITA No.4774/Mum/2014 dated 23.8.2017). In this case, this assessee was engaged in Steel business.

(b) Geolife Organis (ITA No.3699/Mum/2016 dated 05-05-2017). In this case, this assessee was engaged in metal business.

(c) Timex Art Decor P Ltd (ITA No.7293 & 7294/Mum/2017 dated 18- 10-2019).

6 Viraj Profiles Limited Accordingly, in the alternative, the assessee pleaded that the addition may be restricted to 2% of the value of purchases.

6.7 The Ld D.R, on the contrary, supported the orders passed by the assessing officer. He submitted that the Ld CIT(A) has relied upon the report given by DGCEI regarding consumption of materials, but did not examine the quantity details. He further submitted that the assessee has claimed that lorries registered in other states have been used for transportation of materials, which is not permitted. Hence transportation of materials has not been proved. The assessee has not furnished the details of octroi payments. Accordingly, he submitted that the purchases made from the accommodation bill providers cannot be said to have been proved by the assessee. Accordingly, he submitted that the AO has rightly disallowed entire amount of purchases and the same should be retained and the orders passed by Ld CIT(A) on this issue should be reversed.

6.8 In the rejoinder, the Ld A.R placed his reliance on his written submissions.

6.9 We have heard rival contentions on this issue and perused the record. The assessee is engaged in the business of manufacture and sale of Stainless Steel Products. In the manufacturing of products, the materials purchased by it is melted and converted into the finished products. In the case of trading of goods, the sales quantity could be reconciled with the purchase quantity. However, in the case of manufacturing of goods and when the raw materials is converted into other type of finished goods, the receipt of materials can be judged on comparing the manufacturing loss. The gross profit rate declared by the assessee vis-à-vis other comparable companies is another measure to judge the genuineness of purchases. If an assessee has introduced bogus bills without actually receiving the materials, then the natural tendency is to show higher manufacturing loss in order to adjust the quantity details and the same would result in showing lower gross profit rate.

7 Viraj Profiles Limited 6.10 The submissions made by the assessee with regard to the observations made by the AO are summarized below:- “a. The assessee has submitted the entire documentary evidences such invoices, purchase order, Goods receipt note, stock register showing receipt, bank statement, etc. to establish the genuineness of the purchases and no doubt raised by the AO. b. The acceptance of employee of Mr. P Nandkumar is general in nature without any reference to any material found during the search and the same was duly denied by the CMD Mr. Neeraj Raja Kocchar. c. Reliance on statement of one Mr. Chandra Shekhar Nair who allegedly was carrying out business of certain suppliers is incorrect since he was not a director in any of the said suppliers at the time of search and he has duly retracted the same before AO. Similarly, other suppliers have nowhere given clear statement that they are engaged in providing accommodation entry. d. No evidence of any cash payments/receipts were found at the premises of the suppliers as well as assessee. e. Allegation of use of outside state vehicle may be violation, of Motor Vehicle Rules; however, same has no bearing on income tax. f. Further, the suppliers were called for cross examination and all have confirmed to have supplied material before AO- para 12 of assessment order. g. Second layer investigation into supplier of supplier is not futile since it constitute hardly negligible part of total purchases made by the assessee's supplier. h. Material accepted from above parties accepted by excise from 2013 till 2018. i. Thus, the allegation of AO that parties are not genuine is incorrect. j. Further, it is submitted that the entire raw material has been actually received by the assessee and the same has been consumed by the assessee for manufacturing purpose. Details of the consumption have been duly submitted before AO during assessment proceedings. The manufactured goods have been further exported by the assessee. The assessee has submitted the entire evidence to support the receipt of material, consumption of the same and its output which has been exported. Further, the assessee has also submitted the input output ratio wherein the average manufacturing/burning loss in respect of main product 'billets' is 7.14% as against standard of 10% prescribed by DGFT. The same is placed at page no. 75 of the paperbook. AO has mechanically rejected the same on the ground that no one to one

8 Viraj Profiles Limited correlation has been submitted by the assessee. It is important to note that in assessee's business where measurement of input and output units is same, the extent of use of raw material can be seen from the quantitative chart showing purchase of raw material and its consumption without going into one to one correlation. Therefore, in such case, input output ratio needs to be accepted. k. Accordingly, the receipt of material and its consumption in the manufacture cannot be doubted. This is more-so when the AO has himself stated that the material has been received by the assessee from open market in para 17 of the assessment order. l. Further it is also submitted that the majority of the suppliers have appears before the Id, AO and confirmed that they have supplied the material to the appellant. m. Further, we also rely on the findings of the DGCEI in the assessee's own case wherein after extensive search, they have concluded that the material has been duly received by the assessee. Kindly refer to conclusion of the DGCEI at page 136 of the C1T (A) order. n. Thus, it is submitted that assessee has duly purchased material from the suppliers. It is possible that the suppliers have themselves procured the material from open market and the same has been supplied to assessee. However, the said fact cannot lead to a conclusion that the purchases are bogus.”

6.11 We notice that the AO himself has observed at paragraph 17 of the assessment order that the purchases have been made from open market against the bills obtained from entry providers. We also notice that the assessee has furnished all the relevant documents to prove the purchases, which are narrated in point (a) in the preceding paragraph. As observed earlier, the manufacturing loss declared by the assessee is a relevant factor to determine whether the assessee has received materials or not. We notice that the Ld CIT(A) has given a finding that the manufacturing loss declared by the assessee was within the prescribed limit of SION published by DGFT, Government of India. We also notice that the DGCEI has also conducted search in order to find out whether the assessee has actually received material against the alleged accommodation bills and he has given his opinion that the materials have been received.

9 Viraj Profiles Limited 6.12 We notice that the assessee has furnished gross profit rate chart before Ld CIT(A) as under:-

A.Y G.P rate 2013-14 17.47% 2014-15 17.37% 2015-16 17.43% 2016-17 18.80% 2017-18 17.77% 2018-19 17.16% The average rate of gross profit declared by the assessee is more than 17%, which was stated to be more than the industry average. The Ld A.R submitted that the above said contention is evidenced by the Transfer Pricing Study conducted by the assessee, wherein the international transactions have been bench marked under TNM method. It is stated that the Transfer pricing officer has accepted the T.P study, meaning thereby, the TPO has accepted the gross profit margin of the assessee to be at par or more than the industry average. Under these set of facts, we are of the view that the Ld CIT(A) was justified in holding that the assessee has actually received materials and hence disallowance of entire amount of purchases is not justified. When the receipt of materials is accepted, the AO’s reliance on the statements given by the suppliers or employee/other persons shall become insignificant.

6.13 We notice that the Ld CIT(A), having held so, has proceeded to hold that the assessee would have made profits in purchasing materials from other suppliers. In this regard, the Ld CIT(A) has taken support from the decision rendered by Hon’ble jurisdictional Bombay High Court rendered in the case of Rishabhdev Technocable Ltd (2020)(115 taxmann.com 333)(Bom), wherein it was held by the High Court that in a case where the parties from 10 Viraj Profiles Limited whom such purchases allegedly made were bogus but the purchases in themselves were not bogus, only a gross profit ratio could be added to the income of an assessee. We notice that the Ld CIT(A) has estimated the said incremental profit @ 6% of the value of purchases, but did not give any basis for arriving at the above said rate of 6%.

6.14 It is the contention of the assessee that, in the facts and circumstances of the case, no disallowance of purchases is warranted, since the manufacturing loss and the gross profit rate declared by the assessee compares well with industry standards. The assessee itself, in the alternative, has submitted that the addition towards incremental gross profit may be restricted to 2% of the value of purchases. In support of this contention, the Ld A.R also relied upon certain case laws (referred supra).

6.15 We find merit in the said contentions under the facts of the present case. We noticed earlier that the manufacturing loss declared by the assessee was less than the SION standards prescribed by DGFT. The gross profit rate declared by the assessee was more than the industry average. Hence, in the normal circumstances, no disallowance of purchases is called for. However, since some of the suppliers have stated that they have not supplied the materials and since the AO & DGCEI has opined that the assessee might have procured materials from others, it is possible that the assessee could have made some profit in such an exercise. Hence, in order to take care of revenue leakages, if any, some addition is called for. We notice that the addition has been restricted to 2% in the following cases:-

(a) Suman Gupta vs. ACIT (ITA No.4774/Mum/2014 dated 23.8.2017). In this case, this assessee was engaged in Steel business.

(b) Geolife Organis (ITA No.3699/Mum/2016 dated 05-05-2017). In this case, this assessee was engaged in metal business.

(c) Timex Art Décor P Ltd (ITA No.7293 & 7294/Mum/2017 dated 18- 10-2019).

11 Viraj Profiles Limited Accordingly, we modify the order passed by Ld CIT(A) in all these years and direct the AO to restrict the addition on account of non-genuine purchases to 2% of the value of alleged bogus purchases in both the years under consideration.

7.1 The assessee had provided Corporate Guarantee to its Associated Enterprises for the loan taken by them. The assessee contended before TPO that the same is a Share holder activity and hence it cannot be considered as an International Transaction. The TPO did not accept the contentions of the assessee. By considering the rate of commission charged by State Bank of India, the TPO made transfer pricing adjustment @ 1.50% of the Guarantee amount given by the assessee.

7.2 The ld CIT(A) noticed that an identical TP adjustment made in the assessee’s own case in AY 2010-11 has been adjudicated by the Tribunal and the Guarantee Commission was restricted to 0.50% by following the decision rendered by the Hon’ble Bombay High Court in the case of Everst Canto Cylinders Ltd (2015)(58 taxmann.com 254; 378 ITR 57)(Bom). Following the said order, the Ld CIT(A) directed the AO to restrict the Commission on Corporate Guarantee given by the assessee @ 0.50% of actual value of loan taken by the Associated Enterprises. Both the parties are aggrieved. While the assessee seeks further reduction, the revenue contends that the guarantee commission should be retained @ 1.50%.

7.3 We have heard rival contentions on this issue and perused the record. We notice that the co-ordinate bench of Tribunal has examined an identical issue in the assessee’s own case in AY 2010-11 and the Tribunal has restricted the rate of commission at 0.50% of the value of loan actually

12 Viraj Profiles Limited availed by the Associated Enterprises. In this regard, the Tribunal has followed the decision rendered by the jurisdictional Hon’ble Bombay High Court in the case of Everest Canto Cylinders Ltd (supra). Since the decision rendered by Ld CIT(A) on this issue is covered by the decision rendered by the jurisdictional High Court and the Tribunal, we do not find any reason to interfere with the decision so taken by Ld CIT(A) on this issue. Accordingly we uphold the same in both the years.

8.1 The facts relating to the above said issue are discussed in brief. The search officials seized certain documents from the H R consultant of the assessee company named Shri Shilan Thaker. The said documents contained receipts and payments for the period from November, 2016 to May, 2017 relating to the business activities of the assessee. The aggregate amount of receipts/payments was Rs.13.08 crores. The assessing officer assessed the above said amount as unexplained income u/s 69A of the Act in the two assessment years as mentioned below:- A Y 2017-18 - Rs. 8,87,52,956 A Y 2018-19 - Rs. 4,20,49,000 ------------------------- Total - Rs.13,08,01,956 ================= Since the entire receipts were assessed as income of the assessee, the AO did not make any separate addition for the payments of equal amounts except for the payments made in March, 2017. The AO noticed that, in March, 2017, the aggregate cash payments was Rs.1,65,25,561/-, while the aggregate cash receipts was Rs.1,26,02,176/-, which resulted in excess payments over receipts amounting to Rs.39,23,385/-. Hence the assessing officer assessed the deficit amount of Rs.39,23,385/- as income of the assessee in AY 2017- 18. We shall deal with this addition in the ensuing paragraphs.

13 Viraj Profiles Limited 8.2 The Ld CIT(A) granted partial relief to the assessee in respect of addition of Rs.13.08 crores, i.e., he noticed that there are receipts and payments from/to the same person and hence he held that only net amount of the transactions entered with particular person should be assessed as income. The details of relief granted by the Ld CIT(A) is tabulated below:-

Sr.No. Name of persons AY 2017-18 AY 2018-19 1 Rajvilas 2,06,500 - 2 Contractors 1,33,00,000 42,05,000 3 H O Kumar 11,00,000 20,00,000 Total 1,46,01,500 62,05,000 The revenue is challenging the above said relief granted to the assessee by Ld CIT(A) in both the years. In addition to the above, the Ld CIT(A) noticed that the director Shri Neeraj Raja Kochhar has offered a sum of Rs.96.00 lakhs as undisclosed cash income in his return of income. The Ld CIT(A) gave set off of the same also. This relief is not being challenged by the revenue. The assessee is seeking further relief in respect of this addition.

8.3 The Ld A.R submitted that the impugned seized documents is not corroborated with any evidence and hence, in effect, it is in the nature of dumb document. However, the assessee has agreed to offer the income shown in the noting made in the seized document. He submitted that the entries found in the document consisted of items of revenue nature as well as capital nature. For example, the payments made to/received from Contractors and other individual persons are transactions with certain individuals and they cannot be considered as revenue items. The receipts shown as Mil scale sale, other sale, mil sale adv are revenue receipts. The payments also contain transactions which are both capital and revenue nature. However, entire receipts have been assessed to tax without classifying them into revenue receipts and capital receipts. The Ld A.R

14 Viraj Profiles Limited further submitted that it is quite possible that some of entries might have already been accounted for in the books of accounts, since these are in the nature of kachha entries. Since the verification of the above said claims would require long drawn process, the assessee has accepted the noting as unexplained income in order to buy peace from the department and to avoid protracted litigation.

8.4 He submitted that the Ld CIT(A), while examining the contents of the documents, has noticed that there were receipts and payments with the same persons. Accordingly, the Ld CIT(A) has accepted the plea of the assessee that, only the net receipts shown against a person should be considered as unexplained income, since the receipt from him should be considered as having funded by the payments made to him/vice versa. He submitted that the Ld CIT(A) has identified receipts/payments with three persons, as mentioned in the table above and granted relief to the assessee. Accordingly, the Ld A.R contended that the relief so granted by the Ld CIT(A) was justified. He further submitted that the Ld CIT(A) has omitted to give identical relief in respect of cash paid/received from Shri Shilan. He submitted that the assessee would be entitled for further relief of Rs.5.00 lakhs against the transactions entered in the name of Shri Shilan.

8.5 The Ld A.R further contended that the seized document contains both revenue receipts and revenue expenditure. In that case, only net income out of such receipts/payments should have been assessed to tax. However, the tax authorities have taxed entire revenue receipts ignoring revenue expenses. He submitted that the seized document is not corroborated with any evidence. Since both the revenue receipts and expenses are not supported by any other evidences, the Ld A.R contended that only net income out of those receipts/expenses should be assessed. Accordingly, the Ld A.R contended that the revenue expenses noted in the documents should be deducted from the addition sustained by Ld CIT(A).

15 Viraj Profiles Limited 8.6 The Ld A.R further submitted that the assessee would be entitled for telescoping benefit of the addition made towards alleged bogus purchases against the addition made on the basis of seized documents. He submitted that the assessing officer has disallowed entire amount of alleged bogus purchases, which has been reduced to 6% of the value of purchases by the Ld CIT(A). He submitted that the case of Ld CIT(A) is that the assessee has purchased goods from one source and obtained bills from another source. Accordingly, it has been presumed that the assessee would have made profits under this process, which has been estimated @ 6% of the value of purchases by Ld CIT(A). He submitted that the profit so estimated would result in generation of cash by the assessee out of the alleged bogus purchases and hence the same would be available as source for the cash receipts shown in the seized document. He submitted that the assessee has challenged the profit rate of 6% and the addition, if any, that may be sustained by the Tribunal should be telescoped against the cash receipts shown in the document. Accordingly, he prayed that the addition sustained by the Tribunal out of purchases be telescoped against this addition, which will result in further reduction of this addition.

8.7 The Ld D.R, on the contrary, submitted that the assessee has accepted that the noting made in the seized documents are related to unaccounted transactions and hence the ld CIT(A) was not justified in granting relief to the assessee. The Ld D.R also opposed the telescoping benefit sought by Ld A.R and submitted that there is no evidence to show that the bogus purchases are included in the receipts shown in the seized documents.

8.8 We heard rival contentions and perused the record. We extract below the details of receipts and payments, as tabulated by the AO in the assessment order:-

16 Viraj Profiles Limited Cash Received (Income) Name Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Total

Mil Scale Sale 39,08,905 21,03,415 48,76,805 85,78,209 23,70,720 23,96,018 19,99,084 2,62,33,156

Other Sale 17,297 5,41,500 82,080 13,41,413 2,01,456 34,800 1,91,400 24,09,946 Mil Sale _ 57,16,426 52,64,120 1,09,80,546 Adv/Mukesh HO Kumar 3,00,000 28,00,000 45.00,000 59,00,000 1,56,00,000 2,91,00,000

Against Contractor 9,00,000 15,00,000 53,70.000 55,30,000 27,15,000 14,90,000 1,75,05,000

Against (Kapil) AC 3,50,000 _ 3,50,000 Food Court 2,08,156 4,90,285 2,51,867 9,50,308 Rajvlllas 4,17,64,000 4,17,64,000 39264000+2500000 Kestrol Aviation 5,69,000 5,69,000 Shiian G 1 Cash Received 5,00,000 5,00,000 from Shilan Returnable Hemant Jindal from 1,80.000 1,80,000 CMO Cover Other Received 1,60,000 1.60,000 (bhave : Darshan] Suresh Lodha 1,00,000 1,00,000 Against Loan 25L

Total 4,77,07358 38,94,915 64,58,885 1,80,89,622 1,26,02,176 1,72,52,529 2,47,96,471 13,08,01,956

Cash (Expense) Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Total

Rajvilas paid 2,06,500 14,00,000 26,00,000 83,70,000 37,20,000 15,80,000 23,00,000 2,01,76,500 suman/cmd

Excise 10,24,500 49,27,150 38,79,080 61,03,700 1,62,01,600 3,21,36,030

Bertz 2,00,000 19,00,000 21,00,000

Vashnav Mega 10,00,000 9,50,000 6,00,000 25,50,000 adv/Refundable Amt RK-SLIP 14,00,000 14,00,000

Anna Shankhe 30,00,000 10,00,000 25,00,000 45,00,000 1,10,00,000 Wall Compound Maan 10,00,000 10,00,000 HO Kumar Adv 11,00,000 20,00,000 31,00,000 Insurance Shilan 6,00,000 6,00,000 17 Viraj Profiles Limited MIDC Road 15,00,000 10,00,000 12,50,000 37,50,000 JNPT 9,25,000 9,25,000

Other Expenses 6,52,838 15,44,915 2,58,885 11,92,472 5,26,481 9,69,528 17,05,787 68,50,906

Six Month gift Cover 41,25,000 41,25,000 Chandan Jha (Loan) 4,00,000 4,00,000 Diwali Laddu maker 2,75,000 2,75,000

JNPT Ravi Advance 20,00,000 20,00,000 Petty account/RTO Vishwa Enterprises 5,44,394 5,44,394

Contractor Advance 3,08,00,000 3,08,00,000

Sales Team incentive 17,80,600 17,80,600 (april to sept 16) Monthly cash salary 13,63,109 13,61,109 oct 2016 Monthly cash salary 1,00,000 1,00,000 Nov 2016 anuj Old requirement paid 25,85,417 25,85,417

RD Sodani (40000) 6,50,000 6,50,000 Chawala (25000) JP Garg against 20 4,90,000 4,90,000 LAC Anuj Jain against 5 lac 1,00,000 1,00,000 Dec to March Total 4,77,07,358 38,94,915 64,58,885 1,80,89,622 1,65,25,561 1,53,28,228 2,22,07,387 13,08,01,956 8.9 On a perusal of the above said table, we notice that the assessing officer has assessed the entire cash receipts aggregating to Rs.13,08,01,956/- in assessment years 2017-18 and 2018-19. In principle, the assessee has also accepted the same, even though this statement was not corroborated with any other evidences. We noticed earlier that the above said receipts and payments consisted of both capital items and revenue items.

8.10 We noticed that the assessee has agreed to offer entire receipts as its income. According to ld A.R, the offer was so made in order to buy peace and avoid litigation. The principle of taxation requires that the income component alone can be brought to tax under the authority of law. We noticed that the assessee has made a plea before Ld CIT(A) in respect of this addition, i.e., the 18 Viraj Profiles Limited assessee has claimed that the receipts and payments recorded against the name of a person should be netted off. We noticed that the Ld CIT(A) has accepted the above said contentions of the assessee and accordingly given following relief in both the years:-

Sr.No. Particulars of receipts AY 2017-18 AY 2018-19 1 Rajvilas 2,06,500 - 2 Contractors 1,33,00,000 42,05,000 3 H O Kumar 11,00,000 20,00,000 Total 1,46,01,500 62,05,000 The revenue is challenging the relief so granted by the Ld CIT(A). The Ld A.R, however, seeks further relief against the receipts and payments mentioned in the name of Mr. Shilan.

8.11 We noticed earlier that this addition has been made on the basis of a piece of paper and the assessee has accepted the entries made therein. It is also not the case of the revenue that the entries noted down in the seized papers are supported by any other evidence. In the said document, some of the entries of receipts and payments have been recorded against the very same name. Since the document contains receipts and payments against the name of very same persons, it is quite possible that what was received earlier has been returned back subsequently or what was given earlier has been received back subsequently. When there is circulation of cash with the same person, in our view, there is merit in the contention of the assessee that only net amount out of the receipts/payments noted against a particular person should be treated as income of the assessee. Accordingly, we agree with the view taken by Ld CIT(A) that only the net amount should be considered as undisclosed income. Accordingly, Ld CIT(A) was justified in granting netting off benefit against the three persons mentioned in the table above.

19 Viraj Profiles Limited 8.12 We noticed that there are receipts and payments noted against the name of “Shilan”. The impugned document was seized from his chamber only. We notice that a sum of Rs.5.00 lakhs has been received in November, 2016 with the noting “cash received from Shilan Returnable”. We also notice that a sum of Rs.6.00 lakhs has been paid to Shilan with the noting “Insurance Shalin” in March, 2017. In our view, above said receipt of Rs.5.00 lakhs can be set off against the payment of Rs.6.00 lakhs, since both the receipts & payments are in the name of Shalin only. Accordingly, we are of the view that a further relief of Rs.5.00 lakhs should be granted in respect of this addition made in AY 2017-18. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to allow further deduction of Rs.5.00 lakhs in AY 2017-18.

8.13 The next plea of the Ld A.R is that the revenue expenses should be reduced from this disallowance. We notice that this document contains following items, which are revenue in nature:-

Revenue Receipts AY 2017-18 AY 2018-19 Mill Scale Sale 2,18,38,054 43,95,102 Other sale 21,83,746 2,26,200 Mil Sale Advance --- 1,09,80,546 TOTAL RECEIPTS 2,40,21,800 1,56,01,848

Revenue Expenses Other Expenses 41,75,591 26,75,315 Six month Gift Cover 41,25,000 Diwali Laddu Maker 2,75,000 Sales team incentive 17,80,600 Monthly cash salary 13,63,109 Monthly Cash Salary 1,00,000 TOTAL EXPENSES 1,18,19,300 26,75,315 The Ld A.R has contended that what could be taxed is the income, found in the seized document. In our view, if the revenue receipts and revenue expenditure disclosed in the seized document have not been accounted for in the books of account, then what could be taxed is the net income arising

20 Viraj Profiles Limited after deducting revenue expenditure from the revenue income, since only income element is taxable under the Act.

8.14 Accordingly, we find merit in the contentions of the Ld A.R. Since both revenue income and expenditure has been stated to have been done outside the books, it is justifiable to assess only the “net income” arising from these entries. We notice that the entire revenue receipts have already been taxed. Now what is required to be done is to deduct the revenue expenses from the income already assessed. We have noticed and listed out in an earlier paragraph that the revenue expenses relating to AY 2017-18 and 2018-19 are Rs.1,18,19,300/- and Rs.26,75,315/- respectively. We also notice that the aggregate amount of expenses in each year is more than the revenue receipts of that year. Accordingly, we are of the view that the above said expenditure should be deducted from the revenue receipts and only net revenue income should be taxed. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction of Rs.1,18,19,300/- and Rs.26,75,315/- respectively in Asst. Years 2017-18 and 2018-99 against the addition made on the basis of seized document.

8.15 The next claim of the Ld A.R is that the additions made on account of profits made in the alleged bogus purchases would result in generation of cash and hence the same shall constitute source for the receipts shown in the document. Accordingly, he prayed that the additions sustained on account of alleged bogus purchases should be telescoped against the addition made on account of receipts shown in the seized document.

8.16 In our view, the above said claim of the assessee is justified on the principle that same income cannot be taxed twice. The profit element assessed on account of alleged bogus purchases would result in generation of cash and the same should fund the receipts shown in the seized document. Accordingly, there is merit in the claim of the assessee that the said addition

21 Viraj Profiles Limited should be given set off against the receipts noted in the seized document. We notice that the addition in respect of alleged bogus purchases has been sustained by the Tribunal @ 2% of the value of purchases. The amounts of addition so sustained in various years are detailed below:- Assessment year Amount 2014-15 1,48,96,018 2015-16 73,70,867 2016-17 30,60,735 2017-18 65,07,883 ---------------- 3,18,35,503 =========== 2018-19 45,22,235 =========== In our view, the assessee is entitled for deduction of above said amount against the addition made on the basis of seized document in both the years, since the same constitutes source for the receipts shown in the seized document. Accordingly, we modify the order passed by Ld CIT(A) and direct the AO to allow deduction of Rs.3,18,35,503/- in AY 2017-18 and Rs.45,22,235/- in AY 2018-19 by way of telescoping benefit.

8.17 Accordingly, the addition made on the basis of seized document should be reduced by further amount of Rs.5.00 lakhs on account of rotation funds in the name of Shilan in AY 2017-18, revenue expenses quantified for both the years (supra) and addition made towards alleged bogus purchases mentioned above in both the years. We order accordingly.

22 Viraj Profiles Limited

Name of Person AY 2017-18 AY 2018-19 Sangitha Jain (wife of Shri Ramkumar Jain, CFO) 10,00,000 19,75,000 Shubam Jain (D/o Ramkumar Jain, CFO) 9,00,000 9,90,000 -------------- -------------- 19,00,000 29,65,000 ========== ========== We notice that an identical addition was made in respect of salary paid to Smt Ramita Jain (another daughter) and Smt Sangitha Jain (wife) by the AO in AY 2014-15 and 2015-16 and the same was deleted by the Tribunal with the following observations:-

“7.6 At the same time, we notice that Ms Ramita Jain is a qualified engineer. She is running her own concern providing financial consultancy. Smt Sangitha Jain also could explain the certain services rendered by her to the assessee company. Hence, disallowance of entire payments is not justified.

7.7 This issue could be looked from another angle. The AO has also stated that the salary payable to Shri Raman Kumar Jain has been split and paid to Ms Ramita Jain and Mrs Sangitha Jain in order to reduce the tax liability in the hands of Shri Raman Kumar Jain. If the payments made to both Ms Ramita Jain and Mrs Sangitha Jain were considered as part of salary payment to Shri Raman Kumar Jain, then such payments should be considered as having been incurred for the purposes of business only, i.e., all the payments, if clubbed with the salary payable to Shri Raman Kumar Jain, is allowable as business expenditure. Hence, we do not find any necessity to disallow the professional payments booked in the names of Ms Ramita Jain and Mrs Sangitha Jain. Accordingly, we set aside the orders passed by Ld CIT(A) in respect of disallowances of professional fee paid to Ms Ramita Jain and Mrs Sangitha Jain and direct the AO to allow the expenses in all the years under consideration.”

In the two years under consideration, the salary has been paid to Smt Sangitha Jain and Ms Shubam Jain. It is noticed that Ms Shubam Jain is providing IT consultancy services. The addition has been made by the AO for identical reasons. Hence, we are of the view that the decision rendered by us in AY 2014-15 and 2015-16 would apply to these years also. Accordingly, following the above said decision taken in AY 2014-15 and 2015-16, we set

23 Viraj Profiles Limited aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition in both the years under consideration.

11.1 We heard the parties on this issue and perused the record. The Ld A.R submitted that the above said payment has been included in the expenditure of Rs.13.08 crores mentioned in another seized document. He submitted that the payments mentioned as “MIDC Road” “contractors” and “other expenses” may include the above said amount of Rs.15.00 lakhs. We noticed earlier that the assessee has paid Rs.10.00 lakhs in January, 2017 and Rs.5.00 lakhs in March, 2017. From the seized document, we notice that the payments to “contractors” and “MIDC Road” were not made in January, 2017 and March, 2017. The payment towards other expenses was Rs.2,58,885/- in January, 2017 and Rs.17,05,787/- in March, 2017. Hence the amount of Rs.10.00 lakhs noted to have been paid in January, 2017 cannot be said to have been included in the seized document. Under the same principle, we are of the view that it cannot be inferred that the amount of Rs.5.00 lakhs was also included in that document. Accordingly, we do not find any merit in the contentions of the assessee. Accordingly, we confirm the addition of Rs.15.00 lakhs made towards payment of royalty u/s 69C of the Act as unexplained expenditure.

24 Viraj Profiles Limited

12.1 It is the contention of the assessee that the seized document contained certain receipts and payments relating to November, 2016 to May, 2017. It is submitted that it was an abstract statement, which did not contain the opening and closing cash balance. It has not been prepared on the basis of any books of accounts. He submitted that the aggregate receipts and payments for the entire period tallies with each other. He submitted that the deficit noted down by the AO in March, 2017 is offset by surplus cash shown in the immediately succeeding months of April and May, 2017. Accordingly, the ld A.R contended that the person who prepared this document might have committed mistake in making entries in the statement or there may be typographical errors.

12.2 We heard ld D.R and perused the record. The AO has made this addition on the basis of the seized document, which contained monthly receipts and payments. The said document contained transactions pertaining to November, 2016 to May, 2017. It is seen that the aggregate amount of receipts of Rs.13.08 crores was equivalent to the aggregate amount of payments. This statement is not based on any regular books of accounts maintained as per accounting principles. Hence there is merit in the submissions of the Ld A.R that overall picture should be considered. We also find merit in the submissions that there may be mistakes in making entries in the months of March, 2017 to May, 2017, i.e., it may be due to clerical or 25 Viraj Profiles Limited typographical mistakes. Accordingly, we are of the view that the AO was not justified in making addition on the basis of uncorroborated seized document. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition.

13.1 One of the search materials seized contained details of salary paid to certain employees by way of cash. The same is enclosed in page 192 of the paper book. The employees are Shri Sureshchandra Lodha, Shri Anuj Jain, Shri Jitendra Garg and Shri Radha Ballabh Sodhani. The said document was confronted with Shri Neeraj Raja Kochhar, wherein he accepted that certain portion of salary is paid in cash. Accordingly, the AO made addition of Rs.64,80,000/- on the basis of the search material in AY 2018-19 u/s 69C of the Act. The Ld CIT(A) confirmed the same.

13.2 The contentions of the assessee in this regard are summarized below:- (a) The said document is a sheet prepared containing the proposal prepared by HR department for promotion of various employees of the company in near future. In support of this submission, the Ld A.R placed reliance on the heading for the various columns, which inter alia includes following headings:-

(i) Existing designation (ii) Proposed designation

Accordingly, he submitted that the Excel sheet has been prepared for discussion purposes and it does not indicate that the cash payments have actually been made.

(b) The assessee company is employing 4000 to 5000 employees and how a CMD could remember immediately to the above said proposal

26 Viraj Profiles Limited without verifying records. Hence, the statement given by him should not be the basis for making the addition.

(c) The search officials have recorded statements from employees, viz., Shri Jitendra Pratap Garg, Shri Radha Ballabh sodhani and Shri Suresh Lodha. All of them have denied receipt of any portion of salary in cash.

(d) Hence it is not possible to come to the conclusion that any amount mentioned in the seized document was paid by way of cash warranting an addition u/s 69C of the Act.

13.3 We heard Ld DR on this issue and perused the record. We notice that the impugned document is an Excel sheet taken from a computer. The heading of the columns, as pointed by ld A.R, inter alia, includes headings “Existing Designation” and “Proposed Designation”. These two columns support the contention of the assessee that this sheet is proposal for the discussion by HR department of the assessee company. Though, it contains heading of “Total expenses, Gross, Cash, CTC”, in our view, it cannot be conclusively concluded that the amount shown as “cash” was actually paid by the assessee during the year under consideration. We also notice that the department has taken statements on oath from three of the four employees and all of them have denied having received any cash. We notice that the AO has also placed reliance on the statement given by CMD Shri Neeraj Raja Kochhar. We noticed that the Ld A.R has submitted that the CMD could not have remembered the transactions immediately, since there are 4000 to 5000 employees are employed. Hence, we are of the view that the AO could not have placed reliance on the above said statement for making any addition without bringing any other material on record to support his case that the cash was actually paid as stated in the Statement. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition made in AY 2018-19.

27 Viraj Profiles Limited through Angadias. It consists of two items, viz., domestic transfer of funds amounting to Rs.2.00 crores and transfer of funds abroad amounting to Rs.29,40,000/-.

14.1 We shall first take up the addition relating to Rs.2.00 crores. During the course of search, the Whatsapp messages from the personal mobile phone of Shri P Nandakumar (Senior Purchase manager of the assessee company) were examined and it contained messages for transfer of funds through angadias. In the statement taken from Shri P Nandakumar, he admitted that a total sum of Rs.2.00 crores have been transferred through hawala channels from February, 2017 to till date. Another statement was taken from Shri Anant Ravji Dabholkar, the officer working under Shri P Nandakumar was recorded, who also admitted that he has handled unaccounted cash. The assessee submitted that the above said amount of Rs.2.00 crores is part of the transactions recorded in another seized document relating to Rs.13.08 crores, which was added by the AO. However, the said explanation of the assessee was rejected by the AO. Accordingly, the AO came to the conclusion that the above said amount of Rs.2.00 crores is related to the income outside the books of accounts and added the same to the total income of the assessee. The ld CIT(A) also confirmed the same.

14.2 The Ld A.R reiterated that the above said amount of Rs.2.00 crores forms part of Rs.13.08 crores and hence there was no requirement to make separate addition again. He submitted that the amount of Rs.13.08 crores includes the amount received from “Rajvilas”, which is residence of CMD. The total amount received from Rajvilas was Rs.4,17,64,000/- and paid to Rajvilas is Rs.2,01,76,500/-. The total payment is equivalent to the amount of Rs.2.00 crores stated to have been transferred through hawala angadias. Accordingly, he submitted that there is no requirement of making any separate addition of Rs.2.00 crores.

28 Viraj Profiles Limited 14.3 The Ld D.R, on the contrary, submitted that the AO has stated that the amount of Rs.2.00 crores does not form part of Rs.13.08 crores.

14.4 We heard rival contentions and perused the record. We notice that the basis of making the addition of Rs.2.00 crores is the whatsapp messages found in the phone of one of the employees. He has stated that he has transferred funds through hawala angadias during the period from February, 2017 to till the date of search on 13.07.2017. In this regard, the CMD Shri Kochar was questioned and he has replied that this amount has already been included in the amount of Rs.13.08 crores, which has already been offered for taxation. The very same explanation was also furnished during the course of assessment proceedings. Before us also, the ld A.R reiterated the very same facts and he also submitted that the amount received and paid from/to “Rajvilas” would include the above said amount of Rs.2.00 crores.

14.5 We notice that the addition of Rs.13.08 crores has been made on the basis of uncorroborated document, but which was surrendered by the assessee. The impugned addition of Rs.2.00 crores has been on the basis of whatsapp messages found in the phone of an employee, but no corroborative evidences were found that the messages were actually acted upon. Thus both the additions are based on two different documents, which do not have any base/support. We notice that the CMD has, from the beginning, has mentioned that the amount of Rs.2.00 crores forms part of Rs.13.08 crores offered by him. We notice the AO has rejected the same on the reasoning that specific whatsapp entries did not find place in the seized document. We have earlier extracted the seized document, wherein the payments made to “Rajvilas” have been noted down. It is not mentioned as to how the money so given was used. It is the submission of the assessee the payment so made would include the amount of Rs.2.00 crores. Hence, it is possible to infer that the cash transactions stated in the seized document and whatsapp messages are one and the same. We also notice that there is no other

29 Viraj Profiles Limited material available to prove that the above said explanation is not correct. Accordingly, in the facts and circumstances of the case, we are of the view that the above said explanation of the assessee merits acceptance.

14.6 In order to substantiate the above said contentions, the Ld A.R has also furnished a reconciliation statement reconciling the “payments recorded in the name of Rajvilas with the whatsapp messages relating to hawala transfers as under:-

Month Rajvilas Cash Hawala transfer Total cash balance as per statement available of P Nandakumar Opening balance 40,00,000 40,00,000 considering (14,00,000 + notings for earlier 26,00,000) months Feb 17 83,70,000 20,00,000 1,03,70,000 Mar 17 37,20,000 20,00,000 1,20,90,000 April 17 15,80,000 46,50,000 90,20,000 May 17 23,00,000 22,00,000 91,20,000 June 17 91,50,000 (-)30,000 Thus, there is a shortage of Rs.30,000/- only, which may be part of some other payments recorded in the seized document. Accordingly, we are of the view that this amount of Rs.2.00 crores forms part of the amount of Rs.13.08 crores stated in the seized document and hence no separate addition is required to be made. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition of Rs.2.00 crores.

30 Viraj Profiles Limited 15.1 The Ld A.R contended as under:-

(a) Shri Nandakumar has stated that Shri Amit Mehra requested him to facilitate transfer of 35000 pounds to London. He has stated that the transaction was done through Angadias by Shri Anand Dabolkar.

(b) Shri Anand Dabolkar has stated that he has made only enquiries with the angadias for the transfer of funds as told by Shri Nandakumar, but he did not actually transfer funds.

(c) Shri Amit mehra has stated in his statement that he has made only enquiries for the transfer of funds, but did not transfer funds.

(d) Shri Neeraj Raja kochchar, CMD has also denied the transactions.

(e) It is contended that no other evidence in support of the whatsapp message was found during the course of search.

(f) There is no material to link these transactions with the assessee company. At the most, it is a private messages between Shri Nandakumar and Shri Amit Mehra. Hence the AO was not justified in making addition for unexecuted transaction in the hands of the assessee company.

15.2 The Ld D.R, on the contrary, supported the order passed by Ld CIT(A) on this issue.

15.3 We heard the parties on this issue and perused the record. First of all, we notice that this addition has been made on the basis of whatsapp messages exchanged between an employee of the assessee company and Shri Amit Mehra. Secondly, both the employees of the assessee company, Shri Amit Mehra and Shri Neeraj Raja Kochchar, i.e., all the concerned persons have denied the execution of the transaction. Thirdly, in the said messages, it is nowhere mentioned that funds of the assessee company are involved in the transactions. All these factors cumulatively show that the assessee cannot be involved/implicated in respect of this transaction merely on the reasoning that the whatsapp messages are between the employee of assessee company

31 Viraj Profiles Limited and Shri Amit Mehra, son in law of CMD. As submitted by Ld A.R, it could be a private and independent transaction, unconnected with the assessee company. Accordingly, we are of the view that the AO could not have made this addition without bringing any material on record to show that the assessee company’s funds have been used for execution of this transaction and further the transaction has actually been executed. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition made u/s 69C of the Act.

Pronounced in the open court on 24.5.2023.