DCIT CENTRAL CIRCLE 2, TUTICORIN vs. VVD & SONS (P) LIMITED, TUTICORIN

O R D E R

PER V. DURGA RAO, JUDICIAL MEMBER:

1. The order of the ld.CIT(A) is contrary to the provisions of the Income Tax Act, Rules and facts of the case.

2. The CIT(A) has deleted the additions made by the Assessing Officer under the head special salary, additional salary, management salary, special management salary, sworn statement given by the commission etc. The learned CIT(A) failed to note the Executive Director, D Kabilan, one of the Directors on 17.11.2015.

3. (a) The learned CIT(A) deleted the additions made to the contractors on the ground that they are labourers and TDS deduction is not applicable to such payments. The seized materials verification reveal that the payments were made under salary head and not under contract head. Further from the verification of the materials it is observed that the EPF deduction is made to the labourers who are working under the contractors. Mere coverage of staff of the contractors under EPF does enable them to claim as labourers. (b) The learned CIT(A) has erred in disallowing the addition by subscribing to the views of the representative that they are labourers having regular PF subscription and for the convenience the payment is made through head labourers. It is pertinent to note that during the course of search proceedings, Shri S Murugesan, Accountant 3 & C.O. Nos. 132-133/Chny/18 has categorically deposed that entire sum was paid to the respective contractors were given payment through bearer cheques, without effecting TDS. The assessee's claim that the labours are enrolled for EPF and payments routed through head labourers and which fall within the purview of TDS provision does not have any merits.

4. The learned CIT(A) has deleted the addition on the ground that the payment for purchase made through RTGS and the AO has not proved the cash payment by the assessee and also purchase of copra was not refuted. It is further opined that there is no incriminating seized materials of evidential value while making disallowance u/s. 40A(3) was made. In this connection, it is pertinent to note that the assessee Shri D. Kabilan on his sworn stated dated 17.11.2015 has not named Shajahan and his group of five concern, as his regular supplier of copra though he has named other six parties as his regular suppliers. Shajahan has deposed the modus operandi i.e. he used to issue bearer cheque for all the parties who deal with him to enable them to encash the cash for further payment to the persons who supplied copra. It clearly signifies that the payments are received through RTGS from M/s. VVD & Sons and the end-user of the RTGS payment was not proved beyond doubt. Therefore, second appeal.

In assessment year 2014-15, the Revenue has raised following grounds:

1. The order of the ld.CIT(A) is contrary to the provisions of the Income Tax Act, Rules and facts of the case.

2. The CIT(A) has deleted the additions made by the Assessing Officer under the head special salary, additional salary, management salary, special management salary, commission etc. The learned CIT(A) failed to note the sworn statement given by the Executive Director, D Kabilan , one of the Directors on 17.11.2015.

3. (a) The learned CIT(A) deleted the additions made to the contractors on the ground that they are labourers and TDS deduction is not applicable to such payments. The seized materials verification reveal that the payments were made under salary head and not under contract head. Further from the verification of the materials it is observed that the EPF deduction is made to the labourers who are 4 & C.O. Nos. 132-133/Chny/18 working under the contractors. Mere coverage of staff of the contractors under EPF does enable them to claim as labourers. (b) The learned CIT(A) has erred in disallowing the addition by subscribing to the views of the representative that they are labourers having regular PF subscription and for the convenience the payment is made through head labourers. It is pertinent to note that during the course of search proceedings, Shri S Murugesan, Accountant has categorically deposed that entire sum was paid to the respective contractors were given payment through bearer cheques, without effecting TDS. The assessee's claim that the labours are enrolled for EPF and payments routed through head labourers and which fall within the purview of TDS provision does not have any merits.

4. The learned CIT(A) has deleted the addition on the ground that the payment for purchase made through RTGS and the AO has not proved the cash payment by the assessee and also purchase of copra was not refuted. It is further opined that there is no incriminating seized materials of evidential value while making disallowance u/s. 40A(3) was made. In this connection, it is pertinent to note that the assessee Shri D. Kabilan on his sworn stated dated 17.11.2015 has not named Shajahan and his group of five concern, as his regular supplier of copra though he has named other six parties as his regular suppliers. Shajahan has deposed the modus operandi i.e. he used to issue bearer cheque for all the parties who deal with him to enable them to encash the cash for further payment to the persons who supplied copra. It clearly signifies that the payments are received through RTGS from M/s. VVD & Sons and the end-user of the RTGS payment was not proved beyond doubt. Therefore, second appeal.

In assessment year 2015-16, the Revenue has raised following grounds:

1. The order of the ld.CIT(A) is contrary to the provisions of the Income Tax Act, Rules and facts of the case.

2. The CIT(A) has deleted the additions made by the Assessing Officer under the head special salary, additional salary, management salary, special management salary, commission etc. The learned CIT(A) failed to note the sworn statement given by the Executive Director, D Kabilan, one of the Directors on 17.11.2015.

3. (a) The learned CIT(A) deleted the additions made to the contractors on the ground that they are labourers and TDS deduction is not applicable to such payments. The seized materials verification reveal that the payments were made under salary head and not under contract head. Further from the verification of the materials it is observed that the EPF deduction is made to the labourers who are working under the contractors. Mere coverage of staff of the contractors under EPF does enable them to claim as labourers. (b) The learned CIT(A) has erred in disallowing the addition by subscribing to the views of the representative that they are labourers having regular PF subscription and for the convenience the payment is made through head labourers. It is pertinent to note that during the course of search proceedings, Shri S Murugesan, Accountant 5 & C.O. Nos. 132-133/Chny/18 has categorically deposed that entire sum was paid to the respective contractors were given payment through bearer cheques, without effecting TDS. The assessee's claim that the labours are enrolled for EPF and payments routed through head labourers and which fall within the purview of TDS provision does not have any merits.

4. The CTA) has opined that it is simple arithmetical adjustment made for the F.Y. 2014-15 and 2015-16 and the reworking of A0 on notional basis without any proof of sale of excess stock and consequent receipt of cash is not a proper conclusion and hence deleted this addition. It is submitted that, though the quantification of stock under this head for the F.Y. 2010-11 to 2013-14 are made based on the calculation with reference to F.Y. 2014-15 and 2015-16 on the basis of seized materials. Therefore, further appeal.

5. The learned CIT(A) has deleted the addition on the ground that the payment for purchase made through RTGS and the AO has not proved the cash payment by the assessee and also purchase of copra was not refuted. It is further opined that there is no incriminating seized materials of evidential value while making disallowance u/s. 40A(3) was made. In this connection, it is pertinent to note that the assessee Shri D. Kabilan on his sworn stated dated 17.11.2015 has not named Shajahan and his group of five concern, as his regular supplier of copra though he has named other six parties as his regular suppliers. Shajahan has deposed the modus operandi i.e. he used to issue bearer cheque for all the parties who deal with him to enable them to encash the cash for further payment to the persons who supplied copra. It clearly signifies that the payments are received through RTGS from M/s. VVD & Sons and the end-user of the RTGS payment was not proved beyond doubt. Therefore, second appeal.

7. The learned CIT(A) had deleted the addition made by the AO regarding on money payment made by the assessee company for Rs. 17,68,655/-. The assessee company has produced bank account copies, and the relevant copy of property registration for having made the payment of Rs. 17,68,655/-. The assessee has produced the bank details for the source for having made the payment and also property registration document. However, second appeal is suggested to consider the case on merits.

6 & C.O. Nos. 132-133/Chny/18 8. The learned CIT(A) has deleted the additions made by the AO under purchase of copra from market committee on the ground that the assessee company has not made direct purchase from market committee and purchases of copra were from traders and which were recorded in the books. The assessee has furnished reply to the AO at the time of search assessment proceedings. Also suitable reply was furnished in letter dated 29.02.2016 address to the ADIT (Inv.), Tirunelveli. On verification of the details available on record, the purchases of copra were made through traders and not directly from the market committee. Second appeal is suggested to consider the issue on merits. In assessment year 2016-17, the Revenue has raised following grounds:

1. The order of the ld.CIT(A) is contrary to the provisions of the Income Tax Act, Rules and facts of the case.

2. (a) The learned CIT(A) deleted the additions made to the contractors on the ground that they are labourers and TDS deduction is not applicable to such payments. The seized materials verification reveal that the payments were made under salary head and not under contract head. Further from the verification of the materials it is observed that the EPF deduction is made to the labourers who are working under the contractors. Mere coverage of staff of the contractors under EPF does enable them to claim as labourers. (b) The learned CIT(A) has erred in disallowing the addition by subscribing to the views of the representative that they are labourers having regular PF subscription and for the convenience the payment is made through head labourers. It is pertinent to note that during the course of search proceedings, Shri S Murugesan, Accountant has categorically deposed that entire sum was paid to the respective contractors were given payment through bearer cheques, without effecting TDS. The assessee's claim that the labours are enrolled for EPF and payments routed through head labourers and which fall within the purview of TDS provision does not have any merits.

3. The CTA) has opined that it is simple arithmetical adjustment made for the F.Y. 2014-15 and 2015-16 and the reworking of AO on notional basis without any proof of sale of excess stock and consequent receipt of cash is not a proper conclusion and hence deleted this addition. It is submitted that, though the quantification of stock under this head for the F.Y. 2010-11 to 2013-14 are made based on the calculation with reference to F.Y. 2014-15 and 2015-16 on the basis of seized materials. Therefore, further appeal.

4. The learned CIT(A) has deleted the additions made by the AO under purchase of copra from market committee on the ground that the assessee company has not made direct purchase from market committee and purchases of copra were from traders and which were recorded in the books. The assessee has furnished reply to the AO at the time of search assessment proceedings. Also suitable reply was furnished in letter dated 29.02.2016 address to the ADIT (Inv.), Tirunelveli. On verification of the details available on record, the purchases of copra were made through traders and not directly from the market committee. Second appeal is suggested to consider the issue on merits.

7 & C.O. Nos. 132-133/Chny/18 5. Brief facts of the case are that the assessee, M/s. VVD and Sons (P) Limited is engaged in manufacture & sale of coconut oil & gingili oil, in operating wind mill and also in letting out ware-house etc. The assessee originally filed its return of income for the assessment year 2013-14 on 30.09.2013 admitting a total income of ₹.16,84,97,950/-. A search and seizure operation under section 132 of the Income Tax Act, 1961[“Act” in short] was conducted on 17.11.2015 in the group cases of M/s. VVD and Sons (P) Ltd. During the course of search, several incriminating documents relating to unaccounted transactions were stated to have been unearthed and seized. A notice under section 153A of the Act dated 27.12.2016 was issued to the assessee and in response thereto, the assessee has filed its return of income for the assessment year 2013-14 on 27.01.2017 admitting a total income of ₹.17,98,12,440/- which includes the undisclosed income of ₹.1,12,45,946/- for purchase of coconut through bought-notes now offered in the return of income filed in response to notice under section 153A of the Act. During the search, it was noticed that the following payments were made to family members as 'Salary' during for the F.Y 2012-13 relevant to the assessment year 2013- 14 under the heads: Salary details Amount in (Rs.) Management salary 23,93,020 8 & C.O. Nos. 132-133/Chny/18 Management salary – Veg. Oil Divn. 4,01,283 Additional special salary 62,81,760 Addl. Commission charges 37,18,240 Special salary 79,61,639 Commission charges 45,61,851 Total 2,53,17,793 6. After scrutinizing the books of account of M/s. VVD & Sons (P) Ltd. as well as considering the sworn statement recorded from Shri D. Kabilan, one of the directors of the assessee company, the Assessing Officer disallowed the claim of expenditure made in terms of special salary, commission charges to the extent of ₹.2,25,23,490/- for the assessment year 2013-14 and brought the same to tax. Similarly, the Assessing Officer disallowed ₹.2,23,08,498/- for the assessment year 2014-15 and ₹.1,75,36,048/- for the assessment year 2015-16.

7. The assessee carried the matter in appeal before the ld. CIT(A). While deleting the addition, the ld. CIT(A) has observed as under: 6.1. As regards the ground relating to addition made u/s.40A(3) in respect of the claim of the appellant viz., payments made to relatives, the issue is decided as under: Contesting the said addition, the AR submitted that it is a fact that the recipients of salary and commission payments, are relatives of the management but at the same time they are compensated only for the services rendered by them in the improvement of the business. Even though the said payments were claimed as expenditure in the hands of the appellant, it is to be mentioned that the said receipts have been duly offered for income tax purposes by the relatives. The AR further submitted that wherever TDS provisions are applicable, they have been duly adhered to. In support of the claim of the AR, the copies of the returns of income filed by the recipients, TDS returns which have been filed during assessment proceedings have also been produced during appellate proceedings. The AR further submitted that the AO solely relied on the oral statement of Mr. Kabilan recorded at the time of search in the late hours of the night and did not conduct further enquiry with the persons to whom salary and remuneration was paid.

After going through the assessment order and the submissions of the AR it is seen that the assessing officer did not examine the nature of services rendered by them and did not record a finding that that the remuneration paid was unreasonable and excessive compared to similar services in other cases. This onus of proof lies on the assessing officer, which he failed to discharge, and he miserably failed to make out a case under section 40A(2). Further as pointed out by the AR, the very same officer did not make any disallowance while completing the assessment under section 143(3) r.w.s. 147 for AY 2009-10 on 31/12/2016 and under section 143(3) on 31/12/2017 for AY 2016-17. Further, the AO has not examined the individuals (recipients) separately to bring on record and to prove that either they did not render any service warranting any payments or that the payments are not commensurate with the services rendered by them. This amply proves that the addition was made as per the appraisal report without independent application of mind and without making independent enquiries in a mechanical manner. Hence I am of the considered view that the payments made are not of personal nature and have been incurred due to business exigency. In view of the above, the addition of Rs.2,25,23,490 (AY 2013-14), Rs.2,23,08,498/- (AY 2014-15) and Rs.1,75,36,048/- (AY 2015-16) under this head is deleted. Hence this ground of appeal

, for the AYs 2013-14, 2014-15 and 2015-16 is allowed.

8. Aggrieved, the Revenue is in appeal before the Tribunal.

8.1 The Ld. CIT-DR submitted that impugned addition has been made on the basis of statement recorded form the director of the assessee- company.

8.2 The Ld. AR, on the other hand, supported the impugned order and submitted that the salary payment has been disallowed merely on the basis of statement without verifying the factum of rendering of services. Similar salary payments made by the assessee to same parties, has been accepted in assessment in subsequent years. Further, the recipients have offered the salary to tax in their respective hands.

10 & C.O. Nos. 132-133/Chny/18 8.3 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. On perusal of the assessment order for AY 13-14 at para 2, the Assessing Officer has stated that during the course of search, several incriminating documents relating to unaccounted transactions were unearthed and seized. However, nowhere in the entire assessment order, the Assessing Officer has referred to any incriminating document except relying upon the statement of Shri Kabilan recorded during the course of search proceedings. During the course of appellate proceedings, before the ld. CIT(A), by way of letter, the assessee has submitted that in the absence of any incriminating material, proceedings initiated under section 153A of the Act is invalid and so on, which was reproduced in the appellate order at page 39. However, the ld. CIT(A) has not adjudicated as to whether in the absence of any incriminating material, proceedings initiated under section 153A of the Act is invalid or not. In a recent decision, in the case of PCIT v. Abhisar Buildwell Pvt. Ltd. (149 Taxmann.com 399), the Hon’ble Supreme Court has held that in case no incriminating material is unearthed during course of search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessment/ unabated assessments. Meaning thereby, in respect of completed/unabated 11 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, 1961. In order to implement the law laid down by the Hon’ble Supreme Court in the above judgement, the CBDT issued Instruction No. 1 of 2023 dated 23.08.2023 vide letter F. No. 279/Misc./M-54/2023-ITJ. Under the above facts and circumstances, without any incriminating material evidence found during the course of search under section 132 of the Act, the assessment order passed under section 143(3) r.w.s. 153A of the Act for all the assessment years under appeal are liable to be quashed in view of the above decision of the Hon’ble Supreme Court as well as subsequent instructions notified by the CBDT. However, we proceed to decide the issues on merits also.

8.4 With regard to the deletion of additions made by the Assessing Officer under the head special salary, additional salary, management salary, special management salary, commission, etc. the only contention of the Department was that the ld. CIT(A) failed to note that the sworn statement given by the Executive Director, D. Kabilan, one of the Directors on 17.11.2015. Before us, the ld. DR also submitted that impugned addition has been made on the basis of statement recorded form the director of the assessee-company. In view of the decision in the 12 & C.O. Nos. 132-133/Chny/18 case of PCIT v. Abhisar Buildwell Pvt. Ltd. (supra), the statement recorded from Shri Kabilan alone is not sufficient to make addition in the absence of any incriminating material evidence unearthed during the course of search. However, in the appellate order, the ld. CIT(A) has observed that the Assessing Officer did not examine the nature of services rendered by them and did not record a finding that that the remuneration paid was unreasonable and excessive compared to similar services in other cases. This onus of proof lies on the assessing officer, which he failed to discharge, and he miserably failed to make out a case under section 40A(2) of the Act. Further, the Assessing Officer has not examined the individuals (recipients) separately to bring on record and to prove that either they did not render any service warranting any payments or that the payments are not commensurate with the services rendered by them. This amply proves that the addition was made in a mechanical manner as per the appraisal report without independent application of mind and without making independent enquiries. Accordingly, the ld. CIT(A) has rightly held that the payments made by the assessee are not of personal in nature and have been incurred due to business exigency and correctly deleted the additions for the assessment years under appeal. We find no reason to interfere with the order passed by the ld.

14 & C.O. Nos. 132-133/Chny/18 6.2. Coming to the ground relating to payment made to contractors without making TDS, it is submitted by the AR that S/Shri Uthirapandi, Navaneethan, Easakkimuthu, Veerapandi and Kumar are the head-labourers and the workers under them are in the muster roll of the appellant and are covered by the ESI/ PF Act. Deductions towards ESI/PF have also been duly made and deposited to the respective accounts. It is a general practice to issue a bearer cheque to the head-labour, who will in turn make payments to the individuals. This has been scrupulously followed in all the five contract-labourers' cases. In fact they are the regular workers borne in the acquaintance roll of the appellant. As regards the payments made to these five people, TDS provisions were not attracted, as the entire payments do not relate to them only and it is to be disbursed further to the workers coming under their control. The AR further stated that it was brought to the notice of the assessing officer during assessment proceedings that the appellant paid labour charges to the labourers through the head labourer and all the labourers are borne in the Provident Fund records of the appellant and the assessing officer never disputed the above claim of the appellant in the impugned orders. When all the labourers are treated as persons directly employed by the assessee for the purpose of Provided Fund Act and merely because the wages are disbursed through the head labourer for convenience, it cannot be said by any stretch of imagination that there was an element of contract involved. I have carefully gone through the assessment order and the submissions made by the AR. It is true that the labourers are regular workers of the appellant company and the payments are made to them through the head labourers which do not warrant any deduction of tax at source and hence it cannot be said that the appellant had contravened the provisions of section 40(a) (ia) thereby entailing disallowance in respect such payments. In view of the above discussion, the entire disallowance under section 40(a)(ia) made in respect of the above five Head Labourers, viz., Rs.43,16,818/- (AY 2013-14), Rs.53,30,063/- (AY 2014-15) and Rs.15,34,752/- (i.e. 30% of 51,15,742 (AY 2015-16) and Rs.36,48,716/- AY 2016-17) is deleted. Accordingly the grounds for the AY 2013-14 to 2016-17 are hereby allowed. In respect of the 5th contract labour viz., Mr.A. Chandrasekar, the AR submitted that Mr. A. Chandrasekar has duly disclosed the payments in his individual return of income, in support of which Form 26A has been filed during the course of assessment itself. Accordingly the AR requested for deletion of the entire addition made on this score for the AY 2013-14 to 2016-17. After going through the assessment order, it is seen that Mr. A. Chandrasekar has filed his return of income for the AYs 2013-14 and 2014-15 belatedly as per section 139. Hence the disallowance made by the AO viz., Rs.74,38,845 (AY 2013-14) and Rs.75,13,892/- (AY 2014-15) is hereby confirmed. Hence the grounds of appeal for the above two AYs are dismissed. For the AY 2015-16, the AO disallowed 30% of Rs. 1,02,11,284/- The contractor Shri Chandrasekar has filed the return of income on 18.10.2016 which is within the time limit prescribed u/s. 139. For the AY 2016-17 the AO disallowed 100% i.e. Rs.77,14,276/-. For this AY Shri Chandrasekar has filed the return of 15. I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 income on 17.10.2016 which is within the due date u/s. 139. Accordingly the disallowance made for the AYs 20 15-16 (Rs.30,63,385- 30% of Rs.1,02,11,284) & 2016-17 (Rs.77,16,274) is hereby deleted. This ground of appeal for the above two AYs is allowed. 9.2 Aggrieved, the Revenue is in appeal before the Tribunal. The Ld. CIT-DR submitted that the payments were contractual in nature which would require TDS u/s 194C of the Act.

9.3 On the other hand, the ld. Counsel for the assessee has strongly supported the order passed by the ld. CIT(A).

9.4 We have heard the rival contentions, perused the materials available on record and gone through the orders of authorities below. In the assessment order, the Assessing Officer made disallowance towards payment made to contractors for want of TDS. Before the ld. CIT(A), the AR of the assessee has submitted that the contract-labourers are in the muster roll of the assessee and are covered by the ESI/PF Act. Deductions towards ESI/PF have also been duly made and deposited to the respective accounts. It is a general practice to issue a bearer cheque to the head-labour, who will in turn make payments to the individuals. This has been scrupulously followed in all the four contract-labourers' cases. In fact they are the regular workers borne in the muster roll of the assessee. In fact, the above fact was brought to the notice of the 16 & C.O. Nos. 132-133/Chny/18 Assessing Officer during assessment proceedings. As regards the payments made to these four people TDS provisions were not attracted, as the entire payments do not relate to them only and was to be disbursed further to the workers coming under their control. After considering the submissions of the AR of the assessee, the ld. CIT(A) has observed that the assessee has directly paid labour charges to the labourers through the head labourer and all the labourers are borne in the Provident Fund records of the assessee. When all the labourers are treated as person directly employed by the assessee for the purpose of PF Act and merely because the wages are disbursed through the head labourer for convenience, it cannot be said that there was an element of contract involved. No incriminating material like contract agreement, etc. was brought on record. Further, the ld. CIT(A) has observed that the Assessing Officer was misled by the statement given by Shri Murugesan as reported in the appraisal report and never bothered to examine the liability of the assessee to deduct tax at source independently with reference to the facts of the case. In view of the above undisputed facts, the ld. CIT(A) has rightly deleted the disallowance made under section 40(a)(ia) of the Act by holding that the assessee has directly engaged labourers borne in the Provident Fund records and made payments 17 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 through the head labourer and therefore, there was no liability to TDS. Considering the above facts and circumstances, we are of the opinion that the ld. CIT(A) has rightly deleted the disallowance made under section 40(a)(ia) of the Act and thus, the ground raised by the Revenue is dismissed for the all the assessment years under appeal.

10.4 However, Ld. AR relied on the actual findings rendered in the impugned order.

10.5 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. With regard to the alleged excess stock said to be found during the course of search, while reiterating the submissions as made before the ld. CIT(A), the ld. Counsel for the assessee has submitted that a norm has been fixed with regard to the percentage of oil extracted from certain quantity of copra crushed. This percentage has been fixed at 63%. Even though it has been fixed at 63%, at times the resultant output i.e. oil extracted may be more or less depending upon the quality of the copra fed in the crusher. This excess / deficiency of crushed oil is used to be accounted in the books as either (-) % or (+) %. However, the Assessing Officer has taken the (+) percentage as excess stock (as if not accounted for) and computed the value thereof and added the same as unaccounted (excess) stock. By considering the submissions of the assessee, the ld. CIT(A) has observed that Assessing Officer had mistakenly considered 21 & C.O. Nos. 132-133/Chny/18 the (+) as excess stock and arrived at the value of such notional stock and thereby calculated the value and added the same as excess stock. Moreover, in the assessment order, the Assessing Officer has not anywhere brought on record that such excess stock was sold in the market and resultant unaccounted income was earned. The standard yield of oil of 63% fixed by the assessee was to monitor the quality of copra for internal purposes and it does not mean that the appellant did not account the actual production in excess of 63%. The actual production whether more or less than 63% was accounted in the stock book and further shown as sales in the Profit and Loss Account. In view of the above facts, the ld. CIT(A) has held that there was no excess stock and the consequent addition made on the notional excess stock is nothing but an illusion and accordingly, deleted the additions made by the Assessing Officer for all the assessment years under appeal. Thus, we find no infirmity in the order passed by the ld. CIT(A) on this issue and the ground raised by the Revenue is dismissed for all the AY under appeal.

22 & C.O. Nos. 132-133/Chny/18 Disallowance of expenditure violating the provisions of Section 40A(3) and bogus purchase made by the company: It was found during the course of search operation that M/s. VVD and Sons (P)Ltd. had claimed to have purchased copra from various traders in Kerala from the financial year: 2012-13 relevant to the assessment year 2013-14. Particularly, the assessee-company had shown bulk purchases from the following traders from Kerala :

1. 1. Achu Traders, Palakkad 2. Appu Traders, Palakkad 3. Madeena Traders, Palakkad.

4. Alfas Traders, Palakkad.

5. Shajahan Traders, Palakkad. For the financial year: 2012-13, total purchase of copras to the tune of Rs.21,66,47,577/- was shown to have been purchased from the above-said five traders. Totally, for various assessment years, an amount of Rs.107,64,57,214/- was claimed as copra purchases from these trading concerns in Kerala. Enquiries revealed that all the aforesaid five concerns are run by Shri M. Shajahan and his wife Smt. .S. Niharbanu. Post-search investigations revealed that both Shri Shajahan and his wife Smt. Niharbanu are not real traders dealing in the business of copra and none of the above concerns are engaged in the business of trading copra. They are mere name-lenders for which some commission is paid to them. Actually, M/s. VVD & Sons made purchases of copras from trades at Pollachi and invoices for these purchases are obtained from the above-said concerns. This practice was resorted to by the assessee-company to avoid 5% sales-tax which is levied by the Government of Tamil Nadu, if they are purchased within Tamil Nadu. The actual purchases made in Tamil Nadu were shown as if they were bought in Kerala. Shri Shajahan has also admitted that he acts as a commission agent only for bogus invoices and that he issued invoices in the names of his own concerns mentioned above. The copra purchased from various traders in pollachi would come M/s. VVD & Sons, as if they were sent from kerala parties. I do not know about the details of Pollachi Traders, which are only known to Shri Kandasamy, a broker for copra purchase for M/s. VVD & Sons. These Pollachi Traders get supply of copra from the farms at Pollachi. " 6.2 During the course of search assessment proceedings Shri Kandasamy, a broker of copra purchase of M/s, VVD & Sons, was issued a summons u/s. 131 and a sworn statement was recorded from him on 16.11.2017. The reply to Q. No, 8, 9 & 10 are reproduced as under: About the details of traders arranged by him Shri Kandasamy stated that the following are the traders in Kerala who supply copras to M/s. VVD & Sons viz.

1. Achu Traders, Palakkad 2. Appu Traders, Palakkad 3. Madeena Traders, Palakkad.

4. Alfas Traders, Palakkad.

5. Shajahan Traders, Palakkad The actual purchases made Pollachi were shown as if they were bought in Kerala. Shri Shajahan has also admitted that he acts as a 'commission agent' only for raising of bogus invoices in his four traders' name and sales invoices to M/s. VVD & sons, which are verifiable with reference to the statements recorded from Shri Shajahan during the search on 17.11.2015 in Q.No. 2 & 3 which are reproduced as under: “I have been working as a copra commission agent from 2003 to various companies, after the demise of my father, I am also an agent of M/s. VVD & Sons Pvt. Limited. Apart from being commission agent for copra, I am also an agent for rice, softwood sand, cement pipe, sand etc. I used to supply copras required for VVD & Sons through Senthil, Natarajan and Chinna(herein after called “three persons”) from Pollachi to VVD & Sons. In order to avoid sales tax levied by Tamil Nadu Shri Kandasamy, the broker of VV& Sons, asked me to raise sales invoices as told by them for this I get a commission of Rs. 1000/- per load.” Further Shri Shajahan has stated in his above sworn statement recorded on 23.12.2015 in reply to Q. No. 5, about the method adopted for supply of copra to M/s. VVD & Sons and M/s. VVD's mode of payment for the supply made by Shajahan as follows: 6.3 He has stated that Shri Natarajan, Senthil and Chinna are the three persons who had purchased copra in and around Pollachi and on their direction Shri Shajahan has prepared sales invoices for the specified quantity, the rate as fixed by M/s. VVD & Sons Pvt. Limited. Thereafter, he has prepared purchase bill in his concern name M/s. Appu Traders, M/s. Achu Traders, M/s. Alfas Traders, M/s. Madeena Traders and M/s. Shajahan Traders at the rate as reduced by 0.25 paise per kg. After raised the purchase bills, he has logged into Kerala commercial tax website and used to upload the transaction as inter-state purchase and prepared sales invoices in favour of M/s. VVD & Sons (P) Limited for the same quantity of copra in the firms names at the rate as increased by 0.25 paise per kg. After preparing sales bills in favour of Ms. VVD & Sons (P) Limited he has stated to have handed over the sales invoices to the persons namely Chinna. Natarajan, Senthil, who were waiting at Kerala Check post. Thereafter, the lorry driver carrying the copras had driven the lorry with goods into Kerala and stayed there for an hour and after one hour, again the lorry driver with load copra returns to Tamil Nadu with the sales bills drawn by Shri Shajahan in favour of Ms. VVD & Sons. He has stated to have not known the details of where the copras were supplied. He has also stated that with the raising of purchase bills and thereafter raising sales invoices in favour of Ms VVD & Sons, his work is done/over. For which work done Shajahan he has stated to have received a commission amount of Rs. 1000-2000 per load from M/s. VVD & Sons Pvt. Limited. Shri Shajahan has also stated that he is not aware of the money deposited by M/s. VVD & Sons (P) Limited for his having supplied to copra t M/s. VVD & Sons. The assessee has also stated that the money transactions are known only to Shri Chinna, Senthil and Natarajan.

24 & C.O. Nos. 132-133/Chny/18 6.4 From the above facts, it is learnt that the real suppliers are Shri Chìnna, Senthil and Natarajan of Pollachi and not Shajahan since he has supplied the copras in the capacity of a commission agent alone and not as a seller. This fact is also confirmed from the above mentioned facts and also from the statements recorded from the three persons Shri Chinna, Natarajan and Senthil. 6.5 During the search assessment proceedings while recording sworn statement recorded u/s. 131 from shri Gothandapani @ Chinna on 16.11.2017 it is ascertained that shri Gothandapani has made purchases of copra from farmers at Pollachi and supplied copras to M/s. VVD & Sons from his own concern name i.e. M/s. Sree Karpagam traders through Shri Kandasamy, the broker of M/s. VVD & Sons, who is a Tuticorin based broker for VVD & Sons. 6.6 Also it is ascertained from Shri Natarajan that he has purchased copras from farmers at Pollachi and supplied copras to M/s. VVD & Sons, on information given by Shri Kandasamy, the broker of M/s. VVD & Sons. For this supply the payment is sent to Shajahan in the names of M/s. Alfas Traders, M/s. Madeena Traders in the bank accounts opened in the said concerns name of Shri Shajahan at Pollachi. Shri Natarajan has stated that a self bearer cheque singed by Shajahan would be available with him always to encash the payment. Soon after the VVD & Sons makes payment through RTGS for the above supply of copra he would receive a SMS and then he would withdraw the amount by presenting the self bearer cheque signed by Shajahan, which is already available with him. Similar, is the case with Shri Rengaraj @ Senthil in respect of copra purchase and supply to M/s. VVD & Sons. 6.7 During the course of search on 17.11.2015 certain books such as a note book (Kasthuri book) were found seized vide Ann/PC/MS/B&D/S dated 17.11.2015 containing bank account numbers and cheque books details maintained by the Shri Shajahan. However, During the search assessment proceedings it was found on verification of the said note and cheque books seized that though the bank accounts have been opened in Shajahan's firms names were actually maintained and operated by the above three persons as detailed below. Name of the trader Bank/account No. Operated by Alfas Traders IDBI 000451 to 000500 Natarajan Alfas Traders ICICI, Pollachi 016726 to 016750 Natarajan Alfas Traders IDBI 169091 to 169140 Natarajan Appu Traders Axis Bank 025521 to 025535 Chinna Appu Traders Axis Bank 037427 to 037425 Chinna Appu Traders Axis Bank 053276 to 053358 Chinna From the above it is very clear that Shri Shajahan has opened bank accounts in his traders names but were operated by the three persons at Pollachi. It is also confirmed from their sworn statements that the sms regarding the payment made through RTGS by M/s. VVD & Sons has also received by the three persons. Moreover, the said three persons only have withdrawn the payments credited through RTGS by presenting the self cheques issued by Shajahan. After withdrawing the payments from RTGS, the three persons have made in turn payments to the farmers from whom they have purchased the copras and commission to Shri 25 & C.O. Nos. 132-133/Chny/18 Shajahan, who is a commission agent. Having played the major role in supplying the copra to VVD & Sons, the three persons have failed to disclose the farmers' identity such as name, address, quantity purchase, PAN No. Whether any returns filed in their names, bank account details of the farmers made by them. It is worth to mention the three persons have made note of purchase of copra from farmers in loose sheets only, that would be destroyed by them then and there, as averred by them in their statement. The said three persons stated during hearing that they do not maintained any books of accounts for such a voluminous purchase of copras and supply. It is surprised to note that the purchases made by the three persons from farmers runs into crores of rupees but during search as well as search assessment proceedings the three including Shajahan failed to disclose the farmers particulars, which is a significant information in ascertaining the real truthfulness of the sales them to M/s. VVD & Sons. 6.8 From the above narration, it is found that Shri Shajahan and his concerns are not real suppliers of copra from his firms run by Shri Shajahan are found to be only "colorable devices" used by the assessee-company M/s. VVD & Sons P. Ltd. to accommodate for raising sales bill for their copra purchases from traders in Pollachi to avoid sales-tax, leviable in Tamil Nadu. Evidences found highlight that VVD group has purchased copra from three persons S/shri Senthil, Natarajan and Kothandapani @ Chinna who had withdrawn the amounts from bank by presenting bearer-cheques, as discussed in the earlier paras of this order. 6.9 To verify the above facts of the case as presented above, during search assessment proceedings, further necessary actions were made by way of deputing this office Inspector to examine and verify the instruments of payments as available in the records of various banks in Pollachi and on verification made , it was found from the sample instruments for payment made by VVD Company towards copra purchases found that almost all the instruments were only self-bearer cheques and not account-payee cheques, given by Shajahan to the three persons namely Natarajan, Senthil and Chinna, which were encashed by them. The copies of self cheques issued by Shri Achu Traders, Madeena Traders issued Shri Shajahan to the three persons are incorporated below, as a sample of proof for having verified the instruments issued by Shri Shajahan [scan copy of cheque] 6.10 Even though VVD& Sons P Ltd. claims that all the payments are only through RTGS, the same has not been proved by the three persons and Shri Shajahan because during the hearing, they did not provide the necessary details of the farmers from whom copras wee purchased by them, this leads to raise a suspicion whether the copras were really purchased from farmers or someone else. If they had purchased from farmers, the onus lies on Shajahan and the three persons to prove that the purchases were from In the absence of farmers details, it could be construed that all the RTGS payments said to be made by M/s. VVD & Sons have not at all reached the farmers either. Shri Shajahan has also stated in his statements that he has worked as commission agent alone, for which he has stated to have received his commission part. In this circumstances, it is not ascertainable whether the entire 26 & C.O. Nos. 132-133/Chny/18 RTGS payment has been received by Shri Shajahan or the three persons or other then the four persons. 6.11 From the above facts it is not ascertainable as to who is the final and actual with receiver of the RTGS payments made by VVD & Sons. In such a situation as regard to copra purchases said to have been made remained doubtful as to who is the real supplier of copra to VVD & Sons, since Shajahan and the three persons remains silent and stated throughout the proceedings that they are only the agents for supplying copras by getting only commission payment. 6.12 From the findings made as discussed in the earlier paragraphs, a fact is obvious that Shri Shajahan has been paid by the VVD & Sons only a sum of 1000/- to 2500/- per load as his part of commission. Shri Shajahan was asked to raise fake purchase invoices to M/s. VVD & Sons and provide sales accommodation entries, for which act he has been paid commission. The entire payment towards fake purchase of copras from Shajahan including the commission paid for raising such fake invoices are considered unlawful u/s. 37(1) of the I.T. Act, which warrant disallowance of the same. Further “As per the provisions of Section 40A(3) of the Income Tax Act, 1961 where the assessee-company incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day otherwise than by way of an account payee cheque drawn on a bank or an account-payee bank draft, exceed Rs.20,000/-, no deduction shall be allowed in respect of such expenditure." The entire financial transactions entered by VVD Company by making RTGS payment with the three persons and Shajahan are only paper transactions which attract the provisions of Sec.40A(3) of the 1.T. Act, 1961. Since VVD & Sons had employed a plan in which Shajahan was made to act as a middle man by preparing fake invoices, giving accommodation entries for sales, issuing self bearer cheques and not an account payee cheque or account payee bank draft to the three persons, which clearly brings to light the real intention of VVD & Sons to inflate the purchases for evasion of income tax. 6.14 One more fact is again recollected from the statement recorded from Shri Shajahan that the main broker of M/s. VVD & Sons, Shri KADASAMY has only contacted the three persons for placing orders for purchase of copras and not Shri Shajhan and also the payments of RTGS for the said supply are also en-cashed by the three persons only and not Shajahan, to whom the money was meant. By seeing all the facts of the case, it is very clear Shajahan is not real the supplier of copras to M/s. VVD & Sons. The real suppliers are the three persons who had obtained copras from farmers and supplied through Shajahan to M/s.VVD & Sons. By doing so, primarily, M/s. VVD & Sons hasbenefited in a way by avoiding payment of sales tax to Tamil Nadu Government. Secondly, the three persons have made payments to the farmers at Pollachi by withdrawing from the bank accounts maintained by Shajahan's concerns on presenting of self bearer cheques issued by Shajahan. This scheme of action attracts the provision of Section 40A(3) because the identity of the RTGS payments made in the various bank accounts of Shajahan firms (namely M/s. Achu Traders, M/s. Alfas Traders, Madeena Traders, Shajahan Traders, Achu 27 & C.O. Nos. 132-133/Chny/18 Trades) have not been brought into limelight by the three persons and Shri Shajahan. In the absence of such an identity of farmers (suppliers of copra) the entire payment made to Shri Shajahan through RTGS is considered as payment made in violation of Section 40A(3) of the I.T. Act. 6.15 The assessee's authorized representative has filed his reply on 20.12.2017 regarding the purchases of copra from Shajahan group concerns. The content of his reply were fully considered and the same are not acceptable. An amount of Rs. 21,09,09,180/- is disallowed and added u/s 40A(3) towards violation of the provisions of the said Section for the A.Y 2012-13, since the payments towards purchase from Shajahan were made through bearer-cheques and not through account payee cheques or account-payee demand drafts as required u/s 40A(3). 6.16 It is abundantly clear that actually no sale of copra took place between M/s. Appu Traders and M/s. VVD & Sons. Only in order to reduce the tax liability as well as to avoid provisions of Sec. 40A(3) , M/s. VVD & Sons had resorted to a kind of dubious method, as if through purchases were made from Shajahan and his group concerns. The whole exercise is only a colourable device employed by M/s. VVD & Sons to reduce the tax liability by utilizing the name of Shajahan and his group concerns, as supplier of copras. 6.17 Tax planning must be a legitimate provided it is within the framework of law. The assessee company had employed colourable devices, which cannot be part of its tax planning and it cannot encouraged or entertained on the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It could be concluded that the method adopted by the assessee company is only a sham transaction arranged for purchase of copras, which was got executed through the three Pollachi agents S/shri Chinna, Natarajan and Senthil as if through Shri Shajahan & his group concerns. The whole exercise is only a colourable device employed by M/s. VVD & Sons to reduce the tax liability by utilizing the name of Shajahan and his group concerns, as supplier of copras. 6.18 As per the above discussion it is very clear that the assessee company has violated the provisions of the Sec. 40A(3) of the Act, with regard to the purchase of copras claimed by it to have been made from Shri Shajahan and his group concerns. Therefore, the entire transaction amount involved therein amounting to Rs. 21,09,09,180/- considered for substantive addition in the hands of M/s. VVD & Sons.

11.1 Similarly, the Assessing Officer made disallowance under section 40A(3) of the Act for the assessment year 14-15 of ₹.28,94,09,448/- and for the assessment year 2015-16 of ₹.28,25,35,800/-.

28 & C.O. Nos. 132-133/Chny/18 11.2 On being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) for all the assessment years under appeal. After considering the submission of the assessee, the ld. CIT(A) has observed as under: 6.4. Now coming to the ground relating to disallowance made u/s. 40A(3) the facts are to be crisply brought out to know the exact modus operandi adopted by the appellant. The appellant used to acquire copra from wherever they are available at competitive price with an eye on the quality of the same also. As per the invoices raised by the Kerala supplier, payments are made by the appellant through RTGS. The AR submitted that the AO had gone through the books of account of Kerala supplier and found that cash payments were made. Any how the fact remains that the appellant paid the entire money only through RTGS and without appreciating these facts, resorted to disallowance u/s.40A(3) as if cash payments were made by the appellant. It is seen from the assessment order that the AO has admitted the fact that payments were made through RTGS. In fact the AO attached the photo copy of the bearer cheque issued by the Kerala supplier only and nowhere the AO has proved that appellant indulged in cash payment. The AO has not made a mention or proved that for the purchase of copra cash payments were made by the appellant. Likewise, the AO has also not refuted the purchase of copra. I am of the considered view that so long as the appellant has not made cash payments and all the payments were through RTGS, invoking the provisions of section 40A(3) is not correct and hence the resultant disallowance also is uncalled for. Further, the main contention of the appellant is that all the payments to the group concerns of Mr. Shajahan were made by RTGS and the same is not disputed by the AO. On the other hand, the assessing officer relied on the books of accounts seized from the residential premises of Mr Shajahan without giving an opportunity to the appellant for cross examination. In this regard, a copy of the letter addressed by the AR to the AO is reproduced below: [attached copy of the letter] The AR submitted that seized material or evidences collected at the back of the appellant has no evidentiary value unless an opportunity of cross examination is given. Even after thorough investigation by Investigation team, there is absolutely no evidence brought on record to prove that part of the amount paid by RTGS came back to the appellant. Any disallowance under section 40A(3) can be considered only in the case of group concerns of Shri Shajahan and not in the hands of the appellant. The AR also brought to the notice of the undersigned that similar addition on this count has been made in the case of M/s.Appu Traders, Achu Traders, Shajahan Traders, Madina Traders and Alfa Traders. The disallowance under section 40A(3) cannot be made twice, once in the case of group concerns of Mr. Shajahan and again in the hands of the appellant.

29 & C.O. Nos. 132-133/Chny/18 From the fact that Shri Shajahan has issued only sales invoices in the name of the appellant, the former cannot be called as a commission agent but only a supplier of copra. Further the above seller has filed IT returns showing his business sales of copra. In the circumstances the AO's conclusion that Shri Shajahan is a commission agent is erroneous. I have carefully gone through the elaborate submissions rendered by the AR. It is evident from the documents produced before the undersigned that all the payments to the Kerala supplier were through banking channel i.e. RTGS. The A0 also has not disputed this fact. From the evidence available, it is seen that bearer cheques were issued only by the Kerala supplier to his clients. The issuance of bearer cheque by the Kerala supplier does not in any way disproves the claim of the appellant that they sent the entire payment through RTGS. If the Kerala supplier issued bearer cheques, action at best can be taken only at his hands and not at the hands of the appellant. Therefore, the disallowance in the case of the appellant is not warranted and the same is deleted for the AYs 2013-14 (Rs.21,09,09,180), 2014-15 (Rs.28,94,09,448) and 2015-16 Rs.28,25.35,800). Accordingly the grounds of appeal for these AYs are allowed. 11.3 Aggrieved, the Revenue is in appeal before the Tribunal.

11.4 The Ld. CIT-DR submitted that the findings of Ld. AO establishes that the actual purchases were made from Pollachi parties and not from Kerala parties as claimed by the assessee. The Pollachi parties were paid in cash which justifies invocation of section 40A(3) of the Act.

11.5 The Ld. AR, on the other hand, controverted the same and submitted that the purchases were evidenced by copies of invoices. All the payments were made to Kerala parties through RTGS. All these parties were filing Sales Tax return. Considering all these evidences, the impugned additions have been deleted.

11.6 We have considered the rival contentions. The case of the assessee is that the assessee used to acquire copra from wherever they 30 & C.O. Nos. 132-133/Chny/18 are available at competitive price with an eye on the quality of the same. As per the invoices raised by the Kerala suppliers, payments were made by the assessee through RTGS. However, the Assessing Officer disallowed the entire expenditure by holding that the assessee made bogus purchase. On appeal, the ld. CIT(A) has noted from the documents produced before the him as was furnished to the Assessing Officer that all the payments to the Kerala supplier were through banking channel i.e. RTGS. The Assessing Officer has also not disputed this fact. From the evidence available, the ld. CIT(A) noted that bearer cheques were issued only by the Kerala supplier to his clients. The issuance of bearer cheque by the Kerala supplier does not in any way disprove the claim of the assessee that they sent the entire payment through RTGS. If the Kerala supplier issued bearer cheques, then action at best can be taken only at their end and not in the hands of the assessee. Thus, the ld. CIT(A) has held that disallowance in the case of the assessee is not warranted and rightly deleted the additions made by the Assessing Officer.

11.7 We have gone through the paper book filed by the assessee and find that the payments made by the assessee to its agents are through RTGS. This fact was not disputed by the Assessing Officer. The only case of the Assessing Officer was that the assessee’s agent issued 31 & C.O. Nos. 132-133/Chny/18 bearer cheques for purchase of copras. The fact remains that the assessee receives copra by paying purchase price through RTGS. Therefore, invoking the provisions of section 40A(3) of the Act is not justified and cannot be made. So far as agents are concerned, according to their convenience, bearer cheques were issued for procuring copras. The bearer cheques issued by the agents for the purpose of purchase of copras cannot be said that the assessee paid cash for purchase of copras. In view of the above, we hold that the Assessing Officer failed to establish that the assessee made purchases by paying cash and therefore, the Assessing Officer was not justified in invoking section 40A(3) of the Act. Thus, the ground raised by the Revenue is dismissed for all the assessment year under appeal.

12.2 On appeal, with regard to the deletion of addition made towards bogus purchase and rate variation, the ld. CIT(A) has observed as under: 6.5. The next ground relates to bogus purchase and rate variation: The AO resorted to the impugned addition based on the illogical conclusion that there is rate variation in the purchase of copra resulting in inflation of purchase price. The AR explained the reason for rate variation and attributed the same to quality of copra acquired. Depending on the quality of the copra prices tend to vary from supplier to supplier. Without taking into consideration this basic fact, the AO resorted to the impugned addition. The AR further submitted that the AO erred in resorting to disallowance towards alleged bogus purchase without even referring to the specific entries in the seized material and without explaining how the excess rate was arrived at. It appears that the assessing officer simply copied the appraisal report in the assessment order without application of independent mind and without even seeing the relevant seized material. I have gone through the discussion made by the AO in the assessment order and the submissions made by the AR during appellate proceedings It is anybody's guess that prices may vary depending on the quality of the product, here it is copra. If a high quality of copra is to be acquired definitely the appellant may have to pay a higher price. So unless one sits on the chair of the appellant and look into the matters in the proper perspective, any guess work may lead to unimaginable and incredible result which may not take one to any desired end. The AO cannot dictate or expect that the appellant should purchase only from a particular buyer whose prices are comparatively less. The appellant is in the market for the past several years and has acquired a reputation for its products. In such circumstances, acquiring high standard of copra for crushing is essential and unavoidable to achieve high quality of end product and consequently it has to pay a higher price. Without taking into 33 & C.O. Nos. 132-133/Chny/18 account this basic requirement for consideration, indulging in an exercise to make such an addition is not correct. Even otherwise neither the investigation team nor the assessing officer has brought any material on record to show that part of the purchase price was received back by the assessee, I find that this addition has been made purely based on doubt, suspicion, assumption, and surmises. Hence I am of the considered view that the addition made on this count is unwarranted and delete Rs.57,38,397(AY 2013-14), Rs.1,08,59,175/- (AY 2014-15) and Rs.1,13,40,886/- (AY 2015-16). This ground of appeal for the AYs 2013-14 to 2015-16 is allowed. 12.3 Aggrieved, the Revenue is in appeal before the Tribunal for the assessment years 2013-14, 2014-15 and 2015-16. 12.4 The Ld. CIT-DR supported the findings of Ld. AO that the comparison of purchase price with other parties would show that there was inflation of purchase expenditure.

12.5 The Ld. AR submitted that there is no scope of presumption or assumptions and the additions have to be based on concrete evidences only.

12.6 We have considered the rival submissions. In the assessment order, the Assessing Officer has observed that there is rate variation in the purchase of copra resulting in inflation of purchase price. After considering the submissions of the assessee, the ld. CIT(A) has observed that the assessee was in the business for the past several years and has acquired a reputation for its products. It was further observed that in order 34 & C.O. Nos. 132-133/Chny/18 to get high quality of end product (oil), it is essential and unavoidable for the assessee to acquire high standard of copra for crushing and consequently it has to pay a higher price. Without taking into account this basic requirement for consideration, indulging in an exercise to make such an addition was not correct. The ld. CIT(A) has further observed that neither the investigation team nor the Assessing Officer has brought any material on record to show that part of the purchase price was received back by the assessee. Accordingly, the ld. CIT(A) has held that the addition was made purely based on doubt, suspicion, assumption and surmises and deleted the additions made by the Assessing Officer for all the assessment years under appeal. We find no reason to interfere with the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed for all the years.

35 & C.O. Nos. 132-133/Chny/18 As per SAP As per return of Difference Chennai Tuticorin Total income 41766708 73864937 11561645 8,87,26,000 2,69,05,645 The company has submitted the closing stock valuation statement for the F.Y 2012-13 relevant to the Assessment Year: 2013-14. It is nothing but the re-submission of the balance sheet break-up and there is no proper explanation for the difference between book stock and the returned stock. The assessee, during the course of the search assessment proceedings, has submitted a plea through its letter dated 20.12.2017 that since the Department has proposed to add the closing stock difference amounting to Rs.2,47,72,535/- in the Assessment Order u/s.; 143(3) r.w. Sec.153A for the Assessment Year: 2012-13 in the assessee-company's own case, the opening stock for the subsequent assessment years may be re-worked by giving credit for the aforesaid addition of Rs.2,47,72,535/- to the closing stock value which in turn would modify the opening stock value for the previous year: 2012-13 i.e. Assessment Year: 2013-14 and so on. The assessee's above plea is considered and the same is acceptable. Owing to this, the addition on account of suppression in the value of closing stock is worked out at Rs.21,33,110/-. This sum is treated as suppression of stock for the Assessment Year: 2013-14 and is added to the total income.

13.1 Similarly, the Assessing Officer made addition towards difference in closing stock as per SAP vs. Return of income for the assessment year 2015-16 at ₹.32,25,318/-.

13.2 On appeal, the ld. CIT(A) has observed as under: 6.9. The last ground relates to AY 2013-14 to 2015-16 purported suppression of closing stock. The AR submitted that during the FY 2011-12 the appellant company switched over from Tally system of accounting to SAP system of accounting. The AO was of the view that there is variation in the value of stock as per SAP system and the value of stock reported in the return of income. The appellant duly given a reconciliation statement and reasons for the difference before the AO. Unfortunately this was not considered properly. The appellant vide its letter dated 14/ 12/2017 submitted as under “5. At the end of the financial year, the actual value of closing stock (with quantity) is furnished to central excise department. The copy is enclosed herewith.

36 & C.O. Nos. 132-133/Chny/18 6. In the SAP, the closing stock is valued at the weighted average rate for raw material and packing material. In the balance sheet, the closing stock is valued at cost price prevailing at the end of the month i.e. 31st March. It is the accounting standard followed by the company.

for both the AYs is hereby allowed. 13.3 Aggrieved, the Revenue is in appeal before the Tribunal for both the assessment years 2013-14 and 2015-16.

37. I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 13.4 The Ld. CIT-DR supported the computations made by Ld. AO. However, ld. AR submitted that the variation was only due to the fact that the assessee switched to SAP based accounting software.

13.5 We have considered the rival contentions. In the assessment order, the Assessing Officer has noted that there is variation in the value of stock as per SAP system and the value of stock reported in the return of income. Accordingly, the assessee has duly submitted the reconciliation statement and reasons for the difference before the Assessing Officer, which was unfortunately not considered. Before the ld. CIT(A) the assessee has produced copy of the actual value of closing stock (with quantity) as furnished to the Central Excise Department. After considering the detailed written submission filed by the assessee as was submitted before the Assessing Officer, which was not considered by him, the ld. CIT(A) has also considered the value of closing stock of ₹.2,47,72,535/- added by the Assessing Officer which was deleted in the appellate order dated 16.04.2018 and the Tribunal also confirmed the order of the ld. CIT(A) on further appeal by the Revenue. Accordingly considering the above addition in the closing stock, for the assessment year 2012-13, the addition on account of telescopic effect was made in the assessment years 2013-14 and 2015-16 for ₹.21,33,110/- and ₹.32,25,318/- 38 & C.O. Nos. 132-133/Chny/18 respectively. Since the value of closing stock of Rs.2,47,72,535/- has been directed to be deleted in the assessment year 2012-13, the addition on account of telescopic effect made for the assessment years 2013-14 and 2015-16 for ₹.21,33,110/- and ₹.32,25,318 respectively are liable to be deleted. Accordingly, the ld. CIT(A) has rightly deleted the addition made by the Assessing Officer for both the assessment years under appeal. Thus, we find no reason to interfere with the order passed by the ld. CIT(A) and the ground raised by the Revenue is dismissed.

14.4 The Ld. CIT-DR submitted that the assessee was unable to furnish any plausible explanation with respect to cash purchases made from market committee. The Ld. AR submitted that sufficient evidences were adduced by the assessee to support its claim.

14.5 We have heard both the sides, perused the orders of authorities below. In the assessment order, the Assessing Officer has stated that the 41 & C.O. Nos. 132-133/Chny/18 assessee has purchased copras directly from various market committees and regulated market which are controlled by Tamilnadu Agricultural Marketing board. However, the ld. CIT(A) has observed that the assessee acquires copra through various sources. One such source was obtaining copra from Market Committee, but not straight away acquired copra from Market Committee. The Market Committee conducts auction and the participant bid the auction. The Traders having permit and paying cess, acquire the copra from whom the assessee purchased the copra. In all the documents till the bidder obtains the quantity of auctioned copra from the market committee the documents such as cess payment challan etc. will be in the name of the successful bidder. But once the successful bidder transfers the quantity of copra to the end user, here it is VVD & Sons, the document viz., Permit to move the goods from the market committee to the end user will be in the name of VVD & Sons only. To substantiate the above submission of the assessee, for sample, following two documents have been furnished before the ld. CIT(A) viz., (1) Proof for payment of Cess by the trader M/s.Selva Vinayaga Oil Mill (cess receipt No, 467694 dated 15.11.2015) and (2) related Permit (No.552894 dated 15.11.2015) through which the trader transfers the copra to the assessee. From this, the ld. CIT(A) has noted that the assessee had not 42 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 indulged in purchases directly from market committee and the purchases were only from traders, which purchases were duly accounted. Without understanding these modalities the Assessing Officer came to the conclusion that the assessee had purchased copra from market committee and accordingly the impugned addition was made. Based on this wrongful conclusion, the Assessing Officer also calculated deemed gross profit. The ld. CIT(A) has further observed that for the AY 2015-16 the purported total purchases from the market committee had been taken at ₹.1,36,46,648/-. The gross profit arrived at on this illusory purchase was computed at ₹.2,09,10,485/-. This is to say the gross profit has been worked out at 153.22%. Thus, it was observed that by no stretch of imagination this gross profit can be achieved. In the AY 2016-17, such purchases have been taken at ₹.4,53,75,915/- and no gross profit has been worked out and surprisingly added the entire purchase cost. It is needless to say that the value of purchases made from the traders, who participated in the auction conducted by the Market Committee, has already been booked in the regular accounts. Thus it is clear that the Assessing Officer indulged in a futile exercise in making the impugned addition. By considering various documents produced by the assessee such as Permit to move the copra from the market committee to the 43 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 assessee, proof of cess payment by the successful bidder etc. which were furnished before the Assessing Officer during assessment proceedings, copy of the same were part of the appellate order, the ld. CIT(A) opined that the explanation offered by the assessee are plausible. After examining the permit to move the copra from the place of origin to the place of destination that is the factory of the assessee etc., the ld. CIT(A) further opined that even admitting but not accepting for a while that the assessee had indulged in purchases from market committee directly, neither the Investigation Team nor the Assessing Officer has found out any corroborative documents either to prove that the assessee indulged in purchase directly from the market committee or for corresponding unaccounted sales. Under the above facts and circumstances, we are of the considered opinion that the ld. CIT(A) has rightly deleted the addition of ₹.3,45,57,133/- for the assessment year 2015-16 and ₹.4,53,75,915/- for the assessment year 2016-17. We find no reason to interfere with the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed for both the assessment years.

15.4 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. In the assessment order, the Assessing Officer made addition on account of alleged on-money payment in acquisition of land. The case of the assessee is that the company has purchased 5.96 acre of land at Meliyur village for solar power project for ₹.6,27,420/- on 23.01.2015 and in addition to the above, the assessee also paid ₹.15,58,294/- [₹.15,58,294 less TDS ₹.15,439/-] towards land development charges by withdrawing ₹.19,00,000/- [₹.9,50,000/- on 05.01.2015 and ₹.9,50,000/- on 06.01.2015 from Axis Bank, Tuticorin and paid to Mr. R. Jeyabalaserma Ganesan, who was the intermediary and broker for the purpose of the land. The ld. 47 & C.O. Nos. 132-133/Chny/18 CIT(A) noted that the above payment was duly accounted for in the books of account and it is not an unaccounted transaction. After considering the submissions of the assessee, the ld. CIT(A) has noted that the actual cost of land was ₹.6,27,420/-. The balance Rs. 14,70,655/- represents land development charges and paid from the books of account, which was also shown to the Assessing Officer during assessment proceedings and the assessee proved to the satisfaction of the Assessing Officer that no unaccounted money was involved. However, the Assessing Officer erroneously added the sum of ₹.17,68,655/- as on-money payment, including brokerage of ₹.2,98,000/-. The ld. CIT(A) has observed that while resorting to the said addition, the Assessing Officer has not examined the vendor and recorded any sworn statement to bring on record that the vendor received any on-money payment. In the absence of any corroborative evidence supported by any sworn statement from the vendor, the ld. CIT(A) was convinced with the explanation offered by the assessee. Further, the ld. CIT(A) has observed that the assessee has offered substantial additional income for AYs 2010-11 to 2016-17 towards bogus bought notes to the extent of ₹.9,67,21,527/-. Under the above facts and circumstances, the ld. CIT(A) has rightly deleted the addition of 48 I.T.A. Nos.2153-2156/Chny/18 & C.O. Nos. 132-133/Chny/18 ₹.17,68,655/- and thus, we find no infirmity in the order passed by the ld. CIT(A) on this issue.

16.1 Before us, by reiterating the above submissions, the ld. Counsel for the assessee has submitted that once the payment was duly declared as income in the return filed by the payee (Mr. Chandrasekar), no addition could be made in the hands of the assessee and prayed for deleting the addition confirmed by the ld. CIT(A) for the assessment years 2013-14 49 & C.O. Nos. 132-133/Chny/18 and 2014-15. It was further submission that the ld. CIT(A) has confirmed the addition merely because the return of income has been filed belatedly by the recipients. However, the aforesaid fact would not jeopardise the claim of the assessee.

16.2 On the other hand, the ld. DR supported the order of the ld. CIT(A) on this issue.