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Income Tax Appellate Tribunal, PATNA BENCH, PATNA
Before: SHRI SANJAY GARG & DR. MANISH BORAD
आदेश/O R D E R PER BENCH:
The captioned appeals filed by the assessee & Revenue, pertaining to assessment years 2013-14, 2015-16 to 2018 are directed against the orders passed by the Learned Commissioner of Income Tax (Appeals), Patna-3, (hereinafter referred to as the ‘ld. CIT(A)’) even dated 11th October, 2021 2013-14, 2015-16 to 2018 passed u/s 250 of the Income Tax Act, 1961 (‘Act’).
Since the issues raised in the instant appeals are common and assessee’s are part of same business group, these appeals have been heard together and are being disposed off by this common order for the sake of convenience and brevity.
Both the assessee(s) in appeal before us are part of Aligarh Locks(P) Ltd. (ALPL), which is engaged in manufacturing and trading of iron rods, Ms Steel and Shutter section. This group was subjected to search and seizure action u/s 132 of the Act
Though the Revenue has raised as many as five grounds of appeal, but the sole grievance is that the ld. CIT (A) erred in deleting the addition of ₹2,37,30,852/- made by the ld. AO by estimating the net profit. Facts in brief are that the assessee i.e. Piyush and Associates Pvt. Ltd., which was subjected to search and seizure action, Tally data in the name of M/s Jai Durge, was found, wherein various transactions of purchase and sale and bank were appearing. The ld. AO was of the view that in this tally in the name of Jai Durge all the transactions of the Aligarh group, were recorded (whether or not disclosed in regular books of accounts). He further took out the average gross profit rate considering the Gross Profit rate offered by ALPL in its regular books and that of the assessee, Piyush and Associates Pvt. Ltd. and the same was computed at 4.40%. Thereafter, ld. AO considering the ratio of turnover offered in the regular books, bifurcated the turnover appearing in the Tally Data in the name of Jai Durge account and then computed the profit of the assessee alleging it to be the profit on unrecorded sales. Aggrieved assessee preferred the appeal before the ld. CIT (A) and succeeded.
We have heard the rival contentions and perused the records placed before us. The revenue is aggrieved with the deletion of addition made towards estimated profit from the alleged unrecorded sales appearing in sales Tally Data in the name of ‘Jai Durge’. We further observe that the ld. AO has applied the average gross profit rate and treated the total sales appearing in ‘Jai Durge’ Tally data as unrecorded. Further, before ld. CIT (A) the contention raised by the assessee reads as under:
“We humbly submit that the above grounds are common for all Assessment Years, which the figures which vary for each assessment year. During the course of assessment, it was submitted that said account of Jai Durge is nothing but a trial consolidation of accounts of group companies ie Aligarh Locks Private Limited and Piyush & Associates Private Limited. It is further submitted that the trial action of merging/ consolidation of accounts of both the companies by an inquisitive accountant in the office of the assessee resulted in production of such absurd and unreliable data. It is submitted further that following defects exist in the said data so seized from the assessee There is no reference of share capital in the said data which the seed for earning any income. There is no reference of opening and closing stock in the said data. It is beyond doubt that any business will not have any residuary stock at the close of financial year. Difference in opening balance also renders the said data faulty and unworthy of any reliance The assessee deals with excisable goods and as such cannot move the same across the places without valid permits in this regards. No vouchers and supporting bills as noted in the said account were recovered from the assessee . No undisclosed bank account to the effect of having been utilized for executing such huge transactions was found during the entire period of search. During the entire vat and excise assessment, no undisclosed sale and purchases were found. Copy of audit report from excise department is enclosed. In the entire report, there is no finding of any undisclosed sale or purchase.
“Appellate finding and decision I have gone through the finding of AO and submissions made by AR and of the view that AO has not proved any nexus between seized material and the audited financial statements of the appellant. Absence of opening stock and no disclosure of capital in the data inders the same defective, furthermore, the difference in opening balance also suggests that the data is not correct. Furthermore, there is no finding that all entries in bank accounts of the purported consolidated tally data in the name of "Jai Durge" contain all the entries in the actual books of the assessee. The assessee deals in voluminous items of iron rods, MS steel and shutter materials. These being voluminous in nature cannot be carried without issue of road permits. The AO has not disputed the quantitative details furnished by appellant in the audited financial statements. The appellant had furnished copy of excise audit report before the AO. Even the excise department ha not noted any discrepancy in the audited financial statements. The AR further drew my attention to the fact that no adverse inference has been drawn by Sales-lax\VAT department, thereby accepting the sales disclosed in the audited financial statements. In the light of above facts, the addition on account of differential sales determined on the basis of pendrive seized during the course of search is hereby deleted.”
From perusal of the above finding of the ld. CIT (A) and examining the same in light of the facts narrated in the written submission filed before the ld. CIT (A) as well as before us, we notice that the assessee is registered with the excise department and the movement of excisable goods is recorded in the register/ records mandated under the excise Act. We also notice that there is no reference of opening and closing stock and also no reference of share capital or other business funds. Apparently except Tally for A.Y. 2018-19 (Piyush & Associates (P) Ltd.
Now, we take up the assessee’s appeal in relevant to A.Y. 2018-19. The sole grievance of the assessee is that the ld. CIT (A) erred in treating the difference in value of physical stock and stock appearing in the books amounting to ₹9,08,766/- as undisclosed purchase of the assessee.
We have heard the rival contentions and perused the records placed before us. We observe that during the course of search and survey action, the physical stock at the godown was valued at ₹4,08,96206/- but the total sotck in the books of accou as on 14th March, 2008,as found at ₹3,99,15,440/-. The difference has been 79 & 80/PAT/2021 for A.Y. 2015-16 & A.Y. 2016-17 (Prominent Financial Advisory P. Ltd.) 12. Now, we take up and 80/PAT/2021, in case of the assessee namely Prominent Financial Advisory Pvt. Ltd. for A.Ys. 2015-16 & 2016-17.
The common issue raised in both the appeals is against the estimated disallowance of interest expenditure at ₹4,64,520/- and ₹6,81,334/- for A.Y. 2015-16 and 2016-17, respectively.
We have heard the rival contentions and perused the records placed before us. We observe that the ld. AO while carrying out the assessment proceedings for the impugned assessment year, based on information gathered during search and seizure action u/s 132 of the Act, made certain additions for unexplained credits which were in the form of amount received from existing loans and & 103/Pat.2021 for A.Y. 2016-17 and 2017-18 (Prominent Financial Advisory P Ltd.) 15. Now, we take up the Revenue’s appeal in & 103/PAT/2021 in case of the assessee namely Prominent Financial Advisory Pvt. Ltd. for A.Y. 2016-17. Though the Revenue has raised detailed grounds of appeal but the grievance is only limited to the deletion of addition made u/s 68 of the Act at ₹2.04 crore and ₹2,28,87,500/- for A.Y. 2016-17 and 2017-18 and partly deleting the disallowance of expenses at ₹20,44,002/- for A.Y. 2016-17.
16. So far as the issue raised for deletion of disallowance of expenses of ₹20,44,002/-, we find that the same has already been dealt by us in the preceding paras, while adjudicating the 17. So far as, the issue of deletion of addition made u/s 68 of the Act is concerned, facts in brief are that the ld. AO while carrying out the assessment proceedings, noticed that during the year assessee has received the funds from certain companies. It was stated by the assessee during the assessment proceedings that the alleged sums were received from sale of investment. It was also submitted that the assessee received share capital and share premium amounting to ₹13.80 crore during the F.Y. 2007-08 and that the funds available with the company have thereafter being utilized making investment in the equity as well as giving loans and advances. Thereafter, the assessee kept on liquidate its investments year to year. From any 2011-12 to 2017-18, assessee has received around 9,15,25,000/- and the year wise amount received reads as under: -
A.Y. Amount 2011-12 1,52,37,500/- 2012-13 65,00,000/- 2013-14 88,00,000/- 2014-15 54,00,000/- 2015-16 1,23,00,000/- 2016-17 2,04,00,000/- 2017-18 2,28,87,500/-
“Appellant’s Contention The Id AO noted that The modus operandi employed by the assessee group to route its unaccounted money in the garb of selling of investment of Kolkata based paper companies. Once, the money is credited in the bank account of the assessee, he is free to utilize it in whichever way he desires. In the instant case', the company has received share premium from IS companies which include 12 Kolkata based paper company and transferred the amount to other Kolkata based shell companies showing them as their investment in unquoted securities. The group has sold corresponding unquoted securities investment in Kolkata based shell companies in subsequent A.Ys for the purpose of routing their unaccounted income. The assessment year wise details of infusing its unaccounted income in the garb of selling or investment are as under:- A.Y. Amount 2011-12 1,52,37,500/- 2012-13 65,00,000/- 2013-14 88,00,000/- 2014-15 54,00,000/- 2015-16 1,23,00,000/- 2016-17 2,04,00,000/- 2017-18 2,28,87,500/- Total 9,15,25,000/- The Id AO further noted that questions were asked to Sh. Piyush Nandan regarding the purchase of shell company namely M/s Prominent Financial Advisory Pvt. Ltd. in F.Y. 2010-11 with share premium of Rs. 13.24 crores. The company has received share premium from 15 companies which include 12 Kolkata based paper company. The group has sold corresponding unquoted securities investment in Kolkata based shell companies in subsequent Asst Years for the purpose of routing their unaccounted income. During the course of assessment proceedings, the Id AO further asked the appellant to explain why Rs. 13.24 crores should not be added as undisclosed income in total income of the assessee vide questionnaire dated 18/10/2019. The questionnaire is reproduced as under:
It is submitted that the assessee company has made investment in various companies through account payee cheques only, redemption of which has also been effected from time to time through account payee cheques only. The fact of assessee company having made investment in paper companies is not been proven. Furthermore, there is no dispute that the assessee was in possession of share capital and premium which was scrutinized u/s 143(3) r.w. 147 of the act and found correct by the department. Further no material whatsoever has been seized by the department during the entire search and seizure proceedings to suggest that the capital and premium in possession of the assessee company were fictitious. It is humbly submitted that since no anomaly has been found by the department in the share capital and premium of the assessee company so subscribed before the check period, and no transfer of shares of any fictitious nature has been effected during the entire check period, no adverse view may be taken. This is classic example where additions have been made for receiving amount upon liquidation of investments held since long and duly scrutinize duly income tax department u/s 143(3) of the act. It may further be submitted that all the sums so liquidated have been received by through banking transactions and copies of bank statements evidencing the same
“I have gone through the finding of AO and submissions made by AR and of the view that AO has not proved any nexus between seized material and the audited financial statements of the appellant. Mere statement of the searched person cannot be basis of making addition in respect of investments which have been liquidated by it and proceeds received through account payee cheques. Furthermore, the appellant has not enhanced any capital or received any unsecured loan during the entire period where proceedings were conducted. The case of the appellant was also scrutinized by department u/s 143(3) of the act for asst year 2008-09. On perusing the audited financial statements, it is seen that no change in share capital and unsecured loan has been effected. The AO simply, relying on the statement of Sri Piyush Nandan, believed that the company is a bogus company as it did not hold any AGM nor declared any dividend. It is now clear that statements recorded during search have no evidentiary value unless some concrete material is otherwise found in the course if search. In the present case, the AO has not pointed out to any other aspect except non carrying of AGM and non-declaration of dividend. The observation of the AO does not appear to be correct as necessary AGM is carried out annually and details thereof are filed with the Registrar of Companies, working under Ministry of Corporate Affairs, Government of India. Non-declaration of dividend is no ground as the company has not generated sufficient profits to declare dividend and it is beyond business prudence to declare dividend out of capital and other reserves besides procuring permission from central government for doing so.
In the result, the appeal of the assessee in are allowed and that of the Revenue in are dismissed.
Order pronounced in the Court on 21st October, 2024 at Kolkata.