THE ACIT, KOLLAM vs. M/S.SABARI MILLENIUM IMPEX P. LTD, KOCHI

Per Bench :

2. The common grounds, except for variance in figures, raised by the Revenue in case of both the assessees are as follows:-

“1. The Commissioner of Income Tax (Appeals) erred in deleting the addition of Rs.7.36 Crores holding that the addition has been made only on suspicion and presumption.

2. The CIT(A) has ignored the statement of Shri Manish Khetan S/o Late Shri Gouri Shankar Khetan deposed before the Dy.Director of Income Tax (Inv) Unit 2(1), Kolkatta on 07.04.2016.

3. The CIT(A) has overlooked the fact the enormous funds have been obtained under the head “Loans & Advances” by the assessee from the Kolkatta based paper concerns, which had remained in the books of the assessee for period ranging from one to three years and on the basis of the principle of preponderance of probability these funds are to be treated as unexplained cash credits u/s 68 of the I.T.Act, 1961.” -493/Coch/2018 & Ors. 3 CO Nos.85-86/Coch/2018 & Ors. M/s.Sabari Swtich Gear Pvt. Ltd. M/s.Sabari Millennium Impex (P) Ltd. 3. The Cross Objections filed by the assessees, which are in support of the orders of the Assessing Officer, in both the appeals are as follows:-

“1. The Commissioner of Income Tax Appeals (III) Kochi has erred in rejecting the following technical grounds , on irrelevant and flimsy grounds.

2. The CIT has erred in rejecting the Appellant's ground of Appear on the question of Jurisdiction of the ACIT , Central Circle, Kollam , without even assigning Jurisdiction to him by the Director General or Principal Commissioner of Income Tax , Chennai by an order u/s 127 of the 1. T Act. Neither objection from the Appellant was sought for the transfer of Jurisdiction from ACIT, Corporate Circle , Chennai to ACIT , Central Circle, Kollam, nor an order U/s 127 of the 1. T Act was passed to that effect. So the ACIT , Kollam has passed the order U / s 143 (3) W.r.s 147 without jurisdiction.

3. The Commissioner of Income Tax should have noted that the Appellant has filed their objection u/s 124 (3) before the ACIT, Kollam, vide their letter dtd 16/10/2017 , which was not even dealt with by the ACIT Kollam in the order of assessment passed by him.

4. The Commissioner of Income Tax has erred in rejecting the contentions of the Appellant on the ground that the A.O has considered the objection. of the Appellant made against the re-opening of the assessment on the basis of the reasons recorded for re-opening the assessment. The CIT should have noted that the main objection of the Appellant was that the assessment was re-opened only on the basis of suspicion regarding the credits in the books of accounts of the Appellant and therefore the re- opening was against the directions. of the CBDT vide circular No. 40 of 2016 dtd 09/12/2016. -493/Coch/2018 & Ors. 4 CO Nos.85-86/Coch/2018 & Ors. M/s.Sabari Swtich Gear Pvt. Ltd. M/s.Sabari Millennium Impex (P) Ltd.

5. Based on the above objection of the Appellant, the order should have been quashed by the CIT Appeals on the ratio of the Supreme Court decision in the case of GKN Drive Shafts (India) Ltd Vs. ITO & Ors 259 ITR 19 and of the Madras High Court decision in Jayant Natrajan Vs ACIT 300 CTR (Mad) 225.

6. The Appellant craves leave to adduce additional grounds at the time of hearing.”

4. There was a short delay in filing these cross objections, as follows:- (i) M/s.Sabari Switch Gear Pvt. Ltd. for Asst.Years 2010-2011 & 2011-2012 – 8 days.

(ii) M/s.Sabari Millennium Impex Pvt. Ltd. for Asst.Years 2010-2011 & 2011-2012 – 8 days.

5. However, at the time of hearing before us, the learned Counsel for the assessee has not pressed the cross objections filed by the assessee. Accordingly, the same are dismissed as not pressed.

6. Coming to the Revenue’s appeals, the facts are identical in the case of both the assessees and for both the assessment years, except for variance in figures, hence, we reproduce the facts relating to M/s.Sabari Switch Gear Pvt. Ltd. for assessment year 2010-2011, as under:-

7.1 These grounds of appeal of the appellant relate to additions made u/s 68 of the I.T.Act.

7.2 The AO has passed identical orders for A.Y. 2010- 2011and 2011-12, contents of which are reproduced as under: -493/Coch/2018 & Ors. 5 CO Nos.85-86/Coch/2018 & Ors. M/s.Sabari Swtich Gear Pvt. Ltd. M/s.Sabari Millennium Impex (P) Ltd.

2. The assessee company, as mentioned earlier, is primarily a trader in export incentives received under Vishesh Krishi Gram Udyog Yojana (VKGUy), DP EB (Duty Entitlement Pass Book) and the like. The export incentives received by the Cashew exporters, Marine exporters who are mainly based in Kollam are purchased by the assessee and sold to importers based 'outside the State. Shri P Sunil Kumar also conducts the same kind' of business through his Companies as Managing Director. The businesses are i. M/s Sabari Quality Foods as proprietor ii. M/s Sabari Enterprises P Ltd as Managing Director ii. M/s. Sabari Millenium Exporters P Ltd as Managing Director and iii. M/s. Sabari Switchgear P Ltd as Managing Director

Road, Kolkatta

0 1279027551 28487253 167643487 7775455 Total iii. M/s.Ajay Iron and Steel P Ltd. Asst.Year Total Turnover Turnover Turnover Turnover Turnover with SQF with with Sabari with Sabari Enterprises Sabari Millennium Ltd. Switchgear Exports Pvt. Ltd. Pvt. Ltd. 0 0 0 0 0 2009-10 2010-11 0 0 0 0 0 2011-12 64841 0 64841 0 0 0 0 0 0 0 2012-13 2013-14 4034750 0 2555749 1479001 0 2014-15 4457276 0 2576166 1881110 0 2015-16 0 0 0 48718355 0 0 0 5196756 52078466 0 Total iv. Vani Exporters Asst.Year Total Turnover Turnover Turnover Turnover Turnover with SQF with with Sabari with Sabari Exnterprises Sabari Millennium Ltd. Switchgear Exports Pvt. Ltd. Pvt. Ltd. 120407959 15500035 58934156 0 45973768 2009-10 2010-11 125761421 118503685 87124 0 7170612 Total 0 134003720 59021280 0 53144380 It can be noted from the aforesaid mentioned tables that business mentioned in para 3 were having substantial transaction with the business of Shri Sunil Kumar, M/s.Sabari Millennium Exports Pvt. Ltd., Sabari Enterprises P Ltd. and Sabari Switchgear P. Ltd.

Asst.Year Gross Gross Gross Gross profit profit ratio profit ratio profit ratio ratio declared declared by declared declared by by Sabari Sabari by Sabari Sabari Quality Enterprises Millennium SwitchGear Food Ltd P. Ltd. P.Ltd. 2009-10 2.7 2 -- 2010-11 3.3 -- 12 11 2011-12 6.4 4.8 4.5 20 2012-13 4.6 2.6 5.4 15 2013-14 5.8 1.1 20 25 2014-15 3.6 6.4 18 52 As mentioned supra, the businesses of Sabari Group is declaring a profit of 1.1 to 52% for the Asst years mentioned above.

Basanth Impex and Shree Chao Impex

Asst.Year Total Turnover Total Income Gross profit Returned ratio declared 2009-10 1217756546 134990 0.10 2010-11 910675187 207600 0.14 2011-12 1884595022 252810 0.11 2012-13 1636835083 189540 0.28 2013-14 1194591232 218590 0.19 2014-15 801062840 291630 0.73 M/s.Ajay Iron and Steel P. Ltd.

Asst.Year Total Turnover Total Income Gross profit Returned ratio declared 2009-10 0 640 0 2010-11 0 5390 0 2011-12 0 66100 0 2012-13 0 372908 0 2013-14 0 331001 0 2014-15 3963751 449359 3.05 2014-15 69970609 2896310 3.43 -493/Coch/2018 & Ors. 9 CO Nos.85-86/Coch/2018 & Ors. M/s.Sabari Swtich Gear Pvt. Ltd. M/s.Sabari Millennium Impex (P) Ltd.

Mayur Impex

Asst.Year Total Turnover Total Income Gross profit Returned ratio declared 2009-10 652200365 143400 0.086 2010-11 139942304 167910 0.399 2011-12 433860902 179160 0.988 2012-13 965138557 214270 0.47 2013-14 6567873213 125770 0.62 2014-15 242906501 292310 2.49 2015-16 3594855 9830 57.76 Vani Exports

Asst.Year Total Turnover Total Income Gross profit Returned ratio declared 2009-10 2863662066 990900 0.60 2010-11 3031108532 760114 0.34 2011-12 845673545 211683 3.00 2012-13 2184183988 982890 0.42 2013-14 658241184 374514 0.60 2014-15 444409756 525030 1.06 2015-16 220741120 408150 2.92 Shyam International

Asst.Year Total Turnover Total Income Gross profit Returned ratio declared 2009-10 142628764 188960 0.60 2010-11 1862136442 211590 0.16 2011-12 607109343 94480 0.37 2012-13 403987517 206970 0.46 2013-14 -- -- IT not filed 2014-15 1651106916 265480 0.22 2015-16 2991294481 103420 0.28 It is evident from the declared turnover and total income returned that the Kolkatta businesses are not earning profits in the scale of Shri Sunil Kumar even though they are also doing the same business.

Khetan S/o of Late Gouri Shankar Khetan by the Deputy Director of Income tax (Inv.) Unit 2(1), Kolkatta on 07.04.2016.The substantive part of the statement is the answer to question No.10 which states.

“Apart from the above companies these are the concerns in which my family members and I are / were associated with.

Sl. Name of the Name of Nature of No. Concerns proprietor business 1 M/s Basanth Impex Late Gouri Deals in import Shankar Khetan licence. 2 Shree Chao Impex -do- -do- 3 Shyam International Mrs.Seema -do- Khetan 4 Mayur Impex Shri Manish -do- Khetan All these proprietorships concerns run from 9 Old China Bazar Street, Kolkotta-Ol " . Further he has stated that his late father Gouri Shankar Khetan managed and controlled all the above proprietorships and after his death he has taken over the business related work. In answer to question 12 he has explained that books of accounts of M/s Basanth lrnpex, M/s Shree Chao Impex, M/s Shyam International and M/s Mayur Impex are maintained by Sabari Group and are kept in their possession. He stated, they only put signature on legal documents, P&L Ale, Balance Sheet, Cheque books as per direction of Sabari Group. He also went on slate under Oath that M/s Basanth Impex, M/s Shree Chao Impex. Mis Shyam International and M/s Mayur Impex are controlled and mamaged by Sabari Group itself According to him all the business activities, books of accounts etc in respect of these proprietorships concerns were performed and maintained by Sabari Group. They were used only for signing authorities by Sabari Group. In lieu of signature they got commission from Sabari Group. He has further stated that the proprietorship concerns were only paper transactions, A copy of the aforementioned statement was furnished to the assessee along with notice U/S 142(1) on 29/11/2016. In their reply, an affidavit filed before the -493/Coch/2018 & Ors. 11 CO Nos.85-86/Coch/2018 & Ors. M/s.Sabari Swtich Gear Pvt. Ltd. M/s.Sabari Millennium Impex (P) Ltd. Judicial First Class Magistrate, Alipur stating that the statement given before the Income tax Authority was being retracted on the following grounds.

(ii) M/s.Basanth Impex, 9, Old Bazar, Street, Kolkatta- 700 001.

Another fact is that Shri Viswajith Menon. CEO of Sabari Group was one of the directors of this company. A copy of the statement was furnished to the Authorised Representative of the assessee in the case of Sabari Enterprises P Ltd. They have sought cross examination of Shri Ravi Biyala. Later. on 2211212016 the AR furnished -493/Coch/2018 & Ors. 13 CO Nos.85-86/Coch/2018 & Ors. M/s.Sabari Swtich Gear Pvt. Ltd. M/s.Sabari Millennium Impex (P) Ltd. a copy of the affidavit of Chartered Accountant Ravi Biyala's retraction Dated 2211212016. The retraction at this late hour can be taken as a after thought by Ravi Bayala or due to the influence made by the assessee. This retraction without an opportunity to cross examine the assesses witness cannot be accepted. Still. certainfacts like Shri Viswajith Menon being one of the directors of Mis Ajay Iron and Steel P Ltd and the company having bank accounts in Kollam ING Vysalya Bank. which came to light on account of the Statement cannot be denied.

10. The balance sheets of M/s Basanth Impex, Shyam International. Shree Chao, Mayur Impex, M/s Ajay Iron and Steel P Ltd was obtained U/S 131 of the Act. As per the balance sheet schedules of Mis Basanth Impex. they have Sundry Creditors and Sundry Debtors. Where as the asseessee has grouped the receipts under loans and advances for A Y 2010-11. Similarly the facts narrated above makes the following abundantly clear: a. Shri P Sunil Kumar is the main person conducting the business of trading in export incentives either as proprietor or through his three other companies mentioned in para 2 of this order b. The Kolkotta based proprietorships namely Mis Basanth Impex, Shree Chao Impex, Mayur Impex, and Shyam International are having substantial transactions with businesses of P Sunil Kumar. and his other companies Sabari Millenium Impex P Ltd. Sabari Enterprises P Ltd. Sabari Switchgear P Ltd. c. Though on books they have trade activity with Shri Sunil Kumar or this Companies. Mis Basanth Impex, Shree Chao Impex, Mayur Impex and Shyam International do not have income in the scale of Shri Sunil Kumar. In fact they have only income in the range of I to 9 lakhs in spite of heavy turnover. This meager income cannot be account of any trade activity but some fees or commission for services rendered. d. All the aforementioned Kolkotta businesses are functioning from the same address and the fact that -493/Coch/2018 & Ors. 14 CO Nos.85-86/Coch/2018 & Ors. M/s.Sabari Swtich Gear Pvt. Ltd. M/s.Sabari Millennium Impex (P) Ltd. they are only businesses on paper are strengthened on the above facts.

Ajay Iron and Steel : 39300000 Basanth : 13451136 (c/b 19400388, o/b 5949252) -493/Coch/2018 & Ors. 15 CO Nos.85-86/Coch/2018 & Ors. M/s.Sabari Swtich Gear Pvt. Ltd. M/s.Sabari Millennium Impex (P) Ltd.

Syam International : 20927465 (c/b 22250,000, o/b 1322535)

As the balances are in the company, the balances are added u/s 68. Addition on account of this Rs.7,36,78,601/-.”

7. Aggrieved by the order of assessment, the assessee preferred appeal to the first appellate authority. The CIT(A) observed as under:-

7.4. I have gone through the assessment order and submission of the appellant. The order passed by the AO is identical to the orders passed in the cases of Shri P. Sunil Kumar and M/s. Sabari Enterprises Pvt. Ltd. The AO has reached his conclusion in para 10 of the assessment order, which has been reproduced earlier in this order. However! even at the cost of repetition, contents of para 11 of the assessment order are reproduced as under: 11. On an examination of the books of accounts of the assessee and his companies it is noted that enormous funds have obtained under the head loans and advances from the Kolkotta businesses. These loans are non interest bearing and remained in the books for period ranging from one to three years. Such substantial amounts loaned by businesses with meager income lacks credibility even though obtained through banking channels. Round tripping of funds or ploughing back of funds seem to be a clear possibility. On the basis of the principle 'of preponderance of probability these funds are income of the assessee and treated as unexplained cash credits u/s. 68 of the Act.

From the above, it is seen that, the AO has himself accepted that the transactions are through banking channels, and, therefore, genuineness of these transactions cannot be doubted. However, the AO suspects that there is a possibility of round tripping of funds or ploughing back of funds is also a possibility, and with these remarks, the AO added the difference between opening and closing balance as income of the appellant u/s.

8. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee’s group cases, in the case of Shri P.Sunil Kumar, Sabari Quality Foods in & Others. The Tribunal vide its order dated 13.12.2018 held as under:-

“7. We have heard the rival submissions and perused the record. The seized material marked as SKP/KLM/DA 1 to 23 clearly showed a lot of trade activities between the assessee and these companies namely, M/s.Sabari Enterprises P Ltd, M/s. Sabari Millenium Exports P Ltd, M/s. Sabari Switchgear P Ltd , and Basanth Impex, Shyam International, Sree Chao Impex, Ajay Iron and Steel P Ltd, Vani Exports and Mayur Impex. The narrated facts in earlier pages of this order in the tabular form proved the trade activities carried on by the assessee with the alleged parties. The Assessing Officer has not denied these business transactions with the alleged parties. The assessee is a trader of DEPB import licences. The assessee purchases these licenses from exporters in Kerala and other -493/Coch/2018 & Ors. 17 CO Nos.85-86/Coch/2018 & Ors. M/s.Sabari Swtich Gear Pvt. Ltd. M/s.Sabari Millennium Impex (P) Ltd. neighbouring states and sells them to these Kolkota based companies and who sells it to other importers. These alleged Kolkota based companies acted as middlemen between the assessee and the final buyers, i.e. importers and, therefore, these Kolkota based companies have no option but to operate on thinnest of margins. Search was conducted at the residential as well as business premises of the assessee, Shri Sunil Kumar and consequently, statement of Shri Mahesh Khetan, s/o Late Shri Gauri Shankar Khetan, who managed the affairs of M/s. Basanth Impex, Shree Chao Impex, Shyam International and Mayur Impex, was recorded by DDIT, Kolkota, wherein Shri Mahesh Khetan stated that “all the business activities, books of accounts etc. in respect of these proprietory concerns were performed and maintained by Sabari Group. They were used only for signing authorities by Sabari group. In lieu of signature they got commission from Sabari group”. However, Shri Mahesh Khetan, later retracted from his statement claiming that the statement from him was taken exerting undue pressure and force. Subsequent to retraction by Shri Mahesh Khetan, the Assessing Officer did not carry out any further investigation and relied on the statement originally recorded by the DDIT, Kolkota. In the statement, originally recorded by the DDIT, Kolkota, Shri Mahesh Khetan stated that the books of accounts of his concerns, i.e., Basanth Impex, Shyam International, Vani Exports etc. were maintained by the assessee Shri P. Sunil Kumar. However, search was conducted at the premises of the assessee, and if the books of Mahesh Khetan’s group were found at assessee’s premises, the Assessing Officer would have mentioned the same in the assessment order. Obviously, the books of accounts relating to Shri Gauri Shankar Khetan and Shri Mukesh Khetan group of cases were not found within the contents of original statement of Shri Mahesh Khetan recorded by DDIT, Kolkota are not true and cannot be relied upon. Similarly, statement of Chartered Accountant, Shri Ravi Biyala was recorded, who also retracted subsequently. During the course of assessment proceedings, since the Assessing Officer was using these statements against the assessee, the assessee requested cross-examiantion of Shri Khetan and Shri Biyala, which was not given by the Assessing Officer as there was no sufficient time available with the Assessing Officer. As seen from the facts of the case, the Assessing Officer has not found any mistake in the books of account maintained by the assessee and he has not rejected the assessee’s books of account. The addition made by the AO was mainly based on the statement recorded from Shri Manish Khetan who later retracted his statement and therefore, much credence cannot be given to the statement recorded from these -493/Coch/2018 & Ors. 18 CO Nos.85-86/Coch/2018 & Ors. M/s.Sabari Swtich Gear Pvt. Ltd. M/s.Sabari Millennium Impex (P) Ltd. persons as we do not know whether the statement is correct as they have not brought on record any corroborative evidence. Further, the Assessing Officer has not given opportunity of cross examination of these persons to the assessee. The books of accounts of these concerns were duly audited and they have filed the returns of income. The Department having accepted their returns of income, it is not possible to reject certain entries without bringing in any contra evidence against those entries. The main reason for making the addition in the hands of the assessee is that the other concerns were doing business with very low margin of profit. The Assessing Officer suspected extending such huge advances to the assessee. In our opinion, suspicion cannot be reason for making additions and it cannot replace the evidence on record. As rightly pointed out by the CIT(A), neither the Assessing Officer nor the Investigating authorities have brought on record any incriminating documents to suggest that the assessee is holding unaccounted income which was lend to the certain persons and got it back as loans and advances. The Assessing Officer cannot draw inference on the basis of suspicion, conjuncture and surmises. Suspicion cannot take place of material in support of the findings of the Assessing Officer. The Assessing Officer should act in a judicial manner, proceed with judicial spirit and should come to judicial conclusion. The Assessing Officer is required to act as a reasonable person and not arbitrarily and capriciously. The assessment should be made on the basis of adequate material and it should stand on its own legs. The Assessing Officer without examining the issue properly, he cannot come to the conclusion that the assessee had advanced loans to other business concerns and got it back. The evidence brought on record by the Assessing Officer does not suggest that the source of funds received from the alleged parties was sourced by the assessee. Addition was made only because of low profit margin of the parties who had advanced money to the assessee. These are the assessments u/s. 153A of the Act. The documents relied on by the Assessing Officer for the purpose of determining the income of the assessee is to be put before he assessee for comments or for cross examination. More so, if the Assessing Officer wants to rely on any statement of third party, the same is required to be furnished to the assessee and if the assessee wants to cross examine any of the parties whose statements were relied on by the Assessing Officer, the same is to be provided to the assessee.

7.1 In the present case, the assessee is having grievance of not being provided an opportunity of cross examination of the parties whose -493/Coch/2018 & Ors. 19 CO Nos.85-86/Coch/2018 & Ors. M/s.Sabari Swtich Gear Pvt. Ltd. M/s.Sabari Millennium Impex (P) Ltd. statements were relied on by the Assessing Officer while framing the assessment, though the said parties retracted the statements. According to us, not allowing the assessee to cross examine the parties whose statements were relied upon to make addition in the impugned assessment order is a serious flaw which makes the order null and void in as much as it amounted to violation of principles of natural justice because of which the assesses were adversely affected. More so, the circumstances surrounding the case are not strong enough to justify rejection of the assessee’s plea of providing opportunity of cross examination. In the present case, the entire evidence has to be appreciated in a wholesome manner and even when there is a documentary evidence, the same can be overlooked if there are surrounding circumstances to show that the claim of the assessee is opposed to the normal course of human thinking and conduct or human probabilities. There is difficulty in rejecting the assessee’s plea as opposed to the normal course of human conduct. The evidence collected by the lower authorities was not enough to establish their stand that the main transactions carried out by the assessee with the above parties were only paper transactions and only accommodation entries. As discussed earlier, there is no evidence which was brought on record to directly show that these transactions are accommodation entries. Therefore, no addition could be made on account of these alleged transactions in the hands of the assessee by treating them as unexplained credits u/s. 68 of the Act. In our opinion, transaction shall be accepted to be real as there is no evidence showing otherwise. Further, the surrounding circumstances apart from the direct evidence in the instant case did not contain anything which belied the claim of the assessee. In view of this we are of the opinion that the addition made by the Assessing Officer cannot be sustained. As such, the CIT(A) is justified in deleting such additions made u/s. 68 of the I.T. Act and confirm the order of the CIT(A). Similar ground was raised in other appeals. This ground of appeals of the Revenue is dismissed for all the assessment years.”

9. In view of the above order of the Tribunal, we do not find any infirmity in the order of the CIT(A) on this issue. Accordingly, the ground raised

by the Revenue before us, in case of both the assessees, for both the assessment years, are dismissed. -493/Coch/2018 & Ors.

20. CO Nos.85-86/Coch/2018 & Ors. M/s.Sabari Swtich Gear Pvt. Ltd. M/s.Sabari Millennium Impex (P) Ltd.

Order pronounced on this 16th day of September, 2019.