DCIT, CENTRAL CIRCLE-1(3), BENGALURU vs. LATE SHRI MAHABIR PRASAD (LEGAL HEIR MS. PARUL KANSARIA), BENGALURU

This is the bunch of three Appeals and one cross Objection filed by the legal representative of late Sri Mahabir Prasad Kansaria (the assessee/appellant) and two appeals filed by The Deputy Commissioner of Income Tax, Central Circle – 1(3), Bangalore [The ld AO ], against the consolidated appellate order passed by The Commissioner of Income Tax (Appeals)–11, Bangalore (the learned CIT–A) dated 30/11/2023 wherein the appeals filed by the assessee against the assessment orders passed by the assessing officer against the assessment order u/s 153C read with section 144 read with section 153D of The Income Tax Act [the Act] for the assessment year 2017–18 to 2019–20 and under section 143(3) read with section 153D of the Act for assessment year 2020–21, are partly allowed. Therefore, both the parties are aggrieved and are in appeal before us.

The parties agreed that assessment year 2018–19 in and may be taken as the lead appeals.

Appeal filed by the assessee is late by 39 days for which the assessee has requested for condonation of delay by filing condonation petition supported by an affidavit. In the application Assessee submits that assessment order under section 153C read with section 144 read with section 153D of the Act was passed on 30.3.2022 for AY 2018–19 against which the assessee preferred an -412-169-170- CO 6/Bang/2024 Page 3 of 40 appeal before the CIT-A which was decided on 20/11/2023. When Order was received by the assessee, she immediately contacted the counsel and deputed one of her staff to coordinate with the present counsel for providing the complete papers. Later she found that papers were not sent to the present counsel for preparation of appeal, she immediately sent those to the legal counsel, and appeals were filed. This has caused delay of 39 days. It was submitted that the delay is not intentional but because of the negligence on part of the staff of the assessee, minimal, for bonafide reasons, so deserves to be condoned. Affidavit of legal heir was also submitted.

The learned authorised representative reiterated same arguments and requested that the delay is for sufficient cause, nominal and may be condoned.

The learned departmental representative vehemently objected to the same and submitted that no sufficient cause is shown and therefore the delay cannot be condoned.

We have Carefully considered the rival contention and find that the delay of 39 days in filing appeal by the assessee which is supported by the sufficient reason that the staff deputed for the work missed the responsibility of supplying papers to the counsel. An affidavit of the legal representative of the deceased assessee is also supporting the above facts. As delay is nominal, we do not find that there is any mala fide intention, accordingly, we condone the delay.

The brief facts of the case show that the Shri Mahabir Prasad Kansaria expired on 02/9/2020. He was carrying on business of manufacturing and sale of TMT bars in the name and style of BSNL Ispat, filed his return of income on 13/03/2019 showing the business income of ₹ 4,120,060/–.

Subsequently search u/s. 132 of the Act was conducted on 7/8/2019 in case of M/s A-one Steel and Alloys Limited, A-one Ispat Pvt. Ltd., VRKP steel Industries Pvt. Ltd. Residence of assessee was also searched. Consequently, cases were centralised, and The Deputy Commissioner of Income tax, Central Circle 1 (3), Bengaluru issued notice under section 153C of the Act on 17/6/2021 in the name of assessee.

As the notice was issued in the name of the deceased assessee, the legal hair of the assessee objected to the same. The objections were disposed of on 12 February 2022 holding that the notice addressed to the deceased person was valid and legal heir were directed to file the return of income. The assessee could not file the return of income as the details of the legal heir was not appearing on income tax portal which was intimated to the assessing officer on 9 March 2022. Thereafter notice under section 142 of the Act was issued on 3/3/2022 addressed to all legal heirs jointly.

In the notice, ld AO asked that (i) during search at the residence of the assessee certain paper sheets and images in mobile were found and seized which revealed that certain cash transactions were done which were not recorded in the books of accounts. The similar images were also found from the mobile phone of Mr Subodh Singhal at the factory premises of Assessee during survey. (ii) Seized material shows unaccounted cash sales for FY 2018–19 of ₹2,44,54,704/- for 46 days and for FY 2019 – 20 of ₹ 20,736,000/– for 68 days. (iii) Based on the material found from Samsung C–9 Pro mobile of Ms Parul kansaria during search proceedings confirmed in -412-169-170- CO 6/Bang/2024 Page 5 of 40 statement u/s 132(4) where in answer to Q.No. 51 dated 9/8/2019, she agreed that unaccounted cash sales of around ₹ 1.88 crores were made. (iv) Ms Kansaria also agreed in Q.No. 52, that there is an undisclosed cash sale of Rs 12.83 Crs. being unaccounted sales for 4 Financial years considering 10% of manufacturing sales. (v) On the above statement she admitted that there is a corresponding undisclosed income of ₹ 128,331,500/- for FY 2016–17 to FY 2019–20. It was also stated that all the purchases are done through account payee cheques payment and hence fully accounted. All the expenses are also fully booked. Based on the statement it was found that for AY 2017–18 sum of ₹ 23,624,000/–, for AY 2018–sum of ₹ 43,125,000/–, for AY 2019–20 sum of ₹ 42,750,000/– is unaccounted cash, for AY 2020–21 a sum of ₹ 20,736,000/– on the basis of disclosure made by Ms Parul of ₹ 18,831,500/– but evidence extracted during the post search revealed total unaccounted cash sales of ₹ 20,736,000/–. Accordingly, for all these are the undisclosed income chargeable to tax was determined at ₹ 130,236,000/–. (vi) Basis of some information assessee was found to have booked bogus purchases from three concerns namely M/s Vital Trexim Pvt. Ltd. of Rs. 77,62,500/-, M/s Van Udyog Exim Pvt. Ltd. of Rs 2,04,92,250/- and Grishneshwar Engineers Pvt. Ltd. of Rs. 1,55,60,250/-, so why this amount should not be added u/s 69C of the Act.

Assessee replied to this notice on 18/3/2022 and it was submitted that (i) Mr Mahabir Kansaria was not feeling well at the time of search and under pressure the statements were given therefore the legal heir claims that the statement taken during search may not be relied upon for the estimation of undisclosed income. Further it was stated that that he only was handling all the business affairs and other family members such as his wife and children were not actively involved in the business activities and operation. (ii) Assessee was not tech savvy and only to the extent of helping in computer and mobile operation, the help of children was taken otherwise the children of were not at that time actively involved in the business activity of BSLN Ispat which were only looked after by the diseased assessee. (iii) It was further stated that search proceedings continued for 4-5 days, and assessee was to regularly undergo dialysis. However, because of the presence of the income tax department officials he could not take treatment of dialysis during those days. When the proceedings were going on he fell in an uneasy several times. This was stated by his daughter in his statement also. As it was seen that the proceedings were not going to be completed unless some declaration was made, further in the absence of any dialysis facility the health of the -412-169-170- CO 6/Bang/2024 Page 7 of 40 diseased was deteriorating and therefore under pressure and in circumstances prevailing on that date to see that the search proceedings are concluded, assessee was made to give certain compromise statements at the time of search proceedings. (iv) Few of question and answers are extracted in the notice under section 142(1) of the Act and it was contended that the answers given in the statements were given under pressure and in the circumstances explained. (v) the above figures and projections have been totally given on estimated basis without support of evidence. (vi) objected to the extrapolation made. (vii) objected to the reliance upon the statement of Mr Subodh Singhal who was an employee of BSLN Ispat.

The learned AO rejected the explanation of the assessee on following points.

Similar additions of ₹ 23,625,000/– was made for AY 2017–18, ₹ 42,750,000/– was made for AY 2019-20 and ₹ 20,736,000/– was made for AY 2020–21 by respective assessment orders on account of unaccounted cash sales.

As per the information received from the investigation wing of income tax department, it was found that one of the companies was indulging in issuance of fraudulent fake invoices of huge amounts to -412-169-170- CO 6/Bang/2024 Page 10 of 40 other entities without actual supply of goods and services. Therefore, such entity was held to be a paper entity with no financial worth. The information was available with the Department that the late assessee has purchased goods of ₹ 7,762,500 from this entity.

The ld.AO analysed the financial statement and other details of these three parties and held that these are shell entities. Thereafter relying upon the decision of CIT v. Durga Prasad More (1971) 82 ITR 540 and Sumati Dayal v. CIT (1995) 80 Taxman 89 of the Hon’ble Supreme Court held that the above bogus purchases are required to be added to the total income of the assessee under section 69C of the Act. Accordingly, he made an addition of ₹ 43,815,000 as bogus purchases u/s. 69C of the Act for AY 2018–19.

Consequently, the assessment order was passed under section 153C r.w.s. 144 r.w.s. 153D of the Act on 30/3/2022 determining the total income of the assessee at ₹ 91,270,213/– wherein the major addition contested on unaccounted cash sales of business of ₹ 43,125,000/– and unexplained expenditure u/s. 69C of bogus purchases amounting to ₹ 43,815,000/–.

Similar assessment orders were also passed for AY 2017-18 wherein the addition of ₹ 23,625,000/– on account of unaccounted cash sales. For AY 2019-20 the unaccounted sale of ₹ 42,750,000/– was made. For AY 2020-21 the addition of unaccounted cash sales of Rs. 207,36,000/- was made.

Thus, the additions of unaccounted sales were made for AYs 2017- 18 to 2020-21 and unexplained expenditure of bogus purchases to the extent of ₹ 43,815,000/– was made for AY 2018-19. These were the issue in dispute before the learned CIT–A.

Appeals of the assessee for all these AYs were disposed of by passing a consolidated order on 30/11/2023. Before the learned CIT–A several jurisdictional grounds were also taken which were adjudicated by him against the assessee.

On merits, the learned CIT – A deleted the additions for AY 2017 – 18 and 2018 – 19 with respect to the unaccounted cash sales by paragraph number 7.5 – 7.7 of the appeal. He deleted the addition because for the impugned assessment year 2017–18 and 2018–19 was merely based on estimated basis and extrapolation based on the statement of concerned persons which is retracted during the assessment proceedings. It was further held that the assessment orders for these two years have not tackled this issue and does not contain any corroborative evidence either in the form of seized material/documents which indicate that such an unaccounted cash sale were being carried out in these two years. Hence the order for assessment year 2017 – 18 and 2018 – 19 is an attempt made to tax the unaccounted cash sales on estimated basis in absence of seized material specifically indicating such transaction is being carried out for these two assessment years. Further the statement recorded under section 132 (4) reproduced in the order for these two assessment years also do not refer to any such unaccounted cash sales specifically carried out for these two assessment years. Therefore, he deleted the addition of unaccounted cash sales for assessment year 2017 – 18 and 2018 – 19 against which the revenue has preferred an appeal before us.

With respect to the assessment year 2019 – 20 and 2020 – 21 he upheld the addition of unaccounted sales holding that the claim of the assessee that the gross profit at the rate of 10% is exorbitant is -412-169-170- CO 6/Bang/2024 Page 12 of 40 found to be logical and not in order. He held that the assessment order passed by the learned assessing officer has referred to the statement recorded u/s 132 (4) wherein it is clearly stated that in the manufacturing segment has an unaccounted cash sale of around 10% of recorded turnover of manufacturing over and above the declared turnover. The statement made under section 132 (4) has evidentiary value and cannot be simply brushed aside. Therefore, the admission of the appellant during search proceedings has been adopted by the AO in the assessment and accordingly the addition made by the AO based on statement under section 132 (4) at the rate of 10% of the declared turnover of the manufacturing was upheld. The crux of the issue is that the learned CIT – A has reached at the conclusion that statement given by the daughter of the assessee under section 132 (4) has evidentiary value and accordingly the addition was confirmed. Against this assessee is in appeal before us.

With respect to the bogus purchases for assessment year 2018 – 19 u/s. 69C of the Act of ₹ 42,815,000/– the learned CIT – A held that apart from stating that the relevant bills/invoices/payments details and GST returns have been submitted no other details has been furnished by the assessee to show that the purchases are real. Therefore, he upheld the findings of the learned assessing officer that so-called purchases from fictitious entities are nongenuine. He held that in the instant case both the purchases as well as the entities supplying the goods are fictitious and therefore the AO is justified in treating the entire purchase amount of ₹ 43,825,000/– as bogus. Accordingly, he confirmed the addition. The assessee is aggrieved and is in appeal before us.

Firstly, we come to the appeal of the learned assessing officer filed for assessment year 2017 – 18 in ITA number 169/Bengaluru/2024 and for assessment year 2018 – 19 in ITA number 170/Bengaluru/2024 wherein the learned assessing officer is aggrieved with the order of the learned assessing officer in deleting the addition of unaccounted cash sales.

The grounds of appeal in assessment year 2017 – 18 and 2018 – 19 raised are as under: - i. whether the learned CIT – (A) was correct on law and facts in disregarding the evidentiary value of statement recorded of the assessee and his daughter (the legal help) under section 132 (4) of the income tax act, which was further corroborated through seized documents found during search proceedings. ii. Whether the learned CIT – A was correct on law and facts in stating that the additions made by the assessing officer for the assessment year 2017 – 18 is incorrectly made as the same was based on estimation extrapolation about undisclosed cash sales. iii. whether the learned CIT – A was correct on law and facts in allowing the assessee’s appeal by recognising the modus operandi of tax evasion adopted by the assessee on the of for financial year i.e. 2016 – 17 to 2019 – 20 on the one hand and simultaneous live holding the additions made for the assessment year 2017 – 18 and 2018 – 19 is being based on surmises and conjecture on the other hand.

The learned departmental representative referred to the assessment order and submitted that the learned assessing officer has made any addition based on the statement made by the assessee but the learned CIT – A has deleted the addition in absence of any incriminating material available for that year. He submitted that when the assessee has categorically stated in his statement under section 132 (4) of the act, he should have upheld the addition as he has upheld the addition for subsequent years.

The learned authorised representative vehemently supported the order of the learned CIT – A. He submitted that search in the case of the assessee took place on 7/8/2019. The return of income was filed by the assessee for assessment year 2018 – 19 on 13/3/2019 and for assessment year 2017 – 18 on 7/12/2017. He referred to the submission made before the learned CIT – A which is placed at page number 54 of 98 to 56 of 98 of the order of the learned CIT – A. He submitted that for assessment year 2017 – 18 in absence of any incriminating material found during the search, the addition could not have been made in view of the decision of the honourable Supreme Court in case of The Principal Commissioner of Income Tax Central – 3 Versus Abhisar Buildwell Private Limited. He submitted that the date of filing of the return under section 139 of the act for assessment year 2017 – 18 was 7/12/2017 and search took place on 7/8/2019 and last date for the issue of notice under section 143 (2) was 30/9/2018 and therefore no addition could have been made in the hands of the assessee on account of unaccounted cash sales for assessment year 2017 – 18. This has been deleted by the learned CIT – A on this basis.

With respect to the assessment year 2018 – 19, he submitted that the addition has been made based on the alleged documents seized by the learned assessing officer which does not have any evidentiary value as it was a mere loose rough paper in the form of dumb document. He further referred to the decision of the honourable Supreme Court in case of Common Cause (Registered Society) And Others Versus Union of India wherein decision dated 11/1/2017 has held that additions made solely based on the statement without corroborative evidence is not permissible under the law. He further stated that even the statement of the assessee could also not be called to be an incriminating material. Therefore, there is no evidence available before the assessing officer for unaccounted cash sales for assessment year 2018 – 19 and therefore the addition has rightly been deleted.

He further referred to the paragraph number 7.6 of the appellate order wherein the learned CIT – A has categorically held that undisclosed unaccounted cash sales is based on the seized material found and admitted by the appellant were pertaining to financial year 2018 – 19 (relevant to assessment year 2019 – 20) and the financial year 2019 – 20 (relevant to assessment year 2020 – 21) whereas the additions were made in earlier assessment years i.e. assessment year 2017 – 18 and 2018 – 19 were based on estimated basis and extrapolated.

He further referred to the statement of Ms Parul concerned and stated that it is retracted during the assessment proceedings and therefore there is no evidence available for the above two assessment years in the documents and further same could not have -412-169-170- CO 6/Bang/2024 Page 16 of 40 been extrapolated based on the evidence pertaining to the subsequent years.

The learned departmental representative vehemently referred to the order of the learned CIT – A and submitted that when the addition has been made by the learned officer which is for subsequent assessment years, not have been deleted but for these two years additions were extrapolated based on the evidences found because of assessment proceedings and search for assessment year 2019 – 20 and 2020 – 21. Accordingly, the order of the learned CIT – A is not sustainable for assessment year 2017 – 18 and 2018 – 19 so far deleting the addition of unaccounted sales.

The ld AR in rejoinder referred to the page number 247 of the paper book which is a reply of the learned assessing officer before the learned CIT – A dated 26/9/2023. He referred to page number 251 of the paper book wherein the satisfaction note is mentioned. He stated that the satisfaction note in paragraph number 3 records that in the capacity of the assessing officer of the assessee he has examined the document mentioned and he is satisfied that the said seized documents have a bearing on the determination of the total income of the assessee and in view of the same notice under section 153C of the act is being issued for assessment year 2014 – 15 to assessment year 2020 – 21. He submits that this satisfaction note was recorded on 15/6/2021. According to him six years would be reckoned from the date of recording of the satisfaction. He submits that the notices under section 153C was issued on 17/6/2021 and therefore for assessment year 2017 – 18 the time limit for issue of notice under section 143 (2) expired on 30 September 2018 and further for assessment year 2018 – 19 it expired on 30/9/2019 -412-169-170- CO 6/Bang/2024 Page 17 of 40 therefore both the assessment years are unabated assessment years and could be disturbed only on the basis of the incriminating material found during the course of search. He further stated that for these years only the statement of the daughter of the assessee is the incriminating material and so the learned CIT – A has deleted the addition. He submitted that there is no error in the order of the learned CIT – A. He submits that even in the remand proceedings before the learned CIT – A, before the ITA T, no incriminating material are shown by the learned departmental representative. Therefore, for both these years the appeal of the learned assessing officer deserves to be dismissed.

For this proposition, ld AR further relied upon the decision of the honourable Delhi High Court in case of 155 taxmann.com 154 (Delhi) (2023) which has been confirmed by the honourable Supreme Court in 155 taxmann.com 155 (2003) assessee on 26/9/2023. He further submitted that this issue will also be relevant for assessment year 2020 – 21 for the case of the assessee in the appeals.

During hearing before us, ld DR was directed to show any evidence from the assessment order or any other document that unaccounted cash sales entered in to by the deceased assessee for these two assessment years. The ld DR could not.

We have carefully considered the rival contention and perused the orders of the learned lower authorities. In this case the assessment is made u/s 153 C of the act based on satisfaction recorded by the ld AO on 15/6/2021 where in the search took place on 7/8/2019. Therefore, the period of 6 years will be reckoned from the date of the satisfaction and not from the date of search.

The facts stated above clearly shows that assessment year 2017 –18 is unabated assessment year as it is concluded on expiry of time limit for issue of notice under section 143 (2) of the act. The last date for issue of notice under section 143 (2) for assessment year 2017 – 18 was 30/9/2018. Therefore, assessment year 2017 – 18 is a concluded assessment which could have been disturbed by the learned assessing officer only based on incriminating material found during search. We find that for assessment year 2017 – 18, the addition is made based on extrapolation of information pertaining to financial year 2019 – 20 (AY 2020-21) and 2020 – 21(AY 21-22). Therefore, it is apparent that there is no incriminating material found during search for the assessment year 2017 – 18. The honourable Supreme Court in case of Principal Commissioner of Income Tax Versus Abhisar Buildwell Private Limited (Supra), that the concluded assessment cannot disturbed in absence of any incriminating found during search. As there is no incriminating material found during the course of search mentioned in the assessment order, nor the ld AO could show it in remand report before the ld CIT (A) , and even the learned CIT DR also could not show us related to the unaccounted cash sales by the assessee, there is no infirmity in the order of the ld CIT (A) in deleting the addition made for this year.

Further merely because of admission in the statement of the daughter of the deceased assessee, which was retracted later, could not be stated to be an incriminating material.

In any case, statement u/s. 132(4) of the Act of Ms Parul Kansaria is without any incriminating material. The statement u/s. 132(4) also cannot be said to be incriminating material. This is also because of -412-169-170- CO 6/Bang/2024 Page 19 of 40 the reason that no person can incriminate himself by making a statement against himself.

Honourable Delhi High court in case of PCIT V Best Infrastructure Private limited [ 397 ITR 82 ] (Delhi) PCIT vs Best Infrastructure (India) (P) Ltd [TS-5668-HC-2017(Delhi)-O] where the question was Whether having regard to the materials seized in the course of search under section 132 and the statements made on behalf of the assessee, additions made by the Assessing Officer under section 153A, were not justified as held by the Income-tax Appellate Tribunal ?" The Honourable High court held that: - " Fifthly, statements recorded under section 132(4) of the Act do not by themselves constitute incriminating material as has been explained by this court in CIT v. Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta v. CIT (supra) where the admission by the assesses themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is non-existent in the present case. In the said case, there was a factual finding to the effect that the assesses were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission.

In CIT v. Anand Kumar Jain (HUF), (2021) 432 ITR 384: 2021 SCC Online Del 5706: (2021) 320 CTR 656 Honourable Delhi High court has held as under: - "9. In CIT v. Harjeev Aggarwal [2016] 6 ITR-OL 504 (Delhi) ; [2016] 290 CTR 263 ; [2016] SCC Online 1512** this court had held as follows (page 515 of 6 ITR-OL):

This case was challenged in the Supreme Court and SLP No. 13345 of 2018 was admitted. But subsequently, it was dismissed as withdrawn. Thus, the decision in Best Infrastructure(supra) has not been disturbed.

This case was subsequently referred to a larger Bench in the case of CIT v. M.S. Aggarwal(2018) 406 ITR 609 (Delhi) ; (ITA 169/2005), where subsequently the question was not answered as the referral court dismissed the same on account of low tax effect on August9, 2019. Thus, the decision in Harjeev Aggarwal (supra) continues to be the prevailing legal position.

Thus, the Decision of Best Infrastructure PCIT vs Best Infrastructure (India) (P) Ltd [TS-5668-HC-2017(Delhi)-O] holding that merely a statement u/s 132 (4) without incriminating material cannot be called incriminating material.

Further even otherwise that statement of Ms Parul Kansaria was also on estimate basis, and it is not the case of the assessee that she was handling the business and not the deceased assessee for this period. 44. Therefore, for AY 2017-18, following the decision of the honourable supreme court, we find that the learned CIT (A) has correctly deleted the addition, the appellate order is upheld. 45. Coming to the issue of assessment year 2018 – 19 we find that in this case the notice under section 153C of the act was issued on 17/6/2021 which is based on the satisfaction note recorded on 15/6/2021.Therfore for similar reason as for AY 2017-18, the -412-169-170- CO 6/Bang/2024 Page 23 of 40 addition could not have been made in this assessment year in absence of any incriminating material found during the course of search. As the incriminating material is pertaining to AY 20-21 and AY 2021-22 only, and none was shown to us pertaining to this Assessment year, we for similar reasons as given by us for AY 2017- 18, uphold the order of the ld CIT (A) in deleting the addition of unaccounted sales.

In view of above we dismiss both the appeal filed by the ld. AO for AY 2017-18 and 2018-19.

Assessee has filed cross objection in CO number 6/Bangalore/2024 for assessment year 2017 – 18 in appeal filed by the learned assessing officer in ITA number 169/Bangalore/2024, where in the assessee has challenged that there is no incriminating material found during the course of search therefore no other addition could be made in that assessment year. As assessee has also filed appeal for AY 2018-19, we deal with this CO along with that appeal where also similar grounds are taken.

For assessment year 2018 – 19 the assessee has also filed an appeal in ITA number 410/Bangalore/2024 raising following grounds of appeal: – i. The appellant denies himself liable to be assessed under section 153C read with section 144 read with section 153D of the act under the impugned order on the ground that: - A) the learned assessing officer has not discharged the burden of proving that there is a valid initiation of proceedings under section 153C to assume valid the jurisdiction to make an assessment under section 153C of the act.

The learned Authorised representative vehemently submitted that the assessee is aggrieved with the addition of ₹ 43,815,000/– made as an unexplained expenditure relating to bogus purchases from 3 parties. It was submitted that assessee is stated to have purchased the goods of ₹ 7,762,500/–from M/s Vital Trexim Private limited, RS. 20492250/- from M/S van Udyog Exim Private Limited and Rs. 1,55,60,250/- from M/s ExCom enterprises.

The first contention of the assessee is that assessment year 2018-19 is a concluded assessment which could have been disturbed only based on incriminating material found during search. If that be so the addition made by the ld AO of Bogus purchases did not arise from the incriminating material, but information received later. Therefore, on this ground itself the addition requires to be deleted.

He further submits that assessee has never purchased any goods from the first party M/s Vital Trexim Private Limited. These facts were before the assessing officer on 23/3/2022 and subsequently also. In the assessment order also, the learned assessing officer has not shown any evidence with respect to the purchases made by the assessee from this party. The books of accounts of the assessee were also there before him but it was not shown that whether there are any purchases made by the assessee from this party. He submits that when the assessee has not purchased any goods from the above party, there is no basis given by the learned assessing officer that how it was found that assessee has purchased goods worth ₹ 7,762,500 from the above entity.

He submits that all the purchases are accounted for in the books and there is no evidence that assessee has entered purchase of goods without entering the same into the books of accounts. In nutshell when the assessee has not purchased the goods as stated by the assessee, no addition could have been made. Therefore, the addition made on this account is not proper.

With respect to purchases from Van Udyog Private Limited of ₹ 24,022,250/– assessee submitted that assessee submitted the complete invoices, GST number, details of payment made to parties, bank statement for payment is done through account payee cheques and therefore it was submitted that these are genuine payments for purchases and could not have been added as unexplained expenditure.

He submits that there is no information provided by the learned assessing officer that above entity is nongenuine. He submits that financial affairs of the supplier cannot be the basis that addition can -412-169-170- CO 6/Bang/2024 Page 29 of 40 be made in the hands of the buyer. The assessee is a buyer who have received the goods against the invoices. No opportunity of cross-examination was provided by the learned assessing officer and on information with respect to the invoices were also mentioned by the learned assessing officer. He submits that as stated the above purchases are genuine, the addition could not have been made. He also submitted that what is the investigation made by the income tax department is also not given to the assessee. He submits that there is no basis that above parties held to be nongenuine. More so, the invoices from which the assessee has purchased the goods could also not be disputed. Accordingly, he stated that addition could not have been made of the above sum as unexplained expenditure.

With respect to the purchases from Grishneshwar engineering private limited where the addition is made the extent of ₹ 155,60,250/– it was submitted that that the facts of the company is identical as second entity. He submits that assessee has furnished the necessary details such as the Ledger account of the party, invoices and the payments were also made to that supplier company and therefore as the supplier is registered with the GST, the purchases could not have been bogus. It was submitted that assessee has received the goods along with the invoices.

On all the three entities it was further stated that at the most the addition could have been made in the hands of the assessee to the extent of the gross profit only. For this proposition the learned authorised representative relied upon the decision of honourable Bombay High Court in case of Principal Commissioner Of Income Tax – 17 Versus Mohammad Haji Adam & Co (2019) 103 Taxmann.Com 459 (Bombay) And Principal Commissioner Of Income Tax Versus -412-169-170- CO 6/Bang/2024 Page 30 of 40 Bharat copy Centre Private Limited (2023) 155 Taxmann.Com 211 (Bombay) wherein it has been held that where the assessee has made purchases from suspicious dealers, and use of this goods is not in dispute, the entire purchase consideration could not be brought to tax and only profit attributable and not total purchase consideration be subjected to tax. It was further held that when there is no discrepancy between the purchases shown by the assessee and sales declared, the addition must be restricted to bring the gross profit rate on purchases at the same rate as applied in other genuine purchases. Accordingly, he submitted that the addition could be made at the most to the extent of bringing the gross profit rate on these nongenuine purchases to the level of genuine purchases.

The learned departmental representative vehemently supported the orders of the learned lower authorities and stated that when the assessee has entered into bogus purchases from three different parties and it was submitted before the assessing officer that all the purchases are done through account payee cheques payment and all the expenses are also fully booked, there is no reason that only the gross profit addition should be made. He submits that in such cases hundred percent addition is correctly made by the learned AO and confirmed by the learned CIT – A.

On query, whether any incriminating material found during search with respect to bogus purchases, it was submitted that the addition is made based on information received from the investigation wing as stated in para no 9.1 of the assessment order.

We have carefully considered the rival contention and perused the orders of the learned lower authorities. We find that ld AO has -412-169-170- CO 6/Bang/2024 Page 31 of 40 categorically stated in the assessment order for AY 2018-19 at para no 9.1 itself that the addition of bogus purchase is made based on information received from the Investigation wing of the Income tax Department. Thus, the addition with respect to AY 18-19 on account of Bogus Purchases is made devoid of any incriminating material. This is also held by us while deciding appeal of the Ld AO for AY 2018-19. Therefore, the addition by the ld. AO on account of Bogus Purchases of Rs 4,38,15,000/- is deleted on that ground itself.

Accordingly, ITA number 410 Bangalore 2024 and CO no 6/bang /2024 filed by the assessee for assessment year 2018 – 19 are allowed.

ITA number 411/Bangalore/2020, is filed by the assessee for assessment year 2019 – 20 raising several grounds of appeal

The assessee challenged the same before the learned CIT – A wherein the addition was upheld holding that the statement recorded under section 132 (4) has evidentiary value and the retraction made by the assessee is self-serving and without any basis. For this proposition he relied on the decision of the honourable Supreme Court in case of Bannalal Jat Constructions (P.) Ltd. vs. Assistant Commissioner of Income-tax [2019] 106 taxmann.com 128 (SC)/[2019] 264 Taxman 5 (SC)[08-04-2019], decision of the honourable madras High Court in case of Commissioner of Income- tax vs. MAC Public Charitable Trust [2022] 144 taxmann.com 54 (Madras)/[2023] 450 ITR 368 (Madras)[31-10-2022]. He further held that the assessing officer has made the addition based on the seized material and statement recorded which has established beyond doubt that the appellant was involved in carrying of transaction of cash sales that were not accounted for. He also confirmed the addition to the extent of 10% of manufacturing activity.

Assessee aggrieved with the order of the learned CIT – A confirmed the same and submitted that books of accounts of the assessee have not been rejected at all. If the books of account have not been rejected that means the sales and purchases are accepted by the learned lower authorities. In such cases it was contested that merely the statement could not have been used for the purpose of the addition. This is so when it has been retracted later. He submitted that addition made merely based on statement and retraction of -412-169-170- CO 6/Bang/2024 Page 34 of 40 daughter of the assessee who was not conversant or not carrying on the business of BSLN Ispat. He vehemently submitted that when there is an actual unaccounted cash sales are found, only the gross profit embedded therein would have been added to the total income of the assessee. For this proposition he relied on the decision of the coordinate bench in case of APS Steels Private Limited in ITA number 1071 – 1073/Bangalore/2019 dated 28/9/2021, decision of Calcutta bench in ITA number 1005 and 1006/Kol/2024 dated 17/12/2024, decision of the Bangalore bench in case of KP Nagaraju in ITA number 177 – 181/Bangalore/2011 dated 911 2011. Therefore, it was submitted that only the gross profit should have been added to the total income of the assessee and not the total unaccounted cash sales.

The learned departmental representative vehemently supported the order of the learned CIT – A and stated that the statement recorded under section 132 (4) of the act is corroborated with the evidence found during search with assessee, his daughter, and his manager. Therefore, the addition is not made based on merely statement.

On the issue of the quantum of the addition he supported the order of the learned lower authorities and stated that once unaccounted cash sales are found, there is no reason that gross profit only to be added and not the entire unaccounted sales. It was further stated that assessee has failed to show any expenditure out of the above same and therefore there is no infirmity in the order of the learned lower authorities.

We have carefully considered the rival contention and the orders of the learned lower authorities. Based on the statement recorded under section 132 (4) of the act, which is after finding out the -412-169-170- CO 6/Bang/2024 Page 35 of 40 material from assessee, his daughter, his manager it was found that assessee is indulging in sales out of the books of account. Therefore, the statement made under section 132 (4) of the act is not merely a statement but is corroborated with the evidence and therefore it cannot be brushed aside as a dumb document. In view of this we do not find any infirmity in the order of the learned CIT – A rejecting the explanation of the assessee that merely based on the statement no addition could be made. The statement coupled with the evidence is the basis of the addition.

The next issue comes of the quantum of the addition. The assessee has claimed that 10% of the addition of manufacturing turnover of the assessee is presumed to be unaccounted sales and same has been added to the total income of the assessee. Therefore, the fact shows that 10% of the manufacturing turnover is unaccounted and which should have been added to the total income of the assessee. Thus, it shows that the gross sales which is not accounted for in the books of accounts of assessee has been added. Assessee has relied upon several judicial precedents and submitted that gross profit has been added in case of unaccounted sales found. He has supported the contentions with the several judicial precedents. The above income addition of ₹ 42,715,000/– is made as unaccounted cash sales and total income determined at ₹ 47,733,404/- without rejecting books of accounts.

The Division Bench of the Hon. Karnataka High Court in the case of CIT v. Anil Kumar & Co. [2016] 67 taxmann.com 278/386 ITR 702/2016 SCC OnLine Kar 8512, has held that in cases where the Revenue had failed to reject the books of account and proceeded to an estimation of income without framing the assessment under -412-169-170- CO 6/Bang/2024 Page 36 of 40 Section 144 of the Act, such an action is unsustainable as per law. The relevant paragraph of the said decision is reproduced as under: - "11. Insofar as the estimation of gross profit made by the Assessing Officer modified by the Commissioner of Income-tax (Appeals), the Tribunal has rightly held that when the books of account of the assessee had not been rejected and assessment having not been framed under section 144 of the Income-tax Act the said authorities were in error in resorting to an estimation of income and such exercise undertaken by them was not sustainable. Section 145(3) of the Act lays down that the Assessing Officer can proceed to make assessment to the best of his judgment under section 144 of the Act only in the event of not being satisfied with the correctness of the accounts produced by the assessee. In the instant case the Assessing Officer has not rejected the books of account of the assessee. To put it differently the Assessing Officer has not made out a case that conditions laid down in section 145(3) of the Act are satisfied for rejection of the books of account. Thus, when the books of account are maintained by the assessee in accordance with the system of accounting, in the regular course of his business, the same would form the basis for computation of income. In the instant case it is noticed that neither the Assessing Officer nor the Commissioner of Income-tax (Appeals) have rejected the books of account maintained by the assessee in the course of the business. As such the Tribunal has rightly rejected or set aside the partial addition made by the Assessing Officer for arriving at gross profit and sustained by the Commissioner of Income-tax (Appeals) and rightly held that the entire addition made by the Assessing Officer was liable to be deleted. The said finding is based on sound appreciation of facts and it does not give rise for framing substantial question of law."

We find that in this case for the impugned AY, order has been passed under section 153C read with section 144 of the income tax act, therefore, we do not find any infirmity in estimating in making an addition of unaccounted cash sales.

Therefore, now the issue is that whether the unrecorded sales in the books of account should result into addition only to the extent of profit earned out of the unrecorded sales. The ld. AR has relied upon several judicial precedents.

In & 1006/Kol/2024 for AY 2018-19 & 2019-20 in the case of DCIT v. Rajesh Jain dated 17.12.2024, the coordinate Bench relying upon the decision of the Hon. Gujarat High Court in the case of CIT vs. President Industries (124 taxmann.com 654), PCIT vs. Anumpam Organiser (Appeal No. 168 of 2020), CIT vs. Ajay Kapoor (36 taxmann.com 513) has held that where incriminating material found during the course of search reveals that there were unrecorded sales by the assessee, then only the profit rate can be applied to determine the income embedded therein. to 1073/Bang/2019 dated 28.9.2021 in the case of APS Steel Pvt. Ltd., the coordinate Bench has also held that when there is addition on account of suppressed sales, only profit embedded in unaccounted sales should be charged to tax. dated 9.11.2011 in the case of K.P. Nagaraju, the coordinate Bench relying upon the decision of the Hon’ble Madhya Pradesh High Court in the case of Man Mohan Sadani v. CIT reported in 304 ITR 52 has also held that when there is unrecorded sales, the entire sale proceeds cannot be added to the total income of the asse, but only the Net Profit ratio of the assessee as per books of account can be added.

In view of the above facts, we direct the ld. AO to only make the addition to the extent of gross Profit earned by the assessee out of the unaccounted sales of Rs.4,27,50,000. Assessee has stated it to be 2 %, which could not be verified by us in absence of annual -412-169-170- CO 6/Bang/2024 Page 38 of 40 accounts for those years. Accordingly ground No.9 of the appeal is allowed and all other grounds raised in for AY 2019-20 are dismissed.

Thus, the appeal of the assessee for AY 2019-20 is partly allowed. for AY 2020-21 filed by the assessee the ld. AO has made the addition of Rs.2,07,36,000 on account of unaccounted sales to the total returned income of the assessee of Rs.42,72,583 assessing total income at Rs.2,50,08,583 as per assessment order dated 30.3.2022 passed u/s 143 (3) rws 153D of the Act. The same was confirmed by the ld. CIT (A) and therefore the assessee is in appeal.

The Ld AR referred to the satisfaction note placed at paper book page no 251 which is part of the remand report submitted by the ld AO before the ld CIT (A) on 26/09/2023 where in the ld AO has recorded the satisfaction for issue of notice u/s 153C of the act for AY 2014-15 to AY 2020-21. He submits that despite recording satisfaction for issue of notice u/s 153C for AY 2020-21, the ld AO has passed the assessment order u/s 143 (3) rws 153D of the Act. He submits that no notice u/s 153 C of the act is issued by the ld AO. He referred to paragraph no 2 of the Assessment order to state that ld AO issued notice u/s 143 (2) of the Act, which is not correct, so the assessment order deserves to be cancelled.

On the merits, the arguments of the assessee are similar to that of the appeal of the assessee for AY 2019-20 wherein the only issue accepted is that whole of the sale consideration cannot be added to the total income of the asse, but only the profit embedded therein is required to be added to the total income when unrecorded sales are found.

The ld CIT DR was granted time to show that whether any notice u/s 153C of the Act is issued to the assessee for impugned assessment year, it was submitted that no such notice is available on file.

On careful consideration we find that for the impugned assessment year along with other assessment years, the ld AO recorded his satisfaction on 15/06/2021 that in view of the satisfaction, the notices u/s 153C of the act is to be issued for Ay 2014-15 to AY 2020-21. However, the assessment order passed by the ld AO based on the notice issued u/s 143 (2) of the act u/s 143 (3) rws 153D of the Act. Fact of issuance of notice u/s 143 (2) is mentioned at Para no 4 of the Assessment order. However, there is no reference of any notice issued to assessee u/s 153C of the Act. No such notice was also found on file. AY 2020-21 also falls within the six previous assessment years from the date of recording satisfaction u/s 153C of the Act. Thus, the assessment order which is required to be passed u/s 153C of the act as per the satisfaction note but is passed without issue of any notice u/s 153C of the Act cannot be sustained and hence, quashed.

In the result, the appeal filed by the assessee is allowed.

Accordingly, all the above appeals and cross objections are disposed of.