DCIT, CENTRAL CIRCLE- 19, NEW DELHI vs. AMQ AGRO INDIA PVT. LTD., NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI K.NARASIMHA, JUDICIAL MEMBER ITA Nos.2801 to 2803, 169 & 2804/Del/2018 Assessment Years: 2008-09 to 2012-13 AMQ Agro India Pvt. Ltd., Vs ACIT, C-134, Ground Floor, Central Circle-19, Defence Colony, New Delhi. New Delhi. PAN: AAECA0929M ITA Nos.4287 to 4289, 1499, 4290/Del/2018 Assessment Years: 2008-09 to 2012-13 ACIT, Vs. AMQ Agro India Pvt. Ltd., Central Circle-19, C-134, Ground Floor, New Delhi. Defence Colony, New Delhi. PAN: AAECA0929M (Appellant) (Respondent) Assessee by : Shri Hiren Mehta, CA, Shri Ashwani Gupta, CA Revenue by : Ms Pramita M. Biswas, CIT, DR Date of Hearing : 05.03.2020 Date of Pronouncement : 29.05.2020 ORDER PER R.K. PANDA, AM:

ITA Nos.2801 to 2803, & 2804 /Del/2018 filed by the assesse and ITA Nos. 4287 to 4289 &, 4290/Del/2018 filed by the Revenue are cross appeals and are

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 directed against the order dated 28th March, 2018 of the CIT(A)-27 for A.Y. 2008- 09 to 2010-11 and 2012-13 respectively. ITA No.169/Del/2018 filed by the assessee and ITA No.1499/Del/2018 filed by the Revenue are cross appeals and are directed against the order dated 26th December, 2017 of the CIT(A)-27 for A.Y.2011-12. Since common issues are involved in all these appeals therefore, these were heard together and are being disposed of by this common order.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 filed the return in response to notice u/s 153A declaring the total income of Rs.1,84,50,000/- on 18th June, 2016 and offered additional income of Rs.1,85,00,000/-. It was explained that an application offering additional income of Rs.1,85,00,000/- was filed by the assessee before the Income-tax Settlement Commission stating that the assessee/applicant had derived this additional income of Rs.1,85,00,000/- for A.Y. 2008-09 from the business of meat. The assessee through its submissions stated that the assessee had already offered income of Rs.6.07 crores in the nature of income earned from meat business under Omasum- Delhi before the Settlement Commission vide application dated 26th December, 2014. It was further explained that the assesseee has fully explained the source and utilization of above mentioned additional income in the said application. However, the application of the assessee was rejected u/s 245D(4) dated 3rd March, 2016 on the ground that the disclosure was not true and full and has not explained the manner in which it was derived. Since the application filed by the assessee was rejected by the Settlement Commission, the same was included in the return of income for the year under consideration in response to notice u/s 153A.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 segregated from the dead body of the buffalo in raw form. The assessee company also stated, to purchase such products from the farmers for whom their cattle does not have any commercial value and are unproductive. The AO noted that the assessee company does not have its own slaughter houses. Once the raw meat is delivered at the Rampur factory, the assessee company segregates various parts i.e., Omasum and offal, it was then cleaned and then applied salt on the cleaned meat which act as a preservative. He noted that the main business of the AMQ group is export of byproducts i.e., Omasum, offal, etc. In order to make its raw material requirements, a two pronged strategy was adopted by the group. On the one hand, the group had entered into a long-term contract/agreement of one to two years duration with established suppliers in the field like M/s Allanasons Ltd. and its associate companies, etc. Such contracts were at mutually agreed rate for supply of Omasum, trachea, offal, etc. Apart from that, in order to meet its shortfall of raw material the group companies were engaged in purchasing raw material from slaughter houses and abattoirs in and around Delhi region. Such purchases were made on ad-hoc basis as and when need arose. The main processing plant/factory of the group is at Nainital Road, Rampur. During the course of assessment proceedings, the AO observed that there was complexity in accounts due to volume and multiplicity of transactions and specialized nature of business which created doubt towards the correctness and trueness of account and financial results declared by the assessee. Therefore, after obtaining approval of the PCIT, Central-2, New Delhi, directions for special audit u/s 142(2A) of the Act 4

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 were issued on 19th December, 2016 to the assessee to get its accounts audited from special auditors. The special auditors furnished its special audit report on 5th May, 2017. After receiving the audit report from the special auditor and the reply of the assessee to the questionnaire issued by the AO from time to time, the AO completed the assessment.

A.Y. Total purchases Purchases for which Purchases for which made during the invoices are not invoices are not found year available and payment made in cash 2008-09 26,63,66,112/- 23,53,53,913/- 13,03,59,824/- 2009-10 23,19,35,801/- 19,14,20,864/- 15,28,83,085/- 2010-11 28,97,33,15/- 28,21,46,148/- 19,60,83,215/- 2011-12 78,27,77,592/- 74,18,25,388/- 41,29,34,907/- 2012-13 49,48,02,468/- 34,67,78,496/- 30,80,49,586/- 2013-14 62,49,33,372/- 21,94,53,432/- 20,83,90,270/-

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 2014-15 77,31,82,290/- 37,52,45,574/- 32,35,43,094/-

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 in such a way that limit prescribed u/s 40A(3) is not violated. According to the AO, the payments made by the assessee are not covered under exclusions given in Rule 6DD for the reason that the purchases made by the assessee are through various persons and not directly from the cultivators/growers or producer of such products the payments to whom is excluded from the applicability of provisions of section 40A(3). Further, the assessee has not maintained any records to prove that the payments made by it fall within the exclusions prescribed in Rule 6DD. On the basis of the above, the AO disallowed the purchases made by the assesseee during the respective years from the A.Y. 2008-09 to 2014-15. The AO, therefore, made an addition of Rs.23,53,53,913/- to the total income of the assessee for the A.Y. 2008-09 for which purchase invoices are not available.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 assessee in India. Taking cue from this e-mail conversion, the AO further observed that there was difference in rates and value of the meat items exported by the assessee company as per the chart given at page 39 and 40 of the assessment order. This difference according to the AO is out of suppressed sales and resultant proceeds have been received by the assesseee abroad through settlement/hawala transactions to meet out the expenses of directors/shareholders and their family members and various foreign entities created by the directors. The AO, therefore, made addition of Rs.2,56,42,430/- on account of such suppressed sales for A.Y. 2008-09 and added back the same to the total income of the assesseee.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 accordingly attributed the sales of Rs.5,66,01,452/- to the account of the assesseee and added back to its total income.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 which it claimed deduction u/s 10B of the Act. According to the AO, the assessee company is not engaged in manufacturing activity as defined under the provisions of section 10B of the Act, but, is engaged in the process of sorting of raw/waste buffalo meat to the Omasum and offal part of buffalo meat by cutting and throwing unwanted inedible part, cleaning the shit (gobar) from the Omasum which is rudimentary part of buffalo. After cleaning the same, they apply salt to the finished product and pack the same in the designated size and make them freeze so as to ready for export. Therefore, this process does not qualify to be adjudged as manufacturing activity qualifying for claiming deduction u/s 10B of the Act. He, therefore, asked the assessee to explain as to why the exemption claimed u/s 10B should not be disallowed. In absence of any explanation from the side of the assessee to substantiate its claim, the AO rejected the claim of deduction u/s 10B and made an addition of Rs.3,63,43,299/- to the total income.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 expenses are incurred wholly and exclusively for the purpose of business, the AO disallowed an amount of Rs.21,17,829/- being 50% of the total foreign travel expenses of Rs.42,55,658/-. Similarly, for want of detailed vouchers to substantiate the necessity of other expenditure, wholly and exclusively for the purpose of business, the AO made disallowance of Rs.23,66,967/- being 50% of Rs.47,33,934/- under the head ‘other expenses’, ‘export development expenses’, ‘motor cycle expenses’, etc.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 explanation to substantiate the claim, the AO disallowed rent expenses of Rs.3,64,000/- and added to the total income of the assessee.

17.1 During the course of assessment proceedings, it was submitted by the assessee that in view of the decision of the Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla, 61 taxmann.com 412, the normal income already assessed cannot be disturbed in the absence of any incriminating material found during the course of search was rejected by the AO on the ground that the said decision was

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 not accepted by the Department and the appeal is pending before the Hon’ble Supreme Court and the decision is still awaited.

18.1. On the basis of the arguments advanced by the assessee and on the basis of the decisions cited before him, the ld.CIT(A) deleted the additions which are not on the basis of any incriminating material found during the course of search by observing as under:- “7.1 . I have considered the contentions of the appellant. In such situation, the issue, when no incriminating material/evidence is found and assessments in those years are completed assessments, can any addition/disallowance be made, has been dealt with and answered by Hon'ble Jurisdiction High Court in the case CIT vs. Kabul Chawla, as mentioned by appellant in its submission. Hon'ble Court has taken a view in such cases that although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available 13

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. As per Hon'ble Court, such assessment has to be made under the section only on the basis of the seized material. It is further opined by Hon'ble Court that completed assessment can be interfered with by the Assessing Officer while making the assessment in the section 153A only on the basis of some incriminating material found during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. In the subsequent decisions also, Hon'ble court has substantiated their aforesaid views. In the case Pr. CIT vs Ram Avtar Verma 395 ITR 252, Hon'ble Court has supported the aforesaid view that if the assessments are completed on the date of search and no incriminating material is found during the search, assessment u/s 153A of the Act is invalid. Similar view has been taken by Hon'ble Court in the case of Pr. CIT vs Meeta Gutgutia 395 ITR 526 also wherein assessments were completed on the date of search but no incriminating material pertaining to those completed assessment years were found during search. Hon'ble Court at invocation of section 153A for those years was invalid. 7.1.1. Now the facts of the appellant are to be examined in view of this legal position. It is clear from the assessment order as well as submissions of the appellant that search and seizure action 132(1) of the Act was undertaken by the Department in the case of appellant as on 15,2.2014 and on that date, assessments for A.Y. 2009-10 to A.Y. 2012-13 were completed assessments as the time period to issue notices u/s 143(2) for aforesaid years had already expired. In these years, additions could have been made by AO only on the basis of incriminating material/evidence found during the search proceedings. However, as can be seen from the present assessment order, some of the additions are made on the basis of incriminating material found during the search proceedings and remaining on the basis of scrutiny of book results and entries of profit and loss account and balance sheet filed along with return of income in regular course. As discussed in earlier paragraphs, the following additions have been made by AO in regular course of assessment proceedings, without the basis of any incriminating material/evidence found during the search. i) Addition of Rs. 23,53,53,913/- on account of unexplained purchases - As referred above and as discussed in details by AO in the assessment order, these purchases were shown by appellant in its books of account and correspondingly in the profit and loss account; and after making enquiry in the regular course of scrutiny, AO has treated substantial part of these purchases as bogus on account of cash payments made and non-maintenance of bills/vouchers. However, no incriminating material/evidence was found during the search proceedings in respect of these purchases. 14

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018

ii) A disallowance of Rs.3,63,42,299/- has been made u/s 10B of I. T. Act by observing that the assessee failed to establish that its activities of dealing in raw meat comes in the category of manufacturing activity as per the provisions of section 10B of I. T. Act. iii) Addition of Rs. 1,29,77,985/- on account of outstanding creditors - These additions also have been made by AO in the course of regular scrutiny of books of account and balance sheet of appellant wherein the creditors of the aforesaid amounts were shown as outstanding by appellant itself. The addition has been made due to the reasons that the appellant failed to filed the confirmations of these creditors and details of ageing of the amounts outstanding, not on the basis of any incriminating material found during the search proceedings. iv) Addition of Rs.21,27,829/- on account of expenditure through credit cards and foreign travelling - This addition also has been made on ad-hoc basis on the ground that the appellant failed to produce bills/vouchers and relevant details of aforesaid expenses, not on the basis of any incriminating material found during course of the search proceedings. v) Addition of Rs.23,66,967/- on account of other expenses – This addition also has been made on ad-hoc basis on the ground that the appellant failed to produce bills/vouchers and relevant details of car expenses, travelling and conveyance expenses, directors' foreign travel expenses etc., not on the basis of any incriminating material found during the search proceedings. vi) Addition of Rs.18,64,000/- on account of salary expenses – This addition also has been made on the ground that the payments have been made in cash to its employees who do not have bank accounts, not on the basis of any incriminating material found during the search proceedings. vii) Addition of Rs.3,64,000/- on account-of rent expenses - This addition has been made on the ground that the assessee failed to provide any rent agreement/rent receipts to verify the same, not on the basis of any incriminating material found during the search proceedings. viii) Addition of Rs.2,26,923/- on account of applicability of provisions of section 2(22)(e) of I. T. Act - Again this addition has been made in the regular course of assessment proceedings on the ground that there was maximum outstanding balance of Rs.2,26,923/~ in the nature of advance in the account of director of appellant company who is having substantial share holding, not on the basis of any incriminating material found during the search proceedings.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 ix) One more addition has been made by AO amounting to Rs.33,02,400/- on account of loans of Rs.2,75,20,000/- advance by appellant to different parties but no interest has been charged. He therefore calculated the interest @12% on this loan amount and added back to the income of assessee. x) The last addition of Rs.1,00,000/- made by AO is on account of disallowance of deduction u/s 80G of I. T, Act as the assessee failed to provide the receipts/evidence with regard to donation/charity, if any made by him, 7.1.2 In view of above, it can be seen that none of the above additions have been made by AO on the basis of incriminating material/evidence found during the search proceedings. Since the assessment year under consideration is a completed assessment year, any addition/disallowance ought to have been made by AO on the basis of such incriminating material/evidence as found during the search proceedings in view of various decisions, including CIT Vs. Kabul Chawla (supra), of Hon'ble Jurisdiction High Court. In view of this, the aforesaid additions made by AO are not sustainable and deserve to be deleted as made during the regular course of assessment proceedings, not on the basis of incriminating material/evidence found during the search proceedings. I, therefore, delete the aforesaid additions made by AO and allow the respective grounds taken by appellant.”

“7.4.3 I have considered the facts of issue, basis of addition made by AO and submissions of appellant. So far as the addition of Rs.5,66,01,452/- on account of undisclosed sates is concerned, incriminating details/evidence were found during the search proceedings as per annexure A-39, Party D-11 wherein the complete details of such undisclosed sales were recorded in the accounts maintained in the name of OMASUM DELHI. These details reflected the domestic safes made by Mr. Mohd. Shahnawaz on behalf of appellant company in different years i.e. from F.Y. 2006-07 to F.Y. 2013-14. These sales were made in cash and out of books of account. During the assessment proceedings as well as appellate proceedings, appellant has failed to give any submissions or file any details/evidence to demonstrate that these sales are recorded in the regular books of account and are from disclosed sources. It has even failed to identify and bifurcate these undisclosed sales that which sale transaction belonged to which entity of the group. It has also failed to establish that there were any additional purchases, outside regular books of account, against these undisclosed sales. Simply by saying that undisclosed profit was declared before the Income Tax Settlement Commission and only the peak amount 16

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 should be taken for the purpose of addition, does not explain the source of undisclosed sales as worked out by AO. In such situation, the AO has correctly held that the purchases of these domestic sales have already been recorded by the group in their books of account in normal course, therefore, the total undisclosed sales are to be treated as additional income of appellant. In view of this, I confirm the addition made by AO and dismiss the ground taken by appellant.”

“7.4.4 As regards the other addition of Rs.8,95,00,000/- on protective basis, the AO has mentioned that the actual source of this cash amount was Mr. Moin Akhtar Qureshi from his undisclosed activities of dealing in meat products and liasoning with higher authorities, who had given this cash to Mr.Mohd. Shahnawaz for the purpose of making purchases from focal market. In view of this, he has made the addition on substantive basis of the aforesaid amount in the hands of Mr. Moin Akhtar Qureshi and on protective basis in the hands of appellant company. Since the AO has already made the addition on substantive basis in the hands of Mr. Moin Akhtar Qureshi, the addition made on protective basis in the hands of the appellant company is being deleted subject to the decision of appellate authority in the case of Mr. Moin Akhtar Qureshi. The addition may get revived in case the findings are given by appellate authorities in the case of Mr. Moin Akhtar Qureshi that the said money belonged to the appellant company. In view of this, this ground is allowed for statistical purposes.”

21.1. However, the ld. CIT(A) rejected the same by observing as under:- “8. The Last Ground taken by appellant pertains to the additional income included by appellant in the return of income. The ground has been taken that the additional income of Rs.1,85,00,000/- was voluntarily disclosed before 17

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 ITSC by the appellant for the year under consideration and this income was included in the computation of income filed with return in response to notice u/s 153A of the Act. As per appellant, the AO was not justified in not reducing this income while computing the assessed income during the assessment proceedings. However, though the appellant has taken this ground in the appeal Memo but nothing has been submitted in its support during the appellate proceedings. It is also difficult to understand why the disclosure made voluntarily and income included in the return of income by appellant itself, should be reduced by AO without any rhyme and reason. Moreover, the income of appellant has been assessed by AO at the amount much more than returned or voluntarily disclosed by appellant, therefore, there is no logic for reducing the amount disclosed by appellant in the return of income as claimed by it. I, therefore, reject the claim of appellant and dismiss the ground taken by it.”

Grounds of appeal by the assessee (A.Y. 2008-09) 1. That on the facts and circumstances of the case and in law, the order passed by CIT (A)-27, New Delhi (hereinafter referred to as CIT (A)), is bad in law. 2. That on the facts and circumstances of the case and in law the CIT (A) was not justified in upholding the action of AO in making an addition of Rs. 5,66,01,452/- by treating the entire sales as undisclosed income, by rejecting the contention of the appellant that all income emanating out of the incriminating seized documents on the basis of which the alleged addition on account of Domestic sales has been made has already been disclosed in the Income Tax Return filed in response to notice u/s 153A based upon the application filed before the Income Tax Settlement Commission (ITSC), which was rejected and hence not decided by ITSC in AMQ Group of entities. 2.1 That the CIT (A) was not justified in upholding the alleged addition by not considering and not adjudicating the submission of the appellant that during the course of assessment proceedings the appellant had requested for providing the recasted books of accounts on the basis of which alleged addition on account of undisclosed domestic sales has been computed but neither the books of accounts nor any basis for making alleged addition was provided by the AO to the appellant.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 2.2 That the CIT (A) was not justified in upholding the alleged addition by rejecting the submission of the appellant that the entire sales cannot be added as undisclosed income, it is only the profits emanating from undisclosed sales after reducing corresponding purchase cost and overheads that could have been taxed. 2.3 That the CIT (A) was not justified in upholding the alleged addition by not considering the submission of the appellant that the AO has not provided credit for the income from undisclosed activity of meat sale/ purchase already included in the return of Income filed in response to notice u/s 153A based upon the application filed before the Income Tax Settlement Commission (ITSC), which was rejected and hence not decided by ITSC in AMQ Group of entities. 3. That the CIT(A) was not justified in holding, that the addition of Rs.8,95,00,000/- on account of alleged cash payments outside books of accounts for purchases of meat products protectively added in the hands of the appellant and substantively added in the hands of Moin Akhtar Qureshi, is deleted in the hands of the appellant subject to outcome of appeal in the case of Moin Akhtar Qureshi and further if the aforesaid addition is deleted in that case it would get revived in appellant's case. 3.1 That the CIT(A) erred in not adjudicating the issue regarding undisclosed sales (Rs. 5,66,01,452/-) and undisclosed cash payments (Rs. 8,95,00,000/-) together in a co-joint manner as both the issues are linked and of overlapping nature in as much as the undisclosed activity of sale/purchase of meat products outside books of accounts involved payments in cash, utilization of cash for purchases, subsequent sale, realization of cash from sales and reutilization of same cash for further purchases and therefore the same cash was rotated in the undisclosed business year after year for the entire block period from AY 2008-09 to AY 2014-15. 4. That on the facts and circumstances of the case and in law the CIT (A) was not justified in upholding the action of the AO in not reducing from the assessed income the amount of additional income already included in the Return of Income filed in response to notice u/s 153A based upon the application filed before the Income Tax Settlement Commission (ITSC), which was rejected and hence not decided by ITSC in AMQ Group of entities. 5. That the appellant craves leave to add, alter, modify any of the grounds at the time of hearing or before the hearing.”

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 Grounds of appeal by the Revenue (A.Y. 2008-09 “1) The Ld. CIT(A) has erred in law in relying on Kabul Chawla 61 taxman.com 412(Delhi) and in holding that completed assessment could not be interfered by the AO without incriminating material. On the contrary for making the assessment u/s 153A of the Act does not stipulates any such conditionality on A.O. 2) The Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs.23,53,53,913/- made on account of unexplained purchases. 3) The Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs. 1,29,77,985/- made on account of outstanding creditors. 4) The Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs.3,63,42,299/- made on account of deduction claimed u/s 10B of the IT Act, 1961. 5) The Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs.21,27,829/- on account of expenditure through credit cards and foreign travelling 6) The Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs.23,66,967/-on account of other expenses. 7) The Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs. 18,64,000/- on account of salary expenses. 8) The Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs.3,64,000/- on account of rent expenses. 9) The Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs. 1,00,000/- on account of charity/donation receipts / evidences. 10) The Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs.33,02,400/- on account of interest free advances.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 11) The Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs.2,56,52,430/- made on account of under invoicing of export sales. 12) The Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of Rs.8,95,00,000/- on account of cash received in Omasum Delhi Account. 13) (a) The order of the CIT(Appeals) is erroneous and not tenable in law and on facts. (b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 Special Auditor and further investigation carried out on the basis of the seized material found during the course of search.

23.1 So far as the deletion of Rs.23,53,53,913/- made on account of undisclosed purchases is concerned, she submitted that during the search, accounts related to purchases of Omasum and Offal by the assessee found and seized in the premises of Mr. Mohd. Shahnawaz whom the assessee had made cash payments for purchases were found. Further enquiry has been carried out by the AO on the basis of seized documents and made addition on account of bogus purchases. Under these circumstances, the ld.CIT(A) is not justified in deleting the addition by relying on the decision of the Hon’ble Delhi High Court in the case of Kabul Chawla. She submitted that the decision in the case of Kabul Chawla (supra) does not apply in the present case as in the case of Kabul Chawla, addition made had no connection with any material evidence/statement found/recorded.

23.2 Referring to the decision of the Hon’ble Supreme Court in the case of Mukundray K. Shah, 290 ITR 433, she submitted that the Hon’ble Supreme Court in the said decision has held that even if the addition arises out of enquiry related to source of investment, if details of such undisclosed investment is found during the course of search, addition has to be sustained.

23.3 Referring to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Arun Malhotra, 363 ITR 195, she submitted that the Hon’ble High Court in the

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 said decision has held that where the AO having found that transaction of purchase and sale were bogus, made addition u/s 69A, the Tribunal was not justified in deleting the addition without going into evidence on record. Referring to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Kuwer Fibres Pvt. Ltd., 77 taxmann.com 345, she submitted that the Hon’ble High Court in the said decision has held that where statements recorded were corroborated by materials, there was no justification to reject the statements which merely explain the documents seized. Once the raw material quantity that did not appear in the regular books of account was discovered and should be covered as a result of search, the onus lay upon the assessee to furnish full particulars as to cost of that raw material or average cost.

23.4 Referring to the decision of the Hon’ble Delhi High Court in the case of CIT vs. La Medica, 250 ITR 575, she submitted that the Hon’ble High Court in the said decision has held that where the assessee failed to produce evidence to prove the benefits of seller for whom it had claimed to purchase raw material and the AO treated the value of raw material as assessee’s income from undisclosed source, the AAC was of the view that though circumstances were unclear, fact remain that goods were pledged with bank after alleged purchase and, therefore, non- production of seller could not be a basis for doubting the genuineness of purchases and/or to infer that there was fictitious purchases. The Tribunal upheld the deletion of addition. The Hon’ble High Court held that once it is accepted that

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 supplies were made by such supplier to whom payments have been alleged to have been made, the question of purchases having been made from some other sources could not have been weighed with Tribunal as a factor in assessee’s favour. Since the Tribunal has acted on partly relevant and partly irrelevant material and it was not possible to say as to what extent latter had influenced its mind, its order gave rise to a question of law. Accordingly, it was held that the order of the Tribunal was unsustainable. She also relied on the following decisions:- i) Vijay Proteins Ltd. vs. ACIT (1996) 58 ITD 428 (Ahmedabad); ii) N.K. Proteins Ltd. vs. CIT (2017-TIOL-23-SC-IT); iii) Dayawanti vs. CIT (2016) 75 taxmann.com 308 (Del).

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 No.5499/Del/2017, she submitted that the ld.CIT(A) is not justified in deleting the various additions made by the AO by simply relying on the decision of the Hon’ble Delhi High Court in the case of Kabul Chawla.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 27. So far as the addition made on account of under invoicing of export sales is concerned, she submitted that the addition was made on the basis of e-mail conversation between the export manager of the assesseee and its trade associates seized during the course of search vide Annexure A-12, Party to D-1. She submitted that the CIT(A) held that the email related to A.Y. 2009-10 and, hence, could be used only for this assessment year and not to the other assessment years as per the decision of the Hon’ble Delhi High Court in the case of Kabul Chawla. So far as the merit of the case is concerned, the ld.CIT(A) for all the assessment years held that the conversation in the e-mail does not lead to the conclusion that the assessee is engaged in under-invoicing of export sales and Hawala transactions. He further held that the assessee has subsequently recorded transactions reflected in the e-mail in the regular books of account and, therefore, no case for settlement/hawala is established. This according to the ld.CIT-DR is not correct. She submitted that as per the e-mail dated 20th March, 2009, the export manager of the assessee instructed its trade associate to deposit 40,000 USD in the bank account of Mr. Jean Louis Deniot . As per other emails recovered as per Annexure A-12, Party D-1, it is clearly established that the amount of 40,000 USD was actually deposited in the bank account of Cabinet Jean Louis Deniot on 30th Mach, 2009 by the trade associate of the assessee. Thus, it leads to clear understanding that the assesseee was involved in under invoicing of export sales and diverting of the proceeds to other account overseas but, so far as the finding of the ld.CIT(A) that the transaction referred in the e-mail dated 20th March, 2009 26

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 being disclosed in the books of account of the assessee is not borne out from any

record, books of account or submissions that during the course of assessment

proceedings or during the assessment proceedings before the CIT(A).

is concerned she submitted that the income reported by AMQ Agro Pvt. Ltd.

before the Settlement Commission are as follows:-

A.Y. Income offered before Income Offered in return ITSC (In Rs.) (In Rs.) 2008-09 18500000 18500000 2009-10 15000000 15000000 2010-11 1000000 1000000 2011-12 20000000 20000000 2012-13 1700000 1700000 2013-14 4000000 4000000 2014-15 2500000 2500000 Total 62700000 62700000

Settlement Commission are as under:-

A.Y. Income offered Income offered in before ITSC (In Rs,) return (In Rs.) 2008-09 2680000 2680000 2009-10 1080000 1080000 2010-11 1200000 1200000 11400000 11400000 2011-12 2012-13 2800000 2800000 2013-14 5000000 5000000 2014-15 107500000 0 Total 131660000 24160000

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 30. She submitted that the additions were made protectively in the case of AMQ

Agro Pvt. Ltd. and substantively in the case of Moin Akhtar Qureshi for various

assessment years, the details of which are as under:-

Nature of A.Y. 2008- 09 A.Y.2009-10 A.Y.2010-11 A.Y.2011-12 A.Y.2012-13 A.Y.2013-14 A.Y.2014-15 Addition

Cash 8,95,00,000 17,73,84,049 28,68,36,793 55,95,50,573 13,21,11,994 13,98,33,256 5,00,53,067 received in Omasum account

substantively in the case of AMQ Agro Pvt. Ltd.

order of the CIT(A). He, at the outset, filed the following chart giving the year-

wise details of additions challenged by the Revenue as well as the assessee before

the Tribunal from A.Y. 2008-09 to 2012-13 which is as under:-

“AMQ AGRO INDIA PVT. LTD.

YEAR-WISE GROUNDS/DETAILS OF ADDITIONS CHALLENGED BY AMQ AGRO INDIA PVT LTD. BEFORE HON’BLE ITAT IN APPEAL FILED FOR AY 2008-09 TO 2014-15 S. PARTICULARS AY 2008-09 AY2009-10 AY 2011-12 AY 2011-12 AY 2012-13 No. OF INCOME (ITA (ITA No. (ITA No. (ITA No. (ITA No. No.2801/Del/18) 2802/Del/18) 2803/D/18) 169/D/18) 2804/D/18) 1. Addition on 5,66,01,452.00 3,71,84,257.00 4,65,90,949.00 5,20,70,899.00 1,32,76,893.00 account of undisclosed domestic sale (Additional (1,85,00,000) (1,50,00,000) (10,00,000) (2,00,00,000) (17,00,000) income on a/c of profit declared in 153A return) 2. Protective 8,95,00,000.00 17,73,84,049. 28,68,36,793.00 55,95,50,573.00 13,21,11,994.0 addition on 0 account of cash 28

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 received in OMASUM DELHI Account 3. Addition on - - 5,50,669.00 - - account of TDS Not deducted 4. Addition on - - - - - account of purchases by holding 25% of purchases as bogus/inflated 5. Addition on - - - - - account of disallowance of 20% of expenses incurred through credit cards 6. Addition on - - - - - account of disallowance of 20% of other expenses 7. Addition on - - - - - Account of Rent paid for Guest House 8. Addition u/s 14A - - - - - of the IT Act, 1961 9. Addition on - - - - - account of Rate Difference 10. Addition on 1,84,50,000.00 1,61,27,545.00 2,42,44,168.00 7,03,43,456.00 3,54,13,197.00 account of Rate Difference

“AMQ AGRO INDIA PVT. LTD.

YEAR-WISE GROUNDS/DETAILS OF ADDITIONS CHALLENGED BY AMQ AGRO INDIA PVT LTD. BEFORE HON’BLE ITAT IN APPEAL FILED FOR AY 2008-09 TO 2014-15 S. PARTICULARS AY 2008-09 AY2009-10 AY 2011-12 AY 2011-12 AY 2012-13 No. OF INCOME (ITA (ITA No. (ITA No. (ITA No. (ITA No. No.4287/Del/1 4288/Del/18) 4289/D/18) 1499/D/18) 4290/D/18) 8) 1. Addition on 23,53,53,913.0 19,14,20,864.0 28,21,46,148.0 74,18,25,388.00 34,67,78,496.00 account of 0 0 0 purchases made during the year. 2. Addition on 2,56,52,430.00 2,72,51,370.00 2,50,95,420.00 4,06,29,600.00 3,72,00,870.00 account of under-invoicing of export sales

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 3. Protective 8,95,00,000.00 17,73,84,049.0 28,68,36,793.0 55,95,50,573.00 13,21,11,994.00 addition on 0 0 account of cash received in OMASUM DELHI Account. 4. Addition on 1,29,77,985.00 8,46,909.00 11,13,865.00 1,65,70,800.00 5,62,05,556.00 account of outstanding sundry creditors. 5. Addition on 3,63,42,299.00 2,96,52,421.00 - - - account of disallowance of deduction u/s 10B 6. Addition on - 3,19,022.00 - 2,61,370.00 - account of TDS not deducted 7. Addition on 21,27,829.00 21,27,829.00 6,96,307.00 5,49,662.00 22,49,066.00 Account of expenditure through credit cards. 8. Addition on 23,66,967.00 3,48,380.00 16,582.00 2,65,804.00 39,42,914.00 account of other expenses 9. Addition on 18,64,000.00 20,87,400.00 17,50,800.00 27,00,000.00 21,00,000.00 account of Salary expenses 10. Addition on 3,64,000.00 3,46,500.00 3,78,000.00 2,83,500.00 3,46,500.00 account of Rent expenses. 11. Addition on 33,02,400 31,34,297.00 33,91,117.00 - - account of interest free advances 12. Addition of 1,00,000.00 - - - - charity & donation 13. Addition on - 1,36,78,517.00 6,00,000.00 65,00,000.00 10,00,000.00 account of applicability of provisions of section 2(22)(e) 14. Addition on - - - 2,70,00,000.00 - account of unexplained investment in shares 15. Addition on 2,62,721.00 account of disallowance u/s 14A 16. Addition on account of unexplained investment u/s 69A of the IT

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 Act 17. Addition on account of sales of investment 18. TOTAL 1,39,61,36,697 58,21,98,117

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 of the Delhi High Court in the case of Kabul Chawla and an appeal is pending before the Hon’ble Supreme Court, the same would not be a ground to take a contrary decision than the view taken by the Hon’ble Delhi High Court. He accordingly submitted that since the decision of the CIT(A) is based on the decision of the Hon’ble Delhi High Court in the case of Kabul Chawla (supra), therefore, the same being in accordance with law should be upheld and the ground raised by the Revenue on this issue should be dismissed.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 of the assessee company for making payment against the supply of Omasum is not the part of the second part of e-mail conversation in which the bank account details of Cabinet Louis Deniot and Abdul Majeed Qureshi has been made. Without contradicting the factual position explained above, it was submitted that the addition made by the AO on the basis of alleged seized documents is also not sustainable as the alleged e-mail conversation on the basis of the addition has been made in respect of assessment years is not pertaining to the present assessment year. He submitted that during the post search enquiry, the directors of the assessee company were confronted with the alleged e-mail correspondence and it was directed to explain the same. In response to the same, the assessee company vide its reply dated 01.10.2014 had elaborately replied this fact of the e-mail correspondence done by the assessee company with Mr. Lucky Yuan along with other supporting documents. He submitted that the AO, on the one hand, in the same assessment order has made addition on account of bogus purchases by alleging that the average purchase cost of the assessee company is much higher than the average export price of buffalo meat and on the other hand, in the same assessment order, while making the alleged addition is claiming that the assessee company is indulged in under-invoicing of export sales which are self-contrary, therefore, deserves to be deleted. He submitted that the product in which the assessee is dealing is not a mechanical product in which the quality and size of the product remains the same at all the time. The product in which the assessee is dealing is an animal husbandry product, namely omasum which is part of buffalo 33

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 offal, the size and quantity of which varies from animal to animal and, therefore, there can be a different price at every stage of the product sale depending upon the size and quantity of the final product and which can only be ascertained at the time of sale of that particular consignment to the buyer. Different rates may be charged from different buyers depending upon the relationship with each individual buyer, volume of business done with the buyer, prospects of product order in future, etc. Therefore, the contention of the AO that different rates have been charged by the assessee from different suppliers on same day or nearby date is arbitrary, illegal and not based on the facts and circumstances of the present case and the peculiar nature of the business of the assessee company.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 He submitted that the transaction related to cash payment to Mohd. Shahnawaz for making purchases and in turn domestic sales made by him are intrinsically related to each other. The search operation did not take into account the entire amount of undisclosed sales as the figures of undisclosed sale was Rs.38.98 crores whereas the figures of cash paid for purchase was Rs.143.52 crores. However, the fact remains that both these transactions are co-related to each other inasmuch as payment of cash resulted in making of purchases outside the books of account and, thereafter, sale of all the purchase was made outside the books of account giving rise to undisclosed sales which yielded utilization of cash which cash was again routed for making subsequent cash purchases. He submitted that there are a series of transactions taking place for a particular financial year whereby first the cash is given, goods are purchased and, thereafter, goods are sold and, in turn, cash is returned. The same cycle then sets repeated over and over, again and again. Therefore, under no circumstances, the entire amount of cash of Rs.143.53 crore can be added as it is the cash which is getting circulated year after year taking into consideration the entire block period. Relying on various decisions, he submitted that in such circumstances, it is the peak balance only which has to be taxed and not the entire cash payment. He submitted that the AO has wrongly added the entire undisclosed sales as income by holding that purchases are recorded in the regular books of account. However, contrary to the same, it is stated by him at a number of places in the assessment order that the assessee was engaged in the activity of making undisclosed purchases through Md. Shahnawaz. The ld. 35

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 Counsel drew the attention of the Bench to the following instances in the assessment order:-

“Page 47 of Asst Order "Further the above chart shows cash money to the tune of Rs.146.66 crores have been received by Mohd. Shahnawaz during the period FY 2007-08 to FY 2013-14, which Mohd shahnawaz stated to have receive from either you I.e Moin Akhtar Qureshi, Prop. Abdul Majeed qureshi or from M/s AMQ Agro Pvt Ltd and has been utilized by him for making purchase of Omasum Slaughter meat for both the concerns." Page 54 of Asst order "Thus it is dear that although M/s AMQ Agro India pvt ltd was purchasing animal byproducts from different suppliers through Mohd Shahnawaz but instead of integrating books of OMASUM DELHI with its own regular books of accounts maintained at Rampur, the group was indulging in out of books purchases by utilizing cash that was generated over a period of time through unaccounted sources by Moin Akhtar Qureshi" Page 52 of Asst order "9. B Details of cash given to Mohd Shahnawz for unaccounted purchases" Page 54 of Asst order "Thus while Mohd Shahnawaz was engaged by the group for making purchases, there would have been no difficulty in recording so in the books of accounts, if the withdrawals for purchases had been only from meat business." Page 54 of the Asst order "Thus it is dear that although the group was purchasing animal by products from different suppliers through Mohd. Shahnawz but instead of integrating books of OMASUM DELHI with own regular books of accounts maintained at Rampur, the group was indulging in out of books purchase by utilizing cash that was generated over a period of time through unaccounted sources." Page 55 of the Asst order Please state whether the above cash payment to Mohd. Shah Nawaz are reflected in the books of accounts of afore mentioned proprietorship concern and company. If above payments are not accounted for in the books of accounts of M/s Abdul Majeed Qureshi and M/s AMQ Agro Pvt Ltd then why these should not be treated as unexplained cash purchase made by these two

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 concerns. Further, how these cash purchase are going to be segregated to the between the concern/ company."

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 38. For the proposition that entire unaccounted sales cannot be added to income but only the net profit, the ld. Counsel for the assessee relied on the following decisions:- (i) CIT v. President Industries 124Taxman.com 654; (ii) CIT v. Sameer Synthetics Mill 362 ITR 410; (iii) CIT v. Leo Formulation Pvt. Ltd. 48 Taxmann.com 328; (iv) CIT v. Bahubali Neminath Muttin 72 Taxmann.com 139 (v) CIT v. Aggarwal Engg. Co. (Jal) 156 Taxmann.40. 39. So far as the observation of the CIT(A) that the assessee did not produce any material in support of its contention that undisclosed income of Rs.1.85 crore voluntarily declared in the return filed in response to section 153A notice is concerned, the ld. Counsel for the assessee submitted that in para 17 of its written submissions, it was clearly submitted that corresponding credit in respect of income already declared in the return should be allowed otherwise it would lead to double taxation of the same income. Copies of original return and return in response to 153A notice were filed before the CIT(A) which substantiates the fact that additional income of Rs.1.85 crore was declared from the undisclosed sale purchase activity.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 incriminating documents on the basis of which it was argued that the assessee had made various purchases, the ld. Counsel for the assessee submitted that the assessment order for the relevant assessment year does not speak about any incriminating documents on the basis of which the alleged addition on account of bogus purchase has been made. In the assessment order, the additions have been simply made on the ground that during the course of assessment and special audit exercises, the assessee was found indulging in large amount of cash purchases for which no documents/evidences have been produced either during the assessment proceedings or to the special auditors. The AO has prepared a chart for each assessment year containing the total purchases made by the assessee, purchases for which invoices are not made available and purchases out of that for which invoices are not available and payment is made in cash. There is no mention that any incriminating material/evidence to show that the purchases booked in the books of account are bogus except the books of accounts found to be maintained in the name of ‘OMASUM DELHI’ during the course of search at Delhi in the premises of Mohd. Shahnawaz. He submitted that during the period the assessee has made both cash purchases and credit purchases. For credit purchases the assessee is maintaining all invoices, ledger accounts, bank statements, however, in respect of cash purchases the assessee is maintaining a purchase register containing the name of the supplier, address of the supplier, ledger account containing the particulars of purchases and payments made. So far as the bunch of papers produced by the CIT- DR before the Bench and alleged to be incriminating documents found during the 39

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 course of search in relation to bogus purchases are concerned, the ld. Counsel submitted that these documents pertained to the undisclosed sales/purchase activities of meat outside the books of account. He submitted that substantial addition on account of such undisclosed activity has been separately made in the assessment order under the nomenclature – Domestic sales and cash payments made for purchases on the basis of entries found recorded in books of accounts found to be maintained in the name of “OMASUM DELHI” by the AO for A.Y. 2008-09 to 2012-13. He submitted that there exist incriminating material for undisclosed sale/purchase activity outside books of account for which separate additions have been made in the assessment order. The assessee is also contesting the quantum of such addition in its appeal before the Tribunal on the ground that the entire sale and purchase cannot be simultaneously added and the quantum of addition has to be restricted to the profit earned from such activity carried on outside the books of account. In addition to the same an altogether separate addition has been made by the AO by disallowing part of the purchases as bogus by holding that substantiating evidence in the form of bills and vouchers and invoices was not produced. There is no incriminating material found/seized for forming basis for such addition. Since the CIT(A) has deleted the addition for A.Y. 2008-09 to 2012-13 by holding that in the absence of any incriminating material no addition can be made for these assessment years which were non- abated years, therefore, there is no merit in altogether new argument now being made by the CIT-DR that bunch of papers produced during the course of hearing 40

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 are incriminating documents in relation to the bogus purchases made by the assessee. He accordingly submitted that the arguments advanced by the ld.CIT-DR that the addition is based on incriminating documents is not in accordance with the law.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 December, 2014 which was again rejected by the Settlement Commission on 3rd March, 2016 in a combined order passed u/s 245D(4) of the Act, 1961. The reason for such rejection was that the disclosure was not true and full and the assessee has not explained the manner in which it has derived the income. Subsequently, the assessee filed its return of income in response to notice u/s 153A on 18th June, 2016 offering additional income of Rs.1,85,00,000/- which was offered before the Settlement Commission by filing application u/s 245C(1) of the Act stating that this income was earned from the business of meat.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 iii) Undisclosed domestic sales 5,66,01,452/- iv) Cash received in Omasum-Delhi account 8,95,00,000/- v) Outstanding creditors 1,29,77,985/- vi) Disallowance of deduction claimed u/s 10B 3,63,42,299/- vii) Disallowance of expenditure through credit 21,27,829/- cards and foreign travelling viii) Other expenses disallowed 23,66,967/- ix) Salary disallowed 18,64,000/- x) Rent disallowed 3,64,000/- xi) Addition on account of notional interest on 33,02,400/- interest free advances xii) Charity/donation disallowed 1,00,000/- xiii) Addition on account of deemed dividend 2,26,923/- u/s 2(22)(e)

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 material/evidence found during the search proceedings and, therefore, the decision of the Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla (supra) is applicable since the assessment year concerned is a completed assessment.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 46. So far as the argument of the ld.CIT-DR that the addition made on account of bogus purchases are based on incriminating documents found during the course of search is concerned, we find from the assessment order that the addition was made by the AO not on account of any incriminating material found during the course of search, but, on account of non-availability of supporting vouchers for purchases recorded in the books of account, payments made in cash for such purchase where each payment is less than Rs.20,000/-, non-maintenance of quantitative records for purchases, rate of purchases shown in the books appears to be on the higher side and that the parties are not identifiable, etc. The AO has prepared the chart for each assessment year containing the total purchases made by the assessee, purchases for which invoices are not available and payments made in cash, the details of which are already given in the preceding paragraph at para No.5 of this order. There is absolutely no mention of any incriminating material/evidence to show that the purchases booked in the books of account are bogus except the books of account found to be maintained in the name of “OMASUM-DELHI” during the course of search operation at the premises of Mohd. Shahnawaz, 5618, Second Floor, Bast Harphool Singh, Above MCD School, Sadder Bazar, Delhi-110006 for which separate addition has been made by the AO on account of sales outside the books of account under the nomenclature – Domestic Sale and Cash payment in the name of “OMASUM-DELHI.”

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 47. We, therefore, do not find any merit in the argument of the ld. CIT-DR that the addition on account bogus purchases are based on any incriminating material/evidence found during the course of search.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 controvert the findings of the ld.CIT(A) that the AO failed to co-relate the amount generated through under-invoicing of sales, if any and sending it abroad to be deposited in the bank accounts of the two entities or making payment to various parties as alleged. Further, the assessee has also explained satisfactorily that there can be various reasons for difference in the rates of goods exported such as size and quality of items, volume of transactions and relationship with buyers, etc. The relevant observation of the CIT(A) has already been reproduced in the preceding paragraph. In view of the above and in absence of any incriminating material found during the course of search on account of under-invoicing of export sales, the ld.CIT(A) in our opinion, was fully justified in deleting the additions.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 50. Similarly, the addition on account of unexplained investment in shares of Rs.2,70,00,000/- for A.Y. 2011-12 is also not based on any incriminating material, but, based on the details from the balance sheet filed by the assessee along with the return of income. According to the AO, the assessee failed to explain the source of investment in shares of M/s All Faheem Meatex Pvt. Ltd. during the assessment proceedings. Therefore, we do not find any infirmity in the order of the ld.CIT(A) in deleting the above addition made by the AO for A.Y. 2011-12 in absence of any incriminating material found during the course of search.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 case of Kabul Chawla (supra) is not applicable for A.Y. 2012-13. However, since the ld.CIT(A) has deleted the additions made by the AO by relying on the decision of the Hon’ble Delhi High Court in the case of Kabul Chawla (supra) and has not decided the issues on merit, therefore, we deem it proper to restore the issue to the file of the ld.CIT(A) for deciding the issues on merit. Needless to say, the ld.CIT(A) shall give adequate opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the Revenue for A.Y. 2012-13 are accordingly allowed for statistical purposes.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 AO made additions by holding undisclosed domestic sales and unexplained cash payments, the details of which are as under:-

(Amount in Rs.) Assessment Undisclosed Undisclosed Year domestic sales added domestic sales in the hands of AMQ added in the hands Protective addition on account Agro India Pvt. Ltd. of Moin Akhtar of cash received in Omasum Qureshi Delhi A/c in AMQ Agro and substantive addition in the hands of Moin Akhtar Qureshi 2008-09 5,66,01,452 2,42,57,765 8,95,00,000 2009-10 3,71,84,257 4,54,47,425 17,73,84,049 2010-11 4,65,90,949 8,28,28,354 28,68,36,793 2011-12 5,20,70,899 1,38,41,631 55,95,50,573 2012-13 1,32,76,893 19,83,904 13,21,11,994 2013-14 96,73,948 25,71,556 13,98,33,256 2014-15 31,69,863 3,91,781 5,00,53,067 Total 21,85,68,261 17,13,22,416 143,52,69,732

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 OMASUM account aggregating to Rs.143.52 crores, the entire amount was protectively added in the hands of AMQ Agro India Pvt. Ltd. and substantively in the hands of Moin Akhtar Qureshi. For the A.Y. 2008-09, addition of Rs.8.95 crore has been made holding undisclosed cash payment for OMASUM account protectively in the hands of the assessee, i.e., AMQ Agro India (P) Ltd. and substantively in the hands of Moin Akhtar Qureshi for A.Y. 2008-09.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 before the Income-tax Settlement Commission and unclaimed in the return filed in response to section 153A should be reduced from the final undisclosed income was rejected by the CIT(A) on the ground that nothing was submitted in its support during the appellate proceedings.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 assessee relied on various decisions which have been reproduced earlier in this order.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 Page 54 of the Asst order "Thus it is dear that although the group was purchasing animal by products from different suppliers through Mohd. Shahnawz but instead of integrating books of OMASUM DELHI with own regular books of accounts maintained at Rampur, the group was indulging in out of books purchase by utilizing cash that was generated over a period of time through unaccounted sources." Page 55 of the Asst order Please state whether the above cash payment to Mohd. Shah Nawaz are reflected in the books of accounts of afore mentioned proprietorship concern and company. If above payments are not accounted for in the books of accounts of M/s Abdul Majeed Qureshi and M/s AMQ Agro Pvt Ltd then why these should not be treated as unexplained cash purchase made by these two concerns. Further, how these cash purchase are going to be segregated to the between the concern/ company."

a) In a case where undisclosed sales outside books of account has been detected, whether the entire sales can be added as income or only the net profit can be brought to tax which is emanating out of such unaccounted sales,

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 b) In a case where evidence/material has been found indicating undisclosed sales outside books of account and cash payments for making purchases outside books of account, whether separate additions are called for or the net profit emanating out of such undisclosed sales/purchase activity is to brought to tax. c) In a case where additional income on account of profit from undisclosed sales/purchase activity has already been offered to tax in the return filed in response to notice u/s 153A, whether the credit for such income has to be provided against undisclosed income computed from the activity of undisclosed sales/purchase outside books of account.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 to undisclosed sales which again yielded realization of cash which was again rotated for making subsequent cash purchases. Therefore, we are of the considered opinion that under no circumstances the entire amount of cash payments aggregating to Rs.143.53 crore can be added as it is the same cash which is getting circulated year after year during the course of entire block period. The various decisions relied on by the ld. Counsel for the assessee also support to the proposition that in such circumstances it is the peak balance only which are to be taxed and not the entire cash payment.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 assessee that the entire unaccounted sales cannot be added to the total income, but, only the net profit is to be added also support his case.

i) In the present case, the undisclosed sales detected pursuant to the search action aggregates to Rs.38.93 crores as compared to undisclosed purchase aggregating to Rs.143.52 crores. Therefore, yearwise profit from undisclosed activity will be determined by the AO by applying the GP rate on the basis of the figure of the yearwise purchase rather than sales. ii) For working the net profit from undisclosed activity , the AO may take combined simple average of gross profit of all the years comprised in the block period (A.Y.s 2008-09 to 2014-15) as per audited balance sheet of the assessee for A.Y. 2008-09 to 2014-15. This would take care of any aberrations and distortions. The above 57

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 method of determination of profit from undisclosed trading in meat product, in our opinion, is fair and reasonable and would meet the ends of justice under the peculiar facts and circumstances of this case. The average gross profit so determined shall be applied across all the assessment years to determine the profit from undisclosed activity. Needless to say, the gross profit rate percentage will have to be appropriately modified upwardly to correspond the same to gross profit percentage on purchases. iii) The figure of purchases (Rs.143.52 crores in total) in respect of each assessment year will be apportioned between the assessee M/s AMQ Agro India Pvt. Ltd. and Moin Akhtar Qureshi in the same proportion as has been done in the assessment order in respect of undisclosed sales. iv) The amount of profit from undisclosed activity in meat trading determined in the above manner will be the undisclosed income of the assessee for each assessment year. v) The AO shall also determine the initial capital required for the undisclosed purchase in the first year i.e., A.Y. 2008-09 based on a working capital cycle of 15 days since the product is a perishable one. The above initial capital so computed by the AO shall be apportioned between the assessee i.e., AMQ Agro India (P) Ltd. and Moin Akhtar

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 Qureshi on the basis of their respective purchases and to be added to the income of the assessee as undisclosed investment.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 reduced by the AO without any rhyme and reason. In our opinion, when addition has been made on the basis of sales outside the books of account and the assessee had declared additional income on that account in the return filed in response to notice u/s 153A, the same should be given set off from the undisclosed income computed by the AO. We, therefore, deem it proper to restore the issue to the file of the AO with a direction to grant appropriate relief to the assessee on the basis of such additional income declared in the return of income from undisclosed sales.

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 70. So far as the addition of Rs.5,50,669/- on account of non-deduction of TDS for A.Y. 2010-11 is concerned, it is the grievance of the ld. Counsel that although a specific ground was taken before the CIT(A), however, he has not adjudicated the same. We find, the ld.CIT(A) at para 4 of his order at page 8, has reproduced the said ground as ground of appeal No.15 where the assessee has raised the following ground:-

“15. That on the facts and circumstances of the case and in law, the AO was not justified in making an addition of Rs.5,50,669/- by disallowing the interest expenses paid on a car loan u/s 40(a)(ia) of the Income Tax Act.”

(K. NARASIMHA CHARY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER 61

ITA Nos.2801 to 2803, 169 & 2804/Del/2018 ITA Nos.4287 to 4289, 1499, 4290/Del/2018 Dated: 29th May, 2020 dk Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi