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Facts
The appeals arise from orders concerning assessment years 2016-17 and 2017-18, where additions were made for unexplained sales. The Assessing Officer (AO) made additions based on search and seizure operations and post-search inquiries, citing the failure of the assessee to produce books of account and stock registers.
Held
The Tribunal held that the CIT(A)'s deletion of additions was justified as the AO failed to conduct proper inquiries to ascertain the genuineness of sales, relying instead on conjectures and suspicions. The appellate authority found that sales were verifiable and supported by evidence, and that the CIT(A) had rightly provided relief.
Key Issues
Whether the additions made by the AO for unexplained sales were justified, or if the CIT(A) correctly deleted them due to the AO's failure to conduct proper inquiries and reliance on suspicion rather than proof, and whether additional evidence was admissible.
Sections Cited
153A, 143(3), 46A, 133(6), 68, 115BBE
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Income Tax Appellate Tribunal, DELHI BENCH, ‘A’: NEW DELHI
Before: MS. MADHUMITA ROY
ORDER
PER AMITABH SHUKLA, AM,
This bunch of three appeals are filed by the assessee as well as by the Revenue against the separate orders all dated 09.02.2023 of the ld. Commissioner of Income Tax (Appeals)-4, Kanpur, [hereinafter referred to as ‘ld. CIT(A)] arising out of assessment order all dated 28.12.2018 passed under section 153A/143(3) of the Income Tax Act, 1961, for the Assessment Years 2016-17 and 2017-18, respectively. The word ‘Act’ herein this order would mean Income Tax Act, 1961. Since, all these three appeals pertain to the same assessee, they were heard together and are being adjudicated by this common order.
1. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.5,03,49,023/- made by the AO as unexplained sales, without considering the facts as brought out in the assessment order.
2. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in giving observation that if he details provided by the appellant were forwarded in remand proceedings, then the AO was required to conduct inquiries to ascertain the genuineness of sales. This observation of the AO is not acceptable as it is clear from the record that the assessee was not prevented by sufficient cause from producing the additional evidences as during assessment proceedings, despite availing the sufficient time, the assessee could not furnish the details/evidences as produced during appellate proceedings. In such facts and circumstances, the additional evidences should not have been admitted as the case of the assessee is not fulfilling the categorical conditions laid down in Rule 46A.
3. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in reaching conclusion that the action of the AO is largely influenced by consideration not borne from records is also not correct as before reaching the conclusion and treating the sales as unexplained, the AO has categorically mentioned the following facts based on the cogent material available on record: Page 2 of 16 (i) That during the course of search proceedings in the case of assessee no regular books of account were found on the declared addresses of the company. However, one of the directors of the assessee company stated that the books of account are maintained on laptop but did not produce the laptop. (ii) That also during the course of post search proceedings the assessee company failed to produce the books of account. (iii)) That in the statement on oath of Mr. Sanjeev Deewan, CA of the assessee company, it has been stated that the assessee do not maintain any stock register (in response to the question no. 14 at page no. 8 of the statement of Mr. Sanjeev Deewan taken on 18.01.2017). (iv) That during assessment proceedings, despite availing sufficient opportunities, the assessee failed to furnish the books of account and supporting bills/vouchers. Even vide order sheet entry dated 05.11.2018, the assessee was specifically asked to submit name along with PAN complete address and copy of ledger of the purchaser and seller, but the assessee failed to submit the same. (v) That documents submitted by the assessee during remand proceedings are result of an afterthought and cannot be relied upon as the assessee failed to produce books of accounts during search proceedings. And in the statement taken on 18.01.2017 of Sh. Sanjeev Deewan during search proceedings it was stated that the assessee does not maintain stock register. Further during the course of assessment proceedings also the assessee failed to submit books of account, stock register and other details.
The Revenue has also filed additional ground of appeal for AY 2016-17:-
Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in admitting the additional evidences without appreciating the fact that the conditions of Rule 46A(1) of Income Tax Rules, 1962 under which additional evidences could be filed before the Ld. CIT(A) was not satisfied, as the CIT(A) admitted the additional evidences without referring to any reasonable cause due to which the assessee was prevented to file these evidences before the Assessing Officer.
As regards the additional ground raised by the revenue, we have noted that the ld. CIT(A) had given due opportunity of being heard to the ld. AO for giving his response, reaction and report qua additional evidences produced within the meanings of Rule-46A. The issue has been discussed by the ld. CIT(A) on pages-10 to 16 of the order of the ld. CIT(A). We have noted that the ld. AO did not conduct any enquiry into the details filed by the assessee and merely objected to admission of additional evidences on the premise that they were not produced before the AO during assessment proceedings. It is the case of the Revenue that the ld. CIT(A) has not given reasons for admitting the additional evidences. The challenge raised by the Revenue has been found to be untenable as law provides authority to the First Appellate Authority to admit additional evidences under circumstances mentioned therein including if deemed necessary for adjudication of the appeal. The Revenue interest can get prejudiced only if they are denied of opportunity of being heard. The same is not a fact in the present appeal and hence the additional ground of appeal raised by the Revenue is dismissed.
5. Coming to the factual matrix of the case, the appellant Revenue has contested the action of ld. CIT(A) in deleting the addition of Rs.5,03,49,023/-. The assessee was called absent in this case. The ld. DR tooks us through the factual matrix of the case. The ld. AO had made the impugned addition in the light of search and seizure operation conducted upon the assessee under section Page 4 of 16 132 on 18.01.2017. The ld. AO rested his addition on the basis of statement recorded during post search enquiries.
We have heard the ld. DR and perused the material available on record. Before the ld. First Appellate Authority, assessee had taken a plea that the company was incorporated on 13.10.2015 and hence as this was the first year of operation, no case of earning any undisclosed income was made out. We have noted that the ld. CIT(A) on page-25-26 of his order given following findings:-
“….6.15 It has been submitted by the Ld. AR that the monthly sale returns were filed declaring total sales of Rs.5,03,49,023/- and as an evidence, copies of trade tax returns were enclosed. Thus he submits that the sales credited in profit & loss account under no circumstances can be termed as unexplained cash credit, as the same have already been credited as revenue and confirmations of all the parties have been submitted. As regards, the statement of the auditor regarding non-maintenance of stock register, he submitted that no manual stock register was maintained by the appellant, but the same was maintained in Tally accounting software and the Tally data was duly given to the then Assistant Director of Investigation, Ghaziabad. Printout of stock sheet from Tally data has been enclosed in the paper-book. The Ld. AR concludes that the quantities of purchases and sales are verifiable from purchases and sales bills. He also submitted that the finding of the Ld. A.O. that the books of account were not produced during assessment proceedings is factually incorrect and biased as the books of account were duly produced before him on 19.11.2018, which were refused to be examined by the Ld. A.O. Photocopy of the submission dated 19.11.2018 as filed before the Ld. A.O. has been enclosed at page no.50 as an evidence. 6.16 I have considered the submission of the appellant and the case of the AO as made out in the impugned order. It is an undisputed fact that all the purchases and sales are verifiable since the same are made through account payee cheques and all the details of the same have been furnished by the appellant. In the remand proceedings, the AO did not conduct any inquiry and simply Page 5 of 16 repeated the findings of the assessment order. The Ld. AO doubted the sales and considered entire sales consideration as income by concluding that the business activities of the appellant are not genuine. In such circumstances, when the details provided by appellant were forwarded in remand proceedings, the AO was required to conduct inquiries so that the submission of the appellant in appeal proceedings may be controverted. When entire books of accounts, details of all the customers, all the suppliers and entire stock is provided with the details of bank account of the appellant from which all the payments are made and receipts are accepted, the AO cannot conclude that the sales are not genuine that too without conducting any inquiry by simply repeating the assertions of the assessment order. 6.17 The submission of the appellant has force that the purchases could not be doubted by the AO after conducting inquiries u/s 133(6) of IT Act, then the sales, for which details of all the customers are provided, cannot be doubted without conducting inquiries. The appellant has also filed copies of the VAT returns filed before UP commercial tax authorities and no discrepancies in this regard have been detected by them. From the analysis of stock, it is evident that entire sales were from the stock available in the hands of the appellant. And the AO failed to conduct the necessary inquiries to conclude that the sales were not genuine. In such circumstances, the entire sales cannot be considered as undisclosed income in the hands of the appellant. 6.18 Thus, on the face of evidences brought on records and in view of the cogent submission filed by the appellant at the stage of appellate proceedings, the approach of the AO cannot be appreciated either on facts or in law. The action of the AO is largely influenced by consideration not borne from records. It is settled position in law that suspicion however so strong, cannot be allowed to take the place of proof. The revenue authorities have to be watchful and ensure that conjectures and suspicions do not take the place of legal proof. Hon'ble Supreme Court in the case of Jaharlal Das v. State of Orissa, reported in (1991) 3 SCC 27, has observed in para 9 that caution must be borne in mind that in cases depending largely upon circumstantial evidence there is always a danger that the conjecture or suspicion may take the place of legal proof and such suspicion however strong cannot be allowed to take the place of proof.
Page 6 of 16 6.19 Looking to the facts and circumstances of the case, the addition of Rs.5,03,49,023/- made u/s 68 of IT Act is hereby directed to be deleted. All the grounds of appeal are disposed off accordingly.”
7. From a perusal of the finding of the ld. CIT(A), we have noted that he has rightly concluded that the evidences brought on record by the assessee during the appellate proceedings clearly allude that the action of the AO in making the addition is not supported by facts on records. We are of the considered view that the decision arrived at by the ld. CIT(A) is based upon correct understanding and interpretation of the facts of the case as well as cited judicial precedents. We are therefore of the considered view that no case of any disturbance to the order of the ld. CIT(A) is made out at this stage. The appeal of the Revenue in is therefore dismissed.
The Revenue has raised following grounds of appeal in ITA No.1461/Del/2023:-
1. On facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition of Rs. 119,88,61,757/- out of total addition of Rs. 158,39,10,997 made by the AO as unexplained sales, without considering the facts as brought out in the assessment order.
2. On facts and circumstances of the case and in law, the Ld CIT(A) erred in giving observation that sales made through other mediators cannot be doubted and the same are considered as explained, ignoring the facts categorically mentioned in the assessment order that vide order sheet entry dated 19.11.2016 the counsel of the assessee was required to produce the mediators but the same had not been produced. Therefore, the AO has rightly Page 7 of 16 treated the sale to the tune of Rs. 46,50,05,120/-made through mediator as bogus and treated the assessee's own undisclosed income.
3. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in treating sales of Rs. 119,88,61,757 - as explained without giving specific comments and without considering the following facts elaborated in the assessment order (i) That during the course of search proceedings in the case of assessee no regular books of account were found on the declared addresses of the company. However, one of the directors of the assessee company stated that the books of account are maintained on laptop but did not produce the laptop. (ii) That also during the course of post search proceedings the assessee company failed to produce the books of account. (iii) That in the statement of Mr. Sanjeev Deewan, CA of the assessee company, it has been stated that the assessee do not maintain any stock register (in response to the question no. 14 at page no. 8 of the statement of Mr. Sanjeev Deewan taken on 18.01.2017) (iv) That documents submitted by the assessee during remand proceedings are result of an afterthought and cannot be relied upon as the assessee failed to produce books of accounts during search proceedings. And in the statement taken on 18.01.2017 of Sh. Sanjeev Deewan during search proceedings it was stated that the assessee does not maintain stock register. Further during the course of assessment proceedings also the assessee failed to submit books of account, stock register and other details.
The Revenue has also filed additional ground of appeal for AY 2017-18:-
Whether on the facts and circumstances of the case and in law, the Ld. CIT (A)-IV, Kanpur erred in observing that Assessing Officer was required to conduct inquiries to ascertain the genuineness of sales without appreciating the fact that assessee did not furnish the details/evidences during the assessment proceedings despite being provided with ample opportunities. Hence, assessee was not prevented by sufficient cause from producing the additional evidences as contemplated under Rule 46A of Income Tax Rules, 1962. Page 8 of 16 Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in admitting the additional evidences without appreciating the fact that the conditions of Rule 46A(1) of Income Tax Rules, 1962 under which additional evidences could be filed before the Ld. CIT(A) was not satisfied, as the CIT(A) admitted the additional evidences without referring to any reasonable cause due to which the assessee was prevented to file these evidences before the Assessing Officer.
10. As far as the additional grounds are concerned, we have noted that the facts are identical to those in above. Accordingly, the decision taken therein shall apply mutatis mutandis to this appeal also. Accordingly, the additional ground raised by the Revenue is dismissed.
11. Assessee was called absent in this case. The Ld. DR took us through the factual matrix of the case. The ld. AO had made an addition of Rs.158,39,10,997/- out of which the ld. CIT(A) confirmed addition to the extent of Rs.38,50,49,240/-. The Revenue is of the view that the relief accorded by the ld. CIT(A) is excessive and erroneous.
12. Having heard the ld. DR in the light of material available on records. In this regard, we have noted the following conclusion drawn by the ld. CIT(A) on page-73 to 78 of the order:-
“…..6.36 In the appellate proceedings, the AO was directed to allow inspection of entire case records and material gathered in the search proceedings, which has been relied in the assessment proceedings and Ld. AO allowed the same to the AR. Ld. AR vide letter dt. 22.12.2022 submitted that opportunity of inspection of case records in the matter of M/s Alaina Bullions Pvt. Ltd. (PAN- AANCA8659D) in A.Y.2016-17 & A.Y.2017-18, 1st Floor, Panna bhawan, Neel Gali, Sarafa Bazar, Meerut has been availed and on inspection of assessment records, it is found that notices u/s 133(6) of IT Act have been issued by Ld. AO in case of Page 9 of 16 purchases made from 8 (eight) different suppliers during A.Y.2017-18. From whom total purchases of Rs. 2,21.65.69,7271-were made, the details of purchases made from the said 8 suppliers are as under:-
Ld. AR submits that total purchases of Rs.2,38.75.41,723/- have been made in the year under consideration and out of the same by issuing notices confirmations of the suppliers of purchases worth Rs.2.21.65,69,727/-i.e. approx. 92.85% of total purchase. have been cross verified. Therefore the entire sales made through mediators cannot be considered as bogus. In the matter of purchases made in the year under consideration amounting to Rs.2,38,75,41.723/-, from the verifications made by AO it is clear that purchases of Rs.2,21,65,69,723/- are proved. But in the matter of balance purchases no conclusion can be drawn. 6.37 In the assessment order, the sales made through various mediators amounting to Rs. 46,50,05,120/- have been considered as bogus but Ld. AO has given details of statements of only three mediators i.e. Sh. Sanjay Goyal, Sh. Rahul Agrawal and Sh.Rajiv Kumar Jain. Therefore sales made through other mediators cannot be doubted and the same are considered as explained. Further it has been found that the additions of Rs. 3,31,00,000/- made to M/s. Shiva Trading Company, M/s. Shyama Trading Company and M/s. Divyanshi Sales Corporation have already been considered as bogus and addition has been confirmed Therefore from this list of sales made through mediators, such sales need to be reduced. Further addition of Rs. 10,83,25,000/- has been confirmed in the matter of sales made to three concerns of Sh. Atul Tyagi i.e. M/s. Daksh Enterprises, M/s. Disha Enterprises and M/s. RK Enterprises, therefore from this list of sales made through mediators, such sales need to be reduced. Page 10 of 16 After considering above observations, sales made through Sh. Sanjay Goyal, Sh. Rahul Agrawal and Sh. Rajiv Kumar Jain are considered for addition as under:
Page 12 of 16 In this regard it is further noteworthy that if the additions of Rs. 3,31,00,000/- made to M/s. Shiva Trading Company, M/s. Shyama Trading Company and M/s. Divyanshi Sales Corporation and addition of Rs. 10,83,25,000/- made to three concerns of Sh. Atul Tyagi ie. M/s. Daksh Enterprises, M/s. Disha Enterprises and M/s. RK Enterprises, are reduced, the balance amount remains to Rs. 24,36,24,240/- Rs. 38,50,49,240/- (-) Rs. 3,31,00,000/- (-) Rs. 10,83,25,000/-]. Thus to avoid duplicate addition, the amount of Rs. 3,31,00,000/- and Rs. 10,83,25,000/- is reduced and the addition on account of balance receipts made through these three mediators i.e. Sh Sanjay Goyal, Sh. Rahul Agrawal and Sh. Rajiv Kumar Jain_is made at Rs.24,36,24,240/-. 6.38 Looking to the facts and circumstances of the case, addition of Rs.24,36,24,240/- is hereby confirmed 6.39 In the light of all the observations as made above, additions of Rs. 3,31,00,000/-made on account of receipts from M/s. Shiva Trading Company, M/s. Shyama Trading Company and M/s. Divyanshi Sales Corporation and addition of Rs. 10,83,25,000/-made on account of receipts from three concerns of Sh. Atul Tyagi i.e. M/s. Daksh Enterprises, M/s. Disha Enterprises and M/s. RK Enterprises are confirmed and further balance receipts claimed to have been received on account of sales made through mediators i.e. Sh. Sanjay Goyal, Sh. Rahul Agrawal and Sh. Rajiv Kumar Jain amounting to Rs. 24,36,24,240/- are hereby confirmed. In the assessment order Ld. AO has made addition of Rs. 158,39,10,997l-, therefore relief of Rs. 119,88,61,7571-[Rs. 158,39,10,997/- (-) Rs. 3,31,00,000/- (-) Rs. 10,83,25,000/- (-) Rs. 24,36,24,240/-] is hereby allowed to the appellant. In the matter of confirmed additions, it has been found that these amounts are found as credited in the sales books of the appellant but the same has not been found as genuine sales, therefore Ld. AO has rightly considered the same Page 13 of 16 as deemed income u/s 68 of IT Act. This action of AO is upheld and the addition of the same is confirmed accordingly. Reliance placed by the appellant on various judicial pronouncements differ from the facts of the case of the appellant, hence the same is not considered and is accordingly ignored. Looking to the facts and circumstances of the case out of total addition of Rs. 158,39,10,9971-, addition amounting to Rs. 38,50,49,240/- is hereby confirmed and balance amount of Rs. 119,88,61,757l-ishereby deleted. All the grounds of appeal are adjudicated accordingly.”
13. From a perusal of the finding of the ld. CIT(A), we have noted that he has rightly concluded that the evidences brought on record by the assessee during the appellate proceedings clearly allude that the action of the AO in making the entire addition of Rs.158,39,10,997/- is not fully supported by facts on records. We are of the considered view that the decision arrived at by the ld. CIT(A) in giving part relief to the assessee is based upon correct understanding and interpretation of the facts of the case as well as cited judicial precedents. We are therefore of the considered view that no case of any further disturbance to the order of the ld. CIT(A) is made out at this stage. The appeal of the Revenue in is therefore dismissed.
The assessee has raised following grounds of appeal in ITA No.916/Del/2023:-
1. That the Ld. CIT(A)-4, Kanpur has erred on facts and in law in confirming the addition of Rs.38,50,49,240/- out of total addition of Rs. 1,58,39, 10,997/- made by the AO u/s 68 r.w.s. 115BBE of I.T. Act by treating sales made by the Appellant as unexplained and considered as Appellant's own income.
2. That the Ld. CIT(A) has erred on facts and in law in confirming the above addition of Rs.38,50,49,240/- u/s 68 r.w.s. 115BBE of IT. Act since the provisions of section 68 r.w.s. 115BBE are not applicable to the facts of Appellant's case.
3. That the Ld. CIT(A) has erred on facts and in law in confirming the above addition of Rs.38,50,49,240 - as the same has resulted in double taxation by treating sales recorded in the books of accounts as unexplained deposit u/s 68 r.w.s 115BBE of I.T. Act.
4. That the Ld. CIT(A) has erred on facts and in law in confirming the above addition of Rs.38,50,49,240/-since neither any defects have been pointed out in the quantitative details and/or in the day-to-day stock register nor books of accounts having been rejected.
5. That the Ld. CIT(A) has erred on facts and in law in confirming the above addition of Rs.38,50,49,240/- on the basis of statements recorded of various persons behind the back of the Appellant, certified copies of which were neither provided to the Appellant nor the Appellant was provided opportunity to cross-examine such persons thereby violating principles of natural justice.
6. That the Ld. CIT(A) has erred on facts and in law in confirming the above addition of Rs.38,50,49,240/-solely on the basis of surmises, conjectures and presumption without bringing any documentary evidence on record to substantiate that Appellant's own money was routed against the sales made to various parties.
7. That without prejudice to above, the addition of Rs.38,50,49,240/- as confirmed is very excessive.
15. The assessee was called absent in this case. We have noted that the assessee is in principle contesting the confirmation of the addition of Rs.38,50,49,240/- by the ld. CIT(A) with respect to sales made to forty parties. Having heard the ld. DR and examined the issue in the light of material available on records, we have noted that the conclusion drawn by the ld. CIT(A) Page 15 of 16 is based upon correct understanding and interpretation of facts on records. Accordingly, we sustain the order of the ld. CIT(A) and dismiss the appeal of the assessee.
In the result, appeals of the Revenue in and 1461/Del/2023 and appeal of the assessee in are dismissed.
Order pronounced in the open Court on 20th March, 20256