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Income Tax Appellate Tribunal, “D” Bench, Mumbai
O R D E R Per Shamim Yahya (AM) :-
These are appeals by the assessee against respective orders of Learned Commissioner of Income Tax (Appeals) [in short learned CIT(A)] for assessment years 10-11 and 11-12.
Since the facts are common and identical and the grounds raised are also similar, and the appeals were heard together these are consolidated and disposed of by this common order
At the outset it is noted that there is a delay of 40 days in filing the appeals. Upon perusing the reasonable cause for the delay the same is condoned.
The ground raised in A.Y. 2010-11 reads as under :-
2 Mirah Dekor Pvt. Ltd.
1. The learned CIT(Appeals) erred in confirming the addition made by learned. DCIT of Rs. 13,10,141/- on notional basis by treating genuine sales made by Appellant to M/s. Ecoscapes International Pvt. Ltd. as bogus.
The ground raised in A.Y. 2011-12 reads as under :-
The learned CIT(Appeals) erred in confirming the addition made by learned. DCIT of Rs. 9,15,154/- on notional basis by treating genuine sales made by Appellant to M/s. Ecoscapes International Pvt. Ltd. as bogus. 6. Since facts are identical, we are referring to assessment year 10-11 for reference to orders of authorities below.
Brief facts of the case are as under :-
The assessee filed E-return of Income u/s. 139(1) for AY 2010-11 on 13.10.2010 declaring total income of Rs. 4,14,61,162/- and the same was assessed u/s. 143(3) r.w.s. l53B(1)(b) of the I.T. Act on 28.12.2011 at an assessed income of Rs. 4,28,l6,050/-. Thereafter, order u/s. 143(3) r.w.s. 147 of the I. T. Act was completed on 25.03.2014 at an assessed income of Rs. 4,93,36,940/-.
A search action u/s. 132 of the I. T. Act was carried out in the case of M/s. Luxora Infrastructure Pvt Ltd. and its associated group companies including promoters and directors. M/s. Luxora Infrastructure Pvt. Ltd. is a Joint venture between Mirah group and Soham group and it has formed as an SPV for developing and integrated real estate project by the ‘Ensara Metropark'. The Assessing Officer observed that in the case of the assessee intelligence was gathered and pre-search enquiries made revealed that M/s Mirah Dekor P Ltd was indulged In doing certain bogus transactions with M/s Sarvesh Mercantile P Ltd. To verify the said facts the office premise of M/s Sarvesh Mercantile P Ltd was covered U/s 133A of the IT Act, 1961. During the course of the survey action, the statement of Shri KirtiKumar Tarachand Doshi was recorded on oath during which it was confirmed by him that M/s Sarvesh Mercantile private limited and M/s. Ecoscapes International Pvt. Ltd
3 Mirah Dekor Pvt. Ltd. are companies controlled and operated by him. Further it was stated by Shri KirttKumar Tarachand Doshi that he along with his companies were not involved in real trading activities and the trading shown in the companies controlled and operated by him is without taking actual delivery of goods. Consequently, notice u/s.153A dated 03.10.2016 was issued and served on the assessee. in response to the notice u/s.153A of the Act, the assessee company has filed its return of income on 28.09.2017 declaring total income of Rs. 415,96,980/-. Later, the case was assigned to this charge i.e. DCIT - CC 2(1), Mumbai on 06.09.2017. The assessee company is engaged in trading in cloth/fabrics/furniture/gift articles and also engaged in generating wind power energy and supplying the same to the Co. Ltd. The assessee company also received other income such as co-partner share in firm, commission, interest, rent, share of profit from partnership firm and dividend during the year. To verify the genuineness of the transaction entered by the assessee with M/s. Ecoscapes International Pvt. Ltd. and M/s. Rare Earth-A Div of M/s. Ecoscapes International Pvt. Ltd., notices u/s. 133(6) of the I. T. Act were issued to the above said purchase party and they were required to explain and prove the genuineness of the transaction entered with. In response to the same both the parties confirmed the transaction. However they stated that rate wise details of goods and that the evidences of delivery of goods and delivery challans pertaining to the transactions entered with the assessee company were not traceable.
The Assessing Officer observed that from the above it can be seen that M/s. Ecoscapes International Pvt. Ltd. and M/s. Rare Earth-A Div of M/s. Ecoscapes International Pvt. Ltd. have confirmed that there was transaction of purchase with the assessee and both the parties i.e. the assessee and M/s. Ecoscapes International Pvt. Ltd. and M/s. Rare Earth-A Div of M/s. Ecoscapes International Pvt. Ltd. have failed to prove as to how the delivery of the goods were done pertaining to their transaction. Further, neither the assessee nor could M/s. Ecoscapes International Pvt. Ltd. and M/s. Rare Earth-A Div of M/s. Ecoscapes International Pvt. Ltd. furnish any evidences of 4 Mirah Dekor Pvt. Ltd.
the octori paid by either of the said parties. The Assessing Officer proceeded to hold that this goes to prove the contention of Shri Kirti Kumar Tarachand Doshi wherein he had stated that the trade with the Mirah Group is done without actual delivery and the prices of the goods are decided as per the convenience of the parties.
Therefore referring to several case laws, the Assessing Officer concluded that from the above facts it can be seen that the assessee has indulged in bogus sales to M/s. Ecoscapes International Pvt. Ltd. However, the Assessing Officer did not deduct any amount from the sale reported by the assessee. Thereafter, the Assessing Officer made 2% addition as commission on bogus sales amounting to Rs. 13,10,141/-.
Upon assessee's appeal learned CIT(appeals) referred to the AO's order. He further noted that it would be pertinent to mention here that in the appeal proceedings, assessee submitted a stock register to justify the genuineness of the sales. He referred to certain papers thereof. Thereafter learned CIT(appeals) concluded as under :- “A perusal of the so called stock register shows that this is not a real stock register but only a self justifying document created to show party wise purchase and its claimed sales. A stock register is a book, which would contain day-wise entries of all incoming goods of one nature from various parties and position of daily closing stock of that particular item after deducting the out goings from this stock on daily basis. Such a register would then be supported by corresponding purchase and sales bills to justify each addition from stock an octroi slip and lorry receipts, gate pass, production/consumption/delivery challans. However, the so called stock register submitted by the assessee cannot be said to be a stock register in the real sense and hence it is dismissed as documents of inconsequential nature. In view of the above facts of the case and total failure on part of the assessee to prove the genuineness of the sales made, it is held that there is fro anomaly in the order of the AO. In fact, order of AO is very reasonable and fair as commission of only 2% is added back.”
Against this order assessee is in appeal before us. We have heard both the parties and perused the records. Learned counsel of the assessee detailed his submissions and summarised as under :-
5 Mirah Dekor Pvt. Ltd.
A) The Assessing Officer has made notional addition by estimating 2% of the sales made to M/s. Ecoscapes International Pvt. Ltd.
Asstt. Year 2010-11 Rs. 13,10,141/- Asstt.Year 2011-12 Rs. 9,15,154/-
B) A.O. has not disputed the income derived on sales made to M/s. Ecoscapes International Pvt. Ltd. and income derived there from has been assessed to tax. C) Details of PAN, VAT Return and TAN, proper Address, Financial Statement, Bank Statement of M/s. Ecoscapes International Pvt. Ltd. are on record. Company confirmed transaction of sales vide letter dated 24/11/2017. No shred of evidence brought on record that legal evidence is incorrect or false.
D) Observation of A.O. that M/s. Ecoscapes International Pvt. Ltd. is company controlled by Shri Kirti Kumar Tarachand Doshi is factually incorrect.
E) No evidence has been brought on record to show that assessee has paid any commission at 2% on the sales made to M/s. Ecospace International Pvt. Ltd.
F) Observation of A.O. that Apex Court in the case of Kachwala Gems vs. JC1T has held that Account Payee Cheques is not sufficient to establish genuineness of purchases is not correct. No such conclusion is appearing in judgement.
G) The assessment framed is u/s 143(3) r.w.s. 153A of IT. Act 1961 pursuance to action u/s 132(1) of IT. Act 1961 on 15/03/2015. The assessment for Assessment year is completed u/s 143(3) prior to date of search.
Asstt. Year 2011-12 on 28/12/2011 Year 2010-11 on 28/12/2011
Perusal of assessment order indicates that addition made by A.O. is not based on any incriminating documents found during the course of search. Addition in the completed assessment prior to date of search cannot be made in the absence of any incriminating documents found in the course of search. Addition made by A.O. is unjustified and unsustainable. Reliance on: i) ITAT order in in the case of Gammon Infrastructure Projects Ltd. vide order dated 06/02/2020 ii) 380 ITR 573 (Del.) CIT vs. Kabul Chawla iii) 374 ITR 645 (Bom.) CIT vs. Continental Warehouse Corporation iv) 397 ITR 82 (Del.) Pr. CIT vs. Best Infrastructure (India) Pvt. Ltd.
6 Mirah Dekor Pvt. Ltd.
H) Addition made relying on statement of third party without affording opportunity to cross examine. Addition unsustainable. Reliance on Hon'ble Apex Court order in Civil Appeal No.4228 of 2006 in the case of M/s. Andaman Timber Industries.”
Per contra CIT-DR referred to the finding of search and the orders of assessing officer and CIT(appeals) and supported the orders.
Upon careful consideration we find that pursuant to search and seizure action, the authorities below upon noting that there were bogus sales entry given by the assesses, have made notional 2% addition for commission earned on the said bogus sales. However it is also noted that the said sales have been included in income and the income so derived has also been taken into account in the assessment. We find that the assessee is correct in this regard that when the sale is taken into income, there cannot be a further addition of 2% notional addition for bogus sales. The same sale cannot be genuine and bogus at the same time. In this view of the matter the notional addition of 2% as bogus sales commission is not a sustainable.
The learned counsel of the assessee has raised various other grounds that in the submission above that observation of A.O. that M/s. Ecoscapes International Pvt. Ltd. is company controlled by Shri Kirti Kumar Tarachand Doshi is factually incorrect, that no evidence has been brought on record to show that assessee has paid any commission at 2% on the sales made to M/s. Ecospace International Pvt. Ltd.
Furthermore assessee’s counsel has challenged that pursuant to search and seizure addition under section 153A is not permissible dehorse any incriminating material found during search. In this connection he referred to several case laws as above. In this regard learned departmental representative submitted that this limb of assessee’s argument was never there before any of the authorities below. In rebuttal learned counsel of the assessee claimed that 7 Mirah Dekor Pvt. Ltd.
this is purely a legal ground and goes to the root of the matter and as such assessee is entitled to raise the same.
Upon careful consideration we find that we have already held that when the sales have been accepted and taken into account in determining the income of the assessee there cannot be at the same time a notional 2% disallowance for commission on bogus sales, resulting in a double prejudice unsustainable in law. As noted above the sales cannot be correct and bogus at the same time. This follows the common law maxim of approbate and reprobate. We further note that when the addition has already been deleted by us on merits, in our considered opinion the challenge to addition on other aspects are now only of academic interest. Hence we are not engaging in to the same.
In the result we set aside the orders of authorities below and delete the addition.
In the result the assessee's appeal stands allowed. Order pronounced under Rule 34(4) of the ITAT Rules by placing the result on notice board on 1.12.2020.