GARGI OVERSEAS PVT LTD,DELHI vs. INCOME TAX OFFICER, DELHI

The assessee is engaged in the purchase and sale of bullion and commodities like rice. During the year under consideration, the assessee company had purchased goods from M/s. Umesh Kumar Vivek Kumar (proprietor Vivek Gupta) of Rs. 13,81,75,159/- and from M/s. Mahavir Prasad Suresh Kumar (proprietor Shri Suresh Kumar) of Rs. 13,24,76,193/- . These transactions are evidenced by invoices , inward movement of goods in stock register and duly recorded in the books of account of the assessee by debiting the purchase account in the profit and loss account for which payments were made through regular banking channels through accounted source of the assessee company. The aforesaid two entities were controlled and related to Shri Ashok Kumar Gupta inasmuch as Shri Vivek Gupta is nephew of Shri Ashok Kumar Gupta and Shri Suresh Kumar Gupta is the servant of Shri Ashok Kumar Gupta. Accordingly, the ld AO concluded from the statement recorded from Ashok Kumar Gupta during the course of his survey which was received from Investigation Wing that Shri Ashok Kumar Gupta had created bogus entities in the name of his family members and people who are under his control and since those entities were engaged in providing only bogus accommodation entries in the form of purchase and sales to various beneficiaries without physical movement of goods in lieu of commission charged from the beneficiaries, the ld AO of the assessee herein proceeded to treat the purchase made from the aforesaid two parties in the total sum of Rs. 27,06,51,352/- as unexplained expenditure u/s 69C of the Act. The contentions of the assessee that the purchases were duly reflected already in the books of account of the assessee duly supported by documentary evidences and payments made to the suppliers through regular banking channels of the assessee out of disclosed source by the assessee, were not appreciated by the ld AO. The assessee had also submitted that it had maintained Gargi Overseas Pvt. Ltd complete stock records of the transactions which include purchase made from the aforesaid two parties. The quantitative tally of the stock is also reflected in the tax audit report furnished by the independent firm of Chartered Accountants. From the side of the assessee, the assessee filed the following documents before the ld AO :- a. copy of account of M/s. Umesh Kumar Vivek Kumar and M/s. Mahavir Prasad Suresh Kumar in the books of the assessee company. b. copies of purchase bills along with bilty on sample basis for purchase made from aforesaid two parties. c. extract of bank statement evidencing amounts paid to aforesaid two parties. d. copy of stock register wherein the transactions with aforesaid two parties are recorded.

With regard to observations made by the ld AO that the aforesaid two suppliers had not paid any VAT on the alleged sale of rice made to the assessee, it was submitted that there is no element of VAT on purchase and sale of rice. With regard to observation made by the ld DR before us that no e-way bills are available for purchase and sales and accordingly no actual movement of goods took place, it was submitted that Goods And Service Tax (GST), wherein, e-way bill was mandated, came into effect from AY 2018-19 and hence, there was no question of filing e-way bills for the year under consideration. With regard to yet another argument advanced by the ld DR that entire stock register submitted by the assessee contain purchase and sale made only from aforesaid parties, it was submitted by the ld AR by drawing our attention to pages 570 and 571 of the paper book to prove that transactions were carried out with other Gargi Overseas Pvt. Ltd parties also. With regard to yet another observation made by the ld DR by referring to observation made by ld CITA in page 64 of his order that the parties from whom assessee had transacted had not filed their return of income, it was submitted by the ld AR that assessee cannot be faulted for the third parties not filing the income tax return and that it is for the Income Tax Department to take proper action on the third parties in the manner known to law, if they so desire. With regard to reliance placed on the statement recorded during survey of Shri Ashok Kumar Gupta, the ld AR submitted that the survey statement does not have any evidentiary value and reliance in this regard was placed on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Khader Khan Sons reported in 352 ITR 480. Further, the ld AR also submitted that the assessee had sought cross examination of Shri Ashok Kumar Gupta during the course of assessment proceedings and the parties who are departmental witnesses failed to appear on the date of cross examination before the ld AO. Hence, it was the departmental witness who had not complied to the cross- examination proceedings and assessee cannot be faulted at all and accordingly any statement recorded from those witnesses cannot be relied upon proving detrimental to the assessee.

Similar observations were made by both the sides with regard to sales made by the assessee to M/s. Kalki Trading Company in the sum of ₹11,17,38,184/- which was sought to be treated as unexplained cash credit u/s 68 of the Act by the lower authorities.

At the outset, we find that purchases made by the assessee from two suppliers in the total sum of ₹27,06,51,352/- has been added u/s 69C of the Act. At the outset, we find that all the transactions the assessee had with the aforesaid parties had already been duly accounted in the books of Gargi Overseas Pvt. Ltd account of the assessee. The payments made thereon were sourced out of accounted source of the assessee company. Now the short point that arises for our consideration is as to whether the provisions of Section 69C of the Act could at all be made applicable by the lower authorities in the facts and circumstances of the instant case to the aforesaid transactions with the aforesaid parties. It is pertinent to note that the lower authorities in the instant case had not doubted the source of incurrence of expenditure of the assessee. Even otherwise, we find that the sources of funds for making the payment to the aforesaid 2 parties are fully explained and traceable. We find that the issue in dispute qua the applicability of provisions of Section 69C of the Act was subject matter of adjudication by the co-ordinate bench of this Tribunal in the case of Garg Acrylics Ltd Vs. DCIT in for AY 2011-12 dated 30.09.2024 under identical circumstances, wherein, the Co-ordinate Bench has held as under:-

Respectfully following the aforesaid decision, we hold that the provisions of Section 69C of the Act per se could not be made applicable for making the addition in respect of purchase of rice made from M/s. Mahavir Prasad Suresh Kumar and M/s Umesh Kumar Vivek Kumar. Accordingly, the grounds raised by the assessee in this regard are hereby allowed.

With regard to sales made by the assessee to M/s. Kalki Trading Company, we find that assessee had already disclosed it as taxable revenue receipt in the return of income. This very same receipt is sought to be treated as unexplained cash credit u/s 68 of the Act by making a separate addition in the assessment which amounts to double addition. To the extent of sales made by the assessee, corresponding reduction in stocks had duly taken place. It is also pertinent to note that the books of account, quantitative details, stock registers, closing stock of assessee had not been rejected by the Lower Authorities in the instant case. Hence, no part of the sales already disclosed by the assessee as taxable revenue could be treated as unexplained cash credit u/s 68 of the Act in the facts and circumstances of the instant case. Accordingly, the addition made is hereby directed to be deleted. Further, we also find that Hon’ble Madras High Court in the case of of SMILE Microfinance Limited vs ACIT in WP (MD) No. 2078 of 2020 and WMP (MD) No. 1742 of 2020 dated 19-11- 2024 had held that the provisions of section 115BBE of the Act which enhanced the rate of tax could be made applicable only from 01.04.2017,

No arguments were advanced by the ld AR with regard to validity of the assessment u/s 147 of the Act before us, hence the grounds raised in that regard are hereby dismissed as not pressed.

In the result, the appeal of the assessee is partly allowed.