ACIT, CENTRAL CIRCLE- 26, NEW DELHI vs GD FOODS MANUFACTURING (INDIA) PVT. LTD., NEW DELHI

Income Tax Appellate Tribunal, DELHI BENCH ―C‖: NEW DELHI

Before: SHRI PRASHANT MAHARISHI & SHRI K. N. CHARY

For Appellant: Shri Ajay Wadhwa, Adv, Ms. Bharti Sharma, CA

For Respondent: Shri Sanjit Singh, CIT DR

Hearing: 26/06/2018Pronounced: 06/09/2018

Per bench.

These are 14 appeals filed by the assessee, M/s G.D. Foods Industries Private Limited, and the learned assessing officer (revenue) for the Page | 1

The revenue has raised the following grounds of appeal in ITA NO. 1469/Del/2018 for the Assessment Year 2014-15:- ―1. That on the facts and in the circumstances of the case the ld CIT(A) has erred in law and on facts in deleting the addition of Rs. 29,79,37,366/- on account of undisclosed sales, which was arrived at by the AO on the basis of matching of data retrieved from seized server and disclosed sales. 2. That on the facts and in the circumstances of the case, the ld CIT(A) has erred in law and on facts in deleting the addition of Rs. 53,00,000/- made u/s 68 of IT Act as creditworthiness of the employee along with non genuine allotment of shares has not been verified.” 5. Briefly stated, the facts shows that assessee is a private limited company mainly engaged in the business of manufacturing and trading of Fast Moving Consumer Goods [FMCG] products under the brand name‖ TOPS‖. The company is engaged in production and marketing of pickles, sauces, Jams, biscuits, cakes and muffins etc. It is the exclusive seller of products of its sister concern M/s G. D. Backers Private Limited who manufactures cakes and muffins. A search and seizure operation under section 132 of the Income Tax Act, 1961 [The Act] was carried out on 22/12/2014 in the group cases; case of the assessee company was also covered in that search. During the course of search, certain documents and storage devices belonging to the assessee company were found and seized. Notice under section 153A of the act was issued to the assessee on 13/4/2016 which was served upon the assessee and assessee filed its return of income on 9/5/2016 showing income of ₹ 3,62,24,350/-. The learned assessing officer made following addition to the total income of the assessee:

i. He further stated that assessment year 2009 – 10 to 2013 – 14 were completed assessments on the date of search and no incriminating documents indicating undisclosed income was found during the course of search, therefore, the addition made was unjustified and deserves to be deleted on this account. He vehemently relied upon the decision of the Hon’ble Delhi High Court in CIT versus Kabul Chawla 380 ITR 573 (Delhi). He further supported the above contention by the series of the decision of Hon’ble Delhi High Court. 15. With respect to the addition of scrap sale as per ground number 5 of appeal, his arguments also remained the same as pertaining to the addition of the bogus purchase. He submitted that the same is included in the actual profitability statement found during the course of search and when the assessee has incurred losses actually, there is no reason that there is a separate addition is required to be made of this amount. He further stated that even the scrap sales, amount shown by the assessee in the actual profitability statement has also been used in the business expenditure, there cannot be any separate additions made on this account. 16. The learned departmental representative vehemently contested the argument of the assessee. On the addition of bogus purchases he submitted as under:-

The above discussion reveals that consequent to the search, a sum in excess of Rs. 3 crores was determined as the undisclosed receipts of the assessee ; it was sought to be brought to tax. The assessee contended, inter alia, that if that were correct, the other amounts shown as expenditure should be allowed as business expenses. This was not upheld by the Assessing Officer, who disallowed the entire amount. The Commissioner of Income-tax (Appeals) accepted the assessee's contentions and directed deletion of a major portion of the disallowance. The Revenue's appeal was rejected by the Tribunal, which, by the impugned order, accepted the Page No : 0093 assessee's cross-objection. The threshold point which this court has to decide is whether the assessee is right in contending that since the Revenue has suffered concurrent findings on questions of fact, no substantial question of law arises for consideration by the court. There is authority for this proposition, in the form of this court's judgment in CIT v. S. J. Knitting and Finishing Mills P. Ltd. [2004] 266 ITR 582, that in such circumstances, the findings of the lower authorities are to be treated as pure findings of fact, and the reference consequently has to be answered against the Revenue.

G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT ( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018 1181/Del/2018 ( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018, 1469/Del/2018, 1470/Del/2018 Assessment Year 2009-10 to 2015-16 10. This court does not wish to rest its decision on the narrow ground of the appeals involving pure issues of fact, especially since the parties made elaborate submissions on the merits of the case. 11. In order to resolve the main issue in controversy, it would be relevant to notice certain provisions of the Income-tax Act. The Explanation to section 37(1) is relevant and reads as follows : "37.(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'. Explanation.—For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." 12. Section 37 is a residuary provision and allows expenditure as deductible while computing the income on the subject to fulfilment of these conditions : (a) the expenditure should not be deductible under sections 30 to 36 of the Act ; (b) the expenditure must have been incurred wholly and exclusively for the purposes of the assessee's business ; (c) it should not/must not be personal in nature ; and (d) it should not/must not be capital in nature." 13. The Explanation to section 37(1) of the Act was inserted by the Finance (No. 2) Act, 1998, with retrospective effect from April 1, 1962, i.e., inception of the Act. This appears to have been a public policy driven amendment, disallowing deduction benefits in respect of illegal activities which could potentially be brought to tax. The phraseology of the provision clarifies that if the (business or commercial) activity is "an offence or which is prohibited by law" deduction, which might otherwise be eligible to the benefit of section 37(1) would not be granted. 14. In the present case, the Assessing Officer and, to a certain extent, the Commissioner of Income-tax (Appeals) appear to have proceeded, inter alia, to disallow the heads of expenditure towards commission payments, sundry expenses (termed "R") and green boxes expenses. As far as the "green boxes" expenses are concerned, the assessee had relied on the books relied on by the Revenue to assess the income, to urge that these constituted expenses entitled to deduction. The Assessing Officer held these expenses to be excessive. The assessee argues that once the Revenue seeks to draw a presumption, by relying on section 132(4A) of the Act that the presumption has to be given full effect. In other words, if the correctness of the contents of books and other materials is to be presumed, such a deemed state of affairs would have to be assumed in respect of all entries in the books, and not merely the entries of income (or receipts). Page | 30

(i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person ;

(ii) that the contents of such books of account and other docu ments are true ; and

(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested." As to the nature of the presumption, the Kerala High Court, in ITO v. T. Abdul Majeed [1988] 169 ITR 440, held as follows (page 444) : "It is true that section 132(4A) of the Act enables the court to presume the truth of the contents of such books. However, it is a presumption which can be rebutted. Moreover, the presumption envisaged therein is only a factual presumption. It is in the discretion of the court, depending upon other factors, to decide whether the presumption must be drawn. The expression used in the sub- section is 'may be presumed' as is used in section 114 of the Evidence Act, 1872. It is not a mandate that whenever the books of account are seized, the court shall necessarily draw the presumption, irrespective of any other factors which may dissuade the court from doing so." 16. In P. R. Metrani v. CIT [2006] 287 ITR 209 (SC) ; [2007] 1 SCC 789 the Supreme Court elaborated upon the nature of presumption under section 132(4A) and the scheme of the provision, in the following words (page 219 of 287 ITR) : "Sub-section (4A) was inserted by the Taxation Laws (Amend ment) Act, 1975, with effect from October 1, 1975, to permit a pre sumption to be raised in the circumstances mentioned therein. Before the insertion of sub-section (4A) the onus of proving that the books of account, other documents, money, bullion, jewellery, etc., found in possession or control of a person in the course of a search belonged to that person was on the Income-tax Department. Sub-section (4A) enables an assessing authority to raise a rebuttable presumption that such books of account, money, bullion, etc., belonged to such person ; that the contents of such books of account and other documents are true, and, that the signatures and every other part of such books of account and other documents are signed by such person or are in the handwriting of that particular person.

G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT ( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018 1181/Del/2018 ( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018, 1469/Del/2018, 1470/Del/2018 Assessment Year 2009-10 to 2015-16 Raising of such presumption has been enacted by the Legislature to enable the assessing authority to make a provisional adjudication within the time frame prescribed under section 132. Otherwise, it may not be possible to do so. The object of introduction of section 132 is to prevent the evasion of tax, i.e., to unearth the hidden or undis closed income or property and bring it to assessment. It is not merely an information of undisclosed income but also to seize money, bullion, etc., representing the undisclosed income and to retain them for the purposes of realization of taxes, penalties, etc. Search and seizure is a serious invasion in the privacy of the person. Section 132 which is a complete code by itself provides that the money, bullion or the books of account, etc., should not be retained unnecessarily and that the provisional assessment made under section 132 for the pur pose of retention of the books is passed within a specified time in accordance with law. It provides that the books of account, money and bullion which are not required are not retained unnecessarily thereby causing harassment to the person concerned. In order to see that the assessment order is framed within the time frame provided under section 132, the Legislature provided for a rebuttable presump tion to be raised against the person from whose possession and control the books of account, money, bullion, etc., are seized so that the order can be passed within the time frame provided under section 132. A presumption is an inference of fact drawn from other known or proved facts. It is a rule of law under which courts are authorized to draw a particular inference from a particular fact. It is of three types, (i) 'may presume', (ii) 'shall presume', and (iii) 'conclusive proof'. 'May presume' leaves it to the discretion of the court to make the pre sumption according to the circumstances of the case. 'Shall presume' leaves no option with the court not to make the presumption. The court is bound to take the fact as proved until evidence is given to dis prove it. In this sense such presumption is also rebuttable. 'Conclu sive proof' gives an artificial probative effect by the law to certain facts. No evidence is allowed to be produced with a view to com bating that effect. In this sense, this is irrebuttable presumption. The words in sub-section (4A) are 'may be presumed'. The presump tion under sub-section (4A), therefore, is a rebuttable presumption. The finding recorded by the High Court in the impugned judgment that the presumption under sub-section (4A) is a irrebuttable presumption in so far as it relates to the passing of an order under sub-section (5) of section 132 and rebuttable presumption for the purpose of framing a regular assessment is not correct. There is nothing either in section 132 or any other provisions of the Act which could warrant such an inference or finding. The presumption under sub-section (4A) would not be available for the purpose of framing a regular assessment. There is nothing either in section 132 or any other provision of the Act to indicate that the presumption provided under section 132 which is a self-contained code for search and seizure and retention of books, etc., can be raised for the purposes of framing of the regular assessment as well." If the Revenue was of the opinion that the expenses claimed towards "green boxes" was inadmissible or was excessive, or not genuine, in order to reject the entries in the books of account and other documents of the assessee, seized during the search, it ought to have relied on other mate rials. Having once drawn the presumption that the contents of the docu ments (of the assessee) taken into Page | 32

292C. PRESUMPTION AS TO ASSETS, BOOKS OF ACCOUNT, ETC (1) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132, it may, in any proceeding under this Act, be presumed— (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person ; (ii) that the contents of such books of account and other documents are true ; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.

26.

Vide para no 14 (xx) of his submission, ld AR mentioned that if the purchases are found to be bogus and if the sales are recorded in the books of accounts then the addition can only be made with respect to the gross profit to that extent. He submitted that quantitative details of the assessee are undisputed. He submitted that addition even otherwise of the whole amount is unjustified. He also referred to plethora of decision. We reject these arguments of the assessee, as it is fact that assessee has booked bogus purchases and shown sales of scrap in the books of accounts lesser than what it should have been. There are no quantitative Page | 36

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The assessee aggrieved with the order of the learned AO preferred an appeal before the learned CIT – A. The learned CIT appeal dealt with the whole issue as under:- “7. Ground no.6 relates to contention of the appellant against addition of Rs.29,79,37,366/- made by the AO on account of undisclosed sales. The fact of the case is that an invoice no.E-24 dated 01.12.2014 issued from M/s GD Food Manufacturing India P. Ltd. Plot no.204, Tronica City, Ghaziabad which was raised to M/s GD Food Manufacturing India P. Ltd., Neemrana in triplicate was found. All the three invoices were found from the office premise whereas one counter foil of the invoice should have been at designated place but all the three were lying in the corporate office. There was wide gaps in maintenance of stock transfer invoices and since there was irregularities found in stock transfer invoices vis-a-vis maintenance of stock, statement of Sh. Nitin Seth was recorded but the same was not found to be satisfactorily. The AO had also noticed evidences of cash purchases/sale. The AO noted that the appellant was engaged in the practice in suppressing its sales. Evidences of cash receipt in other forms were also noticed. Further, in the Annexure A-23 (party A-9) seized during the search action, it was noticed that only one third sale of the bakery product manufactured by M/s GD Sakers P. Ltd. which were exclusively purchased and sold by the appellant were recorded in the books of accounts, the balances two third sale was made out of aooks, thereby, the appellant would have followed the same modus operandi for other products also. Evidences of unaccounted cash expenditure in the form of rent was also found. It was also noted that the appellant made huge payment as impress and the same was utilized for cash purchases and unaccounted Page | 47

G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT ( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018 1181/Del/2018 ( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018, 1469/Del/2018, 1470/Del/2018 Assessment Year 2009-10 to 2015-16 (annexure-1) in which the difference in sales and purchases adopted by the AO and actual sales and purchases reflected in the audited accounts of Delhi and Neemrana unit. In part "A" of this chart, was shown the sales and purchases considered by the Ld. AO in her order. These figures were extracted by the AO from the server seized in which data was recorded in "Busy" software. The appellant company uses this software for its accounting. Various reports can be generated from this software for different analysis. These sales and purchases reflect the sales and purchase analysis of MIS report, in which effect of debit or credit note has not been considered i.e. purchases and sales without adjustment of debit or credit notes. Further, due to different configuration settings of bill sundries, some other difference may be seen in MIS report. The Details of Adjustment of Debit Note ,Credit Note & other head have been enclosed at page no. 539,580 & 595 of Paper book-ll. The said purchase and sales analysis of MIS report is enclosed at page no. 212 to 231 of paper book-ll. In part "B" of the chart, the sales and purchases reflected in the audited profit & loss accounts of Delhi and Neemrana unit were shown. The said audited profit & loss accounts have been filed by the appellant company with the sales tax department of respective state. (Refer P& L account of Delhi at page no. 113 & 115 and P&L account of Neemrana at page no. 142 & 144 of paper book-ll). In part "C" of the chart, the difference between part "A" and part "B" was shown. Part "C" clearly reflects that the difference is due to non adjustment of debit or credit notes and bill sundries in the figures taken by the AO. If adjustment of these differences are made the figures of sales and purchases reflected in the audited accounts of respective states will arrive. The sales tax returns of Delhi and Neemrana unit at page no. 232 to 297 of paper book-ll in support of our claim was enclosed. Further the General Ledger of Stock Transfer for the m/o Feb. & March 2014 of Delhi, Neemrana and Tronica City Ghaziabad at page no.465 to 531 of paper Book-ll was also filed. Difference analysis of sales and purchases reflected in state wise profit & loss account and consolidated profit & loss account was given. In consolidated profit & loss account, the data of all units of appellant company are merged, as a result of which, the entry of stock transfer from one unit to another gets eliminated. A chart (Annexure-2) at page no. 349 was Page | 58

G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT ( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018 1181/Del/2018 ( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018, 1469/Del/2018, 1470/Del/2018 Assessment Year 2009-10 to 2015-16 filed which clearly reflects the difference between state- wise audited accounts and consolidated accounts is only due to the stock transfer made from one branch to another. If the stock transfer figures are excluded, then the figures in the consolidated audited profit and loss account shall tally fully with state-wise profit & loss account. Further, (Annexure-3) at page no. 233 shows month wise details of stock transfer inwards and stock transfer outwards in respect of Delhi unit. Similarly (Annexure -4) at page no. 278 shows month wise details of stock transfer inwards and stock transfer outwards in respect of Neemrana unit. The figures of stock transfer inwards and outwards are tallied fully with quarterly sales tax returns of Delhi at page no. 234 to 277 and Neemrana unit at page no. 280 to 297. The process of stock transfer and the supporting evidences in order to dispel the department's belief that no stock transfer was taking place. An example was given to show is in respect of goods transferred from Tronica City, Loni Ghaziabad to Delhi. The stock ledger at Tronica City in respect of Semiya is at page 363 of the paper book. It shows that on 06.08.2013, sale was made to the head office in Delhi of 55 CB. This sale is misnomer and appears in the software named called "Busy". This is actually a stock transfer. Ghaziabad, Tronica City is a manufacturing unit and hardly any sales takes place from that place. All production is transferred to various depots. The stock register shows transfer to Delhi. The invoice at page 364 shows that the goods have been transferred to the company at Uttam Nagar, Delhi against Form "F". Form F is a form issued by the department, where transfer of goods is involved. Copy of Form F is attached at page 365. The transporter's GR/LR of Jai Tempo Service at page 369 was attached. Form T-2 which states that goods represent stock transfer being on Form F is attached at page no. 370 which is the requirement in Delhi (sales tax deptt.). The form is from the department of Trade and taxes and is evidence of goods transferred. Then page 371 is the sales voucher where the entry of transfer is passed. The entry is Delhi office debit and sales transfer) credit. At page 372 is the stock ledger of Delhi. On 06.08.2013, the stock register shows purchase/Branch Tronica of 55CB.(quantity). The goods transferred from Tronica are received in the stock ledger of Delhi. Attached at : 3ze no. 374 is the invoice which came with the transporter which shows that the concerned Accountant in Delhi Page | 59

G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT ( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018 1181/Del/2018 ( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018, 1469/Del/2018, 1470/Del/2018 Assessment Year 2009-10 to 2015-16 received the goods and bearing stamp is also cached. Accounting entry in the books of Delhi is Branch Office (Tronica) credit and purchase (stock transfer) debit. (Refer purchase voucher at page no. 377 of paper book-ll).Now, the goods after having been received, some of them were sold at subsequent date i.e. 07.08.2013 only to M/S V.K. Enterprises, Ghazipbad. The sales are shown as such in the stock ledger at page 372 and the sales invoices at page 378 of the paper book-ll. The entry on account of sales is at page 379 of PB-II. Similar is a set of examples for goods transferred from Tronica city to Meemrana. The stock ledger at Tronica City in respect of Semiya is at page 384 of the paper book. It shows that on 05.08.2013, sale was made to the Neemrana of 50 CB. This sale is misnomer and appears in the software named called "Busy". This is actually a stock transfer. Ghaziabad, Tronica City is a manufacturing unit and hardly any sales takes place from that place. All production is transferred to various depots. The stock ledger shows transfer to Neemrana. The invoice at page 385 shows that the goods have been transferred to the company at Neemrana (Rajasthan) against Form "F". Form F is a form issued by the department, where transfer of goods is involved. Copy of Form F is attached at page 386-394. The transporter's GR/LR of Ashok Tempo Service at page 395 is attached. Form Vat -47 which states that goods represent stock transfer being on Form F is attached at page 396 which is the requirement in Neemrana (Rajasthan). The form is from the department of Trade & taxes and is evidence of goods transferred. Then page 397 is the sales voucher where the entry of transfer is passed. The entry is Neemrana office debit and sales (stock transfer) credit. At page 399 is the stock ledger of Neemrana. On 06.08.2013, the stock ledger shows purchase/Branch Tronica of 50CB.(quantity). The goods transferred from Tronica are received in the stock ledger of Neemrana. Attached at page no. 400 is the invoice which came with the transporter which shows that the concerned Accountant in Neemrana received the goods and bearing stamp is also attached. Accounting entry in the books of Neemrana is Branch Office (Tronica) credit and issue (stock transfer) debit. (Refer purchase voucher at page no. 403 of paper book-II). Now, the goods after having been received, some of them were sold at subsequent date i.e. 06.08.2013 only to M/s B & B Traders, Zirakpur. The sales are shown as such in the stock ledger at Page | 60

G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT ( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018 1181/Del/2018 ( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018, 1469/Del/2018, 1470/Del/2018 Assessment Year 2009-10 to 2015-16 page 399 and the sales invoices at page 404 :he paper book-ll. The entry on account of sales is at page 405 of PB-II. Another T" of example is of goods transferred from Delhi (SSI) to Neemrana. The stock Ledger at Delhi (SSI)in respect of Pickle (Mango) is at page 410 of the paper book. It shows that on 05.08.2013, sale was made to the Neemrana of 295 CB. This sale s misnomer and appears in the software named called "Busy". This is actually a mock transfer. Delhi (SSI) is a manufacturing unit and hardly any sales takes place mom that place. All production is transferred to various depots. The stock ledger snows transfer to Neemrana. The invoice at page 411 shows that the goods have seen transferred to the company at Neemrana (Rajasthan) against Form "F". Form F is a form issued by the department, where transfer of goods is involved. Copy of Form F is attached at page 412-415 of page book-ll. The transporter's GR/LR of Jai Tempo Service at page 416 was filed. Form Vat -47 which states that goods represent stock transfer being on Form F is attached at page no. 417 which is the requirement in Neemrana (Rajasthan). The form is from the department of Trade & taxes and is evidence of goods transferred. Then page 418 is the sales voucher where the entry of transfer is passed. The entry is Neemrana office debit and sales (stock transfer) credit. At page 419 is the stock ledger of Neemrana. On 06.08.2013, the stock ledger shows purchase/Branch Delhi (SSI) of 295CB. (quantity). The goods transferred from Delhi (SSI) are received in the stock ledger of Neemrana. At page no. 420 is the invoice which came With the transporter which shows that the concerned Accountant in Neemrana received the goods and bearing stamp is also attached. Accounting entry in the books of Neemrana is Branch Office (Delhi SSI) credit and purchase (stock transfer) debit. (Refer purchase voucher at page no. 423 of paper book II). The goods after having been received, some of them were sold at subsequent date i.e. 06.08.2013 only to M/s B & B Traders, Zirakpur. The sales are shown as such in the stock ledger at page 419 and the sales invoices at page 425 of the paper book. The entry on account of sales is at page 426 of PB-II. Yet another set of example from Neemrana to Delhi V 2: a a). The stock ledger at Neemrana in respect of Sauce (Snack) is at page 431 of the paper book. It shows that on 05.08.2013, sale was made to the Delhi Vataia) of 350 CB. This sale is misnomer and appears in the software named. This is Page | 61

G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT ( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018 1181/Del/2018 ( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018, 1469/Del/2018, 1470/Del/2018 Assessment Year 2009-10 to 2015-16 actually a stock transfer. The stock ledger shows transfer to Delhi (Matiala). The invoice at page 432 shows that the goods have been erred to the company at Delhi (Matiala) against Form "F". Form F is s form issued by the department, where transfer of goods is involved. Copy of Form F attached at page 433-446 of paper book-ll. The transporter's GR/LR of S.K. Gupta at page 448 is filed. Form T-2 which states that goods represent stock transfer being on Form F is attached at page no. 449 which is the requirement in Delhi. The form is from the department of Trade & taxes and is evidence of goods transferred. Then page 450 is the sales voucher where the entry of transfer is cassed. The entry is Delhi (Matiala) debit and sales (stock transfer) credit. At page 451 is the stock ledger of Delhi (Matiala). On 06.08.2013, the stock ledger shows purchase/Branch Neemrana of 350 CB. (quantity). The goods transferred from Neemrana are received in the stock ledger of Delhi (Matiala). Attached at page no. 453 is the invoice which came with the transporter which shows that the concerned Accountant in Delhi (Matiala) received the goods and bearing stamp is also attached. Accounting entry in the books of Delhi is Branch Office (Neemrana) credit and purchase (stock transfer) debit. (Refer purchase voucher at page no.457 of paper book-ll). Now, the goods after having been received, some of them were sold at subsequent date i.e. 07.08.2013 only to M/s V.K. Enterprises, Ghaziabad. The sales are shown as such in the stock ledger at page 452 and the sales invoices at page 459 of the paper book II. The entry on account of sales is at page 460 of PB II. These are four sets of examples which will show the entire flow of transfer. The aforesaid will clearly demonstrate that the goods were duly transferred from one place to the other as normally happens in any business. The AO has just brought out one example where she found three invoices in the office. The triplicate copies of invoices were found at Delhi head office due to the reason of verification/cross examination of invoices by the Auditors of the appellant company. The said example cited by the AO in all the orders does not lead to inference that no actual sale/purchase was undertaken because appellant had filed substantive documents in form of sales tax returns, financial statements, general ledgers, bills, vouchers etc. with the AO which duly justify the difference sale/purchase recorded by the AO was on account of stock transfer. Hence the aforesaid Page | 62

34.

The learned CIT DR vehemently supported the order of the learned assessing officer. He submitted that when there were several such documents found in triplicate relating to inter unit transfer of finished goods from one to unit to another, and they were seized, there is no reason to believe that assessee is not engaged in unaccounted sales of the goods. He further stated that learned assessing officer with respect to annexure A- 23 has completely proved that one third sales is only accounted for by the assessee. He further submitted that the learned CIT – A has ignored all the evidences, which have been brought on record by the learned assessing officer. Page | 64

54.

The assessee has raised the following grounds of appeal in 1189/Del/2018 for the Assessment Year 2010-11:- “1. That the order of the Ld. CIT (A] dated 26.12.2017 is bad in law and on facts. 1.1 That the Ld. CIT(A) has erred on facts and in law in ignoring the settled legal preposition that admittedly there was no incriminating material found as a result of search, assessment order passed u/s 153A of the Act was bad in law and void ab initio. 1.2 That the Id. C1T(A) failed to consider the fact that documents found and seized were essentially the actual profit & loss account which depicted losses only and there was no unexplained assets or wealth found during the course of search. 2 That the ld. CIT(A) has erred in not adjudicating the ground that neither the copy of statements recorded during the course of search were provided nor an opportunity of cross examination was accorded to the assessee.

59.

The assessee has raised the following grounds of appeal in 1190/Del/2018 for the Assessment Year 2011-12:- “1. That the order of the Ld. CIT (A] dated 26.12.2017 is bad in law and on facts. 1.1 That the Ld. CIT(A) has erred on facts and in law in ignoring the settled legal preposition that admittedly there was no incriminating material found as a result of search, assessment order passed u/s 153A of the Act was bad in law and void ab initio. 1.2 That the Id. C1T(A) failed to consider the fact that documents found and seized were essentially the actual profit & loss account which depicted losses only and there was no unexplained assets or wealth found during the course of search. 2 That the ld. CIT(A) has erred in not adjudicating the ground that neither the copy of statements recorded during the course of search were provided nor an opportunity of cross examination was accorded to the assessee. 3. That the ld. CIT (A) has erred in not considering the contemporary and conclusive evidence in the form of excel sheet recordings and monthly profitability statements giving the real/actual profitability found in the computers seized during course of search. 3.1 That the Id. CIT (A) has ignored the settled principles of taxing real income as laid down by the Hon’ble Supreme court in various decisions. 3.2 That the ld. CIT(A) has erred in not considering the fact that the actual profitability statement and other critical data seized during the course of search for the impugned assessment year was not provided to the assessee company inspite of repeated requests made by the assessee company in this regard. Page | 81

A.25 I know there two companies through our CA Shri Shashi Garg. He introduce me to the promoters of these two companies in the meeting they showed interest for making investment in Agro-based food industry. As the Agro-base industry is a growing sector and it in demand after negotiations, they agreed to invest in M/s GDFMPL @ Rs. 800 per share.

4.2 When this fact was confronted to Sh. Nitin Seth in his statement dated 20/10/2016, he stated that Sh. Saxena was involved in the decision making, it becomes clear from the above that evasive replies were submitted all the time. 4.3 Further, in this regard to verify the genuineness of party and credit worthiness of party, Notice u/s 133(6) were issued at address 242/1, Netaji Subhash Road, 1st Floor, Flat No. 102, Howrah, West Bengal-711101 and Suit No. 5, P-6, Danesh Sekh Lane, Nityanand Nagar, Bakultolia Makhua, West Bengal. Both notices remained un- served. Further, to serve notices and to collect information, an inspector was deputed. He submitted the inspector report which is enclosed as annexure -1 page no. 61 to 68 in this order. On perusal of report it becomes clear that at both the addresses the company is non-existent. 4.4 Vide this office letter dated 13.12.2016 all these fact were brought to the notice of the assessee and he was provided with an opportunity to produce the party in this office. 4.5 As the company was non-existing and the director could not even explain how they manage to get investment at such high share premium. It pointed out that the company had secured capital through non-existing or paper companies. How it is possible that after making such huge investment the share holder is not even in contact of the company. Further, it was noticed that share Page | 88

G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT ( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018 1181/Del/2018 ( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018, 1469/Del/2018, 1470/Del/2018 Assessment Year 2009-10 to 2015-16 confirmation and bank statement, the initial onus gets discharged but since, the AO has doubted the creditworthiness of the share subscribers and genuineness of the transaction as per the reasons cited and set out above, the onus shifts back to the appellant company to offer an explanation to the satisfaction of the AO as contemplated u/s 68 of the Act which could have been discharged by producing the shareholders before the AO so that truth behind the smokescreen could have been unraveled by the AO by interrogating them. The burden/onus is cast on the appellant and the appellant is required to explain to the satisfaction of the AO cumulatively about the identity and capacity/creditworthiness of the creditors along with the genuineness of the transaction. All the constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can make the additions u/s 68 of the Act as an income. The fact remains that the company is private company in which public are not substantially interested these type of companies are mostly family controlled companies for which the onus as required u/s 68 of the Act is very heavy to prove identity and capacity of the shareholders and genuineness of the transaction. In view of the above discussion, I am of the considered view that merely submission of the name and address of the share subscriber, income tax returns, Balance Sheet/statement of affairs of the share subscriber and bank statement is not sufficient as the AO is to be satisfied as to their identity and creditworthiness as well as to the genuineness of the transaction entered into. The alleged share holders were not found to be in existence and thus, the onus shifts back to the appellant to produce the shareholders before the AO and if the appellant falters, the additions can be made u/s 68 of the Act. Section 68 of the Act has been amended by Finance Act, 2012 w.e.f. 01- 04-2013 whereby the onus is cast upon the appellant company to justify the sources of share subscription, to explain the source of the source of raising the share subscription which has been held to be clarificatory in nature. In the present case, the appellant company is a private company who could not prove the identity and credit worthiness of the alleged share subscribers and the genuineness of the share subscriptions. Being private limited company wherein no public issue has been floated to raise the share capital, it was therefore, viable and proper and duty on the part of the appellant to prove genuineness of the transactions but the fact remains that the appellant could not prove the same. They were not found to be in existence on the given address. Though the appellant company was obliged to prove:-

64.

The ld Authorised Representative submitted that during the course of assessment proceedings the assessee has submitted complete details of these parties in the form of company master data, the address of the companies, their permanent account no, their confirmation, the copy of the bank account along with return of income and explanation regarding the share premium. It also submitted the balance sheet and profit and loss account of those companies. He further referred to the balance sheet of the Excel Infotech Ltd which has the fixed asset of Rs. 47.32 crores, investment of Rs. 306 crores and loans and advances of Rs. 323/- crores. He further submitted that investor has earned profits of Rs. 29 lacs and paid tax of Rs. 19 lacs. He further submitted that investment made by the above company is only Rs. 52 lacs. He therefore, submitted as the company has invested in the shares and there is no information adverse available with the ld Assessing Officer, amount is wrongly added. With respect to Artlligence Bio Innovations Ltd, he referred to the confirmation, balance sheets, bank accounts of the assessee company and submitted that the net worth of the above company was Rs. 26.62 crores and turn over of that company was Rs. 12 crores. He further submitted that it remains merely an allegation of the ld AO that these are accommodation entries or paper companies. It was further stated that when these companies have such a huge capital base, fixed assets, income tax records, it cannot be said that these are the paper companies. He further Page | 99

67.

The two share certificate were found showing the registered folio NO. 77 and 78 vide Certificate No. 86 and 87 of 6500 and 13750 shares issued to the above two companies on 2nd Day of December 2010. As the companies whose name is appearing in the share holders register registered and to whom the shares were issued are same at the most, it can be said that share certificate were not handed over to the holder of those shares. Merely holding a share certificate without duly signed blank Page | 101

75.

The assessee has raised the following grounds of appeal in 1185/Del/2018 for the Assessment Year 2012-13:- “1. That the order of the Ld. CIT (A] dated 26.12.2017 is bad in law and on facts. 1.1 That the Ld. CIT(A) has erred on facts and in law in ignoring the settled legal preposition that admittedly there was no incriminating material found as a result of search, assessment order passed u/s 153A of the Act was bad in law and void ab initio. 1.2 That the Id. C1T(A) failed to consider the fact that documents found and seized were essentially the actual profit & loss account which depicted losses only and there was no unexplained assets or wealth found during the course of search. 2 That the ld. CIT(A) has erred in not adjudicating the ground that neither the copy of statements recorded during the course of search were provided nor an opportunity of cross examination was accorded to the assessee. Page | 103

79.

The ground number 1 of the appeal of the revenue is with respect to deletion of addition of ₹ 154000267/- was made on account of undisclosed sales. Identical issue has been decided by us in appeal of the revenue for assessment year 2014 – 15 in ground No. 1 of the appeal where we have upheld the order of the learned CIT(A) as the amount

AY 2013-14

82.

The assessee has raised the following grounds of appeal in 1186/Del/2018 for the Assessment Year 2013-14:- “1. That the order of the Ld. CIT (A] dated 26.12.2017 is bad in law and on facts. 1.1 That the Ld. CIT(A) has erred on facts and in law in ignoring the settled legal preposition that admittedly there was no incriminating material found as a result of search, assessment order passed u/s 153A of the Act was bad in law and void ab initio. 1.2 That the Id. CIT.(A) failed to consider the fact that documents found and seized were essentially the actual profit & loss account which depicted losses only and there was no unexplained assets or wealth found during the course of search. 2 That the ld. CIT(A) has erred in not adjudicating the ground that neither the copy of statements recorded during the course of search were provided nor an opportunity of cross examination was accorded to the assessee. 3. That the ld. CIT (A) has erred in not considering the contemporary and conclusive evidence in the form of excel sheet recordings and monthly profitability statements giving the real/actual profitability found in the computers seized during course of search.

86.

The ground number 1 of the appeal of the revenue is with respect to deletion of addition of ₹ 185900772/- on account of undisclosed sales. Identical issue has been decided by us in appeal of the revenue for assessment year 2014 – 15 in ground number 1 of the appeal where we have upheld the order of the learned CIT – A as the amount involved was only on account of stock transferred from head office to branch and branch to head office or other branches and not the sales. Accordingly we also decide ground No. 1 of the appeal of the revenue against the learned assessing officer and direct him to delete the addition of ₹ 185900772/- on account of undisclosed sales. Accordingly, ground number 1 of the appeal is dismissed.

AY 2015-16

89.

The assessee has raised the following grounds of appeal in 1181/Del/2018 for the Assessment Year 2015-16:- “1. That the order of the Ld. CIT (A] dated 26.12.2017 is bad in law and on facts. 2 That the Id. CIT.(A) failed to consider the fact that documents found and seized were essentially the actual profit & loss account which depicted losses only and there was no unexplained assets or wealth found during the course of search. 3 That the ld. CIT(A) has erred in not adjudicating the ground that neither the copy of statements recorded during the course of search were provided nor an opportunity of cross examination was accorded to the assessee. 4. That the ld. CIT (A) has erred in not considering the contemporary and conclusive evidence in the form of excel sheet recordings and monthly profitability statements giving the real/actual profitability found in the computers seized during course of search. 4.1 That the Id. CIT (A) has ignored the settled principles of taxing real income as laid down by the Hon’ble Supreme Court in various decisions. 4.2 That the ld. CIT(A) has erred in not considering the fact that the actual profitability statement and other critical data seized during the course of search for the impugned assessment year was not provided to the assessee company in spite of repeated requests made by the assessee company in this regard. 4.3 That the Id. CIT(A) has overlooked the presumption laid down u/s 132(4A) of the Act which say that documents/material found during the course of search are supposed to be true and correct and same are to be considered for the purpose of assessment for the relevant assessment year.

90.

One issue involved in this appeal of the assessee with respect to ground Nos. 1 to 6 are with respect to the addition on account of bogus purchases of Rs. 33460836/- and sale of scrap of Rs. 4475974/- made by the learned assessing officer and confirmed by the learned CIT(A). We have already decided the above issue in appeal of the assessee for assessment year 2014 – 15 wherein we have held that the whole addition on account of bogus purchases and estimated sale of scrap cannot be made. For the similar reasons, the addition made by the learned assessing officer and confirmed by the learned CIT(A) of ₹ 41020635/- on account of Bogus purchases and Rs. 7573380/- on account of estimated sale of scrap cannot be sustained but appropriate percentage of unaccounted expenditure for which we have held that 8 % is the Page | 110

93.

The ld Authorised Representative submitted that there are several discrepancies during the course of physical verification and further assessee is dealing in number of items, therefore, such small excess stock cannot be added. Page | 111

98.

The ground number 1 of the appeal of the revenue is with respect to deletion of addition of ₹ 242426858/- was made on account of undisclosed sales. Identical issue has been decided by us in appeal of the revenue for assessment year 2014–15 in ground number 1 of the appeal. There we have upheld the order of the learned CIT(A) as the amount involved was only on account of stock transferred from head office to branch and branch to head office or other branches and not the sales. Accordingly we also decide ground number 1 of the appeal of the revenue

-Sd/- Sd/- (K. N. CHARY) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 06/09/2018

A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi

ACIT, CENTRAL CIRCLE- 26, NEW DELHI vs. GD FOODS MANUFACTURING (INDIA) PVT. LTD., NEW DELHI