ACIT, NEW DELHI vs. M/S. MEROFORM INDIA PVT LTD., NOIDA

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”: NEW DELHI

BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER I.T.A Nos.: - 4630, 4631, 4632, 4633, 4634, 4635/Del/2014 A.Y.s: 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 & 2011-12

ACIT Meroform India Pvt. Ltd. Central Circle-8 A-37, Sector 80, Phase II Vs. New Delhi. Noida PAN AACCM5189P (Appellant) (Respondent)

ITA. No. 4494/Del/2014 Assessment Year 2011-12

Meroform India Pvt. Ltd. Vs. DCIT A-37, Sector 80, Phase II Central Circle 8 Noida New Delhi. Uttar Pradesh 201305 PAN AACCM5189P (Appellant) (Respondent)

Department by: Smt. Shafali Swaroop, CIT(DR) Assessee by : Shri S.K. Tulsiyan CA Date of Hearing 26/06/2018 Date of 31/07/2018 pronouncement

O R D E R PER BENCH

The aforesaid appeals have been filed by the Revenue against separate impugned orders of even date, 30th May, 2014, passed by Ld.

CIT (Appeals) XXXII, New Delhi for the quantum of assessment passed u/s 153A r.w.s 143(3) for the assessment years 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12. In the assessment year 2010-11 the assessee has also filed cross appeal. Since common issues are involved in all the appeals arising out of identical set of facts, therefore, the same were heard together and are being disposed of by way of this consolidated order.

Nature of 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Addition made by the AO

Personal 5,23,970 4,77,263 6,16,841 5,43,453 29,52,758 19,93,202 expenses

Bogus 27,15,435 40,77,004 2,19,48,700 89,49,347 2,52,67,172 2,11,70,553 purchases made from Nitin Enterprises

Unexplained 1,87,375 8,17,996 14,28,290 9,88,687 2,54,685 1,03,39,624 purchases made from Kiran Furniture

Disallowance 5,00,973 2,55,101 12,05,538 - - - u/s 40A (3)

Unexplained - - - - - 6,68,483 Cash found

Disallowance - - - - - 6,65,138 on account of Tour Travelling, repairs, depreciation on car etc.

Sale of Scrap - - - - - 1,74,23,441

i) Addition on account of scrap sales: Rs.1,16,15,628/-

ii) Disallowance on account of low declaration of income: Rs. 11,84,425/-

“2. The Ld. A.O. has grossly erred on facts as well as in law in making additions u/s 153A in spite of the fact that no incriminating material was found during the search to enable to the A.O. to make addition on the impugned issue in the

assessment u/s 153A against the already completed assessment.”

assessment passed u/s 153A; and secondly, they have already been considered in the assessment completed earlier and had attained finality. This ground has been raised vide ground Nos. 1 & 2 before CIT(A) in all these years, which has been decided against the assessee in a very detailed manner, which for sake of ready reference is reproduced hereunder: -

“6.1 From a plain reading of section 153A it is evident that it requires the Assessing Officer to assess or re-assess the total income of six assessment years immediately preceding the year of search. There has been lot of debate and judicial controversy regarding the nature of assessment or re-assessment proceedings to be undertaken u/s 153A. Legislature requires the Assessing Officer to assess or re-assess the total income of pending six assessment years. The words 'total income' has been used under clause 'b' of section 153A (1) as well as under first proviso to section 153A (1). 6.2 The assessment or re assessment proceedings to be undertaken u/s 153A may be classified as under: a. For the assessment year relating to the year of search- whether normal assessment can be framed examining and making additions relating to all the issues as can be done in normal scrutiny case? b. In the case when assessment proceedings u/s 143(3) were pending and those proceedings were abated due to search having taken place- whether assessment for such years can be made as normal assessment examining and making additions relating to all the issues as can be done in normal scrutiny case? c. For the years for which no notice u/s 143(2) was earlier issued and the same having been time barred - whether assessment for such years can be made as normal assessment examining and making additions relating to all the issues as can be done in normal scrutiny case? Such years may further be classified as the years for which processing under section 143(1)(a) has been done or

d. In the case of proceedings u/s 153A relating to the years for which assessment order u/s 143(3) has been passed earlier - whether issues already examined in earlier assessment proceedings can be re-examined by the assessing officer? Whether there can be change of opinion by the assessing officer on the issues already considered without any new evidences coming to his possession? 6.3 Thus, there has to be a clarity regarding nature of the provision of section 153A requiring the assessment or reassessment to be made in the case of search cases. Requirement of section 153A is to open or re-open of the cases for the purposes of making assessment or re-assessment of the total income of proceedings for six assessment years prior to the year of search. It does not contain any provision regarding the concept of making assessment of undisclosed income alone as was the case under block assessment regime under chapter XIVB. It does not contain any provision regarding the nature of addition which can be made under this section. This section has rather provided, for the removal of doubts, by way of insertion of Explanation at the end of the section that 'save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section.' 6.4 Thus, it is clearly implies that the nature of assessment or re- assessment to be made under this section 153A shall be governed by the normal provisions of the Act. In case it is an assessment made for the first time, all principles of assessment which are applicable to assessment under section 143(3) shall become applicable and in case if a re-assessment is being made, all the principles of re-assessment which are applicable in the case of proceedings under section 147/148 shall become applicable. 6.5 The provisions contained under section 153A are not comparable with the nature of provisions contained under chapter XIVB regarding block assessment proceedings. Concept of block assessment under chapter XIVB was altogether different. It was a special procedure of assessment for search cases to be made relating to only undisclosed income. There was then the concept of dual assessment proceedings. Normal assessment proceedings for other than undisclosed income used to be undertaken

independently and simultaneously. Section 153A does not contain any such special procedure to assess undisclosed income found as result of search, rather pending normal assessment or re- assessment proceedings are abated and, in a way, merged with the proceedings to be undertaken u/s 153A. Assessment proceedings pursuant to notice u/s 153A are not intended to be restricted to make assessment of undisclosed income only detected as a result of search. 6.6 The proceedings under section 153A are in fact de novo assessment proceedings for the following reasons: 1. Section 153A requires total income for preceding six years to be assessed or re-assessed in pursuance to notice under section 153A. Total income would include any kind of income and it cannot be restricted to undisclosed income or escaped income. 2. After initiation of search, pending assessment proceedings are abated and the same are merged with the assessment proceedings to be undertaken pursuant to notice under section 153A. Nature of assessment proceedings, so merged, cannot be restricted to make assessment only of undisclosed income. 3. Section 153A requires total income for all the preceding six years to be assessed or reassessed, therefore, the nature of assessment proceedings for all the six years would be of the same nature and the nature of completed assessment proceedings to be reassessed pursuant to notice under section 153A cannot be different. 4. There is no concept of assessment of undisclosed income under section 153A as was the case during block assessment regime under Chapter XIV8. Under block assessment, there was concept of dual assessment - one for undisclosed income detected as a result of search and other for normal assessment as per normal provisions of the Act. Since under section 153A, both the assessment proceedings are merged together, the nature of the additions made cannot be restricted to assess only undisclosed income detected as a result of search.

framed should be held to be null and void. It was also submitted that the provisions of section 153A cannot be invoked to make an assessment or reassessment of income just because a search had taken place in the case of an assessee. This contention of the assessee cannot be accepted. There is no requirement for an assessment made under section 153A being based on any material seized in the course of search. Further under the second proviso to section 153A, pending assessment or reassessment proceedings in relation to any assessment years falling within the period of six assessment years referred to in section 153A(b) shall abate. Thus, the AO gets jurisdiction for six assessment years referred to in section 153A(b) for making an assessment or reassessment. It is not the complaint of the assessee that any income, which is already subjected to assessment under section 143(3) or under section 148 completed prior to the search in respect of six assessment years referred to in section 153A(b) and in the second proviso to section 153A, has also been included in the assessment framed under section 153A. In such circumstances the plea of the assessee cannot be accepted. There is no requirement for an assessment made under section 153A being based on any material seized in the course of search." 6.8 In view of the above, I hold that the action of the Assessing Officer in making the impugned addition was within the scope of jurisdiction u/s 153A of the IT Act, 1961. The appellant has relied on various decisions but these decisions do not support the case of appellant's in view of the above discussion. In fact, the decision of Hon'ble Delhi High Court in the case of Anil Kumar Bhatia, relied upon by the appellant is also not in favour of the appellant. Therefore, the contention of the appellant that the additions made in the assessment completed u/s 153A read with section 143(3) was beyond the scope of jurisdiction u/s 153A is rejected. Hence this ground of appeal dismissed.” 8. However, on merits all the additions have been deleted by Ld. CIT(A) and that is why assessee was not aggrieved by the outcome of the judgment and hence there was no reason to file any appeal.

Date of filing 1.12.2006 27.10.2007 28.09.2009 of return of Rs.1,37,31,204 Rs.1,27,56,410 Rs.3,68,63,690 income and income returned Last date of issuance of --- 30.09.2008 --- notice u/s 143(2)

Date of 11.11.2008 No notice u/s 21.05.2010 passing of 143(2) was At an income of At an income of assessment issued, hence order u/s the return Rs.1,37,31,204 Rs.3,68,63,690 143(3) income attained finality

the Hon’ble Jurisdictional High Court in the case of CIT vs. Kabul Chawla (2016) 380 ITR 573 and catena of other judgments of the Hon’ble Delhi High Court. In support he relied upon following judgments: -

to show as to how estimation made by Assessing Officer was arbitrary or unreasonable, additions so made by Assessing Officer by rejecting books of account was justified. v. CIT Vs Anil Kumar Bhatia (24 taxmann.com 98. 211 Taxman 453. 352 ITR 493); where Hon'ble Delhi High Court held that jurisdiction of AO under 153A is to assess total income for the year and not restricted to seized material. Post search reassessment in respect of all 6 years can be made even if original returns are already processed u/s 143(1)(a) - Assessing Officer has power u/s 153A to make assessment for all six years and compute total income of assessee, including undisclosed income, notwithstanding that returns for these years have already been processed u/s 143(1)(a). Even if assessment order had already been passed in respect of all or any of those six assessment years, either under section 143(1)(a) or section 143(3) prior to initiation of search/requisition, still Assessing Officer is empowered to reopen those proceedings under section 153A without any fetters and reassess total income taking note of undisclosed income, if any, unearthed during search. Filalex India Ltd Vs CIT (49 taxmann.com 465); where Hon'ble Delhi High Court held that during assessment under section 153A, additions need not be restricted or limited to incriminating material, found during course of search.

period. Accordingly, on the date of search, i.e., 19.10.2010 the assessments for these assessment years have attained finality and hence has to be reckoned as unabated assessment in terms of second proviso to section 153A. Now under the jurisdiction of Hon’ble Delhi High Court it is a well settled principle that in the case of assessments which have attained finality and are non-abated assessment, then no additions can be made over and above the original assessed income unless some incriminating material has been found during the course of search qua that assessment year. This proposition has been well discussed in the judgment of CIT vs. Kabul Chawla, wherein their Lordships have also discussed the judgment of Shri Anil Kumar Bhatia (supra). After considering the various judgments the Hon’ble High Court have summarised the decisions in the following manner: -

“37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under :- i. Once a search takes place under section 132 of the Act, notice under Section 153A (1) will have to be mandatory issued to the person searched requiring him to file returns for ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs

"in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of

search which were not produced or not already disclosed or made known in the course of original assessment.”

2) Bogus purchase made from M/s. Kiran Furniture; 3) Addition on account of unexplained purchases made from M/s. Kiran Furniture; 4) Disallowance u/s 40A (3); 5) Unexplained cash; 6) Additional account of scrap sales and low declaration of income in the assessment year 2011-12.

Sl. Particulars Amount (Rs.) No. 1. Business Promotion 13,41,288/- Expenses 2. Staff labour and Welfare 3,12,213/- expenses 3. Printing & Stationary 7,80,974/- 4. Miscellaneous Expenses 2,82,788/- Total 27,17,263/-

AO observed that most of these expenses have been incurred in cash or payment has been made through credit card of the Directors. The cash vouchers furnished by the assessee have been held by him to be not genuine as they do not prove the genuineness of the expenses claimed. He held that the element of personal expenses cannot be

ruled and accordingly, he has disallowed these expenses which come to Rs. 5,43,453/-.

infirmity in the order of the Ld. CIT (A) for deleting such an addition and same is affirmed and accordingly, the disallowance of business expenses is dismissed. Admittedly similar reasoning has been given by the AO for similar kind of expenses in the assessment year 2010-11 and 2011-12, therefore, our reasoning given above will apply mutatis mutandis for these two years also. Accordingly, the grounds raised by the revenue on this issue stand dismissed.

computing taxable income for the assessment year 2009-10, 2010-11 and 2011-12.

(g) The additions are contrary to settled position in favour of assessee by the judgment of Hon'ble High Court in the case of CIT v. Mahalaxmi Glass Works (P) Ltd., 318 ITR 116 (Bom) and also the judgment of Hon'ble Delhi High Court in the case of CIT v. Maha veer Aluminium Ltd, 297 ITR 77 , wherein, it has been held that if there is change in valuation of closing stock in one end, it must necessarily be a corresponding change at the other end, otherwise, the true profit would not be reflected. Hon'ble Delhi High Court in the case of Mahaveer Almn Ltd (supra) have held after considering the decision in the case of CIT v. Ahmedabad New Cotton Mills Co. Ltd., AIR 1930 PC 56, that a mistake in the method of valuation cannot be rectified by refusing the valuation of closing stock only but the valuation of opening and closing stock had to be revised. In the case of Mahalaxmi Glass Works Pvt Ltd., (supra), the issue related to closing stock valuation of adjustment of unutilized Modvat credit. The Tribunal allowed the adjustment. Hon'ble High Court confirmed the order of the Tribunal. Therefore, the issue is covered in favour of the assessee by the decision of Hon'ble High Court. Hence, if the closing stock is to be increased on account of un utilized Modvat credit, the corresponding opening stock of that year should also be increased.” Besides above submissions various decisions were also referred on the issue that if the statement given by third party is relied upon, without any opportunity to cross examine by the assessee then same cannot be relied upon. One most important submission made on the basis of material facts to prove that assessee has made actual purchases was that, this party has also filed a suit against the assessee for recovery of balance amount due to them on account of purchase made by the assessee company. This fact alone goes to show that the purchases made by the assessee cannot be held to be bogus.

of M/s Nitin Enterprises without considering the other evidence furnished by the appellant was not justified. From the details on record, it is seen that all purchases were supported by relevant bills and payments were made through banking channels as per the statements furnished. It is also a matter of record that M/s Nitin Enterprises filed a suit before the Hon'ble High Court of Delhi vide petition CS (OS) 2055 of 2011 for recovery of an outstanding balance. In the said writ petition, M/s Nitin Enterprises accepted the fact that material was supplied to the appellant regularly on credit basis and payments of some invoices were pending. Such copies of the invoices where the payments were pending was submitted by M/s Nitin Enterprises before the Hon'ble High Court of Delhi and the same were also furnished. before the Assessing Officer in the course of the assessment proceedings vide its letter dated 27.05.2013. M/s Nitin Enterprises also submitted before the Hon'ble High Court of Delhi, a copy of the ledger account of the appellant company i.e. M/s Meroform India Pvt. Ltd. in its books of accounts which evidenced that the material was delivered to the appellant. Subsequently, both the parties i.e. M/s Nitin Enterprises and the appellant concluded the matter by entering into an out of court settlement agreement, according to which M/s Nitin Enterprises agreed to receive the balance payment without the interest amounting to Rs.55.58 lacs and filed a combined application on May 31st 2012 before the Hon'ble High Court for disposal of the writ filed by M/s Nitin Enterprises. Vide order dated 01.06.2012, the Hon'ble Delhi High Court dismissed the writ filed by M/s. Nitin Enterprises and concluded the matter as extracted below: 1. Plaintiff has filed the present suit for recovery of Rs. 72,62,050/-.

leaving the parties to bear their own costs. Let a decree sheet be drawn up accordingly. 7. Having regard to the fact that the parties have arrived at an amicable settlement before framing of issues, court fee shall be refunded to the plaintiff in terms of section 16A of the Court Fee Act, as prayed. 8. Application stands disposed of I.A.1683S/2011 (037 R 3) & I.A. 6313/2012 (Leave to defend)

13.7 This action of M/s Nitin Enterprises was contrary to the statement given by its partner in the course of survey proceedings on 1.04.2011. On the other hand, such a petition for recovery before Hon'ble High Court substantiates the genuineness of purchases. No prudent person would expend money on legal matters which is not only time consuming but also long drawn in procedures on an issue which never existed or found to be bogus. Again, in the course of search u/s 132 there was no excessive cash found that substantiated that the appellant received cash in lieu of cheque from M/s Nitin Enterprises or any incriminating material where certain cash transactions were found recorded on loose sheets I papers to support cash receipt. In the course of appeal proceedings, as well as assessment proceedings the appellant filed complete details pertaining to the legal battle between them, which the Assessing Officer did not consider nor he has brought any material contrary to what was stated by the appellant. It is also a point to bring on record that there was no bar on the Assessing Officer to conduct further independent enquiry pertaining to these transactions. The Assessing Officer was unable to bring on record

the number of invoices which specify such adjustments alleged as bogus by him. In the assessment order, the Assessing Officer recorded that Sh. Nitin Bansal, partner of M/s Nitin Enterprises which provided the alleged entries, expressed his inability to attribute any particular invoice to such adjustments / accommodation made for the appellant company. Therefore, the Assessing Officer failed to bring on record any adverse material to prove that the purchases made by the appellant were not genuine and were bogus, except a third-party statement in the course of survey u/s 133A which was contrary to the settlement deed passed by the Hon'ble High Court of Delhi. Considering the facts and circumstances of this issue, the Assessing Officer was not justified in treating the purchases made from M/s. Nitin Enterprises by the appellant as bogus. Accordingly, the addition made by the Assessing Officer amounting to Rs. 89,49,347/- on account of bogus purchases is deleted.”

c) Copy of Statement of Accounts (Ledger) and Reconciliation filed by M/s. Nitin Enterprises during Suit for Recovery before Hon’ble High Court, confirming the transactions and balance arising therefrom as recoverable on oath. d) Copy of Ledger Account of M/s. Nitin Enterprises in the books of the assessee and reconciliation of balances. e) Copy of Settlement Deed dated 17.05.2012 between the assessee and M/s. Nitin Enterprises and Settlement Order of Hon'ble Delhi High Court.

It was pointed out that, AO even failed to acknowledge these evidences and instead choose to rely upon the statement of the partner taken behind the back of the assessee without allowing any opportunity to cross examine. Apart from that, during the course of search operation nothing incriminating in respect of bogus purchase has been found and there is an inherent contradiction in the conduct of the said party, because on one hand the partner Shri Nitin Bansal stated that it has given accommodation entry but at the same time the firm has issued legal notice to the assessee company for recovery of outstanding dues on account of bill raised against them for the purchases made by the assessee company and also filed a suit before the Hon’ble Delhi High Court; and thereafter deed of settlement has been executed between the said party and the assessee wherein the quantification of liability of unpaid purchases has been settled and Hon’ble High Court which has been accepted by the parties in the settlement ratified vide order dated 1.6.2012. Consequent to settlement the writ petition filed by M/s. Nitin Enterprises has been dismissed. Thus, under the facts and circumstances of the case, the purchases made by the assessee from M/s. Nitin cannot be held to be bogus.

evidentiary value, when the firm itself has taken a legal action for recovery of same dues from the assessee on the purchases made for which it has issued the bills. Not only that, there has been amicable settlement of dues and payment has been made by the assessee to the said party. In light of these evidences filed before Hon’ble High Court in the suit proceedings, the statement of the partner gets mitigated and no credence can be given to such a settlement. The detailed finding of the Ld. CIT (A) on this issue as incorporated above is not only based on correct appreciation of facts but also in law, therefore, the said finding is affirmed and the addition made by the AO on account of bogus purchase is deleted. In the result issue of bogus purchases in all the assessment years from the said party stands decided in favour of the assessee and the grounds raised by the revenue are dismissed.

performed along with the details of site and other information. The assessee has also classified this expenditure under the head job work charges. Not only that, TDS has also been deducted and deposited in the Government Treasury on the payment made to said party. There is nothing on record that either the alleged services have not been given by the said party or other evidences in the form of invoices and TDS certificate are not correct. The assessee had duly placed following record and information before the AO:-

(a) Confirmed statement of accounts. (b) Invoices of the services rendered by M/s. Kiran enterprises (c) Permanent Account number of Mr. Kishore M. Mestry, Proprietor, M/s. Kiran Furniture. (d) The address of the Kishore M. Mestry, Proprietor, M/s. Kiran Furniture. (e) The mode of payments made. (f) Nature of services obtained, place where such service obtained and bills of services rendered raised by M/s. Kiran Furniture. (g) The Income tax returns of M/s. Kiran Furniture which duly reflected that the job charges received from the appellant were duly accounted for and income earned therefrom has been offered for taxation by the said party. (h) The TDS records in the form of TDS Certificates, as required by the provisions of Chapter XVII showing the nature of services obtained and TDS as required by law duly deducted and deposited by us to the credit of Central Govt.

“6. I have gone through the facts of this issue, written submissions made by the appellant, citations of the case laws relied upon by the appellant in support of its contentions, and considered them. I have also called for the assessment record and perused it. During the year under consideration, the appellant company obtained services from the said party i.e. Mls Kiran Furniture at the project sites where certain job work was required. In the course of assessment proceedings the appellant furnished the following: (i) Confirmed statement of accounts. (ii) Invoices of the services rendered by M/s. Kiran enterprises. (iii) Permanent Account number of Mr. Kishore M. Mestry, Proprietor, M/s. KiranFurniture. (iv) The address of the Kishore M. Mestry, Proprietor, M/s. Kiran Furniture. (v) The mode of payments made. (vi) Nature of services obtained, place where such service obtained and bills of services rendered raised by M/s. Kiran Furniture. (vii) The Income tax returns of M/s. Kiran Furniture, which duly reflected that the job charges received from the appellant were duly accounted for and income earned therefrom has been offered for taxation by the said party. [viii] The TDS records in the form of TDS Certificates, as required by the provisions of Chapter XVII showing the nature of services obtained and TDS as required by law duly deducted and deposited by us to the credit of Central Govt. From the details placed on record it is seen that Sh. Kishore Mahadeo Mistry is the proprietor of Mls Kiran Furniture and is situated in Mumbai and was engaged in the business activity of manufacture of furniture and fixture and also rendered services as a "labour contractor". On perusal of the details, it is seen that the Assessing Officer made the impugned addition merely on the basis of non-compliance to the notices issued to the above mentioned entity u/s 133(6) of the IT Act, 1961. While making

such disallowances, the Assessing Officer not only ignored all the material facts brought on record by the appellant, but also the nature of services rendered by M/s Kiran Furniture, and also the classification and disclosure made thereof in its audited books of account, which was furnished such as balance sheet and profit and loss account during the course of the assessment proceedings. In fact, one cannot ignore that the notices issued u/s 133(6) by the Assessing Officer on both the occasions were properly served upon the intended party and they were not returned to the sender un-delivered or with certain remarks by the postal authorities. This itself evidences the fact that the party existed and its identity was established. The Assessing Officer did not bring any adverse material on record to establish that such services were not rendered by M/s Kiran Furniture or that the same was not obtained by the appellant, or that the services obtained were not utilized for the business of the appellant. The Assessing Officer's action while making the impugned addition is contradictory to each other. On one hand, the entire job work charges paid were disallowed and on the other hand the Assessing Officer himself accepted the liability on account of services obtained from the party duly acknowledged and confirmed liability as a trade liability. Despite of the submissions made and evidences furnished notices issued u/s 133(6) which remained un-complied, does not tantamount to an adverse inference that could be drawn against the appellant as it was open to the Assessing Officer to conduct further investigations I enquiry by exercising the powers conferred upon him in the Income Tax Act, 1961 to issue a commission u/s 131 (1 )(d) to his counterpart in Mumbai to carry out a conclusive enquiry. The appellant furnished the details of its transactions with M/s Kiran Furniture before the Assessing Officer in the course of the assessment proceedings for proper scrutiny in the form of invoices, schedule 9 forming part of the financial statements, copies of TDS certificates, where TDS was deducted in accordance with the provisions of law for the kind of nature of services rendered I obtained etc. However, the Assessing Officer ignored even the fact that M/s Kiran Furniture furnished the ITRs for various years and the Assessing Officer could have easily verified from the jurisdictional Assessing Officer where the said party was

assessed to tax regularly. Without an intended undertaking to further conduct necessary enquiries I investigation, to verify the genuineness of the transactions which the Assessing Officer doubted, merely disallowance of purchases only on the ground that the party did not respond to the notices which were rightfully served upon the said party u/s 133(6) is unjustified as the Assessing Officer at the least could have also levied a penalty for non-compliance of such notices served on it. 16.1 The evidence furnished by the appellant was ignored and not taken into account on merit by the Assessing Officer. The payments made which were duly supported, confirmed and vouched cannot be treated as the undisclosed income of the appellant in the name of unexplained purchases simply on the ground that M/s Kiran Furniture did and respond to the notice issued u/s 133(6) and that it represented and unexplained and undisclosed income of the appellant. The instant case is not a case of cash credit simplicitor, because the appellant furnished the entire proceeds and transactions before the Assessing Officer in the course of the assessment proceedings u/s 153A, and it is also not a case where the credit balance due to M/s Kiran Furniture could be added under the deeming provisions of section 68 of the IT Act, 1961 without assigning the reason for making such an addition. It is also seen that nowhere and at no point of time, the Assessing Officer expressed his dissatisfaction pertaining to the identity, creditworthiness of genuineness of the transactions involved which is the primary ingredient laid down in the provisions of section 68. 16.2 In the instant case, on perusal of the material placed on record, I find that all the services obtained by the appellant were duly supported by invoices raised by M/s Kiran Furniture and the payments made by the appellant in respect of the services obtained were subjected to the provisions of chapter XVII. On perusal of the details of sundry creditors I find that M/s Kiran Furniture duly appeared in the list of sundry creditors of the appellant. Sh. Kishore Mahadeo Mestry, who is proprietor of M/s Kiran Furniture is being regularly assessed to income tax under PAN AGPPM57590 with the ITO Ward- 25(3)(2) Mumbai and his accounts were duly audited. The appellant company also appeared in the list of sundry debtors of M/s Kiran Furniture. The transactions with the appellant company were duly accounted for and disclosed in the return filed and income earned from the said transactions were duly offered for taxation by M/s Kiran Furniture. The appellant in his submissions relied on plethora of 35

the case laws in support of its contentions. Considering all these facts I am of the view that there is substantial material on record to prove the existence of the party and the genuineness of the transactions. Without bringing any adverse material on record contrary to that furnished by the appellant, the Assessing Officer was not justified in considering only that piece of evidence that could probably be used against the appellant while ignoring the other corroborative evidence furnished by it. An assessment has to be made considering the entire material in the possession of the Assessing Officer in a fair and judicious manner / and in the interest of revenue but not to deal with it in a discretionary manner to choose what suited him. Therefore, the impugned disallowance made by the Assessing Officer was not justified. Accordingly, the addition of Rs.9,88,687/- made by the Assessing Officer on account of expenses incurred in connection with the services obtained by the appellant from M/s Kiran Furniture is deleted.”

searched premises jointly owned by several entities was not belonging to it:- (a) Copy of Panchanama to establish that the premises searched was in the joint names of the assessee-company, M/s. G.L. Litmus Events Pvt. Ltd. and other entities. (b) Copy of confirmation from M/s. G.L. Litmus Events Pvt. Ltd. stating that Mr. Alexander Vidal, Mr. Herve Chu and Mr. Victor Besa (foreign nationals) were working on its project and their US Dollars were kept for safe custody in the searched premises. (c) Copies of statements of floating advance accounts duly acknowledged by the said foreign nationals for the period 04.10.2010 to 31.10.2010 establishing that they were contracted by M/s. G.L. Litmus Events Pvt. Ltd. for its projects as well as their presence in India at the time of search. (d) Copy of FIR dated 28.08.2010 (before date of search) lodged by the said foreign nationals on outbreak of fire at their premises on 27.8.2010, establishing that their valuables were kept in the safe custody of M/s. G.L. Litmus Events Pvt. Ltd. at the premises shared by it with the assessee and others.”

Litmus Events Pvt. Ltd. and that of the appellant were vested with the same Assessing Officer i.e. Central Circle-B. New Delhi, verification of submissions made by the appellant pertaining to M/s G. L. Litmus Events Pvt. Ltd. could have been made by the Assessing Officer rather than simply discarding them. The Assessing Officer did not bring any material on record to substantiate that the foreign currency found in the premises of the appellant belonged to the appellant only and it represented the undisclosed income. It is a matter of fact that the appellant's premises was also shared by M/s G. L. Litmus Events Pvt. Ltd. and that pursuant to the search a Panchnama was also drawn in the joint names of the appellant and M/s G. L. Litmus Events Pvt. Ltd. with the address at A-37, Sector 80, Phase-II, Noida (UP). It is also a matter of record that considering the fact that the amount pertained to the foreigners, namely Mr. Alexander Vidal, Mr. Herve Chu and Mr. Victor Besa, contracted by M/s G. L. Litmus Events Pvt. Ltd., the search party did not seize the dollars but released the said amount of Rs.6,68,483/-. In the course of the assessment proceedings / post search proceedings the appellant furnished the following: (a) Copy of confirmation from M/s. CL Litmus Events Pvt. Ltd. confirming the facts that Mr. Alexender Vidal, Mr. Herve Chu and Mr. Victor Besa were persons contracted for the its project as well as that the foreign currency found during search belonged and returned to these contracted person. (b) Statement of floating advance accounts for the period 4.10.2010 to 31.10.2010 acknowledged by said foreign nationals. This is undoubtedly acknowledgment of the fact that the said persons were contracted by M/s. Litmus Events Pvt. For its projects as well as they were in India at the time of search.

(c) Refer P.B. page No 9D being copy of a FIR dated 28.08.2010 lodged by the foreign national contracted persons of M/s. G.L. Litmus Events Pvt. Ltd. subsequent to outbreak of fire at their premises on 27.08.2010 i.e. just prior to search. Therefore under the circumstances the valuables belonging to contracted foreign nationals were kept in the safe custody at the premises and under possession of M/s. C.L. Litmus Events Pvt. Ltd. 10.1 From the above discussion, it is evident that the appellant company furnished substantial material in support of its contention, but the Assessing Officer failed to bring on record anything adverse contrary to what is submitted and on record. Further, the release of foreign currency by the search party during their search operation u/s 132 itself proved that the same was released after the satisfaction of the search party with a conclusion that the same was neither an unexplained nor an undisclosed income of the appellant nor it belonged to M/s. G.L. Litmus Events Pvt. Ltd. but the same belonged to the foreigners contracted by the company M/s. G.L. Litmus Events PVt. Ltd. Therefore, the addition made by the Assessing Officer cannot be sustained as no material was brought on record by the Assessing Officer to prove that an amount of Rs. 6,68,483/- ($15,017) was the undisclosed income of the appellant which remained unexplained. As there is no justification for such an addition, I delete the addition of Rs. 6,68,483/-.”

their office at the same premises and were also subjected to search. The investigation authorities concluded that the foreign currency neither represents undisclosed income of assessee nor of M/s. G L Litmus Events Pvt. Ltd., therefore, the same was released. Although whatever cash was found from the possession of the assessee the same was found to be reflected in the books of accounts. The assessee in the course of search itself has categorical stated that the cash in the form of foreign currency belonged to M/s. GL Litmus Events Pvt. Ltd., and without any other material to hold that the foreign currency belong to the assessee AO has held to be undisclosed income of the assessee. Even the Panchnama also shows the joint name of assessee and M/s. G.L. Litmus Events Pvt. Ltd. and how this adverse inference has only been drawn by the assessee is not understood. The copy of confirmation from M/s. G.L. Litmus Events Pvt. Ltd. confirming the entire facts and other catena of documents which have been filed before the AO has neither been considered nor any has been rebutted by the AO. Accordingly, observation and finding of the Ld. CIT (A) based on facts and material on record that the foreign currency does not belong to the assessee but to M/s. G.L. Litmus Events Pvt. Ltd. cannot be disturbed and accordingly the order of Ld. CIT(A) affirmed. In the result the grounds raised by the revenue on this score is dismissed.

work for execution of same. Before us Ld. Counsel has explained the entire facts on this issue in the following manner:- The assessee company awarded work for execution of Common Wealth Games, 2010 (CWG).1n relation to this, the appellant had provided to M/s. GL Litmus Events Pvt. Ltd. for the execution of the CWG Games the following: i) Services amounting to Rs.8.82 crores; and ii) Sales of Rs. 1,25,30,700/-. 2. The Id. AO. however noted that the Services (totalling to Rs.8.82 crores), included in it rental charges of Rs.5,80,78,138/- earned on material given on hire to M/s G.L. Litmus Events Pvt. Ltd. as under:-

S No. Amount(Rs.) Description 1 25,38,077 Rental charges for Pre- fabricated ceiling 2 48,34,400 Rental charges for providing cassette floor/ramps/cable ducts and stage in CWG

3 2,61,15,924 Rental charges for providing temporary walls and doors in CWG for games venue. 4 41,43,540 Rental charges for providing miscellaneous on site material in CWG

5 51,40,000 Rental charges for Providing signages, designs, hoarding services at National & International Airport

6 75,20,586 Rental charges for providing electrical & other equipment for execution of CWG

7 24,68,681 Rental charges for Installation of wall structures at different sites of CWG

8 53,16,930 Rental charges for providing temporary office, air conditioners & furniture at ITO site.

Total 5,80,78,138

2.1. The Ld. AO during the assessment proceedings enquired about the details of purchases made by the Appellant for the CWG and also regarding the scarp/residual value of the said materials purchased for the CWG. In connection to the same, it was explained to the AO. that the services and goods provided to M/s G.L. Litmus Events for CWG was provided out of common pool of the Appellant business and no separate purchases were made for the CWG. Thus it was explained that no such separate list of purchases and the resultant scrap/residual value of the same could be provided. 2.2. Also the Ld. AO noted that the Appellant had before the Settlement Commission surrendered Rs.20,00,000/- as unaccounted income from scrap sale from material supplied for CWG project. In the said connection it was explained by the Appellant that one Shri Rajendra Kumar Site Manager, was in charge and looking after the CWG site. After his death, a noting on loose sheet was recovered from his office desk wherein an amount of Rs.16,78,340/- was found recorded as sale of scrap, without giving the details of the items sold, quantity and to whom sold. These facts were unknown to the appellant-company and he was doing so of his own.

However, inspite of the fact that during the entire search not a single document was found suggesting suppression of income, the Appellant, considering the above unforeseen peculiar circumstances owing to the noting on loose sheet recovered from the office desk of the said site manager after his death, with a view to coming out clean to protect its goodwill, to buy peace of mind and to cover up any other shortfall besides the abovementioned income of Rs.l6,78,340/- arising from sale of scrap, offered a sum of Rs.20 lakhs on account of scrap sale to tax in the Settlement Application filed before the Hon'ble Settlement Commission u/s.245C of the Act to depict the true and full disclosure. However the said application stood un-admitted for the reason that the company, according to Hon. Settlement Commission, could not satisfactorily explain as to why capitalization of income generated from sale of scrap in cash should be restricted to Rs.16,78,340/-. 2.3. The appellant also furnished a detailed chart, which is also appearing on pages 48 to 50 of the order of Ld. CIT(A), showing/narrating bill-wise contents of items, their utility, scrap value, stock position etc. 2.4. The Ld. A.O., however, alleged that although the appellant- company had admitted unaccounted sale of scrap but no evidence in that regard was filed. He alleged that the material purchased was used for a short period of 45 days only after which it could be easily reused or sold at a price. Without appreciating/consulting the analysis and related documents, he on his whims and fancies presumed that the scrap value of these items should not be less than 50% of their original

value and, accordingly, rejecting the explanation of the assessee added sum of Rs. 2,90,39,069/-, being 50% of total cost of Rs. 5,80,78,138/-, to the income of the appellant on the following grounds: (a) That the scrap/residual value of material purchased for CWG has not been provided by the assessee. (b) That the assessee before Hon 'ble Settlement Commission had suo moto offered Rs.20 lakhs on account of scrap sale for CWG project. (c) That the Settlement Application was filed on the basis of rough noting in the loose papers found in the desk of Mr. Rajender Kumar, Site Manager, subsequent to his death and much later to the date of search conducted on the assessee-company.”

(c) Most of the material for rental contract was of such nature that either it does not have any scrap value or otherwise the scrap value is negligible. That in these types of work, the company had to bear cost for breakage and removal of the installed material/scrap/garbage, which was much more than the negligible scrap value. Hence, in many occasions the materials were not removed and the local contractors were asked to remove the same and to keep the scrap as payment in lieu of the services provided for dismantling/removing the structures and cleaning the village site. (d) That in the interest of the business and in view of various cost involved in removing the structures etc. within a short span of time, shortage of godowns for storing those scrap etc., the company gave authority to its site supervisor/in charge to dispose of at the site itself at the maximum bargain price. (e) That the structures erected in the CWG village have more artistic value than the cost of the material used, which has no residual value after the work is over. (f) The AO has alleged that the materials/goods were used for 45 days in the CWG village, but he has failed to appreciate that during this period the goods were subjected to such rough use, that by the end of the period the goods had lost their usable life. Further, the goods which were found re-usable, were taken back to the godowns, duly shown as part of the closing stock and valued the same in accordance with the prescribed accounting standards. (g) That during the course of verification of books of accounts, stock registers and other seized material in the impugned assessment proceeding, the AO admittedly has not come across

any unrecorded transaction or objected either about correctness of the books of account or valuation of the closing stock. The search party also did not find any incrimination. (h) Before the AO as well as before the Ld. C.I.T.(A), the appellant- company filed the details of services including the material given on hire to M/s. GL Litmus Events Pvt. Ltd. with respective bills/invoices, referred to above (pages 7 & 8 of assessment order). To elaborate the matter further, the company also filed a chart analyzing bill wise contents of items, their utility, scrap value, stock position etc., which is appearing on pages 48 to 50 of the appellate order. (i) That, therefore, the AO. on surmise & conjecture has made addition on lump sum basis of Rs.2,90,39,069/-, being 50% of total value of services of Rs.5,80,78,138/-, upon presumption of scrap sale without bringing on record any discrepancy therein or instances of alleged undisclosed sales brought on record during the assessment proceeding.

Further, it is also matter of record that apart from the transactions recorded on the loose sheets found in the desk of the site manager Sh. Rajinder Kumar, no other incriminating material pertaining to the scrap sale was recovered by the Investigating Wing of the department except that an amount of Rs.16, 78,340/- was found recorded as sale of scrap, without giving the details of the items sold, quantity, and to whom sold. However, the appellant did not admit the receipt of such amount from the manager site in charge i. e. Sh. Rajinder Kumar even though such existence of transactions prove that there was a sale of scrap by the appellant. Therefore, this was the evidence in the possession of the Assessing Officer with regard to the scrap sale and which was found not recorded in the books of account of the appellant. in the course of the assessment proceedings, the appellant failed to provide the complete details of sale of scrap and admitted that was an unaccounted sale of scrap to the extent of the transactions found recorded on the loose sheet recovered from the desk of the manager site in charge. The fact that the appellant offered Rs.20 lakhs as income on account of sale of scrap in an application filed before the Hon'ble Settlement Commission itself established beyond doubt that the appellant made sale of scrap out of its books. 22.4. It is also seen that the Assessing Officer made the disallowance on adhoc basis without specifying particular item or bill on an estimate basis as there was no material in his possession except the transactions recorded on the loose sheet pertaining to Rs. 16,78,340/-. The appellant also did not furnish any details pertaining to the sale of scrap except to admit the transactions recorded on the

loose sheet, the one which is already in the possession of the Assessing Officer. As there is no cogent evidence to substantiate the addition made by the Assessing Officer nor any evidence on the contrary with the appellant, in my view it would be fair and reasonable to estimate the value of the scrap sold at 20% of the purchase value, as 50% is an exorbitant estimate as the appellant's purchases also included items like MDF board, plywood, prefabricated ceiling, sown wood, laminates, carpets etc. where the value of the residue is not fetching, besides aluminium, iron and steel, MS plates, electrical items, electrical cables etc. The Assessing Officer also did not bring on record any comparable cases where the scrap value was assessed at 50% of the purchase value or the nature of that business activity akin to that of the appellant where 50% of the purchases can generate a scrap value. Therefore, the Assessing Officer is directed to modify the addition made by him to the tent of 20% of Rs.5,80,78, 138/- and to pass a consequential order accordingly.”

to M/s. G L Litmus Events Pvt. Ltd. and ultimate utilisation which were as under :-

Bill Nature of sale /services as Description of Rental Charges - No. per bills raised Utilization of material & subsequent treatment of the same. 134 Rental charges for PVC & AMF ceiling - This pre- fabricated ceiling material has no scrap value provided in CWG (Rs.25,38,077) 136 Rental charges for Tents Tents are part of stock of (for providing cassette assessee-company - brought back to its godown for reuse and floor, ramps/cable ducts reflected in stock as at & stage at CWG 31.03.2011. (Rs.48,34,400) 137 Rental charges for Company had stock of these providing temporary walls materials for recycle and these & doors at CWG items formed part of stock as at 31.03.2011. (Rs. 2,61,15,924) 138 Rental charges for Repair/renovation of doping providing miscellaneous centres toilets etc. - Nothing in on site material the nature to be resold or (Rs.41,43,540) scrap value. 177 Rental charges for Furniture supplied at the providing signage, design, Airport brought back after hoarding services at Delhi CWG and part of closing stock Airports. valued as per their balance useful life. (Rs. 51,40,000) Signages installed at Airports were not dismantled and hence not taken as stock or scrap. 178 Rental charges for a)Electrical Material supplied providing Electrical & from own stock and taken back other equipments at stock as at 31.03.2011 - Rs.33,64,746 (Rs.75,20,586) b)Air-conditioning done by taking on rent from outside parties & returned to respective

parties -Rs.30,71,250 c) Labour charges for installation & dismantling of Air- conditioners – Rs. l0,84,590 - Therefore, no scrap value. 179 Rental charges for No material used, only installation of wall installation charges incurred structures at different and for such services there can sites of CWG have any scrap value. (Rs. 24,68,681) 181 Rental charges for a) Most of the material was providing temporary office used out of appellant's stock Air-conditioner & and was taken back to its stock furniture at the value of their balance useful life. (Rs. 53,16,930) b) Some material taken on rent were taken by party and hence no scrap value.

Thus, he submitted that neither the AO nor the Ld. CIT (A) could bring any record of any sale of alleged scrap by the assessee after the completion of CWG and the entire details and evidences have neither been disbelieved nor any material has been brought on record that the items allegedly sold as scrap were not represented in stock. During the course of search nothing was found evidencing scrap sale of Rs. 16,78,340/- and not disclosed in the accounts. Against that assessee has already offered Rs. 20 lacs. As far as purchases are concerned the same were part of stock duly disclosed and not disputed. Only rental income was earned by giving on hire such purchased goods in CWG which too has been duly accounted for. The amount of Rs. 16,78,340/- written on loose sheets found in the desk of Site Manager Shri Rajinder Kumar is beyond the knowledge of the assessee company after his death and only to give piece of mind , it has offered

sum of Rs. 20 lacs on account of scrap sale to tax in the settlement application. AO also could not bring on record any such evidence to establish sale of scrap. Thus neither the AO nor Ld. CIT(A) are justified in either estimating the 50% of the total cost of service/ material provided to M/s. G.L. Litmus Events Pvt. Ltd. was restricted to 20% of such services.

un-admitted. One of the key contentions raised by the assessee is that most of the material was part of stock appearing in the books of account and scrap generating in the normal course of business has been sold in the respective years and income have been shown in the books of accounts. Before us Ld. Counsel has given the entire details of description of rental charges and utilisation of material and subsequent treatment which has been incorporated above, which goes to point out that these projects were either part of the stock or were taken on rent from outside parties which was returned back and we accept the contention of the Ld. Counsel that the renting of various equipments / material cannot be held to be having a scrap value which has been sold by the assessee outside the books of accounts, because they have been returned back.

neither the books nor the trading results including valuation of scrap made has been disturbed. None of the authorities have examined this issue in a proper perspective. Therefore, in the interest of justice we feel that this issue needs to be remanded back to the file of the AO, who shall see; firstly, whether the stocks which are reflected in the books of account are part of stock as on 31st March, 2011 or not and if so, then no addition should be made; secondly, if the stock taken on rent has been returned back then also no addition on account of alleged sale of scrap should be estimated; and lastly, the AO shall examine whether any part of the scrap which has been sold in the subsequent year has been accounted for or not. With this direction this matter is remanded back to the AO, who shall give proper opportunity of hearing to the assessee to substantiate its contention alongwith the documentary evidences. In the result grounds raised by the assessee as well as by the revenue on this score are treated as partly allowed for statistical purpose.

raised on certain bills by DDA, assessee had not recognised as revenue. Further, the assessee has fully accounted for the balance payment in its books and financial statement for the financial year 2011-12 and has shown it as income for the assessment year 2012-13 post settlement with the DDA. This fact was also informed to the AO. The ledger of the DDA in the books of the assessee was showing balance of Rs. 11,84,424/- which has been offered as income of the assessee in the subsequent year. However both AO and Ld. CIT (A) held that assessee should have shown it as the income in this year itself. Accordingly, the said differential amount has been added in this year.

assessee as the same has already been offered to tax in the subsequent year. Thus, ground No. 2 as raised by the assessee is allowed.

Order pronounced in the Open Court on 31st July, 2018.

sd/- sd/- (L.P. SAHU) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 31/07/2018 Veena Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi