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Income Tax Appellate Tribunal, PANAJI BENCH, PANAJI
Before: SHRI SHAMIM YAHYA, AM & SHRI RAM LAL NEGI, JM
IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI RAM LAL NEGI, JM ITA No. 228/Pan./2017 (Assessment Year: 2012-13) Income Tax Officer, Mr. Girish Prakash Vernekar Ward-1(2) No. 264, Mahalasa Krupa, Vs. Opp. Civil Hospital, Shastri Nagaar, Belagavi Dr. B. R. Ambedkar Road, Belagavi PAN/GIR No. ADNPP 5618 F (Revenue) : (Assessee) & CO No. 27/Pan./2017 (Arising out of ITA No. 228/Pan./2017) (Assessment Year: 2012-13) Mr. Girish Prakash Vernekar Income Tax Officer, No. 264, Mahalasa Krupa, Ward-1(2) Vs. Shastri Nagaar, Belagavi Opp. Civil Hospital, Dr. B. R. Ambedkar Road, Belagavi PAN/GIR No. ADNPP 5618 F (Cross Objector) : (Revenue) : Shri A. S. Patil Revenue by Assessee by : Shri Y. V. Raviraj : 13.11.2018 Date of Hearing Date of Pronouncement : 19.12.2018
O R D E R Per Shamim Yahya, A. M.:
This appeal by the Revenue and the cross objection by the assessee is directed
against the order of the learned Commissioner of Income Tax (Appeals)-Belagavi,
pertaining to assessment year 2012-13.
The grounds of appeal raised by the Revenue read as under:
(1) The Id.CIT(A) did not appreciate that assessee has not discharged the onus of proving cash purchases and also the assessee has also not given any evidence of rotation of seed capital. (2) The ld.CIT(A)The Id. CIT(A) has not ruled out that the business relations of the assessee with M/s Rajesh Exports. The Id. CIT(A) has observed that in bullion business cash transaction are normally destroyed. The Id. CIT(A) failed to appreciate the fact that the evidence in the form of Cash transaction noted in the hidden files of
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the computer disc with the assessee by M/s Rajesh Exports which was seized during the search was sufficient evidence. (3) The Id.CIT(A) failed to appreciate the fact that the assessee was provided with year wise details of cash purchases made, however, assessee had failed to submit convincing reply, to substantiate that the cash purchases from Rajesh Exports have been accounted in the books nor the assessee produced evidence rebutting the cash purchases. (4) The Id.CTT(A) erred in deleting the additions u/s 69C on account of unexplained cash purchases while the Id.CIT(A) confirmed the addition made on gross profit which proves that the assessee had indeed undisclosed the cash purchases. (5) The Id CIT(A) failed to sustain the addition u/s 69C considering the facts that the assessee has invested unexplained funds into accounted business in the form of cash purchases which can be defined as a seed capital in such business. (6) For these and other grounds that may be urged at the time of hearing, the order of the learned CIT(Appeals) may be set aside and that the order of the Assessing Officer be restored.
The grounds of appeal raised by the assessee in the cross objection read as under:
1] Departmental appeal is against law and facts of the case as Learned Income- Tax Officer failed to prove even one rupee Purchases out of alleged Cash -Purchases of Rs.2,49,48,919/- from Rajesh Exports, Bangalore without any clinching evidence of Purchases. Hence, additions of Rs.2,49,48,919/- as deemed income U/S 69C and GP additions of Rs.3,61,945/- on alleged Cash Purchases is not justified. 2] Learned Commissioner [Appeals] is not justified in sustaining additions of Rs.16,40,000/- as reasonable un-accounted additional investment for alleged Cash Purchases of Rs.2,49,48,919/- from Rajesh Exports. Having held in PARA 9 PAGE 8 of the order that without supporting evidence for Purchase addition is un-sustainable and not in accordance with Law. Hence, - Additions of Rs.16,40,000/- Sustained is not justified and requires to be deleted. 3] Learned Commissioner [Appeals] having held that without supporting evidence additions of alleged Cash Purchases un-sustainable and not in accordance with Law is not justified in confirming GP additions of Rs.1,16,430/- which requires to be deleted.
Brief facts of the case are as under:
A search operation u/s 132 was conducted in the case of M/s Rajesh Exports
Limited on 17.12.2013. During the course of search, the forensic imaging of hard disks
seized from the office of M/s Rajesh Exports Limited, Bangalore marked as A/REL/7. It
was found that M/s Rajesh Exports Limited maintained bullion sales record in one
database which contained details of cash and cheque/RTGS Sales. From the analysis of
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the data base, it was gathered that M/ s Rajesh Exports Limited has made cash sales of
bullion amounting of Rs.4,37,07,261/- (from A.Y.2009-10 to 2013-14} to Shri Girish
Vernekar, Belgaum. Based on the said information assessments were reopened u/s 147 of
the Act.
The Assessing Officer (A.O. for short) in his assessment order stated that the
assessee had failed to submit any convincing reply to substantiate the purchases have
been accounted in his books. Assessee did not produce any evidence rebutting the said
cash purchases. Therefore, the AO had made an addition of Rs.2,49,48,919/- as un-
explained expenditure as per provisions of section 69C of Income-tax Act, 1961 and
Rs.3,61,945/- as profit on alleged sales at GP rate of 1.43%.
Against the above order, the Revenue has filed the appeal and the assessee has
filed cross objection.
The ld. CIT(A) noted the assessee’s submissions as under:
1] ".....From Assessment Year 2009-2010 to AY 2013-2014 all the completed assessments were re-opened by issue of notice U/S 148 dated 22-3-2016 & 28-3-2016 Without giving any reasons. Appellant by letter dated 25-3-2016 & 27-5-2016 requested the basic reasons for re-opening. Income-Tax Officer by letter dated 8-7- 2016 furnished that there was action U/S 132 in the cose of RAJESH EXPORTS PVT LTD, Bangalore On 17-12-2013. During the course of Search Hard Disks Seized where in alleged cash sales to appellant were found. Except alleged cash sales by RAJESH EXPORTS no other clinching evidence or proof was given to appellant. 1] Appellant has already given the brief facts in the Statement of Facts. Except Assessment Years 2010-2011 & Assessment Year 2013-2014 all other assessments were completed u/s 143[3J. Out of the five completed assessments in respect of following Assessment Years Appeals are Pending before Your Honour namely: Asst.Year 2011-2012 ITA No.25/Bgm/2014-2015 Filed On 15-4-2014 AsstYear 2012-2013 ITA No.25/Bgm/20l4*2015 Filed On 23-3-2015 Both Appeals are partly heard. [3] Once again appellant by letter doted 12-12-2006 requested AO
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either to furnish details or alternatively to issue notice U/S 133[6] or Summons U/S 131 to RAJESH EXPORTS calling for the details as all reopened assessments were getting time barred by 31-12-2016. But it appears that neither notice U/S 133[6] or Summons U/S 131 was issued to Rajesh Exports. Simultaneously appellant also by RPAD letter dated 9-12- 2016 requested Rajesh Exports to furnish the details in respect of alleged Cash Sales of Rs.4,37,07,261/-. However, there was absolutely no response from Rajesh Exports. However, assessments for all the years were finalized by the assessing Officer vide assessment Order dated 23-12-2016 by treating entire alleged Cash Purchases of Rs.4,37,07,261/- and GP thereon total amounting to Rs.4,42,21,129/- as additional income and orders were served on the appellant On 23-12-2016 itself. The details of additions are as under:- Asst Year Additions of Cash GP Additions Total Addition Purchases 2009-2010 Rs.25,69,571 +Rs. 24121 = Rs. 25,93,692 2010-2011 Rs. 1,16,62,754 + Rs. 62,142 = Rs. 1,17,24,891 2011-2012 Rs. 17,26,837 +Rs. 25,052 = Rs. 17,51,889 2012-2013 Rs. 2,49,48,919 +Rs.3,61,945 = Rs. 2,53,10,864 2013-2014 Rs. 27,99,180 +Rs. 40.608 = Rs.28,35,788 Total Rs.4,37,07,261 +Rs. 5,13,868 = Rs.4,42,21,129 Additions of Rs.4,42,21,129/- made by The Income-Tax Officer is against law and facts of the case. Hence, appellant by way of appeal has challenged the above orders. [4] For filing Appeals once again appellant by his request letter dated 26-12-2016 requested that the details given by Rajesh Exports are used against the appellant and that natural justice requires that copy of details should be given at least now to file effective reply at the time of hearing of appeals and challenge the additions made. Unfortunately there is o very cold response from the A.O. and no details were given. In the aforesaid circumstances it appears that even the Learned Income-Tax Officer is also not having any details except the said information which was passed on to the Office by ACIT[Central] Bangalore Vide his letter in F.No.Rajesh/DCIT/CC-l[2] 2015-2016 dated 28-12-2015 to verify the Cash Purchases mode by the appellant. This is evident from PARA 2 of the assessment order. In NUTSHELL the Income-Tax Officer is not justified in making total wild additions of Rs. 4,42,21,129/ on account of alleged Cash Purchases and GP addition on following grounds:- [A] Appellant is one of the major customer of Rajesh Exports, Bangalore. Appellants Purchases were all on Credit and Payments were made through RTGS. Appellant has not made even one Rupee Purchases in Cash. For the said years Purchases details are as under: - Assessment Year Credit Purchases Alleged Cosh Purchases 2009-2010 Rs. 1,25,52,370 Rs. 25,69,571 2010-2011 Rs.21,80,86,284 Rs. 1,16,62,754 2011-2012 Rs. 50,16,427 Rs. 17,26,837
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2012-2013 Rs. 5,17,23,279 Rs. 2,49,48,919 2013-2014 NIL Rs. 27,99,180 Total Rs.28,73,78,360 Rs. 4,37,07,261 Entire Credit Purchases of Rs.28,73,78,360/- which are duly accounted in the appellants Books of accounts. Hence, there is absolutely no reason for Cash Purchases of Rs.4,37,07,261/-. [B] Since appellant is one of the regular major customer of RAJESH EXPORTS they might have misused the name of appellant to cover up their alleged Cash Sales. The possibility is not ruled out in the absence of any concrete evidence. [C] Alleged Cash Sales to the tune of Rs.4,37,07,261/- is in the books of RAJESH EXPORTS LTD. Hence, the onus is on the RAJESH EXPORTS to prove or explain the Cash Sales of Rs.4,37,07,261/- and onus is not on the appellant. [D] From plain reading of PARA 2 of the Assessment Order the reason given by The Income-Tax Officer without any concrete evidence is not enough to invoke Section 148 for the said years. [E] During action U/S 132 on the Premise of RAJESH EXPORTS not a Single bill copy or any record on loose paper or any other evidence was found except alleged hard disk details fed by RAJESH EXPORTS. It is self serving evidence which has no evidentiary value. [F] HARD DISK seized was used against the appellant without giving any opportunity to test the HARD DISK or to Cross examine RAJESH EXPORTS. Hence, additions made not justified. [G] Finally appellant closed his business On 31-3-2013 and thereafter absolutely no business connection for last 4 years with the RAJESH EXPORTS. In the absence of any business dealings RAJESH EXPORTS have not responded to my Phone Calls or RPAD letter sent On 9-12-2016 till today. In view of the above facts wild additions of Rs.4,37,69,403/- made by The Income- Tax Officer is not justified and requires to be deleted".
The ld. CIT(A) agreed that there is deficiency in evidence, but still proceeded to
confirm a part of the addition by observing as under:
Assessment order, grounds of appeal, submission made by the AR were thoroughly analyzed. The addition made by the AO is on the identical issue for the five assessment years from 2009-10 to 2013-14. The AR of the appellant categorically states that assessee never purchased any items which were not shown in the books of account. AR alleges that there was no details of any Date wise/ Month wise /Item wise purchases in those entries found in the Computer Hard Disc. M/s Rajesh Exports Ltd., usually supplied Gold only on RTGS payments made in advance. Hence as per AR such cash purchases were nothing to do with assessee. The assessee makes huge turnover on minimum capital with less margins as dealing in Gold bullion. Hence turnover is very high and admitting profits ranging from 0.45% to 1.43% of total turnover. During the financial year 2010-11 survey u/s 133A had taken place on the business premise of the assessee and no evidence was found by the department regarding suppression of sales or unaccounted purchases of Gold.
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This makes assessee's stand strong that alleged cash purchases with M/s Rajesh Exports Ltd as observed from notings in the seized hard disk may not be related to the appellant. During the course of re-assessment proceedings for the assessment years 2008-09 to 2013-14, the AO's finding was that the assessee failed to submit any convincing reply to substantiate the purchases have been accounted in his books. The AO had not found any corroborative evidence in support of the cash purchases from the M/s Rajesh Exports Ltd., Bengafuru except the notings analysis of the data base which showed the aggregate figure for the year without any break up of invoice wise or date wise details, ft was only gathered that M/s. Rajesh Exports Limited had made cash sales of bullion amounting of Rs.4,37,07,261/- (from A.Y.2009-10 to 2013-14) to Shri Girish Vernekar, Befgaum from the hidden files of M/. Rajesh Exports. 9.1 Except unilateral entries in the computer hard disk of M/s Rajesh exports, no. other corroborative evidence was found in relation to cash sales to the appellant. Even during survey operations at the appellant's premises u/s 133A in the FY 2010-11, no incriminating documents were found by the department related to either un-accounted cash purchases or suppression of sales. Considering the facts of the case, there is some strength in the argument of the assessee that cash sales observed from the hard disk of Rajesh exports may not be related to the appellant. It could be a unilateral adjustment of M/s Rajesh Exports to cover up its mistake by taking name of appellant. However, there is a clear relationship of seller and buyer between the Rajesh exports and the appellant. Evidence was found during the search operations, evidence was in the form of a hidden fife not disclosed to the department. Considering these facts, transactions mentioned there in cannot be simply ruled out. It is a normal tendency observed in many cases that evidence related to suppressed sales/purchases etc is normally destroyed by the assessee. From the facts narrated above, I am of the opinion that there should have been some un-accounted purchases from M/s Rajesh Exports by the appellant as there is a clear business relations with him and in this trade cash purchases are not ruled out. The evidence was found during the search operation in a hidden file. Considering these facts in totality, issue need to be analysed and correct income need to be assessed. 9.2 Appellant is a bullion dealer. Purchases are made through RTGS in the regular books. During the year relevant to the assessment year under consideration, Gold Bullion sales made of Rs.44,54,95,451/- declaring gross profit of Rs.20,49,279/- @ 0.46%. 9.3 Appellant being the bullion dealer, he is rotating his capital. AO has accepted margin % of appellant for working of un-accounted income for other years. It is observed from the regular books that appellant normally purchases one lot of bullion regularly which is about one kg at a time. Comparing various invoices of the purchases made during the FY 2008-09 from the books regularly maintained and comparing market rate of gold during the year one lot of one KG gold is worth Rs.12,50,000/-. Considering these facts, initial investment of Rs.12,50,000/- was confirmed by the undersigned for the assessment year 2009-10, By adding subsequent years profit earned, the capital available to the appellant at the beginning of the financial year relevant to the assessment year 2012-13 is at Rs.13,36,263/- (Rs.12,74,121/- plus Rs.62,142/-) was confirmed in the appeal for the assessment years 2009-10, 2010-11 and 2011-12. Hence, the capital of the appellant of Rs.
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13,36,263/- which is available with the appellant at the beginning of the previous year relevant to assessment year 2012-13 must have rotated for subsequent purchases during the year. The total alleged un-accounted purchase for this year as per M/s Rajesh Exports was Rs.2,49,48,919/'. It is a high volume, low margin trade. Appellant is rotating his minimum capital for huge volume. Appellants' each invoice in normal business is worth One Kg of gold. In the forensic data, "NO" date wise/Invoice wise details were available. It was only a lump sum figure for the whole year. It is presumed reasonably that appellant is using his capital available at Rs.13,36,263/- for purchases. However, during the year appellant alleged to have made purchases to the extent of Rs.2,49,48,919/- It is observed from the regular books that appellant normally purchases one lot of bullion regularly which is about one kg at a time. It is observed that appellant makes one cycle of rotation per month with a capital available of Rs.13,36,263/- is not possible to buy Rs.2.49 Crores worth of gold within the year even in 10 to 12 cycles. The present capital is insufficient considering total purchases made and 10 to 12 cycles per year. Comparing the various invoices of purchases made during the FY 2011-12 from the books regularly maintained and comparing market rate of gold during the year one lot of one KG gold Is worth Rs 1.6,40,0007 . This should lie the reasonable un-accounted additional investment for the alleged cash purchases of the appellant during the year. This capital {Rs.13,36,263/- plus Rs.16,40,000/-) reasonably might have got rotated cycle after cycle for subsequent purchases. No other evidence was brought out by the Assessing Officer. Considering the nature of bullion business characterized by low margin, high value achieving with rotating the capital and previous capital available with the appellant, Rs.16,40,000/- addition on un-accounted purchase is reasonable. AO had not considered the lot wise purchases nor he had considered the rotation of the same capital during the year, nor the capital available with the him due to previous year additions/profits. Hence such addition merely based on one lump sum figure found in the hidden file without any other supporting evidence is un- sustainable and not in accordance with law. Hence, AO's addition of Rs.2,49,48,919/- made u/s 69C of the I T Act, 1961 is restricted to Rs.16,40,000/-. AO's addition to the extent Rs.16,40,000/- is confirmed and balance amount of Rs.2,33,08,919/-( Rs.2,49,48,919/- minus Rs.16,40,000/-) is deleted. 10. In relation to addition of Rs.3,61,945/- on account of gross profit, AR of the appellant had argued that the GP ratio admitted by the appellant in earlier years at 0.93% to 0.45% from the assessment years 2009-10 to 2012-13 which is admitted and accepted by the department. Addition on GP ratio of 1.43% without any proper base is unwarranted. Appellant is doing Bullion trading with high volume and low margins with minimum capital rotating the trade in cycles. Earlier years Gross Profit shown by the appellant is accepted by the Assessing Officer. There is no reason to adopt a "higher" Gross profit for this year without any supporting evidence. Hence, the addition made by the A.O on this ground is restricted to 0.46% on Rs.2,53,10,864/-. Hence, Rs.1,16,430/- is confirmed and addition of Rs.2,45,515/- is deleted as unreasonable and not tenable as per law. 9. We have heard both the counsel and perused the records. We find that addition in
the hands of the assessee has been done on the basis of materials found on the hard disk
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of M/s. Rajesh Export Private Limited, Bangalore during the search operation. These
details of cash sale to the assessee have said to be filed on the said hard disk has not been
brought on record. The details of the same were also sought by the assessee. But the A.O.
has not provided the same to the assessee. Assessee has requested the A.O. to issue notice
or summons to the M/s. Rajesh Export Private Limited to send the details of cash
purchase by the assessee but no detail has been provided. Furthermore, it is the plea of
the assessee that no other evidence and voucher of cash purchase by the assessee from the
said company was found during search. The assessee’s claim is that it has never made
cash purchases from the said party.
Furthermore, no shortcoming in the accounts or purchase or sale detail of the
assessee has been detected by the A.O.
The submissions of the assessee have not been cogently rebutted. When the
addition is based solely upon some material found on the hard disk of the said suppliers it
was incumbent upon the A.O. to provide the details to the assessee so that he can have
the possibility to rebut the same. In the present case, we find that on what basis the
addition has been made has not at all been brought on record. The detail of such finding
in case of the supplier has not been provided to the assessee despite request. In such
circumstances, there is no opportunity to the assessee rebut the allegation.
In such circumstances, it is evident that addition has been made on surmise and
conjecture. No cogent evidence has been brought on record for the addition made. It is
settled law that when even material has been obtained from third-party, the assessee is
required to be given proper opportunity to rebut and cross examine the said third party. In
9 ITA No. 228/Pan./2017 & CO No. 27/Pan./2017
the present case leave alone the question of cross examining the said suppliers, even the
details found has not been provided to the assessee. In such circumstances, in our
considered opinion, the addition is not at all sustainable. The ld. CIT(A) despite agreeing
on the deficiency in evidence has sustained part of disallowance on the basis of sum
surmises. As we have already held above, the entire addition by the A.O. is not at all
sustainable in view of lack of proper evidence and lack of opportunity given to the
assessee to cross examine the third party, i.e., M/s. Rajesh Exports Limited. Hence, we
set aside the order's of authorities below and delete the addition.
As regards the assessee’s C.O. is concerned, when the addition itself is deleted,
there is no question of sustaining the addition of GP on these addition. Hence, the
addition of GP on the detailed addition does not survive. Hence, the same is deleted.
In the result, the appeal filed by the Revenue is dismissed and the cross objection
by the assessee is allowed.
Order pronounced by listing the result on the Notice Board of the Bench under Rule 34(4) of the Appellate Tribunal Rules, 1963.
Sd/ Sd/- - RAM LAL NEGI SHAMIM YAHYA JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19.12.2018
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Copy of the order forwarded to:
(1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Panji City concerned; (5) The DR, ITAT, Panji; (6) Guard file.
By Order Roshani, Sr. PS
(Sr. P.S./P.S.) ITAT