DCIT, NEW DELHI vs. M/S. NEWLIGHT MARKETING PVT. LTD., NEW DELHI

Revenue by : MS Nirupama Kotru, CIT DR Assessee by: Sh. Bhupesh Kumar, Dingra, CA Date of Hearing 23/02/2017 Date of pronouncement 10/04/2017 O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is preferred by the revenue against the order of the ld CIT(A)-II, New Delhi dated 06.03.2014 for the Assessment Year 2008-09 where in following grounds are raised:- “.1 That the Commissioner of Income Tax (Appeals) erred in law and on facts of the case unexplained purchase u/s 69C of the Income Tax Act, 1961 and in directing the Assessing Office to consider only the addition of the peak of financial transaction.

2. That the Commissioner of Income Tax (appeals) erred in law and on facts of the case in deleting the addition of Rs. 346294/- made by the Assessing Officer by way of disallowance of expenses claimed and in directing the Assessing Officer by way of disallowance of expenses claimed and in directing the Assessing officer to consider only the addition of the peak of financial transaction.”

3. Brief facts of the cases that assessee is a company which dealing in wholesale trading of fabrics, textiles and Gen foods etc, filed its return of income on 05/01/2009 in response to notice under section 143 (2) of the act issued by the Ld. assessing officer on 30/09/2009 declaring total income of Rs. 4 960/-. The Ld. assessing officer noted that company is one of the concerns related to M/S Thaper Homes group of cases on whom search and seizure operations were carried out on 20/10/2008. The Ld. assessing officer noted the modus operandi of the Thapar group stating that this group is having several concerns with dummy directors and shareholders engaged in capital formation, which have huge buildup of reserves and surpluses over the years invested in stock of textiles. As and when cash is required, the Page 2 of 5 stock of fabric is sold, and the money is utilized for other purposes as per requirement. He also noted that during the course of search no stock of textile fabric was found. The above company was incorporated on 31st. December 2002 and subsequently in assessment year 2003 – 04 to 2009 – 10 under section 153A and 153C the sales and purchases made by the assessee were held as nongenuine. Therefore, on the same set of facts, during the current year the assessee has made purchases of Rs. 8 517740 and net sales of Rs. 6 909972/– were recorded. The assessee was asked to prove its trading activities and to produces tax records. The answer of the assessee was that since it deals with tax-free goods only there is no necessity for it to file the sales taxes returns. Consequently, the entire purchase and administrative expenses of the assessee were held by the Ld. assessing officer as unexplained expenditure and added to the total income of the assessee under section 69C of the act of Rs. 8517740/- on account of purchases and Rs. 346294/- on account of administrative expenses. On that basis assessment under section 143 (3) was framed on 31st. December 2010 at Rs. 8868994/–. Aggrieved by the order of the Ld. assessing officer the assessee-preferred appeal before the Ld. CIT (A) who in turn deleted the above addition and only retained addition of Rs. 1392364/– on peak balance basis. Therefore aggrieved by the order of the Ld. CIT appeal revenue is in appeal before us.

of the revenue is that the Ld. CIT (A) has reduced the addition of Rs. 8517740/- on account of purchases and Rs. 346294/– on account of administrative expenses under section 69C of the Income Tax Act to Rs. 1392364/– only.

3. The LD. Departmental representative submitted that assessee is engaged in the business of providing accommodation entries and during the course of search on 20/10/2008, it came to notice that this company has bogus and also fictitious capital, which is used as book entries to infuse unaccounted money in other companies of the group. He further referred to Para No. 7.3 of the order of the Ld. CIT appeal to say that assessee operated as accommodation entry providers. He further submitted that when the Ld. CIT appeal has confirmed rejection of the books of accounts there is no reason to not to sustain the addition of bogus purchases.

Page 3 of 5 He further referred to Para No. 7.9 of the order of the Ld. CIT appeal wherein it has been mentioned that the appellant was one of the several entities in the whole scheme of network of companies belonging to one group which were used to infuse unaccounted money in other companies of the group through a well orchestrated arrangement of infusing unaccounted transactions emanating from their audited financial statement, but wherein reality the only activity was of book building. He further referred to Para No. 7.10 of the order of the Ld. CIT appeal wherein he has held that keeping the separate juridical entity of the assessee in mind and in the interest of justice, , if in such case, the addition of the peak of the financial transactions is worked out from the relevant cashbook of entity. He submitted that this is no reason not to make the separate addition with respect to the purchase of the goods. He therefore submitted that 1st appellate authority has erred in reducing the addition to the peak amount invested.

Page 4 of 5 5. We have carefully considered the rival contentions, orders passed by the lower authorities, as well as the paper book submitted by the appellant. During the course of assessment proceedings at page No. 31 of the paper book it has been stated that details of party wise purchases for the year ending 31st of March 2008 was submitted wherein 7 parties were listed stating their names, address and permanent account number along with the amount of total purchases made. At page No. 39 of the paper book it has also been mentioned that the copy of stock register wherein items purchased entered were also submitted before the assessing officer during the course of assessment proceedings. At page No. 44 of the paper book it is shown that the assessee has given a comparable instance of 4 parties stating their permanent account number along with the comparable gross profit ratio as well as the net profit ratio earned by them , which are less than what, is earned by the assessee. On all these details submitted by the assessee there is no examination made by the assessing officer but he has merely gone by the fact that assessee belongs to Thapar group and is engaged in providing accommodation entries. We have also perused the decision of the coordinate bench in case of New life Mission Discount Card Private Limited versus ACIT in for assessment year 2008 – 09 dated 23/12/2016 wherein on identical facts and circumstances the coordinate bench has directed for deletion of the whole addition. On perusal of the order of the Ld. CIT appeal who has distinguished the facts case of another assessee Blue Luxury Tax Private limited where coordinate benches has deleted the addition. In the present case also, there is no averment by any of the parties that the finding given by the Ld. CIT appeal in Para No. 7.12 wherein he has not followed the decision of the coordinate bench giving specific reasons, is erroneous. The Ld. 1st appellate authority has held that the facts of those cases do not apply to the facts of this case because in the present case the books of accounts of appellant are not maintained on account of any regular business activity but merely it records make-believe transactions that existed only on paper, to build a reservoir of bogus stock earnings in crores which could be transacted on paper so as to explain the introduction of unaccounted cash in the other actual running business of the