QUALITY APPAREL EXPORTERS PVT LTD.,MUMBAI vs. ASST CIT CIRCLE- 11(1)(1), MUMBAI

The CIT(A) erred in upholding the action of the Assessing Officer in making an addition of Rs 10,87,178, being interest on TDRs, on the basis of a loose sheet found during survey proceedings under section 133A of the Act. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in making the impugned addition inasmuch as the CIT(A), before confirming the said addition, has not appreciated the facts in its entirety and hence, the impugned addition of Rs.10,87,178 needs to be deleted.

The CIT(A) erred in upholding the action of the Assessing Officer in charging interest under sections 234B and 234C of the Act. The appellants, contend that the CIT(A) ought not to have upheld the action of the Assessing Officer in charging interest under sections 234B and 234C inasmuch as – (a) the Assessing Officer has not given an opportunity to the appellants before charging the said interest as required by the principles of nature justice, (b) the charging of interest is not in accordance with law. The appellants crave leave to add to, alter or amend the aforestated grounds of appeal.”

We have considered the submissions of both sides and perused the material available on record. The brief facts of the case pertaining to this issue are that for the year under consideration, the assessee filed its return of income on 31/12/1999 declaring a total loss of Rs.24,86,915. Subsequently, a survey under section 133A of the Act was carried out by DGIT (Investigation) Unit-II, Mumbai on 27/06/2000 at the business premises of the assessee. During the survey proceedings, duplicate Profit and Loss account and balance sheet pertaining to the year under consideration were found at the premises. From the perusal of the duplicate Profit and Loss account and balance sheet, it was observed that the net profit reflected for the year under consideration is Rs.5,48,35,315 as against the loss of Rs.24,86,918 as per the return of income filed by the assessee on 31/12/1999. Accordingly, the case of the assessee was selected for scrutiny, and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. Since the assessee failed to respond to various notices issued during the assessment proceedings, the Assessing Officer (“AO”) proceeded to estimate assessee‟s income on the basis of material available on record as per the provisions of section 144 of the Act. The AO vide first assessment order dated 19/03/2002 passed under section 144 read with section 143(3) of the Act held that the accounts for the year under consideration found during the survey are quite contrary to the final accounts filed along with the return of income. The AO further held that the printouts as well as backup on floppies obtained are Quality Apparel Exporters Pvt. Ltd. ITA no.486/Mum./2020 ITA no.487/Mum./2020 signed by the employees of the assessee. The AO also noted that the employee of the assessee as well as the son of one of the directors of the assessee admitted the facts in respect of the loose papers found in the business premises. Accordingly, the AO considered the net profit of Rs.5,48,35,315 as per the Profit and Loss account and balance sheet found during the survey under section 133A of the Act. In further appeal, the learned CIT(A) vide order dated 21/02/2003 allowed partial relief to the assessee of Rs.5,81,900. In an appeal before the Tribunal, the coordinate bench vide order dated 31/07/2006 restored the matter to the file of the learned CIT(A) to decide the appeal afresh.

Pursuant to the directions of the coordinate bench of the Tribunal, in the second round of proceedings, the learned CIT(A) vide order dated 29/02/2012 dismissed the appeal for non-attendance of the assessee. In further appeal before the Tribunal, the coordinate bench on assessee‟s plea that given an opportunity, the assessee would be able to compile all the details and produce before the AO, set aside the order passed by the learned CIT(A), and restore the matter to the file of AO for de novo adjudication after providing the opportunity to the assessee.

In the third round of proceedings, which resulted in the present appeal, pursuant to the directions of the coordinate bench of the Tribunal, notice under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee to grant opportunity of hearing. During the assessment proceedings, the assessee requested the AO to provide copies of all relevant documents necessary to present the case, which were duly provided vide order Page | 5

In its appeal before the learned CIT(A), the assessee submitted that it had never maintained parallel books of accounts, and the loose papers found during the survey showing manipulative figures/imaginary figures are for the purpose of applying the American Express card. It was further submitted that the loose papers found during the survey proceedings were not authorised by any director or Chartered Accountant and were only signed by an employee of the company. The assessee submitted that the Profit and Loss figures found in the form of loose papers were not genuine and have no evidentiary value, therefore cannot be treated as per books of accounts. After considering the remand report filed by the AO and assessee‟s response thereto, the learned CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue and held that during the survey proceedings, documentary evidence has been detected in the shape of accounts in floppy, the statement of Data Entry Operator and the details noted in the loose papers which proves that the assessee has not declared the true and correct income to the Department. The learned CIT(A) further held that the accounts found from the assessee‟s office premises during the survey have been systematically maintained and are Quality Apparel Exporters Pvt. Ltd. ITA no.486/Mum./2020 ITA no.487/Mum./2020 sufficient to prove that assessee‟s income is much more than the income declared to the Department.

During the hearing before us, the learned Authorised Representative (“learned AR”) reiterated the submissions as were made before the learned CIT(A). The learned AR also referred to various letters filed by the assessee before the AO, forming part of the paper book from pages 17-21, requesting copies of statements recorded during the survey as well as copies of various documents found during the survey. On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the orders passed by the lower authorities and submitted that no explanation has been offered by the assessee with regard to two sets of accounts.

From the perusal of the record, it is evident that during the survey proceedings at the office premises of the assessee under section 133A of the Act, certain loose papers and data in the computer were found. As per these documents, the AO noticed sales of Rs.25,78,58,793 and the closing stock of Rs.1,48,78,253. Further, it was noted that certain indirect expenses of Rs.1,69,63,457 and direct expenses of Rs.22,68,19,312 are claimed. It was also noticed that the receipt of duty drawback of Rs.2,57,86,880 is also mentioned in these documents. Accordingly, as per the aforesaid documents found during the survey proceedings, the net profit of the assessee was computed at Rs.5,48,36,315 by the AO. It is evident from the record that apart from placing reliance on these documents showing the Profit and Loss account, no other document is relied upon by the lower authorities to compute the net profit of the assessee at Rs.5,48,36,315. As per the assessee, these Page | 7

We agree with the submissions of the assessee to the extent that while the existence of loose papers might raise questions, however, it does not necessarily imply guilt or malpractice, and for same concrete evidence is required to establish the wrongdoing. It is trite law that entries found in loose documents cannot be treated as correct and authentic unless they are supported by independent evidence. We find from the record that apart from the survey by the Income Tax Department, the assessee was also subjected to proceedings by the Customs Department and Anti-Corruption Branch of the CBI. However, from the perusal of the assessment order passed in the first round of proceedings as well as in the third round of proceedings, we find that the AO has not even supported its findings with any independent evidence found during the other proceedings and merely placed reliance upon the entries in the loose documents. At the same time, it is pertinent to note that the assessee though has claimed that books of accounts filed with its return of income are only genuine, however, did not bring any cogent material on record to justify the preparation of parallel Profit and Loss account found during the survey proceedings. Thus, in the peculiar facts of the present case, we are of the considered view that both parties have failed to support their contentions with complete information/documents and cogent material. Therefore, in view

The issue arising in ground no.4, raised in assessee‟s appeal, pertains to the addition on account of share application money received by the assessee.

We have considered the submissions of both sides and perused the material available on record. During the assessment proceedings, it was observed that the assessee has received share application money of Rs.1,28,21,454. Since the assessee failed to explain the source of the receipt, the AO made the addition of the entire sum of Rs.1,28,21,454 received by the assessee. During the appellate proceedings before the learned CIT(A), the assessee submitted that the share application money amounting to Rs.1,28,21,454 is received from Quality Exporters (one of the sister concerns) and the same has been reported by the auditor in Schedule „A‟. Therefore, it was claimed that the source is thus identified. The learned CIT(A), vide impugned order, upheld the addition made by the AO as no documentary evidence was furnished by the assessee that could prove the source of said share application money.

The issue arising in ground no.5, raised in assessee‟s appeal, pertains to the addition on account of interest on TDRs.

We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that on the basis of the documents found during the survey proceedings, the AO made an addition of Rs.10,87,178 as interest on TDRs in the hands of the assessee treating the same as income from undisclosed sources. In the third round of proceedings, resulting in the present appeal, the AO in the absence of new facts and Page | 10

Reiterating the submissions made before the learned CIT(A), the learned AR submitted that the TDRs are not in the name of the assessee but the same were found in the premises of the assessee. It was further submitted that the TDR belongs to Mr. Ram Sinha and the same has been confirmed by the bank. It was further submitted that the learned CIT(A) vide its order dated 12/08/2003 passed in assessee‟s own case for the assessment year 1998-99 has deleted the addition made against such TDR. In support of its submissions, the assessee has furnished the bank confirmation of the beneficiary of the TDR, forming part of the paper book from pages 67-73. From the perusal of the record, it is evident that these documents were not considered by any of the lower authorities, therefore we deem it appropriate to restore this issue to the file of the AO for de novo adjudication after considering the documents furnished by the assessee in support of its plea that the TDR is not in its name. Accordingly, the impugned order in respect of this issue is set aside and ground no.5 raised in assessee‟s appeal is allowed for statistical purposes.

In the result, the appeal by the assessee is partly allowed for statistical purposes. ITA No. 487/Mum./2020 Assessee’s appeal – A.Y. –2000-01

In this appeal, the assessee has raised the following grounds:-

In the result, the appeal by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 21/03/2024