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Income Tax Appellate Tribunal, DELHI BENCHES : D : NEW DELHI
Before: SHRI R.S. SYAL & MS SUCHITRA KAMBLE
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 ORDER PER R.S. SYAL, AM: This batch of eight cross appeals – four by the assessee and equal number by the Revenue - relates to the AYs 2002-03 to 2005-06. Since some of the issues raised in these appeals are common, we are, therefore, proceeding to dispose them by this consolidated order for the sake of convenience.
Assessment Years 2002-03 to 2004-05
Briefly stated, the facts of the case are that the assessee is engaged in the business of purchase and sale of flowers and petals. A search and seizure operation u/s 132 of the Income-tax Act, 1961 (hereinafter called as ‘the Act’) was conducted on 23.12.2005 in Ferns ‘N’ Petals group of cases. The assessee is a part of this group. A notice u/s 153A was issued to the assessee on 20.12.2006 for filing return in relation to the AY 2002-03. In response, the assessee furnished its return wherein the income amounting to Rs.2,89,825/-, as per the original return filed on 31.10.2010, was repeated. No further undisclosed income was declared.
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 During the course of assessment proceedings, the AO called upon the assessee to furnish list of the persons with their complete addresses from whom the assessee made purchases in excess of Rs.3 lac. The assessee submitted a list of six persons from whom such purchases totaling Rs.35,81,946/- were made. These six persons were categorized as ‘Mandi vendors.’ The assessee submitted that he was regularly purchasing flowers from the vendors in Mandi at Baba Kharak Singh Marg, opposite Hanuman Mandir, Connaught Place, New Delhi, but did not have their addresses as they were casual flower vendors. The AO did not accept the contention put forth on behalf of the assessee by noticing that majority of these persons were shown as creditors. The AO further noticed that other group concerns of the assessee, namely, M/s Ferns `N’ Petals India Pvt. Ltd. and M/s Ferns `N’ Petals (proprietor Smt. Meeta Gutgutia) also made similar purchases from these persons.
In view of the fact that the assessee did not produce his books of account and supporting vouchers/bills etc., the AO treated the above purchases amounting to Rs.35.81 lac as bogus and made addition for the same. The facts for the AY 2003-04 are also similar. During the previous year 3
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 relevant to this assessment year also, the assessee made purchases from seven persons called as Mandi vendors amounting to Rs.47,81,151/-. In view of the similar explanation given by the assessee, the AO made addition for this sum. The facts for the AY 2004-05 are also similar, during which the assessee made purchases from Mandi vendors to the tune of Rs.1,15,81,574/-. In the absence of the assessee furnishing any addresses of such vendors, the AO made addition for the said sum.
In appeal for the AY 2002-03, the ld. CIT(A) noticed in para 12 that there was no evidence of any incriminating material found during the course of search to establish that the purchases were not genuine. He further observed that the gross profit rate declared by the assessee was 11.50% and if the addition so made by the AO was sustained, the GP rate would shoot up to 38.92%. Taking a holistic view of the matter and to cover the leakage of profit on the possibility of unverified purchases, the ld. CIT(A) directed to apply GP rate of 15% as against 11.5% declared by the assessee. Similarly, for AY 2003-04, the ld. CIT(A) noticed that the assessee declared GP rate of 11.31% and if the addition
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 so made by the AO was sustained, the profit rate would shoot up to 42.71%. He restricted the GP rate to 15% as against 11.3% declared by the assessee. In the like manner, for the AY 2004-05, the assessee’s gross profit rate declared at 10.45% came to be restricted at 15% as against 56% as would have been if the addition made by the AO would have been sustained. For the Assessment years 2003-04 and 2004-05 also, the ld. CIT(A) has noticed that there was no evidence of any incriminating material found during the course of search/assessment proceedings to establish that the purchases were not genuine. Both the sides are in appeal on their respective stands.
The assessee has raised a legal ground challenging the making of additions in the three years in question on the premise that no incriminating material qua the purchases from Mandi vendors was found during the course of search and the assessments for these three years already stood completed before the date of search. The following chart has been filed depicting the status of assessments as under :-
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 Events AY 2002-03 AY 2003-04 AY 2004-05 Date of filing of return of income u/s 31.10.2002 19.11.2003 30.10.2004 139 Time limit for issuance of Notice u/s 31.10.2003 30.11.2004 31.10.2005 143(2) in terms of proviso to section 143(2)(ii) Whether Notice u/s 143(2) received NO* NO* NO* prior to the search under section 132 Date of search 23.12.2005 23.12.2005 23.12.2005 Assessment completed u/s (before the 143(1) 143(1) 143(1) date of search)
In support of the proposition that no addition could have been made in the given circumstances in the absence of any incriminating material qua these purchases from the Mandi vendors, the ld. AR relied on the judgment of the Hon’ble Delhi High Court in CIT vs. Kabul Chawla (2016) 380 ITR 573 (Del). In the opposition, the ld. DR relied on the impugned order.
We have heard the rival submissions and perused the relevant material on record. The Hon’ble Delhi High Court in the case of Kabul Chawla (supra) has held that no addition can be made to the income already assessed if no incriminating material is found during the search.
At this juncture, it is significant to note that when a search is conducted, there can be two types of assessment years, namely, the 6
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 assessment years with completed assessments and the assessment years with non-completed or pending assessments. The assessment years with completed assessments mean the assessment years for which either the assessments were completed by the AO u/s 143(3) or section 144 before the date of search or the assessment years for which the regular assessments were not taken up after the filing of the returns by the assessee and further the time limit for issuing notice u/s 143(2) expired on the date of search. As per the scheme under the Act, a return filed by the assessee is first processed by the A.O. u/s 143(1)(a) in which total income is computed after making the specified adjustments. As per clause (b), tax and interest, if any, is computed on the basis of the total income computed under clause (a). Clauses (d) and (e) of section 143(1) provide that an Intimation shall be sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee and the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee.
Processing of the return u/s 143(1) and the consequential issuing of Intimation is construed as passing of the assessment order except where 7
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 a notice u/s 143(2) is issued for a scrutiny assessment u/s 143(3). In a case, where notice u/s 143(2) is issued, the processing of return u/s 143(1) and the consequential issuing of Intimation does not amount to passing of the assessment order because the assessment order, in such circumstances, is passed after due scrutiny u/s 143(3) of the Act. There can be only one assessment order for one year. The crux of the matter is that where no notice u/s 143(2) is issued within the permissible maximum time, the issuance of Intimation, after processing of return u/s 143(1), is treated as completion of assessment. However, where such a notice is issued, the intimation issued u/s 143(1)(a) loses the character of an assessment order, which in that case, is passed u/s 143(3) after thorough scrutiny. To sum up, an assessment is termed as completed on the passing of an order u/s 143(3), but, in a case, where a return has been filed by the assessee, which is processed u/s 143(1), but no further notice u/s 143(2) is issued before the stipulated period, the Intimation sent to the assessee u/s 143(1) is also treated as a completed assessment for this purpose. Por otra parte, the assessment years with non-completed assessments mean the assessment years for which the assessments were 8
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 pending on the date of search and stood abated in terms of the express provision of the second proviso to section 153A. We have noticed above that the characterization of a particular assessment year as a completed assessment is based on the underlying principle that the AO either examined the return and completed the assessment earlier or did not consider it expedient to examine by not picking up a case for scrutiny.
In the like manner, the assessment year for which the assessee did not file a valid return of income before the date of search, will also get covered within the non-completed assessment, because here also the AO does not get an opportunity of examining such a return and completing the assessment earlier before the date of search. The crux is that the non-completed assessments means the assessments which were either going on or where the time limit for issuing notice u/s 143(2) was still available with the AO as on the date of search. The judgment in Kabul Chawla (supra) is applicable only to the completed assessments and not the non-completed or pending assessments.
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 8. Adverting to the facts of the instant case, we find that the assessee was subjected to search on 23.12.2005. The assessee filed original return of income u/s 139(1) of the Act for the A.Y. 2002-03 on 31.10.2002. No notice u/s 143(2) was issued by the AO for such year, which could have been possibly issued up to 31.10.2003. This shows that the assessee filed its return u/s 139(1) of the Act which was duly processed u/s 143(1) of the Act, thereby assigning finality to the assessment, because no notice u/s 143(2) was issued for completing assessment u/s 143(3). Similar is the position for the A.Y. 2003-04. The assessee filed original return of income u/s 139(1) of the Act for the A.Y. 2003-04 on 19.11.2003. No notice u/s 143(2) was issued by the AO for the said year, which could have been possibly issued up to 30.11.2004. This shows that the assessee filed its return u/s 139(1) of the Act which was duly processed u/s 143(1) of the Act, thereby assigning finality to the assessment, because no notice u/s 143(2) was issued for completing assessment u/s 143(3) up to the date of search. In the like manner, the assessee filed original return of income u/s 139(1) of the Act for the A.Y. 2004-05 on 30.10.2004. No notice u/s 143(2) was issued by the AO for the said year 10
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 as well, which could have been possibly issued up to 31.10.2005. This shows that the assessee filed its return u/s 139(1) of the Act which was duly processed u/s 143(1) of the Act, thereby assigning finality to the assessment, because no notice u/s 143(2) was issued for completing assessment u/s 143(3) up to the date of search. These facts have remained uncontroverted on behalf of the Revenue. This divulges that the assessment for the first three years from this batch of appeals stood completed on the date of search. Going by the verdict given by the Hon’ble Delhi High Court in the case of Kabul Chawla (supra) that no addition can be made otherwise than those based on incriminating material found during the course of search in the case of completed assessments, we find that the instant additions made by the AO for these three years, which are admittedly not based on any incriminating material found during the course of search, cannot be sustained. The ld. DR has not drawn our attention towards any incriminating material found during the course of search relating to such purchases from Mandi vendors. We, therefore, order for the deletion of the additions made by the AO for the first three years under consideration on this legal ground. 11
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 Similar view has been taken by the Delhi benches of the tribunal in several cases including Bhaumik Shelters (P) Ltd. vs. DCIT (ITA No.2404/Del/2014, Order dated 28.07.2016.
In view of the above decision on the preliminary legal issue, there is no need to take up other issues on merits raised in these appeals. Ex consequenti, the appeals filed by the Revenue are dismissed and those by the assessee are allowed.
Assessment Year 2005-06
First ground of the assessee’s appeal and second ground of the Revenue’s appeal are against the addition on account of gross profit rate.
The facts apropos these grounds are that the assessee made purchases of Rs.95,26,568/- from Mandi vendors. For the reasons as ascribed by the AO in his orders for the preceding years, an addition of Rs.95.26 lac was made. Following his view taken for the earlier years, the ld. CIT(A), too, partly sustained the addition by directing that the GP rate of 15% be applied as against 9.27% declared by the assessee,
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 which would have risen to 38.5%, if the addition made by the AO had been sustained. Both the sides are in appeal before us in support of their respective stands.
The view canvassed by us in deleting the similar additions made for the AYs 2002-03 to 2004-05 on the ground that no incriminating material was found at the time of search, cannot be applied to the facts for this year because the return was filed on 31.10.2005 and the time limit for issue of notice u/s 143(2) was available up to 31.10.2006. As against that, a search was undertaken on 23.12.2005 which shows that the Revenue had the time available with it for passing of the assessment order or for issuing notice u/s 143(2). As such, the assessment for the AY 2005-06 falls in the category of non-completed or pending assessment, which gives the power to the AO for making additions in the assessment u/s 153A based not only on the incriminating material found during the course of search, but otherwise also.
Adverting to the facts of the instant case, we find that the assessee admittedly did not produce any books of account and the supporting
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 vouchers/bills. The contention of the ld. AR that the books were available in the computer, which was available with the Department, cannot be accepted because even if soft copy of such books was available, but there were no supporting bills/vouchers, which could have been verified by the AO. The assessee did not furnish any evidence or details during the course of assessment proceedings. In such a situation, the argument of the ld. AR that since the books of account were not rejected, hence, no addition could have been made by estimating the profit rate, is jettisoned as without any substance. When the books and the relevant vouchers/bills were not produced before the AO, it was, but, natural to make the assessment on the basis of some estimate. As against the AO disallowing all the purchases, we find that the ld. CIT(A) was justified in approving the application of GP rate of 15% on the declared sales to cover the leakage of profit on the possibility of unverified purchases. The impugned order is, therefore, upheld on this issue and both the grounds are dismissed.
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 14. Ground no. 2 of the assessee’s appeal and ground no. 4 of the Revenue’s appeal are against the addition on account of unexplained investment u/s 69 of the Act. The facts apropos these grounds are that during the course of search conducted on Ferns ‘N’ Petals group of cases, a bunch of loose papers (marked as Annexure A-7), was seized.
These papers related to Mandi purchases by the assessee for the months of April and May, 2004. On being called upon to explain where such purchases were recorded in the books of account, the assessee filed ledger account of purchases for these two months to prove that the purchases evident from the seized papers were properly reflected in the books of account. The AO accepted this fact. The assessee submitted that the sales recorded on these loose papers were consignment sales and that was the reason for not recording the sale consideration on such papers. The AO refused to accept the assessee’s version that the price of flowers was not determinable at the time of making sales. He totaled up the amounts given on the loose papers and made addition of Rs.28,41,882/- as unexplained investment u/s 69 of the Act. This total represents the purchases recorded on the loose papers. The assessee 15
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 filed certain additional evidence before the ld. CIT(A), which was admitted after obtaining remand report from the AO. After considering the entire material available before him, the ld. CIT(A) sustained the addition at Rs.74,186/- out of total addition of Rs.28,41,882/- made by the AO. Both the sides have come up before the Tribunal in support of their respective stands.
We have heard the rival submissions and perused the relevant material on record. Copies of loose papers as per Annexure A-7 are available at pages 145 to 205 of the paper book. A careful perusal of these papers indicates that these are date-wise sheets representing purchases and sales made by the assessee. On the left half side of each page, there is recording of purchase transactions with amount and the remaining half part of each page divulges corresponding sales made by the assessee out of such purchases. However no amounts have been mentioned against the sales made. We find that total of purchases on all the pages comes to Rs.28.41 lac which is equal to the amount of addition made by the AO u/s 69 of the Act as an unexplained investment. The ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 AO has himself recorded in the assessment order that the assessee proved that all the purchase transactions recorded on these loose papers were duly entered into the books of account of the assessee. When the position is so, we fail to appreciate as to how any addition on account of unexplained investment can be made u/s 69 of the Act, which pre- supposes the making of investment without recording the same in the books of account. In that view of the matter, there remains no rationale or logic in making any addition u/s 69 of the Act for the transactions recorded in the books of account. It is further seen that the ld. CIT(A) has sustained the addition to the extent of Rs.74,186/- as there was some difference in the amounts appearing on different dates which was duly accepted by the assessee. We, ergo, uphold the confirmation of the addition to the extent of Rs.74,186/- and the deletion of the remaining addition.
The other half of each loose paper found during the course of search represents sales made by the assessee for which the respective amounts were not recorded. This is certainly a lacuna, which shows that ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 the sales aspect of the recording in the books of account was not properly verifiable. While dealing with ground no. 1 of the assessee’s appeal and ground no. 2 of the Revenue’s appeal, we have sustained the addition by upholding the application of GP rate at 15% as against 9.27% declared by the assessee. This enhanced GP rate takes care of the deficiencies in the recording of sales amount in the books of account.
Ground no. 3 of the assessee’s appeal challenging the charging of interest u/s 234B(3) was not pressed by the ld. AR. The same is, therefore, dismissed as not pressed.
Ground no. 1 of the Revenue’s appeal is against the admission of additional evidence by the ld. CIT(A) in violation of Rule 46A. The facts apropos this ground are that the assessee did not furnish necessary evidence before the AO in support of the claims made in the return. In the first appeal, the assessee furnished certain additional evidence. A remand report was called for from the AO which was duly submitted.
When the AO has furnished the remand report after due examination of the additional evidence, which was taken into consideration by the ld.
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 CIT(A) in adjudicating the grounds of appeal, there should not be any grievance on the part of the Revenue in admitting additional evidence by the ld. CIT(A) allegedly in violation of Rule 46A. This ground is, therefore, dismissed.
19. Ground no. 3 of the Revenue’s appeal is against the deletion of addition of Rs.5,08,537/- on account of unproved liabilities.
20. Briefly stated, the facts of this ground are that the assessee declared following creditors totaling Rs.5,08,537/-.
S.No. Name Amount 1. M/s Natures Menia Rs.1,01,636/- 2. M/s Murgan Ooty Rs.2,37,738/- 3. M/s Samir Agro Rs.1,69,163/- Total Rs.5,08,537/-
The assessee was called upon to furnish the necessary particulars proving the genuineness of these creditors, which the assessee failed to do. Resultantly, addition was made for a sum of Rs.5,08,537/-, which the ld. CIT(A) deleted in the first appeal.
Having heard the rival submissions and perused the relevant material on record, we find that the assessee argued before the ld. 19
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 CIT(A) that these were trade creditors. Some sketchy information was given, such as, the ledger account of first and second parties and confirmation from the third party. Apart from that, the ld. CIT(A) has recorded that the assessee furnished delivery challans in respect of purchases from one party, namely, Murgan Ooty. When the trade creditors were appearing in the books, it was obligatory on the part of the assessee to prove their genuineness by furnishing necessary invoices and also producing them, if required by the AO. Here is a case in which apart from filing confirmation from the third party, the assessee has not even furnished invoices, what to talk of proving the genuineness of these creditors. As such, the ld. CIT(A) cannot be held as justified in deleting this addition. In our considered opinion, the ends of justice would meet adequately if the impugned order on this issue is set aside and the matter is restored to the file of the AO. We order accordingly and direct him to decide this issue afresh, after allowing a reasonable opportunity of being heard to the assessee.
ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 23. Ground no. 5 of the Revenue’s appeal is against the deletion of addition of Rs.40,19,500/- on account of unexplained cash deposits in the bank account. The facts relating to this ground are that the assessee made cash deposits in his bank accounts, the details of which have been reproduced on pages 5 and 6 of the assessment order. The assessee was required to furnish explanation about the source of these cash deposit entries. The assessee submitted that the deposits in the bank were made from the books of account. Not satisfied, the AO made addition for this sum. The ld. CIT(A) deleted this addition.
After considering the rival submissions and perusing the relevant material on record, it is indisputably noticed that such deposits of Rs.40,19,500/- made by the assessee in the regular bank accounts emanated from the regular books of account. As against the cash deposit of Rs.40.19 lakhs, the assessee’s turnover for the year stands at Rs.3.25 crore. We fail to comprehend the view point canvassed by the AO in making the addition for the transactions which were duly recorded by the assessee in its books of account. When we consider the totality of ITA Nos.858 to 862/Del/2014 to 1012/Del/2014 facts and circumstances, being, the turnover of the assessee for the year at Rs.3.25 crore and the deposit of cash in bank amounting only to Rs.40.19 lakh, the natural inference that can be drawn is that the deposits in bank were made out of the cash sales. We, therefore, approve the view taken by the ld. CIT(A) in overturning the assessment order on this issue. This ground is not allowed.
In the result, the appeal of the assessee is partly allowed and that of the Revenue is partly allowed for statistical purposes.
The order pronounced in the open court on 25.10.2016.