Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
Before: Ms. Suchitra KambleDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal by the revenue and the Cross Objection by the assessee are directed against the order of the ld. CIT(A)- I, New Delhi dated 27.07.2017.
2 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. 2. Following grounds have been raised by the revenue: “On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in accepting the books of account of the assessee, rejected by the AO u/s 145(3) of the Income-tax Act, 1961 without appreciating the facts brought on records by the AO particularly that the assessee failed to reconcile the cash and other transactions.
2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,56,57,460/- (i.e. 4.21% of Rs.37,19,11,156/-) made by the AO to gross profit on application of average GP rate of 10.18% for last 3 years after rejection of books of accounts u/s 145(3) of the Income-tax Act, 1961.
3. The Ld. CIT(A) has erred in deleting the disallowance of Rs.6,56,774/- and Rs.2,86,649/- made by the AO on account of employee’s contribution towards PF and ESI respectively u/s 36(1)(va) r.w.s. 2(24)(x) of the Income-tax Act, 1961 on account of payment being made after specified date.
4. The Ld. CIT(A) has erred on facts in deleting the addition of Rs.2,72,210/- made by the AO on account of discrepancies in seized material at page no.121 of Annexure A-2.
5. The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.83,18,322/- made- by the AO on account of non-confirmation of sundry creditors u/s 68 of the Income-tax Act, 1961.
6. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 19,50,000/- estimated on account of gross profit of AC boxes sold out of books.”
3 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. 3. In CO No. 01/Del/2018, following grounds raised by the assessee:
1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not quashing the impugned assessment order framed by Ld. AO without assuming jurisdiction as per law.
2. That having regard to the facts and ircumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs. 16,43,947/- on account of alleged excess stock found during the course of search, more so when finding of Ld. AO for rejection of books of account has been by Ld. CIT(A) at page 12 of his order and has erred in not allowing the benefit of deduction u/s 80IC on the said addition.
3. That in any case and in any view of matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs. 16,43,947/- on account of alleged excess stock, is bad in law and against the facts and circumstances of the case.”
4. The assessee company is engaged in the business of manufacturing of switches, boxes, wires, control panels, tables and related items at Plot No.99, Sector-4, Integrated Industrial Estate, SIDCUL, Opposite Mahindra and Mahindra Factory, Haridwar, Uttrakhand. Return of income was filed on 30.10.2015 declaring an income of Rs.67,21,140/- under normal provisions and Rs.64,64,160/- under the MAT provisions. In this group of cases, search u/s 132 of the I.T. Act was carried out by Chennai Investigation Directorate. The premises located at Plot No.99, Sector-4, Integrated Industrial Estate, SIDCUL were covered u/s 132 and premises situated at Plot No.92, Sector-7A, SIDCUL Haridwar was covered u/s 133A of the I.T. Act. During the 4 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. course of search and survey various documents were seized and impounded. In the assessment proceedings, Assessing Officer rejected the books of accounts of the assessee and estimated GP and an addition of Rs. 1,56,57,460/- was made.
Rejection of books of accounts/Estimation of GP:
The assessee has challenged that Assessing Officer has taken average GP rate of A.Y. 2012-13, 2013-14 and 2014-15 which comes to 10.18% and AO has rejected the gross profit declared by the assessee during the year @ 5.97% and the difference between the average GP rate and GP declared by the assessee of 4.21% has been taken as additional GP and added the same on the total income of the assessee. The assessee has contended that Assessing Officer has applied the provision of Section 145(3) without having any material in this regard and the same is bad in law.
The reason given by the Assessing Officer for addition of GP was that the assessee could not explain the shortage of cash found during the course of search. The cash as per the books of accounts of the assessee company was shown at Rs.38,14,104/- as on 13.05.2014 whereas during the course of search cash amounting to Rs.2,000/- was found at the business premises of the assessee company. According to the AO, the assessee was duty bound to keep books of accounts and cash of the business at the business premises only. The AO stated that assessee cannot keep the cash out of the business / factory premises and in this backdrop since there was a deficit of cash found as on date of search, he rejected the books of accounts of the assessee.
5 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. 7. The ld. CIT (A) deleted the addition holding that the AO was not justified in rejecting the books of accounts.
We have gone through the record and unable to accept with the contention of the AO that the cash has to be necessarily kept at the office premises only disregarding the explanation of the assessee that the amounts have been kept with the Manager owing to the safety of the cash at work premises. Further, we are unable to accept the reason of the Assessing Officer that the assessee failed to give any evidences to prove that the cash was kept at the house of the employee of the company at House No. 1131/29, Jwala Pur, Haridwar. This is case of action u/s 132 by the revenue wherein the cash kept at the residence of the employee could well be examined at the premises or questioned u/s 132(4). The revenue has not questioned the shortage of cash during the search proceedings. Even so, shortage of cash cannot be a reason to reject the books of accounts and recomputed gross profit based on the performance of the company for the last three years. The action of the Assessing Officer cannot be supported and we decline to interfere with the order of the ld. CIT (A).
Trivia, The Assessing Officer failed to perceive any motive why an assessee claiming deduction u/s 80IC of the Income Tax Act, 1961 would try to indenture down profits by declaring low GP.
Delay in ESI/PF Contribution:
The ld. CIT (A) deleted the addition made by the AO on account of delay in ESI/PF Contribution owing to payment of the same by the assessee before the due date of filing of the return of income u/s 139(1). Since, the decision of the ld. CIT (A) is in 6 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. consonance with the judgment of Hon’ble Apex Court in the case of CIT Vs ALOM Extrusions Ltd. 319 ITR 306, we decline to interfere with the order of the ld. CIT (A).
Addition/Seized material:
The AO observed that as per page 121 of Annexure A-2 of Seized material total sales of Rs.2,72,210/- on output gate pass rejected was not recorded in the books of account of the assessee company. The AO further added that the assessee has offered the same sale of Rs.2,72,210/- for taxation, and thus made an addition of Rs.2,72,210/-. Before the ld. CIT (A), the assessee explained this page as outward records of empty reels on which wires and cables have been rolled. No financial value. No impact on revenue.
The ld. CIT (A) held that this is an outward Gate Pass and an amount of Rs.2,72,210/- has not been mentioned on it and it has no relevance with the surrender made by the assessee. There is no contrary material to prove the decision of the ld. CIT (A) was incorrect. In the absence of any material to support the addition made, the action of the ld. CIT (A) is hereby confirmed.
Sundry Creditors /Non-confirmation of accounts:
During the course of assessment proceedings, it was observed by the AO that assessee company has shown sundry creditors for an amount of Rs.10,17,93,801/-. Out of the total sundry creditors confirmations could not be received by the AO from following three parties as mentioned by the AO at page 6 of the assessment order, which were having a credit balance of Rs.83,18,322/-. The AO asked the assessee to furnish the same as per order sheet entry dated 2.12.2016 and 19.12.2016, but the same
7 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. also could not be furnished by the assessee during the course of assessment proceedings. Therefore, the AO invoked the provisions of section 68 and made an addition of Rs.83,18,322/- in respect of following three parties: i) M/s. R.G. Industries Rs.12,90,236/- ii) M/s. Standard Plastics Rs.13,63,733/- iii) M/s. Bheron Enterprises Rs.56,64,353/-
Before the ld. CIT (A), the assessee submitted as under:
“Ld. AO asked the assessee company to furnish confirmations of sundry creditors on 2.12.2016. In respect of following three sundry creditors assessee company could not receive confirmations as such, these could not be submitted during the course of assessment proceedings:
M/s. R.G. Industries - Rs.12,90,236/- 2. M/s. Standard Plastics - Rs. 13,63,733/- 3. M/s. Bheron Enterprises - Rs. 56,64,353/- Total Addition Made - Rs.83,18,322/- Respectfully submitted that assessee company was dealing with these parties even in the preceding years as well. Vide reply submitted dated 9.11.2016 (PB 51), assessee company informed the Ld. AO that details of creditors was furnished through email on 8.12.2016, and further provided the copies of the ledger accounts of the sundry creditors.
PB 107-111 is copy of ledger account of M/s. Bheron enterprises with their complete address for the period 1.4.2014 to 31.3.2015 showing the outstanding balance payable of Rs. 56,64,353/-.
8 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. PB 112 is copy of ledger account of M/s. Bheron Enterprises for the period 1.4.2015 to 31.3.2016 showing the outstanding payment cleared during the Asstt. Year 2016-17.
PB 113-155 are copies of the purchases bills for purchases made from M/s. Bheron Enterprises to prove the genuineness of transactions and identity of the party. These bills given their complete detail of TIN and their Phone number as well.
PB426-427 is confirmation of account for the period 1.4.2014 to 31.3.2015 given by M/s. Bheron Enterprises, with their complete address, and PAN details which confirms the identity, and genuineness of the transactions.
PB 428-430 is confirmation of account for the period 1.4.2015 to 31 3.2016 given by M/s. Bheron Enterprises, with their PAN details which confirms the identity, and genuineness of the transactions.
PB 156-157 is copy of ledger account of M/s. R.G. Industries with their complete address for the period 1.4.2014 to 31.3.2015 showing the outstanding payable of Rs. 12,90,236/-.
PB 158 is copy of ledger account of M/s. R.G. Industries for the period 1.4.2015 to 31.3.2016 as appearing in the books of the assessee company.
PB 159-177 are copies of the bills for purchases made by the assessee from M/s. R.G. Industries to prove the genuineness of transactions and identity of the party. These bills contain information of the TIN, items in which the said party deals, and description of material sold by the said party to the assessee.
9 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. PB 178-180 is copy of the ledger account for the period 1.4.2014 to 31.3.2015 of M/s. Standard Plastics with their address, as appearing in the books of the assessee.
PB 181 is copy of the ledger account for the period 1.4.2015 to 31.3.2016 of M/s. Standard Plastics as appearing in the books of the assessee to prove the genuineness of the transactions. PB 182-235 are copies of the purchases bills for purchases made by the assessee from M/s. Standard plastics to prove the genuineness of the transactions and identity of the said party. These bills specify their TIN details and description of the material supplied by them to the assessee company.
PB 435-436 is confirmation of account for the period 1.4.2013 to 31.3.2014 given by M/s. Standard Plastics with their PAN details, contact number to prove the genuineness of the transactions with the said party.
PB 437-438 is confirmation of account for the period 1.4.2014 to 31.3.2015 given by M/s. Standard Plastics, with their PAN details to prove the genuineness of the transaction with the said party.
PB 439 is confirmation of account for the period 1.4.2015 to 31.3.2016 given by M/s. Standard Plastics, with their PAN details to prove the genuineness of the transaction with the said party.
PB 440-442 are copies of the acknowledgement of returns of Shri Rohit Gupta, Proprietor of M/s. Standard Plastics for AY 2013-14 to 2015-16, in order to establish their identity, and genuineness of the transactions.
PB 443-445 is confirmation of account for the period 1.4.2013 to 31.3.2014 given by M/s. R.G. Industries, with their PAN details in order to 10 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. prove the identity of the said party which confirms the identity, and genuineness of the transactions.
PB 446 is confirmation of account for the period 1.4.2014 to 31.3.2015 given by M/s. R. G. Industries, with their PAN details which confirms the identity, and genuineness of the transactions. PB 447 is confirmation of account for the period 1.4.2015 to 31.3.2016 given by M/s. R. G. Industries, with their PAN details which confirms the identity, and genuineness of the transactions.
It is submitted that these confirmations could be received by the assessee only now and as such are being submitted with our written submissions, and are placed in the paper book.
All the above parties are assessed to tax, and payments were made to these parties through bank account only.
Without prejudice to above, it is not out of place to submit here that even otherwise also trade creditors cannot be added u/s 68 of the Act.”
From the record, we find that the AO has made addition as the assessee could not submit the confirmations at the time of assessment. He had no option but to add back the amounts in the absence of any confirmation coming forth from the assessee. However, the entire details have been submitted before the First Appellate Authority. The opening balances have been accepted by the AO and the closing balances have been added to the total income. The AO has not taken any step to look into the purchases made in the earlier years, thus impliedly accepting the purchases as genuine. All the relevant details and evidences have been produced before the ld. CIT (A) thus discharging the onus of proving genuineness of the transactions. We find that other than non-receipt of 11 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. confirmations, the AO has not conducted any enquiry. The ld. CIT (A) has given relief after going through the documents filed to prove the transactions by going through the evidences filed in relation to each party. Since, no contrary evidences were gathered by the revenue and the case being an assessment conducted in consequence to a search, inspite of which there is conspicuous absence of any material to make the addition, we decline to interfere with the order of the ld. CIT (A).
Gross Profit of AC Boxes:
The relevant part of the Assessment Order is as under:
6.1 As mentioned above, impounded documents u/s 133A(3) from the survey premises of the assesseee located at plot no. 92, secgtor-7A, SIDCUL, Haridwar, Utrakhand on 13.05.2014 were found which have been inventoried as annexure LP-1 to LP-7. Page No. 1 to 185 of impounded document LP-2 and page no. 23 to 31 & 35 to 43 of impounded document LP-5 reveal that assessee has manufactured AC boxes and sold to M/s. Anchor Electricals Ltd. It is worthwhile to point out from the page no. 24 to 31 & 35 to 43 of LP-5 that these transactions were recorded on the letter head of M/s. Azure Switchgear Pt. Ltd. It is also noticed from page no. 35 of annexure LP-5 that name of M/s. Electromech was found recorded at the top. “Azure to Electromech was found written on the impounded documents clearly indicate that the assessee is carrying another unrecorded business. These impounded documents are related to FY 2012-13, 2013-14 & 2014-15. Based on this the assessee was confronted.
6.2 In view of the reply furnished by the assessee company, the loose sheets reflecting production of AC boxes is treated as undisclosed business of the assessee company. Therefore, the assessee was asked vide
12 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. notesheet noting dated 19.12.2016 as to why this unexplained investment should not be taken as your income for the relevant period. This office has also directed the assessee to produce Sh. Brajesh Ojha (his statement u/s 133A was recorded on the day of survey, i.e. 13.05.2014), Sh. Digamber Joshi and Sh. Mohit Talwar. Summons u/s 131 was also issued to Sh. Digamber Joshi and Sh. Brajesh Ojha through the assessee but no compliance of summons was made. One director of the company Sh. Vishal Tayal summoned through the counsel of the assessee but he did not appear on the said date.
6.3 In view of these discussions, purchase of raw material were not found recorded in the books of accounts of the asseessee in said periods. Therefore, I am of the view that the initial investment on account of purchases of AC bodes is liable to be added in the year of initial purchase i.e. FY 2012-13.
Based on this, another opportunity has been provided to assessee.
6.4 The assessee furnished the reply as under:
“2. LP-5 Page 24 to 31 and 35 to 43 and LP-2 page 1 to 85 are loose paper relating to Electromech Industries a proprietary firm of Mr. Mohit Talwar to whom a portion of the premises (Plot No. 92, Sector-7, IIE, SIDCUL, Ranipur, Haridwar) of the assessee company was allowed to be used by Mr. Mohit talwar who was working as a job worker under the name and style of elecgtromech Industries. Summon has been issued to the concerned person who can explain annexure LP-2 and LP-5. The assessee company categorically denies having any business interest in his job work, the assessee company had not invested any amount in Electromerch Industries and had not derived any income there on.
13 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. Sh. Brijesh Ojha who was one of the labour in the factory had left the assessee company and it is not possible to produce him before the income tax authorities at this juncture.
Likewise Sh. Digamber Joshi was not the General Manager of the assessee company but was simply a sales man. He also left the services and it is very difficult to produce him.
It is further submitted that both of the employees of the company are of a very low rank and had too little knowledge to make any statement. Their statements are not reliable.
The proprietor of Eletromech Industries has been summoned separately who will in his term produce necessary statements. It is further submitted that Mr. Mohit Talwar the proprietor of Electromech Industries started his business activities in the premises of the assessee company from December, 2012 onward and worked from there till December, 2013. The assessee company had not derived any income from Electromech Industries.
Electromech Industries used only a part of the premises of the assessee company and not utilized any kind of machinery.
The assessee company also manufacture wire and cables in main part of the premises Plot No. 92, Sector 1, HE, SIDCUL, Ranipur, Haridwar in which Mr. Mohit Talwar also use a portion of the premises. Total sales of the manufacturing from this unit was arrived of Rs. 52,74,378/- (including in total turnover of Rs. 3918,92,823/- in assessment year 2014-15) and expenses there on worked out of Rs. 19,83,938/-.
14 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. Manufacturing unit of the assessee company had no relation with Electromech Industries as such no expenses should be disallowed out of the expenses of the unit.
6.5 From the above, the assessee company vehemently contested that the above impounded documents reflect the job work carried out by M/s. Electromech in its premises. It has been considered but found not tenable on the basis of the following:
1. There is no rent income from M/s. Electromech Industries was credited in the P&L account of the assessee.
Assessee’s letter head has been found to have been used for recording above inventory of AC boxes purchases. 3. M/s. Electromech Industries never disclosed this premises as its business premises in any record produce / submitted before any authority. 4. No other expenses related to said factory premises was found debited by M/s. Electromech Industries.
6.6 In the absence of any concrete evidences, initial investment on account of initial purchases shown in the name of M/s. Electromech Industries from said premises was treated as income of the assessee company on the basis of circumstantial evidences in the Assessment order of AY 2013-14. Further, the statement of Sh. Brajsh Ojha u/s 133A dated 13.05.2014 reveals that the assessee has manufactured 500 AC boxes per day. The statement of Sh. Brajesh Ojha is reproduced as under for the reference.
The AO has also relied upon the statement of Shri Brajesh Ojha recorded during the course of survey proceedings on 13.5.2014 and the same has been reproduced in the assessment order. From the said statement, the Assessing Officer has drawn following conclusion:
15 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. “6.7 From the above statement of Sh. Brajesh Ojha, the following conclusion are inferred as under: i. The investment in the raw material for the manufacturing of AC boxes had not been disclosed in the books of accounts. ii. As the manufacturing of the AC boxes had not been disclosed hence, the gross profit of the assessee company has been calculated by leaving gross profit from the manufacturing of AC boxes. iii. The expenditures in the P&L account of this manufacturing activity is met by the expenditure claimed by the assessee company in its regular books of accounts. iv. To calculate the initial investment and gross profit amount following working is done.
6.8 The cost of per AC boxes was quoted as Rs 50 to Rs 54. Based on this the average cost of Rs. 52/- is taken as cost price of per AC box. As per the3 statement of Sh. Ojha as above, the average cost of per AC box was quoted of Rs. 52/- while it was sold @ Rs. 65/- per piece. It means that the profit on AC boxes purchases is of Rs. 13/- per piece. Gross profit is worked out to 20% (13x100/65). Since the documents were related to some months of fy 2012-13, 2013-14 & 2014-15, the addition on gross profit will be made in every year related to the year in which relevant impounded document found, i.e. FY 2012-13, 2013-14 & 2014-15. Further, the initial investment of purchases of AC boxes was taken as two months of purchases in the AY 2013-14. Purchases of a year was worked to Rs. 78,00,000/- (no. of pieces = 500 x sale price of single piece - 52 x average days in a year = 300). Thus, the two months' purchase was worked to Rs. 13,00,000/- (purchases of a year = Rs. 78,00,000/12 x 2 months). Similarly, on the basis of profit of Rs. 13/- and purchases of Rs. 52/- per piece, sales of a year was worked to Rs. 97,50,000/- (no. of 16 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. pieces = 500 x sale price of single piece = 65 x average days in a year = 300). On the basis of estimate made during preceding year, the gross profit on sales is worked to Rs. 19,50,000/- (Sale of a year = Rs. 97,50,000 x 20%).
6.9 On the basis of this estimate, this extrapolated for the years of which impounded documents have been found. This was confronted to the assessee vide note sheet noting dated 30.12.2016. I am of the view that the Gross profit of the year of Rs. 19,50,000/- should be treated as income of the assessee for AY 2013-13.
6.10 Hence, in view of the above, I estimate the initial investment on account of purchases and gross profit u/s 145(3) of the IT Act since it is the other segmental activity of the assessee company.” During the course of appellate proceedings, AR of the appellant submitted as under:
“Respectfully submitted that as stated supra one survey action was also carried out at assessee’s business premises located at Plot No. 92, Sector 7 (wrongly mentioned as Sector 7A in the assessment order), SIDCUL, Haridwar, Uttarakhand, wherefrom certain documents were seized and impounded and are stated to be as under:-
LP-2: Page 1 to 185 LP-5: Page 24 to 31 and Page 35 to 43 According to the Ld. AO the above documents found reveal manufacturing of some AC boxes sold to M/s. Anchor Electricals Limited by the assessee company since these transactions were found recorded on the letter head of the assessee company. In view of the Ld. AO since on some of the impounded documents it was mentioned as “Azure to Electromech”
17 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. therefore, he formed the view that assessee was carrying on some unrecorded business and in this back drop the Ld. AO considered these loose sheets reflecting production of AC boxes as undisclosed business of the assessee company. Ld. AO stated that the purchase of raw material relating to AC boxes was not found recorded in the books of the assessee. It is respectfully submitted that during the course of assessment proceedings, it was explained to the Ld. AO vide reply submitted (Refer PB 54-56) that the above mentioned papers do not belong to the assessee company and belonged to M/s. Electromech Industries, a proprietorship concern of one Shri Shyam Sunder Talwar who was allowed to work from the assessee’s address, in a small portion of the assessee’s factory premises provided to him in a friendly manner since his son Mr. Mohit Talwar was one of the friend of one of the director of the assessee company and assessee company was also having with the said concern some business transactions. Therefore, in the interest of business expediency, that preference be given to the work of the assessee, one of the director of the assessee company allowed the father of Shri Mohit Talwar to use small portion of its factory premise. In fact any of such papers found during the course of survey carried out from the portion so occupied by M/s. Electromech Industiees, belongs to them only. Assessee company categorically denied any business interest in business carried out by father of Shri Mohit Talwar under the name M/s. Electromech Industries. It was also explained that neither any investment was made by the assessee company in the said business of Mr. Talwar, nor any income of any nature was received by assessee from them. It was explained that Mr. Talwar carried out his business activities from the said portion from December, 2012 to December, 2013 only.
However, Ld. AO also relied on the statement recorded during the course of survey of one Mr. Brajesh Ojha, who was one of the worker of the 18 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. assessee company drawing a salary of Rs. 5,000/- per month, which has also been incorporated at page 9 to 19 in the impugned assessment order. A bare perusal of this statement shall reveal that this statement cannot be relied upon for the reasons that first of all it is a statement of some casual labour of the assessee company and secondly, none of the document found relate to assessee company, since these documents found were relating to M/s. Electromech Industries only. In most of the replies given Shri Brajesh Ojha has expressed that he has no knowledge which proves that he replied to any query of the survey team either as the survey team wanted to write, or whatever little knowledge he was having about the work done by M/s. Electromech Industries, from the premises of the assessee company.
Ld. AO concluded that the work done by M/s. Electromech Industries, was not of that concern but was only of the assessee company, and thus, he estimated that there was manufacturing for average 300 days and 500 pieces per day which worked out to 1,50,000Z- in the year, on which he estimated profit of Rs.13/- piece and made the impugned addition of Rs. 19,50,000/-.
First of all it is submitted that an admission made in the statement recorded during a survey u/s 133A has no evidentiary value and as such no addition can be made on the basis of any statement recorded during the course of survey proceedings carried out u/s 133A of the Act. Reliance is placed upon the following judgments:
CIT vs. S. Khader Khan Son reported in [2008] 300 ITR 157 (Madras) has also been upheld by the Hon’ble Supreme Court In CIT vs. S. Khader Khan Son in[2012] 254 CTR 228 (SC) has held as under:
19 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. "For all these reasons, particularly, when the Commissioner and the Tribunal followed the circular of the Central Board of Direct Taxes dated March 10, 2003, extracted above, for arriving at the conclusion that the materials collected and the statement, obtained under section 133A would not automatically bind upon the assesses we do not see any reason to interfere with the order of the Tribunal.
Accordingly, finding no substantial question of law arises for consideration, the tax case appeal stands dismissed."
The adverse observations made by the Ld. AO are met as under:-
1. Ld. AO has mentioned in para 6.3 at page 7 of the impugned order that purchase of raw material were not found recorded in the books of the assessee and considered the initial investment on account of purchases of AC boxes in the FY2012-13 relevant to Av 2013-14.
In reply it is submitted that first of all when the documents on the basis of which the Id. AO has made up his mind to consider the same in the hands of the assessee were dumb documents and do not belong to the assessee. Therefore, question of recording any investment in purchase of any item when no such purchase was made by the assessee company, for any material, which does not belong to the assessee does not arise. Assessee has explained in detail during the course of assessment proceedings, that only a portion of his premises was provided to M/s. Electromech Industries in a friendly manner and was used by the said party for only a year or so and the said party in fact was just storing some of its not usable material there, which was sent by the said party to the assessee’s premises from their premises wherefrom the said M/s. Electromech Industries was doing actual business. These documents do not reflect any sale / purchase of any nature, and therefore, to make any addition on the basis of any such 20 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. document and that too in the hands of the assessee company is contrary to law and facts. Therefore, such an observation of the Ld. AO drawn from such dumbed documents, may kindly be excluded from consideration.
2. Ld. AO stated that there is no rent income from M/s. Electromech Industries was credited in the P&L A/c of the assessee.
In reply it is submitted that when the small portion of the assessee premises was given to some friend in a friendly manner by the director of the assessee company, there was no question of charging of any rent for the portion given by the assessee to M/s. Electromech Industries. Infact, Shri Mohit Talwar was allowed to use the said small portion, for business expediency of the assessee company, as assessee company used to purchase some material / job work done from the said concern, so that priority may be given by the said concern to the work of the assessee company. Moreover, it is not the case of the Ld. AO that M/s. Electromech Industries have claimed to have paid some rent to the assessee company and that has not been accounted for by the assessee in its books of account. Therefore, when no rent was received by the assessee for the portion allowed to be used by M/s. Elecromech Industries, there was no reason that any rent was to be recorded as received by the assessee company in its books of accounts. Moreover, no portion /premise was used or occupied by M/s. Electromech Industries, of the assessee company during the assessment year under consideration. Therefore, this adverse observation of the Ld. AO may kindly be excluded from consideration.
3. Ld. AO stated that assessee’s letter head has been found to have been used for recording above inventory of AC boxes purchases.
In reply it is submitted that it is not disputed that the some portion /premises was also occupied by M/s. Electromech Industries, which was 21 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. the premises of the assessee company. It cannot be ruled out that there cannot be any waste letter head of the assessee company in the said premises. If the said party has used any letter head of the assessee company as a waste paper, it cannot be considered that it was used with some specific purpose, until and unless the thing recorded on such paper are correlated. Nothing contrary could be brought on record by the Ld. AO to prove his contention that any letter head of the assessee company was used by M/s. Electromech Industries, which has any transaction recorded of any nature which belong to / pertain to the assessee. Therefore, just for the reason some waste letter head of the assessee company if was used by M/s. Electormech Industries as a rough paper, the adverse opinion formed by the Id. AO is just on whims and surmises and may kindly be excluded from consideration.
Ld. AO has stated that M/s. Electromech Industries never disclosed this premises as its business premises in any record produced / submitted before any authority.
In reply it is submitted assessee company allowed M/s. Electromech Industries to use a small portion of its factory premises just for some storage purpose and for not doing any business from the said premises. No electricity, water etc. or any other amenity was being used by the said party in the small portion occupied by them. Therefore, when no business was run by the said party from the said portion occupied for a small period, there does not appear to be any reason for showing the same as some business was being done by the said party from the said place of the assessee.
5. Ld. AO stated that no other expenses related to said factory premises was found debited by M/s. Electromech Industries.
22 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. In reply it is submitted that when no other facility was provided by the assessee to M/s, Electromech Industries, except allowing to use a small portion, there was no question of any expense found debited by M/s. Electromech Industries. It is submitted, that even still there was some doubt in the mind of the Ld. AO he could have passed the information to the assessing officer of M/s. Elecrromech Industries, for further needful action in their hands. But to make addition just on whims and surmises, and on doubts, without bringing on record some specific evidence to show that assessee has not declared any income which has actually been earned by the assessee is against the principles of natural justice, contrary to law and fats of the case and may kindly be held so.
In view of the above, it is humbly prayed that the addition made just on whims, surmises and doubts may kindly be directed to be deleted."
We find that the Assessing Officer concluded that the work done by M/s. Electromech Industries, was not of that concern but was only of the assessee company, and thus, he estimated that there was manufacturing for average 300 days and 500 pieces per day which worked out to 1,50,000/- in the year, on which he estimated profit of Rs.13/- piece and made the impugned addition of Rs. 19,50,000/-.
The dispute is whether M/s Electromech Industries belongs to the assessee or not ? The simplest way would be to obtain the sales tax registration and other statutory requirements filed by the entity before various authorities which the revenue filed to do. From the record, we find that M/s Electormech Industries has shown income returned varying from Rs.29.17 lacs to Rs.44.25 lacs. The entity has also has a factory at Haridwar and hence any income determined out of the impounded or seized material pertaining to M/s Electormech Industries cannot be added
23 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. in the hands of the assessee company. The addition made by the AO is hereby directed to be deleted.
CO No.01/Del/2018 Excess Stock:
The AO held that during the course of search total stock of Rs.2,54,57,045/- was found at the factory premises, whereas as per trial balance as on 13.5.2014 stock was of Rs.2,38,13,098/-. Thus, the AO observed that an excess stock of Rs. 16,43,947/- was found which according to him could not be explained by the appellant either during the course of search or during the course of assessment proceedings.
The ld. CIT (A) confirmed the addition on the grounds that even no copy of the inventory of stock has been placed in the paper book by the appellant in order to substantiate its claim alleging that assessee is not having the copy of the inventory of stock prepared during the course of search.
We find that, before the revenue authorities, the assessee submitted that there was no quantitative difference in items of Inventory of stock found, and the difference was only because of valuation of stock which was taken during the year, whereas the stock was required to be valued at the end of the assessment year, as per cost or market value whichever is less.
In the interest of justice, we hereby direct that the assessee shall produce all the relevant documents to substantiate the purchase of the stock in quantitative terms as per the books before the revenue authorities. The AO shall value the stock taking into consideration, the opening balance as per the balance sheet and the purchase invoices (at
24 CO No. 01/Del/2018 Azure Switchgear Pvt. Ltd. cost price) till the date of search and take an appropriate decision as per the provisions of the Act.
As a result, the appeal of the revenue is dismissed and the Cross Objection of the assessee is allowed for statistical purpose. Order Pronounced in the Open Court on 07/04/2021.