DEPUTY COMMISSIONER OF INCOME TAX, MADURAI vs. VV TITANIUM PIGMENTS PRIVATE LIMITED, TISAIYANVILAI

per the decision of Hon’ble Apex Court in the case of Pr. CIT vs. Abhisar Buildwell (P.) Ltd. (149 Taxmann.com 399). Finally, it was to be held that disallowance of expenses was not sustainable. 15.5 At the same time, the Ld. CIT(A) opined that inflation of expenditure by the assessee could not be ruled out. Therefore, by considering various judicial decisions, Ld. CIT(A) estimated the addition @ 12.5% of alleged bogus expenses. These decisions include the decision of Hon’ble Bombay High Court in the case of PCIT vs. Suraj Infrastructures P. Ltd. (295 Taxman 758) as well as the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth (356 ITR 451) and various other decisions as enumerated in the impugned order. The addition thus sustained by Ld. CIT(A) for AYs 2015-16 to 2017-18 was Rs.403.81 Lacs as computed in para 7.6.23 of the impugned order. The same was as under: -

Unaccounted Cash Receipts 18.1 The issue of cash receipts aggregating to Rs.19.76 Crores arose in AYs 2014-15, 2015-16, 2017-18 to 2019-20. The addition for AYs 2014-15 & 2015-16 for Rs.13.65 Crores was based on certain excel sheet as exchanged in e-mail between Shri Jegatheesan (Partner of M/s V.V. Minerals) and Smt. Jeyanthi (an employee of M/s V.V. Minerals). The addition for AYs 2017-18 to 2019-20 for Rs.6.10 Crores was based on seized notebooks and dairies as maintained by Shri S. Raja, Manager of M/s V.V. Minerals. The assessee assailed the same on the ground the entries in the excel sheet did not pertain to the assessee and no such sales receipts were received by the assessee. It was also pointed out that Shri S. Raja was not the employee of the assessee company and the presumption u/s 132(4A) would not arise. The assessee also submitted that the sheet was an unsigned sheet and it would thus, have no evidentiary value. The Ld. AO did not make any enquiries to corroborate the notings in the excel sheet. On the issue of entries in the notebooks, it was submitted by the assessee that Shri Raja was not employee of the assessee company. He handled cash on behalf of promoters of M/s V.V. Minerals. During the course of search, six notebooks maintained by Shri Raja were seized from the residential premises of Shri Subramanian (Director of assessee company). The notebooks, as seized and identified by Shri Raja in his sworn statement, were as follows: - No. Annexure of seized note book Note book maintained & identified by Shri S. Raja 1 ANN/KS/PK/B&D/S-1 Maintained for Shri Velmurugan and Shri Jayapaul 2 ANN/KS/PK/B&D/S-2 Maintained for Shri Jegatheesan 3 ANN/KS/PK/B&D/S-3 Maintained for Shri Subramanian 4 ANN/KS/PK/B&D/S-4 Maintained for Shri Jegatheesan 5 ANN/KS/PK/B&D/S-5 Maintained for Shri Chenthilrajan and Shri Muthurajan 6 ANN/KS/PK/B&D/S-6 Commonly maintained for the above persons 18.2 On the basis of assessee’s submissions, Ld. CIT(A) noted that Ld. AO did not examine / confront the excel sheets to Shri Jegatheesan or Smt. R. Jeyanthi to ascertain the author and purpose of excel sheet. In fact, no statement was either recorded from Shri J. Thangadurai or Shri V. Subramanian in connection with the excel sheet. In the absence of valid details and the circumstances in which the excel sheet was prepared and the corresponding entries, the same could not be relied upon to make impugned additions. In the excel sheet, there exist no narration relating to the quantity of scrap sold and the details of buyer to whom it was sold. Had the assessee company been receiving cash from the sale of scrap as stated in the excel sheet, the same should have been mentioned in the note books seized from Shri J. Thangadurai (GM Finance & Accounts). Further, there was no corroborative evidences to prove that the noting in the excel sheet were actual cash receipts of the assessee company. In such circumstances, this sheet could not be relied upon. This sheet was neither recovered from the office of the assessee company nor from its employees and therefore, the presumption laid u/s 132(4A) of the Act cannot be invoked. The author of the excel sheet was not conclusively established. There was no corroboration from any of the party and the evidence being relied upon by Ld. AO was merely hearsay evidence carrying no evidentiary value. At the time of seizure, the excel sheets were not authenticated either by the assessee company nor by the witnesses or by an authorized officer. This was an unsigned document and as such loses its evidentiary value for want of authentication. The evidences relied upon by the AO in the form of excel sheets does not constitute adequate evidence to draw adverse inference against the assessee, in the absence of any other corroborative evidence. Reliance was placed on the decision of Hon'ble Delhi High Court in the case of CIT vs Sant Lal (118 Taxman.com 432) holding that the assessee could not be put to any liability on the action of a third-person where the material was not found from the premises of the assessee nor was it in the handwriting of the assessee since the third person may write the name of any person at his sweet will and the revenue did not make any effort to gather corroborative evidences in this relation. 18.3 It was further held by Ld. CIT(A) that in the present case, Ld. AO failed to link any cash transactions recorded in excel sheet with any other corroborative evidences. The entries in the excel sheets did not contain complete information with regard to date, amount of cash payment / receipt and the name of recipient and payer. There was absolutely no reference in the seized material regarding the nature of the said transactions of cash payments / receipts and the purpose of said payments / receipts. Therefore, no addition could be made on the basis of said document. To support the same, Ld. CIT(A) referred to the decision of Jabalpur Bench of Tribunal in the case of ACIT vs Satyapal Wassan [TS-5104-ITAT-2007 (Jabalpur)-O] and also various other decisions which have been enumerated in paras 7.7.15 of the impugned order. On these facts, the additions made for AY 2014-15 and 2015-16 was deleted. 18.4 Similar observations were made by Ld. CIT(A) for additions made for AYs 2017-18 to 2019-20. It was contended by the assessee that Shri Raja was not authorized to conduct any sales on behalf of the assessee company and he was an employee of another entity viz. M/s V.V. Minerals. He handled cash and made payments as per the instructions of the promoters of M/s V.V. Minerals. Therefore, the cash received as stated in his notebooks could not be treated as unaccounted sales of the assessee company. It was further submitted that 'cash received from VVTI' as mentioned in the note-book merely refer to the payment received from the plant which is duly reflecting on the payment side of the note books as seized from Shri J. Thangadurai. Since receipts side of the material seized from Shri J. Thangadurai was added separately, subsequent payments out of such receipts as received by Shri S. Raja could not be added again on the basis of receipts entry made by Shri S. Raja in his notebooks as it would amount to double addition of the same amount. The assessee furnished reconciliation statement correlating the payments transferred from plant office to Shri S. Raja and other apparent mistakes in the noting. 18.5 The Ld. CIT(A) concurred that Shri S. Raja was not an employee of the assessee company. Further, most of the notings on the basis of which impugned addition was made, were bald notings without any reference to the name of the assessee company. During the course of search, no enquiries were conducted from Shri S. Raja in order to understand the source of each and every cash receipt. Further, no corresponding enquiry was also conducted either with Shri J. Thangadurai or Shri V. Subramanian. The Ld. AO did not bring on record any finding establishing nexus of receipts with that of assessee- company. There was no material to indicate that 'cash received' as narrated by Shri S. Raja in his note book was actually an unaccounted sale of the assessee company. Therefore, no such addition could be made on the basis of noting in the seized note-books by Shri S. Raja.

18.6 However, considering the inconsistencies in generation and accounting of unaccounted sales by the assessee company, Ld. CIT(A) held that it would be fair to estimate probable income of the assessee company as embedded in the cash receipts recorded by Shri S. Raja. The same could be made by adopting Gross Profit Ratio of the respective Assessment Year on the unreconciled items of income. After analyzing the entries in note-book, the Ld. CIT(A), in para 7.8.7, noted that the receipts to the extent of Rs.140.35 Lacs for AYs 2018-19 & 2019-20 did not pertain to the assessee company. Further, there was double addition of Rs.204.40 Lacs for AYs 2018-19 & 2019-20. Therefore, no estimation was to be made to that extent. Finally, the unreconciled receipts were quantified as Rs.178.87 Lacs, Rs.24.73 Lacs & Rs.3.20 Lacs for AYs 2017-18 to 2019-20 against which Gross Profit rate was applied to arrive at quantum of additions that were required to be sustained. This working has been given in para 7.8.8 of impugned order as under: - Particulars AY 2017-18 AY 2018-19 AY 2019-20 Total addition made by the A.O. on 1,82,80,064 3,20,24,342 1,07,70,000 the basis of receipts in the note book Less: Exclusion of the following items as per the above discussion: (i) Return of payments 3,92,564 (ii) Addition of sales suppression by 39,25,000 16,00,000 under invoicing (iii) Receipts not relating to the 1,39,10,842 1,25,000 Appellant Company as evident from the seized material (iv) Amounts received by Shri S. 1,17,15,000 87,25,000 Raja from the plant where corresponding payments are available in the material seized from Shri J. Thangadurai (GM-Finance & Accounts) Unreconciled Receipts on which 1,78,87,500 24,73,500 3,20,000 estimation is to be made Gross Profit Ratio as per the 17.40% 17.55% 10.96% audited financial statements of the Appellant Company Addition sustained in the hands of 31,12,425 4,34,100 35,072 the Appellant Company as per above discussion Addition to be deleted 1,51,67,639 3,15,90,242 1,07,34,928 Aggrieved as aforesaid, the assessee as well as revenue is in further appeal before us. Our adjudication on this issue 19. We find that the additions for AYs 2014-15 & 2015-16 are based on certain excel sheet as exchanged in e-mail between Shri Jegatheesan (Partner of M/s V.V. Minerals) and Smt. Jeyanthi (an employee of M/s V.V. Minerals). However, these sheets are unsigned sheets and unless corroborated by independent evidences, would bear no evidentiary value. The Ld. AO has not made any enquiries to corroborate the notings in the excel sheet. The Ld. CIT(A) has correctly noted that Ld. AO did not examine / confront the excel sheets to any of the parties. In the absence of valid details and the circumstances in which the excel sheet was prepared and the corresponding entries, the same could not be relied upon to make impugned additions in the hands of the assessee. The sheet has no narration relating to the quantity of scrap sold and the details of buyer to whom it was sold. It could also be noted that had the assessee company been receiving cash from the sale of scrap as stated in the excel sheets, the same should have been mentioned in the notebooks as seized from Shri J. Thangadurai (GM Finance & Accounts). Further, there was no corroborative evidences to prove that the noting in the excel sheet were actual cash receipts of the assessee company. In such circumstances, this sheet could not be relied upon. This sheet was neither recovered from the office of the assessee company nor from its employees and therefore, the presumption laid u/s 132(4A) of the Act could not be invoked. The author of the excel sheet was not conclusively established. There was no corroboration from any of the party and the evidence being relied upon by Ld. AO was merely hearsay evidence carrying no evidentiary value. At the time of seizure, the excel sheets were not authenticated either by the assessee company nor by the witnesses or by an authorized officer. This was an unsigned document and as such loses its evidentiary value for want of authentication. The evidences relied upon by the AO in the form of excel sheets does not constitute adequate evidence to draw adverse inference against the assessee, in the absence of any other corroborative evidences. We concur with all these findings of Ld. CIT(A) and also confirm reliance on the decision of Hon'ble Delhi High Court in the case of CIT vs. Sant Lal (supra) holding that the assessee could not be put to any liability on the action of a third-person where the material was not found from the premises of the assessee nor was it in the handwriting of the assessee since the third person may write the name of any person at his sweet will and the revenue did not make any effort to gather corroborative evidences in this relation. We also concur with the findings of Ld. CIT(A) as enumerated by us in preceding para 18.3. Accordingly, the adjudication for AY 2015-16 do not call for any interference on our part. The corresponding grounds raised by the revenue stand dismissed.

20. The additions for AYs 2017-18 to 2019-20 are based on notebooks as seized from Shri S. Raja who was not an employee of the assessee company. Further, these notings are bald notings without any reference to the assessee company. The action of Ld. AO lack sufficient enquiries to establish the nexus of receipts with that of assessee- company. There was no material to indicate that 'cash received' as narrated by Shri S. Raja in his note book was actually an unaccounted sale of the assessee company. At the same time, considering the inconsistencies in generation and accounting of unaccounted sales by the assessee company, Ld. CIT(A) has examined the factual position and applied Gross Profit Rate to the un-reconciled receipts and sustained the additions to that extent. On the facts and circumstances of the case, the aforesaid estimation, in our considered opinion, is quite logical and reasonable which do not call for any interference on our part. Therefore, we confirm the adjudication of Ld. CIT(A) for AYs 2017-18 to 2019-20. The corresponding grounds raised in the cross-appeals stand dismissed.

21. Addition for alleged manipulation in the accounts The Ld. CIT(A) noted that this addition was merely based on e-mail communication between Shri J. Thangadurai and Shri V. Subramanian. In the said e-mail, there was no incriminating noting to suggest that the stated accounting adjustments were manipulations to evade the tax liability. It was only the view of the person handling taxation issues of the assessee company. It was the duty of Ld. AO to examine each issue by analyzing the books to prove that the suggestions in the e-mail actually resulted in tax evasion by the assessee. The said communication could not be presumed to be accounting manipulations carried out by the assessee company in the absence of any corroboration thereof. It was further observed that the books of account of the assessee-company were duly audited by an Independent Firm of Chartered Accountants. There was no adverse noting either in the Statutory Audit Report or in the Tax Audit Report relating to valuation of Ilmenite, stock-in-process and depreciation claim. No incriminating material was found during the course of search to prove that the contents of the e-mail communication between Shri J. Thangadurai and Shri V. Subramanian were an outcome of a planned accounting manipulation. Therefore, the impugned addition was deleted. Aggrieved, the revenue is in further appeal before us. Our findings on this issue 22. We find that this issue has been considered in correct perspective by Ld. CIT(A). The e-mail has merely suggested accounting adjustments. It was only the view of the person handling taxation issues of the assessee company. It was incumbent on Ld. AO to examine each issue by analyzing the books of account to prove the allegation of tax evasion by the assessee. The books of accounts are duly audited under law and no adverse comments have been given by statutory auditors. There is no finding as to how the tax evasion has happened. The addition merely based on an e-mail communication could not be sustained without establishing that there was accounting manipulations which resulted into tax evasion by the assessee. The adjudication of Ld. CIT(A) does not call for any interference on our part. The corresponding grounds raised by the revenue stand dismissed. Conclusion

23. The assessee has raised many legal grounds in its appeals. However, the same has not been pressed by Ld. AR during the course of hearing before us. Accordingly, no finding is rendered on the same. These grounds stand dismissed.