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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member :
This appeal is filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [NFAC] in DIN & Order No. ITBA/NFAC/S/250/2023-24/1055740880(1), dated 5/9/2023
2 arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 (the Act) dated 03/12/2019.
Brief facts of the case are that the assessee is engaged in the business of Trading in Electronic Goods and e-filed its return of income for the AY 2017-18 on 12/09/2017 declaring an income of Rs. 5,900/-. The return was processed U/s. 143(1) of the Act wherein it was noted by the Department that the assessee has admitted total purchases of Rs. 21,14,949/- and a very huge sales during the year. A search and seizure operation was conducted in the case of M/s. Laxmi Remote Group (LRIPL) wherein it was found that this company has made cash sales to the assessee (Ajay Electronics) to the tune of Rs. 1,12,27,707/- during the FY relevant to the AY 2017-18. Therefore, the assessee’s case was taken up for scrutiny with the prior approval of the Ld. Pr. CIT, Vijayawada. Accordingly, notice U/s. 142(1) of the Act was issued on 28/09/2018 and served on the assessee through mail. Further, notices u/s. 142(1) of the Act dated 7/8/2019 and 17/10/2019 were issued and served on the assessee wherein the assessee was called for to furnish certain information and in response to the notices, the assessee furnished the information called for from time to time. In the said
3 reply, the assessee stated that even though it had purchased some electronic items from M/s. Laxmi Remote (India) Private Limited, the assessee did not make any cash purchases from M/s. Laxmi Remote (India) Private Limited. Thereafter, the Ld. AO observed that during the course of investigation in the case of M/s. Laxmi Remote (India) Private Limited a statement was recorded from Sri Prakash Chand Sachdeva, one of the Directors of M/s. Laxmi Remote (India) Private Limited, wherein it was stated by him that M/s. Laxmi Remote (India) Private Limited had made cash sales worth Rs. 1,12,27,707/- to M/s. Ajay Electronics during the AY 2017-18. Therefore, the Ld. AO treated the cash purchases of Rs. 1,12,27,707/- made by the assessee as unexplained money U/s. 69A of the Act and brought it to tax in the hands of the assessee and determined the assessed income at Rs. 1,12,33,607/- and passed the assessment order dated 3/12/2019. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A).
3. On appeal, it was contended before the Ld. CIT(A)-NFAC that the Ld. AO is not correct in making addition of the total purchases of Rs. 1,12,27,707/-. If at all the addition is to be made, only the profit element involved in the sales should be taxed as income of the assessee. The assessee also pleaded before the Ld. CIT(A)-NFAC that the income may be estimated @ 8% of the total sales. However, the Ld. CIT(A)-NFAC overlooking the argument of the assessee, deleted the entire addition made by the Ld. AO. Aggrieved by the order of the Ld. CIT(A)-NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds of appeal:
“1. The Ld. CIT(A) erred in deleting the addition made of Rs. 1,12,24,707/- U/s. 69A r.w.s 115BBE of the Act by the AO without appreciating the fact that the addition was made by the AO on the specific and authentic information provided by the ACIT, Central Circle-18, Delhi consequent to the findings of the Directorate of Income Tax (Investigation), Delhi after thorough investigation carried out during the course of search proceedings U/s. 132 in the case of M/s. Laxmi Remote (India) Pvt Ltd.
2. The Ld. CIT(A) erred in not appreciating the fact that the two employees namely Sri Pawan Kumar Kothari and Sri Pawan Kumar Midha of M/s. Laxmi Remote (India) Pvt Ltd have stated in their statements recorded during the course of search proceedings that cash sales were made to the assessee M/s. Ajay Electronics to the extent of Rs. 1,12,24,707/- during the AY 2017-18, as per the IVMS software maintained by the company used to record the genuine and original sales taken place. The same was also admitted / confirmed by the Director of the said company – Sri Prakash Chand Sachdeva in his sworn statement recorded U/s. 132(4) of the Act on 23/8/2017 by the investigation authorities.
The Ld. CIT (A) erred in not appreciating the fact that the sanctity of the information provided by the investigation unit Delhi with material evidences, after thorough investigation cannot be doubted until and unless there is another strong material evidence, which proves that the information given by the investigation authority is wrong, fictitious and cannot be reliable.
4. The Ld. CIT(A) while allowing the appeal of the assessee has ignored the fact that the transactions unearthed by the investigation unit were intentionally not recorded by the said company M/s. Laxmi Remote (India) Pvt Ltd in the Books of account that were shown to various Govt. Agencies and were maintained secretly in another software IVMS. Similarly, in the instant case, it is clearly evident that the assessee also did not bring such transactions into the books of account produced before the income tax authority with a motive of hiding the facts to evade taxes.
5. The Ld. CIT (A) has also erred in not appreciating the fact that the assessee did not produce any evidence / material like confirmation from M/s. Laxmi Recmote (India) Pvt Ltd with regard to the transactions made by the assessee with it consequent to the search proceedings on the company.
6. The Ld. CIT (A) erred in deleting the entire addition made by the AO ignoring the fact that same issue is involved in other AYs 2014-15, 2015-16, 2016-17 & 2018-19 in the assessee’s case and the FAO of National Faceless Assessment Centre has estimated the profit of the assessee – M/s. Ajay Electronics @ 8% on the gross turnover / total sales including the sales made out of cash purchases reported by the investigation unit and the same was accepted by the assessee by not filing appeal on these assessments.
7. The Ld. CIT(A) erred in not appreciating the fact that the assessee has accepted that there are cash purchases made by the assessee from M/s. Laxmi Remote (India) Pvt Ltd as reported by the Investigation Unit for the AYs 2014-15, 2015-16, 2016-17 and 2018-19 by not filing the appeals made by the FAO, NeFAC in these AYs whereas the cash purchases reported by the investigation unit for the AY 2017-18 are denied by the assessee.
Any other grounds of appeal that emerge out of the appeal proceedings from time to time.”
At the outset, the Ld. Departmental Representative submitted that the assessee has accepted the out of books sales in the earlier assessment years as well as in the subsequent assessment year (i.e., AYs 2014-15, 2015-16, 2016-17 & 2018-19), and 6 therefore it was pleaded that the order of the Ld. AO for the AY 2017-18 which is under consideration is required to be upheld.
The Ld. DR vehemently argued in support of the decision taken by the Ld. AO.
On the other hand, the Ld. Authorized Representative reiterated the submissions made before the Ld. CIT(A) and supported the decision taken by the Ld. CIT(A).
We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. In the instant case, there is no dispute on the cash purchases worth Rs.1,12,27,707/- made by the assessee. The grievance of the Revenue is that since the assessee has not properly explained the sources for the cash purchases of Rs. 1,12,27,707/- the decision of the Ld. AO by making an addition U/s. 69A of the Act treating it as unexplained cash holds good and therefore the same may be sustained and the order of the Ld. CIT(A), NFAC be set-aside. On the other hand the argument of the Ld. AR is that only the income/net profit embedded in total cash sales must have been taxed and not the entire cash purchases.
It is also a fact that the assessee had accepted the Ld. AO’s estimation @ 8% on gross turnover / total sales including the 7 sales made out of cash purchases as reported by the Investigation Unit. We find that the Ld. AO has merely relied on the sworn-in statement recorded from one of the Directors of M/s. Laxmi Remote (India) Pvt Ltd to brought to tax the cash sales of Rs. 1,12,24,707/-. In the case of CIT vs. Willamson Financial Services reported in [2007] 165 Taxman 638 (SC) the Hon’ble Supreme Court has observed as follows in Para 29:
“………Under the income tax Act the tax is on the income and not on gross receipts. It is also important to bear in mind that U/s. 4 the levy is on ‘total income’ of the assessee computed in accordance with and subject to the provisions of the Income Tax Act. What is to chargeable to tax under the Income Tax Act is the profit and gains of a year. What is chargeable to tax under the Income Tax Act is not gross receipts but income…..”
Hon’ble Gujarat High Court in the case of CIT vs. President Industries [258 ITR 654] (Gujarat HC) has held that it cannot be the matter of an argument that the amount of sales by itself cannot represent the income of the assessee. It is the realization of excess over the cost incurred that only forms part of the profit included in the configuration of sale. Similar view was taken in the case of CIT vs. Gurubachhan Singh J. Juneja [215 CTR 509] (Gujarat HC) and CIT vs. Sharada Real Estate (P) Ltd., [99 DTR 100] (MP- HC) and in the case of Jyotibhaichand Bhaichand Saraf & Sons
8 (P) Ltd., vs. DCIT [139 ITD 10] the Coordinate Bench at Pune has confirmed the addition could only be made only to an extent of gross profit earned on an unaccounted/suppressed sales and not on the entire sales itself. Similar view was taken in the case of ACIT vs. M/s. Archana Trading Co., in & 352/Coch/2011, dated 28/02/2013 and also ACIT vs. Pahal Food [IT(SS)A No. 42/Hyd/2005, dated 30/09/2009] by ITAT, Hyderabad.
Respectfully following the ratio laid in the above decisions, we are of the opinion that the entire unaccounted purchases cannot be treated as income of the assessee and only the profit element should be considered as income for the purpose of computing the tax on sales. Hence, we are inclined to allow 8% on the sales made by the assessee as income of the assessee.
Accordingly, the Ld. AO is directed to work out the income of the assessee and tax the same in accordance with law. It is ordered accordingly.
In the result, appeal of the Revenue is partly allowed.
9 Pronounced in the open Court on 22nd December, 2023.