MODERNISTIC ATTIRE (P) LTD.,DELHI vs. DCIT , CENTRAL CIRCLE-2, GURGAON

Assessee by: Dr. Rakesh Gupta, Advocate Shri Shery Jain, Advocate Department by: Shri Subhra Jyoti Chakraborty, CIT-DR Date of Hearing: 09.08.2023 Date of 09.08.2023 pronouncement: O R D E R PER ASTHA CHANDRA, JM

The appeals filed by the assessee arise out of the common order dated 23.07.2019 of the Ld. Commissioner of Income Tax (Appeals)-3, Gurgaon (“CIT(A)”) pertaining to Assessment Year (“AY”) 2014-15 and 2015-16. Since the grounds raised in both the appeals are similar, these are being disposed of by this common order.

AY: 2014-15 “1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in assuming jurisdiction u/s 153C and that too for this year and further erred in passing the impugned assessment order, more so when 'satisfaction' has not been recorded by AO of the searched person and when there was no incriminating document was found.

2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in assuming jurisdiction and framing the impugned assessment order u/s 153C, is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds.

3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in exercising his jurisdiction in making addition of Rs.1,52,218/- (i.c. 5% of Rs. 30,44,368/-) on account of alleged commission/brokerage as business income and that too without giving show cause notice in this regard and impugned addition made by Ld. CIT(A) is bad in law as no incriminating material has been found as a result of search warranting such addition and by recording incorrect facts and findings and merely on the basis of surmises and conjectures and without giving the opportunity of being heard and without observing the principles of natural justice.

4. That in any case and in any view of the matter, action of Ld. CIT(A) in making addition of Rs.1,52,218/- on account of alleged commission/brokerage as business income, is bad in law and against the facts and circumstances of the case and the same is outside the purview of the impugned proceedings u/s 153C of the Act.

5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in rejecting the books of accounts u/s 145(3) of the Act.

6. That in any case and in any view of the matter, addition made by Ld. CIT(A) in the impugned order are beyond jurisdiction and illegal also for the reason that these could not have been made since no incriminating material has been found as a result of search.

7. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned assessment order without there being requisite approval in terms of section 153D and in any case approval if any is mechanical without application of mind and is no approval in the eyes of law.

8. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234B of Income Tax Act, 1961.

9. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.

AY: 2015-16 “1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in assuming jurisdiction u/s 153C and that too for this year and further erred in passing the impugned assessment order, more so when 'satisfaction' has not been recorded by AO of the searched person and when there was no incriminating document was found.

2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in assuming jurisdiction and framing the impugned assessment order u/s 153C, is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds.

3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in exercising his jurisdiction in making addition of Rs.8,58,276/- (i.c. 5% of Rs.1,71,65,521/-) on account of alleged commission/brokerage as business income and that too without giving show cause notice in this regard and impugned addition made by Ld. CIT(A) is bad in law as no incriminating material has been found as a result of search warranting such addition and by recording incorrect facts and findings and merely on the basis of surmises and conjectures and without giving the opportunity of being heard and without observing the principles of natural justice.

5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in rejecting the books of accounts u/s 145(3) of the Act.

6. That in any case and in any view of the matter, addition made by Ld. CIT(A) in the impugned order are beyond jurisdiction and illegal also for the reason that these could not have been made since no incriminating material has been found as a result of search.

7. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned assessment order without there being requisite approval in terms of section 153D and in any case approval if any is mechanical without application of mind and is no approval in the eyes of law.

8. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234B of Income Tax Act, 1961.

9. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”

4. Aggrieved, the assessee filed appeal before the Ld. CIT(A) who confirmed the addition on substantive basis in the hands of M/s. Orient Craft Ltd. and deleted the protective addition in the hands of the assessee in both the AYs. Further, in para 7.3.2 of his appellate order, the Ld. CIT(A) observed as under:- “In view of the general practice as seen in the case of entry operators, the commission / brokerage paid to the appellant company is estimated at 5% and addition of Rs. 2,03,411/- to the business income of the appellant on account of the same made by the AO in AY 2014-15 is sustained to that extent. Similarly, addition to the extent of 5% on the total sales booked in the name of M/s. Orient Craft Ltd. is also confirmed in the case of the following assessee on the grounds discussed in detail above: 3. M/s. Modernistic Attire AY 2014-15 5% of Rs. Rs. 1,52,218 Pvt. Ltd. 30,44,368 4. M/s. Modernistic Attire Pvt. AY 2015-16 5% of Rs. Rs. 8,58,276 Ltd. 1,71,65,521

Ltd. In these cases too substantive addition stands deleted by the Tribunal. The Ld. AR placed on record the decision of the Tribunal in the aforesaid cases. It is submitted by the Ld. AR that the Ld. CIT(A) had passed a common order in all the above cases. Our attention was drawn to para 5.2 & 6 of the Tribunal’s order in 7655 & 7656/Del/2019 dated 17.07.2022 in the case of Shri Subhash Chander Gupta wherein the Tribunal recorded a clear finding that the job work charges incurred by M/s. Orient Craft Ltd. through the assessee’s in those cases were genuine. The Ld. AR therefore argued that protective assessment in the case of the assessee also deserves to be deleted in both the AYs involved.

49. In view of the above pleadings and evidences filed by the assessee the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable on merit. Assessee has proved that the material was purchased from the vendors involved here and payments have been made through banking channel. Other evidences as referred clearly establish the purchase made by the assessee. We do not want to discuss each and every evidence and it would suffice to hold that in the light of these evidences which have not been rebutted with the help of any cogent material, purchases made by the assessee from the above said vendors cannot be disbelieved. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper pages 1702-1708 reproduced also above by us and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on facts. CIT(A) too has mentioned in his order the adverse observations of the A.O. only which in our opinion are misplaced on facts. Contention of CIT(A) that evidence filed by the assessee self-serving documents and circumstantial evidence leads to the conclusion of A.O. It would be enough for us to say that voluminous documentary evidences filed by the assessee are clearly establishing the genuineness of purchases fabric from M/s Super Connection India P. Ltd. & other vendor companies. Other indicators such as percentage ratio of material to sale etc also establish the genuineness of the purchases. We do not agree with the observations made by the first appellate authority. In our considered opinion, assessee has been successful to discharge the burden of proving the purchase from M/s Super Connection India P Ltd. & other vendor companies. In the result, ground no. 11 to 14 of the assessee’s appeal of the assessee are allowed and the aggregate addition of Rs. 28,33,20,906/- is deleted.

21. In view of the above pleadings and evidences filed by the assessee the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable on merit. Assessee has proved that the material was purchased from the vendors involved here and payments have been made through banking channel. Other evidences as referred clearly establish the purchase made by the assessee. We do not want to discuss each and every evidence and it would suffice to hold that in the light of these evidences which have not been rebutted with the help of any cogent material, purchases made by the assessee from the above said vendors cannot be disbelieved. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper pages 1873-1878 reproduced also above by us and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on facts. CIT(A) too has mentioned in his order the adverse observations of the A.O. only which in our opinion are misplaced on facts. Contention of CIT(A) that evidence filed by the assessee self-serving documents and circumstantial evidence leads to the conclusion of A.O. It would be enough for us to say that voluminous documentary evidences filed by the assessee are clearly establishing the genuineness of purchases fabric from M/s Super Connection India P. Ltd. & other vendor companies. Other indicators such as percentage ratio of material to sale etc also establish the genuineness of the purchases. We do not agree with the observations made by the first appellate authority. In our considered opinion, assessee has been successful to discharge the burden of proving the purchase from M/s Super Connection India P Ltd. & other vendor companies. In the result, ground no. 7 to10 of the assessee’s appeal of the assessee are allowed and the aggregate addition of Rs. 7,67,79,726/- is deleted.

8.1 It is, therefore, obvious that once it is held by the Tribunal that the purchases made by M/s. Orient Craft Ltd. from the assessee were genuine, protective addition in the hands of the assessee in both the AYs is not sustainable. As a sequel, the order of the Ld. CIT(A) making addition on account of alleged commission/brokerage as business income in the hands of the assessee in AY 2014-15 and 2015-16 cannot be sustained.

Order pronounced in the open court on 9th August, 2023.