MOKUL OVERSEAS PVT. LTD.,NEW DELHI vs. ACIT, CENTRAL CIRCLE- 13 , NEW DELHI

As the appeals have common grounds except to the figures/ amounts involved. They are taken up together for determination while reproducing facts of Assessment Year 2010-11.

Facts in brief are that as per Revenue in pursuant to the warrant of authorization issued by the Director of Income Tax (Investigation)-II, New Delhi a search and seizure operation u/s 132 of the Income Tax Act, 1961 was conducted on 23.07.2015 and on subsequent dates in different business and residential premises of Shri Deepak Agarwal, Shri Mukesh Kumar and others group of cases based at Delhi. As this group was found to be a group of entry operators providing accommodation entries to beneficiaries. However, the case of the Assessee company was also found to be covered u/s 132 of the Act as one of the beneficiaries and various incriminating papers/ documents were found and seized during the course of search and seizure operation in the group. As per case of Revenue, the assessee company has shown sales of some hosiery goods during the year but neither any evidence relating to such sales or any detail of sales filed by the assessee. Assessee had claimed that the sales were made in cash for an aggregate amount of Rs.5,50,270/-. Revenue asserts that during the course of search & seizure operation in the case of the Assessee no physical books of accounts or stock were found. Hence, absolutely nothing was available to confirm such sales by the assessee. Hence, Ld AO found that the assessee had shown such sales to show some business activities and to book certain expenses which were not incurred. Hence, the receipt of Rs.5,50,270/-was was attributed from other sources best known to the assessee. Resultantly, no debit for any cost was allowed to be adjusted against such receipts. As the assessee found to have not carried any business in reality, claim of expenses on account of employees benefit expenses and depreciation were held to be liable to be disallowed. The depreciation on vehicle etc was also held to be not allowable as the same were not found to be used for business purpose. Further, out of claim of other expenses of Rs. 1,67,536/- only auditors fee amounting to Rs. 11,500/- and filing fee amounting to Rs. 1,200/- were allowed. Thus, the income/ loss shown by the assessee was rejected in terms of section 145(3) of the I.T.Act,1951 and assessment was completed in the manner provided u/s. 144 of the I.T. Act, 1961. As no real business was Page | 2 found to have been carried out by the assessee, out of total claim of expenses as discussed above, claim on account of employees benefit expense aggregating to Rs.6,90,983/- and claim of expenses on account of “other expenses” except auditor fee and filing fee was disallowed and added to the total income of the assessee. Likewise claim of depreciation amounting to Rs.34,229/- was also disallowed.

In appeal the ld CIT(A) has sustained the findings of ld AO. So the assessee has come in appeal raising following grounds:- “

Heard and perused the records.

On behalf of the Assessee it was submitted that the ld Tax Authorities Below have fallen an error in passing the assessment order independently and beyond alleged incriminating material found in the search. It was submitted that no transaction were undertaken by the Assessee with the group under search during the year under consideration and thus no assessment order u/s 153A r.w.s 143(3) could not have passed. It is submitted that without any foundation the business transaction and the books of account have been rejected by the ld AO. 6.1 The ld AR submitted that although sales of the Assessee were considered as income from other source but expenses were disallowed. It is submitted by the ld AR on behalf of the Assessee that it is not the case where the Assessee has not carried out any business in time since its inception and only because old stock was being sold in the due course of business and no new stock was created, on the presumption the same cannot be rejected. It was specifically pointed out on behalf of the Assessee by the ld AR that the ld CIT(A) has not cared to apply its mind independently as at page 13 of its order at para No. (iii) it is observed that :- “iii. I have considered the appellant contentions. Here, it is necessary to examine the nature of incriminating material conferring upon the AO necessary jurisdiction u/s 153A to utilize such material arising consequent to the search operation. The matrial so found and seized and thereafter relied upon the utilized thereon in the assessment of the Assessee leading the AO to conclude that the share application / capital received by the appellant are unexplained”. Thus, a new case has been introduced and allowed.”

On the other hand on behalf of the department the ld DR submitted that the ld Tax Authorities below taken a prudent approach in observing that without satisfying of its trading activity in the form of purchase and sales of goods the Assessee cannot justify that only old stock was being sold out. It was submitted that there is no application of principles of law with regard to non availability of incriminating material and statement of Shri Deepak Agarwal, was considered.

The bench has given thoughtful consideration to the matter on record and a careful perusal of the findings of the ld CIT(A) from para 5 onwards show that the ld CIT(A) at para 5(iii) had made a factually wrong observation of the head under which addition was made as the ld AO and sustained by Ld CIT(A). As a matter of record Ld AO had made additions on account of giving a finding that probably the Assessee has shown sales of some hosiery goods without actually holding in stock and thus disallowed the expenses. There was no reference of any incriminating material allegedly found under search and relied for the assessment u/s 153A/143(3) of the Act. However, the ld CIT(A) observed that the incriminating material was rightly relied to conclude that the share applications/ capital receipt by the Assessee are unexplained.

It can be appreciated that further in para 5(iv) a very general discussion has been made with regard to the fact that incriminating material/ information being found and there is no discussion particularly with regard to the present case.

It appears that the ld CIT(A) has not at all gone into the merits of grounds raised