2020 (6) TMI 134 - AT - Income Tax

Assessment u/s 153A - addition on under invoicing and on account bogus purchases - HELD THAT - The addition on account of under invoicing was also made on the basis of the e-mail conversation between the assessee company and Mr. Lucky Yuan, a trade associate of the assessee company. CIT(A) was not justified in deleting the addition in absence of any incriminating material found during the course of search. Addition made on account of bogus purchases - AO has prepared the chart for each assessment year containing the total purchases made by the assessee, purchases for which invoices are not available and payments made in cash, the details of which are already given in the preceding paragraph at para No.5 of this order. There is absolutely no mention of any incriminating material/evidence to show that the purchases booked in the books of account are bogus except the books of account found to be maintained in the name of OMASUM-DELHI during the course of search operation at the premises of Mohd. Shahnawaz for which separate addition has been made by the AO on account of sales outside the books of account under the nomenclature Domestic Sale and Cash payment in the name of OMASUM-DELHI. - No merit in the argument of the ld. CIT-DR that the addition on account bogus purchases are based on any incriminating material/evidence found during the course of search. Addition on account of under-invoicing of export sales - According to the ld.CIT(A), it is only a presumption drawn by the AO, but, there is no evidence on record to show that the difference in the rates of sales resulted in under-invoicing. CIT-DR could not controvert the findings of the ld.CIT(A) that the AO failed to co-relate the amount generated through under-invoicing of sales, if any and sending it abroad to be deposited in the bank accounts of the two entities or making payment to various parties as alleged. Further, the assessee has also explained satisfactorily that there can be various reasons for difference in the rates of goods exported such as size and quality of items, volume of transactions and relationship with buyers, etc. The relevant observation of the CIT(A) has already been reproduced in the preceding paragraph. In view of the above and in absence of any incriminating material found during the course of search on account of under-invoicing of export sales, the ld.CIT(A) in our opinion, was fully justified in deleting the additions. Addition on account of sundry creditors, ad-hoc disallowance of expenses on account of salary, rent, other expenses, expenditure through credit cards, additions on account of notional interest on interest free advances, disallowance of charity and donation, addition on account of deemed dividend u/s 2(22)(e) and disallowance of deduction claimed u/s 10B - We find the same are not based on any incriminating material/evidence found during the course of search but are based on entries already recorded in the books of account and on the basis of post search enquiries. Therefore, the decision in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT is squarely applicable on this issue and, therefore, there is no infirmity in the order of the CIT(A) in deleting the additions. Unexplained investment in shares - No infirmity in the order of the ld.CIT(A) in deleting the above addition made by the AO for A.Y. 2011-12 in absence of any incriminating material found during the course of search. Undisclosed domestic sales and protective addition on account of cash received - HELD THAT - AO has grossly erred in adding the entire undisclosed sales as income of the assessee by holding that purchases are recorded in the regular books of account. However, contrary to the same, it is stated at number of places in the assessment order that the assessee was engaged in the activity of making undisclosed purchases, through Shri Mohd. Shahnawas. We find, the ld.CIT(A) has overlooked the contents of the assessment order and recorded an incorrect finding that the assessee failed to establish that there were any additional purchases outside the books of account against the undisclosed sales. Undisclosed income from the activity of domestic trading in meat products through Mohd. Shahnawaz by the AMQ Group including the assessee has to be computed in a consolidated manner by determining the profit from such undisclosed activity which would take care of the undisclosed sales as well as cash payments towards purchases. Under these circumstances, we deem it proper to restore the issue to the file of the AO for computing the undisclosed income from the activity of trading with the following specific directions - i) In the present case, the undisclosed sales detected pursuant to the search action aggregates to ₹ 38.93 crores as compared to undisclosed purchase aggregating to ₹ 143.52 crores. Therefore, yearwise profit from undisclosed activity will be determined by the AO by applying the GP rate on the basis of the figure of the yearwise purchase rather than sales. ii) For working the net profit from undisclosed activity , the AO may take combined simple average of gross profit of all the years comprised in the block period (A.Y.s 2008-09 to 2014-15) as per audited balance sheet of the assessee for A.Y. 2008-09 to 2014-15. This would take care of any aberrations and distortions. The above method of determination of profit from undisclosed trading in meat product, in our opinion, is fair and reasonable and would meet the ends of justice under the peculiar facts and circumstances of this case. The average gross profit so determined shall be applied across all the assessment years to determine the profit from undisclosed activity. Needless to say, the gross profit rate percentage will have to be appropriately modified upwardly to correspond the same to gross profit percentage on purchases. iii) The figure of purchases (₹ 143.52 crores in total) in respect of each assessment year will be apportioned between the assessee M/s AMQ Agro India Pvt. Ltd. and Moin Akhtar Qureshi in the same proportion as has been done in the assessment order in respect of undisclosed sales. iv) The amount of profit from undisclosed activity in meat trading determined in the above manner will be the undisclosed income of the assessee for each assessment year. v) The AO shall also determine the initial capital required for the undisclosed purchase in the first year i.e., A.Y. 2008-09 based on a working capital cycle of 15 days since the product is a perishable one. The above initial capital so computed by the AO shall be apportioned between the assessee i.e., AMQ Agro India (P) Ltd. and Moin Akhtar Qureshi on the basis of their respective purchases and to be added to the income of the assessee as undisclosed investment. Non-set off of additional income on account of profit declared in 153A return - HELD THAT - When addition has been made on the basis of sales outside the books of account and the assessee had declared additional income on that account in the return filed in response to notice u/s 153A, the same should be given set off from the undisclosed income computed by the AO. We, therefore, deem it proper to restore the issue to the file of the AO with a direction to grant appropriate relief to the assessee on the basis of such additional income declared in the return of income from undisclosed sales. Since the entire profit from undisclosed activity has been brought to tax in AMQ Agro India Pvt. Ltd. and Moin Akhtar Qureshi, therefore, additional income declared in section 153 tax return of other entities such as Mrs. Nasreen Qureshi and Mohd. Shahnawaz was argued to be excluded from their income on the ground that it will amount to double taxation of the same. Since we are remitting the matter to the file of the AO for adjudication of the undisclosed income from meat business outside books and the appeals of above persons are not before us, the assessee may take up this matter before the AO at the time of the set aside proceedings. The AO shall ensure that there is no double addition of the amount of additional income declared in the hands of AMQ Agro and income declared in the 153 tax return of other entities stated above. Needless to say the AO shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds on this issue are accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Addition on account of unexplained purchases.
2. Addition on account of under-invoicing of export sales.
3. Addition on account of undisclosed domestic sales.
4. Protective addition on account of cash received in OMASUM-DELHI account.
5. Addition on account of outstanding creditors.
6. Disallowance of deduction claimed u/s 10B.
7. Disallowance of various expenses (credit cards, foreign travel, other expenses, salary, rent).
8. Addition on account of notional interest on interest-free advances.
9. Disallowance of charity/donation.
10. Addition on account of deemed dividend u/s 2(22)(e).
11. Set-off of additional income declared in the return filed in response to notice u/s 153A.
12. Addition on account of non-deduction of TDS.

Detailed Analysis:

1. Addition on Account of Unexplained Purchases:
The AO disallowed purchases made by the assessee during the respective years from A.Y. 2008-09 to 2014-15 due to non-availability of supporting vouchers, payments made in cash, and non-maintenance of quantitative records. The CIT(A) deleted these additions, stating that they were not based on any incriminating material found during the search, relying on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla.

2. Addition on Account of Under-Invoicing of Export Sales:
The AO made additions based on email conversations indicating under-invoicing of export sales. The CIT(A) deleted these additions, noting that the AO's conclusions were based on presumptions and not supported by evidence. The CIT(A) also emphasized that the email conversation pertained to A.Y. 2009-10 and could not be used for other years.

3. Addition on Account of Undisclosed Domestic Sales:
The AO added the entire amount of undisclosed domestic sales as income. The CIT(A) sustained this addition, stating that the assessee failed to establish the source of undisclosed sales. The Tribunal found merit in the argument that only the net profit from such sales should be added and remitted the issue to the AO to compute the profit from undisclosed activity.

4. Protective Addition on Account of Cash Received in OMASUM-DELHI Account:
The AO made protective additions in the hands of the assessee and substantive additions in the hands of Moin Akhtar Qureshi. The CIT(A) deleted the protective addition, subject to the outcome of the appeal in the case of Moin Akhtar Qureshi. The Tribunal remitted the issue to the AO for correct determination of the undisclosed income.

5. Addition on Account of Outstanding Creditors:
The AO made additions due to the non-submission of confirmations for outstanding creditors. The CIT(A) deleted these additions, stating they were not based on any incriminating material found during the search.

6. Disallowance of Deduction Claimed u/s 10B:
The AO disallowed the deduction claimed u/s 10B, stating that the assessee was not engaged in manufacturing activity. The CIT(A) deleted the addition, noting the assessment was completed and no incriminating material was found during the search.

7. Disallowance of Various Expenses:
The AO made ad-hoc disallowances for expenses incurred through credit cards, foreign travel, other expenses, salary, and rent due to lack of supporting evidence. The CIT(A) deleted these additions, relying on the decision in Kabul Chawla.

8. Addition on Account of Notional Interest on Interest-Free Advances:
The AO added notional interest on interest-free advances. The CIT(A) deleted this addition, stating it was not based on any incriminating material found during the search.

9. Disallowance of Charity/Donation:
The AO disallowed the deduction u/s 80G due to lack of supporting evidence. The CIT(A) deleted this addition, noting it was not based on any incriminating material found during the search.

10. Addition on Account of Deemed Dividend u/s 2(22)(e):
The AO made additions under section 2(22)(e) for loans and advances given to a substantial shareholder. The CIT(A) deleted this addition, stating it was not based on any incriminating material found during the search.

11. Set-Off of Additional Income Declared in the Return Filed in Response to Notice u/s 153A:
The CIT(A) rejected the assessee's claim for set-off of additional income declared in the return filed in response to notice u/s 153A. The Tribunal remitted the issue to the AO to grant appropriate relief.

12. Addition on Account of Non-Deduction of TDS:
The assessee raised a ground regarding the addition on account of non-deduction of TDS, which the CIT(A) did not adjudicate. The Tribunal remitted this issue to the CIT(A) for adjudication.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue for A.Y. 2008-09 to 2011-12, allowed the appeal for A.Y. 2012-13 for statistical purposes, and remitted various issues to the AO and CIT(A) for re-adjudication. The appeals filed by the assessee for all years were allowed for statistical purposes.