2021 (1) TMI 10 - AT - Income Tax

Assessment u/s 153A in violation of section 153D - AO no jurisdiction (below the rank of Joint Commission) without prior approval of the Joint Commissioner - contention of the ld. counsel before us is that the copy of approval granted by JCIT u/s.153D has not provided to them, and therefore, it is presumed that requisite sanction was not obtained by the Assessing Officer or the approval obtained may not be proper - HELD THAT - Such a presumption first of all is unfounded, because nowhere Section 153D provides that before according the approval, JCIT should give opportunity of hearing or who provide the copy of approval to the assessee. This section only provides that, no order of assessment or re-assessment shall be passed by an officer below the rank of JCIT, except for the prior approval of the JCIT. Simply because approval has been taken on the same date does not lead to any presumption that is mechanical or without application of mind by the approving authority. We agree with the contention of the ld. DR that, what is required in the statute is the approval of JCIT which was available on record and the detail have been mentioned in the assessment order also and there is no statutory requirement under the law that copy of such approval or opportunity of hearing is to be given to the assessee. Accordingly, Ground no.2 as raised by the appellant is dismissed. Addition u/s 69C in respect of cash purchases of milk, namely Milk Tanki Purchases - appellant is stated to be one of the reputed manufacturers and exporters of milk and milk products - dispute is only with regard to purchases categorised as tanki purchases - As against the total milk purchases during the relevant year, the AO, has accepted all other purchases, except he has made addition qua Milk purchases Tanki payment which was made in cash by the appellant - CIT (A) has upheld the addition made by the appellant under section 69C holding that the appellant could not properly establish the bona fides of the purported purchases by either producing the suppliers with proper supporting evidences or establish the supply of milk in the manner as specified by the appellant during the course of scrutiny proceedings or even during search - alternate disallowance under section 40A(3) - HELD THAT - All the purchases under the head Tanki have been duly recorded in the books of account and is reflected in the audited financial statements, wherein total purchases including Milk Tanki Purchases have been debited to the profit and loss account. Secondly, these purchases are duly reflected in ledger account forming part of regular books of account placed before the Assessing Officer and also acknowledged by him and the entire source of purchases are duly recorded in the books of account. Once the source of purchases are duly recorded in the books of account, ostensibly, then source of such purchase/ expenditure stands established, because it has been incurred out of the funds shown in the books of account. In such a case, at the threshold, addition under section 69C cannot be resorted to, because the source of such expenditure stands duly explained from the funds available in the books of account and it cannot be held that purchases have been made outside the books of account. Case of the Revenue is that the genuineness of the purchases could not be established merely for the reason that the payments have been made in cash to the farmers which was not open to independent verification from all the farmers - When the milk or the milk products are sold, the relevant sale register and invoice are maintained. In support of these purchases, the assessee has filed weighment/ quality slips generated at the time of receipt of milk in the factory, copies of milk receipts issued by the assessee and the details of milk brought by the farmers including the weight and amount, details of ledger account of the parties from whom purchases and sales have been made; monthly summary of milk purchase made from the farmers of different villages, month wise payment, stock details and quantity of milk products manufactured, etc. In none of the above details, the Assessing Officer has found any discrepancy or has found any fault, that the same is either not explainable or is not corroborated with other records - AO has nowhere rejected the trading result or the gross profit, which inter alia means that he accepts the quantity of stock, production and consequential sales and the closing stock. Once the sales have been accepted, then corresponding purchases cannot be doubted especially when all the purchases and sales are recorded in returns filed before the VAT authorities. We agree with the contention of Mr. Vohra that assessee could not have made admitted sale without having made the disputed purchases especially when sales quantity and value has been accepted, and therefore, we hold that the corresponding purchases cannot be disallowed. Lastly, if the Assessing Officer has not rejected the books of account or the trading result, then Assessing Officer cannot tinker with the gross profit by disallowing entire purchases. Accordingly, the addition made by the Assessing Officer and sustained by the CIT (A) is deleted. Alternate disallowance u/s.40A(3) - In terms of exception provided under clause (e) of Rule 6DD of the Income Tax Rules, if the assessee and producer of milk have agreed upon the arrangement that milk in a particular village would be collectively supplied to the assessee through mutually agreed person and assessee has agreed to make payment to the farmers for milk, then also no disallowance can be made even if the cash is in excess of ₹ 20,000/- .In terms of Rule 6DD and on the facts and circumstances of the case as discussed we hold that such a disallowance is outside the purview of Section 40A(3). Addition u/s 69C - unexplained salary expenditure on the basis of contents of seized material - CIT(A) upheld the addition made on the ground that the details in the annexure appears to be salary paid outside books of accounts - HELD THAT - Since its entry was not verified from the regular books of account, the Assessing Officer has treated the salary outside the books and has made the addition. The case of the assessee is that the seized paper content proposed salary arrears which were never given to the employees. Before us, the Ld. Senior counsel has stated that these are dump documents and is in the nature of rough jottings. Heavy reliance has been placed on the decision of the Tribunal in assessee s own case for the preceding year 2008-09 to 2012-13, wherein based on same alleged difference of salary, similar addition has been deleted. Since this issue has been dealt and discussed by the Tribunal in assessee s own case on the same issue, and no material difference has been pointed out by the Department, therefore the finding of the Tribunal will act as precedence and this year also. Accordingly additions to be deleted. Addition u/s.69C - as during the course of search, certain expenses were noted in the vouchers which were seized and were not recorded in the books of account - HELD THAT - The case of the ld. counsel before us is that these are rough jottings and the amounts mentioned in the vouchers are not actual and are only draft vouchers which were prepared by various employees not been submitted before the management for reimbursement is too vague and cannot be accepted, because once a document has been found and seized from the possession of the assessee and there is specific mention of expenditure incurred which is a sum total of various pages of Annexure A-6, the onus was upon the assessee to prove that, either this paper does not belong to the assessee or could have explained the entries made therein, especially when these expenses are specific and not recorded in the books of account. Simply saying that it is a dump document or rough jottings cannot absolve the assessee and onus cannot be shifted upon the Assessing Officer that he has to bring some corroborative evidence to substantiate the addition. On the contrary the onus is upon the assessee, because presumption of the law u/s.292 C is that, if any such seized document is found from the possession of the assessee during the course of search, then it is presumed to be belonging to such person only. Though this presumption is rebuttable but such a rebuttal has to be based on certain cogent evidences and explanation, which in our opinion has not been discharged by the assessee. Therefore, the addition is confirmed. Levying and computing interest under sections 234A, 234B and 234C - HELD THAT - Here in this case, assessee was required to file the return u/s.153A within 15 day from the dated of notice, i.e., 26.05.2015, which assessee has filed on 11.01.2016. Therefore, interest has to be computed for the period of 8 months. As regard interest u/s 234C, the Assessing Officer has to verify the computation of interest u/s.234C which is to be computed on the basis of return of income. In so far as interest u/s.234B is concerned, same is consequential. Addition u/s 69C - certain expenditure incurred towards packing material was not accounted or recorded in the books of accounts - HELD THAT - Once the quantity and value of the material returned is matching with the returned vouchers as shown from the paper book and the column of cash , then the explanation of the assessee cannot be held to implausible and it cannot be said that any expenditure has been made outside the books of account. Moreover, when packing material is used only for product for sale and sales have been accepted, then there can be no inference that assessee must have sold packing material outside the books also. Under these circumstances, we do not find that addition is called for. Addition based on seized document which has been inferred as unaccounted sales not recorded in the books of account - HELD THAT - No where it has been pointed out, whether the same seized document or annexure was subject matter of examination or consideration by the Tribunal. However, we agree with the alternate contention that, since addition on account of gross profit ratio on alleged unexplained balances of sundry creditors as suppressed profit element in respect of unexplained balances/ purchases, which was challenged vide ground no.3, is not pressed, therefore, no separate addition qua the sales outside the books can be made. On this ground the addition made by the Assessing Officer is deleted. Unexplained difference between receipts and payments recorded in pages found - HELD THAT - From a bare perusal of the document, it is seen that specific items of expense and receipts have been mentioned with dates and the document has been found from the possession of the assessee. In such a situation, the onus was heavily upon the assessee to explain the difference of receipt and the payment and the nature of entries in view of section 292C of the Act. The assessee cannot absolve itself by simply saying that it is a dump document. Assessee has to establish either it does not belong to him or it does not reflect any income element. If these figures are not reflected in the books of account, then assessee has to explain what the nature of these receipts and payments is. We do not find any infirmity in the order of the Assessing Officer that the differences remain unexplained and the onus cast upon the assessee has not been discharged . Unexplained expenditure - HELD THAT - Specific expenditure mentioned against specific name which contains the signature and the dates and in such a case, the onus was heavily upon the assessee to explain the same. If these expenditures are not recorded in the books of account, then ostensibly such expenditure has rightly been added by the Assessing Officer as unexplained expenditure.Accordingly, addition is confirmed. Un-reconciled balance between seized manual ledger account of parties and the books of account has been treated as unaccounted sales - HELD THAT - Once the two entries are verifiable form party wise ledger account appearing in books of account; Ledger account of various bank accounts maintained by the assessee; and Bank statements showing receipts of sales made, then such a difference of ₹ 9,78,194/- which remained un-reconciled between balance as per seized ledger and ledgers as per books of account cannot be sustained. Even otherwise also the difference of ₹ 9,78,194/- is very meagre looking to the volume of transaction recorded in the books of account which is more than ₹ 20 crores and if simply balance of ₹ 9,78,194/- could not be un-reconciled it cannot be inferred that same are outside books of account. If so many entries are made in the manual ledger and then same are accounted for finally in the books of account then there could be possibility of some errors in corrections. In absence of any rejection of books of account and the ledger account such a petty amount of sales cannot be treated as outside the books. Thus, the addition is directed to be deleted.

Summary

Issues Involved:
1. Jurisdiction and validity of assessment orders under section 153A and 143(3).
2. Addition under section 69C for unsubstantiated milk purchases.
3. Disallowance under section 40A(3) for cash purchases.
4. Addition for unexplained salary expenditure.
5. Addition for unaccounted expenses.
6. Levy of interest under sections 234B and 234C.
7. Addition for unaccounted sales.
8. Addition for unexplained receipts and payments.
9. Addition for unreconciled balances in ledger accounts.

Detailed Analysis:

1. Jurisdiction and Validity of Assessment Orders:
The appellant contended that the assessment orders under section 153A and 143(3) were beyond jurisdiction and bad in law due to non-provision of statutory approval from JCIT under section 153D. The tribunal found that the approval was indeed obtained and recorded in the assessment order. There was no statutory requirement to provide a copy of the approval to the assessee. Thus, the ground was dismissed.

2. Addition under Section 69C for Unsubstantiated Milk Purchases:
The appellant challenged the addition of ?23,03,77,859 for AY 2013-14 and ?21,48,95,768 for AY 2014-15, arguing that the purchases were genuine and recorded in the books. The tribunal noted that the purchases were duly recorded and supported by various documents like weighment slips, quality slips, and stock registers. The tribunal held that since the purchases were recorded in the books, section 69C was not applicable. The tribunal also emphasized the consistency in the appellant's business operations and past acceptance of similar purchases by the revenue. Thus, the additions were deleted.

3. Disallowance under Section 40A(3) for Cash Purchases:
The CIT(A) upheld disallowance of ?7,06,864 for AY 2013-14 under section 40A(3), arguing that cash payments were not justified. The tribunal found that the payments fell under exceptions provided in Rule 6DD, as the purchases were from farmers. Thus, the disallowance was deleted.

4. Addition for Unexplained Salary Expenditure:
The appellant challenged the addition of ?8,11,239 for AY 2013-14 based on a seized document showing salary differences. The tribunal, following its earlier decision for preceding years, found that the document was a rough estimate and not conclusive evidence of unexplained expenditure. Thus, the addition was deleted.

5. Addition for Unaccounted Expenses:
The tribunal upheld the addition of ?4,14,120 for AY 2013-14, as the appellant failed to provide sufficient evidence to rebut the presumption under section 292C. For AY 2014-15, the tribunal deleted the addition of ?89,29,854 for packing material expenses, as the appellant provided goods return vouchers and explained the entries in the books.

6. Levy of Interest under Sections 234B and 234C:
The tribunal directed the AO to recompute interest under section 234A for the delay period of 8 months and verify the computation of interest under section 234C based on returned income. Interest under section 234B was deemed consequential.

7. Addition for Unaccounted Sales:
The tribunal deleted the addition of ?14,37,410 for AY 2014-15, noting that the sales were recorded in rough notings and already included in the profit and loss account. The tribunal also noted that the GP ratio addition was not pressed by the appellant.

8. Addition for Unexplained Receipts and Payments:
The tribunal upheld the additions of ?35,72,166 and ?65,14,988 for AY 2014-15, as the appellant failed to explain the entries in the seized documents.

9. Addition for Unreconciled Balances in Ledger Accounts:
The tribunal deleted the addition of ?9,78,194 for AY 2014-15, noting that the difference was minor compared to the total transactions and could be due to manual ledger errors.

Conclusion:
The appeals were partly allowed, with significant deletions of additions under sections 69C and 40A(3), and directions for recomputation of interest under sections 234B and 234C.