2023 (7) TMI 399 - AT - Income Tax

Estimation of income - bogus purchases - contention of the assessee that no disallowance of purchases is warranted, since the manufacturing loss and the gross profit rate declared by the assessee compares well with industry standards and assessee itself, in the alternative, has submitted that the addition towards incremental gross profit may be restricted to 2% of the value of purchases - HELD THAT - As noticed earlier that the manufacturing loss declared by the assessee was less than the SION standards prescribed by DGFT. The gross profit rate declared by the assessee was more than the industry average. Hence, in the normal circumstances, no disallowance of purchases is called for. Since some of the suppliers have stated that they have not supplied the materials and since the AO DGCEI has opined that the assessee might have procured materials from others, it is possible that the assessee could have made some profit in such an exercise. Hence, in order to take care of revenue leakages, if any, some addition is called for. We modify the order passed by Ld CIT(A) in all these years and direct the AO to restrict the addition on account of non-genuine purchases to 2% of the value of alleged bogus purchases in both the years under consideration. TP Adjustment - Commission on Corporate Guarantee given to the Associated Enterprises by the assessee - HELD THAT - We notice that the co-ordinate bench of Tribunal has examined an identical issue in the assessee s own case in AY 2010-11 wherein as restricted the rate of commission at 0.50% of the value of loan actually availed by the Associated Enterprises. Tribunal has followed the decision rendered in the case of Everest Canto Cylinders Ltd 2015 (5) TMI 395 - BOMBAY HIGH COURT No reason to interfere with the decision so taken by Ld CIT(A) on this issue. Accordingly we uphold the same in both the years. Unexplained income u/s 69A - Addition towards Cash income shown in seized materials - HELD THAT - There are receipts and payments noted against the name of Shilan . The impugned document was seized from his chamber only. We notice that a sum has been received in November, 2016 with the noting cash received from Shilan Returnable . We also notice that a sum has been paid to Shilan with the noting Insurance Shalin in March, 2017. In our view, above said receipt of Rs. 5.00 lakhs can be set off against the payment of Rs. 6.00 lakhs, since both the receipts payments are in the name of Shalin only. Accordingly, we are of the view that a further relief of Rs. 5.00 lakhs should be granted in respect of this addition made in AY 2017-18. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to allow further deduction of Rs. 5.00 lakhs in AY 2017-18. Revenue expenses should be reduced from this disallowance - What is required to be done is to deduct the revenue expenses from the income already assessed. As noticed and listed out the revenue expenses relating to AY 2017-18 and 2018-19 respectively. We also notice that the aggregate amount of expenses in each year is more than the revenue receipts of that year. Accordingly, we are of the view that the above said expenditure should be deducted from the revenue receipts and only net revenue income should be taxed. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction. Additions made on account of profits made in the alleged bogus purchases would result in generation of cash and hence the same shall constitute source for the receipts shown in the document - The above said claim of the assessee is justified on the principle that same income cannot be taxed twice. The profit element assessed on account of alleged bogus purchases would result in generation of cash and the same should fund the receipts shown in the seized document. Accordingly, there is merit in the claim of the assessee that the said addition should be given set off against the receipts noted in the seized document. We notice that the addition in respect of alleged bogus purchases has been sustained by the Tribunal @ 2% of the value of purchases. assessee is entitled for deduction of above said amount against the addition made on the basis of seized document in both the years, since the same constitutes source for the receipts shown in the seized document. Accordingly, we modify the order passed by Ld CIT(A) and direct the AO to allow deduction partly. Unexplained expenditure u/s 69C - We noticed earlier that the assessee has paid Rs. 10.00 lakhs in January, 2017 and Rs. 5.00 lakhs in March, 2017. From the seized document, we notice that the payments to contractors and MIDC Road were not made in January, 2017 and March, 2017. The payment towards other expenses was Rs. 2,58,885/- in January, 2017 and Rs. 17,05,787/- in March, 2017. Hence the amount of Rs. 10.00 lakhs noted to have been paid in January, 2017 cannot be said to have been included in the seized document. Under the same principle, we are of the view that it cannot be inferred that the amount of Rs. 5.00 lakhs was also included in that document. Accordingly, we do not find any merit in the contentions of the assessee. Excess of expenditure over receipt in the month of March, 2017 - Hence there is merit in the submissions of the Ld A.R that overall picture should be considered. We also find merit in the submissions that there may be mistakes in making entries in the months of March, 2017 to May, 2017, i.e., it may be due to clerical or typographical mistakes. Accordingly, we are of the view that the AO was not justified in making addition on the basis of uncorroborated seized document. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition. Addition being cash salary paid to employees - We notice that the AO has also placed reliance on the statement given by CMD Shri Neeraj Raja Kochhar. We noticed that the Ld A.R has submitted that the CMD could not have remembered the transactions immediately, since there are 4000 to 5000 employees are employed. Hence, we are of the view that the AO could not have placed reliance on the above said statement for making any addition without bringing any other material on record to support his case that the cash was actually paid as stated in the Statement. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition. Addition relating to cash transferred through Angadias - It consists of two items, viz., domestic transfer of funds and transfer of funds abroad - Whatsapp messages from the personal mobile phone of Shri P Nandakumar (Senior Purchase manager of the assessee company) relied upon - HELD THAT - We notice that this addition has been made on the basis of whatsapp messages exchanged between an employee of the assessee company and Shri Amit Mehra. Secondly, both the employees of the assessee company, Shri Amit Mehra and Shri Neeraj Raja Kochchar, i.e., all the concerned persons have denied the execution of the transaction. Thirdly, in the said messages, it is nowhere mentioned that funds of the assessee company are involved in the transactions. All these factors cumulatively show that the assessee cannot be involved/implicated in respect of this transaction merely on the reasoning that the whatsapp messages are between the employee of assessee company and Shri Amit Mehra, son in law of CMD. As submitted by Ld A.R, it could be a private and independent transaction, unconnected with the assessee company. Accordingly, AO could not have made this addition without bringing any material on record to show that the assessee company s funds have been used for execution of this transaction and further the transaction has actually been executed. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition made u/s 69C. Appeals of the assessee are partly allowed and the appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Partial confirmation of addition relating to alleged bogus purchases.
2. Partial confirmation of addition relating to Corporate Guarantee commission.
3. Partial confirmation of Cash income as per seized materials.
4. Disallowance of Salary paid to Jain family.
5. Individual issues for AY 2017-18: Cash royalty as per seized materials and Excess expenses in seized materials assessed u/s 69C of the Act.
6. Individual issues for AY 2018-19: Salary paid in cash to employees and Cash transferred through Angadias.

Summary:

1. Alleged Bogus Purchases:
- Issue: The AO disallowed entire purchases amounting to Rs. 32,53,94,174/- (AY 2017-18) and Rs. 22,61,11,767/- (AY 2018-19) as bogus.
- Appellate Decision: The Ld CIT(A) restricted the addition to 6% of the value of purchases. The Tribunal further reduced this to 2%, considering the manufacturing loss and gross profit rate declared by the assessee, which were within acceptable limits.

2. Corporate Guarantee Commission:
- Issue: The TPO made a transfer pricing adjustment at 1.50% of the Guarantee amount.
- Appellate Decision: The Ld CIT(A) restricted the commission to 0.50%, following the decision in the assessee's own case for AY 2010-11 and the Bombay High Court's decision in Everest Canto Cylinders Ltd. The Tribunal upheld this decision.

3. Cash Income as per Seized Materials:
- Issue: The AO assessed Rs. 13.08 crores as unexplained income u/s 69A, with an additional Rs. 39,23,385/- for excess payments over receipts in March 2017.
- Appellate Decision: The Ld CIT(A) granted partial relief by netting off receipts and payments from/to the same person. The Tribunal further allowed a deduction of Rs. 5 lakhs for transactions with Shilan and directed the AO to reduce the addition by revenue expenses and profits from alleged bogus purchases.

4. Disallowance of Salary Paid to Jain Family:
- Issue: Disallowance of Rs. 19,00,000/- (AY 2017-18) and Rs. 29,65,000/- (AY 2018-19) paid to Sangitha Jain and Shubam Jain.
- Appellate Decision: The Tribunal deleted the addition, following its decision in AY 2014-15 and 2015-16, where similar disallowances were deleted.

5. Individual Issues for AY 2017-18:
- Cash Royalty Payment: The Tribunal confirmed the addition of Rs. 15 lakhs as unexplained expenditure u/s 69C, rejecting the assessee's claim that it was included in another seized document.
- Excess Expenditure Over Receipts: The Tribunal deleted the addition of Rs. 39,23,385/- for March 2017, considering the overall tally of receipts and payments for the period.

6. Individual Issues for AY 2018-19:
- Cash Salary Paid to Employees: The Tribunal deleted the addition of Rs. 64,80,000/- u/s 69C, finding the seized document to be a proposal and not conclusive evidence of actual payments.
- Cash Transferred Through Angadias:
- Domestic Transfer: The Tribunal deleted the addition of Rs. 2 crores, accepting the assessee's explanation that it was part of the Rs. 13.08 crores already offered for taxation.
- International Transfer: The Tribunal deleted the addition of Rs. 29,40,000/- u/s 69C, finding no evidence to link the transaction to the assessee company's funds.

Conclusion:
The Tribunal partly allowed the appeals of the assessee and dismissed the appeal of the revenue, providing relief on several contested issues and confirming certain additions based on the evidence and arguments presented.