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TMI Blog2015 (8) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... officer has not examined M/s Haryana Steels in order to disprove the claim of the assessee. Without examining the explanations given by the assessee and without disproving the same, we are of the view that the AO was not justified in drawing adverse inferences against the assessee. AO, in order to invoke the provisions of sec. 69C, should give a categorical finding that the assessee has incurred any expenditure. In the instant case, the assessing officer has not even attempted to find out as to whether the relevant transactions, in which the alleged rate difference was found, pertain to the assessee or not. In this regard, the AO should have examined the books of accounts maintained by the assessee, which he has failed to do. In our view, the AO could not have drawn adverse inference without examining the books of account in order to find out as to whether the said transactions belong to the assessee, particularly in view of the fact that the assessee has been acting as consignment agent also. Hence we are of the view that the rate difference noticed in the documents cannot come to the support of the AO. In the instant case, the view of the AO could have been upheld if he had ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that M/s Sandeep Bansal had received cash of ₹ 14.19 crores on account of under billing done during the period from 01-01-2003 to 15-09-2003. 4. Consequent to the receipt of information about the under invoicing, the assessee herein was also subjected to search operations on 20-02- 2004. Consequent to the search, the assessments under consideration were completed u/s 153A of the Act. During the course of assessment proceedings, the assessing officer compared the purchase rate of raw materials accounted for by the assessee with the purchase rate noticed in the case of M/s Suncity Alloys Group. It was noticed that the purchase rate was same. Since M/s Jindal Strips Ltd had under billed its supplies to M/s Suncity Alloys Group, the AO entertained presumption that the purchases made by the assessee were also under billed and the assessee would have paid the difference amount by way of cash outside the books of account, i.e., the AO presumed that the modus operandi alleged to have been followed by M/s Jindal Strips Ltd would have been followed in respect of the purchases made by the assessee also. 5. A survey operation was also conducted at the premises of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s show that the assessee would have also purchased goods at a higher rate than that disclosed in the invoices and would have paid the difference by way of cash outside the books of accounts. Though the transaction noticed in the seized documents were for certain period only, yet the AO held that he can extrapolate the same for other years also as per the decision of Hon ble Supreme Court rendered in the case of Commissioner of Sales tax, Madhya Pradesh Vs. H.M. Esufali, H.M. Abdulali (90 ITR 271). Accordingly, the AO held that the cash payments made by the assessee outside the books of account are assessable as unexplained expenditure u/s 69C of the Act. 7. The assessing officer determined the average rate of purchases at ₹ 35/- per kg. The average rate of purchases disclosed in the books of account was seen at ₹ 26.54, ₹ 29.23 and ₹ 30.95 respectively for the years relevant to the assessment years 2002-03, 2003-04 and 2004-05. Accordingly, the different in the rate per Kg, which was presumed to be the cash paid outside the books, was determined at ₹ 8.46, ₹ 5.77 and ₹ 4.05 per Kg respectively in the years relevant to the AY 2002-03, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmations cross checked from the concerned parties. (c) The AO has placed reliance on the statements given in the case of Jindal Group. However, the present status of the proceedings in their hand was not ascertained. (d) The AO did not provide to the assessee any opportunity to cross examine the evidences being used by her. (e) Even if some document showed higher cost, the assessee has shown that similar items have been purchased at lower cost. (f) The AO made the addition on account of under invoicing of sale and not for under invoicing of purchases. Hence the addition is beyond the scope of sec. 69C of the Act. (g) The assessing officer has estimated the purchase rate at ₹ 35/- without bringing any material to support the same. (h) The AO has ascertained average rate of purchases for entire year and took the view that the difference between the rate of ₹ 35/- per Kg and the average rate represent cash paid outside the books. The AO has not pointed out any specific instances. The Ld CIT(A) also referred to many decisions, which lay down the principles as to how to deal with the loose documents found during the course of search. Accordingly, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decisions rendered in the case reported in 154 Taxmann 10 (P H) and 40 SOT 225 (Hyd ITAT) to support his contentions. 12. On the contrary, the Ld A.R submitted that the assessing officer has primarily placed reliance on the evidences found in the case of M/s Jindal Strips Ltd. He submitted that the assessee has not purchased any goods from M/s Jindal Strips ltd and hence the assessing officer was not justified in drawing adverse inferences on the basis of evidences found in the hands of a third party, who is not connected to the assessee at all. He submitted that the additions made by the AO are not based upon the documents placed at pages 72 73 of the paper book and hence the ld D.R was not justified in referring to those pages. In any case, the assessee has acted as consignment agent in respect of the items referred in page 72 73 and hence it is not the purchase transactions pertaining to the assessee. These facts have been understood by the ld CIT(A) and he has discussed about the same in page 3 of his order. The Ld A.R further submitted that the assessee has explained that the above said documents are the plans devised by the assessee and suppliers to collect outstand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The additions under dispute have been made by the assessing officer u/s 69C of the Act. The provisions of sec. 69C read as under:- Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source or such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. Provided that, notwithstanding anything contained in any other provisions of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income. A careful perusal of the above said provisions would show that the first and foremost condition stated therein is that the assessee should have incurred any expenditure. Merely by establishing that the assessee has incurred any expenditure, this provision cannot be invoked automatically. It has to be further shown that either the assessee has offered no explanation about the sources for incurring the said expenditure or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s Jindal Strips Ltd. However, as observed by Ld CIT(A), the assessing officer has not taken any steps to find out the fate of addition, if any, made in the hands of M/s Jindal Strips Ltd. Even otherwise, in our view, it may be correct to generalize the trade practice solely on the basis of practice followed by a company. Thus, we are of the view that the assessing officer was not correct in presuming that the assessee would have purchased goods through under billing. 18. It is pertinent to note that the assessing officer has given a clear finding that the assessee herein was not found to be selling goods on cash, meaning thereby, the assessee was not found to be indulging in under invoicing of sales made on its own account. (see para 10 of the assessment order). The observation of the AO that the assessee is purchasing goods through under billing of purchases and selling goods on actual basis defies the logic. For example, if sale price is ₹ 100/- and actual purchase cost is ₹ 80/-, then gross profit would work out to ₹ 20/-. If we assume that the purchase is made through under invoiced bill, say at ₹ 70/-, then the Gross profit would go up to ₹ 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adverse inferences against the assessee. 21. During the course of hearing, the Ld D.R pointed out the difference in rates as found in the documents placed in pages 72 and 73 of the paper book. A perusal of the same would show that there is, indeed, a difference in purchase rates. The Ld A.R, in his contentions, has stated that it was not shown that the assessee herein has made the said purchases, wherein the rate difference was found. We have noticed earlier that the AO, in order to invoke the provisions of sec. 69C, should give a categorical finding that the assessee has incurred any expenditure. In the instant case, the assessing officer has not even attempted to find out as to whether the relevant transactions, in which the alleged rate difference was found, pertain to the assessee or not. In this regard, the AO should have examined the books of accounts maintained by the assessee, which he has failed to do. In our view, the AO could not have drawn adverse inference without examining the books of account in order to find out as to whether the said transactions belong to the assessee, particularly in view of the fact that the assessee has been acting as consignment agent also. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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