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TMI Blog2017 (12) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... n they are shrouded with the non-genuineness does not help the assessee. It is a revelation that company without having any substances has got the outstanding credit of 35 crores for purchases. As a final fact finding authority we cannot close our eyes to the startling facts reveled before us. The ld AR has objected to the report of the ld AO placed before us wherein the transactions of the assessee were detailed for last three years. We do not hesitate to reject the objection of the assessee. In fact the report of the Ld AO has demonstrated the modus operandi of the assessee company prevailing for consecutive three years. Matter remanded back to AO - the ld. AO may examine the whole trail of these transactions of purchase and sales and find out the real beneficiaries of all these unusual transactions of purchase and sales entered by assessee without flow of consideration. Appeal of the revenue is allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... ere incurred by the assessee for doing its business. When these facts were confronted to the assessee, it was submitted that freight is directly paid by the seller of goods to the assessee company and in respect of transportation charges, he submitted that there was no cost incurred by the assessee towards transportation and no godown is maintained by the company. The AO further observed that the assessee has passed entries in the books of account in the name of Tayal Energy Ltd. For ₹ 7.00 crores and it has been shown under the head " loans & advance" whereas the assessee had shown sales in his books of account in the name of other companies. The AO also observed that the assessee company was incorporated on 20.08.2007 with registered capital of ₹ 1,00,000/- only and during the F.Y. 2007-08 it had very small transactions and started trading of fabrics during F.Y. 2008-09, which is under appeal. The AO therefore, stated that such a huge transactions at the initial stage of establishment in the facts and circumstances of the present case cannot be generally believed. The Assessing Officer issued letter on 20.12.2011 and specifically asked as under : A. Based on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O has added whole of the amount of sales as undisclosed income to the returned income, when the returned income itself is based on the audited annual accounts of the appellant and the net profit is arrived after considering sales, purchases and other costs, in that event in my humble view there is no basis for addition of amount of sales all over again. In coming to this conclusion I rely on the decision of Jharkhand High Court in the case of Amitabh Construction Pvt. Ltd. (335 ITR 523). 5.3 With regard to the conversion of "Debtors" to "Loan and Advances" it is quite obvious that both "Debtors" and "Loan and Advances" appear on the asset side of the balance sheet and the mere act of switching of the same from current assets to loans and advances cannot give rise to income, much less undisclosed income. These are merely the book entries and no new funds or any other asset has been introduced in the appellant's accounts which could be considered an attempt for legalizing its undisclosed income. In fact, the appellant did not have a bank account during the year under consideration. 5.4 It is quite strange that AO on one hand is treating the purchases and sales are sham tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 There is ample material on record to shift onus on assessee to prove the genuineness of purchases which assessee failed to discharge and AO came to the conclusion that the purchases are bogus. Even before CIT(A) no material evidence has been placed to discharge this onus. 2.3 The Hon'ble Delhi High Court while delivering judgment dated 15 March, 2001 in case of CIT Vs. La Medica Vs. Commissioner of Income-tax (2001) 168 CTR Del 314 held that that It is to be noted that assessee's stand was not that it was not open to the appellate Authority to make out a third case, which was not even the case of the assessee, to hold that the transactions were real and not fictitious as claimed by the revenue. 2.4 The relevant portion of the judgment is reproduced as under: ".. ...the question whether the purchases were made from some other source ought not to have weighed with the Tribunal as a factor in favor of the assessed. The conclusions of the Tribunal are, therefore, clearly erroneous, contrary to materials on record and have been arrived at without taking into consideration relevant material and placing reliance on irrelevant materials. It is to be noted that assessee's sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am v. CIT (1969) 71 ITR 427 and the decisions of the Bombay and Allahabad High Courts in CIT v. Bhaichand H. Gandhi [1983] 141 ITR 671 and Sundar Lal Jain v. CIT [1979] 117 ITR 316, respectively, contended, that section 68 of the Act can be invoked only, when, the books of account of the assessee show the cash entry and not otherwise. 4. We are afraid, such a narrow and restricted interpretation of the provisions, contained in section 68 was advanced by learned counsel for the appellant/assessee, cannot be accepted. If the liability shown in the said account, which, is found to be bogus and in the absence of any plausible and reasonable explanation offered by the assessee, then, certainly, the amount can be added towards the income of assessee and brought to tax in the hands of the assessee." 5.3 Hon'ble Delhi High Court in case of CIT vs. N.R. Portfolio (P) Ltd. [2014] 42 taxmann.com 339 (Delhi) has held that creating papers in routine course cannot in all cases tantamount to satisfactory discharge of onus. 5.4 Hon'ble jurisdictional High Court, in para 31, has held as under: "31......... Identity, creditworthiness or genuineness of the transaction is not establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are sham and consequently trading results are rejected. Whereas the AO has himself assessed the income from said sale and purchase, after deducting the expense at ₹ 13,090/-. 2. On 05.12.2016, the Ld. DR has filed written submission stating that the AO has not said so in clear words but actually the AO has disallowed the purchases. This is factually not true as it is clear from assessment order that the AO has made the addition of total sales. This fact is clearly noted by CIT(A) also in paragraph 5 of his finding and CIT(A) has also rightly noted that the amount of sale cannot be added as income when the assessee has already credited the same in the Profit & Loss account. 3. The DR cannot make a new case, which is not the case of the AO. The DR only represents the AO, his scope of arguments is confined to supporting or defending the AO's order and he cannot set up altogether a different case. The benefit conferred by the AO cannot be taken back by the Tribunal. This principle has been laid down by the Hon'ble Supreme Court in MCorp Global (P.) Ltd. [2009] 309 ITR 434 (SC) and the relevant extract is given below: "6. In the case of Hukumchand Mills Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mann.com 466, the Delhi ITAT at paragraph 26 made the following observation: "26, Even otherwise, the Ld. Departmental Representative cannot make out a new case, which is not of the case of the Assessing Officer. The Mumbai Bench of the Tribunal in Asstt. CIT v. Ms. Aishwarya K. Rai [2010] 127ITD204 (Mum.) held that the learned D.R. can support the action of the A.O. with any arguments and that he can rely on any case law in support of the A.O's case but he cannot make out any new case which was not the subject matter of consideration by the A. O. or the first appellate authority. It further held that to find fault in the assessment order is outside the domain of the argument of the Ld. D.R. as such powers vests with the Commissioner u/s 263 for revising any order which is erroneous and prejudicial to the interests of Revenue. The Tribunal, Pune Bench in ITO v. Anant Y. Chavan [2009] 126 TTJ (Pune) 984 has held as follows:- 'The D.R. only represents the A.O. who can do better than to justify his own action on the grounds which have been discussed in the assessment order or perhaps even on extended grounds. Undoubtedly, there can be occasions when AO fails to bring an inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by the AO that would mean the Id. D.R. stepping into the shoes of the CIT exercising jurisdiction u/s 263. We. therefore, do not permit the Id. D.R. to transgress the boundaries of his arguments. Similar view has been taken by the Jodhpur Bench of the Tribunal in the case of Kwal Pro Exports v. Asstt. CIT [20081 110 ITD 59 (Jodh.1 This contention is therefore repelled as devoid of any merit. "The Hon'ble S.C. in MCorp Global (P.) Ltd. (supra) has held as follows:-"Held, that u/s 254(1) of the Act, the Appellate Tribunal had no power to take back the benefit conferred by the A.O. or enhance the assessment. Since the A.O. had granted depreciation in respect of 42,000 bottles that benefit could not be withdrawn." In view of the discussion, we hold that the Ld. Departmental Representative cannot make out afresh case for the first time during the course of arguments of the case. • Mahindra & Mahindra Ltd. V Dy. CIT [2010] 122 ITD 126 (Mum.)(SB). • ITO v. Anant Y. Chavan [2009] 126 TTJ (Pune) 984 • Kwal Pro Exports v. Asstt. CIT [2008] 110 ITD 59 (Jodhpur) 5. Without prejudice, the AO has not made the addition u/s 68 on account of sundry creditors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that the report has referred to the assessment proceedings for A.Y. 2010-11 and A.Y. 2011-12 on the ground that the figures of loan/advances have gone up from the figures for A.Y. 2009-10. As per instruction, all the accounts have been squared up in A.Y. 2012-13. It may be submitted that the assessee has been regularly filing income tax return and the cases for A.Y. 2010- 11 and A.Y. 2011-12 have been accepted by the Income Tax Department. Even the proceedings for A.Y. 11-12 have been accepted u/s 143(3). The proof of filing of returns for A.Y. 2010-11 and the assessment order for A.Y. 2011-12 u/s 143(3) are enclosed herewith. It means that even for later assessment years, where the loans/advances have increased, the position is accepted by the Income Tax Department. Even on the principle of consistency, the order of the CIT(A) is liable to be upheld. Reliance is placed on the decision CIT v. Neo Poly Pack (P.) Ltd. (2000) 245 ITR 492. 9. The DR has filed a copy of the decision of the Hon'ble Supreme Court in the case of N.K. Proteins v. Dy. CIT [2017] 84 taxmann.com 195 (SC) in which the Special Leave Petition (SLP) has been dismissed. In this context, it is sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is a company allegedly engaged in the business of purchase and sale of fabric. During the year, the Ld. assessing officer noted that assessee has made a purchase of ₹ 35.11 crores and has also made sales of ₹ 35.12 crores resulting in sundry creditors of ₹ 34.99 crores arising out of the unpaid purchase consideration and loans and advances of ₹ 35 crores arising as a debtor on sale of goods converted into loans and advances by the assessee. Whole transaction of purchase and sales entered into by the assessee were not settled by payment of sales consideration to the suppliers who have supplied the fabric to the assessee as well as no consideration is received by the assessee from the buyer of the goods. Therefore it is apparent that the transactions of the purchases and sales remained as debtors and creditors respectively for the whole year. The Ld. Assessing Officer in his letter No. ITO/W-10(1)/2016-17 dated 26.04.2016 submitted to CIT/DR, ITAT, New Delhi, which is placed on record, stated that the identical facts and circumstances were prevailing in the next year wherein he has stated that for assessment year 2010 - 11, the quantum of loans and ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 15.00 crores in the next year, but no evidences of transporting goods from the seller to the original buyer or to the assessee was shown. No material is produced either before the AO or before us to show the effect of these sales returned. Therefore, the Ld. assessing officer stated that the above transaction of purchase and sale of fabrics made by the assessee are not genuine business transactions as these transactions are rather an effort to introduce the unaccounted money of the assessee company in the books of accounts under the garb of purchase and sale of fabrics. Therefore, the Ld. assessing officer made addition of these ₹ 35.12 crores of the sales recorded by the assessee. On appeal by the assessee, the Ld. CIT appeal deleted the above addition. The main reason for deletion of the above addition is that sales have already been offered by the assessee as income in the profit and loss account. The Ld. CIT (A) was also of the view that when the purchases and sales are bogus, then resultant profit there from is also bogus and therefore not chargeable to tax. The Ld. CIT (A) also was of the view that when the books of accounts of the company are audited and the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k account of the company, there are no expenditure incurred by the assessee company for the purchases and sales entered into, what are the modus operandi ?, where the goods have been kept ? etc. All these questions raised by the Ld. assessing officer remained unanswered and unverified in the order of the Ld. CIT (A ). Furthermore none of the debtors as well as the creditors could remain present before the assessing officer for their examination to show that how they have purchased and sold fabrics to the assessee. In these peculiar circumstances, the decision of Hon'ble Gujarat High Court in case of Ambuja exports Ltd vs DCIT, 86 Taxmann.com 69 is applicable where in it is held that where purchases made by assessee from a proprietary concern were bogus and entries were in nature of accommodation entries, merely because assessee had disclosed such entries in return filed and also showed such purchases in books of accounts would hardly be sufficient to advance arguments of full and true disclosure by assessee. Though it is not the case of reopening but assessment, hence the higher burden lies on the assessee to prove genuineness of purchase and sales. Therefore, merely because the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r nature of transactions the reasons that for consecutive 3 years whether there is any transfer of material between the buyer and seller or not, so that the Ld. assessing officer may apply his mind to this aspect also. It is also interesting to note that there is no transaction of payment of consideration for sale of goods as well as for the purchase of goods through cheques as assessee does not have any bank account and merely the share capital of ₹ 1 lakh. Therefore how the whole transactions have been carried on by the assessee of such a huge magnitude without banking facilities is also required to be examined. We are constrained to state on looking at the nature of the transactions placed before us that the activities of the assessee company is no less than the activities of a "shell Company". This company has been used as a layer of money to save the real beneficiaries. It is a revelation that company without having any substances has got the outstanding credit of ₹ 35 crores for purchases. As a final fact finding authority we cannot close our eyes to the startling facts reveled before us. The ld AR has objected to the report of the ld AO placed before us wherein t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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