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TMI Blog2018 (3) TMI 1519X X X X Extracts X X X X X X X X Extracts X X X X ..... red to assessee to explain why the same should not be disallowed under section 40A(3) of the I.T. Act, 1961. The assessee, in his reply, submitted that copy of the audited accounts are filed to show sundry creditors in a sum of Rs. 1.79 crore in the balance sheet in respect of one M/s. Hanuman Traders who will is the dealer of the assessee and having the transaction with the party as a normal accounting practice and deals in ITC Products and wheat floor (Aatta) and same was sold/purchased in cash to wholesale dealers to approach the assessee and having the credit amount of Rs. 1.58 crores as on 31st March, 2013 and one M/s. Garg Cloths House shown a sum of Rs. 14 lakhs and remaining balance as creditors of M/s. ITC Limited. The assessee did not produce the copy of the ledger account. Therefore, assessee was asked to produce the party M/s. Hanuman Traders and also produce purchase register, sale register and copy of the ledger of ITC Limited. The assessee explained that assessee is not in contact with M/s. Hanuman Traders and that they have left the business. The Inspector was deputed to make enquiries at the address of M/s. Hanuman Traders. The enquiry report of the Inspector state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence was produced. The A.O. noted that assessee has paid Rs. 6,92,25,000/- in cash and received Rs. 7,55,15,150/- in cash, which, a Commission Agent will not receive it. The A.O. re-casted Trading, P & L A/c and made the addition on account of net profit of Rs. 4,14,44,156/- 2.1. The A.O. in view of the above findings also noted that since cash payments of purchases are made in a sum of Rs. 6,92,25,000 to M/s. Hanuman Traders, therefore, Section 40A(3) is applicable. In the absence of any plausible explanation, the addition of Rs. 6,92,25,000/- was made under section 40A(3) of the I.T. Act, 1961. 2.2. The A.O. also noted that since cash payments are made to M/s. Hanuman Traders for purchase and identity and existence of M/s. Hanuman Traders is not established and an amount of Rs. 6,31,90,150/- is shown as receipt in cash, therefore, it was considered as unexplained credit under section 68 of the I.T. Act, but, no separate addition was made of this amount because the addition under section 40A(3) has already been made. 3. The assessee challenged both the above additions before the Ld. CIT(A). The Ld. CIT(A) confirmed the rejection of the books of account under section 145(3) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stributor of ITC for branded Aatta. The assessee did not produce M/s. Hanuman Traders as well as did not produce sufficient material to prove his identity. The assessee despite giving opportunities has not been able to adduce any iota of evidence that there was any entity like M/s. Hanuman Traders, which had the capacity to supply goods over Rs. 6.50 crores on credit to assessee. There is no evidence as to the receipt or dispatch of the goods. Entire sales have been made in cash. There is no evidence that cash so credited in the cash book reflects any sale proceeds of any material. These unexplained cash credits in cash book which had been allegedly posted to so-called M/s. Hanuman Traders remain unexplained. The peak thereof, comes to Rs. 7,12,15,150/- as on 10th January, 2013, even ignoring the opening balance of Rs. 95,15,000/-. The Ld. CIT(A), therefore, noted that assessee has not been able to substantiate the explanation that the money so deposited in the books of account reflected the sales of unbranded Aatta. The assessee failed to prove existence of this party. The Ld. CIT(A), therefore, made the addition of Rs. 7,12,15,150/- under section 68 of the I.T. Act. 5. We have h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but has not been given any specific notice for making enhancement to the assessed income, which A.O. has not made. He has submitted that there is no basis for making both the additions against the assessee. He has submitted that where A.O. and Ld. CIT(A) rejected the books of account of the assessee and ultimately, estimated gross profit on suppressed sales, he could not make separate addition on account of unexplained investment, undisclosed income etc., and also cannot make disallowance of expenses under section 40A(3) of the I.T. Act. In support of his contention, he has relied upon the decisions in the case of CIT, Belgaum vs. Bahubali Neminath Muttin (2016) 72 taxman.com 139 (Karnataka) (HC), CIT, Ludhiana vs. Santosh Jain (2008) 296 ITR 324 (P & H) (HC), CIT vs. Banwari Lal Bansidhar (1998) 229 ITR 229 (All.) (HC), Indwell Construction vs. CIT (1998) 232 ITR 776 (A.P.) (HC), CIT vs. Aggarwal Engg. Co. (2008) 302 ITR 246 (P & H), CIT vs. President Industries (2002) 258 ITR 654 (Guj.), CIT vs. M/s. Hind Agro Industries, ITAT, Chandigarh Bench and ITO vs. Nardev Kumar Gupta (2013) 22 ITR (Tribu.) 273 (Jaipur). 10. On the other hand, Ld. D.R. relied upon the orders of the auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of unaccounted sales was made by the Assessing Officer. The Commissioner (Appeals) found that the assessee failed to explain the suppression of production of fabrics and also held that any addition that was to be made was not in respect of the sale consideration but only in respect of the profit. The Commissioner (Appeals) reduced the addition made by the Assessing Officer. The Tribunal concurred with the Commissioner (Appeals) as it found that there was no evidence on record to prove that the assessee had claimed all the expenses in the profit and loss account. On appeal: Held, dismissing the appeals, that in view of the concurrent findings of fact by the Commissioner (Appeals) and the Tribunal that the reduced addition was just and equitable on account of papers found during the search, there was no merit in the appeals." 13. The Hon'ble Allahabad High Court in the case of CIT vs. Banwari Lal Banshidhar (1998) 229 ITR 229 (Alld.) (HC) held as under : "Held affirming the decision of the Tribunal, that no disallowance could be made in view of the provisions of section 40A(3) read with rule 6DD(j) of the Income-tax Rules, 1962, as no deduction was allowed to and claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of unexplained investment, undisclosed income and even the provisions of Section 40A(3) could not be invoked." 14.1. One of the decision of Hon'ble Allahabad High Court in the case of CIT vs. Banwari Lal Banshidhar (1998) 229 ITR 229 (Alld.) (HC) as reproduced above along with Judgments of Hon'ble Gujrat High Court in the case of President Industries and CIT vs. Samir Synthetics Mill (supra), the authorities below have also not found any material to indicate that assessee made investments outside the books of account to make the sales. The entire sales could not represent income of the assessee, on which, Ld. CIT(A), has already given a finding to add the profit only on such unrecorded sales. When books of account of the assessee are not reliable and rejected by the authorities below under section 145(3) of the I.T. Act and there is no challenge to these findings of the authorities below, there is no reason for the authorities below to rely upon the same books of account for the purpose of making addition under section 40A(3) of the I.T. Act as well as to make addition of peak under section 68 of the I.T. Act. The A.O. noted in his findings that M/s. Hanuman Traders did not ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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