9911796707
TMI Blog2019 (11) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-18. In case of AY 2017-18 there is also a separate addition other then the identical addition as mentioned in Ay 2012-13 , which would be dealt with by both the parties independent and separate manner as the facts and circumstances leading to that additions were different. For ascertaining the status of each of the assessment, it is important to note that on 21/3/2017 there was a search on this group including the assessee company. 3. Therefore, we cull out brief facts of the case which shows that assessee is a company [Appellant] who originally filed its return of income u/s 139 (1) of The Income Tax Act, 1961 (hereinafter referred to as The Act) on 31/10/2013 declaring income of INR 60285750/-. Assessment u/s 143 (3) of the act was made on 24/3/2015 at the assessed income of INR 245285750/-, wherein an addition of INR 185,000,000 was made because of unexplained share capital and share premium. 4. On appeal before the learned CIT-A, per order dated 31/3/2016, the above addition was deleted. Against this, ld AO did not prefer further appeal. So, assessment for assessment year 2012-13 was concluded. 5. Status of other assessment years is as under:- a) AY 2013-14 assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement dated 22/3/2017, he stated that the amounts so received, as share capital is nothing but the assessee's own money that was routed back to the assessee company in the form of share capital. He submitted that assessee has paid through cheque to the depositors, who in turn made deposit of the above sum as share capital with the assessee company. The learned AO further noted that books of all these entities are maintained at the office of the assessee company, however, those books of accounts were not found. During the course of assessment proceedings, assessee was specifically asked to file the details of share capital and premium along with supporting evidences. On 14/11/2018, Assessee furnished chart showing name, address, correspondence address, share capital, share premium, total amount received from shareholders, confirmation, bank statement, ITR, . On verification of bank of these parties it was evident that it is own funds of the assessee, which has been routed through these parties by cheques, have been reintroduced in books of accounts of assessee as share capital. The assessee further contested that issue of share capital has already been decided in the completed asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Mr. Apresh Garg, in his statement recorded u/s 132 (4) on 22/3/2017, has admitted that it resorted to bogus sale/purchase transactions. The learned AO noted that assessee has undertaken these bogus sale and purchase transaction with these entities to inflate its expenses and suppress taxable income. Such suppression of income has been brought back in the form of share capital. He further noted that assessee has purchased in shell almonds from one company at an average purchase price of 4414 KG whereas the sale price to the same entity was 04/04/2004 KG on average and thus the loss of Rs. one per KG. Thus, the AO noted that Assessee Company is involved in bogus sales and purchases. There was also a shortage of stock by nearly INR 450 crore is against the stock recorded in it is of accounts. Thus 25% of the total purchase price from these parties were added to the total income of the assessee amounting to INR 353,24,93,127/-. 12. Thus, the total income of the assessee was assessed at INR 1 610849810/- against the returned income of INR 60285750/- per order dated 30/12/2018 passed u/s 153A read with section 143 (3) of the income tax act, 1961 passed by the assistant Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, it would be reasonable that the trading results to the extent of sale and purchase from the fictitious entities are rejected u/s 145 (3) of the act and the gross profit on the same is estimated. Accordingly gross profit shown by the assessee from its books for different years/periods was recorded and for assessment year 2012-13 where the gross profit shown by the assessee was 16.20% from the other parties, he applied that rate on the sales with the alleged bogus parties and restricted the addition to the extent of INR 54,43,23,729/-. 16. Therefore, the learned AO as well as assessee both are aggrieved with the order of the learned CIT-A, are in appeal before us. 17. Similarly for AY 20-13-14 to 2017-18 following addition were made by the ld AO in assessment u/s 153A rws 143(3)of the Act for all these years:- 18. On appeal before the ld CIT (A) by the assessee , addition u/s 68 on account of share capital were confirmed and addition on account of bogus purchases was restricted to the extent of the appropriate profit rate on such purchases as per finding in AY 2012-13 A.Y. Addition u/s 68 on a/c of share capital/ premium & alleged commission expenses @ 2% thereon Additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of the assessee and on appeal by the assessee, the preceding learned CIT(A) vide his order dated 31- 03-2016 had deleted the said addition made by the learned AO and the department had not filed any further appeal before the Hon'ble ITAT in this regard and as such, this issue has attained finality, therefore no addition could have been made in the absence of any incriminating documents. 3b. That on the facts and in law the Ld. CIT(A) erred in confirming the action of the learned AO in adding the sum of Rs. 96,39,740/- as commission paid for arranging the share capital money without any evidence found in the course of search evidencing any such payment, more so when the transaction does not relate to the present assessment year. 3c. That on the facts and in law, no incriminating material was found in relation to the share capital issued during the year to invoke the provisions of section 68 of the Act in an assessment made u/s 153A of the Act read with section 143(3) of the Act. 4 That on the facts of the case and in law the learned CIT(A) erred in confirming the action of the learned AO, without any discussion in the appellate order, in adding the share application m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernational, M/s Vishal Traders and M/s Rustagi Exim Pvt Ltd as bogus and thereby computing GP on the sales to them @ 16.20%, being the GP wrongly calculated by the AO on the other transactions accepted as genuine by him. 6c. That on the facts of the case and in law, the Ld. CIT(A) erred in accepting the incorrect GP @ 16.20% as calculated by AO and applying the same on the alleged bogus sales made to the alleged bogus parties. 6d. That on the facts of the case and in law, the Ld. CIT(A) erred in assuming that the appellant had made sales to other parties and had booked them in the name of bogus parties when no such evidence was found in the course of search nor such allegation was made by the learned AO in the assessment order. 6e. That on the facts of the case, the Ld. CIT(A) erred in not giving cognizance to the replies filed by the alleged bogus parties in response to the notices issued by the learned AO u/s 133(6) of the Act to them during the course of assessment and the learned AO could not point out any infirmity between the books of the appellant and the replies received from the alleged bogus parties. 6f. That on the facts of the case and in law, the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case and in law, the CIT (A) erred in rejecting the books of 's account of the assessee by invoking section 145 (3) of the income tax act, 1961 in relation to the transactions with the alleged related party the order on the basis of surmises and conjectures although the search and seizure operation u/s 132 (1) in case of the assessee, the assessment proceedings and enquiry conducted by the AO u/s 142 (2) as the further enquiry conducted by the learned CIT (A) u/s 250 (4) did not lead to any adverse material whatsoever contrary to the entries recorded in the regular books of accounts of the assessee. 2. That further, the CIT (A) erred in invoking section 145 (3) of the act without complying with the mandatory requirement of law of issuing prior show cause notice and allowing the assessee and about opportunity of being heard on materials, if any, transferred to be relied upon by him in support of the interest as rejection of the books and the consequent best judgment assessment u/s 145 (3) of the act." 24. He submitted that these are the additional grounds, which are going to the root of the matter, jurisdictional on issues, legal in nature, and therefore they deserve t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the total income of the assessee can only be made if there is any incriminating material found during the course of search. Thus, he stated that in absence of any incriminating material found, the concluded assessment could not be disturbed even after search. He further submitted that addition u/s 68 of the income tax act or addition of unaccounted purchases made by the learned AO for assessment year 2012-13 to A .Y. 14-15 are without any incriminating material. He referred to copies of panchnama placed at page number 1-89 of the paper book 1 to show that no incriminating material was found during the course of search. Therefore, he submitted that learned assessing officer cannot make any addition. However, he hastened to add that the learned assessing officer has mainly referred to the seizure of photocopies of few blank share transfer deeds relating to the part of the share capital issued to outsider as well as the statement recorded u/s 132 (4) of the managing director of the appellant company were considered by AO as incriminating material. He further submitted that none of these could be construed as incriminating materials to disturb the unabated assessment years. He submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year in question and the documents which were seized did not establish any co-relation document - wise with those assessment years, then order passed for initiation of proceedings u/s 153C should be quashed. He further referred to the decision of the honourable Delhi High Court in case of principal Commissioner of income tax, Delhi-2 vs. Best infrastructure (India) private limited and others in ITA number 11/2017 to 22/2017 (2017) 397 ITR 82 (Delhi) which is in fact, carrying with the decision of the honourable Delhi High Court in CIT vs. Kabul Chawla (supra). He further referred to the decision of the honourable Delhi High Court in case of principal Commissioner of income tax vs. Dharampal Premchand Ltd (2017) 99 CCH 2002 wherein it has been held that when there was no incriminating material seized, each of assessment years, assessment for which were shot to be reopened, addition made in course of proceedings u/s 153A/143 (3) were not warranted. 31. With respect to the contention of the learned assessing officer pertaining to the photocopies of the blank transfer form pertaining to the share capital issued, he submitted that the alleged seized material are not incriminating in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ediately on 24/3/2017. He referred to the copy of retraction placed at page number 169-171 of the paper book number 1. He further referred to the circular number F. NO. 286/2/2003-IT (INV) dated 10/3/2003 and 286/98/2013-IT dated 18/12/2014. He further referred to the decision of the honourable Gujarat High Court in principal Commissioner of income tax vs. Sayumya construction private Ltd (2016) 387 ITR 529 (Gujarat). He further submitted that information gathered with regard to the share application money are the entries with respect to the sum is received by the assessee which are duly disclosed in the regular books of accounts of the assessee and therefore are part of the regular records of the assessee. Hence, it cannot be considered as an incriminating material. He further submitted that the copies of the power of attorney and share application forms are merely photocopies. He further submitted that share application forms even otherwise in original also should be with the assessee company who issued the share capital. He further referred to the order of the learned CIT-A in para number 5.1 and 5.2 of his order waiting that the financial position of the companies who invested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that the ultimate source of share application money received by the assessee was from the disclosed source of the assessee itself the transactions were verifiable from the bank account of the party as well as from the bank account of the assessee as the source of money is the assessee himself. Therefore, he submitted that there is no unaccounted money flowing from the assessee to the depositors but the accounted money is flowing to the depositors. He otherwise submitted that the statement of the managing director was retracted. With respect to the amount of INR 149,200,000 he submitted that it was initially paid by the assessee from it disclosed bank account to Mahalaxmi traders as advance, which was written back by Mahalaxmi trader's assessee to the assessee therefore no addition u/s 68 on this court could be warranted. He further referred to the deviation report submitted by the learned assessing officer, which clearly held that according to the AO himself addition u/s 68 could not be made. He therefore submitted that the addition made by the learned assessing officer for assessment year 2012-13 and 2013-14 and 2014-15 deserves to be quashed at the very threshold for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned AR vehemently stated that when the assessing officer and his superior both are of the view that no addition can be made in the hands of the assessee u/s 68, the whole addition was made on account of the opinion of the deputy director of income tax (investigation) as recommended in the appraisal report. He therefore submitted that assessing officer was not satisfied that addition is deserves to be made u/s 68 of the income tax act. In view of this, he submitted that the addition could not be made u/s 68 in the hands of the assessee. 34. With respect to the issue of bogus purchases from 3 different concerns, the learned assessing officer has relied upon the statement of the managing Dir recorded u/s 132 (4) of the act dated 22/3/2017 to hold that sales and purchases with the alleged parties are bogus, the learned authorised representative submitted that in the deviation report submitted by the assessing officer dated 20/12/2018 he has observed that it would be difficult to make an ad hoc disallowance of 25% of purchases from the aforesaid parties as suggested in the appraisal report. He therefore submitted that even the assessing officer stating that the addition suggested in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee maintains the detailed stock register showing quantity wise detail of each item, ii. purchases are vouched, iii. sales are vouched, There is no reason that this addition can be made in the concluded assessment or even in the open assessment. Coming to the order of the learned CIT-A, he submitted that, the learned CIT-A has found an innovative way, not provided in the income tax act, by invoking the provisions of section 145 (3), without verification of the books of accounts, rejects part of the books of accounts, applies the gross profit rate of the other transactions other than with these parties to the alleged transactions from the tainted parties and makes the addition on account of gross profit. He submitted that above addition has been made by the learned CIT-A i. without verifying the books of accounts, ii. without finding any latent patent or glaring defects in the books of accounts, iii. without rejecting the quantitative tally of the assessee, iv. without considering the explanation of the assessee that during the course of search the stocks lying at one of the godowns was not at all considered, v. without issuing any show cause notice, v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn high profit in the return of income with respect to the transaction of purchase and sales from these parties. Thus, he submitted that in the concluded assessment, the addition is made without any incriminating material and in open assessment (abetted assessment); the addition was made without any evidence and contrary to the deviation report of the assessing officer. 35. He further submitted that the additional grounds raised by the assessee are on this point where the learned CIT-A has rejected the books of accounts of the assessee partially without issue of any show cause notice for providing an opportunity of being heard to the assessee before invoking provisions of section 145 (3) of the act. He referred to the provisions of section 145 (3) of the income tax act and submitted that where the assessing officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided under subsection (1) has not been regularly followed by the assessee, or income has not been computed in accordance with this standards notified under subsection (2), the assessing officer may make an assessment in the manner provided in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for assessment year 2014-15. He further stated that the learned CIT-A has once again selectively accepted the gross profit ratio only for the those years where the same appeal is to be higher side and rejected the gross profit ratio for the years where the same appears to be lower side and thus has reached at the result which is not sustainable in law. He submitted that the learned CIT-A selectively rejected the gross profit ratio on transaction with other parties for assessment year 2014-15 is not sufficient and adopted the average of the gross profit ratio of the preceding 2 years instead for making the addition. He therefore submitted that the learned CIT-A has accepted one methodology in one assessment year for computing the gross profit and has adopted altogether a different methodology for computing gross profit in different year. He therefore submitted that the approach adopted by the learned CIT-A defies any logic and is clearly perverse and unsustainable in law. He therefore referred to the additional grounds of appeal wherein there is a specific challenge to the invocation of the provisions of section 145 (3) of the act by the learned CIT-A. 36. Thus, the learned autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t recorded u/s 132 (4) on 22/3/2017 of the managing director all the concerns were found to be associated with the assessee and the books of accounts on all these are also maintained at the office of the target company. The companies also submitted that all sale and purchases are at the instructions of Mr. Rajesh Garg, the accountant of the assessee. He submitted that these companies do not have any independent existence. He further stated that during the course of search the physical stock position of the appellant company was also not telling with the stock recorded in its books of accounts, which further strengthens the fact that the appellant was involved in bogus, sale purchase transactions. He further referred to the transaction of in shell almonds recorded which resulted into profit of INR 1 per KG is transferred to the non-existent entity. He thus submitted that the above stated documents, statements, stock positions lead to unavoidable conclusion that substantial incriminating material was discovered during the course of search. He further referred to the paper book submitted by the assessing officer which contains the statement of the managing director and the various doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in NDR promoters private limited (2019)-TIOL-172-HC-Del- IT. He also relied on plethora of judicial precedents on the issue of taxability of share capital. On the issue of the validity of the statement recorded u/s 132 (4) of the income tax act he further referred to the decision of the honourable Delhi High Court prominently in Smt Dayawanti vs. CIT (2016) 75 taxmann.com 308 (Delhi) wherein it has been held that where inferences drawn in respect of undeclared income of the assessee was revised on basis of materials found as well as statements recorded by the assessee son in course of search operations and assessee had not been able to show as to how estimation made by the assessing officer was arbitrary or unreasonable, addition so made by the assessing officer by rejecting the books of account was justified. 40. With respect to the addition on account of the bogus purchases, the learned DR vehemently relied upon the decision of NK proteins Ltd vs. CIT (2017-TIOL-23-SC-IT), the decision of the honourable Gujarat High Court in case of NK industries Ltd vs. DCIT (2016) 72 taxmann.com 289 (Gujarat), decision of the honourable Delhi High Court in CIT vs. La Medica (2001) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginals were never found at the premises of the assessee during the course of search. He submitted that such originals are always with the shareholder and not with the issue company. He submitted that photocopies of the transfer form duly signed by the holder of the shares, undated, without the name of the transferee, without share transfer fees paid thereon, does not have any evidentiary value as such evidence, document cannot be acted upon. He further submitted that photocopy of a document cannot be an evidence. He further stated that in the deviation report by the assessing officer, these evidences were not held to be incriminating evidence. The AO in deviation report has categorically held that the share capital is examined during the course of original assessment u/s 143 (3) of the act for all these years, after that addition made is deleted by the learned CIT-A, against which no appeal has been preferred and therefore no addition is required to be made in the hands of the assessee. He further submitted that why even the photocopies were found at the premises of the assessee, detailed explanation was given that there were some negotiations going on in the past with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was from disclosed sources of the assessee itself iv. All such transactions are verifiable from the bank accounts, v. source of said capital is directly traced to the bank account of the assessee, vi. absence of any cash movement, vii. Complete confirmation of parties with the ITR, bank statements etc Therefore, addition u/s 68 is not warranted. He further stated that even in the statement, managing director did not say that it is the unaccounted money of the assessee, he stated that the assessee has rooted its own accounted money through banking channel for bringing in share capital, therefore, source of money is the bank account of the assessee and no unaccounted money is routed,, therefore, addition u/s 68 is not warranted. 44. With respect to the difference in stock, he reiterated his submission that godown of the assessee at Agson Global Logistic Park, Sonepat Haryana, was not covered during the course of search, where part of the stock of the assessee was stored, that stock was not taken into consideration while arriving at the physical stock. Alleged difference of Rs. 450 crore was recorded, but that is the stock at that Godown. Thus, he submitted that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessing officer and whether any such procedure is laid down or not. 48. The bench further asked the learned CIT DR as well as the learned assessing officer to clarify that in view of the deviation report as well as the appraisal report are differing, then, how the additions are ultimately made in the assessment order. 49. To all these queries, the learned assessing officer submitted a letter dated 6/8/2019. 50. On the 1st issue whether all the seized papers referred to in the assessment order are photocopies or are in original, the learned assessing officer stated that the documents related to unrelated blank share application forms and associated documents such as affidavit, receipts, power of attorney, indemnity bonds and copy of the acknowledgement of the income tax returns of the depositors have been seized during the course of search and seizure proceedings are only Photostat copies. However, he submitted that though these are the 4 a state copies they however depict the fact that unrelated blank share application forms and sale certificates are signed with share, undated special power of attorney and general power of attorney were executive is blank name, the ack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of additions made by the learned assessing officer. (1) The 1st addition is with respect to the issue of share capital under section 68 of the income tax act. (2) The 2nd issue is with respect to the bogus purchases and thereby addition of the appropriate percentage on such bogus purchases in the hands of the assessee. Additions of both these types are identically made in 6 different assessment years assessments framed under section 153A of the act. They are starting from assessment year 2012-13 and ending on assessment year 2017-18. Out of above 6 assessment years, 3 assessment years i.e. Assessment Year 2012-13, 2013-14 and 2014-15 are concluded assessment years and 3 assessment years i.e. A.Y. 2015-16, 2016-17 and 2017-18 are abetted assessment years. There is no dispute between the parties that in case of concluded assessment years, the addition would only be made on the basis of incriminating material found during the course of search. There is no dispute between the parties that in case of abetted assessment years, the addition would be made irrespective of existence of any incriminating material but would only be made as if, it is a normal assessment proceedings. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to question number 22 of his statement he submitted Trail of the funds from the assessee company through cheque to Vishal traders and from Vishal traders to Mrs Balaji traders and from Shri Balaji traders to the assessee company in the form of share capital. He further stated that the assessee gave cheque to Vishal traders, Vishal traders passed on the cheque to Balaji traders and Balaji traders introduced the same some to the assessee company in the form of share capital. Therefore, it is apparent that involve of the transaction there is no unaccounted income of the assessee, which has been introduced in the books of accounts of the company as share capital. In fact, assessee issued cheques in the form of advances et cetera to various concerns who in turn deposited the money with the assessee through cheque as a share capital and share premium. Therefore apparently on the issue of the share capital there is no confession in the statement recorded u/s 132 (4) of the managing director of the appellant company that there is any incriminating material or unaccounted income of the assessee. Further on 24/3/2017 this statement was retracted and communicated on 31/3/2017 to the assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Original and bench held that they were not incriminating in nature. In para no 18 (f) it was argued by the ld DR that "f) Search at the assessee's premises led to the seizure of blank, share transfer forms duly signed by the allottees and affidavits of some of the companies/persons who were shown as investors in the share capital of the assessee company e.g. pages 9,10,12,15,16, 33, 34, 55, 56, 61 and 62 of annexure AA- 1 are blank sign share transfer forms of some of the share allottee companies such as M/s NEPC Industries Ltd, M/s Telstar Editing Pvt. Ltd, and M/s Softgate Technologies Pvt. Ltd, etc" But in para no para no 24 the coordinate bench held that "24. In the present case, since no incriminating material was found, therefore, the addition made by the AO u/s 153A of the Act was not justified." 59. Further in case of 2018 (1) TMI 88 - ITAT DELHI M/S. BRAHMAPUTRA FINLEASE (P) LTD. VERSUS DCIT, CENTRAL CIRCLE -17, NEW DELHI [ No.- ITA No. 3332/Del/2017 Dated.- December 29, 2017] the facts were that:- "4.5 On the contrary, Ld. CIT(DR) submitted that addition in dispute has been made on the basis of the incriminating material found during the course of sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out at the premises of the Chartered Accountants, ML Aggarwal are separate from the search proceedings carried out at the premises of the assessee. There is no concept of group of assessee in Income-tax assessments. Each assessee is treated separately. If any material is found during the course of search from the premises of one assessee, it can be used against another assessee either under section 153C or under section 148 of the Act depending on material belonging to or pertaining to that another assessee but it cannot be termed as material found during the course of the search of another assessee for making addition under section 153A of the Act. If any material impounded during the course the survey at the premises of one assessee and found to be belonging to or related to another assessee, then action may be taken in terms of section 148 of the Act depending on the material found but that material cannot be treated as part of the search carried out at the premises of the another assessee. Further, the Assessing Officer in the impugned order has not brought on record what was incriminating in the said material impounded from the premises of Sh. M.L. Agrawal. In view of our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Item No. (i) contains recording in the name of "Shri Shyam Trexim & Fincom Pvt. Ltd". The Assessing Officer has nowhere brought on record how the said recording on the page relates to the addition in question of share capital. The Ld. CIT(DR) also could not explain as how the said recording was related to the addition in question made in respect of alleged unexplained share capital. She only stated that said recording on the page reflected accommodation entry obtained by the 'Brahmaputra Group' and but no documentary evidence regarding the claim that the document was incriminating qua the addition, are filed. In respect of the Items No. (ii) to (v), the Ld. counsel has submitted that additions in respect of the amounts mentioned in the document has been made in the case of another company namely "M/s Brahmaputra Infrastructure Ltd" in assessment year 2009-10. This fact was not controverted by Ld. CIT(DR). Thus, we find that no incriminating material qua the addition made is found during the course of search from the premises of the assessee. Accordingly, above contention of Ld. CIT(DR) are rejected. She also submitted that during the course of search, hard disks of computers and ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tarun Goel admitted of having provided accommodation entry to the best group companies. The Director of the Best group of companies, Sh Anu Aggarwal also surrendered ı 8 crore during the course of search against share capital and share premium. Another Director, Sh. Harjit Singh in his statement also concurred with the statement of Sh. Anu Aggarwal. In the case, the learned CIT-(A) held that evidence does not mean only documentary evidence and the statement under section 132(4) of the Act is an important evidence collected as a result of search and seizure operation and thus, the addition of share capital was based on evidence gathered during the search. However, the Tribunal held that no incriminating material for each of the assessment year other than the year of search, to justify the assumption of jurisdiction under section 153A of the Act. The Hon'ble High Court, after considering the arguments of both parties on the issue whether statement under section 132(4) of the Act constitute incriminating material, held as under: "38. Fifthly, statements recorded under Section 132(4) of the Act do not by themselves constitute incriminating material as has been explained by this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 132(4) of the Act may be used for making the assessment but only to the extent it is relatable to the incriminating evidence/material unearthed or found during the course of search. The Hon'ble High Court also cited the decision of CIT Vs. Sh. Ramdas Motor Transport, (1999) 238 ITR 177 of Hon'ble Andhra Pradesh High Court, where it is explained that in case no unaccounted documents or incriminating material is found, the powers under section 132(4) of the Act cannot be invoked. 4.18 Further, as far as the decision of the Hon'ble Supreme Court in the case of Video Master (supra), is concerned, we agree with the argument of the Ld. counsel that in said case certain other materials like loose papers and vouchers were found which corroborated the statement and in those circumstances it was held that it could not be said that addition was based on no evidence. The relevant finding of the Hon'ble Supreme Court is reproduced as under: "3. In the second round, the assessment order dated March 29, 2000, gave detailed reasons for arriving at the conclusion that the figures stated in the statement recorded were corroborated, in particular, by various loose sheets found at the prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inating material found during the course of search. In the result, we hold that addition of share capital in the year under consideration has been made without relying on any incriminating material found during the course of search." 60. On identical facts in 2018 (3) TMI 1598 - ITAT DELHI M/S BRAHMAPUTRA REALTORS (P) LTD. VERSUS DY. COMMISSIONER OF INCOME-TAX, it was held that all such documents even though they were found to be in original in all those cases it was held to be not incriminating document based on which the concluded assessment can be disturbed. 61. On further identical facts in 2018 (10) TMI 50 - ITAT DELHI M/S M.L. SINGHI & ASSOCIATES (P) LTD. VERSUS DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-7, NEW DELHI it was held that all such documents even though they were found to be in original in all those cases it was held to be not incriminating document based on which the concluded assessment can be disturbed. 62. In another decision of the coordinate bench in ITA number 1451, 1452, 1453 dated 1/3/2008 for assessment year 2007-08-09-10 wherein on identical facts and circumstances, where 1 of us is a co-author of the judgment, following documents were fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther such shares are subsequently transferred at lower price, or such shares stood disposed of by the investor companies. In view of this, the case of the Revenue is merely based on assumption and surmises ." 63. Therefore apparently compared to all those decisions cited above which are referred by the learned authorised representative where such forms and documents were found in original, the case of the assessee is on far better footing that only in case of few shareholders these documents were found which were also not in original but only photocopies. It is also confirmed repeatedly by the learned assessing officer present in the hearing as well as in his letter to the bench that original of these documents were not found during the course of search. 64. Even otherwise, provisions of section 61 of the evidence act prescribe that the contention of a document may be proved either by primary evidence or by secondary evidence. According to section 67, thereof primary evidence means the document itself reduced for the inspection of the court. Explanation to of section 60 provides that copy of a common original are not primary evidence. Thus, even otherwise the photocopy cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. CIT(A) confirmed the addition. 67. In assessment year 2013-14, assessee has raised Ground No.3, challenging similar addition of Rs. 49,99,50,000/- on account of unexplained cash credit under section 68 of the Income Tax Act and sum of Rs. 99,99,000/- as commission paid for arranging the share capital. The A.O. noted that assessee company has received share capital from M/s. Balaji Enterprises of Rs. 15,20,00,000/- and Rs. 34,79,50,000/- from M/s. Vishal Traders. The A.O. as regards M/s. Vishal Traders noted that it has not filed return of income. Further, Mr. Arpesh Garg was confronted on issue of share capital/premium received by the assessee company and in reply to Question No.22 of his own statement recorded on oath under section 132(4) of the Act on 22.03.2017 has stated that the amount so received in form of share capital/premium represents the amounts given to various parties/entities in the form of loans/bogus sales/purchases and it had nothing but assessee company's own money which was routed back to the assessee's own money routed back to assessee company in the form of share capital/premium. The A.O. therefore, noted that the amount that assessee has resorted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 52,23,87,900/- on account of unexplained share capital received from M/s. Rustagi Exim Pvt. Ltd., amounting to Rs. 52,23,87,900/- which was added under section 68 of the I.T. Act. Further addition was made with respect to commission paid @ 2% for arranging the above share capital/ premium. Addition was made of Rs. 1,04,47,758/-. The A.O. similarly referred to the statement of Mr. Arpesh Garg. The Ld. CIT(A) confirmed the addition. 72. Learned Counsel for the Assessee has submitted that share application monies received by the assessee company (AGPL) from these parties are as under : "Share application monies received by the Assessee Company (AGPL) from the alleged related parties: Particulars A.Y.Share Application received from Mahalaxmi Traders (MT):Rs. 14,92,00,000 A.Y. A.Y. A.Y. A.Y. A.Y. 2012-13 2013-14 2014-15 2015-16 2016-17 2017 18 (i) Mahalaxmi Traders 14,92,00,000 (ii) Sri Balaji Enterprise - 15,20,00,000 - - - (iii) Vishal Traders 34,79,50,000 65,30,99,000 24,81,49,800 17,86,74,750 (iv) Rustagi Exim P. Ltd - - 9,55,55,000 11,60,00,100 37,60,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the assessee company and there is no cash movement, therefore, addition of entire share capital/premium of Rs. 365.28 crores is not justified and may lead to highpitched assessments. He has further submitted that A.O. in the deviation report has expressed that no addition could be made under section 68 of the I.T. Act on account of share capital/premium and commission @ 2%. After filing of the deviation report, no independent evidences have been given against the assessee. The conclusion drawn by the A.O. that these are unexplained share capital and premium is wholly unjustified and based on no evidence. He has relied upon Judgment of Hon'ble Gujarat High Court in the case of DCIT vs. Rohini Builders. 256 ITR 360, Judgment of Hon'ble Delhi High Court in the case of CIT vs. Victor Electronics 329 ITR 271 and Judgment of Hon'ble Bombay High court in the case of CIT vs. U.K. Shah 90 ITR 396. Learned Counsel for the Assessee further submitted that since the entire amount is routed through the funds of the assessee through different intermediary parties, therefore, there is no question of payment of any commission @ 2%. Further findings of the A.O. are based on no evidence or mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Share Application received from Rustagi Exim Pvt. Ltd. (REPL)-Rs. 9,55,55,000/-. 3. Share Application received from Vikas International (VI)-Rs. 6,48,90,000/- D. Details of Share Application received from alleged related parties for A.Y. 2015=2016 : 1. Share application received from Vishal Traders (VT)-Rs. 24,81,49,800/- 2. Share application received from Rustagi Exim Pvt. Ltd. (REPL)-Rs. 11,60,00,100/-. E. Details of Share Application received from alleged related parties for A.Y. 2016-17 : 1. Share Application received from Vishal Traders (VT) : Rs. 17,86,74,750/- 2. Share Application received from Rustagi Exim Pvt. Ltd., (REPL)-Rs. 37,60,99,650/-. F. Details of Share Application received from alleged related parties for A.Y. 2017-18 : 1. Share Application received from Rustagi Exim Pvt. Ltd. (REPL)-Rs. 52,23,89,700/-. 77. On verification of facts as stated in the above summary details, which are supported by the confirmation letters and bank statements of all these parties. The details contained in respect of all the assessment years under appeals. The details noted above clearly support the explanation of assessee that initially the amounts have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments of Hon'ble Supreme Court in the cases of Kishanchand Chellaram 125 ITR 713 (SC) and Andaman Timber Industries 281 CTR 214 (SC). 78. It is interesting to note that in the remaining years, the A.O. referred to statement of Mr. Arpesh Garg who was confronted on the issue of share capital/premium received by the assessee company. The A.O. noted the reply given by him of his own statement recorded under section 132(4) on oath in which he has stated that the amount so received in the form of share capital/premium represents the amounts given to various parties/entities in the form of loan for bogus sales/purchase and it is nothing but the assessee company's own money which were routed back to the assessee company in the form of share capital/ premium. Though there is nothing clear from the assessment order whether such statement was also provided to the assessee company for cross-examination on behalf of assessee company or for rebuttal and it may not be admissible against assessee company, but, this statement itself support the explanation of assessee company that it was the amount of the assessee itself which were routed through various entities. This statement would support ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee was not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source. Thus taking into consideration the totality of the facts and circumstances of the case, and, in particular the fact that the Assessing Officer had not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years, and tax had been deducted at source out of the interest paid/credited to the creditors, the Tribunal held that the Departmental authorities were not justified in making the addition of Rs. 12,85,000. On appeal to the High Court: Held, that considering the facts and circumstances of the case narrated by the Tribunal and the law explained by it, the appeal was liable to be dismissed." 79. This Judgment has been confirmed by the Hon'ble Supreme Court by dismissing the SLP of the Revenue Department reporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transactions had been established by the assessee. The amount was not assessable under section 68." 82. The Hon'ble Delhi High Court in the case of CIT vs. Kamdhenu Steel and Alloys Ltd., & Ors. 361 ITR 220 (Del.) held as under : "Once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has "created" evidence, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten the assessee with such a liability under s.68; AO failed to carry his suspicion to logical conclusion by further investigation and therefore addition under s.68 was not sustainable." 83. The Hon'ble Delhi High Court in the case of CIT vs. Laxman Industrial Resources Pvt. Ltd., ITA.No.169 of 2017 dated 14th March, 2017, held as under : "The CIT(A) took note of the material filed by the assessee and provided opportunity to the AO in Remand proceedings. The AO merely objected to the material furnished but did not undertake any verification. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer made an addition of Rs. 35,50,000/- with the aid of section 68 of the Act, 1961 on account of unexplained cash credits appearing in the books of the assessee. However, in appeal, the Commissioner of Incometax (Appeals) deleted the addition on the ground that the assessee had proved the existence of the shareholders and the genuineness of the transaction. The Income-tax Appellate Tribunal confirmed the order of the Commissioner of Incometax (Appeals) as it was also of the opinion that the assessee had been able to prove the identity of the share applicants and the share application money had been received by way of account payee cheques. On appeal to the High Court: Held, dismissing the appeals, that the deletion of addition was justified." 85. The Hon'ble Delhi High Court in the case of CIT vs. Winstral Petrochemicals P. Ltd., 330 ITR 603, in which it was held as under : "Dismissing the appeal, that it had not been disputed that the share application money was received by the assessee company by way of account payee cheques, through normal banking channels. Admittedly, copies of application for allotment of shares were also provided to the Assessing Officer. Sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arranging any transaction because it was a genuine transaction between the parties. Therefore, there is no justification to make the addition under section 69C of the I.T. Act as well. In view of the above, we set aside the Orders of the authorities below and delete the entire additions in all the assessment years under appeals. In the result, all the grounds of appeals above in all the six assessment years are allowed. Thus Ground no 3,4 and 5 of A Y 2012-13, Ground no 3 for AY 2013-14, Ground no 3 of AY 2014-15, Ground no 1 for Ay 2015-16 , Ground No 1 of AY 2016-17 and Ground no 1 of AY 2017-18 are allowed. 87. Consequently, all the consequential ground of commission related to grounds mentioned in above para also becomes infructous and therefore they are allowed. 88. Now we come to the 2nd issue of addition on account of the bogus purchases out of books sales and suppressed profit. The learned assessing officer has dealt with this issue in para number 4-office assessment order for assessment year 2012-13. It is noted that during search the managing director of the assessee company in a statement u/s 132 (4) recorded on 22/3/2017 has admitted that assessee has resorted to bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bogus purchases, during the course of assessment, the assessee filed extensive details in respect of its entire purchases as well as its sales to various parties. On examination of the details filed by the assessee wherein the details of the total purchase along with the total sales made to all of these parties which have been alleged to be bogus in the appraisal report, as it was found that not all purchases were bogus. b) About 50% of the purchases made by the assessee from different persons have been verified by issuing notice u/s 133 (6) of the income tax act and on account of confirmatory letters as well as copies of ledger accounts presented by the assessee and no any variation has been found so far. c) Another important issue that needs to be taken care on this account is that when all the transactions with the alleged bogus parties as stated in the appraisal report are cumulatively taken into account, then it is noticed in most of the case is that the sales booked in their name is higher than the purchases reflected against them in each financial year, i.e. implying that the assessee in fact shown profits on the transactions made with the said parties instead of lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different parties. The above facts have also been standard from the stock position is noticed to be short by nearly INR 4 50 crores against the stock recorded in its books of account. In view of the above facts, it is clear that the books of accounts are not genuine and liable to be rejected u/s 145 (3) of the income tax act and the profit rate needs to be estimated on a reasonable basis keeping prevailing market rates in mind." 90. Thereafter the learned assessing officer in para number 5 suggested that the addition as proposed in the appraisal report in case of the assessee may not be tenable in the eyes of law. Thereafter, the learned deputy director of income tax (investigation) New Delhi sent a letter dated 24/12/2018 wherein AO was advised to make the addition on account of bogus purchases as recommended in the appraisal report. The minutes of the meeting of the deviation committee dated 28/12/2018 was also placed on record at page number 381 of the paper book. In the above meeting, the assessing officer along with additional Commissioner of income tax reiterated the same facts as suggested in the deviation report. Thus, in the end the learned assessing officer passed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng director did not deal with any of the issues and further it was retracted immediately after the search to the extent of correcting the disclosure with respect to deposit in PMGKY scheme. 93. As already stated, that assessee company is a trader and dry fruits and other grocery items used to purchase and sale these items from and to the impugned parties on a regular basis. The entire purchase and sale transactions are duly recorded in the regular books of accounts of all the parties concerned. The entire transactions were routed through regular banking channels. The purchases and sales are also duly supported by the quantitative details. Copies of the bank accounts of all the parties showing the receipts and payments against the sales and purchases from the impugned parties were filed before the learned assessing officer no incriminating documents with respect to the purchases and sales recorded by the assessee in its books of accounts was found in the course of search. In the original assessments for the concluded assessment is all these details were verified and assessments were framed under section 143 (3) of the income tax act. The books of accounts were duly audited as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That by booking the bogus purchases assessee is reducing its profit by inflating the expenses contrary to this, from these alleged parties transactions of purchases and sales, assessee has shown high profit. 96. The learned assessing officer has categorically held that in the appraisal report, only the purchases from alleged bogus parties were considered and sales made to these parties were altogether ignored. This action of the revenue runs contradictory to its own stand of booking of the bogus purchases. Thus, it cannot be said that purchases made from these parties are bogus however; sales made to these parties are genuine. The revenue cannot blow hot and cold in same breathe. 97. Further while disallowing 25% of the purchases the learned assessing officer has not brought on record any material to justify the disallowances with carrying out any enquiry or investigation or bringing forth any evidence. 98. The shortage of stock by nearly INR 4 50 crores mentioned in the assessment order by the learned assessing officer which was purely based on the appraisal report, vanished in the remand report for the reason that during the course of search it was the stock lying at wareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned authorised representative stating that it is the exclusive domain of the learned assessing officer about his satisfaction about the correctness or completeness of the accounts of the assessee and the method of accounting followed by the assessee. It was further stated that in the definition of the assessing officer as per section 2 (7A) there is no mention of the learned CIT-A, therefore, he exceeded his jurisdiction. It was also alternatively argued that, it is not the case of the revenue that AO did not apply his mind to the provisions of section 145 (3) of the act. It was submitted that AO did applied his mind to the applicability of the provisions of section 145 (3) of the income tax act in the deviation report but it was not done by the assessing officer. It was further stated that it was at the behest of the deviation committee meeting. Extensive reference was made to the deviation committing meeting and deliberations made there under. It was also alternatively argued that the learned CIT-A did not examine the books of account at all, then how can he reject the same. It was also submitted that the method adopted by the learned CIT-A of applying the gross profit ratio on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the income tax act, before making an assessment. However, it was rejected in the deviation proceedings and the learned assessing officer was directed to make the addition to the extent of 25% of the purchases from the allegedly bogus parties. Therefore it cannot be said that the assessing officer did not applied his mind during the course of assessment proceedings to the provisions of section 145 (3) of the income tax act. 103. With respect to the argument of the learned authorised representative that the learned CIT-A did not grant any opportunity of hearing to the assessee with respect to the application of the provisions of section 145 (3) of the income tax act, we reject the same for the simple reason that provisions of section 251 (2) of the income tax act applies only where there is an enhancement of addition or there is a reduction in the refund due to the assessee. In the present case the learned CIT-A has reduced the addition and therefore, no fault can be found with the action of the learned CIT-A. The learned assessing officer has also filed an appeal against the reduction of addition by the learned CIT-A. 104. However, if the learned CIT-A finds that the assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material available. The revenue authorities are not factored by technical rules of evidence and pleadings and they are entitled to act on material, which may not be accepted, as evidence in court of law. Nevertheless, they are not entitled to make a pure guess in making assessment with reference to any evidence or material at all. There must be more than a mere suspicion to support an assessment u/s 143 (3) of the act. Against this, the assessee has supported his books of accounts with adequate evidences of his own business as well as also supported it with the balance sheet and profit and loss account of comparable 3rd parties. The assessee has demonstrated that gross profits earned by those parties in the similar line of business are less than the gross profit declared by the assessee. 106. Further, the quantification of the profit by the learned CIT-A, has been made on in comprehensible assumptions. He applied the gross profit rate of other parties to the sales of allegedly bogus parties. He has application of the gross profit rate also changed from the year to year. In 1 of the years, he adopted the gross profit rate being average of gross profit of 2 preceding years on by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enced high sales in this year during Diwali, on account of increase in demand of dry fruits. The sale proceeds, which were in cash, were accumulated during this period. The same are being gradually deposited in the bank accounts of the company, as the branches did not accept very high amounts of cash in one go. Further, after 8/11/2016, there were very huge rush at the bank branches. Thus, this cash was deposited in instalments in company's bank accounts. The above 1 was reiterated in response to question number 39 wherein the managing director stated that there is an increase in cassettes the Senior due to increase in the demand of dry fruits. That is why, the cash receipts in the cash in hand are on the higher side this year. Further explanation over this would be submitted after reconciliation. However, he submitted that INR 5 0 crores which were shown in the cash book of the company actually represents his unaccounted and undisclosed income, for which he has no explanation however by 31/03/2017, the appellant had deposited the due taxes and deposits under PMGKY an amount of INR 30 crores only. The revenue authorities found that pattern of cash deposits in the bank accounts is h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egedly erratic and not in line with the normal trend. The monthly trend of cash sales and cash deposit transactions for F.Y 2014-15 to F.Y. 2016-17 was noted as under: Month FY- 2014-15 FY- 2015-16 FY-2016-17 Cash sales Deposit Cash sales Deposit Cash sales Deposit April 27.15 Cr. 25.82 Cr. 42.70 Cr. 42.05 Cr. 58.48 Cr 45.66 Cr May 08.51Cr. 10.71 Cr. 23.55 Cr. 21.72 Cr. 61.92 Cr. 57.49 Cr. June 12.95 Cr. 04.77 Cr. 12.20 Cr. 14.89 Cr. 73.35 Cr. 37.64 Cr. July 03.13 Cr. 02.90 Cr. 19.70 Cr. 22.36 Cr. 20.46 Cr. 04.97 Cr. August 02.01 Cr. 03.46 Cr. - 02.50 Cr. 21.58 Cr. 07.07 Cr. September 15.21 Cr. 08.20 Cr. 11.71 Cr. 15.63 Cr. 20.10 Cr. 43.76 Cr. October 14.60 Cr. 25.16 Cr. 29.95 Cr. 32.64 Cr. 99.68 Cr. 77.09 Cr. November 16.49 Cr. 14.46 Cr. 45.18 Cr. 47.12 Cr. 47.73 Cr. 113.52 Cr. December 22.26 Cr. 28.08 Cr. 97.35 Cr. 94.36 Cr. 69.83 Cr. 89.75 Cr. January 54.51 Cr. 57.04 Cr. 80.86 Cr. 76.32 Cr. 64.60 Cr. 63.50 Cr. February 37.27 Cr. 36.43 Cr. 44.39 Cr. 50.24 Cr. 36.20 Cr. 35.75 Cr. March 23.35 Cr. 25.62 Cr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slips were called for and analyzed. Verification of cash deposit vouchers were also made from respective banks by deputing ITI and each of the documents/vouchers of cash deposits submitted by the Assessee was verified from the original records maintained by the respective banks and found to be in order. Bank & Currency wise summary of new currency notes and non-demonetized old currency notes aggregating to Rs. 63.41 crores deposited in the demonetization period (i.e. 09.11.2016 to 30.12.2016) are placed at pages 149-150 of Paper book -2. Further copies of all the cash deposit slips for deposit of new and valid currency for 09.11.2016 to 30.12.2016 aggregating to Rs. 63.41 crores are enclosed at pages 151 to 183 of Paper book -2. The Ld. C.I.T (A) further observed that out of Rs. 113.03 crores held by the Assessee on 08.11.2016, only Rs. 13.99 crores was deposited into the bank account on 08.11.2016 (actually deposited on 10.11.2016 immediately after demonetization) and the balance Rs. 99.04 crores was not deposited on the said date. This in the opinion of the Ld. C.I.T (A) implied that on the date of demonetization, the Assessee had actual legitimate cash of Rs. 13.99 crores only. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during 09.11.2016 to 30.12.2016. The error committed by the AO is clearly verifiable from the following evidences on record : (i) Complete bank wise details of cash deposited in banks for the period 09.11.2016 to 30.12.2016 showing total deposits of Rs. 175.28 crores during the said period- at pgs 112-113 of PB-2 (ii) Copies of bank statements evidencing cash deposited during 09.11.2016 to 30.12.2016-at pgs 114-148 of PB-2 (iii) Cash ledger for F.Y. 2016-17 showing deposit of Rs. 5.25 crores on 31.12.2016 i.e. post demonetization period-at pgs 184-191 of PB-2. 114. Further, even out of Rs. 175.28 crores deposited during 09.11.2016 to 30.12.2016, deposits of Rs. 63.41 crores were in new currency notes and non-demonetized old currency notes (Rs. 10/20/50/100). Thus, the said amount of Rs. 63.41 crores could not be construed as cash deposited into the banks as a result of demonetization. The actual deposit of demonetized currency notes (i.e. old 500 & 1000 currency notes) during the demonetization period i.e. 09.11.2016 to 30.12.2016 was thus Rs. 111.87 crores(i.e. 175.28-63.41). Further, as per the A.O's own observation at page 5 of the Assessment Order for A.Y. 2017-18, R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertaining to cash sales and cash deposits have been accepted by the Department in the assessments framed in the past years. The audited financial statements form part of the regular returns filed by the iv. A search & seizure operation u/s 132 of the Act was conducted at the premises of the Assessee-Company on 21.03.2017. Nothing incriminating with respect to the cash sales or the corresponding cash deposits was found pursuant to the said search action. In course of the search assessment, the Assessee was asked to explain the nature and source of cash deposited into bank accounts during the demonetization period (i.e. between 09.11.2016 to 30.12.2016). The Assessee explained that the source of cash deposits in banks was cash sales. The same trend of cash sales and cash deposits existed in the past years as well as in the months subsequent to the demonetization period. The entries pertaining to cash sales and corresponding cash deposits in banks were duly reflected in the books of account of the Assessee. The audited books of account and the tax audit report for the impugned F.Y. 2016- 17 were also filed before the AO in course of the search assessment proceedings. v. On the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 100/50/20/10 on account of cash sales made subsequent to the demonetization. Therefore, clearly deposits of Rs. 111.87 crores (i.e. 175.28 cr. -63.41 cr.)During the demonetization period were in the form of old demonetized 1000 & 500-rupee currency notes, which were required to be deposited in its entirety before 30.12.2016. This also explains the reason why the cash deposited into the banks between 09.11.2016 to 30.12.2016 was more than the cash deposited in the earlier months. x. As regards the A.O's allegation that cash deposited during the demonetization period was unusual, it was submitted that in the immediately preceding month pre-demonetization i.e. in October 2016, the Assessee deposited a sum of Rs. 77.09 crores in banks. Further, in the immediately preceding year i.e. in the month of December 2015, the Assessee deposited a sum of Rs. 94.36 crores in banks. Thus, there was no unusual trend in depositing cash in banks during the demonetization period. Further, the total cash deposited in banks during F.Y. 2016-17 (i.e. Rs. 633.74 crores) was higher than the cash deposited in the past years for the simple reason that the cash sales in the said F.Y. 2016-17 (i.e. Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not permitted by the Banks) but in tranches does not automatically imply that the balance cash deposited subsequently did not represent legitimate cash as alleged by the Revenue Authorities. The source of the entire cash held as on the date of demonetization and deposited subsequently into various bank accounts is clearly evident from the entries in the books of account. xiv. The Revenue Authorities while making the impugned addition u/s 68 and rejecting the explanation offered by the Assessee with respect to the nature and source of the cash deposited in various bank accounts during the demonetization period (i.e. 09.11.2016 to 30.12.2016) have acted merely on surmises, conjectures, suspicion, presumptions and assumptions. The humble submissions of the Assessee highlighting the glaring internal inconsistencies in the orders of the Revenue Authorities the repeated violations of the provisions of law by them are as under: xv. The AO has treated the cash deposited in the banks during the demonetization period as unexplained cash credits u/s 68 of the Act although the nature and source of the cash deposits being proceeds arising out of cash sales is patently evident from the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t vouchers, which were produced before the AO in course of the assessment proceedings, and nothing adverse in connection therewith was noted by the A.O. The figure of cash sales offered by the Assessee in its Return of Income for F.Y. 2016-17 was accepted as such by the Department and considered in arriving at the assessed income of the Assessee for F.Y. 2016-17. Therefore, the cash sales recorded in the books of the Assessee having been accepted as such by the Department, the corresponding cash deposits made out of such cash sales cannot be rejected and deemed to have arisen on account of income from unexplained sources on mere surmises and conjecture of the AO. xix. The fact that cash sales and corresponding cash deposits in banks have been regular feature of the Assessee's business over the past several years has not been denied by the A.O. In fact, in the past, the AO after conducting a detailed scrutiny of books of account of the Assessee and after arriving at complete satisfaction with respect to the correctness of the entries recorded therein1accepted the cash sales and corresponding cash deposits in banks in the assessments framed u/s 143(3) of the Act for A.Ys 2012-13 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .53 crores (actually Rs. 175.28 crores), the following deposits were also sourced out of cash sales recorded in the books: * Cash deposited in new currency notes and nondemonetized currency notes to the extent of Rs. 63.41 crores. * Cash of Rs. 13.99 crores deposited on 10th November immediately after demonetization. xxiii. Thus, while the Ld. C.I.T(A) has accepted the cash deposited in banks in (i) the past F.Ys 2011-12 to 2015-16, (ii) in the predemonetization period i.e. April 2016 to 8th Nov 2016, (iii)in the post demonetization period i.e. January 2017 to March 2017, (iv) on the first day after demonetization i.e. 10th November 20162and (vi) during the demonetization period to the extent of Rs. 63.41 crores being deposits in new and valid currency notes - to have arisen out of cash sales, he has refused to accept the same modus operandi with respect to the balance cash deposited in old currency notes during the demonetization period without citing any explicable reason. xxiv. Thus, the Revenue Authorities have blown hot and cold in the same breath accepting and rejecting the explanations offered by the Assessee with respect to the transactions of identical nature at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of its cash balances from certain entries in its accounts wherein the fact that moneys were received in high denomination notes had been noted. Portions of these entries to the effect that moneys had been received in high denomination notes were found by the ITO to be subsequent interpolations made by the appellant with a view to advance its case that the cash balances contained the high denomination notes encashed by it. The ITO rejected the appellant's explanation that the high denomination notes formed part of its cash balances and treated the sum of Rs. 2,91,000 as the appellant's secreted profits from business and included it in its total income and assessed the appellant. Before the Tribunal, the appellant stated that the said entries were made in sheer nervousness after the coming into force of the High Denomination Bank Notes (Demonetization) Ordinance, 1946, on 12th Jan., 1946, as the appellant did not know that it had specific proof in its possession of having the high denomination notes as part of its cash balances. The Tribunal held that there was no other reason to suspect the genuineness of the account books in which these interpolations were made. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,000 each on 19th Jan., 1946. [para 14] The Tribunal, however, appears to have been influenced by the suspicions, conjectures and surmises which were freely indulged in by the ITO and the AAC and arrived at its own conclusion, as it were, by a rule of thumb holding without any proper materials before it that the appellant might be expected to have possessed as part of its business, cash balance of at least Rs. 1,50,000 in the shape of high denomination notes on 12th Jan., 1946,-a mere conjecture or surmise for which there was no basis in the materials on record before it. [para 15] Unless the Tribunal had at the back of its mind the various probabilities which had been referred to by the ITO it could not have come to the conclusion it did that the balance of Rs. 1,41,000 comprising of the remaining 141 high denomination notes of Rs. 1,000 each was not satisfactorily explained by the appellant. [para 18] If the entries in the books of account were genuine and the balance in Rokar and the balance in Almirah on 12th Jan., 1946, aggregated to Rs. 3,10,681-13-9 and if it was not improbable that a fairly good portion of the very large sums received by the appellant from time to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, that notes in question could not have been included therein.The Tribunal observes that it is unlikely that so many high denomination notes would have been held as part of the cash on hand for a such a large number of days. That, no doubt, is highly suspicious; but the decision of the Tribunal must rest not on suspicion but on legal testimony." xxix. Further the Hon'ble Allahabad High Court in the case of Sri Ram Tandon Vs. CIT (1961) 42 ITR 689 ordained as under: "It appears extremely difficult to appreciate how the Tribunal thought it necessary or proper to make an estimate of 35 notes at Rs. 1,000 each to have been contained in the cash balance. The Tribunal has given no reason whatever for its finding that the assessee possessed 35 notes of Rs. 1,000 each on the day the Ordinance was promulgated. This evidently is an arbitrary expression of its own guess, which cannot be accorded the status of a finding. Equally arbitrary is the other finding that the balance of 10 notes was from an undisclosed source. After having heard counsel for the Department and after giving best consideration to the matter one is quite unable to see any reason or basis for the so called finding rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew was expressed in the following cases: * Madhuri Das Narain Das Vs. CIT (1968) 67 ITR 368 (All) * K.S. KannanKunhi Vs. CIT (1969) 72 ITR 757 xxxii. Drawing inference from the above cited cases, in the instant case, the Assessee furnished a reasonable explanation with regard to the nature and source of the cash deposited in banks during the demonetization period which was not found to be false by the Department. The explanation offered by the Assessee was in line with the trend of cash deposits in the past years which was accepted by the Department in the assessments framed u/s 143(3) of the Act in the past. No material was brought on record by the Revenue Authorities to draw an inference that the explanation offered by the Assessee was incorrect or unreasonableorthat the impugned sum represented income of the Assessee from undisclosed sources as against the entries recorded in the audited books of the Assessee.Once the books of account of F.Y. 2016-17 were accepted by the Department and the cash sales recorded therein were considered in arriving at the assessed income of the Assessee for the impugned financial year, the cash deposited in banks against such cash sales could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch deemed income is less than the amount of basic exemption limit and even if it is higher, it is levied at the lower slab rate. 2) In order to curb the practice of laundering of unaccounted money by taking advantage of basic exemption limit, it is proposed to tax the unexplained credits, money, investment, expenditure, etc.,which has been deemed as income under section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of 30% (plus surcharge and cess as applicable). It is also proposed to provide that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of the Act in computing deemed income under the said sections. This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years." xxxiv. Thus, the intention of the Legislature behind introduction of section 115BBE was not to bring to tax genuine cash credits already offered to tax as income by the Assessee at higher tax rates. Such an interpretation wouldlead to recurring attempts on the part of the Revenue Authorities to reject genuine explanations o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 80.53 crores in various bank accounts maintained during this period. He further submitted that the AO has analyzed and observed that there was a substantial jump in the gross profit margin during the post-demonetization period as compared to pre-demonetization period. In addition, he noted that there are substantial jump in the gross profit of the assessee during this period. AO further noted that during the course of search the stock as per the books of accounts was also found short and the explanation regarding increase in sales in this year on account of increased demand for dry fruit was also found baseless. He further submitted that when assessee was holding cash in hand of INR 1 13.03 crores on that date via assessee deposited only INR 1 3.99 crores in the bank account this led the assessing officer to conclude that the legitimate cash on by the assessee company on the date of demonetization was only INR 1 3.99 crores. He also referred to the average monthly cash deposit of the assessee post demonetization period and pre-demonetization. He therefore submitted that deposit of substantially higher amount of INR 1 80.53 crores by the assessee has correctly been added by the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was a deviation proceedings based on the appraisal report guidance given by the investigation wing. The learned assessing officer in his deviation report stated as under: "1. Cash deposit in bank during the period 9/11/2016 to 31st/12/2016 a) During the course of assessment, proceedings the assessee company was asked to explain the sources of cash deposited in its bank account during the period of 9/11/2016 to 31/12/2016. In reply, assessee furnishes various details and documents. On examination of details and documents and materials available in this office, revealed that bank -wise details of cash deposits between the periods 9/11/2016 to 30/12/2016 works out the total of INR 1 75.57 crores, whereas the addition on account of cash deposits has been proposed of INR 1 80.53 crores on the basis of total cash deposits made during the November and December month. As per details of evidences filed by the assessee during the course of assessment proceedings, it is found that during the period 9/11/2016 to 30/12/2016 the assessee company had made cash deposits as under: Note denomination Number of notes Total amount in Rs. 2000 (notes) 284349 568698000/- 1000 (old notes) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able extent as per the business trend of the assessee company may not be ruled out. c) Further in order to estimate the issue of cash holdings in the hands of the assessee company in a particular day corresponding to bank deposits on that day, the cashbook of the assessee for assessment year 2017-18 was analyzed. The data extracted from cashbook of the assessee clearly revealed that huge amount of cash was being retained by the assessee without any purpose. The peak cash holding was on 31/8/2016. The assessee was holding cash exceeding INR 8 0 crores since 16/8/2016 to 6/9/2016. It is worthwhile to mention here the factors which states on a reasonability of the cash holding which are as under:- i. huge amount of bank loans as cash credit facility were outstanding, whereas the assessee was holding huge amount of cash ii. as per books of account, the purchases never been made in cash, therefore, the assessee had no reason for cash holdings for a long duration iii. as per balance sheet as at 31/03/2013, 2014, 2015 and 2016 the cash holdings are 5.50 crores, 3.88 crores, 3.34 and INR 3.88 crores respectively iv. further from the analysis of cash holdings from 1/11/2016 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of dry fruits increases every year as compared to other months. The version of the assessee on the above appears to be an acceptable contention since distribution of dry fruits during Diwali is a normal and accepted phenomena. In view of all these facts and circumstances, the addition on account of unaccounted cash, which were introduced in the books of accounts of the assessee under the garb of the cash sales proceeds and deposited in the bank account in the wake of demonetization, of INR 9 9.04 crores may be considered to be reasonable as against the proposal for addition of INR 1 80.53 crores for the assessment year 2017-18 which appears to be exaggerated and which may lead to high pitch assessment." 120. The Deputy Director of income tax replied as per letter dated 24/12/2018 wherein it was directed that assessee has not provided any evidence to show that INR 6 3.41 crores was on account of sales accounted for in the books of account, therefore, the contention that INR 6 3.41 crore deposited in respect of new notes of INR 2000-500 and old notes of Rs. 100, 50, 20 and 10 represents accounted income of the assessee is not acceptable. Further it was stated that no evidence was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder consideration, the assessee has deposited huge cache of INR 1 80.53 crores into its different bank account. During assessment proceedings, the assessee was asked to furnish details of cash deposits, pattern of cash deposits, and source of cash deposits and justification of huge cash in hand. The source of cash deposit was claimed to be cash sales made by the assessee. Further, on perusal of pattern of cash deposits in 3 assessment years i.e. assessment year 2015-16, 2016-17 and 2017-18, it was noticed that the entire cash sales made by the assessee, were not deposited by the assessee on the same day but Cash in hand for its business operations. However, no proper justification was given for keeping huge cash in hand on day-to-day basis. Further, as per evidence furnished by the assessee regarding deposits of cash during demonetization period, it was found that cash of INR 6 3.41 crore was made by the assessee in new currency notes of INR 2000 and INR 500 and old currency notes of Rs. hundred, INR 5 0, INR 2 0 and INR 10. The assessee has paid INR 3 0 crores under the PMGKY capital scheme during the post-search proceedings is declared during the search proceedings, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion number 4/2017. The 3rd instruction was in the form of a circular dated 15/11/2017 in F.No. 225/363/2017-ITA.II and the last one dated 09/08/2019 in F.no.225/145/2019-ITA.II. though some of the instructions/circular are after the passing of the assessment order but it gives a hint that what kind of investigation, enquiry, evidences that the assessing officer is required to take into consideration for the purpose of assessing such cases. In 1 of such instructions dated 09/08/2019 speaks about the comparative analysis of cash deposits, cash sales, month wise cash sales and cash deposits. It also provides that whether in such cases the books of accounts have been rejected or not where substantial evidences of wide variation be found between these statistical analyses. Therefore, it is very important to note that whether the case of the assessee falls into statistical analysis, which suggests that there is a booking of sales, which is non-existent and thereby unaccounted money of the assessee in old currency notes (SBN) have been pumped into as unaccounted money. The instruction dated 21/02/2017 that the assessing officer basic relevant information e.g. monthly sales summary, relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; 45.18 28.69 173.98 47.73 47.73 105.64 sales in December 22.26 97.35 75.09 337.33 69.83 69.83 71.73 i. On analyses of sales, it is apparent that sales in F Y 2014-15 were Rs. 237.44 Crores, which increased to Rs. 412.52 crores in F Y 2015- 16. The jump in sales is Rs. 175.08 crores, which is 73 %, compared to earlier years. The sales in F Y 2015-16 of Rs. 412.52 Cr Increased to Rs. 633.74 cr in F Y 2016-17, which resulted in to jump of Rs. 221.34 Cr resulting in to increase by 53.66 %. The % increase in sales in F Y 2105-16 compared to F Y 2014-15 of 73.74 % and % increase in sales in FY 2016-17 is only 53.66 %. Thus in the year of demonetization % increase in sales in less than earlier year. Growth in sales compared to earlier two years in case of the assessee shows similar trend. Thus, it cannot be said that assessee has booked non-existing sales in its books post demonetization. ii. Sales in November 2014 was Rs. 16.49 Crores where as sales in November 2015 was Rs. 45.18 crores, Thus resulting in to jump in sales of Rs. 28.69 Cr. The Jump In sales of November 2015 from Rs. 45.18 crores to sales in November 2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales compared to earlier year. However, the revenue has not questioned it. It is also not the case of the revenue that by backdating the entries in its accounting software it has increased the sales fictitiously. vi. Further jump in sales in the month of March 2017 compared to same month in earlier year shows phenomenal jump of more than thousand percent. It has been accepted by the revenue. Therefore, it clearly suggests that there is a growth in the business of the assessee beyond pre demonetization and post demonetization. vii. It is not the case of the revenue that assessee has not shown the relevant stock register before the assessing officer. The assessee has maintained the complete stock tally in its accounting software. Such books of accounts are audited, quantitative records produced before the tax auditor, such quantitative records are certified by tax audit and no questions have been raised by the assessing officer. Thus, it cannot be said that the figures of sales and purchases are not supported by the quantity details. viii. Another ground cited by the A.O in support of the impugned addition is that the stock position was short by nearly Rs. 450 crores as again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound by the search party were shown to us, which suggested that there is a shortage of stock after considering stock lying at Sonipat. ix. With respect to the variation in the gross profit assessee submitted before the assessing officer wide letter dated 20/11/2018 in reply to point number 7 which is placed at page number 325 of the paper book-1 wherein it is stated that that at the time of search the tally data was not finalized and therefore various adjustment like depreciation, interest and provisions for expenses were made after the close of the financial year. Therefore, it was submitted that gross profit shown by those tally data could not be compared with the data of audited accounts of earlier years. Assessee also submitted that if the GP ratio of all the years including financial year 2016-17 (Assessment Year 2017-18) is more or less same and there was no variation in the gross profit ratio. Therefore, comparison of the gross profit ratio with unaudited data of the current year with the audited data of the previous year cannot be made. However, there was a categorical statement of the assessee that if the audited accounts of the current year with the audited accounts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either found any back dating of the entries, evidence of bogus sales, evidence of bogus purchases, and non-existing cash in the books of account. In the deviation report the assessing officer has also stated that there is an unreasonable 80 of the cash holding, but it was merely a suspicion expressed by the AO based on which the addition was made. In paragraph number 1 (B) of the deviation report dated 20/12/2018, the learned AO himself stated that there is an element of suspicion that the assessee has made introduction of unaccounted cash in its books of accounts in the wake of Demonetization. However, he hastened to add that at the same time the Cash sales to the certain acceptable extent as per the business trend of the assessee company could not be ruled out. He neither made any attempt by making independent enquiry is to strengthen his suspicion into sound fact, nor he accepted the explanation of the assessee. He simply proceeded to make the addition. As per our analysis of the cash sales, which is as per the business trend of the assessee company only. xii. Further, it is not the case of the revenue that sales booked by the assessee in the newly introduced currency are bogu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h credit, which are backed by the closing stock of the assessee. Naturally, these funds are available to the assessee at a lesser rate of interest. Certain funds are also backed by hundred percent margins of fixed deposit receipts, which has very small amount of interest payout. The other advances received from banks in the form of packing credit are with respect to the export of garments. Therefore it was submitted that the funds available to the assessee are either repayable on a predefined term and or are having very small rate of interest. Therefore, it cannot have any relationship with the holding of cash on hand. xvii. Now the cardinal issue that requires to be discussed is that the assessee is maintaining its books of account in Tally software. It also maintains its stock register in that software. The various pages of the appraisal report and the printouts found during the course of search shows that assessee maintains the books of account of the large number of companies of its group or associates in the tally software. At page number 123 of 198 of part a of appraisal report, at the time of the search the gross profit margin of the assessee was 4-6% only. It was also sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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