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TMI Blog2021 (1) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ing disposed off by way of this consolidated order. AY 2013-14- ITA No.3993/Del/2019 3. We will first take up the appeal for the assessment year 2013-14 in ITA No 3993/Del/2019. The grounds of appeal raised are reproduced as under: 1. That the Commissioner of Income-tax (Appeals) ['CIT(A)'] erred on facts and in law in not holding that the assessment completed vide order dated 29.12.2017 under section 143(3) r.w.s. 153A of the Income-tax Act ('the Act') is beyond jurisdiction, bad in law and void-abinitio. 2. That the CIT(A) erred on facts and in law in not appreciating that the assessment order passed under section 143(3)/ 153A was passed in gross violation of provisions of section 153D of the Act inasmuch as the statutory approval of the JCIT, if any, was not provided to the appellant, and thus the assessment completed is beyond jurisdiction and bad in law. Without prejudice: 3. That the CIT(A) erred on facts and in law in upholding addition of Rs. 23,03,77,859 made by the assessing officer under section 69C of the Act treating purchase of milk in cash under the nomenclature "milk purchases tanki" as unsubstantiated/ unverified/ bogus. 3.1 That the CIT(A) erred on fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in violation of section 153D of the Act and thus beyond jurisdiction and bad in law. Section 153D provides that order u/s 153A of the Act cannot be passed by the assessing officer (below the rank of Joint Commission) without prior approval of the Joint Commissioner. At the end of the assessment order dated 29.12.2017 passed u/s 153A/ 143(3), the AO has remarked that the order was passed by taking approval from Joint CIT u/s 153D of the Act vide letter dated 29.12.2017. 6. In this regard, the appellant had submitted that copy of approval u/s 153D from JCIT was not provided to it, which is in gross violation of the principles of natural justice. It has been pleaded before us that in absence of copy of approval being granted, it is reasonable to conclude that requisite sanction was not obtained by the AO or the approval/ sanction obtained may not be proper and consequently, the assessment order passed is without jurisdiction, illegal and bad in law and liable to be quashed. The appellant further submitted that the assessment order is passed on the same date on which approval is sought (29.12.2017), and thus approval obtained, if any, is mechanical and thus, bad in law. The appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no statutory requirement under the law that copy of such approval or opportunity of hearing is to be given to the assessee. Accordingly, Ground no.2 as raised by the appellant is dismissed. 9. In grounds of appeal nos.3 to 3.5 the appellant has challenged the addition of Rs. 23,03,77,859 made under section 69C in respect of cash purchases of milk, namely 'Milk Tanki Purchases'. The appellant is stated to be one of the reputed manufacturers and exporters of milk and milk products like Skimmed Milk Powder, Full Cream Milk Powder, Dairy Whitener, Milk Fat, Paneer, Liquid Milk and Desi Ghee. The appellant-assessee supplies its products under the brand name of "Param Premium". Purchase of milk by the appellant from several producers is classified under various heads, viz.; (a) Milk purchases 'tanki' where under farmers from nearby villages come with their milk production to the appellant's factory and at times milk is stated to be delivered by one representative farmer in tanki on behalf of group of farmers. Payments to the farmers towards purchases are paid in cash, primarily since they do not have bank account and the daily purchases are not substantial for a single farmer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plete detail of stock was not filed, etc., and thus, sources of milk tanki purchases made in cash does not stand substantiated. Based on the said allegation, addition of Rs. 23.03 crores on account of milk tanki purchases has been made by the AO u/s 69C of the Act. The assessing officer further held that the aforesaid sum is also disallowable under section 40A(3) of the I.T. Act since huge cash payments to traders were made in violation of that section (and not to farmers covered under Rule 6DD as stated by the appellant) for purchases of milk. 12. On first appeal, the appellant filed detailed submissions alongwith various documents before the CIT (A), for assessment years 2008-09 to 2014-15 combined. Complete details of stock, details of each farmer, payments made to them day wise etc. were placed on record. The submissions were remanded by the CIT (A) to the assessing officer for comments thereon. During the course of remand proceedings, the AO had required the appellant to produce various farmers/ parties (around 10 in numbers) from whom milk purchases tanki was made. In response to the request, only two persons namely, one Mr. Manveer Singh and one Mr. Shree Gopal is noted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the same to be bogus. 14. That apart, it was held by the CIT(A) that Rule 6DD of the IT Rules, which provides for exceptions to applicability of section 40A(3) of the IT Act cannot be invoked as the persons examined by the AO were clearly of trade dispensation and cannot be said to be agriculturists nor can other constraints of not having banking channels be seen. On examination of factual details by the CIT(A), a sum of Rs. 45,30,989 was found to be paid in cash against the tanki purchases which were in violation of section 40A(3) of the Act. No separate disallowance for the same was however made since entire tanki purchases stood added back under section 69C of the IT Act. 15. The ld. Senior Counsel, Mr. Ajay Vohra appearing on behalf of the appellant argued that at the threshold itself the aforesaid addition cannot be sustained since provisions of section 69C of the IT Act are not applicable to expenditure/ amount duly recorded in the books of account. He submitted that section 69C of the IT Act deems an expenditure incurred by the assessee to be the income if source of such expenditure is not explained satisfactorily. He contended that once an expenditure is recorded in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es made by the appellant in cash. In this context, the modus operandi for milk purchases tanki was explained by him in the following manner: * Farmers from nearby villages having limited milk production come to the assessee's factory and sell their daily milk production to the assessee. Sometimes, one head/ select farmer from the village collects all the milk and sends the same to the assessee's factory. In case where head/ select farmer of the village collects and gets the milk, assessee keeps record of the select farmer of each village but not of the individual farmers, considering that the regular purchase/ dealing is made with the select farmer on behalf of the individual farmers. In the books of accounts, the assessee makes a common entry of purchases in order to avoid multiple and numerous ledgers. * At the time milk is received at the factory gate, the milk is weighed and tested for quality of milk. A quality slip is generated which contains the details of the milk, including gross weight/ net weight, temperature, taste, acidity, BB, fat content, CLR and SNF, sodium content, adulterants, etc. Such weighment/ quality slips have been placed at pages 83-98 of paper book. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dairy business. It was vehemently contended the aforesaid process is being adopted by the assessee for the last several years and has always been accepted in the past years. It was also submitted that other milk purchases (other than tanki purchases) are also substantially/ largely in cash but are not disputed by the Department. It is further submitted that the assessee has been dealing with same farmers' year on year, which has not been doubted by the assessing officer in preceding and even subsequent years (AY 2015-16 onwards). In this context, the Ld. AR relied upon the principle of consistency laid down in Radhasoami Satsang v. CIT: [1992] 193 ITR 321 (SC) and reiterated in CIT v. Excel Industries Ltd.: [2013] 358 ITR 295 (SC) and other decisions. 20. As regards the findings/ allegations of the Assessing Officer and Ld. CIT(A) that purchases were bogus since; (i) assessee failed to produce the farmers (except two); and (ii) farmers produced could not substantiate the capacity to have sold the quantity of milk recorded in the assessee's books, Mr. Vohra submitted that, enough documentary evidence were placed on record to justify the genuineness of purchases; producing of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d details of cash sales and withdrawals to fund total cash sales is placed at pages 72 of the paper book filed by the assessee. It was also argued that milk procured through 'milk tanki purchases' is used to produce only Skimmed Milk Powder (SMP) and milk procured via other modes is usually not utilized for manufacture of SMP; therefore, SMP could not have been produced if there were no milk tanki purchases. A quantitative summary chart of milk and milk products has been filed at pages 70 to 71 of paper book, and from perusal of which it is noticed that total quantity of milk procured by way of 'milk tanki purchases' is utilized in manufacturing of SMP. It was thus argued that since, the quantity and sale of SMP has been accepted/ not doubted by the Revenue, the sales and corresponding purchases have been reported in returns filed before the sales tax/ VAT authorities, to allege that milk tank purchases are not genuine would not be justified. 23. Mr. Vohra, submitted that it is not open to the Revenue to have simply doubted part of the purchases, duly recorded in the books of account, stock registers, etc., and treat the same as bogus without any cogent reasons. It was submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid alleged tanki purchases are to be considered as bogus, then the GP ratio would increase drastically which defies logic and the consistently accepted GP ratio over the years, which supports the fact that purchases were genuine. In support reliance in this regard was placed on the decision of the jurisdictional Delhi High Court in the case of CIT v. Paradise Holidays 325 ITR 13 (Del.) wherein the Court held that the accounts which are regularly maintained in the course of business and are duly audited, free from any qualification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that the same are incorrect or unreliable. The Hon'ble Court further observed that the onus was upon the Revenue to show that either the books of account maintained by the assessee were incorrect or incomplete or that the method of accounting adopted by him was such that true profits of the assessee could not be deduced there from. 26. Without prejudice to the aforesaid proposition, Mr. Vohra argued that even if the purchases are held to be bogus, then, addition could have, at worst, been made only to the extent of profit on the sales made against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer since the assessee failed to produce supporting evidences and failed to justify cash milk purchase tanki and that he could not establish cash payments. It was submitted that since the assessee was claiming expenses towards purchases, the onus was entirely on the assessee to establish the genuineness of the purchases. It was also contended that the claim of the appellant of having made purchases from farmers is not established in this regard, reliance was placed on the statements recorded during the first appellate proceedings. It was further submitted that the appellant should have, when called upon, produced the suppliers of milk to establish genuineness of the purchases made, which has not been done. It was contended that the supplier produced could not demonstrate the capacity to supply milk and hence the claim of the appellant was not established. It was also submitted that purchase were made in cash in clear violation of provisions of section 40A (3) of the IT Act and for that reason also the expenses are rightly disallowed. 30. We have heard the rival submissions, perused the relevant finding given in the impugned order as well as material referred to before us at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account. Once the source of purchases are duly recorded in the books of account, ostensibly, then source of such purchase/ expenditure stands established, because it has been incurred out of the funds shown in the books of account. In such a case, at the threshold, addition under section 69C cannot be resorted to, because the source of such expenditure stands duly explained from the funds available in the books of account and it cannot be held that purchases have been made outside the books of account. This proposition is in conformity with the judgement of Hon'ble Jurisdictional High Court in the case of CIT versus Radhika Creation (supra). 32. The case of the Revenue is that the genuineness of the purchases could not be established merely for the reason that the payments have been made in cash to the farmers which was not open to independent verification from all the farmers. However, the nature of business of the assessee and modus operandi for milk tanki purchases has to be understood and in that light explanation has to be seen as to why the cash payments for such purchases are inevitable. The modus operandi as has been highlighted in the foregoing paragraphs needs to be ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ips generated at the time of receipt of milk in the factory, copies of milk receipts issued by the assessee and the details of milk brought by the farmers including the weight and amount, details of ledger account of the parties from whom purchases and sales have been made; monthly summary of milk purchase made from the farmers of different villages, month wise payment, stock details and quantity of milk products manufactured, etc. 33. In none of the above details, the Assessing Officer has found any discrepancy or has found any fault, that the same is either not explainable or is not corroborated with other records. If the quantity of purchases are verifiable from other records maintained by the assessee and no discrepancy or defect has been found in the stock register or in the production register and above all the sale of milk/milk products have been accepted, then it is very difficult to hold that the purchases made by the assessee are not genuine or bogus. If the assessee requires particular amount of quantity of milk for production of any milk products or for sale, then it would be very difficult to assume that assessee has not made any purchases or the source of purchases i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chart of milk and milk products have also been filed before us which goes to show that entire milk tanki have been utilized for manufacturing of skimmed milk powder. Once the sales have been accepted, then corresponding purchases cannot be doubted especially when all the purchases and sales are recorded in returns filed before the VAT authorities. We agree with the contention of Mr. Vohra that assessee could not have made admitted sale without having made the disputed purchases especially when sales quantity and value has been accepted, and therefore, we hold that the corresponding purchases cannot be disallowed. 36. Lastly, if the Assessing Officer has not rejected the books of account or the trading result, then Assessing Officer cannot tinker with the gross profit by disallowing entire purchases. Accordingly, the addition made by the Assessing Officer and sustained by the CIT (A) for sums amounting to Rs. 23,03,77,859/- is deleted. 37. The other arguments of the ld. counsel that in the subsequent years and in the earlier years, similar purchases has not been doubted and the trading result have been accepted, though gives credence to the assessee's explanation but does not wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details/ evidence or explanation the Ld. Assessing Officer was justified in adding the amount of Rs. 8,11,239/- from the head salary difference to the assessee income for the year under consideration, which has been made based on a seized document. 41. During the course of arguments, the Ld. Senior Counsel for the appellant submitted that vide letter filed before the assessing officer (page 113 of paper book), the appellant explained that the said seized document is in nature of rough jottings and is dumb document inasmuch as it was stated that: (a) the author of the document is not known; (b) the document do not bear any signature; and (c) contains mere rough jottings as 'salary difference'. It was submitted that the jottings merely relate to estimations/ deliberation/ discussion by the management/ executives for reduction in salary cost/ expenses and are not in the nature of any financial transactions undertaken by the appellant impacting its income/ expenses. 42. The Ld. Sr. Counsel also argued that the assessing officer has failed to bring on record any corroborative evidence to support his conclusion with regard to the allegations made in the assessment order that these exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the IT Act and affirmed by the CIT(A) on the ground that the same were not accounted in books of account. During the course of search, certain vouchers for expenses were seized. The same were marked as Page Nos. 114 to 127 of Annexure A6 pertaining to party PD-2 (placed at pages 159-171 of paper book). The assessing officer made addition of aforesaid amount of Rs. 4,14,120/- holding that the same were expenses incurred outside books of accounts. The CIT (A) affirmed the addition. 46. During the course of arguments, the Ld. Sr. Counsel submitted that the pages/ material relied by the assessing officer are not incriminating material and further submitted that papers (first paper) contain rough jottings with heading 'legal expenses' of some amounts/ vouchers which are not final/ actual. It is stated that the expense vouchers following such list are certain draft vouchers prepared by various employees which may have not been submitted to management for reimbursement or not approved or rejected by the company officials/ management and never paid. It is contended that the said contention is evident from the fact that the said vouchers are not signed by employees submitting the vouche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng interest under sections 234A, 234B and 234C of the IT Act. 49. It is submitted by the appellant that levy of interest is incorrect for the reason that: (a) Interest under section 234A of the Act has been erroneously computed for the period of 99 months, as against delay of merely 8 months after time allowed to file return in response to notice under section 153A of the IT Act since assessee was required to file return under section 153A of the IT Act within 15 days from notice dated 26.05.2015 and in response to which letter/ return was filed on 11.01.2016 and (b) Interest under section 234C of the IT Act is required to be computed basis returned income, which is not correctly computed. Further, interest under section 234B of the IT Act is stated to be consequential to the outcome of other grounds of appeal. 50. On the issue of levy of interest as challenged, we agree with the contention of the ld. counsel as submitted above and direct the Assessing Officer to compute the interest u/s.234A, because the delay has to be accounted from the time allowed to file the return of income in response to notice u/s.153A. Here in this case, assessee was required to file the return u/s.153 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 6DD of Income-tax Rules and thus not hit by rigors of section 40A(3) of the Act. 3. That on facts and circumstances of the case, disallowance to the extent of Rs. 5,87,652 (Rs. 1,86,55,635*0.0315) by applying gross profit ratio to alleged unexplained balances of sundry creditors, alleging the same to be suppressed profits element in respect of unexplained balances/ purchases was not deleted. 4. That the CIT(A) erred on facts and in law in affirming the action of the assessing officer in making disallowance of Rs. 89,29,854 under section 69C of the Act on the ground that certain expenditure incurred towards packing material was not accounted/ recorded in the books of accounts. 5. That the CIT(A) erred on facts and in law in upholding addition of Rs. 14,37,410 alleging the same to be sales not recorded in the books of the assessee. 5.1 That without prejudice, the CIT(A) erred on facts and in law in not appreciating that addition, if any, could have been made only to the extent of profit element included in the alleged undisclosed/ unaccounted sales. 6. That the CIT(A) erred on facts and in law in upholding the action of the assessing officer in making addition of (i) R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g material such as name, purchase amount, TDS, cash, cheque, etc. On the basis of the said papers, the assessing officer held that amount shown under column 'cash' was expenditure incurred outside the books of accounts. Accordingly, the same was treated as unexplained expenditure under section 69C of the IT Act and added to income of the assessee. The addition was upheld by the CIT (A) observing that the appellant failed to offer any substantive explanation in this regard. 56. The Ld. Sr. Counsel for the appellant submitted that the assessee purchases packing material from several vendors for packing its products for sale in the market. The material received from the vendor is firstly tested by the assessee company and only if it satisfies the standards/ specifications as prescribed by the assessee, then the same is purchased by the company. If the material does not meet the standard/ specifications requirement of the assessee, then the same is returned by the assessee to the concerned vendor. In Annexure A7 seized during the course of search, column of 'cash' appearing in the loose sheet reflected material returned back by the assessee company to the concerned vendor. It was arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be corroborated by evidence supporting such allegation for making addition, in absence of which no addition could be made [Shankerlal Nebhumal (HUF) V. DCIT: 80 TTJ 69 (Ahd.) affirmed in DCIT V. Jivanlal Nebhumal (HUF): 182 CTR 370, Kences Foundation (P) Limited: 289 ITR 509 (Mad), Ramesh K. Shah v. DCIT: 82 TTJ 827 (Bang)]. 59. We have heard the rival submissions and perused the relevant finding given in the impugned order as well as the material referred to before us, the addition has been made u/s.69C on the ground that certain expenditure incurred towards packing material has not been accounted for or recorded in the books of account. Addition has been based on seized paper marked as Annexure A-7 where it contains details of transaction with several parties towards purchase of packing material wherein various details have been mentioned. The Assessing Officer has inferred that the amount shown in the column 'cash' has been incurred outside the books of account. Before us, the ld. counsel has duly clarified that the packing material are purchased from various vendors for packing its product for sale. It is first tested by the assessee for its quality and specifications and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that when during the post search enquiries, the assessee was asked to explain the contents of these pages, the assessee submitted that the annexure contained detail of milk sale prepared by a small sale depot in-charge and the same is a rough note maintained by the depot in charge for his ease, on the basis of which no adverse inference should be drawn. 62. The assessing officer did not accept the contention of the assessee, since date wise entries have been made with narrations given against each entry. The assessing officer further held that these pages relates to the month of February 2014, as on top of these pages date of February 2014 is mentioned. Accordingly, the assessing officer proceeded to make addition of Rs. 14,37,410/- as unaccounted sales. The CIT(A) affirmed the addition made by the assessing officer on the ground that the appellant failed to offer any explanation except stating that only profit of such transactions should be added. 63. Before us, the Ld. Sr. Counsel submitted that the seized papers are merely rough noting of sales prepared by small depots in-charge which are part of total sale in the profit and loss account and that the said sale has already been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed, therefore, no separate addition qua the sales outside the books can be made. On this ground the addition made by the Assessing Officer is deleted. 66. In ground of appeal no.6, the appellant has challenged addition of Rs. 35,72,166 made by relying on pages 68,70,74 of Annexure 9 found from PD-3 and addition of Rs. 65,14,988 as per pages 38 to 44 of Annexure A2 found from PD-3 as unexplained difference between receipts and payments recorded in the said documents, which has been upheld by the CIT(A). 67. Before us, the Ld. Sr. Counsel submitted that the aforesaid seized annexures are merely some handwritten rough noting on papers wherein certain amounts are mentioned against which short descriptions of items are given, which are in the nature of unauthenticated dumb documents/ papers having some scribbling, not having any financial implications. It was contended that the author of the document/ paper is not known or pointed out by the department nor does the appellant's name/ stamp / seal appear on the said receipts and payments accounts. It is argued that documents are not signed/ checked/ authorized by any employee or personnel of the appellant and there are no corroborativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account and hence are unaccounted expenditure. The additions have been upheld by the CIT (A). 71. As regards addition of Rs. 25,85,554/- on the basis of Page No. 54 of Annexure A7, the Ld. Counsel submitted that the seized annexures are merely handwritten rough noting on papers wherein certain amounts are mentioned against which short descriptions of items are given and merely some names and amounts are written. Similar arguments were made that the paper(s) are in the nature of unauthenticated dumb documents, author whereof is not known and the document/ paper do not bear any seal/ stamp etc. 72. As regards addition of Rs. 15,10,648/- on the basis of Page Nos. 55 to 81 of Annexure A7 it was submitted that the said seized annexures are expense vouchers and journal vouchers. It was submitted that the expense vouchers relates to cash paid to various persons and the corresponding journal vouchers shows that cash was returned/ received back from the said parties, not resulting in any undisclosed income of the appellant. It is contended that the factum of such cash payment and received are recorded in the books of accounts of the appellant which is evident from the ledger accounts plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Rs. 9,78,194 made as un-reconciled balance between the seized manual ledger account of parties and the books of account, treating the same as unaccounted sales. 77. In the assessment order, the assessing officer referred to Annexure A-24 seized from the party PD-2 at the corporate office, Param Tower, Pusa Road, New Delhi, which contains the names of various parties without any address. It was observed that on top of these pages "ledger" is written and on each and every page against the name of party credit and debit balances are shown and at the end balance figure is arrived at. The assessing officer held that in the said Annexure data is maintained day wise for the month of January and debit and credit entries are recorded by the assessee. The AO further observed that in majority of the cases, the debit and credit entries have been tabulated and the balance is written at the end of the pages. The AO noticed that the data contained in the seized annexure contains opening balance, sales made during the year, payments received from parties during the year and closing balance of the parties. After considering the submission of the Appellant, the AO noted that the balance as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aper are manual ledgers maintained for convenience, wherein business transaction with various parties are recorded including the opening balance, sales made during the year, payment received and the closing balance. It was used for immediate reference and then after correction entries are recorded in books of account. Once the two entries are verifiable form party wise ledger account appearing in books of account; Ledger account of various bank accounts maintained by the assessee; and Bank statements showing receipts of sales made, then such a difference of Rs. 9,78,194/- which remained un-reconciled between balance as per seized ledger and ledgers as per books of account cannot be sustained. Even otherwise also the difference of Rs. 9,78,194/- is very meagre looking to the volume of transaction recorded in the books of account which is more than Rs. 20 crores and if simply balance of Rs. 9,78,194/- could not be un-reconciled it cannot be inferred that same are outside books of account. If so many entries are made in the manual ledger and then same are accounted for finally in the books of account then there could be possibility of some errors in corrections. In absence of any reje ..... X X X X Extracts X X X X X X X X Extracts X X X X
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