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TMI Blog2021 (2) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... tself in other assessment years that additions were not made on the basis of any incriminating material as the Assessing Officer, while making the additions, had not relied on any seized material and had relied on the document marked as BK-2 which was seized by the search party from some other group and there the search took place almost one year before the date of search on the present assessee- Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Ld. AO u/s 68 of the Income Tax Act,1961, on account of alleged share capital amounting to ₹ 40,00,000/- and alleged share premium amounting to ₹ 60,00,000/-, without appreciating that no incriminating material, document(s)/evidence was found from the premises of the appellant (searched person) during the course of search, therefore, firstly, the impugned assessment made u/s 153A of the Income Tax Act, 1961 and secondly the addition for alleged unexplained share capital are illegal, voidab- initio, bad in law and liable to be quashed/deleted." 2. That the learned CIT(A) has erred in law and on facts in sustaining the addition of ₹ 2,50,000/- made by the learned Assessing Officer u/s 69C of the Income Tax Act,1961 on account of alleged unexplained expenditure @ 2.5%, in respect of share capital and share premium, without appreciating that no incriminating material, document(s)/ evidence was found from the premises of the appellant (searched person) during the course of search, therefore, firstly, the impugned assessment made u/s 153A of the Income Tax Act, 1961 and secondly the addition for alleged unexplained expenditure are illegal, void-ab-initio, bad i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of search, therefore, firstly, the impugned assessment made u/s 153A of the Income Tax Act, 1961 and secondly the treatment of profit in wholesale trading in cloth, as unexplained cash credit by the Ld. A.O., are illegal, void-ab-initio, bad in law and liable to be quashed/deleted. 4. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur, has erred in law and on facts in sustaining the arbitrary addition of ₹ 6,35,407/- made by the A.O., being the alleged commission paid @ 2% on the gross profit from wholesale trading of cloth treated as unexplained expenditure under section 69C of the IT. Act, 1961, merely on surmises and conjectures, without appreciating that no incriminating document(s)/evidence was found in the course of search relating to the above addition in the assessment passed u/s 153A of the Income Tax Act,1961. 8. That the learned CIT(A) has erred in law and on facts in sustaining the impugned additions made by the Assessing Officer and ignoring the fact that the Assessing Officer has neither confronted any incriminating material/statement nor provided an opportunity to cross examine the persons of the Rich Group, whose statement(s) were reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on facts in sustaining the arbitrary addition of ₹ 18,41,391/- made by the A.O., being the alleged commission paid @ 2% on the gross profit from wholesale trading of cloth treated as unexplained expenditure under section 69C of the IT. Act, 1961, merely on surmises and conjectures, without appreciating that no incriminating document(s)/evidence was found in the course of search relating to the above addition in the assessment passed u/s 153A of the Income Tax Act,1961. 8. That the learned CIT(A) has erred in law and on facts in sustaining the impugned additions made by the Assessing Officer and ignoring the fact that the Assessing Officer has neither confronted any incriminating material/statement nor provided an opportunity to cross examine the persons of the Rich Group, whose statement(s) were relied upon by the Assessing Officer thus, the inference drawn were arbitrary, unilateral and are also illegal and unsustainable in law and on facts." I.T.A. No.637/Lkw/2019 "1. That the Ld. Commissioner of Income Tax (Appeals)-IV, Kanpur has erred in law and on facts in sustaining the addition of ₹ 1,50,00,000/- made by the Ld. AO u/s 68 of the Income Tax Act,1961, on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of search relating to the above addition in the assessment passed u/s 153A of the Income Tax Act,1961. 8. That the learned CIT(A) has erred in law and on facts in sustaining the impugned additions made by the Assessing Officer and ignoring the fact that the Assessing Officer has neither confronted any incriminating material/statement nor provided an opportunity to cross examine the persons of the Rich Group, whose statement(s) were relied upon by the Assessing Officer thus, the inference drawn were arbitrary, unilateral and are also illegal and unsustainable in law and on facts." I.T.A. No.638/Lkw/2019 "1. That the Ld. Commissioner of Income Tax (Appeals)-IV, Kanpur has erred in law and on facts in sustaining the addition of ₹ 1,00,00,000/- made by the Ld. AO u/s 68 of the Income Tax Act,1961, on account of alleged share capital amounting to ₹ 25,00,000/- and alleged share premium amounting to ₹ 75,00,000/-, without appreciating that no incriminating material, document(s)/evidence was found from the premises of the appellant (searched person) during the course of search, therefore, firstly, the impugned assessment made u/s 153A of the Income Tax Act, 1961 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine the persons of the Rich Group, whose statement(s) were relied upon by the Assessing Officer thus, the inference drawn were arbitrary, unilateral and are also illegal and unsustainable in law and on facts." I.T.A. No.643/Lkw/2019 1. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur, has erred in law and on facts in sustaining the treatment of profit in wholesale trading in cloth amounting to ₹ 2,66,951/-, as unexplained cash credit by the Ld. A.O., under section 68 r/w section 115BBE of the Income Tax Act, 1961, without appreciating that no incriminating material, document(s)/evidence, was found from the premises of the appellant (searched person) during the course of search, therefore, firstly, the impugned assessment made u/s 153A of the Income Tax Act, 1961 and secondly the treatment of profit in wholesale trading in cloth, as unexplained cash credit by the Ld. A.O., are illegal, void-ab-initio, bad in law and liable to be quashed/deleted. 2. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur, has erred in law and on facts in sustaining the arbitrary addition of ₹ 5,339/- made by the A.O., being the alleged commission paid @ 2% on the gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r provided an opportunity to cross examine the persons of the Rich Group, whose statement(s) were relied upon by the Assessing Officer thus, the inference drawn were arbitrary, unilateral and are also illegal and unsustainable in law and on facts." 3. Learned counsel for the assessee, at the outset, submitted that the appeals in all these years are covered in favour of the assessee by the order of the Tribunal in the case of assessees itself vide order dated 16/12/2020. Learned counsel for the assessee submitted that Hon'ble Tribunal had deleted the additions in some years as the additions were made therein without having found any incriminating material as the assessments in those cases stood completed. It was submitted that in some of the years the Hon'ble Tribunal allowed appeals of the assessees on another ground of not confronting the adverse material to the assessees. Therefore it was prayed that the appeals of the assessees may be allowed following the above Tribunal order. 4. Learned D. R. fairly agreed that the legal issues involved in these appeals are covered in favour of the assessee by the above said Tribunal order. However, she placed reliance on the orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 30/09/2013 which is before the date of search i.e. 23/08/2016. Similarly, for assessment year 2014-15 the return was filed on 30/11/2014 which is apparent from page No. 37 of the paper book and the date for issue of notice u/s 143(2) expired on 30/09/2015 and intimation u/s 143(1) was issued vide order dated 29/12/2014, a copy of which is placed in paper book at pages 40 to 48. Therefore, for assessment years 2012-13 & 2014-15 the additions are not sustainable as the additions have not been made on the basis of any seized material which is apparent from the assessment orders itself. 6. We have already held in our order dated 16/12/2020 in the case of the present assessees itself in other assessment years that additions were not made on the basis of any incriminating material as the Assessing Officer, while making the additions, had not relied on any seized material and had relied on the document marked as BK-2 which was seized by the search party from some other group and there the search took place almost one year before the date of search on the present assessees. The findings of the Tribunal are contained in para 5 of the order, which for the same of completeness, are reprod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is sale was stage managed by Sh. Shashwat Agarwal and his brothers as all the shares were purchased by the companies controlled by Sh. Shashwat Agarwal." 5.1 The above observations, noted by the Assessing Officer, clearly demonstrate that a diary identified as BK-2 was impounded during search & seizure operation on 28/04/2015 in the case of search on the companies belonging to Shri Shashwat Agarwal wherein the name of Shri Navin Jain and his family members were mentioned. The Assessing Officer nowhere noted that the names of the assessees was also mentioned in such diary. Moreover, from the findings of the Assessing Officer, we find that the companies of Shri Shashwat Agarwal were engaged in providing accommodation entries of bogus Long Term Capital Gain, unsecured loans etc. to various parties and there is no mention of bogus transactions of cloth. Moreover, the above findings clearly indicate that the accommodation entries of Long Term Capital Gain and unsecured loans were obtained by the individuals mentioned in the assessment order and there is no mention that the assessees had taken any entry of Long Term Capital Gain or unsecured loans from the companies of Shri Shashwat Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thereafter, a notice and questionnaire under sections 143(2) and 142(1) were also issued. The Assessing Officer passed separate orders in respect of the assessment years 2000-01 to 2003-04. For the assessment year 2004-05, as in the preceding years, the assessee had claimed deduction on account of franchisee commissions paid to various parties. The Assessing Officer held that the addresses of the franchisees were not revealed and that there were discrepancies in the details of the accounts of the franchisees filed by the assessee. Consequently, the franchisee commission payments claimed by the assessee were added back to her income. For the assessment year 2004-05, the Assessing Officer also made an addition on account of stock. The Assessing Officer estimated the undisclosed income, on account of franchisee fee, at a certain percentage for the assessment years 2001-02 to 2006-07. No addition was made for the assessment year 2006-07, although a disclosure was made. Before the Commissioner (Appeals), the assessee produced additional evidence under rule 46A of the Income-tax Rules, 1962, which included copies of franchisee agreements. A rejoinder was filed by the assessee. On analy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of Raj Kumar Arora 367 ITR 517, though supports the contentions of the Revenue but since Hon'ble Supreme Court has decided the issue in favour of the assessee in the case of Meeta Gutgutia therefore, the judgment of jurisdictional High Court will not help the Revenue. The contention of the Revenue that since the Department has not accepted the decision of Hon'ble Supreme Court in the case of Kabul Chawla and Meeta Gutgutia as SLP in the case of CIT vs. Continental Warehousing Corporation 235 Taxman 568 (SC) has been admitted is also of no help to Revenue. Therefore, in view of the above case laws, we hold that in case of completed assessments, the addition can be made only on the basis of incriminating material found during search. We have already held that no incriminating material was found from the premises of the assessee therefore, the additions cannot be made in the case of completed assessments which in this case is appeal for assessment year 2013-14 wherein in I.T.A. No.510 the assessment order was already passed u/s 143(3) on 22/03/2016 which is before the search date of 23/08/2016, copy of assessment order is placed at pages 51 to 54 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in reply to show cause notice the assessee had specifically asked for the confrontation of adverse material. 10. For the sake of completeness the reply to show cause notice wherein the assessees had requested for confrontation in I.T.A. No.643, has been made part of this order which is reproduced below: Kanpur Dated:21.12.2018 To The Dy. Commissioner of Income Tax, Central Circle-IJ, Kanpur. Sir, RE: Show Cause Notice 12.12.2018 in the case of M/s. Paras Castings and Alloys Pvt. Ltd. in connection with Assessment Proceedings under section 153A of the I.T. Act for the Assessment Year 2017-18 Explanation Regarding With reference to your Notice referred above, we wish to explain and submit as under: 1) Pre-conceived inferences: A search was conducted on 23.08.2016 (concluding on 25.08.2016) and despite almost 27 months passed from the said date, no enquiry except from Shri Ankur Gupta 2-3 questions were asked during the course of search at the office of M/s. Radhey Radhey Ispat Pvt. Ltd. Group, about the cloth trading, no meaningful enquiry was done from any responsible person of the assessee group till now. However, in the Show Cause Notice based on third party i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Ashish Agarwal and Shri Shashwat Agarwal: At the outset, it is explained that the assessee has no dealings either with Shri Ashish Agarwal or Shri Shashwat Agarwal, in their individual capacity. ii) It is a common understanding that an individual is different from a juridical person and vise versa. The assessee company had dealings with certain companies but those companies are different from their shareholders and/or directors, hence the inferences drawn in the initial 2-3 paragraphs of the show cause notice are unfounded and unwarranted. iii) Sales Tax: The assessee company is registered under UPVAT for trading in cloth, hence the inference relating to Sales Tax information not received from Sales Tax Department in the case of third party referred to in your show cause notice is neither relevant nor meaningful in the present case. Further, a copy of VAT Registration, annual return and copy of order etc. of the assessee company has already been filed with earlier replied. iv) Godown: The assessee group has taken 2 godowns and 5 shops on rent as per details given below: Godown/shop No. Premises No. Owner of shop/Godown Tenant of shop/ godown 1 to 5 (five shops) 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aragraph of your notice. In view of the facts and circumstances narrated above and detailed explanation given on each point raised in the show cause notice proposing to invoke provision in section 68 and 69C of the I.T. Act and to treat cloth trading as bogus and alleged commission paid thereon as unexplained expenditure is devoid of merits, unfounded and based merely on bald hypothesis therefore, no adverse inference deserves to be drawn on this account. We hope that the above details/information will meet your requirement and satisfy your goodself in terms of your referenced show cause notice. 11. In support of claim of cloth trading, the assessees had filed all the information and documents such as purchase bills, sale bills, copy of account of parties to whom sales were made and copy of account of parties from whom purchases were made. Similarly copy of bank account from where the payments were made/received were filed. Similarly VAT documents/returns wherein the sales of cloth was declared were also filed. In fact the assessees had submitted as much information and details as was possible. The Assessing Officer rejected all the evidences and on the basis of adverse mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 48,07,39,041 During the course of assessment proceedings you have been asked to submit various information, explanations and evidences about the transactions of purchase & sale of cloth business. From the facts provided by you, it is crystal clear that alleged cloth trading is originating from one of the Rich Group of companies and after travelling through Sigma Group of companies, it is again merging into another Rich Group of companies. Rich Group of companies consisting of 14 companies and individuals namely Shri Ashish Agrawal and Shri Shashwat Agarwal, have been established to accommodation entry provider in the form of profit through bogus sales and purchase transactions, unsecured loans, bogus Long Term Capital Gain and subscription of share capital at premium to the party by accepting undisclosed cash and commission. The facts were established during the course of survey/ search & seizure operation as well as assessment proceedings of Rich Group of cases and most importantly it was also held by Hon'ble Allahabad High Court during the course of hearing of Writ Petitions filed by Rich Group of companies. The alleged transactions in cloth trading by Rich Group of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 crore from financial year 2011-12 to 2016- 17, did not bother to know where cloths traded by it are being sold to end users (customers). A business man cannot be so indifferent about the product, he is dealing in, when he is earning net profit of around 15%. * Assessee was also asked to name the description of goods traded including its brand name etc. In its reply assessee stated that it dealt in unbranded goods and the same were identified from resources point or their popular name, but failed to give details of resource point or popular name. * The rate of the cloths mentioned in the different invoices are unreasonably high and seems to be unrealistic. * That no correspondence trail through paper, e-mail, whatsapp or phone etc. has been seen during the course of search as well as assessment proceedings. * Though Kanpur is the oldest and biggest hub (Mandi) of whole sale cloth trading, it is surprising to note that all the suppliers and customers of the assessee are only companies of Rich Group. * From the details provided by you it is found that no manpower has been engaged in the huge trading activities in cloth, which shows that the transaction claimed in cloth t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be obtained from Sales Tax Department. Further, the assessee group as a whole and assessee in particular was dealing in wholesale business of unbranded cloth, which has high margin, compared to branded cloth trading. Whereas, in the Show Cause Notice, firstly adverse inference has already been drawn by presuming that the assessee had no retail outlet, shop or retailers to deal with. Similarly certain questions relating to business activities were asked from Manager (Accounts) Mr. Ankur Gupta, who was not at all concerned with sales, purchases or management of inventory etc. of the cloth trading done by the assessee. All these issues clearly show that facts in the present show cause have been twisted to suit your convenience, whims and fancies. Overall, management of cloth trading on wholesale basis was done by Shri Navin Jain, Director. 3)Dencndence on search in the case of Rich Group of Companies: The Show Cause Notice primarily rests on/around a search and High Court Proceedings of Shri Ashish Agarwal and Shri Shashwat Agarwal and Rich Group of Companies. Firstly their reference in the present proceedings is uncalled for and secondly the orders, documents, other informat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessarily ignored to draw adverse inference in the Show Cause Notice. Stock not existent at the time of survey/search: The cloth trading was discontinued by the assessee and some other assessee group companies with effect from 31.03.2016, but the search/survey was conducted in M/s. Radhey Radhey Ispat Pvt. Ltd. Group on 23.08.2016, i.e. almost after gap of 5 months, hence in the course of search, no stock of cloth was found. As aforesaid the assessee was engaged in wholesale trading of cloth and therefore, question of finding out samples or some stock of cloth, is totally irrelevant as alleged in the Show Cause Notice. Margin of Profit; As aforesaid the assessee and other group companies were dealing with unbranded cloth on wholesale basis, which had very good and higher margin than branded cloth trading. It is not understood how the same was found unreliable. Staff It is also not correct that the assessee company did not deploy proper staff for wholesale trading in unbranded cloth during the relevant years. Following staff members were engaged in wholesale trading of unbranded cloth: S.N. Name of the Staff Work looked after Designation Salary 1. Mr. Ankur Gupt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of a report from the Assessing Officer of Rich Group of companies and has not carried out any independent investigations for holding the transactions of cloth trading as bogus. The judgment of Hon'ble Allahabad High Court has been passed on the writ petition filed by two companies belonging to Rich Group. These companies had prayed to the Hon'ble High Court to quash the search due to warrant of authorization, satisfaction note and incriminating material etc. The Hon'ble court has dismissed the writ petitions by holding that the companies were taking cash from some parties and were giving cheques to other parties and therefore, Hon'ble court had held that these companies were doing money laundering in the form of unaccounted cash. In the findings the Hon'ble court has nowhere commented on the activities of cloth trading being undertaken by these companies. Moreover, the fact remains that either there was no statement of companies denying cloth trading with the assessees and if there was one then same has not been confronted to the assessees for cross examination despite specific request of the assessee. The entries of purchases and sales are supported b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on the self-same reasoning and dismissed the appeal of the revenue. Likewise, the High Court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT. 5. In these circumstances, the Review Petitions are dismissed." 11. Similarly we find that Hon'ble Supreme Court in the case of Andman Timber Industries vs. CIT, vide order dated 2nd September, 2015 allowed relief to the assessee by holding that right of cross examination is an important right available to the assessee and not providing opportunity to cross examine will amount to violation of principles of natural justice. The findings of Hon'ble Supreme Court are reproduced below: "Insofar as the plea of the appellant that it was not allowed to cross-examine the dealers whose statements were relied upon by the Adjudicating Authority in passing the orders, the Tribunal rejected its plea in the following manner: "6. The plea of no cross examination granted to the various dealers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited,, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause notice. We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal." 12. The Lu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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