9911796707
TMI Blog2022 (4) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal A.Y. 2016-17 as the lead year, the relevant Cross appeals are ITA 1056/Mum/2021 and 1697/Mum/2021. 3. Brief facts of the case are, the assessee filed its original return of income on 29.11.2016 declaring total income at Rs..50,58,20,580/-. The return was processed u/s 143(1) of the Income Tax Act, 1963 (in short Act). Subsequently, a search action was carried out in the case of D'Décor Group on 6.3.2018. Consequent to the search action, the case of the assessee, being one of the entities of D'décor Group, was centralized vide charge order u/s 127(2) dated 29.05.2018. 4. Consequently, notice u/s 153A dated 11.01.2019 were issued and served on the assessee. In response, the assessee filed its return of income on 09.02.2019, declaring the total income as declared in the original return of income. Notices u/s 143(2) and 142(1) were issued and served on the assessee. In response, AR of the assessee attended and filed the relevant information as called for. 5. During assessment proceedings, the Assessing Officer observed that assessee had claimed labour contractor charges a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y explanation to establish the said expenses are incurred wholly and exclusively for the purpose of business, he disallowed 10% of the declared expenses to the extent of Rs..3,87,67,310/- u/s 37 of the Act. 8. Further, Assessing Officer observed that the Investigation Wing found that the group entities received the sale proceeds on sale of old machinery/looms includes cash part of 28% and the rest is recorded in the books of account. Accordingly, he observed that the assessee had sold loom amount to Rs..45 lakhs. Therefore, he made addition of 28% of the above sales value as undisclosed income. (4500000/72*28) Rs..17.50 lakhs. Alongwith with the above addition, he also calculated unexplained brokerage @2% on the above sale of machinery to the extent of Rs..125,000/-. 9. Aggrieved, the assessee preferred an appeal before CIT(A)-54, Mumbai and raised a legal issue that the disallowance was made without any incriminating material found during the search proceedings also filed the detailed submissions relating to the disallowances and additions made by the Assessing Officer. After considering the submissions of the assessee, he rejected the legal issue raised by the assessee with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is in the business of manufacturing and processing of fabrics and dealing in all kinds of furbishing and related items. Maintaining the garden at the factory site and engaging labour to do the mending work in embroidery are a part of the business activity of the assessee for which the assessee had taken the services of the aforementioned four parties. All the four parties have confirmed receiving payments from the assessee and have filed their returns of income. As alleged by the AO, there are certain cash withdrawals from the bank accounts of these parties but there is nothing suspicious about this as the assessee had to make payments to the labour by cash. The AO appears to have made the addition merely on the basis of presumptions and surmises without any concrete evidence against the assessee. The objections of the AO are that there is no written contract agreement between the assessee and these parties but that itself will not convert the contract into a bogus one. Similarly, the fact that these ladies has not visited the factory premises of the assessee should not be taken against the assessee as the business has been looked after by other members of the families of thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 u/s 132 of the Act at the premises of M/s D'décor Export group and M/s. D'decor Home Fabrics group. The appellant belongs to D'décor Export group. The D'eccor Export group is managed and operated by Shri Sanjay Arora whereas M/s. D'decor Home Fabrics group is managed and operated by Shri Ajay Arora, Both these groups are managed and operated by two different individual. The offices of these two groups are located at different floors of same building. Employees of these two groups are different and there is no common employee working for both group. The nature of products manufactured by both the group are different in their quality, style and design. In the case of M/s. D'décor Home Fabrics group, a document containing receipt of cash on sale of old loom machinery was found and seized from premises of M/s. D'décor Home Fabrics group. The statement of Shri Sandeep Galagali, an employee of D'décor Home Fabrics group was recorded during the search, in which he admitted having received cash over and above the cheque receipts on sale of the old machinery by D''décor Home Fabrics group. In the case of the appellant, no do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made under s. 69 in the names of assessee-firms on the basis of document seized in search of third party was invalid in the absence of any corroborative evidence-Presumption under s. 292C is applicable only against the person searched-Reliance by AO on the handwritten notes of one of the partners of assessee-firms was invalid in the absence of admitted handwriting-AO did not brother to verify fair price of the property while submitting remand report called for the CIT(A)}-Specific bank transactions referred to by the AO have not been cross verified with the exact amounts shown as investments in the documents seized from A Group-Addition rightly deleted by Tribunal" (iii) CIT vs Concorde Capital Management Co Ltd [334 ITR 346] "Search and Seizure-Block assessment in search cases-No incriminating material found during search-Addition towards undisclosed income on the basis of statement of a third party not sustainable" (iv) DCIT vs Mahendra Ambalal Patel [40 DTR 243 Guj] "Income from undisclosed sources-Addition-Validity-Addition made towards sale of land based on the statement of third party-No opportunity of cross-examination of said third party afforded to assessee des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that they only had superticial knowledge of the business run in their names and that they failed to substantiate services rendered by such labour contractures. b. The deposit of cheques in the names followed by immediate withdrawal of cash. c. The onus lies on the assessee to prove the expenses incurred by it on labour contract payments were genuine and the services were genuinely used but the assessee had failed in proving its genuineness. d. There existed no contractual agreement between the assessee and the labour contractor parties, in absence of which huge expenses incurred which is also against the normal commercial practices. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in reducing the additions made on account of credit card expenses being personal in nature from 10% to 5% hence, given relief of Rs. 23,75,585/-, even though the Ld. CIT(A) accepted the use of credit card for various personal expenses and the assessee during the appellate proceedings failed to substantiate that the expenses made through credit card were for the purpose of business. 3. On the facts and in the circumstances 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 ..... ar, the notice issued u/s 153A of the Act must state as to what is the incriminating material found during the course of search action which justifies the additions/disallowances in a completed assessment year. In absence of such jurisdictional requirement, the assessment order passed u/s 143(3) r.w.s. 153A of the Act does not sustain; hence, the assessment order passed by the AO shall be quashed. In support of this proposition, Your Honours attention is drawn to recent judgment of Hon'ble Bombay High Court in the case of Underwater Services Company Limited vs ACIT 1(2021) 5 NYPCTR 898 (Bom) - Bombavl wherein the Hon'ble High Court has held that "2. We have considered the notice dt. 29th Nov., 2018 which is impugned in this petition. The notice is very brief and is bereft of any particulars. The same reads as under: PAN AY Dated Notice No. AAACS9177M 29.11.2018 ITBA/AST/S/153 A/2018-2019/10 13898034(1) Sir/Madam/M/s, In pursuance of provisions of s. 153A of the IT Act, 1961, you are hereby required to prepare true and correct return of your total income for the asst. yr. 2012-13 in the prescribed form and manner as per r, 12 of IT Rules, 1962 setting forth s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this petition should have mentioned whether the seized material was under s. 132 or books of account, other documents or any assets are requisitioned under s. 132A. The notice is absolutely silent as could be seen from above. The notice says "you are required to prepare true and correct return of income" and "setting forth such other particulars". Petitioner had filed their returns for the assessment year in question, which they thought was the true and correct return of income and that it contained ail other particulars prescribed. If respondent felt that was not enough and petitioner should file a fresh true and correct return of income because of the search, then respondent should certainly indicate in its notice what were the seized material under s. 132 or books of accounts or other documents or any assets requisitioned under s. 132A. Otherwise an assessee would file a copy of what it had filed earlier, which respondent anyways had in its file. Petitioner has also been seeking from respondent to make available copy of the alleged incriminating material found/seized during the search based on which the notice has been issued. Mr. Chhotaray states that such material has been g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any impact on the above jurisdictional ground of the assessee. In view of the above facts and principles laid down by the jurisdictional High Court, we prays that the order passed u/s 143(3) r.w.s. I53A of the Act making disallowance / addition therein shall be quashed. Departments appeal [ITA 1697/Mum/2021] Ground 1: Disallowance of Rs. 5.58 Crores being payments made to four contractors namely Anita Agarwal (Prop of Shreeji Enterprises), Sampa Balaram Das (Prop of Tanushree Arts), Sheela Singh (Prop Shiv Shakti Enterprises) and Manjuladevi Jha (Prop of Jay Ambe enterprises). The order of CIT(A) is challenged by the department on following grounds: (i) Payment to labour contractors are accommodation entry as they have admitted on oath the they had no knowledge for which payments were made to them (ii) Deposits of cheques in the name is followed by withdrawal of cash (iii) There is no contractual agreement between assessee and labor. We submit that disallowance has been made on the basis of statement recorded of wives of the contractors. The proprietary concerns of the contractors are in the name of their wives; however, the business of labour contractors have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded u/s131 of the Act. Copy is filed at page 176 to 179 of paper book. The operative part of the statement recorded are stated as under: "Q9. Please state the detail of your business activities and the address of your business office " Ans. Sir, I have a proprietary business in the name of M/s. Tanushree Arts. As per my knowledge, M/s. Tanushree Arts is in the business of contract work of embroidery work which is of mending of embroidered fabrics and address of the business office is my residence itself. And Sir, all the business activities is managed by husband Shri Balaram Das and I do not know all the details of the business activities" Q. 10. Do you maintained books of account of your proprietorship M/s. Tanushree Arts? If yes, please provide your books of account. Ans. Sir, as I have mentioned above, I do not know about books of account as all these are managed by my husband Q. 11. Have you ever visited the premises of M/s. D 'Decor Home Fabrics Private Ltd At G-15/1 & 2, M1DC, Tarapur, Boisar, Dist. Palghar 401506 for any business of other purposes Ans. No sir, 1 have never visited the above mentioned premises for any business or other purposes" In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The question and answer reads as under: "Q.5 Please give details of your sources of income. Ans. My source of income sis business income from proprietorship business namely M/s. Jay Ambe Enterprises. Q.6 Please state the nature of business being run by you in name of M/s. Jay Ambe Enterprises. Ans. The business in the name of M/s.Jay Ambe Enterprises is being run by my son Sachin Jha. I am not involved in running the business. All answers regarding the business can be given only by Sachin Jha. " An affidavit of Shri Sachin Jha is filed at page 548 to 55 1 of paper book wherein he has confirmed on oath that (i) M/s. Jai Ambe Enterprises provides laborers to the Appellant for mending on multi embroidered fabrics (ii) he regularly visits the factory premises of the Appellant (iii) he provides laborers for mending work on multi embroidery fabrics as on today also. The assessee further submits that since last few years, it started keeping the attendance of the laborers through bio-metric which corroborate that the assessee has availed the services of all the above contractors and they are rendering services as of today also. In addition to the above, in paper book at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement of Shri Sandeep Galagali has been filed during the course of hearing. In his statement, in response to question no 11. he has stated that he only knows D'decor Home Fabrics Pvt Ltd which is not the assessee company but a company owned and managed by Shri Ajay Arora. Therefore, in our respectful submission the statement recorded of Shri Galagali has no link with the case of the assessee: thus, the same cannot be relied upon to make the addition in the case of the assessee. Moreover, no material, whatsoever, have been found during the search at the premises of the assessee which could even remotely suggest that the assessee has received cash on sell of machinery. Besides, there is no statement of any person related to assessee where this issue has been raised. Thus, the assessee plead that the order of C1T(A) shall be upheld and department appeal shall be quashed. Addition of commission is consequential. Thus, the ground of department shall be dismissed and CIT(A)'s order shall be upheld." 14. On the other hand, Ld DR objected to the jurisdictional issue raised by the assessee relating to incriminating material and relied on the findings of Ld CIT(A). Further, he br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led in response to the notice issued u/s 153A, whether the original return of income filed or revised return of income. As held that the Hon'ble Court held that nothing prevented the revenue from mentioning in the notice the basis for issuing the notice u/s 153A so that the assessee could comply with the same as prescribed. 17. Therefore, the issue under consideration is exactly similar to the issue raised in the case of Underwater Services (supra), hence the notice issued u/s 153A is bad in law and the assessment made by issue of improper notice is also bad in law, accordingly we follow the direction of the Hon'ble Jurisdictional High Court decision and accordingly we hold the assessment made u/s 143(3) r.w.s 153A is bad in law. Therefore, the additional ground raised by the assessee is allowed. 18. Further, the assessee also raised ground contesting that the basis of reassessment is statement recorded of labour contractors and the statement recorded are prima facie not the incriminating materials. For the above propositions, the assessee relied on the several cases, we observe from the decision of the Hon'ble Delhi High Court in the case of CIT v. Late Raj Pal Bhatia [(2011) 33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded during search that the concerns were registered in the name of spouses but the actual activities were carried by their spouses, further they found that most of the records and labour activities were controlled by the assessee itself. Based on the above findings, the Assessing Officer treated the same as incriminating material and proceeded to make the additions. This issue was adjudicated by Ld.CIT(A) on merits in his order that the Assessing Officer proceeded to make the addition merely relying on the statements, a perusal of the statement reveals that the four parties have admitted doing labour contract work for the assessee, however in the subsequent statements they have displayed ignorance of the activities are undertaken. In the statement they have disclosed that their spouses and their family members were involved in the running of the business, they clearly indicated that their family members or husband were in a position to explain the entire activities. Nowhere, they admitted that there is no business or they have received or provided accommodation entries. It was submitted by the assessee that the transactions are genuine and all the four parties are providing labo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances cannot be made without their being any basis. The credit cards facilities are given to the Directors and other employees only facilitating payments of expenses to be made on behalf of the company. Similar view was also expressed by ITAT Delhi bench in the case of ACIT Central Circle-13 Vs Swastik Pipes Ltd (2018) 98 taxmann.com 420. (refer para 32 of the order). Therefore, we direct AO to allow the total expenses claimed by the assessee. 26. With regard to sale of Loom and commission expenditure, we observe that the basis for making such addition is the findings of Investigation wing in the case of D'décor Home Fabrics Pvt. Ltd, which is owned and managed by Shri Ajay Arora. The findings is based on the statement of one of the employee of the above said company. However, the findings in the above case can only be applied in their group cases. The statement of the said employee cannot be applied the assessee since this company is owned and managed by Shri Sanjay Arora, even though they are brothers. Therefore, we are inclined to accept the findings of Ld.CIT(A) in deleting the additions including the alleged commission payments. Accordingly, grounds raised by the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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