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TMI Blog2022 (5) TMI 1175X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be approved by us - no case for addition on account of concealed net profit is made out and we are not inclined to agree with the findings recorded by the Ld. CIT (A) on this issue and, therefore, we set aside the order of the CIT (A) on the issue of concealed net profits and direct the AO to delete the same. The grounds of appeals on this issue under all the three captioned years are, therefore, allowed. Addition in respect of concealed net profit - HELD THAT:- As we have already deleted this addition on account of alleged concealed profits in all the three years and have decided the issue in favour of the assessee in preceding paragraph 14.2.2 of this order and in view of our such adjudication in favour of the assessee, the ground raised by the Department stands dismissed. Estimated undisclosed investment for earning the concealed net profit - HELD THAT:- In this regard, it is seen that the Ld. CIT (A) had deleted this addition by noting that the assessee had sufficient closing stock which ran into crores of rupees and, therefore, no additional investment was required by the assessee to have been made for undertaking any concealed turnover. Anyway, since we have completel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. X X X X Extracts X X X X X X X X Extracts X X X X ..... he above said ground of appeal, the assessment as framed by the Assessing Officer after obtaining the mandatory approval u/s 153D from the 'Addl. Commissioner of Income Tax', is void-ab-initio, since the Ld. Addl. Commissioner has only accorded 'mechanical approval' of the draft assessment order sent by AO, without any application of mind and which issues is covered by the judgment of the Jurisdictional bench of the ITAT Chandigarh in the case of M/s. Inder International, Ludhiana in ITA No. 1573/Chd/2018 and many other cases of different Benches of the Hon'ble ITAT. 3. (a) That the Ld. CIT(A) has erred in confirming the addition of Rs. 23,37,618/- against the addition of Rs. 39,88,288/- on account of unrecorded payments to the employees which is against the facts & circumstances of the case. (b) That the Ld. CIT(A) has failed to give the credit of the salary paid as per the books of accounts of two sister concerns of the assessee group namely M/s. Shergill Foods & Beverages to the tune of Rs. 7,63,200/- and M/s. M. S. Corp. to the tune of Rs. 3,25,000/- and has failed to appreciate that the said concerns were being controlled from the office of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of jurisdiction u/s 153A of the Act on legal ground and also challenged the various additions and disallowances on merits. The Ld.CIT (A) dismissed the assessee's challenge to the validity of assumption of jurisdiction u/s 153A of the Act. Apart from this, the Ld.CIT(A) also deleted the addition with respect to alleged investment in property 'Kothi Tehal Singh' amounting to Rs.2,82,190/-. With respect to the addition pertaining to alleged unrecorded payments to the employees to the tune of Rs.42,04,640/-, the Ld. CIT(A) restricted the addition to Rs.28,37,506/-. Similarly, the addition of alleged concealed net profit to the tune of Rs.66,91,933/- was restricted by the Ld.CIT (A) to Rs.25,03,905/-. The addition of Rs.12,46,878/- on account of alleged capital investment was deleted by the Ld.CIT(A). With respect to the addition of Rs.8,67,550/- on account of alleged unaccounted purchases, the Ld.CIT (A) allowed only part relief and upheld the addition to the extent of Rs.7,94,550/-. 4.2 Aggrieved with this order of the Ld First Appellate Authority, both the assessee as well as the Department have now approached this Tribunal and the following grounds have been raised by them in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in confirming the addition of Rs. 25,03,905/- against the total addition of Rs. 1,24,68,780/- on account of alleged concealed profit. (b) That the Ld. CIT(A) has failed to appreciate that the assessee is engaged in the business of trading in retail trade of readymade garments and, as such, the 'net concealed profit' as calculated to the tune of Rs. 25,03,905/- is against the facts & circumstances of the case. 5. That the Ld. CIT(A) has erred in confirming the addition of Rs. 7,94,550/- against the addition of Rs. 8,67,550/- on account of alleged unaccounted purchases. 6. That the Ld. CIT(A) has erred in confirming the additions which have been made on conjectures, surmises and suspicion and such type of addition cannot be made as per binding judgment of Hon'ble Supreme Court in the case of Omar Salay Mohamed Sait Vs CIT 37 ITR 151. 7. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard and disposed off. Department's Appeal in ITA No. 248/Chd/2021: 1. Whether upon facts and circumstances of the case, the Ld. CIT (A) was justified in restricting the addition to the extent of Rs. 28,37,506/- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in confirming the addition of Rs. 22,47,034/- against the addition of Rs. 29,66,795/- which is against the facts a circumstances of the case. (b) That the Ld. CIT(A) has failed to give the credit of the salary paid as per the books of accounts two sister concerns of the assessee group namely M/s. Shergill Foods & Beverages to the tune of Rs. 5,36,885/- and M/s. M S. Corp. to the tune of a Rs. 7,84,760/- and has failed to appreciate that the said concerns were being controlled from the office of the assessee only by the family, since there were common partners having substantial shareholding in the above two concerns. (c) Notwithstanding the above said grounds of appeal, no addition on account of the above could be made, since sufficient funds were available out of the sale of the accounted for stock outside the books of accounts as per submissions made before the CIT(A) which have been ignored without assigning into any proper reason. (d) That the Ld. CIT(A) has erred in confirming the invoking the provision of section 115BBE on the addition of Rs. 22,47,034/- as confirmed above which is also against the facts a circumstances of the case. 2. (a) The Ld. CIT(A) has er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d his contention by relying upon the impounding order u/s 133A of the Act as passed during survey, the statements recorded during such survey and the various other questionnaires issued during post survey and during assessment proceedings, to substantiate that no search was carried out at the business premises of the assessee. He invited the attention of the Bench to the provisions of section 153A of the Act and argued that it is only on the basis of search u/s 132(1) of the Act that the Assessing Officer gets the jurisdiction to issue the notice u/s 153A. It was vehemently argued by the Ld. AR that the assessment, as framed by the Assessing Officer u/s 153A /143(3) of the Act, was bad in law and being a jurisdictional defect, it could not be cured. The Ld. Counsel placed reliance upon the case of ITAT Mumbai Bench in the case of 'Regency Mahavir Property' reported in 89 taxman.com 444, in which, it has been held that if no Panchanama was drawn in the name of assessee, the condition as stipulated for assumption of jurisdiction u/s 153A cannot be held to be satisfied. He also relied upon some more legal precedents for the same preposition copies of which have been filed in the paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this addition had been made in terms of section 69C of the Act for all the three assessment years. It was submitted that besides the assessee firm, the group also has two other family concerns, namely M/s M.S. Corp. and M/s Shergil Food & Beverage and the assessee had contended before the Ld. First Appellate Authority that the addition on account of unrecorded payments to employees was not proper because the assessee had to be given the benefit of salary pertaining to M/s M.S.Corp. and M/s Shergil Food & Beverage for the reason that all the three concerns were being looked after by the Head of the Family Shri Satpal Sachdeva who had been maintaining consolidated account for all the concerns. He drew our attention to the submissions of the assessee before the Ld.CIT(A) as had been reproduced by him at page 9 of his order wherein it has been submitted that the salary which remained unexplained after accounting for salary paid in the other two concerns amounted only to Rs.11,82,418/-. Our attention was drawn to the chart submitted before the Ld. CIT (A) in this regard. The said chart is being reproduced herein under for a ready reference: (a) Total amount of salary as per the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the books of Rs. 11,82,418/- is liable to be made. Even otherwise, during the course of search proceedings, search team didn't find any unexplained cash, jewellery, immovable property or any other property or investment." 7.2 It was reiterated by the Ld. AR that the Ld.CIT (A), while allowing relief to the assessee on this issue, had allowed the benefit of salary only as per the books of account of the assessee firm and not in respect of the other two family concerns. The Ld. AR also drew our attention to the statement of Shri Manak Sachdeva S/o Satpal Sachdeva, which had been recorded during the search and wherein he had stated, when the diary was confronted to him, that notings in the diary were only known to his father Shri Satpal Sachdeva as it was only he who had been looking after financial matter of the group as a whole. It was further argued by the Ld. AR that when Shri Satpal Sachdeva was confronted with notings in the diary, Shri Satpal Sachdeva had stated that he was under stress and exhausted. He also brought to our notice a crucial fact that no further enquiries had been made from Shri Satpal Sachdeva during the course of assessment proceedings. The Ld. AR reitera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Apex Court in the case of Omar Salay Mohamed Sait Vs. CIT, reported in 37 ITR 157 (SC). The Ld. AR also challenged the working of the AO in this regard as the AO had considered the net profit as per the Profit & Loss Account without considering the partners' salary and interest. The Ld. AR also drew our attention to the chart submitted before the Ld. CIT (A) in this regard which was accepted by the Ld. CIT (A) [page 30 of the order of the Ld. CIT (A)]. The same is being reproduced here-in-under for ready reference: A. Y. Salary debited in P/L A/c Salary as per seized documents Net Profit before salary and interest Salary and interest to partners Net Profit after salary and Interest Concealed Net Profit 2 3 4 5 6 7=(3/2 x 6) A. Y. 2016-17 15,02,960 39,88,288 31,25,244 23,86,243 7,39,001 19,61,029 A. Y. 2017-18 12,52,214 42,04,640 37,13,418 29,67,712 7,45,706 25,03,905 A. Y. 2018-19 17,38,196 29,66,795 43,76,572 30,71,810 13,04,762 22,26,999 Total 66,91,933 8.2 The Ld. AR further submitted that in absence of any incriminating material found during the course of search with respect to concealed profit, such addition could not have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. 10.1 With respect to ground No.2 challenging the confirmation of addition of Rs.22,26,999/- as against the total addition of Rs.74,70,037/- on account of alleged concealed profit, it was submitted that the arguments were the same as were made for identical ground in assessment year 2016-17. 10.2 With respect to the assessee's challenge to the action of the Ld. CIT (A) in confirming the addition of Rs.7,82,230/- on account of shortage of stock (ground No.3) of the appeal for assessment year 2018-19), it was submitted that the same was not being pressed. 10.3 It was also submitted by the Ld. AR that the ground No.4 challenges the mechanical approval accorded u/s 153D of the Act and the arguments were also identical to the arguments made in this regard in assessment year 2016-17. 11.0 In response to the arguments made by the Ld. AR, , it was submitted by the Ld. Departmental Representative (DR) that the assessee's challenge to assessments being framed u/s 153A had been dealt in detail by Ld. CIT (A) and reliance was placed on the observations and findings in this regard. 11.1 With respect to the assessee's contention that the approval u/s 153D of the Act was mechanical, the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT (A) to the assessee on the issue of allowing relief in respect of unrecorded payments to employees in all the three assessment years. The Ld. DR submitted that the AO had worked out the quantum of unrecorded payments to employees on the basis of seized Annexure-3, A-4 and A-5 and the assessee had failed to reconcile the transactions entered in this annexures with the regular books of account and had also failed to give any explanation regarding these annexures and, therefore, the addition had rightly been made and the Ld. CIT (A) was not correct in restricting these additions. 13.1 With respect to the Department's ground challenging restricting the addition in respect of concealed net profit, it was submitted that based on the documents seized from the business and residential premises of the assessee, the AO had calculated the quantum of unrecorded payments made to the employees and based on this calculation, the AO had rightly estimated the concealed net profit in the ratio of salary debited in the Profit & Loss Account vis-à-vis salary as per the seized documents. It was argued that the method adopted by the AO was both the logical as well a reasonable and the Ld.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, undisclosed payments to employees was worked out at Rs.39,88,288//-, for assessment year 2017-18, the amount was calculated at Rs.42,04,640/- and for assessment year 2018-19, it was quantified at Rs.29,66,795/- by the AO. It is a fact on record that when during the course of search one of the partners Shri Manak Sachdeva S/o Shri Satpal Sachdeva had been confronted about these seized ledgers, he admitted having no knowledge about the details contained therein and also stated in the statement recorded that only his father Shri Satpal Sachdeva was managing the accounts and that he only could explain the entries in the ledger. Further, when Shri Satpal Sachdeva was questioned about the entries in these ledgers, the answer of Shri Satpal Sachdeva was that he was under stress and totally exhausted and that he would explain the entries in the office of the AO. However, as per records, no enquiry was further made from Shri Satpal Sachdeva and the AO proceeded to calculate the addition on this account without recording any explanation from Shri Satpal Sachdeva. During the course of proceedings before the Ld First Appellate Authority, the assessee sought to explain that the seized ledger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the other two firms gains credence. In our considered view, the explanation offered by the assessee and also submitted before the Ld. CIT (A) that the ledger entries contained consolidated amounts for all the three family concerns, seems plausible. We also note that although the assessee had submitted before the Ld. CIT (A) that the benefit should be allowed in respect of salaries paid in respect of the other two family concerns also, the Ld. CIT (A) has not given any valid reason for not accepting this contention of the assessee. Therefore, on an overall view of the facts of the case and the undisputed fact that the three family concerns were being financially managed by Shri Satpal Sachdeva, the benefit of the salaries debited in all the three family concerns' books of account should be given to the assessee firm prior to making an addition on this account. Therefore, accepting the contention of the assessee in this regard, we modify the order of the Ld. CIT (A) to the extent that unrecorded payments to employees, as per the working submitted by the assessee are now to be calculated at Rs.11,82,418/- for assessment year 2016-17, Rs.10,71,106/- for assessment year 2017-18 and R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per the AO, the alleged concealed net profit for assessment year 2016-17 was Rs.82,93,216/-, for assessment year 2017-18, the same was computed at Rs.1,24,68,780/- and for assessment year 2018-19, the same was computed at Rs.74,70,037/-. The AO made these additions by taking the unrecorded payment to employees (as per the seized annexures) as the base and by applying salary to net profit ratio, he arrived at these figures. The logic behind this action of the AO was that since the assessee had been paying salaries outside the books of account, the assessee must have had entered into sale transactions also outside the books of account and he proceeded to determine the concealed profit from such outside the books sales and added the same to the income of the assessee as indicated above. Before the Ld. CIT (A), the assessee had submitted that the net profit was adopted by the AO as per the books of account and that the AO had ignored the figures pertaining to salary and interest to the partners. The assessee also furnished a table before the Ld. CIT (A) and submitted that if the concealed net profit is to be worked out on the basis of alleged salarysheet, then the figures mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agree with the findings recorded by the Ld. CIT (A) on this issue and, therefore, we set aside the order of the Ld. CIT (A) on the issue of concealed net profits and direct the AO to delete the same. The grounds of appeals on this issue under all the three captioned years are, therefore, allowed. 15.0 Coming to the appeal of the Department in assessment year 2017-18, it is seen that this appeal is a cross appeal by the Department and ground No.1 pertaining to the action of the Ld. CIT (A) in restricting the addition to the extent of Rs. 28,37,506/- on account of unrecorded payment to employees has already been dealt with in the preceding paragraphs 14.1.1, 14.1.2 and 14.1.3 of this order wherein we have allowed further relief to the assessee in respect of unrecorded payments to employees. Accordingly, in view of our adjudication as aforementioned, on the same logic and reasoning, we dismiss the ground raised by the Department. 15.1 Similarly, ground No.2 challenges the action of the Ld. CIT (A) in restricting the addition of Rs.23,03,905/- in respect of concealed net profit. This ground is related to identical grounds raised in assessee's appeals for all the three years under ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT (A) on the issue make it amply clear that the impugned investment had been made by different co-owners in their individual names, beyond the block period and there was no link or connection with the investment made by the partnership concern i.e. the assessee". This Bench also noted that "there is no dispute about the fact that the impugned investment related to the property purchased by individuals acting in their individual capacity and that the assessee firm had no connection with the same. Therefore, we find ourselves in agreement with the findings of the Ld. CIT (A) as reproduced above, that no addition could be made in the hands of the assessee firm u/s 69 of the Act as unaccounted investment during assessment year under consideration". Therefore, on the same logic and reasoning, we deem it appropriate to dismiss this ground of appeal of the Department. 16.0 Thus, in effect, all the grounds raised by the Department stand dismissed. 17.0 Now, the only ground remaining for adjudication in assessee's appeal is ground no. 5 in assessee's appeal for 2017-18 wherein the assessee has challenged the action of the Ld. CIT (A) in confirming the addition of Rs. 7,94,550/- again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Nilanjana Fashion Pvt. Ltd shows that it is dated 14.02.2017 and contains the name of M/s. Roop Saree Kendra, Khanna. The number of pieces along with rate and description of item and total amount are duly reflected. It was for the assessee to show that it is accounted for in the books, but it failed to do so even during the appellate proceedings. Therefore, the same has to be considered as unaccounted purchases and the AO was right in making the addition on this account. Similarly, the perusal of the slip dated 14.02.2017, shows that it contains the name of M/s. Roop Saree Kendra, Khanna and the slip although mentioned as ROUGH ESTIMATES has a serial number "No. 095" which indicates that it was out of a regular continuously slip number and not a rough pad and the narration ROUGH ESTIMATES was printed just to mislead. The number of pieces along with rate and description of item and total amount are duly reflected along with packing charges on the above items. It was for the assessee to show that it is accounted for in the books but it failed to do so even during the appellate proceedings. Therefore, the same has to be considered as unaccounted purchases and the AO was ri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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