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TMI Blog2021 (9) TMI 1408X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition is hereby deleted. Addition of not-genuine purchases of fabric - HELD THAT:- The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on facts. CIT(A) too has mentioned in his order the adverse observations of the A.O. only which in our opinion are misplaced on facts. Contention of CIT(A) that evidence filed by the assessee self-serving documents and circumstantial evidence leads to the conclusion of A.O. It would be enough for us to say that voluminous documentary evidences filed by the assessee are clearly establishing the genuineness of purchases fabric from M/s Jindal Fashion and M/s Akansha Fashion. We do not want to burden our order by repeating the whole hosts of documentary evidences filed in this case which establish that the purchases made by the assessee from the above said two suppliers are genuine purchases. We have gone through the observations made by CIT(A) in his appeal order an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken into account this sale in its profit and loss account and thus the sale of scrap has been considered while working out the result of this year. Separate addition of this very amount would lead to double addition. This was so held by CIT(A) also. We do not find any infirmity in the order of the first appellate authority in this regard and hence dismiss the ground of revenue s appeal and uphold the deletion of the addition - I.T.A. No.3312/DEL/2019 & 5039/DEL/2019 - - - Dated:- 24-9-2021 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND Dr. B.R.R. KUMAR, ACCOUNTANT MEMBER Appellant by: Dr. Rakesh Gupta, Adv. Respondent by: Ms. Pramita M. Biswas, CIT-D.R. ORDER PER AMIT SHUKLA, JM The Assessee and the Revenue both are in appeal against the Order of Commissioner of Income Tax (Appeals)- III, Gurgaon, dated 30.03.2019. The grounds of appeal raised by the Revenue and by the assessee, respectively are as under:- That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in assuming jurisdiction u/s 153A and further erred in passing the impugned assessment order. 1. That i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found as a result of search and impugned addition has been made by recording incorrect facts and findings and without observing the principles of natural justice and without appreciating/considering the submissions of the assessee. 7. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.1,04,00,175/- allegedly as unexplained transactions recorded in seized document on account of bogus purchases from M/s Super Connection, is bad in law and against the facts and circumstances of the case. 8. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.6,63,79,551/- allegedly as unexplained transactions recorded in seized document on account of bogus purchases from M/s 5 Employees Co., more so when no incriminating material has been found as a result of search and impugned addition has been made by recording incorrect facts and findings and without observing the principles of natural justice and without appreciating/considering the submissions of the assessee. 9. That in any case and in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law the Ld. CIT(A) is justified in deleting the addition on account of section 14A without appreciating that while noticing the objects and reasons behind introduction of section 14A of the Income Tax Act 1961, the Hon'ble Supreme Court held in CIT v. Walfort Share Stock Brokers (P) Ltd [2010] 326 ITR 1 (SC) that expenses allowed can only be in respect of earning of taxable income. v) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is Justified in deleting the addition made on account of section 14A of the Act without appreciating the judgment of Hon'ble Supreme Court in CIT v. Rajendra Prasad Moody [1978]115 ITR 519(SC) which held that the allowability (or otherwise) of an expenditure would not depend upon whether it has in fact resulted in income, and that the mere fact that expenditure stands incurred for the purpose is sufficient for its admissibility, and whether the ratio of this Judgment can be applied to say, by the same analogy, that the expenditure incurred to earn an exempt income is subject to its admissibility under the provisions of the Income Tax Act, 1961 including those of section 14A irrespective of whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Counsel as per the brief synopsis filed and hence these are dismissed. 5. Ground No. 3 and 4 of the assessee s appeal are in respect of disallowance of Rs. 19,46,05259/- made by the A.O. and confirmed by CIT(A) and are in respect of the expenses claimed to be incurred by the assessee company on account of job work done by M/s Shri Ram Exports. Assessing Officer at page 28-36 of his order held such expense as bogus which was upheld by CIT(A) vide discussion made at page 68-73. 6. It was submitted by the Ld. Counsel with the help of various evidences referred at page 1879-1884 of the paper book It was argued that M/s Shri Ram Exports was one of the job workers engaged by the assessee for doing various job work such as bundling, cutting, stitching, thread cutting, finishing etc., which are integral part of the garments manufacturing and further submitted that these job work activities are such without which it was not possible to manufacture the garments and therefore export sales could not be possible. On the other hand, Ld. CIT (DR) relied upon the findings recorded in the assessment and first appeal order. 7. We have considered the entire material before us includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (PB 1638-1688) (PB 1521-1561)and tax having been deducted at source (PB 1564- 1569) and documents at page 451-458, 489-1688 of the paper book establish the existence of the job worker and the job work carried out by M/s Shri Ram Exports. We have also seen the evidences referred in the paper book, which also establish the job work done by M/s Shri Ram Export. We have also referred to the copies of the relevant documents filed before the lower authorities from the Worker s personal Files (PB 489-581) such as Aadhar Card, Application form, appointment letter, joining report, ESI Card, Family photos, PF Form -11, 16 2 as per PF rules, ID proof, Medical test report etc. and sample copy of muster roll of the all the employees (PB 582-712) , employed by the job worker for two months for all the years involved and so also we have seen salary sheet for two months on sample basis (PB 713-1313), on account of payment of wages and actuarial certificate. Similarly pages 1335-1395 of the paper book is the sample copy of bonus register showing actual payment proof of bonus to the employees of job workers and paper book page 1396- 1401 is the sample copy of Leave register of the employee of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal of the assessee in this regard are allowed the addition of Rs. 19,46,05,259/- is hereby deleted. 10. Ground No. 5 6 of the assessee s appeal are in respect of disallowance of Rs. 27,19,08,768/- made by the A.O. and confirmed by CIT(A) and are on account of not-genuine purchases of fabric made by the appellant from M/s Jindal Fashion and M/s Akanshha Fashion. Assessing Officer at page 27-36 of his order held such purchases were not genuine which was upheld by CIT(A) vide discussion made at page 53-60. 11. Ld. Counsel for the assessee first of all argued that there was no incriminating material found as a result of search in respect of impugned disallowance. Further, it was submitted by the Ld. Counsel with the help of various evidences referred at page 1862-1869 of the paper book it was argued that appellant is into the business of garments manufacturing in which fabric is the main raw material and input. The appellant has purchased fabric from the above said firm during the year under appeal, which is evident from the chart enclosed in the paper book (PB 138(i)- 138(ii). Ld. CIT (DR) relied upon the findings contained in the assessment and first appellate order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pheld the disallowance but the submissions and the evidences furnished by the assessee and held in the paper book to which our attention was drawn, we find that the action of CIT(A) in confirming the impugned addition was not justified. 15. In view of the exhaustive pleadings and evidences filed by the assessee and considered by us, the disallowance made in the assessment order and confirmed by CIT (A) is not sustainable on merit. Comprehensive evidences have been brought on record by the assessee which prove that purchases of the fabric were made by the assessee. Without purchases of the fabric, the business of the assessee involving such large export would not have been possible. Both the suppliers are unrelated parties and assessed to income tax. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper pages 1866-1869 and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on facts. CIT(A) too has mentioned in his order the adverse observations of the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s SCIPL other companies in the books of in the assessee company as enclosed in the paper book and also statement of account in the books of M/s SCIPL other parties also enclosed in the paper book which would show that the payments have been made to M/s SCIPL other these companies through banking channel. It was also submitted that sales made by M/s SCIPL to the assessee has been accepted in the assessment of M/s SCIPL. Copy of assessment order of M/s SCIPL for A.Y. 2013-14 has been enclosed in the paper book. On the other hand, Ld. CIT(DR) has relied upon the findings recorded in the assessment order and in the order passed by CIT(A). 18. We have considered the entire material including the orders passed by the lower authorities. We have taken ourselves to the pages of the synopsis and paper book filed. We have considered the rival submissions. It is seen that the assessment order does not refer any incriminating material found as a result of search in respect of purchase of fabric made by the appellant from M/s Super Connection India P. Ltd. other companies. Only evidence which have been referred in the assessment order was that statements of the directors namely Sh. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l P Ltd of Rs.1,40,72,045/-, M/s Modernistic Attire P Ltd of Rs. 1,72,49,024/-, M/s Starline clothing P Ltd of Rs.1,01,43,659/- M/s Super Connection India P. Ltd. of Rs. 1,04,00,175/-, during the year which comes to an aggregate amount of Rs. 7,67,79,726/-, which is evidenced by the copies of purchase invoices, copy of statement of account in respect of said entities in the books of appellant company at (PB 2463-2464, 2465-2640, 1739-1764 (which are already enclosed in the paper book for A.Y. 2013-14 in assessee s own case), and also statement of account in the books of said entities i.e. six companies at (PB 1875-1902).which are already enclosed in the paper book for A.Y. 2013-14, which would show that the payments have been made to said entities through banking channel. It is further important to submit that sale made by the said entities to the assessee company has been accepted in the assessment of said companies. Copy of assessment orders of said six entities are enclosed in the paper book at PB 1491-1617 of earlier years, which are already enclosed in the paper book for A.Y. 2014- 15) and at PB 1729-1826 of AY 2015-16 together with copy of acknowledgment of return, computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P Ltd, M/s Trendy Attire P Ltd M/s Super Connection India P. Ltd in the books of appellant company, (which are already enclosed in the paper book for A.Y. 2013-14). PB 1875-1902 are the ledger account of appellant company in the books six companies namely M/s, Fashionable Attire P Ltd, M/s Fashionara Apparel P Ltd, M/s Modernistic Attire P Ltd, M/s Starline clothing P Ltd, M/s Trendy Attire P Ltd M/s Super Connection India P. Ltd, (which is already enclosed in the paper book for A.Y. 2013-14). PB 1903 is the detailed chart showing the year-wise purchases from said six companies, (which is already enclosed in the paper book for A.Y. 2013-14). PB 1908-1909 is the category-wise sheet showing total sales in pieces on sample basis and consumption of fabric along with standard input / output norms (which is already enclosed in the paper book for A.Y. 2013-14). PB 1910 is the reconciliation of purchase quantity and value of fabric in the books of appellant showing opening stock of fabric purchase, consumption, cost of fabric sold and closing stock (which is already enclosed in the paper book for A.Y. 2013-14 in assessee s own case). PB 1911-1958 is the detaile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company made purchases from various companies and these companies no actual material has been supplied. In reply, it is respectfully submitted that overwhelming evidences have been furnished substantiating the business done by the assessee, which have not been disputed by Ld. AO. Further, the Ld. AO has failed to bring on record any material or evidence to corroborate arrive at the conclusion that purchases from various companies and these companies no actual material has been supplied. The allegations made by Ld. AO are baseless and this is evident from the very fact he has proceeded to assess the income on the basis of return filed by the assessee company. Therefore, the observation made by Ld. AO that the purchases made by the assessee company is bogus and is baseless and without any basis, material or evidence. 3. Ld. A.O. has mentioned in para 5.6.2 of the assessment order that statements of the directors namely Sh. AkshayDhanda and Sh. Ajay Nagpal were recorded on 22.06.2015, which show that they did not have knowledge of the affairs of the company. In reply, it is respectfully submitted that assessee was not made aware at any point of time during a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being an employee of a group concern cannot be read against the assessee as there is no bar from an employee of the group concern running his own company. Since major sales of M/s SCIPL are to the assessee and M/s SCIPL sought help from the appellant company to maintain its books of accounts and if in that process employee of the appellant company if helped M/s SCIPL to maintain its books of accounts at the premises of the appellant company only for the sake of mutual convenience and because of cost considerations mountain cannot be made out of the mole hills. In other words inferences drawn by Ld. A.O. from the statements of Mr. Dhanda and Mr. Nagpal do not establish that the sales made by M/s SCIPL to the assessee was not genuine, more so when such sales by M/s SCIPL and purchases by the appellant are supported by above mentioned comprehensive evidences and payments having been received / paid through banking channel and more so when the sales made by M/s SCIPL have been accepted by income tax department itself in the assessment of SCIPL, it is submitted above. 6. Ld. A.O. has mentioned in para 5.6.3,6.4, 6.5, of the assessment order that bulk of purchases were made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply dated 11.12.2017 (PB 160- 162) filed to Ld. A.O., we made out specifically and we furnished such details in Annexure G, which is enclosed in the paper book at PB 2463-2640, (which is already enclosed in the paper book for A.Y. 2013-14) that the said supplier was selling the fabric to the appellant company and the material / fabric purchased from the M/s SCIPL has been used in production garments, which have been exported by the assessee company to various parties. 21. In view of the above pleadings and evidences filed by the assessee the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable on merit. Assessee has proved that the material was purchased from the vendors involved here and payments have been made through banking channel. Other evidences as referred clearly establish the purchase made by the assessee. We do not want to discuss each and every evidence and it would suffice to hold that in the light of these evidences which have not been rebutted with the help of any cogent material, purchases made by the assessee from the above said vendors cannot be disbelieved. The adverse observations made by the A.O. in the assessment order have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so dismissed. 24. Ground no. 12 15 of the assessee s appeal are general and do not call for any adjudication under these grounds of appeal here. 25. Ground no. 13 of the assessee s appeal is regarding approval under section 153D but nothing specific submissions have been made before us and hence, the same is rejected dismissed. 26. Ground no. 14 of the assessee s appeal relating to interest u/s 234B is consequential in nature. Departmental Appeal no. ITA 5039/Del/2019 27. Grounds of appeal preferred by Revenue have been reproduced by above. 28. Ground of appeal no. (i) of Revenue s appeal is in regard to a disallowance of Rs. 16,06,31,683/- made by AO by treating the product development expense as deferred revenue expense which was however deleted by CIT(A). 29. AO has discussed this issue at page 36-37 of the assessment order whereas CIT(A) has discussed this issue at page 73-75 of the appeal order. 30. Ld. CIT (DR) relied upon the findings recorded by AO whereas Ld. Counsel for the assessee has relied upon the findings recorded by CIT(A). 31. We have considered rival contentions and have gone through the orders passed by the lower authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee. PB 1721(h)-1721(i) is the breakup of income / local sale of Rs. 48,43,89,100.30/- which further shows that it includes local sale-Fabric tax free of Rs. 17,49,29,197.60/- PB 1721(j)-1721(n) is the detail of local sale / fabric tax free amounting to Rs. 17,49,29,197.60/- which would further show that it includes cash sale for the year posted on 31.03.2015 amounting to Rs. 9,20,23,623/-. Therefore, it is more than clear that sale based on the seized document was accounted for as income / sale in the profit and loss account and therefore addition made again by Ld. A.O. become the double addition, which may please be deleted. Ld. A.O. has made certain adverse observations while making the impugned addition which are met as under:- 1. Ld. A.O. has mentioned that statement of Sh. Sudhir Dhingra CMD of the appellant company was recorded u/s 132(4) in which he was asked to explain about the sales reflected in the seized documents in reply to which he accepted that the said sale of Rs. 9,20,23,623/- has not been accounted for in the regular books of accounts of the company and it needs to be added to the taxable income of the company. Ld. A.O. has f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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