9911796707
TMI Blog2023 (7) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... ided against each of them. 4.0 In the appeals of the assessee, certain common issues are agitated, which are described below:- (a) Partial confirmation of addition relating to alleged bogus purchases. (b) Partial confirmation of addition relating to Corporate Guarantee commission. (c) Partial confirmation of Cash income as per seized materials (d) Disallowance of Salary paid to Jain family 4.1 The assessee is agitating following individual issues in AY 2017-18:- (a) Cash royalty as per seized materials (b) Excess expenses in seized materials assessed u/s 69C of the Act. 4.2 The assessee is agitating following individual issues in AY 2018-19. (a) Salary paid in cash to employees (g) Cash transferred through Angadias 5. The revenue is in appeal on the relief granted by Ld CIT(A) in respect of following issues in both the years, i.e., the issues urged by the revenue are common in both the years:- (a) Relief granted in respect of addition relating to alleged bogus purchases (b) Relief granted in respect of addition relating to Corporate Guarantee Commission and (c) Relief granted in respect of addition relating to Cash income as per seized materials. 6. It ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO himself has observed that the assessee could have procured materials from other sources and have got accommodation bills from these suppliers. This observation of the AO shows that the receipt of materials by the assessee was not doubted by him. 6.4 The Ld A.R further submitted the Ld CIT(A) held that the entire purchases could be disallowed only when the materials have not been received by the assessee. Accordingly the Ld CIT(A) has held that, if the assessee could prove the receipt of materials, then only the incremental gross profit should be added. The Ld CIT(A) further observed that the manufacturing loss disclosed by the assessee would prove whether the materials have been received or not, i..e, if the materials have not been actually received, the assessee would be showing more manufacturing loss in order to tally the quantity details. He submitted that the Ld CIT(A) has given a finding that the manufacturing loss declared by the assessee is within the prescribed limit of Standard Input Output Norms (SION) published by the DGFT, Government of India. The Ld CIT(A) also relied upon the findings of DGCEI, wherein it was found during the search conducted by them that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd (ITA No.7293 & 7294/Mum/2017 dated 18- 10-2019). Accordingly, in the alternative, the assessee pleaded that the addition may be restricted to 2% of the value of purchases. 6.7 The Ld D.R, on the contrary, supported the orders passed by the assessing officer. He submitted that the Ld CIT(A) has relied upon the report given by DGCEI regarding consumption of materials, but did not examine the quantity details. He further submitted that the assessee has claimed that lorries registered in other states have been used for transportation of materials, which is not permitted. Hence transportation of materials has not been proved. The assessee has not furnished the details of octroi payments. Accordingly, he submitted that the purchases made from the accommodation bill providers cannot be said to have been proved by the assessee. Accordingly, he submitted that the AO has rightly disallowed entire amount of purchases and the same should be retained and the orders passed by Ld CIT(A) on this issue should be reversed. 6.8 In the rejoinder, the Ld A.R placed his reliance on his written submissions. 6.9 We have heard rival contentions on this issue and perused the record. The assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial accepted from above parties accepted by excise from 2013 till 2018. i. Thus, the allegation of AO that parties are not genuine is incorrect. j. Further, it is submitted that the entire raw material has been actually received by the assessee and the same has been consumed by the assessee for manufacturing purpose. Details of the consumption have been duly submitted before AO during assessment proceedings. The manufactured goods have been further exported by the assessee. The assessee has submitted the entire evidence to support the receipt of material, consumption of the same and its output which has been exported. Further, the assessee has also submitted the input output ratio wherein the average manufacturing/burning loss in respect of main product 'billets' is 7.14% as against standard of 10% prescribed by DGFT. The same is placed at page no. 75 of the paperbook. AO has mechanically rejected the same on the ground that no one to one correlation has been submitted by the assessee. It is important to note that in assessee's business where measurement of input and output units is same, the extent of use of raw material can be seen from the quantitative chart sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han the industry average. The Ld A.R submitted that the above said contention is evidenced by the Transfer Pricing Study conducted by the assessee, wherein the international transactions have been bench marked under TNM method. It is stated that the Transfer pricing officer has accepted the T.P study, meaning thereby, the TPO has accepted the gross profit margin of the assessee to be at par or more than the industry average. Under these set of facts, we are of the view that the Ld CIT(A) was justified in holding that the assessee has actually received materials and hence disallowance of entire amount of purchases is not justified. When the receipt of materials is accepted, the AO's reliance on the statements given by the suppliers or employee/other persons shall become insignificant. 6.13 We notice that the Ld CIT(A), having held so, has proceeded to hold that the assessee would have made profits in purchasing materials from other suppliers. In this regard, the Ld CIT(A) has taken support from the decision rendered by Hon'ble jurisdictional Bombay High Court rendered in the case of Rishabhdev Technocable Ltd (2020)(115 taxmann.com 333)(Bom), wherein it was held by the High Court t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate Guarantee given to the Associated Enterprises by the assessee. 7.1 The assessee had provided Corporate Guarantee to its Associated Enterprises for the loan taken by them. The assessee contended before TPO that the same is a Share holder activity and hence it cannot be considered as an International Transaction. The TPO did not accept the contentions of the assessee. By considering the rate of commission charged by State Bank of India, the TPO made transfer pricing adjustment @ 1.50% of the Guarantee amount given by the assessee. 7.2 The ld CIT(A) noticed that an identical TP adjustment made in the assessee's own case in AY 2010-11 has been adjudicated by the Tribunal and the Guarantee Commission was restricted to 0.50% by following the decision rendered by the Hon'ble Bombay High Court in the case of Everst Canto Cylinders Ltd (2015)(58 taxmann.com 254; 378 ITR 57)(Bom). Following the said order, the Ld CIT(A) directed the AO to restrict the Commission on Corporate Guarantee given by the assessee @ 0.50% of actual value of loan taken by the Associated Enterprises. Both the parties are aggrieved. While the assessee seeks further reduction, the revenue contends that the guara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transactions entered with particular person should be assessed as income. The details of relief granted by the Ld CIT(A) is tabulated below:- Sr.No. Name of persons AY 2017-18 AY 2018-19 1 Rajvilas 2,06,500 - 2 Contractors 1,33,00,000 42,05,000 3 H O Kumar 11,00,000 20,00,000 Total 1,46,01,500 62,05,000 The revenue is challenging the above said relief granted to the assessee by Ld CIT(A) in both the years. In addition to the above, the Ld CIT(A) noticed that the director Shri Neeraj Raja Kochhar has offered a sum of Rs. 96.00 lakhs as undisclosed cash income in his return of income. The Ld CIT(A) gave set off of the same also. This relief is not being challenged by the revenue. The assessee is seeking further relief in respect of this addition. 8.3 The Ld A.R submitted that the impugned seized documents is not corroborated with any evidence and hence, in effect, it is in the nature of dumb document. However, the assessee has agreed to offer the income shown in the noting made in the seized document. He submitted that the entries found in the document consisted of items of revenue nature as well as capital nature. For example, the payments made to/r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted in the documents should be deducted from the addition sustained by Ld CIT(A). 8.6 The Ld A.R further submitted that the assessee would be entitled for telescoping benefit of the addition made towards alleged bogus purchases against the addition made on the basis of seized documents. He submitted that the assessing officer has disallowed entire amount of alleged bogus purchases, which has been reduced to 6% of the value of purchases by the Ld CIT(A). He submitted that the case of Ld CIT(A) is that the assessee has purchased goods from one source and obtained bills from another source. Accordingly, it has been presumed that the assessee would have made profits under this process, which has been estimated @ 6% of the value of purchases by Ld CIT(A). He submitted that the profit so estimated would result in generation of cash by the assessee out of the alleged bogus purchases and hence the same would be available as source for the cash receipts shown in the seized document. He submitted that the assessee has challenged the profit rate of 6% and the addition, if any, that may be sustained by the Tribunal should be telescoped against the cash receipts shown in the document. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suman/cmd 2,06,500 14,00,000 26,00,000 83,70,000 37,20,000 15,80,000 23,00,000 2,01,76,500 Excise 10,24,500 49,27,150 38,79,080 61,03,700 1,62,01,600 3,21,36,030 Bertz 2,00,000 19,00,000 21,00,000 Vashnav Mega adv/Refundable Amt 10,00,000 9,50,000 6,00,000 25,50,000 RK-SLIP 14,00,000 14,00,000 Anna Shankhe 30,00,000 10,00,000 25,00,000 45,00,000 1,10,00,000 Wall Compound Maan 10,00,000 10,00,000 HO Kumar Adv 11,00,000 20,00,000 31,00,000 Insurance Shilan 6,00,000 6,00,000 MIDC Road 15,00,000 10,00,000 12,50,000 37,50,000 JNPT 9,25,000 9,25,000 Other Expenses 6,52,838 15,44,915 2,58,885 11,92,472 5,26,481 9,69,528 17,05,787 68,50,906 Six Month gift Cover 41,25,000 41,25,000 Chandan Jha (Loan) 4,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 2,06,500 - 2 Contractors 1,33,00,000 42,05,000 3 H O Kumar 11,00,000 20,00,000 Total 1,46,01,500 62,05,000 The revenue is challenging the relief so granted by the Ld CIT(A). The Ld A.R, however, seeks further relief against the receipts and payments mentioned in the name of Mr. Shilan. 8.11 We noticed earlier that this addition has been made on the basis of a piece of paper and the assessee has accepted the entries made therein. It is also not the case of the revenue that the entries noted down in the seized papers are supported by any other evidence. In the said document, some of the entries of receipts and payments have been recorded against the very same name. Since the document contains receipts and payments against the name of very same persons, it is quite possible that what was received earlier has been returned back subsequently or what was given earlier has been received back subsequently. When there is circulation of cash with the same person, in our view, there is merit in the contention of the assessee that only net amount out of the receipts/payments noted against a particular person should be treated as income of the assessee. Accordingly, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only the "net income" arising from these entries. We notice that the entire revenue receipts have already been taxed. Now what is required to be done is to deduct the revenue expenses from the income already assessed. We have noticed and listed out in an earlier paragraph that the revenue expenses relating to AY 2017-18 and 2018-19 are Rs. 1,18,19,300/- and Rs. 26,75,315/- respectively. We also notice that the aggregate amount of expenses in each year is more than the revenue receipts of that year. Accordingly, we are of the view that the above said expenditure should be deducted from the revenue receipts and only net revenue income should be taxed. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction of Rs. 1,18,19,300/- and Rs. 26,75,315/- respectively in Asst. Years 2017-18 and 2018-99 against the addition made on the basis of seized document. 8.15 The next claim of the Ld A.R is that the additions made on account of profits made in the alleged bogus purchases would result in generation of cash and hence the same shall constitute source for the receipts shown in the document. Accordingly, he prayed that the additions sustained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Smt Sangitha Jain (wife) by the AO in AY 2014-15 and 2015-16 and the same was deleted by the Tribunal with the following observations:- "7.6 At the same time, we notice that Ms Ramita Jain is a qualified engineer. She is running her own concern providing financial consultancy. Smt Sangitha Jain also could explain the certain services rendered by her to the assessee company. Hence, disallowance of entire payments is not justified. 7.7 This issue could be looked from another angle. The AO has also stated that the salary payable to Shri Raman Kumar Jain has been split and paid to Ms Ramita Jain and Mrs Sangitha Jain in order to reduce the tax liability in the hands of Shri Raman Kumar Jain. If the payments made to both Ms Ramita Jain and Mrs Sangitha Jain were considered as part of salary payment to Shri Raman Kumar Jain, then such payments should be considered as having been incurred for the purposes of business only, i.e., all the payments, if clubbed with the salary payable to Shri Raman Kumar Jain, is allowable as business expenditure. Hence, we do not find any necessity to disallow the professional payments booked in the names of Ms Ramita Jain and Mrs Sangitha Jain. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n included in the seized document. Under the same principle, we are of the view that it cannot be inferred that the amount of Rs. 5.00 lakhs was also included in that document. Accordingly, we do not find any merit in the contentions of the assessee. Accordingly, we confirm the addition of Rs. 15.00 lakhs made towards payment of royalty u/s 69C of the Act as unexplained expenditure. 12. The next individual issue urged by the assessee in AY 2017-18 relates to the addition of Rs. 39,23,385/-, being excess of expenditure over receipt in the month of March, 2017. From the seized document, which is extracted in an earlier paragraph, the AO noticed that there were receipts amounting to Rs. 1,26,02,176/- in the month of March, 2017, while the payments made in that month was Rs. 1,65,25,561/-, resulting in incurring of expenditure over the receipts amounting to Rs. 39,23,385/-. The AO assessed the same as unexplained expenditure. The Ld CIT(A) also confirmed the same. 12.1 It is the contention of the assessee that the seized document contained certain receipts and payments relating to November, 2016 to May, 2017. It is submitted that it was an abstract statement, which did not contain th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntaining the proposal prepared by HR department for promotion of various employees of the company in near future. In support of this submission, the Ld A.R placed reliance on the heading for the various columns, which inter alia includes following headings:- (i) Existing designation (ii) Proposed designation Accordingly, he submitted that the Excel sheet has been prepared for discussion purposes and it does not indicate that the cash payments have actually been made. (b) The assessee company is employing 4000 to 5000 employees and how a CMD could remember immediately to the above said proposal without verifying records. Hence, the statement given by him should not be the basis for making the addition. (c) The search officials have recorded statements from employees, viz., Shri Jitendra Pratap Garg, Shri Radha Ballabh sodhani and Shri Suresh Lodha. All of them have denied receipt of any portion of salary in cash. (d) Hence it is not possible to come to the conclusion that any amount mentioned in the seized document was paid by way of cash warranting an addition u/s 69C of the Act. 13.3 We heard Ld DR on this issue and perused the record. We notice that the impugned docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded in another seized document relating to Rs. 13.08 crores, which was added by the AO. However, the said explanation of the assessee was rejected by the AO. Accordingly, the AO came to the conclusion that the above said amount of Rs. 2.00 crores is related to the income outside the books of accounts and added the same to the total income of the assessee. The ld CIT(A) also confirmed the same. 14.2 The Ld A.R reiterated that the above said amount of Rs. 2.00 crores forms part of Rs. 13.08 crores and hence there was no requirement to make separate addition again. He submitted that the amount of Rs. 13.08 crores includes the amount received from "Rajvilas", which is residence of CMD. The total amount received from Rajvilas was Rs. 4,17,64,000/- and paid to Rajvilas is Rs. 2,01,76,500/-. The total payment is equivalent to the amount of Rs. 2.00 crores stated to have been transferred through hawala angadias. Accordingly, he submitted that there is no requirement of making any separate addition of Rs. 2.00 crores. 14.3 The Ld D.R, on the contrary, submitted that the AO has stated that the amount of Rs. 2.00 crores does not form part of Rs. 13.08 crores. 14.4 We heard rival content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers as under:- Month Rajvilas Cash balance Hawala transfer as per statement of P Nandakumar Total cash available Opening balance considering notings for earlier months 40,00,000 (14,00,000 + 26,00,000) 40,00,000 Feb 17 83,70,000 20,00,000 1,03,70,000 Mar 17 37,20,000 20,00,000 1,20,90,000 April 17 15,80,000 46,50,000 90,20,000 May 17 23,00,000 22,00,000 91,20,000 June 17 91,50,000 (-)30,000 Thus, there is a shortage of Rs. 30,000/- only, which may be part of some other payments recorded in the seized document. Accordingly, we are of the view that this amount of Rs. 2.00 crores forms part of the amount of Rs. 13.08 crores stated in the seized document and hence no separate addition is required to be made. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition of Rs. 2.00 crores. 15. Another amount, which was added by the AO u/s 69C of the Act was Rs. 29,40,000/-. This addition has been made on the basis of whatsapp chats between the employee Shri P Nandakumar and Shri Amit Mehra (Son in law of Shri Neeraj Raj Kochhar), wherein it was discussed about the transfer of 35000 pounds, which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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