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TMI Blog2023 (3) TMI 1484X X X X Extracts X X X X X X X X Extracts X X X X ..... cts have been brought to question such entries in the registers and such invoices have not been shown to be not recorded in the regular books of account of the assessee and there is neither any allegation that the books of account were produced subsequent to search whereas it is an admitted fact that the regular books of account were found on tally in the course of search. Estimating 10% of the alleged unproved purchase and 5% of the alleged unproved sales - As we have categorically held that the addition per se of alleged unproved purchases and unproved sales cannot be made in the hands of the assessee, the question of estimation of the profit on the same no more survive. Even otherwise, the ld CIT(A) in his wisdom having rejected the books of account, could have at best estimated the income of the assessee for the whole year, he could not estimate the profit merely on the alleged undisclosed sales or unproved purchases. In these circumstances, this issue is decided in favour of the assessee and the addition as confirmed by the CIT(A) in respect of 10% profit estimated on the unproved purchases and 5% profit on the unproved sales stands deleted. Cash creditors - As in respect of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for the assessment years 2014-2015 to 2020-2021 in the case of M/s Bee Pee Rollers Pvt. Ltd., M/s Bajrangbali Steel Industries Pvt. Ltd. and M/s Bajrangbali Re-Rollers Pvt. Ltd., respectively. 2. As the facts in all these appeals are identical, they are being disposed off by this consolidated order. 3. Shri S.K.Tulsyan, Advocate with Shri B.K.Tibrewal, and Ms. Nisha Rachh, CAs represented on behalf of the assessee. Shri M.K.Gautam, Pr.CIT appeared on behalf of the revenue. 4. It was fairly agreed by both the sides that the issues in all these appeals relate to only three following issues :- i) Estimation of the profit in respect of unproved purchases @10% by the ld. CIT(A); ii) Estimation of the profit in respect of unproved sales @5% by the ld. CIT(A); and iii) Addition representing cash credits being loans received by the respective assessees from various entities. 5. It was submitted by the ld. AR that there was a search on the premises of the assessees on 20.02.2020. it was the submission that as a consequence of search, notices u/s. 153A of the Act came to be issued on the assessees. Returns were filed in response to the notice issued u/s. 153A of the assessee, however, nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2018 Commissioner of Income Tax-7, Petitioner New Delhi Versus M/s Odeon Builders Pvt. Ltd. Respondent ORDER Delay condoned. We have perused the review petition and find that the tax effect in this case is above Rs. 1 crore, that is, Rs. 6,59,27,298/-. Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax effect in this case is less than Rs. 1 crore. However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs. 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating: Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary. 7. It was the submission that as per the provisions of Section 142(2) of the Act it was for the AO to make such enquiries as he considered necessary for the purpose of obtaining the full information in respect of the income or loss in respect of the assessee. It was the submission that no enquiry has been done by the AO but the AO only relied upon the appraisal report of the investigation team which is again unsupported by any evidence and it has been prepared only on the basis of presumption. The AO further placed reliance on the alleged information said to have been received from the DGCE and the veracity of the said information has also not been examined by the AO. It was the submission that the ld. CIT(A) without considering all these aspects proceeded to reject the assessee s books of accounts by holding that though the AO has not rejected the books of accounts in the present case, yet the same have been rejected by the undersigned in light of the findings in earlier paragraphs . It was the submission that once the books of accounts has been rejected by an authority then there is no provision for treating the purchases or the sales are bogus and the best that the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound, he has submitted that he does not remember. It was the submission that these incriminating materials had been found in the course of search and consequently the initiation of the proceedings u/s. 153A of the Act was valid. It was the submission that the supporting documents such as the invoices etc. in respect of the seized materials had not been found in the course of search. It was the submission that on the basis of the information available from the DGCE the company from whom the assessee has made purchases were bogus companies and many of the companies to whom the assessee had made sales were also bogus companies. It is the transaction in respect of the such bogus companies only which the AO has treated as unexplained expenditure in respect of the purchases and unexplained cash credit in respect of the sales. The ld. Pr.CIT(OSD) further drew our attention to the decision of the Hon ble Gujarat High Court in the case of Smt. P. Sheth, reported in 356 ITR 451 (Gujarat). It was the submission that the ld. CIT(A) has extracted the relevant portion of the said citations in his order to estimate the profit @10% of the unproved purchases and @5% of the unproved sales. It was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tnesses were made the basis of the impugned order, is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea was not even dealt with by the Adjudicating Authority. As far as the Tribunal was concerned, rejection of this plea was totally untenable. The Tribunal had simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellants themselves to explain as to why their exfactory prices remained static. It was not for the Tribunal to have guesswork for what purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and under what circumstances the right of cross examination can be demanded as a vested right. In Kishanlal Agarwalla, the Hon'ble Division Bench of this Court pointed out that no natural justice requires that there should be a kind of formal cross examination as it is a procedural justice, governed by the rules and regulations. Further it was held that so long as the party charged has a fair and reasonable opportunity would receive, comment and criticize the evidence, statements or records on which the charges is being against him, the demand and tests of natural justice are satisfied. 60. In Bakshi Ghulam Mohammad AIR (1967) SC 122, the Hon'ble Supreme Court held that the right of hearing cannot include the right of cross examination and the right must depend upon the circumstances of each case and must also depend on the statute under which the allegations are being enquired into. v.) Without prejudice to the above, reliance is placed on the decision of the Hon'ble Supreme Court in the case of ITO vs. M. Pirai Choodi (63 DTR 187) wherein in the absence of an opportunity to cross-examine the witness, the matter was restored to the A.O. The Hon'ble Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on documents relating to M/s Bajrangbali Steel Industries Pvt. Ltd. On what basis he should be able to answer these questions is not coming out of the statements nor from the appraisal report, nor from the assessment order, much less the statement before us. Coming to the statement of Mr. Amit Agrawal, who is claimed to be the Director of M/s Bajrangbali Steel Industries Pvt. Ltd. What is his responsibilities is not coming out of the statement. The statement also does not refer to him as a director of M/s Bajrangbali Steel Industries Pvt. Ltd. Nothing comes out of the appraisal report or from the order of the AO nor has any evidence been produced wherein he has been asked to examine and verify what is being placed before him to elicit the facts. Another peculiarity is that even in the remand report, which is shown at page 282 of the paper book the AO agrees that the assessee had filed datewise purchase details, stock register, purchase register, sales register, copy of invoices, copy of accompanying weigh bills, to substantiate his claim. The Assessing Officer has also mentioned in his remand report that test check has been done and the documents clearly showed the Truck Nos. and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not recorded in the regular books of account of the assessee and there is neither any allegation that the books of account were produced subsequent to search whereas it is an admitted fact that the regular books of account were found on tally in the course of search. 15. Coming to the action of the ld CIT(A) in estimating 10% of the alleged unproved purchase and 5% of the alleged unproved sales, as we have categorically held that the addition per se of alleged unproved purchases and unproved sales cannot be made in the hands of the assessee, the question of estimation of the profit on the same no more survive. Even otherwise, the ld CIT(A) in his wisdom having rejected the books of account, could have at best estimated the income of the assessee for the whole year, he could not estimate the profit merely on the alleged undisclosed sales or unproved purchases. In these circumstances, this issue is decided in favour of the assessee and the addition as confirmed by the ld CIT(A) in respect of 10% profit estimated on the unproved purchases and 5% profit on the unproved sales stands deleted. 16. In respect of cash creditors, which have been added, it was the submission by ld AR that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2020-2021, it was submitted by ld Pr. CIT (OSD) that in the case of Bajrangbali Steel Industries Pvt Ltd., in IT(ss) A No. 109/CTK/2022 in respect of Arnav Financial Services Private Limited and Avighna Vyapar Pvt Ltd., though Shri Satyendra Kumar Thakur has confirmed the transaction, the field enquiry showed that both the companies are Shell companies. 18. In reply, ld AR submitted that the transaction having been accepted by Shri Satyendra Kumar Thakur, who is the Director in both the companies, the responsibility on the part of the assessee stands discharged. 19. Ld Pr. CIT(OSD) has filed written submission as follows: Bee Pee Rollers (P.) Ltd. in IT(SS)A No. 31 to 33/CTK/2022 for AY 2016-17 to AY 2018-19 Bajrangbali Steel Industries Pvt. Ltd. in IT(SS) A No. 34 to 39/CTK/2022 for AY 2014-15 to AY 2018-19 AY 2019-20 and in ITA NO. 109 for AY 2020-21 Bajrangbali Re-Rollers Pvt. Ltd. in IT (SS) A No. 40 to 44/CTK/2022 for AY 2014-15 to 2018-19 and ITA NO. 110/CTK/2022 for AY 2020-21 It has been argued in the first ground of appeal that no incriminating documents were found and seized in course of search in the present case and therefore the A.O. could not have disturbed the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent or transaction represents wholly or partly income or property which has not been or would not have been disclosed of the purpose of this Act or any expense deduction or allowance claimed under this Act which is found to be false. i.) The Hon'ble Kerala High Court in the case of E. N. Gopakumar vs. CIT (75 taxmann.com 215) held that assessment proceedings generated by issuance of a notice under section 153A(1)(a) can be concluded against interest of assessee including making additions even without any incriminating material being available against assessee in search under section 132 on basis of which notice was issued under section 153A(1)(a) of the Act. The observations of the Hon'ble Kerala High Court in para-7, 8 and 9 are reproduced as under: 7. In so far as the issue as to whether it is necessary that incriminating materials should be unearthed in a search under Section 132 of the Act to sustain a notice issued under Section 153A(1)(a) is concerned, the issue stands covered in favour of the Department as per the judgment of this Court in St. Francis Clay Decor Tiles's case (supra) and Promy Kuriakose's case (supra) though the second among them relates to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 153A(1)(a) of the Act, given an opportunity to the assessee to interact with the officer and thereafter he was required to place a cash flow statement. All that followed thereafter is the assessing authority carrying out an exercise of acting on the cash flow statement and concluding the assessment by determining the amounts on a meaningful and appropriate application of the cash flow statement by rearranging the entries thereof. That activity carried out by the assessing authority, though to a larger extent, was found against by the CIT (Appeals), has found disapproval at the hands of the Tribunal which is the last fact finding authority. We see that the decision of the Appellate Tribunal cannot be critisised as unreasonable, perverse or unavailable on the face of record. Resultantly, these appeals fail . It may please be noted that the Hon'ble Kerala High Court has duly noted the contrary decision of Hon'ble Delhi High Court in the case of Kabul Chawla (380 ITR 573), and Kurele Paper Mills (P.) Ltd. (38Q ITR 571) and Hon'ble Mumbai High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (374 ITR 645) while holding the decision in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the returns of the assessee not only for the undisclosed income, which was found during the search operation but also with regard to the material that was available at the time of the original assessment. We find that the Tribunal dismissed the appeal while relying upon the decision of a Coordinate Bench of the Tribunal in the case of Anil Kumar Bhatia (supra). We find that the said decision of the Coordinate Bench of the Tribunal was set aside by the Delhi High Court in CIT v. Anil Kumar Bhatia [2012] 24 taxmann.com 98/211 Taxman 453. We find that the Tribunal only dismissed the appeal on this legal issue and had not considered the matter on merits . iii.) The Hon'ble Kerala High Court in the case of CIT vs. St. Francis Clay Decor Tiles (70 taxmann.com 234) held that neither under section 132 or under section 153A, phraseology 'incriminating' is used by Parliament, therefore, any material unearthed during search operations or any statement made during course of search by assessee is a valuable piece of evidence in order to invoke section 153A. The observations of the Hon'ble High Court in para-20 21 are reproduced as under: 20. On a plain reading of Section 153A, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecide the issue with regard to the question framed in these appeals and therefore, it is only necessary to remand the matter to the Tribunal for fresh consideration. iv.) The Hon'ble Delhi High Court in the case of Filatex India Ltd. vs. CIT (49 taxmann.com 465) held that during assessment under section 153A, additions need not be restricted or limited to incriminating material, found during course of search. The observations of the Hon'ble High Court in para-2 are reproduced as under: 2. On the first question, we note that the Assessing Officer, in the proceedings under section 153A of the Act, had made several additions, relying upon the incriminating material found in the course of search, which was conducted on 18th January, 2006 and subsequent dates. A perusal of the impugned order by the Tribunal would disclose that incriminating material including statement of Sanjay Agrawal, GM (Marketing) have resulted in additions, which have been upheld. It is not the case of the appellant-assessee that initiation of proceedings under Section 153A was bad or unwarranted in law as no incriminating material was found during the search. The contention raised by the appellant-assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power actually exists and if there is any reason to believe, namely, the satisfaction of the assessing authority to examine the source of income, the court would not interfere to close such enquiry. 25. If there is power to do something under the Act, the action taken in the fiscal matters cannot be set aside in exercise of the writ jurisdiction on the ground that such power is to be exercised needlessly, without any purpose. The exercise of power in such case can only be challenged, if the power is being exercised with ulterior motive and mala fide intentions. It is not open for the petitioner to contend before the writ court that the exercise of power, which admittedly exists in the authority, will expose the petitioner to assessment for the same period on which assessing authority has already recorded satisfaction . vi.) Reliance is also placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. Chetan Das Lachmandas (25 taxmann.com 227) wherein it was held that there is no condition in section 153A that additions should strictly be made on basis of evidence found in course of search or other post-search material or information available with Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee's case. Consequently the first question of law is answered against the assessee and in the revenue's favour . The observations of Hon'ble Delhi High Court in para-L? are reproduced as under: From a perusal of the aforesaid statement on 18.04.2006, it is manifest that it was not a case of mere surrender as claimed by the Id. counsel. On the contrary we find in Pg 60 61, Annexure 'A'3 and Pg 1 to 29 of AnnexureA-2 were found and seized from the assessee. Once confronted with the aforesaid seized documents, it was admitted by Shri Abhay Gupta that the proprietorship concern of the assessee was engaged in unaccounted cash sales and purchases and therefore there was undisclosed income. Thus the necessary logical fall out of the aforesaid is that there was material found as a result of search on the assessee, showing unaccounted transactions. In our opinion. even the statement obtained whereby. the additional income of Rs. 3.5 crores was offered also constitutes material unearthed during search. The Id. counsel however has submitted that the said statement was not of the assessee, and was that of the son of the assessee. This argument too does not come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AY s in which both the disclosed and the undisclosed income would be brought to tax . iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AD which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of search. The Hon'ble Supreme Court has also admitted SLP filed by the revenue in the cases of Gaurav Arora (284 Taxman 629), Param Dairy Limited (284 Taxman 378), Gahoi Foods P. Ltd. (272 Taxman 521) and Devi Dass Garg (270 Taxman 17). Thus this issue has not attained finality. In view of above judicial precedents and facts, this ground of appeal of the assessee on this ground is required to be dismissed. 20. He has also placed reliance on various case laws as referred in the written submission. 21. We have considered the rival submissions. At the outset, in respect of appeal in the case of Bajarangbali Steel Industries Ltd., in IT(SS) A No. 39/CTK/2022, as it is noticed that the Assessing Officer has not given the assessee the copy of the statement recorded in the course of survey action u/s. 133A of Avighna Vyappar Pvt Ltd.,, the issue in that appeal is restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity to cross examine the said Shri Dilip Das. 22. Coming to the arguments of ld Pr. CIT (OSD) regarding Appeal No. IT(SS) A No. 109/2022 in respect of Bajarangabali Steel Industries Ltd.,, wherein, the statement of Satyendra Kuma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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