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TMI Blog2024 (7) TMI 1279X X X X Extracts X X X X X X X X Extracts X X X X ..... ich figures in the Whatsapp chat only are justified and therefore, Assessee s appeal on this Ground of appeal is allowed. Estimation of GP - Addition made on the basis of sales outside the books of account - The confirmation of addition of entire amount of sales made outside the books of account to other parties by the ld. CIT(A) does not look logical or justified. It is because whatever sales of cycle parts have been made to these parties outside the books of account, must have been procured / purchased / manufactured by the Assessee firm outside the books of account only. In this case, the addition of GP ratio of 8.60% of such sales of Rs. 26,58,600/- could only be sustained along with addition of G.P. on the sales made to M/s Dhanawat to the tune of Rs. 6,11,043/-. We confirm the addition of 8.60% (GP ratio declared by the Assessee) on total sales of Rs. 26,58,600/- + Rs. 6,11,043/- as calculated and confirmed by the CIT(A). Thus, Assessee s appeal on this Ground is partly allowed. - Shri A.D. Jain, Vice President And Dr Krinwant Sahay, Accountant Member For the Assessee : Shri Sudhir Sehgal, Advocate And Shri Rohit Kapoor, CA For the Revenue : Shri Rohit Sharma CIT DR ORDER P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Act, 1961 (in short 'the Act') at the business and residential premises of the Assessee on 21.10.2021. During search, there was no seizure of cash, jewellery or any evidence of investment in the shape of immovable or movable asset was found. The stock was tallied and there was no shortage or excess stock found during the search operation. However, during the course of search, statement of one Shri Satya Parkash Tiwari who has been working and looking after the sales and billing of the firm was recorded on the basis of Whatapp Chat extracted from the mobile phone. Mr. Tiwari in his statement on oath stated on the basis of one Whatapp Chat found in the phone stated that there was suppression of sales to the tune of 25% to 30% in the case of one M/s Dhanawat Enterprises. The statement of Shri Satya Parkash Tiwari was later confronted to Mr. Amarjit Singh, who is partner of M/s Ashoka Industrial Fastners, which is a sister concern of the Assessee firm and he accepted that the statement given by Mr. Satya Parkash Tiwari was correct. Further, a statement of Mr. Gurjit Singh, Partner of the Assessee firm was also recorded and he also confirmed that the statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anawat Enterprises were the same on which such items were sold to other parties. The ld. Counsel further stated that it was only in the case of M/s Dhanawat Enterprises that 30% of sales were not recorded in the books of account but it was not a case with other enterprises, therefore, the Counsel submitted that the action of extrapolation of sales outside books of account on the basis of few Whatsapp Chat were not justified and hence, should be deleted. It was brought on record that 30% sales outside books of account as it was reflected in the Whatsapp Chat which were made on the request of M/s Dhanawat Enterprises and, therefore, on the basis of such isolated incident, extrapolating the entire turn over recorded in the books of account was uncalled for. It was also stated that no corroborative evidence was found in respect of such allegation on the basis of Whatsapp chat nor any evidence of payment by other parties or receiving of payments by the Assessee was found. Even no corresponding asset was found during the course of search justifying the allegation of addition on the basis of exploitation. It was also submitted before the ld. CIT(A) that in respect of sales outside the boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or cycle manufacturers such as Hero Cycle Ltd, T.I. Cycle of India, Neelam Cycle Industries etc. The ld. Counsel further argued that the addition and conclusion drawn by the A.O. of under invoicing was confirmed by the ld. CIT(A) for three parties was against the Whatapp Chat and that Whatapp Chat, in fact, had been misread. He vehemently described in detail and concerned Whatapp Chat as extracted from the mobile of Shri Satya Parkash Tiwari, which was reproduced in assessment order also. He also brought it on record that as per the Whatapp Chat, total order as received in respect of each item, supplied as per different bill numbers were items supplied outside the books of account were at the same rates. So, there was no difference in rates in the sales of items either inside or outside the books. He further explained on the basis of Whatapp Chat that only in the case of M/s Dhanawat Enterprises, 70% of such sale of cycle parts were recorded in the regular books of account and 30% remained unrecorded. He also submitted that the A.O. himself has commented in the assessment order that goods were supplied to other parties at the same rates as per the billing made in the case of M/s Dh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the entire receipts cannot be taken as profit and for which, the reliance was placed on the following case laws for which gist of following judgments were filed: i). MGV Jain Jewellers P Ltd (138 taxmann.com 482), Delhi Bench ITAT ii) CIT Vs Gurubachan Singh J. Juneja 2008 (2) TIM1 177- Gujarat High Court iii) ACIT vs. Conor Granito (P.) Ltd. [2024] 159 taxmann.com 1209 (Rajkot Bench ITAT iv) Nilkhil Garg vs Income Tax Officer (145 taxmann.com 171) Jaipur Bench ITAT vi) V.R Textiles vs Joint Commissioner of Income Tax (20 taxmann.com 154) Ahmedabad Bench, ITAT vii) DCIT/Asstt. Vs Panna Corporation, 2014 (11) TMI 797, Gujarat High Court viii). Dinesh Bhai Dhansukhlal Mithaiwala vs. Income Tax Officer (49 taxmann.com Ahmedabad Bench), ITAT. 10. After the conclusion of the arguments by the ld. Counsel of the Assessee, the ld. DR invited our attention to the assessment order wherein, Satya Parkash Tiwari had confirmed that the transaction in respect to sales to M/s. Dhanawat Enterprises had been made on the direction of the management and further confirmed that he was unable to produce the bills and vouchers or other supporting documents, since these transactions have not been ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Parkash Tiwari and Sh. Amarjit Singh recorded during the search proceedings. Then by way of various Whatsapp chat, which were not related to the year under consideration, the ld. DR argued that there was regular trend of sales outside the books of accounts and also referred to the assessment order, wherein the A.O. has calculated the sales outside the books of accounts to the tune of Rs. 26,58,600/- and argued that total addition was rightly made by the Assessing Officer and confirmed by the ld. CIT(A) since, all expenses regarding the purchases have already been booked in the books of accounts and thus, there was no question of application of gross profit rate on such undisclosed sales. 13. The ld. DR concluded his arguments by saying that there was a regular trend over the years with regard to the sales outside the books of accounts and under invoicing and thus, the Assessing Officer , had rightly extrapolated the sales by 30% of the book turnover and the CIT(A) has erred in restricting the addition only in respect of three parties as per page 56 of his order and heavily relied up*on the order of the AO in respect of the extrapolation. 14. The ld. DR relied upon the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes supplied to M/s. Dhanawat Enterprises and, which is evident from the Whatsapp Chat' as well. He again stressed that about Rs. 46 crores of sales, were made to the only few parties, out of sales of Rs. 63 crores and there is no evidence of the amount of the alleged under invoicing having come back to the assessee and no independent enquiries have been made by the A.O. during the course of assessment proceedings. Attention was also invited to the two orders of the 'Avon Cycles' and 'Aggarwal Cycle Corporation', whose cases were reopened u/s 148 on the basis of information passed on to their respective Assessing Officers and no adverse view have been drawn in their cases while framing the assessment u/s 143(3)/147 of the Income Tax Act, 1961. 16. The ld. Counsel of the Assessee also referred to various WhatsApp chats and argued that the AO having separately computed sales outside the books of accounts and there was no justification for making the addition of the entire sales instead of applying the Gross Profit rate on such sales outside the books. He also referred to the answer given by Sh. Amarjit Singh as quoted supra that he never agreed with the 'under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property outside the books of accounts were found and under such circumstances, that judgment was delivered and such facts have not been there in the present case of the assessee. 19. With regard to the judgment of the 'Orma Marbles Palace Pvt. Ltd.'(supra) , it was stated that in that case also, there was a clear cut case of under invoicing of sale bills, evidence of unaccounted purchases was found, NRI gift, loan and also that undisclosed income was in excess of undisclosed investment and also certain 'unexplained investments', for which, the agreements found from the assessee and, as such, it was argued that any decision would have its judgment on the basis of facts of that case and, as such, reliance placed by the ld. DR was not proper. 20. The Ld. Counsel in rejoinder invited our attention to the judgment of the jurisdictional Punjab Haryana High Court in the case of VM Spinning Mills vs. CIT(A) Ludhiana', reported in 16 taxmann.com 199, in which, it was held by the Hon'ble Punjab Haryana High Court, that no extrapolation could be made in respect of the some evidence of sales outside the books of accounts and the addition could be restricted only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination of the total income. This aspect was again emphasized in para 38 of RRJ Securities with the Court laying stress on the existence of material that may be reflective of undisclosed income being of vital importance. All the aforenoted judgments thus reinforce the requirement of incriminating material having an ineradicable link to the estimation of income for a particular AY . 22. Similarly, reliance was placed on the various other judgments for the preposition that on the basis of 'on-money' receipt for one year, no addition could be sustained in any of the subsequent years on the basis of evidence in another year as per the judgment in the case of 'Standard Tea Processing Co. Ltd.' reported in 34 taxmann.com 31 (Gujarat High Court). Similar reliance was placed on the judgment of Gujarat High Court in the case of Sh. Pushkar Construction Co. reported in 154 taxmann.com 22, and also in the case of CIT vs. CJ Shaw reported in 246 taxmann.com 671. 23. Reliance was also placed on the judgment of Delhi High Court in the case of Anand Kumar Deepak Kumar reported in 294 ITR 497, in which, it has been held that merely because some discrepancies were found in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut bringing any documentary evidence for the same on record is not justified. We have also considered the finding given by the ld. CIT(A) that it is a case of under-invoicing in respect of three parties i.e., M/s Dhanawat Enterprises, Ashoka Trading and A.K. Sales. In our considered view, it is not a case of under-invoicing. Rather it is a clearcut case of sales made outside the books of account. Further, since the Assessing Officer has already taken outside the books sales in the case of Ashoka Trading Company and M/s A.K. Sales (on the basis of Whatsapp Chats) therefore, addition in the case of outside the book sales in respect of M/s Dhanawat for Rs. 6,11,043/- (being 30%) of the undisclosed sales out of books may only be considered for calculating G.P. ratio. It is true that on the basis of Whatsapp chat, the A.O. has brought out some of the parties on record to whom the Assessee has made sales outside the books of account. As no other incriminating document was found in the case of other parties, therefore, action of the ld. CIT(A) in restricting the addition to the parties whose names figure in Whatsapp chat is very much logical and justified. We have also considered the vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to other parties by the ld. CIT(A) does not look logical or justified. It is because whatever sales of cycle parts have been made to these parties outside the books of account, must have been procured / purchased / manufactured by the Assessee firm outside the books of account only. In this case, the addition of GP ratio of 8.60% of such sales of Rs. 26,58,600/- could only be sustained along with addition of G.P. on the sales made to M/s Dhanawat to the tune of Rs. 6,11,043/-. 27. Accordingly, we confirm the addition of 8.60% ( GP ratio declared by the Assessee) on total sales of Rs. 26,58,600/- + Rs. 6,11,043/- as calculated and confirmed by the ld. CIT(A). Thus, Assessee s appeal on this Ground is partly allowed. 28. In the result, Assessee s appeal is partly allowed. ITA No. 753/Chd/2023 (Revenue s appeal) 29. The Revenue, it its appeal, has taken the following Revised Grounds of appeal:- 1. Whether on facts and circumstances of the case the Ld. CIT(A) is justified in restricting the addition of Rs. 27,01,59,118/- to the extent of Rs. 22,77,606/- made on account of under invoicing of bill where Sh. Satya Parkash Tiwari has accepted in his statement dated 21.10.2021 during the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tsapp Messages of Sh. Satya Parkash Tiwari and Sh. Amarjit Singh and has concluded that there is a 30% under invoicing and beside that there is sales outside the books of accounts to the tune of Rs. 26,58,600/-. Disclosed turnover during the year was Rs. 63,03,72,208/-. The worked out undisclosed turnover due to under-invoicing as 30/70 X 63,03,72,208/- and accordingly by drawing a revised trading account AO had made an addition of Rs. 27,01,59,118/- on account of under invoicing. A further addition of Rs. 26,58,600/- was made on account of out of book sales. 5.2.11 However, since in the above mentioned three cases, there is evidence in respect of certain transactions that there is under-invoicing to the extent of 30%, I hold that the view of the AO extrapolating these transactions to the entire turnover pertaining to these three entities during the current year is correct and therefore, confirmed to this extent. The details are as under: s. No. Name of the Party Page No. of the AO's Order Total Sales as per books for the AY 2021-22 (Rs.) 30% of disclosed sale on account of under invoicing (Rs.) 1. Dhanawat Enterprises 7 20,36,809 6,11,043 2. Ashoka Trading Co. 12 26,85,133 8,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered the written submissions filed by the Counsel of the Assessee on this issue. We find that the ld. CIT(A) has given a very categorical finding that except three parties, i.e., M/s Dhanawat Enterprises, M/s Ashoka Trading Company and A.K. Sales India, transactions made on the basis of Whatapp chat do not pertain to the year under consideration. Therefore, CIT(A) has restricted the extrapolation in case of only three parties and restricted the addition of Rs. 27,01,59,118/- to the extent of Rs. 22,77,606/-. The ld. CIT(A) has given clear finding that sales made to other parties do not pertain to the year under consideration. Therefore, addition of Rs. 26,78,81,912/- on the basis of Whatsapp Chat found and extrapolation made thereon was to be deleted. 34. In our considered view, the findings given by the ld. CIT(A) on this issue is very logical and justified and needs no interference. Accordingly, we confirm the action of the CIT(A) in restricting extrapolation and deleting the addition of Rs. 26,78,81,912/-. Regarding legal position, the discussion made by the DR as well as by the Counsel of the Assessee have already been discussed by us in our order in ITA No. 705/Chd/2023. A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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