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TMI Blog2019 (3) TMI 2063X X X X Extracts X X X X X X X X Extracts X X X X ..... y pointed out by the Ld. AR by referring to the assessment order. Further, in absence of rejection of the books of accounts, the ad hoc addition to the GP Rate cannot be sustained - we uphold the order of the Ld. CIT (A) deleting the addition - Decided against revenue. Addition on account of the payments to the farmers in respect of the purchase of food grains - addition made on the basis that the assessee had not furnished any details of farmers like their addresses, details of purchases made from them, any documentary evidences showing that purchases have been actually made, land holdings of the farmers and proof of cultivation done by the farmers - assessee had not furnished evidence regarding withdrawal of cash for making payments to the farmers - CIT(A) deleted addition - HELD THAT:- It is not the case of the assessee that it is claiming any exemption on such income. In these circumstances, we are of the view there was no justification for the AO to draw any adverse inference merely because vouchers of purchases in cash were found during the search. These vouchers are part of the regular books of account and it is also not the case that such vouchers were unaccounted for. We h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertains to AY 2008-09. Since all these appeals involve identical issues, they were heard together and they are being disposed of through this common order for the sake of convenience. We now take up the appeals one by one. 2.0 ITA 4246/Del/2014 (Department s Appeal) for Assessment Year 2006-07: The brief facts of the case are that the assessee is stated to be carrying out the business of trading in gold bullion and food grains. A search and seizure operation u/s 132(1) of the Income Tax Act, 1961 (hereinafter called the Act ) was conducted at the residential and business premises of Shri Rajesh Kanodia and his group concerns/companies /family members on 28/03/2011. Statutory notice u/s 153C of the Act was issued on 05/09/2012 and in response thereto, the return of income was filed declaring an income of Rs. 5,61,700/-. The assessment was completed u/s 153C of the Act on 28/03/2013 at an income of Rs. 2,97,32,922/- after making an addition of Rs. 15,90,026/- by making an estimated addition by estimating the gross profit @ 0.2% on sale of gold bullion/bars. This addition was made on the ground that since the entire sales were made in cash, the profit shown by the assessee was not ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment order. The Ld. CIT DR filed a written synopsis, the relevant part of the said synopsis reads as under: 2. In this case, surprisingly sale of the assessee running into hundreds of crores is in cash only. Assessee is selling huge quantity of bullion and jewellery only in cash that too exceeding Rupees 1 Lakh. There is no dispute about the purchase. However, details of sale party has not been furnished. As regards, sale in cash, the assessee has furnished the general kind of explanation in pages 546-549 of PB for A.Y. 2006-07. In the similar trade, the director of the company Sh. Rajesh K Kanodia, in his proprietary concern has shown GP rate of 0.01% (as mentioned in the order of the ITAT in his case for A.Y. 2005-06), while in the case of the assessee it is merely 0.0075%. Since the assessee has not furnished any specific reason for such low GP, particularly in the light of the fact that all the sale, that too running in lakhs, in in cash, the A.O. had no option but to estimate a reasonable profit ratio. The books of account are maintained on the basis of transactions recorded by the assessee. Since the assessee is not providing the particulars of sale and cash sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion without even rejecting the books of accounts. 4.1 As regards the sales having been made in cash, it was submitted by the Ld. AR that there was no prohibition under any law, including Income Tax Act, in making the sales in cash and as such no adverse inference could be drawn merely because the sales have been made in cash. It was further stated that the Ld. CIT (A) has deleted the addition relying on his own order in the case of the assessee for AY 2005-06. It was further submitted that the Revenue had filed an appeal against the said order before the ITAT. However, the same was dismissed due to low tax effect. The Ld. AR further submitted that similar additions were also made in the group case of Mr. Rajesh Kanodia and this identical issue in that case was decided by the Ld. CIT (A) by relying on the order in the case of M/s Vasudeva Jewellers in AY 2005-06. It was further submitted that in the case of Mr. Rajesh Kanodia, the ITAT has decided the appeal and confirmed the deletion of the addition made on this account. On this basis, it was submitted by the Ld. AR that the facts of the present case were identical to the facts in the case of Mr. Rajesh Kanodia being ITA No. 4241- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions. It was submitted that there was no dispute that the assessee had declared the purchase and sale of agricultural produce. It was also submitted that the quantitative details of stock were duly reflected in the Annual accounts of the company (Paper Book pg. 22), nature of business was duly specified in Form 3CD (Paper Book Pg. 25), details of Stock movement were provided in the Tax Audit Report (Paper Book Pg. 32). The Ld. AR submitted that the assessee had made withdrawal of cash of Rs. 11,85,000/- from bank on 08.09.2005, as was evident from Paper Book Pg. 451, and the same was paid to the farmers and then the farmers were paid from the sale proceeds of the commodities. 4.3 It was contended by the Ld. AR that in the absence of any adverse document or material having been brought on record by the AO, the Ld. CIT (A) had rightly held that the payment/s made by the assessee cannot be said to be unexplained. 5.0 We have heard the rival submissions and have also perused the orders passed by the authorities below. The first issue is regarding the deletion of addition made by the AO by enhancing the gross profit rate. On going through the order of the Ld. CIT (A), we note that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted before him reproduced at page 3 of the assessment order . 4.8.7 The AO has also not countered the summary of the arguments/submissions taken before the AO as reproduced by him at the later part of page 3 and the beginning part of the page 4 of the assessment order. It is also observed that the AO has not reproduced the entire contents of the written submissions of the appellant dealing with the cash sales and absence of names and addresses of the buyers in the cash sales. The relevant portion of the assessee s written submissions which have been omitted to be reproduced in the assessment order which are directly dealing with the said issues is reproduced below for ready reference: Execution of sales and disclosures in books of accounts It involves following steps 1. Execution of sales (a) Orders for purchase of commodity with MMTC and other reputed organization suppliers are placed upon receipt of enquiry by the customers. Such orders are delivered by the suppliers at prevailing rates of the commodity at the time of supplies. (b) Upon receipt of the supplies and costs thereof it is ensured that the supplies be made at a rate so that at least minimum of the cost be recov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bound to record whatever names and addresses has been given, as the assessee has no reason to doubt the version of the buyer. In this line of business, normally, the buyers are reluctant to disclose their identity and when the assessee has shown entire sales amount in cash, which is duly recorded in books and audited as such even by tax auditors. Without prejudice it may also be appreciated that in any case non disclosure of names and addresses of the purchasers is not going to adversely affect the interest of the assessee or revenue. (b) The assessee is duly maintaining day-to-day quantitative details of purchase and sales made by it. The Quantitative tallies of purchases and sales made and record thereof is duly maintained which were even examined by investigating authorities and it is a matter of fact on record that no deviation thereof was found in a conclusive proof of not only the facts stated above but also the genuineness involved thereof. (c) The cash sales so made is duly recorded in the books of accounts and cash thereof after meeting necessary expenses, recorded in books is deposited in bank accounts as and when required so after considering working capital requirements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which he has made such remarks. Therefore, I do not find any merit in this kind of adhoc additions. It is also noted that there is merit in AR s argument that the addition is otherwise unsustainable as the AO has not rejected the books of accounts. In this regard reliance has been placed by the AR on the decision of Hon ble Delhi Bench of ITAT in the case of ACIT Vs Sh. Vijay Kumar Aggarwal (ITA No.: 4183/Del/2012 dated 28/06/2013) wherein it has been held as under. 4. After considering the arguments of both the sides and the facts of the case, we do not find any infirmity in the order of the learned CIT (A). The Assessing Officer has mentioned that the profit on sale of paintings is ranging between10% to 1000%. However, on what basis he made such observations is best known to him. The learned CIT (A) has recorded the finding that in assessee s own case, last year, the gross profit disclosed was 14.78% while the gross profit in the year under consideration was better. Further, the question of application of GP rate can arise only on the rejection of books of account as per Section 145(3). For rejection of books of account, the Assessing Officer has to record the finding that he is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y details of buyers, however, no inflated sale was pointed out. On the contrary, the sale was duly declared by the assessee in his VAT returns filed before the appropriate authorities (copies of which were furnished before the AO). In the present case, it is noticed that he AO applied GP rate of 0.2% on estimate basis and made the ad-hoc addition. However, no specific instance of inflated purchase or suppressed sale was pointed out and no specific defect was pointed out in the books of accounts. The assessee furnished the books of accounts with purchase/sale details, ledger and day to day stock register with quantitative details, the same had been accepted by the AO. Therefore, the adhoc addition made by the AO, by applying the GP rate of 0.2% was not justified, particularly when no comparable case was brought on record wherein such a profit was earned. We, therefore, considering the totality of the facts as discussed hereinabove are of the view that the Ld. CIT (A) rightly deleted the addition made by the AO by following his own order for the reassessment year 2005-06 in the case of M/s Vasudeva Jewellers Pvt. Ltd. (supra), against which an appeal was filed by the department befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order and the various documents referred to by the AR. It is observed that the AO has made the addition of Rs. 2,75,81,196/- on the ground that the assessee has not furnished evidences showing the land owning of the farmers and proof of cultivation done by the farmers. It has been further stated by the AO that the assessee has not furnished evidences regarding withdrawal of cash for making payment to the farmers. There is no merit in these observations of the AO. The documents such as the VAT returns, P L account and Balance Sheet, Auditor s report all submitted by the appellant in the usual course of the business much before the date of search before the appropriate authorities indicate that the appellant did engage itself in trading in food grains and also disclosed it both in the VAT returns and in the Return of Income filed in the usual course. Not only the figures tally but the explanation with regard to the appellant s involvement in trading in food grains also match with the documents submitted before the AO. 4.3.9 The contention of the AO that the assessee has not furnished evidences showing the land holding of the farmers and the proof of cultivation done by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 11,85,000/- from the bank on 8th September, 2005 as is evident from the copy of the bank statement placed at paper book page 451. The AR has submitted that this cash withdrawal has been utilized for making payment to the farmers and thereafter the assessee has been receiving money on sale and making further purchases. In the audited balance sheet and profit and loss account, the assessee has given details of the purchases and sale of these agricultural commodities including quantitative details. This audited balance sheet was filed much before the date of the search. Once the appellant leads evidences to show that he had done trading in food grains and points out that the cash voucher refer to the payments made to farmers, the AO could have disagreed with such claim only by bringing any adverse evidences. But no evidences are brought on record. Thus the conclusion arrived at by the AO that the payment of Rs. 2,75,81,196/- remained unexplained is not born out of records. Hence, the addition made on this count is hereby deleted. The ground is allowed. 5.5 On going through the facts and the order passed by the Ld. CIT (A), we note that the assessee has purchased agriculture produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- out of the cash withdrawal of Rs. 11,85,000/- from its bank account with Allahabad Bank till 31.03.2006. The Ld. CIT DR, during the course of the hearing, could not point out anything adverse in this statement and the details of the purchases and sales submitted by the assessee both in quantity and value. We have also perused the balance sheet and the annexure thereto. On going through the same, we note that assessee has made a total purchase of the agriculture commodities i.e. pulses and cereals of Rs. 2.78 Crore and has made sales of Rs. 3.21 Crore with the result that a profit of Rs. 0.43 Crore has been declared on such sales and purchases of agriculture commodities. It is not the case of the assessee that it is claiming any exemption on such income. In these circumstances, we are of the view there was no justification for the AO to draw any adverse inference merely because vouchers of purchases in cash were found during the search. These vouchers are part of the regular books of account and it is also not the case that such vouchers were unaccounted for. We have also gone through the various judgments relied upon by the Ld. DR. The facts of these judgments are different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out the peak credit at Rs. 96,41,736/- and confirmed the addition to that extent and deleted the balance. 7.2 The assessee as well as the Revenue, both being aggrieved, are now before the ITAT and have raised the following grounds in their respective appeals: 7.2.1 Grounds raised in Assessee s Appeal: 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT (A)] is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the proceedings initiated under Section 153C against the appellant are in violation of the statutory conditions and the procedure prescribed under the law and as such the same is bad in law and likely to be quashed. 3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the proceedings initiated under section 153C and assessment framed in consequence thereof is bad and liable to be quashed in the absence of any valid satisfaction being recorded by the AO of the searched perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on the reasoning that the same appears to be on the lower side. This issue is the same as in the appeal for the preceding A.Y. 2006-07. Both the parties agreed that the facts of this issue are identical to the facts of the issue in the A.Y. 2006-07. In ITA No. 4246/Del/2014 for AY 2006-07, we have already upheld the order of the Ld. CIT (A) and dismissed the ground raised by the Revenue. The relevant finding on this issue are contained in Para 5.2 above of this order. Following our own order for the A.Y. 2006-07, we upheld the order of the Ld. CIT (A) in deleting the addition made by the AO by enhancing the gross profit rate and, accordingly, ground 2 is dismissed. 8.2 Ground No. 3 in Revenue s appeal is regarding partial relief of Rs. 45,61,269/- given by the Ld. CIT(A) out of the total addition of Rs. 1,42,03,005/- made by the assessing officer. Ground No. 5 in assessee s appeal is regarding addition of Rs. 96,41,736/- sustained by the Ld. CIT(A) out of the addition of Rs. 1,42,03,005/- made by the assessing officer. Thus, both these grounds are related. 8.3 It was submitted by the Ld. CIT DR that Ld. CIT (A) was not justified in deleting the above addition. The Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls vs Commissioner of Income-tax [2000] 111 TAXMAN 566 (DELHI) B. Commissioner of Income-tax vs P.R. Metrani 120 TAXMAN 612 (KAR.) C. P.R. Metrani vs Commissioner of Income-tax, Bangalore 157 TAXMAN 325 (SC) As regards cash receipts in A.Y. 2007-08, the CIT (A) has sustained the addition to the extent of peak credit. In this regard, reliance is placed on the following decision of Hon ble Allahabad High Court in the case of Bhaiyalal Shyam Behari v CIT (276 ITR 38). Further, reliance is placed on the decision of Hon ble Delhi HC in the case of CIT v D K Garg (2017) 84 Taxmann.com 257. Further, in respect of proceedings u/s 153 C, decision in the case of DR. A. V. Sreekumar v CIT [2018] 90 taxmann.com 355 (Kerala) may kindly be considered. In the above mentioned case, Hon ble Kerala HC has considered the decision of Delhi HC in the case of Kabul Chawla also. In the instant case also, on the basis of evidence/material available with the A.O., the assessment could have been reopened u/s 148. The mere fact that the provision under which the Department proceeded was not proper, would not vitiate the entire proceedings especially since there is no procedural requirement distinguishing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order passed by the assessing officer is silent and has not stated as to under what assumption was the addition being made on account of this document. It was submitted that the AO has not stated as to what inference he was drawing on the basis of this document. It was submitted that simply because some figures have been found to be stated on a piece of paper, it cannot be assumed that such figures represented income and that too earned by the assessee. It was submitted that the assessing officer being an adjudicating officer has to determine the correct income based on the facts before him. The Ld. AR submitted that the AO, first, has to apply his mind to the paper and the figures stated therein and even in the absence of any explanation, after analysis by him, has to record a finding with the reasoning as to how the figure stated in the seized document is being considered as income and, thereafter, also record a finding that such income being considered by him on the basis of the document before him is that of the assessee. The Ld. AR emphasized that in the present case, no such exercise had been carried out by the AO as was evident from the assessment order and further that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8/03/2011. The assessee filed its return of income on 04/12/2012 and an income of Rs. 3,04,530/- was declared therein. The assessment was completed u/s 153C of the Act on 28/03/2013 at an income of Rs. 79,02,679/-. The addition was of Rs. 75,98,149/- being addition on gross profit estimation to 0.2% on the ground that the assessee had made only cash sales of gold bullion and, therefore, the profit was not verifiable. The assessee s appeal before the Ld. CIT (A) was allowed on the issue wherein the gross profit addition/enhancement was deleted by the Ld. CIT (A) by following his earlier year s order on identical issue in AY 2005-06. Now, the Department has approached the ITAT against this deletion and has raised the following grounds of appeal: 1. The order of Ld. CIT (A) is not correct in law and facts. 2. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs. 75,98,149/- made by the Assessing officer on account of GP rate of 0.2% of total turnover of Rs. 379,90,74,730/- as against a GP rate at 0.01% which appears to be at lower side, since the assessee was making total sales in cash and no details of parties to whom sales were made furn ..... 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