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TMI Blog2024 (11) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... es, could not be faulted with. AR has urged that this estimation has been made on circular transactions also which merely represents circular amount received from another group entity viz. M/s V.V. Minerals and these receipts have been returned back to the group entity. Such circular transactions form part of above receipts. The fact of circular transaction has also been accepted by Ld. CIT(A) in the impugned order. In our considered opinion, circular transactions within group entities would not partake the character of income in the hands of the assessee. Accordingly, the receipt could not be held to be part of unaccounted sales receipts and therefore, the same are to be excluded while estimating the profit on these transactions. Therefore, Ld. AO is directed to exclude the same while making the computations for respective years. Bogus Expenditure - The ledger accounts would show that the assessee has not made any payment to the said vendors and therefore, the question of receiving back the cash would not arise at all. The Ld. AO has not made any independent enquiries and no material evidence has been brought on record to prove that the cash was actually received back from the ven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addition for alleged manipulation in the accounts - CIT(A) noted that this addition was merely based on e-mail communication between Shri J. Thangadurai and Shri V. Subramanian - HELD THAT:- In the said e-mail, there was no incriminating noting to suggest that the stated accounting adjustments were manipulations to evade the tax liability. It was only the view of the person handling taxation issues of the assessee company. It was the duty of Ld. AO to examine each issue by analyzing the books to prove that the suggestions in the e-mail actually resulted in tax evasion by the assessee. The said communication could not be presumed to be accounting manipulations carried out by the assessee company in the absence of any corroboration thereof. As further observed that the books of account of the assessee-company were duly audited by an Independent Firm of Chartered Accountants. There was no adverse noting either in the Statutory Audit Report or in the Tax Audit Report relating to valuation of Ilmenite, stock-in-process and depreciation claim. No incriminating material was found during the course of search to prove that the contents of the e-mail communication between Shri J. Thangadura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unted sales are related to payments made to bureaucrats and political parties which are not allowable expenses u/s. 37 of the Act, hence the entire receipts are to be treated as unaccounted income. 2.2 The Ld.CIT(A) erred in failing to appreciate that the assessee company have not produced any evidence to prove that the expenses have been incurred in connection with unaccounted sales other than the expenses recorded in the books of accounts. 3. The Ld.CIT(A) erred in deleting the addition of Rs. 12,28,60,730/- towards unaccounted cash receipts made on the basis of incriminating material in the form of email back up seized during the course of search reflecting e mail communication between Shri. S. Jagatheesn, Managing partner of M/s. V. V. Minerals and Smt. Jeyanthi, employee of M/s. V.V. Minerals wherein excel sheets containing data of cash receipts on sale of scrap made by 3.1 The Ld CIT(A) failed to appreciate that M/s. V.V. Titanium Pigments Pvt Ltd and M/s. V V Minerals are closely related to group concerns and maintenance of data in respect of cash receipts of one company by managing partner of other concern cannot be considered as illogical or without basis. 3.2 The Ld.CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AO alleged that there was sales suppression from two parties (M/s Meta Trading Company and M/s QRS Paints Labs) during FYs 2017-18 2018-19 which are tabulated on Page No.10 of the assessment order. The aggregate addition made in these two years against the two parties was quantified at Rs. 55.25 Lacs. 4. Unexplained Investments 4.1 The addition is on account of 1.83 acres of land purchased by the assessee during October, 2017 at Tutikorin District. The land was adjacent to company s factory. Shri J. Thangadurai was authorized by Board of Directors to sign the documents on behalf of the company. The sale consideration as per Sale Deed dated 16-10-2017 was Rs. 7.51 Lacs including stamp duty. However, there was an email communication between Shri Thangadurai and Shri M. Subramanian (MD) on 16-10- 2017 which showed that on-money was paid for Rs. 31.73 Lacs towards purchase of this land. Accordingly, the same was added as unexplained investment for AY 2018-19. 4.2 Similar addition of unexplained investment of Rs. 25 Lacs was made for AY 2016-17 for purchase of land from Shri SDR, Vijayaseelan. The same was based on Page-13 of note books which was seized vide ANN/MP/VVTP/B D/S-2 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me were seized vide ANN/KS/PK/B D/S-1 to S-6. The same was maintained by Shri Raja, Office Manager. He admitted to have maintained these books for various individuals. He stated that he received cash and made cash payments on behalf of various persons. On the basis of the same, it was concluded by Ld. AO that the assessee indulged in cash sales for Rs. 13.65 Crores for AYs 2014-15 and 2015-16. This addition for AYs 2017-18 to 2019-20 was quantified at Rs. 6.10 Crores. 8. Other Additions: Addition for alleged manipulation in the accounts This addition is based on email dated 24-10-2018 sent by Shri Thangadurai to Shri Subramanian (MD) and a copy of the same was marked to Smt. Chitra, CA. In this email the figures of total income and advances tax was mentioned. On the basis of the same, Ld. AO alleged that there was manipulation in stock and value of the assets. The same was quantified at Rs. 1930.36 Lacs for AY 2018-19 and added to the income of the assessee. 9. At the time of search, physical cash was found for Rs. 1.49 Lacs whereas the books had cash balance of Rs. 0.93 Lacs. The differential of Rs. 0.56 Lacs was treated as undisclosed income for AY 2019-20. 10. Finally, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Tuticorin District. The Ld. CIT(A) observed that this addition was not based on any incriminating material found during the course of search but purely based on statement recorded from Shri J. Thangadurai. In the absence of any incriminating material, no such addition could have even made. The Ld. AO did not attempt to make any enquiry from the vendors of the land. Finally, this addition was deleted. These findings have also attained finality and not the subject matter of appeal before us. 13. Unaccounted Sales and Scrap Sales 13.1 The issue of unaccounted scrap and rutile sale arose for AYs 2015-16 to 2019-20. The same was based on five notebooks and diaries as seized from Shri J. Thangadurai. The Ld. AO analyzed the same and based on sworn statements and certain whatsapp conversations arrived at a conclusion of unaccounted sales. For AY 2016-17, Ld. CIT(A) noted that there was totalling mistake to the extent of Rs. 30.55 Lacs. For AY 2017-18, there was double addition to the extent of Rs. 66 Lacs. For AY 2018-19, there was totalling mistake to the extent of Rs. 3.25 Lacs Rs. 0.37 Lacs. For AY 2019-20, the amount of Rs. 2 Lacs was amount received back which was earlier given an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,24,621 3,53,72,582 1,86,14,170 5,46,47,905 2,93,04,505 However, the benefit of circular transactions as urged by the assessee was not granted by Ld. CIT(A) to the assessee. Accordingly, the grounds were partly allowed. Aggrieved, the assessee as well as revenue is in further appeal before us. Our findings on this issue 14. From the facts, it emerges that this addition is based on five notebooks and diaries as seized from Shri J. Thangadurai. The Ld. AO analyzed the same and based on sworn statements and certain whatsapp conversations, arrived at a conclusion of unaccounted sales. In our considered opinion, there was ample material before revenue to make this addition. However, we also find that these notebooks contain details of expenditure incurred by the assessee out of unaccounted sales. It is trite law that only real income could be subject to tax. Though there are unaccounted sales, there are unaccounted expenditure also. The Ld. AO can not accept a part of the transaction. On the facts of the case, it could be seen that Ld. CIT(A) has estimated the profit on the unaccounted sales by applying regular Gross Profit rate shown by the assessee in respective years. The same, in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee which was evident form the list of vendors as noted by Ld. AO. The whatsapp conversation was only a proposal which did not fructify. Therefore, the same was irrelevant and not incriminating. Further, the ledger accounts would show that the assessee has not made any payment to the said vendors and therefore, the question of receiving back the cash would not arise at all. The Ld. AO did not make any further enquiries. No material evidence was brought on record to prove that the cash was received from the vendors. 15.4 The Ld. CIT(A) concurred that during the course of search, it was found from one of the Whatsapp conversation that it was proposed to obtain bills from Raja Transporter and Devashayam Contractor for FY 2017-18. However, upon perusal of the list of vendors, it was quite clear that no such bills were actually obtained by the assessee from such vendors. Accordingly, the said whatsapp conversation was merely proposal which had not materialized. The said conversation alone was not sufficient enough to make addition of bogus expenses. The Ld. AO should have travelled further to bring on record the additional evidence to corroborate the allegation. However, Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is another fact that the substantial expenses as disallowed by Ld. AO has never been booked by the assessee in its books of accounts. This addition is merely based on certain whatsapp conversation between Shri Thangadurai and Shri V. Subramanian. In the said conversation, it was mere proposal to obtain bills from Raja Transporter and Devashayam Contractors. However, no such bills have actually obtained by the assessee which is quite evident form the list of vendors as extracted by lower authorities. This being the case, the said conversation, on standalone basis, would not be sufficient enough to disallow expenditure of that magnitude. The ledger accounts would show that the assessee has not made any payment to the said vendors and therefore, the question of receiving back the cash would not arise at all. The Ld. AO has not made any independent enquiries and no material evidence has been brought on record to prove that the cash was actually received back from the vendors. The Ld. CIT(A), in our considered opinion, has clinched the issue in correct perspective and was quite logical in estimating the disallowance by following various judicial decisions holding the field. The est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J. Thangadurai or Shri V. Subramanian in connection with the excel sheet. In the absence of valid details and the circumstances in which the excel sheet was prepared and the corresponding entries, the same could not be relied upon to make impugned additions. In the excel sheet, there exist no narration relating to the quantity of scrap sold and the details of buyer to whom it was sold. Had the assessee company been receiving cash from the sale of scrap as stated in the excel sheet, the same should have been mentioned in the note books seized from Shri J. Thangadurai (GM Finance Accounts). Further, there was no corroborative evidences to prove that the noting in the excel sheet were actual cash receipts of the assessee company. In such circumstances, this sheet could not be relied upon. This sheet was neither recovered from the office of the assessee company nor from its employees and therefore, the presumption laid u/s 132(4A) of the Act cannot be invoked. The author of the excel sheet was not conclusively established. There was no corroboration from any of the party and the evidence being relied upon by Ld. AO was merely hearsay evidence carrying no evidentiary value. At the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; as mentioned in the note-book merely refer to the payment received from the plant which is duly reflecting on the payment side of the note books as seized from Shri J. Thangadurai. Since receipts side of the material seized from Shri J. Thangadurai was added separately, subsequent payments out of such receipts as received by Shri S. Raja could not be added again on the basis of receipts entry made by Shri S. Raja in his notebooks as it would amount to double addition of the same amount. The assessee furnished reconciliation statement correlating the payments transferred from plant office to Shri S. Raja and other apparent mistakes in the noting. 18.5 The Ld. CIT(A) concurred that Shri S. Raja was not an employee of the assessee company. Further, most of the notings on the basis of which impugned addition was made, were bald notings without any reference to the name of the assessee company. During the course of search, no enquiries were conducted from Shri S. Raja in order to understand the source of each and every cash receipt. Further, no corresponding enquiry was also conducted either with Shri J. Thangadurai or Shri V. Subramanian. The Ld. AO did not bring on record any findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as revenue is in further appeal before us. Our adjudication on this issue 19. We find that the additions for AYs 2014-15 2015-16 are based on certain excel sheet as exchanged in e-mail between Shri Jegatheesan (Partner of M/s V.V. Minerals) and Smt. Jeyanthi (an employee of M/s V.V. Minerals). However, these sheets are unsigned sheets and unless corroborated by independent evidences, would bear no evidentiary value. The Ld. AO has not made any enquiries to corroborate the notings in the excel sheet. The Ld. CIT(A) has correctly noted that Ld. AO did not examine / confront the excel sheets to any of the parties. In the absence of valid details and the circumstances in which the excel sheet was prepared and the corresponding entries, the same could not be relied upon to make impugned additions in the hands of the assessee. The sheet has no narration relating to the quantity of scrap sold and the details of buyer to whom it was sold. It could also be noted that had the assessee company been receiving cash from the sale of scrap as stated in the excel sheets, the same should have been mentioned in the notebooks as seized from Shri J. Thangadurai (GM Finance Accounts). Further, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of unaccounted sales by the assessee company, Ld. CIT(A) has examined the factual position and applied Gross Profit Rate to the un-reconciled receipts and sustained the additions to that extent. On the facts and circumstances of the case, the aforesaid estimation, in our considered opinion, is quite logical and reasonable which do not call for any interference on our part. Therefore, we confirm the adjudication of Ld. CIT(A) for AYs 2017-18 to 2019-20. The corresponding grounds raised in the cross-appeals stand dismissed. 21. Addition for alleged manipulation in the accounts The Ld. CIT(A) noted that this addition was merely based on e-mail communication between Shri J. Thangadurai and Shri V. Subramanian. In the said e-mail, there was no incriminating noting to suggest that the stated accounting adjustments were manipulations to evade the tax liability. It was only the view of the person handling taxation issues of the assessee company. It was the duty of Ld. AO to examine each issue by analyzing the books to prove that the suggestions in the e-mail actually resulted in tax evasion by the assessee. The said communication could not be presumed to be accounting manipulations carried ..... X X X X Extracts X X X X X X X X Extracts X X X X
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