Appeal Details
Counselvise Citation
[2021] 104 COUNSELVISE.COM (IT) 7948 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 year(s) 5 month(s) 20 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
22-11-2021
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
G
Assessment Year
2010-2011
Appeal Filed On
01-06-2016
Judgement Text
Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI BEFORE MS SUCHITRA RAGHUNATH KAMBLE, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER (Through Video Conferencing) ITA No. 3262 and 3263/Del/2016 (Assessment Year: 2010-11 and 2011-12) DCIT, Central Circle-19, New Delhi Vs. M/s. Pilot Industries Ltd, F-29/30, Gokhle Market, Near Tis Hazari Court, Mori Gate, Delhi PAN:AAACP0655R (Appellant) (Respondent) Revenue by : Shri H. K. Charudahry, CIT DR Assessee by: Shri Amit Goel and Shri Nippon Mittal, CA Date of Hearing 10/11/2021 Date of pronouncement 23/11/2021 O R D E R PER PRASHANT MAHARISHI, A. M. 01. These are two appeals filed by the Ld. Deputy Commissioner of Income Tax, Central Circle – 19, New Delhi [the ld. AO] against the orders of the Ld. CIT(A)- 27, New Delhi, [ ld CIT (A) ] dated 29 th March 2016. In both these appeals, the ld. CIT(A) has passed similar orders. Since the issues involved are similar, parties also argued one appeal for AY 10-11 and submitted that their arguments are similar for AY 11-12 , therefore both these appeals are heard together and disposed off by this common order. 02. ITA No . 3262/Del/2016 for Assessment Year 2010-11 is filed by the ld AO against the order of the ld CIT (A) raising following grounds of appeal. ITA No. 3262/Del/2016 for Assessment Year 2010-11:- “1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deciding the appeal of the Page | 2 assessee without appreciating the fact that the assessment order passed in the case was not to be given effect to because of the order of the Hon’ble Delhi High Court dated 14.05.2013. Thus the order of the Ld. CIT(A) is against the order of the Hon’ble Delhi High Court. 2. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in wrongly stating that the high Court has held that the AO will not enforce the demand before the final order of the Court whereas the Hon’ble Delhi High court has stated in the order dated 14.05.2013 that “the assessment proceeding may go on and the order may also be passed, however, the same would not be given effect to in further order”. 3. That the Ld. Commissioner of Income Tax(Appeals) has erred in law and on facts in deciding the appeal of the assessee on the assessment orders which was rendered ineffective and not enforceable by the Hon’ble Delhi High Court. 4. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in wrongly interpretating the judgment of Hon’ble Delhi High Court which allowed only the assessment proceedings to go on and not any subsequent appellant proceedings and the Ld. CIT(A) has wrongly decided the appeal on the assessment order, which was still sub- judice before the Hon’ble High Court. 5 That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in holding that the AO was not justified to make the addition of GP as no incriminating material was found during search without appreciating that the AO has made addition based on seized/incriminating documents in respect of cash transfers/bogus purchases. 6. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting the addition of Rs. 27,15,73,433/- made by AO by enhancing gross profit rate 24.38% as against 6.66% declared by the assessee without appreciating the fact that the addition made by AO was duly based on documents found during the search which reflected bogus purchases/cash transactions. 7. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in that there was no justification on the part of the assessing officer in rejecting the trading result of the appellant and making the addition by increasing the gross profit rate 24.38% without appreciating the facts that the addition was based on incriminating documents relating to bogus purchases/cash transactions found during the search and also on the statement given by entry operators. Page | 3 8. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in ignoring the fact that assessee is engaged in inflating its purchases through bogus purchases bills taken from the accommodation entry providers. 9. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in ignoring the facts that during the course of search and seizure operation u/s 132 in the case of Sh. Rakesh Gupta Sh. Vishesh Gupta Sh. Vaibhav Jain and Sh. Navneet Jain, it was found that these persons are engaged in the business of providing accommodation entries through bogus purchases bills from the firms owned and controlled by them to the assessee company and also stated on oath that no material has ever been supplied to M/s Pilot Industries Ltd. 10. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of Rs. 8,82,64,030/- made by AO on account of unaccounted and unrecorded purchase and sales. 11. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in ignoring the fact that the assessee company is involved in unaccounted sales and purchase during the A.Y. 2010-11 which are not accounted for in the books of accounts and profit on sales are also not accounted for by the assessee in its books of accounts. 12. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of Rs. 14,03,84,392/- made by AO on account of Undisclosed peak investment on unaccounted and unrecorded purchases 13. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of Rs. 20,56,298/- made by AO on account of depreciation on Bogus Purchases of machinery. 14. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of Rs. 2,98,90,056/- made by AO on account of Undisclosed income from bogus share capital. 15. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in ignoring the fact that the assessee has surrendered Rs. 11.95 crore in A.Y. 2010-11 as bogus share capital receipts in his statement recorded on oath u/s 132(4) dated 27.04.2010 however disclosed only Rs.896,09,944/- in its return of Income for A.Y. 2010- 11, it thus, short disclosing its income by Rs.2,98,90,056/-. 16. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of Rs. Page | 4 2,98,00,000/- made by AO on account of unexplained advances against fixed assets. 17. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in ignoring the fact that the assessee has surrendered Rs. 2.98 Crore in A.Y. 2010-11 in statement recorded on oath during the course of search and seizure operation under the head advances against fixed assets but not included any undisclosed income on account of the head advances against fixed assets in its return of income for A.Y. 2010-11. 18. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of Rs. 1,80,00,000/- made by AO on account of unexplained other investment and advances/receivable. 19. That the Ld. Commissioner of Income Tax has erred in law and on facts in ignoring the fact that the assessee has surrendered Rs.1.80 Crore in A.Y. 2010-11 under the head unexplained other investment and advances/receivable in statement recorded on oath during the course of search and seizure operation but not included any undisclosed income on account of the head unexplained other investment and advances/receivable in its return of income for A.Y. 2010- 11. 20. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of Rs. 48,02,38,002/- made by AO violation of section 40A(3) without appreciating the fact that the expenditure on such purchases was more than Rs. 20,000/- and made in cash. 21. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in ignoring the fact that on examination of seized material it was found that the assessee has made the unaccounted purchase of Rs. 56,15,37,569/- (Out of total unaccounted and unrecorded purchase of Rs.56,15,37,569/-, Rs.8,12,99,567/- pertains to A.Y. 2011-12, and balance is Rs. 48,02,38,002/- pertains to A.Y. 2010.-11) which has been duly admitted by the assessee also vide letter dated 15.06.2010 and 04.06.2013. 22. (a) The order of the CIT(Appeals) is erroneous and not tenable in law and on facts, (b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.” 03. The revenue has raised the following grounds of appeal in ITA No. 3263/Del/2016 for Assessment Year 2011-12:- 1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deciding the appeal of the assessee without appreciating the fact that the assessment Page | 5 order passed in the case was not to be given effect to because of the order of the Hon’ble Delhi High Court dated 14.05.2013. Thus the order of the Ld. CIT(A) is against the order of the Hon’ble Delhi High Court. 2. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in wrongly stating that the high Court has held that the AO will not enforce the demand before the final order of the Court whereas the Hon’ble Delhi High court has stated in the order dated 14.05.2013 that “the assessment proceeding may go on and the order may also be passed, however, the same would not be given effect to in further order”. 3. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deciding the appeal of the assessee on the assessment orders which was rendered ineffective and not enforceable by the Hon’ble Delhi High Court. 4. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in wrongly interpretating the judgment of Hon’ble Delhi High Court which allowed only the assessment proceedings to go on and not any subsequent appellant proceedings and the Ld. CIT(A) has wrongly decided the appeal on the assessment order, which was still sub-judice before the Hon’ble High Court. 5. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in holding that the AO was not justified to make the addition of GP as no incriminating material was found during search without appreciating that the AO has made addition based on seized/incriminating documents in respect of cash transfers/bogus purchases. 6. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of Rs. 14,63,52,368/- made by AO by enhancing gross profit rate 24.38% as against 14.99 % declared by the assessee without appreciating that the addition made by AO duly based on documents found during the search which reflected bogus purchases/cash transactions. 7. That the Ld. Commissioner of Income Tax (Appeals)has erred in law and on facts in holding that there was no justification on the part of the assessing officer in rejecting the trading result of the appellant and making the addition by increasing the gross profit rate 24.38% without appreciating the facts that the addition was based on incriminating documents relating to bogus purchases/cash transactions found during the search and also on the statement given by entry operators. 8. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in ignoring the fact that assessee Page | 6 is engaged in inflating its purchases through bogus purchases bills taken from the accommodation entry providers. 9. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in ignoring the facts that Sh. Rakesh Gupta Sh. Vishesh Gupta Sh. Vaibhav Jain and Sh. Navneet Jain have been admitted their statements recorded during the search proceedings u/s 132 that they used to provide accommodation entries through bogus purchases bills to M/s Pilot Industries Ltd. and also admitted that no material has ever been supplied to M/s Pilot Industries Ltd. 10. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of Rs. 7,91,67,488/- made by AO on account of unaccounted and unrecorded purchase and sales. 11. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in ignoring the fact that the assessee company is making unaccounted sales and purchase during the A.Y. 2011-12 which are not accounted in the books of account and profit of the sale is also not accounted by the assessee in its books of accounts. 12. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of Rs. 38,04,152/- made by AO on account of depreciation on Bogus Purchases of machinery. 13. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of Rs. 60,00,000/- made by AO on account of Undisclosed income from bogus share capital. 14. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in ignoring the fact that the assessee has surrendered Rs. 1.5 crore in A.Y. 2011-12 as bogus share capital receipts in his statement recorded u/s 132(4) dated 27.04.2010 and disclosed only Rs. 90,00,000/- in its return of Income for A.Y. 2010-11. It is clear that the assessee has short disclosed its income by Rs. 60,00,000/-. 15. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of Rs. 60,00,000/- made by AO on account of unexplained advances against fixed assets. 16. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in ignoring the fact that the assessee has surrendered Rs. 0.60 Crore in A.Y. 2011-12 under the head advances against fixed assets but not included any undisclosed income on account of the head advances against fixed assets in its return of income for A.Y.2011-12. Page | 7 17. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of Rs. 8,12,99,567/- made by AO on account of u/s 40A(3) without appreciating the fact that the expenditure on such purchases was more than Rs.20,000/- and made in cash. 18. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in ignoring the fact as on examination of seized material it was found that the assessee has made the unaccounted purchase of Rs. 56,15,37,569/- (Out of total unaccounted and unrecorded purchase of Rs.56,15,37,569/- Rs. 8,12,99,567/- pertains to A.Y. 2011-12, and balance is Rs. 48,02,38,002/- pertains to A.Y. 2010.-11) which has been admitted by the assessee also vide letter dated 15.06.2010 and 04.06.2013. 19. (a) The order of the CIT(Appeals) is erroneous and not tenable in law and on facts.” 04. Facts shows that assessee is a company engaged in the business of manufacturing and trading of lead, lead alloys bars/ingots, battery plates that are used in the automobile and inverter batteries. Search and seizure operation u/s 132 of the Income Tax Act, 1961 (The Act) was conducted by the investigation wing of the department on 26 th April 2010 in Pilot group of cases. The assessee company‟s business premise at New Delhi was also covered under the provisions of section 132(1) of the Act. For AY 2010-11, Notice u/s 153 A was issued . In response to Notice u/s 153A issued by the ld. AO, the assessee company filed the return of income on 09/09/2011 declaring income of Rs. 10,81,28,140/-, The ld. AO completed the assessment at income of Rs. 118,25,81,300/- . The ld AO made following additions: - Sl. No. Particulars Amount i. Addition on account of suppressed GP 271573434 ii. Profit on unaccounted and unrecorded purchase and sales 88264030 iii. Peak investment on unaccounted and unrecorded purchase 140384392 Page | 8 05. The CIT(A) deleted all the aforesaid additions except additions and Sl. No. (vi) and (vii). The additions at Sl. No. (vi) and (vii) were those which were declared by the assessee before the Hon‟ble Settlement Commission and the assessee has admitted the same. 06. Against the remaining additions which have been deleted by ld. CIT(A), the ld. AO is aggrieved and is in appeal before us . 07. It is also important to note that during the course of assessment proceedings, assessee filed an application u/s 245C before the settlement commission on 15/02/2012, which was found by order dated 17/04/2013 as not valid. Therefore, the learned assessing officer preceded with the assessment proceedings. The assessee filed a writ petition before the Hon‟ble Delhi High Court for stopping the assessment proceedings, which was later on withdrawn, therefore assessment proceedings continued. 08. In view of this factual position, the ld. CIT-DR fairly admitted that ground no 1 to 4 of the appeal have become infructuous and are no more relevant. 09. Grounds No. 5 to 9 of the appeal relate to issue of addition made by the ld. AO by enhancing the GP rate which has been deleted by Ld. CIT(A). At the outset both the CIT – DR as well as Ld. AR iv. Depreciation on machinery 2056298 v. Addition on account of share capital 29890056 vi. Undisclosed income on account of unexplained investment in farmhouse 7692177 vii. Undisclosed income on account of unexplained miscellaneous expenditure 6554778 viii. Addition on account of unexplained advances against fixed assets 29800000 ix. Addition on account of unexplained other investment and advances / receivables 18000000 x. Disallowance u/s 40A(3) 480238002 Page | 9 admitted that the similar issues were involved in the case of the assesseefor the earlier five year (A.Y. 2005-06 to A.Y. 2009-10). 10. The assessee has filed the following submission on the issue: - It is humbly submitted that the assessing officer has erred in making the additions by increasing the G.P.Rate. There is no basis of the addition made by the A.O. by enhancing the G.P. Rate. The assessee has shown the following GP rates :- A.Y. G.P.Ratio 2005-06 9.53% 2006-07 7.30% 2007-08 6.81% 2008-09 6.50% 2009-10 6.66% 2010-11 6.37% 2011-12 11.53% Note: The above GP rates are excluding the additional income offered for tax pursuant to search. It is also a matter of record that for A.Y. 2011-12 onwards the G.P.rate of the company is better as compared to earlier years because in A.Y. 2011-12, the assessee company had set-up a new unit at Uttaranchal where due to excise duty exemption, the profitability is higher. The AO has enhanced the GP rates to 24.38% and made the addition. The AO’s observation in the assessment order are reproduced as under :- 4.2 G.P.Ratio 4.2.1 As per the seized documents it is noticed that the G.P.Rate of the assessee is much higher than what has been disclosed by the assessee. The details of G.P.Rate as per the seized documents has already been confronted to the assessee in the show cause for A.Y. 2010-11. 4.2.2 The discussion made in the para three above clearly indicates that the assessee in the habit of suppressing its G.P.Rate by booking bogus purchase bills / inflating its purchases. 4.2.3 Instances of purchase and sale as found recorded in the tally software and document seized during the search are extracted which show much higher G.P.Rate. S.No. PURCHASE SALE Page No. Annexure No. Date Party Name Quantity Rate Date Party Name Quantity Rate G.P.Rate Page | 10 1 51 1 19.2.2010 Sartaj Khatoli 3270 100 20.2.2010 luminious power tec p ltd 17705 113 13.00 2 105 9 11.3.2010 Shamsher 2090 99.5 12.3.2010 luminious power tec p ltd 19830 111 11.56 3 101 9 12.3.2010 Pardeep Jabalpur 4525 100 12.3.2010 luminious power tec p ltd 19830 111 11.00 4 88 9 8.3.2010 Suresh Ghanshyam 6167 99 9.3.2010 luminious power tec p ltd 16445 111 12.12 5 71 2 16.3.2010 Rafiq Barrout 2745 100 17.3.2010 luminious power tec p ltd 16140 111 11.00 6 65 2 15.3.2010 Gopal Metal Kanpur 14955 100 15.3.2010 luminious power tec p ltd 16435 116 15.00 7 33 19 27.3.2010 Mehmood Khatoli 2550 97 27.3.2010 Minda Industries Ltd 6515 123 26.80 8 33 19 27.3.2010 Mehmood Khatoli 3160 98 27.3.2010 Minda Industries Ltd 13630 135 37.76 9 4.11.2009 Sangeeta Traders 19750 85.9 4.11.2009 Minda Industries Ltd 15750 118 36.87 10 4.12.2009 Deep Enterprises 10590 80.3 4.12.2009 luminious power tec p ltd 15100 96 19.55 The above details show that GP ratio is between 11% to 37%. The assessee is showing GP rate 14.99% during the AY 2011-12 in its books of a/c. 4.2.4 The weighted average of G.P.Rate on the basis of above seized documents has been worked out as under :- PURCHASE SALE Page No. Annexure No. Date Party Name Quantity Rate Date Party Name Quantity Rate G.P.Rate Qty * G.P.Rate 1 2 3 4 5 6 7 8 9 10 8*10 51 1 19.2.2010 Sartaj Khatoli 3270 100 20.2.2010 luminious power tec p ltd 17705 113 13.00 230165 105 9 11.3.2010 Shamsher 2090 99.5 12.3.2010 luminious power tec p ltd 19830 111 11.56 229235 101 9 12.3.2010 Pardeep jabalpur 4525 100 12.3.2010 luminious power tec p ltd 19830 111 11.00 218130 88 9 8.3.2010 Suresh Ghanshyam 6167 99 9.3.2010 luminious power tec p ltd 16445 111 12.12 199313 71 2 16.3.2010 Rafiq Barrout 2745 100 17.3.2010 luminious power tec p ltd 16140 111 11.00 177540 65 2 15.3.2010 Gopal Metal Kanpur 14955 100 15.3.2010 luminious power tec p ltd 16435 116 15.00 246525 33 19 27.3.2010 Mehmood Khatoli 2550 97 27.3.2010 Minda Industries Ltd 6515 123 26.80 174602 33 19 27.3.2010 Mehmood Khatoli 3160 98 27.3.2010 Minda Industries Ltd 13630 135 37.76 514669 4.11.2009 Sangeeta Traders 19750 85.9 4.11.2009 Minda Industries Ltd 15750 118 36.87 580703 4.12.2009 Deep Enterprises 10590 80.3 4.12.2009 luminious power tec p ltd 15100 96 19.55 295205 Total 157380 2866086.5 Weight G.P.Ratio for Unaccounted Sale = (2866087/157380) 18.21 Page | 11 4.2.5 The weighted average of G.P.Rate of the aforesaid instances quoted in the chart as discussed above comes to 18.21%. 4.2.6 The average of G.P.Rate of the aforesaid instances quoted in the chart as discussed above comes to 19.5% (10+13+11.56+11+12.12+11+15+26.8+37.76+36.87+19.55/10). 4.2.7 The mean G.P.rate of the aforesaid instances quoted in the chart comes to 24.38% (37.76+11/2), which seems to be most reasonable and close to actual in view of the findings on seized documents as discussed below. 4.1 At the outset it is pointed out that for the A.Y. 2005-06 to A.Y. 2009-10, where similar additions by applying identical GP rate was made by assessing officer. The said additions were also deleted by CIT(A). On further appeal by the assessing officer, the Hon’ble ITAT vide its decision dated 19/08/2021 has confirmed the order of CIT(A) of deleting the additions made the assessing officer. Therefore, the following GP rate for the last five years have been accepted: - A.Y. G.P.Ratio 2005-06 9.53% 2006-07 7.30% 2007-08 6.81% 2008-09 6.50% 2009-10 6.66% Therefore, the issue of addition by enhancement of GP rate stands covered in favour of the assessee company. 4.2 Without prejudice to above, it is submitted that the A.O. has erred in making addition on account of alleged suppression of gross profit. The action of the A.O. is totally erroneous and most arbitrary. The A.O. has applied the G.P.Rate of 24.38% on the basis of average of two G.P.Rate of 11% and 37.76%. calculated by the A.O. on the basis of instance of two sales and comparing it with purchases which are not at all comparable. According to the A.O., there is a sale of Rs.2201130/- on 12.03.2010 in which according to the A.O. there is G.P.Rate of 11% and there is another sale of Rs.1840050/- on which according to the A.O. G.P.Ratio is 37.76%. 4.3 The calculation made by the A.O. is totally erroneous. There are apparent fallacies in the working of the A.O. The comparison of purchases and sales made by the A.O. is totally erroneous. The A.O. is making comparison of un-comparable. The A.O. is comparing purchase of scrap (Desi Lead) with sale of finished goods (refined lead). Page | 12 4.3 There is no rationale for comparing isolated sales / purchase of F.Y. 2009-10 for F.Y. 2010-11 particularly when such sales and purchase are not comparable. 4.4 The company is dealing in different type of items viz lead, Tin, selenium, arsenic, resin, batteries, lead (oxide), lead ingots, lead alloys, battery plates, zali etc. Even under each of these items there are so many different qualities with so much price difference. There is no justification in presuming uniform G.P. rate for all the items. 4.5 Even within the item lead there are various qualities for example in case of lead there are different qualities and varieties such as hard, soft, red, grey, metallic, refined, pure, mixed, scrap (Desi Lead) etc. The difference between the price of lead is even to the extent of double or thrice. The Desi Lead (scrap) purchased by the assessee from scrap dealers (which lead is extracted from the old batteries and other items containing lead) has been compared by the A.O. with the sales of refined lead sold to invertor battery manufacturers and auto parts suppliers. The qty, quality and items being compared are not at all comparable. The sales of Rs.2201130/- (used by A.O. for G.P.Rate of 11%) is for Qty. of 19830 Kg of finished good whereas the purchase bill compared is for Rs.452500/- of 4525 Kg and that too of scrap i.e lead purchased form scrap dealers known as Desi Lead. The A.O. has not specified as to from where the balance 15305 Kg has been sold. Similarly the sale bill of Rs.1840050/- (used by A.O. for G.P.Rate of 37.76%) is of 13630 Kg while the purchase bill compared to is of Rs.309680/- of 3160 Kg and that too of scrap. i.e. lead purchased from scrap dealer known as Desi Lead. Here also the A.O. has not specified as to from where the balance 10470 Kg have been sold. The assessing officer has compared the sales of more than Rs.40 Lacs with purchases of around Rs.8 Lacs. Similarly the sales quantity of around 34000 Kg. has been compared with purchase quantity of around 7600 Kg. This clearly establishes the fact that the assessing officer has made comparison between the incomparable. 4.6 The A.O. has taken basis of sales of around Rs.40 lacs and has applied this G.P. Rate (calculated according to his own methodology) for Seven years (From A.Y. 2005-06 to A.Y. 2011-12) on turnover duly recorded in the books of accounts of the said 7 years. This action of the A.O. is not sustainable at all by any stretch of imagination. 4.7 The A.O. has given the various sales instance and then calculated – Quote “weighted G.P. ratio for unaccounted sales” – unquote at 18.21%. The A.O. has totally gone wrong on facts. The sales detail given by A.O. are duly recorded in the regular books of accounts and there are not unaccounted sales. The profit on these sales is already recorded in the books. Therefore, the very basis of the A.O. in computing G.P. Rate by treating the sales (duly recorded in the accounts) as unaccounted sales is erroneous. Therefore, there remains no basis in the G.P.Rate computed by the A.O. Page | 13 4.8 The assessee is maintaining books of accounts which are duly audited both under the Companies Act, 1956, as well as under Income Tax Act, 1961. 4.9 The A.O. has just done cherry picking by picking purchase and sales rate which just suited his purpose. For example for computing G.P.Rate of 37.76%, he has taken sale rate of Rs.135/- per Kg. against which he has taken purchase rate of Rs.98/-. It is worthwhile to point out that around the same time there has been sale at the rate of Rs.95/- to Rs.97/- per Kg. The A.O. has not specified as to why he has adopted the sale rate of Rs.135/- and not the rate of Rs.95/- or Rs.97/-. Similarly the A.O. has tried to take the purchase bill showing lowest rate such as Rs.85/- per Kg whereas there are purchase bills of more than Rs.115/-. 4.10 The assessee is maintaining details of opening stock, purchases, sales and closing stock of the transactions recorded in the books of accounts (both quantity-wise and amount-wise) and such details are duly disclosed in the audited statement of accounts. The action of A.O. in adopting a uniform G.P. Rates for 7 years (From A.Y. 2005-06 to A.Y. 2011-12) has no rationality / logic. According to the logic of A.O., the assessee earns gross profit of 24.38% in each sales. The fact of the matter is that in business, then can also be even loss what to talk of uniform profit. It is impossible to earn profit in every business transaction leave alone the question of earning profit at uniform rate over the years. Even the biggest of companies in the world can have profits in one years and losses or less profit in other years. It is also worth wise to point out that subsequent to completion of assessments for block of 7 years i.e. from A.Y. 2005-06 to A.Y. 2011-12, the A.O. has completed assessments for the subsequent years in which following GP rates have been accepted. A.Y. G.P.Ratio 2012-13 11.85% 2013-14 9.42% 2014-15 9.55% 2015-16 8.22% It is also a matter of record that for A.Y. 2011-12 onwards the G.P.rate of the company is better as compared to earlier years because in A.Y. 2011-12, the assessee company had set-up a new unit at Uttaranchal where due to excise duty exemption, the profitability is higher. 4.11 The reference by the A.O. in the assessment order to various seized material indicating unrecorded transactions of trading of purchase, sales, expenses etc is totally irrelevant so far as the G.P. Rate as per the regular books of accounts is concerned. The income from the unrecorded transactions found from the entire seized material has been duly considered and offered separately for taxation. Therefore, the same cannot be a ground for disturbing the trading results duly recorded in the regular books of accounts. 4.12 The remarks of the A.O. for invoking provisions of section that the assessee has been adopting delaying tactics or has not furnished the necessary detail are factually incorrect and self-contrary. Similarly, the remarks of the Page | 14 A.O. for not accepting the books of accounts are factually erroneous and self- contrary. Infact the A.O. is himself not sure for invoking the provisions of section 144 as he has passed the assessment order by mentioning it to be an order u/s 143(3)/144. Your honour will appreciate that once the A.O. is passing the order u/s 143(3), he could not have simultaneously used the reference of section 144. On the one hand, the A.O. has stated that books of accounts were not produced and as the same time he has stated that books of accounts are being rejected. This is self-contrary. If the books of accounts were not produced, how the A.O. could have rejected. The fact of the matter is that all the information, explanations , documents including books of accounts required by the A.O. were duly furnished and produced before him. This fact that the assessee has furnished all the information, details and documents required by the A.O. and which has been examined by him has been admitted by the A.O. himself in para 2 of the assessment order which is reproduced as under :- “2. Notice u/s 143(2) was issued on 24.09.2012. Detailed questionnaire u/s 142(1) was issued on 26.10.2012. Notice u/s 142(1) was issued on 27.12.2012, 18.01.2013 and 04.02.2013. Further notice u/s 142(1) and showcause u/s 153A/143(3) was issue don 01.05.2013 and 20.05.2013 respectively. In response to various statutory notices Sh. Pawan Bholusaria, CA & Sh. Amit Goel, CA, the authorized representative of the assessee company attended the assessment proceedings and furnished power of attorney, necessary details, information and documents called for from time to time. Subsequently, the assessee submitted power of attorney dated 21.05.2013 to attend further hearing of the case by Shri Mohan Gupta and Shri Sahil M. Gupta C.A. Shri Mohan Gupta and Shri Sahil M.Gupta CA and AR of the assessee company attended the assessment proceedings and furnished power of attorney, necessary details, information and documents called for. After examination of details / information, the case was discussed with him. The assessee company was incorporated on 23.03.1993 and is engaged in the business manufacturing and trading of lead alloys bar, Lead oxide & battery plate and services”. (Underlined by us for placing emphasis). 4.13 The A.O. has referred to certain purchases from certain parties which have been doubted by the A.O. as bogus. The fact of the matter is that against the impugned purchases, there are corresponding sales shown by the assessee in the books of accounts at much higher than the purchases price and if the A.O.’s argument of purchases being bogus is accepted the natural corollary will be that corresponding sales will also need to be excluded. As a result of this profit declared by the company will only get reduced. The A.O. has not doubted the sales. Once sales have been accepted, purchases cannot be doubted because there cannot be sales without corresponding purchases. Therefore, the doubt / allegation of the A.O. is misconceived. The CIT (A) has duly considered this aspect and has rightly held that there is no substance in the observations made by the assessing officer. Page | 15 In the case of CIT v J.M.D. Computer & Communication (P) Ltd. (Delhi High Court) order dt. 16.01.2009, the addition was made by disallowance of purchases on the ground that department received information on the basis of a search carried out and on the basis of statement recorded that the assessee has made bogus purchases. The additions were made by A.O. by further observing that inquiries made by inspector deputed by A.O. revealed that :- (i) the sales tax numbers quoted on the invoices of two out of the six suppliers investigated did not exist while the sales-taxes number of two other suppliers had been cancelled because they had ceased business; (ii) the telephone numbers of some of the suppliers quoted on the invoices were either non-existent or related to some other persons; (iii) the inquiries with the bankers of four of the six suppliers brought to light the fact that the bank accounts have been operated by one Sh. Ashok Kumar brother of Sh. T.R. Chadda or his employees. On appeal, the CIT(A) deleted the disallowance made by A.O. and allowed assessee’s appeal. On further appeal to ITAT by revenue, the Hon’ble ITAT upheld the order of CIT(A) and dismissed the revenue’s appeal holding that _ _ __ _ _ _ _ (i) it is undisputed that the assessee was maintaining complete accounts including daily item-wise, stock register, purchase book, sales book, purchase bills and sales books; (ii) the accounts of the assessee have been duly audited under the Income-tax Act as well as the Companies Act; (iii) sales invoices of vendors were placed on record before the Assessing Officer. Insofar as purchases made by the assessee, were concerned they were entered in the item-wise stock register maintained by the assessee; (iv) all payments for purchases have been made by cheques; (v) a complete quantitative analysis between purchases made and corresponding sales were prepared and filed before the Assessing Officer. The quantitative analysis made has not been called into question by the Assessing Officer; On further appeal / reference to High Court by revenue, the jurisdiction High Court dismissed the revenue’s appeal. It is pertinent to point out that against the order of Hon’ble High Court the department filed SLP before the Hon’ble Supreme Court. The Hon’ble Supreme Court dismissed the SLP filed by revenue which is reported at 320 ITR 17 (St) (SC). In the case of CIT v BHOLANATH POLYFAB (P) LTD (2013) 355 ITR 290 (Guj) disallowance of purchases was made holding them to be bogus. The Hon’ble ITAT deleted the addition. The Hon’ble High Court uphold the order of ITAT deleting the addition made holding that since the impugned purchases have been sold and sales having been accepted, there was no rationale for disallowing the purchases. In the case of INCOME-TAX OFFICER V. GHANSHYAM STEEL TRADERS [1999] 107 TAXMAN 126 (AHD.) disallowance of purchases was made on the basis of statement of seller in which he denied having made nay sales to the assessee. The CIT(A) as well as ITAT deleted the addition made by A.O. Page | 16 holding that disallowance of purchases could not be upheld because purchases were not only supported by entries in books of accounts and stock registers but all such material purchase was represented by corresponding sales or those items were lying in the closing stock. In the case of BALAJI TEXTILES INDUSTRIES (P) LTD.[1994] 49 ITD 177 (Bom) disallowance of purchases was made. However, the sales were accepted. The Hon’ble ITAT deleted the disallowance of purchases holding that no sales were likely to be effected if there were no purchases. A sale can be made only the goods are available with the seller. Reliance is also placed on the decision in the case of Smt. Sudha Loyalka vs. Income Tax officer [2018] 97 taxmann.com 303 (Delhi – Tribunal) 4.14 In view of the above, it is evident that the action of A.O. in making addition on account of alleged suppressed gross profit is factually erroneous. The said addition is without any basis. The CIT(A) has rightly deleted the additions made by the AO. The findings of the AO on the issue has been given in her order as under:- A.Y Reference Para & Page No. of CIT(A) order 2010-11 Para No. 11 and 11.1 (Page No. 14 & 15) 2011-12 Para No. 7 and 7.1 (Page No. 12 & 13) 11. The ld. CIT(A) has decided the issue as under: - “Finding 11. I have carefully considered the observation of the assessing officer made in the assessment order and also the submission of the appellant. In my considered opinion, there was no justification on the part of the assessing officer in applying the G.P. Rate of 24.38% The sales and purchases being compared by the A.O. are not comparable. The A.O. has compared the purchases of scrap (Desi Lead) with sale of finished good (Refined). The appellant is dealing in different items and there is no justification in applying uniform G.P. Rate to all products. In my opinion, the A.O.'s action of applying uniform G.P. Rate of 24.38% for seven years (from A.Y. 2005-06 to A.Y. 2011- 12) on the basis of some selected sales bills of F.Y. 2009-10 cannot be held to the justified Even the quantities of purchase and sales being compared aredifferent. The A.O. has compared the sale of approx. Rs.40 lacs to purchase of Rs.8 lacs and quantity of sales of around 34000 Kgs have been compared with purchase quantity of approx. 7600 Kgs. The A.O. has ignored the sales taken at lower prices and purchases made at higher prices. The A.O. has tried to take highest sale price and lowest purchase price without even appreciating that the items being compared were different. The A.O.'s assumption of the sales instances quoted by him to be unaccounted sales is itself wrong as all the sales bills quoted by him in the assessment order are recorded in the books of Page | 17 accounts. The assessee company is maintaining books of accounts which have been audited both under the Companies Act, 1956 as well as under the Income Tax Act, 1961. The assessee is maintaining proper quantitative details of opening stock, purchases, sales and closing stock which are even disclosed in the audited statement of accounts. In para 2 of the assessment order, the A.O. has himself admitted that all the information, details and documents required by him were furnished by the assessee. Even in the subsequent assessments made u/s 143(3) for A.Y. 2012-13 & A.Y. 2013-14 the G.P. Rate of 11.82% and 9.42% have been accepted inspite of the fact as submitted in appellant's submission, the G.P. Rate from A.Y. 2011-12 is comparatively higher as compared to earlier years due to the fact that the assessee had set-up a new unit at Uttaranchal during A. Y. 2011-12 .where due to excise duty exemption, the profitability is better. The A.O. has made reference to purchases from certain parties although he has not made any addition in respect of them. In any case if these purchases were to be doubted, the natural corollary of this will be that the corresponding sales will have also to be ignored the result of which will be that the profit declared by the appellant will only get reduced. Therefore, there is no substance in the observations made by the assessing officer. Therefore, in myopinion, there was no justification on the part of the assessing officer in rejecting the trading results of the appellant and making the addition by increasing the gross profit rate to 24.38%. 11.1 In view of the aforesaid factual and legal position, the addition of Rs.271573434/- made by the assessing officer cannot be sustained and, therefore, the same is directed to be deleted. These grounds of appeal are allowed.” 12. We have carefully considered the rival submission and perused the orders of lower authorities as well as paper books furnished by the assessee. The similar issue of addition on account of enhancement of gross profit in the case of the assessee has been considered and decided by the Hon‟ble ITAT (ITA No 3257 to 3261/DEL/2016) for the earlier 5 years (A.Y. 2005-06 to A.Y. 2009-10) vide order dated 19/08/2021 wherein the bench held as under: - “ 36. Coming to the merits of the addition, of suppressed gross profit the learned CIT – A has deleted the addition for all these years from assessment year 2005 – 06 to assessment year 2009 – 10 holding as Under:- “11.1 Even otherwise on merit, I find no justification in the methodology of assessing officer in applying the G.P. Rate of Page | 18 24.38%. The sales and purchases being compared by the A.O. are not comparable. The A.O. has compared the purchases of scrap (Desi Lead) with sale of finished good (Refined). The appellant is dealing in different items and there is no justification in applying uniform G.P. Rate to all products. In my opinion, the A.O.’s action of applying uniform G.P. Rate of 24.38% for seven years (from A.Y. 2005-06 to A.Y. 2011- 12) on the basis of some selected sales bills of F.Y. 2009-10 cannot be held to be justified. Even the quantities of purchase and sales being compared are different. The A.O. has compared the sale of approx. Rs.40 lacs to purchase of Rs.8 lacs and quantity of sales of around 34000 Kgs have been compared with purchase quantity of approx. 7600 Kgs. The A.O. has ignored the sales taken at lower prices and purchases made at higher prices. The A.O. has tried to take highest sale price and lowest purchase price without even appreciating that the items being compared were different. The A.O.’s assumption of the sales instances quoted by him to be unaccounted sales is itself wrong as all the sales bills quoted by him in the assessment order are recorded in the books of accounts. The assessee company is maintaining books of accounts which have been audited both under the Companies Act, 1956 as well as under the Income Tax Act, 1961. The assessee is maintaining proper quantitative details of opening stock, purchases, sales and closing stock which are even disclosed jn the audited statement of accounts. In para 2 of the assessment order, the A.O. has himself admitted that all the information, details and documents required % by him were furnished by the assessee. Even in the subsequent assessments made u/s 143(3) for A.Y. 2012-13 & A.Y. 2013-14 the G.P. Rate of 11.82% and 9.42% have been accepted inspite of the fact as submitted in appellant’s submission, the G.P. Rate from A.Y. 2011-12 is comparatively higher as compared to earlier years due to the fact that the assessee had set-up a new unit at Uttaranchal during A.Y. 2011-12 where due to excise duty exemption, the profitability is better. Therefore, in my opinion, there was no justification on the part of the assessing officer in rejecting the trading results of the appellant and making the addition by increasing the gross profit rate to 24.38%. 11.2 In view of the aforesaid factual and legal position, the addition of Rs. 1,58,08,552/- made by the assessing officer deserves to be deleted, therefore, the same is directed to be deleted. These grounds of appeal are allowed.” 37. The assessee has earned the gross profit for assessment year 2005- 06 at 9.53%, 2006 – 07 at the rate 7.30%, 2007 – 08 at the rate 6.81%, 2008 – 09 at the rate of 6.5% and assessment year 2009 – 10 at the rate of 6.66%. These gross profit rates are excluding the additional income offered by the assessee. The facts also placed before us shows that for assessment year 2011 – 12 onwards the gross profit rate of the company is better than earlier years. The Page | 19 learned assessing officer has enhanced the gross profit rate for all these years to 24.38% and made the addition. The allegations of the learned assessing officer is that as per the seized documents the gross profit rate of the assessee is much higher than what has been disclosed by the assessee. The seized materials pertain to assessment year 2010 – 11. The learned assessing officer has recorded the instances of purchase and sales are found in the tally software and documents seized during the search. The learned assessing officer computed the average of the gross profit rate of the several instances which are also stated in the chart reproduced by the learned CIT – A in his order. The learned AO computed the gross profit rate at 24.38%, which is derived on the basis of two gross profit rates of 11% and 37.76%, calculated by the AO on the basis of instances of sales and worked out an average of 24.38%. Assessee has submitted that the learned assessing officer has compared the purchase of scrap of Desi lead with the sale of finished goods i.e. refined lead. It is undisputed that the company is dealing in different types of items such as lead, tin, selenium, aresnic etc. Naturally even under each of these items there are so many qualities having wide price fluctuation therefore, naturally the cannot be any justification of adopting a uniform gross profit rate. Further, in case of large quantities the gross profit earned therein is naturally less compared to smaller quantity sold. This is also demonstrated by assessee before CIT – A and therefore the learned CIT – A has held that the assessing officer has made a comparison between two incomparable products and of different lots of trading. The fact also shows that in subsequent to the completion of assessment for assessment year 2005 – 06 to assessment year 2011 – 12 the learned assessing officer has accepted the gross profit ratio of the assessee ranging between 8.22% to 11.85%. 38. The claim of the learned departmental representative that when the assessee has not produced the books of accounts before the assessing officer as well as before the learned CIT – A, the learned CIT – A could not have deleted the addition, we find that the only addition made by the learned assessing officer is with respect to the gross profit rates of the assessee as per books of accounts and the gross profit rates derived on the basis of instances found from tally software during the course of search. The learned assessing officer has not disturbed the book results but has made an addition of the gross profit, which the assessee should have earned according to him based on the incriminating documents found for subsequent years for the impugned years. The learned CIT – A as also not deleted the addition on that basis but for the reason that the comparison made by the learned assessing officer of different material of different lots sold at different time. The learned DR has agreed that that the learned assessing officer has computed the gross profit by taking transactions of the nearby dates. However, it is not denied that the learned assessing officer has taken the highest rate of sales as well as lowest rates of purchases for computing the Page | 20 additional gross profit that should have been earned by the assessee. The assessee has produced the copies of the paper book, which are placed before the learned CIT – A wherein he has verified the details of the material sold, quantity sold with respect to the various bills placed in those paper books and found that the comparison of the gross profit made by the learned assessing officer is not comparable. 39. Another argument of the learned departmental representative is that the subsequent year’s acceptance of the book results by the learned assessing officer cannot help the case of the assessee in deleting the addition in those years, which are in appeal. We find that the subsequent years assessments are also completed u/s 143 (3) of the act and no addition has been made by the learned assessing officer. Admittedly in subsequent years there was no seized material available and the learned assessing officer has not extrapolated the gross profit in subsequent years, which he did for the impugned years in the appeal, however the acceptance of the subsequent years gross profit shows that the books of accounts prepared by the assessee are acceptable. The gross profit ratio of the subsequent years is also not of much difference compared to the years in this appeal. In view of this we do not find any infirmity in the order of the learned CIT – A in deleting the addition on account of suppressed gross profit, which was not based on any incriminating material found during the course of search for the respective years and because of erroneous comparison made by the learned assessing officer. 40. There is no change in the facts and circumstances of the case for assessment year 2005 – 06 so far as issue of suppressed gross profit is concerned in subsequent assessment years and therefore our decision for assessment year 2005 – 06 also applies to those assessment years. 41. In the result, all the five appeals filed by the learned assessing officer are dismissed.” 13. Since the issue involved is identical and findings of ld. CIT(A) are also similar, following the aforesaid decision of coordinate bench in assessee‟ s own case for the earlier 5 years, we find no reason to interfere with the findings of ld. CIT(A). Therefore, the grounds of appeal of the ld. AO in this regard are dismissed. 14. Grounds No 10 & 11 of the appeal relates to addition of Rs. 8,82,64,030/- made by the Ld. AO on account of profits estimated on unaccounted purchase and sales which has been deleted by Ld. CIT(A). In the assessment order, the ld. AO has noted that the assessee company has made sales which are not recorded in the books of accounts. He accordingly estimated Page | 21 profit by applying GP rate @ 24.38% and made the impugned addition. 15. The ld. CIT(A) deleted the said addition by holding that the assessee company has already declared additional income on these unaccounted transactions of sales and purchases and thus, according to ld. CIT(A), the action of the ld. AO amounts to erroneous and double addition. 16. The Ld. CIT – DR vehemently supported the order of the learned assessing officer. He referred to the paragraph number 5.2 of the order of the learned assessing officer where t\the learned assessing officer has referred to annexure A – 27 pages 1 271 found and seized from the office, factory of the assessee. He submitted that there was a registered found which contains details of goods received in date, quantity, quality, party name, wait and amount. He referred to the statement produced in the tabular format page number 34 – 38 of the assessment order. He further stated that in paragraph number 5.2.4 the unaccounted turnover was found to the tune of ₹ 45.97 crores. He further referred to page number 56 of the assessment order at paragraph number 5.4.2 where the crux of the issue shows that the assessee has admitted the unaccounted sale of ₹ 36.20 crores. Accordingly the learned assessing officer has found wide paragraph number 5.5 of the assessment order the excess stock amounting to ₹ 42,211,427. He further referred to paragraph number 5.6 of the assessment order to show that that the assessee company is maintaining two set of books of accounts. The one set of book is for the regular disclosed transaction and duly accounted by the assessee however the second set of books of accounts are related to the unaccounted transaction of the assessee. He further referred to paragraph number 5.6.1 and submitted that that the gross profit was determined at the rate of 24.38% and thereafter for assessment year 2000 – 11 net profit from unaccounted sales and purchases after taking into the effect of the stock was added to the extent of ₹ 8.82 crores for Page | 22 assessment year 2000 – 11 and ₹ 7.91 crores for assessment year 2011 – 12. He further referred to paragraph number six of the assessment order to show that the peak investment in unaccounted purchases have also been added by the learned assessing officer amounting to ₹ 140,384,003 and 92/it was stated that as the assessee has been engaged in making unaccounted purchases on unaccounted sales the assessee has been maintaining two sets of books of accounts one of which is further regularly accounted transaction and other set of loose papers which are recorded absolutely unaccounted and unrecorded transactions. The assessee has made unaccounted purchases and therefore if a Conservative basis is taken it is assumed that the assessee must have rotated its capital 4 times then 25% of the unaccounted purchases should be added as a peak investment made by the assessee for entering into such unaccounted transaction. Coming to the order of the learned CIT – A, He Argued that ld. CIT(A) has erred in deleting the addition. The ld. CIT-DR has argued that the assessee has not given detail/ breakup of the additional income declared and therefore, the ld. CIT(A) was not justified in allowing blind set-off. He submitted that the the learned assessing officer has found the cash payment as well as the purchases however the learned CIT – A has granted set-off of the cash purchases for equity acquisition of unaccounted stock when the complete set of unaccounted transactions were found. He further stated that there has to be the addition of the peak investment also. He otherwise stated that the learned CIT – A should have confirmed the addition of the cash payment. He further stated that the set off from the returned income was raised neither before the assessing officer and therefore the learned CIT should not have given the above set off. 17. Ld. AR has submitted that the detail and breakup of the additional income declared in respect of the unaccounted transaction and various seized material were submitted before Page | 23 the ld. AO as well as ld. CIT(A). The ld. AR refereed to Para 8.7, Para 9.6, and Para 10.3 of the assessment order wherein the ld. AO has himself mentioned about additional income declared by the assessee company. The ld. AR has also referred to Para 5.6(b) of the assessment order, wherein, the ld. AO has himself admitted that unaccounted income was deployed by the assessee company in making investment in immovable properties, incurring unaccounted expenditure, bogus share capital etc. 18. The assessee has made following submission: - During the course of search certain material were found to suggest that the company was also carrying out some trading activities outside books of accounts during F.Y 2009-10 and F.Y 2010-11. The income earned from unaccounted transactions was deployed in stock, some expenditures and for introduction of some share capital in the company. The assessee company declared following additional income of Rs. 18,22,37,295/- earned from such trading activities carried outside books of accounts and to cover the seized material. A.Y. Amount (Rs.) 2010-11 103856899 2011-12 78380397 Total 182237296 2. The aforesaid income was utilized / deployed in the followings :- HEAD AMOUNT (Rs.) - Utilized for obtaining share application money 98609944 - Stock 63411579 - Unexplained expenditure 9308578 - Farm House Investment / Exp. 10907195 ------------------ 18,22,37,295 =========== 5. Issue of addition of profit on unaccounted purchase & sales(A.Y 2010-11 & A.Y 2011-12) The total additions made by the A.O. under the head is Rs.16,74,54,937/- (Rs.88264030/- for A.Y. 2010-11 and Rs.79167488/- for A.Y. 2011-12). The A.O. has observed that as per seized material, there are unaccounted sales of Rs.362034575/- during A.Y. 2010-11. The A.O. has made addition of Rs.88264030/- for A.Y. 2010-11 by applying G.P.Rate of 24.38%.The A.O. has made following hypothetical trading A/c for A.Y. 2010-11. Page | 24 Particulars Amount (Rs.) Particulars Amount (Rs.) To Op. Stock 0 By Unaccounted sales 362034575 To Unaccounted Purchase 561537569 By Cl. Stock ( B. figure) 287767024 To Gross Profit 88264030 Total 649801599 Total 649801599 5.1 For A.Y. 2011-12, the A.O. has mentioned that during the year there are no unaccounted sales & unaccounted purchases found on the basis of seized material. But the A.O. has made hypothetical trading A/c for the period from 01.04.2010 to 26.04.2010 (Date of Search). The A.O. has stated that it is presumed that all closing stock as on 31.03.2010 (as per above hypothetical trading account) was sold during 01.04.2010 to 26.04.2010 except for excess stock of Rs.42211427/- found at the time of search and on such presumption and assumption, the A.O. has made the addition of Rs.7,91,67,488/- for A.Y. 2011-12 by preparing following hypothetical trading account :- Particulars Amount (Rs.) Particulars Amount (Rs.) To Op. Stock 287767024 By Unaccounted sales (on estimated basis) 324723085 To Unaccounted Purchase 0 By Cl. Stock ( B. figure) 42211427 To Gross Profit 79167488 Total 366934512 Total 366934512 5.2 As is self evident the A.O. has acted on assumption and presumption. It is worthwhile to point out that the assessee income has declared following additional income. A.Y. Amount (Rs.) 2010-11 103856899 2011-12 78380397 Total 182237296 Thus the additional income declared by the assessee pursuant to search comes to Rs.182237296/-. It has been explained to the A.O. that this additional income has obviously been earned from trading activities outside the books of accounts and which covers the various seized material. There is no dispute by A.O. that the additional income of Rs.18,22,37,296/- has been earned by the assessee from trading activities outside the books of accounts. The assessee has also explained as to how and where the above amounts of additional income was utilized / deployed. 5.3 The action of the A.O. in estimating profit on unaccounted transactions is not only erroneous but it also amounts to double addition. The assessee has already included the additional income from unaccounted transaction in the returns of income filed after search. The A.O. has again made the addition. The additional income of Rs.18,22,37,296/- as declared by the assessee is much higher than the Page | 25 income of Rs. 16,74,54,937/- computed by A.O. and accordingly the assessing officer was not justified in making any further addition. Therefore, the additions of Rs.88264030/- for A.Y. 2010-11 and of Rs.79167488/- for A.Y. 2011-12 made by the assessing officer on account of profit on unaccounted purchases and sales are patently wrong. The CIT(A) has rightly deleted the additions made by the AO. The findings of the AO on the issue has been given in her order as under:- A.Y Reference Para & Page No. of CIT(A) order 2010-11 Para No. 13 (Page No. 17 & 18) 2011-12 Para No. 9 (Page No. 15) 19. We have carefully considered the rival contention and perused the order of the lower authorities as well as the paper book and written submission furnished by the assessee. The ld. CIT (A) has decided the issue as under: - “Finding I have carefully considered the observation of the assessing officer made in the assessment order and also the submission of the appellant. The assessing officer has made the addition of Rs. 8,82,64,030/- by estimating profit on unrecorded transaction of sales/purchases. It is seen that the assessee has already declared income of Rs. 10,38,56,899/- for the year on account of income earned from such unrecorded trading transactions. There is no dispute by the assessing officer that the assessee has declared income of Rs. 10,38,56,899/- for the A.Y. 2010-11 on account of income earned from the unrecorded trading transaction. Under the circumstances, there could have been no occasion for the assessing officer to again make addition by estimating profit on the unrecorded trading transactions. The action of the assessing officer amounts to double addition in relation to the same amount. Accordingly, the addition made by the assessing officer cannot be sustained and, therefore, the addition of Rs. 8,62,64,030/- made by the assessing officer is directed to be deleted. This ground of appeal is allowed.” 20. The learned CIT – A has considered that the assessee has already disclosed the sum of ₹ 10.38 crores out of the unrecorded trading transactions. This profit was found to be higher than the amount worked out by the learned assessing officer of only ₹ 8.62 crores. Therefore naturally the learned CIT – A cannot be Page | 26 found fault with in stating that the addition made by the learned assessing officer of ₹ 8.62 crores is already subsumed in the disclosure made by the assessee of ₹ 10.38 crores. It was not shown by the learned assessing officer or by the revenue before us that assessee has earned much more than a sum of ₹ 10.38 crores. Even the working of the AO also shows the addition only to the extent of ₹ 8.62 crores. There cannot be a multiple income computed from the single transactions of unrecorded purchases. Though the assessee might have entered into a transaction is of unaccounted purchases as well as unrecorded sales however the ultimate result would be the income arising from the cumulative transactions. In that case the assessee has already shown an income of ₹ 10.38 crores. Therefore, We do not find any infirmity in the aforesaid findings of ld. CIT(A).When the assessee has already declared additional income on the unrecorded transactions of sales and purchases and such income declared is higher than the income estimated by the assessing officer, we do not find any reason to interfere with the finding of ld. CIT(A) that the action of the ld. AO amounts to double addition in relation to the same amounts. Therefore, the grounds of appeal number 11 and 12 of the ld. AO in this regard are dismissed. 21. The ground no. 12 of appeal relates to addition of Rs. 14,03,84,392/- made by the ld. AO on account of peak investment on unaccounted purchases which has been deleted by Ld. CIT(A). The ld. AO has observed that the assessee has carried out transactions of unaccounted purchases and for making such purchases, the assessee must have rotated its capital four times i.e., 25% of the purchases. The ld. AO accordingly made addition of Rs. 14,03,84,392/- on account of peak investment for making such purchases. 22. The ld. CIT(A) deleted the said addition by holding that there was no justification in the addition made by the assessing officer as the actual stock has been physically verified at the time of search Page | 27 and the assessee has already declared the undisclosed investment in stock of Rs. 6,31,11,579/-. 23. The ld. CIT – DR vehemently argued that the CIT(A) has erred in deleting the addition. According to ld. CIT – DR the AO has been reasonable in estimating the peak investment @ 25% only and not the entire purchase itself. The most of the arguments of the learned CIT DR were also taken care of while deciding ground number 11 and 12 of the appeal of the assessee which are once again reiterated here. 24. Per Contra, the ld. AR has submitted that it is not a case that entire purchases were made in a single day. There were unaccounted purchases as well as unaccounted sales. The proceeds of unaccounted sales were redeployed in purchases. The AR has submitted that the profit from these transactions has already been declared as additional income. The actual undisclosed investment in stock found at the time of search has been declared by the assessee. Therefore, there was no justification for the AO to make assumption and presumption and making further additions. 25. The assessee has made the following submission: - The A.O. has observed that for A.Y. 2010-11, the unaccounted purchases as per seized material are Rs.561537569/-. The A.O. has stated that for making such purchases the assessee requires certain seed money / capital and on the conservative basis it is presumed that the assessee must have rotated its capital four times and that 25% of purchases of Rs.561537569/- should be the peak investment. The A.O. has calculated 25% of Rs.561537569/- at Rs.140384392/- and added the same as peak investment in unaccounted purchases. 6.1 In respect of the above it is submitted that the A.O. has erred in making the addition. The A.O. is acting on conjecture and surmises. There is no basis for adopting the rate of 25% of purchases as alleged undisclosed peak investment. As explained earlier in this submission that the additional income declared by the assessee pursuant to search was Rs.18,22,37,296/-. The deployment / utilization of this income was as under :- HEAD AMOUNT (Rs.) - Utilized for obtaining share application money 98609944 - Stock 63411579 - Unexplained expenditure 9308578 Page | 28 - Farm House Investment / Exp. 10907195 ------------ ---- 182237295 =========== From the above, it is apparent that the amount of additional income declared by the assessee already takes care of actual investment in stock. The A.O. has accepted the aforesaid investment in stock as income of the assessee. The additional investment in the stock has been declared on the basis of physical stock found by the search party at the time of search. Since the actual stock found at the time of search has been considered, there remains no basis for assumption and presumption. Thus, there is no basis for the addition made by the A.O. The addition is totally arbitrary and factually erroneous. The CIT(A) has rightly deleted the additions made by the AO. The findings of the AO on the issue has been given in her order as under:- 26. We have carefully considered the rival contention and perused the order of the lower authorities as well as the paper book and written submission furnished by the assessee. The ld. CIT (A) has decided the issue as under: - “Finding 15. I have carefully considered the observation of the assessing officer made in the assessment order and also the submission of the appellant. The assessing officer has estimated the peak investment by applying adhoc rate of 25%. The rate adopted by A.O. is stated to be without any basis. It is seen that the A.O. has not specified as on what basis he has taken the rate of 25% and not any other rate of 10%, 20% or 40%. The fact of the matter is that once a search has taken place and excess investment in stock has been found by way of physical verification and .the assessee has declared undisclosed investment in stock at Rs. 6,31,11,579/- and such amount has already been included in its income by the appellant, in my opinion, the A.O. was not justified in acting on assumption and presumption and making addition of Rs. 14,03,84,392/- The addition made by A.O. is without any basis. Once the actual undisclosed investment in stock found at the time of search has been declared by the appellant, there was no basis left for the A.O. to make any further addition. The addition of Rs. 14,03,84,392/ made by the A.O. cannot be sustained and, therefore, the same is directed to the deleted. This ground of appeal is allowed.” A.Y Reference Para & Page No. of CIT(A) order 2010-11 Para No. 15 (Page No. 19) Page | 29 27. We do not find any infirmity in the aforesaid findings of ld. CIT(A) on the issue. When the assessee has already declared the actual undisclosed investment in the stock found at the time of search, there could have been no justification for the ld. AO to apply adhoc rate of 25%. There is no rebuttal to the findings of ld. CIT(A) that once a search has taken place and excess investment in stock has been found by way of physical verification and the assessee has declared undisclosed investment in stock at Rs. 6,31,11,579/- and such amount has already been included by the assessee in its income, the ld. AO was not justified in acting on assumption and presumption. The findings given by ld. CIT(A) remains unrebutted and uncontroverted We, therefore, find no reason to interfere with the findings of Ld. CIT(A).Therefore, the grounds of appeal number 12 of the ld. AO in this regard are dismissed. 28. The ground no 13 of the appeal relates to addition of Rs. 20,56,298/- made by the ld. AO on account of disallowance of depreciation which has been deleted by Ld. CIT(A). The ld. AO, in the assessment order has mentioned that the assessee company has purchased plant and machinery amounting to Rs. 2,74,17,312/- which were bogus and therefore, no depreciation was allowable. He accordingly made addition of Rs. 20,56,298/- on account of disallowance of depreciation. 29. The Ld. CIT(A) deleted the said addition by holding that since the assessee has neither capitalized any fixed asset in respect of amount of Rs. 2,74,17,312/- nor claimed any depreciation, there can be no basis for sustaining the addition made by the assessing officer. 30. The Ld. CIT – DR though argued that the CIT(A) erred in deleting the addition, but fairly admitted that if the assets have not been capitalized and depreciation has not been claimed then no disallowance was warranted. Page | 30 31. The ld. AR referring to pages no. 42 to 45 and page no 123 to 126 and page 252 & 253 of the paper book (which are fixed assets schedule, details of addition to fixed assets furnished before assessing officer) has demonstrated that the assessee has not claimed any deduction of depreciation for which the ld. AO has made the addition. 32. The assessee has made the following submission: - The A.O. has mentioned that as per the seized material, the assessee has made bogus purchases of Plant & Machinery of Rs.27417312/-. The assessing officer has made addition of Rs.2056298/- for A.Y. 2010-11 and Rs.3804152/- for A.Y. 2011-12 on account of disallowance of depreciation. The A.O. has not considered the fact that the assessee has neither capitalized the aforesaid amount of Rs.27417312/- in the fixed assets nor claimed any depreciation. Since the assessee has not claimed any depreciation, there was no justification in making the disallowance of depreciation. The addition made by the AO is patently wrong. The CIT(A) has rightly deleted the additions made by the AO. The findings of the AO on the issue has been given in her order as under:- A.Y Reference Para & Page No. of CIT(A) order 2010-11 Para No. 17 (Page No. 20) 2011-12 Para No. 11 (Page No. 16) 33. We have carefully considered the rival contention and perused the order of the lower authorities as well as the paper book and written submission furnished by the assessee. The ld. CIT (A) has decided the issue as under: - Finding 17. I have carefully considered the observation of the assessing officer made in the assessment order and also the submission of the appellant. Since the assessee has neither capitalized any fixed asset in respect of the amount of Rs. 2,74,17,312/- nor claimed any depreciation of Rs. 20,56,298/- thereon, there can be no basis for sustaining the addition made by the assessing officer. The addition of Rs. 20,56,298/- made by the assessing officer, being factually erroneous is directed to be deleted. The ground of appeal is allowed. 34. We do not find any infirmity in the aforesaid finding of ld. CIT(A). When the assessee has not claimed allowance of of depreciation Page | 31 of Rs. 20,56,298/-, there can be no disallowance of the same. The findings given by the ld. CIT(A) remains unrebutted and uncontroverted We do not find any reason to interfere with the finding of CIT(A). The grounds of appeal number 13 of the Ld. AO in this regard are, therefore, dismissed. 35. Grounds no 14 and 15 relate to addition of Rs. 2,98,90,056/- made by the ld. assessing officer on account of share capital which has been deleted by Ld. CIT(A). The ld. AO has observed that at the time of search the assessee has surrendered share capital of Rs. 11,95,00,000/- for A.Y. 2010-11. However, in the return of income, the assessee has surrendered only Rs. 8,96,09,944/-. He, therefore, made the addition of the balance amount of Rs. 2,98,90,056/-. 36. The ld. CIT(A) deleted the said addition by holding that share capital to the extent of Rs. 2,98,90,056/- were received against the cheques amounts/amount paid from explained sources form books and therefore, according to ld. CIT(A) provisions of section 68 of the Act were not applicable on the amount of Rs. 2,98,90,056/-. 37. The ld. CIT – DR argued that the CIT(A) has erred in deleting the addition. According to him, in the statement u/s 132(4) of the Act recorded at the time of search, the director of the assessee company Mr Sandeep Aggarwal has surrendered the amount of share capital and the statement has not been retracted. Therefore, according to ld. CIT – DR the ld. CIT(A) was not justified in deleting the addition. 38. Per contra, the ld. AR has justified the deletion of addition by ld. CIT(A). Referring to para 7 of the assessment order, he has submitted that the assessing officer has himself admitted that the assessee has made various payments by cheques/RTGS to concerns of one Sunil Kolkata for purchase of machineries. However, there was no actual purchase of machineries, and the amounts were received back by cheque/RTGS in the form of share capital. Since the books of accounts for the year under Page | 32 consideration were not finalised and return of income was not yet due for filing, the assessee company neither capitalised the amount of fixed assets nor shown any share capital. Out of total share capital of Rs. 11,25,00,000/- amount of Rs. 2,98,90,056/- represented the amount received back against amount paid by the assessee from its banks/books of accounts and balance Rs. 8,96,09,944/- was received against amount paid form income earned from unaccounted transaction of sales/purchases. Therefore, the assessee declared income of Rs. 8,96,09,944/- which has been accepted by the assessing officer. According to ld. AR, since the sources for the amount of Rs. 2,98,90,056/- were from explained sources, the assessing officer was not justified in making the addition for the same. 39. The assessee has filed the following submission: - The assessing officer has made addition of Rs.29890056/- on A/c of alleged Share Capital for A.Y. 2010-11 and Rs.6000000/- for A.Y. 2011-12 on the ground that during the course of search, the assessee has surrendered share capital of Rs.119500000/- for A.Y. 2010-11 and Rs.15000000/- for A.Y. 2011- 12. According to A.O., since, in the return of income, the assessee has surrendered only Rs.89609944/- for A.Y 2010-11 and Rs.9000000/- for A.Y. 2011-12 on account of Share Capital, the short disclosure of Rs.2,98,90,056/- for A.Y. 2010-11 & Rs.60,00,000/- for A.Y. 2011-12 are required to be added. 8.1 In respect of the above, it is submitted that the assessing officer has not appreciated the facts correctly. The fact of the matter is that out of total share capital of Rs.134500000/- (declared as bogus), cheques for sum of Rs.98609944/- were obtained by paying cash and balance cheques of Rs.35800000/- were obtained in exchange of payments by the assessee from its books of accounts. As is self-evident from the seized material, the assessee company paid cheque of Rs.26890056/- against bills for fixed assets (without actual purchase of fixed assets) to the same persons who provided share capital to the company. These cheque payments made by the assessee company (against purchase of fixed assets) were returned back by those persons to the company by giving cheques towards share capital contribution. Similarly, the balance of 0.89 crores out of Rs.3.58 crores represents advance against fixed assets paid from books though there was no purchase of fixed assets. There is no dispute by the A.O. that source of said amount of Rs.3.58 Crore paid from books of company is explained. Since the source of share capital for amount of Rs.3.58 crore is not unexplained as the source is the assessee’s own explained money, no addition was required for this amount of Rs.35890056/-. It may be pointed out that the assessee has neither capitalized the bills of fixed assets in its books of accounts and nor claimed any depreciation on it. Similarly the amount of Share Capital has Page | 33 also not been shown as share capital / liability. The net amount of share capital received and payment made for fixed assets have been shown as income. Under section 68 of Income Tax Act, 1961, addition is made of the sum, the source of which cannot be explained by the assessee. In the present case of assessee, as is evident from the seized material itself, the source to the extent of Rs.3.58 crore is assessee’s own explained money paid from books. Therefore, the additions made by the assessing officer is factually erroneous. The CIT(A) has rightly deleted the additions made by the AO. The findings of the AO on the issue has been given in her order as under:- 40. On the issue of admission/surrender in the statement recorded u/s 132(4), the assessee has made the following submission: - Note on Statement u/s 132(4): - This provision embedded in sub-section (4) of section 132 of the Income Tax Act, 1961 is based on the well-established rule of evidence that mere confessional statement without there being any documentary proof shall not be used in evidence against the person who made such statement. it is a settled law that statement cannot be read in isolation without corroborative material. In the present case, the assessee company has clarified each and every item. Strictly speaking, it is not even a case of any type of retraction. It is a case where each and every item of statement has been considered and whatever amount was taxable as per provisions of law has been offered for taxation. If income under a particular head is actually found to be more that what was stated in the statement, than that higher amount has been offered for taxation. Similarly, if a particular amount is not taxable as income as per the provisions of law, it cannot be treated and assessed as income merely because it was admitted in the statement or by way of furnishing of letter before inv wing. As per Article 265 of the Constitution, tax can be charged only under the authority of law and no tax shall be levied or collected except by the authority of law. The taxable income has to be computed according to the provisions of law. If as per provisions of law, a particular amount is not taxable as income, such amount cannot be treated as income. 2. The Hon’ble Apex Court in the case of Pullangode Rubber and Produce Company Limited Vs State of Kerala 1973(91 ITR 18) has held that an admission made is not conclusive and it is open to the person who made the admission to show that it is incorrect. 3. The CBDT vide instruction No. 286/2/2003 IT(Inv) has emphases that during search and seizure, there should be focus and A.Y Reference Para & Page No. of CIT(A) order 2010-11 Para No. 19 (Page No. 22) 2011-12 Para No. 13 (Page No. 17 & 18) Page | 34 concentration on collection of evidence of income and no attempt should be made to obtain confession as to the undisclosed income. Thus, CBDT has itself recognized the position that assessment of undisclosed income has been based upon evidence and not on statement. 4. Reliance is also placed on the following case laws where it has been held that statement u/s 132(4) cannot be read in isolation without corroborative material Pr. CIT Vs Best Infrastructure ( India) Pvt. Ltd. (2017) 397 ITR 82 (Del.) CIT VsHarjeev Aggarwal (2016) 290 CTR 263 (Del.) Vascroft Design Pvt. Ltd. Vs ACIT in IT(SS)A Nos. 129 &130/Ahd./2015 Shri Nirmal Kumar Kedia Vs DCIT in ITA Nos. 124 to 126/JP/2019 Shri BrijBhushanSinghalVs ACIT in ITA No. 1412/Del/2018 Krishan Kumar Modi Vs ACIT in ITA No. 2892/Del/2017 13/10/2021, ACIT Vs Parminder Singh Kalra And-ITAT Delhi 2021(6)TMI 542. AnuragDalmiaVs DCIT in ITA Nos. 5395 & 5396/Del/2017 Shri BishwanathGarodiaVs DCIT in ITA Nos.853 to 856/Kol/2016 5. With regard to issue of as to whether addition can be made only on the basis of statement recorded during search u/s 132(4) of the Income Tax Act, the jurisdictional Delhi High Court in the case of CIT v Harjeev Aggarwal [2016] 70 taxmann.com 95 (Delhi) held as under :- 21.------------------------------------- In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be based on the statement recorded. 6. In the case of Pr. CIT v Best Infrastructure (India) Pvt. Ltd. [2017] 84 taxmann.com 287 (Delhi) the jurisdictional Delhi High Court has held that statements recorded u/s 132(4) of the Act do not by themselves constitute incriminating material. The Hon’ble Court further held as under :- 35. As noted in Meeta Gutgutia (supra), several other High Courts have also come to a similar conclusion either by following Kabul Chawla (supra) or otherwise. This includes the decisions of the Gujarat High Court in Pr. CIT v. Soumya Construction (P.) Ltd. [2016] 387 ITR 529/[2017] 81 taxmann.com 292 (Guj.); Pr. CIT v. Devangi alias Rupa [Tax Appeal Nos. 54, 55 to 57 of 2017, dated 2-2-2017]; the Karnataka High Court in CIT v. IBC Knowledge Park (P.) Ltd. [2016] 385 ITR 346/69 taxmann.com 108 (kar.); the Kolkata High Court in Pr. CIT v. Salasar Stock Broking Ltd. [GA No. 1929 of 2016, dated 24-8-2016] and the Bombay High Court in CIT v. Gurinder Singh Bawa [2016] 386 ITR 483/[2017] 79 taxmann.com 398. In Meeta Gutgutia (supra) the entire gamut of the case law had been analysed and the legal position was reiterated that unless there is incriminating material qua each of the AYs in which additions are sought to be made, pursuant to search Page | 35 and seizure operation, the assumption of jurisdiction under Section 153A of the Act would be vitiated in law. This is one more occasion for the Court to reiterate that legal position. 7. In the case of ACIT Vs Parminder Singh Kalra And (Vice-Versa) ITAT Delhi 2021(6)TMI 542 It was held that ---Quote---” We may further point out that it is a settled law that statement cannot be read in isolation without corroborative material.” 41. The Ld. AR has also referred to the Page no. 252 & 253 of the paper book. The Ld. AR has submitted that the above ledger account clearly demonstrate that the amounts paid towards bills of machineries and amount received towards share application have been duly considered and the net amount of Rs. 8,96, 09,944/- has been correctly shown as income and offered for taxation by the assessee and no further addition was called for as has been made by the AO. The above ledger account also shows that the assessee has not capitalised the amount to fixed assets and has not claimed any depreciation. It is, therefore, submission of the Ld. AR that the Ld. CIT(A) has rightly deleted the addition made by the ld. AO. 42. We have carefully considered the rival contention and perused the order of the lower authorities as well as the paper book and written submission furnished by the assessee. The ld. CIT (A) has decided the issue as under: - Finding I have carefully considered the observation of the assessing officer made in the assessment order and also the submission of the appellant. There is no dispute by the assessing officer that as per the seized material itself, the assessee company paid cheques of Rs. 2,68,90,056/- against bills for fixed assets (without actual purchase of fixed assets) to the same persons who provided share capital to the company. These cheque payments made by the assessee company (against purchase of fixed assets) were returned back by those persons to the company by giving cheques towards share capital contribution. Similarly, the balance of 0.89 crores out of Rs.3.58 crores represents advance against fixed assets paid from books though there was no purchase of fixed assets. There is no dispute by the A.O. that source of said amount of Rs.3.58 Crore paid from books of company is explained. Page | 36 Addition u/ s 68 can be made in respect of unexplained cash credit. In the appellant's case, it paid its explained money from its book of account to certain persons for obtaining bills of fixed assets, though actually, no fixed assets were purchased. These amounts were returned back by these accommodation entries provided to the appellant in the favour of share capital. Since search took place and the books of these years were not finalized, the assessee has neither shown purchase of any fixed asset nor shown any share capital. The net amount has been shown as income. Since the source of share capital for amount of Rs.3.58 crore is not unexplained as the source is the assessee’ s own explained money, no addition was required for this amount of Rs. 3,58,90,056/- (Rs. 2,98,90,056/- for the A.Y. 2010-11 and Rs. 60,00,000/- for A.Y. 2011-12). The addition of Rs. 2,98,90,056/- made by the assessing officer is not sustainable and therefore the same is directed to be deleted. This ground of appeal is allowed. 43. There is no rebuttal to the finding of Ld. CIT(A) that as per the seized material itself, the amount of Rs. 2,98,90,056/- represents payments made by the assessee by cheques/RTGS/ from books of accounts against bills of fixed assets (without actual purchase of fixed assets) to the same persons who provided bogus share capital to the assessee company. These payments of Rs. 2,98,90,056/- were returned back by those persons to the assessee company by giving cheques towards Share Capital contribution. Since, the search took place, the assessee admitted the amount paid of Rs. 2,98,90,056/- (towards fixed assets) and amount received Rs. 11.25cr (against Share Capital) as bogus and offered the net amount of Rs. 8.97 Cr as income. There is no rebuttal to the finding of ld. CIT(A) that since source of amount to the extent of Rs. 2.98 Cr was assessee‟ s own explained money, no addition was warranted. With regard to statement u/s 132(4), we find some force in the submission of the assessee that, as held in various judicial pronouncements, the statement u/s 132(4), though important, is not conclusive and it is open to the person who made the statement to show that it is incorrect by producing the relevant information. In the present case, the ld. Page | 37 AO has himself admitted that the assessee has made payments by cheques/RTGS for bills of fixed assets,but no fixed assets were purchased the payments made were received back in the form of Share Capital. The findings of the Ld. CIT(A) are verifiable and justified from the ledger account of income of Rs. 8,96,09,944/- produced by the assessee in the paper book. Therefore it is apparent that the assessee has issued cheque to the parties for purchase of fixed assets, no fixed assets were in fact purchased, the same cheque were returned by those parties to the assessee as share capital. Therefore it is the assessee‟s own money which is comeback in the different from. We, therefore, find no reason to interfere with the findings of Ld. CIT(A). The grounds of appeal number 14 and 15 of the Ld. AO in this regard are dismissed. 44. Grounds no 16 and 17 relates to the addition of Rs. 2.98 cr made by the assessing officer for advance against fixed assetswhich has been deleted by Ld. CIT(A).The ld. AO has made the addition on the ground that the assessee has made payments by cheque/RTGS for purchase of fixed assets although no fixed assets were purchased. The assessing officer has further observed that in the letter filed before the investigation wing the assessee has surrendered the amount. 45. The CIT(A) deleted the addition on the ground that since the impugned amount have been paid by the assessee from its books of accounts and explained sources, there was no justification in treating the amount as unexplained advances. 46. The Ld CIT – DR has vehemently argued that the ld. CIT(A) has erred in deleting the addition. According to the CIT – DR, the assessee has surrendered the amount before the investigation wing, therefore the ld. CIT(A) was not justified in deleting the addition 47. Per contra, the ld. AR has submitted that CIT(A) has rightly deleted the addition as there is no case of any unexplained investment as the sources of advances paid are form books of accounts and explained sources. Page | 38 48. The submission of the assessee is as under: - “The assessing officer has made addition of Rs.2,98,00,000/- for A.Y. 2010-11 and Rs.60,00,000/- for A.Y. 2011-12 on the ground that the assessee has made payments by cheques / RTGS for purchase of fixed assets whereas actually no fixed assets have been purchased. 9.1 In respect of the above it is submitted that the addition made by the assessing officer is totally erroneous. The question for addition of any unexplained investment can arise only when the source for making the investments are unexplained. In the assessee’s case before your honour, there is no case of any unexplained investment in fixed assets. The payments have been made by the assessee by cheques from its bank account and therefore there can be no doubt about the source of the payment. Since the assessee has not actually purchased any fixed assets, this amount was not capitalized to fixed assets and no depreciation was claimed on it. There are no provisions under the act for making the addition as has been made by the A.O. The addition made by the assessing officer is totally erroneous. The CIT(A) has rightly deleted the additions made by the AO. The findings of the AO on the issue has been given in her order as under:- 49. We have carefully considered the rival contention and perused the order of the lower authorities as well as the paper book and written submission furnished by the assessee. The CIT (A) has decided the issue as under: - “Finding I have carefully considered the observation of the assessing officer made in the assessment order and also the submission of the appellant. The question for addition of any unexplained investment can arise only when the source for making the investments are unexplained. In the appellant's case, there is no case of any unexplained investment in fixed assets. There is no dispute by the assessing officer that impugned amounts has been paid by the appellants from its books of accounts and explained sources. Since the assessee has not actually purchased any fixed assets, this amount was not capitalized to fixed assets and no depreciation was claimed on it. There is no basis for sustaining the addition made by the assessing officer. therefore, the addition of Rs. 2,98,00,000/- made by the assessing officer is not sustainable and the same is liable to be deleted. This ground of appeal is allowed.” A.Y Reference Para & Page No. of CIT(A) order 2010-11 Para No. 23 (Page No. 23 & 24) 2011-12 Para No. 17 (Page No. 19) Page | 39 50. There is no rebuttal to the aforesaid finding of Ld. CIT(A) that impugned amounts have been paid by the assessee from explained sources from its books of accounts; the assessee has not capitalised these amounts to fixed assets; no depreciation has been claimed. The assessee has filed the explanation for each item mentioned in the letter filed before the investigation wing. The Ld. CIT-DR has also not controverted the factual position that the impugned amount of Rs. 2.98 cr were from the books of accounts and explained sources. Accordingly, we do not find any reason to interfere with the findings of CIT(A). Therefore, the grounds of appeal number 16 and 17 of the revenue in this regard are dismissed. 51. Grounds no 18 and 19 relate to addition of Rs. 1,80,00,000/- made by the assessing officer on account of unexplained advances which has been deleted by ld. CIT(A). The ld. AO has observed that in the letter filed before investigation wing, the assessee has surrendered amount of Rs. 1,80,00,000/- under the head other advances. However, in the return of income filed, the assessee has not included this amount in his income. He, therefore, made the addition for the same. 52. The ld CIT(A) deleted the said addition by holding that there is no dispute by the assessing officer that actually, there is no specific investment or advance of Rs. 1,80,00,000/- for which he has made the addition. 53. The ld. CIT – DR has argued that the ld. CIT(A) has erred in deleting the addition. According to the ld. DR, the addition was made by the assessing officer, the addition was made by the assessing officer on the basis of letter filed by the assessee company itself before the investigation wing and therefore, the CIT(A) was not justified in deleting the addition. 54. The ld. AR has submitted that the assessing officer has erred in making the addition and the CIT(A) has rightly deleted the addition. Page | 40 55. The assessee has made the following submission: - The assessing officer has made addition of Rs.1,80,00,000/- on account of alleged unexplained investments and advances / receivables. The assessing officer has made the addition of this amount on the ground that as per the letter filed before the investigation wing, the assessee has surrendered sum of Rs.1,80,00,000/- on account of other investment / receivable but the same was not included in the return of income filed by the assessee. 11.1 In respect of the above, it is submitted that the addition made by A.O. is not sustainable at all. It is most humbly submitted that in the surrender letter filed before the investigation wing, amount declared against stock was Rs.4.22 crore. Further an amount of Rs.1.80 crore was offered on the basis of other Investment etc. keeping in mind some more unaccounted stock. The total surrender thus becomes Rs.4.22 Cr. + Rs.1.80 Cr. = Rs.6.02 Cr. The actual income declared by the assessee on account of investment in stock is Rs.6.34 crores which is more than the amount of 6.02 Cr. (4.22 Cr. + 1.80 Cr.) mentioned in the letter filed before Investigation Wing. In view of the above, it is submitted that remarks of A.O. that amount Rs.1,80,00,000/- has not been included in income is factually incorrect. If the A.O. was to make addition of Rs.18000000/- on the basis of letter filed before investigation wing, he was not justified in accepting the excess stock declared by the assessee to the extent of Rs.2.12 Cr. as compared to figures mentioned in the letter filed. The A.O. has adopted double standard. If in a particular head income declared is higher, the A.O. has accepted the same, but where the income under particular head is lower, the A.O. has not accepted the same. Even otherwise, the A.O. has not even pointed out as to whom the said amount was paid and where, according to him, the said investment of Rs.18000000/- was made for which he was making addition. In view of the above it is submitted that the addition made by the assessing officer is erroneous and not sustainable. The CIT(A) has rightly deleted the additions made by the AO. The findings of the AO on the issue has been given in her order as under:- A.Y Reference Para & Page No. of CIT(A) order 2010- 11 Para No. 25 (Page No. 25) 56. We have carefully considered the rival contention and perused the order of the lower authorities as well as the paper book and Page | 41 written submission furnished by the assessee. The ld. CIT (A) has decided the issue as under: - Finding I have carefully considered the observation of the assessing officer made in the assessment order and also the submission of the appellant. There is no dispute by the A.O. that actually, there is no specific investment or advance of Rs. 1,80,00,000/- which has been added by him. The addition is based upon the reason that in the letter filed before Investigation Wing the amount was offered for taxation. The A.O. has, however, not rebutted the factual position that in the letter filed before investigation wing, the excess stock declared was Rs. 4.22 Crore and considering some other material, the assessee declared Rs. 1,80 Cr. As others. While filing return the assessee actually declared Rs. 6.3 Crores on account of stock which is much more even after the inclusion of aforesaid amount of Rs. 1,80,00,000/-. Therefore, there was no justification for the assessing officer to make the separate addition of Rs. 1,80,00,000/- . The assessing officer has not pointed out as to whom said amount was paid and where, according to him, the said investment of Rs, 1,80,00,000/- was made for which he was making addition. The addition of Rs. 1,80,00,000/- made by the assessing officer is not sustainable both on facts and in law. The same is therefore directed to be deleted. This ground of appeal is allowed. 57. The ld. CIT(A) has held that there is no specific investment or advance of Rs. 1,80,00,000/- for which the assessing officer has made the addition. The addition has been made by the ld. AO only on the ground of a letter filed before the investigation wing. The ld. CIT(A) has held that in the return of income the assessee has declared higher amount under the head „stock‟ as compared to figure of „stock surrendered‟ in the letter filed before the investigation wing. In letter filed before the investigation wing, the assessee has surrendered excess investment in stock at Rs. 4.22 cr and considering some other material, the assessee declared Rs. 1.80 cr as „others‟ while filing return of income, the assessee actually declared Rs. 6.30 cr on account of stock which is much more even after the inclusion of impugned amount of Rs. 1,80,00,000/-. The findings of ld. CIT(A) appeal remains Page | 42 unrebutted and uncontroverted. We, therefore, find no reason to interfere with the findings of Ld. CIT(A). The ground of appeal number 18 and 19 of the ld. AO, in this regard are dismissed. 58. Grounds no. 20 and 21 of appeal relate to addition of Rs. 48,02,38,002/- made the ld. AO u/s 40A(3) of the Act which has been deleted by CIT(A). The ld. AO has observed that as per the various seized material, the assessee company has made purchases in cash which are unaccounted and not recorded in the books of accounts. The ld. AO has held that since the purchases have been made in cash in excess of limit specified u/s 40A(3), he made the addition thereof u/s 40A(3). 59. The ld. CIT(A) deleted the said addition by holding that in view of the facts of the case and legal position on the issue, the assessing officer was not justified in making the addition by invoking provision of section 40A(3) of the Act. According to ld. CIT(A), the question of disallowance u/s 40A(3) can arise only when some deduction is claimed by the assessee. Since the assessee has not claimed any deduction of impugned amount, the ld. CIT(A) held that no disallowance was called for. 60. The ld. CIT – DR vehemently argued that the CIT(A) erred in deleting the addition. According to him, the purchases made are a series of transaction and not isolated transaction and since the payments made are in excess of limit specified u/s 40A(3), the assessing officer has rightly made the addition and CIT(A) was not justified in deleting the addition. 61. The ld. AR on the other hand has justified the finding of CIT(A). The assessee has made the following submission: - “The assessing officer has observed that as per the seized material found during search, the assessee has made unaccounted cash purchases of Rs.48,02,38,002/- for A.Y. 2010-11 and Rs.8,12,99,567/- for A.Y. 2011-12. The assessing officer has made disallowance of the amount by invoking provisions of section 40A(3) of Income Tax Act, 1961. Page | 43 10.1 In respect of the above it is submitted that the addition made by A.O. is erroneous. Firstly the A.O. could not have made any disallowance u/s 40A(3) as the assessee had not even claimed any deduction as such for the impugned purchases. Secondly the provisions of section 40(A)(3) cannot be applied to transactions not recorded in the books of account. Thirdly, once the profit on the unaccounted transactions is estimated and declared in the returns there is no case for application of section 40(A)(3). 10.2 It is respectfully submitted that the assessee has not claimed any specific deduction for the impugned purchases amount and therefore there is no question of disallowance u/s 40A(3) of the said amount. Moreover, the assessee has declared profit on the estimated basis based on of net asset basis. 10.3 The Hon’ble Allahabad High Court in the case of CIT v Banwarilal Bansidhar (1998) 229 ITR 229 (All) has held that when profit were estimated and no deduction was sought and allowed u/s 40A(3), these was no need to look into the provisions of section 40A(3) r.w.rule 6DD(5). The Hon’ble High Court held as under :- 3. All the three questions, referred to this Court, revolve round the same controversy. The question for consideration is that when no deduction was sought and allowed under s.40A(3), was there any need to go into s.40A(3) and r.6DD(j). We see force in the 'view taken by the Tribunal that when income of the assessee was computed applying the gross profit rate and that when no deduction was allowed in regard to the purchases of the assessee, there was no need to look into the provisions of s.40A(3) and r.6DD(j). No disallowance could have been made in view of the provisions of s.40A(3) r/w r.6DD(j) as no deduction was allowed to and claimed by the assessee in respect of the purchases. When gross profit rate is applied, that would take care of everything and there was no need for the AO to make scrutiny of the amount incurred on the purchases by the assessee. 10.4 In the case of CIT vs. S. Mohammad Dhurabudeen, (2008) 4 DTR 218 (Mad), the Hon’ble High Court has held that the disallowance u/s 40A(3) should not be applied mechanically and when such disallowances are made, it should not exceed the overall probable percentage of profit. 10.5 In CIT v Smt. Santosh Jain (2008) 296 ITR 32 (P & H) (2007) 159 Taxman 392 (P & H), the Hon’ble High Court held that where the income was computed on estimation, these was no need to invoke the provisions of section 40A(3). 10.6 In India Seed House v ACIT(2000) 69 TTJ (Del) (TM) 241, it was held that in case of search assessment, disallowance u/s 40A(3) was uncalled for when income itself was separately computed from the unrecorded transactions. Page | 44 10.7 In P.C.Mundra v ACIT (2003) 80 TTJ (JP) 945, it was held that where no books exist and trading addition has been separately made or admitted by assessee, provisions of section 40A(3) cannot be invoked. 10.8 In Jagdish Lal v ITO (2005) 94 TTJ (Jodh) 1119, it was held that where net income is computed in respect of the unrecorded transactions, no further disallowance u/s 40A(3) can be made. 10.9 The Hon’ble Madhya Pardesh High Court in the case of CIT v Purshottam Lal Tamrakar (2004) 270 ITR 314 (MP) held that disallowance u/s 40A(3) could not be made where the income is computed on the basis of some estimated formula. 10.10 In Chhattisgarh Steel Casting (P) Ltd v ACIT (2008) 8 DTR (Bilaspur) (Trib) 14, it was held that disallowance u/s 40A(3) made by the A.O. out of unrecorded purchases form the seized record was uncalled for. 10.11 In J.K. Construction Co. v ITO (2006) 100 TTJ (Jothpur) 1101, it has been held that it was not open to the A.O. to consider the expenditure separately and therefore no separate addition u/s 40A(3) can be made when the income itself has been computed separately from the unrecorded transaction. Reliance is also placed on the following decisions: - i. Kirti Foods Ltd. vs ACIT 2010(12) TMI 1307 – ITAT Pune ii. DCIT vs Shri Narendra Mithailal Agrawal (ITA No. 811 & 808/PN/2010 – dated : 26/09/2012) – ITAT Pune In view of the above, it is submitted that addition made by the assessing officer by applying provisions of section 40(A)(3) is patently wrong. The CIT(A) has rightly deleted the additions made by the AO. The findings of the AO on the issue has been given in her order as under:- A.Y Reference Para & Page No. of CIT(A) order 2010-11 Para No. 27 (Page No. 27 & 28) 2011-12 Para No. 19 (Page No. 21 & 22) 62. We have carefully considered the rival contention and perused the order of the lower authorities as well as the paper book and written submission furnished by the assessee. The ld. CIT (A) has decided the issue as under: - “Finding 27. I have carefully considered the observation of the assessing officer made in the assessment order and also the submission of the appellant. On careful consideration of the facts and legal position, in my view the A.O. was not justified in making the addition by invoking provisions of section 40(A)(3). Page | 45 The appellant has not claimed any deduction as such of the impugned purchases and therefore, there could have been no justification for disallowance of same. The question of disallowance can arise only when some deduction is claimed. The A.O. has mechanically applied provision of section 40(A)(3). Moreover, in view of the various judicial pronouncements as relied upon by the appellant in its submission, since the income has already been estimated in respect of these unrecorded purchases, provisions of section 40(A)(3) cannot be applied. In view of the aforesaid factual and legal position, the addition of Rs. 48,02,38,002/-made by the A.O. cannot be sustained and, therefore, thesame is directed to be deleted. This ground of appeal is allowed.” 63. We have considered the rival contentions, submission made and various case laws relied upon. The ld. CIT(A) has held that the question of disallowance of any amount u/s 40A(3) can arise only when any deduction of such amount is claimed by the assessee. There is no rebuttal to this factual finding of the CIT(A) that the assessee has not claimed any deduction for the impugned purchases, therefore, no disallowance was called for. The purchases were unaccounted and not recorded in the books of accounts. The income on the account of unaccounted purchases and sales have already been estimated and offered for taxation. Hon‟ble Allahabad High Court in the CIT v Banwarilal Bansidhar (1998) 229 ITR 229 (All) has held that when profit were estimated and no deduction was sought and allowed u/s 40A(3), these was no need to look into the provisions of section 40A(3) r.w.rule 6DD(5). The Hon‟ble High Court held as under :- 3. All the three questions, referred to this Court, revolve round the same controversy. The question for consideration is that when no deduction was sought and allowed under s.40A(3), was there any need to go into s.40A(3) and r.6DD(j). We see force in the 'view taken by the Tribunal that when income of the assessee was computed applying the gross profit rate and that when no deduction was allowed in regard to the purchases of the assessee, there was no need to look into the provisions of s.40A(3) and r.6DD(j). No disallowance could have been made in view of the provisions of s.40A(3) r/w r.6DD(j) as no deduction was allowed to and claimed by the assessee in respect of the purchases. When gross profit rate is applied, that would take Page | 46 care of everything and there was no need for the AO to make scrutiny of the amount incurred on the purchases by the assessee.” 64. In fact in the present case the additions have been made on account of the suppressed gross profit on unaccounted transactions of the purchase and sales of the goods. Based on the seized material, the income of the assessee is estimated, the disclosure is made by the assessee, it is owned by the assessee, the due tax thereon has been paid by the assessee. Therefore it is not the claim of any expenditure incurred for by the assessee but it is an undisclosed income earned by the assessee from trading transactions. The sum and substance of various decisions relied upon by the assessee has been that where no deduction is claimed by the assessee, no disallowance u/s 40A(3) was called for. Further where the income was estimated, no disallowance u/s 40A(3) was called for. 65. Accordingly, we find no reason to interfere with the findings of ld. CIT(A). Therefore, the grounds of appeal number 20 and 21 of the ld. AO in this regards are dismissed. 66. In view of the above, the appeal filed by ld. Assessing officer for A.Y. 2010-11 is dismissed. 67. The issues involved in the appeal for A.Y. 2011-12 are common to the issues involved in A.Y. 2010-11. Our decision for A.Y. 2010- 11 also applies to A.Y. 2011-12. 68. In the result, both the appeals filed by the learned assessing officer are dismissed. Order pronounced in the open court on 23/11/2021. -Sd/- -Sd/- (SUCHITRA KAMBLE) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 23/11/2021 A K Keot Page | 47 Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi
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