Super Connections India (P) Ltd., Delhi V. DCIT, Central Circle-2, Gurgaon

ITA 7666/DEL/2019

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9492 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 12-12-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 17-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Bogus purchase; Capital asset converted into stock in trade; Business income; Opportunity of being heard; Principle of natural justice; Accommodation entries; Documents seized
• Section: 132; 234B; 48; 13; 145(3); 153C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘G’ : NEW DELHI) SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA No.7665/Del/2019 (Assessment Year :2013-14) ITA No.7666/Del/2019 (Assessment Year :2014-15) ITA No.7667/Del/2019 (Assessment Year :2015-16) Super Connections India (P) Ltd., vs. DCIT, Central Circle 2, D – 28, South Extension Part 1, Gurgaon. New Delhi – 110 049. (PAN : AAACS1449L) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Rakesh Gupta, Advocate Shri Somil Agarwal, Advocate REVENUE BY : Shri H.K. Choudhary, CIT DR Date of Hearing : 13.12.2023 Date of Order : 18.12.2023 ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : These appeals filed by the assessee are directed against the common order of ld. CIT (Appeals)-3, Gurgaon dated 23.07.2019 for the Assessment Years 2013-14, 2014-15 & 2015-16. ITA Nos.7665 to 7667 /Del./2019 2 2. Since the grounds are common and the facts & materials are also common, we are referring to grounds of appeal for AY 2013-14 which read as under :- “1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in assuming jurisdiction U/S 153C and that too for this year and further erred in passing the impugned assessment order, more so when 'satisfaction' has not been -recorded by AO of the searched person and when there was no incriminating document was found. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in assuming jurisdiction and framing the impugned assessment order U/S 153C, is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds . 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in exercising his jurisdiction in making addition of Rs.89,36,4211- (i.e. 5% of Rs.17,87,28,439/-) on account of alleged commission/brokerage as business income and that too without giving show cause notice in this regard and impugned addition made by Ld. CIT(A) is bad in law as no incriminating material has been found as a result of search warranting such addition and by recording incorrect facts and findings and merely on the basis of surmises and conjectures and without giving the opportunity of being heard and without observing the principles of natural justice. 4. That in any case and in any view of the matter, action of Ld. CIT(A) in making addition of Rs.89,36,421/- on account of alleged commission/brokerage as business income, is bad in law and against the facts and circumstances of the case and the same is outside the purview of impugned proceedings u/s 153C of the Act. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in rejecting the books of accounts u/s 145(3) of the Act. 6. That in any case and in any view of the matter, addition made by Ld. CIT(A) in the impugned order are beyond jurisdiction and illegal also for the reason that these could not have been made since no incriminating material has been found as a result of search. 7. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned assessment order without there being requisite approval in terms of section 153D and in any case approval if any is ITA Nos.7665 to 7667 /Del./2019 3 mechanical without application of mind and is no approval in the eyes of law. 8. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234B of Income Tax Act, 1961.” 3. Brief facts of the case are that a search was conducted on 29.04.2015 at the various premises in the Orient Craft Group of cases by virtue of the authorization issued by the Pr. Director of income tax (Investigation), Chandigarh u/s 132 of the Income Tax Act, 1961. During the course of the search proceedings at the premises 7D, Maruti Industrial Area, Sector- 18, Gurgaon belonging to M/s Orient Craft Limited, documents/ Books of Accounts as per details given below, pertaining to the assessee, M/s Super Connection India Pvt. Ltd. were found and seized:- S.No. Name of the company Details of documents seized Page No./ Annexure No./ Party No. 1. Super Connections India Pvt. Ltd. Computerized Books of A/c and hard Copy of Trial Balance 47, 48 & 49/A-7/ OS-I AO proceeded to examine the issue and after elaborately discussing the same, he concluded as under :- “6.1 The reply of the assessee has duly been considered and not found tenable. The assessee has failed to provide any comment/ response/ submission with regard to the findings/ observation as narrated above. Therefore it is crystal clear that M/s Super Connections India Pvt. Ltd. is a paper entity operated by the owner's of M/s Orient Craft Limited for the purposes of evasion of taxes. ITA Nos.7665 to 7667 /Del./2019 4 6.2 Further, in view of the findings, it is a fit case for rejection of books of accounts and therefore, the books of accounts of the company is hereby rejected is] s 145(2) of the Income. Tax Act, 1961. 6.3 Accordingly the expenses booked by the assessee during the year under consideration are worked out and disallowed which are amounting to Rs.17,78,99,299/-.” 4. Against the above order, assessee appealed before the ld. CIT (A). Ld. CIT (A0 deleted the addition but made protective addition of 5% as under :- “ I have gone through the assessment order and submissions of the appellant and following observations are made :- (i) The AO disallowed the total amount of Rs.17,87,17,045/- in the case of M/s. Orient Craft Ltd. for AY 2013-14 as it was held that these purchases made from M/s. Super Connections India Pvt. Ltd. were not found to be genuine on following grounds as discussed at pre-page 26 & 27 of this order :- (a) The bulk of purchases have been made from entities controlled by Sh. Sanjay Jindal. (b) The fund trail discussed in the issue of purchases from M/s Akansha Fashion and M/s Jindal Fashion revealed that the amount remitted from bank account of M/s Akansha Fashion and M/s Jindal Fashion are finally withdrawn in cash and therefore was established that the ultimate beneficiary was M/s Orient Craft Ltd. (c) Further, it was held that M/s Akasnha Fashion, M/s Jindal Fashion and M/s Jindal Exports which are controlled by Sh. Sanjay Jindal are mere entry providers on the basis of post search enquiries conducted. (d) Purchases booked by M/s Orient Craft Ltd were held to be bogus in view of the facts that they are being made from an entity M/s Super Connections Pvt, Ltd which is a paper concern operated by M/s Orient Craft Ltd through its trusted employees. Further M/s Super Connections Pvt Ltd. had shown purchases from parties of Jindal Group which have been established to be bogus and mere entry providers. On the basis of detailed discussion by the undersigned in the appellate order of M/s Orient Craft Ltd. for the year under consideration, reproduced in earlier part of this order, it was held that M/s Super Connections Pvt, Ltd. was only a conduit used by the appellant company ITA Nos.7665 to 7667 /Del./2019 5 for transfer of funds and booking purchases. Therefore, the addition made by the AO. on account of bogus purchases from M/s Super Connections Pvt. Ltd amounting Rs.17,87,17,045/- was confirmed in the hands of M/s Orient Craft Ltd. (ii) As substantive addition of Rs.17,8?,Z8,439/- was made in the case of M/s Orient Craft Ltd, protective addition of the same amount was made in the case of appellant, M/s Super Connections India Pvt Ltd. (iii) This addition in the hands of M/s Orient Craft Ltd. was confirmed vide appellate order dated 30.03.2019 by holding that the appellant company was used for booking bogus purchase entries and routing of money generated through accommodation entries. (iv) As this addition has been confirmed on substantive basis in the case of M/s orient Craft Ltd, therefore, the addition made in the case of appellant company made on protective basis cannot be sustained for all the years under consideration i.e. AY 2013-14, AY 2014-15 & A.Y. 2015-16. However, if the substantive addition in the case of M/s Orient Craft Ltd. is deleted at any stage, the addition deleted here would revive. (v) Further, addition to the extent discussed hereunder is confirmed in the hands of appellant company in the years under consideration. (vi) As it has been held that the appellant company in the years under consideration was only being used as conduit for booking bogus purchases by M/s Orient Craft Ltd., it is apparent that the appellant company would have been paid commission/brokerage for providing entries for bogus purchases by M/s Orient Craft Ltd. In view of the general practice as seen in the case of entry operators, the commission/brokerage paid to the appellant company is estimated at 5% and addition of Rs.89,36,421/- to the business income of the appellant on account of the same made by the AO in 2013-14 is sustained to that extent. Similarly, addition @ 5% of the total sales booked in the name of M/s Orient Craft Ltd by the appellant company is also confirmed to the extent in other years under consideration as follows:- AY 2014-15 : 5% of Rs.26,37,58,427/- Rs.1,31,87,921/- AY 2015-16 : 5% of Rs.1,96,74,569/- Rs. 98,37,284/-” 5. Against the above order, assessee is in appeal before us. ITA Nos.7665 to 7667 /Del./2019 6 6. Ld. Counsel of the assessee has summarized his submissions as under :- “ It is respectfully submitted that the facts of the case are that the appellant has supplied fabric to M/s Orient Craft Limited. Ld. AO has made substantive addition of Rs.17,87,17,045/- in the hands of M/s Orient Craft Ltd. as alleged bogus purchase from appellant and accordingly protective addition of Rs.17,78,99,299/- has been made in the hands of the appellant allegedly on the ground that the appellant is a paper entity operated by the owners of M/s Orient Craft Ltd. and therefore Ld. AO rejected the books of account of the appellant company and disallowed the expenses booked by the appellant company to the tune of Rs.17,87,99,299/- as is evident from plain reading of page 19-20 of the assessment order. Ld. CIT(A) relying on the order passed by Ld. CIT(A) in case of Orient Craft Limited inter-alia deleted the protective addition, however made addition to the extent of 5% of sales booked in name of M/s Orient Craft Ltd. by appellant i.e. Rs.89,36,421/- as alleged commission as is evident from para 7.3.2 on page 31-32 of the appellate order. It is respectfully submitted that the issue of alleged bogus purchases made by M/s Orient Craft Ltd. from the appellant company has been decided by the Hon'ble Tribunal in the case of M/s Orient Craft Ltd. in ITA No. 3310/Del/2019 for AY 2013-14 (PB 96-159) and Hon'ble Tribunal after detailed examination have held that "it would be enough for us to say that voluminous documentary evidences filed by the assessee are clearly establishing the genuineness of purchases fabric from M/s Super Connection India P Ltd. We have seen that the vendor company is supplier of the fabric not only to the assessee company but to other garment exporters. Other indicators such as percentage ratio of material to sale etc. also establish the genuineness of the purchases. We do not agree with the observations made by the first appellate authority. In our considered opinion, assessee has been successful to discharge the burden of proving the purchase from M/s Super Connection India P Ltd. In the result, ground no. 12 & 13 of the assessee's appeal of the assessee are allowed and the addition of Rs.17,87,17,045 is deleted. (Para 63 at Page 59-60 of the order of Hon'ble Tribunal in the case of M/s Orient Craft Ltd. - A Y 2013-14) (PB 101, 154-155). In view of the above findings, it is respectfully submitted that the very foundation of case of the Ld. AO as well as the alleged commission confirmed by Ld. CIT(A) does not survive and therefore it is humbly prayed that the addition confirmed by Ld. CIT(A) may please be deleted. It is not out of place to submit that there is no appeal by the revenue to the best of the knowledge of the appellant. Further, it is respectfully submitted that similar matter in the case of other concerns from whom M/s Orient Craft Ltd. had made purchases have been ITA Nos.7665 to 7667 /Del./2019 7 decided by the Hon'ble Tribunal and the similar addition confirmed by Ld. CIT(A) have been deleted by the Hon'ble Tribunal in the following cases: • M/s Starline Clothing P Ltd. vs. DCIT, ITA No.7657 & 7658/Del/2019 dated 14.07.2022 for AYs 2014-15 and 2015-16 (PB 466, 471; PB 540) • Sh. Subhash Chandra Gupta vs. OCIT, ITA No. 7654, 7655 & 7666/0el/2019 dated 14.07.2022 for AYs 2013-14, 2014-15 and 2015-16 (PB 459, 465; PB 507-508) • Trendy Attire Pvt. Ltd. vs. OCIT, ITA o. 7659 & 7660/0e1l20 19 dated 30.06.2022 for A Y s 2014-15 and 2015-16 (PB 474,476 - 477; PB 540) In view of the above facts and circumstances of the case, it is humbly prayed that the addition confirmed by Ld. CIT(A) deserves to be deleted and may please deleted.” 7. Per contra, ld. DR for the Revenue relied upon the orders of the authorities below. 8. We have carefully considered the submissions and perused the records. We find that ITAT in its decision in ITA Nos.3310/Del/2019 & 5037/Del/2019 in the case of Orient Craft Ltd. for AY 2013-14 vide order dated 24.09.2021 has deleted the substantive addition in the hands of Orient Craft Ltd. by concluding as under :- “ In view of the above pleadings and evidences filed by the assessee the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable even on merit. Assessee has proved that the material was purchased from the vendor involved here in various years and payment have been made through banking channel. Other evidences as referred clearly establish the purchase made by the assessee. We do not want to discuss each and every evidence and it would suffice to hold that in the light of these evidences which have not been rebutted with the help of any cogent material, purchases made by the assessee from the above said vendor can also not be disbelieved. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper pages 2988 to 2992 and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the ITA Nos.7665 to 7667 /Del./2019 8 A.O. are not of substance and misplaced on facts. CIT(A) too has mentioned in his order the adverse observations of the A.O. only which in our opinion are misplaced on facts. Contention of CIT (A) that evidence filed by the assessee self-serving documents and circumstantial evidence leads to the conclusion of A.O. It would be enough for us to say that voluminous documentary evidences filed by the assessee are clearly establishing the genuineness of purchases fabric from M/s Super Connection India P. Ltd. We have seen that the vendor company is supplier of the fabric not only to the assessee company but to other garment exporters. Other indicators such as percentage ratio of material to sale etc also establish the genuineness of the purchases. We do not agree with the observations made by the first appellate authority. In our considered opinion, assessee has been successful to discharge the burden of proving the purchase from M/s Super Connection India P Ltd. In the result, ground no. 12 & 13 of the assessee’s appeal of the assessee are allowed and the addition of Rs.17,87,17,045/- is deleted.” 9. Similarly, ITAT in the case of Orient Craft Ltd. in ITA Nos.3311/Del/2019 & 5038/Del/2019 for AY 2014-15 vide order dated 24.09.2021 deleted the substantive addition in the hands of the aforesaid assessee by holding as under :- “ In view of the above pleadings and evidences filed by the assessee the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable on merit. Assessee has proved that the material was purchased from the vendors involved here and payments have been made through banking channel. Other evidences as referred clearly establish the purchase made by the assessee. We do not want to discuss each and every evidence and it would suffice to hold that in the light of these evidences which have not been rebutted with the help of any cogent material, purchases made by the assessee from the above said vendors cannot be disbelieved. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper pages 1702- 1708 reproduced also above by us and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on facts. CIT(A) too has mentioned in his order the adverse observations of the A.O. only which in our opinion are misplaced on facts. Contention of CIT(A) that evidence filed by the assessee self-serving documents and circumstantial evidence leads to the conclusion of A.O. It would be enough for us to say that voluminous documentary evidences filed by the assessee are clearly establishing the genuineness of purchases fabric from M/s Super Connection India P. Ltd. & other vendor companies. Other indicators such as percentage ratio of material to sale etc also establish the genuineness of ITA Nos.7665 to 7667 /Del./2019 9 the purchases. We do not agree with the observations made by the first appellate authority. In our considered opinion, assessee has been successful to discharge the burden of proving the purchase from M/s Super Connection India P Ltd. & other vendor companies. In the result, ground no. 11 to 14 of the assessee’s appeal of the assessee are allowed and the aggregate addition of Rs.28,33,20,906/- is deleted.” 10. Further, ITAT in the case of Orient Craft Ltd. in ITA Nos.3312/Del/2019 & 5039/Del/2019 for AY 2015-16 vide order dated 24.09.2021 deleted the substantive addition in the hands of the aforesaid assessee by holding as under :- “ In view of the above pleadings and evidences filed by the assessee the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable on merit. Assessee has proved that the material was purchased from the vendors involved here and payments have been made through banking channel. Other evidences as referred clearly establish the purchase made by the assessee. We do not want to discuss each and every evidence and it would suffice to hold that in the light of these evidences which have not been rebutted with the help of any cogent material, purchases made by the assessee from the above said vendors cannot be disbelieved. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper pages 1873- 1878 reproduced also above by us and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on facts. CIT(A) too has mentioned in his order the adverse observations of the A.O. only which in our opinion are misplaced on facts. Contention of CIT(A) that evidence filed by the assessee self-serving documents and circumstantial evidence leads to the conclusion of A.O. It would be enough for us to say that voluminous documentary evidences filed by the assessee are clearly establishing the genuineness of purchases fabric from M/s Super Connection India P. Ltd. & other vendor companies. Other indicators such as percentage ratio of material to sale etc also establish the genuineness of the purchases. We do not agree with the observations made by the first appellate authority. In our considered opinion, assessee has been successful to discharge the burden of proving the purchase from M/s Super Connection India P Ltd. & other vendor companies. In the result, ground no. 7 to10 of the assessee’s appeal of the assessee are allowed and the aggregate addition of Rs.7,67,79,726/- is deleted.” 11. From the above, it is evident that Tribunal had held that purchases made by M/s. Orient Craft Ltd. from the assessee were genuine. Hence, ITA Nos.7665 to 7667 /Del./2019 10 protective addition in the hands of the assessee in all the assessment years under consideration here is not sustainable. As a sequel, the order of the ld. CIT (A) making addition of alleged commission/brokerage as business income in the hands of the assessee for all the assessment years cannot be sustained. 12. Since we have adjudicated on merits, the legal grounds are not being discussed. 13. Our above order applies mutatis mutandis to all the assessment years under consideration. 14. In the result, all the appeals filed by the assessee are allowed. Order pronounced in the open court on this 18 th day of December, 2023. Sd/- sd/- (CHALLA NAGENDRA PRASAD) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated the 18 th day of December, 2023 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT (A)-3, Gurgaon. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.