Subject: M/s G. D. Backers Private Limited who manufactures cakes and muffins.
Referred Sections:
Section 132 of the Income Tax Act,
Section 153A of the act
Section 153A/143 (3) of the Act
Section 132 (4A) and 292C of the Act,
Section 292C of the Income Tax Act,
Section 37(1)
Sections 30
Section 114 of the Evidence Act,
Section 145(3)
Section 144
Section 68 of the income tax Act.
Section 133(6)
Referred Cases / Judgments
ITO vs. Deepak Popatlal Gala (ITAT Mumbai)
Ramesh Kumar & Co vs. AC1T (ITAT Mumbai)
DCIT 25(3) v/s Shri Rajeev G. Kalathil (ITA No.6727/MUM/2012 dated 20.08.2014)
The Commissioner of Income Taxi, Mumbai vs M/s. Nikunj Eximp Enterprises Pvt. Ltd.
Commissioner of Income-tax vs. Pashupati Nath Agro Food Products Pvt. Ltd. ITA No. 165 of 2010;
The State of Bombay vs. Pandurang Vinayak Chaphalkar and others 1953 AIR 244
CIT Vs. Nova Promoters and Finlease
CIT Vs. N.R.portfolio Pvt. Ltd.(2014) 264 CTR 258
CIT Vs. Kabul Chawla. He further
CIT Vs. Kabul Chawla 380 ITR 573.
Commissioner of Income-tax-9, Mumbai v. Teletronics Dealing Systems (P.) Ltd [2015] 53 taxmann.com 20
Commissioner of Income-tax, Belgaum v. Anil Kumar & Co [2016] 386 ITR 702 (Karnataka)
Amarjit Singh v. Income-tax Officer, Ward-1, Phagwara [2017] 81 taxmann.com 444 (Amritsar - Trib.)
Assistant Commissioner Of Income-Tax v. Trilok Chand Khetwat [2001] 114 TAXMAN 124 (CAL.)(MAG.)
Assistant Commissioner of Income-tax, Central Circle 2(1), Pune v. Intermedia Cable Communication (P.) Ltd [2012] 19 taxmann.com 190 (Pune)
Jai Pulse Mills v. Income-tax Officer, Ward 3(4), Ahmedabad [2010] 39 SOT 312 (Ahmedabad)
Amarjit Singh v. Income-tax Officer, Ward-1, Phagwara [2017] 81 taxmann.com 444 (Amritsar - Trib.)
Assistant Commissioner Of Income-Tax v. Trilok Chand Khetwat [2001] 114 TAXMAN 124 (CAL.)(MAG.)
Assistant Commissioner of Income-tax, Central Circle 2(1), Pune v. Intermedia Cable Communication (P.) Ltd [2012] 19 taxmann.com 190 (Pune);
Jai Pulse Mills v. Income-tax Officer, Ward 3(4), Ahmedabad [2010] 39 SOT 312 (Ahmedabad)
P.M. Abdul Razak v. Income-tax Officer [1997] 63 ITD 398 (COCH.)
Gayotri Oil Mills v. Assistant Commissioner of IncometaxBerhampur [2012] 23 taxmann.com 186 (Cuttack - Trib.)
Assistant Commissioner of Income-tax, Circle-1 v. Ercon Composites [2014] 49 taxmann.com 489 (Jodhpur - Trib.).
The State of Bombay vs. Pandurang Vinayak Chaphalkar and others 1953 AIR 244;
Karnataka State Road Transport v. B.A. Jayaram and Others 1984 AIR 790;
Commissioner of Income-tax v. Indeo Airways (P.) Ltd [2012] 26 taxmann.com 244 (Delhi HC)
INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH C: NEW DELHI
BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
AND
SHRI K. N. CHARY JUDICIAL MEMBER
ITA No. ITA No Assessment Year
( By Assessee) ( By Revenue)
1182/Del/2018 1464/Del/2018 2009-10
1189/Del/2018 1465/Del/2018 2010-11
1190/Del/2018 1466/Del/2018 2011-12
1185/Del/2018 1467/Del/2018 2012-13
1186/Del/2018 1468/Del/2018 2013-14
1180/Del/2018 1469/Del/2018 2014-15
1181/Del/2018 1470/Del/2018 2015-16
G.D. Foods Manufacturing ACIT,
Vs.
(India) Pvt. Ltd, Central Circle-26,
Plot NO. 14, B Block, New Delhi
Community Centre, Janakpuri,
New Delhi
PAN: AAACG9952A
(Appellant) (Respondent)
ACIT, G.D. Foods Manufacturing
Central Circle-26, (India) Pvt. Ltd,
New Delhi Plot NO. 14, B Block,
Community Centre,
Janakpuri, New Delhi
PAN: AAACG9952A
(Appellant) (Rzespondent)
Assessee by : Shri Ajay Wadhwa, Adv
Ms. Bharti Sharma, CA
Revenue by: Shri Sanjit Singh, CIT DR
Date of Hearing 26/06/2018
Date of pronouncement 06/09/2018
ORDER
Per bench.
1. These are 14 appeals filed by the assessee, M/s G.D. Foods Industries
Private Limited, and the learned assessing officer (revenue) for the
Page | 1
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
Assessment Year 2009-10 to 2015-16, i.e. Seven assessment years
involving common issues on identical facts, therefore at the request of
the parties heard together, and disposed of by this common order. For
the sake of convenience of both the parties stated that lead matter
should be taken as appeals of the parties for AY 2014-15 and they argued
their respective appeals for that year only. Their submission was that
their arguments are similar for all other years as the facts are common.
Therefore, we will set out the facts for AY 2014-15, record the arguments
of the parties, also give our findings on the various issues for that year,
and then apply the same for other years.
AY 2014-15
2. M/S G.D. Foods Manufacturing Industries Private Limited [ The Assessee/
Appellant] as well as the learned Assistant Commissioner Of Income Tax,
Central Circle 26, New Delhi [ The Ld AO] has preferred appeals
against the order of The Commissioner Of Income Tax (Appeals) 29,
New Delhi [ The Ld CIT (A) ] dated 26/12/2017 for Assessment Year 2014
15.
3. The assessee has raised the following grounds of appeal in ITA No.
1180/Del/2018 for the Assessment Year 2014-15:-
1. That the order of the Ld. CIT (A] dated 26.12.2017 is bad in law
and on facts.
1.1 That the Ld. CIT(A) has erred on facts and in law in ignoring the
settled legal preposition that admittedly there was no
incriminating material found as a result of search, assessment
order passed u/s 153A of the Act was bad in law and void ab
initio.
1.2 That the Id. CIT(A) failed to consider the fact that documents
found and seized were essentially the actual profit & loss account
which depicted losses only and there was no unexplained assets
or wealth found during the course of search.
2. That the ld. CIT(A) has erred in not adjudicating the ground that
neither the copy of statements recorded during the course of
Page | 2
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
search were provided nor an opportunity of cross examination
was accorded to the assessee.
3. That the ld. CIT (A) has erred in not considering the
contemporary and conclusive evidence in the form of excel
sheet recordings and monthly profitability statements giving the
real/actual profitability found in the computers seized during
course of search.
3.1 That the Id. CIT (A) has ignored the settled principles of taxing
real income as laid down by the Hon'ble Supreme court in
various decisions.
3.2 That the ld. CIT (A) has erred in considering only selective part
of actual profitability statements as true and correct and ignoring
the rest i.e. Income shown in actual profitability has been added
into the hands of assessee without allowing the claim of
expenses made in this regard.
3.3 That the Id. CIT(A) has overlooked the presumption laid down
u/s 132(4A) of the Act which say that documents/material found
during the course of search are supposed to be true and correct
and same are to be considered for the purpose of assessment for
the relevant assessment year.
3.4 That the Ld. CIT (A) has erred in not adjudicating the grounds 3
to 3.3 (supra) which were the grounds 4 to 4.2 raised before ld.
CIT(A).
4. That the Id. CIT(A) has erred in sustaining the addition of Rs.
4,96,44,574/- on account of bogus purchase.
4.1 That Ld. CIT(A) further erred in stating that no supporting detail
regarding expenses incurred in cash was filed therefore no cash
expense was incurred despite the fact that he himself accepted
the seized excel sheets showing unaccounted cash expenses as
true.
4.2 That without prejudice to the above, the Id. CIT(A) has failed to
consider the fact that if assessee had recorded and accounted for
the alleged bogus purchases in its audited accounts then
equivalent amount of stock would also have inflated which
negated the effect on profitability.
5. That The Ld CIT (A) has erred in sustaining the addition f Rs.
48,68,267/- on account of undisclosed income from scrap
sales despite the fact that the same was considered and
disclosed by the assessee in actual profitability statement filed
by the assessee during assessment as well as CIT (A)
proceedings.
6. That the appellant craves leave to add, alter, amend, substitute,
delete and modify any or all the grounds of appeal, which are
Page | 3
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
without prejudice to one another, before or at the time of
hearing of the appeal."
4. The revenue has raised the following grounds of appeal in ITA NO.
1469/Del/2018 for the Assessment Year 2014-15:-
1. That on the facts and in the circumstances of the case the ld CIT(A)
has erred in law and on facts in deleting the addition of Rs.
29,79,37,366/- on account of undisclosed sales, which was arrived
at by the AO on the basis of matching of data retrieved from seized
server and disclosed sales.
2. That on the facts and in the circumstances of the case, the ld
CIT(A) has erred in law and on facts in deleting the addition of Rs.
53,00,000/- made u/s 68 of IT Act as creditworthiness of the
employee along with non genuine allotment of shares has not been
verified."
5. Briefly stated, the facts shows that assessee is a private limited company
mainly engaged in the business of manufacturing and trading of Fast
Moving Consumer Goods [FMCG] products under the brand name TOPS.
The company is engaged in production and marketing of pickles, sauces,
Jams, biscuits, cakes and muffins etc. It is the exclusive seller of products
of its sister concern M/s G. D. Backers Private Limited who manufactures
cakes and muffins. A search and seizure operation under section 132 of
the Income Tax Act, 1961 [The Act] was carried out on 22/12/2014 in the
group cases; case of the assessee company was also covered in that
search. During the course of search, certain documents and storage
devices belonging to the assessee company were found and seized.
Notice under section 153A of the act was issued to the assessee on
13/4/2016 which was served upon the assessee and assessee filed its
return of income on 9/5/2016 showing income of 3,62,24,350/ -. The
learned assessing officer made following addition to the total income of
the assessee:
Page | 4
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
i. addition of 53,00,000/ on account of shares issued to Shri Vijay
Mannon
ii. addition on account of bogus purchases of Rs. 4,96,44,574/-
iii. addition of Rs. 29,79,37,366/ being gross profit on account of
undisclosed sales
iv. Addition of 48,68,267 on account of undisclosed income from
scrap sales.
6. Consequently the learned assessing officer passed assessment order
under section 153A/143 (3) of the Act on 30.12.2016 at a total income
of 39,39,74,557/. The assessee preferred appeal against the order of
the learned assessing officer before the learned CIT A, who passed an
order on 26/12/2017 wherein he deleted
(1) addition on account of 5,300,000/- being shares issued to
Shri Vijay, who was one of the employees of the appellant
company and
(2) Addition of Rs. 29,79,37,366/- made by the AO on account of
gross profit on unaccounted sales.
The revenue is aggrieved with the order and therefore, the ld AO has
preferred appeal before us.
7. Further, the Ld CIT (A) confirmed the addition of Rs. 4,96,44,574/- on
account of bogus purchases and addition of 4868267/ on account of
suppression of scrap sales. Therefore, assessee aggrieved with the
confirmation of above two-additions, has preferred appeal before us.
8. First, we come to the appeal of the assessee. Ground number 1, 2 and 3
are all general grounds which are basically raised as support to contest
the ground number 4 and 5 of the appeal of the assessee which are
against substantial addition made by the learned assessing officer and
Page | 5
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
confirmed by the learned CIT A on account of bogus purchases and
undisclosed income from scrap sales. Therefore there is no separate
arguments raised on these grounds and hence, are not required to be
adjudicated separately but would be considered while adjudicating ground
number 4 and 5 of the appeal of the assessee.
9. Ground number 4 of the appeal of the assessee is against the sustenance
of the addition of Rs. 4,96,44,574/ of bogus purchases. The brief facts
of shows that seized documents from the hard disk found during the
course of search, certain excel sheets containing name of the parties, the
dates, amount of cheque, cash received, bill no, Bill date, is mentioned in
those sheets maintained by one employee of the assessee, Mr. Binod
Kumar was found. Therefore, the learned assessing officer noted that
assessee used to receive cash after issuance of the cheques. It was also
noted by the assessing officer that these parties are the parties from
whom regular purchases are made by the assessee. Therefore, he held
that it is a clear-cut case of the bogus purchase. According to him, the
bills are received from the parties to inflate purchases. From annexure A
9, annexure A36, the learned assessing officer extracted the excel
sheets which shows name of more than 30 parties where, in a table,
name of the distributors, date and the year for which the assessee has
indulged into receiving bogus purchase bills and inflating its expenses was
found. When questioned, it filed a letter explaining its stand. The
assessee submitted that the
a. Assessee along with the group concern does not have earned any
income whatsoever over and above what is declared in the audited
profit and loss account.
b. During the course of search no unexplained assets in the form of
cash, stocks, loans, or debtors jewelry etc. was found to even
Page | 6
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
suggest that assessee has earned any undisclosed income, which is
invested in the undisclosed assets.
c. On the contrary, it was submitted that assessee is incurring huge
losses, which is also evident from the seized documents found from
the same hard disk. It was submitted that for each of the year a
statement of actual profit and loss earned by the assessee is found
during search. Those statements were shown to be various profit
and loss account for various years where in records of all the
transactions of income and expenses recorded in the regular books
of accounts of business of the assessee as well as the profit and
loss generated from the transactions not recorded in the regular
books of accounts was shown. It was further stated that Mr. Binod
Kumar, from whose computer,s these files were seized has left the
company because of some personal reason and therefore complete
information could not be provided. It was further stated that the
company has struggled to collate and reconcile the information in
those computer and after many efforts, it would be fair conclusion
of evidence to explain each information in the seized computer. It
was submitted that for each assessment year in question the
income and expenditure statement, which incorporates the so-
called unexplained expenditure in the form of wages, salaries and
cash expenses, are shown. In fact, the income and expenditure
account for each of the impugned assessment year on the credit
side records the real cash sales of products and money taken out of
purchase invoices etc. during the year. The expenditure side
includes all the real expenses which are partially recorded in the
books of accounts and partially not. Assessee further reconciled the
profit and loss statement found during the course of search with the
audited accounts to show that when the unaccounted purchases
Page | 7
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
money was converted in to cash, assessee incurred equivalent
amount of expenditure in cash, which is found in the seized
documents and increased its closing stock with the inflated
purchases.
d. It was further stated in a simplified manner that transactions of the
company would be recorded in the memoranda cash account
maintained by Mr. Binod and the real and actual income and
expenditure would be drawn. The actual real income and
expenditure account for each of the assessment years existed in the
seized computers.
e. The assessee further contested that only the real income of the
assessee is required to be taxed.
f. In nutshell it was submitted that all expenses, purchases, sales,
which are said to be, unexplained which is showing that for all these
years the assessee has incurred the real loss and therefore there
cannot be any addition on account of any of these entries.
10. The learned assessing officer rejected the contention of the assessee
about the overall loss and the profitability statement prepared by the
assessee for the reason that that
a. Excel sheets found from the desktop of Shri Vinod Kumar was
incomplete and therefore the profitability statement which are
enclosed by the learned assessing officer as annexure 1 at page
number 70 to 80 of the assessment order are not clear and reliable.
b. Further, the learned assessing officer did not believe the purpose
and intent of maintaining such a profitability statement, which are
unverifiable facts as finance cost and addition in the fixed assets
are also different from the audited balance sheet and profit and loss
account shown by the assessee. The differences were also there in
insurance and provident fund as well as the various expenses and
Page | 8
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
therefore learned assessing officer noted that the assessee's plea of
maintaining an actual profitability record was not accepted.
c. The learned assessing officer further noted that the data recovered
from the desktop of Mr. Vinod Kumar is incomplete and therefore
the financial statement shown by the assessee are also not
complete. The learned assessing officer further noted that the
account shown by the assessee of the profitability are also
maintained in pieces as and when information is received.
Therefore, they are not maintained in continuity and hence cannot
be relied upon.
d. Further the learned assessing officer was also of the opinion that
according to the submission dated 15/12/2016 the assessee itself
submitted that the assessee indulged in booking excess purchases
to the tune of Rs. 23,48,19,023/-, in total for assessment year
2009-10 to 2015-16 (FY 2008-09 to 201415), therefore the
excess purchases of 4,80,41,760/- stated by the assessee but
actual tabulated from the seized material comes out to
4,96,44,574/ and therefore same was added to the income of the
assessee.
11. The assessee contested the above addition before the learned CIT(A).
Many contentions were raised. However, the learned CIT A rejected all of
them and stated that the fact remains that the documents relating to
bogus purchases are found and seized from the business premises of the
assessee. The documents clearly indicate that the appellant received
bogus bills of purchases from the various parties. The assessee issued
cheques to them but same amount of cash was received back. Therefore
the complete details of purchase bills, items, parties, dates, cheques and
amount of cash received, contained in the excel sheets is found in seized
hard disk. These excel sheets, accounts were maintained by the
Page | 9
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
accountant of the assessee, and the bogus purchases were shown in the
audited accounts by which the purchases were inflated and thereby the
profit was suppressed. Therefore, he did not find any merit in the
argument of the appellant that excel sheets shows actual profit and loss
account which covers expenses incurred in cash also. As expenses
incurred in cash were not taken into account while preparing the audited
accounts and filing of return of income, therefore the figure of cash
expenses should have been reduced while arriving at the figure of the
bogus purchases. He further rejected the contention of the assessee
that only real income is to be taxed stating that no supporting details of
expenses which were incurred in cash were filed before the AO or before
him and therefore the AO was justified to calculate the figures of bogus
purchases as income without reducing the expenditure shown in those
excel sheets. He further rejected the argument of the appellant that the
expenses incurred in cash were not included in the audited accounts. He
further held that if the expenses were not taken into account by the
appellant while arriving at in the figures of total income then, why there
was any need to inflate the purchases, no plausible reasons, or details
were given in this regard. In short, He confirmed the addition on account
of bogus purchases made by the learned AO.
12. Ground number 5 of the appeal is against the addition of Rs. 4868267/
on account of undisclosed income from scrap sales despite the fact that
the same was considered and disclosed by the assessee in actual
profitability statement filed by the assessee, during the course of
assessment proceedings as well as before the learned CIT(A). During the
course of assessment proceedings, it was noted by the AO that assessee
is selling scrap and earning considerable amount of income which is not
disclosed in return of income. During the course of search annexure A9,
Annexure A-36 was found wherein it was noted that in the excel sheets
Page | 10
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
some scrap sale are shown pertaining to Neemrana plant however for
other plants no such detail was available. The learned AO further noted
that scrap should detail was also found from some data in excel sheets.
Further, the learned assessing officer noted that revenue is in possession
of evidences, which support that assessee does not book its income from
scrap in its books of accounts and only 50% of the scrap sale is booked in
its accounts. Assessee was confronted with the seized computerized
sheets in party A9, Annexure A 3, 6, 7, 15 and various pages. The
learned assessing officer consequently made addition of Rs. 48,68,267/-.
13. The assessee preferred an appeal before the learned CIT(A) who vide
paragraph No. 9 of his order confirmed finding of the learned AO. Though
assessee submitted before him that all the items of scrap sale were duly
considered in the actual profit and loss account maintained by Sri Binod
and Shri Biswas and actual sale of the scrap has already been included in
the actual profit and loss account found during the course of search.
14. With respect to bogus purchases addition, the learned authorized
representative vehemently contested the reasons given by the learned AO
and the learned CIT(A) for addition and confirmation of the same. He
submitted that
i. No incriminating documents were found because of search,
which indicated undisclosed income for the year under
consideration.
ii. He further stated that the documents found and seized were
essentially the actual profitability statements where in loss
for each of the assessment year shown to which they pertain.
He referred to the actual profitability statement seized for
assessment year 2014 15 which is placed at page number C
to E of paper book number 1.
Page | 11
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
iii. He further stated that no undisclosed assets or wealth was
found during the course of search from the premises of the
assessee company as well as from the residence of the
directors of the assessee company. Therefore, in fact the cash
received from the bogus purchases was not invested by the
assessee in any of the real asset but only for the purpose of
the defraying the regular business expenditure incurred by
the assessee in the ordinary course of the business.
iv. He further stated that actual profitability statement found for
assessment year 200910 to 201112 which were seized
during the course of search were not provided to the assessee
despite specific request made by the assessee company to
the learned assessing officer. He referred to the letter dated
26/9/2016 placed at page number 290 and letter dated
28/12/2016 placed at page number 478 to 479 of the paper
book number 2.
v. He further referred to the profitability statement for
assessment year 201213 to 201415, which specifically
shows that assessee has incurred huge losses. He further
submitted that assessee has reconciled each item of seized
actual profitability statement with the figures of the audited
financial statements by filing the reconciliation statement
along with the reasons and the supporting documents before
the lower authorities. He specifically referred to page number
B to 344 of paper book number 1, which shows the
reconciliation statement and supporting evidences.
vi. He further submitted that the contemporary and conclusive
evidences in the form of excel sheets recorded on monthly
basis from which the profitability statement was derived
Page | 12
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
shows the real and actual profitability found in the computer
seized during the course of search. He submitted that such a
vital evidences cannot be ignored and all the evidences found
during the course of search should be analyzed and
appreciated in holistic manner. He further submitted and
referred to letter dated 23/12/2016 and 26/12/2016 filed
before the learned assessing officer and also before the
learned CIT(A). He submitted that these letters explain the
entire procedure from which actual profitability of the whole
business transaction is derived.
vii. He submitted that the profit and loss account seized during
the course of search must be considered as income of the
assessee. He submitted that that cash was received against
the bogus purchases booked and such cash was disbursed for
the various expenses, which are incurred by the assessee
outside the audited books and are part of the consolidated
actual profitability statement. In short, his submission was
that that whatever cash is generated by booking the bogus
purchases by receiving the cash from the parties whose bills
were taken and from whom cash was received in turn was
spent in incurring the expenditure which are out of the books
not recorded in the books but are part of the actual
profitability statements found during the course of search.
viii. With respect to the incompleteness of the records, for all the
years, he submitted that each and every difference between
the actual profitability statement found during the course of
search and the audited statements filed with the return of
income are reconciled by the assessee and such reconciliation
was placed before the assessing officer as well as before the
Page | 13
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
learned 1st appellate authority. Both lower authorities have
seen it but because of the reasons, that such accounts could
not be found to be maintained in continuity, were rejected.
ix. He further submitted that for assessment year 12-13 the
income shown by the assessee as per the income tax return is
24,400,000 whereas actual profit earned by the assessee
is only 6,279,000. For the assessment year 2013 14 he
submitted that the income shown by the assessee in the
return of income is Rs. 2,71,00,000/- whereas the actual loss
incurred by the assessee as per the profitability statement
seized during the course of search is 75,700,000. Further,
he also showed that for assessment year 2014 15 the
assessee has shown income of 36,200,000 whereas it has
actually incurred losses as per the profitability statement
found of 62,300,000.
x. He further stated that the actual profitability statement found
in seized by the revenue for assessment year 200910 to
201112, copies were not provided to the assessee despite
making specific request.
xi. He therefore stated that reasons of showing the higher profit
to the investor in the income tax return as well as in the
audited accounts were for strategic purposes. Assessee used
to show the profit and not the loss but in reality, it has
incurred those losses during the course of the business of the
assessee. He therefore submitted that the assessee must be
granted the deduction of expenditure incurred by the
assessee outside the books of accounts, which are not
recorded in the books of accounts but were defrayed out of
the bogus purchases booked by the assessee.
Page | 14
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
xii. He further stated that the real income is required to be taxed
and the real income for all these years of the assessee is
actual loss. He further stated that the learned assessing
officer and the first appellate authority has chosen to adopt
the income side and did not give credit for the expenditure
side of the profitability statement. If the expenditure side
were considered then there would be a net loss, which
respectfully is the real income in the form of losses of the
assessee company. He said there is no reason that part of
the seized documents are accepted by revenue and part of
the documents , which are in favour of the assessee, is
ignored for flimsy reason.
xiii. He submitted that the expenses could not be disallowed to
the assessee, which is recorded in the profitability statement
shown by the assessee in seized documents found during
the course of search. He submitted that where the receipts
are recorded in the search documents are believed to be the
income of the assessee, entries of expenditure recorded
therein are also to be believed, without asking for more
evidences for such expenditure. He vehemently relied upon
the decision of the Hon'ble Delhi High Court in case of CIT
versus Indeo Airways private limited 349 ITR 85 (Delhi). He
vehemently referred to para number 14, 16 and 17 of the
decision to support his claim.
xiv. With respect to the expenditure, he submitted that it is not
the case of the ld AO / CIT (A) to state that such expenses
are otherwise not allowable to the assessee. The only reason
given is the incompleteness of the seized documents as well
as absence of further evidences. He further stated that same
Page | 15
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
were the facts before the honourable Delhi high court in 349
ITR 85.
xv. He further pressed upon vehemently the decision of the
Hon'ble Supreme Court in case of Union of India versus,
Kamalakshmi Finance Private Limited to show that the
judgment of the jurisdictional High Court must be followed
unreservedly. He therefore submitted that the tribunal is duty
bound to follow the above decision of the Hon'ble Delhi High
Court.
xvi. With respect to the taxation of the real income, he submitted
that real income in the case of the assessee is the income,
which has been drawn from the actual business activity
showing the receipt, and expenses whether accounted for or
unaccounted. He submitted that the assessee was
maintaining the actual profitability statement to determine
the profitability of the company and the said actual
profitability statement contained both audited and unaudited
items of any income and expenditure, which was found during
the course of search. He is relied upon the decision of the
Hon'ble Supreme Court in case of CIT versus Excel industries
limited 258 ITR 295(SC) wherein it has been held that only
the real income of the assessee is ought to be taxed.
xvii. He further pressed into service an interesting argument to
say that the bogus purchases booked by the assessee does
not have any impact on the income of the assessee because
the cash generated out of such bogus purchases were used
for incurring the business expenditure which could not be
recorded in the books of accounts for showing higher
profitability to the proposed investor as well as to the bankers
Page | 16
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
etc.. He therefore submitted that, commercially, if the bogus
purchases are booked and they are equally carried on in the
stock at the end of the year, then it does not have any impact
on the profit and loss account of that particular financial year.
He explained that if rupees hundred is booked as bogus
expenditure or bogus purchases in the books and if rupees
hundred is also carried on in the inventory at the end of the
year, it neutralizes the debit side of the profit and loss
account as well as credit side of the profit and loss account
and therefore it does not have any impact on the profitability
of that particular year. He specifically shown that this
happened in this case also. He stated that the discrepancy in
the stock difference between the closing stock as per the
audited books and actual stock found on the date of search
proved that such stocks were not available with the assessee
but assessee was carrying on the stock in the books of
accounts. He stated that during the course of search, the
assessee was found to be showing more stocks then it was
actually having. Thus, it proves that that bogus purchases
booked by the assessee and consequently same were shown
at inflated amount in the closing stock at the end of the year
does not have any impact in the profitability of the financial
year. He further submitted that difference existed on the
stock less than the book stock of Rs. 213145000/- . He
submitted that the closing stock as per the audited books on
the date of search was of 502,000,000 whereas actual stock
found by the search party was only 288,900,000. He further
stated that the physical verification of the stock made by the
search party at 288,900,000 was also incorrect and perhaps
Page | 17
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
overstated as same was made in hurried manner without any
assistance from the appellant or without verifying the actual
cost of those products. Therefore he submitted that assessee
has allegedly debited bogus purchases of 242,200,000 and
out of which the stock of 213,100,000 is not at all found
existing, itself shows that out of the cash generated of the
expenditure, assessee has incurred expenditure out of the
books of accounts but has shown consequent closing stock
which was not existing physically. He therefore submitted that
that profit is reduced on the debit side of profit and loss
account by debiting the bogus expenditure but identical stock
is increased without having such stocks physically available
with the assessee neutralizes the impact of bogus purchases
booked in the profit and loss account. He therefore submitted
that it does not have any impact on the profitability and
hence no addition can be made.
xviii. He further stated that during the course of search statement
of several employees of the company were recorded which
were heavily relied upon by the learned assessing officer for
making the above addition. He referred to the statement of
Shri Vinod Kumar, Shri Biswas and submitted that even
though statement have been used against the assessee
however the learned assessing officer did not consider it
appropriate to furnish and provide such copies of statements
to the assessee and further to give an opportunity of cross-
examination on explaining those excel sheets on which the
addition is made. He further submitted that even the
assessing officer during the course of assessment proceedings
did not examine those persons once again to come at the
Page | 18
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
correct picture of those documents. He vehemently relied
upon the decision of the Hon'ble Supreme Court in case of
M/s Anadaman Timber Industries versus CCE, in civil Appeal
No 4228/2006. He further stated that the above decision of
the Hon'ble Supreme Court clearly says that any addition
made by the learned assessing officer relying upon the
statement which was not provided to the assessee and also
the opportunity of cross-examination was provided therefore
the whole addition made by the learned assessing officer and
confirmed by the learned CIT(A) deserves to be deleted on
this count only. He further supported his contention by the
several decisions of the Hon'ble Delhi High Court as well as
other high courts and coordinate benches.
xix. He further stated that that according to the provisions of
section 132 (4A) and 292C of the Act, whatever the
information or documents found during the course of the
search are presumed to be true unless proved false. He
further stated that such presumption is available to the
assessing officer, but it should also be applicable to the
revenue. He further stated that actual profitability statement
found during the course of search, where the actual income or
expenses incurred by the assessee are properly recorded in
the excel sheets, there is no reason to presume that the
actual profitability statement shows incorrect picture.
Therefore, they cannot be ignored and has to be accepted as
correct. He further submitted that identical presumption is
also available under section 292C of the Income Tax Act,
wherein during the course of assessment proceedings also
such statement or documents found during the course of
Page | 19
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
search are held to be true. He further stated that such
presumption is available to both the parties and not to the
assessing officer only. He further stated that if there is any
expenditure or elements available to the assessee, which
should have been allowed to the assessee on the basis of the
seized documents on which the income of the assessee is,
inferred, then income and the expenditure both should be
considered for the purpose of determining the income of the
assessee. He therefore submitted that assessing officer as
well as the learned CIT(A) are duty-bound to consider the
profitability statement as provided under section 132 (4A) as
well as under section 292C of the Income Tax Act.
xx. He further pressed into service an argument that if the
purchases are found to be bogus and if the sales are recorded
in the books of accounts, then the addition can only be made
with respect to the gross profit to that extent. He submitted
that quantitative details of the assessee are undisputed. He
submitted that addition even otherwise of the whole amount
is unjustified . He relied upon
ii. Geolife Organice v/s ACIT (3699/MUM/2016) dated
05.05.2017
iii. CIT 5(3)(1) v/s M/s Allied Blender and Distillers P Ltd (ITA
No. 2447/Mum/2015) dated 21.02.2017
iv. ACIT v/s Tarla Shah (ITA No. 5295/MUM/2013) dated
02.02.2016
v. ITO 25(2)(2) v/s Shri Paresh Arvind Gandhi (ITA No.
5706/MUM/2013 dated 13.05.2015)
vi. Commissioner of Income Tax 25(2) v/s Shri Ramila Pravin
Shah (ITA No.5246/Mum/2013) dated 5.03.2015
vii. Shri Ganpatraj A Sanghavi v/s ACIT (ITA
No2826/MUM/2013)
Page | 20
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
viii. ITO vs. Deepak Popatlal Gala (ITAT Mumbai)
ix. Ramesh Kumar & Co vs. AC1T (ITAT Mumbai)
x. DCIT 25(3) v/s Shri Rajeev G. Kalathil
(ITA No.6727/MUM/2012 dated 20.08.2014)
xi. The Commissioner of Income Taxi, Mumbai vs M/s. Nikunj
Eximp Enterprises Pvt. Ltd.
i. He further stated that assessment year 2009 10 to 2013 14
were completed assessments on the date of search and no
incriminating documents indicating undisclosed income was found
during the course of search, therefore, the addition made was
unjustified and deserves to be deleted on this account. He
vehemently relied upon the decision of the Hon'ble Delhi High Court
in CIT versus Kabul Chawla 380 ITR 573 (Delhi). He further
supported the above contention by the series of the decision of
Hon'ble Delhi High Court.
15. With respect to the addition of scrap sale as per ground number 5 of
appeal, his arguments also remained the same as pertaining to the
addition of the bogus purchase. He submitted that the same is included in
the actual profitability statement found during the course of search and
when the assessee has incurred losses actually, there is no reason that
there is a separate addition is required to be made of this amount. He
further stated that even the scrap sales, amount shown by the assessee
in the actual profitability statement has also been used in the business
expenditure, there cannot be any separate additions made on this
account.
16. The learned departmental representative vehemently contested the
argument of the assessee. On the addition of bogus purchases he
submitted as under:-
Page | 21
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
i. He referred to para no. 5 of the order of the learned assessing
officer and submitted that there are more than 30 parties from
whom the assessee has purchased only the bills and not material .
He further submitted that assessee himself is saying that it has not
purchased any material but only taken the bills and therefore there
is no infirmity in the order of the learned assessing officer in taxing
the total purchases, which are bogus.
ii. He further referred to para number 6 of the order of the learned
CIT(A) and stated that in para number 6.2 the learned CIT(A) has
given the detailed reasons wherein it has been proved that the
documents show that the appellant received bogus bills of
purchases from the various parties and those parties were paid by
the cheque and cash was returned to the assessee.
iii. With respect to the argument of the assessee that assessee has not
earned any sum out of the above bogus purchases, he submitted
that the bogus purchases were shown in the audited accounts by
which the purchases were inflated and thereby the profit was
suppressed.
iv. He further stated that merely because the assessee does not have
the physical existence of the stock equivalent to or more or less
similar to the amount of bogus purchases that the bogus purchase
cannot be taxed neutral. He stated that assessee has not reduced
its stock and has taken it as a debit in the opening balance of stock
in the subsequent years, thereby it has also got deduction of
bogus purchases from the year in which bogus purchases were
booked to the next year when opening stock was taken into the
profit and loss account and there was no closing stock to that
extent.
Page | 22
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
v. He further extensively referred to the order of the learned assessing
officer as well as the learned CIT A. In view of this, he submitted
that the addition made by the learned assessing officer as well as
by the learned CIT A is in order.
17. With respect to ground number 5 of the appeal of the assessee on
addition because of scrap sales, he submitted that assessee has nothing
to say before the lower authorities on this addition and therefore the
same deserves to be confirmed by the coordinate bench also. He
submitted that the only claim of the assessee is that it has been included
in the actual profitability statement and therefore no reason that it should
be made separately on this account. However when the bogus purchases
additions have also been made separately there is no reason why the
scrap sale addition cannot be made separately.
18. The ld AR in rejoinder submitted that:-
i. Until now, there is no instance where the stock has been not
carried out in the books of accounts less than bogus purchases
alleged.
ii. None of the unaccounted expenses is found to be illegal or
otherwise disallowable. Naturally, he submitted that such
vouchers and bills as available in case of expenses recorded in the
books of accounts are not expected.
iii. He submitted that there is no denial that provision of section 132
(4A) and section 292C of the Act says that documents found during
the course of search are true applicable both to assessee as well as
revenue. If the AO wants to dispute that it is not correct burden is
on the revenue.
iv. Profitability statement reconciliation is not at all doubted by the ld
AO but rejected only for the reason of incompleteness. However,
after reconciliation, there is no finding that how it is incomplete.
Page | 23
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
19. We have carefully considered the rival contentions and perused the
orders of the lower authorities. Apparently during the course of search a
hard disk was seized which contained some excel sheets titled as party
A 9, annexure A 36, Binod, November 08/ purchase 10.xlsx, party A
9, annexure A 36, (G:\IIST-2/Binod/binod Nov.08/Purchase-10.xlsx)
(path). It shows name of more than 30 parties. It also shows the date
ranging from March 2010 to September 2014. In the same, excel sheets
the tables are shown from FY 2008 09 to 2014 15. The total of the
various years are tabulated. From this excel sheets learned assessing
officer noted that it contains the amount of cheque and date for which
cash received back by assessee by booking purchases. It was further
noted by him that bill received with Bill date and Bill number is also
mentioned in those excel sheets maintained by the assessee. Therefore,
he noted that it appears to be cash received after issuance of cheques. It
was further noted by him that on perusal of records these parties are the
parties from whom purchases are made. Therefore, he reacheded the
conclusion that it is a clear that bogus purchase bills were received from
these parties to inflate purchases. Before the assessing officer, assessee
contented that there are several documents found during the course of
search, which shows that assessee has prepared a parallel profit and
loss account, which records the whole transactions of purchases found in
the excel sheets and there are also certain expenditure which are
incurred by the assessee out of cash received by booking bogus
purchases shown in those excel sheets. These parallel profit and loss
account shows that assessee has incurred expenditure out of that cash
received by the assessee. It was further noted that assessee has
prepared a profit and loss account for each of the year, which also shows
the entries recorded in the books of accounts as well as the entries not
recorded in the books of accounts. Therefore, it shows that it is the
Page | 24
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
recording of the transactions of the assessee of the whole business
whether accounted for in the audited books of accounts or not. The
learned assessing officer has attached on illustrative basis such profit and
loss account of March 2014 as part of his order-vide annexure 1.
Further, the cash book of the assessee company was also attached as
annexure to the assessment order which shows that all these entries
have been accounted for in that particular cash book which records the
amount of cash received on account of the bogus purchases. Further
looking at the profitability statement of the assessee, it shows that it is
recorded on monthly basis where the sales are shown and total profit is
worked out. All the financial charges are also included therein. Above
chart of the profit and loss account up to March 2014 show that assessee
has incurred loss of 62,200,000/- for the financial year 2013 14. The
learned AO further rejected that the purpose and intent of maintaining
such profitability has not been clarified by the assessee. Naturally, this
projection is not for any other purpose such as bank et cetera otherwise
assessee would not have shown the losses but profits only. For this
reason, we do not believe that the statement is prepared for any other
purpose other than the actual result of business of the assessee for that
financial year.
20. Now coming to the reliability of the statements found during the course of
search from the computer hard disk, Vide para no. 5.3 of the order of
the learned assessing officer, he has rejected the argument of the
assessee that when the complete books of accounts of the assessee in
the form of various excel sheets have been found which shows that
instead of assessee earning profit from the operations, have in fact
actually incurred huge losses and as only real income can be taxed in the
hands of the assessee, no addition in the hands of the assessee is
warranted as actual profitability statement shows that it has incurred
Page | 25
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
huge losses. The reasons for rejection of the actual profitability statement
the learned assessing officer has stated that one employee, Shri Vinod
Kumar used to prepare the details of cash received and further from that
Shri Vishwas, another employee was preparing profitability statement. He
further held that, as according to the statement of Mr. Binod Kumar that
data found from his desktop are incomplete, therefore, the profitability
statement prepared by Shri Viswas could not be complete, as he might
not have access to the complete data from Mr. Binod. During the course
of assessment proceedings assessee submitted, that it is the actual state
of affairs of the business results of the assessee. Further assessee has
reconciled all the figures in the profitability statements found during the
course of search with the audited accounts and except few minor
differences here and there, it tallied. These facts have been disputed
neither by the assessing officer, learned CIT(A) nor by the learned
departmental representative. Such reconciliation statement for some
years is also produced before us by the assessee at page no B, C, D and
E of paper book filed before the learned CIT(A) containing written
submission of 27 pages and annexure B showing reconciliation statement
of difference between the actual profitability statement found in seized
excel sheets and audited profit and loss account filed. The paper book
also contains the actual profitability statement found and seized for the
assessment year. We have also perused the reconciliation statement. As
a sample, profit and loss account for assessment year 13-14 was
reconciled with the profit statement found from the hard disk. According
to the audited profit and loss account statement sales on account of
scrap sales not recorded in the audited balance sheet and further on
account of sales from the assessee to other sister concern M/s G D
Bakers of 10888540/. Further, there are certain trade discounts, which
are shown in the advertisement expenditure, are also adjusted.
Page | 26
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
Therefore, the assessee has reconciled the difference of 10049659/
being the difference in the turnover in the actual profit and loss account
as well as the audited balance sheet filed by the assessee along with the
return of income. Further in the operating revenue, assessee has not
shown the sales tax subsidy in the actual profitability statement and
further the interest income is recorded in actual profitability statement on
cash basis whereas in the audited balance sheet it has been shown on the
accrual basis. Therefore, assessee has also reconciled the operating
revenue income of the assessee. Further, with respect to the purchases,
assessee has reconciled to show that the difference in the purchases
because of that there is an unvouched purchases of 50376379/ which
has not been shown in the audited balance sheet and 10888540/
being sale to G D Bakers is also not considered in the profitability
balance sheet. Further, there are certain minor adjustments of goods in
transit. With respect to the freight and forwarding expenses also there is
a difference of Rs. 29563/ which has been reconciled by the assessee
on account of the timing difference because of the booking on accrual
basis and recording in the actual profitability statement on cash basis. All
other administrative expenses are also reconciled by the assessee to
show that that actual profitability statement as well as the audited
balance sheet does not have any difference except to the account of the
purchases debited by the assessee in the books of accounts and
corresponding expenditure incurred by the assessee out of those bogus
purchases. He further referred to reconciliation statement of the opening
stock which shows that as on 1/4/2011 the actual stock available with the
assessee was only 154,161,592/ whereas as per the audited balance
sheet the assessee has shown stock of 180832814/. It therefore
shows that there is a difference in the opening stock of the assessee
according to the actual profitability statement and the audited balance
Page | 27
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
sheet of 2,66,71,222/. Further, there was several cash expenditure
incurred by the assessee of 13954312 which are not recorded in the
audited balance sheet but are shown in the actual profitability statement.
With respect to the closing stock of the assessee, according to the actual
profitability statement assessee has shown the closing stock of
213,774,123/, whereas the audited balance sheet showed the closing
stock of Rs. 268,176,103/ which showed that the assessee has shown
the higher closing stock in the books of accounts to the tune of
5,44,01,980/ for the year. Therefore, it is apparent that assessee has
maintained the actual profitability statement for the consolidated
transactions of the business whether recorded in the regular books of
accounts or not. Therefore, the finding of the ld AO as well as the ld
CIT (A) that these documents are incomplete for the reason that full
data was not available from Mr. Binod Kumar to Mr. Vishwas is found to
be incorrect. Had that been the case, then the reconciliation shown by the
assessee before lower authorities was bound to be irreconcilable. That is
not the case. These has been conclusively shown by the assessee that
major revenue, non operating revenue, various expenses and other
charges are reconciled and assessee has also demonstrated the amount
of unrecorded expenses in the books of accounts. Further assessee has
also demonstrated that bogus purchases and scrap sales booked by the
assessee are carried forward in fictitious closing stock in books of
accounts higher than actual stocks available with the assessee. Therefore,
it cannot be accepted that merely because these statements have minor
infirmities they are incomplete. On such ground, these statements cannot
be rejected in toto. However we will come to our own observation on
these, excel sheets in later part of our order.
21. The next question that arises whether the profitability found during those
statements are required to be accepted or not. Further, if the addition is
Page | 28
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
deservedly made in the hands of the asesssee on account of Bogus
purchases and scrap sale's found in the excel sheets, then documents
which are found from the same hard disk wherefrom addition on
account of bogus purchases are made, cannot be ignored when same
are interlinked, correlated and reconciled. We do not find any reason that
when certain documents found from the hard disk are considered by the
assessing officer for enhancing the income of the assessee, what could be
the reason for ignoring other excels sheets found from the same hard
disk. It is also not correct approach that income portion from the
documents seized are taxed and closing the eyes towards the expenditure
part of such expenses. Hon'ble Delhi High Court in 349 ITR 85 (del) in CIT
versus Indeo Airways private limited on identical question about the
allowability of the claim of the assessee of expenditure found during the
course of search in seized documents but not recorded in the books of
accounts where the income is also recorded which has been taxed by the
revenue, has held as under:-
9. The above discussion reveals that consequent to the search, a sum in excess of
Rs. 3 crores was determined as the undisclosed receipts of the assessee ; it was
sought to be brought to tax. The assessee contended, inter alia, that if that were
correct, the other amounts shown as expenditure should be allowed as business
expenses. This was not upheld by the Assessing Officer, who disallowed the entire
amount. The Commissioner of Income-tax (Appeals) accepted the assessee's
contentions and directed deletion of a major portion of the disallowance. The
Revenue's appeal was rejected by the Tribunal, which, by the impugned order,
accepted the
Page No : 0093
assessee's cross-objection. The threshold point which this court has to decide is
whether the assessee is right in contending that since the Revenue has suffered
concurrent findings on questions of fact, no substantial question of law arises for
consideration by the court. There is authority for this proposition, in the form of
this court's judgment in CIT v. S. J. Knitting and Finishing Mills P. Ltd. [2004] 266
ITR 582, that in such circumstances, the findings of the lower authorities are to be
treated as pure findings of fact, and the reference consequently has to be
answered against the Revenue.
Page | 29
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
10. This court does not wish to rest its decision on the narrow ground of the
appeals involving pure issues of fact, especially since the parties made elaborate
submissions on the merits of the case.
11. In order to resolve the main issue in controversy, it would be relevant to
notice certain provisions of the Income-tax Act. The Explanation to section 37(1)
is relevant and reads as follows :
"37.(1) Any expenditure (not being expenditure of the nature described in
sections 30 to 36 and not being in the nature of capital expenditure or personal
expenses of the assessee), laid out or expended wholly and exclusively for the
purposes of the business or profession shall be allowed in computing the income
chargeable under the head 'Profits and gains of business or profession'.
Explanation.--For the removal of doubts, it is hereby declared that any
expenditure incurred by an assessee for any purpose which is an offence or which
is prohibited by law shall not be deemed to have been incurred for the purpose of
business or profession and no deduction or allowance shall be made in respect of
such expenditure."
12. Section 37 is a residuary provision and allows expenditure as deductible while
computing the income on the subject to fulfilment of these conditions :
(a) the expenditure should not be deductible under sections 30 to 36 of the Act ;
(b) the expenditure must have been incurred wholly and exclusively for the
purposes of the assessee's business ;
(c) it should not/must not be personal in nature ; and
(d) it should not/must not be capital in nature."
13. The Explanation to section 37(1) of the Act was inserted by the Finance (No.
2) Act, 1998, with retrospective effect from April 1, 1962, i.e., inception of the
Act. This appears to have been a public policy driven amendment, disallowing
deduction benefits in respect of illegal activities which could potentially be brought
to tax. The phraseology of the provision clarifies that if the (business or
commercial) activity is "an offence or which is prohibited by law" deduction, which
might otherwise be eligible to the benefit of section 37(1) would not be granted.
14. In the present case, the Assessing Officer and, to a certain extent, the
Commissioner of Income-tax (Appeals) appear to have proceeded, inter alia, to
disallow the heads of expenditure towards commission payments, sundry
expenses (termed "R") and green boxes expenses. As far as the "green boxes"
expenses are concerned, the assessee had relied on the books relied on by the
Revenue to assess the income, to urge that these constituted expenses entitled to
deduction. The Assessing Officer held these expenses to be excessive. The
assessee argues that once the Revenue seeks to draw a presumption, by relying
on section 132(4A) of the Act that the presumption has to be given full effect. In
other words, if the correctness of the contents of books and other materials is to
be presumed, such a deemed state of affairs would have to be assumed in respect
of all entries in the books, and not merely the entries of income (or receipts).
Page | 30
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
15. Section 132(4A) reads as follows :
"(4A) Where any books of account, other documents, money, bullion, jewellery or
other valuable article or thing are or is found in the possession or control of any
person in the course of a search, it may be presumed--
(i) that such books of account, other documents, money, bullion, jewellery or
other valuable article or thing belong or belongs to such person ;
(ii) that the contents of such books of account and other docu ments are true ;
and
(iii) that the signature and every other part of such books of account and other
documents which purport to be in the handwriting of any particular person or
which may reasonably be assumed to have been signed by, or to be in the
handwriting of, any particular person, are in that person's handwriting, and in the
case of a document stamped, executed or attested, that it was duly stamped and
executed or attested by the person by whom it purports to have been so executed
or attested."
As to the nature of the presumption, the Kerala High Court, in ITO v. T. Abdul
Majeed [1988] 169 ITR 440, held as follows (page 444) :
"It is true that section 132(4A) of the Act enables the court to presume the truth
of the contents of such books. However, it is a presumption which can be
rebutted. Moreover, the presumption envisaged therein is only a factual
presumption. It is in the discretion of the court, depending upon other factors, to
decide whether the presumption must be drawn. The expression used in the sub-
section is 'may be presumed' as is used in section 114 of the Evidence Act, 1872.
It is not a mandate that whenever the books of account are seized, the court shall
necessarily draw the presumption, irrespective of any other factors which may
dissuade the court from doing so."
16. In P. R. Metrani v. CIT [2006] 287 ITR 209 (SC) ; [2007] 1 SCC 789 the
Supreme Court elaborated upon the nature of presumption under section 132(4A)
and the scheme of the provision, in the following words (page 219 of 287 ITR) :
"Sub-section (4A) was inserted by the Taxation Laws (Amend ment) Act, 1975,
with effect from October 1, 1975, to permit a pre sumption to be raised in the
circumstances mentioned therein. Before the insertion of sub-section (4A) the
onus of proving that the books of account, other documents, money, bullion,
jewellery, etc., found in possession or control of a person in the course of a search
belonged to that person was on the Income-tax Department. Sub-section (4A)
enables an assessing authority to raise a rebuttable presumption that such books
of account, money, bullion, etc., belonged to such person ; that the contents of
such books of account and other documents are true, and, that the signatures and
every other part of such books of account and other documents are signed by
such person or are in the handwriting of that particular person.
Page | 31
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
Raising of such presumption has been enacted by the Legislature to enable the
assessing authority to make a provisional adjudication within the time frame
prescribed under section 132. Otherwise, it may not be possible to do so. The
object of introduction of section 132 is to prevent the evasion of tax, i.e., to
unearth the hidden or undis closed income or property and bring it to assessment.
It is not merely an information of undisclosed income but also to seize money,
bullion, etc., representing the undisclosed income and to retain them for the
purposes of realization of taxes, penalties, etc. Search and seizure is a serious
invasion in the privacy of the person. Section 132 which is a complete code by
itself provides that the money, bullion or the books of account, etc., should not be
retained unnecessarily and that the provisional assessment made under section
132 for the pur pose of retention of the books is passed within a specified time in
accordance with law. It provides that the books of account, money and bullion
which are not required are not retained unnecessarily thereby causing harassment
to the person concerned. In order to see that the assessment order is framed
within the time frame provided under section 132, the Legislature provided for a
rebuttable presump tion to be raised against the person from whose possession
and control the books of account, money, bullion, etc., are seized so that the
order can be passed within the time frame provided under section 132.
A presumption is an inference of fact drawn from other known or proved facts. It
is a rule of law under which courts are authorized to draw a particular inference
from a particular fact. It is of three types, (i) 'may presume', (ii) 'shall presume',
and (iii) 'conclusive proof'. 'May presume' leaves it to the discretion of the court to
make the pre sumption according to the circumstances of the case. 'Shall
presume' leaves no option with the court not to make the presumption. The court
is bound to take the fact as proved until evidence is given to dis prove it. In this
sense such presumption is also rebuttable. 'Conclu sive proof' gives an artificial
probative effect by the law to certain facts. No evidence is allowed to be produced
with a view to com bating that effect. In this sense, this is irrebuttable
presumption.
The words in sub-section (4A) are 'may be presumed'. The presump tion under
sub-section (4A), therefore, is a rebuttable presumption. The finding recorded by
the High Court in the impugned judgment that the presumption under sub-section
(4A) is a irrebuttable presumption in so far as it relates to the passing of an order
under sub-section (5) of section 132 and rebuttable presumption for the purpose
of framing a regular assessment is not correct. There is nothing either in section
132 or any other provisions of the Act which could warrant such an inference or
finding.
The presumption under sub-section (4A) would not be available for the purpose of
framing a regular assessment. There is nothing either in section 132 or any other
provision of the Act to indicate that the presumption provided under section 132
which is a self-contained code for search and seizure and retention of books, etc.,
can be raised for the purposes of framing of the regular assessment as well."
If the Revenue was of the opinion that the expenses claimed towards "green
boxes" was inadmissible or was excessive, or not genuine, in order to reject the
entries in the books of account and other documents of the assessee, seized
during the search, it ought to have relied on other mate rials. Having once drawn
the presumption that the contents of the docu ments (of the assessee) taken into
Page | 32
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
possession during the search were true, the Revenue could not have, consistently
with that presumption, pro ceeded to require the assessee to produce materials in
support of the expenditure entries. Such an inconsistent approach in respect of
the con tents of the same book appears to have been founded only on suspicion
that they were not genuine. However, suspicion cannot replace proof. Moreover,
the full effect of the presumption should be given effect to, whenever the statute
directs a particular non-existent state of affairs to be assumed (Ref. State of
Bombay v. Pandurang Vinayak Chaphalkar, AIR 1953 SC 244 ; Karnataka State
Road Transport Corporation v. B. A. Jayaram, AIR 1984 SC 790). In these
circumstances, the effect of the pre sumption (which bade the Revenue, when it
chose to invoke it, to presume that the "contents of such books of account and
other documents are true". Therefore, in the absence of any materials, in the form
of documents, the Revenue could not have denied the benefit of any expenses
which would otherwise have inured to the assessee, as an allowable deduction
under section 37(1).
17. So far as the heads of expenses are concerned, the Revenue was unable to
show how any of them were prohibited by law, or amounted to offences. The
assessee's business was to transport export goods, and ensure their door to door
delivery in Moscow. Confirmations had been received during the course of
proceedings, from some of the assessee's clients. The Assessing Officer himself
allowed some deductions ; which in turn implied that what aroused his suspicion
was the seemingly high level of expenditure. On this aspect, however, the
Commissioner of Income-tax (Appeals) held that the margin of profit, a little over
17 per cent., compared favourably with the general trend in the business. In view
of these facts, the Income-tax Appellate Tribunal, in the opinion of this court, did
not commit any error of law in holding that such expenses were deductible under
the main part of section 37(1) of the Act.
22. Further provisions of section 292C of the income tax act provides that:-
292C. PRESUMPTION AS TO ASSETS, BOOKS OF ACCOUNT, ETC
(1) Where any books of account, other documents, money, bullion, jewellery or
other valuable article or thing are or is found in the possession or control of any
person in the course of a search under section 132, it may, in any proceeding under
this Act, be presumed--
(i) that such books of account, other documents, money, bullion, jewellery or other
valuable article or thing belong or belongs to such person ;
(ii) that the contents of such books of account and other documents are true ; and
(iii) that the signature and every other part of such books of account and other
documents which purport to be in the handwriting of any particular person or which
may reasonably be assumed to have been signed by, or to be in the handwriting of,
any particular person, are in that person's handwriting, and in the case of a
document stamped, executed or attested, that it was duly stamped and executed or
attested by the person by whom it purports to have been so executed or attested.
Page | 33
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
(2) Where any books of account, other documents or assets have been delivered to
the requisitioning officer in accordance with the provisions of section 132A, then,
the provisions of sub-section (1) shall apply as if such books of account, other
documents or assets which had been taken into custody from the person referred to
in clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1) of
section 132A, had been found in the possession or control of that person in the
course of a search under section 132.
23. Therefore, in case of the documents found during the course of search in
possession of the assessee the presumption lies for all the purposes in
any proceedings under this act that contents of such books of accounts
and documents are true. The law nowhere provides that such
presumption is only available to the revenue. It also applies equally in
favour of the assessee also. If any party either revenue or the assessee,
would like to state otherwise, then they have to prove it with more
credible and strong evidences to prove contrary. It is not an inviolable
rule applicable to all situations and to all cases, that every seized
document should be corroborated before any addition can be made based
on it. If calculations and computations have been made in the seized
document in such a manner that its probative value and genuineness
cannot be doubted, nothing prevents the Assessing Officer from making
additions on the basis of such document despite the absence of any
corroboration. It must be remembered that in some cases it is difficult to
obtain corroboration, particularly of the type contemplated by the
revenue. It is not necessary that the seized documents should be in the
form of pro-per books of account so that they can be relied upon for the
purpose of making additions. They could be in any form, including loose
papers on which notings or scribbling have been made. Such is the view
taken by Honourable Delhi High court in case of 359 ITR 532 in CIT V
Sonal Constructions. Provision of law applies on all such documents found
during the course of search whether in favour of revenue or in favour of
assessee. Therefore such excel sheets found during the course of search
cannot be ignored even if in corroborated, incomplete etc.
Page | 34
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
24. The another argument of the learned AR is that for assessment year
200910 to assessment year 201314 are completed assessment on the
date of search and no incriminating documents indicating undisclosed
income was found during the course of search therefore the addition
made was unjustified and deserves to be deleted for those years. In the
present case, the search took place on 22/12/2014 in case of the
assessee. During the course of search, certain documents were found
from the computer of the assessee company in electronic form, which
clearly suggests that assessee has debited bogus purchases and
unaccounted sale of scrap in its books of accounts and therefore it cannot
be said that there is no incriminating found during the course of search.
According to us, those are the material, which can enhance the income
shown by the assessee in the original return of income. Therefore, there
is no reason to hold that those materials are not incriminating material
found during the course of search. Further, the learned assessing officer
has also made addition on account of bogus purchases and scrap sales
only. Therefore, this argument of the assessee deserves rejection at the
threshold itself.
25. The next argument of the assessee is that the learned assessing officer
has not examined Shri Vinod Kumar, ex- employee of the assessee
company whose statement was recorded during the course of search
proceedings. It is also stated that statement of Shri Biswas, another
employee of the company who prepared the actual profitability
statement, was recorded during the course of assessment proceedings.
These two statements have been used by the assessing officer against
the assessee for making the addition on account of bogus purchases as
well as on sale of scrap outside books of accounts. The grievance of the
assessee is that learned assessing officer has not granted an opportunity
for cross-examination of these two persons during the course of
Page | 35
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
assessment proceedings. The claim of the assessee is that it is trite law
that no material/statement can be used against the assessee, unless the
same is provided to the assessee for giving an opportunity to rebut the
same and to cross examine the person who statements have been used
from which the adverse inferences are drawn. In the present case, Mr.
Vinod Kumar and Shri Biswas both are the employees of the assessee
company at that particular relevant time. The statement of the employees
was recorded during the course of search. If the assessee was at all
aggrieved with the statement of Shri Biswas and Shri Binod Kumar, then
during the course of assessment proceedings, assessee should have
produced them before the assessing officer as its witness to show that
the statement made by them is incorrect. No such efforts have been
made by the assessee, but to scuttle the process of determination of the
income of the assessee, such arguments are raised. We have also not
been shown any request by the assessee to the assessing officer for
cross-examination of these two persons. In no submissions produced
before us, it was shown that the statement of Shri Vinod Kumar and Mr.
Biswas was incorrect, containing factual inaccuracies. Therefore, we do
not find any merit in this argument of the assessee.
26. Vide para no 14 (xx) of his submission, ld AR mentioned that if the
purchases are found to be bogus and if the sales are recorded in the
books of accounts then the addition can only be made with respect to the
gross profit to that extent. He submitted that quantitative details of the
assessee are undisputed. He submitted that addition even otherwise of
the whole amount is unjustified. He also referred to plethora of decision.
We reject these arguments of the assessee, as it is fact that assessee has
booked bogus purchases and shown sales of scrap in the books of
accounts lesser than what it should have been. There are no quantitative
Page | 36
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
details matching with the sales details. In fact there is an excess stock of
goods in the books than the actual physical stock of goods. Various
decision cited by the ld AR in that para are on facts of those cases, we
have perused them and find that those are not applicable to the facts of
the case before us. Hence, we reject this plea of the assessee.
27. Now the real issue arises that in seized documents assessee has shown
losses in some assessment years and profits in some assessment year.
Further, for some assessment years though excel sheets were found
during the course of search; however, copies of the same were not given
to the assessee for reconciliation. For example for assessment year
201213 the return of income shows income of the assessee of
2,44,32370/, whereas from the documents found during the course of
search the income of the assessee is shown at 62,79,097/. For
assessment year 201314 the income of the assessee as per income tax
returns is Rs. 2,70,88,070/- whereas as per the seized documents the
assessee has incurred the losses of 7,57,03,890/. For assessment year
201415 the return of income shows income of the assessee of
36224350/- whereas the documents seized shows the loss of
622,90,793/-. Further for assessment year 201516 the assessee has
shown income as per the return of income of 21315300/, whereas no
similar documents were found during the course of search. For
assessment year 200910 to Assessment Year 201112, the seized
documents were found but same were not provided by the assessing
officer to the assessee. During the course of hearing before us, no such
documents were produced by revenue before us. Assessee has also
shown us many reminders to AO for providing such copies but same
were not responded to by the AO. It is also not the case that revenue has
denied at any time that no such statements were found and seized. Even
the copy of the hard disk was also not provided to the assessee, as
Page | 37
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
stated. Letters dated 26/09/2016 placed at page no 290 of the paper
book as well as letters dated 28/12/2106 placed at page no 478 to 479
of the paper book were relied up on very heavily by the LD AR. Before
CIT (A) this was agitated by the assessee, which is evident from page
no seven of the order of the ld CIT (A). Therefore, in view of the above
facts it would be fruitless exercise to set aside the additions made by the
lower authorities for those years.
28. Now the next issues is pertaining to Ground no 5 of the appeal of the
assessee which is also interlinked with the ground no 4 as the bogus
purchases as well as the sales of scrap both were recorded in those
excel sheets which were seized during the course of search. The overall
profitability found during the course of search in those documents also
shows that while deriving the profit, assessee has considered the sale of
scrap in those statements. Assessee has claimed that it has also been
spent for the purposes of the business. These facts are evident from the
seized documents found during the course of search. The option of
dealing the scrap sales issue independent of bogus purchases is not
appropriate for the reason that in overall profitability, assessee has
shown loss as evidenced by those statements. Sale of scrap is also the
business income of the assessee and documents seized shows that
assessee has incurred losses in the business. Further, similar efforts are
also required to be made by the assessee in selling scraps out of the
books. Further, the money generated out of sale of scrap is also used
purportedly by the assessee for incurring expenditure for the business of
the assessee. Therefore, according to us, scrap sales cannot be taxed
separately for those reasons, but have to be clubbed together with the
issue of Bogus Purchases and incurring expenses from the common pool
of cash generated.
Page | 38
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
29. Now coming to the issue of determination of income of the assessee on
the basis of twin transactions of booking of bogus purchases in the
regular books of accounts and not recording sales of scrap in the regular
books of accounts , and use such cash allegedly for incurring expenses
for the business purposes of the assessee. If the excel sheets found
during the course of assessment proceedings are taken for determination
of income, it will show that for AY 2102-13 , 2013-14 and AY 2014-15
, the profitability statements shows huge difference i.e. For AY 2012-13
the returned income is Rs. 2.44 crores where such seized documents
shows income of merely Rs 62.97 Lakhs, For AY 2103-14 the returned
income is 2.70 Crores where as the seized documents shows loss of Rs
7.57 Crores, for A Y 2104-15 the returned income is Rs. 3.62 Crores
whereas the seized documents shows loss of Rs. 6.22 crores. Further for
AY 2009-10 to 2011-12 , the revenue has not provided such seized
documents to the assessee nor before us, therefore it is not known to
either of the parties about the variance between the income returned and
profit/ loss shown for that years in those seized documents. On specific
queries, such statements were not produced. For AY 2015-16, no such
material was available with the revenue as well as with assessee; it was
also not found during the search. However, the modus operandi remains
the same for that year too. Further, the breakup of the expenses incurred
by the assessee out of the books to the parties to whom it is paid is also
not made available. Merely the heads of such expenses are available. For
this reason it cannot also be fully verified and vouched that all the
business expenditure are for the purposes of the business and are
allowable under the scheme of computation of income under the head
profits and gains of the business and profession. Further, for many
Assessment years the income of the assessee would be below the
returned income of the assessee, if such excel sheets are considered.
Page | 39
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
Further, the appeals before us are emanating out of search proceedings.
The search proceedings cannot result in to the benefit to the assessee.
Such is also not the case, and the issue before the Honorable Delhi High
court in 349 ITR 85 as in that case the income found during the search
was much higher than the expenses claimed resulting in to net taxable
income increased during search. Therefore, so far that issues of
computing the income, that decision does not help the case of the
assessee. The honorable Supreme Court in case of Sun Engineering 198
ITR 297 has held so in respect to the reassessment proceedings u/s 148
of the Act. Proceedings u/s 148 and section 132 of the Act are for the
benefit of revenue therefore similar principles applies to it also.
Proceedings u/s 153A and subsequent section deals with taxation and
computation of undisclosed income found during the course of search,
which naturally cannot be the loss. We also have other reason for
showing infirmities in those statements when we consider computation
aspect. Assessee is undisputedly engaged in booking bogus purchases.
For booking bogus purchases, assessee has to compensate other parties
with commission for issuing the bogus bills. If the same is also through
the agents, then the commission rates are higher, we did not find any
such expenditure in those statements found during the course of search,
and therefore it is not possible to ascertain that what amount of
expenditure has been incurred by the assessee in obtaining those bills.
Further, some of the bills are containing the component of excise duty
and sales tax. Assessee has taken credit of those sums in its books of
accounts while discharging its obligation under those laws, however
closing stock is also required to be increased by the adequate amount of
duties and taxes. Further assessee has handled the cash generated out of
bogus billing as well as the sale of scrap, handling of cash also involves
some expenses .These expenses did not find any mention in those
Page | 40
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
statements. Further, it is also the trite law that real income embedded in
these transactions is required to be taxed. During the course of search,
the assessee was found to be having goods in its possession of Rs.
28,89,38,712/- where as the book stock was Rs. 50,20,83712/- , thereby
resulting in to a difference of Rs. 21,31,45,000/-. The addition on account
of bogus purchases is made for AY 2009-10 to 2015-16 is Rs.
24,22,96,780/-. Further, vide letter dated 12-12-2105 assessee has
pointed out that during the course of search, 11 different units of
assessee company were covered. It was further stated that there were
many discrepancies/ variations in the valuation, counting of the quantities
of stock brought to the notice of the search team. It was stated that in
the Punjab unit no stocktaking of raw materials, packing material and
consumable item was carried out. In respect to Tronica units for Soya,
there was proper stocktaking, however for noodles unit no stocktaking of
finished goods material was carried out. In Semiya unit, there were
several errors in counting such as semi finished goods were not at all
counted. Packing material were also in packed conditions were ignored.
Further with respect to Matiala and swaroop Nagar Unit, physical
verification of finished goods was not carried out. At Neemrana, no
stocktaking of semi finished goods and packing material was carried out.
Further, at Delhi unit stocktaking of finished goods was not carried out.
All these facts were pointed out before the Deputy Director
(Investigation) long back in December 2015. However, there is no
response from either the investigation wing or the learned assessing
officer. In view of this, the stock physically verified also cannot be looked
at with sacrosanct eyes. If the above discrepancies are rectified perhaps
it may show the correct picture of difference between, the stocks
physically held by the assessee and carried on in the books. However as
the situation stands today, the assessee has lower physical stock
Page | 41
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
available with him then what is carried in the books of accounts.
Therefore, it is possible that the bogus purchases by the assessee and
excess stock in the books of the assessee compared to the physical stock
are more or less of similar amount. Further, the ld Departmental
Representative stated that debiting of the bogus purchases in the profit
and loss account, not recording scrap sales in the books of accounts, and
carrying the equal or some similar amount in the closing stock, is not
profit neutral , as at some point of time assessee is claiming the bogus
purchases booked in one year carried on in the stock in trade in the same
year, which becomes the opening stock of the next year. Therefore, in the
next year the equal amount of opening stock is claimed deduction. This
argument of the ld DR is not acceptable because at this moment assessee
shows higher opening stock in its profit and loss account, it has an
obligation either to show the sales or to carry the same in the closing
stock. If the assessee shows the sales, resultant profit is credited in the
profit and loss account. If the assessee carries the same in closing stock,
for that year it becomes profit neutral, as the closing stock is once again
inflated by the bogus purchases debited in the earlier year. Similar is the
situation placed before us, as the excess stock held by the assessee in its
books of account is almost similar to the total bogus purchases booked by
the assessee in all those years. Hence this argument of the learned
departmental representative cannot be accepted. It could not be shown
to us that in this situation how the profit of a particular year is impacted.
Therefore, it is now clear that both the amount debited of Bogus bills of
purchases and sale of scraps nor the income stated in the excel sheets
found during the course of search can be taken as the real income of the
assessee. Both the extremes are required to be rejected for the reason
given herein above. As we have already held that for obtaining the
invoices for purchase of goods without receiving the material, receiving
Page | 42
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
cash back from the suppliers, deploying the same cash for the purpose of
incurring various expenditure, the activity of not booking the expenditure
in its books of account i.e. incurring expenditure without obtaining bills et
cetera, all these activities have expense built in as cost in it. Neither the
assessee nor the learned AO, has shown us that what kind of expenditure
is involved in these activities. In the seized document also neither of the
parties could show us the element of such expenditure. Therefore, we do
not have any alternative but to estimate such expenditure on bogus
purchases and scrap sale, which is required to be taxed in the hands of
the assessee. Generally, the expenditure of all these activities would be
ranging between 5% to 10%. Further, on the purchases booked by the
assessee, it has already taken credit of sales tax and excise duty charged
therein therefore to that extent its profit has also impacted as same is
required to be carried forward in the closing stock inclusive of the duty.
Further as the scrap sale has also been shown by the assessee part of the
seized documents, where the overall profitability has been shown, there
cannot be any separate addition on account of the scrap sales to the
trading result of the assessee. It has to be subsumed in the activity of
overall profit determination because of bogus purchases and scrap sales
are part of the profitability statement found and seized during the course
of search. In the present case, it is not disputed that any cash or other
valuable items were found from the search wherein it could be assumed
that cash derived from bogus purchases and scrap sales have been
invested in other assets, which are not accounted for. Further this is not
the case where assessee has debited the purchases from the parties
different from the parties from whom goods have been received from
other parties. This is the case where assessee has booked the bogus
purchases and cash utilized for incurring the expenditure, which are not
recorded in the books of accounts. The evidence with respect to receiving
Page | 43
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
the cash back from the parties from whom purchase bills were obtained
was found and evidences of incurring expenditure from that cash
generated was also found. During the course of assessment proceedings,
the audited profit and loss account with the profit and loss account seized
and found during the course of search were reconciled. The excess of
stock was also shown in the closing stock as inventory, compared with
the actual stock to the extent of bogus purchases booked. All these
combined facts were found during the course of search. Generally in case
of Bogus Purchases two types of additions have been judicially sustained.
Firstly, Gross profit percentage rates are generally applied by courts when
goods purchased from parties other than the parties whose bills are
recorded in the books of accounts and consequent sales are fully recorded
in the books of accounts of those goods. Secondly in case where it is
found that there is no receipt of goods but assessee has merely booked
bogus purchases and taken away the money and created unaccounted
assets, then addition of the whole amount of bogus purchases are made
as assessee takes that money for utilization in other assets out of the
books of accounts. This case before us is different from both the above
types of cases. In the present case there is no purchase of goods from
the parties whose bills are booked as bogus purchases , hence no goods
from parties other than the parties whose bills are booked is received.
Assessee has shown the bogus purchases as fictitious excess closing
stock to that extent in the books for showing good profit. Cash generated
out of Bogus purchases is used for incurring expenses of dealers. Amount
received in cash is not utilized for creation of any asset but such income
has been expended by the assessee for the business purposes. Further,
no assets were also found unaccounted during the course of search.
Therefore, both the above types of addition are not appropriate in facts
and circumstances before us. Then the issue arises that whether there
Page | 44
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
could be any addition or if yes, what could be the addition/ or adjustment
to the total income of the assessee in such cases. It cannot be disputed
that only real income of assessee is required to be taxed. It is further
undisputed that if the assessee has shown higher profits in return of
income than actual profits/ losses incurred by the asssessee in its
business, that cannot be substituted in search cases. Hence, only addition
that can be made is appropriate percent of bogus purchases booked and
sale of scrap outside the books by the assessee of unaccounted
expenditure, which has been incurred, by the assessee for carrying out all
these activities. Therefore, in view of above, we hold that only the profit
element embedded therein or unaccounted expenditure not disclosed in
the seized documents is required to be added to the income of the
assessee. In view of our above finding, we hold that it will meet the ends
of the Justice, if unaccounted expenditure incurred in the whole activity is
charged to tax at the rate of 8% of the total bogus purchase and scrap
sales found in the seized material. For the year the assessee has been
found of accounting bogus purchases of Rs. 4,96,44,574/- and
unaccounted scrap sale of 48,68,267/ totaling to Rs. 54512841/-,
therefore, unaccounted expenditure at the rate of 8% thereof amounting
to 43,61,027/- is required to be taxed over and above the income
shown in the return of income of the assessee. Accordingly, ground
numbers 1 to 5 of the appeal of the assessee are disposed off allowing
appeal of the assessee partly.
30. In the result, appeal filed by the assessee for assessment year 2014 15
in ITA number 1180/del/2018 is partly allowed.
31. Now we come to the appeal of the learned assessing officer where the 1 st
ground of appeal is that on the facts and in the circumstances of the
case, the ld CIT(A) has erred in law and on facts in deleting the addition
of Rs. 29,79,37,366/- on account of undisclosed sales, which was arrived
Page | 45
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
at by the AO on the basis of matching of data retrieved from seized
server and disclosed sales.
32. The brief fact of the issue shows that during the course of search a server
was seized. On perusal of the data contained therein, it was found that
purchases and sales made at Neemrana and Delhi shows higher
purchases and sales. Accordingly the learned assessing officer noted that
Assessee Company is involved in unaccounted sales and purchases. On
query to the assessee, it was informed that these are the stock
transferred from branches and as there is no financial value attached to
it-audited balance sheet does not show these items as purchases and
sales. The learned AO noted that assessee could not reconcile the
difference between the figures disclosed in the audited balance sheet with
the figures shown in the data. During the course of search, statement of
Shri Nitin Sheth was recorded on 16/2/2015 wherein it was stated that
voluminous invoices mostly in triplicate relating to inter unit transfer of
finished goods to Neemrana and Matiala was found and seized. He was
asked to explain as all the copies of invoices duly stamped are found in
his premises, which he did not offer any explanation. Therefore, the
learned AO noted that assessee is engaged in unaccounted sales and
purchase and generating unaccounted income. He therefore held that in
the books of account of the assessee did disclosed sales of Rs.
183,84,68,356/ whereas as per the server data same is
2,95,64,32,205/ and therefore undisclosed sales of Rs. 1,11,79,63,849/-
and gross profit rate therein of 26.65%, the addition was made of Rs.
29,79,37,366/. Further, he the noted that there are multiple data
retrieved which shows that purchases in cash were booked by the
assessee in excess of 20,000 each. Therefore he held that assessee is
engaged in unaccounted purchases of Rs. 29,06,805/ . He further held
that during the course of search annexure A-23 it was noted that one of
Page | 46
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
the employees of the company is showing part of the sales by cheque and
part of the sales in cash. Therefore annexure A-23, he held that assessee
is booking only one third of the sales in the regular books of accounts. He
further referred to the statement of Shri Vinod to support his addition of
29, 79, 37, 366/
33. The assessee aggrieved with the order of the learned AO preferred an
appeal before the learned CIT A. The learned CIT appeal dealt with the
whole issue as under:-
"7. Ground no.6 relates to contention of the appellant against
addition of Rs.29,79,37,366/- made by the AO on account of
undisclosed sales. The fact of the case is that an invoice no.E-24
dated 01.12.2014 issued from M/s GD Food Manufacturing India P.
Ltd. Plot no.204, Tronica City, Ghaziabad which was raised to M/s GD
Food Manufacturing India P. Ltd., Neemrana in triplicate was found.
All the three invoices were found from the office premise whereas
one counter foil of the invoice should have been at designated place
but all the three were lying in the corporate office. There was wide
gaps in maintenance of stock transfer invoices and since there was
irregularities found in stock transfer invoices vis-a-vis maintenance of
stock, statement of Sh. Nitin Seth was recorded but the same was
not found to be satisfactorily. The AO had also noticed evidences of
cash purchases/sale. The AO noted that the appellant was engaged in
the practice in suppressing its sales. Evidences of cash receipt in
other forms were also noticed. Further, in the Annexure A-23 (party
A-9) seized during the search action, it was noticed that only one
third sale of the bakery product manufactured by M/s GD Sakers P.
Ltd. which were exclusively purchased and sold by the appellant were
recorded in the books of accounts, the balances two third sale was
made out of aooks, thereby, the appellant would have followed the
same modus operandi for other products also. Evidences of
unaccounted cash expenditure in the form of rent was also found. It
was also noted that the appellant made huge payment as impress
and the same was utilized for cash purchases and unaccounted
Page | 47
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
expenditure. Substantial receipt were also recorded in the Imprest
account. In view of above facts, the AO concluded that there was
undisclosed sale made by the appellant, figures of the same was
worked out on which QP @26.65% was calculated and accordingly,
addition was made.
7.1 However, the appellant has submitted :
"............ Estimation of undisclosed sales without rejecting the books of
accounts is not permitted
While the books of account of the appellant had not been rejected,
the Id. Assessing Officer has erred in resorting to an estimation of
income and such exercise undertaken by them was not sustainable.
i. Section 145(3) lays down that the Id. AO can proceed to make
assessment to the best of his judgment under section 144 only in the
event of not being satisfied with the correctness of the accounts
produced by the assesse.
ii. The Id. Assessing Officer has not made out a case that
conditions laid down in section 145(3) are satisfied for rejection of
the books of account. Thus, when the books of account are
maintained by the assessee in accordance with the system of
accounting, in the regular course of his business, same would form
the basis for computation of income.
iii. Once the Id. AO decides not to reject the books of accounts,
the books of accounts are expected to be maintained in the
prescribed accounting standards and hence the Id. AO cannot make
any estimation of undisclosed sales to be outside the the books of
accounts.
iv. There is plethora of decisions wherein it has been held that
estimation of income by the Id. AO without rejecting the books of
accounts of the assesse is not permitted.
Reliance is placed on the following (Copy of decision is enclosed)
a. Commissioner of Income-tax-9, Mumbai v. Teletronics
Dealing Systems (P.) Ltd [2015] 53 taxmann.com 20 (Bombay);
Page | 48
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
b. Commissioner of Income-tax, Belgaum v. Anil Kumar & Co
[2016] 386 ITR 702 (Karnataka);
c. Commissioner of Income-tax vs. Pashupati Nath Agro Food
Products Pvt. Ltd. ITA No. 165 of 2010;
d. Amarjit Singh v. Income-tax Officer, Ward-1, Phagwara
[2017] 81 taxmann.com 444 (Amritsar - Trib.);
e. Assistant Commissioner Of Income-Tax v. Trilok Chand
Khetwat [2001] 114 TAXMAN 124 (CAL.)(MAG.);
f. Assistant Commissioner of Income-tax, Central Circle 2(1), Pune v.
Intermedia Cable Communication (P.) Ltd [2012] 19 taxmann.com
190 (Pune);
g. Jai Pulse Mills v. Income-tax Officer, Ward 3(4), Ahmedabad
[2010] 39 SOT 312 (Ahmedabad);
h. P.M. Abdul Razak v. Income-tax Officer [1997] 63 ITD 398
(COCH.);
i. Gayotri Oil Mills v. Assistant Commissioner of Income-
taxBerhampur [2012] 23 taxmann.com 186 (Cuttack - Trib.);
j. Assistant Commissioner of Income-tax, Circle-1 v. Ercon
Composites [2014] 49 taxmann.com 489 (Jodhpur - Trib.).
FACTUAL ANALYSIS
Re: Stock transfer is not undisclosed sales
Procedure for stock transfer:-
Movement of goods
a. The appellant operates from four different states and had
different units in Delhi, Rajasthan, UP and Punjab.
b. The company had its manufacturing units at SSI-32 (Delhi),
Neemrana (Rajasthan), Tronica City (UP), Khadur Sahib (Punjab);
c. The distribution depots were situated at Matiala (Delhi) and
Neemrana (Rajasthan).
Page | 49
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
d. In order to sell its products, the company used to transfer its
finished goods, Semi finished goods and raw material to its
distribution depots from its different manufacturing units.
e. For example:-
- Pickles (finished goods) were manufactured in SSI-32 and were
transferred to Neemrana as well as Matiala distribution depots;
- Vermicilli (finished goods) were manufactured in Tronica City and
were transferred to Neemrana distribution depot;
- Soya Sauce (semi-finished goods) were produced in Tronica City
and were transferred to Neemrana, after further processing the same
were sold directly from Neemrana as well as again transferred to
Matiala sale depot; Sugar (Raw material) was purchased at SSI-32,
Delhi and the same was transferred to Neemrana unit for its
utilization under the production unit. Accounting for stock transfer
f. The assessee company prepares consolidated accounts after taking
accounting data of units located at four states i.e Delhi unit,
Rajasthan unit, U.P unit and Punjab unit;
g. for Sales Tax purposes, the assessee company prepares
state-wise profit & loss account and balance sheet, this is due to
different mechanism for sales tax collection followed by each states;
h. In the state-wise profit & loss a/c, sales and purchases
include stock transfer inwards and outwards whereas in consolidated
accounts, amount' of stock transfer gets nullified;
i. The data in chart reproduced at page no. 24 of the order pertains to
Delhi unit and Neemrana unit. The purchases made at these two
units include purchase of raw material, finished goods etc. Similarly,
sales include sales made to the customers as well as stock transfer to
the other depots. (Refer detailed submissions enclosed in respect of
stock transfer)
Addition made is completely devoid of merits & on facts
v. The Ld. AO has ignored the detailed submissions / details /
reconciliations made by the appellant in relation to the stock transfer.
Page | 50
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
vi. The AO has ignored the very basic fact that the company had
to transfer its stock to/from its various distribution depots.
vii. The Ld. AO assumed that the appellant has made undisclosed
sales & purchases in the form of stock transfer even after
understanding the complete procedure of stock transfer & due
verification of the same.
viii. Moreover, the Ld. AO picked up the total amount of sales
from the data sized from the server (reproduced at pa 24 of the
order) and on the other hand ignored the corresponding amount of
purchases from the same data;
ix. The Ld. AO has taken a one sided approach and has ignored
the other part of the transactions and resorted to estimations of
income of the appellant.
x. The entire flow of how stock transfer takes place is enclosed.
Re: deleting of old records
xi. The Ld. AO has relied upon a document in party A-9;
Annexure A-8 page 20 which was a sheet of paper in the notepad
maintained by Mr. Sunil Puri (Manager Finance). The said instruction
was noted by him as an action point;
xii. Following instructions were noted in the scanned copy
referred by the Ld. AO on page 27 of the order:
1) Books re-write - Delhi & NMR
2) Server format
a) Back up of all data
b) Restore relevant data
xiii. The company maintained a server in its corporate office at
Janakpuri and all the accounting systems (nodes) were connected to
such server. Company used to maintain its books of accounts on
Busy accounting software;
Page | 51
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
xiv. In order to generate the correct reports, the assessee was
required to refresh the data by rewriting the data in Busy software
due to the small capacity of the server;
xv. Under the aforesaid instructions, relied upon by the AO
(reproduced above) nowhere "delete the data" has been mentioned;
xvi One fails to understand that, if the assessee had an intention
of deleting/ discarding its old data, then why he would have
mentioned to back up the data, restore relevant data, restore other
data on node".
xvii. The Ld. AO has ignored this fact even after seeking
clarifications from the appellant in relation to the aforesaid.
Re: unaccounted purchases through imprest accounts
xviii. The Ld. AO has ignored the detailed submissions made by the
appellant in relation to the show cause notice dated 19.12.2016;
(copy enclosed at pg 459)
A detailed chart showing imprest amount of employees as per the
excel sheets of Binod Kumar and the imprest amount as per the
audited books of accounts was filed before the Id. AO.
- The reasons for minor difference in some entries were duly
explained to the Id. AO. It was explained that Binod Kumar used to
record the imprest amount in his excel sheets, he would not follow up
with the fate of the imprest amount in the audited books of accounts
and there may be instances where cash may have been returned or
the difference would have been paid to the employee.
- A complete reconciliation of the amounts referred by the Id. AO
having been paid to Mr. Jitendra Chaudhary reflecting the amounts
recorded in the audited accounts and that paid in the accounts
maintained by Mr. Binod Kumar was filed before the Id. AO.
xxi. The Ld. AO resorted to estimations by ignoring the fact that
the entire amount of imprest account was duly considered under the
audited books of accounts. (Copy of letter / details is enclosed at pg
403,459,475 & 481)
Page | 52
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
- Appellant vide its letter dated 27.12.2016 submitted a detailed
flowchart along with documentary evidence found during the course
of search in respect of recording of transactions by various
individuals;
- Complete mode and manner of recording the imprest transactions
and defraying of expenses through imprest accounts was duly
explained to the Id. AO.
Re: booking of only l/3rd sales
xxii. The unaccounted 2/3rd sales pertained only to the cookies
manufactured by G.D. Bakers Pvt. Ltd and the same were duly
accounted for in the actual profitability statement maintained by Mr.
Biswas;
xxiii. Not even a shred of paper has been found during the course
of search to even remotely suggest that unaccounted cash was
received on account of sales in any other product. Even the Ld. AO
has not referred to any document relating to the company;
xxiv. The Ld. AO assumed & presumed that the company is
involved in booking only l/3rd part of its entire sales and ignored the
detailed submissions made by the appellant, (copies attached at PB
pg 468, 368 & 369)
xxv. In search related proceedings, there is no room for
presumptions & suppositions. All the vouchers recording 2/3rd sales
find place in the actual profitability statement found during search.
(Reconciliation PB Pg. 1)
Reliance is placed on the following (Copy of decision is enclosed)
a. Commissioner of Income-tax v. Anand Kumar Deepak Kumar
[2007] 160 taxman 206 (Delhi);
b. Deputy Commissioner of Income-tax v. Narendra Garg &
Ashok Garg (AOP) [2016] 72 taxmann.com 355 (Gujarat)
Re: unaccounted cash expenditure in the form of rent
Page | 53
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
xxvi. Rent paid in cash for the Factory SSI 32 in different
assessment years were duly accounted for in the actual profitability
statement maintained by Sh. Biswas; hence this expense is
accounted for (Reconciliation PB Pg. 13); xxvii. The Ld. AO has
ignored all the submissions made by the appellant in relation to the
rent expense incurred in cash. (Copy attached at pg 466 & 467);
Contemporary evidence & provisions of Section 132(4A) of the Act
were ignored
i. The contemporary & conclusive evidence in the form of excel sheet
recordings and monthly profitability statements giving the real /
actual profitability found in the computers seized during the course of
search were ignored and instead estimation was resorted to.
ii. Reliance is placed on the provisions of section 132 (4A) of the
Act wherein:
a. It has been very clearly stated that whenever a search takes
place, the documents vouchers or any evidence found is believed to
be correct and true unless the contrary is proved;
b. This is a deeming fiction and has to be accepted in totality;
c. If cash income is found and there is cash expense as well,
the expense has to be netted of and cannot be ignored.
iii. Further reliance is placed on the following decision of Hon'ble
Supreme court & Delhi High Court (Copy of the judgment is
enclosed)
a. The State of Bombay vs. Pandurang Vinayak Chaphalkar and
others 1953 AIR 244;
b. Karnataka State Road Transport v. B.A. Jayaram and Others
1984 AIR 790;
c. Commissioner of Income-tax v. Indeo Airways (P.) Ltd
[2012] 26 taxmann.com 244 (Delhi HC)
Determining hypothetical income has no place in Income-tax Law
Page | 54
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
iv. The Ld. AO has overlooked the actual profitability statements
submitted by the appellant during the course of assessment
proceedings.
v. Estimation were resorted to even though all the so-called
undisclosed sales and expenses etc. found recorded in the actual
profit and loss account made by Mr. Biswas and found during the
course of search.
vi. Each and every alleged unexplained entry was a part of the
actua P&L account found in the seized computer but the Ld. AO chose
to ignore :e very important fact and resorted to estimation of
income.
vii. The Ld. AO has ignored the fact that it is the real income that
has determined and there is no scope of creating any fictional and
assumes income.
VIII. There is plethora of decisions wherein it has been held that
estimation of undisclosed sales in the absence of corroborative
material found during re-course of search is not permitted.
Reliance is placed on the following (Copy of the same is enclosed)
a. Commissioner of Income-tax v. H.C. Chandna (P.) Ltd. [2008]
299 ITR 41? (Delhi);
b. Commissioner of Income-tax v. Dr. M.K.E. Memon [2001] 248
ITR 31C (Bombay);
c. Commissioner of Income-tax v. Lachman Das Bhatia [2012]
26 taxmann.com 167 (Delhi);
d. Commissioner of Income-tax v. Pradeep Goel [2008] 174
TAXMAN 421 (DELHI);
e. Deputy Commissioner of Income-tax v. Royal Marwar Tobacco
Product (P.) Ltd. [2009] 120 TTJ 387 (Ahmedabad)
Ad-hoc addition is not permissible in law
Page | 55
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
IX. The Ld. AO has made several additions to the income on pro
rata basis by estimating the sales of the appellant on ad hoc basis.
x. It is trite law that no addition on ad-hoc basis can be made.
xi. Reliance is placed on following decisions (Copy of decisions is
enclosed)
a. National Industrial Corpn. Ltd. v. Commissioner of Income tax
[2002] 258 ITR 575 (DELHI HC);
b. Friends Clearing Agency (P.) Ltd. v. Commissioner of Income-
tax-ll [2011] 332 ITR 269 (Delhi);
c. K.J. Arora v. Deputy Commissioner of lncome-tax-[2009] 180
TAXMAN 131 (DELHI) (MAG);
d. Continental Device India Ltd. v. Additional Commissioner of
Income-tax, Range 3, New Delhi [2015] 63 taxmann.com 364 (Delhi
- Trib.);
e. UEM India (P.) Ltd. v. Additional Commissioner of Income-tax
[2015] 53 taxmann.com 387 (Delhi - Trib.)
Critical information from the seized computers was not provided
xii. During the course of search, certain computers / hard disks
were seized from various premises of the appellant.
xiii. Out of the data seized for AY 2009-10 to 2015-16, only the
information pertaining to AY2013-14 to 2015-16 were provided to
the appellant.
xiv. Balance critical information from the computers seized during
the course of search in respect of AY 2009-10, 2010-11 & 2011-12
were not furnished despite repeated requests made by the appellant.
xv. The Ld. AO is duty bound to provide each and every
information available with him to the assessee.
xvi. Reliance is placed on following decisions (Copy of decisions is
enclosed)
Page | 56
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
a. Kishinchand Chellaram v. Commissioner of Income-tax
(1980) 125 ITR 713 (SC);
b. Additional Income-tax Officer v. Ponkunnam Traders [1976]
102 ITR 366 (Kerala);
c. Babcock Power (Overseas Projects) Ltd v. Deputy
Commissioner of Income- tax [2003] 131 Taxman 86 (Delhi) (Mag.)
ITA No. 1388 and 1389 (Delhi) of 1993;
d. Smt. Surjeet Kaur v. Income-tax Officer [2001] 119 Taxman
33 (Hyd.) (Mag.) ITA No. 354 (Hyd.) of 1996"
7.2 I have considered the facts and circumstances of the case,
submission of the appellant and perused the assessment order. It
was submitted that the appellant company prepares its accounts as
per Accounting Standards prescribed by the Companies Act. As per
the requirement of the Companies Act, the appellant company
prepares consolidated accounts after taking accounting data of units
located at four states i.e Delhi unit, Rajasthan unit, U.P unit and
Punjab unit. Moreover, for sales tax purposes, the appellant
company prepares state- wise profit & loss account and balance
sheet. The second requirement is due to different mechanism for
sales tax collection followed by each state. The consolidated as well
as state-wise accounts, both, are audited accounts. The difference
between the two is that, in state-wise profit & loss a/c, sales and
purchases include stock transfer inwards and outwards whereas in
consolidated accounts, amount of. stock transfer inwards and
outwards gets nullified. The data in chart reproduced at page no. 24
pertains to Delhi unit and Neemrana unit only. As explained above,
the purchases made at these two units include purchase of raw
material, finished goods etc. and also stock received by way of
transfer from branches. Similarly, sales include sales made to the
customers as well as stock transfer to the other branches. In order to
substantiate the aforesaid, the appellant painstakingly took the AO
through the entire procedure. Difference analysis of sales and
purchases considered by the AO as actual sales and purchases
reflected in audited accounts of Delhi and Neemrana unit was shown.
Enclosed at page no. 211 of paper book-ll, is the copy of chart
Page | 57
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
(annexure-1) in which the difference in sales and purchases adopted
by the AO and actual sales and purchases reflected in the audited
accounts of Delhi and Neemrana unit. In part "A" of this chart, was
shown the sales and purchases considered by the Ld. AO in her
order. These figures were extracted by the AO from the server seized
in which data was recorded in "Busy" software. The appellant
company uses this software for its accounting. Various reports can be
generated from this software for different analysis. These sales and
purchases reflect the sales and purchase analysis of MIS report, in
which effect of debit or credit note has not been considered i.e.
purchases and sales without adjustment of debit or credit notes.
Further, due to different configuration settings of bill sundries, some
other difference may be seen in MIS report. The Details of
Adjustment of Debit Note ,Credit Note & other head have been
enclosed at page no. 539,580 & 595 of Paper book-ll. The said
purchase and sales analysis of MIS report is enclosed at page no. 212
to 231 of paper book-ll. In part "B" of the chart, the sales and
purchases reflected in the audited profit & loss accounts of Delhi and
Neemrana unit were shown. The said audited profit & loss accounts
have been filed by the appellant company with the sales tax
department of respective state. (Refer P& L account of Delhi at page
no. 113 & 115 and P&L account of Neemrana at page no. 142 & 144
of paper book-ll). In part "C" of the chart, the difference between
part "A" and part "B" was shown. Part "C" clearly reflects that the
difference is due to non adjustment of debit or credit notes and bill
sundries in the figures taken by the AO. If adjustment of these
differences are made the figures of sales and purchases reflected in
the audited accounts of respective states will arrive. The sales tax
returns of Delhi and Neemrana unit at page no. 232 to 297 of paper
book-ll in support of our claim was enclosed. Further the General
Ledger of Stock Transfer for the m/o Feb. & March 2014 of Delhi,
Neemrana and Tronica City Ghaziabad at page no.465 to 531 of
paper Book-ll was also filed. Difference analysis of sales and
purchases reflected in state wise profit & loss account and
consolidated profit & loss account was given. In consolidated profit &
loss account, the data of all units of appellant company are merged,
as a result of which, the entry of stock transfer from one unit to
another gets eliminated. A chart (Annexure-2) at page no. 349 was
Page | 58
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
filed which clearly reflects the difference between state- wise audited
accounts and consolidated accounts is only due to the stock transfer
made from one branch to another. If the stock transfer figures are
excluded, then the figures in the consolidated audited profit and loss
account shall tally fully with state-wise profit & loss account. Further,
(Annexure-3) at page no. 233 shows month wise details of stock
transfer inwards and stock transfer outwards in respect of Delhi unit.
Similarly (Annexure -4) at page no. 278 shows month wise details of
stock transfer inwards and stock transfer outwards in respect of
Neemrana unit. The figures of stock transfer inwards and outwards
are tallied fully with quarterly sales tax returns of Delhi at page no.
234 to 277 and Neemrana unit at page no. 280 to 297. The process
of stock transfer and the supporting evidences in order to dispel the
department's belief that no stock transfer was taking place. An
example was given to show is in respect of goods transferred from
Tronica City, Loni Ghaziabad to Delhi. The stock ledger at Tronica
City in respect of Semiya is at page 363 of the paper book. It shows
that on 06.08.2013, sale was made to the head office in Delhi of
55 CB. This sale is misnomer and appears in the software named
called "Busy". This is actually a stock transfer. Ghaziabad, Tronica
City is a manufacturing unit and hardly any sales takes place from
that place. All production is transferred to various depots. The stock
register shows transfer to Delhi. The invoice at page 364 shows that
the goods have been transferred to the company at Uttam Nagar,
Delhi against Form "F". Form F is a form issued by the department,
where transfer of goods is involved. Copy of Form F is attached at
page 365. The transporter's GR/LR of Jai Tempo Service at page 369
was attached. Form T-2 which states that goods represent stock
transfer being on Form F is attached at page no. 370 which is the
requirement in Delhi (sales tax deptt.). The form is from the
department of Trade and taxes and is evidence of goods transferred.
Then page 371 is the sales voucher where the entry of transfer is
passed. The entry is Delhi office debit and sales transfer) credit. At
page 372 is the stock ledger of Delhi. On 06.08.2013, the stock
register shows purchase/Branch Tronica of 55CB.(quantity). The
goods transferred from Tronica are received in the stock ledger of
Delhi. Attached at : 3ze no. 374 is the invoice which came with the
transporter which shows that the concerned Accountant in Delhi
Page | 59
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
received the goods and bearing stamp is also cached. Accounting
entry in the books of Delhi is Branch Office (Tronica) credit and
purchase (stock transfer) debit. (Refer purchase voucher at page no.
377 of paper book-ll).Now, the goods after having been received,
some of them were sold at subsequent date i.e. 07.08.2013 only to
M/S V.K. Enterprises, Ghazipbad. The sales are shown as such in the
stock ledger at page 372 and the sales invoices at page 378 of the
paper book-ll. The entry on account of sales is at page 379 of PB-II.
Similar is a set of examples for goods transferred from Tronica city to
Meemrana. The stock ledger at Tronica City in respect of Semiya is at
page 384 of the paper book. It shows that on 05.08.2013, sale was
made to the Neemrana of 50 CB. This sale is misnomer and appears
in the software named called "Busy". This is actually a stock transfer.
Ghaziabad, Tronica City is a manufacturing unit and hardly any sales
takes place from that place. All production is transferred to various
depots. The stock ledger shows transfer to Neemrana. The invoice at
page 385 shows that the goods have been transferred to the
company at Neemrana (Rajasthan) against Form "F". Form F is a
form issued by the department, where transfer of goods is involved.
Copy of Form F is attached at page 386-394. The transporter's GR/LR
of Ashok Tempo Service at page 395 is attached. Form Vat -47 which
states that goods represent stock transfer being on Form F is
attached at page 396 which is the requirement in Neemrana
(Rajasthan). The form is from the department of Trade & taxes and
is evidence of goods transferred. Then page 397 is the sales voucher
where the entry of transfer is passed. The entry is Neemrana office
debit and sales (stock transfer) credit. At page 399 is the stock
ledger of Neemrana. On 06.08.2013, the stock ledger shows
purchase/Branch Tronica of 50CB.(quantity). The goods transferred
from Tronica are received in the stock ledger of Neemrana. Attached
at page no. 400 is the invoice which came with the transporter which
shows that the concerned Accountant in Neemrana received the
goods and bearing stamp is also attached. Accounting entry in the
books of Neemrana is Branch Office (Tronica) credit and issue (stock
transfer) debit. (Refer purchase voucher at page no. 403 of paper
book-II). Now, the goods after having been received, some of them
were sold at subsequent date i.e. 06.08.2013 only to M/s B & B
Traders, Zirakpur. The sales are shown as such in the stock ledger at
Page | 60
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
page 399 and the sales invoices at page 404 :he paper book-ll. The
entry on account of sales is at page 405 of PB-II. Another T" of
example is of goods transferred from Delhi (SSI) to Neemrana. The
stock Ledger at Delhi (SSI)in respect of Pickle (Mango) is at page
410 of the paper book. It shows that on 05.08.2013, sale was made
to the Neemrana of 295 CB. This sale s misnomer and appears in the
software named called "Busy". This is actually a mock transfer. Delhi
(SSI) is a manufacturing unit and hardly any sales takes place mom
that place. All production is transferred to various depots. The stock
ledger snows transfer to Neemrana. The invoice at page 411 shows
that the goods have seen transferred to the company at Neemrana
(Rajasthan) against Form "F". Form F is a form issued by the
department, where transfer of goods is involved. Copy of Form F is
attached at page 412-415 of page book-ll. The transporter's GR/LR of
Jai Tempo Service at page 416 was filed. Form Vat -47 which states
that goods represent stock transfer being on Form F is attached at
page no. 417 which is the requirement in Neemrana (Rajasthan). The
form is from the department of Trade & taxes and is evidence of
goods transferred. Then page 418 is the sales voucher where the
entry of transfer is passed. The entry is Neemrana office debit and
sales (stock transfer) credit. At page 419 is the stock ledger of
Neemrana. On 06.08.2013, the stock ledger shows purchase/Branch
Delhi (SSI) of 295CB. (quantity). The goods transferred from Delhi
(SSI) are received in the stock ledger of Neemrana. At page no. 420
is the invoice which came With the transporter which shows that the
concerned Accountant in Neemrana received the goods and bearing
stamp is also attached. Accounting entry in the books of Neemrana is
Branch Office (Delhi SSI) credit and purchase (stock transfer) debit.
(Refer purchase voucher at page no. 423 of paper book II). The
goods after having been received, some of them were sold at
subsequent date i.e. 06.08.2013 only to M/s B & B Traders, Zirakpur.
The sales are shown as such in the stock ledger at page 419 and the
sales invoices at page 425 of the paper book. The entry on account
of sales is at page 426 of PB-II. Yet another set of example from
Neemrana to Delhi V 2: a a). The stock ledger at Neemrana in
respect of Sauce (Snack) is at page 431 of the paper book. It shows
that on 05.08.2013, sale was made to the Delhi Vataia) of 350 CB.
This sale is misnomer and appears in the software named. This is
Page | 61
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
actually a stock transfer. The stock ledger shows transfer to Delhi
(Matiala). The invoice at page 432 shows that the goods have been
erred to the company at Delhi (Matiala) against Form "F". Form F is s
form issued by the department, where transfer of goods is involved.
Copy of Form F attached at page 433-446 of paper book-ll. The
transporter's GR/LR of S.K. Gupta at page 448 is filed. Form T-2
which states that goods represent stock transfer being on Form F is
attached at page no. 449 which is the requirement in Delhi. The form
is from the department of Trade & taxes and is evidence of goods
transferred. Then page 450 is the sales voucher where the entry of
transfer is cassed. The entry is Delhi (Matiala) debit and sales (stock
transfer) credit. At page 451 is the stock ledger of Delhi (Matiala). On
06.08.2013, the stock ledger shows purchase/Branch Neemrana of
350 CB. (quantity). The goods transferred from Neemrana are
received in the stock ledger of Delhi (Matiala). Attached at page no.
453 is the invoice which came with the transporter which shows that
the concerned Accountant in Delhi (Matiala) received the goods and
bearing stamp is also attached. Accounting entry in the books of
Delhi is Branch Office (Neemrana) credit and purchase (stock
transfer) debit. (Refer purchase voucher at page no.457 of paper
book-ll). Now, the goods after having been received, some of them
were sold at subsequent date i.e. 07.08.2013 only to M/s V.K.
Enterprises, Ghaziabad. The sales are shown as such in the stock
ledger at page 452 and the sales invoices at page 459 of the paper
book II. The entry on account of sales is at page 460 of PB II. These
are four sets of examples which will show the entire flow of transfer.
The aforesaid will clearly demonstrate that the goods were duly
transferred from one place to the other as normally happens in any
business. The AO has just brought out one example where she found
three invoices in the office. The triplicate copies of invoices were
found at Delhi head office due to the reason of verification/cross
examination of invoices by the Auditors of the appellant company.
The said example cited by the AO in all the orders does not lead to
inference that no actual sale/purchase was undertaken because
appellant had filed substantive documents in form of sales tax
returns, financial statements, general ledgers, bills, vouchers etc.
with the AO which duly justify the difference sale/purchase recorded
by the AO was on account of stock transfer. Hence the aforesaid
Page | 62
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
procedure will clearly demonstrate the fact that not even one rupees
sale and purchase has been made outside the books of account.
Further, the AO made one more allegation in para 6.3 at page 25
that goods moved from Jehangirpuri unit in Delhi to Matiala without
valuation. Relevant para is reproduced below for the -sake of
convenience; "While preparing the accounts, there is different price
mechanism. There are wide gaps in maintenance of stock transfer
invoices. Jehangirpuri unit in Delhi transfer the finished goods to
Matiala Depot in Delhi without valuing the finished goods." In this
regard it is submitted that Jahangirpuri and Matiala are the units of
Delhi state and moving of goods within same state does not require
valuation of goods as per VAT rules. This intrastate movement of
goods even does not amount to stock transfer for which form F is
required. The accounting is done for these goods at one place i.e.
Delhi head office, so there is no question to value these goods
differently at same place."
7.3 The above mentioned submission has been verified with the
supporting documents in the Paper Book. The appellant has also
given detailed charts of reconciliation of sales and the sales tax
returns as per Paper Book-ll which has also been perused. The
appellant has further submitted that the Assessing Officer has relied
upon the triplicate invoice in respect of stock transfer in the case of
Invoice no. E-24 dated 01.12.2014 issued from G.D. Foods
Manufacturing (I) Pvt. Ltd., Plot No.-204, Tronica City, Ghaziabad
raised to Neemrana distribution depot to hold that the stock transfer
constitutes undisclosed sales but in view of the submission (supra),
no cognizance should be taken in respect of the alleged invoices.
Without prejudice, the appellant has also submitted that it must have
been a one of case wherein for the purpose of audit, an invoice might
have been brought to the head office for verification and if the said
invoice would show that they carry the stamp of different branches to
which they were sent. Hence, no adverse inference can be drawn
from just one original triplicate invoices found, if any.
7.4 According to the appellant, the amount constitutes stock
transferred from headquarter too branches or one branch to the
other which cannot be held to be used outside the books of account.
Page | 63
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
Even otherwise, no document has been found to even remotely
suggest that any of the sales, as held by the Assessing officer, were
made or found recorded outside the books of account. Hence, this
addition on of Rs.29,79,37,366/- made by the AO on account of GP
on unaccounted sale deserves to be deleted.
7.5 I have considered the facts and circumstances of the case,
submission of the ne appellant and perused the assessment order.
On perusal of the details/documents filed by the appellant, I find
merit in their arguments that mere was no sale made by head office
to branches or one branch to another branch but it was just stock
transfer for convenience of the business. To support its argument,
they filed all the relevant details/documents as mentioned in the
earlier paras which were also before the AO. Further, there was no
material found during the course of search action which suggests
that the transfer of stock from head office to branches or one branch
to other branch was sale. It is understood that a prudent
businessman carry out his business activity as per their convenience
which is benefited to its business. The stock as various places was
transferred to support the business activities. Under these
circumstances, I am of the considered view that the AO was not
justified to make addition on account of GP with reference to
unaccounted sale."
34. The learned CIT DR vehemently supported the order of the learned
assessing officer. He submitted that when there were several such
documents found in triplicate relating to inter unit transfer of finished
goods from one to unit to another, and they were seized, there is no
reason to believe that assessee is not engaged in unaccounted sales of
the goods. He further stated that learned assessing officer with respect to
annexure A- 23 has completely proved that one third sales is only
accounted for by the assessee. He further submitted that the learned CIT
A has ignored all the evidences, which have been brought on record by
the learned assessing officer.
Page | 64
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
35. The learned authorized representative vehemently stated that only one
sample invoice was found which was in triplicate. He further referred to
the paper book filed by the assessee where each detail of the/transfer is
provided for. He referred to the paper book wherein the details of stock
transferred from depot is accounted for in the depot where goods sent.
He further showed the details of transfer by the assessee in the sale tax
return of the branch transfer from one branch to branch. He further
stated that such documents necessitated because of the requirement of
the sales tax provisions. He further stated that only one document was
found and there were no other documents found during the course of
search as stated by the learned assessing officer. He further stated that
there are no unaccounted sales made by the assessee. He further
supported the order of the learned CIT(A).
36. We have carefully considered the rival contentions and also perused the
orders of the lower authorities. The learned CIT A in para number 7.5 of
his order held that there was no sale by the head office to branches or
one branch to another branch, it was just stock transfer for convenience
of the business and as per requirement of the sales tax act. He
appreciated that assessee has filed all relevant details and documents as
mentioned in that paragraphs which were also before the learned
assessing officer. He further held that there was no material found during
the course of search, which suggests that the transfer of stock from head
office to branches from one branch to another branch was a sale. He
further held that a prudent businessperson carries out the business
activity as per his own convenience and benefit. He further stated that
stock records at various places also supported claim of assessee. The ld
CIT departmental representative, could not show us what are those
voluminously documents that are referred by the learned assessing
officer. Contrary to that, the learned authorized representative stated
Page | 65
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
that there is only one invoice, which was found in triplicate. In the paper
book assessee has also submitted all the sales tax return of the branches
to show that there is a stock transfer. During the course of hearing, he
also took us extensively through all these stock transfer entries, which
shows that goods have been transferred from the plant to head office or
from one branch to another branch for organizing the sales activities of
the assessee. We have also seen that in stock transfer details there is no
mention of the parties other than the branches or head office. Therefore
we do not find any infirmity in the order of the learned CIT(A) in deleting
the addition on account of gross profit worked out on such transfer of
stocks by the Assessing Officer. Accordingly ground No. 1 of the appeal of
the revenue is dismissed.
37. The 2nd ground of appeal of the revenue is that on the facts and in the
circumstances of the case, the ld CIT(A) has erred in law and on facts in
deleting the addition of Rs. 53,00,000/- made u/s 68 of IT Act as
creditworthiness of the employee along and non genuine allotment of
shares has not been verified. The brief facts of the issue shows that
assessee has allotted 21200 shares to Sri Vijay at face value of 10 and
the share premium of Rs. 240/ per share and total consideration of
5,300,000 was received. The share certificates were issued in the name
Shri Vijay found with the appellant company unsigned. For payment of
consideration of 5,300,000/-, he got loan arranged from the bank and
for the repayment of the loan installments, his salary was increased by
the assessee. In view of this, the learned assessing officer noted that the
transactions are not genuine and therefore he made the addition of the
above sum. The assessee challenged the above addition before the
learned CIT(A) who deleted it holding that shareholder was one of the
employees of the appellant company and he obtained the loan from the
bank, money was given to the company in consideration of the shares
Page | 66
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
allotted. The learned CIT(A) noted that identity of the shareholder was
proved. Since the money was received from the bank, the source of the
source was also explained and that transaction of the issue of the share
cannot be faulted with. He therefore deleted the addition. Hence the
learned AO has challenged this order.
38. The learned departmental representative submitted that assessee has
created a façade by which the employee of the assessee was asked to
borrow the loan from bank for the purpose of making investment in the
shares of the company and to make that employee repay the loan, his
salary is increased. He further submitted that merely identity and
creditworthiness of the transaction is not to only to be proved but the last
ingredient of genuineness of the transaction is also to be proved. He
submitted that there is no word in the order of the learned CIT(A) on the
same.
39. The learned authorized representative vehemently supported the order
of the learned CIT(A). He submitted that assessee has issued shares to
one of the employees who borrowed money from the bank for the
purpose of purchase of the shares. He submitted that increase in salary of
the employee was on account of performance of the employee and not for
the purpose of repayment of the loan by that employee. He further
submitted that interest of the loan is borne by the assessee. He further
submitted that such employee is the shareholder of the company and
there is no doubt about the ownership of those shares. He further
submitted that identity, creditworthiness, and genuineness of the
transaction have been proved by the assessee beyond doubt. He
therefore submitted that there is no error in the order of the learned
CIT(A) in deleting the addition of 53,00,000/.
Page | 67
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
40. We have carefully considered the rival contention and also perused the
orders of the lower authorities. The only issue involved is that one
employee of the assessee company has applied for the shares valued at
5,300,000/- for which borrowing was made by him from bank for
purchase of the shares. There was also increase in the salary of that
employee. The learned assessing officer noted that increase in the salary
payment of the employee is for the purpose of subscribing to the shares
of the company. Therefore, the above sum was added to the total income
of the assessee under section 68 of the income tax Act. On appeal before
the learned CIT(A) he deleted the above addition holding as under:-
"8. Ground no.7 relates to addition of Rs.53,00,000/- made by
the AO under section 68 of the IT Act. The fact of the case is that it
was found by the AO that during the year under consideration,
21200 shares were allotted to Sh. Vijay Mannan at a face value of
Rs.10 and share premium of Rs.240 each share, thereby, total
consideration of Rs.53,00,000/- claimed to have been received. The
share certificates were lying with the appellant company and these
certificates were found unsigned. To make payment, loan were got
arranged from the bank and repayment of loan, his salary was
increased. Under these circumstances, the AO found that the
transaction was not genuine, therefore, he made addition of the
same.
8.1 The appellant has submitted that:-
"....Addition made u/s 68 of the Act not tenable in law & on facts
i. Section 68 of the Act seeks to tax the unexplained cash credits in
the books of account of the assessee for which the assessee offers
no satisfactory explanation about the nature & source.
ii. Appellant had discharged his onus of proving the nature &
source of credits in its books of accounts, (copy Letter dated
22.11.2016 is enclosed)
Page | 68
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
iii. Mr. Vijay Mannan in his statement u/s 131 of the Act recorded
on 10.11.2016, has stated that he has given a loan to the appellant
out of the loan taken by him in his personal capacity from a bank.
iv) The fact that Mr. Mannan has taken a loan and was repaying
the same was verified from the bank. Hence, the source of funds
was the bank.
v) From the aforesaid, it is amply clear that the nature & source
of the credits in the books of the appellant was proved and hence
the question of unexplained cash credits cannot arise. Section 68
talks of tfie source of funds & not the nomenclature / term used for
recording it in books. The source is crystal clear being a bank.
i. There is no finding or even an allegation that cash was given in
exchange for the cheque.
Other crucial facts
ii. List of shareholders with address & percentage of holding was
filed before the Ld. AO.
iii. Appellant further submitted, Form no.2, return of allotment
with the bank account where the share application money had been
received.
iv. A copy of the balance sheet along with share allotment form
duly filed with the ROC was filed before the Ld. AO. Statement of
Sh. Vijay Mannan deserves to be ignored as the same is
contradictory
v. Without prejudice to the aforesaid, it is submitted that Sh.
Vijay Mannan has made a false statement as he had never given a
loan to the appellant and in fact had subscribed to the shares of the
company out of his own source of income.
vi. Why Mr. Mr. Mannan has never filed any claim for recovery of
loan? (Page 9 of the order).
vii. Mr. Mannan has shown increased salary in his return and paid
tax. How -e now say that it was recompense by the company
towards a loan page 9 of the order).
Page | 69
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
viii. Unsigned share certificates found from the company only
proves that it :s only a draft and the original, duly signed certificate
must have been with Mr. Mannan who would have kept it is safe
custody.
ix. Why was not the counter reply filed by the assesse when
confronted to Mr. Mannan and why is the Id. AO trying to believe a
concocted and unsustainable story of Mr. Mannan and not the
assesse.
x. Mr. Viiav Mannan had made a contradictory statement since
he had signed :ng share transfer deed and on the other hand
professes giving a loan, copy of share transfer deed is attached)
xi. There is plethora of decisions wherein it has been held that
once assessee has discharged its burden of proving identity,
creditworthiness of shareholders and genuineness of transaction -
revenue cannot invoke Section 68 and is free to re-open individual
assessments of the shareholders.
Reliance is placed on the following (Copy of decisions is enclosed)
a. Commissioner of Income-tax v. Lovely Exports (P.) Ltd.
[2008] 216 CTR 195 (SC);
b. Commissioner of Income-tax v. Steller Investment Ltd.
[2001] 115 taxman 99 (SC);
c. Commissioner of Income-tax-ll v. Kamdhenu Steel & Alloys
Ltd. [2012] 19' taxmann.com 26 (Delhi);
d. Commissioner of Income-tax v. Oasis Hospitalities (P.) Ltd.
[2011] 198 taxman 247 (Delhi);
e. Commissioner of Income-tax-IV v. Dwarkadhish Investment
(P.) Ltd. [2010] 194 taxman 43 (Delhi);
f. Commissioner of Income-tax (Central)-ll v. Samir Bio-Tech (Pvt.)
Ltd. ITA No. 415/2008 (Delhi);
g. Bhav Shakti Steel Mines (P.) Ltd. v. Commissioner of
Income-tax [2009] 179 taxman 25 (Delhi);
Page | 70
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
h. Commissioner of Income-tax v. Value Capital Services (P.)
Ltd. [2008] 307 ITR 334 (Delhi);
i. Orient Trading Co. Ltd. v. Commissioner of Income-tax (Central)
[1963 ] 49 ITR 723 (Bombay)
Copy of statement recorded was not confronted to the appellant
xii. Even though the same has been used against the appellant.
xiii. The AO is duty bound to suo moto furnish the statement /
evidence etc he seeks to rely upon against the appellant.
xiv. Following decision are relied upon (Copy of decisions is
attached)
a) Kishinchand Chellaram v. Commissioner of Income-tax
(1980) 125 ITR 713 (SC);
b. Dhakeswari Cotton Mills Ltd v. Commissioner of Income-tax
(1954) 26 ITR 775 (SC);
c) Commissioner of Income-taxv. JMD Computers &
Communications (P.) Ltd. [2009] 180 Taxman 485 (Delhi);
d) Commissioner of Income-tax v. G.C.B. Capital Finance (P.)
Ltd [2009] 2 taxmann.com 23 (Delhi);
e) Additional Income-tax Officer v. Ponkunnam Traders [1976f
102 ITR 366 (Kerala);
f) Cheil India (P.) Ltd v. Assistant Commissioner of Income-tax
[2012] 146 TTJ 17 (Delhi-Trib.);
g) Income-tax Officer v. Puneet Chugh [2005] 2 SOT 101 (Delhi
trib);
h) Babcock Power (Overseas Projects) Ltd v. Deputy
Commissioner of Income- tax [2003] 131 TAXMAN 86 (DELHI)
(MAG.) IT A No. 1388 and 1389 (Delhi) of 1993;
i) Smt. Surjeet Kaur v. Income-tax Officer [2001] 119 TAXMAN 33
(HYD.) (MAG.) IT A No. 354 (HYD.) OF 1996;
Page | 71
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
Opportunity for cross examination of Sh. Vi jay Mannan was not
provided to the appellant
xv. The appellant was again deprived from the very basic
fundamental right available to them under law.
xvi. Following decision are relied upon (Copy of decisions is
attached)
a. Commissioner of Income-tax v Rajesh Kumar 306 ITR 27
(Delhi);
b. Ashok Lalwani v. Income-tax Officer 328 ITR 272 (Delhi);
c. Commissioner of Income-tax v. Independent Media (P) Ltd
[2012] 25 taxmann.com 276 (Delhi) ITA No. 456 of 2011;
d. Commissioner of Income-tax v. Ashwani Gupta [2010] 322
ITR 396 (DELHI);
e. Commissioner of Income-tax v. Jindal Vegetables Products
Ltd [2009] 315 ITR 265 (DELHI);
f. Commissioner of Income-tax v. S.M. Aggarwal [2007] 293 ITR
43 (Delhi);
g. Commissioner of Income-tax, Delhi v. SMC Share Brokers Ltd
[2007] 159 TAXMAN 306 (DELHI);
h. HR Mehta v. Assistant Commissioner of Income-tax ITA No.
58 of 2001 (Bombay HC);
i. Multitex Filtration Engineers (P.) Ltd v. Deputy Commissioner of
Income Circle-5(1), New Delhi [2007] 13 SOT 208 (DELHI);
Amarjit Singh Bakshi (HUF) v. Assistant Commissioner of Income-
tax [2003] 85 ITD 13 (Delhi) TM
8.2 I have considered the facts and circumstances of the case,
submission of the appellant and perused the assessment order. I
find that Sh. Vijay Mannan was one of the employees of the
appellant company. He stated that the loan was received from the
bank which was given to the company. On perusal of the facts, that
Page | 72
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
the identity was proved. Since, the money was received from the
bank, e the source of source was also explained. Thereby, the
transaction is found to be genuine. Under these circumstances, I
find merit in the argument of the appellant, therefore, appeal on
this ground is allowed."
The learned departmental representative has only grievance that the
learned CIT(A) could not show about the genuineness of the transaction.
In this present case, there is an increase in the salary which has been
allowed by the ld Assessing Officer as deduction under section 37 (1) of
the Act. It was also not stated by the learned assessing officer that the
salary so excess paid is related to the subscription of the shares by the
employee. Further the share certificates found by the revenue at the time
of search, were in the name of the employee only. Further it is also not
denied by the shareholder that there is a personal loan obtained by him
though alleged by the help of company of 3,000,000/- from one and Rs.
15,00,000/- from another bank. As the assessee has received the share
application money/share subscription money from the person whose
sources are known, the share certificates are in the name of that person,
there is no evidence that such staff held shares for the benefit of the
assessee company, the salary so paid by the assessee to the employee it
is not found excessive but allowed in toto, all these facts shows that the
assessee has Shown Identity, Creditworthiness and Genuineness of the
Transaction of Share Subscription of 5,300,000/-. In View of this we do
not find any infirmity in the order of the Learned CIT(A) in deleting the
addition under Section 68 of the Act of the above sum. In the Result
Ground No. 2 of the Appeal of the Revenue Is Dismissed.
41. Accordingly, appeal of the revenue is dismissed.
42. In the result, appeal of the assessee for assessment year 2014-15 is
partly allowed and appeal of the revenue is dismissed.
Page | 73
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
43. With respect to all other years involved in these appeals, it is submitted
by both the parties that the facts involved are similar to the facts for
Assessment Year 201415, therefore their arguments also remains the
same. It was stated that the common issues are involved in the appeal of
the assessee with respect to the addition on account of bogus purchases
and chargeability of income from scrap sales. In the appeal of the
revenue the issue remains with respect to addition on account of
undisclosed sales and undisclosed investment in purchases for
assessment year 2009-10 and shortage of stock and undisclosed sales for
assessment year 2015-16. It was further stated that the revenue also
contest the addition of 16,200,000/- for Assessment Year 2011-12 on
account of allotment of shares. The parties submitted that these
arguments might be considered for deciding appeals of other years.
44. Now we proceed to decide the appeal of both the parties for A Y 2009
10 to 2013 14 and 2015-16.
AY 2009-10
45. The assessee has raised the following grounds of appeal in
1182/Del/2018 for the Assessment Year 2009-10:-
"1. That the order of the Ld. CIT (A] dated 26.12.2017 is bad in law
and on facts.
1.1 That the Ld. CIT(A) has erred on facts and in law in ignoring the
settled legal preposition that admittedly there was no incriminating
material found as a result of search, assessment order passed u/s
153A of the Act was bad in law and void ab initio.
1.2 That the Id. C1T(A) failed to consider the fact that documents found
and seized were essentially the actual profit & loss account which
depicted losses only and there was no unexplained assets or wealth
found during the course of search.
2 That the ld. CIT(A) has erred in not adjudicating the ground that
neither the copy of statements recorded during the course of search
were provided nor an opportunity of cross examination was
accorded to the assessee.
Page | 74
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
3. That the ld. CIT (A) has erred in not considering the contemporary
and conclusive evidence in the form of excel sheet recordings and
monthly profitability statements giving the real/actual profitability
found in the computers seized during course of search.
3.1 That the Id. CIT (A) has ignored the settled principles of taxing real
income as laid down by the Hon'ble Supreme court in various
decisions.
3.2 That the ld. CIT(A) has erred in not considering the fact that the
actual profitability statement and other critical data seized during
the course of search for the impugned assessment year was not
provided to the assessee company inspite of repeated requests
made by the assessee company in this regard.
3.3 That the ld. CIT (A) has erred in considering only selective part of
actual profitability statements as true and correct and ignoring the
rest i.e. Income shown in actual profitability has been added into
the hands of assessee without allowing the claim of expenses made
in this regard.
3.4 That the Id. CIT(A) has overlooked the presumption laid down u/s
132(4A) of the Act which say that documents/material found during
the course of search are supposed to be true and correct and same
are to be considered for the purpose of assessment for the relevant
assessment year.
3.5 That the Ld. CIT (A) has erred in not adjudicating the grounds 3 to
3.4 (supra) which were the grounds 4 to 4.3 raised before ld.
CIT(A).
4 That the Id. CIT(A) has erred in sustaining the addition of Rs.
1,21,57,660/- on account of bogus purchase.
4.1 That Ld. CIT(A) further erred in stating that no supporting detail
regarding expenses incurred in cash was filed therefore no cash
expense was incurred despite the fact that he himself accepted the
seized excel sheets showing unaccounted cash expenses as true.
4.2 That without prejudice to the above, the Id. CIT(A) has failed to
consider the fact that if assessee had recorded and accounted for
the alleged bogus purchases in its audited accounts then equivalent
amount of stock would also have inflated which negated the effect
on profitability.
5. That the appellant craves leave to add, alter, amend, substitute,
delete and modify any or all the grounds of appeal, which are
Page | 75
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
without prejudice to one another, before or at the time of hearing of
the appeal."
46. The only issue involved in this appeal of the assessee is with respect to
the addition on account of bogus purchases made by the learned
assessing officer and confirmed by the learned CIT(A). We have already
decided the above issue in appeal of the assessee for assessment year
201415, wherein we have held that the whole addition on account of
bogus purchases cannot be made. For the similar directions, the addition
made by the learned assessing officer and confirmed by the learned
CIT(A) of 12,157,660/ cannot be sustained, but appropriate
percentage for which we have held that 8 % is the appropriate
percentage to sustain the addition of unaccounted expenditure.
Accordingly, we direct the learned assessing officer to sustain the addition
to that extent only. Accordingly appeal of the assessee is partly allowed.
47. The revenue has raised the following grounds of appeal in ITA NO.
1464/Del/2018 for the Assessment Year 2009-10:-
1. That on the facts and in the circumstances of the case, the ld
CIT(A) has erred in law and on facts in deleting the addition of Rs.
8,06,42,856/- on account of undisclosed sales, which was arrived at
by the AO on the basis of matching of data retrieved from seized
server and disclosed sales.
2. That on the facts and in the circumstances of the case, the ld
CIT(A) has erred in law and on facts in deleting the addition of Rs.
21,32,08,562/- on account of undisclosed investment in purchases.
3. That the grounds of appeal are without to each other."
48. The ground No. 1 of the appeal of the revenue is with respect to deletion
of addition of 80642856/- was made on account of undisclosed sales.
Identical issue has been decided by us in appeal of the revenue for
assessment year 2014 15 in ground No. 1 where we have upheld the
order of the learned CIT(A) as the amount involved was only on account
of stock transferred from head office to branch and branch to head office
or other branches and not the sales. Accordingly, we also held in ground
Page | 76
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
No. 1 of the appeal of the revenue against the learned assessing officer
and direct him to delete the addition of 80642856/ on account of
undisclosed sales. Accordingly, ground number 1 of the appeal is
dismissed.
49. Ground number 2 of the appeal of the revenue is against the deletion of
addition of 213,208,562/- on account of undisclosed investment in
purchases. The learned assessing officer estimated the undisclosed sales
of the appellant on the basis of the data found during the course of the
search. The ld Assessing Officer held that to make the sales of that much
amount the assessee must have made investment in purchases and
stock. The learned assessing officer therefore estimated the alleged
undisclosed purchases by applying the gross profit ratio on the estimated
undisclosed sales of the appellant. It was the contention of the assessee
that addition on account of undisclosed investment can be made only
when there is an unexplained investment found during the course of
search. It was stated that during the course of search, no stock was
found. It was further stated that merely on the basis of the guesswork
and presumptions, such additions couldn't be made. The assessee further
relied upon the decision of the Hon'ble Delhi High Court in c ase of CIT
Vs. Kabul Chawla holding that there is no incriminating material found
during the course of search, which even remotely suggests that assessee
has made any investment, which is not recorded in the books of
accounts. On appeal before the learned CIT(A) same was deleted.
Therefore revenue is in appeal before us.
50. The learned departmental representative vehemently supported the order
of the learned assessing officer whereas the learned authorized
representative supported the order of the learned CIT(A). It was stated
that when the addition itself has been deleted by CIT(A) on account of
Page | 77
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
unaccounted sales, there is no reason that such addition with respect to
the addition in stock is sustained.
51. We have carefully considered the rival contention and also perused the
order of the learned CIT(A). When we have upheld the order of the
learned CIT(A) wherein he has deleted the addition on account of
unaccounted sales, there is no question of sustaining the said additions
when the original addition of unaccounted sales stands deleted.
Accordingly, we dismiss ground number 2 of the appeal of the revenue.
52. Accordingly, we dismiss appeal of the revenue for assessment year 2009
10.
53. Accordingly, appeal of the assessee for assessment year 2009-10 is partly
allowed and appeal of the revenue for the same assessment year is
dismissed.
AY 2010-11
54. The assessee has raised the following grounds of appeal in
1189/Del/2018 for the Assessment Year 2010-11:-
"1. That the order of the Ld. CIT (A] dated 26.12.2017 is bad in law
and on facts.
1.1 That the Ld. CIT(A) has erred on facts and in law in ignoring the
settled legal preposition that admittedly there was no incriminating
material found as a result of search, assessment order passed u/s
153A of the Act was bad in law and void ab initio.
1.2 That the Id. C1T(A) failed to consider the fact that documents found
and seized were essentially the actual profit & loss account which
depicted losses only and there was no unexplained assets or wealth
found during the course of search.
2 That the ld. CIT(A) has erred in not adjudicating the ground that
neither the copy of statements recorded during the course of search
were provided nor an opportunity of cross examination was
accorded to the assessee.
Page | 78
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
3. That the ld. CIT (A) has erred in not considering the contemporary
and conclusive evidence in the form of excel sheet recordings and
monthly profitability statements giving the real/actual profitability
found in the computers seized during course of search.
3.1 That the Id. CIT (A) has ignored the settled principles of taxing real
income as laid down by the Hon'ble Supreme court in various
decisions.
3.2 That the ld. CIT(A) has erred in not considering the fact that the
actual profitability statement and other critical data seized during
the course of search for the impugned assessment year was not
provided to the assessee company inspite of repeated requests
made by the assessee company in this regard.
3.3 That the ld. CIT (A) has erred in considering only selective part of
actual profitability statements as true and correct and ignoring the
rest i.e. Income shown in actual profitability has been added into
the hands of assessee without allowing the claim of expenses made
in this regard.
3.4 That the Id. CIT(A) has overlooked the presumption laid down u/s
132(4A) of the Act which say that documents/material found during
the course of search are supposed to be true and correct and same
are to be considered for the purpose of assessment for the relevant
assessment year.
3.5 That the Ld. CIT (A) has erred in not adjudicating the grounds 3 to
3.4 (supra) which were the grounds 4 to 4.3 raised before ld.
CIT(A).
4 That the Id. CIT(A) has erred in sustaining the addition of Rs.
2,34,61,740/- on account of bogus purchase.
4.1 That Ld. CIT(A) further erred in stating that no supporting detail
regarding expenses incurred in cash was filed therefore no cash
expense was incurred despite the fact that he himself accepted the
seized excel sheets showing unaccounted cash expenses as true.
4.2 That without prejudice to the above, the Id. CIT(A) has failed to
consider the fact that if assessee had recorded and accounted for
the alleged bogus purchases in its audited accounts then equivalent
amount of stock would also have inflated which negated the effect
on profitability.
5. That the appellant craves leave to add, alter, amend, substitute,
delete and modify any or all the grounds of appeal, which are
Page | 79
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
without prejudice to one another, before or at the time of hearing of
the appeal."
55. The only issue involved in this appeal of the assessee is with respect to
the addition on account of bogus purchases made by the learned
assessing officer and confirmed by the learned CIT(A). We have already
decided the above issue in appeal of the assessee for assessment year
2014 15 wherein we have held that the whole addition on account of
bogus purchases cannot be made. For the similar reasons the addition
made by the learned assessing officer and confirmed by the learned
CIT(A) of 23461740/ cannot be sustained but appropriate percentage
for which we have held that 8 % is the appropriate percentage to sustain
the addition. Accordingly, we direct the learned assessing officer to
sustain the addition to that extent only. Accordingly, appeal of the
assessee is partly allowed.
56. The revenue has raised the following grounds of appeal in ITA NO.
1465/Del/2018 for the Assessment Year 2010-11:-
1. That on the facts and in the circumstances of the case, the ld
CIT(A) has erred in law and on facts in deleting the addition of Rs.
10,07,49,180/- on account of undisclosed sales, which was arrived
at by the AO on the basis of matching of data retrieved from seized
server and disclosed sales."
57. The ground No. 1 of the appeal of the revenue is with respect to deletion
of addition of 100749180/- was made on account of undisclosed sales.
Identical issue has been decided by us in appeal of the revenue for
assessment year 2014 15 in ground number 1 of the appeal where we
have upheld the order of the learned CIT(A) as the amount involved was
only on account of stock transferred from head office to branch and
branch to head office or other branches and not the sales. Accordingly,
we also decide ground No. 1 of the appeal of the revenue, against the
Learned Assessing Officer and direct him to delete the addition of
Page | 80
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
100749180/- on account of undisclosed sales. Accordingly, ground
number 1 of the appeal is dismissed.
58. Accordingly, appeal of the assessee for assessment year 2010-11 is partly
allowed and appeal of the revenue for the same assessment year is
dismissed.
AY 2011-12
59. The assessee has raised the following grounds of appeal in
1190/Del/2018 for the Assessment Year 2011-12:-
"1. That the order of the Ld. CIT (A] dated 26.12.2017 is bad in law
and on facts.
1.1 That the Ld. CIT(A) has erred on facts and in law in ignoring the
settled legal preposition that admittedly there was no incriminating
material found as a result of search, assessment order passed u/s
153A of the Act was bad in law and void ab initio.
1.2 That the Id. C1T(A) failed to consider the fact that documents found
and seized were essentially the actual profit & loss account which
depicted losses only and there was no unexplained assets or wealth
found during the course of search.
2 That the ld. CIT(A) has erred in not adjudicating the ground that
neither the copy of statements recorded during the course of search
were provided nor an opportunity of cross examination was
accorded to the assessee.
3. That the ld. CIT (A) has erred in not considering the contemporary
and conclusive evidence in the form of excel sheet recordings and
monthly profitability statements giving the real/actual profitability
found in the computers seized during course of search.
3.1 That the Id. CIT (A) has ignored the settled principles of taxing real
income as laid down by the Hon'ble Supreme court in various
decisions.
3.2 That the ld. CIT(A) has erred in not considering the fact that the
actual profitability statement and other critical data seized during
the course of search for the impugned assessment year was not
provided to the assessee company inspite of repeated requests
made by the assessee company in this regard.
Page | 81
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
3.3 That the ld. CIT (A) has erred in considering only selective part of
actual profitability statements as true and correct and ignoring the
rest i.e. Income shown in actual profitability has been added into
the hands of assessee without allowing the claim of expenses made
in this regard.
3.4 That the Id. CIT(A) has overlooked the presumption laid down u/s
132(4A) of the Act which say that documents/material found during
the course of search are supposed to be true and correct and same
are to be considered for the purpose of assessment for the relevant
assessment year.
3.5 That the Ld. CIT (A) has erred in not adjudicating the grounds 3 to
3.4 (supra) which were the grounds 4 to 4.3 raised before ld.
CIT(A).
4 That the Id. CIT(A) has erred in sustaining the addition of Rs.
3,55,78,162/- on account of bogus purchase.
4.1 That Ld. CIT(A) further erred in stating that no supporting detail
regarding expenses incurred in cash was filed therefore no cash
expense was incurred despite the fact that he himself accepted the
seized excel sheets showing unaccounted cash expenses as true.
4.2 That without prejudice to the above, the Id. CIT(A) has failed to
consider the fact that if assessee had recorded and accounted for
the alleged bogus purchases in its audited accounts then equivalent
amount of stock would also have inflated which negated the effect
on profitability.
5. That the ld CIT(A) has erred in sustaining the addition of Rs.
1,62,00,000/- as unexplained credit u/s 68 of the Act despite the
fact that assessee has sufficiently discharged the onus of proving
identity, genuineness and creditworthiness by filing detailed
submission supported with contemporary and conclusive
evidences."
60. One of the issue involved in this appeal of the assessee with respect to
ground no. 1 to 4 is with respect to the addition on account of bogus
purchases made by the learned assessing officer and confirmed by the
learned CIT(A). We have already decided the above issue in appeal of the
assessee for assessment year 2014 15 wherein we have held that the
whole addition on account of bogus purchases cannot be made. For the
similar reasons, addition made by the learned assessing officer and
Page | 82
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
confirmed by the learned CIT(A) of 35578162/- cannot be sustained but
appropriate percentage of unaccounted expenditure for which we have
held that 8 % is the appropriate percentage to sustain the addition.
Accordingly, we direct the learned assessing officer to sustain the addition
to that extent only. Accordingly, Ground no. 1 to 4 of the appeal of the
assessee is allowed.
61. Ground No 5 of the appeal of the assessee is with respect to addition of
Rs 1,62,00,000/- in the hands of the assessee u/s 68 of the act confirmed
by the ld CIT (A).
62. Brief facts of the case is that during the course of search on 22.12.2014
at the premises of the company, original share certificate and original
share application letter were seized in the name of the company for
shares alloted to Excel Infotech Pvt. Ltd and M/s. Artiligence Bio
Inovation Pvt. Ltd. It was found that assessee has allotted 6500 shares
and 13750 shares at a share premium of Rs. 719/- each to both the
companies respectively. The ld AO noted that original share certificate
were usually kept by the share owner and should not have been found
from the assessee. The Director of this company was questioned on
22.12.2014 wherein, he confirmed that these companies have invested as
share holder of the assessee company. However, he could not explain the
business affairs of these companies and he did not know the contact
person. He mentioned that his father is aware about it. His father Shri Brij
Mohan Seth was also examined on 22.12.2014 wherein, he stated that he
knows these two companies and Shri Sashi Garg introduced them to the
assessee. He further stated that as assessee is engaged in agro based
food industry and these companies are interested in making investment,
they have invested in shares. The ld Assessing Officer issued noted u/s
133(6) to the assessee which remain un-served. Further, inspector was
deputed, where it was found that at the given address these companies
Page | 83
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
are not found. The assessee explained the detail of investment of these
parties, however, for the reason that why the original share certificate
were lying with the assessee company and how assessee managed to sale
its shares at such a huge premium, the ld AO made addition. The ld
Assessing Officer made addition of Rs. 1.62 crores holding as under:
"4. During the course of search at the premises of the company
M/s. G.D. Foods Manufacturing India Pvt. Ltd., at Plot No. 14, B-
Block, Community Centre, Janakpuri, New Delhi original share
certificate and original share application letter was seized in the
name of M/s. Excel Infotech Pvt. Ltd. and M/s. Artiligence Bio-
Innovation Pvt. Ltd. / from Party A-9, Annexure AO-1, page no. 3
and 4. On perusal of record it was noticed that the company at
allotted shares to both the parties at high share premium. In the
assessment year 2011-12 M/s. Excel Infotech Pvt. Ltd. purchase
6500 shares at face value of Rs. 10 and share premium of Rs. 790/-
and paying in total Rs.52,00,000/-. Similarly in A.Y. 2011-12 it was
noticed that Artiligence Bio-Innovation Pvt. Ltd. has purchased
13750 shares at face Rs.10 and share premium of Rs.790/- making
a total M/s. G.D. Foods Manufacturing India Pvt. Ltd., Order u/s
153A/143(3), A.Y. 2011-12 investment of Rs.1,10,00,000/-. Both
these companies are not agro based companies nd further
investigation was done as original shares certificate are usually kept
by shares owner but in this case it was found in the premises of
assessee. Further the shares certificate were unsigned till the date
of search (copy enclosed as below:-
Page | 84
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
Page | 85
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
Page | 86
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
4.1 During the course of search query were rasised to Sh. Nitin
Seth the director of me company to explain the transactions with
Artiligence Bio-Innovation Pvt. Ltd. and Excel Infotech Pvt. Ltd. it
was noticed that at the time of search when query was raised to
B.M Seth and Sh Nitin Seth (quoted below), it becomes clear that
they don't even know the party, they could not explain the manner
in which they approached the company. It is further important to
note that the statement of Sh. Nitin Seth dated 22/12/2014, he
stated that Sh. S.K. Saxena, VP (Finance) knew the party and
brought the deal while in a statement recorded u/s 131 of Sh. S.K.
Saxena on 18/10/2016 he stated that the decision was made by Sh.
Seth.
- Statement of Shri Nitin Seth 22.12.2014
Q.30 Do you know M/s Excel Infotech Ltd. & M/s Artillegence B10-
lnnovations?
A.30 Yes I know these two companies which have shareholders of
M/s G.D. Food.
Q.31 Please state the nature of Business of M/s Excel Infotech Ltd.
& M/s Artillegence B10-lnnovation Ltd.? Please mention their
addresses?
A.31 I am not sure of the business affairs of these two companies
and I do not know their addresses.
Q.32 It is seem from data available at the website of ROC, MCA
that in December, 2010. M/s G.D. Foods has allotted 6500
shares to M/s Excel Infotech Ltd. to & 13750 shares to M/s
Artillegence B10-lnnovation Ltd. at a premium of Rs. 790 per
share. Thus, raising premium of Rs. 1.62 crores. Please state
the contact person of these two companies and how did they
approach you for allotment of shares?
A.32 I do not know the contact person and other details is
regarding these companies as the finance & H.R. are
supervised by my father Shri Brij Mohan Seth in consultation
with Mr. Saxsena & Shri Shashi Garg. Therefore, my father
would be aware of these details.
- Statement of Shri Brii Mohan Seth recorded on 22.12.2014 during
search
Page | 87
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
Q.25 On perusal of ITD data and MCA data it has been gather that
M/s GDFMPL has
issued 6500 shares, 13750 share to M/s Excel infotech Ltd. and M/s
Artillegence Bio-innovations Ltd. at premium of Rs. 790 per share. Please
state how do you know the above two company and what was the basis of
valuation of shares for allotment to these two companies ?
A.25 I know there two companies through our CA Shri Shashi Garg. He introduce
me to the promoters of these two companies in the meeting they showed
interest for making investment in Agro-based food industry. As the Agro-base
industry is a growing sector and it in demand after negotiations, they agreed
to invest in M/s GDFMPL @ Rs. 800 per share.
4.2 When this fact was confronted to Sh. Nitin Seth in his
statement dated 20/10/2016, he stated that Sh. Saxena was
involved in the decision making, it becomes clear from the above
that evasive replies were submitted all the time.
4.3 Further, in this regard to verify the genuineness of party and
credit worthiness of party, Notice u/s 133(6) were issued at address
242/1, Netaji Subhash Road, 1st Floor, Flat No. 102, Howrah, West
Bengal-711101 and Suit No. 5, P-6, Danesh Sekh Lane, Nityanand
Nagar, Bakultolia Makhua, West Bengal. Both notices remained un-
served. Further, to serve notices and to collect information, an
inspector was deputed. He submitted the inspector report which is
enclosed as annexure -1 page no. 61 to 68 in this order. On perusal
of report it becomes clear that at both the addresses the company
is non-existent.
4.4 Vide this office letter dated 13.12.2016 all these fact were
brought to the notice of the assessee and he was provided with an
opportunity to produce the party in this office.
4.5 As the company was non-existing and the director could not
even explain how they manage to get investment at such high
share premium. It pointed out that the company had secured
capital through non-existing or paper companies. How it is possible
that after making such huge investment the share holder is not
even in contact of the company. Further, it was noticed that share
Page | 88
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
certificate are also lying in the assessee company only which clearly
points out that the share allotment was done only on paper to
introduce capital in the company. The reliance is placed on
judgments of j'on'ble Delhi High Court in case of "Commissioner of
Income Tax vs Nova Promoters and Finlease Pvt. Ltd. ITA No. 342
of 201 & "Commissioner of Income tax vs NR Portfolio Pvt. Ltd. ITA
No. 1019/2011 dated Nov. 2013 has explained.
"Evasive and transient approach before the Assessing Officer
is limpid and perspicuous. Identity, creditworthiness or
genuineness of the transaction is not established by merely
showing that the transaction was through banking channels or
by account payee instrument. It may, as in the present case
required entail a deeper scrutiny. It would be incorrect to
state that the onus to prove the genuineness of the
transaction and creditworthiness of the creditor stands
discharged in all cases if payment is made through banking
channels. Whether or not onus is discharge depends upon
facts of each case. It depend on whether the two parties are
related or known to each; the manner or mode by which the
parties approached each other, whether the transaction was
entered into through written documentation to protect the
investment, whether the investor professes and was an angel
investor, the quantum of money, creditworthiness of the
recipient, the object the purpose for which
payment/investment was made etc. These facts are basically
and primarily in knowledge of the assessee and it is difficult
for revenue to prove and establish the negative. Certificate of
incorporation of company, payment by banking channel, etc.
Cannot in all cases tantamount to satisfactory discharge of
onus. The facts of the present case noticed above speak and
are obvious. What is unmistakably visible and apparent,
cannot be spurred by formal but unreliable pale evidence
ignoring the patent and what is plain and writ large. ''
4.6 Similarly in the case of Excel Infotech Pvt. Ltd., notice u/s
133(6) of I.T. Act were v/ issued and further summon u/s 131
issued. Both were served but no compliance was made. It was only
after the issuance of show cause that a confirmation was submitted
in the dak of this office. But it is important here to refer to the reply
submitted by the assessee.
Page | 89
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
To Date:
20-12-2016
The Assistant Commissioner of Income Tax,
Central Circle-26, E-2 Room No-323,
ARA Centre, Jhandewalan Extn.,
New Delhi-110055.
Sub: Assessment proceedings u/s 153A of the I.T. Act, 1961,
requisition of information u/s 142(1) of the Income Tax Act,
1961 of G.D. Foods Manufacturing (India) Pvt. Ltd. for A.Ys.
2009-10 to 2015-16.
Respected Madam,
i. A regarding share premium.
Before adverting to specific replies in respect of share
capital/ premium received from M/s Artlllegence Bio-
Innovations Ltd. and Excel Infotech Ltd, it is apposite to
explain the circumstances in which the share capital
was taken vis-a-vis the business of the assessee
company.
1.1 At the very outset, it is submitted that section 68
of the Act should not be applied in respect of any and
every share capital received where notice cannot be
served or the shareholder chooses not to comply with
the summons. The business exigencies and vagaries
have to be appreciated and understood before invoking
section 68 of the Act.
1.2 Your Honour, we seek to bring to your kind
attention the provisions of section 68 where the word
'may' has been specifically used, meaning thereby that
it is not necessary that every credit in respect of which
the strict standards of proof are not complied with, can
be added to income.
1.3 We are a company which was a market leader In
the years 2008-09 to 2012-13 as far as the domestic
FMCG industry was concerned. We were on a very high
growth trajectory and were adding products almost on a
daily basis. Tops' was a name to be reckoned with and
we used to get a large number of proposals by investors
and businessmen wanting to invest in our company. We
Page | 90
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
had great plans of attaining a high turnover and
eventually coming out with a
public issue for access to cheap funds so that further
expansion of production and projects could take place.
1.4 In the year 2011-12, we decided to part with a
very small fraction of the share capital and acquire
funds at a large premium. Since we were a very well
known company with great prospects, we were in
position to command as much premium as we wanted.
These two companies agreed to pay a premium of Rs.
3*9 on a share of Rs. 10/- each. Hence, by parting with
only with 20,250 numbers of shares of Rs. 10/- each,
we were able to raise a capital of Rs. 1,62,00,000/-
1.5 Your Honour will appreciate that this was a great
business decision where with a fraction of equity, huge
funds were raised. The two investors agreed to invest in
the company as they were convinced that we would be
able to come with a public issue very soon and that
there investment would multiply many folds. In fact,
there was a stage when we were contemplating issuing
share in the market at a premium of close to Rs.
2,000/-.
1.6 Your Honour will agree that share market move
on fundamentals and perceptions. Our fundamentals
were strong, we were on a high growth path and
perception in the market was very very promising.
Hence, to reiterate, we were able to raise the share
capital of Rs. 1,62,0,000/- which indude a premium of
Rs. 1,59,97,500/- and core share capital of Rs.
2,02,500/-.
1.7 It may further be mentioned that there was a bee
line of investors offering to invest at a premium In the
company. We naturally wanted to part with as few
shares as possible and, therefore, would entertain only
those who could give the highest premium. It may
further be appreciated that investors seldom approach
directly and are generally introduced through friends,
relatives, business associates and brokers.
Page | 91
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
1.8 Besides, the parting of share capital was so
insignificant that the promoters did not think It
necessary to do any major due diligence in respect of
the investors. Funds at zero cost were being made
available without parting with any stake.
1.9 One would be naive to refuse accepting such
funds when there was no risk involved whatsoever. It
may also be appreciated that in a private limited
company, minority share
holders cannot transfer the shares to an outsider
without the approval of the other shareholders.
1.10 Hence, for all practical purposes, the investor had
hardly any right and would only benefit if the company
came out with public issue. These two investors were
willing to take chances with us on the assurances and
promises made by our associates who introduced them
to the company.
B. Now coming to the specifics, in respect of M/s
Artillegence Bio-Innovations Ltd., we
distinctly remember that, one Shri Deepak Sharma
introduced the shareholder to the CFO of the company.
Since the CFO is akin to the Board of Directors, he was
entitled to take decisions on behalf of the company and
was a man of trust. After doing his due diligence, he
intimated to the promoters who without going into
much details approved the receipt of the share capital.
1.1 The usual Balance Sheet, Profit and Loss Account
and other financials were taken and the shares were
issued to shareholders.
The said shareholder is in existence and is filing Its
return of income. The investment made in our company
sits in the asset side of the audited report and,
therefore, factually the transactions stand fully
vouched.
1.2 Your Honour, we may mention here that the
company which was doing so well suddenly went
through rough times because of the general depression
in the market and melt down of the global economy and
Page | 92
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
not even a fraction of the projected growth could be
achieved over a period of four years beginning 2011-12.
The sales were almost flat. The public issue had to be
deferred indefinitely. The company was, as Your Honour
knows, making losses.
1.3 Under these circumstances, there was no exact
option for the minority shareholders who through the
company Secretary made a large number of requests.
Subsequently, the company secretary left the company
and since he was our only contact to the shareholders,
no further correspondence was obtained.
1.4 We are unable to understand why the notice at
the address has remained un-served. The company
exists at the ROC site and has a permanent account
number and ward.
1.5 In view of the aforesaid circumstances, the
provisions of section 68 would not apply and ours is one
case, where looking at the overall circumstances, the
share capital is genuine and
credible.
1.6 Without prejudice to the aforesaid, we request
Your Honour to use the machinery available in the Act
to seek confirmation from the company which, needless
to add, is live and existing.
As far as M/s Excel Infotech Ltd. is concerned, the said
shareholder was also introduced to us under similar
circumstances. Your good self has mentioned that
notice has been served but no compliance has been
made. Service of notice goes to prove the existence and
the identity of the shareholders which is what is the
mandate of law.
The Hon'ble Supreme Court in the case of OT v. Lovely
Exports (P.) Ltd. [2008] 216 CTR 195 (SC) has held as
under.-
"If share application money is received by
assessee-company from alleged bogus
shareholders, whose names are given to
Assessing Officer, then Department is free to
Page | 93
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
proceed to reopen their individual assessments in
accordance with law but this amount of share
money cannot be regarded as undisclosed income
under section 68 of assessee-company'.
2.1 Since the identity of the shareholders is
established, the same share capital deserves to be
accepted.
2.2 Your Honour, it is common knowledge that share
capital is a capital receipt for the company and the
shareholder is the last entity to be repaid and that too
happens only when the company is wound up.
2.3 We request you to kindly appreciate our
predicament and not compel us to take any step which
could be detrimental to the interest of our business.
In view of the aforesaid, since the overall genuineness
of the share capital received is established, the same
may kindly be accepted.
Finally we wish to state that these two shareholders
represent only 1.17% of the share capital issued.
4.7 The reply filed by assessee was duly considered but found not
acceptable as Assessee has failed to explain why the original
share certificates are kept with the /company when it should
be given to the party? Further, how they manage to sell their
share such high share premium. Further, the reply filed by
assessee is evasive they could not even explained how the
company came in contact with these parties. Who introduced
them with each other? Further, in case of Artiligence Bio-
Innovation Pvt. Ltd. the enquiry proves that the company is
non-existent.
4.8 Based on the above discussion it is clear that the transactions
even though has taken place through banking channel but are
non genuine transactions. So, the share capital introduced
through above parties is added to the income of the assessee
u/s 68 of the Act.
(Addition of Rs.1,62,00,000/-)"
Page | 94
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
63. The assessee aggrieved preferred appeal before the ld CIT(A), who dealt
with the issue as under:-
"8. Ground no.7 relates to addition of Rs.1,62,00,000/- made by
the AO under section 68 of the IT Act. The fact of the case is that
during the course of search action from the premise of the appellant
original share certificates and original application letters were seized
in the name of M/s Excel Infotech P. Ltd. and M/s Artiligence Bio
Innovation P. Ltd. On perusal of the fact, it was found that the
appellant had allotted shares at face value of Rs.10 and share
premium of Rs.790 each. Total 6500 and 13750 shares were allotted
in the name of M/s Excel Infotech P. Ltd. and M/s Artiligence Bio
Innovation P. Ltd. from whom payments of Rs.52,00,000/- and
Rs.1,10,00,000/- respectively was shown to have been received. To
verify the genuineness of the transactions, notices under section
133(6) were issued but the notices received back underserved. An
inspector was also deputed to verify the whereabouts of these
companies but at the given addresses both the companies were
found to be non existed. Therefore, the AO made addition of the
impugned amount under section 68 of the IT Act.
8.1 The appellant has submitted that:-
"........ List of shareholders with address & percentage of holding was
filed before the Ld. AO.
i. Appellant further submitted, Form no.2, return of allotment with
the bank account where the share application money had been
received.
ii. A copy of the balance sheet along with share allotment form
duly filed with the ROC was filed before the Ld. AO.
Reliance is placed on the following decisions: (Copy of decisions is
attached)
a) CIT v. Lovely Exports (P) Ltd. [2008] 216 CTR 195 (SC);
b) CIT v. Steller Investment Ltd. [2001] 115 taxman 99 (SC);
Page | 95
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
c) CIT v. Dwarkadhish Investment (P.) Ltd. [2011] 239 CTR 478
(Delhi HC);
d) CIT v. Kamdhenu Steel & Alloys Ltd. [2012] 248 CTR 33
(DelhiHC);
e) CIT v. Oasis Hospitalities (P.) Ltd. [2011] 238 CTR 402 (Delhi
HC);
f) CIT v. Value Capital Services (P.) Ltd. [2008] 307 ITR 334
(DELHI);
g) Bhav Shakti Steel Mines (P) Ltd v. CIT (2009) 18 DTR (Del)
194;
h) CIT v. Sameer Biotech (P) Ltd (2009) 17 DTR 224 (Del);
i) Orient Trading Co [1963] 49 ITR 723 (BOM HC)
Copy of statement recorded was not confronted to the appellant
iii. Even though the same has been used against the appellant.
iv. The AO is duty bound to suo moto furnish the statement /
evidence etc he seeks to rely upon against the appellant.
v. Following decision are relied upon (Copy of decisions is
attached)
a) Kishinchand Chellaram v. Commissioner of Income-tax (1980)
125 ITR 713 (SC);
b) Dhakeswari Cotton Mills Ltd v. Commissioner of Income-tax
(1954) 26 ITR 775 (SC);
c) Commissioner of Income-tax v. JMD Computers &
Communications (P.) Ltd. [2009] 180 Taxman 485 (Delhi);
d) Commissioner of Income-tax v. G.C.B. Capital Finance (P.)
Ltd [2009] 2 axmann.com 23 (Delhi);
e) Additional Income-tax Officer v. Ponkunnam Traders [1976]
102 ITR 366 (Kerala);
Page | 96
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
f) Cheil India (P.) Ltd v. Assistant Commissioner of Income-tax
[2012] 146 TTJ 17 (Delhi -Trib.);
g) Income-tax Officer v. Puneet Chugh [2005] 2 SOT 101 (Delhi
trib);
h) Babcock Power (Overseas Projects) Ltd v. Deputy
Commissioner of Income- tax [2003] 131 TAXMAN 86 (DELHI)
(MAG.) ITA No. 1388 and 1389 (Delhi) of 1993;
Smt. Surjeet Kaur v. Income-tax Officer [2001] 119 TAXMAN 33
(HYD.) (MAG.) ITA No. 354 (HYD.) OF 1996.
8.2 I have considered the facts and circumstances of the case,
submission of the appellant and perused the assessment order. I find
that the fact remains that the appellant could not got verified the
identity and creditworthiness of both the companies by filing the
relevant documents and by making available those parties for
verification. Thereby, the transactions could not be proved to be
genuine.
8.3 Onus was on the appellant to prove genuineness of the
transactions shown by them but they failed to do so. The
abovementioned companies appear to be only paper companies who
had no business activities and they were engaged in giving
accommodation entries. In this regard, judgements of Hon'ble Delhi
High Court in the cases of CIT Vs. Nova Promoters and Finlease (P)
Ltd. (2012) 342 ITR 169 (Del) and CIT Vs. N.R.portfolio Pvt.
Ltd.(2014) 264 CTR 258 (Del) are relied upon. Further, the
judgement of Hon'ble Kolkata High Court in the case of Rajmandir
Estate Pvt. Ltd. (2016) reported in 70 Taxmann.com 124 (Cat) and
the judgement of ITAT, 'D' Bench, Mumbai in ITA no.l835/Mum/2014
dated 24.8.2016 in the case of Royal Rich Developers Pvt. Ltd. are
also relied upon. In view of the facts of the case, I am of the
considered view that this is not sufficient to discharge the onus cast
on the appellant as contemplated u/s.68 of the Act just giving
addresses and PAN of the persons concerned when the AO has
doubted the credit worthiness/capacity of the share holders. The
genuineness of the transaction was also doubted by the AO wherein
the share applicants did not have any business/project in hand and is
merely a paper company. Section 68 of the Act cast onus on the
appellant to satisfy the ingredients of Section 68 to establish the
identity and creditworthiness of the creditors and to establish the
genuineness of the transactions. Once appellant filed the basic details
such as name and address of creditor, PAN, income tax return,
Page | 97
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
confirmation and bank statement, the initial onus gets discharged but
since, the AO has doubted the creditworthiness of the share
subscribers and genuineness of the transaction as per the reasons
cited and set out above, the onus shifts back to the appellant
company to offer an explanation to the satisfaction of the AO as
contemplated u/s 68 of the Act which could have been discharged by
producing the shareholders before the AO so that truth behind the
smokescreen could have been unraveled by the AO by interrogating
them. The burden/onus is cast on the appellant and the appellant is
required to explain to the satisfaction of the AO cumulatively about
the identity and capacity/creditworthiness of the creditors along with
the genuineness of the transaction. All the constituents are required
to be cumulatively satisfied. If one or more of them is absent, then
the AO can make the additions u/s 68 of the Act as an income. The
fact remains that the company is private company in which public are
not substantially interested these type of companies are mostly
family controlled companies for which the onus as required u/s 68 of
the Act is very heavy to prove identity and capacity of the
shareholders and genuineness of the transaction. In view of the
above discussion, I am of the considered view that merely
submission of the name and address of the share subscriber, income
tax returns, Balance Sheet/statement of affairs of the share
subscriber and bank statement is not sufficient as the AO is to be
satisfied as to their identity and creditworthiness as well as to the
genuineness of the transaction entered into. The alleged share
holders were not found to be in existence and thus, the onus shifts
back to the appellant to produce the shareholders before the AO and
if the appellant falters, the additions can be made u/s 68 of the Act.
Section 68 of the Act has been amended by Finance Act, 2012 w.e.f.
01- 04-2013 whereby the onus is cast upon the appellant company
to justify the sources of share subscription, to explain the source of
the source of raising the share subscription which has been held to
be clarificatory in nature. In the present case, the appellant company
is a private company who could not prove the identity and credit
worthiness of the alleged share subscribers and the genuineness of
the share subscriptions. Being private limited company wherein no
public issue has been floated to raise the share capital, it was
therefore, viable and proper and duty on the part of the appellant to
prove genuineness of the transactions but the fact remains that the
appellant could not prove the same. They were not found to be in
existence on the given address. Though the appellant company was
obliged to prove:-
Page | 98
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
(a) The identity of the alleged share holders.
(b) The credit worthiness of the share holders.
(c) The genuineness of the transactions.
But it is clear from the facts as discussed above that the appellant
could not prove the same, therefore, in the light of above facts and
case laws as discussed above, I am of the considered view that the
AO was justified to make addition u/s 68 of the IT Act.
64. The ld Authorised Representative submitted that during the course of
assessment proceedings the assessee has submitted complete details of
these parties in the form of company master data, the address of the
companies, their permanent account no, their confirmation, the copy of
the bank account along with return of income and explanation regarding
the share premium. It also submitted the balance sheet and profit and
loss account of those companies. He further referred to the balance sheet
of the Excel Infotech Ltd which has the fixed asset of Rs. 47.32 crores,
investment of Rs. 306 crores and loans and advances of Rs. 323/- crores.
He further submitted that investor has earned profits of Rs. 29 lacs and
paid tax of Rs. 19 lacs. He further submitted that investment made by the
above company is only Rs. 52 lacs. He therefore, submitted as the
company has invested in the shares and there is no information adverse
available with the ld Assessing Officer, amount is wrongly added. With
respect to Artlligence Bio Innovations Ltd, he referred to the confirmation,
balance sheets, bank accounts of the assessee company and submitted
that the net worth of the above company was Rs. 26.62 crores and turn
over of that company was Rs. 12 crores. He further submitted that it
remains merely an allegation of the ld AO that these are accommodation
entries or paper companies. It was further stated that when these
companies have such a huge capital base, fixed assets, income tax
records, it cannot be said that these are the paper companies. He further
Page | 99
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
submitted that the original share certificate were to be handed over to
these companies and therefore, they were found with the assessee. He
further submitted that if these original share certificates along with the
blank signed share transfer form of these shares would have been found
then the allegation of the ld Assessing Officer would have some credence.
He submitted that all these companies are regularly assessed with income
tax department and their return of income is shown to the Assessing
Officer. There is no reason to show that these are the paper companies.
He further submitted that assessee has given the complete last known
address of these share holders and shares are still in the name of these
companies. He further submitted that the original share certificate cannot
be considered as an incriminating material found during the search. He
further submitted that for the AY the original return was filed on
28.09.2011, where the total income declared is Rs. 1.87 crores. He
further stated that original share certificate were to be handed over to the
share holders and therefore, were found with the assessee and
furthermore the share application forms are to be addressed to the
assessee company by those companies and therefore, they should have
been found with the assessee company only. Therefore, he submitted
that these are not incriminating material which can disturb the concluded
assessment. He submitted that the due date for issue of notice u/s
143(2) of that Act against original return filed on 28.09.2011, has already
passed on 30.09.2012, therefore, it is a concluded assessment. He
therefore, submitted that vide ground No. 1.1 read with ground No. 5 this
issue needs to be considered in view of the decision of the Hon'ble Delhi
High Court in case of CIT Vs. Kabul Chawla. He further referred to the
decision of the ld CIT(A) and submitted that vide para No. 5 he has
brushed aside this argument.
Page | 100
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
65. The ld Departmental Representative vehemently relied upon the orders of
the lower authorities.
66. We have carefully considered the rival contentions and perused the
orders of the lower authorities. Admittedly, assessee has filed original
return of income on 28.09.2011 declaring total income of Rs. 18719600/-
. The date of search is 22.12.2014. Therefore, undisputedly, up to the
date of search no notice u/ 143(2) of the Act was issued to the assessee,
therefore, the impugned assessment year was a concluded assessment
year and could have been disturbed only on the basis of incriminating
material found during the course of search. Such is the mandate of the
decision of the Hon'ble Delhi High Court in CIT Vs. Kabul Chawla 380 ITR
573. The Hon'ble Delhi High Court has held so in para No. 37 of the
decision. In series of decision there after Hon'ble Delhi High Court has
upheld the above view. Same is also supported by the decision of the
Hon'ble Bombay, Karnataka and Gujarat High Court. Therefore, in view of
this we have to examine whether there are any incriminating material
found during the course of search or not. During the course of search the
documents were found in the form of
a. Original share certificate in the name of Excel Infotech Ltd and
Altillegence Bio Innovations Ltd
b. The original share application letters
67. The two share certificate were found showing the registered folio NO. 77
and 78 vide Certificate No. 86 and 87 of 6500 and 13750 shares issued to
the above two companies on 2nd Day of December 2010. As the
companies whose name is appearing in the share holders register
registered and to whom the shares were issued are same at the most, it
can be said that share certificate were not handed over to the holder of
those shares. Merely holding a share certificate without duly signed blank
Page | 101
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
transfer forms, they do not become incriminating documents. It is also
not the case of the revenue that later on these shares were transferred to
the promoters at substantially reduced prices or they have been sold to
somebody else. At the most, it can be said that a document belonging to
the third person was found which does not have any marketability in
absence of duly signed transfer forms. Therefore, we are of the opinion
that original share certificate found cannot be held to be an incriminating
material which can change the income of the assessee.
68. Further, with respect to the original share application letters issued to the
assessee company by those share holders is definitely to be found with
the assessee only. Those share application letter found in original with the
assessee is not an incriminating material.
69. In view of this and respectfully following the decisions of the various High
Court including the jurisdictional High Court, we hold that above addition
of Rs. 1.62 crores made by the ld Assessing Officer and confirmed by the
ld CIT(A) is without any incriminating material found during the course of
search and hence, the orders of the lower authorities are reversed to that
extent. Accordingly, ground No.5 of the appeal read with ground No. 1 of
the appeal are allowed.
70. Accordingly, ITA No. 1190/Del/2018 filed by the assessee is partly
allowed.
71. The revenue has raised the following grounds of appeal in ITA NO.
1466/Del/2018 for the Assessment Year 2011-12:-
1. That on the facts and in the circumstances of the case, the ld
CIT(A) has erred in law and on facts in deleting the addition of Rs.
10,75,28,810/- on account of undisclosed sales, which was arrived
at by the AO on the basis of matching of data retrieved from seized
server and disclosed sales."
Page | 102
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
72. The ground No. 1 of the appeal of the revenue is with respect to deletion
of addition of 107528810/- on account of undisclosed sales. Identical
issue has been decided by us in appeal of the revenue for assessment
year 2014 15 in ground number 1 of the appeal where we have upheld
the order of the learned CIT(A) as the amount involved was only on
account of stock transferred from head office to branch and branch to
head office or other branches and not the sales. Accordingly we also
decide ground No. 1 of the appeal of the revenue against the learned
assessing officer and direct him to delete the addition of 107528810/-
on account of undisclosed sales. Accordingly, ground No. 1 of the appeal
is dismissed.
73. Accordingly appeal of the revenue for AY 2011-12 is dismissed.
74. Accordingly, for AY 2011-12 appeal of the assessee is partly allowed and
appeal of the revenue is dismissed.
AY 2012-13
75. The assessee has raised the following grounds of appeal in
1185/Del/2018 for the Assessment Year 2012-13:-
"1. That the order of the Ld. CIT (A] dated 26.12.2017 is bad in law
and on facts.
1.1 That the Ld. CIT(A) has erred on facts and in law in ignoring the
settled legal preposition that admittedly there was no incriminating
material found as a result of search, assessment order passed u/s
153A of the Act was bad in law and void ab initio.
1.2 That the Id. C1T(A) failed to consider the fact that documents found
and seized were essentially the actual profit & loss account which
depicted losses only and there was no unexplained assets or wealth
found during the course of search.
2 That the ld. CIT(A) has erred in not adjudicating the ground that
neither the copy of statements recorded during the course of search
were provided nor an opportunity of cross examination was
accorded to the assessee.
Page | 103
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
3. That the ld. CIT (A) has erred in not considering the contemporary
and conclusive evidence in the form of excel sheet recordings and
monthly profitability statements giving the real/actual profitability
found in the computers seized during course of search.
3.1 That the Id. CIT (A) has ignored the settled principles of taxing real
income as laid down by the Hon'ble Supreme Court in various
decisions.
3.2 That the ld. CIT(A) has erred in not considering the fact that the
actual profitability statement and other critical data seized during
the course of search for the impugned assessment year was not
provided to the assessee company in spite of repeated requests
made by the assessee company in this regard.
3.3 That the ld. CIT (A) has erred in considering only selective part of
actual profitability statements as true and correct and ignoring the
rest i.e. Income shown in actual profitability has been added into
the hands of assessee without allowing the claim of expenses made
in this regard.
3.4 That the Ld. CIT (A) has erred in not adjudicating the grounds 3 to
3.4 (supra) which were the grounds 4 to 4.3 raised before ld.
CIT(A).
4 That the Id. CIT(A) has erred in sustaining the addition of Rs.
4,69,73,173/- on account of bogus purchase.
4.1 That Ld. CIT(A) further erred in stating that no supporting detail
regarding expenses incurred in cash was filed therefore no cash
expense was incurred despite the fact that he himself accepted the
seized excel sheets showing unaccounted cash expenses as true.
4.2 That without prejudice to the above, the Id. CIT(A) has failed to
consider the fact that if assessee had recorded and accounted for
the alleged bogus purchases in its audited accounts then equivalent
amount of stock would also have inflated which negated the effect
on profitability.
5. That the ld CIT(A) has erred in sustaining the addition of Rs.
30,36,913/- as unexplained credit u/s 68 of the Act despite the fact
that assessee has sufficiently discharged the onus of proving
identity, genuineness and creditworthiness by filing detailed
submission supported with contemporary and conclusive
evidences."
Page | 104
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
76. Only issue involved in this appeal of the assessee with respect to ground
Nos. 1 to 5 are with respect to the addition on account of bogus
purchases of Rs. 46973173/- and sale of scrap of Rs. 30,36,913/- made
by the learned assessing officer and confirmed by the learned CIT(A). We
have already decided the above issue in appeal of the assessee for
assessment year 2014 15 wherein we have held that the whole addition
on account of bogus purchases and estimated sale of scrap cannot be
made. For the similar reasons, the addition made by the learned
assessing officer and confirmed by the learned CIT(A) of 46973173/- on
account of Bogus purchases and Rs. 3036913/- on account of estimated
sale of scrap cannot be sustained but appropriate percentage of
unaccounted expenditure for which we have held that 8% is the
appropriate percentage to sustain the addition. Accordingly, we direct the
learned assessing officer to sustain the addition to that extent only.
Accordingly, Ground Nos. 1 to 5 of the appeal of the assessee is partly
allowed.
77. Appeal of the assessee is partly allowed.
78. The revenue has raised the following grounds of appeal in ITA NO.
1467/Del/2018 for the Assessment Year 2012-13:-
1. That on the facts and in the circumstances of the case, the ld
CIT(A) has erred in law and on facts in deleting the addition of Rs.
15,40,00,267/- on account of undisclosed sales, which was arrived
at by the AO on the basis of matching of data retrieved from seized
server and disclosed sales."
79. The ground number 1 of the appeal of the revenue is with respect to
deletion of addition of 154000267/- was made on account of
undisclosed sales. Identical issue has been decided by us in appeal of the
revenue for assessment year 2014 15 in ground No. 1 of the appeal
where we have upheld the order of the learned CIT(A) as the amount
Page | 105
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
involved was only on account of stock transferred from head office to
branch and branch to head office or other branches and not the sales.
Accordingly, we also decide ground No. 1 of the appeal of the revenue
against the learned assessing officer and direct him to delete the addition
of 154000267/- on account of undisclosed sales. Accordingly, ground
number 1 of the appeal is dismissed.
80. Accordingly appeal of the revenue for AY 2012-13 is dismissed.
81. Accordingly, for AY 2012-13 appeal of the assessee is partly allowed and
appeal of the revenue is dismissed.
AY 2013-14
82. The assessee has raised the following grounds of appeal in
1186/Del/2018 for the Assessment Year 2013-14:-
"1. That the order of the Ld. CIT (A] dated 26.12.2017 is bad in law
and on facts.
1.1 That the Ld. CIT(A) has erred on facts and in law in ignoring the
settled legal preposition that admittedly there was no incriminating
material found as a result of search, assessment order passed u/s
153A of the Act was bad in law and void ab initio.
1.2 That the Id. CIT.(A) failed to consider the fact that documents
found and seized were essentially the actual profit & loss account
which depicted losses only and there was no unexplained assets or
wealth found during the course of search.
2 That the ld. CIT(A) has erred in not adjudicating the ground that
neither the copy of statements recorded during the course of search
were provided nor an opportunity of cross examination was
accorded to the assessee.
3. That the ld. CIT (A) has erred in not considering the contemporary
and conclusive evidence in the form of excel sheet recordings and
monthly profitability statements giving the real/actual profitability
found in the computers seized during course of search.
Page | 106
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
3.1 That the Id. CIT (A) has ignored the settled principles of taxing real
income as laid down by the Hon'ble Supreme Court in various
decisions.
3.2 That the ld. CIT(A) has erred in not considering the fact that the
actual profitability statement and other critical data seized during
the course of search for the impugned assessment year was not
provided to the assessee company in spite of repeated requests
made by the assessee company in this regard.
3.3 That the Id. CIT(A) has overlooked the presumption laid down u/s
132(4A) of the Act which say that documents/material found during
the course of search are supposed to be true and correct and same
are to be considered for the purpose of assessment for the relevant
assessment year.
3.4 That the Ld. CIT (A) has erred in not adjudicating the grounds 3 to
3.4 (supra) which were the grounds 4 to 4.3 raised before ld.
CIT(A).
4 That the Id. CIT(A) has erred in sustaining the addition of Rs.
4,10,20,635/- on account of bogus purchase.
4.1 That Ld. CIT(A) further erred in stating that no supporting detail
regarding expenses incurred in cash was filed therefore no cash
expense was incurred despite the fact that he himself accepted the
seized excel sheets showing unaccounted cash expenses as true.
4.2 That without prejudice to the above, the Id. CIT(A) has failed to
consider the fact that if assessee had recorded and accounted for
the alleged bogus purchases in its audited accounts then equivalent
amount of stock would also have inflated which negated the effect
on profitability.
5. That the ld CIT(A) has erred in sustaining the addition of Rs.
7573380/- as unexplained credit u/s 68 of the Act despite the fact
that assessee has sufficiently discharged the onus of proving
identity, genuineness and creditworthiness by filing detailed
submission supported with contemporary and conclusive
evidences."
83. Only issue involved in this appeal of the assessee with respect to ground
Nos. 1 to 5 are with respect to the addition on account of bogus
purchases of Rs. 41020635/- and sale of scrap of Rs. 7573380/- made
by the learned assessing officer and confirmed by the learned CIT(A). We
have already decided the above issue in appeal of the assessee for
Page | 107
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
assessment year 2014 15 wherein we have held that the whole addition
on account of bogus purchases and estimated sale of scrap cannot be
made. For the similar reasons the addition made by the learned assessing
officer and confirmed by the learned CIT(A) of 41020635/- on account
of Bogus purchases and Rs. 7573380/- on account of estimated sale of
scrap cannot be sustained but appropriate percentage of unaccounted
expenditure for which we have held that 8% is the appropriate
percentage to sustain the addition. Accordingly, we direct the learned
assessing officer to sustain the addition to that extent only. Accordingly,
Ground no. 1 to 5 of the appeal of the assessee is partly allowed.
84. Accordingly, appeal of the assessee for AY 2013-14 is partly allowed.
85. The revenue has raised the following grounds of appeal in ITA NO.
1468/Del/2018 for the Assessment Year 2013-14:-
1. That on the facts and in the circumstances of the case, the ld
CIT(A) has erred in law and on facts in deleting the addition of Rs.
18,59,00,772/- on account of undisclosed sales, which was arrived
at by the AO on the basis of matching of data retrieved from seized
server and disclosed sales."
86. The ground number 1 of the appeal of the revenue is with respect to
deletion of addition of 185900772/- on account of undisclosed sales.
Identical issue has been decided by us in appeal of the revenue for
assessment year 2014 15 in ground number 1 of the appeal where we
have upheld the order of the learned CIT A as the amount involved was
only on account of stock transferred from head office to branch and
branch to head office or other branches and not the sales. Accordingly we
also decide ground No. 1 of the appeal of the revenue against the learned
assessing officer and direct him to delete the addition of 185900772/-
on account of undisclosed sales. Accordingly, ground number 1 of the
appeal is dismissed.
Page | 108
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
87. Accordingly, appeal of the revenue for AY 2013-14 is dismissed.
88. Accordingly, for AY 2013-14 appeal of the assessee is partly allowed and
appeal of the revenue is dismissed.
AY 2015-16
89. The assessee has raised the following grounds of appeal in
1181/Del/2018 for the Assessment Year 2015-16:-
"1. That the order of the Ld. CIT (A] dated 26.12.2017 is bad in law
and on facts.
2 That the Id. CIT.(A) failed to consider the fact that documents
found and seized were essentially the actual profit & loss account
which depicted losses only and there was no unexplained assets or
wealth found during the course of search.
3 That the ld. CIT(A) has erred in not adjudicating the ground that
neither the copy of statements recorded during the course of search
were provided nor an opportunity of cross examination was
accorded to the assessee.
4. That the ld. CIT (A) has erred in not considering the contemporary
and conclusive evidence in the form of excel sheet recordings and
monthly profitability statements giving the real/actual profitability
found in the computers seized during course of search.
4.1 That the Id. CIT (A) has ignored the settled principles of taxing real
income as laid down by the Hon'ble Supreme Court in various
decisions.
4.2 That the ld. CIT(A) has erred in not considering the fact that the
actual profitability statement and other critical data seized during
the course of search for the impugned assessment year was not
provided to the assessee company in spite of repeated requests
made by the assessee company in this regard.
4.3 That the Id. CIT(A) has overlooked the presumption laid down u/s
132(4A) of the Act which say that documents/material found during
the course of search are supposed to be true and correct and same
are to be considered for the purpose of assessment for the relevant
assessment year.
Page | 109
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
4.4 That the Ld. CIT (A) has erred in not adjudicating the grounds 3 to
3.4 (supra) which were the grounds 4 to 4.3 raised before ld.
CIT(A).
5. That the Id. CIT(A) has erred in sustaining the addition of Rs.
3,34,60,835/- on account of bogus purchase.
5.1 That Ld. CIT(A) further erred in stating that no supporting detail
regarding expenses incurred in cash was filed therefore no cash
expense was incurred despite the fact that he himself accepted the
seized excel sheets showing unaccounted cash expenses as true.
5.2 That without prejudice to the above, the Id. CIT(A) has failed to
consider the fact that if assessee had recorded and accounted for
the alleged bogus purchases in its audited accounts then equivalent
amount of stock would also have inflated which negated the effect
on profitability.
6. That the ld CIT(A) has erred in sustaining the addition of Rs.
44,75,974/- on account of undisclosed income from scrap sales
despite the fact the same was considered and disclosed by the
assessee in actual profitability statement filed by the assessee
during the assessment as well as CIT(A) proceedings.
7. That the ld CIT(A) has erred in sustain the addition of Rs.
6,86,482/- on account of undisclosed investment in excess stock."
90. One issue involved in this appeal of the assessee with respect to
ground Nos. 1 to 6 are with respect to the addition on account of bogus
purchases of Rs. 33460836/- and sale of scrap of Rs. 4475974/- made
by the learned assessing officer and confirmed by the learned CIT(A). We
have already decided the above issue in appeal of the assessee for
assessment year 2014 15 wherein we have held that the whole addition
on account of bogus purchases and estimated sale of scrap cannot be
made. For the similar reasons, the addition made by the learned
assessing officer and confirmed by the learned CIT(A) of 41020635/-
on account of Bogus purchases and Rs. 7573380/- on account of
estimated sale of scrap cannot be sustained but appropriate percentage
of unaccounted expenditure for which we have held that 8 % is the
Page | 110
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
appropriate percentage to sustain the addition. Accordingly, we direct the
learned assessing officer to sustain the addition to that extent only.
Accordingly, Ground no. 1 to 6 of the appeal of the assessee is partly
allowed.
91. Ground no 7 of the appeal of the assessee is against the sustenance of
addition of Rs 686482/-.
92. Brief facts of the issue is that the ld Assessing Officer has found that
there is shortage/ excess of stock with respect to several items at
respective plants of the assessee. He worked out the excess stock of Rs.
686482/- which was added to the income of the assessee. The assessee
challenged the same before the ld CIT(A), who vide para No. 8 of his
order confirmed the same as under:-
"8. Ground no.8 relates to addition of Rs.6,86,482/- made by the
AO on account of undisclosed investment in stock. The fact of the
case is that during the course of search action excess stock of the
impugned amount was found, however, no explanation was offered
by the appellant, therefore, the AO made addition of the same.
8.1 I have considered the facts and circumstances of the case,
submission of the appellant and perused the assessment order. I
find that though the appellant has submitted that they were dealing
in numbers of items, therefore, it was not practically feasible to
update each item of stock in the books of accounts on day oasis.
Further, they have also submitted that the AO has not given any
cause on this issue. However, I find that even before me the
appellant has given any reconciliation or cogent explanation with
regard to excess stock found. Under these circumstances, I do not
find any infirmity in the AO's order, therefore, appeal on this
ground is dismissed."
93. The ld Authorised Representative submitted that there are several
discrepancies during the course of physical verification and further
assessee is dealing in number of items, therefore, such small excess
stock cannot be added.
Page | 111
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
94. The ld Departmental Representative supported the orders of the lower
authorities.
95. We have carefully considered the rival contentions and perused the
orders of the lower authorities. The ld Assessing Officer found excess
stock with respect to certain items which could not be explained by the
assessee. The appellant could not also show any reconciliation before us.
In view of this, we do not find any infirmity in the order of lower
authorities in confirming the above addition. Accordingly, ground No. 7 of
the appeal of the assessee is dismissed.
96. In the result ITA No. 1181/Del/2017 filed by the assessee for the AY
2015-16 is partly allowed.
97. The revenue has raised the following grounds of appeal in ITA NO.
1470/Del/2018 for the Assessment Year 2015-16:-
"1. That on the facts and in the circumstances of the case the ld CIT(A)
has erred in law and on facts in deleting the addition of Rs.
24,24,26,858/- on account of undisclosed sales, which was arrived
at by the AO on the basis of matching of data retrieved from seized
server and disclosed sales.
2. That on the facts and in the circumstances of the case, the LD CIT
(A) has erred in law and on facts in deleting the addition of Rs.
5,51,68,843/- on account of short stock and undisclosed sales.
3. That the grounds of appeal are without prejudice to each other."
98. The ground number 1 of the appeal of the revenue is with respect to
deletion of addition of 242426858/- was made on account of
undisclosed sales. Identical issue has been decided by us in appeal of the
revenue for assessment year 201415 in ground number 1 of the appeal.
There we have upheld the order of the learned CIT(A) as the amount
involved was only on account of stock transferred from head office to
branch and branch to head office or other branches and not the sales.
Accordingly we also decide ground number 1 of the appeal of the revenue
Page | 112
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
against the learned assessing officer and direct him to delete the addition
on account of 242426858/- on account of undisclosed sales.
Accordingly, ground number 1 of the appeal is dismissed.
99. Ground no 2 of the appeal is against the addition of Rs. 551568843/-
deleted by the ld CIT(A).
100. Brief facts of the case is that the ld Assessing Officer made an addition of
above amount holding that as on the date of search stock was found
short by Rs. 213915638/- which means assessee has sold such stock out
of books and therefore, gross profit @25.79% calculated thereon was
charged to tax amounting to Rs. 55168843/-. The assessee challenged it
before the ld CIT(A), who dealt the same as under:-
"9. Ground No.9 relates to addition of Rs.5,51,68,843/- made by
the AO on account of GP on the short stock of Rs.21,39,15,638/-
found which was sold out of books of account. The fact of the case
is that during the course of search action shortage of stock of the
impugned amount was found, however, no explanation was offered
by the appellant, therefore, the AO made addition of the same on
account of GP assuming that the stock of the impugned amount
was sold out of books.
9.1 The appellant has submitted that:-
Basis of determining the undisclosed sales is ad hoc, absurd
and bereft of any basis of precedent
i. Addition on account of undisclosed sales can be made
only when there is some corroborative material /
evidence found during the course of search. It is
undisputed fact that the stock found during the course
of search was Rs. 28,89,38,712/-
ii. It devoid any logic how addition on account of
undisclosed sales can be made that too on guess work,
presumption and surmises in the absence of any
material found during the course of search.
iii. The Id. AO has ignored the fact that the since
admittedly the purchases totaling to Rs 23,48,19,023/-
from FY 2008-09 to 2014-15 against which cash was
Page | 113
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
received back were accounted for in the audited
accounts, the purchases and equivalent amount of stock
in the said audited accounts are in excess to that
extent,
i. Since these purchases were never made, this stock was
never received. In the closing stock appearing in the
audited accounts, the value of stock would be higher to
the extent of the purchases against which cash has
been received back.
iv. Due to the aforesaid fact, the amount of closing stock
inflated in the audited books was almost equal to the
amount of bogus purchases and hence nullifying the
effect on the profitability of the company.
v. Without prejudice to the aforesaid, it is submitted that
this is a case of search u/s 132(1) of the Act. The
Hon'ble Delhi High Court in the case of Commissioner of
Income-tax (Central)-lll v. Kabul Chawla [2016] 380
ITR 573 (Delhi) has very clearly held that the addition
shall be confined to the evidence of undisclosed income
/ investment found during the course of search.
Indubitably, there is no evidence to even remotely
suggest that undisclosed sales of such an amount was
existent as on the date of search.
vi. The above decision is ratified by the co-ordinate bench
of Hon'ble Delhi High Court in the case of Pr.
Commissioner of Income-tax Central-2 v. Meeta
Gutgutia IT A No. 306, 307, 308, 309 & 310 of 2017.
(Copy of decision is enclosed)
vii. There are a plethora of case laws decided by the
various other High Courts across the country on the
said issue wherein and have ratified the above decision
of Hon'ble Delhi High Court, such addition cannot be
made unless there is clear evidence of undisclosed
income found during the course of search.
Following are the decisions (Copies of decision is
enclosed):
Page | 114
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
- Commissioner of Income-tax-ll, Thane v.
Continental Warehousing Corporation (Nhava
Sheva) Ltd [2015] 374 ITR 645 (Bombay);
- Commissioner of Income-tax, Bangalore v. Lancy
Constructions [2016] 66 taxmann.com 264
(Karnataka);
- Principal Commissioner of Income-tax-4 v.
Saumya Construction (P.) Ltd. 387 ITR 529
(Gujarat)
viii. In search related matters guess work and that too
based on absurdity is impermissible. There is plethora
of decisions which supports the fact that estimation of
income on account of undisclosed sales in the absence
of corroborative material found during the course of
search is not permitted.
Reliance is placed on following (Copy of the same is enclosed)
a) Commissioner of Income-tax v. H.C. Chandna (P.) Ltd.
[2008] 299 ITR 429 (Delhi);
b) Commissioner of Income-tax v. Dr. M.K.E. Memon
[2001] 248 ITR 310 (Bombay);
c) Commissioner of Income-tax v. Lachman Das Bhatia
[2012] 26 taxmann.com 167 (Delhi);
d) Commissioner of Income-tax v. Pradeep Goel [2008]
174 TAXMAN 421 (DELHI);
e) Deputy Commissioner of Income-tax v. Royal Marwar
Tobacco Product (P.) Ltd. [2009] 120 TTJ 387
(Ahmedabad)
In view of the aforesaid, it is prayed that the addition is
totally devoid of facts and deserves to be deleted "
9.2 I have considered the facts and circumstances of the case,
submission of the appellant and perused the assessment order. I
find that the appellant has submitted that they were dealing in
numbers of items, therefore, it was not practically feasible to
update each item of stock in the books of accounts on day to day
basis. I find that the appellant has booked bogus purchases in the
books of accounts by which the purchases vis-a-vis stock was
Page | 115
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
inflated. Under these circumstances, I find merit in the argument of
the appellant that as such there was no shortage of stock. Since,
there was no evidence found towards sale of stock out of books of
accounts, therefore, in view of the judgement of Delhi High court in
the case of Kabul Chawla as relied upon by the appellant, the
appeal on this ground is allowed"
101. The ld Departmental Representative submitted that when the stock
recorded in the books of accounts was not found the only assumption
could be that same has been sold out of the books and appropriate gross
profit is charged to tax. He therefore, submitted that there is no infirmity
in the order of the ld Assessing Officer.
102. The ld Authorised Representative vehemently supported the order of the
ld CIT(A). He submitted that when assessee has booked purchases
amounting to Rs. 23.48 crores for which the goods have never been
received then addition on account of shortage cannot be made.
103. We have carefully considered the rival contentions and also perused the
orders of the lower authorities. As it is apparent that assessee has booked
bogus purchases in the books of accounts and corresponding stock was
inflated, it is but natural that assessee does not have stock equivalent to
that amount. While deciding the issue of taxation of bogus purchases we
have discussed this issue at length. We have also held that assessee has
debited the purchases without actual receipt of goods and cash was taken
back from the various suppliers for incurring various business
expenditure. All these evidences were found during the course of search.
In view of this, the above addition made by the ld Assessing Officer
without finding any evidence of holding such stock, sale of such stock and
receipt of money for such sale, addition cannot be upheld. In view of this
ground No. 2 of the appeal of the revenue is dismissed.
104. Accordingly appeal of the revenue for AY 2015-16 is dismissed.
Page | 116
G.D. Foods Manufacturing (India) Pvt. Ltd Vs. ACIT
( By Assessee) 1182/Del/2018,1189/Del/2018,1190/Del/2018,1185/Del/2018,1186/Del/2018,1180/Del/2018
1181/Del/2018
( By Revenue) 1464/Del/2018, 1465/Del/2018, 1466/Del/2018, 1467/Del/2018, 1468/Del/2018,
1469/Del/2018, 1470/Del/2018
Assessment Year
2009-10 to 2015-16
105. Accordingly, for AY 2015-16 appeal of the assessee is partly allowed and
appeal of the revenue is dismissed.
Order pronounced in the open court on 06/09/2018.
-Sd/- Sd/-
(K. N. CHARY) (PRASHANT MAHARISHI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 06/09/2018
A K Keot
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi
Page | 117
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