Income Tax Appellate Tribunal - Delhi
Haryana Jewellers P.Ltd, Delhi vs Ito, Ward-11(1), New Delhi on 10 September, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'C' NEW DELHI
BEFORE SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER
AND
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
ITA No.2315/Del/2018
Assessment Year: 2013-14
Haryana Jewellers P. Ltd. ITO,
1157/1124, 1st Floor, Ward-11(1)
Kucha Mahajani, VS New Delhi
Chandni Chowk, Delhi-110006
PAN : AABCH7315P
Appellant Respondent
Assessee by : Shri Repu Daman Thakur, Adv.
Revenue by : Shri Ravi Kant Gupta, Sr. DR
Date of hearing : 12.06.2018
Date of pronouncement :
ORDER
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER :
This appeal has been preferred by the assessee against order dated 22/01/2018 passed by the Ld. CIT (Appeals)-4, New Delhi for the assessment year 2013-14.
2. The brief facts of the case are that the return of income was filed declaring income at Rs. 14,95,810/- and the same was subsequently selected for scrutiny. During the course of assessment proceedings, the Assessing Officer noticed that the amount of Rs. 1,00,500/- was claimed as deduction on account of expenditure incurred on account of ROC fee paid to enhance 1 ITA No. 2315/Del/2018 Assessment year 2013-14 the authorised share capital of the assessee company. The Assessing Officer was of the view that the expenditure relating to increase in share capital was capital in nature and was liable to be disallowed as expenditure. Accordingly, an addition of Rs. 1,00,500/- was made on this account. Further, the department was also in receipt of a letter from Central Circle-4, Surat dated 30.11.2015 wherein it was informed that search operation had been carried out in Rajendra Jain group of cases and as per the statement recorded there, it was seen that this group was engaged in providing bogus bills for trading transactions on commission basis. A list of beneficiaries who had obtained accommodation entries by way of bogus purchase/s was attached with the communication received and it was seen that the assessee was one of the alleged beneficiaries in this regard by way of obtaining purchase bill of Rs. 30,01,478/- from M/s Avi Exports, Surat. It was also been noted by the Assessing Officer that Avi Exports was one of the proprietorship concerns of Shri R.S. Jain and Rajendra Jain group of cases. Accordingly, the assessee was asked to show cause as to why the purchase bill of Rs. 30,01,478/- obtained from M/s Avi Exports be not disallowed. Subsequently, the Assessing Officer proceeded to 2 ITA No. 2315/Del/2018 Assessment year 2013-14 make a disallowance of Rs. 30,01,478/-. In addition, the Assessing Officer also made another addition of Rs. 8,07,272/- being alleged bogus purchase from M/s Parul Diamond Private Limited on the ground of not having been genuinely substantiated. The assessment was completed at an income of Rs. 54,05,057/- .
2.1 Aggrieved, the assessee approached the learned First Appellate Authority challenging the additions who partly allowed the assessee's appeal by deleting the alleged bogus purchase of Rs. 8,07,272/- from M/s Parul Diamond Private Limited but partly upheld the disallowance of alleged bogus purchase from M/s Avi Exports by restricting the disallowance to Rs. 7,50,370/- being 25% of the total value of purchase from M/s Avi Exports. Ld. Commissioner of Income Tax (Appeals) also upheld the disallowance of Rs. 1,00,500/- paid on account of payment of ROC fee.
2.2 Aggrieved, the assessee is now in appeal before the ITAT and has raised the following grounds of appeal:-
"On the facts and in the circumstances of the case and in law the action of the CIT(A) - 4, New Delhi, is arbitrary, fallacious and illegal on the following grounds and, 3 ITA No. 2315/Del/2018 Assessment year 2013-14 therefore, merits to be quashed with directions for appropriate relief to the assessee:-
1) That CIT (A) failed to appreciate that the notice issued u/s. 143(2) and the assessment order passed u/s. 143(3) of Income-tax Act are illegal and void ab initio because :
i) any material unearthed during search operations or any statement made during course of search, by Mr. R.S. Jain, Surat, is a valuable piece of evidence and therefore, Assessing Officer is bound to issue notice u/s 153C and thereafter proceed to assess income u/s 153A of the I.T. Act;
ii) assessment pending on the date of initiation of the search u/s. 132 shall abate in term of 2nd proviso to Sec. 153A(1) read with Sec. 153C of the I.T. Act;
iii) Sec. 153C has been amended by the Finance Act, 2015 to substitute the words 'belongs to' with 'relates to' which indicates that even if the books of account do not belong to the person who has not been searched u/s.
132, he can still be proceeded with for block assessment if the books found during search reveal any income which has a bearing on him.
2) That CIT(A) failed to appreciate that the provision of Sec.153C has to be complied strictly and hence non- satisfaction of the condition precedent, viz.
i) recording of satisfaction by the AO of searched person; and
ii) recording of satisfaction by the AO of other person; and
iii) issuing notice u/s. 153C by the AO of other person is a jurisdictional issue and non satisfaction thereof would make the entire proceedings taken thereunder null and void. The issue of disallowance u/s. 37 regarding purchase and ROC fee can only arise for consideration if the proceedings u/s. 153C of the Act are upheld.
3) That the CIT(A) erred in confirming an addition of Rs. 7,50,370/-, which is 25% of the total purchase of Rs.30,01,478/- from M/s. Avi Exports, Surat, being disallowed, in toto, by Assessing Officer arbitrarily and on mere suspicion and further ignoring the affidavits 4 ITA No. 2315/Del/2018 Assessment year 2013-14 alongwith documentary evidences, as filed by Mr. R.S. Jain.
4) That the CIT(A) erred in confirming an addition of Rs.100,500/- on account of ROC fee, being disallowed by Assessing Officer ignoring the fact that such entire incremental share capital was used for meeting the need for more working capital requirement and hence, was to be allowed as revenue expenditure.
5) That CIT(A) erred in not dismissing the ground of initiating penalty proceedings u/s 271(1)(c) of the Act."
3. The Ld. Authorised Representative (AR) submitted that the assessee had purchased diamonds of Rs.30,01,478/- from M/s. Avi Exports, the proprietary concern of Shri R.S. Jain [Rajindra Sohanlal Jain], Surat, Gujurat, during the financial year 2012-13 and had duly recorded the transaction in its books of account. It was further submitted that the entire payment was made by Cheques/RTGS via Union Bank of India, Chandni Chowk, Delhi- 110006. The Ld. Authorised Representative submitted that the Ld. CIT (A) had erred in confirming an addition of Rs. 7,50,370/-, which is 25% of the total purchase of Rs. 30,01,478/- from M/s. Avi Exports, Surat, being disallowed, in toto, by Assessing Officer arbitrarily and on mere suspicion and by ignoring the affidavits along with documentary evidences, as filed by Mr. R. S .Jain. The Ld. AR drew our attention to the following documents which were 5 ITA No. 2315/Del/2018 Assessment year 2013-14 filed before the lower authorities and were now forming part of the Paper Book filed by the assessee:
-Loose diamonds [as per Books of M/s. Haryana Jewellers (P) Ltd.
-Stock register for the Financial Year: 2012-13
-Quantitative Reconciliation of Stock
-M/s. AVI Exports Ledger for the F.Y.: 2012-13 along with Union bank statement
-M/s. AVI Exports Ledger for the F.Y.: 2013-14 along with Union bank statement
-Affidavit of Rajendra Sohanlal Jain [R.S.Jain], Proprietor of M/s. AVI Exports, Surat, Gujarat as filed before the ITO, Ward-11(1), Delhi in response to requisition u/s. 133(6) of Act
-Confirmation of balance of M/s. Haryana Jewellers Pvt. Ltd. as on 31-03-2014
-Sales Register regarding sales made to M/s. Haryana Jewellers Pvt. Ltd. for the period 01-04-2012 to 31-03-2013
-Copy of Ledger of M/s. Haryana Jewellers Pvt. Ltd. for the F.Y.:
2012-13
-Bank Statement of ING VYSYA BANK to substantiate receipt against sales made 6 ITA No. 2315/Del/2018 Assessment year 2013-14
-Income-tax Return of Mr. R.S.Jain for A.Y.: 2013-14 along with PAN
-Retraction of Statement by Mr. R.S.Jain regarding statement made during search and after search, as filed before the Dy. CIT, Surat
-Affidavit containing comprehensive information regarding retraction of Statement by Mr. R.S.Jain.
3.1 The Ld. AR submitted that that all the documentary evidences, as filed by M/s. Haryana Jeweller (P) Ltd. as well as Mr. R.S. Jain were totally ignored/rejected merely on the basis of conjecture and surmises. Further, an affidavit of Mr. R.S. Jain was also rejected arbitrarily. It was submitted that it is settled law that affidavit is a valid piece of evidence and the same cannot be rejected summarily without assigning any reason. 3.2 It was further submitted that the statement given by Shri RS Jain was subsequently retracted by him this fact was also ignored by the Department and the addition was made entirely on the basis of the statement of Shri RS Jain which was recorded during the course of search in the premises of RS Jain group of cases. It was submitted that no addition can be made or sustained simply on basis of statement recorded at time of 7 ITA No. 2315/Del/2018 Assessment year 2013-14 survey / search. In other words, in order to make an addition on the basis of surrender during search or survey, it is sine qua non that there should be some other material to correlate the undisclosed income with such statement.
3.3 The Ld. AR also submitted that the sales were accepted as genuine and, therefore, the purchase cannot be treated as bogus. 3.4 Arguing for the other issue before the ITAT, the Ld. AR submitted that the Ld. CIT (A) had erred in confirming an addition of Rs. 100,500/- on account of ROC fee, being disallowed by Assessing officer ignoring the fact that such entire incremental share capital was used for meeting the need for more working capital requirement and hence, was to be allowed as revenue expenditure. It was submitted that in the case of M/s. Haryana Jewellers (P) Ltd., the funds realized from the issue of share capital were used for meeting the need of working capital and that such fact is evident from the Balance sheet as on 31.03.2014 & 31-03-2013 along with the Working Capital funds availability for business purposes. It was prayed that this disallowance should also be deleted.
8 ITA No. 2315/Del/2018
Assessment year 2013-14
4. In response to the contentions raised by the Ld. AR, the Ld. Sr. Departmental Representative (DR) placed reliance on the concurrent findings of the Ld. Commissioner of Income Tax (A) and the Assessing Officer and submitted that the assessment was completed based on concrete information and the statement of Shri R.S. Jain regarding providing bogus purchase bills to the assessee. It was also submitted that during the course of search, no stock was found which could establish that the purchases had actually been made by the assessee. It was also submitted that Shri R.S. Jain had retracted the statement after more than one year from the recording of statement and the retraction is not supported by facts. It was also submitted that there was no proof of the alleged purchased diamonds having been transported which could establish the genuineness of the purchase transaction. Ld. Sr. DR also submitted that the assessee was duly confronted with the documents on which the department had placed reliance while making the addition with respect to the alleged bogus purchases.
4.1 With respect to the disallowance pertaining to ROC fees, the Ld. Sr. DR placed strong reliance upon the findings recorded by the ld. Commissioner of Income Tax (A).
9 ITA No. 2315/Del/2018 Assessment year 2013-14
5. We have heard the rival submissions and perused the material available on record. It is not in dispute that the statement of Shri Rajendra Jain, on which the department has relied while making the addition of Rs. 30,01,478/-, has been retracted by Shri Rajendra Jain. This fact has been duly noted by the Assessing Officer in the assessment order in Para 3.4.6 wherein it has been mentioned that the statement of Shri Rajendra Jain had been retracted. However, the Assessing Officer has held that the assessee cannot be allowed the benefit of retraction of statement by Shri Rajendra Jain because the department had rejected the retraction of Shri Rajendra Jain in his case on the ground that Shri RS Jain had not filed the affidavit regarding retraction before the Investigation Wing. It is further seen that the assessee had filed the following documents before the lower authorities to substantiate the genuineness of purchase: stock register, quantitative reconciliation statement, copy of ledger accounts of M/s Avi Exports along with bank statement from which the payments for purchases were made. Apart from this, there is affidavit of Shri Rajendra Jain, proprietor of M/s Avi Exports which was filed in response to requisition u/s 133(6) of the Act and also confirmation of balance 10 ITA No. 2315/Del/2018 Assessment year 2013-14 of the assessee company, copy of sales account regarding sales made to the assessee, copy of ledger account of the assessee in the books of M/s Avi Exports, copy of bank statement of M/s Avi Exports to substantiate receipt of payment against purchases, the retraction of statement by Shri Rajendra Jain regarding statement made after search and as filed before the DCIT, Surat and affidavit of Shri Rajendra Jain regarding retraction of statement. A perusal of the order of the lower authorities shows that all these documents were completely disregarded by the lower authorities without assigning any reason. It is also noteworthy that the sales as declared by the assessee were accepted to be genuine by the department and it is only purchases which are being doubted by the department. However, no cogent reason has been given by the department for treating the purchases as not being genuine but accepting the sales made against the said bogus purchases as genuine. Therefore, on overall facts of the case, it is our considered opinion that the Ld. Commissioner of Income Tax (A) was not correct in sustaining the disallowance to the tune of 25% of the alleged bogus purchase when the very basis on which the bogus purchases have been alleged to have been made does not stand in view of the 11 ITA No. 2315/Del/2018 Assessment year 2013-14 retraction of statement by Shri Rajendra Jain as well as the voluminous documentary evidences which were filed by the assessee before the lower authorities and which substantiate the genuineness of the purchases from M/s Avi Exports. Therefore, under the circumstances, we are unable to concur with the findings of the lower authorities and we deem it fit to set aside the order of the Ld. Commissioner of Income Tax (A) and direct the Assessing Officer to delete the addition with respect to the alleged bogus purchases.
5.1 Coming to the other issue which the assessee has challenged i.e. confirmation of addition of Rs. 1,00,500/- on account of ROC fee, it is seen that the ITAT Mumbai Bench in the case of Navi Mumbai SEZ (P) Ltd. vs. ACIT reported in (2015) 54 taxmann.com 259 (Mumbai-Trib.) has held that where an assessee incurred certain expenditure for increase in share capital, in view of the fact that entire incremental share capital was used for purchase of trading stock, expenditure in question was to be allowed as revenue expenditure. Ld. AR has drawn our attention to the working capital analysis placed at page 61 of the paper book and has submitted that since the incremental share capital was used for working capital requirements, the ROC fee 12 ITA No. 2315/Del/2018 Assessment year 2013-14 was allowable as a deduction. In view of the order of the ITAT Mumbai Bench in the case of Navi Mumbai SEZ (P) Ltd. vs. ACIT (supra), we deem it fit to restore the issue to the file of the Assessing Officer to examine the contention of the assessee that the incremental share capital was used for the purpose of working capital and, thereafter, allow the claim of the assessee if the assertion of the assessee is found to be correct, after giving proper opportunity to the assessee to present its case. Thus, this ground stands allowed for statistical purposes.
6. In the result, the appeal of the assessee stands allowed in terms of above mentioned directions.
Order pronounced in the open court on 10th September, 2018.
Sd/- Sd/- (N.K.BILLAIYA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 10th SEPTEMBER, 2018 'GS' 13 ITA No. 2315/Del/2018 Assessment year 2013-14 Copy forwarded to: - 1) Appellant 2) Respondent 3) CIT(A) 4) CIT 5) DR True Copy By Order ASSTT. REGISTRAR 14