Document Fragment View

Matching Fragments

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 A-9, 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 A-9, Annexure A- 3, 6, 7, 15 and various pages. The learned assessing officer consequently made addition of Rs. 48,68,267/-.

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.

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 | 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.