ACIT vs Ashoka Traders Pvt. Ltd.

ITA No.2682/Del/2022 [Assessment Year : 2016-17]

6.8.

“Further from the examination of seized documents and other material on record, no reasonable nexus has been found with the seized documents in such extrapolation made by the AO in respect of unaccounted cash payments made for the purchases made by the appellant from various entities (including that of M/s JBM group) for AY 2012-13 to AY 2017-18 and in respect of remaining purchases from various other entities excluding companies of M/s JBM group for AY 2018-19. There was no material direct or indirect before the AO to draw such inference that the appellant has made similar cash payments outside the books of account in respect of all such purchases made from AY 2012-13 to AY 2017-18 and in respect of remaining purchases from various other entities excluding companies of M/s JBM group for AY 2018-19. There is merit in the arguments of the Ld.AR that such estimation has been made by the AO without any evidence or logic. Such additions made without any corroborating material and in the absence of any enquiries made by the AO just on the presumptive basis cannot be sustained. The AO has made such additions in the mechanical and adhoc manner. Such approach of the AO by making extrapolation in respect of the purchase made from different concerns during AY 12-13 to 2017-18 and in respect of remaining purchases from various other entities excluding companies of M/s JBM group for AY 2018-19 in the absence of any direct or indirect evidence and just on the basis of findings relevant to AY 2018-19 by making reliance upon the seized documents in respect of purchases made from the JBM group companies was not justified. As per settled judicial principal and as a matter of general rule, the doctrine of res judicata does not apply to tax laws. This is because under the Income Tax Act each year is an independent year and assessment is to be made for each year is an independently based upon the evidence available for the particular year. Section 292C of the Income Tax Act, 1961, does not empower the Assessing Officer to presume the income of a particular year as income of any other year. In this case the AO has applied the extrapolation technique for backward projection of income while assessing the income of whole of the assessment years covered u/s 153A of the Income Tax Act, 1961 on the basis of the documents found from the possession of Shri Parshesh Arya pertaining to FY 2017-18 and his statement. In the present case no evidence or material indicating any cash payment for such years was found. Therefore the AO was not justified to assume and extrapolate such income for earlier assessment years and for AY 2018-19 in respect of transactions under taken with other entities excluding companies of the JBM group. The addition on account of such transactions can be made on the basis of tangible evidence and not solely on the basis of estimations. The AO has failed to bring on record any independent or corroborative material to substantiate such extrapolation. The AO cannot apply generalized view in respect of such transactions under taken with different entities which have been carried out over a span of seven years. Such estimation cannot be sustained as the same is contrary to the facts and provisions of the law.”

8.

“Now the admitted facts, which has been agreed by both the parties, is that only three set of evidence are relied by Ld.AO. the first being statements of Sh. Prakash Arya and Sh. Anand Swaroop Khandelwal recorded during the course of search on JBM group. Second, certain images taken out from mobile phone of Sh. Prakash Arya and thirdly the differences in rates of sales as alleged by learned assessing officer.

8.1

It comes up that the statements were recorded during the course of search of Sh. Prakash Arya, director in various JBM group companies and CGM (Finance) in Jay Bharat Maruti Limited. The said statements were recorded during 05.10.2017 to 08.10.2017 and it is from the said statements AO has inferred that Sh. Prakash Arya was handling cash transactions of JBM group, which was involved in under invoicing and unaccounted sales.

8.2

However, as matter a fact, the said statements were retracted by Sh. Prakash Arya by filing an affidavit before DDIT, Investigation on 23.10.2017. The retraction was quite within a reasonable period of time and had also declared the transactions found in his mobile phone in his personal capacity and also the cash found from his premises in his return of income in his individual capacity. It appears Ld. AO then made no effort to corroborate the retracted statements by any general or material circumstances or evidences. Thus leaving the Ld. AO with retracted statements as only incriminating material for making additions on account of alleged under invoicing and unaccounted sales.

8.3

Then the cash of Rs 5.56 crore was found from residential premises of Sh. Prakash Arya and not from the office premise or business premises of the appellant company or from the premise of directors of the appellant company. Shri Prahsesh Arya filed affidavit dated 17/10/2017 before Investigation wing vide letter dated 18/10/2017, though filed on 23.10.2017 where he deposed that cash of Rs 5,55,46,490/- found during the course of search is not related to JBM group and the source of cash is the income earned by Shri Prahsesh Arya during A Y 2018-19, which was also duly declared by him in his return of income for the AY 2018-19. Again there was no effort to contradict this on oath deposition of Shri Prahsesh Arya.

8.4

Then with regards to images found from the mobile phones of Sh. Prakash Arya and his wife Smt. Sukriti Arya, we find that said notings / documents are not related to A Y 2010-11 to AY 2017-18. Rather, these documents are related to July 2017, August 2017, September 2017 and October 2017 and as such these documents are related to only part of financial year 2017-18 i.e. A Y 2018-19, which have also been disclosed by Sh. Prakash Arya in his individual return of income. Even in the affidavit so filed before Investigation Wing it has been submitted by Shri Prahsesh Arya that various noting or message in the mobile phone found during the course of search is rough noting and his personal noting and is not related to JBM Group.

8.5

At the same time during the course of search statement of Shri Surender Kumar Arya, Chairman cum Managing Director of JBM Group, was recorded wherein, nothing was extracted about the unaccounted sale of scrap in JBM group. There was no attempt to contradict him with the statements of Shri Prahsesh Arya.

8.6

Next examining the statement of Sh. Anand Swaroop Khandelwal recorded under section 131(1A) dated 09.102017, it is noticed that Sh. Khandelwal has endorsed the statement given by Sh. Prakash Arya and has also estimated/ assumed that JBM group might have earned Rs. 100 crores from unaccounted sale of scrap. The said statement has been retracted by Sh. Khandelwal on 16.10.2017. It is noticed that Sh. Khandelwal has submitted before Investigation wing after search that distorted statement of Shri Prahsesh Arya were shown to him and tremendous pressure have been levied by the search team to admit that there is unaccounted sale of scrap. Again there is no attempt of ld. AO to bring any general or material corroboration to this statement. We are of considered view that two retracted statements cannot be used to corroborate each other.

8.7

Coming to the justification of comparison of the rates of scrap sold by JBM group to its customers with other/ third parties like Maruti Udyog Ltd. to hold that scrap has been sold at a lower rate by JBM group, admittedly Learned AO has recorded that there is variation of approx.. 19-20% with regards to selling rates of scrap but what is material is that when assessee has submitted reasons for variation due to quantity, quality and rates of scrap, the learned AO, did not deal with them and made no attempt to rebut the same on basis of any evidences. At the same time learned CIT (A) at pages 82 to 123 of his order, has extensively examined the explanation so made by the assessee company to conclude that there was no basis for interpolation of figures of sales or invoicing.

8.8

We find no force in the contention of Ld. DR the additions are based on statements of employees of assessee company which has live link with the documents seized during the course of search. In fact, statements of employees, unless against their own interest cannot be relied without any material corroboration of the statement.

8.9

It is now a well settled proposition of law that documents seized as a result of search must be incriminating and must relate to relevant assessment year whose assessments are sought to be reopened u/s 153A of the Act and the assessing officer cannot refer to any post search investigation or any other outside material to tinker with the assessments which are already final. It is also an accepted position now that unless the statements recorded during search are backed by corroborative materials/ documentary evidences, the said statements cannot be relied or made as a basis to make any addition. The aforesaid principle has been settled by the Hon'ble jurisdictional high court in the case of PCIT vs Best Infrastructure India (P) Ltd. reported in 397 ITR 82 and also in Kabul Chawla (supra) and Abhisar Buildwell (P) Ltd. (supra).”

"14.

In view of the above and for the reasons stated above, it is concluded as under:

i)

that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A;

ii) all pending assessments/reassessments shall stand abated;

iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and

iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.

The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs."

ITA No.2683/Del/2022 [Assessment Year : 2017-18]

ITA No.2684/Del/2022 [Revenue’s appeal] &

ITA No.2606/Del/2022 [Assessee’s appeal ]

[Assessment Year : 2018-19]

26.

“Issue no. 11 is with regard to Scrap sale addition in AY 2018-19, in case of both the assessee, which is confirmed by the CIT(A), for which both the assessee have come in appeal in AY 2018-19. Ld. DR has however, supported the findings of CIT(A) and what we find is that CIT(A) has sustained addition of a sum of Rs. 6,20,00,000/- incase of assessee no. 1 and of Rs. 1,95,00,000/- in case of assessee no. 2, on account of alleged under invoicing and alleged unrecorded sales. We find that the findings so recorded by learned AO and CIT (A) are identical and verbatim same as recorded in AY 2010-11, wherein, Learned CIT (A) however, while giving relief on similar lines as in AY 2010-11 has sustained these additions. The sole basis of learned CIT (A) to sustain the said addition is the statement of Sh. Prashesh Arya and some images found from mobile of Sh. Prashesh Arya in shape of "kachchi parhci images". However, learned CIT (A) has failed to appreciate the fact that the said transactions were duly offered by Sh. Prashesh Arya in his personal capacity and also the same was not made as a basis by learned AO to make any addition, as such, the same cannot be inferred or presumed to have belonged to Assessee Company. That further, again learned CIT (A) relied on the statement of Sh. Prashesh Arya recorded during the course of search without there being any material whatsoever, and had relied on a table wherein Sh. Arya, has allegedly declared unaccounted income of assessee during the AY 2018-19. That while doing so, it is noticed that learned CIT (A) has recorded a contradictory finding, as held while deleting the balance additions, which we have extensively discussed in findings of issue no. 1 and 2. There seems to be no attempt to have the facts recorded in these pacrchi verified by any further enquiry. Thus the findings of CIT(A), cannot be sustained and this ground no. 11 is decided in favour of assessee.”