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Judgment
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :
This captioned appeal has been filed by the Revenue against the order of the learned Commissioner of Income Tax (Appeals)-31, Delhi [‘CIT(A)’ in short] dated 24.03.2025 arising from the Assessment Order dated 13.03.2013 passed by the Deputy Commissioner of Income Tax, Central Circle - 8, New Delhi (hereinafter referred to as ‘the AO’) under section 143(3) of Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the Assessment Year 2011-12.
None appeared on behalf of the assessee. We heard the ld. DR at length who assisted us with the facts of the case and relied on the orders of the Assessing Officer. Case records carefully perused and considered.
The grounds raised by the Revenue are as under :
1.“Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs. 38,39,52,514/- made by AO?
2.Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in restoring the books of accounts despite the facts after the search proceedings books of accounts has been manufactured to cover up discrepancies and therefore are not reliable?
3.Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in ignoring the fact the assessee has claimed bogus expenses by raising the bogus invoices however, no actual services have been rendered and the same facts has been proved during the survey proceedings?
4.Ld. CIT(A) has erred in deleting the addition made by the AO, by ignoring the fact assessee has supplied the items at very excessive profit margin and the assessee has not anywhere in assessment proceeding disputed the rates at which the items have been supplied.
5.The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”
Brief facts of the case are that the assessee is a company registered under Company's Act 1956. The search and seizure operation u/s 132 of the Act was conducted at the business/residential premises of the assessee on 19.10.2010. The assessee company was issued notice u/s 153A for filing of return. The assessee company responded to the notice and filed a return without any changed as filed u/s 139(1) of the Act. The learned Assessing Officer rejected books of accounts and made an addition by applying net profit rate of 56% on the gross turnover of Rs. 67,33,10,879/- which comes to Rs.37,70,54,092/- and assessed the income at Rs.38.39 crore.
Aggrieved, assessee was in appeal before the learned CIT(A). The learned CIT(A) by deleted the addition. Aggrieved, the Revenue now is in appeal before us.
We have heard both the parties and perused the material available on record. We find that the CIT(A) deleted the addition as under:
“10.Upon careful consideration of the entire gamut of facts and circumstances of the case, it is seen that the AO has rejected the cash basis of books of accounts in the first year of operation to determine taxable income for the assessment year in question. AO has applied the case of Hon’ble Supreme Court in Morvi Industries Ltd. Vs CIT (1971) which,the appellant has argued, has been overshadowed by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Excel Industries Ltd. [2013] 358 ITR 295 (SC).The appellant has submitted that company has not received the disputed amount till date in spite of Order of Arbitration passed on 26th Nov 2018. This is a matter of fact and the same has not been disputed by the AO. According to Accounting Standard 9 read with Section 5 of Act, it becomes clear that the appellant has choice of not booking the disputed amount as sales in its books of accounts.
11.The AO has pointed out the appellant company has paid cash exceeding Rs. 20,000 the aggregate of which is shown as 26,12,000. Similarly, the AO has pointed out cash expenses/cash payment of Rs. 20,000 each totaling to Rs. 11,10,000 on account of site expenses. On the perusal of the relevant vouchers of the expenses, it is seen that these expenses are paid to several persons on same day and aggregated under one head.
12.AO has observed that appellant company has booked bogus expenses to reduce taxable income. Consequently, survey was conducted on M/s Piron Education Pvt. Ltd., M/s Indo Office Solutions Pvt. Ltd., M/s Piron Design Pvt. Ltd. and M/s Piron Learning & Training Pvt. Ltd. and these parties were found to be fake. The appellant has submitted copies of order of Hon’ble ITAT in respect of the aforesaid entities. A careful perusal of the orders of Hon’ble ITAT shows that these entities have been found to be existent and having business operations. The additions made to the income of the respective entities have been deleted by Hon’ble ITAT.
13.Upon careful consideration of the entire gamut of facts and circumstances of the case and the decisions of various courts cited by the appellant and in view of the foregoing discussion, respectfully following the decision of various courts including Hon’ble Supreme Court in the case of Excel Industries (supra), I am of the considered view that the AO is not justified in rejecting the books of accounts of the appellant and making the said addition of Rs.38,39,52,514/- to the total income of the appellant. Therefore, the said addition is not sustainable on facts as well as in law. Accordingly, the said addition is liable to be deleted. I hold accordingly. Hence, the said addition made by the AO is hereby deleted.”
On a perusal of the relevant material on record and above findings of the ld. CIT(A), we find that the ld. CIT(A) has discussed this issue in detail and came to the conclusion which has been reproduced hereinabove. In the instant case, however, we find that the assessee has attempted to prove the entire purchase and expenses as genuine. Although the assessee, prima facie, appears to have discharged its onus of explaining the purchases/expense, it’s contentions to prove the same as genuine, hardly deserves to be accepted in entirety especially when the AO found some suppliers did not exist and the assessee has claimed bogus expenses by raising the bogus invoices. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention that purchases were actually made, cannot be fully justified. In this factual matrix, there is some element of failure to explain some of the purchase/expense, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of 1% of the purchases only would be just and proper with a rider that the same shall not be treated as a precedent, so as to cover all loopholes. The ground of appeal no 1 to 4 is partly allowed.
In the result, appeal of the Revenue in ITA No. 3615/DEL/2025 is partly allowed.