Contradictory order passed by the A.O. without reference to the books of account of the assessee and other material is not sustainable in law.

This order shall dispose of all the appeals filed by two assessees on identical issues.

2. We have heard the learned Representatives of both the parties and perused the material on record. The appeals are decided as under.

3. This appeal by assessee has been directed against the order of the Ld. CIT(A)-19, New Delhi, dated 1st October, 2014, for the A.Y. 2010-2011.

4. Briefly, the facts of the case are that assessee has filed return of income declaring income of Rs.1,46,00,092/-. During the year, assessee-company is engaged in the business of manufacturing and Government Contractor. The assessee’s representative has attended the proceedings before A.O. time to time and filed the necessary details which have been perused by the A.O. and placed on record. The A.O. thereafter, discussed the case in the assessment order. A survey under section 133A (of Income Tax Act, 1961) was conducted on 12th August, 2009 on the assessee, the basis of which, was the bogus billing racket wherein it was admitted that M/s. S.R. Industrial Corporation had given bogus bills to the assessee-company in A.Y. 2006-2007 amounting to Rs.37.9 lakhs. The assessee admitted the same and surrendered this amount. Further, a diary was found at the premises of the assessee at Janak Puri, Delhi which was written in handwriting of the assessee. In this diary, the assessee had written various entries amounting to Rs.4.52 crores which the assessee has admitted to be advances for purchase of land/machinery through brokers paid from unaccounted income not reflected in his books of account of any of the concerns of the group. The assessee has made surrender of Rs.2.05 crores under section 41(1) (of Income Tax Act, 1961) on account of liabilities that are no longer required to be paid under the Head “Remission of Liabilities” in the case of assessee and group concerns M/s. Vichitra

Constructions Pvt. Ltd., and M/s. Geeta Constructions.

The details of the disclosure in various concerns are noted at page- 2 of the assessment order. Statement of Shri R.P. Aggarwal brother of Shri R.N. Aggarwal and Director of the Assessee- Company was also taken. Shri R.P. Aggarwal read over the statement of Shri R.N. Aggarwal and has stated that the contents of the statement given are true and correct. During the course of survey, in respect of the assessee group, there were difference in cash which is also noted at page-2 of the assessment order. Further, the assessee during the course of survey made surrender of various amounts under section 41(1) (of Income Tax Act, 1961) in other group cases and for assessment year under appeal assessee surrendered amount of Rs.4.52 crores on account of advance given in the case of the assessee-company. During the course of assessment assessee was asked to reconcile the surrendered amount with the books of account and P & L A/c and the assessee submitted that surrender was retracted by them by not paying the tax. The A.O, therefore, considered the case on the basis of the seized material and copy of the seized diary was scanned and reproduced in the assessment order.

The A.O. noted that assessee agreed for surrender. The statement of Shri R.N. Aggarwal is also reproduced in the assessment order in which he has surrendered the amount in question in assessment year under appeal. Statement of Shri R.A. Aggarwal is also reproduced in the assessment order. Letter of the assessee asking for copies of the seized material is also reproduced in the assessment order. The order sheet is also reproduced in the assessment order. The assessee was, therefore, asked to reconcile all the seized documents and also to produce the books of account. The assessee filed letter dated 25.03.2013 stating therein that assessee has produced books of account, but, however, to avoid litigation, agreed for estimating net profit @ 8% of the turnover. The assessee has declared net profit of Rs.1,33,16,113/- whereas, surrender made/agreed by them comes to net profit of Rs.2,78,85,197/- thereby, disclosing an additional income of Rs.1,45,69,084/-.

The A.O. however, noted that assessee has not produced books of account and the vouchers and seized material have not been reconciled. The A.O. also reproduced letter of the assessee in the assessment order in which assessee again submitted that no unaccounted income is admitted and books of account with audit reports have been produced. Surrender was extracted by survey party under duress. The assessee still surrendered 8% as net profit subject to no penalty/prosecution proceedings. The A.O. therefore, noted that assessee has not given any satisfactory explanation, therefore, rejected the books of account under section 145(3) (of Income Tax Act, 1961). The A.O. noted that material available on record has been examined by him and estimate is made by him on the basis of seized document and unconditional surrender made during the course of survey. The A.O. accordingly, made the addition of Rs.4.52 crores to the returned income which is inclusive of the surrender made by the assessee during the course of assessment proceedings.

5. The A.O. also noted that there is a difference of Rs.1,08,003/- pertaining to the confirmation called for in the case of Graphite India Ltd., which has not been explained. Therefore, further addition of Rs.1,08,003/- have been made. Both the additions were challenged before the Ld. CIT(A).

6. The Ld. CIT(A) as regards addition of the bogus bills of Rs.37,94,725/- referred to the statement of the Director of the assessee-company and noted that nothing is produced to show if the statement recorded during survey was under duress. Though this issue is relevant in other year, therefore, same is not discussed in detail here.

6.1. The Ld. CIT(A) as regards addition of Rs.4.52 crores referred to statement of Shri R.N. Aggarwal in which he has surrendered amount in question and accordingly, confirmed the addition.

6.2. As regards addition of Rs.1,08,003/-, the Ld. CIT(A) similarly noted that assessee failed to explain as to how the entry have been reversed. Therefore, this addition was also confirmed and both the grounds have been dismissed.

7. Learned Counsel for the Assessee submitted that assessee retracted from the statement made during the course of survey because no incriminating material was found against the assessee. He has submitted that the A.O. while passing the assessment order did not go with the surrender made during the course of survey. The A.O. rejected the books of account.

Therefore, in the case of Government contractors the profit rate declared by assessee at 8% would be justified. The assessee produced the books of account before A.O. but the A.O. has not given any finding on the same. He has submitted that A.O. may accept the surrender if found valid or A.O. should estimate the income on the basis of the seized paper. The A.O. on retraction of the statement made during the course of survey shall have to consider the books of account and material on record, but, A.O. cannot go on both sides. The assessee retracted from the earlier statement, so, there is no material available on record to make any addition against the assessee. The addition may be made of income earned or on investment, but, both cannot be taken together. He has submitted that as regards addition under section 41(1) (of Income Tax Act, 1961), there should be cessation of liability. However, in the case of assessee there is no write-off of any amount in the books of account of the assessee. therefore, Section 41(1) (of Income Tax Act, 1961) will not apply. Learned Counsel for the Assessee, therefore, submitted that assessee has correctly offered income in its subsequent letter that estimation of net profit @ 8% of the turnover which should have been accepted by the A.O.

8. On the other hand, Ld. D.R. relied upon the orders of the authorities below and submitted that A.O. and the Ld. CIT(A) have confirmed the addition based on the admission made by the assessee in his statement recorded during the course of survey. The assessee did not produce the books of account before A.O. Ld. D.R. submitted that statement made under section 133A (of Income Tax Act, 1961) could be relied upon for the purpose of assessment because assessee has not offered any satisfactory explanation regarding surrendered amount. Ld. D.R. in support of his contention has relied upon decision of the Hon’ble Supreme Court in the case of M/s. Pebble Investment & Finance Ltd., vs. ITO 2017-TIOL-238-SC confirming the decision of the Hon’ble Bombay High Court in the case of same assessee reported in 2017-TIOL-118-Bom. He has relied upon the decision of Hon’ble Delhi High Court in the case of Raj Hans Towers (P.) Ltd., vs. CIT 373 ITR 9 and Pr. CIT vs. Avinash Kumar Setia (2017) 81 taxmann.com 476 (Del.).

9. We have considered the rival submissions and material available on record. The assessee-company is engaged in the business of manufacturing and Government Contractor. During the course of survey, a diary was found at the premises of the assessee-company which is stated to be written in the hand writing of the assessee in which various entries amounting to Rs.4.52 crores have been admitted to be advanced for purchase of land/machinery through brokers paid from unaccounted income not reflected in the books of account.

The statement of the Director was recorded in which he has surrendered the amount in question for the purpose of taxation. However, later on, assessee retracted from the statement and did not offer the amount for the purpose of taxation. The assessee-company later on made further surrender before A.O. and stated that no unaccounted income is admitted and assessee-company has produced the books of account and audit report. The assessee offered, estimation of income by applying net profit rate of 8% on the turnover subject to no penalty or prosecution. In these circumstances, it is clear that assessee offered explanation at the assessment stage to show that there was no incriminating material found against the assessee. Though the A.O. has reproduced the scanned copy of the seized diary in the assessment order but no findings have been given on the basis of the same as to how much undisclosed income would be estimated on the basis of such diary.

The A.O. ultimately held that since books of account have not been produced by assessee, therefore, he is not satisfied about correctness and completeness of the accounts of the assessee, therefore, same were rejected. The A.O. instead of rejecting the books of account of assessee should have computed the income of the assessee based upon the books of account which were produced before him as per explanation of assessee. However, he has not taken any figure from the books of account and accepted the admission of the surrender of Rs.4.52 crores for the purpose of making the addition. Learned Counsel for the Assessee, therefore, rightly contended that A.O. cannot go with both the methods for the purpose of making the addition against the assessee. Either the A.O. should go with the surrender and admission of the assessee or may go to estimate the income of the assessee by referring to the books of account and other material on record. The surrender was on account of unexplained investment in purchase of land and machinery which is different from estimation of profit by rejecting the books of account. The A.O. did not accept surrender of assessee at the assessment stage and rejected books of account of assessee under section 145(3) (of Income Tax Act, 1961), but, later on, A.O. did not estimate the income of assessee based on books of account, but accepted the surrender of Rs.4.52 crores so surrendered during the course of survey. The assessee on the other hand, has pleaded that books of account have been produced before A.O. Therefore, there is contradiction in the statement of assessee and findings of the A.O. The A.O. also noted in the assessment order that at the time of reconciliation books of account of the assessee may not be ready by that time. These facts, therefore, clearly show that the matter requires reconsideration at the level of the A.O. because if the A.O. wanted to rely upon the seized material, he has to compute the income based on the seized material. However, nothing has been done in the matter. The A.O. ultimately did not discuss anything of the seized material except reproducing the scanned copy in the assessment order, but, ultimately accepted the surrender made by the assessee during the course of survey.

The Department in its circular have emphasized time to time that the Income Tax Authorities should not try to extract the admission of the assessee and should bring some concrete material on record for the purpose of estimating the undisclosed income of the assessee. In these circumstances, particularly when contradictory order has been passed by the A.O. without reference to the books of account of the assessee and other material, we are of the view that the matter should go back to the A.O. for reconsideration of the entire matter. We, accordingly, set aside the orders of the authorities below on the issue of addition of Rs.4.52 crores and restore to A.O. for fresh determination. The A.O. shall pass the order afresh in accordance with law by considering the entire evidence on record, books of account to be produced by the assessee along with other details. The A.O. shall give reasonable, sufficient opportunity of being heard to the assessee. Grounds of Appeal Nos. 1 to 4 of the appeal of the assessee are allowed for statistical purposes.

10. On Ground No.5, assessee challenged the addition of Rs.1,08,003/- The authorities below noted that the difference in the case of Graphite India Ltd., has not been explained.

Learned Counsel for the Assessee however, referred to PB-53 which is reconciliation statement of Graphite India Ltd., with their ledger account in which it was explained that damaged goods of the amount in question have been reversed in the books of account which is supported by PB-64 which is a bill of the same amount of the goods so returned. Assessee, therefore, explained the discrepancy in the account of M/s. Graphite India Ltd. The addition is, therefore, not justified. We, accordingly, set aside the orders of the authorities below and delete the addition of Rs.1,08,003/-. Ground No.5 of appeal of assessee is allowed.

11. In the result, ITA.No.75/Del./2015 of the assessee is partly allowed.

12. This appeal by assessee has been directed against the order of the Ld. CIT(A)-19, New Delhi, dated 1st October, 2014, for the A.Y. 2008-2009, challenging the addition of an amount of Rs.27,21,430/- on account of following creditors under section 41(1) (of Income Tax Act, 1961).

Sl. No. Name of the Creditor Amount in Rs.

1. Integral Screw Rs. 2,75,010/-

2. Rajat Constructions Rs.13,03,432/-

3. R.K. Gupta, Rs.10,90,968/-

Total Rs.26,69,410/-

And Old balance of the creditors Rs. 52,020/-

12.1. The A.O. noted that during the course of survey assessee has surrendered the amount of the creditors under section 41(1) (of Income Tax Act, 1961). The Ld. CIT(A) noted that he has decided group appeals in the case of M/s. Vichitra Prestressed Udyog Pvt. Ltd., and in the case of assessee M/s. Vichitra Construction Pvt. Ltd., in A.Y. 2009-2010 and accordingly, this ground was dismissed.

13. Learned Counsel for the Assessee at the outset submitted that the ITAT, SMC Bench in the case of same assessee M/s. Vichitra Construction Pvt. Ltd., New Delhi vs. DCIT, Circle-17(1), New Delhi in ITA.No.72/Del./2015 for A.Y. 2009-2010 vide order dated 13th July, 2016, deleted similar addition. The findings of the Tribunal in paras 2 to 5 are reproduced as under :

“2. The only issue involved in this appeal, filed by the assessee, relates to the sustenance of addition of Rs. 22,47,662/- made by the AO u/s 41(1) (of Income Tax Act, 1961) in respect of following creditors :

Sr. No Name & Address of the creditor Amount.

1 Integral Screw 8,35,000

2 Rahul Enterprises 7,12,662

3 Purnaa Ec System 7,00,000

Total 22,47,662

3. I heard the rival submissions and carefully considered the same along with the orders of tax authorities below. The provisions of section 41(1) (of Income Tax Act, 1961) are implicit clear. Until and unless the liability, in respect of which the assessee has claimed the deduction in the earlier year, got remitted or ceased, no addition can be made in the assessment year. The onus to prove that the trading liability in respect of expenditure or loss, already claimed by the assessee in the earlier year, got remitted or ceased during the impugned assessment year, is on the revenue.

4. I noted that in the impugned case, the revenue has not discharged its onus that the creditors, which have been shown by the assessee got remitted or ceased during the impugned assessment. The assessee has submitted the conformation copy of the credit account of the parties, which are available at pages 35,36 and 37 of the paper book. The issue is duly covered by the decision of the Jurisdictional High court in the case of CIT Vs. Dhingra Metal Works 328 ITR 384, as in this case also the addition has been made on the basis of statement recorded during the course of survey. I also noted that on perusal of the ledger account and the confirmation submitted by the assessee, the assessee ahs not at all credited the said amounts in its books of account.

Therefore, the provision of section 41(1) (of Income Tax Act, 1961) cannot be attracted.

The said view has been taken by the Hon’ble Jurisdictional High Court in the case of CIT Vs. Shri Vardhman Overseas 343 ITR 408 (Del.), in which it was held that since the amount payable to the sundry creditors was not credited to the assessee’s P&L A/c. for the year and as the amount was still shown as outstanding at the end of the relevant year, the provisions of section 41(1) (of Income Tax Act, 1961) could not be attracted. Respectfully following the decision of the Hon’ble Delhi High Court I set aside the order of CIT(A) and delete the addition made.

5. In the result, the appeal filed by the assessee is allowed.”

13.1. The Learned Counsel for the Assessee, therefore, submitted that the issue is covered in favour of the assessee.

14. Ld. D.R. did not dispute this fact.

15. Considering the submissions of the parties, we are of the view that the issue is covered in favour of the assessee by the order of the Tribunal in the case of the same assessee (supra). Therefore, following the same, we set aside the orders of the authorities below and delete the entire addition. In the result, this ground of appeal of assessee is allowed.

16. In the result, ITA.No.71/Del./2015 of the assessee is allowed.

17. This appeal by assessee has been directed against the order of the Ld. CIT(A)-19, New Delhi, Dated 1st October, 2014, for the A.Y. 2009-2010 in which the assessee challenged the addition of Rs.94,46,280/- on account of two creditors under section 41(1) (of Income Tax Act, 1961) namely Rahul Enterprises Rs.9,62,845/- and Integral Screw Rs.87,83,435/-. Ld. CIT(A) dismissed this ground of appeal of assessee following the order in group cases mentioned above.

18. Learned Counsel for the Assessee submitted that this issue is same as has been considered in ITA.No.71/Del./2015 for the A.Y. 2008-2009 in the case of M/s. Vichitra Construction Pvt. Ltd. Following the reasons for decision in the case of M/s. Vichitra Construction Pvt. Ltd., (supra), we set aside the orders of the authorities below and delete the addition.

19. In the result, ITA.No.74/Del./2015 of the assessee is allowed.

20. This appeal by assessee has been directed against the order of the Ld. CIT(A)-19, New Delhi, dated 1st October, 2014, for the A.Y. 2008-2009.

21. On ground Nos. 1 to 3, assessee challenged the addition of Rs.37,90,000/- made by A.O. on account of purchases made from M/s. S.R. Industrial Corporation. The A.O. noted that since the assessee admitted to have arranged bills of Rs.37,90,000/- from M/s. S.R. Industrial Corporation, the same were disallowed. Ld. CIT(A) following his order for A.Y. 2010-2011 decided this issue against the assessee.

22. Learned Counsel for the Assessee referred to ITA.No.75/Del./2015 in the case of assessee for A.Y. 2010-2011 (supra), in which the A.O. in the assessment order has noted that survey was conducted in the case of assessee on the basis of bogus bills received by assessee from M/s. S.R. Industrial Corporation in A.Y. 2006-2007 amounting to Rs.37.90 lakhs.

The assessee admitted the same and surrendered. Learned Counsel for the Assessee referred to appellate order of the Ld. CIT(A) in which statement of Shri R.N. Aggarwal have been referred in which it is mentioned in question No.9 that bill in question was arranged for F.Y. 2005-2006. Learned Counsel for the Assessee also referred to the submissions of the assessee in A.Y. 2010-2011 in which it was argued before Ld. CIT(A) that assessee retracted from the admission because admission was made under duress and coercion, was also not correct. Learned Counsel for the Assessee submitted that since the bill in question pertains to F.Y. 2005-2006 relevant to A.Y. 2006- 2007, therefore, there were no basis to make any addition against the assessee in A.Y. 2008-2009. He has referred to PB- 81 which is ledger account of M/s. S.R. Industrial Corporation in the books of the assessee for the period 1st April, 2005 to 31st March, 2006 in which various transactions have been conducted, have been shown as credit and debit and total transactions were conducted for a sum of Rs.37,94,725/-. He has, therefore, submitted that on this ground itself it is clear that admission to surrender the amount regarding bogus purchases was incorrect and no addition could be made in A.Y. 2008-2009.

23. Ld. D.R. however relied upon the orders of the authorities below.

24. After considering the rival submissions and material on record, we are of the view that addition is wholly unjustified. Learned Counsel for the Assessee rightly pointed out that the authorities below have noted in the assessment order and appellate order that the transaction pertain to A.Y. 2006-2007.

Assessee also filed copy of the ledger account to show that it was the total amount referred to A.Y. 2006-2007, therefore, admission of the assessee was incorrect to the extent that addition pertains to assessment year under appeal. The assessee, therefore, rightly retracted from the admission made before the survey party. It is well settled that though admission is a good evidence against the maker, but assessee is entitled to disprove the same through explanation and evidence on record. The above facts clearly show that the amount in question does not pertains to assessment year under appeal. Therefore, no addition could be made in assessment year under appeal. We, accordingly, set aside the orders of the authorities below and delete the addition. In view of the above, there is no need to decide the addition on merit. Ground Nos. 1 to 3 of appeal of assessee are allowed.

25. On ground Nos. 4 and 5, assessee challenged the addition of Rs.5,24,534/- on account of bogus creditors under section 41(1) (of Income Tax Act, 1961). The A.O. made the addition on account of bogus creditors and in assessment year under appeal addition made in respect of two creditors i.e., Shri R.K. Gupta of Rs.4,81,163 and Rahul Enterprises Rs.43,371/-. The Ld. CIT(A) following the order in the case of the group cases, confirmed the addition.

26. Learned Counsel for the Assessee submitted that this issue is same as have been considered above in ITA.Nos.71 & 74/Del./2015 (supra)

27. The Ld. D.R. did not dispute this fact.

28. Following the Order of the Tribunal in the case of assessee and other group cases in ITA.No.71 & 74/Del./2015 (supra), we set aside the orders of the authorities below and delete the addition.

29. In the result, ITA.No. 73/Del./2015 of the assessee is allowed.

30. To sum-up, ITA.No.75/Del./2015 is partly allowed and the remaining ITA.Nos.71, 73 & 74/Del./2015 of the assessee are allowed.

Order pronounced in the open Court.

Sd/- Sd/-

(LP SAHU) (BHAVNESH SAINI)

ACCOUNTANT MEMBER JUDICIAL MEMBER

Delhi, Dated 18th May, 2018