R R Carwell Pvt. Ltd. Vs DCIT (ITAT Delhi)
Disallowance of bogus purchases reduced to 2% when existence of some parties proved and payments were routed through bank
Facts- The assessee is engaged in the application/job-work of Auto Additives and Car care Products across various two-wheelers and four-wheelers authorized service centers. It filed its ROI on 25.09.2012 declaring income of Rs.58,04,170/-. The return was duly processed under section 143(1) determining the returned income.
During assessment proceedings, the assessee could not produce the principle officer/director of M/s White Collar Management Service Pvt. Ltd., the A.O. asked the assessee to explain as to why the amount of Rs.10,00,000/- received from M/s White Collar Management Service Pvt Ltd as an unsecured loan should not be treated as unaccounted/bogus and added back to its total income for the year under consideration.
The assessee has challenged the order of the CIT(A) confirming disallowance of Rs.1,05,98,837/- being 25% of the purchases amounting to Rs. 4,23,95,347/- by rejecting the books of accounts u/s 145(3) of the Act and directing the AO to restrict the disallowance to 20% in cases the parties are found to be in existence by Ward Inspector.
Conclusion- It is an admitted fact that the sales declared by the assessee have not been disturbed. The assessment order indicates that letters were served upon certain parties which proves their existence. The books of account were also audited and auditors have not given any adverse remarks. All the payments have been made through banking channels. The assessee had produced the stock register showing relevant entries of the items purchased and issued for consumption in job work and the items were tallying and no discrepancy in the stock was found at the time of survey. Under these circumstances, we are of the considered opinion that disallowance of 20% of the purchases appears to be on the higher side especially when some of the parties to whom letters were issued were served and the payments have been made through banking channel. Considering the totality of the peculiar facts and circumstances of the instant case, the disallowance of 2% of the total purchases under the facts and circumstances of the case, in our opinion, will meet the ends of justice. We hold and direct accordingly. The A.O. shall do the re-computation.
FULL TEXT OF THE ORDER OF ITAT DELHI
These batch of six appeals filed by the Assessee are directed against the common Order Dated 30.09.2019 of the Ld. CIT(A)-230, New Delhi, relating to the A.Ys. 20122013 to 2017-2018 respectively. Since identical grounds have been raised by the assessee in all these appeals, therefore, these were heard together and are being disposed of by this common order.
2. First, we take up ITA No.9153/Del/2019 for AY 2012-13 as the lead case.
2.1 Facts of the case, in brief, are that the assessee is a company incorporated on 07.02.201 and is engaged in application/job-work of Auto Additives and Car care Products across various two wheelers and tour wheelers authorized service centers. It filed its return of income on 25.09.2012 declaring income of Rs.58,04,170/-. The return was duly processed under section 143(1) determining at the returned income.
2.2. A search under section 132 of the Act was conducted on 28.02.2017 at the business premises of the assessee at various premises from where certain papers/ documents belonging to the assessee were found and seized. In response to notice under section 153A of the I.T. Act, 1961 the assessee filed its return of income on 26.07.2018 declaring income of Rs.58,04,170/-.
2.3. During the course of assessment proceedings, the A.O. noted that the assessee company has received an unsecured loan of Rs 10,00,000/- from M/s White Collar Management Service Pvt. Ltd., He asked the assessee to furnish ITR, bank statement highlighting the transaction and confirmed copy of ledger from White Collar Management Service Pvt Ltd for the A.Y. 2012-13 in order to prove the identification, genuineness and creditworthiness. He also asked the assessee to produce the principle officer of M/s White Collar Management Service Pvt. Ltd.
2.4. Since the assessee could not produce the principle officer/director of M/s White Collar Management Service Pvt. Ltd., the A.O. asked the assessee to explain as to why the amount of Rs.10,00,000/- received from M/s White Collar Management Service Pvt Ltd as unsecured loan should not be treated as unaccounted/bogus and added back to its total income for the year under consideration.
2.5. In response, the assessee submitted a reply dated 25.12.2018 which has been reproduced by the AO in the assessment order and which reads as under :
“As regard loan from While Collar Management services (P) Ltd. amounting Rs.10,00,000/-. In this regard, it is submitted that the detail submission has been given vide our reply dt. 07.12.2018 Point I, the unsecured loan of Rs .10,00,000/- was received from said party on dt. 01.05.2011 on interest. Confirmation from the said party along with copy of ITR, Bank statement of the assessee and that of party and Balance sheet has already been submittal vide our reply dt. 07.12.2018. The loan from said party has been repaid after 6 months on dt.13.12 2011 amounting Rs.10 Lakh vide Ch.No.049499 & paid interest through proper banking channel amounting Rs.55726/-, confirmation for repayment of loan. Bank Statement has already been submitted vide our reply dt. 07.12.2018 & form 16A for TDS deducted on interest is enclosed herewith. The said party is open for verification
Alternatively & without prejudice to above, it is humbly submitted that if any addition an this account has been made then assessee entitled to telescoping against addition made of Bogus purchases as undisclosed income of assessee. Further, submitted that if telescoping of income was not given than there will be double addition in as much as both the undisclosed income and the investment made out of such income are both brought to tax which was contrary to the basic principles of assessment.
The Assessee requests your goodself to provide us an opportunity of being heard in case you require further clarifications.”
2.6. However, the A.O. was not satisfied with the explanation given by the assessee. He noted that the abovementioned loan came from the company M/s White Collar Management Service Pvt. Ltd., which is controlled by Shri Hiamanshu Verma, who is an identified accommodation entry provider. Mayurika Management Service Private Limited (Formerly known as M/s White Collar Management Services Private Limited) is new name of the company.
27. He further noted that a search and seizure action was carried out on 13.04.2017 in the case of Mr. Himanshu Verma (Entry Operator) who is maintaining approx. 300 shell companies/concerns for providing accommodation entries in lieu of commission. During the course of search in the case of Mr. Himanshu Verma on 13.04.2017, statement on oath of Mr. Himanshu Verma was recorded under section 132(4) of Income Tax Act. 1961 and he was asked about his modus operandi for providing accommodation entries. He admitted that he provides bogus bills/entry of loans/capital to the beneficiaries and after rotating the amount received from the beneficiary in some of his bogus companies, he ultimately transfers the amount to its beneficiary.
2.8. The A.O. also referred to the statement of Mr. Shree Ram Yadav (dummy director) recorded under section 131(1A) wherein he admitted that he had been a dummy director in a number of bogus companies managed by Mr. Himanshu Verma. He further stated that he was getting Rs.10,000/- per month for being the director in these companies. He admitted that he had been made director by Mr. Himanshu Verma in various companies totaling to 20 in number.
2.9. In view of the above, the A.O. held that the identity, genuineness and creditworthiness of the company M/s While Collar Management Services Pvt, Ltd which advanced unsecured loan to the assessee company, could not be confirmed. The assessee company could not produce the above party which in itself is enough evidence to prove that the unsecured loans were received by the assessee company from bogus entity which do not carry out any business activity. Moreover, the lender company is already an identified bogus concern which is run by an accommodation entry provider Shri Himanshu Verma. Relying on the following decisions, the A.O. made addition of Rs.10,00,000/- under section 68 of the I.T. Act, 1961.
1. CIT vs., Nipun Builders & Developers (P ) Ltd.,
2. Nova Promoters & Finlease (P) Ltd.,
3. CIT vs., N R Portfolio Pvt. Ltd.,
2.10. The A.O. further noted from the ledger A/c of M/s White Collar Management Services Pvt. Ltd that the assessee has paid Rs.55,726/- as interest to M/s While Collar Management Services Pvt. Ltd on the loan of Rs.10,00,000/- received from the company. He asked the assessee to explain as to why the interest paid on the unsecured loan from M/s While Collar Management Services Pvt. Ltd not to be disallowed. Rejecting the explanation of the assessee, the A.O. made addition of Rs.55,726/- to the total income of the assessee.
2.11. The A.O. noted that during the course of search proceedings, various bills of PC Jewllers were seized from premise 17/6, Hanspal Industrial Complex. Mathura Road. Faridabad. On perusal of bills, it was found that the assessee company has purchased gold coins of an amount of Rs.4,25,975/-in cash. He asked the assessee to explain as to why such purchase of gold coin of Rs.4,25,925/-should not be considered as unaccounted expenditure and added back to total income of the assessee during the year.
2.12. It was explained by the assessee that the gold coins were purchased out of cash generated out of billing grey market purchases. Alternatively, it was requested for giving telescoping benefit.
2.13. However, the A.O. was not satisfied with the explanation given by the assessee. He noted that the assessee is itself accepting that the purchases were made out of cash generated and unaccounted in the books of accounts of the assessee. The assessee company failed to produce evidence regarding genuineness of the transaction. Moreover, the mode of transaction is cash. Further, the assessee could not tally this transaction with its books of account. Therefore, he made an addition of Rs.4,25,975/- as unexplained expenditure under section 69C of the I.T. Act, 1961.
2.14. During the course of assessment proceedings, the A.O. noted that the assessee company has shown purchases of Rs.5,34,76,626/- from the following parties during the year under consideration.
