SATKAR FINCAP LTD. Vs. ACIT

JUDGEMENT

(1.) THESE six appeals, at the instance of the assessee, are directed against the orders of the Commissioner of Income -tax (Appeals) -II, New Delhi for the assessment years 2003 -04 to 2008 -09.

(2.) The facts and circumstances in all the assessment years are similar except the difference in the additions, therefore, for the sake of brevity, we take the facts from the proceedings of the assessment year 2003 -04. Brief facts of the case are that search and seizure action u/s. 132 of the Income -tax Act, 1961 (hereinafter 'the Act') was carried out in the cases of Shri B.K. Dhingra, Smt. Poonam Dhingra, M/s. Madhusudan Buildcon Pvt. Ltd. M/s. Mayank Traders (P) Ltd. and M/s. Horizon Pvt. Ltd. on 20.10.2008 and during the course of search at their residential premises at F -6/5, Vasant Vihar, New Delhi, certain documents belonging to the assessee, which is a private limited company were seized. On the basis of documents so found belonging to the assessee, proceedings were initiated in the case of the assessee u/s. 153C read with section 153A of the Act. The case of the assessee was initially centralized with ACIT, Central Circle 17 u/s. 127 of the Act by CIT, Delhi -III, New Delhi vide order F. No. CIT -III/Centralization/2009 -10/2515 dated 29.10.2010. Notice u/s. 153C dated 08.09.2010 was issued to the assessee by the DCIT, CC 17, New Delhi requiring the assessee to file return of income within 15 days of service of the notice. Meanwhile, the case was transferred to Central Circle 21 by an order u/s. 127 of the Act issued vide F. No. CIT (C) -II/CENT/2010 -11/1029 dated 19/10/2010. In response to the notice u/s. 153C, the assessee filed a return for assessment year 2003 -04 on 11.11.2010 declaring nil income. A copy of the panchnama, reasons for issuing notice u/s. 153C and jurisdiction order dated 19/21.10.2010 u/s. 127 of the Act were dispatched to the assessee on 12.11.2010 as sought by the assessee. In response to the notice, the assessee took part in the proceedings. The AO found that the assessee company belonged to the Thapar Group of cases and one of the main allegations against the group is that several concerns had been floated by the group with dummy Directors and shareholders. He observed that these concerns were basically capital formation concerns which had build up huge reserves and surpluses over the years and these reserves and surpluses were declared as invested in stocks of textiles. He further found that as and when cash was required, the stocks were sold and the money was utilized for other purposes as per required. Against this background, the AO analyzed the facts of the case. The AO opened the assessment under the provisions of section 153C for the assessment year 2003 -04. The AO noticed that the company was incorporated on 13.03.1999 and had been filling its returns with income tax regularly. The AO further found that the assessee had declared a closing stock of Rs. 11,33,06,829/ - as on 31.03.2002, which formed the opening stock for the previous year under consideration. During the relevant assessment year, the AO found that the assessee had purchased textile goods of Rs. 36,50,180/ - and had made sales of Rs. 39,77,470/ -. The AO directed the assessee to prove its trading activities and to produce sale tax records. The assessee had claimed that since it dealt with tax free goods only there was no necessity for it to file sales tax returns. Thus, the AO found that except the declaration of the assessee, there was no independent proof of sale/purchase of the goods except the bank transactions. During the course of assessment proceedings the AO asked the assessee to give break up of cash or cheque purchases. In response thereto, the assessee filed a reply in which assessee had declared its entire purchase as cash/cheque purchases of Rs. 36,50,180/ - and it was also stated that it did not maintain any bank account during the year and the assessee dealt with tax free goods only there was no necessity for it to file sales tax return. The AO found that during the post search enquiries conducted by the Investigation Wing from the address of the assessee, it indicated that at least 6 (six) number of concerns connected with the Thapar Group were declared as operating from the address, C -105, Ramdutt Enclave, Uttam Nagar, New Delhi and the number might be much higher also. During the course of inquiries, the AO found the house closed and it was a small residential house in lower middle class locality; and there was no sign board to show that any company operated from there. The AO further inquired that the director/shareholder was not a man of means and the premises and the premises were not commercial premises. It was also reported by the investigation wing that no evidence of stock was found from any other premises of the Thapar Homes Group. During the course of assessment proceedings, the assessee claimed that the assessee had a godown at Khasra No. 3417, Village Dera Mandi, Tehsil Mehrauli, New Delhi. But, the AO observed that the claim was non -verifiable due to lapse of so many years. The AO also found that most of the concerns of Thapar group had sought to declare this premises as their godown but no such claim was made during search proceedings. The AO observed that in the case of present assessee, all the purchases & sales were in cash. The items purchased & sold were textile & fabrics. The name and style of the textiles & fabrics were Denim, Fabrics K -III Super Fine (N), Fabric (PS), Fabric (PS) Embroidery, Fabric (PS) Excel, Fabrics, Kashmiri Fabrics -I, Kashmiri Fabrics -I (D), etc. From these items, the AO observed that the assessee was not dealing in branded items and there was no name of any company in these products. He further observed that the purchases & sales were within M/s. Thapar Homes Group of cases. He found that in inventories of Fabric & Textile Goods shown in the balance sheet, the closing stock of last year stood at Rs. 11,33,06,829/ - and this year the figure was Rs. 11,33,51,510/ - which was almost the same. Therefore, he observed that the purchases & sales were only out of current year transactions which were held unverifiable and bogus. The AO further observed that it was highly improbable that with a huge stock inventory of goods which change in fashion and taste, the assessee had to make sales from fresh purchases only. The AO observed that the preponderance of probability suggested that the stocks were not genuine but since these were declared prior to 01.04.2002, no action was being taken for now. In view of the above, the AO observed that all cash purchases were held unverifiable and hence a sum of Rs. 36,50,180/ - was disallowed u/s. 69C. Similarly, the AO observed that the expenses claimed by the assessee company in P&L account were also unverifiable as such 100% of the expenses i.e. Rs. 3,76,465/ - were disallowed. Further, the AO found that as the identity and genuineness of the shareholders had not been proved, the amount of Rs. 4,51,000/ - was also held unexplained cash credit u/s. 68 of the Act. Aggrieved by the same, the assessee preferred an appeal before the ld. CIT(A) who was pleased to dismiss the appeal of the assessee.

(3.) THE assessee, being aggrieved by the order of the ld. CIT(A), is in appeal before us.