M/s Futuretech Industries Ltd,, Hyderabad v. Dy.CIT, Circle-1(3),, Hyderabad

ITA 553/HYD/2014 | 2010-2011
Pronouncement Date: 29-11-2017 | Result: Partly Allowed

Appeal Details

RSA Number 55322514 RSA 2014
Assessee PAN AAACE4493Q
Bench Hyderabad
Appeal Number ITA 553/HYD/2014
Duration Of Justice 3 year(s) 8 month(s) 2 day(s)
Appellant M/s Futuretech Industries Ltd,, Hyderabad
Respondent Dy.CIT, Circle-1(3),, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 29-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 29-11-2017
Last Hearing Date 13-11-2017
First Hearing Date 16-11-2017
Assessment Year 2010-2011
Appeal Filed On 27-03-2014
Judgment Text
ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 1 OF 14 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH HYDERABAD BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN ACCOUNTANT MEMBER ITA NO.553/HYD/2014 (ASSESSMENT YEAR: 2010-11) M/S. CANDID INDUSTRIES LTD (FORMERLY FUTURETECH IND. LTD) HYDERABAD PAN: AAACE 4493 Q VS DCIT CIRCLE 1 ( 3 ) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO FOR REVENUE : SHRI J. SIRI KUMAR DR O R D E R PER SMT. P. MADHAVI DEVI J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2010-11 AGAIN ST THE ORDER OF THE CIT (A)-II HYDERABAD DATED 14.02. 2014. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL ALONG WITH FORM NO.36: 1. THE LD CIT(A)-II HYDERABAD ERRED BOTH IN LAW AND ON FACTS IN PARTLY UPHOLDING ORDER OF THE AO TO THE EXTENT WHICH IS PREJUDICIAL TO THE INTEREST OF THE ASSESSEE. 2. THE LD CIT(A)-II HYDERABAD OUGHT TO HAVE APPRECIATED THAT THE ORDER OF THE ASSESSING OFFICER IS BASED ON THE SUSPICIONS 'CONJECTURES AND SURMISES WHICH IS NOT CORRECT AND NOT JUSTIFIED. 3. THE LD CIT(A)-II HYDERABAD ERRED IN UPHOLDING THE ADDITION OF RS.1 25 OOO/- U/S 37(1) OF THE INCOME TAX ACT 1961. DATE OF HEARING: 16.11.2017 DATE OF PRONOUNCEMENT: 29.11.2017 ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 2 OF 14 4. THE LD CIT(A)-II HYDERABAD ERRED IN UPHOLDING THE ADDITION MADE BY THE AO AS UNEXPLAINED CASH CREDIT OF THE ASSESSEE U/S 68 OF THE ACT FOR AN AMOUNT OF RS.6.45 CRORES. 5. THE LD CIT(A)-II HYDERABAD ERRED IN SUSTAINING THE AMOUNT OF RS.25 59 986/- U/S 14A OF THE ACT. 6. THE LD CIT(A)-II HYDERABAD OUGHT TO HAVE APPRECIATED THE FACT THAT ONCE THE INCOME IS ESTIMATED NO OTHER ADDITIONS CAN BE MADE TO THE 'INCOME OF THE ASSESSEE. 7. THE LD CIT(A)-II HYDERABAD ERRED IN ESTIMATING NET PROFIT @ 10% OF TURNOVER OF RS.5 10 24 13 445/- AS INCOME OF THE ASSESSEE. 8. THE LD CIT(A)-II HYDERABAD OUGHT TO HAVE APPRECIATED THE FACT THAT THE BOOK PROFITS OF APPELLANT AS THERE WERE NO DEFECTS. 9. THE LD CIT(A)-II HYDERABAD ERRED IN ESTIMATING THE INCOME OF THE APPELLANT COMPANY WITHOUT REJECTING THE BOOKS OF ACCOUNTS. 10. WITHOUT PREJUDICE WE WOULD LIKE TO SUBMIT THAT THE NET PROFIT ESTIMATED AT 10% OF TURNOVER IS VERY HIGH IN THE LINE OF BUSINESS OF THE APPELLANT COMPANY. 11. THE LD CIT(A)-I1 HYDERABAD OUGHT TO HAVE ESTIMATED THE INCOME BASED UPON THE PAST PROFITS OF THE APPELLANT COMPANY. 12. THE LD CIT(A)-I1 HYDERABAD ERRED IN UPHOLDING THE ADDITION MADE BY THE AO TOWARDS THE AMOUNT OF RS.55 10 07 684/- AS UNEXPLAINED CREDITS U/S 68 OF THE ACT. 13. THE LD CIT(A)-I1 HYDERABAD ERRED IN HOLDING THAT THERE WAS NO REAL TRADING ACTIVITY CARRIED ON BY THE ASSESSEE AND THAT THE SO CALLED CUSTOMERS BEING THE RELATED PARTIES MERELY TRANSFERRED THE ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 3 OF 14 FUNDS TO THE ASSESSEE COMPANY WITHOUT RECEIVING ANY CONSIDERATION FROM THE COMPANY. 14. THE ORDER PASSED BY THE CIT (A)-II HYDERABAD IN RESPECT OF THE ABOVE CLAIMS CAN BE SET ASIDE TO FILE AO. 15. THE APPELLANT MAY ADD OR ALTER OR AMEND OR MODIFY OR SUBSTITUTE OR DELETE AND/OR RESCIND ALL O R ANY OF THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. SUBSEQUENTLY VIDE LETTER DATED 10.6.2016 THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUND S OF APPEAL: 16. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE AMOUNT OF RS. 55 10 07 684/ - IS TOWARDS THE OPENING BALANCE AVAILABLE AND OPENING BALANCES CANNOT BE THE SUBJECT MATTER FOR ADDITION U / S. 68 OF THE ACT. 17. THE LD. CIT(A) FAILED TO APPRECIATE THE DECISION OF THE HON'BLE ITAT IN THE CASE OF R.RAMI REDDY VIDE ITA NO. 103/H/2004 AND ERRED IN UPHOLDING THE ADDITION OF RS. 55 10 07 684/-. 18. THE LD. CIT(A) ERRED AS THERE ARE NO CURRENT YEAR TRANSACTIONS FOR PURCHASES ETC. 19. THE ASSESSEE MAY ADD ALTER OR MODIFY OR SUBSTITUTE ANY OTHER POINTS TO THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY (FORMERLY KNOWN AS FUTURETECH INDUSTRIES LT D) ENGAGED IN THE BUSINESS OF TRADING IN STEEL PRODUCTS HAS E- FILED ITS RETURN OF INCOME ON 27.01.2011 ADMITTING TOTAL INCOME OF R S.2 27 005. THE RETURN WAS INITIALLY PROCESSED U/S 143(1) OF TH E I.T. ACT. ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 4 OF 14 SUBSEQUENTLY IT WAS TAKEN UP FOR SCRUTINY U/S 143( 3) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT VARIOUS DETAILS WERE CALLED FOR WHICH WERE FILED BY THE ASS ESSEE. 4. ON PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE COMPANY FOR THE FINANCIAL YEAR 2009-10 THE AO OBSE RVED THAT THERE IS INCREASE IN AUTHORIZED SHARE CAPITAL BY AN AMOUNT OF RS.2 50 00 000 AND THAT THE ASSESSEE HAS PAID FEE O F RS.1 25 000 TO THE REGISTRAR OF COMPANIES AND HAS CLAIMED IT AS REVENUE EXPENDITURE. BY FOLLOWING THE JUDGMENT OF THE HON'B LE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELO PMENT CORPORATION LTD VS. CIT (1997) 225 CTR 792 WHEREIN THE EXPENDITURE INCURRED IN CONNECTION WITH THE ISSUE O F FRESH SHARES IS HELD TO BE CAPITAL IN NATURE THE AO DISALLOWED A SUM OF RS.1 25 000 U/S 37(1) OF THE ACT AND BROUGHT IT TO TAX. 5. FURTHER THE AO ALSO NOTICED THAT THERE IS AN IN CREASE OF RS.43.00 LAKHS IN SUBSCRIBED AND PAID UP SHARE C APITAL AND AN INCREASE OF RS.6 02 00 000 IN SHARE PREMIUM ACCOUNT AND THAT THE TOTAL INCREASE IN PAID UP SHARE CAPITAL AND SHA RE PREMIUM ACCOUNT IS RS.6 45 00 000 IN FINANCIAL YEAR 2009-10 . AFTER GOING THROUGH THE DETAILS OF THE SUBSCRIBERS THE AO OBSE RVED THAT RS.6.45 CRORES WAS RECEIVED FROM M/S. G.B. TRADING & INVESTMENTS PVT. LTD (GBTIPL) HYDERABAD ON VARIOUS DATES. THE ASSESSEE WAS THEREFORE ASKED TO PROVE THE IDENTITY AND CREDITWORTHINESS OF GBTIPL AND THE GENUINENESS OF T HE TRANSACTIONS ALONG WITH THE (I) ANNUAL REPORT; (II) BANK STATEMENT FROM 1.4.2009 TO 31.03.2010; AND (III) THE COPIES O F THE INCOME-TAX RETURN FOR THE A.Y 2010-11; OF THE GBTIPL AND ALSO EXPLANATION ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 5 OF 14 FOR IMMEDIATE SOURCES IN THE HANDS OF GBTIPL. THE A SSESSEE FURNISHED THE COPIES OF THE ANNUAL REPORT AND BANK STATEMENT OF GBTIPL FOR THE FINANCIAL YEAR 2009-10. HOLDING THAT THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE TRANSACTION AND CREDITWORTHINESS OF GBTIPL THE AO REQUIRED THE SAI D COMPANY TO FURNISH THE INFORMATION RELATING TO ITS SOURCES FOR MAKING THE INVESTMENTS IN THE ASSESSEE COMPANY ALONG WITH THE NAMES AND ADDRESSES OF THE PROMOTERS OF GBTIPL. HOWEVER THER E WAS NO RESPONSE FROM GBTIPL. HOLDING THAT THE ASSESSEE HAS FAILED TO PROVE THE IDENTITY GENUINENESS AND CREDITWORTHINES S IN RESPECT OF THE SHARE APPLICATION MONEY RECEIVED FROM GBTIPL T HE ENTIRE SUM OF RS.6 45 00 000 WAS TREATED AS UNEXPLAINED CA SH CREDITS AND TREATED AS INCOME U/S 68 OF THE ACT. FOR HOLDIN G SO THE AO PLACED RELIANCE ON THE DECISION OF THE HON'BLE DELH I HIGH COURT DATED 21.12.2012 IN THE CASE OF CIT VS. M/S. N.R. P ORTFOLIO PVT LTD IN ITA NO.134 OF 2012. 6. FURTHER THE AO ALSO OBSERVED THAT THE ASSESSEE HAS INVESTMENTS IN BOTH QUOTED AND UNQUOTED SECURITIES IN VARIOUS COMPANIES. FORM THE P&L A/C OF THE ASSESSEE HE ALS O OBSERVED THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS .1 39 61 675 TOWARDS BANK INTEREST. OBSERVING THAT THE ASSESSEE HAS INVESTMENTS INCOME ARISING FROM WHICH IS EXEMPT FRO M TAX AND THAT IT HAS ALSO INCURRED INTEREST EXPENDITURE HE HELD THAT THE DISALLOWANCE U/S 14A IS CALLED FOR AND ACCORDINGLY WORKED OUT THE DISALLOWANCE UNDER RULE 8D OF THE I.T. RULES AND DI SALLOWED A SUM OF RS.83 59 826. ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 6 OF 14 7. FURTHER THE AO ALSO OBSERVED THAT THE ASSESSEE HAS CLAIMED TO HAVE MADE PURCHASES OF RS.507 77 29 947. THE ASSESSEE WAS ASKED TO SUBMIT THE NAMES OF THE PARTI ES THEIR ADDRESSES AND THE LEDGER A/C ALONG WITH THE CONFORM ATIONS FROM THEM. THE ASSESSEE WAS ALSO ASKED TO SUBMIT WEIGHME NT SLIPS TRANSPORTATION BILLS PURCHASE INVOICES PAYMENT VO UCHERS AND ALSO THE DETAILS OF TRANSPORTERS ALONG WITH LORRY N UMBERS. IN RESPONSE THE ASSESSEE FURNISHED THE NAMES AND LEDG ER A/C OF THE SUPPLIERS. HOLDING THAT MERE SUBMISSION OF THE NAME S AND LEDGER ACCOUNTS DO NOT ESTABLISH THE TRANSACTIONS AND SINC E THE ASSESSEE FAILED TO PROVIDE THE REQUIRED DETAILS TO PROVE THE GENUINENESS OF THE PURCHASES THE AO ISSUED A SHOW-CAUSE NOTICE AS TO WHY THE PURCHASES SHOULD NOT BE TREATED AS BOGUS. SINCE THE ASSESSEE FAILED TO REPLY TO THE SAID SHOW-CAUSE NOTICE THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS CLAIMED TO HAVE MADE SALES OF RS.510 24 13 445. OBSERVING THAT THE ASSESSEE IS A RELATED CONCERN OF SUJANA GROUP AND THAT MOST OF THE TRANSA CTIONS OF THE ASSESSEE COMPANY ARE WITH A RELATED CONCERNS OF SUJ ANA GROUP AND ALSO THAT THE STOCK TRADED BY THE ASSESSEE COMP ANY WAS NEVER TRANSPORTED BY IT NOR STORED IN ITS GODOWNS THE AO WAS OF THE OPINION THAT THE SALES ARE ALSO NOT PROVED BY A NY COGENT MATERIAL. HOLDING THAT IN THE ABSENCE OF ANY REAL T RADING ACTIVITIES BEING CARRIED ON BY THE ASSESSEE THE MONEY RECEIVE D BY THE ASSESSEE FROM ITS SO CALLED CUSTOMERS CANNOT BE REG ARDED AS SALE CONSIDERATION RECEIVED IN LIEU OF GOODS SUPPLIED T HE ASSESSEE WAS THEREFORE ASKED TO SUBMIT THE ASSESSEES CUSTOMERS LIST ALONG WITH THEIR ANNUAL REPORTS IN THE FORMAT GIVEN BY TH E AO. THE ASSESSEE FILED THE RELEVANT DETAILS OF THE CUSTOMER S WHICH ARE REPRODUCED AT PAGES 8 TO 11 OF THE ASSESSMENT ORDER . ON PERUSAL OF THESE DETAILS THE AO WAS OF THE OPINION THAT MO ST OF THE ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 7 OF 14 SHAREHOLDERS OF THE COMPANY ARE COMMON AND EACH COM PANY HAS ACCOMMODATED THE ASSESSEE COMPANY BY MAKING BOGUS ARRANGEMENT OF NON-EXISTING TRANSACTIONS. HE OBSERV ED THAT IN THE GUISE OF THESE NON-EXISTING TRANSACTIONS MONEY HAS BEEN TRANSFERRED IN HUGE AMOUNTS TO THE ASSESSEE COMPANY . THEREFORE HE ASKED THE ASSESSEE TO SHOW-CAUSE AS TO WHY THE A BOVE RECEIPTS SHOULD NOT BE TREATED AS UNEXPLAINED CREDIT U/S 68 OF THE I.T. ACT. IN RESPONSE TO THE SAID SHOW CAUSE NOTICE THE ASSE SSEE PRAYED THAT THE BENEFIT OF PEAK CREDIT MAY BE GIVEN TO THE ASSESSEE. THE AO OBSERVED THAT THE BENEFIT OF PEAK CREDIT CAN BE GRANTED ONLY ON CASH CREDIT AND CASH WITHDRAWAL ON THE PRESUMPTION THAT THE SOURCE OF SUBSEQUENT DEPOSIT IS PREVIOUS WITHDRAWAL BUT IN THE CASE OF THE ASSESSEE THERE IS NO CASH DEPOSIT AND FURTHER THAT THE BENEFIT OF PEAK CREDIT CANNOT BE GIVEN AS BOTH THE SALES AND PURCHASES ARE BOGUS. HE THEREFORE TREATED THE ENTI RE SALES AS UNEXPLAINED CREDIT U/S 68 OF THE ACT AND EVEN THE S UM OF RS.55 10 07 684 RECEIVED AS ADVANCES FROM CUSTOMERS AS UNEXPLAINED CREDIT U/S 68 OF THE ACT. AGGRIEVED BY ALL THESE ADDITIONS AND DISALLOWANCES THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO GRANTED PARTIAL RELIEF TO TH E ASSESSEE. AGAINST THE RELIEF DENIED TO THE ASSESSEE THE ASSE SSEE IS IN SECOND APPEAL BEFORE US BY RAISING THE ABOVE GROUNDS OF AP PEAL. 8. WE FIND THAT GROUND NOS 1 AND 2 RAISED ALONG WIT H FORM NO.36 ARE GENERAL IN NATURE AND NEED NO ADJUDI CATION. 9. AS REGARDS GROUND NO.3 IT IS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE ITSELF HAS ADDED THE SUM OF RS.1 25 000 TO ITS NET PROFIT AND HAS OFFERED THE S AME TO TAX. THE ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 8 OF 14 LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTE NTION TO PAGE- 1 OF THE PAPER BOOK WHEREIN THE SAID ADDITION IS MA DE BY THE ASSESSEE. WE ALLOW THIS GROUND OF APPEAL SUBJECT TO VERIFICATION OF THE CLAIM OF THE ASSESSEE BY THE AO AS FURTHER ADD ITION WOULD AMOUNT TO DOUBLE TAXATION OF THE SAME AMOUNT. IN TH E RESULT GROUND NO.3 IS TREATED AS ALLOWED FOR STATISTICAL P URPOSES. 10. AS REGARDS GROUND NO.5 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT BOTH THE AO AND THE CIT (A) HAVE MADE THE DISALLOWANCES U/S 14A OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS MADE INVESTMENTS IN SHARES THE INCOME FROM WHICH IS EXEMPT FROM TAX. HE SUBMITTED THAT THERE WAS NO EXEMPT INCOME EARNED DURING THE RELEVANT PREVIOUS YEAR AND THEREFORE THERE CANNOT BE ANY DISALLOWANCE U/S 14A OF THE ACT . 11. THE LEARNED DR ON THE OTHER HAND SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW. 12. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD WE FIND THAT THIS BENCH IN A NUMBER OF C ASES HAS FOLLOWED THE DECISION OF THE HON'BLE MADRAS HIGH CO URT IN THE CASE OF M/S. REDINGTON (INDIA) LTD VS. ADDL. CIT RE PORTED IN 2016- LL-1223-81 WHEREIN IT HAS BEEN HELD THAT WHERE THER E IS NO DIVIDEND INCOME OR EXEMPT INCOME EARNED DURING THE RELEVANT PREVIOUS YEAR NO DISALLOWANCE U/S 14A IS CALLED FO R. RESPECTFULLY FOLLOWING THE SAME AND SUBJECT TO VERIFICATION AS T O WHETHER THE ASSESSEE HAS EARNED ANY EXEMPT INCOME DURING THE RE LEVANT PREVIOUS YEAR THIS GROUND OF APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 9 OF 14 13. AS REGARDS GROUND NO.4 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS FURNISHED EVIDENCE THAT THE SHARE APPLICATION MONEY AND THE SHARE PREMIUM H AS BEEN PAID TO THE ASSESSEE BY M/S.G.B. TRADING & INVESTME NTS PVT. LTD (GBTIPL) HYDERABAD AND COPY OF THE BANK A/C OF THE SAID COMPANY HAS ALSO BEEN FILED IN PROOF OF ITS IDENTIT Y AND THE GENUINENESS OF THE TRANSACTIONS AS WELL AS CREDITWO RTHINESS OF THE SAID COMPANY. HE SUBMITTED THAT BOTH THE AO AND THE CIT (A) HAVE SOUGHT THE EXPLANATION ABOUT THE SOURCES OF GB TIPL WHICH AMOUNTS TO VERIFYING THE SOURCE OF THE SOURCE WHICH IS NOT PERMISSIBLE UNDER THE PROVISIONS OF THE ACT. ACCORD ING TO THE LEARNED COUNSEL FOR THE ASSESSEE SINCE THE ASSESSE E HAS PROVED THE SOURCE OF THE INVESTMENTS THE DISALLOWANCES OF THE SHARE APPLICATION MONEY AND THE SHARE PREMIUM MONEY RECEI VED BY THE ASSESSEE CANNOT BE TREATED AS INCOME U/S 68 OF THE ACT. FURTHER HE ALSO SUBMITTED THAT THE ASSESSEE HAS ALSO ISSUED SHARES TO M/S. GBTIPL AS IS EVIDENT FROM THE BALANCE SHEET FO R THE RELEVANT A.Y AND THEREFORE THE DISALLOWANCE CANNOT BE MADE. 14. THE LEARNED DR ON THE OTHER HAND SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT M/S. GBTIPL HAS RECEIVED HUGE CASH DEPOSIT BEFORE MAKING AN INV ESTMENT IN THE ASSESSEE COMPANY AND THEREFORE THE CREDITWORTH INESS OF THE SAID COMPANY IS NOT PROVED AND HENCE THE INCOME HAS RIGHTLY BEEN BROUGHT TO TAX U/S 68 OF THE ACT. 15. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD WE FIND THAT THE INVESTMENT IN THE ASSES SEE COMPANY ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 10 OF 14 BY M/S. GBTIPL IS THROUGH BANKING CHANNEL AND NOT B Y WAY OF ANY CASH DEPOSITS. ACCORDING TO THE ASSESSEE THE A SSESSEE HAS PROVED THE IDENTITY AND GENUINENESS OF THE TRANSACT IONS AND ALSO THE CREDITWORTHINESS OF THE SAID PARTY IN SO FAR AS IT HAS GOT FUNDS IN ITS BANK A/C BEFORE TRANSFERRING THE SAME TO THE ASSESSEE. BY REQUIRING THE ASSESSEE TO PROVE THE SOURCES OF M/S. GBTIPL THE AO IS SEEKING THE ASSESSEE TO PROVE THE SOURCE OF S OURCE WHICH IS NOT PERMISSIBLE UNDER THE PROVISIONS OF THE ACT. WE FIND THAT THE AO HAS RELIED UPON THE JUDGMENT OF THE HON'BLE DELH I HIGH COURT TO MAKE THE ADDITION U/S 68 OF THE ACT. THE HON'BLE DELHI HIGH COURT IN THE CASE OF NR PORTFOLIO PVT. LTD (SUPRA) WAS CONSIDERING A CASE WHERE THE ASSESSEE COMPANY RECEIVED A SUM OF MONEY TOWARDS SHARE ALLOTMENT AND AS THE SHAREHOLDERS DID NOT RESPOND TO THE SUMMONS OF THE AO THE AO ASSESSED THE SAID SUM U/S 68 OF THE ACT. IN THE SAID CASE THE HON'BLE HIGH COUR T NOTICED THAT THE NOTICES COULD NOT BE SERVED AT THE GIVEN ADDRES S OF THE CREDITORS AND THE PAN NOS. OF THE CREDITORS WERE NO T FURNISHED TO PROVE THEIR IDENTITY AND IN SUCH CIRCUMSTANCES THE HON'BLE HIGH COURT HELD THAT PAYING BACK OF THE LOANS BY WAY OF AN ACCOUNT PAYEE CHEQUE IS NOT CONCLUSIVE. BUT IN THE CASE BE FORE US THE IDENTITY OF THE INVESTOR IS PROVED AS RECORDED BY T HE CIT (A) IN PARA 5.5 OF HIS ORDER AND IT IS THE STAND OF THE REVENU E THAT THE GENUINENESS AND CREDITWORTHINESS OF THE INVESTOR IS NOT PROVED. THEREFORE THE ABOVE JUDGMENT IS NOT APPLICABLE TO THE FACTS OF THE CASE BEFORE US. TO EXAMINE THE GENUINENESS OF THE T RANSACTION WE DIRECT THE AO TO VERIFY IF THE ASSESSEE HAS ALLOTTE D THE SHARES TO THE INVESTOR WITHIN THE PERIOD ALLOWED FOR THIS PUR POSE. AS REGARDS THE CREDITWORTHINESS OF THE INVESTOR THE AO CAN ON LY VERIFY IF THE INVESTOR HAD THE SOURCE FOR INVESTMENT BUT HE CANN OT ASK THE ASSESSEE TO PROVE THE SOURCE OF THE SOURCE. THE AO IS FREE TO ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 11 OF 14 EXAMINE THE SOURCE OF THE FUND IN THE BANK A/C OF M /S. GBTIPL WHILE COMPLETING THE ASSESSMENT IN THE HANDS OF M/S . GBTIPL AND NOT FOR COMPUTING THE INCOME OF THE ASSESSEE BE FORE US. THEREFORE WE ARE OF THE OPINION THAT THE ADDITION OF RS.6 45 00 000 IS NOT SUSTAINABLE SUBJECT TO THE VE RIFICATION OF THE GENUINENESS OF THE TRANSACTION AS DIRECTED BY US AB OVE. THIS GROUND IS ACCORDINGLY PARTLY ALLOWED FOR STATISTICA L PURPOSES. 16. AS REGARDS GROUNDS OF APPEAL NOS. 6 TO 11 WE F IND THAT THE AO HAS TREATED THE ENTIRE SALES AS UNEXPLA INED CASH CREDIT U/S 68 WHILE THE CIT (A) HAS ESTIMATED THE INCOME AT 10% OF ITS GROSS RECEIPTS. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT (A) ACCEPTED BOTH THE SALES AS WELL AS PURCHASES OF THE ASSESSEE COMPANY BUT HAS ESTIMATED THE NET PROFIT TO BE 10% OF THE TURNOVER WHICH IS VERY HIGH AS COMPARED TO THE PROFIT OF THE ASSESSEE WHICH IS LESS THAN 1%. H E SUBMITTED THAT THE CIT (A) HAS NOT REJECTED THE BOOKS OF ACCO UNT BEFORE ESTIMATING THE INCOME AND AS HELD BY THE TRIBUNAL I N THE CASE OF M/S. VARALAKSHMI CONSTRUCTIONS LTD IT IS NOT PERMI SSIBLE TO DO SO. THUS HE PRAYED THAT THE BOOK RESULTS OF THE AS SESSEE BE ACCEPTED AS THE ASSESSEE HAS OFFERED THE DIFFERENCE BETWEEN THE SALES AND PURCHASES AS ITS INCOME AND THE AO AND TH E CIT (A) HAVE NOT BROUGHT OUT ANY COMPARATIVE INSTANCES TO D EMONSTRATE THAT THE PROFIT OFFERED BY THE ASSESSEE IS LOW. 17. THE LEARNED DR ON THE OTHER HAND SUBMITTED TH AT THE ASSESSEE HAS BEEN INVOLVED IN MAKING ONLY BOOK ENTR IES OF PURCHASE AND SALE AND EVEN THE ALLEGED CUSTOMERS OF THE PARTIES HAVE MADE ACCOMMODATING ENTRIES BUT SINCE THERE IS NO PROOF OF ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 12 OF 14 THE TRANSFER OF STOCK TO AND FROM THE ASSESSEE TO T HE CUSTOMERS THE PURCHASE AND SALES HAVE RIGHTLY NOT BEEN ACCEPT ED BY THE CIT (A). HE FURTHER SUBMITTED THAT THE ASSESSEE HAS REP ORTED THE GROSS SALES AND THEREFORE WHEN THERE WERE NO GENUINE PUR CHASES THE ENTIRE SALES HAS BEEN RIGHTLY TREATED AS UNEXPLAINE D CASH CREDIT U/S 68 OF THE ACT. 18. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD WE FIND THAT THE ASSESSEE IS UNDISPUTEDL Y ENGAGED IN TRADING AND MOST OF THE CUSTOMERS ARE RELATED PARTI ES. THE ASSESSEE HAS ONLY REPORTED THE PURCHASES AND THE SA LES AND HAS NOT CLAIMED ANY OTHER EXPENDITURE SUCH AS TRANSPORT ATION CHARGES ETC. TO PROVE ACTUAL MOVEMENT OF GOODS TO AND FROM THE ASSESSEE. THE ASSESSEE HAS REPORTED THE DIFFERENCE BETWEEN TH E SALES AND PURCHASES AS ITS PROFIT AND HAS PAID TAXES THEREON. BOTH THE AO AND THE CIT (A) HAVE NOT REJECTED THE BOOKS OF ACCO UNT OF THE ASSESSEE AND AS HELD BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. VARALAKSHMI CONSTRUCTIONS (CITED S UPRA) THE INCOME OF THE ASSESSEE CANNOT BE ESTIMATED WHEN THE BOOKS ARE NOT REJECTED. BECAUSE OF THE OBSERVATION OF THE AO AND THE CIT (A) THAT THE ASSESSEE IS INVOLVED IN PASSING ACCOMMODAT ING ENTRIES AND THAT THE REAL TRANSACTIONS HAVE NOT TAKEN PLACE EVEN IF IT IS TO BE PRESUMED THAT THE BOOKS OF ACCOUNT ARE REJECTED THEN BEFORE ESTIMATING THE INCOME THE AO/CIT (A) HAVE TO BRING ON RECORD THE COMPARATIVE INSTANCES JUSTIFYING THE ESTIMATION OF INCOME AT 10% OF THE GROSS TURNOVER. THEREFORE IN OUR OPINION T HE ESTIMATION OF INCOME AT 10% IS NOT JUSTIFIABLE. HOWEVER SINCE TH E FIGURES OF PURCHASE AND SALES HAVE NOT BEEN VERIFIED BY THE RE VENUE WE ARE OF THE OPINION THAT IT WOULD BE JUST AND PROPER TO REMAND THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO VER IFY THE BOOKS OF ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 13 OF 14 ACCOUNT OF THE ASSESSEE AND IF THE AO COMES TO THE CONCLUSION THAT THE BOOKS ARE NOT RELIABLE THEN THE AO MAY RE JECT THE BOOKS OF ACCOUNT AND ESTIMATE THE INCOME AFTER CONSIDERIN G THE COMPARATIVE INSTANCES IN THE PARTICULAR TRADE FOR T HE RELEVANT A.Y. THE GROUNDS OF APPEAL NOS. 6 TO 11 ARE THEREFORE T REATED AS ALLOWED FOR STATISTICAL PURPOSES. 19. AS REGARDS GROUNDS 12 & 13 ARE CONCERNED WE F IND THAT THIS IS CONSEQUENT TO THE FINDING THAT THE PUR CHASES AND SALES ARE ALL BOGUS. THE AO HAS TREATED THE ADVANCE S RECEIVED FROM THE CUSTOMERS AS UNEXPLAINED CREDIT U/S 68 OF THE ACT. IT IS STATED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SUM OF RS.55 10 07 684 INCLUDED THE OPENING BALANCE AS ON 1.4.2009 AND THEREFORE THE OPENING BALANCE SHOULD BE EXCLUD ED FOR CONSIDERING THE NET ADVANCES RECEIVED DURING THE RE LEVANT FINANCIAL YEAR. WITHOUT PREJUDICE TO THE ABOVE CONT ENTION THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THA T WHERE THE NET INCOME IS ESTIMATED THE FURTHER ADDITION OF AD VANCES RECEIVED BY THE ASSESSEE FROM ITS CUSTOMERS CANNOT BE MADE U /S 68 OF THE ACT AS IT WOULD AMOUNT TO DOUBLE TAXATION OF THE SA ME AMOUNT. 20. THE LEARNED DR HOWEVER RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 21. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD WE FIND THAT THE AO HAS MADE THE ADDITIO N OF ENTIRE ADVANCES RECEIVED BY THE ASSESSEE FROM ITS CUSTOMER S. IF THERE ARE OPENING BALANCES ON THE OPENING DATE OF THE RELEVAN T FINANCIAL YEAR IT IS TO BE EXCLUDED WHILE MAKING THE ADDITIO N. EVEN ITA NO 553 OF 2014 CANDID INDUSTRIES LTD HYDERABAD. PAGE 14 OF 14 OTHERWISE SINCE WE HAVE ALREADY SET ASIDE THE ISSU E OF THE PURCHASE AND SALES FOR VERIFICATION BY THE AO WE D EEM IT FIT AND PROPER TO REMAND THIS ISSUE ALSO TO THE FILE OF THE AO FOR VERIFICATION AND WE DIRECT THE AO TO CONSIDER THE A LLOWABILITY OF THE SAME IN ACCORDANCE WITH LAW. THEREFORE THIS GROUND OF APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 22. WE FIND THAT THE ADDITIONAL GROUNDS OF APPEAL I S ONLY ON THE GROUND THAT OPENING BALANCE CANNOT BE SUBJEC T MATTER OF THE ADDITION U/S 68 OF THE ACT. SINCE WE HAVE ALREA DY CONSIDERED THE ISSUE WHILE DEALING WITH GROUND OF APPEAL NO.13 ABOVE THE ADDITIONAL GROUND OF APPEAL IS TREATED AS ALLOWED F OR STATISTICAL PURPOSES. 23. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER 2017. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD DATED 29 TH NOVEMBER 2017. VINODAN/SPS COPY TO: 1 P. MURALI & CO. CAS 6-3-655/2/3 IST FLOOR SOMA JIGUDA HYDERABAD 500082 2 DCIT CIRCLE 1(3) HYDERABAD 3 CIT (A) - II HYDERABAD 4 CIT I HYDERABAD 5 THE DR ITAT HYDERABAD 6 GUARD FILE BY ORDER