Shri Vikas Purushottamal Gupta, Nashik V. Jt. CIT(OSD) Cir.-1, Nashik

CO 20/PUN/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7723 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-08-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-08-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 04-07-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MUKESH VERMA
• Assessee Lawyers: AJAY R SINGH
• Keywords: Unexplained cash credit; Search and seizure; Principle of natural justice; Additional evidence; Assessment record
• Section: 68; 145; 144

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 588, 589 AND 590/PN/2011 (ASSESSMENT YEARS 2004-05 TO 2006-07) ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, NASHIK .. APPELLANT VS. VIKAS PURUSHOTTAMLAL GUPTA, FLAT NO.6, SAWAN APARTMENTS, GAJJAR PARK, TAKLI ROAD, NASHIK. .. RESPONDENT PAN NO.AEGPG 4334P CO NO. 20, 21 AND 22/PN/2011 (ASSESSMENT YEARS 2004-05 TO 2006-07) VIKAS PURUSHOTTAMLAL GUPTA, FLAT NO.6, SAWAN APARTMENTS, GAJJAR PARK, TAKLI ROAD, NASHIK. .. APPELLANT PAN NO.AEGPG 4334P VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, NASHIK .. RESPONDENT ASSESSEE BY : SRI AJAY R. SINGH & NIRJAY SINGH DEPARTMENT BY : SRI MUKESH VERMA, CIT DATE OF HEARING : 07-08-2012 DATE OF PRONOUNCEMENT : 28-08-2012 ORDER PER R.K. PANDA, AM : THE ABOVE THREE APPEALS FILED BY THE REVENUE AND TH E 3 CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPA RATE ORDERS DATED 25-02-2011 OF THE CIT(A)-I, NASHIK RELATING TO ASSESSMENT YEARS 2 004-05 TO 2006-07 RESPECTIVELY. SINCE IDENTICAL GROUNDS HAVE BEEN TA KEN IN THE APPEALS AS WELL AS CROSS OBJECTIONS, THEREFORE, THESE WERE HEARD TOGET HER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2 ITA NO. 588/PN/2011 (A.Y. 2004-05) : 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL AND IS ENGAGED IN TRADING IN IRON AND STEEL MATERIALS UNDE R THE NAME AND STYLE OF M/S. VAISHNO STEEL AS A PROPRIETARY CONCERN. THE ASSESS EE FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 2,12,900/-. A SEARCH AND SEIZURE ACTION U/S.132 OF THE INCOME TAX ACT WAS CONDUCTED AT THE RESIDENTIAL PRE MISES OF SRI SATISH S LUTHRA OF NASIK DURING WHICH CERTAIN BOOKS OF ACCOUNTS OF M/S . VAISHNO STEEL WHICH WERE BELONGING TO THE ASSESSEE WERE SEIZED. IN THE STAT EMENT RECORDED U/S.131 AS PER THE POST SEARCH ENQUIRIES THE ASSESSEE ALSO ADMITTED TH IS FACT. AFTER RECEIPT OF INFORMATION FROM THE DCIT, CENTRAL CIRCLE-1, NASHIK RELATING TO THE ABOVE FACT THE AO INITIATED PROCEEDINGS U/S.153C OF THE INCOME TAX ACT. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS SHOWN SUNDRY CREDITORS AMOUNTING TO RS. 4,66,93 ,594/- IN THE BALANCE SHEET AS ON 31-03-2004. THE AO ASKED THE ASSESSEE TO SUBMIT THE DETAILS OF SUNDRY CREDITORS ALONG WITH THEIR DETAILED ADDRESSES AND L EDGER EXTRACTS AND PARTY WISE PURCHASES ETC. DESPITE BEING GIVEN SUFFICIENT OPPO RTUNITIES THE ASSESSEE DID NOT SUBMIT THE DETAILS AS CALLED FOR BY THE AO. 4. IN ORDER TO VERIFY THE GENUINENESS OF THE SUNDRY CREDITORS THE AO CONDUCTED ENQUIRIES BY ISSUE OF SUMMONS TO THE SUNDRY CREDITO RS ON THE BASIS OF THE NAMES AND ADDRESSES FOUND IN THE SEIZED MATERIALS. THE E NQUIRIES CONDUCTED BY THE AO BY ISSUE OF SUMMONS BY RPAD AS WELL AS SERVICE OF S UMMONS THROUGH INSPECTOR REVEALED THAT THE PARTIES ARE NOT IN EXISTENCE ON T HE GIVEN ADDRESS. FOLLOWING THE PRINCIPLES OF NATURAL JUSTICE THE AO ASKED THE ASSE SSEE TO EXPLAIN HIS STAND. IT WAS ALSO INFORMED TO THE ASSESSEE THAT PROVISIONS OF SE CTION 68 CASTS BURDEN ON THE ASSESSEE TO PROVE THE IDENTITY OF THE CREDITORS AND GENUINENESS OF THE TRANSACTIONS IN 3 RESPECT OF CREDIT ENTRIES APPEARING IN HIS BOOKS OF ACCOUNTS. SINCE THE ASSESSEE DID NOT APPEAR ON THE DATES GIVEN AND IN ABSENCE OF ANY COMMUNICATION OR SUBMISSION FROM THE ASSESSEE THE AO CAME TO THE CONCLUSION THA T THE CONDUCT OF THE ASSESSEE IS NON COOPERATIVE IN NATURE. HE THEREFORE PROCEEDED TO COMPLETE THE ASSESSMENT U/S.144 OF THE INCOME TAX ACT AND MADE ADDITION OF RS. 4,66,93,594/- TO THE TOTAL INCOME OF THE ASSESSEE AS UNEXPLAINED CREDITS IN TH E BOOKS OF ACCOUNTS FOR A.Y. 2004-05. THUS, HE DETERMINED THE TOTAL INCOME AT R S. 4,69,06,494/- AS AGAINST THE RETURNED INCOME OF RS. 2,12,900/-. 5. BEFORE THE CIT(A) THE ASSESSEE FILED CERTAIN ADD ITIONAL EVIDENCES AND MOVED APPLICATION UNDER RULE 46A OF THE I.T. RULES, 1962. THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE ARE IN THE NATURE OF CHART OF SUNDR Y CREDITORS, SUMMARY OF STOCK QUANTITY WISE AND MONTH WISE, PARTY WISE QUANTITATI VE TALLY PURCHASES IN TERMS OF QUANTITY AND AMOUNT, CONFIRMATION FROM SOME OF THE PARTIES AND LETTERS ADDRESSED TO SOME BANK. IT WAS SUBMITTED BEFORE THE CIT(A) T HAT THESE ADDITIONAL EVIDENCES ARE BEING FILED IN ORDER TO PROVE THAT PURCHASES AR E GENUINE. IT WAS ARGUED THAT MERELY BECAUSE SOME OF THE PARTIES DID NOT RESPOND TO THE SUMMONS ISSUED U/S.131 OF THE INCOME TAX ACT THE PURCHASES SHOULD NOT BE T REATED AS NON GENUINE. IT WAS SUBMITTED THAT SOME OF THE PARTIES WERE READY TO GI VE CONFIRMATION AFTER MUCH PERSUASION AND THEREFORE THE SAME COULD NOT BE FILE D BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 6. THE LEARNED CIT(A) FORWARDED THE ADDITIONAL EVID ENCES FILED BEFORE HIM TO THE AO WITH A DIRECTION TO EXAMINE THESE ADDITIONAL EVIDENCES AND OFFER HIS COMMENTS WITH REGARD TO THEIR ADMISSIBILITY UNDER R ULE 46A OF THE INCOME TAX RULES WITHIN 7 DAYS. THE AO IN HIS REPORT DATED 14 -02-2011 REQUESTED THE LEARNED CIT(A) NOT TO ACCEPT THE ADDITIONAL EVIDENCES FOR T HE FOLLOWING REASONS : 4 1. THE ASSESSEES SAY THAT SOME PARTIES HAVE NOT R ESPONDED TO THE SUMMONS ISSUED BY THE AO U/S.131 IS NOT CORRECT. INFACT NONE OF T HE PARTIES HAVE RESPONDED AND THE AO HAS GIVEN CONCLUSIVE FINDINGS THAT THE PARTIES/ADDR ESSES ARE BOGUS/NOT IN EXISTENCE. 2. THE ASSESSEE HAS NOT COMMUNICATED WITH THE AO/FI LED ANY CONFIRMATIONS DURING THE ASSESSMENT PROCEEDINGS IN RESPECT OF THE FEW PA RTIES WHO WERE READY TO GIVE CONFIRMATIONS, AS NOW STATED. 3. THE PURCHASES/QUANTITATIVE DETAILS ARE NOT SUPPO RTED BY EVIDENCE OF ANY SORT. 4. THE FACT THAT BLANK BILL BOOKS ETC OF THE PARTIE S WHO ARE SHOWN AS SUNDRY TRADE CREDITORS WERE SEIZED IN THE ASSESSEES CASE IS IN ITSELF AS INDICATIVE OF THE NATURE OF THE ASSESSEES ACTIVITIES. IN VIEW OF THE SUBMISSIONS AS ABOVE, IT IS REQUESTE D THAT THE ADDITIONAL EVIDENCE MAY NOT BE ACCEPTED BY THE LEARNED CIT(A)-I, NASHIK AS THE AO HAS NOT REFUSED TO ADMIT THE EVIDENCE AT ANY STAGE DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSEE WAS NOT PREVENTED BY SUFFICIENT CAUSE FOR THE REASONS SUBMITTED ABOVE. THE AO HAS GRANTED SUFFICIENT OPPORTUNITY TO THE AS SESSEE TO ADDUCE NECESSARY EVIDENCE AS DISCUSSED ABOVE. 7. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE AS SESSEE AND THE OBJECTIONS RAISED BY THE AO IN HIS REMAND REPORT THE LEARNED C IT(A) ADMITTED THE ADDITIONAL EVIDENCES AND DELETED THE ADDITION MADE BY THE AO B Y HOLDING AS UNDER : 7.1 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, RIVAL SUBMISSIONS, EXAMINED THE ASSESSMENT RECORD AND THE POSITION OF LAW ON THIS S UBJECT. THE ASSESSEE IS TRADING IN STEEL INCLUDING SALES AND PURCHASE. IN THE BALANCE SHEET AS ON 31-03-2003, AN AMOUNT OF RS. 4,66,93,594/- SHOWN AS OUTSTANDING TRADE CREDIT ORS THAT WERE SOUGHT TO BE EXAMINED BY THE AO. THE AO ISSUED SUMMONS U/S.131 TO 23 PAR TIES OUT OF 32 CREDITORS, WHICH COULD NOT BE SERVED. HE, THEREFORE, CONDUCTED ENQU IRY THROUGH INSPECTOR WHO REPORTED THAT THE PARTIES WERE NOT AVAILABLE AT THAT TIME. BEFORE THE AO THE ASSESSEE REPRESENTED THAT THE SUBJECT MATTER WAS OLD AND PERTAINED TO TH E PERIOD 2003-04 AND THE ENQUIRIES WERE CONDUCTED IN 2009. THEREFORE, THE PARTIES SHI FTED THEIR BASE FROM THE GIVEN ADDRESSES. THE ASSESSING OFFICER WAS NOT SATISFIED THAT THE EXPLANATION AND MADE THE IMPUGNED ADDITION. ADMITTEDLY, THESE ARE TRADE PUR CHASES REPRESENTING THE PURCHASE OF RAW MATERIAL. THEREFORE, THEY ARE DISTINCT FROM CA SH CREDITS. 7.2 THE AO HAS DEALT WITH THIS ISSUE IN THIS MANNER (PARA 9 OF THE ASSESSMENT ORDER) : IN RESPONSE TO THE SHOW CAUSE NOTICE, ASSESSEE DI D NOT APPEAR ON 21-12-2009 NOR ANY COMMUNICATION OR SUBMISSION IS RECEIVED FRO M ASSESSEE. AFTERWARDS, ALMOST EVERY DAY THE AR OF THE ASSESSEE AND ASSESSE E HIMSELF WAS CONTACTED TELEPHONICALLY BY THIS OFFICE CONSIDERING THE TIME BARRING NATURE OF PROCEEDINGS. THERE WAS NO RESPONSE FROM ASSESSEE IN ANY MANNER. THIS CONDUCT OF ASSESSEE CLEARLY SHOWS THE NON-COOPERATIVE NATURE OF THE ASS ESSEE FOR CONCLUDING OF ASSESSMENT PROCEEDINGS. THESE CIRCUMSTANCES LEAVE NO OPTION WITH THE UNDERSIGNED EXCEPT TO PROCEED WITH THE ASSESSMENT I N A MANNER PROVIDED U/S.144 OF THE ACT, I.E. BEST JUDGMENT ASSESSMENT B ASED ON MATERIAL AVAILABLE ON 5 RECORDS AND GATHERED DURING THE PROCEEDINGS. HENCE , THE ASSESSMENT IS FRAMED BY INVOKING PROVISIONS OF SECTION 144 OF THE ACT. IT IS A SETTLED POSITION IN LAW THAT THE SECTION 68 OF THE STATUTE CASTS ONUS ON TH E ASSESSEE TO ESTABLISH THE IDENTITIES, CREDIT WORTHINESS AND GENUINENESS OF TH E CREDITORS TO THE SATISFACTION OF THE ASSESSING OFFICER. IN THE CASE OF THE ASSES SEE, ASSESSEE COULD NOT PROVE A SINGLE INGREDIENT NEEDED TO CONSIDER THE CREDITS IN HIS BOOKS AS GENUINE. THEREFORE, APPLYING SECTION 68 OF THE ACT, I HOLD T HAT CREDITORS AS ON 31-03-2004 SHOWN BY ASSESSEE IN HIS BALANCE SHEET AMOUNTING IN TOTAL TO RS. 4,66,594/- AS UNEXPLAINED CREDITS IN BOOKS OF ASSESSEE FOR A.Y. 2 004-05. ACCORDINGLY, THE SAME AMOUNT IS ADDED TO RETURNED INCOME OF ASSESSEE. PE NALTY PROCEEDINGS U/S.271(10(C) OF THE ACT ARE INITIATED SEPARATELY F OR CONCEALING INCOME AND FURNISHING INACCURATE PARTICULARS OF INCOME. 7.3 THE AO THEREFORE, HAS INVOKED SECTION 68 TO DEA L WITH THE TRADE CREDITORS. SECTION 68 IS AS UNDER : WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLA NATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE (ASSESSING) OFFICER, SATISFACTORY, THE SUM SO CREDI TED MAY BE CHARGES TO INCOME TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. 7.4 IN MY CONSIDERED VIEWS ON THE GIVEN FACTS IN CA SE OF TRADE PURCHASES SECTION 68 HAS NO APPLICATION. SECTION 68 ENACTS A DEEMING PR OVISION TO DEAL WITH CASH CREDITS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IN A PREVIOUS YEAR. SUCH CREDIT, THEREFORE, HAS TO BE IN CASH [259 ITR 428, (MAD)]. CASH CREDITS IN THE NAME OF THIRD PARTIES ARE ALSO COVERED U/S.68. THE SECTION, THEREFORE, APPLIES IN THE CAS E OF BORROWINGS WHEREIN THE IDENTITY AND CREDIT WORTHINESS OF THE LENDER AND GENUINENESS OF THE TRANSACTION HAS TO BE ESTABLISHED BY AN ASSESSEE. AN ASSESSEE, THEREFORE, HAS TO PRI MA FACIE PROVE THAT THE BORROWINGS ARE GENUINE BY MEETING THE ABOVE THREE CRITERION. AFTE R THE BURDEN IS DISCHARGED BY SUCH ASSESSEE, SECTION 68 DOES NOT SPARE THE RESPONSIBIL ITY OF THE AO TO PROVE THAT THE CASH CREDIT CONSTITUTES THE INCOME OF AN ASSESSEE. HOWE VER, IN THE APPELLANTS CASE ADMITTEDLY THERE ARE NO CASH CREDITS AT ALL. WHAT APPEARS AS OUTSTANDING CREDITS IN THE NAME OF SUNDRY CREDITORS ARE THE TRADE CREDITORS WHICH REPR ESENT THE APPELLANTS PURCHASES OF STEEL. THESE PURCHASES ARE SUPPORTED BY BILLS AND LEDGER ENTRIES AND DEBITED TO PURCHASE ACCOUNT. THEREFORE, THE PROVISIONS OF SECTION 68 A RE NOT ATTRACTED. THE APPELLANT SUBMITTED THE DETAILED ACCOUNTS OF THE TRADE CREDIT ORS, THAT WERE ALREADY AVAILABLE IN THE SEIZED BOOKS OF ACCOUNT, WHICH IS EVIDENCED FROM TH E ACTION OF THE AO, WHEN THE ADDRESSES WERE OBTAINED FROM THE SEIZED BOOKS OF AC COUNT AND SUMMONS TO 23 PARTIES WERE ISSUED. IT IS SETTLED POSITION OF LAW THAT WH EN THERE ARE CREDITS IN THE BOOKS OF ACCOUNT, THE DEPARTMENT CAN ASK THE ASSESSEE TO ADD UCE THE EVIDENCES RELEVANT TO THE EXPLANATION, EXAMINE THE SAME AND THEN PROCEED TO D ECIDE IF THE CREDITS OUTSTANDING REPRESENT AN INCOME OF THE ASSESSEE. THE DEPARTMEN T CANNOT ACT UNREASONABLY AND REJECT THAT EXPLANATION TO HOLD THAT IT WAS INCOME. SUCH EXPLANATION CANNOT BE MERELY REJECTED UNREASONABLY TO CONVERT GOOD PROOF INTO NO PROOF [ 49 ITR 112 (SC)]. IT IS SETTLED POSITION OF LAW THAT IN MAKING A BEST JUDGMENT ASSE SSMENT, THE AO DOES NOT POSSESS ARBITRARY POWERS TO ASSESS A PERSON UNDER THE I.T. ACT AT ANY FIGURE HE LIKES. THE BEST JUDGMENT ASSESSMENT IS NO BY WAY OF PENALTY FOR NON -COMPLIANCE. THE IMPUGNED CREDITS ARE IN RESPECT OF THE APPELLANTS TRADE INVOLVING P URCHASE AND SALES WHICH ARE SUBSTANTIATED WITH MATERIAL BROUGHT ON RECORD SUBSE QUENT TO THE PASSING OF THE ASSESSMENT ORDER AND THE ASSESSING OFFICER HAS BEEN GIVEN AN OPPORTUNITY TO EXAMINE THE SAME, AS MANDATED BY LAW IN CONNECTION WITH THE ADM ISSION OF ADDITIONAL EVIDENCE. THE ASSESSING OFFICER HAS NOWHERE DENIED THE EXISTENCE OF SALES AND PURCHASE BY THE APPELLANT, NEITHER HAS HE DENIED THE PART PAYMENTS TO THESE PARTIES IN THE SUBSEQUENT ASSESSMENT YEARS. THE AO HAS ALSO NOT FOUND ANY DE FECT IN THE BOOKS OF ACCOUNT, THAT IS WHY HE HAS NOT REJECTED THEM, NOR SECTION 145 APPLI ED. HE HAS ACCEPTED THE BOOK RESULTS. THEREFORE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, IT IS FOUND THAT THE IMPUGNED TRADE CREDITORS ARE OUTSTANDING TRADE CREDITORS REP RESENT THE RECEIPT TO BE OF AN INCOME NATURE. HOWEVER ACCORDING TO THE AO SINCE THESE PA RTIES DID NOT RESPOND TO THE SUMMONS, THEREFORE, THE CREDITS APPEARING IN THEIR NAMES IN THE APPELLANTS BOOKS OF ACCOUNT ARE NOT GENUINE. THIS UNDERSTANDING OF THE LEARNED AO OF THE FACTS IS NOT 6 CORRECT. THE APPELLANTS BOOKS OF ACCOUNTS WERE SE IZED IN THE SEARCH OPERATION IN THE CASE OF LUTHRA GROUP AND THEY WERE STILL LYING WITH THE AO AND WERE AVAILABLE TO HIM DURING THE ASSESSMENT PROCEEDINGS. THE APPELLANTS CONTENTION IS THAT THE TRANSACTIONS WHICH RESULTED IN PURCHASES ARE APPEARING IN THE PU RCHASE REGISTER AND, WHEN SOLD, THESE APPEARED IN SALES REGISTER AND STOCK REGISTER, WHER EVER APPLICABLE, WHICH HAVE NOT BEEN DOUBTED BY THE AO. THIS CONTENTION IS FOUND TO BE CORRECT. FURTHER, IT IS ALSO FOUND THAT IN THE BALANCE SHEET WHERE SUNDRY CREDITORS APPEAR AS LIABILITIES THERE ARE SUNDRY DEBTORS ON THE ASSET SIDE, WHICH REPRESENT THE OUTSTANDING RECEIVABLES AGAINST SALES. IT IS NOT THE CASE OF THE AO THAT THE PURCHASES OR SALES WERE NOT MADE. THE DEBTORS HAVE BEEN ACCEPTED AND NO ADVERSE INFERENCE HAS BEEN DRAWN. ON THESE GIVEN FACTS IT IS FOUND THAT THE AO HAS MERELY PENALIZED THE ASSESSEE FOR NON AP PEARANCE ON CERTAIN OCCASIONS BEFORE HIM THAT TOOK PLACE BECAUSE OF NO RESPONSE T O SUMMONS U/S.131 FROM CERTAIN PARTIES. AS MAY BE SEEN THERE WERE 32 PARTIES OUT OF WHICH SUMMONS WERE ISSUED ONLY TO 23 PARTIES. IT IS SETTLED POSITION OF LAW THAT FAI LURE TO COMPLY WITH SUMMONS U/S.131 CANNOT BRING ABOUT AN ASSESSMENT ORDER U/S.144 (110 ITR 674, CAL.). ON THE GIVEN POSITION OF LAW, THE EVIDENCES ON RECORD INDICATING SPECIFICALLY THE MATERIAL PURCHASED AND THE PARTIES CONFIRMATION ACCOUNTS THAT IS CORRO BORATED BY THE SALES AND PURCHASE REGISTER, THERE IS NO OTHER EVIDENCE ON RECORD TO D ISBELIEVE THE APPELLANTS PURCHASES. ANOTHER FACT THAT IS RELEVANT HERE IS THAT THE APPE LLANT HAS MADE PAYMENT IN RESPECT OF THESE PURCHASES IN THE ASSESSMENT YEAR UNDER APPEAL PARTLY AND IN SUBSEQUENT YEARS AS WELL. WITH REGARD TO THE NON SERVICE OF THE SUMMON S U/S.131 ISSUED BY THE AO TO 23 PARTIES, IT IS FOUND THAT THE MATTER IS ALMOST FIVE TO SIX YEARS OLD. THE PARTIES DO CHANGE THEIR ADDRESSES AND AFTER THE TRANSACTIONS ARE OVER , NO CONTACT IS GENERALLY MAINTAINED WITH SUCH PARTIES. IN THE LIGHT OF THE CORROBORATE D EVIDENCES WITH REGARD TO THE PURCHASES BROUGHT ON RECORD AND EXAMINED, AND IN VIEW OF THES E FACTS AND CIRCUMSTANCES OF THE CASE THERE IS NO JUSTIFICATION TO DISBELIEVE THE APPELLA NTS PURCHASES AND THE AOS ACTION IN INVOKING SECTION 68 IS NOT APPROVED FOR THE DETAILE D REASONS MENTIONED ABOVE. IN THE RESULT, THE IMPUGNED ADDITION OF RS. 4,66,93,594/- IS BASELESS AND UNWARRANTED AND IS DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS A LLOWED. 8. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE HAS FILED THIS APPEAL WITH THE FOLLOWING GROUNDS. GROUNDS BY REVENUE : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LEARNED CIT(A)-I, NASHIK WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 4,66,93,494/- MADE BY THE AO ON ACCOUNT OF UNEXPLAINED CREDITS? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A)-I, NASHIK WAS JUSTIFIED IN HOLDING THAT THE PROVISIONS OF SECTION 68 OF THE INCOME TAX ACT 1961 IS NOT APPLICABLE TO THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF UNEXPLAINED SUNDRY CREDITORS? 3. THE APPELLANT PRAYS THE ORDER OF THE ASSESSING O FFICER MAY BE RESTORED. 4. THE APPELLANT PRAYS TO ADDUCE SUCH FURTHER EVIDE NCE TO SUBSTANTIATE HIS CASE. 5. THE APPELLANT PRAYS LEAVE TO ADD, ALTER, CLARIFY , AMEND AND OR WITHDRAW ANY GROUNDS OF APPEAL AS AND WHEN THE OCCASION DEMANDS . THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS WITH T HE FOLLOWING GROUNDS : 7 GROUNDS BY ASSESSEE IN CROSS OBJECTIONS : 1. THE ASSESSEE HAS FILED ADDITIONAL EVIDENCE ON 1 8-10-2010 IN ACCORDANCE WITH RULE 46A OF THE INCOME TAX RULES, 1962 AND THE LEAR NED CIT(A) HAD CALLED FOR REMAND REPORT ALSO FROM THE ASSESSING OFFICER THEREFORE TH ERE IS NO VIOLATION OF RULE 46A. 2. WITHOUT PREJUDICE TO ABOVE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION OF TOTAL SUNDRY CREDITOR U/S.68 OF THE ACT WHEN QUANTITATIVE STOCK STATEMENT DATE WISE, PARTY WISE, WAS FILED MORE SO WHEN SALES ARE ACCEPTED PURCHASE CANNOT BE DOUBTED. 3. WITHOUT PREJUDICE TO ABOVE ONLY GROSS PROFIT CAN BE ESTIMATED IN RESPECT OF TAINTED PURCHASES ONLY. 4. THE RESPONDENT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OR ALL THE ABOVE GROUNDS OF APPEAL. 9. THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN ADMITTING THE ADDITIONAL EVIDENCES FILED BY THE ASS ESSEE. DESPITE ADEQUATE OPPORTUNITY GIVEN TO THE ASSESSEE BY THE AO THE ASS ESSEE COULD NOT PRODUCE ANY OF THE PARTIES BEFORE THE AO FOR HIS EXAMINATION. NO CONFIRMATION LETTERS WAS FILED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEE DINGS. SINCE BLANK BILL BOOKS ETC. OF THE PARTIES SHOWN AS SUNDRY TRADE CREDITORS WERE SEIZED FROM THE PREMISES OF SRI SATISH S. LUTHRA, THEREFORE, THE ENTIRE PURCHAS E AND SUNDRY CREDITORS SHOWN BY THE ASSESSEE ARE BOGUS. UNDER THESE CIRCUMSTANCES THE LEARNED CIT(A) WAS NOT AT ALL JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO U/S.68 OF THE INCOME TAX ACT TREATING THE CREDITORS AS UNEXPLAINED CREDIT IN BOO KS OF THE ASSESSEE. 10. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTH ER HAND WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT THE BOOKS OF ACC OUNT OF THE ASSESSEE ARE AUDITED AND THE AUDITORS HAVE NOT POINTED OUT ANY DEFECTS I N THE BOOKS OF ACCOUNT. FURTHER, SALES HAVE BEEN ACCEPTED IN ITS ENTIRETY. THEREFOR E, WHEN SALES ARE ACCEPTED AS GENUINE THERE HAS TO BE PURCHASES. MERELY BECAUSE SOME OF THE CREDITORS OR PARTIES FROM WHOM THE ASSESSEE PURCHASED GOODS DID NOT APPE AR BEFORE THE AO OR NO CONFIRMATION WAS FILED, THE ENTIRE CREDITORS CANNOT BE TREATED AS BOGUS AND ADDITIONS CANNOT BE MADE U/S.68 OF THE INCOME TAX A CT. HE SUBMITTED THAT OUT OF THE TOTAL ADDITION ON ACCOUNT OF BOGUS SUNDRY CREDI TORS THE ASSESSEE HAS PARTLY 8 PROVED THE TRADE CREDITORS AND PARTLY COULD NOT PRO VE. HE SUBMITTED THAT IN THE INTEREST OF JUSTICE SOME REASONABLE GROSS PROFIT MA Y BE APPLIED ON THE UNPROVED SUNDRY CREDITORS AND THE MATTER NEED NOT BE RESTORE D TO THE FILE OF THE AO. FOR THIS PROPOSITION THE LEARNED COUNSEL FOR THE ASSESSEE FI LED THE FOLLOWING CHART : TOTAL ADDITION PROVED UNPROVED 3% A.Y. 2004-05 46,693,594 24,070,395 22,623,199 678,696 A.Y. 2005-06 12,084,275 11,337,144 747,131 22,414 A.Y. 2006-07 4,799,713 4,799,713 143,991 845,101 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT DUR ING THE COURSE OF SEARCH IN THE CASE OF SATISH S. LUTHRA CERTAIN BOOKS OF ACCOUNT BELONG ING TO THE ASSESSEE WERE FOUND. THERE IS ALSO NO DISPUTE TO THE FACT THAT EXAMINATI ON OF THE SEIZED MATERIALS SHOW THAT BLANK BILLS/VOUCHERS PERTAINING TO SOME OF THE PARTIES APPEARING AS SUNDRY CREDITORS IN THE BOOKS OF THE ASSESSEE WERE RECOVER ED DURING SEARCH ACTION U/S.132 PERTAINS TO SRI VIKAS P. GUPTHA, I.E. ASSESSEE. TH ERE IS ALSO NO DISPUTE TO THE FACT THAT DESPITE SUFFICIENT OPPORTUNITIES GIVEN, THE AS SESSEE COULD NOT PROVE TO THE SATISFACTION OF THE AO REGARDING THE GENUINENESS OF THE SUNDRY CREDITORS APPEARING IN THE BALANCE SHEET AS AT 31-03-2004, 31-03-2005 A ND 31-03-2006. THEREFORE, THE SUNDRY CREDITORS APPEARING IN THE BOOKS OF ACCOUNT, UNDER THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE CANNOT BE ACCEPTED AS GEN UINE AND SOME ADDITION HAS TO BE MADE. AT THE SAME TIME WE FIND THE AO HAS ACCEP TED THE SALES AS GENUINE AND THE SAME HAS NOT BEEN DISTURBED. IT IS ALSO A FACT THAT THE AO HAS NOT DISTURBED THE PURCHASE FIGURES AND HE HAS PROCEEDED TO ADD THE SU NDRY CREDITORS APPEARING IN THE BALANCE SHEET AS UNPROVED LIABILITY U/S.68 OF THE I NCOME TAX ACT. IN OUR OPINION ADDITION OF THE TOTAL SUNDRY CREDITORS UNDER THE FA CTS AND CIRCUMSTANCES OF THE CASE WILL GIVE ABSURD RESULT WHICH IS NOT POSSIBLE IN TH E TYPE OF TRADE THE ASSESSEE IS ENGAGED IN. AT THE SAME TIME WE ALSO DO NOT FIND T HE ARGUMENT OF THE LEARNED 9 COUNSEL FOR THE ASSESSEE THAT 3% PROFIT MAY BE DETE RMINED ON THE UNPROVED TRADE CREDITORS. IN OUR OPINION, UNDER THE FACTS AND CIR CUMSTANCES OF THE CASE, THIS IS A FIT CASE FOR REJECTION OF THE BOOK RESULTS AND GOING FO R ESTIMATED ADDITION. 12. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSES SEE IN THE PAPER BOOK WE FIND THE ASSESSEE HAS DECLARED THE FOLLOWING TURNOVER AN D PROFIT : FINANCIAL YEAR ASSESSMENT YEAR TURNOVER PROFIT/LOSS 2003-04 2004-05 11,73,44,843 2,12,902 2004-05 2005-06 6,39,87,383 1,45,729.81 2005-06 2006-07 4,99,59,187 (3,74,790.34) 13. UNDER SIMILAR FACTS AND CIRCUMSTANCES VARIOUS B ENCHES OF THE TRIBUNAL ARE ADOPTING NET PROFIT RATE OF 1% OF THE TURNOVER. CO NSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDE RED OPINION THAT ADOPTION OF 1% NET PROFIT ON THE TURNOVER FOR VARIOUS ASSESSMENT Y EARS WILL BE REASONABLE AND WILL MEET THE ENDS OF JUSTICE. WE ACCORDINGLY DIRECT TH E AO TO ADOPT NET PROFIT RATE OF 1% ON THE TURNOVER DECLARED BY THE ASSESSEE FOR THE RESPECTIVE ASSESSMENT YEARS. THE GROUNDS RAISED BY THE REVENUE ARE PARTLY ALLOWE D AND THE COS FILED BY THE ASSESSEE ARE DISMISSED. 14. IN THE RESULT, THREE APPEALS FILED BY THE REVEN UE ARE PARTLY ALLOWED AND THE COS FILED BY THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF AUGUST 2012 SD/- SD/- (R.S. PADVEKAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: THE 28 TH AUGUST 2012 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-I, NASHIK 4. THE D.R, A PUNE BENCH 5. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE