R.S. Ispat Ltd., Kolkata V. ACIT, Central Circle - XXIV, Kolkata, Kolkata

CO 52/KOL/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7039 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-03-2012
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 08-09-2011
• Court: TRIBUNAL
• Department Lawyers: A MUKHERJEE
• Assessee Lawyers: D S DAMLE
• Keywords: Unexplained expenditure; Business income; Loose papers; Document seized; Opportunity of being heard; Additional evidence; Documents seized
• Section: 69C; 143(3); 132

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH A, KOLKATA () BEFORE . .. . , ,, , , SHRI N.VIJAYAKUMARAN, JUDICIAL MEMBER. ! ! ! ! /AND . .. .'# '#'# '#. .. . , $% SHRI C.D.RAO, ACCOUNTANT MEMBER &' &' &' &' !( !( !( !( / ITA NO . 1044/KOL/2011 )* +,/ ASSESSMENT YEAR : 2005-06 (./ / APPELLANT ) R.S.ISPAT LTD., KOLKATA. (PAN:AABCR 1890 D) - - - VERSUS - . (12.// RESPONDENT ) D.C.I.T., CENTRAL CIRCLE- XXIV, KOLKATA &' !( &' !( &' !( &' !( / IT(SS)A NO . 101/KOL/2011 )* +,/ ASSESSMENT YEAR : 2006-07 (./ / APPELLANT ) A.C.I.T., CENTRAL CIRCLE-XXIV, KOLKATA - - - VERSUS - . (12.// RESPONDENT ) R.S.ISPAT LTD., KOLKATA. (PAN:AABCR 1890 D) 3 ' 3 ' 3 ' 3 ' /C.O.NO.52/KOL/2011 &' !( &' !( &' !( &' !( / A/O IT(SS)A NO . 101/KOL/2011 )* +,/ ASSESSMENT YEAR : 2006-07 (./ / APPELLANT ) R.S.ISPAT LTD., KOLKATA. (PAN:AABCR 1890 D) - - - VERSUS - . 12.// RESPONDENT ) D.C.I.T., CENTRAL CIRCLE- XXIV, KOLKATA &' !( &' !( &' !( &' !( / ITA NO . 1073/KOL/2011 )* +,/ ASSESSMENT YEAR : 2007-08 2 (./ / APPELLANT ) A.C.I.T., CENTRAL CIRCLE-XXIV, KOLKATA - - - VERSUS - . (12.// RESPONDENT ) M/S.R.S.ISPAT LTD., KOLKATA. (PAN:AABCR 1890 D) 3 ' 3 ' 3 ' 3 ' /C.O.NO.53/KOL/2011 &' !( &' !( &' !( &' !( / A/O ITA NO . 1073/KOL/2011 )* +,/ ASSESSMENT YEAR : 2007-08 (./ / APPELLANT ) R.S.ISPAT LTD., KOLKATA. (PAN:AABCR 1890 D) - - - VERSUS - . 12.// RESPONDENT ) A.C.I.T., CENTRAL CIRCLE- XXIV, KOLKATA ./ 4 5 $/ FOR THE DEPARTMENT: SMT.A.MUKHERJEE 12./ 4 5 $/ FOR THE ASSESSEE : SHRI D.S.DAMLE 6 4 #% /DATE OF HEARING : 18.01.2012. 7+ 4 #% /DATE OF PRONOUNCEMENT : 07.03.2012. $8 / ORDER ( (( ( . .. .'# '#'# '#. .. . ) )) ), , , , $% PER SHRI C.D.RAO, AM THE ABOVE FIVE APPEALS TWO FILED BY THE REVENUE AND ONE APPEAL AND TWO CROSS OBJECTIONS FILED BY ASSESSEE ARE AGAINST ORDERS DA TED 19.05.2011 OF THE CIT(A)- CENTRAL-III, KOLKATA PERTAINING TO A.YRS. 2005-06, 2006-07 AND 2007-08 RESPECTIVELY. ITA NO.1044/KOL/2011 (BY ASSESSEE A.YR.2005-06) : 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS :- 1) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) ERRED IN UPHOLDING THE ADDITION OF RS.9,73,297/- AS INCOME O F THE APPELLANT U/ S 69C OF THE INCOME TAX ACT. 2) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE A.O. HAVING HELD THAT THE NOTINGS FOUND IN THE SEIZED PAPERS REPRESENTED RECEIPTS & PAYMENTS PERTAINING TO ASSESSEES UNRECORDED TRADING TRANSACTIONS, THE CIT (A) SHOULD HAVE DIRECTED THE AO TO ASSESS ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH TRADING TRANSACTIONS IN ASSESSING THE TOTAL INCOME 3) FOR THAT THE APPELLANT CRAVES LEAVE TO FILE ADDI TIONAL GROUNDS AND/OR AMEND OR ALTER THE GROUNDS ALREADY TAKEN EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3 IT(SS)A NO.101/KOL/2011 (BY REVENUE A.YR.2006-07) : THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS :- 1.THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 3,09,77,338/- MADE U/S 69C ON A/C OF UNEXPLAINED EXPENDITURE INCURRED FOR PURCHASE AND OTHER OUTGOIN GS UNRECORDED IN THE REGULAR BOOKS WITHOUT PROPER APPRECIATION OF THE ARGUMENTS PUT FORTH IN THE ASSESSMENT ORDER HOW THE QUANTUM OF ADDITION WAS DETERMINED ON THE B ASIS OF SPECIFIC EVIDENCES FOUND IN COURSE OF THE SEARCH CONDUCTED U/S 132. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN HOLDING THAT NO ADDITION MAY BE MADE SEPARATELY ON ACCOUNT OF VARIOUS EXPENSES AMOUNTING TO RS.17,41,333/- ADMITTEDLY NOT RECORDED IN REGULAR BOOKS ACCEPTING THE PLEA OF THE ASSESSEE THAT SUCH EXPENSES WERE INCURR ED OUT OF INCOME EARNED FROM UNDISCLOSED TRADING OPERATIONS WITHOUT GIVING THE A .O AN OPPORTUNITY OF BEING HEARD CONTRAVENING THE PROVISION OF RULE-46A OF IT. RULE. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DIRECTING THE A.O. TO INCLUDE IN THE TOTAL INCOM E RS.39,66,857/- BEING THE PROFIT DERIVED FROM UNDISCLOSED TRANSACTIONS IN PURCHASE A ND SALE OF MATERIALS ASSESSABLE WITH REFERENCE TO ENTRIES FOUND RECORDED IN SEIZED DOCUMENTS BEING COMPUTED IN A PARTICULAR MANNER THEREBY REJECTING THE MANNER IN W HICH UNDISCLOSED INCOME WAS COMPUTED DURING ASSESSMENT WITHOUT GIVING THE A.O. AN OPPORTUNITY OF BEING HEARD CONTRAVENING THE PROVISION OF RULE-46A OF IT. RULE. C.O.NO.52/KOL/2011 A/O IT(SS)A NO.101/KOL/2011 (BY REVENUE A.YR.2006-0 7) : THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN CRO SS OBJECTION :- 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT (A) ERRED IN ESTIMATING PROFIT DERIVED FROM UNDISCLOSED TRANSACT IONS IN PURCHASE & SALE OF MATERIALS BY ADOPTING EXCESSIVE AND UNREASONABLE GR OSS PROFIT RATE OF 8%. 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT (A) WHILE ESTIMATING THE PROFIT FROM UNDISCLOSED TRANSACTIONS SHOULD NOT HAVE ADOPTED AN ARBITRARILY HIGH GROSS PROFIT RATE OF 8% AND THE LO WER AUTHORITIES BE DIRECTED TO ESTIMATE INCOME FROM UNDISCLOSED TRADING TRANSACTIO NS ON SOME REASONABLE BASIS BY ADOPTING G.P. RATE LOWER THAN 8%. ITA NO.1073/KOL/2011 (BY REVENUE A.YR.2007-08) : THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS :- 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.3,93,27,241/- MADE U/S 69C ON A/C OF UNEXPLAINED EXPENDITURE INCURRED FOR PURCHASE AND OTHER OUTGOIN GS UNRECORDED IN THE REGULAR BOOKS WITHOUT PROPER APPRECIATION OF THE ARGUMENTS PUT FORTH IN THE ASSESSMENT ORDER 4 HOW THE QUANTUM OF ADDITION WAS DETERMINED ON THE B ASIS OF SPECIFIC EVIDENCES FOUND IN COURSE OF THE SEARCH CONDUCTED U/S 132. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF RS.2,42,46,916/- MAD E ON A/C OF UNDISCLOSED CAPITAL EMPLOYED BEHIND UNDISCLOSED TRADING UP TO RS. 1,20, 00,000/- ONLY WITHOUT PROPER APPRECIATION OF THE ARGUMENTS PUT FORTH IN THE ASSE SSMENT ORDER HOW THE QUANTUM OF ADDITION WAS DETERMINED ON THE BASIS OF SPECIFIC EV IDENCES FOUND IN COURSE OF THE SEARCH CONDUCTED U/S 132. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,07,40,000/- MADE ON A/C OF UNACCOUNTED EXCESS STOCK FOUND DURING THE SEARCH CONDUCTED U/S 132 WITHOUT P ROPER APPRECIATION OF THE ARGUMENTS PUT FORTH IN THE ASSESSMENT ORDER HOW THE QUANTUM OF ADDITION WAS DETERMINED ON THE BASIS OF SPECIFIC EVIDENCES FOUND IN COURSE OF THE SEARCH. 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,38,56,943/- MADE ON A/C OF QUANTUM SUPPRESSION BY MANIPULATION OF BOOK ENTRIES IN DEBT ORS A/C TREATED AS UNACCOUNTED ASSET U/S 69A WITHOUT PROPER APPRECIATION OF THE AR GUMENTS PUT FORTH IN THE ASSESSMENT ORDER HOW THE QUANTUM OF ADDITION WAS DE TERMINED ON THE BASIS OF SPECIFIC EVIDENCES FOUND IN COURSE OF THE SEARCH. 5. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT NO ADDITION MAY BE MADE SEPAR ATELY ON ACCOUNT OF VARIOUS EXPENSES AMOUNTING TO RS.22,36,757/- ADMITTEDLY NOT RECORDED IN REGULAR BOOKS ACCEPTING THE PLEA OF THE ASSESSEE THAT SUCH EXPENS ES WERE INCURRED OUT OF INCOME EARNED FROM UNDISCLOSED TRADING OPERATIONS WITHOUT GIVING THE AO AN OPPORTUNITY OF BEING HEARD CONTRAVENING THE PROVISION OF RULE-46A OF I.T.RULE. 6. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE AO TO INCLUDE IN THE TOTAL I NCOME RS.2,40,40,995/- BEING THE PROFIT DERIVED FROM UNDISCLOSED TRANSACTIONS IN PUR CHASE AND SLE OF MATERIALS ASSESSABLE WITH REFERENCE TO ENTRIES FOUND RECORDED IN SEIZED DOCUMENTS AND ON SALE OF UNACCOUNTED EXCESS STOCK BEING COMPUTED IN A PAR TICULAR MANNER THEREBY REJECTING THE MANNER IN WHICH UNDISCLOSED INCOME WAS COMPUTED DURING ASSESSMENT WITHOUT GIVING THE AO AN OPPORTUNITY OF BEING HEARD CONTRAV ENING THE PROVISION OF RULE-46A OF I.T.RULE. 7. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE A.O. TO ALLOW THE BENEFIT OF SET OFF OF RS.3,00,00,000/- CREDITED IN THE P & L ACCOUNT AGAINST THE ADDITIONS DIRECTED TO BE MADE AND INCLUDE IN THE TOTAL INCOME ONLY THE INCOME IN EXCESS OF RS.3,00,0 0,000/- WITHOUT PROPER APPRECIATION OF THE FACT THAT IN THE STATEMENT U/S 132(4) THE ASSESSEE MADE THE DISCLOSURE OF ADDITIONAL INCOME ON ESTIMATE AND DID NOT RELATE TO IT ANY OF THE SEIZED DOCUMENTS ON THE BASIS OF WHICH ADDITIONS WERE MADE . C.O.NO.53/KOL/2011 A/O ITA NO.1073/KOL/2011 (BY REVENUE A.YR.2007-08) : THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN CRO SS OBJECTION :- 5 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT (A) ERRED IN ESTIMATING PROFIT DERIVED FROM UNDISCLOSED TRANSACT IONS IN PURCHASE & SALE OF MATERIALS BY ADOPTING EXCESSIVE AND UNREASONABLE GR OSS PROFIT RATE OF 8%. 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT (A) WHILE ESTIMATING THE PROFIT FROM UNDISCLOSED TRANSACTIONS SHOULD NOT HAVE ADOPTED AN ARBITRARILY HIGH GROSS PROFIT RATE OF 8% AND THE LO WER AUTHORITIES BE DIRECTED TO ESTIMATE INCOME FROM UNDISCLOSED TRADING TRANSACTIO NS ON SOME REASONABLE BASIS BY ADOPTING G.P. RATE LOWER THAN 8%. 2.1. ALL THESE APPEALS ARE INTERLINKED AND REVOLVE ON THE ONLY ISSUE OF ARRIVING INCOME FROM THE SEIZED DOCUMENTS. 3. THE BRIEF FACTS OF THIS ISSUE IN THIS CASE ARE T HAT THERE WAS A SEARCH CONDUCTED AT THE FACTORY AND OFFICE PREMISES OF THE ASSESSEE ON 08.12.2006. THE BOOKS OF ACCOUNT, LOOSE PAPERS AND DOCUMENTS IDENTIFIED AS RSIP1 TO R SIP/79, RSI/F/1 TO RSI/F/43, RSA/1 TO RSA/12, RSI/1 TO RSI/7 AND RPS/1 TO RPS/31 WERE FOUND AND SEIZED. THE SEIZED PAPERS CONTAINED INFORMATION SUCH DATES, AMO UNTS AND NAMES OF PARTIES. THESE PER SE DID NOT INDICATE OR ESTABLISH THE NATURE OF TRANSACTIONS. IN THE COURSE OF ASSESSMENT THE AO DIRECTED THE ASSESSEE TO FURNISH ITS EXPLANATION WITH REGARD TO THE NOTINGS MADE IN SEIZED PAPERS. AS PER THE EXPLANATI ON FURNISHED THE NOTINGS PERTAINED TO ASSESSEES UNDISCLOSED TRADING TRANSACTIONS AND FIGURES MENTIONED REPRESENTED TRANSACTIONAL VALUES. ACCORDING TO EXPLANATIONS FUR NISHED THESE NOTINGS REPRESENTED PAYMENTS AND RECEIPTS OF DIFFERENT ASSESSMENT YEARS , AS FOLLOWS :- ASSESSMENT YEAR PAYMENTS RECEIPTS 2004-05 RS. 1,20,000 NIL 2005-06 RS. 10,90,602 NIL 2006-07 RS.4,11,42,193 1,01,74,855 2007-08 RS.15,37,39,745 11,44,12,504 IT WAS THE ASSESSEES CONTENTION THAT DOCUMENTS WER E RANDOMLY SEIZED FORM THE DESKS OF DIFFERENT PERSONS FROM DIFFERENT LOCATIONS PERTA INING TO DIFFERENT TRANSACTIONS AND THERE MIGHT NOT BE CO-RELATION BETWEEN THEM. THE PA PERS SEIZED DID NOT CONTAIN OR REPRESENT ENTIRE CONTEMPORANEOUS EVIDENCE OF ASSESS EES UNDISCLOSED TRADING TRANSACTIONS. IN THE CIRCUMSTANCES NO MEANINGFUL IN FERENCE COULD BE DRAWN IF NOTINGS IN SEIZED PAPERS WERE CONSIDERED IN ISOLATION. THE ASSESSEE AGREED THAT THESE NOTINGS 6 REPRESENTED TRANSACTIONAL VALUES OF TRADING CONDUCT ED OUTSIDE REGULAR BOOKS AND THEREFORE NET PROFIT OF THESE TRANSACTIONS COULD BE ASCERTAINED ON REASONABLE ESTIMATE BASIS. THE CONTENTION OF THE ASSESSEE WITH REFERENC E TO FIGURES IN SEIZED PAPERS; ASSESSEES TURNOVER OF UNDISCLOSED TRADING BUSINESS COULD BE ASCERTAINED AND APPLYING REASONABLE MARGIN OF PROFIT, INCOME OF UNDISCLOSED TRADING BUSINESS CAN BE ESTIMATED. THE AO HOWEVER DID NOT ACCEPT THE ASSESSEES CONTEN TION AND NETTED OFF THE PAYMENTS AGAINST THE RECEIPTS. THE EXCESS OF PAYMENTS OVER R ECEIPTS WAS ASSESSED AS UNEXPLAINED EXPENDITURE. EVEN THOUGH PAYMENTS MADE FOR PURCHASES WERE ASSESSED AS UNDISCLOSED EXPENDITURE; FURTHER ADDITION WAS ALSO MADE ON ACCOUNT OF INVESTMENT IN INITIAL CAPITAL OF SUCH BUSINESS. SEPARATE ADDITION WAS ALSO MADE FOR EXCESS STOCK OF GOODS FOUND AT THE TIME OF SEARCH. SIMILARLY EVEN T HOUGH THE GROSS RECEIPTS WERE CONSIDERED TO BE PART OF UNDISCLOSED TRADING, SEPAR ATE ADDITION WAS MADE IN RESPECT OF AMOUNTS DUE TO BE RECOVERED FROM THE TRADE DEBTORS. 3.1. THE ASSESSEES CONTENTION BEFORE THE LOWER AUT HORITIES ARE THAT THE NOTINGS IN SEIZED PAPERS DEPICTED OR RECORDED DIFFERENT STAGES OF THE TRADING CYCLE AND THEREFORE THE ADDITIONS IN THE ASSESSMENTS RESULTED IN DOUBLE TAXATION BECAUSE SEIZED PAPERS WERE NOT CONSIDERED IN THEIR OVERALL PERSPECTIVE BU T IN ISOLATION. IT WAS THE ASSESSEES PLEA THAT IN ABSENCE OF CONCLUSIVE EVIDENCE, FOUND IN THE COURSE OF SEARCH; INDICATING THE CO-RELATION BETWEEN DIFFERENT NOTINGS AND IN AB SENCE OF ANY CLINCHING EVIDENCE TO SUBSTANTIATE ASSESSEES EXPLANATIONS; IT WAS NOT PR OPER FOR THE AO TO NET OFF THE ALLEGED PAYMENTS AND ALLEGED RECEIPTS. IT WAS THEREFORE THE ASSESSEES CLAIM BEFORE THE CIT(A) THAT INCOME WAS WRONGLY ASSESSED. 3.2. ON APPEAL THE CIT(A) FOUND MERIT IN THE ASSESS EES SUBMISSIONS. THE CIT(A) FOUND THAT THE METHODOLOGY ADOPTED BY THE AO WAS IN CORRECT. ALTHOUGH THE AO ASSESSED UNDISCLOSED INCOME IN EXCESS OF RS.16 CROR ES; IN THE COURSE OF SEARCH THE DEPARTMENT HAD NOT FOUND EVIDENCE OF ASSESSEE HAVIN G UNDISCLOSED ASSETS OR HAVING INCURRED UNDISCLOSED EXPENSES OF SUCH MAGNITUDE. IN COURSE OF SEARCH THE DEPARTMENT FOUND EVIDENCE INDICATING THAT THE ASSESSEE INCURRE D UNEXPLAINED EXPENDITURE OF RS.17,41,333/- & RS.22,36,757/- IN A.YS.2006-07 & 2 007-08; IT POSSESSED EXCESS 7 STOCK OF RS.1,07,40,000/- ON THE DATE OF SEARCH AND UNACCOUNTED ON MONEY OF RS.95,29,400/- WAS PAID FOR PURCHASE OF PROPERTY; A LL AGGREGATING TO RS.2,42,47,490/-. SAVE AND EXCEPT THESE; NO FURTHER VALUABLES; ASSETS WERE FOUND. THE CIT(A) THEREFORE AGREED WITH THE ASSESSEES CLAIM THAT THE ASSESSMEN T WERE HIGH PITCHED AND UNREASONABLE. HE ALSO AGREED THAT DUE TO WRONG METH ODOLOGY ADOPTED BY THE AO AND BY CONSIDERING ENTRIES IN SEIZED PAPERS; IN ISOLATI ON; ADDITIONS MAY HAVE ALSO RESULTED IN DOUBLE TAXATION OF THE SAME TRANSACTIONS. 3.3. THE CIT(A) HOWEVER HELD THAT FOR THE PURPOSE O F ASSESSING INCOME OF THE ASSESEE; INFERENCES WERE REQUIRED TO BE DRAWN FROM THE NOTINGS IN THE SEIZED PAPERS. THE CIT(A) FOUND THAT NOTINGS IN SEIZED PAPERS CONT AINED BARE INFORMATION SUCH AS DATES, AMOUNTS AND NAMES OF THE PARTIES. SAVE AND E XCEPT THE ASSESSEES SELF EXPLANATION NO OTHER INDEPENDENT CORROBORATIVE EVID ENCE SUPPORTED ASSESSEES EXPLANATION THAT THE NOTINGS ACTUALLY REPRESENTED P AYMENTS MADE FOR GOODS PURCHASED OR PAYMENTS RECEIVED FOR GOODS SOLD. THERE WAS HOWE VER UNANIMITY BETWEEN THE ASSESSEE AND THE AO AS TO THE FACT THAT THE NOTINGS PERTAINED TO ASSESSEES UNDISCLOSED TRADING BUSINESS. THE CIT(A) THEREFORE HELD THAT SI NCE THE NOTINGS CONTAINED BARE TRANSACTIONAL VALUES; TURNOVER OF THE UNDISCLOSED T RADING BUSINESS SHOULD BE DETERMINED BY AGGREGATING THE TRANSACTIONAL VALUES IN SEIZED PAPERS. THE CIT(A) THEREFORE WITHOUT SETTING OFF THE ALLEGED PAYMENTS AGAINST THE RECEIPTS GROSSED UP THE TRANSACTIONAL VALUES IN THE SEIZED PAPERS TO ARRIVE AT TURNOVER OF THE ASSESSEES UNDISCLOSED TRADING BUSINESS. THE CIT(A) ALSO INCLU DED THE SUNDRY DEBTORS BALANCE RECORDED IN THE SEIZED PAPER, IN THE TOTAL TURNOVER OF THE UNDISCLOSED TRADING BUSINESS. WITH REFERENCE TO GROSS SALES SO ESTIMATED THE CIT( A) DETERMINED ASSESSEES INCOME BY ADOPTING TRADING PROFIT RATE OF 8%. 4. AT THE TIME OF HEARING THE LD. DR APPEARING ON B EHALF OF THE REVENUE OBJECTED TO THE ORDER OF LD. CIT(A) AND ARGUED THAT CIT(A) D ID NOT CORRECTLY APPRECIATE AOS FINDINGS WHICH WERE BASED ON ASSESSEES OWN EXPLANA TIONS WITH REGARD TO SEIZED PAPERS. IT WAS SUBMITTED THAT THE ASSESSEE ITSELF H AD FURNISHED THE EXPLANATION BEFORE THE AO THAT ENTRIES IN SEIZED PAPERS REPRESENTED PA YMENTS FOR PURCHASE AND/OR RECEIPTS 8 FROM SALE OF GOODS. IT WAS ASSESSEES OWN EXPLANATI ON THAT BOTH PAYMENTS AND RECEIPTS WERE NOT RECORDED IN THE REGULAR BOOKS AND WERE PAR T OF UNRECORDED TRADING BUSINESS. ONCE THE ASSESSEE OFFERED EXPLANATIONS IN RESPECT O F NOTINGS IN SEIZED PAPERS THEN IT WAS NO MORE OPEN FOR THE ASSESSEE TO OBJECT TO AOS LOGICAL AND LEGAL INFERENCES, FLOWING FROM THESE EXPLANATIONS MERELY BECAUSE SUBS TANTIAL ADDITIONS. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE OBJECTED TO AO S FINDINGS ONLY BECAUSE THE AOS INFERENCES RESULTED IN SUBSTANTIAL ADDITIONS. ACCOR DING TO LD. DR THE METHODOLOGY ADOPTED BY THE CIT(A) FOR ESTIMATING INCOME WAS FUN DAMENTALLY INCORRECT AND SUFFERED FROM SERIOUS INFIRMITIES. ACCORDING TO LD. DR THE CIT(A) ACCEPTED ASSESSEES SUBMISSIONS AT THEIR FACE VALUE WITHOUT HIMSELF VER IFYING THE ACTUAL FACTS AND SEIZED MATERIAL. THE CIT(A) ADMITTED FRESH EVIDENCES WITHO UT CALLING FOR REMAND REPORT OR AOS COMMENTS ON ASSESSEES SUBMISSIONS. IT WAS FUR THER ARGUED THAT IN ANY TRADING BUSINESS PROFIT IS THE RESULT OF DIFFERENCE BETWEEN COST OF PURCHASE AND THE SALES IT WAS THEREFORE IMPERATIVE THAT PAYMENTS WERE NETTED OFF AGAINST THE RECEIPTS. IN THIS CASE BASED ON THE ASSESSEES OWN EXPLANATIONS THE AO HAD DEDUCTED PAYMENTS FORM THE RECEIPTS OF THE UNDISCLOSED TRADING WHICH SHOWED EX CESS OF PAYMENTS OVER RECEIPTS AND THIS WAS RIGHTLY ADDED BY THE AO AS UNEXPLAINED EXPENDITURE. THE LD. DR FURTHER SUBMITTED THAT ONCE IT WAS ADMITTED THAT ASSESSEE I NDULGED IN UNACCOUNTED TRADING BUSINESS THE ADDITIONS WERE ALSO CALLED FOR ON ACCO UNT OF INVESTMENT OF UNDISCLOSED INCOME IN INITIAL CAPITAL, SUNDRY DEBTORS AND EXCES S STOCK. THE LD. DR OBJECTED TO THE SET OFF ALLOWED BY THE CIT(A) IN RESPECT OF RS.3 CR ORES CREDITED IN THE PROFIT AND LOSS ACCOUNT AGAINST THE INCOME ESTIMATED BY THE CIT(A) FROM ASSESSEES UNDISCLOSED TRADING BUSINESS. IT WAS LD. DRS CONTENTION THAT H EAVY BURDEN LAY ON THE ASSESSEE TO CO-RELATE THE INCOME CREDITED IN THE BOOKS WITH THE ENTRIES IN THE SEIZED PAPERS SO AS TO ENJOY BENEFIT OF SET OFF. NO SUCH CO-RELATION WAS E STABLISHED WITH COGENT MATERIAL AND THEREFORE THE CIT(A) WAS IN ERROR IN BLINDLY ACCEPT ING ASSESSEES PLEA FOR SETTING OFF INCOME OF RS.3 CRORES CREDITED IN THE PROFIT AND LO SS ACCOUNT WITH UNDISCLOSED INCOME ESTIMATED FROM THE ENTRIES IN THE SEIZED DOCUMENTS. THE LD. DR THEREFORE REQUESTED THAT THE ORDER OF CIT(A) SHOULD BE REVERSED AND ORD ER OF THE AO BE RESTORED. ALTERNATIVELY IT WAS SUBMITTED THAT ORDER OF THE LO WER AUTHORITIES BE SET ASIDE AND 9 MATTERS BE RESTORED TO THE AO FOR CONDUCTING FRESH ENQUIRIES AND PASSING OF A SPEAKING ORDER. 5. ON THE OTHER HAND, THE LD. AR APPEARING ON BEHAL F OF THE ASESSEE RELIED ON THE ORDERS OF THE LD. CIT(A). THE LD. AR SUBMITTED THAT THE ASSESSEE HAD OBJECTED TO THE VARIOUS ADDITIONS OF THE AO ON MERITS OF EACH ADDIT ION. BEFORE THE AO THE ASSESSEE FURNISHED EXPLANATIONS IN RESPECT OF NOTINGS IN THE SEIZED PAPERS BY WHICH IT MERELY CLARIFIED AS TO WHETHER THE NOTINGS REPRESENTED PAY MENTS MADE OR RECEIVED. IT WAS NEVER THE ASSESSEES CASE BEFORE THE AO THAT THERE WAS ONE TO ONE CO-RELATION BETWEEN THE PAYMENTS MADE AND RECEIVED. ASSESSEE NEVER STAT ED THAT THE GOODS REPRESENTED BY THE UNRECORDED PAYMENTS, THEMSELVES WERE SOLD WHOSE RECEIPTS WERE RECORDED IN SEIZED PAPERS. IT WAS THE ASSESSEES EXPLANATION TH AT THE ENTRIES RECORDED IN THE SEIZED PAPERS WERE IN RESPECT OF ASSESSEES UNDISCLOSED TR ADING BUSINESS. THE NOTINGS HOWEVER REPRESENTED BARE TRANSACTIONAL VALUES WITH REFERENCE TO WHICH ESTIMATE OF TURNOVER OF ASSESSEES UNDISCLOSED BUSINESS CAN BE DONE. APPLYING REASONABLE RATE OF NET PROFIT TO SUCH TURNOVER INCOME OF SUCH BUSINESS CAN BE ESTIMATED. IT WAS THE ASSESSEES SUBMISSION THAT HEAD IT BEEN THE CASE TH AT ENTIRE CONTEMPORANEOUS RECORDS OR ACCOUNTS OF ASSESSEES UNDISCLOSED TRADING ACTIV ITIES WERE FOUND IN SEARCH, THEN IT WAS POSSIBLE TO ASSESS INCOME OF SUCH BUSINESS BY N ETTING OFF EXPENSES/PAYMENTS AGAINST SALES/RECEIPTS. IN THE PRESENT CASE HOWEVER THE PAPERS WERE SEIZED RANDOMLY WHICH WERE RECOVERED FROM DIFFERENT LOCATIONS FROM DIFFERENT PERSONS AND APPARENTLY HAD NO CO-RELATION WITH EACH OTHER. THE INFORMATION CONTAINED IN THE NOTINGS MADE IN THE LOOSE PAPERS PRIMA FACIE INDICATED THAT THE PAY MENTS AND RECEIPTS PERTAINED TO TRADING TRANSACTIONS BUT THEY DID NOT EVEN SUGGEST THAT SAME SET OF GOODS WERE PURCHASED AND SOLD BY THE ASSESSEE REQUIRING ITS NE TTING OFF AGAINST EACH OTHER. IN ABSENCE OF COMPLETE SET OF ACCOUNTS AND FURTHER HAV ING REGARD TO THE FACT THAT NO CO- RELATION EXISTED BETWEEN THE PAYMENTS AND RECEIPTS, THE NETTING OFF WAS NOT ALLOWED BY THE CIT(A). THE CIT(A) HOWEVER TOOK INTO ACCOUNT ON LY THE INFORMATION CONTAINED IN THE SEIZED PAPERS WHICH WERE CONSIDERED BY THE AO I N THE IMPUGNED ASSESSMENT AND NO FRESH OR ADDITIONAL EVIDENCE WAS ADMITTED BY HIM . THE A/R STATED THAT FROM THE SAME SET OF SEIZED PAPERS; CONSIDERED EARLIER BY TH E AO THE CIT(A) DREW HIS OWN INDEPENDENT INFERENCES. THE LD. AR FURTHER SUBMITTE D THAT SINCE IN THE COURSE OF SEARCH 10 THE ENTIRE RECORDS OF THE UNDISCLOSED TRADING BUSIN ESS WERE NOT FOUND AND THE SEIZED PAPERS REPRESENTED RECORDED BY THE ASSESSEE AT THE VARYING OR DIFFERENT STAGES OF TRADING CYCLE THE PROPER COURSE ADOPTED BY THE CIT( A) WAS TO DRAW FAIR, REASONABLE AND EQUITABLE INFERENCE WHICH WOULD NOT RESULT IN A RBITRARY; EXCESSIVE AND HIGH PITCHED ASSESSMENT. THE LD. AR SUBMITTED THAT IN LA W AS ALSO IN PRACTICE TURNOVER CAN BE ESTIMATED EITHER WITH REFERENCE TO COST OF GOODS SOLD OR FROM THE NOTINGS FOR RECEIPTS OR FROM BOTH. FOR THE PURPOSE OF ESTIMATIO N OF TURNOVER IT WAS WHOLLY IMMATERIAL WHETHER THE ENTRIES IN SEIZED PAPERS PE RTAINED TO PURCHASES OR SALE OR OTHER. THE LD. AR FURTHER SUBMITTED THAT IF THE LD. DRS ARGUMENTS IS ACCEPTED AT FACE VALUE THEN IT WOULD MEAN THAT THE ASSESSEE INCURRED HUGE LOSS IN ITS TRADING BUSINESS BECAUSE THE PAYMENTS FOR TRADED GOODS WERE MORE THA N THE RECEIPTS FROM SALE. ON THE FACTS OF THE CASE SUCH CONCLUSION WOULD NOT ONLY BE IMPRUDENT BUT IT WOULD BE ABSURD BECAUSE THE ASSESSEE ITSELF HAD DISCLOSED IN ACCOUN TS THAT IT HAD EARNED INCOME FROM ITS UNDISCLOSED BUSINESS ACTIVITIES. THE ESTIMATION OF TURNOVER WITH REFERENCE TO RECEIPTS IN THE SEIZED PAPERS AS PER THE ASSESSEES EXPLANAT ION WOULD HAVE BEEN ALSO INCORRECT BECAUSE THIS WOULD HAVE RESULTED IN REDUCTION OF AS SESSED INCOME OF THE UNDISCLOSED TRADING BUSINESS EVEN LESS THAN THE INCOME ADMITTED BY THE ASSESSEE. THE LD. AR SUBMITTED THAT THE COURSE SUGGESTED THE LD. DR FOR ESTIMATING TURNOVER WOULD HAVE BEEN BENEFICIAL TO THE ASSESSEE BECAUSE THIS WOULD RESULT IN SUBSTANTIAL REDUCTION IN THE ASSESSED TOTAL INCOME. 5.1. THE L.D AR FOR THE ASSESSEE FURTHER POINTED OU T THAT ON EXAMINATION OF THE SEIZED PAPERS THE LD. CIT(A) HAD FOUND THAT THE NOT INGS THEREIN CONTAINED BARE INFORMATION SUCH AS DATES, AMOUNTS AND PARTY NAMES. THESE NOTICES PER SE DID NOT ESTABLISH THAT THE AMOUNTS SPECIFIED ACTUALLY REPRE SENTED PAYMENTS MADE FOR PURCHASE OR PAYMENTS RECEIVED ON SALE. THE LD. CIT(A) FOUND THAT THE NOTINGS REFERRED ONLY TO ABSOLUTE NUMERIC VALUES OF THE TRANSACTIONS. SAVE A ND EXCEPT FOR THE ASSESSEES WORD OR EXPLANATION NO OTHER MATERIAL WAS AVAILABLE IN T HE SEIZED RECORDS WHICH CONCLUSIVELY PROVED WHETHER THE TRANSACTIONS RECORD ED REPRESENTED PURCHASES OR SALE OF MATERIALS. ON THESE FACTS THEREFORE THE CIT(A) H ELD THAT THE NUMERIC VALUES BE AGGREGATED TO ARRIVE AT THE TURNOVER OF UNDISCLOSED TRADING BUSINESS. FOR THE SAME THE LD. CIT(A) ALSO INCLUDED NUMERIC VALUE OF THE ALLEG ED SUNDRY DEBTORS BALANCE IN THE 11 TURNOVER. THE LD. AR SUBMITTED THAT THE INFERENCES DRAWN BY THE CIT(A) FROM THE NOTINGS IN THE SEIZED PAPERS FOR ESTIMATING THE TUR NOVER WERE FAIR, EQUITABLE AND REASONABLE AND NO INTERFERENCE WAS CALLED FOR. THE LD. AR STATED THAT IN ABSENCE OF SEIZURE OF COMPLETE SET OF BOOKS AND HAVING REGARD TO THE FACT THAT ONLY STRAY PAPERS CONTAINING PARTIAL INFORMATION OF THE UNDISCLOSED T RADING TRANSACTIONS WERE SEIZED; THE ONLY APPROPRIATE COURSE PERMISSIBLE WAS TO MAKE FAI R AND REASONABLE ESTIMATE OF TURNOVER AND CONSEQUENTLY INCOME EARNED THEREFROM. BOTH AO AND CIT(A) IN THEIR OWN WAY CONSIDERED AND INTERPRETED SAME SET OF SEIZ ED DOCUMENTS BUT MADE THEIR OWN RESPECTIVE ESTIMATES OF INCOME. THE AOS ESTIMATION RESULTED IN EXCESSIVE AND HIGH PITCHED ASSESSMENT EVEN THOUGH IN THE COURSE OF SEA RCH, THE DEPARTMENT DID NOT FIND UNDISCLOSED OR UNEXPLAINED ASSETS, INVESTMENT OR EX PENSES MATCHING THE INCOME SO ASSESSED. ON THE OTHER HAND, THE ESTIMATE MADE BY T HE CIT(A) MORE OR LESS MATCHED WITH UNDISCLOSED INVESTMENTS AND EXPENSES FOUND BY THE DEPARTMENT AS WELL WITH INCOME DECLARED IN THE STATEMENT U/S 132(4) AND FOR WHICH ACCOUNTING EFFECT WAS GIVEN IN THE ASSESSEES BOOKS. THE LD. AR FURTHER S UBMITTED THAT THE CIT(A)S ESTIMATE OF TURNOVER WAS BASED ON COGENT MATERIALS. IT WAS F AIR AND REASONABLE. IT WAS NOT BASED ON ANY ADDITIONAL EVIDENCE. THE CIT(A) DREW HIS OWN INFERENCES WITHOUT BEING INFLUENCED EITHER BY THE AOS FINDINGS OR BY THE AS SESSEES ARGUMENTS. CIT(A)S INDEPENDENT FINDING WERE ARRIVED AT ON IMPARTIAL AN D INDEPENDENT APPRAISAL AND VERIFICATION OF SEIZED MATERIAL AND ON CONSIDERATIO N OF OVERALL FACTS AND CIRCUMSTANCES. THEREFORE THE LD. AR REQUESTED THAT THE ORDER OF TH E LD. CIT(A) SHOULD NEITHER BE REVERSED NOR SET ASIDE FOR CONSIDERATION AFRESH BY THE AO. 5.2. AS REGARDING ESTIMATION OF TURNOVER FROM THE N OTINGS IN THE SEIZED DOCUMENTS THE LD. AR FOR ASSESSEE POINTED OUT THAT A SEARCH U /S 132 WAS CONDUCTED IN THE CASE OF SATYAM SHIVAM SUNDARAM GROUP OF DHANBAD, WHICH WAS SIMILARLY ENGAGED IN MANUFACTURE AND TRADING OF IRON AND STEEL PRODUCTS. IN THIS CASE ALSO LOOSE PAPERS AND DOCUMENTS WERE SEIZED CONTAINING NOTINGS OF UNDISCL OSED TRADING TRANSACTIONS. EXPLANATIONS WERE FURNISHED BEFORE THE AO CLARIFYIN G AS TO WHETHER NOTINGS REPRESENTED PURCHASE OR SALE OF TRADED GOODS. WITH REFERENCE TO BOTH PURCHASE AND SALES NOTED IN THE SEIZED DOCUMENTS TRADING TURNOVE R WAS ESTIMATED BY THE ASSESSEE 12 AND THE AO. THE INCOME FROM SUCH UNDISCLOSED TRADIN G BUSINESS WAS THEN ASSESSED BY THE AO BY APPLYING NET PROFIT RATE OF 5%. IN SUPPOR T OF THIS COPY OF ASSESSMENT ORDER DATED 08.06.2009 FOR A.YR. 2008-09 PASSED BY THE DC IT, CENTRAL CIRCLE VIII, IN THE CASE OF SHEO KUMAR DALMIA WAS FILED. THE LD. AR THE REFORE SUBMITTED THAT IN SIMILAR CIRCUMSTANCES THE DEPARTMENT HAD ESTIMATED THE TURN OVER OF UNDISCLOSED TRADING BUSINESS WITH REFERENCE TO BOTH PURCHASE AND SALES NOTED IN THE SEIZED DOCUMENTS. HE THEREFORE ARGUED THAT THE CIT(A) DID NOT COMMIT ANY INFIRMITY AS ALLEGED BY THE LD. DR BY ESTIMATED SALES TURNOVER OF THE UNDISCLOSED B USINESS BY GROSSING UP THE ABSOLUTE NUMERIC VALUES OF THE TRANSACTIONS NOTED I N THE SEIZED PAPERS. 5.3. AS REGARDING NETTING OFF INCOME OF RS.3 CRORES CREDITED IN THE PROFIT AND LOSS ACCOUNT AGAINST ESTIMATED INCOME OF UNDISCLOSED TRA DING BUSINESS THE LD. AR SUBMITTED THAT THE ASSESSEES PLEA IN THAT BEHALF W AS REJECTED BY THE AO ON THE ENTIRELY ERRONEOUS FACTS AND REASONINGS. THE LD. AR SUBMITTE D THAT IN THE COURSE OF SEARCH STATEMENT U/S 132(4) WAS RECORDED FORM THE ASSESSEE S DIRECTOR SHRI R.S.AGARWAL WHO WAS EXAMINED WITH REFERENCE TO SEIZED PAPERS. IN HI S STATEMENT U/S 132(4) SHRI R.S.AGARWAL ADMITTED THAT THE NOTINGS IN LOOSE PAPE RS REPRESENTED UNDISCLOSED TRADING TRANSACTIONS OF 3 COMPANIES BELONGING TO THE GROUP OF WHICH ASSESSEE WAS ONE. IN HIS STATEMENT THE DIRECTOR MADE DISCLOSURE OF UNACCOUNT ED INCOME OF RS.5 CRORES AND OFFERED IT TO BE TAXED IN THE HANDS OF I.C.ISPAT PV T. LTD., BAJRANGBALI ROLLING MILLS PVT. LTD AND THE ASSESEE HEREIN. PURSUANT TO THE DISCLOS URE MADE U/S 132(4) AND AFTER TAKING INSPECTION OF SEIZED DOCUMENTS, ASSESSEE ESTIMATED THAT THE INCOME OF RS.3 CRORES PERTAINED TO THE ASSESSEES UNDISCLOSED TRADING TRA NSACTIONS AND THE SAME WAS ACCOUNTED IN THE ASSESSEES BOOKS FOR THE FINANCIAL YEAR ENDED 31.03.2007 BECAUSE SEARCH HAD TAKEN PLACE IN THAT FINANCIAL YEAR. RS.3 CRORES WAS CREDITED IN THE ASSESSEES PROFIT AND LOSS ACCOUNT UNDER THE NOMENCLATURE OF PROFIT FROM UNACCOUNTED BUSINESS ACTIVITY. SAVE AND EXCEPT THE ENTRIES/NOTINGS IN S EIZED LOOSE PAPERS NO OTHER MATERIAL WAS FOUND OR WAS AVAILABLE TO THE AO ON THE BASIS O F WHICH THE AO COULD HOLD THAT THE ASSESSEE CARRIED ON UNDISCLOSED BUSINESS ACTIVITY. INCOME OF RS.3 CRORES CREDITED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSE FOR THE YEAR ENDED 31.03.2007 WAS ASSESSED AS ASSESSEES INCOME FOR A.Y.2007-08 BY THE AO WITH OUT QUESTIONS. THE LD. AR 13 FURTHER SUBMITTED THAT WHEN IN THE ASSESSMENT THE A O ASSESSED INCOME OF RS.3 CRORES AS ASSAESSEES PROFIT FROM UNDISCLOSED BUSINESS ACT IVITY WHICH THE ASSESSEE ESTIMATED FROM THE ENTRIES IN SEIZED DOCUMENTS THEN THE CREDI T/SET OFF THEREFORE WAS REQUIRED TO BE ALLOWED. 5.4. THE LD. AR FURTHER SUBMITTED THAT IN THE ASSES SMENT ORDER THE AO REJECTED THE ASSESSEES PLEA FOR SET OFF PRIMARILY ON THE GROUND THAT IN ALL THE YEARS PRIOR TO A.Y. 2007-08 ASSESSEES BOOK RESULTS DISCLOSED OPERATING PROFITS BUT ONLY IN THE F.Y. 2006- 07 THE ASSESSEE DISCLOSED OPERATING LOSS OF RS.9,61 ,62,074/-. HOWEVER NEITHER IN THE ASSESSMENT ORDER THE AO GAVE WORKING WHICH SHOWED A S TO HOW THE ALLEGED OPERATING LOSS OF RS,.9,61,62,074/- WAS ARRIVED NOR AT THE TI ME OF HEARING BEFORE THE TRIBUNAL THE LD. DR WAS ABLE TO EXPLAIN WITH EMPIRICAL FACTS AND FIGURES AS TO HOW THE ALLEGED LOSS OF RS.9,61,62,074/- WAS ARRIVED AT BY THE AO. ON TH E OTHER HAND AFTER ANLAYSING THE AUDITED PROFIT AND LOSS ACCOUNTS OF THE ASSESSEE FR OM A.YS.2001-02 TO 2007-08 THE LD. CIT(A) FOUND THAT THE ASSESSEE HAD EARNED OPERATING PROFITS IN ALL THE 6 YEARS PRIOR TO A.YS. 2007-08. THESE BOOK RESULTS WERE ACCEPTED BY AO. APPLYING THE METHODOLOGY FOLLOWED AND ACCEPTED BY AO IN EARLIER 6 YEARS TO T HE FIGURES PERTAINING TO F.Y. 2006- 07, THE CIT(A) FOUND THAT ASSESSEES OPERATING PRO FIT EXCLUDING PROFIT FROM UNDISCLOSED ACTIVITY WAS RS.5,84,27,951/- AND NO LO SS WAS INCURRED. THE FACTS REVEALED BY THE AUDITED PROFIT AND LOSS ACCOUNT OF THE ASSES SEE FOR F.Y.2006-07 WHICH WERE OTHERWISE NOT REJECTED BY THE AO CONCLUSIVELY PROVE D THAT EVEN WITHOUT CONSIDERING THE INCOME OF RS,.3 CRORES ASSESSEE HAD EARNED GROS S OPERATING PROFIT IN F.Y. 2006-07 AND NO LOSS OF RS.9,61,62,074/- AS ALLEGEDLY STATED BY THE AO WAS SUFFERED BY THE ASSESSEE. NO MATERIAL WAS BROUGHT ON RECORD BEFORE THE TRIBUNAL BY THE LD. DR TO DISPROVE OR DISLODGE FACTUAL FINDINGS OF THE CIT(A) . THE LD. AR THEREFORE SUBMITTED THAT THE GROUND ON WHICH THE AO REJECTED THE ASSESS EES PLEA FOR ALLOWING SET OFF BEING FACTUALLY WRONG CIT(A)S ORDER ON THIS ISSUE WAS JU STIFIED. 5.5. THE LD. AR FURTHER SUBMITTED THAT BASED ON THE SAME DECLARATION U/S 132(4) INCOME OF RS.1 CRORE WAS SIMILARLY ACCOUNTED IN THE BOOKS OF M/S. BAJRANGBALI ROLLING MILLS PVT. LTD. FOR THE YEAR ENDED 31.03.20 07. IN CASE OF THAT COMPANY ALSO THE SAME AO PASSED AN ORDER U/S 143(3) FOR A.Y.20-7-08 WHEREIN THE ASSESSEES PLEA FOR 14 NETTING OFF WAS SIMILARLY REJECTED ON THE IDENTIC AL GROUND. ON SIMILAR ANALYSIS OF FACTS AND FIGURES THE CIT(A) HOWEVER FOUND THAT SAID ASSE SSEE HAD IN FACT DISCLOSED OPERATING PROFIT OF RS.1,23,82,319/- IN A.Y.2007-08 AND NO LOSS WAS SUFFERED AS ALLEGED. THE CIT(A) THEREFORE ALLOWED THE SAID ASSE SSEES PLEA FOR SETTING OFF INCOME CREDITED UNDER THE HEAD PROFIT FROM UNDISCLOSED BU SINESS ACTIVITY AGAINST THE INCOME ESTIMATED FROM NOTINGS FOUND IN SEIZED DOCUMENTS. R EVENUE DID NOT FILE FURTHER APPEAL BEFORE THE TRIBUNAL IN THE CASE OF BAJRANGBALI ROLL ING MILLS PVT. LTD. THE LD. AR THEREFORE SUBMITTED THAT SINCE THE FACTUAL MATRIX I N BOTH THE CASES WAS IDENTICAL AND THE ORDER OF CIT(A) ON THE SAME ISSUE WAS ACCEPTED BY T HE REVENUE IN THE CASE OF BAJRANGBALI ROLLING MILLS PVT. LTD. THE ORDER OF TH E LD. CIT(A) IN RESPECT OF SETTING OFF MAY BE UPHELD. THE LD. AR REQUESTED THAT THE APPEAL S OF THE REVENUE BE DISMISSED. 5.6. AS REGARDS CROSS OBJECTION FILED BY THE ASSESS EE IT WAS SUBMITTED THAT THE ESTIMATION OF INCOME BY THE CIT(A) WAS HIGHLY EXCES SIVE. THE CIT(A) IN THE IMPUGNED ORDER ESTIMATED ASSESSEES INCOME FROM UND ISCLOSED TRADING BUSINESS BY APPLYING PROFIT RATE OF 8% TO THE TOTAL TURNOVER ES TIMATED BY HIM. ALTHOUGH THE ASSESSEE DOES NOT HAVE ANY EMPIRICAL DATA OR EVIDEN CE TO CHALLENGE THE CORRECTNESS OF THE ESTIMATION OF THE TURNOVER BY THE LD.CIT(A), TH E ASSESSEE SUBMITTED THAT THE NET PROFIT RATE ADOPTED BY THE LD. CIT(A) WAS EXCESSIVE AND UNREASONABLE. 5.7. THE LD. AR FURTHER CONTENDED THAT THE INCOME W AS ESTIMATED FROM TRADING BUSINESS, PROVISIONS OF SEC.44AF WHICH PERTAIN TO I NCOME FROM RETAIL BUSINESS PRESCRIBED NET PROFIT RATE OF 5% AS REASONABLE OR F AIR FOR ESTIMATION OF INCOME. IN CASE OF LOW TURNOVER, NET PROFIT MARGIN IS HIGHER. HOWEV ER, WHEN BUSINESS VOLUME OR TURNOVER INCREASES PROFIT MARGINS RECORD REDUCTION BECAUSE IN SUCH CASES MORE PROFIT IS EARNED FROM HIGHER VOLUMES BY CHARGING LESS NET PRO FIT MARGINS. WHEN VOLUME OR TURNOVER PROGRESSIVELY INCREASES THEN NET PROFIT RA TE DECREASES. THIS IS AN UNIVERSALLY KNOWN COMMERCIAL TRUTH. THE LD CIT(A) REFUSED TO AP PLY NET PROFIT OF 5% PRESCRIBED IN SEC. 44AF ON THE GROUND THAT THE ASSESSEE DID N OT BRING ON RECORD ANY COMPARATIVE CASE ESTABLISHING GROSS PROFIT RATE IN THE SIMILAR LINE OF BUSINESS IN CASE OF ANY OTHER ASSESSEE. 15 5.8. BEFORE THIS TRIBUNAL HAS PLACED COPIES OF THE ASSESSMENT ORDERS PASSED IN THE CASES OF SHIVA KUMAR DALMIA AND HARISH KUMAR SARAWG I FOR THE A.Y. 2008-09. IN BOTH THESE CASES SEARCHES U/S 132 WERE CONDUCTED BY THE INCOME TAX DEPARTMENT IN F.Y.2007-8. BOTH THE ASSESSES BELONGED TO GROUPS WH ICH WERE CARRYING ON BUSINESS OF MANUFACTURE AND TRADING OF IRON AND STEEL PRODUCTS. IN BOTH THE CASES LOOSE PAPERS AND DOCUMENTS WERE SEIZED WHICH SHOWED THAT THE ASSESSE ES CARRIED ON PURCHASE AND SALE OF IRON AND STEEL PRODUCTS OUTSIDE THE REGULAR BOOK S. WITH REFERENCE TO NOTINGS MADE IN THE LOOSE PAPERS TRADING TURNOVER OF THE UNDISCLOSE D BUSINESS WAS ESTIMATED AND APPLYING PROFIT RATE OF 5% TO THE ESTIMATED TURNOVE R OF THE UNDISCLOSED BUSINESS INCOME WAS ASSESSED BY THE AOS. THE INCOME ESTIMATE D @5% IN THE ASSESSMENT ORDER WAS APPROVED BY THE ADDL.CITS. IT IS THEREFORE THE PLEA OF THE ASSESSEE THAT WHEN IN SIMILARLY PLACED ASSESSEES CASES THE INCOME TAX DE PARTMENT IN THE ASSESSMENT U/S 143(3) COMPLETED CONSEQUENT TO SEARCH U/S 132 ESTIM ATED INCOME FROM THE UNDISCLOSED TRADING BUSINESS, APPLYING NET PROFIT R ATE OF 5% THEN IN ASSESEES CASE ALSO THE INCOME SHOULD BE ESTIMATED BY APPLYING PRO FIT RATE OF 5% IN PLACE OF 8% ADOPTED BY THE LD. CIT(A). 6. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREF UL PERUSAL OF MATERIALS AVAILABLE ON RECORD, IT IS OBSERVED THAT THE LD. AS SESSING OFFICER IS NOT JUSTIFIED IN TREATING THE EXCESS OF PAYMENTS OVER RECEIPTS WAS A SSESSED AS UNEXPLAINED EXPENDITURE. EVEN THOUGH PAYMENTS MADE FOR PURCHASE S WERE ASSESSED AS UNDISCLOSED EXPENDITURE; FURTHER ADDITION WAS ALSO MADE ON ACCO UNT OF INVESTMENT IN INITIAL CAPITAL OF SUCH BUSINESS. SEPARATE ADDITION WAS ALSO MADE F OR EXCESS STOCK OF GOODS FOUND AT THE TIME OF SEARCH. SIMILARLY EVEN THOUGH THE GROSS RECEIPTS WERE CONSIDERED TO BE PART OF UNDISCLOSED TRADING, SEPARATE ADDITION WAS MADE IN RESPECT OF AMOUNTS DUE TO BE RECOVERED FROM THE TRADE DEBTORS IN ABSENCE OF THE TOTAL INFORMATION OF UNACCOUNTED BUSINESS TRANSACTIONS. ON THE OTHER HAND, IT IS OBS ERVED THAT THE LD. CIT(A) HAS COME TO A LOGICAL CONCLUSION WITH THE EXISTING SEARCHED MA TERIAL ON RECORD BY ADDING PURCHASES, SALES AND TRADING DATA AND ESTIMATING TH E INCOME AT 8% BY OBSERVING THAT THE ASSESSEE HAS NOT BROUGHT ANY COMPARABLE CASES. 16 6.1. AS REGARDING GIVING OF CREDIT OF RS.3 CRORES, IT IS OBSERVED THAT THE ASSESSEE HIMSELF HAS OFFERED RS.3CRORES FROM THE UNDISCLOSED BUSINESS ACTIVITY FOR THE YEAR ENDING 31.3.2007 AND THE AO HIMSELF HAS ACCEPTED TH E SAME WHILE DOING THE SCRUTINY ASSESSMENT. IT IS NOT FAIR ON THE PART OF THE AO TO DENY THE CREDIT OF RS.3 CRORES. THEREFORE WE ARE OF THE VIEW THAT THE LD. CIT(A) HA S RIGHTLY DELETED THE SAME. 6.2. WHILE COMING TO THE ESTIMATION OF NET PROFIT TRADING OF 8% SINCE NOW THE ASSESSEE IS ABLE TO BRING ON RECORD THAT SIMILAR LI NE OF ACTIVITIES IN A PROFIT IS ESTIMATED AT 5% WE RESTRICT THE NET PROFIT ARRIVED BY THE LD. CIT(A) TO 5% FROM 8%. 7. IN THE RESULT WE DISMISS THE REVENUES APPEAL A ND ALLOW THE CROSS OBJECTIONS OF THE ASSESSEE. 8. IN THE RESULT THE APPEALS OF THE REVENUE ARE DI SMISSED AND THE CROSS OBJECTIONS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE COURT ON 07.03.2012. SD/- SD/- . .. . , , , , ) ) ) ) N.VIJAYAKUMARAN, JUDICIAL MEMBER . .. .'# '#'# '#. .. . , ,, , $% $% $% $% , C.D.RAO, ACCOUNTANT MEMBER. ( (( (#% #% #% #%) )) ) DATE: 07.03.2012. $8 4 1)) 9$+:- COPY OF THE ORDER FORWARDED TO: 1. M/S.R.S.ISPAT LTD., B-401, CITY CENTRE, SALT LAKE C ITY, KOLKATA-700064. 2 THE D.C.I.T., CENTRAL CIRCLE-XXIV, KOLKATA. 3. THE CIT, 4. THE CIT(A)-CENTRAL-III, KOLKATA. 5. DR, KOLKATA BENCHES, KOLKATA 2 1)/ TRUE COPY, $8/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES R.G.(.P.S.) 17