ACIT, Central Circle-2, Hyderabad V. M/s. Shanmukha Information Technology & Enabled Services Pvt.Ltd, Hyderabad

ITA 1034/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69942 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 04-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SOMASEKHAR REDDY
• Assessee Lawyers: A V RAGHURAM
• Keywords: Business income; Depreciation; Business expenditure; Search and seizure; Block assessment; Revenue expenditure; Capital expenditure
• Section: 143(3); 148; 132; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, HYDERABAD BENCH C BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER IT(SS)A NO2/H YD/2013 (BLOCK PERIOD - ASST. YEARS 1996-97 T O 2001-02 AND FROM 1.4.2002 TO 30.1.2 003) M/S VINSRI INFOTECH, C/O SRI C SURESH, GPA HOLDER, FLAT NO.501, JAYADARSHINI ARCADE, ROAD NO.1, ALKAPURI, DILSUKHNAGAR, HYDERABAD. . ASSESSEE VS. THE ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, HYDERABAD. . REVENUE ITSS(A) NO.6/HYD/2012 (BLOCK PERIOD - ASST. YEARS 1996-97 TO 2001-0 2 AND FROM 1.4.2002 TO 30.1.2003) THE ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, HYDERABAD. . REVENUE VS. M/S VINSRI INFOTECH, C/O SRI C SURESH, GPA HOLDER, FLAT NO.501, JAYADARSHINI ARCADE, ROAD NO.1, ALKAPURI, DILSUKHNAGAR, HYDERABAD. . ASSESSEE IT(SS)A NOS.1 & 2/H/13 2 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 ITA NO.1033/HYD/2012 (ASST. YEAR - 2003-04) THE ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, HYDERABAD. . REVENUE VS. M/S VINSRI INFOTECH, C/O SRI C SURESH, GPA HOLDER, FLAT NO.501, JAYADARSHINI ARCADE, ROAD NO.1, ALKAPURI, DILSUKHNAGAR, HYDERABAD. . ASSESSEE --------------------------------------------------- ----------------------------- IT(SS)A NO.1/HYD/2 013 (BLOCK PERIOD - ASST. YEARS 1996-97 TO 2001-02 AND FROM 1.4.2002 TO 30.1.2003) M/S SHANMUKHA INFORMATION TECHNOLOGY & ENABLED SERVICES (P) LTD., C/O SRI C SURESH, GPA HOLDER, FLAT NO.76, CBI COLONY, VANASTHALIPURAM, HYDERABAD. . ASSESSEE VS. THE DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, HYDERABAD. . REVENUE ITSS(A) NO.8/HYD/2012 (BLOCK PERIOD - ASST. YEARS 1996-97 TO 2001-0 2 AND FROM 1.4.2002 TO 30.1.2003) THE DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, HYDERABAD. . REVENUE VS. M/S SHANMUKHA INFORMATION TECHNOLOGY & ENABLED SERVICES (P) LTD., C/O SRI C SURESH, GPA HOLDER, IT(SS)A NOS.1 & 2/H/13 3 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 FLAT NO.76, CBI COLONY, VANASTHALIPURAM, HYDERABAD. . ASSESSEE ITA NO.1034/HYD/2012 (ASST. YEAR -2003-04) THE DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, HYDERABAD. . REVENUE VS. M/S SHANMUKHA INFORMATION TECHNOLOGY & ENABLED SERVICES (P) LTD., C/O SRI C SURESH, GPA HOLDER, FLAT NO.76, CBI COLONY, VANASTHALIPURAM, HYDERABAD. . ASSESSEE REVENUE BY : SHRI SOMASEKHAR REDDY ASSESSEE BY : SHRI A.V RAGHU RAM DATE OF HEARING : 03-10-2013 DATE OF PRONOUNCEMENT : 11-12-2013 O R D E R PER P MADHAVI DEVI, JUDICIAL MEMBER IT(SSA) NO.2/H/2013 & IT(SSA) NO.6/H/2012 ARE CROSS APPEALS FILED BY BOTH THE ASSESSEE VINSREE INFOTEC H AS WELL AS THE REVENUE RESPECTIVELY. THE RELEVANT BLOCK PERIOD IS FINANCIAL YEAR 1997-98 TO 2001-02 AND 02/4/2002 TO 31-1.2003. IT(SS)A NOS.1 & 2/H/13 4 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 THE ITA NO.1033 OF 2012 IS REVENUES APPEAL FOR THE BROKEN PERIOD 31/2/2003 TO 31/3/2003 RELEVANT TO ASSESSMENT YEAR 2003-04. 2. THE CROSS APPEALS IT(SS)A NO.1/H/2013 AND IT(SS )A NO.8/H/2012 ARE BOTH BY THE ASSESSEE, M/S SHANMUKH A INFORMATION TECHNOLOGY & ENABLED SERVICES (P) LTD., AS WELL AS THE REVENUE FOR THE SAME BLOCK PERIOD WHILE ITA NO.1034/H/2012 IS REVENUES APPEAL FOR THE BROKEN PERIOD 31/1/2003 TO 31/3/2003 RELEVANT TO THE ASSESSMENT YEAR 2003-04. 3. BOTH THE ASSESSEES ABOVE ARE RELATED CONCERNS AN D THE ISSUES INVOLVED IN THEIR APPEALS ARE ALSO COMMON AND, THER EFORE, ALL THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OFF BY THIS COMMON AND CONSOLIDATED ORDER. WE SHALL TAKE UP THE CASE OF VINSREE INFOTECH FOR THE BLOCK PERIOD FIRST :- 4. THE BRIEF FACTS OF THE CASE ARE THAT M/S VINSREE INFOTECH IS A PARTNERSHIP FIRM SET UP BY ONE SHRI SURESH AND HIS FAMILY MEMBERS AS IT(SS)A NOS.1 & 2/H/13 5 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 PARTNERS WITH THE OBJECT OF CARRYING ON BUSINESS IN SOFTWARE DEVELOPMENT, TRAINING AND CONSULTANCY AND IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS BEEN FILING ITS RETURN OF INCO ME REGULARLY. THE DEPARTMENT HAD CONDUCTED A SEARCH AND SEIZURE OPER ATION U/S 132 OF THE INCOME-TAX ACT ON THE ASSESSEES BUSINESS PREMI SES AND ALSO THE RESIDENTIAL PREMISES OF ITS PARTNERS ON 31/1/2003. VARIOUS INCRIMINATING MATERIAL WAS FOUND AND SEIZED. THE A SSESSING OFFICER COMPLETED THE ASSESSMENT FOR THE BLOCK PERIOD U/S 1 58BC(C) R.W.S 144 ON 24.6.2008 RAISING HEAVY DEMAND OF TAXES AN D PENAL INTEREST THEREON. THE ASSESSEE FILED AN APPLICATION U/S 2 64 BEFORE THE CIT STATING THAT HE WAS ARRESTED BY THE POLICE IMMEDIAT ELY AFTER SEARCH AND WAS GRANTED BAIL ONLY IN AUGUST 2007 AND, THEREFORE , COULD NOT PARTICIPATE IN THE ASST. PROCEEDINGS. THE CIT AFTER GOING THROUGH THE ACCOUNT OF THE EVENTS FROM TIME TO TIME AND THE EX PLANATION OF THE ASSESSEE AS TO WHY THE ASSESSEE COULD NOT APPEAR BE FORE THE AO TO PARTICIPATE IN THE ASSESSMENT PROCEEDINGS, SET ASID E THE ASSESSMENT ORDER AND DIRECTED THE AO TO RECONSIDER THE ISSUES ON MERITS. 5. DURING THE FRESH BLOCK ASST. PROCEEDINGS, AO OBS ERVED THAT SHRI C SURESH, THE MANAGING PARTNER OF THE ASSESSEE FIRM HAD PUBLICIZED THAT HIS CONCERNS M/S VINSREE INFOTECH & M/S SITES PVT. LTD., HAVE IT(SS)A NOS.1 & 2/H/13 6 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 GOT ORDERS FOR AROUND RS.300 CRORES FROM OVERSEAS PROJECTS FOR DATA CONVERSION FROM HARD COPIES SUCH AS NOVELS, MANAGE MENT BOOKS, MEDICAL BOOKS, ARTICLES AND OTHER TEXT BOOKS TO SOF T COPIES AND THAT THE ASSESSEE COLLECTED NON-REFUNDABLE DEPOSITS/CONSUL TATION FEE RANGING FROM RS.2,00,000/- TO RS.2,50,000/- EACH FROM AROUN D 1500 UNEMPLOYED YOUTH FOR SUB- CONTRACT IN THE DATA ENTR Y WORK TOTALING TO RS.33.55 CRORES, HE OBSERVED THAT AS PER THE TERMS OF THE AGREEMENTS FOR SUCH CONTRACTS, THE ASSESSEE WAS TO PROVIDE DAT A ENTRY PROJECTS FROM THEIR INDIAN AND US SOURCES TO BE EXECUTED BY THE SUB- CONTRACTORS AND THAT THE SUB-CONTRACTOR SHALL PAY C ERTAIN AMOUNT OF CONSULTANCY FEE WHICH DIFFERS FROM ONE SUB CONTRACT OR TO ANOTHER SUB CONTRACTOR AND THE ASSESSEE GUARANTEES MINIMUM WORK OF AROUND 500 PAGES PER DAY FOR A MINIMUM PERIOD OF TWO YEARS AND THE ASSESSEE UNDERTAKES TO REFUND THE AMOUNT OF CONSULTANCY TO T HE SUB CONTRACTOR WITHIN A PERIOD OF 30 DAYS TOGETHER WITH THE INTERE ST OF 24% P.A IN THE EVENT OF FAILURE TO PROVIDE WORK. DURING THE COURS E OF SEARCH AND SEIZURE PROCEEDINGS, THE REVENUE AUTHORITIES FOUND THAT THE ASSESSEE WAS NOT SHOWING THE ACTUAL NON-REFUNDABLE DEPOSIT/C ONSULTANCY FEE RECEIVED FROM SUCH CONTRACTORS IN ITS REGULAR BOOKS OF ACCOUNTS AND ONLY A PART OF THE FEE COLLECTED WAS BEING RECORDED IN THE BOOKS. THUS, THE REVENUE AUTHORITIES CAME TO THE CONCLUSION THAT THE ASSESSEE WAS IT(SS)A NOS.1 & 2/H/13 7 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 RESORTING TO SUPPRESSION OF RECEIPTS IN THEIR BUSIN ESS. ON THE BASIS OF THE SWORN STATEMENTS OF THE MANAGING PARTNER OF T HE ASSESSEE FIRM AND HIS FAMILY MEMBERS DURING THE COURSE OF SEARCH ADMITTING UNDISCLOSED INCOME TO THE EXTENT OF RS.1,07,69,747/ -, THE AO CAME TO THE CONCLUSION THAT THE UNDISCLOSED INCOME WAS GENE RATED OUT SUCH AN AMOUNT. THE ASSESSMENTS WERE COMPLETED IN THE CASE OF GROUP CONCERNS AND THE UNDISCLOSED INCOME OF THE GROUP WA S ARRIVED AT RS.5,25,55,400/- AND DEMAND OF TAX WAS RAISED ACCOR DINGLY. AGAINST THE SAME, THE ASSESSEE FILED AN APPLICATION U/S 264 OF THE INCOME-TAX ACT BEFORE THE CIT, (CENTRAL) DETAILING THE CIRCUMS TANCES UNDER WHICH THE ASSESSE COULD NOT PRESENT HIMSELF BEFORE THE AO AND, THAT THE ASSESSMENT SHOULD BE SET ASIDE. THE CIT, PASSED TH E ORDER U/S 264 SETTING ASIDE THE ORIGINAL ASSESSMENT WITH A DIRECT ION TO THE AO TO REDO THE ASSESSMENT AFTER AFFORDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. DURING THE ASSESSMENT PROCEEDING U/S 158 BC(C) R.W.S 264 OF THE INCOME-TAX ACT, THE AO HAD RECONSIDERED THE ISSUE AND FOUND THAT IN CASE OF THE ASSESSEE IT WAS NECESSARY TO GE T ITS ACCOUNTS AUDITED IN TERMS OF THE PROVISIONS CONTAINED U/S 142(2A) OF THE INCOME-TAX ACT. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE ACCOUNTS SHOULD NOT BE AUDITED U/S 142(2A) AND THE ASSESSEE FILED ITS OBJECTIONS. THE AO REJECTED THE OBJECTIONS OF THE A SSESSEE AND AFTER IT(SS)A NOS.1 & 2/H/13 8 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 GETTING APPROVAL FROM THE CIT, (CENTRAL) ON 24/12 /2007, THE ACCOUNTS WERE GOT AUDITED BY M/S KARVY AND CO., CHARTERED A CCOUNTANTS, HYDERABAD. M/S KARVY & CO. SUBMITTED ITS AUDIT REP ORT STATING THAT NO PROPER BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED BY THE ASSESSEE AND THAT THE CASH RECEIPTS SHOWN IN THE RECEIPT BO OK DO NOT TALLY WITH THOSE SHOWN IN THE CASH BOOK AND COULD NOT BE RECON CILED WITH THE BANK STATEMENTS AND, THEREFORE, THEY WERE UNABLE TO VERIFY THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET OF THE ASSESSEE IN THE ABSENCE OF PROPER BOOKS OF ACCOUNTS LIKE CASH BOOK, GENERAL LE DGER AND NECESSARY EVIDENCES. TAKING NOTE OF THE ABOVE FINDING OF THE AUDIT REPORT, THE AO THEREAFTER PROCEEDED TO EXAMINE THE RECEIPTS OF RS.34,51,94,177/- CREDITED IN THE CURRENT ACCOUNT NO.CA/1531 MAINTAIN ED BY THE ASSESSEE WITH ALLAHABAD BANK, SECUNDERABAD. HE OBS ERVED THAT AS AGAINST THESE RECEIPTS, THE ASSESSEE ADMITTED RECE IPT OF RS.31,90,15,834/-IN THE PROFIT AND LOSS ACCOUNT FOR THE ASSESSMENT YEAR 2003-04 TOWARDS CONSULTANCY FEE, DATA ENTRY RE CEIPTS AND FEE RECEIPTS. HE OBSERVED THAT THE ASSESEE HAS ALSO RE CONCILED THE BANK ACCOUNT AND EXPLAINED THE CHEQUES DISHONOURED, CASH DEPOSITS INTO BANK AND REFUND MADE ON ACCOUNT OF CANCELLATION OF AGREEMENTS AND ARRIVED AT A DIFFERENCE OF RS.1,27,460/- AS PER THE STATEMENT OF ACCOUNTS AND AS PER THE BANK STATEMENT. THE AO FUR THER OBSERVED THAT IT(SS)A NOS.1 & 2/H/13 9 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 THE ASSESSEE HAS CLAIMED LOSS OF RS.47,80,881/- FOR THE ASSESSMENT YEAR 2003-04 AGAINST THE RECEIPTS OF RS.31,90,15,83 4/-FALLING IN THE BLOCK PERIOD AND FOR WORKING OUT THIS LOSS, THE ASS ESSEE HAD DEBITED VARIOUS AMOUNTS UNDER DIFFERENT HEADS CLAIMING THE SAME AS EXPENDITURE INCURRED FOR THE PURPOSES OF BUSINESS. THE AO HAS CULLED OUT THE DETAILS OF THE EXPENDITURE CLAIMED B Y THE ASSESSEE AT PARA 9.3 OF HIS ORDER. THEREAFTER, THE AO HELD THA T THE ASSESSEE HAS FAILED TO EXPLAIN THE NATURE OF ABOVE DEBITS AND AL SO FAILED TO EXPLAIN THE BUSINESS NATURE OF THE EXPENDITURE. HE, THEREF ORE, DISALLOWED THE ENTIRE DEBITS CLAIMED BY THE ASSESSEE. FURTHER, HE ALSO HELD THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVE WITH NECESSARY EVIDENCES THE CLAIM OF EXPENDITURE AND, THEREFORE, SUCH CLAIM CAN NOT BE ENTERTAINED. HE, ACCORDINGLY, DISALLOWED THE SAME AND ESTIMATED THE PROFIT @ 40% OF THE TOTAL RECEIPTS FOR THE BLOCK PERIOD AND ARRI VED AT THE GROSS PROFIT AT RS.13,39,49,394/-. THEREAFTER, HE PROCEEDED TO CONSIDER THE EXPENDITURE INCURRED BY THE ASSESSEE FOR PURCHASE O F BOOKS AS CAPITAL EXPENDITURE AND HELD THE BOOKS TO BE ASSETS AND ALL OWED DEPRECIATION @ 50% THEREON FOR THE ASSESSMENT YEAR 2003-04 AND T HE DEPRECIATION AS CLAIMED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 1999-2000 TO 2002-03 AND ARRIVED AT THE TOTAL UNDISCLOSED INCOME OF RS.11,19,27,240/-. IT(SS)A NOS.1 & 2/H/13 10 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 6. AGGRIEVED BY THE SAME, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO ALLOWED THE SAME BY HOLDING THAT TH E RECORDS SEIZED BY THE SEARCH PARTIES WERE REGULAR RECORDS MAINTAIN ED BY THE ASSESSEE AND ALSO THAT THE RECEIPTS TAKEN INTO ACCOUNT BY TH E AO AS INCOME FOR THE BLOCK PERIOD WAS IN FACT THE RECEIPTS WHICH WE RE DISCLOSED IN THE BOOKS OF ACCOUNTS AS WELL AS IN THE BANK ACCOUNT OF THE ASSESSEE, AS ALL THE TRANSACTIONS WERE THROUGH BANKING CHANNELS. HE FURTHER HELD THAT THE EXPENDITURE INCURRED FOR THE PURCHASE OF BOOKS WAS REVENUE EXPENDITURE, AS THE ASSESSEE HAD TO PURCHASE BOOKS FROM WHICH SOFT COPIES WERE TO BE MADE AND FOR THE SPEEDY EXECUTIO N OF THE WORK, DIFFERENT PAPERS IN THE BOOKS WERE DISTRIBUTED TO D IFFERENT SUB CONTRACTORS FOR CONVERSION, THEREBY RESULTING IN T HE BOOKS GETTING DISMEMBERED AND ARE OF NO MORE USE TO THE ASSESSEE THEREAFTER. HE, THEREFORE, HELD THAT THE ENTIRE EXPENDITURE HAD TO BE ALLOWED IN FULL. HE, THEREFORE, SET ASIDE THE ADDITION MADE BY THE A O. 7. AGGRIEVED BY THE RELIEF GIVEN BY THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US, WHILE THE ASSESSEE IS IN APPEAL B EFORE US RAISING THE LEGAL GROUNDS THAT THE ORDER PASSED BY THE AO U/S 1 43(3) R.W.S 158BC AND R.W.S 264 IS UNSUSTAINABLE IN LAW AS THE AO DID NOT TAKE PRIOR APPROVAL OF THE ADDITIONAL CIT, AS REQUIRED U/S 158 BG OF THE INCOME- IT(SS)A NOS.1 & 2/H/13 11 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 TAX ACT BEFORE PASSING THE ASSESSMENT ORDER AND ALS O THAT THE CIT(A) HAS FAILED TO APPRECIATE THAT THERE IS NO INCRIMINA TING MATERIAL AGAINST THE ASSESSEE FOR INVOKING THE JURISDICTION UNDER TH E PROVISIONS OF SEC. 158BC OF THE INCOME-TAX ACT. 8. WHEN THE ISSUE HAD COME UP BEFORE US ON THE EARL IER DATE OF HEARING, WE HAD DIRECTED THE LEARNED DR TO VERIFY I F THE RELEVANT APPROVAL WAS OBTAINED BY THE AO AND IF YES, TO PROD UCE THE SAME BEFORE US. DURING THE COURSE OF HEARING ON 31/10/2 013, THE LEARNED DR HAS PRODUCED THE COPY OF THE APPROVAL AND IT IS SEEN THERE FROM THAT THE RELEVANT APPROVAL AS REQUIRED U/S 158BG HA S BEEN OBTAINED. THEREFORE, THE LEGAL GROUND RAISED BY THE ASSESSEE DOES NOT SURVIVE AND HENCE REJECTED. 9. SECOND LEGAL GROUND TAKEN BY THE ASSESSEE, IS AS REGARDS THE QUESTION AS TO WHETHER ANY INCRIMINATING MATERIAL W AS FOUND DURING THE COURSE OF SEARCH FOR INITIATING PROCEEDINGS U/S 158BC OF THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE HAD SUBMI TTED THAT ALL THE RECEIPTS CONSIDERED BY THE AO WERE THE RECEIPTS WHI CH WAS REFLECTED IN THE ASSESSEES BANK ACCOUNT AND THEREFORE CANNOT BE CONSIDERED AS UNDISCLOSED INCOME AND THE AO INSTEAD OF COMPUTING THE INCOME ON IT(SS)A NOS.1 & 2/H/13 12 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 THE BASIS OF SAID MATERIAL HAS ONLY ESTIMATED THE I NCOME ON THE BASIS OF THE RECEIPTS REFLECTED IN THE BANK ACCOUNT AND H ENCE IT IS CLEAR THAT THERE WAS NO INCRIMINATING MATERIAL FOR INVOKING TH E JURISDICTION U/S 158BC OF THE INCOME-TAX ACT. 10. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED TH AT THE ASSESSEE HAD NOT MAINTAINED ANY BOOKS OF ACCOUNT AND THIS FA CT WAS BROUGHT TO LIGHT DURING THE COURSE OF SEARCH AND EVEN THE SPL. AUDIT REPORT OF M/S KARVI AND CO., REVEALS THAT THE ASSESSEES BOOKS OF ACCOUNTS WERE NOT RELIABLE AND, THEREFORE, THE ASSESSEE WAS NOT DISCL OSING ITS CORRECT INCOME AND THE JURISDICTION U/S 158BC WAS CORRECTLY INVOKED. 11. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THEIR RIVAL CONTENTIONS, WE FIND THAT THERE WAS A SEARCH IN THE OFFICE AS WELL RESIDENTIAL PREMISES OF THE PARTNERS OF THE ASSESSE E AND IT WAS FOUND THAT THE ASSESSEE WAS NOT MAINTAINING PROPER BOOKS OF ACCOUNTS AND HAS NOT DISCLOSED THE CORRECT INCOME. IN FACT THE PARTNERS ADMITTED TO THE SAME DURING THE COURSE OF SEARCH IN THEIR SWOR N STATEMENTS. FOR INVOKING THE JURISDICTION U/S 158BC OF THE IT ACT, THERE SHOULD HAVE BEEN A SEARCH CONDUCTED U/S 132 OR BOOKS OF ACCOUNT AND OTHER DOCUMENTS OR ASSETS SHOULD HAVE BEEN REQUISITIONED U/S 132A. IN IT(SS)A NOS.1 & 2/H/13 13 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 SUCH CIRCUMSTANCES, AO SHALL SERVE A NOTICE U/S 158 BC OF THE ACT, ON SUCH PERSON REQUIRING HIM TO FURNISH WITHIN THE SPE CIFIED TIME, RETURN SETTING FORTH HIS TOTAL INCOME INCLUDING THE UNDISC LOSED INCOME FOR THE BLOCK PERIOD. THE TERM UNDISCLOSED INCOME HAS BE EN DEFINED U/S 158B(B) OF THE IT ACT TO INCLUDE ANY INCOME WHICH H AS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSES OF T HIS ACT OR ANY EXPENSE, DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS ACT WHICH IS FOUND TO BE FALSE. THUS, THE AO SHOULD BE SATISFIE D THAT THE ASSESSEE HAS NOT OR WOULD NOT DISCLOSE ITS CORRECT INCOME BU T FOR THE SEARCH. IN THE CASE BEFORE US, THE ASSESSEE HAS NOT ONLY NOT M AINTAINED PROPER BOOKS OF ACCOUNTS BUT HAS ALSO DURING THE COURSE OF SEARCH IN THE SWORN STATEMENT ADMITTED TO NOT DISCLOSING THE PROP ER AND CORRECT INCOME. THEREFORE, IN SUCH A SCENARIO, WE ARE OF T HE OPINION THAT THE AO HAS RIGHTLY INVOKED THE JURISDICTION U/S 158BC O F THE INCOME-TAX ACT. THEREFORE, THIS GROUND OF APPEAL OF THE ASSES SEE IS REJECTED. 12. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. IT(SS)A NOS.1 & 2/H/13 14 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 13. AS FAR AS THE REVENUE APPEAL IS CONCERNED, WE F IND THAT THE ADDITIONS MADE BY THE AO ARE ON THE BASIS OF THE EN TRIES MADE IN THE CURRENT ACCOUNT MAINTAINED WITH ALLAHABAD BANK. TH E AO HAS NOT ACCEPTED THE ASSESSEES CONTENTION OF THE EXPENDITU RE CLAIMED BY IT SUCH AS CONSULTANCY FEE, REFUND TO SUB CONTRACTORS AND THE EXPENDITURE INCURRED FOR PURCHASE OF BOOKS ETC. UN DISPUTEDLY, THE WORK OF THE ASSESSEE WAS DATA CONVERSION AND FOR TH IS PURPOSE, THE ASSESSEE HAD TO PURCHASE VARIOUS BOOKS WHICH HAVE TO BE CONVERTED INTO SOFT COPIES AND HAD ALSO TO PAY TO THE SUB-CON TRACTORS FOR THE WORK COMPLETED BY THEM. IT IS ALSO NOT DISPUTED THAT T HE ASSESSEE HAD TO DISTRIBUTE VARIOUS PAGES OF THE BOOKS TO VARIOUS S UB CONTRACTORS FOR SPEEDY COMPLETION OF THE WORK AND IN SUCH A CASE, T HE BOOKS HAD TO BE DIVIDED INTO VARIOUS PORTIONS AND, THEREFORE, THE B OOKS WOULD NOT BE OF ANY USE TO THE ASSESSEE AFTER THE CONVERSION. I N SUCH A CASE, IT IS NOT UNDERSTANDABLE AS TO HOW THE EXPENDITURE INCURR ED FOR THE PURCHASE OF BOOKS CAN BE CONSIDERED AS CAPITAL EXPE NDITURE AND THE BOOKS BE HELD TO BE ASSETS. WE AGREE WITH THE FIN DING OF THE CIT(A) THAT THE EXPENDITURE FOR CONSUMABLES HAS TO BE ALL OWED AS REVENUE EXPENDITURE. UNDER SECTION 158BC OF THE INCOME-TAX ACT, ONLY THE INCOME WHICH IS NOT DISCLOSED BY THE ASSESSEE IN TH E REGULAR BOOKS OF ACCOUNTS OR REGULAR RETURNS OF INCOME CAN BE TREATE D AS UNDISCLOSED IT(SS)A NOS.1 & 2/H/13 15 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 INCOME OF THE ASSESSEE. IT IS THE CONTENTION OF TH E ASSESSEE THAT THE ASSESSEE IS MAINTAINING REGULAR BOOK OF ACCOUNTS AN D HAS BEEN FILING REGULAR RETURNS OF INCOME TILL THE ASSESSMENT YEAR 2002-03 AND ASSESSMENTS HAVE BEEN COMPLETED REGULARLY. BUT THE ASSESSEE HAS NOT FILED ANY EVIDENCE IN SUPPORT OF THIS CONTENTION EV EN BEFORE US AND HENCE IT CANNOT BE ACCEPTED TO BE TRUE AND CORRECT. 14. FURTHER, THE LEARNED COUNSEL FOR THE ASSESSEE H AS PLACED RELIANCE UPON THE FOLLOWING DECISIONS IN SUPPORT OF HIS CONT ENTION THAT THE CASH DEPOSITS WHICH WERE RECORDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS REGULARLY MAINTAINED BY IT COULD NOT BE TREATED AS UNDISCLOSED INCOME WITHIN THE MEANING OF SEC. 158B(B) OF THE INCOME-TA X ACT. 1. CIT VS. J.M.D INTERNATIONAL REPORTED IN (2009) 179 TAXMAN 253 (DEL) 2. CIT V S. PREMNATH REPORTED IN (2008) 214 CTR 51 ( DEL) 15. WE FIND THAT THE HONBLE DELHI HIGH COURT IN TH E CASE OF JMD INTERNATIONAL (CITED SUPRA) WAS CONSIDERING THE CAS E OF THE ASSESSEE WHO WAS FOUND TO HAVE RECORDED THE CASH DEPOSITS IN ITS BOOKS OF ACCOUNT REGULARLY MAINTAINED AND THE RETURNS PREPAR ED ON THE BASIS OF IT(SS)A NOS.1 & 2/H/13 16 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 SAID BOOKS OF ACCOUNT FOR THE ASSESSMENT YEARS 1999 -2000 TO 2001-02 AND WERE FILED MUCH PRIOR TO THE SEARCH AND IN SUCH CIRCUMSTANCES, IT WAS HELD THAT THE CASH DEPOSITS COULD NOT BE TREATE D AS UNDISCLOSED INCOME. IN THE CASE BEFORE US, THE ASSESSEE HAS CL AIMED TO HAVE MAINTAINED REGULAR BOOKS OF ACCOUNTS AND FILED RETU RNS REGULARLY REFLECTING THE INCOME BUT THE AO HAS NOT EXAMINED T HIS CLAIM OF THE ASSESSEE. IF THE RECEIPTS WERE REFLECTED IN THE RE GULAR RETURNS OF THE RELEVANT ASSESSMENT YEARS FALLING IN THE BLOCK PERI OD, THEN THEY CANNOT BE CONSIDERED AS UNDISCLOSED INCOME OF THE ASSESSEE FOR THE BLOCK PERIOD. BUT EVEN BEFORE US, THE ASSESSEE HAS FAILE D TO FILE ANY DOCUMENTS IN SUPPORT OF ITS CLAIM OF FILING RETURNS REGULARLY FOR THE RELEVANT ASSESSMENT YEARS. THEREFORE, AO HAD NO OT HER ALTERNATIVE BUT TO PROCEED TO COMPUTE THE UNDISCLOSED INCOME ON THE BASIS OF MATERIAL AVAILABLE WITH HIM. BUT AS HELD BY US ABOVE, THE E NTIRE RECEIPTS CANNOT BE CONSIDERED AS THE INCOME OF THE ASSESSEE. IF THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THE CLAIM OF EXPENDITURE , THE AO OUGHT TO HAVE ALLOWED REASONABLE EXPENDITURE. BUT HIS ESTIM ATION OF PROFIT AT 40% OF THE RECEIPTS SEEMS TO BE HIGH. THE AO OUGHT TO HAVE CONSIDERED AND BROUGHT ON RECORD COMPARABLE CASES T O ESTIMATE THE INCOME. THEREFORE, WE SET ASIDE THE ISSUE TO THE F ILE OF THE AO WITH A IT(SS)A NOS.1 & 2/H/13 17 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 DIRECTION TO RECOMPUTE THE UNDISCLOSED INCOME AFTER TAKING THE COMPARABLE CASES INTO CONSIDERATION. 21. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ITA 1033/HYD/2012 : 22. THE ASSESSEE HAD NOT FILED RETURN OF INCOME FOR THE REMAINING PERIOD I.E FROM 31/1/2003 TO 31/3/2003 FOR THE ASST . YEAR 2003-04. THEREFORE, THE AO ISSUED A NOTICE U/S 148 OF THE I NCOME-TAX ACT TO THE ASSESSEE CALLING FOR A RETURN OF INCOME FOR THE NEXT SUCCEEDING PERIOD I.E FROM 31/1/2003 TO 31/3/2003 RELEVANT TO THE ASSESSMENT YEAR 2003-04 WHICH WAS DULY SERVED ON THE MANAGING PARTN ER. THE ASSESSEE DID NOT FILE THE RETURN IN RESPONSE TO TH E NOTICE U/S 148 OF THE IT ACT. THE AO, THEREFORE, ISSUED NOTICE U/S 142(2 ) CALLING FOR BOOKS OF ACCOUNTS, AUDITED ACCOUNTS AND OTHER DOCUMENTS M AINTAINED FOR COMPLETION OF THE ASSESSMENT. IN RESPONSE THERETO, THE ASSESSEE FILED A RETURN OF INCOME ADMITTING TOTAL LOSS OF RS.5,11,84 1/-. THE MANAGING PARTNER ALSO FILED A LETTER STATING THAT HE WAS NOT IN A POSITION TO FURNISH ANY DOCUMENTS MAINTAINED BY THE ASSESSEE FOR THE RE LEVANT PERIOD. IT(SS)A NOS.1 & 2/H/13 18 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 IT WAS SUBMITTED THAT THE ASSESSEE PREPARED THE FI NANCIAL STATEMENT AND THE RETURN OF INCOME ON THE BASIS OF ENTRIES IN ITS BANK ACCOUNT MAINTAINED WITH ALLAHABAD BANK AND HAS FILED IT BEF ORE THE AO. THE AO COMPLETED THE ASSESSMENT U/S 144 R.W.S 148 OF TH E INCOME-TAX ACT FOR THE ASSESSMENT YEAR 2003-04. WHILE CONCLUDING THE ASSESSMENT, THE AO DISALLOWED THE LOSS CLAIMED BY THE ASSESSEE IN TOTO AND ESTIMATED THE ASSESSEES INCOME FOR THE BROKEN PERI OD FOR THE ASSESSMENT YEAR 2003-04 BY TREATING THE ENTIRE RECE IPTS AS PER THE BANK ACCOUNTS MAINTAINED BY THE ASSESSEE IN ALLAHABAD BA NK DURING THIS PERIOD AS ITS INCOME . THUS, THE TOTAL INCOME FOR THE PERIOD 31/1/2003 TO 31/3/2003 IN THE CASE OF M/S VINSREE I NFOTECH WAS COMPUTED AT RS.14,42,605/- AND A DEMAND OF TAX OF R S.13,54,464/- WAS RAISED INCLUDING THE INTEREST U/S 234A AND 234 B OF THE INCOME- TAX ACT. 23. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT(A) EXPLAINING THAT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD OBTAINED THE DATA ENTRY WORK FROM CERTAIN AGENTS O F THE FOREIGN COMPANIES IN INDIA AND FOR PROVIDING THE WORK, THE ASSESSEE HAD TO COMPENSATE THE INTERMEDIARIES IN THE FORM OF CONSU LTANCY FEE. IT WAS SUBMITTED THAT THE ASSESSEE HAD ENTERED INTO AGREE MENTS WITH THE IT(SS)A NOS.1 & 2/H/13 19 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 INTERMEDIARIES WHICH WERE ALSO FOUND AND SEIZED BY THE DEPARTMENT DURING THE COURSE OF SEARCH AND, THEREFORE, PAYMENT S MADE TOWARDS CONSULTANCY FEE THROUGH ACCOUNT PAYEE CHEQUES/DDS ARE REFLECTED IN THE ASSESSEES CURRENT ACCOUNT MAINTAINED WITH ALLA HABAD BANK AND THAT IT REPRESENTS ITS EXPENDITURE AND SHOULD BE AL LOWED AS SUCH. THE CIT(A) HAD CONSIDERED THE CONTENTIONS OF THE ASSESS EE WHICH ARE REPRODUCED IN CIT(A)S ORDER AT PARAGRAPH 4.2.1 A ND HELD THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE UNDER THE CU STODY OF THE AO WHEN HE DETERMINED THE INCOME OF THE ASSESSEE FOR T HE ASSESSMENT YEAR 2003-04, BUT THE AO NEVER BOTHERED TO COMPUTE THE INCOME AS PER THE BOOKS OF ACCOUNTS BUT COMPUTED IT BY TREAT ING THE RECEIPTS AS INCOME ON THE GROUND THAT THE ASSESSEE HAS NOT FIL ED THE DETAILS. HE HELD THAT THERE IS A FUNDAMENTAL MISTAKE IN THE SEN SE THAT THE FIRST BANK ACCOUNT IS IN RESPECT OF THE CORPORATE BODY OF THE GROUP, WHEREAS THE LATTER IS THE BANK ACCOUNT OF THE ASSESSEE FIRM IN WHICH THE CREDITS WERE TO THE EXTENT OF RS.15,000/- AND IN SPITE OF HAVING THE CUSTODY OF BOOKS OF THE ASSESSEE AO FAILED TO EXAMINE THE BOOKS OF ACCOUNT AND CULL OUT THE EXPENSES AS PER THE BOOKS AND HENC E COMPUTATION OF INCOME BY THE AO IS WITHOUT ANY BASIS. HE, THEREFO RE, HELD THAT THE INCOME COMPUTED BY THE AO CANNOT BE SUSTAINED AND H E THUS DELETED THE ADDITION MADE BY THE AO. IT(SS)A NOS.1 & 2/H/13 20 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 24. AGGRIEVED BY THE RELIEF GIVEN BY THE CIT(A), TH E REVENUE IS IN APPEAL BEFORE US. 25. THE LEARNED DR, WHILE SUPPORTING THE ORDER THE AO, SUBMITTED THAT THE CIT(A) ALSO HAS NOT VERIFIED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND HAS SET ASIDE THE ADDITIONS WITHOUT AN Y BASIS. HE SUBMITTED THAT THE ASSESSEE HAS MADE THE CLAIM OF E XPENDITURE BUT HAS FAILED TO PROVIDE ANY DOCUMENTARY EVIDENCE IN SUPPO RT OF ITS CLAIM AND THE CIT(A) HAS BLINDLY ACCEPTED THE CONTENTIONS OF THE ASSESSE WITHOUT ANY DOCUMENTARY EVIDENCE IN PROOF THEREOF. THUS, ACCORDING TO HIM, THE ORDER OF THE CIT(A) IS LIABLE TO THE S ET ASIDE AND THE ORDER OF THE AO IS TO BE RESTORED. 26. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, SUPPORTED THE ORDER OF THE CIT(A) AND SUBMITTED THA T THE LOSS CLAIMED BY THE ASSESSEE WAS DISALLOWED BY THE AO ON THE GRO UND THAT THE ASSESSEE HAS FAILED TO PRODUCE DOCUMENTARY EVIDENCE IN SUPPORT THEREOF. HE SUBMITTED THAT THE DOCUMENTS IN EVIDEN CE OF THE LOSS CLAIMED BY THE ASSESSEE WERE IN THE CUSTODY OF THE AO THROUGHOUT THE PERIOD I.E EVEN DURING THE ASSESSMENT PROCEEDINGS AND IN SPITE OF REPEATED REQUESTS BY THE ASSESSEE, THE ASSESSING O FFICER FAILED TO IT(SS)A NOS.1 & 2/H/13 21 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 CONSIDER THE SAME AND HAS CONSIDERED THE ENTIRE REC EIPTS AS ASSESSEES INCOME WITHOUT TAKING INTO CONSIDERATION THE EXPEND ITURE INCURRED BY THE ASSESSEE FOR EARNING THOSE RECEIPTS. THUS, ACC ORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE CIT(A) HAS RIGHTLY DE LETED THE ADDITION. 27. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS, WE FIND THAT THE BASIS FOR MAKING THE ADDITION IS THE CREDITS IN THE ASSESSEES ACCOUNT IN ALLAHABAD BANK ACCOUNTS BEARING NO.SB 7494 AND CA 1531 DURING THE BROKEN PERIOD I. E FROM 31/1/2002 TO 31/3/2003. IT IS SETTLED POSITION OF LAW THAT WHEN THE ASSESSEE MAKES A CLAIM OF EXPENDITURE, THE BURDEN I S ON THE ASSESSEE TO PROVE ITS CLAIM WITH NECESSARY EVIDENCE. WE FIN D THAT IT IS NOT IN DISPUTE THAT THE AGREEMENTS OF THE ASSESSEE WITH TH E PRINCIPLES AS WELL AS THE SUB-CONTRACTORS WERE SEIZED DURING THE COUR SE OF SEARCH. THE STAND OF THE ASSESSEE HAS BEEN THAT THESE DOCUMENTS WERE THE EVIDENCE IN PROOF OF NECESSITY TO MAKE THE PAYMENTS MADE BY THE ASSESSEE AND WERE IN THE CUSTODY OF THE ASSESSING OFFICER. TH EREFORE, THE ASSESSEES CONTENTION THAT IT WAS RIGHTLY PREVENTE D FROM FURNISHING NECESSARY EVIDENCE BEFORE THE AO IN PROOF OF THE EX PENDITURE CLAIMED BY IT IS CORRECT. IN SUCH CIRCUMSTANCES WHAT IS TH E PROCEDURE TO BE ADOPTED BY THE AO. IF THERE IS NO MATERIAL IN HIS CUSTODY AND THE IT(SS)A NOS.1 & 2/H/13 22 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 ASSESSEE DOES NOT PRODUCE ANY EVIDENCE, THEN THE AO MAY PROCEED TO COMPLETE THE ASSESSMENT ACCORDING TO HIS BEST JUDGM ENT U/S 144 OF THE INCOME-TAX ACT. IT IS ALSO SETTLED POSITION OF LAW THAT THE AO HAS TO COMPUTE THE INCOME OF THE ASSESSEE IN ACCORDANCE WI TH LAW. IF THE ASSESSEE FAILS TO PROVE ITS CLAIM, THE AO HAS TO M AKE THE ASSESSMENT ON THE BASIS OF THE MATERIAL AVAILABLE WITH HIM. HOWEVER, WE DO NOT AGREE WITH THE VIEW TAKEN BY THE CIT(A) THAT THE EN TIRE ADDITION HAS TO BE DELETED BECAUSE THE AO HAS NOT LOOKED INTO THE M ATERIAL AVAILABLE WITH HIM. THE INCOME OF THE ASSESSEE NOT ONLY CONS TITUTES THE RECEIPTS BUT ALSO THE EXPENDITURE INCURRED BY THE A SSESSEE FOR EARNING THOSE RECEIPTS. THEREFORE, IN OUR OPINION, THE AO OUGHT TO HAVE BEEN DIRECTED TO EXAMINE THE BOOKS OF ACCOUNTS OF THE AS SESSEE FOR THE RELEVANT PERIOD WHICH HAVE BEEN PREPARED BY THE ASS ESSEE ON THE BASIS OF THE ENTRIES IN THE BANK ACCOUNT AND AFTER CONSID ERING THE REASONABLENESS OF SUCH CLAIM OF EXPENDITURE, COMPU TE THE INCOME IN ACCORDANCE WITH LAW. IN VIEW OF THE SAME, WE SET A SIDE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO RE-COMPUTE T HE INCOME OF THE ASSESSEE AFTER EXAMINING THE BOOKS OF ACCOUNTS OF T HE ASSESSEE AND THE EXPENDITURE RELATING TO THE SAID RECEIPTS. IT(SS)A NOS.1 & 2/H/13 23 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 28. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 29. IN IT(SS) NO.1/H/2013 & IT(SSA)A NO.8/H/2012 IN THE CASE OF M/S SHANMUKHA INTERNATIONAL TECHNOLOGY AND ENABL ED SERVICES PVT. LTD., (M/S SITES) PVT. LTD., FOR THE BROKEN PE RIOD 31/1/2003 TO 31/3/2003 RELEVANT TO THE ASSESSMENT YEAR 2003-04, 30. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY WAS INCORPORATED ON 19/9/2002 TO CARRY ON BUSINESS IN S OFTWARE DEVELOPMENT, TRAINING AND CONSULTANCY SERVICES. TH E BUSINESS COMMENCED ON 1/1/2003. SHRI SURESH IS THE MANAGING DIRECTOR AND HIS WIFE AND DAUGHTER ARE THE DIRECTORS. SHRI SURE SH IS ALSO A PARTNER IN M/S VINSREE INFOTECH. THIS COMPANY WAS FORMED T O CARRY OUT THE DATA ENTRY WORK AND RECEIVED WORK ORDERS FROM INDIA N INTERMEDIATORS OF FOREIGN CONCERNS. THE ASSESSEE HAD TO PAY CONSU LTANCY FEE TO THE PRINCIPALS FOR PROVIDING THE WORK AND THE PRINCIPAL S PAY THE ASSESSEE FOR THE DATA ENTRY WORK DONE BY IT, PERIODICALLY AT AGREED RATES. IN ORDER TO COPE UP WITH THE WORK AND DELIVER THE FINI SHED PRODUCT ON TIME TO THE PRINCIPALS, THE ASSESSEE ENGAGED THE SE RVICES OF QUALIFIED TECHNICAL PERSONS REFERRED TO AS SUB-CONTRACTORS AND COLLECTED FROM IT(SS)A NOS.1 & 2/H/13 24 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 THEM NON-REFUNDABLE DEPOSITS WHICH NORMALLY VARIED BETWEEN 2 LAKHS TO 2.5 LAKHS. FOR THE WORK DONE BY THE SUB-CONTRAC TORS, THE ASSESSEE MADE THE PAYMENTS. DURING THE SEARCH CONDUCTED IN THE PREMISES OF M/S VINSREE INFOTECH AND ALSO THE ASSESSEE HEREIN O N 30/1/2003, VARIOUS INFORMATION AND DETAILS WERE COLLECTED BY T HE SEARCH PARTY AND IT WAS FOUND THAT THE ASSESSEE WAS NOT MAINTAINING PROPER BOOKS OF ACCOUNT. THEREFORE, THE ASSESSING OFFICER INITIATE D PROCEEDINGS U/S 158BC AND MADE HUGE ADDITIONS. THE ASSESSEE THEREA FTER FILED AN APPLICATION U/S 264 DETAILING THE REASONS FOR NON-A PPEARANCE OF THE ASSESSEE BEFORE THE AO AND AFTER BEING SATISFIED WI TH THE REASONS FURNISHED BY THE ASSESSEE, THE CIT DIRECTED THE AO TO REDO THE ASSESSMENT AFTER GIVING THE ASSESSEE ANOTHER OPPORT UNITY. DURING THE PROCEEDINGS U/S 158BC R.W.S 264 AND 144 OF THE INCO ME-TAX ACT, THE AO OBSERVED THAT THE ASSESSEE HAS SHOWN RECEIPTS TO THE TUNE OF RS.10,15,025/-, DURING THE RELEVANT PERIOD. SINCE THE ASSESSEE DID NOT MAINTAIN ANY BOOKS OF ACCOUNT, SPECIAL AUDIT U/S 1 42(2A) OF THE INCOME-TAX ACT WAS DIRECTED AFTER CONSIDERING THE A SSESSEES OBJECTIONS AND THE AUDIT WAS DONE BY THE M/S KARVY AND CO., CHARTERED ACCOUNTANTS HYDERABAD. THE ASSESSING OFF ICER AFTER CONSIDERING THE FINDINGS IN THE AUDIT REPORT, OBSER VED THAT THE ASSESSEE MAINTAINED CURRENT ACCOUNT BEARING NO.CA/3311 WITH ALLAHABAD IT(SS)A NOS.1 & 2/H/13 25 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 BANK, S.D ROAD BRANCH AND AS PER THE INFORMATION OB TAINED FROM THE ASSESSEE, THE ASSESSEE HAD RECEIVED A SUM OF RS.12, 48,81,281/- AND AS AGAINST THIS HAS CLAIMED A LOSS OF RS.12,74,025/- FOR THE ASSESSMENT YEAR 2003-04 FALLING IN THE BLOCK PERIOD. HE OBSER VED THAT FOR WORKING OUT THIS LOSS, THE ASSESSEE HAD DEBITED VAR IOUS AMOUNTS UNDER DIFFERENT HEADS AS EXPENDITURE INCURRED FOR THE PUR POSE OF BUSINESS WHICH TOTALED TO RS.12,61,55,306/-. HE OBSERVED TH AT THE ASSESSEE HAS NO EVIDENCE IN SUPPORT OF THE CLAIMS MADE IN THE PR OFIT AND LOSS ACCOUNT PREPARED ON THE BASIS OF THE BANK ENTRIES AND DISALLOWED THE SAID CLAIM. HE ACCORDINGLY BROUGHT 40% OF THE TOTA L RECEIPTS AS INCOME OF THE ASSESSEE FOR THE RELEVANT BLOCK PERIO D AFTER ALLOWING THE DEPRECIATION ON THE BOOKS PURCHASED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04. 31. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT(A) WHO DELETED THE ADDITION AND THE REVENUE IS IN APPE AL BEFORE US. 32. THE LEARNED DR SUPPORTED THE ORDER OF THE AO WH ILE THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDE R OF THE CIT(A). IT(SS)A NOS.1 & 2/H/13 26 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 33. AS FAR AS THE CASE OF M/S SITES IS CONCERNED, W E FIND THAT THE ASSESSEE COMPANY COMMENCED ITS BUSINESS FROM 1/1/20 03 AND THE SEARCH WAS CONDUCTED ON 30/1/2003. THEREFORE, IT I S THE FIRST MONTH OF BUSINESS AND HENCE, THE ASSESSE COULD NOT MAINTAIN CASH BOOK AND LEDGER BUT THE ASSESSEE HAD ISSUED ACKNOWLEDGMENT F OR ALL THE BUSINESS RECEIPTS AND REMITTED THE CHEQUES/DDS CASH RECEIVED INTO CURRENT ACCOUNT MAINTAINED WITH ALLAHABAD BANK (CIT ED SUPRA). THE CIT(A) HAD OBSERVED AT PAGE 11 OF HIS ORDER THAT T HE THE RECEIPTS ISSUED WERE IN FACT SEIZED DURING THE COURSE OF SEA RCH AND THAT ALL THE PAYMENTS FOR BUSINESS EXPENDITURE WERE MADE THROUGH ACCOUNT PAYEE CHEQUES FROM THE BANK ACCOUNT. THEREFORE, WE FIND THAT THE ASSESSEE HAS MAINTAINED THE DOCUMENTS IN THE NORMAL COURSE O F ITS BUSINESS. SECTION 158BA(3) PROVIDES THAT WHERE THE ASSESSEE P ROVES TO THE SATISFACTION OF THE AO THAT ANY PART OF THE INCOME REFERRED TO IN SUB SEC. (1) THEREOF RELATES TO THE ASSESSMENT YEAR FOR WHICH THE PREVIOUS YEAR HAS NOT ENDED OR THE DATE OF FILING THE RETURN OF INCOME UNDER SUB SEC. (1) OF SEC. 139 FOR ANY PREVIOUS YEAR HAS NOT EXPIRED AND SUCH INCOME OR THE TRANSACTIONS RELATING TO SUCH INCOME ARE RECORDED ON OR BEFORE THE DATE OF SEARCH OR REQUISITION IN THE BOO KS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE REL ATING TO SUCH PREVIOUS YEARS, THE SAID INCOME SHALL NOT BE INCLU DED IN THE BLOCK IT(SS)A NOS.1 & 2/H/13 27 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 PERIOD. IN THE CASE BEFORE US, THE PREVIOUS YEAR R ELEVANT TO THE PERIOD OF SEARCH HAD NOT ENDED AND THE ASSESSEES INCOME I S RECORDED IN THE DOCUMENTS MAINTAINED WITH THE BANK. THEREFORE, IN OUR OPINION, THE PROVISION OF SUB SEC. (3) OF SEC. 158BA IS VERY MUC H APPLICABLE. THE RELIANCE OF THE ASSESSEE ON THE DEICISON OF THE HON BLE DELHI HIGH COURT IN THE CASE CIT VS. MAHA SINGH RANA REPORTED IN (2008) 172 TAXMAN 144 (DEL) IS IN SUPPORT OF THIS CONTENTION. THE HONBLE HIGH COURT HAS HELD IN THE SAID CASE THAT AN INCOME WOUL D BE TREATED AS UNDISCLOSED INCOME IF BUT FOR THE SEARCH, IT WOULD NOT HAVE BEEN DISCLOSED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT S AND THAT IN THE CASE THEREIN, EVEN BEFORE THE SEARCH TOOK PLACE, TH E CASH RECEIPT/INCOME WAS DISCLOSED IN THE OTHER DOCUMENT, I.E IN THE BANK ACCOUNT OF THE ASSESSEE AND, THEREFORE, THE PROVISI ON OF SEC. 158BA(3) ARE APPLICABLE AND THE REVENUE SHOULD HAVE ASSESSED THE INCOME OF THE ASSESSEE U/S 143(3) AND NOT UNDER CHAPTER XIV B OF THE INCOME- TAX ACT. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS OF THE CASE BEFORE THE HONBLE DELHI HIGH COU RT. THOUGH THE ASSESSEE HAS RAISED THESE GROUNDS BEFORE THE CIT(A, ) THE CIT(A) HAS NOT ADJUDICATED ON THIS ISSUE BUT HAS GRANTED RELIE F TO THE ASSESSEE BY HOLDING THAT AO OUGHT TO HAVE CONSIDERED BOTH RECEI PTS AND THE PAYMENTS REFLECTED IN THE BANK ACCOUNT FOR ARRIVIN G AT THE UNDISCLOSED IT(SS)A NOS.1 & 2/H/13 28 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 INCOME AND SINCE IT HAS NOT CARRIED OUT SUCH EXERCI SE, THE TOTAL UNDISCLOSED INCOME COMPUTED BY THE AO AT RS.4,75,70 ,510/- CANNOT BE SUSTAINED. WE HAVE ALREADY OBSERVED ABOVE THAT SINCE THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR HAD NOT EXPIRE D BY THE DATE OF THE SEARCH AND THE ASSESSEE HAD DISCLOSED THE RECEI PTS AND PAYMENTS IN THE BANK ACCOUNT MAINTAINED BY THE ASSESSEE AND SIN CE THE AO HAS MADE THE ADDITIONS ONLY ON THE BASIS OF THE ENTRIES IN THE BANK ACCOUNT, WE ARE OF THE OPINION THAT THIS INCOME CAN NOT BE TREATED AS UNDISCLOSED INCOME DURING THE BLOCK ASSESSMENT. THE REFORE, THE REVENUES APPEAL IS DISMISSED. 34. IN THE ASSESSEES APPEAL, THE ASSESSEE HAS TAKE N LEGAL GROUNDS THAT THE ORDER PASSED BY THE AO U/S 143(3) R.W.S 15 8BC IS UNSUSTAINABLE IN LAW AS THE AO DID NOT TAKE PRIOR APPROVAL OF THE ADDITIONAL CIT AS REQUIRED UNDER SEC. 158BG BEFORE PASSING THE ASSESSMENT ORDER. AT THE TIME HEARING, THE LEARNED DR HAD FILED BEFORE US THE COPY OF THE APPROVAL OF THE ADDITIONA L CIT U/S 158BG OF THE INCOME-TAX ACT IN THE CASE OF M/S VINSRI IN FOTECH AS WELL AS M/S SITES FOR THE BLOCK PERIOD 1996-97 TO 2001-02 TO 1-4-2002 TO 30-1-2003. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. IT(SS)A NOS.1 & 2/H/13 29 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 35. THE OTHER GROUND RAISED BY THE ASSESSEE IS THA T THE CIT(A) HAS FAILED TO APPRECIATE THAT THERE IS NO INCRIMINATING MATERIAL AGAINST THE ASSESSEE AND, THEREFORE, INVOKING JURISDICTION U/ S 158BC IS BAD IN LAW. WE HAVE ALREADY HELD IN THE REVENUES APPEAL THAT THE PROVISION OF SEC. 158BC ARE NOT ATTRACTED IN VIEW OF THE FACT THAT THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR HAD NOT EXPIRE D AS ON THE DATE OF THE SEARCH AND THAT THE ASSESSEE HAD REFLECTED THE RECEIPTS AND THE PAYMENTS IN THE BANK ACCOUNT. THEREFORE, ADJUDICAT ION OF THIS GROUND OF APPEAL IS NOT WARRANTED. 36. IN THE RESULT, BOTH THE REVENUES AS WELL AS TH E ASSESSEES APPEAL ARE DISMISSED FOR THE BLOCK PERIOD. ITA NO.1034/HYD/2012 :- 37. THIS IS REVENUES APPEAL AGAINST THE RELIEF GI VEN BY THE CIT(A) FOR THE ASSESSMENT YEAR 2003-04 FOR THE BROKEN PERI OD 31/1/2003 TO 31/3/2003, WE FIND THAT IN THE CASE OF M/S VINSRI I NFOTECH IN SIMILAR CIRCUMSTANCES WE HAVE ALREADY REMITTED THE MATTER B ACK TO THE AO TO RE-CONSIDER THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE IT(SS)A NOS.1 & 2/H/13 30 IT(SS)A NOS.6 & 8/H/12 ITA NO.1033/1034/H/12 A FAIR OPPORTUNITY OF HEARING. WE HAVE HELD THEREI N THAT THE CLAIM OF EXPENDITURE IS TO BE CONSIDERED. SIMILAR DIRECTIO N IS GIVEN FOR THE ASSESSMENT YEAR 2003-04 IN THE CASE OF THE ASSESSEE ALSO. 38. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. THE ASSESSEES APPEALS FOR THE BLOCK PERIOD ARE DI SMISSED AND THE REVENUES APPEALS FOR THE BLOCK PERIOD AS WELL AS ASST. YEAR 2003- 04 ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DEC, 2013 . SD/- SD/- (B RAMAKOTAIAH) (MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : /12/2013 COPY TO :1. THE ASSESSEE 2. THE REVENUE 3. THE CIT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF BY ORDER ASST. REG ISTRAR, ITAT, HYDERABAD