M/s. Mateshwari Enterprises, Raigad V. Income-tax Officer, Panvel

ITA 1079/PUN/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2478 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 24-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAIN
• Assessee Lawyers: HARI KRISHAN
• Keywords: Unexplained expenditure; Loose papers; Document seized; Principle of natural justice; Fair market value; Documents seized
• Section: 69C; 133A

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO.1087/PN/2011 % % / ASSESSMENT YEAR : 2007-08 ITO, WARD - 2, PANVEL . / APPELLANT V/S M/S. MATESHWARI ENTERPRISES, 413, TEJASWINI ENCLAVE, TUKKA, PANVEL, DIST : RAIGAD PAN NO.AAMFM0730F . / RESPONDENT . / ITA NO.1079/PN/2011 % % / ASSESSMENT YEAR : 2007-08 M/S. MATESHWARI ENTERPRISES, 413, TEJASWINI ENCLAVE, TUKKA, PANVEL, DIST : RAIGAD PAN NO.AAMFM0730F . / APPELLANT V/S ITO, WARD-2, PANVEL . / RESPONDENT / ASSESSEE BY : SHRI HARI KRISHAN / REVENUE BY : SHRI DHEERAJ KUMAR JAIN / ORDER PER R.K. PANDA, AM : ITA NO.1079/PN/2011 FILED BY THE ASSESSEE AND ITA NO.1087/PN/2011 FILED BY THE REVENUE ARE CROSS APPEALS AND ARE / DATE OF HEARING :04.01.2016 / DATE OF PRONOUNCEMENT: 30.03.2016 2 ITA NO.1087 AND 1079 OF 2011 DIRECTED AGAINST THE ORDER DATED 30-05-2011 OF THE CIT (A)-I, THANE RELATING TO ASSESSMENT YEAR 2007-08. FOR THE SAKE OF CONVENIENCE THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER . ITA NO.1087/PN/2011 (REVENUE): 2. GROUND OF APPEAL NO.1 BY THE REVENUE READS AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,37,00,000/- BEING E XPENSES INCURRED ON THE DEVELOPMENT OF LAND OF THE PROJECT DONE BY THE ASSESSEE FOR THE REASON THAT INCOME IS TAXABLE IN THE HANDS OF THE FIRM OVERLOOKIN G THE FACT THAT THE UNACCOUNTED EXPENDITURE HAS BEEN INCURRED IN THE PRO JECT DONE BY THE ASSESSEE FIRM. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN THE BUSINESS AS BUILDERS AND DEVELOP ERS. IT FILED ITS RETURN OF INCOME ON 30-01-2008 DISCLOSING TOTAL INCOME OF RS.48,45,190/-. A SURVEY U/S.133A OF THE I.T, ACT WAS CON DUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE FIRM ON 30-08-2007. SI MULTANEOUS SURVEY ACTION WAS ALSO CONDUCTED AT HARI OM DEVELOPERS (PROPRIETOR SHRI HIRALAL RANGANI, SITE OFFICE OF MATESHWARI ENTERPRISES) AND M/S. MATESHWARI DEVELOPERS. THE ASSESSEE FIRM CONSISTS OF 11 PARTNERS, NAMELY KANTABEN NARAN PATEL, DHARMISHTHA BEN HIRALAL PATE L, MANISH N. PATEL (HUF), GOVIND SAMJI PATEL, BIMLABEN BAHUBHAI PATEL, SAILES H KANTILAL PATEL, DILIP MANILAL CHOPRA, LILA BEN KANTILLA PATEL. RAJEND RA N. PATEL, PARESH BABUBHAI PATEL, AMAR VISHRAM PREMJIANI ARE TH E NEW PARTNERS WHO WERE ADMITTED DURING THE YEAR AS PER THE PARTNERSHIP DEED (BUNDLE NO.7, PAGE 37-38) TWO PARTNERS NAMELY JIGAR HARESH SHAH AND DILIP HARESH SHAH, PARTNERS RETIRED ON VIDE DEED DATED 1- 4-2006 (BUNDLE NO.7, D.NO.26-37). 4. THE AO NOTED THAT IN MATESHWARI ENTERPRISES, SMT.DHA RMISHTHA WIFE OF SHRI HIRALAL RANGANI AND HIS BROTHERS ARE PARTNERS. HIS FAMILY 3 ITA NO.1087 AND 1079 OF 2011 MEMBERS ARE ALSO PARTNERS IN MATESHWARI DEVELOPERS. SH RI HIRALAL RANGANI IS THE MAIN PERSON IN ALL THESE 3 CONCERNS WHERE ACTION U/S.133A WAS CONDUCTED. 5. DURING THE COURSE OF SURVEY ACTION CERTAIN INCRIMINATIN G DOCUMENTS WERE FOUND AND IMPOUNDED WHICH REVEALED THAT THE ASSESSEE HAS MADE EXPENDITURE OF RS.2,04,86,045/-. THE AO REFERRED TO QUEST ION NO.5 PUT TO MR. HIRALAL RANGANI AND HIS REPLY TO THE SAM E WHICH IS AS UNDER (PAGE 6 OF THE ASSESSMENT ORDER): Q.5 ON OPERATION OF THIS COMPUTER, IT IS SEEN THAT THE THERE ARE CERTAIN FILES, WHICH HAVE BEEN TAKEN AS BACK-UP ON A CD WHICH HAS BEEN IMPOUNDED. THE PRINT OUT OF SOME DOCUMENTS TAKEN FROM THIS COMPUT ER HAVE ALSO BEEN IMPOUNDED AS BUNDLE NO. 5, DOCUMENT NO. 1 TO 23. I A M SHOWING YOU DOCUMENT NO. 16, PLEASE TELL ABOUT THIS DOCUMENT? ANS: THE DOCUMENT PLACED AT PAGE NO. 16 OF THE BUND LE NO.-5 GIVES THE DETAILS OF WORKING OF RS. 2,04,86,045/-. IN THIS DOCUM ENT, THE EXPENSES INCURRED IN MATESHWARI ENTERPRISES BY 3 GROUPS NAMELY H LRABHAI, RAJU AND MAMA HAVE BEEN WRITTEN. AS I HAVE ALREADY EXPLAINED, MAMA (JIGAR SHAH AND DILIP SHAH GROUP) WERE PARTNERS, WHO LATER RETIRED. SHAILESH IS ONE OF THE PARTNERS OF RAJENDRA GROUP. THE TOTAL EXPENDITURE OF RS. 2.04 CRORES WAS INCURRED IN LAND AND DEVELOPMENT OF LAND WHICH WAS C ONTRIBUTED BY THE PARTNERS ON DIFFERENT DATES. THE CHITTIS (CORROBORATIV E EVIDENCE) IN RESPECT OF THESE EXPENSES WERE DESTROYED, ONCE SUMMARY STATEMENT OF TOTAL EXPENSES WAS MADE. THIS AMOUNT OF RS. 2,04,86,045/- INCLUDES THE CAPITAL WHICH WAS SHOWN IN THE BOOKS . THE CAPITAL SHOWN IN THE BOOKS WAS RS. 91,11,000/- WHICH WAS INVESTED THROUGH THE BANK( PAGE NO. 15 OF B UNDLE NO.5). THE BALANCE AMOUNT OF RS. 1,13,75,605 WAS INVESTED IN CASH BY DIFFERENT PARTNERS ON DIFFERENT DATES. IN ANNEXURE-L IMPOUNDED FROM OFF ICE OF MATESHWARI ENTERPRISESAN AN EXPENSE OF RS. 24 LAKHS IS SHOWN WHICH I S THE EXPENDITURE INCURRED IN CASH. THE TOTAL CASH EXPENDITURE IS (1.13 CRORES + RS. 0.24 CRORES) RS 1.37 CRORES WHICH HAVE NOT BEEN RECORDED IN THE BO OKS OF ACCOUNTS. THE TOTAL AMOUNT OF RS.1.37 CRORES WOULD BE DISCLOSED BY T WO GROUP NAMELY HIRABHAI GROUP AND RAJENDRABHAI GROUP. AS JIGAR SHA H AND DILIP SHAH HAVE ALREADY RETIRED, THE AMOUNT BROUGHT IN BY THEM WILL BE DISCLOSED BY HIRABHAI GROUP AND RAJENDRABHAI GROUP. 6. FROM THE ABOVE, THE AO NOTED THAT AS AGAINST THE E XPENDITURE OF RS.2,04,86,045/- THE PARTNERS HAD BROUGHT IN A TOTAL SUM OF RS.91,11,000/- TO THE FIRM THROUGH BANK. HOWEVER, THE UNA CCOUNTED EXPENSES OF RS.1,37,00,000/-, WHICH WAS PROMISED TO BE DISC LOSED BY THE ASSESSEE, HAS NOT BEEN DISCLOSED IN THE RETURN OF INC OME. THE AO 4 ITA NO.1087 AND 1079 OF 2011 REPRODUCED THE TRADING ACCOUNT PREPARED BY THE ASSES SEE WHICH IS AS UNDER : PARTICULARS AMOUNT (RS.) PARTICULARS AMOUNT (RS.) LAND EXPENSES 8896614 SALE OF FLAT 9226000 OTHER EXPENSES 16128398 CLOSING WIP 16065484 GOODWILL WRITTEN OFF 1144680 MISCELLANEOUS INCOME DISCLOSED IN SURVEY 5723400 NET PROFIT 4845192 31014884 31014884 7. FROM THE ABOVE HE NOTED THAT THE ASSESSEE HAS DIS CLOSED ONLY RS.57,23,400/- IN THE RETURN AND DESPITE THIS ADDITIONAL INCO ME THERE IS NET PROFIT OF ONLY RS.48,45,192/-. THE AO, THEREFORE, CONFRO NTED THE ASSESSEE AS TO WHY THE AMOUNT OF RS.1,37,00,000/-, WHICH W AS PROMISED TO BE DISCLOSED DURING THE COURSE OF SURVEY, HAS NOT BEEN DISCLOSED. IT WAS EXPLAINED BY THE ASSESSEE THAT PAGE N O.16 IMPOUNDED DURING THE COURSE OF SURVEY SHOWS THAT THESE ARE ONLY PROJECTION OF EXPENSES WHICH WAS PREPARED BY THE PARTNERS FOR TAKING THE NE W PROJECT. FURTHER, PAGE NO.15 IMPOUNDED DURING THE COURSE OF SURVE Y SHOWS THE DETAILS OF INVESTMENTS MADE BY THE PARTNERS. IT WAS SUB MITTED THAT THE HEADING OF PAGE 17 READS AS EXPENSES UPTO PLANE PASSIN G (I.E. PLAN PASSING). THUS, HEADING ITSELF CLARIFY THAT SOME OF THE PAR TNERS NAMES MENTIONED THEREIN PROJECTED SOME FIGURES FOR THEIR NEW UP COMING PROJECT, IT IS NOTHING MORE THAN THIS. THE ASSESSEE FURT HER CLARIFIED AS UNDER : A. THIS IS THE ESTIMATED PROJECT COST WHICH WERE PROJECTED BY THREE PARTNERS OUT OF 13 PARTNERS AS SUCH THERE CANNOT BE ANY RELATION BETWEEN THE BOOKS OF ACCOUNTS OF THE FIRM AND SUCH PROJECTS. B. BEFORE OR AFTER THIS PROJECTION BY THREE PARTNERS, TH ERE IS NO MENTION OF DATE, HEAD OF EXPENSES AND OTHER NORMAL DETAILS BECAU SE THESE PROJECTIONS MAY HAVE BEEN PROJECTED BY THE PARTNERS I NDIVIDUALLY WITHOUT CONSULTING THE OTHER PARTNERS. AS SUCH THERE I S NO CORRELATION BETWEEN THE EXPENSES INCURRED & THE FIGURES MENTIONED IN THE PROJECTIONS ON THE SAID PAGE. C. THERE IS NO MATERIAL RECORDS IN THIS RESPECT. 5 ITA NO.1087 AND 1079 OF 2011 D. THIS PROJECTIONS ARE ONLY THE HYPOTHETICAL STATEMENT P REPARED BY A FEW PARTNERS. THERE CANNOT BE ANY CORRELATION SINCE THE TURNOVER OF THE FIRM IS RS.92,26,000/- AND THE TOTAL OF PROJECTIONS ARE RS.2 ,04,86,045/-. AS SUCH THERE CANNOT BE INCOME MORE THAN THE TURNOVER U NDER ANY CIRCUMSTANCES. THIS FACT ITSELF CLARIFY THAT THOSE ARE THE SOME ESTIMATES PREPARED BY THE PARTNERS FOR FUTURE. 8. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT SHRI HIRABHAI HAD ADMITT ED THE AMOUNT OF RS.2,04,86,045/-, AS PER PAGE 16 BUNDLE NO.5 AS THE TOTA L EXPENDITURE WHICH INCLUDES THE CAPITAL OF RS.91,11,000/- CON TRIBUTED BY THE PARTNERS WHICH WAS INVESTED THROUGH BANK AND ALSO WHICH WAS SHOWN IN THE BOOKS OF ACCOUNT. AN AMOUNT OF RS.1,13,75,605 /- WAS INVESTED IN CASH BY DIFFERENT PARTNERS ON DIFFERENT DATES. FURTHER IN ANNEXURE 1 IMPOUNDED FROM OFFICE OF MATESHWARI ENTERPRISES , EXPENSES OF RS.24 LAKHS IS SHOWN WHICH IS THE EXPENDITURE INCURRED IN CASH. THEREFORE, ASSESSEE HAD ADMITTED RS.1,13,75,605/- ON THE PLEA THAT EXPENDITURE OF RS.24,21,963/- SHOWN IN ANNEXURE 1 WAS INC URRED FROM THE FUNDS CONTRIBUTED BY PARTNERS IN CASH. THE AO, THE REFORE, REJECTED THE CONTENTION OF THE ASSESSEE THAT THESE ARE PROJECT ED EXPENSES PREPARED BY FEW PARTNERS AS NOT PALATABLE. HE FURTHER NOTED THAT SINCE MAMA GROUP HAD RETIRED, THEREFORE, HIS NAME IN PROJECTED EXPENDITURE SHOULD NOT HAVE APPEARED. REJECTING THE VARIOUS EXPLANA TIONS GIVEN BY THE ASSESSEE THE AO ADDED AN AMOUNT OF RS.1,13,75,605/- U/S.69 OF THE I.T. ACT BY MAKING THE FOLLOWING OBSERVATIONS : THE ASSESSEE HAS INCURRED/MADE INVESTMENTS OF RS.1,13,75,6 05 AS PER DOCUMENT NO.15 AND 16 OF BUNDLE NO.5, WHICH HAS NOT BEEN DISCLOSED IN THE RETURN DESPITE ADMITTING THE SAME DURING SURVEY AS CORR OBORATED BY THE DOCUMENTS FOUND DURING SURVEY. THE AMOUNT OF RS.1,13, 75,605/- IS ADDED U/S.69. NO SEPARATE ADDITION HAS BEEN MADE FOR ANNEXU RE I, D.NO.1 TO 5 AS THE EXPENDITURE WAS INCURRED FROM THE UNACCOUNTED MO NEY BROUGHT BY THE PARTNERS. PENALTY PROCEEDINGS HAVE BEEN INITIATED FO R CONCEALING PARTICULARS OF INCOME AND MANIPULATION OF ACCOUNTS WITH INTENTI ON TO AVOID PAYMENT OF TAXES ON AMOUNT OF RS.1,13,75,605/-. 6 ITA NO.1087 AND 1079 OF 2011 9. HOWEVER, IN THE BODY OF THE ASSESSMENT ORDER THE AO MADE ADDITION OF RS.1,37,00,000/- WHICH IS THE AMOUNT DISCLOSED BY THE ASSESSEE IN HIS STATEMENT DURING THE COURSE OF SURVEY. 10. BEFORE CIT(A) IT WAS SUBMITTED THAT SURVEY STATEMENT HAS NO LEGAL SANCTITY AS PER PROVISION OF LAW AND DECIDED BY VARIOUS AU THORITIES. IT WAS FURTHER SUBMITTED THAT SUCH SURVEY STATEMENT IS ALS O ILLEGAL BECAUSE THE SURVEY OFFICER RECORDED THE STATEMENT OF A PERSON W HO IS NEITHER A PARTNER IN THE FIRM NOR AN EMPLOYEE OR ATTORNEY OF THE FIR M AND AS SUCH IT HAS NO RELEVANCE AND ALSO ILLEGAL. IT WAS ARGUED THAT H IRALAL RANGANI (PATEL) IN HIS STATEMENT HAS IDENTIFIED HIMSELF AS PROPRIETOR OF HARI OM DEVELOPERS AND THE SURVEY OFFICER NOWHERE QUESTIONED HIM IN WHAT CAPACITY HE IS MAKING THE STATEMENT ON BEHALF OF THE FIRM BE RECORDED AND LEGALLY CONSIDERED AND ACCEPTED. THE FACT THAT SHRI HIRABHAI WAS NOT A PARTNER IN THE FIRM HAS ALSO BEEN CONFIRMED BY THE AO IN HIS ORDER AT PAGE NO.11 BUT THE AO TRIED TO JUSTIFY BY STATING TH AT HE WAS THE MAIN PERSON LOOKING AFTER THE AFFAIRS OF THE FIRM ON BEHALF OF HIS FAM ILY MEMBERS. THE AO HAS NOT CLARIFIED AS TO HOW HE HAS ACCE PTED AND RELIED ON THE STATEMENT OF SHRI HIRABHAI. 11. SO FAR AS THE ADDITION OF RS.1,13,75,605/- IS CONCERNED IT WAS SUBMITTED THAT THE SAME WAS MADE BY THE AO BASED ON DUMB DOCUMENTS AND STATEMENT OF SHRI HIRABHAI, A NON-ENTITY IN THE FIRM. IT WAS NOT A VOLUNTARY ONE BUT EXTRACTED ONE UNDER COER CION AND UNDUE PRESSURE BY THE SURVEY TEAM. IT WAS SUBMITTED THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS IT WAS BROUGHT TO THE NOTICE OF THE AO THAT FIGURES APPEARING IN THE DUMB DOCUMENT ARE ONLY A PROJ ECTION OF EXPENSES TO BE CONTRIBUTED BY THE PARTNERS FROM DIFFEREN T GROUP IN THE FIRM AND IT IS NOTHING MORE THAN THAT. REFERRING TO THE COPY OF THE 7 ITA NO.1087 AND 1079 OF 2011 IMPOUNDED DOCUMENT IT WAS EXPLAINED THAT IT GIVES NO CLUE ABOUT THE YEAR IN WHICH EXPENSES WERE INCURRED, DATE, PURPOSE OF EX PENSES AND NAME OF PERSONS ETC. FURTHER, THERE WAS NO DISCOVERY OF ANY INCRIMINATING VOUCHER OR CASH MEMOS OR SUCH OTHER EVIDEN CE DURING SURVEY WHICH ENABLES THE AO TO PRESUME THAT CERTAIN EXPENSES HA D BEEN INCURRED BY THE ASSESSEE WHICH IS NOT ACCOUNTED FOR IN T HE REGULAR BOOKS. IT WAS FURTHER SUBMITTED THAT THE SURVEY WAS C ONDUCTED ON 30- 08-2007 AND THE ALLEGED STATEMENT WAS TAKEN FROM SHRI HIRABHAI AND THEREAFTER THE ISSUE REMAINED SILENT WITH THE AO FOR MORE THAN A YEAR. ONLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS HE TO OK UP THE SAME, KNOWING VERY WELL THAT THE SURVEY STATEMENT HAS NO EVID ENTIARY VALUE UNDER THE LAW. IT WAS FURTHER ARGUED THAT AS PER THE ORDER AND THE ALLEGED SURVEY STATEMENT THESE EXPENSES WERE INCURRED BY PARTNERS IN CASH FOR LAND AND LAND DEVELOPMENT. IT WAS ARGUED THAT PLOTS WERE PURCHASED BETWEEN MARCH 2005 TO JULY 2005 AND ALSO RE GISTERED. ALTHOUGH AS PER AO CASH EXPENSES BY PARTNERS WERE INC URRED FOR LAND AND ITS DEVELOPMENT, HOWEVER, THE AO DID NOT ENQUIRE FROM THE SELLERS REGARDING THE CASH DEALINGS AS WELL AS ABOUT LAND DEVELOPM ENT OF PLOTS ETC. BY SUMMONING THEM AND RECORDING THEIR STATEMENT TO CORRELATE THE ALLEGED SURVEY STATEMENT. THE AO DID NOT CONSIDER IT R EQUISITE TO MAKE AN INDEPENDENT ENQUIRY AND BROUGHT ANY MATERIAL ON RECO RD AND HAS NOT GIVEN ANY COGENT EVIDENCE TO JUSTIFY THE ADDITION MA DE BY HIM. THE ENTIRE ADDITION MADE BY THE AO WAS BASED ON SURMISES AN D CONJECTURES AND IS NOT BASED ON ANY INDEPENDENT EVIDENCE. RELYING O N VARIOUS DECISIONS IT WAS SUBMITTED THAT THE AO IS NOT JUSTIFIED IN M AKING THE ADDITION. 12. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION OF RS.1,13,75,605/- FROM THE HANDS OF TH E ASSESSEE 8 ITA NO.1087 AND 1079 OF 2011 FIRM AND SUGGESTED FOR ASSESSMENT OF THE SAME IN THE HAN DS OF THE PARTNERS. THE RELEVANT OBSERVATION OF THE CIT(A) FROM PAR A 5 TO 5.5 OF THE ORDER READS AS UNDER : 5. THE SUBMISSION IS CONSIDERED AND THE ARGUMENT HEARD. THE CONTENTS OF THE ASSESSMENT ORDER IS PERUSED. AS REGARDS THE UNEXPLAINED EXPENDITURE OF RS.2,04,86,045/- , I FIND FROM THE STATEMENT RECOR DED OF SHRI HIRALAL THAT, HE HAS MADE A CLEAR STATEMENT THAT, THE EXPENSES WERE INCURRED BY THE PARTNERS GROUPS IN THEIR INDIVIDUAL CAPACITY AND HE HAS FURTHER STATED THAT, THE RESPECTIVE GROUPS WOULD DISCLOSE THE NET INC OME OF RS. 1,37,00,000/-. AS REGARDS THE AR'S ARGUMENT THAT, SHR I HIRALAL WAS NEITHER THE PARTNER NOR EMPLOYEE , I DO NOT AGREE WITH HIM. I FIND THAT, THIS IS SHRI HIRALAL, WHO REPRESENTED THE FAMILY IN THE FIRM AND HIS FAMILY' MEMBERS ARE PARTNERS. IF AT ALL, HE IS NOT INVOLVED IN THE BU SINESS ACTIVITY OF THE ASSESSEE FIRM, HE COULD HAVE STATED THE FACT TO THE SURVE Y OFFICERS. MOREOVER, THIS STAND HAS BEEN TAKEN TO ME FOR THE FIRST TIME, THIS WAS NOT TAKEN BEFORE THE AO. THEREFORE, THE ARGUMENT OF THE AR IS REJECTED. AS REGARDS THE ASSESSEE'S FURTHER ARGUMENT THAT, THE DOCUMEN TS IMPOUNDED ARE DUMB DOCUMENT, I DO NOT FIND THE ARGUMENT OF TH E ASSESSEE TO BE IN CONSONANCE WITH THE FACTS OF THE CASE. THE DOCUMENTS I N QUESTION WERE FOUND DURING SURVEY AND SHRI HIRALAL, THE MAIN PERSON OF THE GROUP HAS ADMITTED THAT, THE DOCUMENTS CONTAINED DETAILS OF EXP ENSES INCURRED IN CONNECTION WITH THEIR BUSINESS AND HE HAS FURTHER ADMI TTED THAT, THESE ARE UNACCOUNTED EXPENSES INCURRED BY THE PARTNER. I FIND THAT, THE DOCUMENTS ARE CORRELATED WITH THE STATEMENT OF SHRI HIRALAL. THE ARGUMENT IS, THEREFORE, REJECTED. 5.1 AS REGARDS THE PLEA THAT, THE STATEMENT RECORDED DURING SURVEY IS NOT AN ADMISSIBLE EVIDENCE, I FIND THAT, THE PLEA IS D EVOID OF ANY MERIT OR FORCE. THE STATEMENT HAS BEEN RECORDED ON THE BASIS OF DOCUMENTS FOUND AND SHRI HIRALAL HAS NOT ONLY OWNED UP THE DOCUMENTS BUT HAS ALSO ADMITTED THE DOCUMENT TO CONTAIN DETAILS OF EXPENSES I NCURRED BY THE PARTNERS. THE ARGUMENT THAT, THE STATEMENT HAS NO EVI DENTIARY VALUE STANDS UNSUBSTANTIATED, ACCORDINGLY THE PLEA OF THE AR IS REJECTED. CASE LAWS RELIED ARE, THEREFORE, NOT RELEVANT. 5.2 AS REGARDS THE ISSUE OF ASSESSING THE NET UNEXPLAINED EXPENDITURE OF RS 1,13,75,605/- IT IS STATED BY THE ASSESSEE THAT, THE LANDS FOR THE PROJECT WERE PURCHASED IN THE YEAR 2005 AND WHATEVER EXPENDITURE WAS INCURRED IN CONNECTION WITH THE LANDS ON DEVELOPMEN T WAS INCURRED PRIOR TO THE PREVIOUS YEAR 06-07 RELEVANT TO THE AY 07-08 AND NOT DURING THE AY UNDER APPEAL. IT IS FURTHER ADDED BY THE AR THAT, RE TIREMENT OF TWO OF THE PARTNERS TOOK PLACE AS ON 01/04/06 , WHICH IS EVIDENCE D BY RETIREMENT DEED AND THE DOCUMENT NO 16 CONTAINS DETAILS OF PAYM ENT TO THE RETIRING PARTNERS, WHICH IS A PROOF THAT, EXPENSES DID NOT RELAT E TO THE YEAR UNDER APPEAL. IT IS SUBMITTED THAT, SHRI HIRALAL HAD STATED TO THE AO THAT, THE EXPENSES WERE INCURRED BY THE PARTNERS BELONGING TO TH E THREE GROUPS AND, THEREFORE , IT SHOULD HAVE BEEN RIGHTLY CONSIDER ED IN THE HANDS OF THE PARTNERS. CONSIDERING THE EXPENSES INCURRED BY THE PAR TNERS IN THE HANDS OF THE FIRM IS ILLOGICAL, THE AR HAS ARGUED. 5.3 SECTION 69C OF THE ACT PROVIDES THAT 9 ITA NO.1087 AND 1079 OF 2011 UNEXPLAINED EXPENDITURE, ETC. WHERE IN ANY FINANCIAL YEAR AN ASSESSEE HAS INCURRE D ANY EXPENDITURE AND HE OFFERS NO EXPLANATION ABOUT THE SOURCE OF SU CH EXPENDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OFFERED B Y HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, THE AMOUNT COVERED BY SUCH EXPENDITURE OR PART THEREOF, AS THE CASE MAY B E, MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE FOR SUCH FINANCIAL YE AR. 5.3.1 ACCORDING TO THE PROVISIONS OF SECTION 69C , T HIS IS THE EXPENDITURE INCURRED BY THE ASSESSEE DURING THE RELEVANT FY FOR WH ICH NO PROPER EXPLANATION IS OFFERED, WILL BE CONSIDERED AS INCOME W ITHIN THE MEANING OF SECTION 69C OF THE ACT. WHEREAS, IN THE CASE ON HAND, I FIND THAT, THE EXPENSES HAVE BEEN INCURRED BY THE PARTNERS OF THE FIR M AND TO THIS EFFECT, SHRI HIRALAL HAS GIVEN A STATEMENT. ALSO, THE IMPOUNDE D DOCUMENT NO 16 SHOWS ENTRIES OF EXPENSES AGAINST THE NAME OF THE PARTNER S. 5.4 AS FAR AS ASSESSING THE UNEXPLAINED EXPENDITURE IS CO NCERNED, I FIND FAULT IN THE ORDER OF THE AO. THERE IS NO DOUBT THAT THE EXPENSES HAVE BEEN INCURRED BY THE PARTNER, THIS FACT HAS BEEN STATED BY SHRI HIRALAL, WHICH HAS BEEN ACCEPTED BY THE AO. I, THEREFORE, COME TO THE CONCLUSION THAT, THE UNEXPLAINED EXPENSES OF RS 1,13,75,605/- IS DEFINITELY AN INCOME WITHIN THE MEANING OF SECTION 69C OF THE ACT. HOWEVER, THIS HAS TO BE ASSESSED IN THE HANDS OF THE PARTNERS WHO ACTUALLY BROUGHT IT INTO TH E BOOKS. ACCORDINGLY, I DIRECT THE AO TO DELETE THE ADDITION IN THE HANDS OF THE ASSESSEE AND SUGGEST THAT, THE ASSESSMENT IN THE CASE OF PARTNERS MAY BE REOP ENED TO CONSIDER THE ABOVE SAID EXPENDITURE. 5.5 AS REGARDS THE CONTENTION OF THE ASSESSEE THAT, THE EXPENSES WERE INCURRED DURING THE PREVIOUS AY (06-07) AND NOT DURI NG THE YEAR UNDER APPEAL, I FIND THAT, THERE IS A MENTION IN DOCUMENT NO 16 TO THE EFFECT THAT, THE EXPENSES WERE INCURRED UPTO THE DATE OF PLAN PASSIN G. I ALSO FIND THAT, THE FINAL APPROVAL OF THE PLAN IS GIVEN TO THE ASSESSEE ON 29/03/06. OTHER CORROBORATIVE EVIDENCE AVAILABLE IN SUPPORT OF THE A SSESSEE'S CONTENTION IS THAT, ONE OF THE PARTNERS 'MAMA' HAS RETIRED FROM PAR TNERSHIP FIRM ON 01/04/06 WHICH IS EVIDENCED BY DEED OF RETIREMENT. I AM, THEREFORE, CONVINCED TO AGREE WITH THE ASSESSEE'S ARGUMENT THAT THE EXPENSES HAVE BEEN INCURRED DURING THE PERIOD RELEVANT TO THE (PR EVIOUS) AY 06-07 AND NOT DURING THE AY 07-08 WHICH IS UNDER APPEAL. ON TH IS GROUND ALSO, THE ADDITION IS NOT SUSTAINABLE. 13. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 14. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY OPPOS ED THE ORDER OF THE CIT(A). HE SUBMITTED THAT ALTHOUGH THE CIT(A) HAS H ELD THAT THE UNEXPLAINED EXPENSES OF RS.1,13,75,605/- IS DEFINITELY AN INCOM E WITHIN THE MEANING OF SECTION 69C OF THE ACT, HOWEVER, HE DIREC TED THE AO TO DELETE THE SAME FROM THE INCOME OF THE ASSESSEE FIRM AND HELD THAT THE 10 ITA NO.1087 AND 1079 OF 2011 SAME MAY BE TAXED IN THE HANDS OF THE PARTNERS. HE SU BMITTED THAT THE ADDITION OF RS.1,37,00,000/- WAS MADE BY THE AO U/S.69C OF T HE ACT AFTER CONSIDERING THE STATEMENT OF THE PARTNER RECORDED ON OATH DURING THE SURVEY ACTION. MOREOVER, THE EXPENDITURE WAS DEBITE D IN THE FINAL ACCOUNTS OF THE ASSESSEE FIRM WHICH MEANS THAT THE ASSE SSEE ITSELF HAS INCURRED THE EXPENDITURE. HE SUBMITTED THAT THE STATEMENT GIVE N DURING THE COURSE OF SURVEY WAS THE TRUE STATEMENT DEPICTING THE TRUE STATE OF AFFAIRS OF THE ASSESSEE FIRM. THE SUBSEQUENT ACCOUNTS PREPARED AFTE R THE SURVEY FOR FINALIZATION OF THE INCOME-TAX RETURN AND SUBMI SSION OF THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS A RE MANIPULATIONS TO ESCAPE THE TAX. HE SUBMITTED THAT SINCE THE ASSESSEE ITSELF HAS DEBITED THE SAID EXPENDITURE IN ITS ACCOUNTS AND SINCE THE ASSESSEE COULD NOT OFFER THE SOURCE OF SUCH AMOUNTS, THE REFORE, THE ADDITION WAS RIGHTLY MADE BY THE AO. THEREFORE, THE CIT(A ) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. 15. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAN D HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE LD.CI T(A) IN THE INSTANT CASE HAS DELETED THE AMOUNT OF RS.1,13,75,605/- WIT H 2 FINDINGS, I.E. (A) MONEY SPENT BY PARTNERS SHOULD BE ADDED IN THE HANDS OF THE PARTNERS SINCE DECLARATION WAS MADE TO OFFER THE S AME TO TAX IN THE HANDS OF THE PARTNERS AND (B) THE EXPENDITURE WAS N OT INCURRED IN THIS PREVIOUS YEAR AND IT WAS INCURRED IN THE EARLIER YEA R. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EXPENDITURE WAS INCURRED BEFORE 31-03-2006. THEREFORE, IT DOES NOT FALL IN THIS ASSES SMENT YEAR. FURTHER, THIS EXPENDITURE HAS NOT BEEN BOOKED IN THE BO OKS OF ACCOUNT. THEREFORE, IF NOT BOOKED IN THE BOOKS OF ACCOUNT, THEN IT HAS TO BE TAXED IN THE YEAR OF DISCOVERY. IN THE INSTANT CASE, THE SURVE Y TOOK PLACE ON 30-08-2007, I.E. DURING F.Y. 2007-08 RELEVANT TO A.Y. 2008-09 . 11 ITA NO.1087 AND 1079 OF 2011 THEREFORE, THIS COULD NOT HAVE BEEN ADDED IN THE HANDS OF THE ASSESSEE FIRM DURING A.Y. 2007-08. REFERRING TO THE IMPOUNDED DOCUME NT, A COPY OF WHICH IS PLACED AT PAPER BOOK PAGE 7, HE DREW TH E ATTENTION OF THE BENCH TO THE NOTINGS WHICH IS UNDATED AND WHERE TH E AMOUNT RS.2,04,86,045/- IS MENTIONED UNDER THE HEADING EXPENSES UPTO PLANE PASSING (I.E. PLAN PASSING). HE SUBMITTED THAT THE CIT(A) IN HIS ORDER AT PARA 5.5 HAS GIVEN A FINDING THAT THE FINAL APPROVAL OF THE P LAN WAS GIVEN TO THE ASSESSEE ON 29-03-2006. REFERRING TO PARA 5.2 O F THE ORDER OF CIT(A) HE SUBMITTED THAT THE CIT(A) HAS GIVEN A FINDING THA T THE LANDS WERE PURCHASED IN THE YEAR 2005. THE ABOVE FACTUAL FINDIN GS HAVE NOT BEEN CONTROVERTED BY THE REVENUE. HE SUBMITTED THAT WHEN ADDITION IS MADE ON THE BASIS OF A SEIZED PAPER OR IMPOUNDED PAPER , THE PAPER HAS TO BE CONSIDERED IN ITS ENTIRETY. HE SUBMITTED THAT THE EXPENDITURE HAS BEEN INCURRED BY 3 GROUPS. MAMA GROUP HAS RETIRED W.E.F. 0 1-04-2006. THEREFORE, WHEN THIS GROUP HAS RETIRED W.E.F. 01-04-2006 H OW CAN THEY BE TAXED. REFERRING TO PAGE 20 OF THE PAPER BOOK THE L D. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE REPLY GIVEN BY SHRI HIRALAL RANGANI (PATEL) WHEREIN HE HAS STATED THAT THE BALAN CE AMOUNT OF RS.1,13,75,605/- WAS INVESTED IN CASH BY DIFFERENT PARTNE RS ON DIFFERENT DATES. IN THE SAID STATEMENT HE HAD ALSO STATE D THAT THE TOTAL AMOUNT OF RS.1.37 CRORES WOULD BE DISCLOSED BY 2 GROUPS, N AMELY HIRABHAI GROUP AND RAJENDRABHAI GROUP. SHRI JIGAR SHAH AN D SHRI DILIP SHAH HAVE ALREADY RETIRED. THE AMOUNT BROUGHT IN BY THEM WILL BE DISCLOSED BY HIRABHAI AND RAJENDRABHAI GROUP. HE SUBMITTE D THAT IF THE STATEMENT WAS GIVEN ON WRONG APPRECIATION OF FACTS, THE IN COME CANNOT BE TAXED IN A.Y. 2007-08. THE EXPENDITURE WAS INCURRED O NLY DURING A.Y. 2006-07. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HIRALAL RANGANI IS NOT A PARTNER OR EMPLOYEE OF THE FIRM. MAY BE HIS BROTHERS 12 ITA NO.1087 AND 1079 OF 2011 ARE PARTNERS. HOWEVER ADDITION CANNOT BE MADE ON THE BASIS OF STATEMENT OF A NON-PARTNER OR NON-EMPLOYEE. HE SUBMIT TED THAT ONCE IT IS PROVED THAT THE EXPENDITURE IS INCURRED BY THE PARTN ERS, THE SOURCE OF THE FIRM ARE EXPLAINED. THEREFORE, IT CANNOT BE ADDED IN TH E HANDS OF THE ASSESSEE FIRM U/S.69C. ADDITION, IF ANY, COULD HAVE BEEN MADE IN THE HANDS OF THE PARTNERS AND THAT TOO IN A.Y. 2006-07 WHEN THE EXPENDITURE WAS INCURRED. THERE IS NO PROOF THAT ANY EX PENDITURE HAS BEEN INCURRED IN F.Y. 2006-07 RELEVANT TO A.Y. 2007-08. 16. REFERRING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ITO VS. MURALIDHAR BHAGAWANDAS REPORTED IN 52 ITR 335 H E SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT THE JURISDICTION OF THE APPELLATE ASSISTANT COMMISSIONER U/S.31 W AS STRICTLY CONFINED TO THE ASSESSMENT ORDER OF THE PARTICULAR YEAR UNDER APPEAL. IT HAS FURTHER BEEN HELD THAT THE ASSESSMENT OR RE-ASSES SMENT IN CONSEQUENCE OF OR TO GIVE EFFECT TO ANY FINDING OR DIRECTIO N CONTAINED IN AN ORDER U/S.31, SECTION 33, SECTION 33A, SECTION 33B, SECT ION 66 OR SECTION 66A MUST NECESSARILY RELATE TO THE ASSESSMENT OF THE YEAR UNDER APPEAL, REVISION OR REFERENCE AS THE CASE MIGHT BE. IT HA S FURTHER BEEN HELD THAT THE SECOND PROVISO TO SECTION 34(3) ONLY LIFTS TH E BAN ON LIMITATION AND DID NOT INVOLVE THE JURISDICTION OF THE TRIBUNAL UNDER THE RELEVANT SECTIONS. HE SUBMITTED THAT THE LD. DEPARTMENT AL REPRESENTATIVE HAS NOT POINTED OUT ANY FACT WHICH WAS N OT BROUGHT BEFORE THE AO. HE HAS NOT POINTED OUT ANY LEGAL GROUND WHICH WAS NOT TAKEN BEFORE THE AO. HE ACCORDINGLY SUBMITTED THAT THE GROUND RAISED BY THE REVENUE SHOULD BE DISMISSED. 13 ITA NO.1087 AND 1079 OF 2011 17. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT CASE A DOCUMENT W AS IMPOUNDED DURING THE COURSE OF SURVEY ACTION U/S. 133A WHICH READS EXPENSES UPTO PLANE PASSING. THE RELEVANT IMPOUNDED DOCUMENT C ONTAINS ENTRIES OF EXPENDITURE ON ACCOUNT OF LAND AND LAND DEVELO PMENT TOTALING TO RS.2,04,86,045/-. ANOTHER DOCUMENT WAS IMPOUNDED WHIC H REVEALED THAT AN EXPENDITURE OF RS.24 LAKHS WAS MADE IN CASH. FRO M THE VARIOUS DOCUMENTS IMPOUNDED AND SUBMISSIONS FILED BY THE ASSESSEE , IT WAS REVEALED THAT THE PARTNERS OF THE ASSESSEE FIRM HAD BRO UGHT IN A TOTAL SUM OF RS.91,11,000/- TO THE FIRM THROUGH BANKING CHANNEL. AS SUCH THERE WAS UNACCOUNTED EXPENSES OF RS.1,37,75,045/- I.E. (RS.2,04,86,045 + RS. 24 LAKHS (-) RS.91,11,000/-) FOR WHICH IT WA S ADMITTED BY THE ASSESSEE THAT AN AMOUNT OF RS.1,37,00,000 /- WILL BE DISCLOSED IN THE RETURN OF INCOME. HOWEVER, SINCE NO SUCH INCOME WAS DISCLOSED IN THE RETURN FILED, THE AO ASKED THE ASSESSEE T O EXPLAIN AS TO WHY THE SAME AMOUNT SHALL NOT BE ADDED TO THE TOTAL INC OME OF THE ASSESSEE. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY TH E ASSESSEE THE AO MADE ADDITION OF RS.1,37,00,000/- TO THE TOTAL INCOME OF T HE ASSESSEE U/S.69C OF THE I.T. ACT. 17.1 WE FIND IN APPEAL THE LD.CIT(A) DELETED THE ADDITION OF RS.1,13,75,605/- OUT OF RS.1,37,00,000/- ADDED BY THE AO ON THE GROUND THAT (A) AN AMOUNT OF RS.1,13,75,605/- HAS BEEN SPE NT BY THE PARTNERS AND THEREFORE THE SAME SHOULD BE ADDED IN T HE HANDS OF THE PARTNERS AND (B) THE EXPENDITURE HAS NOT BEEN INCURRED DURING THIS ASSESSMENT YEAR AND IT WAS INCURRED IN THE PRECEDING YE AR. WE DO NOT 14 ITA NO.1087 AND 1079 OF 2011 FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE ADDIT ION OF RS.1,13,75,605/-. FROM THE IMPOUNDED DOCUMENT, A COPY OF W HICH IS PLACED AT PAGE 7 OF THE PAPER BOOK, WE FIND THE VARIOUS E XPENSES INCURRED ARE UPTO THE PASSING OF THE PLAN. SINCE IT HAS B EEN MENTIONED AT THE TOP OF THE IMPUGNED DOCUMENT EXPENSES UPTO PLA NE PASSING, THEREFORE, THE DATE OF PASSING OF THE PLAN IS RELEVANT. WE FIND THE FINDING OF THE LD.CIT(A) AT PARA 5.5 OF HIS ORDER THAT THE FINAL APPR OVAL OF THE PLAN WAS GIVEN TO THE ASSESSEE ON 29-03-2006 HAS NOT BEEN CONTR OVERTED BY THE REVENUE. FURTHER FINDING OF THE LD.CIT(A) THAT ONE OF THE PARTNERS I.E. MAMA GROUP HAS RETIRED FROM THE PARTNERSHIP FIRM FROM 01-04-2006 WHICH IS EVIDENCED BY THE DEED OF RETIREMENT HAS ALSO NOT BEEN CONTROVERTED BY THE REVENUE. UNDER THESE CIRCUMSTANC ES, THE FINDING GIVEN BY THE LD.CIT(A) THAT THE EXPENSES HAVE NOT BEEN INCURRED DURING THE IMPUGNED ASSESSMENT YEAR, IN OUR OPINION, IS JUSTIFIED. 18. FURTHER, FROM THE STATEMENT RECORDED DURING THE CO URSE OF SURVEY, WE FIND SHRI HIRALAL RANGANI IN HIS STATEMENT HAS STATED THA T THE BALANCE AMOUNT OF RS.1,13,75,605/- WAS INVESTED IN CASH BY DIFFERENT PARTNERS ON DIFFERENT DATES. THE RELEVANT QUESTION AND A NSWER HAS ALREADY BEEN REPRODUCED AT PARA 5 OF THIS ORDER. THERE FORE, WHEN THE PARTNERS HAVE INVESTED THE MONEY IN THE PARTNERSHIP FIRM , THE SAME CANNOT BE TAXED IN THE HANDS OF THE PARTNERSHIP FIRM. IN OUR OPINION IF THE DEPARTMENT WAS NOT SATISFIED WITH THE EXPLANATION GIV EN BY THE PARTNERS, THEN IT WAS LEGITIMATE FOR THE DEPARTMENT TO DR AW AN INFERENCE THAT THE AMOUNTS REPRESENTED UNDISCLOSED PROFITS OF THE PARTNERS AND TO ASSESSS THEM IN THEIR OWN INDIVIDUAL ASSESSMENT. HOWEVER, THE SAME CANNOT BE BROUGHT TO TAX IN THE HANDS OF THE PARTNERSHIP FIRM. THIS VIEW OF OURS FINDS SUPPORT FROM THE DECISION OF HONBLE ALLAHABAD HIGH COURT 15 ITA NO.1087 AND 1079 OF 2011 IN THE CASE OF CIT VS. JAISWAL MOTOR FINANCE REPORTED IN 14 1 ITR 706 AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF NARAYANDAS KEDARNATH VS. CIT REPORTED IN 32 ITR 18 WH ERE IT HAS BEEN HELD THAT IF THERE ARE CASH CREDIT ENTRIES IN THE BOOKS O F FIRM IN WHICH THE ACCOUNTS OF THE INDIVIDUAL PARTNERS EXIST AND IT IS FOUN D AS A FACT THAT CASH WAS RECEIVED BY THE FIRM FROM ITS PARTNERS, THEN IN THE ABS ENCE OF ANY MATERIAL TO INDICATE THAT THEY WERE THE PROFITS OF THE FIRM IT COULD NOT BE ASSESSED IN THE HANDS OF THE FIRM. 19. IT IS THE SETTLED PROPOSITION OF LAW THAT WHEN ANY AD DITION IS MADE ON THE BASIS OF SOME SEIZED PAPER/IMPOUNDED DOCUMENT, TH EN THE SAME HAS TO BE READ AS A WHOLE. THE DEPARTMENT CANNOT ACC EPT A PART OF THE SAME AS TRUE AND THE BALANCE PART OF THE SAME AS UNT RUE. ADMITTEDLY IN THE INSTANT CASE THE IMPOUNDED DOCUMENT SHOWS EXPEND ITURE INCURRED UPTO PLANE PASSING. AS ALREADY MENTIONED EARLIER, THE FINAL APPROVAL OF THE PLAN WAS GIVEN TO THE ASSESSEE ON 29-03-2006. EVE N THE ANNEXURE 1 FOUND DURING THE COURSE OF SURVEY, COPIES OF WHICH ARE P LACED AT PAGES 1 TO 5 OF THE PAPER BOOK ONLY SHOWS EXPENDITURE TO TH E TUNE OF RS.24,21,963/- FOR THE PERIOD FROM 11-03-2006 TILL 30-07-200 7, I.E. DURING THE PERIOD OF 3 FINANCIAL YEARS 2005-06, 2006-07 AND 2007-08. THEREFORE IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE IT HAS TO BE HELD THAT THE EXPENDITURE HAS BEEN INCURRED PRIOR TO A.Y. 2007-08. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE CIT(A) WE DO NOT FIND ANY INFIRMITY IN HIS ORDER DELETING THE ADDITION OF RS.1,13,75,605/- FROM THE HANDS OF THE ASSESSEE FIRM AND SUGGESTING THE AO TO TAKE REMEDIAL MEASURES IN THE HAND S OF THE PARTNERS. WE ACCORDINGLY UPHOLD THE SAME AND THE GRO UND RAISED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 16 ITA NO.1087 AND 1079 OF 2011 20. IT MAY BE PERTINENT TO MENTION HERE THAT THE LD. C IT(A) HAS DELETED ONLY AN AMOUNT OF RS.1,13,73,605/- OUT OF ADDITION O F RS.1,37,00,000/- MADE BY THE AO. THEREFORE, THE GROUND RA ISED BY THE REVENUE IS ALSO ERRONEOUS TO THIS EXTENT. 21. GROUND OF APPEAL NO.2 BY THE REVENUE READS AS UNDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.20,40,078/- ON ACCOUN T OF SUPPRESSION OF WORK-IN-PROGRESS. 22. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, ON PERUSAL OF THE TRADING ACCOUN T, NOTED THAT THE ASSESSEE HAS SHOWN SALES OF RS.92,26,000/-. THE CLOS ING WIP WAS SHOWN AT RS.1,60,65,484/-. THE INCOME DISCLOSED DURING SUR VEY WAS AT RS.57,73,400/-. HOWEVER, THE ASSESSEE HAS SHOWN PROFITS OF ONLY RS.48,45,192/-. (THE DETAILS OF TRADING ACCOUNT HAS ALREAD Y BEEN INCORPORATED AT PARA 6 OF THIS ORDER). THUS, DESPITE THE ADDITIONAL DISCLOSURE OF RS.57,23,400/- THE NET PROFIT HAS BEEN DECLARE D AT RS.48,45,192/-. THE ASSESSEE HAS NOT ONLY DEBITED GOODWILL OF RS.11,44,680/- BUT HAS ALSO UNDERVALUED CLOSING WIP AND T HE GROSS PROFIT. THE AO FURTHER OBSERVED THAT THE RATES WERE BO OMING IN PANVEL AREA WHEN THE SURVEY WAS CONDUCTED AND THE BUILDERS W ERE HAVING EXORBITANT PROFITS DURING THE YEAR. IN THE CASE OF THE S ISTER CONCERN M/S. MATESHWARI DEVELOPERS THE ASSESSEE HAS SHOWN NET PROFIT OF 26.5%. THEREFORE, EVEN BY REASONABLE ESTIMATES, IF NET PROFIT IS TAKEN AT 25%, THE PROFIT ON SALE OF RS.92,26,200/- SHOULD HAVE BEEN RS.23,06,550/-. THEREFORE, THE WIP OF THE FLATS SOLD IS RS.69,1 9,450/-, I.E. RS.92,26,200/- (-) RS.23,05,550/-. THE AO THEREFORE DETERM INED THE COST OF THE FLATS SOLD WHICH IS AS UNDER : 17 ITA NO.1087 AND 1079 OF 2011 PARTICULAR AMOUNT (RS.) LAND EXPENSES 8896614 OTHER EXPENSES 16128398 25025012 WIP SOLD 6919450 CLOSING WIP 1,81,05,562 THE AO ACCORDINGLY, HELD THAT THE ASSESSEE HAS SUPPRE SSED CLOSING WIP BY RS.20,40,078/- AND HAS SHOWN WIP AT RS.1,60,65,484 INS TEAD OF RS.1,810,05,562/-. THUS, THE AO MADE ADDITION OF RS.20,40,078 /- TO THE TOTAL INCOME OF THE ASSESSEE UNDER THE HEAD SUPPRESSION OF WIP. 23. BEFORE CIT(A) IT WAS SUBMITTED THAT THE ENTIRE ADDITION MADE BY THE AO WAS ON THE BASIS OF IMAGINATION WHICH IS BEYOND UND ERSTANDING. IT WAS ARGUED THAT DURING THE COURSE OF ASSESSMENT PR OCEEDINGS THE AO HAS NEVER RAISED THE QUERY OF WIP NOR IT WAS ANSWERED OR EXPLAINED BY THE ASSESSEE. THEREFORE, THERE IS COMPLETE VIOLATION OF PR INCIPLE OF NATURAL JUSTICE. IT WAS ARGUED THAT WHILE DOING HYPOTHET ICAL WORKING OF WIP THE AO MENTIONS THAT DURING THAT PERIOD THERE WAS BOOM AND BUILDERS WERE MAKING GOOD PROFIT FOR WHICH HE GAVE AN EXAM PLE OF THE SISTER CONCERN MATESHWARI DEVELOPERS WHERE NET PROFIT OF 26.5% HAS BEEN DECLARED. HOWEVER, THE AO IGNORED THE PROFIT OF RS.4 8,45,192/- DECLARED AND RETURNED BY THE ASSESSEE WHICH WORKS OUT TO 32.4% OF SALE OF RS.1,49,44,400/- AS PER THE PROFIT AND LOSS ACCOUNT FILED W ITH THE RETURN OF INCOME. IT WAS ARGUED THAT EVEN U/.S.44AD THE NET PROFIT IS TO BE ESTIMATED AT 8% IN CASE OF CONTRACTORS. REFERRING T O THE CBDT GUIDELINES ISSUED DURING THAT YEAR IT WAS BROUGHT TO THE NOTICE OF THE CIT(A) THAT THE CBDT IN ITS GUIDELINES FOR SCRUTINY ASSESSM ENT HAS STATED THAT IF PROFIT IN CONSTRUCTION WORK IS DECLARED AT LESS THAN 5% AND THE ASSESSEE IS HAVING MORE THAN RS. 2 CRORES TURNOV ER, THE CASE SHOULD BE SELECTED FOR SCRUTINY. IT WAS STATED THAT FACTUALLY AND LEGALLY THE AO IS NOT JUSTIFIED IN MAKING THE ADDITION. 18 ITA NO.1087 AND 1079 OF 2011 24. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER : 8.3 THE CONTENTS OF THE ASSESSMENT ORDER AND SUBMISSION A RE PERUSED AND CONSIDERED. I FIND THAT, THE ASSESSEE WAS NOT GIVE PROPER OPPORTUNITY BEFORE MAKING THE ADDITION. I ALSO FIND THAT, IF TH E UNDISCLOSED INCOME OF RS.57,23,400/- IS TAKEN INTO ACCOUNT THEN THE NP WOUL D WORK OUT TO 32.40% WHICH COMPARES WELL WITH THE RESULTS OF SISTER CONCERN. IN THE CIRCUMSTANCES, I HOLD THAT, THE ADDITION IS MADE ON P RESUMPTION AND SURMISES AND ACCORDINGLY, I DIRECT THE AO TO DELETE TH E ADDITION. THE GROUND IS ALLOWED. 25. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 26. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. FROM THE COPY OF THE ASSESSMENT ORDER, WE FIND THAT ALTHOUGH THE AO HAS DISCUSSED THE VALUATION OF CLOSIN G WIP/SUPPRESSION OF PROFITS WHILE MAKING THE ADDITION, HOWEVE R, THE ORDER DOES NOT SHOW ANY QUERY RAISED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THIS ISSUE. THE AO HAS SIMPLY PROCEEDED ON THE BASIS OF THE BOOMING MARKET AT PANVEL DURING THE PERIOD WHEN THE SURVEY WAS CONDUCTED AND CAME TO THE CONCLUSION O N HIS OWN. IT IS THE SETTLED PROPOSITION OF LAW THAT ADDITION CANNOT BE MAD E ON THE WHIMS OF THE AO BASED ON SOME SURMISES AND PRESUMPTION S WITHOUT PUTTING ANY QUERY TO THE ASSESSEE. AN OPPORTUNITY MUS T BE GIVEN TO THE ASSESSEE WHILE MAKING OR PROPOSING ANY ADDITION. THE ASS ESSEE MUST BE GIVEN A REASONABLE OPPORTUNITY TO MAKE HIS SUBMISSION . IN ABSENCE OF THE SAME, THERE IS CLEAR VIOLATION OF PRINCIPLE OF NATURAL JUSTICE AND NO ADDITION CAN BE MADE. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE REASONING GIVEN BY THE CIT(A) WHILE DELETING THE ADDITION WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS UPHELD AND THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 19 ITA NO.1087 AND 1079 OF 2011 27. GROUNDS OF APPEAL NO. 3 AND 4 BY THE REVENUE BEING GENERAL IN NATURE ARE DISMISSED. ITA NO.1079/PN/2011 (BY ASSESSEE) : 28. GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE WHILE SUSTAINING DISALLOWANCE M ADE BY AO OF RS.11,44,680/- PARTLY WRITTEN OFF, PAYMENT MADE TO R ETIRING PARTNER AS GOODWILL/COMPENSATION, ACCOUNTED IN THE BOOKS OF ACCO UNT. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN NOT PROPERLY APPRECIATING THE PURPOSE AND PROVISION OF SECTION 40A( 2) (A) ALIKE AO WHILE SUSTAINING DISALLOWANCE OF RS.11,44,680/-, WHICH REQUIR ED SPECIFIC FINDING RELATED TO EXCESSIVE OR UNREASONABLE OF EXPENDITURE IN CURRED AND BEING MISSING IN AOS ORDER. 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN NOT PROPERLY APPRECIATING THE FACT THAT AO HIMSELF DID NOT MAKE A NY INQUIRY BUT COMPLETED THE ASSESSMENT ON THE BASIS OF ALLEGEDLY SURVEY STATEMENT OF PERSON WHO WAS NON-ENTITY IN THE ASSESSEE FIRM. 4. THE APPELLANT CRAVES LEAVE TO ADD/ALTER ANY OF TH E GROUND OF APPEAL ANY TIME ON OR BEFORE THE FINAL HEARING OF APPEAL. 29. FACTS OF THE CASE, IN BRIEF, ARE THAT DURING THE COURS E OF SURVEY IT WAS NOTICED THAT 6 SHOPS AND 3 OFFICE PREMISES WERE ALLOTT ED TO THE PARTNERS BELONGING TO THE HARESH SHAH GROUP. THE DOCU MENT FURTHER REVEALED THAT ALLOTMENT OF THE PREMISES TO THE PARTNERS HAD TAKEN PLACE AT CONCESSIONAL RATE. IT WAS NOTICED THAT AS AGAINST TH E MARKET RATE OF RS.1,05,03,400/- THE PARTNERS WERE CHARGED ONLY RS.33,75,0 00 + RS.14,05,000. THE AO RECORDED THE STATEMENT OF SHRI HIRAL AL RANGANI ON 30-08-2007 ON THIS INCOME WHO IN HIS REPLY HAD STATED AS UNDER : ANNEXURE-II GIVES THE DETAIL OF HOW THE SHARE OF THE RETIRING PARTNERS, SHRI DILIP SHAH AND SHRI JIGAR SHAH WAS CAL CULATED. IN THIS DOCUMENT, THERE ARE CALCULATIONS OF 8 SHOPS AND OFFICE ON THE GROUND FLOOR. REGARDING SHOPS, THE MARKET VALUE WAS RS. 2100/- PER SQ. FT. HOWEVER, THE SALE AGREEMENT WAS MADE AT RS. 4,25,000/- FOR A SHOP OF AREA 565 SQ.FT. WHEREAS THE SALE PRICE IS RS.12,26,500/-. THE DETAILED WORKING OF 8 SHOPS WAS DONE TO CALCULATE THE SHARE OF SHRI DILIP SHAH AN D SHRI JIGAR SHAH, WHO WERE THE RETIRING PARTNERS. IN THE BOOKS ONLY RS. 4,25 ,000 IS WRITTEN, WHEREAS THE MARKET VALUE IS OF RS.12,26,500/-. THE TOT AL OF THIS COMES TO 20 ITA NO.1087 AND 1079 OF 2011 RS.1,05,03,400/- OUT OF WHICH RS.35,03,400/- IS SHOWN I N THE BOOKS OF THE FIRM, WHERE AS THE BALANCE OF RS.70,00,000/- WAS SHARED BY ME (RS. 52,50,000) AND RS. 17,50,000 (BY SHRI RAJENDRA NARAI N PATEL GROUP. THIS TRANSACTION IS NOT DISCLOSED IN THE BOOKS. WITH THIS WORK ING, TWO PARTNERS, SHRI JIGAR SHAH AND SHRI DILIP SHAH WERE RETIRED FR OM THE FIRM AND THE SHARE OF HIRABHAI GROUP WAS INCREASED TO 55% AND OF RAJENDR ABHAI GROUP TO 45% THE CAPITAL OF RS. 52,50,000/- WILL BE DISCLOSED IN TH E RETURN OF MY FAMILY MEMBERS WHO ARE PARTNERS IN M/S. MATESHWARI ENTE RPRISES FOR A.Y. 2007-08 WHICH HAS NOT BEEN FILED TILL DATE. REGARDIN G SHARE OF SHRI RAJENDRA PATEL OF RS. 17,50,000/-, HE WILL GIVE STATEMENT. 30. THE ASSESSEE FURTHER VIDE HIS WRITTEN SUBMISSION DATED 17-11- 2009 EXPLAINED THE ENTRIES AS UNDER : PAGE NO.17 TOTAL SALE CONSIDERATION AS PER WORKING : RS.1,05,03,400 LESS -SALES TAKEN IN THE BOOKS OF ACCOUNTS : RS.47,80,000 BALANCE : RS.57,23,400 THIS AMOUNT IS TREATED AS GOODWILL AND TAKEN IN ASSETS AN D SECOND EFFECT IS SHOWN IN PROFIT AND LOSS ACCOUNT UNDER THE HEAD MISCELL ANEOUS INCOME (SURVEY DECLARATION). THE ASSESSEE HAS WRITTEN OFF 1/5 TH OF SUCH GOODWILL IN THE PROFIT AND LOSS ACCOUNT. BALANCE IS CARRIED TO TH E BALANCE SHEET. 31. FROM THE ABOVE THE AO NOTED THAT AS AGAINST THE M ARKET RATE OF RS.1,05,03,400/- AN AMOUNT OF RS.35,03,400/- WAS SHOWN IN TH E BOOKS OF THE FIRM. FURTHER, AN AMOUNT OF RS.9 LAKHS AND RS.5,05,0 00/- WAS ALSO RECORDED IN THE BOOKS. THUS, THE TOTAL AMOUNT DISC LOSED IN THE BOOKS COMES TO RS.47,80,000/- AND THE AMOUNT NOT DISCLOS ED IN THE BOOKS IS RS.57,23,400/-. HE OBSERVED FROM THE RETURN THA T MISCELLANEOUS INCOME HAS BEEN DISCLOSED AT RS.57,23,400/-. H OWEVER, THE SAME WAS NULLIFIED BY DEBITING AN AMOUNT OF RS.11,44,680/ - AS GOODWILL. IT WAS NOT EXPLAINED HOW THE GOODWILL WAS CREATED . THE AO NOTED THAT IN THE RETIREMENT DEED THERE IS NO SUCH MEN TION REGARDING GOODWILL. THE AMOUNT OF RS.57,23,400/- HAS BEEN SHOWN AS T AXABLE BY THE ASSESSEE HIMSELF AS PER PROVISIONS OF SECTION 40(A)(2A) OF THE I.T. ACT AND SINCE THE FAIR MARKET VALUE OF THE GOODS TRANSFERRED IS MUCH MORE THAN THE VALUE SHOWN IN THE RETURN OF INCOME, THE AO HE LD THAT THIS 21 ITA NO.1087 AND 1079 OF 2011 AMOUNT IS TAXABLE IN THE HANDS OF THE FIRM AS HAS BEEN D ONE BY THE ASSESSEE. HOWEVER, THE ASSESSEE IS NOT ENTITLED TO ANY DEDUCTION ON ACCOUNT OF GOODWILL. SINCE THE ASSESSEE DURING THE COURSE OF SURVEY HAD TAKEN A PLEA THAT AMOUNT WILL BE DISCLOSED BY THE PARTNER S AS PER PROVISIONS OF SECTION 28(V) AND SINCE NONE OF THE PARTNERS HAS DISCLOSED HIS AMOUNT IN HIS INCOME TAX RETURN BUT HAVE PREFERRED TO DISCLOSE THIS AMOUNT IN THE FIRM, THEREFORE, THE AO, REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE ADDED THE AMOUNT OF RS.11,44,680/- DEBITED UNDER THE HEAD GOODWILL. 32. BEFORE CIT(A) IT WAS SUBMITTED THAT THE GENUINENESS OF THE EXPENDITURE HAS NOT BEEN DOUBTED BY THE AO. IT WAS S UBMITTED THAT SALE OF SHOPS AT CONCESSIONAL RATE WERE MADE AS A MATTE R OF UNDERSTANDING TO RETIRING PARTNERS AS COMPENSATION FOR C ONTRIBUTION AND FUTURE LOSS OF INCOME FROM FIRM. IT WAS SUBMITTED THAT THE SAME IS CLEAR FROM SUCH STATEMENT ON PAGE 13 AND IT IS ALSO CLEAR THA T THIS REBATE WAS GIVEN FOR REMOVAL OF SHARE AS MENTIONED IN THE STATEMEN T WHICH IS THE VERY BASIS OF DECLARATION OF DIFFERENTIAL INCOME. IT WAS ARGUE D THAT WHEN THE AO ON THE BASIS OF DOCUMENT NO.17 ACCEPTS THE INCOM E DECLARED BY THE ASSESSEE, HE CANNOT REJECT THE CLAIM OF THE ASSSESS EE REGARDING THE COMPENSATION PAID TO OUTGOING PARTNERS ON THE BASIS OF T HE SAME DOCUMENT. 33. REFERRING TO THE DECISION OF THE PUNE BENCH OF THE T RIBUNAL IN THE CASE OF DHANVARSHA BUILDER AND DEVELOPER VS. DCIT REPORT ED IN 102 ITD 37 IT WAS SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT WHERE SEIZED DOCUMENT IS CONSIDERED FOR THE PURPOSE OF C OMPUTATION OF UNDISCLOSED INCOME OF ASSESSEE, EXPENDITURE MENTIONED THER EIN WOULD 22 ITA NO.1087 AND 1079 OF 2011 ALSO BECOME ADMISSIBLE TO THE ASSESSEE. IT WAS SUBMITTE D THAT THE AO CANNOT ACCEPT ONE PART OF DOCUMENT AS TRUE IGNORING TH E OTHER PART OF THE SAME DOCUMENT OR OTHER DOCUMENT SEIZED BY THE DE PARTMENT TREATING THE SAME AS UNTRUE. IT WAS ARGUED THAT THE AO HAS NOT GIVEN ANY REASONING BASED ON HIS ENQUIRY TO ASCERTAIN WHETHER THE PAYMENT IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARK ET VALUE OF THE SAME OR LEGITIMATE NEEDS OF THE BUSINESS. RELYING ON VA RIOUS DECISIONS IT WAS SUBMITTED THAT THE COMPENSATION PAID TO THE OUTG OING PARTNERS ARE PAID FOR FORGOING THE FUTURE BENEFIT, APPRECIATION IN VALUE OF PROPERTY/ASSETS ETC. AND IT IS NORMAL BUSINESS PRACTICE,T HEREFORE, THE ADDITION MADE BY THE AO SHOULD BE DELETED. 34. HOWEVER, THE CIT(A) WAS ALSO NOT CONVINCED WITH THE A RGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER : 6.1 THE SUBMISSION IS CONSIDERED AND THE DECISIONS PERU SED. I FIND FROM THE ASSESSMENT ORDER THAT, SALES TO THE RETIRING PAR TNERS HAS TAKEN PLACE AT A CONCESSIONAL RATE WHICH HAS CAUSED LOSS TO THE FIRM TO THE TUNE OF RS.57,23,400/-. IN THE STATEMENT RECORDED OF SHRI HIRALAL RANGANI ON 30-08-2007, HE ADMITTED THAT, HE WOULD ADMIT THE DI FFERENTIAL AMOUNT OF RS.52,80,000/- IN HIS HANDS AND RS.17,50,000/- IN THE H ANDS OF SHRI RAJENDRA NARAL PATEL GROUP AS INCOME. HOWEVER, THE PARTNERS HAVE NOT ADMITTED ANY SUCH INCOME IN THEIR RESPECTIVE RETURNS S INCE THE SAID INCOME HAS BEEN ADMITTED IN THE RETURN OF THE ASSESSEE F IRM. THE AO HAS DISALLOWED THE EXPENSES TO THE TUNE OF RS.11,45,680/ - U/S.40A(2). I AM IN FULL AGREEMENT WITH THE AO THAT THE EXPENDITU RE IS COVERED US.40A(2A). I, THEREFORE, HOLD THAT, AOS ACTION IN REJECTING THE CLAIM OF WRITE OFF OF RS.11,45,680/- AS GOODWILL WITHIN THE AM BIT OF LAW, ACCORDINGLY, I UPHOLD THE ACTION OF THE AO AND SUSTAI N THE ADDITION. THE GROUND IS, THUS, DISMISSED. 35. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 23 ITA NO.1087 AND 1079 OF 2011 36. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE DEE D OF ADMISSION-CUM-RETIREMENT PARTNERSHIP, A COPY OF WHICH IS PLA CED AT PAGES 31 TO 43 OF THE PAPER BOOK DREW THE ATTENTION O F THE BENCH TO THE VARIOUS CLAUSES. REFERRING TO THE STATEMENT OF SHRI HARES H L SHAH RECORDED U/S.131 OF THE I.T. ACT ON 30-12-2009 DREW TH E ATTENTION OF THE BENCH TO QUESTION NO.8 WHERE HE WAS ASKED WHETHER HIS SONS WERE PAID ANY SUM IN LIEU OF GOODWILL FROM M/S. MATESHWARI ENTERPRIS ES FROM THEIR RETIREMENT ?. HE SUBMITTED THAT SHRI HARESH L. SHA H IN HIS REPLY HAD STATED THAT NO SUCH GOODWILL WAS PAID. HE SUBMITTED THAT THE SALE OF SHOPS TO PARTNERS WAS MADE AS A MATTER OF UNDERSTA NDING TO RETIRING PARTNERS AS COMPENSATION FOR CONTRIBUTION AND FUTURE LOSS ES OF INCOME FROM FIRM. HE SUBMITTED THAT WHEN THE VARIOUS DOCUMENTS ARE SEIZED THE DEPARTMENT CANNOT UTILIZE THE SEIZED DOCUMENTS WHICH ARE AGAINST THE ASSESSEE AND IGNORE THE DOCUMENTS WHICH ARE IN FAVO UR OF THE ASSESSEE. ALL THE DOCUMENTS SHOULD BE READ AS A WHOLE. FURTHER, THE AO HAS NOT GIVEN ANY REASONING BASED ON HIS ENQUIRY TO ASCERTAIN WHETHER CHARGING OF SUCH AMOUNT AT A LESSER RATE IS COM MENSURATE WITH THE MARKET RATE OR NOT. NO PROPER REASONING HAS BEEN GIVEN BY THE AO FOR MAKING THE DISALLOWANCE. THE ASSESSEE HAS RIGHTLY DEB ITED THE GOODWILL AMOUNTING TO RS.11,45,680/-. THE CIT(A) ALSO HAS NO T GIVEN ANY VALID REASONS FOR SUSTAINING THE ADDITION. HE ACCORDING LY SUBMITTED THAT DISALLOWANCE MADE BY THE AO AND UPHELD BY THE CIT(A ) SHOULD BE DELETED. 37. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND DREW THE ATTENTION OF THE BENCH TO QUESTION NO.8 PUT TO SHRI HARE SH L. SHAH IN HIS STATEMENT RECORDED ON OATH U/S.131 ON 30-12-2009 WHEREIN SHRI HARESH L. SHAH HAD ADMITTED THAT THE SHOPS AND OFFICES W ERE ALLOTTED TO 24 ITA NO.1087 AND 1079 OF 2011 HIM AT LESSER VALUE THAN THE MARKET RATE AT THAT TIME. HE SUBMITTED THAT THE ASSESSEE IN THE INSTANT CASE HAS ACTED DISHO NESTLY. IN THE STATEMENT THE ASSESSEE OFFERED TO PAY THE TAX IN THE H ANDS OF THE PARTNERS. NOW BY RAISING THIS GROUND THE ASSESSEE DOES NOT WANT TO PAY ANY TAX. THEY HAVE TAKEN THE DEPARTMENT FOR GRANTED. THE CLAIM IS NOT SUBSTANTIATED BY ANY EVIDENCE. THEREFORE, ONCE IT WAS AD MITTED THAT THE SHOPS AND OFFICE PREMISES WERE ALLOTTED TO HIM AT LESSER VA LUE THAN THE MARKET RATE AT THAT TIME, THE PROVISIONS OF SECTION 40A(2A) ARE ATTRAC TED. 38. REFERRING TO THE STATEMENT OF SHRI HIRALAL RANGANI (PATEL) RECORDED ON OATH U/S.133A ON 30-08-2007 HE SUBMITTED THAT SHRI RANGANI IN HIS REPLY TO QUESTION NO.3 HAD ADMITTED THAT THE DIFFERENCE W ILL BE DISCLOSED IN THE RETURNS OF THE FAMILY MEMBERS WHO WERE PARTNERS IN M/S. MATESHWARI ENTERPRISES FOR A.Y. 2007-08. DESPITE THIS ADMIS SION, NO SUCH INCOME WAS DISCLOSED. IN ANY CASE SINCE THE PROVIS IONS OF SECTION 40A(2A) ARE ATTRACTED FOR GIVING THE SHOPS/OFFICE PREMISES A T CONCESSIONAL RATE TO THE OUTGOING PARTNERS, THEREFORE, TH E AO WAS FULLY JUSTIFIED IN MAKING THE DISALLOWANCE AND THE LD.CIT(A) WAS FULL Y JUSTIFIED IN SUSTAINING THE DISALLOWANCE. HE ACCORDINGLY SUBMITTED TH AT THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE SHOULD BE DISMISSED. 39. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BEFORE US. WE FIND DURING THE COURSE OF SURVEY CER TAIN PAPERS WERE IMPOUNDED ACCORDING TO WHICH 6 SHOPS AND 3 OFFICE PREMISE S WERE ALLOTTED TO THE PARTNERS BELONGING TO HARESH SHAH GROUP . AS PER THE SAID DOCUMENTS AS WELL AS THE SUBSEQUENT REPLY GIVEN BY THE ASSESSEE 25 ITA NO.1087 AND 1079 OF 2011 DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS FOUND THAT THE OUTGOING PARTNERS WERE ALLOTTED SUCH SHOPS AND OFFICE PRE MISES AT CONCESSIONAL RATES OF RS.47,80,000/- AS AGAINST THE MARKET RATE OF RS.1,05,03,400/-. THUS, THE DIFFERENCE OF RS.57,23,400/- SHOULD HAVE BEEN OFFERED TO TAX. ALTHOUGH THE ASSESSEE HAS CREDITED THE AMOUNT OF RS.57,23,400/- UNDER THE HEAD MISCELLANEOUS INCOME., HOWEVE R, THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.11,44,680/- BEING 1/ 5 TH OF THE ABOVE AMOUNT AS GOODWILL. IT IS ALSO A FACT THAT IN THE R ETIREMENT DEED THERE IS NO MENTION OF ANY GOODWILL TO BE PAID TO THE OUTG OING PARTNERS. THEREFORE, WHILE DISCLOSURE OF RS.57,23,400/- IS JUSTIFIED DEBITING THE AMOUNT OF RS.11,44,680/- IN OUR OPINION IS NOT JUSTIFIED UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. FURTHER DESPITE ADMISSION DURING THE COURSE OF RECORDING OF STATEMENT THAT SUCH INCOME WILL BE DISCLOSED IN THE HANDS OF THE PARTNERS, NOTHING WAS BROUGHT TO OUR NOTICE THAT ANY OF THE PARTNERS HAD DISCLOSED SUCH AMOUNT IN HIS HANDS. U NDER THESE CIRCUMSTANCES WE HOLD THAT THE AO WAS FULLY JUSTIFIED IN BR INGING TO TAX AN AMOUNT OF RS.11,44,680/-. IN VIEW OF THE ABOVE AND THE DETAILED REASONING GIVEN BY THE LD. CIT(A) WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). ACCORDINGLY, WE UPHOLD THE ORDER OF THE C IT(A) ON THIS ISSUE AND THE GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED. 40. THE ASSESSEE HAS ALSO TAKEN THE FOLLOWING ADDITIONAL GROUND : 1. THE LD.CIT(A) HAS ERRED IN LAW & FACT BY CONFIRM ING ADDITION OF RS. 14,07,083/- (IN PARA 5.6) IN THE HAND OF PARTNERS, I NSPITE OF FACT THAT EXPENDITURE DIRECTLY INCURRED BY PARTNERS WERE RS.18, 57,488/- ALREADY ACCOUNTED BY ASSESSEE FIRM BY CREDITING PARTNERS CAPITAL AS ON 31-03-2007 AND DEBITING TO VARIOUS EXPENDITURE (AS PER A.O. ORDE R PARA 3.1.3 & 3.1) AND ACCOUNTED BY PARTNERS IN THEIR IT. RETURN INCLUDING SAID AMOUNT RS.14,07,083/- AND A.O. HAS ACCEPTED THE SAME IN HIS OR DER OF FIRM AND PARTNERS WITHOUT ANY ADVERSE COMMENT AND DISALLOWANCE AND THEREFORE THERE WAS NO REASON FOR MAKING ANY DISALLOWANCE BY A.O . AS WELL CIT- APPEAL IN THEIR ORDER AS UNACCOUNTED EXPENDITURE. 26 ITA NO.1087 AND 1079 OF 2011 41. THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEAR ING DID NOT PRESS THIS ADDITIONAL GROUND. ACCORDINGLY, THE ADDITIONAL GR OUND IS DISMISSED AS NOT PRESSED. 42. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AS WELL AS THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30-03-2016. SD/- SD/- ( SUSHMA CHOWLA ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; DATED : 30 TH MARCH , 2016. LRH'K ' (*+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. % ( ) - THE CIT(A)-I, THANE 4. % S / THE CIT-I, THANE 5. ( ++, , , , IQ.KS / DR, ITAT, A PUNE; 6. 0 / GUARD FILE. / BY ORDER , // ( + //TRUE COPY// 23 + , / SR. PRIVATE SECRETARY ,, IQ.KS / ITAT, PUNE