DCIT, CC-3, JAIPUR V. M/S BHIVARAM PANNALAL KUMAWAT, JAIPUR

ITA 117/JPR/2021

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 5864 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 02-09-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALL
• Keywords: Unexplained expenditure; Gift; Revision of order; Depreciation; Income from undisclosed sources; Search and seizure; Loose papers; Document seized; Tax effect; Wrong claim; Valuation report; Block assessment; Onus to prove; Retraction; Documents seized; Set aside
• Section: 147; 131; 68; 148; 132; 271(1)(c); 69C; 40A(3); 139; 143(3); 142(1); 153A; 40(a)(ia); 139(5); 69B; 250; 143(2); 192; 64; 44AB; 113; 2(A); 72; 13; 153; 145(3); 119; 22; 153C

Judgement Text

1 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur v k ;d jv ih y h ; v f /k d j . k ] t ;iq jU; k ; ih B] t ; iq j IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR JhlaanhixkslkbZ]U; kf;d ln L; ,oaJ hj kB ksM d eys'k t ; U r Hkkb Z t ; U r Hkkb Z t ; U r Hkkb Z t ; U r Hkkb Z ] ys[ kk l n L; d s l e{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM v k ;d jv ih y l a-@ITA No. 69 TO 75/JP/2021 fu / kZ kj .ko" kZ @AssessmentYears : 2012-13 to 2018-19 M/s. Bhivaram Pannalal Kumawat 602, Elements Mall DCM Ajmer Road, Jaipur cu ke Vs. The ACIT Central Circle-3 Jaipur LFkk; hys[ kk l a- @t hvkbZ vkj l a- @PAN/GIR No.: AABFB3002C vihykFkhZ @Appellant iz R;FkhZ @ Respondent v k ;d jv ih y l a-@ITA No. 117 TO 121/JP/2021 fu / kZ kj .ko" kZ @AssessmentYears : 2013-14 to 2017-18 The DCIT Central Circle-3 Jaipur cu ke Vs. M/s. Bhivaram Pannalal Kumawat 602, Elements Mall DCM Ajmer Road, Jaipur LFkk; hys[ kk l a- @t hvkbZ vkj l a- @PAN/GIR No.: AABFB3002C vihykFkhZ @Appellant iz R;FkhZ @Respondent f u/k Z k f jrh d h v k s j ls@Assessee by : Shri P.C. Parwal, CA jk t Lo d h v k sj l s@Revenue by: Shri Sanjay Dhariwal, CIT lq uok bZ d h rk jh [k@Date of Hearing : 23/02/2022 mn?k k s"k . k k d h rk jh [k@Date of Pronouncement: 29 /03/2022 vkn s'k@ORDER PER BENCH The assessee has filed appeals for assessment year 2012-13 to 2018-19 involving seven assessment years. The Department has also filed cross appeals 2 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur for the assessment year 2013-14 to 2017-18. The tax effect being lower in assessment year 2012-13 and 2018-19 the same were not carried before us by the department. The facts as well as issues, are more or less involving the disallowance of labour expenses and therefore, these twelve appeals were head together and are now being disposed off by way of this common order for the sake of convenience and brevity. 2. The hearing of the appeal was concluded through audio-visual medium on account of Government guidelines on account of prevalent situation of Covid-19 Pandemic, both the parties have placed their written as well as oral arguments during this online hearing process. 3. The brief fact of the case is that a search and seizure operation was carried out on 28.09.2017 in the case of “Swaroop Narain Shiv Narain&Kumavat Group” to which the assessee firm belongs.The assessee firm is a civil contractor engaged in the construction of building on contract basis. It is regularly filing its return of income. 3.1 Status of the assessment to be taken up under section 153A for the assessment year is as under 3 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur a) For assessment year 2012-13 return of income was filed on 28.09.2012 declaring Income at INR 3,91,33,450/-. No scrutiny under section 143(3) of the Act. b) For assessment year 2013-14 return of income was filed on 28.09.2013 declaring Income at INR 4,54,45,760/-. The assessment under section 143(3) of the act was completed on 12.12.2015. c) For assessment year 2014-15 return of income was filed on 29.11.2014 declaring Income at INR 5,29,80,690/-. The assessment under section 143(3) of the act was completed on 01.02.2016. d) For assessment year 2015-16 return of income was filed on 29.09.2015 declaring Income at INR 6,90,50,060/-. No scrutiny under section 143(3) of the Act. e) For assessment year 2016-17 return of income was filed on 16.10.2016 declaring Income at INR 6,04,51,200/-. No scrutiny under section 143(3) of the Act. f) For assessment year 2017-18 return of income was filed on 29.10.2017 declaring total income at INR 5,43,96,440/- which was pending for assessment. 3.2 In search certain papers/ documents marked as Annexure AS-1 to AS-64 were impounded from the office premises of assessee. Out of it, Annexures AS-3 to AS-60 & AS-64 are muster rolls for labour payment. These muster rolls pertain to FY 2007-08 to the date of search. 3.3 On the basis of these muster rolls, the search party in statement under section 132(4) dated 29.09.2017 of ShriBhivaramKumawat, partner of the firm 4 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur sought surrender of Rs.16,50,62,994/- from FY 2010-11 to 2017-18 on the basis that 15% of the site running expenses considering it as bogus claim. The relevant point is recorded at question no. 16 of the statement where in he was shown the salary sheet for felicity Aventura site for March 2016 and August 2016 wherein the search party observed that Mr. Manoj put finger in February 2016 and in August 2016 his put signature in the salary sheet. Same observation for Ramchandra Pandit. Udit Yadav make signature in English in February 2016 and in August 2016 put in Hindi signature. Against some sheets same impression and against no impression of thumb or signature were appearing. On these instances the disclosures were made. This statement was also got confirmed from another partner Sh. Pannal Lal Kumawa. 3.4 Immediately after search within 12 days the assessee vide letter filed on 11.10.2017before ADIT(Investigation), Jaipur with copy to PDIT(Investigation), Jaipur and DDIT(Investigation)-I, Jaipur filed a detailed affidavit of Shri Pannal Lal Kumawat retracting from the said surrender by giving detailed reasons as to how the same was given under coercion. 3.5 In post search proceedings before the investigation wing the assessee vide letter dated 10.01.2018 to DDIT, Investigation-I explained that papers impounded as per Annexure AS-1 to AS-64 particularly the muster rolls for labour payment impounded in search is duly recorded in the regular books of accounts. 5 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur Further vide letter dated 20.01.2018 the project wise details of labour expenses recorded in the books of accounts was submitted. After considering the affidavit and the details submitted, the investigation wing has not found anything adverse in the explanation of the assessee. 3.6 In the assessment proceeding pursuant to section 143(3) r.w.s. 153A of the income tax the assessing officer has added a sum @ 15 % of total site running expenses and finalized the assessment accordingly for the all these years. Aggrieved by the order of the assessing officer the assessee filed an appeal before the Commissioner of Income Tax, (Appeals-4), Jaipur [ here in after referred to as “CIT(A)” ] taken a view that looking to the component of the unverifiable bogus labour charges, in his considered opinion if addition is sustained @ 1 % of the total turnover, in addition to the net profit declared by the appellant in each of the years and thus the addition made and addition sustained by the CIT(A) is summarized as under: ( A ) ( B ) ( C ) ( D ) ( E ) ( F ) A. Y. Site Running Exp 15 % alleged as bogus Expenses of column (B) Contract Receipt 1% Considered as bogus of column ( D) by CIT(A) Net Profit declared by assessee 2012-13 12,21,02,503 1,83,15,375 397432947 39,74,329 9.86 2013-14 15,37,95,537 2,30,69,330 475883152 47,58,831 9.61 2014-15 19,26,75,470 2,89,01,320 511392641 51,13,926 10.46 2015-16 28,85,20,286 4,32,78,042 673542953 67,35,429 10.35 6 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 2016-17 16,56,33,890 2,48,45,083 577212220 52,72,122 11.31 2017-18 9,59,80,790 1,43,97,118 449239895 44,92,398 12.26 2018-19 4,11,77,168 61,76,575 518724175 51,87,241 12.39 3.7 Aggrieved from the above finding of the CIT(A) and with that of the assessing officer the assessee has filed an appeal for all these year and ld. AO has filed an appeal holding the contrary finding given by CIT(A). 4. For all these yearsthe grounds of assessee for assessment year 2012-13 to 2015-16 were common and the grounds that the assessee has taken for assessment year 2016-17 to 2018-19 are slight difference whereas, grounds for departmental appeal are same for all five years. The relevant extract of the common ground are as under : Ground of the Assessee for 2013-14 ITA NO. 70/JP/2021 1. The Ld. CIT(A) has erred on facts and in law in incorrectly holding that the addition made by AO in assessment framed u/s 153A on account of alleged unverifiable wages expenses on the basis of muster rolls found in search which is further admitted in statement recorded u/s 132(4) and strengthen with the report of Finger Print Bureau is valid in law ignoring that the wages expenditure as per muster rolls found in search is duly recorded in books of accounts, the statement was retracted immediately after search and the report of Finger Print Bureau obtained during assessment proceedings is not a material found in search and thus, in the absence of any incriminating material found in search the disallowance out of wages expenses made by AO is not as per law which stood accepted by Ld. CIT(A) also. 2. The Ld. CIT(A) has erred on facts and in law in rejecting the books of accounts u/s 145(3) of the Act and thereby making addition of Rs.47,58,831/-, being 1% of the contract receipts of Rs.47,58,83,152/-. She has further erred in making such addition even when no 7 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur corresponding asset/ expenses was found and assessment for year under consideration has already been completed u/s 145(3) of Act after application of n.p. rate of 9.5%. Ground of the Assessee for 2016-17 ITA No. 73/JP/2021 The Ld. CIT(A) has erred on facts and in law in rejecting the books of accounts u/s 145(3) of the Act and thereby making addition of Rs.52,72,122/-, being 1% of the contract receipts of Rs.52,72,12,220/-. She has further erred in making such addition even when no corresponding asset/ expenses was found. Ground of the departmental appeal 2013-14 ITA No.117 1 Ld. CIT(A) has erred in law and on the facts and in the circumstances of the case in restricting the addition to Rs. 47,58,831/- from Rs. 2,30,69,330/- made by the AO on account of unexplained expenses u/s 69C of the Income-tax Act, 1961. 2 The Ld. CIT (Appeals) has erred in law and in facts by not considering the vitalfacts and vital pieces of evidences and points of law, as follows: (a) During the course of search proceedings, partner of the assessee firm has admitted that the expenses incurred at site were not correct and offered 15% of total expenses for taxation in statement recorded u/s 132(4) of the Income tax Act, 1961 on oath, voluntarily and without coercion. Despite upholding the above finding, the Ld. CIT (A) has restricted the addition to 1% of total turnover on account of unexplained/bogus labour expenses instead of the 15% offered by the assessee firm's partner during the search as also applied by the AO in the assessment order. (b) The labour sheets cannot be manipulated in any form even though maintained by some employee. 8 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur (c) The claim of the assessee that there were no incriminating documents relating to addition of 15% labour expenses is incorrect. The bogus/falsified labour sheets were found and seized during the course of search itself. It is on basis of specific defects (and other indications) as inferable from these sheets that the issue of booking of bogus labour expenses was discovered. (d) To check the veracity of the thumb impressions on the labour sheets which appeared similar, some labour sheets were sent to the Finger Print Bureau, Rajasthan Police Academy for forensic analysis on test check basis. The pages were randomly sent so that an overview regarding the authenticity (or t of otherwise) of the claim of labour expenses could be available. As per report the Finger Print Bureau, the referred thumb impressions are similar and identical with each other and have been made by the thumb of the same person. (e) It is pointed out that (for purposes of Income-tax Act, 1961) the evidence(s) do not mean documentary evidence only. The statements recorded u/s 132(4) of the Income-tax Act, 1961 also have been judicially held as important pieces of evidence collected as a result of search. In the present case, it is not only the statement of the Partners of the assessee firm but also documents found and seized during the course of search which were relied upon in the assessment order. (f) It has been held by the Hon'ble Supreme Court in Pullangode Rubber ProduceCo. Ltd. V. State of Kerala (1973) 91 ITR 18, an admission in an extremely important piece of evidence. (g) From the details available on record, it is inferable that the assessee firm has been regularly indulging in practice of booking bogus labour expenses asevident from the labour sheets of various years. 9 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 3 The Ld. CIT(A) has ignored the point of law that a statement made voluntarily by the assessee forms valid basis of assessment. 4 The Ld. CIT(A) has erred in not considering the legal issue that an assesseecannot go back on his voluntary statement of surrender (u/s 132(4) of theIncome-tax Act, 1961) without there being any judicially acceptable evidence ofthe statement not being made voluntarily. Further, retraction after elapse oftime is an indication of the retraction being an afterthought. 5 (a) On the facts and in the circumstances of the case and in law the Ld. CIT(A) is not justified in applying GP rate of 1% on gross turnover to cover the bogus expenditure on labour (and others), instead of confirming the addition made by the AO as not only is such an estimation without basis, but very much on the lower side. (b) The Ld. CIT(A) has erred in law and on facts and has acted whimsically in relyingupon her discretion having no judicial basis for arriving at a GP of 1%. 6 The Ld. CIT (A) has erred in law and has committed a grave error of law in not giving notice to the Assessing Officer as contemplated within the meaning of provisions of section 250(1) of the Income-tax Act, 1961. In this connection, order of Hon'ble Supreme Court in the case of AmritlalBhogilal& Co. [1958]34 ITR 130 (SC) may be studied. 5. The parties agreed that assessment year 2013-14 is lead assessment year and appeal of both revenue and assessee is pending before us and thus, facts and arguments before the lower authorities relating thereto were adverted by them for this year and we have also extracted the same for the sake of convenience from the said folder. It was stated that in all the appeals identical issues for addition of alleged bogus labour expenses are involved. 10 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 6. The return of income for assessment year 2013-14 was filed under section 139(1) of the Income Tax Act, 1961 [ here in after referred as “the Act” ] on 28.09.2013 declaring total income of INR 4,54,45,760/-. Thereafter, assessment under section 143(3) of the Act was completed on 12.12.2015 and income was assessed at Rs. 4,62,57,217/-, so the regular assessment was finalized. 7. A notice under section 153A of the Act for this year was on issued on 21.08.2018 and pursuant to that notice the assessee e-filed the return of income on 01.09.2018 declaring total income at Rs. 4,62,57,220/- as finalized as per the assessment order under section 143(3) of the Act. The Ld AO made a detailed order and his observation in respect of additions made are discussed / extracted here in subsequent para for the sake brevity of the contentions raised by him. 7.1 During the assessment proceedings based on the statement recorded at the time or search Ld. AO contended that assessee has claimed large amount of “Site Running Expenses”, under the head “Direct Expenses”. Various Labour sheets were found and seized from the office premises of assessee and same were impounded as Annexure AS, Exhibit 3 to 60 & 64. Bare persual of these sheets reflects that these sheets are manipulated containing forged signatures and thumb impressions hence the same were being analysed. Instances were noticed wherein some labourer’s were signing in English on some sheets while they were signing putting there thumb impressions at other pages. Also at some 11 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur pages there were no thumb impression at all and many of thumb impressions appeared to be similar. 7.2 He has discussed and extracted the statement of Shri BhivaramKumavat and extracted the relevant questions and answers from the statement recorded at the time of search on 29.09.2017. He has also discussed and extracted the statement of another partner Shri Pannalal stating that he has also confirmed the surrender made by Shri BhivaramKumavat and also given complete details that how this undisclosed income being generated from clamming bogus expenses and has discussed that aspect too. 7.3 The statement of Shri Hanuman Sharma who is the main accountant of the assessee firm was also extracted and discussed where in the said accountant stated that when the cash is withdrawal from the bank account the same is carried to site by the partner and accordingly, debited to the advance site running expenses. When the detailed sheets comes from the site to that extent amount is credited to advance site running expenses and amount in accordance to the labour sheet is debited to site running expenses based on number of labour employed at site and paid. The AO based on the statement of the accountant stated that he ( accountant ) had no idea about the evidences related to ‘Advance to site running expenses’. He simply enters all the cash withdrawals as ‘Advance to site running expenses’ in the tally accounts. Cash is withdrawn by 12 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur Shri BhivaramKumawat and Shri Pannalal Kumavat and he does not have any idea about the purpose for which this cash is used. He simply feeds that cash as 'advance to site running expenses' after observing the online bank statement of the firm. Later on when vouchers are received he would set off the amount from that head. He could not furnish any sitewise list of such advances. Balance of more than Rs. 1 crore was there in the account of 'advance to site running expenses' but the accountant could not furnish bills / vouchers from April-2017 itself. Thus it is evident that cash is withdrawn by Shri BhivaramKumawat or Shri Pannalal Kumawat. No evidence could be furnished by the assessee to prove that the entire cash was used at sites as 'site running expenses' which makes it clear that the labour sheets are manipulated as per the amounts of cash withdrawn from the bank and the same is set off by the accountant from the 'advance to site running expenses'. Hence, the labour sheets which are the very basis for claiming the 'site running expenses' are itself not genuine and are entered in the books of accounts arbitrarily to manipulate the labour expenses claimed under this head. 7.4 During the course of assessment proceedings these labour / wages sheets were examined and analysed on test check basis and various discrepancies were noticed which are enumerated as under: 13 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 1. It can be seen from naked eyes itself that in many of the cases, thumb impressions havebeen put as a token of receipt of wages on revenue stamps by a single person on many stamps. On the same page all the columns bear the thumb impression of a same person. 2. In numerous cases, the signatures of the same person have been done differently i.esomewhere he/she would sign in Hindi and in the other instance in English. The flowand style of handwriting doesn't corroborate at multiple instances. 3. It is also seen that the person who has written the names of the labourers in the laboursheets, has himself signed the revenue stamps i.e the style of writing is exactly similar. 4. There are instances wherein same labourer has once signed while at some otherinstance he would put his thumb impression in the labour sheets of same constructionsite. 5. In exhibit AS-25, it was seen that in pages 42 to 70 out of all the 15 columns in one sheet, only one person is signing on each page; rest all have put their thumb impression. Same is the case in pages 1 to 38 of exhibit AS-29. Even the single signature on each page appears to be exactly similar which is the evident from the sample of pages reproduced in the assessment order. 6. In exhibit AS-58, it was seen that in page 54 to 65, there is neither signature nor thumb impression in number of columns which is clearly evident from the said pages reproduced in the assessment order. 7. In exhibit As – 29, it was seen that in page 88 and 89; all the columns contain only thumb impression while on the other hand in exhibit AS – 28, it was seen pages in 69 to 71 that all the columns contain only signature of the labourers. 8. In exhibit AS-24, it was seen that in pages 70-71, all the signatures in various columns appear to be of same person after analyzing the writing style and pattern of signature. The same was reproduced in the assessment order. 9. In exhibit AS – 29, it was seen that on page 64 the name of the person is Ganesh Kanwar while the signature is of Ganesh Kumar, on page 42 14 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur there are exactly the same signature by Mahesh and Ramesh with regards to the handwriting pattern. 10. Sample of such one sheet has been extracted in the assessment order where it is easily ascertainable that the person who has written the name of KishanuramSahu and Babulal has himself put signatures of these persons on the revenue stamps as the style of writing ‘ 9 ‘ is same in all the cases. Further numbers of other discrepancies were also noticed in a large number of sheets. 7.5 The assessee was asked to explain all these discrepancies during the course of assessment proceeding vide notice under section 142(1) dated 18.01.2019. 8. The assessee filed a detailed reply dated 09.04.2019 and the same is reproduced for here in below "in respect of the aforesaid show cause and allegations, we are to submit us under: 1.1 That M/s Shivaram Pannalal is partnership firm having partners Shri BhivaramKumavatand Shri PannalalKumawat having equal share. Firm is engaged in building construction work. Building construction work is taken on contract basis with material. However, Iron Sariya is not included in the work. Sometime cement & finishing material like Tiles, Chokhat, Marble, etc were also provided by builder. Mainly civil construction work include labour, Bazri, Rodi, Bricks, Binding wire, etc were carried out by assessee firm. 1.2 That civil construction work is mainly labour oriented work. Labour is mainly of casual nature and hired atsite. Labour are continuously moving, 15 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur there is no fix how many days a labour works. Each site is having different labour. Each site is supervised by Site Supervisor and he is engaging labour and also maintaining record of labour like Labour Card, Attendance, etc. On the basis of monthly card, site supervisor is preparing wages sheet and intimating estimated amount of labour payment to accounts staff. On the basis of supervisor requisition, advance payment is send to site for labour payment and debited the account head "Site Advance. After receipt of payment, site supervisor is making payment to each labourer and getting sign of labour on wages sheet. On the basis of final wages sheet, accounting entries are passed in the books of account by debiting wages expenses and crediting site advance account. 1.3Regarding discrepancies noticed by the search team in wages sheet, it is submitted that sometime labour left the job in between the month and give his card to another labour. At the end of the month, other labour receives the payment and also sign wages sheet on behalf of labour who left the job in between the month. Similarly, the labours are engaged for particular site and they are casual in nature. There is no continuity of the labour. There is no system of obtaining of KYC Whatever names he intimates or his co labourer used to call him is recorded in the wages sheet as well as on labour card. Some time there is more than one labour of same name at site. It is also submitted that there are many labours from Bihor or other state coming for competitive exams for their preparation, these students after their exams or for same earning also doing labour work. These types of labour some time signed in English or some time signed in hindi. Further site supervisor is not having any accounts or finance staff and he also does not have any knowledge about the accounts & finance. He used to prepare wages sheet on the basis of labour card and send them to Head office for checking. After receipt of checked wages sheet & advance amount, he makes the payment to labourer. None of the labour payment or wages sheet is prepared by partners or their relatives. Since the lobour sheets are prepared by site supervisor, there may be possibility of some clerical error in preparation of these sheets but the labour expenses so debited in books of account is genuine & fully verifiable. 16 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 1.4It is submitted that during the course of search proceeding, noincriminating documents were found which suggest that assessee has excessively booked wages expenses or other record were found during the course. of search which suggest that there is inflated booking of wages expenses. It is further submitted that the inference drawn by search team that the wages expenses has been excessively booked by 15% is only on surmises & assumption. During the course of search, no incriminating documents were found which suggest that wages expenses were inflated in the books of accounts. The estimation of 15% of excessive wages is & arbitrary and without any basis. The show cause proposed by your good self is simply on the basis of assumption or presumption of search team and not on the basis of incriminating material found during the course of search, hence no addition can be made on the basis of assumption or presumption. 1.5 So far as surrender made by partners of the firm during the course of search, it is submitted that surrenderso made by partners are under pressure & coercion. Surrender so made is not voluntarily. Immediately after the search, partners of the firm has filed detailed affidavit before Pr. Director of Income tax (Inv.), Jaipur, Addi. Director of Income tax (Inv.), Jaipur and Dy. Director of Income tax (Inv., Jaipur on 11-10-17 narrating the complete facts relating to search proceeding and surrender made during the course of search. Copy of said letter and affidavit is enclosed for your ready reference. 1.6 It is further submitted that assessee firm is regularly filling its return of income and its books of accounts are subject to audit under section 44AB of the income tax Act, 1961. All the expenses and income are fully verifiable from books of accounts and record maintained by assessee firm. It is further submitted that assessment proceeding of Asstt. Year 2013-14 & 2014-15 has already been completed u/s 143(3) of the Act. In AY 2013- 14, assessing officer has applied provision of section 145(3) of the Act and estimated income of assessee firm by applying NP rate of 9.5% subject to depreciation and interest & remuneration to partners Assessment proceeding of AY 2014-15 has been completed by making disallowance of 17 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur Rs 62,586/- u/s.40A(3) of the Act. Copy of both these assessment order is enclosed. Thus, assessing officer haos examined complete books of accounts and supporting documents and considering all these, assessment has been completed u/s 143(3) of the Act. Since no incriminating documents except the observation of search team were found during the course of search, hence returned income shown by assessee be accepted. 1.7 It is submitted that during the course of search books of accounts as well as wages sheets were found & seized by the department. These wages sheet are part of regular books of accounts. These wages sheet are prepared on day to day basis in normal course of business. Minor discrepancies pointed out by search teamare simply their observation and there is no basis to propose disallowance out of labour expenses in view ofabove no disallowance is required to be made out of labour expenses. 9. The AO has stated that the reply of the assessee is considered and is not found acceptable due to the following reasons; 1. The assessee has stated that the labour expenses are genuinely booked and the details of the same are maintained by the site supervisor. However, during the course of search no such details were available with the accountant who was actually debiting huge amounts as 'advance to site running expenses' and he has mentioned that later on he would receive the vouchers at a later date which makes it clear that the site supervisor can easily manipulate the same in the light of the amount withdrawn in cash from the bank account. Booking the expenses before receiving the actual vouchers makes it clear that the expenses not genuine and can be managed easily. 2. The asseseee has contended that there is no incriminating document to prove that 15% labour expenses are bogus. Here, it is important to note that the labour sheets were found and seized during the search proceedings itself and it is only on the basis of specific defects as 18 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur appearing in these sheets that issue of bogus labour expenses was pointed out. 3. The assessee has contended that the labour is not permanent and keeps on moving and hence the thumb impressions or signatures are variable. The above fact is undertanble but how can this argument explain the marking of thumb impression by one person on several places against different names. It is hard to believe that how a labourer who is not earning much will sometimes put his thumb impression while at some other point he will put his signature in English. 4. If the labour expenses were genuine then why the same along with evidences in favour of the assessee's contention was not being pointed out during the course of search proceedings or any such explanation was being given at that time. 5. The statements of the accountant makes it clear that the labour expenses were debited to 'advance to site running expenses' without the corresponding vouchers simply on the basis of cash withdrawals from the bank account which makes it clear that the labour expenses were manipulated and inflated figures were entered in order to reduce the profit. 6.The assessee has himself accepted the fact that there may be possibility of clerical error in preparation of labour sheets which gives all the more space for manipulation of thesesheets. 7. The assessee has termed the specific defects as minor discrepancies on the basis of observation but on bare perusal of these labour sheets number of defects can be pointed out which is prevalent in almost each and every sheets spread across 6-7 years. 10. The AO further stated that to check the veracity of the thumb impressions which were appearing to be similar and to get clarity over the issue the same were sent to the Finger Print Bureau, Rajasthan police Academy for forensic 19 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur analysis of the same on test check basis. Four exhibits were sent for forensic analysis in which total six pages were to be analysed keeping in mind the volume of labour sheets. The pages were randomly sent for different financial years so that an overview regarding the authencity of the claim of labour expenses could be gathered. Here it is pertinent to mention that the following pages were sent for the forensic analysis to ascertain the authencity of thumb impression as discussed above; S No. Exhibit No. Pages to be analysed Financial year 1 AS-17 112 & 113 ( Containing 14 thumb impression on each page ) 2012-13 2 AS-33 106 and 102 ( Containing 14 & 14 thumb impressions on each page ) 2013-14 3 AS-49 29 (containing 12 thumb impressions on each page) 2014-15 4 AS-51 26 (containing 14 thumb impressions on each page ) 2015-16 11. The report on the said sample sent by the AO is extracted in the assessment order passed by the assessing officer where in the expert has given their technical analysis and stated analysed the same is extracted here in below for the sake of understanding the opinion given by the expers; OPINION Disputed thumb prints marked Q1 to Q81 alleged to be of 81 different persons as described above, have been examined and compared as desired. The result thereof isas under:- 20 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur I Disputedthumbprintsmarked Q1,Q2,Q3,Q4,QS,Q6,Q7.Q8,Q9,Q10,Q11,Q12, Q13 alleged to be of 13 different persons on page No.106 of AS-33 (as described previously): Q14, Q15, Q16,Q17,Q18,Q19, Q20,Q21,Q22,Q23,Q24,Q25,Q26,Q27 alleged to be of 14 different persons on page No.102 of AS-33 (as described previously);Q28,,Q29,Q30,31,Q32,Q33,Q34,Q35,Q36,Q37,Q38,Q39,Q40,Q 41 alleged to be of 14 different persons on page No.112 of AS-17 (as described previously); Q42,043,Q44,Q45,Q46,Q47,048,Q49,Q50,Q51,Q53 alleged to be of 11 different persons on page No.113 of AS-17 (as described previously) are similar & identical with each other. Following identical ridge characteristics are present at the same relative positions in all the prints: 1. Bifurcation towards right is the starting point. 2. Ridge end towards left on south east of point No.1 with 5 ridges intervening. 3. Bifurcation towards right on south west of point No.2 with 3 ridges intervening. 4. Ridge end towards left on south west of point No.3 with 1 ridge intervening. 5. Bifurcation towards right on south of point No.4 with 1 ridge intervening. 6. Bifurcation towards left on south of point No.5 with 1 ridge intervening. 7. Bifurcation towards right on south east of point No.2. 8. Ridge end towards left on north of point No.7 with 2 ridges intervening. Hence all the disputed thumb prints described in this para are similar &identicalwith each other and have been made by the same thumb of the spine person II Disputed thumb prints marked Q57, Q58,Q59, Q60, Q61, Q62, Q63, Q64, Q66, Q67alleged to be of 10 different persons on page No.29 of AS- 19 (as described previously) are similar & identical with each other. Following identical ridge characteristics are present at the same relative positions in all the prints: 21 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 1. Ridge end towards left is the starting point. 2. Ridge end towards left on south east of point No.1 with 3 ridges intervening. 3. Ridge bearing point No.1 ends towards right here. 4. Ridge fragment on north of point No.3 with 4 ridges intervening. 5. Ridge end towards left on north east of point No.4 with 2 ridges intervening 6. Ridge fragment on west of point No.5. 7. Bifurcation onforth west of point No.6 with 1 ridge intervening. 8. Ridge end towards right on north east of point No.7 with 3 ridges intervening Hence all the disputed thumb prints described in this para are similar & identicalwith each others and have been made by the same thumb of the same person III. Disputed thumb prints marked Q68,070,072,074 alleged to be of 4 different persons on previously) are similar & identical with page No.26 of AS-51 (as desce27 each other. Following identical ridge characteristics are present at the same relativepositions in all the prints: 1. Ridge end towards right is the starting point. 2. Ridge end towards left on south west of point No.1 with 3 ridges intervening. 3. Bifurcation downwards on south of point No.2 with 1 ridge intervening. 4. Bifurcation downwards on south east of point No.3 with I ridge intervening. 5. Ridge end upwards on east of point No.4 with 1 ridge intervening. 6. Ridge end upwards on north east of point No.5 with 5 ridges intervening. 7. Bifurcation towards left on north east of point No.6 with I ridge intervening 8. The upper arm of point No.7 bifurcates toward left. Hence all the disputed thumb prints described in this para are similar & identicalwith each other and have been made by the same thumb of the same person. 22 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur IV. Disputed thumb print marked Q79 alleged to be of Sushma Devi on page No.26 of AS-51 is dissimilar & unidentical with the disputed thumb prints described in para1,II& III above, either in pattern formation or in ridge details. V. Disputed thumb prints marked Q52,054,055 alleged to be of 3 differentpersons on page No.113 of AS-17 (an described previously); Q56,Q65 alleged to be of 2 different persons on page No.29 of AS-49 (as described previously); Q69,071,073,075,076,077,078,Q80,Q81 alleged to be of 9 different persons on page No.26 of AS-51 (as described previously) are unfit for comparison being smudged and lacking in sufficient number of clear ridge details in corresponding region. 12. The relevant finding of the assessing officer on this report is extracted here in below for the sake understanding the interpretation done in respect of this expert report From the perusal of the report it is clear that the fingerprints are of the same person on various pages. All the thumb impressions on each pages as mentioned above were to be analysed and compared with each other to get a fair view as to whether these sheets were genuine or not. The thumb impressions were scientifically analysed by the experts and all the details related to ridge inclination, cut, bifurcation, intervention etc. were observed in detail. The opinion as apparent from the report of forensic analysis is that all the thumb impressions on page no. 112 and 113(containing 14 thumb impressions on each page)of AS-33 and on page no. 106 and 102(containing 13 and 14 thumb impressions on each page) of AS-17 are similar and identical and is marked by same person Further, 10 out of 12 thumb impressions were identical on page no. 29 of AS-49 and four thumb impressions were similar and identical on page no. 26 of AS-51, however the rest of the thumb impressions were unfit for examination. The report clearly mentions that "all the disputed thumb 23 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur prints are similar and identical with each other and have been made by the thumb of the same person." The analysis of the report makes it clear that the assessee has been indulging in manipulating the labour sheets as the same person markes the thumb impression of number of persons and any amount is being debited to the 'site running expenses. 13. The copy of this report provided to the assessee asking them show cause as to why the labour expenses as claimed should not be considered as bogus and added back to the income of the assessee firm. The AR of the assessee submitted their reply vide submission dated 17.12.2019 and the same is extracted here in below : That assessee vide letter dt. 09-04-19 and thereafter vide letter dt. 06-08- 19 & 15-11-19 submitted detailed explanation regarding justification of labour & wages expenses and submitted following documents for your kind verification. i) Copy of letter dt: 10-10-17 addressed to Addl Director of income tax (investigation), Jaipur and copy of same is also given to Principle Director of income tax (Inv) Jaipur and Dy Director of income tax (Inv) Jaipur. Assessee has an affidavit along with this letter stating the circumstances under which he has accepted for disallowance of 15% out of total labour expenses and also explained the reason how labour & wages expenses is verifiable. ii) Comparative analysis of labour & wages expenses from A. Y. 2012-13 to A. Y. 2018-19 along with justification in case there a variation in labour & wages expenses in any year. iii) Labour Account of Labour Expenses iv) Site Wise Muster Roll for verification of labour is already lying in seized records 24 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur v)Site wise attendance sheet of labour are produced for verification vide letter dt. 15-11-19. vi) Verification of labour & wages expenses vis a vis ESI/ PF records vii) Assessee is also ready to produce labour for verification Assessee also request to your good self to directly visit to any of the site of assessee to verify the attendanceof labour. It appears that your good self has rejected all these explanation simply on account of the reason that assessee has made surrender during the course of search proceeding ignoring the fact that immediately after search, assessee has retracted the surrender by submitting affidavit in which he has explained all the facts & circumstances under which surrender was made as well as justification of labour expenses. It is further submitted that during the course of search none of the documents were found which suspect the genuineness of labour expenses. Hence disallowance cannot be made simply on the basis of surrender made during the course of search specially when all other evidences suggest that labour & wages expenses are genuine & fully verifiable. 2.Regarding finger print bureau reports suggesting that certain thumb impression are similar whereas certain signature/ thumb impression are dissimilar. However, the report of finger print bureau is not at all reliable on account of following reasons: i) Your good self has provided Annx. AS-33 containing 115 pages, AS-17 containing 116 poges, AS 49 containing 116 pages & AS-51 containing 115 pages. From the perusal of report it appearsthat they have observed disputed finger marks only on six pages and given their report on sixpages. It means that out of total 462 pages given for inspection they suspected only six pages. ii) That to ascertain the correct position and to work out the correct quantum of labour expenses,inspection report is required to be obtain for all the cases in all the muster roll for particularperiod, so as to ascertain the correct quantum of labour expenses Simply inspection of fewinstances 25 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur on pick & choose basis does not serve any purpose and cannot be taken as basis tosuspect the genuineness of labour expenses as there are certain peculiar feature of this tradewhich has been discussed in the affidavit submitted by assessee as well as letter dt. 09-04-19submitted before your good self. iii) In the report they found that thumb print marked Q 79 of Sushma Devi is dissimilar with other thumb impression and in 14 cases they are unable to report as the sample is unfit for comparison. Further they have compared only thumb impression and ignored the cases where signature is put by labour. However in respect of other instances of sample, they noted that block of 13-14 thumb impression are similar. Thus even out of suspected six pages, investigating authority has taken instances for investigation on pick & choose basis instead of giving positive report. iv)It is submitted that assessee is engaged in civil construction work which is mainly labour oriented & manual work. Normally in civil construction work, fingers of labour got damaged or soiled or mutuated and thus obtaining correct & proper thumb impression from these labour is very difficult and therefore there may be possibility that some time thumb impression is put by some other labour. Further there is no office at site, hence some time thumb impression is not property mentioned on labour sheet and appears to be same. On search, it has come to the knowledge that that even in Aadhar (UID) obtaining thumb impression & comparison of same thereafter of labour engaged in manual work is very difficult and lateron they are not matching with even their record. Article India's Vanishing fingerprints put UID in question' extracted from Internet is enclosed. v) It is submitted that assessee is engaged in civil construction work which is mainly labour oriented work. Labour is mainly of casual nature and hired at site. Payment of labour is made by site supervisor. Labour is continuously moving, there is no fix how many days, a labour works Each site is having different lobour. Each site is supervised by Site Supervisor and he is engaging labour and also maintaining record of labour 26 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur like tabour Cord, Attendance, etc. On the basis of monthly cord, site supervisor is preparing wages sheet and intimating estimated amount of labour payment to accounts stoff. On the basis of superviser requisition, offvence payment is send to site for labour payment and debited the account head "Site Advance”. At site, attendance register is maintained by site supervisor wherein he is marking attendance of each labour. A cord is also issued to labour wherein at the end of day, initial is marked by site supervisor mentioning his attendance. At the time of labour payment, he is bringing his card and on that basis payment of wages is mode to him. Sometime labour left the job in between the month and gives his card to another labour. At the end of the month, another labour receives the payment and also sign wages sheet on behalf of labour who left the job in between the month Besides this labour are engaged in group basis either of one family or relative to each other or belonging to particular area At the time of payment of labour charges, one person from the group brings all the cards and takes the wages payment of the entire group by signing on the wages sheet. Thus there may be possibility that there may be similar thumb impression or signature of some places. Control of supervisor at the time of making payment of labour charges is labour card labour handed over the card to supervisor and takes the payment. Any person who is having labour card, can take the payment of labour charges It is submitted that labour employed at site are casual in nature. There is no continuity of the labour. There is no system of obtaining of KYC Whatever names he intimates or his co-labourer used to call him is recorded in the wages sheet as well as an labour card. Some time there is more than one labour of same name at site. It is also submitted that there are many labours from Bihar or other state coming for competitive exams for their preparation, these students after their exams or for some earning also doing labour work. These types of labour some time signed in English or some time signed in hindi Further site supervisor is not having any accounts or finance staff and he also does not have any knowledge about the accounts & finance. He used to make payment on the basis of labour 27 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur card and obtaining the signature/ thumb impression. It is submitted that none of the labour payment or wages sheet is prepared by partners or their relatives. Since the labour sheets are prepared by site supervisor, there may be possibility of some clerical error in preparation of these sheets but the labour expenses so debited in books of account is genuine & fully verifiable.In view of above and peculiar nature of work and considering the fact that labour expenses is comparable to preceding years, detailed & fully verifiable. Hence no adverse inference should be drawn in respect of labour expenses." 14. The assessing officer stated that the reply of the assessee being carefully analysed and the same is not tenable due to the following reasons 1. The assessee has stated that the show cause notice is based on assumptions without any specific defects however specific defects have been pointed out during the search as well as the assessment proceedings. 2. The assessee has further stated that the show cause notice was simply based on the statement recorded during the search, although the same is being substantiated with the specific discrepancies along with the detailed analysis of the forensic expert which makes it amply clear that the assessee has been manipulating the labour sheets. 3. The assessee has contended that the forensic analysis report is not reliable which issimply baseless as the same is being done by an expert government agency after complete scientific and detailed analysis; the copy of which is being reproduced in para 5.7 above. Also, it is pertinent to mention that the report of finger print bureau also holds evidentiary value and is generally used in the criminal cases by the state police. 4. The assessee's contention that out of 462 pages only 6 pages of defects were pointed out is not acceptable as only 6 pages were being sent for analysis on test check basis as discussed above which pertains to different assessment years which makes it clear that the assessee has being manipulating the labour sheets for a long time and this was not the case of one of an instance activity. 28 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 5.The assessee has further stated that the thumb impressions of the labourers due to extensive activities are not clear but that doesn't make the case for same thumbs impressions on a number of sheets. Here the case is not of illegible thumb impressions while it is a case of same and identical thumb impression of same person at a number of places. 6. Further the assessee has raised similar issues as raised earlier that labour is generally employed on rotation basis, some are students, family members etc but all these issues in any ways doesn't provide a rationale for having exactly same thumb impressions le thumb impression of one person only at a number of instances. It is amply clear from specific defects, statements and forensic reports that the labourexpenses as claimed by the assessee are inflated and not accurate. To summarise, followingissues have emerged: . Number of discrepancies were noticed in the labour sheets based on which 'site running expenses were claimed and hence both the partners of the assessee firm has accepted that 15% of the labour expenses as claimed are bogus. The same fact was clear from the statements of the accountant that the labour expenses were manipulated as discussed in para 5.1 and 5.2 of the order. .Further numbers of specific defects like signature, handwriting, pattern of signature, same thumb impressions were clearly evident as elaborately discussed in para 5.4. The sheets were then sent for forensic analysis on test check basis and they reported that all the thumb impressions are identical and similar and marked by same person which is clear from the forensic report reproduced in para 5.7. . The assessee even after issuance of two show cause notices could not provide anyspecific or cogent reply for the specific defects in the labour sheets and could notexplain the fact that why were these labour sheets manipulated in the light of forensicreport. 29 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur In the view of the discussion as above it can be safely concluded that the assessee firm is regularly indulged in such practice of booking bogus labour expenses under the head 'site running expenses as the same is evident from the labour sheets of every year. Hence, the assessee has booked bogus labour expenses to inflate the same and claim it as expense in its P&L account. Although the assessee firm has booked bogus labour expenses but it is also a fact that labour expenses would have been incurred. The partners of this firm have admitted themselves that almost 15% part of the labour expenses claimed by this firm are not genuine and the same is fair and reasonable hence, the same is considered to be bogus and is added back to the totalincome as under: Sr FY Total site Running Expenses 15 % part of the site No. Claimed in (Rs. Running Expenses which are not genuine 1 2012-13 15,37,95,537 2,30,69,330 15. Aggrieved from the order of the assessing officer, the appeal was filed before the CIT(A). Before the CIT(A) the assessee has taken mainly true ground one technical about the addition made by the AO on account alleged unexplained expenses without any incrementing material found in search for which assessment proceedings were not pending as on the date of search and reached to the finality before the search and another the addition made under section 69C disallowing the claim of expenses to the extent of 15 % of the site running expenses. 30 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 15.1 It was submitted that the assessee filed the original return of income for Assessment year 2012-13 to 2015-16 on the respective due dates. As on the date of search the time limit for service of notice u/s 143(2) was available only for AY 2016-17 and onwards. Thus, the assessment proceedings for AY 2012-13 to 2015-16 were not pending on the date of search. In search no incriminating material indicating any undisclosed income for the year under consideration was found. Section 153A empowers the AO to issue notice to a person who is searched u/s132 to file return in respect of 6 A.Y.'s preceding the assessment year in which search is conducted and to assess or reassess the total income of these years notwithstanding anything contained in section 139, 147 and other related sections. Thus, the assessment u/s 153A are not denovo assessments since the purpose of making the reassessments under section 153A is to subject to tax, hitherto undisclosed income unearthed during the course of the search. It is for this reason that the second proviso to section 153A(1) provides only for the abatement of the pending assessments. This is done to ensure that the regular assessment proceedings under the normal provisions and the assessment proceedings under section 153A are not conducted simultaneously since that would result in redundancy. Therefore, already completed assessments do not abate and they shall hold the field. It can be interfered by the AO while making the assessment u/s 153A only if some incriminating material is unearthed during 31 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur the course of search or requisition of documents or undisclosed income or property is declared in the course of search which were not produced or not already disclosed or made known in the course of original assessment. The issuance of notices under section 153A(1) for all the six assessment years does not entail altogether a fresh exercise of making a fresh assessment. Hence, the completed assessment can be interfered with by the AO while making assessment u/s 153A only on the basis of the incriminating documents found in search. Thus, when no incriminating documents for the year under consideration were found, disallowance made by the AO in assessment proceedings u/s 153A is illegal and bad in law. 15.2 The above proposition has been approved by not only by various High Courts but also by the Supreme Court for which Reliance is placed on the following cases:- PCIT Vs. MeetaGutgutia (2018) 257 Taxman 441 (SC) Invocation of sec. 153A to reopen concluded assessments of AYS earlier to year of search was not justified in absence of incriminating material found during search qua each earlier assessment year. SLP filed against said decision dismissed. Principal CIT Vs. Dipak Jashvantial Panchal (2017) 397 ITR 153 (Guj.) (HC) It was held in this case that from the heading of section 153A, the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In 32 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur other words, the assessment should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there was a search or requisition, the AO is obliged to issue notice to such person furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition. CIT VS. Deepak Kumar Agarwal &Ors. (2017) 158 DTR 100/251 Taxman 22 (Bom.) (HC) No addition could have been made while completing assessment u/s 153A in the case of completed assessment if no incriminating material is recovered and no undisclosed income was determinable from the material found as a result of search. Once there is no incriminating material in support of the addition is brought on record by the revenue, then no addition u/s 68 could be made. CIT VS. SKS Ispat and Power Ltd. [2017] 398 ITR 584 (Bom.) (HC) The scope of assessment u/s 153A of the Act is limited to the incriminating evidence found during the search and no further CIT VS. Gurinder Singh Bawa [2016] 386 ITR 483 (Bom.) (HC) Once anassessment was not pending but had attained finality for a particular year, it could not be subject to the proceedings u/s 153A of the Act if no incriminating materials were found in the course of the search or during the proceedings u/s 153A which were contrary toand were not disclosed during the regular assessment proceedings. M/s Rajasthan Fort & Palace Pvt. Ltd. Vs. DCIT ITA No. 597 to 599/JP/2017 order dated 24.01.2018 (Jaipur) (Trib.) In case of an unabated assessment u/s 153A, no addition in absence of any incriminating material emerging during course of search and seizure proceedings conducted u/s 132 canbe made in the hands of assessee. 33 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 15.3 The AO disallowed 15% of the labour expenses only on the basis of the statement of partner of firm ShriBhivaramKumawat and the report of Finger Print Bureau, Rajasthan dt. 13.12.2019 obtained in course of the assessment proceedings. It is a settled law that statements recorded u/s 132(4) and evidence collected during post search/ assessment proceedings did not by themselves constitute incriminating material and on the basis of same, assessment u/s 153A cannot be made. For this purpose, reliance is placed on the following cases: CIT VS. Dilbagh Rai Arora (2019) 177 DTR 220/263 Taxman 30 (All.) (HC) Addition can only be made if there is incriminating material or the surrounding circumstances reveal that there is any material to justify the addition. If the person can explain with supportive evidence, material or otherwise that the admission by him earlier is not correct or contain a wrong statement or that a true state of affairs is different from that represented therein, addition cannot be made solely relying on statement under sec. 132(4). PCIT VS. Best Infrastructure India Pvt. Ltd. (2017) 397 ITR 82/159 DTR 257 (Del.) (HC) Statements recorded u/s 132(4) do not by themselves constitute incriminating material. Acopy of the statement together with the 34 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur opportunity to cross-examine the deponent has toprovided to the assessee. If the statement is retracted and/or if cross-examination is not provided, the statement has to be discarded. The onus of ensuring the presence of thedeponent cannot be shifted to the assessees. The onus is on the Revenue to ensure hispresence. CIT VS. SKS Ispat and Power Ltd. [2017] 398 ITR 584 (Bom.) (HC) In this case the learned counsel for the Department contended that the Tribunal was not justified in deleting the addition made on the basis of unaccounted sundry creditors (purchases) and unexplained share of the money, thereby limiting the scope of assessment under section 153A of the Act only on the basis of incriminating material discovered in the search and thus, denying the Revenue to assess the undisclosed income on the basis of other evidence or post-search enquiries or investigations made during subsequent assessment proceedings. Dismissing the appeals of the Department, it was held in this case that the scope of assessment u/s 153A of the Act is limited to the incriminating evidence found during the search and no further. Smt. Aruna Sankhla Vs. DCIT ITA No.483/JP/2016 order dated 16.05.2019 (Jaipur) (Trib.) Where no incriminating material was either found or seized during the course of search and seizure action to indicate any undisclosed income on account of on money payment by the assessee for purchase of land, subsequent recording of statement of sellers by ACB after a gap of around two years from the date of search and consequential inquiry conducted by the AO during the assessment proceedings u/s 153A r.w.s. 35 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 143(3) of the Act wherein sellers have admitted on money receipt in respect of the land purchase by the assessee cannot be treated as incriminating material to justify the addition on account of on money when the assessment was completed and not pending at the time of search. 15.4 It is further submitted that assessee is regularly filing its return of income and its books of accounts are subject to audit u/s 44AB of the Income tax Act, 1961. All the expenses and income are fully verifiable from books of accounts and records maintained by assessee firm. The assessment proceeding of AY 2013-14 & 2014-15 has already been completed u/s 143(3) of the Act. In AY 2013-14, AO has applied provision of section 145(3) of the Act and estimated income of assessee firm by applying NP rate of 9.5% subject to depreciation and interest & remuneration to partners. Assessment proceeding of AY 2014 15 has been completed by making disallowance of Rs.62,586/-u/s 40A(3) of the Act. Copy of both these assessment order is at PB 85-91. Thus, AO has examined complete books of accounts and supporting documents and after considering the same assessments were made u/s 143(3) of the Act. Hence, when no incriminating documents were found during the course of search, no disallowance for AY 2012-13 to 2015-16 is called for. In view of above, disallowance made by the AO for AY 2012-13 to 2015-16 is illegal and badin law and the same be quashed. 36 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 15.5 The Ld. CIT(A) considered the submission of the assessee and has given their finding in para 4.2 of his order and he rejected this technical ground where in the observation of the Ld. CIT(A) are as under 4.2 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under: (i) A search and seizure operation u/s 132 of the IT Act, 1961 was conducted at the business premises of the appellant on 28.09.2017. Various assets/books of accounts and documents were found and seized as per the annexures prepared during the course of Search. Subsequently notice u/s 153A was issued to the appellant for A.Y. 2012-13 to 2017-18 wherein the appellant was required to file returns for relevant assessment years. The appellant filed returns assessments were framed thereon. (ii) On appeal, the appellant contended that as on the date of search, the time limit for service of notice u/s 143(2) was available only for AY 2016- 17 and onwards. Thus, the assessment proceedings for AY 2012-13 to 2015-16 were not pending on the date of search. In search no incriminating material indicating any undisclosed income for the year under consideration was found and as there was no seized material based on which assessment had been completed by the AO in its case, assessment framed by the AO u/s 153A of the Act is illegal and bad in law. In support of his contention, the appellant placed reliance on the decisions of various High Courts and also of Hon ble Supreme Court as mentioned in his submissions mentioned supra. (iii) After careful consideration of the submissions of the appellant, it is observed that there is no dispute that Search was carried out in the case of the appellant on 28.09.2017. No assessment for the AYrs. 2012-13 to 2015-16 were pending when notices under section u/s 153A of the Act were served upon the appellant. Even the time period for issuing notice under section 143(2) for the aforesaid assessment years had already elapsed. In search assessment, any undisclosed income, which can 37 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur ultimately be added, is only to the extent of any unrecorded assets/material found or any incrementing documents found as representing undisclosed income earned. The Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla 380 (Delhi HC), while analyzing the provisions of section 153A read with section 132 of the Act has abserved in para 37 and 38 as under: "37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to filereturns for six AYS immediately preceding the previous year relevant to the AY inwhich the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYS will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six A Ys "in which both the disclosed and the undisclosed Income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." 38 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the originalassessment and the assessment under Section 153A merges into one. Only one assessmentshall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii.Completed assessments can be interfered with by the AO while making the assessmentunder Section 153 A only on the basis of some incriminating material unearthed during thecourse of search or requisition of documents or undisclosed income or property discovered inthe course of search which were not produced or not already disclosed or made known in thecourse of original assessment." 38. The present appeals concern AYS, 2002-03, 2005-06 and 2006- 07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed." (iv) In view of the aforesaid decision and the legal position, it is clear that section 153C, read with section 153A brings into the purview of assessment both regular and undisclosed income subsequent to action u/s 132 or section 132A upon invocation of section 153A or sec. 153C. The proviso to section 153A clearly mandates the AO to assess or reassess the total income in respect of each assessment year falling within six assessment years. The next proviso further mandates that any assessment or reassessment in respect of any of those six years which are pending shall abate. Thus, once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately 39 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur preceding the previous year relevant to the AY in which the search takes place. Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized_material as held by the Hon'ble Delhi High Court in the case of Kabul Chawla as mentioned supra. (v) In the light of the above facts & legal position, it is observed that during the course of search in the case of the appellant, various loose papers/documents were found & seized marked as Annexure AS-1 to AS- 64 which were seized from the office premises of the appellant. The Assessing Officer contended that the seized documents were with regard to unaccounted expenditure on account of labour payments made in the construction business of the assessee firm. These documents/wage sheets were confronted to both the partners of the appellant firm, however, no satisfactoryexplanation was offered. The appellant contended that out of the aforesaid annexures, Annexure AS-3 to AS-60 & AS-64 are muster rolls for labour payment. These muster rolls pertain to FY 2007-08 to the date of search. On the basis of these muster rolls/documents seized during the course of Search proceedings, the statement u/s 132(4) dt. 29.09.2017 of Sh. BhivaramKumawat, partner of the firm was recorded wherein he surrendered Rs. 16,50,62,994/- from FY 2010-11 to 2017-18 on the basis that 15% of the site running expenses are bogus and this statement was also confirmed by another partner Sh. Panna Lal Kumawat recorded under section u/s 132(4) of the Act. Thus in absence of any satisfactory explanation, the main persons of the appellant firm admitted additional income in the hands of the firm during statement recorded on oath, though the same was retracted subsequently by filing an affidavit in this regard. (vi) However, the fact also remains that during the course of assessment proceedings, the AO examined and analysed the labour/ wages sheets on test check basis and noted that these sheets contained forged signatures and thumb impressions and instances were also found wherein certain labourers were signing in English on some sheets while they were putting their thumb impressions at other pages. The appellant vide letter dt. 40 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 09.04.2019 tried to explain these glaring anomalies, however, the AO did not accept the contention of the appellant by giving various reasons as mentioned at Pg 13-14 of the assessment order. The appellant has contended that ther is no incriminating document to prove that 15% labour expenses are bogus. However, the AO contended that the labour sheets were found and seized during the search proceedings itself and it is only on the basis of specific glaring anomalies appearing in these sheets that issue of bogus labour expenses was pointed out and accepted by both the partners of the appellant firm, on the basis of which additional income was offered for tax in the statement recorded under section u/s 132(4) of the IT Act. Further statement of Sh. Hanuman Sharma, the main accountant of the appellant firm was also recorded wherein he also substantiated the claim of bogus labour expenses in this firm. In order to check the veracity of thumb impressions, during the course of assessment proceedings, these labour sheets were sent to Finger Print Bureau, Rajasthan Police Academy for forensic analysis on test check basis. Report of Finger Print Bureau is at Pg 14-17 of the order in which it is mentioned that all the disputed thumb prints are similar and identical with each other and have been made by the thumb of the sameperson. (vii) Thus, it is observed that in support of its assumption of jurisdiction under section U/s 153A of the IT Act 1961, the AO not only placed reliance on the Statements of the two partners of the business group recorded on oath u/s 132(4), but also on the specific glaring anomalies noted by the AO on the labour/wages sheets seized during the course of search as subsequently mentioned by her in the assessment order which proved the bogus claim of Labour expenses by the appellant firm. (viii) In search assessment, any undisclosed income, which can be ultimately be added, is only to the extent of any unrecorded assets/material found or any incriminating documents found as representing undisclosed income earned. The Hon'ble ITAT, Kolkata in the case of ACIT Circle3(2) Kolkata Vs. M/s Mani Square Limited, Kolkata very recently on 6th August, 2020 in ITA No.58/Kolkatta/2019 has examined as to what constitutes an incriminating evidence, the excerpts of which are reproduced as under: "The nature of the evidence or information gathered dining the search should, be of such nature that it should not merely raise 41 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur doubt or suspicion but should be of such nature which would prima facie show that the real and true nature of transaction between the parties is something different from the one recorded in the books or documents maintained in ordinary course of business. In some instances, the information, document or evidence gathered in the course of search, may raise serious doubts or suspicion in relation to transaction reflected in regular books or documents maintained in the ordinary course of business, then in such event the AO is not permitted to straightaway treat such material as 'incriminating' in nature unless the AO thereafter brings on record further corroborative material or evidence to transform his suspicion to belief and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs and rather that can be the starting point of inquiry to un-earth further material or evidence to transform his suspicion to belief and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs. Until these conditions are satisfied, it cannot be held that even seized material or document found in the course of search as incriminating in nature qua the assessee justifying the additions in unabated assessments. In other words, any and every seized material which comes in AO's possession cannot be construed as incriminating material' straightaway. For instance, scribbling or rough notings found on loose papers cannot be straightaway classified as 'incriminating material' unless the AO establishes nexus or connect of such notings with unearthing of undisclosed income of the assessee. This nexus or connect has to be brought out in explicit terms with corroborative material or evidence which any prudent man properly instructed in law must be able to understand or correlate so as to justify the AO's inference of undisclosed income from such seized incriminating material". (ix) In the present case, the AO on the basis of various incriminating notings/discrepancies noted by the search Party as well as by her with regard to the labour sheets was of a firm belief that the transaction reflected in regular books or documents did not represent the true state of affairs and accordingly had referred the incriminating documents to the Finger Print Bureau which further strengthened the belief of the AO that the regular books or documents did not represent the true state of affairs 42 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur of the appellant firm. The fact remains that when both the partners were confronted with those seized documents, they admitted the undisclosed income. (x) In the case of MGF Automobiles Ltd. Vs ACIT (ITAT Delhi) ITA Nos. 4212 & 4213/DEL/2011 dt. 28/06/2013, the issue whether statement recorded u/s 132(4) can be considered as incriminating material was discussed as under: "15. Similar views were held by ITAT (Mum) in the case of Shri Gurinder Singh Bawa Vs. Dy. CTT, ITA No. 2075/Mum/2010 and LMJ International Ltd. Vs. DCIT, (2008) 119 1TJ (Kol) 214 and in the case of Anil P. Khimani vs. DOT,2010- TIOL-1 77-ITAT-Mum. During proceedings before us, the bench asked a question to Ld. AR as to whether any statement u/s 132(4) was recorded during search to which the Ld. AR replied in negative and Ld. Departmental Representative also showed his ignorance about such statement. This question was asked because the view of the Bench is that if during course of search, some statement is recorded u/s 132(4) and, in that statement certain facts are recorded from the interpretation of which Assessing Officer could conclude that there was some undisclosed income, then that statement can be considered as incriminating material". (xi) As held by the Hon'ble Supreme Court in Pullangode Rubber Produce Co. Ltd v. State of Kerala (1973) 91 ITR 18, an admission is an extremely important piece of evidence though it is not conclusive. Therefore, a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted the statement could not make the statement unacceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of search was wrong and in fact there was no additional income. This burden does not even seem to have been attempted to be discharged. Infact in the present case of the appellant firm, though a detailed affidavit has been filed stating that the surrender was made on coercion but the fact also remains that if the appellant wanted to correct the said statement, then it was open for him to show the evidences to retract those facts. But no such evidence was furnished either during the assessment proceedings or the current appellate proceedings to explain the entire 43 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur issues which means that the assessee has no evidence at all in his possession. (xii) It is also observed that the evidence does not mean only documentary evidence but the Statement recorded under section u/s 132(4) of the IT Act has also been judicially held as an important piece of evidence collected as a result of Search and Seizure Operation. In the present case, it is not only the statements of the Partners of the appellant firm but also documents found and seized during the course of Search which were relied upon by the AO and further the belief of the AO was strengthened with the report of the Finger Print Bureau as discussed in the body of the assessment order. Therefore looking to the facts of the case, I am of the view that there is no ambiguity in the assessment order of the AO in the case of the appellant for the AYrs 2012-13 to 2015-16 which is based on the documents found and seized during the course of Search. Accordingly, the Ground of Appeal No. 1 for the AYrs 2012-13 to 2015 16 is dismissed. 15.6 Against this technical ground raised before us, the assessee has filed a short written submission and the same is also extracted for the sake of convenience here in below ; 1. There is no dispute as to the fact that assessment for AY 2012-13 to 2015-16 were not pending on the date of search and no incriminating material that labour expenses claimed in the P&L A/c are bogus was found in search. However, the Ld. CIT(A) on the basis of muster rolls for labour payment found and seized as per Annexure AS-3 to AS-16 and AS-64 pertaining FY 2007-08 to the date of search whic admittedly part of regular books of accounts, statement of partners recorded u/s 132(4), so called anomaly in the muster roll and the subsequent report of Finger Print Bureau obtained during assessment proceedings concluded that these are the documentary evidences found in search on the basis of which the AO assumes jurisdiction to make addition in the assessment for those AYs framed u/s 153A which are not pending on the date of search. 2. It is submitted that the muster rolls found and seized during search are maintained in normal course of business. For each month there is separate 44 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur file of muster rolls. The amount of wages due as per the monthly muster rolls is recorded in books of accounts by debiting to site running expenses and crediting to outstanding site running expenses. At the time of payment of wages outstanding site running expenses is debited. In the regular assessment proceedings these muster rolls are produced on the basis of which assessment were made. This fact has been verified by the Ld. CIT(A) in course of the appellate proceedings (PB 17A, Point No.4). Thus, these muster rolls are not incriminating document found in search. Of course Sh. BhivaramKumawat on the basis of signature difference of certain employees in the mustard sheet, in reply Q. No.16 (PB 9-11) to stated that some of the expenditure appears to be bogus which is estimated to be 15% of the total expenses, the same stood retracted by filing a detailed affidavit on 11.10.2017, i.e. within 12 days of giving the statement by explaining the alleged anomalies in the muster rolls. So far as statement of Sh. Hanuman Sharma, Accountant is concerned (PB 33- 49) he has nowhere admitted that bogus labour expenses has been claimed (refer Q. No.22). The report of Finger Print Bureau is obtained in course of assessment proceedings and thus cannot be considered to be incriminating document found in search. 3. It is a settled law that statements recorded u/s 132(4) and evidence collected during post search/ assessment proceedings did not by themselves constitute incriminating material and on the basis of same, assessment u/s 153A cannot be made. For this purpose, reliance is placed on the following cases: PCIT (Central) &Ors. Vs. Anand Kumar Jain (HUF) &Ors. (2021) 432 ITR 0384 (Del) (HC) The relevant Para 8 is reproduced as under: 8. Next, we find that, the assessment has been framed under s. 153A, consequent to the search action. The scope and ambit of s. 153A is well defined. This Court, in CIT vs. Kabul Chawla (2015) 281 CTR (Del) 45 (2015) 126 DTR (Del) 130: (2016) 380 ITR 573 (Del): 2015 SCC OnLine Del 11554, concerning the scope of assessment under s. 153A, has laid out and summarized the legal position after taking into account the earlier decisions of this Court as well as the decisions of other High Courts and Tribunals. In the said case, it was 45 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur held that the existence of incriminating material found during the course of the search is a sine qua non for making additions pursuant to a search and seizure operation. In the event no incriminating material is found during search, no addition could be made in respect of the assessments that had become final. Revenue's case is hinged on the statement of Mr. Jindal, which according to them is the incriminating material discovered during the search action. This statement certainly has the evidentiary value and relevance as contemplated under the Explanation to s. 132(4) of the Act. However, this statement cannot, on a standalone basis, without reference to any other material discovered during search and seizure operations, empower the AO to frame the block assessment. CIT Vs. Dilbagh Rai Arora (2019) 177 DTR 220/263 Taxman 30 (All.) (HC) The relevant Para 15 to 18 & 22 are reproduced as under: "15. We have perused the record of the case. The respondent- assessee has filed his return on 30th Oct., 2006 and offered Rs. 24 crores for taxation. Assessee has filed the return and disclosed income from house property, income from other sources and loss on long-term capital gain on the sale of immovable property. The assessee has further disclosed profit from trading in commodity exchange and has also filed evidence in support of his claim. The assessing authority has added back Rs. 7 crores only on the ground that at the time of survey dt. 1st Sept., 2005 the assessee had made a disclosure of sum of Rs. 31 crores for taxation in the year under consideration. But, no incriminating materials and documents had been brought on record for addition of such amount. The CIT(A) while allowing the appeal of the assessee has deleted the said amount, which was being confirmed by the impugned order. The assessee-respondent in the statement given on 6th Oct., 2005, has surrendered Rs. 18 crores on account of investment made in purchase of jewellery/precious stones and Rs. 6 crores were surrendered as cash in hand duly shown in the books of account, balance Rs. 7 crores were surrendered with stipulation that details of the same would be given in due course of time. 46 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 16. The assets to the magnitude of Rs. 7 crores were neither found by the authorities below nor such assets were identified or declared by the appellant. In such a situation, it could be inferred that no such assets actually exists. In other words, there is no clinching evidence or material to justify such addition of Rs. 7 crores. 17. The addition can only be made, if there is incriminating material or the surrounding circumstances reveal that there is any material to justify the addition. 18. The person making an admission is not always mindful of it and some time can get out of its binding purview. If the person can explain exclusive with supportive evidence/material or otherwise that the admission by him earlier is not correct or contain a wrong statement or that a true state of affairs is different from that represented therein and so the same should not be accepted upon forecasting tax liability which should rather be fixed on the basis of correct and true affairs as ascertained from the material on record. 22. Therefore, the case law relied upon by the appellant is of no help, the case in hand the assessee-respondent has given documents, material and explained threadbare with regard to amount of Rs. 24 crores but the assessing authority has mechanically made the addition of Rs. 7 crores and added back the same amount only on the basis of statement having been made by the assessee which is not permitted." PCIT Vs. Best Infrastructure India Pvt. Ltd. (2017) 397 ITR 82/ 159 DTR 257 (Del.) (HC) The head note of this decision is as under: Search and seizure-Assessment under s. 153A-Scope vis-a-vis incriminating material Statements of AG make it plain that the surrender of the sum of Rs. 8 crores was only for the assessment year in question and not for each of the six assessment years preceding the year of search-Secondly, when AG was confronted with A-1, A-4 and A 11 he explained that these documents did not pertain to any undisclosed income and had, in fact been accounted for-Even these, therefore, could not be said to be incriminating 47 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur material qua each of the preceding assessment years-Further, statements recorded under s. 132(4) do not by themselves constitute incriminating material-Tribunal was fully justified in concluding that the assumption of jurisdiction under s. 153A qua the assessees was not justified in law CIT VS. SKS Ispat and Power Ltd. [2017] 398 ITR 584 (Bom.) (HC) In this case the learned counsel for the Department contended that the Tribunal was not justified in deleting the addition made on the basis of unaccounted sundry creditors (purchases) and unexplained share of the money, thereby limiting the scope of assessment under section 153A of the Act only on the basis of incriminating material discovered in the search and thus, denying the Revenue to assess the undisclosed income on the basis of other evidence or post- search enquiries or investigations made during subsequent assessment proceedings. Dismissing the appeals of the Department, it was held in this case that the scope of assessment u/s 153A of the Act is limited to the incriminating evidence found during the search and no further. Smt. Aruna Sankhla Vs. DCIT (2019) 72 ITR(Trib.) 696 (Jaipur) (Trib.) The relevant Para 5 and concluding para of this decision is reproduced as under: 5. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the assessment for the year under consideration was not pending on the date of search i.e., 23rd July, 2009 as the order under s. 143(3) of the Act was passed by the AO on 30th March, 2007. A copy of the said assessment order is placed at p. 1 to 6 of the paper book, therefore, the Revenue has not disputed the fact that the assessment was not pending as on the date of search and consequently the assessment was not got abated by virtue of search under s. 132 of the Act. It is also not in dispute that no incriminating material was either found or seized during the course of search and seizure action to indicate any undisclosed income on account of on money payment by the assessee for purchase of land. The AO has 48 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur also not alleged or indicated that the seized material found during the search has revealed any undisclosed income on account of on money payment. During the course of assessment proceedings under s. 153A r/w s 143(3) of the Act the AO received the statements of the sellers recorded by ACB under s. 161 of Cr.P.C. wherein they have admitted on money receipt in respect of the land purchase by the assessee. The AO consequently issued show cause notice to the assessee to explain the undisclosed investment on account of on money payment and also issued summoned under s. 131 of the Act to the sellers of the land. The statements of the sellers were also recorded by the AO. Thus prior to 23rd Dec., 2011 when the AO recorded statement under s. 131 of the Act there was nothing either found or in the possession of the AO to show that any undisclosed income on account of on money payment by the assessee. The question arises whether the statements recorded by the ACB under s. 161 of Cr.P.C. after a gap of around two years from the date of search as well as statement recorded by the AO under s. 131 of the Act in the month of December, 2011 would constitute incriminating material for the purpose of addition of undisclosed income under s. 153A of the Act in respect of concluded assessment. The Hon'ble Delhi High Court in case of Chetan Das Lachman Das (supra) while considering an identical issue has held that the assessment under s. 153A of the Act can be made only on the basis of the seized material or the material which have nexus with the seized material. Therefore, no addition can be made to the income of the assessee that has already been assessed except on the basis of some any incriminating material. In the absence of any incriminating material the completed the assessment can be reiterated while framing under s. 153A of the Act. Thus the AO is not permitted to disturb the income has finalized in the completed assessment dehors incriminating material while making the assessment under s. 153A of the Act. The reassessment under s. 153A shall have connection with something found during the search i.e., incriminating material revealing undisclosed income. Therefore, any addition or disallowance can be made only on the basis of material 49 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur gathered during the search and requisition and in case has no incriminating material is found the earlier assessment would have to be reiterated while completed under s. 153A of the Act. Since, in the case in hand, no incriminating material was found indicating undisclosed investment by the assessee on account of on money for purchase of agricultural land then the addition made by the AO on the basis of the information received from the ACB and consequential inquiry conducted by the AO during the assessment proceedings cannot be treated as incriminating material to justify the addition on account of on money when the assessment was completed and not pending at the time of search Accordingly, in the facts and circumstances of the case and in view of the binding precedents the addition made by the AO is not sustainable in law and the Addl. ground is hereby allowed. 4. The Ld. CIT(A) has referred to the decision of Hon'ble ITAT, Kolkata in case of M/s Mani Square Ltd. IT(SS)A No.58/Kol/2019. However, he has only produced a part of excerpt of this decision. The entire Para 18 of this decision reads as under: 18. Before we proceed to examine the contents of the seized documents referred to by the AO, it is first relevant to understand as to the meaning of the expression "incriminating material" or evidence. There can be several forms of incriminating material or evidence. In order to constitute an incriminating material or evidence, it is necessary for the AO to establish that the information, document or material, whether tangible or intangible, is of such nature which incriminates or militates against the person from whom it is found. Some common forms of incriminating material, inter alia, are for instance, where the search action w/s 132 of the Act reveals information (oral or documented) that the assets found from the possession of the assessee in form of land, building, jewellery, deposits or other valuable assets etc. do not corroborate with his returned income (which includes earlier AY's return also) and/or there is a material difference in the actual valuation of such assets and the value declared in the books of accounts. Further, incriminating evidence may 50 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur also constitute of information, tangible or intangible which suggests or leads to an inference that the assessee is conducting transactions outside the regular books of account which are not disclosed to the Department. Incriminating material may also comprise of document or evidence found in search which demonstrates or proves that what is apparent is not real or what is real is not apparent. In other words, let us assume that an assessee has recorded transactions in his books or other documents maintained in the ordinary course of business, then it is discovered in the search certain material or evidence in such an event then, in order to hold the discovered material or evidence to be incriminating in nature, only when the discovered/seized material/evidence/document should affect the veracity of the entries made in the books of the assessee and thus lead to the conclusion that the entries made regularly/maintained by the assessee do not represent true and correct state of affairs. Rather the evidence unearthed or found in the course of search would go on to show that the real transaction of the assessee was something different than what was recorded in the regular books and therefore the entries in the books did not represent true and correct state of affairs i.e. the assessee has undisclosed income/expense outside the books or that the assessee is conducting income earning activity outside the books of accounts or all the revenue earning activities are not disclosed to the tax authorities in the books regularly maintained or the returns filed with the authorities from time to time is not true etc. The nature of the evidence or information gathered during the search should be of such nature that it should not merely raise doubt or suspicion but should be of such nature which would prima facie show that the real and true nature of transaction between the parties is something different from the one recorded in the books or documents maintained in ordinary course of business. In some instances, the information, document or evidence gathered in the course of search, may raise serious doubts or suspicion in relation to transaction reflected in regular books or documents maintained in the ordinary course of business, then in such event the AO is not permitted to straightaway treat such material as incriminating in nature unless the AO thereafter 51 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur brings on record further corroborative material or evidence to transform his suspicion to belief and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs and rather that can be the starting point of inquiry to un-earth further material or evidence to transform his suspicion to belief and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs. Until these conditions are satisfied, it cannot be held that every seized material or document found in the course of search as incriminating in nature qua the assessee justifying the additions in unabated assessments. In other words, any and every seized material which comes in AO's possession cannot be construed as 'incriminating material' straightaway. For instance, scribbling or rough notings found on loose papers cannot be straightaway classified as 'incriminating material' unless the AO establishes nexus or connect of such notings with unearthing of undisclosed income of the assessee. This nexus or connect has to be brought out in explicit terms with corroborative material or evidence which any prudent man properly instructed in law must be able to understand or correlate so as to justify the AO's inference of undisclosed income from such seized incriminating material. This decision rather supports the case of assessee in as much as the amount of wages noted in the muster rolls are duly recorded in the books of accounts. No document or any other evidence was found to show that the wages recorded in the muster rolls is inflated/ bogus. The search party in Q. No.16 (PB 9-11) has drawn inference as to inflated/ bogus wages only for the reason that in case of 3 persons there is difference in signature in the salary sheet for the month of February, 2016 and August, 2016. This cannot be considered to be an incriminating material to assume inflation of wages. Hence, the above decision supports the case of assessee. Similarly, Hon'ble ITAT, Delhi in case of M/s MGF Automobiles Ltd. has only observed that if some statement is recorded u/s 132(4) where certain facts are recorded, from the interpretation of which AO could conclude that there was some undisclosed income, then that statement can be 52 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur considered as incriminating material. However, in the present case, the statement stood retracted supported by reasons and subsequent to this decision various High Courts including Delhi High Court has held that statement u/s 132(4) cannot be considered to be incriminating material and therefore, this decision losses its relevance. 5. It is further submitted that assessee is regularly filing its return of income and its books of accounts are subject to audit u/s 44AB of the Income tax Act, 1961. All the expenses and income are fully verifiable from books of accounts and records maintained by assessee firm. The assessment proceeding of AY 2013-14 & 2014-15 has already been completed u/s 143(3) of the Act. In AY 2013-14, AO has applied provision of section 145(3) of the Act and estimated income of assessee firm by applying NP rate of 9.5% subject depreciation and interest & remuneration to partners. Assessment proceeding of AY 2014-15 has been completed by making disallowance of Rs.62,586/- u/s 40A(3) of the Act. Copy of both these assessment order is at PB 85-91. Thus, AO has examined complete books of accounts and supporting documents and after considering the same assessments were made u/s 143(3) of the Act. Even the alleged discrepancies referred in the statement u/s 132(4) pertain to AY 2017-18 and not related to AY 2012-13 to 2015 16 which are completed proceedings. Hence, the disallowance made for AY 2012-13 to 2015-16 in assessment framed u/s 153A without any incriminating material is bad in law. 6. The fact that the muster rolls found in search and statement recorded u/s 132(4) are not incriminating material is also accepted by Ld. CIT(A) in as much as he has not confirmed any disallowance on the basis of muster rolls/ statement recorded u/s 132(4). Rather he has substituted the disallowance made by AO by making the addition applying n.p. rate of 1% on the total turnover. This further proves that no incriminating material was found in search for the aforesaid AY. In view of above, finding of Ld. CIT(A) upholding the jurisdiction of AO to make addition in assessment framed u/s 153A for the aforesaid AYs be vacated. 53 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 15.7 On this technical ground, the ld. DR has also filed a detailed submission wherein he has extracted the statement of both the partners and relying on those statements, he has also relied on the statement of the accountant of the firm and brief contentions raised by the DR in his submission is extracted here in below 1. It is clear from the above facts that incriminating material was found in each and every year in the form of fudged labour/wages sheets and it has been corroborated by the report of independent experts, namely Finger Print Bureau of Rajasthan Police Academy. It is worthwhile to mention that the assessee did not cross examine these experts. Thus, the contention of the Ld. AR that there was no jurisdiction with the AO u/s 153A of the Act for want of incriminating seized material particularly in case of completed assessments, is legally untenable. 2. Both the partners of the assessee firm had admitted during the course of search the fact of booking of 15% inflated labour expenses. In fact, one of the partners even claimed in his statement u/s 132(4) of the Act that the unaccounted income generated out of booking of bogus expenses is used in application which is mentioned in para 4 above. The accountant of the firm Shri Hanuman Prasad Sharma could not produce the vouchers during the course of search in support of labour expenses. The modus operandi narrated by the Ld. AR in his submissions was never conveyed to the search team in the statement of the partners u/s 132(4) of the Act and also by Shri Hanuman Prasad Sharma accountant. The accountant even stated in reply to Q. no. 19 in his statement dated 28/29.09.2017 u/s 131 of the Act that he has not received some bills/vouchers of even April month at the end of September month. This clearly establishes the fact that vouchers were prepared according to the will of the partners and not on the basis of actual expenditure. Further, treatment of entire cash withdrawals as advance to site running expenses is contrary to the established accounting practices. The scanned copy of the relevant extracts of the statement of Shri Hanuman Prasad Sharma and the same was extracted. 3. It is true that the partners have retracted from their statement u/s.132(4) by way of an affidavit, but the contents of the affidavit are not 54 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur verifiable and the partners have made unsubstantiated allegations against the officers of the Department. The contents of the affidavit are self- serving and are contrary to the documentary evidences seized during the course of the search and initial statement u/s 132(4) of the partners, which have been independently corroborated by the technical experts in an indirect manner. It is further to be noted that the partners of the assessee firm even did not seek any opportunity to cross examine the experts who had verified the fact that thumb impressions were made by the same person. The arguments of the Ld. AR in this behalf are very general and generic which do not fit in the specific facts and circumstances of the case. The statements u/s 132(4) were spontaneous and represent the true state of affairs. The subsequent retraction on receiving the legal advice is an after- thought. It has been held by the various courts that statements u/s 132(4) of the Act has a very strong evidentiary value, unless retraced successfully. In this case, the partners have retracted the statements without any concrete evidences and their retraction is contrary to the documentary evidences and findings of an expert body. Thus, the retraction in this case is unsuccessful. The Reliance of the Ld. AR on the case of PCIT (Central) &Ors. Vs. Anand Kumar Jain (HUF) &Ors. (2021) 432 ITR 0384 (Del) (HC) and other case laws is misplaced as they are on different facts, wherein, there was no incriminating documentary evidences. In fact, the case law of Shri Anand Kumar Jain HUF goes against the assessee, because the Hon'ble Delhi High Court in this case has held that "...This statement certainly has the evidentiary value and relevance as contemplated under the Explanation to s. 132(4) of the Act. However, this statement cannot on a standalone basis without reference to any other material discovered during search and seizure operations, empower the AO to frame the block assessment." The logical corollary of the above judgement is that if statement u/s 132(4) can be corroborated with material discovered during search, it a very strong piece of evidence. In this case, since initial statement u/s 132(4) of the Act is based on the incriminating seized material, therefore, it has a very strong evidentiary value. 16. We have thoughtfully considered the material on record and the rival submissions. The Ld. D/R has argued that partner of the assessee firm in 55 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur statement u/s 132(4) dt. 29.09.2017 admitted that 15% of labour expenses recorded in books of accounts is bogus. Thereafter, on 11.10.2017 the statement was retracted by filing an affidavit. Statement u/s 132(4) recorded on oath has evidentiary value and therefore, the subsequent retraction is only an afterthought. Therefore, further recording of statement after filing an affidavit would not have served any purpose. As against this Ld. A/R argued that assessee in the affidavit has explained the entire situation under which the statement was recorded and alleged disclosure was obtained. In the affidavit the partner of the assessee firm has given the name of officer who exercised pressure on him to admit surrender. Against this affidavit no counter affidavit is filed by the department even when the name of the officer who exercised the pressure was specified in the affidavit. Further when statement is retracted within 12 days of the date of search, i.e. in the shortest possible time, the statement u/s 132(4) loses its sanctity unless evidence is brought on record that the assessee has siphoned the amount by inflating the labour expenses in the books.No such evidence or recording of such facts is supported by any evidence found during the course of extensive search and seizure operation carried out at home and at residence of both the partner. The Ld. D/R further contended that statement recorded u/s 132(4) is also corroborated with the report of Finger Print Bureau obtained in course of assessment proceedings where after 56 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur examining the thumb impression on some muster roll sheets it was found that some of the thumb impressions are similar and therefore, the statement u/s 132(4) cannot be discarded because of the affidavit filed retracting the statement. The Ld. A/R submitted that similarity of thumb impression on the muster roll sheets have been explained in Para 8, 9 & 10 of the affidavit. Assessee is engaged in civil construction work which is labour oriented industry. In such construction work fingers of labour got damaged or soiled or mutated and thus obtaining correct and proper thumb impression of these labours is difficult. Further there is a possibility that some time thumb impression is put by some other labour as all the labours belongs to same family/ village and those labours may be absent on the date of payment. Therefore, similarity of thumb impression in some wage sheets cannot be a reason to presume that wages paid to the labours are inflated without bringing on record any evidence to allege such inflation.Itwas further argued that sometimes it happened that one of the labourers/wage earners was being authorised by others to receive payment on behalf of them and that it was likely that such persons may have put their thumb impressions against others for which they had been authorised. As regards the report of the finger-print expert, it was submitted that it was quite customary that a person would receive payment on behalf of other workers. Therefore, the similarity did not prove that the labour payments were inflated and fictitious. The 57 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur labour sheets were maintained in accordance with the labour laws and the related PF and ESIC has been deducted based on the sheets. During the assessment proceeding the AR has produced the attendance sheets and records related to payment of ESIC and PF. The ld. AR further stated the report is obtained after the search. He has also brought to our notice that the scrutiny assessments were completed in earlier years and even the assessment for assessment year 2010-11 was completed after the searchon 26.12.2017 ( search was conducted on 28.09.2017 ). In that year, AO accepted the returned income of the assessee and no addition is made even though the statement was already available on record at the time of making the assessment for that year. Therefore, the statement recorded u/s. 132(4) which was retracted at the earliest possible time can not be considered as incriminating document and the assessment order making addition without any material cannot be made and required to be quashed. 16.1 Looking to the above realities, legal decisions relied upon by both the parties and considering the facts on hand it is to be decided as to whether the statement recorded under section 132(4) of the Act ( which is retracted by filling a detailed affidavit within 12 days ) can be considered as incriminating material or not? The relevant arguments and judicial pronouncement relied upon by both the parties are analsysed on the same question here in below 58 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur a) The ld. AR of the assessee stated that in fact the decision cited by the Ld. CIT(A) on para 4.2 (viii) where in it was stated that in search assessment, any undisclosed income, which can be ultimately be added, is only to the extent of any unrecorded assets/material found or any incriminating documents found as representing undisclosed income earned. The Hon'ble ITAT, Kolkata in the case of ACIT Circle3(2) Kolkata Vs. M/s Mani Square Limited, Kolkata very recently on 6th August, 2020 in ITA No.58/Kolkatta/2019 has examined as to what constitutes an incriminating evidence or not and the CIT(A) has not extracted the entire para 18 of this decision which reads as under: 18. Before we proceed to examine the contents of the seized documents referred to by the AO, it is first relevant to understand as to the meaning of the expression "incriminating material" or evidence. There can be several forms of incriminating material or evidence. In order to constitute an incriminating material or evidence, it is necessary for the AO to establish that the information, document or material, whether tangible or intangible, is of such nature which incriminates or militates against the person from whom it is found. Some common forms of incriminating material, inter alia, are for instance, where the search action w/s 132 of the Act reveals information (oral or documented) that the assetsfound from the possession of the assessee in form of land, building, jewellery, deposits or other valuable assets etc. do not corroborate with his returned income (which includes earlier AY's return also) and/or there is a material difference in the actual valuation of such assets and the value declared in the books of accounts. Further, incriminating evidence may also constitute of information, tangible or intangible which suggests or leads to an inference that the assessee is conducting transactions outside the regular books of account which are not disclosed to the Department. Incriminating material may also comprise of document or evidence found in search which demonstrates or proves that what is apparent is not real or what is real is not apparent. In other words, let us assume that an assessee has recorded transactions in his books or other documents maintained in the ordinary course of business, then it is discovered in the search certain material or evidence in such an event then, in order to hold the discovered material or evidence to be incriminating in nature, only when the discovered/seized 59 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur material/evidence/document should affect the veracity of the entries made in the books of the assessee and thus lead to the conclusion that the entries made regularly/maintained by the assessee do not represent true and correct state of affairs. Rather the evidence unearthed or found in the course of search would go on to show that the real transaction of the assessee was something different than what was recorded in the regular books and therefore the entries in the books did not represent true and correct state of affairs i.e. the assessee has undisclosed income/expense outside the books or that the assessee is conducting income earning activity outside the books of accounts or all the revenue earning activities are not disclosed to the tax authorities in the books regularly maintained or the returns filed with the authorities from time to time is not true etc. The nature of the evidence or information gathered during the search should be of such nature that it should not merely raise doubt or suspicion but should be of such nature which would prima facie show that the real and true nature of transaction between the parties is something different from the one recorded in the books or documents maintained in ordinary course of business. In some instances, the information, document or evidence gathered in the course of search, may raise serious doubts or suspicion in relation to transaction reflected in regular books or documents maintained in the ordinary course of business, then in such event the AO is not permitted to straightaway treat such material as incriminating in nature unless the AO thereafter brings on record further corroborative material or evidence to transform his suspicion to belief and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs and rather that can be the starting point of inquiry to un-earth further material or evidence to transform his suspicion to belief and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs. Until these conditions are satisfied, it cannot be held that every seized material or document found in the course of search as incriminating in nature qua the assessee justifying the additions in unabated assessments. In other words, any and every seized material which comes in AO's possession cannot be construed as 'incriminating material' straightaway. For instance, scribbling or rough notings found on loose papers cannot be straightaway classified as 'incriminating material' unless the AO establishes nexus or connect of such notings with 60 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur unearthing of undisclosed income of the assessee. This nexus or connect has to be brought out in explicit terms with corroborative material or evidence which any prudent man properly instructed in law must be able to understand or correlate so as to justify the AO's inference of undisclosed income fromsuch seized incriminating material. The reading of the full para rather supports the case of assessee in as much as the amount of wages noted in the muster rolls are duly recorded in the books of accounts. No document or anyother evidence was found to show that the wages recorded in the muster rolls is inflated/ bogus. The search party in Q. No.16 (PB 9-11) has drawn inference as to inflated/ bogus wages only for the reason that in case of 3 persons there is difference in signature in the salary sheet for the month of February, 2016 and August, 2016. This cannot be considered to be an incriminating material to assume inflation of wages. Hence, the above decision supports the case of assessee. Similarly, Hon'ble ITAT, Delhi in case of M/s MGF Automobiles Ltd. has only observed that if some statement is recorded u/s 132(4) where certain facts are recorded, from the interpretation of which AO could conclude that there was some undisclosed income, then that statement can be considered as incriminating material. However, in the present case, the statement stood retracted supported by reasons and subsequent to this decision various High Courts including Delhi High Court has held that statement u/s 132(4) cannot be considered to be incriminating material and therefore, this decision losses its relevance. b) It is further submitted that assessee is regularly filling its return of income and its books of accounts are subject to audit u/s. 44AB of the Act by an independent Chartered Accountants. c) The labour sheet referred in the statement are regularly maintained in the ordinary course of business as per the deployment of labour and the sheet is found as per that deployment of labour and labourer have been made in accordance with their attendance which has not been disputed. d) Ld. AO has not commented on the detailed month wise year wise labour expenses and year wise receipt along with the net profit declared specifying that the same is on increasing trend. 61 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur e) The assessee firm is subjected to labour compliance where in the payment of PF/ESIC is paid in accordance with these labour deployed. f) The explanation of the assessee that it is customary to receive payment on behalf of others, cannot be brushed aside against the observation of forensic report. Though there is no direct evidence for the same, yet it is not an impossibility and there is no improbability in it. It is particularly so when the AO has not disputed about the work having been carried out. If we solely go by the forensic report, then it would lead to an absurd conclusion. g) The AO has not disputed the deployment of the labour each site when there is a corresponding income is appearing in the books merely the similar person has signed, not signed or signed in English or Hindi or once put a thumb impression and later on put signature can not put the major part of labour payment as bogus or inflated expenses. The AO need to appreciate the corroborative other evidences on record. h) The statement relied upon as incrementing document loose it reliability as within 12 days the same has been retracted giving the detailed reasoning i.e. i) The difference in signature may be same name two person may exits explained but has not been recorded. ii) The labour are coming from different part of Bihar and Bilaspur and they are under graduate and know the English. They also give exams and also under take labour work. iii) The ladies are working who are educated. iv) Labour are causal and can not be continuously employed. v) All employed are issued labour card and supervisor put the attendance and based on that attendance the labour sheet is prepared. vi) None of the labour payment or wages sheet is prepared by partners or their relatives. 62 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur vii) The labour sheets are prepared by site supervisor, there may be possibility of some clerical error in preparation of these sheets but the labour expenses so debited in books of account are based on the attendance card and is prepared by the site supervisor and the payment has been made based on the attendance card. viii) The withdrawal of cash is based on the estimated labour employed at site and thus the same is first debited to advance account and then based on the labour sheet prepared on the basis of attendance card the same is debited to site labour expense account. ix) Giving on the detailed reasoning how, when (time) and the officer who have under what circumstance pressured the partner to sign the said statement u/s. 132(4) is explained in the affidavit. x) After the date of the search i.e. 28.09.2017 the assessment order for assessment year 2010-11 is passed ignoring the statement recorded under section 132(4) of the Act on 26.12.2017 it self suggest that the statement recorded is not a incriminating document and the AO has not made any addition even though the same was part of the statement recorded u/s. 132 (4) of the Act. xi) In light of para 9 of the decision in Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC) it is pleaded that “We are aware of the fact that, strictly speaking, res judicate does not apply to IT proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not 63 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. Thus, the assessing officer ought not to have taken a different view in the year under appeal. Based on the above analysis of the facts and judicial decision relied upon we hold that the finding given at para 4.2(xii) on this technical ground is not correct. 16.2 The Ld. A.O. in assessment proceedings put much stress on the statement recorded in course of search from assessee to support said additions made in assessment of assessee. In case of Pr. CIT Vs. Best Infrastructure (2017) 397 ITR 82 (Delhi.) the Hon'ble Delhi High Court held that even statement recorded in course of search u/s 132 (4) do not by themselves constitute incriminating material and unless there is incriminating material for each of assessment years in which addition are made the A.O. could not proceed u/s 153A. Thus, the assumption of jurisdiction by Ld. A.O. u/s 153A to make addition on the basis of statement of assessee is not sustainable in law. 16.3 In this connection, it is also submitted that it has been held in many judicial pronouncements that mere statement u/s 132(4) or u/s 131 is not sufficient to make an addition. A statement made must be relatable to incriminating material found during the course of search or the statement must 64 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur be relatable to material by subsequent inquiry/investigations. The Hon’ble Rajsthan High Court in the case of Mantri Share Brokers P Ltd. (96 Taxmann.Com 279) have held as under:- Section 69B of the I T Act, 1961- Undisclosed Investment (burden of proof)- Whether where except statement of Director of assessee company offering additional income during survey in his premises, there was no other material either in form of cash, bullion, jewellery, or documents or in any other form to conclude that statement made was supported by some other documentary evidence, said sum could not be added in hands of assessee as undisclosed investments- Held, Yes [ Paras 10-11] [ In favour of assessee] The Hon’ble ITAT, Jaipur Bench, Jaipur in the case of M/s Kota Dal Mill Vs DCIT, CC-Kota in appeal no. ITYA 997 to 1002/JP/2018 & 1119/JP/2018 (Order dated 31-12-2018) the aspect of search and survey on the entry operators based in Kolkata and the addition based on the statement of entry operators is dealt with and decided elaborately. 16.4. The CBDT vide instruction No. F. 286/2/2003 – IT Inv. Dated March 10, 2003 issued instructions reiterating that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed and no attempt should be made to obtain confession as to the undisclosed income as this does not serve any useful purpose since such confessions, if not based upon credible evidence, are later retracted by the concerned assesses while filing returns of income. 65 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 16.5. It is settled law that the assessee has right to retract the statement given if it remains unproved from any cogent material and is rather not supported with corroborative material and evidences. Where there is a specific ground taken for retracting a statement, that it was made under pressure, such a statement cannot be the sole basis, unless corroborated. Gajjam Chand Yellappa v I.T.O. (2015) 370 ITR 671 (T&AP). In the case of CTI v Naresh Kumar Agarwal (2014) 369 ITR 171 (T&AP) it was held that, where the assessee retracts the statement admitting undisclosed income on the plea that it was recorded under threat or coercion, with no evidence to support the admitted income, the burden of proof is on the Assessing officer to establish his conclusion. A statement which is not substantiated cannot be taken as binding on the assessee. CIT v Balasubramanian (P) (2013) 354 ITR 116 (Mad.). Therefore, reliance made by A.O. on such statement is uncalled for. 16.6 The assessee has furnished all the evidences in support of its claim, whereas the AO has merely relied upon a statement which has been retracted in 15 days time giving detailed reasoning and explaining the circumstance stating the name of the officer pressured them for undue disclosure merely on filmy ground and that too without recording the reasoning as why that alleged signature, thumb or non putting of thumb on the sheet exits. He has not agreed appreciated that the sheets were maintained based on the attendance card and 66 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur the same is paid as per the attendance after paying relevant PF/ESIC and on the technical ground pressing the assessee disclosure obtained is not tenable even the CBDT has to give the instruction to that effect shows that the statement which is recorded under threat or pressure cannot be considered as incrementing material. 16.7 In order to appreciate the rival submissions, it would be advantageous, at the outset, to discuss a few legal principles established by authoritative pronouncements and which fit into the facts and circumstances of the case before us. As the assessee has relied on the judgement of the Co-ordinate bench of Jaipur in the case of M/s. Rajasthan Fort & Palace Private Limited Vs. DCIT in ITA No. 597 to 599/JP/2017 dated 24.01.2018 where in the bench has observed that “As per section 153A of the Act once a search andseizure action is carried the AO has to assess or reassess the totalincome of the assessee in respect of 6 years immediately preceding theassessment year relevant to the previous year in which a search is conducted or requisition is made. In case the assessment is pending on the date of search the same shall be abated as per proviso to U/s 153A(1) of the Act and the AO is free to assess the income of the assessee as regular assessment. However, in case of completed assessment and not abated due to initiation of search u/s 132 ormaking of requisition u/s 132A the AO has to reassess the total income of the assessee and therefore, the assessment already completed can be tinkered with or distrusted until and unless incriminating material is found and seized during the course of search or requisition as case may be indicating undisclosed income of the assessee. Therefore, the scope and jurisdiction of the AO to reassess the total income of the assessee u/s 153A is limited only to the extent of the income disclosed by the 67 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur incriminating material found and seized during the search and seizureaction. The Assessing Officer has reassessed the income of theassessee by making the disallowance u/s 40(a)(ia) as well as u/s36(1)(va) of the Act without making any reference to any incriminatingmaterial found. Therefore, the disallowance/addition made by the AO for these 3 assessment years completed u/s 153A is undisputedly notbased on any incriminating material found or seized during the courseof search and seizure action u/s 132 of the Act. Once, the AssessingOfficer has completed the reassessment u/s 153A without any referenceto the incriminating material found then, no addition cannot be made tothe returned income of the assessee. The Hon’ble Jurisdiction DelhiHigh Court in case of CIT v. Kabul Chawla (supra) vide whileconsidering an identical issue has held in para 37 and 39 as under:- “37. On a conspectus of Section 153A(1) of the Act, read withthe provisos thereto, and in the light of the law explained in theaforementioned decisions, the legal position that emerges is asunder: i. Once a search takes place under Section 132 of the Act, noticeunder Section 153 A(1) will have to be mandatorily issued to theperson searched requiring him to file returns for six AYsimmediately preceding the previous year relevant to the AY inwhich the search takes place. ii. Assessments and reassessments pending on the date of the searchshall abate. The total income for such AYs will have to becomputed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of thesix years previous to the relevant AY in which the search takesplace. The AO has the power to assess and reassess the 'totalincome' of the aforementioned six years in separate assessmentorders for each of the six years. In other words there will be onlyone assessment order in respect of each of the six AYs "in whichboth the disclosed and the undisclosed income would be broughtto tax". iv. Although Section 153 A does not say that additions should bestrictly made on the basis of evidence found in the course of thesearch, or other post-search material or information available withthe AO which can be related to the evidence found, it does notmean that the assessment "can be arbitrary or made without anyrelevance or nexus 68 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur with the seized material. Obviously anassessment has to be made under this Section only on the basis ofseized material." v. In absence of any incriminating material, the completedassessment can be reiterated and the abated assessment orreassessment can be made. The word 'assess' in Section 153 A isrelatable to abated proceedings (i.e. those pending on the date ofsearch) and the word 'reassess' to completed assessmentproceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section153A merges into one. Only one assessment shall be madeseparately for each AY on the basis of the findings of the searchand any other material existing or brought on the record of theAO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis ofsome incriminating material unearthed during the course of searchor requisition of documents or undisclosed income or propertydiscovered in the course of search which were not produced or notalready disclosed or made known in the course of originalassessment. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 39. The question framed by the Court is answered in favour of theAssessee and against the Revenue.”A similar view has been taken by the Hon’ble jurisdiction High Court incase of Jai Steel India v ACIT (supra) as held in para 22 to 30 asunder:- “22. In the firm opinion of this Court from a plain reading of theprovision along with the purpose and purport of the saidprovision, which is intricately linked with search and requisitionunder Sections 132 and 132A of the Act, it is apparent that: (a) the assessments or reassessments, which stand abated in terms ofII proviso to Section 153A of the Act, the AO acts under hisoriginal jurisdiction, for which, assessments have to be made; (b) regarding other cases, the addition to the income that has alreadybeen assessed, the assessment will be made on the basis ofincriminating material and (c) in absence of any incriminating material, the completedassessment can be reiterated and the abated assessment orreassessment can be made. 69 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur Though such a claim by the assessee for the first time underSection 153A of the Act is not completed, the case in hand, has tobe considered at best similar to a case where in spite of a searchand/or requisition, nothing incriminating is found. In such a casethough Section 153A of the Act would be triggered and assessmentor reassessment to ascertain the total income of the person isrequired to be done, however, the same would in that case not result in any addition and the assessments passed earlier may haveto be reiterated. 23. The reliance placed by the counsel for the appellant on the caseof Anil Kumar Bhatia (supra) also does not help the case of theassessee. The relevant extract of the said judgment reads asunder:— "19. Under the provisions of Section 153A, as we have alreadynoticed, the Assessing Officer is bound to issue notice to theassessee to furnish returns for each assessment year falling withinthe six assessment years immediately preceding the assessmentyear relevant to the previous year in which the search or requisitionwas made. Another significant feature of this Section is that theAssessing Officer is empowered to assess or reassess the "totalincome" of the aforesaid years. This is a significant departure fromthe earlier block assessment scheme in which the block assessmentroped in only the undisclosed income and the regular assessmentproceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been giventhe power to assess or reassess the 'total income' of the sixassessment years in question in separate assessment orders. Thismeans that there can be only one assessment order in respect ofeach of the six assessment years, in which both the disclosed andthe undisclosed income would be brought to tax. 20. A question may arise as to how this is sought to be achievedwhere an assessment order had already been passed in respect ofall or any of those six assessment years, either under Section143(1)(a) or Section 143(3) of the Act. If such an order is already inexistence, having obviously been passed prior to the initiation of thesearch/requisition, the Assessing Officer is empowered to reopenthose proceedings and reassess the total income, taking note to the undisclosed income, if any, unearthed during the search. For thispurpose, the fetters imposed upon the Assessing Officer by thestrict procedure to assume jurisdiction to reopen the assessment under Sections 147and148, have been 70 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur removed by the non-obstante clause with which sub-section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can beissued, as provided in Section 149 has also been made inapplicableby the non obstante clause. Section 151 which requires sanction tobe obtained by the Assessing Officer by issue of notice to reopenthe assessment under Section 148 has also been excluded in a casecovered by Section 153A. The time-limit prescribed for completionof an assessment or reassessment by Section 153 has also beendone away with in a case covered by Section 153A. With all thestops having been pulled out, the Assessing Officer under Section153A has been entrusted with the duty of bringing to tax the totalincome of an assessee whose case is covered by Section 153A, byeven making reassessments without any fetters, if need be. 21. Now there can be cases where at the time when the search isinitiated or requisition is made, the assessment or reassessmentproceedings relating to any assessment year falling within theperiod of the six assessment years mentioned above, may bepending. In such a case, the second proviso to sub- section (1) ofSection 153A says that such proceedings "shall abate". The reasonis not far to seek. Under Section 153A, there is no room for multiple assessment orders in respect of any of the six assessment years under consideration. That is because the Assessing Officer has todetermine not merely the undisclosed income of the assessee, butalso the 'total income' of the assessee in whose case a search orrequisition has been initiated. Obviously there cannot be severalorders for the same assessment year determining the total incomeof the assessee. In order to ensure this state of affairs namely, thatin respect of the six assessment years preceding the assessmentyear relevant to the year in which the search took place there is only one determination of the total income, it has been provided in the second proviso of sub-Section (1) of Section 153A that anyproceedings for assessment or reassessment of the assessee whichare pending on the date of initiation of the search or makingrequisition "shall abate". Once those proceedings abate, the decksare cleared, for the Assessing Officer to pass assessment orders foreach of those six years determining the total income of theassessee which would include both the income declared in thereturns, if any, furnished by the assessee as well as the undisclosedincome, if any, unearthed during the search or requisition. The position thus emerging is that the search is initiated or requisition is made, they will abate making way for 71 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur the Assessing Officer to determine the total income of the assessee in which the undisclosedincome would also be included, but in case where the assessmentor reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders subsisting at the time when thesearch or the requisition is made, there is no question of anyabatement since no proceedings are pending. In this lattersituation, the Assessing Officer will reopen the assessments orreassessments already made (without having the need to follow thestrict provisions or complying with the strict conditions of Sections147, 148 and 151) and determine the total income of the assessee. Such determination in the orders passed under Section153A would be similar to the orders passed in any reassessment,where the total income determined in the original assessment orderand the income that escaped assessment are clubbed together and assessed as the total income. In such a case, to reiterate, there isno question of any abatement of the earlier proceedings for thesimple reason that no proceedings for assessment or reassessment were pending since they had already culminated in assessment orreassessment orders when the search was initiated or therequisition was made." (Emphasis supplied) 24. The said judgment also in no uncertain terms holds that the reassessment of the total income of the completed assessments have to be made taking note of the undisclosed income, if any,unearthed during the search and the income that escapedassessments are required to be clubbed together with the totalincome determined in the original assessment and assessed as the total income. The observations made in the judgment contrasting the provisions of determination of undisclosed income underChapter XIVB with determination of total income under Sections153A to 153C of the Act have to be read in the context of secondproviso only, which deals with the pending assessment/reassessment proceedings. The further observations made in the context of de novo assessment proceedings also haveto be read in context that irrespective of the fact whether anyincriminating material is found during the course of search, thenotice and consequential assessment under Section 153A have to be undertaken. 25. The argument of the learned counsel that the AO is also free todisturb income, expenditure or deduction de hors the incriminatingmaterial, while making assessment under Section 153A of the Act isalso not borne out from 72 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur the scheme of the said provision which asnoticed above is essentially in context of search and/or requisition. The provisions of Sections 153A to 153C cannot be interpreted tobe a further innings for the AO and/or assessee beyond provisionsof Sections 139 (return of income), 139(5) (revised return ofincome), 147 (income escaping assessment) and 263 (revision oforders) of the Act.26. The plea raised on behalf of the assessee that as the firstproviso provides for assessment or reassessment of the totalincome in respect of each assessment year falling within the sixassessment years, is merely reading the said provision in isolationand not in the context of the entire section. The words 'assess' or'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead toan irresistible conclusion that the word 'assess' has been used in thecontext of an abated proceedings and reassess has been used forcompleted assessment proceedings, which would not abate as theyare not pending on the date of initiation of the search or making ofrequisition and which would also necessarily support the interpretation that for the completed assessments, the same can betinkered only based on the incriminating material found during thecourse of search or requisition of documents. 27. The Allahabad High Court in Smt. Shaila Agarwal's (supra) has held as under:— "19. The second proviso to Section 153A of the Act, refers to abatement of the pending assessment or re-assessmentproceedings. The word 'pending' does not operate any suchinterpretation, that wherever the appeal against such assessment orreassessment is pending, the same along with assessment orreassessment proceedings is liable to be abated. The principles of interpretation of taxing statutes do not permit the Court to interpret the Second Proviso to Section 153A in a manner that where theassessment or reassessment proceedings are complete, and thematter is pending in appeal in the Tribunal, the entire proceedingswill abate. 20. There is another aspect to the matter, namely that theabatement of any proceedings has serious causes and effect in as much as the abatement of the proceedings, takes away all theconsequences that arise thereafter. In the present case afterdeducting bogus gifts in the regular assessment proceedings, theproceedings for penalty were drawn under Section 271(1)(c) 73 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur of the Act. The material found in the search may be a ground for noticeand assessment under Section 153A of the Act but that would notefface or terminate all the consequence, which has arisen out of theregular assessment or reassessment resulting into the demand orproceedings of penalty." (Emphasis supplied) The said judgment which essentially deals with second proviso toSection 153A of the Act also supports the conclusion, which wehave reached hereinbefore. 28. It has been observed by the Hon'ble Supreme Court in K.P.Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 that "it is wellrecognized rule of construction that a statutory provision must be soconstrued, if possible that absurdity and mischief may be avoided." 29. The argument of the counsel for the appellant if taken to itslogical end would mean that even in cases where the appeal arisingout of the completed assessment has been decided by the CIT(A),ITAT and the High Court, on a notice issued under Section 153A ofthe Act, the AO would have power to undo what has beenconcluded up to the High Court. Any interpretation which leads tosuch conclusion has to be repelled and/or avoided as held by theHon'ble Supreme Court in the case of K.P. Varghese (supra). 30. Consequently, it is held that it is not open for the assessee toseek deduction or claim expenditure which has not been claimed inthe original assessment, which assessment already stands completed, only because a assessment under Section 153A of the Act in pursuance of search or requisition is required to be made.” Accordingly, in the facts and circumstances of the case when thereassessment completed u/s153A without any reference to the incriminating material as well as binding precedents as sited above theaddition made by the AO u/s 40(a)(ia) as well as 36(1)(va) are not sustainable, the same are deleted. 16.8Considering the facts, secisions relied upon and the fact that the statement recorded under section 132(4) which is being retracted subsequently on filling a detailed retraction affidavit within 15 days loose its sensitivity and that too in the 74 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur absence of any corroborative evidence or assets the addition made on account of the site running expenses in respect of the completed assessment does not survive. 16.9 Thus, Based on the discussion and finding and decision relied upon as in above paras, the ground no. 1 raised by the assessee for A. Y. 12-13 to 15-16 are allowed and Ground no 2(a) to 2(g), Ground no 3, Ground no 4 based on the above finding has no merits and thus the same are dismissed. Now on Merits 17. In Ground no. 2 the assessee has challenged the finding of the ld. CIT(A) that instead of 15 % labour expenses out of the site running expenses debited to each year ( totaling to Rs. 15,89,82843/- ) the addition was restricted to 1% of the each year’s receipt as unverifiable labour expenses ( totaling to Rs. 3,55,34,276/- )andrevenue is aggrieved by the order of the ld. CIT (A) on the merits of the addition and filed these appeals on Ground no. 1, 4, 5(a), 5 (b) and 6 giving relief to the assessee ignoring the statement recorded u/s. 132(4) of the Act, defects in the labour sheets pointed out, finding of the Finger Print Bureau, action of the ld. CIT(A) giving relief on the different finding and that too without giving notice to the assessing officer. 75 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 18 The ld. DR in addition to a detailed oral argument filed written submission on the following points in addition to the points. The arguments of the DR are as under: 4.The Ld. AR of the assessee has also referred to the order u/s 143(3)/147 for A.Y. 2010-11 dated 26.12.2017 wherein, the AO has accepted the returned income of the assessee conclusion of search. In this regard, it is submitted that reasons after for issuing notice u/s 148 in that case was difference between contract receipts shown by the assessee and contract receipts as per 26AS statement. The AO verified the receipts of the assessee and found it to be correct therefore no addition was made. Hence, the plea of the Ld. AR that the Department has accepted the returned income of the assessee has no relevance in this case since the order was passed u/s 143(3)/147 of the Act and the AO was supposed to examine the receipts aspect of the books of accounts and she was not supposed to examine the expenditure of the assessee, nay the labour expenses of the assessee. 5. The Ld. CIT(A) has grossly erred in disturbing the findings of the AO and substituting her own estimations which had no logic and which was not based on any seized material or statement recorded during the course of search. The addition on account of NP rate of just 1% is arbitrary and without any basis. The CIT(A) has coterminous power with that of the AO, but that power has to be exercised judicially and judiciously, particularly in a search case on the basis of the seized material and statements u/s 132(4) of the Act. The Ld. CIT(A) has failed to exercise her power judiciously and therefore her order may be set aside and order of the AO may kindly be restored as the AO had made addition of only 15% on account of labour expenses which was admitted both the partners during the course of the search and there was sufficient incriminating material to prove that they expenses were inflated. 19. Whereas the assessee has filed its written submission for the ground taken by them as well as against the grounds raised by the department. The said submission of the assessee is extracted here in below 76 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 1. A search was conducted at the business premises of assessee on 28.09.2017. In search certain papers/ documents marked as Annexure AS- 1 to AS-64 was impounded from the office premises of assessee. Out of it, Annexure AS-3 to AS-60 & AS-64 are muster rolls for labour payment. These muster rolls pertain to FY 2007-08 to the date of search. On the basis of these muster rolls, the search party in statement u/s 132(4) dt. 29.09.2017 (PB 9-11) of Sh. BhivaramKumawat, partner of the firm sought surrender of Rs.16,50,62,994/- from FY 2010-11 to 2017-18 on the basis that 15% of the site running expenses are bogus and this statement also got confirmed from another partner Sh. Panna Lal Kumawat (PB 23-25). However, immediately after search the assessee vide letter filed on 11.10.2017 (PB 50) before ADIT(Investigation), Jaipur with copy to PDIT (Investigation), Jaipur and DDIT(Investigation)-I, Jaipur filed a detailed affidavit of even date (PB 51-58) retracting from the said surrender by giving detailed reasons as to how the same was made under coercion. 2. During the course of assessment proceedings AO examined and analysed the labour/ wages sheets on test check basis and noted various discrepancies as mentioned at Pg 7 to 12 of the order. The assessee vide letter dt. 09.04.2019 (PB 79-84) explained the discrepancies. The AO, however, did not accept the contention of assessee by giving various reasons mentioned at Pg 13-14 of the order as under: (a) Accountant is debiting huge amount as 'advance to site running expenses' without receiving the actual vouchers which makes it clear that the site supervisor can easily manipulate the same in light of the amount withdrawn in cash from the bank account. Booking the expenses before receiving the actual vouchers makes it clear that the expenses are not genuine and can be managed easily. (b) The assessee has contended that there is no incriminating document to prove that15% labour expenses are bogus but the labour sheets were found and seized during the search proceedings itself and it is only on the basis of specific defects appearingin these sheets that issue of bogus labour expenses was pointed out. (c) There is marking of thumb impression by one person on several places against different names. It is hard to believe that how a 77 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur labour who is not earning much will sometime put his thumb impression in Hindi while at some other point he will puthis signature in English. (d) If the labour expenses were genuine then why the same along with evidences in favour of assessee's contention was not being pointed out during the course ofsearch proceedings or any such explanation was being given at that time. (e) The assessee has himself accepted the fact that there may be possibility of clerical error in preparation of labour sheets which gives all the more space for manipulation of these sheets. (f) The assessee has termed the specific defects as minor discrepancies on the basis ofobservation but on bare perus of these labour sheets number of defects can be pointed out which is prevalent in almost each and every sheet spread across 6-7years. 3. Further to check the veracity of thumb impressions, labour sheets were sent to Finger Print Bureau, Rajasthan Police Academy for forensic analysis on test check basis. Four exhibits were sent in which total six pages were analysed. Report of Finger Print Bureau is at Pg 14-17 of the order in which it is mentioned that all the disputed thumb prints are similar and identical with each other and have been made by the thumb of the same person. The assessee vide letter dt. 17.12.2019 (reproduced at Pg 18-19 of the order) explained in detail that how the report of Finger Print Bureau is not reliable. The AO, however, did not accept the contention of assessee by giving various reasons mentioned at Pg 19-20 of the order. 4. Accordingly, AO disallowed 15% of the labour expenses by treating it as bogus u/s 69C of IT Act by giving the following findings: (i) Number of discrepancies were noticed in the labour sheets based on which site running expenses were claimed and hence both the partners of assessee firm has accepted that 15% of the labour expenses as claimed are bogus as discussed in para 5.1 and 5.2 of the order. The same fact is also clear from the statements of the accountant that the labour expenses were manipulated as discussed in para 5.3 of the order. 78 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur (ii) Number of specific defects like signature, handwriting, pattern of signature, same thumb impressions were clearly evident as elaborately discussed in para 5.4. (iii) Sheets were sent for forensic analysis on test check basis and they reported that all the thumb impressions are identical and similar and marked by same person which is clear from the forensic report reproduced in para 5.7. (iv) The assessee even after issuance of two show cause notices could not provide any specific or cogent reply for the specific defects in the labour sheets and could not explain the fact that why were these labour sheets manipulated in the light of forensic report. 5. The Ld. CIT(A) in Para 5.3, Pg 25-30 after mentioning the facts in Point No.(i) to (vi) at Point No.(vii) observed that inference drawn by the AO in respect of undeclared income were premised on the material found and statement of partner and during the appellate proceedings also assessee could not produce any corroborative material to contradict the factual position except the fact of retraction from the statement. She further observed in Point No.(viii) to (x) that for making the addition AO solely relied on the statement of partners which stood retracted and on the basis of report of Finger Print Bureau the sample size of which is very small. As against this the net profit declared by the assessee in these years is varying between 9.86% to 12.39% and there is increasing trend of n.p. rate even on the increased turnover. No corresponding asset/ expenditure to the extent of disallowance made by AO were found in search. Considering these facts the Ld. CIT(A) invoked provision of section 145(3) of the Act and thereby considering the component of unverifiable labour charges he sustained addition @ 1% of the total turnover in each of the year under consideration. This resulted into confirming the addition to the extent of Rs.3,55,34,276/- for all the AYs from AY 2012-13 to 2018-19 taken together as tabulated in Point No.(xvi) of the order. Submission: 1. At the outset it is submitted that the very basis for treating the labour expenses as bogus by the AO is the statement dt. 29.09.2017 (PB 9-11) of Sh. BhivaramKumawat, partner of the firm recorded u/s 132(4) of the Act wherein he admitted that 15% of the site running expenses is bogus. This statement was also confirmed by another partner Sh. Pannal Lal Kumawat. 79 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur However, AO ignored the fact that immediately after search the assessee vide letter filed on 11.10.2017 (PB 50) before ADIT(Investigation), Jaipur with copy to PDIT(Investigation), Jaipur and DDIT(Investigation)-I, Jaipur filed a detailed affidavit of even date (PB 51-58) of Sh. Pannal Lal Kumawat retracting from the said surrender by giving detailed reasons as to how the same was made under coercion. Para 2 to 11 of the said affidavit dt. 11.10.2017 is reproduced for ready reference: 2. क दनांक 28/09/2017 को आयकर वभाग के अ धकार सवेरे 5.30 बजे कर ब मेरे घर पह ु ◌ॅचे। म " कसी स$संग म % 27/09/2017 को सांय 5.30-6.00 बजे आसलप ु र जोबनेर मेरे गाँव गया था। वहा से मे 28/09/2017 को सवेरे कर ब 7 बजे वा पस मेरे घर पह ु ◌ॅचा उस समय वभाग के अ धकार मेरे घर पर बैठे ह ु ए थे तथा उ.होन म ु झे बताया क आपके यहाँ पर आयकर छापे क काय1वाह क2 जा रह है। उसी समय म ु झे यह भी पता चला क आयकर छापे क काय1वाह 3ी भीवाराम जी के घर पर भी चल रह है। फर उ.होने कर ब 2-3 घ5टे म ु झसे मेरे व मेरे प7रवार के सद8य9 के ब " क अकाउ.ट, नगद , :वैलर , ;ोपट<स इ$या द के बारे म % जानकार मांगी व स>प ू ण1 मकान क2 तलाशी ल । यह सम8त काय1वाह कर ब सांय 4-5 बजे तक चल । उसके बाद म % जो भी कागज इ$या द Bमले, उनक2 चे क ं ग करना चाल ू कया। यह कर ब रात को 11 बजे तक चलता रहा, कर बरात को 11 बजेमेरा बेटा मनीष व वभाग का एक इ.सपेDटर जो क ऑ फस पर सच1 क2 काय1वाह कर रहे थे, मेरे घर पहोचए व बोले के क ु लहर साहब आपसे Bमलना चाहते है। उनके साथ हमारे ऑ फस जो क 602ए Element Mall, DCM, Ajmer Road, Jaipur म % ि8थत है पर पह ु ंचे। 3. Wages Sheet Wages Sheet 80 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur Wages Payments Wages Sheet Higher Secondary 1st Year, II Year Wages 50% 30% 15 surrender Bogus labour formula/ criterion Appraisal report 70% 20-25% Appraisal report cooperate . 30% 81 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur Department Penalty, 4 1:30 200 5 8-830 10-10.30 Department Aggressive •cooperate Department Bogus labour 70% , Penalty, Interest Computer records, ( - ) assessee cooperate 82 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur Appeal Appellate Tribunal High Court Penalty 70% C.A. 8 wages yearwise wages figure sheet 15% 16.50 surrender 4 - , - Department . cooperate Penalty, Interest 30% 6. 4 6 7 8. 25 Material Cement Finishing Material Chokhat, Tile, Marbal, Granite, 83 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur labour, BazriRodi, Bricks, Binding Wire, labour labour casual Fix Supervisor Supervise Attendance Supervisor Wages sheet labour Intimate Advance Payment Site to Advance Site Supervisor signed sheet supervisor office accounts entries 9. 10. Labour Sheet, Site Supervisor, site 25 100-150-200 Labour Sheet Site Supervisor - 84 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 11. Application Wages surrender The above affidavit was given before the copy of statement recorded u/s132(4) was provided. In this affidavit the complete circumstances and the manner in which their statement was recorded during the course of search was explained as it happened in course of search. This proves that the surrender made was under coercion. CBDT in Instruction No.286/2003-IT (Inv.) dated 10.03.2003 has also accepted that instances have come to the notice of the Board where assessees' have claimed that they have been forced to confess the undisclosed income during the course of search & seizure and survey operations. Such confession is not based upon reliable evidences and not considered by the concerned assessee while filing returns of income. In these circumstances, confession during the course of search & seizure and survey operation does not serve any useful purpose. It is therefore, advised that there should be focus and concentration on collection of evidence of income which lead to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Department. Similarly, while recording statement during the course of search & seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. The fact of getting surrender by extracting pressure on assessee is also accepted by the courts/Tribunal in various cases. Some of these cases are as under: CIT VS. Hiranand 2 72 ITR 626 (Raj.) (HC) In Para 16, Court observed as under: "It is difficult to appreciate, what to say, to accept this approach of the revenue officer only to concern with the augmenting of the revenue by all means and seldom to bother about the rightful claims made of the deduction from the gross income as a result of business loss. The Income tax officers are first also the citizens of the country. They are equally concerned to see and look into that whatever legally permissible deduction available are to of the Income given to the assessee. This one sided approach of the revenue officers the tax department only concerned with the revenue and not to bother about assessee's legal right, rightful 85 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur deductions and other claims, is not befitting to their position. They are the officers of the welfare state and have duty and obligation to see that assessee's are given their legal, rightful and legitimate claims and deduction and other benefits. Whatever may be the reason or ground it is not unknown that the assessees have fear and are afraid of entering in the Income tax Department Rajesh Jain Vs. DCIT (2006) 100 TTJ 929 (Del.) (Trib.) Computation of undisclosed income solely on the basis confessional statement ofassessee was not justified, inter alia, where the conduct of affairs by the Revenue authorities showed that good amount of psychological pressure was built on the assessee to make the said statement and all material found during search was duly explained by assessee on which no adverse comment was made by AO. It is to be noted that it is not possible to lead direct evidence of use of pressure tactics. It is to be gathered from the evidence, mostly circumstantial. Grandhi Narendra Vs. ACIT (2010) 41 DTR 227 (Visakha) (Trib.) The very fact that the assessee agreed to disclose an amount of Rs. 12 lakhs, despite the fact that the Department did not unearth any material against him, would only suggest that there might have been some mental pressure upon the assessee to make such a confession. Surendra Pal Verma Vs. ACIT (2004) 89 ITD 129 (Chd) (TM) Confessional statement made during search are often venerable on ground that person giving such statement remain under a great mental stress and strain. They also do not have the availability of relevant details, documents and books of accounts at the time of giving statement in the absence of which precise information as to utilization of such income and year of investment cannot be correctly furnished. Harshad L. Thakker Vs. ACIT (2005) 3 SOT 277 (Mum.) (Trib.) 86 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur In the course of search/survey, every assessee is under mental pressure and factual errorsmay be committed. 2. It is further submitted that Sh. BhivaramKumawat and Sh. Pannal Lal Kumawat within 12 days of search retracted from the statement given in search by filing an affidavit before ADIT(Inv.) with copy to Principal DIT(Inv.) on 11.10.2017 (PB 50-58). Thereafter in post search proceedings assessee vide letter dt. 11.01.2018 furnished explanation with reference to each pages of seized Annexure AS-1 to AS-64 (PB 59-66). Thereafter vide letter dt. 20.01.2018 (PB 67-75) the details of project wise labour expenses for all the AYS was filed. Inspite of this the investigation officer has not cross examined them with reference to the affidavit filed by Sh. Pannal Lal Kumawat. It is a settled law that once statement is retracted by filing an affidavit, such statement loses its evidentiary value and the addition made on the basis of such statement is illegal and unjustified. For this proposition reliance is placed on the following cases: Pullangode Rubber Produce Company Ltd. Vs. State of Kerala and Another (1973) 91 ITR 0018 (SC) Admission is an extremely important piece of evidence but it can't be said that it is conclusive. It is open to the assessee who made admission to show that it is incorrect and the assessee should be given proper opportunity to show the correct state of affairs.. CIT Vs. Ashok Kumar Soni (2007) 291 ITR 172 (Raj.) (HC) During the course of search conducted at the premises of assessee, statements of assessee as well as his father were recorded. AO, on the basis of said statements, considered that out of his undisclosed income, assessee had made investment in construction of a house property to the extent of Rs.14.5 lakhs. In response to notice u/s 158BC, assessee filed his return disclosing an amount of Rs.7.5 lakhs as investment made for construction of house. AO did not accept extent of amount so disclosed by the assessee on the basis of statement made by assessee's father and 87 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur made an addition of Rs.7.5 lakhs. The Tribunal after taking into considering statement of father of assessee and assessee's own statement during course of search, subsequent statement of assessee recorded in course of regular proceeding and valuation reports produced by assessee as well as by DVO, restricted addition to Rs. 7.5 lakhs. It was held that the Tribunal had nowhere stated that it had acted merely on retracted statement of assessee but it had correctly stated principal regarding evaluation and evidentiary value of admission. Therefore, since Tribunal after taking into consideration attending circumstance accepted assessee's declaration about undisclosed income used in investment, finding of fact could not be said to be vitiated. M. Narayanan & Bros. Vs. ACIT (2011) 339 ITR 192 (Mad.) (HC) Assessee offered Rs.3 lakhs as unaccounted income on the first day of search at his premises and another sum of Rs.4 lakhs on the second day of search. However, in the course of assessment proceedings, assessee retracted the statement made on second day offering the additional income of Rs.4 lakhs. AO rejected the said plea and madeassessment on the basis of both the confessional statements given by the assessee. It was held that though the statement rendered at the time of search may be used in evidence in any proceedings that by itself cannot become the sole material to rest the assessment, more so when the assessee seeks to withdrew the same by producing material evidence in the support of such retraction. It is always open to the person who has made the admission to show that the statement to offer income is incorrect. Assessee has explained that amount offered on the second day of the search was loans taken by him from relations taken by who were already assessed on the said amount. Even otherwise, assessee's transaction relating to pawn broking pertained to earlier assessment years and had no relevance to 10 the year under consideration. Thus, once the assessee had explained his statement as incorrect in the context of the material produced by him, the Tribunal was not t justified in its conclusion that the statement made by the assessee clothed the assessment with legality. That apart, the case of 88 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur the assessee also stands supported by Circular No. F. No. 286/2/2003-IT (Inv.), dated 10.03.2003 wherein CBDT has given categorical directions to the Departmental Officers that undue emphasis should not be placed on the recorded statements. Therefore, CIT(A) was justified in accepting the assessee's case and deleting the addition of Rs.4 lakhs. In view of above, addition made by AO by relying on the statement of the partner of assessee firm is unjustified and therefore, rightly not relied by the Ld. CIT(A). Hence, Ground No.3 & 4 of the department be dismissed. 3. The findings given by the AO for not accepting the explanation of assessee are incorrect/irrelevant as explained hereunder: (a) It may be noted that each site having different labours is supervised by a site supervisor. The site supervisor employs the labours as per the requirement of site and maintains the record of labour, i.e. labour card, attendance, etc. On the basis of number of labours employed and their attendance as well as for other expenses to be incurred at site, the site supervisor intimates the estimated amount required by him. ment of expenditure to the accounts staff. On the basis of this requisition by for payment Site Advance the supervisor, amount is sent to site by debiting the account head 'Site After receipt of advance amount, site supervisor makes payment to the labour on the basis of wage sheet prepared by him after obtaining signature/ thumb impression on wage sheets. Accordingly, the accounting entries are made in the books of account by debiting wage expenses and crediting site advance account. Therefore, at the time of sending advance to the site supervisor the accountant does not book the expenses but debit it to 'advance to site account and the expenditure is booked after receipt of wage sheets from the supervisor. Hence, it is incorrect on the part of AO to observe that expenses are booked before receiving the actual vouchers. 89 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur (b) The labour sheets found and seized during the search proceedings are maintained in normal course of business. The same is duly recorded in the books of accounts. In fact in regular assessment proceedings these wage sheets produced on the basis of which assessments are made. Therefore, only because of so called defects, these wage sheets cannot be termed as incriminating document. (c) In respect of the observation of AO that thumb impression of one person is there against different names or at some places the labour put his signature in Hindi but in some places in English, it is submitted that the payment of wages is made on the basis of labour card. Sometimes labour leave the job in between the month and givehis card to another labour. In these cases another labour receives the payment and also sign wage sheets on behalf of the labour who left the job in between. Besides this, labours are engaged in group basis either of one family or relative to each other or belonging to particular area. At the time of payment of labour charges, one person from the group brings all the cards and takes the wages payment of the entire group by signing on the wages sheet. Therefore, thumb impression/ signature of one person is there against different names in the wage sheets. Similarly, there is nothing abnormal if a labour signs the wage sheet sometime in Hindi and sometime in English. Thus, on the basis of so called discrepancies, it cannot be presumed that the wages expenses claimed is bogus to the extent of 15%. (d) In course of search the assessee was made to surrender 15% of site running expenses as bogus and therefore, immediately thereafter the same was retracted by filing a detailed affidavit before the investigation wing. Thereafter in post search proceedings the assessee vide letter dt. 20.01.2018 (PB 67-75) submitted the project wise details of labour expenses recorded in the books of accounts. Nothing adverse was found by the investigation wing in the affidavit and the details so furnished. Therefore, when the wage sheets which were found in search are duly recorded in the books, the same in itself is an evidence of the genuineness of expenses. 90 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur (e) None of the labour payment is made or wages sheet is prepared by partners or their relatives. Since the wage sheets are prepared and payment is made by site supervisor, the alleged discrepancies in the wage sheets cannot be a reason that the site running expenses recorded in the books are manipulated. (f) It has been observed that the defects pointed out are prevalent in almost each and every sheet across 6-7 years. However, in the assessment order at Pg 7-11 only wage sheets has been referred. The discrepancies pointed out in these wage sheets are only for name sake and does not lead to any inference that the payment made to the labours as per these sheets are not genuine. (g) It may be noted that ESI has been made applicable on assessee firm from October 2015. Accordingly assessee has started depositing ESI from October 2015. ESI/ PF records were produced for verification vide letter dt. 15.11.2019 (PB 101). From perusal of ledger account of labour expenses (PB 104-155), it can be noted that assessee is depositing ESI/ PF on monthly basis. (h) The assessee vide letter dt. 15.11.2019 (PB 101) has specifically requested toprovide the date and time so that the labours can be produced for verification butthis was not done by the AO. In view of above, discrepancies pointed out by the AO are routine in nature and onthat basis disallowance of 15% of wages is wholly unjustified. 4. The AO in order to support the disallowance has obtained a report from Finger Print Bureau, Rajasthan (PB 157-170). As per this report all thumb impressions on Pg No.112 & 113 of Annexure AS-33 (containing 14 thumb impressions on each page), on Pg No.106 & 102 of Annexure AS-17 (containing 13 & 14 thumb impressions on each page) are similar, identical and marked by same person. Further 10 out of 12 thumb impressions are identical on Pg 29 of Annexure AS-49 and 4 thumb impressions aresimilar and identical on Pg 26 of Annexure AS-51. The rest of the thumb impressions are unfit for examination. It is submitted that on the basis of report of Finger Print Bureau, it cannot be concluded that payment of 91 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur wages recorded in the books is inflated in as much as this report is not reliable on account of the following reasons: (a) Out of 4 Annexures at AS-17, AS-33, AS-49 and AS-51 comprising of 462 pages, only 6 pages were sent for analysis. This is not a reasonable sample size to come toany conclusion. Obtaining report on 6 pages on pick & choose basis cannot lead to aconclusion to allege that the labour expenses claimed in the books is not genuineparticularly considering the peculiar feature in which payment to labours is made byconstruction industries as explained in the affidavit. (b) In the report it is stated that thumb print of Sushma Devi on Pg 26 of AS-51 is dissimiliar and unidentical with the thumb prints on other page of Annexure AS-33, AS-17 and AS-49 whereas on these pages name of Sushma Devi is not appearing. For remaining thumb impression it is stated that they are unable to report as the thumb impressions are unfit for examination. Thus, even out of suspected six pages. the Finger Print Bureau has admitted that certain thumb impressions are unfit for examination and therefore, such report cannot be a basis for assuming inflation in wages payment particularly when assessee vide letter dt. 17.12.2019 (PB 173) requested the AO to directly visit the site of assessee to verify the attendance of labour and the manner in which payment is made. (c) The assessee is engaged in civil construction work which is labour oriented. Normally in civil construction work, fingers of labour got damaged or soiled or mutuated and thus obtaining correct & proper thumb impression from these labour is very difficult and therefore there is always a possibility that some time thumb impression is put by some other labour. It may be noted that even in Aadhar (UID) obtaining thumb impression & comparison of same thereafter of labour engaged in manual work is very difficult and later on they are not matching with even their record as reported in the article 'India's Vanishing fingerprints put UID in question (PB 178-183). 92 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur (d) The similarity of thumb impression on the wage sheets has been explained in Para 3(c) above and therefore, this cannot be a reason to allege inflation of site running expenses. In view of above, on the basis of the report of Finger Print Bureau on 6 pages supplied to him on pick & choose basis cannot lead to a conclusion that wages recorded in books are inflated or such inflation is to the extent of 15%. 5. It may be noted that after the search AO passed the assessment order for AY 2010-11 us 143(3)/148 dt. 26.12.2017 (PB 184-186). All the muster rolls for this year were found a Annexure AS-6 to AS-11. The total site running expenses claimed in this year in Rs.9,57,99,862/- on contract receipt of Rs.19.10.11,897/-. In the order AO has not taken any adverse view in respect of the site running expenses debited in the books of account. on the basis on these muster rolls. Further the assessment proceeding of AY 2013-14 2 2014-15 has already been completed us 143(3) of the Act. In AY 2013-14, AO ha applied provision of section 145(3) of the Act and estimated income of assessee firm E applying NP rate of 9.5% subject to depreciation and interest & remuneration to partner Assessment proceeding of AY 2014-15 has been completed by making disallowance Rs.62,586/- u/s 40A(3) of the Act. Copy of both these assessment order is at PB 85-9 Thus, AO has examined complete books of accounts and supporting documents and after considering the same assessments were made u/s 143(3) of the Act. Therefore, there is no reason to disallow 15% of site running expenses in AY 2012-13 to 2018-19 on the basis of statement u/s 132(4) and the report of Finger Print Bureau. 6. AO has made the disallowance by invoking section 69C of IT Act, 1961. This section applies where assessee has incurred any expenditure but offers no explanation about the source of such expenditure or the explanation offered by him is not satisfactory. Thus, this section applies when there is unrecorded expenditure. In the present case, the labour 93 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur expenses are duly recorded in books of accounts. The source of payment of labour expenses is also verifiable from books of accounts. Therefore, addition made by the AO by invoking section 69C is not as per law. 7. Otherwise also, the comparative position of labour expenses as percentage of contractreceipt and the net profit rate in various AYs is as under: Asstt. Year Contract Receipt (in Rs.) Labour Expenes including payment to petty contractors Net profit after interest and remuneratio n to partner (in Rs.) Labour Expens es (in %) NP Rate (in %) 2012- 13 39,74,32,947 15,21,60,910 3,92,00,294 38.29 9.86 2013- 14 47,58,83,152 18,27,18,578 4,57,25,833 38.40 9.61 2014- 15 51,13,92,641 22,49,03,698 5,34,66,206 43.98 10.46 2015- 16 67,35,42,953 31,57,41,229 6,96,83,459 46.88 10.35 2016- 17 52,72,12,220 18,87,68,286 5,96,48,036 35.80 11.31 2017- 18 44,92,39,895 12,05,93,986 5,50,61,370 26.84 12.26 2018- 19 51,87,24,175 11,30,04,558 6,42,83,273 21.79 12.39 94 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur From the above, it can be noted that NP rate declared by the assessee is varying between 9.86% to 12.39%. The said NP rate is after allowing interest & remuneration to partners. If interest & remuneration to partners is excluded, NP rate would be much higher. NP rate in initial years is lower as compared to subsequent years for the reason that in earlier reaso earner years assessee was more dependent on labours and use of machine was minimum. Slowly it started purchasing construction machinery mainly Tower Crane which resulted in decline in labour expenses and increase in NP rate. In FY 2016-17 the assessee has purchased Baching Plant TM Chassis Boom Pump costing of Rs.2.76 crore which resulted in substantial reduction in labour expenses and resultant NP rate of assessee firm increased to 12.26% in FY 2016-17 & 12.39% in FY 2017-18. There is always slight variation in labour expenses which is mainly due to the reason that in the year in which new site is started there is increase in labour expenses. Similarly labour expenses are lesser in the initial period of construction but when finishing work starts labour expenses is more, Thus, there may be slight variation in labour expenses from year to year but. same is fully verifiable with muster rolls and other records maintained by the assessee firm. In this explanation AO has not found any defect which shows that the site expenses claimed in the books of accounts are genuine and fully verifiable. 8. The Ld. CIT(A) considering the above facts has rightly held that disallowance made by AO by considering 15% of wages expenses as bogus is arbitrary. However, at the same time she substituted the said disallowance by sustaining the addition @ 1% of the total turnover. The addition sustained is without basis and ignoring the fact that assessee hasdeclared higher n.p. rate on year to year basis. Further though she accepted that corresponding asset/ expenditure to the extent of disallowance made by AO was found but she also ignored that no corresponding asset/ expenditure to the extent of additions sustained by her is also found in as much as the additions sustained by her in various hands of assessee group on account of investment/ expenses is as under 95 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur AY Particulars Amount Rs. Manoj Kumar Kumawat 2018-19 On Money for purchase of plot Construction Expenses 14,00,000 13,55,790 2014-15 Purchase of Land 1,74,200 2015-16 Purchase of Land 5,15,240 Panna Lal Kumavat 2018-19 Noting in seized pocket diary of amount given and amount received 88,68,913 Un recorded expenditure (Balaji Temple) 4,67,000 Temporary advance given 2,40,000 Unexplained Jewellery 14,03,951 1,44,25,094 Against these additions appeal has been filed before ITAT except the addition made in case of Manoj Kumar Kumawat for AY 2014-15 & 2015- 16. Further when addition for investment/ expenditure has been separately made in the hands of the respective persons, the addition confirmed by Ld. CIT(A) is unjustified and uncalled for. For this purpose, reference can be made to the decision of Hon'ble ITAT Bombay Bench in case of S.P. Goyal Vs. DCIT (2002) 82 ITD 0085 (TM) where it is held that addition could not be made simply on the basis of certain notings on loose sheets of a diary without any corroborative evidence in the form of extra cash, jewellery or investment outside the books. In view of above, addition sustained by Ld. CIT(A) is unjustified and the same be deleted by dismissing Ground No.2 & 5 of the department. 96 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 20. As regards the ground no 6 the learned assessing officer has heavily relied upon the decision of Hon'ble Supreme Court Decision in the case of Commissioner of Income-tax v. AmritlalBhogilal& Co. stating the grievance that when the Ld CIT(A) has reduced to the addition substantially, he should have been heard. On careful appreciation of the Hon'ble Supreme Court judgment we found that the above decision is with respect to the provision of revision of order prejudicial to the interest of revenue u/s33B of the Act i.e. presently section 263 of the Act.We found that the present appeal before us is arising form the order passed u/s. 143(3) r.w.s.153A of the Act, passed by the learned assessing officer. Both the sections are different and there is no similarity. Further the provision of section 250 of the act provides issuance ofthe notice only to the assessee and that too in case of enhancement by him. Further looking at first para of the appeal order there is a reference of the notice issued to the appeal filed by the assessee. There is no evidence placed by the Ld. DR that he has not been served any notice from the office of the Ld. CIT(A) in respect of the hearings before the Ld. CIT(A). In in this regard, even no contrary evidence or proof placed before us therefore, now the Ld. AO / DR cannot have any grievance. Thus, the argument of the ldDR deserved to be dismissed and not maintainable in the absence of the any evidence that no notice was served to the 97 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur Ld AO by the office of the CIT(A) when it is clearly mentioned in the first para of the order of Ld. CIT(A). Thus, this technical ground no. 6 is dismissed. 21. Now the only ground left on merits and while dealing on these grounds on both parties appeal it is relevant to note finding of the ld. CIT(A) on merits which is in para 5.3 which is extracted here in below to understand the basis of arriving the decision by her 5.3 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under: (i) The fact remains that during the course of search in the case of the appellant, various loose papers/documents were found & seized marked as Annexure AS-1 to AS-64 from the office premises of the appellant firm M/s Bhivaram Pannalal Kumawat. On the basis of these documents seized during the course of search proceedings, the statement u/s 132(4) dt. 29.09.2017 of Sh. BhivaramKumawat, partner of the firm was recorded wherein he surrendered Rs. 16,50,62,994/- from FY 2010-11 to 2017-18 on the basis that 15% of the site running expenses are bogus and this statement was also confirmed by another partner Sh. Panna Lal Kumawat recorded under section 132(4) of the Act. (ii) The appellant has contended that the very basis for treating the labour expenses as bogus is the statement dt. 29.09.2017 of Sh. BhivaramKumawat, partner of the firm recorded u/s 132(4) of the Act wherein he admitted that 15% of the site running expenses are bogus. This statement was also confirmed by the other partner Sh. Panna Lal Kumawat. However,, AO ignored the fact that immediately after search, the ADIT(Investigation), Jaipur with vide letter filed on 11.10.2017 before copy to PDIT(Investigation), Jaipur DDIT(Investigation)-I, Jaipur filed a detailed affidavit of even date of Sh. Panna Lal Kumawat retracting from 98 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur the said surrender by giving detailed reasons as to how the same was made under coercion. (iii) On the contrary, it is observed that the AO has made the addition on the basis of manipulation appearing in the labour sheets found and seized during the search proceedings itself as they contained forged signatures and thumb impressions. Further both the partners of the appellant firm, in their statement recorded u/s 132(4) during the course of search, have themselves accepted the fact of claim of bogus labour expenses under the head "advance to site running expenses" on the basis of which 15% the same was offered by them for taxation, considering the same to be bogus. Besides, Sh. Pannalal Kumawat, partner in the appellant firm while giving his statement u/s 132(4) has also given complete details that how this undisclosed income being generated from claiming bogus expenses was being utilized in great detail.The excerpts of the said statement are reproduced as under: Q.2 |आपके Hनवास 8थान AB-350,351 Hनमा1ण नगर, अजमेर रोड जयप ु र पर तलाशी एवं जJती काय1वाह दौरान जोCamlin का Register Bमला है उसे Exhibit- 1 के Lप जJत कया गया है इसम % क ु ल 37 Page Bलखे ह ु ए है।इसको व8तार सेसमजाए? उ 3ीमान जी इस बारे म % मेरे बेटे मनोज क ु मार क ु णापत ने आयकर अ धHनयम क2 धारा 131 तहत अपने उ$तर म % व8तारप ू व1क Bलखवा दया है। उसके Oवारा दए गए बयान को म " ने पढ़ Bलया है। यहाँ पर म " यह कहना चाह ू ँ गा क इस रिज8टर म % Qलॉट नं० 37A Maahibnagar B, Gandhi path west Vasihali Nagar म % 130 yard के Qलॉट पर जमीन एवं Hनमा1ण काय1 का हसाब ह " । यह प ू रा हसाब मेरे बेटे ने 8वयं अपने नाम से एवं अपने Relative बनवार जी के नाम से दज1 कर रखा है। ले कन वा8त वक Lप इसम % सारा Tपया मेर फम1 M/s Bhivaram Pannalal Kumawatका लगा ह ु आ है। ये Tपये मेर firm M/s Bhivaram Pannalal Kumawatके Oवारा generated अनसकाउि.टड Income के Invest जो हमार firm Oवारा Bogus labour expenses के Oवारा generate कया जाता है। इस ;कार से म " कहना चाह ू ँ गा क इस रिज8टर म % Bलखे गए हसाब कताब म % जो भी 99 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur Unaccounted investment यह मनोज क ु मार क ु मावत का ना होकर unaccounted expenses के Oवारा generate कया गया Unaccounted income िजसे म " 8वीकारकरता ह ु । आपके Hनवास 8थान पर तलाशी एवं जJती क2 काय1वाह के दौरान Classmate का एक रिज8Uर Bमला है इसम % क ु ल 53page Bलखे ह ु ए ह " । इनके बारे म % व8तार से बताइये इसे Exhibit- 2 बताया गया है। 3ीमान जी इस रिज8टर के बारे म % मेरे बेटे मनोज क ु मार क ु मावत ने अपने बयान9 म % व8तार बता दया है। ले कन इसके बारे म % बताना चाहता है क इस project का ये जो हसाब कताब Bलखा ह ु आ है उस पेटे जो Unaccounted Investment आता है यो मेरे बेटे का न होकर मेरे 8वयं क2 Firm M/s Bhivaram Pannalal Kumawatहै। Dय9 क मेरे बेटे ने ये सारा काय1 M/s Bhivaram Pannalal Kum behalf पर कया था। इसम % जो Investment है उसका source हमार firm M/s Bhivaram Pannalal Kumawatम % हम Bogus Labour Experts को siteRunning expenses म % 15% तक बढ़ाकर Bलखते ह " । अतः म " कहना चाह ू ँ गा क इस project के पेटे जो भी unaccounted investment Hनकले उसे हमार firm M/s Bhivaram Pannalal Kumawatका ह माना जाए न क मेरे बेटे मनोज क ु मार क ु भावत का। Q. 7 आपके Hनवास 8थान पर आयकर क2 धारा 132 के तहत तलासी एव जJती क2 काय1वाह के दोरान आप के सयनकW से MC-Bauchemle (India) Pvt.Ltd. BलXख ह ु ई pocket diary Bमल हे िजसमे क ु ल Bलखे ह ु वे 9 page है। इसे EX-6] बनाया गया है। इसके बारे म % व8तारसेबताए ? इसम % page no. 1 पर 5100/- Tपये का cheque सारा सं8थान को दया गया Cheque है| Page no. 2पर बालजी के पेटे खच1 कए गए 487000/-Tका हसाब हे जो नगद मे खच1 कए गए page 3 पर पोखर दाता नाथ ू राम जय कशन को दए गए नगद का ववरण है बाक2 pages पर वष^ का हसाब कताब है। एस बारेमे मे कहना चाह ू ँ गा क2 page 1 व 2 पर जो राBश BलXख ह ु ए हे वो मेर फम1 M/s Bhivnram Pannalal Kumawa Unaccounted income से खच1 व उधर द गई 100 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur राशी हे M/s Bhivaram Pannalal Kumawatमे site Running Expenses मे labour के पेटे 15% खच1 Bogus Claim करते हे उसे जो unaccounted Income generate होती है। उस मे हम अपने पेज 1 व 2 पर Bलये हसाब कताब के अन ु सार खच1 कर लेते हे ; 14 आपक2 फम1 M/s Bhivaram Pannalal Kumawatके काया1लय 602. Elements Mall, DCM, जयप ु र पर आयकर वभाग क2 सव i क2 काय1वाह के दोरान आपक2 फम1 क2 लेख प ु 8तक9 का अवलोकन करने पर वBभन बरस9 के खच^ म % "site Running Expeases" नाम से वष1 (F.Y) 2010-11 से 2016 -17आज दनांक तक एवं चाल ू वत वस1 तक आज दनक 29.09.2017 तक क ु ल 1100419961 Tपए अकचरे एक अरब दस करोड़ चरलाख उनीसहजार नोसो एकसठ Tपये Claim कया गया है। इन site running Expenses हेत ू Bill व वाउचर का Verification कर ने पर पाया गया है बह ु त सारे खच i Bogus Claim कए गए है। उदाहरण आपके काया1लय म % सव i के दौरान Bमल सलर sheet for felicingaventuremonth Feb 2016 व august 2016 ka आवलोकन करनेपयर यह पाया गया हे क2 मनोज नाम का कम1चार Feb 2016 म % वेतन पाने पर अंग ू ठा लगा रहा है जब क माह August 2016 म % वेतन ;ािQत पर हसथाWर कर रहा हे ठvक एसी ;कार रामचंद पंwडत के के स मे भी हो रहाहे क2 यह खचे बोगस Dलैम कए गए हे एस;कार क2 सैलर sheet हजार9 को माy मे ;ाQत ह ु ए हे िजसमे बोगस खच i Dलैम कए ह ु वे हे इन सभी शीट का एवं Dलैम कए गए खच^ का zयान प ू व1क अवलोके न करे एवेम साथमे अपनी फम1 के भागीदार भीवाराम क ु मावत के Oवारा दए गए बयान9 म % ;{न सं|या 15 का अवलोकन करे। उ 3ीमान जी उपरोDत ;{न के उ$तर म % म " कहना चाह ू ंगा क म " अपनी firm M/s Bhivaram Pannalal Kumawatके भागीदार 3ी भीवाराम जी के उ$तर से प ू ण1तया सहमती }यDत करता है व मानता ह ू ँ क हम अपनी firm M/s भीवाराम प.नालाल क ु मावत म % Labour Expenses मे 15% Expenses Bogus Claim करते ह " िजनको हम Site Running Expenses Lप म % अपनी firm के खच^ म % Debit करते है। इस बारे म % म " कहना चाह ू ँ गा क मेरे भागीदार Oवारा वBभ.न वHतय वष~ म % जो क ु ल 101 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 10,50,02,904 Tपने अधो षत आय 8वीकार क2 गई है उससे प ू ण1 सहमती }यDत करता ह ू ँ । वे एसे अपनी firm M/s Bhivaram Pannalal Kumawatक2 वBभ.न वतय वष^ क2 अधो षत आय मानते ह ु ए करारोपण हेत ु सम प1त करता ह ु । इस अघो षत आय पर जो भी कर बनेगा को हम समय पर च ु का देगे। (iv) Therefore, on perusal of the above mentioned statement, it is amply clear that Sh.PannalalKumawat not only confirmed the admission of the undisclosed income his partnership firm M/s Bhivaram Pannalal Kumawat, but also explained the application of that cash generated through such bogus claim of expenses. Further statement of Sh. Hanuman Sharma, the main accountant of the appellant firm Bhivaram Pannalal Kumawat was also recorded u/s 131 of the Act during the course the survey wherein he has also substantiated the claim of bogus labour expenses in firm. (v) Further to check the veracity of thumb impressions, labour sheets were sent the AO to Finger Print Bureau, Rajasthan Police Academy for forensic analysis on check basis. As per the report of Finger Print Bureau received by the Assessing Officer, it was observed that all the disputed thumb prints are similar and identical with other and have been made by the thumb of the same person, which proves manipulation in the labour sheets. Hence, the labour sheets which are the very for claiming the 'site running expenses' are itself not genuine and are entered books of account arbitrarily to manipulate the labour expenses claimed under thishead. (vi) In view of the above facts, it is evident that the appellant firm has booked bogus labour expenses as also admitted by the partners of this firm that almost 15% part of the labour expenses claimed by this firm are not genuine. (vii)Thus in view of the above facts, it is evident that the inferences drawn in respect undeclared income were premised on the materials found as well as the statements of the partners of the appellant firm. These additions therefore were not baseless. It is observed that the appellant even during the current appellant proceedings could not produce any corroborative material to contradict the aforesaid factual position except the fact of retracting from their statements. 102 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur (viii) However, it is observed that while making the addition, the AO has relied completely on the statement of the partners of the appellant firm recorded u/s 132(4) of IT Act, wherein they have surrendered 15% of the labour payments as being bogus. However the fact also remains that the aforesaid statement was retracted by the partners of the appellant firm by filing a detailed affidavit before the Investigation Wing. (ix) It is also observed that the AO has placed reliance on the report of Finger Print Bureau, however it seen that in the assessment order at Pg 7- 11, reference has been made to only 6 wage sheets, though the defects pointed out are prevalent in almost each every sheet across 6-7 years, as also accepted by the appellant. It is noted that out Annexures at AS-17, AS-33, AS-49 and AS-51 comprising of 462 pages, only 6 pages were sent for analysis. Thus the sample size relied upon is very small. It is not a reasonable sample size to come to the conclusion of disallowance of 15% of wages which appears to be wholly unjustified, more so on the fact that the partners of the appellant have retracted from the surrender made by them in the Search proceedings. Hence cognizance was required to be given by the AO to other factors as well before making the quantum of addition in this case. (x) During the appellate proceedings, the Ld. A/R of the appellant has submitted the comparative position of labour expenses as percentage of contract receipt and the net rate in various AYs as under: Asstt. Year Contract Receipt (in Rs.) Labour Expenesinclu ding payment to petty contractors Net profit after interest and remuneratio n to partner (in Rs.) Labour Expens es (in %) NP Rate (in %) 2012- 13 39,74,32,947 15,21,60,910 3,92,00,294 38.29 9.86 2013- 47,58,83,152 18,27,18,578 4,57,25,833 38.40 9.61 103 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 14 2014- 15 51,13,92,641 22,49,03,698 5,34,66,206 43.98 10.46 2015- 16 67,35,42,953 31,57,41,229 6,96,83,459 46.88 10.35 2016- 17 52,72,12,220 18,87,68,286 5,96,48,036 35.80 11.31 2017- 18 44,92,39,895 12,05,93,986 5,50,61,370 26.84 12.26 2018- 19 51,87,24,175 11,30,04,558 6,42,83,273 21.79 12.39 From the above, it is observed that the NP rate declared by the assessee is varying between 9.86% to 12.39% which is after allowing interest & remuneration to partners. It is further observed that not only the turnover of the appellant firm has increased over the years but there is corresponding increase in the NP rate also. Further, this is also facts of the case that the AO has disallowed labour expenses of Rs. 15,89,82,843/- from AY 2012-13 to 2018-19, however, no corresponding assets/ expenditure to the extent of disallowance was found. Therefore, there is no reason to accept the entire disallowance of 15% of site running expenses in AY 2012-13 to 2018-19 on the basis of statement u/s 132(4) which was subsequently retracted within a month of search and on the basis of the report of Finger Print Bureau, where the sample size was too small to come to any conclusion of making sizeable addition. (xii) The Act provides coterminous power to CIT(A)'s as are available to the AO and by using those powers, I hereby invoke the provisions of Sec. 145(3) in this case and reject the trading result declared by the appellant. After rejection of the books of accounts, a fair and honest estimation of income is required to be deduced. The Hon'ble Rajasthan High Court in the case of CIT Vs. Amrapall Jewels Pvt. Ltd. 65 DTR 196 has held that it is the discretion of the taxing authorities as to what should be the 104 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur percentage of profit that should be applied and that the discretion should be exercised on settled practice. Given that the assessing authorities in such cases have to draw inferences, because of the nature of the materials - since they could be scanty, the element of guess work is to have some reasonable nexus with the statements recorded and documents seized. (xiii) The Hon'ble Allahabad High Court in the case of CIT V/s. SurjeetsinghMaheshkumar (1994) 210 ITR 83 has held that in every case of Best Judgement, the element of guess work cannot be eliminated so long as Best judgement has a nexus with material on record and discretion in that behalf has not been. exercised arbitrarily or capraciously. (xiv) Further once the books are properly rejected, the income has to be estimated andin making the estimate of such income, the best record alongwith other things will become the relevant material as held by the Hon'ble Madhya Pradesh High Court in the case of VrajlalManilal& Company Vs. CIT(1973)92 ITR 287(MP). (xv) Now coming to the estimation as noted above, the question which remains iswhether the basis of addition made by the AO is fair and reasonable on the facts of thecase. The AO has estimated gross profit by disallowing 15% of the aforesaid labourexpenses which on the facts appears to be arbitrary. (xvi) Therefore in view of the aforesaid juridical pronouncements and in view of the totality of facts and looking to the component of the unverifiable bogus labour charges, in my considered opinion, if addition is sustained @ 1% of the total turnover, in addition to the net profit rate declared by the appellant, in each of the year under consideration, the addition so sustained would be justified in the facts and circumstances of the case of the appellant. Thus, the addition sustained is worked out in the form of the following chart for the AYrs 2012-13 to 2018-19: Assessment year Contract Receipt (in Rs.) Addition by applying 1 % net profit rate on total turnover ( in Rs.) 2012-13 39,74,32,947 39,74,329 2013-14 47,58,83,152 47,58,831 2014-15 51,13,92,641 51,13,926 105 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 2015-16 67,35,42,953 67,35,429 2016-17 52,72,12,220 52,72,122 2017-18 44,92,39,895 44,92,398 2018-19 51,87,24,175 51,87,241 Accordingly, the addition of an amount of Rs. 3,55,34,276/- is hereby confirmed and the balance addition of Rs. 12,34,48,567/- is directed to be deleted. Ground No. & 3 for AYrs 2012-13 to 2015-16 and Ground No. & for AYrs 2016 to 2018-19 is partly allowed. 22. We have heard rival submissions and perused the material on record. While disposing of the appeal of the assessee the Ld CIT(A) agreed to a view of the assessee that the disclosure obtained by the search party is under pressure and not warrant to an extent of 15 % of the total labour expenses claimed. The Ld. A/R repeatedly argued that the Ld. CIT(A) after considering material evidence placed on record with him in the appellate proceeding given a relief and has agreed to a view that in the absence of corresponding asset/ expenditure to the extent of disallowance made by AO merely based on the statement will not survive on any lags. He has also rightly held that statement of assessee u/s 132(4) or the report of Finger Print Bureau will also not survive “where the sample size was too small to come to any conclusion of making a sizeable addition”, this observation / finding of CIT(A) support the arguments on merits placed by the assessee. However, at the same time she upheld the disallowance out of labour expenses to the extent of 1 % of turnover by invoking section 145(3) of the Act. The ld. AR vehemently argued that the 106 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur power used u/s. 145(3) is purely an arbitrary action without finding any single defect in the books account. She done sustained the addition without giving any notice of her intention to do, not only that why and how that rate of 1 % is arrived at and that too of that of the receipt. Thus, in that situation even the addition of 1 % of receipt confirmed is unwarranted action. However, while doing so the ld. CIT(A) ignored that NP rate disclosed and after by the assessee is on increasing trend and labour expenses on decreasing trend. Over the year which is because of the fact that in subsequent years particularly in Financial Year 2016-17 the assessee purchased plant & machinery of Rs. 2.76 crores which resulted in reduction in labour expenses and increase in NP rate. Further in assessment year 2013-14 and 2014-15 already completed under section 143(3), in such a situation on a completed assessment such an hoc disallowance without any incrementing material even the addition sustained by the CIT(A) is unjustified and arbitrary.The sample size adopted is very less is accepted by the CIT(A). Before the Ld AO the identity of the labourer is proved by submitting the attendance card, the said labour force are subject to payment of PF/ESIC and such statement were placed on record. The report of the finger print bureau is not a final evidence to catch a genuine tax payer as it is customary to use such type of report in criminal proceeding whereas in this case it is just a reasoning of the various facts on the figure print. Even the assessee 107 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur has admitted that yes signature or thumb by same person for different labour is possible and based on that the other evidence cannot be placed a side. While arriving at 1 % or 15 % irrespective of that ratio is, it has never proved that the person named are not in existence and the bogus names are used by the assessee when the each labour is issued attendance card and the labour sheet is prepared from that basic peace evidence placed on record. Thereport is merely an information of the analysis made by the technical experts, which has no much helpful finding except the opinion which we have persuaded. Even though the detailed argument made the action of the ld CIT(A) taking a totally different stand is against the evidence and relied upon judgment. Even the invoking provision of section 145(3) of the Act is not properly complied with. No specific defect in the accounting records produced were found/observed/pointed out. 23. Ongoing through the material placed on record in the form of labour sheets maintained showing the name of person, no of days worked on each siteby the site supervisors and that too based on the attendance card maintained at the site, we find from the labour sheet that it clearly pertains to the assessee’s regular deployment of labour at various site, the sheet were maintained month wise, person wise showing the number of days work and rate at which the same is paid / payable to each worker and is prepared on the basis of the attendance 108 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur card maintained. Assessee has during the course of assessment proceeding produced following corroborative document in respect of the site running expenses claimed : a) Comparative analysis of labour & wages expenses from A. Y. 2012-13 to A. Y. 2018-19 along with justification in case there a variation in labour & wages expenses in any year. b) Site Labour expense account c) Site Wise Muster Roll for verification of labour is already lying in seized records d) Site wise attendance sheet of labour are produced for verification vide letter dt. 15-11-19. e) Verification of labour & wages expenses vis a vis ESI/ PF records. f) Assessee is also ready to produce labour for verification. g) Assessee also request AO to directly visit to any of the site of assessee to verify the attendanceof labour. On the above aspect there appears not a single comment in the order of the lower authorities dealing with to it that why and how the said evidence, which are supportive and corroborative in nature to the expenses claimed by the assessee are not considered or are having any defects in it. This silence itself tend to believe that this are maintained in accordance with the law and is also subjected to review under the labour laws. Not only that on the report of finger print bureau the assessee has given the submission which are also not 109 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur considered where the contentions raised are already explained at the time of filling a retraction affidavit. The assessee has submitted they are regularly filling its return of income and its books of accounts are subject to audit u/s. 44AB of the Act by an independent Chartered Accountants. The labour sheet referred in the statement are regularly maintained in the ordinary course of business as per the deployment of labour and the sheet is found as per that deployment of labour and labourer have been paid in accordance with their attendance which has not been disputed. Ld. AO has not commented on the detailed month wise year wise labour expenses and year wise receipt along with the net profit declared specifying that the same is on increasing trend. The assessee firm is subjected to labour compliance where in the payment of PF/ESIC is paid in accordance with this labour deployed. The explanation of the assessee that it is customary to receive payment on behalf of others, cannot be brushed aside against the observation of forensic report, when the identity of the labour have not been questioned based on the material available on record. Though there is no direct evidence for the same, yet it is not an impossibility and there is no improbability in it. It is particularly so when the AO has not disputed about the work having been carried out. If we solely go by the forensic report, then it would lead to an absurd conclusion. The AO has not disputed the deployment of the labour each site when there is a corresponding income is appearing in the 110 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur books merely the similar person has signed, not signed or signed in English or Hindi or once put a thumb impression and later on put signature cannotbe a base to put the major part of labour payment as bogus or inflated expenses. The AO need to appreciate the corroborative other evidences on record. The statement relied upon as incrementing document loose its reliability as within 12 days the same has been retracted giving the detailed reasoning i.e. the difference in signature may be same name two person may exits explained but has not been recorded. The labour is coming from different parts and they are under graduate and know the English too. They also give exams and also under take labour work. The ladies are working who are educated. Laboureres are causal and cannot be continuously employed.All employed are issued labour card and supervisor put the attendance and based on that attendance the labour sheet is prepared.None of the labour payment or wages sheet is prepared by partners or their relatives. The labour sheets are prepared by site supervisor and the labour expenses so debited in books of account are based on the attendance card prepared by the site supervisor. Even, the payment has been made based on the attendance card on the number of days present.The withdrawal of cash is based on the estimated labour employed at site and thus the same is first debited to advance account and then based on the labour payment made based on attendance card the same is debited to site labour expense account once the 111 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur payment is completed on each month.The partner of the assessee firm giving on the detailed reasoning as to how, when (time) and the officer named in person who have under what circumstance made pressure to sign the said statement u/s. 132(4) is explained in the affidavit is not controverted by filling any clarification at any stage. Not only these after the search, the assessment proceeding for assessment year 2010-11 completed without making addition where in AO has accepted the labour expenses and the order is passed after the date of search on 26.12.2017. Thus, the department cannot one stand in one year and another stand in another year based on the same set of facts and taking into consideration of that aspect is is worthwhile to take note of the observation at para 9 of the decision in Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC) where in the highest court has observed that “We are aware of the fact that, strictly speaking, res judicate does not apply to IT proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 24. Looking to the size of documents having 10,000 plus labour sheets seized by the department the sample that has been discussed or selected for all these years is very small in number so as to arrive any conclusion. The incidental 112 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur related evidence in support of the claim as contended by the assessee the view taken for all the year is arbitrary and based on surmises and conjectures. 25. There can not a state single ratio applied for all those years looking to the size of the records. Even the irregularity pointed out at the time of statements recorded were immediately within 12 days retracted stating the correct state of affairs even when the copy of the material and statement not received. Not only that all the alleged defects pointed out by the department has been duly explained by the partner of the assessee firm and they have stated the name of officer we have pressured them to surrender the income against that factual clarification no new material is placed by the department. Even the counter affidavits or the clarification from officer concerned who were involved at the time of search are not obtained. 26. The accountant was questioned only in respect of the debit balance in Advance to Site account and not related to Site Running Expenses. This advance amount never to have been claimed as expenses directly under the profit & loss account it is merely an advance account to keep the track of withdrawal of cash. Merely the advance to site expenses has advance to the extent of Rs. 1 cr there can not be a conclusion that this cash is used for creating bogus expenses and that too when the method of accounting is regularly followed by the assessee by debiting the cash to keep the track of the cash and once the account of the cash 113 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur utilized for making the payment to the labour the same amount is carried to expenses account and thus the said account is credited. The finger print report generally used to identify in criminal cases, where in this case the issue of claim of expenditure and the identity of the person have been established by putting the ESIS/PF record and labour attendance, even the explanation of the assessee that it is customary to receive payment on behalf of others, cannot be brushed aside. Though there is no direct evidence for the same, yet it is not an impossibility and there is no improbability in it and assessee has stated this probable reason in the affidavit and the customary practice prevailed in respect of the payment to labour payment. It is particularly so when the AO has not disputed about the work having been carried out. If we solely go by the forensic report, then it would lead to an absurd conclusion and the proceeding being not criminal the content of the report is noted and looking to the fact clarified by the assessee not adverse view arise from this report. We have thoughtfully considered the material on record and the rival submissions. 27. The regular books were audited and the labour sheet are also subjected to the inspection of labour officer and once the same is maintained regularly and merely on the flimsy reason the substantial part of labour expenses cannot be disallowed. Not only that against the alleged bogus claim of expenses there are no unaccounted assets found or whatever found is duly disclosed in the hands of 114 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur the respective persons. There is no other assets to prove alleged bogus claim of labour expenses to the extent of Rs 15,89,82,843/- for the period covered under search. The firm has maintained, month wise details of labour payment has been given along with rate and days of work and the quantum wages paid were also not found extra ordinary as compared to the receipt of the assessee and the same chart of comparison is income with that of labour expenses also persuaded and in fact the net profit year wise has improved from A. Y. 2012-13 if the allegation is correct the profit of the assessee would have been on lower side which also not there, as per the analysis placed by the assessee before lower authorities. Nowhere has it been pointed out that such labour payment is excessive as compared to the earlier year or are not in consonance with the overall trading result or past history and work performed by the assessee. There is no concrete material before Ld. AO to disallow the labour charges incurred by the assessee. No addition could be sustained merely on the basis of suspicion or doubt. Surprisingly, we also find there is no logic or comparison or detailed discussion so as to how the addition can also be sustained by the Ld. CIT(A) @ 1 % of total receipt in absence of not speaking finding appearing from the order passed by her to believe that even that addition will hold goods looking to the finding given in her order. Based on the discussion and finding even and arguments raised by both the parties even 1% addition is also not sustainable 115 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur without any clear logic or finding instead the Ld. CIT(A) should have presented some logic or finding while sustaining disallowance u/s. 69C at the rate 1 % of total receipt as bogus claim of labour expense. Looking to the overall facts arguments placed by the rivals in the absence of clear finding discussed by the Ld. CIT(A) in her order while arriving at 1 % disallowance figure even that addition will not survive. As regards the department grievance to uphold the view of that of the AO we have based on the material evidence and persuading the order of Ld. CIT(A) found that the addition made on account alleged lumpsum labour expenses disallowance @ 15% across all year is pure arbitrary, without verifying various evidences which are direct and circumstantial evidence the please has not foot to stand and the view of the assessing officer deserved to be quashed. There is no logic or concrete reasons based upon which the section 145(3) is invoked by the Ld. CIT(A) is not apparent to hold the different logic to sustained the addition. Therefore, the same is also not survive. On detailed hearings, applying the analyses and arguments placed before us we are of the considered view that ground of the assessee deserves to be allowed and the grounds raised by the department at Serial Number No. 1, 4 and 5(a), 5 (b) stands dismissed. 116 ITA No.69/JP/2021 M/s. Bhivaram PannalalKumawat vs ACIT , Central Circle-3, Jaipur 28. We find that our adjudication as for AY 2013-14 on this issue, is equally applicable to other year i.e.2012-13, 2014-15 to 2018-19years also as lower authorities order are on same lines thus, these bunches of 12 cases comprising of assessee’s and revenues’ appeal are disposed off and all the appeals of the assessee are allowed and that of the Revenue are dismissed. Order pronounced in the open court on 29th March, 2022. Sd/- Sd/- ¼lanhi xkslkbZ½ ¼jkBksMdeys'kt;UrHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U; kf;d ln L;@Judicial Member ys[ kkl n L;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 29/03/2022 *Mishra vkns'k dh izfrfyfivxzsf’kr@Copy of the order forwarded to: 1. The Appellant- M/s. Bhivaram Pannalal Kumawat, Jaipur 2. izR;FkhZ@The Respondent- ACIT / DCIT , Central Circle-3, Jaipur 3. vk;djvk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;djvihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZQkbZy@Guard File (ITA No. 691/JP/2021) vkns'kkuqlkj@By order, lgk;diathdkj@Asst. Registrar