ACIT, Hyderabad V. Sri Hamahender Singh Bagga, Hyderabad

ITA 1186/HYD/2005

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66128 (ITAT-HYDERABAD)
• Duration Of Justice: 6 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-06-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 30-11-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Unexplained cash credit; Unexplained investment; Unexplained expenditure; Gift; Business income; Depreciation; Business expenditure; Income from undisclosed sources; Search and seizure; Salary income; Share purchase agreement; Principle of natural justice; Retrospective amendment; Additional evidence; Bad and doubtful debts; Corroborative evidences; Accommodation entries; Block assessment; Unabsorbed depreciation
• Section: 69C; 43B; 56(2); 37(1); 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER SL. NO. APPEAL NO./PERIOD A.Y./BLOCK PERIOD APPELLANT RESPONDENT 1. IT(SS)A NO. 69/H/05 A.YS. 96-97 TO 01-02 AND FOR 1.4.01 TO 3.1.02 ACIT, CENTRAL CIRCLE-1, HYDERABAD SRI HARMAHENDER SINGH BAGGA HYDERABAD PAN: ABXPB9316L 2. IT(SS)A NO. 74/H/05 -DO- SRI HARMAHENDER SINGH BAGGA HYDERABAD DCIT, CENTRAL CIRCLE-1, HYDERABAD 3. ITA NO. 1186/H/05 A.Y. 2001-02 ACIT, CENTRAL CIRCLE-1, HYDERABAD SRI HARMAHENDER SINGH BAGGA HYDERABAD 4. ITA NO. 1187/H/05 A.Y. 2002-03 -DO- -DO- 5. ITA NO. 1257/H/06 A.Y. 1998-99 DCIT, CENTRAL CIRCLE-1, HYDERABAD -DO- 6. ITA NO. 1258/H/06 A.Y. 2000-01 -DO- DO- 7. ITA NO. 1259/H/06 A.Y. 2003-04 -DO- DO- 8. ITA NO. 271/H/06 A.Y. 1999-2000 SRI HARMAHENDER SINGH BAGGA HYDERABAD ACIT, CENTRAL CIRCLE-1, HYDERABAD 9. ITA NO. 823/H/08 A.Y. 1999-2000 DCIT, CENTRAL CIRCLE-1, HYDERABAD SRI HARMAHENDER SINGH BAGGA HYDERABAD 10.. IT(SS)A NO. 1/H/05 A.YS. 96-97 TO 01-02 AND FOR 1.4.01 TO 3.1.02 ACIT, CENTRAL CIRCLE-1, HYDERABAD SRI BALWINDER SINGH BAGGA, HYDERABAD PAN: ABXPB9331K 11. ITA NO. 710/H/06 A.Y. 2002-03 SRI BALWINDER SIN GH BAGGA, HYDERABAD ACIT, CENTRAL CIRCLE-1, HYDERABAD 12. ITA NO. 766/H/07 A.Y. 2003-04 -DO- DCIT, CENTRAL CIRCLE-1, HYDERABAD 13. ITA NO. 904/H/08 A.Y. 2004-05 -DO- -DO- 14. ITA NO. 709/H/06 A.Y. 1999-2000 SMT. INDERJEET KAUR BAGGA, HYDERABAD PAN: AHMPB5258J ACIT, CENTRAL CIRCLE-1, HYDERABAD 15. ITA NO. 931/H/07 A.Y. 2003-04 DCIT, CENTRAL CIRCLE-1, HYDERABAD SMT. INDERJEET KAUR BAGGA, HYDERABAD 16. ITA NO. 929/H/07 A.Y. 2004-05 -DO- -DO- 17. ITA NO. 1481/H/08 A.Y. 2005-06 -DO- -DO- 18. ITA NO. 1284/H/11 A.Y. 2006-07 DCIT, CIRCLE-5(1 ) HYDERABAD -DO- 19. ITA NO. 767/H/07 A.Y. 2005-05 SMT. DEVENDER KAU R BAGGA, HYDERABAD PAN: AHMPB5257H DCIT, CENTRAL CIRCLE-1, HYDERABAD 20. ITA NO. 928/H/07 A.Y. 2003-04 DCIT, CENTRAL CIRCLE-1, HYDERABAD SMT. DEVENDER KAUR BAGGA, HYDERABAD 21. ITA NO. 930/H/07 A.Y. 2004-05 -DO- -DO- IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 2 22. ITA NO. 1285/H/11 A.Y. 2006-07 DCIT, CIRCLE-5(1 ) HYDERABAD SMT. DEVENDER KAUR BAGGA, HYDERABAD 23. ITA NO. 1286/H/11 A.Y. 2007-08 -DO- -DO- 24. IT(SS)A NO. 50/H/05 A.YS. 96-97 TO 01-02 AND FOR 1.4.01 TO 3.1.02 SRI SATPAL SINGH BAGGA, HYDERABAD PAN: ABXPB9330J DCIT, CENTRAL CIRCLE-1, HYDERABAD 25. IT(SS)A NO. 52/H/05 -DO- SMT. SARABJEET KAUR BAGGA, HYDERABAD PAN: AHMPB5256G -DO- 26. ITA NO. 1486/H/08 A.Y. 2003-04 DCIT, CENTRAL CIRCLE-1, HYDERABAD SMT. PARNEETH KAUR BAGGA, HYDERABAD PAN: AHMPB4483H 27. IT(SS)A 18/HYD/10 A.YS. 96-97 TO 01-02 AND FOR 1.4.01 TO 3.1.02 SMT. PARNEETH KAUR BAGGA, HYDERABAD DCIT, CENTRAL CIRCLE-1, HYDERABAD 28. IT(SS)A 113/HYD/05 -DO- M/S. SREE BALAJI ENTERPRISES, HYDERABAD PAN: AAEFB1429L -DO- 29. ITA NO. 707/H/06 A.Y. 2000-01 ACIT, CENTRAL CIRCLE-1, HYDERABAD M/S. SREE BALAJI ENTERPRISES, HYDERABAD 30. ITA NO. 847/H/08 A.Y. 2001-02 M/S. SREE BALAJI ENTERPRISES, HYDERABAD DCIT, CENTRAL CIRCLE-1, HYDERABAD 31. ITA NO. 947/H/08 A.Y. 2001-02 DCIT, CENTRAL CIRCLE-1, HYDERABAD M/S. SREE BALAJI ENTERPRISES, HYDERABAD 32. ITA NO. 713/H/06 A.Y. 2002-03 M/S. SREE BALAJI ENTERPRISES, HYDERABAD ACIT, CENTRAL CIRCLE-1, HYDERABAD 33. ITA NO. 735/H/06 A.Y. 2002-03 ACIT, CENTRAL CIRCLE-1, HYDERABAD M/S. SREE BALAJI ENTERPRISES, HYDERABAD 34. ITA NO. 579/H/06 A.Y. 2000-01 M/S. SREE RAM LAKSHMAN MARKETING AGENCIES, HYDERABAD PAN/GIR NO. R-301 ACIT, CENTRAL CIRCLE-1, HYDERABAD 35. ITA NO. 705/H/06 A.Y. 2000-01 ACIT, CENTRAL CIRCLE-1, HYDERABAD M/S. SREE RAM LAKSHMAN MARKETING AGENCIES, HYDERABAD ASSESSEE BY: SHRI P. MURALI MOHAN RAO REVENUE BY: SHRI M.S. RAO DATE OF HEARING: 0 6 . 0 6 .2012 DATE OF PRONOUNCEMENT: 03.08.2012 O R D E R PER CHANDRA POOJARI, AM: THE ABOVE 35 APPEALS RELATING TO DIFFERENT ASSESSEE S OF SAME GROUP WHEREIN IN CERTAIN CASES ASSESSEES ARE IN APP EAL AND IN IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 3 CERTAIN CASES REVENUE IS IN APPEAL BEFORE US. SINC E CERTAIN ISSUES ARE COMMON IN THESE APPEALS, THESE APPEALS ARE CLUB BED TOGETHER, HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE WILL TAKE UP THE FOLLOWING APPEALS RELATI NG TO SRI HARMAHENDER SINGH BAGGA: IT(SS)A NO. 69/HYD/05 (DEPT.) (SRI HARMAHENDER SINGH BAGGA) ITA NO. 1186/HYD/05 (DEPT.)(SRI HARMAHENDER S INGH BAGGA) ITA NO. 1187/HYD/05 (DEPT.)(SRI HARMAHENDER S INGH BAGGA) ITA NO. 1257/HYD/06 (DEPT.)(SRI HARMAHENDER S INGH BAGGA) ITA NO. 1258/HYD/06 (DEPT.)(SRI HARMAHENDER S INGH BAGGA) ITA NO. 1259/HYD/06 (DEPT.)(SRI HARMAHENDER S INGH BAGGA) ITA NO. 823/HYD/08 (DEPT.)(SRI HARMAHENDER SI NGH BAGGA) ITA NO. 735/HYD/06 (DEPT.)(SREE BALAJI ENTERPR ISES) 3. THE GRIEVANCE OF THE DEPARTMENT IN THESE APPEALS EX CEPT IN ITA NO. 735/HYD/06 IS WITH REGARD TO DELETION OF AD DITION BY THE CIT(A) WITH REFERENCE TO INCOME OF M/S. SREE RAMA E NTERPRISES INCLUDED IN THE INCOME OF SRI HARMAHENDER SINGH BAG GA. THE GRIEVANCE OF THE REVENUE IN ITA NO. 735/HYD/06 IS T HAT THE INCOME OF M/S. SREE RAMA ENTERPRISES HAS TO BE ASSE SSED IN THE HANDS OF SRI HARMAHENDER SINGH BAGGA INSTEAD OF M/S . SREE BALAJI ENTERPRISES. 4. BRIEF FACTS OF THE ISSUE ARE THAT THE PARTNERSHIP F IRM M/S. SREE BALAJI ENTERPRISES WAS FLOATED WITH EFFECT FRO M 1.9.1997 CONSISTING OF TWO PARTNERS VIZ., SRI HARMAHENDER SI NGH BAGGA AND SRI GURUDEEP SINGH BAGGA, EACH HAVING 90% AND SRI R AMA ENTERPRISES 10% SHARE, RESPECTIVELY. SRI HARMAHEND ER SINGH BAGGA HAD PROCURED THE BUSINESS OF MARKETING OF LIQ UOR PRODUCTS MANUFACTURED BY M/S. SHAW WALLACE AND COMPANY LTD., IN THE NAME OF SREE RAMA ENTERPRISES AS A PROPRIETOR AFTER ENTERING INTO AGREEMENT WITH THE PRINCIPAL, HE CARRIED ON THE BUS INESS IN THE NAME OF THE FIRM BY VIRTUE OF AN AGREEMENT DEED DAT ED 22.9.1997. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 4 NO BUSINESS WAS CARRIED ON IN THE PROPRIETARY STATU S FROM THE DAY ONE WHEN PARTNERSHIP FIRM SREE RAMA ENTERPRISES WAS STARTED AND THIS FACT WAS ON RECORD WITH THE IT DEPARTMENT AS T HE AMENDMENT DEED, COPY OF AGREEMENT AND PARTNERSHIP DEED WERE F ILED ALONG WITH THE RETURN OF INCOME. THE ASSESSING OFFICER H AS CONSIDERED ALL THESE FACTS WHILE COMPLETING THE ASSESSMENT OF M/S. SREE BALAJI ENTERPRISES AND ALSO GAVE CREDIT FOR TDS CERTIFICAT ES ISSUED IN THE NAME OF SREE RAMA ENTERPRISES, ISSUED BY M/S. SHAW WALLACE AND COMPANY LTD., AGAINST THE TOTAL TAX PAYMENT OF M/S. SREE BALAJI ENTERPRISES. THE ISSUE OF MERGER OF SREE RAMA ENTE RPRISES WITH THE PARTNERSHIP FIRM M/S. SREE BALAJI ENTERPRISES T OOK PLACE WITHIN SIX DAYS FROM THE DATE OF AMENDMENT. FURTHE R, THE TAX RATE IN THE CASE OF INDIVIDUAL IS 30% WHEREAS THE TAX RA TE IN THE CASE OF PARTNERSHIP FIRM IS 35% AND THEREFORE, IT CANNOT BE SAID THAT THE MERGER WAS EFFECTED WITH A VIEW TO REDUCE THE TAX L IABILITY IN THE HANDS OF THE ASSESSEE. THE MERGER TOOK PLACE TO CA RRY OUT THE MARKETING ACTIVITY IN A SMOOTH AND EFFICIENT WAY BY DEPLOYING THE EMPLOYEES OF THE PARTNERSHIP FIRM. MORE SO, WHEN T HE ISSUE OF MERGER WAS CARRIED OUT WITH THE KNOWLEDGE OF PRINCI PAL COMPANY, I.E., M/S. SHAW WALLACE AND COMPANY LTD. WHO HAVE A LLOTTED THE WORK AND ALSO THE DEPARTMENT WAS INFORMED RIGHT FRO M THE DAY ONE WHEN IT WAS MERGED FROM THE STARTING POINT OF T HE BUSINESS, THE INTENTION OF THE ASSESSEE WAS VERY CLEAR TO CAR RY OUT THE BUSINESS IN THE NAME OF M/S. SREE BALAJI ENTERPRISE S ONLY AND IT WAS NOT AN AFTERTHOUGHT TO AVOID THE TAXES. AS REG ARDS THE LEASE AGREEMENT DATED 15.11.1997 REFERRED TO BY THE ASSES SING OFFICER IT MAY BE MENTIONED THAT THE SAID AGREEMENT WAS ENTERE D WITH THE OWNER OF THE PREMISES VIZ., M/S. KOVALAM INVESTMENT SERVICES (P) LTD., PROPERTY BEARING FLAT NO. B-3, BUSHTA HOUSE N O. 46, NOWROJI ROAD, CHETPET, CHENNAI. THE ASSESSEE TOOK THE PREM ISES ON LEASE TO CARRY OUT THE MARKETING ACTIVITY OF SHAW WALLACE PRODUCTS ON THE STRENGTH OF THE AGREEMENT BETWEEN M/S. SHAW WAL LACE AND IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 5 COMPANY LTD. AND SREE RAMA ENTERPRISES. THE LANDLOR DS WERE NOT PROVIDING OR LETTING OUT THE FLOOR SPACE TO LIQUOR COMPANIES DUE TO THEIR OWN FEAR AS IT WOULD SPOIL THE ATMOSPHERE OR OTHERWISE AND FOR MARKETING FIRM, THEY HAVE NO OBJECTION AS ONLY THE MARKETING AND CLERICAL STAFF WOULD OCCUPY THE FLOOR SPACE. A S SUCH, THE AGREEMENT WAS ENTERED INTO AS A PROPRIETARY CONCERN AND IT H AS GOT VERY LITTLE RELEVANCE IN INCOME TAX AS THE UNIT IS MERGED WITH A HIGHER TAX ENTITY AND HIGHER TAX REVENUE WAS PAID F ROM THE DAY ONE. 5. THE PARTNERSHIP FIRM M/S. SREE BALAJI ENTERPRISES WAS FORMED ON 1.9.1997 CONSISTING OF TWO PARTNERS VIZ., SRI HARMAHENDER SINGH BAGGA AND SRI GURUDEEP SINGH BAGG A. WITH REGARD TO THE OBSERVATIONS MADE BY THE ASSESSING OF FICER THAT BANK ACCOUNT OPENED ON 11.11.1997 I.E., AFTER TWO M ONTHS OF THE MERGER, IS IN THE NAME OF THE ASSESSEE AS PROPRIETO R OF SREE RAMA ENTERPRISES , IT HAS BEEN CONTENDED THAT IT WAS ONL Y WITH A VIEW TO GET MORE CREDIT FACILITIES FROM THE BANK. FOR PROV IDING CREDIT FACILITIES, THE BANK DOES NOT PROVIDE PRIORITY TO T HE LIQUOR UNITS AS SUCH CREDIT FACILITIES ARE MORE TO MARKETING UNIT R ATHER THAN LIQUOR UNIT. WITH THAT INTENTION IN MIND, THE STATUS OF S REE RAMA ENTERPRISES WAS REPRESENTED AS A PROPRIETARY CONCER N OF SRI HARMAHENDER SINGH BAGGA. HAD IT BEEN MENTIONED AS A UNIT OF M/S. SREE BALAJI ENTERPRISES, THE BANKERS WOULD HAV E ASKED FOR PARTNERSHIP DEED WHEREIN THE MAIN OBJECT IS TO CARR Y ON MANUFACTURE OF IMFL PRODUCTS, THEN IN THAT SCENARIO , THERE WOULD BE LOT OF HURDLES WHILE SANCTIONING THE CREDIT FACI LITIES BY THE BANKERS AND IN ORDER TO CIRCUMVENT ALL THESE HURDLE S, IT WAS STATED BEFORE THE BANKERS THAT THE UNIT IS A PROPRIETARY C ONCERN OF SRI HARMAHENDER SINGH BAGGA. ALL THIS WAS DONE FOR IMP ROVEMENT OF BUSINESS AS A MATTER OF BUSINESS EXPEDIENCY. FURTH ER, THE MARKETING ACTIVITY CARRIED ON BY THE FIRM WAS IN TH E KNOWLEDGE OF PRINCIPAL, NAMELY M/S. SHAW WALLACE AND COMPANY LTD . AND ANY IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 6 FAILURE IN THE BUSINESS ACTIVITY IS THE RESPONSIBIL ITY OF THE ASSESSEE WHO ALONE IS ACCOUNTABLE TO THE PRINCIPAL. THE PRI ME INTEREST OF THE PRINCIPAL IS TO SEE HOW THE TASK OF MARKETING O PERATION IS HANDLED BY SRI HARMAHENDER SINGH BAGGA. AND HOW IT IS CARRIED ON EITHER BY HIMSELF OR BY DEPLOYING MEN FOR CARRYI NG OUT OR BY TAKING THE HELP OF OTHER PARTIES IS NOT THE CRITERI A OF THE PRINCIPAL AS THEY HAVE NEVER OBJECTED FOR THE MERGER AND THEI R MAIN TARGET IS TO SEE THAT MARKETING ACTIVITY IS BEING CARRIED OUT BY SRI HARMAHENDER SINGH BAGGA. THEY HAVE ALLOTTED THE WO RK ORDER TO THE ASSESSEE AND HOW HE GETS IT DONE IT NOT THE CRI TERIA FOR THEM. IN THIS CONNECTION, IT WOULD BE WORTHWHILE TO MENTI ON ABOUT THE COMMON PRACTICE PREVAILING IN THE CONTRACT BUSINESS AWARDED BY PWD OR OTHER STATE AGENCIES. THE CONTRACT IS AWARD ED IN THE NAME OF INDIVIDUAL FOR CARRYING OUT THE WORK IN EFFICIEN T MANNER. TO CARRY OUT THE CONTRACT WORK, THE CONTRACTOR REQUIRE S MEN, MATERIAL, FINANCE, ETC., FOR WHICH HE TAKES THE HELP OF OTHER PERSONS WHO HAVE EXPERIENCE IN HANDLING OR HAVING ADEQUATE FINA NCE OR IN JOINT NAME, THE WORK IS CARRIED ON. THIS IS ABSOLUTELY L EGAL WHICH IS ACCEPTED BY THE GOVERNMENT DEPARTMENTS AND THEY NEV ER RAISE AN EYE ON THE ACTIVITIES AS THEIR MAIN CONCERN IS TO G ET THE CONTRACTOR WORK DONE IN A SMOOTH WAY AND IT IS NOT THE CRITERI A HOW THE CONTRACTOR DOES. IN A SIMILAR MANNER, SRI HARMAHEN DER SINGH BAGGA HAS MERGED HIS UNIT WITH THE PARTNERSHIP FIRM FOR WHICH NEITHER THE PRINCIPAL NOR THE DEPARTMENT PRIOR TO S EARCH HAS RAISED ANY OBJECTION. NOW AFTER THE SEARCH OPERATI ON, THE ASSESSING OFFICER ALTOGETHER TOOK A DIFFERENT STAND AND MADE AS SEPARATE ASSESSMENT BY TAXING THE INCOME OF SREE RA MA ENTERPRISES IN THE NAME OF SRI HARMAHENDER SINGH BA GGA. 6. ON APPEAL, THE CIT(A) GIVEN A FINDING THAT PROFIT O F M/S. SREE RAMA ENTERPRISES CANNOT BE CLUBBED IN THE HANDS OF SRI HARMAHENDER SINGH BAGGA AS THE PARTNERSHIP FIRM WAS MERGED WITH M/S. SREE BALAJI ENTERPRISES VIDE AMENDMENT TO THE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 7 PARTNERSHIP DEED DATED 22.9.1997 AND DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE PROFIT OF M/S. SREE RAMA ENT ERPRISES FROM THE PURVIEW OF BLOCK ASSESSMENT OF SRI HARMAHENDER SINGH BAGGA. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. IT I S AN ADMITTED FACT THAT FOR A.Y. 2002-03 THE FIRM M/S. S REE BALAJI ENTERPRISES FILED ITS RETURN OF INCOME ON 31.10.200 2 SHOWING INCOME OF RS. 70,90,900. THE RETURN WAS PROCESSED U/S. 143(1) AND WHILE PROCESSING THE RETURN , CREDIT FOR TDS OF RS. 16,08,155 WAS NOT GIVEN. THE ASSESSEE, AS A PARTNER OF THE F IRM, MOVED RECTIFICATION PETITION ON 29.1.2003 AND A RECTIFICA TION ORDER WAS PASSED ON 2.7.2003 WHEREIN THE CREDIT FOR TDS WAS A LLOWED. THIS TDS WAS MADE IN RESPECT OF INCOME RECEIVED BY M/S. SREE RAMA ENTERPRISES WHICH BECAME PART OF PARTNERSHIP FIRM V IDE AMENDMENT CARRIED OUT IN THE PARTNERSHIP DEED DATED 22.9.1997. ALL THESE FACTS REGARDING THE MERGER OF M/S. SREE R AMA ENTERPRISES WITH THE PARTNERSHIP FIRM M/S. SREE BAL AJI ENTERPRISES WERE IN THE KNOWLEDGE OF THE DEPARTMENT PRIOR TO TH E SEARCH CONDUCTED ON 3.1.2002. IN THE AUDIT REPORT ALSO, I T WAS CLEARLY MENTIONED THAT M/S. SREE RAMA ENTERPRISES IS A BRAN CH OF M/S. SREE BALAJI ENTERPRISES. THIS POSITION WAS ACCEPTE D BY THE ASSESSING OFFICER ASSESSING THE FIRM. THE ASSESSME NTS OF THE FIRM WERE COMPLETED PRIOR TO THE DATE OF SEARCH. THE HY DERABAD BENCH OF TRIBUNAL IN ESSEM INTRAPORT SERVICES (P) LTD. V. ACIT (2000) 72 ITD 228 HELD THAT WHEN CERTAIN INFORMATION AND DETA ILS ARE ALREADY FURNISHED IN THE RETURNS OF INCOME OR STATE MENTS ACCOMPANYING THERETO, FILED BEFORE THE DEPARTMENT, OR WHEN CERTAIN INFORMATION AND DETAILS ARE ALREADY RECORDE D IN THE BOOKS OF ACCOUNT MAINTAINED IN THE REGULAR COURSE OF BUSI NESS, BASED ON WHICH RETURNS OF INCOME WOULD BE FILED IN NORMAL CO URSE, THAT VERY SAME INFORMATION AND DETAILS CANNOT BE RE-EXAMINED IN THE COURSE OF BLOCK ASSESSMENT PROCEEDINGS TO ARRIVE AT ANY FR ESH IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 8 CONCLUSIONS, SO AS TO RESULT IN DETERMINATION OF UN DISCLOSED INCOME BASED ON THOSE MATERIALS. THE DELHI HIGH CO URT IN CIT VS. RAVI KANT JAIN (2001) 250 ITR 141 HELD THAT BLOCK A SSESSMENT IS CONFINED TO MATERIALS FOUND DURING THE SEARCH. WHE RE THE ASSESSING OFFICER TRAVELS BEYOND THE SAME, HE WILL BE EXCEEDING HIS JURISDICTION. IN THE CASE BEFORE THE DELHI HIGH CO URT, SEIZED MATERIALS AND BOOKS OF ACCOUNT WERE CONSIDERED TO B E OF COMPLEX NATURE, SO THAT THE MATTER WAS ENTRUSTED TO A SPECI AL AUDITOR FOR REPORT. ON THE BASIS OF SUCH REPORT, WHAT WAS ASSE SSED AS CAPITAL GAINS IN THE ORIGINAL ASSESSMENT WAS SOUGHT TO BE T AXED AS BUSINESS INCOME IN THE BLOCK ASSESSMENT. BLOCK ASS ESSMENT ON THESE FACTS WAS FOUND TO BE NOT VALID. THE ISSUE I N THIS CASE WAS WHETHER THE INCOME RETURNED AND CONSIDERED UNDER ON E HEAD COULD BE A MATTER FOR BLOCK ASSESSMENT UNDER ANOTHE R HEAD. THE DELHI HIGH COURT HAD LITTLE DIFFICULTY IN ACCEPTING ASSESSEE'S STAND THAT BLOCK ASSESSMENT CANNOT BE JUSTIFIED IN SUCH C ASES MERELY BECAUSE A SEARCH HAD INTERVENED. 8. BEING SO, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND WHATEVER MAY BE THE INCOME OF M/S. SREE RAMA ENTERPRISES HAS TO BE CONSIDERED IN THE HANDS OF M/ S. SREE BALAJI ENTERPRISES. IF IT IS ALREADY INCLUDED IN THE INCO ME DISCLOSED TO THE DEPARTMENT IN THE HANDS OF M/S. SREE BALAJI ENTERPR ISES, THERE IS NO QUESTION OF TREATING THE SAME AS UNDISCLOSED INC OME IN THE HANDS OF ANY OTHER ASSESSEE. ACCORDINGLY, THIS GRO UND RAISED BY THE REVENUE IN IT(SS)A NO. 69/HYD/05, ITA NOS. 1186 /HYD/05, 1187/HYD/0, 1257/HYD/06, 1258/HYD/06, 1259/HYD/06, 823/ HYD/08 AND 735/HYD/06 IS DISMISSED. 9. THE NEXT GROUND IN IT(SS)A NO. 69/HYD/05 (DEPARTMEN T) AND ASSESSEE'S APPEAL IN IT(SS)A NO. 74/HYD/05 (SRE E HARMAHENDER SINGH BAGGA) IS WITH REGARD TO TREATMEN T OF INVESTMENT IN SHARES OF M/S. INERTIA INDUSTRIES LTD ., IN THE HANDS IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 9 OF THE ASSESSEE. THE REVENUE'S GRIEVANCE IN ITS AP PEAL IN IT(SS)A NO. 69/HYD/05 IS THAT THE ENTIRE ADDITION WITH REGA RD TO UNDISCLOSED INVESTMENT IN SHARES OF M/S. INERTIA IN DUSTRIES LTD. OUGHT TO HAVE BEEN SUSTAINED INSTEAD OF RESTRICTING THE SAME TO RS. 18 LAKHS. THE ASSESSEE IS IN APPEAL BEFORE US WITH REGARD TO SUSTAINING OF ADDITION OF RS. 38,34,500 AND RS. 18 LAKHS ON ACCOUNT OF CREDIT IN M/S. INERTIA INDUSTRIES LTD. 10. BRIEF FACTS OF THE ISSUE ARE THAT DURING THE COURSE OF SEARCH, THREE SUITCASES WERE FOUND CONTAINING 8,59,790 SHAR E CERTIFICATES OF M/S. INERTIA INDUSTRIES LTD. THESE SHARE CERTIFI CATES ARE IN THE NAMES OF VARIOUS INDIVIDUALS SUCH AS SRI HARMAHENDE R SINGH BAGGA, SRI J. DEVADANAM, SRI K BIKSHAPATHY, SRI AMA RJEET SINGH BAGGA AND SRI JASMIT SINGH BAGGA. THESE SHARE CERT IFICATES WERE SEIZED FROM THE RESIDENTIAL PREMISES OF SRI MAHENDE R SINGH BAGGA, WHOSE SWORN STATEMENT WAS RECORDED AT THE TIME OF S EARCH ON 3.1.2002 WHEREIN HE STATED AS FOLLOWS: Q. NO. 10: DURING THE COURSE OF SEARCH IN YOUR RESI DENCE TODAY I.E., ON 3.1.2002 THREE SUITCASES WERE FOUND IN WHI CH THE SHARE CERTIFICATES OF M/S. INERTIA INDUSTRIES L TD. ARE FOUND, THE INVENTORY OF WHICH WAS TAKEN. PLEAS E STATE WHOM DOES THE SHARE CERTIFICATES BELONG? ANS: I AM NOT AWARE OF THE OWNER OF THE SHARE CERT IFICATES AS I AM NOT EVEN AWARE OF THE CONTENTS OF THE SUIT CASES, THE SUIT CASES WERE SENT BY SRI BALVINDER SI NGH BAGGA, S/O. SRI HARMAHENDER SINGH BAGGA ABOUT A YEAR BACK THROUGH THE STAFF MEMBERS OF THE OFFICE O F SRI HARMAHENDER SINGH BAGGA. THESE THREE SUIT CASE S WERE TAKEN BY THEM ABOUT 3 MONTHS BACK AND BROUGHT AGAIN AFTER A GAP OF 15 O 20 DAYS. SINCE THEN THEY ARE LYING IN MY FLAT AND I WAS NEVER AWARE OF THE CONTE NTS OF THE SUIT CASES.' 11. WHEN THE SHARE CERTIFICATES WERE SHOWN TO SRI HARMA HENDER SINGH BAGGA, HE ADMITTED IN HIS SWORN STATEMENT DAT ED 22.2.2002 THAT INVESTMENT IN THE SHARES IN THE NAMES OF VARIO US PERSONS WAS MADE BY HIM FROM HIS UNDISCLOSED SOURCES. HE QUANT IFIED THE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 10 UNEXPLAINED INVESTMENT AT THE RATE OF RS. 2 PER SHA RE AND ADMITTED INCOME OF RS. 17,55,500 IN THE BLOCK RETUR N FOR ASSESSMENT YEAR 1998-99. HOWEVER, WHILE COMPLETING THE BLOCK ASSESSMENT, THE ASSESSING OFFICER HAS HELD THAT 12, 10,000 SHARES WERE PURCHASED AT THE RATE OF RS. 11.35 PER SHARE. SINCE THE SHARES WERE TRANSFERRED IN JUNE 2000, HE ADOPTED TH E VALUE AT RS. 11.35 PER SHARE BASED ON QUOTATION MADE IN DELHI ST OCK EXCHANGE AND ACCORDINGLY, WORKED OUT THE TOTAL UNEXPLAINED I NVESTMENT TO THE TUNE OF RS. 1,37,33,500 WHICH HE ADDED FOR ASSE SSMENT YEAR 2001-02. THUS, HE HAS MADE AN ADDITION OF RS. 1,37 ,33,500 FOR ASSESSMENT YEAR 2001-02 IN ADDITION TO THE AMOUNT O F RS. 17,55,500 DISCLOSED BY THE ASSESSEE FOR ASSESSMENT YEAR 1998-99. 12. THE LEARNED AR SUBMITTED THAT THE ASSESSEE PURCHASE D 8,60,000 SHARES FOR RS. 17,55,500 AS EVIDENCED BY T HE FOLLOWING BILLS ISSUED BY THE SHARE BROKER AND SEIZED AT THE TIME OF SEARCH: S. NO. BILL NO. DATE NO. OF SHARES RATE PER SHARE (RS.) AMOUNT (RS.) 1. 1186 06.01.1998 30,000 1.95 58,500 2. 1188 08.01.1998 30,000 2.00 60,000 3. 1192 10.01.1998 1,00,000 2.05 2,05,000 4. 1194 13.01.1998 1,50,000 1.95 2,92,500 5. 5269 19.01.1998 30,000 2.00 60,000 6. 5270 19.01.1998 1,20,000 2.10 2,52,000 7. 5278 02.02.1998 1,50,000 2.05 3,07,500 8. 5280 07.02.1998 1,50,000 2.10 3,15,000 9. 5283 11.02.1998 1,00,000 2.05 2,05,000 8,60,000 17,55,500 13. THE DR RELIED ON THE ORDER OF ASSESSING OFFICER. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AS PER THE STATEMENT RECORDED FROM THE SHARE BROKER, IT WA S CLEAR THAT THE SHARES WERE NOT PURCHASED IN THE YEAR 1998 BUT THEY ARE ACTUALLY PURCHASED IN JUNE, 2000 AND THAT THE SHARES WERE T RANSFERRED IN THE NAME OF THE ASSESSEE AND OTHER ASSOCIATED PERSO NS. AS PER INFORMATION OBTAINED BY THE ASSESSING OFFICER FROM DELHI STOCK IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 11 EXCHANGE THE RATE PER SHARE WAS RS. 11.35 AS ON 5.6 .2000. THE ASSESSING OFFICER ADOPTED THIS RATE FOR ARRIVING AT THE TOTAL INVESTMENT. THE CIT(A) WAS OF THE OPINION THAT THE TOTAL SHARES DEALT WITH BY THE ASSESSEE ARE AT 8,60,000 AND NOT 12,10,000. THIS FACT IS REQUIRED TO BE VERIFIED AT THE END OF THE ASSESSING OFFICER FROM RECORD. IT WAS ALSO ON RECORD THAT PR ICE OF THE SHARES QUOTED IN THE BOMBAY STOCK EXCHANGE DURING JUNE, 20 00 WAS RS. 6.5 TO 9.5 PER SHARE. THE CIT(A) ADOPTED THE SHARE VALUE OF RS. 6.5 PER SHARE AND WORKED OUT THE VALUE OF 8,60,000 SHAR ES AT RS. 55,90,000. AS THE ASSESSEE ALREADY DISCLOSED RS. 1 7,55,500, HE SUSTAINED ONLY RS. 38,34,500 AND DELETED THE BALANC E ADDITION. IN OUR OPINION, THIS APPROACH OF THE CIT(A) IS NOT COR RECT. HE COULD HAVE TAKEN EXACT RATE AS PER BOMBAY STOCK EXCHANGE AS ON THE DATE OF TRANSFER IF THE SHARES ARE DEALT WITH WITHI N THE JURISDICTION OF BOMBAY STOCK EXCHANGE AND THE QUANTUM OF SHARES DEALT WITH BY THE ASSESSEE HAS TO BE CONSIDERED AS PER THE SEI ZED MATERIAL. IN OTHER WORDS, VALUE OF SHARES IS TO BE FIXED ON THE BASIS OF RATE PREVAILING IN THE STOCK EXCHANGE WHERE THE SHARES W ERE TRADED I.E., BOMBAY OR DELHI. ACCORDINGLY, THE GROUND RAIS ED BY THE ASSESSEE AS WELL AS THE REVENUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER TO RE-QUANTIFY THE SHARE VALUE DE PENDING UPON THE STOCK EXCHANGE WHERE IT WAS TRADED. THIS GROUN D IN IT(SS)A NO. 69/HYD/05 AND IT(SS)A NO. 74/HYD/05 IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. THE ASSESSEE ALSO RAISED A G ROUND IN IT(SS)A NO. 74/HYD/05 WITH REGARD TO ADDITION O RS. 21,11,0 00 OUT OF RS. 37,13,400 MADE TOWARDS UNEXPLAINED CREDIT IN ASSESS MENT YEAR 1997-98. THE CIT(A) DELETED THE ADDITION OF RS. 16 ,02,400 ON THE REASON THAT THE CREDIT IS EXPLAINED AND SUSTAINED R S. 21,11,000 OUT OF RS. 37,13,400. BEFORE THE CIT(A) THE ASSESS EE ALSO NOT PRESSED THE ADDITION MADE IN RESPECT OF CREDIT IN H IS BANK ACCOUNT NO. 13953 WITH UNION BANK OF INDIA. SIMILARLY THE ASSESSEE NOT PRESSED THE DEPOSIT OF RS. 14,000 THROUGH SB A/C. N O. 624 WITH IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 12 SYNDICATE BANK. THE ASSESSEE HAS NOT FURNISHED THE SATISFACTORY EXPLANATION TO THE BALANCE SUSTAINED AMOUNT. BEING SO, THE CIT(A) SUSTAINED THE SAME. BEFORE US THE ASSESSEE HAS NOT FURNISHED ANY FURTHER DETAILS SUBSTANTIATING THE CREDIT. ACCORDI NGLY, THE ADDITION IS SUSTAINED ON THIS ISSUE. 14. THE NEXT GROUND IN IT(SS)A 69/HYD/05 IS WITH REGARD TO DELETION OF ADDITION OF RS. 16,02,400 FOR ASSESSMEN T YEAR 1997-98 BEING DEPOSIT IN M/S. AJANTA CHEMICALS. BRIEF FACT S OF THE ISSUE ARE THAT IN THE CAPITAL ACCOUNT FOR ASSESSMENT YEAR 1997-98, FOLLOWING CREDIT ENTRIES ARE APPEARING WHICH HAVE B EEN TREATED AS UNEXPLAINED DEPOSITS, THEREBY TREATING THE SUM OF R S. 37,13,100 AS UNDISCLOSED INCOME OF THE BLOCK PERIOD: DETAILS AMOUNT (RS.) UNION BANK OF INDIA 10,47,000 PAL FINANCIERS 5,50,000 PAL FINANCIERS 5,00,000 AJANTHA CHEMICALS 9,01,350 AJANTHA CHEMICALS 7,01,050 SYNDICATE BANK 14,000 15. BEFORE THE CIT(A), THE ASSESSEE FILED THE FOLLOWING DOCUMENTS: 1. COPY OF SYNDICATE BANK AMINJIKARAI BRANCH CHENN AI C.A. A/C. NO. 6201 OF SRI TIRUPATI ENTERPRISES. 2. CANARA BANK NEW DELHI LEDGER COPY OF AJANTHA CHEMICALS LTD., FOR THE YEAR 1996-97 WHEREIN RS. 900,000 WAS DEBITED TO CANARA BANK. 3. PUNJAB NATIONAL BANK ALWAR LEDGER COPY OF AJAN THA CHEMICALS LTD., FOR THE YEAR 1996-97 WHEREIN RS. 7,00,000 WAS DEBITED TO PUNJAB NATIONAL BANK ACCOUN T. 4. LEDGER COPY OF SRI HARMAHENDER SINGH BAGGA IN TH E BOOKS OF AJANTHA CHEMICALS LTD. WHEREIN RS. 9,01,35 0 AND RS. 7,01,050 DEBITED TO SRI HARMAHENDER SINGH BAGGA A/C. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 13 16. ON APPEAL CIT(A) DELETED THE ABOVE ADDITION. AGAI NST THIS THE REVENUE IS FILED APPEAL BEFORE US. WE HAVE HEAR D BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AS SEE N FROM THE ABOVE THE ENTRY RELATING TO DEPOSIT OF RS. 9,01,350 AND RS. 7,01,050 TOTALLING TO RS. 16,02,400 HAVE BEEN CORRE SPONDINGLY REFLECTED IN THE BOOKS OF M/S. AJANTHA CHEMICALS LT D. IF IT IS SO, THERE CANNOT BE ANY ADDITION IN THE HANDS OF THE AS SESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO EXA MINE THE ISSUE IN THE LIGHT OF THE ABOVE AND DECIDE THEREUPON. TH IS GROUND OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 17. THE NEXT ISSUE IN IT(SS)A 69/HYD/05 IS AS FOLLOWS: 9. THE CIT(A) OUGHT TO HAVE SUSTAINED THE ADDITION OF RS. 10,50,000 BEING THE UNEXPLAINED CASH CREDIT FOR THE A.Y. 1999-2000 IN THE NAME OF SRI AVNASH AMARLA L FOR THE REASONS DISCUSSED IN THE ASSESSMENT ORDER. OTHERWISE, THE CIT(APPEALS) OUGHT TO HAVE ALLOWED AN OPPORTUNITY TO THE ASSESSING OFFICER TO GO THROUGH THE INFORMATION FURNISHED BY THE ASSESSEE BEFORE THE CIT(APPEALS) DURING THE COURSE OF APPEAL PROCEEDINGS BEFORE ADMITTING THE SAME AS EVIDENCE. 10. THE CIT(APPEALS) OUGHT TO HAVE SUSTAINED THE ADDITION OF RS. 13,45,211 AS UNEXPLAINED CASH CREDI T FOR THE ASST. YEAR 2000-01 FOR THE REASONS DISCUSSE D IN DETAIL IN THE ASST. ORDER. OTHERWISE, THE CIT(APPEALS) OUGHT TO HAVE ALLOWED AN OPPORTUNITY TO THE ASSESSING OFFICER TO GO THROUGH THE INFORMATION FURNISHED BY THE ASSESSEE BEFORE THE CIT(APPEALS) DURING THE COURSE OF APPEAL PROCEEDINGS BEFORE ADMITTING THE SAME AS EVIDENCE. 11. THE CIT(APPEALS) OUGHT TO HAVE SUSTAINED THE ADDITION OF UNEXPLAINED CASH CREDITS U/S. 68 FOR AS ST. YEAR 1996-97 IN THE NAME OF M/S. CD REROLLING MILLS AND M/S. SUNNY ENTERPRISES FOR THE FOR THE REASONS DISCUSSED IN THE ASSESSMENT ORDER. OTHERWISE, THE CIT(APPEALS) OUGHT TO HAVE ALLOWED AN OPPORTUNITY TO THE ASSESSING OFFICER TO GO THROUGH THE INFORMATION FURNISHED BY THE ASSESSEE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 14 BEFORE THE CIT(APPEALS) DURING THE COURSE OF APPEAL PROCEEDINGS BEFORE ADMITTING THE SAME AS EVIDENCE. 12. THE CIT (APPEALS) OUGHT TO HAVE SUSTAINED THE ADDITION OF CASH CREDIT U/S. 68 IN THE NAME OF M/S. TIRUPATI ENTERPRISES. OTHERWISE, THE CIT (APPEALS) OUGHT TO HAVE ALLOWED AN OPPORTUNITY TO THE ASSESSING OFFICER TO GO THROUGH THE INFORMATION FURNISHED BY THE ASSESSEE BEFORE THE CIT(APPEALS) DURING THE COURSE OF APPEAL PROCEEDINGS BEFORE ADMITTING THE SAME AS EVIDENCE. 13. THE CIT (APPEALS) OUGHT TO HAVE SUSTAINED THE ADDITION OF UNEXPLAINED CASH CREDIT U/S. 68 OF RS. 1,85,000 IN THE NAME OF M/S. GEMINI CONSTRUCTIONS FOR THE ASST. YEAR 1999-2000 FOR THE REASONS DISCUSSED IN THE ASST. ORDER. OTHERWISE, THE CIT(APPEALS) OUGHT TO HAVE ALLOWED AN OPPORTUNITY TO THE ASSESSING OFFICER TO GO THROUGH THE INFORMATION FURNISHED BY THE ASSESSEE BEFORE THE CIT (APPEALS) DURING THE COURSE OF APPEA L PROCEEDINGS BEFORE ADMITTING THE SAME AS EVIDENCE. 14. THE CIT(APPEALS) OUGHT TO HAVE ALLOWED AN OPPORTUNITY TO THE ASSESSING OFFICER BEFORE ADMITTI NG ANY FRESH EVIDENCE UNDER RULE 46A OF THE I.T. RULES , ESPECIALLY IN RESPECT OF CASH CREDITS, WHERE THE ASSESSEE PRODUCED THE EVIDENCE BEFORE THE CIT (APPEALS) WITHOUT PRODUCING THE SAME BEFORE THE ASSESSING OFFICER. 18. CORRESPONDINGLY THE ASSESSEE RAISED THE GROUND ON T HIS ISSUE IN HIS APPEAL NO. IT(SS)A NO. 74/HYD/05 AS FO LLOWS: 8. THE LEARNED CIT (APPEALS) ERRED IN SUSTAINING AN ADDITION OF RS. 7,43,750 OUT OF RS. 20,33,045 BEING UNEXPLAINED CASH CREDITS ADDED BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 1996-97. 9. THE LEARNED CIT(A) ERRED IN CONFIRMING ADDITION OF RS. 14 LAKHS ON ACCOUNT OF UNEXPLAINED CASH CREDITS FOR THE ASSESSMENT YEAR 1997-98. 10. THE LEARNED CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS. 20 LAKHS OUT OF RS. 21,85,000 ON IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 15 ACCOUNT OF UNEXPLAINED CASH CREDITS FOR THE ASSESSMENT YEAR 1999-2000. 19. BRIEF FACTS OF THE ISSUE WITH REGARD TO THE ADDITIO N OF RS. 10,50,000 IN IT(SS)A NO. 69/HYD/05 IS AS FOLLOWS. T HE ASSESSEE TOOK LOAN OF RS. 25,00,000 FROM SRI AVNASH AMARLAL, R/O. 100/1, CITY CENTRE, OPP. TOWN HALL, JC ROAD, BANGALORE. THE LOAN WAS TAKEN VIDE CHEQUE NO. 101816 DATED 17.4.1998 DRAWN ON AMANATH CO-OPERATIVE BANK LTD. AND THIS CHEQUE WAS DEPOSITED IN UNION BANK OF INDIA, BANGALORE A/C. NO. 1066 OF THE ASSESSEE. A SUM OF RS. 14,50,000 WAS RETURNED ON 25.7.1998 THRO UGH CHEQUE NO. 005088 OF UNION BANK OF INDIA, BANGALORE A/C. N O. 1066 OF SRI HARMAHENDER SINGH BAGGA. THE BALANCE AMOUNT OF RS. 10,50,000 WAS REPAID AS UNDER: AMOUNT (RS.) PAY ORDER NO./DATE DRAWN FROM 9,00,000 938486/01.08.1998 SYNDICATE BANK, AMINJIKA RAI BRANCH, CHENNAI 1,50,000 938486/01.08.1998 -DO- 20. THE ABOVE PAY ORDERS WERE DRAWN FROM THE BANK ACCOU NT OF M/S. SREE RAMA ENTERPRISES (A UNIT OF M/S. SREE BAL AJI ENTERPRISES) WHEREIN THE ASSESSEE IS A PARTNER. TH E WITHDRAWALS ARE REFLECTED IN THE ACCOUNT OF THE ASSESSEE IN THE BOOKS OF M/S. SREE RAMA ENTERPRISES, CHENNAI. THE FOLLOWING DOCU MENTS WERE FURNISHED BEFORE THE CIT(A): 1. BANK STATEMENT OF SYNDICATE BANK C/A NO. 2166, AMINJIKARAI BRANCH, CHENNAI. 2. CUSTOMERS RECORDS SLIP OF SYNDICATE BANK. 3. CONFIRMATION A/C. FROM AVNASH AMARLAL, BANGALORE. 4. A/C. COPIES IN THE BOOKS OF SREE RAMA ENTERPRISES ( UNIT OF SREE BALAJI ENTERPRISES). A) SRI HARMAHENDER SINGH BAGGA A/C. B) MR. AVNASH AMARLAL A/C. C) BANK ACCOUNT IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 16 21. THE CIT(A) DELETED THE ADDITION HOLDING THAT IT IS SATISFACTORILY EXPLAINED. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. 22. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. THE REASON FOR DELETION BY THE CIT(A) IS THAT THE AMOUNT OF RS . 10,50,000 CAME FROM M/S. SREE RAMA ENTERPRISES, CHENNAI AND IT WAS DULY REFLECTED IN ITS BOOKS. IF IT IS SO, THE ADDITION CANNOT BE MADE IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, THE ASSESS ING OFFICER IS DIRECTED TO EXAMINE THE ISSUE AND DECIDE THEREUPON. 22.1 THERE IS A GROUND BY THE ASSESSEE IN IT(SS)A N O. 50/HYD/05 WITH REGARD TO SUSTAINING ADDITION OF RS. 6 LAKHS C ASH CREDIT IN THE NAME OF M/S. GOLDEN AGENCIES AND RS. 1,50,000 IN TH E NAME OF CITY DISTRIBUTORS. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. EVIDENCE BROUGHT ON RECORD BY THE ASSESSEE IS NOT E NOUGH TO EXPLAIN THE TRANSACTIONS TO THE SATISFACTION OF THE LOWER AUTHORITIES. BEING SO, CONSIDERING THE REASONS GIV EN BY THE LOWER AUTHORITIES TO SUSTAIN THE ADDITION, WE CONFIRM THE ORDER OF THE CIT(A) ON THESE TRANSACTIONS. THESE GROUNDS ARE D ISMISSED. 23. IN IT(SS)A NO. 69/HYD/05) THE NEXT GROUND IS WITH R EGARD TO THE ADDITION OF RS. 13,45,211. BRIEF FACTS ARE THAT IN THE CAPITAL ACCOUNT FOR A.Y. 2000-01 THERE IS A CREDIT ENTRY OF RS. 23,29,083 IN THE NAME OF CAR A/C OUT OF WHICH A SUM OF RS. 13,45 ,211 HAS BEEN TREATED AS UNEXPLAINED DEPOSIT. THE ASSESSEE SUBMI TTED THAT THE HE PURCHASED ONE MERCEDES BENZ CAR ON 21.6.1998 FOR RS. 23,70,278 FROM MAHAVIR MOTORS. FOR THIS PURPOSE, H E ENTERED INTO HIRE PURCHASE AGREEMENT WITH ABN AMRO BANK (LATER O N ASSIGNED TO BANK OF AMERICA) WHO FINANCED THE CAR IN THE NAM E OF THE ASSESSEE. THE INITIAL PAYMENT FOR DISCHARGE OF MAR GIN MONEY OF RS. 5,73,078 TO MAHAVIR MOTORS WAS MADE BY M/S. GEM INI DISTILLERIES (HYD) PVT. LTD. WHEREIN THE ASSESSEE I S A DIRECTOR. THE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 17 PAYMENT MADE TO MAHAVIR MOTORS IS DEBITED TO THE AC COUNT OF THE ASSESSEE IN THE BOOKS OF THE COMPANY. THE REMAININ G INSTALMENTS WERE PAID AS UNDER: PAYMENT PARTICULARS AMOUNT (RS.) PAID FROM GEMINI DISTILLERIES (HYD) PVT. LTD. 5,73, 078 PAID FROM SB A/C. NO. 624 OF HMS (98-99) 3,57,027 PAID FROM SB A/C. NO. 624 OF HMS (99-000) 3,57,027 `PAID FROM GEMINI CC A/C. NO. 40053 (99-00) 1,33,88 7 PAID FROM GEMINI CC A/C. NO. 40053 (99-00) 89,258 PAID FROM AJANTHA CHEMICALS (2000-2001) 13,45,311 28,55,588 24. THE CAR WAS TRANSFERRED TO M/S. AJANTHA CHEMICALS ( INDIA) PVT. LTD. ON 1.3.2000. THE ENTRIES IN THIS REGARD HAVE BEEN MADE IN THE BOOKS OF THE COMPANY ON 1.3.2000 FOR AN AMOU NT OF RS. 23,70,278. ACCORDING TO ASSESSEE, THUS, THERE IS N O ELEMENT OF UNDISCLOSED INCOME AND AS SUCH, THE ADDITION OF RS. 13,45,211 IS REQUIRED TO BE DELETED. THE FOLLOWING DOCUMENTS WE RE FURNISHED BEFORE THE CIT(A). A) ASSESSEE'S ACCOUNT STATEMENT FOR THE FY 99-00 IN TH E BOOKS OF AJANTHA CHEMICALS LTD., WHEREIN CAR VALUE RS. 23,70,278 HAS BEEN CREDITED TO ASSESSEE ACCOUNT. B) ASSESSEE ACCOUNT STATEMENT FOR THE FY 2000-01 IN TH E BOOKS OF M/S. AJANTHA CHEMICALS LTD. WHEREIN 13,45, 311 DEBITED TO ASSESSEE A/C. WHEN PAYMENT WAS MADE TO A BN AMRO BANK. C) ACCOUNT STATEMENT OF BANK OF AMERICA FOR THE FY 200 0- 01 IN M/S. GEMINI DISTILLERIES (HYD) PVT. LTD., WHE REIN RS. 89,258 PAID TO ABN AMRO BANK. D) ACCOUNT STATEMENT OF BANK OF AMERICA FOR THE FY 199 9- 2000 IN M/S. GEMINI DISTILLERIES (HYD) PVT. LTD. WH EREIN RS. 1,33,887 PAID IN BANK OF AMERICA. E) ACCOUNT STATEMENT OF BANK OF AMERICA IN THE BOOKS O F ASSESSEE FOR THE FY 1999-2000 WHEREIN RS. 3,57,032 PAID TO BANK OF AMERICA. F) ACCOUNT STATEMENT OF BANK OF AMERICA IN THE BOOKS O F ASSESSEE FOR THE A.Y. 1998-99 WHEREIN RS. 3,57,027 PAID TO BANK OF AMERICA. G) ACCOUNT COPY OF MAHAVIR MOTORS FOR THE FY 1998-99 I N M/S. GEMINI DISTILLERIES (HYD) PVT. LTD. WHEREIN RS . 5,73,078 PAID FOR MARGIN MONEY. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 18 H) ACKNOWLEDGEMENT FROM ABN AMRO BANK FOR THE PAYMENT OF RS. 13,45,4121. I) ABN AMRO CORRESPONDENCE IN CONNECTION WITH FINAL PAYMENT. J) M/S. AJANTHA CHEMICALS LTD. A/C. NO. 605 STATEMENT OF SYNDICATE BANK, KING KOTI BRANCH WHEREIN RS. 13,45, 311 WAS DEBITED IN FAVOUR OF ABN AMRO BANK. K) M/S. GEMINI DISTILLERIES (HYD) PVT. LTD. CC A/C. NO . 40053 OF UNION BANK OF INDIA FOR THE PERIOD 1.9.99 TO 31.3.2000 AND 1.4.2000 TO 31.5.2000 WHEREIN THE PAYMENTS WERE MADE TO BANK OF AMERICA. L) ASSESSEE SB A/C. NO. 624 IN SYNDICATE BANK, KING KO TI BRANCH HYDERABAD COPY OF THE PASS BOOK FOR THE PERI OD 3.8.1998 TO 20.9.99 WHEREIN PAYMENTS WERE MADE TO BANK OF AMERICA. 25. IN VIEW OF THE ABOVE DOCUMENTS FURNISHED BY THE ASS ESSEE BEFORE HIM, THE CIT(A) HELD THAT THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT CORRECT AND ACCORDINGLY, H E DELETED THE SAME. IN OUR OPINION, THE ASSESSING OFFICER HAS N O OCCASION TO CONSIDER THESE DOCUMENTS AND ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO CONSIDER THE ABOVE DOCUMENTS A ND DECIDE THE ISSUE AFRESH. 26. THE NEXT GROUND IN IT(SS)A NO. 69/HYD/05 IS WITH RE GARD TO DELETION OF ADDITION OF RS. 6,32,000 CREDIT APPEARI NG IN THE NAME OF M/S. CD REROLLING MILLS AND M/S. SUNNY ENTERPRISES AT RS. 6,57,895. BRIEF FACTS OF THE ISSUE ARE THAT DURING THE FINANCIAL YEAR 1995-96 RELEVANT TO THE ASSESSMENT YEAR 1996-97, TH E ASSESSEE WAS A DIRECTOR OF M/S. CD REROLLING MILLS PRIVATE L TD., WHICH IS CARRYING ON BUSINESS OF MANUFACTURE OF STEEL IGNITE S AND ITS FACTOR IS SITUATED IN RALLAGUDA AROUND HYDERABAD OUTSKIRTS . IT IS STATED TO BE ASSESSED AT GIR NO. G-236 WITH ACIT, CIRCLE 4 (5). ON 28.2.1996, THE ASSESSEE RECEIVED A SUM OF RS. 7,00, 000 BY WAY OF CHEQUE BEARING NO. 838055 OF SYNDICATE BANK ACCOUNT NO. 427 AND THE SAID SUM OF RS. 7,00,000 WAS CREDITED IN TH E ACCOUNT OF M/S. CD REROLLING MILLS PVT. LTD. IN THE BOOKS OF ASSESSEE. THE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 19 ASSESSEE PAID AN AMOUNT OF RS. 68,000 ON 11.9.1995. THUS, THERE WAS A CREDIT BALANCE OF RS. 6,32,000 AS ON 31.3.199 6 IN THE ACCOUNT OF THE COMPANY. IN VIEW OF THE ABOVE DETAI LS, THE CIT(A) HELD THAT THE ASSESSING OFFICER IS NOT CORRECT IN T REATING THE CREDIT BALANCE AS UNEXPLAINED CREDIT U/S. 68 OF THE ACT AN D ACCORDINGLY, HE DELETED THE ADDITION. SIMILARLY, IN THE CASE OF M/S. SUNNY ENTERPRISES THERE WAS AN ADDITION TO THE TUNE OF RS . 6,57,895. THE ASSESSEE STATED BEFORE THE CIT(A) THAT HE HAS DRAWN FUND FROM THAT FIRM ON VARIOUS DATES AND AS ON 31.3.1994, THE ASSE SSEE OWED A SUM OF RS. 5,94,595 AS PER THE BOOKS OF M/S. SUNNY ENTERPRISES WHICH IS REFLECTED IN THE BALANCE SHEET AS ON 31.3. 1994. THE PROPRIETARY CONCERN STATED TO HAVE BEEN ASSESSED AT GIR NO. M- 739 WITH THE ACIT, CIRCLE 2(1), HYDERABAD. THE ASS ESSEE HAS DRAWN A SUM OF RS. 63,300 ON 30.4.1994 THE CLOSING BALANCE AS ON 31.3.1995 IS RS. 6,57,895. BEING THE CLOSING BALAN CE DOES NOT FALL IN THE BLOCK PERIOD AND THE PROPRIETARY IS ASSESSED TO TAX THE ADDITION WAS DELETED BY THE CIT(A). AGAINST THIS T HE ASSESSEE IS IN APPEAL BEFORE US. 27. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. IF T HE AMOUNT OF RS. 6.32 LAKHS IS RECEIVED FROM M/S. CD REROLLIN G MILLS PVT. LTD. AND IT WAS DULY REFLECTED IN THE BOOKS OF ACCOUNT, THEN IDENTITY AND GENUINENESS OF THE TRANSACTION WAS PROVED AND THE A SSESSEE HAS TO ONLY EXPLAIN THE CAPACITY TO LEND THIS MONEY BY M/S . CD REROLLING MILLS PVT. LTD. TO THE SATISFACTION OF THE ASSESSIN G OFFICER. ACCORDINGLY, WE REMIT THIS ISSUE BACK TO THE FILE O F THE ASSESSING OFFICER FOR RE-CONSIDERATION WITH A DIRECTION TO TH E ASSESSEE TO PROVE ALL THE INGREDIENTS OF THE TRANSACTION AS MEN TIONED ABOVE. SIMILARLY, THE DELETION RELATING TO CASH CREDIT APP EARING IN THE NAME OF M/S. SUNNY ENTERPRISES IS ALSO REMITTED BAC K TO ASSESSING OFFICER FOR FRESH CONSIDERATION BY HIM IN THE LIGHT OF EVIDENCE PRODUCED BY THE ASSESSEE BEFORE CIT(A) AS HE HAS NO OCCASION TO EXAMINE THE SAME. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 20 28. THE NEXT ISSUE IS WITH REGARD TO DELETION OF ADDITI ON U/S. 68 IN THE NAME OF M/S. TIRUPATI ENTERPRISES AT RS. 35, 92,905. BRIEF FACTS OF THE ISSUE ARE THAT M/S. TIRUPATI ENTERPRIS ES IS A PARTNERSHIP FIRM WHICH CAME INTO EXISTENCE WITH EFF ECT FROM 1.10.1995 CONSISTING OF TWO PARTNERS, NAMELY, SRI H ARMAHENDER SINGH BAGGA AND SRI GURUDEEP SINGH BAGGA. THE FIRM IS CARRYING ON PROMOTIONAL ACTIVITY OF LIQUOR PRODUCTS FOR M/S. SHAW WALLACE AND COMPANY IN THE STATE OF TAMIL NADU. THE FIRM I S STATED TO HAVE BEEN FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 1997-98 VIDE GIR NO. S-409/AC-2(1), HYDERABAD. THE ASSESSE E HAS WITHDRAWN THE FOLLOWING AMOUNTS FROM THE BANK ACCOU NT NO. 6201 OF SYNDICATE BANK, AMINJIKARAI BRANCH, CHENNAI OF T HE FIRM: DATE CHEQUE NO. AMOUNT (RS.) 31.10.1996 454287 21,00,000 (3000 DDS COMMISSION) 08.11.1996 454298 19,75,000 (6034 DDS COMMISSION) 26.11.1996 454319 10,00,000* (1500 DDS COMMISSION) (CONSISTING OF TWO DDS RS. 6,00,000 + 4,00,000) 29. IN VIEW OF THE ABOVE EXPLANATION, THE CIT(A) DELETE D THE ADDITION OF RS. 35,92,905 AS NOT CORRECT. 30. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. THE CIT(A) OUGHT TO HAVE GIVEN OPPORTUNITY TO THE ASSESSING OF FICER TO PUT HIS COMMENTS. WITHOUT THIS, OUTRIGHTLY, THE CIT(A) DEL ETED THE ADDITION WHICH IS IMPROPER AND VIOLATION OF PRINCIP LES OF NATURAL JUSTICE. ACCORDINGLY, THE ISSUE REMITTED BACK TO T HE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. WE DIRE CT THE ASSESSEE TO PRODUCE NECESSARY DETAILS TO THE ASSESSING OFFIC ER WHO SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER PROVI DING SUFFICIENT IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 21 OPPORTUNITY OF HEARING TO THE ASSESSEE. THIS GROUN D IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 31. THE NEXT GROUND IN IT(SS)A NO. 69/HYD/05 IS WITH RE GARD TO DELETION OF ADDITION OF RS. 1,85,000 U/S. 68 OF THE ACT IN THE NAME OF M/S. GEMINI CONSTRUCTIONS. WITH REGARD TO THE A MOUNT OF RS. 1,85,000 IN THE NAME OF M/S. GEMINI CONSTRUCTIONS, IT HAS BEEN STATED THAT THE ASSESSEE AND HIS FAMILY MEMBERS CON STRUCTED A COMPLEX IN KING KOTI, HYDERABAD IN THE YEAR 1999 AN D ARE RECEIVING RENTAL INCOME FROM THE COMPLEX. THE RENT IS BEING DEPOSITED IN UNION BANK OF INDIA, RAMKOTE, HYDERABA D (ACCOUNT NO. 35583 OF M/S. GEMINI CONSTRUCTIONS). THE ASSES SEE HAS DRAWN A SUM OF RS. 1,85,000 FROM THIS ACCOUNT ON 8. 2.1999. THE RENT RECEIVED IS BEING REFLECTED IN THE REGULAR RET URNS OF INCOME OF THE ASSESSEE AND OTHER FAMILY MEMBERS. AS SUCH, TH IS AMOUNT OF RS. 1,85,000 CANNOT BE TREATED AS UNEXPLAINED U/S. 68 OF THE ACT. IN VIEW OF THIS, THE ADDITION IS DELETED BY THE CIT (A). 32. WE HAVE HEARD BOTH THE PARTIES. HEREIN ALSO THE CI T(A) DELETED THE ADDITION WITHOUT GIVING OPPORTUNITY TO THE ASSESSING OFFICER TO COMMENT ON THE DETAILS FURNISHED BY THE ASSESSEE WHICH IS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. ACC ORDINGLY, THE ISSUE REMITTED BACK TO THE ASSESSING OFFICER FOR FRESH CO NSIDERATION. WE DIRECT THE ASSESSEE TO PROVIDE THE DETAILS BEFORE T HE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO GIVE SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE. AS WE HAVE REMITTED BACK THE CERTAIN ISSUES HEREIN TO THE ASSESSING OFFICER, THE GROUNDS RELATING TO VIOLATION OF RULE 46A ITSELF GETS ADJUD ICATED AS SUCH INDEPENDENT FINDINGS ON THE ISSUE OF VIOLATION OF R ULE 46A HAS NOT BEEN GIVEN. 33. IN ASSESSEE'S APPEAL, IT(SS)A NO. 74/HYD/05, GROUND NO. 4 IS THAT THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 22,04,746 IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 22 MADE ON ACCOUNT OF UNEXPLAINED CREDIT IN THE CAPITA L ACCOUNT FOR A.Y. 96-97. 34. BRIEF FACTS OF THE ISSUE ARE THAT DURING THE COURSE OF BLOCK ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THE FOLLOWING DEPOSITS IN ASSESSEE'S CAPITAL ACCOUNT FO R THE PERIOD 1.4.1995 TO 31.3.1996 RELEVANT TO THE A.Y. 1996-97. PARTICULARS AMOUNT (RS.) BY CAPITAL (BALAJI ENTERPRISES A/C) 4,00,000 BY CAPITAL (BALAJI ENTERPRISES A/C) 8,15,000 BY SYNDICATE BANK 624 8,532 BY PEARL POLYMERS A/C 4,00,000 BY AAREM ENGINEERING A/C 82,160 BY HALDYN GLASS INDUSTRIES A/C 4,51,152 BY PLASTIC INTERNATIONAL A/C 47,902 22,04,746 35. THE ASSESSING OFFICER TREATED ALL THE ABOVE DEPOSIT S AS UNPROVED AND HAS TREATED THEM AS UNEXPLAINED INVEST MENT FOR A.Y. 1997-97. BEFORE THE CIT(A) THE ASSESSEE CONTE NDED THAT EXCEPT AN AMOUNT OF RS. 8,532 LYING DEPOSITED IN SY NDICATE BANK ACCOUNT NO. 624, ALL OTHER DEPOSITS WERE MADE OUT O F FUNDS WITHDRAWN FROM THE BANK ACCOUNT OF M/S. GOLDEN AGEN CIES, A PARTNERSHIP FIRM CONSISTING OF SRI HARMAHENDER SING H BAGGA AND SRI KULDEEP SINGH BAGGA AS PARTNERS. THIS FIRM WAS CARRYING ON LIQUOR BUSINESS (BEER DISTRIBUTION) IN THE STATE OF MAHARASHTRA DURING THE FY 1992-93 TO 1993-94. THE ASSESSEE, BE ING PARTNER IN THE FIRM, HAD WITHDRAWN THE FOLLOWING AMOUNTS THROU GH SELF- CHEQUES AS UNDER: PARTICULARS DATE AMOUNT (RS.) SELF CHEQUE NO. 587897 30.08.1995 10,00,000 SELF CHEQUE NO. 587879 02.09.1995 15,00,000 SELF CHEQUE NO. 587852 04.09.1995 5,00,000 30,00,000 IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 23 36. OUT OF THE ABOVE FUNDS WITHDRAWN, THE ASSESSEE PUR CHASED DRAFTS IN FAVOUR OF M/S. SREE BALAJI ENTERPRISES, B ANGALORE WHEREIN HE HIMSELF IS A PARTNER AND THESE DRAFTS WERE CREDI TED IN HIS CAPITAL ACCOUNT IN THE BOOKS OF THE FIRM. THE AMOU NTS WERE GIVEN AS UNDER: DATE AMOUNT (RS.) 24.11.1995 4,00,000 01.12.1995 8,15,000 12,15,000 37. IT IS AN ADMITTED FACT THAT M/S. GOLDEN AGENCIES HA S NOT FILED ITS RETURN OF INCOME EXCEPT MAKING DECLARATIO N UNDER VDIS, 1997 OF RS. 4,00,000 FOR A.Y. 1993-94 AND 1994-95. ACCORDING TO THE ASSESSEE, THE SOURCES OF DEPOSITS IN THE CAPITA L ACCOUNT STAND EXPLAINED AND NO ADDITION IS CALLED FOR. SIMILAR E XPLANATION HAD BEEN GIVEN IN RESPECT OF DEPOSIT OF RS. 4,00,000 MA DE IN THE NAME OF M/S. PEARL POLYMERS, RS. 82,160 IN THE NAME OF M /S. AAREM ENGINEERING, RS. 4,51,152 IN THE NAME OF M/S. HALDY N GLASS INDUSTRIES AND RS. 47,902 IN THE NAME OF M/S. PLAST IC INTERNATIONAL. IT HAD BEEN CONTENDED THAT M/S. PE ARL POLYMERS IS A MATERIAL SUPPLIER OF M/S. SREE BALAJI ENTERPRISES . THE ASSESSEE HAS DISCHARGED THE LIABILITY FROM THE FUNDS WITHDRA WN FROM M/S. GOLDEN AGENCIES. M/S. AAREM ENGINEERING IS A SUPPL IER OF MACHINE SPARE PARTS TO M/S. SREE BALAJI ENTERPRISES AND THE PAYMENT WAS MADE OUT OF THE FUNDS WITHDRAWN FROM M/ S. GOLDEN AGENCIES. M/S. HALDYN GLASS INDUSTRIES IS A SUPPLI ER OF EMPTY BOTTLES TO M/S. SREE BALAJI ENTERPRISES AND THE PAY MENT WAS DONE FROM OUT OF THE FUNDS WITHDRAWN FROM M/S. GOLDEN AG ENCIES. SIMILARLY, PLASTIC INTERNATIONAL IS ALSO A MATERIAL SUPPLIER TO M/S. SREE BALAJI ENTERPRISES. 38. FROM THE ABOVE, IT MAY BE SEEN THAT THE AMOUNT DEPO SITED IN THE BOOKS OF M/S. SREE BALAJI ENTERPRISES AND PA YMENTS MADE TO THE SUPPLIERS WERE STATED TO BE MADE OUT OF THE FUNDS IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 24 WITHDRAWN BY THE ASSESSEE FROM THE BOOKS OF M/S. GO LDEN AGENCIES WHICH HAS NEVER FILED ITS RETURN OF INCOME EXCEPT MAKING DECLARATION OF RS. 4,00,000 UNDER VDIS FOR A.Y. 199 3-94 AND 1994-95. ON PERUSAL OF BANK ACCOUNT OF M/S. GOLDEN AGENCIES WITH SYNDICATE BANK, ANDHERI (EAST), MUMBAI-59, IT IS SEEN THAT DEPOSITS WERE MADE JUST BEFORE THE FUNDS WITHDRAWN THROUGH SELF- CHEQUES. AN AMOUNT OF RS. 10,00,000 WAS DEPOSITED ON 30.08.1995 AND ON THE SAME DAY, RS. 10,00,000 WAS W ITHDRAWN THROUGH SELF CHEQUE. ON 1.9.1995, TWO AMOUNT OF RS . 20,00,000 AND RS. 9,50,000 WERE DEPOSITED AND ON NEXT DAY I.E ., 2.9.1995, A SUM OF RS. 15,00,000 WAS WITHDRAWN THROUGH SELF CHE QUE. THE SOURCES OF DEPOSITS IN THE BANK ACCOUNTS REMAIN EXP LAINED AS NO RETURNS OF INCOME HAD BEEN FILED BY THE SAID FIRM. IN SUCH CIRCUMSTANCES, THE CIT(A) WAS OF THE OPINION THAT T HE ASSESSEE HAD NOT BEEN ABLE TO EXPLAIN THE SOURCES OF DEPOSITS IN THE CAPITAL ACCOUNT. ACCORDINGLY, THE ADDITION MADE BY THE AS SESSING OFFICER HAD BEEN CONFIRMED BY HIM. AS REGARDS THE AMOUNT O F RS. 8,532 THE ASSESSEE HAD NO OBJECTION FOR THIS ADDITION, AS THERE IS NO SUPPORTING EVIDENCE. THUS, THE CIT(A) CONFIRMED TH E ENTIRE ADDITION OF RS. 22,04,476 FOR A.Y. 1996-97. AGAINS T THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 39. WE HAVE HEARD BOTH THE PARTIES. IN THIS CASE THE I MPUGNED AMOUNT WAS DEPOSITED IN THE BOOKS OF ACCOUNT OF M/S . SREE BALAJI ENTERPRISES AND THE SAID AMOUNT HAD CAME FROM M/S. GOLDEN AGENCIES. IT IS AN ADMITTED FACT THAT M/S. GOLDEN AGENCIES WAS NOT FILING THE RETURN OF INCOME OTHER THAN DISCLOSI NG INCOME UNDER VDIS FOR A.YS. 1993-94 AND 1994-95. BEING SO, WE A RE INCLINED TO HOLD THAT THE CAPACITY OF M/S. GOLDEN AGENCIES FOR GIVING THIS AMOUNT TO THE ASSESSEE IS NOT EXPLAINED. HENCE THE ADDITION IS MADE IN THE HANDS OF THE ASSESSEE ON THIS COUNT IS JUSTIFIED. THIS GROUND OF THE ASSESSEE IS DISMISSED. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 25 40. THE NEXT GROUND IN IT(SS)A NO. 74/HYD/05 IS WITH RE GARD TO SUSTAINING ADDITION OF RS. 11,29,453 TOWARDS UNEXPL AINED CREDIT IN THE CAPITAL ACCOUNT OF THE ASSESSEE FOR A.Y. 1998-9 9. BRIEF FACTS OF THE ISSUE ARE THAT IN THE CAPITAL ACCOUNT OF THE AS SESSEE FOR A.Y. 1998-99, THE FOLLOWING CREDIT ENTRIES HAVE BEEN TRE ATED AS UNEXPLAINED THEREBY TREATING THEM AS UNDISCLOSED IN COME OF THE ASSESSEE FOR THE BLOCK PERIOD: DATE PARTICULARS A/C. NO. AMOUNT (RS.) 04.06.98 SYNDICATE BANK 624 50,153 24.01.98 SYNDICATE BANK 624 40,000 31.03.98 M/S. SREE BALAJI ENTERPRISES LOAN A/C 10,3 9,300 41. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE AMOUNT OF RS. 10,39,30 UNEXPLAINED CREDIT IN THE NAME OF M/S. S REE BALAJI ENTERPRISES REPRESENTS THE TOTAL QUANTUM OF DEBIT A ND CREDIT ENTRIES IN THE CAPITAL ACCOUNT OF THE ASSESSEE I.E. , SRI HARMAHENDER SINGH BAGGA FOR FY 1997-98 AND THE BALA NCING FIGURE OF RS. 10,39,300 IS TAKEN AS LOAN TO M/S. SR EE BALAJI ENTERPRISES AND THIS BALANCING FIGURE IS CREDITED I N HIS INDIVIDUAL ACCOUNT (CAPITAL ACCOUNT). THESE ENTRIES ARE ALREA DY IN THE BOOKS OF ACCOUNT OF M/S. SREE BALAJI ENTERPRISES AND CONT RA ENTRY IS PASSED IN THE CAPITAL ACCOUNT, AS SUCH THIS ADDITIO N IS NOT PRESSED FOR. REGARDING UNEXPLAINED CREDITS IN THE NAME OF SYNDICATE BANK OF RS. 40,000 AND RS. 50,153 IT WAS SUBMITTED THAT THESE ARE THE OLD HAND LOANS GIVEN TO THE FRIENDS OF SRI HARMAHEN DER SINGH BAGGA WHO HAVE REPAID TO HIM DURING THE FY 1997-98 AND THE AMOUNTS ARE CREDITED IN SYNDICATE BANK AND THE ASSE SSEE IS NOT HAVING FURTHER DETAILS AS THIS IS AN OLD TRANSACTIO N, THEREFORE, THIS ADDITION OF RS. 90,153 IS NOT PRESSED FOR. ACCORDI NGLY, THE CIT(A) CONFIRMED THE ADDITION OF RS. 11,29,453. AGAINST T HIS THE ASSESSEE IS IN APPEAL BEFORE. 42. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. EVEN BEFORE US THE ASSESSEE HAS NOT BEEN A BLE TO LEAD ANY IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 26 MATERIAL EVIDENCE TO EXPLAIN THE SOURCE. BEING SO, WE ARE INCLINED TO CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. 43. THE NEXT GROUND IN IT(SS)A 74/HYD/05 IS WITH REGARD TO SUSTAINING OF ADDITION OF RS. 1,59,792 TOWARDS UNEX PLAINED CREDIT IN CAPITAL ACCOUNT IN A.Y. 1999-2000. THERE WERE T WO CREDITS SHOWING RS. 79,896 IN THE NAME OF OLD PAL WINES. T HE AR COULD NOT ABLE TO EXPLAIN THE SOURCE OF CREDIT. EVEN BEF ORE US NO MATERIAL WAS PRODUCED IN ORDER TO SUBSTANTIATE THE CREDIT. ACCORDINGLY, WE CONFIRM THE ADDITION. 44. THE NEXT GROUND IN IT(SS)A 74/HYD/05 IS WITH REGARD TO SUSTAINING OF ADDITION OF RS. 7,43,750 OUT OF RS. 2 0,33,045 BEING UNEXPLAINED CASH CREDIT ADDED BY THE ASSESSING OFFI CER FOR A.Y. 1996-97. WITH REGARD TO THE AMOUNT OF RS. 3,00,000 IN THE NAME OF M/S. GOLDEN AGENCIES, IT HAS BEEN SUBMITTED THAT THIS IS A PARTNERSHIP CONCERN OF SRI HARMAHENDER SINGH BAGGA AND SRI KULDEEP SINGH BAGGA. THE FIRM WAS CARRYING OUT BEE R DISTRIBUTION BUSINESS IN THE STATE OF MAHARASHTRA DURING THE A.Y S. 1993-94 AND 1994-95. THE FIRM HAS FILED DECLARATION UNDER VDIS, 1997 WHEREIN A SUM OF RS. 4,00,000 HAS BEEN DECLARED AS PROFITS FROM BUSINESS FOR A.YS. 1993-94 AND 1994-95. THE ASSESS EE HAS DRAWN A SUM OF RS. 3,00,000 ON 26.2.1996 FROM THE BANK AC COUNT OF THE FIRM AND THE SAID CHEQUE WAS TRANSFERRED TO THE ASS ESSEE IN HIS BANK A/C NO. 624 WITH SYNDICATE BANK, KING KOTI, HY DERABAD. IT HAS, THEREFORE, BEEN PLEADED THAT THE SOURCES OF CA SH CREDIT OF RS. 3,00,000 STANDS EXPLAINED AND NO ADDITION SHOULD HA VE BEEN MADE IN THE BLOCK ASSESSMENT. IT WAS HELD BY THE C IT(A) THAT THE CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED AS TH E FIRM HAS NOT FILED THE RETURN OF INCOME IN SPITE OF HAVING CARRI ED ON BEER DISTRIBUTION BUSINESS DURING A.YS. 1993-94 AND 1994 -95. MERE FILING OF DECLARATION UNDER VDIS WILL NOT EXPLAIN T HE SOURCE OF CASH IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 27 CREDIT U/S. 68 OF THE INCOME-TAX ACT. HENCE, THIS ADDITION WAS CONFIRMED BY THE CIT(A). 45. WITH REGARD TO THE CASH CREDIT OF RS. 4,43,750 IN T HE NAME OF SRI GURUVINDER PAL SINGH, FOLLOWING EXPLANATION HAS BEEN GIVEN: HARMAHENDER SINGH BAGGA HAS RECEIVED SUM OF RS. 5 LAKHS ON 25.4.1995 BY WAY OF DEMAND DRAFT AND REPAID A SUM OF RS. 56,250 ON 27.2.1996 BY WAY OF D D AND THE CONFIRMATION OF THE TRANSACTION COULD NOT B E OBTAINED FOR THE CLOSING BALANCE OF RS. 4,43,750 AS ON 31.3.1996 FROM GURUVINDER PAL SINGH AS SUCH THE ADDITION OF RS. 4,43,750 IS NOT PRESSED FOR. 46. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. NO M ATERIAL WAS PLACED BEFORE US TO SUBSTANTIATE THE CREDITS RE LATING TO RS. 3,00,000. BEING SO, WE ARE INCLINED TO CONFIRM THE ORDER OF CIT(A) ON THIS ISSUE. REGARDING THE ADDITION OF RS. 4,43,7 50, AS THIS ISSUE WAS NOT PRESSED BEFORE THE CIT(A), BEFORE US THE A SSESSEE CANNOT HAVE GRIEVANCE. ACCORDINGLY, THE GROUND RELATING T O SUSTAINING ADDITION OF RS. 7,43,750 BY THE ASSESSEE IS DISMISS ED. 47. THE NEXT GROUND IN IT(SS)A NO. 74/HYD/05 IS WITH RE GARD TO ADDITION OF RS. 14 LAKHS ON ACCOUNT OF UNEXPLAINED CASH CREDIT IN A.Y. 1997-98. THIS ISSUE WAS ALREADY DISCUSSED IN REVENUE APPEAL IN IT(SS)A NO. 69/HYD/05 WHILE DEALING WITH THE ISSUE RELATED TO M/S. TIRUPATI ENTERPRISES. FOR CLARITY W E WILL REPRODUCE PARA 53 OF THE CIT(A) ORDER: '52. WITH REGARD TO CASH CREDIT OF RS. 1,00,000 IN THE NAME OF M/S. KULDEEP CHITS, THE ADDITION HAS NOT BE EN PRESSED. FOLLOWING SUBMISSIONS HAVE BEEN MADE IN THIS REGARD. 'HARMAHENDER SINGH BAGGA HAS DRAWN A SUM OF RS. 1,00,000 ON 21.8.1996 FROM KULDEEP CHIT FUNDS WHICH IS A PROPRIETARY CONCERN OF KULDEEP SINGH BAGGA WHO IS BROTHER OF HARMAHENDER SINGH BAGGA. HIS PAN NO. ABXPB 9324 Q THIS IS THE SOURCE FOR HARMAHENDER SINGH BAGGA FOR TAKING THE LOAN OF RS. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 28 1,00,000 FROM SRI KULDEEP SINGH BAGGA AND THE SOURCE FOR KULDEEP CHITS IS FROM OUT OF THE CHIT COLLECTIONS. HOWEVER, THIS ADDITION OF RS. 1,00,00 0 IS NOT PRESSED FOR.' 53. M/S. TIRUPATI ENTERPRISES IS A PARTNERSHIP FIRM WHICH CAME INTO EXISTENCE WITH EFFECT FROM 1.10.199 5 CONSISTING OF TWO PARTNERS, NAMELY, SRI HARMAHENDER SINGH BAGGA AND SRI GURUDEEP SINGH BAGGA. THE FIRM IS CARRYING ON PROMOTIONAL ACTIVITY FOR M/S. SHAW WALLACE AND COMPANY LIQUOR PRODUCTS IN THE STATE OF TAMIL NADU. THE FIRM IS STATED TO HAVE BEEN FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 1997-98 VIDE G IR NO. S-409/AC-2(1), HYDERABAD. THE ASSESSEE HAS WITHDRAWN THE FOLLOWING AMOUNTS FROM THE BANK ACCOUNT NO. 6201 OF SYNDICATE BANK, AMINJIKARAI BRANCH, CHENNAI OF THE FIRM: DATE CHEQUE NO. AMOUNT (RS.) 31.10.1996 454287 21,00,000 (3000 DDS COMMISSION) 08.11.1996 454298 19,75,000 (6034 DDS COMMISSION) 26.11.1996 454319 10,00,000* (1500 DDS COMMISSION) (CONSISTING OF TWO DDS RS. 6,00,000 + 4,00,000) 48. WE HAVE HEARD BOTH THE PARTIES. THE ADDITION RELAT ING TO RS. 1 LAKH IN THE NAME OF M/S. KULDEEP CHIT WAS NOT PRE SSED BEFORE THE CIT(A). HENCE THE ASSESSEE CANNOT RAISE THIS G ROUND BEFORE US. THIS GROUND IS DISMISSED. 49. THE NEXT ADDITION IN IT(SS)A NO. 74/HYD/05 IS RELAT ING TO RS. 13 LAKHS IN THE NAME OF M/S. AJIT ENTERPRISES, AS THE PROFITS OF THE PROPRIETARY CONCERN M/S. AJIT ENTERPRISES WAS N OT BEING SHOWN IN THE REGULAR RETURN OF INCOME OF SRI SATPAL SINGH BAGGA. BEING SO, THE EXPLANATION OFFERED BY THE ASSESSEE IS NOT ACCEPTABLE. THIS GROUND IS DISMISSED. 50. THE NEXT GROUND IN IT(SS)A 74/HYD/05 IS WITH REGARD TO SUSTAINING OF ADDITION AT RS. 20 LAKHS OUT OF RS. 2 1.85 LAKHS ON IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 29 ACCOUNT OF UNEXPLAINED CASH CREDIT FOR A.Y. 1999-20 00. THE CIT(A) SUSTAINED THE ADDITION OUT OF RS. 21.85 LAKHS MADE BY THE ASSESSING OFFICER FOR A.Y. 1999-2000, AS FOLLOWS: SL. NO. PARTICULARS AMOUNT (RS.) 1. SHESHADRI CHIT FUNDS 5,00,000 2. SONU WINES 3,00,000 3. WINE JUNCTION 12,00,000 20,00,000 51. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE CASH CREDITS IN THE NAME OF SHESHADRI CHIT FUNDS, SONU WINES AND W INE JUNCTION HAVE NOT BEEN PRESSED. THE ASSESSEE SUBMI TTED THAT FROM SHESHADRI CHIT FUNDS SRI HARMAHENDER SINGH BAG GA RECEIVED A SUM OF RS. 1 LAKH BY WAY OF CHEQUE DURIN G THE FY 1998- 99 AND THE CONFIRMATION COULD NOT BE OBTAINED FOR T HE AMOUNT OF RS. 5 LAKHS FROM THEM AND AS SUCH THIS ADDITION IS NOT PRESSED FOR. REGARDING ADDITION IN RESPECT OF SONU WINES OF RS. 3,00,000 IT WAS SUBMITTED THAT SRI HARMAHENDER SINGH BAGGA RECEIVED A SUM OF RS. 3 LAKHS BY WAY OF CHEQUE DURING THE FY 1998-99 AND THE CONFIRMATION COULD NOT BE OBTAINED FOR THE AMOUNT O F RS. 3 LAKHS FROM SONU WINES. HENCE THE SAME WAS NOT PRESSED. REGARDING RS. 12,00,000 FROM WINE JUNCTION, IT WAS SUBMITTED THAT SRI HARMAHENDER SINGH BAGGA HAS RECEIVED A SUM OF RS. 1 2 LAKH BY WAY OF CHEQUE DURING THE FY 1998-99 AND THE CONFIRM ATION COULD NOT BE OBTAINED FOR THE AMOUNT OF RS. 12 LAKHS FROM THE WINE JUNCTION AND AS SUCH THE ADDITION WAS NOT PRESSED F OR. 52. AS SEEN FROM THE ABOVE, THE ASSESSEE HAS NOT PRESSE D THE ABOVE ISSUE BEFORE THE CIT(A). BEING SO, THE ASSES SEE CANNOT HAVE ANY GRIEVANCE BEFORE US. ACCORDINGLY THIS GROUND I S DISMISSED. 53. IN THE RESULT, IT(SS)A NO. 69/HYD/05 (DEPARTMENT) A ND IT(SS)A NO. 74/HYD/05 (ASSESSEE) ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 30 54. THE NEXT GROUND FOR OUR CONSIDERATION IS WITH REGAR D TO DISALLOWANCE OF INTEREST PAID ON LOAN U/S. 36(1)(II I) OF THE ACT IN APPEALS IN ITA NO. 271/HYD/06 (SRI HARMAHENDER SING H BAGGA), ITA NO. 767/HYD/07 (SMT. DEVENDER KAUR BAGGA) AND I TA NO. 713/HYD/06 (M/S. SREE RAMA ENTERPRISES). WE WILL C ONSIDER THE FACTS IN THE CASE OF SRI HARMAHENDER SINGH BAGGA IN ITA NO. 271/HYD/06. IT WAS NOTICED BY THE ASSESSING OFFICE R THAT THE CLAIM OF INTEREST OF RS. 20,91,33 M/S. RAJPAL CREDI T & CAPITAL LTD. ON THE LOAN OF RS. 50 LAKHS. THIS LOAN OF RS. 50 L AKHS AVAILED BY THE ASSESSEE WAS DIVERTED TO VARIOUS CONCERNS/INDIV IDUAL OF THE FAMILY WITHOUT CHARGING ANY INTEREST. THESE CONCER NS ARE OWNED AND RUN BY THE MEMBERS OF BAGGA GROUP. THE ASSESSI NG OFFICER WAS OF THE VIEW THAT THE INTEREST PAID IS NOT WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE SAME WAS DISALL OWED. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF THE ASSES SING OFFICER. AGAINST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 55. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND PE RUSED THE MATERIAL ON RECORD. IT IS EVIDENT FROM THE ASS ESSEE'S ACCOUNT IN THE SYNDICATE BANK THAT A SUM OF RS. 50 LAKHS WAS R ECEIVED ON 10.4.1997 FROM M/S. RAJPAL CREDIT & CAPITAL LTD. AN D THE SAME WAS TRANSFERRED TO VARIOUS FAMILY CONCERNS AND MEMB ERS AS UNDER: DATE NAME OF FAMILY MEMBER/CONCERN AMOUNT (RS.) 10.04.1997 GEMINI DISTILLERIES (P) LTD. 5,00,250 10.04.1997 SKOL BREWERIES 5,00,250 10.04.1997 AJANTA CHEMICALS INDIA LTD. 5,00,250 10.04.1997 R.K. DISTILLERIES 5,00,250 12.04.1997 HARMAHENDER SINGH BAGGA 3,00,250 12.04.1997 KULDIP SINGH BAGGA 3,00,250 12.04.1997 INDERJIT KAUR BAGGA 3,00,250 12.04.1997 DEVENDER KAUR BAGGA 3,00,000 12.04.1997 SARABJIT KAUR BAGGA 3,00,000 25.04.1997 RETAILERS ACCOUNT 14,76,823 TOTAL 49,78,573 IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 31 56. IT IS EVIDENT FROM THE BANK STATEMENT THAT THERE WA S A DIRECT NEXUS BETWEEN THE INTEREST BEARING LOAN RECEIVED AN D INTEREST FREE ADVANCES GIVEN TO THE FAMILY MEMBERS/CONCERNS. IT IS PERTINENT TO MENTION HERE THAT M/S. SKOL BREWERIES IS A GROUP CO NCERN OF M/S. SHAW WALLACE LTD. THE ASSESSEE COULD NOT GIVE THE DETAILS OF 'RETAILERS ACCOUNT' AND COULD NOT TELL THAT IN WHOS E BOOKS OF ACCOUNT SUCH ACCOUNT WAS REFLECTED. IT WAS SIMPLY EXPLAINED THAT THE FUNDS WERE ADVANCED TO THE RETAILERS FOR THE PU RPOSE OF BUSINESS DEVELOPMENT OF BAGGA BRAND LIQUORS AND AS SUCH THE FUNDS WERE UTILISED FOR THE PURPOSES OF BUSINESS. 57. IT IS FURTHER EVIDENT FROM RECORDS THAT THE ASSESSE E IS SHOWING SALARY INCOME FROM GEMINI DISTILLERIES PVT. LTD. AND M/S. SREE BALAJI ENTERPRISES AND ALSO SHARE INCOME FROM THE FIRM M/S. ROYAL MARKETING AGENCIES. THERE IS NO PROPRIETARY CONCERN FOR THE BUSINESS OF WHICH THE AFORESAID AMOUNTS COULD BE SA ID TO HAVE BEEN ADVANCED. THE INTEREST FREE ADVANCES GIVEN TO FAMILY MEMBERS/CONCERNS CANNOT BE TREATED AS GIVEN FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE BY ANY STRETCH OF IMAGINAT ION. THERE IS NO CONCEPT OF BUSINESS INTEREST OF THE ENTIRE GROUP CONCERNS TO ALLOW THE EXPENSES UNDER THE IT ACT. FOR THE PURPO SE OF TAXATION, EACH AND EVERY PERSON IS A SEPARATE ENTITY AND PROV ISIONS OF THE ACT HAVE TO BE EXAMINED AND APPLIED IN THE CONTEXT OF THAT ENTITY ALONE. IT IS A SETTLED POSITION OF LAW THAT THE IN TEREST BORROWED ON CAPITAL HAS TO BE ALLOWED IN TERMS OF SECTION 36(1) (III) OF THE ACT WHICH REQUIRES THAT THE BORROWING MUST BE FOR THE P URPOSE OF THE BUSINESS OF THE ASSESSEE. EVEN IF THE DEDUCTION IS CONSIDERED U/S. 37(1) OF THE ACT, THE EXPENSES SHOULD HAVE BEEN INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. IN THE PRESENT CASE, THIS CONDITION HAS NOT BEEN FULFI LLED SO AS TO ALLOW THE EXPENSE EITHER U/S. 36(1)(III) OR U/S. 37 (1) OF THE ACT. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 32 58. AS PER PROVISIONS OF SECTION 36(1)(III) OF THE ACT, THE INTEREST ON LOANS RAISED BY THE ASSESSEE FOR BUSINESS PURPOS ES ARE AVAILABLE. ONCE THE ASSESSEE CLAIMS ANY SUCH INTER EST AS DEDUCTION IN THEIR BOOKS OF ACCOUNT THE ONUS ALWAYS WILL BE ON THE ASSESSEE TO SATISFY THE ASSESSING OFFICER THAT WHAT EVER LOANS WERE RAISED BY THE ASSESSEE WERE FOR THE PURPOSE OF BUSI NESS. IF IN THE PROCESS OF EXAMINATION OF GENUINENESS OF SUCH DEDUC TION, IT TRANSPIRES THAT THE ASSESSEE HAS ADVANCED CERTAIN F UNDS TO SISTER CONCERNS CHARGING NO INTEREST, THERE WOULD BE A VER Y HEAVY ONUS ON THE ASSESSEE TO DISCHARGE BEFORE THE ASSESSING O FFICER TO THE EFFECT THAT IN SPITE OF OUTSTANDING LOANS ON WHICH THE ASSESSEE IS INCURRING LIABILITY TO PAY INTEREST, THERE WAS NO J USTIFICATION TO ADVANCE THE LOANS TO SISTER CONCERNS FOR NON-BUSINE SS PURPOSES WITHOUT CHARGING ANY INTEREST. ACCORDINGLY, THERE IS NO MERIT IN THE PLEA OF THE ASSESSEE THAT THE ENTIRE INTEREST P AID ON BORROWING HAS TO BE ALLOWED. 59. ENTIRE MONEY IN A BUSINESS ENTITY COMES IN A COMMON KITTY. THE MONIES RECEIVED AS SHARE CAPITAL, AS TERM LOAN, AS WORKING CAPITAL LOAN, AS SALE PROCEEDS ETC. DO NOT HAVE ANY DIFFERENT COLOUR. WHATEVER ARE THE RECEIPTS IN THE BUSINESS, THAT HAV E THE COLOUR OF BUSINESS RECEIPTS AND HAVE NO SEPARATE IDENTIFICATI ON. THE ONLY THING SUFFICIENT TO DISALLOW THE INTEREST PAID ON T HE BORROWING TO THE EXTENT THE AMOUNT IS LENT TO SISTER CONCERN WIT HOUT CARRYING ANY INTEREST FOR NON-BUSINESS PURPOSES WOULD BE THA T THE ASSESSEE HAS SOME LOANS OR OTHER INTEREST BEARING DEBTS TO B E REPAID. IN CASE THE ASSESSEE HAD SOME SURPLUS AMOUNT WHICH, AC CORDING TO IT, COULD NOT BE REPAID PREMATURELY TO ANY FINANCIA L INSTITUTION, STILL THE SAME IS EITHER REQUIRED TO BE CIRCULATED AND UTILISED FOR THE PURPOSE OF BUSINESS OR TO BE INVESTED IN A MANNER I N WHICH IT GENERATES INCOME AND NOT THAT IT IS DIVERTED TOWARD S SISTER CONCERN FREE OF INTEREST. THIS WOULD RESULT IN NOT PRESENTI NG TRUE AND CORRECT PICTURE OF THE ACCOUNTS OF THE ASSESSEE AS AT THE COST BEING IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 33 INCURRED BY THE ASSESSEE, THE SISTER CONCERN WOULD BE ENJOYING THE BENEFITS THEREOF. IT CANNOT POSSIBLY BE HELD THAT T HE FUNDS TO THE EXTENT DIVERTED TO SISTER CONCERNS OR OTHER PERSONS FREE OF INTEREST WERE REQUIRED BY THE ASSESSEE FOR THE PURPOSE OF IT S BUSINESS AND LOANS TO THAT EXTENT WERE REQUIRED TO BE RAISED. WE DO NOT SUBSCRIBE TO THE THEORY OF DIRECT NEXUS OF THE FUND S BETWEEN BORROWINGS OF THE FUNDS AND DIVERSION THEREOF FOR N ON-BUSINESS PURPOSES. RATHER, THERE SHOULD BE NEXUS OF USE OF B ORROWED FUNDS FOR THE PURPOSE OF BUSINESS TO CLAIM DEDUCTION UNDE R SECTION 36(1)(III) OF THE ACT. THAT BEING THE POSITION, THE RE IS NO ESCAPE FROM THE FINDING THAT INTEREST BEING PAID BY THE AS SESSEE TO THE EXTENT THE AMOUNTS ARE DIVERTED TO SISTER CONCERN O N INTEREST FREE BASIS ARE TO BE DISALLOWED. 60. IF THE PLEA OF THE ASSESSEE IS ACCEPTED THAT THE IN TEREST FREE ADVANCES MADE TO THE SISTER CONCERNS FOR NON-BUSINE SS PURPOSES WAS OUT OF ITS OWN FUNDS IN THE FORM OF CAPITAL INT RODUCED IN BUSINESS, THAT AGAIN WILL SHOW A CAMOUFLAGE BY THE ASSESSEE AS AT THE TIME OF RAISING OF LOAN, THE ASSESSEE WILL SHOW THE FIGURES OF CAPITAL INTRODUCED BY IT AS A MARGIN FOR LOANS BEIN G RAISED AND AFTER THE LOANS ARE RAISED, WHEN SUBSTANTIAL AMOUNT IS DIVERTED TO SISTER CONCERNS FOR NON-BUSINESS PURPOSES WITHOUT I NTEREST, A PLEA WOULD BE RAISED THAT THE AMOUNT ADVANCED WAS OUT OF ITS CAPITAL, WHICH IN FACT STOOD EXHAUSTED IN SETTING UP OF THE UNIT. SUCH A PLEA MAY BE ACCEPTABLE AT A STAGE WHEN NO LOANS HAD BEEN RAISED BY THE ASSESSEE AT THE TIME OF DISBURSEMENT OF FUND S. THIS WOULD DEPEND ON FACTS OF EACH CASE. 61. THE VIEW THAT WHERE THE AMOUNT IS ADVANCED FROM A M IXED ACCOUNT OR SHARE CAPITAL OR SALE PROCEEDS OR PROFIT S, IT WOULD NOT BE DEEMED `AS DIVERSION OF BORROWED CAPITAL OR THAT THE REVENUE HAD NOT BEEN ABLE TO ESTABLISH NEXUS OF THE FUNDS A DVANCED TO THE SISTER CONCERNS WITH THE BORROWED FUNDS IS NOT CORR ECT. ONCE IT IS IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 34 BORNE OUT FROM THE RECORD THAT THE ASSESSEE HAD BOR ROWED CERTAIN FUNDS ON WHICH LIABILITY TO PAY TAX IS BEING INCURR ED AND ON THE OTHER HAND, CERTAIN AMOUNTS HAD BEEN ADVANCED TO SI STER CONCERNS OR OTHERS WITHOUT CARRYING ANY INTEREST AND WITHOUT ANY BUSINESS PURPOSE, THE INTEREST TO THE EXTENT THE ADVANCE HAD BEEN MADE WITHOUT CARRYING ANY INTEREST IS TO BE DISALLOWED U NDER SECTION 36(1)(III) OF THE ACT. 62. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE OPIN ION THAT THERE IS NO MERIT IN THE PLEA OF THE ASSESSEE. THE VARIOUS CASE-LAW RELIED ON BY THE ASSESSEE ARE DELIVERED ON THEIR OW N FACTS AND HAVE NO APPLICATION TO THE FACTS OF THE PRESENT CASE. B EING SO, WE ARE NOT ABLE TO AGREE WITH THE ARGUMENTS OF THE ASSESSE E'S COUNSEL. THE GROUND RAISED BY THE ASSESSEE IS REJECTED. 63. THE FACTS IN THE CASE OF SMT. DEVENDER KAUR BAGGA ( ITA NO. 767/HYD/2007) AND M/S. SREE BALAJI ENTERPRISES (ITA NO. 713/HYD/06) ARE SIMILAR AND INTEREST WAS DISALLOWED FOR DIVERSION OF THE INTEREST BEARING FUNDS TO OTHER SISTER CONCE RNS OF BAGGA GROUP. ACCORDINGLY ON THE SAME REASONS GIVEN IN TH E CASE OF SRI HARMAHENDER SINGH BAGGA IN ITA NO. 271/HYD/06 THE DISALLOWANCE IS CONFIRMED. THIS GROUND IN ALL THE THREE ABOVE APPEALS IS DISMISSED. 64. THE NEXT GROUND IS WITH REGARD TO CONFIRMATION OF A DDITION MADE BY THE ASSESSING OFFICER WITH REGARD TO GIFTS RECEIVED FROM RAJEEV VERMA, NEW DELHI U/S. 68 OF THE ACT IN ITA N O. 271/HYD/06 FOR A.Y. 1999-2000. SIMILAR GROUND WITH REGARD TO ADDITION U/S. 68 IS IN ITA NO. 710/HYD/06 (SRI BALW INDER SINGH BAGGA), ITA NO. 709/HYD/06 (SMT. INDERJEET KAUR BAG GA) AND IT(SS)A NO. 50/HYD/05 (SRI SATPAL SINGH BAGGA). IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 35 65. BRIEF FACTS OF THE ISSUE AS IN ITA NO. 271/HYD/06 A RE THAT IN THIS CASE THE ASSESSEE WAS SAID TO HAVE RECEIVED A GIFT OF RS. 25 LAKHS FROM SRI RAJEEV VERMA, NEW DELHI THROUGH BANK DRAFT ON 24.3.1999. THE ASSESSEE WAS ASKED TO FURNISH DETAI LED ADDRESS OF THE DONOR ALONG WITH HIS PAN AND EVIDENCE OF HIS CR EDITWORTHINESS TO ADVANCE THE SAID AMOUNT. THE ASSESSEE FILED A L ETTER DATED 24.3.1999 SRI RAJEEV VERMA, NEW DELHI ADDRESSED TO THE ASSESSEE STATING THAT THE AMOUNT WAS SENT BY BANK DRAFT AS G IFT FOR THE BUSINESS NEEDS OF THE ASSESSEE. HOWEVER, THE ASSES SEE COULD NOT FURNISH THE ADDRESS, PAN AND THE EVIDENCE OF CREDIT WORTHINESS OF THE DONOR IN SPITE OF GIVING SEVERAL OPPORTUNITIES BY THE ASSESSING OFFICER. IN VIEW OF THIS, THE ASSESSING OFFICER TR EATED THE GIFT AS NOT GENUINE AND BROUGHT THE AMOUNT TO TAX U/S. 68 OF TH E ACT. EVEN BEFORE THE CIT(A), THE ASSESSEE HAS FAILED TO SUBST ANTIATE HIS CLAIM FOR WHICH THE CIT(A) CONFIRMED THE ORDER OF THE ASS ESSING OFFICER ON THIS ISSUE. AGGRIEVED, THE ASSESSEE IS IN APPEA L BEFORE US. 66. THE ASSESSEE SUBMITTED THAT SRI RAJEEV VERMA, NEW D ELHI IS AN INCOME-TAX ASSESSEE AND HAS CONFIRMED THE GIFT A ND RELATED TO SRI HARMAHENDER SINGH BAGGA. WE HAVE GONE THROUGH THE CONFIRMATION LETTER PRODUCED BY THE ASSESSEE WHICH CONTAINS DATE OF 24.3.1999 WHICH READS AS FOLLOWS: 'RAJEEV VERMA TEL. [phone] A-1/21, JANAKURI FAX. [phone] NEW DELHI-110058 E MAIL. [e-mail] INDIA DATED 24.3.1999 TO MR. HARMAHINDER SINGH BAGGA DOOR NO. 3-5-77, RAJMOHALLA HYDERABAD AS REQUIRED BY YOU, I AM SENDING HEREWITH A BANK DRAFT NO. 078396 DATED 24.03.1999 FOR RS. 25,00,000.00 ( RS TWENTY FIVE LACS ONLY) FOR YOUR BUSINESS NEEDS AS GIFT. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 36 SD/- RAJEEV VERMA' 67. THE ABOVE CONFIRMATION LETTER DOES NOT SHOW ANY INFORMATION ON PAN OR DETAILS OF INCOME-TAX RETURN FILED BY SRI RAJEEV VERMA, NEW DELHI. BEING SO, THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE DETAILS REGARDING CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION. IN VIEW OF THIS, W E ARE INCLINED TO CONFIRM THE ORDER OF THE CIT(A). 67.1 IN THE APPEAL ITA NO. 271/HYD/06 THE ASSESSEE RAISED THE GROUND RELATING TO ISSUE OF NOTICE U/S. 148. HOWEV ER, NO ARGUMENTS WERE PUT BEFORE US. ACCORDINGLY THIS GRO UND IS DISMISSED AS NOT PRESSED. 68. IN ITA NO. 710/HYD/06 (SRI BALWINDER SINGH BAGGA) S IMILAR ADDITION WAS MADE FOR AN AMOUNT OF RS. 20 LAKHS U/S . 68 OF THE ACT. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE CLAIMED THAT HE HAD RECEIVED GIFTS OF RS. 26,42,904 ON THE OCCASION OF HIS MARRIAGE IN OCTOBER, 2001 OUT OF WHICH A SUM OF RS. 23,27,90 4 WAS RECEIVED IN CASH WHILE THE BALANCE AMOUNT OF RS. 3, 15,000 WAS RECEIVED BY CHEQUES. OUT OF THE CASH GIFTS, A SUM OF RS. 22,93,675 WAS DEPOSITED IN HIS BANK ACCOUNT NO. 874 WITH UNIO N BANK OF INDIA ON 31.10.2001. DURING THE ASSESSMENT PROCEED INGS, THE ASSESSEE FILED A LIST OF 937 PERSONS FROM WHOM THE CASH GIFTS WERE RECEIVED ON THE OCCASION OF MARRIAGE. THE ASSESSIN G OFFICER NOTICED THAT THE SAID LIST OF DONEE RUNNING INTO 78 PAGES WAS NOT FOUND DURING SEARCH ON 3.1.2002 AT THE RESIDENTIAL AND BUSINESS PREMISES OF THE ASSESSEE. IT WAS, THUS, EVIDENT TH AT THE LIST WAS PREPARED AFTER THE MARRIAGE AND AFTER THE DATE OF S EARCH. THE ASSESSEE COULD NOT FURNISH THE BASIS/SOURCE FOR PRE PARING THE SAID LIST OF DONEES. HE DID NOT COMPLY WITH THE SUMMONS ISSUED BY THE ASSESSING OFFICER FOR EXAMINATION. ON THESE FACTS AND CIRCUMSTANCES, THE ASSESSING OFFICER CONCLUDED THAT THE SAID LIST OF IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 37 DONEES WAS AN AFTERTHOUGHT AND HAS NO BASIS/SUPPORT ING EVIDENCE. THE ASSESSEE COULD NOT BE EXPECTED TO RE MEMBER SO MANY NAMES WITH AMOUNTS SO METICULOUSLY AS TO MENTI ON THE LAST ONE RUPEE OF THE AMOUNTS RECEIVED AS GIFTS ON HIS M ARRIAGE. THE ASSESSEE COULD NOT PROVE THE IDENTITY, CREDITWORTHI NESS AND THE GENUINENESS OF THE TRANSACTION. HOWEVER, AFTER CON SIDERING THE FINANCIAL AND SOCIAL STATUS OF THE ASSESSEE'S FAMIL Y, THE ASSESSING OFFICER ACCEPTED THE GIFTS OF RS. 3,15,000 RECEIVED BY CHEQUES AND RS. 3,27,904 RECEIVED BY CASH AS GENUINE. THE BALA NCE OF RS. 20 LAKHS WAS TREATED AS UNEXPLAINED AND UNDISCLOSED IN COME OF THE ASSESSEE. 69. DURING THE APPEAL PROCEEDINGS, THE AR SUBMISSION ST ATING THAT THE ASSESSEE IS THE YOUNGEST SON OF SRI HARMAH ENDER SINGH BAGGA WHO WAS IN THE LIQUOR BUSINESS FIELD FOR THE LAST THREE DECADES AND A KNOWN PERSONALITY. THE GIFTS RECEIVE D ON THE OCCASION OF MARRIAGE WERE RECORDED IN A REGISTER BY THE STAFF OF BAGGA GROUP. IT WAS FURTHER SUBMITTED THAT GIFTS R ECEIVED FROM TOP BUREAUCRATS, BUSINESSMEN AND INDUSTRIALISTS COULD N OT BE PROVED BY FILING THEIR CONFIRMATION LETTERS SINCE THE GIFT S WERE TO THE TUNE OF RS. 5,000 TO RS. 10,000. 70. ON APPEAL, THE CIT(A) OBSERVED THAT IT IS NOT BELI EVABLE THAT THE ASSESSEE H AS RECEIVED GIFTS OF RS. 26,42,904 A ND SPENDING MARRIAGE EXPENSES OF RS. 29,56,630. BEING SO, HE W AS OF THE OPINION THAT IN ALL PROBABILITIES THE GIFTS MAY BE GENUINE TO THE TUNE OF RS. 6,42,904 AND SUSTAINED THE ADDITION MAD E BY THE ASSESSING OFFICER AT RS. 20 LAKHS. AGAINST THIS TH E ASSESSEE IS IN APPEAL BEFORE US. 71. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND PE RUSED THE MATERIAL ON RECORD. THE ASSESSEE FILED A PAPER BOOK (18 TO 93 PAGES) SHOWING THE NAMES AND DETAILS VARIOUS PARTIE S WHO HAD IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 38 GIVEN GIFTS ON THE OCCASION OF ASSESSEE'S MARRIAGE. THE ASSESSEE ALSO FILED CERTAIN COPIES OF LETTERS AND DDS AND IN MOST OF THE CASE THE ASSESSEE HAS NOT FURNISHED CORRECT DETAILS SUCH AS NAME AND ADDRESS, PAN ETC. OF THE DONE BEING SO, THE IDENTI TY OF THE PARTIES WHO HAD GIVEN SUCH A SUBSTANTIAL AMOUNT AS GIFTS IN THE COURSE OF THE MARRIAGE IS VERY MUCH DOUBTFUL. WE ARE NOT INC LINED TO AGREE WITH THE ARGUMENT OF THE ASSESSEE'S COUNSEL THAT TH E ASSESSEE IS A HIGH STATUS PERSON IN THE SOCIETY AND RECEIVED HEAV Y AMOUNTS AS GIFTS ON THE OCCASION OF HIS MARRIAGE. THE FINDING GIVEN BY THE CIT(A) IS VERY WELL FOUNDED THAT BY INCURRING EXPEN SES OF RS. 29,56,630 TOWARDS MARRIAGE, HE HAS RECEIVED RS. 26, 42,904 AS GIFTS IN THE COURSE OF HIS MARRIAGE AS BASELESS. C ONSIDERING THE FACTS OF THE CASE AND HUMAN PROBABILITY, WE CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE AND DISMISS THE GROUND TAK EN BY THE ASSESSEE. 72. IN ITA NO. 709/HYD/06 IN THE CASE OF SMT. INDERJEET KAUR BAGGA, THE ASSESSEE IS IN RECEIPT OF RS. 25 LAKHS F ROM HER MOTHER SMT. RAM PYARI ON 25.11.1998. IT WAS SAID THAT SMT . RAM PYARI RECEIVED THIS AMOUNT FROM M/S. INTRAPORT INDIA LTD. , NEW DELHI BY DRAFT WHICH WAS DEPOSITED IN HER SB ACCOUNT 2393 IN SYNDICATE BANK, HYDERABAD. FROM THIS SHE HAS GIVEN A GIFT OF RS. 25 LAKHS TO HER DAUGHTER. THIS WAS REJECTED BY THE LOWER AU THORITIES. 73. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE DONOR SM T. RAM PYARI WAS NEVER ASSESSED TO TAX. HER BANK ACCOUNT WITH S YNDICATE BANK CLEARLY SHOWS THAT AT NO POINT OF TIME SINCE OPENIN G OF THE ACCOUNT IN JULY, 1994, ANY SUBSTANTIAL BALANCE WAS MAINTAIN ED THEREIN, THE MAXIMUM BALANCE BEING RS. 7,400. OCCASIONALLY, SUBSTANTIAL CASH AMOUNTS WERE DEPOSITED IN THE SAID ACCOUNT; WH ICH WERE IMMEDIATELY TRANSFERRED TO VARIOUS CONCERNS OF THE BAGGA GROUP. THE FATHER AND BROTHER OF THE DONOR, WHO WERE ALLEG ED TO HAVE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 39 DEPOSITED THE SUM OF RS. 25 LAKHS WITH M/S. INTRAPORT LTD. WERE ALSO NEVER ASSESSED TO TAX. IT IS PERTINENT TO MENT ION HERE THAT M/S. INTRAPORT LTD. WAS A GROUP CONCERN OF THE BAGG A GROUP ONLY AND A LOSS RETURN WAS FILED FOR ASST. YEAR 1999-200 0. THERE IS NO EVIDENCE ON RECORD THAT THE FATHER AND BROTHER OF T HE DONOR MADE ANY DEPOSIT WITH THE SAID COMPANY. IN FACT, DURING THE COURSE OF APPEAL PROCEEDINGS, VIDE ORDER SHEET NOTING DATED 2 1.02.2006, THE AR WAS ASKED TO FILE THE BALANCE SHEET OF M/S. INTR APORT LTD., AS ON 31.3.1997 AND 31.3.1998 SHOWING THE CREDIT BALAN CES IN THE NAME OF EITHER SRI MALAK SINGH KANUJA OR SRI NAREND ER SINGH. HE WAS ALSO ASKED TO PRODUCE THE BANK ACCOUNT OF M/S. INTRAPORT LTD., TO SHOW THAT THE ALLEGED DRAFT OF RS. 25 LAKH S WAS ISSUED TO THE DONOR FROM THE BANK ACCOUNT OF THE COMPANY. HO WEVER, THESE DETAILS COULD NOT BE FILED BY THE ASSESSEE TILL DAT E. IT IS ALSO STRANGE THAT THE ALLEGED DEPOSITS MADE BY THE FATHE R AND BROTHER OF THE DONOR WITH M/S. INTRAPORT INDIA LTD., BEFORE 19 89 WERE LYING AS SUCH WITH THE COMPANY AND WAS SUDDENLY RETURNED TO THE DONOR AND NOT TO OTHER LEGAL HEIRS. 74. FURTHER THOUGH THE ASSESSEE HAS PROVED THE IDENTIT Y OF THE PARTY, THE FLOW OF FUNDS TO DONOR SMT. RAM PYARI IS NOT EXPLAINED WITH CORROBORATIVE EVIDENCE. BEING SO NOTHING PROV ES THE GENUINENESS OF THE TRANSACTION WITHOUT PRODUCING TH E REQUISITE BANK ACCOUNT OF M/S. INTRAPORT LTD. AND THE FINANCI AL STATUS OF M/S. INTRAPORT ALSO NOT SUBMITTED. ACCORDINGLY, WE ARE IN FULL AGREEMENT WITH THE ORDER OF THE CIT(A) AND CONFIRM THE SAME. 74.1 THE ISSUE RELATING TO REOPENING OF ASSESSMENT U/S. 147 IS NOT ARGUED BY THE AR BEFORE US IN ITA NO. 709/HYD/0 6. ACCORDINGLY THE SAME IS DISMISSED AS NOT PRESSED. 75. IN IT(SS)A NO. 50/HYD/05 IN THE CASE OF SRI SATPA L SINGH BAGGA, THERE IS AN ADDITION OF RS. 5,20,380 RECEIVE D FROM SRI IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 40 GURUMEET AJIT SINGH RAJPAL OF DUBAI AND THE SAME WA S DEPOSITED IN HIS ACCOUNT IN SYNDICATE BANK OF INDIA. THE ASS ESSEE HAD NOT PRODUCED ANY SUPPORTING EVIDENCE AND FAILED TO SUBS TANTIATE HIS CLAIM. THOUGH THE ASSESSEE PLEADED THAT THIS IS A GENUINE GIFT, IT WAS NOT DISCLOSED IN THE REGULAR RETURN OF INCOME. BEING SO, IN OUR OPINION, THE CIT(A) IS JUSTIFIED IN TREATING THE SA ME AS UNDISCLOSED INCOME OF THE ASSESSEE AND THE SAME IS CONFIRMED. THIS GROUND IN ALL THE ABOVE APPEALS IS DISMISSED. 76. THE NEXT GROUND FOR OUR CONSIDERATION IN IT(SS)A 1/ HYD/05 (DEPT. APPEAL IN THE CASE OF SRI BALWINDER SINGH BA GGA), IS WITH REGARD TO DELETION OF ADDITION OF INCOME DISCLOSED IN THE RETURN OF INCOME FILED FOR A.YS. 1996-97 AND 1997-98, WHICH W ERE TREATED AS NON-EST AND THE INCOME DISCLOSED IN THE RETURN OF I NCOME FILED BY THE ASSESSEE BELATEDLY BUT BEFORE THE DATE OF SEARC H HAS TO BE CONSIDERED AS UNDISCLOSED INCOME OF THE ASSESSEE. 77. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND PE RUSED THE MATERIAL ON RECORD. IN THIS CASE THE ASSESSEE FILED RETURN OF INCOME BELATEDLY BEFORE THE DATE OF SEARCH CONDUCTE D ON 3.1.2002 AND INCOME DISCLOSED THEREIN CANNOT BE CONSIDERED A S UNDISCLOSED INCOME AS HELD BY THE TRIBUNAL IN THE CASE OF J.K. NARAYANAN HUF VS. ACIT (242 ITR 45 (AT) (CHENNAI). THIS DECISION HAS BEEN CONFIRMED BY THE MADRAS HIGH COURT REPORTED IN 293 ITR 179. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE CIT(A) ON THIS ISSUE. THE SAME IS CONFIRMED. THIS GROUND OF THE REVENUE IS DISMISSED. 78. THE NEXT GROUND FOR OUR CONSIDERATION IN IT(SS)A 1/ HYD/05 (DEPT. APPEAL IN THE CASE OF SRI BALWINDER SINGH BA GGA) IS THAT THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF INTERE ST CLAIMED BY THE ASSESSEE PAID TO M/S. INTRAPORT INDIA LTD. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 41 79. BRIEF FACTS OF THE ISSUE ARE THAT INTEREST OF RS. 1,07,51,483 FOR A.Y. 2001-02 AND RS. 1,01,53,921 FOR THE PERIOD 1.4.2001 TO 3.1.2002 TOTALLING TO RS. 2,09,05,404 WAS PAID TO M /S. INTRAPORT INDIA LTD., FROM THE BOOKS OF M/S. SRI RAM LAKSHMAN MARKETING AGENCIES, A PROPRIETARY CONCERN OF THE ASSESSEE. T HE PROPRIETARY CONCERN WAS INITIALLY CONSTITUTED AS A PARTNERSHIP FIRM UNDER A DEED OF PARTNERSHIP EXECUTED ON 23.3.1999 WITH THE FOLLOWING PARTNERS: 1. SRI BALVINDER SINGH BAGGA 2. SRI RANBIR SINGH BAGGA 3. MRS. GURLIN KAUR 4. MRS. SARBJIT KAUR 80. ON 11.09.2000 , THE FIRM WAS DISSOLVED AND THE ASSESSEE SRI BALWINDER SINGH BAGGA BECAME THE SOLE PROPRIETOR WI TH RETROSPECTIVE EFFECT FROM 01.04.2000. THE PARTNERSH IP FIRM ENTERED INTO A MARKETING AGREEMENT WITH M/S. INTRAPORT INDI A LIMITED FOR SALE OF SNOW BURY BEER MANUFACTURED BY THE COMPANY IN ENTIRE SOUTH INDIA BY VIRTUE OF AGREEMENT DATED 28.5.1999. THOUGH THE AGREEMENT STATES THAT THE COMPANY SHALL PROVIDE NON REFUNDABLE INTEREST-FREE DEPOSIT OF RS. 3 CRORES, IT ACTUALLY GAVE DEPOSITS OF RS. 4,47,97,000 DURING THE PERIOD FROM 1.4.1999 TO 31.3 .2000. SINCE THE COMPANY COULD NOT SUPPLY THE STOCK OF BEER FOR SALE BY THE FIRM, THE MARKETING AGREEMENT COULD NOT BE IMPLEMEN TED. THE COMPANY VIDE ITS LETTERS DATED 13.11.2000, 05.03.20 01 AND 31.03.2001 REQUESTED THE ASSESSEE TO REFUND THE DEP OSIT ALONG WITH INTEREST AT THE RATE OF 24 % PER ANNUM. THE COMPANY ALSO RAISED DEBIT NOTES FOR A SUM OF RS. 1,07,51,483 FOR ASSESSMENT YEAR 2001-02 AND RS. 1,01,53,921 FOR ASSESSMENT YEA R 2002-03 BEING INTEREST DUE AT THE RATE OF 24% PER ANNUM ON THE DEPOSITED AMOUNT. ACCORDINGLY, THE LEDGER ACCOUNT OF THE COMP ANY WAS CREDITED BY INTEREST AMOUNT IN THE BOOKS OF M/S. RA MLAKSHMAN MARKETING AGENCIES. LIKEWISE THE COMPANY ALSO DEBIT ED THE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 42 ACCOUNT OF M/S. RAMLAKSHMAN MARKETING AGENCIES BY I NTEREST AMOUNT IN ITS BOOKS. THE TAX AUDIT REPORTS IN FORM NO. 3CB AND 3CD FOR THE ASSESSMENT YEAR 2001-02 IN RESPECT OF P ROPRIETARY CONCERN M/S. SRI RAMLAKSHMAN MARKETING AGENCIES WER E FILED ON 31.10.2011. THE RETURN OF INCOME FOR THE ASSESSMEN T YEAR 2001- 02 WAS FILED ON 28.3.2002 DECLARING AN INCOME OF RS . 21,64,882. IN THE PROFIT AND LOSS ACCOUNT, THE INTEREST OF RS. 1,07,51,483 PAID TO M/S. INTRAPORT INDIA LIMITED WAS DEBITED. THE RE TURN OF INCOME FOR THE ASSESSMENT YEAR 2002-03 WAS FILED ON 31.10. 2001. M/S. INTRAPORT INDIA LTD., FILED ITS RETURN OF INCOME FO R THE ASSESSMENT YEAR 2001-02 ON 31.10.2001 AND FOR ASSESSMENT YEAR 2002-03 ON 31.10.2002, SHOWING BROUGHT FORWARD BUSINESS LOSS A ND UNABSORBED DEPRECIATION OF RS. 13.01 CRORES. THE AS SESSING OFFICER HAS DISALLOWED THE INTEREST PAYMENT BY GIVING THE F OLLOWING REASONS: A. THE AGREEMENT DATED 28.5.1999 BETWEEN M/S. INTRAPORT INDIA LIMITED AND M/S. SRI RAMLAKSHMAN MARKETING AGENCIES PROVIDED THAT THE COMPANY SHALL DEPOSIT NON-REFUNDABLE INTEREST-FREE ADVANCE OF RS. 3 CRORES. THEREFORE, THE QUESTION OF CLAIMING THE INT EREST PAYMENT DOES NOT ARISE. B. SINCE M/S. INTRAPORT INDIA LIMITED FAILED TO PROVID E STOCKS OF BEER FOR SALE IN THE MARKET, THE PROPRIET ARY CONCERN M/S. SRI RAMLAKSHMAN MARKETING AGENCIES VIDE ITS LETTERS DATED 29.06.2000, 08.09.2000 AND 20.02.2001 STATED THAT IN THE ABSENCE OF FULFILMENT OF COMMITMENT, THE ENTIRE INTEREST DEPOSITED SHALL BE FORFEITED AS IT HAS INCURRED LOT OF EXPENDITURE ON INFRASTRUCTURE AS WELL AS PROMOTIONAL ACTIVITIES. C. NO INTEREST WAS PROVIDED DURING 1999-2000 WHEN THE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 43 DEPOSITS TO THE TUNE OF RS. 4,47,97,000 WERE RECEIV ED FROM M/S. INTRAPORT INDIA LIMITED. THE INTEREST WAS PROVIDED IN SUBSEQUENT TWO YEARS NAMELY ASSESSMENT YEARS 2001-02 AND 2002-03 WHEN THE COMPANY WAS TAKEN OVER BY SRI HARMAHENDER SINGH BAGGA, FATHER O F THE APPELLANT. THE REGISTERED OFFICE OF THE COMPANY WAS SHIFTED TO 5-189, GREATER KAILASH, NEW DELHI, T HE PREMISES OWNED BY SRI HARMAHENDER SINGH BAQQA. THE INTEREST WAS SHOWN PAYABLE IN ORDER TO REDUCE TAXABLE LIABILITY IN THE CASE OF M/S. SRI RAMLAKSHM AN MARKETING AGENCIES AS THE COMPANY WAS SHOWING HUGE BROUGHT FORWARD LOSSES. D. THE DECISION TO CREDIT INTEREST IN THE ACCOUNT OF M /S. INTRAPORT INDIA LIMITED WAS TAKEN AFTER TAKING OVER THE COMPANY BY THE BAGGA GROUP ON 1.11.2001. 81. ON APPEAL THE CIT(A) DELETED THE ADDITION. AGAINST THIS, THE DEPARTMENT IS IN APPEAL BEFORE US. 82. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE FINDING S OF THE CIT(A). AFTER CAREFUL CONSIDERATION OF THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE INTEREST PAYMENT IN TH E BLOCK PERIOD. THE TAX AUDIT REPORT OF M/S, SRI RAMLAKSHMAN MARKET ING AGENCIES FOR ASSESSMENT YEAR 2001-02 WAS FILED ON 31.10.2001 MUCH BEFORE THE SEARCH CONDUCTED ON 03.01.2002. SIMILARLY, THE TAX AUDIT REPORT FOR ASSESSMENT YEAR 2002-03 WAS ALSO FILED W ITHIN THE TIME LIMIT PRESCRIBED UNDER THE LAW. M/S. INTRAPORT IND IA LIMITED ALSO FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2001 -02 ON 31.10.01 MUCH BEFORE THE SEARCH CONDUCTED ON 03.01.2002. TH EREFORE, THE ENTIRE TRANSACTIONS RELATING TO PAYMENT OF INTEREST BY M/S. SRI IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 44 RAMLAKSHMAN MARKETING AGENCIES WERE AVAILABLE WITH THE ASSESSING OFFICER MUCH BEFORE THE SEARCH CONDUCTED IN BAGGA GROUP OF CASES ON 03.01.2002, IT IS WELL ESTABLISHE D LAW BY NOW THAT THE REGULAR ASSESSMENT AND BLOCK ASSESSMENT OP ERATE SIMULTANEOUSLY ON DIFFERENT FIELDS. BUT ONE DOES NO T PRECLUDE THE OTHER. THIS PREPOSITION IS SUPPORTED BY THE DECISIO N OF THE GUJARAT HIGH COURT IN N.R. PAPER AND BOARD LIMITED VS. DCIT (234 ITR 711), CIT VS. SHAMBHULAL C. BACHKANIWALA (245 ITR 4 88); OF THE MUMBAI HIGH COURT IN CALTRADEO STEEL SALES (P) LIMI TED AND OTHERS VS. DCIT (243 ITR 643) AND OF THE KERALA HIG H COURT IN MALALYIL BANKERS VS. ACIT (236 ITR 869). IT IS ALS O ESTABLISHED LAW THAT THE TRANSACTIONS ENTERED IN THE REGULAR BOOKS OF ACCOUNT HAVE TO BE ENQUIRED INTO ONLY IN THE REGULAR ASSESSMENT, UNLESS THERE IS SOME INCRIMINATING MATERIAL LOCATED DURING SEARCH W HICH HAS BEARING ON THE DISCLOSED TRANSACTIONS. IN THE PRES ENT CASE, THE ACTION U/S. 158BD WAS INITIATED WITH A VIEW TO BRIN G TO TAX DEPOSIT OF RS. 48.50 LAKHS MADE WITH M/S. SHAW WALLACE AND COMPANY LTD., BUT NO SUCH ADDITION HAS BEEN MADE IN THE BLO CK ASSESSMENT. 83. THIS VIEW IS SUPPORTED BY THE JUDGEMENT OF DELHI HI GH COURT IN THE CASE OF CIT VS. RAVIKANT JAIN (250 ITR 141). ACCORDINGLY, THE DELETION OF ADDITION BY THE CIT(A) IS JUSTIFIED . IT(SS)A NO. 1/HYD/05 (DEPARTMENT) IS DISMISSED. 84. THE NEXT GROUND IN ITA NO. 710/HYD/06 (ASSESSEE), I TA NO. 766/HYD/07 (ASSESSEE), ITA NO. 1486/HYD/08 (DEPARTM ENT), ITA NO. 707/HYD/06 (DEPARTMENT), ITA NO. 847/HYD/08 (AS SESSEE) AND ITA NO. 947/HYD/08 IS WITH REGARD TO DISALLOWAN CE OF BUSINESS EXPENDITURE. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 45 85. FIRST WE WILL TAKE UP ITA NO. 710/HYD/06 IN THE CAS E OF SRI BALWINDER SINGH BAGGA. IN THIS CASE THE ASSESSEE D ISALLOWED THE FOLLOWING EXPENSES. I) SALARY AND WAGES - RS. 10,35,801 II) SALES PROMOTION EXPENSES - RS. 33,50,000 III) BUSINESS PROMOTION EXPENSES - RS. 1,36,399 86. THE LEARNED AR SUBMITTED THAT THIS ISSUE CAME BEFOR E THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 288/HYD/ 02 FOR A.Y. 2001-02. THE TRIBUNAL VIDE ORDER DATED 7 TH AUGUST, 2007 DECIDED THE ISSUE DISALLOWING ONLY 10% OF THE EXPENSES AS C LAIMED BY THE ASSESSEE ON THE REASON THAT DETAILS OF EXPENSES WER E NOT PRODUCED. THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A). 87. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THIS ASSESSMENT YEAR THE ASSESSEE'S MAI N INCOME IS FROM INTEREST INCOME AND NO OTHER INCOME. THE SAME FACT WAS CONSIDERED BY THE TRIBUNAL ON EARLIER OCCASION AND DISALLOWED 10% OF THE EXPENSES. ON SIMILAR LINE, WE DIRECT THE AS SESSING OFFICER TO DISALLOW 10% OF THE EXPENSES CLAIMED BY THE ASSESSE E. THIS GROUND IS PARTLY ALLOWED. 88. IN ITA NO. 766/HYD/07 ALSO THE FACTS AND CIRCUMSTAN CES ARE SIMILAR TO THAT OF ITA NO. 710/HYD/06. AS DECIDED ABOVE, WE DIRECT THE ASSESSING OFFICER TO DISALLOW ONLY 10% O F THE EXPENSES IN THIS CASE ALSO. 89. IN ITA NO. 1486/HYD/08 (DEPARTMENT) IN THE CASE OF SMT. PARNEETH KAUR BAGGA, THE DEPARTMENT RAISED THE GROU ND WITH REGARD TO RESTRICTING THE DISALLOWANCE TO THE EXTEN T OF 15%. IN THIS CASE THE ASSESSEE CLAIMED AN EXPENDITURE OF RS. 4,9 2,10,205 TOWARDS SALES PROMOTION EXPENSES. THE ASSESSING OF FICER IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 46 DISALLOWED RS. 2 CRORES OUT OF THE SAME ON THE REAS ON THAT THE ASSESSEE HAS NOT PRODUCED DETAILED INFORMATION IN S UPPORT OF THE EXPENDITURE INCURRED TOWARDS SALES PROMOTION AND NO T PRODUCED DOCUMENTARY EVIDENCE WITH REGARD TO PURCHASE OF ART ICLES WITH RECONCILIATION, NOT FURNISHED DETAILS IN INCREASE O F MARKETABILITY OF PRODUCTS OF M/S. SHAW WALLACE & CO., BY INCURRING T HIS EXPENDITURE. ON APPEAL, THE CIT(A) RESTRICTED THE DISALLOWANCE TO 15% OF THE EXPENDITURE. AGAINST THIS THE REVENUE I S IN APPEAL BEFORE US. 90. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. RESTRICTING THE DISALLOWANCE TO 15% OF TH E EXPENSES BY THE CIT(A) ON THE DISCREPANCIES NOTICED BY THE ASSE SSING OFFICER IS JUSTIFIED. WE ARE NOT INCLINED TO INTERFERE WITH T HE ORDER OF THE CIT(A) AND THE SAME IS CONFIRMED. 91. THE NEXT ISSUE IN ITA NO. 847/HYD/08 IN THE CASE OF M/S. SREE BALAJI ENTERPRISES IS WITH REGARD TO SUSTAININ G OF 50% OF BUSINESS PROMOTION EXPENSES OUT OF RS. 1,65,78,493. THIS ISSUE IS SIMILAR TO ONE CONSIDERED IN ITA NO. 710/HYD/06. A CCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALL OWANCE TO 10% OF THE EXPENSES CLAIMED BY THE ASSESSEE. 92. THE NEXT GROUND IN ITA NO. 947/HYD/08 IS THAT THE DEPARTMENT IS IN APPEAL FOR SUSTAINING THE DISALLOW ANCE AT 50% OF THE EXPENSES TOWARDS SALES PROMOTION. THIS GROUND IS INFRUCTUOUS AS IN ITA NO. 847/HYD/08. WE DIRECT THE ASSESSING OFFICER TO DISALLOW 10% OF THE EXPENSES. 93. THE NEXT COMMON ISSUE IN ITA NO. 710/HYD/06, ITA N O. 766/HYD/07 AND ITA NO. 904/HYD/08 (ASSESSEE'S APPEA LS IN CASE OF SRI BALWINDER SINGH BAGGA) IS THAT THE CIT(A) ER RED IN CONFIRMING THE ADDITION TOWARDS INTEREST DEBITED TO THE PROFIT AND LOSS A/C. WHICH IS PAYABLE TO M/S. INTRAPORT INDIA LTD. THERE IS IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 47 ALSO ENHANCEMENT OF INTEREST DISALLOWANCE IN A.Y. 2 002-03 IN ITA NO. 710/HYD/06. THE ASSESSEE FILED ADDITIONAL EVID ENCE AND ALSO PETITION FOR ADMITTING ADDITIONAL EVIDENCE. THE AD DITIONAL EVIDENCE HEREIN CONTAINS THE BALANCE SHEET, PROFIT AND LOSS A/C. AND OTHER RELEVANT DETAILS OF M/S. INTRAPORT INDIA LTD. ACCO RDINGLY, THE ADDITIONAL EVIDENCE IS ADMITTED FOR THE PURPOSE OF ADJUDICATION. 94. COMING TO THE ISSUE IN ASSESSEES APPEAL, BRIEF FAC TS OF THE ISSUE AS IN ITA NO. 710/HYD/06 FOR A.Y. 2002-03 ARE THAT THE ASSESSEE SHOWN AN INTEREST PAYMENT OF RS. 1,33,30,9 95 AS PAYABLE TO M/S. INTRAPORT INDIA LTD. IN THE PROPRIETARY CON CERN OF THE ASSESSEE M/S. RAMLAKSHMAN MARKETING AGENCIES. THE INTEREST PAYABLE FOR THE PERIOD FROM 1.4.2001 TO 3.1.2002 AM OUNTING TO RS. 1,01,53,921 WAS DISALLOWED IN THE BLOCK ASSESSMENT ORDER DATED 30.1.2004 FOR THE FOLLOWING REASONS: 95. DURING THE APPEAL PROCEEDINGS, IT WAS NOTICED THAT INTEREST OF RS. 1,33,30,995 WAS SHOWN AS PAYABLE TO M/S. INT RAPORT INDIA LTD., IN THE BOOKS OF THE ASSESSEE'S PROPRIETARY CO NCERN M/S. RAMLAKSHMAN MARKETING AGENCY. THE INTEREST PAYABLE FOR THE PERIOD FROM 01.04.2001 TO 03.01.2002 AMOUNTING TO R S. 1,01,53,921 WAS DISALLOWED IN THE BLOCK ASSESSMENT ORDER DATED. 30.01.2004 FOR THE FOLLOWING REASONS: 96. M/S. RAMLAKSHMAN MARKETING AGENCIES ENTERED INTO A MARKETING AGREEMENT DATED 28.5.1999 WITH M/S. INTRA PORT INDIA LTD. FOR SALE OF THEIR PRODUCT SNOW BURGE BEER. AS PER THE AGREEMENT THE COMPANY WAS TO PROVIDE NON-REFUNDABLE INTEREST FREE DEPOSIT TO THE ASSESSEE. NO INTEREST WAS PAID/ CREDITED TO M/S INTRAPORT INDIA LTD., DURING FY 1999-2000. THE SEIZ ED DOCUMENT NOS. 191 & 192 OF ANNEXURE-A/GD/PO/1 WAS WRITTEN BY M/S RAMLAKSHMAN MARKETING AGENCIES TO M/S. INTRAPORT I NDIA LTD., CLAIMING THAT SINCE THE COMPANY FAILED TO SUPPLY TH E BEER AS PER IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 48 AGREEMENT, IT WOULD FORFEIT THE DEPOSITS OF THE COM PANY. IT WAS FURTHER CLAIMED THAT VARIOUS EXPENDITURES HAVE BEEN INCURRED FOR MARKETING THE PRODUCT OF M/S. INTRAPORT INDIA LTD. THE SAID CLAIM WAS DISPUTED BY THE COMPANY WHO MADE A COUNTER CLAI M THAT THE DEPOSITS SHOULD BE REFUNDED ALONG WITH INTEREST @ 2 4% PER ANNUM. HOWEVER, NEITHER THE DEPOSITS WERE REFUNDED NOR THE INTEREST WAS ACTUALLY PAID TO M/S. INTRAPORT INDIA LTD. THIS COMPANY WAS TAKEN OVER BY THE ASSESSEE GROUP ON 17. 11.2001 AND THE REGISTERED OFFICE WAS SHIFTED TO THE FLAT OWNED BY SRI HARMAHENDER SINGH BAGGA SITUATED AT S-189, GREATER KAILASH, NEW DELHI. THEREAFTER, INTEREST ON THE DEPOSITS WA S SHOWN AS PAYABLE TO M/S. INTRAPORT INDIA LTD. DURING THE FY 2000-01 AND 2001-02 (UP TO 03.01.2002), INTEREST OF RS. 1,07,51 ,483 AND RS. 1,01,53,921 WAS SHOWN AS PAYABLE TO M/S. INTRAPORT INDIA LTD. ON THESE FACTS, THE ASSESSING OFFICER CONCLUDED THA T AS PER THE AGREEMENT DATED 28.05.1999 BETWEEN M/S RAMLAKSHMAN MARKETING AGENCIES AND M/S INTRAPORT INDIA LTD. THE DEPOSITS RECEIVED WERE INTEREST FREE. AS ON 31.03.2000, NO INTEREST WAS SHOWN AS PAYABLE BY M/S RAMLAKSHMAN MARKETING AGENC IES NOR WAS SHOWN AS RECEIVABLE BY M/S INTRAPORT INDIA LTD. IN THEIR BOOKS OF ACCOUNTS. ONLY AFTER THE COMPANY WAS TAKEN OVER BY BAGGA GROUP, THE INTEREST WAS SHOWN AS PAYABLE BY M/S. RA MLAKSHMAN MARKETING AGENCIES SINCE THERE WAS A BROUGHT FORWAR D LOSS OF MORE THAN RS. 17 CRORES IN M/S INTRAPORT INDIA LTD. AS O N 31.03.2001. THIS WAS A TAX PLANNING DEVICE BY WHICH M/S. LNTRAP ORT INDIA LTD. WOULD HAVE NO TAX LIABILITY ON THE INTEREST RECEIVA BLE WHILE THE TAX LIABILITY OF M/S RAMLAKSHMAN MARKETING AGENCIES WOU LD BE REDUCED TO THE EXTENT OF INTEREST PAYABLE. THE ASSE SSING OFFICER, THEREFORE, TREATED THE INTEREST PAYABLE TO M/S. INT RAPORT INDIA LTD. AS THE UNDISCLOSED INCOME OF THE BLOCK PERIOD. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 49 97. THE AFORESAID ADDITIONS MADE IN THE BLOCK ASSESSMEN T ORDER WERE DELETED BY THE CIT(A) VIDE ITS ORDER DATED 21. 10.2004 FOR THE REASON THAT THE ENTIRE TRANSACTIONS RELATING TO PAY MENT OF INTEREST WAS AVAILABLE WITH THE ASSESSING OFFICER MUCH BEFOR E THE SEARCH CONDUCTED ON 03.01.2'002. THE QUESTION WHETHER PAYM ENT OF INTEREST IS GENUINE OR NOT, CANNOT BE DECIDED INTO THE BLOCK ASSESSMENT. THE ISSUE AT BEST CAN BE DECIDED IN TH E REGULAR ASSESSMENT. 98. ACCORDINGLY, THE ASSESSEE WAS GIVEN A SHOW CAUSE NO TICE VIDE ORDER SHEET NOTING DATED 27.02.2006 AND THIS O FFICE LETTERS DATED. 04.04.2006 & 10.05.2006 TO EXPLAIN WHY THE I NTEREST OF RS. 1,33,30,995 SHOWN AS PAYABLE TO M/S INTRAPORT INDIA LTD. FOR A.Y. 2002-03 SHOULD NOT BE DISALLOWED FOR THE REASONS GI VEN IN THE BLOCK ASSESSMENT ORDER. THE ASSESSEE VIDE HIS LETT ER FILED ON 08.03.2006 SUBMITTED THAT THE ASSESSEE HAD PROVIDED INTEREST BASED ON THE DEBIT NOTE RAISED BY M/S INTRAPORT IND IA LTD., TOWARDS INTEREST RECEIVED BY IT FROM THE ASSESSEE. NO REPLY WAS GIVEN TO THE SHOW CAUSE NOTICE DATED 10.5.2006. 99. THE CIT(A) WAS NOT CONVINCED WITH THE AFORESAID EXP LANATION OF THE ASSESSEE. THE AGREEMENT DATED 28.05.1999 B ETWEEN M/S. INTRAPORT INDIA LTD. & SRI RAMLAKSHMAN MARKETING AG ENCIES CLEARLY PROVIDED THAT THE DEPOSITS GIVEN TO THE ASS ESSEE WOULD BE INTEREST FREE. THERE IS NO EVIDENCE ON RECORD THAT THE SAID AGREEMENT WAS EVER AMENDED. IT IS ALSO AN UNDISPUT ED FACT THAT NO INTEREST WAS PAID OR SHOWN TO HAVE BEEN PAYABLE FOR THE YEAR ENDED 31.03.2000 WHEN THE DEPOSITS TO THE TUNE OF R S. 4,47,97,000 WERE RECEIVED FROM M/S. INTRAPORT INDIA LTD. THE INTEREST WAS PROVIDED SUBSEQUENTLY ONLY AFTER THE C OMPANY WAS TAKEN OVER BY THE ASSESSEE GROUP KNOWING FULLY WELL THAT THE COMPANY HAD HUGE BROUGHT FORWARD LOSSES AND, THEREF ORE, THE CREDIT OF INTEREST IN THE ACCOUNT OF M/S. INTRAPOR T INDIA LTD. WOULD IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 50 NOT RESULT INTO ANY TAX LIABILITY. ON THE OTHER HAN D, IT WOULD REDUCE THE TAX LIABILITY OF THE ASSESSEE. IT IS, THUS, EVI DENT THAT PROVIDING THE INTEREST TO THE CREDIT OF M/S INTRAPORT INDIA L TD. WAS ONLY AN AFTERTHOUGHT AND A TAX EVASION TECHNIQUE ADOPTED BY THE ASSESSEE WHICH CANNOT BE ALLOWED. HENCE, FOR THE DETAILED R EASONS GIVEN IN THE BLOCK ASSESSMENT ORDER DATED 30.01.2004, THE IN TEREST OF RS. 1,33,30,995 SHOWN AS PAYABLE TO M/S. INTRAPORT INDI A LTD., FOR A.Y. 2002-03 IS DISALLOWED AND INCOME IS ENHANCED TO THA T EXTENT. 100. DURING THE APPEAL PROCEEDINGS, IT WAS INFORMED BY T HE ASSESSING OFFICER VIDE HIS LETTER DATED 17.03.2006 THAT THE ASSESSEE EARNED INTEREST INCOME OF RS. 24,84,822 FR OM M/S SHAW WALLACE DISTILLERIES LTD. FOR THE PERIOD FROM 01.01 .2002 TO 12.02.2002. THE SAME WAS NOT OFFERED FOR TAX IN A. Y. 2002-03. IT WAS OFFERED FOR TAX IN A.Y. 2003-04 ON THE BASIS OF RECEIPT ON 06.08.2002. SINCE THE ASSESSEE IS FOLLOWING THE MER CANTILE SYSTEM OF ACCOUNTING, THE INTEREST OF RS. 24,84,822 WAS TA XABLE IN THE A.Y. 2002-03. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT FOR A.Y. 2003-04 TAXED THIS INTEREST INCOME ON PROT ECTIVE BASIS. IN VIEW OF THIS INFORMATION, AN ENHANCEMENT NOTICE WAS SENT VIDE THIS OFFICE LETTER DATED. 04.04.2006 AND 10.05.2006 ASKI NG THE ASSESSEE TO SHOW CAUSE WHY THE AFORESAID INTEREST INCOME SHO ULD NOT BE TAXED IN THE A.Y. 2002-03. THE ASSESSEE CHOSE NOT TO FILE ANY REPLY TO THE SAID ENHANCEMENT SHOW CAUSE NOTICE. 101. ACCORDINGLY, THE CIT(A) ENHANCED THE INTEREST BY RS . 24,84,822 IN ADDITION TO CONFIRMING THE EARLIER DIS ALLOWANCE BY ASSESSING OFFICER TOTALLING TO RS. 1,58,15,817 (RS. 1,33,30,995 + RS. 24,84,822) ON THE REASON THAT THE ASSESSEE'S SY STEM OF BOOK KEEPING IS MERCANTILE SYSTEM IN RESPECT OF INTEREST RECEIVABLE AND PAYABLE FROM ALL OTHER SOURCES AND INTEREST RECEIVA BLE AT RS. 24,84,822 RECEIVABLE FROM M/S. SHAW WALLACE DISTILL ERIES LTD., FOR IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 51 THE PERIOD FROM 1.1.2002 TO 12.2.2002 IS TAXABLE IN THE A.Y. 2002- 03. 102. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. WE HAVE GONE THROUGH THE BALANCE SHEET, PR OFIT AND LOSS A/C. AND OTHER DETAILS RELATING TO M/S. INTRAPORT I NDIA LTD. FILED BY THE ASSESSEE AS ADDITIONAL EVIDENCE. THE PLEA OF T HE ASSESSEE IS THAT IT WAS PROVIDED IN THE BOOKS OF ACCOUNT OF M/S . INTRAPORT INDIA LTD. AS RECEIVABLE FROM THE ASSESSEE HEREIN. HOWEVER, WE FIND THAT AS PER THE AGREEMENT THE ENTERED BY THE A SSESSEE (RAMLAKSHMAN MARKETING AGENCIES) ON 28.5.1999 WITH M/S. INTRAPORT INDIA LTD. REFLECTS THAT THE AMOUNT ADVAN CED TO THE ASSESSEE WAS FREE OF INTEREST. THE ASSESSEE HAS NO T PRODUCED ANY MATERIAL OR DOCUMENTS TO SUGGEST THAT THE AGREEMENT DATED 28.5.99 WAS AMENDED. BEING SO, WHEN THE DEPOSIT WA S MADE FREE OF INTEREST HOW THE ASSESSEE COULD CLAIM PAYMENT OF INTEREST TO M/S. INTRAPORT INDIA LTD. WITHOUT EVIDENCING BY ANY DOCUMENTARY EVIDENCE. THIS CLAIM OF INTEREST WAS MADE SUBSEQUE NTLY AFTER THE COMPANY WAS TAKEN OVER BY THE ASSESSEE GROUP KNOWIN G FULLY WELL THAT THE COMPANY HAD HUGE BROUGHT FORWARD LOSSES AN D PAYMENT OF INTEREST TO M/S. INTRAPORT INDIA LTD. WOULD NOT CAUSE ANY TAX LIABILITY. BEING SO, THIS IS ONLY AN AFTERTHOUGHT AND MAKE-BELIEVE STORY WHICH CANNOT BE GIVEN CREDIT AT THIS STAGE. ACCORDINGLY, WE ARE IN FULL AGREEMENT WITH THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF INTEREST TO M/S. INTRAPORT INDIA LT D. THIS GROUND IS DISMISSED IN ITA NO. 710/HYD/06. 103. FURTHER REGARDING ENHANCEMENT OF RECEIPT OF INTE REST BY RS. 24,84,822 WHICH IS ACCRUED TO THE ASSESSEE FROM M/S. SHAW WALLACE DISTILLERIES LTD., FOR THE PERIOD 1.1.2002 TO 12.2.2002 AND THIS FALLS UNDER THE A.Y. 2002-03 AND NOT FOR A.Y. 2003-04. IF IT IS OFFERED IN THE NEXT A.Y. 2003-04 SUITABLE RECTIFICA TION ORDER HAS TO BE PASSED BY THE ASSESSING OFFICER. THIS GROUND IS ALSO DISMISSED. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 52 104. CONSEQUENTLY, THE COMMON GROUND ON DISALLOWANCE OF INTEREST IN ASSESSEES APPEALS IN ITA NO. 766/HYD/0 7 AND ITA NO. 904/HYD/08 IS ALSO DISMISSED. 104.1 NO OTHER GROUND IN ITA NO. 766/HYD/07 IS ARG UED BEFORE US. ACCORDINGLY, THE GROUNDS NOT ARGUED BEFORE US HAVE NOT BEEN CONSIDERED FOR ADJUDICATION AND DISMISSED. 105. THE NEXT ISSUE IN DEPARTMENT APPEALS IN ITA NOS. 931/HYD/07, 929/HYD/07, 1481/HYD/08, 1284/HYD/11 IN THE CASE OF SMT. INDERJEET KAUR BAGGA AND DEPARTMENT AP PEALS IN ITA NOS. 928/HYD/07, 930/HYD/07, 1285/HYD/11 AND 1286/H YD/11 IN THE CASE OF SMT. DEVENDER KAUR BAGGA IS WITH REG ARD TO TREATMENT OF LEASE INCOME FROM CINEMA THEATRE CONSI DERED AS INCOME FROM HOUSE PROPERTY INSTEAD OF INCOME FROM O THER SOURCES. ACCORDING TO THE DEPARTMENT, THE INCOME IN THE FORM OF LEASE RENT RECEIVED FROM M/S. MANJU CINEMA IS INCOME FROM OTHE R SOURCES AS THERE IS SPECIFIC PROVISION IN SECTION 56(2)(III) F OR ASSESSING THE SAME AS INCOME FROM OTHER SOURCES. 106. BRIEF FACTS OF THE ISSUE, AS NARRATED IN ITA NO. 93 1/HYD/07, ARE THAT THE ASSESSEE IS A CO-OWNER OF THE PROPERTY M/S MANJU THEATRE ALONG WITH SMT. DEVENDER KAUR BAGGA, ANOTHE R FAMILY MEMBER. RENT RECEIVED FROM THE SAID THEATRE IN RESP ECT OF ASSESSEE'S HALF SHARE IS SHOWN AS RS. 28 LAKHS AND AFTER CLAIMING 30% TOWARDS REPAIRS (RS. 8,40,000) THE ASSESSEE HAS SHOWN INCOME FROM HOUSE PROPERTY FOR RS. 19,60,000. THE A SSESSING OFFICER DID NOT AGREE WITH THE STAND OF THE ASSESSE E THAT THE INCOME HAS TO BE COMPUTED UNDER THE HEAD 'HOUSE PRO PERTY'. THE ASSESSING OFFICER ISSUED A DETAILED LETTER TO THE A SSESSEE ON 31.01.2006 IN WHICH HE SUGGESTED TO ASSESS THE INCO ME UNDER THE HEAD 'OTHER SOURCES'. THE RELEVANT PORTION OF THE S HOW CAUSE LETTER HAS BEEN EXTRACTED BY THE ASSESSING OFFICER IN THE ASSESSMENT IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 53 ORDER PASSED BY HIM. THE ASSESSING OFFICER HAS CITE D THE PROVISIONS OF SECTION 56(2)(III) FOR TAKING THE VIE W THAT THE INCOME IN THE CASE OF THE ASSESSEE HAS TO BE ASSESSED AS ' INCOME FROM OTHER SOURCES'. THE ASSESSING OFFICER HAS FOUND TH AT THE PROPERTY I.E. MANJU THEATRE CONSISTS OF LAND, BUILDING AS WE LL AS PLANT & MACHINERY INCLUDING FURNITURE WHICH WAS PURCHASED F OR A CONSIDERATION OF RS. 3.01 CRORES. IN THE SALE DEED IT WAS CLEARLY MENTIONED THAT THE SAID CONSIDERATION INCLUDED COST OF LAND OF RS. 2.91 CRORES AND COST OF BUILDING AND MACHINERY FOR RS. 10 LAKHS. SINCE SECTION 56(2)(III) PROVIDES THAT WHERE AN ASS ESSEE LETS ON HIRE MACHINERY, PLANT AND FURNITURE AND ALSO BUILDING AN D LETTING OFF THE BUILDING IS INSEPARABLE FROM THE LETTING OFF OF THE SAID MACHINERY, PLANT AND FURNITURE, THE INCOME FROM SUC H LETTING IF IT IS NOT CHARGEABLE TO INCOME UNDER THE HEAD 'PROFITS AND GAINS FROM BUSINESS OR PROFESSION', SHOULD BE ASSESSED UNDER T HE HEAD 'INCOME FROM OTHER SOURCES. SINCE THE ASSESSEE'S C ASE WAS COVERED UNDER THIS SECTION, THE ASSESSING OFFICER ASSESSED THE INCOME UNDER THE HEAD 'OTHER SOURCES'. ON APPEAL, THE CIT( A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE DIRECTING THE ASSES SING OFFICER TO TREAT THE IMPUGNED INCOME AS INCOME FROM HOUSE PROP ERTY INSTEAD OF INCOME FROM OTHER SOURCES. 107. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THIS CASE, THE ASSESSEE LEASED MANJU TH EATRE WHICH CONSISTS OF LAND, BUILDING AND PLANT AND MACHINERY AND ALSO FURNITURE. THE PROVISIONS OF SECTION 56(2)(III) RE ADS AS FOLLOWS: SECTION 56(2) (III) WHERE AN ASSESSEE LETS ON HIRE MACHINERY, PLA NT OR FURNITURE BELONGING TO HIM AND ALSO BUILDINGS, AND THE LETTING OF THE BUILDINGS IS INSEPARABLE FROM THE LE TTING OF THE SAID MACHINERY' PLANT OR FURNITURE, THE INCOME FROM SUCH LETTING, IF IT IS NOT CHARGEABLE TO INCOME- TA X UNDER THE HEAD' PROFITS AND GAINS OF BUSINESS OR PROFESSI ON'. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 54 108. BEING SO, LETTING OF LAND AND BUILDING ALONG WITH T HE PLANT AND MACHINERY FALLS UNDER SPECIFIC PROVISIONS OF SE CTION 56(2)(III) AND THE CIT(A) IS NOT JUSTIFIED IN TREATING THE INC OME FROM THIS PROPERTY AS 'INCOME FROM HOUSE PROPERTY' INSTEAD OF 'INCOME FROM OTHER SOURCES'. ACCORDINGLY, WE ARE INCLINED TO RE VERSE THE FINDINGS OF THE CIT(A) ON THIS ISSUE IN ALL THE ABOVE APPEAL S. THIS GROUND IS ALLOWED IN ALL THESE REVENUE APPEALS. 109. THE NEXT GROUND IN ITA NO. 767/HYD/07 (ASSESSEE'S A PPEAL SMT. DEVENDER KAUR BAGGA) IS WITH REGARD TO DISALLO WANCE OF ELECTRICITY CHARGES. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS THE PROPRIETRESS OF M/S SRI RAMAKRISHNA FINANCIERS. IN THE PROFIT & LOSS ACCOUNT OF THIS CONCERN THE ASSESSEE HAS DEB ITED AN AMOUNT OF RS. 1,08,621 AS ELECTRICITY CHARGES. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE WAS REALIZING INTER EST FROM VARIOUS CONCERNS AND THE INTEREST RECEIPTS WERE IN RESPECT OF DEPOSITS OR ADVANCES GIVEN BY THE ASSESSEE TO CERTAIN CONCERNS OR IN RESPECT OF DEPOSITS MADE IN BANK. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD NO COMMERCIAL ACTIVITY FOR WHICH THE A MOUNT OF ELECTRICITY CHARGES CLAIMED WERE VERY HIGH. THE AS SESSING OFFICER FOUND THAT THE ELECTRICITY CHARGES CLAIMED WAS IN R ESPECT OF CONNECTION INSTALLED AT HOUSE NO. 3-5-115, NARAYANA GUDA, HYDERABAD. THE SAID HOUSE WAS CLAIMED TO BE BELONGI NG TO THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIEW THA T THE ASSESSEE ALONG WITH OTHER FAMILY MEMBERS WERE OCCUPYING THE SAID HOUSE WHO CARRYING ON THEIR BUSINESS IN THE SAID PREMISES , ACCORDINGLY IT WAS NOT NECESSARY FOR THE ASSESSEE TO BEAR THE ENTI RE EXPENDITURE ON ACCOUNT OF ELECTRICITY CONSUMPTION. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE ENTIRE EXPENDITURE COULD NOT BE SAID TO HAVE BEEN INCURRED EXCLUSIVELY FOR THE PURPOSE OF BUSINE SS AND ACCORDINGLY ON ESTIMATE DISALLOWED AN AMOUNT OF RS. 90,000 AS NOT RELATING TO ASSESSEE'S BUSINESS. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 55 110. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE UNDISPUTED FACTS IS THAT THE ONLY INCO ME EARNED BY THE ASSESSEE IS INTEREST ON LOANS AND DEPOSITS IN B ANKS. IT IS ALSO FACT THAT THE PREMISES IN RESPECT OF WHICH ELECTRIC ITY BILL HAS BEEN PAID IS ALSO USED BY OTHER FAMILY MEMBERS WHO CARRY ON BUSINESS IN THEIR NAMES. THE EXPENSES CLAIMED COULD NOT BE C ONSIDERED TO BE FULLY RELATABLE TO BUSINESS CONSIDERING THE NATU RE OF INCOME BUT THE EXPENSES ALSO RELATE TO OTHER FAMILY MEMBERS WH O ARE HAVING SEPARATE BUSINESS AND SEPARATE ENTITIES. ACCORDING LY, THE EXPENSES NOT ONLY APPEAR HIGH FOR THE KIND OF BUSIN ESS THE ASSESSEE 'IS CARRYING ON BUT ALSO THE EXPENSES RELA TE TO OTHER FAMILY MEMBERS WHO RESIDE ALONG WITH THE ASSESSEE. WE ARE OF THE OPINION, THAT THE AFORESAID EXPENSES ARE NOT INCURR ED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE. ACCOR DINGLY, THE DISALLOWANCE CONFIRMED BY THE CIT(A) IS PROPER AND THE SAME IS CONFIRMED. THIS GROUND IS DISMISSED IN ALL THE ABO VE REVENUE APPEALS. 111. THE NEXT GROUND FOR OUR CONSIDERATION IN IT(SS)A NO . 50/ HYD/05 (ASSESSEE'S APPEAL SRI SATPAL SINGH BAGGA) IS WITH REGARD TO CONFIRMING AN ADDITION OF RS. 1,76,310 TOWARDS I NTEREST ACCRUED ON THE BONDS FROM THE DATE OF TRANSFER BY THE DONOR TO THE ASSESSEE. BRIEF FACTS OF THE ISSUE ARE THAT AN AMO UNT OF RS. 1,91,298 BEING INTEREST RECEIVED ON PRE-MATURE ENCA SHMENT OF RESURGENT INDIAN BONDS ON 16.4.2001 WAS NOT DISCLOS ED IN THE RETURN OF INCOME FOR ASSESSMENT YEAR 2002-03. THES E BONDS WORTH US$ 1,00,000 WERE RECEIVED AS GIFT ON 29.11. 2000 FROM ONE SRI GURMEET AJIT SINGH RAJPAL, AN NRI, LEAVING LIVI NG IN DUBAI. THESE BONDS WERE PURCHASED IN AUGUST, 1998 AND WERE HELD BY STATE BANK OF INDIA (MAURITIUS) LTD., IN A FIDUCIAR Y CAPACITY AND TRANSFERRED IN THE NAME OF THE ASSESSEE ON 16.3.200 1. THE BONDS WERE PREMATURELY ENCASHED FOR AN AMOUNT OF RS. 46,4 6,225 ON IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 56 16.4.2001 AND INTEREST RECEIVED ON PREMATURE ENCASH MENT OF BONDS IS AS UNDER: (A) INTEREST ACCRUED ON THE BONDS FROM THE DATE OF ISSUE OF THE BONDS TILL DATE OF TRANSFER 14,988.00 (B) INTEREST ACCRUED ON THE BONDS FROM THE DATE OF TRANSFER IN THE NAME OF THE DONE TILL THE DATE OF PRE-MATURITY. 1,76,310.00 TOTAL 1,91,298.00 112. OUT OF TOTAL INTEREST OF RS. 1,91,298 INTEREST ACCR UED FROM DATE OF ISSUE OF THE BONDS TO THE DATE OF TRANSFER IS RS. 14,988 WHICH IS NOT TAXABLE IN THE HANDS OF DONE AS THE SA ME ACCRUED TO THE DONOR AND THE DONOR TOGETHER WITH ACCRUED INTER EST HAS TRANSFERRED THE BONDS AS GIFT IN FAVOUR OF THE DONE . THE INTEREST ACCRUED FROM THE DATE OF TRANSFER TILL ITS PREMATUR E ENCASHMENT IS RS. 1,76,310 WHICH IS TAXABLE IN THE HANDS OF THE A SSESSEE. THIS ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 17 TH AUGUST, 2007 IN IT(SS)A NO. 116/HYD/2005 & ORS., IN THE CASE OF SHRI KULDEEP SINGH BAGGA V. DC IT. THIS GROUND IS ALLOWED. 113. THE NEXT GROUND IN IT(SS)A 50/HYD/05 IS WITH REGARD TO ADDITION OF RS. 5 LAKHS BEING ALLEGED DIFFERENCE OF THE OPENING CAPITAL AS ON 1.4.1995. BRIEF FACTS OF THE ISSUE A RE THAT OPENING CAPITAL OF RS. 23,94,123 WAS SHOWN AS ON 01.04.1995 . THE ASSESSING OFFICER HAS MENTIONED THAT OUT OF OPENING BALANCE OF RS. 23,94,123, A SUM OF RS. 18,93,285 IS THE AMOUNT REC EIVABLE FROM M/S. PAL FINANCIERS, A PROPRIETARY CONCERN OF ASSES SEE'S MOTHER SMT. INDERJEET KAUR BAGGA. A SUM OF RS. 838 IS REFL ECTED IN THE BANK BALANCE. FOR THE BALANCE AMOUNT OF RS. 5,00,0 00 NO SATISFACTORY EXPLANATION HAS BEEN OFFERED. THE ASSE SSING OFFICER HAS OBSERVED THAT IN ORDER TO CREATE SOURCES FOR TH E ASSETS ACQUIRED DURING THE BLOCK PERIOD THE ASSESSEE HAS I NTRODUCED A IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 57 SUM OF RS. 5,00,000 IN THE OPENING BALANCE. THEREFO RE, THE SUM OF RS. 5,00,000 REMAINS UNEXPLAINED AND HAS TO BE TRE ATED AS UNDISCLOSED INCOME FOR ASSESSMENT YEAR 1996-97 FALL ING IN THE BLOCK PERIOD. IN THE WRITTEN SUBMISSIONS FILED BEF ORE THE CIT(A) , IT WAS CONTENDED THAT THIS SUM OF RS. 5,00,000 REPRESE NTS SAVINGS OF EARLIER YEARS WHICH WAS INCLUDED IN THE OPENING CAS H BALANCE. THE ISSUE RELATING TO AVAILABILITY OF FUNDS SHOULD BE E XAMINED IN THE REGULAR ASSESSMENT AND NOT IN THE BLOCK ASSESSMENT. THE CIT(A) DID NOT AGREE WITH THIS CONTENTION OF THE ASSESSEE. AS ALREADY STATED, THE ASSESSEE DOES NOT MAINTAIN REGULAR BOOK S OF ACCOUNT. THE RETURN OF INCOME FOR ASSESSMENT YEAR 1996-97 WA S FILED ON 09.04.1999 SHOWING TAXABLE INCOME OF RS. 3,23,899 C ONSISTING OF INTEREST RECEIVED FROM M/S. PAL FINANCIERS AND SALA RY FROM M/S. TIRUPATI ENTERPRISES. THE ASSESSEE DID NOT FILE CAP ITAL ACCOUNT OR BALANCE SHEET. NO EVIDENCE HAS BEEN FILED REGARDING PAST SAVING OF RS. 5,00,000. THE CIT(A) OBSERVED THAT IN THE ABSE NCE OF THE SAME THE AMOUNT OF RS. 5,00,000 INCLUDED IN THE OPENING CASH BALANCE HAS TO BE TREATED AS UNDISCLOSED INCOME IN THE HAND S OF THE ASSESSEE FOR ASSESSMENT YEAR 1996-97 FALLING IN THE BLOCK PERIOD AND ACCORDINGLY CONFIRMED THIS ADDITION OF RS. 5,00 ,000. 114. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON THIS ISSUE. THE OPENING BALANCE CANNOT BE CONSIDER ED AS UNDISCLOSED INCOME OF THE BLOCK PERIOD AND THE OPEN ING BALANCE AS ON 1.4.1995 CANNOT BE COVERED BY THE BLOCK PERIOD C OVERING A.Y. 1996-97 TO 2001-02 AND FROM 1.4.2001 TO 3.1.2002. AS SUCH THE ADDITION IS DELETED. 115. THE NEXT GROUND FOR OUR CONSIDERATION IN IT(SS)A N O. 52/HYD/05 (ASSESSEE'S APPEAL SMT. SARABJEET KAUR BAGGA) IS WITH REGARD TO CONFIRMING OF ADDITION OF RS. 5,55,6 40 AS AGAINST RS. 8,03,197 MADE BY THE ASSESSING OFFICER. BRIEF FACTS OF THE ISSUE ARE THAT DURING THE COURSE OF SEARCH ACTION C ONDUCTED IN THE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 58 RESIDENTIAL PREMISES OF SRI HARMAHENDER SINGH BAGGA 59,252 GRAMS OF GOLD JEWELLERY WAS FOUND AND INVENTORISED. IN THE STATEMENT RECORDED ON 3.1.2002 SRI HARMAHENDER SING H BAGGA STATED THAT THE ABOVE JEWELLERY IS BELONGING TO THE FOLLOWING PERSONS: A) SMT. INDERJEET KAUR BAGGA 373.90 GRAMS B) SMT. GURLEEN KAUR BAGGA 727.80 GRAMS C) SMT. SARABJEET KAUR BAGGA 1622.50 GRAMS D) SMT. PARNEET KAUR BAGGA 1469.60 GRAMS 116. THE ASSESSING OFFICER CONSIDERED THE VALUE OF JEWE LLERY OF 1622.50 GRAMS BELONGING TO THE PRESENT ASSESSEE AT RS. 8,03,197 AS UNDISCLOSED INCOME OF THE ASSESSEE. ON APPEAL, THE CIT(A) CONSIDERED ONLY 1122.50 GRAMS OF GOLD JEWELLERY AS UNDISCLOSED AND VALUED THE SAME AT RS. 495 PER GRAM AND SUSTAIN ED AN ADDITION OF RS. 5,55,640. AGAINST THIS THE ASSESSE E IS IN APPEAL BEFORE US. 117. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. DUE TO BOARD CIRCULAR DATED 11.5.2004 THE CIT(A) NOT CONSIDERED 500 GRAMS OF JEWELLERY BELONGING TO THE ASSESSEE AS UNDISCLOSED INCOME. THE ASSESSEE HEREIN HAS NOT GI VEN ANY PROPER EXPLANATION REGARDING SOURCE OF PURCHASE OF THIS JEWELLERY. THOUGH THE ASSESSEE TAKEN A PLEA THAT OUT OF 5952 G RAMS 4296 GRAMS OF GOLD JEWELLERY WAS SAID TO BE DECLARED BY SMT. GURULEEN KAUR BAGGA UNDER VDIS 1997. HOWEVER, VDIS CERTIFIC ATE SHOWN THAT GOLD JEWELLERY DISCLOSED THEREIN RELATES TO A. Y. 1986-87 WHEREAS THE MARRIAGE OF SMT. GURULEEN KAUR BAGGA AN D THE ASSESSEE TOOK PLACE IN THE YEAR 1997. BEING SO, HO W THE JEWELLERY DECLARED IN VDIS WHICH WAS ACQUIRED IN 1986-87 COUL D BE RELATED TO THE ASSESSEE. BEING SO, WE ARE NOT IN A POSITIO N TO ACCEPT THE CONTENTION OF THE ASSESSEE AND THE SAME IS REJECTED . THIS GROUND IS DISMISSED. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 59 118. THE NEXT GROUND FOR OUR CONSIDERATION IS IN IT(SS)A NO. 18/HYD/10 (ASSESSEE'S APPEAL - SMT. PARNEET KAUR BA GGA). THE ASSESSEE'S GRIEVANCE IN THIS APPEAL IS WITH REGARD TO LEVY OF PENALTY OF RS. 4.5 LAKHS U/S. 158BFA(2) OF THE ACT. BRIEF FACTS OF THE ISSUE ARE THAT A SEARCH AND SEIZURE ACTION U/S 132 OF THE ACT HAD BEEN CONDUCTED IN BAGGA GROUP OF CASES ON 3.1.2002. SUBS EQUENTLY, A NOTICE U/S 158BD WAS ISSUED TO THE ASSESSEE ON 8.4. 2004, CALLING FOR HER RETURN OF INCOME, INCLUDING THE UNDISCLOSED INCOME. IN RESPONSE, HOWEVER, THE ASSESSEE FILED HER RETURN OF INCOME ON 28.2.2005, SHOWING 'NIL' UNDISCLOSED INCOME. DURING THE ASSESSMENT PROCEEDINGS HOWEVER, THE ASSESSING OFFIC ER NOTED THAT IN THE COURSE OF SEARCH AT THE RESIDENCE OF SHRI HA RMAHENDER SINGH BAGGA, 5,952 GRAMS OF GOLD JEWELLERY HAD BEEN FOUND AND INVENTORISED. IT WAS STATED BY SHRI BAGGA THAT OUT OF THE SAME, 1497 GRAMS BELONGED TO THE ASSESSEE. HE ALSO STATED IN HIS ANSWER TO QUESTION NO. 11 OF HIS SWORN STATEMENT THAT THE ASSESSEE'S JEWELLERY WAS PURCHASED IN THE MONTHS OF SEPTEMBER TO NOVEMBER 2001 OUT OF THE WITHDRAWALS FROM VARIOUS FAMILY CON CERNS AND THAT THE SAME ARE REFLECTED IN THE BOOKS OF ACCOUNT OF T HE RESPECTIVE CONCERNS. HOWEVER, THE ASSESSEE NEVER PRODUCED ANY EVIDENCE WITH REGARD TO THE SOURCE OF ACQUISITION OF THE GOL D JEWELLERY, DESPITE BEING GIVEN SEVERAL OPPORTUNITIES. EVEN HER FATHER-IN-LAW, SRI BAGGA DID NOT PRODUCE ANY EVIDENCE IN THIS REGA RD, EXCEPT RENDERING GENERAL STATEMENTS. 119. DURING THE ASSESSMENT PROCEEDINGS, THE AR OF THE AS SESSEE SUBMITTED THAT THE ASSESSEE'S JEWELLERY HAD BEEN PU RCHASED BY HER HUSBAND, SHRI BALWINDER SINGH BAGGA, BY MAKING THE FOLLOWING WITHDRAWALS FROM THE FIRM, SHRI RAM LAKSHMAN MARKET ING AGENCIES: DATE AMOUNT 26.7.2001 - RS. 2,00,000 27.8.2001 - RS. 4,00,000 6.09.2001 - RS. 5,00,000 IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 60 120. AFTER EXAMINING THE EXPLANATIONS SO OFFERED, HOWEVE R, THE ASSESSING OFFICER DID NOT FIND THE SAME ACCEPTABLE FOR THE REASONS DISCUSSED IN THE ASSESSMENT ORDER AND TREATED THE I NVESTMENT IN JEWELLERY AS UNEXPLAINED INVESTMENT. ACCORDINGLY, A N ADDITION OF RS. 7,41,015 WAS MADE AS UNDISCLOSED INCOME FOR THE PERIOD 1.4.2001 TO 3.1.2002, WHICH FORMED PART OF UNDISCLO SED INCOME OF THE ASSESSEE FOR A.Y. 2002-03, FALLING WITHIN THE B LOCK PERIOD. ACCORDINGLY A TAX DEMAND OF RS. 4,48,398 WAS RAISED FOR THE BLOCK PERIOD. AGGRIEVED WITH THE SAME, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), WHO VIDE HIS ORDER DATED 13.6.20 08 DISMISSED THE ASSESSEE'S APPEAL. SUBSEQUENT TO THIS, THE ASSE SSING OFFICER AGAIN ISSUED A LETTER DATED 8.12.2008 TO THE ASSESS EE TO SHOW CAUSE AS TO WHY A PENALTY U/S. 158BFA(2) SHOULD NOT BE IMPOSED. IN RESPONSE IT WAS SUBMITTED BEFORE HIM THAT THE AS SESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE CIT(A) BEF ORE THE TRIBUNAL. SHE THEREFORE, REQUESTED THE ASSESSING OFFICER TO K EEP THE PENALTY PROCEEDINGS IN ABEYANCE. HOWEVER, THE ASSESSING OFF ICER NOTED THAT THERE WAS NO MERIT IN THE CONTENTION OF THE ASSESSE E WITH REGARD TO THE SOURCE OF INVESTMENT IN JEWELLERY AND FELT THAT THE ASSESSEE DOES NOT HAVE AN IOTA OF CHANCE OF GETTING RELIEF F ROM THE TRIBUNAL ALSO. ACCORDINGLY, CONCLUDED THAT THE ASSESSEE HAS FAILED TO DECLARE THE UNDISCLOSED INCOME OF RS. 7,41,015 HE PROCEEDED TO LEVY A PENALTY OF RS. 4.50.000. ON APPEAL, THE CIT(A) CON FIRMED THE PENALTY. AGAINST THIS THE ASSESSEE IS IN APPEAL BE FORE US., 121. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. BEFORE US ALSO THE ASSESSEE IS NOT ABLE TO EXPLAIN THE SOURCE OF INVESTMENT IN GOLD JEWELLERY. THE ASSESS EE NOT PLACED ANY EVIDENCE IN SUPPORT OF HEAR CLAIM THAT THE JEWE LLERY WAS ACQUIRED FROM THE WITHDRAWAL MADE FROM SREE RAMLAKS HMAN MARKETING AGENCIES. NO EVIDENCE IS PLACED BEFORE U S. IT IS THE DUTY OF THE ASSESSEE TO SUBSTANTIATE THE INVESTMENT MADE IN THE GOLD JEWELLERY. THE ASSESSEE WAS NOT ABLE TO ESTABL ISH THAT THE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 61 INVESTMENTS IN JEWELLERY WERE RECORDED IN HER BOOKS OF ACCOUNTS AND SHE WAS ALSO NOT ABLE TO SHOW THAT THE ACQUISIT ION OF JEWELLERY WAS OUT OF WITHDRAWALS FROM HER BANK ACCOUNTS WHIC H WERE DISCLOSED TO THE DEPARTMENT. IT IS ALSO TO BE NOTE D THAT THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFI CER IS IN EXCESS OF INCOME SHOWN BY HER IN HER RETURN OF INC OME. FURTHER, EVEN AFTER GRANTING MORE THAN SUFFICIENT OPPORTUNIT Y TO SUBMIT NECESSARY EVIDENCE IN SUPPORT OF HER CONTENTION AT VARIOUS STAGES, SHE FAILED TO PLACE ANY IOTA OF EVIDENCE IN SUPPORT OF HER CLAIM. THIS CONDUCT OF ASSESSEE ITSELF SHOWS THAT THE CLAI M OF THE ASSESSEE IS NOT BONA-FIDE AND THERE IS NO REASONABL E CAUSE FOR DELETING THE PENALTY IN THIS CASE. PLACING RELIANC E ON THE ORDER OF TRIBUNAL MUMBAI BENCH IN THE CASE OF GUNANATH B. TH AKOOR V. ACIT (132 ITD 319) (MUM) WHEREIN HELD THAT: 1. THERE WAS NO EVIDENCE ON RECORD TO SHOW THAT THE UNACCOUNTED INCOME CLAIMED BY THE ASSESSEE TO BE HI S OWN. 2. EVEN AT INSTANT STAGE THE ASSESSEE HAD FAILED TO PRODUCE ANY SUPPORTING MATERIAL TO SHOW THAT THE SA ID INCOME WAS DISCLOSED, 3. NO CONTRARY MATERIAL WAS PRODUCED TO CONTROVERT THE FINDINGS OF FACT RECORDED BY THE TRIBUNAL 4. IN VIEW OF THE ABOVE, IT WAS OPINED THAT IT WAS A F IT CASE FOR LEVY OF PENALTY. 122. ACCORDINGLY, WE ARE INCLINED TO CONFIRM THE LEVY OF PENALTY U/S. 158BFA(2). ACCORDINGLY, THE APPEAL IS DISMISS ED. 123. THE NEXT GROUND FOR OUR ADJUDICATION IN IT(SS)A NO. 113/HYD/05 (ASSESSEE APPEAL M/S. SREE BALAJI ENTE RPRISES) IS WITH REGARD TO CONFIRMING OF ADDITION BY THE CIT(A) OF RS. 18,95,944 MADE BY THE ASSESSING OFFICER AS THE STOC K FOUND ON THE DATE OF SEARCH ON THE MERE GROUND THAT NECESSARY SA NCTION FROM IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 62 THE EXCISE AUTHORITIES WAS OBTAINED SUBSEQUENTLY. FACTS OF THE CASE IN BRIEF ARE THAT THERE WAS A SEARCH IN THE CA SE OF THE ASSESSEE U/S. 132 OF ACT ON 13.1.2002. CONSEQUENT TO THE SEARCH, A NOTICE U/S. 158BC WAS ISSUED. THE ASSESSEE FILED 'NIL' RETURN OF INCOME FOR THE BLOCK PERIOD OF A.YS. 1996-97 TO 200 1-02 AND FOR THE PERIOD 1.4.2001 TO 3.1.2002. THE ASSESSING OFF ICER DETERMINED UNDISCLOSED INCOME AT RS. 23,03,544 ON ACCOUNT OF T HE FOLLOWING REASONS: A) SUPPRESSED TURNOVER FOR A.Y. 1996-97 - RS. 1,97,6 00 B) SUPPRESSED TURNOVER FOR A.Y. 1997-98 - RS. 2,10,0 00 C) UNEXPLAINED INVESTMENT IN STOCK - RS. 18,95,944 ------------------ TOTAL - RS. 23,03,544 124. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) WHO H AD CONFIRMED THE ORDER OF THE ASSESSING OFFICER. AGAI NST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 125. DURING THE COURSE OF SEARCH PROCEEDINGS IT WAS NOTI CED THAT THE ASSESSEE MAINTAINED ONE UNDISCLOSED GODOWN IN A DDITION TO THE REGULAR GODOWN WHICH IS SEIZED BY THE EXCISE DE PARTMENT. INSPECTION OF THE SAID GODOWN REVEALED THE UNACCOUN TED STOCK OF RS. 57,60,568. DURING THE COURSE OF SEARCH A STATEM ENT RECORDED FROM SRI KRISHNA KULKARNI, MANAGER AND AUTHORISED S IGNATORY OF THE ASSESSEE. HE ADMITTED IN HIS SWORN STATEMENT T HAT THE STOCK IS MANUFACTURED IN EXCESS OF THE INDENT MADE TO THE EXCISE DEPARTMENT AND THE STOCK IS BEING SOLD OUTSIDE THE BOOKS OF ACCOUNT TO MEET THE VARIOUS UNACCOUNTED EXPENDITURE AND INVESTMENTS. IT WAS ALSO STATED THAT NO EXCISE DUT Y WAS PAID WAS PAID ON THIS STOCK. THE ASSESSING OFFICER CONSIDER ED ONLY THE BASIC RATE OF THIS EXCESS STOCK AND VALUED THE SAME AT RS. 18,95,944 AND MADE ADDITION TOWARDS THIS AMOUNT. T HE ISSUE WAS INFORMED TO THE EXCISE DEPARTMENT, BANGALORE AND DY . COMMISSIONER OF EXCISE PASSED AN ORDER FOR LEVY OF ADDITION EXCISE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 63 DUTY AND PENALTY. THE MATTER WAS CARRIED OUT BEFOR E THE EXCISE COMMISSIONER WHO PASSED THE FOLLOWING ORDER: 'I HAVE CAREFULLY GONE THROUGH THE ARGUMENTS OF THE APPELLANT AS WELL AS THE PARA-WISE COMMENTS OF THE DEPUTY COMMISSIONER OF EXCISE. IT IS NOT IN DISPUT E THAT THERE WERE CERTAIN SHORTAGES AND EXCESS AT THE TIME OF CONDUCT OF RAIDS BY THE INCOME-TAX AUTHORITIES AND THE SAME WAS ALSO DETECTED BY THE EXCISE AUTHORITIES. IT IS ALSO NOT IN DISPUTE THAT THE APPELLANT HAS REQUESTE D THE EXCISE AUTHORITIES FOR COMPOUNDING THE OFFENCE. ACCORDINGLY, A COMPOUNDING ORDER HAS BEEN PASSED BY THE DEPUTY COMMISSIONER OF EXCISE DIRECTING THE APPELLANT TO PAY A PENALTY OF RS. 25,000 AND A SUM OF RS. 10,11,082/- FOR THE SHORTAGE AND EXCESS OF SPIR ITS AND IML. THE APPELLANT IS CLAIMING CERTAIN WASTAGE S AND ALLOWANCE WHICH IS PERMISSIBLE UNDER THE RELEVA NT EXCISE RULES. IF THE APPELLANT WERE TO MAINTAIN TH E BOOKS OF ACCOUNTS ON DAY-TO-DAY BASIS, HE COULD HAV E CLAIMED THE SAME AS A MATTER OF ROUTINE. IN THE IN STANT CASE, HIS CLAIM FOR ALLOWANCE HAS CLEARLY COME AS A N AFTERTHOUGHT AFTER THE OFFENCE WAS DETECTED AND NOT IN THE COURSE OF ROUTINE CLAIM WHICH HE IS OTHERWISE ENTITLED AS PER LAW. NON-MAINTENANCE OF BOOKS OF ACCOUNTS IS ALSO A GRAVE OFFENCE UNDER THE EXCISE A CT AND, THEREFORE, ANY EXCESS OR SHORTAGE WHICH IS DETECTED AT THE TIME OF INSPECTION WITH REFERENCE T O THE BOOKS OF ACCOUNT AT THE TIME OF INSPECTION WILL ATT RACT PENAL PROVISIONS. THE LICENSEE CANNOT TAKE SHELTER THAT THERE WAS A COMMUNICATION GAP BETWEEN THE PRODUCTIO N MANAGER AND THE PERSON WHO MAINTAINS THE BOOKS OF ACCOUNT AND THEREBY ALLOWED TO ESCAPE FROM THE JAWS OF LAW. IF ONE WERE TO AGREE WITH THE ARGUMENTS OF TH E APPELLANT, THEN IT WILL CREATE VERY DANGEROUS PRECE DENT AND ALL LAWBREAKERS WILL ESCAPE. AS SUCH, THE ORDE R PASSED BY THE DEPUTY COMMISSIONER OF EXCISE IS A COMPOUNDING ORDER AND IT IS NOT ACCEPTABLE. THE FU LL BENCH OF HONBLE HIGH COURT IN S.V. BAGI VS. STATE OF KARNATAKA (S.T.R.P. NO. 17 OF 1987) HAVE HELD THAT THERE CANNOT BE AN APPEAL AGAINST AN ORDER OF COMPOUNDING. THE FACT THAT THE APPELLANTS HAVE MAD E SUCH A REQUEST TO THE PRESCRIBED AUTHORITY AND THE COMPOUNDING ORDER HAS BEEN MADE IS EVIDENT IN THE F ILE AND AN ORDER OF COMPOUNDING HAS BEEN PASSED BY THE PRESCRIBED AUTHORITY I.E., THE DEPUTY COMMISSIONER OF EXCISE IN THIS CASE. IT IS CLEAR FROM THE ABOVE TH AT THE APPELLANTS ARE WILLING PARTIES TO THE COMPOUNDING A ND THEREFORE THEY CANNOT OBJECT TO THE SAME AT THIS PO INT OF IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 64 TIME. AS SUCH, THE COMPOUNDING ORDER HAS BEEN PASS ED TO SAVE THE APPELLANTS FROM THE DISGRACE AND IGNOMI NY OF PROSECUTION. IN VIEW OF THE PRONOUNCEMENT OF TH E FULL BENCH OF THE HONBLE HIGH COURT IN THE ABOVE CASE, SUCH AN ORDER OF COMPOUNDING IS NOT SUBJECT TO APPE AL. THEREFORE, I AM NOT INCLINED TO PASS ANY ORDER GIVI NG RELIEF TO THE APPELLANT. ON THIS GROUND ALSO THE A PPEAL IS NOT MAINTAINABLE AND HENCE THE FOLLOWING: ORDER THE APPEAL FILED BY THE APPELLANT IS DISMISSED.' 126. THE CIT(A) HAS TAKEN A CLUE FROM THE ABOVE FINDINGS OF THE EXCISE COMMISSIONER AND CONFIRMED THE ADDITION. TH E ASSESSEE'S COUNSEL PLACED THE SAME ARGUMENTS BEFORE US AS WERE MADE BEFORE THE LOWER AUTHORITIES. 127. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE ARGUMENT OF THE AR IS THAT THE VALUE O F THE STOCK AT BEST MAY BE AT RS. 10,46,616 OUT OF WHICH RS. 8,92, 490 HAS ALREADY BEEN DISCLOSED IN THE BOOKS AND ONLY THE BA LANCE HAS TO BE SUSTAINED. THIS ARGUMENT OF THE ASSESSEE'S COUNSEL IS DEVOID OF MERIT AND NOT BASED ON ANY EVIDENCE OR MATERIAL. T HE DISCREPANCY IN STOCK IS ALSO CONFIRMED BY THE EXCISE AUTHORITIE S. BEING SO, WE CANNOT TAKE A DIFFERENT STAND OTHER THAN THAT WAS T AKEN BY THE EXCISE DEPARTMENT. CONSIDERING THE FACTS AND CIRCU MSTANCES OF THE CASE, WE ARE OF THE OPINION THAT THERE IS NO IN FIRMITY IN THE ORDER OF THE CIT(A) AND THE SAME HOLDS GOOD. THIS GROUND OF THE ASSESSEE IS DISMISSED. 128. THE NEXT GROUND IN IT(SS)A NO. 113/HYD/05 IS WITH R EGARD TO ADDITION OF RS. 1,97,600 AND RS. 2,10,000 ON ACC OUNT OF SUPPRESSED TURNOVER IN A.YS. 1996-97 AND 1997-98. 129. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE ASSESSING OFFICER WORKED OUT THE SUPPR ESSED TURNOVER IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 65 AS ABOVE ON THE BASIS OF ASSESSMENT ORDER PASSED BY THE COMMISSIONER OF COMMERCIAL TAXES WHICH WAS FOUND DU RING THE COURSE OF SEARCH ACTION. THE RELEVANT PORTION OF T HE ORDER WAS CONSIDERED BY THE LOWER AUTHORITIES AND CONFIRMED T HE ADDITION. IN OUR OPINION, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE CIT(A) AND THE SAME IS CONFIRMED. FOR THIS PURPOSE WE PLA CE RELIANCE ON THE JUDGEMENT OF CIT VS. ANANDHA METAL CORPORATION (273 ITR 262) (MAD) WHEREIN HELD THAT THE RETURN ACCEPTED BY THE COMMERCIAL TAX DEPARTMENT UNDER THE TAMIL NADU GENE RAL SALES TAX ACT IS BINDING ON THE INCOME-TAX AUTHORITIES AN D THE ASSESSING OFFICER HAS NO POWER TO SCRUTINISE THE RETURN SUBMI TTED BY THE ASSESSEE TO THE COMMERCIAL TAX DEPARTMENT UNDER THE PROVISIONS OF THE TAMIL NADU GENERAL SALES TAX ACT AND AS ACCEPTE D BY THE SAID AUTHORITIES. THEREFORE, THE ASSESSING OFFICER DOES NOT HAVE ANY JURISDICTION TO GO BEYOND THE VALUE OF THE CLOSING STOCK DECLARED BY THE ASSESSEE AND ACCEPTED BY THE COMMERCIAL TAX DEP ARTMENT . ACCORDINGLY, THIS APPEAL OF THE ASSESSEE IS DISMISS ED. 130. THE NEXT GROUND IN ITA NO. 707/HYD/06 (DEPARTMENT A PPEAL M/S. SREE BALAJI ENTERPRISES) IS WITH REGARD TO A DDITION U/S. 69 TOWARD UNEXPLAINED EXPENDITURE. THE REVENUE RAISED THE GROUND THAT THE CIT(A) ERRED IN ADMITTING THE NEW EVIDENCE IN VIOLATION OF RULE 46A OF INCOME-TAX RULES, 1962 THEREBY VIOLATIN G THE DOCTRINE OF NATURAL JUSTICE. 131. BRIEF FACTS OF THE ISSUE ARE THAT M/S. SRI RAMA ENT ERPRISES, A UNIT OF THE ASSESSEE FIRM ENTERED INTO AN MOU DATED 31.3.2000 WITH M/S. SHAW WALLACE CO. LTD. (SWCL) BY WHICH IT TOOK OVER THE OUTSTANDING DEBTS OF RS. 1,24,78,656 OF SWCL FOR A CONSOLIDATED AMOUNT OF RS. 72 LAKHS AS ON 30.9,1999 IN FULL AND FINAL SATISFACTION OF THE OUTSTANDING AMOUNT. IT WAS NOT ICED BY THE ASSESSING OFFICER THAT THOUGH THE MOU WAS SIGNED ON 31.3.2000, ALL THE ACTIONS OF OWNING UP THE DEBTS AND DISCHARG ING THE SAME IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 66 WERE COMPLETED BEFORE THE DATE OF MOU ITSELF. THE ASSESSEE WAS ASKED TO EXPLAIN THE SOURCE OF RS. 72 LAKHS PAID TO THE DEBTORS OF SWCL OWNED UP BY THE ASSESSEE. ON APPEAL, THE CIT( A) DELETED THE ADDITION BY OBSERVING AS FOLLOWS: 05. I HAVE DULY CONSIDERED THE SUBMISSIONS OF T HE APPELLANT AND THE MATERIAL AVAILABLE ON RECORD. THE BASIC ISSUE T O BE DECIDED IN THIS APPEAL IS THE SOURCE OF PAYMENT OF RS. 72 LAKH S TO THE CREDITORS OF SWCL OWNED UP BY THE APPELLANT FIRM' A S PER THE MOU DT. 31.03.2000. THE RELEVANT CLAUSE OF THE SAID MOU ARE MENTIONED ON PAGES 4 TO 6 OF THE ASSESSMENT ORDER. THE CREDITORS FOR A SUM OF RS. 1,24,78,656/- OUTSTANDING AS ON 30 .09.1999, WERE OWNED UP BY THE APPELLANT FIRM FOR A SUM OF RS. 72 LAKHS AND THE SAID AMOUNT WAS ADJUSTED AGAINST THE DEPOSIT AMOUNT S OF APPELLANT LYING WITH THE SWCL. THE NAMES OF THE CRE DITORS WERE REPLACED BY THE NAME OF THE APPELLANT IN THE BOOKS OF SWCL. THEREAFTER, THE PAYMENTS WERE MADE TO THE SAID CRED ITORS FOR A SETTLED AMOUNT BY SWCL ON BEHALF OF THE APPELLANT F IRM. IT IS EVIDENT FROM THE BANK STATEMENT OF SWCL THAT ENTIRE PAYMENT TO THE SAID CREDITORS WAS MADE FROM SWCL'S CASH CREDIT ACCOUNT NO. 5010 IN FEDERAL BANK LTD., NARIMAN POINT, MUMBA I. THE CHEQUES WERE ISSUED FROM THIS BANK ACCOUNT TO MAKE THE DRAFTS IN THE NAME OF THE SAID CREDITORS AS UNDER: NAME OF CREDITOR AMOUNT OF DD (1) BANK CHARGES (2) TOTAL AMOUNT DEBITED IN BANK ACCOUNT (1+2) SWCL'S CHEQUE NO. DD NO. DATE PALMERA INDUSTRIES 22,50,000 2,250 22,52,250 161839 998443 28.12.99 PALMERA INDUSTRIES 50,000 125 50,125 161840 998448 28.12.99 SOUTHERN PARADISE 22,50,000 2,250 22,52,250 161841 998444 28.12.99 SOUTHERN PARADISE 50,000 75 50,075 161853 998445 2 8.12.99 KOSBA CUTIDOR 1,00,000 150 1,00,150 161861 998459 29. 12.99 KOSBA CUTIDOR 25,00,000 2,500 25,02,500 161862 998457 29.12.99 05(A). IT IS FURTHER EVIDENT FROM THE COPIES OF DEM AND DRAFTS PRODUCED THAT THE SAME WERE ISSUED BY THE FEDERAL B ANK ON ACCOUNT OF SWCL. ONE OF SUCH DEMAND DRAFT IS REPROD UCED HEREUNDER - 'NOT TRANSFERABLE 28.12.1999 PAY ORDER NO. 998443 PAY PALMERA INVESTMENTS & TRADING CO. (PRIVATE) LIMITED .... OR ORDER RUPEES TWENTY TWO LAKHS FIFTY THOUSAND ONLY .......0 .... ...... ON ACCOUNT OF SHAW WALLACE & CO. LTD. RS. 22,50,000/- IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 67 THE FEDERAL BANK LIMITED CORPORATE BANKING BRANCH, MUMBAI-400 023. SD/- AUTHORISED SIGNATORY '998443' 400049009' THE ADJUSTMENT ENTRIES MADE IN THE BOOKS OF ACCOUNT OF SWCL AND THE APPELLANT FIRM CLEARLY SHOW THAT NO AMOUNT WAS ACTUALLY PAID BY THE APPELLANT FIRM TO THE SAID CREDITORS. 05(B). THE GENUINENESS OF THE AFORESAID EVIDENCES WAS NOT DOUBTED BY THE ASSESSING OFFICER. HIS MAIN OBJECTION WAS TH AT THE APPELLANT COULD NOT EXPLAIN THE DEPOSITS MADE IN THE BANK ACC OUNT OF SWCL FOR MAKING THE AFORESAID PAYMENTS. THE OBJECTION OF THE ASSESSING OFFICER IS NOT RELEVANT TO DECIDE THE SOURCE OF PAY MENT IN THE HANDS OF THE APPELLANT FIRM. M/S SHAW WALLACE & COMPANY L TD. IS A KNOWN PUBLIC LIMITED COMPANY. ITS IDENTITY AND CRED IT WORTHINESS IS NOT IN DOUBT. THE COMPANY HAS CONFIRMED BOTH BEFORE THE ASSESSING OFFICER AS WELL AS DURING THE APPEAL PROCEEDINGS TH AT THE ENTIRE PAYMENTS TO THE SAID CREDITORS WERE MADE BY SWCL FR OM ITS OWN RESOURCES AND THE APPELLANT FIRM DID NOT MOBILIZE A NY FUNDS OR REPAID ANY DEBTS OF SWCL. IF THE ASSESSING OFFICER HAD ANY DOUBT ABOUT THE DEPOSITS MADE IN THE BANK ACCOUNT OF SWCL , HE COULD HAVE REFERRED THE MATTER TO THE ASSESSING OFFICER O F SWCL. IF ANY UNEXPLAINED AMOUNT WAS FOUND DEPOSITED IN THE BANK ACCOUNT OF SWCL ACTION WOULD HAVE BEEN TAKEN IN THE CASE OF SW CL AND NOT IN THE CASE OF THE APPELLANT FIRM. IT IS PERTINENT TO MENTION HERE THAT NO CASH DEPOSI T WAS MADE IN THE BANK ACCOUNT OF SWCL BEFORE MAKING THE PAYMENTS TO THE SAID CREDITORS. THE OTHER OBSERVATIONS OF THE ASSESSING OFFICER THAT THE MOU WAS INVALID SINCE THE SAME WAS ENTERED AFTER TA KING ALL THE ACTIONS OF ASSIGNING THE DEBTS/PAYING THE DEBTS OR THE SAME WAS NOT SIGNED BY THE REPRESENTATIVE OF SWCL, ARE NOT RELEV ANT TO DECIDE THE ISSUE WHETHER THE SOURCE OF PAYMENT TO THE SAID CRE DITORS WAS SATISFACTORILY EXPLAINED OR NOT. THE LETTERS ADDRES SED BY THE APPELLANT FIRM TO THE SAID CREDITORS AND ACKNOWLEDG MENT OF THE DEMAND DRAFTS BY THE CREDITORS TO THE APPELLANT FIR M ARE ALSO NOT MATERIAL TO THE ISSUE UNDER CONSIDERATION. SINCE UN DER THE ARRANGEMENT BETWEEN SWCL AND THE APPELLANT FIRM, TH E SAID CREDITORS WERE OWNED UP BY THE APPELLANT FIRM, IT W AS NATURAL FOR THE APPELLANT FIRM TO ADDRESS LETTERS TO THE CREDIT ORS AND FOR THE CREDITORS TO ISSUE ACKNOWLEDGMENT IN THE NAME OF TH E APPELLANT. 05(C). IT IS, THUS, EVIDENT THAT THE ENTIRE ARRANG EMENT WAS MADE TO SAVE SWCL FROM WINDING UP PETITION FILED BY CERTAIN CREDITORS BEFORE THE HON'BLE HIGH COURT OF CALCUTTA. THE ENTI RE BUSINESS OF THE APPELLANT FIRM AND OTHER GROUP CONCERNS DEPENDE D MAINLY ON IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 68 SWCL AS THEY WERE THE DISTRIBUTORS AND MANUFACTURER S OF VARIOUS BRANDS OF SWCL IN THE STATE OF MAHARASHTRA, TAMIL N ADU, ANDHRA PRADESH, KARNATAKA & RAJASTHAN. HENCE IT WAS IN THE BUSINESS INTEREST OF THE APPELLANT GROUP THAT THE LIQUIDATIO N PETITION FILED BEFORE THE HON'BLE CALCUTTA HIGH COURT AGAINST SWCL IS DEFEATED. WITH THIS OBJECT, THE ARRANGEMENT WAS MADE BETWEEN SWCL AND APPELLANT FIRM AND OTHER CONCERNS OF THE GROUP. IN THIS ARRANGEMENT, THE APPELLANT ONLY LENT ITS NAME AND P ERHAPS USED ITS GOOD OFFICES TO NEGOTIATE WITH THE SAID CREDITORS F OR PAYMENT OF A SETTLED AMOUNT AND TO WITHDRAW THE WINDING UP PETIT ION AGAINST SWCL. THE ENTIRE PAYMENT TO THE SAID CREDITORS WAS MADE BY SWCL FROM ITS BANK ACCOUNTS. 05(D). CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, I HOLD THAT THE PAYMENTS MADE TO THE SAID CREDITORS W AS SATISFACTORILY EXPLAINED BY THE APPELLANT FIRM. HEN CE, THE ADDITION OF RS. 72 LAKHS MADE U/S 69C OF THE ACT IS DELETED. ' 132. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, BEFORE THE ASSESSING OFFICER THE ASSESSEE NOT SATISFACTORILY EXPLAINED THE SOURCES FOR ACQUIRING THE DEBT DUE BY SWCL. HOWEVER, THE CIT(A) OUTRIGHTLY DELETED THE ADDITION ON THE BASIS OF CERTAIN EVIDENCE RELIED ON BY THE AR. IN OUR OPINI ON, THE ISSUES REQUIRED TO BE EXAMINED BY THE ASSESSING OFFICER IN THE LIGHT OF EVIDENCE AND ENTRIES IN THE BOOKS OF ACCOUNT IN BOT H THE PARTIES INVOLVED IN THIS TRANSACTION. ACCORDINGLY, WE REMI T THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONS IDERATION. THE APPEAL OF THE REVENUE IN ITA NO. 707/HYD/06 IS ALLO WED FOR STATISTICAL PURPOSES. 133. THE NEXT GROUND IN ITA NO. 847/HYD/08 (ASSESSEE'S A PPEAL M/S. SREE BALAJI ENTERPRISES) IS WITH REGARD TO DIS ALLOWANCE U/S. 43B OF THE ACT AT RS. 23,41,977. BRIEF FACTS OF IS SUE ARE THAT THE ADDITION WAS MADE U/S. 43B ON ACCOUNT OF SALES TAX PAYABLE. THE ASSESSEE IS NOT ABLE TO EXPLAIN WHY THIS BEING A ST ATUTORY LIABILITY THE DISALLOWANCE U/S. 43B IS NOT JUSTIFIED. BEING SO, IN OUR OPINION, THE PROVISIONS OF SECTION 43B ARE VERY MUC H APPLICABLE TO IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 69 SALES TAX PAYABLE AND THE DISALLOWANCE IS JUSTIFIED . THIS GROUND IS DISMISSED. 134. THE NEXT GROUND IN ITA NO. 847/HYD/08 FOR OUR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF A P ART OF THE ADMINISTRATIVE EXPENSES. THE ASSESSING OFFICER DIS ALLOWED RS. 20 LAKHS OUT OF RS. 1,41,86,009 WHICH INCLUDES ADMINIS TRATIVE EXPENSES, SELLING AND DISTRIBUTING EXPENSES, WAGES, TRANSPORTATION, REPAIR AND MAINTENANCE, BUSINESS PROMOTION EXPENSES AND COMMISSION. THE ASSESSEE ALSO CLAIMED BAD DEBTS. THE ASSESSING OFFICER COMPARED ALL THESE FIGURES WITH THE EARLIER YEAR AND DISALLOWED RS. 20 LAKHS. ON APPEAL, THE CIT(A) CON FIRMED THE DISALLOWANCE. THE REASON FOR DISALLOWANCE IS THAT THE ASSESSEE DID NOT FURNISH EVIDENCE IN SUPPORT OF THE CLAIM. IN O UR OPINION, THIS IS AN AD-HOC DISALLOWANCE. AS WE HAVE HELD ELSEWHE RE IN THIS ORDER THAT 10% OF TOTAL OF SUCH EXPENSES TO BE DISA LLOWED, ACCORDINGLY, WE ARE RESTRICTING THE DISALLOWANCE TO 10% OF THE EXPENSES AS ARGUED BY THE AR. THIS GROUND IN ITA N O. 847/HYD/08 IS PARTLY ALLOWED. 135. THE NEXT GROUND IN ITA NO. 847/HYD/08 IS WITH REGAR D TO DISALLOWANCE OF BUSINESS PROMOTION EXPENSES AT RS. 82,89,246. THE ASSESSING OFFICER DISALLOWED RS. 1,65,78,493 ON THE REASON THAT THERE IS NO NECESSITY TO INCUR SALES PROMOTION EXPENSES AS PER THE CONTRACT BETWEEN SRI RAMA ENTERPRISES AND SHAW WALLACE DISTILLERIES LTD. AND THE ASSESSEE HAS NOT PRODUCED FULL DETAILS OF THE EXPENDITURE. ON APPEAL, THE CIT(A) DISALLOWED ONLY 50% OF THE AMOUNT AT RS. 82,89,246. AGAINST THIS, THE ASSESSE E IS IN APPEAL BEFORE US. 136. THIS ISSUE IS ALREADY CONSIDERED BY US ELSEWHERE IN THIS ORDER IN THE CASE OF SRI BALWINDER SINGH BAGGA IN ITA NO. 710/HYD/06 AND BY PLACING RELIANCE ON THE ORDER OF THE TRIBUNAL IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 70 IN THE CASE OF SRI BALWINDER SINGH BAGGA IN ITA NO. 288/HYD/02 FOR A.Y. 2001-02, WE HAVE CONFIRMED THE DISALLOWANC E AT 10% OF THE EXPENSES CLAIMED BY THE ASSESSEE. BEING SO, WE DIRECT THE ASSESSING OFFICER TO DISALLOW ONLY 10% OF THIS EXPE NDITURE. THIS GROUND IS PARTLY ALLOWED. 137. THE FIRST GROUND IN ITA NO. 713/HYD/06 (ASSESSEE'S APPEAL - M/S. SREE BALAJI ENTERPRISES) IS WITH REGARD TO DIS ALLOWANCE OF INTEREST PAID ON LOAN U/S. 36(1)(III). THIS GROUND IS DECIDED IN ACCORDANCE WITH THE FINDINGS IN ITA NO. 271/HYD/06 AND ITA NO. 767/HYD/07. AS PER PROVISIONS OF SECTION 36(1)(III) OF THE ACT, THE INTEREST ON LOANS RAISED BY THE ASSESSEE FOR BUSINE SS PURPOSES ARE AVAILABLE. ONCE THE ASSESSEE CLAIMS ANY SUCH INTER EST AS DEDUCTION IN THEIR BOOKS OF ACCOUNT THE ONUS ALWAYS WILL BE ON THE ASSESSEE TO SATISFY THE ASSESSING OFFICER THAT WHAT EVER LOANS WERE RAISED BY THE ASSESSEE WERE FOR THE PURPOSE OF BUSI NESS. IF IN THE PROCESS OF EXAMINATION OF GENUINENESS OF SUCH DEDUC TION, IT TRANSPIRES THAT THE ASSESSEE HAS ADVANCED CERTAIN F UNDS TO SISTER CONCERNS CHARGING NO INTEREST, THERE WOULD BE A VER Y HEAVY ONUS ON THE ASSESSEE TO DISCHARGE BEFORE THE ASSESSING O FFICER TO THE EFFECT THAT IN SPITE OF OUTSTANDING LOANS ON WHICH THE ASSESSEE IS INCURRING LIABILITY TO PAY INTEREST, THERE WAS NO J USTIFICATION TO ADVANCE THE LOANS TO SISTER CONCERNS FOR NON-BUSINE SS PURPOSES WITHOUT CHARGING ANY INTEREST. ACCORDINGLY, THERE IS NO MERIT IN THE PLEA OF THE ASSESSEE THAT THE ENTIRE INTEREST P AID ON BORROWING HAS TO BE ALLOWED. THIS GROUND IS DISMISSED 138. THE NEXT GROUND IN ITA NO. 713/HYD/06 IS WITH REGA RD TO ENHANCEMENT OF INCOME ON ACCOUNT OF DIFFERENCE BETW EEN THE COMMISSION INCOME AND EXPENDITURE. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE CLAIMED TO HAVE SET UP A NEW UNIT IN THE NAME OF M/S. NEW CITY DISTRIBUTORS TO CARRY ON THE MARKETIN G BUSINESS OF M/S. SHAW WALLACE BEVERAGES LIMITED IN THE STATE OF MAHARASHTRA. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 71 WHILE THE ASSESSEE CLAIMED TO HAVE INCURRED EXPENSE S AMOUNTING TO TOTAL OF RS. 52,68,554 FOR MARKETING AND DISTRIB UTING THE PRODUCTS OF M/S. SHAW WALLACE IN THIS YEAR, NO RECE IPTS BY WAY OF REMUNERATION OR COMMISSION WAS SHOWN IN THE PROFIT AND LOSS ACCOUNT. THUS, THE ENTIRE EXPENSES WERE SHOWN AS L OSS IN M/S. NEW CITY DISTRIBUTORS. IT WAS EXPLAINED TO THE ASS ESSING OFFICER THAT THE ASSESSEE IS SHOWING THE REMUNERATION OR CO MMISSION INCOME ON RECEIPT BASIS. SINCE IN THIS YEAR, NO AMO UNT WAS RECEIVED FROM M/S. SHAW WALLACE, NOTHING WAS SHOWN AS RECEIVED OR RECEIVABLE IN THE PROFIT AND LOSS ACCOUNT. IT WA S ALSO SUBMITTED THAT THE COMMISSION OF RS. 1,21,01,664/- WAS RECEIV ED IN THE SUBSEQUENT YEAR AND WAS OFFERED TO TAX IN THAT YEAR IN THE HANDS OF M/S. GEMINI DISTILLERIES (HYD) PVT. LTD. WHO TOO K OVER THE SAID UNIT M/S. NEW CITY DISTRIBUTORS W.E.F. 01.04.2002. 139. THE ASSESSING OFFICER DID NOT ACCEPT THE AFORESAID EXPLANATION OF THE ASSESSEE FOR THE REASONS THAT - (I) THE ASSESSEE INCURRED THE AFORESAID EXPENSES I N THE PROCESS OF SETTING UP OF THE BUSINESS. THE SAME SHOULD HAVE BEEN SHOWN AS AN ASSET IN THE BALANCE SHEET AND SHOULD BE ADJUSTED AGAINST THE INCOME EARNED IN THE SUBSEQUENT YEARS. (II) THE AFORESAID EXPENSES CANNOT BE ALLOWED AS H AVING BEEN EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS OF THE ASSESSEE AND CANNOT BE ALLOWED U/S, 37( 1) OF THE ACT. (III) SINCE THE ASSESSEE TRANSFERRED THE UNIT NAME D M/S. NEW CITY DISTRIBUTORS TO THE OTHER CONCERN IN SUBSEQUENT YEAR, THE EXPENSES INCURRED IN THE PROCE SS OF SETTING UP OF THE BUSINESS CANNOT BE ALLOWED IN THE HANDS OF THE ASSESSEE. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 72 140. FOR THE AFORESAID REASONS, THE ASSESSING OFFICER DI SALLOWED THE LOSS OF RS. 52,68,554 INCURRED IN M/S. NEW CITY DISTRIBUTORS. 141. THE ASSESSEE SUBMITTED BEFORE ASSESSING OFFICE THA T THE ASSESSEE IS FOLLOWING THE SYSTEM OF SHOWING THE COM MISSION ON RECEIPTS BASIS AND THE SAME WAS SHOWN IN THE SUBSEQ UENT YEAR WHEN THE AMOUNT WAS ACTUALLY RECEIVED BY THE ASSESS EE. SINCE THE UNIT IN THE NAME OF M/S. NEW CITY DISTRIBUTORS MERG ED WITH M/S. GEMINI DISTILLERIES (HYD) PVT. LTD W.E.F. 01.04.200 2, THE RECEIPTS WERE SHOWN THERE. 142. THE CIT(A) OBSERVED THAT THE UNIT CALLED M/S. NEW C ITY DISTRIBUTORS WAS ALLEGEDLY STARTED IN JANUARY, 2001 . THERE WAS NO BUSINESS ACTIVITY IN THE F.Y. 2000-01. THE SAID UNI T WAS APPOINTED AS DISTRIBUTOR FOR VARIOUS BRANDS OF BEER PRODUCED BY M/S. SHAW WALLACE BEVERAGES LIMITED IN THE MUNICIPAL LIMIT OF MUMBAI VIDE AGREEMENT DT 17.04.2001. THE ASSESSEE HAD CLAIMED T O HAVE INCURRED THE EXPENSES FOR CARRYING OUT THE MARKETIN G OF THE PRODUCTS OF M/S. SHAW WALLACE DURING THIS YEAR FOR WHICH THE COMMISSION WAS RECEIVED IN THE SUBSEQUENT YEAR. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS FOLLOWING THE MERCANTILE METHOD OF ACCOUNTING IN RESPECT OF ALL ITS INCOMES AND EXPENSES. THIS FACT IS CLEARLY MENTIONED IN COLUMN 11(A) OF 3 CD AUDIT REPORT. HENCE, THE CLAIM OF THE ASSESSEE THAT COMMI SSION OF RS. 1,21,01,664 SHOULD BE TAXED IN THE SUBSEQUENT YEAR ON THE BASIS OF RECEIPT IS NOT ACCEPTABLE. DURING THE APPEAL PRO CEEDINGS, THE AR WAS ASKED TO FILE THE COPY OF TDS CERTIFICATE ISSUE D BY M/S. SHAW WALLACE BREWERIES LTD., WHICH WERE FILED ON 20.01.2 006 AND 03.03.2006. IT IS EVIDENT FROM THE PERUSAL OF THES E TDS CERTIFICATES THAT THE COMMISSION WAS CREDITED BY M/ S. SHAW WALLACE INTO THE ACCOUNT OF M/S. NEW CITY DISTRIBUT ORS FROM TIME TO TIME DURING THE F.Y. 2001-02 ON WHICH THE ENTIRE TDS WAS ALSO IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 73 PAID SIMULTANEOUSLY. THE DETAILS OF AMOUNT CREDITE D AND TDS MADE ARE AS UNDER: COMMISSION PAID / CREDITED (RS.) DATE OF TDS AMOUNT OF TDS (RS.) DATE OF DEPOSIT OF TAX INTO GOVT. A/C. 40,93,504 31.08.2011 4,17,537 07.09.2001 15,06,400 30.09.2001 1,53,653 05.10.2001 21,04,640 31.10.2001 2,14,673 05.11.2001 18,76,640 30.11.2001 1,91,417 05.12.2001 15,40,800 31.12.2001 1,57,162 07.01.2002 5,96,480 31.01.2002 60,841 07.02.2002 3,83,200 28.02.2002 39,086 07.03.2002 143. THE CIT(A) FURTHER OBSERVED THAT IT IS EVIDENT THAT THE ENTIRE COMMISSION INCOME OF RS. 1,21,01,664 ACCRUED TO THE ASSESSEE BEFORE THE END OF THE RELEVANT PREVIOUS YEAR. HENC E, THE SAME HAS TO BE TAXED IN THE HANDS OF THE ASSESSEE IN A.Y. 20 02-03 FOLLOWING THE MERCANTILE METHOD OF ACCOUNTING. THE ASSESSEE WAS GIVEN AN ENHANCEMENT NOTICE VIDE ORDER SHEET NOTING DT. 21.0 2.2006 AND AGAIN BY THIS OFFICE LETTER DT. 10.05.2006. THE ASS ESSEE DID NOT FILE ANY REPLY TO THE SHOW CAUSE NOTICE DATED 10.05.2006 . IN HIS WRITTEN SUBMISSIONS FILED ON 03.03.2006 IT WAS STAT ED THAT SINCE THE AMOUNT WAS TAXED IN A.Y. 2003-04 ON THE BASIS O F RECEIPTS, THE SAME SHOULD NOT BE DISTURBED. THE EXPLANATION OF TH E ASSESSEE IS NOT ACCEPTABLE AS IT IS CONTRARY TO THE METHOD OF A CCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. FOR THE REASONS DISCUSSED ABOVE, THE ASSESSING OFFICER IS DIRECTED TO TAX THE ENTIRE COMMISSION AMOUNT OF RS. 1,21,01,664 IN THE HANDS O F THE ASSESSEE IN A.Y. 2002-03 AND THE ASSESSED INCOME IS ENHANCED TO THAT EXTENT. 144. REGARDING THE DISALLOWANCE OF ENTIRE EXPENSES MADE BY THE ASSESSING OFFICER, THE CIT(A) OBSERVED THAT THE SAM E CANNOT BE UPHELD SINCE THE CORRESPONDING RECEIPTS ARE DIRECTE D TO BE TAXED IN THIS YEAR ONLY. HENCE, THE ALLOWABILITY OF EXPENSE S WAS EXAMINED IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 74 DURING THE APPEAL PROCEEDINGS. THE ASSESSEE WAS ASK ED TO FILE THE DETAILS OF FOLLOWING EXPENSES HANDLING CHARGES (R S. 1,65,000), SCHEME EXPENSES (RS. 15,00,000) AND TRADE EXPENSES (RS. 6,04,760). AS PER THE DETAILS FILED ON 20.01.2006, IT IS NOTICED THAT OUT OF THE HANDLING EXPENSES OF RS. 1,65,000, A SUM OF RS. 1,45,000 WAS INCURRED IN CASH ON 29.09.2001 WHILE A CASH AMOUNT OF RS. 20,000 WAS PAID ON 01.10.2001 TO ONE SRI RAJESH SHARMA ON BEHALF OF SRI SUKHDEV. HOWEVER, THE ASSE SSEE COULD NOT PRODUCE ANY BILLS / VOUCHERS TO SUBSTANTIATE TH ESE EXPENSES. SIMILARLY, THE SCHEME EXPENSES OF RS. 15,00,000 WAS SHOWN BY WAY OF A CREDIT NOTE ISSUED BY M/S. TOPDOM MARKETIN G PVT. LIMITED ON 31.03.2002 FOR REIMBURSEMENT OF SCHEME E XPENSES FOR THE MONTH OF FEBRUARY, 2002. IT WAS EXPLAINED BY TH E AR VIDE HIS LETTER FILED ON 3.3.2006 THAT M/S. TOPDOM MARKETING PVT. LTD., WAS ONE OF THE CUSTOMER OF THE FIRM AND THE SUM OF RS. 15 LAKHS WAS PAID TO THEM AS SPECIAL INCENTIVE FOR PROMOTION OF HAYWARDS 5000 BRAND BEER. WHEN THE ASSESSEE WAS ASKED TO FILE THE COPY OF ACCOUNT OF THE SAID CONCERN SHOWING THE TOTAL SALES MADE TO THEM AND THE BASIS OF COMPUTATION OF INCENTIVE OF RS. 15 LAKHS, THE SAME WAS NEVER FILED BY THE ASSESSEE. EVEN THE COPY OF THE CREDIT NOTE AND THE ADDRESS OF THE SAID CONCERN COULD NOT BE FURNISHED FOR THE VERIFICATION. IT IS EVIDENT FROM THE COMMIS SION AGREEMENT WITH M/S. SHAW WALLACE BREWERIES LIMITED THAT ALL T HE SCHEME EXPENSES AND SALES PROMOTION EXPENSES WERE TO BE RE IMBURSED TO THE ASSESSEE. THE ASSESSEE HAS NEITHER SHOWN TO HAV E RECEIVED ANY SUCH AMOUNT FROM M/S. SHAW WALLACE NOR RAISED ANY C REDIT NOTE TO THE COMPANY. IN VIEW OF THESE FACTS AND CIRCUMS TANCES, IT IS HELD THAT NEITHER THE GENUINENESS OF THE SCHEME EXP ENSES COULD BE PROVED BY THE ASSESSEE NOR THE SAME CAN BE HELD AS A LIABILITY OF THE ASSESSEE WHICH COULD BE ALLOWED AS AN EXPENSE. HENCE, THE SCHEME EXPENSES OF RS. 15 LAKHS ARE NOT ALLOWABLE B USINESS EXPENSES. SIMILARLY, THE BILLS AND VOUCHERS AND OTH ER DETAILS OF IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 75 TRADE EXPENSES COULD NOT BE PRODUCED BY THE ASSESSE E. SINCE NEITHER THE NATURE OF THESE EXPENSES WERE EXPLAINED NOR THE GENUINENESS OF THE SAME COULD BE PROVED NOR IT COUL D BE PROVED WHETHER THE SAME WERE EXPENDED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE, THESE EXPENSES AMOUNTING TO RS. 6, 04,760 ARE NOT ALLOWABLE BUSINESS EXPENSES. ACCORDINGLY, OUT OF T HE TOTAL EXPENSES OF RS. 52,68,584 CLAIMED BY THE ASSESSEE, THE EXPENSES AMOUNTING TO RS. 22,69,760 (RS. 1,65,000 + RS. 15,0 0,000 + RS. 6,04,760) WAS DISALLOWED. THE BALANCE EXPENSES OF R S. 29,98,824 WAS DIRECTED TO BE ALLOWED AND SET OFF AGAINST THE COMMISSION INCOME OF RS. 1,21,01,664. THE NET INCOME IS ENHANC ED TO THE EXTENT OF RS. 91,02,870 [ RS. 1,21,01,664 (-) RS. 5 2,68,554 (+) RS. 22,69,760 ] ON THIS ISSUE BY CIT(A). 145. DURING THE APPEAL PROCEEDINGS, IT WAS NOTICED THAT THE ASSESSEE HAS PAID COMPOUNDING FEES OF RS. 25000 TO EXCISE DEPARTMENT. IT WAS EXPLAINED BY THE ASSESSEE THAT DURING THE SEARCH PROCEEDINGS ON 03.01.2002 AT THE BUSINESS PR EMISES OF THE ASSESSEE, CERTAIN STOCKS WERE FOUND TO HAVE BEEN MA NUFACTURED WITHOUT INTIMATING TO THE EXCISE AUTHORITIES AND CE RTAIN VARIATIONS WERE FOUND BETWEEN THE PHYSICAL STOCK AND THE BOOK STOCK OF E.N.A AND MALT SPIRIT. THE EXCISE AUTHORITIES THER EFORE, COMPOUNDED THE OFFENCE AND IMPOSED A COMPOUNDING FE E OF RS. 25,000 IN ACCORDANCE WITH SEC. 45 OF KARNATAKA EXCI SE ACT, 1965. SUB-SECTION (3) OF SECTION 45 OF KARNATAKA EXCISE A CT CLEARLY PROVIDES THAT THE COMPOUNDING FEES WAS IN THE NATUR E OF PENALTY. HENCE, THE SUM OF RS. 25,000 BEING IN THE NATURE OF PENALTY CANNOT BE ALLOWED AS BUSINESS EXPENSE. THE ASSESSEE WAS GIVEN AN ENHANCEMENT NOTICE VIDE ORDER SHEET NOTING DT. 21.0 2.2006 AND CIT(A) LETTER DT. 10.05.2006 ON THIS ISSUE. THE C IT(A) DIRECTED THE ASSESSING OFFICER TO ENHANCE THE ASSESSED INCOME BY RS. 25,000 BY WAY OF DISALLOWANCE OF COMPOUNDING FEES PAID TO EXCISE DEPARTMENT. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 76 146. DURING THE APPEAL PROCEEDINGS, THE CIT(A) NOTICED T HAT THERE WAS A DEBIT BALANCE OF RS. 6,82,17,063 IN THE CAPIT AL ACCOUNT OF THE PARTNER SRI HARMAHENDER SINGH BAGGA. WHILE THE ASSESSEE HAS PAID INTEREST OF RS. 35,28,940 TO M/S. ROYAL MA RKETING AGENCIES, NO INTEREST WAS CHARGED FROM THE PARTNER ON HIS DEBIT BALANCES. HENCE, A SHOW-CAUSE NOTICE WAS ISSUED VI DE CIT(A) ORDER SHEET NOTING DT. 21.02.2006 AND LETTER DT. 10 .05.2006 THAT WHY THE INTEREST EXPENSES OF RS. 35,28,940 SHOULD N OT BE DISALLOWED AS THE BORROWINGS WERE DIVERTED FOR NON- BUSINESS PURPOSES. THE ASSESSEE VIDE HIS LETTER FILED ON 03. 03.2006 SUBMITTED BEFORE CIT(A) THAT THERE WAS AN OPENING DEBIT BALANCE OF RS. 1,30,09,968 IN THE ACCOUNT OF SRI HARMAHENDE R SINGH BAGGA. THE PARTNER HAS UTILIZED THE FUNDS OF THE FI RM AND NOT THE BORROWED FUNDS TO MAKE A QUALIFICATION FOR INTEREST ON THE DEBIT BALANCES. IT WAS ALSO CLAIMED THAT THE ASSESSEE HA S INTEREST-FREE UNSECURED LOANS OF RS. 78,26,100. AFTER DULY CONSID ERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) OBSERVED TH AT THERE IS NO FORCE THEREIN. THOUGH THE ASSESSEE HAS INTEREST-FRE E UNSECURED LOANS OF RS. 78,26,100 IT HAS ALSO GIVEN INTEREST-F REE ADVANCES TO OTHER SISTER CONCERNS AMOUNTING TO TOTAL OF RS. 42, 57,266 AS UNDER: (A) CITY DISTRIBUTORS - RS. 20,00,000 (B) SATPAL SINGH BAGGA - RS. 3,23,928 (C) BAGGA TAMILNADU MKTG. AGENCIES - RS. 19,33,33 8 147. THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT THE SU M OF RS. 5.52 CRORES (RS. 6.82 CRORES - RS. 1.30 CRORES) WAS PAID TO THE PARTNER DURING THIS YEAR WAS OUT OF THE OWN FUNDS O F THE FIRM FOR WHICH THE ENTIRE ONUS LIE ON THE ASSESSEE. EVEN IF THE ASSESSEE'S CLAIM OF AVAILABILITY OF INTEREST-FREE LOANS OF RS. 35.69 LAKHS (78.26 - 42.57 ) IS ACCEPTED, THE ASSESSEE HAS NOT BEEN AB LE TO EXPLAIN THE SOURCE OF INTEREST-FREE ADVANCES OF RS. 5.14 CRORES GIVEN TO THE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 77 PARTNER SRI H.S. BAGGA. TO THIS EXTENT, IT HAS TO BE HELD THAT THE INTEREST BEARING LOANS RECEIVED BY THE ASSESSEE FIR M WERE DIVERTED FOR NON BUSINESS PURPOSES. HENCE, THE INTEREST OF RS. 35,28,940 PAID TO ANOTHER SISTER CONCERN IS NOT ALLOWABLE AS BUSINESS EXPENSES. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 148. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. EVEN BEFORE US THE ASSESSEE WAS NOT ABLE TO CONTROVERT THE FINDINGS OF THE CIT(A) AND WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF THE CIT(A) AND THE SAME IS CONFIRMED. THIS GROU ND IS DISMISSED IN ITA NO. 713/HYD/06. NO OTHER GROUNDS IN ITA NO. 713/HYD/06 ARGUED BEFORE US. HENCE WE HAVE NOT ADJUDICATED TH E SAME. 149. THE GROUND IN ITA NO. 579/HYD/06 (ASSESSEE'S APPEAL M/S. SREE RAM LAKSHMAN MARKETING AGENCIES) IS WITH REGARD TO ADDITION OF RS. 48,50,000 MADE BY THE ASSESSING OFF ICER U/S. 68 OF THE ACT. ACCORDING TO THE ASSESSEE IT IS SAID TO H AVE RECEIVED RS. 23.5 LAKHS FROM SRI B. VENKATA RAVI SHANKAR AND RS. 25 LAKHS FROM SRI K. RAJENDRA BABU. THE LOWER AUTHORITIES D OUBTED THESE CREDITS ON THE REASON THAT THE CONFIRMATION LETTER DO NOT CONTAIN INFORMATION ABOUT THE SOURCE OF INCOME, BANK ACCOUN T DETAILS, NATURE OF LOAN/ADVANCE AND THEIR INCOME-TAX PARTICU LARS. BEING SO, THE ADDITION WAS MADE. 150. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN CASE OF ANY CREDIT APPEARING IN THE BOO KS OF THE ASSESSEE, THE ASSESSEE IS BOUND TO EXPLAIN THE IDEN TITY, CAPACITY OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION. M ERELY FILING OF A CONFIRMATION LETTER DOES NOT DISCHARGE THE ASSESSEE FROM LIABILITY. IN THIS CASE THE EXPLANATION OFFERED BY THE ASSESSE E ABOUT THE NATURE AND SOURCE THEREOF IS NOT SATISFACTORY. ACC ORDINGLY, THE ADDITION IS SUSTAINED IN ITA NO. 579/HYD/06. IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 78 151. THE NEXT GROUND FOR OUR ADJUDICATION IS IN ITA NO. 705/HYD/06 (DEPARTMENT APPEAL - M/S. SREE RAM LAKSH MAN MARKETING AGENCIES). THE DEPARTMENT'S GRIEVANCE HE REIN IS WITH REGARD TO ADMISSION OF NEW EVIDENCE IN VIOLATION OF RULE 46A OF INCOME-TAX RULES, 1962. 152. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE EXPL AINED TO THE ASSESSING OFFICER THAT SWCL FILED A PETITION BEFORE THE HONBLE CALCUTTA HIGH COURT U/S. 391 OF THE COMPANIES ACT, 1956 FOR A SCHEME OF ARRANGEMENT FOR PAYMENT TO THE CREDITORS OF THE COMPANY. HOWEVER, CERTAIN CREDITORS THREATENED TO FILE WINDING UP PETITION BEFORE THE HIGH COURT U/S. 434 OF THE COMP ANIES ACT TO DEFEAT THE SCHEME. SINCE THE ASSESSEE FIRM AND OTH ER CONCERNS OF THE BAGGA GROUP HAD THE DISTRIBUTORSHIP OF SWCL AND WERE ALSO MANUFACTURING VARIOUS BRANDS OF SWCL, IT WAS IN ITS INTEREST TO SAVE THE COMPANY FROM LIQUIDATION. HENCE, AN ARRAN GEMENT WAS CHALKED OUT BETWEEN SWCL AND VARIOUS CONCERNS OF TH E BAGGA GROUP BY WHICH SOME OF THE CREDITORS WERE TO BE PAI D A SETTLED AMOUNT THROUGH THE ASSESSEE AND OTHER CONCERNS OF T HE GROUP. AS PER THE ARRANGEMENT, THE ASSESSEE LENT ITS NAME ONL Y TO ENSURE THE CONFIDENCE AND GOODWILL OF THE CREDITORS SO THAT TH EY COULD RELY UPON THE ASSURANCE GIVEN BY SWCL. THE PAYMENT WAS TO BE MADE ACTUALLY BY SWCL AND THE ASSESSEE HAD NO FINANCIAL IMPLICATION IN THE SAID ARRANGEMENT. IT WAS FURTHER EXPLAINED THA T THE ASSESSEE HAD SUBSTANTIAL DEPOSIT ACCOUNT WITH SWCL WHICH WAS ADJUSTED AGAINST THE DEBTS OWNED BY THE ASSESSEE. THE NAMES OF THE VARIOUS CREDITORS OWNED UP BY THE ASSESSEE WERE SUB STITUTED BY THE NAME OF THE ASSESSEE IN THE ACCOUNT BOOKS OF SW CL. THE PAYMENTS WERE MADE TO THESE CREDITORS BY SWCL ON BE HALF OF THE ASSESSEE AND THE ADJUSTMENT ENTRIES WERE PASSED IN THE ACCOUNT OF THE ASSESSEE. THE ASSESSEE ALSO PRODUCED SRI NEERA J AGARWAL, MANAGER (CORPORATE FINANCE), SWCL BEFORE THE ASSESS ING OFFICER IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 79 ON 15.3.2005 AND 21.3.2005, WHO CONFIRMED THAT ALL THE PAYMENTS TO THE SAID CREDITORS WERE MADE BY SWCL FROM ITS OW N RESOURCES AND THE ASSESSEE FIRM DID NOT PASS ON ANY FUNDS. H E ALSO FILED THE BANK ACCOUNTS OF SWCL SHOWING THE PAYMENTS MADE TO THE SAID CREDITORS. PHOTOCOPIES OF DEMAND DRAFTS WERE ALSO FILED SHOWING THAT THE SAME WERE ISSUED FROM THE BANK ACCOUNT OF SWCL. 153. HOWEVER, THE AFORESAID EXPLANATION AND EVIDENCES WE RE REJECTED BY THE ASSESSING OFFICER FOR THE FOLLOWING REASONS: I) THE MOU DT. 31.3.2000 WAS ENTERED INTO AFTER DISCHA RGING ALL THE DEBTS OF SWCL ASSIGNED TO THE ASSESSEE. II) THE ASSESSEE FIRM HAD ADDRESSED LETTERS TO THE RESP ECTIVE CREDITORS CONFIRMING THE ASSIGNMENT OF THE DEBTS DU E TO THEM TO THE ASSESSEE. III) THE ASSESSEE FIRM SENT DDS OF THE SETTLED AMOUNT IN FAVOUR OF THE CREDITORS AS PER THE DEED OF ASSIGNME NT. IV) THE LETTERS ACKNOWLEDGING THE RECEIPTS OF DDS WERE ISSUED TO THE ASSESSEE. V) THE SAID MOU WAS NOT VALID SINCE THE COPY OF MOU FI LED DOES NOT BEAR THE SIGNATURE OF REPRESENTATIVES OF S WCL. VI) THE DEEDS OF ASSIGNMENT ENTERED INTO BY THE ASSESSE E WITH THE VARIOUS CREDITORS OF SWCL WERE BEARING THE SIGNATURE OF BOTH THE CREDITOR AND THE ASSESSEE FIR M. VII) ALL THE AFORESAID DOCUMENTARY EVIDENCES CLEARLY SHO WED THAT THE ASSESSEE FIRM WAS FINANCIAL INVOLVED IN CL EARING SOME OUTSTANDING DEBTS OF SWCL. FOR THE ABOVE REASONS, THE ASSESSING OFFICER TREATE D THE ABOVE AMOUNT AS UNEXPLAINED EXPENDITURE MADE BY THE ASSES SEE FOR MAKING PAYMENTS TO THE CREDITORS OF SWCL. THE SAME WAS TAXED AS INCOME OF THE ASSESSEE U/S. 69C OF THE ACT . 154. BEFORE THE CIT(A), THE AR FILED WRITTEN SUBMISSIONS REITERATING THE SAME ARGUMENTS AND EVIDENCES AS FIL ED BEFORE THE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 80 ASSESSING OFFICER TO EXPLAIN THAT THE ENTIRE PAYMEN T TO THE SAID CREDITORS WAS MADE BY SWCL ONLY AND NOT BY THE ASSE SSEE FIRM. HE ALSO PRODUCED SRI AMITAB DAS, THE AUTHORISED REP RESENTATIVE OF SWCL WHO RECONFIRMED THAT THE ENTIRE PAYMENT TO THE CREDITORS MENTIONED IN THE RELEVANT ROLL OVER AGREEMENTS / AS SIGNMENT AGREEMENTS WERE MADE BY SWCL ON BEHALF OF THE ASSES SEE FIRM WITH OTHER CONCERNS OF THE GROUP. THE AR FURTHER A RGUED THAT THE ASSESSING OFFICER HAS WRONGLY INVOKED THE PROVISION S OF SECTION 69C OF THE ACT SINCE THE ASSESSEE HAS NOT MADE ANY UNEXPLAINED EXPENDITURE WHICH COULD BE DEEMED TO BE THE INCOME OF THE ASSESSEE. RELIANCE WAS PLACED ON THE DECISIONS OF PRADEEP C PATEL VS. ACIT (58 TTJ 409) (AHD.), J.S. PARKER VS. V.B. PALEKAR (94 ITR 616) (BOM) AND BHAGAWATI PRASAD MISRA VS. CIT (35 I TR 97) (ORISSA). ACCORDINGLY, THE CIT(A) DELETED THE A DDITION. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. 155. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE EVIDENCE FILED BEFORE THE ASSESSING OF FICER SHOWS THAT THE ASSESSEE HAS INVOLVED IN CLEARING SOME OUTSTAND ING AMOUNT DUE BY M/S. SWCL TO SOME OTHER CREDITORS. ACCORDIN G TO THE ASSESSEE IT IS ONLY ACCOMMODATION ENTRIES IN THE BO OKS OF ACCOUNT. AS PER THE STATEMENT MADE BY THE MANAGER OF SWCL, T HEY REDUCED THE DEPOSIT DUE TO THE ASSESSEE FIRM IN THEIR BOOKS OF ACCOUNT. IN OUR OPINION ALL THESE FACTS ARE TO BE EXAMINED BY T HE ASSESSING OFFICER BY GOING THROUGH THE BOOKS OF ACCOUNT OF BO TH THE PARTIES INVOLVED HEREIN. ACCORDINGLY, IN OUR OPINION, EXPL ANATION OFFERED BY THE ASSESSEE BEFORE THE CIT(A) IS NOT ENOUGH TO DELETE THE ADDITION BEFORE PROPER EXAMINATION BY THE ASSESSING OFFICER. BEING SO, WE ARE INCLINED TO REMIT THE ISSUE BACK T O THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION WITH A DI RECT TO THE ASSESSEE TO LEAD NECESSARY EVIDENCE AND CO-OPERATE WITH THE IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 81 DEPARTMENT. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. IN THE RESULT REVENUE APPEAL IS ALLOWED FOR STATISTICA L PURPOSES. 156. IN THE RESULT, THE APPEALS ARE DISPOSED OF AS FOLLO WS: SL. NO. APPEAL NO. ASSESSEE/DEPT. RESULT 1. IT(SS)A NO. 69/H/05 DEPARTMENT PARTLY ALLOWED FO R STATISTICAL PURPOSES. 2. IT(SS)A NO. 74/H/05 ASSESSEE -DO- 3. ITA NO. 1186/H/05 DEPARTMENT DISMISSED 4. ITA NO. 1187/H/05 DEPARTMENT DISMISSED 5. ITA NO. 1257/H/06 DEPARTMENT DISMISSED 6. ITA NO. 1258/H/06 DEPARTMENT DISMISSED 7. ITA NO. 1259/H/06 DEPARTMENT DISMISSED 8. ITA NO. 271/H/06 ASSESSEE DISMISSED 9. ITA NO. 823/H/08 DEPARTMENT DISMISSED 10.. IT(SS)A NO. 1/H/05 DEPARTMENT DISMISSED 11. ITA NO. 710/H/06 ASSESSEE PARTLY ALLOWED 12. ITA NO. 766/H/07 ASSESSEE PARTLY ALLOWED 13. ITA NO. 904/H/08 ASSESSEE PARTLY ALLOWED 14. ITA NO. 709/H/06 ASSESSEE DISMISSED 15. ITA NO. 931/H/07 DEPARTMENT ALLOWED 16. ITA NO. 929/H/07 DEPARTMENT ALLOWED 17. ITA NO. 1481/H/08 DEPARTMENT ALLOWED 18. ITA NO. 1284/H/11 DEPARTMENT ALLOWED 19. ITA NO. 767/H/07 ASSESSEE DISMISSED 20. ITA NO. 928/H/07 DEPARTMENT DISMISSED 21. ITA NO. 930/H/07 DEPARTMENT ALLOWED 22. ITA NO. 1285/H/11 DEPARTMENT ALLOWED 23. ITA NO. 1286/H/11 DEPARTMENT ALLOWED 24. IT(SS)A NO. 50/H/05 ASSESSEE PARTLY ALLOWED 25. IT(SS)A NO. 52/H/05 ASSESSEE DISMISSED 26. ITA NO. 1486/H/08 DEPARTMENT PARTLY ALLOWED 27. IT(SS)A 18/HYD/10 ASSESSEE DISMISSED 28. IT(SS)A 113/HYD/05 ASSESSEE DISMISSED 29. ITA NO. 707/H/06 DEPARTMENT PARTLY ALLOWED 30. ITA NO. 847/H/08 ASSESSEE PARTLY ALLOWED 31. ITA NO. 947/H/08 DEPARTMENT DISMISSED 32. ITA NO. 713/H/06 ASSESSEE PARTLY ALLOWED 33. ITA NO. 735/H/06 DEPARTMENT DISMISSED 34. ITA NO. 579/H/06 ASSESSEE DISMISSED 35. ITA NO. 705/H/06 DEPARTMENT ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD AUGUST, 2012. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 3 RD AUGUST, 2012 IT(SS)A NO. 69 / HYD/05 & ORS. SRI HARMAHENDER SINGH BAGGA & ORS. =========================== 82 COPY FORWARDED TO: 1. SRI HARMAHENDER SINGH BAGGA C/O. M/S. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD-82. 2. SRI BALWINDER SINGH BAGGA 3. SMT. INDERJEET KAUR BAGGA 4. SMT. DEVENDER KAUR BAGGA 5. SRI SATPAL SINGH BAGGA 6. SMT. SARABJEET KAUR BAGGA 7. SMT. PARNEETH KAUR BAGGA 8. M/S. SREE BALAJI ENTERPRISES 9. M/S. SREE RAM LAKSHMAN MARKETING AGENCIES 10. THE DCIT, CENTRAL CIRCLE-1, HYDERABAD. 11. THE ACIT, CENTRAL CIRCLE-1, HYDERABAD. 12. THE DCIT, CIRCLE-5(1), HYDERABAD. 13. THE CIT(A)-IV, HYDERABAD 14. THE CIT(A)-I, HYDERABAD. 15. THE CIT(A)-V, HYDERABAD. 16. THE CIT-III, HYDERABAD 17. THE CIT (CENTRAL), HYDERABAD 18. THE CIT-IV, HYDERABAD. 19. THE DR B BENCH, ITAT, HYDERABAD. TPRAO