P.Srinivasan, Salem V. ITO, Salem

ITA 1280/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5949 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 22-05-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VENI S RAJ JT
• Assessee Lawyers: LAKSHMI VENKATRAMAN
• Keywords: Business expenditure; Source of fund

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B, CHENNAI , ! ' #! ' $ . %& , ' () * BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ITA NO.1280/MDS/2017 ' + !,+ / ASSESSMENT YEAR : 2009-10 P.SRINIVASAN, PROP: M/S. SRI DHANASHREE TEXTILES, SHOP NO.101, 102, KAMALAM COMPLEX, DADUBAI NAGAR, SALEM 636 001. [PAN: BXCPS 8105G] VS. INCOME TAX OFFICER, WARD I(1), SALEM. ( /APPELLANT ) ( / RESPONDENT ) -. 0 1 / APPELLANT BY : SHRI LAKSHMI VENKATRAMAN, FCA 23-. 0 1 / RESPONDENT BY : SMT. VENI S.RAJ, JT. CIT ' ! 0 4 / DATE OF HEARING : 01.08.2017 5, 0 4 / DATE OF PRONOUNCEMENT : 13.10.2017 /ORDER PER SANJAY ARORA, AM : THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS), SALEM (CIT(A ) FOR SHORT) DATED 31.03.2017, DISMISSING THE ASSESSEES APPEAL CONTES TING THE LEVY OF PENALTY U/S. 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT HE REINAFTER) FOR THE ASSESSMENT YEAR (AY) 2009-10 VIDE ORDER DATED 18.11 .2015. 2. THE ONLY ISSUE ARISING IN THE INSTANT APPEAL IS THE MAINTAINABILITY IN LAW, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, OF THE PENALTY U/S. 271(1)(C) OF THE 2 ITA NO.1280/MDS/2017 (AY 2009-10) P.SRINIVASAN V. ITO ACT, LEVIED AND SUSTAINED IN THE SUM OF . 10,16,287/-, I.E., AT ONE HUNDRED PER CENT. OF THE TAX SOUGHT TO BE EVADED IN TERMS OF EXPLANATION 4 TO S. 271(1)(C) ON THE UNDISCLOSED INCOME OF . 31,36,168/-. 3. WE MAY BEGIN BY STATING THE BACK-GROUND FACTS OF THE CASE. THE ASSESSEE INDIVIDUAL IS A SALEM BASED RETAIL AND WHOLESALE TR ADER IN SAREES, BUYING THEM FROM SURAT (GUJARAT) AND SELLING THEM AT SALEM (TAM IL NADU). DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT AN ATM CASH WITHDRAWAL OF . 30,000/- FROM THE ASSESSEES BANK ACCOUNT WITH IC ICI BANK WAS ENTERED SIX TIMES IN THE CASH BOOK (ON DIFFERENT DATES), I.E., INCREASING THE CASH BALANCE (IN HIS ACCOUNTS) BY . 1,80,000/-, INSTEAD OF BY . 30,000/- ONLY, IN-AS-MUCH AS THERE WERE NO CORRESPONDING WITHDRAWALS IN THE BANK FOR THE BALANCE . 1,50,000/-. THE LD. AUTHORIZED REPRESENTATIVE (AR), SHRI T.S.LAKSHMI VENKATARAMAN, FCA, ON BEING QUESTIONED IN THE MATTE R, AGREED TO THE ADDITIONAL SUM BEING TAXED AS INCOME. FURTHER, THE ASSESSING O FFICER (AO) FOUND THE CHEQUES ISSUED TO THIRD PARTIES (I.E., OSTENSIBLY T HE CREDITORS, THE SELLERS OF SAREES) ENCASHED AT SURAT. HOWEVER, SURPRISINGLY, CASH WAS ENTERED IN THE CASH BOOK AT SALEM IN RESPECT OF THOSE CHEQUES, AND ON THE SAME DAY. HOW WAS IT THAT THE CHEQUES ISSUED IN FAVOUR OF THIRD PARTIES RESULTED IN, INSTEAD OF DISCHARGE OF LIABILITY/S TO THAT EXTENT, EVEN IF PER BEARER CHEQ UE/S, AN INCREASE IN THE CASH BALANCE WITH THE ASSESSEE? AGAIN, WHY WERE THE CHEQ UES ENCASHED IN SURAT IF THE CASH WAS REQUIRED AT SALEM, WHERE IT WAS ABSORBED F OR THE PURPOSES OF THE ASSESSEES BUSINESS? FURTHER, HOW WAS THE CASH BROU GHT PHYSICALLY EACH TIME FROM SURAT TO SALEM, SEPARATED BY A LONG DISTANCE, AND ON THE SAME DAY? THE ASSESSEES REPEATED AND SPECIFIC QUESTIONING BY THE AO IN THE MATTER DURING HEARING, I.E., WITH REGARD TO THE PURPOSE OF THE CA SH WITHDRAWALS AT SURAT AND, FURTHER, AS TO HOW AND WHY WAS THE CASH BROUGHT, EA CH TIME, TO SALEM, ON THE SAME DAY, WHICH WAS HIGHLY IMPRACTICAL, DID NOT ELI CIT ANY ANSWER. REMOVING 3 ITA NO.1280/MDS/2017 (AY 2009-10) P.SRINIVASAN V. ITO THE CASH WITHDRAWN AT SURAT FROM THE ASSESSEES CAS H BOOK RESULTED IN A NEGATIVE CASH BALANCE, A PHYSICAL IMPOSSIBILITY, SO THAT IT COULD NOT BE, AND WHICH WAS THEREFORE INFERRED BY THE AO AS HAVING BEEN ENTERED (IN THE CASH-BOOK) AS A DEVICE TO COVER THE CASH OTHERWISE AVAILABLE WITH T HE ASSESSEE, I.E., SOURCE OF WHICH IS NOT EXPLAINED, AND SINCE USED FOR MEETING BUSINESS EXPENSES/FOR BUSINESS PURPOSES. THE PEAK NEGATIVE CASH BALANCE W AS WORKED OUT, INCLUDING THE EXCESS CASH INTRODUCED AGAINST THE CASH WITHD RAWAL OF . 30,000/- ON 29.04.2008, AT . 31,36,168/- (DETAILED AT ANN. 1 TO THE ASSESSMENT ORDER). FURTHER STILL, THE AO, IN THE ABSENCE OF ANY PURPOS E OF THE CASH WITHDRAWALS AT SURAT BEING EXPLAINED, AND WHICH AGAIN COULD NOT BE , PRESUMED THE SAME TO BE UTILIZED FOR CASH PURCHASES AT SURAT, I.E., AT . 31.25 LACS, 10 PER CENT. OF WHICH, I.E., . 3.1251 LACS, WAS CONSIDERED AS PROFIT FROM UNDISC LOSED SALES AGAINST SUCH PURCHASES. THE ASSESSEE IN FIRST APPEAL FOUND FAVOU R WITH THE LD. CIT(A) AS REGARDS THE ADDITION ON ACCOUNT OF ADDITIONAL PROFI T IN-AS-MUCH AS THE INFERENCE OF UNACCOUNTED PURCHASES AT SURAT WAS, IN THE ABSEN CE OF ANY EVIDENCE TOWARD THE SAME, ONLY A PRESUMPTION. THE ADDITION QUA THE NEGATIVE CASH BALANCE ( . 31.36 LACS) WAS CONFIRMED BY THE TRIBUNAL IN SECOND APPEAL (IN ITA NO.986/MDS/2014 DATED 15.05.2015/COPY ON RECORD). T HE PENALTY PROCEEDINGS, INITIATED AT THE CONCLUSION OF THE ASSESSMENT PROCE EDINGS, BY ISSUE OF NOTICE U/S. 274 DATED 31.12.2011, WERE ACCORDINGLY PROCEEDED WI TH, AFFORDING OPPORTUNITY TO THE ASSESSEE TO EXPLAIN HIS CASE IN THE MATTER. THE ASSESSEE REPLIED BY RELYING ON THE DECISIONS IN HINDUSTAN STEEL LTD. V. STATE OF ORISSA [1972] 83 ITR 26 (SC) AND DILIP N. SHROFF V. JT. CIT [2007] 291 ITR 513 (SC). THE SAME WERE FOUND AS OF LITTLE RELEVANCE. THE MATTER WAS FACTUA L. CHEQUES WERE ISSUED TO THIRD PARTIES AT SURAT, WHICH WERE ENCASHED THEREAT , WHILE CASH IN RESPECT OF THOSE CHEQUES WAS FOUND ENTERED IN THE ASSESSEES C ASH-BOOK (AT SALEM). HOW COULD IT BE? THEN, AGAIN, WHO WERE THESE PARTIES TO WHOM THE CHEQUES WERE BEING REGULARLY ISSUED? RECASTING THE ASSESSEES CA SH-BOOK, REMOVING THIS CASH, 4 ITA NO.1280/MDS/2017 (AY 2009-10) P.SRINIVASAN V. ITO RESULTED IN A NEGATIVE CASH BALANCE, A PHYSICAL IMP OSSIBILITY, SO THAT THE SOURCE OF EACH TO THAT EXTENT, WAS NOT KNOWN. NO EXPLANA TION HAD BEEN FURNISHED BY THE ASSESSEE TOWARD THE SAME. HE, ACCORDINGLY, FIND ING THE DECISIONS CITED AS NOT APPLICABLE, LEVIED PENALTY IN RESPECT OF THE ADDITI ON OF . 31.36 LACS. THE SAME STOOD CONFIRMED IN FIRST APPEAL, AND FOR THE SAME R EASONS, I.E., AN ABSENCE OF EXPLANATION BY THE ASSESSEE QUA THE FINDINGS BY THE AO, SINCE CONFIRMED BY THE TRIBUNAL. AGGRIEVED, THE ASSESSEE IS IN SECOND APPE AL. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE LAW IN THE MATTER, I.E., QUA PENALTY U/S. 271(1)(C) IS TRITE; A PLAUSIBLE EXPLANATION SAVES PENALTY. AN ABSENCE OF EXPLANATIO N OR A FAILURE TO SUBSTANTIATE THE SAME WOULD RESULT IN EXPLANATION 1 TO S. 271(1)(C), REPRODUCED AS UNDER, BEING TRIGGED, DEEMING THE ASSESSEE TO HAVE CONCEAL ED THE PARTICULARS OF INCOME, I.E., QUA THE RELEVANT INCOME: FAILURE TO FURNISH RETURNS, COMPLY WITH NOTICES, C ONCEALMENT OF INCOME, ETC. 271. (1) IF THE ASSESSING OFFICER OR THE COMMISSIONER ( APPEALS) OR THE COMMISSIONER IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT, IS SATISFIED THAT ANY PERSON (A) TO (B). (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, OR HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY, ( I ) TO ( III ).. EXPLANATION 1. WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, ( A ) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFE RS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) OR THE COMMISSIONER TO BE FA LSE, OR ( B ) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MAT ERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCL OSED BY HIM, THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURP OSES OF CLAUSE ( C ) OF THIS 5 ITA NO.1280/MDS/2017 (AY 2009-10) P.SRINIVASAN V. ITO SUB-SECTION, BE DEEMED TO REPRESENT THE INCOME IN R ESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. WHERE THE ASSESSEE IS UNABLE TO FURNISH ANY EXPLANA TION, DULY SUPPORTED, IT CANNOT BE SAID TO BE SAVED BY EITHER CLAUSE (A) OR CLAUSE (B) OF EXPLANATION 1 TO S. 271(1)(C), AND TOWARD WHICH WE MAY CITE SEVERAL DECISIONS, SETTLING THE LAW, AS FOLLOWS: UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS [2008] 306 ITR 277 (SC): MAK DATA P. LTD. VS. CIT [2013] 358 ITR 593 (SC); CIT V. ATUL MOHAN BINDAL [2009] 317 ITR 1 (SC); K.P. MADHUSUDHANAN VS. CIT [2001] 251 ITR 99 (SC); B.A. BALASUBRAMANIAM AND BROS V. CIT (1999) 236 ITR 977 (SC); ADDL. CIT VS. JEEVAN LAL SHAH [1994] 205 ITR 244 (SC); CIT VS. K. R. SADAYAPPAN [1990] 185 ITR 49 (SC); CIT VS. MUSSADILAL RAM BHAROSE [1987] 165 ITR 14 (SC); AND SHARMA ALLOYS (INDIA) LTD. V. ITO [2013] 357 ITR 379 (MAD). COMING TO THE FACTS OF THE CASE, WE FIND THAT NEI THER IN THE ASSESSMENT NOR IN THE PENALTY PROCEEDINGS DID THE ASSESSEE FURNISH ANY EXPLANATION WHATSOEVER WITH REGARD TO THE ENCASHMENT OF THE RELEVANT CHEQU ES, I.E., AS TO HOW THE CHEQUES, ISSUED TO THIRD PARTIES AT SURAT, FOUND IT S WAY AS CASH IN HIS BOOKS OF ACCOUNT, MAINTAINED AT SALEM, AND, ON CASH OCCASION , ON THE SAME DAY. IF THE ASSESSEE REQUIRED CASH AT SALEM, FOR THE PURPOSE OF MEETING THE EXPENDITURE OF HIS BUSINESS THEREAT, FOR WHICH THE SAME HAS BEEN U SED, WHY WERE THE CHEQUES ISSUED TO THIRD PARTIES AT SURAT. THAT IS, HOW DID THE CHEQUES ISSUED TO THIRD PARTIES TRANSLATE INTO CASH WITH THE ASSESSEE. THE FURTHER QUESTION OF IT BEING AVAILABLE AT SALEM, AND ON THE SAME DAY, FOR BEING UTILIZED, IS ALSO PERPLEXING. THE SAME IS CLEARLY AN ARTIFICE ADOPTED FOR NOT DIS CLOSING THE CHEQUE PAYMENT TO THIRD PARTIES, AGAINST PERHAPS UNACCOUNTED PURCHASE S THERE-FROM, SO AS TO PROVIDE CASH FOR HIS REGULAR USE AT SALEM. DURING H EARING, THE LD. AR WOULD ARGUE THAT THE CASH FROM UNACCOUNTED SALES WOULD ME ET THE CASH DEFICIENCY AS REFLECTED BY THE NEGATIVE CASH BALANCE. DOES THAT M EAN THAT THE ASSESSEE ADMITS 6 ITA NO.1280/MDS/2017 (AY 2009-10) P.SRINIVASAN V. ITO TO UNACCOUNTED CASH PURCHASES FROM THE CASH WITHDRA WN AT SURAT, AS THE AO HAD INFERRED, AND WHICH WAS ASSAILED AS PRESUMPTUOUS. F URTHER, THE CASH GENERATED FROM SALES (AT SALEM) WOULD AGAIN GET DEPLOYED FOR CASH PURCHASES AT SURAT, WITHOUT IMPACTING THE NEGATIVE CASH BALANCE AND, RA THER, WOULD INCREASE THE (UNACCOUNTED) CASH FLOW WITH THE ASSESSEE ON ACCOUN T OF PROFIT FROM THE UNACCOUNTED BUSINESS (I.E., PURCHASE AND SALE). THE CASH GENERATED CANNOT BE USED TWICE, BOTH TO FUND PURCHASES AT SURAT AND, AT THE SAME TIME, BUSINESS EXPENDITURE AT SALEM. THE ARGUMENT WOULD THUS BE OF NO ASSISTANCE TO THE ASSESSEE, WHO HAS BEEN TAXED ONLY IN RESPECT OF AND , ACCORDINGLY, LEVIED PENALTY ONLY QUA THE NEGATIVE CASH BALANCE, I.E., FOR THE UNEXPLAIN ED SOURCE OF CASH. THIS IS HOWEVER SUBJECT TO ONE CAVEAT, I.E., THE CA SH ENTERED IN THE ASSESSEES BOOKS IS DEPOSITED IN BANK, I.E., RECYCL ED, SO THAT IT IS THESE FUNDS THAT GET EFFECTUALLY WITHDRAWN AT SURAT. IN OTHER WORDS, EXAMINING THE ASSESSEES EXPLANATION OF THE CASH SALES (OF THE UNACCOUNTED P URCHASED GOODS AS BEING THE SOURCE OF FUNDS INTRODUCED IN THE CASH-BOOK OF THE BUSINESS), WE FIND IT AS VALID WHERE AND TO THE EXTENT THE SAME ARE DEPOSITED IN T HE ASSESSEES BANK ACCOUNT/S, SO AS TO BE AVAILABLE FOR PURCHASE ON WITHDRAWAL FR OM THE BANK. THIS ALSO OBVIATES THE NEED TO TRANSFER CASH FROM SURAT W HERE IT IS WITHDRAWN, TO SALEM. THAT IS, AS IN FACT ADVANCING THE ASSESSEES CASE. HOWEVER, ONE NEEDS TO DWELL FURTHER IN THE MATTER. FOR CASH SALES TO HAPP EN, THE CASH WITHDRAWN (AT SURAT) MUST NECESSARILY BE USED FOR THE PURCHASE OF GOODS (WHICH ARE THEN SOLD OUT OF BOOKS), SO THAT IT IS NOT AVAILABLE FOR BEIN G ENTERED IN THE ASSESSEES BOOKS UPON WITHDRAWAL (I.E., ON DAY ONE (D1)(SAY)), AS DO NE. HOWEVER, THE CASH BECOMES AVAILABLE ON THE SALE OF GOODS, I.E., ON DA Y TWO (D2). AS SUCH, THE CASH WITHDRAWN ON DAY ONE BECOMES AVAILABLE TO THE ASSES SEE (THROUGH SALES) WITH A TIME LAG (D2 D1). THE CASH REQUIRED TO SUPPORT TH E EXPENDITURE OR CASH UTILIZATION WHICH COULD ALSO BE BY WAY OF BANK DE POSIT, CAN BE ESTIMATED ON THE BASIS OF THE OVERALL CASH UTILIZATION (FOR THE YEAR), WITH THE TIME PERIOD (TIME 7 ITA NO.1280/MDS/2017 (AY 2009-10) P.SRINIVASAN V. ITO LAG) BETWEEN PURCHASE AND SALE BEING SIGNIFIED BY T HE AVERAGE INVENTORY (OF GOODS) VIS-A-VIS PURCHASES. THE RELEVANT DATA IS NO T READILY AVAILABLE. HOWEVER, GIVEN THE SMALLNESS OF THE VOLUME, WE DO NOT CONSID ER IT PROPER TO REMIT THE MATTER FOR CARRYING OUT THE SAID ESTIMATION EXERCIS E. THE ASSESSEE HAS ALREADY ADMITTED TO AN INCOME CORRESPONDING TO THE EXCESS C ASH WITHDRAWAL OF .1.5 LACS FROM ICICI BANK AT THE BEGINNING OF THE YEAR ( REFER PARA 3). NO EXPLANATION STANDS FURNISHED IN ITS RESPECT EVEN IN THE PENALTY PROCEEDINGS. THIS, COUPLED WITH ANOTHER . 30,000/-, SIMILARLY WITHDRAWN FROM THE IDBI BANK ON 26.04.2008 (REFER ANNEXURE 1 TO THE ASSESSMENT ORDE R), I.E., AT A TOTAL OF . 1.80 LACS, WHICH COULD PROVIDE THE NECESSARY BASIC FUND (OR UNACCOUNTED STOCK) OF THE ASSESSEES UNACCOUNTED BUSINESS. FURTHER, A CONCOMI TANT WOULD BE THE PROFIT OF THE ASSESSEES SAID BUSINESS, I.E., BY WAY OF UNACC OUNTED SALES, ESTIMATED AT . 3.2 LACS (APPRX.) IN ASSESSMENT. THE ASSESSEES EXP LANATION, THOUGH COMPLETELY UNSUBSTANTIATED, AND ON WHICH BASIS IT FOUND DISFAV OUR WITH THE TRIBUNAL (IN THE QUANTUM PROCEEDINGS), HOWEVER, EXPLAINS THE MODUS OPERANDI EMPLOYED BY HIM. THE SAME ALSO EXPLAINS THE ISSUE OF CHEQUES TO THIRD PARTIES, BEING FOR THE PURCHASE OF SAREES (GOODS) FROM THEM AT SURAT. BEIN G UNACCOUNTED, THERE IS NO QUESTION OF THE SAME BEING DEBITED IN THE ASSESSEE S BOOKS TO THEIR RESPECTIVE ACCOUNTS. THIS ALSO EXPLAINS AS TO WHY THE ASSESSEE COULD NOT LEAD ANY EVIDENCE IN ITS RESPECT, SO THAT THE EXPLANATION HAS TO BE C ONSIDERED BEARING THE SAME IN MIND. THIS ALSO EXPOSES ANOTHER MAJOR FLAW IN THE R EVENUES CASE. IF THE CHEQUE/S PROCEEDS WERE NOT AVAILABLE TO THE ASSESSE E, REFLECTED TO BE BY WAY OF CASH IN THE ASSESSEES BOOKS OF ACCOUNT, HOW DID TH E ASSESSEE BENEFIT FROM THE ISSUE OF CHEQUES TO THESE PARTIES, PARTING WITH HIS RESOURCES IN THEIR FAVOUR, WHICH COULD NOT BE WITHOUT PURPOSE, I.E., COULD NOT REASONABLY BE WITHOUT CONSIDERATION OR QUID PRO QUO . IN OUR VIEW, THEREFORE, WHERE THE ASSESSEE HAS ACTU ALLY RECYCLED THE FUNDS, DEPOSITING THE CASH IN BANK, THE ASSESSEE HAS FURNI SHED A SATISFACTORY EXPLANATION 8 ITA NO.1280/MDS/2017 (AY 2009-10) P.SRINIVASAN V. ITO FOR HIS INEXPLICABLE BEHAVIOR. HE, WE CONSIDER, OUG HT TO HAVE ADVANCED THE SAME EVEN IN THE QUANTUM PROCEEDINGS, INSTEAD OF ASSAILI NG THE ADDITION ON ACCOUNT OF PROFIT, A CONCOMITANT AND, RATHER, THE PURPOSE OF E NGAGING IN THIS EXERCISE. WE ARE, THEREFORE, ON THE CONDITION PRECEDENT OF RECYC LING OF FUNDS, AND TO THE EXTENT IT IS, BEING SATISFIED, DIRECT THE DELETION OF PENA LTY U/S. 271(1)(C) QUA THE IMPUGNED INCOME ( . 31.68 LACS), SAVE FOR . 5 LACS, BEING THE UNACCOUNTED FUNDS USED FOR PURCHASES AS WELL AS THE PROFIT ON U NACCOUNTED SALES. THOUGH WHOLLY UN-SUBSTANTIATED, RECYCLING OF FUNDS, I.E., BY DEPOSITING CASH IN HIS BANK ACCOUNT/S, ONLY SUBJECT TO WHICH THE ASSESSEES EXP LANATION BECOMES VALID AND ADMISSIBLE, SHALL AT ONCE PROVE THE TRUTH THEREOF, I.E., OF THE CASH SALES (OF GOODS PURCHASED OUT OF BOOKS AT SURAT) AS PROVIDING THE S OURCE OF FUNDS INTRODUCED IN BUSINESS AT SALEM. WE MAY FURTHER CLARIFY THAT WHE RE THE RECYCLING OF FUNDS IS LESS THAN . 31.68 LACS, SO THAT THE BALANCE NEGATIVE CASH IS UNEXPLAINED, WARRANTING LEVY OF PENALTY ON THE BALANCE, THE PROF IT EARNED SHALL FILL IN THE BREACH. THE PROFIT EARNED, ESTIMATED AT . 3 LACS FOR THE YEAR, WORKED OUT PROPORTIONATELY, SHALL SUPPLY THE BALANCE, I.E., TE LESCOPED AGAINST THE SAID DEFICIENCY. AS SUCH, ONLY THE BALANCE UNEXPLAINED D EFICIENCY, IF ANY, THAT SURVIVES THE SAID TELESCOPING, WOULD WARRANT BEING SUBJECT TO PENALTY, I.E., APART FROM THE SUM OF . 5 LACS ESTIMATED BY US. BEFORE PARTING WITH OUR ORDER, WE MAY THOUGH CLARIF Y THAT THE PENALTY ON THE INCOME SUSTAINED ( . 5 LACS), AS ESTIMATED BY US, ARISES OUT OF AND AG REES WITH THE ASSESSEES OWN EXPLANATION AND CONDUCT, AS ADMITTED INCOME ( . 1.8 LACS) AND THE PROFIT ( . 3.2 LACS) OF ITS ESTIMATED UNDISCLOSED BUSINESS O N THE BASIS OF THE PROFIT RATE OF THE DISCLOSED BUSINESS. FURTHER, THOUGH ARRIVED AT IN A DIFFERENT MANNER, I.E., CONSISTENT WITH ASSESSEES EXPLANATION, THE SAME FORMS PART OF THE UNDISCLOSED INCOME ( . 31.36 LACS) ASSESSED IN QUANTUM PROCEEDINGS, AND WHICH ALSO EXPLAINS THE TELESCOPING AFORE-REFER RED. 9 ITA NO.1280/MDS/2017 (AY 2009-10) P.SRINIVASAN V. ITO WITH THESE OBSERVATIONS AND FINDINGS, THE MATTER SH ALL, FOR HIS FACTUAL VERIFICATION AS TO THE RECYCLING OF FUNDS, WHICH IS IMPLICIT IN THE ASSESSEES EXPLANATION OF THE UNACCOUNTED CASH SALES AS BEING THE SOURCE OF THE CASH AVAILABLE WITH HIM AT SALEM, RESTORED TO THE FILE O F THE AO. HE SHALL, AFTER ALLOWING DUE OPPORTUNITY TO THE ASSESSEE TO PRESENT /ESTABLISH HIS CASE, DECIDE PER A SPEAKING ORDER IN LIGHT OF OUR FOREGOING OBSERVAT IONS/FINDINGS, WITH A VIEW TO GIVE A QUIETUS TO THE MATTER. WE DECIDE ACCORDINGLY . 5. IN THE RESULT, THE ASSESSEES APPEAL IS DISPOSED OF IN THE FOREGOING TERMS. ORDER PRONOUNCED ON OCTOBER 13, 2017 AT CHENNAI . SD/- SD/- ( ' #! 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