Ashiq Khan Sher Khan, Bhusawal V. Asst.. Comm. of Income-tax, Jalgaon

ITA 1374/PUN/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6770 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 26-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 08-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S C SARANGI
• Keywords: Business income; Block assessment
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.1374/PN/2011 (ASSESSMENT YEAR : 2008-09) ASHIQ KHAN SHER KHAN, PROP. A.S. TRADING CO., KHADKA ROAD, BHUSAWAL, DIST. JALGAON. PAN : AIUPK8573A . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 2, JALGAON. . RESPONDENT ITA NO.1528/PN/2011 (ASSESSMENT YEAR : 2008-09) DY. COMMISSIONER OF INCOME TAX, CIRCLE- 2, JALGAON. . APPELLANT VS. SHRI ASHIQ KHAN SHER KHAN, PROP. OF A.S. TRADING CO., KHADKA ROAD, BHUSAWAL, DIST. JALGAON. PAN : AIUPK8573A . RESPONDENT ASSESSEE BY : MR. NIKHIL PATHAK DEPARTMENT BY : MR. S. C. SARANGI DATE OF HEARING : 07-07-2014 DATE OF PRONOUNCEMENT : 25-07-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED CROSS-APPEALS, EACH BY THE ASSESSEE A ND THE REVENUE, PERTAINING TO THE ASSESSMENT YEAR 2008-09, WERE HEA RD TOGETHER AND ARE BEING DISPOSED-OFF BY WAY OF A CONSOLIDATED ORDER F OR THE SAKE OF CONVENIENCE AND BREVITY. BOTH THE CAPTIONED CROSS-APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, NAS HIK DATED 22.09.2011 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 27.1 2.2010 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). ITA NO.1374/PN/2011 ITA NO.1528/PN/2011 2. IN BRIEF, THE RELEVANT FACTS ARE THAT ASSESSEE I S AN INDIVIDUAL WHO IS, INTER-ALIA, ENGAGED IN THE BUSINESS OF TRADING IN I RON AND STEEL SCRAP MATERIAL IN HIS PROPRIETARY CONCERN UNDER THE NAME AND STYLE OF A.S. TRADING COMPANY, BHUSAWAL. THE INVESTIGATION WING OF THE DEPARTMEN T AT NASHIK RECORDED A STATEMENT OF THE ASSESSEE ON 12.06.2008 WHICH REVEA LED THAT THOUGH THE ASSESSEE WAS CARRYING ON THE BUSINESS OF SCRAP DEAL ING SINCE LONG BUT NO RETURNS OF INCOME WERE FILED FOR ASSESSMENT YEARS 2 003-04, 2004-05, 2005-06 AND 2007-08. FOR THE ASSESSMENT YEAR UNDER CONSIDE RATION I.E. 2008-09, ASSESSEE FILED A RETURN OF INCOME ON 30.09.2008 DEC LARING A TOTAL INCOME OF RS.8,44,694/-. THE SAID RETURN OF INCOME, INTER-AL IA, INCLUDED AN INCOME OF RS.8,30,492/- WITH RESPECT TO THE SCRAP DEALING BUS INESS CARRIED ON BY HIS PROPRIETARY CONCERN, M/S A.S. TRADING COMPANY. THE TOTAL TURNOVER OF BUSINESS WAS RS.3,32,19,688/- AND NET PROFIT THEREO F WAS ESTIMATED AT 2.5%, WHICH CAME TO RS.8,30,492/-. THE CLAIM OF THE ASSE SSEE WAS THAT HE WAS NOT MAINTAINING ANY BOOKS OF ACCOUNT FOR THE SCRAP BUSI NESS AND THEREFORE INCOME WAS DECLARED ON AN ESTIMATION @ 2.5% OF THE TOTAL T URNOVER. THE RETURN OF INCOME SO FILED WAS SUBJECT TO SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT WHEREBY THE TOTAL INCOME WAS ASSESSED AT RS.3,04,31 ,720/-. THE MAJOR ADDITION WAS ON ACCOUNT OF A DISALLOWANCE U/S 40A(3 ) OF THE ACT AMOUNTING TO RS.2,83,34,337/-. THE ASSESSING OFFICER HAD NOTED THAT MAJORITY OF THE PURCHASES MADE BY THE ASSESSEE WERE FROM MAHARASHTR A STATE POWER GENERATION COMPANY LTD., A STATE GOVERNMENT UNDERTA KING. THE PURCHASES WERE MADE IN PUBLIC AUCTION, WHEREBY ASSESSEE WAS R EQUIRED TO PAY 10% OF BID AMOUNT IMMEDIATELY AND THE BALANCE WAS TO BE PA ID WITHIN 60 DAYS FROM THE DATE OF FINALIZATION OF BID. THE ASSESSING OFF ICER NOTICED THAT ASSESSEE HAD MADE PAYMENTS FOR PURCHASES IN CASH, WHICH WAS VIOLATIVE OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. AN AMOUNT OF RS.2,83,34,337/- WAS IDENTIFIED BY THE ASSESSING OFFICER AS PAID IN VIOL ATION OF SECTION 40A(3) OF THE ACT AND ACCORDINGLY THE ASSESSING OFFICER ADDED THE SAID AMOUNT TO THE RETURNED INCOME. ANOTHER ADDITION WAS MADE WITH RE SPECT TO THE NET PROFIT OF ITA NO.1374/PN/2011 ITA NO.1528/PN/2011 SCRAP TRADING ESTIMATED BY THE ASSESSEE. THE ASSES SEE HAD DECLARED NET PROFIT @ 2.5% OF THE TURNOVER WHICH WAS NOT ACCEPTE D BY THE ASSESSING OFFICER. FOR THE DETAILED REASONS ASSIGNED IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER ESTIMATED THE NET PROFIT OF THE A SSESSEE AT 6% AND ACCORDINGLY THE DIFFERENTIAL AMOUNT OF RS.11,62,689 /- WAS ADDED BACK TO THE ASSESSEES TOTAL INCOME. ANOTHER ADDITION MADE BY THE ASSESSING OFFICER WAS OF RS.90,000/- ON ACCOUNT OF LOW HOUSEHOLD WITHDRAW ALS. 3. ALL THE AFORESAID ADDITIONS WERE CARRIED IN APPE AL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE SUBMITTED THAT THERE WA S NO JUSTIFICATION TO INVOKE SECTION 40A(3) OF THE ACT BECAUSE ASSESSEE WAS NOT MAINTAINING BOOKS OF ACCOUNT AND FURTHER THAT ITS TOTAL INCOME FROM THE SCRAP BUSINESS HAS BEEN DETERMINED ON THE BASIS OF ESTIMATION OF PROFIT. T HE CIT(A) DID NOT DISPUTE THE PROPOSITION CANVASSED BY THE ASSESSEE THAT DISALLOW ANCE U/S 40A(3) OF THE ACT IS NOT PERMISSIBLE WHERE INCOME HAS BEEN DETERMINED ON AN ESTIMATION OF PROFIT. HOWEVER, ACCORDING TO HIM, THE PLEA OF THE ASSESSEE REGARDING NON- MAINTENANCE OF THE ACCOUNT BOOKS WAS MERELY A RUSE TO AVOID THE DISALLOWANCE U/S 40A(3) OF THE ACT. THEREFORE, HE SUSTAINED THE INVOKING OF SECTION 40A(3) OF THE ACT IN-PRINCIPLE BUT REDUCED THE DISALLOWANCE TO RS.2,63,44,427/- AFTER ALLOWING RELIEF WITH RESPECT TO CERTAIN PAYMENTS WHICH DID NOT ATTRACT SECTION 40A(3) OF THE ACT. THE CIT (A) ALSO DELETED THE ADDITION OF RS.11,62,689/- MADE BY THE ASSESSING OFFICER BY ENHANCING THE ESTIMATION OF NET PROFIT. NOT BEING SATISFIED WITH THE ORDER OF THE CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US CHALLENGING THE ORDER OF T HE CIT(A) SUSTAINING THE DISALLOWANCE OF RS.2,63,44,427/- U/S 40A(3) OF THE ACT, WHEREAS THE REVENUE IS IN APPEAL CHALLENGING THE RELIEF ALLOWED BY THE CIT(A) WITH RESPECT TO THE ESTIMATION OF NET PROFIT. ITA NO.1374/PN/2011 ITA NO.1528/PN/2011 4. IN THIS BACKGROUND, THE RIVAL PARTIES HAVE BEEN HEARD. AT THE OUTSET, LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT U NDER IDENTICAL CIRCUMSTANCES, DISALLOWANCE U/S 40A(3) OF THE ACT W AS MADE BY THE ASSESSING OFFICER IN THE PAST ASSESSMENT YEARS OF 2003-04, 20 04-05 AND 2007-08 WHEREIN ALSO ASSESSEE HAD DECLARED HIS INCOME ON AN ESTIMATE BASIS IN THE ABSENCE OF MAINTENANCE OF BOOKS OF ACCOUNT. THE IS SUE HAD TRAVELLED TO THE TRIBUNAL WHERE, VIDE ORDER IN ITA NOS.1371, 1372 AN D 1373/PN/2011 DATED 27.09.2013 THE DISALLOWANCE MADE U/S 40A(3) OF THE ACT HAS BEEN DELETED. THE LEARNED REPRESENTATIVE HAS FURNISHED A COPY OF THE SAID ORDER WHICH IS PLACED ON RECORD. IT WAS THEREFORE CONTENDED THAT SINCE THE DISALLOWANCE U/S 40A(3) OF THE ACT HAS BEEN MADE BY THE INCOME-TAX A UTHORITIES IN THE INSTANT YEAR ON GROUNDS WHICH HAVE ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 27.09.2013 (SU PRA), THE IMPUGNED DISALLOWANCE BE ALSO DELETED. THE LEARNED DEPARTME NTAL REPRESENTATIVE APPEARING FOR THE REVENUE HAS NOT DISPUTED THE FACT UAL MATRIX BROUGHT OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE. 5. IN THE ABOVE CONTEXT, WE HAVE PERUSED THE ORDER OF THE TRIBUNAL DATED 27.09.2013 (SUPRA) IN THE ASSESSEES OWN CASE WHERE IN AN IDENTICAL ISSUE HAS BEEN ADJUDICATED. THE RELEVANT DISCUSSION IN THE O RDER OF THE TRIBUNAL READS AS UNDER :- 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS RELIED ON BY BOTH THE SIDES. IN THE INSTANT CASE, WE FIND THE ASSESSING OFFICER IN THE VERY FIRST PARAGRAPH OF TH E ASSESSMENT ORDER HAS MENTIONED THAT THE ASSESSEE DID NOT MAINTAIN ANY BO OKS OF ACCOUNTS. FURTHER, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS DECL ARED ITS PROFIT U/S.44AF. WE FIND THE ASSESSING OFFICER MADE DISALLOWANCE OF RS. 2,66,618/- U/S.40A(3) ON THE GROUND THAT THE ASSESSEE HAS MADE CASH PAYMENTS EXCEEDING RS.20,000/- AND THEREBY VIOLATED THE PROVISIONS OF SECTION 40A(3). WE FIND THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICE R BY REJECTING THE CONTENTION OF THE ASSESSEE THAT ASSESSEE HAS NOT MA INTAINED PROPER BOOKS OF ACCOUNTS AND PROFIT HAS BEEN ESTIMATED AND THEREFOR E PROVISIONS OF SECTION 40A(3) ARE NOT APPLICABLE. IT IS THE CASE OF THE L D. COUNSEL FOR THE ASSESSEE THAT SINCE THE ASSESSEE DOES NOT MAINTAIN BOOKS OF ACCOUNTS AS HAS BEEN ITA NO.1374/PN/2011 ITA NO.1528/PN/2011 HELD BY THE ASSESSING OFFICER AND SINCE THE PROFIT HAS BEEN ESTIMATED, THEREFORE, PROVISIONS OF SECTION 40A(3) ARE NOT APP LICABLE IN VIEW OF THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF SATISHKUMAR VISHNUDAS BHUTADA (SUPRA). WE FIND THE TRIBUNAL FR OM PAGE 29 TO 34 OF THE SAID ORDER HAS DISCUSSED THE ISSUE OF ADDITION U/S. 40A(3) WHEN THE ASSESSEE DOES NOT MAINTAIN BOOKS OF ACCOUNTS AND PROFIT IS E STIMATED. THE RELEVANT ARGUMENTS BY BOTH THE SIDES AND THE FINDING OF THE TRIBUNAL ARE AS UNDER : 29. THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTL Y OPPOSED THE ADDITION SUSTAINED BY THE CIT(A). HE SUBMITTED THA T WHEN THE ASSESSEE DOES NOT MAINTAIN BOOKS OF ACCOUNTS AND AL L TRANSACTIONS ARE UNACCOUNTED FOR WHICH THE ASSESSING OFFICER HAS EST IMATED THE PROFIT THEN IN THAT CASE ADDITION U/S.40A(3) IS NOT WARRAN TED. 29.1 REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KIRTIKUMAR VISHNUDAS BHUTADA, (A COPY O F WHICH WAS FILED IN THE PAPER BOOK) HE SUBMITTED THAT UNDER IDENTICA L FACTS AND CIRCUMSTANCES THE TRIBUNAL HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER U/S.40A(3). HE ALSO REFERRED TO THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. BANWARI LAL BANSHIDHAR REPORTED IN 229 ITR 229 AND SUBMITTED T HAT WHEN THE GROSS PROFIT RATE IS APPLIED THAT WOULD TAKE CARE O F EVERYTHING AND THERE WAS NO NEED FOR MAKING ADDITION U/S.40A(3). HE ACC ORDINGLY SUBMITTED THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE NO ADDITION U/S.40A(3) IS CALLED FOR. 30. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND RELIED ON THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO REPORTED IN 191 ITR 667 AND SUBMITTED THAT THE PURPOSE OF INTRODUCTION OF SECTION 40A(3) WAS TO CURB BLACK MONEY AND TO REGULATE THE BUSINESS TRANSACTION. TH EREFORE, THE LD. CIT(A) WAS FULLY JUSTIFIED IN UPHOLDING THE ADDITIO N MADE BY THE ASSESSING OFFICER U/S.40A(3) OF THE ACT FOR VIOLATI ON OF THE PROVISIONS OF THE SAID SECTION. REFERRING TO THE DECISION OF HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SAI METAL WORKS REPORTED IN 241 CTR 377 HE SUBMITTED THAT EVEN IN CASES OF ESTI MATION OF PROFIT PROVISIONS OF SECTION 40A(3) WOULD BE APPLICABLE. 31. THE LEARNED COUNSEL FOR THE ASSESSEE IN HIS REJ OINDER SUBMITTED THAT THE TRIBUNAL IN THE CASE OF KIRTIKUMAR VISHNUD AS BHUTADA (SUPRA) HAS CONSIDERED THE DECISION OF HONBLE PUNJAB & HAR YANA HIGH COURT IN THE CASE OF CIT VS. SAI METAL WORKS (SUPRA) AND APPLIED THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS REPORTED IN 88 ITR 1 (SC) AND AC CEPTED THE VIEW FAVOURABLE TO THE ASSESSEE. SINCE THE PROFIT HAS B EEN ESTIMATED IN ABSENCE OF MAINTENANCE OF REGULAR BOOKS OF ACCOUNTS , THEREFORE, NO DISALLOWANCE U/S. 40A(3) IS CALLED FOR. 32. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BY BOTH THE SIDES. THERE I S NO DISPUTE TO THE FACT THAT IT IS A CASE OF NON-MAINTENANCE OF ACCOUN TS AND PROFIT HAS BEEN ESTIMATED BY REJECTING THE BOOK RESULTS. THER E IS ALSO NO DISPUTE TO THE FACT THAT DISALLOWANCE OF RS.6,08,222/- HAS BEEN MADE ON ACCOUNT OF VIOLATION OF PROVISIONS OF SECTION 40A(3 ). IT IS THE CASE OF THE ASSESSEE THAT SINCE PROFIT HAS BEEN ESTIMATED A ND ASSESSEE DOES NOT MAINTAIN ANY ACCOUNTS, THEREFORE, NO ADDITION C AN BE MADE U/S.40A(3) IN VIEW OF THE VARIOUS DECISIONS. IT IS THE CASE OF THE ITA NO.1374/PN/2011 ITA NO.1528/PN/2011 REVENUE THAT EVEN IN CASE WHERE PROFIT IS ESTIMATED DISALLOWANCE U/S.40A(3) CAN BE MADE. 33. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF KIRTIKUMAR VISHNUDAS BHUTADA (SUPRA) UNDER SOMEWHAT SIMILAR CIRCUMSTANCES HAS DELETED THE DISALLOWANCE MADE U/S .40A(3) BY HOLDING AS UNDER : 19. HAVING GONE THROUGH THE ABOVE CITED DECISIONS BY THE PARTIES, WE FIND THAT IN VIEW OF SEVERAL DECISIONS INCLUDING THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S. SAI METAL WORKS (SUPRA), THE PUNE BENCH OF THE TRIBUNAL IN ITS RECENT DECISION IN THE CASE OF ACIT VS. M/S. RUSHIR AJ BUILDERS & DEVELOPERS (SUPRA) HAS COME TO THE FOLLOWING CONCLU SION ON THE ISSUE: 9. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT THE LEARNED CIT(A) HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSE SSEE FOLLOWING THE DECISION OF NAGPUR BENCH OF THE TRIBUNAL IN THE CASE OF SADHURAM WADHWANI (SUPRA) HOLDING THAT THE DISALLOW ANCE U/S. 40A(3) IN THE BLOCK ASSESSMENT WAS OUTSIDE THE AMBI T OF CHAPTER XIV B OF THE I.T. ACT. THE LD CIT(A) HAS DISCUSSED SEVERAL DECISIONS RELIED UPON BEFORE HIM INCLUDING THE DECISIONS OF P UNE BENCH OF THE TRIBUNAL IN THE CASE OF JANATA TILES, 66 TTJ 69 5 (PUNE) AND SHARMA ASSOCIATES, 55 ITD 171 (PUNE) HOLDING THAT O NCE THE TRANSACTIONS ARE UNRECORDED AND UNDISCLOSED FROM TH E REGULAR BOOKS OF ACCOUNT, THERE CAN'T BE FURTHER DISALLOWAN CE U/S. 40A(3) OF THE ACT. RELIANCE HAS ALSO BEEN PLACED ON THE DECIS ION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF WESTERN INDIA BAKERS (P) LTD. VS. DCIT (2004) 84 TTJ (MUM) 223 EXPRESSING THE SIM ILAR VIEW WITH THIS OBSERVATION THAT HEADING OF CHAPTER XIV B IS S PECIAL PROCEDURE FOR ASSESSMENT OF SEARCH CASES. SECTION 1 58BA DEALS ASSESSMENT OF UNDISCLOSED INCOME AS A RESULT OF SEA RCH. THIS SECTION OPENS WITH A NON-OBSTINATE CLAUSE AND THIS ENACTS P ROVISIONS OF OVERRIDING NATURE SO AS TO PREVAIL OVER ANY OTHER P ROVISIONS OF THE ACT. THE ASSESSED UNDISCLOSED INCOME IS ASSESSED AT THE HIGHER RATE OF 60% U/S. 113 OF THE ACT, OBSERVED THE TRIBU NAL. WE, HOWEVER, FIND THAT DIFFERENT VIEWS HAVE BEEN EXPRES SED BY DIFFERENT HIGH COURTS ON THE ISSUE AND NO DECISION OF HON'BLE JURISDICTIONAL HIGH COURT ON THE ISSUE HAS BEEN BROUGHT TO OUR NOT ICE BY THE PARTIES. UNDER THESE CIRCUMSTANCES, IN VIEW OF THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASES OF CIT VS. VEGET ABLE PRODUCTS (SUPRA) AND CIT VS. PODAR CEMENT PVT. LTD. (SUPRA), WE ADOPT THE JUDGMENT ON THE ISSUE WHICH IS FAVOURABLE TO THE AS SESSEE. WE THUS RESPECTFULLY ARE FOLLOWING THE DECISION OF CARGO CL EARING AGENCY (GUJ.) VS. JCIT (SUPRA) & OTHERS RELIED UPON BY THE LD. A. R. HOLD THAT THE LD CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE U/S. 40 A(3) OF THE ACT MADE BY THE A.O WITH DIRECTION TO DELETE THE SAME I NVOLVING AMOUNT OF RS.24,15,160/-. THE SAME IS UPHELD. GROUND NO.3 TO 5 INVOLVING THIS ISSUE IS THUS REJECTED.' IN VIEW OF THE ABOVE DECISION OF THE PUNE BENCH IN THE CASE OF ACIT VS. M/S.RUSHIRAJ BUILDERS & DEVELOPER (SUPRA), WE T HUS HOLD THAT ONCE THE TRANSACTIONS ARE UNRECORDED AND UNDISCLOSED FRO M THE REGULAR BOOKS OF ACCOUNT, THERE CANNOT BE FURTHER DISALLOWA NCE U/S. 40A(3) OF THE ACT. WE THUS WHILE SETTING ASIDE ORDERS OF THE AUTHORITIES BELOW DIRECT THE A.O. TO DELETE THE DISALLOWANCE OF RS.2, 27,978/- MADE U/S. 40 A(3) OF THE ACT. THE GROUND NO. 4 IS THUS ALLOWE D. ITA NO.1374/PN/2011 ITA NO.1528/PN/2011 34. RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH OF THE TRIBUNAL WE SET-ASIDE THE ORDER OF THE CIT(A) A ND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE U/S.4 0A(3) IN THE INSTANT CASE WHERE ADMITTEDLY PROFIT HAS BEEN ESTIMATED IN ABSENCE OF MAINTENANCE OF BOOKS OF ACCOUNTS. GROUNDS RAISED B Y THE ASSESSEE ARE ACCORDINGLY ALLOWED. 6. IT IS ALSO EMERGING FROM A READING OF THE ORDER OF THE TRIBUNAL DATED 27.09.2013 THAT THE CIT(A) THEREIN WAS ALSO OF THE VIEW THAT NON-MAINTENANCE OF THE BOOKS OF ACCOUNT BY THE ASSESSEE WAS A MERE RUSE TO AVOID THE DISALLOWANCE U/S 40A(3) OF THE ACT. SIMILAR IS THE OBJECTION OF THE CIT(A) IN THE PRESENT YEAR ALSO. AFTER CONSIDERING THE ABOVE STA ND OF THE REVENUE, WHICH IS SIMILAR TO THAT IN THE INSTANT ASSESSMENT YEAR, THE TRIBUNAL FOUND IT FIT TO DELETE THE DISALLOWANCE U/S 40A(3) OF THE ACT FOR THE ASSE SSMENT YEARS 2003-04, 2004-05 AND 2007-08 (SUPRA). THEREFORE, FOLLOWING THE PRECEDENT IN THE ASSESSEES OWN CASE THE IMPUGNED DISALLOWANCE OF RS .2,63,44,427/- SUSTAINED BY THE CIT(A) U/S 40A(3) OF THE ACT IS HE REBY DIRECTED TO BE DELETED. THUS, ON THIS ASPECT, ASSESSEE SUCCEEDS. 7. APART FROM THE AFORESAID, THE LEARNED REPRESENTA TIVE FOR THE ASSESSEE ASSAILED THE DISALLOWANCE U/S 40A(3) OF THE ACT ON THE GROUND THAT THE PAYMENTS MADE TO THE MAHARASHTRA STATE POWER GENERA TION COMPANY LTD. DO NOT ATTRACT THE PROVISIONS OF SECTION 40A(3) OF THE ACT AT ALL, BECAUSE THE PAYEE IS AN INSTRUMENTALITY OF STATE. BE THAT AS IT MAY, THE AFORESAID PLEA OF THE ASSESSEE IS RENDERED ACADEMIC SINCE THE ASSESSEE HA S BEEN FOUND ENTITLED TO NECESSARY RELIEF, HAVING REGARD TO THE PRECEDENT BY WAY OF THE ORDER OF THE TRIBUNAL DATED 27-09-2013 (SUPRA) IN ASSESSEES OWN CASE. THUS, WE SET- ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESS ING OFFICER TO DELETE THE ADDITION OF RS.2,63,44,427/- MADE U/S 40A(3) OF THE ACT. ACCORDINGLY, ASSESSEE SUCCEEDS ON THIS ASPECT. 8. THE ONLY OTHER ISSUE IN THE APPEAL OF THE ASSESS EE RELATES TO AN ADDITION OF RS.90,000/- MADE ON ACCOUNT OF LOW HOUS EHOLD WITHDRAWALS, WHICH ITA NO.1374/PN/2011 ITA NO.1528/PN/2011 HAS NOT BEEN PRESSED AT THE TIME OF HEARING AND ACC ORDINGLY THE SAME IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. 10. NOW, WE MAY TAKE-UP THE APPEAL OF THE REVENUE W HEREIN THE GRIEVANCE IS WITH REGARD TO THE ADDITION OF RS.11,62,689/- MA DE BY THE ASSESSING OFFICER, WHICH HAS BEEN DELETED BY THE CIT(A). IN THIS CONT EXT, IT IS NOTICED THAT ASSESSEE HAD ESTIMATED HIS NET PROFIT @ 2.5% OF TUR NOVER, WHEREAS THE ASSESSING OFFICER ESTIMATED @ 6% OF TURNOVER, THERE BY RESULTING IN AN ADDITION OF RS.11,62,689/-. THE CIT(A) HAS DELETED THE ADDI TION; AND THE RELEVANT DISCUSSION IS AS FOLLOWS :- THE AO, ESTIMATED PROFIT @ 6% OF THE TURNOVER AND ALSO MADE DISALLOWANCE U/S 40A(3) OF THE ACT. SINCE THE APPEL LANT DID NOT PRODUCE THE BOOKS, DETAILS OF EXPENSES AND ALSO THAT SOME OF TH E PURCHASES/SALES REMAINED UNCONFIRMED, THE AO REJECTED THE APPELLANT 'S STATED FINANCIAL RESULTS AND ESTIMATED THE NET PROFIT @ 6% OF TURNOV ER BY CITING THE CASE OF ONE MR. SHRIRAM PATIL, ANOTHER SCRAP DEALER, WHO HA S SHOWN A GROSS PROFIT OF 5.18% AND A NET PROFIT OF 3.33% ON THE TURNOVER OF RS.1.59 CRORE AS AGAINST THE APPELLANT'S NET PROFIT OF 2.5% ON THE T URNOVER OF RS.3.32 CRORE. A PERUSAL OF RELEVANT MATERIAL REVEALS THAT AO WAS NOT JUSTIFIED IN ESTIMATING THE NET PROFIT @ 6% I.E. ALMOST DOUBLE T HE CASE OF MR. SHRIRAM PATIL, WHO HAD SHOWN A NET PROFIT OF 3.33%. THE FAC T REMAINS THAT TOTAL PURCHASES AND SALES HAVE NOT BEEN DISPUTED EVEN BY THE AO. WHILE 90% OF THE PURCHASES ARE FROM MSPGCL 7.69% PURCHASES AR E FROM IDBI BANK. THAT LEAVES ONLY 2.31% OF PURCHASES THAT ARE FROM S UNDRY PARTIES. SIMILARLY, THE AO HAS ACCEPTED THE TOTAL TURNOVER A S HE HAS CALCULATED THE NET PROFIT @ 6% ON THE TURNOVER OF RS.3,25,14,385/- STATED BY THE APPELLANT. AO'S OBSERVATION ABOUT THE VARIOUS DISCR EPANCIES IN THE PURCHASE BILLS AND SALES BILLS REMAIN UNSUBSTANTIAT ED. THE ITEM WISE TALLY OF PURCHASES AND SALES MAY NOT BE POSSIBLE IN THIS NAT URE OF TRADE (SCRAP IS PURCHASED AND SOLD IN BULK). UNDER THE FACTS AND CI RCUMSTANCES MENTIONED ABOVE, AO'S ACTION IN REJECTING ACCOUNTS OF THE APP ELLANT AND ESTIMATING NET PROFIT @ 6% ON THE BASIS OF NET PROFIT OF 3.3% IN CASE OF MR. SHRIRAM PATIL (SIMILAR TRADE), DOES NOT SEEM TO BE JUSTIFIE D. FURTHER, AO SHOULD HAVE TAKEN NOTE OF THE FACT THAT ADDITION U/S 40A(3) IN CASE OF ESTIMATION OF PROFIT MAY NOT BE LEGALLY SUSTAINABLE. TAKING INTO CONSIDE RATION THE HOLISTIC VIEW, ADDITION OF RS.11,62,689/- MADE BY AO BY ESTIMATING NET PROFIT @ 6% IS DELETED. 11. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTAT IVE HAS POINTED OUT THAT THE ESTIMATION OF PROFIT AT 2.5% DECLARED BY T HE ASSESSEE WAS QUITE LOW ITA NO.1374/PN/2011 ITA NO.1528/PN/2011 AND THE CIT(A) OUGHT TO HAVE CONFIRMED THE ADDITION , AT LEAST TO THE EXTENT OF 3.3% I.E. NET PROFIT DECLARED BY ANOTHER SIMILAR TR ADER, MR. SHRIRAM PATIL. 12. ON THE OTHER HAND, THE LEARNED REPRESENTATIVE F OR THE ASSESSEE SUBMITTED THAT THERE WAS NO JUSTIFICATION TO ENHANC E THE NET PROFIT DECLARED BY THE ASSESSEE HAVING REGARD TO THE FACTS AND CIRCUMS TANCES OF THE CASE. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IT IS QUITE APPARENT THAT THE DISPUTE REGARDING THE ESTIMATION OF NET PR OFIT INVOLVES AN ELEMENT OF SUBJECTIVITY, SINCE THE REGULAR BOOKS OF ACCOUNT HA VE NOT BEEN MAINTAINED BY THE ASSESSEE, AND PENALTY U/S 271A OF THE ACT HAS B EEN IMPOSED ON THE ASSESSEE FOR NON-MAINTENANCE OF BOOKS OF ACCOUNT. THE ASSESSING OFFICER REJECTED THE ESTIMATE OF THE ASSESSEE BY CITING THE CASE OF ANOTHER SCRAP DEALER, MR. SHRIRAM PATIL, WHO HAD SHOWN A NET PROF IT OF 3.33% ON A TURNOVER OF RS.1.59 CRORE, AS AGAINST 2.5% DECLARED BY ASSESSEE ON A TURNOVER OF RS.3.32 CRORES. INSTEAD, THE ASSESSING OFFICER ESTIMATED T HE NET PROFIT @ 6%. OSTENSIBLY, THERE IS NO JUSTIFICATION FOR PEGGING T HE ESTIMATE AT 6%, BASED ON THE CASE CITED BY THE ASSESSING OFFICER. FOR ASSES SMENT YEARS 2006-07 AND 2007-08 ASSESSEE ESTIMATED THE NET PROFIT @ 5%, AND THE ASSESSING OFFICER HAS NOTICED THAT FOR THE YEAR UNDER CONSIDERATION I .E. ASSESSMENT YEAR 2008- 09, THE DECLINE IN ESTIMATE TO 2.5% HAS NOT BEEN EX PLAINED BY THE ASSESSEE. OSTENSIBLY, THE ASSESSING OFFICER WAS JUSTIFIED IN REJECTING THE ESTIMATION OF NET PROFIT DONE BY THE ASSESSEE @ 2.5%. IT IS UNDISPUT ED THAT THE BUSINESS CARRIED OUT BY THE ASSESSEE DURING THE YEAR UNDER C ONSIDERATION IS SIMILAR TO THAT CARRIED OUT IN THE PAST TWO ASSESSMENT YEARS. CONSIDERING THE ENTIRETY OF CIRCUMSTANCES, IN OUR CONSIDERED OPINION, AN ESTIMA TION OF CURRENT YEARS NET PROFIT @ 5% OF THE TURNOVER, KEEPING IN MIND THE PA ST ESTIMATION DONE BY THE ASSESSEE HIMSELF, WOULD MEET THE ENDS OF JUSTICE. WE, THEREFORE, DEEM IT FIT AND PROPER TO SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ASSESS THE INCOME OF THE ASSESSEE FROM T HE BUSINESS OF SCRAP ITA NO.1374/PN/2011 ITA NO.1528/PN/2011 DEALING BY ESTIMATING THE NET PROFIT @ 5% OF THE TU RNOVER AS AGAINST 2.5% CONSIDERED BY THE ASSESSEE. THUS, REVENUE PARTLY S UCCEEDS ON ITS GROUND. 14. RESULTANTLY, THE APPEALS OF THE ASSESSEE AND TH E REVENUE ARE PARTLY ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JULY, 2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED : 25 TH JULY, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II, NASHIK; 4) THE CIT-II, NASHIK; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE