Shaikh Kutubuddin Rahimaan, Satara V. ITO, Satara

ITA 1459/PUN/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9323 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-12-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 10-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAMRAT RAHI
• Keywords: Unexplained investment; Opportunity of being heard; Principle of natural justice; Corroborative evidences; Agreed addition; Retraction
• Section: 40A(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . . . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO. 1459/PUN/2013 / ASSESSMENT YEAR : 2009-10 SHAIKH KUTUBUDDIN RAHIMAAN, 1, MUNICIPAL SHOPPING CENTRE, GURUWAR PETH, PARAJ, SATARA 415 001 PAN :AEPPS6539H . / APPELLANT V/S ITO, WARD - 2, SATARA . / RESPONDENT . / ITA NO. 1494/PUN/2013 / ASSESSMENT YEAR : 2009-10 ITO, WARD - 2, SATARA . / APPELLANT V/S SHAIKH KUTUBUDDIN RAHIMAAN, 1, MUNICIPAL SHOPPING CENTRE, GURUWAR PETH, PARAJ, SATARA 415 001 PAN :AEPPS6539H . / RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : SHRI SAMRAT RAHI / ORDER PER D. KARUNAKARA RAO, AM : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AS WE LL AS THE REVENUE AGAINST THE ORDER OF CIT(A)-III, PUNE DATED 03-12- 2012 FOR THE ASSESSMENT YEAR 2009-10. / DATE OF HEARING :09.05.2017 / DATE OF PRONOUNCEMENT:14.06.2017 2 ITA NOS.1459 & 1494/PUN/2013 2. IN THE ASSESSEES APPEAL FOLLOWING GROUNDS HAVE BEEN RAISED : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LOWER AUTHORITIES ERRED IN ESTIMATING NET PROFIT OF RS.9, 64,200/- BEING ESTIMATED NET PROFIT ON ALLEGED UNACCOUNTED TRADING IN GUTKHA WIT HOUT BRINGING ON RECORD ANY TANGIBLE EVIDENCE WHATSOEVER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LOWER AUTHORITIES ERRED IN MAKING AND ADDITION OF A SUM O F RS.6,00,000/- ON ACCOUNT OF UNACCOUNTED CAPITAL INVESTMENT FOR THE ALLEGED T RADING IN GUTKHA, THE ENTIRE ADDITION IS MADE ON SURMISES AND GUESS WORK AND THE RE IS NOT EVEN A IOTA OF EVIDENCE IN POSSESSION OF ASSESSING OFFICER, THEREF ORE, ENTIRE ADDITION NEEDS TO BE STRUCK DOWN. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LOWER AUTHORITIES ERRED IN MAKING AN ADDITION OF RS.24,82 ,196/- BY INVOKING THE PROVISIONS OF SECTION 40A(3) AND BY DISREGARDING AP PELLANTS SUBMISSION IN THIS REGARD. THE APPELLANT CRAVES FOR TO LEAVE, ADD, ALTER, MODI FY DELETE, ALTER ABOVE GROUND OF APPEAL OR AT THE TIME HEARING, IN THE INT EREST OF NATURAL JUSTICE. 3. IN THE REVENUES APPEAL FOLLOWING GROUNDS HAVE B EEN RAISED : 1. THE ORDER OF THE COMMISSIONER OF INCOME -TAX (A PPEALS) IS CONTRARY TO THE LAW AND FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED O N FACTS AND IN LAW IN ESTIMATING THE MONTHLY TURNOVER ON THE BASIS OF THE ADMISSION MADE BY THE ASSESSEE, WITHOUT CONSIDERING THE EVIDENCES FOUND. (I) THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN ESTIMATING THE UNACCOUNTED TURNOVER OF RS. 60 LA CS. (II) THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRE D ON FACTS AND IN LAW IN ESTIMATING THE NET PROFITS OF THE UNACCOUNTED TR ADING ON THE ESTIMATED UNACCOUNTED TURNOVER OF RS. 60 LACS. (III) ALTERNATIVELY, THE COMMISSIONER OF INCOME-TA X (APPEALS) ERRED ON FACTS AND IN LAW IN ESTIMATING THE UNACCOUNTED TURNOVER O F RS. 60 LACS WHEN THE EVIDENCES SHOWED THAT THE UNACCOUNTED TURNOVER SHOU LD HAD BEEN ESTIMATED AT A MINIMUM OF RS. 150 LAC. (IV) ALTERNATIVELY, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN ESTIMATING THE NET PROFITS OF THE UNA CCOUNTED TRADING ON THE ESTIMATED UNACCOUNTED TURNOVER OF RS. 60 LACS WHEN THE EVIDENCES SHOWED THAT THE UNACCOUNTED TURNOVER SHOULD HAD BEEN RS. 1 50 LACS . 3 (I) THE COMMISSIONER OF INCOME -TAX(APPEALS) ERR ED ON FACTS AND IN LAW IN GRANTING RELIEF TO THE ASSESSEE ON THE ADDITION OF RS. 50,00,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNACCOUNTED TUR NOVER AND UNACCOUNTED INVESTMENT IN UNACCOUNTED TURNOVER. 3 ITA NOS.1459 & 1494/PUN/2013 (II) THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN ESTIMATING THE INITIAL UNACCOUNTED INVESTMENT AT TH E RATE OF 10% OF THE UNACCOUNTED TURNOVER WITHOUT GIVING ANY REASONS FOR ADOPTING THE RATE OF 10%. (I) ALTERNATIVELY, THE SEED CAPITAL SHOULD HAD BEE N QUANTIFIED AT MINIMUM OF TWO MONTHS OF UNACCOUNTED TURNOVER. 4. FOR THESE AND SUCH OTHER REASONS AS MAY BE URGED AT THE TIME OF THE HEARING, THE ORDER OF THE COMM. OF INCOME-TAX (APPE ALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF APPELL ATE PROCEEDINGS BEFORE THE HONBLE ITAT. 4. TO START WITH, WE SHALL CULL OUT THE RELEVANT F ACTS NECESSARY FOR ADJUDICATION OF THESE APPEALS. 5. THE ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF WHOLESALE/RETAIL DISTRIBUTION OF STAR GUTKHA, JARDA , GENERAL GOODS, STAR JARDA & STAR SUPARI, TEA, OIL, SALT ETC. THE ASSESSEE FI LED RETURN OF INCOME DECLARING TOTAL INCOME NIL ON 04-02-2009. THERE WAS A SURVEY OPERATION U/S.133A OF THE ACT ON THE ASSESSEE IN CONNECTION WITH SEARCH A ND SEIZURE ACTION U.S,132 OF THE ACT ON THE GROUP CASES OF SHRI SANJAY GHODAW AT. THE ASSESSEE IS A PROPRIETOR OF M/S. SHAIKH TRADERS IN SATARA. DURIN G SURVEY ACTION, THE DEPARTMENT FOUND CERTAIN DISCREPANCIES WITH REGARD TO THE PURCHASES AND IMPOUNDED CERTAIN DOCUMENTS. IT IS MADE OUT FROM T HE SAID DOCUMENTS THAT THE ASSESSEE IS ENGAGED IN UNACCOUNTED CASH PURCHAS ES OF GUTKHA FROM GHODAWAT INDUSTRIES INDIA PVT. LTD., IN PARTICULAR, THE DEPARTMENT RELIED HEAVILY ON A DOCUMENT SHOWING UNACCOUNTED PURCHASES , COPIES OF WHICH ARE PLACED AT PAGES 44, 45, 46 ETC. THE SAID DOCUMENTS CONSTITUTE LEDGER ACCOUNT OF THE ASSESSEE WITH MR. DUTTA, AN EMPLOYEE OF M/S. GHODAWAT INDUSTRIES INDIA PVT. LTD. (IN SHORT GIPL) FOR THE PERIOD FR OM 01-04-2008 TO 31-03-2009. THE SAID DOCUMENT CONVEYS THAT THE ASSESSEE MADE CA SH PURCHASES AND PAID CASH TO THE TUNE OF RS.24,82,196/- TO MR. DUTTA AN D MR. FARASH OF THE 4 ITA NOS.1459 & 1494/PUN/2013 GHODAWAT INDUSTRIES INDIA PVT. LTD. THERE IS NO DI SPUTE ABOUT GENUINENESS OF THE FIGURES APPEARED ON THESE DOCUMENTS AND ALSO TH E CASH PURCHASES OF GUTKHA FROM THE GIPL. 6. DURING THE SURVEY ACTION, THERE WAS A STATEMENT RECORDED FROM THE ASSESSEE WHEREIN THERE WAS DISCLOSURE OF UNACCOUNTE D CASH PURCHASES WORTH OF RS.2 CORES FOR THE ENTIRE YEAR. IN THE SAID STA TEMENT, BASED ON THE SAID CASH PURCHASES, THE ASSESSEE WENT ON TO THE RECORD IN STATING THE CASH PURCHASES FOR A QUARTER OF THE YEAR, WORKS OUT TO A ROUND RS.50 LAKHS. ON EXTRAPOLATION OF THE SAME TO THE ENTIRE YEAR, I.E. 4 QUARTERS, THE SAID PURCHASES WORKS OUT TO RS.2 CRORES. THE BASE DOCUM ENT FOR ALL THESE WORKING IS BASED ON THE EXTRAPOLATION, ARE ABOVE REFERRED D OCUMENT PLACED AT PAGE 44 OF THE PAPER BOOK. HOWEVER, DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER ABOU T THE RETRACTION OF THE SAID UNACCOUNTED PURCHASES AND CONTESTED THE WAY THE EXT RAPOLATION IS MADE. ASSESSEE ALSO HIGHLIGHTED THE INAPPLICABILITY OF TH E APEX COURT JUDGMENT IN THE CASE OF H. M. ESUFALI H. M. ABDULALI 90 ITR 271 (SC). HOWEVER, AO PROPOSED TO RELY ON THE SAME FOR THE PRINCIPLE OF EXTRAPOLAT ION TO THE ENTIRE YEAR. FURTHER, HE SUBMITTED THAT THE GROSS PROFIT OF THE ASSESSEE IS ONLY 2.7% AND APPLICABLE VAT RATE IS ONLY 12.5% AGGREGATING TO 15 .2% AND NOT 16.5% AS PROPOSED BY THE ASSESSING OFFICER. EVENTUALLY, THE ASSESSMENT WAS MADE BY THE ASSESSING OFFICER DETERMINING THE TOTAL INCOME AT RS.1,05,84,920/-. AO ADDED SEED CAPITAL REQUIREMENT FOR ACCOUNTING THE S AID UNACCOUNTED PURCHASES OF RS. 2 CRORES. FURTHER, AO ALSO INVOKE D THE PROVISIONS OF SECTION 40A(3) OF THE ACT FOR TAXING THE CASH PAYMENTS FOR SAID PURCHASES OUTSIDE THE BOOKS. THUS, THE ADDITIONS IN THE ASSESSMENT INCLU DE THE FOLLOWING : (1) PROFIT ESTIMATED FROM UNACCOUNTED TRADING IN GUTKHA AMOUNTING TO RS.32,14,000/-. 5 ITA NOS.1459 & 1494/PUN/2013 (2) ALLEGED UNACCOUNTED CAPITAL FOR THE SAID UNACCOUNTE D TRADING BUSINESS AMOUNTING TO RS.50 LAKHS ON ESTIMATE BASIS . (3) THE DISALLOWANCE OF CASH EXPENSES U/S.40A(3) OF THE ACT AMOUNTING TO RS.24,82,196/-. 7. THUS, THE TOTAL ADDITION WORKS OUT TO RS.1,06,96 ,196/-. AFTER GIVING SET OFF TO THE CURRENT YEAR BUSINESS LOSS, THE ASSESSED INCOME WAS DETERMINED AT RS.1,05,96,052/- BEFORE GIVING DEDUCTIONS UNDER CHA PTER VIA. THUS, THE ASSESSING OFFICER RELIED HEAVILY ON THE STATEMENT O F MR. KUTUBUDDIN REHMAN SHAIKH, PROPRIETOR OF SHAIKH TRADERS, SATARA. RELE VANT QUESTIONS AND ANSWERS OF THE STATEMENT, I.E. Q.NOS. 18 AND 19 ARE EXTRACT ED AS UNDER : Q.NO.18 PLEASE GIVE DETAILS OF CASH PAID TO SHRI D UTTA OF GIPL SINCE 01- 04-2008 TO 01-12-2008, IF ANY, ON ACCOUNT OF PURCHA SES MADE WHICH WERE NOT ACCOUNTED FOR ? ANS. I DO NOT RECALL EXACTLY THE CASH AMOUNT PAID T O SHRI DUTTA AS IT HAS BEEN PAID FROM 2-12-2008 TO 01-02-2009, HOWEVER CAS H IS PAID IN SAME FASHION TO SHRI DUTTA FROM 01-04-2008 TO 01-12-2008 , WHICH MAY BE AROUND RS.25,00,000/- AGAINST THE GUTKHA PURCHASED FROM GI PL AND NOT ACCOUNTED FOR. Q.NO.19 IN ANSWER TO Q.NO.18, YOU HAVE STATED THAT AN AMOUNT OF RS.24,82,196/- IN CASH WAS PAID TO SHRI DUTTA AND S HRI RAFIQ FARASH. ALSO AROUND RS.25,00,000/- WAS PAID TO SHRI DUTTA. THUS , THE TOTAL CASH OF RS.50,00,000/- (APPROXIMATELY) WAS PAID SINCE 01-04 -2008 TO 31-03-2009. HOW DO YOU EXPLAIN ? ANS. YES I DO AGREE. OUT OF UNACCOUNTED CASH SALES DURING THE PERIOD 01- 04-2008 TO 31-03-2009, I HAVE PURCHASED GUTKHA FROM GIPL AROUND RS.50,00,000/- APPROX. IN CASH (RS.24,82,196/- DURI NG 01-12-2008 TO 03-02- 2009 AND RS.25,00,000/- APPROX. DURING THE PERIOD O F 01-04-2008 TO 01-12- 2008). 8. AGGRIEVED WITH THE ABOVE ADDITIONS, I.E. ADDITIO N BASED ON THE DOCUMENT PLACED AT PAGE 44 OF THE PAPER BOOK AND ES TIMATED CAPITAL OF RS.50 LAKHS AND ADDITION ON ACCOUNT OF PROVISIONS OF SECT ION 40A(3), ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 9. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE NARRATED THE FACTS OF THE CASE AND ALSO FILED WRITTEN SUBMISSIONS EXPLAIN ING THE FACTS RELEVANT TO THE RETRACTION OF THE STATEMENT, THE LEGALITY OF EXTRAP OLATION OF 3 MONTHS CASH 6 ITA NOS.1459 & 1494/PUN/2013 PURCHASES (RS.24,82,196/-) TO THE ENTIRE 12 MONTHS OF THE YEAR (RS. 2 CRORES), MULTIPLE ADDITIONS, I.E. BY WAY OF SECTION 40A(3) O F THE ACT AND SUSPECTED CAPITAL INTRODUCTION OF RS.50 LAKHS ETC. HE ALSO R EQUESTED FOR ADOPTING THE CORRECT GP RATE OF THE ASSESSEE, IN THE ABSENCE OF ANY EVIDENCE FOR SUCH EXTRAPOLATION WAS ALSO HEAVILY AGITATED. HE ALSO RELIED ON VARIOUS DECISIONS AGAINST ASSESSING OFFICERS WAY OF MAKING ASSESSMEN T. AT THE END OF THE PROCEEDINGS, THE CIT(A) PARTLY ALLOWED THE APPEAL O F THE ASSESSEE. IN HIS ORDER THE CIT(A) DID NOT APPROVE THE EXTRAPOLATION LEADING TO THE DETERMINATION OF CASH PURCHASES AT RS.2 CRORES FOR THE YEAR. CIT(A) RESTRICTED THE SAME TO RS.60 LAKHS ONLY. RELEVANT LINES FROM HIS ORDER READ AS UNDER : . . . . . . . IN THE PRESENT CASE ALSO, EVIDENCE I NDICATING UNACCOUNTED TURNOVER WAS FOUND FOR A PART PERIOD OF THE YEAR AND BASED O N THIS MATERIAL, THE ASSESSING OFFICER HAS ESTIMATED THE TURNOVER FOR TH E WHOLE YEAR AND THEREFORE THERE IS NO INFIRMITY IN THE APPROACH OF THE AO AND ON THE FACTS OF THE CASE, THE ASSESSING OFFICER IS JUSTIFIED IN PRINCIPLE IN ESTIMATING THE TURNOVER. BUT, WHILE DOING SO, THE ASSESSING OFFICER ASSUMED THE T URNOVER OF RS.50 LAKHS ADMITTED BY THE APPELLANT IN THE STATEMENT FOR THE PERIOD OF 10 MONTHS, I.E. FROM -01-04-2008 TO 02-02-2009 AS THE TURNOVER FOR A PERIOD OF THREE MONTHS ONLY FROM 02-12-2008 TO 02-02-2009. BASED ON THIS PRESUMPTION, HE ESTIMATED THE TURNOVER FOR A WHOLE YEAR AT RS.2 CRO RES, WHICH IS NOT CORRECT. THE UNACCOUNTED TURNOVER ADMITTED BY THE APPELLANT WAS FOR THE PERIOD FROM 01-04-2008 TO 02-02-2009, I.E. TILL THE DATE OF THE SURVEY AND GOING BY THIS ADMISSION, THE TURNOVER FOR WHOLE YEAR AT BEST COUL D BE ONLY RS.60,000/- AT AN AVERAGE RATE OF RS.5 LAKHS PER MONTH, WHICH ONLY CA N BE CONSIDERED FOR THE ESTIMATION OF PROFITS AND NOT RS.2 CRORES. . . . . . . . . . . . WITH REGARD TO THE LEGITIMACY, REASONABLENESS AND CORRECTNESS OF ESTIM ATION OF PROFITS AT 16.07% OF THE TURNOVER, THE APPROACH OF THE ASSESSING OFFI CER CANNOT BE FAULTED WITH AS THE ASSESSING OFFICER HAD ADOPTED THE PROFIT OF 3.57% ADMITTED BY THE APPELLANT HIMSELF IN RESPECT OF HIS REGULAR TURNOVE R IN THE RETURN OF INCOME PLUS VAT CHARGES OF 12.5% NOT PAID TO THE GOVERNMEN T. . . . . . . . . THE VAT COLLECTED BUT NOT PAID TO THE GOVERNMENT IN CASE OF UNACCOUNTED TURNOVER ADDS TO THE PROFIT ELEMENT AND THEREFORE THE SAME W AS RIGHTLY CONSIDERED BY THE ASSESSING OFFICER FOR ESTIMATION OF PROFITS ON THE UNACCOUNTED TURNOVER. THE NET PROFIT PERCENTAGE INCLUDING VAT COMES TO 16 .07% (3.57 +12.5). ACCORDINGLY, THE NET PROFIT ON THE UNACCOUNTED TURN OVER OF RS.60,00,000/- FOR THE WHOLE YEAR WORKS OUT TO RS.9,64,200/- @ 16.07% AS AGAINST RS.32,14,000/- ADOPTED BY THE ASSESSING OFFICER. 10. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT(A) H AS TAKEN AVERAGE CASH PURCHASES OF RS.5 LAKHS PER MONTH AND EXTRAPOLATED THE SAME TO ENTIRE YEAR TO DERIVE THE SAID AMOUNT OF RS.60 LAKHS. (A) SO FA R AS THE APPLICABILITY OF GP RATE IS CONCERNED, HE CONFIRMED THE ASSESSING OFFIC ERS FINDING OF 16.07%. 7 ITA NOS.1459 & 1494/PUN/2013 ACCORDINGLY, HE GAVE PART RELIEF ON THIS ISSUE. ( B) REGARDING THE INITIAL INVESTMENT OF RS.50 LAKHS, CIT(A) DELETED THE SAME HOLDING THAT IT IS A CASE OF SURMISES AND IS ON THE HIGHER SIDE. THEREFORE, IN PLACE OF RS.50 LAKHS, CIT(A) FELT RS.6 LAKHS AS INITIAL CAPITAL WOULD BE REASONA BLE. ON THIS ISSUE ALSO CIT(A) GRANTED PART RELIEF. (C) COMING TO THE APPLICABILIT Y OF PROVISIONS OF SECTION 40A(3) OF THE ACT, ON THE CASH PAYMENTS OF RS.24,82 ,196/- EMANATING FROM PAGE 44 OF THE PAPER BOOK, AN IMPOUNDED DOCUMENT DU RING SURVEY ACTION, THE PAYMENTS MADE TO MR. DUTTA, AN EMPLOYEE OF GIPL, C IT(A) AS PER DISCUSSION GIVEN IN PARA 3 AND ITS SUB PARAS CONFIRMED THE DIS ALLOWANCE. ON THIS ISSUE, ASSESSEE RELIED ON THE EXCLUSIVE PROVISIONS PROVIDE D UNDER RULE 6DD(K) OF THE INCOME TAX RULES AND CLAIMED THAT THE PAYMENTS MADE TO THE AGENT ARE NOT TO BE BROUGHT TO TAX UNDER THE PROVISIONS OF SECTIO N 40A(3) OF THE ACT. (D) THE ASSESSEE PLEADED THAT MR. DUTTA WAS ACTING AS A N AGENT FOR THE ASSESSEE TO PROCURE CHAKDE GUTKHA FROM OPEN MARKET AND THE E NTIRE PAYMENT MADE TO HIM IS SQUARELY COVERED BY ONE OF THE EXCEPTIONS PR OVIDED IN THE SAID RULE. THEREFORE, NO DISALLOWANCE IS CALLED FOR U/S.40A(3) OF THE ACT. 11. AGGRIEVED WITH THE ABOVE ORDER OF THE CIT(A) TH E ASSESSEE AS WELL AS THE REVENUE HAVE FILED THESE CROSS APPEALS BEFORE T HE TRIBUNAL. 12. THE RESPECTIVE GROUNDS OF APPEAL RAISED BY BOTH THE PARTIES TO THE LITIGATION WERE ALREADY EXTRACTED IN THE SECOND PAG E OF THIS ORDER. 13. WE SHALL NOW TAKE UP THE APPEAL OF THE ASSESSEE VIDE ITA NO.1459/PUN/2013. 14. IN THE APPEAL OF THE ASSESSEE, THERE ARE ISSUES REGARDING THE ESTIMATION OF UNACCOUNTED PURCHASES AT RS.60 LAKHS @ RS.5 LAKH S PER MONTHS ON ADHOC BASIS AND ALSO ESTIMATION OF SEED CAPITAL INVESTMEN T @10% OF THE SAID RS.60 LAKHS. THERE IS ALTERNATIVE GROUND TOO. 8 ITA NOS.1459 & 1494/PUN/2013 15. ON THE SAID ISSUES, LD. AUTHORISED REPRESENTATI VE FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE BASE DOCUMENT FOR ALL THE ADDITIONS MADE BY THE AO IS THE ONE PLACED @ PAGE 44 OF THE PAPER BOOK. BRINGING OUR ATTENTION TO THE SAID PAGE, LD. AUTHORISED REPRESENTATIVE SUBMIT TED THAT THE SAID PAGE IS THE LEDGER EXTRACTS FOR ENTIRE PERIOD OF THE FINANC IAL YEAR AND NOT FOR A QUARTER AS STATED BY THE AO. REFERRING TO THE STATEMENT OF THE ASSESSEE, THE ASSESSEE OFFERED RS.50 LAKHS FOR A QUARTER AND RS. 2 CRORES FOR ENTIRE YEAR, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE SAME I S NOT BASED ON ANY INCRIMINATING DOCUMENTS FOUND OR IMPOUNDED DURING T HE SURVEY ACTION. HE ALSO JUSTIFIED THE RETRACTION OF THE ASSESSEE REFER RING TO THE FACTORS OF UNDUE INFLUENCE, COERCION ETC. FURTHER, ELABORATING THE ARGUMENTS ON OTHER ISSUES RELATING TO THE SEED CAPITAL INVESTMENTS, INVOKING OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT, LD. AUTHORISED REPRESENTATIVE AR GUED VEHEMENTLY STATING THAT THE AUTHORITIES UNFAIRLY ESTIMATED THE CAPITAL @ RS.50 LAKHS BY THE AO AND RESTRICTED TO 10% OF RS.60 LAKHS BY THE CIT(A). IN THE PROCESS, THEY FAILED TO GRANT THE BENEFITS OF THE TELESCOPY. IN SUMMARY, L D. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ORDER OF AO DOES NOT CONSTITUTE A SPEAKING ORDER ON THE CONCLUSIONS DRAWN BY THE CIT(A), DO NO T CONTAIN THE REASONING OF ANY KIND. IN FACT, LD. AUTHORISED REPRESENTATIVE D ID NOT OBJECT TO THE PROPOSITION OF REMANDING THE ISSUES TO THE FILE OF THE CIT(A) FOR WANT OF A SPEAKING ORDER ON ALL THE ISSUES. 16. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE RELIED ON THE ORDER OF THE AO, AND ASKED FOR RESTORING THE AO S ORDER DUTIFULLY IN ITS ENTIRETY. HE JUSTIFIED ALL THE ADDITIONS MADE BY T HE AO AND IS CRITICAL OF THE RELIEF GRANTED BY THE CIT(A) TO THE ASSESSEE. 9 ITA NOS.1459 & 1494/PUN/2013 17. WE HEARD BOTH THE PARTIES AND PERUSED THE ORDER S OF THE AO AND THE CIT(A). THIS BEING THE APPEAL OF THE ASSESSEE, WE FIND THE ISSUES AGITATED BY THE ASSESSEE ARE OF TWO FOLD, I.E. (1) CORRECTNESS OF EXTRAPOLATION AND QUANTIFICATION OF RS.2 CRORES OF UNACCOUNTED PURCHA SES BY THE AO OF GUTKHA BASED ON PAGE 44 OF THE PAPER BOOK AND CIT(A) DECIS ION TO RESTRICT THE SAME TO RS.60 LAKHS. (2) QUANTIFICATION OF SEED CAPITAL INVESTMENT @ 10% OF THE SAID RS.60 LAKHS. 18. IN THIS REGARD, WE EXAMINED THE FINDING OF THE CIT(A) ON THESE ISSUES. RELEVANT LINES FROM THE ORDER OF THE CIT(A) ARE EXT RACTED AS UNDER : A. 2.3.4 (I). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IN THE PRESENT CASE ALSO, EVIDENCE INDICA TING UNACCOUNTED TURNOVER WAS FOUND FOR A PART PERIOD OF THE YEAR AND BASED O N THIS MATERIAL; THE ASSESSING OFFICER HAS ESTIMATED THE TURNOVER FOR TH E WHOLE YEAR AND THEREFORE THERE IS NO INFIRMITY IN THE APPROACH OF THE AO AND ON THE FACTS OF THE CASE, THE ASSESSING OFFICER IS JUSTIFIED IN PRINCIPLE IN ESTIMATING THE TURNOVER. BUT, WHILE DOING SO, THE ASSESSING OFFIC ER ASSUMED THE TURNOVER OF RS.50 LAKHS ADMITTED BY THE APPELLANT IN THE STA TEMENT FOR THE PERIOD OF 10 MONTHS, I.E. FROM 01-04-2008 TO 02-02-2009 AS TH E TURNOVER FOR A PERIOD OF THREE MONTHS ONLY FROM 02-12-2008 TO 02-0 2-2009. BASED ON THIS PRESUMPTION, HE ESTIMATED THE TURNOVER FOR TH E WHOLE YEAR AT RS.2 CRORES, WHICH IS NOT CORRECT. THE UNACCOUNTED TURN OVER ADMITTED BY THE APPELLANT WAS FOR THE PERIOD FROM 01-04-2008 TO 02- 02-2009, I.E. TILL THE DATE OF THE SURVEY AND GOING BY THIS ADMISSION, THE TURNOVER FOR WHILE YEAR AT BEST COULD BE ONLY RS.60,00,000/- AT AN AVERAGE RATE OF RS.5 LAKHS PER MONTHS, WHICH ONLY CAN BE CONSIDERED FOR THE ESTIMA TION OF PROFITS AND NOT RS.2 CRORES. THIS IS MORE SO WHEN THE ASSESSING OF FICER WAS RELYING ON THE STATEMENT RECORDED DURING THE SURVEY AND THERE WAS NO OTHER MATERIAL TO INDICATE THAT THE UNACCOUNTED TURNOVER WAS RS.5 0 LAKHS FOR A PERIOD OF THREE MONTHS. 19. THE ABOVE EXTRACT IS RELEVANT AS TO WHY CIT(A) RESTRICTED THE UNACCOUNTED PURCHASES OF GUTKHA TO RS.60 LAKHS. FU RTHER, THE FOLLOWING EXTRACT IS RELEVANT FOR QUANTIFICATION ON THE SEED CAPITAL INVESTMENT. B. 2.3.4 (II) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AT THE SAME TIME, THE APPELLANT D ID NOT REQUIRE SOME AMOUNT OF INITIAL CAPITAL FOR CARRYING ON ACCOUNTED TRADIN G ACTIVITY AND TO ACHIEVE THE SAID UNACCOUNTED TURNOVER AND SUCH CAPITAL NEED S TO BE ESTIMATED ON A REASONABLE BASIS. HAVING REGARD TO THE NATURE OF BUSINESS AND TRADING ACTIVITY OF THE APPELLANT, WHICH IS MOSTLY CARRIED ON CASH AND CARRY BASIS AND AFTER CONSIDERING THE ENTIRE CONSPECTUS OF THE CASE, IT WOULD BE FAIR AND REASONABLE IF THE INITIAL CAPITAL NECESSARY FOR UNACCOUNTED TRADING ACTIVITY IS TAKEN AT 10% OF THE UNACCOUNTED TURNOVE R OF RS.60 LAKHS, WHICH 10 ITA NOS.1459 & 1494/PUN/2013 COMES TO RS.6,00,000/- AS AGAINST RS.50,00,000/- CO NSIDERED BY THE ASSESSING OFFICER. IN MY CONSIDERED OPINION, THE I NITIAL CAPITAL OF RS.6,00,000/- WOULD BE SUFFICIENT TO ACHIEVE THE UN ACCOUNTED TURNOVER OF RS.60 LAKHS ESPECIALLY WHEN THE CASH SALES ARE ALSO STATED TO HAVE BEEN PLOUGHED BACK IN UNACCOUNTED TRADING. ACCORDINGLY, THE APPELLANT GETS CONSEQUENTIAL RELIEF OF RS.44,00,000/- (50,00,000 6,00,000). IN RESPECT OF UNACCOUNTED INVESTMENT IN PURCHASES. 20. FROM THE ABOVE EXTRACTS AT A AND B, WE FIND THA T THE CIT(A) IS SILENT AS WHY UNACCOUNTED PURCHASES OF GUTKHA AT RS.50 LAKHS PER QUARTER IS CONSIDERED APPROPRIATE AND WHAT ARE THE SUPPORTING EVIDENCES APART FROM MERELY THE ASSESSEES STATEMENT, WHICH WAS ALSO SUB SEQUENTLY RETRACTED. FURTHER, IT IS NOT DISCUSSED AS TO WHERE IS THE NE ED FOR EXTRAPOLATION WHEN WHOLE PAGE 44 OF THE PAPER BOOK IS FOR ENTIRE YEAR UNDER CONSIDERATION AND ALSO THE JUSTIFICATION FOR INVOKING THE SUPREME COU RT JUDGMENT IN CASE OF H. M. ESUFALI H. M. ABDULALI (SUPRA). IT IS NOT THAT THE SAID PAGE 44 IS FOR A QUARTER. WE FIND THAT THE SAME IS FOR ENTIRE YEAR (01-04-200 8 TO 31-03-2009). PAGE 10 OF THE CIT(A) CONTAINS THE EXTRACT OF THE SAME UNAC COUNTED PURCHASES, AS PER THE SAID PAGE 44 IS RS. 24,82,196/-. THUS THE ESTI MATIONS MADE BY THE AO AS WELL AS THE CIT(A) SUFFER FROM DEFICIENCY SO FAR AS THE INCRIMINATING EVIDENCES ARE CONCERNED. CIT(A) IS EXPECTED TO DELVE ON THE ABOVE ISSUE IN THE REMAND PROCEEDINGS. 21. SIMILARLY, IN MATTERS RELATING TO THE SEED CAP ITAL INVESTMENTS TOO, WE FIND, THAT THE AUTHORITIES MERELY ESTIMATED THE ADD ITIONS. THIS IS THE CASE, WHERE THERE WAS AN ACTION U/S.133A OF THE ACT AND T HE SAME RESULTED IN THE DISCOVERY OF CERTAIN DISCREPANCIES WITH REFERENCE T O THE UNACCOUNTED PURCHASES. HOWEVER, NO INCRIMINATING EVIDENCES ARE BROUGHT ON TO THE RECORDS WITH REFERENCE TO THE SEED CAPITAL INVESTME NTS. CIT(A) MERELY ADOPTED RS.5 LAKHS A MONTH. IN OUR VIEW, THIS METH OD ADOPTED BY THE CIT(A) IS NOT SUSTAINABLE AS IT IS BASED ON ESTIMATIONS. CIT/AO DID NOT BRING ANY COMPARABLE CASES TOO TO SUPPORT HIS ESTIMATIONS. F URTHER, WE FIND IT IS NOT A 11 ITA NOS.1459 & 1494/PUN/2013 CASE OF AGREED ADDITION. THEREFORE, WE ARE OF THE VIEW THAT CIT(A) OUGHT TO PROVIDE REASONING SUPPORTING HIS CONCLUSION ON THIS ISSUE. FOR WANT OF SPEAKING ORDER, WE REMAND THIS ISSUE TOO TO THE FIL E OF THE CIT(A). HE SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH THE ACT AND PRINCIPLES OF NATURAL JUSTICE. AC CORDINGLY, ALL THE GROUNDS OF THE ASSESSEE ARE RESTORED TO THE FILE OF CIT(A). A CCORDINGLY, GROUND NOS. 1 AND 2 ARE ALLOWED FOR STATISTICAL PURPOSES. 22. COMING TO THE GROUND NO.3 OF ASSESSEES APPEAL RELATING TO ADDITION U/S.40A(3) OF THE ACT, WE FIND THAT CIT(A) GAVE A F INDING THAT THE ASSESSEES ARGUMENT REVOLVING AROUND CLAUSE (K) OF RULE 6DD IS A CASE OF AN AFTERTHOUGHT AND RELEVANT INVOICES ARE NOT CREDIBLE. 23. AFTER HEARING THE PARTIES, WE FIND THAT THE REV ENUE HAS NO EVIDENCE TO SUPPORT THAT THE SAID INVOICES ARE NOT RELIABLE OR BOGUS. THE EXPRESSION SUCH AS AFTERTHOUGHT AND INSPIRE CONFIDENCE ARE REQU IRED TO BE CEMENTED WITH THE EVIDENCES GATHERED BY THE AO. THAT IS NOT THE CASE HERE. THEREFORE, WE ARE OF THE VIEW THAT THE ORDER OF CIT(A) ON THIS IS SUE IS REQUIRED TO BE REVERSED AND IN FAVOUR OF THE ASSESSEE. THUS, GROU ND NO.3 OF THE ASSESSEE IS ALLOWED. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1494/PUN/2013 (BY REVENUE A.Y. 2009-10) : 25. IN THIS APPEAL, THE REVENUE IS AGGRIEVED AGAINS T THE RELIEF GRANTED BY THE CIT(A) ON ACCOUNT OF (1) ESTIMATING PROFITS ON UNACCOUNTED PURCHASES AND (2) SEED CAPITAL INVESTMENT. 12 ITA NOS.1459 & 1494/PUN/2013 26. BEFORE US, BOTH THE PARTIES MENTIONED THAT THE FIRST TWO ISSUES RELATE TO THE CORE ISSUE OF THE ASSESSEE, ADJUDICATED IN THE APPEAL OF THE ASSESSEE. ON HEARING THE PARTIES, WE FIND THE ISSUES RELATING TO UNACCOUNTED PURCHASES OF GUTKHA AND THE SEED CAPITAL INVESTMENTS ARE CONNECT ED TO THE CORE ISSUE REMANDED TO THE FILE OF THE CIT(A). FOR THE SAKE O F HARMONIUS ADJUDICATION, WE PROCEED TO REMAND THESE TWO ISSUES (I.E. 1 AND 2 ) TO THE FILE OF THE CIT(A) WITH IDENTICAL DIRECTIONS. THUS, ALL THE GROUNDS R AISED BY THE REVENUE WITHOUT PREJUDICE ARE ALLOWED FOR STATISTICAL PURPOSES. 27. TO SUM UP, THE ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. THE REVENUES APPEAL IS ALLOWED FOR STAT ISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF JUNE, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE; DATED : 14 TH JUNE, 2017. / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // //TRUE COPY// /ASSISTANT REGISTRAR , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A) - I II , PUNE 4. CIT - I I I , PUNE 5. , , B BENCH / DR, ITAT, B BENCH PUNE; 6. / GUARD FILE.