ITO, Salem V. Shri P.Eswaran, Komarapalayam

ITA 169/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57766 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-01-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 04-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R B NAIK
• Assessee Lawyers: G BASKAR
• Keywords: Business income; Income from undisclosed sources; Earning of tax free income; Question of law; Cost of acquisition
• Section: 142(1); 133A; 143(1); 147; 148; 144

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI B BENCH, CHENNAI. BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER & SHRI N.S. SAINI, ACCOUNTANT MEMBER I.T.A. NOS. 169 AND 172/MDS/2011 ASSESSMENT YEARS: 2001-02 AND 2006-07 THE INCOME TAX OFFICER, WARD II (1), SALEM 7. VS. SHRI P. EASWARAN, PROP. SHANMUGA TEX, NO.1/1A, EAST COLONY, AMMAN NAGAR, KOMARAPALAYAM 638 183. [PAN: AAAPE7337C] (APPELLANT) (RESPONDENT) C.O. NOS. 31 AND 34/MDS/2011 [IN I.T.A. NOS. 169 AND 172/MDS/2011]] ASSESSMENT YEARS: 2001-02 AND 2006-07 SHRI P. EASWARAN, PROP. SHANMUGA TEX, NO.1/1A, EAST COLONY, AMMAN NAGAR, KOMARAPALAYAM 638 183. VS. THE INCOME TAX OFFICER, WARD II (1), SALEM 7. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI R.B. NAIK, CIT-DR ASSESSEE BY : SHRI G. BASKAR, ADVOCATE DATE OF HEARING : 03 . 0 1.201 2 DATE OF PRONOUNCEMENT : 13.01.2012 ORDER PER N.S. SAINI, ACCOUNTANT MEMBER THESE ARE TWO APPEALS FILED BY THE REVENUE AND TWO CROSS OBJECTIONS FILED BY THE ASSESSEE AGAINST THE CONSOLIDATED ORDE R OF THE LD. CIT(A), SALEM DATED 26.11.2010 RELEVANT TO THE ASSESSMENT YEARS 2 001-02 AND 2006-07. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .16 1616 169 99 9 & 172 & 172 & 172 & 172/ // /M/ M/M/ M/11 1111 11 & && & C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 2 2. FIRST WE SHALL TAKE UP REVENUES APPEAL IN ITA NO. 169/MDS/2011 AND GROUND NO.1 OF THE APPEAL IS GENERAL IN NATURE AND HENCE REQUIRES NO ADJUDICATION BY US. 3. GROUND NO.2 OF THE APPEAL READS AS UNDER: 2. THE CIT(A) OUGHT NOT TO HAVE COME TO A CONCLUS ION THAT IF THE AMOUNTS HAD BEEN RECEIVED TOWARDS SHARE OF PROF IT FROM THE PARTNERSHIP FIRM, THEY ARE NOT TAXABLE, IN VIEW OF THE PROVISIONS CONTAIN IN SECTION 10(2A) AND THERE BY DELETING THE ADDITION OF ` .20,00,000/-. THE ASSESSEE HAS NOT STATED THAT THI S SUM IS SHARE PROFIT OR INTEREST OR REMUNERATION EITHER IN THE STATEMENT RECORDED DURING THE COURSE OF SURVEY U/S 133A OR IN THE ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS FAILED TO PROVE THAT THE ABOVE INCOME IS EXEMPT INCOME IN ACCORDANCE WIT H SECTION 10(2A) OR OTHERWISE. HENCE, ASSESSING THE SAID INCO ME AS INCOME FROM OTHER SOURCE BY THE AO OUGHT TO HAVE BE EN CONFIRMED BY THE CIT(A). 4. THE ASSESSING OFFICER HAS MADE THE ADDITION BY OBSERVING AS UNDER: A SURVEY U/S. 133A OF THE I.T. ACT, 1961 WAS CON DUCTED IN THE ASSESSEES BUSINESS PREMISES ON 10/11/2005 AND A SWORN STATEMENT WAS RECORDED FROM THE ASSESSEE. WHILE ANS WERING TO QUESTION NO.7, THE ASSESSEE HAS DEPOSED IN THE SWOR N STATEMENT THAT HE HAD RECEIVED AN AMOUNT OF ` .20,00,000/- ( ` .10,00,000 THROUGH CHEQUES AND ` .10,00,000 THROUGH CASH) FROM SRI SELVARAJ AND SRI ANBALAGAN AT THE TIME OF RETIREMENT FROM PARTNERSHIP FIRM VIZ. ANBURAJ TEXTILES. ON VER IFICATION OF THE DISSOLUTION DEED IT IS FOUND THAT THE FIRM WAS DISS OLVED ON 01/04/2000. AS PER THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2000-01 THE CLOSING BALANCE AS ON 3 1/03/2000 WITH SRI ANBURAJ TEXTILES WAS ` .3,07,517/- (RECEIVABLE BY THE ASSESSEE). AS PER THE EXTRACT FROM THE BOOKS OF SRI ANBURAJ TEXTILES, KOMARAPALAYAM (FURNISHED IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2001-02) THE BALANCE AMOUNT OF ` .3,07,517/- WAS FULLY COLLECTED BY THE ASSESSEE THR OUGH CHEQUE ON 09/08/2000. HOWEVER, THE ASSESSEE IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2001-02 HAS NOT SHOWN THE RECEIPT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .16 1616 169 99 9 & 172 & 172 & 172 & 172/ // /M/ M/M/ M/11 1111 11 & && & C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 3 OF ` .20,00,000/- AS STATED BY HIM AT THAT TIME OF SURVE Y. 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), AND THE LD. CIT(A) HAS DELETED THE ADDITION. 6. THE NEXT GROUND RAISED BY THE REVENUE FOR THE A SSESSMENT YEAR 2001-02 READS AS UNDER: 3. THE CIT(A) IS ERRED BY DELETING THE ADDITION O N ACCOUNT OF EXCESS PAYMENT ON THE PURCHASE OF LAND TO AN EXTENT OF ` .7,30,245/- BY RELYING ON THE DECISION IN THE CASE OF P.V.KALYANASUNDARAM VS. CIT, 294 ITR 49, WHEREIN BO TH THE HONBLE HIGH COURT AND SUPREME COURT DISMISSED THE APPEAL OF THE REVENUE ON THE GROUND THAT THERE WAS NO SUBSTA NTIAL QUESTION OF LAW, WITHOUT GOING INTO THE MERITS OF THE CASE. IN THIS CASE, THE ASSESSEE HAD ADMITTED THE FACT THAT HE HA D PAID EXCESS SUM IN THE STATEMENT RECORDED DURING THE COU RSE OF SURVEY AND THE SAME WAS NOT DISPUTED BY THE ASSESSE E TILL THE COMPLETION OF THE ASSESSMENT. HENCE, THE CIT(A) OUG HT NOT TO HAVE DELETED THE ADDITION. 7. THE ASSESSING OFFICER HAS MADE THE ADDITION BY OBSERVING AS UNDER: FURTHER THE ASSESSEE WHILE ANSWERING TO QUESTION NO.5 IN THE SWORN STATEMENT GIVEN BY ON 10/11/2005, STATED THAT HE BOUGHT A LAND IN THE FINANCIAL YEAR 2000-01 FOR A C ONSIDERATION OF ` .9,00,000/-. HOWEVER ON VERIFICATION OF THE RETURN OF INCOME FILED BY HIM FOR THE ASSESSMENT YEAR 2001-02 ON 11/09/200 1 IT IS SEEN THAT THE LAND WAS PURCHASED ON 09/08/2000 AND IS VA LUE IS SHOWN AT ` .1,69,755/- ONLY. IN THE RETURN OF INCOME FILED, TH E ASSESSEE HAS NOT SHOWN CORRECT AND TRUE VALUE OF TH E LAND PURCHASED AS STATED BY HIM IN THE COURSE OF SURVEY. TO ASSESS THE UNDISCLOSED INCOME A PROCEEDINGS U/S 147 WAS INITIATED AND A NOTICE U/S 148 WAS ISSUED ON 01 /05/2007. THE ASSESSEE HAS NOT FILED ANY RETURN OF INCOME IN RESPONSE TO NOTICE ISSUED U/S 148. ANOTHER NOTICE U/S 142(1) WA S ISSUED ON 17/11/2008 FIXING THE CASE FOR HEARING ON 03/12/200 8. BUT THERE IS NO RESPONSE. AGAIN A FINAL HEARING NOTICE WAS IS SUED ON I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .16 1616 169 99 9 & 172 & 172 & 172 & 172/ // /M/ M/M/ M/11 1111 11 & && & C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 4 08/12/2008 TO SHOW CAUSE AS TO WHY THE ASSESSMENT S HOULD NOT BE MADE U/S. 144 OF THE I.T. ACT, 1961. THE SHOW CA USE NOTICE HAS BEEN DULY SERVED ON THE ASSESSEE ON 25/12/2008. SINCE THE ASSESSEE HAS NOT COMPLIED WITH THE SHOW CAUSE NOTIC E, I AM CONSTRAINED TO COMPLETE THE ASSESSMENT U/S. 144 AS UNDER: 2. ON MONEY PAID FOR PURCHASE OF LAND ON 09/08/2000 FROM UNACCOUNTED INCOME AS DISCUSSED (9,00,000 1,69,75 5) = ` .7,30,245/-. 8. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), AND THE LD. CIT(A) HAS DELETED THE ADDITION. 9. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MA TERIALS AVAILABLE ON RECORD AND FIND THAT IN THE INSTANT CASE, THE ORIGI NAL RETURN OF INCOME FILED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS A CCEPTED BY THE DEPARTMENT UNDER SECTION 143(1) OF THE ACT. THEREAF TER, A SURVEY UNDER SECTION 133A WAS CONDUCTED ON 10.11.2005. THEREAFTE R, THE ASSESSMENT WAS REOPENED UNDER SECTION 148 OF THE ACT AND IN TH E IMPUGNED ORDER PASSED UNDER SECTION 147 OF THE ACT, ADDITION OF ` .20 LAKHS AND ` . 7,30,245/- WERE MADE, WHICH WERE DELETED BY THE LD. CIT(A). 10. THE REVENUE IS IN APPEAL BEFORE US AGAINST THE AFORESAID DELETION OF ADDITION OF ` .20 LAKHS AND ` .7,30,425/-. WE FIND THAT THE ADDITION OF ` . 20 LAKHS WAS MADE ON THE BASIS OF REPLY TO QUESTION NO . 7 RECORDED DURING THE COURSE OF SURVEY, WHEREIN THE ASSESSEE HAS STATED T HAT HE RECEIVED ` .10 LAKHS IN CASH AND ` .10 LAKHS BY CHEQUE ON THE RETIREMENT FROM A PARTNE RSHIP FIRM NAMELY M/S. ANBURAJ TEXTILE ON 01.04.2000. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .16 1616 169 99 9 & 172 & 172 & 172 & 172/ // /M/ M/M/ M/11 1111 11 & && & C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 5 11. SIMILARLY, THE ADDITION OF ` .7,30,245/- WAS ALSO MADE ON THE BASIS OF STATEMENT RECORDED UNDER SECTION 133A, WHEREIN REPL Y TO QUESTION NO. 5, THE ASSESSEE STATED THAT HE HAS PURCHASED THE LAND FOR ` .9,00,000/- IN 2000-01. THE ASSESSING OFFICE FINDING THAT THE COST OF LAND WAS DECLARED BY THE ASSESSEE WAS ` .1,69,755/- IN HIS RETURN OF INCOME FILED ADDED THE DIFFERENCE AMOUNT OF ` .7,30,245/- TO THE INCOME OF THE ASSESSEE. 12. THE LD. CIT(A) DELETED THE ADDITION OF ` .20 LAKHS BY OBSERVING AS UNDER: 4. ONE OF THE TWO ADDITIONS MADE IN THE ASSESSMEN T ARE ` .20 LAKHS STATED BY THE APPELLANT ORALLY, TO HAVE BEEN RECEIVED BY HIM, WHILE CEASING CONNECTIONS WITH A PARTNERSHIP F IRM OF M/S. ANBURAJ TEXTILES ( ` .10 LAKHS IN CASH AND ` .10 LAKHS THROUGH BANK CHEQUES). IT IS HOWEVER NOW CLAIMED THAT NO SUCH RE CEIPT WAS ACTUALLY MADE AT ALL. WHATEVER BE THE REAL POSITION REGARDING THE AMOUNTS PAID TO THE ASSESSEE BY THE FIRM, IT HAS NO T BEEN FOUND THAT THEY REPRESENTED INTEREST OR REMUNERATION FROM THE FIRM, AS CONTENDED ON BEHALF OF THE APPELLANT. IF THE AMOUNT S HAD BEEN RECEIVED TOWARDS SHARE OF PROFIT FROM THE PARTNERSH IP FIRM, THEY ARE NOT TAXABLE, IN VIEW OF THE PROVISIONS CONTAINE D IN SECTION 10(2A). I THEREFORE, DELETED THE ADDITION OF ` .20 LAKHS MADE TO INCOME IN THE ASSESSMENT. 13. FURTHER, THE LD. CIT(A) DELETED THE ADDITION OF ` .7,30,245/- BY OBSERVING AS UNDER: 5. THE OTHER INCREASE MADE TO THE INCOME IS ` .7,30,245/- REPRESENTING DIFFERENCE BETWEEN COST OF ` .1,69,755 OF A SITE PURCHASED AND ` .9 LAKHS STATED DURING THE SURVEY AS ITS COST OF ACQUISITION. THE JUDGMENTS REFERRED TO HEREINBEFORE ARE CITED TO DRIVE HOME THE CONTENTION THAT A SURVEY STATEMENT I S NOT CONCLUSIVE AS TO THE STATE OF AFFAIRS, IN THE ABSEN CE OF ANY MATERIAL IN SUPPORT THEREOF. COPY OF A COMMUNICATIO N DATED 10.03.2003, ISSUED BY THE CBDT HAS ALSO BEEN FILED BEFORE ME. IT IS DIRECTED THEREIN, THAT CONFESSIONS MADE DO NO T SERVE ANY I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .16 1616 169 99 9 & 172 & 172 & 172 & 172/ // /M/ M/M/ M/11 1111 11 & && & C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 6 USEFUL PURPOSE UNLESS THERE ARE EVIDENCES OR MATERI ALS, GATHERED BEFORE FRAMING RELEVANT ASSESSMENT ORDERS. A DECISI ON OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF P.V.KALYAN ASUNDARAM VS. CIT (282 ITR 259) IS ALSO RELIED ON, WHEREIN TH E HIGH COURT CONFIRMED DELETION OF AMOUNT OF AN ALLEGED ON-MONEY PAYMENT, THOUGH IT HAD BEEN CONFESSED BY BOTH THE TRANSFEROR AND THE TRANSFEREE OF A SITE, DURING SEARCH PROCEEDINGS. TH IS DECISION WAS AFFIRMED BY THE HONBLE SUPREME COURT AS REPORT ED IN 294 ITR 49. NO INFORMATION HAS BEEN ELICITED FROM THE S ELLER OF THE PROPERTY BY THE AO. IT HAS ALSO NOT BEEN SHOWN THAT THE VALUE OF THE PROPERTY WAS MORE THAN THAT RECORDED. THERE IS NO MATERIAL OR DOCUMENT TO HOLD THAT ANY AMOUNT OTHER THAN THAT RECORDED WAS PAID FOR PURCHASE OF THE SITE. IN THE LIGHT OF THESE DISCUSSIONS MADE, I AM OF THE VIEW THAT THE ADDITION OF ` .7,30,245/- IS NOT JUSTIFIED. 14. BEFORE US, THE LD. DR SUPPORTED THE ORDER OF TH E ASSESSING OFFICER AND SUBMITTED THAT AS THE ADDITION WAS MADE ON THE BASI S OF THE STATEMENT OF THE ASSESSEE HIMSELF, THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE AFORESAID ADDITION. 15. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE S UPPORTED THE ORDER OF THE LD. CIT(A). 16. WE FIND THAT NO SPECIFIC ERROR IN THE ORDER OF THE LD. CIT(A) COULD BE POINTED OUT BY THE LD. DR. IT IS AN ESTABLISHED POS ITION OF LAW THAT THE STATEMENT RECORDED DURING THE COURSE OF SURVEY IS N OT A STATEMENT RECORDED ON OATH UNDER SECTION 132(4) OF THE ACT. FURTHER, I T IS ALSO AN ESTABLISHED POSITION THAT IN AN ASSESSMENT, ADDITION CANNOT BE MADE MERELY ON THE BASIS OF A STATEMENT RECORDED UNDER SECTION 133A OF THE A CT WHEN THE ASSESSEE CHALLENGES THE CORRECTNESS OF THE SAME, WITHOUT BRI NGING ANY CORROBORATIVE MATERIAL ON RECORD IN SUPPORT OF THE ADDITION. WE F IND THAT IN THE INSTANT CASE, I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .16 1616 169 99 9 & 172 & 172 & 172 & 172/ // /M/ M/M/ M/11 1111 11 & && & C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 7 THE REVENUE COULD NOT BRING ANY MATERIAL ON RECORD EVEN IN SUPPORT OF ITS CLAIM THAT THE ASSESSEE RECEIVED ` .10 LAKHS BY CHEQUE FROM THE PARTNERSHIP FIRM M/S. ANBURAJ TEXTILE. FURTHER NO MATERIAL WAS BROUGHT ON RECORD TO SHOW THAT HOW THE AMOUNT OF ` .20 LAKHS ALLEGEDLY RECEIVED BY THE ASSESSEE WAS UTILIZED. IN RESPECT OF PURCHASE OF LAND ALSO, WE F IND THAT NO CORROBORATIVE MATERIAL WAS BROUGHT ON RECORD BY THE REVENUE AFTER MAKING NECESSARY VERIFICATION WITH THE VENDOR. IN THE ABOVE CIRCUMST ANCES, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). IT IS CONFIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 17. IN ITA NO. 172/MDS/2011, THE FIRST ISSUE RAISE D BY THE REVENUE IN GROUND NOS. 8 AND 9 RELEVANT TO THE ASSESSMENT YEAR 2006-07 READS AS UNDER: 8. THE CIT(A) OUGHT NOT TO HAVE ALLOWED THE APPEA L BY RESTRICTING THE PROFIT AT THE RATE OF 2% AS AGAINST 10% ADOPTED BY THE ASSESSING OFFICER, BY STATING THAT AS A MATTER OF CONSISTENCY OF FACTS, THE SAME RATE 2% IS ADOPTED. THE CIT(A) HAS FAILED TO NOTE THAT THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. 9. THE CIT(A) OUGHT TO HAVE NOTED THAT THE ASSESSE E DID NOT PRODUCED ANY OF THE VITAL DETAILS REQUIRED FOR CALC ULATING NET PROFIT, LIKE BOOKS OF ACCOUNTS, BILLS, VOUCHERS, EX PENDITURE ETC. IN THE ABSENCE OF THE ABOVE DETAILS, THE ASSESSING OFF ICER IS LEFT WITH NO OPTION, BUT TO ESTIMATE THE NET PROFIT. 18. THE ASSESSING OFFICER HAS MADE THE ADDITION BY OBSERVING AS UNDER: 2. DURING THE COURSE OF SURVEY IT WAS FOUND THAT THE ASSESSEE WAS RUNNING A BUSINESS CONCERN IN THE NAME OF M/S. SRINIVASA TEX WHICH MIGHT HAVE USED AS A DUMMY NAME FOR GENER ATING UNDISCLOSED INCOME. FURTHER IT WAS FOUND THAT THERE ARE 5 SALE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .16 1616 169 99 9 & 172 & 172 & 172 & 172/ // /M/ M/M/ M/11 1111 11 & && & C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 8 BOOKS WAS FOUND (AND IMPOUNDED) IN THE NAME OF M/S. SRINIVASA TEX, A NON-ASSESSED ENTITY SHOWING A TOTAL SALE TO THE TUNE OF ` .93,50,000/- [ WRONGLY MENTIONED AS ` .93,50,000/- LAKHS]. 3. XXXXXXXXXXXXXX 4. XXXXXXXXXXXXXX 5. IN THE ABSENCE OF ANY BOOKS OF ACCOUNTS THE NET PROFIT ARRIVED @ 10% ON THE TOTAL SALES OF ` .93,50,000/- COMES TO ` .9,35,000/-. 19. IN APPEAL, THE LD. CIT(A) HAS HELD AS UNDER: 21. CERTAIN FACTS OF THE CASE FOR THIS ASSESSMENT YEAR ARE DIFFERENT. IT WOULD APPEAR THAT THE AO HAS PROCEEDE D TO FRAME AN ASSESSMENT ORDER, IGNORING TO CONSIDER A RETURN OF INCOME FURNISHED ON 07-04-2008.INCOME OF ` .2,50,300/- WAS ADMITTED IN THE RETURN. COPIES OF ACKNOWLEDGEMENT ISSUED THEREF OR AND OF STATEMENTS INCLUDING TAX AUDIT REPORT, ON THE BASIS OF WHICH, THE INCOME RETURNED WAS COMPUTED, HAVE BEEN FILED BEFOR E ME. SALES ACCORDING TO THE TRADING ACCOUNT WERE ` .93,50,843/-. THE NET PROFIT ADMITTED APPEARS REASONABLE, BEING MORE THAN 2%. THE BOOKS OF ACCOUNT WERE PRODUCED BEFORE MY PREDEC ESSOR COMMISSIONER (APPEALS), AS NOTICED IN THE ORDER SHE ET ENTRY. IT IS HOWEVER PERTINENT TO NOTE THAT THE APPELLANT HAS AD MITTED INCOME FROM BUSINESS IN THE NAME AND STYLE OF SHANMUGA TE X. AS NARRATED IN THE ASSESSMENT ORDER, SALES OF ` .93,50,000/- WERE FOUND DURING THE SURVEY, TO HAVE BEEN EFFECTED IN A BUSINESS OF SRINIVASA TEX. THE APPELLANT HAS NOT LET IN ANY E VIDENCE TO ESTABLISH THAT THE SALES ADMITTED IN THE RETURN OF INCOME FURNISHED ARE THOSE OF SRINIVASA TEX, THOUGH BOTH THE AMOUNTS OF SALES ARE ALMOST EQUAL. 22. IN THE CIRCUMSTANCES, THE NET INCOME IS REASON ABLY ESTIMATED @ 2% ON PROBABLE SALES OF ` .93,50,843 + 93,50,000 = ` .1,87,00,843/- RESULTING IN ` .3,74,016/-. THIS AMOUNT OF ` .3,74,016/- SHALL BE SUBSTITUTED AGAINST ` .1,38,739/- ADMITTED AND ` .9,35,000/- ASSESSED. 20. THE NEXT ISSUE RAISED IN GROUND NO. 10 AND 11 RELEVANT TO THE ASSESSMENT YEAR 2006-07 READS AS UNDER: I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .16 1616 169 99 9 & 172 & 172 & 172 & 172/ // /M/ M/M/ M/11 1111 11 & && & C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 9 10. THE CIT(A) HAS ERRED IN RESTRICTING THE ADDIT IONAL CAPITAL TO ` .75,000/- AS AGAINST THE ESTIMATED THE ADDITION OF ` .20,00,000/-. THE CIT(A) HIMSELF HAS GIVEN FINDING THAT DURING TH E YEAR ASSESSEE HAS MADE A TURNOVER OF ` .1,87,00,843/- AS AGAINST THE TURNOVER OF ` .93,50,000/- AS FOUND IN THE ASSESSMENT ORDER. CONSIDERING THE HUGE TURNOVER OF THE ASSESSEE, THE ESTIMATION MADE BY THE ASSESSING OFFICER OUGHT TO HAVE BEEN SU STAINED. 11. THE CIT(A) ERRED IN RELYING UPON THE RETURN OF INCOME FILED ON 07.04.2008 FOR THE ABOVE ASSESSMENT YEAR 2006-07 . THE SAID RETURN OF INCOME IS FILED OUT OF TIME LIMIT AND HEN CE, THE SAME IS TO BE TREATED AS NON EST . 21. THE ASSESSING OFFICER HAS MADE THE ADDITION BY OBSERVING AS UNDER: 4. IN THE MATERIAL EVIDENCE FOUND FROM THE 5 SALE BOOKS THE ASSESSEE HAS SOLD GOODS TO THE TUNE OF ` .93,50,000/- IS WHICH WAS NOT ACCOUNTED FOR THESE SALES THE ASSESSEE IS R EQUIRED A INITIAL CAPITAL FOR A SUM OF ` .20,00,000/-. THE INITIAL CAPITAL MIGHT HAVE BEEN GENERATED FROM UNDISCLOSED INCOME. HENCE, I ADOPT A SUM OF ` .20,00,000/- IS UNDISCLOSED INCOME AND ASSESSED TO TAX. 22. IN APPEAL, THE LD. CIT(A) HAS HELD AS UNDER: 23. BESIDES ESTIMATING INCOME FROM BUSINESS, THE AO HAS ADDED A FURTHER SUM OF ` .20 LAKHS THAT MIGHT HAVE BEEN GENERATED FROM UNDISCLOSED SOURCES, FOR REQUIRED IN ITIAL CAPITAL TO EFFECT SUCH SALES. 24. THE AR CONTENDS THAT ACCORDING TO DECISIONS RE PORTED IN 201 ITR 608 CAL AND 67 TTJ 247 ALL, SO CALLED WORKI NG CAPITAL IS ONLY A PURE GUESS WORK BASED UPON CONJECTURES AND S URMISE AND THE BRAIN CHILD OF THE AO, SUSPICION HOWEVER STRONG CANNOT FORM BASIS FOR FRAMING AN ORDER OF ASSESSMENT. ALTERNATE LY, IT IS ARGUED THAT AS THE APPELLANT HAS BEEN IN THIS TEXTILE BUSI NESS DURING PAST SEVERAL YEARS, COMMANDING CREDIT IN THE MARKET, NO ADDITIONAL CAPITAL IS TO BE CONSIDERED AS PLOUGHED IN. WITH DU E RESPECTS TO THE DECISIONS CITED, ON FACTS, IT IS ONLY REASONABL E TO VIEW THAT A CERTAIN AMOUNT OF ADDITIONAL CAPITAL WAS NECESSARY TO EFFECT ADDITIONAL SALES. THE ISSUE TO BE CONSIDERED, THEN, IS THE QUANTUM OF SUCH ADDITIONAL FUNDS THAT WOULD HAVE BE EN DEPLOYED. THE BALANCE SHEET OF SHANMUGA TEX AS AT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .16 1616 169 99 9 & 172 & 172 & 172 & 172/ // /M/ M/M/ M/11 1111 11 & && & C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 10 31.03.2005, THE BEGINNING OF THE FINANCIAL YEAR, IN CLUDE, AS POINTED BY THE APPELLANTS REPRESENTATIVE, THE FOLL OWING: BUILDING ACCOUNT ` 8,41,140 LAND ACCOUNT 3,76,720 L.I.C. 2,95,122 NON TRADING ASSETS FUNDS EMPLOYED: 15,12,982 BANK CC ACCOUNT 4,96,161 CAPITAL ACCOUNT 10,91,511 15,87,672 NET BUSINESS CAPITAL EMPLOYED ` . 74,690 SALES EFFECTED IN SHANMUGA TEX ` . 93,50,843 THE APPELLANTS REPRESENTATIVE ALTERNATELY ARGUES T HAT ` .1,93,000/- HAS BEEN ADMITTED IN THE RETURN, AS INC OME UNDER OTHER SOURCES, WHILE LEASE INCOME OF ` .24,000/- AND INVESTMENT OF ` .70,000/- ALONE HAVE BEEN CREDITED TO THE CAPITAL A CCOUNT, THUS LEAVING THE BALANCE OF ` .99,000/- AVAILABLE, FOR MEETING ADDITIONAL CAPITAL, IF ANY. NO BASIS, NOR ANY NARRA TION HAS BEEN MENTIONED FOR HAVING ARRIVED AT SUCH INCOME UNDER OTHER SOURCES, I AM NOT THEREFORE INCLINED TO ACCEPT THI S CONTENTION. 25. IN THIS VIEW OF THE MATTER, I HOLD THAT A SIMI LAR AMOUNT OF CAPITAL OF ` .75,000/- IS TO BE TREATED AS ADDITIONAL UNEXPLAINE D CAPITAL INTRODUCED, IN SRINIVASA TEX AGAINST ` .20 LAKHS ESTIMATED BY THE AO, GRANTING A RELIEF OF ` .19,25,000/- TO THE APPELLANT. 23. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE M ATERIALS AVAILABLE ON RECORD AND FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN TEXTILE CLOTH AND COLOUR COTTON YARN TRADING. A SUR VEY UNDER SECTION 133A WAS CONDUCTED ON 10.11.2005 IN THE PREMISES OF THE ASSE SSEE. DURING THE COURSE OF SURVEY, IT WAS OBSERVED THAT THE ASSESSEE , APART FROM CARRYING ON THE BUSINESS IN THE NAME AND STYLE OF M/S. SHANMUGA TEX WAS ALSO SELLING GOODS IN THE NAME OF M/S. SRINIVASA TEX, WHICH WERE NOT RECORDED IN THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .16 1616 169 99 9 & 172 & 172 & 172 & 172/ // /M/ M/M/ M/11 1111 11 & && & C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 11 BOOKS OF ACCOUNT. THE TOTAL UNRECORDED SALES WAS FO UND TO BE ` .93,50,000/-. WE FURTHER OBSERVE THAT THE SALES IN THE NAME OF M/ S. SHANMUGA TEX, WHICH WERE RECORDED IN THE BOOKS OF ACCOUNT FOR THE YEAR UNDER CONSIDERATION AMOUNTS TO ` .93,50,843/- AND THE GROSS PROFIT THEREON AMOUNTS T O ` .7,12,318/- I.E. 7.62% AND NET PROFIT THEREON AMOUN TS TO ` .1,38,738/- I.E. 1.48%. ON THE ABOVE FACTS, THE ASSESSING OFFICER ES TIMATED THE PROFIT OF UNRECORDED SALES OF ` .93,50,000/- AT THE RATE OF 10% I.E. ` .9,35,000/- AND ALSO ESTIMATED ` .20 LAKHS AS INVESTMENT MADE FOR SUCH UNRECORDED SA LES AND THEREFORE MADE ADDITION OF ` .20 LAKHS ALSO SEPARATELY. 24. ON APPEAL, THE LD. CIT(A) REDUCED THE PROFIT ON UNRECORDED SALES TO ` .3,74,016/- IN PLACE OF ` .9,35,000/- AND REDUCED THE AMOUNT OF UNDISCLOSED INVESTMENT TO ` .75,000/- IN PLACE OF ` .20 LAKHS ON THE BASIS OF PROFIT AND INVESTMENT IN THE RECORDED BUSINESS. 25. BEFORE US, THE LD. DR RELIED ON THE ORDER OF TH E ASSESSING OFFICER AND SUBMITTED THAT IN THE ABSENCE OF ANY VOUCHER FOR EX PENSES EITHER FOUND DURING THE COURSE OF SURVEY OR PRODUCED BY THE ASSE SSEE IN THE COURSE OF ASSESSMENT, THE LD. CIT(A) WAS NOT JUSTIFIED IN ALL OWING DEDUCTION FOR THE EXPENSES, WHICH WERE ALREADY DULY RECORDED IN THE R EGULAR BOOKS OF ACCOUNT. HE CONTENDED THAT THE ADDITION OF ` .9,35,000/- ON ACCOUNT OF PROFIT ON UNRECORDED SALE AND ` .20 LAKHS ON ACCOUNT OF INVESTMENT MADE FOR ACHIEVING UNRECORDED SALES WAS JUSTIFIED. 26. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT TH E PROFIT DISCLOSED IN THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .16 1616 169 99 9 & 172 & 172 & 172 & 172/ // /M/ M/M/ M/11 1111 11 & && & C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 12 RECORDED SALES COMES TO 2.6% APPROXIMATELY AND THER EFORE, THE ADDITION IN EXCESS OF 2.6% OF UNRECORDED SALES IS NOT JUSTIFIED . IN RESPECT OF INVESTMENT, THE LD. AR SUBMITTED THAT AS PER BOOKS OF ACCOUNT O F THE ASSESSEE, IT SHOWS THAT FOR ACHIEVING SIMILAR SALES, INVESTMENT OF ` .75,000/- WAS MADE AND THEREFORE, THE LD. CIT(A) WAS JUSTIFIED IN SUSTAINI NG THE ADDITION OF ` .75,000/- IN THIS REGARD. 27. WE FIND THAT IT IS NOT IN DISPUTE THAT THE BUSI NESS IN THE NAME OF M/S. SHANMUGA TEX AND M/S. SRINIVASA TEX WERE BOTH CARRI ED OUT IN THE SAME PREMISES, SAME SET UP AND IN THE SAME LINE OF BUSIN ESS. FURTHER, IT IS OBSERVED THAT THE GROSS PROFIT RATE IN RESPECT OF R ECORDED SALES WAS 7.62%. IN THE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, THERE WAS NO JUSTIFICATION OR BASIS FOR ESTIMATING THE PROFIT OF UNRECORDED SALES AT THE RATE OF 10%. FURTHER, WE FIND FORCE IN THE ARGUMENTS OF THE LD. DR THAT AS THE BUSINESS UNDER THE NAME OF M/S. SRINIVASA TEX WAS ALSO CARRI ED OUT FROM THE SAME PREMISES IN WHICH THE BUSINESS UNDER THE NAME OF M/ S. SHANMUGA TEX WAS CARRIED ON, NO MATERIAL WAS BROUGHT ON RECORD TO SH OW ANY EXTRA EXPENDITURE ON ACCOUNT OF ANY INDIRECT EXPENSES LIKE SALARY, EL ECTRICITY CHARGES, TRAVELLING, TELEPHONE ETC. WERE INCURRED BY THE ASS ESSEE FOR ACHIEVING UNRECORDED SALES, THE LD. CIT(A) WAS NOT JUSTIFIED IN ALLOWING SIMILAR DEDUCTION ON MERE ASSUMPTION IN RESPECT OF UNRECORD ED SALES. THEREFORE, IN OUR CONSIDERED OPINION, THE LOWER AUTHORITIES SHOUL D HAVE ESTIMATED THE PROFIT FROM UNRECORDED SALES AT 7.62%, WHICH WAS TH E GROSS PROFIT RATE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .16 1616 169 99 9 & 172 & 172 & 172 & 172/ // /M/ M/M/ M/11 1111 11 & && & C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 13 DECLARED BY THE ASSESSEE IN RESPECT OF DISCLOSED SA LES IN THE SAME YEAR IN THE SAME LINE OF BUSINESS CARRIED ON FROM THE SAME PREMISES. 28. FURTHER, IN RESPECT OF ESTIMATE ON INVESTMENT I N RESPECT OF UNDISCLOSED SALES, WE FIND THAT NO MATERIAL WAS BROUGHT ON RECO RD TO SHOW THAT ANY INVESTMENT WAS MADE BY THE ASSESSEE TO ACHIEVE THE UNRECORDED SALES. NO SEPARATE STOCK OF M/S. SRINIVASA TEX WAS FOUND DURI NG THE COURSE OF SURVEY. THUS, THE ADDITION OF ` .20 LAKHS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDISCLOSED INVESTMENT WAS WITHOUT ANY MATERIAL AND ALSO WITHOUT ANY BASIS. KEEPING IN VIEW THE FACT THAT THE LD. CIT(A) HAS CO NFIRMED THE ADDITION OF ` .75,000/- ON THE BASIS OF INVESTMENT OF THE ASSESSE E IN RESPECT OF RECORDED SALES, WHICH HAS ALSO BEEN ACCEPTED BY THE ASSESSEE , WE DO NOT FIND ANY FORCE IN THE CONTENTION OF THE REVENUE IN THIS REGA RD. WE, THEREFORE, MODIFY THE ORDER OF THE LD. CIT(A) TO THE ABOVE EXTENT. AC CORDINGLY, GROUND NO. 8 AND 9 OF THE REVENUES APPEAL ARE PARTLY ALLOWED AN D GROUND NOS. 10 AND 11 ARE DISMISSED. 29. COMING TO THE CROSS OBJECTIONS FILED BY THE AS SESSEE IN C.O. NOS. 31 AND 34/MDS/2011, AT THE TIME OF HEARING, THE LD. AR OF THE ASSESSEE HAS NOT PRESSED BOTH THE CROSS OBJECTIONS FILED AGAINST THE REVENUES APPEAL AND THE ENDORSEMENTS TO THIS EFFECT HAS ALSO BEEN MADE AT THE END OF THE GROUNDS OF BOTH THE CROSS OBJECTIONS. ACCORDINGLY, WE DISMISS BOTH THE CROSS OBJECTIONS FILED BY THE ASSESSEE AS NOT PRESSED. 30. IN THE RESULT, THE APPEAL OF THE REVENUE FOR T HE ASSESSMENT YEAR I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .16 1616 169 99 9 & 172 & 172 & 172 & 172/ // /M/ M/M/ M/11 1111 11 & && & C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 C.O.NOS. 31 & 34/M/11 14 2001-02 IS DISMISSED AND FOR THE ASSESSMENT YEAR 20 06-07 IS PARTLY ALLOWED IN THE MANNER INDICATED ABOVE. THE CROSS OBJECTIONS FILED BY THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS ARE DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 13.01.2012. SD/ - SD/ - (HARI OM MARATHA) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER CHENNAI, DATED, THE 13.01.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.