Handloom Heritage Limited, CHENNAI V. ACIT, CHENNAI

ITA 1803/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5082 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 22-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: T BANUSEKAR
• Keywords: Unexplained investment; Income from undisclosed sources; Peak credit; Proportionate interest
• Section: 143(3); 153A; 131; 263; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH B BEFORE DR.O.K.NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A. NOS. 1792 TO 1803/MDS/2010 ASSESSMENT YEARS 1999-2000 TO 2005-06 M/S HANDLOOM HERITAGE LTD NO. 37, RAJAMANNAR STREET T. NAGAR, CHENNAI 600 017. PAN : AACH 0890 A VS THE ACIT CENTRAL CIRCLE II(5) CHENNAI-34 (APPELLANT) (RESPONDENT) I.T.A. NOS. 1761 TO 1767/MDS/2010 ASSESSMENT YEARS 1999-2000 TO 2005-06 THE ACIT VS. M/S HA NDLOOM HERITAGE LTD CENTRAL CIRCLE II(5) NO. 37 , RAJAMANNAR STREET CHENNAI-34 T. NAG AR, CHENNAI 600 017. PAN : AACH 0890 A ASSESSEE BY SHRI T. BANUSEKAR DEPARTMENT BY : SHRI ANIRUDH RAI O R D E R M/S HANDLOOM HERITAGE LTD :- 2 -: PER HARI OM MARATHA, JUDICIAL MEMBER: THIS IS A BUNCH OF NINETEEN APPEALS; F OR SEVEN ASSESSMENT YEARS THERE ARE CROSS APPEALS PERTAINING TO SAME ASSESSEE WHICH ARISE OUT OF A COMMON APPELLATE ORDE R DATED 21.6.2010 PASSED FOR ASSESSMENT YEARS 1999-2000 TO 2005-06 [I.E. SEVEN ASSESSMENT YEARS]. THE ASSESSEE IS IN APPEAL FOR FIVE YEARS AGAINST REVISIONAL ORDER PASSED U/S 263 OF THE INCO ME-TAX ACT, 1961 [IN SHORT, THE ACT] FOR ASSESSMENT YEARS 1999- 2000 TO 2005- 06AND THESE ARE ALSO DEALT WITH BY THE COMMISSIONER OF INCOME- TAX [APPEALS] ARISING OUT OF EFFECTIVE FIVE ASSESSM ENT ORDERS SIMULTANEOUSLY. THEREFORE, IT WILL BE CONVENIENT T O DISPOSE OF ALL THESE APPEALS BY A COMMON ORDER AS WE WILL BE ABLE TO CULL OUT FULL AND FINAL FACTS BY ARTICULATING ISSUES BETWEEN THE PARTIES. 2. BRIEFLY STATED THE FACTS, IN NUTSHELL, LEADING T O ALL THESE APPEALS ARE THAT A SEARCH U/S 132 OF THE 1961 WAS C ONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE COMPANY SITUA TED AT 37, RAJAMANNAR STREET, T.NAGAR, CHENNAI 600 017 AND ALSO AT THE RESIDENTIAL PREMISES OF ITS DIRECTOR AT NO. 16A, LA KSHMANAN STREET, T. NAGAR, CHENNAI 600 017 ON 15.7.2004 AND THE SEARCH WAS CONCLUDED FINALLY ON 14.9.2004. SUBSEQUENTLY, ASSESSMENTS FOR ASSESSMENT YEARS 1999-2000 TO 2005-06 WERE COMP LETED U/S M/S HANDLOOM HERITAGE LTD :- 3 -: 153A R.W.S. 143(3) OF THE ACT. IN THESE ASSESSMENT S, VARIOUS ADDITIONS WERE MADE WHICH CAN BE SUMMARIZED BY STAT ING AS TO WHAT UNDISCLOSED INCOME WAS ADDED BY THE ASSESSING OFFICER AS UNDER: I) THE TOTAL AMOUNT DEPOSITED IN THE CURRENT ACCOUN T IN THE NAME OF VARIOUS WEAVERS OF THE APPELLANT COMPANY AMOUNTING TO ` 18,79,27,560/- II) TOTAL AMOUNT OF FDRS IN TAMILNADU MERCANTILE BAN K AT TTK ROAD AND T. NAGAR IN THE NAME OF VARIOUS WEAVERS AMOUNTING TO ` 2,79,57,165/- III) UNACCOUNTED STOCK OF ` 3,65,32,442/- 3. YEAR WISE BREAK UP OF THE ADDITIONS MADE IN THES E ASSESSMENT YEARS AS PER ORIGINAL ASSESSMENT ORDER P ASSED U/S 153A ARE AS UNDER: F.Y A.Y. UNDISCLOSE D INCOME TOTAL AMOUNT OF DEPOSITS IN CURRENT ACCOUNTS OF M/S TAMILNAD MERCANTILE BANK, TTK ROAD & T. NAGAR TOTAL AMOUNT OF FDS WITH M/S TAMILNAD MERCANTILE BANK AND ING VYSYA CONSIDERED FOR TELESCOPING BALANCE TREATED AS UNDISCLOSE D INCOME AND BROUGHT TO TAX UNACCOUNT ED STOCK 1998-99 1999- 7,103,500 NIL 7,103,500 NIL M/S HANDLOOM HERITAGE LTD :- 4 -: 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 --- 15,704,709 9,901,918 28,772,923 23,180,960 94,114,815 4,148,735 ----- 5,704,672 20,000 5,551,330 13,513,000 NIL 3,168,163 ---- 10,000,037 9,881,918 23,221,593 9,667,960 94,114,815 980,572 ---- NIL NIL NIL NIL NIL NIL 36132442 4. THE ASSESSING OFFICER, WHILE PASSING THE ORIGIN AL ASSESSMENT ORDER DATED 27/12/2006 U/S 153A OF THE A CT REDUCED THE AMOUNT OF FDRS OF RS. 2,79,57,165/- FROM THE TOT AL AMOUNT OF DEPOSITS AMOUNTING TO RS. 18,79,27,560/-. THE COM MISSIONER OF INCOME TAX, CENTRAL-II, CHENNAI PASSED AN ORDER U/S 263 TREATING THE EARLIER ORDER AS ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF THE REVENUE ON THE GROUND THAT TELESCOP ING OF UNACCOUNTED FDRS FROM THE TOTAL DEPOSIT IN THE BANK ACCOUNT WAS ERRONEOUS. AS A RESULT, THE A.O. PASSED THE ORDER U /S 153A R.W.S. 263 OF THE ACT FOR VARIOUS ASSESSMENT YEARS NULLIFY ING THE EFFECT OF TELESCOPING OF FDRS AMOUNT FROM THE TOTAL DEPOSIT IN THE WEAVERS ACCOUNT BY ADDING THE FDR AMOUNT TO THE TOTA L INCOME M/S HANDLOOM HERITAGE LTD :- 5 -: DETERMINED IN THE ORIGINAL ORDER U/S 153A OF THE AC T. IN THE REVISED ORDER PASSED CONSEQUENT TO ORDER U/S 263 OF THE ACT, THE ASSESSING OFFICER HAS ALSO ADDED PROPORTIONATE INTE REST FOR VARIOUS YEARS AS UNDER: ASSESSMENT YEAR PROPORTIONATE INTEREST 2000-01 7,64,426.00 2001-02 2,680.00 2002-03 7,43,878.00 2003-04 18,17,788.00 2005-06 4,24,533.00 5. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A), WHO HAS GRANTED PART RELIEF TO THE ASSESSEE . NOW THE REVENUE IS IN APPEAL AGAINST THE RELIEF GRANTED AND THE ASSESSEE IS IN APPEAL AGAINST THE ADDITIONS SUSTAINED. IN AD DITION TO THAT, THE ASSESSEE HAS ALSO FILED APPEALS AGAINST THE ORD ER PASSED U/S 263 BY THE COMMISSIONER OF INCOME-TAX [ADMN.]. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY PERUSED ENTIRE MATERIAL AVAILABLE BEFORE US. A PER USAL OF THE RECORD ESTABLISHES THAT M/S HANDLOOM HERITAGE LIMIT ED IS ONE OF THE LEADING MANUFACTURERS AND DEALERS IN HANDLOOM S AREES AND M/S HANDLOOM HERITAGE LTD :- 6 -: DESIGNER SAREES BOTH IN WHOLESALE AS WELL AS RETAIL BASIS. THE COMPANY HAS FOUR DIRECTORS INCLUDING SHRI L. DHARMI CHAND, SMT. PRAKASH DEVI W/O SHRI L. DHARMICHAND AND SHRI SUNIL KUMAR, SON OF SHRI L. DHARMICHAND. THE FOLLOWING ASSETS OF TH E APPELLANT WERE SEIZED DURING THE COURSE OF SEARCH: I. CASH SEIZURE OF ` 3,83,140/- FROM THE BUSINESS PREMISES AT NO. 37, RAJAMANNAR SALAI, T. NAGAR, CHENNAI II. CASH SEIZURE OF ` 50,000/- FROM THE HDFC BANK ACCOUNT, T. NAGAR, CHENNAI III. FIXED DEPOSITS ` 2,92,60,165/- SEIZED FROM TAMILNAD MERCANTILE BANK, TTK ROAD BRANCH AND ING VYSYA BANK, T. NAGAR 7. AFTER POST SEARCH ENQUIRIES CONDUCTED, IT WAS FO UND THAT FIXED DEPOSITS TO THE TUNE OF ` 2,90,50,002/- WAS DEPOSITED IN THE NAMES OF VARIOUS WEAVERS IN THE BANK, NAMELY TA MILNAD MERCANTILE BANK, TTK ROAD BRANCH. IT WAS FOUND THAT INTEREST TO THE TUNE OF ` 31,68,156/- ACCRUED TO THESE DEPOSITS. SIMILARLY, FIXED DEPOSITS AMOUNTING TO ` 34,84,149/- WERE ALSO FOUND DEPOSITED WITH ING VYSYA BANK, T.NAGAR, CHENNAI. F URTHER M/S HANDLOOM HERITAGE LTD :- 7 -: ENQUIRIES REVEALED THAT THERE WERE SAVINGS BANK/CUR RENT ACCOUNTS WITH TAMILNAD MERCANTILE BANK, TTK ROAD BRA NCH AND TAMILNAD MERCANTILE BANK, T. NAGAR BRANCH WHICH WER E IN THE NAMES OF VARIOUS WEAVERS, BUT IN EFFECT THESE ACCOU NTS WERE OPERATED BY THE ASSESSEE COMPANY ONLY. THE TOTAL A MOUNT IN SUCH ACCOUNTS AS MENTIONED ABOVE WAS ` 18,29,27,560/-. PRIMA FACIE OPINION OF THE ASSESSING OFFICER WAS THAT, IN FACT, THESE ACCOUNTS BELONGED TO THE ASSESSEE COMPANY ONLY. AS A SEQUEL TO THE SEARCH, ASSESSEE WAS DIRECTED TO FILE RETURN OF INCOME FOR ASSESSMENT YEAR 2000-01 TO 2004-05. IN COMPLIANCE THEREOF, THE ASSESSEE REQUESTED TO TREAT THE RETURN OF INCOME AL READY FILED FOR THESE YEARS AS RETURNS FILED IN COMPLIANCE OF THE N OTICE ISSUED U/S 153A OF THE ACT. THE ASSESSEE ENCLOSED COPIED OF ACKNOWLEDGEMENTS OF THE RETURNS ALREADY FILED. 8. THE COMMON ISSUE IS REGARDING TREATING OF THE FD RS IN THE NAMES OF VARIOUS WEAVERS WHICH WERE NOTICED DURING POST SEARCH ENQUIRIES MADE FROM TAMILNAD MERCANTILE BANK, TTK RO AD BRANCH AND ING VYSYA BANK, T. NAGAR, AS UNACCOUNTED FDRS O F THE ASSESSEE. M/S HANDLOOM HERITAGE LTD :- 8 -: 9. THE ASSESSING OFFICER HAS DEALT WITH THIS ISSUE IN DETAIL IN HIS ORDER. THESE FDRS WERE FOUND TO HAVE BEEN MADE IN THE NAMES OF VARIOUS WEAVERS OUT OF WITHDRAWALS MADE FR OM SB ACCOUNT/CURRENT ACCOUNT MAINTAINED IN THE NAMES OF WEAVERS IN THESE TWO BANKS. THE ASSESSING OFFICER RECORDED TH E STATEMENTS OF SOME OF THE WEAVERS AS WELL AS SOME OFFICIALS OF THESE BANKS. FDRS WITH TAMILNAD MERCANTILE BANK 10. WHILE SCRUTINIZING THE SEIZED DOCUMENT ANN//VP/ STOCK/ CUT PIECES, ETC/NS DATED 15.7.2004, WHICH IS A COMP UTERISED STATEMENT, IT WAS NOTICED THAT THE DIRECTORS OF THE COMPANY HAD AVAILED LOANS FROM THIS BANK. THE ASSESSING OFFICER CALLED FOR THE ENTIRE DETAILS LIKE BANK ACCOUNTS MAINTAINED BY THE ASSESSEE COMPANY AND BY ITS DIRECTORS BESIDES CALLING FOR DE TAILS OF LOANS AVAILED BY THE COMPANY AND ITS DIRECTORS ALONG WITH SECURITIES AVAILABLE IN THE LOAN FACILITY. IN RESPONSE TO THE SUMMONS ISSUED U/S 131 OF THE ACT, THE BANK AUTHORITIES RESPONDED AND FURNISHED REQUISITE DETAILS. THIS BANK IS ASSESSEES MAIN BA NKER. ITS BRANCH MANAGER APPEARED IN PERSON AND PRODUCED COPIES OF T HESE STATEMENTS. WHEN THESE WERE VERIFIED, IT WAS NOTIC ED THAT LOANS WERE SANCTIONED TO THE ASSESSEE AND ITS DIRECTORS O N THE STRENGTH M/S HANDLOOM HERITAGE LTD :- 9 -: OF FIXED DEPOSITS, WHICH, OSTENSIBLY BELONGED TO VA RIOUS WEAVERS. THE FDRS WERE EITHER IN THE NAMES OF PERSONS FROM NE LLORE DISTRICT OF ANDHRA PRADESH OR FROM CHENNAI. ON ENQ UIRY, IT WAS FOUND THAT MANY SO CALLED WEAVERS WERE NON-EXISTENT AND SOME OF THE ADDRESSES WERE FOUND TO BE NOT CORRECT. THE ENTIRE DETAILS OF THESE WEAVERS ARE GIVEN IN PAGES 32 TO 35 OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2005-06. REGARDING ANDHRA PRADESH WEAVERS, ENQUIRIES WERE MADE AT NELLORE AND STATEME NTS OF VARIOUS WEAVERS WERE RECORDED WHEREIN NINE SUCH WEA VERS HAVE DENIED OF MAKING ANY FDRS IN ANY OF THE BANKS IN CHE NNAI. DURING THE COURSE OF SUCH ENQUIRY, SHRI DHARMICHAND, DIREC TOR OF THE APPELLANT COMPANY FURNISHED A LETTER DATED 17.8.200 4 OFFERING THE AMOUNT INVOLVED IN FDR AS THEIR INCOME. THE CON TENTS OF THE LETTER, AS REPRODUCED IN THE ASSESSMENT ORDER AT PA GE 53 FOR ASSESSMENT YEAR 2005-06 IS REPRODUCED BELOW FOR REA DY REFERENCE: AT THIS POINT OF TIME, WE MAY NOT BE ABLE TO PRODU CE THE REQUIRED PARTICULARS AND DETAILS, AS WE-HAVE TO CONTACT HUNDREDS OF WEAVERS SPREAD OVER NUMBER OF VILLAGES AND GET THE CONFIRMATION LETTER FOR THE FO LLOWING M/S HANDLOOM HERITAGE LTD :- 10 -: REASONS: (A) THESE WEAVERS ARE VERY SMALL MANUFACTURERS AND DO NOT MAINTAIN PROPER RECORDS (B) MOST OF THEM ARE ASSESSED TO TAX (C) AS MENTIONED ABOVE, THEY CHANGE THEIR PLACE OF OPERATIONS DEPENDING UPON THE AVAILABILITY OF THE LABOURERS. (D) I DO NOT HAVE PRESENT ADDRESSES FOR SOME WEAVER S BECAUSE MANY THEM COME TO CHENNAI AND OUR CONTACT I S LIMITED TO THE BUSINESS PURPOSES ONLY. (E ) I AM A PATIENT OF HYPERTENSION AND DIABETES AND I D O NOT HAVE SUPPORTING HANDS. (F) MY WIFE HAS UNDERGONE A MAJOR SURGERY RECENTLY . TEN, I HAVE TO ACCOMPANY HER TO DOCTORS. (G) IT IS TIME CONSUMING PROCESS AND IT MAY TAKE VE RY LONG TIME TO TRACE OUT THE WHEREABOUTS OF ALL THE WEAVERS AND MANUFACTURERS. ONE MORE THING WE WANT TO STATE THAT, SOME WEAVERS HAVE BEING PAID CASH IN LIEU OF THEIR FDRS LYING WITH US. WE ARE NOT IN A POSITION TO SEGREGATE THE QUANTUM OF FDRS BELONGING TO THE WEAVERS AND US. IN VIEW OF THE ABOVE MENTIONED DIFFICULTIES WE ARE NOT IN A POSITION TO PRODUCE BEFORE YOU AT M/S HANDLOOM HERITAGE LTD :- 11 -: PRESENT THE NECESSARY EVIDENCES AND CONFIRMATIONS AND TO PURCHASE PEACE WITH THE DEPARTMENT AND TO AVOID PROTRACTED LITIGATION, WE HEREBY AGREE TO OFFER THE ENTIRE AMOUNT OF FIXED DEPOSITS AS OUR UNDISCLOSED INCOME AND OFFER TO PAY THE TAXES THEREON IN THE RESPECTIVE YEARS. FOR YOUR REFERENCE, WE ARE FURNISHING SEPARATELY TH E LIST OF FDRS AND THE LIST OF PAY ORDERS WHICH HAVE BEING TAKEN OUT BY ENCASHING THE FDS FOR MEETING FINANCIAL COMMITMENTS TO THE WEAVERS AS OUR BANK ACCOUNT WER E PLACED UNDER PROHIBITORY ORDERS. I REQUEST THIS SUBMISSION OF OURS, MAY BE TAKEN ON RECORD AND A LENIENT VIEW BE TAKEN BY NOT INITIATING PROCE EDINGS ON PENALTY AND PROSECUTION AS A CONCEALMENT OF INCO ME FOR WHICH WILL BE EXTREMELY GRATEFUL TO YOUR KIND AUTHORITY.' 11. THEREAFTER, HIS STATEMENT WAS ALSO RECORDED ON 24.08.2004 WHEREIN HE CONFIRMED THE DISCLOSURE OF ` 2,72,33,239/- [BEING FDR AMOUNTS OF TAMILNAD MERCANTILE BANK, TTK ROAD BRA NCH]. BASED ON THESE EVIDENCES, THE ASSESSING OFFICER CON CLUDED THAT THE INVESTMENT IN FDRS IS MADE BY THE COMPANY AND N OT BY THE DIRECTOR OF THE COMPANY. M/S HANDLOOM HERITAGE LTD :- 12 -: FDRS WITH ING VYSYA BANK, T.NAGAR 12. APART FROM FDRS IN THE NAMES OF WEAVERS IN TAM ILNAD MERCANTILE BANK, TTK ROAD BRANCH, CHENNAI, VARIOUS F DRS IN THE NAMES OF WEAVERS WERE FOUND WITH ING VYSYA BANK, T. NAGAR TOTALLING ` 34,85,149/- INCLUDING INTEREST. ON MATURITY, LET TERS WERE SENT TO THE FDR HOLDERS, BUT ALL LETTERS WERE R ETURNED UNSERVED. STATEMENTS OF BANK OFFICIALS IN THIS CAS E WERE ALSO RECORDED TO CONFIRM THAT MONEY FOR THESE FDRS WERE PAID IN CASH BY SHRI SUNIL KUMAR AND THE FDR RECEIPTS WERE GIVEN TO SHRI DHARMICHAND. FURTHER INVESTIGATION ON WHO SIGNED T HE APPLICATION FORMS, COPIES OF DEPOSIT RENEWAL FORMS AND NAMES AND ADDRESSES WERE ALSO ENQUIRED INTO. STATEMENT O F BANK OFFICIALS WERE RECORDED U/S 131 OF THE ACT WHO STAT ED THAT SHRI SUNIL KUMAR S/O SHRI DHARMICHAND HAD PAID ` 30 LAKHS IN CASH AT THE TIME OF MAKING THESE FDRS. AGAINST THE PROPOSED ADDITION OF THESE AMOUNTS IN THE HANDS OF THE COMPANY, FOLLOWIN G OBJECTIONS WERE MADE ON BEHALF OF THE ASSESSEE COMPANY: M/S HANDLOOM HERITAGE LTD :- 13 -: 4. THE APPELLANT'S DIRECTOR IS A PATIENT OF HYPERT ENSION. SUBSEQUENTLY VIDE LETTER DT.27.11.06 THE APPELLANT COMPANY SUBMITTED BEFORE THE AO AND CONTENDED THAT THE VIEWS HAVE SINCE FILED RETURN OF INCOME AND OWNED THES FDRS IN THEIR RETURN OF INCOME 1. THE DISCLOSURE OF F D R VIDE LETTER DT 17.8.04 IN RESPECT OF FDR. AT TMB, TTK ROAD. CHENNAI WAS - MADE BY THE DIRECTOR TO BUY PEACE AND TO AVOI D HARASSMENT AND NEGATIVE IMPACT ON BUSINESS 2. THE DISCLOSURE WAS MADE ONLY AS CONFIRMATION COULD NOT BE PRODUCED FROM WEAVERS 3. THE WEAVERS WERE SMALL MANUFACTURERS AND DO NOT MAI NTAIN PROPER RECORDS AND MOST OF THEM WERE NOT ASSESSED T O TAX M/S HANDLOOM HERITAGE LTD :- 14 -: 13. AFTER CONSIDERING THE ASSESSING OFFICERS OBJEC TIONS, THE ASSESSING OFFICER HELD THAT THE FDRS ARE THE UNACCOU NTED INVESTMENT OF THE ASSESSEE COMPANY. AT THE APPELLA TE STAGE, ASSESSEE MADE FOLLOWING WRITTEN SUBMISSIONS: 2. THE APPELLANT COMPANY HAD CASH CREDIT (CC) ACCOUNT NO. 500057 WITH TAMILNAD MERCANTILE. BANK AND THE 0D FA CILITY WAS RS. 1.50 CRORES DURING THE RELEVANT PERIOD. ALL THE PAYMENTS WERE MADE THROUGH THIS CC ACCOUNT. THE CHE QUES ISSUED TO THE SAID WEAVERS WERE ALSO PREPARED AND P AID FROM THIS CC CHEQUES ACCOUNT. THESE CHEQUES ARE ONLY DE POSITED BY THE WEAVERS IN THESE BANK ACCOUNTS. IF IT IS TRE ATED, AS THE DEPARTMENT ALLEGES; AS THE BENAMI ACCOUNTS OF C OMPANY THEN THE SOURCE OF MONEY OF THESE BENAMI DEPOSITS I S THE WITHDRAWAL OF MONEY BY THE APPELLANT COMPANY FROM THE CC ACCOUNT AT TMB. CONSEQUENTLY, THE SOURCE OF AL L THESE DEPOSITS IS THE CC ACCOUNT AT TMB, WHICH IS NOT ONL Y ACCOUNTED BUT ARE ALSO DISCLOSED. ONCE THE SOURCE I S EXPLAINED POSITS THE QUESTION OF TREATING THEM AS UNDISCLOSED FIXED DEPOSITS DONE AND SUSTAINED. THER EFORE, THE ADDITION ON ACCOUNT OF BENAMI FDS IS FRIVOLOUS. M/S HANDLOOM HERITAGE LTD :- 15 -: IF THIS SUBMISSION OF OURS IS ACCEPTED, WE DO NOT P ROPOSE TO MAKE ANY OTHER FOR TIME BEING IN THIS REGARD. AS ST ATED EARLIER THE COERCED Y THE DIRECTORS OF THE APPELLANT COMPANY RELATING TO THESE FDS BEFORE THE DDIT [INV] . AS BECAUSE OF THE PRESSURE TACTICS AND INCOMPLETE THE IT PROCEEDINGS, ALSO BECAUSE OF SHORTAGE OF TIME AND B ECAUSE THE 'WEAVERS COULD NOT BE CONTACTED WHO HAVE ALREAD Y DECLARED THESE RESPECTIVE RETURNS OF INCOME. HENCE T HIS ISSUE NEEDS TO BE AND JUDICIALLY IN ALL FAIRNESS. ONLY ONE ISSUE WHICH WE WOULD LIKE TO HIGHLIGHT TO THESE FDS IS AS UNDER: FEW WEAVERS TOGETHER HAVE KEPT 72 FDS AMOUNTING TO RS. 29,58,000.00. AS FAR ARE CONCERNED THEY HAVE NEITHE R SURRENDERED THESE FDS TO THE AUTHORITIES (DDIT) NOR WERE THEY ENCASHED BY THE DEPARTMENT. WE HAVE NOT INCLUD ED THOSE FDS IN OUR ADMISSION. IN SPITE OF THIS WHILE ARRIVING AT THE TOTAL FDS VALUE, THE ASSESSING OFFICER HAS INCL UDED THE VALUE OF THSE FDS IN ARRIVING THE FINAL FIGURE OF F DS AS ` . 2,79,57,165.00. ACTUALLY, THIS FIGURE SHOULD HAVE BEEN LESS BY ` . 29,58,000.00. HENCE IT IS REQUESTED THAT THIS AM OUNT MAY BE REDUCED TO RS. 2,49,99,165.00 (RS. 2,79,57,1 65.00 - RS. 29,58,000.00). IN THIS REGARD, IT IS FURTHER SUBMITTED THAT IN THE RETURNS OF INCOME FILED BY THE WEAVERS THE VALUE OF THESE FDS HAVE M/S HANDLOOM HERITAGE LTD :- 16 -: BEEN DECLARED AND INTEREST INCOME EARNED OS IS ALSO OFFERED TO TAX BY THE RESPECTIVE WEAVERS. COPIES OF E OF F EW WEAVERS HAVE ALREADY BEEN SUBMITTED WITH YOUR KIND AUTHORITY. SPECIFIC SUBMISSION FOR APPEAL NO. /2009-10 IN THE REVISED ASSESSMENT ULS. 263, THE AO HAS ADDE D AN AMOUNT OF ` 2,79,57,165.00 PERTAINING TO BENAMI ACCOUNTS AND RS. 37,53,305.00 AS INTEREST ON FDS. I. WITH REGARD TO THE FIRST ADDITION TOWARDS BENAMI ACCOUNTS AND THE SUBMISSIONS MADE EARLIER MAY PLEAS E BE CONSIDERED FOR THIS ADDITION AS IT IS OF IDENTICAL NATURE. INTEREST INCOME. WITH REGARD TO THE ADDITION IF AC CRUED INTEREST OF ` . 37,53,305.00, IT IS HUMBLY SUBMITTED THAT THE INTEREST INCOME OF ` . 31,68,163.00 AS ON THE DATE OF SEARCH WAS ALREADY INCLUDED IN THE TOTAL FIXED DEPOSIT AMO UNT OF ` . 2,79,57,165.00 AND ASSESSED TO TAX IN THE ORIGINAL ASSESSMENT ORDER DATED 27.12.2006. BUT THE LEARNED ASSESSING OFFICER HAS ONCE AGAIN ADDED THE ACCRUED INTEREST AS ` . 37,53,305.00 IN HIS REVISED ASSESSMENT ORDER U/S 263 DATED 23.12.2009. IN THE FOLLOWING TABLE WE MAKE A HUMBLE ATTEMPT TO CLARIFY THE CONTENTIONS: M/S HANDLOOM HERITAGE LTD :- 17 -: FDS IN ING A.YS FDS IN TMB INTEREST BANK TOTAL AMOUNT OF (TTK ROAD) ON FDS T.NAGAR FDS 99.00 0.00 0.00 0.00 0.00 00-01 5,704,672.00 0.00 0.00 5,704,672.00 01.02 20,000.00 0.00 0.00 20,000.00 02.03 5,551,330.00 0.00 0.00 5,551,330.00 03-04 0.00 0.00 0.00 0.00 04-05 10,555,000.00 0.00 2,958,000.00 13,513,000.00 05.06 0.00 3,168,163.00 I 0.00 3,168,163.00 26,092,002.00 3,168,163.00 2,958,000.00 27,957,165.00 THE AMOUNT OF ` . 27,957,165,00 SHOWING IN THE ASSESSMENT ORDER DATED 27.12.2006 INCLUDED INTEREST AMOUNT OF ` . 31,68,163.00 SHOWN IN ASSESSMENT YEAR 2005-06. IN T HE NEW REVISION ORDER DATED 23.12.2009, THE ASSESSING OFFI CER HAS ADDED ` . 37,53,305.00 TOWARDS INTEREST WHICH IS INCORRECT AND WRONG. 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS, THE CO MMISSIONER OF INCOME-TAX [APPEALS] FOUND THAT THESE FDRS WERE M ADE OUT OF CASH WITHDRAWALS FROM WEAVERS BANK ACCOUNT AND THE SOURCE OF DEPOSIT IN THE WEAVERS BANK ACCOUNT IS THE ASSESSEE S CURRENT BANK ACCOUNT. THEREFORE, HE HELD THAT THE SOURCE O F THESE FDRS IS APPARENTLY UNACCOUNTED INCOME OF THE APPELLANT C OMPANY THROUGH INFLATION OF EXPENSES. AFTER CONSIDERING T HE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2005-06 AND REVISED ORDER U/S 263 OF THE ACT WHERE THE ASSESSING OFFICER HAS MENTIONED T HAT ACCRUED INTEREST ON THESE FDRS WORKED OUT TO ` 31,68,156/-, BEING M/S HANDLOOM HERITAGE LTD :- 18 -: INTEREST AMOUNT INCLUDED FOR ASSESSMENT YEAR 2004-0 5 HAS FOUND TOTAL UNACCOUNTED INVESTMENT IN FDR IN RESPECT OF T HE ASSESSEE COMPANY AS UNDER: F.Y. A.Y. TOTAL AMOUNT OF FDS WITH TAMILNADU MERCANTILE BANK AND ING VYSYA CONSIDERING FOR TELESCOPING 1998-99 1999-00 NIL 1999-2000 2000-01 5,704,672 2000-2001 2001-02 20,000 2001-2002 2002-03 5,551,330 2002-2003 2003-04 13,513,000 2003-2004 2004-05 NIL 2004-2005 2005-06 NIL AND THE INTEREST ON THESE FDRS AS DETERMINED IN THE REVISED ASSESSMENT U/S 263 WILL ALSO BE MODIFIED. THE AMOUNT INVOLVED FOR RS.3168163/- FOR ASSESSMENT YEAR 20 05-06 FOR COMPUTING INTEREST WILL BE THERE. THIS IN TEREST INCOME WILL BE ADDITIONAL UNDISCLOSED INCOME OF THE APPELLANT, YEAR WISE WHICH IS AS UNDER: ASSTT. YEAR INTEREST 2000- 02 RS. 764426 2002- 03 RS. 2680 2003- 04 RS. 743878 2004- 05 RS. 1817788 2005- 06 RS 4,24,533 ' TOTAL RS. 37,53,255 15. BUT HOLDING THAT INVESTMENT IN FDR IS OUT OF UND ISCLOSED INCOME FROM THE TRANSACTIONS IN THE BANK ACCOUNT OF HT WEAVES, M/S HANDLOOM HERITAGE LTD :- 19 -: NO SEPARATE ADDITION WAS MADE QUA THESE UNACCOUNTED FDRS AS THESE UNACCOUNTED INVESTMENT WAS THE APPLICATION OF UNACCOUNTED INCOME. BUT INTEREST ON THESE FDRS YEA R-WISE WAS ADDED SEPARATELY. 16. BEFORE WE COME TO OUR FINDING ON THIS ISSUE, LE T US DISCUSS THE CONNECTING ISSUE OF DEPOSIT IN THE BANK ACCOUNT S HELD IN THE NAME OF VARIOUS WEAVERS OF THE ASSESSEE COMPANY IN THESE BANKS WHICH GOES TO AN ADDITION OF ` 18,29,27,560/- FOR ASSESSMENT YEARS 1998-99 TO 2004-05. ASSESSING OFFICER HAS DIS CUSSED THIS ISSUE AT PAGES 75 TO 131 OF THE ASSESSMENT ORDER FO R ASSESSMENT YEAR 2005-06. SIMILAR FINDING HAS BEEN GIVEN ON OTH ER ASSESSMENT YEARS ALSO. AS DISCUSSED ABOVE, SOURCE OF FDRS WAS FOUND TO BE WITHDRAWALS FROM CASH FOUND TRANSFERRED FROM THE AC COUNT MAINTAINED IN THE NAMES OF WEAVERS IN TAMILNAD MERC ANTILE BANK, TTK ROAD BRANCH AND ING VYSYA BANK, T.NAGAR, C HENNAI. ON AN ANALYSIS OF THE BANK ACCOUNT REVEALED THAT TH E SOURCE OF THE DEPOSITS IN THE ACCOUNTS OF THE WEAVERS WAS TRA NSFER OF FUNDS FROM THE ACCOUNT OF THE ASSESSEE COMPANY FROM A/C N O. 500057. FUNDS WERE TRANSFERRED FROM THIS ACCOUNT OF 34 SB/C URRENT ACCOUNTS HELD IN THE NAME OF WEAVERS IN TAMILNAD ME RCANTILE M/S HANDLOOM HERITAGE LTD :- 20 -: BANK, T.NAGAR BRANCH AND 5 CURRENT ACCOUNTS IN THE NAME OF MASTER WEAVERS. DETAILS OF ACCOUNT HOLDERS ARE GIV EN IN PAGES 75 AND 76 OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2005-06. THE ASSESSING OFFICER EXAMINED THE ORIGINAL DISCHAR GED CHEQUE LEAVES OF THE ASSESSEE COMPANY, ORIGINAL PAY IN SLO PS IN RESPECT OF DEPOSITS IN WEAVERS ACCOUNT AND ORIGINAL DISCHAR GED CHEQUE LEAVES PRESENTED BY THE WEAVERS FOR CASH WITHDRAWAL S. IT WAS NOTICED THAT THESE BANK ACCOUNTS WERE INTRODUCED BY SHRI DHARMICHAND OR SHRI SUNIL SURENDRA KUMAR, EX-MANAGE R OF THE COMPANY. THE RECEIPT OF CHEQUE BOOK WAS ACKNOWLEDG ED BY THE EMPLOYEES OF THE ASSESSEE COMPANY. IT WAS ALSO NOT ICED THAT THE CHEQUES WERE DEPOSITS MADE BY SHRI PANDIAN, DRIVER OF THE APPELLANT COMPANY IN WEAVERS ACCOUNT. LIKEWISE, CAS H WITHDRAWALS WERE ALSO MADE BY HIM. STATEMENTS OF W EAVERS IN WHOSE NAMES BANK ACCOUNTS WERE FOUND, BANK EMPLOYEE S, EMPLOYEES OF THE COMPANY, DIRECTOR WERE EXAMINED DU RING POST SEARCH ENQUIRY. AFTER ASCERTAINING THESE FACTS, TH E STATEMENTS HAVE BEEN SUMMARISED AT PAGES 26 TO 30. 17. SIMILAR ACCOUNTS WERE OPENED IN THE NAMES OF MA STER WEAVERS IN TAMILNAD MERCANTILE BANK, T.NAGAR. THES E ACCOUNTS M/S HANDLOOM HERITAGE LTD :- 21 -: WERE ALSO INTRODUCED BY HIS WIFE SMT. PRAKASH DEVI. AGAINST TREATING THE AMOUNT OF DEPOSITS IN WEAVERS ACCOUNT IN THE HANDS OF THE COMPANY, THE MAIN POINTS IN THE REPLY DATED 12.12.2006 IN THE NAME OF THE ASSESSEE COMPANY ARE AS UNDER: WE UNDERSTAND THAT THE STATEMENTS OF MR. BATTURU YEDDALAIAH, AGED 50 YEARS, WAS RECORDED IN HIS RESIDENCE AT VINJAMUR VILLAGE, NEILORE DIST, ANDHRA PRADESH ON 14TH OCTOBER, 2004, WHEN HE WAS NOT WELL. (ASSUMING EXTRA TERRITORIAL JURISDICTION MAY BE ILLEGAL?). THIS FACT WAS CONVEYED TO THE DEPARTMENT BY MRS. RAMASUBBAMMA W/O. MR. B. YEDDALAIAH VIDE A LETTER DATED 16TH OCT 2004 BECAUSE MR. B. YEDDATAIAH WAS HOSPITALIZED. WE FURTHER UNDERSTAND THAT ON 5TH NOV 2004 WHEN HE WAS ALIGHTING FROM THE TRAIN AT CHENNAI CENTRAL RAILWAY STATION, HE WAS TAKEN AWAY BY INCOME TAX AUTHORITIES, DETAILED ILLEGALLY IN A ROOM AND ONCE AGAIN A STATEMENT WAS RECORDED FROM HIM. THIS WAS TOTALLY ILLEGAL AND EXERCISE OF COERCION OF THE HIGHEST ORDER. IN THIS REGARD A POLICE COMPLIANT WAS ALSO FILED BY HIS COLLEAGUES WHO TRAVELED WITH HIM BECAUSE THEY DID NOT KNOW AS TO WHY AND WHERE THIS GENTLEMAN WAS M/S HANDLOOM HERITAGE LTD :- 22 -: DETAILED. EVEN IN HIS STATEMENTS TAKEN AGAIN ON 5TH NOV 2004, DURING THE ALLEGED ILLEGAL DETENTION, IN ANSWER TO Q NO. 8, REVEALED THAT HE WAS NOT WELL ON 14TH OCT 2004 A ND HE HAD NOT EVEN TAKEN ANY FOOD. IT IS LEARNT THAT MR. B. YEDDALAIAH HAS FILED A WRI T PETITION IN MADRAS HIGH COURT PLEADING THAT HIS STATEMENT WAS TAKEN UNDER DURESS AND THE INCOME TAX AUTHORITIES MAY BE DIRECTED TO IGNORE HIS STATEMENT . WE DO NOT KNOW WHAT PRESSURE TACTICS THE INCOME TAX OFFICERS HAVE EXERCISED WHILE RECORDING OTHER STATEMENTS. THEREFORE WE HAVE TO CROSS EXAMINE ALL THESE WEAVERS. HENCE KINDLY GIVE US AN OPPORTUNITY FOR THIS PURPOSE. STATEMENT FROM UNKNOWN PERSONS ONE STATEMENT OF MR. PALLA CHENNAIAH HAS BEEN RECORDED. HE IS NO WAY CONNECTED WITH US AND WE DO KNOW HIM. THIS ONE CASE WILL SHOW THAT THERE IS A DELIBERATE ATTEMPT TO ONLY COMER US IN THE FACT OF AN INABILITY TO ESTABLISH ANY WRONG DOING ON OUR PART. 3. FAVOURABLE AND SEMI-FAVOURABLE STATEMENTS REMA IN UNSIGNED: STATEMENTS OF MR. KANDALA RAMANAIAH & MR. CHAVADAM HARI RECORDED HAVE NOT BEEN SIGNED BY THE DEPOSERS. M/S HANDLOOM HERITAGE LTD :- 23 -: MOST PROBABLY THEY WERE ASKED TO SIGN ON THE DOTTED LINES WHICH THEY HAVE REFUSED TO SIGN THAT DEPARTME NT MUST EXPLAIN THIS POSITION. IN THE STATEMENTS OF MR. KANDALA RAMANAIAH & MR. CHAVADAM HARI RECORDED ON 2ND DEC 2004, MANY OF THE ANSWERS ARE FAVOURABLE TO US PARTLY OR FULLY. MOST PROBABLY, THEREFORE NO SIGNATURE OF THEIRS WAS OBTA INED ON THE STATEMENTS, IS THIS BY DESIGN OR BY ACCIDENT IS NOT KNOWN. 4. VARIOUS STATEMENTS RECORDED FROM DIRECTORS: AS STATED EARLIER OUR STAFF MAY HAVE ASSISTED THE WEAVERS IN THEIR BANKING OPERATIONS BY DIRECTLY GOI NG TO THE BANK AND COMPLETING THE TRANSACTION. OUR STAFF WENT TO THE BANK FOR COMPANY'S BANKING OPERATIONS IN THE SAME B ANKS; AT THE SAME TIME THEY MAY HAVE HELPED THE WEAVERS T O DO THEIR BANKING OPERATIONS. THIS BY NO STRETCH OF IMA GINATION MEANS THAT THEY ARE OUR BENAMI ACCOUNTS. MANY SENIO R OFFICERS OF GOVERNMENT DEPARTMENTS OPEN THEIR BANK ACCOUNT WITHOUT GOING TO THE BANK. THEREAFTER THEIR PEONS & DRIVERS ONLY ATTEND TO THE BANKING OPERATIONS FOR YEARS. IF THE LOGIC OF THE DDIT IS CORRECT, THEN SUCH ACCOUNT S WILL BE TREATED AS BENAMI ACCOUNTS OF PEONS I DRIVERS AND DEPOSITS MADE THEREIN WILL BE TREATED AS INCOME OF PEONS I DRIVERS. M/S HANDLOOM HERITAGE LTD :- 24 -: WHILE RECORDING THE SWORN STATEMENTS OF OUR DIRECTO R SHRI L. DHARMICHAND THE INVESTIGATING OFFICER SHOWE D THE STATEMENTS OF CERTAIN PERSONS, MOST OF THEM IN TELUGU & IN TAMIL LANGUAGE WHICH IS NOT KNOWN TO HI M AND ASKED FOR OUR DIRECTOR TO GO THROUGH THE SAME THEN AND THERE ITSELF AND OFFER HIS COMMENTS. OUR DIRECTORS SPECIFICALLY OBJECTED TO THE SAME ON THE GROUND THAT HE CANNOT COMMENT. ON STATEMENTS OF VARIOUS PERSONS UNLESS A COPY IS FURNISHED WITH REASONABLE TIME TO REPLY ON THE SAME PARTICULARLY I N THE BACKGROUND OF THE FACT THAT HE DID NOT KNOW TO READ OR WRITE TAMIL OR TELUGU LANGUAGE. NOT WITHSTANDING HIS REQUEST. THE DDIT CONTINUED THE SAME PROCEDURE AND RECORDED THE REPLIES WHEREIN OUR DIRECTOR PLEADED CONTINUOUSLY FOR FURNISHING THE COPIES OF THE STATEMENTS MADE BY THE 3RD PARTIES AN D FOR ADEQUATE TIME AND REASONABLE OPPORTUNITY TO BE GIVEN TO READ THE SAME FULLY AND COMMENT ON THE SAME BUT NO OPPORTUNITY WAS GIVEN TO HIM AT ALL. AS SUCH IT IS UNFAIR TO SAY THAT NO PROPER EXPLANATION HAS BEEN FURNISHED WITH REGARD TO STATEMENT SHOWN TO MR.L. DHARMICHAND DURING THE RECORDING OF STATEMENT S IN DEC 2004. M/S HANDLOOM HERITAGE LTD :- 25 -: ONE MR. G. RAVICHANDRAN WAS APPOINTED ONE & HALF MONTHS BEFORE THE DATE OF SEARCH. HIS JOB WAS TO RECORD CALCULATION CHECK DONE BY OTHER STAFFS. HE HAS STATED IN HIS STATEMENT RECORDED ON 19TH NOV 2004 THAT HE HAS ENTERED ALL THE PURCHASES & PAYMENTS TILL THE DATE OF SEARCH. THIS STATEMENT IS TOTALLY WRONG. AS A MATTER OF FACT NO DATA WAS ENTERED IN COMPUTER FROM 1 ST APRIL 2004 TILL THE DATE OF SEARCH WITH REGARD TO THE CHEQUE PAYMENTS MADE FROM THE TMB BANK ACCOUNT. EVEN IN COMPUTER FEEDING, HE HAS LEFT SEVERAL BILLS UN-ENTERED IN MO ST OF THE PURCHASE BILL FILES. MOST OF THE ANSWERS ARE FRAMED AND NOT RELEVANT TO THE FACT. THIS CAN BE VERIFIED. FROM THE CD WHICH HAS BEEN SEIZED AT THE TIME OF SEARCH. THIS CONTEMPORANEOUS EVIDENCE SUGGESTS THAT THE STATEMENT OF G. RAVICHANDRAN MAY BE FACTUALLY INCORRECT AND MAY LEAD TO WRONG INFERENCE. THEREFORE NO ADVERSE INFERENCE MAY BE TAKEN RELYING ON THESE STATEMENTS WHICH APPEARS TO BE TAKEN UNDER DURESS AND THREAT. WE REQUEST YOUR KIND AUTHORITY T O I GIVE US AN OPPORTUNITY TO CROSS EXAMINE THE DEPOSER AS HE I HAS LEFT OUR SERVICES AFTER ONE YEAR FROM T HE DATE OF SEARCH. M/S HANDLOOM HERITAGE LTD :- 26 -: IT APPEARS THAT THE STATEMENT OF MR. N. SOLOMAN JEBAKUMAR, MANAGER, TAMILNAD MERCANTILE BANK, TTK ROAD BRANCH TAKEN ON 11TH AUG 2004 WAS RECORDED UNDER DURESS AND THREAT THAT IT WILL COST HIS JOB IF HE DOES NOT GIVE THE STATEMENT THE WAY THE DDIT WANTED. THERE ARE MANY FACTUAL ERRORS AND ALLEGATIONS. THEREFORE WE REQUEST YOUR KIND AUTHORITY TO PROVIDE US THE OPPORTUNITY TO CROSS EXAMINE HIM IN INTEREST OF FINDING OUT THE TRUTH. 18. BUT THE ASSESSING OFFICER WAS NOT AGREEABLE. A FTER DISCUSSING VARIOUS OBJECTIONS RAISED BY THE ASSESSE E INCLUDING ONE RAISED REGARDING STATEMENT BEHIND THE BACK OF THE A SSESSEE AND NOT ALLOWING CROSS EXAMINATION, THE ASSESSING OFFIC ER HAS FINALLY HELD THAT THE ENTIRE DEPOSITS IN WEAVERS ACCOUNT IS INFLATION FOR VARIOUS ASSESSMENT YEARS AS PER FINDING GIVEN IN PA RA 22 OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2005-06 IS REP RODUCED AT PAGE 19 TO 21 OF THE ORDER. 19. THE ASSESSING OFFICER HAS MENTIONED THE MODUS O PERANDI OF THE FUND TRANSFER: MODUS OPERANDI OF FUND TRANSFER: WHEN THE BANK ACCOUNTS PERTAINING TO THE MASTER WEA VERS M/S HANDLOOM HERITAGE LTD :- 27 -: WERE ANALYSED DURING THE COURSE OF POST SEARCH INVE STIGATION, IT CAME TO LIGHT THAT THE CHEQUES 'TRANSFERRED TO T HE PARTIES ACCOUNTS WERE DEBITED IN THE ASSESSEE'S BOOKS TOWAR DS PURCHASE OF MATERIALS FROM THEM. AS DISCUSSED EARLI ER, IT HAS BEEN STATED BY MANY OF THE WEAVERS THAT THEIR NORMAL PRACTICE IS TO DEPOSIT THE CHEQUES RECEIVED FROM TH E ASSESSEE WITH THEIR ACCOUNTS MAINTAINED WITH TAMIL NADU MERC ANTILE BANK AT NELLORE BRANCH. WHEN THAT IS THE CASE, IT WOULD APPEAR THAT ALL AMOUNTS DEPOSITED IN THEIR BANK ACC OUNTS AT CHENNAI IN TAMIL NADU MERCANTILE BANK WERE NOTHING BUT CHEQUES ISSUED AS IF PURCHASES HAD TAKEN PLACE. IN OTHER WORDS, IT IS CLEAR THAT THE ASSESSEE BY INFLATING THE PURCHAS ES HAS ISSUED SEVERAL CHEQUES IN THE NAMES OF WEAVERS WHICH WERE DEPOSITE D IN THEIR ACCOUNTS BY THE EMPLOYEES OF THE ASSESSEE- COMPANY AND SUBSEQUENTLY, THESE WERE ALL WITHDRAWN. THEREFORE, IN ORDER TO ASCERTAIN THE TOTAL AMOUNT O F SUCH INFLATED AMOUNTS TOWARDS PURCHASES, THE WEAVERS' ACCOUNTS WITH TAMIL NADU MERCANTILE :~ BANK, BOTH A T NELLORE AND ALSO AT CHENNAI WERE ANALYZED BY THE INVESTIGATION J~ WING. THIS ANALYSIS SHOWS THAT THE TOTAL AMOUNTS ACTUALLY PAID BY THE COMPANY FAR EXCEEDS TH E ACTUAL PURCHASES MADE AND THEREBY CLEARLY PROVING T HE POINT THAT THE ASSESSEE HAS RESORTED TO INFLATION O F PURCHASES AND HAS ISSUED CHEQUES, WHICH WERE DEPOSI TED IN VARIOUS ACCOUNTS AND SUBSEQUENTLY, THE WITHDRAWA LS WERE MADE FROM THESE ACCOUNTS.' M/S HANDLOOM HERITAGE LTD :- 28 -: 20. BEFORE THE COMMISSIONER OF INCOME-TAX [APPEALS] , WRITTEN SUBMISSIONS WERE FILED. THE GIST OF THE WRITTEN SU BMISSIONS COUPLED WITH ORAL SUBMISSIONS OF THE AUTHORISED REP RESENTATIVE OF THE COMPANY IS AS UNDER: 1. SH.L. DHARMICHAND DURING THE STATEMENT ON 30.11. 04 HAS STATED THAT WEAVERS ACCOUNTS WERE OPENED FOR TH E CONVENIENCE OF WEAVERS. 2. MR.C. PANDIAN, HELPED THE WEAVERS IN DEPOSITING THE CHEQUE AND WITHDRAWING CASH DOES NOT MEAN THE ACCOUNT BELONGS TO COMPANY 3. THE PAYMENT FOR PURCHASES WAS MADE BY CROSS CHEQUE. EACH CHEQUE TALLIES WITH THE INVOICE. THESE CHEQUES HAVE EITHER GONE TO TMB ACCOUNT AT CHENNAI OR WEAVERS' HOME TOWN. AO HAS ACCEPTED TOTAL PURCHASE AS GENUINE. 4. TOTAL PURCHASE FROM WEAVERS IS RS.45 CRORES FOR L AST 7 YEARS. OUT OF WHICH APPROXIMATELY RS.18 CRORES CHEQUES ARE DEPOSITED IN TMB, CHENNAI AND BALANCE WITH OTHER BANK. 5. AT THE TIME OF SEARCH WITHIN THE OFFICE PREMISES NOR AT THE RESIDENCE OF DIRECTOR ANY PAPER LIKE CHEQUE BOOK, PAY-IN-SLIPS OR PASS BOOK WAS FOUND OR SEIZED M/S HANDLOOM HERITAGE LTD :- 29 -: 6. THE APPELLANT COMPANY HAS ISSUED THOUSAND OF CHEQUES TO THESE WEAVERS IN THESE 34 ACCOUNTS AGAINST SUPPLY OF GOODS. THEREFORE, ONLY ON THIS BA SIS OF FEW CHEQUES HAVING INITIAL OF PANDIAN IT WOULD B E IMPROPER TO CONCLUDE THAT ALL THESE BANK ACCOUNTS A RE BENAMI OF APPELLANT COMPANY. 7. DURING STATEMENT SH. M. KRISHNAIAH VIDE ANSWER TO QUESTION NO.8 AND 11 HAS ACCEPTED THAT THE CHEQUES WERE EITHER PAID TO YARN SELLER OR DISCOUNTED AT MINT ST., CHENNAI. FURTHER, HE HAS STATED THAT IN ANSWER TO QN.NO.25 THAT HE USED CHEQUE BOOKS EARLIER ALMOST 3 YEARS BACK. 8. STATEMENT OF SHRI.B.L YEDDALAIAH, WEAVER WAS CHALLENGED IN H.C. ON' THE BASIS THAT THE STATEMENT WAS RECORDED IN DURESS. 9. SH. P. BHASKAR WEAVER HAS ACCEPTED THE TURNOVER AND STATED THAT HE DISCOUNTS THE CHEQUE WITH CHENNAI FINANCIERS M/S HANDLOOM HERITAGE LTD :- 30 -: 10. NONE OF, THE WEAVERS HAVE ACCEPTED THAT THEY HAVE RECEIVED PAYMENT IN CASH. THE CHEQUE DEPOSITED AND ENCASHED IN ALLEGED BENAML ACCOUNTS AT TMB, TTK ROAD AND TMB, T.NAGAR BRANCH ARE THE SAME CHEQUES WHICH WEAVERS HAVE DISCOUNTED WITH- PRIVATE FINANCIERS. 11. MANY OF THE WEAVERS HAVE GIVEN DETAILS OF- THEIR SALES TURNOVER WITH APPELLANT COMPANY WHICH TALLIES ENTRYWISE. 12. NONE OF THE WEAVERS HAVE STATED THAT CASH WAS PAID BACK TO APPELLANT COMPANY 13. IT IS LEARNT THAT THESE WEAVERS HAVE FILED RETURN OF INCOME DISCLOSING TURNOVER WITH APPELLANT COMPANY BUT ALSO FDRS IN THEIR NAMES 14. BANK MANAGER AND EMPLOYEE OF BANK MIGHT NOT BE KNOWING FULL TRANSACTION. THEY ONLY STATED THAT CERTAIN TRANSACTION IN WEAVERS ACCOUNTS WERE CARRIED OUT BY SH.C.PANDIAN, EMPLOYEE OF THE COMPANY 15 LD. AR RELIED CHENNAI TRIBUNAL IN THE CASE OF T.KAILASH CHAND CHORDIA IT(SS) A.NO.156/MDS/2005 WHERE HON'BLE TRIBUNAL HAS HELD THAT STATEMENT CANNOT ITSELF BE THE SOLE BASIS FOR ADDITION. 16. LEARNED AR HAS RELIED UPON THE DECISION OF GREEN VIEW RESTAURANT 263 ITR 169 M/S HANDLOOM HERITAGE LTD :- 31 -: 17. LEARNED AR HAS EMPHASIZED THAT ALL TRANSACTIONS IN ALLEGED BENAMI ACCOUNT ARE FINANCIAL TRANSACTIONS O F DISCOUNTING CHEQUE. THEREFORE, AT THE MOST PEAK CREDIT FROM ALL SUCH BANK ACCOUNT CAN BE ADDED WHIC H IS ZERO IN THIS CASE 21. FINALLY, THE COMMISSIONER OF INCOME-TAX [APPEAL S] FOUND THAT THE BANK ACCOUNTS WERE OPERATED ONLY FOR INFLA TING EXPENSES BY THE ASSESSEE COMPANY. BUT HE HAS ESTIMATED INFL ATION OF EXPENSES IN THE RANGE OF 20 TO 25% OF THE TOTAL TUR NOVER IN WEAVERS BANK ACCOUNT. HE HAS MADE A TABLE FOR YEA R WISE GENERATION OF UNACCOUNTED INCOME THROUGH INFLATION OF EXPENSES AS UNDER: ASSESSMENT YEAR YEAR WISE BANK RATE OF INCOME DEPOSIT IN TMB IN PROFIT GENERATE D TTK ROAD MARGIN THROUGH BAN K T. NAGAR BRANCH DEPOSI T 1999-2000 71,03,500 25% 17,75,875 2000-01 1,57,04,709 25% 39,26,177 2001-02 99,01,918 25% 4,75,480 2002-03 2,87,72,923 20% 57,54,585 2003-04 2,31,80.960 20% 46,36,19 2 2004-05 9,41,14,8015 20% 1,88,22,963 2005-06 41,48,735 25% 10,37,184 3,84,28.452 22. UNDER THESE CIRCUMSTANCES, HE HAS CONFIRMED THE ABOVE ADDITION FOR VARIOUS ASSESSMENT YEARS AND BALANCE A DDITION HAS BEEN DELETED. THEREFORE, BOTH THE PARTIES ARE AGGR IEVED AND HAVE COME IN APPEALS BEFORE US. M/S HANDLOOM HERITAGE LTD :- 32 -: U NACCOUNTED FD RS AND DEPOSITS IN CURRENT / SAVINGS ACCOUNT : 23. THE ISSUE IS AGITATED BY BOTH THE APPELLANT AS WELL AS BY THE DEPARTMENT. THE APPELLANT HAS TAKEN UP THE ISSUE IN APPEAL NOS. 1792/CHNY/2010 TO 1803/MDS/2010 WITH A PRAYER THAT THESE FDS DO NOT BELONG TO THE APPELLANT AND THE OWNERS OF TH ESE ARE VARIOUS WEAVERS WHO SUPPLY HANDLOOM CLOTH. HENCE TH IS ADDITION IS UNJUST AND MAY PLEASE BE DELETED. AND THE DEPART MENT HAS TAKEN UP THE ISSUES IN APPEAL NOS. 1761/CHNY/2010 T O 1767/CHNY/2010 WITH A PLEA THAT THE ALLOWANCE MADE BY CIT (APPEALS) IS NOT JUSTIFIED AND THE ORDER OF THE A.O . TO BE RESTORED. 24. THE APPELLANT GETS MANUFACTURED HANDLOOM DRESS MATERIALS FROM MORE THAN 500 WEAVERS / SUPPLIERS WHO ARE MAIN LY LOCATED IN TAMILNADU & ANDHRA PRADESH. OUT OF THEM ONLY 48 WEAVERS FROM ANDHRA PRADESH HAD THEIR BANK ACCOUNTS IN TMB (TTK ROAD BRANCH) AND 11 WEAVERS IN TMB (T.NAGAR BRANCH) TOTA LLING 32 SUCH ACCOUNTS OUT OF WHICH 5 ACCOUNTS WERE CLOSED IN 200 3. MOST OF THEM HAVE SB ACCOUNTS AND FEW HAVE CURRENT ACCOUNTS . M/S HANDLOOM HERITAGE LTD :- 33 -: 25. IN THE ASSESSMENT ORDER, FOR THE REASONS MENTIO NED THEREIN, IT WAS HELD THAT THE DEPOSITS IN THESE ACC OUNTS AMOUNTING TO RS. 18,79,27,560/- ACTUALLY BELONGED TO THE APPELLANT AND CONSEQUENTLY WAS TREATED AS ITS UNDIS CLOSED INCOME. ALL THE WITHDRAWALS IN THESE ACCOUNTS WERE IGNORED. AFTER ANALYSING THE FACTS THE CIT (APPEALS) HELD TH AT THE ACCOUNTS OF THE WEAVERS MIGHT HAVE BEEN UTILISED BY THE APPE LLANT. HOWEVER KEEPING IN VIEW THE FOLLOWING FACTS, CIT (A PPEALS) CONCLUDED THAT ALL THE DEPOSITS IN CURRENT ACCOUNTS CANNOT BE TREATED AS UNDISCLOSED INCOME:- A. THE PAYMENTS ARE MADE BY CROSSED CHEQUES. MOST O F WHICH WERE DISCOUNTED BY THE WEAVERS THEMSELVES. B. MANY WEAVERS HAVE ADMITTED THAT THESE CHEQUES WE RE DEPOSITED BY THEMSELVES. C. MANY DEPOSITS ARE SUPPORTED BY THE INVOICES RAIS ED BY THE WEAVERS AND HENCE THEY ARE ACCOUNTED. 26. HENCE THERE WAS ONLY A POSSIBILITY OF INFLATING THE PURCHASES ETC THROUGH THESE ACCOUNTS. CONSEQUENTLY HE SUSTAIN ED THE DISALLOWANCE TO THE EXTENT OF 20% - 25% OF THE YEAR WISE DEPOSITED AMOUNT REPRESENTING LIKELY INFLATION OF P URCHASES BY M/S HANDLOOM HERITAGE LTD :- 34 -: THE APPELLANT. THE BASIS OF AS TO HOW THESE PERCENT AGES HAVE BEEN ARRIVED AT IS NOT FORTHCOMING. 27. AS REGARDS THE FDS WITH TMB, TTK ROAD BRANCH AN D ING VYSYA BANK, T.NAGAR BRANCH IN THE NAMES OF THE WEAV ERS, HE HELD THAT THE FDS BELONG TO THE APPELLANT WHICH WERE OPE NED IN THE BENAMI NAMES OF THE WEAVERS AND THEREFORE, THE SAME WAS RIGHTLY TREATED AS UNDISCLOSED INCOME OF THE APPELL ANT COMPANY. HOWEVER THIS AMOUNT WAS TELESCOPED WITH THE ESTIMAT ED ADDITION TOWARDS INFLATED PURCHASES AMOUNTING TO RS. 3,84,28, 456.00 AND NO SEPARATE ADDITION WAS MADE ON THIS ACCOUNT. ONLY INTEREST THEREON WAS CONFIRMED SEPARATELY. 28. DURING THE COURSE OF THE HEARING, THE AR OF THE APPELLANT VEHEMENTLY ARGUED THAT THE DEPOSITS OF CHEQUES MADE IN THE ACCOUNT OF THE OUTSTATION WEAVERS DO NOT REPRESENT THE DEPOSITS OF THE APPELLANT. THE WEAVERS DEPOSITED POST-DATED CROSSED CHEQUES ISSUED BY THE APPELLANT IN THE ACCOUNTS AT TMB, T.NAGAR AND TTK ROAD BRANCHES, WERE RECEIVED TOWARDS THE SA LES MADE BY THEM TO THE APPELLANT. TO AVOID COLLECTION DELAY S AND CHARGES, THE WEAVERS EITHER DISCOUNTED THE CHEQUES WITH PRIV ATE FINANCIERS OR DEPOSITED IN THE BANK ACCOUNT. THEREF ORE, THE M/S HANDLOOM HERITAGE LTD :- 35 -: WEAVERS PREFERRED TO OPEN THE BANK ACCOUNT AT CHENN AI. MERELY BECAUSE THE DIRECTORS OR THE EMPLOYEES OF THE APPEL LANT HAD ASSISTED THE WEAVERS IN THEIR BANKING TRANSACTIONS, IT WOULD NOT TANTAMOUNT TO THE FACT THAT THEY ARE BENAMI ACCOUNT S OF THE APPELLANT AND HAVE BEEN USED TO INFLATE THE PURCHAS ES. THE A.O. HAD NOT DISPUTED THE PURCHASE FIGURES ANYTIME. A CO PY OF THE DETAILED WRITTEN SUBMISSIONS THAT WAS FILED BEFORE THE CIT (APPEALS), WHEREIN HE HAD HIGHLIGHTED TO THE STATEM ENTS GIVEN BY SOME OF THE WEAVERS WHEREIN THEY HAD CONFIRMED HAVI NG THEIR BANK ACCOUNTS WITH TMB, TTK ROAD AND T. NAGAR BRANC H AND THE TURNOVER WITH THE APPELLANT AND WHICH TALLY ENTRY-W ISE WITH THE ACCOUNTS. THEREFORE, THE DEPOSITS OF CHEQUES MADE I N THE ACCOUNTS OF THE WEAVERS ARE ONLY TOWARDS THE GENUIN E PURCHASES MADE BY THE APPELLANT DULY SUPPORTED BY INVOICES AN D VOUCHERS. THE ENTIRE SET OF VOUCHERS TALLIED ENTRY-WISE. 29. MERELY HELPING IN OPERATING THE ACCOUNT OR THE DRIVER OCCASIONALLY DEPOSITING THE CHEQUES OR WITHDRAWING THE AMOUNTS FOR THE WEAVERS DOES NOT CONCLUSIVELY PROVE THAT TH E BENAMI ACCOUNTS ARE OF THE COMPANY. FURTHER THE PAYMENTS F OR PURCHASES WERE MADE BY CROSSED CHEQUES. EACH CHEQUE TALLIES M/S HANDLOOM HERITAGE LTD :- 36 -: WITH THE INVOICE. THESE CHEQUES HAVE EITHER GONE TO THE TMB ACCOUNT AT CHENNAI OR THE WEAVERS BANK AT HIS HOME TOWN. THE A.O. ALSO HAD NOT DISPUTED THE PURCHASES MADE AND T REATED THE SAME AS GENUINE. AGAIN AT THE TIME OF SEARCH NO DOC UMENTS LIKE THE CHEQUE BOOKS, PAY-IN SLIPS OR PASS BOOKS OF WEA VERS WERE FOUND OR SEIZED. THE APPELLANT ISSUED THOUSANDS OF CHEQUES TO THESE WEAVERS IN THESE 34 ACCOUNTS AGAINST THE SUPP LY OF GOODS. THEREFORE, ONLY ON THE BASIS OF FEW CHEQUES HAVING INITIAL OF A DRIVER, IT WOULD BE IMPROPER TO CONCLUDE THAT ALL T HESE BANK ACCOUNTS ARE BENAMI OF THE APPELLANT. MANY OF THE W EAVERS HAVE ACCEPTED THE BANK ACCOUNTS AND THE TURNOVER FIGURES IN THEIR STATEMENTS AND STATED THAT THEY DISCOUNTED THE CHEQ UES WITH THE FINANCIERS AT CHENNAI. 30. NONE OF THE WEAVERS HAD ACCEPTED THAT THEY HAD RECEIVED OR PAID THE PAYMENTS IN CASH. THE CHEQUE DEPOSITED AND ENCASHED IN THE ALLEGED BENAMI ACCOUNTS AT TMB, TTK ROAD AND T. NAGAR BRANCH, ARE THE SAME CHEQUES WHICH THE WEA VERS HAD DISCOUNTED WITH PRIVATE FINANCIERS. MANY OF THE WEA VERS HAVE GIVEN DETAILS OF THEIR SALES TURNOVER WITH THE APPE LLANT WHICH TALLIED ENTRY-WISE. NONE OF THE WEAVERS HAD STATED THAT THE CASH M/S HANDLOOM HERITAGE LTD :- 37 -: WAS PAID BACK TO THE APPELLANT. THE WEAVERS HAVE AL SO FILED THE RETURNS OF THEIR INCOME DISCLOSING TURNOVER WITH TH E APPELLANT AND ALSO DISCLOSED THE FDS AS THEIR ASSETS. NO OPPO RTUNITY WAS GIVEN TO THE APPELLANT TO CROSS-EXAMINE THE WITNESS ES WHO HAD TESTIFIED AGAINST THE APPELLANT. BANK MANAGER AND T HE EMPLOYEE OF THE BANK MIGHT NOT BE KNOWING THE FULL TRANSACTI ON. THEY ONLY STATED THAT CERTAIN TRANSACTION IN WEAVERS ACCOUNTS WERE CARRIED OUT BY MR.C. PANDIAN, EMPLOYEE OF THE COMPANY AND T HEY DID NOT SAY THAT THE AMOUNT ACTUALLY BELONGED TO THE APPELL ANT. 31. IT WAS FURTHER SUBMITTED THAT THE ESTIMATED PER CENTAGE DISALLOWANCE OF ALLEGED INFLATION OF PURCHASES ETC IS ARBITRARY AND HAS NO BASIS. FURTHER NOT EVEN A SINGLE PURCHASE HA S BEEN PROVED TO BE BOGUS. THERE IS NO MATERIAL WHATSOEVER TO HOL D THAT PURCHASES OR EXPENSES HAVE BEEN INFLATED. HENCE THI S ALLOWANCE IS BASED ON UNFOUNDED PRESUMPTION AND SURMISES WITH OUT ANY MATERIAL OR EVIDENCE. HENCE IT MAY PLEASE BE DELETE D. 32. AS REGARDS THE ISSUE OF FIXED DEPOSITS WITH TMB AND ING VYSYA BANK IN THE NAMES OF MORE THAN 250 WEAVERS, H E SUBMITTED THAT BEFORE THE PURCHASES ARE MADE FROM THE WEAVERS , APPELLANT AT TIMES SUPPLIES THE RAW MATERIALS ON ADVANCE AND ALSO THE M/S HANDLOOM HERITAGE LTD :- 38 -: DESIGNS WHICH ARE VALUABLE, TO THE WEAVERS SO THAT THEY CAN USE THE SAME WHILE MANUFACTURING THE HANDLOOMS FOR THE ORDERS MADE BY THE APPELLANT AND THE WEAVERS BEING SMALL T IME BUSINESSMAN MAY NOT RETURN THE PRODUCED HANDLOOM CL OTH OR MAY NOT TAKE PROPER CARE OF THE DESIGNS AND RAW MATERIA LS, WHICH COULD RESULT IN HUGE BUSINESS LOSSES FOR THE APPELL ANT. THE APPELLANT HAD TO RECEIVE A SECURITY FROM THESE WEAV ERS TO ENSURE THAT THERE IS NO LOSS ON ACCOUNT OF THE NEGLIGENCE OF THE WEAVERS. HENCE THESE FDS FORMED A SECURITY COVER AND NOTHING ELSE. CONSEQUENTLY, THE WEAVERS DEPOSITED THE MONIES WITH THE BANK AS FDS AND HANDED OVER THE DEPOSIT RECEIPTS TO THE APPELLANT AS A SECURITY DEPOSIT. THEREFORE, THE APPELLANT INSTEAD OF KEEPING THE CASH AS SECURITY KEPT THE FDRS AS SECURITY AND THE I NTEREST THEREON WILL BE THE INCOME OF THE WEAVERS. IT WAS A LSO SUBMITTED THAT THE FDRS WERE NOT ENCASHED AT ALL BY THE APPELL ANT AND THIS PROVES THAT THE NO AMOUNT WAS RECEIVED BACK BY THE APPELLANT. THE FDRS WITH THE TMB AND ING VYSYA BANK AND THE CON SEQUENT INTEREST THEREON DO NOT IN ANY WAY REPRESENT THE FI XED DEPOSITS OF THE COMPANY. IN THE POST SEARCH PROCEEDINGS THE APPELLANT HANDED OVER THE FD RECEIPTS STANDING IN THE NAMES O F THE WEAVERS, WHICH WERE DEPOSITED WITH THE APPELLANT AS SECURITY TO M/S HANDLOOM HERITAGE LTD :- 39 -: THE INVESTIGATING OFFICER AT HIS REQUEST. THEREFORE , IT CANNOT BE SAID THAT THE FDRS BELONG TO THE APPELLANT. FURTHER, THE WEAVERS HAD DISCLOSED THESE FIXED DEPOSITS IN THEIR RETURNS OF INCOME AS THEIR ASSETS, WHICH WAS ALSO ACCEPTED BY THE DEPART MENT AT TIRUPATI ON PROTECTIVE BASIS. FURTHER, IF THEY REAL LY BELONGED TO THE APPELLANT, IT WOULD HAVE ENCASHED AND WOULD NOT HAVE GIVEN AS A COLLATERAL WITH THE CONSENT OF THE WEAVERS TO BORROW MONEY ON INTEREST FROM BANK. IN SO FAR AS THE FIXED DEPOS ITS ARE CONCERNED, THE BANKING REGULATIONS ACT WILL APPLY WH ICH WOULD CLEARLY ESTABLISH A CONTRACT BETWEEN THE FIXED DEPO SIT HOLDER AND THE BANKER. UNLESS THAT CONTRACT IS PROVEN TO B E A SHAM AND THAT THOSE MONIES CAME FROM THE APPELLANT, THE ADDI TION ON ACCOUNT OF THE ALLEGED UNACCOUNTED FIXED DEPOSITS M ADE BY THE A.O. IS NOT SUSTAINABLE. 33. ON THE OTHER HAND, THE DR REFERRED TO THE MODUS OPERANDI OF THE FUND TRANSFER, IN PAGE NO.106 OF THE ASSESSM ENT ORDER FOR THE AY 2005-06. HE ALSO REFERRED TO VARIOUS STATEME NTS OF THE WEAVERS, WHO STATED THAT THEY DID NOT KNOW ABOUT TH E EXISTENCE OF THE BANK ACCOUNTS AND SAID ABOUT THE BOGUS BILLS ETC. HE ALSO RELIED ON THE VARIOUS FINDINGS OF THE A.O. CONSEQUE NTLY IT WAS M/S HANDLOOM HERITAGE LTD :- 40 -: PLEADED THAT THE CIT (APPEALS) ERRED IN ALLOWING MA JOR PORTION OF THE ADDITIONS IN THE FORM OF THE DEPOSITS IN THE CU RRENT ACCOUNT AND ESTIMATED PERCENTAGE FOR INFLATION OF PURCHASES . HENCE THIS ORDER OF THE A.O. MAY BE RESTORED. 34. WE HAVE HEARD THE SUBMISSIONS OF THE AR AND THE DEPARTMENT. WE HAVE PERUSED THE ORDERS OF THE A.O. AND THAT OF THE CIT (APPEALS) AND OTHER MATERIALS ON RECORD. IT IS AN UNDISPUTED FACT THAT THERE ARE NUMBER OF WEAVERS WH O SUPPLY HANDLOOMS TO THE APPELLANT. THE DEPOSITS OF CROSSED CHEQUES WERE MADE IN THE ACCOUNTS OF FEW OF THE WEAVERS AT THE TMB, T. NAGAR AND TTK ROAD BRANCHES TOWARDS THE PURCHASES MA DE BY THE APPELLANT FROM THE WEAVERS. IF THE CROSSED CHEQUES ARE DEPOSITED IN BANKS OUTSIDE CHENNAI, IT TAKES AROUND 5 - 10 DA YS FOR THE CHEQUES TO BE CLEARED IN THOSE DAYS. THEREFORE, THE RE IS MERIT IN THE CONTENTION OF THE AR THAT THE WEAVERS HAD NO OT HER CHOICE RATHER THAN TO OPEN THE BANK ACCOUNT AT CHENNAI SO THAT, THE POST-DATED CHEQUES WILL BE DEPOSITED IN THEIR ACCOU NT AT TMB, T. NAGAR AND TTK ROAD BRANCHES. THE WEAVERS, AT TIMES DISCOUNT THE CHEQUES WITH PRIVATE FINANCIERS AS SAID IN THE STATEMENT OF ALL THE WEAVERS. MERELY BECAUSE THE DIRECTORS AND THE E MPLOYEES OF M/S HANDLOOM HERITAGE LTD :- 41 -: THE APPELLANT HAD ASSISTED THE WEAVERS IN DEPOSITIN G THE CHEQUES IN THEIR ACCOUNTS AS AN ADDITIONAL SERVICE, IT WOUL D NOT TANTAMOUNT TO THE FACT THAT THE APPELLANT HAD INFLA TED THE PURCHASES BY PREPARING THE BOGUS BILLS AND VOUCHERS . THE A.O. HAS NOT DISPUTED ANY OF THE PURCHASE FIGURES. IN TH E STATEMENTS GIVEN BY SOME OF THE WEAVERS, THEY HAVE ALSO CONFIR MED THE TURNOVER WITH THE APPELLANT. THEREFORE THE ONLY FIN DING CAN BE THAT THE DEPOSITS MADE IN THE ACCOUNTS OF THE WEAVE RS ARE ONLY TOWARDS THE GENUINE PURCHASES MADE BY THE APPELLANT DULY SUPPORTED BY INVOICES AND VOUCHERS. IT IS ALSO NOT DISPUTED THAT THE ENTIRE SET OF VOUCHERS TALLIED ENTRY-WISE. NO E VIDENCE TO THE CONTRARY HAS BEEN PLACED BY THE DEPARTMENT BEFORE U S. THEREFORE, THERE IS NO CASE FOR THE CIT (APPEALS) T O HOLD THAT THERE IS AN INFLATED PURCHASE. THIS INFERENCE IS WI THOUT ANY BASIS AND NOT SUPPORTED BY ANY EVIDENCE OR MATERIAL. THER E ARE AROUND 500 WEAVERS OPERATING WITH THE APPELLANT OUT OF WHI CH ONLY ABOUT 50 OR SO ARE FROM THE NELLORE DISTRICT (AP) WHOSE B ANK ACCOUNTS ARE BEING OPERATED IN CHENNAI MERELY FOR THE REASON OF FACILITATING THE PAYMENTS. AS DEMONSTRATED BY THE A PPELLANT, THE TOTAL PURCHASES MADE BY THE APPELLANT FROM THESE WE AVERS DURING THE 7 YEARS PERIOD IS CLOSE TO 45 CRORES (APPROX) O UT OF WHICH THE M/S HANDLOOM HERITAGE LTD :- 42 -: WEAVERS HAVE DEPOSITED CHEQUES OF RS. 18 CRORES (APP ROX) IN TMB AND THE BALANCE IN OTHER BANK ACCOUNTS. 35. TO MANY OF THE POINTS RAISED BY THE AR, THERE AR E NO SATISFACTORY ANSWERS FROM THE DEPARTMENT. FURTHER T HE LOGIC THAT THESE DEPOSITS IN THE BANK ACCOUNTS REPRESENTED INF LATION OF PURCHASES ETC., IS NOT BORNE OUT OF FACTS AND IS ON LY A CONJECTURE. NOT A SINGLE INSTANCE OF INFLATION OF PURCHASES WAS FOUND OR BROUGHT OUT BY THE A.O. OR THE CIT (APPEALS). 36. FURTHER, TAKING ONE SIDE OF THE ACCOUNT AND IGN ORING THE WITHDRAWALS AND TREATING AS INFLATED PURCHASES WITH OUT CONSIDERING THE ACCOUNTED TURNOVER, INVOICES, VOUCH ERS, TALLYING OF TURNOVER FIGURES OF BOTH THE PARTIES, THEIR RETU RN OF INCOME, DISCOUNTING OF CHEQUES WITH FINANCIERS, ETC IS ARBI TRARY AND UNJUST. THEREFORE THE CIT (APPEALS) WAS RIGHT IN RE JECTING SUCH AN ADDITION MADE BY THE A.O. HOWEVER THE METHODOLOGY O F CIT (APPEALS) IN ESTIMATING THE PERCENTAGES OF THESE DE POSITS AS ALLEGED INFLATION OF PURCHASES IS NOT ONLY ILLOGICA L BUT ALSO NOT BASED ON ANY FACTS. M/S HANDLOOM HERITAGE LTD :- 43 -: 37. THEREFORE, OUR FINDING BASED ON THE FACTS BEFOR E US IS THAT THE CHEQUES DEPOSITED IN THE T. NAGAR AND THE TTK RO AD BRANCHES OF THE TMB REPRESENT THE PAYMENTS MADE FOR GENUINE PURCHASES OF THE APPELLANT. CONSEQUENTLY WE HOLD TH AT THERE CANNOT BE A CASE FOR DISALLOWANCE ON THE BASIS OF E STIMATION. THEREFORE, WE HOLD THAT SUSTAINING OF DISALLOWANCES TO THE EXTENT OF 20% - 25% OF THE DEPOSITS MADE BY THE CIT (APPEA LS) IS UNWARRANTED AND HENCE DELETED. 38. WITH REGARDS TO THE ADDITION ON ACCOUNT OF FDRS AS UNDISCLOSED INCOME, THE DR RELIED ON THE FINDINGS OF THE CIT (APPEALS) AND ARGUED THAT THEY HAVE BEEN RIGHTLY TR EATED AS UNDISCLOSED INCOME OF THE APPELLANT. ON THE OTHER H AND THE AR HAS ARGUED THAT THIS IS AN ERRONEOUS INFERENCE BECA USE OF THE FACT THAT THESE FDRS IN THE NAMES OF MORE THAN 250 WEAVER S ARE IN THE NATURE OF SECURITY DEPOSITS TO PROTECT AGAINST THE BUSINESS LOSS IF THE WEAVERS WHO DO NOT RETURN THE HANDLOOM CLOTH AFTER WEAVING OR LOSES THE DESIGNS GIVEN BY THE APPELLANT . IT WAS A BUSINESS NECESSITY TO SECURE THE APPELLANT FROM LOS SES. THIS IS NOTHING BUT AN INTEREST BEARING SECURITY DEPOSIT AN D TO ENSURE THAT THE INTEREST IS EARNED AND ACCRUED. THIS AMOUN T IS KEPT AS A M/S HANDLOOM HERITAGE LTD :- 44 -: FD WITH THE INTEREST GOING TO THE OWNER OF THE FD. THIS IS A NORMAL BUSINESS PRACTICE WHICH IS PREVALENT EVERYWH ERE. THEREFORE NOTHING MUCH TURNS ON IT. FURTHER, ONCE F DRS ARE TAKEN AS A SECURITY, THE FD RECEIPTS HAVE TO BE WITH THE SECURED. IN THIS CASE ALSO THE FDS WERE WITH THE APPELLANT. NO INSTA NCE HAS BEEN PRODUCED BY THE DEPARTMENT TO INDICATE THAT THESE F DRS WERE ENCASHED BY THE APPELLANT. FURTHER, IT IS SEEN THAT WHATEVER INTEREST WHICH ACCRUED WAS GETTING ACCUMULATED WITH THE PRINCIPAL AND EVEN THAT WAS NOT WITHDRAWN. THESE FD S HAVE ALSO BEEN DECLARED BY THE WEAVERS AS THEIR ASSETS IN THE IR INCOME TAX RETURNS AND WAS ALSO ACCEPTED BY THE INCOME TAX DEP ARTMENT AT TIRUPATI THOUGH ON PROTECTIVE BASIS, WHICH IN MANY CASES WERE FILED SUBSEQUENT TO THE DATE OF SEARCH. SMALL TIME WEAVERS IN VILLAGES, NOT FILING THEIR RETURNS ON TIME CANNOT B E PERCEIVED ADVERSELY AGAINST THE APPELLANT. THE FACT THAT THE FDS ARE THEIR ASSETS HAS BEEN ADMITTED BY THE WEAVERS. IN SO FAR AS THE FIXED DEPOSITS AS CONCERNED, THE BANKING REGULATIONS ACT W ILL APPLY WHICH WOULD CLEARLY ESTABLISH A CONTRACT BETWEEN TH E FIXED DEPOSIT HOLDER AND THE BANKER. UNLESS THIS CONTRACT IS PROVEN TO BE A SHAM AND THAT THOSE MONIES CAME FROM THE APPEL LANT, THE ADDITION ON ACCOUNT OF THE ALLEGED UNACCOUNTED FIXE D DEPOSITS M/S HANDLOOM HERITAGE LTD :- 45 -: MADE BY THE A.O. IS NOT SUSTAINABLE. AGAIN IT IS NO T CATEGORICALLY PROVED THAT THE MONEY CAME FROM THE APPELLANT ONLY AND ALSO NOT PROVEN THAT IT IS THE APPELLANT ONLY WHICH ENCA SHED THE FDS ON MATURITY ALSO. THEREFORE, WE ARE OF THE VIEW THA T THESE FIXED DEPOSITS DO NOT BELONG TO THE APPELLANT. HENCE, THI S ADDITION IS DELETED. CONSEQUENTLY THE ADDITION ON ACCOUNT OF IN TEREST ALSO STANDS DELETED. 39. FURTHER, IF ONE LOOKS AT THE EVIDENCES AND MATE RIALS BASED ON WHICH THE DEPARTMENT HAD CONCLUDED THAT THE FIXE D DEPOSITS BELONG TO THE APPELLANT AND THE PURCHASES SHOWN BY THE APPELLANT ARE INFLATED, IT IS ONLY BASED ON THE STA TEMENTS GIVEN BY FEW WEAVERS AND THE FINDINGS THAT THE WEAVERS HA D SIGNED BLANK CHEQUES AND THE DRIVER OF THE APPELLANT COMIN G TO THE BANK AND OPERATING THE ACCOUNTS OF THE WEAVERS. APART FR OM THIS, THE DEPARTMENT HAD NOT BEEN ABLE TO CATEGORICALLY ESTAB LISH WHETHER THE AMOUNT CLAIMED AS PURCHASES BY THE APPELLANT HA S BEEN RECEIVED BACK BY THE APPELLANT ON ENCASHMENT OF FIX ED DEPOSITS. WHEN SUCH IS THE CASE, BY NO STRETCH OF IMAGINATION CAN ONE COME TO A CONCLUSION THAT THE FIXED DEPOSITS AND TH E DEPOSITS IN THE TMB BELONG TO THE APPELLANT MERELY BECAUSE THE DRIVER OF THE M/S HANDLOOM HERITAGE LTD :- 46 -: APPELLANT COMES TO DEPOSIT THE CHEQUES IN THE ACCOU NT OF THE WEAVERS AND THE PAY-IN SLIPS ARE SIGNED BY THE DRIV ER OR THE DIRECTOR OF THE APPELLANT. NO EVIDENCE WAS LED IN A T ANY STAGE APART FROM THE AVERMENTS MADE IN THE STATEMENTS THA T THE DEPOSITS MADE IN THE ACCOUNTS OF THE WEAVERS ARE BO GUS PURCHASES AND THE FIXED DEPOSITS BELONG TO THE APPE LLANT. FURTHER, AS SET BY MANY JUDICIAL DECISIONS, IT IS A WELL LAID PRINCIPLE THAT THE ADDITION CANNOT BE MERELY ON THE BASIS OF STATEMENTS RECORDED. FOR THIS, RELIANCE IS PLACED I N THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF T.KAIL ASH CHAND CHORDIA IN IT(SS)A NO.156MDS/2005, DECISION OF THE HONBLE GAUHATI HIGH COURT IN THE CASE OF GREEN VIEW RESTAUR ANT, REPORTED IN 263 ITR 169. THEREFORE, SINCE THE REVENUE IS NOT ABLE TO ESTABLISH A DIRECT LINK BETWEEN THE DEPOSITS AND THE PAYMENTS MADE AND WHETHER THE SAME HAS BEEN RECEIVED BACK BY THE APPELLANT WITH EVIDENCES AND FOR THE OTHER REASONS DISCUSSED ABOVE, ADDITIONS ON ACCOUNT OF DEPOSITS MADE IN THE ACCOUNTS OF THE WEAVERS CANNOT BE SUSTAINED. HENCE, WE DIRECT T HE ASSESSING OFFICER TO DELETE THE ADDITIONS MADE ON ACCOUNT OF DEPOSITS IN THE VARIOUS CURRENT / SAVINGS ACCOUNTS OF THE WEAVE RS WITH TMB BANK, TTK ROAD AND T. NAGAR BRANCH AND THE FIXED DE POSITS MADE M/S HANDLOOM HERITAGE LTD :- 47 -: BY THE WEAVERS IN TMB, TTK ROAD BRANCH AND ING VYSY A BANK, T. NAGAR BRANCH AND ALSO CONSEQUENTIAL INTEREST THEREO N. U NACCOUNTED S TOCK F OUND D URING THE COURSE OF THE SEARCH : 40. ON THE BASIS OF THE FINDINGS IN THE SEARCH ON 1 4/07/2004, IN THE ASSESSMENT ORDER U/S 143(3) DATED 27/12/2006 F OR THE AY 2005-06 THE ENTIRE VALUE OF THE STOCKS AMOUNTING TO RS. 3,71,44,442/- FOUND, WAS ADDED TO THE INCOME OF THE APPELLANT AS UNACCOUNTED STOCK, IGNORING THE RECONCILIATION F IGURES GIVEN BY THE APPELLANT. THE CIT (APPEALS) AFTER CONSIDERING THE EXPLANATIONS AND THE RECONCILIATION, GAVE A PARTIAL RELIEF TO THE EXTENT OF RS. 2,42,21,504/- AND ESTIMATED THE VALUE OF UNACCOUNTED STOCK AT RS. 1,29,22,938/- AS UNDER: S.NO PARTICULARS AMOUNT 1 ON ACCOUNT OF UNRECONCILED STOCK 6,04,262 2 UNRECONCILED STOCK ON ACCOUNT OF GP MARGIN 6,03,884 3 UNRECONCILED STOCK ON ACCOUNT OF DEFECTIVE STOCK 17,76,528 4 UNRECONCILED STOCK ON ACCOUNT OF UNENTERED PURCHASE 99,37,724 TOTAL UNRECONCILED STOCK 1,29,22,938 M/S HANDLOOM HERITAGE LTD :- 48 -: 41. AGGRIEVED BY THIS ORDER OF THE CIT (APPEALS), B OTH THE APPELLANT AS WELL AS THE DEPARTMENT ARE IN APPEAL B EFORE US. THE DR REITERATED THE REASONS GIVEN BY THE A.O. BY ARRIV ING AT THE CLOSING STOCK FIGURES AND SUBMITTED THAT THE ITEMS OF STOCK WHICH WERE SUBJECT MATTER OF RECONCILIATION WERE ALREADY CONSIDERED IN THE REPORT OF THE INVESTIGATING OFFICER AND THEREFO RE NO FURTHER DEDUCTION WAS WARRANTED. 42. HOWEVER THE AR CONTENDED THAT THE SUBMISSIONS OF LD. DR WERE NOT CORRECT. HE FURNISHED STOCK WORKING AS PER WHICH PHYSICAL STOCK AMOUNTED TO RS. 2,94,19,666.00 AS AGA INST THE WORKING OF THE DEPARTMENT AS PER WHICH THE STOCK FI GURE WAS RS. 3,71,44,442/-. THIS DIFFERENCE AROSE BECAUSE OF THE DIFFERENCE IN SALE PRICE, DIFFERENCE IN VALUATION OF DEFECTIVE AN D DAMAGED STOCKS, HIGHER GP PERCENTAGE, DOUBLE INVENTORISATIO N OF DUPATTAS AND NON CONSIDERATION OF DIFFERENCES OF STOCK LYING WITH JOB WORKERS WHILE VALUING THE STOCK. IT WAS FURTHER SUB MITTED THAT THE A.O. RELIED ON FEW CONVENIENT STATEMENTS OF WEA VERS IGNORING MAJORITY OF THE STATEMENTS WHICH WERE IN FAVOUR OF THE APPELLANT. HE ALSO HIGHLIGHTED THE ISSUE RAISED BY THE APPELLANT AT THE TIME OF THE ASSESSMENT AND APPELLATE PROCEED INGS. THE M/S HANDLOOM HERITAGE LTD :- 49 -: COPIES OF SUBMISSIONS PLACED BEFORE THEM HAVE ALSO BEEN FURNISHED TO US. THE GRIEVANCE OF THE APPELLANT IS THAT IT HAD RECONCILED ALL THE FIGURES AND THERE WAS NO UNRECON CILED STOCK WHICH THE APPELLANT FAILED TO RECONCILE DURING THE COURSE OF ASSESSMENT AS WELL AS THE APPELLATE PROCEEDINGS. TH EREFORE, EVEN THE ADDITION OF RS.1,29,22,938 CANNOT BE SUSTAINED. WHEREAS, IT IS THE GRIEVANCE OF THE DEPARTMENT THAT EVEN THE PA RTIAL RELIEF CANNOT BE GRANTED TO THE APPELLANT SINCE, THE ENTIR E STOCK FOUND DURING THE COURSE OF SEARCH REPRESENTED UNACCOUNTED STOCK. HOWEVER, THE DEPARTMENT HAD NOT FURNISHED THE REPOR T, NOR WAS ANYTHING SHOWN THAT THE ITEMS THAT WERE SUBJECT MAT TER OF RECONCILIATION AS SUBMITTED BY THE APPELLANT WERE C ONSIDERED BY THE INVESTIGATION DEPARTMENT WHILE VALUING THE STOC K AND THE FINAL FIGURE ARRIVED AT BY THE A.O. IS AFTER CONSID ERING THE ITEMS THAT WERE A SUBJECT MATTER OF RECONCILIATION. 43. WE HAVE HEARD BOTH THE SIDES AND HAVE PERUSED T HE ORDER OF ASSESSMENT AND THAT OF THE CIT (APPEALS). THE MA IN POINTS OF DIFFERENCES IN THE STOCK FIGURE ARE DISCUSSED AS UN DER:- A. DOUBLE INVENTORISATION OF DUPPATAS TO THE TUNE OF RS.11,38,312/-. THIS ISSUE WAS ELABORATELY DISCUSSED AND M/S HANDLOOM HERITAGE LTD :- 50 -: THE RELIEF WAS GIVEN BY THE CIT (APPEALS), AS DISCU SSED IN PARA NO. 40 IN PAGE NO.90 OF THE ORDER. EXCEPT FOR THE AVERMENT THAT THE SAME WAS CONSIDERED FOR VALUATION IN THE ASSESSMENT ORDER, NO OTHER EXPLANATION WAS OFFE RED. THE STAND OF THE DR CANNOT BE CONSIDERED WITHOUT ANY EVIDENCE BEING LET IN, ON THE SAME. WE ARE IN COMPL ETE AGREEMENT WITH THE DISCUSSION AND FINDING OF THE CI T (APPEALS) ON THIS MATTER AND NO INTERFERENCE IS CAL LED FOR. THEREFORE, WE UPHOLD THE STAND OF THE CIT (APP EALS) IN THIS REGARD. B. THERE IS A DIFFERENCE IN THE VALUE OF THE STOCK LYI NG WITH THE OUTSIDE PARTIES FOR JOB WORK TO THE TUNE OF RS.5,69,862/-. THESE REPRESENT THE VALUE OF THE STOC K WHICH WERE RECEIVED BACK BY THE APPELLANT WHOSE DELIVERY CHALLANS AND PACKING SLIPS WERE SEIZED BY THE DEPARTMENT AND NO CANCELLATION ENTRIES WERE MADE IN THE APPROVAL BOOK INDICATING THE RECEIPT OF THE GOO DS BACK. THIS ISSUE WAS DISCUSSED AND THE RELIEF WAS G IVEN BY THE CIT (APPEALS), AS DISCUSSED IN PARA NO. 40 I N PAGE NO.91 OF THE ORDER. EXCEPT STATING THAT THE SAME WA S CONSIDERED FOR VALUATION IN THE ASSESSMENT ORDER, N O OTHER EXPLANATION WAS OFFERED. THE STAND OF THE DR CANNOT BE CONSIDERED WITHOUT ANY EVIDENCE ON THE SAME. HENCE, WE ARE IN COMPLETE AGREEMENT WITH THE REASONING GIVEN IN THE APPELLATE ORDER ON THE ADDIT ION MADE BY A.O. IN RESPECT OF STOCK LYING WITH OUTSIDE PARTIES FOR THE JOB WORK AND DELETING THE ADDITION. M/S HANDLOOM HERITAGE LTD :- 51 -: THEREFORE, WE UPHOLD THE ORDER OF THE CIT (APPEALS) IN THIS REGARD. C. AFTER CONSIDERING THE ABOVE FIGURES WHILE COMPUTING THE DIFFERENCE IN SALE PRICE, THE DIFFERENCE OF RS.6,04, 262/- WAS TREATED AS UNDISCLOSED BY THE CIT (APPEALS). AS PER THE AR, THE STATEMENT OF VALUATION OF STOCK AS PER T HE SALE PRICE BY THE DEPARTMENT WAS NOT FURNISHED AT A LL, WHEREAS THE AR HAD FURNISHED THE DETAILS FOR HIS WOR KING. WE ARE INCLINED TO SET ASIDE THIS ASPECT OF THE VAL UATION OF STOCK ALONE, SINCE THE APPELLANT DOES NOT KNOW T HE BASIS OF THE VALUES ADOPTED BY THE DEPARTMENT. WE DIRECT THE A.O. TO FURNISH THE COPY OF THE VALUATIO N ADOPTED WHILE COMPUTING THE CLOSING STOCK AT SALE P RICE AND GIVE REASONABLE OPPORTUNITY TO THE APPELLANT TO RECONCILE IF THERE IS ANY OTHER DISCREPANCY ON EXCE SS VALUATION OF RS. 6,04,262/- AND SUBJECT TO THE SATISFACTION OF THE A.O., THE RELIEF CAN BE GRANTED BY THE A.O. WHILE GIVING EFFECT TO THIS ORDER. WE MAKE IT CLEAR THAT IT IS FOR THIS LIMITED PURPOSE AND ON THIS LIM ITED ISSUE THAT THIS DIRECTION IS GIVEN. D. IN THE VALUATION OF DEAD, DEFECTIVE, DAMAGED AND REJECTED GOODS THE APPELLANT HAS CLAIMED 50% DISCOU NT IN THE VALUATION. THIS WORKED OUT TO RS. 35,53,055/- . THIS WAS NOT CONSIDERED BY THE A.O. IN THE ASSESSME NT ORDER. THE CIT (APPEALS) DIRECTED TO VALUE THESE DEFECTIVE STOCKS AT 75% OF THE COST. AGGRIEVED BY T HIS M/S HANDLOOM HERITAGE LTD :- 52 -: BOTH THE APPELLANT AND THE DEPARTMENT ARE IN APPEAL . AFTER HEARING RIVAL SUBMISSIONS WE ARE INCLINED TO AGREE WITH THE CLAIM OF THE APPELLANT. THE APPELLANT DEAL S IN HANDLOOM TEXTILES, WHICH IS MANUFACTURED ON CUSTOME R SPECIFICATIONS. IF THE GOODS ARE NOT WOVEN AS PER SPECIFICATIONS THERE IS HARDLY MARKET FOR IT AND HA S TO BE SOLD AT HEAVY DISCOUNTS. FURTHER THE MERCHANDISE OF THE APPELLANT IS MADE FROM COTTON YARN ON HANDLOOMS AND IS SUBJECT TO HEAVY WEAVING DEFECTS AND SHOP SOILING. IT GETS DE-COLOURED FAST. DUE TO STARCH IN COTTON FABR ICS, IT GETS EATEN BY RODENTS AND PESTS AND IF KEPT FOR LON G TIME, THE STARCH CHEMICALS DESTROY THE FABRIC ITSEL F. IT IS ALSO SEEN THAT SUCH GOODS WERE FOUND IN PREMISES DU RING THE SEARCH OPERATIONS AND ALSO SUCH GOODS ARE SOLD AT HEAVY DISCOUNTS BY THE APPELLANT IN LOTS ON AS IS W HERE IS BASIS. KEEPING IN VIEW THESE PECULIAR FACTS SINCE DEFECTIVE GOODS DO NOT HAVE A HIGH REALISABLE VALUE . THEREFORE, FOLLOWING THE CONCEPT OF PRUDENCE, WE FE EL THAT 50% DISCOUNT CLAIMED BY THE APPELLANT IS REASO NABLE AND DIRECT THE A.O. TO VALUE THE SAME AT 50% ACCORDINGLY. E. THE GROSS PROFIT RATE WAS ADOPTED BY THE A.O. AT 5% BASED ON AVERAGE GROSS PROFIT RATE SHOWN IN THE EAR LIER YEARS. IT IS THE CONTENTION OF THE APPELLANT THAT W HILE COMPUTING THE VALUE OF THE STOCK IT IS ONLY THE MAR K UP PRICE SHOULD BE TAKEN INTO CONSIDERATION IN THE REV ERSE WORKING AND NOT THE PRICE AT WHICH THE GOODS ARE SO LD TO M/S HANDLOOM HERITAGE LTD :- 53 -: THE CUSTOMERS AND THEY ARE TWO DIFFERENT CONCEPTS. THE GROSS PROFIT SHOWN IN THE TRADING ACCOUNT IS AFTER TAKING INTO ACCOUNT THE SALES RETURNS AND THE DISCOUNT GIV EN TO THE CUSTOMERS FOR PROMPT PAYMENT. WHILE CALCULATING THE COST PRICE OF THE CLOSING STOCK, THE ACTUAL MAR K UP ON THE COST PRICE SHOULD HAVE BEEN DEDUCTED TO ARRI VE AT THE COST PRICE OF THE STOCK ON HAND. BUT THE A.O. H AD DEDUCTED THE NET GP OF 5% WHILE ARRIVING AT THE STO CK IN HAND WHICH IS WRONG. IN THE TABLE REPRODUCED BY THE APPELLANT IN THE SUBMISSIONS FILED, FOR THE AY 2003 -04, THE APPELLANT CLAIMS THAT THE PROMPT PAYMENT DISCOU NT ALLOWED COMES TO 2.49% AND SALES RETURNS OF DEFECTI VE GOODS COMES TO AROUND 3.5%. AND FOR THE AY 2004-05, THE PROMPT PAYMENT COMES TO 2.43% AND THE SALES RETURNS COMES TO AROUND 3%. AFTER CONSIDERING BOTH, THE MARK UP COMES TO AROUND 12%. THE ESTIMATED GP REDUCED BY THE A.O. FROM THE SALE PRICE HAS BEEN COMPUTED AT RS. 17,44,599/- WHICH IS AT 5%, WHEREAS, THE APPELLANT HAS DEDUCTED THE GP AT RS. 36,03,884/- WHICH IS AT 12%. THE CIT (APPEALS) ALLOWED THE GP A T RS.30 LAKHS, WITHOUT ADOPTING ANY PERCENTAGE. HOWEVE R, THIS CANNOT BE HELD SO, SINCE THE GP SHOULD BE AS A PERCENTAGE OF SALES. THEREFORE, WE ARE INCLINED TO HOLD THAT A GP OF 12% ON AN AVERAGE SHOULD BE TAKEN INTO CONSIDERATION SINCE THE AR IN THE SUBMISSIONS HAD C LEARLY PROVED THAT THE AVERAGE MARK UP IS 12% AND NOT 5%. HENCE, WE DIRECT THE A.O. TO ADOPT THE GP RATE AT 1 2% WHILE VALUING THE STOCK. ACCORDINGLY, THE ADDITION OF M/S HANDLOOM HERITAGE LTD :- 54 -: RS.6,03,884/- ON ACCOUNT OF UNRECONCILED STOCK FOR G P IS HEREBY DELETED. F. ON THE ISSUE OF THE OPENING STOCK AS ON 01/04/2004, THE A.O. HAD ADOPTED A FIGURE OF RS. 1,63,11,620/-, WHER EAS THE APPELLANTS CONTENTION IS THAT THE FIGURE PERTA INS TO THE OPENING STOCK AS ON 01/04/2003 AND NOT AS ON 01/04/2004 AND THAT THE VALUE OF THE STOCK AS ON 01/04/2004 IS RS. 2,22,40,590/-. AFTER PERUSING THE MATERIALS ON RECORD, THE CIT (APPEALS) HAD CONFIRME D THAT THE FIGURE ADOPTED BY THE A.O. PERTAINS TO THE STOCK AS ON 01/04/2003 AND NOT AS ON 01/04/2004. THE DR H AD NO MATERIAL TO COUNTER THE SAME. HENCE, THE FINDING S OF THE CIT (APPEALS) IS SUSTAINED. G. THE NEXT ISSUE TO BE CONSIDERED WHILE WORKING OUT THE STOCK FIGURES IS REGARDING THE VALUE OF UNENTERED PURCHASE INVOICES OF GOODS, WHICH HAVE BEEN PHYSICA LLY INVENTORISED OR SOLD, WHICH HAVE BEEN SEIZED BUT NO T CONSIDERED BY THE A.O. AMOUNTING TO RS. 4,96,88,618/ -. AS RECORDED IN THE ORDER OF THE CIT (APPEALS), THE TOTAL PURCHASES ENTERED UPTO THE DATE OF SEARCH I.E. 14/07/2004 WAS RS. 8,39,98,795/-. DURING THE COURSE OF SEARCH PROCEEDINGS, THERE WERE UNENTERED PURCHASES INVOICES SEIZED WHICH WERE PENDING TO BE ENTERED IN THE BOOKS, TO THE TUNE OF RS. 4,16,82,283/- AS PER THE S EIZED MATERIALS MENTIONED IN THE RECONCILIATION OF PURCHA SE ACCOUNT. AND THE BILLS RECEIVED AGAINST THE COPIES OF M/S HANDLOOM HERITAGE LTD :- 55 -: SEIZED PACKING SLIPS HANDED OVER TO THE DDIT VIDE L ETTER DATED 13/12/2004 WAS FOR RS. 80,06,335/-. THEREFORE, THE APPELLANT CLAIMED BEFORE THE A.O. THAT THE PURC HASE INVOICES WERE FOR RS. 4,96,88,618/- (RS. 4,16,82,283 + RS. 80,06,335.00) WHICH WERE TO BE ENTERED INTO THE BOOKS FOR WHICH GOODS WERE ALREADY RECEIVED. THE A. O. DID NOT CONSIDER THESE ITEMS TREATING THEM AS BOGUS WHILE COMPUTING THE PURCHASE FIGURES. HE WENT BY ON LY PURCHASES ENTERED IN THE SYSTEM AS ON 14/07/2004 AMOUNTING TO RS. 8,39,98,795/-. SO HE ARRIVED AT NEGATIVE STOCK FIGURES BECAUSE OF THE OMISSIONS OF THE ABOVE PURCHASES. THE CIT (APPEALS), THOUGH HAD ACCEPTED THE CONTENTION OF THE APPELLANT THAT THERE WERE BILLS FOR WHICH ENTRIES WERE TO BE MADE IN THE BOOKS, YET HE SUSTAINED AN ADDITION OF RS. 99,37,724 /- WHICH IS 20% OF THE VALUE OF THE UNENTERED PURCHASE ON THE PREMISE THAT THEY MIGHT REPRESENT INFLATED PURCHASE. HOWEVER, SINCE WE HAVE ALREADY IN THE DISCUSSION UNDER PARA 5 OF THIS ORDER HAD HELD THAT THERE IS NO INFLATED PURCHASE AND ALL THE PURCHASES ARE GENUINE. THEREFORE, AS FOUND AND ESTIMATED BY THE C IT (APPEALS), THERE IS NO CASE OF INFLATED PURCHASES B EING RECORDED IN THE BOOKS OF ACCOUNTS, ALL THE PURCHASE S ARE GENUINE FOR WHICH RECORDS WERE PROPERLY MAINTAINED. THEREFORE, THE ADDITION OF RS.99,37,724/- AS SUSTAI NED BY THE CIT (APPEALS) IS HEREBY DELETED. M/S HANDLOOM HERITAGE LTD :- 56 -: 44. AFTER CONSIDERING ALL THE ISSUES DISCUSSED ABOV E, WE PRIMA FACIE FIND THAT THE RECONCILED FIGURES WORKED OUT B Y THE APPELLANT AND OTHER CONTENTIONS POINTED OUT BY IT CONTAINS GR AINS OF TRUTH AND NO ADDITION MAY BE REQUIRED. 45. HOWEVER IN THE SUBMISSIONS FILED BY THE APPELLA NT, THE APPELLANT HAS STATED THAT IN ORDER TO PURCHASE PEAC E WITH THE DEPARTMENT, IT HAS AGREED TO AN ESTIMATED ADDITION OF RS. 1,11,59,125/-. HOWEVER, SINCE IT IS FOUND THAT ALL THE STOCKS ARE RECONCILED AND THERE IS NO STOCK WHICH IS FOUND UNA CCOUNTED AFTER THE RECONCILIATIONS ARE MADE, THE AGREED ADDI TION TO THE TUNE OF RS.1,11,59,125/- MERELY IN ORDER TO PURCHASE PEACE WITH THE DEPARTMENT NEED NOT BE SUSTAINED. HOWEVER, WE F IND THAT THE APPELLANT HAS AGREED TO THIS ADDITION IN THE FI LED RETURN OF INCOME AND HAS PAID TAX ON IT AND HAS EXPLAINED DUR ING ASSESSMENT PROCEEDINGS AS TO WHERE THIS ADDITION IS REFLECTED. IN VIEW OF THIS WE ARE OF THE OPINION THAT THIS FIGURE OF RS. 1,11,59,125/- NEEDS NO DISTURBANCE AND IS UPHELD. 46. IN THE RESULT, THE APPEALS FILED BY THE DEPART MENT IN APPEAL NOS. 1761 TO 1767/MDS/2010 ARE DISMISSED. AL L THE M/S HANDLOOM HERITAGE LTD :- 57 -: APPEALS FILED BY THE ASSESSEE ARE ALLOWED EXCEPT IT A NO.1802/MDS/2010 FOR THE AY 2005-06 WHICH IS PARTLY ALLOWED. 47. IN VIEW OF OUR ABOVE FINDING, THE APPEALS OF TH E ASSESSEE FILED AGAINST REVISIONAL ORDERS PASSED U/S 263 OF T HE ACT FOR FIVE YEARS STAND DISMISSED, HAVING BECOME INFRUCTUOUS IN OUR ABOVE FINDING ON MERITS. ORDER PRONOUNCED IN THE COURT 20 TH MAY 2011. SD/- SD/- ( DR.O.K.NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER CHENNAI : 20 TH MAY, 2011 VL. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR