Shri K.P. Ummer, Thrissur V. DCIT, Thrissur

ITA 191/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64983 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 13-09-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 16-03-2011
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Assessee Lawyers: T M SREEDHARAN
• Keywords: Unexplained investment; Gift; Business income; Depreciation; Search and seizure; Opportunity of being heard; Valuation report; Block assessment; Onus to prove
• Section: 143(3); 153A; 68; 132; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 190-196/COCH/2011 ASSESSMENT YEARS : 2002-03 TO 2008-09 K.P. UMMER, PROP: STAR RE-ROLLING MILL, KALLADIPATTA, PATTAMBI. [PAN: AAFPU 8060P] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, TRICHUR. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI T.M. SREEDHARAN, SR. ADV. REVENUE BY MS. A.S. BINDHU, SR. DR DATE OF HEARING 13/09/2012 DATE OF PRONOUNCEMENT 30/11/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEALS OF THE ASSESSEE ARE DIRECTED AGAIN ST THE ORDERS PASSED BY THE LD. CIT(A)-I, KOCHI AND THEY RELATE TO THE ASSESSMENT Y EARS 2002-03 TO 2008-09. SINCE MOST OF THE ISSUES URGED IN THESE APPEALS ARE IDENT ICAL IN NATURE AND ALSO ARISING OUT OF COMMON SET OF FACTS, THESE APPEALS WERE HEARD TOGET HER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BEFORE PROCEEDING TO THE SPECIFIC ISSUES, WE FEE L IT PERTINENT TO DISCUSS THE FACTS OF THE CASE IN BRIEF. THE ASSESSEE IS THE OWNER OF THREE BUSINESS UNITS NAMED M/S. STAR RE-ROLLING MILL, M/S. NEW STAR STEELS AND M/S. SHAM EENA WEIGH BRIDGE. HE IS ALSO THE MANAGING DIRECTOR OF A CLOSELY HELD COMPANY NAMED M /S. SOUTH MALABAR STEELS AND ALLOYS PVT. LTD. THE DEPARTMENT CARRIED OUT SEARCH AND SEIZURE OPERATION IN THE HANDS OF THE ASSESSEE ON 06-09-2007. CONSEQUENTLY, THE AS SESSING OFFICER FRAMED ASSESSMENTS U/S. 153A OF THE ACT FOR THE YEARS UNDE R CONSIDERATION BY MAKING VARIOUS I.T.A. NOS. 190-196/COCH/2011 2 ADDITIONS (YEAR OF SEARCH PLUS SIX EARLIER ASSESSME NT YEARS). THE ASSESSEE CHALLENGED THE SAID ASSESSMENT ORDERS BEFORE THE LD. CIT(A) BU T COULD GET ONLY PARTIAL RELIEF. HENCE HE HAS PREFERRED THESE APPEALS BEFORE US SEEK ING FURTHER RELIEF. 3. THE VARIOUS TYPES OF ADDITIONS MADE BY THE ASSES SING OFFICER AND WHICH ARE BEING CONTESTED BEFORE US CAN BE GROUPED UNDER THE FOLLOWING HEADS: I) SUPPRESSION OF BUSINESS INCOME. II) GIFTS/LOANS FROM RELATIVES. III) GIFTS/LOANS FROM FRIENDS. IV) DEFICIENCIES IN CASH FLOW STATEMENT. V) ADDITION TOWARDS SALE OF TREES. VI) FOREIGN TRAVEL EXPENSES. VII) VALUATION OF HOUSE PROPERTY. VIII) AMOUNT RECEIVED FROM SON. 4. BEFORE PROCEEDING TO ADJUDICATE THE ISSUES RAISE D, WE FEEL IT PERTINENT TO DISCUSS ABOUT THE SCOPE OF ASSESSMENT U/S 153A OF THE ACT, SINCE THE ASSESSING OFFICER HAS FRAMED THE ASSESSMENTS UNDER THAT SECTION CONSEQUEN T TO THE SEARCH AND SEIZURE OPERATIONS CONDUCTED IN THE HANDS OF THE ASSESSEE O N 06-09-2007. AS PER THE PROVISIONS OF SEC. 153A OF THE ACT, THE AO IS REQUI RED TO ASSESS OR REASSESS THE TOTAL INCOME OF SIX ASSESSMENT YEARS IMMEDIATELY PRECEDIN G THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH SEARCH IS CONDUCTED . IN THE INSTANT CASE, SINCE THE SEARCH TOOK PLACE ON 06-09-2007, THE AO HAS ISSUED NOTICE U/S 153A OF THE ACT FOR THE ASSESSMENT YEARS 2002-03 TO 2008-09. FURTHER, AS P ER THE SECOND PROVISO TO SEC 153A(1), THE ASSESSMENT OR REASSESSMENT, IF ANY, RE LATING TO ANY ASSESSMENT YEAR FALLING WITHIN THE PERIOD OF SIX ASSESSMENT YEARS R EFERRED ABOVE PENDING ON THE DATE OF INITIATION OF THE SEARCH SHALL ABATE. THUS, THIS P ROVISO BIFURCATES THE SEVEN ASSESSMENT YEARS (YEAR OF SEARCH PLUS SIX EARLIER ASSESSMENT Y EARS) INTO TWO CATEGORIES VIZ., CONCLUDED ASSESSMENTS AND PENDING ASSESSMENTS. ALL THE PENDING ASSESSMENTS SHALL ABATE; MEANING THEREBY THE ASSESSING OFFICER IS ENTITLED TO EXAMINE ALL THE ASPECTS, VIZ., THOSE ITEMS WHICH HAVE ALREADY BEEN DISCLOSED TO THE DEPARTMENT PRIOR TO THE DATE I.T.A. NOS. 190-196/COCH/2011 3 OF SEARCH OR ALREADY BEEN RECORDED IN THE BOOKS OF ACCOUNT PRIOR TO THE DATE OF SEARCH AND ALSO THOSE ITEMS EMANATING FROM THE INCRIMINATI NG MATERIALS SEIZED DURING THE COURSE OF SEARCH ETC. IN THE ASSESSMENT PROCEEDINGS CARRIED OUT U/S 153A OF THE ACT. THE CONCLUDED ASSESSMENTS SHALL NOT ABATE, EVEN THO UGH SUCH CONCLUDED ASSESSMENTS ARE REOPENED BY OPERATION OF THE PROVISIONS OF SEC. 153A OF THE ACT. IN THAT KIND OF SITUATION, THE QUESTION THAT ARISES IS WHETHER TH E LD CIT(A) IS ENTITLED TO EXAMINE ALL THE ASPECTS AS NARRATED ABOVE AS IN THE CASE OF PEN DING ASSESSMENTS WHICH GOT ABATED. THIS BENCH OF THE TRIBUNAL HAD AN OCCASION TO CONSI DER ABOUT THE SCOPE OF ASSESSMENT IN THE CASE OF CONCLUDED ASSESSMENTS IN THE CASE OF DR. P. SASIKUMAR IN I.T.A. NO.252 TO 257/COCH/2011 AND 368 TO 274/COCH/2011 AND THE T RIBUNAL, VIDE ITS ORDER DATED 29- 06-2012, HAS HELD AS UNDER:- THUS, WE NOTICE THAT VARIOUS CO-ORDINATE BENCHES H AVE TAKEN THE VIEW THAT THE COMPLETED ASSESSMENTS SHALL NOT ABATE AND ONLY THE ASSESSMENTS OR REASSESSMENTS RELATING TO ANY OF THE SIX ASSESSMEN T YEARS, WHICH ARE PENDING ON THE DATE OF INITIATION OF SEARCH, SHALL ABATE. FU RTHER IT HAS BEEN HELD THAT THE COMPLETED ASSESSMENTS, THOUGH AUTOMATICALLY REOPEN ED AS PER THE PROVISIONS OF SEC. 153A, YET THEY CAN BE DISTURBED ONLY IN RESPE CT OF THOSE ISSUES FOR WHICH SOME INCRIMINATING MATERIALS REQUIRING SUCH DISTUR BANCE IS UNEARTHED DURING THE COURSE OF SEARCH PROCEEDING. SINCE MAJORITY BENCH ES HAVE TAKEN THE ABOVE SAID VIEW IN A CONSISTENT MANNER, WE ARE ALSO INCLINED TO TAKE THE SAME VIEW DISCUSSED ABOVE. HOWEVER, WE FEEL IT PERTINENT TO EXPRESS THE VIEW THAT IF THE AO FINDS OUT ANY DEFECT ON ANY ISSUE IN RESPECT OF THE PENDING ASSESSMENTS WHICH GOT ABATED AND SUCH KIND OF ISSUES ARE ALSO AVAILABLE IN OTHER ASSESSMENTS, WHICH HAVE ALREADY BEEN COMPLETED AND DID NOT ABATE, THEN IN OUR VIEW, THE AO IS ENTITLED TO EXAMINE THOSE ISSUES I N THOSE YEARS ALSO, IN ORDER TO FIND OUT WHETHER SIMILAR DEFECTS EXIST IN THOSE YE ARS OR NOT. IN SUCH A SITUATION, IN OUR VIEW, IT IS NOT NECESSARY TO SATISFY THE CO NDITION THAT SOME INCRIMINATING MATERIALS CONCERNING TO THOSE ISSUES SHOULD HAVE N ECESSARILY BEEN FOUND OUT IN RESPECT OF THOSE ASSESSMENT YEARS. 5. THE ABOVE SAID VIEW HAS SINCE BEEN CONFIRMED BY THE MUMBAI SPECIAL BENCH IN THE CASE OF AIR CARGO GLOBAL LOGISTICS VS. DCIT (13 7 ITD 287). THIS TRIBUNAL AS WELL AS THE SPECIAL BENCH HAS HELD THAT THE ASSESSMENT OF A PARTICULAR ASSESSMENT YEAR SHALL BE DEEMED TO HAVE BEEN CONCLUDED, IF THE NOTICE REQUIR ED TO BE ISSUED U/S 143(2) OF THE ACT WAS NOT ISSUED FOR THAT YEAR AND THE TIME LIMIT PRESCRIBED FOR ISSUING THE SAME HAS ALSO EXPIRED AS ON THE DATE OF INITIATION OF SEARCH . I.T.A. NOS. 190-196/COCH/2011 4 6. BY CONSIDERING THE LEGAL POSITION DISCUSSED ABOVE, WE SHALL FIRST BIFURCATE THE IMPUGNED ASSESSMENT YEARS INTO CONCLUDED ASSESSMEN TS AND PENDING ASSESSMENTS, SO THAT IT WOULD BE EASY FOR US TO ADJUDICATE THE I SSUES CONTENDED BEFORE US. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSE E HAD FURNISHED RETURNS OF INCOME FOR THE ASSESSMENT YEARS 2002-03 TO 2006-07 PRIOR TO TH E DATE OF INITIATION OF SEARCH. THE SAID RETURNS HAVE NOT BEEN TAKEN UP FOR SCRUTINY U/ S 143(3) OF THE ACT AND THE TIME LIMIT FOR ISSUING NOTICE U/S 143(2) HAS ALSO EXPIRED FOR THE ASSESSMENT YEARS 2002-03 TO 2005-06. FOR THE SAKE OF CONVENIENCE, WE EXTRACT B ELOW THE DETAILS RELATING TO DATE OF FILING OF RETURN AND DUE DATE FOR ISSUE OF NOTICE U NDER SEC. 143(2) OF THE ACT: A.Y. DATE OF FILING OF RETURN DUE DATE FOR ISSUE OF NOTICE U/S. 143(2) 2002-2003 31-12-2002 31-12-2003 2003-2004 30-11-2003 30-11-2004 2004-2005 01-11-2004 01-11-2005 2005-2006 30-11-2005 30-11-2006 2006-07 27-04-2007 SEARCH CONDUCTED ON 06.9.2007, W ITHIN THE DUE DATE FOR ISSUING NOTICE U/S 143(2). SINCE THE DUE DATE FOR ISSUING NOTICE U/S. 143(2) O F THE ACT HAS EXPIRED IN RESPECT OF THE ASSESSMENT YEARS 2002-03 TO 2005-06, THE ASSESSMENT S PERTAINING TO THESE YEARS ARE DEEMED TO HAVE BEEN CONCLUDED AS ON THE DATE OF INI TIATION OF SEARCH. HENCE, ACCORDING TO THE DECISION RENDERED BY THE SPECIAL B ENCH, SUCH ASSESSMENTS CAN BE DISTURBED ONLY IF ANY INCRIMINATING MATERIAL RELATI NG TO THAT YEAR OR RELEVANT TO THE ITEMS OF INCOME DISCLOSED THEREIN IS FOUND DURING THE COU RSE OF SEARCH. IN THE CASE OF DR. P. SASIKUMAR (SUPRA), THIS BENCH OF THE TRIBUNAL HAS A LSO HELD AS UNDER IN RESPECT OF COMMON ITEMS AFFECTING THE COMPUTATION OF INCOME. IF THE AO FINDS OUT ANY DEFECT ON ANY ISSUE IN RE SPECT OF THE PENDING ASSESSMENTS WHICH GOT ABATED AND SUCH KIND OF ISSU ES ARE ALSO AVAILABLE IN OTHER ASSESSMENTS, WHICH HAVE ALREADY BEEN COMPLETED AND DID NOT ABATE, THEN IN OUR VIEW, THE AO IS ENTITLED TO EXAMINE THOSE ISSUES IN THOSE YEARS ALSO, IN ORDER TO FIND OUT WHETHER SIMILAR DEFECTS EXIST IN THOSE YEA RS OR NOT. IN SUCH A SITUATION, IN OUR VIEW, IT IS NOT NECESSARY TO SATISFY THE CON DITION THAT SOME INCRIMINATING MATERIALS CONCERNING TO THOSE ISSUES SHOULD HAVE NE CESSARILY BEEN FOUND OUT IN RESPECT OF THOSE ASSESSMENT YEARS. I.T.A. NOS. 190-196/COCH/2011 5 BY TAKING INTO ACCOUNT THE FACTUAL AND LEGAL POSITI ON DISCUSSED IN THE PRECEDING PARAGRAPHS, WE SHALL PROCEED TO EXAMINE THE VARIOUS TYPES OF ADDITIONS MADE BY THE ASSESSING OFFICER. 6.1 THE LD A.R CONTENDED THAT THE ASSESSMENT PE RTAINING TO THE ASSESSMENT YEAR 2006-07 SHOULD ALSO BE CONSIDERED AS CONCLUDED, SIN CE THE NOTICE U/S 153A WAS ISSUED AFTER 12 MONTHS FROM THE DATE OF FILING OF RETURN O F INCOME OF THAT YEAR. HOWEVER, WE ARE UNABLE TO AGREE WITH HIS CONTENTIONS. THE FACT REMAINS THAT THE ASSESSMENT OF THAT YEAR WAS PENDING ON THE DATE OF INITIATION OF THE S EARCH AND HENCE IT SHALL ABATE BY VIRTUE OF PROVISIONS OF SEC. 153A AFTER THE INITIAT ION OF SEARCH. HENCE THE ASSESSMENT OF THAT YEAR HAS TO NECESSARILY BE COMPLETED AS PER TH E PROVISIONS OF SEC. 153A OF THE ACT. 7. THE FIRST ISSUE LISTED IN PARAGRAPH 4 SUPRA RELATES TO THE SUPPRESSION OF BUSINESS INCOME. FROM THE ORDERS OF TAX AUTHORITIES, WE NOT ICE THAT THIS ADDITION IS MADE IN ALL THE YEARS UNDER CONSIDERATION. HENCE, WE WOULD LIK E TO ADDRESS THIS ISSUE AS LAST ITEM. 8. WE SHALL NOW TAKE UP THE ISSUE RELATING TO THE A DDITION OF GIFTS/LOANS RECEIVED FROM RELATIVES. THE ASSESSING OFFICER HAS MADE ADDI TIONS ON THIS ACCOUNT IN THE FOLLOWING ASSESSMENT YEARS. ASST. YEAR AMOUNT OF ADDITION 2002-03 RS.13,18,500/- 2003-04 RS. 10,000/- 2006-07 RS.16,78,000/- 2008-09 RS. 3,00,000/- THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH ESE GIFTS/LOANS FROM RELATIVES WERE DISCLOSED BY THE ASSESSEE IN THE RETURN OF INCOME F ILED BY HIM. AS PER THE LEGAL POSITION DISCUSSED ABOVE, THE ADDITIONS MADE BY THE ASSESSIN G OFFICER FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04 SHALL NOT SURVIVE AS THE DEPART MENT DID NOT FIND ANY INCRIMINATING MATERIAL TO CREATE ANY DOUBT ABOUT THE GENUINENESS OF THE SAME. HENCE THE ADDITION OF RS.13,18,500/- MADE IN THE ASSESSMENT YEAR 2002-03 AND THE ADDITION OF RS.10,000/- I.T.A. NOS. 190-196/COCH/2011 6 MADE IN THE ASSESSMENT YEAR 2003-04 ARE LIABLE TO B E DELETED. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE I N THE ASSESSMENT YEAR 2002-03 AND 2003-04 AND DIRECT THE AO 8.1 WITH REGARD TO THE ADDITIONS MADE IN THE AS SESSMENT YEARS 2006-07 AND 2008- 09, WE NOTICE FROM THE ASSESSMENT ORDER THAT THE AS SESSING OFFICER DID NOT DISCUSS ANYTHING ABOUT THE MATERIALS OR DOCUMENTS THAT WERE FILED BY THE ASSESSEE TO PROVE THE GENUINENESS OF THE GIFTS/LOANS RECEIVED FROM RELATI VES. THE LD. CIT(A) HAS ALSO CONFIRMED THE SAID ADDITIONS WITHOUT ACTUALLY EXAMI NING OR COMMENTING UPON THE DOCUMENTS FILED BY THE ASSESSEE. THERE SHOULD NOT B E ANY DISPUTE THAT THE ASSESSMENT ORDER/APPELLATE ORDER, BEING JUDICIAL ORDERS, SHOUL D SPEAK ABOUT THE DETAILS OF EXAMINATION CARRIED OUT BY THE TAX AUTHORITIES, VIZ ., THE DETAILS OF DOCUMENTS FILED BY THE ASSESSEE, DEFECTS NOTICED IN THE SAID DOCUMENTS AND WHETHER THE ASSESSEE CAN BE SAID TO HAVE DISCHARGED THE BURDEN OF PROOF PLACED ON HI M U/S. 68 OF THE ACT OR NOT VIS-A-VIS THE DOCUMENTS FILED. IN THE INSTANT CASE, THE ORDE RS OF TAX AUTHORITIES DO NOT SPEAK ABOUT THE OBJECTIVE ANALYSIS, IF ANY, CARRIED ON BY THEM ON THE DOCUMENTS FILED BY THE ASSESSEE. BEFORE US, THE ASSESSEE HAS FILED A PAPE R BOOK CONSISTING OF THE CONFIRMATION LETTERS OBTAINED FROM THE DONORS/LENDERS ALONG WITH THE DETAILS OF BANK ACCOUNT, ETC. OF THE CONCERNED DONOR/LENDER AND ACCORDING TO THE ASS ESSEE; THESE DETAILS WERE ALSO FILED BEFORE THE TAX AUTHORITIES. ACCORDINGLY, IN OUR VI EW, THIS ISSUE OF LOANS/GIFTS RECEIVED FROM RELATIVES REQUIRES FRESH EXAMINATION AT THE EN D OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE L D. CIT(A) ON THIS ISSUE FOR THE ASSESSMENT YEARS 2006-07 AND 2008-09 AND RESTORE TH E MATTERS RELATING THERETO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMIN E THE DOCUMENTS FILED BY THE ASSESSEE IN OBJECTIVE MANNER AND DECIDE THE SAME I N ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. THE ASSESSEE IS FREE TO ADDUCE ANY OTHER EVIDENCE OR INFORMATION OR EXPLANA TION BEFORE THE AO. 9. WE SHALL NOW TAKE UP THE ISSUE RELATING TO AD DITION OF LOANS/GIFTS RECEIVED FROM FRIENDS. THE ASSESSING OFFICER HAS GIVEN DETAILS O F GIFTS/LOANS RECEIVED FROM FRIENDS AT PAGE 12 OF THE ASSESSMENT ORDER AS UNDER:- I.T.A. NOS. 190-196/COCH/2011 7 S.NO. A.Y. NAME OF CREDITOR NATURE OF CREDIT CREDIT IN AMOUNT 1. 2002-03 SIDDIQUE LOAN BALANCE SHEET 211250 4. T. MOHAMMED LOAN BALANCE SHEET 153000 5. K.K.ALI GIFT CASH FLOW 300000 6. V.K. ABDUL JABBAR GIFT CASH FLOW 150000 7. 2003-04 V.P. MOHAMMED GIFT CASH FLOW 268000 8. V.ABUBACKER GIFT CASH FLOW 474000 9 ABDU REHMAN GIFT CASH FLOW 150000 11. M. ABU BACKER GIFT CASH FLOW 178010 12 2004-05 V. ABUBACKER GIFT CASH FLOW 64500 13. K.P. ALI GIFT CASH FLOW 100000 16. V.K. ABDUL JABBAR GIFT CASH FLOW 300000 18. SAINUL ABID GIFT CASH FLOW 50000 ALL THESE AMOUNTS HAVE BEEN ASSESSED IN THE ASSESSM ENT YEARS 2002-03 TO 2004-05. WE HAVE ALREADY NOTICED THAT THESE ASSESSMENT YEARS FALL IN THE CATEGORY OF CONCLUDED ASSESSMENTS. FROM THE ABOVE SAID TABLE, WE NOTICE T HAT THE AMOUNTS RECEIVED FROM SHRI SIDDIQUE AND SHRI T. MOHAMMED FIND PLACE IN THE BAL ANCE SHEET FILED BY THE ASSESSEE AND OTHER GIFTS FIND PLACE ONLY IN THE CASH FLOW ST ATEMENT. IT IS NOT CLEAR AS TO WHETHER THE CASH FLOW STATEMENTS WERE FILED ALONG WITH THE RETURNS OF INCOME ORIGINALLY FILED U/S 139 OF THE ACT OR THEY WERE FILED ALONG WITH THE RE TURNS FILED U/S. 153A OF THE ACT. WE HAVE ALREADY STATED THAT THE ITEMS, WHICH HAVE ALRE ADY BEEN DISCLOSED IN THE CONCLUDED ASSESSMENTS PRIOR TO THE DATE OF INITIATION OF SEAR CH, CAN BE DISTURBED ONLY IF ANY INCRIMINATING MATERIAL RELATING THERETO IS FOUND DU RING THE COURSE OF SEARCH. ACCORDINGLY, IN RESPECT OF LOANS/GIFTS RECEIVED FRO M FRIENDS, THE ITEMS WHICH HAVE ALREADY BEEN DISCLOSED IN THE ORIGINAL RETURN OF IN COME SHALL FALL OUTSIDE THE SCOPE OF ASSESSMENTS U/S. 153A OF THE ACT, IF NO INCRIMINATI NG MATERIAL RELATING THERETO WAS FOUND DURING THE COURSE OF SEARCH. ON THE OTHER HAN D, IF ANY OF THE AMOUNT IS DISCLOSED FOR THE FIRST TIME IN THE RETURNS OF INCOME FILED U /S. 153A OF THE ACT EITHER IN THE BALANCE SHEET OR IN THE CASH FLOW STATEMENT, IT IS SUSCEPTI BLE FOR VERIFICATION IN THE ASSESSMENT PROCEEDING CARRIED OUT U/S 153A OF THE ACT, EVEN IF THE CONCERNED ASSESSMENT FALLS IN THE CATEGORY OF CONCLUDED ASSESSMENTS. HENCE, THE FACTS RELATING TO THE ITEMS LISTED IN THE TABLE EXTRACTED ABOVE REQUIRES VERIFICATION IN ORDER TO FIND OUT THE FACT OF TIME OF I.T.A. NOS. 190-196/COCH/2011 8 DISCLOSURE, I.E., WHETHER THEY HAVE ALREADY BEEN DI SCLOSED TO THE DEPARTMENT IN THE RETURN OF INCOME FILED U/S 139 OF THE ACT PRIOR TO THE DATE OF INITIATION OF SEARCH OR NOT. AS IN THE CASE OF GIFTS/LOANS RECEIVED FROM RELATIV ES, THE TAX AUTHORITIES HAVE NOT MADE AN OBJECTIVE EXAMINATION OF THE VARIOUS DOCUMENTS F ILED BY THE ASSESSEE. ACCORDINGLY, IN OUR VIEW, THIS ISSUE OF LOANS/GIFTS RECEIVED FRO M FRIENDS REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE ABOUT THE SCOPE OF EXAMINATION OF THESE I TEMS AS PER THE DISCUSSIONS MADE SUPRA AND IF ANY OF THE ITEMS OF RECEIPT IS SUSCEPT IBLE FOR VERIFICATION, THEN EXAMINE THE DOCUMENTS RELATING THERETO FILED BY THE ASSESSEE I N AN OBJECTIVE MANNER AND DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER AFFORDING NECESSA RY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IS FREE TO ADDUCE ANY O THER EVIDENCE OR INFORMATION OR EXPLANATION BEFORE THE AO. 10. THE NEXT ISSUE RELATES TO THE ADDITION PERT AINING TO DISCREPANCY/DEFICIENCY IN CASH FLOW. THE ASSESSEE OWNED TWO VEHICLES AND TH E INCOME THERE FROM WAS OFFERED BY HIM AS PER THE PROVISIONS OF SEC. 44AE OF THE ACT . IT IS PERTINENT TO NOTE THAT THE PROVISIONS OF SEC. 44AE PROVIDES FOR AD-HOC ESTIMATI ON OF INCOME AND IT IS FURTHER PROVIDED THEREIN THAT ANY DEDUCTION ALLOWABLE UNDER THE PROVISIONS OF SEC. 30 TO 38 SHALL BE DEEMED TO HAVE ALREADY BEEN GIVEN FULL EFF ECT TO AND NO FURTHER DEDUCTION UNDER THOSE SECTIONS SHALL BE ALLOWED. IN THE CASH FLOW STATEMENT, THE ASSESSEE DISCLOSED THE DEPRECIATION ALLOWABLE ON THE TWO VEH ICLES AS CASH INFLOW IN ALL THE YEARS UNDER CONSIDERATION AS DETAILED BELOW:- A.Y. AMOUNT (RS.) 2002-03 107742 2003-04 64645 2004-05 38787 2005-06 208121 2006-07 124872 2007-08 180693 I.T.A. NOS. 190-196/COCH/2011 9 2008-09 126485 THE AO TOOK THE VIEW THAT THE DEPRECIATION, BEING A NOTIONAL CLAIM, CANNOT BE INCLUDED IN THE CASH FLOW. ACCORDINGLY, HE REJECTED THE CLA IM OF CASH INFLOW ON ACCOUNT OF DEPRECIATION AND ALSO ASSESSED THE SAME IN ALL THE YEARS UNDER THE CAPTION DEFICIENCY/DISCREPANCY IN CASH FLOW. THE LD CIT( A) ALSO CONFIRMED THE ADDITION BY ACCEPTING THE VIEW EXPRESSED BY THE ASSESSING OFFIC ER. 10.1 IN OUR VIEW, THE TAX AUTHORITIES HAVE MADE THE ASSESSMENT OF THE DEPRECIATION AMOUNT WITHOUT PROPERLY APPRECIATING THE ACCOUNTIN G PRINCIPLES. AS RIGHTLY POINTED OUT BY THE AO, THE DEPRECIATION IS A NOTIONAL CLAIM. T HOUGH IT IS CLAIMED AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT, IT DOES NOT RESULT IN OUTFLOW OF CASH. WE SHALL EXPLAIN THE SAME WITH AN EXAMPLE. LET US ASSUME THAT THE NET P ROFIT DECLARED BY CONCERN A IS RS.10.00 LAKHS AFTER CLAIMING DEPRECIATION OF RS.2. 00 LAKHS. WE SHALL ALSO ASSUME THAT ALL THE TRADING ACTIVITIES ARE CARRIED OUT ON CASH BASIS. THE QUESTION, WHICH WE POSE IS HOW MUCH CASH WAS GENERATED BY CONCERN A ON ACCO UNT OF ITS OPERATIONAL ACTIVITIES? THE TAX AUTHORITIES PRESUME THAT THE CASH GENERATION WOULD BE EQUIVALENT TO THE NET PROFIT DECLARED. ACCORDING TO THEIR PRE SUMPTION, CONCERN A WOULD HAVE GENERATED CASH INFLOW OF RS.10.00 LAKHS. HOWEVER, THE AO HIMSELF HAS POINTED OUT THAT THE DEPRECIATION IS A NOTIONAL CLAIM AND HENCE IT DOES NOT RESULT IN ANY CASH OUT FLOW. ACCORDINGLY, THE NET CASH INFLOW DUE TO OPERATIONAL ACTIVITIES WOULD BE RS.12.00 LAKHS. (NET PROFIT OF RS.10.00 LAKHS PLUS DEPRECIATION CLA IM OF RS.2.00 LAKHS). IN THE INSTANT CASE, THOUGH THE ASSESSEE HAS DECLARED INCOME FROM VEHICLES U/S 44AE OF THE ACT, THE RELEVANT SECTION CLEARLY STATES THAT THE DEPRECIATI ON SHALL BE DEEMED TO HAVE BEEN ALLOWED. HENCE, BY FOLLOWING THE ILLUSTRATION GIVE N ABOVE, THE NET CASH INFLOW FROM THE OPERATION OF VEHICLES WOULD BE THE AMOUNT OF INCOME COMPUTED AS PER THE PROVISIONS OF SEC.44AE OF THE ACT PLUS THE DEPRECIATION ALLOWABLE ON THOSE VEHICLES. HENCE, IN OUR VIEW, THE ASSESSEE WAS RIGHT AS PER THE ACCOUNTING PRINCIPLES IN TREATING THE DEPRECIATION AMOUNT AS AN ITEM OF CASH INFLOW. ACC ORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE IN ALL THE YEARS AND DIRECT THE AO TO DELETE THE ADDITION MADE ON THIS ISSUE IN ALL THE YEARS. I.T.A. NOS. 190-196/COCH/2011 10 11. THE NEXT ISSUE RELATES TO THE ADDITION OF R S.75,000/- RELATING TO SALE OF TREES MADE IN THE ASSESSMENT YEAR 2002-03. AS PER THE AS SESSEE, THIS INCOME WAS DECLARED BY HIM IN THE ORIGINAL RETURN OF INCOME FILED U/S 1 39 OF THE ACT PRIOR TO THE DATE OF SEARCH. IT IS ALSO STATED THAT THE DEPARTMENT DID NOT UNEARTH ANY MATERIAL TO CREATE ANY SUSPICION OVER THE SAID INCOME. UNDER THESE CIRCUM STANCES, THIS ITEM OF INCOME FALLS OUTSIDE THE SCOPE OF THE PROVISIONS OF SEC. 153A. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION RELATING THERETO. 12. THE NEXT ISSUE RELATES TO THE ADDITION PERT AINING TO FOREIGN TRAVEL EXPENSES. THOUGH THE PASS PORT OF THE ASSESSEE REVEALED THAT HE HAD UNDERTAKEN FOREIGN TOURS, YET IT WAS SEEN THAT THE EXPENSES RELATING THERETO WERE NOT ACCOUNTED FOR. ACCORDINGLY, THE AO GATHERED THE DETAILS OF RATES OF AIR TRAVEL FROM RECOGNISED TRAVEL AGENCIES AND MADE THE ADDITION IN ASSESSMENT YEARS 2003-04, 2005 -06, 2006-07, 2007-08 AND 2008- 09 AND ADDED THE SAME TO THE INCOME OF THE RESPECTI VE ASSESSMENT YEARS. THE CONTENTION OF THE ASSESSEE THAT THE EXPENSES WERE S PONSORED BY OTHERS DID NOT FIND FAVOUR WITH THE AO. THE LD CIT(A) AGREED WITH THE VIEWS EXPRESSED BY THE AO. HOWEVER, THE LD CIT(A) NOTICED THAT THE AO HAD COMM ITTED CERTAIN ERRORS IN COMPUTING THE AMOUNT OF DISALLOWANCE. ACCORDINGLY, THE FIRST APPELLATE AUTHORITY ENHANCED THE EXPENDITURE FIGURES FOR ALL THE YEARS. THE DETAILS OF EXPENSES DISALLOWED BY THE AO AND LD CIT(A) ARE GIVEN BELOW:- ASST. YEAR ASSESSING OFFICER CIT(A) 2003-04 8,000 47,000 2005-06 8,000 47,000 2006-07 24,000 96,000 2007-08 27,000 1,62,000 2008-09 27,000 1,62,000 12.1 THOUGH THE ASSESSEE HAS DISPUTED THESE ADDIT IONS BEFORE US, YET NO MATERIAL WAS FILED BEFORE US TO SUBSTANTIATE HIS CLAIM THAT THE RELEVANT EXPENSES WERE SPONSORED BY OTHERS. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE DECISIONS TAKEN BY LD CIT(A) IN ALL THESE YEARS. I.T.A. NOS. 190-196/COCH/2011 11 13. THE NEXT ISSUE RELATES TO THE ADDITION MADE ON ACCOUNT OF DIFFERENCE IN VALUATION OF HOUSE PROPERTY. THE DIFFERENCE IN THE VALUATION OF BUILDING IS ADDED IN THE ASSESSMENT YEARS 2006-07, 2007-08 AND 2008-09. DURI NG THE COURSE OF HEARING, THE LD A.R POINTED OUT THAT THE ADDITIONS HAVE BEEN MADE O N THE BASIS OF VALUATION REPORT PREPARED BY THE DVO BY ADOPTING CPWD RATES. HE FUR THER SUBMITTED THAT THE HONBLE JURISDICTIONAL HIGH COURT HAS EXPRESSED THE VIEW TH AT THE VALUATION OF CONSTRUCTIONS HAS TO BE MADE BY ADOPTING STATE PWD RATES. THOUGH THE LD D.R AGREED WITH THE FACT ABOUT THE DECISION OF HONBLE KERALA HIGH COURT, YE T SHE SUBMITTED THAT THE CPWD RATES GIVE MORE REALISTIC ESTIMATE. BOTH THE PARTIES COU LD NOT READILY SUBMIT A COPY OF THE ORDER OF THE HONBLE KERALA HIGH COURT. THERE SHOU LD NOT BE ANY DISPUTE THAT THE TRIBUNAL AS WELL AS THE TAX AUTHORITIES ARE BOUND B Y THE DECISION RENDERED BY THE JURISDICTIONAL HIGH COURT. SINCE THE DVO HAS VALUE D THE HOUSE PROPERTY BY ADOPTING CPWD RATES, THE SAID VALUATION GOES AGAINST THE DEC ISION RENDERED BY THE JURISDICTIONAL HIGH COURT. FURTHER THE LD A.R POINTED OUT THAT TH E AO DID NOT CONSIDER THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE SUBSEQU ENT YEARS AND THE PERIOD OF CONSTRUCTION ADOPTED BY HIM IS ALSO WRONG. HE FURT HER POINTED OUT THAT THE DVO DID NOT ALLOW ANY DEDUCTION TOWARDS SELF SUPERVISION. HE A LSO POINTED OUT THAT THE AO DID NOT CONSIDER THE PRINCIPLES LAID DOWN IN THE FOLLOWING DECISIONS:- (A) (1989)(31 ITD (COCH) 77 : UPASANA HOSPITAL AN D NURSING HOME VS. ITO (B) 258 ITR 714 (MAD) : A. ABDUL RAHIM VS. ITO (C) 303 ITR 128 (RAJ) : SMT PREM KUMARI MUDRIA V S. ACIT (D) 257 ITR (AT) 65 (HYD) : ACIT VS. VINOD KUMAR AGARWAL (E) 265 ITR 344 (RAJ) : CIT VS. DINESH TALWAR (F) 259 ITR 232 (RAJ) CIT VS. ELEGANT HOMES (P) LTD. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THIS ISSUE NEEDS EXAMINATION AFRESH, AS IT IS NOT IN ACCORDANCE WITH THE DECISION OF JURISDICTIONAL HIGH COURT. FURTHER THE ASSESSEE IS AGGRIEVED ON VARIOU S POINTS AND THEY HAVE NOT BEEN ADDRESSED BY THE AO. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE IN THE THREE YEARS MENTIONED ABOVE AND RESTORE THEM TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE SAME AFRESH IN ACCORDANCE WITH THE DECISION OF JURISDICTIONAL HIGH COURT AND LAW AND TAKE APPROPRIATE DECISION, A FTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD. I.T.A. NOS. 190-196/COCH/2011 12 14. THE NEXT ISSUE PERTAINS TO THE AMOUNT RECEI VED FROM THE SON OF THE ASSESSEE. THE ASSESSEE CLAIMED TO HAVE RECEIVED AMOUNTS TO TH E EXTENT OF RS.1,20,00,000/- DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSME NT YEAR 2007-08 AND RS.47,21,000/- DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 200 8-09 FROM HIS SON NAMED SHRI MOHAMMED SHERIFF. THE AO NOTICED THAT THE AGE OF M OHAMMED SHERIFF WAS BARELY 21 YEARS AT THE TIME OF SEARCH AND HE HAS STUDIED UP T O 12 TH STANDARD ONLY. THE ASSESSEE CLAIMED THAT THE FUNDS WERE ORIGINALLY TRANSFERRED BY SHRI MOHAMMED SHERIFF TO HIS NRE ACCOUNT MAINTAINED IN INDIA AND THEN GIVEN THE AMOU NT TO THE ASSESSEE FROM THE SAID NRE ACCOUNT. THE ASSESSEE ALSO FILED CONFIRMATION L ETTERS OBTAINED FROM SHRI MOHAMMED SHERIFF. THE SOURCES FOR THE SAID FUNDS W ERE CLAIMED, INTER ALIA, AS LOANS OBTAINED BY HIM FROM HIS FRIENDS. THE AO DISBELIEV ED THE SAID CLAIMS AND ACCORDINGLY ADDED THE SAME IN THE HANDS OF THE ASSESSEE. THE L D CIT(A) ALSO CONFIRMED THE SAID ADDITIONS. 14.1 HOWEVER, WE NOTICE THAT THE TAX AUTHORITIE S HAVE NOT BROUGHT ON RECORD THE RESULT OF OBJECTIVE ANALYSIS, IF ANY, CARRIED ON BY THEM ON THE DOCUMENTS FILED BEFORE THEM BY THE ASSESSEE. FROM THE PAPER BOOK FILED BY THE ASSESSEE, WE NOTICE THAT THE DOCUMENTS PERTAINING TO THE BUSINESS CARRIED ON BY SHRI MOHAMMED SHERIFF IN ABROAD, THOUGH RELATING TO SUBSEQUENT YEARS, HAVE BEEN FILE D. THE SAID DOCUMENTS REVEAL ABOUT THE SUCCESS OF THE BUSINESS CARRIED ON BY HIM. THO UGH HE WAS OF 21 YEARS OLD AT THE TIME OF SEARCH, YET THE FACT REMAINS THAT HE WAS WO RKING/DOING BUSINESS ABROAD. IN OUR VIEW, THE TAX AUTHORITIES SHOULD NOT TAKE ADVERSE V IEW BY CONSIDERING HIS AGE. WHAT IS REQUIRED TO BE SEEN IS WHETHER HE IS ABLE TO EXPLAI N THE SOURCES FOR THE AMOUNTS GIVEN BY HIM TO HIS FATHER AND THE CREDIBILITY OF THE SOU RCES ALSO NEEDS TO BE EXAMINED. HOWEVER, FROM THE DISCUSSIONS MADE BY THE TAX AUTHO RITIES, WE NOTICE THAT THEY HAVE NOT CARRIED OUT ANY OBJECTIVE ANALYSIS, BUT INSTEAD CARRIED AWAY BY NON-COMPLIANCE OF FORMALITIES UNDER FERA ACT. THE TAX AUTHORITIES HAV E DISCUSSED AT LENGTH ABOUT THE LAW RELATING TO THE REQUIREMENTS FOR PROVING THE CASH C REDITS. HENCE, IN OUR VIEW, THE ADDITION MADE ON THIS ACCOUNT IN ASSESSMENT YEARS 2 006-07 AND 2007-08 REQUIRES FRESH EXAMINATION. ACCORDINGLY, WE SET ASIDE THE ORDER P ASSED BY THE LD. CIT(A) ON THIS ISSUE I.T.A. NOS. 190-196/COCH/2011 13 FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 AND RE STORE THE MATTER RELATING THERETO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE DOCUMENTS FILED BY THE ASSESSEE IN AN OBJECTIVE MANNER AND DECIDE THE SAM E IN ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. THE ASSESSEE IS FREE TO ADDUCE ANY OTHER EVIDENCE OR INFORMATION OR EXPLANA TION BEFORE THE AO. 15. THE LAST ISSUE RELATES TO THE ESTIMATION OF BUSINESS INCOME ON ACCOUNT OF SUPPRESSION OF SALES. IN THE SWORN STATEMENT RECOR DED AT THE TIME OF SEARCH U/S 132(4) OF THE ACT, THE ASSESSEE ADMITTED THAT THERE WAS SU PPRESSION OF PURCHASES AND SALES. HE ADMITTED THAT THE SUPPRESSION OF SALES IS TO THE TUNE OF 8% OF THE SALES. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE AO TOOK COGNIZ ANCE OF THIS CONFESSION. HE ALSO NOTICED THAT THE COMMERCIAL TAX AUTHORITIES HAVE FO UND OUT CERTAIN DEFECTS IN THE UNITS RUN BY THE ASSESSEE. ACCORDINGLY, THE AO REJECTED THE BOOK RESULTS AND PROCEEDED TO COMPUTE THE UNACCOUNTED PRODUCTION ON THE BASIS OF ELECTRICAL UNITS CONSUMED BY THE ASSESSEE. THE AO NOTICED THAT THE AVERAGE POWER CO NSUMPTION PER MT WORKED OUT AS UNDER IN VARIOUS YEARS. ASST YEAR UNITS CONSUMED PRODUCTION AS PER RETURN POWER UNITS PER TONNE 2002-03 549848 540.405 1017.47 2003-04 606676 558.900 1085.48 2004-05 591396 545.850 1083.44 2005-06 591744 388.980 1521.27 2006-07 592972 422.010 1405.15 2007-08 520496 683.105 761.96 2008-09 516052 794.000 649.94 15.1 THE AO NOTICED THAT THE ASSESSEE HAS DISCL OSED LOWEST POWER CONSUMPTION, I.E., 649.94 UNITS PER MT IN THE YEAR RELEVANT TO THE ASS ESSMENT YEAR 2008-09. THE AO CONSIDERED THE SAME AS IDEAL ONE AND TOOK 650 UNITS PER MT AS STANDARD POWER CONSUMPTION FACTOR. BY ADOPTING THE SAME, THE AO COMPUTED THE QUANTUM AND VALUE OF SUPPRESSED PRODUCTION AS UNDER:- I.T.A. NOS. 190-196/COCH/2011 14 ASST YEAR POWER CONSUMPTION AS PER ASSESSEE PRODUCTION @ 650 UNITS PER TONNE PRODUCTION AS PER RETURN DIFFERENCE VALUE/MT VALUE OF THE SUPPRESSED PRODUCTION (A) (B) (C) (D) (E)+- (D) (F) (G)+(E)X(F) 2002-03 549848 845.92 540.405 305.52 13297.17 4062551 2003-04 606676 933.35 558.900 374.45 14374.51 5382535 2004-05 591396 909.84 545.850 363.99 16075.6 585135 7 2005-06 591744 910.37 388.980 488.25 19491.0 951648 1 2006-07 592972 912.26 422.010 490.25 19751.50 9683173 2007-08 520496 800.76 683.105 117.66 14661.00 1725013 2008-09 516052 793.92 794.000 0 0 15.2 THE ASSESSEE HAD DECLARED THE GROSS PROFIT AT THE RATE OF 31% IN THE ASSESSMENT YEAR 2008-09. THE AO CONSIDERED THE SAM E AS THE CORRECT RATE AND APPLIED THE SAME TO THE VALUE OF SUPPRESSED PRODUCTION IN O RDER TO ARRIVE AT THE UNDISCLOSED INCOME FOR ALL THE YEARS. THE WORKINGS GIVEN BY TH E AO IN THIS REGARD ARE EXTRACTED BELOW:- ASSESSMENT YEAR VALUE OF THE SUPPRESSED PRODUCTION (G)+(E)X(F) GROSS PROFIT APPLIED AT THE RATE OF 31%: RS. 2002-03 40,62,551 12,59,390 2003-04 53,82,535 16,68,585 2004-05 58,51,357 18,13,920 2005-06 95,16,481 29,50,109 2006-07 96,83,173 30,01,785 2007-08 17,25,013 534754 2008-09 0 0 THE UNDISCLOSED INCOME SO ARRIVED AT BY HIM WAS ADD ED IN THE RESPECTIVE ASSESSMENT YEARS AS SUPPRESSION OF BUSINESS INCOME. 15.3 BEFORE LD CIT(A), THE ASSESSEE ARGUED AT LEN GTH EXPLAINING THE REASONS FOR VARIATION IN THE QUANTITY OF AVERAGE POWER CONSUMPT ION AS UNDER:- IN THIS CONNECTION, IT IS SUBMITTED THAT THERE IS ABSOLUTELY NO BASIS FOR THE ASSESSING OFFICER TO ESTIMATE UNACCOUNTED PRODUCTIO N, SALE AND PROFIT FOR ANY OF THE YEARS BEGINNING FROM 2003 ONWARDS. IN FACT, TH E ASSESSMENT FOR 2002-03, 2003-04 AND LATER YEARS HAD ALREADY BEEN COMPLETED BASED ON THE BOOKS OF I.T.A. NOS. 190-196/COCH/2011 15 ACCOUNT MAINTAINED AND PRODUCED BEFORE THE ASSESSIN G OFFICER. THE TURNOVER WAS CORRECTLY DECLARED IN THE ACCOUNTS. THE TURNOV ER WAS ALSO CORRECTLY REPORTED IN THE SALES TAX ASSESSMENT WHICH WERE ACCEPTED AND ASSESSMENT COMPLETED. THE PRODUCTION DETAILS WERE ALSO ACCEPTED BY THE CE NTRAL EXCISE AUTHORITIES FOR THE LEVY OF CENTRAL EXCISE DUTIES. THE VERY SAME PO WER CONSUMPTION WAS DECLARED IN THE REGULAR ASSESSMENT MADE UNDER SEC. 143. THERE WAS NO MATERIAL FOUND AT THE TIME OF SEARCH INDICATING ANY SUPPRESS ION OF PRODUCTION, SALE OR PROFIT. JUST BECAUSE OF A SEARCH WAS CONDUCTED ON 6.9.07, THE ASSESSING OFFICER HAS PROCEEDED TO ESTIMATE THE PRODUCTION, TURNOVER AND INCOME FOR PRIOR YEARS WHEN THERE IS ABSOLUTELY NO EVIDENCE OR DATE AVAILA BLE BEFORE THE ASSESSING OFFICER TO SUGGEST INCORRECTNESS IN THE ACCOUNTS RE LATING TO PRODUCTION, SALE AND PROFIT OR ANY OTHER MATERIAL TO SHOW SUPPRESSION OF PRODUCTION OR TURNOVER FOR ANY OF THESE YEARS. THE ASSESSING OFFICER ALSO IGN ORED THE FACT THAT THE CONSUMPTION OF POWER IS VARIABLE AND NOT CONSTANT. PROPER ACCOUNTS FOR PRODUCTION AND CONSUMPTION ARE MAINTAINED BY THE AP PELLANT. THE CONSUMPTION OF POWER IS NOT STATIC BUT A VARIABLE FACTOR, IS RE VEALED BY THE ACCOUNTS. THE MACHINERIES ARE PRETTY OLD. THE POWER SUPPLY IS IR REGULAR. THERE IS OFTEN POWER FAILURES. EVERY POWER FAILURE OR BREAKDOWN IN THE S UPPLY CAUSES WASTAGE OF POWER, BECAUSE THE M.S. RODS OF 6 MM AND LOWER SIZE S CAN BE DRAWN ONLY BY HEATING METALS AT HIGH TEMPERATURE. WHEN THE FURNA CE IS AT HIGH TEMPERATURE, AND THE PRODUCTION STOPS, THE POWER CONSUMED UPTO T HAT STAGE, BECOMES WASTE. PRODUCTION CAN BE DONE ONLY AT STANDARD TEMPERATURE . POWER FAILURES OCCUR DUE TO VARIOUS REASONS, WHERE THE VOLTAGE DROPS OR WHEN POWER SUPPLY FAILS IN ANY OF THE PHASES OF THE POWER CONNECTION, PRODUCTION SUFF ERS. THE POWER CONSUMPTION AS A BASIS WOULD RESULT IN IMAGINARY PRODUCTION AND SALE. THE ACCOUNTS MAINTAINED ARE ACCEPTED BY THE CENTRAL EXCISE AND SA LES TAX AUTHORITIES. 6. IT IS SUBMITTED THAT THE ASSESSING OFF ICER HAD NOT ISSUED ANY PRE-ASSESSMENT NOTICE PROPOSING TO ESTIMATE TURNOVER AN D PROFITS BASED ON THE POWER CONSUMPTION. THE ASSESSEE WAS ALSO NOT FURNISHED WITH ANY DATA REGARDING OPTIMUM POWER CONSUMPTION AS APPEARS TO HAVE BEEN NOTED BY THE ASSESSING OFFICER FROM HIS OBSERVATIONS IN THE AS SESSMENT ORDER IT IS SUBMITTED THAT THE ENTIRE ADDITION ON ACCOUNT OF ALLEGED S UPPRESSION OF PRODUCTION AND TURNOVER ARE HIGHLY ARBITRARY AND UNSUSTAINABLE 9.1 THE LEARNED COUNSEL FOR THE APPELLA NT VIDE WRITTEN SUBMISSION DATED 20 TH DECEMBER, 2010 FURTHER REPRESENTED IN THE MATTER A S UNDER: IN THE PREVIOUS NOTE SUBMITTED AND THE EXPLANATIO N OFFERED AT THE TIME OF .HEARING, SPECIFIC OBJECTION WAS RAISED AGAINST THE ESTIMATE OF TURNOVER BASED ON CURRENT CONSUMPTION. THE ASSESSING OFFICE R ESTIMATED PRODUCTION BY APPLYING A FORMULA OF 650 UNITS PER M T FOR MANUFACTURE OF 6 MM RODS. THIS IS ON THE BASIS OF THE DECLARED CU RRENT CONSUMPTION FOR PRODUCTION FOR THE ASSESSMENT YEAR 2008-09. THE AB OVE FORMULA WAS APPLIED FOR ALL THE PRIOR YEARS COMMENCING FROM THE FIRST YEAR ONWARDS. I.T.A. NOS. 190-196/COCH/2011 16 AFTER ARRIVING AT THE ESTIMATED PRODUCTION IN THE A BOVE MANNER, THE ASSESSING OFFICER REDUCED THE DECLARED PRODUCTION A S PER ACCOUNTS AND TREATED THE BALANCE AS SUPPRESSED PRODUCTION. THE VALUE OF THE SUPPRESSED PRODUCTION WAS ESTIMATED TO ARRIVE AT TH E SUPPRESSED TURNOVER. AGAIN, GROSS PROFIT OF 31% WAS ESTIMATED THEREON AND THE RESULTANT FIGURE IS ADDED AS UNDISCLOSED INCOME FOR ALL THE PRIOR ASSESSMENT YEARS. THE RESULTS FOR 2008-09 ASSESSME NT WERE ACCEPTED. IT IS SUBMITTED THAT ALL THESE ESTIMATES ARE HIGHL Y ARBITRARY AND UNSUPPORTED BY ANY VALID MATERIAL OR DATA. THIS CO NTENTION IS SUBSTANTIATED BY THE FOLLOWING FACTS:- I. THE ASSESSING OFFICER HAD NO BASIS TO ASSUME TH AT THE PRODUCTION FOR THE PRIOR YEARS WAS SUPPRESSED. I. THE ACTUAL POWER CONSUMPTION AND PRODUCTION AR E RECORDED IN THE BOOKS OF ACCOUNTS. THIS HAS BEEN ACCEPTED BY ALL A UTHORITIES FOR THE RELEVANT ASSESSMENT YEARS INCLUDING THE INCOME TAX OFFICER IN THE RETURN OF INCOME SUBMITTED FOR THOSE YEARS. THE DETAILS O F THE RETURNS FURNISHED AND THE DATES ON WHICH SUCH RETURNS FOR PRIOR YEARS WERE FURNISHED IS ALREADY ON RECORD. THE RETURNS WERE FURNISHED BEFO RE THE DUE DATE SUPPORTED BY AUDITED STATEMENT OF ACCOUNTS AND THES E HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER. THE PRODUCTION HAS BEEN ACCEPTED BY THE COMMERCIAL TAX AUTHORITIES. THE PRODUCTION IS ALSO ACCEPTED BY THE CENTRAL EXCISE AUTHORITIES. I. THE ASSESSING OFFICER ALSO FAILED TO CONSIDER T HE MANUFACTURING PROCESS ADOPTED BY THE ASSESSEE AND ALSO THE RAW MATERIALS AND THE FINISHED ITEMS MANUFACTURED. I. IN THIS CONNECTION, THE FOLLOWING FACTORS MAY KINDLY BE NOTED:- A) THE FACTORY WAS SET UP BY SHRI K.P. UMMER IN TH E YEAR 1991 BY TAKING OVER THE EXISTING FACTORY WHICH WAS NOT FUNCTIONING FOR A VERY LONG PERIOD OF 10 YEARS. THE FACTORY WAS TAKEN OVER FROM SHRI V.C. BABU, KUNNAMKULAM UNDER THE NAME AND STYLE CHUNTHAND STE ELS. HE HAD CLOSED DOWN THE FACTORY DURING THE EARLY 1980S DUE TO LABOUR STRIKE. THE PLANT AND MACHINERY OF THE ENTIRE SET UP WAS IN DIL APIDATED CONDITION. THE PLANT AND MACHINERY WAS RECONDITIONED AND PUT TO US E WITH ALL ITS LIMITATIONS IN THE YEAR 1991 BY SHRI K.P. UMMER. T HE RUNNING OF THE MACHINERY HAD STARTED GIVING PROBLEMS SUCH AS FREQU ENT BREAK DOWN AND STOPPAGES OF WORK, BAD QUALITY OUTPUT WHICH HAD TO BE REHEATED. THIS INVOLVED HIGHER CONSUMPTION OF ELECTRICITY. HE HAD OBSERVED THIS AND MADE FREQUENT IMPROVEMENTS TO THE PLANT WITH LOCAL SMITHY WORK, WHICH HELPED IN GRADUAL IMPROVEMENT IN THE FUNCTIONING OF THE UNIT. I.T.A. NOS. 190-196/COCH/2011 17 B) THE ASSESSEE PURCHASES SCRAP IRON CONSISTING OF M.S. PLATE, M.S. ROD, CONDEMNED RAIL, RAIL FISH PLATES, RAIL BARS, SCRAP ANGLES OUT OF DEMOLISHED OLD TRUSS ETC. THESE ARE GENERALLY THE RAW MATERIA L USED. THE ABOVE RAW MATERIALS ARE CONVERTED INTO 6 MM RODS AND 3 MM FLA TS WHICH ARE THE MANUFACTURED ITEMS. ONLY THESE TWO TYPES OF PRODUC TS ARE MANUFACTURED. C) THE SCARP MATERIAL IS HEATED AND PASSED THROUGH ROLLS IN HIGH TEMPERATURE. THE HEATED SCRAP IS REDUCED INITIALLY TO VARYING SIZES OF 2 AND 11/4, 11/2, 1, , AND . THE LAST SIZE OF IS EQUAL TO 6 MM ROD. THE HEATED SCRAP HAS TO UNDERGO THE ROLLIN G PROCESS THROUGH THE ABOVE 7 SIZES IN ORDER TO GET THE FINISHED PROD UCTS. IN THE CASE OF MILD STEEL ITEMS LIKE M.S. PLATE OR M.S. ROD, THE P OWER CONSUMPTION WILL BE LESS, BECAUSE THIS IS MILD STEEL. HOWEVER, IN T HE CASE OF CONDEMNED RAIL, THE TEMPER OF THE METAL IS VERY HIGH AND REQU IRES HIGH POWER CONSUMPTION FOR THE HEATING PROCESS. D) LARGER SIZES OF SCRAP ARE CUT INTO SMALLER SIZE BEFORE PASSING THROUGH ROLLING MILL. THE MANUFACTURING OF THE FINISHED PR ODUCTS IS WITHOUT MELTING THE SCRAP, BUT ONLY BY THE PROCESS OF HEATING. THE REFORE, DEPENDING UPON THE TYPE OF RAW MATERIAL USED, THE POWER CONSUMPTIO N WOULD BE HIGHER OR LOWER. THIS WILL NOT BE UNIFORM. RAW MATERIAL IS PURCHASED THROUGH SUPPLIERS, DEPENDING ON AVAILABILITY. THE OLD SCRA P COLLECTED BY SHIP BREAKING, CONDEMNED RAIL, OLD TRUSSES ETC, ARE SUPP LIED BY DEALERS. THE ASSESSEE PURCHASES AND USES THEM FOR MANUFACTURE. E) AFTER STARTING THE INDUSTRIAL UNIT, THE ASSESSE E HAS BEEN REGULARLY INSTALLING ADDITIONAL MACHINERY AND EQUIPMENTS TO I MPROVE THE PRODUCTION AND EFFICIENCY. F) TRANSFORMER OF THE FACTORY WAS CHANGED IN THE Y EAR 2007, WHICH HELPED IN FURTHER REDUCTION IN CONSUMPTION OF ELECTRICITY AS THE EXISTING ONE WAS NOT IN GOOD CONDITION. I. IN THIS CONNECTION THE ASSESSING OFFICER HAS FA ILED TO CONSIDER THAT THE POWER CONSUMPTION DEPENDED UPON THE QUALITY AND TYP E OF RAW MATERIAL. IN SOME CASES, WHERE THE QUALITY IS BETTER, THE PRI CE IS MORE, BUT THE POWER CONSUMPTION AND THE MANUFACTURING COST WILL B E LESS. IN OTHER CASES, WHERE THE QUALITY OF RAW MATERIAL IS LESS, T HE COST WILL BE LESS, BUT THE POWER CONSUMPTION AND MANUFACTURING COST WOULD BE MORE. THESE IMPORTANT FACTS HAVE NOT BEEN CONSIDERED. I. THERE IS NO LOGIC IN THE APPROACH OF THE ASSESS ING OFFICER IN APPLYING THE DATA FOR 2008-09 FOR THE PRIOR YEARS IN THE ABS ENCE OF ANY VALID REASON. WHEN THE BOOKS OF ACCOUNTS MAINTAINED FOR 2008-09 ASSESSMENT ARE ACCEPTABLE, IT CANNOT BE SAID THAT THE BOOKS OF ACCOUNTS FOR PRIOR YEARS I.T.A. NOS. 190-196/COCH/2011 18 ARE INCORRECT OR INCOMPLETE UNLESS SOME MATERIAL OR EVIDENCE IS BROUGHT ON RECORD. I. IT IS ALSO SIGNIFICANT THAT IN THE CASE OF SOUT H MALABAR STEELS AND ALLOYS PVT. LTD., THE SISTER CONCERN, THE ASSESSING OFFICE R RELIED UPON EXTERNAL MATERIAL BY OBTAINING STANDARD FORMULA FROM COMMERC IAL TAX DEPARTMENT FOR ESTIMATING PRODUCTION. IN THAT CASE, THE LOWES T CONSUMPTION FOR ANY YEAR DECLARED BY THE ASSESSEE WAS NOT THE BASIS FOR ESTIMATING PRODUCTION FOR OTHER YEARS. THE APPLICATION OF DIFFERENT PARA METERS WOULD SHOW THAT THE ASSESSING OFFICER HIMSELF WAS NOT SATISFIED WIT H ONE METHOD OR THE OTHER BUT FOLLOWED DIFFERENT METHODS IN DIFFERENT C ASES. I. IN THE CIRCUMSTANCES, BOTH THE ESTIMATES HAVE T O BE DISCARDED AS ARBITRARY I. THE ADDITION IS ALSO UNSUSTAI NABLE BECAUSE OF APPLICATION OF SEVERAL ESTIMATES, SUCH AS ESTIMATE OF POWER CONSUMPTION, E STIMATE OF PRODUCTION, ESTIMATE OF SALE PRICE AND ESTIMATE OF PROFIT. SEVERAL ESTIMATES WOULD VITIATE THE ENTIRE ADDITION. THESE FACTORS MAY KINDLY BE CONSIDERED. THE LEARNED COUNSEL FOR THE APPELLANT FURTHER STA TED THAT THE APPELLANT WAS EARLIER USING BATCH TYPE FURNACE FOR HEALING THE SCRAP WHICH WAS RESULTING IN HIGHER CONSUMPTION OF ELECTRICITY. THIS PROBLEM WAS IDENTIFIED AND ACCORDINGLY PUSHER TYPE HEATING FURN ACE WAS INSTALLED DURING THE FINANCIAL YEAR 2005-06. AS A CONSEQUENC E OF THIS THERE WAS LESS POWER CONSUMPTION FOR PRODUCTION PER MT IN THE PERIOD RELEVANT TO A.YS 2007-08 AND 2008-09. THE LEARNED COUNSEL FOR THE APPELLANT FURTHER CLAIMED THAT RISE IN GP RATE IN A.Y. 2008-09 TO THE EXTENT OF 19.33% (OUT OF 30.79%) WAS ATTRIBUTABLE TO SHARP RISE IN AVERAG E SELLING PRICE PER MT OF THE FINISHED GOODS. A WORKING OF THE SAME WAS A LSO PLACED ON RECORD. THE LEARNED COUNSEL FOR THE APPELLANT FURTHER RELIE D ON THE BASIS OF ELECTRICITY CONSUMPTION WAS NOT JUSTIFIED IN THE AP PELLANTS CASE. 1. AMAR ISPAT PVT. LTD. VS. CCE, THANE 1 (2009) 2 35 ELT 487 (TRI MUM.). 2. RA CASTINGS PVT. LTD. VS. CCE , MEERUT-1 (2009) 237 ELT 674 (TRI DEL) 15.4 THE LD CIT(A) RECONSIDERED THE WHOLE ISSUE . HE NOTICED THAT THE ASSESSMENT ORDER DID NOT SPEAK ABOUT THE OPPORTUNITY GIVEN TO THE ASSESSEE AND FURTHER THE AO DID NOT DEAL WITH VARIOUS TYPES OF ARGUMENTS THAT WERE PUT FORTH BY THE ASSESSEE. THE LD CIT(A) ALSO NOTICED THAT THE AO HAD COMMITTED SERIO US ERRORS IN FINALISING THE ASSESSMENT ORDER AND THE SAID MISTAKES ARE POINTED OUT BY LD CIT(A) AS UNDER:- I.T.A. NOS. 190-196/COCH/2011 19 (A) THE AO DID NOT ESTIMATE ANY INCOME FOR THE AS SESSMENT YEAR 2008-09, EVEN THOUGH THE DEPOSITION MADE BY THE ASSESSEE WITH REG ARD TO SUPPRESSION OF SALES IS MOST RELEVANT FOR THAT YEAR. (B) THE ASSESSEE HAD TAKEN A LOAN OF RS.35.00 LAKHS FRO M A PERSON NAMED MR. SATHAR AND INVESTED THOSE FUNDS IN HIS COMPANY NAME D M/S SOUTH MALABAR STEELS & ALLOYS LTD. THOUGH THE AO MADE THE ADDITI ON OF THE ABOVE SAID AMOUNT IN THE ABOVE SAID COMPANYS HAND ON THE GROU ND THAT THE GENUINENESS OF THE TRANSACTION AND CAPACITY OF THE CREDITOR WAS NOT ESTABLISHED, YET HE DID NOT ANY ADDITION IN THE ASS ESSEES HAND. (C) THOUGH THE AO IDENTIFIED THE AMOUNT OF GIFTS RECEIV ED FROM THE SON OF THE ASSESSEE AS RS.60.21 LAKHS, YET HE MADE AN ADDITION OF RS.47.21 LAKHS ONLY. IN VIEW OF THE ABOVE, THE LD CIT(A) CAME TO THE CON CLUSION THAT THE AO HAS COMPLETED THE ASSESSMENTS IN HASTE AND HENCE HE PROCEEDED TO CONSIDER THE ENTIRE ISSUE AFRESH ON MERITS. 15.5 THE LD CIT(A) STRONGLY PLACED RELIANCE ON THE DEPOSITION GIVEN BY THE ASSESSEE, WHEREIN HE HAD STATED THAT THERE WAS SUPPRESSION OF SALES TO THE EXTENT OF 8% OF THE TURNOVER. ACCORDINGLY, HE CONCLUDED THAT THE SAID DEPOSITION IS OF GENERAL NATURE DESCRIBING THE MODUS OPERANDI OF HIS ESTABLISHMENTS WITHOUT REFERENCE TO ANY SPECIFIC ASSESSMENT YEAR AND HENCE IT IS APPLICABLE TO ALL T HE ASSESSMENT YEARS, I.E., ASSESSMENT YEAR 2002-03 TO 2008-09. IN THIS REGARD, THE LD CI T(A) PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CST VS. H.K .ESUFALI, H.M.ABDULALI (1973)(90 ITR 271)(SC). ACCORDINGLY HE HELD THAT THE REJECTI ON OF BOOK RESULTS IS JUSTIFIED. 15.6 THE LD CIT(A) DID NOT AGREE WITH THE OBSERVA TIONS OF THE AO THAT THERE WERE SERIOUS DEFECTS IN THE ACCOUNTS OF THE ASSESSEE. T HE LD CIT(A) ALSO DID NOT ACCEPT THE VIEW OF THE AO THAT THE GROSS PROFIT RATE OF 31% SH OULD BE APPLIED TO ALL THE YEARS. THE FOLLOWING OBSERVATIONS MADE BY LD CIT(A) ARE RELEVA NT HERE. THE ASSESSING OFFICER APPLIED EXAGGERATED GP RATE OF 31% WITH REFERENCE TO SUPPRESSED PRODUCTION DETERMINED BY HIM BUT HE ACCE PTED GP RATE DECLARED (MUCH LOWER THAN 31%) BY THE APPELLANT IN RESPECTIV E ASSESSMENT YEARS AS DETAILED ABOVE IN RESPECT OF TURNOVER DECLARED BY T HE APPELLANT WITHOUT STARTING THE REASONS FOR THE SAME. I FIND THAT THAT THE ASSE SSING OFFICER HAS ESTIMATED TOTAL TURNOVER (DECLARED + ESTIMATED SUPPRESSED TURN OVER) OF THE APPELLANT I.T.A. NOS. 190-196/COCH/2011 20 RANGING FROM OVER 1.5 TIMES TO TWO TIMES OF THE TUR NOVER DECLARED (AS DETAILED ABOVE) MORE FOR EARLIER YEARS AND NO SUPPRESSED TUR NOVER FOR A.Y. 2008-09. I FURTHER FIND THAT THE ASSESSING OFFICER HAS NOT POI NTED OUT A SINGLE SPECIFIC DEFECT IN THE BOOKS OF ACCOUNTS OF THE APPELLANT THOUGH VA GUELY MADE A MENTION OF THE SAME IN THE ORDER. NO SPECIFIC INCRIMINATING MATER IAL RECOVERED DURING SEARCH U/S. 132 IN THE APPELLANTS CASE IS IDENTIFIED IN T HE ASSESSMENT ORDER WHICH CAN JUSTIFY ESTIMATION TURNOVER AT SUCH AN EXAGGERATED FIGURE. THE ASSESSING OFFICER PLACED RELIANCE ON SALES TAX ORDER FOR THE YEAR 200 2-03 AND 2004-05 AND HAS ALSO REPRODUCED THE STOCK VARIATION FOUND BY INTELL IGENCE SQUAD OF SALES TAX DEPARTMENT ON 25 TH JANUARY, 2005. THESE DEFECTS POINTED OUT BY THE ASSESSING OFFICER WERE NOT MAJOR DEFECTS TO JUSTIFY ESTIMATION OF SUBSTANTIAL SUPPRESSED PRODUCTION AS DONE BY THE AS SESSING OFFICER BY TOTALLY DISREGARDING THE CONSUMPTION PRODUCTION SHO WN BY THE APPELLANT IN THE MATTER. THE ONLY ADVERSE EVIDENCE RESULTING FROM SEARCH ACT ION WORTH MENTIONING IS THE CONFESSIONAL STATEMENT OF MR. UMM ER DIRECTOR OF THE APPELLANT COMPANY WHEREIN HE ADMITTED THAT 8% OF THE SALES WE RE NOT RECORDED IN THE BOOKS OF ACCOUNTS. IF THIS DEPOSITION IS TO BE RELIED UPON AS REVEAL ING TRUE STATE OF AFFAIRS, THE SAME IN NO MANNER WOULD JUSTIFY EST IMATION OF THE TURNOVER OF THE APPELLANT IN THE ABOVE MANNER FOR EARLIER YEARS AND NO ESTIMATION OF SUPPRESSED PRODUCTION/TURNOVER FOR A.Y. 2008-09 TO WHICH THE D EPOSITION GIVEN BY THE APPELLANT WAS MOST RELEVANT AND SQUARELY APPLICABLE . 15.7 THE AVERAGE RATE OF POWER CONSUMPTION DISCLO SED BY THE ASSESSEE WAS NOTICED BY THE LD CIT(A), THE DETAILS OF WHICH ARE GIVEN BE LOW:- ASST. YEAR POWER CONSUMPTION/MT 2002-03 1017.47 2003-04 1085.48 2004-05 1083.44 2005-06 1521.27 2006-07 1405.15 2007-08 761.96 2008-09 649.94 SINCE THE AVERAGE POWER CONSUMPTION WAS HIGHER IN T HE ASSESSMENT YEAR 2005-06 AND 2006-07, THE LD CIT(A) CAME TO THE CONCLUSION THAT THE ASSESSEE WAS NOT SHOWING THE PRODUCTION IN A TRUTHFUL MANNER. ACCORDINGLY HE CO NCLUDED THAT THE THERE WAS ENOUGH JUSTIFICATION FOR ESTIMATION OF PRODUCTION ON THE B ASIS OF POWER CONSUMPTION SHOWN BY THE ASSESSEE. THE LD CIT(A), BY POINTING OUT HIGHE R POWER CONSUMPTION DISCLOSED IN THE ASST. YEAR 2005-06 AND 2006-07 REJECTED ALL THE CONTENTIONS RAISED BY THE ASSESSEE. ACCORDINGLY HE PROCEEDED TO ESTIMATE THE SUPPRESSED PRODUCTION FOR ASST. YEARS 2002- 03 TO 2006-07 BY TAKING THE AVERAGE POWER CONSUMPTI ON FACTOR AS 750 UNITS PER MT. I.T.A. NOS. 190-196/COCH/2011 21 HOWEVER FOR THE ASST. YEARS 2007-08 AND 2008-09, TH E LD CIT(A) COMPUTED THE UNDISCLOSED INCOME BY TAKING THE SUPPRESSED TURNOVE R AT 8% OF THE DISCLOSED TURNOVER. THE COMPUTATIONS MADE BY LD CIT(A) ARE GIVEN BELOW: - 10.9 IN ACCORDANCE WITH THE ABOVE, VALUE OF SUPPR ESSED PRODUCTION OF THE APPELLANT FOR VARIOUS ASSESSMENT YEARS UPTO A.Y. 2 006-07 CAN BE REASONABLY AND JUDICIOUSLY ESTIMATED AS UNDER:- A.Y. POWER CONSUMPTION AS PER ASSESSEE PRODUCTION @ 750 UNITS PER TONNE PRODUCTION AS PER RETURN DIFFERENCE VALUE/MT VALUE OF THE SUPPRESSED PRODUCTION (A) (B) (C) (D) (E) (F) (G) 2002-03 549848 733.13 540.405 192.725 13297.17 25,6 2,697 2003-04 606676 808.90 558.900 250 14374.51 35,93,62 8 2004-05 591396 788.53 545.850 242.68 16075.6 39,01, 227 2005-06 591744 788.99 388.980 400.01 19491 77,96,59 5 2006-07 592972 790.63 422.010 368.62 19751.50 72,80 ,798 IN A SIMILAR MANNER TURNOVER OF THE APPELLANT FOR A SSESSMENT YEAR 2007-08 AND 2008-09 CAN BE REASONABLE AND JUDICIOUSLY ESTIMATED AS UNDER: A.Y. 2007-08 2008-09 TURNOVER SHOWN 1,11,68,910 1,57,01,074 TURNOVER ESTIMATED @ 108% OF ABOVE 1,20,62,423 1,69 ,57,160 THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO A DOPT THE ABOVE FIGURES OF SUPPRESSED PRODUCTION FOR ASSESSMENT YEARS 2002-03 TO 2006-07 AS AGAINST ESTIMATION MADE IN THE ASSESSMENT ORDER. IN A SIM ILAR MANNER, THE ASSESSING OFFICER IS DIRECTED TO ADOPT ABOVE TURNOVER FOR AS SESSMENT YEAR 2007-08 AND 2008-09. 15.8 WITH REGARD TO THE GROSS PROFIT RATE TO BE APPLIED, THE LD CIT(A) NOTICED THAT THE ASSESSEE COULD ACHIEVE HIGHER GROSS PROFIT RATE OF 31% FOR THE ASSESSMENT YEAR 2008-09 DUE TO THE INCREASE IN THE PRICES OF THE FI NISHED GOODS. THE LD CIT(A) HAS EXTRACTED THE WORKINGS GIVEN BY THE ASSESSEE IN THI S REGARD IN PAGE 28 OF HIS ORDER. AS A RESULT OF INCREASE IN SELLING PRICE, THE RATE OF GROSS PROFIT SHOT UP BY 19.33% IN THE ASSESSMENT YEAR 2008-09. THE LD CIT(A) NOTICED THA T, IF THIS EXCEPTIONAL SITUATION IS EVENED OUT, THE G.P RATE WORKED OUT TO 11.46% (30.7 9 19.33), WHICH WAS I.T.A. NOS. 190-196/COCH/2011 22 COMPARABLE TO THE RATE OF GROSS PROFIT DECLARED IN THE EARLIER YEARS. THE ASSESSEE HAD DECLARED THE RATE OF GROSS PROFIT AS UNDER IN VARIO US YEARS. ASST. YEAR G.P. RATE 2002-03 11.1 2003-04 9.19 2004-05 8.44 2005-06 7.73 2006-07 5.88 2007-08 10.33 2008-09 30.79 THE LD CIT(A) DIRECTED THAT A UNIFORM RATE OF 12% B E APPLIED ON THE SUPPRESSED PRODUCTION COMPUTED BY HIM FOR THE ASSESSMENT YEARS 2002-03 TO 2006-07. FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09, HE DIRECTED THAT THE RATE OF 12% AND 30.79% RESPECTIVELY SHOULD BE APPLIED ON THE TOTAL TURNOVE R. FROM THE GROSS PROFIT AMOUNT SO ARRIVED AT, THE ACTUAL GROSS PROFIT DECLARED BY THE ASSESSEE WAS DIRECTED TO BE DEDUCTED IN ORDER TO ARRIVE AT THE UNDISCLOSED INCOME FOR TH E ABOVE SAID TWO YEARS. THE ASSESSEE IS AGGRIEVED BY THE SAID DECISION OF LD CI T(A). 15.9 WE HAVE HEARD THE RIVAL CONTENTIONS ON THI S ISSUE. THOUGH THE TAX AUTHORITIES HAVE ADOPTED THE STANDARD POWER CONSUMPTION UNITS A S THE BASIS FOR ESTIMATING THE SUPPRESSED PRODUCTION (A.O ESTIMATED FOR ALL THE YE ARS AND LD CIT(A) ESTIMATED SO FOR THE ASST. YEARS 2002-03 TO 2006-07), THE FACT REMAI NS THAT THE DEPARTMENT DID NOT UNEARTH ANY MATERIAL TO SUBSTANTIATE THE METHOD ADO PTED BY THE TAX AUTHORITIES. THE SOLITARY EVIDENCE, WHICH WAS AVAILABLE WITH THE DEP ARTMENT IN THE INSTANT CASE, IS THE SWORN STATEMENT GIVEN BY THE MANAGING DIRECTOR SHRI UMMER. 15.10 THE LD A.R CONTENDED THAT THE SAID SWORN S TATEMENT CANNOT BE PLACED RELIANCE, AS IT IS NOT CORROBORATED WITH ANY OTHER MATERIAL. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS RETRACTED HIS STATEMENT BY FILING A LE TTER ON 10-09-2007. WE HAVE EXAMINED THE SAID CONTENTIONS OF LD A.R. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS CONFESSED ABOUT THE SUPPRESSION OF PURCHASES AND SA LES IN THE SWORN STATEMENT TAKEN U/S 132(4) OF THE ACT. THE RELEVANT QUESTION AND A NSWERS ARE EXTRACTED BELOW:- I.T.A. NOS. 190-196/COCH/2011 23 Q. NO.13 - HAVE YOU PROPERLY MAINTAINED ACCOUNTS RELATING TO SCRAP PURCHASES, FINISHED GOODS, SALES ETC OF YOUR ESTABLISHMENTS. ANS.:- IN SCRAP PURCHASE 90% IS IMPORTED SCRAP AND SPONGE IRON. DETAILS OF ITS PURCHASES HAVE BEEN PROPERLY ACCOUNTED. 10% INCLUDE S LOCAL PURCHASE. 90% OF THE LOCAL PURCHASE HAS BEEN ACCOUNTED. 10% OF LOCAL PURCHASE HAS NOT BEEN ACCOUNTED. 8% OF THE SALES ALSO HAS NOT BEEN ACCOUN TED. Q. NO.14 - YOU HAVE SAID IN YOUR EARLIER QUESTION THAT 8% OF THE SALES HAVE NOT BEEN ACCOUNTED. WHAT DID YOU DO WITH THE PROFIT SO OBTAINED FROM THE SALES. ANS.:- MONEY OBTAINED FROM SUCH UNACCOUNTED SALES HAVE BEEN UTILISED FOR PURCHASING PROPERTY IN MY NAME AND ALSO FOR THE HOU SE WHICH IS UNDER CONSTRUCTION. THESE QUESTIONS AND ANSWERS GIVEN BY THE MANAGING D IRECTOR CLEARLY INDICATE THAT THERE WAS SUPPRESSION OF PURCHASES AND SALES IN ALL THE ESTABLISHMENTS UNDER HIS CONTROL . THE LD A.R HAS STATED THAT THE ASSESSEE HAS RETRACTED F ROM THE STATEMENT BY FILING A LETTER ON 10.09.2007. WE HAVE GONE THROUGH THE SAID LETTE R, WHEREIN THE ASSESSEE HAS STATED AS UNDER IN PARAGRAPH 3:- IT IS SUBMITTED THAT, I HAVE FULLY CO-OPERATED WIT H THE DEPARTMENT THROUGHOUT THE SEARCH AND HAVE MADE AVAILABLE ALL THE RECORDS AVAILABLE WITH ME. YOUR GOODSELF HAVE TAKEN DOWN STATEMENTS WITHOUT VERIFIC ATION OF RECORDS. I HAVE NOT BEEN ABLE TO VERIFY THE RECORDS IN ORDER TO FURNISH THE CORRECT FACTS. WHATEVER WAS STATED WAS WITHOUT HAVING VERIFIED THE RELEVANT RECORDS. HOWEVER, THE CORRECT FIGURES CAN BE FURNISHED ONLY AFTER VERIFIC ATION OF THE RECORDS AND DOCUMENTS FOR WHICH AN OPPORTUNITY MAY BE GIVEN. I N THIS CONNECTION, YOU MAY KINDLY BE PLEASED TO FURNISH TO ME A COPY OF THE ST ATEMENTS RECORDED FOR ME SO THAT THE MATTERS CAN BE CLARIFIED NOW ITSELF. A CAREFUL READING OF THE ABOVE PARAGRAPH WOULD SHOW THAT THE ASSESSEE, IN FACT,DID NOT RETRACT FROM THE STATEMENT GIVEN BY HIM IN THE SWOR N STATEMENT. WHAT IS STATED IS A GENERAL STATEMENT THAT THE CORRECT POSITION OF FACT S SHALL BE KNOWN ON VERIFICATION OF VARIOUS RECORDS. HENCE, IT CANNOT BE SAID THAT THE ASSESSEE HAS RETRACTED FROM THE STATEMENT GIVEN BY HIM U/S 132(4) OF THE ACT. 15.11 HOWEVER, THE ADMISSION MADE BY THE ASSESSEE IS AN IMPORTANT PIECE OF EVIDENCE AND THE DETAILS REGARDING SUPPRESSION OF P URCHASES AND SALES ARE WITHIN THE I.T.A. NOS. 190-196/COCH/2011 24 PERSONAL KNOWLEDGE OF THE PARTIES WHO ARE INDULGING IN SUCH TYPE OF ACTIVITIES. IF THE ASSESSEE HAD NOT INDULGED IN SUCH KIND OF TRADE PRA CTICES, THERE WOULD NOT HAVE BEEN ANY OCCASION FOR THE MANAGING DIRECTOR TO GIVE STAT EMENT ABOUT PURCHASE AND SALES SUPPRESSION. HENCE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR VIEW, IT WOULD BE VERY MUCH REASONABLE TO PRESUME THAT THE ASSESSE E WAS SUPPRESSING PURCHASES AND SALES. 15.12 THE LD A.R CONTENDED THAT THE SAID SWORN S TATEMENT CANNOT BE PLACED RELIANCE, AS IT IS NOT CORROBORATED WITH ANY OTHER MATERIAL. IN THAT REGARD, HE ALSO PLACED RELIANCE ON THE FOLLOWING CASE LAW:- (A) DCIT VS. PRAMUKH BUILDERS (2008)(115 TTJ (AHD )(TM). (B) SMT. SUSHILA SURESH MALGE VS. ACIT (IT(SS)A 0 5/MUM/2012) (C) FIRST GLOBAL STOCK BROKING (P) LTD VS. ACIT ( 115 TTJ (MUM) 173) THE CASE LAW LISTED AS (B) AND (C) ABOVE RELATES TO THE BLOCK ASSESSMENT PROCEEDING. SINCE THE SCOPE OF BLOCK ASSESSMENT UNDER CHAPTER X IV-B OF THE ACT IS DIFFERENT FROM THE SCOPE OF PROCEEDINGS U/S 153A OF THE ACT, IN OU R VIEW, THE ASSESSEE CANNOT PLACE RELIANCE ON THE SAID DECISIONS. WITH REGARD TO THE CASE LAW LISTED AS (A) ABOVE, WE NOTICE THE ASSESSEE THEREIN HAS PROVED THAT THE STA TEMENT U/S 132(4) WAS GIVEN IN A STATE OF CONFUSION AND LATER RETRACTED. HOWEVER, IN THE INSTANT CASE, IT IS NOT SHOWN THAT THE STATEMENT U/S 132(4) WAS GIVEN BY THE ASSE SSEE IN A STATE OF CONFUSION. FURTHER WE HAVE ALREADY RECORDED A FINDING THAT THE ASSESSEE HAS NOT RETRACTED FROM THE STATEMENT GIVEN BY HIM. HENCE, THE SAID DECISIO N IS ALSO NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. 15.13 THE ASSESSEE, IN HIS SUBMISSIONS MADE BEFO RE LD CIT(A), HAS POINTED OUT MANY FACTORS WHICH COULD IMPACT THE POWER CONSUMPTION. WE NOTICE THAT THE LD CIT(A) HAS REJECTED ALL THOSE CONTENTIONS, SIMPLY FOR THE REAS ON THAT THE AVERAGE POWER CONSUMPTION DECLARED FOR THE ASSESSMENT YEARS 2005- 06 AND 2006-07 ARE ON THE HIGHER SIDE. HOWEVER, THE FACT REMAINS THAT THE AVERAGE P OWER CONSUMPTION WAS UNIFORM FOR THE ASST. YEARS 2002-03 TO 2004-05 AND IT HAS REDUC ED DRASTICALLY IN ASST. YEARS 2007-08 AND 2008-09. IN ANY CASE, THE AVERAGE RATE OF POWE R CONSUMPTION, AS RIGHTLY POINTED I.T.A. NOS. 190-196/COCH/2011 25 OUT BY THE ASSESSEE, WOULD DEPEND UPON VARIOUS FACT ORS. IT IS PERTINENT TO NOTE THAT, WHILE DECIDING THE APPEALS OF THE COMPANY, M/S SOUT H MALABAR STEELS PVT LTD, THE LD CIT(A) HIMSELF HAS REJECTED THE METHOD OF ADOPTING THE POWER CONSUMPTION FACTOR AS THE BASIS TO COMPUTE SUPPRESSED PRODUCTION. THE MO ST IMPORTANT POINT TO BE CONSIDERED HERE IS THAT THE DEPARTMENT DID NOT UNEA RTH ANY MATERIAL TO SUGGEST THAT THE ASSESSEE WAS RESORTING INTO ANY UNLAWFUL THINGS IN ORDER TO SHOW HIGHER COST OF PRODUCTION. THOUGH THE A.O HAD PLACED RELIANCE ON THE DISCREPANCIES NOTICED BY THE COMMERCIAL TAXES DEPARTMENT, THE LD CIT(A) HAS HELD THAT THE SAID DISCREPANCIES ARE INSIGNIFICANT IN NATURE. UNDER THESE CIRCUMSTANCES , THE ONLY CONCLUSION WE COULD REACH IS THAT THE TAX AUTHORITIES DO NOT HAVE ANY MATERIA L TO SUBSTANTIATE THEIR VIEWS AND THEY HAVE PROCEEDED TO ESTIMATE THE QUANTUM/VALUE OF SUP PRESSED PRODUCTION ONLY ON SUSPICION AND SURMISES. 15.14 SINCE THE ASSESSEE HIMSELF HAS DEPOSED THAT THE SALES SUPPRESSION WAS TO THE TUNE OF 8%, IN OUR VIEW, IT WOULD BE JUSTIFIABLE TO DETERMINE THE SALES SUPPRESSION AT 8% OF THE TOTAL TURNOVER FOR ALL THE YEARS UNDER CO NSIDERATION, PARTICULARLY IN VIEW OF THE FACT THAT THE DEPARTMENT DID NOT SEIZE ANY OTHER MA TERIAL TO MAKE ESTIMATE OF SALES SUPPRESSION IN ANY OTHER MANNER. IT IS PERTINENT T O NOTE THAT THE VERY SAME METHODOLOGY WAS ADOPTED IN THE CASE OF THE COMPANY, M/S SOUTH MALABAR STEELS & ALLOYS PVT. LTD ALSO. 15.15 THE NEXT QUESTION RELATES TO THE GROSS PRO FIT RATE TO BE ADOPTED FOR ESTIMATING THE INCOME FOR ALL THE YEARS. THERE CANNOT BE ANY DISPUTE THAT THE RATE OF GROSS PROFIT DEPENDS UPON VARIOUS FACTORS LIKE PURCHASE QUANTITY /RATE, SALES QUANTITY/RATE, VARIATION OF RATES, COST OF MANUFACTURE AND ITS VARIATION ETC . A SIGNIFICANT VARIATION IN ONE OF THE FACTORS WOULD BADLY AFFECT THE GROSS PROFIT RATE. A SIGNIFICANT INCREASE IN THE SELLING RATE WOULD BOOST THE RATE OF GROSS PROFIT. THIS POINT W AS EXACTLY CLARIFIED BY THE ASSESSEE BEFORE THE LD CIT(A) AND THE FIRST APPELLATE AUTHOR ITY HAS ALSO EXTRACTED THE WORKINGS GIVEN BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2008- 09, IN PARAGRAPH 10.9 OF HIS ORDER. THE WORKINGS GIVEN BY THE ASSESSEE DISCLOSED THE FA CT THAT THE SHARP RISE IN THE SELLING I.T.A. NOS. 190-196/COCH/2011 26 RATE OF FINISHED GOODS HAS HELPED IN INCREASE OF GR OSS PROFIT RATE AT 19.33% FOR THE ASSESSMENT YEAR 2008-09. 15.16 ACCORDINGLY, THE LD CIT(A) HAS GIVEN A SP ECIFIC FINDING THAT THE EFFECT OF INCREASE IN PRICES IN THE YEAR RELEVANT TO THE ASSE SSMENT YEAR 2008-09 IS EVENED OUT, I.E., (30.79% (-) 19.33%), THE GROSS PROFIT RATE FO R THAT YEAR WORKS OUT TO 11.46%. ACCORDINGLY, THE LD CIT(A) HAS OPINED THAT THE GROS S PROFIT RATE OF 11.46% WAS COMPARABLE WITH THE GROSS PROFIT DECLARED IN SOME O F THE YEARS. HAVING OPINED SO, STILL THE LD CIT(A) HELD THAT THE FLUCTUATION IN THE GP R ATE IN VARIOUS RATES ARE UNREASONABLE. IN OUR VIEW, THE SAID DECISION OF THE LD CIT(A) DOE S NOT HAVE ANY BASIS. HAVING UNDERSTOOD THAT THERE MIGHT BE VARIOUS REASONS FOR THE FLUCTUATION IN THE RATE OF G.P, IN OUR VIEW, THE LD CIT(A) SHOULD NOT HAVE COME TO SUC H A CONCLUSION. THE FACT THAT THE ASSESSEE HAD INITIALLY PURCHASED A SICK CONCERN AND GRADUALLY IMPROVED THE QUALITY OF MACHINERIES BY MAKING ADDITIONS OVER THE YEARS TO F IXED ASSETS IS VERY MUCH RELEVANT HERE. THE ASSESSEE HAS CLAIMED TO HAVE INSTALLED T HE PUSHER TYPE HEATING FURNACE IN THE YEAR RELEVANT TO THE ASST. YEAR 2006-07 AND IT HAS RESULTED IN THE INCREASE IN THE EFFICIENCY IN SUCCEEDING YEARS. THUS, IN OUR VIEW, THE ASSESSEE HAS SUFFICIENTLY EXPLAINED THE REASONS FOR THE IMPROVEMENT, I.E., CONSIDERABLE REDUCTION IN THE AVERAGE POWER CONSUMPTION DURING THE ASST. YEARS 2007-08 AND 2008 -09. 15.17 WE MAY ALSO OBSERVE HERE THAT THE ASSUMPT ION MADE BY THE AO THAT THE GROSS PROFIT RATE DECLARED FOR THE ASSESSMENT YEAR 2008-0 9 IS THE CORRECT RATE TO BE ADOPTED FOR ALL THE YEARS IS ALSO NOT BASED ON ANY MATERIAL . UNDER THESE CIRCUMSTANCES, WE FIND NO REASON TO ADOPT A GROSS PROFIT RATE FOR ESTIMATI NG THE UNDISCLOSED INCOME, WHICH IS ALTOGETHER FROM THE RATE OF GROSS PROFIT DECLARED B Y THE ASSESSEE. ACCORDINGLY, WE ARE OF THE VIEW THAT IT WOULD BE JUST AND REASONABLE, I F THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE IN VARIOUS YEARS IS ADOPTED TO DETERMINE T HE UNDISCLOSED INCOME OF THE RESPECTIVE YEARS. WE ACCORDINGLY ORDER THAT THE UN DISCLOSED INCOME SHALL BE DETERMINED IN THE FOLLOWING MANNER. I.T.A. NOS. 190-196/COCH/2011 27 (A) TO DETERMINE THE TOTAL TURNOVER AT 108% OF THE DISC LOSED TURNOVER. (B) TO DETERMINE THE AMOUNT OF GROSS PROFIT BY APPLYING THE RATE OF GROSS PROFIT DISCLOSED BY THE ASSESSEE FOR THE RESPECTIVE ASSESS MENT YEARS ON THE TURNOVER DETERMINED IN (A) ABOVE. (C) FROM THE AMOUNT COMPUTED IN (B) ABOVE, TO DEDUCT TH E GROSS PROFIT ALREADY DISCLOSED BY THE ASSESSEE. (D) THE RESULTANT FIGURE IS THE UNDISCLOSED INCOME OF T HE RESPECTIVE YEARS. THE ORDER OF LD CIT(A) ON THIS ISSUE IS MODIFIED AC CORDINGLY. 15.18 IN THE SWORN STATEMENT, THE ASSESSEE HAD S TATED THAT HE HAS USED HIS UNDISCLOSED INCOME IN THE PURCHASE OF ASSETS AND AL SO IN THE CONSTRUCTION. ACCORDINGLY THE LD A.R PLEADED THAT THE UNDISCLOSED INCOME DETE RMINED, IF ANY, SHOULD BE SET OF AGAINST THE ADDITIONS MADE ON ACCOUNT OF INVESTMENT S. THE LD CIT(A) HAS EXPRESSED A VIEW THAT THE PLEA OF THE ASSESSEE NEEDS TO BE CONS IDERED TO THE EXTENT NEXUS IS INDICATED BY WAY OF DEPOSITION OF THE ASSESSEE DURI NG THE COURSE OF SEARCH. IN PARA 10.6 OF HIS ORDER RELATING TO THE ASSESSMENT YEAR 2 006-07, THE LD CIT(A) HAS STATED THAT THE SET OFF CAN BE GIVEN AGAINST THE ADDITION MADE TOWARDS HOUSE CONSTRUCTION. HOWEVER, WE FIND MERIT IN THE PLEA MADE BY THE ASSE SSEE. THUS, HE HAS REJECTED THE CLAIM OF SET OFF AGAINST ANY OTHER ADDITION. THERE CANNOT BE ANY DISPUTE THAT THE ADDITION OF INCOME AS WELL AS THE EXPENDITURE INCUR RED OUT OF THAT INCOME WOULD RESULT IN DOUBLE ASSESSMENT OF SAME INCOME, WHICH IS NOT I NTENDED BY THE STATUTE. AS PER THE SWORN STATEMENT GIVEN BY THE ASSESSEE, THE UNDISCLO SED INCOME HAS BEEN UTILISED FOR THE PURCHASE OF PROPERTY AND ALSO IN CONSTRUCTION. THUS, THE PLEA OF THE ASSESSEE IS THAT HE HAS USED THE UNDISCLOSED INCOME FOR PURCHAS E OF PROPERTY ALSO. IN THE INSTANT CASE, THE AO DID NOT MAKE ANY ADDITION TOWARDS INVE STMENT MADE IN THE PURCHASE OF ANY UNDISCLOSED PROPERTY, MEANING THEREBY THE ASSES SEE HAS ACCOUNTED FOR ALL THE PROPERTIES PURCHASED BY HIM. THE CASH CREDITS ARE GENERALLY INTRODUCED IN THE BOOKS ONLY TO BRING SOURCES FOR SUCH INVESTMENTS. HENCE, IF ANY ADDITION IS MADE TOWARDS UNPROVED CASH CREDITS, INDIRECTLY IT INDICATES THAT THE UNDISCLOSED INCOME HAS BEEN USED AS A SOURCE IN THE FORM OF CASH CREDIT FOR MAKING I NVESTMENTS. ACCORDINGLY, WE ARE OF THE VIEW THAT THE UNDISCLOSED BUSINESS INCOME CAN A LSO BE GIVEN SET OFF AGAINST CASH I.T.A. NOS. 190-196/COCH/2011 28 CREDIT ADDITION ALSO. ACCORDINGLY, WE DIRECT THE A O TO ALLOW SET OFF OF THE UNDISCLOSED INCOME AGAINST THE ADDITIONS MADE TOWARDS CASH CRED ITS, IF ANY AND ALSO AGAINST THE ADDITIONS MADE TOWARDS UNACCOUNTED INVESTMENTS. 16. IN THE RESULT, ALL THE APPEALS FILED BY THE ASS ESSEE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 30-11-20 12. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 30TH NOVEMBER, 2012 GJ COPY TO: 1. K.P. UMMER, PROP: STAR RE-ROLLING MILL, KALLADIP ATTA, PATTAMBI. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL C IRCLE, TRICHUR. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, KOCH I. 4.THE COMMISSIONER OF INCOME-TAX, CENTRAL KOCHI 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN