The ACIT, Circle-1, Bhavnagar V. Shri Vijay M.Parekh, Bhavnagar

ITA 1994/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8920 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2001-2002
• Appeal Filed On: 19-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Assessee Lawyers: S N DIVETIA
• Keywords: Unexplained investment; Business income; Charitable institution; Principle of natural justice; Source of fund; Cost of acquisition; Difference of opinion
• Section: 143(3); 195; 147; 69; 145; 132; 12; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI H. L. KARWA, JM AND A. N. PAHUJA, AM ) ITA NOS.1994, 1995, 1996, 1997, 1998 AND 1999/AHD/2 009 AY: 2001-02, 2002-03, 2003-04, 2004-05, 2005-06 AND 2006-07 THE A. C. I. T., CIRCLE 1, JASHONATH CHOWK, BHAVNAGAR, VS SHRI VIJAY M. PAREKH, PLOT NO. 1731- B, NILKANTH, SARVODAY SOCIETY, SARDARNAGAR, BHAVNAGAR, PA NO. AJEPP 5929 J (APPELLANT) (RESPONDENT) ITA NOS.2000, 2001, 2002, 2003, 2004 AND 2005/AHD/2 009 AY: 2001-02, 2002-03, 2003-04, 2004-05, 2005-06 AND 2006-07 THE A. C. I. T., CIRCLE 1, JASHONATH CHOWK, BHAVNAGAR, VS SHRI NILESH M. PAREKH, PLOT NO. 1731- B, NILKANTH, SARVODAY SOCIETY, SARDARNAGAR, BHAVNAGAR, PA NO. AJEPP 5929 J (APPELLANT) (RESPONDENT) DEPARTMENT BY SHRI SHELLEY JINDAL, DR ASSESSEE BY SHRI SN DIVETIA, AR O R D E R PER BENCH: THESE TWELVE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST THE CONSOLIDATED ORDER OF THE CIT( A)-XX, AHMEDABAD DATED 13-03-2009 RELATING TO ASSESSMENT YEARS 2001-02, 2002-03, 2003- 04, 2004-05, 2005-06 AND 2006-07 . ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 2 2. THE FIRST COMMON ISSUE RAISED VIDE GROUND NO.1 O F THE APPEALS IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN DELETI NG THE ADDITION MADE BY THE AO ON ACCOUNT OF ACCRUED INTEREST ON INVESTMENT S IN FDRS. 3. THE FACTS RELATING TO THIS ISSUE AS APPARENT FRO M THE RECORDS OF THE LOWER AUTHORITIES ARE THAT THE RESIDENTIAL PREMISES OF BOTH THE ASSESSEES WERE SUBJECTED TO SEARCH BY POLICE AUTHORITY OF BHA VNAGAR ON 28-03- 2006. AS A RESULT, CASH OF RS.5,79,000/-, DIAMONDS ETC. WERE FOUND AND SEIZED BY THE SAID AUTHORITY. SUBSEQUENTLY, A SEARC H U/S 132 OF THE ACT WAS CARRIED OUT ON 24-4-2006 ON THE LOCKER NO.129D WITH BHAVNAGAR NAGRIK SAHKARI BANK LTD., VADA BRANCH, BHAVNAGAR. D URING THE COURSE OF SEARCH GOLD ORNAMENTS BELONGING TO NINABEN VIJAY BHAI PAREKH WEIGHING 392.280 GRAMS WAS FOUND WHICH WAS NOT SEIZ ED. LATER ON, ON 15-11-2006, CASH OF RS.5,79,000/-, GOLD ORNAMENTS A ND DIAMONDS WERE REQUISITIONED U/S 132A OF THE ACT FROM POLICE DEPAR TMENT, BHAVNAGAR. IN BETWEEN, NOTICES U/S 153 A OF THE ACT WERE ISSUED T O BOTH THE ASSESSEE. BOTH THE ASSESSEES FILED THEIR RETURN OF INCOME IN RESPONSE TO THE SAID NOTICES. THE AO FRAMED THE ASSESSMENT ORDERS FOR TH E AY 2001-02 TO 2006-2007 U/S 143(3) READ WITH THE SECTION 153 A OF THE ACT BY MAKING ADDITION OF ACCRUED INTEREST ON INVESTMENT IN FDRS FOR AY 2001-02 TO 2006-07. THE AO ALSO MADE ADDITION ON ACCOUNT OF CA SH, DIAMONDS AND CDS FOUND AND SEIZED BY POLICE IN AY 2006-07.THE AO TOOK THE VIEW THAT INVESTMENTS IN FDRS WERE SHOWN AS A RESULT OF SEARC H OTHERWISE IT WOULD NOT HAVE BEEN OFFERED FOR TAXATION. THE AO ALSO HEL D THAT THE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND INTEREST ACCRUE D IN INVESTMENTS IN FDRS IS LIABLE TO BE TAXED AND ADDED TO THE TOTAL I NCOME. AS REGARDS CASH AND CDS FOUND BY THE POLICE THE AO REJECTED THE EXP LANATION OF THE ASSESSEES THAT SAME BELONGED TO MODHESWARI (MATANGI ) DEVSTHAN TRUST. THE AO OBSERVED THAT THERE WAS NO EXPLANATION WITH REGARD TO THE DIFFERENCE OF RS.27,000/- BEING THE VALUATION OF DI AMONDS. HE, THEREFORE, ADDED THE SUM OF RS.13,500/- EACH IN THE CASE OF BO TH THE ASSESSEE. ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 3 4. AGGRIEVED BY THE ORDERS PASSED U/S 143(3) READ W ITH SECTION 153 A OF THE ACT, BOTH THE ASSESSEE FILED APPEALS BEFORE THE CIT(A). AS REGARDS, REJECTION OF METHOD OF ACCOUNTING AND ADDITION OF I NTEREST ON INVESTMENTS IN FDRS, BOTH THE ASSESSEE SUBMITTED BEFORE THE CIT (A) THAT THEY WERE MAINTAINING BOOKS OF ACCOUNTS ON CASH RECEIPT BASIS SINCE 1998 AND HAVE FILED RETURNS FOR THE AY 2001-02 TO 2005-06, C ONSISTENTLY ADOPTING, FOLLOWING AND AS STAND WAS ACCEPTED BY THE DEPARTME NT ON CASH RECEIPT BASIS. THE ASSESSEES ALSO SUBMITTED BEFORE THE CIT( A) THAT IN SUPPORT OF THE ABOVE CONTENTIONS, BOOKS OF ACCOUNTS WERE PRODU CED AND VERIFIED BY THE AO. IT WAS ALSO STATED THAT INTEREST RECEIVED O N MATURITY OF FDRS WAS SHOWN AS INCOME IN FULL IN THE RESPECTIVE PREVIOUS YEARS ALSO, AS THE CASE MAY BE AND SHALL BE SHOWN IN FUTURE TOO. THE ASSESS EES ALSO BROUGHT TO THE NOTICE OF THE CIT(A) THAT THEY ARE ENGAGED IN T HE BUSINESS OF BROKERAGE. THE BROKERAGE INCOME IS ON ACCOUNT OF LA ND DALALI. THE SAME WAS CREDITED AS AND WHEN RECEIVED IN THE REGULAR BO OKS OF ACCOUNTS MAINTAINED. THE DALALI INCOME IS CONSISTENTLY SHOWN IN THE RETURN OF INCOME EVEN BEFORE THE SEARCH/REQUISITION PROCEEDIN GS. OBVIOUSLY, SINCE INCEPTION, THE ASSESSEES ARE FOLLOWING CASH/RECEIPT METHOD. IT WAS ALSO BROUGHT TO THE NOTICE OF THE CIT(A) BY THE ASSESSEE S THAT THE VERY SAME AO IN HIS FINDINGS OF ASSESSMENT ORDER FOR AY 2000- 01 U/S 143(3) READ WITH SECTION 147 OF THE ACT DATED 26-12-2007 ACCEPT ED THE CASH SYSTEM OF ACCOUNTING HAS CATEGORICALLY OBSERVED THAT THE A SSESSEES HAVE BEEN FOLLOWING CASH SYSTEM OF ACCOUNTING AND THE INCOME IS COMPUTED ON THAT BASIS AS SUCH. THE ASSESSEES ALSO BROUGHT TO THE NO TICE OF THE CIT(A) THAT COLUMN 8 OF THE PRESCRIBED FORMAT OF THE ASSESSMENT ORDER HAD REVEALED THAT THE AO HAD CATEGORICALLY MENTIONED METHOD OF A CCOUNTING AS CASH SYSTEM. THE AO HAS ALSO ADMITTED IN PARA 3 THAT TH E ASSESSEES ARE MAINTAINING THEIR BOOKS OF ACCOUNTS ON CASH BASIS. IT WAS ALSO SUBMITTED BY THE ASSESSEES BEFORE THE CIT(A) THAT THE AO HAS ACCEPTED THE CASH SYSTEM OF ACCOUNTING IN RESPECT OF INCOME EARNED F ROM BUSINESS AND AGRICULTURE. WHEREAS, HE HAS REJECTED THAT METHOD O NLY IN RESPECT OF ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 4 INTEREST ON INVESTMENT IN FDRS AND HAS TAXED THE INTEREST INCOME IN FDRS ON ACCRUAL BASIS BY ADOPTING MERCANTILE SYSTEM OF ACCOUNTING. IT WAS ALSO STATED BY THE ASSESSEES BEFORE THE CIT(A) THAT THE AO HAS PROCEEDED TO CHOSE THE METHOD OF ACCOUNTING IN A VE RY CASUAL MANNER WHICH IS EVIDENT FROM PARA 3 OF THE IMPUGNED ORDER , WHICH READS AS UNDER: THE ASSESSEE OUGHT TO HAVE FOLLOWED MERCANTILE SYS TEM OF ACCOUNTING SO THAT THE INCOME CHARGEABLE CAN BE COR RECTLY CHARGED. 5. IT WAS ALSO SUBMITTED BY THE ASSESSEES BEFORE TH E CIT(A) THAT THE AO HAS REJECTED THE REGULARLY FOLLOWED METHOD OF AC COUNTING IN IMPROPER AND UNJUSTIFIED MANNER, MERELY BECAUSE AS PER THE A O THE OTHER METHOD WOULD HAVE BEEN MORE CORRECT AND THAT TOO IN RESPEC T OF A SINGLE HEAD OF INCOME. IT WAS ALSO SUBMITTED THAT WITHOUT INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT THE AO HAS HELD THAT FOR COM PUTATION OF INCOME, MERCANTILE SYSTEM IS TO BE FOLLOWED. IN DOING SO, T HE AO HAS GROSSLY FAILED TO MAINTAIN CONSISTENCY WITHOUT BRINGING ANY PROOF OR EVIDENCE/NEW FACTS ON RECORD AND HAS ALSO TAXED THE INTEREST INC OME ON INVESTMENTS IN FDRS ONLY ON ACCRUAL BASIS WHEREAS INCOME UNDER THE HEADS BUSINESS INCOME, OTHER SOURCES AND AGRICULTURE INCOME WERE TAXED AS RETURN ON CASH BASIS. IT WAS ALSO CONTENDED BY THE ASSESSE ES THAT THEY WERE FOLLOWING CASH SYSTEM OF ACCOUNTING ON YEAR TO YEAR BASIS AND THE SAME HAS NOT BEEN DISPUTED BY THE DEPARTMENT EARLIER YEA RS. IN VIEW OF SUCH FACTS, THE AO HAS ERRED IN REJECTING THE METHOD OF ACCOUNTING IN RESPECT OF ONE HEAD EVEN THOUGH THIS INCOME WAS ACCEPTED IN THE PREVIOUS YEAR. THE ASSESEES HAVE ALSO CITED THE FOLLOWING DECISION S BEFORE THE CIT(A): 1. SANJEEV WOOLEN MILLS VS CIT (2005) 279 ITR 434 (SC) 2. JAGGILAL KAMLAPAT, BANKERS VS CIT (1975) 101 ITR 40 (ALL.) 3. J. K. BANKERS VS CIT 94 ITR 107 (ALL.) ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 5 4. CIT VS UNION LAND AND BUILDING SOCIETY PVT. LTD. 8 3 ITR 794(BOM) 6. THE CIT(A) DELETED THE IMPUGNED ADDITION HOLDING THAT THE INTEREST TO BE RECEIVED IN FUTURE SHALL BE LIABLE TO BE TAXE D IN THE RESPECTIVE YEARS. THE RELEVANT FINDINGS OF THE CIT(A) ARE AS UNDER: 5.10 I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE APPELLANT AND HAVE ALSO CAR EFULLY GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE SUBMISS IONS FILED AND ORALLY MADE BY HIM. IT IS AN UNDISPUTED FACT ON RECORD THAT BOTH THE APPELLANTS HAVE REGULARLY EMPLOYED CA SH SYSTEM OF ACCOUNTING FOR THEIR ALL SOURCES OF INCOME INCLU DING INCOME CHARGEABLE UNDER THE HEAD PROFIT & GAIN OF BUSINES S & INCOME FROM OTHER SOURCES. THE SAID FACTS ARE EVI DENT FROM NOT ONLY COLUMN NO.8 OF THE PRESCRIBED FORMAT FOR A SSESSMENT ORDER FOR ALL THE OTHER ASSESSMENT YEARS UNDER CONS IDERATION BUT ALSO FROM COLUMN 8 OF THE ASSESSMENT ORDER FRAM ED ON 26/12/2007 FOR THE A. Y. 2000-2001 PASSED BY THE SA ME ASSESSING OFFICER U/S 143 R. W. S. 147 AS ACCEPTED. A PLAIN READING OF SECTION 145 CONTEMPLATES THAT THE CHOICE TO FOLLOW EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING IS T HAT OF THE ASSESSEE ONLY WHICH SHOULD BE REGULARLY EMPLOYED BY THE ASSESSEE. IN THE INSTANT CASE, THE A. O. HAS ACCEPT ED THE SAME FOR ALL SOURCES OF INCOME BUT TOOK A DI0FFERENT STA ND FOR THE INTEREST ON FDRS THOUGH NOT RECEIVED OR CREDITED IN THEIR BANK ACCOUNTS. ON ONE HAND THE APPELLANT IS REGULARLY FO LLOWING CASH SYSTEM AS A METHOD OF ACCOUNTING BUT ON THE OT HER HAND, THE A. O. FOR THIS SINGLE HEAD OF INCOME OF INTERES T ON FDRS, INCONSISTENTLY APPLIED MERCANTILE SYSTEM OF ACCOUNT ING AGAINST THE SPIRIT OF APPLICABLE SECTION I.E. SECT ION 145 OF THE ACT. THE APPELLANT HAS ALSO RELIED ON THE FOLLOWING DECISIONS: I) SANJEEV WOOLEN MILLS VS CIT (2005) 279 ITR 434 (SC) II) JAGGILAL KAMLAPAT, BANKERS VS CIT (1975) 101 ITR 40 (ALL.) III) J. K. BANKERS VS CIT 94 ITR 107 (ALL.) IV) CIT BOMBAY CITY I VS UNION LAND AND BUILDING SOCIE TY PVT. LTD. 83 ITR 794(BOM) ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 6 AS PER RATIO LAID DOWN BY THE DIFFERENT JUDICIAL AU THORITIES IN THE ABOVE QUOTED DECISIONS IS THAT THE CHOICE OF ME THOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE LIES WITH THE ASSESSEE BUT THE ASSESSEE WOULD BE REQUIRED TO SHOW THAT HE HAS FOLLOWED THE CHOSEN METHOD REGULARLY. CONSIDERI NG THE FACTS OF THESE CASES IN THE LIGHT OF THE AFORESAID JUDICIAL PRONOUNCEMENTS, I HAVE NO HESITATION IN HOLDING THA T THE A. O. HAS WRONGLY REJECTED THE CASH SYSTEM OF ACCOUNTING FOR A SINGLE SOURCE OF INCOME AND THEREBY ADDED THE INTER EST ON ACCRUAL BASIS THOUGH NOT RECEIVED OR CREDITED. THE METHOD OF ACCOUNTING REGULARLY ADOPTED, FOLLOWED BY THE APPEL LANT AND ALSO ACCEPTED EARLIER BY THE DEPARTMENT IS TO BE AC CEPTED AS THE METHOD OF ACCOUNTING AND SINCE THE APPELLANTS R EGULARLY HAVE BEEN MAINTAINING THEIR BOOKS OF ACCOUNT ON TH E BASIS OF CASH SYSTEM, THEIR SYSTEM WITHOUT ANY SOLID REASON CANNOT BE DISTURBED OR REJECTED. AS IT HAS BEEN CLARIFIED BY THE LEARNED A. R. THAT IN BOTH THE APPELLANTS CASES, ON ACCOUN T OF RS.4,092/- FOR ASSESSMENT YEAR 2003-04 AND RS.13,27 0/- FOR ASSESSMENT YEAR 2004-05 RESPECTIVELY HAS ALREADY OF FERED FOR TAX ON MATURITY BASIS OF FDRS WHICH HAS ALREADY BEE N CONSIDERED AND TAXED BY THE AO IN THE RESPECTIVE YE ARS ON CASH BASIS ONLY. AS SUCH, THE A. O. IS DIRECTED TO ACCEPT CASH SYSTEM OF ACCOUNTING FOLLOWED BY THE APPELLANT REGU LARLY AND HENCE, THE ADDITIONS MADE APPLYING THE MERCANTILE S YSTEM OF ACCOUNTING ON THE INTEREST ACCRUED ON FDRS FOR ALL THE ASSESSMENT YEARS UNDER APPEAL ARE DIRECTED TO BE DE LETED. HOWEVER, THE INTEREST TO BE RECEIVED IN FURTHER SHA LL BE LIABLE TO BE TAXED IN THE RESPECTIVE YEARS. 7. BEFORE US, SHRI SHELLEY JINDAL, LEARNED DR HEAVI LY RELIED ON THE ORDER OF THE AO AND ON THE OTHER HAND, SHRI S. N. D IVATIA, LEARNED COUNSEL FOR THE ASSESSEE REITERATED HIS SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE ALSO RELIED ON THE DECISION O F THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS FAL INDUSTRIES LTD . (2009) 314 ITR 47 (MAD.) THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RE LIED ON THE DECISIONS MENTIONED IN THE ORDER OF THE CIT(A). 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO N AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS AD MITTED POSITION THAT BOTH THE ASSESSEES ARE REGULARLY FOLLOWING CASH SYS TEM OF ACCOUNTING FOR THEIR ALL SOURCES OF INCOME INCLUDING INCOME CHARGE ABLE UNDER THE HEAD ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 7 PROFIT & GAIN OF BUSINESS AND INCOME FROM OTHER S OURCES. THIS FACT IS EVIDENT FROM COLUMN NO.8 OF THE ASSESSMENT ORDER DA TED 26-12-2007 PASSED BY THE SAME AO U/S 143 (3) READ WITH SECTION 147 OF THE ACT FOR THE ASSESSMENT YEAR 2000-2001. THUS, IT IS CLEAR TH AT THE ASSESSEES WERE REGULARLY FOLLOWING THE CASH SYSTEM OF ACCOUNTING F OR THEIR ALL SOURCES OF INCOME. IT IS WORTH MENTIONING THAT IN THE INSTANT CASE, THE AO ACCEPTED THE CASH SYSTEM OF ACCOUNTING FOR ALL SOURCES OF IN COME BUT TOOK A DIFFERENCE VIEW FOR INTEREST ON FDRS THOUGH NOT REC EIVED OR CREDITED IN THE ACCOUNT OF THE ASSESSEE. IN THE CASE OF SANJEEV WOOLEN MILLS VS CIT (SUPRA) THE HONBLE SUPREME COURT HAS RULED THAT CH OICE OF ADOPTING METHOD OF ACCOUNTING LIES WITH THE ASSESSEE AND IT SHOULD BE REGULARLY EMPLOYED BY THE ASSESSEE. THE RELEVANT OBSERVATIONS MADE BY THE HONBLE SUPREME COURT IN THIS REGARD ARE AS UNDER: THE CHOICE OF METHOD OF ACCOUNTING REGULARLY EMPLO YED BY THE ASSESSEE LIES WITH THE ASSESSEE BUT THE ASSESSEE WO ULD BE REQUIRED TO SHOW THAT HE HAS FOLLOWED THE CHOSEN ME THOD REGULARLY. THE DEPARTMENT IS BOUND BY THE ASSESSEE' S CHOICE OF METHOD REGULARLY EMPLOYED UNLESS BY THIS METHOD THE TRUE INCOME, PROFIT OF ACCOUNTS CANNOT BE ARRIVED AT. TH E ASSESSEE'S REGULAR METHOD WOULD NOT BE REJECTED AS IMPROPER ME RELY BECAUSE IT GIVES HIM THE BENEFIT IN CERTAIN YEARS O R THAT AS PER THE ASSESSING OFFICER THE OTHER METHOD WOULD HAVE B EEN MORE PREFERABLE. THE METHOD OF ACCOUNTING CAN-NOT BE SUB STITUTED BY THE ASSESSING OFFICER MERELY BECAUSE IT IS UNSAT ISFACTORY. WHAT IS MATERIAL FOR THE PURPOSE OF SECTION 145 IS, THE METHOD TO BE SUCH THAT THE REAL INCOME, PROFIT AND GAIN CA N BE PROPERLY DEDUCED THEREFROM. IF THE METHOD ADOPTED D OES NOT AFFORD TRUE PICTURE OF PROFIT, IT WOULD BE REJECTED , BUT THEN SUCH REJECTION SHOULD BE BASED ON COGENT EVIDENCE AND WO ULD BE DONE WITH CAUTION. THE POWER CAN BE EXERCISED BY TH E ASSESSING AUTHORITY TO CHOOSE THE BASIS AND MANNER IN THE COMPUTATION OF INCOME BUT HE MUST EXERCISE HIS DISC RETION AND JUDGMENT JUDICIALLY AND REASONABLY. 9. IN THE INSTANT CASE, THE AO HAS NOT BROUGHT ANY COGENT EVIDENCE IN REJECTING THE METHOD OF ACCOUNTING REGULARLY FOLLOW ED BY THE ASSESSEES. IN OUR VIEW, THE CIT(A) HAS CORRECTLY OBSERVED THAT O N ONE HAND THE ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 8 APPELLANT IS REGULARLY FOLLOWING CASH SYSTEM AS A M ETHOD OF ACCOUNTING BUT ON THE OTHER HAND THE AO FOR ONLY SINGLE HEAD O F INCOME OF INTEREST ON FDRS INCONSISTENTLY APPLIED MERCANTILE SYSTEM OF ACCOUNTING AGAINST THE SPIRIT OF APPLICABLE SECTION I.E. SECTION 145 OF THE ACT. KEEPING IN VIEW THE DECISION OF THE HONBLE SUPREME COURT (SUP RA), WE ARE OF THE VIEW THAT THE ABOVE FINDINGS OF THE CIT(A) ARE CORR ECT AND DESERVES TO BE UPHELD. 10. IN THE CASE OF J. K. BANKERS VS CIT (SUPRA) THE HONBLE ALLAHABAD HIGH COURT HELD THAT THE ASSESSEE CANNOT BE COMPELL ED TO ADOPT THE SAME SYSTEM OF ACCOUNTING IN RESPECT OF INCOME FALL ING U/S 12 (OLD IT ACT OF 1922). THE RELEVANT OBSERVATIONS OF THE HONBLE ALLAHABAD HIGH COURT ARE AS UNDER: SECTION 13 OF THE ACT GIVES AN OPTION TO THE ASSES SEE TO FOLLOW WHATEVER METHOD OF ACCOUNTING IT LIKES IN RESPECT O F INCOME ASSESSABLE UNDER SECTIONS 10 AND 12 OF THE ACT. NOW , ADMITTEDLY, THE INCOME FROM LEASE MONEY FALLS TO BE ASSESSED UNDER SECTION 12 AS INCOME FROM 'OTHER SOURCES' WHI LE THE INCOME EARNED BY THE ASSESSEE BY WAY OF INTEREST IN ITS MONEY LENDING BUSINESS WOULD BE INCOME FROM BUSINES S ASSESSABLE UNDER SECTION 10. IT WAS OPEN TO THE ASS ESSEE TO FOLLOW ONE SYSTEM OF ACCOUNTING IN RESPECT OF ONE S OURCE AND ANOTHER SYSTEM IN RESPECT OF THE OTHER SOURCE. THE ASSESSEE FOLLOWED THE MERCANTILE SYSTEM IN RESPECT OF ITS IN COME FROM BUSINESS. BUT THAT DOES NOT MEAN THAT THE ASSESSEE COULD BE COMPELLED TO ADOPT THE SAME SYSTEM IN RESPECT OF TH E INCOME FALLING UNDER SECTION 12. 11. NO DOUBT, THE SAID JUDGMENT WAS DELIVERED BY TH E ALLAHABAD HIGH COURT WITH REFERENCE TO INDIAN INCOME TAX ACT, 1922 , HOWEVER, THE RATIO LAID DOWN BY THE HONBLE ALLAHABAD HIGH COURT IS SQ UARELY APPLICABLE TO THE PRESENT SCENARIO ALSO. FROM THIS JUDGMENT IT IS CLEAR THAT THE AO CANNOT COMPEL THE ASSESSEE TO ADOPT A PARTICULAR SY STEM OF ACCOUNTING WITHOUT ASSIGNING ANY COGENT REASON. SIMILARLY, THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF JAGGILAL KAMLAPAT, BANKER S VS CIT (SUPRA) HELD THAT OPTION REGARDING ADOPTING A SYSTEM OF ACCOUNTI NG IS WITH THE ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 9 ASSESSEE AND NOT WITH THE INCOME TAX DEPARTMENT. TH E DEPARTMENT CANNOT COMPEL THE ASSESSEE TO ADOPT MERCANTILE SYST EM OF ACCOUNTING. IF AN ASSESSEE ADOPTS THE CASH SYSTEM IN RESPECT OF IN COME ASSESSABLE U/S 12 (INCOME TAX ACT 1922), HE CANNOT BE ASSESSED ON ACCRUAL BASIS. 12. IN VIEW OF THE DECISIONS REFERRED TO ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE CASH SYSTEM OF ACCOUNTING FOR A SINGLE HEAD OF INCOME AND THEREBY ADDING THE INTEREST ON FDRS ON ACCRUAL BASIS THOUGH NOT RECEIVED OR CRE DITED. THE AO SHOULD HAVE ACCEPTED THE METHOD OF ACCOUNTING REGUL ARLY FOLLOWED BY THE ASSESSEES. IT IS APPARENT FROM THE RECORD THAT THE ASSESSEES WERE MAINTAINING BOOKS OF ACCOUNT ON CASH SYSTEM BASIS. WE DO NOT FIND ANY COGENT AND VALID REASON FOR DISTURBING THE METHOD O F ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEES. IT IS ALSO REL EVANT TO POINT OUT THAT IN BOTH THE ASSESSEES CASE, AN AMOUNT OF RS.4,092/- FO R AY 2003-04 AND RS.13,270/- FOR AY 2004-05 RESPECTIVELY HAS ALREADY BEEN OFFERED FOR TAX ON MATURITY BASIS OF FDRS WHICH HAS ALREADY BEEN CO NSIDERED AND TAXED BY THE AO IN RESPECTIVE YEARS ON CASH BASIS ONLY. T HUS, CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A) ON THIS ISS UE. THE CIT(A) HAS CORRECTLY DIRECTED THE AO TO ACCEPT THE CASH SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE REGULARLY. IN THAT VIEW OF THE MATTER, WE UPHOLD THE ORDER OF THE CIT(A) IN DELETING THE ADDITIONS M ADE BY THE AO APPLYING THE MERCANTILE SYSTEM OF ACCOUNTING ON THE INTERES T ACCRUED ON FDRS FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION. THE C IT(A) HAS ALSO CORRECTLY HELD THAT THE INTEREST TO BE RECEIVED IN FUTURE SHALL BE LIABLE TO BE TAXED IN THE RESPECTIVE YEARS. 13. IN ITA NO.1999/AHD/2009 AND ITA NO.2005/AHD/200 9 GROUND NO.2 ARE DIRECTED AGAINST THE ACTION OF THE CIT(A) IN DELETING THE ADDITION OF CASH OF RS. 2,06,184/- AND RS.3,72,816 IN PR OPORTION TO THE INCOME ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 10 OF NILESH M. PAREKH AND VIJAY M. PAREKH RESPECTIVEL Y AND GROUND NO.3 IN EACH APPEAL IS DIRECTED AGAINST THE ACTION OF THE C IT(A) IN DELETING ADDITION OF RS.83,368/- MADE BY THE AO IN EACH CASE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN CDS AND INSTRUMENTS. 14. BRIEF FACTS NOTED BY THE LOWER AUTHORITIES ARE THAT DURING THE COURSE OF POLICE ACTION 28-3-2006, THE POLICE AUTHO RITIES SEIZED CASH OF RS.5,79,000/-. THE ASSESSEES CLAIMED BEFORE THE CIV IL COURT AT BHAVNAGAR THAT THIS CASH BELONGED TO MODHESHWARI (M ATANGI) DEVSTHAN TRUST, BHAVNAGAR AND IT WAS CLAIMED THAT THE SAME W AS KEPT WITH THEM. THIS WAS NOT ACCEPTED BY THE POLICE SINCE THE CASH WAS FOUND FROM THE POSSESSION OF THE ASSESSEES AND NO SUCH CLAIM WAS M ADE DURING THE SEIZURE BY THE POLICE. THE AO ASKED THE ASSESSEES T O SHOW CAUSE AS TO WHY IT SHOULD NOT BE CONSIDERED AS INCOME FROM UNAC COUNTED SOURCES. IN RESPONSE, TO ABOVE SHOW CAUSE NOTICE, IT WAS EXPLAI NED THAT THE CASH FOUND BELONGED TO MODHESHWARI (MATANGI) DEVSTHAN TR UST, A CHARITABLE TRUST, REGISTERED WITH BOMBAY PUBLIC TRUST ACT, 195 0. IT WAS ALSO STATED THAT THE TRUST IS REGULARLY ASSESSED TO TAX BY DDIT (EXEMPTION), BHAVNAGAR. IN SUPPORT OF THE SAME, THE ASSESSEES SU BMITTED COPIES OF RELEVANT CASH BOOK, LEDGER ACCOUNT ALONG WITH AUDIT ED ACCOUNTS AND COPY OF IT RETURNS FILED BY THE SAID TRUST. IT WAS CLAIM ED THAT THE TRUST IS RUN BY THE ASSESSEES AS CUSTODIAN FOR AND ON BEHALF OF THE TRUST AND HENCE, THE CASH WAS FOUND FROM THE POSSESSION OF THE ASSES SEES DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS REGARDS STATEM ENT OF NILESH M PAREKH WHICH WAS RECORDED ON 16-12-2008, IN REPLY T O QUESTION NO.9, THE ASSESSEE HAS CATEGORICALLY EXPLAINED THAT THE C ASH IN QUESTION BELONGS TO THE TRUST. THE AO DID NOT ACCEPT THE CON TENTION OF THE ASSESSEE AND MADE THE ADDITION HOLDING THAT THE TRU ST WAS NOT HOLDING CASH OF SUCH HUGE AMOUNT AND THE EXPLANATION IS AN AFTERTHOUGHT. REJECTING THE ASSESSEES CONTENTION THE AO APPORTIO NED THE SEIZED CASH OF ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 11 RS.5,79,000/- IN THE RATIO OF RETURNED INCOME IN TH E HANDS OF TWO BROTHERS (ASSESSEES). 15. BEFORE THE CIT(A), THE ASSESSEES SUBMITTED THE WRITTEN SUBMISSIONS IN RESPECT OF THE IMPUGNED ADDITION WHICH READS AS UNDER: (I) THAT THE ASSESSEE ALONG WITH HIS BROTHER WERE VICTIMIZED BY THE LOCAL POLICE AUTHORITY UNDER THE FLIMSY & FA LSE CHARGE OF DUPLICATE AND PIRATED CDS AND DOCUMENTS/CASH, ETC. WERE SEIZED BY THE POLICE AUTHORITIES AT THEIR SWEET WIL L, PARTLY & SELECTIVELY IN ORDER TO FRAME THEM. (II) AS STATED IN REPLY TO Q. NO.9 (AS REPRODUCED I N PARA 6.3 ABOVE), IT IS NOT TRUE THAT THE ASSESSEE DI0D NOT E XPLAIN THE SOURCE OF CASH BEFORE THE POLICE AUTHORITIES, FOR T HE REASON THAT POLICE THEORY IS INCONSISTENT SINCE ASSESSEES SIGN ATURE WERE NEVER TAKEN IN THE PANCHNAMA PAPERS BY THE POLICE. (III) THE ASSESSEE HAS SUBMITTED MATERIAL DOCUMENTS ALONG WITH ASSESEES WRITTEN SUBMISSIONS DT. 22.8.2008, V IZ. COPIES OF AUDITED BALANCE SHEET WITH CASH BOOK PAGES. THE AO HAS DULY PLACED THEM ON RECORD. (IV) THE LD. AO HAS RECORDED ASSESEES STATEMENT U/ S. 131(1A) OF THE ACT, DURING THE COURSE OF THE ASSESS MENT PROCEEDINGS ON 16.12.2008 WHEREIN THE ASSESSEE HAS CATEGORICALLY EXPLAINED THE NATURE OF POSSESSION AN D SOURCE OF CASH (VIDE Q NO.9 & 10 THERETO). THAT IT BELONGED T O THE TRUST. (V) THE ASSESSEE BEING MANAGING TRUSTEE/CUSTODIAN O F THE SAID TRUST, HE PRODUCED AUDITED BOOKS OF ACCOUNT OF THE TRUST ON 16.12.2008 WHICH THE AO EXAMINED DURING THE COUR SE OF PROCEEDINGS AND NO DEFECT/DEFICIENCY WAS NOTICED BY THE AO. (VI) THE TRUST IS REGULAR TAX PAYER ASSESSED TO TAX BY THE DDIT(EXEMPTION) BHAVNAGAR, COMPLETE PROFILE IS AVAI LABLE ON THE RECORDS OF THE DEPARTMENT. THE AO NEITHER MADE ANY EFFORTS TO CROSS VERIFY THE FACTS FROM THE RECORDS OF TH8E DEPARTMENT NOR MADE ANY INDEPENDENT INQUIRY TO DISB ELIEVE THE ASSESSEES CONTENTIONS ABOUT OWNERSHIP OF THE C ASH. (VII) THE AO HAS GROSSLY ERRED IN OBSERVING THAT CA SH BALANCES IN THE BOOKS OF TH4E TRUST IN THE EARLIER YEARS WERE ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 12 NOT MUCH ENOUGH AS COMPARED TO AMOUNT OF SEIZED CAS H. THE AO HAS NOT UNDERSTOOD THE BASIC THING OF ACCOUNTANC Y THAT CASH BALANCE CANNOT REMAIN STATIC. (VIII) THERE IS NO JUSTIFICATION TO APPORTION THE CASH IN THE RATIO OF RETURNED INCOME BETWEEN TWO BROTHERS, REJECTING EVIDENTIARY VALUE OF DOCUMENTS PRODUCED BY THE APPELLANT. 6.7 FROM THE ABOVE STATED FACTS AND PECULIAR CIRCUMSTANCES OF THE CASE OF THE ASSESSEE, IT WOULD BE SEEN THAT WITHOUT CONSIDERING THE DOCUMENTARY EVIDENCE A ND WITHOUT APPLYING MIND JUDICIOUSLY, THE AO HAS ACTED ARBITRARILY AND PASSED THE ORDER WHICH IS APPARENTL Y BAD IN LAW. 6.8 APART FROM THE ABOVE FACTUAL ASPECT, IT MAY KINDLY BE APPRECIATED THAT THE ASSESSEE HAS FULLY D ISCHARGED THE ONUS WITH REGARD TO THE SEIZED CASH WITH DOCUME NTARY EVIDENCES AND PROVED THAT THE SAID CASH BELONGED TO THE TRUST ONLY. FURTHER, BY SERIOUS DECISIONS, IT IS SETTLED THAT ONCE THE ASSESSEE HAS PRODUCED MATERIAL DOCUMENTS THAT THE C ASH BELONGED TO THE THIRD PARTY (AND THAT TOO, AN EXIST ING ASSESSEE), THEN THE ONUS SHIFTS ON THE AO TO PROVE, BY BRINGING ENOUGH MATERIAL ON RECORD. THIS PROVISION OF LAW HA S NOT BEEN FOLLOWED BY THE AO IN PASSING THE ASSESSMENT ORDER. IN ALL FAIRNESS, THE AO WAS DUTY BOUND TO MAKE SOME EFFORT TO BRING SOME EVIDENCE ON RECORD TO DISBELIEVE THE APPELLANT S CLAIM. THE IMPUGNED ADDITION IS, THEREFORE, IN BREACH OF T HE PRINCIPLES OF NATURAL JUSTICE. 16. AS REGARDS ADDITION OF RS.83,368/- IN EACH CASE , THE AO OBSERVED THAT VIDE ORDER SHEET NOTE DATED 28-11-2008, THE AS SESSEE ASKED TO SHOW CAUSE AS TO WHY THE INVESTMENT IN CDS AND INVESTMEN T VALUED AT RS.1,66,735/- SHOULD NOT BE TREATED AS ASSESSEES U NDISCLOSED INCOME AND ADDED TO THE TOTAL INCOME. IN RESPONSE TO THE A BOVE, THE ASSESEEES SUBMITTED THE CDS FOUND WERE THAT OF MODHESHWARI (M AGANGI) DEVASTHAN TRUST. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO RECORDED THE DETAILED STATEMENT OF THE ASSESSEE. IN REPLY TO QUE STION NO.16, IT WAS SUBMITTED BY THE ASSESSEES THAT THE CDS SEIZED WER E BLANK AND HENCE, QUESTION OF PIRACY DOES NOT ARISE. THE PURCHASE OF CDS WERE WORTH ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 13 RS.2,00,000/- HAVE BEEN ENTERED INTO THE BOOKS OF A CCOUNTS OF THE AFORESAID TRUST ON 18-3-2006. ALSO IN THE RETURN OF THE TRUST FOR AY 2006- 07 PURCHASES OF INSTRUMENTS ARE SHOWN. THE AO DID N OT FIND ANY MERITS IN THE EXPLANATION OF THE ASSESSEES. THE AO WITHOUT APPRECIATING THE EXPLANATION SUPPORTED BY DOCUMENTARY EVIDENCE VIZ., EVIDENCE, AUDIT REPORT, BOOKS OF ACCOUNTS PRODUCED BEFORE HIM MADE THE ADDITION. THE ADDITION OF RS.83,368/- WAS MADE EQUALLY IN THE HAN DS OF BOTH THE BROTHERS (ASSESSEES) U/S 69 OF THE ACT. 17. THE CIT(A) DELETED THE ADDITION OF RS.2,06,184/ - AND RS.3,72,816/- (RS.5,79,000/-) AND ALSO THE ADDITION OF RS.83,368/ - AGGREGATING TO RS.7,66,638/- OBSERVING AS UNDER: 7.5 I HAVE CAREFULLY CONSIDERED THE CONTENTIONS O F THE LEARNED COUNSEL FOR THE APPELLANT AND HAVE CAREFULL Y GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE SUBMISS IONS FILED AND ORALLY MADE BY HIM. THE AUTHORIZED REPRESENTATI VE VEHEMENTLY OBJECTED THAT THE OBSERVATION OF THE A. O. THAT THE POLICE AUTHORITY HAD RECORDED THE STATEMENT OF THE APPELLANT ON 28/3/2006 WHEN THE CASH & CDS IN QUESTION WERE S EIZED IT HAS BEEN CLARIFIED THAT NO SUCH STATEMENT WAS RE COVERED ON 28/3/2006 BY THE POLICE AUTHORITY AT THE TIME OF PO LICE ACTION AND ON THE OTHER HAND, THE A. O. WITHOUT BRINGING T HIS SO CALLED STATEMENT ON RECORD, WRONGLY NARRATED THAT N O SUCH FACTS WERE DECLARED BY THE APPELLANT WITH REGARD TO THE HOLDING OF CASH ON BEHALF OF THE TRUST. THE AUTHORI SED REPRESENTATIVE PLACED HEAVY RELIANCE ON QUESTION & ANSWERS NOS. 9, 10 & 11 ( IN RESPECT OF CASH SEIZED) AND 16 AND 17 ( IN RESPECT OF CDS AND INSTRUMENTS) OF THE STATEMENT DA TED 16/2/2008 RECORDED U/S 131(1A) BY THE A. O. ACCORDI NGLY, THE APPELLANTS HAVE EXPLAINED THE SAME WITH COMPLET E DOCUMENTARY EVIDENCES INCLUDING RETURNS OF INCOME O F THE TRUST ALONG WITH AUDITED P & L ACCOUNT, BALANCE SH EET AND ALSO THE AUDITED CASH BOOK EXPLAINING THE SOURCE AN D ALSO AN ENTRY OF SEIZURE OF CASH MADE BY THE POLICE. THE A. O. ON MERE PROBABILITY WITHOUT BRINGING ANY COGENT EVIDENCE AN D MATERIAL ON RECORD, BRUSHED ASIDE THE SUBMISSION AND DOCUMEN TARY EVIDENCE STATING THAT THE TRUST WAS NEVER HOLDING S UCH HUGE CASH BALANCE AND THUS IT IS AN AFTER THOUGHT. IN VI EW OF THE DIRECT DOCUMENTARY EVIDENCES REGARDING SOURCE OF CA SH WITH ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 14 THE TRUST, THE CLAIM AND CONTENTION OF THE APPELLAN T CANNOT BE DENIED. SUSPICION HOWEVER STRONG CANNOT TAKE PLACE AS PROOF IS A WELL SETTLED LEGAL PROPOSITION. IN THE RETURN OF INCOME FILED FOR ASST. YEAR 2006-07 OF THE TRUST, THE APPELLANT HAS DEBITED RS.2,55,601/- AGAINST THE VALUE OF CDS AND INSTRUME NTS SHOWN AT RS.1,66,735/- IN THE POLICE PANCHNAMA WHIC H IS AN UNDISPUTED FACT. THE VALUE SHOWN IN THE BOOKS IS MO RE THAN THE ADDITION MADE ON THIS POINT. THEREFORE, IN VIEW OF THE FACTS & CIRCUMSTANCES OF THE CASE, IT IS HELD THAT THE OBSERVATION OF THE AO, IN THIS REGARD, IS BASED ON SUSPICIOUS & CONJECTURE AND ON THE OTHER HAND, ON THE BASIS OF C LINCHING EVIDENCES AVAILABLE ON RECORD, THE CASH FOUND AND A LSO CDS AND INSTRUMENTS OUGHT TO HAVE BEEN ACCEPTED AS THAT OF THE MODHESHWARI (MATANGI) DEVASTHAN TRUST AND NOT OF THE APPELLANTS AS HELD BY THE A. O. THE ADDITIONS MADE, IN THIS REGARD, IN BOTH THE CASES ON BOTH THE COUNTS ARE OR DERED TO BE DELETED IN FULL. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE AO OBSERVED THAT THE POLICE AUTHORITY HAD RECORDED THE STATEMENT OF THE ASSESSEES ON 28- 3-2006 WHEN THE CASH AND CDS IN QUESTION WERE SEIZE D. THE AO HAS NOT BROUGHT ON RECORD THE ALLEGED STATEMENT OF THE ASSE SSEE RECORDED ON 28- 3-2006. THUS, THE AO WAS NOT JUSTIFIED IN TAKING AD VERSE VIEW IN THE MATTER. ON THE OTHER HAND, IN REPLY TO QUESTION NO. 9, 10 AND 11 (IN RESPECT OF CASH SEIZED) AND 16 AND 17 (IN RESPECT O F CDS AND INSTRUMENTS) OF THE STATEMENT DATED 16-2-2008 RECOR DED U/S 131(1A) OF THE ACT, THE ASSESSEES HAVE STATED THAT THE SAME BE LONGED TO THE TRUST NAMELY MODHESHWARI (MATANGI) DEVSTHAN TRUST. IN SUP PORT OF THIS CLAIM THE ASSESSEES FURNISHED DOCUMENTARY EVIDENCES INCLU DING RETURNS OF INCOME OF THE TRUST ALONG WITH AUDITED ACCOUNTS, PR OFIT & LOSS ACCOUNT, BALANCE SHEET AND ALSO THE AUDITED CASH BOOK INCLUD ING SOURCE OF CASH AND ALSO ENTRY OF SEIZURE OF CASH MADE BY THE POLIC E. IN OUR VIEW, THE CIT(A) HAS CORRECTLY OBSERVED THAT IN VIEW OF THE D IRECT DOCUMENTARY EVIDENCES REGARDING SOURCES OF CASH OF THE TRUST , THE CLAIM OF THE ASSESSEES CANNOT BE DENIED. IT IS ALSO APPARENT FRO M RECORD THAT IN THE RETURN OF INCOME FILED IN AY 2006-07 OF THE TRUST, THE ASSESSEES HAVE ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 15 DEBITED RS. 2,55,601/- AGAINST CDS AND INSTRUMENTS SHOWN AT RS.1,66,735/- IN THE POLICE PANCHNAMA. THUS, THE VA LUATION SHOWN IN THE BOOKS IS MORE THAN THE ADDITION MADE ON THIS CO UNT. 19. IN VIEW OF THE ABOVE DISCUSSIONS THE CIT(A) WAS JUSTIFIED IN STATING THAT THE OBSERVATIONS OF THE AO IN THIS REGARD BASE D ON SUSPICION AND SURMISES AND ON THE OTHER HAND ON THE BASIS OF CONC LUDING EVIDENCES AVAILABLE ON RECORD THE CASH FOUND AND ALSO THE CDS AND INSTRUMENTS OUGHT TO HAVE BEEN ACCEPTED AS THAT OF THE TRUST AN D NOT AS THAT OF THE ASSESSEES AS HELD BY THE AO. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE GROUND NO.2 OF EACH APPEAL A ND GROUND NO.3 ALSO IN EACH OF THE APPEAL. 20. GROUND NO.4 IN EACH OF THE APPEAL I.E. ITA NO.1 999/AHD/2009 AND 2005/AHD/2009 RELATING TO AY 2006-07 IS DIRECTE D AGAINST THE ACTION OF THE CIT(A) IN DELETING THE ADDITION OF RS .13,500/- MADE BY THE AO ON ACCOUNT OF UNEXPLAINED INVESTMENT IN DIAMOND. 21. RELEVANT FACTS NOTED BY THE AO ARE THAT DURING THE COURSE OF POLICE ACTION ON 28-03-2006 AT THE RESIDENCE OF THE ASSESS EES, THE POLICE AUTHORITY HAS SEIZED DIAMOND WORTH 2,27,000/-. AS P ER BALANCE SHEET OF BOTH THE BROTHERS (ASSESSEES), THE AO FOUND THAT TH EY HAD SHOWN DIAMOND OF RS.1,00,000/- EACH UNDER THE HEAD ASSET S. ACCORDINGLY, THERE WAS A RESULTANT DIFFERENCE OF RS.27,000/- WHI CH REMAINED UNEXPLAINED. IN RESPONSE TO SHOW CAUSE NOTICE ISSUE D BY THE AO THE ASSESSEES SUBMITTED THAT REIMBURSEMENT OF RS.2,00, 000/- IS ACTUALLY COST OF ACQUISITION AS EVIDENT FROM THE DETAILS FIL ED IN RESPONSE TO REPLY TO THE QUESTION OF THE SAID STATEMENT. IT IS MERELY TH E DIFFERENCE OF OPINION IN RESPECT OF ADDITION ON ACCOUNT OF DATE AND THE A CTUAL COST OF SPECIFIC DATE. THEREFORE, THE DIFFERENCE OF RS.27,000/- SHOU LD NOT BE CONSIDERED. THE AO DID NOT ACCEPT THE ABOVE REPLY OF THE ASSESS EE. HE, THEREFORE, APPORTIONING THE SAME EQUALLY BETWEEN THE TWO BROTH ERS (ASSESSEES) ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 16 RS.13,500/- CONSIDERING THE SAME TO BE UNACCOUNTED INVESTMENT HELD BY THE ASSESEES IN THE YEAR UNDER CONSIDERATION AND AC CORDINGLY, HE TAXED THE SAME U/S 69 OF THE ACT. 22. THE CIT(A) DELETED THE ADDITION OBSERVING AS UN DER: 8.6 I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE APPELLANTS AND HAVE ALSO CA REFULLY GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE SUBMISSIONS FILED AND ORALLY MADE BY THEM. IT IS OB SERVED THAT THERE ARE THREE DIFFERENCE DATES WHICH ARE RELEVANT IN THE CASE TO DECIDE THE ISSUE REGARDING THE VALUATION O F DIAMONDS: I. ACTUAL DATE OF EACH & EVERY TRANSACTION AS RECORDED IN THE BOOKS OF ACCOUNTS AS WELL AS THE DIARY RELIED U PON BY THE APPELLANT AND ACCEPTED BY THE A.O. IN RESPEC T OF ALL THE TRANSACTIONS EXCEPT FOR DIAMOND. II. THE DATE OF POLICE PANCHNAMA DT. 28/3/2006 III. THE DATE OF INCOME-TAX PANCHNAMA DT. 15/11/2006 AS PER REQUISITION U/S. 132A OF THE ACT MADE FROM THE POLICE. THE A.O. ACCEPTED THE BOOKS OF THE APPELLANTS AND T HE DIARY (REFERRED IN ANSWER NO.15 OF THE STATEMENT RECORDED ON 16/12/2008. ACCORDINGLY, THE APPELLANTS HAVE SHOWN THE COST OF ACQUISITION OF DIAMOND AT RS.1 LAC IN EACH CASE AS ON 19/1/2006 AND THE POLICE AUTHORITY GOT THE SAME VAL UED BY ONE OF THE PANCHAS VIZ. SHRI MOHSINBHAI A SARKAR WH O HAPPENED TO BE DOING THE WORK OF GOLDSMITH. FURTHER , WHEN THE REQUISITION U/S. 132A OF THE ACT WAS MADE BY TH E DEPARTMENT, THE DEPARTMENT GOT THE SAME VALUED ONCE -AGAIN BY A REGISTERED VALUER WHO VALUED THE SAME AT RS.3, 34,424/- ON 15-11-06. THUS, IT IS SEEN THAT THE VALUE OF THE DIAMONDS SHOWN BY THE APPELLANTS IN THE BOOKS OF ACCOUNT AS PER THE PURCHASE MADE BY THE APPELLANTS FROM SHRI THAKERSIB HAI PATEL, THE BROKER HAS BEEN SHOWN AT RS.2 LACS BY BO TH THE APPELLANTS. DURING THE COURSE OF SEARCH THE POLICE AUTHORITIES, IT WAS VALUED BY ONE OF THE PANCHAS WHO ALSO HAPPEN ED TO BE GOLDSMITH AT RS.2,27,000/- AND THE SAME DIAMONDS HA VE BEEN VALUED BY THE REGISTERED VALUER AT RS.3,34,424 /-. THUS, ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 17 IT IS A FACT IN THESE CASES THAT THE DIAMONDS WITH ALL PARTICULARS BEING THE SAME HAVE BEEN VALUED AT DIFF ERENT VALUE BY DIFFERENT PERSONS AT DIFFERENT DATES. SINC E THE VALUATION OF DIAMONDS IS ALWAYS ON ESTIMATE BASIS O NLY AND IT DIFFERS FROM PERSON TO PERSON AS PER ITS PURITY, CU T AND MARKET FLUCTUATION, ETC. IN THIS CASE, FROM THE CHRONOLOGY OF THE FACTS AS WELL AS THE CIRCUMSTANTIAL EVIDENCES, IT IS SEEN THAT THE VALUE OF DIAMONDS IS NOT ASCERTAINABLE TO A FIXED V ALUE BECAUSE OF ABOVE DISCUSSED FACTORS INVOLVED IN VALU ATION OF DIAMONDS. IT IS ALSO SEEN THAT CONSIDERING ALL THES E FACTS, THE AO HAS NOT ADOPTED THE VALUE AS ESTIMATED BY THE RE GISTERED VALUER BUT HE HAS ADOPTED THE VALUE AS DETERMINED D URING THE COURSE OF SEARCH MADE BY THE POLICE AND VALUATION M ADE BY ONE OF THE PANCHAS. IT MEANS, THE AO HAS ALSO CONSI DERED A; THE FACTORS IN RESPECT OF DIFFERENCE OF OPINION IN SO FAR AS THE VALUATION OF DIAMONDS IS CONCERNED. THE AO HAS CONS EQUENTLY ADOPTED THE VALUE WHICH IS ONLY A BIT HIGHER THAN W HAT HAS BEEN SHOWN BY THE APPELLANTS IN THEIR BOOKS OF ACCO UNT AS PER PURCHASE MADE ON 19-01-2006. THE DIFFERENCE IN TOTA L VALUATION OF DIAMONDS IS ONLY RS.27,000/- WHICH HAS BEEN DIVIDED BY THE AO FOR MAKING THE ADDITION EQUALLY B ETWEEN THE APPELLANTS AND AS A RESULT OF THIS PROCESS, ONL Y RS.13,500/- HAS BEEN ADDED IN EACH CASE. IN MY CONS IDERED OPINION, THE DIFFERENCE OF RS.27,000/- IS AN HONEST DIFFERENCE OF OPINION BETWEEN THE ACTUAL COST OF ACQUISITION A S ON 19.1.2006 AND THE VALUE DETERMINED AS ON 28.3.2006 BY AN UNRECOGNIZED AND UNAPPROVED VALUER. SINCE FOR ALL P URPOSES, THE BOOKS OF ACCOUNTS AND THE BOOK RESULT HAVE BEEN ACCEPTED BY THE AO PARTICULARLY HAVING REGARD TO THE FACT TH AT THE COST OF RS.2 LACS DEBITED IS ACCEPTED TO ARRIVE AT THE D IFFERENCE OF RS.27,000/- IN THE VALUATION OF DIAMOND AND NO DEFE CT IN SUCH BOOKS IS FOUND, THE COST OF ACQUISITION SHOULD HAVE BEEN ACCEPTED AS SUCH BY THE AO. SINCE THERE IS NO DIFFE RENCE BETWEEN THE WEIGHT AND THE PARTICULARS OF THE ARTIC LES IN QUESTION WHICH REMAINED THE SAME AND CONSTANT, THE COST OF ACQUISITION ON GIVEN DATE OF SUCH ARTICLES SHOULD B E ADOPTED AS THE VALUE OF INVESTMENT AND NOT THE VALUE ESTIMA TED ON A DIFFERENT DATE AND THEREFORE, THE ADDITION OF RS.13 ,500/- IN EACH CASE IS DIRECTED TO BE DELETED. 23. AFTER HEARING THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A ) ON THIS ISSUE. IT IS SEEN THAT THE DIFFERENCE IN TOTAL VALUATION OF THE DIAMO ND WAS ONLY RS.27,000/- WHICH HAS BEEN DIVIDED BY THE AO FOR M AKING THE ADDITION ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 18 EQUALLY BETWEEN THE TWO BROTHERS (ASSESSEES) AND AS A RESULT OF THIS PROCESS, ONLY RS.13,500/- HAS BEEN ADDED IN EACH CA SE. IN OUR VIEW, THE CIT(A) HAS CORRECTLY OBSERVED THAT THE DIFFERENCE O F RS.27,000/- IS HONEST DIFFERENCE OF OPINION BETWEEN THE ACTUAL COST OF AC QUISITION AS ON 19-1- 2006 AND THE VALUE DETERMINED AS ON 28-3-2006 BY UN RECOGNIZED AND UN-APPROVED VALUER. WE, ALSO AGREE WITH THIS OBSERV ATIONS OF THE CIT(A) THAT SINCE FOR ALL PURPOSES THE BOOKS OF ACCOUNTS A ND BOOK RESULT HAS BEEN ACCEPTED BY THE AO PARTICULARLY HAVING REGARD TO THE FACT THAT COST OF RS.2,00,000/- DEBITED IS ACCEPTED TO ARRIVE AT T HE DIFFERENCE OF RS.27,000/- IN VALUATION OF DIAMONDS AND NO DEFECT IS FOUND, THE CASE OF VALUATION OF DIAMOND SHOULD HAVE BEEN ACCEPTED AS S UCH BY THE AO. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE DO NOT SEE ANY MERITS IN THE GROUND NO.4 OF EACH APPEAL BY THE REV ENUE. ACCORDINGLY, WE DISMISS THE SAME. 24. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE DISMISSED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 25-09 -09. SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (H. L. KARWA) JUDICIAL MEMBER DATE : 25-09-2009 LAKSHMIKANT/- ITA NOS.1994 TO 1999/AHD/2009 AND ITA NOS. 2000 TO 2005/AHD/2009 SHRI VIJAY M. PAREKH AND SHRI NILESH M. PAREKH 19 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD