Appeal details
Counselvise Citation
[2018] 125 COUNSELVISE.COM (IT) 8964 (ITAT-RAIPUR)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 3 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
19-01-2018
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
DB
Assessment Year
2011-2012
Appeal Filed On
30-09-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH , RAIPUR BEFORE : SHRI N.S.SAINI, A M & SHRI PAV AN KUMAR GADALE, J M ITA NO S . 236 TO 242 / RPR /20 1 4 ( ASSESSMENT YEAR S : 20 06 - 2007 TO 2012 - 2013 ) DCIT, CENTRAL CIRCLE, RAIPUR(C.G.) V S R.K.TRANSPORT & CONSTRUCTIONS P VT. LIMITED, BESIDE CEAT TYRE, TRANSPORT NAGAR,KORBA (CG) P AN NO. : A AC CR 5213 P (APPELLANT ) .. TSEDNEPSER AND CROSS OBJECTION NO S . 11 TO 17/RPR /20 15 (ARISING OUT OF ITA NOS. 236 TO 242/RPR/2014) (ASSESSMENT YEAR S :2006 - 2007 TO 2012 - 2013) R.K.TRANSPO RT & CONSTRUCTIONS PVT. LIMITED, BESIDE CEAT TYRE, TRANSPORT NAGAR,KORBA (CG) V S DCIT, CENTRAL CIRCLE, RAIPUR(C.G.) PAN NO. : A ACCR 5213 P (APPELLANT ) .. TSEDNEPSER REVENUE BY : SHRI P.K.MISHRA , CIT DR ASSESSEE BY : SHRI G.S.AGRAWAL , AR DATE O F HEARING : 1 5 / 01 /201 8 DATE OF PRONOUNCEMENT 19 / 01 /201 8 / O R D E R PER SHRI N.S.SAINI , A M : TH ESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE CONSOLIDATED ORDER OF THE CIT(A ), RAIPUR , DATED 22.07.2014 FOR THE ASSESSMENT YEAR S 20 06 - 2007 TO 2012 - 2013 . THE ASSESSEE HAS FILED CROSS OBJECTIONS. 2 . GROUN DS NO. 1 & 2 IN APPEALS FOR ASSESSMENT YEARS 2006 - 07, 2007 - 08, 2009 - 10 , A RE DIRECTED AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITIONS OF RS.1,69,40,000 / - , RS.9,00,000 / - , RS.3,41,50,000 / - , ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 2 RESPE CTIVELY ON ACCOUNT OF SHARE APPLICATION /CAPITAL RECEIVED AS UNEXPLAINED CASH CREDITS U/S.68 OF THE INCOME TAX ACT, 1961 . 3 . GROUND NOS.3 TO 6 IN APPEALS FOR THE ASSESSMENT YEARS 2006 - 07, 2007 - 08 AND 2009 - 10 AND GROUND NOS. 1 TO 4 IN APPEALS FOR THE ASSESSMENT YEARS 2008 - 09 , ARE DIRECTED AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITIONS MADE ON ACCOUNT OF APPLYING NET PROFIT RATE AFTER REJECTION OF BOOKS OF ACCOUNTS U/S.145 OF THE ACT FOR RS.1,43,00,000/ - FO R THE ASSESSMENT YEAR 2006 - 07, RS.3,55,00,000/ - FOR ASSESSMENT YEAR 2007 - 08 , RS.2,30,00,000/ - FOR ASSESSMENT YEAR 2008 - 09 , RS.4,39,00,000/ - FOR ASSESSMENT YEAR 2009 - 10 , RESPECTIVELY. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONTRACT WORK AND TRANSPORTATION WORK . A SEARCH AND SEIZURE OPERATION WAS CONDUCTED IN THE CASE OF THE ASSESSEE ON 24 TH AND 25 TH MAY, 2011. IN PURSUANCE TO THE SAME, NOTICE U/S.153A OF THE ACT WAS ISSUED AND IMPUGNED ORDERS OF ASSESSMENTS WERE PASSED. IT IS NOT IN DISPUTE THAT ASSESSMENT FOR THE ASSESSMENT YEARS 2006 - 07, 2007 - 08 , 2008 - 09 AND 2009 - 10 , WERE COMPLETED PRIOR TO THE DATE OF SEARCH. IN OTHER WORDS, THE ASSESSMENTS FOR THESE ASSESSMENT YEARS WERE NOT ABATED. 5 . WE FIND THAT THE ABOVE ADDITIONS MADE BY THE AO IN THE IMPUGNED ASSESSMENT YEARS WERE NOT BASED ON ANY INCRIMINATING MATERIAL FOUND DURING THE COURSE OF THE SEARCH. 6 . THE REVENUE COULD NOT SHOW ANY INCRIMINATING MATERIAL, WHICH WAS FOUND DURING THE COUR SE OF THE SEARCH ON THE BASIS OF WHICH ABOVE ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 3 ADDITIONS COULD HAVE BEEN MADE. IT IS A SETTLED POSITION OF LAW THAT IN AN ASSESSMENT MADE IN PURSUANCE TO SEARCH IN RESPECTIVE ASSESSMENT YEARS FOR WHICH ASSESSMENT PROCEEDINGS WERE NOT ABATED, ADDITIONS CANNOT BE MADE DE HORS THE INC RIMINATING MATERIALS FOUND DURING THE COURSE OF SEARCH. WE, THEREFORE, DO NOT FIND ANY MERIT IN THESE APPEALS OF THE REVENUE. ACCORDINGLY, THE APPEALS OF REVENUE FOR THE ASSESSMENT YEARS 2006 - 07, 2007 - 08 , 2008 - 09 AND 2009 - 10 ARE DISMISSED. 7. GROUN DS NO. 1 & 2 IN APPEALS FOR ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 ARE DIRECTED AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITIONS OF RS. 8 ,56,00,000 / - A ND RS.9,64,20,000 / - , RESPE CTIVELY ON ACCOUNT OF SHARE APPLICATION /CAPITAL RECEIVED AS UNEXPLAINED CASH CREDITS U/S.68 OF THE INCOME TAX ACT, 1961 . 8 . BRIEF FACTS RELATING TO THE ABOVE GROUNDS ARE THAT THE AO OBSERVED THAT THE ASSESSEE HAD RECEIVED SHARE CAPITAL / SHARE APPLICATION MON EY FROM THE FOLLOWING OF THE AMOUNTS MENTIONED AGAINST THEIR NAMES AS UNDER: SI. NO. ASSESSMENT YEAR NAME OF THE SHARE APPLICANT AMOUNT (RS.) 1 2006 - 07 ADHISHWAR NIRMAN PVT. LTD. 8,00,000 2 2011 - 12 AMAR AGRAWAL 20,00,000 3 2010 - 11 ANSH VYAPAAR PVT. LTD. 6,21,00,000 4 2011 - 12 ANSH VVAPAARPVT. LTD. 3,88,70,000 5 2009 - 10 ASHA BUDHIA 1,50,000 6 2010 - 11 CAMELLIA COMMOTRADE PVT. LTD. 20,00,000 7 2009 - 10 CONSOLIDATED FINLEASE LTD 8,00,000 8 2010 - 11 DRISTI TIE - UP PVT. LTD. 15,00,000 9 2010 - 11 ECONOMY INFRA STRUCTURE PVT. LTD 55,00,000 10 2006 - 07 EDMOND COMMERCIAL PVT. LTD. 5,00,000 11 2009 - 10 GLORIA CREDIT & COMMERCE PVT. LTD. 28,00,000 12 2010 - 11 GLORIA CREDIT & COMMERCE PVT. LTD. 25,00,000 13 2009 - 10 HIMADRI DEALCOM PVT. LTD. 55,00,000 14 2010 - 11 HIMA DRI DEAICOM PVT. LTD 15,00,000 ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 4 15 2006 - 07 HOOGLY VINIMAY PVT. LTD 10,00,000 16 2006 - 07 JMO MERCANTILE PVT. LTD 20,00,000 17 2006 - 07 KAMROOP VINIMAY PVT. LTD. 30,00,000 18 2007 - 08 MANSARWAR DEALERS PVT.LTD 9,00,000 19 2006 - 07 NANDAN MERCHANTILE PVT. LT D. 30,00,000 20 2006 - 07 NIKHIL TREXIM PVT. LTD. 7,00,000 21 2011 - 12 PARIJAT BERTER PVT. LTD. 5,75,50,000 22 2009 - 10 PERFECT TRADECOM PVT. LTD. 10,00,000 23 2010 - 11 PERFECT TRADECOM PVT. LTD. 25,00,000 24 2006 - 07 PURSHOTTAM GARG 8,50,000 25 2010 - 11 R. R.ENERGY LIMITED 4,15,52,000 26 2006 - 07 RAJENDRA KUMAR AGRAWAL 4,50,000 27 2009 - 10 RAJLAXMI VANIJYA PVT. LTD. 70,00,000 28 2006 - 07 SAVITA GARG 2,00,000 29 2010 - 11 SECTOR INFRASTRUCTURE PVT. LTD. 40,00,000 30 2006 - 07 SHREEVAR OVERSEAS LTD. 35,00,000 3 1 2010 - 11 SPARK ENCLAVE PVT. LTD. 5,00,000 32 2010 - 11 SPIN PACKAGING PVT. LTD. 25,00,000 33 2009 - 10 SRAVSTI UDYOG VINIYOG PVT. LTD. 42,00,000 34 2008 - 09 SUBHASH CHANDRA SINGHAL 9,90,000 35 2010 - 11 SUBHASH CHANDRA SINGHAL 5,00,000 36 2011 - 12 SUBHASH CH ANDRA SINGHAL 45,00,000 37 2006 - 07 SUGAM COMMERCIAL PVT. LTD. 5,00,000 38 2006 - 07 SUNFLOWER VINIMAY PVT. LTD. 5,00,000 39 2009 - 10 VICTOR DEALERS PVT. LTD. 15,00,000 40 2009 - 10 VIEW POINT RETAIL PVT. LTD. 10,00,000 IN THE COURSE OF SEARCH U/S 132 OF T HE ACT, STATUTORY - RECORDS LIKE MINUTES OF MEETING REGISTER, SHARE - HOLDERS REGISTER, DULY FILLED - IN SHARE APPLICATION FORMS, COUNTERFOILS OF ISSUED SHARE - CERTIFICATES, ETC. REQUIRED TO BE MAINTAINED AT THE REGISTERED OFFICE WERE NOT FOUND. THE PERSONS PRESE NT IN THE HOUSE ALSO COULD NOT PROVIDE SATISFACTORY EXPLANATION. IN ORDER TO VERIFY THE IDENTITY AND CREDITWORTHINESS OF THE INVESTORS AND GENUINENESS OF THE TRANSACTIONS, NOTICES U/S. 133(6) OF THE ACT WERE ISSUED. HOWEVER, NOTICES IN RESPECT OF FOLLOWING WERE RETURNED UNSERVED: - SL.NO. A.Y. NAME OF SHARE APPLICANT AMOUNT CRS.) 1. 2006 - 07 SHRI SANTOSH AGRAWAL 2,00 , 000 2. 2009 - 10 M/S. SATYAM TRADECOM 45,00,000 3. 2009 - 10 M/S. SRAVASTI NIDHI PVT. LTD. 20,00,000 ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 5 9 . THE AO ON PERUSAL OF THE BALANCE SHEETS OF THE SHAREHOLDER COMPANIES , FOUND THAT THEY DID NOT POSSESS SUFFICIENT CREDITWORTHINESS TO INVEST THE AMOUNTS SHOWN AGAINST THEIR NAMES. IT WAS HELD THAT SUCH INFLOW OF SHARE APPLICATION MONEY HAS TO BE SEEN IN THE PERSPECT IVE OF MONEY LAUNDERING THROUGH SHARE APPLICATION ROUTE, IN WHICH UNACCOUNTED MONEY AVAILABLE WITH THE PROMOTERS/ DEVELOPERS/ FAMILY MEMBERS AND THEIR ASSOCIATES IS ROUTED BACK TO THEIR BOOKS OF ACCOUNT IN THE GARB OF SHARE APPLICATION MONEY WITHOUT PAYMEN T OF DUE TAXES, THE EVIDENCES OF WHICH WERE FOUND DURING SEARCH OPERATION. THE AO NOTED THAT FROM THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE IT WAS HELD THAT IT WAS A MANAGED AFFAIR IN CONNIVANCE WITH SHAREHOLDER COMPANIES OF KOLKATA. SUCH INFERENCE WAS HELD AS FURTHER STRENGTHENED DUE TO NON - AVAILABILITY OF THE SHARE APPLICATION FORMS, COUNTERFOILS OF SHARE CERTIFICATES ISSUED, ETC. AT THE ASSESSEES REGISTERED OFFICE. REFERRING TO THE PROVISIONS OF SEC. 68 OF THE ACT, THE A.O. HAS HELD THAT IF THE, ASS ESSEE FAILS TO OFFER ANY EXPLANATION IN RESPECT OF THE AMOUNTS CREDITED IN THE BOOKS OF ACCOUNT FOR ANY PREVIOUS, THEN SUCH SUMS MAY BE CHARGED TO TAX AS INCOME OF THAT PREVIOUS YEAR. RELYING ON THE FOLLOWING CASES THE A.O. HAS CONCLUDED THAT IN THIS CASE THE APPELLANT HAS FAILED TO DISCHARGE ITS ONUS IN PROVING THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE SHARE APPLICANTS. (I) CIT V. P. MOHANAKALA 291 ITR 278 (II) CIT V. DURGAPRASAD MORE (82 ITR 540) (III) SUMATI DAYAL V. CIT (214 ITR 801) (IV) N R PORTFOLIO PVT. LTD. (ITA NO. 1019/2011) DTD. 22.11. 2013: (V) NOVA PROMOTERS & FINLEASE (342 ITR 169); (VI) CIT V. NIPUN BUILDERS AND DEVELOPERS [2013] 350 ITR 407 (DEL); (VII) BHARTI PVT. LTD. V. CIT [1978] 111 ITR 951 (CAL.); (VIII) HINDUSTAN T EA TRADING CO. LTD. (129 TAXMAN 601 CAL.); ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 6 (IX) RATHI FINLEASE LTD. (IT. APPEAL NO. 63 OF 2004, DTD 11 - 10 - 2007) (X) MAF ACADEMY P LTD (ITA NO. 341 /2012) DATED 28.11.2013; (XI) OASIS HOSPITALIT IES (P.) LTD. ( 333 ITR 119/ 198 ); (XII) VIJAYKUMARTAL WAR V . CIT [2011] 330 ITR 1/196 (S.C) (XIII) AGRAWAL COAL CORP. PVT. LTD. (135 LTD 270); 10 . IT WAS FURTHER HELD THAT INQUIRIES CONDUCTED BY THE A.O. CEMENT THE FINDINGS THAT THE IDENTITY AND CREDITWORTHINESS OF THE CREDITORS WERE NOT ESTABLISHED, THEY WERE FO UND TO HAVE NO CAPACITY AND PURPOSE TO INVEST BY WAY OF SHARE APPLICATION MONEY IN THE ASSESSEE 'S COMPANY. ACCORDINGLY, THE BELOW MENTIONED AMOUNTS WERE TREATED AS UNEXPLAINED CASH CREDITS U/S 68 AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE . A.Y. TOTAL S HARE APPLICATION MONEY RECEIVED (RS.) SHARE APPLICATION MONEY RECEIVED FROM DIRECTORS / RELATIVES (RS.) DIFFERENCE (RS.) ADDITION MADE FOR SHARE APPLICATION MONEY U/S68 (RS.) 2006 - 07 1,75,90,000 / - 6,50,000 / - 1,69,40,000 / - 1,69,40,000/ - 2007 - 08 9,00,000 / - NIL 9,00,000 / - 9,00,000 / - 2008 - 09 9,90,000 / - 9,90,000 / - NIL NIL 2009 - 10 3,41,50,000 / - NIL 3,41,50,000 / - 3,41,50,000 / - 2010 - 11 12,76,52,000 / - 4,20,52,000/ - 8,56,00,000 / - 8,56,00,000 / - 2011 - 12 10,29,20,000 / - 65,00,000/ - 9,64,20,000 / - 9,64,20,000 / - 20 12 - 13 NIL NIL NIL NIL TOTAL 28,42,02,000 / - 5,01,92,000 / - 23,40,10,000/ - 23,40,10,000 / - 11 . AGAINST THE ABOVE ORDER OF AO, THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) AND SUBMITTED THAT THE ASSESSEE HAD RECEIVED SHARE APPLICATION MONEY IN A.Y. 2006 - 07 TO 2011 - 12 FROM NUMBER OF SHARE APPLICANTS. THE SHARE APPLICANTS, INTER - ALIA, INCLUDED DIRECTORS, FAMILY MEMBERS AND OTHER GROUP COMPANIES. THE AO ASKED THE ASSESSEE TO ESTABLISH THE IDENTITY, CREDIT WORTHINESS AND GENUINENESS OF TRANSACTION OF RECEIPT O F SHARE APPLICATION MONEY. THE ASSESSEE FILED THE DETAILS. IN CASE OF DIRECTORS, FAMILY MEMBERS AND GROUP COMPANIES, THE AO ACCEPTED THE ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 7 IDENTITY, CREDIT - WORTHINESS AND GENUINENESS OF TRANSACTION AND NO ADDITION WAS MADE. HOWEVER, IN OTHER CASES THE AO DID NOT ACCEPT AND MADE THE ADDITIONS TO THE INCOME U/S 68 AS ABOVE. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS FILED VARIOUS SUPPORTING , CONCERNING ALL THE SHARE APPLICANTS, SUCH AS COPIES OF SHARE APPLICATION FORMS, CERTIFICATE OF REGISTRATION FROM REGISTRA R OF COMPANIES IN CASE WHERE THE WHERE THE SHARE APPLICANT IS A COMPANY, CERTIFICATE OF RBI WHERE THE SHARE APPLICANT IS REGISTERED AS NON - BANKING FINANCE COMPANY. PAN CARD, ACKNOWLEDGEMENT OF FILING OF INCOME TAX RETURN BY THE SHARE APPLICANT, AUDITED FIN AL ACCOUNTS WITH AUDIT REPORT OF THE SHARE APPLICANT, MEMORANDUM & ARTICLES OF ASSOCIATION OF SHARE APPLICANT, BANK STATEMENT OF SHARE APPLICANT FROM WHERE THE AMOUNT WAS DRAWN FOR INVESTMENT INTO ASSESSEE COMPANY, ETC . T HE ASSESSEE HAS DISCHARGED THE BURD EN OF PROVING IDENTITY, CREDIT - WORTHINESS AND GENUINENESS OF TRANSACTIONS . T HE AO HAS MADE ENQUIRY AT HIS END DIRECTLY FROM VARIOUS SHARE APPLICANTS AND MOST OF THEM HAVE REPLIED TO HIM, BARRING ONLY 3 SHARE APPLICANTS, AS BELOW: SL.NO. A.Y. NAME O F SHARE APPLICANT AMOUNT ( RS.) 1. 2006 - 07 SHRI SANTOSH AGRAWAL 2,00 , 000 2. 2009 - 10 M/S. SATYAM TRADECOM 45,00,000 3. 2009 - 10 M/S. SRAVASTI NIDHI PVT. LTD. 20,00,000 12 . THE ASSESSEE ALSO SUBMITTED THAT IN CASE OF SHRI SANTOSH AGRA WAL NO ADDITION WAS MADE, BEING RELATIVE, AND IN CASE OF M/S. SATYTAM TRADECOM & M/S. SRAVASTI NIDHI PVT. LTD., VARIOUS SUPPORTINGS HAVE BEEN FILED BY THE ASSESSEE BEFORE THE AO AND ALSO IN APPELLATE PROCEEDINGS . T HE AO SUMMARILY REJECTED THE EVIDENCES WIT HOUT HAVING ANY MATERIAL ON ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 8 RECORD . A S MANY AS 40 SHARE APPLICANTS OUT OF 43 SHARE APPLICANTS HAVE SUBMITTED THEIR REPLY, AS MENTIONED ABOVE, GIVING THEIR BALANCE SHEET, AUDITED ACCOUNTS, BANK STATEMENT ETC., THEREFORE, IT CANNOT BE SAID THAT THEY WERE NON - EXISTENT OR THEY HAVE NO CAPACITY AND PURPOSE TO MAKE INVESTMENT IN SHARE CAPITAL OF THE APPELLANT . T HE OBSERVATION IS VERY CURSORY IN NATURE AND NO ADVERSE MATERIAL HAS BEEN FOUND DURING OPERATION U/S. 132 OR AT THE TIME OF ASSESSMENT PROCEEDINGS, THEREF ORE, PROVISIONS OF SEC. 68 WERE NOT APPLICABLE. 13 . WITH REGARD TO SHARE RECORDS, IT WAS SUBMITTED BY THE ASSESSEE THAT NO ATTEMPT WAS MADE BY THE SEARCH TEAM TO LOCATE SUCH RECORDS. THERE WAS NO QUESTION MADE TO SHRI RAJENDRA AGRAWAL OR SHRI RAHUL SINGHAL WHOSE STATEMENTS WE RE RECORDED U/S. 132(4) . THE SHARE APPLICATION FORMS WERE FILED DURING ASSESSMENT PROCEEDINGS BEFORE THE AO AND OTHER RECORDS SUCH AS MINUTES BOOKS, SHAREHOLDER REGISTER ETC., WERE PRODUCED BEFORE HIM DURING ASSESSMENT PROCEEDINGS; THAT THE FACT IS THAT SHA RE APPLICATION MONEY WAS RECEIVED; THAT ON THE DATE OF SEARCH OPERATION THE ACCOUNTANT, NAMELY SHRI SOM VEER WAS ON LEAVE TO HARYANA AND HIS MOBILE NUMBER WAS ALSO PROVIDED TO SEARCH TEAM; THAT NO ENQUIRY FROM ACCOUNTANT WAS MADE. THE ASSESSEE RELIED UPON THE VARIOUS JUDGEMENTS INCLUDING THAT OF THE JURISDICTIONAL HIGH COURT AND OTHER HIGH COURTS AND APEX COURT AND ALSO FILED A COMPILATION SHOWING THAT THE CASE LAWS RELIED UPON BY THE AO WERE NOT APPLICABLE DUE TO DIFFERENT FACTS OR OTHERWISE. THE ASSESSEE FURTHER SUBMITTED ARGUED THAT, WITHOUT PREJUDICE AND IN ALTERNATE, THERE IS NO FINDING THAT THE AFORESAID SHARE APPLICATION MONEY ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 9 WAS INCOME OF THE APPELLANT AND BELONGED TO THE APPELLANT. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT THE AO HAS NOT CONSID ERED THE EXPLANATION FILED BY THE ASSESSEE JUDICIOUSLY TO HAVE THE SATISFACTION AS PER PROVISIONS OF SEC. 68. 14 . THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS DELETED THE ADDITIONS FOR ASSESSMENT YEARS 2006 - 07, 2007 - 08, 2009 - 10, 2010 - 11 AND 2011 - 12 , RESPECT IVELY AFTER OBSERVING AS UNDER : - 10 . I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. AS REGARDS ALLEGATION OF THE A.O. REGARDING NON - MAINTENANCE OF STATUTORY RECORDS, THE APPELLANT WAS ASKED TO FURNISH THE CO PY OF STATEMENTS RECORDED DURING THE COURSE OF PROCEEDINGS U/S 132. I HAVE CAREFULLY GONE THROUGH THE RELEVANT STATEMENTS OF THE CONCERNED PERSONS RECORDED DURING THE PROCEEDINGS U/S 132 ON 24.5.2011, FROM THE PERUSAL OF STATEMENTS OF MR. RAJENDRA AGRA WAL AND MR. RAHUL SINGHAL, IT IS SEEN THAT THE SEARCH TEAM DID NOT ASK ANY QUESTION FROM THE SAID PERSONS REGARDING MAINTENANCE OR OTHERWISE OF SAID STATUTORY RECORDS, IN THIS BACKDROP, IT CANNOT BE SAID TO BE A FINDING OF THE INVESTIGATION WING. THE STATE MENTS OF OTHER PERSONS BELONGING TO THE AFORESAID COMPANIES ALSO DOES NOT, IN ANY WAY, LEAD TO AN INFERENCE THAT THE GROUP COMPANIES OR THE APPELLANT COMPANY DOES NOT MAINTAIN STATUTORY RECORDS / REGISTERS. FROM THE ASSESSMENT ORDER, IT APPEARS THAT THE A. O. DID NOT TAKE ANY COGNIZANCE OF THE ASSERTION MADE BY THE APPELLANT REGARDING MAINTENANCE OF STATUTORY RECORDS AND REGISTERS IN ACCORDANCE WITH THE PROVISIONS OF COMPANIES ACT AND WITHOUT VERIFYING THE VERIFIABLE FACTS REGARDING MAINTENANCE OR OTHERWISE OF STATUTORY RECORDS AND REGISTERS, THE A.O SIMPLY SEEMS TO HAVE FOUND IT CONVENIENT TO REMAIN SILENT AND SIT BACK AFTER MAKING THE ALLEGATION WITHOUT ANY PROPER BASIS. IT IS NOT THE CASE OF THE A.O. THAT THE SEARCH TEAM HAD ASKED A SPECIFIC QUERY TO THE A PPELLANT COMPANY'S REPRESENTATIVE WITH REGARD TO MAINTENANCE OF ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 10 STATUTORY RECORDS AND THAT THE APPELLANT COMPANY'S REPRESENTATIVE FAILED TO PRODUCE THE STATUTORY RECORDS OR REGISTERS OR EXPRESSED THEIR INABILITY TO PRODUCE THE SAME OR HAD ADMITTED THAT NO SUCH RECORDS ARE BEING MAINTAINED. I FIND THAT ON ONE HAND, THE A.O MADE THE ALLEGATION, HOWEVER, WITHOUT BRINGING ON RECORD ITS BASIS, SUCH AN ACTION OF THE A.O. HAS MADE THE ASSESSMENT ORDER VITIATED BY ONE SIDED CONCLUSION DRAWN BY THE A.O. NEITHER FROM THE ASSESSMENT ORDER NOR FROM THE STATEMENTS RECORDED DURING SEARCH PROCEEDINGS, IT IS EMERGING THAT THERE WAS ANY ATTEMPT TO LOCATE SUCH STATUTORY RECORDS. 11. THE DISCHARGE OR OTHERWISE OF THE ONUS U/S 68 HAS BEEN INDEPENDENTLY EVALUATED AND EXAM INED. IT IS ALSO SEEN THAT THE APPELLANT WAS ASSESSED IN THE PAST AND CASE OF ASSESSMENT YEAR 2008 - 09 AND 2009 - 10 WAS UNDER SCRUTINY ASSESSMENT U/S 143(3) AND IN THE SAID A SSESSMENT - PROCEEDINGS, THE ADDITION TO SHARE APPLICATION / SHARE CAPITAL WAS DULY A CCEPTED AS GENUINE. THE PRESENT ACTION OF THE A.O IS NOT CULMINATING FROM ANY SPECIFIC FINDING AGAINST THE APPELLANT THAT IT WAS A BENEFICIARY OF ANY RACKET WHICH HAS BEEN UNEARTHED AS A RESULT OF SEARCH PROCEEDINGS NOR HAS THE A.O BROUGHT ON RECORD ANY OT HER EVIDENCE TO INDICATE THAT THE APPELLANT DID MAKE UNDISCLOSED INCOME AND SUCH EVIDENCE CARNE ON THE SURFACE AS A RESULT OF SEARCH PROCEEDINGS. THE A.O HAS NOT REBUTTED THE EVIDENCES SUBMITTED BY THE APPELLANT TO DEMONSTRATE THAT THE SUBSCRIBERS HAD SUFF ICIENT MEANS TO INVEST IN THE SHARE APPLICATION/CAPITAL OF THE APPELLANT COMPANY, I HAVE EVALUATED THE CREDIT - WORTHINESS OF THE SUBSCRIBERS WITH REFERENCE TO THE AUDITED FINANCIAL STATEMENTS OF THE SUBSCRIBERS AND FOUND SATISFACTORY. IN THIS BACKGROUND, IN MY CONSIDERED VIEW, THERE IS NO SCOPE AND REASON TO TAKE A CONTRARY VIEW THAN THAT TAKEN BY THE THEN A.O WITHOUT THERE BEING ANY DOCUMENTARY EVIDENCE AGAINST THE APPELLANT TO DEMONSTRATE THAT THE SHARE APPLICATION MONEY WAS NOTHING BUT UNDISCLOSED INCOME OF THE APPELLANT. ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 11 12. IT IS AN UNDISPUTED FACT THAT THE NAMES, ADDRESSES AND ASSESSMENT PARTICULARS OF THE INVESTORS, CERTIFICATE OF REGISTRATION FROM THE ROC AND BANK STATEMENT OF THE APPLICANTS HAD BEEN FURNISHED BY THE APPELLANT BEFORE THE AO. IT IS FU RTHER OBSERVED THAT THE SHARE APPLICATION/CAPITAL MONEY HAS BEEN RECEIVED BY WAY OF ACCOUNT PAYEE CHEQUES FROM THE INVESTORS MOST OF WHOM ARE COMPANIES AND IS DULY REFLECTED IN THE BANK ACCOUNT OF THE APPELLANT. I HAVE PERUSED THE BANK STATEMENTS OF THE IN VESTORS, THEIR AUDITED FINANCIAL STATEMENTS AND CONFIRMATION FOR MAKING SUCH INVESTMENTS, WHICH CLEARLY ESTABLISHES THE FACTUM OF MAKING INVESTMENTS. THESE FACTS ARE CLEARLY ESTABLISHING THE IDENTITY OF THE INVESTORS AND THE GENUINENESS OF THE IMPUGNED TRA NSACTIONS. 13. IT IS OBSERVED FROM THE RECORDS AND ASSESSMENT ORDER THAT FOR THE PURPOSE OF MAKING ADDITION AS UNEXPLAINED CASH CREDITS, THE AO HAS HEAVILY RELIED UPON THE JUDICIAL PRONOUNCEMENTS, HOWEVER, THE APPELLANT HAS MADE ELABORATE SUBMISSIONS DIST INGUISHING THE FACTS, I AM CONVINCED WITH THE EXPLANATION OF THE APPELLANT THAT THE DECISIONS RELIED UPON BY THE A.O ARE NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE AS THERE IS NOTHING ON RECORD WHICH CAN INDICATE THAT THE RECEIPT OF SHARE APPLICATION MONEY WAS BY WAY OF ACCOMMODATION ENTRIES ONLY. IT IS ALSO NOT THE CASE OF THE A.O THAT THE INVESTORS HAVE, ACCEPTED BY WAY OF STATEMENT T HAT THE SUMS PAID TO THE APPELLANT WAS IN FACT RECEIVED FROM THE APPELLANT AND INVESTORS MERELY R OUTED THE UNDISCLOSED INCOME OF THE APPELLANT THROUGH MONEY LAUNDERING PROCESS IN THE FORM OF SHARE APPLICATION MONEY. ON THE CONTRARY, THE A.O HIMSELF HAS STATED IN THE ASSESSMENT ORDER THAT THE INVESTORS HAVE SENT CONFIRMATORY LETTERS, IN THE BACKDROP OF THESE FACTS AND DOCU MENTARY EVIDENCES, IN MY CONSIDERED OPINION, THE IDENTITY AND CREDITWORTHINESS OF THE SUBSCRIBERS HAS BEEN ESTABLISHED AND CANNOT BE DOUBTED, IT IS NOT JUSTIFIED ON THE PART OF THE A.O TO SIMPLY REJECT THE DOCUMENTARY EVIDENCES ON RECORD AND TAKE AN ADVERS E VIEW AND CLOTHING THE ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 12 CASE OF THE APPELLANT WITH THE JUDICIAL PRONOUNCEMENTS WHICH HAVE BEEN RENDERED ON ABSOLUTELY DIFFERENT FACTS AND CIRCUMSTANCES. 14. THE APPELLANT HAS RELIED UPON VARIOUS JUDICIAL PRONOUNCEMENTS AND CORRELATED THE FACTS IN TH OSE DECISIONS WITH THE FACTS IN THE CASE OF THE APPELLANT. 1 AM CONVINCED THAT THE DECISIONS RELIED UPON BY THE APPELLANT ARE CERTAINLY APPLICABLE IN THE CASE OF THE APPELLANT AS THE FACTS ARE NOT ONLY SIMILAR BUT IDENTICAL. THE APPELLANT HAS ALSO RELIED U PON THE DECISION OF THE HON'BLE SUPREME COURT AND JURISDICTIONAL HIGH COURT WHICH CANNOT BE IGNORED. THE A.O HAS REFERRED TO THE NOTICES ISSUED UNDER SECTION 133(6) WHICH HAVE BEEN RETURNED UN - SERVED IN SOME OF THE CASES. I HAVE CAREFULLY PERUSED THE EXPLA NATION SUBMITTED BY THE APPELLANT IN RESPECT OF CASES WHERE THE NOTICES REMAINED UNSERVED. THE SUBMISSIONS OF THE APPELLANT ARE FOUND TO BE CONVINCING. IT IS FURTHER OBSERVED THAT NO FURTHER ENQUIRY OR INVESTIGATION HAS BEEN CONDUCTED BY THE AO TO CORROBOR ATE OR SUPPORT THE CONCLUSIONS DRAWN IN THE ASSESSMENT ORDER SO AS - TO ASSESS THE SHARE CAPITAL MONEY AS THE UNDISCLOSED INCOME OF THE APPELLANT COMPANY. IN MY CONSIDERED OPINION, APART FROM DRAWING PRESUMPTIONS, THE AO HAS NOT BROUGHT ANY CLINCHING MATERIA L OR EVIDENCE ON RECORD TO PROVE THAT THE SAID SHARE CAPITAL MONEY BELONGS TO THE APPELLANT SINCE NO NEXUS HAS BEEN ESTABLISHED THAT THE MONEY FOR AUGMENTING THE INVESTMENT IN THE BUSINESS HAS FLOWN FROM APPELLANT'S OWN MONEY WHICH IS AN ESSENTIAL PRE - REQU ISITE FOR MAKING ADDITION IN SUCH CASES. I AM CONVINCED THAT THE CASE OF THE APPELLANT IS SQUARELY COVERED BY THE DECISIONS RENDERED BY THE HON'BLE APEX COURT IN THE CASE OF THE CIT VS. LOVELY EXPORTS (P) LTD. REPORTED IN 216 CTR 195 AND THE JURISDICTIONA L HIGH COURT VIZ. THE CHHATTISGARH HIGH COURT IN THE CASE OF THE ACIT VS. VENKATESHWAR ISPAT (P) LTD. REPORTED IN 319 ITR 393 FOR THE REASON THAT THE FACTS IN SUCH CASES ARE ENTIRELY SAME, PARTICULARLY, WHEN NO DIFFERENTIATION COULD BE EFFECTIVELY DEMONSTRA TED AND BROUGHT ON TO THE RECORD BY THE A.O. THE SUBMISSIONS OF THE AO THAT THE DECISION OF THE HON'BLE SUPREME ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 13 COURT IN THE CASE OF LOVELY E XPORTS (P) LIMITED WAS RENDERED IN THE LIGHT OF DIFFERENT FACTS INASMUCH AS THE SAID JUDGMENT WAS RENDERED BY THE H ON'BLE SUPREME COURT IN THE CONTEXT OF PUBLIC ISSUE, IS DEVOID OF MERIT BECAUSE THE DECISION WAS RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF LOVELY EXPORTS (P) LTD. WHICH IS A PRIVATE LIMITED COMPANY AND WHICH CANNOT BRING PUBLIC ISSUE OF SHARES. I FIND THAT THE INVESTMENTS MADE BY THE SHARE APPLICANTS WERE DULY REFLECTED IN THE AUDITED FINANCIAL STATEMENTS OF THE CORPORATE INVESTORS. IT IS A SETTLED PRINCIPLE OF LAW THAT REASON FOR SUSPICION, HOWEVER GRAVE IT MAY BE, CANNOT BE A BASIS FOR HOLDING ADVERSITY AGAINST APPELLANT. 15. THE ASSESSING OFFICER HAS DISREGARDED THE DOCUMENTARY EVIDENCES ADDUCED BY THE APPELLANT SUCH AS CONFIRMATION FROM THE SHARE APPLICANTS, T HEIR PAN ; CERTIFICATE OF INCORPORATION OF SUBSCRIBER COMPANIES. THE SUBSCRIPTION FOR THE SHARES WAS RECEIVED THROUGH CHEQUES. THE INVESTOR - COMPANIES ARE DULY REGISTERED WITH ROC. THOSE COMPANIES WERE ALSO HAVING THEIR INCOME TAX PAN NUMBERS AND REGULARLY FILED RETURNS OF INCOME. NO MATERIAL WAS BROUGHT ON RECORD BY THE A.O INDEPENDENTLY O F THE INFORMATION RECEIVED, IF ANY, FROM THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT TO SHOW THAT THE MONIES REPRESENTED THE APPELLANT'S UNDISCLOSED INCOME. 16. THE HON'BLE SUPREME COURT IN CIT VS. LOVELY EXPORT, 216 ITR 198 SC AND THE DELHI HIGH COURT IN DIVINE LEASING AND FINANCE LIMITED, (2008) 299 ITR 268 HAVE HELD THAT IN THE CASE OF MONEY RECEIVED TOWARDS SHARE CAPITAL ONLY THE IDENTITY OF THE SHARE HOLDERS NEEDS TO BE PROVED AND ONCE THAT IS ESTABLISHED AND IT IS ALSO SHOWN THAT THE MONEY DI D IN FACT COME FROM THEM, IT IS NOT FOR THE ASSESSEE TO PROVE AS TO HOW THE SHARE APPLICANTS CAME TO BE IN POSSESSION OF THE MONEY. IN THE LIGHT OF THE ABOVE DISCUSSION, I AM INCLINED TO AGREE WITH THE ARGUMENTS AND EVIDENCES PROVIDED BY THE APPELLANT TO S UBSTANTIATE THAT THE TRANSACTION REGARDING SHARE APPLICATION MONEY RECEIVED BY IT WERE GENUINE TRANSACTIONS AND THE SAME WERE NOT ACCOMMODATION ENTRIES. I ALSO DO NOT FIND ANY ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 14 EVIDENCE COLLECTED BY THE A.O WHICH COULD PROVE OTHERWISE. ACCORDINGLY, THE AO W AS NOT JUSTIFIED IN TREATING THE AMOUNT OF SHARE APPLICATION MONEY RECEIVED BY THE APPELLANT AS ITS UNDISCLOSED INCOME. 17. THE CASE OF THE APPELLANT FINDS SUPPORT FROM THE DECISION IN: 1. CIT VS. KAMDHENU STEEL & ALLOYS LIMITED & ORS. (2012) 68 DT R (DEL) 38. 2. IN THE CASE OF COMMISSIONER OF INCOME - TAX, V. HLT FINANCE (P.) LTD. [2011] 12 TAX MANN.COM 247 (DELHI) 3. IN THE CASE OF COMMISSIONER OF INCOME - T AX' V. DWARKADHISH INVESTMENT (P.) LTD. [2010] 194TAXMAN43(DELHI) 4. IN THE CASE OF COMMISS IONER OF INCOME - TAX V. WINSTRAL PETROCHEMICALS (P.) LTD. [2011] 10 TAXMANN.COM 137 (DELHI) 5. IN THE CASE OF COMMISSIONER OF INCOME - TAX V. ARUNANANDA TEXTILES (P.) LTD. [2011] 15 TAXMANN.COM 226 (KAR.), 6. IN THE CASE OF COMMISSIONER OF INCOME - TAX V. C REATIVE WORLD TELEFILMS LTD. . [2011] 15 TAXMANN.COM 183 (BOM.) 7. CIT VS. GANGESHWARI METAL (P) LTD. (2013) 214 TAXMAN 423, DELHI. S. CIT VS.ABDUL AZIZ (2012) 72 DTR 220 (C.G). 18. THE A.O HAS RELIED UPON THE DECISION IN CIT V. NOVA PROMOTERS & FI NLEASE (P) LTD. [2012] 342 ITR 169/206 TAXMAN 207/18 TAXMANN.COM 217 (DELHI). HOWEVER, ON GOING THROUGH THE SAID DECISION IN NOVA PROMOTERS & FINLEASE (P) LTD. (SUPRA) I FIND THAT THE FACTS ARE CLEARLY DISTINGUISHABLE. IN FACT, IN NOVA PROMOTERS & FINLEASE (P) LTD. (SUPRA) ITSELF THE HON'BLE DELHI HIGH COURT HAS OBSERVED, IN THE CONTEXT OF LOVELY EXPORTS (P) LTD - (SUPRA), AS UNDER: - 'THE RATIO OF A DECISION IS TO BE UNDERSTOOD AND APPRECIATED IN THE BACKGROUND OF THE FACTS OF THAT CASE. SO UNDERSTOOD, IT WI LL BE SEEN THAT WHERE THE COMPLETE PARTICULARS OF THE SHARE APPLICANTS SUCH AS THEIR NAMES AND ADDRESSES, INCOME TAX F ILE NUMBERS, THEIR CREDITWORTHINESS, SHARE APPLICATION FORMS AND SHARE HOLDERS' REGISTER, SHARE, TRANSFER REGISTER ETC. ARE FURNISHED TO T HE ASSESSING OFFICER AND THE ASSESSING OFFICER HAS NOT CONDUCTED ANY ENQUIRY INTO THE SAME OR HAS NO MATERIAL IN HIS POSSESSION TO SHOW THAT THOSE PARTICULARS ARE FALSE AND CANNOT BE ACTED UPON, THEN NO ADDITION CAN BE MADE IN THE HANDS OF THE COMPANY UNDE R SEC.68 AND THE REMEDY OPEN TO THE REVENUE IS TO GO AFTER THE SHARE APPLICANTS IN ACCORDANCE WITH LAW. WE ARE AFRAID THAT WE CANNOT APPLY THE RATIO TO A CASE, SUCH AS THE PRESENT ONE, WHERE T HE ASSESSING OFFICER IS IN POSSESSION OF MATERIAL T HAT DISCREDIT S AND IMPEACHES THE PARTICULARS FURNISHED BY THE ASSESSEE AND ALSO ESTABLISHES THE LINK BETWEEN SELF - ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 15 CONFESSED 'ACCOMMODATION ENT R Y PROVIDERS', WHOSE BUSINESS IT IS TO HELP ASSESSEES BRING INTO THEIR BOOKS OF ACCOUNT THEIR UNACCOUNTED MONIES THROUGH THE ME DIUM OF SHARE SUBSCRIPTION, AND THE ASSESSEE. THE RATIO IS INAPPLICABLE TO A CASE, AGAIN SUCH AS THE PRESENT ONE, WHERE THE INVOLVEMENT OF THE ASSESSEE IN SUCH MODUS OPERAND! IS CLEARLY INDICATED BY VALID MATERIAL MADE AVAILABLE TO THE ASSESSING OFFICER AS A RESULT OF INVESTIGATIONS CARRIED OUT BY THE REVENUE AUTHORITIES INTO THE ACTIVITIES OF SUCH 'ENTRY PROVIDERS '. THE EXISTENCE WITH THE ASSESSING OFFICER OF MATERIAL SHOWING THAT THE SHARE SUBSCRIPTIONS WERE COLLECTED AS PART OF A PRE~ MEDIIATED PLAN - A SMOKESCREEN - CONCEIVED AND EXECUTED WITH THE CONNIVANCE OR INVOLVEMENT OF THE ASSESSES EXCLUDES THE APPLICABILITY OF THE RATIO. IN OUR UNDERSTANDING, THE RATIO IS ATTRACTED TO A CASE WHERE IT IS A SIMPLE QUESTION OF WHETHER THE ASSESSES HAS DISCHARGED THE BURDEN PLACED UPON HIM UNDER SEC.68 TO PROVE AND ESTABLISH THE IDENTITY AND CREDITWORTHINESS OF THE SHARE APPLICANT AND THE GENUINENESS OF THE TRANSACTION. IN SUCH A CASE, THE ASSESSING OFFICER CANNOT SIT BACK WITH FOLDED HANDS TILL THE ASSESSEE EXHAUSTS A LL THE EVIDENCE OR MATERIAL IN HIS POSSESSION AND THEN COME FORWARD TO MERELY REJECT THE SAME, WITHOUT CARRYING OUT ANY VERIFICATION OR ENQUIRY INTO THE MATERIAL PLACED BEFORE HIM. THE CASE BEFORE ITS DOES NOT FALL UNDER THIS CATEGORY AND IT WOULD BE A TRA VESTY OF TRUTH AND JUSTICE TO EXPRESS A VIEW TO THE CONTRARY.' 19. THE CASE OF THE APPELLANT ALSO FINDS SUPPORT FROM THE FOLLOWING JUDICIAL PRONOUNCEMENTS: - (A) COMMISSIONER OF INCOME - TAX - ILL V. NAMASTEY CHEMICALS (P.) LTD. [2 013] 33 TAXMANN.COM 271 (GUJARAT); (B) COMMISSIONER OF INCOME TAX V. KUBER PLORITECH LTD. [2010] 2 DTLONLINE 136 (DELHI); (C) COMMISSIONER OF INCOME - TAX V. TANIA INVESTMENTS (P.) LTD. IT APPEAL NO. 15 OF 2009, HIGH COURT OFMUMBAI; (D) BHAV SHAKTI STEEL MINES (P.) LTD. V. COMMISSIONER OF INCOME - TAX [2009] 179 TAXMAN 25 (DELHI); (E) COMMISSIONER OF INCOME - TAX V. SAMIR BIO - TECH (P.) LTD. [2010J 325 ITR 294 (DELHI) (F) COMMISSIONER OF INCOME - TOY. - ! V, MICRO MELT (P.) LTD. [2009] 177 TAXMAN 35 (GUJ.) (G) COMMISSIONER OF INCOME - TAX - V V. REAL TIME MARKETING (P.) LTD. [2008] 173 TAXMAN 41 (DELHI) (H) ASSISTANT COMMISSIONER OF INCOME - TAX V, MANSAROVAR URBAN CO - OPERATIVE BANKLTD. [2009] 124 TTJ269(LUCKNOW); (I) COMMISSIONER OF INCOME - TAX - IV V. EMPIRE BUIL DTECH (P.) LTD. [2014] 43 TAXMANN.COM 269 (DELHI); ( J ) COMMISSIONER OF INCOME - TAX V. MULBERRY SILK INTERNATIONAL LTD. [2012] 19 TAXMANN.COM 31 (KAR.); (K) COMMISSIONER OF INCOME - TAX - ILL V. NILCHEM CAPITAL LTD. [2012] 18 TAXMANN.COM 35 0 (GUJ.); ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 16 (1) COMMISSIONER OF INCOME - TAX V. JAY DEE SECURITIES & FINANCE LTD. [2013] 32 TAX.MANN.CPM 91 (ALLAHABAD); (M) COMMISSIONER OF INCOME - TAX., DELHI - II V. KINETIC CAPITAL FINANCE LTD. [2011] 14 TAXMANN.COM 150 (DELHI); (N) C OM MI SSIONER OF INCO ME - TAX V. VLS FOODS (P.) LTD. [2011] 15 TAXMANN.COM (O) COMMISSIONER - OF INCOME - TAX V. AMBITJA GINNING PRESSING AND OIL CO, (P.) LTD. [2011] 15 TQY.RN.ANN.COM 273 (GUJ.); (P) COMMISSIONER OF INCOME - TAX V. ROCK FORT METAL & MINERALS LTD, [2011] 198 TAXMA N 497 (DELHI); (Q) COMMISSIONER OF INCOME - TAX V. SIRI RAM SYAL HYDRO POWER (P.) LTD, [2011] 196 TAXMAN 441 (DELHI); (R) COMMISSIONER OF INCOME - TAX V. ORBITAL COMMUNICATION (P.) LTD. [2010] 327 1TR 560 (DELHI); (S) COMMISSIONER OF INCOME - TAX - I V, HIM ATSU BIMET LTD. [2011] 12 TAXMANN.COM 87 (GUJ.); (T) COMMISSIONER OF INCOME - TAX - 1, JAIPUR V. A.L. LALPURIA CONSTRUCTION (P.) LTD. [2013] 32 TAXMANN.COM 384 (RAJASTHAN); (U) LUMINANT INVESTMENTS (P.) LTD. V. DEPUTY COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 40, MUMBAI [2014] 42 TAXMANN.COM 14 (MUMBAI - TRIB.); 20. I AM CONVINCED THAT THE APPELLANT HAS BEEN ABLE TO ESTABLISH THE IDENTITY AND CREDITWORTHINESS OF THE SUBSCRIBERS AS ALSO THE GENUINENESS OF THE TRANSACTIONS. IN MY CONSIDERED OPINION, THE R ATIO OF THE AFORESAID JUDGEMENTS OF THE HON'BLE SUPREME COURT IN LOVELY EXPORTS AND THAT OF JURISDICTIONAL HIGH COURT ARE CERTAINLY BINDING IN NATURE ON ALL THE REVENUE AUTHORITIES AND COURTS ETC. AND FURTHER, THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT AS WELL AS THAT OF THE HON'BLE SUPREME COURT IN LOVELY EXPORTS HAS BEEN RENDERED ON IDENTICAL FACTS. HENCE, IT IS IMPERMISSIBLE TO DEVIATE FROM THE RATIO LAID DOWN THEREIN AND AGAINST THE LAW OF JUDICIAL PRECEDENTS. IN VIEW OF THE ABOVE AND RESPECTFULLY F OLLOWING THE RATIO OF THE BINDING JUDGEMENTS, THE ADDITION OF SHARE APPLICATION/ CAPITAL MONEY OF RS.23,40,10,000/ - AS UNEXPLAINED CASH CREDITS UNDER SECTION 68 IS UNCALLED FOR AND HENCE, DELETED, THE APPELLANT GETS RELIEF OF RS.23,40.10, 000 / - AS TABULATED BELOW: A.Y. AMOUNT (RS.) 2006 - 07 1,69,40,000/ - 2007 - 08 9,00,000/ - 2009 - 10 3,41,50,000 2010 - 11 8,56,00,000/ - 2011 - 12 9,64,20,000/ - ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 17 15. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE FOR THE ASSESSMENT YEAR 2010 - 2011 THE ASSESSEE COMPANY RECEIVED RS.12,76,52, 000/ - AS SHARE APPLICATION. O UT OF THE ABOVE RS.8,56,00,0 00/ - WAS RECEIVED FROM NON - DIRECTORS OR NON - RELATIVE OF DIRECTORS. SIMILARLY IN THE ASSESSMENT YEAR 2011 - 12 THE ASSESSEE COMPANY RECEIVED RS.10,29,20,000/ - AS SHARE APPLICATION. OUT OF THE ABOVE, RS.9,64,20, 000/ - WAS RECEIVED FROM NON - DIRECTORS OR NON - RELATIVES OF DIRECTORS. 16. THE AO IN THE ASSESSMENT MADE IN PURSUANCE TO SEARCH CONDUCTED ON 24 TH & 25 TH MAY, 2011 MADE ADDITION OF THE AFORESAID AMOUNT OF RS.8,56,00,000/ - IN THE ASSESSMENT YEAR 2010 - 11 AND RS.9,64,20,000/ - IN THE ASSESSMENT YEAR 2011 - 12 TO THE INCOME OF THE ASSESSEE. THE AO MADE THE ADDITION ON THE GROUND THAT DURING THE COURSE OF SEARCH STATUTORY REGISTERS WHICH WERE REQUIRED TO BE MAINTAINED BY THE ASSESSEE COMPANY AS PER THE PROVISIONS OF COMPANIES ACT WERE NOT FOUND. THE AO ALSO OBSERVED THAT IN PURSUANCE TO NOTICES ISSUED U/S.133(6) OF THE ACT TO THE SHARE APPLICANTS THEY FURNISHED THEIR BALANCE SHEE TS. ON GOING THROUGH THE SAID BALANCE SHEET OF THE SHARE APPLICANT THE AO WAS NOT SATISFIED WITH THE CREDITWORTHINESS OF THE SHARE APPLICANTS BECAUSE OF THE ABOVE TWO REASONS. THE AO TREATED THE SHARE APPLICATION MONEY OF RS.8,56,00,000/ - IN THE ASSESSMENT YEAR 2010 - 11 AND RS.9,64, 20 ,000 / - IN THE ASSESSMENT YEAR 2011 - 12 AS NON - GENUINE AND ADDED TO THE INCOME OF ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 18 THE ASSESSEE WHICH WAS DELETED BY THE CIT(A) FOR THE REASONS QUOTED ABOVE IN THIS ORDER. 17. WE HAVE NOT BEEN ABLE TO APPRECIATE THAT HOW FROM THE NON - MAINTENANCE OF STATUTORY REGISTERS UNDER THE COMPANIES ACT IT CAN BE INFERRED THAT A PART OF SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE COMPANY WAS NOT GENUINE. THE DR COULD NOT DEMONSTRATE BEFORE US THE RELATION BETWEEN THE ABSENCE OF STATUTORY REGISTERS AND GENUINENESS OR OTHERWISE OF THE SHARE APPLICATION MONEY RECEIVED DURING THE YEAR. 18. FURTHER WE FIND THAT IT IS NOT IN DISPUTE THAT ALL THE SHARE APPLICANTS HAD RESPON DED TO THE NOTICE ISSUED BY THE AO TO THEM AND HAVE AFFIRMED THE FACT OF THEIR INVESTING MONEY AS THEIR SHARE APPLICATION WITH THE ASSESSEE COMPANY. THE ABOVE FACT AT LEAST DEMONSTRATES THAT ALL THE SHARE APPLICANTS WERE IDENTIF IABLE. 19. FURTHER, IT IS NOT IN DISPUTE THAT THE ENTIRE SHARE APPLICATION MONEY OF RS.8,56,00,000/ - IN THE ASSESSMENT YEAR 2010 - 2011 AND RS.9,64,00,000/ - IN THE ASSESSMENT YEAR 2011 - 2012 WERE RECEIVED THROUGH BANKING CHANNEL AND THE SHARE APPLICANTS HAVE DULY DISCLOSED THEIR INVESTMENT IN SHARE APPLICATION TO THE ASSESSEE IN THEIR BALA N CE SHEETS AND TRANSACTIONS WERE ALSO APPEARING IN THEIR BANK STATEMENTS. WE FIND THAT THOUGH THE AO HAD OBSERVED THAT AFTER GOING THROUGH THE BALANCE SHEET OF THE SHA RE APPLICANTS HE WAS NOT SATISFIED WITH THE CREDITWORTHINESS OF THE SHARE APPLICANTS BUT COULD NOT GIVE ANY COGENT REASONS IN TH E ASSESSMENT ORDER FOR HIS ABOVE FINDING. ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 19 20. THE DR ALSO COULD NOT BRING ANY MATERIAL BEFORE US TO SHOW THAT WHAT WAS THE REASON TO ARRIVE AT THE SAID FINDING. 21. IN OUR CONSIDERED OPINION, SUCH A NON - SPEAKING ORDER IS BAD IN LAW AND UNSUSTAINABLE. THE CIT(A) HAS RETURNED A FINDING THAT THE IDENTITY OF SHARE APPLICANTS, GEN UINENESS OF THE SHARE TRANSACTIONS AND CREDITWORTHINESS OF THE SHARE APPLICANTS WERE ESTABLISHED BY THE VARIOUS DOCUMENTS LIKE BANK STATEMENTS, BALANCE SHEETS ETC. FURNISHED BY THE SHARE APPLICANTS TO THE A O IN PURSUANCE TO THE NOTICE ISSUED TO THEM U/S. 133(6) OF THE ACT. 22. WE FIND THAT THE REVENUE COULD NOT CONTROVERT THE ABOVE FINDING OF THE CIT(A) . 23. IN THE ABOVE CIRCUMSTANCES, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE FINDING OF CIT(A). 24. IT IS AN ESTABLISHED POSITION OF LAW THAT ADDITION CANNOT BE MADE ONLY ON THE BASIS OF SUSPICION OR SURMISES AND WITHOUT CONTROVERTING THE STATEMENTS OF THE ASSESSEE BY BRINING ANY COGENT MATERIAL ON RECORD. 25. IN THE INSTANT CASE, WE FIND THAT FROM SEARCH CONDUCTED AT THE PREMISES OF THE ASSESSEE, NO COGENT MATERIAL COULD BE BROUGHT ON R ECORD BY THE AO TO CONTROVERT THE CLAIM OF THE ASSESSEE. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE GROUND OF REVENUE AND ACCORDING TH IS GROUND OF APPEAL OF REVENUE FOR THE ABOVE ASSESSMENT YEARS UNDER CONSIDERATION IS DISMISSED. ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 20 26 . GROUND NOS.3 TO 6 IN APPEALS FOR THE ASSESSMENT YEARS 2010 - 11 & 2011 - 12 AND GROUND NOS. 1 TO 4 IN APPEAL FOR THE ASSESSMENT YEAR 2012 - 2013, ARE DIRECTED AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITIONS MADE ON ACCOUNT OF APPLYING NET PROFIT RATE AFTER REJECTION OF BOOKS OF ACCOUNTS U/S.145 OF THE ACT FOR RS.4 , 62, 00,000/ - FOR ASSESSMENT YEAR 2010 - 11, RS.8,56,00,000/ - FOR ASSESSMENT YEAR 2011 - 12 AND RS.2,45,00,000/ - FOR ASSESSMENT YEAR 2012 - 13, RESPECTIVELY. 27 . BRIEF FACTS RELATING TO THE ABOVE GROUNDS THAT T HE A. O HAS REFERRED TO THE TRIAL BALANCE PREPARED AS ON DATE OF SEARCH I.E., 24/05/2011 AT PARA - 8.1. THE AO HAS STATED THAT THE GROUP IS NOT REGULARLY MAINTAINING ITS BOOKS OF ACCOUNTS AND IT WAS SHOWING LOW PROFIT BEFORE TAXES AND HIGH SUNDRY CREDITORS. THE AO HAS INCORPORATED FOLLOWING COMPILATION. DATA OF TURNOVER AND PROFIT BEFORE TAXES F.Y. F.Y. F.Y. F.Y. F.Y. F.Y. F.Y. 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10 2010 - 11 2011 - 12 TURNOVER (RS CR.) 29.90 59.76 67.41 112.19 110.64 118.46 121.21 PROFIT BEFORE TAX (PBT) (RS. CR.) 0.89 1.33 3.29 5.00 4.29 0.00 4.85 PBT/TURNOVER % 2.97% 2.22% 4.87% 4.45% 3.87% - 4.01% THE AO OBSERVED THAT THE QUANTUM OF SUNDRY CREDITORS IS HIGHER THAN THE QUANTUM OF SUNDRY DEBTORS. AS PER AO, HIGHER SUNDR Y CREDITORS IS RESULT OF SUPPRESSION OF ACTUAL PROFIT. THE OBSERVATION OF THE AO IN REJECTING THE BOOKS OF ACCOUNTS AND ADOPTION OF FLAT RATE IS AT PARA - 8.11 , IS REPRODUCED BELOW: '8.11 I HAVE EXAMINED T HE EXPLANATIONS AND SUBMISSIONS SUBMITTED BY TH E ASSESSEE. I HAVE ALSO GONE THROUGH THE SEIZED MATERIAL AND ALL OTHER DOCUMENTS FOR MING PART OF ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 21 RECORDS. HOWEVER, I AM AFRAID THAT I AM UNABLE 10 AGREE WITH THE ASSESSEE. THEREFORE, IN VIEW OF FACTS AND CIRCUMSTANCES OF THE CASE, IT IS ESTABLISHED AND HEL D THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE DO NOT REPRESENT TRUE AND COMPLETE PICTURE OF ITS ACCOUNTS. THEREFORE, THE SAME ARE REJECTED UNDER SECTION 145 OF THE ACT FOR A.Y. 2006 - 07 TO 2012 - 13. THE ACTUAL INCOME OF THE ASSESSEE SHALL BE COMPUTED TAKING I TS BOOK - PROFITS @ 8% OF GROSS RECEIPTS OF CIVIL CONTRACT WORKS AND @ 10% WITH REGARDS TO THE OTHER RECEIPTS. ' 28 . THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) AND SUBMITTED THAT IT HAS KEPT AND MAINTAINED REGULA R BOOKS OF ACCOUNTS IN COMPUTER. A T TH E TIME OF OPERATION U/S 132 OF THE ACT , THE BOOKS OF ACCOUNTS WERE NOT FOUND BY THE SEARCH PARTY . A SPECIFIC QUESTION WAS ASKED AT THE TIME OF OPERATION U/S. 132 OF THE ACT BY AUTHORIZED OFFICER TO SHRI RAJENDRA AGRAWAL, DIRECTOR AND SHRI RAHUL SINGHA L THEY REPLIED TO IT IN THEIR RESPECTIVE STATEMENTS . IN RESPONSE TO THE SAME, IT WAS EXPLAINED BY THEM THAT THE ACCOUNTANT, NAMELY SHRI SOM VEER WAS ON LEAVE TO HARYANA AND HE WAS THE PERSON KNOWING THE FACTS ABOUT THE BOOKS OF ACCOUNTS MAINTAINED IN THE COMPUTE R AND HIS MOBILE NUMBER WAS ALSO PROVIDED THE OT HER DIRECTOR, SHRI AMAR AGRAWAL, WHO LOOKS - AFTER THE ACCOUNTS AND TAXATION MATTERS, WAS ALSO NOT PRESENT AND HE WAS AT CHENNAI IN CONNECTION WITH NEGOTIATION FOR SALE OF POWER BY M/S. R.R. ENERGY LIMITED, ANO THER GROUP COMPANY, TO TAMIL N ADU GOVERNMENT . THE ASSESSEE FURTHER SUBMITTED THAT THE AO ARBITRARILY PRESUMED THAT BOOKS OF ACCOUNTS WERE NOT MAINTAINED BY THE ASSESSEE AND THE ASSESSEE IS DOING BUSINESS SINCE PAST MANY YEARS AND THE TURNOVER, WHICH WAS OF RS. 27.90 CRORES IN THE YEAR ENDING ON 31/03/2006 REACHED TO THE TUNE OF RS. 121.2 1 CRORES IN THE YEAR ENDING ON 31/03/2012 . T HERE IS SUBSTANTIAL LOAN FROM BANK IN ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 22 CRORES, THE DEBTORS AND CREDITORS ARE IN CRORES, THE ASSESSEE IS PAYING INCOME TAX IN LAKHS OF RUPEES AND WITHOUT BOOKS OF ACCOUNTS, BUSINESS OF THIS SCALE CANNOT BE DONE . THE BOOKS OF ACCOUNTS WERE PRODUCED DURING ORIGINAL ASSESSMENT PROCEEDINGS BEFORE THE AO FOR A.Y 2008 - 09 & 2009 - 10 AND REGULAR BOOKS OF ACCOUNTS HAVE BEEN AGAIN PRODUCED DURIN G PROCEEDINGS BEFORE THE AO U/S 153A . D URING SEARCH OPERATION, WHICH WAS CARRIED - ON ON 24/05/2011, A TRIAL BALANCE DATED 24/05/2011 (BY DEFAULT MENTIONED A S 10/06/2011) WAS FOUND BY THE AUTHORIZE D OFFICER IN THE COMPUTER AND WITHOUT MAINTAINING REGULAR BOO KS OF ACCOUNTS, TRIAL BALANCE CANNOT BE PREPARED . T HERE WAS DIFFERENCE OF RS. 10,31.29,861/ - BECAUSE OPENING BALANCE AS ON 01/04/2011 WAS NOT INCORPORATED IN THE BOOKS OF ACCOUNTS FOR F.Y. 2011 - 12 AS THE BOOKS OF ACCOUNTS FOR F.Y.2010 - 11 WERE UNDER F INA L IZATION . T HE DIFFERENCE OF RS. 10,31,29,861/ - WAS EXPLAINED BEFORE THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS BY FILING A RECONCILIATION STATEMENT AND A WRITTEN SUBMISSION WAS ALSO MADE . THE FIGURES OF BALANCE SHEET AND PROFIT & LOSS ACC OUNT WERE FILLED IN THE INCOME TAX RETURN FOR A.Y. 2006 - 07 TO 2012 - 13 FROM TIME TO TIME AND BARRING A.Y. 2006 - 07, ALL THE INCOME TAX RETURNS WERE FILED ELECTRONICALLY , THE ACCOUNTS WERE AUDITED AND THE AUDIT REPORTS WERE ALSO FILED DURING ORIGINAL ASSESSME NT PROCEEDINGS AS WELL AS DURING PROCEEDINGS U/S. 153A AND THE AUDITORS HAVE CATEGORICALLY STATED ABOUT OF MAINTENANCE OF BOOKS OF ACCOUNTS . THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE WAS A COMPANY AND WAS REQUIRED TO FILE BALANCE SHEET ELECTRONICALL Y WITH ROC WHICH WAS DONE . THE MAIN REASON FOR REJECTION OF ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 23 BOOKS OF ACCOUNTS AND APPLICATION OF PROVISIONS OF SEC. 145 OF THE ACT BY THE AO WAS ON TWO GROUNDS - ( 1) LOW PROFIT BEFORE TAXES AND (2) HIGHER SUNDRY CREDITORS . F OR THESE TWO REASONS PROVISIONS OF SEC. 145 ARE NOT APPLICABLE AND IN PARTICULAR WHEN THE AO HAS NOT FOUND ANY DEFECT IN THE BOOKS OF ACCOUNTS . N O SUPPRESSION OF SALES OR INFLATION OF EXPENSES WAS FOUND IN THE PROCESS OF ASSESSMENT OR DURING OPERATION U/S. 132 OF THE ACT . THE LOW PROFIT C ANNOT BE MADE BASIS TO REJECT THE BOOKS OF ACCOUNTS . THE A.Y. 2008 - 09 AND 2009 - 10 WERE SUBJECT TO SCRUTINY ORIGINALLY BY THE ACIT, KORBA WHO ASSESSED THE INCOME VIDE ORDERS DATED MARCH 2010 AND 29/03/2011 RESPECTIVELY . I N THESE ORDERS, THE AO ACCEPTED THE BOOKS OF ACCOUNTS AND MADE CERTAIN DISALLOWANCES UNDER VARIOUS HEADS . THE PROVISIONS OF SEC. 1 53A ARE NOT APPLICABLE AS THE ASSESSMENTS WERE NOT PENDING ON THE DATE OF SEARCH WHICH CAN ABATE AS PER SECOND PROVISO TO SEC. 153A OF THE ACT. THERE IS HEAVY BURD EN OF INTEREST ON ACCOUNT OF LOAN TAKEN FROM BANKS AND FINANCIAL INSTITUTIONS FOR PURCHASE OF ROAD MAKING MACHINERY, PLANT AND OTHER VEHICLES WHICH AMOUNTED TO RS. 2.79 CRORES IN A.Y. 2012 - 13 . THE ASSESSEE USED TO SUB - LET A SIZEABLE CHUNK OF THE CONSTRUCTI ON CONTRACT AND OTHER BUSINESS TO THE SUB - C ONTRACTORS WHICH REDUCES THE PROFIT MARGIN THAT CIVIL CONSTRUCTION CONTRACTS WERE TAKEN AT A VERY COMPETITIVE RATE AND THERE WAS BIG DIFFERENCE BETWEEN T HE RATE OF THE ASSESSEE AND THE NEXT RATE . B ECAUSE OF HEAVY DEPRECIATION THE PROFIT RATE HAS REDUCED AND ADOPTION OF RATE OF 8% IN CASE OF CIVIL CONSTRUCTION RECEIPTS AND @10% IN CASE OF TRANSPORT AND OTHER RECEIPTS WAS WI THOUT ANY BASIS AND ARBITRARY. WITH REGARD TO HIGHER SUNDRY CREDITORS AND ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 24 DEBTORS RATIO MENTI ONED BY THE AO, THE ASSESSEE SUBMITTED THAT THE OBSERVATION OF THE AO WAS MISCONCEIVED. IT WAS EXPLAINED THAT AS PER ACCEPTED ACCOUNTING RATIOS, THE CURRENT RATIO IS TO BE CONSIDERED WHEREIN CURRENT LIABILITIES AND CURRENT ASSETS ARE CONSIDERED BY T HE FINANCIAL INSTITUTIONS. THERE WAS CASH CREDIT LIMIT OF BANKS AT RS. 15 CRORES. THE BANKS ARE VERY VIGILANT ABOUT THE FINANCIAL POSITION AND LIQUIDITY RATIO. THEY PREFER 1 : 1.33 WHERE 1 IS CURRENT LIABILITIES AND '1.33' IS CURRENT ASSETS. IT WAS EXPLA INED BY WAY OF A COMPILATION THAT CURRENT RATIO WAS 1.17 AT THE LOWER SIDE AND 1.77 AT THE HIGHER SIDE IN ALL THE CONCERNED YEARS. THE LEARNED ARS ARGUED THAT THE AO SHOULD HAVE CONSIDERED ALL THE CURRENT ASSETS AND CURRENT LIABILITIES INSTEAD OF ONLY DEBT ORS AND CREDITORS. THE CURRENT ASSETS AND CURRENT LIABILITIES FLUCTUATE ON EACH TRANSACTION OF PURCHASE OR SALE. IT WAS ACCORDINGLY SUBMITTED THAT THE ACCOUNTS SHOULD NOT BE REJECTED AND FLAT RATE SHOULD NOT HAVE BEEN APPLIED ON THE BASIS OF LOWER PROFIT A ND HIGHER CREDITORS. 29 . THE ASSESSEE FURTHER SUBMITTED THAT WITH REGARD TO CREDITORS, THEIR COMPLETE ADDRESS FOR ALL TH E YEARS EXCEEDING RS. 1,00,000/ - , AS ASKED BY THE AO, WAS FILED ALONG WITH THEIR CONFIRMATIONS. A COMPILATION OF STATUS OF VARIOUS CREDIT ORS AS AT THE END OF ALL THE YEARS WAS ALSO FILED. THUS, THERE WAS NO REASON TO DOUBT THE CREDITORS AMOUNT. IT WAS ALSO SUBMITTED BY THE ASSESSEE THAT , WITHOUT PREJUDICE, THAT EACH YEAR IS INDEPENDENT YEAR AND FINDING OF ANY PARTICULAR YEAR CANNOT BE APPLI ED TO ALL THE YEARS UNLESS THERE IS ANY COGENT REASON AND EVIDENCE TO DO SO. IT WAS ARGUED THAT THE TRIAL BALANCE AS ON DATE OF SEARCH CANNOT BE PREPARED WITHOUT ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 25 MAINTAINING BOOKS OF ACCOUNTS. IT WAS FURTHER SUBMITTED THAT TRADING RESULTS AS PE R BOOKS OF A CCOUNTS BE ACCEPTED AND THE ADDITION SO MADE BY THE AO SHOULD BE DELETED. 30 . THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS DELETED THE ADDITIONS FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION AFTER OBSERVING AS UNDER: - 24. I HAVE CONSIDERED THE ARGUMENT S, WRITTEN SUBMISSION AND SUPPORTING FILED BY THE LEARNED ARS AND THE REASONS GIVEN BY THE AO IN THE ASSESSMENT ORDER FOR REJECTING THE BOOKS OF ACCOUNTS AND ADOPTING FLAT RATE OF NET PROFIT @ 8% ON CIVIL CONSTRUCTION CONTRACT RECEIPTS AND @ 10% ON TRANSPO RT CONTRACT AND OTHER RECEIPTS. THE MAIN REASON FOR REJECTION OF BOOKS OF ACCOUNTS AND APPLICATION OF FLAT RATE OF NET PROFIT BY THE AO IS ON 3 COUNTS - (1) NON - A VAILABILITY OF BOOKS OF ACCOUNTS AT THE TIME OF SEARCH OPERATION; (2) LOW PROFIT ACCORDING TO AO AND (3) HIGHER SUNDRY CREDITORS CONSIDERING THE VOLUME OF THE BUSINESS. 25. IT IS NOT THE CASE OF THE A.O THAT THE BOOKS OF ACCOUNTS OF THE APPELLANT FOR THE YEARS UNDER CONSIDERATION ARE NOT AUDITED OR THAT THE APPELLANT DID NOT FILE ITS INCOME TAX RET URN FOR ALL THESE YEARS. THE TRADING RESULTS OF THE APPELLANT IS SUMMARIZED BELOW: (RUPEES IN CR ORES) S.NO PARTICULARS ASSESSMENT YEAR 06 - 07 07 - 08 08 - 09 09 - 10 10 - 11 11 - 12 12 - 13 1. TURNOVER 59.76 67.61 112.19 110.64 119.46 121.21 2. PBT AS PER 0.89 1.33 3.29 5.00 4.29 2.09 4.86 3. NP RATIO BY TAKING DEPRECIATION AS PER COS. ACT 2.98% 2.23% 4.87% 4.46% 3.88% 1.76% 4.01% 4. (ADD) DEPRECIATION AS PER COS.ACT 1.15 2.10 1,90 4.41 4.96 5.56 5.82 TOTAL (2) + (4) 2.04 3.43 5.19 9.41 9.2 5 7.65 10 .68 5. ( - ) DEPRECIATION AS PER IT ACT 0.94 1.13 1.61 3.20 4.05 4.63 5.33 6. NP AS PER 1.10 2.30 3.58 6.21 5.20 3.02 5.35 ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 26 I.T. ACT 7. % OF N P OVER TURNOVER AFTER TAKING DEPRECIATION AS PER I.T.ACT 3.68% 3.51% 5.30% 5.54% 4.70% 3.35% 4.99% RECEIPTS FROM BOTH SEGMENTS OF BUSINESS ARE AS BELOW: ASSESSMENT YEAR CIVIL WORK (RS.) OTHER WORK (RS.) TOTAL RECEIPTS (RS.) 2006 - 07 234,133,596 44,906,214 279,093,810 2007 - 08 535.601.243 62,037,810 597,639.053 200 8 - 09 586,772,545 89,425,490 676,198,035 2009 - 10 914,984 , 979 206,950,143 112,1935,122 2010 - 11 726,090,741 380 , 387 ,228 1,106,477,969 2011 - 12 604,303,950 590,383,856 1,194,687,806 2012 - 13 320.900,815 891,219,069 1,212,119,884 26. THE BOOKS OF ACCO UNTS WERE SUBJECTED TO TAX AUDIT AS WELL AS AUDIT UNDER COMPANY LAW WHICH WERE PRODUCED BEFORE THE A.O. TOGETHER WITH BILLS AND VOUCHERS AND THE SAME WERE EXAMINED BY TEST CHECK. IT IS SEEN THAT THE BOOKS OF ACCOUNTS WERE PRODUCED ON EARLIER TWO OCCASIONS IN ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) FOR A.Y, 2008 - 09 AND 2009 - 10 BEFORE THE ACIT. KORBA WHO HAS GIVEN SPECIFIC FINDING IN THE ASSESSMENT ORDER FOR A.Y. 2008 - 09 AND A.Y. 2009 - 10 WITH REGARD TO PRODUCTION AND EXAMINATION OF BOOKS OF A CCOUNTS ALONG WITH BILLS AND VOUCHERS. I ALSO FMD THAT, AS ON DATE OF SEARCH I.E., 24.05,2011. TRIAL BALANCE OF THE BUSINESS WAS FOUND BY THE SEARCH TEAM. IN THIS TRIAL BALANCE, THERE WAS DIFFERENCE OF APPROXIMATELY RS. 10 CRORES BECAUSE OF NON - INCORPORATI ON OF OPENING BALANCE AS MENTIONED IN THE SEIZED TRIAL BALANCE ITSELF. THE DIFFERENCE WAS EXPLAINED BY WAY OF FILING A COMPILATION TO THE AO AND ALSO FILED BEFORE ME. THERE IS NO ADVERSE COMMENT ON THIS EXPLANATION IN THE ASSESSMENT ORDER. 27. IT IS SEEN THAT SHRI RAJENDRA AGRAWAL HAS CATEGORICALLY STATED IN REPLY TO QUESTION NO. 6 THAT SHRI SOM VEER WHO IS THEIR ACCOUNTANT ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 27 WAS ON LEAVE TO HARYANA. SHRI RAHUL SINGHAL, WHO IS ALSO DIRECTOR, IN HIS STATEMENT PROVIDED THE MOBILE NUMBER OF SHRI SOM VEER. SHRI AMAR AGRAWAL, ANOTHER DIRECTOR, WHO IS STATED TO BE IN CHARGE FOR THE ACCOUNTS AND TAXATION WORK, WAS ALSO NOT AVAILABLE AND WAS AT CHENNAI IN CONNECTION WITH BUSINESS OF M/S. R.R, ENERGY LIMITED, ANOTHER GROUP COMPANY, FOR NEGOTIATION WITH TAMIL NADU GOV ERNMENT FOR SALE OF POWER. FOR THE ABOVE REASONS AND ON THE BASIS OF EVIDENCES ON RECORD, 1 F IND NO REASON TO DISBELIEVE THAT THE APPELLANT HAS KEPT AND MAINTAINED REGULAR BOOKS OF ACCOUNTS, IN MY CONSIDERED VIEW, THE REASONS FOR NON - AVAILABILITY OF BOOKS OF ACCOUNTS AT THE TIME OF SEARCH, GIVEN BY SHRI RAJENDRA AGRAWAL AND SHRI RAHUL SINGHA L IN THEIR STATEMENTS RECORDED DURING SEARCH OPERATION ON 24/05/2011, ARE SATISFACTORY. 28. IN COMMISSIONER OF INCOME TAX VS. JAIN CONSTRUCTION CO. & ORS. (2000) 245 ITR 527 (RAJ) IT WAS HELD THAT 'IN CASE OF WORKING PARTNERS, PAYMENTS OF SALARY, BONUS, COMMISSION OR REMUNERATION BY WHATEVER NAME IT CALLED IN TERMS OF THE PARTNERSHIP DEED IS ALLOWABLE AS DEDUCTIONS TO THE EXTENT OF LIMIT PROVIDED UNDER S. 4 0 (B). IN THI S GROUP OF CASES, THE TRIBUNAL AFTER EXAMINING THE PARTNERSHIP DEED IN ALL INDIVIDUAL CASES FOU ND THAT - THE CLAIM OF ASSESSEES FOR INTEREST ON CAPITAL CONTRIBUTION BY THE PARTNERS AND SALA R Y TO WORKING PARTNERS WAS ALLOWABLE DEDUCTIONS TO THE EXTENT OF LIMI T PROVIDED UNDER S. 40(B). THE TRIBUNAL WAS JUSTIFIED IN DOING SO. THE FINDING OF FACT DOES NOT GIVE RISE TO QUESTION OF I AW . IT IS CLEARLY PROVIDED THAT THE AMENDMENT TO S. 40(B) WILL TAKE EFFECT FROM 1ST APRIL, 1993, AND WILL, ACCORDINGLY, APPLY IN RELAT ION TO ASST. YR. 1993 - 94 AND THE SUBSEQUENT YEARS THERETO - IT IS ALSO PROVIDED THAT IT PERTAINS TO THE PAYMENT TO THE PARTNER DURING THE PREVIOUS YEAR, RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON 1ST APRIL, 1993. OBVIOUSLY, THE PREVIOUS YEAR IS 1992 - 93 A ND THE ASST. YR. 1993 - 94. DEALING WITH THE QUESTION OF CLAIM OF DEPRECIATION IN A CASE OF DETERMINATION OF INCOME APPLYING THE NET PRO/IT RATE, IT WOULD BE PERTINENT TO REFER THE CIRCULAR DT. 31ST ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 28 AUG., 1965, ISSUED BY THE CENTRAL BOARD OF REVENUE, WHICH P ROVIDES THAT IF A CLAIM FOR DEPRECIATION IS MADE BY THE ASSESSEE IN THE RETURN AND THE ITO PROPOSES TO ESTIMATE THE PROFITS, THE DEPRECIATION ALONE SHOULD BE SEPARATELY WORKED OUT. THE BOARD CLEARLY POINTED OUT THIS ASPECT OF THE MATTER IN PARA 2 OF THE CI RCULAR, WHERE IT PARTICULARLY DIRECTS THAT IN ALL SUCH CASES, THE GROSS PROFIT SHALL BE ESTIMATED AND THE DEDUCTION AND ALLOWANCE INCLUDING THE DEPRECIATION ALLOWANCE SHOULD BE SEPARATELY DEDUCTED FROM THE GROSS PROFIT. THE BOARD HAS FURTHER POINTED OU T THAT IF IT IS CONSIDERED THAT THE NET PROFIT SHOULD BE ESTIMATED, IT SHOULD BE ESTIMATED SUBJECT TO THE ALLOWANCE FOR DEPRECIATION AND THE DEPRECIATION ALLOWANCE SHOULD BE DEDUCTED THEREFROM. THE CONTENTION THAT THE CIRCULAR OF THE BOARD IS NOT BINDING O N THE COURTS AND IT IS ONLY FOR THE GUIDANCE OF THE ASSESSING AUTHORITY IS NOT SUSTAINABLE. THERE IS NO MERIT IN THE ANOTHER CONTENTION OF REVENUE THAT GIVING EFFECT TO THE ORDER OF THE TRIBUNAL WILL TANTAMOUNT TO SAME DEDUCTIONS TWICE. THE PREMISES OF THE CONTENTION APPEARS TO BE THE PRESUMPTION THAT DEPRECIATION MUST HAVE BEEN CONSIDERED TO HAVE BEEN ALLOWED IN ARRIVING AT THE NET - PROFIT. IT IS NOT PERMISSIBLE TO DRAW SUCH PRESUMPTION. AN AO IS EXPECTED TO BE CONSCIOUS OF THE CLAIM OF THE ASSESSEE FOR ALL OWANCE OF DEPRECIATION AND THAT HE HAS TO DEAL WITH IT IN COMPUTING THE INCOME, BY APPLYING NET PROFIT. THUS, THE ASSESSEE IS ENTITLED TO DEPRECIATION AS ADMISSIBLE UNDER THE RULES ON THE ASSETS USED IN THE BUSINESS AS CLAIMED IN THE RETURN. IN A CASE OF R EJECTION OF ACCOUNTS AND ESTIMATE OF NET PROFIT, DEPRECIATION IS REQUIRED TO BE WORKED OUT SEPARATELY. IT WILL ALSO BE RELEVANT TO CONSIDER S. 44AD, WHICH IS A SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS OF BUSINESS OF CIVIL CONSTRUCTION, ETC. NOW IN CASE OF ASSESSEE ENGAGED IN BUSINESS OF CIVIL CONSTRUCTION OR SUPPLY OF LABOUR FOR CIVIL CONSTRUCTION FIXED RATE OF NET PROFIT OF 8 PER CENT HAS BEEN PROVIDED. PROVISO TO SUB - S. (2) PERMITS SALARY AND INTEREST PAID TO THE PARTNERS DEDUCTED FROM THE FIXED NET PROFIT OF 8 PER CENT SUBJECT TO THE CONDITIONS AND LIMITS SPECIFIED IN CL. (B) OF S. 40. T HUS , THERE IS FURTHER SIMPLICATION AND CERTAINTY IN ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 29 COMPUTATION OF INCOME. INSTRUCTIONS CONTAINED IN PARA 2 OF THE CIRCULAR OF THE YEAR 1965 HAVE BEEN BROUGHT IN T HE STATUTE, THEREBY THE DOUBTS, IF ANY, WITH RESPECT TO SUBJECT CIRCULAR HAVE BEEN SETTLED. THE TRIBUNAL WHILE ALLOWING THE APPEAL HAS DIRECTED THE ASSESSING AUTHORITY TO RECOMPUTE THE TOTAL INCOME AS ESTIMATED BY HIM AND ALLOW RELIEF ON ACCOUN T OF PAYMENT OF INTEREST AND CLAIM OF DEPRECIATION. THE FINDING RECORDED BY THE TRIBUNAL IS PURELY A FINDING OF FACT, BASED ON PROPER APPRECIATION OF MATERIAL ON RECORD AND THE EVIDENCE PRODUCED BY THE ASSESSES. AS NO QUESTION OF LAV? ARISES OUT OF THE ORDER PASSED BY THE TRIBUNAL, THERE IS NO FAULT WITH THE ORDER OF THE TRIBUNAL DECLINING TO REFER THE Q UESTION. CLT VS. SM BHATIA ASSOCIATES (1998) 144 CTR (RAJ) 378 : (1998) 226 ITR 675 (RAJ) APPLIED.' 29. IN SHYAM BIHARI VS. COMMISSIONER OF INCOME TAX & ANR. (2012) 3 45 ITR 283 (PATNA) IT WAS HELD THAT 'THE QUESTION OF LAW ACTUALLY FALLING FOR CONSIDERATION WOULD BE WHETHER - THE AUTHORITIES UNDER THE ACT INCLUDING THE TRIBUNAL HAVE ERRED IN BEING GUIDED BY THE PRINCIPLES UNDERLYING SECTION 44AD OF THE ACT WHEN THAT SEC TION IS CLEARLY NOT APPLICABLE TO THE CASE OF THE APPELLANT AS HIS GROSS CONTRACT RECEIPT IS WELL ABOVE RS. 40 LAKHS. THE TRIBUNAL WAS NOT JUSTIFIED IN ADOPTING THE PRINCIPLES UNDERLYING SECTION 44'AD OF THE ACT WHEN THE SAID SECTION ITSELF WAS NOT APPLICA BLE, - SRI RAM JHANWAR LAL VS. INCOME TAX OFFICER 321 ITR 400 RELIED. ACCORDING TO THE CIRCULAR OF THE BOARD DATED 31.8.1965, WHERE IT IS PROPOSED TO ESTIMATE THE PROFIT AND THE PRESCRIBED PARTICULARS HAVE BEEN FURNISHED BY THE ASSESSES, THE DEPRECIATION ALLOWANCE SHOULD BE SEPARATELY WORKED OUT. IN ALL SUCH CASES, AS PER THE CIRCULAR, THE GROSS PROFIT SHOULD BE ESTIMATED AND THE DEDUCTIONS AND ALLOWANCE INCLUDING T HE DEPRECIATION ALLOWANCE SHOULD BE SEPARATELY DEDUCTED FROM THE GROSS PROFIT. IF THE NET PR OFIT IS REQUIRED TO BE ESTIMATED, IT SHOULD BE ESTIMATED SUBJECT TO THE ALLOWANCE F OR DEPRECIATION AND THE DEPRECIATION ALLOWANCE SHOULD BE DEDUCTED THEREFROM . ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 30 SINCE IT IS THE CASE OF THE APPELLANT THAT THE AUTHORITIES SHOULD NOT APPLY THE P RINCIPLES EMAN ATING THE SECTION 44AD OF THE ACT BUT SHOULD BE GUIDED BY THE BINDING CIRCULAR OF THE BOARD, IT IS NECESSARY NOT ONLY TO SET ASIDE THE ORDER OF THE TRIBUNAL BUT ALSO THE ORDERS OF THE A SSESSING O FFICER AND THE LEARNED CIT (APPEAL) AS THOSE ORDERS ALSO SUFF ER FROM ERROR OF LAW ON BOTH THE POINTS. ACCORDINGLY THE APPEAL WAS ALLOWED AND THE ORDER UNDER APPEAL PASSED BY THE TRIBUNAL, THE APPELLATE ORDER OF THE LEARNED CIT (APPEAL), PATNA AND ALSO THE ORDER OF ASSESSING OFFICER ARE SET ASIDE AND THE MATTER WAS R EMITTED BACK TO THE ASSESSING OFFICER FOR PASSING A FRESH ORDER OF ASSESSMENT IN ACCORDANCE WITH LAW KEEPING IN VIEW THE QUESTIONS OF LA W AS ANSWERED BY THIS COURT, ' 30. IN COMMISSIONER OF INCOME TAX VS. CHOPRA BROS. INDIA (PJ LTD. (2001) 252 ITR 41 2 (P&H) IT WAS HELD THAT 'IF THE AO IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, HE CAN PROCEED TO MAKE BEST JUDGMENT ASSESSMENT. HOWEVER, EVEN WHILE DOING SO, THE AO IS BOUND TO TAKE INTO ACCOUNT ALL RELEVANT MAT ERIAL ON THE RECORD. THE CONSIDERATION CANNOT BE ASSUMED. IT MUST BE APPARENT FROM THE ORDER. THE ASSESSEE HAD CLAIMED DEPRECIATION. IT HAD FURNISHED ALL THE RELEVANT PARTICULARS. YET, THE AO HAD NOT SAID A WORD ABOUT THE CLAIM. IT WAS NOT EVEN SUGGESTED T HAT HE WAS FIXING THE NET PROFIT RATE AT 10 PER CENT AFTER ALLOWING THE CLAIM FOR DEPRECIATION. IN THIS SITUATION, IT CANNOT BE SAID THAT THE AO HAD TAKEN ALL THE MATERIAL INTO CONSIDERATION AS REQUIRED UNDER S. 144. SEC. 119 AUTHORISES THE BOARD TO ISSUE ORDERS, INSTRUCTIONS AND EVEN DIRECTIONS TO THE IT AUTHORITIES FOR THE PROPER ADMINISTRATION OF THE ACT. THE AUTHORITIES ARE REQUIRED TO 'OBSERVE AND FOLLOW SUCH ORDERS, INSTRUCTIONS AND DIRECTIONS OF THE BOARD'. IT IS APPARENTLY IN EXERCISE OF THIS POWER THAT THE BOARD HAD ISSUED THE CIRCULAR DT. 31ST AUG., 1965. IN THIS CIRCULAR, IT HAS BEEN INTER ALIA, PROVIDED THAT THE 'MERE FACT THAT NET PROFITS HAD BEEN ESTIMATED COULD NOT BE A GROUND FOR SAYING THAT DEPRECIATION CLAIMED IN THE RETURNS HAD BEEN ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 31 DULY ALLOWED AS PROVIDED UNDER THE ACT'. THUS, THE BOARD HAD INSTRUCTED THE AUTHORITIES THAT WHERE 'IT IS PROPOSED TO ESTIMATE THE PROFIT AND THE PRESCRIBED PARTICULARS HAVE BEEN FURNISHED BY THE ASSESSEE, THE DEPRECIATION ALLOWANCE SHOULD BE SEPARATELY WORKED OUT. ' STILL FURTHER, IT WAS DIRECTED THAT 'EVEN WHERE BEST JUDGMENT IS MADE, THE ABOVE PROCEDURE SHOULD BE ADOPTED PROVIDED THE REQUIRED PARTICULARS HAVE BEEN FURNISHED BY THE ASSESSEE.' SEC. 119 MAKES IT MANDATORY FOR THE IT AUTHORITIES TO FOLLOW THE ORD ERS, INSTRUCTIONS AND DIRECTIONS ISSUED BY THE BOARD. THE DIRECTIONS GIVEN IN THE CIRCULAR DO NOT FALL - WITHIN THE EXCEPTIONS EMBODIED IN THE PROVISO TO SUB - S. (1) OF S. 119. IT WAS NOT EVEN SUGGESTED THAT THESE .ARE CONTRARY' TO ANY STATUTORY PROV ISION. T HUS, THESE WERE BINDING ON THE AUTHORITIES . THESE HAD TO BE FOLLOWED . SIN CE THE INSTRUCTIONS OF THE BOARD HAD NOT BEEN OBSERVED, THE CONTENTION RAISED ON BEHALF OF THE REVENUE CANNOT BE ACCEPTED. NAVNIT LAL C. JGVERI VS K.K. SEN, AAC (1965) 56 ITR 198 (SC ) : TC 69R.265 AND PAYER PRODUCTS LTD, VS. COMMR. OF CENTRAL EXCISE (2001) 165 CTR (SC) 693 : (2001) 247 ITR 128 (SC) APPLIED. IN A CASE WHERE THE ASSESSEE MAKES A SPECIFIC CLAIM FOR DEPRECIATION AND GIVES THE INFORMATION AS REQUIRED UNDER S. 32, THE AO I S BOUND TO TAKE THE CLAIM OF THE ASSESSEE INTO CONSIDERATION. THIS CONSIDERATION OF THE MATERIAL SHOULD BE APPARENT FROM THE ORDER. THERE IS NO ROOM FOR ANY ASSUMPTION. IN THIS CONTEX T , IT DESERVES NOTICE THAT W.E.F. 1ST APRIL, 1994, THE PARLIAMENT HAS MAD E A SPECIAL PROVISION FOR COMPUTING PROFITS AND GAINS OF BUSINESS OF CIVIL CONSTRUCTION, ETC. BY INTRODUCING S. 44AD. IT WAS INTER ALIA, PROVIDED THAT IN CASE OF AN ASSESSEE ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION OR SUPPLY OF LABOUR FOR THAT PURPOSE , 'A SUM EQUAL TO 8 PER CENT OF THE GROSS RECEIPTS PAID OR PAYABLE TO THE ASSESSEE IN THE PREVIOUS YEAR ON ACCOUNT OF SUCH BUSINESS.....SHALL BE DEEMED TO BE THE PROFITS AND GAINS.....CHARGEABLE TO TAX... ' IN SUB - S.(2), IT HAS BEEN STIPULATED THAT 'ANY DE DUCTION ALLOWABLE UNDER THE PROVISIONS OF SS. 30 TO 38 SHALL, FOR THE PURPOSES OF S U B - S. (1), BE ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 32 DEEMED TO HAVE BEEN ALREADY GIVEN FULL EFFECT TO AND NO FURTHER DEDUCTION UNDER THOSE SECTIONS SHALL BE ALLOWED.' THUS, IT IS ONLY W.E.F. 1ST APRIL, 1994, THAT THE PARLIAMENT HAS PROVIDED FOR A FICTIONAL ASSUMPTION THAT THE DEDUCTION SHALL BE DEEMED TO HAVE BEEN ALLOWED. THIS PROVISION CLEARLY MILITATES AGAINST THE ASSUMPTION SOUGHT TO BE RAISED BY THE COUNSEL FOR THE REVENUE IN THE PRESENT CASE. THEREFORE IN AL L CASES (RELATING TO THE PERIOD PRIOR TO 1ST APRIL, 1994) WHERE BEST JUDGMENT ASSESSMENT IS MADE BY FIXING A RATE OF NET PROFIT, THE ASSESSEE'S CLAIM FOR DEDUCTION ON ACCOUNT OF DEPRECIATION, CANNOT BE DEEMED TO HAVE BEEN CONSIDERED. IT HAS TO BE SEPARATEL Y TAKEN INTO ACCOUNT PROVIDED THE PRESCRIBED , PARTICULARS HAVE BEEN FURNISHED BY THE ASSESSEE. SARAYA ENGINEERING WORKS VS. CIT (1987) 60 CTR (ALL) 51 : (1987) 168. ITR 455 (ALL) DISSENTED FROM; CIT VS. BISHAMBHAR DAYAL & CO. (1994) 210 ITR 118 (ALL) : - TC 54R. 1118 CONCURRED WITH.' 31. IN MS. SHY AM LATA KAUSHIK VS. ACIT (2008) 114 TTJ (DEL) 940 IT WAS HELD THAT 'SEC. 144 EMPOWERS THE AO TO TAKE INTO ACCOUNT ALL RELEVANT MATERIALS, WHICH HE HAS GATHERED AND AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, TO MAKE THE ASSESSMENT OF TOTAL INCOME TO THE BEST OF HIS JUDGMENT. IN THE PRESENT CASE, THE AO IN COMING TO THE CONCLUSION THAT THE INCOME OF THE ASSESSEE FROM BUFFING AND POLISHING WAS AT RS.5,50,000 HAS NOT BROUGHT ANY MATERIAL ON RECORD. IN FACT IT HAS BEEN A WILD GUESS ON THE PART OF THE AO. THE ADDITION HAVING BEEN MADE WITHOUT ANY REFERENCE TO EITHER THE PAST HISTORY IN ASSESSEE'S CASE OR ANY SPECIAL CIRCUMSTANCES SUGGESTING EARNING OF HIGHER INCOME, BY THE ASSESSES, OR ANY COMPARATIVE CAS E, THE ADDITION DESERVES TO BE DELETED AND THE SAME IS DIRECTED TO BE DELETED.' 32. IN THE LIGHT OF FACTS AND CIRCUMSTANCES OF THE CASE AS ALSO RATIO LAID DOWN IN THE ABOVE CITED JUDICIAL PRONOUNCEMENTS, IT IS IMPERATIVE TO ANALYZE THE PROFITABILITY BEFOR E DEPRECIATION. THE PROFITABILITY OF THE APPELLANT BEFORE DEPRECIATION RANGES BETWEEN ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 33 5.74% TO 8.81% AND CUMULATIVE RESULT IS 7.70% AS WORKED OUT IN THE TABLE BELOW: S.NO PARTICULARS ASSESSMENT YEAR 06 - 07 07 - 08 08 - 09 09 - 10 10 - 11 11 - 12 12 - 13 CUMULATIVE 1 TURNOVER 27.9 59.76 67.61 112.19 110.64 119.46 121.21 618.77 2 PBT AS PER BOOKS OF A/C 0.89 1.33 3.29 5 4.29 2.09 4.86 21.75 3 (ADD) DEPRECIATION AS PER COS. ACT 1.1 5 2.1 1.9 4.41 4.96 5.56 5.82 25.9 4 PROFIT BEFORE DEPRECIATION (2) + (3) 2.04 3.43 5.19 9.41 925 7.65 10.68 47.65 5 % OF NP OVER TURNOVER BEFORE DEPRECIATION 7.31 5.74 7.68 8,39 8.36 6.40 8.81 7.70 33. CONSIDERING THE RATI O LAID DOWN IN THE ABOVE CITED JUDICIAL PRONOUNCEMENTS, AS THE TURNOVER OF THE APPELLANT WAS MUCH MORE THAN THE MONETARY LIMIT OF SECTION 44AB IN EACH OF THE YEAR UNDER CONSIDERATION, IT IS NOT CORRECT ON THE PART OF THE A.O TO APPLY THE SCHEME OF PRESUMPT IVE TAXATION WHICH IS NOT APPLICABLE IN THE FACTS OF INSTANT CASE. EVEN OTHERWISE, THE NP RATE OF THE APPELLANT IS FOUND TO BE EVEN MORE THAN THE NP RATE OF 8% PROVIDED U/S 44AD IN THREE YEARS. NO COMPARATIVE NP PREVAILING IN THIS LINE OF BUSINESS HAS BEEN MENTIONED, TH OUGH IN ASSESSMENT ORDER IT HAS BEEN MENTIONED THAT '''THE PROFIT DECLARED BY THE ASSESSES COMPANY OVER THE YEARS IS VERY LOW AS COMPARED TO CIVIL CONTRACTORS WHO HAVE BEEN WORKING IN THE REGION.' THE FINANCIAL STATEMENTS AND BOOKS OF ACCOUNT S HAVE BEEN VERIFIED BY THE A.O. BUT NOTHING ADVERSE HAS BEEN MENTIONED WARRANTING ESTIMATION OF INCOME. THE A.O. HAS ALSO NOT MENTIONED ANY REASON SO AS TO DISREGARD THE BOOK PROFIT AND TO ESTIMATE THE NET PROFIT AT 8% AND 10% RESPECTIVELY FROM CONSTRUC TION BUSINESS AND TRANSPORTATION BUSINESS. IN PAST, THE THEN A.O HAS ASSESSED THE NET PROFIT AT 4.87% AND 4.46% (PROFIT AFTER DEPRECIATION AS PER BOOKS) IN A.Y. 2008 - 09 AND A.Y. 2009 - 10. IT IS NOT THE CASE OF THE A.O THAT ANY EXPENDITURE WAS CONSIDERED TO BE BOGUS, EXCESSIVE OR ANY SHORTCOMINGS IN THE BILLS/VOUCHERS IN THIS ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 34 REGARD WERE OBSERVED. IN MY CONSIDERED VIEW, THE PROVISIONS OF SECTION 145(3) CAN BE INVOKED FOR REJECTING THE BOOKS IF THE AO GIVES A FINDING THAT (I) THE APPELLANT IS NOT FOLLOWING REG ULARLY ANY ACCOUNTING STANDARD NOTIFIED BY THE CENTRAL GOVERNMENT IN PURSUANCE OF SECTION 145(2) OR (II) THE AO IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNT, OR (III) WHERE THE APPELLANT IS NOT FOLLOWING ANY METHOD OF ACCOUNTING RE GULARLY; IT IS SETTLED PRINCIPLE OF LAW THAT IF NO SUCH FINDING IS GIVEN THEN INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE APPELLANT. FURTHERMOR E, FOR REJECTING THE BOOKS OF ACCOUNTS UNDER CONDITIONNO.2, THE AO HAS TO SHOW THAT THE ACCOUNTS ARE NOT CORRECT AND COMPLETE AS THERE EXIST SERIOUS DEFECTS IN MAINTENANCE OF ACCOUNTS, IRRESPECTIVE OF WHETHER ACCOUNTING METHODS OR ACCOUNTING STANDARDS ARE REGULARLY FOLLOWED; THAT THE AO HAS TO SHOW THAT THE WAY ACCOUNTS ARE WRITTEN OR KEPT (AND NOT ACCOUNTING METHOD ADOPTED LIKE CASH OR MERCANTILE), PROFITS CANNOT BE CORRECTLY DEDUCED THEREFROM. IN THE INSTANT CASE, THE APPELLANT HAS CLAIMED THAT HE DID PRO DUCE THE BOOKS OF ACCOUNTS ALONG WITH BILLS AND VOUCHERS, HOWEVER, NO COGNIZANCE WAS TAKEN BY THE A.O. I FIND THAT THE A.O HAS RIOT POINTED OUT ANY DEFECT FOR REJECTING THE EXPLANATION OF THE APPELLANT. IT IS SEEN THAT THE A.O HAS COMPLETED THE ASSESSMENT U/'S 143(3) AND NOT U/S 144, THOUGH, THE A.O HAS APPLIED HIS BEST JUDGEMENT. 34. AS TO HOW THE BEST JUDGMENT ASSESSMENT SHOULD BE MADE, THE LEADING DECISION ON THE POINT IS THE ONE RENDERED BY THE PRIVY COUNCIL IN CIT V. LAXMI NARAIN BADRIDAS (1937) 5 IT R 170 (PC), REVERSING LAXMI NARAIN BADRIDAS V. CIT (1934) 2 ITR 246 (NAG) AND APPROVING ABDUL BAREE CHOWDHURY.V. CIT (1932) 5 ITC 352 (RANG). IN THIS DECISION RENDERED, IT WAS OBSERVED THAT 'HE (THE ASSESSING AUTHORITY) MUST NOT ACT DISHONESTLY OR VINDICTI VELY OR CAPRICIOUSLY BE CAUSE HE MUST EXERCISE JUDGMENT IN THE MATTER. HE MUST MAKE WHAT HE HONESTLY BELIEVES TO BE A FAIR ESTIMATE OF THE ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 35 PROPER FIGURE OF ASSESSMENT AND FOR THIS PURPOSE HE MUST, THEIR LORDSHIP THINK, BE ABLE TO TAKE INTO CONSIDERATION LOC AL KNOWLEDGE AND REPUTE IN REGARD TO THE ASSESSEE'S CIRCUMSTANCES, AND HIS OWN KNOWLEDGE OF PREVIOUS RETURNS BY AND ASSESSMENTS OF THE ASSESSEE AND ALL OTHER MATERIALS WHICH HE THINK WILL ASSIST HIM IN ARRIVING AT A FAIR AND PROPER ESTIMATE: AND THOUGH THE RE MUST NECESSARILY BE GUESS - WORK IN THE MATTER, IT MUST BE HONES GUESS - WORK.' THESE OBSERVATIONS RECEIVED THE IMPRIMATUR OF THE SUPREME COURT IN STATE OF KERALA V. C. VEIUKUTTY (1966) 60 ITR 239 (SC) IN THE FOLLOWING WORDS: 'THE PRIVY COUNCIL, WHILE RECOG NIZING THAT AN ASSESSMENT MADE BY AN OFFICER TO THE BEST OF HIS JUDGMENT INVOLVED SOME GUESS - WORK, EMPHASIZED THAT HE MUST EXERCISE HIS JUDGMENT AFTER TAKING INTO CONSIDERATION THE RELEVANT MATERIAL.' IDENTICAL OBSERVATIONS MADE BY THE JUDICIAL COMMITTEE I N CST V. H.M. ESUFALI H.M. ABDULALI (1973) 90 ITR 271 (SC) AS FOLLOWS: 'THE ASSESSING AUTHORITY WHILE MAKING THE BEST JUDGMENT ASSESSMENT, NO DOUBT, SHOULD ARRIVE AT ITS CONCLUSION WITHOUT BIAS AND ON RATIONAL BASIS. THAT AUTHORITY SHOULD NOT BE VINDICTIVE OR CAPRICIOUS.' 35. A BEST JUDGMENT ASSESSMENT IS NOT BY WAY OF PENALTY OF NON - COMPLIANCE AS HELD IN JOT RAM SHER SINGH V. CIT (1934) 2 ITR 129 (ALL). EVEN THOUGH THE ITO IS NOT BOUND BY THE STRICT JUDICIAL PRINCIPLES, WHILE MAKING THE BEST JUDGMENT ASSE SSMENT, HE SHOULD BE GUIDED BY RULES OF EQUITY, JUSTICE AND GOOD CONSCIENCE AS HELD IN CIT V. RANICHHERA TEA CO. LTD. (1994) 207 ITR 979 (CAL). 36. AS EMPHASIZED BY THE HON'BLE SUPREME COURT IN STATE OF KERALA V. C. VEIUKUTTY (1966) 60 ITR 239 (SC) THAT ' THOUGH THERE IS AN ELEMENT OF GUESS - WORK IN BEST JUDGMENT ASSESSMENT, IT SHOULD NOT BE A WILD ONE AND SHOULD HAVE A REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF EACH CASE'. LIKEWISE, IT HAS BEEN LAID DOWN BY THE SUPREME COURT IN THE CASE OF STATE OF ORISSAL V. MAHARAJA SHRI B.P. SINGH DEO (1970) 76 ITR 690 (SC) THAT 'THE MERE FACT THAT THE MATERIAL PLACED BY THE ASSESSEE BEFORE ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 36 THE ASSESSING AUTHORITIES IS UNRELIABLE DOES NOT EMPOWER THOSE AUTHORITIES TO MAKE AN ARBITRARY ORDER. 37. THE POWER OF LEVY ASSESSMENT ON THE BASIS OF BEST JUDGMENT IS NOT A ARBITRARY POWER; IT IS AN ASSESSMENT ON THE BASIS OF BEST JUDGMENT. IN OTHER WORDS, THAT ASSESSMENT MUST BE BASED ON SOME RELEVANT MATERIAL. IT IS NOT A POWER THAT CAN BE EXERCISED UN DER THE SWEET WILL AND PLEASURE OF CONCERNED AUTHORITIES.' 38. THE BASIS OF ESTIMATE OR THE BASIS OF COMPUTATION SHOULD BE DISCLOSED BY THE ASSESSING AUTHORITY, OR OTHERWISE THE BEST JUDGMENT ASSESSMENT MAY BE QUASHED. IN ANAND RICE & OIL MILLS V. C!T (19 77) 108 ITR 372 (CAL.), HUGE ADDITIONS WERE MADE BY THE ITO ON THE GROUND THAT THE ASSESSEE HAD INFLATED THE PURCHASE PRICES OF GOODS AND A MAJOR PORTION OF THE ADDITION WAS SUSTAINED BY THE TRIBUNAL WITHOUT FURNISHING ANY BASIS OF ITS OWN ESTIMATE. THE CA LCUTTA HIGH COURT HELD THAT THE ORDER OF THE TRIBUNAL BEING ARBITRARY, THE SAME COULD NOT BE SUSTAINED. IN GANGA PRASAD SHARMA V. CIT (1981) 132 ITR 87 (UP'), THE MADHYA PRADESH HIGH COURT EMPHASIZED THAT WHILE MAKING BEST JUDGMENT ASSESSMENT, THE BASIS OF COMPUTATION SHOULD BE DISCLOSED BY THE ITO. IN CIT V. RANICHHERA TEA CO. LTD. (1994) 207 ITR 979 (CAL), THE ITO REJECTED THE LOSS RETURN AND DETERMINED THE LOSS AT NIL ON DEFAULT OF THE APPELLANT TO PRODUCE BOOKS OF ACCOUNT. NO BASIS FOR COMPUTATION WAS D ISCLOSED BY THE ITO. IT WAS HELD BY THE CALCUTTA HIGH COURT THAT THE ITO ACTED ILLEGALLY. 39. IT IS A TRITE LAW THAT LOW PROFIT BY ITSELF CANNOT BE MADE BASIS TO REJECT THE BOOK RESULTS IN ABSENCE OF ANY COGENT EVIDENCE FOUND DURING OPERATION U/S 132 OR E VIDENCE FOUND DURING ASSESSMENT. IN THE INSTANT CASE, THOUGH OPERATION U/S 132 TOOK PLACE, BUT THERE IS NO WHISPER IN THE ASSESSMENT ORDER ABOUT ANY EVIDENCE FOUND DURING SEARCH OPERATION WHICH COULD SUBSTANTIATE THE REJECTION OF BOOKS OF ACCOUNTS. ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 37 40. TH E LEARNED ARS HAVE BROUGHT ON RECORD THE SPECIAL FEATURES OF THE BUSINESS SUCH AS HEAVY INTEREST BURDEN BECAUSE OF HEAVY LOANS FROM BANK; MAJOR CHUNK OF BUSINESS BEING SUB LET TO THE SUB - CONTRACTORS, TAKING CONSTRUCTION WORK ON A COMPETITIVE BASIS, HEAVY D EPRECIATION ETC. IN MY CONSIDERED VIEW, ALL THESE PECULIAR FACTS ARE VITAL FOR ESTIMATION OF PROFIT FROM THE BUSINESS. HOWEVER, GIVEN THE FACT THAT THE A.O HAS APPLIED UNIFORM RATE OF 8% AND 10% IN AL! THESE YEARS, I AM INCLINED TO DRAWN AN INFERENCE THAT ALL THESE VITAL FACTS HAVE BEEN OVERLOOKED BY THE A.O. 41. AS FAR AS HIGHER CREDITORS AS COMPARED TO TURNOVER, BEING ANOTHER REASON TO REJECT BOOK RESULTS, IS CONCERNED, IT IS SEEN THAT, THE A.O HAS CONSIDERED THE TRADE CREDITORS AND TURNOVER OF THE APPEL LANT AT PARA NOS. 8.2, 8.3 & 8.4 WHICH ARE RE - PRODUCED BELOW: 8.2 THE FOLLOWING CHART SHOWS THE DATA OF TURNOVER AND PROFIT BEFORE TAXES: FY 2005 - 06 FY 2006 - 07 FY 2007 - 08 FY 2008 - 09 FY 2009 - 10 FY 201 0 - 11 FY 2011 - 12 TURNOVER [RS CR.) 29.90 59.76 67.6 1 1 12.19 110.64 118.46 121 . 21 PROFIT BEFORE T AX (PBT)[RS. CR.) 0.89 1.33 3.29 5.00 4 . 29 0.00 4.85 PBT/TURN OVER % 2.97% 2.22% 4.87% 4 45% 3.87% 4.01% 8.3 THE FOLLOWING CHART DEPICTS THE VOLUME OF SUNDRY CREDITORS VIS - A - VIS TURNOVER IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY: 31ST MARCH OF: FY 2005 - 06 F Y 2006 - 07 FY 2007 - 08 FY 2008 - 09 FY 2009 - 10 FY 201 0 - 11 FY 2011 - 12 TURNOVER ( RS. CR.) 29.90 59.76 67.61 112.19 110.64 0.00 121.21 SUNDRY CREDITORS (RS. CR,) 9.83 21.71 22.36 21.49 0.00 14.49 SUNDRY CREDITOR /TURNOVER % 16.44% 32.11% 19.93% 19.42% 11.95% ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 38 8.4 A CHART SHOWING SUNDRY CREDITORS VIS - A - VIS SUNDRY DEBTORS AND TURNOVER IS REPRODUCED AS UNDER: YEAR ENDED MARCH 31,2009 YEAR ENDED MARCH 31,200 8 YEAR ENDED MARCH 31,2007 TURNOVER 11219 LAKHS 6761 LAKHS 5976 LAKHS SUNDRY CREDITORS 1905 1764 959 SUNDRY DEBTORS 1311 632 401 42. IN MY CONSIDERED VIEW, THE COMPARISON OF MERE SUNDRY CREDITORS AND SUNDRY DEBTORS WILL NOT GIVE CORRECT AND LOGICAL PICTURE OF THE BUSINESS MUCH LESS A BASIS TO HOLD A VIEW THAT THE BOOKS OF ACCOUNTS ARE LIABLE TO BE REJECTED. IT IS A MATTER OF COMMON KNOWLEDGE, THAT IT IS THE CURRENT RATIO WHICH IS CONSIDERED TO BE A REASONABLE BENCHMARK WHICH ENCOMPASSES A IL THE CURRENT LIABILITIES AND CURRENT ASSETS. IN CURRENT ASSETS, APART FROM SUNDRY DEBTORS, CASH, BANK BALANCE, CLOSING STOCK, DEPOSITS, SHORT TERM LOANS & ADVANCES ETC., ARE ALSO INCLUDED. IN CURRENT LIABILITIES, TRADE CREDITORS AND OTHER CURRENT LIABILI TIE S SUCH AS AMOUNT OF CASH CREDIT AVAILED, ADVANCE FROM CUSTOMERS, WITHHELD ACCOUNT ETC., ARE ALSO CONSIDERED. WORKING OF CURRENT RATIO HAS BEEN FILED BEFORE ME WITH DETAILED WORKING. THE NE T RESULT IS REPRODUCED BELOW: PARTICULARS ASSESSMENT YEAR 2 012 - 13 2011 - 12 2010 - 11 2009 - 10 2008 - 09 2007 - 08 2006 - 07 CURRENT LIABILITIES (RS.) 316899325 273125375 23404633 1 249379231 252578066 108964583 57649929 CURRENT ASSETS (RS.) 559634260 486S06272 412360684 347017504 294615264 150777665 72622924 CURRENT RATIO 1 : 1.77 1 : 1.78 1 : 1.76 1 : 1.39 1 : 1.17 1 : 1.38 1 : 1.26 ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 39 43. IT IS ALSO A MATTER OF COMMON KNOWLEDGE THAT THE FINANCIAL INSTITUTIONS AND BANKS CONSIDER THE CURRENT RATIO OF 1 : 1.33 AS SOUND PROPORTION OF CURRENT L IABILITIES : CURRENT ASSETS, I FIND THAT THE APPELLANT'S CURRENT RATIO IS GENERALLY BETTER THAN THAT. IN SUPPORT OF SUNDRY CREDITORS, THE APPELLANT HAS FILED THEIR CONFIRMATIONS AND STATUS OF ACCOUNTS. HIGHER CREDITOR IS A RELATIVE TERM AND CANNOT BE CONSI DERED IN ISOLATION TO OTHER RELATED FIGURES. IT IS NOT THE CASE OF THE A.O THAT THE SUNDRY CREDITORS APPEARING IN THE AUDITED FINANCIAL STATEMENTS OF THE APPELLANT WERE BOGUS. THEREFORE, IN MY CONSIDERED VIEW, APPLICATION OF PROVISIONS OF SEC. 145 BY THE A O DOES NOT STAND TEST FOR REJECTION OF BOOKS OF ACCOUNTS OR IN APPLYING FLAT RATE OF NET PROFIT. THE AO HAS NOT ESTABLISHED WHY THE BOOKS OF ACCOUNTS SHOULD BE REJECTED AND NET PROFIT RATE SHOULD BE APPLIED. HE HAS ALSO NOT MADE OUT ANY CASE FOR APPLYING T HE RATE AT 8% IN CASE OF CIVIL CONSTRUCTION WORK RECEIPTS AND @ 10% IN CASE OF TRANSPORT WORK AND OTHER RECEIPTS. THIS IS NOT A FIT CASE TO REJECT BOOKS OF ACCOUNTS AND APPLYING FLAT RATE OF NET PROFIT @ 8% IN CASE OF CIVIL CONSTRUCTION CONTRACT RECEIPTS A ND 10% IN CASE OF TRANSPORT AND OTHER RECEIPTS IN ABSENCE OF ANY EVIDENCE BROUGHT ON RECORD BY THE AO. 44. IN THE INSTANT CASE, THE A.O HAS COMPLETELY FAILED TO RECORD THE REASONS BASED ON MATERIAL AVAILABLE AS THE A.O HAS NOT REFERRED TO EVEN A SINGLE SE IZED DOCUMENT WHICH COULD BE REGARDED AS INCRIMINATING DOCUMENT AND USED AS AN EVIDENCE TO EVEN REMOTELY SUPPORT THE CONCL USION OF THE A.O. THE A.O SEEMS TO HAVE BLOWN OUT OF PROPORTION MERELY ON THE BASIS OF M ATHEMATICAL AND M ECHANICAL CALCULATIONS. IT IS SEEN THAT THE A.O HAS NOT POINTED OUT ANY SUPPRESSION OF PROFIT BASED ON ANY COGENT AND INCRIMINATING MATERIAL AGAINST THE APPELLANT. MATERIAL SHOWING FINANCIAL NEXUS CAN ONLY BE A VALID BASIS FOR HOLDING SUSPICION OR MAKING THE ADDITION. UNFORTUNATELY NO T A SINGLE DOCUMENT SHOWING ANY FINANCIAL DEALINGS BY THE APPELLANT HAS BEEN REFERRED TO EITHER IN THE ASSESSMENT ORDER, OR EVEN DURING THE COURSE OF HEARING, DESPITE THE LIBERTY ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 40 GRANTED VIDE THIS OFFICE LETTERS ON 17.04.2014. AN ORDER BASED ON UNCONFIRMED OR UNCORROBORATED BELIEF OF SUSPICION; EVEN THOUGH THE SUSPICION RESTS ON THE HIGH PEDESTAL OF BONA FIDES CANNOT STAND THE SCRUTINY OF LAW. THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE REVEAL THAT THE A.O JUST BRUSHED ASIDE THE OBJECTIONS/SUBMISSIONS A ND CONTENTIONS RAISED BY THE APPELLANT AND EVIDENCES PLACED ON RECORD. THE ASSESSMENT ORDER CONCLUSIVELY INDICATES THAT THE ADDITION HAS BEEN MADE OUT OF SOME LURKING SUSPICION BASED EITHER ON RUMOURS OR ON SOMETHING LESS SERIOUS THAN THAT. 45. AS STATED S UPRA, THE NON AVAILABILITY OF BOOKS OF ACCOUNTS DURING SEARCH PROCEEDINGS MAY WELL BE THE BASIS OF SUSPICION, HOWEVER, THESE CANNOT PER SE CONSTITUTE THE BASIS OF THE ADDITION, THOUGH IT CAN VERY WELL BE A STARTING POINT FOR FURTHER INVESTIGATION. IN LALCH AND BHAGAT AWBIC _RAM VS. CIT: (1959) 37 ITR 28S, THE SUPREME COURT DISAPPROVED THE PRACTICE OF MAKING ADDITIONS IN THE ASSESSMENT ON MERE SUSPICION AND SURMISES OR BY TAKING NOTE OF THE 'NOTORIOUS PRACTICE' PREVAILING IN TRADE CIRCLES. 46. THE SIGNIFICANC E OF 'TANGIBLE EVIDENCE' HAS BEEN EMPHASIZED IN VARIOUS JUDICIAL PRONOUNCEMENTS. I AM CONVINCED THAT THERE WAS NO TANGIBLE MATERIAL BEFORE THE A.O NOR HAS THE A.O BROUGHT ANY SUCH EVIDENCE ON RECORD TO CORROBORATE HIS SUSPICION. THE CASE OF THE APPELLANT F INDS SUPPORT FROM THE DECISION IN INCOME TAX OFFICER VS. W.D. ESTATE P. LTD. (1993) 46 TTJ (BOM) 143 : 45 ITD 473. 47. SIMILAR RATIO WAS LAID DOWN BY THE HON'BLE HIGH COURT OF DELHI IN COMMISSIONER OF INCOME TAX VS. DISCOVERY ESTATES PVT. LTD. VIDE ORDER D ATED 18TH FEBRUARY. 2013 (2013) 356 ITR 159 (DELHI). 48. I FIND THAT NO UNRECORDED ASSET OR INVESTMENT WAS FOUND DURING THE COURSE OF SEARCH WITH WHICH UNDIS CL OSED INCOME OF SUCH MAGNITUDE COULD BE CORRELATED I.E. DEPLOYMENT OF UNDISCLOSED INCOME. THIS FAC TOR WAS GIVEN DUE COGNIZANCE IN BANSAL STRIPS (P) LTD. & ORS. VS. ASSISTANT COMMISSIONER OF INCOME TAX (2006) 100 ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 41 TTJ (DEL) 665 : (2006) 99 ITD 177 (DEL) BY THE HON'BLE ITAT, DELHI 'A ; BENCH AS CIRCUMSTANTIAL EVIDENCE. 49. THE HON'BLE SUPREME COURT HAD PU T AN EMBARGO ON THE LEEWAY I.E. FLEXIBILITY OF ASSESSING OFFICERS IN DHAKESWARI COTTON MILLS LTD. VS. COMMISSIONER OF INCOME TAX (1954) 26 ITR 775 (SC). THE SIGNIFICANCE OF CONSIDERING THE EVIDENCES IN FAVOUR AND AGAINST THE ASSESSEE WAS EMPHASIZED BY THE HON'BLE SUPREME COURT IN OMAR SALAY MOHAMED SAIT VS. COMMISSIONER OF INCOME TAX (1959) 37 ITR 151 (SC). 50. IT IS SETTLED PRINCIPLE OF LAW THAT THE A.O HAS TO BRING ON RECORD SPECIFIC DEFECT IN THE BOOKS OF ACCOUNTS OF THE APPELLANT AS A RESULT OF WHICH RE ASONABLE PROFITS CANNOT BE DEDUCED. THE A.O EXAMINED THE AUDITED BOOKS OF ACCOUNT BUT HAD NOT POINTED OUT ANY SPECIFIC DISCREPANCY NOR HAS HE DETECTED ANY SUPPRESSION IN SALES OR INFLATION IN PURCHASES/EXPENSES. NO EVIDENCE WHATSOEVER WAS BROUGHT ON RECORD TO PROVE THAT, THE APPELLANT, IN FACT, EARNED MORE THAN THAT RETURNED AS PER THE BOOKS OF ACCOUNT KEPT IN THE REGULAR COURSE OF BUSINESS. THE ASSESSMENT ORDER IS EVIDENCE TO THE FACT THAT THERE WAS NO SPECIFIC FINDING GIVEN BY THE A.O TO THE EFFECT THAT T HE METHOD EMPLOYED BY THE APPELLANT WAS SUCH THAT CORRECT PROFITS COULD NOT BE DEDUCED THERE FROM. THE A.O. HAS NOT COME ACROSS ANY MATERIAL DEFECT IN ACCOUNTS SO AS TO HOLD THAT ANY PROFIT HAS BEEN SUPPRESSED. IT IS ALSO NOT THE CASE OF THE A.O THAT THE A PPELLANT HAS NOT FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING. IT IS ALSO NOT THE CASE OF THE A.O THAT THE APPELLANT HAS NOT FOLLOWED ANY PARTICULAR ACCOUNTING STANDARDS WHICH ARE NOTIFIED BY THE CENTRAL GOVERNMENT. IT IS ALSO NOT IN DISPUTE THAT THE APPEL LANT HAS MAINTAINED BOOKS OF ACCOUNT REGULARLY AND THESE ARE DULY AUDITED U/S 44AB OF THE I.T. ACT. CONSIDERING THE FACTS ' AND CIRCUMSTANCES OF THE CASE, AS ALSO DECISIONS RELIED UPON BY THE APPELLANT AND THOSE CITED ABOVE, I AM OF THE VIEW THAT THERE WAS NO FINDING TO THE EXTENT THAT THE ACCOUNTS WERE NOT CORRECT AND COMPLETE OR THAT THE ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 42 A.O WAS OF THE OPINION THAT THE INCOME COULD NOT BE DEDUCED FROM THE ACCOUNTS MAINTAINED BY THE APPELLANT. 51. THE A.O. HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DISBELI EVE THE BOOK RESULT SHOWN BY THE APPELLANT. IF THERE IS NO SUPPRESSION OF MATERIAL FACTS, THE AUTHORITY CANNOT - EMBARK UPON A SP ECULATIVE ASSESSMENT - 'OF NOTIONAL PROFITS. THE ASSESSMENT SHOULD BE BASED ON COGENT FACTS AND THERE SHOULD BE NO VINDICTIVENESS OR ARBITRARINESS IN PASSING THE ASSESSMENT ORDER. THE ESTIMATED ADDITIONS MADE BY THE A.O. DO NOT BEAR ANY RELATIONSHIP WITH THE SPECIFIC DEFECTS IN BOOKS OF ACCOUNTS AND THE A.O. CANNOT BE PERMITTED TO MAKE ARBITRARY ADDITION. 52. I FIND THAT NO MARGIN FO R ESTIMATION OF SUPPRESSED SALES AND INCOME HAS BEEN ALLOWED EVEN IN THOSE CASES WHERE INSTANCES OF SUPPRESSION OF SALES HAS BEEN FOUND ON THE BASIS OF INCRIMINATING MATERIAL EXCEPT FOR THE PERIOD FOR WHICH SUPPRESSION HAS BEEN UNEARTHED BASED ON COGENT AN D DOCUMENTARY EVIDENCE, UNDISPUTEDLY, IN THE CASE OF THE APPELLANT, NOTHING INCRIMINATING HAS BEEN FOUND, THEREFORE, AS HELD IN DEPUTY COMMISSIONER OF INCOME TAX VS. ROYAL MARWAR TOBACCO PRODUCT (P) LTD. (2009) 120 TTJ (AHD) 387 : (2008) 16 DTR 129. THE HO N'BLE ITAT CHANDIGARH BENCH IN ASSISTANT COMMISSIONER OF INCOME TAX VS. A.K. ALLOYS P. LTD. VIDE ORDER DATED 29TH FEBRUARY, 2012 (2012) 17 ITR (TRIB) 424 (CHANDIGARH) HAS DECIDED IN FAVOUR OF ASSESSEE. THE EXTRAPOLATION OF FIGURES FOR ESTIMATION OF INCOME HAS BEEN HELD TO BE UNSUSTAINABLE IN EVERGREEN BAR & RESTAURANT VS. ADDITIONAL COMMISSIONER OF INCOME TAX (2008) 6 DTR (MUMBAI)(TRIB) 56. 53. AS ASSESSMENT HAS TO BE COMPLETED ON THE BASIS OF RECORDS AND MATERIAL AVAILABLE BEFORE THE AO AND PERSONAL KNOWLE DGE AND EXCITEMENT ON EVENTS AND EXTRANEOUS FACTS SHOULD NOT LEAD THE AO TO A STATE OF AFFAIRS WHERE THE SALIENT/PRIMARY/DIRECT EVIDENCES ARE OVERLOOKED AND SHOULD NOT INFLUENCE THE AO FOR RESORTING TO ADHOC ADDITIONS/DISALLOWANCES. IF GENERAL/CASUAL/ROUTI NE OBSERVATIONS OF THE AO ARE TO BE CONSIDERED AS MATERIAL EVIDENCE FOR THE PURPOSE ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 43 OF FRAMING AN ASSESSMENT, THE AO SHALL HAVE BLANKET AND ARBITRARY POWERS TO DISPOSE OF THE SCRUTINY ASSESSMENTS ACCORDING TO HIS WHIMS AND FANCIES WHICH IS NOT THE SPIRIT O F THE CIRCULARS ISSUED BY THE BOARD ON SCRUTINY ASSESSMENT. AN ASSESSMENT CANNOT BE MADE ARBITRARILY AND IN ORDER THAT AN ASSESSMENT CAN BE SUSTAINED, IT MUST HAVE NEXUS TO THE MATERIAL ON RECORD. (CIT V. MAHESH CHAND [1983] 199 ITR 247, 249 (ALL.). IT IS THE SETTLED POSITION THAT, THOUGH THE AO HAS VERY WIDE POWERS AND IS NOT FETTERED BY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, THERE IS ONE OVER - RIDING RESTRICTION ON HIS JUDGEMENT AND THAT IS, THAT, HE MUST ACT HONESTLY AND DILIGENTLY ON THE MATERIAL, HO WSOEVER, INADEQUATE IT WAS, AND NOT VINDICTIVELY, CAPRICIOUSLY OR ARBITRARILY. 'PROBABILITY CANNOT BE CONSTRUED AS MATERIAL EVIDENCE TO FORM AN OPINION BY THE AO TO CONCLUDE AN ASSESSMENT AND FOR DRAWING ADVERSE INFERENCE AGAINST THE APPELLANT UNLESS THERE IS EVIDENCE TO SUBSTANTIATE SUCH PROBABLE INFERENCE.'' ASSESSMENT HAS TO BE MADE BASED ON THE REAL INCOME THEORY, I.E., INCOME TO BE DETERMINED FOR TAXATION MUST INVARIABLY BE PROVED TO HAVE BEEN THE CORRECT QUANTUM OF INCOME EARNED BY THE APPELLANT DURIN G THE RELEVANT PREVIOUS YEAR AND THE ONE PRESUMED TO HAVE BEEN EARNED. THE PRESUMPTIONS AND HYPOTHETICAL ESTIMATIONS AND OBSERVATIONS MADE BY THE A.O. FOR MAKING THE IMPUGNED ESTIMATED ADDITION, WERE EXTRANEOUS, IRRELEVANT AND OPPOSED TO THE FACTS OBTAINING FROM THE RECORD. THE FATE OF THE APPELLANT COULD NOT BE DECIDED BY THE A.O. ON ME RE SURMISES OR PROBABILITIES (NORTHERN BENGAL JUTE MILLS TRADING CO. LTD. V. CIT (1968 ) 70 ITR 407 (CAL.). THE MERE EXISTENCE OF REASONS FOR SUSPICION WOULD NOT TA NTAMOUNT TO EVIDENCE ( CAL. HC IN NARAYAN CHANDRA BAIDYA V. CIT (1951) 20 ITR 287 (CAL.). 54. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE ARE ALSO DECISIONS CITED ABOVE, THE ADDITION MADE BY THE AO 31. WE H AVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, T HE ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 44 ASSESSEE IS ENGAGED IN THE BUSINESS OF CONTRACT WORK AND TRANSPORTATION WORK. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS PRODUCED ITS BOOKS OF ACCOUNTS BEFORE THE AO ALONG WITH BILLS AND VOUCHERS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE AO REJECTED THE B OOKS OF ACCOUNTS BECAUSE OF THREE REASONS : - I) B OOKS OF ACCOUNTS WERE NOT FOUND DURING THE COURSE OF SEARCH; II) THE PROFIT S HOWN BY THE ASSESSEE IN THE RETURNS OF INCOME WERE ON THE LOWER SIDE; AND (III) THE SUNDRY CRED I TORS WERE MORE THAN THE SUNDRY DEBTORS. THER E AFTER THE AO ESTIMATED THE NET PROFIT OF THE ASSESSEE @8% OF CONTRACT RECEIPTS AND @8% ON TRANSPORTATION AND OTHER RECEIPTS. 32. ON APPEAL, THE CIT(A) HELD THAT REJECTION OF BOOKS OF ACCOUNTS WERE N OT PROPER AND CONSEQUENTLY DELETED THE ADDITION MADE BY THE AO ON ESTIMATION. 33. WE FIND THAT IT IS NOT IN DISPUTE THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS DULY PRODUCED ITS BOOK S OF ACCOUNTS ALONG WITH THE BILLS AND VOUCHERS BEFORE THE AO . WE FIND THAT NO DEFECT IN SUCH BOOKS OF ACCOUNTS COULD BE BROUGHT ON RECORD BY THE AO AFTER EXAMINATION AND VERIFICATION OF THE SAM E. THE REASONS ST ATED BY THE AO IN THE ORDER OF ASSESSMENT ARE THE REASON TO DOUBT OR SUSPECT THE CORRECTNESS OF BOOKS OF ACCOUNTS WHICH REQUIRE D THE AO TO EXAMINE THE BOOKS OF ACCOUNTS MORE CAUTIOUSLY. THE SAID REASON DOES NOT EMPOWER THE AO TO REJECT THE BOOKS OF ACCOUNTS. FO R REJECTING THE BOOKS OF ACCOUNTS THE AO MUST POINT OUT SUCH DEFECT IN THE BOOKS OF ACCOUNTS WHICH SHOWS THAT THE BOOKS OF ACCOUNTS ARE INCOMPLETE OR INCORRECT OR ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 45 WHERE THE METHOD OF ACCOUNT ING PROVIDED U/S.145(1) OR ACCOUNTING STANDARD NOTIFIED U/S.145(2) HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. 34. WE DO NOT FIND THAT ANY SUCH DEFECT COULD BE BROUGHT ON RECORD BY THE AO. IN ABSENCE OF THE S AME, THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT AND B R US H ING ASIDE THE BOOK RESULTS AND ESTIMATING THE BUSINESS INCOME OF THE ASSESSEE. WE, THEREFORE, DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF CIT(A). THERE FORE, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 35. IN THE RESULT, ALL APPEALS OF REVENUE ARE DISMISSED. 36 . THE CROSS OBJECTIONS FILED BY THE ASSESSEE FOR ALL THE YEARS UNDER CONSIDERATION ARE IN SUPPORT OF THE ORDER OF CIT(A). AS THE ASSESSEE HAS NO GRIEVANCE AGAINST THE ORDER OF CIT( A) , THE CROSS OBJECTIONS FILED BY THE ASSESSEE FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION ARE INFRUCTUOUS AND ACCORDINGLY DISMISSED. 37 . IN THE RESULT, APPEAL S FILED BY REVENUE AND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DIS MISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY , THE 19 TH JANUARY,2018 AT RAIPUR . SD/ - ( PAVAN KUMAR GADALE ) SD / - (N. S. SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER RAIPUR ; DATED 19 /01/2018 . . / PKM , SENIOR PRIVATE SECRETARY ITA NOS.236 TO 242/RPR/2014 CO NOS.11 TO 17/RPR/2015 46 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( SENIOR PRIVATE SECRETARY ) INCOME TA X APPELLATE TRIBUNAL, RAIPUR 1. / THE APPELLANT - 2. / THE RESPONDENT - 3. ( ) / THE CIT(A), 4. / CIT 5. , , RAIPUR / DR, ITAT, RAIPUR 6. / GUARD FILE. //TRUE COPY//
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