M/s. G.N. Ship Breakers, Bhavnagar V. The ACIT., Circle-2, Bhavnagar

ITA 247/AHD/2006

• Counselvise Citation: 24720514 RSA 2006
• Duration Of Justice: 6 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-02-2012
• Assessment Year: 1997-1998
• Appeal Filed On: 01-02-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SANJARY R SHAH
• Keywords: Unexplained investment; Income from undisclosed sources; Deemed to accrue or arise in india; Accommodation entries; Block assessment; Bogus loan; Revenue expenditure
• Section: 143(3); 147; 68; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE SHRI D. K. TYAGI, JM AND SHRI A. MOHAN ALAN KAMONY, AM) ITA NO.247/AHD/2006 A. Y.:1997-98 M/S. G. N. SHIP BREAKERS, 206, MADHAV DARSHAN, WAGHAWADI ROAD, BHAVNAGAR PA NO. AACFG 7195A VS THE A. C. I. T., CENTRAL CIRCLE 2, BHAVNAGAR (APPELLANT) (RESPONDENT) ITA NO.601/AHD/2006 A. Y.:1997-98 THE A. C. I. T., CENTRAL CIRCLE 2, BHAVNAGAR VS M/S. G. N. SHIP BREAKERS, 206, MADHAV DARSHAN, WAGHAWADI ROAD, BHAVNAGAR PA NO. AACFG 7195A (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI SANJARY R. SHAH, AR DEPARTMENT BY SHRI SAMIR TEKRIWAL, SR. DR DATE OF HEARING: 14-02-2012 DATE OF PRONOUNCEMENT: 2-03-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS ORDER SHALL DISPOSE OF BOTH THE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XVIII IN APPEAL NO. CIT(A)-XVIII/24/2005-06 DATED 07-12-2 005 AS UNDER: - 2 - ITA NO.247/AHD/2006 - AY: 1997-98(ASSESSEES APPEAL ) 2. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRE SS GROUNDS NO.1 AND 5 OF THE APPEAL OF THE ASSESSEE THEREFORE THEY ARE DISMISSED AS NOT PRESSED. 3. THE REMAINING EFFECTIVE GROUNDS OF THE APPEAL OF THE ASSESSEE ARE AS UNDER: 2. THE LEARNED A. O. HAS ERRED ON FACTS AND IN HAS IN MAKING AN ADDITION OF RS.10,00,000/- ON ACCOUNT OF CASH CREDI T AND MAKING A DISALLOWANCE OF INTEREST OF RS.90,000/- ON THE SAID CASH CREDIT AND THE CIT(A) HAS ERRED IN CONFIRMING BOTH. 3. THE LEARNED C.I.T.(A) HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT THE A. O. SHOULD ADOPT THE RATE OF CONSUMPTION OF OIL AT 0.776 MT PER 1000 BHP PER DAY AND IF THE ACTUAL CONSUMPTION IS MORE THAN THIS, THE DIFFERENCE SHOUL D BE TREATED AS UNRECORDED SALES. 4. THE LEARNED C.I.T.(A) HAS ON FACTS AND IN LAW IN DIRECTING THAT THE RECOVERY OF NON FERROUS METAL FOR GENERAL CARGO SHOULD BE ADOPTED AT 0.75% AND FOR BULK CARRIER AT 0.50% A ND IF THE QUANTITY SO DETERMINED IS MORE THAN THE ACTUAL SALE S, THE DIFFERENCE SHOULD BE CONSIDERED AS UNACCOUNTED INCO ME. 4. GROUND NO.2 CONFIRMING ADDITION OF RS.10,00,00 0/- AND DISALLOWANCE OF RS.90,000/-. THE BRIEF FACTS AS NOT ED IN THE ASSESSMENT ORDER ARE THAT A SEARCH WAS CONDUCTED DURING F 1999 -2000 IN THIS CASE. SUBSEQUENT TO THE SEARCH, ENQUIRIES WERE ALSO CONDU CTED WITH SHRI IMTIYAZ LAKHANI, PROPRIETOR OF M/S. AFTAB ENTERPRIS ES, FROM WHOM THE ASSESSEE HAD TAKEN LOAN OF RS.10,00,000/- DURING TH E AY 1997-98. AS A RESULT OF THE ENQUIRIES CONDUCTED WITH SHRI IMTIYAZ LAKHANI BY VARIOUS INCOME TAX AUTHORITIES, THE VARIOUS FACTS THAT EMER GED LED THE AO TO CONCLUDE THAT THE LOAN TRANSACTION OF RS.10,00,000/ - WAS NOT GENUINE. SHRI IMTIYAZ LAKHANI HAD CLEARLY ADMITTED IN HIS ST ATEMENT ON OATH THAT - 3 - CASH CREDITS WERE NOT OUT OF HIS OWN SOURCES AND TH AT THE PARTY WHO HAD TAKEN CREDIT FROM HIM USED TO GIVE CASH TO HIM IN A DVANCE WHICH WAS INTRODUCED IN HIS BOOKS OF ACCOUNTS AND THEREAFTER HE USED TO ISSUE CHEQUE TO THE CONCERNED PARTY. SHRI LAKHANI FURTHER CLARIFIED THAT AT THE TIME OF REPAYMENT OF LOAN, HE USED TO WITHDRAW CASH AND GIVE BACK TO THE PARTY. THE AO ALSO NOTED THAT SHRI IMTIYAZ LAKH ANI HAD ADMITTED THAT HE WAS NEITHER HAVING ANY CREDITWORTHINESS NOR ANY MOVABLE OR IMMOVABLE ASSETS EITHER IN HIS NAME OR IN THE NAME OF HIS FAMILY MEMBERS. IT HAS BEEN POINTED OUT BY THE AO THAT DUR ING THE COURSE OF SEARCH AND POST SEARCH ENQUIRIES IT WAS ESTABLISHED THAT THE ASSESSEE HAD INTRODUCED HIS UNACCOUNTED MONEY IN HIS BOOKS O F ACCOUNTS IN THE NAME OF M/S. AFTAB ENTERPRISES, PROPRIETOR SHRI IMT IYAZ LAKHANI AND THAT THIS PERSON WAS HABITUALLY INDULGING IN GIVING ACCO MMODATION ENTRIES TO NUMBER OF PARTIES OF BHAVNAGAR. THE AO HAS FURTHER POINTED THAT IT WAS USUAL PRACTICE OF SHRI LAKHANI TO TAKE CASH FROM DI FFERENT PARTIES AND DEPOSIT THE SAME IN HIS BANK ACCOUNT AND ISSUE CHEQ UE OF EQUAL AMOUNT TO THE PARTY CONCERNED EITHER ON THE SAME DAY OR ON THE SUBSEQUENT DAY. THE AO, THEREFORE, CONCLUDED THAT IT WAS IMPOS SIBLE THAT THE PERSON WITHOUT ADEQUATE MEANS CAN LEND HUGE AMOUNT TO THE ASSESSEE AS WELL AS TO OTHER GROUP CONCERNS. DURING THE COURSE OF PR OCEEDINGS U/S 158BC OF THE IT ACT SHRI IMTIYAZ KAJAHNI WAS ALSO CROSS E XAMINED BY THE ASSESSEE ON 18-06-2001. REGARDING HIS CROSS EXAMINA TION IT HAS BEEN POINTED OUT BY THE AO THAT DURING THE CROSS EXAMINA TION, AMPLE EFFORTS WERE MADE BY THE ASSESSEE TO DIG OUT THE CREDITWORT HINESS OF THE WITNESS AND GENUINENESS OF THE TRANSACTIONS, BUT TH E ASSESSEE COULD NOT SUCCEED. DURING THE COURSE OF BLOCK ASSESSMENT PROC EEDINGS SHRI IMTIYAZ LAKHANI WAS EXAMINED BY THE AO. IT HAS BEEN POINTED OUT IN THE ASSESSMENT ORDER THAT SHRI LAKHANI HAD AFFIRMED TO HAVE GIVEN ONLY ENTRIES TO THE ASSESSEE FOR SO CALLED UNSECURED LOA N. ADDITION OF - 4 - RS.10,00,000/- WAS MADE IN THE BLOCK ASSESSMENT U/S 158BC OF THE IT ACT CONSIDERING THE SAME AS DEEMED INCOME U/S 68 OF THE IT ACT. ON APPEAL BEFORE THE LEARNED CIT(A), THE LEARNED CIT(A ) HAD DELETED THIS ADDITION ON THE GROUND THAT THIS ADDITION WAS NOT C OVERED IN THE UNDISCLOSED INCOME OF THE ASSESSEE FOR THE BLOCK PE RIOD AS THE DETECTION OF BOGUS CASH CREDIT WAS NOT DIRECTLY RELATABLE TO THE MATERIALS SEIZED DURING THE COURSE OF THE SEARCH. ON APPEAL BEFORE I TAT, THE ITAT HELD THAT SINCE THE CASE WAS ALREADY RE-OPENED BY INITIA TING PROCEEDINGS U/S 147 OF THE IT ACT, IT WAS OPEN TO THE DEPARTMENT TO DEAL WITH THE DISCREPANCIES ON WHICH THE TRANSACTIONS ENTERED WIT H M/A. AFTAB ENTERPRISES BY THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS U/S 147 OF THE IT ACT, CONTENTION OF THE ASSESSEE WAS T HAT NO DOUBT SHRI IMTIYAZ LAKHANI WAS GIVING ACCOMMODATION ENTRIES BU T IN THE CASE OF THE ASSESSEE IT WAS NO SO BECAUSE ON THE DAY WHEN SHRI IMTIYAZ LAKHANI ISUSED CHEQUE OF LOAN TO THE ASSESSEE THERE WAS CLE AR BALANCE IN HIS BANK ACCOUNT. IT WAS ALSO POINTED OUT BY THE ASSESS EE THAT THIS BALANCE WAS CREATED BY CREDITING SOME CHEQUES THROUGH CLEAR ANCE AND NOT BY DEPOSITING CASH SOME CHEQUE THROUGH CLEARANCE AND N OT BY DEPOSITING CASH IN BANK. THE AO INITIALLY CAME TO THE CONCLUSI ON THAT THE LOAN TRANSACTIONS WITH SHRI IMTIYAZ LAKHANI WERE NOT GEN UINE IN VIEW OF THE FACTS STATED BY SHRI LAKHANI IN VARIOUS STATEMENTS RECORDED AT VARIOUS STAGES AS ALSO IN VIEW OF THE FACT THAT SHRI LAKHAN I DID NOT HABE THE RESOURCES TO UNDERTAKE SUCH TRANSACTIONS I.E. SHRI LAKHANI DID NOT HAVE CREDITWORTHINESS TO ADVANCE SUCH LOAN. THE AO, IN T HIS REGARD HAD NOTED THAT AFTER LOT OF INVESTIGATION DURING SEARCH AND P OST SEARCH ENQUIRIES IT WAS PROVED TIME AND AGAIN THAT SHRI IMTIYAZ LAKHANI WAS A MAN HAVING NO MEANS TO SUSTAIN HIS OWN FAMILY ANDWAS NOT HAVIN G EVEN HIS OWN MOVABLE OR IMMOVABLE ASSETS, AS MAY BE VERIFIED FRO M HIS STATEMENTS RECORDED BY DDIT (INV.), BHAVNAGAR BY THE AO DURING THE COURSE OF - 5 - BLOCK ASSESSMENT PROCEEDINGS AND DURING THE CROSS E XAMINATION HELD TWICE BY THE LEARNED COUNSEL FOR THE ASSESSEE. THE AO, THEREFORE, CONCLUDED THAT THE CASH CREDIT SHOWN IN THE NAME OF M/S. AFTAB ENTERPRISES BE TREATED AS DEEMED INCOME OF THE ASSE SSEE U/S 68 OF THE IT ACT AND ALSO DISALLOWED PAYMENT OF INTEREST OF R S.90,000/- INN RESPECT OF BOGUS CASH CREDIT. 5. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) AND ADVANCED VARIOUS SUBMISSIONS VIDE WRITTEN SUBMISSIONS DATED 28-09-2005 AND 18-11-2005. IT WAS FURTHER POINTED OUT THAT WHILE EXPLAINING THE MODUS OPERANDI OF THE TRANSACTIONS IN HIS STATEMENTS RECORDED ON 13-02-1998 AND 17-03-1998, S HRI LAKHANI HAD NEVER MENTIONED THE NAME OF THE ASSESSEE AS THE PER SON WITH WHOM HE HAD DONE NON-GENUINE TRANSACTIONS. THE ASSESSEE HAS FURTHER CONTENDED THAT SHRI LAKHANI WAS NOT A MAN OF SMALL MEANS AS HIS INCOME FOR AY 1995-96 HAS BEEN DETERMINED AT RS.51, 64,000/- BY THE AO AND THEREFORE, HE HAS VOLUMINOUS BUSINESS TRANSA CTIONS AND HAS THE CAPACITY TO ADVANCE MONEY. THE ASSESSEE ALSO REFERR ED TO THE STATEMENT OF SHRI LAKHANI RECORDED ON 23-03-2005 ON CROSS EXAMINATION AND HAS POINTED OUT THAT IN RESPONSE TO QUESTION NO .5 SHRI LAKHANI HAD EXPLAINED THE SOURCE OF AMOUNT ADVANCED AS FROM REA LIZATION OF SALE PROCEEDS FROM VARIOUS PARTIES AND HAS CATEGORICALLY DENIED, IN RESPONSE TO QUESTIONS NO.7 & 8 TO HAVE HAD ANY CASH OR HAWAL A TRANSACTIONS WITH AGARWAL GROUP. IT WAS, THEREFORE, THE CONTENTION OF THE ASSESSEE THAT THE IDENTITY OF THE CREDITOR IS PROVED, GENUINENESS OF THE TRANSACTION IS ALSO ESTABLISHED AND HIS CREDITWORTHINESS WAS ALSO ESTAB LISHED. THE ASSESSEE FURTHER RELIED UPON THE DECISION OF THE LE ARNED CIT(A) IN THE CASE OF M/S. L. G. INDUSTRIES FOR AY 1995-96 IN RES PECT OF LOAN TRANSACTION OF RS.13,00,000/- WITH SAME PARTY I.E. M/S. AFTAB INDUSTRIES IN - 6 - WHICH THE LEARNED CIT(A) HAS DELETED THE ADDITION M ADE U/S 68 OF THE IT ACT. 5.1 SO FAR AS DELETION OF IDENTICAL ADDITION IN CAS E OF M/S. L. G. INDUSTRIES, A SISTER CONCERN FOR AY 1995-96IS CONCE RNED, IT IS SEEN THAT THE MOST CRUCIAL FACTS RELATING TO VERY LOW RETURNE D INCOME OF THE ASSESSEE AS ALSO THAT NEITHER THE ASSESSEE NOT HIS FAMILY MEMBERS HAD ANY MOVABLE OR IMMOVABLE ASSET EXCEPT A HOUSE IN TH E NAME OF HIS MOTHER, WAS NOT PROPERLY PLACED BEFORE THE LEARNED CIT(A) FOR HIS CONSIDERATION. AS HAS BEEN MENTIONED IN THE APPELLA TE ORDER FOR AY 1995-96, THE AO DOUBTED THE LOAN TRANSACTIONS ON TH E BASIS OF MATERIALS FOUND DURING THE SEARCH IN THE PREMISES OF AGRAWAL GROUP OF CASES. IT WAS OBSERVED BY THE LEARNED CIT(A) THAT THE AO HAD NOT BROUGHT OUT ANY MATERIAL ON RECORD WHICH MAY LEAD TO ADVERSE INFERE NCE IN RESPECT OF RS.10,00,000/- TAKEN BY THE ASSESSEE FROM M/S. AFT AB INDUSTRIES EXCEPT GENERAL STATEMENT OF SHRI IMTIYAZ LAKHANI, PROPRIET OR OF M/S. AFTAB INDUSTRIES IN WHICH HE HAD STATED THAT HE HAD BEEN ISSUING BOGUS ENTRIES OF BILLS AND LOANS TO VARIOUS PARTIES BUT EVEN IN T HIS STATEMENT SHRI LAKHANI HAD NOT SPECIFICALLY MENTIONED THE NAME OF THE ASSESSEE AS THE CASES WHERE HE HAD GIVEN BOGUS LOANS. IT IS, THEREF ORE CLEAR THAT MOST CRITICAL FACT RELATING TO SHRI IMTIYAZ LAKHANI, PRO PRIETOR OF M/S. AFTAB ENTERPRISES WHICH HAS COME OUT AS A RESULT OF ENQUI RIES CONDUCTED BY VARIOUS INCOME TAX AUTHORITIES I.E. VERY LOW RETURN ED INCOME AND NO ASSET IN THE NAME OF SHRI IMTIYAZ LAKHANI OR HIS FA MILY MEMBERS WORTH ANY VALUE WERE NOT BROUGHT BEFORE THE APPELLATE AUT HORITY FOR PROPER CONSIDERATION OF THE LEARNED CIT(A). AS AGAINST THI S, FROM THE ASSESSMENT ORDER DATED 19-03-2005 THE LEARNED CIT(A ) FOUND THAT THIS FACT HAS BEEN CLEARLY BROUGHT OUT IN THE ASSESSMENT ORDER AS THE BASIS FOR HOLDING THE CASH CREDIT IN THE NAME OF M/S. AFT AB ENTERPRISES AS - 7 - BOGUS AND DEEMED INCOME OF THE ASSESSEE U/S 68 OF T HE IT ACT. FURTHER, FROM THE COPY OF THE BANK STATEMENT OF A/C NO.3580 WITH PUNJAB NATIONAL BANK STANDING IN THE NAME OF M/S. AFTAB EN TERPRISES, COPY OF WHICH HAS BEEN FURNISHED BY THE ASSESSEE ON 18-11-2 005, IT WAS SEEN THAT TWO DEPOSITS OF RS.5,00,000/- EACH WERE MADE I N CASH JUST ONE DAY PRIOR TO ISSUING TWO CHEQUES OF RS.5,00,000/- EACH TO THE ASSESSEE. THIS TRANSACTION, THEREFORE, WAS IN AGREEMENT WITH THE S TATEMENT OF SHRI LAKHANI WHERE HE HAS CLARIFIED THAT HE USED TO RECE IVED CASH WHICH WAS DEPOSITED IN HIS BANK ACCOUNT AND CHEQUES WAS ISSUE D TO SAME PARTY. THIS CRUCIAL FACTS WAS ALSO NOT BROUGHT TO THE NOTI CE OF THE LEARNED CIT(A). IN VIEW OF THIS, THE RELIANCE PLACED BY THE ASSESSEE ON THE DECISION OF THE LEARNED CIT(A) IN THE CASE OF M/S. L. G. INDUSTRIES FOR AY 1995-96 IN SUPPORT OF HIS CONTENTION THAT THE LOAN TRANSACTIONS WITH M/S. AFTAB ENTERPRISES FOR AY 1996-97 IS GENUINE, IS NOT SUSTAINABLE. 5.2 THE ASSESSEE FURTHER RELIED UPON THE ASSESSED I NCOME DETERMINED AT RS.51,64,000/- BY THE AO FOR AY 1995-96 IN THE C ASE OF SHRI IMTIYAZ LAKHANI, PROPRIETOR OF M/S. AFTAB ENTERPRISES TO AR GUE THAT SHRI LAKHANI IS NOT A MAN OF SMALL MEANS AND HE HAS VOLUMINOUS B USINESS TRANSACTIONS AND HAS CAPACITY TO ADVANCE MONEY. IN THIS REGARD IT IS TO BE NOTED THAT SHRI LAKHANI, PROPRIETOR OF M/S. AFTA B ENTERPRISES HAS BEEN SHOWN HAS BEEN SHOWING VERY LOW RETURNED INCOME OF RS.56,019/- FOR AY 1992-93, RS.7000/- FOR AY 1993-94 AND RS.8,41/- FOR AY 1995-96. THIS FACT COUPLED WITH THE STATEMENT OF SHRI IMTIYA Z LAKHANI RECORDED BY THE ITO, BHAVNAGAR ON 13-02-1998 IN WHICH SHRI LAKH ANI HAS CLEARLY STATED THAT THERE IS NEITHER MOVABLE NOR IMMOVABLE PROSPERITIES NOR ANY SHARES/DEPOSITS IN HIS OWN NAME OR ANY FAMILY MEMBE R EXCEPT A HOUSE IN THE NAME OF HIS MOTHER AND OFFICE CHAMBER IN THE NAME OF M/S. AFTAB ENTERPRISES, LEAVE NO DOUBT THAT SHRI IMTIYAZ LAKHA NI IS A PERSON OF VERY - 8 - SMALL MEANS AND CANNOT BE SAID TO HAVE CREDITWORTHI NESS AND CAPACITY TO BE ABLE TO ADVANCE SUBSTANTIAL LOANS AMOUNTING T O RS.10,00,000/-.SO FAR AS ASSESSED INCOME OF RS.51,64,420/- FOR AY 19 95-96 IS CONCERNED, ADDITION AMOUNTING TO RS.46,62,280/- WAS MADE TO H IS RETURNED INCOME AS SHRI IMTIYAX LAKHANI HAD ADMITTED IN HIS STATEME NT RECORDED ON 13- 03-1995 THAT THIS WAS THE INCOME EARNED BY HIM FROM BROKERAGE OF ALANG SCRAPS FOR WHICH NO BOOKS OF ACCOUNTS WERE K EPT. HOWEVER, SAID DECLARATION WAS SUBSEQUENTLY DENIED BY HIM. THUS, T HE FACT OF RS.46,62,280/- BEING INCOME EARNED DURING AY 1995-9 6 HAS BEEN DENIED BY SHRI LAKHANI HIMSELF. UNDER THE CIRCUMSTA NCES, THE ASSESSED INCOME COULD NOT BE TAKEN AS AN INCONTROVERTIBLE FA CT ESTABLISHING THE CREDITWORTHINESS AND CAPACITY OF THE ASSESSEE TO UN DERTAKE HUGE LOAN TRANSACTIONS ESPECIALLY WHEN VARIOUS FACTS ARE CONS IDERED SUCH AS NO MOVABLE OR IMMOVABLE ASSET IS OWNED BY SHRI IMTIYAZ LAKHANI OR HIS FAMILY MEMBERS. TO SUPPORT HIS CONTENTIONS THE ASSE SSEE ALSO RELIED ON VARIOUS DECISIONS. 6. THE LEARNED CIT(A) CONSIDERING THE EXPLANATIONS OF THE ASSESSEE CONFIRMED BOTH THE ADDITIONS MADE BY THE AO AND DIS MISSED THIS GROUND OF APPEAL BY OBSERVING AS UNDER IN PARA 15 AND 16 OF HIS ORDER: 15. I HAVE CONSIDERED THE RELEVANT FACTS AS MENTI ONED IN THE ASSESSMENT ORDER AS ALSO THE SUBMISSIONS AND ARGUME NTS OF THE APPELLANT. IT IS ESTABLISHED PRINCIPLE THAT THE GENUINENESS OF A LOAN/CREDIT CAN BE ESTABLISHED BY SIMULTANEOUS LY CONSIDERING THE THREE FUNDAMENTAL ELEMENTS I.E. IDE NTITY OF THE CREDITOR, GENUINENESS OF THE TRANSACTION AND CREDITWORTHINESS AND CAPACITY OF THE CREDITOR. THE PRINCIPLE THAT HAS CRYSTALLIZED OVER THE YEARS OUT OF VARIOUS JUDICIAL PRONOUNCEMENTS IS THAT ALL THESE ELEMENTS MUST BE CUMULATIVELY AND SIMULTANEOUSLY ESTABLISHED BEYOND ANY DOUBT TO ESTABLISH GENUINENESS OF A LOAN/CREDIT AND IN THE EVENT OF ANY ONE OF THE ELEMENTS NOT BEING ESTABLIS HED BEYOND DOUBT, IT CANNOT BE CONCLUDED THAT THE LOAN/ CREDIT IS - 9 - GENUINE. IN THE INSTANT CASE OF THE APPELLANT, THER E IS NO DOUBT THAT THE IDENTITY OF THE CREDITOR I.E. M/S. A FTAB ENTERPRISES AND ITS PROPRIETOR, MR. IMTYAZ LAKHANI, HAS BEEN ESTABLISHED BEYOND ANY DOUBT BUT THE SAME CANNOT BE SAID ABOUT GENUINENESS OF THE TRANSACTION UNDERTAKEN AND CREDITWORTHINESS OF M/A. AFTAB ENTERPRISES AND MR. IMTYAZ LAKHANI. AS HAS BEEN POINTED OUT IN THE ASSESSMENT ORDER AS ALSO A CAN BE GATHERED FROM VARIOUS DOCUMENTS AN D STATEMENTS OF SHRI IMTYAZ LAKHANI INCLUDING THE CRO SS EXAMINATION OF SHRI LAKHANI, THE GENUINENESS OF THE TRANSACTION OF LOAN GIVEN BY M/S. AFTAB ENTERPRISES TO M/S. G. N. SHIP BREAKERS CANNOT BE SAID TO HAVE BEEN ESTABL ISHED BEYOND DOUBT IN VIEW OF THE FACTS STATED BY SHRI IM TYAZ LAKHANI IN HIS STATEMENT DTD. 13.02.1998 IN WHICH S HRI IMTYAZ LAKHANI HAS CATEGORICALLY STATED THAT HE HAD UNDERTAKEN BOGUS AND FICTITIOUS TRANSACTION REGARDI NG TRADING WHICH ESTABLISHES THE FACT OF SHRI IMTYAZ LAKHANI B EING A PERSON OF NO MEANS. FURTHER, IN THE STATEMENT DTD. 17.03.1998 THESE FACTS HAVE BEEN FURTHER CONFIRMED, WHICH CLEARLY GOES TO ESTABLISH THAT SHRI IMTYAZ LAKHANI HAD BEEN UNDERTAKING FICTITIOUS AND BOGUS TRANSACTIONS FOR T HE PURPOSE OF GIVING ACCOMMODATION ENTRIES. REGARDING THE THIR D ELEMENT, I.E. CREDITWORTHINESS OF M/S. AFTAB ENTERP RISES OR SHRI IMTYAZ LAKHANI, FROM THE FACTS OF THE CASE, IT IS CONCLUSIVELY AND BEYOND ANY DOUBT ESTABLISHED THAT NEITHER M/S. AFTAB ENTERPRISES NOR SHRI IMTYAZ LAKHANI HAD THE CAPACITY OR CREDITWORTHINESS TO ADVANCE SUBSTANTIAL LOAN OF RS.10 LAKH TO M/S. G. N. SHIP BREAKERS IN ADDITION TO SUBSTANTIAL LOAN GIVEN TO OTHER CONCERNS. AS HAS BE EN POINTED OUT ABOVE, THE MEAGRE CAPACITY OF SHRI IMTY AZ LAKHANI OR M/S. AFTAB ENTERPRISES IS ESTABLISHED BE YOND ANY DOUBT BY THE MOST CRUCIAL FACTS WHICH HAVE EMERGED DURING THE COURSE OF ENQUIRIES CONDUCTED BY VARIOUS INCOME TAX AUTHORITIES VIZ. VERY LOW RETURNED INCOME SHOWN BY M/S. AFTAB ENTERPRISES CONTINUOUSLY OVER SEVERAL YEARS C OUPLED WITH UNCONTROVERTED FACT THAT NO MOVABLE OR IMMOVAB LE PROPERTIES INCLUDING ANY SHARE OR DEPOSIT ARE OWNED OR STANDING IN THE NAME OF SHRI IMTYAZ LAKHANI OR ANY OF HIS FAMILY MEMBERS EXCEPT A HOUSE IN THE NAME OF HIS MO THER. THERE IS NO DOUBT THEREFORE THAT NEITHER MR. IMTIYA Z LAKHANI NOR M/S. AFTAB ENTERPRISES HAD THE CAPACITY TO ADVA NCE LOAN OF RS.10 LAKH TO M/S. G. N. SHIP BREAKERS. - 10 - 16. IN VIEW OF THE ABOVE DISCUSSION AND AFTER CONSI DERING ALL THE RELEVANT FACTS AS ALSO SUBMISSIONS OF THE APPELLANT , IT HAS TO BE CONCLUSIVELY HELD THAT THE LOAN TRANSACTIONS OF RS.10 LAKHS SHOWN AS LOAN GIVEN BY M/S. AFTAB ENTERPRISES TO M/ S. G. N. SHIP BREAKERS IS NOT GENUINE AND IS BOGUS. ACCORDIN GLY THE ACTION OF THE A. O. IN TREATING THE CASH CREDIT OF RS.10 LAKH SHOWN IN THE BOOKS OF THE APPELLANT IN THE NAME OF M/S. AFTAB ENTERPRISES, AS DEEMED INCOME OF THE APPELLANT ASSE SSEE U/S 68 OF THE I. T. ACT AND ADDING THE AMOUNT OF RS .10 LAKHS TO HIS TOTAL INCOME IS HELD TO BE CORRECT AND CONFI RMED. CONSEQUENTLY, THE CLAIM OF PAYMENT OF INTEREST OF RS.90,000/- TO M/S. AFTAB ENTERPRISES ON THIS BOGUS CASH CREDIT HAS ALSO TO BE DISALLOWED. ACCORDINGLY, DISA LLOWANCE AND ADDITION MADE TO TOTAL INCOME OF THE AMOUNT OF RS.90,000/- IS ALSO HELD TO BE CORRECT AND CONFIRME D. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIALS AVAI LABLE ON RECORD ALONG WITH THE CASE LAWS RELIED UPON BY BOTH THE PARTIES. FROM THE FACTS OF THE CASE IT IS APPARENT THAT THE LEARNED AO HAD EXAMINE D THE MATTER IN DETAIL AND ARRIVED AT A CONCLUSION THAT THE CREDITOR HAD B EEN EXTENDING BOGUS LOANS HABITUALLY FOR A MEAGRE CONSIDERATION. THE CR EDITOR WAS A MAN OF SMALL MEANS AND NOT ENGAGED IN ANY OTHER BUSINESS O THER THAN ARRANGING SUCH BOGUS LOANS TO VARIOUS PARTIES. THE ONLY INCOME EARNED BY THE CREDITOR WAS COMMISSION RECEIVED ON SUCH BOG US TRANSATION.THE LEARNED CIT(A) FURTHER OBSERVED THAT THOUGH THE IDE NTITY OF THE CREDITOR WAS ESTABLISHED, GENUINENESS OF THE TRANSACTIONS CO UPLED WITH CREDITWORTHINESS AND CAPACITY OF THE CREDITOR COULD NOT BE PROVED BY THE ASSESSEE. THE ASSESSEE COULD NOT COME OUT WITH ANY RELIABLE EVIDENCE TO PROVE OTHERWISE. ON AN OVERALL CONSIDERATION OF THE FACTS, WE DO NOT HAVE ANY HESITATION TO CONCUR WITH THE VIEW OF THE REVENUE. THEREFORE, WE SUSTAIN THE ADDITION MADE BY THE LD.AO FOR RS.10 ,00,000/- AND UPHOLD THE DISALLOWANCE OF INTEREST OF RS.90,000/-. - 11 - 8. GROUND NO. 3: ADOPTION OF RATE OF CONSUMPTION OF OIL AT 0.776 MT PER 1000 BHP. THE AO MADE ADDITION OF RS.5,33,017/- IN REGARD TO ALLEGED UNRECORDED SALE PROCEEDS OF OIL IN VIEW OF THE WORKING AND DETAILS MENTIONED IN THE BLOCK ASSESSMENT ORDER. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD POINTED OU T THAT THE OIL AVAILABLE AS PER THE BILL OF ENTRY WAS 362.460 MT W HILE OIL SOLD WAS 417.560 MT. FROM THE BLOCK ASSESSMENT ORDER IT IS S EEN THAT THE ADDITION ON ACCOUNT UNRECORDED SALE PROCEEDS OF OIL WAS RS.15,28,142/- IN RESPECT OF TWELVE SHIP. OUT OF THIS TOTAL AMOUNT OF RS.15,28,142/-, AN ADDITION OF RS.5,33,017/- HAS BEEN MADE BY THE AO F OR AY 1997-98. AS MENTIONED IN THE ASSESSMENT ORDER, THE AMOUNT OF RS .5,33,017/- WAS ARRIVED AT BY DIVIDING THE AMOUNT OF UNACCOUNTED SA LE DETERMINED IN THE BLOCK ASSESSMENT ORDER, EQUALLY IN FOUR YEARS DURIN G WHICH THE SHIPS WERE BROKEN BY THE ASSESSEE LOOKING INTO COMPLEXITY INVOLVED. IT IS FURTHER SEEN THAT IN THE BLOCK ASSESSMENT ORDER, TH E AO HAS CALCULATED EXCESS CLAIM OF THE ASSESSEE AT 277.844 MT AS PER T HE DETAILS ON PAGE 48. THE AO HAS CALCULATED THESE FIGURES TAKING THE RATE OF OIL CONSUMPTION AT 0.057 MT PER DAY FOR ENGINE OF 1000 BHP. THE FIGURE OF THE RATE OF CONSUMPTION OF OIL AT 0.057 MT PER DAY FOR ENGINE OF 1000 BHP HAS BEEN ADOPTED BY THE AO IN VIEW OF THE CONSU MPTION OF OIL IN RESPECT OF SHIP, NAMELY M. V. GEORGY CHECHERIN. FRO M THE BLOCK ASSESSMENT ORDER OF M/S. G. N. SHIP BREAKERS IT IS SEEN THAT THE ASSESSEE HAD FURNISHED DETAILS AS PER LETTER DATED 26-04-2001 IN WHICH THE AVERAGE DAILY CONSUMPTION OF OIL BY 12 SHIPS HA VE BEEN SUBMITTED. THE AO HAS RELIED UPON THE DETAILS SUBMITTED BY THE ASSESSEE TO DETERMINE THE AVERAGE RATE OF DAILY CONSUMPTION AND HAS ACCORDINGLY ADOPTED THE RATE OF 0.057 MT ON THE BASIS OF CONSUM PTION IN THE CASE OF M. V. GEORGY CHECHERIN IN RESPECT OF WHICH AS PER T HE DETAILS FURNISHED BY THE ASSESSEE, THE AVERAGE DAILY CONSUMPTION COME S TO OO.057 MT AS - 12 - THE SHIP IS HAVING ENGINE OF 9000 BHP AND THEREFORE , THE AO ADOPTED THE RATE OF 0.057MT PER DAY FOR AN ENGINE OF 1000 B HP. FROM THE BLOCK ASSESSMENT ORDER, IT IS SEEN THAT THE ASSESSEE HAD FURNISHED DETAILS IN RESPECT OF 12 SHIPS AND THE AVERAGE DAILY CONSUMPTI ON PER 1000 BHP COMES TOO 0.842 MT IN RESPECT OF 11 SHIPS EXCEPT M. V. GEORGY CHECHERIN IN WHICH CASE IT COMES TO 0.057 MT. IT HA S ALSO BEEN CLARIFIED BY THE ASSESSEE AS A NOTE BELOW THE SUBMISSION THAT THE AVERAGE DAILY CONSUMPTION IS TAKEN ON THE BASIS OF CERTIFICATE OF DAILY AVERAGE CONSUMPTION OF FURNACE OIL AND DIESEL OIL OF CAPTAI N OF M. V. MOWLAVI. IN RESPECT OF M. V. MAWLABI, IT IS SEEN THAT THE AVERA GE DAILY CONSUMPTION HAS BEEN SHOWN AT 15.500 MT FOR AN ENGINE OF 18400 BHP AND ACCORDINGLY THE AVERAGE DAILY CONSUMPTION PER 1000 BHP COMES TO 0.842 MT. IN THE BLOCK ASSESSMENT ORDER AS WELL AS IN THE ASSESSMENT ORDER, THE AO HAS ADOPTED THE RATE OF 0.057MT PER D AY PER 1000 BHP WHICH IS IN RESPECT OF M. V. GEORGY CHECHERIN ONLY, NEGLECTING THE AVERAGE RATE OF DAILY CONSUMPTION IN RESPECT OF ALL OTHER SHIPS. 9. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT IN THE TABLE FURNI SHED IN THE CASE OF G. N. SHIP BREAKERS, IN RESPECT OF OTHER ELEVEN VESSEL S, THE CONSUMPTION OF OIL HAS BEEN WORKED OUT ON THE BASIS OF RATIO OF 0. 842 MT PER 1000 BHP PER DAY WHICH IS BASED ON CERTIFICATE OF CAPTAIN IN THE CASE OF M. V. MOWLAVI. IT HAS BEEN FURTHER CONTENDED THAT IN WORK ING OUT THE CONSUMPTION OF M. V. GEORGY CHECHERIN, T HER WAS SO ME ARITHMETIC ERROR IN SHOWING CONSUMPTION AT 1.034 MT. IT WAS FURTHER POINTED OUT THAT THE ITAT RAJKOT BENCH, IN THE CASE OF M/S. WESTERN SHIP BREAKING HAD TAKEN CONSUMPTION AT 12 TONNES FOR 1000 BHP PER DAY WHICH WORKS OUT TO 1.2 MT PER 1000 BHP PER DAY. THE ASSESSEE HAS AL SO SUBMITTED COPY OF THE ORDER OF ITAT, RAJKOT BENCH IN THE CASE OF W ESTERN SHIP BRAKING - 13 - CORPORATION, BHAVNAGAR AND THAT IN THIS CASE THE TR IBUNAL HELD THE OPINION THAT THERE WAS NO EXACT FORMULA TO ESTIMATE EXCESS OIL AND AS THE AO HAD NOT POINTED OUT ANY EVIDENCE TO SHOW THA T THE ASSESSEE HAD SOLD ANY OIL OUTSIDE THE SHIP AND, THEREFORE, ACTIO N OF THE LEARNED CIT(A) DELETING THE ADDITION ON ACCOUNT OF EXCESS OIL WAS UPHELD. IT WAS FURTHER SUBMITTED THAT THE AO HAS ATTEMPTED TO MAKE AN ESTI MATE OF QUANTITY OF CONSUMPTION OF OIL AS AGAINST THAT CLAIMED BY THE A SSESSEE AND HAS COME TO THE CONCLUSION THAT THE DIFFERENCE BETWEEN QUANTITY OF CONSUMPTION CLAIMED BY THE ASSESSEE AND THE CONSUMP TION ESTIMATED BY THE AO ON THE BASIS OF CONSUMPTIONS BY OTHER VES SELS, MUST HAVE BEEN SOLD OUT OF BOOKS OF ACCOUNTS AND HENCE ON ACC OUNT OF THIS, THE ADDITION HAS BEEN MADE. HOWEVER, IT IS EMERGED FROM THE DECISION OF ITAT RAJKOT BENCH REFERRED TO ABOVE THAT IN THE ABS ENCE OF ANY EVIDENCE THAT SUCH EXCESS OIL HAS BEEN SOLD, NO ADD ITION ON THIS ACCOUNT IS SUSTAINABLE. THE REASONS ARE OBVIOUS THAT THE ES TIMATION IS DEPENDED UPON SO MANY FACTORS THAT MERELY FROM ESTIMATION IT CANNOT BE CONCLUDED THAT EXCESS OIL WAS AVAILABLE FOR SALE AND THAT IN VARIOUS SUBMISSIONS MADE DURING THE BLOCK PROCEEDINGS AS WELL AS DURING THE APPELLATE PROCEEDINGS THE ASSESSEE HAS CLEARLY POINTED OUT SE VERAL FACTORS WHICH MAY AFFECT CONSUMPTION AND CONSEQUENTLY THE ESTIMAT ION AND SOME OF SUCH FACTORS EFFECTING THE CONSUMPTION OF OIL WHICH ULTIMATELY WOULD EFFECT ANY ESTIMATION IN RESPECT OF OIL AVAILABLE F OR SALE AS POINTED OUT BY THE ASSESSEE ARE THE LOCATION OF THE BEACHING OF TH E VESSEL WHETHER NEAR THE PLOT OR FAR, WHETHER THE BEACHING WAS PROPER FR OM THE VIEW POINT OF EASE OF BRAKING, WHETHER USE OF LABOUR WAS MORE OR THAT OF CRANE, THE NUMBER OF LIFTING AND SHIFTING AND LOADING OPERATIO NS, AVAILABILITY OF LABOUR AND TRANSPORT ETC. - 14 - 10. THE LEARNED CIT(A) CONSIDERING THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE ASSESSEE DIRECTED THE AO TO ADOPT CONSUMPTION @ 0.776 MT PER 1000 BHP PER DAY AND TO CALCULATE THE VALUE OF DIFFERENCE ACCORDINGLY THE BY OBSERVING IN PARA 27 OF HIS ORDER AS UNDER: 27. APART FROM THE ABOVE MENTIONED FACTORS WHICH INDICATES THAT ACCURACY OF ANY ESTIMATION IN RESPEC T OF CONSUMPTION OF OIL AND UNRECORDED SALE OF SUCH EXCE SS OIL CANNOT BE ACCEPTED IN ABSENCE OF ANY EVIDENCE REGARDING SU CH UNRECORDED SALE, ANOTHER IMPORTANT ASPECT IS THAT I N THE DETAILS FURNISHED BY THE ASSESSEE ON WHICH THE A. O. HAS RE LIED UPON TO ADOPT THE AVERAGE DAILY CONSUMPTION AT 0.057 MT PER 1000 BHP PER DAY, THE SAME STATEMENT ALSO MENTIONS DETAILS W HICH SHOWS AVERAGE DAILY CONSUMPTION AT 0.842 PER 1000 BHP PER DAY. MOREOVER, MOST IMPORTANTLY IN THE CASE OF M. V. MOW LAVI WHERE THE AVERAGE DAILY CONSUMPTION IS 0.842 PER 1000 BHP PER DAY, THE CONSUMPTION IS ON THE BASIS OF THE CERTIFICATE OF C APTAIN OF THE VESSEL. IN VIEW OF THIS, THERE IS NO REASON WHY THE AVERAGE DAILY CONSUMPTION IN THE CASE OF M. V. GEORGY CHECHERIN S HALL ONLY BE ADOPTED FOR ESTIMATING THE ACTUAL CONSUMPTION WHILE IGNORING THE RATES OF AVERAGE DAILY CONSUMPTION IN RESPECT OF 11 OTHER VESSELS, PARTICULARLY IN VIEW OF THE FACT THAT THE FIGURES I N RESPECT OF M. V. MOWLAVI IS BASED ON CERTIFICATE OF THE CAPTAIN AND ALSO THAT ALL THE FIGURES INCLUDING THOSE IN RESPECT OF M. V. GEORGY CHECHERIN HAVE ALSO BEEN SUBMITTED BY THE ASSESSEE. THE APPELLANT S CONTENTION IS THAT IN THE CASE OF M. V. GEORGY CHECHERIN, THE LOW CONSUMPTION IS DUE TO SOME ARITHMETICAL MISTAKE. IN VIEW OF THI S, I DONT FIND ANY JUSTIFICATION TO ADOPT THE FIGURES OF M. V. GEORGY CHECHERIN ONLY BY IGNORING THE FIGURES IN RESPECT OF 11 OTHER VESSELS ESPECIALLY WHEN ALL THE FIGURES HAVE BEEN MADE AVAILABLE BY THE APP ELLANT HIMSELF AND ESPECIALLY WHEN THE FIGURES IN THE CASE OF M. V . MOWLAVI ARE BASED ON THE CAPTAINS CERTIFICATE, WHICH HAS NOT B EEN CONTROVERTED BY ANY FACT OR EVIDENCE BROUGHT ON REC ORD. AFTER CONSIDERING THE TOTALITY OF THE FACTS AND THE VARIO US SUBMISSIONS MADE BY THE APPELLANT AS WELL AS THE REASONS RECORD ED BY THE ASSESSING OFFICER FOR ADOPTING THE RATE OF 0.057 MT PER 1000 BHP PER DAY, IN MY OPINION, IT SHALL BE REASONABLE AND JUDICIOUS, IF THE AVERAGE RATE OF AVERAGE DAILY CONSUMPTION OF ALL TH E 12 VESSELS IS ADOPTED, AS THE RATE FOR THE PURPOSE OF ESTIMATION OF THE CONSUMPTION OF OIL. THE AVERAGE DAILY CONSUMPTION P ER 1000 BHP - 15 - IN CASE OF M. V. GEORGY CHECHERIN COMES TO RS.0.057 MT AND IN RESPECT OF REST OF THE ELEVEN OTHER VESSELS IS 0.84 2 MT. THUS, THE AVERAGE RATE OF CONSUMPTION COMES TO 0.776 MT PER 1 000 BHP PER DAY IN RESPECT OF ALL THE TWELVE VESSELS. IT SH ALL MEET THE END OF JUSTICE, IF THE RATE OF 0.776 MT PER 1000 BHP PER D AY IS ADOPTED IN PLACE OF 0.057 MT PER 1000 BHP PER DAY. THE A.O. IS , THEREFORE, DIRECTED TO ADOPT THE RAT OF 0.776 MT PER 1000 BHP PER DAY IN PLACE OF O0.057 PER 1000 BHP PER DAY, TO DETERMINE THE QUANTITY OF CONSUMPTION OF OIL. IN THE EVENT OF THE QUANTITY OF CONSUMPTION DETERMINED @ 0.776 MT PER 1000 BHP PER DAY IS LESS THAN THE CLAIM OF CONSUMPTION MADE BY THE APPELLANT, THE VAL UE OF DIFFERENCE IN QUANTITY SHALL BE TREATED AS UNRECORD ED SALE OF EXCESS OIL AND CONSEQUENTLY ADDITION TO TOTAL INCOME SHALL BE MADE. THIS GROUND IS ACCORDINGLY DISPOSED OFF. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDERS OF THE AUTHORITIES BELOW, CASE LAWS RELIED UPON BY BOTH TH E PARTIES AND CONSIDERED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CASE IT IS APPARENT THAT THE ADDITION IS MADE ON ESTIMATION OF CONSUMPTION OF OIL. IT IS PERTINENT TO NOTE THAT THE CONSUMPTION OF OIL WI LL VARY DUE TO VARIOUS FACTORS AND FROM SHIP TO SHIP. IT IS, THEREFORE, VE RY DIFFICULT TO ARRIVE AT A REASONABLE BASIS FOR SUCH ESTIMATION. ON THE IDENTI CAL ISSUE, THE RAJKOT BENCH OF THE TRIBUNAL IN ITA NO.1072/RJT/2004 VIDE ITS ORDER DATED 06- 01-2006 HAD ALLOWED THE APPEAL OF THE ASSESSEE BASE D ON A FINDING THAT THE RECOVERY OF OIL AND OTHER ARTICLES AND SALE PRI CE THEREOF DEPEND ON VARIOUS FACTORS AND ADDITIONS BASED ON SUCH ESTIMAT ION IS UNWARRANTED. WE ALSO EXPRESS THE SAME VIEW TAKEN BY THE RAJKOT B ENCH OF THE TRIBUNAL MENTIONED HEREINABOVE. THEREFORE, WE DELET E THE ADDITION MADE BY THE LEARNED AO BASED ON THIS ISSUE. 12. GROUND NO.4: ADOPTION OF RECOVERY OF NON FERROU S METAL FOR GENERAL CARGO AT 0.75% AND FOR BULK CARRIER AT 0.50 %. THE AO HAS MADE ADDITION OF RS.9,14,055/- ON ACCOUNT OF UNACCOUNTED SALE PROCEED OF - 16 - NON-FERROUS MATERIAL BY STATING THAT THE ADDITION I S MADE AS PER THE REASON AS MENTIONED AT THE TIME OF DEALING WITH UNA CCOUNTED SALE OF OIL. THUS, THE AO HAS FOR THE PURPOSE OF MAKING ADDITION , RELIED UPON THE FACTS AND REASONS MENTIONED IN THE BLOCK ASSESSMENT ORDER. IN THE BLOCK ASSESSMENT ORDER, THE AO HAS ESTIMATED THE RECOVERY OF NON-FERROUS METAL FROM THE BROKEN VESSELS ON THE BASIS OF THE F IGURES MENTIONED IN THE MECON REPORT. AS PER THIS REPORT, THE RATIO OF RECOVERY OF NON- FERROUS METAL IS 0.5% TO 1% IN CASE OF GENERAL CARG O VESSEL AND 0.5% IN RESPECT OF BULK CARRIER, AS MENTIONED IN THE BLOCK ASSESSMENT ORDER. THE AO HAS FURTHER SHOWN THAT IN THE CASE OF M/S. MARIY A SHIP BREAKERS PVT. LTD., THE RATIO OF THE NON-FERROUS METAL COMES TO 0 .57% IN RESPECT OF BULK CARRIERS BROKEN BY M/S. MARIYA SHIP BREAKING PVT. L TD. WHICH IS IN AGREEMENT WITH THE REPORT OF MECON IN WHICH THE RAT IO OF NON-FERROUS METAL IN RESPECT OF BULK CARRIERS HAS BEEN TAKEN AT 0.5%. THUS, THE AO HAS CONCLUDED THAT THE RELIABILITY OF MECON REPORT IS ESTABLISHED IN VIEW OF THE FACT THAT THE QUANTITY OF RECOVERY IN THE CA SE OF M/S. MARIYA SHIP BREAKING PVT. LTD. HAS BEEN ACCEPTED AND ADMITTED B Y THE ASSESSEE. AFTER CONSIDERING THE VARIOUS REPLIES AND SUBMISSIO NS OF THE ASSESSEE, THE AO IN THE BLOCK ASSESSMENT ORDER HAS ADOPTED TH E RATIO OF RECOVERY OF NON-FERROUS METAL AT 0.5% OF THE WEIGHT OF SHIP IN THE CASE OF BULK CARRIER AND 1% OF THE WEIGHT OF THE SHIP IN THE CAS E OF GENERAL CARGO CARRIER. 13. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE LEARNED CIT(A) AND IT WAS SUBMITTED BEFORE HIM THAT IN THE CASE OF GENERAL CARGO VESSELS, THOUGH RATIO OF NON-FERROUS METAL AS PER MECON REPORT IS IN THE RANGE OF 0.5% TO 1%, THE AO INSTEAD OF TAKING A N AVERAGE RATIO OF 0.75% HAS ADOPTED THE MAXIMUM RECOVERY OF 1%. OBJEC TING TO THIS, THE ASSESSEE SUBMITTED THAT THE AO SHOULD HAVE TAKEN TH E RECOVERY OF NON- - 17 - FERROUS METAL AT 0.75% OF THE TOTAL WEIGHT OF THE S HIP IN THE CASE OF GENERAL CARGO VESSELS. IT WAS ALSO POINTED OUT BY T HE ASSESSEE THAT THE DISCUSSION IN RESPECT OF ADDITION ON THIS ACCOUNT I N THE ASSESSMENT ORDER IS VERY BRIEF AND NOT CLEAR AND THAT THE ADDITION H AS BEEN MADE ON ACCOUNT OF ALLEGED UNACCOUNTED SALE OF 15.23 MT OF NON-FERROUS METAL WHEREAS THE ASSESSMENT ORDER IS SILENT ABOUT THE BA SIS ON WHICH THE UNACCOUNTED SALE HAS BEEN WORKED OUT AT 15.23MT. IT WAS FURTHER CONTENDED THAT IT APPEARS THAT AS IN THE CASE OF OI L, HERE ALSO, THE FIGURE HAS BEEN TAKEN AS 1/4 TH OF THE TOTAL UNACCOUNTED SALE OF 60.37MT TAKEN IN THE BLOCK ASSESSMENT ORDER. IT WAS FURTHER POINT ED OUT THAT WHILE ISSUING THE SHOW CAUSE NOTICE FOR BLOCK ASSESSMENT, THE AO WHILE CALLING FOR THE DETAILS HAD THE OPINION THAT THE RA TE OF NON-FERROUS METAL SHOULD BE TAKEN AT AVERAGE RATE WHERE THE RECOVERY FROM A PARTICULAR TYPE OF SHIP IS GIVEN AS A RANGE. WHILE FURTHER CLA RIFYING THIS, THE ASSESSEE POINTED OUT THAT THE AO HAD STATED THAT WH ERE THE RATE OF NF WAS GIVEN 1% TO 1.5% FOR NAVAL SHIP THEN THE AVERAG E RATE MAY BE TAKEN AT 1.25% AND SUBMITTED THAT IF THIS LOGIC IS FOLLOWED OR EVEN OTHERWISE, THE AO SHOULD HAVE TAKEN THE AVERAGE REC OVERY OF NON- FERROUS METAL AT 0.75% IN THE CASE OF GENERAL CARGO VESSELS. 14. THE LEARNED CIT(A) HOWEVER, CONSIDERING THE FAC TS OF THE CASE AND THE SUBMISSIONS MADE BY THE ASSESSEE DIRECTED THE A O TO DETERMINE THE QUANTITY OF ESTIMATED RECOVERY OF NON-FERROUS METAL @0.75% IN THE CASE OF GENERAL CARGO VESSELS AND @0.5% IN THE CASE OF B ULK CARRIER TO DETERMINE THE QUANTITY OF NON-FERROUS METAL RECOVER ED AND IN THE EVENT OF SUCH QUANTITY BEING IN EXCESS OF QUANTITY OF NON -FERROUS METAL SOLD AS CLAIMED BY THE ASSESSEE, THE SALE CONSIDERATION IN RESPECT OF EXCESS QUANTITY RECOVERED BE TREATED AS UNACCOUNTED INCOME OF THE ASSESSEE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE ON TH IS ACCOUNT. - 18 - 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIAL O N RECORD. THIS ISSUE RELATES TO ADOPTION OF RECOVERY OF NON-FERROUS META L FOR GENERAL CARGO AT 0.75% AND FOR BULK CARRIER AT 0.50%, BASED ON WHICH AN ADDITION OF RS.9,14,055/- IS MADE ON ACCOUNT OF UNACCOUNTED SA LE PROCEEDS OF NON-FERROUS METAL. THIS ADDITION IS ALSO MADE ON ES TIMATE BASIS. AT THE OUTSET, WE ARE OF THE OPINION THAT SUCH ADDITION DE SERVES TO BE DELETED BASED ON OUR SAME FINDINGS MENTIONED IN PARA 11 HER EINABOVE. THEREFORE, ADDITION MADE ON THIS COUNT IS HEREBY DE LETED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ITA NO.601/AHD/2006:AY 1997-98 (BY REVENUE) 17. THE REVENUE IN THIS APPEAL HAS TAKEN THE FOLLOW ING GROUNDS: 1. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION ON ACCOUNT OF UNACCOUNTED SALE OF OIL OF RS.5,33,017/- AND DIRECTED TO RECALCULATE CONSUMPTI ON RATE AT 0.776 INSTEAD OF 0.57. 2. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN DEL ETING ADDITION ON ACCOUNT OF RS.9,14,055/- IN RESPECT OF UNACCOUNTED SALE OF NON-FERROUS AND DIRECTED TO REC ALCULATE RATIO FOR RECOVERY FOR BULK CARRIER AT THE RATE OF 0.50% AND FOR GENERAL CARGO AT THE RATE OF 0.75%. 3. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION ON ACCOUNT OF UNACCOUNTED PLOT PREMIUM OF RS.15,99,432/-. 18. GROUNDS NO.1 AND 2 OF THE APPEAL OF THE REVENUE ARE INTER- CONNECTED WITH GROUNDS NO. 3 AND 4 OF THE APPEAL OF THE ASSESSEE ABOVE. BOTH THE PARTIES SUBMITTED THAT FACTS BEING IDENTICAL, THE ORDER IN THE CASE OF THE ASSESSEE RELATING TO GROUNDS NO.3 A ND 4 MAY BE FOLLOWED IN THE CASE OF THE REVENUE. SINCE WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE RELATING TO GROUND NO.3&4 OF THE AS SESSEES APPEAL - 19 - SUPRA, GROUND NO.1&2 RAISED BY THE REVENUE IN ITA60 1/AHD/2006 DO NOT SURVIVE. THEREFORE WE DISMISS BOTH THE GROUND N O.1&2 OF THE REVENUES APPEAL. 19. GROUND NO.3: DELETION OF ADDITION OF RS.15,99,4 32/- ON ACCOUNT OF PAYMENT OF UNACCOUNTED PLOT PREMIUM. THE FACTS, AS NOTED IN THE APPELLATE ORDER OF THE LEARNED CIT(A) ARE THAT M/S. G. N. SHIP BREAKERS, A PARTNERSHIP FIRM WAS ALLOTTED PLOT NO.127. SUBSEQ UENTLY, MEMBERS OF AGARWAL FAMILY WERE INTRODUCED AS PARTNERS IN THE F IRM AND THE ORIGINAL/ERSTWHILE PARTNERS RETIRED FROM THE PARTNE RSHIP FIRM. THE ERSTWHILE PARTNERS WERE PAID RS.34,44,568/- AS A CONSIDERATIO N FOR RETIRING FROM THE PARTNERSHIP FIRM. THE AO DETERMINED THE ACTUAL MARKET PRICE OF THE PLOT AT RS.50,44,000/- AND TREATED THE DIFFERENCE O F RS.15,99,432/- AS PAYMENT OF UNACCOUNTED ON MONEY AND MADE ADDITION T O THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE IS A CONCERN O F AGGARWAL GROUP IN WHICH CASE SEARCH WAS CONDUCTED U/S 132 OF THE I T ACT ON 30-06- 1999. SUBSEQUENTLY, ORDER U/S 158 BC OF THE IT ACT WAS PASSED ON 27- 06-2001 FOR THE BLOCK PERIOD 01-04-1989 TO 30-06-19 99 MAKING ADDITION OF RS.15,99,432/- ON ACCOUNT OF UNACCOUNTED PREMIUM PAID FOR PLOT NO.127 FOR AY 1996-97 AND 1997-98. THE ASSESSEE WEN T IN APPEAL AGAINST THIS ORDER BEFORE THE LEARNED CIT(A) WHO DI RECTED TO EXCLUDE THE AMOUNT OF RS.15,99,432/- FROM ASSESSEES UNDISCLOSE D INCOME FOR THE BLOCK PERIOD HOLDING THAT ALLEGATIONS REGARDING REC EIPT AND PAYMENT OF ON-MONEY WAS BASED ON NOTHING MORE THAN AOS PRESUM PTIONS AND SURMISES AND THAT THE SEARCH AT THE PREMISES OF THE ASSESSEE HAD NOT LED TO THE DISCOVERY OF ANY INCRIMINATING MATERIAL ON THE BASIS OF WHICH AOS CHARGE REGARDING PAYMENT OF ON-MONEY COULD BE SUSTAINED. DEPARTMENTAL APPEAL ON THIS ISSUE WAS DISMISSED BY THE TRIBUNAL VIDE ORDER DATED 31-03-2005. - 20 - 20.1 DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE ARGUED THAT THERE WAS EXTENSIVE SEARCH CARRIED OUT IN ASSESSEES CASE AS WELL AS IN THE CASE OF ENTIRE GROUP BUT NO EVIDENCE WAS FOUND SHOW ING PAYMENT OF ANY EXTRA CONSIDERATION TO THE ERSTWHILE PARTNERS. IT W AS FURTHER CONTENDED THAT IN ANY CASE, THE PLOT PREMIUM IS ALLOWABLE AS REVENUE EXPENDITURE AND RELIED UPON THE DECISION OF THE LEARNED CIT(A) IN THE CASE OF M/S. GURU ASHISH SHIP BREAKERS ON IDENTICAL ISSUE WHERE IT WAS HELD THAT THE ALLEGATION REGARDING THE RECEIPT AND PAYMENT OF ON- MONEY WAS BASED ON NOTHING MORE THAN AOS PRESUMPTIONS AND SURMISES. 20.2 IN THE ASSESSMENT ORDER U/S 143(3) READ WITH S ECTION 147 OF THE IT ACT DATED 29-03-2005, THE AO MADE ADDITION OF RS.15 ,99,432/- AS UNEXPLAINED INVESTMENT RELYING UPON THE FACTS AND F INDINGS DISCUSSED IN THE ORDER OF BLOCK ASSESSMENT. THUS, THE AO HAS REL IED UPON THE FACTS AND REASONS RECORDED IN THE RELEVANT BLOCK ASSESSME NT ORDER FROM WHICH IT IS SEEN THAT THE AO HAD DETERMINED THE MAR KET PRICE OF SHIP BREAKING PLOT AT RS.50,44,000/- AND CONSIDERING THI S AMOUNT TO BE THE DEFACTO CONSIDERATION PAID BY THE ASSESSEE TO THE E RSTWHILE MANAGEMENT, MADE THE ADDITION OF RS.15,99,432/- BEI NG DIFFERENCE BETWEEN THE SUM OF RS.50,44,000 AND RS.34,44,568. I N FACT THE AO ARRIVED AT THE FIGURE OF RS.50,44,000/- ON THE BASI S OF AVERAGE OF THE CONSIDERATIONS PAID IN RESPECT OF 8 DIFFERENT PLOTS . 21. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND IN VIEW OF THE DECISION OF THE LEARNED CIT(A) I N RESPECT OF BLOCK ASSESSMENT ORDER ON THE ISSUE AND THE FACT THAT ABOVE ALL, NO EVIDENCE WHETHER DOCUMENTARY OR ORAL, HAD BEEN FOUND DURING THE SEARCH OR SUBSEQUENTLY AS A RESULT OF ENQUIRIES CONDUCTED FROM WHICH IT CAN BE SAID THAT ANY PAYMENT HAS BEEN EFFECTED OVER AND ABOVE THE AMOUNT OF RS.34,44,568/ -. THEREFORE, CONCLUSION DRAWN BY THE AO THAT THE AMOUNT OF RS.50,44,000/- IS DEFACTO CONSIDERATION INSTEAD OF - 21 - RS.34,44,568/- AND THE DIFFERENCE HAS BEEN PAID, IS NOT TENABLE IN VIEW OF THE FACTS OF THE CASE AND THE EVIDENCES THAT HAS BEEN BROUGHT ON REC ORD. THEREFORE, THE STAND TAKEN BY THE AO THAT AMOUNT OF RS.50,44,000/- IS AVERAGE MAR KET RATE OF SHIP BREAKING PLOT WHICH HAS BEEN PAID BY THE ASSESSEE TO ERSTWHILE MANAGEME NT IS NOT CORRECT AND HENCE CANNOT BE SUSTAINED., AND FURTHER HOLDING THAT NO INCRIMINATING MATERIA L WAS FOUND TO SUPPORT THE FINDINGS OF THE AO DELETED THE ADDITION. 22. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) REVENUE IS IN APPEAL BEFORE US ON THE ISSUE. 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSID ERED THE MATERIAL ON RECORD. APPARENTLY THE LD. AO HAD MADE THE ADDIT ION BASED ON THE DECISION OF THE LD.AO IN THE BLOCK ASSESSMENT. FURT HER IT IS EVIDENT THAT THE ADDITION IS MADE ON MERE ASSUMPTION AND NOT BAS ED ON ANY DOCUMENTARY OR OTHER RELIABLE EVIDENCE. THEREFORE W E UPHOLD THE DECISION OF THE LD.CIT(A) ON THIS ISSUE. THUS THE G ROUND NO.3 OF THE REVENUE IS DISMISSED, CONSEQUENTLY THE APPEAL OF TH E REVENUE STANDS DISMISSED. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 DAY O F MARCH, 2012. SD/- (D. K. TYAGI) JUDICIAL MEMBER SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/- -- - - 22 - COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD