DCIT, V. M/s Paresh Exports Pvt. Ltd.,

ITA 252/BANG/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9233 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-09-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 28-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Search and seizure; Peak credit
• Section: 143(3); 153A; 69; 56

Judgement Text

ITA.251 & 252/BANG/2013 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T.A NOS.251 & 252/BANG/2013 (ASSESSMENT YEARS : 2003-04 & 2005-06) DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -1(4), BENGALURU .. APPELLANT V. M/S. PARESH EXPORTS (P) LTD, NO.104, 1 ST FLOOR, 56 TH CENTER POINT, RESIDENCY ROAD, BENGALURU 560 025 .. RESPONDENT PAN : AAACP8236G ASSESSEE BY : NONE REVENUE BY : SHRI. SANJAY KUMAR, CIT -III HEARD ON : 28.09.2016 PRONOUNCED ON : 09.12.2016 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THESE APPEALS ARE FILED BY REVENUE AGAINST THE COMM ON ORDER OF THE CIT (A), MYSORE, DT.09.11.2012, FOR THE A. YS. 2003 -04 AND 2005-06. 02. NONE APPEARED FROM THE ASSESSEE. THE DR IS HE ARD. 03. THE FACTS IN BRIEF ARE THAT M/S PARESH EXPORTS PVT LTD IS IN THE BUSINESS OF TRADING IN BULLION. A SEARCH AND SEIZUR E OPERATION WAS CONDUCTED ON THE ASSESSEE ON 28/1/2005, SEVERAL INC RIMINATING ITA.251 & 252/BANG/2013 PAGE - 2 DOCUMENTS WERE FOUND AND SEIZED. A NOTICE U/S 153A WAS ISSUED ON 18.4.2005 IN RESPECT OF AYS 2003-04 & 2005-06 AND THE ASSESSMENT ORDERS WERE PASSED U/S 153A RWS 143(3) ON 25.6.2007. THE ASSESSEE FILED APPEALS BEFORE THE CIT(A) , MYSORE AND THE CIT (A) DISPOSED THEM IN ITA NOS 159 & 158/ACIT,CC-1(4)/ BLORE/07-08 DT 09.11.2 012. AGAINST THOSE ORDERS, THE REVENUE FILED THESE APPEALS. THE GROUND S OF APPEAL RELATED TO THE A Y 2003-04 ARE EXTRACTED AS UNDER: GROUND NO 1 : ASSESSEES MODUS OPERENDI IS THAT THE ASSESSEE, M/S PARESH EXPORTS PVT LTD IS CONTROLLED BY MR. M. PARVEZ, WHO HAPPENS TO BE THE MD OF THE ITA.251 & 252/BANG/2013 PAGE - 3 CONCERN. IT IS IN THE BUSINESS OF TRADING IN BULLIO N. GOLD IS IMPORTED FROM FOREIGN SUPPLIERS THROUGH M/S PEC LTD, A GOVERNMENT UNDERTAKING. ORDERS ARE PLACED ON FOREIGN SUPPLIERS THROUGH M/S PEC LTD . THEREAFTER, GOLD IS PURCHASED BY TWO METHODS AS UNDER : CONSIGNMENT METHOD:- FOREIGN SUPPLIERS MAKE SALES T O M/S PEC LTD WHO IN TURN SELLS THE GOLD AND MAKES PAYMENT AFTER RECEIVING THE SAME FROM M/S PARESH EXPORTS PVT LTD. LETTER OF CREDIT METHOD:- M/S PEC LTD ON BEHALF OF M/S PARESH EXPORTS PVT LTD OPENS A LETTER OF CREDIT OR LC WITH A BANK. ON THE STRENGTH OF THE LC, A FOREIGN SUPPLIER MAKES DELIVERY OF GOLD TO M/S PEC LTD. CUSTOMS DUTIES AND SALES TAX ARE BORNE BY M/S PEC LTD AND ARE RECO VERED FROM M/S PARESH EXPORTS PVT LTD. GOLD IS KEPT AT THE LOCKER MAINTAINED BY M/S PEC LTD AT IDBI BANK. AS AND WHEN PAYMENTS ARE MADE BY M/S PARESH EXPORTS PVT LTD, GOLD IS RELEASED FROM THE LOCKER. M/S PARE SH EXPORTS PVT LTD IS ALLOWED TO MAKE PAYMENTS THROUGH FIXED DEPOSITS ( FDS). THE FDS ARE MADE IN SUCH A WAY THAT ON MATURITY, ITS VALUE WOULD MATCH THE VALUE OF GOLD. SOMETIMES M/S PARESH EXPORTS PVT LT D IS ALLOWED TO MAKE PAYMENT BY CHEQUE WHICH M/S PEC LTD FURTHER TURNS INTO FDS. THESE FDS ARE KEPT BY M/S PEC TILL MATURITY OF LCS. FURTH ER, M/S PARESH EXPORTS PVT LTD IS ALSO ALLOWED TO TAKE CONTROL OF FDS BY M AKING PAYMENT AT ANY POINT BEFORE LCS MATURE. THUS , THE FDS ARE THEREFO RE HELD AS SECURITY BY M/S PEC LTD UNTIL THE ACTUAL PAYMENT IS MADE. 04. DURING THE ASSESSMENT PROCEEDINGS FOR AY 2003- 04, THE AO FOUND THAT M/S PARESH EXPORTS PVT LTD WHILE ACCOUNTING FO R ITS PURCHASES TOOK THE TOTAL VALUE OF PAYMENTS BASED ON FINAL INVOICE RAI SED BY M/S PEC. FURTHER, IT CAME TO LIGHT THAT THE FACE VALUE OF THE FDS WAS LOWER THAN THE ACTUAL PAYMENTS DUE, APART FROM THE FACT THAT FDS WERE JUS T KEPT A SECURITY WHICH WERE ALWAYS RETURNED TO THE ASSESSEE ONCE ACT UAL PAYMENT IS ITA.251 & 252/BANG/2013 PAGE - 4 MADE . THEREFORE, THE AO CAME TO THE CONCLUSION THA T THESE FDS WERE IN FACT ASSETS ACQUIRED BY THE ASSESSEE AND HENCE THE INTEREST RECEIVED THEREON NEEDED TO BE TAKEN AS ASSESEE'S INCOME. THE AO EXAMINED DETAILS AND THE DATA CULLED FROM IMPOUNDED MATERIAL S. A DETAILED BREAKUP OF INTEREST RECEIVED BY ASSESSEE HAS BEEN B ROUGHT OUT IN A TABLE IN PAGE 4 OF THE ASSESSMENT ORDER. A DIFFERENCE OF RS. 1,11,97,808/- AS INTEREST INCOME WAS DISCOVERED FOR AY 2003-04 AS COMPARED TO ADMITTED INTEREST INCOME OF RS. 87.78 LAKH IN THE RETURN . THEREFORE, A SHOW CAUSE NOTICE DATED 18/6/2007 WAS SERVED ON THE ASSESSEE. IN REPLY, THE ASSESSEE MERELY STATED THAT INTEREST INCOME ON FDS BELONGED TO M/S PEC. THE, ASSESSEE DID NOT SUBSTANTIATE THIS CL AIM WITH ANY DOCUMENTARY EVIDENCE. ON THE CONTRARY , THE ASSESSE E DISCARDED THE ISSUE BY STATING THAT SUCH INTEREST INCOME BELONGED TO M/S PEC. (PAGES 3-4 OF AO'S ORDER). ON AN APPEAL , THE CIT(A ) SOUGHT REMAND REPORT FROM THE AO AND FOUND THAT THERE WAS NO EVID ENCE TO CONCLUDE THAT THE ASSESSEE HAD NOT ACCOUNTED INTEREST INCOME TO T HE TUNE OF RS.1,11,97,808/-. IT WAS FURTHER HELD THAT ADDITION RS.1,11,97,808/- WAS NOT BASED ON FACTS BUT MERELY ON THE DDIT (INV) 'S REPORT. THEREFORE, HE DELETED THAT ADDITION OF RS. 1,11,97,808/-. 05. THE DR SUBMITTED AS UNDER : A. THE ASSESSEE HAD MADE FDS AS SECURITY FOR PURCHASE OF GOLD FROM M/S PEG. THESE FDS WERE MADE IN SUCH A WAY THAT ON MATURITY, ITS VALUE WOULD MATCH THE COST O F GOLD. THEREFORE, THESE FDS ACTED AS A SECURITY UNTIL THE ACTUAL PAYMENT WAS MADE BY THE ASSESSEE TO M/S PEG. B. FDS WERE ASSETS ACQUIRED BY ASSESSEE AND HENCE INTEREST RECEIVED/ ACCRUING THEREON IS AN INCOME OF THE ASSESSEE. C. RS. 1.99 CRORE WAS THE TOTAL INTEREST RECEIVED DURI NG AY 2003-04. THE ASSESSEE HAD DISCLOSED RS. 87.78 LAKH AS INTEREST INCOME IN ITS RETURN. AFTER GIVING CREDIT TO THE SAID ITA.251 & 252/BANG/2013 PAGE - 5 AMOUNT, RS. 1,11,87,808/- WAS FOUND TO BE UNDISCLOS ED. D. THE TDS CERTIFICATES FILED BY ASSESSEE ALONG WITH RETURN OF INCOME REVEALED THAT IT HAD EARNED AN INT EREST INCOME OF RS.1,01,72545/- ON WHICH TAX WAS DEDUCTED AT SOURCE. THIS FACT WAS IGNORED BY LD CIT(A). E. FURTHERMORE, AS PER ASSESSEE'S AGREEMENT WITH M/S PEG, 'INTEREST ON FIXED DEPOSIT REALIZED FROM BANK SHALL BE TO THE ACCOUNT OF M/S PARESH EXPORTS PVT. LTD . THEREFORE , CONSIDERING THE ABOVE FACTS AND CIRCUM STANCES, THE DR SUBMITTED THAT THE INTEREST ON FDS ARE DEFINITELY A N INCOME EARNED BY THE ASSESSEE BUT IT HAS NOT DISCLOSED IT IN ITS RE TURN . THE AO HAS CORRECTLY BROUGHT IT TO TAX. IT IS THEREFORE REQUES TED THAT THE AO'S ACTION ON THIS COUNT BE UPHELD AND THE CIT (A)'S OR DER BE ANNULLED. 06. WE HAVE CONSIDERED THE ABOVE SUBMISSIONS. IT IS CLEAR FROM THE ABOVE THAT AS PER TDS CERTIFICATES , THE ASSESSEE H AS EARNED AN INTEREST INCOME OF RS. 1,01,72,545/-BUT IT HAS ADMITTED RS. 87.78 LAKH ON LY AS INTEREST INCOME IN ITS RETURN. THUS, THIS ISSUE REQUIRES VERIFICATION & RECONCILIATION AND HENCE WE SET ASI DE THIS ISSUE TO THE AO . THE AO AFTER GIVING ADEQUATE OPPORTUNITY T O THE ASSESSEE WOULD DECIDE THIS MATTER IN ACCORDANCE WITH LAW. 07. GROUND NO2 : THE AO FOUND THAT THERE WAS A NEGATIVE CASH BALANCE OF RS. 5,57,19,892/- . ON BEING ASKED TO EX PLAIN, THE ASSESSEE STATED THAT ENTIRE SALES AND PURCHASES MAD E ON DIFFERENT DATES DURING THE MONTH OF MARCH 2003 WERE ENTERED O N ITA.251 & 252/BANG/2013 PAGE - 6 31/3/2003 ON A CONSOLIDATED BASIS, WHICH RESULTED IN A NEGATIVE CASH BALANCE IN THE BOOKS. THE ASSESSEE ,HOWEVER , DEPOSITED RS.4,00,00,000/- IN CASH IN CITI BANK ON 29.3.2003 WHEREAS AS PER BOOKS THE CASH BALANCE WAS NEGATIVE. IT IS PERTINEN T TO NOTE THAT DESPITE THE FACT THAT THERE WAS NEGATIVE CASH BALAN CE IN ITS BOOKS, THE ASSESSEE HAD UNACCOUNTED CASH WHICH WAS DEPOSITED I N ITS BANK. CONSIDERING ALL THESE FACTS THE AO CONCLUDED THAT RS. 5.57.19,891.65/- (WHICH WAS THE PEAK CASH AS ON 29/3/2003) WAS UNACC OUNTED CASH OF THE ASSESSEE AND ACCORDINGLY MADE AN ADDITION. 08. THE CIT(A) AFTER CONSIDERING NORMAL TRADING PAT TERN OF THE ASSESSEE PRIOR AND SUBSEQUENT TO MARCH, THE REMAND REPORT AND THE PURCHASE STATEMENT OBTAINED FROM PEC LTD ETC HELD T HAT IF PURCHASES AND SALES WERE ENTERED AS AND WHEN THEY TOOK PLACE, THE NEGATIVE CASH BALANCE WOULD NOT HAVE ARISEN. RELYING ON THE RATIO OF HUMAN PROBABILITIES OF THE HON' SUPREME COURT JUDGMENT IN THE CASE OF CIT VS DURGA PRASAD MORE 82 ITR 440, THE CIT(A) DELETED T HE ADDITION. 09. THE DR SUBMITTED THAT THE LD CIT(A) BY APPLYING THE TEST OF PROBABILITY CONCLUDED THAT THE PROBABILITY OF SALES , THOUGH MADE ON DIFFERENT DATES IN MARCH 2003 WERE ENTERED ONLY ON 31/3/2003 IS MORE THAN LIKELY THAN THE PROBABILITY THAT ENTIRE SALES OF MARCH 2003 WERE ACTUALLY MADE ON 31/3/2003. IN THIS CONNECTION , THE DR SUBMITTED THAT THE CONCLUSION DRAWN BY THE LD. CIT( A) BASED ON 'PROBABILITY' IS UNACCEPTABLE AS IT IS NOT BASED ON FACTS. THE FACT IS THAT ITA.251 & 252/BANG/2013 PAGE - 7 THERE WAS A NEGATIVE CASH BALANCE WHICH APPEARED TH ROUGHOUT THE MONTH OF MARCH 2003 WHICH CONTINUED UPTO THE END OF THE MONTH. THESE FACTS HAVE NOT BEEN DEALT AT LENGTH BY THE C IT(A) WHO ON CONJECTURES AND SURMISES DREW THE CONCLUSION THAT ' PROBABILITY' OF SALES MADE ON DIFFERENT DATES BEING ENTERED ON 31/3 /2003 IS HIGHER . MOREOVER THE CIT(A) HAS ALSO NOT LOOKED INTO THE FA CT THAT ALTHOUGH THERE WAS NO CASH BALANCE IN ITS BOOKS, THE ASSESSE E HAD UNACCOUNTED CASH WHICH WAS DEPOSITED IN CITI BANK. IT IS THEREFORE SUBMITTED THAT THE AO HAS CORRECTLY MADE AN ADDITIO N ON THE PEAK BALANCE AS APPEARING ON 29/3/2003. 10. WE HAVE CONSIDERED THE ABOVE SUBMISSIONS. IT IS CLEAR FROM THE ABOVE THAT THE CIT (A) HAS EXAMINED THIS ISSUE AND DRAWN DUE CONCLUSION. THE REVENUE HAS NOT BROUGHT ANY MATERIAL TO ASSAIL SUCH CONCLUSION AND HENCE WE CONFIRM THE DECISION OF THE CIT (A). 11. GROUND NO 3 : DURING THE COURSE OF SEARCH , CERTAIN CASH BILLS WERE FOUND WHICH CONTAINED DETAILS OF DATE OF SALE, QUANTITY OF SALE AND VALUE OF SALE MADE. ON VERIFICATION, IT WAS FOU ND THAT MANY OF THEM WERE NOT ENTERED IN THE CASH BOOK. SINCE SALES WERE MADE IN CASH, CORRESPONDING ENTRY IN THE CASH BOOKS SHOULD HAVE B EEN MADE . ON BEING ASKED TO EXPLAIN THE REASONS AS TO WHY AND HO W ENTRY WAS NOT MADE, SH. PARVEZ, THE MD COULD NOT GIVE A SATISFACT ORY EXPLANATION. THE TOTAL DISCREPANCIES NOTICED AS PER SEIZED MATERIAL AMOUNTED TO RS. ITA.251 & 252/BANG/2013 PAGE - 8 8,03,22,560/- BETWEEN 3/7/2002 & 25/9/2002. THESE BILL BOOKS WERE SERIALLY NUMBERED FROM 1 TO 48 AND WERE ON RUN NING DATES AND SUBMITTED BY THE ASSESSEE ITSELF. THEREFORE, THE Q UESTION OF ANY ENTRY BEING MISSED OUT OR BEING FOUND IN ANOTHER BO OK WOULD NOT ARISE. SINCE THE ASSESSEE FAILED TO PROVIDE ANY SATISFACTO RY EXPLANATION, THE AO ADDED OF RS. 8,03,22,560/- AS UNACCOUNTED SALES. 12. BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT IT HAD SOLD GOLD THROUGH ITS AGENT M/S SPECTRA INVESTMENTS AND THAT ENTIRE TURNOVER HAD BEEN ACCOUNTED FOR AND THAT ADDITION MADE BY AO AMOUNTED TO DOUBLE ADDITION. IT ALSO CONTENDED THAT ENTIRE PURC HASE WAS FROM ONE ENTITY M/S PEC AND THEREFORE THERE WAS NO POSSIBILI TY OF UNACCOUNTED PURCHASES AND SINCE QUANTITY COULD BE T ALLIED, UNACCOUNTED SALES WOULD NOT ARISE. A REMAND REPORT WAS CALLED FROM THE A O WHO REPORTED THAT SALES MADE THROUGH M/S SP ECTRA INVESTMENTS REMAINED UNEXPLAINED AS THE TURNOVER REFLECTED AS PER THE CASH BOOK DOES NOT REFLECT THE SALES AS PER BIL L BOOK OF M/S SPECTRA INVESTMENTS. THE CIT(A) HELD THAT THE TURNO VER MADE BY M/S SPECTRA INVESTMENTS ON BEHALF OF THE ASSESSEE EXCEEDED THE CASH TURN OVER OF THE APPELLANT AT RS.7.06 CRORE AS AGAINST RS. 8.03 CRORE ADOPTED BY AO. THE CIT(A) HELD THAT ENTIRE TU RNOVER CANNOT BE MADE AS AN ADDITION AND ONLY THE GP HAS TO BE ADDED . ACCORDING TO THE CIT(A) , THE GP @ 0.15% ON EXCESS TURNOVER OF RS. 7.06 CRORE WORKS OUT TO RS. 1,05,913/- , WHICH OUGHT TO HAVE B EEN ASSESSED ITA.251 & 252/BANG/2013 PAGE - 9 INSTEAD OF THE ENTIRE TURNOVER. FURTHER, THE CIT ( A) WORKED OUT THE INITIAL INVESTMENT TO PROCURE GOLD IN RESPECT OF THE UNACCO UNTED SALES AT RS.12,10,000/-. THUS, THE CIT(A) CONFIRMED NOTIONAL PROFIT AND INITIAL INVESTMENT TOTALING TO RS. 13,15,913/- AND DELETED THE BALANCE OF RS. 7.90 CRORE . 13. IN THIS CONNECTION, THE DR SUBMITTED THAT THE C IT(A) HAS IGNORED THE COMMENTS OF THE AO IN THE REMAND REPORT DATED 2 8/9/2010. THE EVIDENCE RELIED UPON BY THE AO IN PARA 6, PAGE 9 OF THE REPORT STATES THAT CASH BILLS ACCOUNTED IN THE BOOKS OF AC COUNTS AND THOSE ALLEGED TO HAVE BEEN MADE BY ASSESSEE'S AGENT M/S S PECTRA INVESTMENT BEARS THE SIGNATURE OF THE SAME PERSON. THEREFORE, THE CIT(A) SHOULD HAVE CONFIRMED THE UNACCOUNTED SALES IN TOTA LITY. IT IS SUBMITTED THAT THE WORKING BROUGHT OUT BY THE CIT(A) DEFIES A NY LOGIC. EVEN, IF IT WERE TO BE ACCEPTED THAT TELESCOPING BENEFIT HAD TO BE GRANTED ON SALE PROCEEDS BEING ROTATED TO MAKE FURTHER SALES, THE P EAK INVESTMENT IN SALES OUGHT TO HAVE BEEN WORKED OUT AND NOT INITIAL INVESTMENT. IT IS THEREFORE SUBMITTED THAT THE AO HAD CORRECTLY BROUG HT THE UNACCOUNTED SALES TO TAX AND THE HENCE THE ADDITION BE UPHELD. 14. WE HAVE CONSIDERED THE ABOVE SUBMISSIONS. IT IS CLEAR FROM THE ABOVE THAT THE CIT (A) HAS EXAMINED THE ISSUE AND FOUND THAT THE TURNOVER MADE BY M/S SPECTRA INVESTMENTS ON B EHALF OF THE ASSESSEE EXCEEDED THE CASH TURN OVER OF THE A SSESSEE AT RS.7.06 CRORE AS AGAINST RS. 8.03 CRORE ADOPTED BY AO. HE FOUND ITA.251 & 252/BANG/2013 PAGE - 10 THE % OF GP IN THIS LINE OF BUSINESS .HE HAS HELD T HAT WHAT TO BE TAXED IN SUCH SITUATION IS ONLY THE PROFIT ELEMENT AND NOT THE ENTIRE TURNOVER AS THE DEDUCTION FOR THE COST OF GOODS HAS NECESSARILY TO BE ALLOWED. THEN HE FOUND THAT THE INITIAL COST OF INVESTMENT NECESSARY FOR ACHIEVING THE TURN OVER AS UNDER : NOW THE QUESTION OF INITIAL INVESTMENT NECESSARY FOR ACHIEVING THIS TURNOVER ARISES. THE SEIZED MATERIAL DENOTES THAT THE TRANSACTIONS THRO SPECTRA INVESTMENT SPAN FROM JULY 2002 TO SEPTEMBER 2002. THE FIRST DATE ON WHIC H THE SALES MADE BY SPECTRA INVESTMENTS EXCEED THE CASH S ALES AS SHOWN IN THE APPELLANT'S BOOKS IS ON 25/07/2002. THE EXCESS TURNOVER ON 25/07/2002 COMES TO RS 12,11,000/=.THE COST OF PURCHASE TO PROCURE THE GOL D NECESSARY TO EFFECT THE SALE OF RS 12,11,000/ = IS TO BE TAKEN AS INITIAL INVESTMENT. AFTER ALLOWING FOR A G ROSS PROFIT MARGIN OF 0.15%, THE COST OF GOODS WOULD @ 9 9.85% FOR EACH SALE BILL WOULD COME TO RS 12,09,183/- SAY RS.12,10,000/-. THE AMOUNTS OF THE NOTIONAL PROFIT AND THE INITIAL INVESTMENT TOGETHER REPRESENTS UNDISCLOSED INCOME A ND THE TOTAL OF THESE COMES TO RS. 13,15,913/-. THIS BEING SO, THE REVENUE HAS NOT BROUGHT ANY MAT ERIAL TO ASSAIL THE ABOVE FINDINGS AND HENCE WE CONFIRM THE DECISIO N OF THE CIT(A). 15. GROUND NO 4 : THE AO MADE AN ADDITION OF RS.7.82 CRORE ON ACCOUNT OF PURCHASE OF 1000TT BARS ON THE GROUND THAT THE A SSESSEE HAD SUPPRESSED SALES IN THE CLOSING STOCK TO THE EXTENT OF 1000 IT BARS. THIS WAS ALSO BROUGHT TO THE KNOWLEDGE OF CIT(A) BY THE AO IN HIS REMAND REPORT. ITA.251 & 252/BANG/2013 PAGE - 11 16. HOWEVER THE CIT (A) WAS OF THE OPINION THAT THI S ADDITION WILL HAVE A REVENUE NEUTRAL EFFECT AS THE ASSESSEE HAS T O BOOK PURCHASE OF 1000 TT BARS AND THE SHOW THE SAME AS CLOSING STOCK . HE ALSO HELD THAT M/S PEC LTD HAD STATED IN A LETTER DATED 28/5 2010 THAT IT HAD SUPPLIED 14,100 TT BARS WHICH TALLIES WITH THE BOOK S OF THE ASSESSEE. 17. IN THIS CONNECTION, THE DR SUBMITTED THAT THE C IT(A) ERRED IN HOLDING THAT IF PURCHASE OF 1000 TT BARS IS TAKEN I NTO ACCOUNT FOR THE YEAR ENDING 3 1/3/2003, THE SAME SHOULD BE REFLECTED IN PURCHASE ACCOUNT AND CLOSING STOCK ACCOUNT AND THAT THE OVER ALL EFFECT WOULD BE REVENUE NEUTRAL BY IGNORING THE FACT THAT THIS PART ICULAR PURCHASE OF 1000 TT BARS ALTHOUGH BOOKED IN THE PURCHASE ACCOUN T WAS NOT RECORDED IN THE CLOSING STOCK FOR THE PERIOD ENDING 31/3/2003. IT IS ALSO IMPORTANT TO NOTE THAT THE ASSESSEE HAD NOT SH OWN SALE OF THESE I000TT BARS IN ITS SALES ACCOUNT NEITHER HAS THE AS SESSEE ACCOUNTED FOR THIS PURCHASE IN THE NEXT FINANCIAL YEAR AS SEE N IN THE ASSESSMENT ORDER. ON PAGE 10 OF THE ASSESSMENT ORDE R, THE ASSESSEE IN HIS SWORN STATEMENT HAD STATED THAT THE PURCHASE AND SALE OF 1000 IT BARS HAD NOT BEEN ACCOUNTED FOR AND THAT REVISED FIGURES WITH RETURN WOULD BE FILED. THEREFORE, ACCORDING T O THE ASSESSEE PURCHASE OF 1000 GOLD BARS AMOUNTING TO RS. 7,82,95 ,007/- HAD NOT BEEN ACCOUNTED FOR NOR THE SALES IS ACCOUNTED IN I TS BOOKS. IT IS THEREFORE SUBMITTED THAT THE AO HAD CORRECTLY BROUGHT TO TAX THESE UNACCOUNTED PURCHASE AND SALES AND THE SAME MAY HENCE BE CONFIR MED. ITA.251 & 252/BANG/2013 PAGE - 12 18. WE HAVE CONSIDERED THE ABOVE SUBMISSIONS. THE R ELEVANT PORTION OF THE CIT (A) ORDER IS EXTRACTED AS UNDER : THE ASSESSING OFFICER IN HIS ORDER OF ASSESSMENT HAS HELD THAT THE APPELLANT HAD PURCHASED 1,000 TT BARS VALUED AT RS. 7,82,95,007/= AND THE SAME WAS NOT ACCOUNTED. THE APPELLANT HAS OBJECTED TO THE SAME ON THE GROUND THAT THE SAID QUANTITY OF 1,000 TT BARS WAS DELIVERED TO THE APPELLANT BY M/S. PEC LTD., ONLY IN THE MONTH OF APRIL, 2003 I.E . DURING THE ASSESSMENT YEAR 2004-05 AND THE SAME HAS BEEN DULY ACCOUNTED FOR BY APPELLANT IN THAT RELEVANT YEAR AND THIS FACT HAS BEEN STATED IN A SWORN STATEMENT DURING THE SEARCH PROCEEDINGS ITSEL F. THE APPELLANT FURTHER STATES THAT M/S. PEC LTD., HA S DURING THE SEARCH PROCEEDINGS ITSELF WRITTEN A LETT ER TO THE LEARNED ADDITIONAL DIRECTOR OF INCOME-TAX [INV] , BANGALORE VIDE THEIR LETTER DATED 02/02/2005 CLARIFYING THAT THE 1,000 TT BARS I.E. 500 TT BARS WAS DELIVERED ON 03/04/2003 AND ANOTHER 500 TT BARS WAS DELIVERED TO THE APPELLANT ONLY ON 04/04/2003. A COPY OF THE SAID LETTER DATED 02/02/2005 IS ALSO FILED WITH THE SUBMISSIONS. THUS , IT IS AMPLY CLEAR FROM THE LETTER THAT M/S. PEC LTD ., HAD GIVEN A WRONG STATEMENT EARLIER AND BROUGHT OUT THE CORRECT PICTURE BY THEIR LETTER DATED 02/02/2005 WHICH CLEARLY DEMONSTRATES THAT THERE ARE NO UNACCOUNTED PURCHASES. THE ASSESSING OFFICER IN HIS REMAND REPORT DATED 28 /09/2010 HAS AT PAGE 10 TO 12 OF HIS REPORT STATED AS UNDER: 'ASSESSEE'S SUBMISSION IS NOT ACCEPTABLE AND CONTRA RY TO THE FACTS OF THE CASE. SINCE THE ASSESSEE HAS ALREA DY BOOKED THE PURCHASES OF BULLION TO THE EXTENT OF 40 00 TT BARS AND ASSESSEE HAS ALREADY MADE THE PAYMENT FOR THE PURCHASES OF ENTIRE 4000 TT BARS. JUST BECAUSE ASSE SSEE RECEIVED THE DELIVERY OF ONLY 3000 TT BARS, ASSESSE E CANNOT ACCOUNT JUST 3000 TT BARS AS PURCHASES AND POSTPONE THE BOOKING OF OTHER 1000 TT BARS TO THE MONTH OF APRIL 2003. THE CORRECT POSITION SHOULD HAVE BEEN ASSESSEE SHOU LD HAVE BOOKED ENTIRE 4000 TT BARS AS PURCHASES IN THE MONT H OF MARCH 2003 ITSELF. THE 1000 TT BARS EVEN THOUGH NOT ITA.251 & 252/BANG/2013 PAGE - 13 DELIVERED BUT CAN BE CONSIDERED AS THE GOODS IN TRA NSIT. THE ASSESSEE'S ARGUMENT THAT THE 1000 TT BARS RECEI VED DURING THE MONTH OF APRIL 2003 I.E. NEXT FINANCIAL YEAR [F. Y. 2003-04] IS ALSO NOT CORRECT BECAUSE DURING THE F. Y. 2003- 04 ASSESSEE HAS ACCOUNTED ONLY 2200 KG BARS AS PURC HASES AND HE HAS NOT INCLUDED 1000 TT BARS IN ADDITION TO THE 2200 KG BARS AS CLAIMED BY THE ASSESSEE. HENCE, THE ASSE SSEE'S ARGUMENT IS NOT BASED ON THE FACTS. IT IS VERY CLEA R THAT ASSESSEE HAD SUPPRESSED THE CLOSING STOCK TO THE EX TENT OF 1000 TT BARS DURING THE F. Y. 2002-03 RELEVANT T O THE A. Y. 2003-04 AND HENCE THE CORRESPONDING VALUE OF CLO SING STOCK SUPPRESSED [1000 TT BARS] AMOUNTING TO RS. 7,82,95,0071- NEEDS TO BE ADDED BACK AS INCOME IN T HE A. Y. 2003-04.' FIRSTLY GOING BY THE ABOVE OBSERVATIONS OF THE ASSE SSING OFFICER, IT IS CLEAR THAT THE APPELLANT HAS TO BOOK PURCHASE OF 1000 TT BARS AND SHOW THE SAME AS CLOSING STOCK. IF THE OBSERVATION OF THE A.O IS GIVEN EFFECT TO THE RESUL T WOULD BE REVENUE NEUTRAL AS THE PURCHASE AMOUNT WOULD GET SE T OFF BY THE SAME AMOUNT OF CLOSING STOCK. THE ASSESSING OFFICER HAD CALLED FOR CERTAIN, CLAR IFICATION FROM M/S. PEC LTD., DURING THE REMAND PROCEEDINGS O N THIS ISSUE AND M/S. PEC LTD., VIDE ITS LETTER DATED 28/0 5/2010 ADDRESSED TO THE ASSESSING OFFICER HAS CATEGORICALL Y STATED THAT THE TOTAL SUPPLIES MADE BY M/S. PEC LTD., TO T HE APPELLANT FOR THE ASSESSMENT YEAR 2003-04 AND THE S AME IS 14,100 TT BARS, WHICH CLEARLY TALLIES WITH QUANT ITY PURCHASED AS PER THE BOOKS OF THE APPELLANT. IT CAN ALSO BE SEEN FROM THE VERY SAME STATEMENT OF SALES MADE BY M/S. PEC LTD., THAT IT H AS ACTUALLY DELIVERED / ISSUED TO THE APPELLANT 500 TT BARS ON 03/04/2003 AND 500 U BARS ON 04/04/2003 THUS IN ALL TOTALING TO 1000 U BARS, WHICH THE A.O HAS ERRONEOUSLY TREATED AS UNACCOUNTED PURCHASE OF A.Y.2003-04. IN VIEW OF THE ABOVE FACTS THIS ADDITION OF RS. 7,82,95,007/- MADE ON ACCOUNT OF UNACCOUNTED PURCHASE OF GOLD BAR IS DELETED. ITA.251 & 252/BANG/2013 PAGE - 14 19. FROM THE ABOVE, IT IS CLEAR THAT THE CIT(A) HAS NOT PROPERLY APPRECIATED THE FACTS STATED BY THE AO IN HIS REMAN D REPORT DT 28.9.2010. SINCE THIS ISSUE THIS ISSUE REQUIRES VER IFICATION & RECONCILIATION WE SET ASIDE THIS ISSUE TO THE AO . THE AO AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE WOULD D ECIDE THIS MATTER IN ACCORDANCE WITH LAW. 20. GROUND NO 5 : THE AO MADE AN ADDITION OF RS. 80,24,028/- ON ACCOUNT OF EXCHANGE FLUCTUATION EARNED BY THE ASSES SEE THROUGH THREE INVOICES DATED 20TH AUGUST 2002, 20 TH DECEMBER 2002 AND 31 ST MARCH 2003. 21. THE ASSESSEE FILED A LETTER FROM M/S PEC LTD DATED 10/6/2010 SHOWING LEDGER EXTRACTS OF EXCHANGE IN THE BOOKS OF M/S PEC WHICH REVEALED A NET GAIN OF RS. 14,63,540/-. THE CIT (A) HELD THAT THE ASSESSEE HAD INCURRED A NET LOSS ON ACCOUNT OF EXCHANGE DIFF ERENCE AND DELETED THE ENTIRE ADDITION. 22. IN THIS CONNECTION, THE DR SUBMITTED THAT THE C IT(A)'S DECISION IS UNACCEPTABLE ON THE ACCOUNT OF THE FOLLOWING:- 1. IT HAS BEEN BROUGHT IN THE ASSESSMENT ORDER THAT THROUGH THESE THREE INVOICES THE ASSESSEE HAD EARNE D AN INCOME RS. 80.24 LAKH 2. IT IS SEEN THAT THE ASSESSEE HAD PURCHASED 4000 TT BRAS OF GOLD ON 7/6/2002 AND IT HAD RECEIVED A C REDIT OF RS.9,92,540/- TOWARDS EXCHANGE DIFFERENCE THROUG H REMITTANCE. ITA.251 & 252/BANG/2013 PAGE - 15 3. AS PER ACCOUNTING STANDARDS 11, ANY GAIN DUE TO FLUCTUATING FOREIGN EXCHANGE RATES HAS TO BE TREATE D AS REVENUE IN NATURE WHICH SHALL FORM PART OF INCOME 4. THE CIT (A) HAS NOT BROUGHT OUT HOW THE ASSESSE E HAD INCURRED A NET LOSS. 23. THEREFORE, THE DR SUBMITTED THAT THE ADDITION M ADE BY THE AO IS AS PER FACTS AND THE SAME KINDLY BE UPHELD. 24. WE HAVE CONSIDERED THE ABOVE SUBMISSIONS. THE R ELEVANT PORTION OF THE CIT (A) ORDER IS EXTRACTED AS UNDER : THE ASSESSING OFFICER HAS ADDED A SUM OF RS.80,24, 028/- AS EXCHANGE GAIN DIFFERENCE, TO THE EXTENT NOT REFLECT ED IN ITS RETURN FILED, EARNED BY THE ASSESSEE, FOR THE ASSESSMENT Y EAR 2003-04 . THE APPELLANT DISPUTED THIS ADDITION ON THE GROUND THAT EXCHANGE ' DIFFERENCE HAS BEEN ACCOUNTED AS INFORMED BY PEC LT D, AS THE APPELLANT COMES TO KNOW OF THE SAME ONLY THROUGH PE C LTD. THE A.O. IN PAGE 2 OF HIS REMAND REPORT DATED 28/09 /2010 HAS STATED AS UNDER: DURING THE ENQUIRES IT HAS BEEN NOTICED THAT THERE WERE CERTAIN DISCREPANCIES AND DISAGREEMENT WITH THE DDI T[INV] REGARDING THE ESTIMATION OF INCOME UNDER THE HEAD D IFFERENCE IN EXCHANGE GAIN FOR THE A. Y. 2003-04. HENCE THE ISSU E HAS BEEN REFERRED BACK TO INVESTIGATION WING FOR FURTHE R CLARIFICATION. THE REPORT WILL BE SUBMITTED AFTER GETTING A CLARIF ICATION.' IN THE SECOND REPORT DATED 01/03/2011 IT IS STATED AS UNDER: 'AT THE TIME OF POST SEARCH ENQUIRES THE INFORMATION WAS COLLECTED FROM M/S. PEC LTD., REGARDING THE SALE OF GOLD BARS AND THE CONSIDERATION RECEIVED FROM THE ASSESSEE. BASED ON THE INFORMATION RECEIVED FROM M/S. PEC LTD AN AMOUNT OF RS 18,24,208/- WAS ADDED AS INCOME ON ACCOUNT OF ITA.251 & 252/BANG/2013 PAGE - 16 DIFFERENCE OF EXCHANGE FOR THE A. Y. 2003-04 IN THE SEARCH ASSESSMENT ORDER. THE ASSESSEE IN HIS SUBMISSION MADE TO THE HONORABLE CIT[A]-VI, BANGALORE HAS CONTENDED THAT E VEN THOUGH THE ASSESSEE HAS RECEIVED CERTAIN EXCHANGE G AINS HE HAS ALSO SUFFERED CERTAIN EXCHANGE LOSSES AND TH E ASSESSING OFFICER HAS NOT TAKE INTO ACCOUNT BOTH EX CHANGE GAIN AND LOSS. HENCE THE ADDITION MADE IS NOT CORRE CT. BEFORE SUBMITTING THIS REMAND REPORT AS DIRECTED BY THE CIT[A]-VI REFERENCE WAS MADE TO M/S. PEC LTD., REGARDING THE TOTAL AMOUNT CREDITED TO THE ASSESSEE 'S ACCOUNT AS DIFFERENCE OF EXCHANGE. M/S. PEC LTD., I N THEIR REPLY DATED 10.06.2010 HAS GIVEN THE LEDGER EXTRACT S OF DIFFERENCE OF EXCHANGE OF THE ASSESSEE IN THE BOOKS OF ACCOUNTS OF M/S. PEC LTD., AS PER WHICH THE NET AMO UNT OF GAIN OF RS 14,63,5401- UNDER THE HEAD DIFFERENCE OF EXCHANGE [COPY OF THE LETTER FROM M/S. PEC LTD IS ANNEXED [ANNEXURE - 1] . HENCE THE TOTAL ADDITION U NDER THE HEAD DIFFERENCE OF EXCHANGE IS ONLY TO THE EXTENT OF Z 14,63,5401- AND NOT 18,24,2081- AS ESTIMATED BY THE DDIT/1NVJ IN HER APPRAISAL REPORT.' AS SUBMITTED BY THE APPELLANT IT IS CLEAR FROM THE APPRAISAL REPORTS SUBMITTED BY THE ASSESSING OFFICER THAT AT THE TIME OF PASSING THE ORDER THERE WAS NO BASIS TO MAKE THE ADDITION EXCEPT THE REPORT OF DDIT (IV) WHICH AT BEST COULD BE A NOTE RAISING SUSPICION THAT INCOME COULD HAVE ESCAPED ASSESSMENT. WHAT IS REQUIRED TO BRING AN AMOUNT TO TAX IS HARD FACTS AND EVIDENCES IN SUPPORT OF THE SAME AND NOT MERE SUSPICIONS. THE ENQUIRY TO ARRIVE AT A CORRECT PICTURE HAS ACTUALLY COMMENCED DURING APPELLATE PROCEEDINGS. IT IS FURTHER SUBMITTED THAT GOING BY THE LEDGER ACCOUNT COPY OF THE APPELLANT IN THE BOOKS OF PEC LTD, WHICH HAS BEEN FURNISHED BY PEC LTD TO THE ASSESSING OFFICER DURING THE COURSE OF REMAND PROCEEDINGS IT IS CLEAR THAT THERE IS NO CREDIT GIVEN TO THE ACCOUNT OF THE APPELLANT IN RESPECT OF EXCHANGE DIFFERENCE DURING THE ENTIRE YEAR ENDED 3 1.03.2003 AND HENCE NO ADDITION CAN BE MADE ON THIS ACCOUNT. FURTHER IT IS ALSO CLEAR FROM THE LEDGER EXTRACT FOR THE Y.E 31/3/2004, THAT THE APPELLANT IS CREDITED WITH A SUM OF 3,87,991/- ON 16/03/2004 AND DEBITED WITH A SUM OF RS.4,66,161/- TOWARDS DIFFERENCE IN ITA.251 & 252/BANG/2013 PAGE - 17 EXCHANGE. THUS IT CANNOT BE SAID THAT INCOME FROM DIFFERENCE IN EXCHANGE PERTAINING TO A.Y. 2003-04 HAS ACTUALLY BEEN CREDITED IN THE SUBSEQUENT YEAR. IF THE ENTRIES OF THE SUBSEQUENT YEAR ARE CONSIDERED IT IS CLEAR THAT THE APPELLANT HAS ONLY INCURRED A NET LOSS ON ACCOUNT OF EXCHANGE DIFFERENCE AND NOT EARNED ANY INCOME. IT IS ONLY APPROPRIATE THAT THE LEDGER EXTRACTS OF THE ACCOUNT OF THE APPELLANT IN THE BOOKS OF PEC LT D BE RELIED UPON IN ORDER TO DETERMINE WHETHER THE APPELLANT HAS ACTUALLY BEEN CREDITED OR DEBITED ON ACCOUNT OF EXCHANGE DIFFERENCES. THUS THE ADDITION OF RS. 80,24,0287/- MADE ON THIS COUNT IS DELETED. 25. FROM THE ABOVE IT IS CLEAR THAT THE CIT (A) HAS NOT PROPERLY APPRECIATED THE FACTS STATED BY THE AO IN HIS REMAN D REPORT DT 01.03.2011. SINCE THIS ISSUE THIS ISSUE REQUIRES VE RIFICATION & RECONCILIATION WE SET ASIDE THIS ISSUE TO THE AO . THE AO AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE WOULD D ECIDE THIS MATTER IN ACCORDANCE WITH LAW. 26. THUS, THE GROUNDS OF APPEAL RELATED TO A Y 20 03-04 ARE TREATED AS PARTLY ALLOWED. I.T.A NO 252/BANG/2013 AY. 2005-06 : 27. THE GROUNDS OF APPEAL RELATED TO THE A Y 2005- 06 ARE EXTRACTED AS UNDER: ITA.251 & 252/BANG/2013 PAGE - 18 28. GROUND NO 1- THE AO MADE AN ADDITION OF RS. 6,00,13,928/- HOLDING THAT THE ASSESSEE HAS SHORT ACCOUNTED INTER EST INCOME . ON AN APPEAL, CIT(A) CALLED FOR A REMAND REPORT AND AFTER EXAMIN ING IT HELD THAT THE LEDGER EXTRACT OF THE ACCOUNT COPY OF THE ASSESSEE IN THE BOOKS OF PEC LTD IS TO BE CONSIDERED TO ARRIVE OUT THE CORRECT AMOUNT OF INCOME EARNED BY THE ASSESSEEE ON THE FDS FROM PEC LTD AND ON SUCH BASIS FOUND THAT THE ASSESSEE EARNED IN TEREST INCOME OF RS.5,74,91,439/-BUT ADMITTED IN ITS BOOKS AT RS.5,4 5,45,971/- ONLY AND HENCE CONFIRMED THE ADDITION AT RS.29,45,468/-O NLY. SINCE THE REVENUE HAS NOT BROUGHT ANY MATERIAL TO ASSAIL THE CONCLUSION OF THE CIT (A), WE CONFIRM THE DECISION OF THE CIT(A). 29. GROUND NO 2- SH. PARVEZ , MD OF THE ASSESSEE IN A STATEMENT RECORDED UNDER OATH HAD STATED THAT HE HAD SOLD 85 BARS OF GOLD ON 28.1.2005 WHICH HAPPENED TO BE THE DAY OF SEARCH. H E CHANGED HIS STANCE WHEN IT WAS NOTICED THAT M/S PEC HAD NOT ISS UED THE SAID 85 BARS BY STATING THAT HE HAD TAKEN AN ADVANCE OF RS.4 CRO RE PRIOR TO 27.1.2005. HE DID NOT PROVE THE IDENTITY OF THE CUSTOMERS FROM WHOM HE HAD CLAIMED ITA.251 & 252/BANG/2013 PAGE - 19 THAT AN ADVANCE WAS TAKEN. THEREFORE, THE AO CON CLUDED THAT THE SAID 85 BARS WERE PURCHASED FROM UNACCOUNTED FUNDS AND M ADE AN ADDITION OF RS.5,02,20,000/- AS UNACCOUNTED INVESTMENT IN PURCH ASE AND SALE OF 85 KGS OF GOLD U/S 69. 30. BEFORE CIT(A) , THE ASSESSEE STATED THAT IT HA D PURCHASED 33 BARS FROM M/S PEC LTD WHICH WAS SOLD ON 27.1.2005 AND IT WAS ACCOUNTED IN ITS BOOKS. THIS IS CONTRARY TO THE FIN DINGS OF AO WHO ON PAGE 7 OF THE ASSESSMENT ORDER STATED THAT THE NO BOOKS WERE MAINTAINED BY THE ASSESSEE. 31. IN THIS CONNECTION, THE DR SUBMITTED THAT THE C IT(A) ERRED MERELY RELYING ON THE ASSESSEE'S CLAIM THAT 33 BARS WERE P URCHASED FROM PEC ON 27/1/2005 AND THAT 85 BARS DELIVERED SUBSEQUENTLY T O HIM WAS SHOWN AS CLOSING STOCK WHEREAS THE A O HAS BROUGHT OUT T HE FACT THAT NO BOOKS WERE MAINTAINED BY THE ASSESSEE. ALSO THE CIT (A) FAILED TO TAKE INTO CONSIDERATION THE FACT THAT THE ASSESSEE HAS N OT PROVED THE IDENTITY, CREDIT WORTHINESS OF THE SO CALLED CUSTOM ERS WHO THE ASSESSEE CLAIMED HAD GIVEN THE SO CALLED ADVANCE. 32. IN THE LIGHT OF THE ABOVE, IT IS SUBMITTED THAT THE CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION AND IT IS THEREF ORE PRAYED THAT AO'S ACTION MAY BE UPHELD. ITA.251 & 252/BANG/2013 PAGE - 20 33. WE HAVE CONSIDERED THE ABOVE SUBMISSIONS. THE R ELEVANT PORTION OF THE CIT (A) ORDER IS EXTRACTED AS UNDER : THE APPELLANT HAS SUBMITTED THAT ON THE DAY OF SEARCH THE OFFICIALS WHO CONDUCTED SEARCH IN THE PREMISES HAD FORCIBLY TAKEN A STATEMENT FROM THE MANAGING DIRECTOR OF THE APPELLANT COMPANY TO THE EFFECT THAT THE APPELLANT HAS MADE AN UNACCOUNTED PURCHASED 85 KGS OF GOLD AND SOLD THE SAME. THE SUBSEQUENTLY DURING THE COURSE OF PROCEEDINGS BEFORE THE INVESTIGATING AUTHORITIES, THE MANAGING DIRECTOR OF THE APPELLANT COMPANY , IN HIS STATEMENT ON 07.04.2005 HAS RETRACTED THE STATEMENT MADE ON 28.01.2005 THAT THE STATEMENT WAS GIVEN WRONGLY PERTAINING TO 85 KGS OF GOLD KG BARS AND STATED THAT HE HAD PURCHASED ONLY 33 KGS OF GOLD KG BARS FROM M/S. PEC LTD., BANGALORE AND SOLD THE SAME ON 27/01/2005 AND THAT BOTH PURCHASE AND SALE OF 33 KGS ARE DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS AND THAT THERE ARE NO UNACCOUNTED PURCHASES OR SALES. DURING THE COURSE OF REMAND PROCEEDINGS M/S. PEC LT D HAVE FURNISHED THE DETAILS OF SUPPLIES MADE TO THE APPEL LANT AND ALSO THE STOCK OF GOLD LYING WITH THEM ON 27/01/200 5. THE STATEMENT OF M/S. PEC LTD., DENOTES THAT THE STOCK OF BULLION PURCHASED BY THE APPELLANT FROM M/S. PEC LTD., ON 27/01/2005 IS 33 KGS AND THAT THEY HELD 85 KGS AS CLOSING STOCK. THUS THE ENTIRE 85 KGS IS ACTUALL Y FOUND TO BE IN THE CUSTODY OF M/S. PEC LTD., AS ON THE DA TE OF SEARCH AND THE SAME DELIVERED TO THE APPELLANT SUBSEQUENTLY. IN VIEW OF THE ABOVE FACTS THIS ADDITION OF RS. 5,0 2,20,000/- ON ACCOUNT OF ALLEGED UNACCOUNTED PURCHASES AND SAL ES MADE UNDER SECTION 69 IS DELETED . 34. THUS, IT IS CLEAR THAT THE CIT (A) EXAMINED THE MATERIALS FURNISHED DURING REMAND PROCEEDINGS AND ARRIVED THE ABOVE CON CLUSION. THIS BEING SO, THE REVENUE HAS NOT BROUGHT ANY MATERIAL TO ASSAIL THE ABOVE FINDINGS AND HENCE WE CONFIRM THE DECISION OF THE CIT (A). ITA.251 & 252/BANG/2013 PAGE - 21 35. GROUND NO 3 : DURING THE SEARCH, RS. 28.45 LAKHS CASH WAS FOUND AND OUT OF WHICH RS.27,00,000/-WAS SEIZED . T HE AO MADE AN ADDITION OF RS.27,00,000/- U/S 69A . THE CIT (A) D ELETED THE ADDITION SINCE THE ASSESSEE STATED THAT THERE WAS A CASH BAL ANCE OF RS. 2.62 CRORE AS PER BOOKS AS ON 28/1/2005. 36. IN THIS CONNECTION , THE DR SUBMITTED THAT THE CIT (A) HAD ERRED IN DELETING THE ADDITION ON ACCOUNT OF THE FACT THAT T HE FOLLOWING ISSUES WERE NOT TAKEN INTO CONSIDERATION:- A. THE ASSESSEE DID NOT OFFER ANY EXPLANATION BEFORE THE AO WITH REGARD TO THE SEIZED CASH. B. THE ASSESSEE HAD NOT GIVEN ANY DETAIL AS TO HOW I T ARRIVED AT THE CASH IN HAND AMOUNTING TO RS.2.62 CRORE AS ON 28/1/2005. C. IN HIS SWORN STATEMENT SH. PARVEZ MD STATED THAT BOOKS WERE NOT AVAILABLE EITHER AT HIS RESIDENCE OR OFFICE AND THAT HE HAD NO EXPLANATION REGARDING CASH FOUND DURING SEARCH AND SEIZURE OPERATION. 37. WE HAVE CONSIDERED THE ABOVE SUBMISSIONS. BEFOR E THE CIT (A), THE ASSESSEEE PLEADED THAT IT HAD CASH ON HAND AS PER I TS BOOKS AS ON 28.01.2005 AT RS.2,62,65,903.77/-AND THEREFORE IT C ANNOT BE SAID THAT THE APPELLANT IS IN POSSESSION OF UNEXPLAINED CASH. THE CIT (A) CALLED FOR A REMAND REPORT AND THE AO WAS SILENT ON THIS ISSUE. HE HELD THAT THE FACT REMAINS THAT THE VERY CASH BOOK WITH WHICH THE AO R ELIED UPON TO CONCLUDE THE ASSESSMENTS SHOW A CASH BALANCE OF RS.2,62,65,9 03.77/- AS ON THE DATE ITA.251 & 252/BANG/2013 PAGE - 22 OF SEARCH AND THIS FACT HAS NOT BEEN DENIED OR CON TROVERTED BY THE AO AND HENCE THE CIT (A) DELETED THE ADDITION. THUS, THE R EVENUE HAS NOT BROUGHT ANY MATERIAL TO ASSAIL THE CONCLUSION OF THE CIT (A ), WE CONFIRM THE DECISION OF THE CIT (A). 38. THUS, THE GROUNDS OF APPEAL RELATED TO A Y 2005 -06 ARE DISMISSED . 39. IN THE RESULT, THE REVENUES APPEAL FOR AY 2003 -04 IS TREATED AS PARTLY ALLOWED & THE APPEAL FOR AY 2005-06 IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH DECEMBER, 2016. SD/- SD/- (VIJAY PAL RAO) (S. JAYARAMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR