Sh. Umesh Trehan, Chandigarh V. Addl. CIT, Chandigarh

ITA 278/CHANDI/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64060 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 27-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 29-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Keywords: Rejection of books of accounts; Business income; Loose papers; Principle of natural justice; Notional interest; Commercial expediency
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, J M ITA NO. 278/CHD/2012 ASSESSMENT YEAR : 2007-08 UMESH TREHAN V ADDL C.I.T. RANGE-I SCO 9-A, SECTION 7-C CHANDIGARH CHANDIGARH AMBPT 3744 R (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SURINDER MAHAJAN RESPONDENT BY: SHRI J.S. NAGAR DATE OF HEARING 27.11.2012 DATE OF PRONOUNCEMENT 10.12.2012 O R D E R PER T.R.SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A), CHANDIGARH DATED 3.1.2012. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A), CHANDIGARH HAS GROSSLY ERRED IN LAW IN REJE CTING ADDITIONAL GROUND OF APPEAL FILED BY THE ASSESSEE W HEREIN THE ASSESSEE HAD CONTENDED THAT THE ADDITION OF RS. 55, 01,568/- MADE BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, CHANDIGARH WAS ILLEGAL SINCE THE SAME WAS MADE WITH OUT REJECTING THE BOOKS OF ACCOUNT AS REQUIRED UNDER TH E PROVISIONS OF SECTION 145(3) OF THE INCOME-TAX ACT, 1961. REJECTION OF ADDITIONAL GROUND OF APPEAL IS ILLEGAL AND BAD IN LAW. 1(B) THAT LD. CIT(A) HAS GROSSLY ERRED IN HOLDING T HAT THE PURPOSE OF SECTION 145(3) OF THE ACT IT IS NOT NECE SSARY FOR THE ASSESSING OFFICER TO EXPLICITLY MENTIONED IN THE A SSESSMENT ORDER THAT BOOKS OF ACCOUNT ARE BEING REJECTED. 2(A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ADDITION OF RS. 2 55,01,568/- MADE BY THE ASSESSING OFFICER WITHOUT APPRECIATING THE FACTS ON RECORD IN CORRECT PERSPEC TIVE. 2(B) THAT THE LD. CIT(A) HAS GROSSLY ERRED IN REJEC TING THE CONTENTION OF THE ASSESSEE THAT THE CALCULATION OF ALLEGED UNDISCLOSED INVESTMENT MADE BY THE ASSESSING OFFICE R IS BASED ON HIS OWN ASSUMPTIONS AND PRESUMPTIONS AND IS ALSO WITHOUT ANY MATERIAL ON RECORD. 2(C) THAT VARIOUS SUBMISSIONS FILED DURING ASSESSME NT PROCEEDINGS BEFORE THE LD. CIT(A) ON ADDITION OF RS . 55,01,568/- HAVE BEEN BRUSHED ASIDE ARBITRARILY CON TRARY TO THE PRINCIPLES OF NATURAL JUSTICE. 2(D) THAT LD. CIT(A) DID NOT APPRECIATE THAT ADDITI ON OF RS. 55,01,568/- HAS BEEN MADE BY THE ASSESSING OFFICER MERELY ON THE BASIS OF CONJECTURES, SURMISES AND SUPPOSITION WHICH IS NOT PERMISSIBLE UNDER THE LAW. 2(E) THAT ORDER OF THE LD. CIT(A) THEREBY CONFIRMIN G ADDITION OF RS. 55,01,568/- MADE BY THE ASSESSING OFFICER IS ILLEGAL, INVALID AND VOID AB-INITIO AND THE SAME IS LIABLE T O BE CANCELLED. 3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN LAW IN CONFIRMING DISAL LOWANCE OF AMOUNT OF INTEREST OF RS. 3,15,569/- BEING NOTIONAL INTEREST ON DEBIT BALANCE IN THE ACCOUNT OF SIDDHARTH AGENCIES, GIAN CHAND ASHOK KUMAR AND SHRI BHAGWAN SINGH. ACTION O F THE LD. CIT(A) IS ILLEGAL AND BAD IN LAW. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE DISALLOW ANCE OF RS. 6,78,405/- BEING NOTIONAL INTEREST ON INVESTMEN T MADE IN GIAN RESIDENCY (P) LTD. ACTION OF THE LD. CIT(A) I S ILLEGAL AND BAD IN LAW. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THAT IN U/S 234A AND 234B HAS RIGHTLY BEEN CHARGED. 3. GROUNDS NO. 1 & 2 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE ASSESSEE IS A PROPRIE TOR OF M/S GIAN CHAND ASHOK KUMAR AND IS DOING BUSINESS OF WHO LESALE AND RETAIL SALES OF BUILDING MATERIAL. A SURVEY WA S CONDUCTED IN THE PREMISES OF THE ASSESSEE ON 16.3.2007. DURI NG SURVEY VARIOUS DOCUMENTS CONTAINING BUNDLES OF LOOSE SLIPS WERE FOUND WHICH DEPICTED UNRECORDED SALES AND PURCHASES . STATEMENT OF THE ASSESSEE WAS RECORDED AND THE ASSE SSEE 3 ACCEPTED THAT THESE SLIPS PERTAINED TO SALES MADE O UTSIDE THE BOOKS OF ACCOUNT. THE ASSESSEE WAS ALSO ASKED QUES TIONS REGARDING DISCREPANCIES IN THE STOCK, SALE AND PURC HASES AND CASH IN HAND APPEARING IN THE REGULAR BOOKS OF ACCO UNT. THE ASSESSEE SURRENDERED A SUM OF RS. 2.05 CRORE AS ADD ITIONAL INCOME AND THE SAME WAS OFFERED IN ASSESSMENT YEAR 2007-08. DURING ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKE D TO JUSTIFY THE AMOUNT OF SURRENDER AND FURNISH A CALCU LATION OF THE SAME. IN RESPONSE IT WAS MAINLY STATED THAT NO MAT ERIAL DISCREPANCY WAS FOUND IN STOCK SINCE THE STOCK WAS NOT VALUED DURING SURVEY AND WAS TAKEN ON ESTIMATE BASIS, THER EFORE, IT WAS NOT POSSIBLE TO PREPARE THE RECONCILIATION STAT EMENT. IT WAS STATED THAT IT IS WRONG TO SAY THAT THE ASSESSE E HAS MADE SALES WORTH RS. 13.00 CRORES OUTSIDE THE BOOKS AND THE ASSESSEE HAS NOT BEEN GIVEN ANY PROOF OF THE SAME. IT WAS FURTHER STATED THAT EVEN IF THE ESTIMATE OF SALES A T RS. 13.00 CRORES WAS CORRECT AND IF THE PROFIT RATE WAS 5% TH EN TOTAL SURRENDER WORKED OUT TO RS. 65.00 LAKHS AND THE ASS ESSEE HAS ALREADY SURRENDERED A SUM OF RS. 2.05 CRORES. IT WA S ALSO POINTED OUT THAT VARIOUS HIGH COURTS HAVE TAKEN A V IEW THAT IF UNDISCLOSED SALES ARE FOUND THEN NP RATE BE ADDED T O THE INCOME OF THE ASSESSEE. IN THIS BACKGROUND THE ASS ESSEE REQUESTED THE ASSESSING OFFICER TO ACCEPT THE SURRE NDER AMOUNT. THE ASSESSING OFFICER DID NOT ACCEPT THESE SUBMISSIONS AND OBSERVED THAT LOOSE PAPERS CLEARLY INDICATE THAT THERE WERE UNRECORDED SALES AND PURCHASES. HE AGREED THAT TOTAL SALES CANNOT BE ADDED AND ONLY PROFIT EL EMENT CAN BE ADDED. THEREAFTER HE WORKED OUT THE PROFIT BY ESTI MATING THE GP RATE OF 5.51% WHICH WAS DECLARED B Y THE ASSESSE E ON THE SALES RECORDED IN THE BOOKS. HE FURTHER OBSERVED T HAT FOR 4 CARRYING OUT THE UNRECORDED SALES EXTRA INVESTMENT WAS REQUIRED. HE FOUND THAT FOR ACHIEVING SALES OF RS. 13,27,91,312/- WHICH WERE RECORDED IN THE BOOKS, TH E ASSESSEE HAD MADE INVESTMENT OF RS. 2,45,02,300/- AS PER THE DETAILS INCORPORATED IN THE BALANCE SHEET WHICH ARE AS UNDE R: PROPRIETORS CAPITAL ACCOUNT 49,05,880/- SECURED LOANS 1,79,71,135/- UNSECURED LOANS 16,25,285/- TOTAL INVESTMENT 2,45,02,300/- ON THE BASIS OF SAME THE ASSESSING OFFICER WORKED OUT THE EXTRA INVESTMENT REQUIRED FOR ACHIEVING UNACCOUNTED CASH SALES OF RS. 10,00,70,135/- (UNACCOUNTED CASH SALES) AS U NDER: 24502300 X 100070135 = 1,84,64,675/- 132791312 THUS THE TOTAL AMOUNT OF UNDISCLOSED INCOME ON UNAC COUNTED SALES WAS COMPUTED AT RS. 2,39,78,540/- (RS. 1,84, 64,675/- INVESTMENT + 55,13,865/- PROFIT). IT WAS FURTHER N OTICED THAT DURING SURVEY CASH BOOK REFLECTED NEGATIVE BALANCE OF RS. 6,26,263/- WHEREAS ON PHYSICAL VERIFICATION A SUM O F RS. 1,69,770/- WAS FOUND. IN ADDITION DEPOSITS OF RS. 3,80,000/- IN THE BANK ON 14.3.2007 AND 15.3.2007 WERE MADE. IN FACT FURTHER CASH OF RS. 6,50,000/- WAS FOUND FROM THE C OUNTER IN BAG. THE ASSESSEE WAS ASKED THE FOLLOWING QUESTIONS DURING SURVEY: Q NO. 12: AS PER YOUR BOOKS OF ACCOUNT, YOU HAVE A NEGATIVE CASH IN HAND OF RS. 6,26,266/- AS ON 14.3.2007 WHER EAS ON PHYSICAL VERIFICATION A SUM OF RS. 1,69,770/- HAS B EEN FOUND IN YOUR BUSINESS PREMISES, IN ADDITION TO THAT YOU HAVE DEPOSITS RS. 3,80,000/- IN YOUR BANK ACCOUNTS ON 14 .3.2007 AND 15.3.007. THUS TOTAL CASH DEFICIENCY COMES OUT TO RS. 111,76,036/-. PLEASE EXPLAIN THE DISCREPANCY. ANS: I CANNOT SAY ANYTHING. 5 Q NO. 13: ON FURTHER VERIFICATION OF THE COUNTER, A CASH OF RS. 6,50,000/- HAS BEEN FOUND FROM THE COUNTER IS A BAG. PLEASE EXPLAIN FROM WHICH SOURCE THIS CASH HAS BEEN OBTAINED AND WHETHER IT HAS BEEN ACCOUNTED FOR? ANS: I CANNOT SAY ANYTHING ABOUT THIS CASH ALSO. SINCE THE ASSESSEE HAD NOT GIVEN ANY REPLY THE ASSE SSING OFFICER WORKED OUT THE DEFICIENCY IN CASH AT RS. 18 ,26,036/- BY ADDING ALL THE CASH FOUND AND BANK DEPOSITS TO THE NEGATIVE BALANCE SHOWN BY THE ASSESSEE. 4. THE ASSESSING OFFICER ALSO NOTICED THAT THOUGH T HE ASSESSEE HAD SUBMITTED THAT THERE WAS NO MATERIAL D ISCREPANCY IN THE STOCK FOUND DURING SURVEY BUT THE ASSESSEE H AS HIMSELF GIVEN VALUATION OF STOCK DURING THE COURSE OF ASSES SMENT PROCEEDINGS AND AS PER THE LIST STOCK DURING SURVEY WAS RS. 1,68,02,887/-. THE ASSESSEE HAD ALSO GIVEN THE TRAD ING ACCOUNT BEFORE AND AFTER SURVEY AND AS PER THIS LIST STOCK WAS RS. 1,66,05,894/-. THUS THERE WERE EXCESS STOCK OF RS. 1,96,992/-. DURING ASSESSMENT PROCEEDINGS THE ASSESSEE HAD ALSO GIVEN RECONCILIATION STATEMENT WHEN AS PER THE SAME THERE WERE DISCREPANCY OF RS. 36,106/- WHICH WAS IGNORED AS AL READY EXCESS STOCK AMOUNTING TO RS. 1,96,992/- WAS TAKEN BY THE ASSESSING OFFICER. IN THIS BACKGROUND THE ASSESSIN G OFFICER PREPARED A RECONCILIATION STATEMENT OF THE UNDISCLO SED INCOME FOUND DURING SURVEY AND SURRENDERED AMOUNT WHICH HA S BEEN EXTRACTED AT PARA 5 WHICH IS AS UNDER: 5 RECONCILIATION OF THE UNDISCLOSED INCOME FOUND D URING THE COURSE OF SURVEY WITH THE SURRENDER AMOUNT: AS PER DISCUSSED THE EARLIER PARAGRAPHS, THE TOTAL UNDISCLOSED INCOME DETECTED DURING THE COURSE OF SURVEY IS WORK ED OUT BELOW: (A) PROFIT AND INVESTMENT ON ACCOUNT OF UNACCOUNTED SALES AS DISCUSSED IN PARA 2.8 ABOVE RS. 2,39,78,540/- (B) EXCESS CASH FOUND DURING THE 6 COURSE OF SURVEY AS DISCUSSED IN PARA 3.1 ABOVE RS. 18,26,036/- (C) EXCESS STOCK FOUND DURING THE COURSE OF SURVEY AS DISCUSSED IN PARA 4.1 ABOVE RS. 1.96,992/- TOTAL UNDISCLOSED INCOME DETECTED DURING SURVEY RS. 2,60,01,568/- ON THE BASIS OF ABOVE, AFTER REDUCING THE SURREND ERED AMOUNT OF RS. 2.05 CRORES THE ASSESSING OFFICER MADE AN ADDIT ION OF RS. 55,10,568/-. 5 BEFORE THE LD. CIT(A) IT WAS MAINLY SUBMITTED THA T FIGURE OF RS. 10,00,70,135/- ON ACCOUNT OF CASH SALES WAS BASED ON REPLY TO QUESTIONS NO. 15 AND 16 OF THE STATEMENT R ECORDED DURING SURVEY BUT SUCH STATEMENT HAS NO EVIDENTIARY VALUE BECAUSE DURING SURVEY THOUGH THE AUTHORITIES CAN RE CORD A STATEMENT BUT SUCH STATEMENT CANNOT BE RECORDED ON OATH. THEREFORE, IN THE ABSENCE OF ANY MATERIAL SUCH FIGU RE CAN NOT HAVE BEEN ADOPTED. IT WAS FURTHER SUBMITTED THAT T HE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACC OUNT, THEREFORE, PROVISIONS OF SECTION 145(3) COULD NOT H AVE BEEN INVOKED. IT WAS ALSO SUBMITTED THAT THE ASSESSING OFFICER HAS WRONGLY ESTIMATED THE INVESTMENT REQUIRED FOR UNACC OUNTED SALES. IT WAS POINTED OUT THAT INVESTMENT TAKEN BY THE ASSESSING OFFICER FROM BALANCE SHEET INCLUDED INVES TMENT AMOUNTING TO RS. 65,80,415/- IN FIXED ASSETS, INVE STMENT IN GIAN RESIDENTIAL PVT LTD AND SUNDRY DEBTORS OF RS. 34,39,838/- AND ADVANCES OF RS. 2,81,258/-, SECURITY DEPOSITS A DVANCE TAX AND ADVANCE TO SUPPLIER AMOUNTING RS. 2,29,282, RS. 16,50,000/- AND RS. 7,08,105/- RESPECTIVELY. NO SU CH ADVANCES WERE REQUIRED FOR ACHIEVING THE ALLEGED UNRECORDED SALES AND THEREFORE, IF SUCH INVESTMENTS WERE IGNORED EXTRA I NVESTMENT 7 REQUIRED WOULD BE ONLY RS. 32,12,934/- WHICH WAS WO RKED OUT BY THE ASSESSEE AND THE SAME HAS BEEN FURNISHED AS UNDER: IF AT ALL THE STAND OF THE ASSESSING OFFICER REGAR DING THE INVESTMENT IS TAKEN AS CORRECT THOUGH THE SAME ARE NOT BEING ADMITTED AND ARE BEING STRONGLY OBJECTED, EVE N THEN INVESTMENT REQUIRED FOR ALLEGED UNACCOUNTED SALES I S TO BE WORKED OUT AS UNDER: SL NO PARTICULARS AMOUNT (RS) AMOUNT (RS) A INVESTMENT CALCUJLATED BY ASSESSING OFFICER FOR TURNOVER OF RS. 13,27,91,312/- AS PER BOOKS OF ACCOUNT 2,45,02,300 LESS I NO INVESTMENT IS REQUIRED IN FIXED ASSETS F OR ALLEGED UNACCOUNTED CASH SALES 65,80,415 II NO INVESTMENT IS REQUIRED FOR ALLEGED UNACCOUNTED CASH SALES FOR INVESTMENT IN GIAN RESIDENCY PVT LTD 55,38,000 III NO INVESTMENT IS REQUIRED ON ACCOUNT OF DEBTORS SINCE ALLEGED UNACCOUNTED SALES ARE CASH SALES AND HAS RIGHTLY BEEN OBSERVED B Y THE ASSESSING OFFICER IN PARA 2.7 OF THE ASSESSMENT ORDER. 34,39,838/- IV NO INVESTMENT IS REQUIRED ON ACCOUNT OF ADVANCE INCOME TAX FOR ALLEGED UNACCOUNTED CASH SALES 16,50,000 V NO INVESTMENT IS REQUIRED FOR ADVANCES FOR ALLEGED UNACCOUNTED CASH SALES 28,01,258 VI NO INVESTMENT IS REQUIRED IN SECURITY DEPOSITS 2,29,282 2,02,38,793 BALANCE 42,63,507 THAT IF AT ALL CALCULATIONS FOR INVESTMENT REQUIRED FOR UNACCOUNTED CASH SALES ARE TO BE MADE, THOUGH IT IS NOT BEING ADMITTED AND IS BEING STRONGLY OBJECTED, EVEN THEN INVESTMENT REQUIRED TO MAKE SALES OF RS. 13,27,91,312/- IS TO BE TAKEN AT RS. 42,63,507/- AS CALCULATED IN PARA 3. BY USING THE FORMULA APPLIED BY THE ASSESSING OFFICER FOR UNACCOUNTED CA SH SALES OF RS. 10,00,70,312/- ALLEGED INVESTMENT COMES TO RS. 32,12,934/- AS UNDER: 42,63,507 X 10,00,70,135 = 32,12,934 13,27,91,312 6 BEFORE THE LD. CIT(A) FURTHER ALTERNATIVE WORKING OF INVESTMENT WAS ALSO FURNISHED ON THE BASIS OF STOC K REQUIRED 8 FOR THE PURPOSE OF SUCH SALES. ACCORDINGLY TO THIS ALTERNATIVE WORKING INVESTMENT REQUIRED WAS ONLY RS. 20,90,506/ - WHICH WAS WORKED OUT AS UNDER: A) 45 DAYS STOCKS FOR ALLEGED UNACCOUNTED CASH SALE S OF RS. 10,00,70,135/- COMES TO RS. 1,25,08,766/-. B) DEBTORS ARE NIL SINCE UNACCOUNTED CASH SALES HAV E BEEN MADE THROUGH CASH. C) CREDIT AVAILED FOR ALLEGED UNACCOUNTED CASH SALE S OF RS. 10,00,70,135/- COMES TO RS. 1,04,18,260/-. D) INVESTMENT REQUIRED FOR ALLEGED UNACCOUNTED CASH SALES OF RS. 10,00,70,135/- (A+B+C) = 20,90,506/- THESE CALCULATIONS HAVE BEEN MADE TO REBUT THE CALC ULATIONS MADE BY THE ASSESSING OFFICER BUT THE S ME ARE NOT BEING AD MITTED. 7 THE LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS DI D NOT FIND FORCE IN THE SAME AND DECIDED THE ISSUE AGAINS T THE ASSESSEE VIDE PARA 5.3 TO 5.3.6 WHICH SHALL BE EXTR ACTED LATER ON. 8 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE MAINLY REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AU THORITIES. HE EMPHASIZED THAT ADDITIONS HAVE BEEN MADE WITHOUT REJECTION OF BOOKS WHICH IS NOT POSSIBLE. HE ALSO CONTENDED THAT ADDITIONS HAVE BEEN MADE MAINLY ON THE BASIS O F STATEMENT AND NO DOCUMENTS WERE FOUND DURING SEARCH TO SHOW THAT THERE WERE UNDISCLOSED SALES TO THE TUNE OF RS . 10,00,70,312/-. HE CONTENDED THAT ONCE THE ASSESSE E HAD SURRENDERED A SUM OF RS. 2.05 CRORES THERE IS NO JU STIFICATION FOR FURTHER ADDITION IN THE ABSENCE OF SPECIFIC MAT ERIAL. IN ANY CASE, THE ESTIMATE OF ASSESSING OFFICER ON ACCOUNT OF INVESTMENT REQUIRED FOR ADDITIONAL UNDISCLOSED SALE S IS TOTALLY UNJUSTIFIED BECAUSE THE ASSESSING OFFICER HAS NOT C ONSIDERED 9 THE SAME AS INVESTMENT AND IN THIS REGARD HE REITER ATED THE SUBMISSIONS PUT BEFORE THE LD. CIT(A). 9 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE ST RONGLY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 10 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D FIND THAT THE LD. CIT(A) HAS ALREADY DEALT WITH THE ALL THE SUBMISSIONS VIDE PARA 5.3 TO 5.3.6 WHICH ARE AS UND ER: 5.3 - I HAVE CONSIDERED THE SUBMISSION OF THELD.CO UNSELS. THE MAIN CONTENTION OF THE APPELLANT IS THAT THE ASSESSING O FFICER HAS MERELY RELIED ON THE STATEMENT OF THE APPELLANT RECORDED AT THE TIME OF SURVEY AND THERE WAS NO MATERIAL ON RECORD TO SUPPORT THE SAME. THIS CONTEN TION OF THE APPELLANT DOES NOT HOLD WATER BECAUSE DURING SURVEY, THE APPELLANT HAD REPLIED IN RESPONSE TO QUESTION NO. 15 THAT FIGURES MENTIONED IN LOOSE SLI PS OF BUNDLE NO. 1 TO 4 REPRESENTED DATEWISE SALE AND PURCHASE, WRITTEN IN HIS OWN HANDWRITING AND HAD NOT BEEN ACCOUNTED FOR IN THE R EGULAR BOOKS OF ACCOUNTS. THE TOTAL UNRECORDED SALES AS PER THESE SLIPS WERE OF RS. 10,00,70,135/- AND UNACCOUNTED PURCHASES WERE OF RS. 5,05,56,490; . TH ESE BUNDLES OF PAPERS IMPOUNDED DURING THE COURSE OF SURVEY WERE R ELEASED TO THE APPELLANT ON 20.03.2007,BUT THE APPELLANT HAD HIMSELF VERY CA TEGORICALLY ADMITTED THAT NOTINGS ON THESE SLIPS WERE IN RESPEC T OF UNRECORDED PURCHASES AND SALES. THE DEPARTMENT WILL OBVIOUSLY NOT HAVE T HE MATERIAL IF IT HAD RELEASED THE SAME TO THE APPELLANT. 5.3.1 THE CONTENTION OF THE APPELLANT THAT SECTION 133A(3)(III) EMPOWERS THE DEPARTMENT TO RECORD THE STATEMENT BUT DOES NOT EMP OWER TO EXAMINE ANYBODY ON OATH IS CORRECT BUT IT IS NOT MUCH RELEVANT IN T HE PRESENT CONTEXT, BECAUSE EVEN IF IT IS NOT A STATEMENT OR .TH, IT WILL NOT M ATERIALLY AFFECT THE CONTENT OF THE REPLIES GIVEN BY THE APPELLANT DURING THE COURSE OF SURVEY PROCEEDINGS. 5.3.2 THE JUDGMENTS OF VARIOUS COURTS RELIED UPON BY THE LD. COUNSELS ARE THE ISSUES NOT RELATED TO THE SITUATION IN APPE LLANT'S CASE AND ARE INGUISHABLE ON FACTS. THE LD. COUNSELS HAVE REFERR ED TO PARA 1.4 OF THE ESSMENT ORDER BUT IN THIS PARA CERTAIN OBSE ONS MADE IN THE SURVEY -EPORT HAVE BEEN REPRODUCED AND THE ASSESSING OFFICER IS NOT BOUND T O LOW THE OBSERVATIONS IN THE SURVEY REPORT. 5.3.3 THE LD. COUNSELS HAVE ALSO CONTENDED THAT SUR RENDER HAD BEEN MADE ; COVER UP THE DISCREPANCIES AND IF SUCH SUN., DER IS ACCEPTED BY THE DEPARTMENT, NO FURTHER ADDITION CAN BE MADE. THIS CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED BECAUSE THE SURRENDER WAS MADE BY THE APPE LLANT TO PRE-EMPT THE DEPARTMENT FROM FURTHER PROBE AT THE TIME OF SURVEY , BUT THE ASSESSING OFFICER IS SUPPOSED TO TAKE INTO ACCOUNT THE ENTRIES/NOTING S IN INCRIMINATING DOCUMENTS, DIFFERENCE IN STOCK AND CASH AND OTHER D ISCREPANCIES AT THE TIME OF MAKING ASSESSMENT AND PRECISELY THIS IS WHAT HAS BE EN DONE BY THE ASSESSING OFFICER. 5.3.4 THE APPELLANT HAS ALSO CONTENDED THAT ADDITION HAS BEEN MADE WITHOUT REJECTING THE BOOKS OF ACCOUNTS AS REQUIRED U/S 145(3)OF THE ACT. IN THE INSTANT CASE, ADDITION HAS BEEN MADE ON ACCOUNT OF INCRIMINATING DOCUMENTS, EXCESS STOCK AND CASH FOUND DURING THE C OURSE OF SURVEY. THE PROFIT AND INVESTMENT HAVE BEEN CALCULATED ON UNACCOUNTED SALES. THE ASSESSING OFFICER HAS NOT EXPLICITLY MENTIONED IN THE ASSESSM ENT ORDER ABOUT REJECTION OF 10 BOOKS OF ACCOUNTS, BUT THE ACTION OF THE ASSESSING OFFICER TANTAMOUNTS TO REJECTION OF BOOKS OF ACCOUNTS, IT IS NOT NECESSARY FOR THE A SSESSING OFFICER TO SPECIFICALLY WRITE IN THE ASSESSMENT ORDER THAT THE BOOKS OF ACC OUNTS WERE BEING REJECTED. HENCE, THE CONTENTION OF THE APPELLANT IN THIS REGA RD IS NOT ACCEPTABLE. 5.3.5 THE ASSESSING OFFICER HAD ASKED THE APPELLANT IN TH E ASSESSMENT PROCEEDINGS VIDE ORDER SHEET ENTRY DATED 28.10.2009 TO GIVE THE CALCULATION/.BREAK UP OF SURRENDERED AMO UNT, BUT NO SUCH WORKING WAS GIVEN BY THE APPELLANT. BEFORE ME, TH E LD. COUNSELS HAVE CONTENDED THAT THE INVESTMENT WORKED OUT BY THE ASSESSING OFFICER ON THE UNACCOUNTED (PARA 2.6 TO 2.7 OF THE ASSESSMENT ORDE R) IS NOT CORRECT AS CERTAIN INVESTMENT WAS REQUIRED TO BE DEDUCTED. T HIS CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED BECAUSE THE INVESTMENT IS TO BE WORKED OUT ON PRO-RATA \KING THE SAME RATIO OF PROFIT TO I NVESTMENT, AS IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. THE CONTENTION OF TH E APPELLANT THAT THE EXCESS STOCK AND CASH ARE NOT TO BE ADDED IS ALSO NOT ACC EPTABLE BECAUSE THERE IS NO EVIDENCE TO PROVE THAT EXCESS CASH REPRESENTS UNACC OUNTED SALES AND STOCK REPRESENTS ONLY THE STOCK WHICH IS UNACCOUNTED AND CANNOT BE RELATED TO THE UNACCOUNTED SALES. 5.3.6 IN VIEW OF THE ABOVE DISCUSSION, THE ADDITIO N MADE BY THE ASSESSING OFFICER OF RS. 55,01 ,568/~ IS UPHELD. GROUND O F APPEAL NO. 4 IS DISMISSED. IN OUR OPINION, THE LD. CIT(A) IS CORRECT IN HOLDIN G THAT THERE IS NO FORCE IN THE SUBMISSIONS THAT THE ASSESSING OFFI CER HAS MERELY MADE ADDITIONS ON THE BASIS OF STATEMENT DUR ING THE SURVEY AS ADMITTEDLY LOT OF LOOSE DOCUMENTS WERE FO UND DURING SURVEY AND THE ASSESSEE HAS CATEGORICALLY STATED IN ANSWERS AND QUESTIONS NO. 14 & 15 THAT SAME CONTAIN DOCUME NTS SHOWING UNDISCLOSED SALES. THE RELEVANT QUESTIONS AND ANSWERS NO. 14 TO 16 ARE AS UNDER: Q NO. 14 - I AM SHOWING A BUNDLE OF SLIPS ON WHICH CERTAIN FIGURES HAVE BEEN MENTIONED AND TOTALS HAVE BEEN MADE ON EACH PAGE. THESE SLIPS PERTAIN TO DECEMBER 200 6 / FEBRUARY 2007. PLEASE EXPLAIN THE NATURE OF THESE TRANSACTIONS AND WHETHER THE HAVE BEEN ACCOUNTED FOR IN YOUR BOO KS OF ACCOUNT. ANS: THESE SLIPS PERTAIN TO SALES MADE BY ME OUTSID E THE BOOKS OF ACCOUNT. Q NO. 15 BUNDLE NO. 1 TO 4 CONTAINS LOOSE SLIPS ON WHICH CERTAIN FIGURES HAVE BEEN MENTIONED WHICH YOU HAVE STATED ABOVE FIGURES OF SALES. THE TOTAL OF THESE FIGURES HAVE BEEN MADE AS UNDER: BUNDLE NO. SALES PURCHASES 1 RS. 9792946/- 6924007/- 11 2 RS. 69450950/- 17753986/- 3 RS. 9839620/- 9869/- 4 RS. 10986619/- 16378628/- PLEASE EXPLAIN WHETHER THESE SLIPS HAVE BEEN WRITTE N BY YOU AND THE NATURE OF THESE TRANSACTIONS. WHERE THESE TRANSACTIONS HAVE BEEN ACCOUNTED FOR IN YOUR BOOKS. ANS THESE SLIPS CONTAIN DATE WISE SALE/PURCHASE. T HESE HAVE BEEN WRITTEN IN MY HAND WRITING. THESE SALES PURCH ASES HAVE NOT BEEN ACCOUNTED FOR THE REGULAR BOOKS OF ACCOUNT . Q NO. 16 - DURING THE COURSE OF SURVEY CERTAIN DISC REPANCIES HAVE BEEN NOTICED IN STOCKS, SALES/PURCHASE AND CAS H AS COMPARED TO YOUR BOOKS OF ACCOUNT. THESE DISCREPAN CIES HAVE BEEN POINTED OUT IN THE PRECEDING QUESTIONS. DO YO U WANT TO SAY ABOUT THESE DISCREPANCIES? ANS - TO COVER UP THESE DISCREPANCIES, I HEREBY OFF ER ADDITIONAL INCOME OF RS. 2,05,00,000/- (RS. TWO CRO RES AND FIVE LACS). THIS ADDITIONAL INCOME IS OFFERED FOR THE ASSESSMENT YEAR 2007-08. THIS WILL COVER DISCREPAN CIES IN SALES OUTSIDE THE BOOKS OF ACCOUNT AND CASH GENERAT ED FROM UNACCOUNTED SALES AND OTHER FINANCIAL IRREGULARITIE S. THIS OFFER HAS BEEN MADE VOLUNTARILY TO BUY PEACE. ABOVE CLEARLY SHOWS THAT INCRIMINATING DOCUMENTS SH OWING UNDISCLOSED SALES WERE FOUND THAT IS WHY THE ASSESS EE HAD OPTED TO SURRENDER. AS FAR AS THAT THE CONTENTION THAT BOOKS HAVE NOT BEEN REJECTED, HAS ALSO BEEN CORRECTLY REJ ECTED BY THE LD. CIT(A). IN THE CASE BEFORE US, BASICALLY SUBST ANTIAL SALES HAVE BEEN MADE OUTSIDE THE BOOKS OF ACCOUNT AND EST IMATE HAS BEEN MADE ON THE BASIS OF SUCH UNDISCLOSED SALES AN D THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE WAS MAINTAINING ANY BOOKS OF ACCOUNT FOR SUCH UNDISCLOSED SALES WHI CH WERE REQUIRED TO BE REJECTED. AS FAR AS ESTIMATE OF PROF IT IS CONCERNED, THE ASSESSING OFFICER HAS APPLIED ONLY G P RATE WHICH WAS DECLARED BY THE ASSESSEE ON THE SALES REC ORDED IN THE BOOKS OF ACCOUNT @ 5.5%. OTHER COMPONENTS OF T HE ADDITION IS ON ACCOUNT OF EXCESS CASH FOUND DURING SURVEY WHICH WERE NOT DENIED. IT WAS STATED IN REPLY TO Q NO. 12 & 13 AS UNDER: Q NO. 12: AS PER YOUR BOOKS OF ACCOUNT, YOU HAVE A NEGATIVE CASH IN HAND OF RS. 6,26,266/- AS ON 14.3.2007 WHER EAS ON 12 PHYSICAL VERIFICATION A SUM OF RS. 1,69,770/- HAS B EEN FOUND IN YOUR BUSINESS PREMISES, IN ADDITION TO THAT YOU HAVE DEPOSITS RS. 3,80,000/- IN YOUR BANK ACCOUNTS ON 14 .3.2007 AND 15.3.007. THUS TOTAL CASH DEFICIENCY COMES OUT TO RS. 111,76,036/-. PLEASE EXPLAIN THE DISCREPANCY. IT SEEMS THE FIGURE OF CASH DEFICIENCY AT RS. 111,76,036/- IS WR ONGLY MENTIONED BY THE ASSESSING OFFICER BECAUSE ACTUAL C ASH DEFICIENCY IS ONLY RS. 18,26,036/- WHICH STANDS CON FIRMED FROM THE FIGURE TAKEN AT PARA 5 WHILE CALCULATING TOTAL UNDISCLOSED INCOME. ANS: I CANNOT SAY ANYTHING. Q NO. 13: ON FURTHER VERIFICATION OF THE COUNTER, A CASH OF RS. 6,50,000/- HAS BEEN FOUND FROM THE COUNTER IS A BAG. PLEASE EXPLAIN FROM WHICH SOURCE THIS CASH HAS BEEN OBTAINED AND WHETHER IT HAS BEEN ACCOUNTED FOR? ANS: I CANNOT SAY ANYTHING ABOUT THIS CASH ALSO. SIMILARLY EXCESS STOCK WAS CALCULATED ON THE BASIS OF VALUATION OF STOCK FURNISHED BY THE ASSESSEE ON THE BASIS OF TR ADING ACCOUNT BEFORE AND AFTER THE SURVEY AND THEREFORE, NO FAULT CAN BE FOUND IN THE SAME . AS FAR AS REQUIREMENT OF INVESTMENT FOR ACHIEVING UNDISCLOSED SALES IS CONCERNED, IT CANNOT BE DENIED THAT INVESTMENTS ARE DEFINITELY REQUIRED FOR ACHIEVING S UCH SALES IN THE FORM OF STOCK, TRADE DEBTORS ETC. AT THE SAME TIME IT CANNOT BE DENIED THAT NO ADDITION MAY BE REQUIRED FOR THE PUR POSE OF FIXED ASSETS OR INVESTMENT MADE IN M/S GIAN RESIDENCY (P) LTD ETC. HOWEVER, AT THE SAME TIME, THE ASSESSEE HAS HIMSELF OFFERED A SUM OF RS. 2.05 CRORES AGAINST THE UNDISCLOSED SALES OF APPROXIMATELY AT RS. 10 CRORES WHICH SHOWS THAT UNDISCLOSED INVESTME NT WAS ALSO REQUIRED FOR SAME. IT IS VERY DIFFICULT TO ESTIMAT E CORRECT AMOUNT AND BY MAKING SURRENDER AND NOT DISCLOSING FURTHER DETAILS, THE ASSESSEE HAS PREVENTED THE REVENUE FROM CONDUCTING FURTHER ENQUIRIES. IN THESE CIRCUMSTANCES ONLY ALTERNATIVE IS TO ESTIMATE A FAIR AMOUNT OF INVESTMENT REQUIRED FOR ACHIEVING SU CH SALES. THE ESTIMATE MADE BY THE AO AT RS. 1,84,64,675/- SEEMS TO BE ON HIGHER SIDE. CONSIDERING THE OVERALL CIRCUMSTANCES OF THE CASE WE ESTIMATE THIS UNDISCLOSED INVESTMENT AT RS.1,50,00, 000/-. ACCORDINGLY THE ADDITION OF RS. 55,01,568/- MADE BY THE AO NEEDS TO BE 13 REDUCED BY RS. 34,64,675/-. ACCORDINGLY WE SET ASI DE THE ORDER OF LD. CIT(A) IN RESPECT OF GROUND NO. 1 & 2 AND GIVE RELIEF OF RS. 34,64,675/- TO THE ASSESSEE. 11 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OF FICER NOTICED THAT THE ASSESSEE HAD MADE CERTAIN BORROWIN GS FROM BANK AND ALSO SOME BORROWINGS THROUGH UNSECURED LOA NS AND THE ASSESSEE HAS CLAIMED INTEREST AMOUNTING TO RS. 20,34,745/. AGAINST THIS CERTAIN MONEY WERE ADVANCED WITHOUT IN TEREST TO SISTER CONCERN AND / OR EMPLOYEES ON WHICH THE ASSE SSING OFFICER APPLIED THE DECISION OF HON'BLE PUNJAB & HA RYANA HIGH COURT IN CASE OF CIT V. ABHISHEK INDUSTRIES, 286 IT R 1 AND WAS OF THE OPINION THAT INTEREST RELATING TO THE PARTIE S IS TO BE DISALLOWED. FIRST ADDITION IS AGAINST M/S SIDDARTH AGENCIES WHICH IS CONCERN OF ASSESSEES HUF. THESE MONEYS W ERE GIVEN WITHOUT ANY BUSINESS TRANSACTIONS AND THE ACC OUNTS REMAIN DEBITED THROUGH OUT THE YEAR. ACCORDINGLY THE ASSESSING OFFICER WORKED OUT THE INTEREST @ 12.25% WHICH WAS PAID TO STATE BANK OF PATIALA (CC LIMIT) ON THE DEB IT BALANCE ON MONTHLY BASIS AS PER DETAIL BELOW: S NO DATE DEBIT BALANCE INTEREST DISALLOWANCE @ 12.25% 1 25.4.2006 1287681 13413 2 19.5.2006 1117681 11643 3 19.6.2006 1117681 11643 4 25.7.2006 1117681 11643 5 22.8.2006 1174168 12231 6 19.9.2006 1040156 10835 7 30.10.2006 1040156 10835 8 21.11.2006 1008690 10507 9 23.12.2006 998690 10403 10 29.1.2007 997818 10394 11 26.2.2007 1257528 13099 12 31.3.2007 1626157 16939 14 TOTAL 143584 SIMILARLY IT WAS FURTHER NOTICED THAT A SUM OF RS. 10.00 LAKHS WAS GIVEN TO SHRI BHAGWAN SINGH WHO WAS EMPLOYED BY THE ASSESSEE. ONLY A CREDIT ENTRY IN HIS ACCOUNT WAS ON ACCOUNT OF SALARY AMOUNTING TO RS. 45,000 PM. ON THIS ACCOUNT ALSO THE INTEREST WAS DISALLOWED @ 12.25% WHICH WAS AS UNDER : S NO DATE DEBIT BALANCE INTEREST DISALLOWANCE @ 12.25% 1 25.4.2006 1033243 10763 2 19.5.2006 1039758 10831 3 19.6.2006 1032043 10750 4 25.7.2006 1012238 10544 5 22.8.2006 1028245 10711 6 19.9.2006 1024239 10669 7 30.10.2006 1029359 10722 8 21.11.2006 1045331 10889 9 23.12.2006 1026463 10692 10 29.1.2007 994688 10361 11 26.2.2007 993667 10351 12 31.3.2007 987570 10287 TOTAL 127571 THE ASSESSEE HAD ALSO SUPPLIED GOODS TO M/S GIAN RE SIDENCY (P) LTD AND MEAGER AMOUNT OF RS. 92,720/- WAS RECEI VED. THEREFORE, INTEREST WAS ALSO DISALLOWED ON THIS AC COUNT BY WORKING OUT THE MONTHLY DEBIT AS UNDER: S NO DATE DEBIT BALANCE INTEREST DISALLOWANCE @ 12.25% 1 25.4.2006 64065 667 2 19.5.2006 71241 742 3 19.6.2006 80944 843 4 25.7.2006 13959 145 5 22.8.2006 13959 145 6 19.9.2006 17837 186 7 30.10.2006 167803 1748 8 21.11.2006 468343 4879 9 23.12.2006 594348 6191 10 29.1.2007 758190 7898 11 26.2.2007 855849 8915 12 31.3.2007 1157216 12054 TOTAL 44414 15 12 BEFORE THE LD. CIT(A) IT WAS MAINLY CONTENDED TH AT THE MONEY WAS ADVANCED FOR BUSINESS EXPEDIENCY AND RELI ANCE WAS PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN CASE OF S.A. BUILDERS LTD. V. CIT(APPEALS), 288 ITR 1 (S.C) . THE LD. CIT(A) DID NOT AGREE WITH THE SUBMISSIONS AND OBSER VED THAT BY SIMPLY SAYING THAT MONEY WAS GIVEN FOR COMMERCIAL E XPEDIENCY AS AND WHEN REQUIRED CANNOT BE TREATED AS REASONS O F COMMERCIAL EXPEDIENCY AND THE MONEY HAS BEEN DEFINI TELY DIVERTED FOR NON BUSINESS PURPOSES. THEREFORE, RATI O OF DECISION OF CIT V. ABHISHEK INDUSTRIES (SUPRA) WAS APPLICABLE AND CONFIRMED THE ADDITION. 13 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE DID N OT PUT ARGUMENTS IN RESPECT OF ADVANCES MADE TO SIDDARTH A GENCIES, HOWEVER, HE EMPHASIZED THAT A SUM OF RS. 10.00 LAKH S WAS GIVEN TO ONE SHRI BHAGWAN SINGH WHO WAS MOST TRUST WORTHY EMPLOYEE FOR THE PURPOSE OF CONSTRUCTING A HOUSE AN D THE MONEY WAS BEING ADJUSTED AGAINST HIS SALARY. SIMIL ARLY AS FAR AS THE ADVANCES TO M/S GIAN RESIDENCY (P) LTD ARE C ONCERNED, THE SAME IS ON ACCOUNT OF SUPPLY OF GOODS AND SOME PAYMENTS HAD ALSO BEEN RECEIVED, THEREFORE, THIS IS NOT A CA SE OF DIVERSION OF FUNDS. 14 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE RE LIED ON THE ORDERS OF ASSESSING OFFICER AND THE LD. CIT(A). 15 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE O F THE OPINION THAT IN CASE OF SIDDHARTH AGENCIES IT IS A CLEAR CASE OF DIVERSION OF FUNDS BECAUSE ONLY MONEY TRANSACTIONS HAVE BEEN ENTERED INTO WITH THAT PARTY. THE ASSESSEE HAS BOR ROWED FUNDS AND DIVERTED TO THE SISTER CONCERN. IT IS A CLEAR CASE OF NON- BUSINESS PURPOSES AND THE DECISION OF HON'BLE PUNJA B & HARYANA HIGH COURT IN CASE OF CIT V. ABHISHEK INDUS TRIES 16 (SUPRA) IS CLEARLY APPLICABLE. IN THE CASE OF SHRI BHAGWAN SINGH ARGUMENTS WAS ADVANCED THAT MONEY WAS GIVEN F OR THE PURPOSE OF CONSTRUCTION OF HOUSE WAS NOT RAISED BEF ORE THE ASSESSING OFFICER OTHERWISE THE ASSESSING OFFICER C OULD HAVE EXAMINED THE SAME. EVEN BEFORE US THERE IS NO EVID ENCE TO SHOW THAT MONEY WAS GIVEN FOR THE CONSTRUCTION OF T HE HOUSE TO THE EMPLOYEE. THEREFORE, EVEN IN CASE OF DIVERSION OF FUNDS TO SHRI BHAGWAN SINGH THE MONEY HAS BEEN GIVEN FOR NON BUSINESS PURPOSES. THEREFORE, WE UPHOLD THE DISALL OWANCE OF INTEREST IN RESPECT OF THESE TWO PARTIES. 16 AS FAR AS THE ISSUE REGARDING SUPPLY OF GOODS TO M/S GIAN RESIDENCY (P) LTD IS CONCERNED, THE ASSESSING OFFIC ER HAS SIMPLY MENTIONED THAT TOTAL SALES DURING THE YEAR W ERE RS. 12,49,936/- AND THE ASSESSEE HAS RECEIVED A SUM OF RS. 97,270/-. IT CAN BE A MATTER OF ARRANGEMENT BETWEE N THE TWO PARTIES AND THE REVENUE HAS NO BUSINESS TO DICTATE A BUSINESSMAN HOW TO CONDUCT ITS BUSINESS. THEREFORE , AS FAR AS DISALLOWANCE IN RESPECT OF M/S GIAN RESIDENCY (P) LTD. IS CONCERNED DEBIT BALANCE AROSE BE CAUSE OF CREDIT SA LES MAINLY ON ACCOUNT OF SUPPLY OF GOODS AND ACCORDINGLY DISA LLOWANCE OF INTEREST ON THIS ACCOUNT IS NOT CALLED FOR. THEREF ORE, THIS GROUND IS PARTLY ALLOWED. 17 GROUND NO. 4 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS GIVEN A SUM O F RS. 55,38,000/- TO M/S GIAN RESIDENCY (P) LTD IN THE FO RM OF SHARE APPLICATION. M/S GIAN RESIDENCY (P) LTD WAS IN THE PROCESS OF CONSTRUCTING A HOTEL AND HAS PURCHASED LAND AND STA RTED CONSTRUCTION. THEREFORE, ACCORDINGLY TO THE ASSESS ING OFFICER THE ASSESSEE HAS DIVERTED THE FUNDS, THEREFORE, IN TEREST TO THIS 17 EXTENT WAS NOT ALLOWABLE. ACCORDINGLY HE WORKED OUT THE DISALLOWANCE @ 12.25% AND MADE DISALLOWANCE OF RS. 6,78,405/-. 18 BEFORE THE LD. CIT(A), SIMILAR ARGUMENTS WERE MA DE WHICH WERE ADVANCED IN RESPECT OF GROUND NO. 3 AND THE L D. CIT(A) DID NOT FIND FORCE IN THE SAME AND DISMISSED THIS G ROUND ALSO. 19 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT THE ASSESSEE HAS WANTED TO PURCHASE SHARES OF M/S G IAN RESIDENCY (P) LTD AND THAT IS WHY MONEY HAS BEEN GI VEN IN THE FORM OF SHARE APPLICATION. HE ALSO SUBMITTED THAT THE ASSESSEE IS A PROPRIETARY CONCERN AND CAN WITHDRAW THE FUNDS FOR HIS PERSONAL INVESTMENT AND THEREFORE, DECISION OF CIT V. ABHISHEK INDUSTRIES (SUPRA) IS NOT APPLICABLE. 20 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE RE LIED ON THE ORDER OF THE LD. CIT(A). 21 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY A ND WE ARE UNABLE TO AGREE WITH THE SUBMISSIONS OF THE LD. COU NSEL OF THE ASSESSEE. FIRSTLY THE DETAIL OF INVESTMENT IS NOT C LEAR WHETHER THE INVESTMENT WAS MADE FOR THE PURPOSE OF BUSINESS OR IN THE INDIVIDUAL CAPACITY, IS NOT ALSO CLEAR. THE ASSESS EE HAD INVESTED THE MONEY PURELY IN THE INDIVIDUAL CAPACIT Y THEN HE COULD HAVE EASILY DONE SO BY WITHDRAWING THE AMOUNT FROM GIAN CHAND ASHOK KUMAR I.E. ASSESSEES PROPRIETARY CONCE RN AND THEN INVESTED THE MONEY IN ANOTHER CONCERN. THEREF ORE, THE DECISION OF CIT V. ABHISHEK INDUSTRIES (SUPRA) IS C LEARLY ATTRACTED ON THIS ISSUE AND WE CONFIRM THE ORDER OF THE LD. CIT(A). 22 GROUND NO. 5 THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IN THIS CASE INITIALLY THE ASSESSEE HAS SURRENDERED A SUM OF RS. 2.05 CRORES DURING SURVEY, THEREFORE, 18 HE CANNOT BE HELD TO BE LIABLE TO PAYMENT OF ADVANC E TAX AND ACCORDINGLY PROVISIONS OF SECTION 234A AND 234B FO R LEVY OF INTEREST WERE NOT ATTRACTED. IN THIS REGARD HE REL IED ON THE ORDER OF HON'BLE KARNATAKA HIGH COURT IN THE CASE O F T.P. INDRAKUMAR V ITO, 322 ITR 454 (KAR). 23 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SU PPORTED THE ORDERS OF LOWER AUTHORITIES. 24 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY A ND WE A RE UNABLE TO AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. IN CASE OF T.P. INDRAKUMAR V ITO (SU PRA) THE ASSESSEE HAD FILED RETURN DECLARING LOSS OF RS. 1,1 7,480/-. WHEN THE CASE WAS SELECTED FOR SCRUTINY AND DOCUMEN TS WERE BEING SCRUTINIZED THE ASSESSEE OFFERED ADDITIONAL I NCOME OF RS. 10.00 LAKHS AND THEREFORE, INCOME WAS ASSESSED AT R S. 8,29,522/- WHICH WAS CONFIRMED BY THE LD. CIT(A) AN D THE TRIBUNAL. HON'BLE HIGH COURT ALSO UPHELD THIS ADDI TION BY OBSERVING THAT LOOKING AT THE CIRCUMSTANCES OF THE CASE, ADMISSION WAS ENOUGH FOR UPHOLDING THE ADDITION. O N THE ISSUE OF LEVY OF INTEREST IT WAS OBSERVED VIDE PARA 23 WH ICH IS AS UNDER: 23 THE VALIDITY OF THE ASSESSMENT PROCEDURE BEING UPHELD, IT COULD HAVE BEEN INFERRED THAT ALL THE QUESTIONS ARE ANSWERED AGAINST THE APPELLANT-ASSESSEE. ON FURTHER EXAMINA TION, WE ARE OF THE VIEW THAT 2WHILE THE FIRST FOUR QUESTION S ARE REQUIRED TO BE ANSWERED, BEING ANSWERED IN FAVOUR O F THE REVENUE, SO FAR AS THE FIFTH QUESTION RELATING TO T HE JUSTIFICATION OF LEVY OF INTEREST U/S 234A AND 234B OF THE ACT IS CONCERNED, AS THIS QUESTION IS ALSO REQUIRED TO BE EXAMINED IN THE CONTEXT OF THE PECULIAR FACTS AND CIRCUMSTAN CES OF THIS CASE AS WE HAVE UPHELD THE VALIDITY OF THE ASSESSME NT ORDER PASSED BY THE APPELLATE AUTHORITY AND THE TRIBUNAL HAVING REGARD TO THE PECULIAR FACTS AND CIRCUMSTANCES OF T HE CASE AND ON DOING SO, WE FIND THAT QUESTION NO. 5 IS REQUIRE D TO BE ANSWERED IN FAVOUR OF THE ASSESSEE FOR THE REASON T HAT THE ASSESSEE HAD OFFERED A SUM OF RS. 10,00,000 AS AN A DDITIONAL INCOME IN ADDITION TO THE INCOME ALREADY OFFERED IN HIS RETURN AND ONLY TO BUY PEACE WITH THE DEPARTMENT AND THAT HAS BEEN ACCEPTED BY THE ASSESSING OFFICER WITHOUT FURTHER S CRUTINY . IN SUCH A SITUATION, IT CANNOT BE HELD THAT THE ASS ESSEE HAD DEFAULTED IN PAYMENT OF INSTALLMENT OF ADVANCE TAX, AS THE 19 AMOUNT OF RS. 10 LAKHS WAS OFFERED BY WAY OF INCOME FOR THE FIRST TIME AS PER THE ASSESSEES LETTER DATED FEBRU ARY 28, 2000, TO BUY PEACE AND AVOID FURTHER ADVERSE CONSEQUENCES AND THE ASSESSING AUTHORITY HAVING ACTED UPON THIS PROPOSIT ION OF THE ASSESSEE AND HAVING REGARD TO THE PECULIAR FACTS AN D CIRCUMSTANCES OF THIS CASE, WE DIRECT THAT THE ADDI TION OF INCOME UNDER SECTIONS 234A AND 234B IN THE CASE OF THE PRESENT APPELLANT ASSESSEE IS NOT NECESSARY AND NO T JUSTIFIED AND THUS THE FIFTH QUESTION IS ANSWERED IN FAVOUR O F THE APPELLANT-ASSESSEE AND THE APPEAL IS ALLOWED ONLY T O THIS EXTENT IN PART. 25 THUS IT IS CLEAR THAT INTEREST WAS HELD TO BE N OT LEVIABLE BECAUSE THE ASSESSEE OFFERED THE INCOME DURING THE ASSESSMENT PROCEEDINGS TO BUY PEACE. THUS THIS CASE IS TOTALLY DISTINGUISHABLE BECAUSE IN CASE BEFORE US THE ASSES SEE HAD FIRST TIME SURRENDERED THE AMOUNT DURING SURVEY WHE N THE ASSESSEE WAS FOUND IN POSSESSION OF LOOSE PAPERS PE RTAINING TO UNDISCLOSED SALES. NO PERSON CAN AVOID PAYMENT OF INTEREST BY FIRST CONCEALING INCOME AND THEN LATER ON IF CAU GHT DECLARING SAME. IN ANY CASE, THE LEVY OF INTEREST HAS BEEN HE LD TO BE OF MANDATORY NATURE BY THE CONSTITUTION BENCH OF HON'B LE SUPREME COURT IN THE CASE OF CIT V. ANJUM M.H. GHAS WALA AND OTHERS, 252 ITR 1. THEREFORE, RESPECTFULLY FOLLOWIN G THE DECISION WE REJECT THIS GROUND AND THE ASSESSING OF FICER IS DIRECTED TO LEVY INTEREST AS PER PROVISIONS OF THE INCOME-TAX ACT. 26. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 10.12.2012. SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 10.12. 2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 20 21