Asstt. CIT, Cen. Cir-3. Nashik, Nashik V. Chandrakant Swaroopchand Lodha (HUF), Nashik

ITA 291/PUN/2004

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49836 (ITAT-PUNE)
• Duration Of Justice: 7 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 06-04-2011
• Assessment Year: misc
• Appeal Filed On: 01-03-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Gift; Depreciation; Search and seizure; Document seized; Opportunity of being heard; Retrospective amendment; Block assessment; Notional interest; Documents seized; Unabsorbed depreciation
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI I.C. SU DHIR JUDICIAL MEMBE R AND SHRI D. KARUNAKARA RAO ACCOUNTANT MEMBER ITA NO. 291 /PN/200 4 ( BLOCK PERIOD FROM A.Y. 1991 - 92 TO 2001 - 02 (UPTO 22 - 12 - 2000)) ASSTT. COMMISSIONE R OF INCOME TAX APPELLANT (CENTRAL), CIRCLE - 3 NASHIK VS. SHRI CHANDRAKANT SWAROOPCHAND LODHA (HUF) RESPONDENT FLAT NO. 3 & 4 CHITRAKUT HOG. SOCIETY DINDORI ROAD, PANCHAVATI NASHIK PAN : AAAHL3927P ITA NO. 365 /PN/200 4 ( BLOCK PERIOD FROM 1.4.90 TO 22 - 12 - 2000) & ITA NO. 1471, 1472 & 1473/PN/ 20 05 ( A.Y. 1997 - 9 8, 1998 - 99 & 1999 - 00 ) & ITA NO. 570, 571 & 572/PN/ 20 07 (A.Y. 1997 - 9 8, 1998 - 99 & 1999 - 00 ) SHRI CHANDRAKANT SWAROOPCHAND LODHA (HUF) APPELLANT FLAT NO. 3 & 4 CHITRAKUT HOG. S OCIETY DINDORI ROAD, PANCHAVATI NASHIK PAN : AAAHL3927P VS. ASSTT. COMMISSIONER OF INCOME TAX RESPONDENT (CENTRAL), CIRCLE - 3 NASHIK ASSESSEE BY : SHRI SANJEEV MUTHA DEPARTMENT : SHRI A.S. SINGH O RDER PER D. KARUNAKARA RAO A M THERE ARE EIGHT APPEALS UNDER CONSIDERATION . APPEALS VIDE ITA NO. 291/PN/2004 AND ITA NO. 365/PN/2004 BY THE ASSESSEE AND THE REVENUE RESPECTIVELY ARE THE CROSS APPEALS PERTAINING TO THE BLOCK ASSESSMENT FOR THE BLOCK PERIOD FROM 1.4.90 TO 22 - 12 - 2000 AGAINST THE ORDER OF THE CIT(A) - I, - 2 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 NAGPUR DATED 23.12.2003 . IN ADDITION, THERE ARE THREE OTHER APPEALS OF THE ASSESSEE WHICH ARE NON BLOCK ASSESSMENT RELATED ONES WITH A COMMON ISSUE RELATING TO THE ESTIMATION OF NOTIONAL INTERE ST EARNED OUT OF THE AMOUNTS INVOLVED IN TRANSACTION CYCLE. WE HAVE CLUBBED ALL THESE APPEALS FOR SIMULTANEOUS DISPOSAL BY THIS COMPOSITE ORDER. WE SHALL TAKE UP THE REVENUE APPEAL FIRST VIDE THE ITA NO. 291/PN/2004 AND THE GROUNDS READ AS FOLLOWS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF UNDISCLOSED INCOME OF RS.77,94,348/ - EARNED BY THE ASSESSEE FROM THE UTILIZATION OF FUNDS BY CREATING UNDISCLOSED CYCLES OF BANKING TRANSAC TIONS WHICH WERE REVEALED BY THE SEIZED DOCUMENTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF UNDISCLOSED INCOME OF RS.80,03,975/ - BEING THE UNDISCLOSED STOCK OF M/S. AKSHAY TRADERS , TH E BENAMI CONCERN RUN BY THE ASSESSEE IN THE NAME OF HIS WIFE MRS. KANCHAN, MADE ON THE BASIS OF STOCK STATEMENTS FURNISHED TO THE BANK FOR OBTAINING LOAN ON THE HYPOTHECATION OF STOCK, WHICH WAS REVEALED DURING THE POST SEARCH ENQUIRIES WITH THE BANKS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 80,03,975/ - BY RELYING ON THE CERTIFICATE DATED 24.12.2002 ISSUED BY THE BANK WITHOUT APPREHENDING THAT THE STOCK STATEMENTS FILED WITH THE BANK WERE F OR THE HYPOTHECATION LOAN AND NOT FOR THE PLED G ING OF STOCK. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITIONS OF RS.2,82,323/ - & RS. 7,58,692/ - MADE ON ACCOUNT OF DIFFERENCES IN THE FIGURES OF THE PROFIT AS PER THE STATEMENTS OF ACCOUNTS FILED WITH THE BANK FOR A.Y. 98 - 99 AND 2000 - 01 AND THE FIGURES OF THE PROFIT AS PER THE STATEMENTS OF ACCOUNTS ENCLOSED ALONG WITH THE REGULAR RETURNS OF THE SAID A.YS.. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) HAS ERRED IN DELETING THE VARIOUS ADDITIONS MADE WITHOUT APPREHENDING THAT THE ADDITIONS TELESCOPE INTO THE ADDITIONS MADE ON ACCOUNT OF UNDISCLOSED STOCK. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETIN G THE ADDITION OF RS. 22,253/ - MADE ON ACCOUNT OF THE ACCRUED INTEREST ON BANK FIXED DEPOSIT WITHOUT APPREHENDING THE FACT THAT THE INTEREST ON BANK FIXED DEPOSIT ACCRUES AT THE END OF EACH QUARTER AND NOT AT THE END OF THE YEAR. 2. BRIEFLY STATED RELEVAN T FACTS OF THE CASE ARE THAT THE ASSESSEE WAS CARRYING ON THE WHOLESALE BUSINESS OF GROCERY AND SUGAR SINCE 1987. THERE WAS SEARCH AND SEIZURE OPERATION UNDER TAKEN ON THE ASSESSEE AND IT RESULTED IN THE SEIZURE OF THE DOCUMENTS. ASSESSEE DISCLOSED A AMOUN T OF RS 25 LAKHS AS UNDISCLOSED INCOME ON ACCOUNT OF CONTINGENCIES , ERRORS, OMISSIONS ETC. THE NOTICE U/S 153BC WAS ISSUED ON 1.10.2002 AND THE ASSESSEE FILED THE BLOCK RETURN OF INCOME ON - 3 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 25.10.2002 DECLARING THE UNDISCLOSED INCOME OF RS 2.5 LAKHS. FINAL LY, THE ASSESSMENT WAS MADE DETERMINING THE ASSESSED INCOME AFTER MAKING VARIOUS ADDITIONS. AGGRIEVED WITH THE SAME, THE ASSESSEE FILED APPEALS BEFORE THE CIT(A) RAISING VARIOUS ISSUES. CIT(A) GRANTED PART RELIEF AND THEREFORE, THE BOTH PARTIES ARE IN APP EAL BEFORE US. WE SHALL TAKE UP THE REVENUE APPEALS FIRST AND THE GROUND WISE ADJUDICATION IS AS UNDER. 3. GROUND NO.1 : BRIEFLY STATED RELEVANT FAC TS OF THE ISSUE ARE THAT THE ASSESSEE WAS INVOLVED IN BANKING TRANSACTION CYCLE I.E. ACCOMMODATION CHEQUES. THE DETAILS ABOUT THE COMPLETE CYCLE W.R.T. EVIDENCE FOUND IN SEARCH ACTION IS EXPLAINED BY THE A.O. IN THE ASSESSMENT ORDER AT PARA NO. 8 ON PAGE NOS. 3 TO 11 . T HE SAID FINDING OF THE A.O. TO THE EXTENT IT RELATES TO ACTUAL CYCLE OF MONEY, IS NOT IN DISPUTE. HOWEVER THE A.O. CALCULATED THE NOTIONAL INTEREST OUT OF THE SAID CYCLE I.E. ACCOMMODATION CHEQUES CARRIED OUT FOR THE BENEFIT OF M/S. THAKKAR & SONS @15% FOR ONE DAY OF THE AMOUNT INVOLVED IN THE CYCLE. THE A.O. UNDISPUTEDLY ASSUMED THAT T HE TRANSACTIONS OF BANKING TRANSACTION CYCLE ARE NOT RECORDED IN THE REGULAR AUDITED BOOKS OF ACCOUNTS. WHEREAS THE FACT IS THAT ALL THE TRANSACTIONS OF BANKING TRANSACTION CYCLE ARE DULY RECORDED IN THE REGULAR AUDITED BOOKS OF ACCOUNTS AND SOME OF THE SA ID BOOKS OF ACCOUNTS ARE SEIZED DURING THE COURSE OF SEARCH ACTION AND ARE STILL IN THE POSSESSION OF THE A.O. IT IS ALSO WORTH TO BE NOTED THAT THROUGHOUT THE ASSESSMENT PROCEEDINGS THERE WAS NO ISSUE OF CALCULATION OF SUCH INTEREST OUT OF THE SAID CYCLE. THE IMPUGNED ADDITION WAS DIRECTLY MADE BY THE A.O. IN THE ASSESSMENT ORDER. AS PER THE AO, THE IMPUGNED ADDITION WAS MADE BY THE A.O. FOR THE MAIN FOLLOWING REASONS , NAMELY (I) THE TRANSACTIONS OF CYCLE ARE NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS ; (II) T HE ASSESSEE MUST HAVE EARNED OUT OF THE SAID TRANSACTIONS OF CYCLE. OTHER RELEVANT FACTS AND PASSAGES FROM THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE ARE AS UNDER: - 4 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 4. AS SEEN FROM THE ORDER OF THE A.O. VIDE AT PAGE NO. 14 OF THE AOS ORDER IE AS THE ASSESSEE NOT FORTHCOMING WITH THE FACTS, IT IS CONSIDERED APPROPRIATE TO CHARGE INTEREST AT 15% FOR ON E DAY ON THE AMOUNT SO UTILIZED , THE AO MADE ADDITIONS ON ESTIMATIONS . THE A.O. GAVE THE REASON FOR IMPUGNED ADDITION IN HIS REMAND REPORT (REFER TO PAGE 15, PARA 41 OF CIT(A) ORDER OR PAGE NO. 67 OF PAPER BOOK , 2 ND PARA) AND THE SAID PARAGRAPHS READ AS FOLLOWS. DUE TO OPERATION OF THE SAID BANKING TRANSACTION CYCLE THE APPELLANT AND M/.S. THAKKER & SONS HAVE USED THE FUNDS OF THE BANK WITHOUT OF FERING ANY SECURITY TO THE BANK AS WELL AS WITHOUT PAYING ANY INTEREST TO BANK. HENCE , THE APPELLANT WAS BENEFITED BY UTILIZING THE MONEY OF THE BANK WITHOUT ANY INTEREST. NON PAYMENT OF INTEREST TO BANK ON SUCH FUNDS IS INDIRECTLY ALSO INCOME OF THE APP ELLANT. THAT IS WAY THE UDI IS ESTIMATED NOTIONALLY IN THE FORM OF INTEREST @ 15% ON THE AMOUNT INVOLVED I.E TOTAL TURNOVER IN THE BANKING TRANSACTION CYCLE FOR ONE DAY I.E PERIOD OF UTILIZATION OF AMOUNT. THE SAID ADDITION IS DELETED BY CIT(A). HIS FI NDING IN THIS RESPECT IS AS UNDER - (REFER TO PARA 46 ON PAGE 17 OF THE ORDER OF CIT(A)) 46. IN THIS CASE, IT IS ADMITTED FACT THAT DURING THE COURSE OF SEARCH, NO EVIDENCE HAS BEEN FOUND WHICH SHOWS THAT THE APPELLANT HAS EARNED ANY UNDISCLOSED INCOME (M ONITORY GAIN) ON SUCH BANKING TRANSACTION. THE CALCULATION OF INTEREST OF ONE DAY AS COMPUTED BY THE AO JUST ON THE BASIS OF HYPOTHESIS AND SURMISES. THERE IS NO SCOPE FOR CONSIDERING ANY NOTIONAL INCOME AS UDI IN BLOCK ASSESSMENT. ALL THE TRANSACTIONS W HAT ARE THE PART OF BANKING TRANSACTION CYCLE ARE RECORDED IN THE BOOKS OF ACCOUNT. THE RELEVANT LEDGER / BANK BOOK (A - 88, A 84 & 86) WERE FOUND AND SEIZED WHICH CONTAIN THESE TRANSACTION AS RECORDED. THE BOOKS OF ACCOUNTS ARE AUDITED AND ALL BANK ACCOUNT S ARE DISCLOSED. THE APPELLANT WAS PART OF BANKING TRANSACTION CYCLE WHICH WERE MAINLY UTILIZED BY M/S. THAKKER & SONS IN COLLUSION WITH THE APPELLANT AS WELL AS BANK OFFICIALS. THERE IS NO EVIDENCE ON RECORD WHICH SHOWS THAT THE APPELLANT HAD EARNED ANY UDI IN THE FORM OF INTEREST OR ANY OTHER INCOME IN MONEY FORM FROM SUCH BANKING TRANSACTIONS. 5. THE ORDER OF CIT(A) DELETING THE IMPUGNED ADDITION PLEASE BE SUSTAINED BECAUSE - 1. THERE IS NO DIRECT OR INDIRECT EVIDENCE FOUND DURING OR AFTER SEARCH ACTION THAT THE APPELLANT HAS RECEIVED ANY SUCH INCOME OUT OF THE SAID CYCLE. 2. THE CALCULATION OF INTEREST BY THE A.O. FOR ONE DAY IS BASED ON SURMISES AND HYPOTHESIS BECAUSE AS EXPLAINED BY THE AO HIMSELF THE SAID AMOUNT WAS ALWAYS TRANSFERRED BY APPELLANT TO M/ S. THAKKAR & SONS AND NEVER UTILIZED BY THE APPELLANT. 3. THE A.O. HAS NOT BROUGHT ON RECORD THAT HOW THE MONEY OUT OF THE CYCLE WAS USED BY APPELLANT AND HOW THE IMPUGNED INCOME IS EARNED BY THE APPELLANT. IT IS ALSO NOT KNOWN WHO HAS PAID SUCH HUGE INTEREST TO APPELLANT. 4. THE A.O. HAS ASSESSED THE NOTIONAL INTEREST AS ACCEPTED BY HIM AND NOT ACTUAL INTEREST. - 5 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 5. IT IS UNDISPUTED FACT THAT THE SAID CYCLE WAS CARRIED OUT FOR THE BENEFIT OF M/S. THAKKAR & SONS AND THE ASSESSEE WAS NOT HAVING ANY CONTROL ON THE MONE Y CIRCULATING IN THE CYCLE. THIS FACT IS ALSO NOT IN DISPUTE BECAUSE THE A.O. HIMSELF HAS EXPLAINED THE MODUS OF OPERAND OF THE SAID CYCLE. 6. ALL THE TRANSACTIONS OF THE SAID CYCLE ARE RECORDED IN THE REGULAR AUDITED BOOKS OF ACCOUNTS OF THE APPELLANT (REFE R TO SR. NO. A - 88, A - 84, A - 86, ETC. ON PAGE NO. 18 7 19 OF PAPER BOOK I.E. PANCHNAMA OF THE RECORD SEIZED DURING THE SEARCH ACTION). 7. THE STATEMENT OF THE APPELLANT WAS RECORDED AT THE FAG END OF THE ASSESSMENT PROCEEDINGS, BUT NO SUCH ISSUE WAS RAISED THE REIN BY THE A.O. (REFER TO PAGE NO. 74 TO 77 OF PAPER BOOK) IN VIEW OF ABOVE , CIT(A) GRANTED RELIEF TO ON ACCOUNT OF THE ADDITION OF NOTIONAL INTEREST . THEREFORE, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. DURING THE PROCEEDINGS BEFORE US , LD DR FOR THE REVENUE ARGUED STA TING THAT THE CIT(A) DID NOT APPRECIATE THE CASE OF THE AO IN THE RIGHT PERSPECTIVE AND THEREFORE, THE ORDER OF THE CIT(A) DESERVES TO BE REVERSED ON THIS ISSUE OF INTEREST ADDITIONS. ON THE OTHER HAND, LD AR FOR THE ASSESSEE REL IED ON THE ORDER OF THE CIT(A) SUBSTANTIALLY AND MENTIONED THAT THE ADDITIONS IN THE BLOCK ASSESSMENT CANNOT BE MADE WITHOUT THE AID OF THE INCRIMINATING MATERIAL/DOCUMENTS. FURTHER, HE MENTIONED THERE IS ABSOLUTEL Y NO INFORMATION, TRANS A CTIONS, ENTRIES IN THE DOCUMENTS/DAIRIES SEIZED FROM THE PREMISES TO INDICATE THAT THE ASSESSEE EARNED ANY UNACCOUNTED INTEREST INCOME OUT OF THE AMOUNTS BELONGING TO THE BANK , WHICH IS PART OF THE IMPUGNED TRANSACTIONS CYCLE . FURTHER, HE ARGUED STATING THAT THERE IS NO IND ICATING IN THE SEIZED DOCUMENTS THAT THE RATE OF INTEREST IS 15% AS ESTIMATED BY THE AO. IN SHORT, LD COUNSEL RELIED ENTIRELY ON THE REASONING OF THE CIT(A). OTHER WISE HE RELIED ON THE ARGUMENTS MENTIONED IN THE WRITTEN SUBMISSIONS BEFORE THE REVENUE AUT HORITIES AND US. 7. WE HAVE CONSIDERED THE FACTS OF THE ISSUE AND THE REASONING OF THE CIT(A) AND THE AOS REPORT ON THE ISSUE DURING THE REMAND PROCEEDINGS. ADMITTEDLY, THERE IS EVIDENCE FOR BANKING CYCLE RELATED TRANSACTIONS IN THE SEIZED PAPERS/DAIRIE S. FURTHER, ADMITTEDLY, THERE IS NO EVIDENCES WHAT SO EVER TO INDICATE THAT THE ASSESSEE EARNED INTEREST INCOME OUT THE IMPUGNED TRANSACTIONS INVOLVING THE TRANSACTION CYCLES. THERE ARE ADEQUATE INDICATIONS AS NARRATED ABOVE THAT THE AOS ATTEMPT TO THRUST - 6 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 THE EARNING OF INTEREST INCOME ON THE ASSESSEE MERELY A CASE OF SURMISES AND ADHOC ESTIMATIONS AND THE SAME ARE NOT BORNE OUT OF THE SEIZED PAPERS ANY OTHER RELATED ENQUIRIES. THUS, IN OUR OPINION, THE IMPUGNED ADDITION IS OUTSIDE THE SCOPE OF THE BLOCK A SSESSMENT. THEREFORE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) ON THIS ISSUE DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, ON THE GROUND OF LEGALITY ALON E AND WITHOUT GOING INTO THE MERITS OF THE ADDITIONS, THE GROUND 2 OF THE REVENUE IS DISMISS ED. 8. GROUND NO. 2 & 3 : THESE GROUNDS RELATE TO THE DECISION OF THE CIT(A) IN DELETING THE ADDITION ON ACCOUNT OF UNDISCLOSED INCOME OF RS.80,03,975/ - BEING THE UNDISCLOSED STOCK OF M/S. AKSHAY TRADERS, THE BENAMI CONCERN RUN BY THE ASSESSEE IN THE NAME OF HIS WIFE MRS. KANCHAN, MADE ON THE BASIS OF STOCK STATEMENTS FURNISHED TO THE BANK FOR OBTAINING LOAN ON THE HYPOTHECATION OF STOCK, WHICH WAS REVEALED DURING THE POST SEARCH ENQUIRIES WITH THE BANKS. REVENUE ALSO OBJECTS TO THE DECISION OF THE CIT(A) IN DELETING THE SAID ADDITION RELYING ON THE CERTIFICATE DATED 24.12.2002 ISSUED BY THE BANK WITHOUT APPREHENDING THAT THE STOCK STATEMENTS FILED WITH THE BANK WERE FOR THE HYPOTHECATION LOAN AND NOT FOR THE PLEDGING OF STOCK. OTHER FACTS AS NARRATED BY T HE ASSESSEE IS HIS WRITTEN NOTE ARE AS UNDER. 9. THEREFORE, THIS ADDITION RELATES THE DISCREPANCY IN STOCK AS P ER THE BOOKS AND AS PER THE STATEMENTS GIVEN TO THE BANK FOR AVAILING THE CREDIT FACILITY. FOR AVAILING THE CREDIT FACILITIES , THE STOCK STATEM ENT WAS FURNISHED TO BANK IN THE NAME OF M/S. AKSHAY TRADERS (PROP. WIFE OF THE APPELLANT MRS. KANCHAN LODHA) (REFER TO PAGE NO. 20 OF PAPER BOOK). ALL THE SECURITIES GIVEN FOR SAID LOAN WERE BELONGING TO ASSESSEE . ONE OF THE SECURITY FOR THE SAID LOAN WAS BOOK STOCK OF THE ASSESSEE . THIS ISSUE WAS SPECIFICALLY ASKED IN THE STATEMENT RECORDED OF THE APPELLANT ON 23.12.2002 I.E. DURING THE ASSESSMENT PROCEEDINGS . RELEVANT QUESTION AND ANSWER EXTRACTED FROM PAGE NO. 76 OF PAPER BOOK IS REPRODUCED AS UNDER. QUESTION NO.7 ON PERUSAL OF THE STATEMENT OF GODAVARI URBAN CO - OP BANK, STANDING IN THE NAME OF MRS KANCHAN C LODHA, PROP. OF AKSHAY TRADERS, IT IS SEEN THAT SHE HAS MORTGAGED CERTAIN PROPERTIES STANDING IN HER NAME AND OTHER SECURITIES SUCH AS FDR ETC. P LEASE EXPLAIN THE SOURCE OF INVESTMENTS MADE BY SMT KANCHAN C LODHA AS STATED BY YOU ALL INVESTMENTS ARE BEL ONGING TO YOU, HOWEVER, ON PERUS AL OF BALANCE SHEET FILED BY YOU FOR THE EARLIER YEARS, THERE IS NO SUCH TYPES OF ENTRIES THAT THIS PROPERTY BELONGI NG TO YOU AND INVESTMENTS WERE MADE BY YOU. - 7 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 ANS . I HAVE GIVEN FOLLOWING SECURITIES TO THE GODAVARI BANK FOR OBTAINING THE SAID LOAN. 1) SHOP IN VIDHI PARK 2) FDR OF RS 5,00,000/ - 3) TRADE STOCK OF SHIV CHHAYA AND VIDHI PARK GODOWN ETC. ALL THE ABOVE ASSETS ARE DIS CLOSED IN MY REGULAR RETURN OF INCOME FILED WITH THE DEPARTMENT. IT IS PERTINENT TO NOTE THAT THE SHOP AS WELL AS FDR WAS DULY DISCLOSED IN THE BOOKS OF THE ASSESSEE . IT IS ALSO NOT IN DISPUTE THAT THE STOCK , WHICH WAS STORED IN THE GODOWNS OF THE APP ELLANT , WHERE THE SURVEY/SEARCH ACTION HAS CARRIED OUT BY THE DEPT. WERE HYPOTHECATED TO BANK. THE BANK HAS ALSO ACCEPTED THAT THE BOOK STOCK OF THE ASSSESSEE WAS HYPOTHECATED TO BANK . ASSESSEE SUBMITTED THAT T HE A.O. HAS MADE IMPUGNED ADDITION WITH PREJUD ICIAL MIND THAT THE BANK CANNOT GIVE LOAN AGAINST THE BOOK STOCK OF THIRD PARTY. THE RELEVANT PORTION OF THE REMAND REPORT OF THE A.O. IS REPRODUCED AS UNDER - FURTHER THE CONTENTION OF THE ASSESSEE THAT THE STOCK AS BOOKS OF THE ASSESSEE WAS HYPOTHECATED TO BANK FOR THE LOAN OF M/S. AKSHAY TRADERS CANNOT BE ACCEPTED BECAUSE THE BANK CANNOT GIVE LOAN TO ANYBODY AGAINST THE HYPOTHECATION OF BOOK STOCK OF THIRD PARTY . (REFER PAGE NO. 69 OF THE PAPER BOOK) WHEREAS THE BANK ITSELF HAS ACCEPTED OF HAVING GIV EN LOAN IN THE NAME OF M/S. AKSHAY TRADERS AGAINST THE BOOK STOCK OF THE APPELLANT. THE SAID CERTIFICATE OF THE BANK IS PLACED AT PAGE NO.1 OF PAPER BOOK. THE IMPUGNED ADDITION IS DELETED BY CIT(A), THE FINDING RECORDED BY CIT(A) IS AS UNDER - PAGE NO. 28 PARA 60 & 61 OF THE ORDER OF CIT(A) THIS IS AN ADMITTED FACT THAT M/S. AKSHAY TRADERS IS A BENAMI CONCERN OF THE APPELLANT THOUGH ON PAPER, SMT KANCHAN LODHA, WIFE OF THE APPELLANT IS THE PROPRIETOR OF M/S. AKSHAY TRADERS. M/S. AKSHAY TRADERS IS NOT EN GAGED IN ANY BUSINESS BUT ONLY INDULGED IN BANKING TRANSACTION CYCLE FOR WHICH THE APPELLANT AND M/S. THAKKER SONS WERE BENEFITED. THERE WAS NO PURCHASE IN THE NAME OF M/S. AKSHAY TRADERS AND AT THE SAME TIME, THERE WERE NO SALES ALSO AND M/S. AKSHAY TRADE RS WAS ALSO HAVING NO STOCK. THE ADDRESS OF THE GODOWNS WHICH WERE GIVEN TO THE BANK IN WHICH WERE GIVEN TO THE BANK IN WHICH THE STOCK OF M/S. AKSHAY TRADERS WAS CLAIMED TO BE LYING IS BELONGING TO THE APPELLANT M/S C.S. LODHA. FURTHER, IT IS ALSO A FACT THAT THE APPELLANT HAS NOT OBTAINED ANY LOAN ON THE HYPOTHECATION OR MORTGAGE OF THE STOCK EXCEPT LOAN IN THE NAME OF M/S. AKSHAY TRADERS. THE GODAVARI CO OP. BANK HAS CERTIFIED VIDE LETTER DATED 24 - 12 - 2002 THAT THE STOCK WHICH WAS HYPOTHECATED FOR THE LOAN GIVEN IN THE NAME OF M/S AKSHAY TRADERS, (WHICH IS IN FACT BELONGS TO THE APPELLANT ONLY). THE RELEVANT CERTIFICATE READS AS UNDER: THIS IS TO CERTIFY THAT M/S. AKSHAY TRADERS, NASHIK HAS TAKEN LOAN FROM OUR BANK AGAINST HYPOTHECATION OF SHOP NO. 11 AND 12 AT VIDHI PARK, TELI GALLI, RAVIVAR PETH, NASHIK 1. FIXED DEPOSIT WITH THIS BANK OF RS. 5,00,000/ - AND BOOK STOCK OF M/S CHANDRAKANT SWARUPCHAND LODHA, PROP: CHANDRAKANT S. LODHA (HUF). ACCORDINGLY, THE STOCK STATEMENTS FILED BY M/S AKSHAY TRAD ERS TO THIS BANK AGAINST THE SAID - 8 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 LOAN DURING 1999 - 2000 WERE RELATING TO THE STOCK BELONGING TO M/S. CHANDRAKANT S. LODHA IT IS NOT THE CASE OF A.O. THAT THE STOCK HYPOTHECATED TO BANK IS NOT OVER AND ABOVE THE BOOK STOCK OF THE APPELLANT. IN VIEW OF A BOVE THE IMPUGNED ADDITION IS RIGHTLY DELETED BY THE CIT(A). WITHOUT PREJUDICE TO ABOVE THE IMPUGNED ADDITION WAS ALSO NOT MADE ON THE BASIS OF ANY EVIDENCE FOUND AS RESULT OF SEARCH ACTION. THIS FACT IS ALSO ACCEPTED BY THE A.O. IN HIS REMAND REPORT (REF ER TO PAGE NO. 69 OF PAPER BOOK AND LINE NO. 21 ON PAGE 27 OF THE ORDER OF CIT(A)). THEREFORE THE ADDITION OF THE SAME CANNOT BE MADE IN BLOCK ASSESSMENT. 10. WE HAVE HEARD THE PARTIES AND PERUSED THE AVAILABLE MATERIAL ON THE RECORDS. FROM THE ABOVE , T HERE ARISES A COUPLE OF IMPORTANT ISSUES AND THEY ARE IF THE IMPUGNED STOCK BELONGS TO THE ASSESSEE OR NOT AND IF THE IMPUGNED ISSUE IS OUTSIDE THE SCOPE OF THE BLOCK ASSESSMENT OR OTHERWISE. IN SO FAR THE FIRST ISSUE IS CONCERNED, WE FIND THAT THE M/S. A KSHAY TRADERS, NASHIK IS UNDISPUTEDLY A BENAMI CONCERN OF THE ASSESSEE AND IN THAT CASE, THE STOCK IF ANY BELONGING TO THE ASSESSEE IS LOGICALLY MUST BE BELONGING TO THE ASSESSEE AND THEREFORE, IT CANNOT BE TERMED BELONGING TO THE THIRD PERSONS. THERE IS N EED FOR CLAR IF YING THIS ASPECT FROM THE REVENUE SIDE. THE OTHER ISSUE RELATING TO JURISDICTION OF THE BLOCK ASSESSMENT, WE FIND THE AO HAS NO OCCASION TO EXAMINE THIS PART OF THE ARGUMENT OF THE ASSESSEE. THEREFO R E, WE ARE OF THE OPINION, THESE GROUNDS NEE D TO GO TO THE FILES OF THE AO FOR DETAILED DISCUSSION AND A SPEAKING ORDER ON THIS ISSUE. ACCORDINGLY, THESE TWO GROUNDS ARE SET ASIDE . AO SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE THE ISSUES ARE FINALIZED. 11. GROUND NO. 4 : THIS GROUND RELATES TO THE DECISION OF THE CIT A) IN DELETING THE ADDITIONS OF RS.2,82,323/ - & RS. 7,58,692/ - MADE ON ACCOUNT OF DIFFERENCES IN THE FIGURES OF THE PROFIT AS PER THE STATEMENTS OF ACCOUNTS FILED WITH THE BANK FOR A.Y. 98 - 99 AND 2000 - 01 AND THE FIGURES OF THE PROFIT AS PER THE STATEMENTS OF ACCOUNTS ENCLOSED ALONG WITH THE REGULAR RETURNS OF T HE SAID A.YS. 12. BRIEFLY STATED THAT THE FACTS THAT F OR AVAILING THE CREDIT FACILITIES, THE FINANCIAL STATEMENTS FOR F.Y. 1997 - 98 I.E. A.Y.1998 - 99 PREPARED OUT OF THE UNAUDITED /INCOMPLETE BOOKS OF ACCOUNTS WERE SUBMITTED TO BANK SHOWING NET PROFIT AT RS. 4,76,363/ - . HOWEVER THE NET PROFIT AS PER LATER - 9 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 AUDITED PROFIT AND LOSS ACCOUNT WA S RS. 1,94,040/ - . HENCE THE A DDITION OF THE DIFFERENCE OF RS 2, 82,323/ - WAS MADE BY THE A.O. FURTHER FOR A.Y. 2000 - 01 THE PROFIT AS PER UNAUDITED STATEMENTS SUBM ITTED TO BANK WAS RS. 8,51,518/ - AS AGAINST THE NET PROFIT AS PER AUDITED PROFIT AND LOSS ACCOUNT OF RS. 92,826/ - / THE DIFFERENCE OF RS. 7,58,692/ - WAS ALSO ADDED BY THE AO AS UNDISCLOSED INCOME. 13. THE ASSESSEE WAS ALWAYS REQUIRED TO SUBMIT THE PROVISIONAL STATEMENT OF ACCOUNTS TO BANK IN AROUND MAY , WHEN HIS ACCOUNTS ARE NEVER FINALIZED OR AUDITED. THE AUDIT NORMALLY WAS COMPLETED IN OCTOBER. THEREFORE T HERE IS ALWAYS DIFFERENCE IN THE SAID STATEMENTS OF ACCOUNTS. THE STATEMENTS FOR A.Y. 2000 - 01 WERE PROJECTED AS APPEARED FROM THE SAME 9REFER TO PAGE NO. 13 OF PAPER BOOK, WHERE IT IS CLEARLY MENT IONED AS PROJECTED STATEMENTS. ON CONSIDERING THE SUBMISS ION OF THE ASSESSEE, T HE CIT(A) DELETED THE SAID ADDITION. THE FINDING RECORDED BY CIT(A) IS AS UNDER - THOUGH IN THE PROVISIONAL BALANCE SHEET, THE APPELLANT HAS DISCLOSED THE PROFIT RS.4,76,363/ - FOR THE AY 1998 - 99 BUT AFTER RECONCILIATION AND VERIFICAT ION, THE FINAL PROFIT WAS ARRIVED AT 2,82,323/ - . NOW THE BOOKS OF ACCOUNTS ARE AUDITED. FURTHER AS POINTED OUT BY THE AR, THE FIGURES IN RESPECT OF VARIOUS ACCOUNTS ITSELF SHOWS THAT THE STATEMENTS AND BALANCE SHEET SUBMITTED BEFORE THE BANK WERE TENTATIV E . FURTHER, THIS FACT HAS ALSO BEEN CONFIRMED BY THE CA BY FILING AN AFFIDAVIT SIGNED BY HIM STATING THAT THE STATEMENT OF PROFIT & LOSS ACCOUNT SUBMITTED TO THE BANK WAS PROVISIONAL. THE CHARTERED ACCOUNTANT HAS ALSO GIVEN HIS CATEGORICAL AFFIDAVIT W HICH IS REPRODUCED AS UNDER - (REFER TO PAGE NO. 12 OF THE PAPER BOOK) SHIRISH S/O ASARAM SAMDANI, AGE 48 YEARS, OCCU : - CHARTERED ACCOUNTANT, R/O PANDARIBA, AURANGABAD, DO HEREBY STATE ON SOLEMN OATH : - THAT AS PER INFORMATION, ROUGH TRIAL BALANCE AND OTHER DOCUMENTS PRODUCED BEFORE ME FOR THE ACCOUNTING YEAR 1997 - 98 RELEVANT TO ASSESSMENT YEAR 1998 - 99 I HAVE PREPARED A ROUGH PROFIT & LOSS ACCOUNT ACCORDING TO WHICH A NET PROFIT WAS ARRIVED AT RS.4,76,363 - BEFORE THE AUDIT OF THE BOOKS OF ACCOUNTS. THE CORRECTNESS OF THIS STATEMENT OF ACCOUNTS HAS NOT BEEN CERTIFIED BY ME AS VERIFIED AND FOUND CORRECT AS PER BOOKS OF ACCOUNTS. HOWEVER AFTER AUDITING THE BOOKS OF ACCOUNTS PRODUCED BEFORE ME WITH OTHER NECESSARY EVIDENCE IN SUPPORT OF THE SAME I HAVE PRE PARED THE FINAL STATEMENT OF ACCOUNTS, WHICH DISCLOSED A NET PROFIT OF RS.1,69,826/ - . THESE STATEMENTS OF ACCOUNTS ALONG WITH PROFIT & LOSS - 10 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 ACCOUNTS WERE FINALLY CERTIFIED BY ME AS VERIFIED AND FOUND CORRECT AS PER BOOKS OF ACCOUNTS OF ACCOUNTS PRODUCED AND AUDITED BY ME. THE SAID STATEMENT OF ACCOUNTS WERE ENCLOSED WITH THE RETURN OF INCOME FOR ASSESSMENT YEAR 1998 - 99 ALONG WITH THE AUDIT REPORT IN FORM 3CB & 3CD, FILED IN THE INCOME TAX OFFICE AT AURANGABAD. HENCE THIS AFFIDAVIT . 14. LD COUNSEL MENT IONED THAT THE STATEMENT FILED WITH THE BANK FOR AVAILING CREDIT SHOULD NOT BE TREATED AS ULTIMATE TRUTH AND NO ADDITION CAN BE MADE BASED ON THE SAID STATEMENTS. THE RELIANCE IS PLACED ON THE DECISION OF AMR I TSAR TRIBUNAL IN CASE OF I.T.O. VS TILAK RICE MILLS 75 TTJ 20, MADRAS HIGH COURT IN CASE OF CIT VS N. SWAMY 241 ITR 363, COCHIN BENCH OF TRIBUNAL IN CASE OF ACIT VS. MANGALAM PUBLICATIONS 190 TAXMAN 137 . LD COUNSEL SUBMITTED FOR DELETION OF SUCH ADDITIONS. WITHOUT PREJUDICE TO ABOVE THE IMPUGNED ADDITION WAS ALSO NOT MADE ON THE BASIS OF ANY EVIDENCE FOUND AS RESULT OF SEARCH ACTION. THIS FACT IS ALSO ACCEPTED BY THE A.O. IN HIS REMAND REPORT (REFER TO PAGE NO. 70 OF PAPER BOOK). THEREFORE THE ADDITION OF THE SAME CANNOT BE MADE IN BLOCK ASSESSMEN T. 15. FROM THE ABOVE IT IS NOT CLEAR IF THE SAID STATEMENTS WERE THE DISCOVERIES OF THE SEARCH AND SEIZURE OR NOT . IF THE SAID STATEMENTS WERE SEIZED DURING THE SEARCH, THE ASSESSEES ARGUMENT RAISED WITHOUT PREJUDICE IS REQUIRED TO THE DISMISSED. THIS I SSUE NEEDS REQUISITE EXAMINATION OF THE FACTS AT THE LEVEL OF THE AO. AO HAS NOT PASSED A SPEAKING ORDER AS HOW THE ABOVE JUDICIAL DECISION S DO NOT HELP THE ASSESSEE. THEREFORE, WE ARE OF OPINION, FORT THE ABOVE REASON, THE ISSUE HAS TO BE REFERRED TO THE FILES OF THE AO, WHO SHALL PASS A SPEAKING ON THE ISSUE AFTER GRANTING REASONABLE OPPORTUNITY OF BEIN G HEARD TO THE ASSESSEE. ACCORDI NGLY, THIS GROUND 4 IS SET ASIDE. 16. GROUND NO 5 : THIS GROUND IS GENERAL IN NATURE AND LACKS CLARITY. THEREFORE, THE S AME IS DISMISSED AS UNCLEAR. 17. GROUND NO. 6 : IT RELATES TO DECISION OF THE CIT(A) IN DELETING THE ADDITION OF RS. 22,253/ - MADE ON ACCOUNT OF THE ACCRUED INTEREST ON BANK FIXED DEPOSIT WITHOUT APPREHENDING THE FACT THAT THE INTEREST ON BANK FIXED D EPOSIT ACCRUES AT THE END OF EACH QUARTER AND NOT AT THE END OF THE YEAR. - 11 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 18. FROM THE FACTS WE FIND THAT T HE IMPUGNED ADDITION WAS MADE BY THE AO BECAUSE OF THE DIFFERENCE S IN TREATING THE ACCRUED INTEREST ON THE ACCOUNTED DEPOSITS AS ON DATE OF SEARCH I.E. 22/12/2000 , WHEN THERE IS NO DISPUTE THAT ALL THE FIXED DEPOSITS ARE DULY DISCLOSED IN THE AUDITED STATEMENTS OF ACCOUNTS. THE SAID DIFFERENCE WAS ALSO M AINLY DUE TO METHOD OF ACCOUNT ING EMPLOYED BY THE ASSESSEE TO MAKE ENTRY OF ACCRUED INTEREST ON 31 ST MARCH EVERY YEAR. IT IS AN ADMITTED FACT THAT THE IMPUGNED ADDITION WAS MADE BY THE AO NOT ON THE BASIS OF ANY EVIDENCE FOUND AS A RESULT OF SEARCH ACTION AND MERELY A CASE OF DISTURBING BY THE AO A MOTHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSE SSEE . AS SUCH , IN OUR OPINION, THE ASSESSEE IS CONSISTENTLY FOLLOWING A PARTICULAR METHOD OF ACCOUNTING WITH REGARD TO THE RECOGNIZING THE INTEREST INCOME ON THE ACCOUNTED DEPOSITS EARNED BY THE ASSESSEE FROM THE BANKS . CONSIDERING THE ABOVE, IN OUR OPINIO N, THE CIT(A) HAS RIGHTLY DELETED THE ADDITION . WE FIND NO REASON TO INTERFERE WITH THE ORDER THE CIT(A) ON THIS ISSUE. ACCORDI NGLY, THIS GROUND OF THE REVENUE IS DISMISSED. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ITA NO. 365/PN/ 2004 2 0 . THIS IS THE CROSS APPEAL FILED BY THE ASSESSEE. ASSESSEE RAISED FOLLOWING REVISED GROUNDS . THEY ARE : A) FOLLOWING GROUND OF APPEAL PLEASE BE ALLOWED TO BE WITHDRAWN. ON THE BASIS OF FACTS AND IN THE CIRCUMSTANCES OF THE CASE, HON.COMMISSIONER OF INCOME TAX, APPEALS - 1, NAGPUR IS NOT JUSTIFIED IN NOT ALLOWING SET OFF OF THE LOSSES AND UNABSORBED DEPRECIATION FOR A.Y. 2001 - 02 AGAINST THE UNDISCLOSED INCOME FOR THE SAME YEAR WITHIN THE BLOCK PERIOD. B) AS THERE WERE MULTIPLE GROUNDS OF APPEAL TAK EN BY THE APPELLANT IN THE APPEAL MEMO ON THE SAME ISSUE INVOLVED, THE APPELLANT MAY PLEASE BE ALLOWED TO SUBSTITUTE THE FOLLOWING GROUNDS OF APPEAL IN PLACE OF THE REMAINING GROUNDS OF APPEAL. 1. ON THE BASIS OF FACTS AND IN THE CIRCUMSTANCES OF THE CASE, HON. COMMISSIONER OF INCOME TAX, APPEALS - 1, NAGPUR IS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE ON ACCOUNT OF EXCESS STOCK OF RS.46,64,553/ - AND PARTICULARLY WHEN THE SAID ADDITION IS NOT MADE ON THE BASIS OF ANY EVIDENCE FOUND AS A RESULT OF SEARCH A CTION U/S. 132 OF THE INCOME TAX ACT, 1961. - 12 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 2. ON THE BASIS OF FACTS AND IN THE CIRCUMSTANCES OF THE CASE, HON. COMMISSIONER OF INCOME TAX, APPEALS - 1, NAGPUR IS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE ON ACCOUNT OF NET PROFIT OF RS. 7,63,309/ - FO R A.Y. 1997 - 987 TO A.Y. 2000 - 01 AS SHOWN IN THE PROFIT & LOSS A/C. OF M/S. AKSHAY TRADERS (PROP. KANCHAN C. LODHA) SUBMITTED TO BANK FOR LOAN PURPOSE AND PARTICULARLY WHEN THE SAID ADDITION IS NOT MADE ON THE BASIS OF ANY EVIDENCE FOUND AS A RESULT OF SEAR CH ACTION U/S. 132 OF THE INCOME TAX ACT, 1961. 3. ON THE BASIS OF FACTS AND IN THE CIRCUMSTANCES OF THE CASE, HON. COMMISSIONER OF INCOME TAX, APPEALS - 1, NAGPUR IS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE ON ACCOUNT OF DIFFERENCE IN BALANCE OF SUN DRY CREDITOR M/S. NASHIK & S.K. LTD OF RS.2,11,8721/ - AND PARTICULARLY WHEN THE SAID ADDITION IS NOT MADE ON THE BASIS OF ANY EVIDENCE FOUND AS A RESULT OF SEARCH ACTION U/S. 132 OF THE INCOME TAX AT, 1961. 4. ON THE BASIS OF FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, HON.COMMISSIONER OF INCOME TAX, APPEALS - 1, NAGPUR IS NOT JUSTIFIED IN NOT ANNULLING THE ASSESSMENT BY HOLDING THAT THE NOTICE U/S. 143(2) OF THE I.T. ACT, 1961 ISSUED TO THE APPELLANT WITHIN THE STATUTORY TIME OF ONE YEAR. 5. ON THE BASIS OF FACTS AND IN THE CIRCUMSTANCES OF THE CASE, HON. COMMISSIONER OF INCOME TAX, APPEALS - 1, NAGPUR IS NOT JUSTIFIED IN CONFIRMING SURCHARGE LEVIED @ 17% ON THE TAX RETURNED FOR THE BLOCK PERIOD. 6. ON THE BASIS OF FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE HON. COMMISSIONER OF INCOME TAX, APPEALS - I, NAGPUR IS NOT JUSTIFIED IN HOLDING/CONFIRMING THE VARIOUS ALLEGATION MADE BY THE AO IN THE ASSESSMENT ORDER, I.E. I) THIS BANK CYCLE WAS CREATED BY THEM WITH THE COLLUSION OF BANK OFFICIALS FOR USING P UBLIC FUNDS. II) VITAL INCRIMINATING EVIDENCES IN THE FORM OF PERSONAL DIARIES MAINTAINED BY HIDING FROM THE DEPT. HAVE BEEN SEIZED, ETC. III) THE APPELLANT WAS INDULGED IN BANK SCAM WHICH MAY HAVE RESULTED IN UNACCOUNTED PROFIT AND ULTIMATELY F OUND IN THE FORM OF EXCESS STOCK 21. GROUND NO. 1 . THIS GROUND RELATES TO THE DECISION OF THE CIT(A) IN CONFIRMING THE ADDITION MADE ON ACCOUNT OF EXCESS STOCK OF RS.46,64,553/ - AND PARTICULARLY WHEN THE SAID ADDITION IS NOT MADE ON THE BASIS OF ANY EVIDENCE FOUND AS A RESULT OF SEARCH ACTION U/S. 132 OF THE INCOME TAX ACT, 1961. - 13 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 22. BRIEFLY STATED RELEVANT FACTS OF THIS ISSUE AS MENTIONED BY THE ASSESSEE ARE AS FOLLOWS: T HERE WERE ACTIONS AT 9 GODOWNS OF THE DASSESSEE AND THE TOTAL OF THE STOCK S HOWN TO BE FOUND IN THE SAID 9 GODOWNS WAS COMPARED WITH THE BOOK STOCK AS PER TENTATIVE TRADING ACCOUNT AS ON THE DATE OF SEARCH. THE DIFFERENCE ON ACCOUNT OF EXCESS STOCK FOUND WAS CALCULATED BY THE ADI AT RS. 46,64,553/ - . THE SAID WORKING IS GIVEN ON PA GE NO. 82 OF THE PAPER BOOK WHICH IS AS UNDER - . ASHOK STAMBH GODOWN - RS. 27,67,934/ - VIDHI PARK GODOWN - I RS .1,83,348/ - VIDHI PARK GODOWN - II RS. 7,67.262/ - PETHROAD GODOWN RS. 64,61,900/ - PANDE CHAMBERS GODOWN RS. 40,03,475/ - CENTRAL WARE HOUSE RS. 57,51,341/ - SHANTA CHAMBERS RAVIWAR PETH RS. 4,17,161/ - BUSINESS PREMISES + GODOWN OZAR WAREHOUSE GODOWN RS. 7,34,500/ - CHITRAKOOT SOCIETY DINDORI ROAD GODOWN RS. 63,150/ - RS, 2,11,60571/ - LESS . G.P @ 3.75% RS 7,93,521/ - STOCK AS PER INVENTORY RS. 2,04,21,050/ - STOCK AS PER TENTATIVE TRADING ACCOUNT RS 1,57,56,497/ - ACTUAL STOCK DIFFERENCE RS. 46,64,553/ - THE MAIN GRIEVANCE OF THE APPELLANT IS STOCK TAKING IN TH E GODOWNS LOCATED AT PETH ROAD GODOWN I.E. SHIV CHHAYA APPTS. & PANDE CHAMBERS. IN THE SAID GODOWNS THE INVENTORY IS OVER - QUANTIFIED BY THE SEARCH/SURVEY PARTY THAN THE ACTUAL QUANTITY MAINLY BECAUSE THE CUBICAL AREAS OF THE SAID GODOWNS ARE NOT SUFFICIENT TO ACCOMMODATE THE QUANTITY OF STOCK WHICH IS SHOWN TO BE FOUND IN THE SAID TWO GODOWNS. FOLLOWING ARE THE EVIDENCES IN THIS RESPECT A. THE APPELLANT HAS FILED THE CERTIFICATE OF AN ARCHITECT WHO IS ALSO APPROVED GOVERNMENT VALUER CATEGORICALLY CERTIFYING THAT THE TOTAL AREA AVAILABLE IN THE SAID TWO GODOWNS IS 17612.50 CUBIC FEET (I.E. 8812.5 CU.FTS IN THE GODOWN NAMELY SHIVCHHAYA APPTS AND 8800 CU. FTS. IN GODOWN NAMELY PANDE CHAMBERS). WHEREAS THE REQUIREMENT OF AREA FOR THE STORAGE OF THE STOCK SHO WN TO BE FOUND IN THE SAID TWO GODOWNS IS 46,360.35 CUBIC FEET (I.E. 28,266.6 CU.FTS IN GODOWN NAMELY SHIVCHHAYA APPTS AND 18093.75 CU. FTS. IN GODOWN NAMELY PANDE CHAMBERS). THE SAID CERTIFICATES OF THE ARCHITECT ARE PLACED AT PAGE NOS. 30 TO 35 & P AGE NOS. 36 TO 40 OF THE PAPER BOOK. THE RELEVANT PORTION OF THE SAID CERTIFICATES READ AS - CERTIFICATE: - THIS IS TO CERTIFY THAT THE ABOVE STATED MATERIALS CAN NOT BE STORED IN THE EXISTING AVAILABLE GODOWN AS THE SPACE AVAILABLE IS NOT SUFFICIENT . - 14 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 THIS CERTIFICATE IS ISSUED AFTER PERSONAL INSPECTION ON SITE AND TAKING THE NECESSARY MEASUREMENTS OF SPACE AND ARTICLES. THIS CERTIFICATE IS ISSUED WITHOUT ANY PREJUDICE. THE ARCHITECT HAS CALCULATED THE TOTAL AREA AVAILABLE IN CUBICAL TER MS AS WELL AS THE TOTAL AREA REQUIRED FOR STORAGE FOR THE STOCK SHOWN TO BE FOUND IN THE RESPECTIVE GODOWNS AFTER PERSONAL INSPECTION AND MEASUREMENT OF ARTICLES AND THEREBY ARRIVED AT THE ABOVE CATEGORICAL CONCLUSION. FURTHER THE AREA REQUIRED FOR VENTILA TION AS WELL AS MOVEMENT IN THE GODOWNS IS NOT CONSIDERED. IF THE AREA REQUIRED FOR VENTILATION AS WELL AS MOVEMENT IN THE GODOWNS IS CONSIDERED THEN THE STORABLE SPACE IN THE SAID GODOWNS SHALL BE 10000 CUBIC FTS APPROX. AO HAS NOT TAKEN ANY STEP TO CONF RONT THE ARCHITECT. FURTHER THE CERTIFICATES OF THE ARCHITECT ARE NEITHER FOUND FALSE NOR ANY DEFECT IS POINTED OUT IN THE SAID CERTIFICATES. THE AO HAS ALSO MENTIONED IN HIS ORDER THAT (REFER TO PAGE 15 OF THE ASSESSMENT ORDER THAT IN FURTHER SUPPOR T THE ASSESSEE HAS ALSO FILED THE CERTIFICATE OF AN ARCHITECT STATING THAT THE QUANTITY AS SHOWN TO BE FOUND IN BOTH THE GODOWNS DURING THE COURSE OF ACTION CANNOT BE STORED IN THE SAID GODOWNS BECAUSE OF INSUFFICIENCY OF THE SPACE. IT WAS STATED BY HIM TH AT THE AVAILABLE AREA IN BOTH THE GODOWNS IS 17612.5 CUBIC FEET, WHEREAS THE TOTAL CUBICAL AREA REQUIRED FOR THE QUANTITY AS SHOWN TO BE FOUND DURING THE SAID ACTION WAS 46,360.35 CUBIC FEET. B. THE SAID GODOWNS WERE SHOWN TO BE SEALED ON 23.12.2000 U/S. 13 2(3) OF THE ACT IN PRESENCE OF THE PANCHAS MR. BALASAHEB V. SANAP & MR. SUJAS MEHTA. AND THE SEALS OF THE SAID GODOWNS WERE SHOWN TO BE OPENED ON 24.12.2000 IN PRESENCE OF THE PANCHAS MR. HEMANT BORA AND MR. RAJESH BORA. ALL THE SAID PANCHAS, BY WAY OF AFF IDAVITS, HAVE CATEGORICALLY DENIED OF HAVING VISITED THE SAID GODOWNS IN THEIR LIFETIME. IT IS ALSO STATED BY THEM THAT NO INVENTORY WAS EVER TAKEN IN THEIR PRESENCE. THE COPIES OF THE AFFIDAVITS OF THE SAID PANCHAS ARE PLACED AT PAGE NOS. 41 & 42 OF THE P APER BOOK. THE SAID AFFIDAVITS ARE AS UNDER - AFFIDAVIT OF MR. BALASAHEB SANAP & MR. SUJAS MEHTA: WE BALASAHEB(PURUSHOTTAM) VISHWANATH SANAP C/O SANTOSH KIRANA, 1, SHANTA CHAMBERS, R.K., NASHIK AGED ABOUT 35 YEARS, RESIDENT AT NASHIK AND SUJAS SURENDRA M EHTA C/O. M/S. PANKAJ TRADERS, RAVIWAR KARANJA, NASHIK, AGED ABOUT 21 YEARS RESIDENT AT NASHIK DO HEREBY STATE ON OATH THAT WE WERE ACTING AS PANCHAS DURING THE ACTION U/S. 132 OF THE INCOME TAX ACT, 1961 IN THE SHOP PREMISES OF MR. CHANDRAKANT S. LODHA AT 2, SHANTA CHAMBERS, RAVIWAR KARANJA, NASHIK ON 22.12.2000 AND 23.12.2000. ON 23.12.2000, SOME PAPERS WERE BROUGHT BY SOME STAFF OF THE INCOME TAX DEPT. IN THE EVENING FOR OUR SIGNATURES IN THE PREMISES OF M/S. CHANDRAKANT SARUPCHAND AT SHANTA CHAMBERS. TH OSE PAPERS WERE RELATING TO THE STOCK IN THE GODOWNS OF MR. CHANDRAKANT LODHA AT SHIV - CHHAYA APPTS. & PANDE CHAMBERS. WE REMEMBER THAT THOSE PAPERS WERE RELATING TO SEALING OF - 15 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 THE SAID GODOWNS. WE WERE TOLD TO SIGN THE SAID PAPERS RELATING TO THE SEALING O F THE GODOWNS BEING PANCHAS. ACCORDINGLY WE HAVE PUT OUR SIGNATURES ON THOSE PAPERS RELATING TO THE SEALING OF THE ABOVEMENTIONED GODOWNS. WE HEREBY CATEGORICALLY ON OATH STATE THAT WE HAVE NOT AT ALL VISITED THE ABOVEMENTIONED GODOWNS. WE HAVE SIGNED THE ABOVEMENTIONED PAPERS BECAUSE WE WERE TOLD TO SIGN THE SAME WITHOUT KNOWING THE ACTUAL PROCEDURAL RULE WHATEVER STATED HEREIN ABOVE IS TRUE AND CORRECT TO THE BEST OF OUR KNOWLEDGE AND BELIEF AFFIDAVIT OF MR. HEMANT BORA & MR. RAJESH BORA: WE HEMANT P ANNALAL BORA AGED ABOUT 41 YEARS, RESIDENT AT 16, BORA BUILDING, RAVIWAR KARANJA, NASHIK - 1 AND RAJESH PREMCHAND BORS AGED ABOUT 36 YEARS, RESIDENT AT 16, BORA BUILDING, RAVIWAR KARANJA, NASHIK - 1 DO HEREBY STATE ON OATH THAT WE WERE CALLED BY MR. CHANDRAKAN T LODHA ON 24.12.2000 TO BE GONE TO INCOME TAX OFFICE TO ACT AS PANCHAS DURING THE ACTION U/S. 132 OF THE INCOME TAX ACT, 1961 IN HIS CASE. ACCORDINGLY WE WENT ALONG WITH MR. CHANDRAKANT LODHA TO INCOME TAX OFFICE. WE WERE TOLD BY THE OFFICER TO SEAT OUT SIDE AND TO COME INSIDE THE CABIN OF THE OFFICER WHEN WE WILL BE CALLED BY HIM. AFTER SOME TIME WE WERE CALLED INSIDE THE CABIN AND TOLD TO MAKE SIGNATURE ON SOME PAPERS AT BOTTOM HAVING THE LIST OF INVENTORIES. WE ALSO CLEARLY REMEMBER THAT THE LAST COLU MN OF TOTAL WAS EMPTY AND IT WAS TOLD TO US BY THE OFFICER THAT THE SAME SHALL BE FILLED UP LATER ON. LATER WE CAME TO KNOW THAT THOSE PAPERS WERE RELATING TO THE STOCK IN GODOWNS OF MR. CHANDRAKANT LODHA AT SHIV - CHHAYA APPTS. & PANDE CHAMBERS. WE HEREBY C ATEGORICALLY ON OATH STATE THAT WE HAVE NOT AT ALL VISITED THE ABOVEMENTIONED GODOWNS EVEN TILL TODAY IN OUR LIFE TIME. WE FURTHER STATE THAT WE HAVE SIGNED THE ABOVEMENTIONED PAPERS BECAUSE WE WERE TOLD TO SIGN THE SAME WITHOUT KNOWING THE ACTUAL PROCEDUR AL RULE WHATEVER STATED HEREIN ABOVE IS TRUE AND CORRECT TO THE BEST OF OUR KNOWLEDGE AND BELIEF THE AO HAS NOT TAKEN ANY STEP TO CONFRONT THE SAID PANCHAS AND ALSO THE CONTENTS OF THEIR AFFIDAVITS ARE NOT FOUND FALSE. HE HAS STATED IN THE ASSESSMENT O RDER THAT (PAGE NO. 15 OF THE ASSESSMENT ORDER) THE ASSESSEE HAS ALSO FILED AFFIDAVITS OF MR. HEMANT P. BORA, MR. RAJESH PREMCHAND BORA, MR. BALASAHEB VISHWANATH SANAP & MR. SUJAS SURENDRA MEHTA I.E. PANCHAS DURING THE SAID ACTION CATEGORICALLY STATING T HAT THE STOCK HAS NOT BEEN COUNTED IN THEIR PRESENCE AND THEY HAVE NEVER VISITED THE SAID GODOWNS. IN SUCH CIRCUMSTANCES , AS PER THE COUNSEL, THE CONTENTS OF AFFIDAVITS OF ARCHITECT AS WELL AS PANCHAS SHOULD HAVE BEEN ACCEPTED AS TRUE. THE RELIANCE IS P LACED ON THE DECISION OF SUPREME COURT IN CASE OF MEHTA PARIKH & CO. VS CIT 30 ITR 181. IN THE SAID DECISION THEIR LORDSHIP HAVE HELD THAT - NOR WAS THE PRESENCE OF THE DEPONENTS OF THE THREE AFFIDAVITS CONSIDERED NECESSARY BY EITHER PARTY. THE APPELLANT S TOOK IT THAT THE - 16 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 AFFIDAVITS OF THESE PARTIES WERE ENOUGH AND NEITHER THE AAC, NOR THE ITO, WHO WAS PRESENT AT THE HEARING OF THE APPEAL BEFORE THE AAC, CONSIDERED IT NECESSARY TO CALL FOR THEM IN ORDER TO CROSS - EXAMINE THEM WITH REFERENCE TO THE STATEMEN TS MADE BY THEM IN THEIR AFFIDAVITS. UNDER THESE CIRCUMSTANCES, IT WAS NOT OPEN TO THE REVENUE TO CHALLENGE THE CORRECTNESS OF THE CASH ENTRIES OR THE STATEMENTS MADE BY THOSE DEPONENTS IN THEIR AFFIDAVITS . THE AO HAS MADE THE ADDITION ON THE FOLLOWING BASIS - (PAGE 16 OF THE ASSESSMENT ORDER) 1. THE INVENTORY WAS TAKEN BY THE DEPARTMENT ON 24.12.2000 AND THE SAID GODOWNS WERE SEALED BY THE BANK ON 27.12.2000. HENCE IT IS STATED BY THE AO THAT SO THERE WERE GAP OF THREE DAYS, THE POSSIBILITY CANNOT BE RUL ED OUT SOME OF THE STOCK MIGHT HAVE BEEN TAKEN OF DISPOSED OFF BY THE ASSESSEE 2. THE INVENTORY OF STOCK WAS TAKEN BY THE SEARCH PARTY VERY METICULOUSLY WITHOUT THERE BEING ANY OCCASION OF ANY MISTAKE. 3. AT THE END OF THE INVENTORY ITSELF THE ASSESSEE HAS CE RTIFIED THAT THE ABOVE QUANTITY/QUALITY AND RATES OF THE GOODS ARE STATED BY ME WHICH ARE VERIFIED PERSONALLY AND FOUND CORRECT. IT WAS FURTHER STATED BY THE AO THAT THE STOCK POSITION WAS ALSO ACCEPTED BY PANCHAS. 4. THE AFFIDAVITS OF PANCHAS AND CERTIFIC ATES OF ARCHITECT ARE FILED AFTER THE LAPSE OF TWO YEARS THE SAID ADDITION WAS CONFIRMED BY CIT(A) ON THE FOLLOWING BASIS (PAGE NO. 25 PARA NO. 55 OF THE ORDER OF CIT(A)) 1. THE MISTAKES WERE NOT POINTED OUT AT THE TIME OF SURVEY/SEARCH ACTION. WHATEVER FAC TS HAVE BEEN POINTED OUT BY THE APPELLANT WAS DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND AFTER TWO YEARS FROM THE DATE OF SEARCH ACTION. 2. THE INVENTORY WAS SIGNED BY THE ASSESSEE IN PRESENCE OF PANCHAS 3. THE APPELLANT MIGHT HAVE EARNED UNACCOUNTED PROFIT OUT OF THE BANK SCAM WHICH IS ULTIMATELY FOUND IN THE FORM OF EXCESS STOCK. IN THIS RESPECT IT IS TO BE SUBMITTED THAT - A. THE GODAWARI CO - OP. BANK LT. TOOK THE POSSESSION OF THE SAID GODOWNS ON 27.12.2000 AGAINST THE LOAN GRANTED BY THEM (REFER TO PAGE N O. 43 & 44 OF THE PAPER BOOK) AND THE CONTENTION OF THE AO AS WELL AS CIT (A) THAT THE STOCK MIGHT HAVE BEEN SOLD DURING THE PERIOD 24.12.2000 TO 27.12.2000 IS NOT CORRECT BECAUSE THE AO (PAGE 16 , 1ST LINE , OF THE ASSESSMENT ORDER) HAS HELD THAT - TH E SEARCH AND SEIZER ACTION WAS CONCLUDED BY THE DEPARTMENT ON 24.12.2000 AND POSSESSION OF STOCK OF THE SAID GODOWN WERE TAKEN BY THE BANK ON 27.12.2000, SO THERE WERE GAP OF THREE DAYS, THE POSSIBILITY CANNOT BE RULED OUT THAT SOME OF THE STOCK MIGHT HAVE BEEN TAKEN OF DISPOSED OFF BY THE ASSESSEE. (EMPHASIS SUPPLIED) MARK THE WORDS POSSIBILITY CANNOT BE RULED OUT & MIGHT HAVE BEEN , WHICH CLEARLY INDICATE THAT THE AO IS NOT SURE THAT THE STOCK IS DISPOSED OFF BY THE APPELLANT DURING BETWEEN PERIOD OF THREE DAYS. - 17 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 IN CASE OF BLOCK ASSESSMENT THE ADDITION IS TO BE MADE OF COGENT BASE AND NOT ON THE BASIS OF HYPOTHESIS. IT IS ALSO WORTH TO BE NOTED THAT IMMEDIATELY AFTER SEARCH ACTION, THE DEPT. TOOK SURVEY ACTION IN THE BUSINESS PREMISES OF THE APPELL ANT ON 08/01/2001 (REFER TO PAGE 78 OF PAPER BOOK I.E. STATEMENT OF THE APPELLANT RECORDED DURING THE SURVEY ACTION SUBSEQUENT TO SEARCH ACTION). HOWEVER NO ANY DIRECT OR INDIRECT EVIDENCE WAS FOUND DURING THE SAID SUBSEQUENT SURVEY ACTION OF ASSESSEE HAVI NG SOLD ANY GOODS DURING THE SAID PERIOD. B. IT IS ALSO PERTINENT TO NOTE THAT THE STOCK TAKING AT PANDE CHAMBERS WAS SHOWN TO BE COMMENCED AT 2 P.M. ON 24.12.2000 (REFER TO PANCNAMA AT PAGE NO. 56 OF THE PAPER BOOK AND THE STOCK TAKING AT SHIV CHHAYA APPTS. WAS SHOWN TO BE COMMENCED AT 3 P.M. ON THE SAME DAY I.E. IMMEDIATELY AFTER ONE HOUR (PAGE NO. 55 OF THE PAPER BOOK) IF WE LEAVE AT LEAST HALF HOUR FOR ADMINISTRATIVE WORK AS WELL AS TRAVEL TIME TO NEXT GODOWN, VERIFICATION OF SEAL, PREPARATION OF PANCHNAM A, PLANNING OF VERIFICATION, ETC., THE STOCK OF 4699 BAGS WAS TAKEN IN JUST HALF HOUR, WHICH IS PRACTICALLY IMPOSSIBLE. HENCE STOCK TAKING IN SUCH SHORT SPAN OF TIME CANNOT BE HELD TO BE RELIABLE. RELIANCE IS PLACED ON THE RATIO OF DECISION OF RATIO OF DE CISION OF VVS ALLOYS LTD V ACIT 68 TTJ 516 (ALL) IN WHICH IT WAS HELD THAT THE STOCK WORTH RS. 3.61 CRORS TAKEN IN 10 HOURS IS UNBELIEVABLE. C. NOTE GIVEN AT THE BOTTOM OF BOTH THE INVENTORY I.E. PAGE 58 & 60 IS NOT IN THE HAND WRITING OF THE APPELLANT BEC AUSE THE SAID NOTE IS WRITTEN BY THE PERSON WHO HAS PREPARED THE SAID INVENTORY E.G. REFER TO PAGE NO. 58 & 60 OF PAPER BOOK CLEARLY PROVES THE SAID FACT. D. THE NOTES BELOW THE INVENTORIES WERE WRITTEN AFTER THE SIGNATURE OF THE APPELLANT. REFER TO PAGE NO . 45 OF THE PAPER BOOK WHERE THE NOTE SO GIVEN AND THE SIGNATURE OF THE APPELLANT ARE OVERLAPPING. E. THE CONTENTION OF A.O. AS WELL AS CIT(A) THAT THE ABOVEMENTIONED FACT OF OVER STOCK TAKING HAVE BEEN POINTED OUT AFTER TWO YEARS IS NOT CORRECT BECAUSE THE APPELLANT, IMMEDIATELY AFTER THE SEARCH ACTION, HAS MADE DETAILED AFFIDAVIT ON 13.02.2001 STATING THE ENTIRE FACT S, WHICH WAS NOTED & REGISTERED VIDE SR. NO. 168/2001. THE COPY OF THE SAID AFFIDAVIT IS PLACED AT PAGE NO. 23 TO 29 OF THE PAPER BOOK. F. THE V ARIOUS CONTENTS OF THE SAID AFFIDAVIT ARE NOT FOUND FALSE OR UNTRUE BY THE A.O. IT IS CLEARLY MENTIONED BY THE APPELLANT AT CLAUSE NO. (M) OF THE SAID AFFIDAVIT THAT WHILE RECORDING MY STATEMENT ETC. U/S. 131 ON 8.1.2001, THE SAME FACT WAS ASKED TO ME IN QUESTION NO. 6 OR 7 (AS I REMEMBER). WHILE ANSWERING THE SAID QUESTION, WHEN I WAS STRONGLY STATING THE COMPLETE FACT OF OVER STOCK TAKING, BUT MY ANSWERS WERE NOT RECORDED IN MY LANGUAGE. LATER WHEN I WAS NOT ACCEPTING THE SAID STOCK STATEMENTS, ONLY ONE SENTENCE WAS RECORDED AS MY REPLY THAT THE EXCESS STOCK IS NOT ACCEPTED TO ME. THE NEXT QUESTION AND ANSWER AS I REMEMBER WAS WRITTEN BY THE OFFICER HIMSELF WITHOUT MUCH REFERRING TO ME - 18 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 THE COPY OF THE STATEMENT RECORDED OF THE APPELLANT ON 08/01/2001 IS PLACED AT PAGE NO. 78 TO 85 OF PAPER BOOK. IN NUTSHELL THE EXCESS STOCK AS CALCULATED BY THE DEPT. WAS ALWAYS REJECTED BY THE APPELLANT FROM VERY FIRST DAY. G. THE CIT(A)S CONTENTION THAT T HE APPELLANT MIGHT HAVE EARNED UNACCOUNTED PROFIT OUT OF THE BAN K SCAM WHICH IS ULTIMATELY FOUND IN THE FORM OF EXCESS STOCK , IS AGAINST HIS OWN FINDING AT PARA NO.46 OF HIS ORDER THAT THERE IS NO EVIDENCE ON RECORD WHICH SHOWS THAT THE APPELLANT HAD EARNED UDI IN THE FORM OF INTEREST OR ANY OTHER INCOME IN MONEY FORM FROM SUCH BANKING TRANSACTIONS THE CONTENTS OF THE AFFIDAVIT OF THE APPELLANT AS WELL AS ALL THE PANCHAS AND ALSO THE CERTIFICATE OF AN ARCHITECT ARE NOT DENIED OR FOUND TO BE FALSE BY ANY AUTHORITY. IN ADDITION TO ABOVE, THE DEFECTS OR ACTUAL FACTS IN THE ENTIRE PROCEDURE, WHICH WERE POINTED OUT BY THE APPELLANT, WERE ALSO NEITHER SPECIFICALLY REJECTED NOR FOUND TO BE FALSE . THE SAID DEFECTS OR ACTUAL FACT IN THE ENTIRE PROCEDURE ARE AS UNDER: 1. SOME OF THE CONTENTS OF THE INVENTORY OF THE STOCK PREPAR ED ARE IN MARATHI LANGUAGE WHEREAS SOME OF THE CONTENTS ARE IN ENGLISH LANGUAGE (PAGE NO. 57 OF THE PAPER BOOK). FURTHER THERE IS ALSO DIFFERENCE IN THE HANDWRITING WHICH PROVES THAT THE SAID STATEMENT IS PREPARED BY TWO SEPARATE PERSONS. 2. SUFFIXATION OF L AST DIGIT IN THE COLUMN OF QUANTITY OF INVENTORY E.G. ITEM NO. 2,5,9,19 ETC. (PAGE NO. 57 OF THE PAPER BOOK). 3. S UFFIXATION/PREFIXATION OF DIGIT IN THE COLUMN OF QUANTITY OF INVENTORY E.G. ITEM NO. PREFERABLY 13 (PAGE NO. 59 OF THE PAPER BOOK). 4. T HE SAI D GODOWNS ARE LOCATED AT PETH ROAD IN PANCHWATI AREA WHEREAS THE ALL THE ABOVE PANCHAS ARE RESIDING AT AREA NAMELY RAVIWAR KARANJA, WHICH IS TOTALLY DIFFERENT AREA AND AS PER RULE 112(6)(A) OF THE I.T. RULES, 1962 THE PANCHAS SHOULD HAVE BEEN FROM THE SAM E LOCALITY OF THE PREMISES TO BE SEARCHED THE RELEVANT PORTION OF RULE 112(6)(A) OF THE I.T. RULES, 1962 IS AS UNDER - 112(6) BEFORE MAKING A SEARCH, THE AUTHORIZED OFFICER SHALL (A) WHERE A BUILDING OR PLACE IS TO BE SEARCHED CALL UPON TWO OR MORE RESPECTABLE INHABITANTS OF THE LOCALITY IN WHICH THE BUILDING OR PLACE TO BE SEARCHED IS SITUATE, AND (REFER TO PAGE NOS. 41,42,55 OF THE PAPER BOOK FOR ADDRESSES OF THE PANCHAS) 5. IT IS ALSO SURPRISING TO NOTE THAT MR. BALASAHEB SANAP & MR. SUJAS MEHTA W HO WERE SHOWN TO BE PANCHAS WHEN THE ORDER U/S. 132(3) WAS PASSED ON 23/12/2000 IN RESPECT OF THE SAID TWO GODOWNS LOCATED IN PANCHWATI AREA, WERE ALSO PANCHAS ON THE SAME DAY I.E. ON 23/12/2000 AT THE SHOP OF THE APPELLANT LOCATED AT ALTOGETHER DIFFERENT AREA I.E. AT RAVIWAR KARANJA. THE SAME PERSON CANNOT ACT AS PANCHAS ON THE SAME DAY AT DIFFERENT AREA ESPECIALLY WHEN THE SEARCH - 19 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 ACTION AT SHOP PREMISES WAS CONTINUED FOR THE WHOLE DAY ON 23/12/2000. (REFER TO PAGE NOS. 52,53 & 54 OF PAPER BOOK) 6. I N CASE O F OTHER GODOWNS, THE ACTION WAS TAKEN U/S. 133A OF THE ACT BUT IN CASE OF THESE TWO GODOWNS THERE IS CONFUSION THAT WHETHER THERE WAS ACTION U/S. 133A OR U/S. 132 BECAUSE ON THE INVENTORY PREPARED, THE OFFICER OR STAFF OF SEARCH/SURVEY PARTY WHO HAS PREPAR ED THE INVENTORY HAS USED THE WORDINGS DURING THE SURVEY ACTION U/S. 132 (PAGE NO. 57 & 59 OF THE PAPER BOOK). AT ONE HAND THE OFFICER IS USING THE TERM SURVEY ACTION AND AT THE SAME TIME HE IS USING THE SECTION 132. T HIS MISTAKE MIGHT HAVE BEEN HAPPENED DUE TO PREPARATION OF THE SAME AT LATER STAGE. THE AO HAS ALSO REFERRED TO ACTIONS ON THE GODOWNS TO BE U/S. 133A IN THE ASSESSMENT ORDER ON PAGE 1 OF THE ASSESSMENT ORDER. 7. B OTH THE GODOWNS WERE SHOWN TO BE SEALED U/S. 132(3) OF THE ACT ON 23.12.2000 AT 6.30 PM I.E. AT A TIME WHEN THE AUTHORISED OFFICER AS WELL AS PANCHAS WERE ALSO SAME. (REFER TO PAGE NO. 52 & 53 OF THE PAPER BOOK) 8. T HE STOCK OF CHAWLI, MASUR DAL ETC. CANNOT BE STORED IN SUCH HUGE QUANTITY IN SUCH ORDINARY GODOWNS EXCEPT APPROVED WAREHO USES BECAUSE THE INSECTS NAMELY SONKIDA, PORKIDE, ETC. IMMEDIATELY STARTS DAMAGING THE SAID STOCK. THIS FACT WAS BROUGHT TO THE NOTICE OF AO AND THE SAME IS ALSO NOT FOUND UNTRUE. 9. T HE SEARCH PROCEDURE WAS NOT FOLLOWED PROPERLY BECAUSE IN THE SHOP PREMISES OF THE APPELLANT, THE ORDER U/S. 132(3) WAS PASSED IN RESPECT OF A WOODEN CUPBOARD. (REFER TO PAGE NO. 54 OF THE PAPER BOOK) WHEREIN THE PANCHAS ARE SHOWN TO BE SIGNED ON 23.12.2000 AND THE ORDER IS SHOWN TO BE PASSED ON 24.12.2000. ALL THE ABOVE DEFEC TS OR FACTS ARE NOT DISPUTED BY THE DEPT. THE BASIS GIVEN BY THE REVENUE FOR MAKING IMPUGNED ADDITION IS ALSO GENERAL IN NATURE AND CONTENTIONS OF THE APPELLANT I.E. CAPACITY OF THE GODOWNS COUPLED WITH THE CERTIFICATE OF AN ARCHITECT, AFFIDAVITS OF THE P ANCHAS, STOCK TAKING IN LESS THAN HALF AN HOUR TIME, SEALING OF BOTH THE GODOWNS AT A SINGLE POINT OF TIME, ETC HAVE NOT BEEN FOUND FALSE . MOREOVER THE STATEMENT OF THE APPELLANT WAS ALSO RECORDED AT THE FAG END OF THE ASSESSMENT PROCEEDINGS (PAGE NO. 74 TO 77 OF THE PAPER BOOK). BUT NO ANY QUERY WAS RAISED BY THE AO IN RESPECT OF THE IMPUGNED ADDITION OR SUBMISSIONS OF THE APPELLANT IN THIS RESPECT, WHEN THE ABOVE DEFECTS WERE ALREADY POINTED OUT TO HIM AND ALL THE ABOVE AFFIDAVITS WERE ALREADY FILED W ITH HIM. THEREFORE CONSIDERING THE TOTALITY OF THE FACTS AS MENTIONED HEREINABOVE, THE IMPUGNED ADDITION ON ACCOUNT OF EXCESS STOCK PLEASE BE DELETED. WITHOUT PREJUDICE TO ABOVE SUBMISSION, THE IMPUGNED ADDITION IS NOT TENABLE BECAUSE - A. THE ADDITION IS MADE BY THE AO ON THE BASIS THAT THE DIFFERENCE OF STOCK WAS FOUND AS A RESULT OF SURVEY ACTION AND NOT SEARCH ACTION - 20 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 (REFER TO 1 ST PARA ON PAGE NO. 17 OF THE ASSESSMENT ORDER). WHICH READ AS HENCE THE EXCESS STOCK DETERMINED AT THE TIME OF SURVEY ACTION OF RS. 46,64,553/ - IS ADDED AS UNACCOUNTED STOCK FOR THE A.Y. 2001 - 2002 I.E. UPTO 22.12.2000 . THE AO HAS ALSO STATED ON PAGE NO.1 OF THE ASSESSMENT ORDER THAT THERE WERE SURVEY ACTIONS AT THE GODOWNS OF THE APPELLANT, WHICH READ AS - THE SEARCH AND SEIZURE ACTION UNDER SECTION 132(1) OF THE INCOME TAX ACT, 1961 HAS BEEN CONDUCTED AT THE RESIDENTIAL PREMISES LOCATED AT FLAT NO. 3 AND 4 CHITRAKUT SOCIETY, DINDORI ROAD, NASHIK AS WELL AS BUSINESS PREMISES AT 2 SHANTA CHAMBERS, RAVIWAR KARANJA, NASH IK, ON 22.12.2000. SIMULTANEOUSLY, SURVEY ACTION WAS ALSO CARRIED OUT AT THE GODOWNS OF THE ASSESSEE GROUP (EMPHASIS SUPPLIED) IF THERE WERE SURV EY ACTIONS ON THE GODOWNS, THEN THE ADDITION OF THE EXCESS STOCK IF ANY CANNOT BE MADE U/S. 158BC AS THE SAME IS NOT FOUND AS A RESULT OF SEARCH. RELIANCE IS PLACED ON THE DECISION OF PRAKASH TULSIDAS V ACIT 68 TTJ 479(NAG) IN WHICH IT IS HELD THAT ACTION U/S. 133A IS EXCLUDED FROM THE PURVIEW OF SECTION 158BA AND ACTION U/S. 132 AND 132A ALONE IS TO BE CONSIDERE D FOR MAKING ASSESSMENT OF UNDISCLOSED INCOME UNDER CHAPTER IVX - B. HENCE AS THE IMPUGNED ADDITION IS MADE ON THE BASIS OF ACTION U/S. 133A OF THE ACT, THE SAME PLEASE BE DELETED. B. THE SAID ADDITION IS ALSO NOT JUSTIFIED BECAUSE THE SAID ADDITION IS B ASED ON THE TENTATIVE TRADING A/S. PREPARED DURING THE SEARCH ITSELF (REFER TO PAGE NO. 14 OF THE ASSESSMENT ORDER, PARA 10) THE STOCK FOUND DURING THE ACTION WAS RS. 2,04,21,150/ - , WHEREAS AS PER TENTATIVE TRADING ACCOUNT, THE STOCK WAS FOUND WORTH RS. 1,57,56,497. THUS THE ASSESSEE WAS HOLDING EXCESS STOCK OF RS. 46,64,553/ - . IT MEANS THE SAID ADDITION IS NOT BASED ON FINAL ACCOUNT. IT WAS ALSO BROUGHT TO THE NOTICE OF THE ADI THAT THE TRADING A/C. IS SUBJECT TO RECTIFICATION, AMENDMENT, RECONCILIAT ION, AUDIT, ETC. (REFER TO PAGE NO. 86 OF THE PAPER BOOK) , WHICH READ AS I WOULD LIKE TO STATE THAT THE SAID BALANCE SHEET IS PREPARED SUBJECT TO RECTIFICATION, AMENDMENT, RECONCILIATION, AUDIT ETC . . HENCE THE SAID ADDITION IS NOT CONCRETE AND AS TH E SAME IS BASED ON SURMISES , THE SAME PLEASE BE DELETED . RELIANCE IS ALSO PLACED ON THE DECISION OF PUNE TRIBUNAL IN CASE OF M/S. PALKAR JEWELLERS VS. DCIT, CIRCLE - 3(4) (APPEAL NO. 302 - A/PN/2000) THE RELEVANT PORTION OF THE SAID DECISION IS AS UNDER - TH E ASSESSEE WAS CARRYING ON THE BUSINESS OF TRADING OF SILVER ARTICLES. IN RESPECT OF THE IMPUGNED ADDITION, IN BRIEF, THE ASSESSEE HAS MENTIONED THAT A TENTATIVE TRADING A/C WAS PREPARED BY THE ASSESSEE, ACCORDING TO WHICH, THE VALUE OF THE CLOSING STOCK WAS WORKED OUT AT RS. 91,261/ - . HOWEVER, AN INVENTORY OF THE STOCK WAS PREPARED, ACCORDING TO WHICH, SILVER ARTICLES WERE IN WEIGHT 24,257 GMS. WHICH WERE VALUED - 21 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 AT RS. 1,77,000/ - . THE DIFFERENCE BETWEEN THE TWO WAS HELD AS EXCESS STOCK ARRIVED AT RS. 85, 739/ - WHICH WAS HELD AS UNDISCLOSED INCOME FOR A.Y. 1997 - 98 AND TAXED ACCORDINGLY IN THE HANDS OF THE ASSESSEE. (PARA 2 OF THE ORDER) ----- ----- AS FAR AS THE QUESTION OF ADDITION IN RESPECT OF THE VALUATION OF STOCK, WE HAVE DULY CONSIDERED THE MERITS OF THE ISSUE AND THEREUPON ARRIVED AT THE CONCLUSION THAT THE SAME WAS OUT OF THE AMBITS OF THE BLOCK ASSESSMENT PROCEEDINGS BY RELYING UPON GHODAVAT PAN MASALA PRODUCTS, 250 ITR 570 (PARA 5 OF THE ORDER) . ------ THE FACTS HAVE REVEALE D THAT A TENTATIVE TRADING ACCOUNT WAS PREPARED, WHICH OBVIOUSLY MEANS THAT THE PROFITS OF THE A.Y. 1997 - 98 HAVE BEEN ESTIMATED AND THEREUPON, THE VALUE OF THE CLOSING STOCK WAS DETERMINED. THAT CALCULATION WAS ADMITTEDLY NOT BASED UPON ANY INCRIMINATING MATERIAL WHICH WAS UNEARTHED OR DETECTED CONSEQUENT UPON THE SEARCH. SO, THE ARGUMENT WAS THAT THE STOCK SO FOUND WAS PART OF THE REGULAR BUSINESS, THEREFORE OUT OF THE AMBITS OF THE BLOCK ASSESSMENT PROCEEDINGS. WE FIND FORCE IN THESE ARGUMENTS OF LD A.R . AND FOR THAT WE DRAW SUPPORT FROM AN ORDER OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S. SHAMLAL BALRAM GURBANI, 24 ITR 501 (BOM) . (PARA 6 OF THE ORDER) HENCE AS THE IMPUGNED ADDITION IS MADE ON THE BASIS OF TENTATIVE TRADING ACCOUNT, THE S AME PLEASE BE DELETED. HENCE ON THE BASIS OF ABOVE SUBMISSION S WE KINDLY REQUEST YOUR HONOUR TO CANCEL THE ADDITION SUSTAINED BY CIT(A) OF RS. 46,64,553/ - ON ACCOUNT OF EXCESS STOCK. 22. FROM THE ABOVE, WE FIND THAT THE ASSESSEE THROUGH HIS COUNSEL, RA ISED VARIOUS LOGIC RELATED AND FACTS RELATED ISSUES. IN OUR OPINION, THESE ISSUE GO INTO THE ROOT OF THE ISSUE. PRIMA FACIE, WE FIND THE ARGUMENTS OF THE ASSESSEE REQUIRES DETAILED REBUTTAL FROM THE REVENUE. MOST IMPORTANTLY, T HE CERTIFICATE ISSUED BY THE ARCHITECT ASSUMES AN IMPORTANT EVIDENCE WHICH IS REQUIRED TO BE REBUTTED BY THE REVENUE AND IT IS FOR THE REVENUE TO PROVE THAT THE CONTENTS OF THE ASSESSEE ARE UNTRUE. HOW CAN THE GODOWNS OF LITTLE SPACE AND VOLUME EXPLAIN THE IMPUGNED STOCKS. FURTHER, TH E REVENUE IS UNABLE TO ACCOUNT FOR AS TO HOW SUCH A HUGE STOCK WAS INVENTORISED IN SUCH A SHORT TIME. HOW THE SAME WITNESSES BROUGHT DURING THE SEARCH/SURVEY PROCEEDINGS CAN WITNESS THE STOCK INVENTORY PROCEEDINGS AT TWO DIFFERENT PREMISES. THERE ARE MAN Y SUCH QUESTION WHICH ARE REQUIRED TO BE CAREFULLY ANALYSED AND REBUTTED. IN ANY CASE, CONSIDERING THE IMPORTANCE OF THE ABOVE DETAILED ARGUMENTS OF THE LD COUNSEL FOR THE ASSESSEE, BOTH PARTIES AGREED TO OUR PROPOSAL TO - 22 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 REFER THE MATTER TO THE FILES OF T HE AO FOR WANT OF DETAILED REASONING AND THE REBUTTAL WITH EVIDENCES BY THE REVENUE . ACCORDINGLY, THE ISSUE IS SET ASIDE. AO SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 23. GROUND NO. 2 : THIS GROUND RELATES TO CONFIRMING OF THE ADDITION MADE ON ACCOUNT OF NET PROFIT OF RS.7,63,309/ - FOR A.Y.1997 - 98 TO A.Y. 2000 - 01 AS SHOWN IN THE PROFIT & LOSS A/C. OF M/S. AKSHAY TRADERS (PROP. KANCHAN C. LODHA) SUBMITTED TO BANK FOR LOAN PURPOSE AND PARTICULARLY WHEN THE SAID ADDITION IS NOT M ADE ON THE BASIS OF ANY EVIDENCE FOUND AS A RESULT OF SEARCH ACTION U/S. 132 OF THE INCOME TAX ACT, 1961 . RELEVANT FACTS, ARGUMENTS AND OTHER DEVELOPMENTS OF THE ISSUE AS NARRATED IN THE WRITTEN SUBMISSIONS BY THE COUNSEL ARE AS FOLLOWS. FOR AVAILING THE LOAN FACILITIES, THE BUSINESS WAS SHOWN TO BE DONE IN THE NAME OF M/S. AKSHAY TRADERS (PROP: MRS. KANCHAN LODHA). FOR THE PURPOSE OF THE SAME, THE PROFIT & LOSS A/C. FOR THE PERIOD 1996 - 97, 1997 - 98, 1998 - 99 & 1999 - 00 WERE SUBMITTED TO GODAWARI CO - OP BANK LTD SHOWING PROFIT OF RS. 39,730/ - , RS. 69,910, RS. 1,80,800/ - & RS. 4,72,869/ - RESPECTIVELY. OUT OF THE SAID PROFIT AND LOSS ACCOUNTS, THE PROFIT AND LOSS ACCOUNT FOR THE LAST TWO PERIODS I.E. F.Y. 1998 - 99 & 1999 - 00 WERE PROJECTED ACCOUNT. (REFER TO PAGES 61 TO 64 OF THE PAPER BOOK) THE AO HAS MADE THE SAID ADDITION FOR THE ONLY REASON THAT M/S. AKSHAY TRADERS IS BENAMI CONCERN OF THE APPELLANT HENCE PROFIT SHOWN BY M/S. AKSHAY TRADERS FOR VARIOUS YEARS ARE ADDED IN THE HANDS OF THE APPELLANT. THE CIT(A ) HAS CONFIRMED THE SAID ADDITION MAINLY FOR THE REASON THAT THE FINANCIAL STATEMENTS WERE SIGNED BY A CHARTERED ACCOUNTANT THE IMPUGNED ADDITION IS NOT JUSTIFIED BECAUSE A. THE APPELLANT HAS CLEARLY FROM TIME TO TIME STATED THAT THE FIRM NAMELY M/S. AKSHAY TRADERS IS CREATED BY HIM FOR BANKING TRANSACTION CYCLE & LOAN PURPOSE. IN FACT NO ACTUAL BUSINESS WAS AT ALL CARRIED OUT IN THE SAID NAME. NOT A SINGLE PAPER OF PURCHASE OR SALE OR ANY EXPENSE HAS BEEN FOUND DURING THE SEARCH ACTION AS A PROOF OF ANY BUS INESS HAVING DONE IN THE NAME OF M/S. AKSHAY TRADERS. THE CIT(A) HAS CONFIRMED THE SAID ADDITION AGAINST HIS OWN FINDING PARA 60 ON PAGE NO. 28 OF HIS ORDER THAT - M/S. AKSHAY TRADERS IS NOT ENGAGED IN ANY BUSINESS BUT ONLY INDULGED IN BANKING TRANSACTION CYCLE FOR WHICH THE APPELLANT AND M/S. THAKKAR & SONS WERE BENEFITED. THERE WAS NO PURCHASE IN THE - 23 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 NAME OF M/S. AKSHAY TRADERS AND AT THE SAME TIME THERE WERE NO SALES ALSO. THE AO HAS MADE ADDITION FOR THE REASON THAT THE PROFIT IS SHOWN BY M/S. AKSHAY TRADERS. THERE IS NO FINDING THAT M/S. AKSHAY TRADERS HAS ACTUALLY CARRIED ON THE BUSINESS AND HAS ACTUALLY EARNED THE PROFIT AS SHOWN IN THE STATEMENT. IN FACT THE CLAIM OF THE APPELLANT THAT NO BUSINESS HAS EVER BEEN CARRIED OUT IN THE NAME OF M/S. AKSH AY TRADERS IS ALSO ACCEPTED BY CIT(A), THEN IN SUCH CIRCUMSTANCES THE IMPUGNED ADDITION IS NOT JUSTIFIED. THERE IS ALSO NO EVIDENCE THAT THE PROFIT AS SHOWN IN THE SAID PROFIT AND LOSS ACCOUNT IS IN FACT EARNED BY THE APPELLANT. THE CHARTERED ACCOUNTAN T HAS NEVER STATED ANYWHERE THAT THE FINANCIAL FIGURES ARE CERTIFIED BY HIM TO BE AS ACTUAL OR ON THE BASIS OF ANY BOOKS OF ACCOUNT. WHEREVER THE CHARTERED ACCOUNTANT HAS CERTIFIED ON THE BASIS OF BOOKS OF ACCOUNTS, HE HAS SPECIFICALLY MENTIONED THE SAME ( REFER TO PAGE NO. 6 OF THE PAPER BOOK). THE PURPOSE OF THE I.T. ACT IS TO TAX THE REAL INCOME AND NOT NOTIONAL INCOME. THE BUSINESS RUN BY THE APPELLANT WAS ON LARGE SCALE AND HE WAS IN GREAT NEED OF CAPITAL. THAT IS WHY THE SAID FINANCIAL STATEMENTS WERE PREPARED TO SUBMI T TO BANK TO AVAIL LARGER CREDIT FACILITIES. FURTHER IT IS NOT THE CASE OF A.O. OR CIT(A) THAT M/S. AKSHAY TRADERS HAS ACTUALLY CARRIED OUT THE BUSINESS. THEREFORE THE ADDITION MADE ON THE BASIS OF FINANCIAL STATEMENTS SUBMITTED TO BANK FOR AVAILING CREDIT FACILITIES PLEASE BE DELETED. THE RELIANCE IS PLACED ON THE DECISION OF AMRUTSAR TRIBUNAL IN CASE OF I.T.O. VS TILAK RICE MILLS 75 TTJ 20. IN THE SAID DECISION IT WAS HELD THAT - (SYNOPSIS) AO DID NOT CONTROVERT THE EXPLANATION OF THE ASSESSEE THAT THE STOCK STATEMENTS SUBMITTED TO THE BANK WERE BASED ON ROUGH ESTIMATES AND NOT ON ACTUAL/PHYSICAL VERIFICATION AND THE SAME WERE INFLATED TO AVAIL OF OVER - DRAFT FACILITY - CIT(A) RIGHTLY DELETED THE ADDITION . FURTHER RELIANCE IS PLACED ON T HE DECISION OF MADRAS HIGH COURT IN CASE OF CIT VS N. SWAMY 241 ITR 363 WHICH HELD THAT THE ASSESSEES INCOME IS TO BE ASSESSED BY THE ITO ON THE BASIS OF THE MATERIAL WHICH IS REQUIRED TO BE CONSIDERED FOR THE PURPOSE OF ASSESSMENT AND ORDINARILY NOT ON THE BASIS OF THE STATEMENT WHICH THE ASSESSEE MAY HAVE GIVEN TO A THIRD PARTY UNLESS THERE IS MATERIAL TO CORROBORATE THE STATEMENT OF THE ASSESSEE GIVEN TO A THIRD PARTY, EVEN IF IT BE A BANK. THE MERE FACT THAT THE ASSESSEE HAD MADE SUCH A STATEMENT BY ITSELF CANNOT BE TREATED AS HAVING RESULTED IN AN IRREBUTTABLE PRESUMPTION AGAINST THE ASSESSEE. THE BURDEN OF SHOWING THAT THE ASSESSEE HAD UNDISCLOSED INCOME IS ON THE REVENUE. THAT BURDEN CANNOT BE SAID TO BE DISCHARGED BY MERELY REFERRING TO THE S TATEMENT GIVEN BY THE ASSESSEE TO A THIRD PARTY IN CONNECTION WITH A TRANSACTION WHICH WAS NOT DIRECTLY RELATED TO THE ASSESSMENT AND MAKING THAT THE SOLE FOUNDATION FOR A FINDING THAT THE ASSESSEE HAD DELIBERATELY SUPPRESSED HIS INCOME. THE BURDEN IS ON THE REVENUE TO PROVE THAT THE INCOME SOUGHT TO BE TAXED IS WITHIN THE TAXING PROVISIONS AND THERE WAS IN FACT INCOME. THE COCHIN BENCH OF TRIBUNAL HAS IN CASE OF ACIT VS. MANGALAM PUBLICATIONS 190 TAXMAN 137 HAS ALSO HELD AS UNDER : - 24 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 IT IS NOT PROPER FOR THE ASSESSING OFFICER TO TREAT THE DOCUMENTS FILED WITH A THIRD PARTY AS ALWAYS SACROSANCT. THE ASSESSING OFFICER HAS TO MAKE HIS OWN ASSESSMENT REGARDING THE PROBATIVE VALUE OF THE DOCUMENTS, AFTER HEARING THE ASSESSEE AND CONSIDERING HIS EXPLANATIO NS. HE CANNOT TAKE ADVANTAGE OF A SITUATION HOSTILE TO THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF A PARTICULAR CASE INDEPENDENTLY. THE ACCOUNT STATEMENTS FILED WITH THE BANK COULD NOT BE ACCEPTED AS THE ULTIMATE TRUTH . THEREFORE THE ADDITION MADE ON THE BASIS OF FINANCIAL STATEMENTS SUBMITTED TO BANK FOR GETTING CREDIT FACILITIES PLEASE BE DELETED. WITHOUT PREJUDICE TO ABOVE, IT TO BE FURTHER STATED THAT - B. THE FINANCIAL STATEMENTS FOR THE LAST TWO YEARS I.E. F.Y. 1998 - 99 & 1999 - 00 ARE PROJECTED ST ATEMENTS AND NOT ACTUAL STATEMENTS AS MENTIONED ON THE SAID STATEMENTS . THESE STATEMENTS WERE PREPARED IN AROUND MAY 1998. C. THE SAID ADDITION IS NOT MADE BY THE AO ON THE BASIS OF ANY EVIDENCE FOUND AS A RESULT OF SEARCH ACTION. THE AO, IN REMAND REPORT HA S ALSO ACCEPTED THE SAID FACT (PAGE 69 OF THE PAPER BOOK) THAT THE SAID ADDITION IS MADE ON THE BASIS OF POST SEARCH ENQUIRIES . THERE IS NO ANY SEIZED MATERIAL TO SUPPORT THE POST SEARCH ENQUIRIES. IN CASE OF BLOCK ASSESSMENT THE ADDITION TO BE MADE SHOU LD HAVE RELATION TO CERTAIN SEIZED MATERIAL. IN THE PRESENT CASE THE AO HAS NOT CO - RELATED THE IMPUGNED ADDITION TO ANY SEIZED MATERIAL. RELIANCE IS PLACED ON THE DECISION IN CASE OF AJIT G. BARDIYA VS ACIT APPEAL NO. 73/PN/96 (PAGE NO. 87 TO 90OF THE PAP ER BOOK, PARA NO. 19 OF THE ORDER) . THE RELEVANT PORTION OF THE SAID DECISION IS AS UNDER - FROM THE BARE READING OF THE ABOVE TWO OBSERVATIONS OF THE AO, IT IS MANIFEST THAT THE REFERENCE WAS MADE TO THE SEIZED DOCUMENTS OF BARDIYA GROUP IN GENERAL AND N OT TO ANY SPECIFIC MATERIAL WITH REFERENCE TO THE ASSESSEE. THE AO HAS NOT POINTED OUT ANY DOCUMENT WHICH WAS SEIZED DURING THE SEARCH OPERATION IN THE CASE OF THE ASSESSEE FROM WHICH IT COULD BE INFERRED THAT THE ASSESSEE HAD SOME UNDISCLOSED INCOME REPRE SENTED BY GIFTS. SECTION 158BB(1) AS AMENDED WITH RETROSPECTIVE EFFECT FROM 1/7/1995 MAKES IT ABUNDANTLY CLEAR THAT THE UNDISCLOSED INCOME HAS TO HAVE DIRECT NEXUS WITH THE EVIDENCE FOUND AS A RESULT OF THE SEARCH. THUS SOME SPECIFIC MATERIAL IN RELATION T O THE ASSESSEE MUST HAVE BEEN FOUND DURING THE COURSE OF SEARCH ON THE BASIS OF WHICH FURTHER ENQUIRIES WOULD BE MADE. THE AO HAS REFERRED TO THE MATERIAL FOUND IN THE BARDIYA GROUP IN GENERAL WHICH HE WAS PLACING HIS RELIANCE. THEREFORE, IN ANY CASE IT CA NNOT BE HELD THAT THE ADDITION AS UNDISCLOSED INCOME WAS MADE WITH REFERENCE TO ANY SPECIFIC MATERIAL FOUND DURING THE COURSE OF SEARCH . HENCE THE IMPUGNED ADDITION MADE BY THE A.O. ON THE BASIS OF POST SEARCH ENQUIRES UNCONNECTED WITH ANY EVIDENCE FOUND AS A RESULT OF SEARCH ACTION PLEASE BE DELETED. - 25 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 24. THE ISSUE UNDER CONSIDERATION RELATES TO THE CONFIRMING OF THE ADDITION MADE ON ACCOUNT OF NET PROFIT OF RS.7,63,309/ - FOR A.Y.1997 - 98 TO A.Y. 2000 - 01 AS SHOWN IN THE PROFIT & LOSS A/C. OF M/S. AKSHAY T RADERS (PROP. KANCHAN C. LODHA), WHICH ARE SUBMITTED TO THE B ANK FOR LOAN PURPOSE AND PARTICULARLY WHEN THE SAID ADDITION IS NOT MADE ON THE BASIS OF ANY EVIDENCE FOUND AS A RESULT OF SEARCH ACTION U/S. 132 OF THE INCOME TAX ACT, 1961. WE HAVE DEALT RELA TED ISSUE WHILE ADJUDICATING THE APPEAL OF THE REVENUE IN THIS COMPOSITE ORDER AND SET ASIDE THE SAME TO THE FILES OF THE AO. CONSEQUENTLY, CONSIDERING THE NEXUS OF THESE GROUNDS, WE PROCEED TO SET ASIDE THIS GROUND TOO. DURING THE SET ASIDE PROCEEDINGS, T HE AO IS DIRECTED TO ADJUDICATE THE SAME AFTER GRANTING THE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THE SAID GROUND OF THE ASSESSEE IS SET ASIDE. 25. GROUND NO. 3 RELATES TO THE DECISION OF THE CIT(A) IN CONFIRMING THE ADDITI ON MADE ON ACCOUNT OF DIFFERENCE IN BALANCE OF SUNDRY CREDITOR M/S. NASHIK & S.K. LTD OF RS.2,11,821/ - AND PARTICULARLY WHEN THE SAID ADDITION IS NOT MADE ON THE BASIS OF ANY EVIDENCE FOUND AS A RESULT OF SEARCH ACTION U/S. 1 32 OF THE INCOME TAX ACT, 1961. PARA 14 ON PAGE 18 TO 20 OF THE ORDER OF THE ASSESSMENT DEALS WITH THIS ISSUE. FURTHER, PARA 86 ON PAGE 40 OF THE IMPUGNED ORDER CONTAINS THE DECISION OF THE CIT(A) ON THE MATTER. AS PER THE AO, T HERE WAS A DIFFERENCE IN THE CLOSING BALANCE AS ON 31.03.2 000 IN THE ACCOUNT OF NASHIK SAHAKARI SAKHAR KARKHANA LTD. OF RS. 2,11,821/ - THE BALANCE OF CREDIT IN RESPECT OF THE SAID PARTY AS PER BOOKS OF ACCOUNTS OF THE APPELLANT AS ON 31.3.2000 WAS RS. 2,09,536.76 WHEREAS THE SAID PARTY WAS ALSO SHOWING CREDIT BAL ANCE OF THE APPELLANT IN THEIR BOOKS OF ACCOUNT AT RS. 2,285/ - . HENCE THE ADDITION WAS MADE BY THE AO . THE SUBMISSION OF THE ASSESSEE AS MENTIONED IN THE WRITTEN SUBMISSION IN THIS REGARD ARE: A. THE APPELLANT IS HAVING REGULAR ACCOUNT WITH THE SAID PA RTY FOR PURCHASE OF SUGAR. THE BROKER ACTING ON BEHALF OF THE APPELLANT WAS MR. PARESH THAKKAR WITH WHOM THE APPELLANT WAS CARRYING ON THE BANKING CYCLE. MANY TIMES THE PAYMENT FOR PURCHASE OF SUGAR WAS MADE BY MR. THAKKAR ON BEHALF OF THE APPELLANT. BECA USE OF THE RELATIONS WITH MR. THAKKAR, WHO WAS REPRESENTING THE APPELLANT BEFORE - 26 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 THE SAID PARTY, MANY TIMES ADJUSTMENTS WERE MADE BY MR. THAKKAR IN RESPECT OF CERTAIN PAYMENTS OR PURCHASES. THE COPY OF THE SUBMISSION IN RESPECT OF SIMILAR ISSUE IN RESPECT OF A.Y. 1998 - 99 IS PLACED AT PAGE 93 OF THE PAPER BOOK WHICH CLEARLY INDICATE THAT THE ACCOUNT OF THE CREDITORS ARE ALWAYS RECONCILABLE. (REFER TO PAGE 94, CLAUDE D, WHERE T HE PAYMENTS MADE BY CHEQUE/DEMEN D DRAFTS BY THE APPELLANT TO SUGAR FACTORY IS NOT CREDITED BY PARTY TO APPELLANTS ACCOUNT. THE RELIANCE IS ALSO PLACED ON THE DECISION OF PUNE BENCH OF TRIBUNAL IN CASE OF BALASAHEB SUDAM SHEJUL VS. ITO (APPEAL NO. 311/PN/2007) , IN WHICH IT IS HELD THAT - THE SUGAR FACTORIES SHOWED THE ENTIRE BILL IN THE SAME OF THE ASSESSEE AND THIS PRACTICE IS BEING FOLLOWED BY ALL THE FACTORIES FOR YEARS TOGETHER. IN THIS VIEW OF THE MATTER, WE ARE OF OPINION THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING THE ADDITION ON ACCOUNT OF UNACCOUNTED PURCHASE S . FURTHER IT IS ALSO NOT THE CASE OF A.O. OR CIT(A) THAT THE SAID ACCOUNT WAS NOT RECONCILABLE. B. THE SAID ADDITION IS NOT MADE BY THE AO ON THE BASIS OF ANY EVIDENCE FOUND AS A RESULT OF SEARCH ACTION. THE AO, IN REMAND REPORT HAS ALSO ACCEPTED THIS FACT AT PAGE 71 OF THE PAPER BOOK THAT THE SAID ADDITION IS MADE ON THE BASIS OF POST SEARCH ENQUIRIES AND NOT ON THE BASIS OF ANY EVIDENCE FOUND AS A RESULT OF SEARCH ACTION. . THERE IS NO ANY SEIZED MATERIAL TO SUPPORT THE POST SEARCH ENQUIRIES. IN CASE OF BLOCK ASSESSMENT THE ADDITION TO BE MADE SHOULD HAVE RELATION TO CERTAIN SEIZED MATERIAL. IN THE PRESENT CASE THE AO HAS NOT CO - RELATED THE IMPUGNED ADDITION TO ANY SEIZED MATERIAL. RELIANCE IS PLACED ON THE DECISION IN CASE OF AJIT G. BARDIYA VS ACIT APPEAL NO. 73/PN/96 (PAGE NO. 87 TO 90 OF THE PAPER BOOK, PARA NO. 19 OF THE ORDER) ON THE OTHER HAND, LD DR FOR THE REVENUE RELIED ON THE ORDER OF THE AO AND THE CIT(A). 26. WE HAVE HEARD THE PARTIES ON THIS ISSUE. IT IS AN UNDISPUTED FACT THAT A THE ASSESSEE HAS REGULAR ACCOUNT WITH THE SAID PARTY FOR PURCHASE OF SUGAR. THE BROKER ACTING ON BEHALF OF THE ASSSESSEE WAS MR. PARESH THAKKAR WITH WHOM THE ASSESSEE CARRIED ON THE BANKING CYCLE. MANY TIMES THE PAYMENT FOR PURCHASE OF SUGAR WAS MADE BY MR . THAKKAR ON BEHALF OF THE ASSESSEE . BECAUSE OF THE RELATIONS WITH MR. THAKKAR, WHO WAS REPRESENTING THE ASSESSEE BEFORE THE SAID PARTY, MANY TIMES ADJUSTMENTS WERE MADE BY MR. THAKKAR IN RESPECT OF CERTAIN PAYMENTS OR PURCHASES. THE COPY OF THE SUBMISSIO N IN RESPECT OF SIMILAR ISSUE IN - 27 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 RESPECT OF A.Y. 1998 - 99 IS PLACED AT PAGE 93 OF THE PAPER BOOK VOUCHES FOR THE ACCOUNT OF THE CREDITORS ARE ALWAYS RECONCILABLE . ON LEGAL FRONT ALSO, WE FIND THAT THE IMPUGNED ADDITIONS IS NOT DONE BASED ON ANY INCRIMINATIN G MATERIAL AND CONSEQUENTLY, IN OUR OPINION, THIS IMPUGNED ISSUE IS OUT SIDE THE SCOPE OF THE BLOCK ASSESSMENT. THEREFORE, THE ASSESSEE IS ENTITLED TO RELIEF IN THE MATTER. ACCORDINGLY, THE GROUND RAISED IS ALLOWED. 27. GROUND NO. 4 RELATES TO VALIDITY OF THE NOTICE ISSUED U /S.143(2) OF THE I.T. ACT, 1961 . ASSESSEE CLAIMS THAT THE IMPUGNED NOTICE WAS NOT SERVED ON THE ASSESSEE WITHIN THE STATUTORY TIME OF ONE YEAR AND THEREFORE, THE BLOCK ASSESSMENT MADE IS INVALID. RELEVANT PARA IN THE ORDER OF ASSESSE E IS 6 ON PAGE 3 OF THE ORDER OF THE AO. SIMILARLY , THE PARA 101 ON PAGE 45 OF THE IMPUGNED ORDER REFERS TO THE ISSUE UNDER CONSIDERATION. WRITTEN SUBMISSION OF THE ASSESSEE ON THE ISSUE ARE AS FOLLOWS. THE AO IN THE ASSESSMENT ORDER HAS SHOWN THAT THE N OTICE U/S. 143(2) IS ISSUED ON 08.11.2002. BUT IT IS CONTENDED BY THE APPELLANT THAT NO SUCH NOTICE IS RECEIVED BY HIM OR HIS ANY FAMILY MEMBER. THE ONUS IS ON DEPT. TO PROVE THAT THE NOTICE U/S. 143(2) HAS BEEN SERVED ON THE ASSESSEE. RELIANCE IS PLACED ON THE DECISION IN CASE OF CIT VS LUNAR DIAMONDS LTD 281 ITR 1 (DEL) THOUGH THE NOTICE MIGHT HAVE BEEN ISSUED BUT THE SAME IS NOT SERVED UPON THE APPELLANT. THE FACT IS ALSO APPARENT FROM THE ASSESSMENT ORDER THAT THE REFERENCE TO ISSUE OF NOTICE U/S. 14 3(2) IS INSERTED AT LATER STAGE. FURTHER , THERE IS NO MENTIONING OF ISSUE OF NOTICE U/S. 143(2) OF THE ACT IN THE ORDER - SHEET. THE ORDER - SHEET IS A VITAL DOCUMENT, WHICH EXPLAINS THE DAY TO DAY PROCEEDINGS CARRIED OUT IN RESPECT OF PARTICULAR CASE. (REL IANCE IS PLACED ON THE RATIO OF DECISION OF MS. MAYAWATI VS CIT 18 DTR 46 ) THE SIGNATURE AS APPEARING ON THE COPY OF THE NOTICE U/S. 143(2) OF THE ACT AS ACKNOWLEDGEMENT OF RECEIPT OF NOTICE IS NOT OF THE APPELLANT OR ANY OF HIS FAMILY/STAFF MEMBERS. FURT HER AS PER SECTION 282 OF THE ACT THE NOTICE IS REQUIRED TO BE SERVED ON THE PERSON THEREIN NAMED EITHER BY POST OR AS IF IT WERE A SUMMONS ISSUED BY A COURT UNDER THE CODE OF CIVIL PROCEDURE, 1908 (5 OF 1908). AS IN THE PRESENT CASE THE NOTICE IS NOT SHOW N TO BE SERVED BY POST, THEN THE SAME IS REQUIRED TO BE SERVED AS IF IT WERE A SUMMONS ISSUED BY A COURT UNDER THE CODE OF CIVIL PROCEDURE, 1908 (5 OF 1908). HOWEVER RULE 18 OF CIVIL PROCEDURE CODE WHICH STATE AS THE SERVING OFFICER SHALL, IN ALL CASES IN WHICH THE SUMMONS HAS BEEN SERVED UNDER RULE 16, ENDORSE OR ANNEX, OR CAUSE TO BE ENDORSED OR ANNEXED, ON OR TO THE ORIGINAL SUMMONS, A RETURN STATING THE TIME WHEN - 28 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 AND THE MANNER IN WHICH THE SUMMONS WAS SERVED, AND THE NAME AND ADDRESS OF THE PERSON (IF ANY) IDENTIFYING THE PERSON SERVED AND WITNESSING THE DELIVERY OR TENDER OF THE SUMMONS HOWEVER IN THE PRESENT CASE THERE IS NO SUCH ANY ENDORSEMENT OF THE SERVING OFFICE REGARDING MANNER OF SERVING THE NOTICE, TIME OF SERVICE, NAME, ADDRESS, WITNESS, E TC. HENCE CONSIDERING THE ABOVE TOTALITY OF THE FACT S OF THE CASE AS WELL AS LEGAL REQUIREMENT THE BLOCK ASSESSMENT PLEASE BE CANCELLED AS THERE IS NO SERVICE OF ANY NOTICE U/S. 143(2) OF THE ACT ON THE APPELLANT . 28. ON THE OTHER HAND, LD DR FOR THE REVENUE ARGUED STATING THAT THE NOTICE WAS PROPERLY ISSUED AND SERVED AS EVIDENT FROM THE FACT OF THE NOTICE. IN THIS REGARD, LD DR TOOK US THROUGH THE SAID NOTICE AND THE WRITTEN SUBMISSIONS AND ARGUED THAT THE FACT OF THE RECEIPT /SERVICE OF THE NOTICE I S EVIDENT ON THE FACT OF IT. AS PER THE DR, THE FACT OF SERVICE OF THE NOTICE WHEN ACCEPTED BY THE ASSESSEE DURING THE ASSESSMENT AND OTHER PROCEEDINGS AND IT CANNOT BE RAISED AFTER LAPSE OF CONSIDERABLE TIME. IN ANY CASE, THERE IS EVIDENCE FOR THE SERVIC E. 29. WE HAVE HEARD THE PARTIES AND PERUSED THE SAID NOTICE AND FIND THE SAME IS IN ORDER. WHEN THE ASSESSEE IS QUESTIONING THE AUTHENTICITY OF ANY DOCUMENT, THE ONUS IS ON HIM TO PROVE THAT THE SAME IS FAULTY. ON THIS ISSUE, IT IS TRITE LAW THAT ANY DO CUMENT FROM THE GOVERNMENT IS GENUINE AND PROPER UNLESS THERE IS SOME CONTRARY OTHER EVIDENCE TO PROVE IT OTHERWISE. ON PERUSA L OF THE IMPUGNED NOTICE, WE FIND THAT THE ALLEGATIONS OF THE ASSESSEE ARE NOT SUPPORTED BY ANY EVIDENCE. THERE EXISTS THE NOTICE AND THE SAME IS DULY SERVED BY THE AO BEFORE THE TIME ALLOWED IN THIS REGARD AND IN ACCORDANCE WITH THE PROVISIONS OF THE PROVISO TO SECTION 143(2) OF THE ACT. IN OUR OPINION, IT IS THE BONAFIDE LAPSE THAT HE HAS NOT RECORDED THE NAME AND ADDRESS OF THE PE RSON WHO ACCEPTED THE NOTICE. THE SAID LAPSE CANNOT BE EXPLOITED BY THE ASSESSEE AFTER LAPSE OF THE TIME. AS SUCH, HE HAS NO OTHER EVIDENCE TO DEMONSTRATE THAT THERE IS ANY MALAFIDE ON PART OF THE REVENUE. THEREFORE, CONSIDERING THE FACT OF ACKNOWLEDGING T HE RECEIPT OF IMPUGNED NOTICE, WE ARE OF THE VIEW THAT THE GROUND RELATING TO THE LEGAL ISSUE HAS TO BE DISMISSED . - 29 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 30. GROUND NO. 5 RELATES TO THE CONFIRMING SURCHARGE LEVIED @ 17% ON THE TAX RETURNED FOR THE BLOCK PERIOD. ORDER OF THE CIT(A) AT PAGE NO.4 6 PARA 105 REFERS TO THE ISSUE. LD AR FOR THE ASSESSEE FILED THE WRITTEN SUBMISSIONS IN THIS REGARD AND RELEVANT PORTIONS ARE AS UNDER: AS PER PROVISO TO SECTION 113 OF THE ACT THE SURCHARGE ON THE TAX ON THE INCOME DETERMINED U/S. 158BC OF THE ACT SHALL BE LEVIED AT THE RATES APPLICABLE TO ASSESSMENT YEAR RELEVANT TO PREVIOUS YEAR IN WHICH SEARCH IS INITIATED. IN THE PRESENT CASE THE DATE OF SEARCH IS 22.12.2000 AND HENCE IN THE PRESENT CASE THE RELEVANT ASSESSMENT YEAR AS PER THE SAID PROVISO TO SECTION 113 IS A.Y. 2001 - 02. AS PER CENTRAL ACT THE SURCHARGE FOR A.Y. 2001 - 02 WAS LEVIABLE @12% IF TOTAL INCOME FOR THAT YEAR EXCEEDS RS. 60,000/ - BUT NOT EXCEEDS RS. 1,50,000/ - AND @17% IF THE TOTAL INCOME EXCEEDS RS. 1,50,000. THERE WAS NO SURCHARGE LEVIABLE F OR A.Y. 2001 - 02 IF THE TOTAL INCOME FOR THAT YEAR WAS LESS THAN OR EQUAL TO RS. 60,000/ - IT IS FURTHER TO BE STATED THAT IN PROVISO TO SECTION 113, THE REFERENCE IS MADE TO THE SURCHARGE APPLICABLE TO ASSESSMENT YEAR AND THE INCOME IN CASE OF BLOCK ASSE SSMENT IS COMPUTED FOR THE FINANCIAL YEARS WITHIN THE BLOCK PERIOD AND NOT FOR ASSESSMENT YEARS. THERE IS NO REFERENCE TO OR CONCEPT OF ASSESSMENT YEAR IN CASE OF BLOCK ASSESSMENT. THE INCOME FOR THE BLOCK PERIOD IS TO BE ASSESSED IN ADDITION TO OR SEPA RATELY OF THE RELEVANT ASSESSMENT YEAR(S). HENCE INCOME COMPUTED FOR ANY OF THE YEAR IN THE BLOCK PERIOD SHALL NOT BE APPLICABLE FOR DECIDING THE LEVY OF SURCHARGE AND THE INCOME COMPUTED FOR THE ASSESSMENT YEAR ALONE SHALL BE APPLICABLE FOR DECIDING THE R ATE OF SURCHARGE TO BE LEVIED ON THE TAX ON THE INCOME DETERMINED U/S. 158BC OF THE ACT . THEREFORE IN CASE OF APPELLANT FOR A.Y. 2001 - 02 I.E. RELEVANT ASSESSMENT YEAR , THE T OTA L I NCOME COMPUTED BY THE AO U/S. 143(3) OF THE ACT IS RS. NIL. HENCE AS THE TO TAL INCOME OF THE APPELLANT FOR A.Y. 2001 - 02 IS LESS THAN RS. 60,000 THE SURCHARGE IS NOT LEVIABLE IN THE PRESENT CASE AND THE SAME PLEASE BE DELETED . 31. ON PERUSAL OF THE SAID PARAGRAPH 105, WE FIND THAT THE AO/ CIT(A) HAS ATTENDED TO THE SUBMISSION S OF THE ASSESSEE DIRECTLY AND CONCLUSIVELY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 250(6) OF THE ACT. THEREFORE, WE ARE OF THE VIEW THAT THIS ISSUE MUST BE SET ASIDE TO THE FILES OF THE AO WITH THE DIRECTION TO CONSIDER THE ABOVE SUBMISSIONS AND PASS A SPEAKING ON THE ARGUMENTS RAISED. ACCORDINGLY, THE ISSUE UNDER CONSIDERATION IS SET ASIDE. 32. GROUND NO. 6 IS GENERAL AND AS STATED BY THE ASSESSEES COUNSEL IN THE WRITTEN SUBMISSIONS FILED BEFORE US, THE SAME IS DISMISSED AS NOT PRESSED. - 30 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 33. IN T HE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 1471, 1472 & 1473/PN/05 BY THE ASSSESSEE FOR THE A.Y. 1997 - 08, 1998 - 99 & 1999 - 00 34. ALL THESE THREE APPEALS ARE FILED BY THE ASSESSEE AND THE COMMON ISSUE IS INVOLVED IN THESE APPEALS RELATES TO THE ISSUE OF ESTIMATION OF NOTIONAL INTEREST OUT OF THE BANKING TRANSACTION CYCLE I.E ACCOMMODATION CHEQUES. THE ASSESSEE WAS INVOLVED IN BANKING TRANSACTION CYCLE I.E. ACCOMMODATION CHEQUES. THE NATURE OF BANKING TRANSACTION CYCLE IS EXPLAINED IN CASE OF APPEAL NO. 291/PN/04, WHEREIN THE APPEAL WAS FILED BY THE REVENUE AGAINST THE DELETION OF SIMILAR ADDITION BY CIT(A). THE FINDING OF THE A.O. AS GIVEN ON THE ASSESSMENT ORDER FOR THE BLOCK PERIOD TO THE EXTENT IT RELATES TO ACTUAL CYCLE OF MO NEY, IS NOT IN DISPUTE. HOWEVER, THE A.O. CALCULATED THE NOTIONAL INTEREST OUT OF THE SAID CYCLE I.E. ACCOMMODATION CHEQUES CARRIED OUT FOR THE BENEFIT OF M/S. THAKKAR & SONS @ 12% FOR ONE DAY OF THE AMOUNT INVOLVED IN THE CYCLE. THE A.O. ASSUMED THAT TH E TRANSACTIONS OF BANKING TRANSACTION CYCLE ARE NOT RECORDED IN THE REGULAR AUDITED BOOKS OF ACCOUNTS. HOWEVER IT IS FACT THAT ALL THE TRANSACTIONS OF BANKING CYCLE ARE RECORDED IN THE AUDITED BOOKS OF ACCOUNTS OF THE APPELLANT AND SOME OF THE SAID BOOKS O F ACCOUNTS ARE ALSO SEIZED DURING THE COURSE OF SEARCH ACTION AND ARE STILL IN THE POSSESSION OF THE A.O., WHICH CONTAINS COMPLETE TRANSACTIONS OF BANKING TRANSACTION CYCLE. LD COUNSEL FOR THE ASSESSEE FILED THE FOLLOWING WRITTEN SUBMISSIONS AND THEY ARE: IT IS ALSO WORTH TO BE NOTED THAT THROUGHOUT THE ASSESSMENT PROCEEDINGS THERE WAS NO ISSUE OF CALCULATION OF SUCH INTEREST OUT OF THE SAID CYCLE. THE IMPUGNED ADDITION WAS DIRECTLY MADE BY THE A.O. IN THE ASSESSMENT ORDER. SUBMISSION - THE IMPUGNED ADD ITION WAS MADE BY THE A.O. FOR THE MAIN FOLLOWING REASONS 1. THE TRANSACTIONS OF CYCLE ARE NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS. 2. THE ASSESSEE MUST HAVE EARNED OUT OF THE SAID TRANSACTIONS OF CYCLE. 3. THE ASSESSEE HAS USED THE MONEY OF THE BANK WITHOUT PAYING APPROPRIATE COST - 31 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 THE RELEVANT FINDING OF THE A.O. IN THIS RESPECT AS GIVEN AT PARA NO. 2 OF THE ASSESSMENT ORDER OF A.Y. 1997 - 09 IS AS UNDER THE SEARCH OPERATION CONDUCTED U/S. 132 REVEALED THAT THE ASSESSEE WAS ENGAGED IN THE SYSTEMATIC BANKI NG TRANSACTION CYCLES ALONG WITH M/S. THAKKAR AND SONS, PROP. PARESH J. TAKKAR. THE ASSESSEE WAS USING THE MONEY OF THE BANKS IN CRORES OF RUPEES MAINLY THROUGH THE OPERATION OF HIS BANK ACCOUNTS WITH STATE BANK OF HYDERABAD, GODAVARI URBAN CO - OP BANK, NA MCO BANK ETC WITHOUT OFFERING ANY SECURITY TO THE BANKS. A DAILY CYCLE WAS CARRIED OUT WITH THE HELP OF ACCOMMODATION CHEQUES. THE ACCOMMODATION CHEQUES OF HUGE AMOUNT WERE BEING ISSUED BY M/S. THAKKAR AND SONS IN FAVOUR OF THE ASSESSEE. THESE CHEQUES W ERE DEPOSITED BY THE ASSESSEE IN HIS BANK ACCOUNTS WITH STATE BANK OF HYDERABAD, NASHIK BRANCH. THE CREDIT IN RESPECT OF SUCH CHEQUES WAS IMMEDIATELY GIVEN BY THE STATE BANK OF HYDERABAD TO THE ASSESSEE IN ONE DAYS FAITH WITHOUT GETTING THE PROCEEDS TH ROUGH NORMAL CLEARING SYSTEM. SUCH FUNDS WERE IMMEDIATELY TRANSFERRED BY THE ASSESSEE TO HIS OWN OTHER ACCOUNTS MAINTAINED WITH GODAWARI URBAN CO - OPERATIVE BANK, SBI, NAMCO BANK ETC. AND THESE FUNDS WERE UTILIZED BY THE ASSESSEE AS WELL AS BY M/S. THAKKAR & SONS FOR THEIR BUSINESS PURPOSE. THE MODUS OPERANDI OF THE BANK CYCLES HAS BEEN DISCUSSED IN DETAIL IN THE BLOCK ASSESSMENTS ORDER DATED 30.12.2001, FOR THE BLOCK PERIOD 1.4.90 TO 22/12/2000 IN THE CASE OF THE ASSESSEE. WITH THE HELP OF BANK CYCLES, T HE ASSESSEE INDULGED IN AVAILING OF THE BENEFIT OF UTILIZATION OF HUGE FUNDS OF CRORES OF RUPEES THROUGH HIS ACQUAINTANCES WITH THE OFFICERS IN THE BANK WITHOUT PAYING ANY APPROPRIATE COST. DURING THE COURSE OF BLOCK ASSESSMENT PROCEEDINGS, THE ASSESSEE H AD STATED THAT ALL THESE BANK ACCOUNTS HAS BEEN DISCLOSED IN THE REGULAR BOOKS OF ACCOUNTS. HOWEVER, IT IS SEEN THAT ALL THESE DAY TO DAY BANK TRANSACTIONS WERE NOT AT ALL REFLECTED IN THE BOOKS OF ACCOUNTS MAINTAINED BY HIM BUT ONLY THE CLOSING BANK BALA NCES AT THE END OF THE FINANCIAL YEAR HAS BEEN SHOWN BY THE ASSESSEE. THE ASSESSEE HAS NOT COME FORWARD AT ANY STAGE WITH TRUTH ABOUT HIS ACTUAL EARNING FROM SUCH TRANSACTIONS INVOLVING TURNOVER EXCEEDING CRORES OF RUPEES AND HAD NOT SHOWN PROFIT EARNED THEREFROM. THE TOTAL TURNOVER OF THE ASSESSEE WITH M/S. THAKKAR AND SONS BY WAY OF SUCH MANIPULATED BANKING TRANSACTIONS THROUGH HIS ACCOUNT WITH STATE BANK OF INDIA, HYDERABAD FOR THE F.Y. 96 - 97 RELEVANT TO THE A.Y. 97 - 98 WORKS OUT TO RS. 1,14,39,86,53 6 / - . THIS FIGURE IS TAKEN ON THE BASIS OF THE CHEQUES OF M/S. THAKKAR AND SONS CREDITED IN ADVANCE IN ONE DAYS FAITH WITHOUT RECORDING THEM IN THE REGULAR BOOKS OF ACCOUNT. THE ABOVE TRANSACTION SHOWS THAT THE UTILIZATION OF THESE FUNDS WAS MADE BY HIM FOR ONE DAYS FAITH. HENCE, THE INCOME EARNED BY HIM IS ESTIMATED BY APPLYING THE RATE OF 12% PER ANNUM FOR ONE DAY ON THE AMOUNT OF TURNOVER MADE WITH M/S. THAKKAR & SONS. THE ADDITIONS IN RESPECT OF A.Y. 1998 - 99 & 1999 - 00 WERE ALSO MADE BY THE AO ON THE SAME ISSUE AND ALSO ON THE BASIS OF SAME REASONS. THE DETAILS OF SUCH INTEREST ESTIMATED FOR A.Y. 1997 - 98, 1998 - 99 & 1999 - 00 IS AS UNDER - ASSESSMENT YEAR ESTIMATED INTEREST 1997 - 98 3,76,105/ - - 32 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 1998 - 99 12,90,440/ - 1999 - 00 25,21,770 THE AD DITION IS MADE BY THE AO WITH PREJUDICIAL MIND THAT THE APPELLANT MUST HAVE EARNED INCOME OUT OF THE SAID CYCLE AND T HE APPELLANT IS NOT DISCLOSING THE SAME. THE A.O. HAS MENTIONED IN THE ASSESSMENT ORDER AT PA GE NO. 2 THAT THE ASSESSEE HAS NOT COME FORW ARD AT ANY STAGE WITH TRUTH ABOUT HIS ACTUAL EARNING FROM SUCH TRANSACTIONS INVOLVING TURNOVER EXCEEDING CRORES OF RUPEES AND HAD NOT SHOWN PROFIT EARNED THEREFROM. . THE A.O. HAS ALSO GIVEN THE REASON FOR IMPUGNED ADDITION IN HIS REMAND REPORT TO CIT(A) IN RESPECT OF APPEAL AGAINST SIMILAR ASSESSMENT MADE IN BLOCK ASSESSMENT. (REFER PAGE NO. 50 OF 2 ND PAPER BOOK) DUE TO OPERATION OF THE SAID BANKING TRANSACTION CYCLE THE APPELLANT AND M/S. THAKKER & SONS HAVE USED THE FUNDS OF THE BANK WITHOUT OFFERING ANY SECURITY TO THE BANK AS WELL AS WITHOUT PAYING ANY INTEREST TO BANK. HENCE THE APPELLANT WAS BENEFITED BY UTILIZING THE MONEY OF THE BANK WITHOUT ANY INTEREST. NON PAYMENT OF INTEREST TO BANK ON SUCH FUNDS IS INDIRECTLY ALSO INCOME OF THE APPELLANT. THAT IS WAY THE UDI IS ESTIMATED NOTIONALLY IN THE FORM OF INTEREST @ 15% ON THE AMOUNT INVOLVED I.E. TOTAL TURNOVER IN THE BANKING TRANSACTION CYCLE FOR ONE DAY I.E. PERIOD OF UTILIZATION OF AMOUNT. (EMPHASIS SUPPLIED) THE SIMILAR ADDITION MADE IN BLOCK ASSESSMENT IS DELETED BY CIT(A). HOWEVER THE SAME ADDITION WAS SUSTAINED BY CIT(A) IN CASE OF A.Y. 1997 - 98, 1998 - 99 & 1999 - 00. THE RELEVANT FINDINGS OF CIT WHILE SUSTAINING THE ADDITIONS ARE AS UNDER - PARA 3.4, LINE NO. 11 THE CREDIT IN RESPEC T OF SUCH CHEQUES WAS IMMEDIATELY GIVEN BY THE STATE BANK OF HYDERABAD TO THE APPLICANT IN OR E DAYS FAITH WITHOUT GETTING THE PROCEEDS THROUGH NORMAL CLEARING SYSTEM . PARA 3.5. THE ABOVE FACTS AND CIRCUMSTANCES LEAVE NO LOTA OF DOUBT THAT THE APPEL LANT HAD CREATED A ONE DAY BANKING CYCLE CREDIT BY WAY OF SUCH ACCOMMODATION CHEQUES CREDITED TO HIS ACCOUNT WITH STATE BANK OF HYDERABAD, NASIK BRANCH AND SUCH FUNDS WERE IMMEDIATELY TRANSFERRED TO HIS OTHER BANK ACCOUNTS FOR THE PURPOSE OF UTILIZING IT A S ADVANCE TO M/S. THAKKAR & SONS. THUS, THE STATE BANK OF HYDERABAD, WAS MADE TO SUFFER INTEREST COST FOR EVERY ONE DAY BANKING CYCLE THROUGH SUCH MODUS OPERANDI. THE APPELLANT HAS NOT DISPUTED TO SUCH MALAFIDE TRANSACTIONS WHEREIN HUGE BENEFITS IN THE FO RM OF FUNDS WERE PASSED TO HIS BUSINESS ASSOCIATES M/S. THAKKAR & SONS. THEREFORE, IT FOLLOWS THAT THE BENEFIT ACTUALLY ARISES TO THE APPELLANT BY THE UNFAIR MEANS RESORTED THROUGH SAID BANKING CYCLE TRANSACTIONS. IT IS ALSO AN ADMITTED FACT THAT THE APP ELLANT HAD BUSINESS TRANSACTIONS WITH M/S. THAKKAR & SONS AND, THEREFORE, SUCH BENEFIT TRANSFERRED BY THE APPELLANT TO HIS BUSINESS ASSOCIATES WAS IN THE NORMAL COURSE OF BUSINESS. IN VIEW OF THE GIVEN FACTS AND CIRCUMSTANCES IT CANNOT BE SAID THAT THE BE NEFIT OBTAINED BY THE APPELLANT WAS NOTIONAL AS CLAIMED BY THE APPELLANT. IN FACT, THE BENEFIT ACTUALLY ARISES TO THE APPELLANT IN THE FORM OF INTEREST CHARGEABLE TO SUCH DAILY BANKING TRANSACTION CYCLES WHICH WAS USED IN ADVANCING THE FUNDS TO HIS BUSIN ESS ASSOCIATES . - 33 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 PAGE 7 1 ST PARA THE INTEREST CHARGEABLE TO SUCH BANKING CYCLE CREDIT IS NOT A NOTIONAL INCOME SINCE SUCH TRANSACTION HAD ACTUALLY BEEN CARRIED OUT BY THE APPELLANT. THE BANKING RULES CLEARLY PROVIDES FOR CHARGING OF INTEREST ON A DAY TO DAY BASIS WITH RESPECT TO ITS CLIENTS AS ALSO WITH INTER BANK TRANSACTIONS AND, THEREFORE, THE ONE DAY BANKING CYCLE CREDIT AVAILED BY THE APPELLANT WAS CHARGEABLE TO INTEREST . CLAUSE (III) ON PAGE 7, LINE NO. 6 IN THE A.Y. 2001 - 02 ON ACCOUNT O F SUCH BANKING CYCLE, AFTER RECEIPT OF SUCH CLAIM MADE BY STATE BANK OF HYDERABAD. WHILE ON THE OTHER HAND THE APPELLANT HAS NOT PROVIDED FOR ANY INTEREST ON SUCH FUNDS GENERATED OUT OF ONE DAY BANKING CYCLE UTILIZED AS ADVANCES TO BUSINESS ASSOCIATES. PARA 3.7 THE APPELLANT HAS PLACED RELIANCE ON THE DECISION OF THE CIT(A) - 1, NAGPUR WHEREIN HE HAS DELETED THE INTEREST CHARGEABLE ON SUCH BANKING TRANSACTION CYCLE IN THE BLOCK ASSESSMENT ORDER OF THE APPELLANT. ON THIS ISSUE I MAY FIRST OF ALL MAKE I T STRAIGHT AND CLEAR THAT SUCH ORDER IS NOT BINDING ON THIS AUTHORITY AND EVERY PROCEEDINGS ARE INDEPENDENT TO BE DECIDED ON ITS MERITS. NONETHELESS I MAY MENTION HERE THAT THE FINDING GIVEN BY MY LEARNED PREDECESSOR WAS WITH REFERENCE TO INTERPRETATION O F SUCH INTEREST INCOME WITHIN THE DEFINITION OF UNDISCLOSED INCOME IN SUCH BLOCK ASSESSMENT. THEREFORE, THE SAID DECISION OF THE CIT(A), LENDS NO SUPPORT TO THE ARGUMENT OF THE APPELLANT THAT NO INTEREST WAS ASSESSABLE IN SUCH REGULAR RE - ASSESSMENT ORDER U/S. 147 OF THE I.T. ACT. IN NUTSHELL THE FINDING AS WELL AS BASIS GIVEN BY CIT(A) FOR SUSTAINING THE IMPUGNED ADDITION AS WELL AS ACTUAL FACT IS AS UNDER 1. THE INTEREST IS CALCULATED IN THE HANDS OF THE APPELLANT BECAUSE HE HAS RECEIVED THE CLEARING OF THE CHEQUES RECEIVED FROM M/S. THAKKAR & SONS ONE DAY ADVANCE OF ACTUAL CLEARING THROUGH CLEARING HOUSE. THEREFORE IT IS ADVANCE TO APPELLANT AND HENCE THE INTEREST IS CHARGEABLE ON ONE DAY BASIS AS BANKING RUL ES PROVIDE FOR CHARGING INTEREST ON DAY TO DAY BASIS. HERE THE CIT(A) HAS IGNORED THE VITAL FACT WHICH IS NOT IN DISPUTE THAT THE MONEY RECEIVED FROM M/S. THAKKAR & SONS IS REPAID TO HIM BY THE APPELLANT AND HE HAD NEVER ANY OCCASION TO ENJOY THE SAID MONEY. IT IS ALSO UNDISPUTED FACT THAT IT IS M /S. THAKKAR & SONS WHO HAS ENJOYED THE BANK MONEY AND THE APPELLANT. 2. SECONDLY, M/S. THAKKAR & SONS IS NOT AT ALL ANY BUSINESS ASSOCIATE OF THE APPELLANT. THERE IS NO SUCH ANY FINDING OF AO. THE CIT HAS GIVEN THIS FINDING WITHOUT ANY BASE AND CONTRARY T O ACTUAL FACT. 3. THE FACTS OF A.Y. 2001 - 02 ARE TOTALLY DIFFERENT, WHERE DUE THE BOUNCING OF CHEQUES OF THE CYCLE BY MR. THAKKAR & SONS, THE LIABILITY WAS CREATED DUE TO GETTING THE CLEARING OF CHEQUES ONE DAY ADVANCE. THEREFORE THE BANK HAS CHARGED INTERES T ON THE DEBIT BALANCE OF THE APPELLANT IN THEIR ACCOUNT CREATED DUE TO BOUNCING OF THE CHEQUE. WHEREAS IN THE INSTANCES CASES THE INTEREST IS NOTIONALLY CALCULATED. 4. THOUGH THE DECISION OF PREDECESSOR CIT(A) MAY NOT BE BINDING ON THE SUCCESSOR CIT(A), BUT THE SAME SHOULD HAVE BEEN RESPECTED TO FOLLOW JUDICIAL DISCIPLINE PARTICULARLY WHEN NO ANY ADDITIONAL FACT OR MATERIAL IS BROUGH ON - 34 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 RECORD EITHER BY AO OR BY CIT(A). SECONDLY THE CONTENTION OF CIT(A) THAT HIS PREDECESSOR HAS DECIDED ONLY TECHNICAL ISSUE I .E. WHETHER THE INTEREST IS UNDISCLOSED INCOME FOR THE PURPOSE OF BLOCK ASSESSMENT IS NOT CORRECT. THE PREDECESSOR CIT(A) IN HIS ORDER HAS CATEGORICALLY HELD THAT IN THIS C ASE, IT IS ADMITTED FACT THAT DURING THE COURSE OF SEARCH, NO EVIDENCE HAS BEEN FOU ND WHICH SHOWS THAT THE APPELLANT HAS EARNED ANY UNDISCLOSED INCOME (MONITORY GAIN) ON SUCH BANKING TRANSACTION. THE CALCULATION OF INTEREST OF ONE DAY AS COMPUTED BY THE AO JUST ON THE BASIS OF HYPOTHESIS AND SURMISES. IT IS FURTHER HELD BY HIM THAT . ALL THE TRANSACTIONS WHAT ARE THE PART OF BANKING TRANSACTION CYCLE ARE RECORDED IN THE BOOKS OF ACCOUNT. THE RELEVANT LEDGER/BANK BOOK (A - 88, A 84 & 86) WERE FOUND AND SEIZED WHICH CONTAIN THESE TRANSACTION AS RECORDED. THE BOOKS OF ACCOUNTS ARE AUDITED AND ALL BANK ACCOUNTS ARE RECORDED. THE BOOKS OF ACCOUNTS ARE AUDITED AND ALL BANK ACCOUNTS ARE DISCLOSED. THE APPELLANT WAS PART OF BANKING TRANSACTION CYCLE WHICH WERE MAINLY UTILIZED BY M/S. THAKKER & SONS IN COLLUSION WITH THE APPELLANT AS WELL AS BANK OFFICIALS. THERE IS NO EVIDENCE ON RECORD WHICH SHOWS THAT THE APPELLANT HAD EARNED ANY UDI IN THE FORM OF INTEREST OR ANY OTHER INCOME IN MONEY FORM FROM SUCH BANKING TRANSACTIONS. (EMPHASIS SUPPLIED) THEREFORE THE CIT(A) GROSSLY ERRED IN IGNORING THE CATEGORICAL FINDING OF HIS PREDECESSOR. WE FURTHER STATE THAT - 1. THERE IS NO DIRECT OR INDIRECT EVIDENCE FOUND DURING OR AFTER SEARCH ACTION THAT THE APPELLANT HAS RECEIVED ANY SUCH INCOME OUT OF THE SAID CYCLE 2. THE CALCULATION OF INTEREST BY THE A .O. FOR ONE DAY IS BASED ON SURMISES AND HYPOTHESIS BECAUSE AS EXPLAINED BY THE AO HIMSELF THE SAID AMOUNT WAS ALWAYS TRANSFERRED BY APPELLANT TO M/S. THAKKAR & SONS AND NEVER UTILIZED BY THE APPELLANT. 3. THE A.O HAS NOT BROUGHT ON RECORD THAT HOW THE MONEY OUT OF THE CYCLE WAS USED BY APPELLANT AND HOW THE IMPUGNED INCOME IS EARNED BY THE APPELLANT. IT IS ALSO NOT KNOWN WHO HAS PAID SUCH HUGE INTEREST TO APPELLANT. 4. THE A.O. HAS ASSESSED THE NOTIONAL INTEREST AS ACCEPTED BY HIM AND NOT ACTUAL INTEREST. 5. I T IS UNDISPUTED FACT THAT THE SAID CYCLE WAS CARRIED OUT FOR THE BENEFIT OF M/S. THAKKAR AND SONS AND THE ASSESSEE WAS NOT HAVING ANY CONTROL ON THE MONEY CIRCULATING IN THE CYCLE. THIS FACT IS ALSO NOT IN DISPUTE BECAUSE THE A.O. HIMSELF HAS EXPLAINED TH E MODUS OF OPERAND OF THE CYCLE 6. ALL THE TRANSACTIONS OF THE SAID CYCLE ARE RECORDED IN THE REGULAR AUDITED BOOKS OF ACCOUNTS OF THE APPELLANT (REFER TO SR.NO. A - 88, A - 84, A - 86, ETC. ON PAGE NO. 18 7 19 OF PAPER BOOK I.E. PANCHNAMA OF THE RECORD SEIZED DUR ING THE SEARCH ACTION). - 35 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 7. THE STATEMENT OF THE APPELLANT WAS RECORDED AT THE FAG END OF THE ASSESSMENT PROCEEDINGS, BUT NO SUCH ISSUE WAS RAISED THEREIN BY THE A.O. (REFER TO PAGE NO. 74 TO 77 OF PAPER BOOKS) THEREFORE ON THE BASIS OF ABOVE SUBMISSION AS W ELL AS THE SUBMISSION GIVEN ON SIMILAR ISSUE IN CASE OF AP PEAL NO. 291/PN/04, THE APPEAL O F THE APPELLANT PLEASE BE ALLOWED. 35. ON THE OTHER HAND, LD DR FOR THE REVENUE MENTIONED THAT THE ISSUE UNDER CONSIDERATION ARE ONE AND THE SAME AS DISCUSSED I N ITS APPEAL VIDE THE ITA NO. 291/PN/2004 FOR THE BLOCK PERIOD FROM A.Y. 1991 - 92 TO 2001 - 02 (UPTO 22 - 12 - 2000). HE BROUGHT TO OUT NOTICE THAT THE CIT(A) CONFIRMED THE ADDITION IN THESE YEARS TAKING THE CONTRARY STAND WHEN THE FACTS ARE IDENTICAL. WE PERUSED THE FACTS AND THE AVAILABLE MATERIAL ON THE RECORDS. IT IS A FACT THAT NOTHING HAS BEEN BROUGHT TO OUR NOTICE TO EVIDENCE THAT THE IMPUGNED INTEREST IS INDEED EARNED BY THE ASSESSEE. IN OUR OPINION, THE CIT(A) MERELY RELIED ON THE PRESUMPTIONS AND SURMIS ES IN CONFIRMING THE ADDITIONS. IT IS UNDISPUTED FACT THAT THE SAID CYCLE WAS CARRIED OUT FOR THE BENEFIT OF M/S. THAKKAR AND SONS AND THE ASSESSEE WAS NOT HAVING ANY CONTROL ON THE MONEY CIRCULATING IN THE CYCLE. THIS FACT IS ALSO NOT IN DISPUTE BECAUSE THE A.O. HIMSELF HAS EXPLAINED THE MODUS OF OPERAND OF THE CYCLE . THE CALCULATION OF INTEREST BY THE A.O. FOR ONE DAY IS BASED ON SURMISES AND HYPOTHESIS BECAUSE AS EXPLAINED BY THE AO HIMSELF THE SAID AMOUNT WAS ALWAYS TRANSFERRED BY APPELLANT TO M/S. THA KKAR & SONS AND NEVER UTILIZED BY THE APPELLANT FOR EARNING THE INTEREST INCOME EITHER FROM THE SAID ENTITY OR FROM MR THAKKAR OR ANYBODY ELSE . THE A.O HAS NOT BROUGHT ON RECORD THAT HOW THE MONEY OUT OF THE CYCLE WAS USED BY ASSESSEE AND HOW THE IMPUGNED INCOME IS EARNED BY THE APPELLANT. IT IS ALSO NOT KNOWN WHO HAS PAID SUCH HUGE INTEREST TO APPELLANT. THE A.O. HAS ASSESSED THE NOTIONAL INTEREST AS ACCEPTED BY HIM AND NOT ACTUAL INTEREST. IN OUR OPINION, FOR MAKING ADDITIONS EITHER IN BLOCK ASSESSMENT O R IN REGULAR ASSESSMENT, THERE IS NEED FOR EVIDEN CES FOR TO DEMONSTRATE EARNING OF INTEREST INCOME OUT OF THE IMPUGNED MONEY OF THE BANK. FROM THE RECORDS AVAILABLE BEFORE US OR SEIZED FROM THE PREMISES, THERE IS ABSOLUTELY NO EVIDENCE TO INDICATE EARNING OF THE INTEREST INCOME. CONSIDERING THE ABOVE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) ON THIS ISSUE OF TAXING OF THE NOTIONAL INTEREST IS REQUIRED TO BE REVERSED. CONSEQUENTLY, THE GROUNDS RAISED IN ALL THESE THREE APPEALS ARE ALLOWED. - 36 - CHANDRAKANT LODHA HUF ITA NOS. 365/PN/2004, 291/PN/2004, 1471 TO 1473/PN/2005 AND 570 TO 572/PN/2007(B.P.1991 - 92 TO 2001 - 02(UPTO 22.12.2000, 1.4.90 TO 22.12.2000 AND A.Y.1997 - 98 TO 1999 - 00 ITA NO. 57 0, 571 & 572/PN/07 (A.Y. 1997 - 9 8, 1998 - 99 & 1999 - 00 ) 36. THESE ARE THE THREE APPEALS FILED BY THE ASSESSEE AND RELATE TO THE PENALTIES LEVIED BY THE ASSESSEE U/S 271(1)(C) OF THE ACT. THESE PENALTIES ARE LEVIED IN CONNECTION WITH ADDITIONS MADE ON ACCOU NT OF THE NOTIONAL INTEREST WHICH ARE THE SUBJECT MATTER OF THE APPEALS VIDE ITA NO. 1471, 1472 & 1473/PN/05 , WHICH ARE ALLOWED IN FAVOUR OF THE ASSESSEE. CONSEQUENTLY, THERE IS NO CASE FOR LEVY OF PENALTIES. ACCORDINGLY, THE GROUNDS RAISED IN THESE THREE APPEALS OF THE ASSESSEE ARE ALLOWED . 37 . IN THE RESULT, BOTH THE CROSS APPEALS ON THE BLOCK ASSESSMENT ARE PARTLY ALLOWED AND THE OTHER SIX APPEALS OF THE ASSESSEE ARE ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON 16TH JUNE 2011. SD/ - SD/ - (I.C. SUDHIR) JUDICIAL MEMBER (D. KARUNAKARA RAO) ACCOUNTANT MEMBER PUNE: DATED: 16TH JUNE , 2011 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT (CENTRAL ), NAGPUR 4. THE CIT(A) - I, NAGPUR 4 . THE D.R. ITAT, B BENCH, PUNE 5 . GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE