ACIT CIR 13(3), MUMBAI V. PRAKASH DAL &* CO., MUMBAI

ITA 3618/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9307 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 05-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH MEENA
• Keywords: Transactions in derivatives; Corroborative evidences; Retraction
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 3618/MUM/2011 (ASSESSMENT YEAR: 2007-08) ASST. COMMISSIONER OF INCOME TAX 13(3), ROOM NO. 460, 4 TH FLOOR, AAYKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 VS PRAKASH DAL & CO. 262-70, N.N. ROAD, NEW MARINE LINES, MUMBAI 400 020 PAN AAAFP 1311 R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI OM PRAKASH MEENA RESPONDENT BY : SHRI DEEPAK TRALSHAWALA DATE OF HEARING: 05.11.2012 DATE OF PRONOUNCEMENT: 12.12.2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE OR DER OF CIT(A) 24, MUMBAI, DATED 28.02.2011, WHEREIN THE FOLLOWING GROU NDS HAVE BEEN RAISED : (1) (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN THE LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .1,08,00,000/- ON ACCOUNT OF ESTIMATED SPECULATION INCOME. (II) WHILE DOING SO, THE LD.CIT(A) HAS FAILED TO APPRECI ATE THAT THE ADDITION WAS MADE ON THE BASIS OF ESTIMATED TRADING, PROFIT & LOSS ACCOUNT AS ON 23.02.2007 OBTAINED FROM THE ASSESSEES COMPUTER AN D THE STATEMENT ON OATH OF SHRI JAYKUMAR GALA, SON OF ONE OF THE PARTN ER IN THE FIRM RECORDED DURING THE COURSE OF SURVEY ON 23.02.2007. (III) THE LD. CIT(A) HAS ERRED IN RELYING ON THE FINDIN GS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BALMUKUND ACHARYA (310 ITA 310) THAT IF AN ASSESSEE UNDER A MISTAKE, MISCONCEPTION OR NOT B EING PROPERLY INSTRUCTED IS OVER-ASSESSED, THE AUTHORITIES UNDER THE ACT ARE REQUIRED TO ASSIST HIM AND ENSURE THAT ONLY LEGITIMATE TAXES DU E ARE COLLECT. THE LD.CIT(A) HAS ERRED NOT APPRECIATING THIS IS NOT A CASE OF MISTAKE OR MISCONCEPTION AS THE ADDITION WAS MADE ON THE BASIS OF MATERIAL COLLECTED FROM THE BUSINESS PREMISES OF THE ASSESSEE AND THE ASSESSEE HAD NOT RETRACTED FROM THE STATEMENT RECORDED DURING THE CO URSE OF SURVEY ACTION ON 23.02.2007 TILL THE DATE OF E-FILING THE RETURN ON 19.10.2007. (2) (I) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF RS.4,9 4,683/- MADE @ 10% OUT ITA NO. 3618/MUM/2011 PRAKASH DAL & CO. 2 OF MISC. SALE PROMOTION, MACHINERY AND REPAIRS & MA INTENANCE EXPENSES FOR WANT OF WANT OF SUPPORTING EVIDENCE TO 5%. (II) WHILE DOING SO, THE LD.CIT(A) HAS NOT GIVEN AN Y BASIS OR CONCRETE REASONS FOR REDUCING THE DISALLOWANCE, PARTICULARLY WHEN THE EXPENSES WERE INCURRED IN CASH AND ASSESSEE HAS FAILED TO FU RNISH COMPLETE AND PROPER DETAILS IN SUPPORT OF THE CLAIM. (3) THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND(S) BE SET ASIDE AND THAT OF THE ASSESSMENT OFFICER BE RESTORE D. (4) THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND OR ADD ANY NEW GROUND, IF NECESSARY. 2. THE ABOVE GROUNDS REVOLVES AROUND A COUPLE OF ISSUES , NAMELY (I) SUSTAINABILITY OF ADDITION OF RS. 1,08,00,000 AND (II) SUSTAINABILITY OF RS. 4,94,683. 3. THE FACTS RELEVANT FOR THE SAID ISSUES ARE THAT TH ERE WAS A SURVEY OPERATION UNDER SECTION 133A OF THE INCOME TAX ACT, 1 961 ON THE PREMISES OF THE ASSESSEE ON 23.02.2007. DURING THE OPER ATION, THE SURVEY TEAM FOUND A DOCUMENT IE AN ESTIMATED TRADING & PROFIT & LOSS ACCOUNT, WHICH SHOWED THE CREDIT OF A PROFIT OF RS. 1, 20,00,000 ON ACCOUNT OF COMMODITY TRADING ON COMMODITY EXCHANGE. T HIS ISSUE WAS QUESTIONED AND A STATEMENT WAS TAKEN FROM MR. JAYK UMAR GALA, SON OF ONE OF THE PARTNERS, AS NONE OF THE PARTNERS WER E PRESENT AT THE PREMISES OF THE FIRM. MR. JAYKUMAR GALA GAVE A S STATEMEN T OFFERING THE SAID AMOUNT OF RS. 1.20 CRORES FOR TAX FOR THE ASSES SMENT YEAR UNDER CONSIDERATION. HOWEVER, WHILE FILING THE RETURN OF INCO ME, THE ASSESSEE OFFERED ONLY AN AMOUNT OF RS 8,81,342/- AS AGA INST THE OFFERED SUM OF RS 1.20 CRORES ON THIS ACCOUNT OF COMMODITY TRADING. ASSESSEE HAS NOT COMPLIED WITH THE STATEMENT GIVEN BY S RI JAYAKUMAR GALA. HE CLARIFIED THAT THE FIRM WOULD HAVE EARNED A PROFIT OF RS. 1.20 CRORES IN COMMODITY TRADING BY 31.03.2007, HAD THE BUSINES S OF COMMODITY TRADING COMMENCED IN EARLY MONTHS OF THE YEAR AS ORIGINALLY PLANNED. THE OFFERED SUM OF RS. 8,81,342/- RELATES TO THE SOLITARY TRANSACTION IN COMMODITY TRADING CONDUCTED BY TH E ASSSESSEE BEFORE THE CLOSE OF THE FY 2007. ITA NO. 3618/MUM/2011 PRAKASH DAL & CO. 3 4. IN THE ASSESSMENT PROCEEDINGS, THE AO ENQUIRED ABOUT THE COMMODITY TRADING AND MR. JAYKUMAR GALA RESPONDED THAT DURING THE PERIOD THERE WAS A WILD FLUCTUATION IN COMMODITY MARKET AND FURTHER MENTIONED THAT SINCE THE ASSESSEE WAS NEW IN THE BUSINE SS, THEY HAD NOT MAINTAINED PROPER DOCUMENTATION ON THIS SUBJECT. BEFO RE THE AO, ASSESSEE SUBMITTED DETAILED WORKING OF PROFIT OF RS. 8,81,3 45/- INVOLVING THE TRANSACTION ON CHANA (GRAM) WITH EAGLE FORM OLD 40 09, AUSTRALIA. THE AO, AFTER CONSIDERING THE REPLIES FROM THE AS SESSEE, SOUGHT INFORMATION FROM NCDEX REGARDING THE MOVEMENT OF P RICE IN CHANA FROM 15.01.207 TO 31.03.2007. ON THE INFORMATION RECEIV ED FROM NCDEX, IT WAS SEEN THAT THE PRICE OF CHANA UP WENT TO RS. 2,838.85 ON 31.01.207 AND CAME DOWN TO RS. 2,052.05 ON 03 .03.2007. FINALLY, THE PRICE IS CLOSED AT RS. 2,558.85 ON 31.03.2007. O N CONSIDERING THE SAID FLUCTUATIONS IN PRICE, THE AO ALLOWED THE VARIANCE OF 10% ON THE PROFIT OF RS 1.20 CRORES ORIGINALLY OFFERED BY MR. JAYKUMAR GALA AND COMPUTED THE ESTIMATED PROFIT OUT OF T HE COMMODITY MARKET AT RS.1.08 CRORES. BESIDES THIS ADDITION, THE AO ALSO MADE CERTAIN DISALLOWANCES AND ADDED THEM TO THE IN COME OF THE ASSESSEE. 5. THE ISSUE RELATING TO THE ADDITION OF RS 1.08 CRORES WAS AGITATED BEFORE THE CIT(A) AND MADE VARIOUS SUBMISSIONS AND DOCUME NTS. CIT(A) REMANDED THE ISSUES TO THE AO AND OBTAINED THE REMAND REPORT, WHICH WAS PUT TO THE ASSESSEE FOR REBUTTAL IF ANY. REPOR TS AND REPLIES DATED 15.09.2010, 23.12.2010, 08.02.2011, 14.02.2011 FROM BOTH THE PARTIES OF THE LITIGATION WERE CONSIDERED AS EVIDENT FROM TH E IMPUGNED ORDER OF THE CIT(A). TO SUM UP THE SAID REPORTS AND REPLIE S, THE REVENUE IS OF THE VIEW THAT THE DOCUMENT DISCOVERED, SHO WING ESTIMATED SUM OF RS. 1.20 CRORES IS SACROSANCT, AS THE SA ID DOCUMENTS HAS THE SUPPORT OF THE SWORN STATEMENT GIVEN BY MR. JA YKUMAR GALA. PER CONTRA, THE STAND OF THE ASSESSEE IS THAT (I) THE DOCUMENT FOUND BY THE SURVEY TEAM IS MERELY AN ESTIMATE AND NOT BASED O N AN ACTUAL ITA NO. 3618/MUM/2011 PRAKASH DAL & CO. 4 TRANSACTION ENTERED INTO BY THE ASSESSEE, (II) THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAVE NOT BEEN REJECTED BY THE AO INVOKIN G THE PROVISIONS OF SECTION 145(3) OF THE ACT AND THEREFORE, TOTAL INCOME CO MPUTED BASED ON THE BOOKS OF ACCOUNTS SHOULD NOT BE DISTURBED , (III) DEPARTMENT HAS NOT UNEARTHED ANY MATCHING UNACCOUNTE D ASSETS EQUIVALENT TO THE VALUE OF RS. 1.20 CRORES, (IV) NO INCRIMINATING DOCUMENT SHOWING THE UNACCOUNTED CONTRACT NOTES, TRAN SACTIONS ETC. WERE FOUND TO SUPPORT THE EARNING OF ALLEGED INCOME OF RS. 1.20 CRORES, AND (V) THAT A DOCUMENT IN ISOLATION CANNOT BE THE BASIS FOR MA KING SUCH A HUGE ADDITION. 6. ON PERUSING THE FACTS OF THE CASE AND THE VARIOUS REPORTS AND REPLIES, AS SUBMITTED BY EITHER SIDE, THE CIT(A), AS PER HIS DECISION, REASONED OUT IN PARAS 2.3(A), 2.3(B) AND 2.3(C), DELETED THE ADD ITION MADE BY THE AO AT RS. 1,08,00,000 (AS EXTRACTED) 2.3(A) I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL, THE REMAND REPORT(S) OF THE AO AND THE COMMENTS OF THE ADDL.CI T AND I AM OF THE OPINION THAT THIS APPEAL HAS TO BE DECIDED AS FOLLOWS :- THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BALMUK UND ACHARYA 310 ITR 310 HAS HELD AS FOLLOWS :- THE APEX COURT & THE VARIOUS HIGH COURTS HAVE RULE D THAT THE AUTHORITIES UNDER HE ACT ARE UNDER AN OBLIGATION TO ACT IN ACCORDANCE WITH LAW. TAX CAN BE COLLECTED ONLY AS PROVIDED UNDER THE ACT. IF ANY AS SESSEE, UNDER A MISTAKE, MISCONCEPTION OR ON NOT BEING PROPERLY INSTRUCTED I S OVER ASSESSED THE AUTHORITIES UNDER THE ACT ARE REQUIRED TO ASSIST HI M AND ENSURE THAT ONLY LEGITIMATE TAXES DUE ARE COLLECTED (SEE S.R. KOSTI V CIT (GUJ) (2005) 276 ITR 165, C.P.A. YOOSUF V.I.T.O. (1970) 77 ITR 237, CIT V. BHARAT GENERAL REINSURANCE CO. LTD., (1971) 81 ITR 303, CIT VS. AR CHANA R. DHANWATE (1982) 136 ITR 355 (BOM). THE ABOVE JUDGMENT OF THE JURISDICTIONAL HIGH COURT CLEARLY STATES THAT AN ASSESSMENT OR FOR THAT MATTER AN APPEAL SHOULD NOT BE DECIDED BASED UPON THE IGNORANCE OF THE ASSESSEE OR A CONCESSION MADE BY H IM ERRONEOUSLY OR A WRONG SUBMISSION MADE/GIVEN IN FACT IT IS THE DUTY OF T HE AUTHORITIES OF THE ACT TO ACT IN ACCORDANCE TO THE LAW AND FACTS IF THE ASSESSE E UNDER A MISCONCEPTION OR NOT HAVING BEEN PROPERLY INSTRUCTED IS OVER ASSESSE D THE AUTHORITIES UNDER THE ACT ARE REQUIRED TO ASSIST AND ASSESS HIM AND ENSUR E THAT ONLY LEGITIMATE TAX DUE ARE COLLECTED. 2.3(B) THUS, IN THE LIGHT OF THE ABOVE OBSERVATION OF THE HONBLE JURISDICTIONAL HIGH COURT IT HAS TO BE EXAMINED THAT WHAT THE ASSE SSEE STATED ON THE DATE OF SURVEY BASED UPON A PAPER FOUND ON THE COMPUTER SHO WING AN ESTIMATE OF PROFIT FROM SPECULATION AND READY BUSINESS OF THE Y EAR CAN BE HELD AS CONCLUSIVE AGAINST THE APPELLANT WHEN THE APPELLANT LATER ON, ON BEING PROPERLY INSTRUCTED BY THE COUNSEL AND REALIZING THAT IN FAC T AT THE END OF THE YEAR THERE HAVE BEEN NO SUCH PROFITS AS WERE EXPECTED/ESTIMATE D AND THE FACT THAT THE BUSINESS OF COMMODITY TRADING HAS NOT STARTED TILL THE DATE OF SURVEY ACTION BUT CONSIDERING THE PERIOD LEFT FROM THE DATE OF SU RVEY TILL 31.03.2007 ASSESSEE ITA NO. 3618/MUM/2011 PRAKASH DAL & CO. 5 WAS EXPECTING A PROFIT OF RS.1.20 CRORES FOR THE YE AR ENDING 31.3.2007 AND AS PER BROKERS ADVISE THERE WOULD BE A PROFIT OF RS.1 CRORE ON AN AVERAGE INVESTMENT OF RS.5 CRORES AS MARGIN MONEY. BUT LATE R ON THERE WAS NO SUCH TRADING AND THE ONLY PROFIT ON ACCOUNT OF COMMODITY TRADING WAS THE PROFIT EARNED ON PURCHASES OF TEN CONTAINERS OF CHANA I.E. 240 MT FROM AUSTRALIA WHICH WAS SOLD OVERSEAS FOR A PROFIT OF RS.8,81,345 /- AND DULY SHOWN BY THE ASSESSEE. 2.3(C) FURTHER, IF THE APPELLANT HAD CARRIED OUT AN Y TRADING IN COMMODITIES/FUTURE OPTION THEN THE FOLLOWING EVIDEN CE WOULD HAVE BEEN FOUND BY THE SURVEY TEAM ON THE DATE OF SURVEY AND ALSO O THER RELATED ATTENDANT DETAILS WOULD ALSO HAVE BEEN FOUND BY THE SURVEY TE AM ON THE DATE OF SURVEY AND NOT ONLY THE ONE SINGLE DOCUMENT SHOWING ESTIMA TED PROFIT:- I. THE APPELLANT IS REQUIRED TO BE REGISTERED WITH THE RELEVANT COMMODITY EXCHANGE EITHER DIRECTLY OR THROUGH ANY MEMBER OF S UCH COMMODITY TRADING EXCHANGE. IT IS AN ADMITTED FACT THAT THE APPELLANT IS NOT RELATED WITH THE COMMODITY TRADING EXCHANGE AND NO EVIDENCE OF THE S AME WAS FOUND ON THE DATE OF SURVEY. II. NO EVIDENCE OF MARGIN MONEY GIVEN TO THE MEMBER OF THE COMMODITY EXCHANGE, DAY TO DAY ACCOUNTS OF TRADING, WEEKLY SU BMISSION OF SUCH ACCOUNTS PAYMENT OF DIFFERENCE OR RECEIPT OF THE SAME WAS FO UND ON THE DATE OF SURVEY. III. NO MARGIN ACCOUNT OF ANY MEMBER OR DEALER FOR COMMODITY TRADING EXCHANGE WAS FOUND ON THE DATE OF SURVEY. IV. NO CONTRACT NOTES SETTLEMENT/SETTLEMENT NOTES W ITH ANY PART OF THE COMMODITY TRADING EXCHANGE WAS FOUND ON THE DATE OF SURVEY AND NO DEBIT NOTES OR CREDIT NOTES RELATING TO THESE TRANSACTION S WERE FOUND ON THE DATE OF SURVEY. V. THERE IS NOT INDEPENDENT EVIDENCE. OTHER THAN TH IS SINGLE DOCUMENT WHICH IS ONLY A COMPUTER PRINT OUT STATING ESTIMATED PROF IT WITHOUT ANY CORROBORATIVE INDEPENDENT EVIDENCE TO SHOW OF TRADING INDULGED IN BY THE ASSESSEE OF SUCH HUGE VOLUMES WITHOUT ANY CONTRACT NOTES - SETTLEMEN T NOTES-CREDIT NOTES-DEBIT NOTES WITH ANY BROKER/SUB-BROKER/TRADER ON THE COMM ODITIES TRADING EXCHANGE AND THEREFORE MERE PAPER/DOCUMENT IN ISOLATION NOW DENIED BY THE APPELLANT CANNOT RESULT IN SUCH A HUGE ADDITION MERELY ON HEA RSAY WHEN THERE IS NO DOCUMENTS INDEPENDENT TO CORROBORATE THE SAME. THUS, A MERE DOCUMENT IN ISOLATION CANNOT RESULT IN SUCH A HUGE ADDITION TO THE RETURN INCOME OF THE APPELLANT ESPECIALLY NOW WHEN IT IS WHEN IT IS BEING DENIED FOR WANT OF INDEPENDENT CORROBORATIVE EVIDENCE. HENCE THIS GROUND OF APPEAL IS ALLOWED AND THE ADDI TION MADE OF RS.1,08,00,000/- IS DELETED. 7. THE CIT(A), THUS DELETED THE ADDITION MADE BY THE AO. 8. AGAINST THESE FACTUAL FINDINGS, THE DEPARTMENT IS IN A PPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL. 9. BEFORE US, THE DR RELIED ON THE ORDER OF THE AO AND SU BMITTED THAT THE AO HAD BROUGHT OUT RELEVANT FACTS NECESSARY FOR SUSTAINING THE ADDITION OF RS 1.08 CRORES MADE BY HIM. DR RELIED ON T HE CONTENTS OF THE IMPUGNED DOCUMENTS IE ESTIMATED PROFIT AND LOSS AC COUNTS FOUND BY THE SURVEY TEAM. FACT THAT THE AO GRANTED RE LIEF OF 10% ITA NO. 3618/MUM/2011 PRAKASH DAL & CO. 6 AGAINST THE PRICE FLUCTUATION WAS ALSO EMPHASIZED BEFORE US . THEREFORE, AS PER DR, THE ORDER OF THE CIT(A) HAS TO BE SET ASIDE. 10. ON THE OTHER HAND, AR FOR THE ASSESSEE SUPPORTED T HE ORDER OF THE CIT(A) AND CONTENDED THAT THE AO HAD NOT BEEN ABLE TO ESTABLISH ONE FACT, I.E. WHETHER THE ASSESSEE WAS DOING ANY BUSINESS ON COMMODITY EXCHANGE, AS PLANNED, EXCEPT FOR ONE SOLITARY AN D ISOLATED TRANSACTION DONE WITH A TRADER IN AUSTRALIA, WHOSE PROFIT WAS DULY REFLECTED IN THE PROFIT & LOSS ACCOUNT. AR POINTED OUT THAT ALL ALONG T HE AO RELIED ON THE DOCUMENT SHOWING AN ESTIMATE OF RS 1.20 CRORES ON ACCOUNT OF COMMODITY TRADING IGNORING THE FACT IT IS MERELY A DOCUMENT WITH AN ESTIMATE AND NOT TRANSACTION BASED FIGURES. REFERR ING TO THE STATEMENT OF MR. JAYKUMAR, COUNSEL MENTIONED THAT HE IS N OT A PARTNER, OF COURSE SON OF THE PARTNER, AND HIS STATEMEN T IS NO LEGALLY BINDING ON THE ASSESSEE. AR, THEREFORE, SUBMITTED THAT SIN CE THE AO WAS NOT ABLE TO PRODUCE ANY EVIDENCE IN SUPPORT OF THE EARNING OF RS 1.20 CRORES ON ACCOUNT OF COMMODITY COMMERCE, THE PROFIT BOOKED IN THE PROFIT & LOSS ACCOUNT SHOULD BE ACCEPTED AND THE O BSERVATION OF THE AO COULD NOT BE SUSTAINED. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH PARTIES AND PE RUSED THE ORDERS OF THE REVENUE ALONG WITH THE PAPER BOOKS FILED BE FORE US. THE UNDISPUTED FACTS OF THE ISSUE ARE THAT A) THERE WAS A SURVEY OPERATION UNDER SECTION 133A. B) THERE WAS NO DISCREPANCY IN THE BOOKS OF ACCOUNT AN D INVENTORY OF STOCKS. C) THE SURVEY TEAM FOUND AN ESTIMATED PROFIT AND LOSS A CCOUNT SHOWING THE ESTIMATED PROFITS OF RS 1.20 CRORES ON AC COUNT OF COMMODITY TRADING. D) SWORN STATEMENT OF MR. JAYKUMAR WAS TAKEN. E) MR. JAYKUMAR OFFERED RS.1.20 CRORES. F) STATEMENT CONTAINED THE OBSERVATION OF VOLATILE MARKE T FLUCTUATION. G) RECORD OF A SOLITARY COMMODITY TRADING TRANSACTION WIT H A PARTY IN AUSTRALIA. H) BOOKING THE PROFIT RS. 8,81,345/- EARNED ON THE TRANSACTION WITH THE AUSTRALIA PARTY. ITA NO. 3618/MUM/2011 PRAKASH DAL & CO. 7 I) AO RELYING ON ESTIMATES ONLY AND HE DOES NOT HAVE ANY INCRIMINATING INFORMATION TO SUGGEST THE PROFITS OF RS 1.20 CR. J) NO ACTION BY THE AO, SUCH AS, CALLING THE PARTNERS, TO CLARIFY THE CONSEQUENTIAL RETRACTION OF PROFIT LOOKED IN THE PROFI T & LOSS A/C. 12. THUS, THE AO HAS MADE ADDITION OF RS. 1.08 CRORES AS A GAINST THE ASSESSEES CLAIM OF RS. 8,81,345/- AS INCOME ON ACCOUNT OF COMMODITY TRADING. FOR THIS, THE AO HAS SOUGHT THE SUPPO RT OF (A) A DOCUMENT RETRIEVED FROM THE COMPUTER SHOWING THE ESTIMA TED INCOME OF RS. 1.20 CRORES ON ACCOUNT OF COMMODITY TRADING, (B) THE STATEMENT OF MR. JAYKUMAR GALA, SON OF THE PARTNER. THERE IS NO OTHE R INCRIMINATING EVIDENCE TO SUPPORT THE SAID DOCUMENT OR ST ATEMENT OF MR. JAYKUMAR GALA. BOOKS OF ACCOUNTS ARE COMPLETE AND AU DITED AND ARE ACCEPTED BY THE AO. SURVEY ACTION UNDER SECTION 13 3A HAS NOT RESULTED IN ANY DISCOVERY OF AN UNACCOUNTED TRANSACTION WHICH EVEN REMOTELY SUPPORTED THE DOCUMENT SHOWING ESTIMATED PRO FIT OF RS 1.20 CRORES. 13. REGARDING THE VALIDITY OF THE STATEMENT OF MR. JAYKU MAR GALA, WHICH IS SO HEAVILY RELIED UPON BY THE AO, THE ASSESSEE H AS RAISED OBJECTIONS AGAINST SUCH A STATEMENT. AR SUBMITTED THAT AS TO WHY THE AO DID NOT RECORD THE STATEMENT OF THE PARTNERS DURING ANY OF THE FOLLOWING PROCEEDINGS. IT IS TRUE, THAT THE PARTNERS WERE NOT AVAILABLE AT THE TIME OF SURVEY ACTION, THE AO COULD HAVE SUMMONED TH E PARTNERS AND TRIED TO INVESTIGATE WHY THE ASSESSEE DID NOT DISCLOS E THE ADMITTED SUM OF RS. 1.20 CRORES IN THE RETURN. BASED ON THESE FAC TUAL ASPECTS, WE CAN COME TO A CONCLUSION THAT THE MERE RELIANCE ON T HE STATEMENT TAKEN IN SURVEY UNDER SECTION 133A IS NOT CONCLUSIVE, AS HELD BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS DHINGRA ME TAL WORKS, REPORTED IN 328 ITR 384(DEL). RELEVANT PORTIONS OF THE SAID JUDGMENT OF HONBLE DELHI HIGH COURT (HEADNOTES) IS EXTRACTED AS UNDER: DISMISSING THE APPEAL, THAT FOR A STATEMENT TO HA VE EVIDENTIARY VALUE, THE SURVEY OFFICER SHOULD HAVE BEEN AUTHORISED TO ADMIN ISTER AN OATH AND TO RECORD A SWORN STATEMENT. WHILE SECTION 132(4) OF THE ACT SPECIFICALLY AUTHORIZES AN ITA NO. 3618/MUM/2011 PRAKASH DAL & CO. 8 OFFICER TO EXAMINE A PERSON ON OATH, SECTION 133A D ID NOT PERMIT THE SAME. MOREOVER, THE WORD MAY USED IN SECTION 133A(3)(II I) OF THE ACT CLARIFIES BEYOND DOUBT THAT THE MATERIAL COLLECTED AND THE STATEMENT RECORDED DURING THE SURVEY WAS NOT A CONCLUSIVE PIECE OF EVIDENCE BY ITSELF. I T WAS SETTLED LAW THAT THOUGH AN ADMISSION WAS AN EXTREMELY IMPORTANT PIECE OF EV IDENCE, IT COULD NOT BE SAID TO BE CONCLUSIVE AND IT WAS OPEN TO THE PERSON WHO HAD MADE THE ADMISSION TO SHOW THAT IT WAS INCORRECT. SINCE THE ASSESSEE HAD BEEN ABLE TO EXPLAIN THE DISCREPANCY IN THE STOCK FOUND DURING THE COURSE OF SURVEY BY PRODUCTION OF RELEVANT RECORD INCLUDING THE EXCISE REGISTER OF ITS ASSOCIATE COMPANY, THE ASSESSING OFFICER COULD NOT HAVE MADE THE ADDITION SOLELY ON THE BASIS OF THE STATEMENT MADE ON BEHALF OF THE ASSESSEE DURING THE COURSE OF SURVEY . BESIDES THIS ORDER, THE COORDINATE BENCH AT MUMBAI IN THE CASE OF DCIT VS PREMSONS IN ITA NO. 4698/MUM/2006 HELD THE SAM E VIEW AND THE RELEVANT HEADNOTES IS EXTRACTED AS UNDER: ... VIDE CBDT CIRCULAR DT. 10TH MARCH, 2003 IT HAS BEEN MADE CLEAR BY THE BOARD THAT NO ATTEMPT SHOULD BE MADE TO OBTAIN CONF ESSION AS TO THE UNDISCLOSED INCOME AND THE ADDITION SHOULD BE MADE ONLY ON THE BASIS OF MATERIAL GATHERED DURING THE COURSE OF SEARCH AND S URVEY. GOING BY THE VERDICT OF THE HIGH COURTS AND THE POSITION REAFFIRMED BY T HE CBDT THROUGH ITS CIRCULAR, IT BECOMES ABUNDANTLY CLEAR THAT NO ADDITION CAN BE MADE OR SUSTAINED SIMPLY ON THE BASIS OF STATEMENT RECORDED AT THE TIME OF S URVEY/SEARCH. IN ORDER TO MAKE AN ADDITION ON THE BASIS OF SURRENDER DURING S EARCH OR SURVEY, IT IS SINE QUA NON THAT THERE SHOULD BE SOME OTHER MATERIAL TO CORRELATE TH E UNDISCLOSED INCOME WITH SUCH STATEMENT . THERE IS NOTHING ON RECORD WHICH COULD CORRELATE SUCH ADDITIONAL INCOME OFFERED BY THE ASSESSEE DURING THE COURSE SURVEY WI TH ANY OTHER DISCREPANCY. THERE IS NO BASIS FOR SUSTAINING THE ADDITION IN QUESTION . THE AO HAS ALSO NOT FOLLOWED CBDT INSTRUCTION DATED 10.03.2 003, WHICH READS AS UNDER, CONFESSION OF ADDITIONAL INCOME DURING THE COURSE O F SEARCH & SEIZURE AND SURVEY OPERATION REGARDING. INSTANCES HAVE COME T O THE NOTICE OF THE BOARD WHERE ASSESSEE HAVE CLAIMED THAT THEY HAVE BEEN FOR CED TO CONFESS THE UNDISCLOSED INCOME DURING THE COURSE OF THE SEARCH & SEIZURE AND SURVEY OPERATIONS, SUCH CONFESSIONS, IF NOT BASED UPON CRE DIBLE EVIDENCE ARE LATER RETREATED BY THE CONCERNED ASSESSEES WHILE FILING R ETURNS OF INCOME. IN THESE CIRCUMSTANCES, SUCH CONFESSIONS DURING THE COURSE O F SEARCH & SEIZURE AND SURVEY OPERATION DO NOT SERVE ANY USEFUL PURPOSE. I T IS, THEREFORE, ADVISED THAT THERE SHOULD BE FOCUS AND CONCENTRATION ON COLLECTI ON OF EVIDENCE OF INCOME WHICH LEADS TO INFORMATION ON WHAT HAS NOT BEEN DIS CLOSED OR IS NOT LIKELY TO BE DISCLOSED BEFORE THE INCOME TAX DEPARTMENT. SIMILAR LY, WHILE RECORDING STATEMENT DURING THE COURSE OF SEARCH & SEIZURE AND SURVEY OPERATIONS. NO ATTEMPT SHOULD BE MADE TO OBTAIN CONFESSION AS TO T HE UNDISCLOSED INCOME. ANY ACTION ON THE CONTRARY SHALL BE VIEWED ADVERSEL Y. FURTHER, IN RESPECT OF PENDING ASSESSMENT PROCEEDINGS ALSO, ASSESSING OFFI CERS SHOULD RELY UPON THE EVIDENCES/MATERIALS GATHERED DURING THE COURSE OF S EARCH/SURVEY OPERATIONS OR THEREAFTER WHILE FRAMING THE RELEVANT ASSESSMENT OR DERS . ITA NO. 3618/MUM/2011 PRAKASH DAL & CO. 9 14. THE FACT THAT THERE WAS NO BUSINESS OF COMMODITY TRADE EITHER FOR SPOT OR FOR F&O TILL THE DATE OF SURVEY HAS NOT BEEN A DDRESSED BY THE AO AT ALL. THE AO HAS WORKED OUT THE ADDITION SIMPLY BAS ED ON THE STATEMENT RECORDED AT THE TIME OF SURVEY, THAT TOO OF A N UNAUTHORISED PERSON (AN EMPLOYEE CANNOT BE HELD TO BE AN AUTHORIZED PERSON) AND ON CONJECTURES. HAD THE ASSESSEE CARRIED OUT ANY TRAD ING IN COMMODITIES/FUTURE OPTION THEN AT LEAST SOME EVIDENCE WOU LD HAVE BEEN FOUND BY THE SURVEY TEAM ON THE DATE OF SURVEY A ND BESIDES SOME OTHER RELATED DETAILS SHOULD ALSO HAVE BEEN FOUND BY THE SURVEY TEAM. FOR DOING TRADING IN COMMODITIES, THE ASSESSEE WOULD HAVE BEEN REQUIRED TO BE REGISTERED WITH THE RELEVANT COMMODITY EX CHANGE EITHER DIRECTLY OR THROUGH ANY MEMBER OF SUCH COMMODITY TRAD ING EXCHANGE. IT IS AN ADMITTED FACT THAT THE APPELLANT IS NOT RELATED WITH THE COMMODITY TRADING EXCHANGE AND NO EVIDENCE OF THE SAME WAS FOUND ON THE DATE OF SURVEY. NO EVIDENCE OF MARGIN MONEY GIVE N TO ANY MEMBER OF THE COMMODITY EXCHANGE, DAY TO DAY ACCOUNTS OF TRADING, WEEKLY SUBMISSION OF SUCH ACCOUNTS PAYMENT OF DIFFERENCE O R RECEIPT WAS FOUND BY THE SURVEY PARTY. NO CONTRACT NOTES SETT LEMENT/ SETTLEMENT NOTES WITH ANY PART OF THE COMMODITY TRADING EXCHANGE WAS FOUND ON THE DATE OF SURVEY AND NO DEBIT NOTES OR CRE DIT NOTES RELATING TO THESE TRANSACTIONS WERE FOUND ON THE DATE OF SURVEY . NOT ONE INDEPENDENT EVIDENCE, OTHER THAN ONE SINGLE DOCUMENT, WHIC H IS ONLY A COMPUTER PRINTOUT STATING ESTIMATED PROFIT WITHOUT ANY CO RROBORATIVE EVIDENCE TO SHOW THAT SOME TRADING WAS INDULGED BY THE ASSESSEE OF SUCH HUGE VOLUMES. WITHOUT ANY CONTRACT NOTES/SETTLEMEN T NOTES, CREDIT/DEBIT NOTES WITH ANY BROKER/SUB-BROKER/TRADER O N THE COMMODITIES TRADING EXCHANGE WAS FOUND AND THEREFORE MER E PAPER/DOCUMENT IN ISOLATION, THAT TOO, NOW DENIED BY THE APPELLANT CANNOT RESULT IN SUCH A HUGE ADDITION MERELY ON HEARSAY , WHEN THERE IS NO OTHER DOCUMENTS INDEPENDENT TO CORROBORATE THE SAME. THUS, RESPECTFULLY RELYING ON THE DECISIONS OF HONBLE DELHI COUR T IN THE CASE OF DHINGRA METAL WORKS (SUPRA) , MUMBAI ITAT IN PREMSONS (SUPRA) AND ITA NO. 3618/MUM/2011 PRAKASH DAL & CO. 10 THE CBDT INSTRUCTION (SUPRA) , WE CONCUR WITH THE CIT(A) THAT ADDITION ON A MERE DOCUMENT IN ISOLATION CANNOT RESULT IN SUCH A H UGE ADDITION. THE CONTENTS OF PARAS 2.3(A) TO (C) OF THE IMPUGNED ORDER OF THE CIT(A), WHEREIN THE ADDITION MADE BY THE AO HAS BEEN DELETED, ARE RELEVANT AND HAVE BEEN EXTRACTED ABOVE, WHICH IN OUR OP INION ARE REASONABLE, WHICH DOES NOT CALL FOR ANY INTERFERENCE. 15. ACCORDINGLY, GROUND NO. 1 IS DISMISSED . 16. GROUND NO. 2 PERTAINS TO RESTRICTING THE DISALLOWANCE TO 5% ON THE AGGREGATE OF RS. 49,46,834/-, AGAINST THE DISALLOWANCE OF 10% MADE BY THE AO, MISCELLANEOUS EXPENSES 16,38,258 SALES PROMOTION EXPENSES 12,12,761 MACHINERY REPAIRS 14,47,637 REPAIRS & MAINTENANCE 6,48,180 TOTAL 49,46,834 18. THE AO, WHILE DEALING WITH THESE EXPENSES, CONCLUDED THA T THESE EXPENSES WERE MAINLY INCURRED IN CASH AND ARE SUPPORTE D BY ONLY SELF MADE VOUCHERS AND THAT NO THIRD PART EVIDENCE IS AVAILAB LE, THE AO, OBSERVED THAT BECAUSE OF ABSENCE OF DOCUMENTARY EVIDEN CE, IT CANNOT BE VERIFIED THAT THESE AMOUNTS WERE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE AO, THEREFORE, OBSERVED THAT THE WHOLE OF THESE EXPENSES CANNOT BE HELD TO HAVE BEEN INC URRED FOR PURPOSES OF BUSINESS ONLY AND RESORTED TO ESTIMATING TH E DISALLOWANCE AT A FLAT RATE OF 10% OF THE CLAIM, WHICH WORKED OUT TO RS. 4,94,683. 17. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM, THE ASSESSEE SUBMITTED THAT EXPENDITURE ARE FULLY VOUCHED. M OST OF THE PAYMENTS ARE MADE BY WAY OF ACCOUNT PAYEE CHEQUE. THE CIT(A), CONSIDERED THE SAME AND ON ONE SIDE HE ACCEPTED THE A SSESSEES REPLY AND ON THE OTHER HAND, HE CONFIRMED THE ADDITION, BUT RED UCED IT TO A FLAT RATE OF 5%. ITA NO. 3618/MUM/2011 PRAKASH DAL & CO. 11 18. AGAINST THIS REDUCTION, THE DEPARTMENT IS IN APPEAL BE FORE THE INCOME TAX APPELLATE TRIBUNAL. 19. AT THE TIME OF HEARING BEFORE US, DR RELIED ON THE AO S ESTIMATES WHEREAS, THE AR SUBMITTED THAT AN APPROPRIATE VIEW MAY BE TAKE N. 20. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS. WE FIND THAT NEITHER THERE IS ANY BASIS FOR ADOPTING A FLAT RATE FOR DISA LLOWANCE OF 10% OF THE CLAIM OF EXPENDITURE, AS MADE BY THE AO, NOR A NY BASIS FOR REDUCTION OF THE SAME FROM 10% TO 5%. WE ALSO FIND THAT IT IS NOT THE CASE OF THE AO THAT THE EXPENDITURE WERE NOT VOUCHED AT ALL OR THER IS ANY EVIDENCE INDICATING THE NON-GENUINENESS OF THE SAME. BOOKS OF ACCOUNT WERE NO REJECTED TOO. IT IS AN ADMITTED FACT TH E AO MADE DISALLOWANCE EXPRESSLY BASED ON THE SURMISES AND ESTIMAT ION AS EVIDENT FROM THE LANGUAGE OF HIS ORDER. THE IS EVIDENT FROM PARA 3 OF THE IMPUGNED ORDER OF THE CIT(A) ALSO, WHO OBSERVED, LOOKING INTO THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE AND THE FACT THAT ALL THE EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF B USINESS .. THIS OBSERVATION HAS NOT BEEN CONTROVERTED BY DR. NO DOUB T, THE CASE OF THE AO WAS THAT PART OF THE CLAIM OF EXPENDITURE WAS TR ANSACTED IN CASH AND IT IS LIKELY THAT THE VOUCHERS MAY NOT STAND T HE TEST OF INVESTIGATION BY THE LOWER AUTHORITIES. THIS, ON ITSELF, DOES NOT ALTER THE FACT THAT THESE EXPENDITURE WERE INCURRED FOR THE PURPO SES OF BUSINESS AND DISALLOWANCE MUST BE DONE ON ADOPTING A FLAT RATES OF 10% OR 5%. SINCE THERE IS NO BASIS, NEITHER FOR DISALLOWANCE NOR FOR THE RESTRICTION OF THE DISALLOWANCE TO THE LOWER RATE OF 5%, IN OUR OPINION, T HE REVENUE AUTHORITIES HAVE ERRED IN MAKING THE DISALLOWANCE ON PERCE NTAGE FLAT RATE BASIS. HOWEVER, CONSIDERING THE CASH TRANSACTIONS A ND THAT TOO, SELF VOUCHED, WE ARE OF THE OPINION THAT SUSTAINING OVERALL A DHOC DISALLOWANCE OF RS. 50,000/-, WITHOUT ASSIGNING ANY EXPENSE HEAD, SHOULD MEET THE ENDS OF JUSTICE. ITA NO. 3618/MUM/2011 PRAKASH DAL & CO. 12 21. ACCORDINGLY, GROUND NO. 2 IS PARTLY ALLOWED . 22. GROUND NOS. 3 & 4 ARE GENERAL. 23. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 12/12/ 2012. SD/- (D. KARUNAKARA RAO) ACCOUTANT MEMBER SD/- (VIVEK VARMA) JUDICIAL MEMBER MUMBAI, DATE : 12/12/2012 COPY TO:- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A)- 24 , MUMBAI. 4. THE D.R. C BENCH, MUMBAI. 5. COPY TO GUARD FILE. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI RASIKA