Appeal Details
Counselvise Citation
[2016] 133 COUNSELVISE.COM (IT) 5838 (ITAT-INDORE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
7 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-01-2016
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
DB
Assessment Year
2012-2013
Appeal Filed On
03-06-2015
Judgement Text
SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBE R AND SHRI B.C. MEENA, HONBLE ACCOUNTANT MEMB ER IT(SS)A NOS.115 TO 120/IND/2015 & ITA NO.400/IND/20 15 A.YS.2006-07 TO 2011-12 & 2012-13 SIGNET INDUSTRIES LTD. MUMBAI PAN AABCS 3489F ::: APPELLANT VS DY. COMMR. OF INCOME TAX (CENTRAL), INDORE ::: RESPONDENT IT(SS)A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/2 015 A.YS.2006-07 TO 2011-12 & 2012-13 DY. COMMR. OF INCOME TAX (CENTRAL)-I, INDORE ::: APPELLANT VS SIGNET INDUSTRIES LTD. MUMBAI ::: RESPONDENT ASSESSEE BY SHRI GIRDHAR GARG RESPONDENT BY SHRI RAJEEV VARSHNEY AND SHRI R.A. VERMA DATE OF HEARING 29.12.2015 DATE OF PRONOUNCEMENT 27 .1.2016 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 2 O R D E R PER BENCH THESE APPEALS FILED BY THE ASSESSEE AND REVENUE EMA NATE FROM THE ORDERS OF THE LD. CIT(A)-3, BHOPAL, DATED 29.4.2015. 2. BRIEF FACTS OF THE ASSESSEES CASE ARE THAT THE ASSESSEE IS A FLAGSHIP COMPANY OF SIGNET GROUP OF INDORE. THIS CO MPANY WAS INCORPORATED ON 20.1.1985. THE ASSESSEE COMPANY HAS SHOWN INCOME FROM TRADING IN POLYMERS, PETROCHEMICAL PROD UCTS, FIBRE CHEMICALS, MANUFACTURING OF PLASTIC PRODUCT AND WIN DMILL POWER GENERATION, ETC. A SEARCH AND SEIZURE OPERATION U/S .132 WAS CARRIED OUT AT THE BUSINESS PREMISES OF VARIOUS COM PANIES BELONGING TO SIGNET GROUP AS WELL AS RESIDENTIAL PR EMISES OF DIRECTOR OF THE COMPANY ON 03.11.2011. CONSEQUENTLY , A NOTICE U/S.153A WAS ISSUED. THE STATUS REGARDING RETURN OF INCOME FURNISHED BY THE ASSESSEE U/S.139(1) AND 153A OF TH E INCOME-TAX ACT, 1961 AND ASSESSMENTS COMPLETED AS PER ORIGINAL ASSESSMENT U/S.143(3) / 143(1) AS WELL AS U/S.153A ARE AS UNDE R : SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 3 A.Y. DATE OF ORIGINAL RETURN FILED RETURNED INCOME U/S.139 (RS.) DATE OF FILING RETURN U/S.153A RETURNED INCOME U/S.153A (RS.) ASSESSED INCOME U/S.153A/ 143(3) RS. 2006- 07 16.11.2006 1,00,56,584 1,00,56,584 03.04.2013 5,25,34,580 2007- 08 11.10.2007 (21,82,443) (24,55,425) 03.04.2013 7,22,71,500 2008- 09 30.09.2008 3,60,00,839 3,57,29,420 03.04.2013 11,04,48,590 2009- 10 26.09.2009 3,07,90,810 3,07,90,830 03.04.2013 13,20,39,040 2010- 11 12.10.2010 8,22,17,089 8,22,17,090 03.04.2013 16,81,56,690 2011- 12 30.09.2011 4,64,81,470 4,64,81,470 03.04.2013 19,77,93,820 2012- 13 29.09.2012 (ORIGINAL) (1,32,13,310) - 03.04.2013 21,21,79,240 26.09.2013 (REVISED) (3,23,49,060) - 03.04.2013 3. THE ASSESSEE FILED APPEALS BEFORE THE LEARNED C. I.T.(A) CENTRAL, INDORE AGAINST THE ASSESSMENTS COMPLETED U /S.153A WHO PARTLY ALLOWED THE ASSESSEES APPEALS. AGAINST THE ORDER PASSED BY THE FIRST APPELLATE AUTHORITY, BOTH THE SIDES HA VE PREFERRED APPEAL BEFORE THE INCOME-TAX APPELLATE TRIBUNAL. GROUND NO.1.0 & 1.1 (A.YS.: 2006-07 TO 2009-10) AND 1.0 (A.YS.: 2010-11 TO 2012-13) OF THE ASSESSEES APPEA L : GROUND NO.1.0 & 1.1 (A.YS.: 2006-07 TO 2009-10) AND 1.0 (A.YS.: 2010-11 TO 2012-13) OF ASSESSEES APPEAL RE ADS AS UNDER : ASSESSMENT YEARS : 2006-07 TO 2009-10 1.0 THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INC OME-TAX (APPEALS)-3, BHOPAL, PARTLY CONFIRMING THE ASSESSME NT ORDER PASSED SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 4 U/S.153A R.W. SEC.143(3) OF THE INCOME-TAX ACT, 196 1, BY THE DEPUTY COMMISSIONER OF INCOME-TAX IS BOTH BAD-IN-LAW AND B AD-IN-FACTS. 1.1 IN DOING SO, HE DID NOT APPRECIATE THAT NO ADDITION COULD HAVE BEEN MADE WHILE COMPLETING ASSESSMENT U/S.153A OF THE IN COME-TAX ACT, 1961 IN CASE OF COMPLETED ASSESSMENTS IF NO UNDISCL OSED INCOME WAS DETERMINABLE FROM THE MATERIAL FOUND AS A RESULT OF SEARCH. ASSESSMENT YEARS : 2010-11 TO 2012-13 1.0 THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INC OME-TAX (APPEALS)-3, BHOPAL, CONFIRMING THE ASSESSMENT ORDE R PASSED U/S.153A R.W. SEC.143(3) OF THE INCOME-TAX ACT, 1961, BY THE DEPUTY COMMISSIONER OF INCOME-TAX IS BOTH BAD-IN-LAW AND B AD-IN-FACTS.. THE C.I.T.(A) DISMISSED THE APPEAL OF THE ASSESSEE ON THE BASIS THAT WHERE A SEARCH U/S.132 OF THE ACT IS INITIATED AFTER 31.05.2003 IN CASE OF A PERSON, THE ASSESSING OFFIC ER HAS NO OPTION BUT TO ASSESS OR REASSESS THE TOTAL INCOME F OR EACH OF PRECEDING SIX ASSESSMENT YEARS. THIS IS CLEAR AND U NAMBIGUOUS FROM THE PLAIN LANGUAGE OF SEC.153A(1) OF THE ACT A ND REITERATION IN THE FIRST PROVISO TO SECTION 153A. THE TERMS TOT AL INCOME AND SCOPE OF TOTAL INCOME ARE DEFINED IN SEC.2(45) AND SEC.5 OF THE INCOME-TAX ACT RESPECTIVELY. THE 'TOTAL INCOME' TO BE ASSESSED OR REASSESSED IN TERMS OF SEC.153A SHALL INCLUDE BOTH REGULAR AND SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 5 UNDISCLOSED INCOME IN RESPECT OF EACH ASSESSMENT YE AR FALLING WITHIN SUCH SIX ASSESSMENT YEARS. UNLIKE CHAPTER XIV -B OF THE ACT, WHERE THE DEFINITION OF 'UNDISCLOSED INCOME' W AS SPECIFICALLY PROVIDED IN SECTION 158B(B), NO SEPARATE AND DISTIN CT DEFINITION OF 'TOTAL INCOME' IS PROVIDED IN SECTION 153A IN CONTR ADISTINCTION TO ITS DEFINITION U/S.2(45) OF THE ACT. HAD THE LEGISL ATURE INTENDED TO CURTAIL THE SCOPE OF TOTAL INCOME IN RELATION TO SE ARCH AND SEIZURE ASSESSMENTS, IT WOULD HAVE SPECIFICALLY PROVIDED IT UNDER THE RELEVANT PROVISIONS. IN THE ABSENCE OF THE TERM UN DISCLOSED INCOME HAVING BEEN INCORPORATED IN THE SECTION ITS ELF, THE SAME CANNOT BE READ INTO THE SECTION. WHILE SEC.153A PRO VIDES FOR DETERMINATION OF TOTAL INCOME WHICH INCLUDES BOTH T HE DISCLOSED AS WELL AS UNDISCLOSED INCOME, CHAPTER XIV-B PROVIDE D FOR DETERMINATION OF UNDISCLOSED INCOME FOR THE WHOLE B LOCK PERIOD. UNLIKE CHAPTER XIV-B, THERE IS NOTHING IN SEC.153A W HICH REQUIRES COMPLETION OF A SEARCH ASSESSMENT ONLY ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR OTHER DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION AS ARE AVAILABLE WITH THE AO AND SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 6 RELATABLE TO THE EVIDENCE FOUND. THE AO IS STATUTOR ILY REQUIRED TO MAKE ASSESSMENT U/S.153A FOR ALL SUCH SIX YEARS AND COMPUTE TOTAL INCOME OF THE ASSESSEE INCLUDING UNDISCLOSED INCOME NOTWITHSTANDING THAT RETURNS OF THESE ASSESSMENT YE ARS HAVE ALREADY BEEN PROCESSED U/S 143(1) OR ASSESSED U/S 1 43(3) OF THE ACT. THE SCOPE OF SEC.153A IS SIMILAR TO SEC.143(3) AND IN THAT CONTEXT, THE LEGISLATURE USED THE WORD TOTAL INCOM E. THE FIRST AND SECOND PROVISO TO SEC.153A ARE COMPLEMENTARY TO EACH OTHER AND REQUIRES THE AO TO ASSESS OR RE-ASSESS THE 'TOT AL INCOME' IN RESPECT OF EACH ASSESSMENT YEAR FALLING WITHIN SUCH SIX ASSESSMENT YEARS IN ASSESSMENT ORDERS U/S.153A. IN SUPPORT OF HIS CONTENTION, RELIANCE WAS PLACED UPON MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 2003 [(2003) 26 0 ITR (ST.) 191], THE RULE OF CONSTRUCTION LAID DOWN IN HEYDON S CASE FOR INTERPRETATION OF THE LANGUAGE USED IN SEC.153A AND THE FOLLOWING JUDGEMENTS: 1. C.I.T. VS. RAJ KUMAR ARORA 367 ITR 517 (ALL) 2. CANARA HOUSING DEVELOPMENT COMPANY VS. D.C.I.T. 49 TAXMAN.COM 98 (KAR) SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 7 3. NANDINI DELUX VS. C.I.T. 37 ITR (TRIB.) 52 (BANG.) 4. MADUGULAVENU VS. D.I.T. 29 TAXMANN.COM 200 (DEL) 5. SHIVNATH RAI HARNARAIN LTD. VS. D.C.I.T. 117 ITD 74 (DEL) 6. MS. SHYAM LATA KAUSHIK VS. A.C.I.T. 306 ITR (A.T.) 117 (DEL) 7. HARVEY HEART HOSPITALS LTD. VS. A.C.I.T. 130 TTJ 70 0 (CHENNAI) 8. DR. MANSUKH KANJIBHAI SHAH VS. A.C.I.T. 129 ITD 3 76 (AHD.) 9. RAJAT TRADECOM INDIA (P.) LTD. VS. D.C.I.T. 120 IT D 48 (INDORE) 10. INCOME-TAX-VII V. CHETAN DAS LACHMAN DAS 25 TAXMANN.COM 227 (DEL) 11. C.I.T. VS. ANIL KUMAR BHATIA 24 TAXMANN.COM 98 (DEL) 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSMENT U/S.153A IS MADE ONLY IN CASES WHERE A SEARCH IS INITIATED U/S.132 OR BOOKS OF ACC OUNT, OTHER DOCUMENTS OR ANY ASSETS ARE REQUISITIONED U/S.132A AFTER 31.05.2003. THEREFORE, SECTION 153A OF THE ACT CANN OT BE READ IN ISOLATION. THE REQUIREMENT OF ASSESSMENT OR REASSES SMENT OF TOTAL INCOME UNDER THE SAID SECTION HAS TO BE READ IN THE CONTEXT OF SECTIONS 132 OR 132A OF THE ACT. ONCE NOTICE U/S.15 3A IS ISSUED, THE ASSESSEE IS COMPULSORILY REQUIRED TO FILE RETUR N OF INCOME FOR SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 8 SIX ASSESSMENT YEARS NOTWITHSTANDING DISCOVERY OR O THERWISE OF ANY INCRIMINATING MATERIAL. ALL THE ASSESSMENT PROC EEDINGS WHICH ARE PENDING ON THE DATE OF SEARCH ABATE IN TERMS OF SECOND PROVISO TO SEC.153A. AS A COROLLARY, ALTHOUGH BUT N OT EXPRESSLY PROVIDED IN SECTION, THE ASSESSMENT PROCEEDINGS WHI CH ARE NOT PENDING DO NOT ABATE. IF NOTHING INCRIMINATING IS F OUND ON ACCOUNT OF SUCH SEARCH OR REQUISITION IN RELATION T O UNABATED ASSESSMENTS I.E. COMPLETED OR CONCLUDED ASSESSMENTS , ONLY ASSESSED INCOME SHOULD BE REITERATED. THE HARMONIOU S CONSTRUCTION OF ENTIRE PROVISION WOULD LEAD TO AN I RRESISTIBLE CONCLUSION THAT THE TERM ASSESSMENT HAS TO BE REA D IN THE CONTEXT OF ABATED ASSESSMENTS AND THE TERM REASSES SMENT HAS BEEN USED IN THE CONTEXT OF UNABATED ASSESSMENTS. I N THE CASE OF COMPLETED ASSESSMENTS, INCOME HAS TO BE RE-ASSESSED IN TERMS OF SEC.153A. THE RE-ASSESSMENT REQUIRES BELIEF OF A SSESSING OFFICER REGARDING ESCAPEMENT OF INCOME FROM ASSESSM ENT. THE BELIEF SHOULD BE FOUNDED ON EXISTENCE OF APPROPRIAT E MATERIAL OR INFORMATION. IT SHOULD BE RATIONAL BELIEF HELD IN G OOD FAITH AND NOT SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 9 ARBITRARY, SUBJECTIVE OR A MERE PRETENCE. THE MATER IAL OR INFORMATION IN HIS POSSESSION SHOULD HAVE DIRECT NE XUS WITH HIS BELIEF REGARDING ESCAPEMENT OF INCOME. THE ABSENCE OF SUCH NEXUS SHALL RENDER THE RE-ASSESSMENT PROCEEDINGS IN VALID. THUS, THE RE-ASSESSMENT OF INCOME U/S.153A CANNOT BE MADE SANS ANY INCRIMINATING MATERIAL OR MERELY ON CHANGE OF OPINI ON IN RELATION TO MATERIAL ALREADY CONSIDERED. [INDIAN & EASTERN N EWSPAPER SOCIETY VS. C.I.T. (119 ITR 996 SC); CALCUTTA DISCO UNT CO. LTD. VS. I.T.O (41 ITR 191 SC)] THE CONTENTION OF THE RE VENUE TO THE EFFECT THAT ONCE A NOTICE UNDER SECTION 153A OF THE ACT IS ISSUED, THE ASSESSMENTS FOR ALL THE SIX YEARS ARE AT LARGE FOR THE AO HAS NO WARRANT IN LAW. RELIANCE WAS PLACED UPON THE FOL LOWING JUDGEMENTS: 1. JAI STEEL (INDIA) VS. A.C.I.T. (2013) 259 CTR 281 (RAJ) 19. THE UNDERLINE PURPOSE OF MAKING ASSESSMENT OF TOTA L INCOME UNDER SECTION 153A OF THE ACT IS, THEREFORE, TO ASS ESS INCOME WHICH WAS NOT DISCLOSED OR WOULD NOT HAVE BEEN DISCLOSED. THE PURPOSE OF SECOND PROVISO IS ALSO VERY CLEAR, INASMUCH AS, ONCE A ASSESSMENT OR REASSESSMENT IS 'PENDING' ON THE DATE OF INITIATION OF SEARCH OR REQUISITION AND IN TERMS OF SECTION 153A A RETURN IS FILED AND THE AO IS REQUIRED TO ASSESS THE SAME, THERE CA NNOT BE TWO ASSESSMENT ORDERS DETERMINING THE TOTAL INCOME OF T HE ASSESSEE FOR SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 10 THE SAID ASSESSMENT YEAR AND, THEREFORE, THE PROVIS O PROVIDES FOR ABATEMENT OF SUCH PENDING ASSESSMENT AND REASSESSME NT PROCEEDINGS AND IT IS ONLY THE ASSESSMENT MADE UNDE R SECTION 153A OF THE ACT WOULD BE THE ASSESSMENT FOR THE SAI D YEAR. 20. THE NECESSARY COROLLARY OF THE ABOVE SECOND PROVIS O IS THAT THE ASSESSMENT OR REASSESSMENT PROCEEDINGS, WHICH HAVE ALREADY BEEN 'COMPLETED' AND ASSESSMENT ORDERS HAVE BEEN PASSED DETERMINING THE ASSESSEE'S TOTAL INCOME AND, SUCH ORDERS ARE SU BSISTING AT THE TIME WHEN THE SEARCH OR THE REQUISITION IS MADE, TH ERE IS NO QUESTION OF ANY ABATEMENT SINCE NO PROCEEDINGS ARE PENDING. IN SUCH CASES, WHERE THE ASSESSMENTS ALREADY STANDS CO MPLETED, THE AO CAN REOPEN THE ASSESSMENTS OR REASSESSMENTS ALRE ADY MADE WITHOUT FOLLOWING THE PROVISIONS OF SECTIONS 147, 1 48 AND 151 OF THE ACT AND DETERMINE THE TOTAL INCOME OF THE ASSES SEE. 21. THE ARGUMENT RAISED BY THE COUNSEL FOR THE APPELLA NT TO THE EFFECT THAT ONCE A NOTICE UNDER SECTION 153A OF THE ACT IS ISSUED, THE ASSESSMENTS FOR SIX YEARS ARE AT LARGE BOTH FOR THE AO AND ASSESSEE HAS NO WARRANT IN LAW. 22. IN THE FIRM OPINION OF THIS COURT FROM A PLAIN REA DING OF THE PROVISION ALONG WITH THE PURPOSE AND PURPORT OF THE SAID PROVISION, WHICH IS INTRICATELY LINKED WITH SEARCH AND REQUISI TION UNDER SECTIONS 132 AND 132A OF THE ACT, IT IS APPARENT TH AT: (A) THE ASSESSMENTS OR REASSESSMENTS, WHICH STAND ABATE D IN TERMS OF II PROVISO TO SECTION 153A OF THE ACT, THE AO ACTS UNDER HIS ORIGINAL JURISDICTION, FOR WHICH, ASSESSMENTS HAVE TO BE MADE; (B) REGARDING OTHER CASES, THE ADDITION TO THE INCOME T HAT HAS ALREADY BEEN ASSESSED, THE ASSESSMENT WILL BE MADE ON THE BASIS OF INCRIMINATING MATERIAL AND (C) IN ABSENCE OF ANY INCRIMINATING MATERIAL, THE COMPL ETED ASSESSMENT CAN BE REITERATED AND THE ABATED ASSESSMENT OR REASSESSMENT CAN BE MADE. THOUGH SUCH A CLAIM BY THE ASSESSEE FOR THE FIRST T IME UNDER SECTION 153A OF THE ACT IS NOT COMPLETED, THE CASE IN HAND, HAS TO BE CONSIDERED AT BEST SIMILAR TO A CASE WHERE IN SP ITE OF A SEARCH AND/OR REQUISITION, NOTHING INCRIMINATING IS FOUND. IN SUCH A CASE THOUGH SECTION 153A OF THE ACT WOULD BE TRIGGERED A ND ASSESSMENT SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 11 OR REASSESSMENT TO ASCERTAIN THE TOTAL INCOME OF TH E PERSON IS REQUIRED TO BE DONE, HOWEVER, THE SAME WOULD IN THA T CASE NOT RESULT IN ANY ADDITION AND THE ASSESSMENTS PASSED E ARLIER MAY HAVE TO BE REITERATED. ............ 26. THE PLEA RAISED ON BEHALF OF THE ASSESSEE THAT AS THE FIRST PROVISO PROVIDES FOR ASSESSMENT OR REASSESSMENT OF THE TOTAL INCOME IN RESPECT OF EACH ASSESSMENT YEAR FALLING W ITHIN THE SIX ASSESSMENT YEARS, IS MERELY READING THE SAID PROVIS ION IN ISOLATION AND NOT IN THE CONTEXT OF THE ENTIRE SECTION. THE W ORDS 'ASSESS' OR 'REASSESS' HAVE BEEN USED AT MORE THAN ONE PLACE IN THE SECTION AND A HARMONIOUS CONSTRUCTION OF THE ENTIRE PROVISI ON WOULD LEAD TO AN IRRESISTIBLE CONCLUSION THAT THE WORD 'ASSESS ' HAS BEEN USED IN THE CONTEXT OF AN ABATED PROCEEDINGS AND REASSESS H AS BEEN USED FOR COMPLETED ASSESSMENT PROCEEDINGS, WHICH WOULD N OT ABATE AS THEY ARE NOT PENDING ON THE DATE OF INITIATION OF T HE SEARCH OR MAKING OF REQUISITION AND WHICH WOULD ALSO NECESSAR ILY SUPPORT THE INTERPRETATION THAT FOR THE COMPLETED ASSESSMEN TS, THE SAME CAN BE TINKERED ONLY BASED ON THE INCRIMINATING MATERIA L FOUND DURING THE COURSE OF SEARCH OR REQUISITION OF DOCUMENTS. 2. C.I.T. VS. KABUL CHAWLA [I.T.A.NO.707/2014 DT.28.08.2015 (DEL)(HC)] 37. ON A CONSPECTUS OF SECTION 153A(1) OF THE ACT, READ WITH THE PROVISOS THERETO, AND IN THE LIGHT OF THE LAW EXPLA INED IN THE AFOREMENTIONED DECISIONS, THE LEGAL POSITION THAT E MERGES IS AS UNDER: I. ONCE A SEARCH TAKES PLACE UNDER SECTION 132 OF THE ACT, NOTICE UNDER SECTION 153 A (1) WILL HAVE TO BE MAND ATORILY ISSUED TO THE PERSON SEARCHED REQUIRING HIM TO FILE RETURNS FOR SIX AYS IMMEDIATELY PRECEDING THE PREVIOUS YEAR REL EVANT TO THE AY IN WHICH THE SEARCH TAKES PLACE. II. ASSESSMENTS AND REASSESSMENTS PENDING ON THE DATE O F THE SEARCH SHALL ABATE. THE TOTAL INCOME FOR SUCH AYS W ILL HAVE TO BE COMPUTED BY THE AOS AS A FRESH EXERCISE. III. THE AO WILL EXERCISE NORMAL ASSESSMENT POWERS IN RE SPECT OF THE SIX YEARS PREVIOUS TO THE RELEVANT AY IN WHICH THE SEARCH SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 12 TAKES PLACE. THE AO HAS THE POWER TO ASSESS AND REA SSESS THE 'TOTAL INCOME' OF THE AFOREMENTIONED SIX YEARS IN S EPARATE ASSESSMENT ORDERS FOR EACH OF THE SIX YEARS. IN OTH ER WORDS THERE WILL BE ONLY ONE ASSESSMENT ORDER IN RESPECT OF EACH OF THE SIX AYS IN WHICH BOTH THE DISCLOSED AND THE UN DISCLOSED INCOME WOULD BE BROUGHT TO TAX. IV. ALTHOUGH SECTION 153 A DOES NOT SAY THAT ADDITIONS SHOULD BE STRICTLY MADE ON THE BASIS OF EVIDENCE FOUND IN THE COURSE OF THE SEARCH, OR OTHER POST-SEARCH MATERIAL OR INFORM ATION AVAILABLE WITH THE AO WHICH CAN BE RELATED TO THE E VIDENCE FOUND, IT DOES NOT MEAN THAT THE ASSESSMENT CAN BE ARBITRARY OR MADE WITHOUT ANY RELEVANCE OR NEXUS WITH THE SEI ZED MATERIAL. OBVIOUSLY AN ASSESSMENT HAS TO BE MADE UN DER THIS SECTION ONLY ON THE BASIS OF SEIZED MATERIAL. V. IN ABSENCE OF ANY INCRIMINATING MATERIAL, THE COMPL ETED ASSESSMENT CAN BE REITERATED AND THE ABATED ASSESSM ENT OR REASSESSMENT CAN BE MADE. THE WORD 'ASSESS' IN SECT ION 153 A IS RELATABLE TO ABATED PROCEEDINGS (I.E. THOSE PEND ING ON THE DATE OF SEARCH) AND THE WORD 'REASSESS' TO COMPLETE D ASSESSMENTPROCEEDINGS. VI. INSOFAR AS PENDING ASSESSMENTS ARE CONCERNED, THE JURISDICTION TO MAKE THE ORIGINAL ASSESSMENT AND TH E ASSESSMENT UNDER SECTION 153A MERGES INTO ONE. ONLY ONE ASSESSMENT SHALL BE MADE SEPARATELY FOR EACH AY ON THE BASIS OF THE FINDINGS OF THE SEARCH AND ANY OTHER MATERIA L EXISTING OR BROUGHT ON THE RECORD OF THE AO. VII. COMPLETED ASSESSMENTS CAN BE INTERFERED WITH BY THE AO WHILE MAKING THE ASSESSMENT UNDER SECTION 153 A ONL Y ON THE BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURI NG THE COURSE OF SEARCH OR REQUISITION OF DOCUMENTS OR UND ISCLOSED INCOME OR PROPERTY DISCOVERED IN THE COURSE OF SEAR CH WHICH WERE NOT PRODUCED OR NOT ALREADY DISCLOSED OR MADE KNOWN IN THE COURSE OF ORIGINAL ASSESSMENT. 38. THE PRESENT APPEALS CONCERN AYS, 2002-03, 2005- 06 AND 2006- 07. ON THE DATE OF THE SEARCH THE SAID ASSESSMENTS ALREADY STOOD COMPLETED. SINCE NO NCRIMINATING MATERIAL WAS UNEAR THED DURING THE SEARCH, NO ADDITIONS COULD HAVE BEEN MADE TO TH E INCOME ALREADY ASSESSED. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 13 39. THE QUESTION FRAMED BY THE COURT IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 40. THE APPEALS ARE ACCORDINGLY DISMISSED BUT IN TH E CIRCUMSTANCES NO ORDERS AS TO COSTS. 3. C.I.T. VS. MURLI AGRO PRODUCTS LTD. [(2014) 49 TAXMANN.COM 172 (BOM)] [KINDLY REFER TO PARA 8 TO 10] 4. C.I.T VS. CONTINENTAL WAREHOUSING CORPORATION [58 TAXMANN.COM 78 (BOM)] [KINDLY REFER TO PARA 28 TO 37] 5. ALL CARGO GLOBAL LOGISTICS LTD. VS. D.I.T. [137 ITD 287 (MUM-SB)] [KINDLY REFER TO PARA 48 TO 53; 53 CONCLUDE THE ISSUE] 6. GOVIND AGARWAL [ITA NO.3389 & 3390/M/2011 DT.10.01.2014 (MUM.TRIB.)] 7. A.C.I.T. VS. PRATIBHA INDUSTRIES LTD. [28 TAXMANN.COM 246 (MUM. TRIB)] 8. GURINDER SINGH BAWA VS. D.C.I.T.[28 TAXMANN.COM 328 (MUM. TRIB)] 9. DINESH TOBACCO INDUSTRIES VS. D.C.I.T. [148 ITD 118 (JODH. TRIB)] 5. AS REGARDS JUDGEMENTS RELIED UPON BY THE C.I.T. (A), THE SAME WERE DISTINGUISHABLE ON FACTS INASMUCH AS RECO VERY OF INCRIMINATING MATERIAL EITHER DURING SEARCH OR POST SEARCH INQUIRIES. 6. ON THE ISSUE OF ADDITION SANS INCRIMINATING MATE RIAL, THERE ARE TWO VIEWS OF VARIOUS JUDICIAL AUTHORITIES. IT I S A SETTLED LEGAL SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 14 POSITION THAT IF TWO VIEWS ARE POSSIBLE ON A PARTIC ULAR ISSUE, THE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE SHOULD BE FOLLOWED. [C.I.T. VS. VEGETABLE PRODUCTS LTD. 88 ITR 192 (SC)] . 7. IN THE ASSESSEES CASE, THERE ARE NO INCRIMINATI NG MATERIAL WHATSOEVER IN RELATION DISALLOWANCE U/S.14A [ASSESS MENT YEAR 2008-09 (RS.15,85,470/-), 2009-10 (RS.8,17,032/-), 2010-11 (RS.22,35,657/-)], UNSECURED LOAN OF RS.1,50,00,000 /- RECEIVED FROM RITU CREATIONS PVT. LTD. IN ASSESSMENT YEAR 200 7-08, AND LUCKY COMMOTRADE PVT. LTD. [IN ASSESSMENT YEARS 2007- 08 (RS.2,95,00,000/-), 2008-09 (RS.6,32,34,000) AND 20 09-10 (RS.4,01,35,000)] AND ALLEGED BOGUS PURCHASES FROM M/S. AJANTA ENTERPRISES AND UTKANTHA TRADING LTD. [ASSESSMENT YE ARS 2009- 10: RS.5,88,96,181/-]. NO PROCEEDINGS IN RELATION T O ASSESSMENTS FOR THESE ASSESSMENT YEARS WERE PENDING AND THEREFO RE NO ADDITION COULD HAVE BEEN MADE IN ASSESSMENT COMPLET ED U/S.153A IN THE ABSENCE OF ANY INCRIMINATING MATERI AL ON THE ABOVE GROUNDS. THE ADDITION MADE BY THE ASSESSING OFFICER BY WAY OF REASSESSMENT IN RELATION TO IMPUGNED CONCLUD ED SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 15 ASSESSMENTS AMOUNTED TO CHANGE IN OPINION ON THE SA ME SET OF FACTS WHICH IS NOT PERMISSIBLE U/S.153A . 8. WE HAVE HEARD BOTH THE SIDES. WE HOLD THAT THE INCRIMINATING DOCUMENTS PERTAINING TO VARIOUS ASSES SMENT YEARS WERE FOUND AND SEIZED. THE PAPERS RELATING TO CASH PAYMENTS WERE FOUND AND SEIZED IN THE SEARCH OPERATION. FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 THE DOCUMENTS PERTAINING TO UNACCOUNTED SALES WERE FOUND AND SEIZ ED. FOR THE ASSESSMENT YEAR 2008-09 THE DOCUMENTS PERTAINING TO THE CASH PAID TO SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI A ND THE EVIDENCE REGARDING THE UNDER-INVOICING AND UNACCOU NTED SALES WERE ALSO FOUND AND SEIZED. FOR THE ASSESSMENT YEA RS 2009-10 THE EVIDENCE REGARDING CASH PAID TO SHRI PANKAJ KAL ANI AND SHRI DEEPAK KALANI AND BOGUS PURCHASES WERE ALSO FOUND A ND SEIZED. FOR THE ASSESSMENT YEAR 2010-11 PAPERS RELATING TO CASH PAYMENT TO SHRI PANKAN KALANI AND SHRI DEEPAK KALAN I WERE ALSO FOUND AND SEIZED. THUS, FOR ALL THE UNABATED ASSES SMENTS, THERE WAS SEIZURE OF INCRIMINATING DOCUMENTS PERTAINING T O THESE YEARS. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 16 FOR THE ASSESSMENT YEARS 2011-12 AND 2012-13 ALSO INCRIMINATING DOCUMENTS WERE ALSO FOUND AND SEIZED IN RELATION TO TRADING IN POLYMER AND PLASTIC GOODS. THE ASSESSEE HAS ALSO ADMITTED UNDISCLOSED INCOME ON THE BASIS OF THESE D OCUMENTS, THEREFORE, THE RATIO LAID DOWN IN THE CASE LAWS REL IED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. CONSIDERING ALL THESE FACTUAL ASPECTS, WE DISMISS ALL THESE GROUNDS FOR ALL THE ASSESSMENT YE ARS RAISED BEFORE US. GROUND NO.2.0 TO 2.5 (A.YS.: 2006-07 TO 2009-10 AND 2011-12) OF THE ASSESSEES APPEAL AND GROUND NO.1 (A.YS.: 2006-07 TO 2008-09) OF REVENUES APPEAL : GROUND NO.2.0 (A.YS.: 2006-07 TO 2009-10 AND 2011-1 2) OF ASSESSEES APPEALS READS AS UNDER: ASSESSMENT YEAR : 2006-07 ADDITION ON ACCOUNT OF UNACCOUNTED SALES: RS.2,89,9 7,976/- 2.0 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN L AW AS WELL IN FACTS IN CONFIRMING ADDITION OF UNDISCLOSED INCOME FROM UNDE R-INVOICING AND UNACCOUNTED SALES RELATING TO POLYMER BUSINESS BY T HE ASSESSING OFFICER IN THE ASSESSEES CASE, DESPITE THE FACT THAT THE SAME WAS PERTAINING TO UNACCOUNTED POLYMER BUSINESS OF SHRI MUKESH SANGLA, VOLUNTARIL Y OFFERED FOR TAXATION IN HIS RETURN OF INCOME AND ASSESSED BY THE INCOME-TAX DEPARTMENT PURSUANT TO ORDERS PASSED U/S.143(3) R.W.SEC.147 OF THE INCOME- TAX ACT, 1961. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 17 WITHOUT PREJUDICE TO THE ABOVE: 2.1 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ADDITION MADE BY THE ASSESS ING OFFICER ON ACCOUNT OF UNACCOUNTED SALES OF RS.2,89,97,976/- IN SPITE OF T HE FACT THAT : (A) THE UNDISCLOSED INCOME ON ACCOUNT OF UNDER-INVOICIN G, UNACCOUNTED SALES AND CASH TRANSACTIONS WITH SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI WERE CONSIDERED BY SHRI MUKESH SANGLA FOR DETERMINING HI S UNDISCLOSED INCOME FOR REVISING HIS RETURN OF INCOME FOR THE ASSESSMENT YE AR 2006-07, 2007-08 AND 2008-09 AND (B) THE SAME WAS ACCEPTED BY THE INCOME-TAX DEPARTMENT IN THE ORDERS PASSED U/S.143(3) R.W.SEC.147 OF THE INCOME-TAX ACT, 1961 OF THE RESPECTIVE YEARS. 2.2 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN NOT ALLOWING TELESCOPING OF UNDISCLOSED IN COME OF RS.2,89,97,976/- FROM UNDER-INVOICING AND UNACCOUNTED SALES FOR THE ASSESSMENT YEAR 2006-07 AGAINST THE ALLEGED CASH PAYMENT MADE TO SHRI PANKA J KALANI AND SHRI DEEPAK KALANI IN THE ASSESSMENT YEAR 2007-08. ASSESSMENT YEAR : 2007-08 ADDITION ON THE BASIS OF ENTRIES OF CASH PAYMENT RECORDED IN THE MATERIAL FOUND AND SEIZED DURING SE ARCH IN THE CASE OF SHRI PANKAJ KALANI AND SHRI DEEPAK K ALANI : RS.2,95,00,000/- 2.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ADDITION OF UNDISCLOS ED INCOME OF RS.2,95,00,000/- MADE BY THE ASSESSING OFFICER ON T HE BASIS OF ENTRIES OF CASH PAYMENT RECORDED IN THE MATERIAL FOUND AND SEI ZED DURING SEARCH IN THE CASE OF SHRI PANKAJ KALANI AND SHRI DEEPAK K ALANI, IN SPITE OF THE FACT THAT : (A) THE CASH TRANSACTIONS WITH THEM WERE CONSIDERED BY SHRI MUKESH SANGLA FOR DETERMINING HIS UNDISCLOSED INCOME FOR R EVISING HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07, 2 007-08 AND 2008-09 AND (B) THE SAME WAS ACCEPTED BY THE INCOME-TAX DEPARTMENT IN THE ORDERS PASSED U/S.143(3) R.W.SEC.147 OF THE INCOME-TAX ACT , 1961 OF THE RESPECTIVE YEARS. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 18 2.1 IN DOING SO, HE IGNORED THE VITAL FACTS THAT THE AS SESSEE WAS NOT PROVIDED WITH: (A) THE COPIES OF MATERIAL FOUND AND SEIZED DURING SEAR CH IN THE CASE OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI, (B) THE COPIES OF STATEMENTS OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI RECORDED DURING SEARCH BY INCOME-TAX DEPARTM ENT, (C) ONLY CASH PAID TO MADE TO THEM WERE CONSIDERED AND NOT THE CASH RECALLED, (D) THE STATEMENT OF SHRI PANKAJ KALANI MADE BEFORE THE CENTRAL EXCISE AUTHORITIES WAS RETRACTED SUBSEQUENTLY (E) THE OPPORTUNITY FOR CROSS EXAMINATION OF SHRI PANKA J KALANI AND SHRI DEEPAK KALANI AND (F) THE OPPORTUNITY TO REBUT THE INFERENCE DRAWN AGAINS T THE ASSESSEE. 2.2 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN NOT ALLOWING TELESCOPING OF UNDISCLO SED INCOME OF RS.2,89,97,976/- FROM UNDER-INVOICING AND UNACCOUNT ED SALES FOR THE ASSESSMENT YEAR 2006-07 AVAILABLE WITH THE ASSESSEE AGAINST THE ALLEGED CASH PAYMENT MADE TO SHRI PANKAJ KALANI AND SHRI DE EPAK KALANI IN THE ASSESSMENT YEAR 2007-08. ADDITION U/S.68 OF THE INCOME TAX ACT, 1961 BY TREA TING LOAN FROM LUCKY COMMOTRADE PVT. LTD. AS UNEXPLAINED CASH CREDIT: RS.2,35,00,000/- 2.3 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ADDITION OF RS.2,35,00,000/ - MADE BY THE ASSESSING OFFICER U/S.68 OF THE INCOME-TAX ACT, 1961 BY TREAT ING THE GENUINE LOAN FROM LUCKY COMMOTRADE PVT. LTD. AS UNEXPLAINED CASH CRED IT. ADDITION ON ACCOUNT OF UNDER-INVOICING (RS.1,34,65,899/- AND UNACCOUNTED SALES (RS.1,75,60 ,798/-) : RS.3,10,26,786/- SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 19 2.4 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN L AW AS WELL IN FACTS IN CONFIRMING ADDITION OF UNDISCLOSED INCOME FROM U NDER-INVOICING AND UNACCOUNTED SALES RELATING TO POLYMER BUSINESS BY T HE ASSESSING OFFICER IN THE ASSESSEES CASE, DESPITE THE FACT THAT THE S AME WAS PERTAINING TO UNACCOUNTED POLYMER BUSINESS OF SHRI MUKESH SANGLA, VOLUNTARILY OFFERED FOR TAXATION IN HIS RETURN OF INCOME AND AS SESSED BY THE INCOME- TAX DEPARTMENT PURSUANT TO ORDERS PASSED U/S.143(3) R.W.SEC.147 OF THE INCOME-TAX ACT, 1961. WITHOUT PREJUDICE TO THE ABOVE : 2.5 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDER-INVOICING OF RS.1,34,65,899/- AND UNACCOUNTED SALES OF RS.1,75,60,798/- IN SPITE OF THE FACT THAT : (A) THE UNDISCLOSED INCOME ON ACCOUNT OF UNDER-INVOICIN G, UNACCOUNTED SALES AND CASH TRANSACTIONS WITH SHRI P ANKAJ KALANI AND SHRI DEEPAK KALANI WERE CONSIDERED BY SHRI MUKE SH SANGLA FOR DETERMINING HIS UNDISCLOSED INCOME FOR REVISING HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07, 2007-08 AND 2008-09 AND (B) THE SAME WAS ACCEPTED BY THE INCOME-TAX DEPARTMENT IN THE ORDERS PASSED U/S.143(3) R.W.SEC.147 OF THE INCOME-TAX ACT , 1961 OF THE RESPECTIVE YEARS. ASSESSMENT YEAR : 2008-09 ADDITION ON THE BASIS OF ENTRIES OF CASH PAYMENT RECORDED IN THE MATERIAL FOUND AND SEIZED DURING SEARCH IN THE CASE OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI : RS.6,32,34,000/- 2.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ADDITION OF UNDISCLOS ED INCOME OF RS.6,32,34,000/- MADE BY THE ASSESSING OFFICER ON T HE BASIS OF ENTRIES OF CASH PAYMENT RECORDED IN THE MATERIAL FOUND AND SEI ZED DURING SEARCH IN THE CASE OF SHRI PANKAJ KALANI AND SHRI DEEPAK K ALANI, IN SPITE OF THE FACT THAT : SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 20 (A) THE CASH TRANSACTIONS WITH THEM WERE CONSIDERED BY SHRI MUKESH SANGLA FOR DETERMINING HIS UNDISCLOSED INCOME FOR R EVISING HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07, 2 007-08 AND 2008-09 AND (B) THE SAME WAS ACCEPTED BY THE INCOME-TAX DEPARTMENT IN THE ORDERS PASSED U/S.143(3) R.W.SEC.147 OF THE INCOME-TAX ACT , 1961 OF THE RESPECTIVE YEARS.+ 2.1 IN DOING SO, HE IGNORED THE VITAL FACTS THAT THE AS SESSEE WAS NOT PROVIDED WITH (A) THE COPIES OF MATERIAL FOUND AND SEIZED DURING SEAR CH IN THE CASE OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI, (B) THE COPIES OF STATEMENTS OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI RECORDED DURING SEARCH BY INCOME-TAX DEPARTM ENT, (C) ONLY CASH PAID TO MADE TO THEM WERE CONSIDERED AND NOT THE CASH RECALLED, (D) THE STATEMENT OF SHRI PANKAJ KALANI MADE BEFORE THE CENTRAL EXCISE AUTHORITIES WAS RETRACTED SUBSEQUENTLY (E) THE OPPORTUNITY FOR CROSS EXAMINATION OF SHRI PANKA J KALANI AND SHRI DEEPAK KALANI AND (F) THE OPPORTUNITY TO REBUT THE INFERENCE DRAWN AGAINS T THE ASSESSEE. ADDITION U/S.68 OF THE INCOME TAX ACT, 1961 BY TREATING LOAN FROM LUCKY COMMOTRADE PVT. LTD. AS UNEXPLAINED CASH CREDIT: RS.4,20,99,000/- 2.2 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ADDITION OF RS.4,20,9 9,000/- MADE BY THE ASSESSING OFFICER U/S.68 OF THE INCOME-TAX ACT, 196 1 BY TREATING THE GENUINE LOAN FROM LUCKY COMMOTRADE PVT. LTD. AS UNE XPLAINED CASH CREDIT. ADDITION ON ACCOUNT OF UNDER-INVOICING (RS.1,19,47,395/-)AND UNACCOUNTED SALES (RS.93,56,8 57/-) : RS.2,13,04,252/- 2.3 THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN L AW AS WELL IN FACTS IN CONFIRMING ADDITION OF UNDISCLOSED INCOME FROM U NDER-INVOICING AND UNACCOUNTED SALES RELATING TO POLYMER BUSINESS BY T HE ASSESSING OFFICER SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 21 IN THE ASSESSEES CASE, DESPITE THE FACT THAT THE S AME WAS PERTAINING TO UNACCOUNTED POLYMER BUSINESS OF SHRI MUKESH SANGLA, VOLUNTARILY OFFERED FOR TAXATION IN HIS RETURN OF INCOME AND AS SESSED BY THE INCOME- TAX DEPARTMENT PURSUANT TO ORDERS PASSED U/S.143(3) R.W.SEC.147 OF THE INCOME-TAX ACT, 1961. WITHOUT PREJUDICE TO THE ABOVE : 2.4 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDER-INVOICING OF RS.1,19,47,395/- AND UNACCOUNTED SALES OF RS.93,56,857/- IN SPITE OF THE FACT THAT: (A) THE UNDISCLOSED INCOME ON ACCOUNT OF UNDER-INVOICIN G, UNACCOUNTED SALES AND CASH TRANSACTIONS WITH SHRI P ANKAJ KALANI AND SHRI DEEPAK KALANI WERE CONSIDERED BY SHRI MUKE SH SANGLA FOR DETERMINING HIS UNDISCLOSED INCOME FOR REVISING HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07, 2007-08 AND 2008-09 AND (B) THE SAME WAS ACCEPTED BY THE INCOME-TAX DEPARTMENT IN THE ORDERS PASSED U/S.143(3) R.W.SEC.147 OF THE INCOME-TAX ACT , 1961 OF THE RESPECTIVE YEARS. ASSESSMENT YEAR : 2009-10 ADDITION ON THE BASIS OF ENTRIES OF CASH PAYMENT RECORDED IN THE MATERIAL FOUND AND SEIZED DURING SEARCH IN THE CASE OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI : RS.4,01,35,000/- 2.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ADDITION OF UNDISCLOS ED INCOME OF RS.4,01,35,000/- MADE BY THE ASSESSING OFFICER ON T HE BASIS OF ENTRIES OF CASH PAYMENT RECORDED IN THE MATERIAL FOUND AND SEI ZED DURING SEARCH IN THE CASE OF SHRI PANKAJ KALANI AND SHRI DEEPAK K ALANI. 2.1 IN DOING SO, HE IGNORED THE VITAL FACTS THAT THE AS SESSEE WAS NOT PROVIDED WITH : (A) THE COPIES OF MATERIAL FOUND AND SEIZED DURING SEAR CH IN THE CASE OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI, (B) THE COPIES OF STATEMENTS OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI RECORDED DURING SEARCH BY INCOME-TAX DEPARTM ENT, SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 22 (C) THE OPPORTUNITY FOR CROSS EXAMINATION OF SHRI PANKA J KALANI AND SHRI DEEPAK KALANI AND (D) THE OPPORTUNITY TO REBUT THE INFERENCE DRAWN AGAINS T THE ASSESSEE. ADDITION U/S.68 OF THE INCOME TAX ACT, 1961 BY TREATING LOAN FROM LUCKY COMMOTRADE PVT. LTD. AS UNEXPLAINED CASH CREDIT: RS.3,14,78,000/- 2.2 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ADDITION OF RS.3,14,7 8,000/- MADE BY THE ASSESSING OFFICER U/S.68 OF THE INCOME-TAX ACT, 196 1BY TREATING THE GENUINE LOAN FROM LUCKY COMMOTRADE PVT. LTD. AS UNE XPLAINED CASH CREDIT. ASSESSMENT YEAR : 2011-12 ADDITION ON THE BASIS OF ENTRIES OF CASH PAYMENT RECORDED IN THE MATERIAL FOUND AND SEIZED DURING SEARCH IN THE CASE OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI : RS.7,75,000/- 2.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ADDITION OF UNDISCLOS ED INCOME OF RS.7,75,000/- MADE BY THE ASSESSING OFFICER ON THE BASIS OF ENTRIES OF CASH PAYMENT RECORDED IN THE MATERIAL FOUND AND SEI ZED DURING SEARCH IN THE CASE OF SHRI PANKAJ KALANI AND SHRI DEEPAK K ALANI. 2.1 IN DOING SO, HE IGNORED THE VITAL FACTS THAT THE AS SESSEE WAS NOT PROVIDED WITH (A) THE COPIES OF MATERIAL FOUND AND SEIZED DURING SEAR CH IN THE CASE OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI, (B) THE COPIES OF STATEMENTS OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI RECORDED DURING SEARCH BY INCOME-TAX DEPARTM ENT, (C) THE OPPORTUNITY FOR CROSS EXAMINATION OF SHRI PANKA J KALANI AND SHRI DEEPAK KALANI AND (D) THE OPPORTUNITY TO REBUT THE INFERENCE DRAWN AGAINS T THE ASSESSEE. ADDITION U/S.68 OF THE INCOME TAX ACT, 1961 BY TREATING LOAN FROM LUCKY COMMOTRADE PVT. LTD. AS UNEXPLAINED CASH CREDIT: RS.2,50,00,000/- SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 23 2.2 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ADDITION OF RS.2,50,0 0,000/- MADE BY THE ASSESSING OFFICER U/S.68 OF THE INCOME-TAX ACT, 196 1BY TREATING THE GENUINE LOAN FROM LUCKY COMMOTRADE PVT. LTD. AS UNE XPLAINED CASH CREDIT. 3.0 GROUND NO.1 (A.YS.: 2006-07 TO 2008-09) OF REVENUE S APPEALS READS AS UNDER: ASSESSMENT YEAR : 2006-07 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE C.I.T.(A). ERRED IN RESTRICTING THE ADDITION MADE ON ACCOUNT O F UNDER INVOICING & UNACCOUNTED SALE OF RS.4,24,63,964/- TO RS.2,89,97, 976/- WHICH WAS TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE. ASSESSMENT YEAR : 2007-08 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE C.I.T.(A). ERRED IN RESTRICTING THE ADDITION MADE ON ACCOUNT OF UNDER I NVOICING & UNACCOUNTED SALE OF RS.2,95,08,193/- TO RS.15,26,78 9/- WHICH WAS TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE. ASSESSMENT YEAR : 2008-09 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE C.I.T.(A). ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF U NEXPLAINED INCOME OF RS.93,56,857/- BEING UNACCOUNTED TURNOVER. 9. THE FACTS, IN BRIEF, ARE THAT DURING SEARCH, PAG E NO. 129 TO 130, 132 TO 137 AND 254 OF LPS-2/14, WERE SEIZED FRO M THE OFFICE PREMISES OF SIGNET INDUSTRIES LTD. THESE PAGES WERE WORKING OF UNDISCLOSED INCOME DERIVED FROM UNACCOUNTED TRADING IN POLY PRODUCTS AND CASH SENT TO SHRI DEEPAK KALANI AND SH RI PANKAJ SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 24 KALANI. THE UNDISCLOSED INCOME COMPRISED OF THE FOL LOWING: WAS PARTLY DISCLOSED IN THE HANDS OF MUKESH SANGLA IN T HE RETURN FOR ASSESSMENT YEARS 2006-07, 2007-08 AND 2008-09 : (I) INITIAL INVESTMENT IN TRADING BUSINESS; (II) NET PROFIT FROM TRADING BUSINESS BY APPLYING NET PROF IT RATE, DETERMINED FROM ANALYSIS OF PAST PERFORMANCE OF THE ASSES SEE AND OTHER GROUP COMPANIES ON TOTAL UNACCOUNTED TURNOVE R; AND (III) PEAK CASH IN RELATION TO CASH TRANSACTION RELATED TO SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI. THESE RETURNS WERE REVISED AND FILED AFTER SEARCH C ONDUCTED BY THE CENTRAL EXCISE AUTHORITIES ON 06.12.2007. THESE RETURNS INCORPORATED INCOME EMERGING FROM UNACCOUNTED TRANS ACTIONS OF POLY PRODUCTS. IT WAS CLAIMED THAT SHRI MUKESH SANG LA SENT CASH TO SHRI DEEPAK KALANI AND SHRI PANKAJ KALANI FROM T IME TO TIME AND ALSO RECEIVED BACK PART OF IT. THESE FACTS ARE CLEAR FROM DOCUMENTS FOUND AND SEIZED BY THE CENTRAL EXCISE AU THORITIES. THE DETAILS OF UNDISCLOSED INCOME DECLARED IN THE H ANDS OF SHRI MUKESH SANGLA ARE AS UNDER :- ASSTT. YEAR UNDISCLOSED INCOME (RS.) TAXES (RS.) 2006-07 45,00,000 20,86,755 2007-08 1,95,00,000 86,88,340 2008-09 1,60,00,000 65,49,450 4,00,00,000 1,73,24,545 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 25 IT WAS SUBMITTED THAT CASH RECEIPTS AND CASH PAYMEN TS IN THE NAME OF SHRI DEEPAK KALANI AND SHRI PANKAJ KALANI, WHO WERE ALSO DIRECTORS OF THE ASSESSEE COMPANY, MERELY REPR ESENTED SURPLUS CASH SENT FOR SAFE CUSTODY BECAUSE OF CONST ANT TRAVELLING OF SHRI MUKESH SANGLA AND RECALLED WHENEVER REQUIRE D AS PER BUSINESS REQUIREMENTS. IT WAS PLEADED THAT THE COPI ES OF MATERIAL SEIZED FROM THE PREMISES OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI AND STATEMENT OF SHRI PANKAJ KALANI RECORDED U/S.132(4) DURING SEARCH ON 03.11.2011 AND THE STATEMENTS OF S HRI PANKAJ KALANI RECORDED BY CENTRAL EXCISE AUTHORITIES ON 07 .12.2007 AND ON 17.12.2007 IN THE COURSE OF SEARCH IN THE CASE O F SIGNET INDUSTRIES LTD. WERE NOT PROVIDED TO THE ASSESSEE DE SPITE SPECIFIC REQUEST TO THE A.O. THE ASSESSEE FILED COPY OF AFFI DAVIT OF SHRI PANKAJ KALANI BEFORE A.O. AND C.I.T.(A)., RETRACTIN G FROM HIS STATEMENT MADE BEFORE CENTRAL EXCISE AUTHORITIES. I N THE SAID AFFIDAVIT SHRI KALANI AVERRED THAT THE STATEMENT MA DE BEFORE THE CENTRAL EXCISE AUTHORITIES WAS BECAUSE OF THREAT OF ARREST. IT IS ALSO CLAIMED THAT SHRI MUKESH SANGLA WAS NEVER CONF RONTED WITH SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 26 RESPECT TO THE MATERIAL SEIZED FROM THE PREMISES OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI (A) PAGE NO. 129 TO 130, 132 TO 137 AND 254 OF LPS 2/14 SEIZED FROM THE OFFICE PREMISES OF SIGNET INDUSTRIE S LTD. AND (B) THE STATEMENT OF SHRI PANKAJ KALANI RECORDED DURING INCOME-TAX SEARCH AS WELL AS CENTRAL EXCISE SEARCH EITHER DURING SEARCH OR POST SEARCH INQUIRIES OR ASSESSMENT PROCEEDINGS U/S.153A. (B) NOTICE U/S.133(6) OR SUMMON U/S.131 OF THE ACT WAS NEVER ISSUED TO LUCKY COMMOTRADE PVT. LTD. EITHER DURING SEARCH OR POST SEARCH INQUIRIES OR ASSESSMEN T PROCEEDINGS U/S.153A. (C) NO EVIDENCE WAS FOUND DURING SEARCH OR POST SEARCH INQUIRIES OR ASSESSMENT PROCEEDINGS IN RELATION TO (A) PAYMENT OF UNACCOUNTED CASH TO LUCKY COMMOTRADE PVT. LTD. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 27 (B) PHYSICAL TRANSFER OF UNACCOUNTED CASH BY ASSESSEES EMPLOYEES TO LUCKY COMMOTRADE PVT. LTD. AND (C) DEPOSIT OF CASH IN THE BANK ACCOUNT OF LUCKY COMMOTRADE PVT. LTD. PRIOR TO ISSUE OF CHEQUES TO TH E ASSESSEE. 10. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTEED THAT THE CONTENTION OF THE A.O. THAT SHRI PANKAJ KALANI, WHO WAS DIRECTOR OF THE ASSESSEE COMPANY AT THE RELEVANT TIME, ADMIT TED BEFORE CENTRAL EXCISE AUTHORITIES THAT CASH RECEIVED FROM SHRI MUKESH SANGLA WERE UTILIZED FOR ARRANGING ACCOMMODATION EN TRIES FROM LUCKY COMMOTRADE PVT. LTD., KOLKATA. THE RETRACTION OF HIS STATEMENT GIVEN BEFORE THE CENTRAL EXCISE AUTHORITI ES BY WAY OF AN AFFIDAVIT WAS OF NO CONSEQUENCE AS HE ADMITTED T HE ABOVE FACTS IN HIS STATEMENT RECORDED U/S.132(4) DURING S EARCH CONDUCTED BY THE INCOME-TAX DEPARTMENT ON 03.11.201 1. AS SHRI PANKAJ KALANI WAS DIRECTOR OF THE ASSESSEE COMPANY, HIS CROSS EXAMINATION WAS NOT REQUIRED. THEREFORE, CASH PAID TO SHRI SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 28 PANKAJ KALANI AND SHRI DEEPAK KALANI WAS UNDISCLOSE D INCOME OF THE ASSESSEE, THE DETAILS OF WHICH ARE AS FOLLOWS: ASSTT. YEAR AMOUNT (RS.) 2007 - 08 2,95,00,000 2008 - 09 6,32,34,000 2009 - 10 4,01,35,000 2011 - 12 7,75,000 13,36,44,000 THE A.O. IS NOT REQUIRED TO PROVE THAT THE ASSESSEE HAS PAID CASH IN LIEU OF CHEQUES RECEIVED. THE ONUS IS UPON THE A SSESSEE TO EXPLAIN THESE TRANSACTIONS TO A.O.S SATISFACTION. THE ASSESSEE CANNOT ESCAPE FROM THIS RESPONSIBILITY BY FAILURE O F THE A.O. TO ESTABLISH CASH TRAIL. MOREOVER, THE CASH TRAIL WAS ESTABLISHED BY THE A.O. (IT MAY BE NOTED THAT THIS FINDING OF THE A.O. WAS ABSOLUTELY FALSE AND NO MATERIAL OR EVIDENCE WAS BR OUGHT ON RECORD TO SHOW THAT CASH WAS DEPOSITED AT ANY STAGE BY LUCKY COMMOTRADE PVT. LTD. PRIOR TO ISSUE OF CHEQUES AT AN Y LEVEL ). THE LOAN THROUGH BANKING CHANNELS DO NOT ESTABLISH GENU INENESS OF THE TRANSACTIONS AND ACTUAL BUSINESS ACTIVITY OF TH E CREDITOR. THE LOAN CREDITOR DID NOT HAVE ITS OWN PROFIT MAKING AP PARATUS AND MERELY ROTATED MONEY FOR ISSUE OF CHEQUES. THE IDEN TITY OF THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 29 CREDITOR IS NOT ESTABLISHED BY MERELY FURNISHING DE TAILS OF INCORPORATION, P.A. NO., BANK STATEMENTS, RETURN OF INCOME, CONFIRMATION LETTERS, ETC. BUT IS ESTABLISHED THROU GH EXISTENCE IN THE EYES OF PUBLIC, GENUINE BUSINESS ACTIVITIES AND PROPER PLACE OF BUSINESS. THE VARIATION IN DATE OF CASH PAYMENT AND RECEIPT OF CHEQUES FROM LUCKY COMMOTRADE PVT. LTD. WAS DUE TO PH YSICAL TRANSFER OF CASH FROM INDORE TO KOLKATA BY EMPLOYEE S OF THE ASSESSEE COMPANY (IT MAY BE NOTED THAT THIS FINDING OF THE A.O. WAS ABSOLUTELY FALSE AND NO MATERIAL OR EVIDENCE WA S BROUGHT ON RECORD IN THIS REGARD) . THE ASSESSEE FAILED TO ESTABLISH IDENTITY AND CREDITWORTHINESS OF LUCKY COMMOTRADE PVT. LTD. AS WELL AS GENUINENESS OF TRANSACTION. LUCKY COMMOTRADE WAS A B OGUS PAPER COMPANY AND THE UNSECURED LOANS RECEIVED FROM IT WERE ACCOMMODATION ENTRIES A FACT WHICH WAS ESTABLISHE D FROM THE STATEMENT OF SHRI PANKAJ KALANI AND MATERIAL SEIZED FROM OFFICE PREMISES OF SHRI DEEPAK KALANI AND SHRI PANKAJ KALA NI DURING SEARCH BY INCOME-TAX DEPARTMENT. THE EXTRACT OF SE IZED MATERIAL WAS REPRODUCED IN THE ASSESSMENT ORDER. THEREFORE, UNSECURED SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 30 LOANS RECEIVED THEREFROM AS UNEXPLAINED CASH CREDIT U/S.68 OF THE INCOME-TAX ACT, 1961 AS TABULATED BELOW: ASSTT. YEAR AMOUNT (RS.) 2007 - 08 2,53,00,000 2008 - 09 4,20,99,000 2009 - 10 3,14,78,000 2012 - 13 2,50,00,000 12,38,77,000 11. NO SEPARATE ADDITIONS WERE MADE ON ACCOUNT OF U NSECURED LOANS FROM LUCKY COMMOTRADE PVT. LTD BECAUSE ADDITION S MADE IN RESPECT OF UNEXPLAINED CASH PAID TO SHRI PANKAJ KAL ANI AND SHRI DEEPAK KALANI WERE HIGHER. 12. THE LEARNED COMMISSIONER OF INCOME TAX APPEALS) HAS DEALT WITH THE ISSUE AS UNDER :- 8.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND FACTS OF THE CASE. IN THIS CASE, THE DIRECTOR GENERAL OF CENTRAL EXCISE INTELLIGENCE (DGCEI) OF THE CENTRAL EXCISE CONDUCTED SEARCH AT THE BUSINESS PREMISES OF THE APPELLANT COMPANY AS WELL AS RESIDENTIAL PREMISES OF SHRI KIRTI KALA, CASHIER, SHRI PARAS PATIDAR, MARKETING MANAGER AND SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 31 SHRI MUKESH SANGLA, MANAGING DIRECTOR OF THE APPELLANT COMPANY ON 06.12.2007. VARIOUS INCRIMINATING DOCUMENTS/RECORDS AS WELL AS LAPTOPS, COMPUTERS, ETC. WERE SEIZED. THE OFFICERS OF DGCEI ALSO CONDUCTED PHYSICAL VERIFICATION OF STOCK OF FINISHED GOODS. IT WAS DETECTED BY THE EXCISE DEPARTMENT THAT THE APPELLANT HAD ACTUALLY MADE SALE OF EXCISABLE MANUFACTURED GOODS FROM 01.10.2005 TO 28.11.2007 OF RS.17,91,07,525/-, WHILE THE APPELLANT HAD DECLARED SALE OF GOODS OF RS.7,85,20,517/- ONLY. THE APPELLANT HAD UNDER INVOICED THE SALE BILLS AS WELL AS NOT DECLARED THE SALE OF SOME OF GOODS MANUFACTURED BY THE APPELLANT. BEFORE EXCISE AUTHORITIES IT WAS STATED THAT THE UNACCOUNTED TOTAL SALE WAS OF MANUFACTURED GOODS BY M/S LOGIC POLY PRODUCTS, A UNIT OF APPELLANT COMPANY. THE CENTRAL EXCISE DEPARTMENT HAD ISSUED SHOW CAUSE NOTICE TO THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 32 APPELLANT PROPOSING AS TO WHY CENTRAL EXCISE DUTY OF RS.1,22,45,850/- PAYABLE ON FINISHED EXCISABLE GOODS MANUFACTURED AND CLEARED CLANDESTINELY BY THE APPELLANT SHOULD NOT BE DEMANDED AND RECOVERED. AFTER RECEIVING THE SAID SHOW CAUSE NOTICE, THE APPELLANT COMPANY HAD APPROACHED CUSTOMS & CENTRAL EXCISE SETTLEMENT COMMISSION, PRINCIPAL BENCH, NEW DELHI, FOR SETTLEMENT OF ITS EXCISE DUTY PAYABLE ON THE UNRECORDED TRANSACTIONS. THE APPELLANT COMPANY AFTER POINTING OUT DUPLICATION AND OTHER MISTAKES I N CALCULATION OF UNRECORDED SALES OF EXCISABLE MANUFACTURED GOODS BY THE CENTRAL EXCISE DEPARTMENT, ACCEPTED EXCISE DUTY LIABILITY OF RS.69,58,009/- IN THE APPLICATION FURNISHED BEFORE THE SETTLEMENT COMMISSION. THE CENTRAL EXCISE DUTY IN THIS CASE WAS SETTLED AT RS.69,58,009/- BY THE HON'BLE SETTLEMENT COMMISSION VIDE ORDER SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 33 DATED 14.08.2012. MEANWHILE, SEARCH WAS CONDUCTED U/S 132 OF THE INCOME TAX ACT ON 03.11.2011. DURING THE COURSE OF SEARCH, LPS-2/14 WAS SEIZED FROM THE OFFICE OF THE APPELLANT COMPANY AT DEWAS NAKA CONTAINING THE WORKING OF UNDISCLOSED INCOME ON SUCH UNDER-INVOICING AND UNACCOUNTED SALES OF MANUFACTURED GOODS. ON THE BASIS OF THESE DOCUMENTS AND SHOW CAUSE NOTICE ISSUED BY THE CENTRAL EXCISE DEPARTMENT, THE A.O. MADE ADDITIONS FOR A.YS. 2006-07 TO 2008-09 OF UNDISCLOSED INCOME EARNED ON THESE UNACCOUNTED TRANSACTIONS OF SALE OF MANUFACTURED GOODS IN THE HANDS OF THE APPELLANT. THE FIRST ISSUE RAIASED BY THE APPELLANT IS THAT THE UNDISCLOSED INCOME RELATING TO UNACCOUNTED SALE BELONGED TO SHRI MUKESH SANGLA AND NOT TO THE APPELLANT COMPANY. IT WAS CONTENDED BY THE APPELLANT THAT THE ENTIRE BUSINESS WAS CARRIED OUT BY SHRI MUKESH SANGLA SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 34 AND THE PROFITS EMANATING THEREFROM WERE OFFERED BY HIM FOR TAXATION AS HIS UNDISCLOSED INCOME BY REVISING THE RETURNS OF INCOME FOR A.YS. 2006-07 TO 2008-09 AND, THEREFORE, THIS INCOME SHOULD BE TAXED IN THE HANDS OF SHRI MUKESH SANGLA ONLY AND NOT IN THE CASE OF THE APPELLANT COMPANY. BUT THE SUBMISSION OF THE APPELLANT IS NOT FOUND ACCEPTABLE CONSIDERING THE FOLLOWING FACTS : (I) IN THIS CASE THE DGCEI CONDUCTED THE SEARCH AT THE BUSINESS PREMISES OF M/S LOGIC POLY PRODUCTS, A UNIT OF THE APPELLANT COMPANY WHICH IS ENGAGED IN THE MANUFACTURE OF MOULDED AND INDUSTRIAL ARTICLES OF PLASTIC. ON THE BASIS OF INCRIMINATING DOCUMENTS FOUND AND TRANSACTIONS RECORDED IN THE LAPTOP, THE EXCISE DEPARTMENT DETECTED THAT THE TOTAL SALE OF EXCISABLE GOODS SOLD DURING THE PERIOD FROM 1.10.2005 TO 28.11.2007 WERE AT SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 35 RS.17,91,07525/- AGAINST THE DECLARED SALE OF RS.7,85,20,517/-. WHEN THE STATEMENTS OF VARIOUS EMPLOYEES OF THE COMPANY WERE RECORDED BY THE CENTRAL EXCISE OFFICIALS, THEY CATEGORICALLY ADMITTED THAT ALL THESE SALES PERTAINED TO THE GOODS MANUFACTURED/ PRODUCTION OF THE APPELLANT COMPANY. IT IS ALSO PERTINENT TO NOTE THAT IN THE STATEMENT BEFORE THE EXCISE DEPARTMENT SHRI MUKESH SANGLA HAD ALSO ADMITTED THAT THE SALES PERTAINED TO THE PRODUCTION OF THE APPELLANT COMPANY. (II) THE APPELLANT COMPANY (M/S LOGIC POLY PRODUCTS, A UNIT OF THE APPELLANT COMPANY) HAD APPROACHED THE HON'BLE CUSTOMS AND CENTRAL EXCISE SETTLEMENT COMMISSION FOR SETTLEMENT OF ITS LIABILITY FOR EXCISE DUTY. IN THE APPLICATION FURNISHED BEFORE THE HON'BLE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 36 SETTLEMENT COMMISSION, THE APPELLANT COMPANY ADMITTED THAT THESE UNACCOUNTED TRANSACTIONS PERTAINED TO THE APPELLANT COMPANY AND AGREED TO PAY EXCISE DUTY OF RS.69,58,009/- THEREON. FINALLY, THE EXCISE DUTY WAS SETTLED AT RS.69,58,009/- IN THE HANDS OF THE APPELLANT COMPANY BY THE HON'BLE SETTLEMENT COMMISSION VIDE ORDER DATED 14.08.2012. THE EXCISE DUTY AAS WELL AS PENALTY LEVIED BY THE HON'BLE SETTLEMENT COMMISSION WAS PAID BY THE APPELLANT COMPANY. IN VIEW OF THE ABOVE FACTS, IT IS CRYSTAL CLEAR THAT THE TRANSACTIONS RELATING TO UNDER INVOICING AND UNACCOUNTED SALES OF MANUFACTURED GOODS PERTAINED TO THE APPELLANT COMPANY ONLY. WHEN THE APPELLANT COMPANY HAD ADMITTED BEFORE THE HON'BLE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 37 SETTLEMENT COMMISSION FOR EXCISE DUTY PURPOSES THAT THESE TRANSACTIONS RELATING TO UNACCOUNTED SALE OF MANUFACTURED GOODS BELONGED TO THE APPELLANT COMPANY ITSELF, IT CANNOT CLAIM BEFORE THE INCOME TAX DEPARTMENT THAT THESE UNACCOUNTED TRANSACTIONS PERTAINED TO ITS DIRECTOR SHRI MUKESH SANGLA IN HIS INDIVIDUAL CAPACITY. THE APPELLANT CANNOT HAVE DIFFERENT STANDS BEFORE DIFFERENT AUTHORITIES ACCORDING TO ITS OWN CONVENIENCE. THUS, IT IS EVIDENTLY CLEAR THAT UNACCOUNT SALE ON ACCOUNT OF UNDER-INVOICING AND NON-REPORTING OF SALES OF GOODS MANUFACTURED BY THE APPELLANT COMPANY BELONGS TO THE APPELLANT COMPANY ONLY AND, THEREFORE, THE INCOME WAS ASSESSABLE IN THE HANDS OF THE APPELLANT COMPANY. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 38 IT MAY BE NOTED THAT IT IS A WELL SETTLED LAW THAT THE INCOME HAS TO BE ASSESSED IN THE HANDS OF RIGHT PERSON ONLY. IN THIS REGARD, REFERENCE CAN BE MADE TO THE LANDMARK JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. CH. ATCHAIAH (1996) 218 ITR 239 (SC) WHEREIN IT WAS OBSERVED THAT THE INCOME CANNOT BE TAXED IN THE HANDS OF WRONG PERSON EVEN IF IT IS FAVOURABLE TO THE REVENUE. THE HON'BLE SUPREME COURT HELD AS UNDER :- UNDER THE PRESENT ACT, THE INCOMETAX OFFICER HAS NO OPTION LIKE THE ONE HE HAD UNDER THE 1922 ACT. HE CAN AND HE MUST TAX THE RIGHT PERSON AND THE RIGHT PERSON ALONE. BY RIGHT PERSON IS MEANT THE PERSON WHO IS LIABLE TOBE TAXED, ACCORDING TO LAW, WITH RESPECT TO A PARTICULAR INCOME. THE EXPRESSION WRONG PERSON IS OBVIOUSLY USED AS THE OPPOSITE OF THE EXPRESSION RIGHT PERSON. MERELY BECAUSE A WRONG PERSON IS TAXED WITH RESPECT TO A PARTICULAR INCOME, THE ASSESSING OFFICER SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 39 IS NOT PRECLUDED FROM TAXING THE RIGHT PERSON WITH RESPECT TO THAT INCOME. THE HON'BLE SUPREME COURT FURTHER CLARIFIED THE ISSUE OBSERVING IN THE JUDGMENT AS UNDER :- FROM THIS, IT FOLLOWS THAT IF INCOME OF B IS TAXED IN THE HANDS OF A, A MAY BE LEGITIMATELY AGGRIEVED BUT THAT DOES NOT MEAN THAT B IS EXONERATED OF HIS LIABILITY ON THAT ACCOUNT. B CANNOT SAY WHEN HE IS SOUGHT TO BE TAXED IN RESPECT OF THE TOTAL INCOME WHICH IS LAWFULLY TAXABLE IN HIS HANDS, THAT SINCE THE INCOMETAX OFFICER HAS TAXED THE VERY SAME INCOME IN THE HANDS OF A, HE HIMSELF CANNOT BE TAXED WITH RESPECT TO THE SAID TOTAL INCOME. THIS IS NOT ONLY LOGICAL BUT IS CONSISTENT WITH THE PROVISIONS OF THE ACT. THUS, THE INCOME HAS TO BE ASSESSED IN THE HANDS OF RIGHT PERSON ONLY. IN THIS CASE, THE RIGHT PERSON IN REGARD TO UNRECORDED TRANSACTIONS RELATED TO UNDER INVOICING AND UNACCOUNTED SALES OF MANUFACTURED GOODS OF ITS UNIT, M/S LOGIC POLY PRODUCTS, IS THE APPELLANT COMPANY. THEREFORE, THE INCOME SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 40 FROM THESE TRANSACTIONS HAS TO BE ASSESSED IN THE HANDS OF THE APPELLANT COMPANY ONLY. THE CONTENTION OF THE APPELLANT THAT SHRI MUKESH SANGLA HAD DECLARED INCOME IN HIS HANDS BY FILING THE REVISED RETURNS OF INCOME FOR A.YS. 2006-07 TO 2008-09 IS IMMATERIAL AND IS OF NO CONSEQUENCE AS OBSERVED BY THE HON'BLE SUPREME COURT IN THE ABOVE REFERRED CASE OF CIT VS. CH. ATCHAIAH (SUPRA). HENCE, THE A.O. WAS JUSTIFIED IN ASSESSING THE INCOME FROM UNDER INVOICING AND UNACCOUNTED SALES OF MANUFACTURED GOODS IN THE HANDS OF THE APPELLANT COMPANY ON SUBSTANTIVE BASIS. THUS, THE APPELLANTS GROUND RELATING TO THIS ISSUE IS REJECTED. THE NEXT ISSUE INVOLVED IN THIS GROUND IS RELATED TO QUANTUM OF ADDITIONS MADE BY THE LD. A.O. IN THE ASSESSMENT ORDER. IT IS SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 41 PERTINENT TO NOTE THAT THE CENTRAL EXCISE DEPARTMENT FOUND DURING THE COURSE OF SEARCH THAT THE APPELLANT HAD UNDER-INVOICED CERTAIN SALES OF MANUFACTURED GOODS AND ALSO NOT ACCOUNTED FOR CERTAIN SALES OF MANUFACTURED GOODS. THUS, THERE WAS NO TRANSACTION RELATING TO TRADING OF GOODS INVOLVED IN THE UNACCOUNTED TRANSACTIONS DETECTED BY THE CENTRAL EXCISE DEPARTMENT. THIS FACT IS NOW FINALLY SETTLED BY THE DECISION OF THE HON'BLE CUSTOMS & CENTRAL EXCISE SETTLEMENT COMMISSION THAT THE UNACCOUNTED SALES DETECTED BY THE CENTRAL EXCISE DEPARTMENT WERE OF EXCISABLE PRODUCTS MANUFACTURED BY THE APPELLANT COMPANY. DURING THE COURSE OF SEARCH U/S 132 OF THE ACT DOCUMENT MARKED AS LPS-2/14 WAS SEIZED FROM THE BUSINESS PREMISES OF THE APPELLANT AT DEWAS NAKA, SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 42 INDORE. PAGE NO. 133 OF LPS 2/14 CONTAINED THE CALCULATION OF UNDISCLOSED INCOME FROM UNACCOUNTED TRANSACTIONS DETECTED BY THE CENTRAL EXCISE DEPARTMENT RELATING TO SALE OF GOODS LIKE HOUSHOLD GOODS, GHAMELA AND JHAR MANUFACTURED BY THE APPELLANT. THE DETAILS OF UNACCOUNTED SALES OF MANUFACTURED GOODS WORKS OUT AS UNDER :- (I) UNDER INVOICING FINANCIAL YEAR HOUSEHOLD RS. GHAMELA RS. JHAR RS. TOTAL RS. 2005-06 - - - - 2006-07 22.00.169 1,12,65,819 - 1,34,65,988 2007-08 19,97,995 99,49,400 - 1,19,47,395 TOTAL A 2,54,13,383 (II) UNACCOUNTED SALES OF MANUFACTURED GOODS : FINANCIAL YEAR HOUSEHOLD RS. GHAMELA RS. JHAR RS. TOTAL RS. 2005-06 50,71,015 1,98,15,461 41,11,500 2,89,97,976 2006-07 22,35,002 1,39,83,958 13,41,838 1,75,60,798 2007-08 2,40,551 90,36,890 79,416 93,56,857 TOTAL B 55915631 THUS, THE TOTAL UNACCOUNTED SALES DETECTED BY THE C ENTRAL EXCISE DEPARTMENT AND AS ADMITTED BY THE APPELLANT SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 43 COMPANY IN ITS APPLICATION BEFORE THE SETTLEMENT COMMISSION WORKS OUT AS UNDER :- ASSESSMENT YEAR TOTAL (A) RS. TOTAL (B) RS. TOTAL (A+B)(RS.) 2006 - 07 - 2,89,97,976 2,89,97,976 2007 - 08 1,34,65,988 1,75,60,798 3,10,26,786 2008 - 09 1,19,47,395 93,56,857 2,13,04,252 TOTAL 8,31,29,014 IT IS RELEVANT TO NOTE THAT THE ABOVE UNACCOUNTED R ECEIPTS WERE NET UNDISCLOSED INCOME OF THE APPELLANT ON ACC OUNT OF UNDER INVOICING AND UNACCOUNTED SALES OF MANUFACTUR ED GOODS BY SUPRESSION OF PRODUCTION BECAUSE THE EXPEN SES RELATING TO RAW MATERIAL AND OTHER OVERHEADS HAD AL READY BEEN ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS AND ALLOWED AS DEDUCTION AGAINST THE DECLARED SALES/TRANSACTIONS. THUS, IN THIS CASE NET ADDITION S REQUIRED TO BE MADE TO THE TOTAL INCOME OF THE APPELLANT WOR KS OUT AS UNDER :- SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 44 ASSESSMENT YEAR ADDITION RS. 2006 - 07 2,89,97,076 2007 - 08 3,10,26,786 2008 - 09 2.13.04.252 SINCE THERE WAS NO TRADING GOODS INVOLVED IN THESE UNACCOUNTED SALES, THERE WAS NO QUESTION OF APPLYIN G NET PROFIT RATE OR UNEXPLAINED INVESTMENT IN THE PURCHA SE OF STOCK FOR SALE. SIMILARLY THE A.O. WAS ALSO NOT RIG HT IN INVOKING PROVISIONS OF PROVISO TO SECTION 69C AND 4 0A(3) OF THE ACT AS THESE PROVISIONS WERE NOT ATTRACTED IN T HESE TRANSACTIONS. IT IS ALSO NOTICED THAT THE A.O. HAD BY MISTAKE MADE ADDITION OF RS.1,34,6,988/- RELATING TO UNDER INVOICING OF SALE BILLS OF MANUFACTURED GOODS IN A.Y. 2006-07 , WHEREAS THE TRANSACTIONS ACTUALLY PERTAINED TO F.Y. 2006-07 RELEVANT TO A.Y. 2007-08. SIMILARLY THE A.O. MADE A DDITION OFRS.1,19,47,395/- ON ACCOUNT OF UNDER INVOICING OF MANUFACTURED GOODS IN A.Y. 2007-08 WHEREAS THE TRANSACTIONS ACTUALLY PERTAINED TO F.Y. 2007-08 REL EVANT TO A.Y. 2008-09. HENCE, THE NET ADDITION REQUIRED TO B E MADE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 45 IN A.Y. 2006-07 IS OF RS.2,89,97,976/- IN A.Y. 2007 -08 OF RS.3,10,26,786/- AND IN A.Y. 2008-09 OF RS.2,13,04, 252/-. HOWEVER, AS MENTIONED EAR EARLIER IN THIS ORDER THE APPELLANT COMPANY HAD BEEN TRANSFERRING ITS UNACCOU NTED INCOME IN CASH TO SHRI PANKAJ KALANI & SHRI DEEPAK KALANI AND HAD IN TURN RECEIVED ACCOMMODATION ENTRIES IN T HE FORM OF UNSECURED LOANS FROM M/S LUCKY COMMOTRADE PVT. LTD . IN ORDER TO INTRODUCE THE UNACCOUNTED INCOME IN ITS BO OKS OF ACCOUNTS. THE FLOW OF FUNDS CAN BE DEPICTED AS UNDE R : M/S SIGNET INDUSTRIES LTD. (UNDER INVOICING/SALES OUTSIDE BOOKS BY SUPRESSION OF PRODUCTION) CASH TRANSFERRED UNSECURED LOAN KALANI BROTHERS CASH TRANSFERRED M/S LUCKY COMMOTRADE PVT. LTD. THUS, THE UNDISCLOSED INCOME EARNED ON THESE TRANSA CTIONS WAS ALSO TRANSFERRED TO SHRI PANKAJ KALANI & SHRI D EEPAK KALANI. THE DETAILS OF AMOUNTS IN CASH TRANSFERRED TO SHRI SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 46 PANKAJ KALANI AND SHRI DEEPAK KALANI, UNSECURED LOA NS SHOWN TO BE RECEIVED FROM M/S M/S LUCKY COMMOTRADE P VT. LTD. AND THE UNDISCLOSED INCOME EARNED ON THE ABOVEMENTIONED UNACCOUNTED TRANSACTIONS IN THESE ASSESSMENT YEARS ARE AS UNDER :- ASSESSMENT YEAR AMOUNT OF CASH PAID TO SHRI PANKAJ KALANI & SHRI DEEPAK KALANI RS. UNSECURED LOANS FROM M/S M/S LUCKY COMMOTRADE PVT. LTD. UNDISCLOSED INCOME FROM UNDER INVOICING AND UNACCOUNTED SALES RS. 2006 - 07 - - 2,89,97,976 2007 - 08 2,95,00,000 2,35,00,000 3,10,26,786 2008 - 09 6,32,40,000 4,20,99,000 2,13,04,252 2009 - 10 4,01,35,000 3,14,78,000 - 2011 - 12 7,75,000 2,50,00,000 - TOTAL 13,36,50,000 12,20,77,000 8,13,29,014 FROM THE ABOVE IT CAN BE SEEN THAT IN THE A.Y. 2007 -08 THE ADDITION OF RS.2,95,00,000/- HAD ALREADY BEEN MADE ON ACCOUNT OF UNACCOUNTED CASH PAID TO SHRI PANKAJ KAL ANI AND SHRI DEEPAK KALANI. THEREFORE, THE ADDITION TO THE EXTENT OF RS.2,95,00,000/- IS NOT REQUIRED TO BE MADE AS THE SAME HAD ALREADY BEEN MADE IN A.Y. 2009-10 AND THUS THE NET ADDITION WORKS OUT ATRS.15,26,786/- (RS.3,10,26,786 2,95,0 0,000) SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 47 SIMILARLY IN THE A.Y. 2008-09 THE ADDITION OFRS.6,3 2,40,000/- HAD ALREADY BEEN MADE ON ACCOUNT OF UNACCOUNTED CAS H PAID TO SHRI PANKAJ KALANI & SHRI DEEPAK KALANI. SINCE THE ADDITION ALREADY MADE OF RS.6,32,40,000/- IS MORE T HAN THE ADDITION OFRS.2,13,04,252/- WORKED OUT ON ACCOUNT O F UNDER- INVOICING AND UNACCOUNTED SALES OF MANUFACTURED GOO DS, THERE IS NO REQUIREMENT OF MAKING ANY FURTHER ADDIT ION ON THIS ACCOUNT IN A.Y. 2008-09. IN VIEW OF ABOVE, THE A.O. IS DIRECTED TO MAKE NET ADDITION OFRS.2,89,97,976/- IN A.Y. 2006-07 AND OF RS.15,26, 789/- IN A.Y. 2007-08 ON ACCOUNT OF UNDER INVOICING AND UNAC COUNTED SALE OF MANUFACTURED GOODS BY THE APPELLANT. IN THE RESULT, THE APPELLANT GETS FOLLOWING RELIEF IN THESE ASSESSMENT YEARS : ASSESSMENT YEAR ADDITIONS MADE IN THE ASSESSMENT ORDER RS. ADDITIONS CONFIRMED RS. RELIEF RS. 2006 - 07 2,89,97,976 + 1,34,65,988 = 2,89,97,976 1,34,65,988 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 48 4,24,63,964 2007 - 08 1,75,60,798 + 1,19,47,395 = 2,95,08,193 15,26,789 2,79,81,404 2008 - 09 93,56,857 - 93,56,857 8,13,29,014 3,05,24,765 5,08,04,249 8.5 BEFORE PARTING WITH THE ISSUE, IT IS RELEVANT T O MENTION THAT THE HON'BLE CUSTOMS AND CENTRAL EXCISE COMMISS ION HAD ALSO LEVIED FINE OFRS.50,000/- AND RS.3,50,000/- AS WELL AS IMPOSED THE PENALTY OF RS.3,00,000/- AGGREGATING TO RS.7,00,000/-. THE A.O. IS DIRECTED TO DISALLOW THE PAYMENT OF FINE AND PENALTY LEVIED BY THE HON'BLE CUSTOMS A ND CENTRAL EXCISE SETTLEMENT COMMISSION IN THE ASSES SMENT YEAR IN WHICH THE APPELLANT HAD CLAIMED DEDUCTION O F SUCH PAYMENTS AFTER VERIFICATION. 13. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AT THE INCEPTION, IT IS CLARIFIED THAT THE ASS ESSEE CONSIDERED ALL THE ABOVE GROUNDS TOGETHER BECAUSE THE ADDITION S MADE ON ACCOUNT OF UNDISCLOSED INCOME FROM POLYMER TRADING, PAYMENT TO SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 49 SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI AND UNSEC URED LOAN FROM LUCKY COMMOTRADE ARE CLOSELY LINKED. THE LEARNE D C.I.T.(A). IN HIS ORDER TELESCOPED THE THREE AND BROUGHT UNDIS CLOSED INCOME TO TAX ACCORDINGLY. WHETHER THE UNDISCLOSED INCOME FROM POLYMER TRADING, PAYMENT TO SHRI PANKAJ KALANI AND SHRI DEE PAK KALANI AND UNSECURED LOAN FROM LUCKY COMMOTRADE PVT. LTD. SH OULD BE ASSESSED IN THE CASE OF SHRI MUKESH SANGLA OR SIGNE T INDUSTRIES LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PAGE NO.129 TO 130, 132 TO 137 AND 254 OF LPS 2/14 FOUND DURING SEARCH WERE NOT INCRIMINATING DOCUMENTS BUT WORKING RELATING TO DETERMINATION OF UNDISCLOSED INCOME ARISING FROM UN ACCOUNTED TRADING POLYMER PRODUCTS AS WELL AS CASH PAYMENT TO SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI, WHICH WERE OWNED UP BY SHRI MUKESH SANGLA, OFFERED FOR TAXATION BY HIM BY REVIS ING HIS RETURNS OF INCOME FOR ASSESSMENT YEAR 2006-07 AND 2 007-08 AND FILING OF RETURN OF INCOME FOR ASSESSMENT YEAR 2008 -09 AND THE SAME WAS ACCEPTED BY THE INCOME-TAX DEPARTMENT IN T HE ASSESSMENTS COMPLETED U/S.143(3) OF THE INCOME-TAX ACT, 1961. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 50 HAVING ACCEPTED AND ASSESSED THE REVISED RETURNS OF INCOME FILED BY SHRI MUKESH SANGLA, THE REVENUE ACCEPTED THE FOL LOWING: (I) INITIAL INVESTMENT IN TRADING BUSINESS IN POLYMER A ND POLYMER PRODUCTS, (II) THE FACT THAT CASH WAS SENT TO SHRI PANKAJ KALANI A ND SHRI DEEPAK KALANI FOR SAFE CUSTODY AND RECALLED AS AND WHEN REQUIRED AND CONSEQUENT PEAK CONSIDERED IN DETERMINATION OF UNDISCLOSED INCOME, AND (III) THE UNACCOUNTED BUSINESS OF TRADING IN POLYMER PRODUCTS BELONGED TO SHRI MUKESH SANGLA AND NOT TO SIGNET INDUSTRIES LTD. AFTER COMPLETING THE ASSESSMENT U/S.143(3) OF THE A CT, THE REVENUE AUTHORITIES CANNOT TAKE A COMPLETE U TURN AND INFER, WITHOUT ANY FRESH EVIDENCE IN ITS SUPPORT, THAT (I) THE UNACCOUNTED TRADING IN POLYMER AND POLYMER PRODUCTS PERTAINED TO SIGNET INDUSTRIES LTD. AND NOT TO SHRI MUKESH SANGLA, SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 51 (II) A PART OF CASH WAS PAID FOR ARRANGING ACCOMMODATION ENTRIES FROM LUCKY COMMOTRADE PVT. LTD. NOTWITHSTANDING THE FACT THAT THERE WAS NO EVIDENCE TO THIS EFFECT OTHER THAN A SELF-SERVING AND UN- CONFRONTED STATEMENT OF SHRI PANKAJ KALANI AND DETERMINE UNDISCLOSED INCOME ON BOTH THESE GROUNDS PARTICULARLY ON ACCOUNT OF PAYMENT TO SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI IN A STRANGE MANNER IN THE CASE OF SIGNET INDUSTRIES LTD. 14. IT IS A SETTLED POSITION UNDER LAW THAT A CLEAR AND UNEQUIVOCAL ADMISSION OF FACTS MADE BY AN ASSESSEE IS A SUBSTAN TIVE PIECE OF EVIDENCE AND IT SHOULD BE TAKEN TO BE TRUE AND ESTA BLISHED UNLESS REBUTTED BY COGENT EVIDENCE. [THIRU JOHN VS. SUBRAMANYAN (AIR 1977 SC 724)] . IN VIEW OF THESE FACTS, THE LEARNED COUNSEL FOR THE ASSESSEE PRAYED TO KINDLY ASSESS TH E UNDISCLOSED INCOME ALREADY OFFERED TO TAX BY SHRI MUKESH SANGLA IN REVISED RETURN OF INCOME FILED ASSESSMENT YEAR 2006-07 TO A SSESSMENT YEAR 2008-09. IN THE EVENT OF YOUR HONOUR DECIDE TO TAX IN THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 52 CASE OF SIGNET INDUSTRIES LTD., THE INCOME OF SHRI M UKESH SANGLA FOR ASSESSMENT YEAR 2006-07 TO 2008-09 SHOULD BE RE DUCED TO THAT EXTENT AND CREDIT FOR TAXES PAID SHOULD BE GIV EN IN THE CASE OF SIGNET INDUSTRIES LTD. 15. WHETHER THE ENTIRE AMOUNT OF UNDER-INVOICING AN D THE ENTIRE AMOUNT OF OUTSIDE BOOK SALES CAN BE CONSIDERED AS U NACCOUNTED INCOME OF THE ASSESSEE. 16. PAGE NO.129 TO 130, 132 TO 137 AND 254 OF LPS 2/ 14 CONTAINED YEARWISE DETAILS OF UNDER-INVOICING OF SA LES OF MANUFACTURED PRODUCTS AS WELL AS PROFIT ON SALES OU TSIDE BOOKS OF ACCOUNTS OF MANUFACTURED PRODUCTS. THE YEAR-WISE D ETAILS OF UNDER-INVOICING OF SALES ARE AS FOLLOWS : ASSESSMENT YEAR UNDER-INVOICING(RS.) 2006-07 - 2007-08 1,34,65,988 2008-09 1,19,47,395 2,54,13,383 THERE IS NO DISPUTE THAT THE ENTIRE UNDER-INVOICING OF SALES WAS UNDISCLOSED INCOME OF THE ASSESSEE AND THEREFORE, T HE SAME HAS BEEN RIGHTLY INCLUDED IN THE TOTAL UNDISCLOSED INCO ME OF THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 53 ASSESSEE. AS REGARD OUTSIDE BOOKS SALE, WHILE THE A SSESSEE COMPUTED NET PROFIT THEREON AND INCLUDED IT IN HIS UNDISCLOSED INCOME, THE C.I.T.(A). INCLUDED THE ENTIRE AMOUNT O F OUTSIDE BOOK SALES AS UNDISCLOSED INCOME OF THE ASSESSEE BY OBSE RVING THAT CORRESPONDING INPUTS AND OVERHEAD EXPENSES HAVE ALR EADY BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS OF THE ASSES SEE. IF THE CONTENTION OF THE C.I.T.(A) IS CONSIDERED AS CORREC T, THE MATERIAL CONSUMPTION RATIO AS PER AUDITED ANNUAL ACCOUNTS WO ULD HAVE BEEN VERY HIGH AS COMPARED TO THE ASSESSEES OWN TR ACK RECORD AND AVERAGE CONSUMPTION RATIO IN COMPARABLE CASES, GROSS PROFIT MARGIN AND NET PROFIT MARGIN WOULD HAVE BEEN VERY L OW AS COMPARED TO PAST RECORD OF THE ASSESSEE AND COMPARA BLE CASES. IN THE ASSESSEES CASE, THE MANUFACTURING OPERATION COMMENCED FROM NOVEMBER/ DECEMBER 2005. THEREFORE, ASSESSMENT YEAR 2006-07 WAS THE FIRST YEAR OF PRODUCTION. BEING THE FIRST YEAR OF COMMERCIAL PRODUCTION AND THAT TOO FOR ONLY 4 MONTH S, IT WAS NOT A COMPARABLE CASE BECAUSE THE MANUFACTURING OPERATI ONS WERE NOT STREAMLINED DUE TO WHICH THE MATERIAL CONSUMPTI ON AND SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 54 OVERHEADS WERE VERY HIGH AND WORKING RESULTS WERE O NLY FOR 4 MONTHS. THEREFORE, THE RESULTS OF ASSESSMENT YEAR 2 006-07 WILL HAVE TO BE EXCLUDED TO JUDGE C.I.T.(A)S REASONING. IN THE PROCESS OF VERIFYING C.I.T.(A)S REASONING IN TREAT ING THE OUTSIDER BOOKS SALES AS UNDISCLOSED INCOME OF THE ASSESSEE, WE HAVE PREPARED FOUR TABLES. THE FIRST TABLE SHOWS MATERIA L CONSUMPTION RATIO, GROSS PROFIT RATIO, ON THE BASIS OF AUDITED ANNUAL ACCOUNTS. THE SECOND TABLE SHOWS MATERIAL CONSUMPTION RATIO, GROSS PROFIT RATIO, AFTER INCLUSION OF UNDER-INVOICING AMOUNT. T HE THIRD TABLE SHOWS MATERIAL CONSUMPTION RATIO, GROSS PROFIT RATI O, AFTER INCLUSION OF UNDER-INVOICING AMOUNT AS WELL AS ENTI RE OUTSIDE BOOK SALES. THE FOURTH TABLE SHOWS MATERIAL CONSUMPTION RATIO, GROSS PROFIT RATIO, AFTER INCLUSION OF UNDER-INVOICING AM OUNT AND NET PROFIT ON OUTSIDE BOOK SALES. TABLE - I [MATERIAL CONSUMPTION RATIO, GROSS PROFIT RATIO, ON THE BASIS OF AUDITED ANNUAL ACCOUNTS] PARTICULARS 2005-06* 2006-07 2007-08 2008-09 SALES 1,70,55,655 3,56,57,834 7,76,19,624 13,16,13,373 COST OF GOODS SOLD: RAW MATERIAL CONSUMPTION 1,58,12,473 4,18,29,418 7,56,88,630 9,90,29,739 FACTORY OVERHEADS STORES & SPARES 3,37,921 12,12,776 34,38,211 41,35,991 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 55 OTHER MANUFACTURING EXPENSES - - - 11,52,816 POWER & ELECTRICITY 30,11,431 38,26,452 54,97,050 81,60,812 SALARY & WAGES 12,10,166 41,08,487 53,02,354 83,92,790 REPAIR & MAINTENANCE 1,29,774 4,33,694 7,05,081 14,63,681 2,05,01,765 5,14,10,827 9,06,31,326 12,23,35,829 INCREASE/(DECREASE) IN FG - (56,90,090) (1,07,84,281) (26,50,403) COST OF GOODS SOLD 2,05,01,765 4,57,20,737 7,98,47,045 11,96,85,426 GROSS PROFIT (34,46,110) (1,00,62,903) (22,27,422) 1,19,27,947 MATERIAL CONSUMPTION RATIO 92.71% 101.35% 83.62% 73.23% GROSS PROFIT (%) -20.21% -28.22% -2.87% 9.06% * FIRST YEAR OF PRODUCTION TABLE - II [MATERIAL CONSUMPTION RATIO, GROSS PROFIT RATIO, AF TER INCLUSION OF UNDER-INVOICING AMOUNT] PARTICULARS 2005-06* 2006-07 2007-08 2008-09 SALES 1,70,55,655 4,91,23,733 8,95,67,019 13,16,13,373 COST OF GOODS SOLD: RAW MATERIAL CONSUMPTION 1,58,12,473 4,18,29,418 7,56,88,630 9,90,29,739 FACTORY OVERHEADS STORES & SPARES 3,37,921 12,12,776 34,38,211 41,35,991 OTHER MANUFACTURING EXPENSES - - - 11,52,816 POWER & ELECTRICITY 30,11,431 38,26,452 54,97,050 81,60,812 SALARY & WAGES 12,10,166 41,08,487 53,02,354 83,92,790 REPAIR & MAINTENANCE 1,29,774 4,33,694 7,05,081 14,63,681 2,05,01,765 5,14,10,827 9,06,31,326 12,23,35,829 INCREASE / (DECREASE) IN FG - (56,90,090) (1,07,84,281) (26,50,403) COST OF GOODS SOLD 2,05,01,765 4,57,20,737 7,98,47,045 11,96,85,426 GROSS PROFIT (34,46,110) 34,02,995 97,19,973 1,19,27,947 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 56 MATERIAL CONSUMPTION RATIO 92.71% 73.57% 72.46% 73.23% GROSS PROFIT (%) -20.21% 6.93% 10.85% 9.06% * FIRST YEAR OF PRODUCTION TABLE III [MATERIAL CONSUMPTION RATIO, GROSS PROFIT RATIO, AF TER INCLUSION OF UNDER-INVOICING AMOUNT AS WELL AS ENTIRE OUTSIDE BOOK SALES] PARTICULARS 2005-06* 2006-07 2007-08 2008-09 SALES 4,60,53,63 1 6,66,84,53 1 9,89,23,876 13,16,13,37 3 COST OF GOODS SOLD RAW MATERIAL CONSUMPTION 1,58,12,47 3 4,18,29,41 8 7,56,88,630 9,90,29,739 FACTORY OVERHEADS STORES & SPARES 3,37,921 12,12,776 34,38,211 41,35,991 OTHER MANUFACTURING EXPENSES - - - 11,52,816 POWER & ELECTRICITY 30,11,431 38,26,452 54,97,050 81,60,812 SALARY & WAGES 12,10,166 41,08,487 53,02,354 83,92,790 REPAIR & MAINTENANCE 1,29,774 4,33,694 7,05,081 14,63,681 2,05,01,76 5 5,14,10,82 7 9,06,31,326 12,23,35,82 9 INCREASE / (DECREASE) IN FG - (56,90,09 0) (1,07,84,28 1) (26,50,403) COST OF GOODS SOLD 2,05,01,76 5 4,57,20,73 7 7,98,47,045 11,96,85,42 6 GROSS PROFIT 2,55,51,86 6 2,09,63,79 4 1,90,76,830 1,19,27,947 MATERIAL CONSUMPTION RATIO 34.33% 54.19% 65.61% 73.23% GROSS PROFIT (%) 55.48% 31.44% 19.28% 9.06% * FIRST YEAR OF PRODUCTION TABLE IV [MATERIAL CONSUMPTION RATIO, GROSS PROFIT RATIO, AF TER INCLUSION OF UNDER-INVOICING AMOUNT AND NET PROFIT ON OUTSIDE BOOK SALES] PARTICULARS 2005-06* 2006-07 2007-08 2008-09 SALES 1,74,94,32 0 4,94,27,56 3 8,97,11,490 13,16,13,37 3 COST OF GOODS SOLD: RAW MATERIAL 1,58,12,47 4,18,29,41 7,56,88,630 9,90,29,739 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 57 CONSUMPTION 3 8 FACTORY OVERHEADS STORES & SPARES 3,37,921 12,12,776 34,38,211 41,35,991 OTHER MANUFACTURING EXPENSES - - - 11,52,816 TESTING & INSPECTION EXPENSES - - - - POWER & ELECTRICITY 30,11,431 38,26,452 54,97,050 81,60,812 SALARY & WAGES 12,10,166 41,08,487 53,02,354 83,92,790 REPAIR & MAINTENANCE 1,29,774 4,33,694 7,05,081 14,63,681 2,05,01,76 5 5,14,10,82 7 9,06,31,326 12,23,35,82 9 INCREASE / (DECREASE) IN FG - (56,90,09 0) (1,07,84,28 1) (26,50,403) COST OF GOODS SOLD 2,05,01,76 5 4,57,20,73 7 7,98,47,045 11,96,85,42 6 GROSS PROFIT (30,07,44 5) 37,06,826 98,64,444 1,19,27,947 MATERIAL CONSUMPTION RATIO 90.39% 73.12% 72.35% 73.23% GROSS PROFIT (%) -17.19% 7.50% 11.00% 9.06% * FIRST YEAR OF PRODUCTION FROM THE ABOVE TABLES, IT IS QUITE MANIFEST THAT WH ILE INCLUSION OF UNDER-INVOICING AMOUNT AND PROFIT ON OUTSIDE BOOK S ALES FOR THE PURPOSE OF VARIOUS RATIOS GIVES COMPARABLE RESULTS, THE INCLUSION OF UNDER-INVOICING AMOUNT AND ENTIRE OUTSIDE BOOK S ALES WOULD GIVE TOTALLY DISPROPORTIONATE AND IMPOSSIBLE RATIOS . IT SHOWS THAT THE MATERIAL AND OVERHEAD EXPENSES IN RELATION TO O UTSIDE BOOK SALES WERE ALSO NOT RECORDED IN THE BOOKS OF ACCOUN T AND WERE INCURRED IN ADDITION TO EXPENSES RECORDED IN THE BO OKS OF SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 58 ACCOUNTS. IN VIEW OF IT, WE HUMBLY REQUEST YOUR HON OUR TO KINDLY INCLUDE THE ENTIRE AMOUNT OF UNDER-INVOICING AND NE T PROFIT ON OUTSIDE BOOK SALES. 17. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED THAT THERE WAS COMPLETE VIOLATION OF PRINCIPLES OF NATUR AL JUSTICE ON THE PART OF A.O. IN MAKING ADDITION ON THE BASIS OF DOC UMENTS SEIZED FROM THE PREMISES OF SHRI DEEPAK KALANI AND SHRI PA NKAJ KALANI DURING SEARCH BY INCOME-TAX DEPARTMENT ON 03.11.201 1, THE STATEMENT OF SHRI PANKAJ KALANI RECORDED U/S.132(4) BY INCOME- TAX DEPARTMENT DURING SEARCH AND THE STATEMENT OF S HRI PANKAJ KALANI RECORDED BY THE CENTRAL EXCISE AUTHORIES ON 07.12.2007 AND 17.12.2007BECAUSE: (A) THE COPIES OF MATERIAL SEIZED FROM THE PREMISES OF SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI AND STATEMENT OF SHRI PANKAJ KALANI RECORDED U/S.132(4) DURING SEARC H, WHICH WERE USED AGAINST THE ASSESSEE, WERE NOT PROV IDED TO THE ASSESSEE DESPITE SPECIFIC REQUEST TO THE A.O .; SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 59 (B) THE STATEMENTS OF SHRI PANKAJ KALANI, RECORDED BY CENTRAL EXCISE AUTHORITIES ON 06.12.2007 AND SUBSEQUENTLY ON 17.12.2007 IN THE COURSE OF SEARCH IN THE CASE OF SIGNET INDUSTRIES LTD., WHICH WERE USED AGAINST THE ASSESSEE, WERE ALSO NOT PROVIDED TO THE ASSESSEE.; (C) SHRI MUKESH SANGLA WAS NEVER CONFRONTED WITH RESPEC T TO (I) THE MATERIAL SEIZED FROM THE PREMISES OF SHRI PANKA J KALANI AND SHRI DEEPAK KALANI (II) PAGE NO. 129 TO 130, 132 TO 137 AND 254 OF LPS 2/14 SEIZED FROM THE OFFICE PREMISES OF SIGNET INDUSTRIES LTD. AND (III) THE STATEMENT OF SHRI PANKAJ KALANI RECORDED DURING INCOME-TAX SEARCH AS WELL AS CENTRAL EXCISE SEARCH EITHER DURING SEARCH OR POST SEARCH INQUIRIES OR ASSESSMENT PROCEEDINGS U/S.153A; AND (D) THE ASSESSEE WAS NEVER NEITHER PROVIDED NOR ASKED T O EXPLAIN THE CONTENTS OF MATERIAL SEIZED FROM THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 60 PREMISES OF SHRI DEEPAK KALANI AND SHRI PANKAJ KALA NI AND NEVER CONFRONTED WITH THE CONTENTS OF STATEMENT MADE BY HIM. (E) THE A.O. RELIED UPON THE STATEMENT OF A PERSON WHIC H WAS RETRACTED BY WAY OF AN AFFIDAVIT AND THE EXAMIN ATION OF MATERIAL SEIZED FROM HIS OFFICE PREMISES BY THE A.O. SHOWED CASH RECEIVED FROM SIGNET, SOL - MUMBAI, SOL BUT DID NOT REVEAL EVEN A SINGLE ENTRY SHOWIN G CASH PAYMENT TO LUCKY COMMOTRADE PVT. LTD. OUT OF CAS H RECEIVED FROM SIGNET INDUSTRIES LTD. 18. IT IS A SETTLED POSITION IN LAW THAT THE ADMISS ION MADE BY A THIRD PARTY IN HIS STATEMENT RECORDED BEFORE AN AUT HORITY APPOINTED UNDER PROVISIONS OF ANY ACT AND MATERIAL FOUND FROM HIS POSSESSION ARE BINDING UPON HIM IN HIS CASE ONL Y AND THE SAME CANNOT BE FOISTED UPON OTHER PARTIES UNLESS TH E OTHER PARTY IS CONFRONTED WITH THE STATEMENT, PROVIDED WITH THE COPIES OF MATERIAL RELIED UPON, GIVEN LEGALLY AVAILABLE OPPOR TUNITIES TO REBUT THE SAME WITH EVIDENCE AND THERE IS CORROBORATORY M ATERIAL TO SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 61 SUPPORT THE TRUTHFULNESS OF THE ADMISSION. THE UN-C ONFRONTED MATERIAL AND STATEMENTS ARE NOT ADMISSIBLE EVIDENCE FOR THE PURPOSE OF MAKING ADDITIONS. MOREOVER, THE EVIDENCE S OR INFORMATION COLLECTED BY AN ASSESSING OFFICER IN TH E COURSE OF ANY ENQUIRY OR OTHERWISE, CANNOT BE USED AGAINST THE AS SESSEE UNLESS SUCH EVIDENCES OR INFORMATION, WHICH ARE SOUGHT TO BE USED AGAINST THE ASSESSEE, ARE SUPPLIED TO THE HIM AND H E IS ALLOWED ADEQUATE OPPORTUNITY TO REBUT THE SAME. IF SUCH EVI DENCES CONSIST OF ORAL EVIDENCES, THE ASSESSEE SHOULD BE G IVEN AN OPPORTUNITY TO CROSS-EXAMINE THE PERSON CONCERNED. IT WOULD BE THAT TESTIMONY WHICH HAS BEEN SUBJECTED TO CROSS-EX AMINATION, WHICH COULD BE USED AGAINST THE ASSESSEE. IN SUPPOR T OF THE ABOVE CONTENTION, LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE FOLLOWING JUDGEMENTS : A) C.I.T. VS. M. K. BROTHERS [163 ITR 249 (GUJ)] 8. ON A PERUSAL OF THE ORDER OF THE TRIBUNAL IT CL EARLY APPEARS THAT WHETHER THE SAID TRANSACTIONS WERE BOGUS OR NOT WAS A QUESTION OF FACT. THE TRIBUNAL HAS ALSO POINTED OUT THAT NOTHING IS S HOWN TO INDICATE THAT ANY PART OF THE FUND GIVEN BY THE ASSESSEE TO THESE PARTIES CAME BACK TO THE ASSESSEE IN ANY FORM. IT IS FURTHER OBSERVED BY THE TRIBUNAL THAT THERE IS NO EVIDENCE ANYWHERE THAT THESE CONCERNS I MPLICATE VOUCHERS TO THE ASSESSEE. EVEN THE TWO STATEMENTS DO NOT IMPLIC ATE THE TRANSACTIONS WITH THE ASSESSEE IN ANY WAY. WITH THESE OBSERVATIO NS THE TRIBUNAL SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 62 ULTIMATELY HAS OBSERVED THAT THERE ARE CERTAIN DOUB TFUL FEATURES, BUT THE EVIDENCE IS NOT ADEQUATE TO CONCLUDE THAT THE PURCH ASES MADE BY THE ASSESSEE FROM THESE PARTIES WERE BOGUS. IT MAY BE S TATED THAT THE ASSESSEE WAS GIVEN CREDIT FACILITIES FOR A SHORT DU RATION AND THE PAYMENTS WERE GIVEN BY CHEQUES. WHEN THAT IS SO, IT CANNOT BE SAID THAT THE ENTRIES FOR THE PURCHASES OF THE GOODS MADE, IN THE BOOKS OF ACCOUNT WERE BOGUS ENTRIES. WE, THEREFORE, DO NOT FIND THAT THE CONCLUSION ARRIVED AT BY THE TRIBUNAL IS AGAINST THE WEIGHT OF EVIDENCE. IN THAT VIEW OF THE MATTER WE ANSWER THE QUESTION IN THE AFFIRMA TIVE, THAT IS, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ACCORDINGLY, THE REFERENCE STANDS DISPOSED OF WITH NO ORDER AS TO COSTS. B) A.C.I.T. VS. PRABHAT OIL MILLS [52 TTJ 533 (AHD)] ... (2) THE DIRECTOR OF HYNOUP FOOD & OIL INDUSTRI ES P. LTD. MADE AN ADMISSION IN THE COURSE OF SEARCH AND THAT ADMISSIO N WAS ONLY BINDING UPON HIM AS PER THE ESTABLISHED PRINCIPLE OF LAW OF EVIDENCE AND SUCH ADMISSION WOULD NOT BE FOISTED UPON ANOTHER PARTY I F THERE IS NO OTHER CORROBORATORY MATERIAL TO SUPPORT THE TRUTHFULNESS OF THE ADMISSION. IN SUPPORT OF THIS THE LEARNED COMMISSIONER (APPEALS) RELIED UPON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F KISHINCHAND CHELLARAM V. COMMISSIONER (1980) 125 ITR 713 (SC). THE COMMISSIONER (APPEALS) ALSO TOOK NOTE OF THE DECISI ON OF GUJARAT HIGH COURT IN THE CASE OF COMMISSIONER V. M.K. BROS. (19 87) 163 ITR 249 (GUJ) AND HELD THAT THE ASSESSEE WAS ON A STRONGER GROUND, INASMUCH AS, IT HAD NOT BEEN PROVED IN ANY WAY THAT THE ASSE SSEE HAD ANY PARTICIPATION IN THE IMPUGNED TRANSACTION OF SALE T O HYNOUP FOOD & OIL INDUSTRIES P. LTD. AS RECORDED BY THE DIRECTOR OF T HE SAID COMPANY IN HIS PRIVATE DIARY. THE COMMISSIONER (APPEALS) FURTHER N OTED THAT THE ASSESSEE-FIRM HAD MADE SEVERAL SALES TO THE SAID CO NCERN AS ALSO OTHER ASSOCIATED CONCERNS AND THOSE SALES WERE DULY RECOR DED IN THE BOOKS OF ACCOUNTS. HYNOUP FOOD & OIL INDUSTRIES P. LTD. WAS ALSO PURCHASING OIL FOR REFINING NOT ONLY FROM THE ASSESSEE AND THE ASSOCIATED CONCERNS BUT ALSO FROM OUTSIDE PARTIES ON LARGE SCALE. ACCOR DING TO THE COMMISSIONER (APPEALS) IF HYNOUP FOOD & OIL INDUSTR IES P. LTD. DID SOME UNACCOUNTED PURCHASES AND NOTED THE NAME OF TH E ASSESSEE, IT COULD NOT BE SAID THAT THE SALES IN FACT WERE MADE FROM THE ASSESSEE AND NOT FROM OTHER PARTIES.... SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 63 C) KISHINCHAND CHELLARAM VS. C.I.T. [125 ITR 713 (SC)] D) ADDL. I.T.O VS. PONKUNNAM TRADERS [102 ITR 366 (KER)] THE COUNSEL FOR THE REVENUE CONTENDED THAT IT WAS ONLY IN RESPECT OF MATERIALS GATHERED BY THE INCOME-TAX OFFICER AS A R ESULT OF HIS ENQUIRY UNDER SUB-SECTION (2) OF SECTION 142 THAT HE WAS BO UND TO GIVE THE ASSESSEE AN OPPORTUNITY OF BEING HEARD, THAT THE KN OWLEDGE OF THE INCOME-TAX OFFICER OF THE PREVIOUS RETURN SUBMITTED BY THE ASSESSEE WAS SUFFICIENT MATERIAL FOR A BEST JUDGMENT ASSESSMENT AND SUCH KNOWLEDGE COULD NOT BY ANY STRETCH OF IMAGINATION BE REGARDED AS MATERIALS GATHERED ON THE BASIS OF ENQUIRY WITHIN THE MEANING OF SECTION 142(3), AND SO, NO OPPORTUNITY OF BEING HEARD IN RESPECT OF THAT MATERIAL WAS REQUIRED (PARAGRAPH 4)2 . IN OTHER WORDS, THE CONTE NTION OF THE REVENUE WAS THAT THE ASSESSMENT WAS BASED ONLY ON THE MATER IAL BY WAY OF THE PREVIOUS YEAR'S ASSESSMENT OF THE SAME ASSESSEE AND THAT MATERIALS COLLECTED FROM DEALERS SIMILARLY SITUATED OR CARRYI NG ON SIMILAR BUSINESSES WERE NOT CONSIDERED IN MAKING THE ASSESS MENT. THE SINGLE JUDGE, AFTER CONSIDERING THIS QUESTION, HELD THAT, WHEN AN INCOME-TAX OFFICER GATHERED MATERIALS FROM A SOURCE OTHER THAN THE RECORDS RELEVANT TO THE YEAR OF ASSESSMENT, HE HAD GATHERED MATERIALS ON THE BASIS OF ENQUIRY WITHIN THE MEANING OF SECTION 142( 3) AND, THEREFORE, HE WOULD BE BOUND TO GIVE AN OPPORTUNITY TO THE ASSESS EE TO HAVE HIS SAY IN RESPECT OF THE MATERIALS SO GATHERED (VIDE PARAGRAP H 4 AGAIN). E) ADDL. C.I.T. VS. MS. LATA MANGESHKAR [97 ITR 696 (BOM)] F) MOLA BUX VS. I.T.O. [51 TTJ 1 (JP)] AN ITO CAN NO DOUBT MAKE ENQUIRIES BEHIND THE BACK OF AN ASSESSEE AND EVIDENCE COLLECTED IN SUCH ENQUIRY MAY ALSO BE USED AGAINST THE ASSESSEE. BUT BEFORE USING SUCH EVIDENCE AGAINST AN ASSESSEE SHALL HAVE TO BE PUT TO HIM AND HE SHALL BE ALLOWED AN OPPORTU NITY OF REBUTTING THE SAME. IF SUCH EVIDENCE CONSISTS OF ORAL EVIDENCE TH E ASSESSEE SHALL BE GIVEN AN OPPORTUNITY TO CROSS-EXAMINE THE PERSON CO NCERNED. IT WOULD BE THAT TESTIMONY WHICH HAS BEEN SUBJECTED TO CROSS -EXAMINATION, WHICH SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 64 COULD BE USED AGAINST THE ASSESSEE. IT IS THE CARDI NAL PRINCIPLE OF APPRE- CIATING ORAL EVIDENCE THAT THE TESTIMONY OF A WITNE SS SHOULD BE READ AS A WHOLE AND THE ACCEPTABLE PART THEREOF SHOULD BE REL IED UPON. IF GRAIN CANNOT BE SUCCESSFULLY SEPARATED FROM THE CHAFF, TH EN THE ENTIRE TESTIMONY SHOULD BE REJECTED AND CONCLUSION SHOULD BE BASED ON SOME INDEPENDENT AND IMPARTIAL EVIDENCE . G) VIRENDRAKUMAR SAKLECHA VS. D.C.I.T. [59 TTJ 785 (IND)] 16. WE HAVE CAREFULLY PERUSED THE AUTHORITIES QUOT ED BY THE ASSESSEE AND IT IS A SETTLED POSITION OF LAW THAT NO EVIDENC E CAN BE USED AGAINST ANYONE UNLESS AND UNTIL THE AFFECTED PERSON IS ALLO WED TO CROSS-EXAMINE THE WITNESSES. THE RULE OF AUDI ALTERAM PARTEM SHOU LD BE FOLLOWED IN ALL CIRCUMSTANCES. WE HAVE ALSO PERUSED THE ORDER OF TH E TRIBUNAL IN THE ASSESSEE'S CASE FOR ASSESSMENT YEAR 1977-78. A COPY OF THE SAME IS PLACED ON RECORD. 17. HAVING REGARD TO THE OBSERVATIONS OF THE REVENU E AUTHORITIES AND THE DOCUMENTS PLACED ON RECORD, WE ARE OF THE VIEW THAT THE ASSESSEE SHOULD HAVE BEEN ALLOWED TO CROSS-EXAMINE THE CASH CREDITORS, IF AT ALL THEIR STATEMENTS HAVE BEEN USED AGAINST THE ASSESSE E. BEFORE MAKING THE ADDITION ON A PARTICULAR POINT, THE ASSESSEE SHOULD HAVE BEEN GIVEN OPPORTUNITY TO FURNISH THE EXPLANATION WITH REGARD TO HIS CLAIM. KEEPING IN VIEW THE ORDER OF THE TRIBUNAL IN THE CASE OF TH E ASSESSEE AND OTHER JUDICIAL PRONOUNCEMENTS, WE SET ASIDE THE ORDER OF THE COMMISSIONER (APPEALS) AND RESTORE IT TO THE FILE OF THE ASSESSI NG OFFICER WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH AFTER AFFORD ING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE BE ALLOWE D TO CROSS-EXAMINE THE CASH CREDITORS IF THEIR STATEMENTS ARE RELEVANT TO THE PRESENT DISPUTE. THIS ISSUE IS ACCORDINGLY DECIDED. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PART IES AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE DOCUMENTS PLACED ON RECORD. AFTER CAREFUL PERUSAL OF THE ORDER OF TH E ASSESSING OFFICER AND THE COMMISSIONER (APPEALS), WE ARE OF THE VIEW THAT THEIR ORDER IS VERY CRYPTIC AND NO DETAILED DISCUSSIONS ARE MADE B EFORE MAKING THE ADDITION. HOWEVER, THEY HAVE ALSO CAREFULLY PERUSED THE BALANCE SHEET IN THE CASE OF SMT. CHETANDEVI AND THE DETAILS OF I NVESTMENTS GIVEN AT P. 10 OF THE COMPILATION OF THE ASSESSEE, BUT ALL THE DETAILS MENTIONED AT P. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 65 10 DO NOT FIND PLACE IN THE BALANCE SHEET OF SMT. C HETANDEVI. SINCE WE DO NOT FIND THE DETAILED DISCUSSIONS IN THE ORDERS OF THE AUTHORITIES BELOW AND THE ASSESSEE WAS NOT ALLOWED TO FURNISH T HE EXPLANATION WITH REGARD TO THE INVESTMENT, WE FEEL IT PROPER TO REST ORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING THIS IS SUE AFRESH IN THE LIGHT OF THE STATEMENT OF INVESTMENTS AND THE EXPLANATION OF THE ASSESSEE H) I.T.O. VS. BALA PRASAD R. LOKMANYAWAR [18 TTJ 167 (PUNE)] THEREFORE, SIMPLY BECAUSE IN THE BOOKS OF A STRAN GER ASSESSEE'S NAME COMES AND THE ENTRY NARRATES THAT THERE WERE C ERTAIN SALES EFFECTED BY THE ASSESSEE, IT WILL BE UNWISE TO TAX THE ASSESSEE ON SUCH A FLIMSY MATERIAL I.E., THE BOOKS OF A THIRD PARTY. T HAT IS MOST UNCALLED FOR. THEREFORE, ON THAT POINT ALSO THE ASSESSEE SHOULD S UCCEED. 14. SHRI TRIMAL HAD READ CERTAIN PORTION FROM ITO'S ORDER DATED 1ST FEBRUARY 1973 WHEREIN THERE IS A NARRATION STATING THAT THE ASSESSEE HAD WITHDRAWN RS.10, 000 ON TWO OCCASIONS. IT IS WO RTHY TO NOTE THAT THE STO HAS MENTIONED IN HIS ORDER 'HIS (THIS ASSESSEE' S) CONTENTIONS THAT WHATEVER HIS TRANSACTIONS THAT WERE SHOWN IN THE RE TURN WERE CORRECT AND THE SUPPRESSED SALES WHICH WERE NOTED DOWN IN T HE ASSESSEE'S DIARY ARE NOT PERTAINING TO HIM......... CONTENTION IS NO T ACCEPTED.' THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE WAS TRYING TO SAVE HIS SKIN. ON THE CONTRARY HIS VERSION IS ABSOLUTELY RIGHT FROM THE B EGINNING, AND THEREFORE, IT CANNOT BE HELD BY ANY STRETCH OF IMAG INATION THAT THE TRANSACTION EXCEEDING RS. 2 LAKHS AND ODD WAS THAT OF THIS ASSESSEE. THEREFORE, I UPHOLD THE ORDER OF THE AAC BUT FOR RE ASONS OTHER THAN THOSE OF HIS AND HOLD THAT THE ADDITIONS MADE BY TH E ITO HAD TO BE DELETED. ACCORDINGLY THE DEPARTMENTAL APPEAL IS DIS MISSED. I) I.T.O. VS. BAJRANG OIL INDUSTRIES [12 ITD 631 (NAG)] 4. WE HAVE CAREFULLY CONSIDERED THE FACTS AND CIRC UMSTANCES OF THE CASE AND THE ARGUMENTS ADVANCED BY BOTH THE SIDES. WE ARE CLEARLY OF THE OPINION THAT THE COMMISSIONER (APPEALS) WAS NOT JUSTIFIED IN CANCELLING THE WHOLE ASSESSMENT BUT THE TWO ADDITIO NS AMOUNTING TO RS.1,66,624 AND RS. 16,000 ARE CLEARLY IN VIOLATION OF THE STATUTORY PRINCIPLES OF NATURAL JUSTICE LAID DOWN IN SECTION 142(3). THE DECISION OF SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 66 THE SINGLE JUDGE OF THE KERALA HIGH COURT IN PONKUN NAM TRADERS' CASE (SUPRA) WAS, SUBSEQUENTLY, CONFIRMED BY THE DIVISIO N BENCH OF THE SAME HIGH COURT IN PONKUNNAM TRADERS' CASE (SUPRA). IN T HE AFORESAID CASE, IT WAS HELD. . . . WHEN AN INCOME-TAX OFFICER GATHERS MATERIALS FROM A SOURCE OTHER THAN THE RECORDS RELEVANT TO THE YEAR OF ASSESSMENT , HE HAS GATHERED MATERIALS ON THE BASIS OF ENQUIRY WITHIN THE MEANIN G OF SECTION 142(3) AND, THEREFORE, HE WILL BE BOUND TO GIVE AN OPPORTU NITY TO THE ASSESSEE IN RESPECT OF THE MATERIALS SO GATHERED. THE FAILUR E TO CONFORM TO THE PRINCIPLE OF NATURAL JUSTICE OF AUDI ALTERAM PARTEM WOULD MAKE A JUDICIAL OR QUASI-JUDICIAL ORDER VOID:' J) AMAR SINGH VS. I.T.O. [54 ITD 375 (DEL)] IT IS CONTENDED BY SHRI SAMPATH, THE LEARNED COUN SEL FOR THE ASSESSEE THAT THOUGH WE ARE NOT CONCERNED WITH THE QUESTION OF LIMITATION AND, THEREFORE, SECTION 153 OF THE INCOME-TAX ACT DOESN T DIRECTLY COME IN TO PLAY IN THIS APPEAL. HOWEVER, THE PRINCIPLE UNDERLY ING SECTION 153 EXPLANATION 3 ONLY HIGHLIGHTS THE PRINCIPLE OF NATU RAL JUSTICE, OR INVOLVES THE PRINCIPLE THAT NO MAN SHOULD BE CONDEM NED UNLESS HE IS HEARD.THEREFORE, THE PRINCIPLE UNDERLYING EXPLANATI ON 3 TO SECTION 153 MAY BE APPRECIATED AND APPLIED IN THIS CASE. MR. SA MPATH THE LEARNED COUNSEL FOR THE ASSESSEE HAS CITED BEFORE US THE GU JARAT HIGH COURT DECISION IN THE CASE OF A.B. PARIKH V. ITO [1993] 203 ITR 186 . IN THAT DECISION THE GUJARAT HIGH COURT HAD CONSIDERED THE INGREDIENTS OF EXPLANATION 3 OF SECTION 153. THEY HELD THAT THE EX PLANATION 3 TO SECTION 153 SPELLS OUT TWO INGREDIENTS. THE FIRST I NGREDIENT IS THAT THERE MUST BE A FINDING THAT THE INCOME EXCLUDED FROM THE TOTAL INCOME OF ONE PERSON IS THE INCOME OF ANOTHER PERSON. THE SECOND INGREDIENT IS THAT THE ORDER MUST BE ONE WHICH HAS COME TO BE PASSED A FTER THE OTHER PERSON WAS GIVEN AN OPPORTUNITY OF BEING HEARD. IT IS TRUE THAT WHILE DISPOSING OF THE APPEAL OF M/S SLBP, THE TRIBUNAL F OUND THAT THE AMOUNTS OF RS. 1,96,000 FOR THE ASSESSMENT YEAR 197 4-75 AND RS. 2,53,000 FOR THE ASSESSMENT YEAR 1975- 76 ARE THE A MOUNTS INTRODUCED BY SHRI AMAR SINGH, THE ASSESSEE BEFORE US FOR PURP OSES OF BUSINESS OF M/S SLBP AND THOSE AMOUNTS DID NOT BELONG TO M/S SL BP. HOWEVER, SHRI AMAR SINGH WAS NOT HEARD BY THE TRIBUNAL BEFOR E MAKING THE OBSERVATION OR GIVING THE SAID FINDING IN THE APPEA L OF M/S SLBP. THEREFORE, THE PRESENT ASSESSMENT PROCEEDINGS START ED AGAINST SHRI SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 67 AMAR SINGH CANNOT BE CONSIDERED VALID UNDER LAW OR THEY CANNOT BE CONSIDERED TO BE PROCEEDINGS STARTED IN CONSEQUENCE OF OR TO GIVE EFFECT TO A FINDING OR A DIRECTION CONTAINED IN THE ORDER PASSED IN THE CASE OF M/S SLBP. THEREFORE, THE FINDING GIVEN IN THE CASE OF M/S SLBP CANNOT BE AN EFFECTIVE FINDING AS REGARDS ASSESSMENT PROCE EDINGS AGAINST SHRI AMAR SINGH ARE CONCERNED. CONSEQUENTLY, THE ITO CAN NOT RELY UPON THE FINDINGS GIVEN BY THE TRIBUNAL IN THE CASE OF M/S S LBP WHILE MAKING THE ADDITION OF THESE AMOUNTS IN THE HANDS OF SHRI AMAR SINGH FOR THE ASSESSMENT YEARS 1974-75 AND 1975-76. IT IS CONTEND ED THAT THE TRIBUNAL HAD NO JUSTIFICATION TO GIVE A FINDING REG ARDING THE ASSESSEES CASE WHILE DECIDING THE CASE OF M/S SLBP SINCE THE ASSESSEE WAS NOT A PARTY TO THOSE PROCEEDINGS AND NO SPECIFIC OPPORTUN ITY WAS AFFORDED TO HIM BEFORE HOLDING THAT THE IMPUGNED AMOUNTS DELETE D TO HIM. WE FIND THAT THIS CONTENTION OF THE ASSESSEE FULLY TENABLE K) UDEYRAJ GOLIYA (HUF) VS. A.C.I.T. [64 ITD 21 (MUM) (TM)] IN C. VASANTLAL & CO. V. CIT [1962] 45 ITR 206 , THE SUPREME COURT HAS HELD THAT THE ITO IS NOT BOUND BY ANY TECHNICAL RULES OF THE LAW OF EVIDENCE. IT IS OPEN TO HIM TO COLLECT MATERIALS TO FACILITATE ASSESSMENT EVEN BY PRIVATE ENQUIRY. BUT IF HE DESIRES TO USE T HE MATERIAL SO COLLECTED, THE ASSESSEE MUST BE INFORMED OF THE MAT ERIAL AND MUST BE GIVEN AN ADEQUATE OPPORTUNITY OF EXPLAINING IT. IN THE INSTANT CASE, THE ASSESSEE HAD NOT BEEN PROVIDED ANY OPPORTUNITY TO E XPLAIN THE EVIDENCE COLLECTED IN THE SHAPE OF THE STATEMENT OF THE BROK ER. THIS BEING SO, THE STATEMENT OF THE BROKER COULD NOT BE RELIED UPON BY THE REVENUE AUTHORITIES FOR MAKING THE ADDITION. L) SILVER & ARTS PALACE VS. A.C.I.T. [52 ITD 493 (JP)] PAGE NO. 254 OF LPS-2/14(FOUND AND SEIZED FROM OFFIC E PREMISES OF SIGNET INDUSTRIES LTD. AND PAGE 86 TO 88 OF LPS-10 (FOUND AND SEIZED FROM OFFICE PREMISES OF SHRI DEEPAK KALANI) A PERUSAL OF PAGE NO. 254 OF LPS 2/14 SEIZED FROM T HE OFFICE PREMISES OF SIGNET INDUSTRIES LTD., REVEALS THAT IT IS A LEDGER SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 68 ACCOUNT OF SHRI PANKAJ KALANI FOR THE PERIOD 01.06. 2005 TO 05.12.2007. IT CONTAINS COLUMNS LIKE DATE, PARTICUL ARS, VOUCHER TYPE, FINANCIAL YEAR, DEBIT AMOUNTS, CREDIT AMOUNTS AND DATE-WISE BALANCE. WHILE DATE-WISE AMOUNT APPEARING ON DEBIT SIDE SHOWS CASH PAID TO SHRI PANKAJ KALANI, THE CREDIT SIDE SH OWS CASH RECEIVED FROM SHRI PANKAJ KALANI BY THE ASSESSEE CO MPANY. THE PAGE SHOWS CASH BALANCE OF RS.2,14,24,043/- ON 07.0 7.2007 LYING WITH SHRI PANKAJ KALANI WHO WAS THE DIRECTOR OF THE ASSESSEE COMPANY. A PERUSAL OF PAGE NO. 86 TO 88 OF LPS-10 (A S PER A.O. SAME TRANSACTION APPEAR ON PAGE NO. 89-97 OF LPS-10) SEIZED FROM THE OFFICE PREMISES OF SHRI DEEPAK KALANI ON 0 9.12.2011 SHOWS THAT IT IS AN EXCEL SHEET WHICH HAS BEEN SORT ED FOR CASH RECEIVED ON THE FIELD NAMED SIGNET, SOL MUMBAI A ND SOL . IT CONTAINS THE COLUMNS SUCH AS DATE, SIGNET, AMOUN T, PK / DK, BHARAT AND TOTAL. AS THE TRANSACTIONS APPEARS TO BE SORTED FOR RECEIPT FROM SIGNET, THE IMPUGNED SHEET DOES NOT CO NTAIN ANY TRANSACTION FOR CASH PAYMENT TO SIGNET. A COMPARISO N OF TRANSACTIONS FOR THE RELEVANT PERIOD BETWEEN THE PA GE NO. 254 OF SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 69 LPS-2/14 SEIZED FROM THE ASSESSEES OFFICE PREMISES AND PAGE NO. 86 TO 88 OF LPS-10 FOUND FROM THE PREMISES OF SHRI D EEPAK KALANI SHOWS THAT MOST OF THE TRANSACTIONS SHOWING CASH SENT BY SIGNET INDUSTRIES LTD. AND RECEIVED BY SHRI PANKAJ K ALANI WERE MATCHING EXCEPT IN THE FOLLOWING CASES: CASH PAID APPEARING ON PAGE NO. 254 OF LPS-2/14 BUT NOT APPEARING ON PAGE NO.8688 OF LPS-10 DATE AMOUNT (RS.) 09.02.07 15,00,000 15.02.07 50,00,000 19.02.07 20,00,000 06.04.07 74,043 06.07.07 6,00,000 91,74,043 CASH PAID APPEARING ON PAGE NO. 8688 OF LPS-10 BUT NOT APPEARING ON PAGE NO. 254 OF LPS-2/14 DATE AMOUNT (RS.) 05.02.07 5,00,000 09.02.07 10,00,000 09.02.07 25,00,000 12.03.07 30,00,000 06.07.07 60,00,000 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 70 1,30,00,000 CASH PAID APPEARING ON PAGE NO. 8688 OF LPS-10 BUT NO CORRESPONDING DOCUMENT WAS FOUND IN THE ASSESSEES CASE DATE AMOUNT (RS.) 18.08.07 5,00,000 07.09.07 10,00,000 08.09.07 15,00,000 03.10.07 15,00,000 03.10.07 10,00,000 04.10.07 5,00,000 12.12.07 3,75,000 07.02.08 17,50,000 13.02.08 40,00,000 03.03.08 1,09,000 1,22,34,000 19. THERE ARE NO ENTRIES OF CASH SENT BY SHRI PANKA J KALANI TO THE ASSESSEE PRESUMABLY AND LOGICALLY BECAUSE OF SO RTING OF DATA OF RECEIPT SIDE ONLY ON THE FIELD SIGNET. AS PER PAGE NO. 254 OF LPS 2/14, THE TOTAL PAYMENT MADE TO SHRI DEEPAK KALA NI AND SHRI PANKAJ KALANI WAS RS.6,05,00,000/- FOR ASSESSMENT Y EAR 2007-08 AND RS.1,61,74,043/- FOR THE ASSESSMENT YEAR 2008-0 9. AS AGAINST IT, THE TOTAL PAYMENT AS PER SHRI DEEPAK K ALANI AND SHRI PANKAJ KALANI WAS RS.5,90,00,000/- IN THE ASSESSMEN T YEAR SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 71 2007-08 AND RS.3,37,34,000/- IN THE ASSESSMENT YEAR 2008-09. HOWEVER, THE ASSESSING OFFICER MADE ADDITION OF RS. 2,95,00,000/- FOR THE REASONS BEST KNOWN TO HIM. MOREOVER, IT APP EARS THAT THE ASSESSING OFFICER CONSIDERED ONLY THE CASH PAID TO SHRI DEEPAK KALANI AND SHRI PANKAJ KALANI BUT NO COGNIZANCE WAS TAKEN IN RESPECT OF CASH RECEIVED FROM THEM BECAUSE THE ASSE SSEE RECALLED RS.4,93,00,000/- FROM SHRI DEEPAK KALANI AND SHRI P ANKAJ KALANI IN THE ASSESSMENT YEAR 2007-08 AND RS.59,50,000/- I N ASSESSMENT YEAR 2008-09. IN FACT, REGULAR RECEIPT F ROM AND PAYMENT OF CASH TO SHRI DEEPAK KALANI AND SHRI PANK AJ KALANI, IF CONSIDERED IN THE LIGHT OF AFFIDAVIT OF SHRI PANKAJ KALANI, SUPPORTS THE ASSESSEES EXPLANATION THAT THEY USED TO KEEP C ASH OF SHRI MUKESH SANGLA FOR TEMPORARY SAFE CUSTODY. THE IMPUG NED ARRANGEMENT CONTINUED TILL 06.12.2007 I.E. TILL THE SEARCH BY CENTRAL EXCISE AUTHORITIES. HOWEVER, AFTER THE AFOR ESAID SEARCH, SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI REFUSED T O ACCEPT ANY CASH FROM SHRI MUKESH SANGLA. THE RESULTANT PEAK OF CASH PAID AND CASH RECEIVED FROM SHRI DEEPAK KALANI AND SHRI PANKAJ KALANI SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 72 WAS OFFERED FOR TAXATION BY SHRI MUKESH SANGLA IN H IS REVISED RETURN OF INCOME AND THE SAME WERE ACCEPTED BY INCO ME-TAX DEPARTMENT. IT WAS INTERESTING TO NOTE THE FOLLOWIN G PECULIAR FACTS IN RELATION TO PAGE NO 254 OF LPS-2/14 FOUND AND SE IZED FROM THE PREMISES OF THE ASSESSEE AND PAGE 86 TO 88 OF LPS 10 SEIZED FROM THE OFFICE OF SHRI DEEPAK KALANI VIS--VIS THE ADMISSION SHRI PANKAJ KALANI ON THE BASIS OF WHICH THE A.O. TREATE D GENUINE LOANS FROM LUCKY COMMOTRADE PVT. LTD. AS UNEXPLAINED CASH CREDIT U/S.68 AND TREATED CASH PAID TO SHRI PANKAJ KALANI AS UNDISCLOSED INCOME OF THE ASSESSEE IN COMPLETE IGNO RANCE OF RECOVERY/RECALL OF CASH FROM HIM: (A) ALTHOUGH SHRI PANKAJ KALANI ADMITTED IN HIS STATEME NT U/S.132(4) THAT CASH RECEIVED FROM SIGNET INDUSTRIE S LTD. WAS USED FOR ARRANGING ACCOMMODATION ENTRIES FROM LUCKY COMMOTRADE PVT. LTD. AND THE A.O. ALSO REPRODUCED THE RELEVANT PAGES SHOWING RECEIPT OF CA SH FROM SIGNET INDUSTRIES LTD., THE A.O. COULD NOT POI NT OUT EVEN A SINGLE ENTRY IN THE MATERIAL SEIZED FROM THE OFFICE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 73 PREMISES OF SHRI DEEPAK KALANI SHOWING CASH PAYMENT TO LUCKY COMMOTRADE PVT. LTD. OR ITS REPRESENTATIVE FOR ARRANGING CHEQUES. THE ABSENCE OF ANY ENTRY SHOWING PAYMENT OF CASH FOR ARRANGING ACCOMMODATION ENTRY I N THE GARB OF UNSECURED LOANS FROM LUCKY COMMOTRADE PVT. LTD. FROM THE MATERIAL SEIZED FROM THE OFFICE PREMISES OF SHRI DEEPAK KALANI CLEARLY ESTABLISHED THE UNTRUTHFULNESS OF THE STATEMENTS GIVEN BY SHRI PANK AJ KALANI. (B) THE RETRACTION OF HIS STATEMENTS GIVEN ON 07.12.200 7 AND 17.12.2007 BEFORE CENTRAL EXCISE AUTHORITY BY S HRI PANKAJ KALANI ON ACCOUNT OF THREAT OF ARREST BY FIL ING AFFIDAVIT DATED 19.12.2007 AND SUBSEQUENT RE-ADMISS ION OF THE SAME ON 03.11.2011 IN HIS STATEMENT RECORDED U/S.132(4) DURING THE SEARCH IN HIS CASE BEFORE THE INCOME-TAX AUTHORITIES WITHOUT ANY DOCUMENTARY EVIDENCE IN FORM OF ANY SEIZED MATERIAL SHOWS THAT HIS STATEMENT WAS NOT RELIABLE AND SELF-SERVING, PRESUM ABLY SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 74 TO AVOID TAX LIABILITIES IN HIS HANDS BY CREATING S TORY OF ARRANGING ACCOMMODATION ENTRIES FROM LUCKY COMMOTRADE PVT. LTD. FOR THE ASSESSEE GROUP. (C) IF THE A.O. BELIEVED THE ENTRIES OF PAYMENT TO SHRI PANKAJ KALANI ON THE BASIS OF PAGE NO. 254 OF LPS-2/ 14, WHICH SUBSTANTIALLY MATCHED WITH PAGE 86 TO 88 OF LP S- 10 FOUND FROM THE PREMISES OF SHRI DEEPAK KALANI, H E SHOULD HAVE ALSO BELIEVED THE OTHER ENTRIES OF RECE IPTS RECORDED ON THE SAME SEIZED MATERIAL SHOWING RECOVE RY / RECALL OF THE CASH FROM HIM. FOR DETERMINATION OF UNDISCLOSED INCOME IN A HOLISTIC AND JUDICIOUS MANN ER AND NOT TO THE DETRIMENT OF THE ASSESSEE, THE A.O. SHOULD HAVE CONSIDERED ALL THE ENTRIES IN THE SEIZE D MATERIAL. THE A.O. CANNOT ADOPT A PICK AND CHOOSE POLICY BY CONSIDERING ONLY THE DEBIT ENTRIES BECAUS E THEY STRENGTHEN HIS CASE AND IGNORE THE CREDIT ENTRIES B ECAUSE THEY SUPPORT THE ASSESSEES CASE. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 75 (D) AS THE ENTIRE CASE OF THE A.O. WAS BASED UPON THE STATEMENT OF SHRI PANKAJ KALANI WHO ADMITTED CASH RECEIPT FROM THE ASSESSEE FOR ARRANGING ACCOMMODATI ON ENTRIES FROM LUCKY COMMOTRADE PVT. LTD., HE SHOULD HAVE BROUGHT EVIDENCE ON RECORD TO SHOW RECEIPT OF CASH FROM THE ASSESSEE AND ITS PAYMENT EITHER TO LUCKY COMMOTRADE PVT. LTD. OR ITS REPRESENTATIVE IN THIS REGARD. HE SHOULD HAVE ALSO ENQUIRED ABOUT MOVEMENT OF FUNDS FROM INDORE TO KOLKATA AND BROUGHT EVIDENC E ON RECORD INSTEAD OF UNQUESTIONINGLY AND BLINDLY BELIE VING THE STATEMENT OF SHRI PANKAJ KALANI. IT IS IMPOSSIB LE TO BELIEVE THAT THE SOME REPRESENTATIVE OF THE ASSESSE E WOULD CARRY CASH RUNNING INTO CRORES OF RUPEES VIA TRAIN OR ROAD TO KOLKATA CONTINUOUSLY FOR SEVERAL YEARS. 20. ON ANALYSIS OF LPS-11, THE FOLLOWING FACTS EMERG ES :- (A) AS PER A.O., LPS-11 SEIZED DURING THE SEARCH, IS A C ASH BOOK FOR THE PERIOD 24.01.2007 TO 07.06.2011. HOWEV ER, ON ANALYSIS OF EXTRACT OF LPS-11 GIVEN IN ASSESSMENT SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 76 ORDER, IT APPEARS THAT IT IS AN EXCEL SHEET WHICH H AS BEEN SORTED FOR RECEIPTS ON THE FIELD SIGNET, SOL AND SOL MUMBAI. HOWEVER THE DATE-WISE DETAILS OF THE TRANSACTIONS REPRODUCED IN THE ASSESSMENT ORDER REV EALS THAT TRANSACTIONS HAVE BEEN PICKED UP SELECTIVELY F OR THE PERIOD 29.07.2008 TO 30.09.2009. THEREFORE MANY RECEIPTS AND PAYMENTS APPEARS TO HAVE BEEN ELIMINAT ED IN THE PROCESS OF EXCLUSION OF PERIOD AND SELECTIVE SORTING OF DATA. (B) THE IMPUGNED CASH BOOK CONTAINS 12 COLUMNS. AS THE A.O. DID NOT EXPLAIN ANYTHING IN RELATION TO THE IM PUGNED CASH BOOK IN ASSESSMENT ORDER AND SIMPLY TREATED ENTRIES IN THE NAME SIGNET, SOL AND SOL MUMBAI AS RECEIPTS FROM SIGNET INDUSTRIES LTD., THE SAME HA S TO BE ANALYZED ON THE BASIS OF ITS LOGICAL INTERPRETAT ION. ON COMING TO LOGICAL CONCLUSION IT APPEARS THAT, COLUM N NO. 1 TO 5 SHOWS RECEIPTS ON VARIOUS DATES FROM SIGNET AND CONTAINS COLUMNS LIKE DATE, SIGNET, AMOUNT, PK / DK AND SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 77 BHARAT / PK / OFFICE. COLUMN NO 6 TO 9 APPEARS TO B E PAYMENTS MADE TO VARIOUS PARTIES ON DIFFERENT DATES . COLUMN NO. 10 APPEARS TO BE CASH BALANCE IN THE OFF ICE. COLUMN 11 SHOWS PAYMENT MADE TO SIGNET AND COLUMN 12 SHOWS BALANCE HELD ON ACCOUNT OF SIGNET. (C) THE IMPUGNED INFERENCE HAS BEEN DERIVED FROM THE FA CT THAT IN COLUMN NO. 1, ON 29.07.2008, 33.75 WERE RECEIVED BY PK FROM SIGNET, REPAID 33.75 TO SIGNET WITH NO DATE MENTIONED THEREIN AND BALANCE WAS 0.00 (NIL ). SIMILARLY, ON 28.08.2008, 11.00 WERE RECEIVED BY PK FROM SIGNET, REPAID 11.00 TO SIGNET WITH NO DATE MENTIONED THEREIN AND BALANCE WAS 0.00 (NIL). SIMIL ARLY, ON 26.03.2009 7.60 WERE RECEIVED BY PK FROM SIGNET, REPAID 7.60 TO SIGNET WITH NO DATE MENTIONED THEREI N AND BALANCE WAS 0.00 (NIL). AGAIN ON 22.01.2009, 7. 00 WERE RECEIVED BY DK, REPAID 7.00 TO SIGNET WITH NO DATE MENTIONED THEREIN AND BALANCE WAS 0.00 (NIL). SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 78 (D) ALSO UPON FURTHER ANALYSIS, IT WAS OBSERVED THAT DU RING THE INTERVENING PERIOD THE DAILY BALANCES WERE NOT MATCHING BECAUSE THE EXCEL SHEET WAS NOT COMPLETE I N ALL RESPECT AS THE ENTIRE PERIOD WAS NOT COVERED AN D SORTING WAS DONE SELECTIVELY DUE TO WHICH IMPORTANT ENTRIES GOT ELIMINATED. THIS FACT IS EVIDENT FROM T HE TRANSACTIONS ON 10.09.2008, 15.09.2008 AND 06.10.2008, 10.00, 5.00 AND 10.00 WERE RECEIVED BY PK AND 23.50 WAS PAID TO SIGNET AND BALANCE REMAINED 15.00. IT WAS SO BECAUSE CERTAIN INTERVENING ENTRIE S OF RECEIPTS AND PAYMENTS OMITTED DURING THE INTERVENIN G PERIOD IN THE PROCESSING OF SORTING. (E) COLUMN NO.10 IS NOT RELEVANT BECAUSE THE AMOUNTS APPEARING THEREIN DO NOT CHANGE WITH RECEIPT FROM S IGNET INDUSTRIES LTD. E.G. ON 24.08.2008, RECEIPT FROM SIG NET INDUSTRIES LTD. IS 11 BUT THE BALANCE REDUCED FROM 414.93 TO 382.79. SIMILARLY, RECEIPT FROM SIGNET SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 79 INDUSTRIES LTD. ON 10.09.2008 WAS 10.00, BUT THE BALANCE REDUCED FROM 382.79 TO 374.86 AND SO ON. (F) CONSIDERING THE INCOMPLETENESS OF THE DATA REPRODUC ED IN THE ASSESSMENT ORDER, THE ASSESSEE RECONSTRUCTED THE ENTIRE SO CALLED CASH BOOK BY PRESUMING INFORMATION PROVIDED IN THE EXCEL SHEET REPRODUCED IN ASSESSMEN T ORDER AS CORRECT. THE SAME IS ENCLOSED HEREWITH FO R YOUR KIND PERUSAL. ANNEXURE A (G) FROM THE ABOVE CASH BOOK IT IS QUITE CLEAR THAT THE ASSESSEE HAD CASH IN HAND OF RS.2,14,24,063/- RECAL LED FROM SHRI PANKAJ KALANI, WHICH WAS UTILIZED FOR SEN DING HIM FUNDS PERIODICALLY AND RECALLING THE SAME FROM TIME TO TIME FOR HIS BUSINESS PURPOSES. IF THE PEAK CRED IT ON THE BASIS OF VARIOUS PAYMENTS AND RECEIPTS IS WORKE D OUT, AS HAS BEEN SHOWN IN THE ANNEXURE B, IT IS ALWAYS LESS THAN AVAILABLE CASH-IN-HAND RS.2,14,24,063/-. THE IMPUGNED CASH WAS ULTIMATELY UTILIZED FOR PAYMENT O F INCOME-TAX LIABILITY OF SHRI MUKESH SANGLA ARISING FROM SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 80 THE REVISED RETURNS OF INCOME VOLUNTARILY FILED FOR ASSESSMENT YEAR 2006-07 AND ASSESSMENT YEAR 2007-08 AND RETURN OF INCOME FILED FOR ASSESSMENT YEAR 2008 -09. THE DETAILS THEREOF ARE AS UNDER: ASSTT. YEAR UNDISCLOSED INCOME (RS.) TAXES (RS.) 2006-07 45,00,000 20,86,755 2007-08 1,95,00,000 86,88,340 2008-09 1,60,00,000 65,49,450 4,00,00,000 1,73,24,545 ACCOMMODATION ENTRIES PRE-SUPPOSES EXCHANGE OF CASH AGAINST CHEQUES: 21. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMI TTED THAT EVERY BUSINESS IS RUN ON CERTAIN CUSTOMARY PRACTICE S AND TRADITIONS. IN THE BUSINESS OF ACCOMMODATION ENTRIE S, THE ACCOMMODATION ENTRY PROVIDER GIVES CHEQUE AND RECEI VES CASH OF EQUIVALENT AMOUNT FROM THE BENEFICIARY. THE EXCHANG E OF CHEQUE AND CASH TAKES PLACE SIMULTANEOUSLY. IT NEVER HAPPE NS THAT THERE IS A TIME GAP OF SEVERAL MONTHS IN SUCH EXCHANGE OF CASH AND CHEQUE. IF THE CONTENTION OF THE ASSESSING OFFICER IS ACCEPTED, THEN THE PAYMENT OF CASH TO SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI AND RECEIPT OF UNSECURED LOAN FROM LUCKY COMM OTRADE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 81 PVT. LTD SHOULD HAVE BEEN AT THE SAME POINT OF TIME. IN OTHER WORDS, THERE SHOULD HAVE BEEN ONE TO ONE RELATION B ETWEEN CASH PAID TO SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI A ND CHEQUE RECEIVED FROM LUCKY COMMOTRADE PVT. LTD. HOWEVER, THE RE IS NO SUCH RELATIONSHIP AS EVIDENT FROM THE FOLLOWING TAB LE, WHICH PRIMA FACIE ESTABLISHED THAT THE UNSECURED LOAN FROM LUCKY COMMOTRADE PVT. LTD. WERE GENUINE LOANS AND NOT ACCOMMODATION ENTRIES AS ALLEGED BY THE ASSESSING O FFICER : ASSESSMENT YEAR : 2007-08 DATE CASH PAID TO KALANI BROTHERS (RS.) DATE CHEQUE RECEIVED FROM LUCKY COMMOTRADE PVT. LTD. (RS.) 06.02.2007 17,00,000 05.03.2007 60,00,000 06.02.2007 3,00,000 06.03.2007 26,50,000 07.02.2007 10,00,000 09.03.2007 31,50,000 07.02.2007 10,00,000 14.03.2007 30,00,000 09.02.2007 15,00,000 19.03.2007 40,00,000 12.02.2007 35,00,000 20.03.2007 30,00,000 13.02.2007 15,00,000 21.03.2007 20,00,000 13.02.2007 15,00,000 23.03.2007 15,00,000 15.02.2007 10,00,000 15.02.2007 50,00,000 17.02.2007 27,00,000 17.02.2007 23,00,000 19.02.2007 20,00,000 19.02.2007 15,00,000 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 82 20.02.2007 40,00,000 23.02.2007 25,00,000 08.03.2007 10,00,000 10.03.2007 40,00,000 13.03.2007 75,00,000 15.03.2007 1,00,00,000 16.03.2007 20,00,000 21.03.2007 30,00,000 6,05,00,000 2,53,00,000 ASSESSMENT YEAR : 2008-09 DATE CASH PAID TO KALANI BROTHERS (RS.) DATE CHEQUE RECEIVED FROM LUCKY COMMOTRADE PVT. LTD. (RS.) 05.04.2007 74,043 29.03.2008 4,20,99,000 17.04.2007 10,00,000 18.04.2007 12,00,000 21.04.2007 25,00,000 25.04.2007 25,00,000 02.07.2007 60,00,000 03.07.2007 13,00,000 06.07.2007 6,00,000 07.07.2007 10,00,000 1,61,74,043 4,20,99,000 ASSESSMENT YEAR : 2009-10 DATE CASH PAID TO KALANI BROTHERS DATE CHEQUE RECEIVED FROM LUCKY SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 83 (RS.) COMMOTRADE PVT. LTD. (RS.) 04.04.2008 12,00,000 02.05.2008 1,10,00,000 07.05.2008 25,00,000 29.07.2008 20,00,000 02.08.2008 20,00,000 11.08.2008 6,40,000 19.09.2008 23,25,000 06.10.2008 5,20,000 07.10.2008 1,78,000 07.11.2008 53,05,000 21.11.2008 17,80,000 12.12.2008 5,30,000 26.12.2008 15,00,000 3,14,78,000 ASSESSMENT YEAR : 2012-13 DATE CASH PAID TO KALANI BROTHERS (RS.) DATE CHEQUE RECEIVED FROM LUCKY COMMOTRADE PVT. LTD. (RS.) 08.02.2012 50,00,000 14.02.2012 50,00,000 22.02.2012 50,00,000 02.03.2012 50,00,000 21.03.2012 50,00,000 2,50,00,000 22. ON PERUSAL OF LPS-11 (PERIOD AUGUST 2008 TO 30 TH MAY 2009) SEIZED IN THE CASE OF SHRI PANKAJ KALANI AND SHRI D EEPAK KALANI SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 84 AND REPRODUCED AT PAGE 41 OF THE ASSESSMENT ORDER, IT IS SEEN THAT WHILE THE AMOUNTS ARE SHOWN TO HAVE BEEN RECEI VED FROM SIGNET INDUSTRIES LTD., NONE OF THE PAYMENTS ARE MAD E TO LUCKY COMMODTRADE PVT. LTD. RATHER IT IS PAID TO GUDDU, SH ARMA, CHORASIAJI, VISHAL, CHORASIA BOMBAY, HIMANSHU PIONE ER, A.K.PORWAL ETC. FIRSTLY , THERE IS NOTHING IN THE SEIZED MATERIAL FOUND EITHER FROM ASSESSEES PREMISES OR FROM THE O FFICE PREMISES OF SHRI DEEPAK KALANI SUGGESTING ANY PAYMENT TO SHR I DEEPAK KALANI AND SHRI PANKAJ KALANI DURING THE PERIOD AUG UST 2008 TO MAY 2009 FOR ARRANGING ACCOMMODATION ENTRIES. SECON DLY , HOW THE PAYMENTS SHOWN TO HAVE BEEN MADE TO GUDDU, SHAR MA, CHORASIAJI, VISHAL, CHORASIA BOMBAY, HIMANSHU PIONE ER, A.K.PORWAL ETC. WERE RELATED TO THE ASSESSEE AND TH E ALLEGED ACCOMMODATION ENTRIES FROM LUCKY COMMOTRADE PVT. LTD . 23. AS EARLIER STATED, THE MATERIAL SEIZED DURING S EARCH IN THE CASE OF SHRI DEEPAK KALANI AND SHRI PANKAJ KALANI A S WELL AS THEIR STATEMENTS RECORDED DURING SEARCH WERE NOT PROVIDED TO THE ASSESSEE AND THEREFORE, THE ASSESSEE WAS DEPRIVED O F THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 85 OPPORTUNITIES TO EXAMINE AND EXPLAIN THESE DOCUMENT S AND EXAMINE SHRI DEEPAK KALANI AND SHRI PANKAJ KALANI A BOUT THEIR CONTENTS. SUCH UN-CONFRONTED MATERIAL AND STATEMENT S ARE NOT BINDING IN THE ASSESSEES CASE AS HELD BY VARIOUS J UDGEMENTS DISCUSSED ABOVE. THE CONTENTION OF THE C.I.T.(A). T HAT EVEN IN THE BUSINESS OF ACCOMMODATION ENTRY, THE TRANSACTION OF PAYING CASH AND RECEIVING CHEQUES DO NOT TAKE PLACE AT THE SAME POINT OF TIME AND GENERALLY CASH IS PAID IN ADVANCE TO ENABLE THE ENTRY PROVIDERS TO ROTATE FUNDS IN VARIOUS LAYERS BEFORE THE RECEIPT OF CHEQUES FROM THEM, IS CONTRARY TO THE BUSINESS PRAC TICES. THERE MAY BE DELAY OF FEW DAYS IN PAYMENT OF CASH AND REC EIPT OF CHEQUES BUT THE DELAY CANNOT RUN INTO SEVERAL MONTH S AND YEARS AS IN THE ASSESSEES CASE APPARENT FROM THE TABLE G IVEN ABOVE. AS REGARDS ALLEGED REGULARITY OF CASH AND CHEQUES T RANSACTIONS BETWEEN SHRI PANKAJ KALANI AND LUCKY COMMOTRADE PV T. LTD., THE REVENUE AUTHORITIES COULD NOT BRING AN IOTA OF EVID ENCE ON RECORD FROM THE MATERIAL SEIZED FROM THE OFFICE PREMISES O F SHRI DEEPAK SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 86 KALANI WHICH SHOWED PAYMENT OF CASH TO LUCKY COMMOTR ADE PVT. LTD. OUT OF CASH RECEIVED FROM SIGNET INDUSTRIES LTD. IS LUCKY COMMOTRADE PVT. LTD. A PAPER COMPANY PROVIDI NG ACCOMMODATION ENTRIES? 24. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED THAT THE FACTS FOR JUDGING IDENTITY AND CREDITWORTHINESS OF LUCKY COMMOTRADE PVT. LTD. AND ITS FINANCIAL TRANSACTION W ITH THE SIGNET GROUP CAN BE SUMMARIZED AS UNDER: (A) A COMPANY IS AN ARTIFICIAL JUDICIAL PERSON. IT CARR IES ON ITS ACTIVITY THROUGH ITS SHAREHOLDERS, ITS BOARD OF DIR ECTORS AND ITS EMPLOYEES. IT HAS A PERPETUAL EXISTENCE UNL ESS DISSOLVED OR WOUND UP UNDER APPROPRIATE LAW. ALTHOU GH, IT DOES NOT HAVE ANY PHYSICAL EXISTENCE, IT EXISTS DUE TO OPERATION OF LAW. THEREFORE, ITS EXISTENCE CAN BE ESTABLISHED ONLY THROUGH THE IDENTIFICATION ISSUED TO IT UNDER THE STATUTE UNDER WHICH IT WAS INCORPORATED. THE CERTIFICATE OF INCORPORATION ISSUED BY COMPETENT ST ATUTORY AUTHORITY, PERMANENT ACCOUNT NUMBER AND OTHER CERTIFICATES ISSUED UNDER VARIOUS OTHER APPLICABLE LAWS SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 87 ARE EVIDENCE OF ITS IDENTIFICATION AND EXISTENCE AN D THEY CANNOT BE IGNORED OR BRUSHED ASIDE. ( C.I.T. VS. KAMDHENU STEELS AND ALLOYS LTD. 19 TAXMANN.COM 26 DELHI) (B) LUCKY COMMOTRADE PVT. LTD. IS A KOLKATA BASED CLOSELY HELD NON-BANKING FINANCIAL COMPANY INCORPORATED ON 16.03.1994 HAVING P.A. NUMBERS AAACL 4501 E. IT HAS AN INDEPENDENT BOARD OF DIRECTORS INDEPENDENTLY MANAGING ITS BUSINESS AFFAIRS. THE INVESTMENT AND FINANCING BUSINESS IS ITS PROFIT MAKING APPARATUS W HICH IS BEING CARRIED OUT FROM ITS REGISTERED OFFICE. ITS S HARE CAPITAL AND FREE RESERVES AS ON 31.03.2005, STOOD A T RS.1,28,80,000/- AND RS.9,34,20,000/- RESPECTIVELY. IT IS NOT A GROUP COMPANY OF SIGNET GROUP. THESE FACTS ESTABLISHED ITS IDENTITY. (C) FOR THE ASSESSMENT YEAR 2007-08, THE SHAREHOLDERS FUND STOOD AT RS.10,63,97,734/- AND THE ASSESSMENT WAS COMPLETED U/S.143(3) AND TOTAL INCOME ASSESSED SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 88 WAS RS.1,23,92,580/-. A COPY OF ASSESSMENT ORDER WA S PLACED BEFORE THE LOWER AUTHORITIES. THE ASSESSMENT FOR ASSESSMENT YEAR 2005-06 WAS ALSO COMPLETED U/S.143( 3) AND A COPY ASSESSMENT ORDER WAS PLACED BEFORE THE LOWER AUTHORITIES. THE FINANCIALS OF THE COMPANY AS PER ITS AUDIT ANNUAL ACCOUNTS AND RETURNS OF INCOME FIL ED BEFORE THE INCOME-TAX DEPARTMENT ARE AS UNDER: ASSESSMENT YEARS PAID-UP SHARE CAPITAL FREE RESERVES PROFIT FOR THE YEAR TAXES PAID 2006-07 1,28,80,000 9,34,25,224 45,137 18,510 2007-08 1,28,80,000 9,34,26,358 19,408 18,274 2008-09 1,28,80,000 9,35,17,734 1,17,408 44,400 2009-10 1,28,80,000 9,40,46,001 6,04,107 75,840 2010-11 1,28,80,000 9,63,52,036 34,40,035 11,34,000 2011-12 1,28,80,000 9,78,27,075 22,03,439 7,28,400 2012-13 1,28,80,000 9,85,63,971 11,54,896 4,18,000 THESE FACTS ESTABLISHED CREDITWORTHINESS OF THE LOA N CREDITOR. 25. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED THAT THE ASSESSEE FILED DULY CONFIRMED COPIES OF ACCOUNT , AUDITED ANNUAL ACCOUNTS, COPIES OF RETURN OF INCOME, ASSESS MENT ORDER, BANK STATEMENTS, ETC. BEFORE THE A.O. AS WELL AS C. I.T.(A). ON ANALYSIS OF THE BANK STATEMENTS, IT WAS QUITE CLEAR THAT NO CASH WAS EVER DEPOSITED BY IT AT ANY TIME DURING THE REL EVANT YEARS. THE ASSESSING OFFICER COULD NOT BRING A SINGLE INST ANCE ON RECORD SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 89 WHERE LUCKY COMMOTRADE PVT. LTD. DEPOSITED CASH IN IT S BANK ACCOUNT AND ISSUED CHEQUES FOR ADVANCING LOAN OR MA KING INVESTMENT. NO EVIDENCE WAS FOUND DURING SEARCH OR POST SEARCH INQUIRIES OR ASSESSMENT PROCEEDINGS IN RELATION TO (A) PAYMENT OF UNACCOUNTED CASH TO LUCKY COMMOTRADE PVT. LTD. (B) TR ANSFER OF UNACCOUNTED CASH BY ASSESSEES EMPLOYEES. ALL THE L OAN TRANSACTIONS WERE THROUGH NORMAL BANKING CHANNELS A ND THERE WAS NO EVIDENCE SHOWING DEPOSIT OF CASH PRIOR TO IS SUE OF CHEQUES WHICH COULD HAVE RENDERED THE TRANSACTION S USPICIOUS. IT PRIMA FACIE ESTABLISHED GENUINENESS OF TRANSACTIONS.IN RELATIO N TO THE LOAN RECEIVED BY THE ASSESSEE GROUP, INTEREST W AS PAID TO LUCKY COMMOTRADE PVT. LTD. AND TAX WAS DEDUCTED AT SO URCE. IT WAS QUITE NATURAL AND ESSENTIALLY A PART OF BUSINES S ACTIVITY OF A NON-BANKING FINANCE COMPANY THAT FOR ADVANCING NEW LOANS OR MAKING NEW INVESTMENTS, IT RECALLS THE LOANS ALREAD Y GIVEN OR LIQUIDATE A PART OF ITS EXISTING INVESTMENTS. THERE FORE, THERE WAS NOTHING WRONG IN ADVANCING INTER-CORPORATE UNSECURE D LOAN TO THE ASSESSEE GROUP OUT OF LOANS / INVESTMENTS REALIZED. ONCE THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 90 INCOME-TAX DEPARTMENT, KOLKATA ASSESSED LUCKY COMMO TRADE PRIVATE LTD. U/S.143(3) FOR ASSESSMENT YEAR 2005-06 AND ASSESSMENT YEAR 2007-08, INCOME-TAX DEPARTMENT, IND ORE HAS NO LOCUS STANDI TO TREAT IT AS A BOGUS PAPER COMPANY AND A KNOWN ENTRY PROVIDER PARTICULARLY WHEN NO INVESTI GATION WHAT SO EVER WAS CONDUCTED BY IT AND NOT AN IOTA OF EVIDENC E WAS BROUGHT ON RECORDS IN SUPPORT OF SUCH SERIOUS AND BASELESS ALLEGATIONS. IT MAY BE NOTED THAT DURING ENTIRE SEARCH, POST-SEARCH PROCEEDINGS AND ASSESSMENT PROCEEDINGS U/S.153A, THE REVENUE AU THORITIES DID NOT ISSUE EVEN A SINGLE NOTICE TO IT U/S.133(6) TO COLLECT INFORMATION OR SUMMON U/S 131. IN THE ABSENCE OF AN Y INCRIMINATING MATERIAL FOUND AND SEIZED EITHER DURI NG SEARCH OR POST SEARCH INQUIRIES OR ASSESSMENT PROCEEDINGS U/S .153A, IT CANNOT AUTOMATICALLY BE INFERRED THAT LUCKY COMMOTRA DE PVT. LTD - A KOLKATA BASED NBFC COMPANY, WAS A BOGUS PAPER C OMPANY ENGAGED IN PROVIDING ACCOMMODATION ENTRIES AND THE LOAN TRANSACTION OF THE ASSESSEE WAS NOT GENUINE. THE SE RIOUS CHARGES AGAINST LUCKY COMMOTRADE PVT. LTD. ARE BASELESS, HEAR SAY AND SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 91 MERE CONJECTURES AND SURMISES. IN CASE OF LAL CHAND BHAGAT AMBICA RAM VS. C.I.T. 37 ITR 288, HONOURABLE SUPREME COURT STRONGLY DISAPPROVED THE PRACTICE OF MAKING ADDI TION IN THE ASSESSMENT ON MERE SUSPICION AND SURMISES OR TAKING NOTE OF SO CALLED NOTORIOUS PRACTICE PREVAILING IN TRADE CIRCLES . IT MAY BE NOTED THAT THE A.O. ACCEPTED THE LOANS GIVEN BY LUCKY COMMOTRADE PVT. LTD. TO VARIOUS MEMBER S OF SANGLA FAMILY AS GENUINE AND DID NOT MAKE ANY ADDIT ION IN RELATION TO SUCH LOANS. THE DETAILS OF SUCH LOANS A RE AS FOLLOWS: ASSESSEES NAME ASSESSMENT YEAR LOAN (RS.) INTEREST (RS.) AVANTIKA SANGLA 2009-10 7,15,000 47,484 MONICA SANGLA 2009-10 28,44,000 1,03,570 MUKESH SANGLA 2009-10 35,70,000 2,81,160 SAURABH SANGLA 2009-10 11,10,000 47,392 THE ASSESSING OFFICER CANNOT ADOPT DOUBLE STANDARDS I.E. ALLEGING ON THE ONE HAND THAT THE UNACCOUNTED MONEY WAS INTR ODUCED BY THE ASSESSEE IN THE GUISE OF UNSECURED LOANS AND AB SOLVING HIMSELF ON THE OTHER HAND FROM BRINGING ANY EVIDENC E IN SUPPORT OF HIS ASSERTION. HE IS A QUASI JUDICIAL AUTHORITY. HE CANNOT ACT SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 92 ARBITRARILY. HE HAS TO PERFORM THE ROLE OF A PROSEC UTOR AS WELL AS A JUDGE. HE CANNOT ADOPT AN APPROACH WHICH SUITS THE INTEREST OF REVENUE BUT AT THE SAME TIME, DEPRIVE THE ASSESSEES OF NATURAL JUSTICE AT THEIR DETRIMENT. HE HAS TO CONSIDER THE INTEREST OF REVENUE JUDICIOUSLY AND NOT ARBITRARILY AND VINDICT IVELY. THE STATEMENT OF SHRI PANKAJ KALANI THAT CASH RECEIVED FROM SIGNET GROUP WAS UTILIZED FOR ARRANGING ACCOMMODATION ENTR IES FROM LUCKY COMMOTRADE PVT. LTD. HAD NO EVIDENTIAL VALUE IN ASMUCH AS NO EVIDENCE COULD BE FOUND FROM THE MATERIAL SEIZED FROM HIS OFFICE PREMISES TO SHOW THAT CASH RECEIVED FROM SIG NET INDUSTRIES LTD. WAS PAID TO LUCKY COMMOTRADE PVT. LTD. THE LEARNE D COUNSEL FOR THE ASSESSEE RELIED UPON THE FOLLOWING JUDGEMEN TS: 1. C.I.T. VS. KAMDHENU STEELS AND ALLOYS LTD. 19 TAXMANN.COM 26 DELHI 2. C.I.T VS. STELLAR INVESTMENT LTD. [192 ITR 287 (DEL)] 3. C.I.T VS. STELLER INVESTMENT LTD. [251 ITR 263 (SC)] 4. C.I.T VS. ELECTRO POLYCHEM LTD. [294 ITR 661 (MAD)] . SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 93 5. C.I.T VS. DIVINE LEASING AND FINANCE LTD. [299 ITR 268 (DEL)] 6. C.I.T VS. DIVINE LEASING & FINANCE LTD. [CIVIL APPEAL NO. CC375/2008 (SC)] 7. C.I.T VS. SOPHIA FINANCE LTD. [205 ITR 98 (DEL.FB)] 8. C.I.T VS. LOVELY EXPORTS PVT. LTD. [216 CTR 195 (SC)] 9. C.I.T VS. FIRST POINT FINANCE LTD. [286 ITR 477] (RAJ)]. 10. SHREE BARKHA SYNTHETICS LTD. VS. A.C.I.T [283 ITR 377 (RAJ)] 11. C.I.T VS. DWARKADHISH INVESTMENT PVT. LTD. [ 194 TAXMAN 43 (DEL)] 12. C.I.T VS. ANTARCTICA INVESTMENT PVT. LTD. [262 ITR 493 (DEL)] 13. C.I.T VS. DOLPHINE CANPACK LTD. [283 ITR 190 (DEL)] 14. C.I.T VS. VALUE CAPITAL SERVICES PVT. LTD. [307 ITR 334 (DEL)] 15. C.I.T VS. PEOPLES GENERAL HOSPITAL LTD. [2013] 356 ITR 65 (MP) 16. C.I.T VS. EMPIRE BUILDTECH (P) LTD. [2014] 43 TAXMANN.COM 269 (DEL) 17. MIDAS GOLDEN DISTILLERIES (P) LTD. VS. C.I.T [2009] 124 TTJ 25 (CHENNAI) 18. C.I.T VS. SHREE RAMA MULTI TECH LTD [2013] 34 TAXMANN.COM 177 (GUJ.) SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 94 19. C.I.T VS. STL EXTRUSION (P) LTD [2011] 11 TAXMANN.COM 125 (MP) 26. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMI TTED THAT THE CONTENTION OF THE A.O. THAT HE IS NOT REQUIRED TO P ROVE PAYMENT OF CASH IN LIEU OF THE CHEQUES RECEIVED, THE ONUS IS U PON THE ASSESSEE TO EXPLAIN THESE TRANSACTIONS TO A.O.S SA TISFACTION; THE ASSESSEE CANNOT ESCAPE FROM THIS RESPONSIBILITY BY FAILURE OF THE A.O. TO ESTABLISH CASH TRAIL AND CASH TRAIL WAS EST ABLISHED BY THE A.O., IT IS SUBMITTED THAT THE A.O. DID NOT CONSIDE R ALL THE EVIDENCE PLACED BEFORE HIM. HE DID NOT GO THROUGH T HE BANK STATEMENTS OF LUCKY COMMOTRADE PVT. LTD. IN WHICH TRA NSACTIONS WITH THE ASSESSEE GROUP WERE PROPERLY REFLECTED. HE COULD NOT BRING A SINGLE IOTA OF EVIDENCE TO PROVE THAT CASH WAS DEPOSITED IN THE BANK ACCOUNT OF LUCKY COMMOTRADE PVT. LTD. PR IOR TO THE ISSUE OF CHEQUES TO THE ASSESSEE COMPANY OR AT ANY POINT OF TIME. IN FACT, THE ASSESSEE PRODUCED NECESSARY DOCUMENTS/EVIDENCE TO ESTABLISH IDENTITY OF LUCKY C OMMOTRADE PVT. LTD., FILED BANK ACCOUNTS FOR VERIFICATION OF T RANSACTION, DULY CONFIRMED COPIES OF ACCOUNT AND AUDITED ANNUAL ACCO UNTS TO SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 95 ESTABLISH CREDITWORTHINESS OF THE SHAREHOLDER AND G ENUINENESS OF TRANSACTION, BUT THE REVENUE DID NOT CONDUCT FURTHE R ENQUIRIES AND SIMPLY REJECTED THE ASSESSEES EXPLANATION AND EVIDENCE FOR MAKING ADDITION ON ACCOUNT OF UNEXPLAINED CASH CRED IT U/S.68 OF THE ACT. IN THESE CIRCUMSTANCES, HEAVY BURDEN LIED UPON THE REVENUE TO ESTABLISH PAYMENT OF CASH IN LIEU OF CHE QUES RECEIVED FROM LUCKY COMMOTRADE PVT. LTD. TO ESTABLISH ITS ALLE GATION REGARDING ACCOMMODATION ENTRY. THE RELIANCE PLACED BY THE C.I.T.(A). ON FACTS LIKE LUCKY COMMOTRADE PVT. LTD. A S WELL AS THE ASSESSEE COMPANY HAD BANK ACCOUNT WITH THE SAME BAN K I.E. UCO BANK, NEW PALASIA ROAD, INDORE; THE BANK PASSBO OK AND CHEQUES BOOK OF LUCKY COMMOTRADE PVT. LTD. WERE FOUND WITH THE ASSESSEE, TO HOLD THAT IT WAS A CONDUIT FOR TRANSFE RRING FUNDS TO VARIOUS SIGNET GROUP COMPANIES, IS TOTALLY MISPLACE D INASMUCH AS THE BANK ACCOUNT OF THE ASSESSEE AND LUCKY COMMO TRADE PVT. LTD. WERE KEPT IN THE SAME BANK ACCOUNT TO FACILITAT E PROMPT TRANSFER OF FUNDS, TO SAVE BANK CHARGES AND INTERES T COST. SIMILARLY, THERE WAS NOTHING UNUSUAL IN THE CHEQUES BOOK OF SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 96 LUCKY COMMOTRDE PVT LTD. FOUND WITH SHRI MUKESH SANGL A CONSIDERING CLOSE FRIENDSHIP, FAMILY RELATIONS AND MUTUAL TRUST BETWEEN SANGLA FAMILY AND SHRI RAMCHAND KEDIA OF LUC KY COMMOTRADE PVT. LTD. THE CHEQUES BOOK WAS KEPT TO FA CILITATE PROMPT TRANSFER OF FUNDS, SAVE BANK CHARGES AND INT EREST COST AS PHYSICAL MOVEMENT OF CHEQUES BETWEEN KOLKATA AND IN DORE WOULD HAVE ENTAILED. IT MAY BE IMPORTANT TO NOTE TH AT NET BANKING AND ONLINE BANKING TRANSACTIONS OVER WORLD WIDE WEB (WWW) WAS AT A VERY NASCENT STAGE IN INDIA DURING T HE IMPUGNED PERIOD AND PEOPLE WERE VERY SKEPTICAL TO PERUSE THE SAME IN VIEW OF THE ECOMMERCE FRAUD DURING THE PERIOD. 27. THE LEARNED COUNSEL FOR THE ASSESSEE PRAYED THA T THE REVENUE COULD - A) ACCEPT THE UNDISCLOSED INCOME OF RS.4 CRORES ORIGIN ALLY ASSESSED IN THE CASE OF SHRI MUKESH SANGLA ON THE B ASIS OF RETURNS OF INCOME VOLUNTARILY - REVISED BY HIMFO R ASSESSMENT YEAR 2006-07 AND ASSESSMENT YEAR 2007-08 AND FILED FOR ASSESSMENT YEAR 2008-09 OR SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 97 B) ALTERNATIVELY, IF YOUR HONOUR CONFIRM THE ADDITION OF THE ABOVE UNDISCLOSED INCOME IN CASE OF SIGNET INDUSTRI ES LTD., APPROPRIATE EFFECT AND RELIEF WITH RESPECT TO UNDISCLOSED INCOME AND TAXES PAID THEREON BY SHRI MUKESH SANGLA BE GIVEN IN VIEW OF THE APEX COURT JUDGEMENT IN THE CASE OF ASHISH PLASTIC INDUSTRIES (SUPRA) ; C) ACCEPT UNDISCLOSED INCOME FROM POLYMER BUSINESS AS PER ASSESSEES SUBMISSIONWHICH WAS INCLUDED IN THE UNDISCLOSED INCOME OF RS.4 CRORES OFFERED FOR TAXAT ION BY SHRI MUKESH SANGLA; D) DELETE THE ADDITION U/S.68 IN RELATION TO UNSECURED LOANS RECEIVED FROM LUCKY COMMOTRADE PVT. LTD.; E) DELETE THE ADDITION ON ACCOUNT OF PAYMENT TO SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI EXCEPT TO THE EXTENT FOUND RECORDED ON PAGE 254 OF LPS 2/14 FOUND FROM THE OFFICE PREMISES OF THE ASSESSEE; SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 98 F) NOT TO ADMIT SELF-SERVING STATEMENT OF SHRI PANKAJ KALANI AS ADMISSIBLE EVIDENCE CONSIDERING THE FACT THAT NO EVIDENCE REGARDING PAYMENT TO LUCKY COMMOTRADE PVT. LTD. WAS FOUND IN THE MATERIAL SEIZED FROM HIS OFFIC E PREMISES; G) NOT TO ADMIT ENTRIES FOUND RECORDED FROM THE MATERI AL SEIZED FROM THE OFFICE PREMISES OF SHRI DEEPAK KALA NI AND SHRI PANKAJ KALANI AS ADMISSIBLE EVIDENCE OR EL SE ACCEPT THE EXPLANATION OFFERED BY THE ASSESSEE IN RELATION TO PAGE 86 TO 88 OF LPS 10 AND TABLE SELECT IVELY EXTRACTED AND REPRODUCED IN THE ASSESSMENT ORDER ON THE BASIS OF LPS 11 AND H) ALLOW APPROPRIATE TELESCOPING. 28. WE HAVE HEARD BOTH THE SIDES. ALL THE GROUNDS W ERE ARGUED TOGETHER BY THE LEARNED COUNSEL FOR THE ASSESSEE AN D ALSO THE CONNECTED ISSUES RAISED IN THE REVENUES APPEALS. O N THE ISSUE OF ADDITION OF RS.2,89,97,976/- RELATING TO UNDISCLOSE D INCOME FROM UNDERVOICING AND UNACCOUNTED SALES RELATING TO POLY PRODUCTS, WE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 99 HOLD THAT THIS UNACCOUNTED SALE AND UNDER-INVOICING OF POLY PRODUCT BUSINESS WAS OUT OF ASSESSEES OWN PRODUCT. THESE GOODS WERE MANUFACTURED BY M/S LOGIC POLY PRODUCT, A UNIT OF THE ASSESSEE. THIS FACT IS EVIDENT FROM THE MAKE OF TH E PRODUCT AS NOTICED BY THE CENTRAL EXCISE DEPTT. THE ASSESSEE H AD ALSO APPROACHED THE SETTLEMENT COMMISSION FOR CENTRAL EX CISE & CUSTOMS FOR SETTLEMENT OF LIABILITY OF EXCISE DUTY. IT HAS BEEN SETTLED IN THE ASSESSEES HANDS ONLY AFTER ADMITTIN G CENTRAL EXCISE OF RS.69,58,009/- VIDE ORDER DATED 14.8.2012.. IN VIEW OF THESE FACTUAL MATRIX, WE ARE IN AGREEMENT WITH THE FINDIN GS OF THE LEARNED CIT(A) THAT THE INCOME FROM SUCH BUSINESS T O BE TAXED IN THE ASSESSEES HANDS. THE HON'BLE SUPREME COURT IN THE CASE OF ITO VS. CH. ATCHAIAH; 218 ITR 239 (SC) HELD THAT IN COME SHOULD BE TAXED IN THE HANDS OF RIGHT PERSON ONLY. THE OBS ERVATIONS OF THE HON'BLE SUPREME COURT ARE AS UNDER :- UNDER THE PRESENT ACT, THE INCOMETAX OFFICER HAS NO OPTION LIKE THE ONE HE HAD UNDER THE 1922 ACT. HE C AN AND HE MUST TAX THE RIGHT PERSON AND THE RIGHT PERSON A LONE. BY RIGHT PERSON IS MEANT THE PERSON WHO IS LIABLE TO BE TAXED, ACCORDING TO LAW, WITH RESPECT TO A PARTICULAR INCO ME. THE EXPRESSION WRONG PERSON IS OBVIOUSLY USED AS THE OPPOSITE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 100 OF THE EXPRESSION RIGHT PERSON. MERELY BECAUSE A WRONG PERSON IS TAXED WITH RESPECT TO A PARTICULAR INCOME , THE ASSESSING OFFICER IS NOT PRECLUDED FROM TAXING THE RIGHT PERSON WITH RESPECT TO THAT INCOME. IN VIEW OF THE LEGAL POSITION, THE DECLARATION OF S UCH INCOME IN THE HANDS OF SHRI MUKESH SANGLA HAS NO SIGNIFICANCE. I N VIEW OF THESE FACTS, WE HOLD THAT THE INCOME FROM UNDER-INV OICING AND UNACCOUNTED SALES OF POLY PRODUCT SHALL BE TAXED IN THE HANDS OF THE ASSESSEE ONLY. THE REVENUE MAY CONSIDER THE REL IEF IN THE HANDS OF MUKESH SANGLA WHERE PART OF THIS INCOME HA S BEEN DECLARED IN HIS RETURN OF INCOME FOR THE ASSESSMENT YEARS 2006- 07, 2007-08 AND 2008-09. 29. WITH REGARD TO QUANTUM OF ADDITION, WE AGREE WI TH THE FINDINGS OF THE LEARNED CIT(A) WHERE THE ADDITION F OR UNDER- INVOICING, SALES OF MANUFACTURED GOODS AND UNACCOUN TED SALES OF MANUFACTURED GOODS HAS BEEN ESTIMATED AS UNDER :- FINANCIAL YEAR HOUSEHOLD RS. GHAMELA RS. JHAR RS. TOTAL RS. 2005-06 - - - - 2006-07 22.00.169 1,12,65,819 - 1,34,65,988 2007-08 19,97,995 99,49,400 - 1,19,47,395 TOTAL A 2,54,13,383 (III) UNACCOUNTED SALES OF MANUFACTURED GOODS : SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 101 FINANCIAL YEAR HOUSEHOLD RS. GHAMELA RS. JHAR RS. TOTAL RS. 2005-06 50,71,015 1,98,15,461 41,11,500 2,89,97,976 2006-07 22,35,002 1,39,83,958 13,41,838 1,75,60,798 2007-08 2,40,551 90,36,890 79,416 93,56,857 TOTAL B 55915631 THUS, THE TOTAL UNACCOUNTED SALES DETECTED BY THE C ENTRAL EXCISE DEPARTMENT AND AS ADMITTED BY THE APPELLANT COMPANY IN ITS APPLICATION BEFORE THE SETTLEMENT COMMISSION WORKS OUT AS UNDER :- ASSESSMENT YEAR TOTAL (A) RS. TOTAL (B) RS. TOTAL (A+B)(RS.) 2006 - 07 - 2 ,89,97,976 2,89,97,976 2007 - 08 1,34,65,988 1,75,60,798 3,10,26,786 2008 - 09 1,19,47,395 93,56,857 2,13,04,252 TOTAL 8,31,29,014 30. WE, THEREFORE, SUSTAIN THE ORDER OF THE LEAR NED CIT(A) FOR THE QUANTUM OF ADDITION WITH RESPECT TO THE UNACCOU NTED INCOME GENERATED THROUGH UNDER-INVOICING AND UNACCOUNTED S ALES OF MANUFACTURED GOODS AT RS. 2,89,97,976/- FOR THE ASS ESSMENT YEAR 2006-07, RS.3,10,26,786/- FOR THE ASSESSMENT Y EAR 2007-08 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 102 AND RS.2,13,04,252/- FOR THE ASSESSMENT YEAR 2008-0 9. WE ALSO UPHOLD THE FINDING OF THE LEARNED CIT(A) WITH REGAR D TO TRANSACTIONS WHICH WERE TAKEN BY THE ASSESSING OFFI CER FOR THE ASSESSMENT YEAR 2006-07 BUT WERE RELEVANT FOR THE A SSESSMENT YEAR 2007-08 AND THE TRANSACTIONS TAKEN FOR THE ASS ESSMENT YEAR 2007-08 PERTAINING TO ASSESSMENT YEAR 2008-09. 31. THE LEARNED CIT(A) HAS UPHELD THE ADDITION AF TER CONSIDERING THE TELESCOPING THE CASH GENERATED FROM UNDER- INVOICING AND UNACCOUNTED SALES, CASH PAID TO PANKA J KALANI AND SHRI DEEPAK KALANI AND UNSECURED LOAN RECEIVED FRO M LUCKY COMMOTRADE PVT. LTD. HIGHER OF THESE THREE HAS BEEN SUSTAINED. THE AMOUNT GIVEN TO PANKAJ KALANI AND DEEPAK KALAN I WAS OF RS.13,36,50,000/-. BEFORE US, THE LEARNED COUNSEL F OR THE ASSESSEE HAS ALSO POINTED OUT THAT KALANI BROTHERS HAVE ALSO RETURNED THE CASH DURING THIS PERIOD WHICH IS ALSO EVIDENT FROM THE SEIZED PAPERS. ON THIS WE WOULD ALSO LIKE TO ST ATE THAT THE LEARNED CIT(A) HAS NOT CONSIDERED THE CASH RETURNED TO THE ASSESSEE BY KALANIES DURING THE RELEVANT PERIOD AND THE SAME IS SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 103 REFLECTED IN THE SEIZED MATERIAL. THIS FACT NEEDS TO BE CONSIDERED TO ARRIVE AT FIGURE OF NET CASH OUT FLOW. IT HAS ALSO BEE N NOTICED BY US THAT THE REVENUE HAS ACCEPTED CASH CREDITS FROM LUCKY C OMMOTRADE PVT. LTD. AS GENUINE IN THE HANDS OF THE FOLLOWING PE RSONS :- ASSESSEES NAME ASSESSMENT YEAR LOAN (RS.) INTEREST (RS.) AVANTIKA SANGLA 2009-10 7,15,000 47,484 MONICA SANGLA 2009-10 28,44,000 1,03,570 MUKESH SANGLA 2009-10 35,70,000 2,81,160 SAURABH SANGLA 2009-10 11,10,000 47,392 IN MANY OF GROUP CASES THE LEARNED CIT(A) HAS ACCEPTE D THE GENUINENESS OF CASH CREDITS FROM LUCKY COMMTADE PVT. LT D. WE HAVE UPHELD THE ORDER OF CIT(AS) WHERE CASH CREDITS WERE REC EIVED AND SOURCE OF SOURCE WAS ALSO EXPLAINED. IN THE OTHER GRO UP CASES ALSO WE HAVE UPHELD THE GENUINENESS OF THE TRANSACTION FROM LU CKY COMMOTRADE PVT. LTD WHERE THERE WAS NO DIRECT EVIDENCE A GAINST THOSE ENTITIES IN RESPECT OF THE TRANSACTION WITH LUCK Y COMMOTRADE PVT. LTD. AS THERE WAS NO EVIDENCE OF CASH FLOW. HOWEV ER, IN THE ASSESSEES CASE THERE ARE EVIDENCES OF CASH GENERATIO N IN UNACCOUNTED TRADE AND STATEMENT OF KALANI BROTHERS DURING THE CENTRA L EXCISE SEARCH AAS WELL AS DURING INCOME TAX SEARCH OPERATIO N WHEREIN THEY HAVE ACCEPTED THAT THEY WERE RECEIVING CASH FROM THE ASSESSEE AND SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 104 GIVING THE CASH TO LUCKY COMMOTRADE PVT. LTD. FOR PROVIDI NG THE UNSECURED LOAN TO THE ASSESSEE. ALTHOUGH THEY HAVE RETRACTED THE STATEMENT BUT THE SEIZED MATERIAL ESTABLISHES THAT T HEY WERE RECEIVING THE CASH FROM THE ASSESSEE. THEREFORE, ON THE BASIS O F THESE STATEMENTS AND SEIZED MATERIAL, WE SUSTAIN THE ADDIT ION TO THE EXTENT OF NET CASH FLOW TO PANKAJ KALANI AND DEEPAK KALANI. KEEPING THESE FACTS IN VIEW, WE RESTORE THE ISSUE TO THE FILE OF TH E ASSESSING OFFICER FOR THE PURPOSE TO WORK OUT THE NET CASH OUT- FLOW PA ID TO PANKAJ KALANI AND DEEPAK KALANI DURING THE RELEVANT ASSESSM ENT YEARS. IF SUCH CASH EXCEEDED THE UNACCOUNTED CASH GENERATED TH ROUGH UNDER- INVOICING AND UNACCOUNTED SALES OF PRODUCT THEN ADDI TION SHALL BE OVER AND ABOVE THE CASH GENERATED BY THESE UNACCOUNTED TRA NSACTIONS. IF THE NET OUT-FLOW IS LESS THAN THE CASH GENERATED FROM THE TRANSACTION OF UNDER INVOICING AND UNACCOUNTED SALES THEN THE AD DITION SHALL BE RESTRICTED TO THAT AMOUNT ONLY. TO THAT EXTENT THE UN SECURED LOAN FROM LUCKY COMMOTRADE PVT. LTD SHALL BE UPHELD FOR ADDITION U /S 68 OF THE ACT. IN VIEW OF THESE FACTS, WE CONFIRM THE ORDER OF THE LEARNED CIT(A) ON THE ISSUE OF TELESCOPING TO THE EXTENT THE CASH WAS GENERATED THROUGH UNDER-INVOICING AND UNACCOUNTED SALES AND CA SH PAID TO SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 105 PANKAJ KALANI AND DEEPAK KALANI AND UNSECURED LOAN RE CEIVED FROM LUCKY COMMOTRADE PVT. LTD. 32. ALL THESE GROUNDS ARE DECIDED ACCORDINGLY . 33. GROUND NO.3.0 (A.Y.: 2008-09, 2011-12 & 2012-13), 4.0 (A.Y.: 2009-10) & 2.0 (A.Y. : 2010-11) OF THE ASSESSEES APPEAL AND GROUND NO.3 (A.Y.: 2007- 08)OF REVENUES APPEALS : 4.0 GROUND NO. 3.0 (A.Y.: 2008-09, 2011-12 & 2012-13), 4.0 (A.Y.: 2009-10) & 2.0 (A.Y. : 2010-11) OF ASSESSEE S APPEALS READS AS UNDER: ASSESSMENT YEAR : 2008-09 DISALLOWANCE U/S.14A R.W.RULE 8D(2) : RS.15,85,470/ - 3.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE DISALLOWANCE OF RS.15 ,85,470/- MADE BY THE ASSESSING OFFICER U/S.14A R.W. RULE 8D(2) OF THE IN COME-TAX ACT, 1961. ASSESSMENT YEAR : 2009-10 DISALLOWANCE U/S.14A R.W.RULE 8D(2) : RS.8,17,032/- 4.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE DISALLOWANCE OF RS.8, 17,032/- MADE BY THE ASSESSING OFFICER U/S.14A R.W. RULE 8D(2) OF THE IN COME-TAX ACT, 1961. ASSESSMENT YEAR : 2010-11 DISALLOWANCE U/S.14A R.W. RULE 8D(2) : RS.22,35,657 /- SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 106 2.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE DISALLOWANCE OF RS.22 ,35,657/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A R.W. RULE 8D(2) . ASSESSMENT YEAR : 2011-12 DISALLOWANCE U/S.14A R.W. RULE 8D(2) : RS.22,11,83 1/- 3.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE DISALLOWANCE OF RS.22 ,11,831/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A R.W. RULE 8D(2) . ASSESSMENT YEAR : 2012-13 DISALLOWANCE U/S.14A R.W. RULE 8D(2) WITH REFERENCE TO PARA 17.4 OF THE ASSESSMENT ORDER : RS.19,76,493 /- 3.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE DISALLOWANCE OF RS.19 ,76,493/- UNDER SECTION 14A READ WITH RULE 8D(2) BY THE ASSESSING O FFICER. 4.1 GROUND NO.3 (A.Y.: 2007-08)OF REVENUES APPEALS REA DS AS UNDER: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE C.I.T.(A). ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWAN CE U/S.14A OF THE I.T.ACT, 1961 OF RS.4,78,581/-. 34. THE FACTS IN BRIEFLY ARE THAT THE STATUS REGARD ING EXEMPTED INCOME DERIVED BY THE ASSESSEE, INVESTMENT, SHARE C APITAL AND FREE RESERVES FOR RELEVANT ASSESSMENT YEARS ARE AS FOLLOWS: ASSTT. YEARS EXEMPT INCOME (RS.) INVESTMENT EXEMPT INCOME BEARING INVESTMENT - NO EXEMPT INCOME (RS.) TOTAL (RS.) OPENING (RS.) CLOSING (RS.) 2008-09 34,21,786 9,45,335 9,05,113 6,19,87,280 6,2 8,92,393 2009-10 41,186 9,33,913 9,33,913 6,19,58,480 6,28,9 2,393 2010-11 5,40,04,712 8,11,513 - 6,20,80,880 6,20,80, 880 2011-12 7,45,325 6,00,00,000 7,50,00,000 20,80,880 7,70,80,880 2012-13 43,55,087 7,52,72,940 7,52,72,940 16,72,940 7,69,45,880 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 107 SHARE CAPITAL & RESERVES ASSTT. YEARS SHARE CAPITAL (RS.) RESERVES & SURPLUS (RS.) TOTAL (RS.) 2008-09 1,62,15,000 16,02,92,471 17,65,07,471 2009-10 1,62,15,000 18,06,77,544 19,68,92,544 2010-11 4,86,45,000 26,36,40,355 31,22,85,355 2011-12 29,18,70,000 4,98,10,768 34,16,80,768 2012-13 29,18,70,000 7,21,00,047 36,39,70,047 35. THE A.O. DID NOT ACCEPT THE ASSESSEES EXPLANAT ION IN RELATION TO DETERMINATION OF DISALLOWANCE U/S.14A A ND APPLIED RULE 8D(2) FOR THE PURPOSE OF DISALLOWANCE IN RELATION T O EXEMPT INCOME. ON APPEAL, THE C.I.T.(A). CONFIRMED THE ADD ITION MADE BY THE A.O. 36. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SEC. 14A OF THE INCOME-TAX ACT, 1961 READS AS UNDER: 14A. (1) FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCO ME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BE EN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THIS ACT. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 108 PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL EMPOW ER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PAS S AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTH ERWISE INCREASING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154, FOR AN Y ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1 ST DAY OF APRIL, 2001. 37. RULE 8D OF THE INCOME-TAX RULES, 1962 INTRODUCE D W.E.F. 24 TH MARCH 2008 READS AS UNDER: 8D (1) WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE ; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOU NT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROV ISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AM OUNTS, NAMELY : (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCO ME WHICH DOES NOT FORM PART O TOTAL INCOME; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITU RE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTR IBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY: A X B --- C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCUR RED DURING THE PREVIOUS YEAR; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 109 ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; AN AMOUNT EQUAL TO ONE-HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE AS SESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 38. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ON A PLAIN READING OF THE ABOVE PROVISION, IT EMERGES TH AT AN EXPENDITURE, WHICH IS INCURRED IN RELATION TO AN EX EMPTED INCOME, SHALL NOT BE ALLOWED AS A DEDUCTION. IN OTHER WORDS , THERE SHOULD BE A DIRECT NEXUS OR PROXIMATE RELATIONSHIP BETWEEN EARNING OF EXEMPTED INCOME AND INCURRENCE OF EXPENSES. ON A PL AIN READING OF SEC.14A(2) R.W. RULE 8D(1), IT IS QUITE MANIFEST THAT THE EXPENDITURE IN RELATION TO EXEMPTED INCOME SHALL BE COMPUTED IN ACCORDANCE WITH THE PRESCRIBED METHOD I.E. RULE 8D OF THE INCOME-TAX RULES, 1962 (W.E.F.24.03.2008), ONLY WHE N THE ASSESSING OFFICER IS NOT SATISFIED ABOUT CORRECTNES S OF THE ASSESSEES CLAIM HAVING REGARDS TO ITS ACCO UNTS . RULE 8D(1) CLEARLY PROVIDES THAT SUB-RULE (2) OF SHALL BE APPLIC ABLE ONLY IN THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 110 EVENT WHEN THE ASSESSING OFFICER IS NOT SATISFIED, H AVING REGARD TO ITS ACCOUNTS, ABOUT THE CORRECTNESS OF ASSESSEES CLAIM OF EXPENSES IN RELATION TO EXEMPTED INCOME. HOWEVER, THE SATISFACTIO N OF THE ASSESSING OFFICER CANNOT BE SUBJECTIVE AND ARBITRARY. HE HAS TO SHOW THAT THE DISALLOWANCE WORKED OUT BY THE ASSESSEE ON THE BASIS OF ITS BOOKS OF ACCOUNTS WAS NOT CORRECT. SUB-SECTION (3) PRO VIDES FOR APPLICATION OF SUB-SECTION (2), IF THE ASSESSEE CLA IMS THAT NO EXPENDITURE PERTAINS TO EXEMPTED INCOME. 39. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMIT TED THAT WHILE EXPLAINING THE PROVISIONS OF SEC.14A AND RULE 8D, T HE HONOURABLE DELHI HIGH COURT HELD IN THE CASE OF MAXOPP INVESTMENT LTD. VS. C.I.T. (203 TAXMAN 364) AS UNDER: HOWEVER, IF ONE EXAMINES THE PROVISION CAREFULLY, I T WOULD BE FOUND THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOU NT OF SUCH EXPENDITURE ONLY IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNT S OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN OTHER WORDS, REQUIREMENT OF ASSESSING OFFICER EMBA RKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO E XEMPT INCOME WOULD BE TRIGGERED ONLY IF THE ASSESSING OFFICER RETURNS A F INDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RES PECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITION PRECEDENT FOR THE ASS ESSING OFFICER ENTERING UPON SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 111 A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE IN CURRED IN RELATION TO EXEMPT INCOME IS THAT THE ASSESSING OFFICER MUST RE CORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. SUB-SECTION (3) IS NOTHING BUT AN OFFSHOOT OF SUB- SECTION (2) OF SECTION 14A. ....... WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGA RD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. ........... THE SAID RULE 8D ALSO MAKES IT CLEAR THAT WHERE TH E ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH ( A ) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR ( B ) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITUR E HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT FOR SUCH PREVIOUS YEAR, THE ASSE SSING OFFICER SHALL DETERMINE THE AMOUNT OF THE EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2) OF R ULE 8D. RULE 8D(1) PLACES THE PROVISIONS OF SECTION 14A(2) AND (3) IN THE COR RECT PERSPECTIVE. THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER TO HI MSELF DETERMINE THE AMOUNT OF EXPENDITURE IS THAT HE MUST RECORD HIS DI SSATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE OR WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED. IT IS ONLY WHEN THIS CONDITION PRECEDENT IS SATISFI ED, THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOU NT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME I N THE MANNER INDICATED IN SUB-RULE (2) OF RULE 8D. 40. THE LD. AR SUBMITTED THAT IN ASSESSEES CASE, A LL EXPENSES DEBITED TO PROFIT & LOSS ACCOUNT WERE ANALYZED THREA DBARE. ON THE BASIS OF IMPUGNED ANALYSIS, THE ASSESSEE HAS CA TEGORIZED THESE EXPENSES IN THREE PARTS: (A) EXPENSES WHICH ARE DIRECTLY RELATED TO EXEMPTED INC OME, SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 112 (B) EXPENSES WHICH ARE DIRECTLY RELATED TO INCOME SUBJE CTED TO TAX AND (C) EXPENSES WHICH ARE RELATED TO EXEMPTED AS WELL AS TAXABLE INCOME OF THE ASSESSEE. 41. FOR THE PURPOSE OF ASCERTAINING EXPENSES RELATI NG TO EXEMPTED INCOME, THE ASSESSEE ADOPTED THE FOLLOWING MODUS OPERANDI : A) IT EXCLUDED EXPENSES DIRECTLY RELATED TO TAXABLE IN COME, B) IT DISALLOWED THE EXPENSES DIRECTLY RELATED TO EXEM PTED INCOME AND C) IT DISALLOWED THE COMMON EXPENSES I.E. EXPENSES WHI CH ARE ATTRIBUTABLE TO EXEMPTED AS WELL AS TAXABLE INC OME, IN PROPORTION TO EXEMPTED INCOME AND TOTAL REVENUE. ON THE ABOVE BASIS, THE ASSESSEE WORKED OUT THE DIS ALLOWANCE U/S.14A AS UNDER: ASSESSMENT YEARS DISALLOWANCE U/S.14A 2008-09 1,567 2009-10 19 2010-11 31,223 2011-12 4,996 2012-13 3,86,320 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 113 42. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE A.O. DID NOT CONSIDER THE ASSESSEES SUBMISSION IN RELATION TO DISALLOWANCE U/S.14A MADE DURING THE ASSESSMENT PRO CEEDINGS AS STATUTORILY REQUIRED U/S.14A(2) AND EXPLAINED BY TH E HONOURABLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. C.I.T. (203 TAXMAN 364) (SUPRA) . THEREFORE, THE DISALLOWANCE U/S.14A MADE BY THE A.O. AND CONFIRMED BY THE LEARN ED C.I.T.(A). SHOULD BE DELETED. 43. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COU NSEL FOR THE ASSESSEE SUBMITTED THAT RULE 8D(2) ENVISAGES DISALL OWANCE OF (A) DIRECT EXPENSES RELATED TO EXEMPT INCOME, (B) PROPO RTIONATE INTEREST IF INTEREST BEARING FUNDS ARE UTILIZED FOR MAKING EXEMPTED INCOME EARNING INVESTMENT AND (C) 0.5% OF AVERAGE I NVESTMENT. INTEREST: 4.2 WHILE COMPUTING DISALLOWANCE IN TERMS OF RULE 8D(2) IN RELATION TO PROPORTIONATE INTEREST, THE A.O. SHOULD HAVE CONSIDERED THE VITAL FACT THAT THE INTEREST FREE FU NDS AVAILABLE WITH THE ASSESSEE IN THE FORM OF ITS SHARE CAPITAL AND FREE RESERVES FAR EXCEEDED THE SMALL INVESTMENTS IN SHA RES SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 114 (YIELDING EXEMPT INCOME) MADE AS APPARENT FROM THE FOLLOWING TABLE: SHARE CAPITAL & RESERVES ASSTT. YEARS SHARE CAPITAL (RS.) RESERVES & SURPLUS (RS.) TOTAL (RS.) TOTAL INVESTMENTS (RS.) 2008-09 1,62,15,000 16,02,92,471 17,65,07,471 6,28,92,393 2009-10 1,62,15,000 18,06,77,544 19,68,92,544 6,28,92,393 2010-11 4,86,45,000 26,36,40,355 31,22,85,355 6,20,80,880 2011-12 29,18,70,000 4,98,10,768 34,16,80,768 7,70,80,880 2012-13 29,18,70,000 7,21,00,047 36,39,70,047 7,69,45,880 44. AS THE INTEREST FREE FUNDS AVAILABLE WITH THE A SSESSEE WERE FAR MORE THAN ITS SMALL INVESTMENT, NO DISALLOWANCE ON ACCOUNT OF INTEREST WAS CALLED FOR. IN SUPPORT OF THE ABOVE P ROPOSITION, RELIANCE IS PLACED UPON THE JUDGEMENT OF HONOURABLE BOMBAY HIGH COURT IN CASE OF C.I.T. VS. RELIANCE UTILITIES & POWER LTD. (313 ITR 340), WHEREIN IT WAS HELD AS UNDER: 9. APART FROM THAT WE HAVE NOTED EARLIER THAT BOTH IN THE ORDER OF THE CIT (APPEALS) AS ALSO THE APPELLATE TRIBUNAL, A CLEAR F INDING IS RECORDED THAT THE ASSESSEE HAD INTEREST-FREE FUNDS OF ITS OWN WHICH H AD BEEN GENERATED IN THE COURSE OF THE YEAR COMMENCING FROM 1-4-1999. APART FROM THAT IN TERMS OF THE BALANCE SHEET THERE WAS A FURTHER AVAILABILITY OF RS. 398.19 CRORES INCLUDING RS. 180 CRORES OF SHARE CAPITAL. IN THIS CONTEXT, IN OUR OPINION, THE FINDING OF FACT RECORDED BY CIT (APPEALS) AND ITAT AS TO AVAILABILITY OF INTEREST-FREE FUNDS REALLY CANNOT BE FAULTED. 10. IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN AS SESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE H AD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTERES T-FREE FUNDS AVAILABLE. IN OUR OPINION THE SUPREME COURT IN EAST INDIA PHARMAC EUTICAL WORKS LTD.S CASE (SUPRA) HAD THE OCCASION TO CONSIDER THE DECIS ION OF THE CALCUTTA HIGH SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 115 COURT IN WOOLCOMBERS OF INDIA LTD.S CASE (SUPRA) W HERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAX ES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVE RDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED TH AT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT T HE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBERS OF INDIA LTD.S CASE (SUPRA) THE CALCUT TA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVE RDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED T HAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE O VERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THE RE ARE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THE N A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST -FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FU NDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS E STABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT (APPEALS) AND ITAT. 11. CONSIDERING THE ABOVE, IN OUR OPINION, THERE IS NO MERIT IN THIS APPEAL WHICH IS ACCORDINGLY DISMISSED. 45. WITH REGARD TO DISALLOWANCE @ 0.5% OF AVERAGE INVESTMENT IN RELATION TO ADMINISTRATIVE EXPENSES, THE HON'BLE DELHI HIGH COURT IN CASE OF ACB INDIA LTD. VS. A.C.I.T.(I.T.A.NO.615/2014 DT. 24.03.2015) HELD THAT WHILE COMPUTING AVERAGE INVESTMENT, ONLY THOSE INVESTMENT WHICH ARE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 116 YIELDING EXEMPT INCOME SHOULD BE CONSIDERED. THE RE LEVANT EXTRACT OF THE JUDGEMENT IS AS UNDER: 3. THE QUESTION OF LAW URGED ON BEHALF OF THE ASSE SSEE IS WHETHER THE DECISION OF THE ITAT AS TO THE DISALLOWANCE UNDER S ECTION 14A OF THE INCOME TAX ACT, IS IN ERROR OF LAW IN THE CIRCUMSTANCES OF THE CASE. FOR THE ASSESSMENT YEAR 2008-09 THE ASSESSEE WHICH IS MAI NLY ENGAGED IN THE BUSINESS OF COAL PREPARATION, I.E. BENEFICIATION OF COAL, TRANSPORTATION, LOADING OF COAL AND RELATED ACTIVITIES, HAD REPORTE D A TAX EXEMPT INCOME TO THE TUNE OF `18,26,360/- AMONGST OTHER HEADS OF INC OME. THE AO ADDED BACK `19,96,242/- UNDER SECTION 14A. WHILE DOING SO, THE AO APPLIED RULE 8D BY TAKING INTO CONSIDERATION THE TOTAL QUANTUM OF INTE REST OTHER THAN THAT INVESTED, UNDER SECTION 14A IN TERMS OF RULE 8D, AN D ARRIVED AT THE SAID FIGURE AFTER MULTIPLYING IT WITH THE RESULT OF THE AVERAGE VALUE OF INVESTMENTS AND OVER AVERAGE VALUE OF ASSETS DERIVED BY HIM. HE THUS DETERMINED THE DISALLOWANCE OF `19,96,242/-. THE CIT(APPEALS) WENT INTO THE RECORD AND FOUND THAT THE AMOUNT OF INVESTMENT ATTRIBUTABLE TO DIVIDEND AS ON 31.3.2008 WAS `3,53,26,800/-, WHICH CONSTITUTED LESS THAN 1% OF THE TOTAL SCHEDULED FUNDS. HE HOWEVER ACCEPTED THE BASIS OF CALCULATION APPLIED BY THE AO AND DIRECTED A DISALLOWANCE OF .05% OF THE AMOUNT DETER MINED TO BE AVERAGE INVESTMENT. THE ITAT TO WHICH THE REVENUE APPEALE D, RESTORED THE AOS DETERMINATION HOLDING IT TO BE A TRUE CALCULATION I N TERMS OF RULE 8D. IT IS ARGUED BY THE ASSESSEE THAT SINCE CIT(APPEALS) CORR ECTLY NOTED THE FACTS AS TO THE VALUE OF THE INVESTMENT IN TAX EXEMPT INVESTMEN T, AND AT THE SAME TIME NOTICED THAT THE ULTIMATE RESULT ON AN APPLICATION OF .05% DISALLOWANCE WOULD BE SAME. COUNSEL FOR THE REVENUE ON THE OTHER HAND, SUBMITTED THAT GIVEN THE DETERMINATION OF AVERAGE VALUE OF INVESTM ENT, THE AO HAD NO CHOICE BUT TO APPLY RULE 8D(2) IN VIEW OF MANDATE O F SECTION 14A WHICH REQUIRED HIM TO APPLY THE PRESCRIBED METHOD OF DETE RMINING DISALLOWANCE. FACTS AS DISCLOSED BY THE AO, WHO EXPRESSED HIS OPI NION THAT THE CLAIM OF THE ASSESSEE FOR NO DISALLOWANCE WAS WARRANTED SINCE NO EXPENDITURE WAS INCURRED, HAD TO BE REJECTED. THEREFORE, THE FIRST CONDITION FOR APPLICATION OF SECTION 14A IN THIS CASE WAS FULFILLED. IN SUCH EVE NTUALITY THE AO IS REQUIRED BY THE MANDATE OF RULE 8D TO FOLLOW RULE 8D(2). CLA USES 1, 2 AND 3 DETAIL THE METHODOLOGY TO BE ADOPTED. CLAUSES ARE OF IMPORTANC E, THEY READ AS FOLLOWS : METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RE LATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 117 8D.(1) WHERE THE ASSESSING OFFICER, HAVING REGARD T O THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED W ITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED, IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETE RMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANC E WITH THE PROVISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AM OUNTS, NAMELY : (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCO ME WHICH DOES NOT FORM PART OF TOTAL INCOME; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITU RE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRE CTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMP UTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY : A B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARI NG IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAS T DAY OF THE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT OF THE A VERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. (3) FOR THE PURPOSES OF THIS RULE, THE TOTAL ASSETS S HALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET EXCLUDING THE INC REASE ON ACCOUNT OF SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 118 REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS. 4. THE AO, INSTEAD OF ADOPTING THE AVERAGE VALUE OF INVESTMENT OF WHICH INCOME IS NOT PART OF THE TOTAL INCOME I.E. T HE VALUE OF TAX EXEMPT INVESTMENT, CHOSE TO FACTOR IN THE TOTAL INVESTMENT ITSELF. EVEN THOUGH THE CIT(APPEALS) NOTICED THE EXACT VALUE OF THE INVESTM ENT WHICH YIELDED TAXABLE INCOME, HE DID NOT CORRECT THE ERROR BUT CH OSE TO APPLY HIS OWN EQUITY. GIVEN THE RECORD THAT HAD TO BE DONE SO TO SUBSTITUTE THE FIGURE OF `38,61,09,287/- WITH THE FIGURE OF `3,53,26,800/- A ND THEREAFTER ARRIVE AT THE EXACT DISALLOWANCE OF .05%. 5. IN VIEW OF THE ABOVE REASONING, THE FINDINGS OF THE ITAT AND THE LOWER AUTHORITIES ARE HEREBY SE T ASIDE. THE APPEAL IS ALLOWED AND THE MATTER IS REMITTED TO WORK OUT THE TAX EFFECT TO THE AO WHO SHALL DO SO AFTER GIVING DUE NOTICE TO THE PARTY . 46. IN THE ASSESSEES CASE, THE A.O. CONSIDERED TH E ENTIRE INVESTMENT AND NOT THE INVESTMENT YIELDING EXEMPTED INCOME. THEREFORE THE DISALLOWANCE MADE ON ACCOUNT OF 0.5% OF THE AVERAGE INVESTMENT IS ERRONEOUS. THE CORRECT WORKIN G OF DISALLOWANCE IN THIS REGARD IS AS UNDER: ASSTT. YEARS EXEMPT INCOME BEARING INVESTMENT AVERAGE INVESTMENT 0.5% OF AVERAGE INVESTMENT OPENING (RS.) CLOSING(RS.) 2008-09 45,335 905,113 9,25,224 4,626 2009-10 9,33,913 933,913 9,33,913 4,670 2010-11 8,11,513 - 8,11,513 4,058 2011-12 6,00,00,000 7,50,00,000 6,75,00,000 3,37,500 2012-13 7,52,72,940 7,52,72,940 7,52,72,940 3,76,365 * THE DIFFERENCE IN OPENING BALANCE OF INVESTMENT A ND CLOSING BALANCE OF PREVIOUS YEAR INVESTMENT IS BECA USE OF SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 119 INCLUSION / EXCLUSION OF INVESTMENTS DEPENDING UPON THE RECEIPT OF EXEMPT INCOME. IN VIEW OF THE ABOVE, WE REQUEST YOUR HONOUR TO KI NDLY RESTRICT THE DISALLOWANCE U/S.14A READ WITH RULE 8D (2) AS UNDER: ASSESSMENT YEAR DIRECT EXPENSES (RS.) INTEREST EXPENSES (RS.) 0.5% OF AVERAGE INVESTMENT (RS.) TOTAL (RS.) 2008-09 - - 4,626 4,626 2009-10 - - 4,670 4,670 2010-11 - - 4,058 4,058 2011-12 - - 3,37,500 3,37,500 2012-13 - - 3,76,365 3,76,365 IT IS FURTHER SUBMITTED THAT FOR A.Y.2008-09, THE A SSESSEE IS IN APPEAL AGAINST DISALLOWANCE U/S.14A EMANATING FR OM ORIGINAL ASSESSMENT COMPLETED U/S.143(3) IS PENDING BEFORE T HE HONOURABLE I.T.A.T., MUMBAI. SIMILARLY, FOR A.Y.200 9-10, THE ASSESSEE IS IN APPEAL AGAINST DISALLOWANCE U/S.14A EMANATING FROM ORIGINAL ASSESSMENT COMPLETED U/S.143(3) IS PE NDING BEFORE THE HONOURABLE C.I.T.(A). SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 120 47. AFTER HEARING BOTH THE SIDES ON THE ISSUE OF DI SALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D WE HOLD THAT THE A SSESSING OFFICER INVOKED RULE 8D READ WITH SECTION 14A IN RO UTINE MANNER FOR DISALLOWANCE. HOWEVER, THE HON'BLE DELHYI HIG H COURT IN THE CASE OF CIT VS. I.P. SUPPORT SERVICES INDIA (P) LTD. ; 378 ITR 240 HELD THAT THE ASSESSING OFFICER HAD INDEED PROCEEDE D ON THE ERRONEOUS PREMISE THAT THE INVOCATION OF SECTION 14 A IS AUTOMATIC AND COMES INTO OPERATION AS SOON AS DIVIDEND INCOME IS CLAIMED AS EXEMPT. THE RECORDING OF SATISFACTION AS TO WHY THE VOLUNTARY DISALLOWANCE MADE BY THE ASSESSEE WAS UNREASONABLE AND UNSATISFACTORY IS A MANDATORY REQUIREMENT OF LAW. T O THIS, THE COURT HAS DISAPPROVED THE ACTION OF THE ASSESSING O FFICER IN INVOKING SECTION 14A READ WITH RULE 8D WITHOUT RECO RDING HIS SATISFACTION AND NOTED THAT RECORDING OF SATISFACTI ON IS MANDATORY WITH REGARD TO THE CLAIM OF THE ASSESSEE WHY THE SA ME IS UNREASONABLE AND UNSATISFACTORY. KEEPING THESE FACT S IN VIEW, WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFI CER IN ALL THESE APPEALS TO DECIDE THE ISSUE DE NOVO IN VIEW OF VARI OUS DECISIONS SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 121 OF THE HON'BLE HIGH COURTS. THIS GROUND OF THE ASSE SSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO.3.0 & 3.1 (A.Y.: 2009-10) OF THE ASSESSEE S APPEAL AND GROUND NO.1 (A.Y.: 2009-10) OF REVENUES APPEAL : 5.0 GROUND NO.3.0 & 3.1 (A.Y.: 2009-10) OF ASSESSEES A PPEALS READS AS UNDER: ASSESSMENT YEAR : 2009-10 ADDITION ON ACCOUNT OF BOGUS PURCHASES FROM AJANTA ENTERPRISES (RS.6,28,314/-) UTKANTHA TRADING PVT. L TD. (RS.1,05,88,884/-) : RS.1,12,17,198/- 3.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN PARTLY CONFIRMING THE ADDITION TO TH E EXTENT OF RS.1,12,17,198/- [RS.6,28,314 IN RELATION TO M/S. A JANTA ENTERPRISES (+) RS.1,05,88,884 IN RELATION TO UTKANTHA TRADING LTD. ] MADE BY THE ASSESSING OFFICER ON THE BASIS OF INFORMATION RECEI VED FROM DIRECTOR GENERAL OF INCOME TAX (INVESTIGATION), MUMBAI, BY T REATING : (A) GENUINE SALES OF RS.70,32,838/- ON HIGH SEAS BASIS TO M/S. AJANTA ENTERPRISES AS BOGUS PURCHASES [WRONGLY TAKEN AT RS .86,78,076/- BY THE A.O.] (B) GENUINE PURCHASE OF CHEMICALS OF RS.4,80,77,770/- F ROM UTKANTHA TRADING LTD. AS BOGUS PURCHASES [WRONGLY TAKEN AT RS.5,02,18,105/- BY THE A.O.] AND (C) GENUINE SALES OF CHEMICALS OF RS.4,82,86,640/- TO U TKANTHA TRADING LTD. AS BOGUS SALES. AND APPLYING ESTIMATED NET PROFIT @ 10% ON THE ABOV E TRANSACTIONS. 3.1 IN DOING SO, HE IGNORED THE VITAL FACTS THAT THE AS SESSING OFFICER DID NOT PROVIDE TO THE ASSESSEE (A) THE COPIES OF RELEVANT DOCUMENTS, IF ANY, FOUND AND SEIZED IN THE CASE OF M/S. AJANTA ENTERPRISES AND UTKANTHA TRADIN G PVT. LTD. ON THE BASIS OF WHICH THE DIRECTOR GENERAL OF INCOME T AX SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 122 (INVESTIGATION), MUMBAI HELD ASSESSEES TRANSACTION WITH THESE PARTIES AS BOGUS, (B) THE COPIES OF STATEMENTS RECORDED IN THE CASE OF M/ S. AJANTA ENTERPRISES AND UTKANTHA TRADING LTD. (C) THE OPPORTUNITY OF CROSS EXAMINATION OF M/S. AJANTA ENTERPRISES AND UTKANTHA TRADING LTD. AND (D) THE OPPORTUNITY TO REBUT THE INFERENCE DRAWN AGAINS T THE ASSESSEE. 5.1 GROUND NO.1 (A.Y.: 2009-10) OF REVENUES APPEALS RE ADS AS UNDER: ASSESSMENT YEAR : 2009-10 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE C.I.T.(A). ERRED IN RESTRICTING THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASE FROM RS.5,02,18,105/- TO RS.1,05,88,884/- 48. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IMPORT ED PS/PE/PP MIXED PLAN SWEEPING FROM AMERICAN MULTI PLASTIC INC ., VBR INDUSTRIES AND BNP IMPORTS INC. AMOUNTING TO RS.68, 95,037/- WHICH WAS SOLD TO M/S. AJANTA ENTERPRISES FOR RS.70 ,32,838/- ON HIGH SEAS BASIS. THE DETAILS OF IMPORT AND HIGH SEA S SALES ARE GIVEN AT PAGE NO.156 AND 157 OF THE C.I.T.(A)S ORD ER. THE A.O. WRONGLY TREATED THE IMPUGNED HIGH-SEAS SALES TO AJA NTA ENTERPRISES AS PURCHASES, HELD IT TO BE BOGUS BECAU SE ITS NAME APPEARED IN THE LIST OF VAT DEFAULTERS AND MADE ADD ITION OF RS.86,78,076/- ON ACCOUNT OF BOGUS PURCHASES. THE C .I.T.(A) ANALYZED THE FACTS PROPERLY AND HELD THAT (A) THE A SSESSEE SOLD SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 123 GOODS ON HIGH-SEAS TO M/S. AJANTA ENTERPRISES AND N OT PURCHASED GOODS FROM IT (B) THE CORRECT AMOUNT OF SALE WAS RS .70,32,838/- AS THE A.O. HAD WRONGLY INCLUDED RS.16,45,238/- BE ING AMOUNT OF CHEQUE RETURNED AS BOGUS PURCHASES (B) THE ASSES SEE PURCHASED CHEMICALS FROM UTKANTHA TRADING LTD. WHICH CONSISTED OF RS.4,80,77,770 AS COST OF GOODS SOLD AND RS.19,2 3,110/- ON ACCOUNT OF VAT. THE ASSESSEE ALSO SOLD CHEMICALS TO UTKANTHA TRADING LTD. WHICH CONSISTED OF RS.4,82,86,640/- AS SALES AND RS.19,31,465/- AS VAT. THE DETAILS OF PURCHASES FRO M AND SALES TO UTKANTHA TRADING LTD. ARE GIVEN AT PAGE 158 TO 16 2 OF THE C.I.T.(A).S ORDER. THE A.O. HELD IT TO BE BOGUS PU RCHASE BECAUSE ITS NAME APPEARED IN THE LIST OF VAT DEFAULTERS AND MADE ADDITION OF RS.5,02,18,105/- ON ACCOUNT OF BOGUS PURCHASES. THE C.I.T.(A). APPLIED N.P. RATE OF 10% AND MADE ADDITI ON OF RS.1,05,88,884/- AFTER GIVING CREDIT FOR PROFIT ALR EADY DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME. 49. THE CONTENTION OF THE A.O. CAN BE SUMMARISED TH AT M/S. AJANTA ENTERPRISES AND M/S. UTKANTHA TRADING LTD. WE RE HAWALA SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 124 PARTIES AND THEY ADMITTED IN THEIR STATEMENT BEFORE VAT AUTHORITIES THAT THEY WERE ONLY ISSUING BILLS AND N OT SUPPLYING ANY GOODS. AS THE ASSESSEE CLAIMED DEDUCTION OF BOGUS P URCHASES IN ITS BOOKS OF ACCOUNTS, THE SAME IS LIABLE TO BE DIS ALLOWED. 50. THE CONTENTION OF THE C.I.T.(APPEALS) CAN BE SU MMARISED AS UNDER :- 51. THE ASSESSEE DID NOT PURCHASE ANY GOODS FROM M/ S. AJANTA ENTERPRISES BUT SOLD GOODS OF RS.70,32,838/- ON HIG H-SEAS BASIS TO IT. AS THE IMPORT OF GOODS BY THE ASSESSEE WAS B EYOND ANY DOUBT AND M/S. AJANTA ENTERPRISES WAS MERELY A HAWA LA OPERATOR, THE ASSESSEE MUST HAVE SOLD GOODS IN OPEN MARKET TO EARN MORE PROFIT BUT OBTAINED ACCOMMODATION BILLS FROM M/S. A JANTA ENTERPRISES. THE PROFIT @ 2% AS DECLARED BY THE ASS ESSEE ON HIGH-SEAS SALES TO M/S. AJANATA ENTERPRISES WAS REJ ECTED, NET PROFIT ON THE IMPUGNED TRANSACTION WAS ESTIMATED @ 10% OF SALES AND UNDISCLOSED INCOME OF THE ASSESSEE WAS DETERMIN ED AT RS.7,66,115/-. AFTER REDUCING THE PROFIT OF RS.1,37 ,801/- SHOWN BY THE ASSESSEE AS ITS INCOME, HE MADE NET ADDITION OF SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 125 RS.6,28,314/-. THE ASSESSEE PURCHASED CHEMICALS FRO M VARIOUS PARTIES AND SOLD IT TO UTKANTHA TRADING LTD. WHICH C ONSISTED OF RS.4,82,86,640/- AS SALES AND RS.19,31,465/- AS VAT . IT ALSO PURCHASED CHEMICALS FROM UTKANTHA TRADING LTD. WHICH CONSISTED OF RS.4,80,77,770 AS COST OF GOODS SOLD AND RS.19,2 3,110/- ON ACCOUNT OF VAT. AS UTKANTHA TRADING LTD. WAS A HAWAL A OPERATOR PROVIDING ACCOMMODATION BILLS, IT WAS HELD THAT THE GOODS ALLEGEDLY SOLD TO UTKANTHA TRADING LTD WAS NOT ACTUA LLY SOLD TO IT, BUT TO SOME OTHER PARTIES AND GOODS ALLEGEDLY PURCH ASED FORM UTKANTHA TRADING LTD WAS NOT ACTUALLY PURCHASED FROM IT BUT FROM SOME OTHER PARTIES FROM OPEN MARKET TO EARN MORE PR OFITS THAN THE PROFITS SHOWN BY THE ASSESSEE IN ITS BOOKS OF A CCOUNT. HE ESTIMATED THE NET PROFIT @ 10% AND DETERMINED UNDIS CLOSED INCOME OF THE ASSESSEE AT RS.1,07,01,394/- AND AFTE R REDUCING THE BOOKED PROFIT OF RS.1,12,510/-, MADE NET ADDITI ON OF RS.1,05,88,884/-. 52. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DID NOT PURCHASE ANY GOODS FROM M/S. AJANT A SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 126 ENTERPRISES BUT SOLD GOODS IMPORTED BY IT ON HIGH S EA BASIS FOR A SALE CONSIDERATION OF RS.70,32,838/-. IN CASE OF SA LE OF GOODS ON HIGH SEA BASIS, THE OWNERSHIP OF GOODS IS TRANSFERR ED BEFORE THE GOODS REACHES THE CUSTOM FRONTIERS OF INDIA AND THE DELIVERY OF SUCH GOODS FROM CUSTOMS IS TAKEN BY THE HIGH SEAS B UYER. DURING THE ASSESSMENT PROCEEDINGS AS WELL AS APPELLATE PRO CEEDINGS, THE ASSESSEE FURNISHED COPIES OF IMPORT INVOICES, BILL OF LADING, HIGH SEAS SALE AGREEMENT, SALE BILL, BANK STATEMENT AND OTHER DOCUMENTS IN SUPPORT OF THE IMPORT AS WELL AS THE H IGH SEA SALES. THERE WAS NO DISPUTE REGARDING GENUINENESS OF IMPOR TS BY THE ASSESSEE. IN CASE OF UTKANTHA TRADING LTD., THE ASSE SSEE PURCHASED CHEMICALS FROM IT AND SOLD IT TO VARIOUS PARTIES. IT ALSO SOLD CHEMICALS TO UTKANTHA TRADING LTD. WHICH WERE P URCHASED FROM SEVERAL OTHER PARTIES. THE DETAILS OF CHEMICAL PURCHASED FROM AND SOLD TO UTKANTHA TRADING LTD. ALONG WITH CO PIES OF INVOICES, BANK STATEMENTS, DELIVERY CHALLANS, ETC. WERE FURNISHED TO THE A.O. AS WELL AS THE C.I.T.(A). THE ASSESSEE WAS PROVIDED WITH NEITHER THE COPY OF STATEMENTS RECORDED BY VAT AUTHORITIES SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 127 AND OTHER MATERIAL SEIZED IN THE CASE OF M/S. AJANT A ENTERPRISE AND UTKANTHA TRADING LTD. NOR OPPORTUNITY TO CROSS-E XAMINE THESE PARTIES DESPITE SPECIFIC REQUEST. THUS THE AS SESSEE WAS DEPRIVED OF NATURAL JUSTICE. WHILE THE ASSESSEE PRO DUCED ALL THE DOCUMENTS WHICH WERE NECESSARY TO ESTABLISH GENUINE NESS OF PURCHASE AND SALES, THE A.O. FAILED TO BRING ANY EV IDENCE ON RECORD TO SHOW THAT THE IMPUGNED TRANSACTIONS WERE BOGUS. HE MERELY RELIED UPON THE INFORMATION RECEIVED FROM TH E D.G.I.T. (INVESTIGATION), MUMBAI WITHOUT ANY MATERIAL TO SHO W THESE TRANSACTIONS TO BE BOGUS. THE NOMENCLATURE HAWALA DEALER USED BY THE INCOME-TAX DEPARTMENT IS INCORRECT NOMENCLAT URE INASMUCH AS THESE PARTIES WERE VAT DEFAULTER DUE TO NON- PAYMENT OF VAT AND NOT HAWALA PARTIES AS ALLEGED BY THE DEPARTMENT. MERELY BECAUSE THE TRANSACTING PARTY AP PEARED IN THE LIST OF VAT DEFAULTERS, IT CANNOT LEAD TO AN AU TOMATIC CONCLUSION THAT THE TRANSACTION WITH SUCH PARTIES A RE NOT GENUINE BECAUSE THE GENUINENESS OF TRANSACTION HAS TO BE JU DGED ON AVAILABILITY OF VARIOUS EVIDENCE LIKE COPIES OF BIL LS, DELIVERY SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 128 CHALLANS, TRANSPORT RECEIPTS, BANK STATEMENT SHOWIN G PAYMENTS OR SALE PROCEEDS, ETC. AND NOT ON THE BASIS OF PAYM ENT OF VAT. THE REVENUE AUTHORITIES DID NOT DOUBT THE SALE OF G OODS WHERE GOODS WERE PURCHASED BY THE ASSESSEE FROM ALLEGED H AWALA DEALER AND DID NOT DOUBT PURCHASE OF GOODS, WHERE G OODS WERE SOLD TO HAWALA DEALERS. UNDER THESE CIRCUMSTANCES, THE PURCHASE AS WELL AS SALES COULD NOT BE TREATED AS BOGUS OR N ON-GENUINE. THE VARIOUS HIGH COURTS AND BENCHES OF I.T.A.T. HAV E BEEN CONSISTENTLY TAKING A VIEW THAT NO ADDITION CAN BE MADE ON ACCOUNT OF BOGUS PURCHASES MERELY BECAUSE THE SUPPL IER APPEARED IN THE LIST OF VAT DEFAULTERS IF THE ASSES SEE HAS PRODUCED ALL THE DOCUMENTS LIKE COPIES OF BILLS, DE LIVERY CHALLANS, BANK STATEMENT SHOWING PAYMENTS, ETC. AND NO EVIDEN CE HAS BEEN BROUGHT ON RECORD TO SHOW THAT PROCEEDS OF CHE QUES PAYMENTS WERE RECEIVED BACK BY THE ASSESSEE IN CASH . THE RELIANCE IS PLACED UPON THE FOLLOWING JUDGEMENTS: SR. NO. CASES RELIED UPON CITATION 1. C.I.T. VS. NANGALIA FABRICS PVT. LTD. T.A.NO.689/20 10 DT.22.04.13 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 129 (GUJ)(HC) 2. C.I.T. VS. JMD COMPUTERS & COMMUNICATIONS (P.) LTD. I.T.A. NO.106/2007 DT.16.01.2009 (DEL)(HC) 3. SHRI GANPATRAJ A SANGHVI VS. A.C.I.T. ITA NO. 2826 /MUM/2013 4. A.C.I.T VS. RAMILA PRAVIN SHARMA ITA NO. 5246/MUM/ 2013 5. D.C.I.T VS. SHRI RAJEEV G KALATHIL ITA NO. 6727/MU M/2012 6. RAMESH KUMAR & CO. VS. A.C.I.T. ITA NO. 2959/MUM/2 014 7. A.C.I.T. VS. M/S. G V SONS ITA NO. 2239/MUM/2012 8. I.T.O. VS. SHRI DEEPAK POPATLAL GALA ITA NO. 5920/ MUM/2013 9. I.T.O. VS. PREMANAND (2008) 25 SOT 11 (JODH) 10. D.C.I.T VS. GLOBAL BUSINESS INDIA PVT. LTD ITA NO. 1622/DEL/08 11. I.T.O. VS. PARESH ARVIND GANDHI ITA NO. 5706/MUM/2 013 12. JAGDAMBA TRADING CO. VS. I.T.O. I.T.A. NO.9/JODH/2 006 DT.22.12.2006 13. RAJESH P. SONI VS. A.C.I.T. 100 TTJ 892 (AHD) 14. CANNON INDUSTRIES PVT. LTD. VS. D.C.I.T. I.T.A.NO .5410/MUM/5411 AND 5512 DT.17.10.2014 15. A.C.I.T. VS. BHASKAR TRADING CORPORATION & OTHERS 9 ITJ 141 (INDORE) 16. SHUBH LAXMI EXPORTS VS. I.TO ITA NOS. 325 & 341/JP /2005 53. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADDITION MAY BE DELETED IN FULL. 54. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMI TTED THAT WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THA T ONCE THE A.O. ACCEPT THAT SALES MADE BY THE ASSESSEE ARE GENUINE, IT IS INEVITABLE FOR HIM TO ACCEPT PURCHASES BECAUSE SALE COULD NOT HAVE BEEN CONCLUDED WITHOUT PURCHASE OF GOODS. IN S UCH A SITUATION, THE ADDITION CAN BE MADE ONLY IN RELATIO N TO EXTRA PROFIT WHICH MAY HAVE BEEN EARNED BY THE ASSESSEE BY PROCU RING GOODS FROM OTHER SOURCES. IN THIS REGARD, RELIANCE IS PLA CED UPON THE FOLLOWING JUDGEMENTS: SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 130 1 . C.I.T. VS. SIMIT P. SHETH I.T.A.NO.553/GUJ/2012 DT.16.01.2013 2 . C.I.T. VS. GUJARAT AMBUJA EXPORT LTD. 43 TAXMANN.COM 244 3 . C.I.T. VS. SATHYANARAYAN P. RATHI I.T.A.NO.607/2012 DT.28.01.2014 (GUJ)(HC) 4 . I.T.O. VS. EAGLE IMPEX I.T.A.NO.5697/ MUM /2010 DT.22.02.2013 5 . C.I.T. VS. BHOLANATH POLY FAB (P) LTD. 40 TAXMANN.COM 494 6 . C.I.T. VS. NIKUNJ EXIMP ENTERPRISES(P.) LTD. 35 TAXMANN.COM 384 7 . C.I.T. VS. M. K. BROTHERS 163 ITR 249 (GUJ) AS REGARD ESTIMATION OF PROFIT RELATING TO BOGUS PU RCHASE AND SALES OF POLYMERS AND CHEMICALS BY THE ASSESSEE, C. I.T.(A) ESTIMATED NET PROFIT @ 10% BY OBSERVING THAT PROFIT ABILITY IN ACCOUNTED TRADE IS ALWAYS HIGH BECAUSE THE PARTIES DO NOT PAY RELEVANT TAXES ON UNACCOUNTED SALES. HOWEVER, HE NE ITHER PROVIDED ANY BASIS OF HIS ESTIMATE NOR ANY COMPARAB LE CASES. IT IS SUBMITTED THAT THE ESTIMATE OF NET PROFIT SHOULD BE A FAIR ESTIMATE, HONEST GUESS WORK, REALISTIC AND BASED UP ON RULES OF NATURAL JUSTICE, EQUITY AND GOOD CONSCIENCE. THE ES TIMATE SHOULD BE RATIONAL AND NOT ARBITRARY, DISHONEST AND VINDIC TIVE. C.I.T. VS. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 131 LAXMINARAYAN BADRIDAS [5 ITR 170 (PC) ]. REVENUE AUTHORITIES BEING QUASI-JUDICIAL AUTHORITIES, FAIR ESTIMATE OF NET PROFIT SHOULD BE BASED UPON JUDICIOUS ANALYSIS OF R ELEVANT FACTORS LIKE PAST HISTORY OF THE CASE, COMPARABLE CASES, MA RKET CONDITIONS PREVAILING THEN, BENEFIT ACCRUING ON ACCOUNT OF NON -PAYMENT OF TAXES BY THE TRANSACTING PARTIES, QUANTUM INVOLVED, ETC. SUCH AN ESTIMATE CANNOT BE MADE IN COMPLETE DISREGARD OF MA TERIAL PLACED ON RECORD. GUNDA SUBAYYA VS. C.I.T. [7 ITR 21 (MAD)]. THE HONOURABLE SUPREME COURT IN THE CASE OF STATE OF ORRISSA VS. MAHARAJA SHRI B. P. SINGH DEO (76 ITR 690) HELD AS UNDER: 4. APART FROM COMING TO THE CONCLUSION THAT THE MA TERIALS PLACED BEFORE HIM BY THE ASSESSEE WERE NOT RELIABLE, THE ASSISTANT CO LLECTOR HAS GIVEN NO REASONS FOR ENHANCING THE ASSESSMENT. HIS ORDER DOE S NOT DISCLOSE THE BASIS ON WHICH HE HAS ENHANCED THE ASSESSMENT. THE MERE F ACT THAT THE MATERIAL PLACED BY THE ASSESSEE BEFORE THE ASSESSING AUTHORI TIES IS UNRELIABLE DOES NOT EMPOWER THOSE AUTHORITIES TO MAKE AN ARBITRARY ORDE R. THE POWER TO LEVY ASSESSMENT ON THE BASIS OF BEST JUDGMENT IS NOT AN ARBITRARY POWER; IT IS AN ASSESSMENT ON THE BASIS OF BEST JUDGMENT. IN OTHER WORDS, THAT ASSESSMENT MUST BE BASED ON SOME RELEVANT MATERIAL. IT IS NOT A POWER THAT CAN BE EXERCISED UNDER THE SWEET WILL AND PLEASURE OF THE CONCERNED AUTHORITIES. THE SCOPE OF THAT POWER HAS BEEN EXPLAINED OVER AND OVE R AGAIN BY THIS COURT. 55. IN THE ASSESSEES CASE, THE NET PROFIT ESTIMATE D BY THE C.I.T.(A). WAS WITHOUT ANY BASIS AND IN COMPLETE DI SREGARD OF THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 132 MATERIAL BEFORE HIM. THE BASIS OF NET PROFIT RATE O F 10% ESTIMATED BY HIM WAS SIMPLY A WILD GUESS AND BASIS, IF AT ALL ANY, WAS ONLY IN HIS MIND. HE DID NOT SITE A SINGLE COMPARABLE CA SE. MOREOVER, IN UNACCOUNTED TRADE, BOTH THE PARTIES DO NOT PAY A NY TAXES AND THEREFORE NO ONE GETS ANY BENEFIT INASMUCH AS THE B ENEFIT OBTAINED BY ONE PARTY FOR NON-PAYMENT OF TAX IS PAS SED ON TO THE OTHER PARTY. THEREFORE THE NET-PROFIT RATE CANNOT I NCREASE MERELY BECAUSE THE TRANSACTION WAS NOT RECORDED IN THE BOO KS. THE HONOURABLE SUPREME COURT IN THE CASE OF DAKESHWARI COTTON MILLS VS. C.I.T. (26 ITR 775) HELD AS UNDER: IT IS NOT POSSIBLE TO DEFINE WITH ANY PRECISION TH E LIMITATIONS ON THE EXERCISE OF THE DISCRETIONARY JURISDICTION VESTED IN THE SUP REME COURT BY THE CONSTITUTIONAL PROVISION MADE IN ARTICLE 136. THE L IMITATIONS, WHATEVER THEY BE, ARE IMPLICIT IN THE NATURE AND CHARACTER OF THE POWER ITSELF. IT BEING AN EXCEPTIONAL AND OVERRIDING POWER, IT HAS TO BE EXER CISED SPARINGLY AND WITH CAUTION AND ONLY IN SPECIAL AND EXTRAORDINARY SITUA TIONS. BEYOND THAT IT IS NOT POSSIBLE TO FETTER THE EXERCISE OF THIS POWER BY AN Y SET FORMULA OR RULE. ALL THAT CAN BE SAID IS THAT THE CONSTITUTION HAVING TR USTED THE WISDOM AND GOOD SENSE OF THE JUDGES OF COURT IN THIS MATTER, THAT I TSELF IS A SUFFICIENT SAFEGUARD AND GUARANTEE THE POWER WILL ONLY BE USED TO ADVANC E THE CAUSE OF JUSTICE, AND THAT ITS EXERCISE WILL BE GOVERNED BY WELL ESTA BLISHED PRINCIPLES WHICH GOVERN THE EXERCISE OF OVERRIDING CONSTITUTIONAL PO WERS. HOWEVER, WHEN THE COURT REACHES THE CONCLUSION THAT A PERSON HAS BEEN DEALT WITH ARBITRARILY OR THAT A COURT OR TRIBUNAL WITHIN THE TERRITORY OF IN DIA HAS NOT GIVEN A FAIR DEAL TO A LITIGANT, THEN NO TECHNICAL HURDLES OF ANY KIN D LIKE THE FINALITY OF FINDING OF FACTS OR OTHERWISE, CAN STAND IN THE WAY OF THE EXERCISE OF THIS POWER BECAUSE THE WHOLE INTENT AND PURPOSE OF THIS ARTICL E IS THAT IT IS THE DUTY OF THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 133 SUPREME COURT TO SEE THAT INJUSTICE IS NOT PERPETUA TED OR PERPETRATED BY DECISIONS OF COURTS AND TRIBUNALS BECAUSE CERTAIN L AWS HAVE MADE THE DECISIONS OF THESE COURTS OR TRIBUNALS FINAL AND CO NCLUSIVE. AS REGARDS THE SECOND CONTENTION, ALTHOUGH ITO IS N OT FETTERED BY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, AND THAT HE IS ENT ITLED TO ACT ON MATERIAL WHICH MAY NOT BE ACCEPTED AS EVIDENCE IN A COURT OF LAW, BUT THERE THE AGREEMENT ENDS; BECAUSE IT IS EQUALLY CLEAR THAT IN MAKING THE ASSESSMENT UNDER SECTION 23(3) HE IS NOT ENTITLED TO MAKE A PU RE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL AND THERE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPO RT THE ASSESSMENT UNDER SECTION 23(3). THE RULE OF LAW ON THIS SUBJECT HAS BEEN FAIRLY AND RIGHTLY STATED BY THE LAHORE HIGH COURT IN THE CASE OF SETH GURMUKH SINGH V. C.I.T. [1944] 12 ITR 393. IN THE INSTANT CASE, THE TRIBUN AL VIOLATED CERTAIN FUNDAMENTAL RULES OF JUSTICE IN REACHING IT S CONCLUSIONS. FIRSTLY, IT DID NOT DISCLOSE TO THE ASSESSEE WHAT INFORMATION HAD B EEN SUPPLIED TO IT BY THE DEPARTMENTAL REPRESENTATIVE. NEXT, IT DID NOT GIVE ANY OPPORTUNITY TO THE ASSESSEE TO REBUT THE MATERIAL FURNISHED TO IT BY H IM, AND LASTLY, IT DECLINED TO TAKE ALL THE MATERIAL THAT THE ASSESSEE WANTED TO P RODUCE IN SUPPORT OF ITS CASE. THE RESULT WAS THAT THE ASSESSEE HAD NOT HAD A FAIR HEARING. THE ESTIMATE OF THE GROSS RATE OF PROFIT ON SALES, BOTH BY THE C.I.T. AND THE TRIBUNAL, WAS BASED ON SURMISES, SUSPICIONS AND CON JECTURES. THE TRIBUNAL TOOK FROM THE REPRESENTATIVE OF THE DEPARTMENT A ST ATEMENT OF GROSS PROFIT RATES OF OTHER COTTON MILLS BUT DID NOT SHOW THAT S TATEMENT TO THE ASSESSEE DID NOT GIVE HIM A OPPORTUNITY TO SHOW THAT STATEMENT H AD NO RELEVANCY WHATSOEVER TO THE CASE OF THE MILL IN QUESTION. IT WAS NOT KNOWN WHETHER THE MILLS WHICH HAD DISCLOSED THESE RATES WERE SIMILARL Y SITUATED AND CIRCUMSTANCED. NOT ONLY DID THE TRIBUNAL NOT SHOW T HE INFORMATION GIVEN BY THE REPRESENTATIVE OF THE DEPARTMENT TO THE ASSESSE E, BUT IT REFUSED EVEN TO LOOK AT BOOKS AND PAPERS WHICH ASSESSEES REPRESENT ATIVE PRODUCED BEFORE THE ACCOUNTANT MEMBER IN HIS CHAMBER. THE ASSESSMEN T IN THIS CASE AND IN THE CONNECTED APPEAL, WAS ABOVE THE FIGURE OF RS. 5 5 LAKHS AND IT WAS JUST AND PROPER WHEN DEALING WITH A MATTER OF THIS MAGNI TUDE NOT TO EMPLOY UNNECESSARY HASTE AND SHOW IMPATIENCE, PARTICULARLY WHEN IT WAS KNOWN TO THE DEPARTMENT THAT THE BOOKS OF THE ASSESSEE WERE IN THE CUSTODY OF THE SUB- DIVISIONAL OFFICER. THUS BOTH THE C.I.T. AND THE TRIBUNAL IN ESTIMATING THE GROSS PROFIT RATE ON SALES DID NOT ACT ON ANY MATER IAL BUT ACTED ON PURE GUESS AND SUSPICION. IT WAS THUS A FIT CASE FOR THE EXERC ISE OF POWER UNDER ARTICLE 136. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 134 IN THE RESULT, THE APPEAL WAS TO BE ALLOWED AND THE ORDER OF THE TRIBUNAL WAS TO BE SET ASIDE AND THE CASE WAS TO BE REMANDED TO IT WITH DIRECTION THAT IN ARRIVING AT ITS ESTIMATE OF GROSS PROFITS AND SALES IT SHOULD GIVE FULL OPPORTUNITY TO THE ASSESSEE TO PLACE ANY RELEVANT M ATERIAL ON THE POINT THAT IT HAS BEFORE THE TRIBUNAL, WHETHER IT IS FOUND IN THE BOOKS OF ACCOUNT OR ELSEWHERE AND IT SHOULD ALSO DISCLOSE TO THE ASSESS EE THE MATERIAL ON WHICH THE TRIBUNAL IS GOING TO FOUND ITS ESTIMATE AND THE N AFFORD HIM FULL OPPORTUNITY TO MEET THE SUBSTANCE OF ANY PRIVATE IN QUIRIES MADE BY THE ITO IF IT IS INTENDED TO MAKE THE ESTIMATE ON THE FOOT OF THOSE ENQUIRIES. NOTE: THE CASE WAS DECIDED IN FAVOUR OF THE ASSESSE E. 56. AS AGAINST THE WILD GUESS OF THE C.I.T.(A), THE ASSESSEE REFERRED TO ITS OWN PAST HISTORY (ROYAL MEDICAL HALL VS. C.I.T. (1962) 46 ITR 748 (AP.) ESTIMATE OF INCOME ON THE BASIS OF MATERIALS AVAILABLE AND THE PAST ASSESSMENT RECORD WAS HELD PROPER) AS WELL AS TWO MORE COMPARABLE CASES WHEREIN THE TRADING RESULTS WERE ACCEPTED BY THE INCOME-TAX DEP ARTMENT AND THE NET PROFIT RATE WAS LESS THAN 2 %. THE TABLE S HOWING THE NET PROFIT RATE IN COMPARABLE CASES IS AS UNDER. R. K. RESIN PLAST PRIVATE LIMITED [P.A.NO.: AADCR 7 961 F] PARTICULARS A.Y. 11-12 A.Y. 12-13 A.Y. 13-14 A.Y. 14-15 TURNOVER 12,39,09,631 155,512,465 286,213,212 348,979,743 GROSS PROFIT 30,11,184 4,186,467 6,720,235 11,776,142 G/P RATIO 2.43% 2.69% 2.35% 3.37% NET PROFIT 1,96,175 1,138,589 5,278,356 2,660,494 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 135 N/P RATIO 0.16% 0.73% 1.84% 0.76% VIKAS POLYMERS (PROP. RAJESH AGARWAL) [P.A.NO.: ADB PA 8266 C] PARTICULARS A.Y. 11-12 A.Y. 12-13 A.Y. 13-14 TURNOVER 60,327,183 69,378,951 70,789,660 GROSS PROFIT 3,897,105 4,590,468 4,921,269 G/P RATIO 6.46% 6.62% 6.95% NET PROFIT 837,670 933,699 982,897 N/P RATIO 1.39% 1.35% 1.39% SIGNET INDUSTRIES LIMITED [P.A.NO.: AABCS 3489 F] PARTICULARS A.Y. 11-12 A.Y. 12-13 A.Y. 13-14 A.Y. 14-15 TURNOVER 4,32,02,88,732 5,11,92,53,770 5,63,57,83,317 6,10,80,35,458 GROSS PROFIT 24,99,07,205 53,01,16,534 68,71,62,395 88,23,18,576 G/P RATIO 5.78% 10.36% 12.19% 14.45% NET PROFIT 9,18,14,175 8,05,03,622 17,57,23,076 21,21,88,332 N/P RATIO 2.13% 1.57% 3.12% 3.47% THEREFORE, WHILE THE NET PROFIT FROM PURCHASE AND S ALE OF POLYMER SHOULD BE TAKEN AT 2%, AS SHOWN BY THE ASSESSEE, TH E NET PROFIT FROM PURCHASE AND SALE OF CHEMICALS BY THE ASSESSEE SHOULD BE TAKEN AT THE AMOUNT SHOWN BY THE ASSESSEE IN ITS BO OKS OF ACCOUNTS. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 136 57. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE AND THE ISSUE OF ADDITION MADE REGARDING BOGUS PURCHASES MADE BY AJA NTA ENTERPRISES AND UTKANTHA PVT. LIMITED, WE DECIDE TH E ISSUE AS UNDER :- 58. THE ASSESSEE IMPORTED PS/PE/PP MIXED PLANT SUIT ING FROM AMERICAN MULTI INCORPORATION BBR AND BNP IMPORTS PV T. LTD. TOTALING TO RS.68,95,036/-. THE SAME HAS BEEN SHOWN TO HAVE BEEN SOLD AT RS.70,32,838/- ON THE HIGH SEIZE. THE ASSESSING OFFICER TREATED THIS AS BOGUS PURCHASES AS THE NAME OF AJANTA ENTERPRISES TO WHOM THE GOODS WERE SOLD WAS APPEARI NG IN THE LIST OF BAD DEFAULTERS AND MADE THE ADDITION. HOWEV ER, IT WAS SALE TO AJANTA ENTERPRISES. THE LEARNED CIT(A) ESTI MATED THE PROFIT ON THE SALE @ 10% AND MADE THE ADDITION OF R S. 6,28,340/- AFTER REDUCING THE PROFIT DECLARED BY THE ASSESSEE OF RS.1,37,801/-. THE ASSESSEE HAS ALSO SHOWN PURCHASE S OF CHEMICALS FROM VARIOUS PARTIES AND SOLD TO UTKANTHA TRADING LTD. THE TOTAL SALES DECLARED WERE OF RS. 4,82,86,640/- AND VAT OF RS.19,31,465/-. ASSESSEE HAD ALSO PURCHASED CHEMICA LS FROM SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 137 UTKANTHA TRADING LTD. FOR RS.4,80,77,770/- AND VAT O F RS.19,23,110/- THEREON. ON THESE TRANSACTIONS, THE LEARNED CIT(A) ALSO ESTIMATED THE NET PROFIT OF RS.19,31,46 5/- @ 10% AND SUSTAINED THE ADDITION OF RS. 1,05,88,884/- AFT ER REDUCING THE PROFIT DECLARED BY THE ASSESSEE OF RS. 1,12,510/-. 59. BEFORE US, IT WAS PLEADED THAT THE PROFIT MARG IN IN THESE TRANSACTIONS WAS ESTIMATED AT A VERY HIGH RAT E. THE TRADING RESULTS WITH COMPARABLE ENTITIES SHOULD HAVE BEEN A CCEPTED WHERE THE PROFIT RATES ARE LESS THAN 2%. THE LEARN ED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO RESULTS OF VARIO US TRADING ENTITIES WHICH ARE PART OF PLEADINGS OF THE ASSESSE E IN EARLIER PARA OF THIS ORDER WHEREIN MAXIMUM NET PROFIT RATE IN TH E ASSESSMENT YEAR 2014-15 WAS 3.47%. ALTHOUGH THESE FIGURES OF VARIOUS ENTITIES WERE NOT RELATED TO THE ASSESSMENT YEAR 20 09-10 WHERE THE ADDITION HAS BEEN MADE. HOWEVER, AFTER CONSIDER ING VARIOUS ASPECTS OF THESE TRANSACTIONS, TO ARRIVE AT A REASO NABLE FIGURE OF ESTIMATED INCOME ON THESE TRANSACTIONS, WE ARE OF T HE VIEW THAT SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 138 SUSTAINING THE ADDITION @ 4% OF THE TOTAL TRANSACTI ON AS NET PROFIT SHALL BE JUSTIFIED. WE ORDER ACCORDINGLY. GROUND NO.4.0 (A.Y.: 2011-12) & 2.0 (A.Y.: 2012-13) OF THE ASSESSEES APPEAL : 6.0 GROUND NO.4.0 (A.Y.: 2011-12) & 2.0 (A.Y.: 2012-13) OF ASSESSEES APPEALS READS AS UNDER: ASSESSMENT YEAR : 2011-12 SHARE APPLICATION MONEY TREATED AS UNEXPLAINED CASH CREDIT U/S.68 : RS.3,55,00,000/- 4.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ADDITION OF RS.3,55,0 0,000/- MADE BY THE ASSESSING OFFICER U/S.68 OF THE INCOME-TAX ACT, 196 1 BY TREATING SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE FROM THE FOLLOWING COMPANIES AS UNEXPLAINED CASH CREDIT : S.NO. NAME OF THE COMPANY AMOUNT (RS.) (1) EMPOWER INDUSTRIES LIMITED 25,00,000/- (2) ADVANCE TECHNOLOGIES LIMITED 1,55,00,000/- (3) DHANUS TECHNOLOGY LIMITED 25,00,000/- (4) PRANETA INDUSTRIES LIMITED 25,00,000/- (5) MILLI COMMODITIES PRIVATE LIMITED 25,00,000/- (6) ASIAN INVESTMENT & FINANCIAL SERVICES P. LTD. 1,00,00,000/- 3,55,00,000/- ASSESSMENT YEAR : 2012-13 SHARE APPLICATION MONEY TREATED AS UNEXPLAINED CASH CREDIT U/S.68 : RS.1,45,00,000/- 2.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ADDITION OF RS.1,45,00,000/ - MADE BY THE ASSESSING OFFICER U/S.68 OF THE INCOME-TAX ACT, 1961 BY TREAT ING SHARE APPLICATION MONEY SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 139 RECEIVED BY THE ASSESSEE FROM THE FOLLOWING COMPANI ES AS UNEXPLAINED CASH CREDIT: S.NO. NAME OF THE COMPANY AMOUNT (RS.) (1) ADVANCE FERTILIZER (INDIA) PRIVATE LIMITED 50,00,000/- (2) ADVANCE CORP CARE INDIA PRIVATE LIMITED 60,00,000/- (3) R.S.D. CAPITAL MARKET PRIVATE LIMITED 35,00,000 /- 1,45,00,000/- 60. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE R ECEIVED SHARE APPLICATION MONEY FROM THE FOLLOWING COMPANIES: ASSESSMENT YEAR : 2011-12 NAME OF COMPANIES AMOUNT (RS.) EMPOWER INDUSTRIES LIMITED 25,00,000/- ADVANCE TECHNOLOGIES LIMITED 1,55,00,000/- DHANUS TECHNOLOGY LIMITED 25,00,000/- PRANETA INDUSTRIES LIMITED 25,00,000/- MILLI COMMODITIES PRIVATE LIMITED 25,00,000/- ASIAN INVESTMENT & FINANCIAL SERVICES PVT. LTD. 1,0 0,00,000/- TOTAL 3,55,00,000/- ASSESSMENT YEAR : 2012-13 NAME OF COMPANIES AMOUNT (RS.) ADVANCE FERTILIZER (INDIA) PRIVATE LIMITED 50,00,00 0/- ADVANCE CROP CARE INDIA PRIVATE LIMITED 60,00,000/- R.S.D. CAPITAL MARKET PRIVATE LIMITED 35,00,000/- TOTAL 1,45,00,000/- 61. THE PLEADINGS OF THE LEARNED COUNSEL FOR THE ASSES SEE WERE COMMON ON THE ISSUE OF CASH CREDIT AND SHARE APPLICATION MONEY RECEIVED BY VARIOUS ENTITIES OF THE GROUP. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 140 THEREFORE, THE PLEADINGS ON THE ISSUE OF CASH CREDITS AND SHARE APPLICATION ADDED U/S 68 OF THE ACT ARE COMMON IN ALL THE CASES OF THE GROUP. 62. OTHER FACTS WHICH ARE RELEVANT TO OTHER CASES ALSO ON THIS ISSUE ARE THAT DURING SEARCH, THE BANK STATEMENTS EVIDENCING PAYMENT OF SHARE APPLICATION MONEY/UNSECURE D LOAN, MEMORANDUM AND ARTICLES OF ASSOCIATION OF COMPANIES, RESOLUTIONS OF BOARD OF DIRECTORS, BLANK S IGNED TRANSFER FORMS AND/OR BLANK SIGNED MONEY RECEIPTS, ETC . OF THE FOLLOWING COMPANIES WERE FOUND: (I) ASAN INVESTMENT AND FINANCIAL SERVICES PVT. LTD., (II) SIDDHI HOUSING DEVELOPMENT COMPANY LTD., (III) OCTOPUS INFOTEL PVT. LTD. (IV) WARNER MULTIMEDIA LTD. (V) ALBTROSS SHARE REGISTERY PVT. LTD. (VI) ONE 2 SOLUTIONS PVT LTD. (VII) MATRIX SYSTEL PRIVATE LTD. (VIII) ARTILLEGENCE BIO INNOVATIONS LTD. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 141 THE STATEMENT OF SHRI JAGDISH PUROHIT, WHO WAS CONTROL LING SOME OF THE COMPANIES, DIRECTLY OR INDIRECTLY, WAS RE CORDED BY ADIT (INV.), UNIT IV(2), MUMBAI U/S.131 OF THE AC T. ASSESSING OFFICER CLAIMS THAT COPY OF THE STATEMENT WAS PROVIDED TO THE ASSESSEE ALONGWITH THE NOTICE U/S 142 (1) ON 30.09.2013 BUT ASSESSEE DENIED THIS FACT. IN THE STATE MENT, SHRI PUROHIT HAS STATED THAT SOME OF THE COMPANIES HAVE PROVIDED ACCOMMODATION ENTRIES TO THE SIGNET GROUP OF COMPANIES. THE NAMES GIVEN WERE AS UNDER :- (IX) WARNER MULTIMEDIA LTD., (X) UNISYS SOFTWARE AND HOLDING INDUSTRIES LTD., (XI) MICROCHIP INFOTEL PVT. LTD. , (XII) OCTOPUS INFOTEL PVT. LTD & (XIII) MATRIX SYSTEL PVT. LTD. THE STATEMENT GIVEN BY SHRI JAGDISH PUROHIT WAS SUBSEQUENTLY RETRACTED BY SHRI JAGDISH PUROHIT BY WAY OF FILING AN AFFIDAVIT BEFORE THE ADIT (INV.) UNIT IV(2) , MUMBAI SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 142 WHEREIN SHRI PUROHIT CATEGORICALLY STATED THAT THE EARLI ER STATEMENT GIVEN BEFORE ADIT (INV.) ADMITTING THAT SHARE APPLICATION MONEY PAID BY THESE COMPANIES CONTROLLED, DIRECTLY OR INDIRECTLY, BY HIM WERE ACCOMMODATION ENT RIES, WAS GIVEN UNDER TREMENDOUS MENTAL STRESS, TENSION AND UTTER CONFUSED STATE OF MIND. THE INVESTMENTS MADE BY THESE COMPANIES WERE REAL AND GENUINE. COPIES OF THES E AFFIDAVITS WERE ALSO FILED BEFORE THE A.O. AS WELL AS BE FORE THE LEARNED CIT(A). 63. OUT OF THE SHARE APPLICATION MONEY/UNSECURED LOAN RECEIVED BY THE ASSESSEE AND OTHER GROUP ENTITIES, A SUBSTANTIAL PART WAS REFUNDED DUE TO NON-ALLOTMENT OF SHARES AND IT WAS MUCH BEFORE THE DATE OF SEARCH. THE DETAILS OF THE SAME WERE ALSO FILED BEFORE THE ASSESSIN G OFFICER ALONGWITH THE EVIDENCE. 64. THE SHARE APPLICATION MONEY RS.3,55,00,000/- FOR ASSESSMENT YEAR 2011-12 AND RS. 1,45,00,000/- FOR THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 143 ASSESSMENT YEAR 2012-13 WAS TREATED AS UNEXPLAINED CASH CREDIT BY THE A.O. AND ADDITION WAS MADE U/S.68 OF TH E ACT. 65. THE REASONINGS GIVEN BY THE C.I.T.(A) FOR SUSTAI NING THE ADDITION ARE AS UNDER :- IT IS A WELL SETTLED LAW THAT WHERE THERE IS A CREDIT IN THE BOOKS OF ACCOUNT OF AN ASSESSEE DURING PREVIOUS YEAR, THE ONUS IS UPON THE ASSESSEE TO PROVE THE IDENTITY OF THE CREDITOR, HIS CAPACITY/CREDITWORTHINESS TO GIVE THE LOAN/SHARE APPLICATION MONEY AND GENUINENESS OF THE TRANSACTION BY FURNISHING CREDIBLE EVIDENCE. IT IS A WELL SETTLED LAW THAT WHERE AN ASSESSEE FURNISHES THE DOCUMENTS TO PROVE THE GENUINENESS OF THE TRANSACTION AND IF THE ASSESSING OFFICER FINDS ON THE BASIS OF ENQUIRY OR OTHER MATERIAL THAT THE DOCUMENTS DISCLOSED BY SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 144 THE ASSESSEE ARE UNTRUSTWORTHY OR LACKED CREDIBILITY, THE ASSESSING OFFICER CAN REJECT THE EXPLANATION OF THE ASSESSEE AND MAKE ADDITION U/S 68 OF THE ACT. THE RELIANCE WAS PLACED UPON THE FINDING GIVEN BY THE ASSESSING OFFICER AS WELL AS SEIZURE OF SIGNED BLANK TRANSFER FORMS, SIGNED BLANK RECEIPTS, ETC. DURING SEARCH FROM THE OFFICE PREMISES OF SIGNET INDUSTRIES LTD. SHRI JAGDISH PUROHIT, WHO WAS DIRECTLY OR INDIRECTLY CONTROLLING MICROCHIP LNFOTEL PRIVATE LIMITED, OCTOPUS LNFOTEL PVT. LTD. AND MATRIX SYSTEL PRIVATE LIMITED, ADMITTED IN HIS STATEMENT BEFORE THE ADIT (INV.), UNIT IV(2), MUMBAI THAT THESE COMPANIES HAD GIVEN ONLY ACCOMMODATION ENTRIES TO SIGNET GROUP COMPANIES. IT WAS ALSO FOUND ON INVESTIGATION BY ADIT (INV.), MUMBAI AND AO THAT THE DIRECTORS OF THESE COMPANIES WERE DUMMY DIRECTORS AND SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 145 PERSONS OF NO MEANS. THE AFFIDAVIT FILED BY SHRI JAGDISH PUROHIT BEFORE THE A.D.I.T (INV) MUMBAI AS WELL AS THE A.O. WAS AN AFTERTHOUGHT AND, THEREFORE, NOT BELIEVABLE. ALSO HE WAS NOT PRODUCED BEFORE THE A.O. FOR EXAMINING THE VERACITY OF THE CONTENTS OF THE AFFIDAVIT. IN CASE OF WARNER MULTIMEDIA LTD. AND ONE 2 SOLUTION PVT. LTD., THE SHARE APPLICATION MONEY TRANSACTIONS WERE DE-LAYERED BY AO AND IT WAS FOUND THAT THE ULTIMATE SOURCE OF FUNDS COMING FROM THESE COMPANIES WAS CASH DEPOSIT WHICH WAS ROUTED THROUGH TWO OR THREE ENTITIES AND SHARE APPLICATION MONEY WAS PAID TO SIGNET GROUP OF COMPANIES. THE FACTS NOTICED AND ENQUIRIES MADE ESTABLISHED THAT THESE COMPANIES WERE PAPER COMPANIES AND SURROUNDING AND ATTENDING FACTS PREDICATED A COVER UP. EXTENSIVE RELIANCE WAS SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 146 PLACED UPON THE JUDGMENT IN THE CASE OF C.I.T. VS. NAVODAYA CASTLES PVT. LTD. 367 ITR 306 (DELHI) AND IT WAS HELD THAT THE CASE OF THE ASSESSEE FELL IN THE SECOND CATEGORY OF CASES WHERE THERE ARE EVIDENCE AND MATERIAL TO SHOW THAT THE SHAREHOLDER COMPANIES WERE PAPER COMPANIES HAVING NO SOURCE OF INCOME BUT HAVE MADE SUBSTANTIAL AND HUGE INVESTMENT IN THE FORM OF SHARE APPLICATION MONEY. 66. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED B EFORE US THAT THE ASSESSEE IS A LISTED COMPANY. IT IS RELATED TO SIGNET GROUP OF COMPANIES. SHRI MUKESH SANGLA IS WELL KNOWN IN THE FIELD OF TRADING IN PLASTICS, MANUFACTURE OF PLASTIC PRODUCTS, MICRO IRRIGATION SYSTEMS ETC. THIS GROUP IS ALSO WELL KNOWN IN THE MARKET FOR ITS FINANCIAL STABILIT Y. IT SUCCESSFULLY MADE GIANT STRIDES INTO MICRO IRRIGATION SYSTEMS AND CPVC PIPES AND ATTAINED SIGNIFICANT RANKING SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 147 IN STATES LIKE GUJARAT, ANDHRA PRADESH, RAJASTHAN, MADHYA PRADESH FOR SUPPLY OF MICRO IRRIGATION SYSTEMS. THERE ARE A LARGE NUMBER OF INVESTORS INCLUDING FIIS AND FINANCIAL INSTITUTIONS WHICH ARE INTERESTED IN INVESTMENT IN T HE GROUP BY WAY OF EQUITY PARTICIPATION, PREFERENCE SHARES OR IN TER- CORPORATE LOANS. THE OBJECTIVES OF THESE INVESTORS ARE TO INVEST IN THE GROUP ON LONG TERM BASIS AND REAP HANDSO ME RETURNS IN DUE COURSE OF TIME. 67. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HO N'BLE DELHI HIGH COURT HELD IN THE CASE OF C.I.T. VS KAMDHE NU STEEL AND ALLOY LIMITED (361 ITR 220) WHEREIN IT W AS HELD THAT : 10. BY THIS COMMON JUDGMENT, THE DIVISION BENCH DECIDED THESE APPEALS OF WHICH ONE APPEAL WAS RELATED TO LOVELY EXPORTS PVT. LTD.. AGAINST THE SAI D JUDGMENT, SPECIAL LEAVE PETITION WAS PREFERRED, WHICH WAS DISMISSED BY THE SUPREME COURT VIDE ORDERS DATED 11.01.2008 AND IS REPORTED AS C.I.T. VS. LOVELY EXPORTS (P) LTD. [ 216 CTR 195 (SC)]. THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 148 COURT WHILE DISMISSING THE SLP RECORDED SOME REASONS AS WELL ALBEIT IN BRIEF, WHICH IS AS UNDER: '2. CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UNDISCLOSED INCOME UNDER S.68 OF IT ACT, 1961? WE FIND NO MERIT IN THIS SPECIAL LEAVE PETITION FOR THE SIMPLE REASON THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE AO, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. HENCE, WE FIND NO INFIRMITY WITH THE IMPUGNED JUDGMENT.' 11. IT IS CLEAR FROM THE ABOVE THAT THE INITIAL BUR DEN IS UPON THE ASSESSEE TO EXPLAIN THE NATURE AND SOURCE OF THE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE. IN ORDER TO DISCHARGE THIS BURDEN, THE ASSESSEE IS REQUIRED TO PROVE: (A) IDENTITY OF SHAREHOLDER; (B) GENUINENESS OF TRANSACTION; AND (C) CREDIT WORTHINESS OF SHAREHOLDERS. 12. IN CASE THE INVESTOR/SHAREHOLDER IS AN INDIVID UAL, SOME DOCUMENTS WILL HAVE TO BE FILED OR THE SAID SHAREHOLDER WILL HAVE TO BE PRODUCED BEFORE THE AO TO PROVE HIS IDENTITY. IF THE CREDITOR/SUBSCRIBER I S A COMPANY, THEN THE DETAILS IN THE FORM OF REGISTERED ADDRESS OR PAN IDENTITY, ETC. CAN BE FURNISHED. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 149 13. GENUINENESS OF THE TRANSACTION IS TO BE DEMONSTRATED BY SHOWING THAT THE ASSESSEE HAD, IN FACT, RECEIVED MONEY FROM THE SAID SHAREHOLDER AND IT CAME FROM THE COFFERS FROM THAT VERY SHAREHOLDER . THE DIVISION BENCH HELD THAT WHEN THE MONEY IS RECEIVED BY CHEQUE AND IS TRANSMITTED THROUGH BANKING OR OTHER INDISPUTABLE CHANNELS, GENUINENESS OF TRANSACTION WOULD BE PROVED. OTHER DOCUMENTS SHOWING THE GENUINENESS OF TRANSACTION COULD BE THE COPIES OF THE SHAREHOLDERS REGISTER, SHARE APPLICATION FORMS, SHARE TRANSFER REGISTER, E TC. 14. AS FAR AS CREDITWORTHINESS OR FINANCIAL STRENG TH OF THE CREDIT/SUBSCRIBER IS CONCERNED, THAT CAN BE PROVED BY PRODUCING THE BANK STATEMENT OF THE CREDITORS/SUBSCRIBERS SHOWING THAT IT HAD SUFFICIEN T BALANCE IN ITS ACCOUNTS TO ENABLE IT TO SUBSCRIBE T O THE SHARE CAPITAL. THIS JUDGMENT FURTHER HOLDS THAT ONCE THESE DOCUMENTS ARE PRODUCED, THE ASSESSEE WOULD HAVE SATISFACTORILY DISCHARGE THE ONUS CAST UPON HIM. THEREAFTER, IT IS FOR THE AO TO SCRUTINIZ E THE SAME AND IN CASE HE NURTURES ANY DOUBT ABOUT THE VERACITY OF THESE DOCUMENTS TO PROBE THE MATTER FURTHER. HOWEVER, TO DISCREDIT THE DOCUMENTS PRODUCED BY THE ASSESSEE ON THE AFORESAID ASPECTS, THERE HAS TO BE SOME COGENT REASONS AND MATERIALS FOR THE AO AND HE CANNOT GO INTO THE REALM OF SUSPICION. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 150 15. AT THIS STAGE, WE WOULD LIKE TO REFER TO THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. M/S CREATIVE WORLD TELEFILMS LTD. (IN ITA NO.2182 OF 2009 DECIDED ON 12.10.2009). THE RELEVANT PORTION OF THIS ORDER IS REPRODUCED BELOW: 'IN THE CASE IN HAND, IT IS NOT DISPUTED THAT THE ASSESSEE HAD GIVEN THE DETAILS OF NAME AND ADDRESS OF THE SHAREHOLDER, THEIR PA/GIR NUMBER AND HAD ALSO GIVEN THE CHEQUE NUMBER, NAME OF THE BANK. IT WAS EXPECTED ON THE PART OF THE ASSESSING OFFICER T O MAKE PROPER INVESTIGATION AND REACH THE SHAREHOLDERS. THE ASSESSING OFFICER DID NOTHING EXCEPT ISSUING SUMMONS WHICH WERE ULTIMATELY RETURNED BACK WITH AN ENDORSEMENT 'NOT TRACEABLE'. IN OUR CONSIDERED VIEW, THE ASSESSING OFFICER OUGHT TO HAVE FOUND OUT THEIR DETAILS THROUGH PAN CARDS, BANK ACCOUNT DETAILS OR FROM THEIR BANKERS SO AS TO REACH THE SHAREHOLDERS SINCE ALL THE RELEVANT MATERIAL DETAILS AND PARTICULARS WERE GIVEN BY THE ASSESSEE TO THE ASSESSING OFFICER. IN THE ABOVE CIRCUMSTANCES, THE VIEW TAKEN BY THE TRIBUNAL CANNOT BE FAULTED. NO SUBSTANTIAL QUESTION OF LAW I S INVOLVED IN THE APPEAL. IN THE RESULT, THE APPEAL IS DISMISSED IN LIMINI WI TH NO ORDER AS TO COSTS. 68. THE ASSESSEE GROUP DISCHARGED ITS ONUS OF ESTABLIS HING IDENTITY AND CREDITWORTHINESS OF SHARE APPLICANTS/LOAN SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 151 CREDITORS AND GENUINENESS OF TRANSACTIONS IN THE FOLLO WING MANNER: (A) TO ESTABLISH IDENTITY OF SHARE APPLICANT COMPANIES, THE ASSESSEE FILED DOCUMENTS LIKE THE CERTIFICATE OF INCORPORATION, MEMORANDUM AND ARTICLES OF ASSOCIATION, P.A.N. CARD, COPIES OF RETURN OF INCOME, DETAILS OF REGISTERED OFFICE AND DIRECTORSHIP ETC. BEFORE THE A.O. (B) TO ESTABLISH CREDITWORTHINESS , THE ASSESSEE FURNISHED COPIES OF BANK STATEMENTS OF SHARE APPLICANTS SHOWING THE RELEVANT TRANSACTIONS, THEIR RETURNS OF INCOME, ASSESSMENT ORDERS WHEREVER AVAILABLE, AUDITED ANNUAL ACCOUNTS, DULY CONFIRMED COPIES OF ACCOUNTS, ETC. BEFORE THE A.O. IN ALL THE CASES, THERE WERE SUFFICIENT BANK BALANCES AND IN NONE OF THE CASES, CASH WAS DEPOSITED EITHER PRIOR TO ISSUE OF CHEQUES TOWARDS SHARE APPLICATION MONEY/UNSECURED LOAN OR AT ANY POINT OF TIME DURING THE YEAR. (C) TO ESTABLISH GENUINENESS OF TRANSACTIONS , IT WAS DEMONSTRATED THAT ALL THE TRANSACTIONS HAD TAKEN SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 152 PLACE THROUGH PROPER BANKING CHANNELS AND NO EVIDENCE WHATSOEVER WAS FOUND SHOWING PAYMENT OF CASH TO SHARE APPLICANT COMPANIES/LOAN CREDITORS IN LIEU OF CHEQUES RECEIVED FROM THEM. 10. NOTICES U/S.133(6) WERE ISSUED IN 34 CASES FOR VERIFICATION OF SHARE APPLICATION MONEY/UNSECURED LOAN/VERIFICATION OF SHARES OF ADROIT INDUSTRIES (INDI A) LTD. SOLD AND REACQUIRED BY THE ASSESSEE GROUP. IN ALL THE CAS ES, THE NOTICES ISSUED U/S. 133(6) WERE SERVED UPON THE CREDITOR/SHARE APPLICANT. IN SOME CASES, THESE NOTICES WERE SERVED IMMEDIATELY AND IN SOME CASES, INITIALLY THE NOT ICES WERE RETURNED UNSERVED BUT SUBSEQUENTLY SERVED ON TH E BASIS OF CHANGED ADDRESSES PROVIDED BY THE ASSESSEE. AL L THE COMPANIES PARTICIPATED IN THE ASSESSMENT PROCEEDING S BY CATEGORICALLY REPLYING TO THE SPECIFIC QUERIES RAISE D BY THE ASSESSING OFFICER IN THE NOTICES ISSUED U/S.133( 6) AND FURNISHING DOCUMENTS LIKE RETURN OF INCOME, RELEVANT BANK SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 153 STATEMENTS, DULY CONFIRMED COPIES OF ACCOUNTS, ETC. THESE COMPANIES CATEGORICALLY STATED THAT THEY WERE REGULAR INVESTORS IN SHARES AS WELL AS PROVIDING UNSECURED LOAN S TO BUSINESS ENTERPRISES A FACT EVIDENT FROM THEIR AUDIT ED ANNUAL ACCOUNTS AND WERE ALWAYS LOOKING FOR BETTER INVESTMENT OPPORTUNITIES. THEY ALWAYS TRY TO INVEST AT AN EARLY STAGE SO AS TO REAP GOOD RETURNS. MOREOVER, THE LONG- TERM DECISIONS OF INVESTMENT ARE NOT ONLY BASED UPON PRESENT PERFORMANCE AND DIVIDEND TRACK RECORD ALONE BUT ALSO UPON SEVERAL OTHER FACTORS LIKE REPUTATION OF THE GROUP AND THE PROMOTERS, PRODUCTS IN WHICH THE GROUP DEALS, MARKET PRICE OF THE SHARES - IF LISTED OF FLAGSHIP GRO UP COMPANIES, THE MARKET CAPITALISATION, POTENTIALS OF THE PRODUCT BEING TRADED OR MANUFACTURED, GAINING EASY ACCESS TO THE MANAGEMENT OF THE COMPANY, POTENTIALS OF ACQUISITION OR MERGER OF THE COMPANY, ETC. HOWEVER, T HE A.O. SIMPLY BRUSHED ASIDE THE RESULTS OF THE ENQUIRY SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 154 CONDUCTED BY HIM AND IGNORED A LARGE NUMBER OF EVIDENC E PLACED BEFORE HIM BY THE ASSESSEE GROUP AS WELL AS GATHERED DURING ENQUIRY CONDUCTED BY HIM IN THE COURS E OF ASSESSMENT PROCEEDINGS. THE CONTENTION OF THE A.O. T HAT THE SHARES WERE INTENDED TO BE ALLOTTED AT A HEAVY PREMI UM AND THAT THE SHARE APPLICATION MONEY WAS REFUNDED CONSEQUENT TO THE SEARCH CONDUCTED BY THE INCOME TAX DEPARTMENT WAS COMPLETELY ERRONEOUS AND BASELESS. IN FACT, IN MOST OF THE CASES, SHARE APPLICATION MONEY WAS REFUNDED MUCH BEFORE THE DATE OF SEARCH BY THESE COMPANIES BECAUSE OF DIFFERENCE IN PERCEPTION BETWEEN THE MANAGEMENT OF SIGNET GROUP AND SUCH COMPANIES. AS THE PRIMARY BUSINESS OF THESE SHARE APPLICANT COMPANIES WAS FINANCE, INVESTMENT AND TRADING, IT IS QUITE NATURAL FOR THEM TO ROTATE THEIR INVESTMENT AND LOANS DEPENDING UP ON REQUIREMENTS OF THE CUSTOMER AS WELL AS ITS OWN NEED O F FUNDS TO SEEK BETTER INVESTMENT OPPORTUNITIES. IN T HE CASE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 155 OF SHARE APPLICANTS, THE SHARE APPLICATION MONEY WAS PAID MAINLY OUT OF RECOVERY OF LOANS AND ADVANCES AND REALISATION OF INVESTMENT AS NO COMPANY HAS INEXHAUSTIBL E SUPPLY OF FUNDS. ON THIS BASIS, THE SHARE APPLICATION MONEY COULD NOT HAVE BEEN TREATED AS UNEXPLAINED INVESTMENT IN THE ABSENCE OF ANY OTHER ADVERSE FINDING . IN NONE OF THE CASES, THE A.O. COULD BRING ANY INSTANCE SHOWING DEPOSIT OF CASH IN THE BANK ACCOUNT OF VARIOUS COMPANIES PRIOR TO ISSUE OF CHEQUES OR AT ANY OTHER POI NT OF TIME DURING THE YEAR. AS REGARD ALLEGATION/FINDING OF THE A.O. THAT THE TRANSACTIONS IN THE CASE OF WARNER MULTIMEDIA LTD. AND ONE 2 SOLUTIONS PVT. LTD. WERE DE - LAYERED AND IT WAS FOUND THAT CASH WAS DEPOSITED PRIOR TO ISSUE OF CHEQUES TO THE ASSESSEE, THE ASSESSEE WAS NOT GIVEN ANY DETAILS ABOUT THE ALLEGED DE-LAYERING DURING ASSESSMENT PROCEEDINGS OR AT ANY POINT OF TIME AS TO HO W WAS IT RELEVANT IN THE ASSESSEES CASE. IT IS SUBMITTED THAT SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 156 THE A.O. CAN CONDUCT ALL ENQUIRIES BEHIND THE ASSESSEE S BACK BUT IF HE WANTS TO USE THE RESULTS OF SUCH ENQUIR IES AGAINST THE ASSESSEE, HE SHOULD PROVIDE ALL THE EVIDENC E GATHERED DURING ENQUIRIES AS WELL AS THE OPPORTUNITY TO THE ASSESSEE FOR REBUTTING THE SAME. THE HON'BLE PUNJAB AND HARYANA HIGH COURT HELD IN THE CASE OF CHIRANJI LAL STEEL ROLLING MILLS VS. C.J.T. (84 JTR 222) THAT THE PROVISION OF THE INDIAN EVIDENCE ACT CANNOT BE RESORTED TO JUDGE THE ADMISSIBILITY OR LEGALITY OF A PARTICULAR PIECE OF EVIDENCE ON WHICH THE ASSESSING OFFICER RELIES FOR THE PURPOSE OF ASSESSMENT. IT IS OPEN TO ASSESSING OFFICER TO COLL ECT EVIDENCE FROM ANY SOURCE BUT IT IS HIS DUTY TO PUT IT TO THE ASSESSEE BEFORE MAKING IT THE BASIS OF HIS ASSESSMENT. IF TH E ASSESSEE DENIES THE INFORMATION COLLECTED BY THE ASSESSING O FFICER, THE ASSESSING OFFICER HAS TO SATISFY HIMSELF BY MAKING INDEPENDENT ENQUIRY FROM SOURCE CONSIDERED RELIABLE BY HIM AND DECIDE WHETHER INFORMATION PASSED ON TO HIM IS TRUE OR SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 157 NOT. IF, AS A RESULT OF HIS OWN INDEPENDENT ENQUIRY HE COMES TO THE CONCLUSION THAT THE INFORMATION RECEIVED BY HIM IS TRUE, HE IS AT LIBERTY TO ACT THEREUPON AFTER DISCLOSING IT TO THE ASSESSEE AND AFFORDING HIM A REASONABLE OPPORTUNITY OF REBUTTING IT. BUT HE HAS NO RIGHT TO BURDEN THE ASS ESSEE WITH AN EXTRA AMOUNT OF TAX ON A VAGUE INFORMATION GIVEN TO HIM WITHOUT HIMSELF VERIFYING ITS TRUTHFULNESS OR RELIA BILITY 11. IT IS TRUE THAT THE INVESTMENTS ARE MADE WITH PROF IT MOTIVE BUT IMMEDIATE REALISATION OF PROFIT IS NOT NECE SSARY. MANY TIMES, AN INVESTOR INVESTS MONEY IN ANTICIPATION T HAT IT WOULD FETCH GOOD RETURNS FOR IT IN LONG TERM. FO R EXAMPLE, WHEN INFOSYS WAS SET UP NOBODY KNEW IT BUT THE INVES TORS WHO INVESTED MONEY IN INFOSYS EARNED HUGE RETURN ON THEIR INVESTMENT. THEREFORE, PROFIT MOTIVE MAY BE A SIGNIF ICANT PART OF INVESTMENT STRATEGY BUT IT IS NOT THE ONLY FAC TOR AND IMMEDIATE REALISATION OF PROFIT IS NOT NECESSARY. THE ASSESSING OFFICER FAILED TO BRING ANY MATERIAL OR EVIDEN CE ON SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 158 RECORD TO SHOW THAT UNACCOUNTED CASH OF THE ASSESSEE WAS DEPOSITED IN BANK ACCOUNT OF VARIOUS COMPANIES OR OTHERWISE GIVEN TO THEM AND CHEQUES TOWARDS SHARE APPLICATION MONEY WERE ISSUED BY THEM OUT OF CASH SO DEPOSITED OR PAID. IN THIS REGARD, THE RELIANCE WAS PLAC ED ON THE FOLLOWING JUDGEMENTS: (I) C.I.T VS. VALUE CAPITAL SERVICES PVT. LTD. 307 ITR 334 (DEL) (II) MIDAS GOLDEN DISTILLERIES (P) LTD. VS.C.I.T [2009] 124 TTJ 25 (CHENNAI) 69. AS REGARDS THE LEGAL POSITION OF ADDITION U/S.68 I N RELATION TO SHARE APPLICATION MONEY THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS :- 1. C.I.T VS. STELLAR INVESTMENT LTD. [192 ITR 287 (DEL)] 2. I.T.O. VS. STELLER INVESTMENT LTD. [251 ITR 263 (SC)] 3. C.I.T VS. ELECTRO POLYCHEM LTD. [294 ITR 661 (MAD)] 4. C.I.T VS. DIVINE LEASING AND FINANCE LTD. [299 ITR 268 (DEL)] SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 159 5. ..C.I.T VS. DIVINE LEASING & FINANCE LTD. [CIVIL APPEAL NO. CC375/2008 (SC)] 6. C.I.T VS. SOPHIA FINANCE LTD. [205 ITR 98 (DEL.FB)] 7. C.I.T VS. LOVELY EXPORTS PVT. LTD. [216 CTR 195 (SC)] 8. C.I.T VS. FIRST POINT FINANCE LTD. [286 ITR 477] (RAJ)]. 9. SHREE BARKHA SYNTHETICS LTD. VS. A.C.I.T [283 ITR 377 (RAJ)] 10. C.I.T VS. DWARKADHISH INVESTMENT PVT. LTD. [ 194 TAXMAN 43 (DEL)] 11. C.I.T VS. ANTARCTICA INVESTMENT PVT. LTD. [262 ITR 493 (DEL)] 12. C.I.T VS. DOLPHINE CANPACK LTD. [283 ITR 190 (DEL)] 13. C.I.T VS. VALUE CAPITAL SERVICES PVT. LTD. [307 ITR 334 (DEL)] 14. C.I.T VS. PEOPLES GENERAL HOSPITAL LTD. [2013] 356 ITR 65 (MP) 15. C.I.T VS. EMPIRE BUILDTECH (P) LTD. [2014] 43 TAXMANN.COM 269 (DEL) 16. MIDAS GOLDEN DISTILLERIES (P) LTD. VS.C.I.T [2009] 124 TTJ 25 (CHENNAI) 17. C.I.T VS. SHREE RAMA MULTI TECH LTD [2013] 34 TAXMANN.COM 177 (GUJ.) 18. C.I.T VS. STL EXTRUSION (P) LTD [2011] 11 TAXMANN.COM 125 (MP) 70. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED TH AT ON ANALYSIS OF THE ABOVE JUDGEMENTS, IT EMERGES THAT IN SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 160 CASE OF SUBSCRIBERS TO THE SHARE CAPITAL, THE COMPANY IS REQUIRED TO ESTABLISH IDENTITY OF THE SHAREHOLDER, WHI CH CAN BE PROVED BY FURNISHING OF PERMANENT ACCOUNT NUMBER, CERTIFICATE OF INCORPORATION, COPIES OF RETURN OF INC OME ETC. (C.I.T VS. DWARKADHISH INVESTMENT PVT. LTD. 194 TAXM ANN 43 (DEL). THE GENUINENESS OF TRANSACTIONS CAN BE ESTABLISHED BY SHOWING THAT THE TRANSACTION HAD TAKEN PLACE THROUGH PROPER BANKING CHANNELS (C.I.T VS. DIVIN E LEASING & FINANCE LTD. (299 ITR 268 DEL). THE CREDITWORTHINESS OF THE SUBSCRIBER CAN BE ESTABLISHED BY FURNISHING P.A.NOS., COPIES OF RETURN OF INCOME, AUD ITED ANNUAL ACCOUNTS, ETC. IF THE TRANSACTIONS ARE MADE THROUGH BANKING CHANNELS AND ONCE THE EXISTENCE OF PERSONS BY NAME IN THE SHARE APPLICATIONS IN WHOSE NAME THE SHARES HAVE BEEN ISSUED IS SHOWN, THE ASSESSEE COMPANY CANNOT BE HELD RESPONSIBLE TO PROVE WHETHER THAT PERSON HIM SELF HAS INVESTED THE SAID MONEY OR SOME OTHER PERSON HAD SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 161 MADE INVESTMENT IN THE NAME OF THAT PERSON. THE BURDEN THEN SHIFTS ON THE REVENUE TO ESTABLISH THAT SUCH INVESTMENT HAS COME FROM THE ASSESSEE COMPANY ITSELF. SHREE BARKHA SYNTHETICS LTD. VS. ACIT (283 ITR 377 RA J). IF SUCH SHAREHOLDERS ARE UNABLE TO PROVE THEIR CREDITWORTHINESS, THE ASSESSING OFFICER IS DUTY BOUN D TO TAKE NECESSARY ACTION IN THEIR CASES. [CIT VS. LOVELY E XPORTS PVT. LTD. 216 CTR 195 SC] 71. THE DOCUMENTS LIKE SIGNED BLANK TRANSFER FOR MS, DULY SIGNED BLANK RECEIPTS, ETC. WERE OBTAINED FROM T HE SHARE APPLICANTS TO ENSURE THE FIRST RIGHT OF REFUSAL W ITH THE SIGNET GROUP OF COMPANIES AS WELL AS SANGLA FAMILY. IT DETERRED THE INVESTORS FROM TRANSFERRING THEIR SHAREH OLDING WITHOUT PRIOR PERMISSION FROM THE MANAGEMENT AND ENSURED THAT THE CONTROL OF THE COMPANIES REMAINED WIT H THE SIGNET GROUP AND SANGLA FAMILY. IN NONE OF THE CASE S POINTED OUT BY THE ASSESSING OFFICER FROM SEIZED MATE RIAL, SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 162 SHARES WERE ALLOTTED BY THE RESPECTIVE COMPANIES TO TH E INVESTORS TILL THE DATE OF SEARCH OR EVEN THEREAFTER AND IN MOST OF THE CASES, THE SHARE APPLICATION MONEY WAS REFUNDED TO THE RESPECTIVE SHARE APPLICANT BY ACCOUNT PAYEE CHEQUES MUCH PRIOR TO THE DATE OF SEARCH. MOREOV ER, MERELY BECAUSE OF BLANK DOCUMENTS AS NOTICED BY THE ASSESSING OFFICER, IT CANNOT BE INFERRED, IN THE ABSEN CE OF ANY OTHER CORROBORATIVE EVIDENCE, THAT THE TRANSACTION W AS FICTITIOUS OR REPRESENTED AN ACCOMMODATION ENTRY, PARTICULARLY WHEN SHARES WERE NOT ALLOTTED, THE APPLICATI ON MONEY WAS REFUNDED EVEN BEFORE THE DATE OF SEARCH AND REQUISITE EVIDENCE TO ESTABLISH GENUINENESS OF THE TRANSACTIONS WERE PROVIDED TO THE ASSESSING OFFICER. I N RELATION TO STATEMENT OF SHRI JAGDISH PUROHIT, WHO DIR ECTLY OR INDIRECTLY CONTROLLED VARIOUS COMPANIES LIKE MICR OCHIP INFOTEL PVT. LTD., OCTOPUS INFOTEL PVT. LTD. AND MATR IX SYSTEM PVT. LTD. GIVEN BEFORE THE A.D.I.T. (INV.) M UMBAI, SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 163 THE ASSESSEE WAS NEVER GIVEN THE COPY OF HIS STATEMENT DURING ENTIRE ASSESSMENT PROCEEDINGS. THE STATEMENT OF THE A.O. THAT COPY OF REPORT OF A.D.I.T. (INV.) MUMBAIWAS ENCLOSED WITH THE NOTICE DATED 30.09.2013 IS NOT COR RECT AND CONTRARY TO THE FACTS. THE ASSESSEES REQUEST FOR CR OSS EXAMINATION OF SHRI JAGDISH PUROHIT FELL ON THE DEAF EAR S OF THE A.O. AND IT WAS DENIED OPPORTUNITY TO BRING THE C ORRECT FACTS ON RECORD. THE UNCONTROVERTED AFFIDAVIT OF SHRI JAGDISH PUROHIT WAS REJECTED BY C.I.T.(A). AS BEING AN AFTERTHOUGHT AND UNBELIVABLE. AN AFFIDAVIT IS NOT A MERE PIECE OR PAPER RATHER IT CARRIES ITS AUTHENTICITY AS THE CONTENTS OF THE SAME ARE DULY SWORN BEFORE A MAGISTRATE OR A NOTARY PUBLIC/OATH COMMISSIONER, AS THE CASE MAY BE. DURING SIGNING OF THESE AFFIDAVITS, THE DEPONENT APPEAR S BEFORE THE PERSON BEFORE WHOM THEY ARE SWORN AND THEI R SIGNATURES ARE DULY TAKEN ON THE REGISTER MAINTAINED BY SUCH NOTARY PUBLIC. IF THE ASSESSING OFFICER IS APPREH ENSIVE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 164 ABOUT THE AUTHENTICITY OF SUCH AFFIDAVIT, HE CAN ALWAYS CROSS EXAMINE THE DEPONENTS AND TO VERIFY THE CONTENT S OF SUCH AFFIDAVIT. IF HE DOES NOT CONSIDER CROSS EXAMINATI ON OF THE DEPONENT NECESSARY, HE CANNOT QUESTION THE CORRECTNESS OF THE STATEMENTS MADE BY THE DEPONENTS I N THEIR AFFIDAVITS. IN SUPPORT OF THE ABOVE PROPOSITION, RELIANCE IS PLACED UPON THE JUDGEMENT OF HONOURABLE SUPREME COURT IN THE CASE OF MEHTA PARIKH & CO. VS. C. I. T (30 1TR 181). A COMPANY IS AN ARTIFICIAL JUDICIAL PERSON . IT CARRIES ON ITS ACTIVITY THROUGH ITS SHAREHOLDERS, ITS BOARD OF DIRECTORS AND ITS EMPLOYEES. IT HAS A PERPETUAL EXISTEN CE UNLESS DISSOLVED OR WOUND UP UNDER APPROPRIATE LAW. ALTHOUGH, IT DOES NOT HAVE ANY PHYSICAL EXISTENCE, IT EXISTS DUE TO OPERATION OF LAW. THEREFORE, ITS EXISTENCE CAN BE ESTABLISHED ONLY THROUGH THE IDENTIFICATION ISSUED TO IT UNDER THE STATUTE UNDER WHICH IT WAS INCORPORATED. THE CERTIFICATE OF INCORPORATION ISSUED BY COMPETENT STATU TORY SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 165 AUTHORITY, PERMANENT ACCOUNT NUMBER AND OTHER CERTIFICATES ISSUED UNDER VARIOUS OTHER APPLICABLE LAWS ARE EVIDENCE OF ITS IDENTIFICATION AND EXISTENCE AND THEY CANNOT BE IGNORED OR BRUSHED ASIDE SIMPLY BECAUSE OF NON-SER VICE OF NOTICES ISSUED BY INCOME-TAX DEPARTMENT. SUCH NON - SERVICE OF NOTICES COULD BE DUE TO N'TH NUMBER OF R EASONS INCLUDING CHANGE OF ADDRESS, NON-AVAILABILITY OF ITS SHAREHOLDERS/DIRECTORS/EMPLOYEES AT A PARTICULAR POINT O F TIME ETC. IT WAS HELD BY THE HONOURABLE DELHI HIGH C OURT IN THE CASE OF DIVINE LEASING AND FINANCE LTD. (299 ITR 26 8) THAT (4) IF RELEVANT DETAILS OF THE ADDRESS OR PAN IDENT IFY OF THE CREDITOR/SUBSCRIBER ARE FURNISHED TO THE DEPART MENT ALONG WITH COPIES OF THE SHAREHOLDERS REGISTER, SHA RE APPLICATION FORMS, SHARE TRANSFER REGISTER, ETC., I T WOULD CONSTITUTE ACCEPTABLE PROOF OR ACCEPTABLE EXPLANATI ON BY THE ASSESSEE. (5) THE DEPARTMENT WOULD NOT BE JUSTIFIED IN DRAWING AN ADVERSE INFERENCE ONLY BECAUSE THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 166 CREDITOR/SUBSCRIBER FAILS OR NEGLECTS TO RESPOND TO ITS NOTICES . IN THE ASSESSEE'S CASE, THE NOTICES U/S. 133(6) WERE ULTIMATELY SERVED UPON ALL THE SHARE APPLICANT COMPANIES AND ALL OF THEM FURNISHED REPLIES TO THE NOTICES WITH DOCUMENTS. IT CLEARLY EMERGES FROM THE ASSESSMENT ORD ER THAT THE ASSESSING OFFICER DID NOT GO THROUGH THESE R EPLIES. 14. IN THE CASE OF SHARE APPLICANT COMPANIES, THEY EXISTED IN THE EYES OF LAW, THEY HAD THEIR OFFICE PR EMISES ALBEIT IT CHANGED FROM THE DATE OF PAYMENT OF SHARE APPLICATION MONEY TO DATE OF SERVICE OF NOTICE AND THEY WERE CARRYING ON THE BUSINESS OF TRADING, INVESTMENT AND FINANCE. THERE ARE MILLIONS OF PEOPLE AND THOUSANDS OF COMPANIES WHICH EXIST BUT DO NOT HAVE A PERMANENT PLACE OF BUSINESS, BUT STILL HAVE PLACE OF WORK/LIVING AND C ARRY ON SOME OCCUPATION. IN FACT THERE ARE SO MANY PEOPLE WORKI NG FROM THEIR RESIDENCE AND SO MANY COMPANIES WHOSE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 167 REGISTERED OFFICE ADDRESSES IS RESIDENCE OF THEIR DI RECTORS, ETC. AND NOT HAVING A PERMANENT BUSINESS PLACE OR ARE NO T FAMOUS OR SOCIALLY RECOGNIZED. IN THE OPINION OF THE ASSESSING OFFICER, ONLY THE BIG AND INFLUENTIAL PERSO NS HAVE LEGAL RECOGNITION, IDENTITY AND CREDITWORTHINESS. A C OMMON MAN HAS NO EXISTENCE IN THE EYES OF THE LAW. THEREFOR E, IT HUMBLY SUBMITTED THAT THE IDENTIFICATION OF EXISTENCE PROVIDED BY THE ASSESSEE AND SUBSEQUENT COMPLIANCE OF NOTICE ESTABLISHED BOTH I.E. THEIR IDENTITY AS WELL AS THEIR EXISTENCE. 72. IF THE FINDINGS AND INFERENCES OF THE ASSESSING O FFICER AS PER THE ASSESSMENT ORDER ARE PITTED AGAINST THE EVID ENCE PLACED ON RECORD, IT IS QUITE MANIFEST THAT HIS FINDING S AND INFERENCES WERE MERE CONJECTURES AND SURMISES, NOT B ASED UPON ANY EVIDENCE BUT ARRIVED AT BY COMPLETELY AND/OR SELECTIVELY IGNORING A LARGE NUMBER OF EVIDENCE BROUG HT ON RECORD IN THE COURSE OF ASSESSMENT PROCEEDINGS. THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 168 INFERENCES DRAWN BY HIM FOR THE PURPOSE OF MAKING ADDITION WERE HEARSE AND LARGELY INFLUENCED BY HIS PERCEPTION ABOUT UNETHICAL AND ILLEGITIMATE PRACTICES ADOPTED BY FEW ASSESSEES IN RAISING SHARE CAPITAL AND NOT ON THE BASIS OF CRITICAL AND SCIENTIFIC ANALYSIS OF FACTS , INFORMATION AND EVIDENCE BROUGHT ON RECORD. 73. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE CASE OF LALCHAND BHAGAT AMBICA RAM V. C.I.T. [1959] 37 ITR 288 , THE HONOURABLE SUPREME COURT DISAPPROVED THE PRACTICE OF MAKING ADDITIONS IN THE ASSESSMENT ON MERE SUSPICION AND SURMISES OR BY TAKIN G NOTE OF THE SO CALLED 'NOTORIOUS PRACTICE' PREVAILING IN TRADE CIRCLES. SIMILAR VIEWS WERE EXPRESSED BY THE HONOURA BLE DELHI HIGH COURT IN THE CASE OF C.I.T. VS. DISCOVERY ESTATES (P.) LTD. (356 ITR 159). THE RELEVANT EXTRACT IS AS UNDER : SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 169 17. IT ONLY REMAINS FOR US TO REFER TO THE OBSERVATIONS OF THE ASSESSING OFFICER TO THE EFFECT THAT NO ONE MAKES A LOSS IN REAL ESTATE BUSINESS AND THAT THE MARKET PERCEPTIONS INDICATE THAT THE PRICES OF THE IMMOVEABLE PROPERTIES ARE ALWAYS ON THE UPWARD TREND. THESE OBSERVATIONS HAVE, INTER ALIA, FORMED THE BASIS OF THE ADDITIONS MADE BY THE ASSESSING OFFICER. IT WAS EVEN SUGGESTED BEFORE US ON BEHALF OF THE REVENUE THAT IT IS A 'NOTORIOUS PRACTICE' PREVAILING IN REAL ESTATE CIRCLES THAT IN ALL PROPERTY TRANSACTIONS THERE IS NON-DISCLOSURE OF THE FULL CONSIDERATION. AS POINTED OUT EARLIER, THIS CANNOT PER SE CONSTITUTE THE BASIS OF THE ADDITION, THOUGH WE MUST HASTEN TO ADD THAT IT CAN VERY WELL BE A STARTING POINT FO R FURTHER INVESTIGATION. IN LALCHANDBHAGATAMBICA RAM V. CIT [1959] 37 ITR 288 , THE SUPREME SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 170 COURT DISAPPROVED THE PRACTICE OF MAKING ADDITIONS IN THE ASSESSMENT ON MERE SUSPICION AND SURMISES OR BY TAKING NOTE OF THE 'NOTORIOUS PRACTICE' PREVAILING IN TRADE CIRCLES. IT WAS OBSERVED AS UNDER: 'ADVERTING TO THE VARIOUS PROBABILITIES WHICH WEIGHED WITH THE INCOME-TAX OFFICER WE MAY OBSERVE THAT THE NOTORIETY FOR SMUGGLING FOOD GRAINS AND OTHER COMMODITIES TO BENGAL BY COUNTRY BOATS ACQUIRED BY SAHIBGUNJ AND THE NOTORIETY ACHIEVED BY DHULIAN AS A GREAT RECEIVING CENTRE FOR SUCH COMMODITIES WERE MERELY A BACKGROUND OF SUSPICION AND THE APPELLANT COULD NOT BE TARRED WITH THE SAME BRUSH AS EVERY ARHATDAR AND GRAIN MERCHANT WHO MIGHT HAVE BEEN INDULGING IN SMUGGLING OPERATIONS, WITHOUT AN IOTA OF EVIDENCE IN THAT BEHALF.' 74. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER DISTINGUISHED THE ORDER RELIED UPON BY THE REVENUE. HE SUBMITS THAT THE FIRST APPELLATE AUTHORITY EXTENSIVELY RELIED SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 171 UPON JUDGEMENT OF HON'BLE DELHI HIGH COURT IN THE C ASE OF NAVODAYA CASTLE PVT. LTD. (367 ITR 306) AND HELD THAT T HE ASSESSEES CASE FALL IN THE SECOND SET OF CASES WHERE T HERE WAS EVIDENCE AND MATERIAL TO SHOW THAT THE SHAREHOLDER COMPANY WAS A PAPER COMPANY HAVING NO SOURCE OF INCOME BUT MADE SUBSTANTIAL AND HUGE INVESTMENT IN THE FORM O F SHARE APPLICATION MONEY. THE A.O. REFERRED TO BANK STATEMENT, FINANCIAL POSITION OF THE RECIPIENT AND BENEFICIARY AND SURROUNDING CIRCUMSTANCES. THE THREE REQUIREMENTS OF IDENTITY, CREDITWORTHINESS AND GENUIN ENESS OF TRANSACTION SHOULD NOT BE TESTED SUPERFICIALLY BUT IN DEPTH HAVING REGARDS TO HUMAN PROBABILITIES AND NORMAL COURSE OF HUMAN CONDUCT. IF THE FINDING OF THE FIRST APPELLATE AUTHORITY IS TESTED ON THE TOUCHSTONE OF EVI DENCE FILED BY THE ASSESSEE DURING THE COURSE OF ASSESSMEN T PROCEEDINGS AND ALSO COLLECTED BY THE A.O. IN RESPONS E TO NOTICES U/S.133(6), IT IS QUITE MANIFEST THAT THE ASSES SEES SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 172 CASE DID NOT FALL IN THE SECOND SET OF CASES AS ENVISAGE D IN THE NAVODAYA CASTLES CASE ( SUPRA ) BECAUSE THE EVIDENCE PLACED BEFORE THE A.O. WERE NOT CONSIDERED BY HIM AT ALL. HE DID NOT GO THROUGH THE BANK STATEMENTS OF THE COMPANIES IN WHICH TRANSACTIONS WITH THE ASSESSEE GROUP WERE PROPERLY REFLECTED. HE DID NOT CONSIDER THE AUD ITED ANNUAL ACCOUNTS FILED BY THESE COMPANIES SHOWING HUGE TURNOVER AND INVESTMENTS. HE SIMPLY HARPED UPON THE SIGNED BLANK TRANSFER FORMS, SIGNED BLANK RECEIPTS, ET C. FOUND DURING THE SEARCH, THE STATEMENT OF SHRI JAGDISH PUROHIT, AND ALLEGED DE-LAYERING IN THE CASE OF WARNER MULTIMEDIA LTD. AND ONE 2 SOLUTIONS PVT. LTD. TO TREA T THE SHARE APPLICATION MONEY/UNSECURED LOAN AS UNEXPLAINED CASH CREDIT. IN FACT, THE ASSESSEES CASE FELL IN THE F IRST CATEGORY OF CASES ENVISAGED BY THE HONOURABLE DELHI HI GH COURT IN THE CASE OF NAVODAYA CASTLES WHEREIN THE ASSESS EE PRODUCED NECESSARY DOCUMENTS/EVIDENCE TO ESTABLISH SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 173 IDENTITY OF SHAREHOLDER, FILED BANK ACCOUNTS FOR VERIF ICATION OF TRANSACTION, DULY CONFIRMED COPIES OF ACCOUNT AND AUDITED ANNUAL ACCOUNTS TO ESTABLISH CREDITWORTHINESS O F THE SHAREHOLDER AND GENUINENESS OF TRANSACTION, BUT TH E REVENUE DID NOT CONDUCT FURTHER ENQUIRIES AND SIMPLY REJECTED THE ASSESSEES EXPLANATION AND EVIDENCE FOR MAKING ADDITION ON ACCOUNT OF UNEXPLAINED CASH CREDIT U/S.68 OF THE ACT. ON THE BASIS OF EVIDENCE PLACED ON RECORD BY THE ASSESSEE AND EVIDENCE GATHERED IN RESPON SE TO NOTICES ISSUED U/S. 133(6) AND THE FINANCIAL ANALYSIS OF VARIOUS COMPANIES FROM WHOM SHARE APPLICATION MONEY AND UNSECURED LOAN RECEIVED IT IS SUBMITTED BY THE LE ARNED COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THESE FACTS AN D LEGAL POSITION, THE ADDITION DESERVES TO BE DELETED. 75. THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AS ALSO THE FOLLOWING CASE LAWS :- SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 174 S. NO. C ASE L AW REMARKS 1 M/S AGRAWAL COAL CORP. PVT. LTD. INDORE V/S ADDL. CIT RANGE-5, INDORE. 19 TAXMAN.COM 209 (ITAT INDORE) SECTION-68 2 ACIT V/S NARMADA EXTRUSION LTD. AND OTHERS, 19 ITJ 202, (ITAT INDORE) - DO - 3 SUMATI DAYAL V/S COMMISSIONER OF INCOME TAX 214 ITR 801 (SC) - DO - 4 ROSHAN DI HATTI V/S COMMISSIONER OF INCOME TAX, 107 ITR 938 (SC) - DO - 5 SHANKAR INDUSTRIES V/S COMMISSIONER OF INCOME TAX, 114 ITR 689 (CAL) - DO - 6 COMMISSIONER OF INCOME TAX V/S BIJU PATNAIK , 160 ITR 674 (SC) - DO - 7 COMMISSIONER OF INCOME TAX V/S PRECISION FINANCE PVT. LTD. 208 ITR 465 CAL.(HC) - DO - 8 COMMISSIONER OF INCOME TAX V/S P. MOHANKALA & ORS. 291 ITR 278 (SC) - DO - 9 COMMISSIONER OF INCOME TAX V/S PODAR CEMENT (P) LTD., 226 ITR 625, (SC) - DO - 10 COMMISSIONER OF INCOME TAX V/S GOLD COIN HEALTH FOOD (P) LTD., 304 ITR 308 (SC) - DO - 11 COMMISSIONER OF INCOME TAX V/S NOVA PROMOTERS & FINLEASE (P) LTD., 342 ITR 169 (HC) DELHI. - DO - 12 ASHOK MAHINDRU & SONS (HUF) V/S COMMISSIONER OF INCOME TAX, 173 TAXMAN 178 (HC) DELHI. - DO - 13 JOINT COMMISSIONER INCOME TAX V/S SAHELI LEASING & INDUSTRIES LTD., 324 ITR 170 (SC) - DO - 14 M/S SOPHIA FINANCE LTD. 205 ITR 98 (DELHI) - DO - 15 CIT V/S M/S NAVODAYA CASTLES PVT. LTD., 367 ITR 306 (DELHI) - DO - 16 DURGA PRASAD MORE, 82 ITR 540 (S.C.) - DO - SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 175 76. WE HAVE HEARD BOTH THE SIDES. WE HAVE CONSIDERED THE FACTS OF THE CASE IN VIEW OF VARIOUS CA SE LAWS RELIED UPON BY BOTH THE SIDES. WE HAVE CONSIDERED TH E FACTS OF THE ASSESSEES CASE IN THE LIGHT OF THE FACTS INVOL VED IN THE DECISIONS RELIED UPON BY THE REVENUE. WE FIND T HAT THE FACTS ARE AT VARIANCE, HENCE RATIO LAID DOWN IN THESE DECISIONS IS NOT APPLICABLE TO THE FACTS OF THE ASSESSE ES CASE. THE ASSESSEE RECEIVED SHARE APPLICATION MONEY FROM THE FOUR COMPANIES, DETAILS OF WHICH ARE AS UNDER :- ASSESSMENT YEAR : 2011-12 16 ANANTHARAM VEERASINGHAIAH V/S CIT, 123 ITR 457 (SC) TELESCOPING 17 GRAND BAZAR V/S ACIT, 292 ITR 269 - DO - 18 S. MUTHUKUMAR V/S INCOME TAX OFFICER, 37 TAXMAN.COM 219 (MAD.) CASH DEPOSIT IN BANK NAME OF COMPANIES AMOUNT (RS.) EMPOWER INDUSTRIES LIMITED 25,00,000/- ADVANCE TECHNOLOGIES LIMITED 1,55,00,000/- DHANUS TECHNOLOGY LIMITED 25,00,000/- PRANETA INDUSTRIES LIMITED 25,00,000/- MILLI COMMODITIES PRIVATE LIMITED 25,00,000/- ASIAN INVESTMENT & FINANCIAL SERVICES PVT. LTD. 1,0 0,00,000/- TOTAL 3,55,00,000/- SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 176 ASSESSMENT YEAR : 2012-13 NAME OF COMPANIES AMOUNT (RS.) ADVANCE FERTILIZER (INDIA) PRIVATE LIMITED 50,00,00 0/- ADVANCE CROP CARE INDIA PRIVATE LIMITED 60,00,000/- R.S.D. CAPITAL MARKET PRIVATE LIMITED 35,00,000/- TOTAL 1,45,00,000/- THE ASSESSEE SUBMITTED MEMORANDUM AND ARTICLE OF ASSOCIATION OF THESE COMPANIES, RESOLUTION OF THE BOARD OF DIRECTORS, BANK STATEMENTS WHEREFROM THE UNSECURED LO AN WAS GIVEN. THE OTHER DETAILS LIKE PAN, ADDRESS, ETC. WERE ALSO PROVIDED TO THE ASSESSING OFFICER. THE FINANCIAL ANALYSIS OF THE ACCOUNTS OF THESE COMPANIES ARE AS UNDER :- 1. EMPOWER INDUSTRIES LIMITED THE COMPANY WAS INCORPORATED ON 20.2.1981 HAVING ITS PA. NO. AAACH3967N. IT IS HAVING REGISTERED OFFICE AND BOARD OF DIRECTORS TO MANAGE ITS AFFAIRS. THE DETAILS THEREOF WERE PLACED ON RECORD BEFORE THE ASSESSING OFFICER. THE RETURN OF INCOME REGULARLY FILED AND REGULARLY ASSESSED. AS PER THE AUDITED ANNUAL ACCOUNTS FILED BY THE COMPANY, THE CAPITAL OF THE COMPANY AS ON 31.03.2011 WAS RS.322,38,91,050/- AND COMPANY WAS HAVING FIXED ASSETS OF RS.3,94,84,507/-. THE DEBTORS OF RS.63,32,36,943/-.OTHER RECEIVABLES ARE OF SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 177 RS63,32,36,943/-, STOCK IN TRADE OF RS.5,63,46,548/ - AND INVESTMENT IN SHARES OF RS. 318,23,74,259/-. THE TURNOVER OF THE COMPANY WAS RS.156,53,50,374/- AND THE NET PROFIT BEFORE TAX STOOD AT RS. 1,37,53,550/- . FROM THE BANK STATEMENTS FILED BY THE COMPANY, IT WAS EVIDENT THAT ALL THE TRANSACTION RELATING TO UNSECURED LOAN WERE CARRIED OUT THROUGH PROPER BANKING CHANNELS AND NO CASH WAS DEPOSITED IN THE BANK ACCOUNT. THE DULY CONFIRMED COPIES OF ACCOUNTS ARE ALSO PLACED ON RECORD. THESE FACTS ESTABLISHED THE IDENTITY AND CREDITWORTHINESS OF THE COMPANY AND ALSO GENUINENESS OF THE TRANSACTION. 2. ADVANCE TECHNOLOGIES LIMITED THE COMPANY WAS INCORPORATED ON 30.1.1985 HAVING ITS PA.NO. AAECA 5763B. IT IS HAVING REGISTERED OFFICE AN D BOARD OF DIRECTORS TO MANAGE ITS AFFAIRS. THE DETAILS AR E PLACED ON RECORD. THE RETURN OF INCOME FILED REGULAR LY AND REGULARLY ASSESSED. AS PER THE AUDITED ANNUAL ACCOUNTS FILED BY THE COMPANY, THE CAPITAL OF THE COMPANY ON 31.03.2011 IS OF RS.164,46,39,054/- AND THE COMPANY WAS HAVING FIXED ASSETS OF RS.33,64,477/- , DEBTORS ARE OF RS.73,21,19,703/-. OTHER RECEIVABLES ARE OF RS.26,34,99,193/-. INVESTMENT IN SHARES WAS OF RS.18,07,63,447/-, BANK BALANCE WAS OF RS.10,31,14,728/- AND INVESTMENT IN SHARESOF RS.211,78,69,023/-. THE TURNOVER OF THE COMPANY WAS RS.176,41,74,050/- AND THE NET PROFIT BEFORE TAX STO OD SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 178 AT RS.10,62,716/-. FROM THE BANK STATEMENTS FILED BY THE COMPANY, IT WAS EVIDENT THAT ALL THE TRANSACTION RELATING TO UNSECURED LOAN WERE CARRIED OUT THROUGH BANKING CHANNELS AND NO CASH WAS DEPOSITED IN THE BANK ACCOUNT. THE DULY CONFIRMED COPIES OF ACCOUNTS ARE ALSO PLACED ON RECORD. THESE FACTS ESTABLISHE THE IDENTITY AND CREDITWORTHINESS OF THE COMPANY AND GENUINENESS OF THE TRANSACTION. 3. DHANUS TECHNOLOGY LIMITED THE COMPANY WAS INCORPORATED ON 2.4.1993 HAVING ITS PA.NO. AAFCD0716Q. IT IS HAVING REGISTERED OFFICE AN D BOARD OF DIRECTORS TO MANAGE ITS AFFAIRS. THE DETAILS AR E PLACED ON RECORD. I THE RETURN OF INCOME REGULARLY FI LED AND ALSO REGULARLY ASSESSED. AS PER THE AUDITED ANNUAL ACCOUNTS FILED BY THE COMPANY, THE CAPITAL AS ON 31.03.2011 IS OF RS.574,89,65,460/-. THE COMPANY WAS HAVING FIXED ASSETS OF RS. 87,06,59,083/-, DEBTORS OF RS. 160,10,96,115/, OTHER RECEIVABLES OF RS.15,24,37,992/-, STOCK IN TRADE OF RS.67,89,44,261 /- , BANK BALANCE OF RS.24,371/-AND INVESTMENT IN SHARES WAS OF RS.34,182/-. THE TURNOVER OF THE COMPANY WAS RS.53,65,07,714/- AND THE NET PROFIT BEFORE TAX STOOD AT LOSS OF RS.12,51,43,121/-. FROM THE BANK STATEMENTS FILED BY THE COMPANY, IT WAS EVIDENT THAT ALL THE TRANSACTION RELATING TO UNSECURED LOAN WERE CARRIED OUT THROUGH PROPER BANKING CHANNELS AND NO CASH WAS DEPOSITED IN THE BANK ACCOUNT. THE DULY SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 179 CONFIRMED COPIES OF ACCOUNTS ARE ALSO PLACED ON RECORD. THESE FACTS ESTABLISH THE IDENTITY AND CREDITWORTHINES S OF THE COMPANY AND GENUINENESS OF THE TRANSACTION. 4. PRANETA INDUSTRIES LTD. THE COMPANY WAS INCORPORATED ON 1.2.1995 HAVING ITS PA.NO. AABCP 4155F. IT IS HAVING REGISTERED OFFICE AN D BOARD OF DIRECTORS TO MANAGE ITS BUSINESS AND AFFAIRS. THE DETAILS THEREOF ARE PLACED ON RECORD. IT IS FILIN G RETURN OF INCOME REGULARLY AND ALSO BEING REGULARLY ASSESSED BY INCOME TAX DEPARTMENT. AS PER THE AUDITED ANNUAL ACCOUNTS FILED BY THE COMPANY, THE CAPITAL FUNDS OF THE COMPANY AS ON 31.03.2011 AMOUNTED TO RS.42,69,92,891/-AND COMPANY WAS HAVING FIXED ASSETS OF RS.22,39,944/-, DEBTORS OF RS.14,84,25,336 /- ,OTHER RECEIVABLES OF RS.116,87,10,616/-,BANK BALANCE OF RS. 5,54,243/- AND INVESTMENT IN SHARES OF RS.55,71,40,928/-. THE TURNOVER OF THE COMPANY WAS RS.264,55,62,713/- AND THE NET PROFIT BEFORE TAX STO OD AT RS.1,92,49,128/-. FROM THE BANK STATEMENTS FILED BY THE COMPANY, IT WAS EVIDENT THAT ALL THE TRANSACTION RELATING TO SHARE APPLICATION MONEY OR UNSECURED LOAN WERE CARRIED OUT THROUGH PROPER BANKING CHANNELS AND NO CASH WAS DEPOSITED IN THE BANK ACCOUNT. THE DULY CONFIRMED COPIES OF ACCOUNTS ARE ALSO PLACED ON RECORD. THESE FACTS ESTABLISH THE IDENTITY AND CREDITWORTHINE SS OF THE COMPANY AND GENUINENESS OF THE TRANSACTION 5. MILLI COMMODITIES PVT.LTD. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 180 THE COMPANY WAS INCORPORATED ON 12.8.2008 HAVING ITS PA.NO. AAFCM8822N. IT IS HAVING REGISTERED OFFICE AND BOARD OF DIRECTORS TO MANAGE ITS AFFAIRS. THE DETAILS AR E PLACED ON RECORD. THE RETURN OF INCOME FILED REGULARL Y AND ALSO REGULARLY ASSESSED. AS PER THE AUDITED ANNUAL ACCOUNTS FILED BY THE COMPANY, THE CAPITAL AS ON 31.03.2011 WAS OF RS.12,85,70,499/-AND COMPANY WAS HAVING OTHER RECEIVABLES OF RS.6,94,47,304/- AND BANK BALANCE OF RS.10,72,528/- AND INVESTMENT IN SHARES OF RS.6,40,75,000/-. THE TURNOVER OF THE COMPANY WAS RS.1,69,782/- AND THE NET PROFIT BEFORE TAX STOOD AT RS.68,363/-. FROM THE BANK STATEMENTS FILED BY THE COMPANY, IT WAS EVIDENT THAT ALL THE TRANSACTION RELATING TO SHARE APPLICATION MONEY OR UNSECURED LOAN WERE CARRIED OUT THROUGH PROPER BANKING CHANNELS AND NO CASH WAS DEPOSITED IN THE BANK ACCOUNT. THE DULY CONFIRMED COPIES OF ACCOUNTS ARE ALSO PLACED ON RECORD. THESE FACTS ESTABLISH THE IDENTITY AND CREDITWORTHINE SS OF THE COMPANY AND GENUINENESS OF THE TRANSACTION 6. ASIAN INVESTMENT & FINANCIAL SERVICES P. LTD. THE COMPANY WAS INCORPORATED ON 2.4.2007 HAVING ITS PA.NO. AAGCA6526N. IT IS HAVING REGISTERED OFFICE AN D BOARD OF DIRECTORS TO MANAGE ITS AFFAIRS. THE DETAILS AR E PLACED ON RECORD. THE RETURN OF INCOME FILED REGULARL Y AND ALSO REGULARLY ASSESSED. AS PER THE AUDITED ANNUAL ACCOUNTS FILED BY THE COMPANY, THE CAPITAL AS ON 31.03.2011 WAS OF RS.7,02,35,556/-AND COMPANY WAS HAVING FIXED ASSETS OF RS.75,007/-, DEBTORS OF RS.20,80,839/-, OTHER RECEIVABLES OF RS.1,90,68,616/ -, STOCK IN TRADE OF RS. 7,41,271/- AND BANK BALANCE OF RS.11,22.907/- AND INVESTMENT IN SHARES OF SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 181 RS.4,84,00,000/-. THE TURNOVER OF THE COMPANY WAS RS.35,46,387/- AND THE NET PROFIT BEFORE TAX STOOD A T RS.88,183/-. FROM THE BANK STATEMENTS FILED BY THE COMPANY, IT WAS EVIDENT THAT ALL THE TRANSACTION RELATING TO SHARE APPLICATION MONEY OR UNSECURED LOAN WERE CARRIED OUT THROUGH PROPER BANKING CHANNELS AND NO CASH WAS DEPOSITED IN THE BANK ACCOUNT. THE DULY CONFIRMED COPIES OF ACCOUNTS ARE ALSO PLACED ON RECORD. THESE FACTS ESTABLISH THE IDENTITY AND CREDITWORTHINE SS OF THE COMPANY AND GENUINENESS OF THE TRANSACTION. 7. ADVANCE FERTILIZER (INDIA) PVT. LTD. THE COMPANY WAS INCORPORATED ON 22.12.2010 HAVING ITS PA.NO. AAJCA 2188 B. IT IS HAVING REGISTERED OFF ICE AND BOARD OF DIRECTORS TO MANAGE ITS AFFAIRS. THE DETAILS ARE PLACED ON RECORD. THE RETURN OF INCOME FILED REGULARLY AND ALSO REGULARLY ASSESSED. AS PER THE AUDITED ANNUAL ACCOUNTS FILED BY THE COMPANY, THE CAPITAL AS ON 31.03.2012 WAS OF RS.83,90,270/-AND COMPANY WAS HAVING FIXED ASSETS OF RS.89,86,470/-, OTHER RECEIVABLES OF RS.61,69,985/- AND BANK BALANCE OF RS.14,72,547/. THE INCOME OF THE COMPANY WASS RS.52,466/- AND THE NET PROFIT BEFORE TAX STOOD NEGATIVE AT RS.6,39,862/-. FROM THE BANK STATEMENTS FILED BY THE COMPANY, IT WAS EVIDENT THAT ALL THE TRANSACTION RELATING TO SHARE APPLICATION MONEY OR UNSECURED LOAN WERE CARRIED OUT THROUGH PROPER BANKING CHANNELS AND NO CASH WAS DEPOSITED IN THE BANK ACCOUNT. THE DULY CONFIRMED COPIES OF ACCOUNTS ARE ALSO PLACED ON RECORD. THESE FACTS ESTABLISH THE IDENTITY AND CREDITWORTHINESS OF THE COMPANY AND GENUINENESS OF THE TRANSACTION. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 182 8. ADVANCE CROP CARE INDIA PVT. LTD. THE COMPANY WAS INCORPORATED ON 8.1.2007 HAVING ITS PA.NO. AAGCA 9352C. IT IS HAVING REGISTERED OFFICE AND BOARD OF DIRECTORS TO MANAGE ITS AFFAIRS. THE DETAILS AR E PLACED ON RECORD. THE RETURN OF INCOME FILED REGULARL Y AND ALSO REGULARLY ASSESSED. AS PER THE AUDITED ANNUAL ACCOUNTS FILED BY THE COMPANY, THE CAPITAL AS ON 31.03.2011 WAS OF RS.76,95,227/-AND COMPANY WAS HAVING FIXED ASSETS OF RS.2,14,43,970/-, DEBTORS OF RS.6,18,31,303/-, OTHER RECEIVABLES OF RS.60,19,057/ - AND STOCK IN TRADE OF RS.1,04,50,450/-. THE TURNOVER OF THE COMPANY WAS RS.17,19,33,125/- AND THE NET PROFIT BEFORE TAX STOOD AT RS.19,61,291/-. FROM THE BANK STATEMENTS FILED BY THE COMPANY, IT WAS EVIDENT THAT AL L THE TRANSACTION RELATING TO SHARE APPLICATION MONEY OR UNSECURED LOAN WERE CARRIED OUT THROUGH PROPER BANKING CHANNELS AND NO CASH WAS DEPOSITED IN THE BANK ACCOUNT. THE DULY CONFIRMED COPIES OF ACCOUNTS ARE ALSO PLACED ON RECORD. THESE FACTS ESTABLISH THE IDENTITY AND CREDITWORTHINESS OF THE COMPANY AND GENUINENESS OF THE TRANSACTION. 9. R.S.D. CAPITAL MARKET PVT. LTD. THE COMPANY WAS INCORPORATED ON 15.3.1995 HAVING ITS PA.NO. AAACR 9502 P. IT IS HAVING REGISTERED OFFICE AND BOARD OF DIRECTORS TO MANAGE ITS AFFAIRS. THE DETAILS AR E PLACED ON RECORD. THE RETURN OF INCOME FILED REGULARL Y AND ALSO REGULARLY ASSESSED. AS PER THE AUDITED ANNUAL ACCOUNTS FILED BY THE COMPANY, THE CAPITAL AS ON 31.03.2010 WAS OF RS.23,82,706/-AND COMPANY WAS SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 183 HAVING OTHER RECEIVABLES OF RS.1,66,28,100/- AND BANK BALANCE OF RS.17,938/-. THE TURNOVER OF THE COMPANY WAS RS.29,98,450/- AND THE NET PROFIT BEFORE TAX STOOD AT RS.19,87,055/-. FROM THE BANK STATEMENTS FILED BY THE COMPANY, IT WAS EVIDENT THAT AL L THE TRANSACTION RELATING TO SHARE APPLICATION MONEY OR UNSECURED LOAN WERE CARRIED OUT THROUGH PROPER BANKING CHANNELS AND NO CASH WAS DEPOSITED IN THE BANK ACCOUNT. THE DULY CONFIRMED COPIES OF ACCOUNTS ARE ALSO PLACED ON RECORD. THESE FACTS ESTABLISH THE IDENTITY AND CREDITWORTHINESS OF THE COMPANY AND GENUINENESS OF THE TRANSACTION. 77. THE VARIOUS CASE LAWS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE AND CONSIDERING THE FACTUAL ASP ECT OF THIS CASE, WE ARE OF THE VIEW THAT THE ASSESSEE WAS AB LE TO ESTABLISH THE IDENTITY OF THESE CREDITORS BY WAY OF FURNISHING PERMANENT ACCOUNT NUMBER, CERTIFICATE OF INCORPORATION AND COPIES OF RETURNS OF INCOME. THE GENUINENESS OF THE TRANSACTION IS ALSO ESTABLISHED AS AL L THESE TRANSACTIONS WERE THROUGH PROPER BANKING CHANNELS AND THERE WAS NO CASH DEPOSIT IN THE BANK ACCOUNTS OF THESE CREDITORS JUST PRIOR TO ADVANCEMENT OF LOAN. THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 184 FINANCIAL ANALYSIS OF THESE COMPANIES ALSO ESTABLISHED THAT THESE COMPANIES WERE HAVING CREDIT WORTHINESS TO ADVANC E SUCH AMOUNT TO THE ASSESSEE. IN VIEW OF THESE FACTS, WE HOLD THAT THE ASSESSEE WAS ABLE TO SHIFT THE BURDEN ON THE REVENUE TO ESTABLISH WHETHER SUCH ADVANCES WERE OUT O F THE ASSESSEES OWN FUNDS. THE REVENUES RELIANCE ONLY ON THE SIGNED BANK TRANSFER FORMS CANNOT BE TAKEN A GROUND TO TREAT THESE ACTIVITIES AS BOGUS. IN THE ABSENCE OF AN Y CORROBORATIVE EVIDENCE WHICH COULD ESTABLISH THAT THE TRANSACTIONS WERE NOT GENUINE OR WERE FICTITIOUS OR AN YTHING ELSE, THE LEARNED CIT(A) WAS NOT JUSTIFIED IN SUSTAINI NG THE ADDITION. MOREOVER, THE ASSESSEE WAS NOT PROVIDED WIT H THE COPY OF STATEMENTS RECORDED BY THE ADIT, INVESTIGATIO N, MUMBAI, WHETHER IT HAS ANY RELEVANCE IN THE ASSESSEES CASE OR NOT. THE ASSESSEE WAS NOT PROVIDED WITH A COPY AND ALSO WAS NOT PROVIDED AN OPPORTUNITY TO CROSS-EXAMIN E SHRI JAGDISH PUROHIT WHO HAS RETRACTED FROM THE EARLIE R SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 185 STATEMENT AND THE CONTENTS OF THE AFFIDAVIT FILED BY HI M REMAINED UNCONTROVERTED. HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF STL EXTRUSION (P) LTD.; 333 ITR 269 AF TER CONSIDERING THE DECISION OF THE HON'BLE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT VS. RATHI FINLEASE LTD.; (20 08) 215 CTR (MP) 429 HAS HELD AS UNDER :- THOUGH IT IS THE DUTY OF THE ASSESSEE TO ESTABLISH THE GENUINENESS OF THE CREDITS BUT IN THE PRESENT CASE THE ASSESSEE HAS DULY ESTABLISHED THE IDENTITY AND SOURCE OF CREDITS. THE TRIBUNAL HAS ALSO HELD THAT ONCE THE IDENTITY AND SOURCE OF THE SUBSCRIBERS OF THE SHARES IS ESTABLISHED NO ADDITION CAN BE MADE UNDER S. 68. THE ASSESSEE HAVING DULY FURNISHED THE NAME, AGE, ADDRESS, DATE OF FILING THE APPLICATION OF SHARES, NUMBER OF SHARES OF EACH SUBSCRIBER THERE WAS NO JUSTIFICATION FOR THE A.O. FOR MAKING THE IMPUGNED SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 186 ADDITION BECAUSE ONCE THE EXISTENCE OF THE INVESTORS/SHARE SUBSCRIBERS IS PROVED, ONUS SHIFTS ON THE REVENUE TO ESTABLISH THAT EITHER THESHARE APPLICANTS ARE BOGUS OR THE IMPUGNED MONEY BELONGS TO THE ASSESSEE ITSELF. AFTER FILING OF THE AFFIDAVITS OF THE SAID SUBSCRIBER THE APPELLANT AT NO STAGE OF THE PROCEEDINGS SOUGHT ANY OPPORTUNITY TO REBUT THE SAID AFFIDAVITS. HAVING REGARD TO THE AFORESAID, NO QUESTION OF LAW MUCH LESS SUBSTANTIAL QUESTION OF LAW ARISES IN THIS APPEAL. FOR HOLDING SO, WE ALSO GET SUPPORT FROM THE FOLLOWI NG CASE LAWS :- 1. C.I.T VS. STELLAR INVESTMENT LTD. [192 ITR 287 (DEL)] IN THE PRESENT CASE, THE SUBSCRIBED CAPITAL OF THE ASSESSEE HAD BEEN INCREASED. THE INCOME-TAX OFFICER ASSESSED THE COMPANY AND ACCEPTED THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 187 INCREASE IN THE SUBSCRIBED CAPITAL. THE COMMISSIONER OF INCOME-TAX CAME TO THE CONCLUSION THAT THE ASSESSING OFFICER DID NOT CARRY OUT A DETA ILED INVESTIGATION INASMUCH AS THERE HAD BEEN A DEVICE OF CONVERTING BLACK MONEY INTO WHITE BY ISSUING SHARES WITH THE HELP OF FORMATION OF AN INVESTMENT COMPANY. THE COMMISSIONER OF INCOME-TAX FURTHER HELD THAT THE ASSESSING OFFICER DID NOT MAKE ENQUIRIES WITH REGARD TO THE GENUINENESS OF THE SUBSCRIBERS OF THE SHARE CAPITAL. HE THEREUPON SET ASIDE THE ORDER OF ASSESSMENT. THE TRIBUNAL REVERSED THIS DECISION FOR REASONS WHICH WE NEED NOT GO INTO. IT IS EVIDENT THAT EVEN IF IT BE ASSUMED THAT THE SUBSCRIBERS TO THE INCREASED SHARE CAPITAL WERE NOT GENUINE, NEVERTHELESS, UNDER NO CIRCUMSTANCES, CAN THE AMOUNT OF SHARE CAPITAL BE REGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE. IT MAY BE THAT THERE ARE SOME BOGUS SHAREHOLDERS IN WHOSE NAMES SHARES HAD BEEN ISSUED AND THE MONEY MAY HAVE BEEN PROVIDED BY SOME OTHER PERSONS. IF THE ASSESSMENT OF THE PERSONS WHO ARE ALLEGED TO HAVE REALLY ADVANCED THE MONEY IS SOUGHT TO BE REOPENED, THAT WOULD HAVE MADE SOME SENSE BUT WE FAIL TO UNDERSTAND AS TO HOW THIS AMOUNT OF INCREASED SHARE CAPITAL CAN BE ASSESSED IN THE HANDS OF THE COMPANY ITSELF. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 188 2. C.I.T VS. STELLER INVESTMENT LTD. [251 ITR 263 (SC)] WE HAVE READ THE QUESTION WHICH THE HIGH COURT ANSWERED AGAINST THE REVENUE. WE ARE IN AGREEMENT WITH THE HIGH COURT. PLAINLY, THE TRIBUNAL CAME TO A CONCLUSION ON FACTS AND NO INTERFERENCE IS CALLED F OR. THE APPEAL IS DISMISSED. NO ORDER AS TO COSTS. 3. C.I.T VS. ELECTRO POLYCHEM LTD. [294 ITR 661 (MAD)] . THE ASSESSEE FILED ITS RETURNS FOR THE ASSESSMENT YEARS 1998-99 AND 1999-2000. THE ASSESSING OFFICER MADE ADDITIONS IN RESPECT OF THE SHARE APPLICATION MONEY UNDER SECTION 68 OF THE INCOME- TAX ACT, 1961, ON THE FINDING THAT THE ASSESSEE HAD BROUGHT THE UNDISCLOSED INCOME BY WAY OF SHARE APPLICATIONS IN FICTITIOUS NAMES AND PASSED ORDERS ACCORDINGLY. ON APPEAL BY THE ASSESSEE, THE COMMISSIONER (APPEALS) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 1998-99 AND UPHELD THE ADDITION MADE FOR THE ASSESSMENT YEAR 1999-2000. ON FURTHER APPEALS BY THE ASSESSEE AND THE REVENUE, THE TRIBUNAL ALLOWED THE APPEAL OF THE ASSESSEE AND DISMISSED THE APPEAL BEFORE THE REVENUE. ON APPEAL: SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 189 HELD, DISMISSING THE APPEALS, THAT EVEN IF IT WAS ASSUMED THAT THE SUB-SCRIBERS TO INCREASED SHARE CAPITAL WERE NOT GENUINE, UNDER NO CIRCUMSTANCES COULD THE AMOUNT OF SHARE CAPITAL BE REGARDED AS UNDISCLOSED INCOME OF THE COMPANY . 4. C.I.T VS. DIVINE LEASING AND FINANCE LTD. [299 ITR 268 (DEL)] IN THIS ANALYSIS, A DISTILLATION OF THE PRECEDENTS YIELDS THE FOLLOWING PROPOSITIONS OF LAW IN THE CON TEXT OF SECTION 68 OF THE INCOME-TAX ACT. THE ASSESSEE HAS TO PRIMA FACIE PROVE (1) THE IDENTITY OF THE CREDITOR/SUBSCRIBER; (2) THE GENUINENESS OF THE TRANSACTION, NAMELY, WHETHER IT HAS BEEN TRANSMITTED THROUGH BANKING OR OTHER INDISPUTABLE CHANNELS; (3) THE CREDITWORTHINESS OR FINANCIAL STRENGTH OF THE CREDITOR/SUBSCRIBER; (4) IF RELEVANT DETAILS OF THE ADDRESS OR PAN IDENTIFY OF THE CREDITOR/SUBSCRIBER ARE FURNISHED TO THE DEPARTMENT ALONG WITH COPIES OF THESHAREHOLDERS REGISTER, SHARE APPLICATION FORMS, SHARE TRANSFER REGISTER, ETC., IT WOULD CONSTITUTE ACCEPTABLE PROOF OR ACCEPTABLE EXPLANATION BY THE ASSESSEE.(5) THE DEPARTMENT WOULD NOT BE JUSTIFIED IN DRAWING AN ADVERSE INFERENCE ONLY BECAUSE THE CREDITOR/SUBSCRIBER FAILS OR NEGLECTS TO RESPOND TO ITS NOTICES;(6) THE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 190 ONUS WOULD NOT STAND DISCHARGED IF THE CREDITOR/SUBSCRIBER DENIES OR REPUDIATES THE TRANSACTION SET UP BY THE ASSESSEE NOR SHOULD THE ASSESSING OFFICER TAKE SUCH REPUDIATION AT FACE VALUE AND CONSTRUE IT, WITHOUT MORE, AGAINST THE ASSESSEE; AND (7) THE ASSESSING OFFICER IS DUTY-BOUND TO INVESTIGATE THE CREDITWORTHINESS OF THE CREDITOR/SUBSCRIBER THE GENUINENESS OF THE TRANSACTION AND THE VERACITY OF THE REPUDIATION . 5. C.I.T VS. DIVINE LEASING & FINANCE LTD. [CIVIL APPEAL NO. CC375/2008 (SC)] CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UNDISCLOSED INCOME U/S.68 OF THE INCOME-TAX ACT, 1961? WE FIND NO MERIT IN THIS SPECIAL LEAVE PETITIO N FOR THE SIMPLE REASON THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE- COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE A.O., THEN THE DEPARTMENT IS FREE TO PROCEED TO RE-OPEN THEIR INDIVIDUAL ASSESSMENT IN ACCORDANCE WITH LAW . HENCE, WE FIND NO INFIRMITY WITH THE IMPUGNED JUDGMENT. 6. C.I.T VS. SOPHIA FINANCE LTD. [205 ITR 98 (DEL.FB)] SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 191 IF THE SHAREHOLDERS ARE IDENTIFIED AND IT IS ESTABLISHED THAT THEY HAVE INVESTED MONEY IN THE PURCHASE OF SHARES, THEN THE AMOUNT RECEIVED BY THE COMPANY WOULD BE REGARDED AS A CAPITAL RECEIPT AND TO THAT EXTENT THE OBSERVATIONS IN C.I.T. VS. STELLAR INVESTMENT LTD. [1991] 192 ITR 287 (DELHI), ARE CORRECT ; BUT THE OBSERVATIONS IN THAT CASE TO THE EFFECT THAT EV EN IF THE SUBSCRIBERS TO THE CAPITAL WERE NOT GENUINE UNDER NO CIRCUMSTANCE COULD THE AMOUNT OF SHARE CAPITAL BE REGARDED AS UNDISCLOSED INCOME OF THE [COMPANY] ARE NOT. 7. C.I.T VS. LOVELY EXPORTS PVT. LTD. [216 CTR 195 (SC)] 2. CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UNDISCLOSED INCOME UNDER SECTION 68 OF IT ACT, 1961?. WE FIND NO MERIT IN THIS SPECIAL LEAVE PETITION FOR THE SIMPLE REASON THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE AO, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW . HENCE, WE FIND NO INFIRMITY WITH THE IMPUGNED JUDGMENT. 3. SUBJECT TO THE ABOVE, SPECIAL LEAVE PETITION IS DISMISSED . SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 192 8. C.I.T VS. FIRST POINT FINANCE LTD. [286 ITR 477] (RAJ)]. THE FINDINGS REACHED BY THE TRIBUNAL WERE FINDINGS OF FACT AND WERE IN CONSONANCE WITH THE DECISION OF THE DELHI HIGH COURT ([1991] 192 ITR 287 ) AFFIRMED BY THE SUPREME COURT IN THE CASE OF STELLER INVESTMENT LTD. [2001] 251 ITR 263 , AND ALSO ON PRINCIPLE ACCEPTED BY ANOTHER DECISION IN CIT V. SOPHIA FINANCE LTD. [1994] 205 ITR 98 (DELHI) [FB]. THE FINDING RECORDED BY THE TRIBUNAL DID NOT GO BEYOND THE PURVIEW OF THE FINDINGS OF FACT. IN THE INSTANT CASE, IT WAS NOT DENIED THAT ALL THE SHAREHOLDERS/SHARE APPLICANTS WERE GENUINELY EXISTING PERSONS. IT WAS ALSO NOT DENIED THAT EACH OF THEM WAS AN INCOME-TAX ASSESSEE AND THE COPIES OF THE RETURN OF THEIR INCOME WERE ALSO PLACED BEFORE THE ASSESSING OFFICER BY THE ASSESSEE WHICH FACT WAS ALSO NOT DENIED. IN THESE CIRCUMSTANCES, NO MATERIAL HAD BEEN BROUGHT ON RECORD EXCEPT INFERRING THAT THE INVESTORS IN THE OPINION OF THE ASSESSING OFFICER WERE NOT CREDITWORTHY TO LINK THE ASSESSEE WITH SUCH INVESTMENT OF MONEY MADE BY THOSE PERSONS . THE CASE SQUARELY FELL WITHIN THE RATIO LAID DOWN IN THE STELLER INVESTMENT LTD. [2001] 251ITR 263 (SC) WHEREIN IT WAS STATED THAT IN SUCH CASES MERELY BECAUSE THE CREDITORS HAVE FAILED TO SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 193 PROVE THEIR SOURCE OF INVESTMENT, THE SAME CANNOT BE ADDED IN THE INCOME OF THE ASSESSEE BUT IT OUGHT TO BE ADDED BY FINDING PERSONS WHO HAD THEIR NAMES . THERE WAS NO PRESUMPTION THAT THE ASSESSEE WAS THE BENAMI OWNER OF THE INVESTMENT MADE BY THE EXISTING PERSONS. THE APPEAL WAS TO BE DISMISSED. 9. SHREE BARKHA SYNTHETICS LTD. VS. A.C.I.T [283 ITR 377 (RAJ)] IF THE TRANSACTIONS ARE MADE THROUGH BANKING CHANNELS AND ONCE THE EXISTENCE OF PERSONS BY NAME IN THE SHARE APPLICATIONS IN WHOSE NAME THE SHARES HAVE BEEN ISSUED IS SHOWN, THE ASSESSEE COMPANY CANNOT BE HELD RESPONSIBLE TO PROVE WHETHER THAT PERSON HIMSELF HAS INVESTED THE SAID MONEY OR SOME OTHER PERSON HAD MADE INVESTMENT IN THE NAME OF THAT PERSON. THE BURDEN THEN SHIFTS ON THE REVENUE TO ESTABLISH THAT SUCH INVESTMENT HAS COME FROM THE ASSESSEE COMPANY ITSELF. 10. C.I.T VS. DWARKADHISH INVESTMENT PVT. LTD. [ 194 TAXMAN 43 (DEL)] ONCE HE PROVES THE IDENTITY OF THE CREDITORS/SHARE APPLICANTS BY EITHER FURNISHING THEIR PAN NUMBERS OR INCOME-TAX ASSESSMENT SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 194 NUMBERS AND SHOWS THE GENUINENESS OF TRANSACTION BY SHOWING MONEY IN HIS BOOKS EITHER BY ACCOUNT PAYEE CHEQUE OR BY DRAFT OR BY ANY OTHER MODE, THEN THE ONUS OF PROOF WOULD SHIFT TO THE REVENUE.JUST BECAUSE THE CREDITORS/SHARE APPLICANTS COULD NOT BE FOUND AT THE ADDRESS GIVEN, IT WOULD NOT GIVE THE REVENUE THE RIGHT TO INVOKE SECTION 68. ONE MUST NOT LOSE SIGHT OF THE FACT THAT IT IS THE REVENUE WHICH HAS ALL THE POWERS AND WHEREWITHAL TO TRACE ANY PERSON . MOREOVER, IT IS SETTLED LAW THAT THE ASSESSEE NEED NOT TO PROVE THE SOURCE OF SOURCE 11. C.I.T VS. ANTARCTICA INVESTMENT PVT. LTD. [262 ITR 493 (DEL)] THE COURT WAS SATISFIED THAT NO INTERFERENCE WAS JUSTIFIED SINCE THE ASSESSEE HAD PRODUCED THE SHARE APPLICATION FORM ALONG WITH CONFIRMATION LETTERS, COPIES OF THEIR ACCOUNTS, COPIES OF THEIR BANK ACCO UNT AND CHEQUES PAYMENTS AND THEIR AUDITORS REPORT. THE ASSESSING OFFICERS CONCLUSION THAT GENUINENESS OF TRANSACTIONS HAD NOT BEEN MADE GOOD WAS NOT UPHELD DESPITE THE FACT THAT THE NOTICES RECEIVED B Y ONE OF THE COMMON DIRECTORS OF TWO SUBSCRIBING COMPANIES HAD BEEN IGNORED AND NO INFORMATION WAS FORTHCOMING FROM THE LATTER. HOWEVER, IT WAS CONFIRMED BY THE UNDER SECRETARY, LAND REVENUE, SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 195 GOVERNMENT OF SIKKIM, THAT BOTH THE COMPANIES WERE INCORPORATED IN SIKKIM AND THEIR ADDRESSES WERE DISCLOSED IN THE RETURN OF ALLOTMENT; THE SUBSCRIBE R THUS STOOD IDENTIFIED. 12. C.I.T VS. DOLPHINE CANPACK LTD. [283 ITR 190 (DEL)] IN CASES WHERE THE CREDIT ENTRY RELATES TO THE ISSUE OF SHARE CAPITAL, THE ITO IS ALSO ENTITLED TO EXAMINE WHETHER THE ALLEGED SHAREHOLDERS DO IN FACT EXIST OR NOT. SUCH AN INQUIRY WAS CONDUCTED BY THE ASSESSING OFFICER IN THE INSTANT CASE. IN THE COURSE OF THE SAID INQUIRY, THE ASSESSEE HAD DISCLOSED TO THE ASSESSING OFFICER NOT ONLY THE NAMES AND THE PARTICULARS OF THE SUBSCRIBERS OF THE SHARES BUT ALSO THEIR BANK ACCOUNTS AND THE PERMANENT ACCOUNT NUMBERS ISSUED BY THE INCOME-TAX DEPARTMENT. SUPERADDED TO ALL THIS WAS THE FACT THAT THE AMOUNT RECEIVED BY THE COMPANY WAS ALL BY WAY OF CHEQUES. THAT MATERIAL WAS, IN THE OPINION OF THE TRIBUNAL, SUFFICIENT TO DISCHARGE THE ONUS THAT LAY UPON THE ASSESSEE. THAT WAS EVIDENT FROM THE PASSAGE EXTRACTED FROM THE ORDER PASSED BY THE TRIBUNAL EARLIER. IN THE ABSENCE OF A NY PERVERSITY IN THE VIEW TAKEN BY THE TRIBUNAL OR ANYTHING TO ESTABLISH CONCLUSIVELY THAT THE FINDING REGARDING THE GENUINENESS OF THE SUBSCRIBERS AND SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 196 THE TRANSACTION SUFFERED FROM ANY IRRATIONALITY NO SUBSTANTIAL QUESTION OF LAW AROSE FOR CONSIDERATION IN INSTANT APPEAL TO WARRANT INTERFERENCE. THE INSTANT APPEAL ACCORDINGLY FAILED AND WAS DISMISSED.[PARA 7] 13. C.I.T VS. VALUE CAPITAL SERVICES PVT. LTD. [307 ITR 334 (DEL)] IT IS QUITE OBVIOUS THAT IS VERY DIFFICULT FOR THE ASSESSEE TO SHOW THE CREDITWORTHINESS OF STRANGERS. IF THE REVENUE HAD ANY DOUBT WITH REGARD TO THEIR ABILITY TO MAKE THE INVESTMENT, THEIR RETURNS MIGHT BE REOPENED BY THE DEPARTMENT . IF DEPARTMENT WANTS TO MAKE ADDITION ON ACCOUNT OF SHARE APPLICATION MONEY, BURDEN IS ON DEPARTMENT TO SHOW THAT EVEN IF APPLICANT DID NOT HAVE MEANS TO MAKE INVESTMENT, INVESTMENT MADE BY ASSESSEE ACTUALLY EMANATED FROM COFFERS OF ASSESSEE SO AS TO ENABLE IT TO BE TREATED AS UNDISCLOSED INCOME OF ASSESSEE. 14. C.I.T VS. PEOPLES GENERAL HOSPITAL LTD. [2013] 356 ITR 65 (MP) FACTS SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 197 THE ASSESSING OFFICER MADE ADDITION, HOLDING THAT SHARE SUBSCRIPTION RECEIVED FROM A COMPANY IN SHARJAH WAS UNDISCLOSED INCOME OF THE ASSESSEE, AS HE DOUBTED THE CREDITWORTHINESS OF SUCH COMPANY. HELD IN THE CASE OF CIT V. LOVELY EXPORTS (P.) LTD. [APPLICATION NO. 11993 OF 2007, DATED 11-1-2008], THE APEX COURT SPECIFICALLY HELD THAT IF THE IDENTI TY OF THE PERSON PROVIDING SHARE APPLICATION MONEY IS ESTABLISHED, THEN THE BURDEN IS NOT ON THE ASSESSEE TO PROVE THE CREDITWORTHINESS OF THE SAID PERSON. HOWEVER, THE DEPARTMENT CAN PROCEED AGAINST THE SAID COMPANY IN ACCORDANCE WITH LAW. [PARA 16] THE POSITION OF THE PRESENT CASE IS IDENTICAL. IT I S NOT THE CASE OF ANY OF THE PARTIES THAT THE COMPANY IN SHARJAH IS A BOGUS COMPANY OR A NON-EXISTENT COMPANY AND THE AMOUNT WHICH WAS SUBSCRIBED BY THE SAID COMPANY BY WAY OF SHARE SUBSCRIPTION WAS IN FACT THE MONEY OF THE ASSESSEE. IN THE PRESENT CASE, THE ASSESSEE HAD ESTABLISHED THE IDENTITY OF INVESTOR WHO HAD PROVIDED THE SHARE SUBSCRIPTION AND IT WAS ESTABLISHED THAT THE TRANSACTION WAS GENUINE, THOUGH AS PER CONTENTION OF THE ASSESSEE THE CREDITWORTHINESS OF THE CREDITOR WAS ALSO ESTABLISHED. IN THE PRESENT CASE, IN THE LIGHT OF T HE JUDGMENT OF LOVELY EXPORTS (P.) LTD. (SUPRA), ONLY ESTABLISHMENT OF THE IDENTITY OF THE INVESTOR IS TO BE SEEN. THE DELHI HIGH COURT ALSO, IN THE CASE OF CIT V. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 198 DIVINE LEASING & FINANCE LTD. [2008] 299 ITR 268/[2007] 158 TAXMAN 440 , CONSIDERING A SIMILAR QUESTION HELD THAT THE ASSESSEE-COMPANY, HAVING RECEIVED SUBSCRIPTIONS FROM THE PUBLIC/RIGHTS ISSUE THROUGH BANKING CHANNELS AND FURNISHED COMPLETE DETAILS OF THE SHAREHOLDERS, NO ADDITION COULD BE MADE UNDER SECTION 68 IN THE ABSENCE OF ANY POSITIVE MATERIAL OR EVIDENCE TO INDICATE THAT THE SHAREHOLDERS WERE BENAMIDARS OR FICTITIOUS PERSONS OR THAT ANY PART OF THE SHARE CAPITAL REPRESENTED COMPANY'S OWN INCOME FROM UNDISCLOSED SOURCES. [PARA 16] 15. C.I.T VS. EMPIRE BUILDTECH (P) LTD. [2014] 43 TAXMANN.COM 269 (DEL) THE ADDITION IN RELATION TO SHARE CAPITAL CAN BE MA DE ONLY IN THE CASE OF THOSE SUBSCRIBERS/INVESTORS TO SHARE CAPITAL WHOSE PARTICULARS COULD NOT BE VERIFI ED AND WHO DID NOT RESPOND TO NOTICES ISSUED BY ASSESSING OFFICER. 16. MIDAS GOLDEN DISTILLERIES (P) LTD. VS.C.I.T [2009] 124 TTJ 25 (CHENNAI) FACTS THE ASSESSEE RAISED SHARE CAPITAL AND RECEIVED SHARE APPLICATION MONEY FROM SEVEN PERSONS AGGREGATING RS.1394.15 LAKHS. THE ASSESSEE HAD BROUGHT ON RECORD COMPLETE IDENTITY OF SHAREHOLDERS SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 199 BY PROVIDING THEIR ADDRESSES AND CONFIRMATIONS TO THE EFFECT THAT THEY HAD CONTRIBUTED TO THE SHARE CAPITAL OF THE ASSESSEE COMPANY. THE MONEYS RECEIVED WERE THROUGH BANKING CHANNEL. THEY ALL WERE SHOWN TO BE REGULARLY ASSESSED TO INCOME-TAX. ASSESSMENT PARTICULARS WITH RESPECT TO EACH OF THEM WERE MADE AVAILABLE TO THE ASSESSING AUTHORITY. TWO COMPANIES WHICH HAD MADE CONTRIBUTIONS OF RS.340 LAKHS AND RS.745 LAKHS RESPECTIVELY WERE ASSESSED WITH THE SAME ASSESSING OFFICER WHO ASSESSED THE ASSESSEE. THE ASSESSING AUTHORITY HIMSELF HAD FOUND THAT BOTH THESE APPLICANTS IN THEIR RESPECTIV E ACCOUNTS, HAD DISCLOSED INVESTMENT MADE WITH THE ASSESSEE. HOWEVER, THE SHARE APPLICATION MONEY WAS TREATED AS CASH CREDITS AND ADDED TO THE ASSESSEES INCOME. HELD DESPITE ALL THE MATERIAL AVAILABLE WITH THE ASSESSI NG AUTHORITY AND DISCREET ENQUIRIES AS WERE MADE WITHIN THE SCOPE OF HIS POWERS, THE ASSESSING AUTHORITY FOUND THAT THERE REMAINED A MYSTERY AS TO WHOM THE MONEY REALLY BELONGED . EVEN THOUGH THERE WERE CIRCUMSTANCES LEADING TO SUSPICION, YET HAVING TAKEN AN ACTION UNDER SECTION 132 AND ENQUIRIES MADE IN THE ASSESSMENT PROCEEDINGS, THE ASSESSING AUTHORITY HAD NOT SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 200 BROUGHT ANY POSITIVE MATERIAL OR EVIDENCE TO INDICATE THAT THE SHARE APPLICATION MONEY AS SUCH REPRESENTED ASSESSEES OWN UNDISCLOSED MONEY BROUGHT BACK IN THE GARB OF SHARE CAPITAL. MERELY BECAUSE OF HIS SUBJECTIVE SATISFACTION THAT THE SOURCE OF AVAILABILITY OF MONEY WITH THE SHAREHOLDERS OR THEIR CREDITWORTHINESS WERE NOT ESTABLISHED, THE ASSESSING OFFICER COULD NOT TREAT THE GENUINELY RAISED SHARE CAPITAL AS DEEMED INCOME UNDER SECTION 68 . IN THE EVENT THE INTERMEDIARY COMPANIES WERE TO BE TAKEN AS CONDUITS OR PERSONS WITHOUT REQUISITE CREDITWORTHINESS AND EVEN IF THEY WERE TO BE TREATED AS BOGUS SHAREHOLDERS, THEN ALSO NOTHING STOPPED THE REVENUE TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW AND BRING TO TAX SUCH UNEXPLAINED MONEY IN THEIR RESPECTIVE HANDS. ACCORDINGLY, THE ADDITION WAS TO BE DELETED. 17. C.I.T VS. SHREE RAMA MULTI TECH LTD [2013] 34 TAXMANN.COM 177 (GUJ.) IT IS NOTED THAT COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL HAVE DULY CONSIDERED ISSUE AND HAVING FOUND COMPLETE DETAILS OF THE RECEIPTS OF SHARE APPLICATION MONEY, ALONG WITH THE FORM NAMES AND ADDRESSES, PAN AND OTHER REQUISITE DETAILS, THEY SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 201 FOUND COMPLETE ABSENCE OF THE GROUNDS NOTED FOR INVOKING THE PROVISION OF SECTION 68. MOREOVER, BOT H RIGHTLY HAD APPLIED THE DECISION OF CIT V. LOVELY EXPORTS (P.) LTD. [APPLICATION NO. 11993 OF 2007, DATED 11-1-2003] TO THE CASE OF THE ASSESSEE. THEREFORE, NO REASON WAS FOUND IN ABSENCE OF ANY ILLEGALITY MUCH LESS ANY PERVERSITY TOO TO INTERFER E WITH THE ORDER OF THE BOTH THESE AUTHORITIES, WHO H AD CONCURRENTLY HELD THE DUE DETAILS HAVING BEEN PROVED. THE ASSESSEE-COMPANY HAD PRESENTED THE NECESSARY WORTH PROOF BEFORE BOTH THE AUTHORITIES AND IT WAS NOT EXPECTED BY THE ASSESSEE-COMPANY TO FURTHER PROVE THE SOURCE OF THE DECEASED. THIS TAX APPEAL RESULTANTLY RAISES NO QUESTION OF LAW AND THEREFORE DO NOT MERIT FOR THE CONSIDERATION AND IS DISMISSED. [PARA 7] 78. CONSIDERING ALL THESE ASPECTS, WE ALLOW THE APPEAL O F THE ASSESSEE. GROUND NO.3.0 (A.Y.: 2006-07, 2007-08 & 2010-11), 5 .0 (A.Y.: 2009-10 & 2011-12) & 4.0 (A.Y.: 2008-09 & 20 12- 13) OF THE ASSESSEES APPEAL AND GROUND NO.2 (A.YS. : 2009-10 & 2011-12) & 1 (A.Y.: 2010-11) OF REVENUES APPEAL : 7.0 GROUND NO. 3.0 (A.Y.: 2006-07, 2007-08 & 2010-11), 5.0 (A.Y.: 2009-10 & 2011-12) & 4.0 (A.Y.: 2008-09 & 20 12-13) OF ASSESSEES APPEALS READS AS UNDER: TELESCOPING SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 202 WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL AN D IN THE EVENT OF VARIOUS ADDITIONS MADE BY THE ASSESSING OFFICER ARE CONFIRM ED AT ANY STAGE OF APPELLATE PROCEEDINGS IN ANY OF THE ASSESSEES BELON GING TO SIGNET GROUP AS WELL AS SANGLA FAMILY, THE ASSESSEE MAY BE ALLOWED TO TELESCOPE, TO THE EXTENT POSSIBLE, THE UNDISCLOSED INCOME FINALLY ASS ESSED BY THE INCOME-TAX DEPARTMENT AGAINST UNEXPLAINED INVESTMENT IN JEWELL ERY, UNEXPLAINED CASH CREDIT IN THE FORM OF UNSECURED LOANS, SHARE APPLIC ATION MONEY AND SHARE CAPITAL, UNEXPLAINED CASH, UNEXPLAINED EXPENDITURE, UNEXPLAINED INVESTMENT, UNEXPLAINED STOCK, UNEXPLAINED BANK TRANSACTIONS, U NEXPLAINED BANK ACCOUNTS ETC. BELONGING TO SIGNET GROUP AS WELL AS SANGLA FAMILY SO AS TO PREVENT ADDITION OF INCOME AS WELL ASSETS, LIABILI TIES AND EXPENSES. 7.1 GROUND NO.2 (A.YS.: 2009-10 & 2011-12) & 1 (A.Y.: 2 010- 11) OF REVENUES APPEALREADS AS UNDER: ASSESSMENT YEAR : 2009-10 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE C.I.T.(A). ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF UNEXPLAINE D CASH TRANSACTION OF RS.14,00,000/- ASSESSMENT YEAR : 2010-11 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE C.I.T.(A). ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF UNEXPLA INED CASH TRANSACTION OF RS.8,37,35,166/- ASSESSMENT YEAR : 2011-12 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE C.I.T.(A). ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF UNEXPLAINE D CASH TRANSACTION OF RS.9,97,01,409/-. 79. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE CASE OF SHRI MUKESH SANGLA AND OTHER GR OUP ENTITIES IN RESPECT OF ADDITIONS MADE ON VARIOUS GROUNDS, IN TH E EVENT OF VARIOUS ADDITIONS MADE BY THE ASSESSING OFFICER ARE CONFIRMED AT SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 203 ANY STAGE OF APPELLATE PROCEEDINGS IN ANY OF THE AS SESSEES BELONGING TO SIGNET GROUP AS WELL AS SANGLA FAMILY, THE ASSESSEE MAY BE ALLOWED TO TELESCOPE, TO THE EXTENT POSSIBLE , THE UNDISCLOSED INCOME FINALLY ASSESSED BY THE INCOME-T AX DEPARTMENT AGAINST UNEXPLAINED INVESTMENT IN JEWELL ERY, UNEXPLAINED CASH CREDIT IN THE FORM OF UNSECURED LO ANS, SHARE APPLICATION MONEY AND SHARE CAPITAL, UNEXPLAINED CA SH, UNEXPLAINED EXPENDITURE, UNEXPLAINED INVESTMENT, UN EXPLAINED STOCK, UNEXPLAINED BANK TRANSACTIONS, UNEXPLAINED B ANK ACCOUNTS ETC. BELONGING TO SIGNET GROUP AS WELL AS SANGLA FA MILY SO AS TO PREVENT ADDITION OF INCOME AS WELL ASSETS, LIABILIT IES AND EXPENSES AT ASSESSEES PERIL. THE APPLICABILITY OF CONCEPT O F TELESCOPING IS FURTHER STRENGTHENED ON PERUSAL OF MATERIAL FOUND A ND SEIZED FROM THE RESIDENCE OF SHRI MUKESH SANGLA, WHEREFROM IT EMERGES THAT THE IMPUGNED MATERIAL CONTAINED TRANSACTIONS L IKE RECEIPTS FROM VARIOUS SOURCES, PAYMENTS TO VARIOUS PERSONS, PURCHASE AND SALE OF GOLD, UNACCOUNTED TRADING IN POLYMER, STOCK OF CHICK PEAS, ETC. AS THERE WERE A LARGE NUMBER OF CASH RECEIPTS AND CASH SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 204 PAYMENTS, INVESTMENT ETC. TRADING IN POLYMERS ETC., IT WAS NOT POSSIBLE TO DETERMINE CORRECT UNDISCLOSED INCOME ME RELY BY ADDITION OF ALL PAYMENTS AND RECEIPTS. UNDER THESE SHRI MUKESH SANGLA PREPARED A CASH FLOW STATEMENT OR CASH BOOK IN WHICH ALL THE TRANSACTION APPEARING IN THE IMPUGNED SEIZED MA TERIAL WERE RECORDED DATE WISE, YEAR-WISE PEAK WAS WORKED OUT A ND SUCH PEAK AMOUNT WAS OFFERED FOR TAXATION BY SHRI MUKESH SANGLA IN HIS RETURN OF INCOME FILED PURSUANT TO THE NOTICE I SSUED U/S.153A. THE INCOME EMERGING FROM THE IMPUGNED SEIZED MATERI AL WAS OFFERED FOR TAXATION IN SHRI MUKESH SANGLAS HANDS BECAUSE (A) THE SEIZED MATERIAL WAS FOUND AND SEIZED FROM THE H IS RESIDENCE AND (B) THE SEIZED MATERIAL CONTAINED SEVERAL ACCOU NTS AND DOCUMENTS WHICH BEAR HIS NAME, (C) THE IMPUGNED PAG ES WERE OWNED UP BY HIM IN HIS STATEMENT RECORDED U/S.132(4 ) AND (D) POLYMER BUSINESS WAS CARRIED OUT BY SHRI MUKESH SAN GLA IN HIS PERSONAL CAPACITY. IT IS A SETTLED LAW THAT THE UND ISCLOSED INCOME DECLARED BY THE ASSESSEE AND ASSESSED BY THE AUTHOR ITIES BELOW IS AVAILABLE TO THE ASSESSEE FOR SETTING OFF AGAINST U NDISCLOSED SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 205 INVESTMENTS/EXPENSES ETC.. HAVING ASSESSED THE YEAR LY PEAK AMOUNT AS HIS UNDISCLOSED INCOME, THE ASSESSING OFF ICER CANNOT TAKE A STAND THAT SUCH INCOME DID NOT EXIST AND THE REFORE, NOT AVAILABLE WITH THE ASSESSEE FOR SET OFF AGAINST UND ISCLOSED CASH, INVESTMENT, LOANS AND ADVANCES, EXPENSES ETC. IN SU PPORT OF THE ABOVE PROPOSITION, THE RELIANCE IS PLACED UPON THE FOLLOWING JUDGMENTS: (A) S. KUPPUSWAMI MUDALIAR VS. C.I.T. [ 51 ITR 757 (MAD)] ADDITIONS ARE NO DOUBT MADE VERY OFTEN ON ESTIMATE BASIS. BUT IT CAN NEVER BE SAID, OR AT ANY RATE THE DEPARTMENT CANNOT CONTEND, THAT THE AMOUNT OF THE ADDITION IS NOT THE REAL INCOME BUT S OMETHING WHICH THE ASSESSEE MAY NOT HAVE EARNED. IT IS WHOLLY ILLOGICA L FOR THE DEPARTMENT TO CONTEND THAT THE ADDITION WAS ONLY FOR PURPOSES OF TAXATION AND THAT IT SHOULD NEVER BE TAKEN AS TRUE INCOME OF THE ASSE SSEE .. IN COMING TO THE ABOVE CONCLUSION, THE HONOURABLE H IGH COURT RELIED UPON THE FOLLOWING OBSERVATION OF HONOURABLE A.P. H IGH COURT IN THE CASE OF LAGADAPATI SUBBA RAMAIAH V. COMMISSIONER OF INCOME- TAX [1956] 30 ITR 593 'IN THE PRESENT CASE, IT IS SOMEWHAT DIFFICULT TO S AY THAT THERE WERE NO PROFITS OF THE COMPANY OUT OF WHICH A DIVIDEND COUL D HAVE BEEN PAID. WHEN THE REVENUE AUTHORITY LEVIED A TAX OF RS.62,00 0 ON THE COMPANY, IT PROCEEDED ON THE BASIS THAT THE BOOKS OF THE COMPAN Y WHICH SHOWED A TOTAL INCOME OF ONLY RS.34,532 FOR ALL THE FOUR YEA RS OF ITS EXISTENCE WERE UNRELIABLE AND THAT THE BULK OF THE COMPANY'S PROFITS HAD BEEN KEPT OUTSIDE ITS BOOKS. NOW THOSE SECRET PROFITS LESS TH E INCOME-TAX PAID, THEREFORE, WOULD BE AVAILABLE WITH THE COMPANY FOR DISTRIBUTION AS DIVIDENDS. ONCE THE SECRET PROFITS HAD BEEN ASSESSED TO TAX, I T WOULD HAVE BEEN OPEN TO THE COMPANY TO BRING THOSE PROFIT S INTO THE BOOKS SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 206 AND DISTRIBUTE THEM, OR WHAT REMAINED AFTER PAYMENT OF TAX, AS DIVIDENDS.... HAVING ASSESSED THE COMPANY ON A LARG E SUM AS ITS UNDISCLOSED INCOME, IT CANNOT, AT THE SAME BREATH, SAY THAT THESE PROFITS DID NOT IN FACT EXIST BECAUSE THEY DID NOT APPEAR FROM THE COMPANY'S BOOKS AND COULD NOT, THEREFORE, HAVE BEEN AVAILABLE FOR THE PAYMENT OF DIVIDENDS. AMONG COMMON MEN, SUCH AN ATT ITUDE WOULD BE REGARDED AS BLOWING HOT AND COLD OR PLAYING FAST AND LOOSE .' (B) ANANTHARAM VEERASINGHAIAH & CO. VS. C.I.T. [ 123 ITR 457 (SC)] IN THE INSTANT CASE, THE TRIBUNAL HAD RELIED ENTIRE LY ON THE BASIS THAT AN INTANGIBLE ADDITION OF RS.2,00,000 HAD BEEN MADE TO THE BOOK PROFITS OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1957-58 AND IT INFERRED THAT AN AMOUNT OF RS.90,000 WAS AVAILABLE FOR BEING PUT TO USE IN THE RELEVANT ASSESSMENT YEAR. NOW IT CAN HARDLY BE DENIED THAT WHEN AN 'INTANGIBLE' ADDITION IS MADE TO THE BOOK PROFITS D URING AN ASSESSMENT PROCEEDING, IT IS ON THE BASIS THAT THE AMOUNT REPR ESENTED BY THAT ADDITION CONSTITUTES THE UNDISCLOSED INCOME OF THE ASSESSEE. THAT INCOME, ALTHOUGH COMMONLY DESCRIBED AS 'INTANGIBLE' , IS AS MUCH A PART OF HIS REAL INCOME AS THAT DISCLOSED BY HIS AC COUNT BOOKS. IT HAS THE SAME CONCRETE EXISTENCE. IT COULD BE AVAILABLE TO THE ASSESSEE AS THE BOOK PROFITS COULD BE . THERE CAN BE NO ESCAPE FROM THE PROPOSITION THAT TH E SECRET PROFITS OR UNDISCLOSED INCOME OF AN ASSESSEE EARNED IN AN EARL IER ASSESSMENT YEAR MAY CONSTITUTE A FUND, EVEN THOUGH CONCEALED, FROM WHICH THE ASSESSEE MAY DRAW SUBSEQUENTLY FOR MEETING EXPENDIT URE OR INTRODUCING AMOUNTS IN HIS ACCOUNT BOOKS .... (C) C.I.T. VS. PREM CHAND JAIN [ 189 ITR 320 (P&H)] IN VIEW OF THE DECISIONS IN CIT V. RAM SANEHI GIAN CHAND [1972] 86 ITR 724 AND ANANTHARAM VEERASINGHAIAH & CO. V. CIT [1980] 123 ITR 457 THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE PAST INTANGIBLE ADDITIONS MADE IN THE CASE OF THE FIRM O F WHICH THE ASSESSEE WAS A PARTNER AND ALLOCATED TO THE ASSESSEE'S SHARE COULD BE TAKEN INTO ACCOUNT IN CONSIDERING THE UNEXPLAINED INVESTMENTS OF THE ASSESSEE AND THESE WOULD ALSO BE AVAILABLE FOR SET OFF PURPOSES IN RESPECT OF THE AGREED ADDITIONS FOR LOW HOUSEHOLD EXPENSES MADE IN THE ASSESSEE'S SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 207 INCOME IN THE YEAR UNDER CONSIDERATION AND IN REMIT TING THE MATTER TO THE AAC. (D) C.I.T. VS. TYARYAMAL BALCHAND [ 165 ITR 453 (RAJ)] IN THE PRESENT CASE, THE ITO WAS WITHIN HIS RIGHT T O TAX THE AMOUNT OF RS.16,950 AS INCOME FROM UNDISCLOSED SOURCES EVEN T HOUGH HE HAD ADDED THE AMOUNT OF RS.18,117 IN ADDITION TO THE PR OFITS SHOWN BY THE ASSESSES IN ITS ACCOUNT BOOKS. HOWEVER, THE ASSESSE E WAS WELL WITHIN ITS RIGHT TO PLEAD THAT THE AMOUNT OF RS.16,950 WAS COV ERED FROM THE INTANGIBLE INCOME ASSESSED AT RS.18,117, AND ADDED IN THE INCOME OF THE ASSESSEE AND APART FROM THIS, SINCE FOR THE LAST PR ECEDING 3 YEARS, SUBSTANTIAL ADDITIONS AMOUNTING TO RS.32,797 HAD BE EN ADDED, THE AMOUNT OF RS.16,950 COULD HAVE BEEN TAKEN AS HAVING COME OUT OF SUCH INTANGIBLE ADDITIONS. ACCORDINGLY, THE TRIBUNAL IN THE INSTANT CASE WAS RIGHT IN TREATING THE UNEXPLAINED CASH CREDIT ENTRI ES TO THE EXTENT OF RS.16,950 AS COVERED BY ADDED GROSS PROFIT IN THE S UM OF RS.18,117 ON THE BASIS OF THE ESTIMATE. (E) C.I.T. VS. JAWANMAL GEMAJI GANDHI [151 ITR 353 (BOM)] THE SUPREME COURT HAS CLEARLY STATED IN THE CASE OF ANANTHARAM VEERASINGHAIAH & CO. VS. C.I.T. [ 123 ITR 457 (SC)] THAT THE SECRET PROFITS OR UNDISCLOSED INCOME OF AN ASSESSEE EARNED IN AN EARLIER ASSESSMENT YEAR CAN CONSTITUTE A FUND, THOUGH CONCE ALED, FROM WHICH THE ASSESSEE MAY DRAW SUBSEQUENTLY. (F) C.I.T. VS. SAHU BROTHERS [115 ITR 438 (M.P.)] A DIVISION BENCH OF THIS COURT IN THAT DECISION HEL D THAT THE ADDITIONS BY THE ITO IN THE ASSESSMENTS OF THE PREVIOUS YEARS OF THE ASSESSEE WERE ON THE BASIS THAT HE HAD EARNED LARGER INCOME THAN WHA T WAS SHOWN AND THAT HE HAD IN FACT EARNED THAT INCOME. THAT AMOUNT WAS, THEREFORE, AVAILABLE TO HIM FOR INVESTMENT IN THE ASSESSMENT Y EAR. A SIMILAR QUESTION WAS CONSIDERED BY THE ALLAHABAD HIGH COURT IN THE DECISION IN CIT V. RAM ACHAL RAM SEWAK [1969] 73 ITR 501 AND IT WAS HELD (PAGE 502): 'THE SHORT QUESTION RAISED IN THE PRESENT APPLICATI ONS IS WHETHER THE DEPOSITS MADE BY THE ASSESSEE IN VARIOUS BANKS FROM YEAR TO YEAR COULD SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 208 BE SET OFF AGAINST THE EXTRA PROFIT ADDED DURING PR EVIOUS YEARS. IN KUPPUSWAMI MUDALIAR V. CIT [1964] 51 ITR 757 , IT WAS HELD BY THE MADRAS HIGH COURT THAT, WHERE THE INCOME-TAX AUTHOR ITIES MADE AN ADDITION TO THE INCOME OF THE ASSESSEE OVER AND ABO VE THE INCOME AS DISCLOSED BY THE ASSESSEE, ON AN ESTIMATE BASIS, TH E AMOUNT SO ADDED MUST BE TREATED AS THE REAL INCOME OF THE ASSESSEE. IT IS NOT OPEN TO THE AUTHORITIES TO TAKE THE VIEW THAT THE ADDITION WAS ONLY FOR PURPOSES OF TAXATION, AND THAT IT SHOULD NOT BE REGARDED AS THE TRUE INCOME OF THE ASSESSEE.' APPARENTLY, THEREFORE, IT COULD NOT BE CONTENDED TH AT THIS INCOME WHICH HAD BEEN ADDED UP AS INCOME FROM INTANGIBLE SOURCES IN THE PREVIOUS YEARS, OF ASSESSMENT WAS NOT AVAILABLE TO THE ASSES SEE. ACCORDINGLY, OUR ANSWER TO THE QUESTION IS IN THE AFFIRMATIVE. (G) A.C.I.T. VS. DHARAMCHAND AGRAWAL [144 ITR 143 (M.P.)] THE HONOURABLE HIGH COURT FOLLOWED THE HONOURABLE S UPREME COURT RULING IN CASE OF ANANTHARAM VEERASINGHAIAH & CO. V S. C.I.T. [ 123 ITR 457 (SC)] AND APPROVED THE TELESCOPING OF UNDISCLOSED INCOME AGAINST UNDISCLOSED ASSETS. (H) C.I.T. VS. NABADWIP CHANDRA DEY [198 ITR 133 (GAU.)] THE PRINCIPLES GOVERNING SET OFF OF INTANGIBLE ADDI TIONS MADE IN THE ASSESSMENT AGAINST UNEXPLAINED CASH CREDITS OR UNEX PLAINED INVESTMENTS ARE NO MORE RES INTEGRA. THE PRINCIPLES THAT EMERGE FROM THE VARIOUS DECISIO NS CAN BE SUMMARISED AS FOLLOWS: (1) AMOUNTS REPRESENTED BY 'INTANGIBLE ADDITIONS' TO TH E BOOK PROFITS OF AN ASSESSEE DURING AN ASSESSMENT PROCEEDING CONSTIT UTE UNDISCLOSED INCOME OF THE ASSESSEE AND ARE AS MUCH A PART OF HIS REAL INCOME AS THOSE DISCLOSED BY HIS ACCOUNT BOOKS . IT HAS THE SAME CONCRETE EXISTENCE. (2) INCOME FROM INTANGIBLE ADDITIONS IS AVAILABLE TO TH E ASSESSEE FOR MEETING EXPENDITURE OR INTRODUCING AMOUNTS IN HIS A CCOUNT BOOKS. (3) IF ANY UNEXPLAINED CASH DEPOSIT OR CASH CREDIT CAN REASONABLY BE RELATED TO THE AMOUNT COVERED BY THE INTANGIBLE ADD ITIONS MADE IN THE PAST OR IN THAT VERY YEAR NECESSARY SET OFF MAY BE GIVEN BY THE AUTHORITIES ON THAT ACCOUNT. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 209 (4) IN EACH CASE, THE TRUE NATURE OF THE CASH DEFICIT O R CASH CREDIT MUST BE ASCERTAINED FROM AN OVERALL CONSIDERATION OF THE PARTICULAR FACTS AND CIRCUMSTANCES OF THE CASE. APPLYING THE AFORESAID PRINCIPLES TO THE FACTS OF T HE INSTANT CASE, THE TRIBUNAL WAS JUSTIFIED IN ALLOWING A SET-OFF ON ACC OUNT OF INTANGIBLE ADDITIONS MADE IN THE PAST AGAINST UNEXPLAINED CASH DEPOSIT AND INVESTMENT OF THE RELEVANT ASSESSMENT YEARS. 80. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED ION THIS THAT IN THE ASSESSEES CASE, THE PEAK CREDIT O FFERED FOR TAXATION BY SHRI MUKESH SANGLA AS HIS UNDISCLOSED I NCOME AND UNDISCLOSED PROFIT FROM POLYMER TRADING ETC., WAS F UND AVAILABLE WITH HIM FOR EXPLAINING VARIOUS ADDITIONS LIKE SHAR E APPLICATION MONEY, SHARE CAPITAL, SILVER WARES, GOLD AND DIAMON D JEWELLERY, UNSECURED LOANS, CASH TRANSACTION WITH SHRI DEEPAK KALANI AND SHRI PANKAJ KALANI, INITIAL INVESTMENT FOR UNDISCLO SED POLYMER TRADING BUSINESS ETC. ON PERUSAL OF AVAILABLE CASH BALANCES FOR THE ENTIRE BLOCK PERIOD AS PER THE CASH FLOW STATEMENT, IT IS QUITE MANIFEST THAT SHRI MUKESH SANGLA HAD SUFFICIENT FUN DS WITH HIM TO SET OFF ADDITION ON ACCOUNT OF SHARE APPLICATION MO NEY, SHARE CAPITAL, SILVER WARES, GOLD AND DIAMOND JEWELLERY, UNSECURED LOANS, CASH TRANSACTION WITH SHRI DEEPAK KALANI AND SHRI PANKAJ KALANI, INITIAL INVESTMENT FOR UNDISCLOSED POLYMER TRADING SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 210 BUSINESS ETC. THEREFORE, THE ADDITION OF PEAK CREDI T AS PER CASH FLOW STATEMENT PREPARED FROM ENTRIES RECORDED IN LO OSE PAPER FOUND AND SEIZED DURING SEARCH IN SHRI MUKESH SANGL AS CASE AS WELL AS ADDITION ON ACCOUNT OF SHARE APPLICATION MO NEY, SHARE CAPITAL, SILVER WARES, GOLD AND DIAMOND JEWELLERY, UNSECURED LOANS, CASH TRANSACTION WITH SHRI DEEPAK KALANI AND SHRI PANKAJ KALANI, INITIAL INVESTMENT FOR UNDISCLOSED POLYMER TRADING BUSINESS ETC. IN THE CASE OF SHRI MUKESH SANGLA AND OTHER GROUP ENTITIES WOULD AMOUNT TO DOUBLE ADDITION. 81. FROM THE SEIZED DOCUMENTS, IT IS CLEAR THAT THE SOURCE OF UNDISCLOSED INCOME IN THE CASE OF SHRI MUKESH SANGL A WAS UNACCOUNTED POLYMER BUSINESS AND OTHER SOURCES. THE UNDISCLOSED INCOME SO GENERATED WAS AVAILABLE WITH HIM TO SET OFF AGAINST ADDITION ON ACCOUNT OF SHARE APPLICATION MO NEY, SHARE CAPITAL, UNSECURED LOANS, CASH TRANSACTIONS WITH SH RI PANKAJ KALANI AND SHRI DEEPAK KALANI ETC. THEREFORE, IT IS HUMBLY SUBMITTED THAT THE ADDITION ON ACCOUNT OF SHARE APP LICATION MONEY, SHARE CAPITAL, UNSECURED LOANS, CASH TRANSAC TIONS WITH SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 211 SHRI PANKAJ KALANI AND SHRI DEEPAK KALANI ETC. SHOU LD BE SET OFF AGAINST UNDISCLOSED INCOME DETERMINED ON THE BASIS OF SEIZED MATERIAL IN THE CASE OF SHRI MUKESH SANGLA. 82. WITH REGARD TO THE ISSUE RAIASED IN GROUND NO. 3 FOR THE ASSESSMENT YEARS 2006-07, 2007-08 AND 2010-11 AND G ROUND NO. 5 IN THE ASSESSMENT YEARS 2009-10 AND 2011-12 A ND GROUND NO. 8 IN THE ASSESSMENT YEARS 2008-09 AND 2012-13, WE ARE OF THE VIEW THAT WHEREVER THE ADDITION IS CONFIRMED A ND THE CORRESPONDING INCOME IS AVAILABLE FOR TELESCOPING, THE UNDISCLOSED UNEXPLAINED INVESTMENT IN JEWELLERY, CASH OR LOAN O R SHARE APPLICATION MONEY THEN THE SAME SHOULD BE AVAILABLE FOR TELESCOPING. FOR THIS WE RESTORE THE ISSUE TO THE A SSESSING OFFICER WITH THE DIRECTION THAT WHEREVER THE ADDITION SUSTA INED AND THE INCOME IS AVAILABLE FOR TELESCOPING TO EXPLAIN THE INVESTMENT OF UNRECORDED SHARE CAPITAL, CASH, OTHER EXPENDITURE, STOCK, BANK TRANSACTION, THEN THE SAME SHOULD BE ALLOWED. 83. WE HAVE HEARD BOTH THE SIDES. THE LD. DR RELIE D UPON THE ASSESSING OFFICERS ORDER. ON THE OTHER HAND, THE L EARNED COUNSEL SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 212 FOR THE ASSESSEE PLEADS THAT THERE IS NO MERIT IN T HE REVENUES APPEAL. 84. WE HAVE HEARD BOTH THE SIDES AND CONSIDERED THE FACTS OF THE CASE. WE HAVE ALREADY HELD THAT THE INCOME FROM UNDER INVOICING AND ACCOUNTED SALE OF POLY PRODUCT WAS AV AILABLE FOR TELESCOPING WITH CASH GIVEN TO KALANI BROTHERS. WE HAVE UPHELD THE ORDER OF THE LEARNED CIT(A) ON TELESCOPING AS V ALID. ON THE ISSUE OF DELETING THE ADDITION ON THE BASIS OF LPS-4 , WE HOLD THAT THE SAME SHALL BE CONSIDERED IN THE CASE OF MUKESHS ANGLA ON SUBSTANTIVE BASIS, HENCE, WE DO NOT FIND ANY MERIT IN THE REVENUES GROUNDS . WE HAVE ALSO HELD THAT INCOME F ROM TRADING IN POLYMER BUSINESS SHALL BE TAXABLE IN THE HANDS O F MUKESH SANGLA ONLY. WE ORDER ACCORDINGLY. GROUND NO.1 (A.Y.: 2011-12 & 12-13) OF REVENUES AP PEAL : GROUND NO.1 (A.Y.: 2011-12) & 2 (A.Y.: 2012-13) OF REVENUES OF APPEALS READS AS UNDER: ASSESSMENT YEAR : 2011-12 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE C.I.T.(A). ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASE OF P OLYMER OF RS.1,39,04,108/- U/S.69C OF THE ACT. ASSESSMENT YEAR : 2012-13 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE C.I.T.(A). ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASE OF P OLYMER OF RS.10,97,02,374/- U/S.69C OF THE ACT. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 213 ASSESSEES CONTENTION: THE RELIANCE IS PLACED UPON THE JUDGEMENT OF THE HO NOURABLE C.I.T.(A). THE RELEVANT PARAS ARE REPRODUCED AS UND ER : 14.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND FACTS OF THE CASE. THE FIRST ISSUE INVOLVED IN THIS GROUN D IS WHETHER THE INCOME EMANATING FROM UNACCOUNTED TRADING OF POLYMERS FOUN D RECORDED ON DOCUMENTS SEIZED, PARTICULARLY BS-1, 2 & 3 FROM THE RESIDENCE OF SHRI MUKESH SANGLA AT 1-B, GULMOHAR EXTENSION, INDORE IS TO BE ASSESSED IN THE HANDS OF APPELLANT COMPANY OR IN THE HANDS OF SHRI MUKESH SANGLA. THE AO HAD ASSESSED THE INCOME IN THE HANDS OF APPELLANT C OMPANY ON SUBSTANTIVE BASIS AND IN THE HANDS OF SHRI MUKESH SANGLA ON PRO TECTIVE BASIS, WHEREAS THE CONTENTION OF THE APPELLANT IS THAT THE UNACCOU NTED TRADING BUSINESS OF POLYMER WAS UNDERTAKEN BY SHRI MUKESH SANGLA AND, T HEREFORE, IT SHOULD BE CONSIDERED IN THE HANDS OF SHRI MUKESH SANGLA ONLY ON SUBSTANTIVE BASIS. IT IS A WELL SETTLED LAW THAT INCOME HAS TO BE ASSESSE D IN THE HANDS OF RIGHT PERSON ONLY AS HELD BY THE HONBLE SUPREME COURT I N THE CASE OF CIT VS. CH ATCHAIAH 218 ITR 239 (SC). IN ORDER TO DECIDE WHO I S THE RIGHT PERSON LIABLE FOR TAX ON THE INCOME EARNED FROM THE BUSINE SS OF UNACCOUNTED TRADING OF POLYMERS, IT WOULD BE RELEVANT TO EXAMINE THE FA CTS INVOLVED IN DETAIL. IN THIS CASE, DURING THE COURSE OF SEARCH & SEIZURE OPERATIONS U/S.132(1) OF THE ACT, DOCUMENTS BS-1, 2 & 3 WERE SEIZED FROM THE RESIDENCE OF SHRI MUKESH SANGLA AT 1-B, GULMOHAR EXTENSION, INDORE. T HESE DOCUMENTS CONTAINED THE DETAILS OF TRANSACTIONS OF DISPATCH R ELATING TO TRADING OF POLYMERS LIKE DETAILS OF TRUCK NOS., NATURE OF PROD UCTS, QUANTITY OF PRODUCT ETC. SINCE THE DOCUMENTS RELATING TO UNACCOUNTED TR ADING BUSINESS OF POLYMER WERE FOUND AND SEIZED FROM THE RESIDENCE OF SHRI MU KESH SANGLA AS PER PROVISIONS OF SECTION 132(4A) AND SECTION 292C OF T HE ACT, THE PRESUMPTION IS THAT THE DOCUMENTS BELONGED TO SHRI MUKESH SANGLA. IT WOULD BE FRUITFUL TO REPRODUCE THE RELEVANT PROVISION OF SECTION 132(4A) AND 292C OF THE ACT AS UNDER : '(4A) WHERE ANY BOOKS OF ACCOUNT, OTHER DOCUMENTS, MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING ARE OR IS FOUND IN THE POSSESSION OR CONTROL OF ANY PERSON IN THE COURSE OF A SEARCH, IT MAY SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 214 BE PRESUMED (I) THAT SUCH BOOK OF ACCOUNT, OTHER DOCUMENTS, MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING BELONG OR BELONGS TO SUCH PERSON; '292C(1) WHERE ANY BOOKS OF ACCOUNT, OTHER DOCUMENTS , MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING ARE OR IS FOUND IN THE POSSESSION OR CONTROL OF ANY PERSON IN THE COURSE OF A SEARCH UNDER SECTION 133 OR SURVEY UNDER SECTION 133A, IT MAY, IN ANY PROCEEDING UNDER THIS ACT, BE PRESUMED- (I) THAT SUCH BOOK OF ACCOUNT, OTHER DOCUMENTS, MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING BELONG OR BELONGS TO SUCH PERSON; FURTHER, IT IS ALSO NOTICED THAT DURING THE COURSE OF SEARCH & SEIZURE OPERATIONS WHEN STATEMENT OF SHRI MUKESH SANGLA WAS RECORDED U/S.132(4) OF THE ACT, SHRI MUKESH SANGLA HAD CATEGORICALLY ADMIT TED THAT HE HAD BEEN DOING POLYMER TRADING IN HIS PERSONAL CAPACITY AND THAT THESE DOCUMENTS BELONGED TO HIS PERSONAL TRADING BUSINESS OF POLYER S. IT IS ALSO NOTICED FROM THE SCANNED COPY OF LOOSE P APERS, REPRODUCED BY THE AO IN THE ASSESSMENT ORDER THAT ON THE TOP OF SOME OF THE PAGES IT IS MENTIONED AS SHRI MUKESH SIR WHICH ALSO SUPPORT T HE PRESUMPTION THAT THE TRANSACTIONS RECORDED ON THESE PAPERS BELO NG TO SHRI MUKESH SANGLA. THOUGH IT MAY NOT BE A DECIDING FACTOR BUT IT IS RE LEVANT TO MENTION THAT INCIDENCE OF TAX IN THE CASE OF SHRI MUKESH SANGLA IS EQUAL TO THE INCIDENCE OF TAX IN THE CASE OF APPELLANT COMPANY BECAUSE SHR I MUKESH SANGLA IS ALSO ASSESSED AT MAXIMUM MARGINAL RATE ON THIS INCOME, W HICH IS EQUIVALENT TO THE RATE OF TAX APPLICABLE IN THE CASE OF APPELLANT COMPANY. THUS, IF INCOME FROM THE TRADING BUSINESS IS ASSESSED IN THE HANDS OF SHRI MUKESH SANGLA, IT IS TAX NEUTRAL WHICH MEANS THAT TAX PAID BY SHRI MU KESH SANGLA IS THE SAME AS WOULD BE PAYABLE BY THE APPELLANT COMPANY. CONSIDERING THE CATEGORICAL STATEMENT OF SHRI MUKES H SANGLA RECORDED U/S.132(4) DURING SEARCH & SEIZURE OPERATIONS AND I N THE ABSENCE OF ANY MATERIAL ON RECORD TO REBUT THE PRESUMPTION PROVIDE D U/S.132(4A) AND U/S.292C OF THE ACT, IT HAS TO BE PRESUMED THAT THE BUSINESS OF POLYMER TRADING AS PER BS-1, 2 & 3 BELONG TO SHRI MUKESH SA NGLA. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 215 THEREFORE, CONSIDERING THE TOTALITY OF FACTS AND CI RCUMSTANCES INVOLVED IN THE ISSUE, I AM OF THE CONSIDERED VIEW THAT THE TRADING BUSINESS OF POLYMERS BELONGED TO SHRI MUKESH SANGLA AND, HENCE THE INCOM E ARISING FROM TRADING BUSINESS OF POLYMERS IS REQUIRED TO BE ASSESSED IN THE HANDS OF SHRI MUKESH SANGLA ONLY. SINCE, THE INCOME EMERGING FROM TRADING BUSINESS OF POLYMERS IS TO BE ASSESSED IN THE HANDS OF SHRI MUKESH SANGLA ON SUBS TANTIVE BASIS; THE ADDITIONS MADE ON THIS ACCOUNT IN THE CASE OF THE A PPELLANT COMPANY CANNOT BE SUSTAINED. THEREFORE, THE ADDITIONS OF RS.1,39,0 4,108 IN A.Y.2011-12 AND OF RS.10,97,02,374/- IN A Y. 2012-13 MADE IN THE HANDS OF APPELLANT COMPANY ARE DELETED. 82. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE OF DELETING THE ADDITION MADE ON ACCOUNT OF UNACCOUNTED TRADING OF POLYMER. THE ADDITION MADE U/S 69C OF THE ACT OF RS.1,39,04,108/- FOR THE ASSESSMENT YEARS 2011-12 AND RS.10,97,02,374/- FOR THE ASSESSMENT YEAR 2012-13 WAS DELETED. THE DOCUMENTS ON THE BASIS OF WHICH THE ADDI TION WAS MADE WERE FOUND AND SEIZED FROM THE RESIDENTIAL PREMISES OF MUKESH SANGLA. DURING SEARCH ITSELF SHRI MUKESH SANGLA HAD ADMITTED THAT HE WAS DOING TRADING OF POLYMERS AND THE SAME WAS NOT RECORDED IN HIS BOOKS OF ACCOUNTS. ON SOME OF THE SEIZED MATERIAL HIS NAME WAS SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 216 ALSO APPEARING AS SHRI MUKESH SIR. HE HAD OFFERED INCOME ON THESE ACCOUNTED TRADING IN HIS RETURN OF IN COME FILED IN RESPONSE TO NOTICE U/S 153A OF THE ACT. I N OUR CONSIDERED VIEW, SUCH INCOME IS TO BE ASSESSED ON SUBSTANTIVE BASIS IN THE HANDS OF SHRI MUKESH SANGLA ON LY. THE LEARNED CIT(A) HAS ALSO GIVEN SUCH DIRECTION. WE UPHOLD THE SAME. SUCH VIEW IS ALSO SUPPORTED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ATCHAIAH (SUPRA), WHERE THE HON'BLE APEX COURT HEL D THAT RIGHT PERSON IS TO BE TAXED IN RESPECT OF THE INCOME EARNED FROM BUSINESS. LEARNED DR HAD NOT CONTROVERTE D THE FINDINGS OF THE LEARNED CIT(A). THEREFORE, WE S USTAIN THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND DI SMISS THESE GROUNDS OF APPEAL IN BOTH THE YEARS. GROUND NO.1 (A.Y.: 2012-13) OF REVENUES APPEAL : 9.0 GROUND NO.1 (A.Y.: 2012-13) OF REVENUES APPEALS RE ADS AS UNDER: ASSESSMENT YEAR : 2012-13 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 217 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE C.I.T.(A). ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF UNACCOU NTED INVESTMENT IN STOCK OF CHICK PEAS OF RS.9.96 CRORES. 83. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED REL IANCE UPON THE JUDGEMENT OF THE HONOURABLE C.I.T.(A). THE RELE VANT PARAS ARE REPRODUCED AS UNDER : 12.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSION O F THE APPELLANT AND FACTS OF THE CASE. DURING THE COURSE OF SEARCH & SEIZURE AT THE BUSINESS PREMISES OF THE APPELLANT COMPANY, CERTAIN DOCUMENTS MARKED AS LPS-1/5 WERE FOUND AND SEIZED. AS PER PAGE NO. 18 OF THE SAID DOCUMENT THERE WAS STOCK OF CHICK PEAS OF RS.9.96 CRORES AS ON 19.10.2011. IN THE STA TEMENT RECORDED U/S 132(4) OF THE ACT, SHRI MUKESH SANGLA, DIRECTOR OF THE APPELLANT COMPANY, ADMITTED THAT THE TRANSACTIONS RECORDED ON THE DOCU MENT REFLECTED THE UNACCOUNTED STOCK OF CHICK PEAS AT GODOWN WHICH WAS VALUED AT RS.9.96 CRORES AS ON 19.10.2011. NOW THE ISSUE INVOLVED IS THAT THE APPELLANT CONTENDED THAT IT HAD OFFERED THE INVESTMENT IN UND ISCLOSED STOCK OF CHICK PEAS ALONGWITH THE PROFIT EARNED ON ITS SALE IN ITS BOOKS OF ACCOUNT BY CREDITING THE AMOUNT OF SALE PROCEEDS. IT WAS EXPLA INED THE TOTAL AMOUNT OF RS.10,45,00,000/- (RS.9,96,00,000 + RS.49,00,000 PR OFIT ON SALE) WAS INCLUDED IN THE SALES CREDITED IN ITS PROFIT & LOSS ACCOUNT. BUT THE AO HAD NOT ACCEPTED THE EXPLANATION OF THE APPELLANT AND C ONCLUDED THAT THE APPELLANT HAD NOT ACTUALLY OFFERED ANY UNDISCLOSED INCOME ON ACCOUNT OF UNEXPLAINED INVESTMENT IN THE STOCK OF RS.9.96 CROR ES OF CHICK PEAS. THUS, THE MATTER TO BE EXAMINED IS WHETHER THE APPELLANT HAD OFFERED AND CREDITED THE AMOUNT OF SALE PROCEEDS OF CHICK PEAS IN ITS PR OFIT & LOSS ACCOUNT OR NOT. ON VERIFICATION OF PROFIT & LOSS ACCOUNT AND BALANC E SHEET, IT IS NOTICED THAT THERE IS A NOTE NO. 32 IN THE NOTES FORMING P ART OF THE FMANCIAL STATEMENTS' WHICH READS AS UNDER: 32. CONSEQUENT UPON ACTION U/S 132(1) OF THE INCOM E TAX ACT, 1961 WAS CARRIED OUT DURING THE YEAR AT COMPANY'S PREMISES, FACTORY, RESIDENTIAL PREMISES OF ITS DIRECTORS AND ITS ASSOCIATES THE CO MPANY OFFERED ADDITIONAL INCOME OF RS.996 LACS IN THE FORM OF STO CK OF CHICK PEAS AGRICOMMODITY, FOR TAXATION TO AVOID PROTRACTED LIT IGATION WITH REVENUE SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 218 AUTHORITIES AND INCLUDED PROCEEDS THEREOF AMOUNTING TO RS.1045 LACS UNDER THE HEAD 'REVENUE FROM OPERATION' IT WAS FURTHER NOTICED THAT THE APPELLANT HAD SHOWN 'REVENUE FROM OPERATIONS' IN ITS PROFIT & LOSS ACCOUNT AT RS.511, 92,53,770/-. AS PER NOTE 19 OF 'REVENUE FROM OPERATIONS', THE BREAKUP OF REV ENUE FROM OPERATIONS WAS AS UNDER : NOTE 19 REVENUE FROM OPERATIONS : SALE OF PRODUCTS 512,09,81,43 LESS : EXCISE DUTY 52,96, 120 506,79,85,312 SALES OF WIND POWER 1,96,73,050 SALES OF SERVICES 1,24,59,660 OTHER OPERATING REVENUES 1,91,35,7 TOTAL 51 1,92,53,770 DETAILS OF SALES OF PRODUCT POLY PRODUCT 350,15,18,836 CHEMICALS 123,35,49,676 OTHERS 38,59,12,920 512,09,81 ,432 THE APPELLANT FURTHER FURNISHED BREAKUP OF SALE OF 'OTHERS' OF RS.38,59,12,920/- AS UNDER: (I) CHICK PEAS SALES RS.10,45,00,000/ - (II) PLASTICIZERS RS.28,14,12,920/ - TOTAL RS.38,59,12,920/ - IT WAS FURTHER NOTICED FROM NOTE 22 RELATED TO 'DET AILS OF STOCK IN TRADE' THAT THE APPELLANT HAD SHOWN PURCHASE OF 'OTHERS' AT RS. 28,13,31,100/-, WHICH WAS PURCHASES OF PLASTICIZERS ONLY. ON CONSIDERING OF THE FIGURE OF SALES AND OF PURCHASES UNDER THE SUB-HEAD 'OTHERS', IT IS EVI DENTLY CLEAR THAT THE APPELLANT HAD ACCOUNTED FOR THE SALES OF CHICK PEAS AT RS.10,45,00,000/- IN ITS SALES BUT HAD NOT CLAIMED ANY EXPENSES FOR PURC HASE OF THESE GOODS. FROM THE ABOVE, IT CAN BE SEEN THAT APPELLANT HAD O FFERED INCOME OF RS.10,45,00,000/- FOR THE SALE OF CHICK PEAS IN ITS PROFIT & LOSS ACCOUNT AND, HENCE, THE CONTENTION OF THE APPELLANT THAT THE UND ISCLOSED INCOME OFFERED ON ACCOUNT OF STOCK OF CHICK PEAS IN THE STATEMENT U/S 132(4) OF THE ACT BY THE DIRECTOR OF THE APPELLANT COMPANY HAD BEEN DISCLOSE D IN ITS PROFIT & LOSS ACCOUNT IS FOUND ACCEPTABLE. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 219 AS REGARDS THE PROFITS REFLECTED IN CURRENT YEAR AS COMPARED TO IMMEDIATE PRECEDING ASSESSMENT YEAR, IT IS NOTICED THAT IF TH E SALE OF CHICK PEAS IS EXCLUDED FROM THE FIGURE OF SALE AS WELL AS GROSS P ROFIT, THE GROSS PROFIT RATE WORKS OUT AT 6.76% AS COMPARED TO 5.55% IN THE IMME DIATE PRECEDING ASSESSMENT YEAR. THE POSITION OF GROSS PROFIT WORKS OUT AS UNDER : PARTICULARS A.Y. 2012-13 A.Y. 201 1-12 AS PER PROFIT & LOSS ACCOUNT AFTER EXCLUDING SALE OF CHICK PEAS GROSS RECEIPTS 511,92,53,770 501,47,53,770 435,44,30,541 GROSS PROFIT 45,06,70,521 34,61,70,521 24,18,27,794 (%) 8.80 6.76 5.55 FROM THE ABOVE, IT IS EVIDENTLY CLEAR THAT THE APPE LLANT HAD DECLARED A HIGHER RATE OF GROSS PROFIT @ 6.76% IN THE YEAR UND ER CONSIDERATION AS COMPARED TO THE IMMEDIATE PRECEDING ASSESSMENT YEAR OF 5.55% EVEN IF THE UNACCOUNTED SALE OF CHICK PEAS OFFERED BY THE APPEL LANT ARE EXCLUDED. THE LD. AO ALSO OBSERVED THAT NET PROFIT IN THE YEAR UN DER CONSIDERATION I.E. A.Y. 2012-13 HAD REDUCED TO RS.8.05 CRORES AS COMPARED T O RS.9.18 CRORES IN THE IMMEDIATE PRECEDING A. Y.2011-12 DESPITE THE CLAIM OF THE APPELLANT THAT IT HAD OFFERED UNDISCLOSED INCOME ON SALE OF CHICK PEA S OF RS.10.45 CRORES. IT IS NOTICED THAT THE APPELLANT HAD DULY EXPLAINED TH E REASONS FOR REDUCTION IN NET PROFIT DURING THE YEAR UNDER CONSIDERATION. IT WAS EXPLAINED THAT NEW FACTORY WAS SET UP DURING THE YEAR RESULTING INTO M AJOR EXPANSION, DUE TO WHICH THE FINANCIAL EXPENSES HAD INCREASED FROM RS. 9.53 CRORES IN A.Y.11-12 TO RS.20.38 CRORES DURING THE YEAR. THERE WAS ALSO FOREIGN EXCHANGE LOSS OF RS.7.17 CRORES AS AGAINST FOREIGN EXCHANGE GAIN OF RS.2.10 CRORES IN THE IMMEDIATE PRECEDING YEAR DUE TO SUBSTANTIAL INCREAS E IN THE EXCHANGE RATE OF US$ FROM RS.44.73 PER $ TO RS.50.88 PER $ AND ALSO THAT THERE WAS INCREASE IN BOOK DEPRECIATION CLAIMED FROM RS.2.46 CRORES IN A.Y. 2011-12 TO RS.4.42 CRORES DURING THE YEAR UNDER CONSIDERATION, DUE TO THE INCREASE IN THE BLOCK OF ASSETS CONSEQUENT TO EXPANSION. THE REASON FOR D ECLARING LOSS IN THE RETURN OF INCOME AS AGAINST NET PROFIT AS PER P & L ACCOUNT IN A.Y. 2012-1 3 SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 220 OF RS.8,05,03,622/- WAS EXPLAINED TO BE MAINLY DUE TO HIGHER DEPRECIATION CLAIM AS PER INCOME-TAX ACT AS COMPARED TO BOOK DEP RECIATION. THE AO HAD NOT FOUND ANY FAULT OR CONTRADICTED THE EXPLANATION MADE BY THE APPELLANT. THUS, THE APPELLANT HAD SATISFACTORILY EXPLAINED TH E REASONS FOR FALL IN NET PROFIT RATE IN A.Y. 2012-13 AS COMPARED TO IMMEDIAT E PRECEDING A.Y. 201 1- 12 AND, THEREFORE, NO ADVERSE VIEW COULD BE TAKEN O N THIS ACCOUNT. IN VIEW OF THE ABOVE DISCUSSION, IT IS CLEAR FROM T HE RECORDS OF THE APPELLANT THAT THE APPELLANT COMPANY HAD DISCLOSED THE UNACCO UNTED INVESTMENT IN THE PURCHASE OF STOCK OF CHICK PEAS OF RS.9.96 CRORES A LONGWITH PROFITS OF RS.49,00,000/- EARNED ON ITS SALES, AGGREGATING TO RS.10.45 CRORES, BY INCLUDING THE SAME IN THE SALES FOR THE YEAR UNDER CONSIDERATION. THEREFORE, THE ADDITION OF RS.9.96 CRORES MADE BY THE AO ON AC COUNT OF UNACCOUNTED INVESTMENT IN STOCK OF CHICK PEAS AMOUNTED TO DOUBL E ADDITION AS THE APPELLANT HAD ALREADY OFFERED THIS AMOUNT AS ITS IN COME. HENCE, THE ADDITION OF RS.9.96 CRORES MADE BY THE AO U/S 69C OF THE ACT IS DELETED. 84. WE HAVE HEARD BOTH THE SIDES. THE LEARNED CIT(A) HA S DELETED THE ADDITION MADE ON ACCOUNT OF UNACCOUNTED INVESTMENT MADE IN THE BUSINESS OF CHICK PEAS BY HOLDING THAT THE ASSESSEE HAD DISCLOSED THE UNACCOUNTED STOCK OF CHIK PEAS OF RS.9.96 CRORES ALONGWITH PROFIT OF RS.49,00,000/- EARNED ON THE SALE OF THE SAME. THE DOCUMENT MARKET AS LPS 1/5 WAS FOUND A ND SEIZED. PAGE 18 OF THE SEIZED DOCUMENT SHOWS THE ST OCK OF CHICK PEAS OF RS.9.96 LACS AS ON 19.10.2011. IN THE STAT EMENT RECORDED SHRI MUKESH SANGLA DIRECTOR OF THE COMPANY ADMITTED SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 221 THAT THIS AMOUNT IS THE VALUE OF STOCK AS ON 19.10. 2011 ON ACCOUNT OF UNACCOUNTED STOCK OF CHICK PEAS. THE INV ESTMENT IN UNACCOUNTED STOCK HAS BEEN OFFERED ALONG WITH THE P ROFIT EARNED ON THE SALE OF THE SAME IN THE BOOKS OF ACCOUNTS W HEREIN THE SALE PROCEEDS HAVE BEEN CREDITED. THE LEARNED CIT(A ) HAS VERIFIED THE ISSUE AND THE RELEVANT PART OF HIS ORDER HAS BE EN REPRODUCED ABOVE. THE LEARNED DR COULD NOT CONTROVERT THE FIND INGS RECORDED BY THE LEARNED CIT(A) WITH REGARD TO ACCOUNTING TRE ATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS IN RELATIO N TO STOCK AND SALE OF CHICK PEAS , THEREFORE, WE FIND NO MERIT IN THIS APPEAL OF THE REVENUE AND DISMISS THE SAME. GROUND NO.2 (A.Y.: 2007-08) OF REVENUES APPEAL : 10.0 GROUND NO.2 (A.Y. : 2007-08) OF REVENUES APPEAL RE ADS AS UNDER: ASSESSMENT YEAR : 2007-08 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE C.I.T.(A). ERRED IN DELETING THE ADDITION MADE UNDER SECTION 68 OF T HE INCOME TAX ACT ON ACCOUNT OF UNSECURED LOAN RECEIVED OF RS.1,50,00 ,000/-. SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 222 85. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED REL IANCE ON THE JUDGEMENT OF THE HONOURABLE C.I.T.(A). THE RELEVANT PARAS ARE REPRODUCED AS UNDER : 11.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND FACTS OF THE CASE. IT IS A TRITE LAW THAT IN THE CASE OF A CASH CREDIT APPEARING IN THE BOOKS OF ACCOUNT OF AN ASSESSEE, THE ONUS IS ON THE ASSESSEE TO PROVE WITH COGENT MATERIAL THE IDENTITY OF THE CREDITOR, THE C APACITY OF SUCH CREDITOR TO ADVANCE SUCH LOAN AND GENUINENESS OF THE CREDITOR. WHEN THE QUESTION ARISES AS TO WHETHER CASH CREDITOR APPEARING IN THE BOOKS OF THE ASSESSEE HAS TO BE ACCEPTED OR TO BE REJECTED AND THE ADDITION TO BE M ADE U/S 68, IT HAS TO BE DECIDED ON THE BASIS OF FACTS AND CIRCUMSTANCES OF EACH CASE TO ASCERTAIN WHETHER THE ASSESSEE HAD PROVED THE IDENTITY OF THE CREDITORS, CREDITWORTHINESS OF THE CREDITORS AND GENUINENESS O F THE TRANSACTIONS. THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF KORLAY TRADING CO. LTD. (1998) 232 ITR 820 (CAL.) HELD THAT MERE FILING OF INCOME TAX FILE NUMBER WA S NOT ENOUGH TO PROVE THE GENUINENESS OF CASH CREDITOR. I N THE CASE OF CIT VS. UNITED COMMERCIAL AND INDUSTRIAL CO. PVT. LTD. (199 1) 187 ITR 596 (CAL.), IT WAS OBSERVED THAT MERE PRODUCTION OF CONFIRMATIO N LETTERS BEFORE THE ITO WOULD NOT BY ITSELF PROVE THAT THE LOANS HAVE BEEN OBTAINED FROM THOSE LOAN CREDITORS OR THAT THEY HAVE CREDITWORTHINESS. THE H ON' BLE HIGH COURT HELD THAT THE TRIBUNAL HAD MISDIRECTED ITSELF IN HOLDING THAT THE TRANSACTIONS WERE GENUINE SIMPLY BECAUSE SOME OF THE TRANSACTIONS WER E MADE BY CHEQUES. THE ASSESSEE HAD FAILED TO PROVE CREDITWORTHINESS OF TH E ALLEGED LENDERS AND HAD NOT DISCHARGED ITS BURDEN OF PROVING THAT THE LOANS IN QUESTION WERE GENUINE. IN ANOTHER CASE OF CIT VS. PRECISION FINANCE PVT. LTD. (1994) 208 ITR 465 (CAL.), IT WAS HELD THAT MERE FURNISHING OF PARTICULARS IS NOT ENOUGH. MERE PAYMENT BY ACCOUNT PAYEE CHEQUE IS NOT SACROSANCT N OR CAN IT MAKE A NON GENUINE TRANSACTION GENUINE. IN THE CASE OF CIT VS. K MAHIM (1995) 213 ITR 820 (KER.), IT WAS HELD THAT WHERE APART FROM CONFIRMATORY LET TER, THERE WAS NO MATERIAL TO ESTABLISH THE CAPACITY OF ALLEGE D CREDITORS TO ADVANCE THE AMOUNTS IN QUESTION TO THE ASSESSEE, THE TRIBUNAL W AS JUSTIFIED IN SUSTAINING ADDITION MADE IN RESPECT OF SUCH CASH CREDITS. IN T HE CASE OF BHARTI PVT. LTD. VS. CIT (1978) 111 ITR 951 (CAL.) , WHERE IN RESPECT OF CERTAIN LOANS IN ITS SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 223 ACCOUNT, THE ASSESSEE PRODUCED CONFIRMATORY LETTERS FROM THE CREDITORS BUT THE ITO' S NOTICES TO SUMMON THE CREDITORS CAME BAC K UN-SERVED, IT WAS HELD THAT THE ASSESSEE HAD FAILED TO PROVE THE IDENTITY OF THE CREDITOR AND CREDITWORTHINESS OF THE CREDITOR AND, THEREFORE, TH E ADDITIONS OF THE AMOUNT OF LOANS AS INCOME FROM UNDISCLOSED SOURCES WAS JUSTIF IED. THEREFORE, WHERE AN ASSESSEE HAS FURNISHED ONLY CONFIRMATION LETTER OR FURNISHED PAN NUMBER, OR SIMPLY CONTENDED THAT THE LOAN HAS BEEN RECEIVED BY ACCOUNT PAYEE CHEQUES, THAT ALONE WOULD NOT BE SUFFICIENT TO PROVE THAT TH E ASSESSEE HAS DISCHARGED HIS ONUS TO PROVE THE IDENTITY OF THE CREDITOR, CRE DITWORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION. THEREFORE, THE ASSESSEE HAS TO ADDUCE CONSIDERABLE EVIDENCE WHICH IS TRUSTWORTHY AND BELI EVABLE THAT THE UNSECURED LOAN SHOWN BY THE ASSESSEE IS GENUINE. HENCE, THIS ISSUE HAS TO BE DECIDED CONSIDERING THE FACTS OF EACH UNSECURED LOAN AS TO WHETHER THE ASSESSEE HAS SUCCESSFULLY DISCHARGED HIS ONUS TO PROVE THE IDENT ITY OF THE CREDITOR, CREDITWORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTIONS. ONCE THE ASSESSEE DISCHARGED HIS PRIMARY ONUS BY PRODUCI NG THE COGENT EVIDENCE TO PRIMA FACIE PROVE THE IDENTITY OF THE CREDITOR, CREDITWORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION, IF EVE N THEN THE AO DOES NOT ACCEPT THE CASH CRED IT TO BE GENUINE, THE ONUS SHI FTED ON THE DEPARTMENT TO PROVE THE CONTRARY BY BRINGING THE COGENT MATERIAL ON RECORD TO REJECT THE EXPLANATION OF THE ASSESSEE, AS OBSERVED BY THE PAT NA HIGH COURT IN THE CASE OF SAROGI CREDIT CORPORATION VS. CIT (1976) 103 ITR 30 4 (PATNA) . IF THE AO DOES NOT BRING ANY MATERIAL ON RECORD TO CONTRAD ICT OR CONTROVERT THE VERACITY OF THE DOCUMENTS FURNISHED BY THE ASSESSEE , HE CANNOT INVOKE PROVISIONS OF SECTION 68 OF THE ACT AND MAKE ADDITI ON TO THE TOTAL INCOME. IN THE LIGHT OF THIS DISCUSSION, THE MERIT OF ADDITION U/S 68 MADE BY THE AO ON ACCOUNT OF UNEXPLAINED UNSECURED LOAN IS TO BE EXAM INED . IN THE INSTANT CASE, THE APPELLANT HAD SHOWN UNSECU RED LOAN OF RS.L,50,00,000/- RECEIVED FROM M/S RITU CREATIONS P VT. LTD. IT WAS CLAIMED THAT M/S RITU CREATIONS PVT. LTD. BELONGS TO MITTAL GROUP OF INDORE AND THE PROMOTER DIRECTOR OF THE APPELLANT COMPANY SHRI MUK ESH SANGLA HAD CLOSE RELATIONSHIP WITH THE DIRECTORS OF THE CREDITOR GRO UP. THE APPELLANT COMPANY HAD TAKEN A TEMPORARY LOAN OF RS.1,50,00,000/- WHIC H WAS REPAID AFTER TWO MONTHS. THE APPELLANT HAD FURNISHED CONFIRMATION FR OM M/S RITU CREATIONS PVT. LTD., COPY OF ACKNOWLEDGEMENT OF RETURN OF INC OME FURNISHED BY THE CREDITOR, COPY OF PROFIT & LOSS ACCOUNT AND BALANCE SHEET OF THE CREDITOR SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 224 AND COPY OF BANK STATEMENT OF CREDITOR OF THE RELEV ANT PERIOD EVIDENCING THE TRANSACTIONS OF LOAN RECEIVED AND REPAID BY BANKING CHANNELS. IT IS NOTICED THAT THE LOAN CREDITOR, M/S RITU CREATIONS PVT. LTD . IS A NON-BANKING FINANCE COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956. T HE LOAN CREDITOR COMPANY IS REGULARLY ASSESSED TO INCOME-TAX HAVING PAN: AABCR6395M. THE LOAN CREDITOR HAD ALSO FURNISHED CONFIRMATION R EGARDING THE LOAN GIVEN TO THE APPELLANT OF RS.1.50 CRORES DURING F.Y.2006- 07 ON 20.03.2007, 28.03.2007 AND 30.03.2007 BY CHEQUES. THUS, THE APP ELLANT HAD PROVED THE IDENTITY OF THE LOAN CREDITOR. AS REGARDS, CREDITWO RTHINESS OF THE LOAN CREDITOR, THE APPELLANT HAD FURNISHED COPY OF ITS P ROFIT & LOSS ACCOUNT AND BALANCE SHEET AS ON 31.03.2007 BEFORE THE AO AS WEL L AS COPY OF BANK STATEMENT OF THE RELEVANT PERIOD OF THE LOAN CREDIT OR. AS MENTIONED BY THE APPELLANT IN ITS SUBMISSION, THE LOAN CREDITOR COMP ANY HAS CREDITWORTHINESS WHICH ENGAGED IN THE BUSINESS OF TRADING OF SHARES AS WELL AS EARNING INCOME FROM INTEREST ON THE LOANS GIVEN. ON PERUSAL OF BAL ANCE SHEET, IT IS NOTICED THAT THE APPELLANT HAD SHARE CAPITAL OF RS.59,35,75 0/- AND SHARE PREMIUM OF RS.5,00,31,750/-. HENCE, THERE WAS SUFFICIENT CAPIT AL AVAILABLE WITH THE LOAN CREDITOR TO GIVE SUCH LOAN TO THE APPELLANT. ON PER USAL OF PROFIT & LOSS ACCOUNT ALSO, IT IS NOTICED THAT THE APPELLANT HAD SHOWN INCOME BEFORE TAX OF RS.3,69,000/- IN A.Y.2007-08 AND OF RS.51,18,603/- IN A.Y.2008-09. IN APPELLATE PROCEEDINGS, THE AR WAS ALSO ASKED TO FUR NISH A COPY OF THE LATEST BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF THE LOAN CREDITOR. THE AR FURNISHED A COPY OF BALANCE SHEET AS ON 31.03.2014 AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED ON 31.03.2014. IT IS NOT ICED THAT THE LOAN CREDITOR M/S RITU CREATIONS PVT. LTD. HAD SHOWN PROFIT BEFOR E TAX AT RS.49,13,367/- FOR F.Y.2012-13 AND OF RS.44,82,110/- FOR F.Y.2013- 14. ON PERUSAL OF SCHEDULE OF FIXED ASSETS, IT IS NOTICED THAT M/S RI TU CREATIONS PVT. LTD. HAD TANGIBLE ASSETS OF RS.59,75,905/- WHICH INCLUDED AC CORD CAR, TATA SUMO AND MERCEDES BENZ. THUS, FROM THE PROFIT & LOSS ACCOUNT AND BALANCE SHEET IT CAN BE SEEN THAT THERE WAS CREDITWORTHINESS OF M/S RITU CREATIONS PVT. LTD. TO GIVE A TEMPORARY LOAN TO THE APPELLANT. HENCE, THE APPELLANT HAD ALSO PROVED THE CREDITWORTHINESS OF THE CREDITOR. REGARDING THE GENUINENESS OF THE TRANSACTION, IT IS NOTICED THAT THE UNSECURED LOAN WAS RECEIVED BY 5 CHEQUES ON 20.03.2007 OF RS.10,00,000/- EACH, 2 CHEQUES ON 28.03.2007 OF RS.25,00,000/- EACH AND 3 CHEQUES ON 30.03.2007 OF RS.20,00,000/-, RS.15,00,000/- & RS.15,00,000/-. IT WAS ALSO FOUND THAT THE APPELLANT HAD SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 225 RETURNED RS.L,47,50,000/- BY ACCOUNT PAYEE CHEQUES WITHIN A PERIOD OF LESS THAN TWO MONTHS IN MAY 2007 AND THE BALANCE AMOUNT OF RS.2,50,000/- WAS RETURNED ON 06.02.2008. SINCE, THE TRANSACTIONS HAD TAKEN PLACE BY CHEQUES THROUGH BANKING CHANNEL, THE GENUINENESS OF THE TRA NSACTIONS WERE ALSO PROVED BY THE APPELLANT. FROM THESE FACTS, IT IS EV IDENTLY CLEAR THAT THE APPELLANT HAD DISCHARGED ITS PRIMARY ONUS BY FURNIS HING CREDIBLE EVIDENCES TO PROVE THE IDENTITY OF THE CREDITOR, CREDITWORTHI NESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTIONS OF LOAN RECEIVED AN D THE LOAN REPAID. THEREAFTER, IF THE AO WAS NOT ACCEPTING THE CASH CR EDIT TO BE GENUINE, THE BURDEN HAD SHIFTED ON HIM TO PROVE THE CONTRARY. BU T THE AO HAD NOT BROUGHT ANY MATERIAL ON RECORD TO ESTABLISH THAT THE CREDIT REPRESENTS APPELLANT'S UNDISCLOSED INCOME. IN THE ABSENCE OF ANY MATERIAL CONTRARY TO THE DOCUMENTS FURNISHED BY THE APPELLANT, THE AO CANNOT REJECT THE EXPLANATION OF THE APPELLANT. IT IS A WELL KNOWN MAXIM THAT SUS PICION HOWSOEVER STRONG IT MAY BE, CANNOT TAKE THE SHAPE OF EVIDENCE. THE AO C ANNOT SIT BACK WITH FOLDED HANDS AND SIMPLY REJECT THE APPELLANT'S EXPL ANATION. THE AO HAD NOT MADE ANY ENQUIRY FROM THE CREDITOR AND ALL THE REAS ONS STATED BY THE AO FOR REJECTING APPELLANT'S EXPLANATION WERE IN THE REALM OF SURMISES AND SUSPICION. THE HON'BLE PUNJAB & HARYANA HIGH COURT HAD AN OCCASION TO CONSIDER THE SIMILAR ISSUE IN THE CASE OF CIT VS. VARINDER RAWLLEY (2014) 366 ITR 232 (P&H), WHEREIN IT WAS HELD AS UNDER (HEAD NOTES): 'HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE REC EIVED THE AMOUNT BY WAY OF AN ACCOUNT PAYEE CHEQUE. THE AMOUNT WAS RETU RNED BY WAY OF AN ACCOUNT PAYEE CHEQUE. THE TRANSACTIONS WERE REFL ECTED IN THE BANK ACCOUNTS OF THE ASSESSEE AS WELL AS OF THE CREDITOR . THE CREDITOR WAS AN INCOME-TAX ASSESSEE. ITS PERMANENT ACCOUNT NUMBE R WAS PLACED ON RECORD. THE ASSESSEE HAD SUFFICIENTLY DISCHARGED TH E BURDEN WHICH LEVY UPON IT TO EXPLAIN THE NATURE AND SOURCE OF TH E CREDIT APPEARING IN ITS ACCOUNTS AND THE BURDEN CLEARLY SHIFTED TO T HE DEPARTMENT TO PROVE TO THE CONTRARY TO HOLD THAT INSPITE OF THE A SSESSEE'S EXPLANATION, THE ENTRIES COULD STILL BE HELD TO REPRESENT ASSESS EE'S INCOME. THE ASSESSING OFFICER FAILED TO INVOKE THE PROVISIONS U NDER SECTION 131 OF THE ACT, THE TRIBUNAL HAD RIGHTLY CONCLUDED THAT IT WAS SUFFICIENT TO DELETE THE ADDITION. ' SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 226 THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE VIEW THAT THE APPELLANT HAD PROVED THE IDENTITY OF THE CREDITOR, CREDITWORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION AND, THEREFORE, CASH CREDITOR DID NOT FALL WITHIN THE AM BIT OF SECTION 68 OF THE ACT. HENCE, THE AO WAS NOT JUSTIFIED IN MAKING ADDITION OF RS.1,50,00,000/- U/S 68 OF THE ACT ON ACCOUNT OF UNSECURED LOAN FROM M/S RI TU CREATIONS PVT. LTD. THUS, THE ADDITION OF RS.1,50,00,000/- MADE BY THE AO U/S 68 OF THE ACT IS DELETED. 86. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE RELATING TO DELETION OF ADDITION OF RS.1,50,00,000/- MADE U/S 68 OF THE ACT. WE HAVE ALSO GONE THROUGH THE ORD ER OF THE LEARNED CIT(A). THE LEARNED DR COULD NOT CONTROV ERT THE FINDINGS OF THE LEARNED CIT(A) WHEREIN HE HAS STAT ED THAT WITH REGARD TO UNSECURED LOAN RECEIVED FROM RITU CREATION PVT. LTD., THE ASSESSEE WAS ABLE TO PROVE THE IDENTITY OF THE CREDITOR, CREDIT-WORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION. THE ASSESSEE WAS ABLE TO DISCHARGE THE ONUS LAY UPON IT IN VIEW OF SECTION 68 OF SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 227 THE ACT. IN VIEW OF THESE FACTS, WE FIND NO MERIT IN THIS GROUND OF THE REVENUES APPEAL. WE DISMISS THE SAME. 87. FINALLY, ALL THE APPEALS OF THE ASSESSEE AND REVENUE STAND PARTLY ALLOWED. PRONOUNCED IN OPEN COURT ON 27 TH JANUARY, 2016 SD/- SD/- (D.T. GARASIA) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER 27 TH JANUARY, 2016 DN/- SIGNET INDUSTRIES LTD. IT(SS) 115 TO 120/IND/2015 & ITA 400/IND/2015 ACIT VS.SIGNET INDUSTRIES LTD. IT(SS) A NOS. 195 TO 200/IND/2015 & ITA NO.507/IND/ 2015 228
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