SUBHASH PARETA, Kota V. ACIT, Kota

ITA 434/JPR/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1975 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 28-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S L CHANDEL
• Keywords: Unexplained cash credit; Rejection of books of accounts; Unexplained investment; Unexplained expenditure; Business income; Depreciation; Income from undisclosed sources; Loose papers; Document seized; Opportunity of being heard; Period of limitation; Source of fund; Corroborative evidences; Time period of passing order; Documents seized; Revenue expenditure; Capital expenditure
• Section: 69C; 40A(3); 143(3); 142(1); 133A; 69; 145; 37; 6; 144

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITA NO. 434/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2011-12 SUBHASH PARETA, PROP. PARETA ASSOCIATES, 3/148 GANESH TALAB, KOTA CUKE VS. ACIT CIRCLE-1 KOTA LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AGGPP4046H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 617/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2011-12 ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOTA CUKE VS. SHRI SUBHASH PARETA, PROP. PARETA ASSOCIATES, 3/148, GANESH TALAB, KOTA-324009 LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AGGPP4046H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : SHRI S.L.CHANDEL (ADDL. CIT) FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : NONE LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 10/08/2017 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 09/10/2017 VKNS'K@ ORDER ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 2 PER: VIKRAM SINGH YADAV, A.M. THESE ARE TWO CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF LD. CIT (A), KOTA DATE D 11.03.2016 FOR A.Y. 2011-12. NONE APPEARED ON BEHALF OF THE ASSESS EE. THE ASSESSEES APPEAL WAS FILED ON 28.04.2016 AND FIRST LISTED FOR HEARING ON 8.09.2016, AND THE REVENUES APPEAL WAS FILED ON 03 .06.2016 AND FIRST LISTED FOR HEARING ON 14.09.2016. SINCE THEN, BOTH THESE APPEALS HAD COME UP FOR HEARING ON NUMEROUS OCCASIONS BUT NO HE ARING HAS TAKEN PLACE, IT WAS DECIDED AT THE TIME OF SCHEDULED HEAR ING ON 10.08.2017 IN THE OPEN COURT THAT NO USEFUL PURPOSE WOULD BE SERV ED IN ADJOURNING THE MATTER ANY FURTHER. ACCORDINGLY, BASED ON MATE RIAL AVAILABLE ON RECORD AND TAKEN INTO CONSIDERATION THE CONTENTIONS OF THE LD. DR, BOTH THE APPEALS ARE BEING DISPOSED OFF ON MERITS. ITA NO. 434/JP/16 (GROUNDS OF ASSESSEES APPEAL):- 1. THAT THE LD. CIT(A) GROSSLY ERRED ON LAW & FACT S IN NOT ADJUDICATING THE GROUND NO. 1 TO 4 RAISED BEFORE HI M. THE GROUNDS ARE AS UNDER: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES THE ASSESSMENT ORDER OF THE LEARNED ASSESSING OFFICER I S AGAINST THE LAW AND FACTS OF THE CASE. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED ASSESSING OFFICER GROSSLY ERRED APPOINT ING THE SPECIAL AUDITOR U/S 142(2A) OF THE INCOME TAX A CT, 1961. 3. THAT THE SPECIAL AUDIT REPORT AS SUBMITTED BY THE S PECIAL AUDITOR IS NOT AS PER LAW ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 3 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED ASSESSING OFFICER GROSSLY ERRED IN FOLL OW UP THE UNJUSTIFIED/UNLAWFUL SPECIAL AUDIT REPORT WITHO UT KEEPING PROPER ATTENTION ON THE RECORDS, SUBMISSION OF THE APPELLANT AND FACTS OF THE CASE. (2) THAT THE LD. CIT(A) GROSSLY ERRED ON LAW & FACT S IN NOT ALLOWING RELIEF ON THE ADDITION MADE BY THE LD. A.O BY ESTIMATING THE N.P @ 12.5% AND THEREBY MAKING ADDITION OF RS. 2,77,049.00. (3) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED ASSESSING OFFICER GROSSLY ERRED IN MAKING A DDITION OF RS. 697,919/- ON ACCOUNT OF FRESH CAPITAL INTRODUCED BY THE PROPRIETOR WITHOUT KEEPING PROPER ATTENTION ON THE ACCOUNT OF THE APPELLANT AND THE LD. CIT(A) ALSO ERRED IN CONFIRMING THE SAI D ADDITION. (4) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED ASSESSING OFFICER GROSSLY ERRED IN MAKING A DDITION OF RS. 16,225/- BY STATING THAT CAPITAL EXPENDITURE CLAIME D AS REVENUE EXPENDITURE AND THE LD. CIT(A) ALSO ERRED IN CONFIR MING THE SAID ADDITION. (5) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) GROSSLY ERRED IN SUSTAINING THE ADDI TION OF RS. 59,873/- ON ACCOUNT OF UNEXPLAINED INVESTMENT U/S 6 9 OF I.T. ACT 1961. (6) THAT THE LD. CIT(A) GROSSLY ERRED ON LAW & FACT S IN SUSTAINING THE ADDITION OF RS. 832,667.00 ON ACCOUN T OF UNACCOUNTED INCOME THE LD. AO MADE OF RS. 23,04,667 .00 OUT OF THAT RS. 852,667.00 IS SUSTAINED BY THE LD CIT(A) A DDITION WHICH IS WRONG. (7) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED ASSESSING OFFICER GROSSLY ERRED IN MAKING A DDITION OF RS. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 4 451,513/- ON ACCOUNT OF UNDISCLOSED INCOME AND THE LD. CIT(A) ALSO ERRED IN SUSTAINING THE SAME. ITA NO. 617/JP/16 (GROUNDS OF REVENUES APPEAL):- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN:- (I) DELETING THE ADDITION OF RS. 12,35,000/- MADE U/S 6 9 OF THE ACT ON ACCOUNT OF UNEXPLAINED CASH CREDIT; (II) DELETING ADDITION OF RS. 1,41,34,476/- MADE U/S 40A (3) OF THE ACT; (III) DELETING ADDITION OF RS. 1,18,34,723/- MADE U/S 69C OF THE ACT ON ACCOUNT OF UNEXPLAINED EXPENDITURE; (IV) DELETING ADDITION OF RS. 14,72,000/- MADE ON ACCOUN T OF UNACCOUNTED INCOME; 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE FILED HIS RETURN OF INCOME DECLARING INCOME OF RS. 37,53,350/ -. GIVEN THE COMPLEXITY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, THE MATTER WAS REFERRED TO THE SPECIAL AUDITOR AND AFTER TAKING IN TO CONSIDERATION THE REPORT OF THE SPECIAL AUDITOR AND OTHER DETAILS AND DATA AVAILABLE ON RECORD, THE ASSESSMENT WAS COMPLETED U/S 143(3) COM PUTING TOTAL INCOME OF THE ASSESSEE AT RS 3,47,64,800. BEING AG GRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD CIT(A) WHO ALLOWED PARTIAL RELIEF TO THE ASSESSEE. 3. THE POSITION AS IT STANDS TODAY VIS--VIS VARIOU S ADDITIONS MADE BY THE AO IS AS UNDER: ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 5 PARTICULARS AMOUNT (RS) REMARKS 1. ADDITION AFTER APPLICATION OF N.P. RATE 2,77,049 CONFIRMED BY THE LD CIT(A) 2. CAPITAL INTRODUCED BY THE PROPRIETOR DURING THE YEAR 6,97,919/ - CONFIRMED BY THE LD CIT(A) 3. CAPITAL EXPENDITURE CLAIMED AS REVENUE EXPENDITURE 16,225/ - CONFIRMED BY THE LD CIT(A) 4. UNEXPLAINED INVESTMENT U/S 69 12,94,873/ - PARTLY CONFIRMED BY THE LD CIT(A) TO THE EXTENT OF RS 59,873 AND THE BALANCE DELETED 5. VIOLATION OF SECTION 40A(3) - (CASH PAYMENTS ABOVE RS. 20,000/-) 1,41,34, 476/ - DELETED BY THE LD CIT(A) 6. UNEXPLAINED EXPENDITURE U/S 69C 1,18,34,723/ - DELETED BY THE LD CIT(A) 7. UNACCOUNTED INCOME (UNVERIFIED BANK DEPOSITS/DD) 23,04,667/ - PARTLY DELETED BY THE LD CIT(A) TO THE EXTENT OF RS 14,72,000 8. UNDISCLOSED INCO ME 4,51,513/ - CONFIRMED BY THE LD CIT(A) NOW, THE ASSESSEE IS IN APPEAL AGAINST VARIOUS ADDI TIONS SUSTAINED BY THE LD CIT(A) AND THE REVENUE IS IN APPEAL AGAINST THE ADDITIONS SO DELETED BY THE LD CIT(A). ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 6 ITA NO. 434/JP/16 4. NOW REGARDING EACH OF THE GROUNDS OF APPEAL TAKE N BY THE ASSESSEE, WE REFER TO THE RELEVANT FINDINGS OF THE LD. CIT(A) TO EXAMINE WHETHER THERE IS PERVERSITY IN THE SAID FINDINGS OR NOT. 5. REGARDING GROUND NO. 1 REGARDING APPOINTMENT OF SPECIAL AUDITOR AND SPECIAL AUDIT REPORT SO SUBMITTED BY THE SPECIA L AUDITOR, THE RELEVANT FINDINGS OF THE LD CIT(A) ARE AS UNDER: AS REGARDS GROUND NO. 2, LOOKING AT THE POOR LEVEL OF COOPERATION FROM THE ASSESSEES SIDE TO EXPLAIN THE BOOKS OF ACCOUNT S RELATED ENTRIES AS FOUND IN THE LOOSE PAPERS, AND THE MENTION IN THE A SSESSMENT ORDER THAT A/R, OF THE ASSESSEE, FAILED TO PROVIDE RECON CILIATION OF EXPENSES & INCOME AS WELL AS OTHER DETAILS. GIVEN THE VOLUME O F IMPOUNDED BOOKS OF ACCOUNTS AND COMPLEXITY THEREIN, THE CASE WAS RE COMMENDED FOR SPECIAL AUDIT BY ANOTHER CHARTERED ACCOUNTED UNDER SECTION 142(2A) OF THE I.T. ACT, 1961. THE FINAL OPPORTUNITY WAS GIVEN TO THE ASSESSEE ON 24.03.2014 TO SUBMIT THE REPLY. HOWEVER, A/R, SUBMI TTED THAT HE HAS NOTHING MORE TO EXPLAIN ON THIS ISSUE, I DO NOT FIN D FAULT WITH THE ACTION OF THE A.O TO REFER THE MATTER FOR SPECIAL AUDIT LO OKING TO THE PROVISIONS OF SECTION 142(2A) OF THE ACT. THE HIGH COURT OF GUJARAT IN NEESA LEISURE LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 2(2) & 1 REPORTED IN 35 TAXMANN.COM 216 (GUJARAT) HAS HELD THAT- SECTION 142 OF THE ACT PERTAINS TO INQUIRY BEFORE ASSESSMENT. SUB-SECTION (2A) THEREOF PROVIDES THAT IF, AT ANY S TAGE OF PROCEEDINGS THE ASSESSING OFFICER, HAVING REGARD TO THE NATURE ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 7 AND COMPLEXITY OF THE ACCOUNTS OF THE ASSESSEE AND THE INTERESTS OF THE REVENUE, IS OF THE OPINION THAT IT IS NECESS ARY SO TO DO, MAY WITH THE PREVIOUS APPROVAL OF THE CHIEF COMMISSIONE R OR COMMISSIONER, DIRECT THE ASSESSEE TO GET THE ACCOUN TS AUDITED BY AN ACCOUNTANT, AS DEFINED IN EXPLANATION BELOW TO S UB-SECTION (2) OF SECTION 288, AND TO FURNISH A REPORT OF SUCH AUD IT IN THE PRESCRIBED FORM DULY SIGNED AND VERIFIED BY SUCH AC COUNTANT AND SETTING FORTH SUCH PARTICULARS AS MAY BE PRESCRIBED AND SUCH OTHER PARTICULARS AS THE ASSESSING OFFICER MAY REQU IRE. SAID SECTION READS AS UNDER:- 142 INQUIRY BEFORE ASSESSMENT. (1) (2)** ** ** (2A) IF, AT ANY STAGE OF THE PROCEEDINGS BEFORE HIM , THE ASSESSING OFFICER, HAVING REGARD TO THE NATURE AND COMPLEXITY OF THE ACCOUNTS OF THE ASSESSEE AND THE INTERESTS OF THE R EVENUE, IS OF THE OPINION THAT IT IS NECESSARY SO TO DO, HE MAY, WITH THE PREVIOUS APPROVAL OF THE CHIEF COMMISSIONER OR COMM ISSIONER, DIRECT THE ASSESSEE TO GET THE ACCOUNTS AUDITED BY AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUBSECTION (2) OF SECTION 288, NOMINATED BY THE CHIEF COMMISSIONER OR COMMISSIONER IN THIS BEHALF AND TO FURNISH A REPORT OF SUCH AUDIT IN THE PRESCRIBED FORM DULY SIGNED AND VERIFIED BY SUCH ACCOUNTANT AND SET TING FORTH SUCH PARTICULARS AS MAY BE PRESCRIBED AND SUCH OTHE R PARTICULARS AS THE ASSESSING OFFICER MAY REQUIRE: ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 8 PROVIDE THAT THE ASSESSING OFFICER SHALL NOT DIRECT THE ASSESSEE TO GET THE ACCOUNTS SO AUDITED UNLESS THE ASSESSEE HAS BEEN GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD. .IN THE PRESENT CASE, THE ASSESSING OFFICER HAD IS SUED NOTICES TO THE ASSESSEE UNDER SECTION 142(1) OF THE ACT. WHEN THERE WAS NO COMPLIANCE, NOTICE FOR APPOINTMENT OF SPECIAL AUDIT OR CAME TO BE ISSUED. PETITIONERS OBJECTIONS WERE CONSIDERED, AP PROVAL FROM THE COMMISSIONER WAS SOUGHT. ON THE STRENGTH OF SUCH AP PROVAL SO GRANTED BY THE COMMISSIONER, THE ASSESSING OFFICER ON THE BASIS OF HIS OPINION THAT THE ACCOUNTS OF THE ASSESSEE WE RE COMPLEX AND IN THE INTEREST OF THE REVENUE, IT WAS SO REQUI RED, DIRECTED THAT THE ACCOUNTS BE AUDITED BY THE SPECIAL AUDITOR . CONSIDERING THE FACTS IN THIS CASE AS WELL, THE OPP ORTUNITY WAS REASONABLY PROVIDED TO THE ASSESSEE TO REPRESENT IT S CASE AND THE A.O FOLLOWED THE PROVISIONS OF LAW IN RECOMMENDING SPEC IAL AUDIT WITH DUE APPROVAL OF THE COMMISSIONER. UNDER THE CIRCUMSTANCES, THERE IS NO JUSTIFICATION FOR UPHOLDING THIS GROUND OF APPEAL OF THE ASSESSEE THAT THE AO ERRED IN APPOINTMENT OF THE SPECIAL AUDITOR AND THE SAME IS ACCORDINGLY DI SMISSED. AS REGARDS GROUND NO. 3, EVEN WITH THE SPECIAL AUD ITOR, THE ASSESSEE WAS UNABLE TO GET FULLY RECONCILED AND EXPLAIN THE BOOKS OF ACCOUNTS RELATED ENTRIES AS FOUND IN THE LOOSE PAPERS WITH T HE SPECIAL AUDITOR, THE DETAILS OF WHICH ARE A PART OF THE RECORD. IN T HE ABSENCE OF THE SAME THE AUDITOR APPOINTED BY THE DEPARTMENT HAD NO BASIS BUT TO REACH CONCLUSIONS BASED ON THE AVAILABLE IMPOUNDED DOCUMENTS. THE ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 9 CD OF THE BOOKS PRESENTED BY HIM TO THE SPECIAL AUD ITOR WAS GIVEN ONLY 15 DAYS BEFORE THE REPORT WAS FINALIZED. THEREFORE, I AM OF THE OPINION THAT SINCE THE AUDITOR HAD TO SUBMIT THE REPORT WIT HIN THE LIMITATION PERIOD PRESCRIBED IN THE STATUTE, HE MAY NOT HAVE F ULLY CONSIDERED THE LATE SUBMISSIONS OF THE ASSESSEE BUT HE HAD INITIAL LY PROVIDED ADEQUATE OPPORTUNITY TO THE ASSESSEE TO REPRESENT HIS CASE W ITH DOCUMENTARY EVIDENCES REGARDING THE LOOSE PAPERS IMPOUNDED DURI NG THE SURVEY PROCEEDINGS. THUS THE REPORT BEING BASED ON THE AVAILABLE MATERI ALS WITH THE SPECIAL AUDITOR CANNOT BE CONSIDERED AS BEING NOT AS PER L AW MENTIONED IN THIS GROUND OF APPEAL. I ACCORDINGLY AM UNABLE TO AGREE WITH THE ASSESSEE S CONTENTION ON THIS GROUND AND THE SAME IS ACCORDINGLY DISMISSED. AS REGARDS GROUND NO. 4, THE CONTENTION RAISED WILL BE DEALT WITH WHILE DISPOSING OFF THE OTHER GROUNDS OF APPEAL FOLLOWING THIS AND IS NOT BEING ADJUDICATED SEPARATELY. 6. IN LIGHT OF ABOVE, IT WOULD BE INCORRECT TO HOL D THAT THE LD CIT(A) HAS FAILED TO ADJUDICATE ON THE GROUNDS RELATING TO THE APPOINTMENT OF THE SPECIAL AUDITOR AND THE AUDIT REPORT SO SUBMITT ED BY THE SPECIAL AUDITOR. WE HAVE GONE THROUGH THE FINDINGS OF THE LD CIT(A) AND DONT SEE ANY INFIRMITY OR PERVERSITY IN THE SAID FINDING S. THE LD CIT(A) HAS TAKEN INTO THE CONSIDERATION THE FACT RELATING TO V OLUME AND COMPLEXITY OF TRANSACTIONS AND THE FACT THAT THE ASSESSEE HIMS ELF FAILED TO RECONCILE THE DOCUMENTS FOUND DURING THE COURSE OF SURVEY WIT H THE BOOKS OF ACCOUNTS AND BASIS THAT, HE HAS CONFIRMED THE ACTIO N OF THE AO TO ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 10 RECOMMENDING THE APPOINTMENT OF THE SPECIAL AUDITOR AFTER TAKING APPROPRIATE PERMISSIONS FROM THE LD CIT AFTER PROVI DING REASONABLE OPPORTUNITY TO THE ASSESSEE. FURTHER, IT IS NOTED T HAT BASED ON DOCUMENTS IMPOUNDED DURING THE COURSE OF SURVEY AND THE FACT THAT THE ASSESSEE FAILED TO RECONCILE THE SAME WITH THE BOOK S OF ACCOUNTS, THE SPECIAL AUDITOR HAS COME TO SPECIFIC FINDINGS WHICH ARE CONTAINED IN HIS SPECIAL AUDIT REPORT. IN THE RESULT, GROUND NO. 1 OF THE ASSESSEES APPEAL IS DISMISSED. 7. REGARDING GROUND NO. 2 OF THE ASSESSEES APPEAL RELATING TO ESTIMATION OF NET PROFIT RATE PURSUANT TO REJECTION OF BOOKS OF ACCOUNTS, THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE AS UNDE R:- AS REGARDS GROUND NO. 5, PERTAINING TO REJECTION O F BOOKS AND ESTIMATION OF NET PROFIT RATE, THE AO IN THE ENTIRE GAMUT OF THE LACK OF PROPER PRESENTATION OF THE BOOKS OF ACCOUNTS BY THE ASSESSEE BEFORE THE SPECIAL AUDITOR AND LATER BEFORE HIM, REACHED A CONCLUSION THAT THE BOOKS WERE NOT PROPER AND NEEDED TO BE REJECTED. AF TER PROVIDING OPPORTUNITY TO THE ASSESSEE WITH HIS INTENTION TO D O SO HIGHLIGHTING THE DEFECTS RAISED AT PAGE TO 6 OF THE ASSESSMENT ORDER , HE ADOPTED A N.P. RATE OF 12.5% IN THE ASSESSEES CASE. THE MAIN DEFECTS HIGHLIGHTED WERE- -THAT THE ASSESSEE HAS NOT PRODUCED ANY LABOUR WAGE S REGISTER NOR ANY OTHER DOCUMENTARY EVIDENCE IN SUPPORT OF CLAIM REGA RDING LABOUR WAGES PAYMENT. THEREFORE, ACTUAL VERIFICATION OF WAGES/SALARY PAID CANNOT BE ASCERTAINED AND THAT GENUINENESS OF EXPENSES IS DOU BTFUL. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 11 -THE INVENTORY OF RAW MATERIAL CONSUMED IN EXECUTIO N OF WORK CONTRACT HAS NOT BEEN MAINTAINED. -ALSO, SITE WISE STOCK REGISTER OF FUEL CONSUMED HA S NOT BEEN MENTIONED. THEREFORE, EXACT CONSUMPTION OF RAW MATE RIAL & FUEL CANNOT BE VERIFIED. -THE ASSESSEE DID NOT PRODUCE ANY DOCUMENTARY EVIDE NCE LIKE STOCK REGISTER/INVENTORY IN SUPPORT OF CLOSING STOCK AND WORK-IN-PROGRESS. -THE ANNEXURE-9 & 10 OF AUDIT REPORT OF SPECIAL AUD ITOR WHICH POINTS TO VOUCHER/BILLS WHICH ARE NOT VERIFIABLE FROM THE BOO KS OF ACCOUNTS SUBMITTED BY THE A/R. IN VIEW OF THIS, THE GENUINEN ESS OF EXPENSES CANNOT BE ASCERTAINED AND PROFITS OF THE ASSESSEE C ANNOT BE DEDUCED IN ACCURATE AND FAIR MANNER. THUS, THE ADMITTED FACTS OF THE CASE ARE THAT THE A SSESSEE IS A CIVIL CONTRACTOR WHO DID NOT MAINTAIN PROPER BOOKS OF ACC OUNT. THE ASSESSEE DID NOT FURNISH RELEVANT BILLS AND VOUCHERS OF PURC HASE AND EXPENSES BEFORE THE SPECIAL AUDITOR AND LATER THE ASSESSING OFFICER. THESE ARE DEFECTS WORTH NOTE AND UNDER THE CIRCUMSTANCES OF T HE CASE, THE DECISION OF THE AO TO REJECT THE BOOKS OF ACCOUNTS CANNOT BE FAULTED. IN THE LIGHT OF THE FACTS, I UPHOLD THE ORDER OF THE A SSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT. AFTER REJECTING THE BOOKS OF ACCOUNT, THE ISSUE TO BE DECIDED IS ESTIMATION OF INCOME. IN A CASE WHERE THE PROVISIONS OF SECTION 145(3) AR E ATTRACTED, ALTHOUGH THE ASSESSMENT IS MADE IN THE MANNER PROVIDED IN SE CTION 144, ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 12 NEVERTHELESS THE ASSESSMENT IS MADE UNDER SECTION 1 43(3) OF THE ACT. A CLEARCUT DISTINCTION BETWEEN BEST JUDGMENT ASSESSME NT AND IN THE MANNER PROVIDED UNDER SECTION 144 IS REQUIRED TO BE UNDERSTOOD WHILE RESORTING TO THE PROVISION OF SECTION 145(3). UNDER SECTION 145(3) THE ASSESSMENT IS REQUIRED TO BE IN THE MANNER UNDER SE CTION 144 OF THE ACT ONLY. HOWEVER, IT IS WELL KNOWN THAT IN THE CAS E OF BEST JUDGMENT WHERE RESORT IS TAKEN TO SECTION 144, THE ASSESSING OFFICER EXERCISING HIS JURISDICTION CANNOT ACT ARBITRARILY OR CAPRICIO USLY. THE ASSESSMENT MUST PROCEED ON JUDICIAL CONSIDERATIONS IN THE LIGH T OF RELEVANT MATERIAL THAT MAY BE BROUGHT ON RECORD. THE HONBLE ALLAHABA D HIGH COURT IN THE CASE OF CIT VS. SURJEETSINGH MAHESKUMAR (1994) 210 ITR 83 HAS HELD THAT IN EVERY CASE OF BEST JUDGMENT, THE ELEMENT OF GUESS WORK CANNOT BE ELIMINATED SO LONG AS BEST JUDGMENT HAS A NEXUS WITH MATERIAL ON RECORD AND DISCRETION IN THAT BEHALF HAS NOT BEEN E XERCISED ARBITRARILY OR CAPRICIOUSLY. HONBLE SUPREME COURT IN THE CASE OF CIT VS. H.M ES UFALI, H.M. ABDULALI REPORTED AT 90 ITR 271 (SC) MENTIONED THAT- THE AO IS NOT DUTY BOUND THE STATE PRECISELY THE AC COUNT OF SUPPRESSED TURNOVER WHERE IT IS OBVIOUS THAT THE ASSESSEE IS M AINTAINING FALSE ACCOUNTS. THE ASSESSEE CANNOT PLEAD THAT IT IS THE DUTY OF THE AO TO PROVE CONCLUSIVELY THE AMOUNT OF SUPPRESSED TURNOVE R, AS THIS FACT IS IN HIS PERSONAL KNOWLEDGE; .THE BURDEN OF PROVING THE FACT IS ON THE ASSESSEE WHO CANNOT BE PERMITTED TO TAKE ADVANTAGE OF HIS OWN ILLEGAL ACTS ; ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 13 ESTIMATE OF INCOME IS ALLOWED AND THERE MAY BE AN OVERESTIMATE OR AN UNDERESTIMATE. AS THE ESTIMATE IS NOT ARBITRARY, HAS NEXUS WITH FACTS DISCOVERED AND BASIS ADOPTED IS RELEVANT, THERE CAN BE NO GROUND FOR INTERFERING WITH THE BEST JUDGMENT FOR THAT OF THE AO. ..IN JUDGING A BEST JUDGMENT ASSESSMENT, THE POWER S OF APPELLATE AUTHORITY ARE RESTRICTED. THEY HAVE MERELY TO SEE W HETHER THE BOOKS OF ACCOUNT WERE RIGHTLY REJECTED OR NOT ANY THEREAFTER IF THE CONCLUSION IS POSITIVE, THEN WHETHER OR NOT THE BASIS FOR ESTIMAT ION HAS REASONABLE NEXUS WITH THE ESTIMATE. .WHILE MAKING BEST JUDGMENT ASSESSMENT : D) THE CONCLUSION DRAWN SHOULD BE UNBIASED AND RAT IONALLY MADE, E) THE AUTHORITY SHOULD NOT BE VINDICTIVE OR CAPRI CIOUS, F) ESTIMATE SHOULD BE BONA FIDE. GOOD PROOF IS NOT REQUIRED WHILE MAKING AN ESTIMAT E PROVIDED THE ACCOUNTS ARE RIGHTLY REJECTED AND ESTIMATE IS FAIR AND REASONABLE. NOW COMING TO THE ESTIMATION RESORTED BY THE AO IN THIS CASE, HE HAD THE ENTIRE MATERIAL IMPOUNDED IN THE COURSE OF SURV EY PROCEEDINGS IN THE CASE OF THE ASSESSEE. HE HAD ALREADY TAKEN THE BENEFIT OF THE ADVISE OF THE SPECIAL AUDITOR AND AFTER FINDING ALL THE DI SCREPANCIES IN THE BOOKS OF ACCOUNTS, HE HAD REJECTED THE SAME AS BEIN G UNRELIABLE. THUS WHILE CONSIDERING THE NATURE OF THE ASSESSEES BUSI NESS BEING THAT OF A CONTRACTOR, HE USED THE EXAMPLE OF THE AVAILABLE CO MPARATIVE CASES AND RESORTED TO HIS BEST ESTIMATE OF PROFITS IN MY OPIN ION. HE HAS FOLLOWED THE ORDER OF THE JURISDICTIONAL HIGH COURT IN THE C ASE OF M/S JAIN ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 14 CONSTRUCTION COMPANY WHERE THE HONBLE RAJASTHAN HI GH COURT HAS UPHELD THE N.P. RATE OF 12% IN THE BUSINESS OF THE CIVIL CONSTRUCTION. THE AO HELD THAT AS THE CASE OF ASSESSEE IS COMPAR ABLE WITH CASE OF JAIN CONSTRUCTION COMPANY, IT WOULD BE APPROPRIATE TO APPLY NET PROFIT OF 12.5% SUBJECT TO INTEREST AND DEPRECIATION, IN T HE CASE OF ASSESSEE AS WELL. FURTHER, HE HAS RELIED ON THE ORISSA HIGH COURT IN THE CASE OF CIT VS. BUILDERS UNION (211 ITR 993) WHICH HAS ALSO CONSIDE RED REASONABLE N.P RATE OF 12.5% IN THE CASE OF CONTRACTOR. HOWEVER, HE HAS FAIRLY REDUCED THE SUB-CONTRACT WOR K FROM THE PURVIEW OF SUCH PROFIT ESTIMATION AND ALSO FAIRLY ALLOWED I NTEREST AND DEPRECIATION ON THE ESTIMATED NET PROFIT. UNDER THE ABOVE CIRCUMSTANCES, I AM IN AGREEMENT WI TH THE ESTIMATION DONE BY THE AO ESPECIALLY CONSIDERING THE FACTS HIG HLIGHTED RELATED TO INCOMPLETENESS OF BOOKS OF ACCOUNTS, UNVERIFIABLE E XPENSES AND THE COMPARABLE CASES CITED. THE NET PROFIT RATE @ 12.5% SUBJECT TO THE ABOVE ME NTIONED DEDUCTIONS IS ACCORDINGLY HELD TO BE PROPER AND FAI R AND THE ADDITION OF RS. 2,77,049/- MADE ON THIS ACCOUNT IS UPHELD. THE GROUND OF APPEAL IS ACCORDINGLY DISMISSED. 8. WE HAVE HEARD THE LD DR AND GONE THROUGH THE FI NDINGS OF THE LD CIT(A) AND THE AO, AND THE ASSESSEES SUBMISSIONS M ADE BEFORE BOTH THE AUTHORITIES AS REPRODUCED IN THE APPELLATE AND ASSESSMENT ORDER. ADMITTEDLY, THE ASSESSEE IS A CIVIL CONTRACTOR AND FOR DRAWING UP AND ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 15 DETERMINING HIS BUSINESS AND FINANCIAL RESULTS, LAB OUR/EMPLOYEE EXPENSES AND MATERIAL EXPENSES FORMS A CRITICAL COM PONENT OF HIS COSTS AND WHERE SO REQUIRED BY THE AO, HE HAS TO DEMONSTR ATE THE INCURRENCE OF THESE EXPENSES THROUGH VERIFIABLE EVIDENCE/DOCUM ENTATION. IN THE INSTANT CASE, THE AO HAS SPECIFICALLY ASKED THE ASS ESSEE TO PRODUCE LABOUR/WAGES REGISTER AND OTHER RELATED DETAILS IN SUPPORT OF LABOUR/EMPLOYEE EXPENSES WHICH THE ASSESSEE FAILED TO PRODUCE INSPITE OF ADEQUATE OPPORTUNITY BEING PROVIDED TO HIM. SIM ILARLY, PARTICULARS ABOUT THE RAW MATERIAL CONSUMED IN EXECUTION OF WOR K CONTRACTS BEING CARRIED OUT AT VARIOUS SITES COULD NOT BE PRODUCED AND VERIFIED BY THE AO. THE ASSESSEE IS A CIVIL CONTRACTOR AND HAS EXE CUTED VARIOUS GOVERNMENT AND OTHER CONTRACTS. WE FAIL TO UNDERST AND IF THE ASSESSEE DOESNT MAINTAIN DETAILS OF LABOUR EMPLOYED AND RAW MATERIAL CONSUMED, AS SO CLAIMED DURING THE ASSESSMENT PROCE EDINGS, ON WHAT BASIS HE WILL BE RAISING INVOICES FOR THE WORK DONE AT THOSE SITES AND HOW ITS CUSTOMERS WOULD BE VERIFYING THOSE INVOICES . BESIDES, THE AO HAS STATED ABOUT LACK OF SUPPORTING DOCUMENTATION I N RESPECT OF CLOSING STOCK AND WORK IN PROGRESS WHICH REMAIN UNVERIFIABL E. FURTHER, THE SPECIAL AUDITOR HAS POINTED OUT VARIOUS DISCREPANCI ES IN TERMS OF 62 ENTRIES RELATING TO VARIOUS VOUCHERS/BILLS/CHALLANS ETC WHICH COULD NOT BE VERIFIED FROM THE BOOKS OF ACCOUNTS. THE SPECIAL A UDITOR ALSO POINTED OUT 251 ENTRIES OF CASH PAYMENTS EXCEEDING RS 20,00 0 IN VIOLATION OF SECTION 40A(3) OF THE ACT. IN OUR VIEW, THESE ARE SERIOUS DISCREPANCIES AS POINTED BY THE AO BASED ON REVIEW OF ASSESSEES BOOKS OF ACCOUNTS, SPECIAL AUDIT REPORT AND OTHER DETAILS ON RECORD, A ND WE ACCORDINGLY DONT SEE ANY JUSTIFIABLE BASIS TO DEVIATE FROM THE VIEW TAKEN BY THE AO ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 16 IN REJECTION OF THE BOOKS OF ACCOUNTS OF THE ASSESS EE AND INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. 9. REGARDING ESTIMATION OF PROFITS PURSUANT TO THE REJECTION OF THE BOOKS OF ACCOUNTS, THE AO HAS SEGREGATED THE TURNOV ER RELATING TO WORK DIRECTLY EXECUTED BY THE ASSESSEE AND THE WORK EXEC UTED THROUGH THE SUB-CONTRACTOR. IN RESPECT OF DIRECTLY EXECUTED WOR K, THE AO HAS APPLIED THE NET PROFIT RATE OF 12.5% SUBJECT TO INTEREST AN D DEPRECIATION FOLLOWING THE RATIO LAID DOWN BY THE HONBLE RAJAST HAN HIGH COURT IN CASE OF JAIN CONSTRUCTIONS AND IN RESPECT OF WORK E XECUTED THROUGH THE SUB-CONTRACTOR, THE AO HAS ACCEPTED THE NET PROFIT OF 3% AS SUBMITTED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. NOTHING HAS BEEN BROUGHT ON RECORD TO SUGGEST THE CASE OF JAIN CONSTRUCTION, WHICH IS APPARENTLY IN THE SAME LINE OF BUSINESS, IS NOT A COMPARABLE CASE WITH THAT OF THE ASSESSEE. WE ACCORDINGLY FIND THAT THE RE IS A REASONABLE BASIS FOR THE AO TO ESTIMATE THE NET PROFIT AND THE SAME IS HEREBY CONFIRMED. THE GROUND NO. 2 OF THE ASSESSEES APPE AL IS THUS DISMISSED. 10. REGARDING GROUND NO. 3 OF THE ASSESSEES APPEAL , BRIEFLY THE FACTS OF THE CASE ARE THAT IN THE ASSESSMENT ORDER, THE A O HAS HELD THAT THE ANNEXURE-12 OF THE AUDIT REPORT OF SPECIAL AUDITOR POINTS TO FRESH CAPITAL INTRODUCED BY THE PROPRIETOR DURING THE YEA R AMOUNTING TO RS. 6,97,919/- AS PER DETAILS BELOW: PARETA ASSOCIATES ANNEXURE 12 CAPITAL INTRDOUCED BY PROPRIETOR DURING THE YEAR S. NO. DATE PARTICULARS AMOUNT ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 17 (AS PER TALLY) 1. 4/8/2010 CASH FROM S. PARETA 180,919.00 2. 4/18/2010 CASH FROM SUBHASHJI 10,000.00 3. 6/18/2010 CASH RECEIVED FROM HOUSE 5,000.00 4. 6/12/2010 CASH FROM OLD SAVING 2,000.00 5. 1/7/2011 CASH FROM OLD SAVING 300,000.00 6. 1/7/2011 CASH FROM OLD SAVING 50,000.00 7. 1/28/2011 FROM BANK (CAR SOLD TO NAVRATANJI DANGAL 150,000.00 TOTAL RS. 697,919.00 AS PER ASSESSING OFFICER, THE ABOVE AMOUNT IS FRESH CAPITAL INTRODUCED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS AND THE SO URCE OF WHICH HAS NOT BEEN EXPLAINED SATISFACTORILY, HENCE THE SAME W AS ADDED AS UNDISCLOSED CAPITAL OF THE ASSESSEE FROM UNDISCLOSE D SOURCES OF INCOME. 11. IN THIS REGARD, THE RELEVANT FINDINGS OF THE LD . CIT(A) ARE REPRODUCED AS UNDER:- AS REGARDS THE FRESH CAPITAL OF RS. 6,97,919/- WOR KED OUT BY THE SPECIAL AUDITOR AS PER HIS REPORT ANNEXURE A-12, AN D ALSO ACCEPTED AS SUCH BY THE A.O, CONSIDERING THE EXPLANATION DATED 15.10.2014, THE ASSESSEES VERSION IS NOT CORROBORATED EXCEPT FOR S ALES OF CAR, WHICH ALSO WAS NEITHER REFLECTED IN THE BLOCK OF ASSETS O F BUSINESS NOR REFLECTED IN THE P & L A/C. EVEN IN THE COURSE OF APPELLATE PROCEEDINGS THE ASS ESSEE COULD NOT GIVE SPECIFIC LINKAGES OF THE CAPITAL INTRODUCTION EXCEP T FOR GENERAL SUBMISSION. IN THE ABSENCE OF SATISFACTORY SUBMISSI ON & EVIDENCES, THE ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 18 CAPITAL INTRODUCED COULD NOT BE SAID TO BE OUT OF E XCESS WITHDRAWALS AND THE EXPLANATION GIVEN IS NOT ACCEPTABLE AS THESE HA VE NOT BEEN LINKED WITH ANY EARLIER WITHDRAWALS DATE WISE ETC. UNDER T HE CIRCUMSTANCES INVOLVED, I AM IN AGREEMENT WITH THE AO AND ACCORDI NGLY, THE ADDITION OF RS. 6,97,919/- IS ACCORDINGLY CONFIRMED. 12. WE HAVE GONE THROUGH THE FINDINGS OF THE LD CI T(A) AND DONT SEE ANY INFIRMITY IN THE SAME. IT IS IN RELATION TO IND EPENDENT FINANCIAL TRANSACTIONS RELATING TO INFUSION OF CAPITAL AND IN ABSENCE OF SATISFACTORY EXPLANATION RELATING TO SOURCE OF SUCH INFUSION, TH E SAME HAS BEEN BROUGHT TO TAX. THE SAID ADDITION IS INDEPENDENT O F DETERMINATION OF NET PROFIT WHICH HAS BEEN ESTIMATED BY THE AO WHICH IS IN REPLACEMENT OF BUSINESS INCOME COMPUTED UNDER SECTION 29 OF THE ACT AND IS THUS NOT VITIATED BY ESTIMATION OF NET PROFIT. A DETAILE D DISCUSSION IN THIS REGARD IS CONTAINED IN SUBSEQUENT PARAGRAPHS IN REL ATION TO ADDITION U/S 40A(3) AND 69C OF THE ACT AND THE SAME SHOULD BE RE AD ALONGWITH THE PRESENT FINDINGS. HENCE, WE CONFIRM THE ORDER OF T HE LD CIT(A) AND THE GROUND NO. 3 OF ASSESSEES APPEAL IS DISMISSED. 13. REGARDING GROUND NO. 4 OF THE ASSESSEES APPEAL , BRIEFLY THE FACTS OF THE CASE ARE THAT AS PER ANNEXURE-7 OF THE AUDIT REPORT OF SPECIAL AUDITOR, DETAILS OF CAPITAL EXPENDITURE CLAIMED AS REVENUE EXPENDITURE HAS BEEN GIVEN AS UNDER: ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 19 M/S PARETA ASSOCIATES ANNEXURE:7 DETAILS OF CAPITAL EXPENSES CLAIMED AS REVENUE EXPENDITURE S. NO. ANN. NO. PAGE NO. DATE PARTICULARS AMOUNT CLAIMED AS 1. A-2 3 30.04.2010 COOLER PURCHASED 8200 SITE EXPENSES 2. A-4 119 31.08.2010 FAN PURCHASED 1725 SITE EXPENSES 3. A-7 14 23.06.2010 FAN PURCHASED 2400 SITE EXPENSES 4. A-10 27 23.06.2010 FAN PURCHASED 2400 SITE EXPENSES 5. A-22 29.06.2010 MOBILE PURCHASED 1500 MATERIAL EXP TOTAL RS. 16225 THE ASSESSEE HAS DEBITED CAPITAL EXPENSES OF RS. 16 ,225/- AS REVENUE EXPENDITURE. THE ASSESSEE HAS, VIDE ORDER SHEET ENT RY NO. (IX) DATED 09.10.2014, SURRENDERED RS. 16,225/- AS ADDITION IN THE TOTAL INCOME OF THE ASSESSEE. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 20 14. IN THIS REGARD, THE RELEVANT FINDINGS OF THE LD . CIT(A) ARE REPRODUCED AS UNDER:- I HAVE GONE THROUGH ASSESSEES SUBMISSION AND AO S FINDINGS. ALTHOUGH IN THE ASSESSMENT ORDER THE AO HAS NOT MEN TIONED ANY DETAILS OF THE OPPORTUNITY GIVEN TO THE ASSESSEE TO EXPLAIN WITH REGARD TO THE ADDITION MADE IN THIS GROUND, BUT IN THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSEE VIDE REPLY DT. 29.04.2015 HAD MENTIONE D THAT THESE ARE MOSTLY MISCELLANEOUS SMALL ITEMS BELOW 5000/- IN CO ST (EXCEPT COST OF ONE COOLER) AND WERE PART OF SITE EXPENSES. THEY HA D NO VALUE FOR CAPITAL EXPENSES PURPOSE. IRRESPECTIVE OF THE COST INVOLVED, SINCE THESE ARE EXPENSES AN ITEMS WHICH HAVE LONG TERM BENEFIT, THE AMOUNTS SPENT NEE DED TO BE CAPITALIZED, WHICH THE AO HAS RIGHTLY DONE. THERE I S NO REASON TO INTERFERE WITH THE ADDITION OF RS. 16,225/- MADE IN THIS REGARD. THIS GROUND OF APPEAL IS TREATED AS DISMISSED. 15. WE HAVE GONE THROUGH THE FINDINGS OF THE LD CI T(A). IN OUR VIEW, THE SAID DISALLOWANCE OF CAPITAL EXPENDITURE U/S 37 SHOULD HAVE BEEN FACTORED IN BY THE AO WHILE ESTIMATING THE NET PROF IT @ 12.5% AND REPLACING THE NET PROFIT U/S 29 DETERMINED BY THE A SSESSEE AND HENCE, SEPARATE ADDITION ON THIS ACCOUNT IS NOT WARRANTED. HENCE, THE SAID FINDINGS OF THE LD CIT(A) IS SET-ASIDE AND THE GROU ND NO. 4 OF ASSESSEES APPEAL IS ALLOWED. 16. REGARDING GROUND NO. 5 OF THE ASSESSEES APPEAL AND GROUND NO. 1 OF THE REVENUES APPEAL, BRIEFLY THE FACTS OF THE CASE ARE THAT THE ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 21 ANNEXURE-6 OF THE AUDIT REPORT OF SPECIAL AUDITOR R EPORT POINTS TO CERTAIN UNEXPLAINED INVESTMENTS MADE BY THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR AS UNDER: M/S PARETA ASSOCIATES ANNEXURE:6 DETAILS OF UNEXPLAINED INVESTMENT S. NO . ANN. NO. PAGE NO. DATE PARTICULAR S AMOUNT REMARKS 1 A-4 17 TO 19 03.08. 2010 NSC 30000 I) NSC OF RS. 10000 EACH TOTAL RS. 100000/- WAS PURCHASED BY SHRI SUBHASH PARETA ON DATED 03/08/2010 AND IT APPEARS THAT ON PLEDGE OF THESE NEW NSCS DEPARTMENT HAS RELEASED THE NSC TO SUBHASH PARETA (REF PAGE 10) BUT ENTRY OF RS. 70000/- ONLY WAS FOUND IN BOOKS OF ACCOUNTS AND BALANCE INVESTMENT OF RS. 30000/- NOT FOUND ENTERED IN BOOKS OF ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 22 ACCOUNTS ON 03/08/2010. 2 A-5 161 27.12. 2010 NSC 1235000 THE ASSESSEE HAS TAKEN LOAN FROM BANK OF BARODA ON LIEN OF NSC OF RS. 12,35,000/- . THE LETTER IS WRITTEN BY BANK OF BARODA TO POSTMASTER HEAD OFFICE, KOTA FOR LIEN ON NSC OF RS. 12,35,000/- . WE OBSERVED THAT THESE NSCS ARE NOT REFLECTED IN AUDITED FINANCIAL STATEMENTS. 3 A-5 44 08.12. 2010 LIC PREMIU M 29873.46 DEPOSITED IN HDFC BANK, EXPLAINED AS PAID OUT OF WITHDRAWALS 4 A-8 164 29.10. 2010 NSC 1235000 THE LETTER FROM PWD JHALAWAR TO POST MASTER KOTA FOR RELEASE OF NSCS IN FAVOUR OF SUBHASH PARETA, EARLIER PLEDGED WITH THE DEPARTMENT OF RS. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 23 12,35,000/-. THE LETTER IS DATED 29.10.10 BUT IT IS NOTICED THAT NO SUCH INVESTMENT IS AVAILABLE IN AUDITED FINANCIAL STATEMENT OF THE ASSESSEE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AO MADE AN ADDITION OF RS 12,94,873 OUT OF ABOVE. 17. THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE REP RODUCED AS UNDER:- I HAVE GONE THROUGH ASSESSEES SUBMISSION AND AO S FINDINGS. AS REGARDS TO ENTRY NO. 1 OF ANNEXURE-6, THERE IS NO E VIDENCE THAT THE AMOUNT OF RS. 30,000/- PERTAINS TO RECIRCULATION OF INVESTMENT AND TO CONSIDER IT AS A TECHNICAL MISTAKE AS PER THE ASSES SEES EXPLANATION IS NOT POSSIBLE AS THERE IS NO EVIDENCE IN FAVOUR OF T HE SAME. ACCORDINGLY, THIS AMOUNT OF RS. 30,000/- IS HELD TO BE UNEXPLAIN ED INVESTMENT AS WORKED OUT BY THE AO AND IS ACCORDINGLY CONFIRMED. AS REGARDS ENTRY NO. 3, RELATED TO THE LIC PREMIUM OF RS. 29,873/- MENTIONED TO BE PAID FROM DRAWINGS, SINCE NO EVIDEN CE OF SUCH PAYMENT IS LINKABLE, THE EXPLANATION OF THE ASSESSE E IS NOT ACCEPTABLE AND THE ADDITION MADE BY THE AO IS CONFIRMED. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 24 HOWEVER, AS REGARDS ENTRY NO. 2, PERTAINING TO NSCS AMOUNTING TO RS. 12,35,000/- CLAIMED AS PURCHASED DURING FINANCIAL Y EAR 2005-06, A PERUSAL OF THE EMSD ACCOUNT (EARNEST MONEY AND SECU RITY DEPOSIT) IN THE BALANCE SHEETS AS EARLY AS AY 2006-07 IT IS SEE N THAT AMOUNTS AS BIG AS 13,35,000/- ARE APPEARING TOWARDS NSCS. THE EMSD ACCOUNT IN THE BALANCE SHEET FOR FINANCIAL YEAR ENDED 31.03.20 09 SHOWS BALANCE OF 42,15,228/-. THUS THE EXPLANATION GIVEN BY THE ASSE SSEE WAS VERIFIABLE AND MATCHING HIS ACCOUNTS OF EARLIER YEARS IF THE A O HAD MADE PROPER EFFORTS AND ONLY ON THE GROUND THAT WITHOUT BREAKU P OF OPENING BALANCE OF EMSD ACCOUNT, IT IS DIFFICULT TO ASCERTA IN WHETHER SAID NSCS ARE REFLECTED IN BOOKS OF ACCOUNTS OF THE ASSESSEE OR NOT, THE A.O SHOULD NOT HAVE CONSIDERED THESE AS UNEXPLAINED. FURTHER THE LETTERS OF TWO OTHER RESPONSIBLE ORGANI ZATIONS NAMELY, PWD JHALAWAR AND BANK OF BARODA WRITING TO THE POSTMAST ER, KOTA REGARDING RELEASE OF THESE NSCS TO THE ASSESSEE/BANK RESPECTI VELY GOES TO JUSTIFY THE EXPLANATION GIVEN BY THE ASSESSEE THAT THE NSCS OF RS. 12,35,000/- WERE ALREADY A PART OF BALANCE SHEET AND THAT LOGIC ALLY WOULD DATE BACK TO AT LEAST 4-5 YEARS EARLIER AND COULD NOT HAVE BE EN ADDED AS UNEXPLAINED INVESTMENT IN THIS PARTICULAR YEAR UNDE R ANY CIRCUMSTANCES. IN VIEW OF THE ABOVE, THE ADDITION OF RS. 12,35,000 /- MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN THE NSCS BY THE AO CAN NOT BE SUSTAINED AND IS DIRECTED TO BE DELETED. THUS OUT OF THE TOTAL ADDITION RS. 12,94,873/-, THE AMOUNT CONFIRMED IS RS. 59,873/-.THIS GROUND OF APPEAL IS TREATED AS PA RTLY ALLOWED. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 25 18. WE HAVE GONE THROUGH THE FINDINGS OF THE LD CIT (A) AND DONT SEE ANY INFIRMITY IN THE SAME AS BASED ON TRUE APPRECIA TION OF MATERIAL AVAILABLE ON RECORD. HENCE, THE SAID FINDINGS ARE CONFIRMED AND THE GROUND NO. 5 OF ASSESSEES APPEAL AND GROUND NO. 1 OF THE REVENUES APPEAL ARE DISMISSED. 19. REGARDING GROUND NO. 6 OF THE ASSESSEES APPEA L AND GROUND NO. 4 OF THE REVENUES APPEAL RELATING TO UNVERIFIE D BANK DEPOSITS AND DD PAYMENTS OF RS 23,04,667 WHICH WERE ADDED TO THE INCOME OF THE ASSESSEE, THE RELEVANT FINDINGS OF THE LD. CIT( A) ARE REPRODUCED AS UNDER:- I HAVE GONE THROUGH ASSESSEES SUBMISSION AND AOS FINDINGS. REGARDING BANK DEPOSITS/DD AS PER ANNEXURE A-15 OF THE AUDITORS REPORT, THE ENTRY FOR RS. 1472000/- VIDE DD NO. 530 784 SHOWN IN BANK OF BARODA JHALAWAR ROAD A/C DT. 10.11.2010 HAS ALRE ADY BEEN CONSIDERED EXPLAINED WHILE DISCUSSING THE ADDITION U/S 69C IN GROUND NO. 10. THE AO SHOULD NOT HAVE ADDED THE SAME AMOUN T AT TWO PLACES. IN ANY CASE SINCE I HAVE DISCUSSED THAT THE SAID EN TRY IS LINKED TO THE DISCLOSED ACCOUNT, IT CANNOT BE SAID TO BE UNACCOUN TED INCOME. THIS AMOUNT REQUIRES TO BE EXCLUDED FROM THE ADDITION MA DE IN THIS REGARD AND IS DIRECTED TO BE DELETED. AS REGARDS THE OTHER ENTRIES, THE AO HAS MADE OUT A CASE THAT THESE DDS ETC WERE MADE OUT OF UNACCOUNTED RECEIPTS AND M ADE THE ADDITION ON THE GROUND THAT THESE WERE NOT ENTERED IN THE BO OKS OF ACCOUNTS ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 26 AND WERE TO BE CONSIDERED UNVERIFIED DEPOSITS FOR L ACK OF SUPPORTING EVIDENCE PRODUCED BEFORE AO. SINCE THERE IS NO DIRECT LINKAGE OF THESE PAYMENTS FOUND WITH THE BANK ACCOUNTS, THE AOS ARGUMENT CANNOT BE TOTALLY DISCO UNTED. HENCE, EXCEPT FOR THE AMOUNT OF RS. 14,72,000/- MENTIONED ABOVE, THE REMAINING AMOUNT IS TO BE CONSIDERED AS UNEXPLAINED DEPOSITS FOR WHATEVER PURPOSES USED. SINCE THE EXPLANATION IN RE SPECT OF THE OTHER AMOUNTS WAS NOT FOUND TO BE SATISFACTORY, THE ADDIT ION TO THE EXTENT OF BALANCE AMOUNT OF RS. 8,32,667/- IS ACCORDINGLY CON FIRMED. THIS GROUND OF APPEAL IS TREATED AS PARTLY ALLOWED. 20. WE HAVE GONE THROUGH THE FINDINGS OF THE LD CI T(A) AND DONT SEE ANY INFIRMITY IN THE SAME AS THE SAME IS BASED ON APPRECIATION OF MATERIAL AVAILABLE ON RECORD. HENCE, THE ABOVE SAI D FINDINGS ARE CONFIRMED AND THE GROUND NO. 6 OF ASSESSEES APPEAL AND GROUND NO. 4 OF THE REVENUES APPEAL ARE DISMISSED. 21. REGARDING GROUND NO. 7 OF THE ASSESSEES APPEAL RELATING TO ADDITION OF RS 451,513 ON ACCOUNT OF UNDISCLOSED IN COME NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AND THE DETAILS CONTAIN ED IN ANNEXURE 8 OF SPECIAL AUDIT REPORT, THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE REPRODUCED AS UNDER:- I HAVE GONE THROUGH ASSESSEES SUBMISSION AND AOS FINDINGS. THE AO HAS DETAILED SPECIFIC ENTRIES AND ALSO TAKEN ASSESS EES RESPONSE ON THE SAME. AFTER A PERUSAL OF THE AMOUNTS INVOLVED IN TH E ADDITION, THE ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 27 ADDITIONS OF RS. 89,000/-, 27,950/- AND 9,000/- APP EAR JUSTIFIED. AS REGARDS THE POOL RELATED INCOME, THOUGH THE AO HA S NOT BEEN ABLE TO PROVE THAT IT PERTAINS TO THE ASSESSEE BUT CONSIDER ING THE LINKAGE WITH VARIOUS WORKS THESE APPEAR TO BE FOR SOME PAYMENTS RECEIVED FROM OTHER POOL PARTNERS. IN THE ABSENCE OF ANY CONCLUSI VE EVIDENCE FROM THE ASSESSEES SIDE TO JUSTIFY HIS VERSION, THE ADDITIO N OF RS. 3,25,563/- IS ALSO HELD TO BE JUSTIFIED AND IS SUSTAINED. THIS GR OUND OF APPEAL IS TREATED AS DISMISSED. 22. WE HAVE GONE THROUGH THE FINDINGS OF THE LD CIT (A) AND DONT SEE ANY INFIRMITY IN THE SAME. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, THE ASSESSEE HAS SURRENDERED RS 89,000 RELATING TO RENTAL INCOME NOT DISCLOSED IN THE RETURN OF INCOME AND AN AMOUNT OF RS 27,950 TOWARDS SALE OF SCRAP WHICH HAS BEEN ADJU STED AGAINST THE SITE ADVANCE ACCOUNT INSTEAD OF CREDITING THE PROFI T/LOSS ACCOUNT. FURTHER, AN AMOUNT OF RS 3,25,563 HAS BEEN CONSIDER ED BY THE AO AS UNEXPLAINED AND ILLEGAL INCOME FROM POOL BASED ON D OCUMENTS IMPOUNDED DURING THE COURSE OF SURVEY FOR WHICH THE ASSESSEE HAS FAILED TO OFFER ANY EXPLANATION TO THE SATISFACTION OF THE AO OR EVEN DURING THE APPELLATE PROCEEDINGS. HENCE, THE ABOVE SAID FINDINGS OF THE LD CIT(A) ARE CONFIRMED AND THE GROUND NO. 7 OF ASSESSEES APPEAL IS DISMISSED. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 28 ITA NO. 617/JP/2016 23. WE NOW COME TO THE REVENUES GROUNDS OF APPEAL OTHER THAN GROUND NO. 1 & 4 WHICH WE HAVE ALREADY DEALT WITH A LONG WITH ASSESSEES GROUND OF APPEAL NO. 5 & 6 AS ABOVE. 24. IN GROUND NO. 2 OF THE REVENUES APPEAL, THE RE VENUE HAS CHALLENGED THE ACTION OF THE LD CIT(A) IN DELETING ADDITION OF RS. 1,41,34,476/- MADE U/S 40A(3) OF THE ACT. BRIEFLY THE FACTS OF THE CASE ARE THAT AS PER ANNEXURE-A OF THE AUDIT REPORT OF S PECIAL AUDITOR, 251 ENTRIES VIOLATED THE PROVISIONS OF SECTION 40A(3) O F I.T. ACT, 1961 AS ASSESSEE HAS MADE CASH PAYMENTS WHICH ARE MORE THAN RS. 20,000/- IN A DAY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, EXPLANATION WERE SOUGHT FROM THE ASSESSEE FROM TIME TO TIME AND A FI NAL SHOW CAUSE WAS ISSUED ON 10.10.2014 TO FURNISH EVIDENCE IN SUPPORT OF HIS CLAIM. IN REPLY, THE ASSESSEE VIDE HIS REPLY DATED 15.10.2014 SUBMITTED AS UNDER: 1. CASH PAYMENT EXCEEDING RS. 20000/- U/S 40A(3): AS WE HAVE MENTIONED EARLIER THAT THE ASSESSEE IS A CONTRACTOR AND WORKS ON SO MANY SITES IN THE STATE OF RAJASTHAN AN D MADHYA PRADESH, THERE WAS RESPONSIBILITY TO EXECUTE THE WORK WITHIN PRESCRIBED TIME PERIOD. TO RUNNING SMOOTHLY WORK ON SITE, THERE IS A PRACTICE TO GIVE ADVANCE AND RECEIVED BACK THE AMOUNT WHENEVER REQUI REMENT AT OTHER SITES. THE SITE IN CHARGE INCURRED THE EXPENSES LIKE LABOU R PAYMENT, WAGES, MATERIAL, PLANT & MACHINERY RENT ETC. DUE TO NATURE OF BUSINESS. THE PAYMENT HAS BEEN MADE ON VARIOUS DATES IN CASH BELO W THAN RS. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 29 20000/-, HOWEVER THE ASSESSEE HAS MENTIONED IN THE SEIZED RECORDS TOTAL AMOUNT IN THE PARTICULAR HEAD AS AND WHEN INF ORMATION RECEIVED FROM THE SITES IN CHARGE AND THE ASSESSEE HAS PREPA RED JUST FOR HIS OWN PURPOSE. THERE ARE NO SUCH AMOUNT EXCEEDING RS. 20,000/-, WE HAVE MENTIONED THE NATURE OF EXPENSES AND THE PLACE OF ENTRY IN TH E RECORDS ALONG WITH REPORT OF THE SITES AS AN EVIDENCES. PLEASE KEEP AT TENTION ON THE EXPLANATION IN PREVIOUSLY SUBMITTED IN ANNEXURE-A A ND AFTER THAT THE COPY OF ACCOUNTS, REPORTED ON 07.10.2014, ON THE RE CORDS AND IN THE RECORDS OF THE SITE INCHARGE, WE ARE ENCLOSING HERE WITH THE COPY OF LABOUR REGISTER FOR YOUR KIND REFERENCE. THE REPLY OF THE ASSESSEE WAS CONSIDERED BY THE AO AND FOUND TO BE UNSATISFACTORY AND UNACCEPTABLE. AS THE LABOUR REGI STER PROVIDED BY THE ASSESSEE PERTAINS TO ONLY TO FEW MONTHS OF THE YEAR AND NOT OF THE ENTIRE YEAR. THE COPIES OF LABOUR REGISTER PROVIDED BY THE ASSESSEE HAVE BEEN CONSIDERED BY THE SPECIAL AUDITOR IN POINT 4 O F WORKING NOTES DATED 21.08.2014 OF THE SPECIAL AUDIT REPORT WHICH IS REPRODUCED AS FOLLOWS:- THE ANNEXURE-A-17 CHECKED IN THE PRESENCE OF GOPAL SHARMA, ACCOUNTANT AND FOLLOWING OBSERVATIONS WERE MADE: AN NEXURE-A-17 IS A SALARY/WAGES REGISTER OF THE MONTH OF JULY TO OCTOB ER 2010. WE HAVE VERIFIED THE PAYMENT DETAILS FROM THE BOOKS OF ACCO UNTS AND FOUND THAT ON LAST PAGE ON 26.10.10 AND 27.10.10 SALARY PAYMEN T OF RUPEES 240/- EACH IS MENTIONED WHEREAS IN THE BOOKS, CACHE ENTRY OF RUPEES 220/- EACH IS FOUND. FURTHER ON THE LAST PAGE SALARY/WAGE S PAYMENT OF RS. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 30 2550/- IS MENTIONED FOR 24.10.10 BUT IN CASHBOOK EN TRY FOR THE MONTH OF OCTOBER FOUND ENTERED ON 24.08.10, WHICH CLEARLY INDICATED THAT BOOKS ARE PREPARED AFTER DATE OF SURVEY ON THE BASI S OF SEIZED RECORD. FURTHER, IT IS ALSO FOUND THAT A/R, HAS BEEN MODIFY ING HIS BOOKS OF ACCOUNT AS PER QUERIES OF AO. THE LEDGERS OF VARIOU S SITE INCHARGES PRODUCED BEFORE SPECIAL AUDITOR IN SOFT FORM (TALLY ) & THOSE PRODUCED BEFORE AO ON VARIOUS DATES ARE MODIFIED TO COVER UP INADEQUACIES IN BOOKS OF ACCOUNTS. THEREFORE, SUBMISSIONS OF A/R, W ERE JUST AN AFTERTHOUGHT TO COVER UP THE INADEQUACIES IN HIS BO OKS OF ACCOUNTS. HOWEVER, DURING THE ASSESSMENT PROCEEDINGS IT WAS F OUND THAT OUT OF 251 ENTRIES IN OTHERS, PAYMENTS THAT WERE MADE IN C HEQUE AND CERTAIN ENTRIES WERE IN THE NATURE OF DRAWINGS BY THE ASSES SEE. IT MAY BE NOTED THAT THE LOAN ENTRIES HAVE BEEN CONSIDERED IN ANNEX URES-1,2 & 5 OF AUDIT REPORT ARE BEING REFERRED FOR PENAL PROCEEDIN GS UNDER SECTION 269 SS AND 269T TO THE ADDITIONAL/JOINT CIT SEPARATELY. THEREFORE, THE 73 ENTRIES HAVE BEEN DROPPED FOR PURPOSE OF ADDITION A S THEY DO NOT VIOLATE THE PROVISIONS OF SECTION 40A(3) OF THE I.T . ACT, 1961. THE REMAINING 178 ENTRIES WERE NOT SATISFACTORILY EXPLA INED BY THE ASSESSEE AND NO EVIDENCE WAS PROVIDED TO SUBSTANTIATE THE CL AIM THAT EARLIER THE PAYMENTS HAVE BEEN MADE BELOW RS. 20,000/- OR THEY HAVE NOT BEEN DEBITED FROM THE PROFIT AND LOSS ACCOUNT OF THE ASS ESSEE. IT ALSO MAY BE NOTED THAT THERE ARE CERTAIN VIOLATI ONS AGAINST WHICH ASESSEE HAS GIVEN EXPLANATION THAT THESE CASH PAYME NTS ABOVE RS. 20,000/- PERTAIN TO EARLIER YEARS BUT HAVE BEEN INC URRED IN THE RELEVANT ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 31 ASSESSMENT YEAR. THE EXPLANATION OF THE ASSESSEE IS UNACCEPTABLE BECAUSE UNDER PROVISIONS OF SECTION 40A(3) OF THE I .T. ACT, 1961, ANY LIABILITY INCURRED BY THE ASSESSEE FOR ANY OTHER YE AR FOR WHICH EXPENDITURE HAS BEEN MADE IN CASH ABOVE RS. 20,000/ - IN THE RELEVANT ASSESSMENT YEAR THEN NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. FURTHER, THE ASSESSEE CLAIMED THAT EXP ENSES MADE BY THE SITE IN CHARGES (KHALIL BANI & MUNNA BHAI) ARE BELO W RS. 20,000/-, HOWEVER, NO DOCUMENTARY EVIDENCE HAS BEEN FURNISHED BY THE ASSESSEE TO SUBSTANTIATE HIS CLAIM. IN VIEW OF ABOVE, THE CASH PAYMENTS MADE BY THE ASS ESSEE IN VIOLATION OF PROVISIONS OF THE SECTION 40A (3) IN 178 ENTRIES AMOUNTING TO RS. 1,41,3 4476/- WERE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 25. WE NOW REFER TO THE RELEVANT FINDINGS OF THE L D. CIT(A) WHICH ARE UNDER CHALLENGE BEFORE US AND WHICH ARE REPRODU CED AS UNDER:- AS REGARDS THE FINDING ON CASH PAYMENTS EXCEEDING RS. 20000/-, THE SPECIAL AUDITOR INITIALLY MADE A LIST OF 251 ENTRIE S WHICH WAS LATER REDUCED BY 73 ENTRIES AS THESE WERE RELATABLE TO PA YMENTS MADE BY CHEQUE AS PER THE AO. THIS MAKES IT CLEAR THAT THE AUDITOR ALSO DID NOT CARRY OUT AN IN-DEPTH INVESTIGATION, MAYBE DUE TO L ACK OF PROPER DETAILING FROM THE ASSESSEES SIDE. AS PER THE ASSESSEES REPLY, CERTAIN ENTRIES PERTAI NED TO AY 08-09 AND FOR OTHERS, HE HAS MENTIONED IN HIS REPLIES DATED 2 5.09.2014, 7.10.2014 AND 15.10.2014 THAT THESE WERE SITE MATERIAL AND LA BOUR RELATED ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 32 ADVANCES GIVEN TO HIS SITE SUPERVISORS AND IMPREST EXPENSES, WHICH THE AUDITOR HAD NOT ACCEPTED EARLIER MENTIONING THAT TH ERE WERE CREDIT ENTRIES ALSO AGAINST THESE PAYMENTS. WHILE NOT ACCEPTING THE ASSESSEES EXPLANATION MAIN LY ON THE BASIS OF THE AUDITORS REPORT AND THE LACK OF SUPPORTING EVI DENCES AND DOCUMENTS LIKE BILLS, VOUCHERS ETC, THE AO HELD THA T THE A/R HAD BEEN MODIFYING BOOKS AS PER QUERIES OF AO STATING THAT T HE LEDGERS OF SITES PRODUCED BEFORE THE SPECIAL AUDITOR IN SOFT LOAN (T ALLY) - & THOSE PRODUCED BEFORE AO WERE MODIFIED TO COVER UP INADEQ UACIES. HOWEVER, HE ACCEPTED 73 ENTRIES PERTAINING TO LOAN GIVEN BY ASSESSEE TO OTHERS WHERE THE PAYMENTS WERE BY CHEQUES AND BE ING THOSE FOR DRAWINGS OF THE ASSESSEE. REMAINING 178 ENTRIES WERE HELD TO BE NOT SATISFACT ORY EXPLAINED. IN HIS SUBMISSION DT. 13.01.2016 IN THE COURSE OF THE APPE LLATE PROCEEDINGS, THE APPELLANT MENTIONED THAT SOME OF THE ENTRIES AR E BASED ON MEMO BOOKS MAINTAINED AT SITE WHERE LUMP SUM AMOUNTS GIV EN TO SITE INCHARGE FOR ONWARD DISTRIBUTION & ENTRIES MADE IN REGULAR BOOKS BASED ON A/C GIVEN BY THE PERSON INCHARGE AT SITE. AS EXAMPLES OF THE SHORTCOMINGS IN THE VERSION OF T HE AO HE HAS MENTIONED THAT ENTRY NOS 44-76 PERTAIN TO AY 09-10 ON THE BASIS OF DIARY CONSIDERED BY AO. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 33 ENTRY NO. 2 TO 8 DIRECT SITE LABOUR/PAYMENT-MADE TO EACH LABOUR BELOW RS. 20000/- & THAT IN THE ASSESSMENT PROCEEDINGS HE HAD ALREADY HIGHLIGHTED THE FACT THAT AMOUNTS WERE PAID ON VARI OUS DATES BUT THE SAME HAS BEEN IGNORED BY THE AO. CERTAIN POINTS WHICH EMERGE OUT OF THE DISCUSSION M ADE IN THE ASSESSMENT ORDER AS WELL AS THE ASSESSEES SUBMISSI ONS ARE- 1) THE AO HAS NOT MADE OUT A CASE OF UNACCOUNTED RECEI PTS HAVING BEEN FOUND AGAINST WHICH ADDITIONAL OUT OF BOOKS EX PENSES COULD HAVE MATCHED. 2) THERE IS NO EVIDENCE IN THE AUDITORS NOTE OR THE A SSESSMENT ORDER WHETHER ANY EFFORT TO RECONCILE THE CASH EXPE NSES OF SITES WITH ANY REGULAR BILLS OR EXPENSES VOUCHERS WAS MADE SO AS TO REACH A LOGICAL CONCLUSION THAT THE EXPENSES CLAIMED AT SIT E WERE MUCH HIGHER THAN THE TOTAL EXPENSES AGAINST WORKS EXECUT ED SO AS TO THEN ADD THE DIFFERENCE AS UNEXPLAINED CASH PAYMENTS. 3) THERE IS NO EVIDENCE IN THE AUDITORS NOTE OR THE A SSESSMENT ORDER AS TO WHETHER ANY RECONCILIATION WAS ATTEMPTE D WITH BANK WITHDRAWLS BY THE AO AS TO DISPROVE THE ARGUMENT OF THE ASSESSEE THAT THESE WERE GIVEN TO SITE IN CHARGES FOR REGULA R EXPENSES AND WERE LATER RECONCILED WITH THEM. THE BANK ACCOUNTS COULD NOT HAVE BEEN MODIFIED OR CHANGED. AT LEAST THE AO SHOULD HA VE WORKED OUT THE RECEIPTS IN THE BANK AND WITHDRAWALS IN CASH AN D BROUGHT OUT A POSSIBLE CASH WITHDRAWAL STATEMENT TO LINK IT TO TH E MAXIMUM ALLOWABLE EXPENSES IN CASH AS CLAIMED BY THE ASSESS EE IF HE WANTED TO DISPROVE THE ASSESSEES CASH PAYMENT THEORY. ON THE OTHER HAND IN CASE THERE WERE SUFFICIENT WITHDRAWALS FROM THE BANK ACCOUNT, THE ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 34 ASSESSEES STAND ON PAYMENT TO SITE SUPERVISORS FOR LABOUR, SITE EXPENSES AND PETTY MATERIALS ETC. WOULD BE JUSTIFIE D. 4) NO STATEMENTS OF SITE PERSONS HAVE BEEN REFERRED TO CROSS VERIFY THE ASSESSEES VERSION. NO LIST OF CONTRACTORS, EMP LOYEES ETC HAS BEEN EXAMINED TO BELIEVE OR DISBELIEVE THE NAMES OF THE PERSON CLAIMED AS EMPLOYEES/SUPERVISORS ETC. 5) WHERE THE SPECIAL AUDITOR & THE AO HAVE ALREADY MAD E OUT A CASE OF EXPENSES NOT BEING SUPPORTED BY EVIDENCES AND TH E AO APPLIED THE NP RATE AT THE MAXIMUM, WHAT ELSE COULD THEY PR OVE OUT OF THIS THEORY OF CASH EXPENSES, WHICH COULD EVEN OTHERWISE BE COVERED IN THE EXCEPTIONS AS PER RULE 6DD CONSIDERING THE NATU RE OF THE ASSESSEES BUSINESS BEING THAT OF A CONTRACTOR, HAV ING TO PAY TO URDS, LABOUR ETC. THROUGH THE SUPERVISORS ACTING ON BEHALF OF THE ASSESSEE, AND WHO WERE REQUIRED TO BE PAID IN CASH FOR THE SITE RELATED WORKS. THE AO DID NOT BRING ON RECORD ANY E NQUIRIES OR OTHER PERSONS WHO HAD BUSINESS DEALINGS WITH THE AS SESSEE. 6) THE MAIN REASONS WHICH ARE GIVEN BY THE SPL. AUDITO R & THE AO WHILE PROPOSING THE ADDITIONS TO THE ASSESSEES INC OME WERE LACK OF PROPER EXPLANATIONS GIVEN IN THE COURSE OF EXAMINAT ION OF BOOKS OF ACCOUNTS REGARDING THE INCOME AND EXPENDITURE. THE AO HAS TAKEN THE RECEIPTS FROM FORM NO. 26AS AND NOT GIVEN ANY O THER SOURCES WHICH COULD BE LINKED TO GENERATION OF UNACCOUNTED RECEIPTS/INCOME AND WHICH COULD THEN BE ALSO LINKED TO THE MAKING O F UNACCOUNTED EXPENDITURE AS IS DEDUCED FROM THE IMPOUNDED PAPERS IN THE COURSE OF SURVEY PROCEEDINGS. THE SUM TOTAL OF ALL THE EXP ENSES DISALLOWED ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 35 BY THE AO IS WELL WITHIN THE RECEIPTS SHOWN BY THE ASSESSEE. THE AO HAS ALREADY FORMED AN OPINION ON THE NET PROFIT AND IF HE STILL HAD BOUTS ON THESE EXPENSES, NO ONE STOPPED HIM FROM AD OPTING A HIGHER THAN NORMALLY ACCEPTABLE NET PROFIT RATE BAS ED ON THE DISCREPANCIES POINTED OUT IN THE OTHER GROUNDS OF A PPEAL. HE CANNOT HAVE AN ADDITION ON ACCOUNT OF ESTIMATION OF PROFIT SEPARATELY & THEN MAKE OTHER ADDITIONS TO THE EXPENSES WHICH WOU LD DISTURB THE NET PROFIT ON A BASIS TO THE VERGE OF PERVERSITY OF BUSINESS RESULTS AS HAPPENED IN THIS CASE. 7) WHILE PASSING THE ASSESSMENT ORDER, THE AO HAS GIVE N A THOROUGH DESCRIPTION OF THE VARIOUS DISCREPANCIES FOUND IN T HE BOOKS OF ACCOUNTS AND REJECTED THE BOOKS OF ACCOUNTS AT PAGE S 4 TO 11 OF THE ASSESSMENT ORDER AND THEN GONE ON TO APPLY MAXIMUM NP RATE @ 12.5% CITING VARIOUS JUDGMENTS OF THE COURTS IN SUP PORT OF THE VIEW ADOPTED BY HIM. 8) NET PROFIT IN A CONTRACTORS CASE IS THE ULTIMATE F IGURE OF PROFIT WHICH HAS BEEN ESTIMATED BY THE AO AS PER HIS BEST JUDGMENT AND THE LEGAL PRECEDENTS HE HAS THOUGHT RELEVANT TO THI S CASE. THERE REMAINS NO FURTHER ITEMS OF EXPENDITURE TO BE EXAMI NED ONCE THAT EXERCISE IS COMPLETED. IT IS A BEST JUDGMENT ORDER. AT THAT TIME IT IS OPEN TO THE AO TO ESTIMATE LOGICALLY WHAT RATE OF N ET PROFIT HE THINKS FIT THAT COVERS ALL THE DEFECTS FOUND IN THE BOOKS OF ACCOUNTS. THIS WOULD INCLUDE EXPENSES MADE IN CASH THOSE NOT ALLOW ABLE, THOSE NOT SUPPORTED BY VOUCHERS, BILLS ETC. OR OTHER SUCH DIS CREPANCIES. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 36 9) FURTHER, IF HE THOUGHT CERTAIN EXPENSES TO BE OUTSI DE THE BOOKS OF ACCOUNTS, HE SHOULD ALSO HAVE TRIED TO LINK THEM TO THE UNACCOUNTED RECEIPTS FROM WHERE THESE COULD HAVE BEEN MADE. ONC E HE DID NOT DO SO, THEN ONLY HALF THE PICTURE WAS CLEAR. HE COU LD AT BEST SAY THAT THESE EXPENSES WERE BOGUS OR GIVEN ANOTHER NAME IN THE CLAIMS MADE IN THE P & L ACCOUNTS. FOR THAT AGAIN HE WOULD HAVE TO GO BACK TO UNRELIABILITY OF THE BOOKS AND ESTIMATION T HE N.P. WHICH HE ALREADY DID. 10) THE AO DISREGARDED THAT THE NET PROFIT OF THE ASSES SEE HAD INCREASED FROM 5.60% IN AY 08-09 TO 8.94% IN 2011-1 2 THOUGH CONTRACT RECEIPTS REDUCED TO RS. 4.38 CRORES FROM R S. 8.64 CRORES IN THE CORRESPONDING PERIOD. THEREFORE, THE ENTIRE PICTURE AS IT EMERGES IS THAT WITHOUT BRINGING OUT THE ADDITIONAL SOURCE OF RECEIPTS IN THE ASSESS EES HANDS, THE AO HAS TRIED TO FIRST REJECT THE BOOKS & ESTIMATE THE NET PROFITS AND THEN MAKE FURTHER ADDITIONS AS FOUND IN THE ASSESSE ES BOOKS OR RELEVANT EVIDENCE IMPOUNDED IN THE SURVEY PROCEEDIN GS. IN THE PROCESS WHAT HE HAS NOT REALIZED IS THAT- (I) IN CASE HE ADDED ITEMS IN THE P & L ACCOUNT AGAIN T HROUGH DISALLOWANCE, THE N.P BECOMES DISPROPORTIONATELY HI GH AND UNREALISTIC TO ANY BUSINESS AND THERE IS NO MEANING OF THE ENTIRE EXERCISE MADE FOR AND AFTER THE REJECTION OF THE BO OKS OF ACCOUNTS. (II) ALL THE WITHDRAWALS FROM THE BANKS WHICH COULD BE POSSIBLE EXPLANATIONS FOR CASH EXPENSES AT SITES, TO LABOUR & UR DEALERS WERE TOTALLY IGNORED IN THE ASSESSMENT ORDER. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 37 (III) ONCE BOOK WERE REJECTED, IT WAS OPEN TO THE A O TO ESTIMATE THE N.P BASED ON ALL SUCH EXPENSES WHICH HE THOUGHT WER E BOGUS OR OUTSIDE THE BOOKS. HE COULD HAVE TAKEN ANY NET PROF IT WITH JUSTIFICATIONS, BUT THERE HE CHOSE TO FOLLOW THE LE GAL PRECEDENTS & TOOK THE HIGHEST ACCEPTED PROFIT IN SUCH CASES AS P ER CASE LAWS REFERRED. SO HE COULD NOT HAVE THE ASSESSEE SUFFER FROM A DOUBLE TAXATION BY ADDING MORE P & L ITEMS AFTER ESTIMATI NG A BEST JUDGMENT NET PROFIT AT HIGHEST RATE. (IV) THERE APPEARS TO BE VERY LESS APPLICATION OF I NDEPENDENT JUDGMENT, RATHER THE AO HAS RELIED MOSTLY ON THE DI SCREPANCIES MENTIONED IN THE SPECIAL AUDITORS REPORT WITHOUT H IMSELF CARRYING OUT POST SURVEY ENQUIRIES EVEN WHEN HE HAD SUFFICIE NT TIME TO DO SO TO REINFORCE THE FINDINGS HE BROUGHT OUT IN THE ORD ER PASSED BY HIM. IT IS SETTLED LAW THAT WHERE THE INCOME OF THE ASSE SSEE FOR A CAPTIONED YEAR IS ESTIMATED BY APPLYING NET PROFIT RATE AFTER REJECTING THE BOOKS OF ACCOUNTS, IN VIEW OF THE PRO VISIONS OF SECTION 145(3) OF THE ACT, NO FURTHER ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF VARIOUS DISALLOWANCES BY RELYING ON THE AFORESAID ENTRIES IN THE BOOKS OF ACCOUNT, WHICH HA VE BEEN REJECTED. RELIANCE CAN BE PLACED ON THE FOLLOWING DECISIONS: IN THE CASE OF BRAHAMANAND AGARWAL, THEKHEDAR VS. D CIT JAIPUR BENCH OF ITAT HAVE HELD THAT WHEN NET PROFIT IS EST IMATED BY AO BY REJECTING THE BOOK RESULT U/S 145(3) OF THE ACT, NO SEPARATE ADDITION ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 38 CAN BE MADE ON ACCOUNT OF CASH CREDITOR. ITAT RELIE D UPON THE DECISION OF RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. G.K. CONTRACTOR 19 DTR 305 (RAJ) WHEREIN THE HONBLE JUR ISDICTIONAL HIGH COURT HELD THAT WHEN NET PROFIT IS ESTIMATED BY THE ASSESSING OFFICER BY REJECTING THE BOOK RESULT U/S 145(3) OF THE ACT, NO SEPARATE ADDITION CAN BE MADE ON ACCOUNT OF CASH CREDITOR. IN THE CASE OF INDWELL CONSTRUCTIONS VS. CIT 232 IT R ITR 776 (AP) IT WAS HELD THAT- WHERE THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED, TH E REVENUE CANNOT RELY ON THE SAME BOOKS FOR ADDITION OF AN EX ACT ITEM (OF EXPENDITURE) IN THE PROFIT AND LOSS ACCOUNT. IN CIT VS. BANWARI LAL BANSIDHAR 229 ITR 229 (ALL) IT WAS HELD THAT- NO DISALLOWANCE U/S 40A(3) OF THE ACT COULD BE MAD E WHEN THE GROSS PROFIT RATE WAS APPLIED, THAT WOULD TAKE CARE OF EVERYTHING AND THERE WAS NO NEED FOR THE AO TO MAKE SCRUTINY OF TH E AMOUNT INCURRED ON PURCHASES MADE BY THE ASSESSEE. IN CIT VS. PURSUHOTTAM LAL TAMARAKAR 270 ITR 314 (M P), THE HIGH COURT HELD THAT THE TRIBUNAL HAS RIGHTLY HELD THAT SECTION 40A (3) WAS NOT APPLICABLE WHEN THE NET PROFIT RATE WAS APPLIED BY THE AO. ITAT JODHPUR BENCH IN JAGDISH LAL V. INCOME-TAX OFF ICER IN 150 TAXMAN 59 (JODH.) (MAG.) HAS HELD THAT- ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 39 ONCE THE GP RATE WAS APPLIED TO COMPUTE THE INCOME , THE EXPENSES ARE DEEMED TO BE CONSIDERED WHILE APPLYING THE GP RATE AND THAT THEREFORE, NO FURTHER DISALLOWANCE UNDER S ECTION 40A(3) COULD BE MADE. THIS VIEW FINDS SUPPORT FROM THE JUD GMENT OF ALLAHABAD HIGH COURT IN THE CASE OF CIT V. BANWARIL AL BANSIDHAR [1998] 229 ITR 229 (ALL.) AND RECENT JUDGMENT OF MA DHYA PRADESH HIGH COURT IN THE CASE OF CIT V. PURSHOTTAMLAL TAMR AKAR UCHEHRA [2004] 270 ITR 314 (MP). ACCORDINGLY, WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE IMPUGNED DISALLOWANCE. THIS G ROUND OF APPEAL IS ALLOWED. THE ITAT KOLKATA BENCH (SPECIAL BENCH) IN INCOME-TA X OFFICER, WARD-1, MURSHIDABAD V. KENARAM SAHA & SUBH ASH SAHA 116 ITD 1 (KOLKATA) (SB) HELD THAT- NOW COMING TO DEPARTMENTAL APPEAL IN THE CASE OF S RI SHYAMAL KR. DEY (SUPRA), THE ASSESSING OFFICER HAS DETERMINED T HE INCOME BY APPLYING A NET PROFIT RATE OF THE TURNOVER. THE ASS ESSING OFFICER IN ADDITION TO THE DETERMINATION OF NET PROFIT AS A PE RCENTAGE OF TURNOVER, MADE FURTHER DISALLOWANCE UNDER SECTION 4 0A (3). THE CIT(A) DELETED THE DISALLOWANCE MADE UNDER SECTION 40A(3). REVENUE AGGRIEVED WITH THE ORDER OF THE CIT(A) IS I N APPEAL BEFORE US. IT IS CONTENDED BY THE LEARNED COUNSEL THAT ONC E A NET PROFIT RATE IS APPLIED, NO FURTHER ADDITION/DISALLOWANCE CAN BE MADE UNDER SECTION 40A(3). IN SUPPORT OF THIS CONTENTION HE HA S RELIED UPON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CAS E OF BANWARILAL BANSIDHAR (SUPRA) IN WHICH THEIR LORDSHIPS HELD AS UNDER:- ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 40 AFFIRMING THE DECISION OF THE TRIBUNAL, THAT NO DI SALLOWANCE COULD BE MADE IN VIEW OF THE PROVISIONS OF SECTION 40A(3) READ WITH RULE 6DD(J) OF THE INCOME-TAX RULES, 1962, AS NO DEDUCTI ON WAS ALLOWED TO AND CLAIMED BY THE ASSESSEE. WHEN THE GROSS PROF IT RATE WAS APPLIED, THAT WOULD TAKE CARE OF EVERYTHING AND THE RE WAS NO NEED FOR THE ASSESSING OFFICER TO MAKE SCRUTINY OF THE A MOUNT INCURRED ON THE PURCHASED MADE BY THE ASSESSEE. THE ABOVE DECISION OF HONBLE ALLAHABAD HIGH COURT WOULD BE SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. WH EN A NET PROFIT RATE IS APPLIED, THERE REMAINS NO SCOPE FOR FURTHER DISALLOWANCE OF ANY EXPENDITURE. IN VIEW OF THE ABOVE, WE RESPECTFU LLY FOLLOWING THE ABOVE DECISION OF HONBLE ALLAHABAD HIGH COURT HOLD THAT THE CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE UNDER SE CTION 40A(3) MADE BY THE ASSESSING OFFICER. ACCORDINGLY, WE UPHO LD THE ORDER OF THE CIT(A) AND DISMISS THE REVENUES APPEAL. IN CIT VS. SMT. SANTOSH JAIN 159 TAXMAN 392 (P & H) ALSO IT WAS CONFIRMED THAT WHEN THE GP RATE IS APPLIED, THAT WO ULD TAKE CARE OF EVERYTHING AND THERE WAS NO NEED FOR THE AO TO MAKE SCRUTINY OF THE AMOUNT INCURRED ON THE PURCHASES BY THE ASSESSE E. IN ITO VS. M/S BANAS SAND TOLL TAX COLLECTION IN IT A NO. 1028/JP/2013, IT WAS ALSO OBSERVED THAT NO DISALLOW ANCE COULD BE MADE U/S 40(A)(IA) AND 40A(3) OF THE ACT WHEN ASSES SMENT IS MADE COMPUTING INCOME BY APPLICATION OF NP RATE. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 41 IN THE APPEAL IN THE CASE OF M/S SADHWANI BROTHERS, ITA NO. 847/JP/2009, ASSESSMENT YEAR 2002-03, HONBLE ITAT, JAIPUR BENCH HAS OBSERVED AS UNDER:- SINCE THE BOOKS OF ACCOUNT ARE BEING REJECTED, THE REFORE, THE PROVISIONS OF SECTION 40A(3) WILL NOT BE APPLICABLE . THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS BANWARI LAL BANSI DHAR, 229 ITR 229 HELD THAT NO DISALLOWANCE U/S 40A(3) CA N BE MADE WHEN THE INCOME IS COMPUTED BY APPLYING THE GROSS P ROFIT RATE. THE HONBLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF AMRIT SINGH & CO. VS. ITO 2010-TIOL-832-HC-HP HAS HELD THAT NO DI SALLOWANCE IS TO BE MADE U/S 40A(3) IF THE BOOKS OF ACCOUNT ARE B EING REJECTED. SINCE THE AO HAS REJECTED THE BOOKS OF ACCOUNT AND HAS APPLIED THE NET PROFIT RATE FOR THE PURPOSE OF COMPUTING INCOME THEN NO DISALLOWANCE COULD HAVE BEEN MADE U/S 40A(3) OF THE ACT. HENCE THE ADDITION MADE U/S 40A(3) IS DELETED. THUS IN VIEW OF THE FACTS INVOLVED AND THE LEGAL PR ECEDENTS AVAILABLE, THE ADDITION MADE ON ACCOUNT OF CASH PAY MENTS EXCEEDING RS. 20,000/- AS HELD BY THE AO AMOUNTING TO RS. 1,41,34,476/- CANNOT BE SUSTAINED IN VIEW OF THE FA CT THAT THE AO HAS ALREADY ESTIMATED THE N.P RATE AFTER REJECTION OF THE BOOKS OF ACCOUNTS U/S 145 (3). THE ADDITION OF RS. 1,41,34,4 76/- IS THEREFORE DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS TR EATED AS ALLOWED. 26. WE HAVE HEARD THE LD DR AND GONE THROUGH THE F INDINGS OF THE LD CIT(A) AND THE AO. IN THE INSTANT CASE, THE AO HAS REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE NET PROFIT. THE HON BLE ANDHRA PRADESH ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 42 HIGH COURT IN CASE OF INDWELL CONSTRUCTIONS VS CIT 232 ITR 776 (AP) HAS HELD THAT WHERE THE BOOKS OF ACCOUNTS ARE REJEC TED, ALL THE DEDUCTIONS WHICH ARE REFERRED TO UNDER SECTION 29 A RE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIMA TE OF INCOME AND WHERE SUCH AN ESTIMATE IS MADE, IT IS IN SUBSTITUTI ON OF THE INCOME THAT IS TO BE COMPUTED UNDER SECTION 29. ALL THE DEDUCT IONS WHICH ARE REFERRED TO UNDER SECTION 29 ARE DEEMED TO HAVE BEE N TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIMATE. IN THE INSTA NT CASE, THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN SECTION 40A(3) IS ALSO TAKEN INTO ACCOUNT AND THERE CANNOT BE A SEPARATE DISALLOWANCE UNDER 40A(3) OF THE ACT. 27. FURTHER, WE ALSO REFER TO THE SPECIAL BENCH OF TRIBUNAL IN CASE OF INCOME-TAX OFFICER, WARD-I, MURSHIDABAD VS. KENARAM SAHA & SUBHASH SAHA [2009] 116 ITD 1 (KOLKATA) (SB) HAS HELD AS UN DER: 24. NOW COMING TO DEPARTMENTAL APPEAL IN THE CASE OF SRI SHYAMAL KR. DEY (SUPRA), THE ASSESSING OFFICER HAS DETERMINED T HE INCOME BY APPLYING A NET PROFIT RATE OF THE TURNOVER. THE ASS ESSING OFFICER IN ADDITION TO THE DETERMINATION OF NET PROFIT AS A PE RCENTAGE OF TURNOVER, MADE FURTHER DISALLOWANCE UNDER SECTION 40A(3). THE CIT(A) DELETED THE DISALLOWANCE MADE UNDER SECTION 40A(3). REVENUE AGGRIEVED WITH THE ORDER OF THE CIT(A) IS IN APPEAL BEFORE US. IT IS CONTENDED BY THE LEARNED COUNSEL THAT ONCE A NET PROFIT RATE IS APPL IED, NO FURTHER ADDITION/DISALLOWANCE CAN BE MADE UNDER SECTION 40A (3). IN SUPPORT OF THIS CONTENTION HE HAS RELIED UPON THE DECISION OF HON'BLE ALLAHABAD ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 43 HIGH COURT IN THE CASE OF BANWARILAL BANSIDHAR (229 ITR 229) IN WHICH THEIR LORDSHIPS HELD AS UNDER : 'AFFIRMING THE DECISION OF THE TRIBUNAL, THAT NO DI SALLOWANCE COULD BE MADE IN VIEW OF THE PROVISIONS OF SECTION 40A(3) RE AD WITH RULE 6DD(J) OF THE INCOME-TAX RULES, 1962, AS NO DEDUCTION WAS ALLOWED TO AND CLAIMED BY THE ASSESSEE. WHEN THE GROSS PROFIT RATE WAS APPLIED, THAT WOULD TAKE CARE OF EVERYTHING AND THERE WAS NO NEED FOR THE ASSESSING OFFICER TO MAKE SCRUTINY OF THE AMOUNT INCURRED ON THE PURCHASES MADE BY THE ASSESSEE.' THE ABOVE DECISION OF HON'BLE ALLAHABAD HIGH COURT WOULD BE SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. WHEN A NET PROFIT RATE IS APPLIED, THERE REMAINS NO SCOPE FOR FURTHER DISALLOWANCE OF ANY EXPENDITURE. IN VIEW OF THE ABOVE, WE RESPECTFULLY FOLLOWING THE AB OVE DECISION OF HON'BLE ALLAHABAD HIGH COURT HOLD THAT THE CIT(A) W AS JUSTIFIED IN DELETING THE DISALLOWANCE UNDER SECTION 40A(3) MADE BY THE ASSESSING OFFICER. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CI T(A) AND DISMISS THE REVENUE'S APPEAL. 28. IN LIGHT OF ABOVE, RESPECTFULLY FOLLOWING THE A BOVE DECISIONS, THE DISALLOWANCE UNDER SECTION 40A(3) HAS BEEN RIGHTLY DELETED BY THE LD CIT(A). THE GROUND NO. 2 OF REVENUES APPEAL IS AC CORDINGLY DISMISSED. 29. REGARDING GROUND NO. 3 OF THE REVENUES APPEAL RELATING TO DELETION OF ADDITION ON ACCOUNT OF UNEXPLAINED EXPE NDITURE OF RS 1,18,34,723 UNDER SECTION 69C, BRIEFLY THE FACTS OF THE CASE ARE THAT AS PER ANNEXURE-4 OF THE AUDIT REPORT OF SPECIAL AUDIT OR, CERTAIN UNEXPLAINED/NOT ACCOUNTED FOR EXPENDITURE INCLUDING ILLEGAL PAYMENT ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 44 MADE BY THE ASSESSEE. THE EXPLANATION OF THE ASSESS EE WAS SOUGHT BY THE AO VIDE SHOW CAUSE DATED 10.09.2014 STATING THA T YOU ARE REQUIRED TO EXPLAIN MAJOR IRREGULARITIES, ILLEGAL O R UNLAWFUL TRANSACTION NOT PERMITTED UNDER THE LAW AS POINTED OUT BY THE S PECIAL AUDITOR IN ANNEXURE-4 (PAGES 1 TO 3). PLEASE EXPLAIN WHY THIS SHOULD NOT BE TREATED AS UNEXPLAINED EXPENDITURE UNDER SECTION 69 C OF THE IT ACT, 1961. 30. THE A/R OF THE ASSESSEE FURNISHED REPLY DATED 25.09.2014 WHICH IS REPRODUCED AS UNDER:- ONCE THERE ARE SEIZED HAND CASHBOOK OF THE ASSESSE E, THERE WAS NO SUCH ENTRY AND NO ANY EXPENDITURE DEBITED IN PROFIT AND LOSS ACCOUNT. NO SUCH CONTRACT WORK RECEIVED AND EXECUTED BY THE ASSESSEE ON THAT PRESCRIBED SITES. 31. AS THE REPLY OF THE ASSESSEE WAS INSATISFACTOR Y & INCOMPLETE, THE ASSESSEE WAS GIVEN FINAL SHOW CAUSE DATED 10.10.201 4 REGARDING UNEXPLAINED EXPENDITURE UNDER SECTION 69C, WHICH IS AS FOLLOWS:- PLEASE REFER TO ANNEXURE-4 OF THE SPECIAL AUDITOR S REPORT WHICH PERTAINS TO UNEXPLAINED/NOT ACCOUNTED FOR EXPENDITU RE INCLUDING ILLEGAL PAYMENT AND POINT NO. 5 OF SHOWCAUSE DATED 22.09.20 14. IN YOUR REPLY DATED 25.09.2014, YOU HAVE SUBMITTED FOLLOWING REPL Y.ONCE THERE ARE SEIZED AND CASHBOOK OF THE ASSESSEE, THERE WAS NO S UCH ENTRY AND NO ANY EXPENDITURE DEBITED IN PROFIT AND LOSS ACCOUNT. NO SUCH CONTACT WORK RECEIVED AND EXECUTED BY THE ASSESSEE ON THAT PRESCRIBED SITES. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 45 FURTHER, IN EXPLANATION ENCLOSED IN SHEET NO. 5 OF YOUR REPLY, IT IS NOTED THAT: I) FOR ENTRIES NUMBERED 1, 2, 3,4,5,6,7,8,9,10,11,12,13,14,23,20,24,28,30,31,33,3 5,36,45,49,50,60,6 5,66,67,75,76,79,80,81,93, THE ASSESSEE HAS GIVEN N O REPLY OR EXPLANATION. II) FOR ENTRIES NUMBERED 68,69,70,71,72,73,74,85,86,87, 88 WHICH PERTAIN TO ILLEGAL PAYMENTS MADE BY THE ASSESSEE DU RING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE HAS SUBMITTED THAT TH E POOL EXPENSES ARE ONLY DISCUSSION POINTS AND ESTIMATIONS. HOWEVER THERE WAS NO ANY WORK ORDER. ALSO, ASSESSEE SUBMITTED THAT THERE WAS NO WORK ORDER FROM RIICO AND THEREFORE, THE ILLEGAL PAYMENTS AND PULL PAYMENTS ARE SIMPLY FOR DISCUSSION AND ESTIMATION. NO OTHER DOCU MENTARY EVIDENCE HAS BEEN FURNISHED BY THE ASSESSEE TO PROVE HIS EXP LANATION. HOWEVER, THE DD OF RS. 14,72,000/- WAS DRAWN IN FAVOUR OF SE NIOR MANAGER, RIICO. FURTHER, 26 AS OF THE ASSESSEE FOR FINANCIAL YEAR 2011-12 REFLECTS CONTRACT RECEIPTS FROM RIICO. FURTHER, ASSESSEE IN HIS REPLY DATED 2011- 12 REFLECTS CONTRACT RECEIPTS FROM RIICO. FURTHER, ASSESSEE IN HIS REPLY DATED 25.09.2014 PERTAINING TO CASH PAYMENT MORE TH AN RUPEES 20,000 FOR ENTRIES NUMBERED 209,210,211 HAS NARRATED THAT THIS IS SITE ADVANCE TO RIICO RAMGANJ MANDI FOR EXPENSES IMPREST ACCOUNT. IN VIEW OF THIS, ASSESSEES ARGUMENT THAN NO WORK O RDER HAS BEEN EXECUTED FOR RIICO IS UNTENABLE. III) FOR ENTRY NO. 75 PERTAINING TO JEWELLERY PURCHASED, THE NARRATION OF SPECIAL AUDITOR STATES THAT AMOUNT APPEARS TO B E IN SHORT FORM. THE ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 46 ASSESSEE HAS NOT GIVEN ANY EXPLANATION REGARDING AM OUNT SPENT ON JEWELLERY PURCHASED. IV) FOR OTHER ENTRIES OF ANNEXURE-4 ENTRIES OTHER THAN MENTIONED ABOVE, THE ASSESSEE HAS GIVEN REPLY AS AMOUNT DEBI TED TO . HOWEVER, THE REPLY WAS NOT BACKED BY ANY BILLS OR V OUCHERS TO SUBSTANTIATE THE CLAIM THAT THESE ENTRIES WHERE DEB ITED AS EXPENSES UNDER VARIOUS HEADS. IN VIEW OF ABOVE, WHY THE AMOUNT OF RS. 1,18,35,956 /- SHOULD NOT BE TREATED AS A UNEXPLAINED EXPENDITURE UNDER SECTION 69C?. 32. IN RESPONSE, THE ASSESSEE VIDE HIS REPLY DATED 15.10.2014 SUBMITTED FOLLOWING REPLY:- AS I HAVE MENTIONED ABOVE THAT IN THE HAND CASH BO OK OF THE ASSESSEE, ALL THE ENTIRES HAVE BEEN REFLECTED IF RE LATED TO PAYMENT RECEIVED OR MADE. IF THERE IS NO ENTRIES ANY WHERE ITS NOT RELATED TO THE ASSESSEE. ONCE THERE ARE SEIZED HAND CASH BOOK OF THE ASSESSE E, THERE WAS NO SUCH ENTRY AND NO ANY EXPENDITURES DEBITED IN TH E PROFIT AND LOSS ACCOUNT. NO SUCH CONTRACT WORK RECEIVED AND EX ECUTED BY THE ASSESSEE ON THAT PRESCRIBED SITES. AS PER DISCUSSION WITH THE ASSESSEE, THIS IS DISCUS SION POINTS ONLY ESTIMATION TO TAKE ANY WORK ORDER BY ANY ONE. NO WHERE IS MENTIONED THAT ANY ONE HAS PAID THAT AMOUNT TO SOME ONE. THAT WAS A HUGE AMOUNT DURING DISCUSSION. NO ONE IS AGRE E..THE ASSESSEE HAS NOT TAKEN THAT CONTRACT WORK DURING TH E YEAR. NO ANY PAYMENT. AS NOT MENTIONED IN THE SEIZED HAND CA SH ALSO. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 47 ONLY A SIMPLE PAPER WHEREAS NOWHERE IS MENTIONED AB OUT PAYMENT. HOW CAN WE TAKE DREAM THAT THE ASSESSEE HA S MADE THE POOL AMOUNT DURING THE YEAR. THERE ARE NO ANY WORK ORDER AND EXECUTION OF WORK F ROM RIICO LTD. DURING THE YEAR OF THAT AMOUNT. IN RESPECT OF DD OF RS. 14,72,000/- IT WAS PART OF AMOUNT TO TAKE TENDER AND ENTERED DURING THE YEAR IN E.M & S.D. AC COUNT BUT THAT AMOUNT HAS BEEN REFUND BACK IN NEXT YEAR WE A RE ENCLOSING COPY OF BANK STATEMENT AND VOUCHERS FOR Y OUR KIND REFERENCE. ONCE YOUR GOOD SELF ESTIMATING ON CERTA IN GROUNDS BUT SPECIAL AUDITOR HAS NOT TAKEN ANY GROUNDS TO MENTIO NED IN AUDIT REPORT. IN THIS WAY A SIMPLE PERSON CAN MENTION ON EACH AND EVERY PAPER WITHOUT KEEPING PROPER ATTENTION ON THE RECORDS AND VALIDITY OF TRANSACTION. ON THIS GROUNDS WE HAVE PRODUCED THE EVIDENCE OF RE FUND OF THAT AMOUNT SO HOW CAN WE ESTIMATE THAT THIS POOL AMOUNT IS RELATED TO ASSESSEE AND HE HAS PAID THAT AMOUNT. WE HAVE ME NTIONED THE EXECUTION OF THE WORK DURING THE YEAR AMOUNT IS REFUND BACK HOW CAN WE SAY THAT ..UNTENABLE. PLEASE CONSIDER T HE FACTS AND JUSTIFICATION OF THE DOCUMENTS. ESTIMATION/DREAM IS NOT JUSTIFIED. IN RESPECT OF ANY EXPENDITURE NOT ENTERED ANY WHERE ..ONCE YOU ARE DEMANDING FURTHER EVIDENCES OF EXPENDITURES DEBITED IN PROFIT AND LOSS ACCOUNT ON THE OTHER SIDE YOU ARE S AYING NOT ENTERED IN BOOKS. YOUR GOOD SELF ALSO MENTIONED IN CLAUSE (IV) FOR OTHER ENTRIES OF ANNEXURE. THE REPLY WAS NOT BACKE D BY ANY BILLS OR VOUCHERS TO IF ANY ENTRY IS RELATED TO BUSINES S WHY SHOULD NOT BE ENTERED IF RELATED TO ASSESSEE. THERE MAY BE REDUCING ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 48 OF PROFIT AND LOSS ACCOUNT ONLY. HOW IT IS JUSTIFIE D TO SAY AND ENTERED. IN THIS CHART WE HAVE MENTIONED IN THE EXP LANATIONS OF SO MANY ENTRY THAT IT IS ENTERED. HOW CAN A SPECIAL AUDITOR MAY POINTED OUT WITHOUT KEEPING PROPER ATTENTION ON ANY BOOKS OF ACCOUNTS OF EACH ENTRIES IN ENCLOSED SHEET. IN SPIT E TO APPRECIATE THE ASSESSEE THAT HE HAS NOT DEBITED THE EXPENDITUR E WHICH ARE NOT RELATED TO HIM/BUSINESS. THE SPECIAL AUDITOR IS DIRECTING TO KEEP ADDITION IN THE INCOME OF THE ASSESSEE. 85 A - 22 14.01.2011 RIICO RAMGANJMANDI ACE 600,000.00 ILLEGAL PAYMENT DEBITED TO OTHER DEBTORS A/C 86 A - 22 14.01.2011 RIICO DGM 500,000.00 ILLEGAL PAYMENT DEBITED TO OTHER DEBTORS A/C 87 A - 22 14.01.2011 RIICO RM 100,000.00 ILLEGAL PAYMENT DEBITED TO OTHER DEBTORS A/C 88 A - 22 15.01.2011 RIICO SR. RM 200,000.00 ILLEGAL PAYMENT DEBITED TO OTHER DEBTORS A/C A-22 IS PART OF ASSESSEE-CASH BOOK DIARY AS WE HA VE MENTIONED ABOVE THAT ALL THE ENTRY WHETHER YOU HAVE CONSIDERE D LEGAL OR ILLEGAL ARE IN THE HAND OF THE DIARY OF THE ASSESSE E, IF NOT ENTERED IT IS NOT RELATED TO ASSESSEE. THERE ARE MARKING OF PAYMENT TO PERSON AS MENTIONED IN THAT COLUMN.THE ASSESSEE EN TERED IN BOOKS OF ACCOUNTS ALSO AS MENTIONED IN OTHER DEBTOR S ACCOUNT/SITE ADVANCES ACCOUNT. AS PER RECORDS THESE AMOUNT IS RECOVERABLE AND NOT DEBITED IN PROFIT & LOSS ACCOUN T .. HOW CAN ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 49 WE SAY ILLEGAL PAYMENT. IS ANY WHERE MENTIONED ILLE GAL . IN CASE ILLEGAL AND NOT DEBITED IN PROFIT AND LOSS ACCOUNT BUT AMOUNT IN DEBTORS ACCOUNT, HOW CAN IT MAY BE ADDED IN THE TOT AL INCOME OF THE ASSESSEE. A-22: THE ASSESSEE HAS MENTIONED AGGREGATE AMOUNT, HOWEVER AS PER ACTUAL RECORDS COPY OF ACCOUNT ENCLOSED IT HAS BEEN ENTERED ON VARIOUS DATES:- 78 A - 22 13.05. 2010 LDO 240,000.00 PAID TO VIJAY BHAI AMOUNT DEBITED TO BALAJI SALES DETAIL: RS. 15000 ON 13.5, RS. 16000 ON 14.05, RS 17000 ON 15.05, RS. 18000 ON 16.05, RS. 19000 ON 17.05 RS. 14000 ON 18.05, RS. 15000 ON 19.05, RS. 18000 ON 20.05, RS. 19000 ON 21.05, RS. 17000 ON 22.05, RS. 18000 ON 23.05, RS. 19000 ON 24.05, RS. 18000 25.05 & RS. RS. 17000 ON 26.05. (WE ARE ENCLOSING COPY OF ACCOUNT) A - 24 21 & 22 PO OL PAYM ENT 2,935,000.00 POOL PAYMENT FOR OBTAINING FROM RIICO RS. 7.35 CR. A - 24 1. THERE IS NO ANY DATE ON PAPER. 2. NO WHERE IS MENTIONED POOL AS MENTIONED IN ABOVE ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 50 PAID @ 4% TO 22 PERSONS OF RS. 29,35,000/- @ RS. 1,33,409/- PER PERSON ALSO SHOWING NAME OF THE PERSON TO WHOM PAYMENT WERE MADE. MENTIONED PAPER. 3. HOW CAN THE AUDITOR HAS MENTIONED POOL PAYMENT. 4. MAY BE PART OF DISCUSSION TO GIVE THE WORK ON SUB CONTRACT OR ESTIMATION OR DISCUSSION. NO WHERE RECORDED IN SEIZED DOCUMENTS(AS RECORDED IN S.NO. 84-88 AND CONSIDER ILLEGAL EXPE.) IT IS UNJUSTIFIED TO MENTION POOL PAYMENT. OR TO CONSIDER ILLEGAL EXPENSES. A - 24 40 & 41 POOL EXPEN SES 1,000,000.00 A - 24 PLEASE KEEP ATTENTION ON THAT PAPER NO ANY DATE ..VIJAY-GALAV, KHATRI AND PARETA 25 LAC EACH LENETHAN AFTER 2615000 DENE..ON THE BASIS OF THAT FACTS IT LOOKS LIKE AN ESTIMATION OF EXPENDITURE. NO WHERE HAS MENTIONED PAID. ITS PREPARATION OF PLAN/COST TO TAKE A - 24 40 & 41 PAID TO OFFICER S 1,461,000.00 A - 24 ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 51 CONTRACT ..WHERE THE NAME OF ASSESSEE HAS MENTIONED MEANS THIS PAPER IS NOT RELATED TO ASSESSEE. IF IT IS RELATED TO ASSESSEE WHETHER LEGAL OR ILLEG AL IT MAY BE DEBITED IN PROFIT AND LOSS ACCOUNT AND YOU MAY DISA LLOW ONLY. WHAT WILL BE THE POSITION NIL EFFECT ON THE PROFI T AS DISCLOSED BY THE ASSESSEE. IT IS PART OF APPRECIATION TO THE ASS ESSEE THAT HE HAS DISCLOSED THE ACTUAL NET PROFIT AS PER NORMS OF THE BUSINESS IN THE POSITION WHERE HE KNOW THAT THERE ARE SEIZED DO CUMENTS IN POSSESSION OF THE DEPARTMENT. I AM OF THE OPINION THAT NO WHERE ANY ATTENTION IN THE AGGREGATE AMOUNT AS NOTED IN SPECIAL AUDIT REPORT IF ANY PERS ON WHO KNOW SOMETHING ABOUT BUSINESS. HE WILL FURTHER KEEP ATTE NTION BEFORE TO WRITE --- AS MENTIONED ABOVE IN PAYMENT OF EXPEN DITURE EXCEEDING RS. 20000/- AND THIS AMOUNT OF RS. 11835, 956/-. I HAVE PREVIOUSLY MENTIONED ABOVE THAT AUDIT REPORT I S ONLY LIKE A PERSON WHO HAS MENTIONED IN EACH AND EVERY DOCUMENT WHERE TO WRITE IN AUDIT REPORT WITHOUT ANY REASON OR EVIDENC ES TO WRITE AND EFFECT AND VALUE OF THAT EXPENDITURE. 33. THE REPLY OF THE ASSESSEE WAS CONSIDERED BY TH E AO AND FOUND TO BE UNSATISFACTORY AS WELL AS UNACCEPTABLE BECAUSE O F FOLLOWING REASONS:- I) THE ASSESSEE IN HIS STATEMENT RECORDED UNDER OATH A ND DULY SIGNED BY THE ASSESSEE ON 18.02.2011 DURING SU RVEY UNDER ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 52 SECTION 133A OF I.T. ACT, 1961 HAS HIMSELF STATED T HAT A CONTRACT OF RS. 7,35,00,000/- HAS BEEN AWARDED TO HIM BY RII CO. THE RELEVANT PARAGRAPHS OF THE STATEMENT ARE BEING REPR ODUCED HERE:- IZU&2 VKI D;K DK;Z DJRS G S ? MKJ& ESA CIVIL CONTRACTOR GWWA ESA LM+D CUKUS DK DK;Z DJRK GWWA ESA EQ[;R% ; G DK;Z PWD LKOZTFUD FUEKZ.K FOHKKX DS LKFK DJRK GWWA BLDS V YKOK UIT ,OA RIICO LS IZKIR DK;Z HKH DJRK GWWA ;G DK;Z ESA ESLLZ IKJSR K ,LKSFL,V~L DS UKE LS DJRK GWWA IZU&9 D`I;K CRK,A FD ORZEKU ESA VKIDK BSDSNKJH DK; Z DGKW&DGKW PY JGK GS ? DK;Z DH D;K PROGRESS GS ? FOLRKJ LS CRK,AA MKJ 1 RICCO LS IZKIR DK;Z& MIJKSDR DK;Z YXHKX 8-10 FNU IWOZ GH FEYK GSA ;G DK; Z JKEXATE.MH LM+D FUEKZ.K LS LECAFU/KR GS TKS FD YXHKX 8&10 EKG ESA I W.KZ DJUK GSA BL DK;Z DK WORK ORDER YXHKX : 7]35]00]000@& GSA BL DK;Z DS ISVS VHKH EQ>S DKSBZ ADVANCE UGHA FEYK GSA 2 RES ;KFU=D FOHKKX E/; IZNSK LS IZKIR DK;Z& MIJKSDR DK;Z EQ>S YXHKX 3 EKG IWOZ GH IZKIR GQVK GS TKS FD VKYKSV MP ESA LM+D FUEKZ.K LS LECFU/KR GS BLDK WORK ORDER YXHKX : 2 DJKSM+ GSA BLDK;Z DKS GES 8&9 EKG ESA LEIUU DJUK GSA BLDS FY, EQ>S DKSBZ ADVANCE UGHA FEYK GSA 3 PMGSY IZ/KKUEA=H XZKEH.K LM+D ;KSTUK VURXZR IZKIR LM+D EJEER DK DK;Z& MIJKSDR DK;Z YXHKX 6 EKG IWOZ GH IZKIR GQVK GS FTLD S 3 WORK ORDER GS& 1 YXHKX 190 YK[K 2 YXHKX 195 YK[K 3 YXHKX 38 YK[K MIJKSDR RHUKS WORK ORDER DK EQ>S 5OKKSZ DK BSDK FEYK GS RFKK VHKH RD YXHKX : 1 DJKSM+ :- FOFHKUU RKJH[KKSA LS IZKIR GKS PQDS GSA : 2 DJKSM+ GSA BL DK;Z DKS GES 8&9 EKG ESA LEIUU DJUK GSA BLDS FY, EQ>S DKSBZ ADVANCE UGHA FEYK GSA ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 53 THEREFORE, THE CLAIM OF THE ASSESSEE THAT THE ILLEG AL POOL PAYMENTS WERE JUST DISCUSSION POINTS/ESTIMATION TO TAKE ANY WORK ORDER AND NO WORK ORDER FROM RIICO WAS AWARDED TO THE ASSESSEE IS COM PLETELY UNACCEPTABLE. FURTHER, IT MAY BE NOTED THE SPECIAL AUDITOR HAS OBSERVED ILLEGAL PAYMENTS BASED ON DOCUMENTS IMPOUNDED DURIN G THE SURVEY. MOREOVER, THE 26AS OF ASSESSEE SHOWS THE CONTRACT R ECEIPTS ON WHICH TDS HAS BEEN DEDUCTED BY RIICO. CONTRARY TO ASSESSE ES CLAIM, THIS IN FACT SHOWS THAT THE ASSESSEE WAS AWARDED WORK CONTR ACT BY THE RIICO. THEREFORE, ASSESSEE CANNOT CLAIM THAT NO WORK FROM RIICO WAS AWARDED TO THE ASSESSEE AND THE POOL PAYMENTS MADE ARE JUST ESTIMATIONS AND NOT ACTUAL PAYMENTS. II) THE ASSESSEES EXPLANATION REGARDING DD OF RS. 14,7 2,000/- IS INCORRECT BECAUSE AS PER SUBMISSION MADE BY THE ASS ESSEE THE RIICO HAS ADJUSTED THE SAID AMOUNT WHILE MAKING WOR K CONTRACT PAYMENTS TO THE ASSESSEE. III) THE A/R, OF THE ASSESSEE HAS GIVEN NO DOCUMENTARY E VIDENCE TO PROVE THAT ANY PARTICULAR ENTRY WAS DEBITED IN BOOK S OF ACCOUNT OR NOT, DESPITE GIVING ENOUGH OPPORTUNITY TO PROVIDE T HE REQUIRED EVIDENCE TO SUPPORT ASSESSEES CLAIM. IV) FURTHER, THE SPECIAL AUDITOR MADE OBSERVATIONS REGA RDING ILLEGAL PAYMENT AS WELL AS UNEXPLAINED EXPENDITURE ARE ON T HE BASIS OF DOCUMENTS IMPOUNDED DURING THE SURVEY. ON THE OTHER HAND, THE A/R OF THE ASSESSEE HAD NO OTHER EXPLANATION TO OFF ER OTHER THAN ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 54 THERE WAS NO SUCH ENTRY AND NO ANY EXPENDITURE DEB ITED IN PROFIT AND LOSS ACCOUNT. THE UNEXPLAINED EXPENDITURE INCLUDING ILLEGAL PAYME NT OF RS. 1,18,34,723/- AS POINTED OUT IN ANNEXURE-4 OF THE A UDIT REPORT (EXCEPT FOR ENTRIES NO. 27 AND 4 WHICH DO NOT PERTA IN TO RELEVANT ASSESSMENT YEAR) MADE BY THE ASSESSEE IS ADDED TO T HE TOTAL INCOME OF THE ASSESSEE UNDER SECTION 69C OF INCOME TAX ACT, 1961. 34. WE NOW REFER TO THE RELEVANT FINDINGS OF THE LD . CIT(A) WHICH ARE REPRODUCED AS UNDER:- ALTHOUGH I HAVE HELD ABOVE THAT ONCE N.P IS ESTIMA TED, OTHER ADDITIONS MADE ON THE BASIS OF BOOKS OF ACCOUNTS IN THE P&L A CCOUNT SHOULD NOT HAVE BEEN MADE, HOWEVER, CERTAIN ISSUES NEED TO BE POINTED OUT IN THIS GROUND AS WELL. IN RESPECT OF THE D.D. OF RS. 14,72,000/- THE ASSES SEE HAS IN HIS REPLY DT. 15.10.2014 SUBMITTED BEFORE THE AO THE DETAILS OF BANK ACCOUNT FROM WHERE DD WAS MADE FOR APPLICATION TO RIICO ON 10.11.2010 AND MENTIONED THAT IT WAS REFUNDED NEXT YEAR. EVEN IF THE PAYMENT MADE WAS ADJUSTED AGAINST ANY A LLOTTED WORK AS THE AO HAS REASONED IN HIS ORDER, THE SOURCE OF THE D.D IS CLEARLY FROM THE DISCLOSED BANK ACCOUNT AT BANK OF BARODA AND TH IS TYPE OF ARBITRARY ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 55 ADDITION SHOULD NOT HAVE BEEN MADE BY THE AO IN RES PECT OF THIS AMOUNT. AS REGARDS THE OTHER ENTRIES FORMING THE BASIS OF T HE ADDITIONS, ON HIS PART THE AO HAS NOT BROUGHT OUT THAT CERTAIN ENTRIE S WERE NOT DEBITED IN THE BOOKS OF ACCOUNTS AND HE HAS NOT EVEN CONSIDERE D THE BOOKS TO BE CORRECT. SINCE HE REJECTED THE BOOKS OF ACCOUNTS, WHAT HE NE EDED TO DO WAS MAKE A BEST JUDGMENT ASSESSMENT BASED ON NET PROFIT . FOR ANY OTHER ADDITIONS, HE NEEDS TO PROVE THAT THERE WERE RECEIP TS OUTSIDE THE BOOKS OF ACCOUNTS WHICH FACILITATED CARRYING OUT THE ILLE GAL EXPENSES PAYMENTS TO THAT EXTENT. AT THE SAME TIME, HE ALSO MENTIONED AT THE TIME OF REJECTION OF BOOKS THAT DETAILS OF EXPENSES WERE NOT PROPERLY MENTIONE D. EVEN IF IT IS AGREED FOR THE SAKE OF DISCUSSION ON THE AOS CONTE NTION THAT ILLEGAL PAYMENTS WERE MADE TO OBTAIN CONTRACTS, EXCEPT FOR THE PIECE OF PAPER, THERE IS NO CORROBORATIVE EVIDENCE. HE HAS NEITHER CONFRONTED THE SO CALLED BENEFICIARIES OR THE OTHER PERSONS INVOLVED IN THE SAID POOL OF CONTRACTORS TO ESTABLISH HIS FINDING. SO IF THERE WAS A CASE OF ANY ILLEGAL EXPENSES BEIN G THERE, THEY WOULD BE EITHER CAMOUFLAGED AS OTHER EXPENSES, WHICH THE AO HIMSELF CONSIDERED WHILE ESTIMATING THE NET PROFIT OR SUCH EXPENSES WOULD BE BACKED BY ADDITIONAL UNDISCLOSED RECEIPT OR INCOME WHICH COULD TAKE CARE OF THESE EXPENSES, WHICH THE AO FAILED TO BEIN G ON RECORD THROUGH ANY EVIDENCES. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 56 HIS ONLY FOCUS WAS ON EXPENSES CLAIMED AND LACK OF SUPPORTING EVIDENCES, WHICH HE HAD ALREADY COVERED BY ESTIMATI NG A BEST JUDGMENT NET PROFIT RATE. ALL THE OTHER THINGS IN BETWEEN TH E P & L A/C GET ACCOMMODATED IN THE END RESULT ESTIMATED BY THE AO. THE HIGH COURT OF PUNJAB AND HARYANA IN COMMISSIONE R OF INCOME-TAX PATIALA V. DULLA RAM, LABOUR CONTRACTOR, KOTHAPURA REPORTED IN 42 TAXMANN.COM 349 (PUNJAB & HARYANA) H AS HELD CLEARLY THAT- AN ASSESSING OFFICER MAY, WHILE CONSIDERING A RETU RN OF INCOME, INSPECT THE ACCOUNT BOOKS AND, IF SATISFIED, THAT ACCOUNT B OOKS DO NOT REFLECT THE TRUE INCOME OF AN ASSESSEE, REJECT THE SAME. AC COUNT BOOKS ONCE REJECTED, ARE RULED OUT OF CONSIDERATION AND CANNOT BE PRESSED INTO SERVICE WHETHER BY THE ASSESSEE OR THE REVENUE. THU S, WHEN ACCOUNT BOOKS ARE REJECTED, IT WOULD FOLLOW, AS A NECESSARY COROLLARY, THOSE ENTRIES IN THE ACCOUNT BOOKS WHETHER SUSPICIOUS OR NOT CANNOT BE RELIED BY THE REVENUE OR THE ASSESSEE. TO HOLD OTHERWISE, WOULD, IN ESSENCE, RENDER ACCOUNT BOOKS VALID FOR CERTAIN PURPOSES AND INVALID FOR OTHERS, A COURSE IMPERMISSIBLE IN LAW. THE ASSESSING OFFICER REJECTED THE ACCOUNT BOOKS IN THEIR ENTIRETY AND THEREAFTER PROCEEDED TO ASSESS INCOME BY APPLYING A FLAT RATE OF PROFIT OF 10%. AFTER APPLYING A FLAT RATE OF PROFIT OF 10% THE ASSESSING OFFICER ADDED RS. 1,98,298/- TO THE INCOME OF THE ASSESSEE ON THE BASIS OF CERTAIN ENTRIES DEEMED TO BE SUSPICIOUS. THE COMM ISSIONER OF INCOME ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 57 TAX (APPEALS) AS WELL AS THE TRIBUNAL HAVE RIGHTLY HELD THAT AS BOOKS OF ACCOUNT WERE REJECTED IN THEIR ENTIRETY, THE ASSESS ING OFFICER COULD NOT RELY UPON ANY ENTRY IN THE BOOKS OF ACCOUNT FOR MAK ING AN ADDITION OF RS. 1,98,298/-. INCOME TAX APPELLATE TRIBUNAL LUCKNOW IN THE CASE OF M/S M.A BUILDERS PVT. LTD., VS. DEPARTMENT OF INCOME TAX IN ITA NO. 564/LKW/2011 ASSESSMENT YEAR : 2008-09 DATE OF PRON OUNCEMENT: 28/05/2013, HAD ON THIS VERY ISSUE ON SIMILAR REJEC TION OF BOOKS AND ESTIMATION OF NET PROFITS HELD THAT- ONCE THE BOOKS OF ACCOUNT ARE REJECTED AND THE ASS ESSEE IS NOT CO- OPERATING, THE ONLY OPTION LEFT WITH THE ASSESSING OFFICER IS TO ESTIMATE REASONABLE INCOME AFTER TAKING INTO ACCOUNT THE TOT AL RECEIPTS OF THAT YEAR. WE, THEREFORE, FIND NO INFIRMITY IN THE ESTIM ATION OF INCOME BY THE LD. CIT(A) AND WE ACCORDINGLY APPROVE THE SAME. 9. THE NEXT GROUND IS WITH REGARD TO THE ADDITION O F 3,73,000 MADE UNDER SECTION 69C OF THE ACT. 10. THE LD. CIT(A) DELETED THE ADDITION FOR THE REA SON THAT ONCE THE BOOKS OF ACCOUNT ARE REJECTED, THE SAME CANNOT BE R ELIED FOR MAKING AN ADDITION UNDER SECTION 69C OF THE ACT. WE AGREE WIT H THE FINDINGS OF THE LD. CIT(A) IN THIS REGARD AS ONCE THE BOOKS OF ACCO UNT ARE REJECTED, NO FURTHER ADDITION CAN BE MADE ON THE BASIS OF ENTRIE S MADE THEREIN. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT(A) IN THIS REGARD ALSO. ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 58 11. IN THE RESULT, APPEAL OF THE REVENUE STANDS DIS MISSED. IN THE LIGHT OF THE FACTS AS EMERGED FROM THE DISCU SSION MADE ABOVE AND THE LEGAL PRECEDENTS AVAILABLE IN THIS REGARD, I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITIO N TOWARDS THE EXPENSES U/S 69C ONCE HE HAD ESTIMATED THE NET PROF IT AFTER REJECTION OF THE REGULAR BOOKS OF ACCOUNTS. HE HAS ALREADY FO RMED AN OPINION ON THE NET PROFIT AND IF HE STILL HAD DOUBTS ON THESE EXPENSES, NO ONE STOPPED HIM FROM ADOPTING A HIGHER THAN NORMALLY AC CEPTABLE NET PROFIT RATE BASED ON THE DISCREPANCIES POINTED OUT IN THE OTHER GROUNDS OF APPEAL. HE CANNOT HAVE AN ADDITION ON ACCOUNT OF ES TIMATION OF PROFIT SEPARATELY & THEN MAKE OTHER ADDITIONS TO THE EXPEN SES WHICH WOULD DISTURB THE NET PROFIT TO GIVE ABSURD BUSINESS RESU LTS AS HAPPENED IN THIS CASE. AS A RESULT I AM UNABLE TO SUSTAIN THE A DDITION MADE U/S 69C. THE ADDITION OF RS. 1, 18, 34,723/- IS ACCORDINGLY DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS TREATED AS ALLOWED. 35. WE HAVE HEARD THE LD DR AND PURSUED THE ORDERS OF THE LD CIT(A) AND THE AO AS WELL AS THE ASSESSEES SUBMISSIONS BE FORE BOTH THE AUTHORITIES. THE AO HAS INVOKED THE PROVISIONS OF SECTION 69C OF THE ACT WHICH READS AS UNDER: 69C. WHERE IN ANY FINANCIAL YEAR AN ASSESSEE HAS I NCURRED ANY EXPENDITURE AND HE OFFERS NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATIS FACTORY, THE AMOUNT ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 59 COVERED BY SUCH EXPENDITURE OR PART THEREOF, AS THE CASE MAY BE, MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE FOR SUCH FINANCIAL YEAR : PROVIDED THAT, NOTWITHSTANDING ANYTHING CONTAINED I N ANY OTHER PROVISION OF THIS ACT, SUCH UNEXPLAINED EXPENDITURE WHICH IS DEEMED TO BE THE INCOME OF THE ASSESSEE SHALL NOT BE ALLOWED AS A DEDUCTION UNDER ANY HEAD OF INCOME. 36. IN LIGHT OF ABOVE, WHAT IS TO BE SEEN IS WHETHE R THE ASSESSEE HAS INCURRED ANY EXPENDITURE DURING THE SUBJECT FINANCI AL YEAR AND WHETHER THE EXPLANATION RELATING TO SOURCE OF SUCH EXPENDIT URE IS SATISFACTORY IN THE OPINION OF THE ASSESSING OFFICER. WHERE THE AO HAS NOTICED THAT CERTAIN EXPENDITURE HAS BEEN INCURRED BY THE ASSESS EE, THE PRIMARY ONUS TO DISCHARGE IS THEREFORE ON THE ASSESSEE TO P ROVIDE AN EXPLANATION RELATING TO SOURCE OF SUCH EXPENDITURE TO THE SATISFACTION OF THE AO. 37. AS PER THE LD CIT(A), WHERE THE AO HAD ESTIMATE D THE NET PROFIT AFTER REJECTION OF THE REGULAR BOOKS OF ACCOUNTS, H E WAS NOT JUSTIFIED IN MAKING THE ADDITION TOWARDS THE EXPENSES U/S 69C RE LYING ON THE SAME BOOKS OF ACCOUNTS WHICH HAVE BEEN REJECTED. IN OTHE R WORDS, WHERE THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED AND NET PROFIT HAS BEEN ESTIMATED, THERE CANNOT BE ANY OTHER ADDITION AND C ONSEQUENT PENALTY CONSEQUENCES IN THE HANDS OF THE ASSESSEE. IN OUR VIEW, WHAT HAS TO BE EXAMINED IS THE NATURE OF THE TRANSACTIONS AND T HE LINKAGE THEREOF. IN THE INSTANT CASE, THE BOOKS OF ACCOUNTS HAVE BEE N REJECTED AND NET PROFIT HAS BEEN ESTIMATED IN RELATION TO TRANSACTIO NS UNDERTAKEN BY THE ASSESSEE IN RELATION TO ITS BUSINESS OF CIVIL CONST RUCTION. THEREFORE, THE TRANSACTIONS WHICH IMPACT THE NET PROFIT FROM THE C ONSTRUCTION ACTIVITY ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 60 UNDERTAKEN BY THE ASSESSEE DURING THE YEAR ARE UNDE R CONSIDERATION OF THE AO AND THE AO NOT BEING SATISFIED WITH SUCH DET ERMINATION OF NET PROFIT, HAS REPLACED AND ESTIMATED NET PROFIT BASED ON HIS UNDERSTANDING AND MATERIAL AVAILABLE ON RECORD. BUT WHERE THERE ARE TRANSACTIONS WHICH ARE NOT CONNECTED TO THE DETERMINATION OF NET PROFIT AND ARE NOT REFLECTED IN THE PROFIT/LOSS ACCOUNT AND ARE BASICA LLY STAND ALONE BALANCE SHEET TRANSACTIONS OR TRANSACTIONS WHICH HAVE NOT B EEN RECORDED IN THE BOOKS OF ACCOUNTS AT ALL BUT LATER ON ACKNOWLEDGED, CAN IT BE SAID THAT EVEN THOSE TRANSACTIONS CANNOT BE EXAMINED BY THE A O. IN THE INSTANT CASE, BASED ON REPORT OF THE SPECIAL AUDITOR AND AS REPORTED IN ANNEXURE 4 OF THE AUDIT REPORT AND EXAMINATION DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ADDITIONAL CIT HAS HELD THAT THERE ARE SPECIFIC TRANSACTIONS WHICH HAVE NOT BEEN DEBITED I N THE BOOKS OF ACCOUNTS AND FURTHER, THESE TRANSACTIONS ARE DETERM INED BASED ON DOCUMENTS IMPOUNDED DURING THE COURSE OF SURVEY. I N OUR VIEW, THE SAID ACTION OF THE ADDITIONAL CIT IS NOT VITIATED M ERELY ON THE GROUND THAT THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED AND N ET PROFIT HAS BEEN ESTIMATED BY THE AO PROVIDED IT CAN BE PROVED THAT THESE ARE INDEPENDENT TRANSACTIONS NOT CONNECTED WITH THE TRA NSACTIONS IN RESPECT OF WHICH THE NET PROFIT HAS BEEN ESTIMATED BY THE A O. IN SUPPORT, USEFUL REFERENCE CAN BE DRAWN TO THE LEGAL PROPOSIT ION LAID DOWN BY THE HONBLE SUPREME COURT DECISION IN CASE OF KALE KHAN MOHAMMAD HANIF VS CIT REPORTED IN 50 ITR 1 AND WHICH HAS BEEN FOLLOWED BY THE HONBLE SUPREME COURT IN ITS SUBSEQUENT DECISIO N IN CASE OF CIT VS DEVI PRASAD VISHWANATH REPORTED IN 72 ITR 194 WHEREIN IT WAS HELD AS UNDER: ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 61 THERE IS NOTHING IN LAW WHICH PREVENTS THE ITO IN AN APPROPRIATE CASE IN TAXING BOTH THE CASH CREDIT, THE SOURCE AND NATU RE OF WHICH IS NOT SATISFACTORILY EXPLAINED AND THE BUSINESS INCOME ES TIMATED BY HIM UNDER SECTION 13 AFTER REJECTING THE BOOKS OF ACCOU NTS OF THE ASSESSEE AS UNRELIABLE. WHETHER IN A GIVEN CASE, THE ITO MAY TAX THE CASH CREDIT ENTERED IN THE BOOKS OF ACCOUNT OF THE BUSINESS AND AT THE SAME TIME, ESTIMATE THE PROFIT MUST HOWEVER DEPEND UPON THE FA CTS OF EACH CASE. 38. FURTHER, FROM A COMPUTATION STANDPOINT AS WELL, AS HELD BY THE HONBLE ANDHRA PRADESH HIGH COURT IN CASE OF INDWEL L CONSTRUCTIONS VS CIT 232 ITR 776 (AP), WHERE THE BOOKS OF ACCOUNTS A RE REJECTED, ALL THE DEDUCTIONS WHICH ARE REFERRED TO UNDER SECTION 29 A RE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIMA TE OF INCOME AND WHERE SUCH AN ESTIMATE IS MADE, IT IS IN SUBSTITUTI ON OF THE INCOME THAT IS TO BE COMPUTED UNDER SECTION 29 AND IT WAS HELD AS UNDER: THE PATTERN OF ASSESSMENT UNDER THE ACT IS GIVEN B Y SECTION 29 WHICH STATES THAT THE INCOME FROM PROFITS AND GAINS OF BU SINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINE D IN SECTIONS 30 TO 43D. SECTION 40 PROVIDES FOR CERTAIN DISALLOWANCES IN CERTAIN CASES NOTWITHSTANDING THAT THOSE AMOUNTS ARE ALLOWED GENE RALLY UNDER OTHER SECTIONS. THE COMPUTATION UNDER SECTION 29 IS TO BE MADE UNDER SECTION 145 ON THE BASIS OF THE BOOKS REGULARLY MAINTAINED BY THE ASSESSEE. IF THOSE BOOKS ARE NOT CORRECT OR COMPLETE, THE ASSESS ING OFFICER MAY REJECT THOSE BOOKS AND ESTIMATE THE INCOME TO THE B EST OF HIS JUDGMENT. WHEN SUCH AN ESTIMATE IS MADE IT IS IN SUBSTITUTION OF THE INCOME THAT IS TO BE COMPUTED UNDER SECTION 29. IN OTHER WORDS, AL L THE DEDUCTIONS WHICH ARE REFERRED TO UNDER SECTION 29 ARE DEEMED T O HAVE BEEN TAKEN ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 62 INTO ACCOUNT WHILE MAKING SUCH AN ESTIMATE. THIS WI LL ALSO MEAN THAT THE EMBARGO PLACED IN SECTION 40 IS ALSO TAKEN INTO ACCOUNT. 39. IN LIGHT OF ABOVE, IT CANNOT BE HELD THAT WHERE THERE ARE JUSTIFIABLE REASONS FOR INVOKING THE PROVISIONS OF SECTION 69C IN A PARTICULAR CASE, MERELY BECAUSE THE BOOKS OF ACCOUNTS HAVE BEEN REJE CTED AND NET PROFIT HAS BEEN ESTIMATED, IT WILL AUTOMATICALLY PR ECLUDE THE APPLICABILITY OF SECTION 69C OF THE ACT FOR THE REASON THAT THE S AME IS INDEPENDENT OF COMPUTATION OF INCOME UNDER SECTION 29 WHICH HAS BE EN SUBSTITUTED BY THE AO BY ESTIMATION OF PROFITS. 40. NOW COMING TO THE SPECIFICS OF THE TRANSACTION S UNDER CONSIDERATION, ON PERUSAL OF ANNEXURE 4 OF THE SPEC IAL AUDIT REPORT AND THE EXPLANATION OFFERED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT IS NOTED THAT IN ENTRIES STARTING FROM 1 TO 67 EXCEPT FOR ENTRIES AT ITEM NO. 40, 41, 42 & 49, THE RE ARE TRANSACTIONS WHERE THE AMOUNT HAS BEEN DEBITED UNDER VARIOUS EXP ENSE HEADS SUCH AS TRACTOR RENT, JCB PAYMENTS, GRIT EXPENSES, POST AND COURIER EXPENSE, FOOD& MISC EXPENSES , REPAIR & MAINTENANCE EXPENSES , TELEPHONE EXPENSES, PETROL AND FUEL EXPENSES, TENDER EXPENSES , HIRE AND RENT EXPENSES, MISC EXPENSES, WAGES AND LABOUR CHARGES, PLANT AND MACHINERY HIRE EXPENSES, MATERIAL EXPENSES, WATER & ELECTRICITY EXPENSES. SIMILARLY, ENTRY AT ITEM NO. 77, 89 & 91 RELATES TO PLANT AND MACHINERY HIRE CHARGES AND DEBITED TO PLANT AND MAC HINERY HIRE CHARGES. THESE EXPENSES HAVE THEREFORE BEEN DEBITE D IN THE VARIOUS EXPENSE HEADS AND THUS CONSIDERED FOR DRAWING UP TH E PROFIT/LOSS ACCOUNT BY THE ASSESSEE. GIVEN THAT THE NET RESULT S SO DECLARED IN THE ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 63 PROFIT/LOSS ACCOUNT HAS BEEN REJECTED BY THE AO, TH E SAID TRANSACTIONS CANNOT AGAIN BE DISALLOWED AS THE AO HAS ALREADY ES TIMATED THE NET PROFIT RATE. HENCE, THE ADDITIONS ON ACCOUNT OF THE SE TRANSACTIONS ARE HEREBY DELETED. 41. IN RESPECT OF TRANSACTIONS REPORTED AT ITEM NO. 40, 41, 42, 84 & 92, AS PER THE ASSESSEES EXPLANATION, THE SAME HAVE BE EN DEBITED TO VARIOUS SITE ADVANCES ACCOUNT. NO EXPLANATION HAS B EEN OFFERED AS TO WHETHER DURING THE YEAR, THE EXPENDITURE HAS BEEN I NCURRED OUT OF SUCH ADVANCES AND TRANSFERRED/DEBITED TO THE PROFIT/LOSS ACCOUNT. GIVEN THAT THESE ARE SITE ADVANCES AND NOT NECESSARILY RESULTE D IN AN EXPENDITURE WHICH CAN BE SAID TO HAVE BEEN INCURRED DURING THE FINANCIAL YEAR, NO ADDITION ON ACCOUNT OF THESE TRANSACTIONS IS CALLED FOR AND HENCE, THE SAME IS DELETED. 42. IN RESPECT OF TRANSACTIONS REPORTED AT ITEM NO. 75, IT RELATES TO JEWELLERY PURCHASE, ITEM NO. 76 RELATES TO COMMISSI ON PAYMENT TO ASFAQ AND DEBITED TO HIS ACCOUNT, ITEM NO. 79 RELATES TO WITHDRAWALS OF SUBHASJI NOT ACCOUNTED FOR, ITEM NO. 81 RELATES TO PAYMENT TO BOBBYJI, THESE ARE PAYMENTS NOT RELATED TO DETERMINATION OF PROFIT/LOSS ACCOUNT. FURTHER, NO SUITABLE EXPLANATION HAS BEEN OFFERED B Y THE ASSESSEE AND HENCE, THE ADDITIONS ON THIS ACCOUNT ARE CONFIRMED. 43. IN RESPECT OF TRANSACTIONS REPORTED AT ITEM NO. 78 RELATES TO PAYMENT TO VIJAY BHAI AND DEBITED TO BALAJI SALES C ORPORATION, ITEM NO. 82 PAID AND DEBITED TO MILAN MOTORS THROUGH SITE AD VANCE ACCOUNT. IT APPEARS THAT THESE ARE NOT IN THE NATURE OF ADVANCE S BUT ACTUAL EXPENDITURE WHICH HAS BEEN INCURRED DURING THE YEAR AND HENCE, ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 64 CONSIDERED WHILE WORKING OUT THE NET PROFIT RATE BY THE AO. HENCE, THE ADDITIONS ON ACCOUNT OF THESE TRANSACTIONS ARE HERE BY DELETED. 44. IN RESPECT OF TRANSACTIONS REPORTED AT ITEM NO. 85, 86, 87 AND 88 OF ANNEXURE 4 OF THE SPECIAL AUDIT REPORT, IT IS BASED ON ANNEXURE A-22 IMPOUNDED DURING THE COURSE OF SURVEY AND THE SPECI AL AUDITOR HAS STATED THAT THESE WERE ILLEGAL PAYMENTS MADE TO VAR IOUS FUNCTIONARIES OF RIICO AND DEBITED TO OTHER DEBTORS ACCOUNTS IN THE ASSESSEES BOOKS OF ACCOUNT. 45. IN THIS REGARD, NOW LETS EXAMINE THE EXPLANATI ON OF THE ASSESSEE BEFORE THE AO WHERE THE ASSESSEE STATES THAT: A-22 IS PART OF ASSESSEE-CASH BOOK DIARY AS WE H AVE MENTIONED ABOVE THAT ALL THE ENTRY WHETHER YOU HAVE CONSIDERE D LEGAL OR ILLEGAL ARE IN THE HAND OF THE DIARY OF THE ASSESSEE, IF NOT EN TERED IT IS NOT RELATED TO ASSESSEE. THERE ARE MARKING OF PAYMENT TO PERSON AS MENTIONED IN THAT COLUMN.THE ASSESSEE ENTERED IN BOOKS OF ACCOU NTS ALSO AS MENTIONED IN OTHER DEBTORS ACCOUNT/SITE ADVANCES AC COUNT. AS PER RECORDS THESE AMOUNT IS RECOVERABLE AND NOT DEBITED IN PROFIT & LOSS ACCOUNT .. HOW CAN WE SAY ILLEGAL PAYMENT. IS ANY WHERE MENTIONED ILLEGAL . IN CASE ILLEGAL AND NOT DEBITED IN PROFI T AND LOSS ACCOUNT BUT AMOUNT IN DEBTORS ACCOUNT, HOW CAN IT MAY BE ADDED IN THE TOTAL INCOME OF THE ASSESSEE. 46. ON PERUSAL OF THE ABOVE EXPLANATION OF THE ASSE SSEE, IT IS CLEAR THAT THE ASSESSEE HAS ADMITTED THESE PAYMENTS HAVE BEEN ENTERED IN HIS OWN HANDWRITING IN ASSESSEES CASH BOOK AS IMPOUNDE D DURING THE COURSE OF SURVEY. THE ASSESSEE HAS ALSO ADMITTED T HAT WHERE THE ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 65 AMOUNTS ARE MENTIONED IN THE DEBTORS ACCOUNTS, THES E ARE RECOVERABLE AMOUNT AND HENCE, NOT DEBITED IN THE PROFIT/LOSS AC COUNT. IN LIGHT OF ABOVE EXPLANATION, IT IS CLEAR THAT THE SUBJECT PAY MENTS HAVE BEEN MADE DURING THE FINANCIAL YEAR AND ARE NOT DEBITED TO THE PROFIT/LOSS ACCOUNT. WHERE THE AMOUNT IS NOT DEBITED IN THE PR OFIT/LOSS ACCOUNT SO PREPARED BY THE ASSESSEE, THERE IS NO BASIS TO HOLD THAT SINCE THE AO HAS REJECTED THE RESULTS AS DECLARED IN THE PROFIT/ LOSS ACCOUNT, THE AO WOULD BE PRECLUDED IN EXAMINING THESE TRANSACTIONS AND BRINGING IT TO TAX UNDER SECTION 69C OF THE ACT. 47. AS FAR AS ASSESSEES CONTENTION THAT THESE ARE TRADE ADVANCES WHICH ARE RECOVERABLE, NO CREDIBLE VERIFIABLE EVIDENCE HA S BEEN FURNISHED WHICH SUPPORTS SUCH CONTENTIONS OF THE ASSESSEE. I N ANY CASE, THESE ARE THE PAYMENTS WHICH THE SPECIAL AUDITOR HAS STAT ED TO BE MADE TO VARIOUS FUNCTIONARIES OF RIICO AND WE DONT UNDERST AND THE BASIS OF ASSESSEES EXPLANATION THAT THESE ARE RECOVERABLE A ND NO WORK ORDER HAS BEEN SECURED FROM RIICO AND THESE CANNOT BE CAL LED AS ILLEGAL PAYMENTS. IN OTHER WORDS, CAN IT BE SAID THAT THESE ARE ADVANCES TO RIICO FUNCTIONARIES AND WHERE THE WORK ORDER IS NOT FINALLY AWARDED, THE SAME WOULD BE RECOVERABLE. THE FACT REMAINS THA T THESE ARE PAYMENTS WHICH ARE MADE DURING THE YEAR AND THOUGH REFLECTED AS PART OF DEBTORS/ADVANCES IN THE BALANCE SHEET BUT IN REA LITY ARE NOT IN THE NATURE OF TRADE DEBTORS AND TRADE ADVANCES. WHERE T HE PAYMENTS ARE NOT IN THE NATURE OF TRADE DEBTORS OR TRADE ADVANCE S, THE RESULTANT IMPACT OF SUCH TRANSACTION ON THE INCOME AND EXPEND ITURE, IF ANY CANNOT BE SAID TO BE REFLECTED IN THE PROFIT/LOSS A CCOUNT OF THE ASSESSEE. THEREFORE, WHERE THE ASSESSEES RESULTS AS PER ITS PROFIT/LOSS ACCOUNT IS ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 66 REPLACED BY THE AO BY HIS OWN ESTIMATION, IT CANNOT BE SAID THAT SUCH TRANSACTIONS ARE ALSO SUBSUMED IN THE OVERALL TRANS ACTIONS, THE RESULTS OF WHICH ARE SUBSTITUTED BY THE AO. THESE ARE INDE PENDENT TRANSACTIONS WHAT ARE BROUGHT TO TAX UNDER SECTION 69C BY THE AO AND TO ESCAPE THE RIGOUR OF SECTION 69C, THE ASSESSEE H AS TO COME FORWARD AND OFFER AN EXPLANATION JUSTIFYING THE SOURCE OF S UCH EXPENDITURE. IN THE INSTANT CASE, WE HOWEVER DONOT ANY EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE WHICH HAS BEEN SUBMITTED BY THE ASSESSEE TO THE SATISFACTION OF THE AO. 47. EVEN BEFORE THE LD CIT(A), THE ASSESSEE HAS SUB MITTED THAT WHERE THE AO HAS ACCEPTED THE TURNOVER AND G.P HAS BEEN A PPLIED, THERE IS NOTHING TO ADD SEPARATELY. IT WAS FURTHER SUBMITTE D THAT THE LD AO HAS NOT PROVED ANY OTHER SOURCE OF INCOME TO MITIGATE T HESE EXPENSES AND UNLESS THERE IS EXTRA INCOME, THE ADDITION IS UNWAR RANTED U/S 69C. THE LD CIT(A) HAS ACCEPTED THE SAID CONTENTION AND HELD THAT THE AO HAS TO PROVE THAT THERE WERE RECEIPTS OUTSIDE THE BOOKS OF ACCOUNTS WHICH FACILITATED CARRYING OUT THE ILLEGAL EXPENSE PAYMEN TS TO THAT EXTENT. WE ARE HOWEVER UNABLE TO AGREE TO SAID CONTENTIONS OF THE ASSESSEE AND THEREFORE, UNABLE TO CONFIRM THE FINDINGS OF THE LD CIT(A) AS WELL. IN OUR VIEW, THE PROVISIONS OF SECTION 69C, AS WE HAVE SEEN ABOVE, ARE CRYSTAL CLEAR AND THERE IS NO IOTA OF DOUBT IN OUR MIND THAT WHERE THE AO HAS NOTICED THAT CERTAIN EXPENDITURE HAS BEEN IN CURRED BY THE ASSESSEE, THE PRIMARY ONUS TO DISCHARGE IS CLEARLY ON THE ASSESSEE TO PROVIDE AN EXPLANATION RELATING TO SOURCE OF SUCH E XPENDITURE TO THE SATISFACTION OF THE AO. IT IS THE ASSESSEE WHO HAS INCURRED THE EXPENDITURE AT FIRST PLACE AND IT IS HE WHO HAS TO DEMONSTRATE THAT THE ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 67 EXPENDITURE HAS BEEN INCURRED FROM KNOWN SOURCES OF HIS INCOME. WHERE HE FAILS TO DEMONSTRATE, THE CONSEQUENCES OF SECTION 69C WILL FOLLOW. EVEN GOING BY THE ASSESSEES CONTENTIONS, WE FIND THAT THE LD CIT(A) HAS HIMSELF CONFIRMED THE ADDITION ON ACCOUN T OF UNDISCLOSED INCOME OF RS 4,51,513 AND TO THAT EXTENT, THE FINDI NGS OF THE LD CIT(A) ARE SELF-CONTRADICTORY. 48. IN LIGHT OF ABOVE DISCUSSIONS, IN RESPECT OF TR ANSACTIONS REPORTED AT ITEM NO. 85, 86, 87 AND 88 OF ANNEXURE 4 OF THE SPE CIAL AUDIT REPORT, THE ADDITION MADE BY THE AO U/S 69C AMOUNTING TO RS 14 LACS IS HEREBY CONFIRMED. 49. NOW COMING TO TRANSACTIONS REPORTED AT ITEM NO. 68, 69,70,71,72, 73 AND 74 BASED ON ANNEXURE A-24 IMPOUNDED DURING T HE COURSE OF SURVEY AND AS REPORTED AS PART OF ANNEXURE 4 OF THE SPECIAL AUDIT REPORT, THE SPECIAL AUDITOR HAS STATED THAT THESE A RE POOL PAYMENTS AND IN THE NATURE OF ILLEGAL PAYMENTS MADE TO FUNCTIONA RIES OF RIICO BY THE ASSESSEE. ONLY DISTINCTION THAT WE OBSERVE HERE IS THAT UNLIKE ENTRIES AT TRANSACTIONS REPORTED AT ITEM NO. 85, 86, 87 AND 88 OF ANNEXURE 4 OF THE SPECIAL AUDIT REPORT, WHICH WE HAVE EXAMINED EA RLIER, THERE IS NO FINDING EITHER BY THE SPECIAL AUDITOR OR BY THE AO THAT THESE TRANSACTIONS WERE ENTERED IN THE SEIZED CASH BOOK OR IN THE BOOK S OF ACCOUNTS. THEREFORE, THE BASIS OF OBSERVATIONS MADE BY THE SP ECIAL AUDITOR IS THE DOCUMENT REFERRED TO AS ANNEXURE A-24 WHICH WAS IMP OUNDED DURING THE COURSE OF SURVEY AND WHICH HAS BEEN CONTESTED B Y THE ASSESSEE STATING THAT THE SAME CANNOT BE HELD AS A RELIABLE PIECE OF EVIDENCE AND CANNOT BE HELD AGAINST IT. THE ASSESSEE HAS CONTEN DED THAT THERE IS NO DATE ON THE SEIZED PAPER, NOWHERE IT WAS MENTIONED POOL AND HOW CAN ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 68 THE AUDITOR HAS MENTIONED AS POOL PAYMENT. IT MAY BE PART OF DISCUSSION TO GIVE THE WORK ON SUB CONTRACT OR ESTI MATION OR DISCUSSION. NO WHERE RECORDED IN SEIZED CASH BOOK AS IS THE CAS E IN RESPECT OF ITEMS RECORDED IN S.NO. 84-88 AND CONSIDER ILLEGAL EXPENSE AND IT WAS UNJUSTIFIED TO MENTION POOL PAYMENT OR TO CONSIDER ILLEGAL EXPENSES. ON PERUSAL OF THE ORDER OF THE LD CIT(A), WE HOWEVER D ONOT SEE A SPECIFIC FINDING OF THE LD CIT(A) WHICH HAS ADDRESSED THE MA TTER IN LIGHT OF DOCUMENTS MARKED AS ANNEXURE A-24 IMPOUNDED DURING THE COURSE OF SURVEY AND THE CONTENTIONS SO ADVANCED BY THE ASSES SEE. IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE HEREBY SET-AS IDE THE MATTER FOR THE LIMITED PURPOSES OF EXAMINING ANNEXURE A-24 IMPOUND ED DURING THE COURSE OF SURVEY AND THE ITEMS REFLECTED AT ITEM NO . 68, 69,70,71,72, 73 AND 74 BASED ON ANNEXURE A-24 AND AS REPORTED AS PART OF ANNEXURE 4 OF THE SPECIAL AUDIT REPORT, AND TAKING INTO CONS IDERATION THE FINDINGS OF THE SPECIAL AUDITOR, TO DECIDE AS PER LAW AS TO WHETHER THE PROVISIONS OF SECTION 69C ARE ATTRACTED IN THE INSTANT CASE OR NOT. NEEDLESS TO SAY, BOTH THE REVENUE AND THE ASSESSEE WOULD BE PROVIDED REASONABLE OPPORTUNITY TO REPRESENT THEIR CASE BEFORE THE LD C IT(A). IN THE RESULT, THE APPEAL OF THE ASSESSEE AND THE R EVENUE ARE DISPOSED OFF WITH ABOVE DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 09/10/2017 SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER ITA NO. 434 & 617/JP/2016 SH. SUBHASH PARETA, KOTA VS. ACIT, KOTA 69 TK;IQJ@ JAIPUR FNUKAD@ DATED:- 09/10/2017. * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SUBHASH PARETA, KOTA 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-1, KOTA 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 434 & 617/JP/2016} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR