BHARTIYA SPINNERS LTD., Jaipur V. DCIT, Ajmer

ITA 447/JPR/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5158 (ITAT-JAIPUR)
• Duration Of Justice: 5 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 29-03-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 13-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MEENA CIT DHK
• Assessee Lawyers: F REHMAN S
• Keywords: Unexplained investment; Capital asset; Business income; Depreciation; Business expenditure; Income from undisclosed sources; Search and seizure; Loose papers; Peak credit; Rule of consistency; Additional evidence; Corroborative evidences; Block assessment; Onus to prove
• Section: 43B; 143(3); 133A; 153A; 132; 144; 15

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 VH-VKJ-EHUK] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF; D LNL; DS LE{K BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA-@ ITA NO. 447, 448, 449, 450, 451, 452, 453/JP/2011 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2001-02, 02-03,03-04, 04-05, 05-06, 06-07, 07-08 M/S. BHARTIYA SPINNERS LTD., GANESHPURA, GANGAPUR, DIST. BHILWARA. CUKE VS. THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3, AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AAACB 5566 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 488, 489, 490 & 491/JP/2011 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2003-04, 04-05, 05-06, 07-08 THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3, AJMER. CUKE VS. M/S. BHARTIYA SPINNERS LTD., GANESHPURA, GANGAPUR, DIST. BHILWARA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AAACB 5566 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MAHENDRA GARGIEYA & SHRI F. REHMAN (ADVOCATES) JKTLO DH VKSJ LS@ REVENUE BY : SHRI M.S. MEENA (CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 11.05.2016. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 22/06/2016. VKNS'K@ ORDER PER SHRI LALIET KUMAR, J.M. THESE ARE SEVEN APPEALS FILED BY THE ASSESSEE AND FOUR CROSS APPEALS FILED BY THE REVENUE AGAINST THE COMMON ORDER OF LD. CIT (AP PEALS), CENTRAL, JAIPUR DATED 04.03.2011 FOR THE A.YS. 2001-02 TO 2007-08. THE G ROUNDS RAISED BY THE ASSESSEE 2 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. IN ALL THE APPEALS ARE SAME EXCEPT CHANGE IN FIGURE S. THEREFORE, THE GROUNDS RAISED BY THE ASSESSEE IN ITA NO. 447/JP/2011 ARE REPRODUC ED AS UNDER :- 1. THE IMPUGNED ADDITIONS AND DISALLOWANCES MADE IN TH E ORDER U/S 153A/143(3) R/W SEC. 153B OF THE ACT DATED 15.12.20 08 ARE BAD IN LAW AND ON FACTS OF THE CASE, FOR WANT OF JURISDICT ION AND VARIOUS OTHER REASONS AND HENCE THE SAME KINDLY BE DELETED. 2.1. RS. 1,77,900/-: THE LD. CIT (A) FURTHER ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING NP RATE OF 7.43 % AS APPLIED BY THE AO AS AGAINST NP RATE OF 1.50% DECLARED BY THE APPE LLANT AND THUS THEREBY NOT ALLOWING THE EXPENSES CLAIMED. THE NP R ATE SO APPLIED AND CONFIRMED IS TOTALLY CONTRARY TO THE PROVISIONS OF LAW AND FACTS ON THE RECORD AND HENCE THE NP RELATING TO THE UNRECORDED SALES, AS DECLARED, KINDLY BE ACCEPTED. 2.2. THE LD. CIT (A) ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE UNACCOUNTED TURNOVER FOR VARIOUS YEA RS FROM AY 2001- 02 TO 2007-08 AT RS. 30,18,35,182/- COMPUTED BY THE AO, AS AGAINST SUCH TURNOVER DECLARED BY THE APPELLANT AT RS. 25.9 5 CRORE. THE ENHANCEMENT IN THE TURNOVER, SO MADE AND CONFIRMED, BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS, KINDLY BE REDUC ED AND THE DECLARED TURNOVER BE DIRECTED TO BE ACCEPTED. THE ADDITION, SO MADE ON THIS BASIS BE ALSO DIRECTED TO BE REDUCED TO THIS EXTENT . THE RESULTANT ADDITION, SO MADE BEING TOTAL CONTRAR Y TO THE PROVISIONS OF LAW AND FACTS ON THE RECORD, THE SAME MAY KINDLY BE DELETED IN FULL. 3. RS. 53,691/-: THE LD. CIT (A) ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE OF THE FOLL OWING EXPENSES : S. NO. HEAD OF EXPENSES EXPENSES CLAIMED % DISALLOWED BY THE AO ADDITION BY THE AO SUSTAINED BY THE LD. CIT(A) 1. LOSS ON SALE OF FIXED ASSETS RS. 52,669/ - 100% RS. 52,669/ - RS. 52,669/ - 2. DEPRECIAT ION RS.102,209/ 10% RS.1,022/ - RS. 1,022/ - TOTAL RS.53,691/ - RS.53,691/ - 3 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. THE DISALLOWANCE SO MADE AND CONFIRMED BY THE LD. C IT (A) BEING TOTALLY CONTRARY TO THE PROVISIONS OF LAW AND FACTS OF THE CASE, KINDLY BE DELETED IN FULL. 4. THE LD. CIT (A) ERRED IN LAW AS WELL AS ON THE FACT S OF THE CASE IN CONFIRMING THE APPROACH OF THE AO IN COMPUTING AND CONSIDERING THE PEAK OF THE MONEY LENDING BUSINESS AS THE INCOM E TO BE ADDED EACH YEARS SEPARATELY AS AGAINST THE PEAK OF SUCH I NVESTMENT WORKED OUT BY THE APPELLANT IN ONE YEAR ALONE I.E. IN AY 2007-08 (OUT OF THE BLOCK OF SEVEN YEAR). THE APPROACH SO A DAPTED BY THE AO AND CONFIRMED BY THE CIT (A) BEING CONTRARY TO T HE PROVISIONS OF LAW AND FACTS, THE APPROACH AS ADOPTED BY THE APPEL LANT BE ACCEPTED AND BE DIRECTED ACCORDINGLY. 5. RS. 10,12,000/-: THE LD. CIT (A) ERRED IN LAW AS WE LL AS ON THE FACTS OF THE CASE IN CONFIRMING ADDITION OF RS. 10,12,000 /- ON ACCOUNT OF THE INVESTMENT IN MONEY LENDING BUSINESS. THE ADDIT ION, SO MADE AND CONFIRMED BY THE LD. CIT (A) IS TOTALLY CONTRAR Y TO THE PROVISIONS OF LAW AND FACTS ON THE RECORD AND HENCE THE SAME K INDLY BE DELETED IN FULL. 6. RS. 1,49,89,763/-: THE LD. AO ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN MAKING A SEPARATE TRADING ADDITION ON A CCOUNT OF THE ALLEGED UNACCOUNTED SALES, EXCESS STOCK, SHORT STOC K AND THE DISALLOWANCE U/S 43B OF THE ACT MADE BY THE PREDECE SSOR AO IN THE ORIGINAL ASSESSMENT PROCEEDINGS ALSO. THE ADDITION SO MADE, BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS MAY KIN DLY BE DELETED IN FULL. WE FIRST TAKE UP APPEAL IN ITA NO. 447/JP/2011 FOR A.Y. 2001-02 AND DECIDE THE SAME TAKING IT AS BASE YEAR. THE DECISION ARRIVED A T IN THIS APPEAL WILL BE APPLICABLE TO ALL THE APPEALS FILED BY THE ASSESSEE. 2. THE ASSESSEE HAS ALSO TAKEN AN ADDITIONAL GROUND VIDE LETTERS DATED 10.05.2016 FOR THE ASSESSMENT YEARS 2001-02, 02-03, 03-04, 04-05 & 05-06 WHICH READS AS UNDER :- THERE BEING NO PENDENCY OF ASSESSMENT PROCEEDINGS ON THE DATE OF SEARCH I.E. DATED 23.03.2007 HENCE, THE IMPUGNED AS SESSMENT ORDER DATED 15.12.2008 U/S 153A/143(3) R/W SEC. 153B OF T HE ACT FRAMED PURSUANT TO NOTICE U/S 153A OF THE ACT IS BAD IN LA W WITHOUT JURISDICTION AND HENCE, KINDLY BE QUASHED. 4 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. 2.1. BRIEF GENERAL FACTS: THE BRIEF FACTS AS NOTED BY THE AO AT PG 1 OF THE IMPUGNED ORDER FOR A.Y. 2001-02 ARE THAT THE ASSESS EE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING & TRADING OF COTTON YARN, COTTON, MONEY LENDING AND FINANCIAL ACTIVITIES. THE ASSESSEE COMP ANY FILED RETURN OF INCOME FOR A.Y. 2001-02 ON 29.10.2001 AND THE ASSESSMENT U/S 143(3) WAS COMPLETED ON 15.03.2004. IN THE FIRST APPEAL, THE LD. CIT(A)-MUM BAI, PARTLY ALLOWED THE APPEAL VIDE ORDER DATED 29.06.2005 AND INCOME OF THE ASSES SEE WAS DETERMINED AT RS.`NIL` AFTER ALLOWING SET-OFF OF BUSINESS LOSS FO R THE A.Y.1997-98 OF RS.1,27,557/-. A SEARCH OPERATION U/S 132 WAS CARRIED OUT AT THE R ESIDENTIAL AND BUSINESS PREMISES OF SHRI CHETAN PRAKASH AGARWAL, DIRECTOR AND OF M/S BHARTIYA SPINNERS LTD. GROUP OF GANGAPUR ON DATED 22.03.2007. LATER ON, WHEN NOTICE U/S 153A WAS ISSUED ON 13.03.2008, ANOTHER RETURN WAS FILED IN RESPONSE ON 20.03.2008 DECLARING TOTAL LOSS OF RS.5,94,635/- . LD AR FOR THE ASSESSE HAS SUBMITTED THAT BY THE VAR IOUS JUDICIAL PRONOUNCEMENTS THAT IN ABSENCE OF ANY INCRIMINATING MATERIAL CONCERNING THE ADDITION, FOUND DURING THE COURSE OF THE SEARCH, NO ADDITION CAN BE MADE U/S 1 53A PARTICULARLY WHEN THE ASSESSMENT PROCEEDING RELATING TO THAT YEAR ARE NOT PENDING. IN THE PRESENT CASE, THE TRADING ADDITION WERE MADE BY THE AO BASED ON THE ALLEGATION OF THE SUPPRESSED SALES IN THE SHAPE OF VARIOUS BANK DEPOS ITS, WAS NOT THE OUTCOME OF ANY SEIZED/INCRIMINATING MATERIAL FOUND DURING THE COUR SE OF THE SEARCH. THE LD AR FURTHER SUBMITTED THAT THIS FACT IS FULLY EVI DENCED BY THE VERY FACT THAT IN THE ENTIRE IMPUGNED ORDER, THE AO HAS NOT AT ALL REFERRED TO ANY SUCH SEIZED MATERIAL BY GIVING SPECIFIC DOCUMENT NO./ANNEXURE NO, IF THE Y WERE REALLY SO SEIZED. IN FACT, 5 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. THE VARIOUS BANK ACCOUNTS WHICH WERE SHOWING THE BA NK DEPOSITS I.R.T. UNDISCLOSED SALES, WERE OBTAINED BY THE ASSESSEE AFTER MAKING G REAT EFFORTS AND IT WAS THE ASSESSEE WHO SUPPLIED THESE BANK STATEMENTS AFTER T HE COMPLETION OF THE SEARCH (KINDLY REFER LETTER DATED 14.04.2008) (PB-II 137 PARA12). MOREOVER, EVEN DURING THE COURSE OF THE STATEMENTS RECORDED U/S 132(4) ON DATED 22.03.2007 OF THE DIRECTOR SH. CHETAN PRAKASH AGARWAL (NOR FROM OTHER S) (PB 205-214) , NO SPECIFIC QUESTION WAS EVER ASKED SEEKING CLARIFICATION, ON T HE SEIZED DOCUMENT RELATING TO UNDISCLOSED BANK DEPOSIT/UNRECORDED SALES AND EARNI NGS OF PROFIT THEREON, IF REALLY ANY SUCH INCRIMINATING MATERIAL WAS FOUND AND SEIZE D DURING SEARCH. IN VIEW OF THESE ADMITTED FACTS AND CIRCUMSTANCES THEREFORE, T HE ENTIRE IMPUGNED ADDITION MADE IN AY 2001-02 AND ONWARDS BY THE AO AND PARTLY REDUCED BY THE CIT(A) ON MERITS, DESERVES A COMPLETE DELETION. LD AR ALSO RE LIES UPON CIT VS KABUL CHAWLA (2015) 93 CCH 210(DEL) (DPB 1-11) STATING AS UNDER : ADDITION NEED NOT BE RESTRICTED ONLY TO THE SEIZED MATERIALITAT ON APPEAL HOWEVER DELETED ADDITION ON GROUNDS THAT THE ADDITI ONS MADE FOR RELEVANT AYS U/S 2(22)(E) WERE NOT BASED ON ANY INCRIMINATI NG MATERIAL FOUND DURING SEARCH OPERATION AND SAME WAS NOT SUSTAINABLE IN LA WISSUE WAS WHETHER THE ADDITIONS MADE TO THE INCOME OF THE ASSESSEE FO R THE SAID AYS U/S 2(22)(E) WAS NOT SUSTAINABLE BECAUSE NO INCRIMINATI NG MATERIAL CONCERNING SUCH ADDITIONS WERE FOUND DURING THE COURSE OF SEAR CH AND FURTHER NO ASSESSMENTS FOR SUCH YEARS WERE PENDING ON THE DATE OF SEARCHHELD, PRESENT APPEALS CONCERNED AYS, 2002-03, 2005-06 AND 2006-07ON THE DATE OF THE SEARCH THE SAID ASSESSMENTS ALREADY STOOD CO MPLETEDSINCE NO INCRIMINATING MATERIAL WAS UNEARTHED DURING THE SEA RCH, NO ADDITIONS COULD HAVE BEEN MADE TO THE INCOME ALREADY ASSESSEDQUEST ION FRAMED BY THE COURT WAS ANSWERED IN FAVOUR OF THE ASSESSEE AND AG AINST THE REVENUE REVENUES APPEAL DISMISSED LD AR ALSO RELIES UPON SHRI BASANT BANSAL VS. ACIT (ITAT JAIPUR) IN I.T.A. NO. 534/JP/2012 DATED 29.05.2015 (DPB 29-30), PR. CIT VS. LATA JAIN (DELHI HIGH COURT) 6 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. IN CM NO. 15007/2016 DATED APRIL 29, 2016 (DPB-31) AND SHRI JIGNESH P. SHAH IN I.T.A. NO. 1553 & 3173/MUM/2010 DATED 13.02.2015. ( DPB-32) . 2.3 LD AR FURTHER SUBMITTED THAT SIMPLY BECAUSE THE AS SESSEE, ON ITS OWN HAS DISCLOSED SOME INFORMATION IN THE RETURN OF INCOME AFTER THE ISSUANCE OF NOTICE U/S 153A CONCERNING THE BANK DEPOSITS TO BE THE UNRECOR DED SALES, THAT DOES NOT BY ITSELF PROVIDES A VALID JURISDICTION TO THE AO TO M AKE THE ASSESSMENT OF SUCH TRANSACTION AT LEAST U/S 153A. THE INCOME TAX LAW P ROVIDES VARIOUS PROVISIONS VIZ S.154, 148, 263 ETC AND THE ASSESSING OFFICER ONLY REMAINING WITHIN THE FOURWALLS/ COMPLYING WITH THE SPECIFIC CONDITION LAID UNDER PA RTICULAR PROVISION OF LAW, CAN MAKE AN ASSESSMENT UNDER THAT PARTICULAR PROVISION ONLY HOWEVER, THE LAW DO NOT PERMIT THE AO TO INVOKE A WRONG PROVISION OF LAW AND TO AS SESS THE INCOME. 2.4 FIRST WE WILL DECIDE THE ADDITIONAL GROUND. W E HAVE CONSIDERED THE GROUND TAKEN BY THE ASSESSEE. AFTER CONSIDERING THE VARIO US JUDICIAL PRONOUNCEMENTS, WE FIND THAT THE GROUND OF THE ASSESSEE IS NOT TENABLE . THE ADDITIONS WERE MADE BY THE AO ON THE BASIS OF THE INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH AT THE PREMISES OF THE COMPANY AS WELL AS OF ITS DIREC TORS. ADMITTEDLY UNDISCLOSED BANK ACCOUNTS WERE ALSO CAME TO THE NOTICE OF THE REVENU E DURING THE COURSE OF SEARCH WHERE UNACCOUNTED AMOUNTS WERE DEPOSITED BY THE ASS ESSEE. THEREFORE IN OUR VIEW THE ADDITIONAL GROUND IS REQUIRED TO BE DISMISSED A S THE INCRIMINATING MATERIAL / INFORMATION FOUND DURING THE COURSE OF SEARCH. IN S UPPORT, WE PLACE RELIANCE ON THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN TH E CASE OF CIT (CENTRAL)-III VS. 7 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. KABUL CHAWLA, (2015) 61 TAXMAN.COM 412 (DELHI) WHER EIN THE HONBLE HIGH COURT HAS OBSERVED AS UNDER :- (VII) COMPLETED ASSESSMENTS CAN BE INTERFERED WITH BY THE ASSESSING OFFICER WHILE MAKING THE ASSESSMENT UNDER SECTION 1 53A ONLY ON THE BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURI NG THE COURSE OF SEARCH OR REQUISITION OF DOCUMENTS OR UNDISCLOSED I NCOME OR PROPERTY DISCOVERED IN THE COURSE OF SEARCH WHICH W ERE NOT PRODUCED OR NOT ALREADY DISCLOSED OR MADE KNOWN IN THE COURSE OF ORIGINAL ASSESSMENT. [PARA 37] IN VIEW OF THE ABOVE, WE REJECT THE ADDITIONAL GROU ND OF THE ASSESSEE. 3. WE NOW TAKE UP OTHER GROUNDS OF APPEAL RAISED BY THE ASSESSEE AS UNDER : 3.1. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING & TRADING OF COTTON YARN, COTTON, MONEY LENDING AND FINANCIAL ACTIVITIES. THE ASSESSEE COMP ANY FILED RETURN OF INCOME FOR A.Y. 2001-02 ON 29.10.2001 AND THE ASSESSMENT U/S 143(3) WAS COMPLETED ON 15.03.2004. IN THE FIRST APPEAL, THE LD. CIT(A)-MUM BAI, PARTLY ALLOWED THE APPEAL VIDE ORDER DATED 29.06.2005 AND INCOME OF THE ASSES SEE WAS DETERMINED AT RS.`NIL` AFTER ALLOWING SET-OFF OF BUSINESS LOSS FO R THE A.Y.1997-98 OF RS.1,27,557/-. 3.2. A SEARCH OPERATION U/S 132 WAS CARRIED OUT AT THE RESIDENTIAL AND BUSINESS PREMISES OF SHRI CHETAN PRAKASH AGARWAL, DIRECTOR A ND OF M/S BHARTIYA SPINNERS LTD. GROUP OF GANGAPUR ON DATED 22.03.2007. LATER ON, WH EN NOTICE U/S 153A WAS ISSUED ON 13.03.2008, ANOTHER RETURN WAS FILED IN RESPONSE ON 20.03.2008 DECLARING TOTAL LOSS OF RS.5,94,635/- FOR THE A.Y. 2001-02. THE ASS ESSMENT WAS HOWEVER, COMPLETED AT TOTAL INCOME OF `NIL` AFTER ALLOWING SET OFF OF UNABSORBED BUSINESS LOSS FOR THE 8 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. A.Y. 1998-99, 1999-00 AND 2000-01 VIDE ORDER DATED 15.12.2008 U/S 153A R/W 153B\143(3). 4. GROUND NO. 1 RELATES TO ADDITIONS AND DISALLOWANCES MADE U/S 15 3A/143(3) R/W SEC. 153B OF THE ACT ARE BAD IN LAW AND ON FACT S FOR WANT OF JURISDICTION AND VARIOUS OTHER REASONS. 4.1. THE AO HELD THAT ON THE BASIS OF SEARCH AND SE IZURE OPERATION CARRIED OUT AT THE RESIDENTIAL AND BUSINESS PREMISES OF SHRI CHETA N PRAKASH AGARWAL AND M/S. BHARTIYA SPINNERS LTD. GROUP OF GANGAPUR, DIST. BHI LWARA AND AT MUMBAI ON 22.03.2007, WHEREIN CASH AND OTHER INCRIMINATING DO CUMENTS WERE FOUND, JURISDICTION OVER THIS CASE HAS BEEN ASSIGNED TO AC IT (CENTRAL), AJMER AS PER ORDER U/S 127(2) OF I.T. ACT DATED 05.03.2008 OF COMMISSI ONER OF INCOME TAX-6, MUMBAI. LATER ON, THE JURISDICTION OVER THIS CASE WAS ASSIG NED TO DCIT CC-3, JAIPUR BY THE CIT (CENTRAL), JAIPUR VIDE ORDER U/S 127(2) OF THE IT ACT, NOTIFICATION NO. 02/08/09 DATED 17.11.2008. ACCORDINGLY, THIS CASE HAS BEEN ENTRUSTED TO DCIT (A), AJMER AND THEN DCIT CC-3, JAIPUR AND CARRIED OUT SCRUTINY ASSESSMENT PROCEEDINGS ON THE BASIS OF SEIZED MATERIALS BY INVOKING PROVISIONS OF SECTION 153A READ WITH SECTION 153B /143(3) OF IT ACT AND PASSED THE ASSESSMENT OR DER. 4.2. AS REGARDS JURISDICTION IS CONCERNED, THERE WA S NO GROUND BEFORE LD. CIT (A). WE HAVE DECIDED THIS ISSUE IN THE ADDITIONAL GROUND RAISED BY THE ASSESSEE FOR ALL THE ASSESSMENT YEARS IN QUESTION, AGAINST THE ASSES SEE, HEREINABOVE. THEREFORE, WE REJECT GROUND NO. 1 OF THE ASSESSEE. 9 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. 5. GROUND NO. 2.1 & 2.2 ARE INTER LINKED RELATES TO ADDITION OF RS. 1,77,9 00/- ON ACCOUNT OF UNACCOUNTED TURNOVER. THIS GROUND IS, COMMON IN THE APPEALS FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2001-02 TO 200 7-08 . THEREFORE WE SHALL BE DECIDING THESE ISSUE COLLECTIVELY IN THE FOREGOING PARAGRAPHS. 5.1. DURING THE COURSE OF SEARCH ON 22.03.2007 VARI OUS BANK ACCOUNTS HAVE BEEN FOUND IN WHICH UNRECORDED TRANSACTIONS HAVE BEEN IN CORPORATED. THE ASSESSEE, IN ITS RETURNS OF INCOME FILED FOR A.YS. 2001-02 TO 2007-0 8, HAS CATEGORICALLY ADMITTED THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF COTTON YARN AND TRADING OF COTTON AND COTTON YARN AND VARIOUS TRANSACTIONS HAVE BEEN MADE THROUGH BANK ACCOUNTS WHICH WERE USED TO DEPOSIT THE UNACCOUNTED SALE PROCEEDS AND WITHDRAW IN CASH FOR PURCHASE OF RAW MATERIAL. THE ASSESSEE WAS ALSO ENG AGED IN OPERATING OF SIMILAR BANK ACCOUNTS IN THE NAME OF VARIOUS BOGUS CONCERNS I.E. M/S. SHIVAM CORPORATIONS, PROP. SANJAY MATOLIYA, M/S. LOHIYA CORPORATION, PRO P. BHAGAT RAM LOHIYA, M/S. BALAJI COTTON CO., PROP. BASANT KUMAR BUDHIYA, M/S. TIRUPATI ASSOCIATES, PROP. SHRI MANISH JAIN, M/S. SHANKAR COTTON SUPPLIERS & M/S. A GARWAL TRADING CO., PROP. SHRI SHANKER LAL SALVI. THE ASSESSEE HAS APPLIED NET PR OFIT RATE OF 1.5% ON THE TOTAL UNDISCLOSED TURNOVER AS UNDER : A.Y. UNDISCLOSED TRANSACTIONS (RS. IN LACS) UNDISCLOSED INCOME BY APPLYING N.P. RATE OF 1.5% (RS. IN LACS. 2001 - 02 30 0.45 2002 - 03 75 1.15 2003 - 04 115 1.75 2004 - 05 275 4.15 2005 - 06 830 12.45 10 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. 2006 - 07 420 6.30 2007 - 08 850 12.75 TOTAL 2595 39.00 THE TOTAL AMOUNT DEPOSITED IN THESE BANK ACCOUNTS O PERATED IN THE NAME OF ABOVE SIX CONCERNS DURING THE YEARS UNDER CONSIDERATION W ORKS OUT TO RS. 32.97 CRORES. THE DEPOSITS INCLUDE INTER FIRM/INTER CONCERN ALSO. THE SE TRANSACTIONS ARE VOLUMINOUS AND IT IS NOT POSSIBLE TO SEGREGATE SUCH TRANSFERS. HOW EVER, ON AN AVERAGE BASIS THE ASSESSEE HAS WORKED OUT THE UNDISCLOSED INCOME AT R S. 39.00 LACS ON TOTAL UNDISCLOSED TRANSACTIONS OF RS. 25.95 CRORES AFTER CONSIDERING SUCH TRANSFERS @ 20%. THUS THE ASSESSEE SUBMITTED THAT AS PER DEPOSITS IN THE UNDISCLOSED/BENAMI BANK ACCOUNTS, THE TRANSACTIONS NOTED IN SEIZED LOOSE PA PERS, THE UNDISCLOSED INCOME WORKS OUT TO RS. 39.00 LACS. 5.2. ON BEING ASKED BY THE AO VIDE LETTER DATED 20. 03.2008 ABOUT THE NATURE AND SOURCE OF THESE ENTRIES IN BANK ACCOUNTS, THE LD. A /R VIDE HIS LETTER DATED 15.04.2008 HAS SUBMITTED THAT THE ASSESSEE HAS ALREADY DISCLOS ED THE UNDISCLOSED INCOME IN THE RETURNS OF INCOME FILED U/S 153A OF IT ACT, ON THE BASIS OF DEPOSITS IN VARIOUS BANK ACCOUNTS. WORKING OF UNDISCLOSED TURNOVER FROM THES E BANK ACCOUNTS OF ABOVE SIX CONCERNS AND SALES MADE AT MUMBAI IS AT RS. 33,89,9 4,028/- (RS 32,97,47,309/- AND RS. 92,46,719/- RESPECTIVELY) AS PER ANNEXURE-A PLA CED ON RECORD. 5.3. ON BEING FURTHER ASKED ABOUT THE CLAIM OF DEDU CTION @ 20% IN RESPECT OF INTER FIRM/INTER CONCERN TRANSFERS, IT IS SUBMITTED BY THE LD. A/R THAT THERE ARE VARIOUS INSTANCES WHERE VARIOUS INTER FIRM/CONCERNS BANKING TRANSACTIONS TOOK PLACE AS UNDER BUT THESE TRANSACTIONS ARE VOLUMINOUS AND IS NOT POSSIBLE TO SEGREGATE SUCH TRANSFERS AND THEREFORE, THE PERCENTAGE OF INTER TR ANSFERS HAS BEEN WORKED OUT. ON 11 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. BEING FURTHER ASKED ABOUT THE ACTUAL TRANSFER OF TR ANSACTIONS THAT TOOK PLACE, THE ASSESSEE SUBMITTED A CHART SUBJECT TO FURTHER MODIF ICATION AFTER VERIFICATION, WHICH SHOWS THE POSITION AS UNDER :- ASSESSMENT YEAR TOTAL DEPOSITED BY INTER TRANSFER 2001 - 02 RS. 15,00,000/ 2002 - 03 RS. 30,01,343/ - 2003 - 04 RS. 10,50,000/ - 2004 - 05 RS. 35,57,829/ - 2005 - 06 RS. 1,52,56,674/ - 2006 - 07 RS. 35,65,000/ - 2007 - 08 RS. 92,28,000/ - TOTAL RS. 3,71,58,846/ - HOWEVER, THE AO NOTICED THAT THE ASSESSEE COMPANY I TSELF HAS ADMITTED THAT COMPLETE SEGREGATION OF INTER TRANSFERS OF TRANSACT IONS FROM VARIOUS BANK ACCOUNTS IS NOT POSSIBLE AND FURTHER NO EVIDENCE IN THIS REGARD HAS BEEN PRODUCED BY THE ASSESSEE. THE DEDUCTION @ 20% ON ADHOC BASIS CAN N OT BE ALLOWED AND ACCORDINGLY THE SAME WAS CALCULATED ON ACTUAL BASIS OF SUCH TRA NSFERS ADMITTED AND ACCORDINGLY, OUT OF TOTAL OF UNRECORDED AMOUNT OF BANK TRANSACTI ONS OF RS. 33,89,94,028/- INCLUDING MUMBAI YARN SALES OF RS. 92,46,719/-, THE AO ALLOWED DEDUCTION OF RS. 3,71,58,846/- AND THE NET TURNOVER OF BANK TRANSACT IONS IS TAKEN AT RS. 30,18,35,182/-. THE AO, THEREAFTER, TAKING INTO CO NSIDERATION VARIOUS ASPECTS OF THE MATTER RELATING TO TELEPHONE, SALARY, TAX AUDIT, LE GAL EXPENSES, WAGES, PACKING EXPENSES, LOADING AND UNLOADING EXPENSES, COMMISSIO N, OFFICE EXPENSES, SHORTAGE AND CLAIM, BANK COMMISSION, GINNING AND PRESSING EX PENSES ETC. ESTIMATED THE 12 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. UNRECORDED PROFIT @ 7.43% ON UNDISCLOSED TURNOVER/R ECEIPTS OF RS. 1,77,900/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY F OR THE A.Y. 2001-02. 5.4. ON APPEAL, THE LD. CIT (APPEALS) CONSIDERED TH E MATTER IN GREAT DETAIL AT PAGES 8 TO 14 OF HIS ORDER. THE LD. CIT (A) CONFIRM ED THE ACTION OF THE AO BY OBSERVING AS UNDER :- 2.7. I HAVE CONSIDERED THE SUBMISSION OF LD. A.R A ND HAVE PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS DECLARED T HE NP @ 1.50% FLAT IN ALL THE YEARS ON GROUND THAT THE ASSESSEE H AS INCURRED LOSS IN THE BUSINESS IN FEW YEARS AND OTHER COMPANIES IN TH IS SEGMENT HAVE ALSO DECLARED NP OF 0.50% AND 1.50%. ACCORDING TO T HE ASSESSEE, THE NP RATE DECLARED BY ASSESSEE IS HIGHER THAN THE NP RATE OF ALL THE EARLIER YEARS. THE ASSESSEE HAS FOLLOWED THE NP APP ROACH FOR CALCULATING PROFITS BUT NO EVIDENCE FOR ANY EXPENDI TURE INCURRED WERE FOUND IN SEARCH OR WERE PRODUCED AT THE TIME OF ASS ESSMENT. THUS, THE PLEA OF THE ASSESSEE IN THIS REGARD IS FOUND TO BE NOT TENABLE AND THUS, NO EXPENSES ARE ALLOWABLE OUT OF PROFIT DETERMINED FROM UNDISCLOSED SALES PURCHASE TRANSACTIONS. THE AO HAS TAKEN THE G P APPROACH FOR CALCULATION OF THE PROFITS, AS ON SCRUTINY OF THE F ACTS, IT EMERGED THAT THE ASSESSEE HAS CARRIED OUT BOTH HIS DISCLOSED AND UNDISCLOSED TRANSACTIONS WITH THE SAME ESTABLISHMENT OF BUSINES S PREMISES AND MANPOWER. ALL THE EXPENSES HAVE BEEN CLAIMED IN DIS CLOSED BUSINESS. THEREFORE, NO FURTHER EXPENSES ARE ALLOWABLE ON ADH OC BASIS AGAINST PROFIT FROM UNDISCLOSED BUSINESS. SO, THE AO HAS AP PLIED THE DECLARED GP RATE AS NP RATE FOR AY 2001-02, 2005-06, 2006-07 . FOR THE AY 2002-03, 2003-04 AND 2004-05, THE AO APPLIED 3% AS THE NP RATE. THE AO IS JUSTIFIED IN NOT ALLOWING THE BENEFIT OF EXPENSES, THE PROOFS OF WHICH WERE NOT PRODUCED FOR VERIFICATION. THE GP RATE SO TAKEN BY THE AO IS THUS JUSTIFIABLE FOR A.Y. 2001-02 TO 2006 -07. FURTHER, I AM NOT CONVINCED WITH THE ARGUMENT OF THE ASSESSEE THA T THE ASSESSEE HAS SOLD GOODS AT 2-3% DISCOUNT AS PAYMENT RECEIVED IMM EDIATELY. NO PROOF OF THE SAME HAS BEEN GIVEN IN SUPPORT OF THE CLAIM OF THE ASSESSEE. CONSIDERING THE POSITION, AS ABOVE, I DO NOT SEE ANY REASON TO INTERFERE IN THE FINDING OF AO ON THIS ISSUE FOR AY 2001-02 TO AY 2006-07 UNDER APPEAL AND ADDITIONS FOR THESE YEARS ARE CONFIRMED. 6. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 6.1. AT THE OUTSET, LD. A/R FOR THE ASSESSEE STRONGLY RELIED ON THE SUBMISSIONS MADE BEFORE THE CIT(A) FOR A.Y. 2001-02 TO A.Y. 200 7-08 (PB 49-104) AND 13 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. REQUESTED TO CONSIDER THE SAME. IN ADDITION, HIS FU RTHER ELABORATED SUBMISSIONS ARE AS UNDER : FAIR ESTIMATION REQUIRED JUDICIAL GUIDELINE IN THE PECULIAR FACTS INVOLVED IN THE PRE SENT CASE, WHAT WAS REQUIRED WAS ONLY TO MAKE A FAIR ESTIMATION BASED ON THE MATERIAL SEI ZED. IN THE CASES OF SURVEY/SEARCH, THERE IS A GENERAL TENDENCY TO MAKE HUGE ADDITIONS BASED ON THE INCRIMINATING MATERIAL FOUND, BUT TO REFUSE TO GIVE CREDIT OF THE OUTGOINGS / EXPENDITURES OR NOT TO CONSIDER THE MATERIAL WHICH GOES TO THE CREDIT OF THE SEARCHED PERSON. IN THE CASES, WHERE THERE ARE CLINCHING EVI DENCES AVAILABLE, NO DOUBT INCOME CAN BE COMPUTED STRAIGHTAWAY BASED THEREON, HOWEVER IN THE CASES, WHERE, THOUGH EVIDENCES ARE FOUND AVAILABLE BUT THE UNDISCLOSED I NCOME CANNOT BE ASCERTAINED WITH A MATHEMATICAL PRECISION. IT CANNOT BE DENIED THAT IN THE SURVEY AND SEARCH CASES THE AVAILABILITY OF SUPPORTING EVIDENCES, RECORDS A ND ACCOUNTS CANNOT BE EXPECTED WITH THE MATHEMATICAL PRECISION. HAD THAT BEEN THE STATE OF AFFAIR, WHY THE ASSESSEE SHOULDNT HAVE DISCLOSED ALL THIS TRANSACTIONS TO T HE DEPARTMENT? IN FACT, THIS BEING A DECISION OF THE ASSESSEE NOT TO DISCLOSE SOME OF TH E TRANSACTIONS, THE RECORD IS EITHER NOT PROPERLY MAINTAINS OR IF MAINTAINED, IS NORMALL Y DESTROYED SO AS NOT TO BE CAUGHT IN THE RANDOM ACTIONS BUT THIS DOES NOT MEAN THAT T HE CLAIMED STATE OF AFFAIR WAS NOT THERE E.G. THERE WERE NO INTER-FIRM TRANSACTIONS (O R THAT NO EXPENSES WERE INCURRED). HENCE, THE ONLY WAY IS TO MAKE A FAIR ESTIMATION. I N FACT AND IN LAW, THIS IS A SITUATION SIMILAR TO THOSE FOUND IN THE CASES OF SE C. 144 AND/OR R/W 145 OF THE ACT THEREFORE, THE TEST LAID DOWN/THE JUDICIAL GUIDELIN E PROVIDED BY THE HONBLE COURTS THERE UNDER, HAS TO BE APPLIED IN SUCH CASES ALSO. FOR A BETTER APPRECIATION OF THIS CONTENTION, A REF ERENCE MAY KINDLY BE MADE TO THE COMMENTARY BY THE LD. AUTHORS CHATURVEDI PET HISARIA VOL. 3 EDITION V AT PAGE 4932, REPRODUCED HEREUNDER VERBATIM:- BEST JUDGMENT ASSESSMENT HOW TO BE MADE? IN MA KING A BEST JUDGMENT ASSESSMENT THE ASSESSING OFFICER MUST NOT ACT DISHO NESTLY OR VINDICTIVELY OR CAPRICIOUSLY X X X X HE MUST BE ABLE TO TAKE INTO CONSIDERATION LOCAL KNOWLEDGE AND REPUTE IN REGARD TO THE ASSESSEES CI RCUMSTANCES, AND HIS OWN KNOWLEDGE OF PREVIOUS RETURNS BY AND ASSESSMENTS OF THE ASSESSEE AND ALL OTHER 14 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. MATTERS WHICH HE THINKS WILL ASSIST HIM IN ARRIVING AT A FAIR AND PROPER ESTIMATE; AND THOUGH THERE MUST NECESSARILY BE GUESS-WORK IN THE MATTER, IT MUST BE HONEST GUESS-WORK. IN MAKING A BEST JUDGMENT ASSESSMENT THE ASSESSING OFFICER DOES NOT POSSESS ABSOLUTELY ARBITRARY AUTHORITY TO ASSESSEE AT ANY F IGURE HE LIKES AND THAT ALTHOUGH HE IS NOT BOUND BY STRICT JUDICIAL PRINCIPLES HE SHOUL D BE GUIDED BY RULES OF JUSTICE, EQUITY AND GOOD CONSCIENCE [ABDUL QAYUM & CO., VS. CIT, (1933) 1 ITR 375, 378 (OUDH)]. A BEST JUDGMENT ASSESSMENT IS NOT BY WAY P ENALTY FOR NON-COMPLIANCE [JOT RAM SHER SINGH VS. CIT, (1934) 2 ITR 129 (ALL) AND IT CANNOT BE MADE CAPRICIOUSLY IN UTTER DISREGARD TO THE MATERIAL ON RECORD [GUNDA SUBBAYYA VS. CIT, (1939) 7 ITR 21, 26-7 (MAD-- FB); CIT VS. S. SEN, ( 1949) 17 ITR 355 (ORISSA)]. THE LD. A/R FURTHER RELIED ON THE FOLLOWING DECISIO NS IN SUPPORT OF HIS SUBMISSIONS :- CIT V/S GOTAN LIME KHANIZ UDYOG (2002) 256 ITR 243 (RAJ) SHRI SHANKAR KHANDASARI SUGAR MILLS VS. CIT (1992 ) 193 ITR 669 (KER) ANAND PRAKASH SONI V/S DCIT (2006) 101 TTJ 0097 ( JODH) (TRIB) AS REGARDS DETERMINATION OF THE UNDISCLOSED TURNOVE R, THE PLEA OF THE APPELLANT THAT SUCH ESTIMATION ALSO INCLUDED INTER FIRM/UNIT TRANSFERS, WAS QUITE JUSTIFIED AND WAS EVEN ACCEPTED IN PRINCIPLE BY THE AO AND CIT(A) HOWEVER, THE AUTHORITIES BELOW CONFINED THEMSELVES TO THE ACTUAL QUANTUM OF SUCH TURNOVER ONLY I.E. RS.30,18,35,182/- [IE. TOTAL OF UNRECORDED AMO UNT OF BANK TRANSACTIONS OF RS.33,89,94,028/- INCLUDING MUMBAI YARN SALES OF RS .92,46,719/- LESS ACTUAL DEDUCTION OF RS.3,71,58,846/- ALLOWED]. PLEASE SEE PAGE 4-5 OF ASSESSMENT ORDER FOR A.Y.2001-02. BUT THEY REJECTED THE CONTENTION OF AN ADHOC REDUCTION @20% WHICH WAS BASED ON THE SAMPLE OF A FEW TRANSACTIONS ONLY. PLEASE REFER CIT (A) ORDER PAGE 7 AND ALSO AVAILABLE IN THE ASSESSMENT ORDERS WHERE IN, SUCH TRANSACTIONS VARIED FROM 8% TO 50% OF THE TOTAL AMOUNT OF DEPOSITS. THE APPE LLANT HOWEVER, BEING VERY CONSERVATIVE REQUESTED FOR A REDUCTION OF A MEAGRE 20% ONLY IN ALL THE YEARS. THE APPELLANT ITSELF CLEARLY STATED THE QUANTUM OF THE UNDISCLOSED TURNOVER IN THE SHAPE OF DEPOSITS IN VARIOUS BANK A/C AT RS.25.95 CRORE. HOWEVER, THE FACT OF THE SAMPLE TRANSACTION WAS NEITHER REBUTTED NOR ADVERSELY COMM ENTED. IT CANNOT BE DENIED THAT IN THE MATTERS OF FAIR ESTIMATION, THE THEORY OF ST ATISTIC PLAYS IMPORTANT ROLE. THE SAMPLE SO SELECTED HAS NOT BEEN FOUND FAULT WITH. 15 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. FURTHER THE AUTHORITIES BELOW HAVE (PURPORTEDLY) WR ONGLY INFERRED THAT THE ASSESSEE HIMSELF AGREED THAT THE INTER FIRM TRANSFE RS TOTALLED TO RS.3,71,58,846/- ONLY WHICH IS A MISCONCEPTION ON THEIR PART. IN FACT, TH E ASSESSEE VIDE LETTER DATED 25.04.2008 (PB 146) HAS SIMPLY SUBMITTED A SAMPLE L IST (PB LL 147-153) OF VARIOUS TRANSACTIONS WHICH TOTALLED TO THIS FIGURE, IN SUPP ORT OF ITS BASIC CONTENTION THAT SUCH INTER FIRM TRANSACTIONS MAY AMOUNT TO AROUND 20% OF THE TOTAL TURNOVER AND FOR WANT OF TIME AND LOOKING TO THE VOLUMINOUS RECORD AND SU CH LIST WAS SUBJECT TO MODIFICATION (SEE AO PG-5 TOP). AFTER CALCULATING S UCH TRANSFERS, THE NET UNDISCLOSED DEPOSITS IN THESE BANK ACCOUNTS WORKED OUT TO RS. 2 5.95 CRORE APPROX. EVEN NO SPECIFIC QUESTION WAS RAISED BY THE SEARCH TEAM IN THE STATEMENT OF THE DIRECTOR SHRI CHETAN PRAKASH AGARWAL AND OTHERS U/S 132(4) OF THE ACT (PB 205-241). IT WAS NOT POSSIBLE IN SEARCH CA SES TO PRECISELY WORK OUT THE EXACT QUANTUM OF INTER FIRM TRANSFERS. THEREFORE, FEW EXE MPLARY CASES WERE GIVEN THROUGH SAMPLE LIST BUT IT WAS NOT THE TOTAL FIGURE COMMITT ED BY THE ASSESSEE AS WRONGLY READ BY THE AUTHORITIES BELOW. THUS, IT WAS A MERE ESTIM ATION AND THE AUTHORITIES BELOW MUST HAVE UNDERSTOOD THE SAME IN A RIGHT PROSPECT A ND A SUITABLE ESTIMATION OF REDUCTION ON ACCOUNT OF INTER FIRM TRANSFERS MUST H AVE BEEN MADE AT LEAST BY THE CIT(A), IF NOT BY THE AO. IN FACT, THE LD. CIT(A) H IMSELF HAS ADAPTED THIS APPROACH WHILE GIVING THE BENEFIT OF THE REDUCTION OF INDIRE CT EXPENSES WHICH WAS BASED ON A FEW SEIZED RECORDS IN CASE OF SHRI CHETAN PRAKASH A GARWAL , WHEREIN HE HIMSELF HAS ACCEPTED THIS IN PRINCIPLE WHILE ESTIMATING THE FAI R NP RATE IN PARA 2.8 OF PAGE 14 OF HIS ORDER, WHEREIN HE RIGHTLY HELD THAT IT WOULD BE WRONG TO CONSIDER THE EXPENSES AVAILABLE IN THE SEIZED RECORDS AS THE ONLY EXPENSE S AND TO IGNORE THE OTHER EXPENSES WHICH MUST BE INCURRED FOR THE BUSINESS, A S THIS WOULD LEAD TO INCORRECT DETERMINATION OF THE INCOME. THUS, THE ASSESSEE HAS BEEN QUITE FAIR AND REASONABLE IN DEMANDING THE REDUCTION OF MERELY 20% IN THESE F ACTS. ADDITIONAL LIST OF INTER-UNITS TRANSACTIONS IGNORED : THE ASSESSMENT PROCEEDINGS IN THIS CASE, WERE COMMENCED ON DATED 1 3.03.2008 AND THE ASSESSMENT WAS COMPLETED ON DATED 15.12.2008. THE ISSUE RELATI NG TO THE ESTIMATION OF SUPPRESSED SALE WAS TAKEN UP BY THE AO ON DATED 20. 03.2008 WHEN ASSESSEE ASKED, THE ASSESSEE STARTED TRYING FINDING OUT THE INTER-U NIT TRANSACTIONS HOWEVER, HUNDREDS OF PAPERS WERE SEIZED AND THERE WERE VOLUMINOUS TRA NSACTIONS INVOLVED THEREIN, 16 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. HENCE IT WAS PRACTICALLY VERY DIFFICULT TO FIND OUT SUCH TRANSACTIONS FOR A LONG PERIOD OF SEVEN YEARS IN SUCH A SHORT SPAN. THE ASSESSEE MADE A CLAIM VIDE LETTER OF 25 TH APRIL 2008 (PB-146) PROVIDING A SAMPLE LIST OF 3.72 CRORE SUBJECT TO M ODIFICATION. THE AO HOWEVER, THEREAFTER DID NOT FURTHER CONFRONT THE AS SESSEE AS REGARDS HIS DOUBT IN ITS MIND AND REJECTED THE CLAIM OF ADHOC REDUCTION OF 2 0% ON AVERAGE BASIS. THE ASSESSEE, AFTER RECEIPT OF THE IMPUGNED ASSESSM ENT ORDER FURTHER WENT ON MAKING THIS EXERCISE AND DURING THAT COURSE, WAS ABLE TO LAY ITS HAND ON FURTHER INTER-UNITS TRANSACTIONS TOTALLING TO RS. 2.41 CROR E AND AN ADDITIONAL LIST (PB-II198- 202) WERE SUBMITTED BEFORE THE LD. CIT(A). IT IS REGRETF UL THAT THE LD. CIT(A) BEING AN APPELLATE AUTHORITY, INSTEAD OF LOOKING INTO THE LI ST, REJECTED THE SAME ON THE PLEA THAT THE SAME WAS NOT PROVIDED DURING THE ASSESSMEN T DESPITE OPPORTUNITY AND BUT GIVEN TO HIM AT THE FAG END OF THE COMPLETION OF AP PEAL HEARING. THERE WERE 1000-1500 PAPERS RELATING TO ALL 6-7 PER SONS FOUND DURING THE SEARCH AND THEREFORE IT WAS DIFFICULT TO WORK OUT T HE ENTIRE EXACT AMOUNT OF THE INTER FIRM TRANSACTION THEREFORE IN A LIMITED PERIOD OF 7 -8 MONTHS, THE ASSESSEE TRIED ITS BEST AND COULD LOCATE INTER FIRM TRANSACTION TOTALL ING TO RS. 3.71 CRORE BUT THAT WAS NOT THE END. THEREAFTER, AFTER FILING THE APPEAL, T HERE WAS A COMPLETE SILENCE FROM THE OFFICE OF THE LD CIT(A) FOR A COMPLETE PERIOD O F TWO YEARS AND THE MATTER WAS AGAIN TAKEN IN FEBRUARY, 2011 BEFORE THE LD CIT(A), THE ASSESSEE, IN THE MEANWHILE AGAIN CARRIED OUT THE EXERCISE AND COULD LAY ITS HA ND ON FURTHER TRANSACTIONS AND FILED AN ADDITIONAL LIST TOTALLING TO RS. 2.41 CRORE BEFO RE THE LD. CIT(A). ON 04.03.2011, THE LD CIT(A) PASSED THE ORDER. THUS THE GAP OF TWO YEA RS WAS NOT ON ACCOUNT OF THE ASSESSEE BUT IT WAS A DELAY OF FIXATION AND HEARING AND DECISION IN THE APPEAL. AT THE MOST, TWO HEARINGS TOOK PLACE BEFORE THE LD CIT(A) AND THE APPEAL WAS DECIDED WITHIN A PERIOD OF 2-3 MONTHS. THE HEARING WAS KEPT FIRST TIME ON 23.02.2011 AND ON 04.03.2011, THE ORDER WAS PASSED. WITHIN THIS PERIO D, THE ASSESSEE WITHOUT SEEKING FURTHER TIME FILED THE LIST. THE LAW, OF COURSE PROVIDE A MANDATORY TIME LIMIT F OR MAKING ASSESSMENT U/S 153 HOWEVER, NO SUCH BINDING TIME LIMIT HAS BEEN PR OVIDED FOR THE FIRST APPELLATE AUTHORITY AND THE LIMIT OF ONE YEAR PROVIDED U/S 25 0(6A) IS ONLY ADVISORY , KEEPING IN MIND THE LEGISLATIVE INTENT THAT JUSTICE SHOULD NOT BE DENIED AT THE COST OF LIMITATION. 17 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. FIRSTLY , IT IS ALREADY SUBMITTED THAT NO SUFFICIENT OPPORTUN ITY WAS PROVIDED AND THE AO COMPLETELY FAILED TO DISCHARGE THE JOINT ONU S LAY UPON HIM AND THE ASSESSEE AND SECONDLY , BOTH THE LOWER AUTHORITIES NOT HAVING DENIED THAT SUCH MATERIAL WAS DIRECTLY RELEVANT AND VITAL FOR MAKING A FAIR ESTIM ATION, THE LD. CIT(A) COULD NOT HAVE REJECTED SUCH MATERIAL OUTRIGHT BY EVEN WITHOUT LOO KING INTO THE SAME, MORE PARTICULARLY, WHEN THE LAW HAS CASTED AN ONEROUS DU TY UPON HIM TO DO SUBSTANTIAL JUSTICE IN THE ISSUE BEFORE HIM INSTEAD OF GOING IN TO THE TECHNICALITIES OR ADOPTING SHORT CUTS. IT IS NOT DENIED THAT A HUGE AMOUNT OF RS. 2.41 CRORE WAS POINTED OUT IN ADDITION TO THE EARLIER RS.3.72 CRORE AND THUS, TOT ALLING TO RS.6.13 CRORE RELATED TO THE INTER UNIT TRANSACTIONS. THE AUTHORITIES BELOW AGREED IN PRINCIPLE TO MAKE A REDUCTION ON THIS ACCOUNT AND HENCE, WERE DUTY BOUN D TO HAVE CONSIDERED AND GIVEN CREDIT OF NOT ONLY THE ENTIRE AMOUNT SO CLAIMED BUT EVEN TO MAKE EFFORT ON THEIR OWN TO FIND OUT SOME MORE SUCH TRANSACTIONS UNDENIABLY INVOLVED IN THE VOLUMINOUS SEIZED RECORDS. THE LAW IS WELL SETTLED THAT ANY EVIDENCE (HERE SEI ZED RECORD) AND WHILE USING AGAINST A PERSON, HAS TO BE READ IN ITS ENTIRETY. O NE CANNOT BE PERMITTED TO READ AND CHOOSE THAT PART WHICH SUITS HIM BEST AND TO IGNORE THE ONE, WHICH GOES AGAINST HIM. KINDLY REFER HISSARIA BROTHERS V/S ACIT 22 TW 684 ( JD) AND CIT (CENTRAL) COCHIN. VS. P.D. ABRAHAM @ APPACHAN (2012) 349 ITR 0442 SUCH ADDITIONAL LIST AND INFORMATION WAS NOT IN THE NATURE OF ADDITIONAL EVIDENCE U/R 46A AND THE LD. CIT(A) ALSO THEREFORE, DID NOT RIGHTLY CONSIDER THE SAME AS ADDITIONAL EVIDENCE. AND THUS, THERE BEING NO HU RDLE PUT BY THE ACT AND RULES, THE LD. CIT(A) MUST HAVE CONSIDERED SUCH ADDITIONAL LIS T I.R.T. INTER-UNITS TRANSACTIONS. IN VIEW OF THIS, IT CANNOT BE SAID THAT THE ESTIMATION MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) WAS A BEST JUDGMENT ASSESSMENT INVOL VING A FAIR ESTIMATION. THE LD. CIT(A) IS ALSO WRONG TO SAY THAT NO SUFFICI ENT EVIDENCES REGARDING THESE ADDITIONAL TRANSACTIONS WERE AVAILABLE FOR VE RIFICATION WITH HIM IN AS MUCH AS SUCH TRANSACTION WERE ALREADY VISIBLE AND VERIFIABL E FROM THE COPIES OF THE BANK STATEMENT ALREADY SUBMITTED TO AO. IT ALSO NEED TO BE SUBMITTED THAT FROM A READING OF PR 2.3 OF CIT(A) ORDER, IT APPEARS THAT THE LD. CIT(A) HAS PUT A SELF IMPOSED RESTRAIN UPON HIM IN THE SHAPE OF 18 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. APPREHENSION THAT IN CASE HE ACCEPTS THE PLEA I.E. OF MAKING REDUCTION/FURTHER REDUCTION BASED ON INTERNAL TRANSACTION, THERE WERE CHANCES OF UNDUE BENEFIT TO THE ASSESSEE, IF HE ACCEPT THE CONTENTION OF THE ASSESS EE WHICH, APPEARS TO BE SOMEWHAT STRANGE ON THE FACE OF IT IN AS MUCH AS EV EN BEFORE IMPARTING JUSTICE, THE LD. CIT(A) PROCEEDED WITH A PRECONCEIVED APPREHENSI ON IN HIS MIND EVEN THOUGH HE ADMITS OF THE CHANCES OF BENEFITS TO THE ASSESSEE B UT IS UNABLE TO GRANT RELIEF. THE VERY (ADMITTED) EXISTENCE OF THE INTER-FIRM TRANSAC TIONS CERTAINLY GIVES RISE TO A POSSIBILITY OF THERE BEING MORE TRANSACTIONS OF SIM ILAR NATURE REQUIRING DEDUCTION, ITSELF WAS A GOOD BASIS/MATERIAL TO BE CONSIDERED W HILE MAKING ESTIMATION AND THE ADMISSION OF THE LD. CIT(A) OF THE CHANCES OF BENEF IT IS BASED THEREON, THERE IS NO REASON NOT TO ALLOW FURTHER BENEFIT MAKING A FAIR E STIMATION. AS REGARDS DETERMINATION OF THE NP RATE, AT THE OU TSET, IT IS SUBMITTED THAT THE CONCEPT OF REAL INCOME IS STILL THE UNDERLYING PRINCIPLE WORKING IN THE I.T. ACT AND ALSO THEREFORE APPLY IN THE PROVISIONS CONTAINED U/ S 153A R/W SEC.153C. AGAIN , INCOME TAX IS A TAX ON INCOME AND NOT ONLY ON GROS S RECEIPTS IN AS MUCH AS IT IS NOT THE GROSS RECEIPT WHICH ARE TO BE TAXED BUT IT IS ONLY THE NET INCOME / NET FIGURE I.E. INCOME/ LOSS ARRIVED AT AFTER HAV ING REDUCED ALL THE DIRECT AND INDIRECT EXPENSES (WHETHER BASED ON CASH BASIS OR M ERCANTILE SYSTEM OF ACCOUNTING AS CONSISTENTLY FOLLOWED BY AN ASSESSEE), WHICH CAN BE CONSIDERED FOR ASSESSMENT FOR A GIVEN PERIOD. AND THERE CANNOT BE ANY DISPUTE OVE R THIS PREPOSITION. IN THE PRESENT CASE, THE AUTHORITIES BELOW HAVE ATTEMPTED TO TAX T HE AMOUNT OF THE GROSS SALES ONLY AFTER REDUCING THE DIRECT EXPENSES ALONE BUT COMPLE TELY DENIED THE REDUCTION ON ACCOUNT OF INDIRECT EXPENSES ON MERE SUSPICION, SUR MISES CONJECTURES AND WITHOUT EVEN UNDERSTANDING THAT IT WAS A SIMPLE CASE OF MAK ING A FAIR ESTIMATION WHEREIN COMPLETE RECORD / BOOKS OF ACCOUNT IS NEITHER MAINT AINED NOR CLAIMED AS SUCH BY THE ASSESSEE. KINDLY REFER CIT V/S SHOORJI VALLABHDAS & CO. 46 ITR 144 (SC) FOLLOWED IN GODHARA ELECTRIC CO. 225 ITR 746 (SC). THE RATIO LA ID IS THAT THERE HAS TO BE SOME INCOME IN SUBSTANCE AND NOT A MERE HYPOTHESIS. IT D OESNT DEPEND ON MERE ACCOUNTING ENTRIES (OR ON A MERE DISCLOSURE). THE LOWER AUTHORITIES HAVE NOT AT ALL GIVEN ANY REASONING OR JUSTIFICATION AS TO WHY THEY SHOULD HAVE COMPLETELY IGNORED OR REJEC TED THE CLAIM MADE OF THE ESTIMATED INDIRECT EXPENSES BY WAY OF APPLYING ADHO C N.P. RATE WHICH TAKES CARE OF 19 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. ALL DIRECT AND INDIRECT EXPENSES (EXCEPT SAYING THA T NO PROOF / EVIDENCE IN SUPPORT OF THE CLAIM MADE, COULD BE FURNISHED). WHILE APPLYING THE GP RATE AS THE NP RA TE IN DIFFERENT YEARS, THE AO HAS NOT AT ALL PROVIDED ANY BASIS NOR THE LD. CIT(A) HAS JU STIFIED THE SAME AS ADOPTED BY THE AO. IN SOME OF THE ASSESSMENT YEARS I.E. AY 2001-02 , AY 2005-06 AND AY 2006-07 HE APPLIED GP RATE OF 7.43 %, 5.89%, 3.37% RESPECTI VELY AS NP RATE (WHICH OTHERWISE WAS THE DECLARED GP RATE) HOWEVER, IN THE OTHER YEARS I.E. AY 2002-03, AY 2003-04, AY 2004-05 HE APPLIED NP RATE OF 3%. AS AG AINST THIS, IN THE FIRST 3 YEARS THE ASSESSEE OFFERED NP RATE OF 1.5% WHEREAS IN THE LATER 3 YEARS THERE WAS A LOSS OR THE DECLARED GP ITSELF WAS LESS THAN 3% (IN THE DISCLOSED RESULTS-KINDLY REFER AO PG-2). ON ONE HAND THE AO HAS NOT AT ALL PROVIDED ANY BASI S, AT THE SAME TIME HE HAS PROCEEDED ON A SERIOUS MISCONCEPTION OF FACT, O N THE OTHER IN AS MUCH AS HE COMPLETELY IGNORED THE BASIC FACT THAT THE GP DECLARED BY THE ASSESSEE (AND ADOPTED BY HIM), IN FACT, RELATED TO THE YARN MANUFACTURING ACTIVITY OF THE A SSESSEE WHICH THE ASSESSEE NEVER ADMITTED NOR EVEN ALLEGED BY THE DEP ARTMENT TO BE A SUPPRESSED ACTIVITY. WHAT WERE ADMITTED TO BE UNRECORDED OR SU PPRESSED TRANSACTIONS WERE THE SALES RELATING TO YARN TRADING ACTIVITIES ONLY. NEE DLESS TO SAY THAT THE NET PROFIT / GROSS MARGIN IN THE CASE OF TRADING ARE MUCH LOWER THAN WHAT ONE COULD EARN IN MANUFACTURING. WHEN ONE IS REQUIRED TO MAKE A FAIR ESTIMATION EVEN IN ABSENCE OF ANY DIRECT EVIDENCE, THE MARKET TREND, LOCAL REPUTA TION AND THE COMPARABLE CASES MUST BE CONSIDERED AND ONLY IN THE LIGHT OF SUCH IN FORMATION / MATERIAL, THE AO COULD HAVE APPLIED A SUITABLE RATE OF PROFIT. EVEN THE LD . CIT(A) COMPLETELY IGNORED THIS VITAL ASPECT AS THERE IS NO WHISPER ON THIS ASPECT. UNFORTUNATELY STILL HOWEVER, THE AO ADOPTED THE DECLARED MANUFACTURING GP RATE AS A GOO D BASIS IN HIS VIEW FOR ESTIMATING NP RATE AND THAT TOO IN A TRADING ACTIVI TY. THIS FACT IS EVEN ADMITTED BY THE LD. CIT(A) IN THE LAST LINES OF PARA 2.8 PG 15 OF HIS ORDER. THE LOWER AUTHORITIES HAVE PURPORTEDLY IGNORED VARI OUS RELEVANT MATERIALS (THOUGH AVAILABLE) WHICH MUST HAVE BEEN CONSIDERED AS DISCUSSED HERE IN BELOW: MOREOVER, IT HAS BEEN COMPLETELY IGNORED THAT THERE ARE CERTAIN EXPENSES WHICH ARE INHERENTLY LINKED WITH THE SALES AND WITH EVERY INCREASE / DECREASE IN THE SALE, SUCH EXPENDITURE ALSO INCREASE / DECREASE E.G . TRANSPORTATION, HAMALI WAGES, 20 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. PACKING EXPENSES, LOADING UNLOADING COMMISSION, SHO RTAGE AND GINNING & PRESSING EXPENSES. THE OTHER EXPENSES LIKE OFFICE EXPENSES A ND BANK COMMISSION CHARGES ETC ALSO CERTAINLY VARY THOUGH AFTER A CERTAIN LEVE L BUT THERE CAN`T BE ANY SITUATION WHERE DESPITE THERE BEING HUGE TURNOVER AROUND RS. 30 CRORE YET HOWEVER, NOT A SINGLE PENNY ON ACCOUNT OF INDIRECT EXPENSES HAS BE EN INCURRED. THIS, IN FACT, SOUNDS ABNORMAL AND IS COMPLETELY AGAINST THE DOCTRINE OF PREPONDERANCE OF HUMAN PROBABILITY AND AGAINST FAIR ESTIMATION; THE CONTEN TION THAT SUCH EXPENSES COULD BE RECORDED ONLY FOR A FEW MONTHS AND NOT FOR WHOLE YE AR WAS ALSO REJECTED WITHOUT ANY REASONING. THE AO ALSO OBSERVED THAT THERE CANNOT B E ANY LOSS IN TRADING ACTIVITIES OF UNRECORDED TRANSACTIONS HOWEVER, WITHOUT ANY BASIS BUT A MERE SUSPICION. WHILE UPHOLDING GP AS NP RATE IN ALL THE YEARS, THE LD. CIT(A) COMPLETELY REFUSED TO ALLOW BENEFIT OF ANY EXPENDITURE HAVING BEEN INCURRED BY THE ASSESSEE AGAINST THE UNRECORDED SALE TRANSACTION ON THE PLEA THAT NO SUCH DOCUMENT COULD BE SURFACED/ FOUND SUGGESTING INCURRENCE OF SUCH EXPE NDITURE AND HENCE ALL DIRECT/ INDIRECT EXPENSES AS ALREADY CLAIMED DURING THE COU RSE OF THE RECORDED TRANSACTIONS WERE ITSELF SUFFICIENT. SUCH AN APPROACH HOWEVER, I S COMPLETELY CONTRARY TO THE OWN FINDING IN THE ANOTHER GROUP CASE OF SHRI CHETAN PR AKASH ITA NO. 337 & 339/08-09 FOR A.Y. 2001-02 TO 2003-04 WHEREIN THE LD. CIT (A ) HIMSELF VIDE PARA 2.8 PG 14 HAS CATEGORICALLY RECORDED A FINDING TO THE EFFECT AND ALLOWED EXPENDITURE. I AGREE WITH THE CONTENTION OF THE ASSESSEE THAT THE MIXED APPROACH OF THE AO WILL LEAD TO INCORRECT CALCULATION OF THE ACTUAL PROFIT. THE INTENTION OF THE REVENUE IS TO FIND THE ACTUAL INCOME BY GIVING RATI ONAL APPROACH TO THE BUSINESS AND TO TAX THE SAME. IT IS WORTH TO BE MEN TIONED THAT THE ASSESSEE HAS INCURRED LOSSES IN MANY YEARS ON RECORDED TRANS ACTIONS, BUT, HE HAS PROVIDED FOR 2 % NP IN THOSE YEARS ALSO IN RESPECT OF THESE UNRECORDED TURNOVER. FURTHER, FROM SEIZED RECORDS IT IS CLEAR THAT THERE WERE SOME EXPENSES WHICH WERE ACTUALLY INCURRED BUT NOT ACCOU NTED IN THE BOOKS, MOREOVER RECORD OF ALL SUCH EXPENSES IS NOT EXPECTE D TO BE AVAILABLE AND FOUND DURING THE COURSE OF SEARCH, MORE PARTICULARL Y OF THE OLDER YEARS, AS DETAILS OF SUCH EXPENSES ARE USUALLY NOT PRESERVED FOR LONG TIME. THAT IS WHY THE PROPORTION OF THESE EXPENSES IS HIGHLY VARYING FROM 12 % IN EARLIER YEAR TO 78% OF THE TURNOVER IN LATER YEARS. X X X LOOKING AT NATURE OF THE INDIRECT EXPENSES, THE MAI N SORT OF INDIRECT EXPENSE IS PRESSING, HAMALI, FREIGHT, BROKERAGE, PETROL, CL AIMS WHICH ARE BOUND TO CHANGE IN PROPORTION TO TURNOVER. THUS, IT WOULD BE WRONG TO CONSIDER THE EXPENSES AVAILABLE IN THE SEIZED RECORDS AS THE ONL Y EXPENSES AND TO IGNORE 21 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. THE OTHER EXPENSES WHICH MUST BE INCURRED FOR THE B USINESS, AS THIS WOULD LEAD TO INCORRECT DETERMINATION OF THE INCOME. X X X X SO, LOOKING AT THE FACTS ON BASIS OF PRINCIPLE OF N ATURAL JUSTICE. I ACCEPT THE CLAIM OF ASSESSEE TO CONSIDER NET PROFIT APPROACH F OR CALCULATION OF THE INCOME ON UNACCOUNTED TURNOVER THE REASON OF DENIAL BEING NON AVAILABILITY OF DOCU MENTS IS AGAINST THE HUMAN PROBABILITIES AND SURROUNDING CIRCUMSTANCES I N AS MUCH AS SUCH AN EXPECTATION RUNS COMPLETELY CONTRARY TO THE VERY FA CT OF NON MAINTENANCE OF BOOKS OF ACCOUNT, INVOLVEMENT OF THE ASSESSEE IN UN RECORDED TRANSACTIONS AND NON DISCLOSURE OF INCOME (THOUGH EARNED) TO THE DEPARTMENT BY A PERSON SEARCHED AND HENCE COULDNT HAVE BEEN EXPECTED TO H AVE MAINTAINED ALL THE SUPPORTING VOUCHERS TO CLAIM THE EXPENDITURE THOUGH INCURRED BUT NOT DECLARED. THE VERY AVAILABILITY OF THE EVIDENCES SU RFACED DURING SEARCH IN OTHER GROUP MEMBER OF INCURRING UNDISCLOSED EXPENDI TURE, MUST HAVE BEEN SUFFICIENT TO TAKE A VIEW THAT A SIMILAR MODUS OPER ANDI MUST HAVE BEEN FOLLOWED IN THE CASE OF THE PRESENT ASSESSEE ALSO ( WHO IS ALSO ONE OF THE GROUP MEMBER). THEREFORE, IN SUCH CASES PROCEEDING ON THE CONCEPT OF MAKING A FAIR ESTIMATION , WHAT THE AO IS REQUIRED IS TO ESTIMATE THE NET TAXABLE INCOME ONLY I.E. NET PROFIT AND THAT DO NOT NECESSARILY REQUIRE THE PRODUCTION OF ANY RECORD/EVIDENCE BY THE ASSESSEE A ND U/S 144 AO IS DUTY BOUND TO MAKE A BEST JUDGMENT ASSESSMENT. THE APPROACH OF THE LD. CIT(A) IS FULLY CONTRADICTO RY IN AS MUCH AS IN SOME OF THE YEARS HE HAS UPHELD THE GP RATE APPLIED BY THE AO, CONSIDERING IT TO BE REASONABLE AND FAIR (GOING AGAINST THE VERY C ONCEPT OF ACCOUNTING BECAUSE AFTER THE COMPUTATION OF THE GROSS PROFIT, A FURTHER REDUCTION OF ALL INDIRECT EXPENSES HAS TO BE REDUCED IN ANY CASE TO ARRIVE AT THE FIGURE OF NET PROFIT). HAVING ADMITTED THAT WHAT AO APPLIED IN TH ESE YEARS WAS A GP RATE, THEREFORE, ONE WAS BOUND TO HAVE REDUCED FURTHER IN DIRECT EXPENDITURE TO ARRIVE AT THE FAIR NP RATE. HOWEVER, THERE IS NO AN SWER TO THIS BY THE LD. CIT (A). NOTABLY THE ASSESSEE HAS ALREADY DECLARED A REASONA BLE NP RATE OF 1.50% IN ALL THE YEARS, DESPITE THERE BEING ADMITTE D FACT OF THE ASSESSEE HAVING INCURRED AND DECLARED HUGE LOSSES KINDLY REF ER PG-2 OF THE AO. THOUGH 22 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. THIS VARY ASPECT WAS CONSIDERED FAVAOURABLY IN THE CASE OF CHETAN PRAKASH BUT IGNORED HERE. FURTHER , T HE LD. CIT (A) VERY STRANGELY DENIED THE CLAIM OF C ASH DISCOUNT FROM 2 TO 3% ALLEGING ABSENCE OF PROOF (PA RA 2.7 PG-15) BUT AT THE SAME TIME IGNORING AND RUNNING CONTRARY TO HIS OWN FINDING RECORDED IN PARA 2.7 AND 2.8 PG 14-15 IN CPA (SUPRA) WHERE DESPITE A BSENCE OF EVIDENCES, HE ALLOWED THE CLAIM OF INDIRECT EXPENSES RECOGNIZING THE PREVAILING TRADE PRACTICE. IN THE CASES OF UNRECORDED SALE, THE CONS IDERATION IS RECEIVED IMMEDIATELY IN CASH AND THEREFORE, SUCH GOODS ARE S OLD GIVING CASH DISCOUNT OF 2% TO 3%. THE SELLER IS COMPELLED TO SALE GOODS AT A LESSER PRICE THAN THE PREVAILING MARKET RATE. OTHERWISE IT IS AGAINST HUM AN PROBABILITY THAT STILL WITHOUT INCENTIVE THE BUYER WOULD BE AVAILABLE. COMPARABLE CASES THAT ARE DIRECTLY RE LEVANT: THE SUBMISSION BY THE ASSESSEE THAT OTHER COMPANIES IN SIMILAR SEGMENT HA VE ALSO BEEN SHOWING NP RATE RANGING BETWEEN 0.5 TO 1.5% ONLY , FROM LAST 7 TO 8 YEARS, WAS ALSO IGNORED. THE LAW IS WELL SETTLED THAT IN THE MATTER S OF MAKING ESTIMATIONS COMPARABLE CASES ARE DIRECTLY RELEVANT HOWEVER, IN THE PRESENT CASE THE AO ON THE CONTRARY IGNORED THOSE CITED BEFORE HIM. A S IMILAR CASE OF RAJASTHAN RAJYA SAHAKARI FEDERATION LIMITED WAS CITED BEFORE HIM WHEREIN THE DECLARED GP RATE RANGED BETWEEN 2 - 3% AND NP 0.4 - 1.8% HOW EVER, WITHOUT WHISPERING A SINGLE WORD THEREON, BOTH THE AUTHORIT IES HAVE COMPLETELY IGNORED THE SAME. IT IS NOT DENIED THAT THE ASSESSEE HAS BEEN ADMITTEDLY DECLARING NP RATE OF LESS THAN 1.5% SINCE LAST 10 TO 12 YEARS WHICH WAS A RELEVANT FACT BUT IGNORED. THE LOWER AUTHORITIES DID NOT APPRECIA TE THAT DESPITE ALL THESE ADVERSITIES YET HOWEVER, WITH A VIEW TO CO-OPERATE THE ASSESSEE DECLARED A MUCH BETTER NP RATE OF 1.5% ON THE ENTIRE UNACCOUNTED TURNOVER OF LAST 7 YEARS THE CIT (A) HAS OBSERVED THAT THE GP RATE SO TAKEN BY THE AO IS THUS JUSTIFIABLE FOR A.Y. 2001-02 TO 2006-07. HOWEV ER, THIS IS CONTRARY TO FACT AND HIS OWN DISCUSSION IN AS MUCH AS THE AO APPLIED 3% NP RATE IN AY 02- 03, 03-04, 04-05. THE CIT (A) HAS PURPORTED TO CONF IRM THE APPLICATION OF 23 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. GP/NP RATE AS APPLIED BY AO BUT THERE APPEARS A DRA FTING ERROR WHICH IS CLEARLY AGAINST HIS INTENTION. READING OTHERWISE MA Y AMOUNT TO ENHANCEMENT WHICH WAS NOT INTENDED BY THE CIT (A) NOR THE STATU TORY REQUIREMENT ON THIS ACCOUNT, WERE COMPLIED WITH. THE LOWER AUTHORITIES DID NOT APPRECIATE THAT IT IS A SEARCH CASE AND THE ESTIMATION OF THE SUPPRESSED SALES (AND THE RES ULTANT ADDITION OF NET PROFIT THERE FROM), WAS MADE BASED ON SEIZED RECORD S AND FROM THE SAME VERY SEIZED RECORD THE ASSESSEE, BY MAKING BEST OF ITS EFFORTS OUT OF THE TIME AND FACILITIES MADE AVAILABLE TO IT, COULD FOUND OU T VARIOUS INTER-UNIT TRANSACTION IN DIFFERENT YEARS TOTALING TO RS.3.72 CRORES (APPROX). SINCE IT WAS THE CLAIM MADE BY THE ASSESSEE, OF COURSE, THE BURD EN WAS UPON THE ASSESSEE ONLY YET HOWEVER, IT CANNOT BE LOST SIGHT OFF THE SETTLED LAW THAT DUTY OF MAKING OF A BEST JUDGMENT ASSESSMENT THROUG H A FAIR ESTIMATION BASED ON THE MATERIAL AVAILABLE ON RECORD, IS ALWAY S UPON THE AO AND UNDER THIS BACKGROUND, IT WAS THE ONEROUS DUTY UPON THE A O TO HONESTLY LOOK INTO THE SEIZED RECORD (OF COURSE WITH THE HELP OF THE A SSESSEE) TO ENSURE THAT IT IS ONLY THE REAL INCOME, WHICH IS TAXED BY MAKING A FA IR ESTIMATION IN A BEST POSSIBLE MANNER HENCE, THE LD. CIT(A) WAS WRONG TO SAY THAT THE BURDEN TO PROVE SUCH CLAIM WAS SOLELY WAS ASSESSEE ALONE. THE REFORE, THE LD. CIT(A) WAS INCORRECT TO SAY THAT THE BURDEN WAS ON THE ASS ESSEE TO PROVIDE THE DETAILS OF INTER-UNIT TRANSACTION. THE LD. A/R CONCLUDED HIS SUBMISSION REQUESTING THA T THE ENTIRE ADDITION MAY KINDLY BE DELETED IN FULL. 6.2. ON THE OTHER HAND, THE LD. D/R SUPPO RTED THE ORDERS OF THE AUTHORITIES BELOW AND REQUESTED THAT THE ADDITIONS MADE BY THE LD. LOWER AUTHORITIES BE CONFIRMED. 24 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. 6.3. WE HAVE HEARD RIVAL CONTENTIONS, PERU SED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIE S. 6.3A THE FIRST ASPECT TO BE CONSIDERED AND DECIDED IS THE DETERMINATION OF THE UNDISCLOSED TURNOVER. THE FACTS OF UNDISCLOSED TURN OVER IN THE SHAPE OF THE DEPOSIT IN THE VARIOUS BANK ACCOUNTS IN THE NAME OF 6 BENAM I CONCERNS, IS NOT DENIED. THE TOTAL OF SUCH TRANSACTIONS WORKED OUT TO RS.33,89,9 4,028/- (INCLUDING TOTAL MUMBAI YARN SALES OF THESE YEARS OF RS.92,46,719/-). THE A UTHORITIES BELOW FURTHER ALLOWED REDUCTION OF RS.3,71,58,846/- BASED ON SAMPLE LIST OF TRANSACTIONS SUBMITTED BY THE ASSESSEE AND THUS, WORKED OUT THE NET TURNOVER AT R S.30,18,35,182/-. AT THE OUTSET THUS, IT IS A CASE OF MERE ESTIMATION OF UNDISCLOSE D TURNOVER AND THEREAFTER, OF THE UNDISCLOSED INCOME FOR THE SUBJECTED YEARS BEFORE U S. IT CANNOT BE DENIED THAT IN THE CASES OF SEARCH AND SEIZURES WHERE THE TRANSACT IONS ENTERED BY THE ASSESSEE ARE UNDISCLOSED, THE OFFICERS OF THE DEPARTMENT MAY OR MAY NOT FIND COMPLETE RECORDS IN A SYSTEMATIC MANNER AND THEREFORE, WHATEVER INCRIMI NATING MATERIAL IS FOUND DURING THE SEARCH WHICH DO NOT CONTAIN COMPLETE PARTICULAR S AND SO AS TO ENABLE THE AO FOR WORKING OUT THE EXACT UNDISCLOSED INCOME, A FAIR ES TIMATE IS REQUIRED TO BE MADE. IN OTHER WORDS, IT IS A SITUATION LIKE MAKING OF FARE ESTIMATION INCOME U/S 145 OR BEST JUDGMENT ASSESSMENT U/S 144. 6.3B THEREFORE, IN ABSENCE OF THE SPECIFIC MATERIA L OR BOOKS OF ACCOUNT, WHEN IT COMES TO FAIR ESTIMATION BASED ON INCRIMINATING MAT ERIAL, THE AO IS SUPPOSED TO TAKE INTO ACCOUNT ALL THE MATTERS WHICH HE THINKS WILL A SSIST HIM IN ARRIVING AT A FAIR AND PROPER ESTIMATE OF INCOME. THE ASSESSMENT TO BE MAD E UNDER THE PROVISIONS OF SEC.153A HAS TO ALSO BE MADE IN ACCORDANCE WITH THE NORMAL ASSESSMENT PROCEDURE. 25 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. IN OTHER WORDS, SUCH ASSESSMENT U/S 153A HAS TO BE MADE R/W SEC.143(3) OR R/W SEC.144. IN OUR VIEW THERE IS NO OTHER WAY IN WHICH THE ESTIMATION OF INCOME CAN BE MADE BY THE ASSESSING OFFICER EXCEPT IN THE MANNER PROVIDED UNDER SECTION 144 OF THE ACT . OF OUR VIEW IS ALSO SUPPORTED BY VARIOUS JUDGEMENTS PASSED BY THE COURTS IN THIS REGARD , WHERE INCRIMINATING MATERIAL WAS F OUND IN SEARCH SHOWING THE FACT OF THE ASSESSEE HAVING EARNED THE INCOME OR INCURRED T HE EXPENDITURE BUT THE DETAILS ARE NOT SUFFICIENT THEN THUS, AO IS DUTY BOUND TO A PPLY THE FAIR ESTIMATION OF INCOME AND EXPENDITURE FOR THE PURPOSES OF CALCULATING THE INCOME OF THE ASSESSEE ON THE BASIS OF THE LIMITED MATERIAL AVAILABLE WITH HIM . 6.3C ADMITTEDLY SEVERAL TRANSACTIONS WERE FOUND ENTERE D BY THE SAID 6 BENAMI CONCERNS INTER SE AND BASED ON SUCH INTER FIRM TRAN SACTIONS, THE ASSESSEE PREPARED A SAMPLE LIST (SUBMITTED VIDE LETTER DATED 25.04.08) WHICH IS PLACED AT PAGES 147 TO 153 OF THE SECOND PAPER BOOK FILED BY THE ASSESSEE. NO EFFORTS WERE MADE BY THE ASSESSING OFFICER TO BRING ON RECORD THE MORE IMPOR TANT AND RELIABLE INFORMATION IN SUPPORT OF HIS CONCLUSION. THE POSSIBILITY OF HAVIN G MORE INTERSE AND INTERRELATED TRANSACTION CANNOT BE RULED OUT, THE INFORMATION PR OVIDED BY THE ASSESSING CANNOT BE THE SOLE BASIS OF ADMITTING OR DENYING THE BENEF IT OF INTEREST THE WARRANT FROM TRANSACTIONS, THE ASSESSING OFFICER IS REQUIRED TO APPLY HIS MIND DEHORSE THE INFORMATION PROVIDED BY THE ASSESSEE. IT IS NOT DEN IED THAT THE CLAIM OF THE ASSESSEE OF THE REDUCTION OF SUCH INTER FIRM TRANSACTIONS FR OM THE UNDISCLOSED TOTAL TURNOVER OF RS.33,89,94,028/- WAS CONSISTENT RIGHT FROM THE BEG INNING WHILE FILING THE RETURN OF INCOME PURSUANT TO NOTICE U/S 153A. A PERUSAL OF TH E SAMPLE LIST AVAILABLE AT PAGES 7 & 8 OF THE CONSOLIDATED ORDER OF THE LD. CIT(A) CER TAINLY REVEALS THAT THE INTER FIRM TRANSACTIONS RANGED BETWEEN 8% TO 50% IN DIFFERENT YEARS WHICH FACT COULD NOT BE 26 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. REBUTTED BY THE DR. THE CASE OF THE ASSESSEE WAS TH AT IN VIEW OF THE VOLUMINOUS SEIZED EVIDENCES, BANK STATEMENTS AND OTHER RECORDS , TO SEARCH ALL SUCH INTER FIRM TRANSACTIONS TO ITS ENTIRETY WAS NOT PRACTICABLY PO SSIBLE. HOWEVER, THE VERY FACT OF FINDING OF SUCH INTER FIRM TRANSACTIONS PROVE THE F ACT THAT SOMETHING MORE WAS REQUIRED TO BE ESTIMATED ON THAT PART. THE AUTHORIT IES BELOW ON THE OTHER HAND, APPEAR TO BE WRONGLY CONFINED TO THE SET SAMPLE LI ST ONLY AS IF, THESE WERE THE ONLY INTER FIRM TRANSACTIONS REQUIRING REDUCTION. THE RE PEATED CONTENTION OF THE ASSESSEE ABOUT THE SAMPLE LIST HAS BEEN IGNORED. IT IS UNDER THIS BACKGROUND, THE ASSESSEE MADE A CLAIM OF 20% ADHOC REDUCTION AS A FAIR ESTIM ATION. FURTHER A PERUSAL OF THE ORDER LD. CIT(A) SHOWS THAT AN ADDITIONAL LIST WAS ALSO SUBMITTED BEFORE HIM ACCORDING TO WHICH FURTHER LIST SHOWING INTER FIRM TRANSACTION WAS SUBMITTED. THE ASSESSEE HAS SUBMITTED A COPY PLACED AT PAGES 198 T O 202 OF THE SECOND PAPER BOOK WHICH TOTALS TO RS. 2.41 CRORES. AT THIS STAGE WER E NOT CONSIDERING THE SUPPLEMENTARY LIST SUBMITTED BY THE ASSESSEE BEFORE THE CIT. 6.3D AT THE JUNCTURE IT WILL BE USEFUL TO REFER TO THE FINDINGS OF THE LD. CIT(A) RECORDED IN THE CASE OF CHETAN PRAKASH AGARWAL, DIR ECTOR OF THE ASSESSEE COMPANY WHEREIN ALSO SIMILAR CONTROVERSY WAS INVOLVED. WHIL E ESTIMATING THE REDUCTION OF THE INDIRECT EXPENSES THE LD. CIT(A) AT PAGE 14 AT PARA 2.8 HAS HELD THAT IT WOULD BE WRONG TO CONSIDER THE EXPENSES AVAILABLE IN THE SEI ZED RECORDS AS THE ONLY EXPENSES AND TO IGNORE THE OTHER EXPENSES WHICH MUST BE INCU RRED FOR THE BUSINESS,(WHICH ARE INCIDENTAL AND INTEGRAL PART OF THE BUSINESS AC TIVITIES ) AS THIS WOULD LEAD TO INCORRECT DETERMINATION OF THE INCOME. HOWEVER, JUS T RUNNING CONTRARY THERE TO, IN THE PRESENT CASE THE LD. CIT(A) COMPLETELY REFUSED TO ANY ESTIMATION ON ACCOUNT OF ANY CLAIMED REDUCTION IN RESPECT TO INTER FIRM TRAN SACTION ALLEGING LACK OF EVIDENCE 27 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. MORE THAN RS.3.71CRORE. LD CIT, IN OUR VIEW IS DUTY BOUND TO FOLLOW THE PRINCIPLE OF CONSISTENCY AND PREDICTABILITY WHILE HEARING THE AP PEAL AND PASSING THE ORDER UNDER APPEAL. 6.3E FROM THE ABOVE DISCUSSION ON LEGAL AND FACTUAL ASP ECT, WE ARE OF THE CONSIDERED VIEW THAT AT LEAST, A FAIR ESTIMATION OF THE CLAIMED REDUCTION OF INTER FIRM TRANSACTION WAS CERTAINLY REQUIRED AND THE AUTHORIT IES BELOW COULD NOT HAVE STOPPED ONLY AT THE SAMPLE TRANSACTIONS WHICH COULD BE ASCE RTAINED BY THE APPELLANT. THE ADMITTED FACT OF FINDING OF SUCH INTER FIRM TRANSAC TIONS CERTAINLY PROVED, THE POSSIBILITY OF THERE BEING FURTHER SUCH TRANSACTION WHICH, COULDNT HAVE BEEN RULED OUT AND WHICH HAS CERTAINLY PAVED THE WAY OF MAKING OF FAIR ESTIMATION IN PECULIAR FACTS OF THE CASE. WE HAVE ALREADY OBSERVED THAT IN THE SEARCH CASES, IT IS WRONG TO ASSUME THAT WHATEVER INCOME OR EXPENDITURE ARE REVE ALED FROM THE SEARCH RECORD, THE REVENUE AUTHORITIES ARE NOT SUPPOSED TO STOP TH ERE ONLY AND TO IGNORE THE POSSIBILITY OF FURTHER ESTIMATION OF THE INCOME AS ALSO OF THE EXPENDITURE. 6.3F THEREFORE, IT WOULD NOT BE JUSTIFIED TO ASSUME THAT TO CONSIDER THAT INTER FIRM TRANSACTIONS AVAILABLE IN THE SEIZED OR THE OTHER R ECORD WAS THE ONLY TRANSACTIONS AND TO COMPLETELY IGNORE THE POSSIBILITY OF THERE BEING FURTHER SUCH TRANSACTIONS REQUIRING A FAIR ESTIMATION. HOLDING OTHERWISE WOULD CERTAINL Y BE GOING AGAINST THE SETTLE LAW OF FAIR ESTIMATION AND THE BEST JUDGMENT ASSESSMENT AS PROPOUNDED BY THE VARIOUS COURTS. THE FACT THAT SUCH TRANSACTIONS RAISED BETW EEN 8% TO 50% WAS NOT DENIED BY THE NEITHER BY THE AO NOR BY THE LD. CIT(A) NOR BY THE LD. DR APPEARED BEFORE US. AS AGAINST THAT THE ASSESSEE CLAIMED A 20% ADHOC RE DUCTION WHICH HAS BEEN CLAIMED TO BE MORE THAN JUSTIFIED. THE CLAIM OF RED UCTION OF RS.3,71,58,846/- IN 28 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. TERMS OF THE TOTAL UNDISCLOSED TURNOVER OF RS.33,89 ,94,028/- COMES TO 10.94%. TAKING A CIRCUMSPECT VIEW OF THE ENTIRE LEGAL & FAC TUAL POSITION AND THE RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT A FURTHER REDU CTION OF 5% (TOTAL REDUCTION BEING 15.94%), SHOULD MEET THE END OF JUSTICE AND HENCE, WE ORDER ACCORDINGLY. IN OTHER WORDS, REDUCTION OF RS.3,71,58,846/- AS CLAIMED AND ALLOWED AND FURTHER REDUCTION OF RS.1,69,49,701/- TOTALING TO RS.5,41,08,547/- RE QUIRED TO BE REDUCED. THIS WILL LEAVE THE UNDISCLOSED TURNOVER AT RS.28,48,85,481/- AS AGAINST RS.30,18,35,182/- CONSIDERED BY THE AUTHORITIES BELOW. 6.3G THIS BRINGS US TO THE DETERMINATION TO THE NEXT ASP ECT OF THE MATTER TO BE DETERMINED BY US BEING THE FARE DETERMINATION OF THE NP RATE TO BE APPLIED ON SUCH UNDISCLOSED TURNOVER. CONSIDERING THE DECLARED GROSS PROFIT RATE ONLY IN VARIOUS YEARS AND WITHOUT ALLOWING THE DEDUCTION OF INDIREC T EXPENSES AT ALL, THE AO APPLIED THE GP RATE CONSIDERED NP RATE 3% IN A.Y.2002-03 TO 2004-05, HOWEVER, HE APPLIED GP RATE AS NP RATE OF 7.43% IN A.Y.2001-02, 5.89% I N A.Y.2005-06, 3.37% IN A.Y.2006-07 AND 11.61% IN A.Y.2007-08. THE LD. CIT( A) CONFIRMED THE GP RATES SO APPLIED IN ALL THE YEARS EXCEPT IN A.Y.2007-08 WHER E HE REDUCED THE GP RATE FROM 11.61% TO 5.89% AS AGAINST THIS , THE ASSESSEE DECL ARED NP RATE OF 1.5% IN ALL THE YEARS UNDER CONSIDERATION. THE FACTS ARE NOT DENIED THAT THE ASSESSEE HAS DECL ARED LOSS IN ALL THE YEARS FROM A.Y.2001-02 TO 2006-07 IN CONNECTION WITH THE MANUF ACTURING OF COTTON YARD. THE AO RECORDING A FINDING THAT IN VIEW OF THE MONTH-WI SE Q-TALLY AND THE YIELD PERCENTAGE BEING ALSO NORMAL, THE DECLARED RESULTS WERE NOT REQUIRED TO BE DISTURBED AND HENCE, WERE ACCEPTED. 29 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. 6.3H BOTH THE LOWER AUTHORITIES HAVE COMPLETELY DENIED T HE ALLOWANCE OF THE EXPENSES LIKE TELEPHONE, SALARY, AUDIT, LEGAL EXPEN SES ETC. BECAUSE NO EVIDENCE IN THE SEIZED PAPERS WAS FOUND. MOREOVER, THE ASSESSEE CARRIED HIS BUSINESS BOTH DISCLOSED/UNDISCLOSED TRANSACTIONS WITH THE SAME ES TABLISHMENT AT SAME BUSINESS PREMISES AND MAN POWER. THEREFORE, NO FURTHER ALLOW ANCE OF EXPENDITURE WAS WARRANTED. 6.3I WE HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD AN D THE RIVAL CONTENTIONS. WE DO NOT APPROVE THE APPROACH OF THE AUTHORITIES BELOW. FIRSTLY, THE GP RATE CONSIDERED IN SOME OF THE YEARS (A.Y.2001-0 2 TO 2006-07), RELATED TO THE MANUFACTURING ACTIVITIES AND NOT OF THE TRADING ACTIVITIES WHEREAS THE AUTHORITIES BELOW IGNORED THAT THE UNDISCLOSED TURNOVER DID NOT RELATE TO MANUFACTURING BUT TO THE TRADING ONLY. CERTAINLY, THE MARGIN IN THE TRAD ING IS MUCH LESS THAN IN MANUFACTURING. THEREFORE, THE APPROACH OF THE AO IN CONSIDERING THE GP RATE AS NP RATE IN THE CASE OF THE UNDISCLOSED TURNOVER WAS MI SCONCEIVED & FAULTY. THERE APART, IT HAS BEEN COMPLETELY IGNORED THAT THERE ARE VARIO US EXPENSES WHICH ARE DIRECTLY RELATED WITH THE TURNOVER AND BY THE EVERY INCREASE /DECREASE THEREOF, SUCH EXPENSES ALSO GOES UP/DOWN. VARIOUS EXPENSES STATED BY THE ASSESSEE VIZ TRANSPORTATION, WAGES, PACKING, LOADING & UNLOADING, COMMISSION, SH ORTAGE CLAIM, GINNING & PRESSING ETC ., WERE SUCH EXPENSES WHICH HAS NOT BEEN CONSIDERED WHILE COMPUTING THE FAIR NET PROFIT DERIVED BY THE ASSESS EE FROM THE UNDISCLOSED TURNOVER. THE FACTS ARE NOT DENIED THAT THE ASSESSEE HAS DECL ARED NET LOSS IN ALL THE SUBJECTED YEARS. IN THE CASE OF RAJASTHAN RAJYA SAHAKARI FEDE RATION LIMITED CITED BEFORE THE AUTHORITIES BELOW, THAT ASSESSEE DECLARED GP RATE R ANGING BETWEEN 2% TO 3% AND 30 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. NP RATE BETWEEN 0.4% TO 1.8%. IT IS NOT DENIED THA T THOUGH THE SAID CASE WAS COMPARABLE BUT APPEARS TO HAVE BEEN IGNORED. 6.3J AS STATED EARLIER EVEN IF ASSESSEE IS TO BE TAXED O N THE UNDISCLOSED INCOME, IT IS THE INCOME AND NOT THE GROSS AMOUNT. THE EXPENSE S WHETHER DIRECT & INDIRECT HAVE TO BE ALLOWED FROM THE SALES SO AS TO REACH TO THE TRUE INCOME AND MOREOVER, IN SUCH CASES, ESTIMATION IS REQUIRED TO COMPUTE FA IR NET INCOME. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT IN THE PECULIAR FACTS O F THE PRESENT CASE ALSO A FAIR ESTIMATION OF THE NET PROFIT IS REQUIRED. IN FACT, THE LD. CIT(A) HIMSELF WAS ALSO OF THE VIEW IN THE OTHER GROUP CASE OF SHRI CHETAN PRAKASH AGARWAL THAT ALLOWABILITY OF THE EXPENSES WAS NOT DEPENDENT UPON THE FINDING OF THE DIRECT INSTANCES AND SEIZED MATERIAL ONLY, (WHICH APPROACH WE ALSO SUBSCRIBE TO ). FOR MAKING FAIR ESTIMATION, THE PAST HISTORY AND COMPARABLE CASES, ARE THE BEST GUI DE. SIMPLY BECAUSE THE ACCOUNTS HAVE BEEN REJECTED/ NOT FOUND MAINTAINED, DOES NOT NECESSARILY MEAN AN ADDITION TO THE DECLARED INCOME UNLESS DIRECT EVIDENCES SHOWING HIGHER INCOME IS CLEARLY FOUND. THE AUTHORITIES BELOW ARE REQUIRED TO APPLY THE PRI NCIPLE OF CONSISTENCY AND PREDICTABILITY WHILE ADJUDICATING THE ISSUE. THE AO HAS RELIED UPON THE JUDGMENT OF OF M/S GANGA NAGAR SPINNING & ENGINEERING MILLS FOR A.Y. 2002-03 FOR THE PURPOSES OF APPLYING THE GP RATE OF 3% HOWEVER THE AO HAD IGNORED TO CALCULATE THE NP RATE BY GIVING T HE BENEFIT OF INDIRECT EXPENDITURE WHICH ARE INHERENT IN THE NATURE OF TRADING ACTIVIT IES . IN THE SAID CASE GP RATE OF 2.48% WAS APPLIED THAT AS THE NP RATE WOULD HAVE BE EN LOWER THAN THAT. THEREFORE, IN OUR VIEW THERE APPEARS TO BE NO JUSTIFICATION FO R APPLYING THE GP RATE AT 3% .. TAKING A CIRCUMSPECT VIEW OF THE TOTALITY OF FACTS AND CIRCUMSTANCES, MORE PARTICULARLY IN THE LIGHT OF SHRI CHETAN PRAKASH A GARWAL , IT WILL BE FAIR & REASONABLE 31 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. IF NP RATE OF 2% IS APPLIED IN THE ASSESSMENT YEARS FROM A.Y.2001-02 TO 2006-07 AS AGAINST THE DECLARED 1.50% AND WE DIRECT ACCORDINGL Y. HENCE, GROUND NO 2 OF THE ASSESSEE IN ITA NO. 447 TO 453/JP/11 IN ALL THESE Y EARS ARE PARTLY ALLOWED. A.Y. 2007-08 THE ASSESSEE AND DEPARTMENT BOTH ARE IN APPEAL IN I TA NO. 453/JP/11 (ASSESSEE) & ITA NO. 491/JP/11 (DEPARTMENT). THE FACTS ARE NOT D ENIED THAT THIS YEAR THE ASSESSEE WAS ENGAGED ON JOB WORK ONLY AND FOR THAT REASON ONLY, THE GP RATE HAS INCREASED VERY HIGH WHEREAS THE UNACCOUNTED BUSINES S OF THE APPELLANT, THIS YEAR ALSO, CONTINUED TO BE THE TRADING OF COTTON/COTTON YARN AS WAS IN THE PRECEDING YEARS. THE LD. CIT (A), TAKING NOTE OF THIS VARY FA CT, HELD THAT THE AO WAS NOT JUSTIFIED IN STILL APPLYING NP RATE OF 11.61% FOR T HIS YEAR AS WELL WHICH WAS POSSIBLE IN JOB WORK ONLY. THE LD. DR COULD NOT CONTROVERT T HE FINDING OF THE LD. CIT(A) HENCE, UPTO THIS STAGE WE ALSO CONCUR WITH THE FINDINGS RE CORDED BY THE LD. CIT(A). THEREFORE, THE DELETION OF THE ADDITION OF RS.55,15 ,392/- BY THE LD. CIT(A) IS HEREBY CONFIRMED. CONSEQUENTLY, THE REVENUES GROUND NO.2(I) & 2(II) BOTH ON THE SAME ISSUE ARE HEREBY DISMISSED. HOWEVER, WHILE ESTIMATING THE GP RATE FOR THE UNACC OUNTED TRADING BUSINESS OF THIS YEAR, THE LD. CIT(A) NOTED THAT THE GP RATE APPLIED BY THE AO OF 3.20% AND 5.89% IN A.Y.2005-06 & 2006-07 RESPECTIVELY AND APPLIED G P RATE OF 5.89%. THERE APPEARS NO JUSTIFIABLE REASON AS TO IGNORE THE IMMEDIATELY PRECEDING YEAR I.E. A.Y.2006-07 WHEREIN THE AO APPLIED GP RATE OF 3.21% ONLY AND TO CONSIDER THE NP RATE APPLIED IN A.Y.2005-06 WHICH IS ONE YEAR EARLIER. SINCE IN THE PECULIAR FACTS OF THIS CASE, WE HAVE ALREADY UPHELD NP RATE OF 2% IN THE EARLIER YE ARS, TO BE JUSTIFIED. KEEPING IN VIEW THE TOTALITY OF FACTS & CIRCUMSTANCES, PAST HI STORY AND THE PECULIAR FACTS, WE FIND 32 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. IT REASONABLE TO APPLY NP RATE OF 2% THIS YEAR ALSO TO BE JUSTIFIED AND ORDER ACCORDINGLY. THE TRADING ADDITION MADE BY THE AO AT RS.99.20 LACS AND REDUCED BY THE LD. CIT (A) TO RS.44,04,608/- IS UPHELD TO THE EXTENT OF RS.18,20,306/-. HENCE, GROUND NO 2 OF THE ASSESSEE IN ITA NO.453/JP/11 IN A.Y.2007-08 IS PARTLY ALLOWED AS INDICATED ABOVE. HOWEVER, AS AGREED BY THE AO ALSO NO SEPARATE ADDIT ION SHOULD BE MADE ON ACCOUNT OF THE REMAINING TRADING ADDITION SO PARTLY SUSTAIN ED IN AS MUCH AS THE ASSESSEE HAS ALREADY SURRENDERED UNACCOUNTED INCOME OF RS.112 LA CS IN THIS YEAR ON ACCOUNT OF MONEY LENDING BUSINESS AND/OR UNACCOUNTED TRADING I NCOME BY GIVING THE BENEFIT OF TELESCOPING/SET OFF. 7. GROUND NO. 3 RELATES TO CONFIRMING THE DISALLOWANCE OF RS. 53,6 91/-. 7.1. DURING THE YEAR UNDER CONSIDERATION THE AO NOTED TH AT THE ASSESSEE HAS CLAIMED VARIOUS EXPENSES AS PER P&L ACCOUNT. ON BEI NG ASKED ABOUT THE BUSINESS EXPEDIENCY OF THESE EXPENSES VIDE LETTER DATED 20.0 3.2008, THE LD. A/R OF THE ASSESSEE HAS EXPLAINED VIDE LETTER DATED 8.4.2008 T HAT THE EXPENSES ARE CLAIMED FOR BUSINESS PURPOSES ONLY. THE AO NOTED THAT THE EXPEN SES ARE PARTLY VOUCHED. HE NOTED THAT ONLY MANUAL VOUCHERS HAVE BEEN PREPARED WITHOUT THE SIGNATURE OF THE RECIPIENTS AND AS SUCH THESE EXPENSES ARE NOT SUBJE CTED TO PROPER VERIFICATION. SOME OF THESE EXPENSES ARE OF PERSONAL NATURE AND PERSON AL USE OF VEHICLES, TELEPHONE, MOBILE, ETC HAS NOT BEEN DENIED. NO DAY TO DAY CALL REGISTER FOR THE TELEPHONE AND MOBILE USE HAS BEEN KEPT. NO LOG BOOK HAS BEEN MAIN TAINED FOR PLYING OF VEHICLES. THE CLAIM OF LOSS ON SALE OF FIXED ASSETS IS ALSO N OT ALLOWABLE AS THE SAME IS TREATED AS CAPITAL LOSS, ON WHICH DEPRECIATION HAS ALREADY BEEN CLAIMED BY THE ASSESSEE. IN VIEW OF ABOVE, THE BUSINESS EXPEDIENCY OF THESE EXP ENSES HAS NOT BEEN PROVED. 33 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. THEREFORE, THE AO DISALLOWED A TOTAL SUM OF RS. 53, 691/- OUT OF THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE. 7.2. ON APPEAL, THE LD. CIT (A) CONFIRMED THE ACTIO N OF THE AO BY OBSERVING AS UNDER :- 1.3. I HAVE CONSIDERED THE SUBMISSION OF THE AR A ND HAVE PERUSED THE ASSESSMENT ORDER AND RELEVANT RECORD. ARGUMENT OF THE APPELLANT HAS NO FORCE. THE ASSESSEES PLEA THAT THE ASSESSME NT SHOULD BE RELATED TO SEARCH AND SEIZURE PROCEEDINGS IS NOT TE NABLE AS THE ASSESSMENT U/S 143(3) R.W.S. 153A IS DONE FOR THE T OTAL INCOME OF THE ASSESSEE AND NOT RESTRICTED TO ISSUES UNDER SEARCH AND SEIZURE. THE FURTHER PLEA OF THE AR OF THE ASSESSEE THAT ASSESSE E HAS ALREADY CONSIDERED THE INCOME UNDER THE UNDISCLOSED INCOME DECLARED IS NOT JUSTIFIABLE AND THE SAME IS NOT PROVED FROM RECORD. THUS THE PLEA OF THE ASSESSEE IS NOT TENABLE LOOKING AT THE FACT THA T POSSIBILITY OF PERSONAL AND NON BUSINESS EXPENSES CAN NOT BE RULED OUT LOOKING AT THE BUSINESS PATTERN OF THE ASSESSEE. HENCE, I CONF IRM THE AFORESAID ADDITION MADE BY THE AO IN VARIOUS EXPENSES FOR ALL THESE YEARS UNDER APPEAL. 8. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 8.1. THE LD. A/R FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT THE IMPUGNED DISALLOWANCES HAS BEEN MADE DE HORSE ANY INCRIMINAT ING MATERIAL BECAUSE DO NOT FIND PLACE IN THE IMPUGNED ASSESSMENT ORDERS. MOREO VER, THE ASSESSMENT OF ALL THE SEVEN YEARS AND NOTHING WAS PENDING. HENCE SUCH DIS ALLOWANCES ARE WITHOUT JURISDICTION. CASE LAWS AS RELIED IN A-GOA-1 ARE RE LIED UPON. THE DISALLOWANCES HAVE BEEN MADE ON ADHOC BASIS, S IMPLY ON MERE SUSPICION. NO SPECIFIC INSTANCE HAS BEEN GIVEN .IT IS SETTLED THAT A BUSINESSMAN IS THE BEST JUDGE TO TAKE CARE OF ITS OWN INTEREST & TO TA KE DECISIONS AND THE AO IS NOT SUPPOSED TO INTERVENE THEREIN NOR HE CAN REPLACE TH E ASSESSEE. THE LD. A/R PLACED RELIANCE IN THE CASE OF T.T.PVT. LTD. V/S ITO (1980) 121 ITR 551 (KAR), CIT V/S UDHOJI SHRIKRISHNADAS (1983) 139 ITR 827 (MP), JK WOOLEN M ANUFACTURERS 72 ITR 612 (SC). THE AO HAS NOT AT ALL PROVIDED ANY BASIS. THE VEHICLES WERE USED EXCLUSIVELY FOR BUSINESSES PURPOSE. HE, THEREFORE, PRAYED THAT THE DISALLOWANCE BE DELETED IN FULL. 8.2. ON THE OTHER HAND, LD. D/R SUPPORTED THE ORDER S OF THE AUTHORITIES BELOW. 34 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. 8.3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS CLAIMED VARIOUS EXPENSES AS REVEALED IN THE PROFIT & LOSS ACCOUNT. THE AO NOTED THAT ASSESSEE HAS PREPARED MA NUAL VOUCHERS WITHOUT THE SIGNATURE OF THE RECIPIENTS AND AS SUCH THESE EXPEN SES ARE NOT SUBJECT TO PROPER VERIFICATION. SOME OF THE EXPENSES CLAIMED TOWARDS VEHICLE, TELEPHONE, MOBILE ETC. ARE NOT VERIFIABLE AS ASSESSEE HAS NOT MAINTAINED A NY LOG BOOK, CALL REGISTER. MOREOVER, ELEMENT OF PERSONAL USE OF VEHICLE, TELEP HONE, MOBILE CANNOT BE RULED. THEREFORE, DISALLOWANCES MADE BY AO HAVE BEEN RIGHT LY CONFIRMED BY THE LD. CIT (A). FOR THE A.Y. 2001-02, THE AO HAS DENIED THE CL AIM OF LOSS OF RS. 52,669/- ON SALE OF FIXED ASSETS TREATING IT AS CAPITAL LOSS ON WHICH DEPRECIATION HAS ALREADY BEEN CLAIMED BY THE ASSESSEE AND ALLOWED BY THE AO AND D ISALLOWED 10% ON THE DEPRECIATION CLAIMED ON CARS AS THE PERSONAL USE OF THE SAME CANNOT BE DENIED. THE LD. CIT (A) HAS CONFIRMED THE ACTION OF THE AO HOLD ING THAT LOSS ON SALE OF CAPITAL ASSETS IS NOT ALLOWABLE. IN THE LIGHT OF ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT (A) WHICH IS HEREBY CONFIRMED. THE GROUND O F THE ASSESSEE IS REJECTED. 9. GROUND NO. 4 & 5 RELATES TO UNDISCLOSED MONEY LENDING BUSINESS AND CONFIRMING ADDITION OF RS. 10,12,000/- ON ACCOUNT O F INVESTMENT IN MONEY LENDING BUSINESS. 9.1. DURING THE COURSE OF SEARCH UNDER SE CTION 132(1) OF THE ACT, IT IS NOTICED THAT THE ASSESSEE COMPANY IS ALSO ENGAGED IN MONEY LENDING BUSINESS. LOOSE PAPERS SEIZED DURING SEARCH SUGGEST THAT THE ASSESSEE WAS INDULGED IN MONEY LENDING AT LARGE SCALE WITHOUT RECORDING THE TRANSACTIONS IN T HE BOOKS OF ACCOUNT. A DIARY WAS 35 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. SEIZED FROM THE RESIDENCE OF SHRI DAMODAR KOTHARI I N WHICH TRANSACTIONS RELATING TO MONEY LENDING BUSINESS OF THE ASSESSEE COMPANY AS W ELL AS OF SHRI CHETAN PRAKASH AGARWAL WERE FOUND WRITTEN IN CODED FORM. SIMILARLY AT THE RESIDENCE OF SHRI MANISH JAIN, GANGAPUR, SHRI MAHESH AGARWAL, THANE (MUMBAI) AND AT FACTORY PREMISES DIARY, LOOSE PAPERS, DOCUMENTS WERE FOUND RECORDING SIMILAR TRANSACTIONS BUT NOT DISCLOSED TO THE DEPARTMENT. ON BEING ASKED BY THE AO TO EXPLAIN THESE TRANSACTIONS, THE ASSESSEE EXPLAINED THAT THE GROUP WAS INDULGED IN UNACCOUNTED TURNOVER OF COTTON AND COTTON YARN AND THESE TRANSA CTIONS HAVE BEEN INCORPORATED IN BANK ACCOUNTS AND UNACCOUNTED INCOME HAS BEEN EARNE D THEREFROM FOR WHICH SEPARATE ADDITIONAL INCOME HAS BEEN SURRENDERED BY THE ASSESSEE IN THE HANDS OF SHRI CHETAN PRAKASH AGARWAL AND M/S. BHARTIYA SPINN ERS LTD. SIMILARLY THE UNACCOUNTED INCOME EARNED BY THE ASSESSEE HAVE BEEN UTILIZED IN MONEY LENDING BUSINESS WHICH TOO WAS UNRECORDED. ACCORDINGLY, THE ASSESSEE COMPANY SURRENDERED RS. 154.33 LACS IN THE A.Y. 2007-08 ON PEAK BASIS INCLUDING SURRENDERED MADE ON ACCOUNT OF PROFIT ON UNACCOUNTED BANK TRANSACTIONS OF RS 42.30 LACS IN DIFFERENT ASSESSMENT YEARS. THE AO WORKED OUT THE PEAK AMOUNT OF MONEY LENDING BUSINESS AT RS.10.57 LACS, RS. 23.25 LACS, RS. 42.60 LACS, R S. 115.47 LACS, RS. 118.86 LACS FOR THE ASSESSMENT YEARS 2001-02 TO 2005-06 RESPECTIVEL Y AND RS. 154.33 LACS FOR THE ASSESSMENT YEAR 2007-08 AND ASKED THE ASSESSEE VIDE LETTER NO. 569 DATED 22.09.2008 AS TO WHY THE PEAK AMOUNT OF MONEY LENDI NG TRANSACTIONS WORKED OUT SHOULD NOT BE ADOPTED IN RESPECTIVE ASSESSMENT YEAR S AS NO UNDISCLOSED INCOME HAS BEEN DECLARED IN A.Y. 2001-02 TO 2006-07, AS UNDER :- ASSESSMENT YEARS PEAK AMOUNT (IN LACS) ADDITION TO BE MADE (IN LACS) 01 - 2 10.57 10.57 36 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. 02 - 03 23.25 12.68 03 - 04 42.60 19.35 04 - 05 115.47 72.87 05 - 06 118.86 3.39 06 - 07 - - 07 - 08 154.33 35.47 TOTAL 154.33. IN RESPONSE, THE ASSESSEE VIDE LETTER DATED 21.10.2 008 EXPLAINED THAT IT OFFERED PEAK OF MONEY LENDING ACTIVITY AT RS. 154.33 LACS IN A.Y . 2007-08 AND IT SHOULD BE ACCEPTED AND BENEFIT OF SET OFF OF UNDISCLOSED INCO ME AGAINST UNDISCLOSED EXPENDITURE/INVESTMENT MAY BE ALLOWED. THE AO CONS IDERED THE SUBMISSIONS OF THE ASSESSEE CAREFULLY BUT HE FOUND IT UNTENABLE IN VIE W OF THE FACT THAT THE UNDISCLOSED INCOME FROM MONEY LENDING BUSINESS HAS TO BE TAKEN IN THE YEAR IN WHICH IT IS EARNED/ACCRUES ON MERCANTILE BASIS OF ACCOUNTING. S IMILARLY, THE AO WORKED OUT YEAR-WISE PEAK AMOUNT OF INVESTMENT IN MONEY LENT. THERE IS NO DISPUTE THAT PEAK OF UNACCOUNTED MONEY LENT STANDS AT RS. 154.33 LACS . THE ASSESSEES CLAIM THAT IT SHOULD BE CONSIDERED IN F.Y. 2006-07 IS NOT ACCEPTA BLE FOR THE REASON THAT SEIZED DOCUMENTARY EVIDENCE OF MONEY LENDING TRANSACTIONS CLEARLY PROVES THAT MONEY WAS LENT OVER A PERIOD OF F.Y. 2000-01 TO FY 2006-07 AS MENTIONED BY THE AO IN PARA 6.1 OF HIS ORDER. THE AO, THEREFORE, FOLLOWING THE REAS ONABLE PRINCIPLE AND GIVING SET OFF OF INCOME OF CURRENT/EARLIER YEARS FROM PEAK MONEY LENDING, THE UNDISCLOSED INCOME OF ASSESSEE IS COMPUTED AS UNDER FOR EACH YEAR :- (RS. IN LACS) AY. PEAK AMOUNT OF MONEY LENDING BUSINESS AS UDI DECLARED FOR UNRECORDED TURNOVER & MONEY LENDING UDI DETERMINED FOR UNRECORDED HIGHER FIGURE OUT OF INCOME OR PEAK DIFFERENCE TO BE ADDED (5-3) 37 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. PER ABOVE CHART AFTER TELESCOPING AS PER RETURNS FILED TURNOVER MONEY LENT 1 2 3 4 5 6 2001 - 02 10.57 00.45 002.23 10.57 1012 2002 - 03 12.68 01.15 002.25 12.68 11.53 2003 - 04 19.35 01.75 006.97 19.35 17.60 2004 - 05 72.87 04.15 010.06 72.87 68.72 2005 - 06 3.39 12.45 051.94 51.94 39.49 2006 - 07 - 06.30 017.50 17.50 11.20 2007 - 08 35.47 12.75(112) 111.95 112 0 TOTAL 154.33 39.00 202.90 296.86 158.66 THE AO ACCORDINGLY DETERMINED THE UNDISCLOSED INCOM E AT RS. 10.57 LACS FOR THE A.Y. 2001-02 AND AFTER DEDUCTING THE INCOME DECLARED BY THE ASSESSEE AT RS. 0.45 LACS, MADE AN ADDITION OF RS. 10,12,000/- TO THE TOTAL IN COME OF THE ASSESSEE AS UNEXPLAINED MONEY LENT FOR THE A.Y. 2001-02. 9.2. BEING AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A) WHO HAS CONFIRMED THE ACTION OF THE AO FOR THE A.YS. 2001-02, 02- 03 AND 07-08 AND DELETED THE ADDITION FOR THE A.YS. 03-04, 04-05 AND 05-06 BY OBSERVING AS UNDER : 3.4. I HAVE CONSIDERED THE ISSUE AN D HAVE GONE THROUGH THE ARGUMENTS OF THE ASSESSEE, AND PERUSED THE ASSESSME NT ORDER. THE OBSERVATION OF THE AO IN HIS ORDER THAT MONEY LENDI NG ADVANCES HAVE TO BE TAXED IN THE YEAR IN WHICH ADVANCES ARE NOTIC ED IS CORRECT. THE ASSESSEE COMPANY HAS ADMITTED AND SHOWN IN RETURN O F INCOME AN UNDISCLOSED INCOME OF RS. 112.00 LACS ON ACCOUNT OF MONEY LENDING BUSINESS AND OTHER UNACCOUNTED RECEIPTS/TRANSACTION IN THE DIARIES FOUND. THE INCOME GENERATED IN SUBSEQUENT YEARS CAN NOT BE ALLOWED TO BE SET-OFF AGAINST MONEY LENT IN EARLIER YEARS. THE YEAR WISE ADDITIONS ARE IN PRINCIPLE CORRECT IN FACTS AS WELL AS ON LAW. BUT, IT IS NOTICED FROM THE CHART THAT THE AO HAS MADE ADDITIO NS OF UNACCOUNTED MONEY LENDING ADVANCES, WHERE IN FACT THERE ARE NO ADVANCES AND RATHER MONEY RECEIVED IS MORE, GIVING RISE TO NEGAT IVE PEAK IN A.Y. 2003-04, 2004-05 AND 2005-06. THIS IS CLEARLY ERRON EOUS. THE CASH BALANCE (BALANCE AS PER DIARIES) HAS TURNED TO NEGA TIVE IN THESE YEARS 38 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. WHICH IS DUE TO EXCESS MONEY RECEIVED OVER MONEY GI VEN. THE A.R. HAS EXPLAINED THAT THE EXCESS MONEY RECEIVED RELATE S TO UNACCOUNTED BUSINESS TRANSACTION OR SOME OTHER MISC. ENTRIES. T HE AO HAS NOT GIVEN ANY REASON OR EXPLANATION OR BASIS AS TO HOW AND TH EY THE PEAK BALANCE HAVE BEEN ADDED UNDER MONEY LENDING ADVANCE , WHEREIN IN FACT THERE ARE NO EVIDENCES. EVEN IF IT IS PRESUMED THAT THESE ARE RECOVERIES OUT OF ADVANCES GIVEN IN EARLIER YEARS P RIOR TO AY 2001-02 (THOUGH NOT SO OBSERVED BY AO), THEN ALSO THESE CAN NOT BE TAXED IN THESE RESPECTIVE YEARS OF RECEIPTS. MOREOVER, PERIO D PRIOR TO THE PERIOD RELEVANT TO AY 2001-02 IS BEYOND THE PERIOD FOR WHI CH ANY ACTION CAN BE TAKEN BY AO. THE BASIS OF THE PEAK ADOPTED BY TH E AO WAS BASED ON APPROACH OF MAXIMUM MONEY LENT IN VARIOUS YEARS. CONSIDERING THESE FACTS AND CIRCUMSTANCES, AND POSITION OF LAW, THE ADDITIONS ON ACCOUNT OF PEAK OF MONEY LENDING ADVANCES IS CONFIR MED IN AY 01-02, 02-03 AND 07-08. FOR THE A.Y. 03-04, 04-05 AND 05-0 6, AS THERE ARE NO FURTHER ADVANCE AND RATHER THERE IS NEGATIVE PEAK ( REFLECTING RECOVERIES MORE THAN ADVANCE), ADDITIONS BEING JUSTIFIED ARE H EREBY DELETED. 10. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 10.1. AT THE OUTSET, THE LD. A/R FOR THE AS SESSEE SUBMITTED THAT THAT THE CHART OF PEAK OF MONEY LENDING TRANSACTIONS PREPARED BY T HE AO AND AVAILABLE AT PAGES 8 TO 12 OF THE ASSESSMENT ORDER SUFFERS FROM VARIOUS INFIRMITIES/DEFICIENCIES/MISTAKES ETC. AND THEREFORE, BASED THEREON THE SUMMARIZED CHART P REPARED BY HIM AND FIND PLACE AT BOTTOM OF PAGE 12 OF AO ORDER ALSO SUFFERS FROM THOSE MISTAKES AND COULD NOT HAVE BEEN RELIED UPON BLINDLY, AS WAS INCORRECT LY DONE BY THE LD. CIT(A). THE SAME ARE DISCUSSED HEREUNDER: (1) FIRSTLY , WHILE WORKING OUT THE PEAK FOR F.Y.2000-01 (A.Y.20 01-02) THE AO HAS WORKED OUT THE PEAK (I.E. THE HIGHEST AMOUNT OF RECOVERIES MADE LESS THE AMOUNTS OF ADVANCES LENT) AT RS.10.49 LACS. HE FURTHER ADDED RS.0.08 LACS WHICH WAS THE AMOUNT RECEIVED BACK OUT OF THE PREVIOUS YEARS LENDING. THE FIGURE OF (-) 0.08 LACS MEANS IT WAS A NEGATIVE PEAK. IN OTHER 39 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. WORDS, IF IT WAS IN EXCESS OF THE RECOVERIES OF THE AMOUNTS LENT (AS ALSO STATED BY THE LD. CIT(A) W.R.T. SIMILAR NEGATIVE BA LANCES IN LATER YEARS) AND THEREFORE, LOGICALLY, THIS FIGURE SHOULD HAVE BEEN REDUCED FROM THE CURRENT PEAK OF RS.10.49 LACS SO AS TO ARRIVE AT CORRECT PE AK AMOUNT FOR THIS YEAR AT RS.10.41 LACS. (2) SECONDLY , IN THE F.Y.2001-02 (A.Y.2002-03) THERE WAS A PEAK OF RS.23.25 LACS AGAINST WHICH IN F.Y. 2002-03 (A.Y.2003-04) , THERE WAS EXCESS RECOVERY OF (-)RS.19.35 LACS. NORMALLY FROM THE LA TER/LARGER FIGURE OF THE PEAK, THE EARLIER PEAK SHOULD BE REDUCED. THE AO HO WEVER ADDED THE TWO I.E. BOTH NEGATIVE AND POSITIVE FIGURES AND WRONGLY WORKED OUT PEAK OF RS. 42.60 LAKHS. SIMILAR MISTAKES WERE COMMITTED BY THE AO IN A.Y. 2004-05 AND 2005-06. (3) THE CALCULATION OF THE PEAK DONE BY LD. AO IS ITSEL F INVALID IN LAW AS WELL AS IN FACTS. THE CHART IS MIXTURE OF ALL THE DIARIES O F VARIOUS PERSONS (NAMED AT THE END OF THE SAID CHART AT PG 12 OF AO) AND AS SERVE NO REAL PURPOSE. ANY OBSERVATION BY CONSIDERING SUCH MIXING AND MATC HING OF DIARIES IS BOUND TO GIVE INCORRECT AND UNRELIABLE RESULTS. THE CHART IS ITSELF INCORRECT, INVALID, ERRONEOUS, ILLOGICAL AND LACKS ANY LEGAL S ANCTITY NO LEGAL SANCTITY CAN BE GIVEN TO SUCH DEAF AND DUMB DOCUMENTS UNLESS THEY ARE SUPPORTED BY SOME CLEAR EVIDENCES THAT THE FIGURES ARE OF MON EY LENDING BUSINESS ONLY. (4) THE REPEATED CONTENTION OF THE ASSESSEE HAS BEEN IG NORED THAT THE DIARIES ARE ITSELF NOT PROVING ANYWHERE THAT THEY ARE RELAT ED TO MONEY LENDING BUSINESS ONLY BUT THE CORRECT FACT IS THAT IT ALSO INCLUDED UNACCOUNTED BUSINESS TRANSACTIONS AND EVEN PERSONAL TRANSACTION S AND MOREOVER, THESE WERE ONLY ROUGH SORT OF MEMORANDUM DIARIES. HOWEVER , THERE APPEARS NO DENIAL/REBUTTAL OF THESE REPEATED CONTENTIONS AND T HESE ARE NOT NEGATIVE BY THE AO OR LD. CIT(A) MEANING THEREBY, NO FIRM CO NCLUSION COULD HAVE BEEN DRAWN AS TO THE INCOME INVOLVED IN THE MONEY L ENDING BUSINESS BY THE ASSESSEE AND EVEN 154.33 LACS SURRENDERED BY TH E ASSESSEE WAS A ROUGH ESTIMATE WHICH SHOULD BE TAKEN TO BE THE HIGH EST FIGURE WHICH COULD 40 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. HAVE BEEN CONSIDERED WHETHER FROM MONEY LENT OR FRO M TRADING ADDITION W.R.T. UNRECORDED TURNOVER AND EVEN DISALLOWANCES E TC., HENCE THERE WAS NO FURTHER SCOPE TO MAKE ADDITION OVER & ABOVE. NO MEANINGFUL DATA HAVE BEEN CULLED OUT WHICH CAN BE CORROBORATED FROM OTHE R MATERIAL. HENCE, IT IS NOT JUSTIFIED TO MAKE ADDITION ON ESTIMATE BASIS . (5) IT IS NOT DENIED THAT THE INVESTMENT IN MONEY LENDING IS OUT OF THE BUSINESS INCOME FROM UNACCOUNTED TURNOVER OF THE AS SESSEE BUT YEAR WISE CORRELATION CANNOT BE DRAWN BETWEEN PROFIT EARNED A ND MONEY LENDING INVESTMENT. THE BUSINESS INCOME MAY RELATE TO PRECE DING YEAR OR THE ACCUMULATED INCOME OF MORE THAN ONE PRECEDING YEARS (EVEN PRIOR TO 2001-02) AND AT THE SAME TIME THE AMOUNT OF MONEY L ENT YEAR-WISE OUT OF SUCH INCOME MAY BE IN THE SUBSEQUENT YEAR/S WHICH M AY BE PRIOR TO A.Y. 2001-02 AND THIS CONTENTION MATHEMATICALLY PROVED I N THREE YEARS THERE WERE NEGATIVE BALANCES I.E. MORE RECOVERIES/AVAILAB ILITY AS AGAINST THE AMOUNTS LENT WHICH CONFIRMS THE ASSESSEE CONTENTION THAT THE AMOUNT WAS LENT PRIOR TO A.Y. 2001-02 AND NOW IN SUBJECTED BLO CK PERIOD THESE ARE RECOVERED. HENCE THERE IS NO SCOPE FOR THE AO TO MA KE THE ADDITION YEAR WISE INSTEAD OF CONSIDERING THE ISSUE OF THE ENTIRE PERIOD OF SEVEN YEARS AS ONE BLOCK PERIOD ONLY. (6) BASED ON A.Y.2001-02 WHEN THERE WAS EXCESS RECOVERY OF RS.0.08 LACS (RS.80,000/-) OR IN LATER YEARS A.Y. 2003-04 RS.(-) 19.35, A.Y. 2004-05 RS. (-)72.87 AND A.Y. 2005-06 RS. (-)3.39 RESPECTIVELY, THE POSSIBILITY OF FURTHER SUCH RECOVERY HAVING BEEN MADE BY THE ASSES SEE GROUP FROM THOSE DEBTORS, TO WHOM MONEY WAS SIMILARLY ADVANCED PRIOR TO PERIOD TO A.Y.2001-02 COULDNT HAVE BEEN RULED OUT. THE DEPAR TMENT CANNOT READ OFF / IGNORE THIS FACT AND THE CONTENTION BY SIMPLY SAYING THAT WHAT WAS FOUND RECORDED EXCESSIVE, HAS ALREADY BEEN CREDIT B Y THE LD. CIT(A) IN AS MUCH AS TO REPEAT, IN THE CASES OF SEARCH THE ACCOU NTS AND RECORDS ARE NEVER MAINTAINED WITH A MATHEMATICAL PRECISION OR M ETICULOUSLY IN AS MUCH AS THE ASSESSEE/S HAVING MADE UP THEIR MIND TO CONCEAL THESE TRANSACTIONS, HENCE IT IS INHERENT IN THE HUMAN NAT URE NOT TO RECORD ALL 41 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. THESE TRANSACTIONS IN THE DIARIES OR OTHER PAPERS E TC., SOME OF WHICH MIGHT HAVE BEEN FOUND & CAUGHT BY THE SEARCH TEAM WHEREAS , SOME OTHER SIMILAR RECORDS THOUGH MAINTAINED MIGHT HAVE ESCAPE D ATTENTION AND COULD NOT HAVE BEEN SEIZED. WHEN WE TALK OF MAKING A FAIR ESTIMATION, SUCH A FACT OF POSSIBILITY WHICH IS NOT BEYOND THE DOCTRIN E OF PREPONDERANCE OF HUMAN PROBABILITIES DOES HAVE A DIRECT RELEVANCE AN D REQUIRES A SERIOUS CONSIDERATION WHILE ESTIMATING THE INCOME. TO REPEA T, THE LAW OF MAKING BEST JUDGMENT ASSESSMENT AND FAIR ESTIMATION IS NOT MEANT TO MERELY PENALIZE THE ASSESSEE BUT TO DO JUSTICE TO BOTH THE PARTIES. (7) IT IS NOT DENIED THAT THESE ASSESSMENTS UNDER C ONSIDERATION HAVE BEEN MADE UNDER THE SPECIAL PROVISIONS OF SEARCH ASSESSM ENTS I.E. U/S 153A FOR 7 YEARS I.E. A.Y. 2001-02 TO A.Y. 2007-08 AND IS NO THING BUT A BLOCK ASSESSMENT WHICH WAS THE SYSTEM ASSESSMENT PROCEDUR E PROVIDED EARLIER UNDER CHAPTER XIV-B OF THE ACT. KEEPING THAT FACT A ND LEGAL POSITION IN MIND IT IS LOGICAL AND PREFERRED THAT THE WORKING O F THE PEAK SHOULD BE DONE TAKING ENTIRE 7 YEARS AS ONE BLOCK INSTEAD OF WORKING OUT THE PEAK YEAR WISE. HAD IT BEEN A CASE OF NORMAL ASSESSMENT ONE COULD HAVE ARGUED DIFFERENTLY WHICH IS NOT THE CASE HERE. (IT MAY BE CHANGED ACCORDINGLY). 10.2. ON THE OTHER HAND, THE LD. D/R FOR T HE REVENUE HAS SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 10.3. WE HAVE HEARD RIVAL CONTENTIONS, PE RUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE LOWER AUT HORITIES. THE SUBMISSION OF THE ASSESSEE HAS BEEN THAT DURING THE COURSE OF SEARCH CERTAIN LOOSE DIARIES AND PAPERS WERE FOUND (COPIES OF WHICH AT PLAKHSED ATPAGES 105 TO 128OF THE ASSESSEES PAPER BOOK). THESE FIGURES WERE COMPRISED OF CERTAIN DATE S AND AMOUNT HOWEVER NO OTHER 42 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. DETAILS REGARDING THE NATURE OF EACH TRANSACTION WA S MENTIONED. SOME OF THE TRANSACTION MIGHT RELATE TO MONEY LENDING BUSINESS WHICH WAS THE RESULT OF THE UNACCOUNTED PROFIT EARNED FROM THE UNACCOUNTED TURN OVER. THE DIARIES CONTAINED THE FIGURE OF SALES, PURCHASE, CASH RECEIPTS FOR SALES, CASH PAYMENT FOR PURCHASE, AMOUNT GIVEN TO STAFF, RECEIPTS FROM THE EMPLOYEES ETC., AND THE TRANSACTIONS RELATED TO VARIOUS PERSONS. THEREFORE, IT WAS DIFFICULT TO PRECISELY WORK OUT ANY PARTICULAR TRANSACTION WHETHER OF MONEY LENDING OR OF TRADING ETC. AS NOTED BY THE AO, THE ASSESSEE COMPANY VIDE LETTER DATED 21.10.2008, COPY OF WHICH IS PLACED AT PAPER BOOK PAGES 154 AND 155 HAS EXPLAINED THE PEAK OF MO NEY LENDING ACTIVITY IN A.Y. 2007-08 ONLY AND REQUESTED THAT THE SAME SHOULD BE ACCEPTED AND THE BENEFIT OF SET-OFF OF UNDISCLOSED INCOME AGAINST THE UNDISCLOS ED EXPENDITURE/INVESTMENT SHOULD BE ALLOWED. THE AUTHORITIES BELOW HOWEVER, HAVE CONSIDERED SUCH UNEXPLAINED INVESTMENT IN MONEY LENDING ON YEAR-WISE BASIS STATING THAT THE M ONEY LENDING ADVANCES SHOULD BE TAXED IN THE YEAR IN WHICH THEY ARE NOTICED. THU S, ON ONE HAND, THE ASSESSEE HAS ALREADY MADE DISCLOSURE IN A.Y.2007-08 WHEREAS THE AO HAS AGAIN MADE YEAR-WISE ADDITIONS ALTHOUGH THERE APPEARS NO DISPUTE ON THES E TOTAL FIGURE OF RS.1.12 CRORES BUT IN ANY CASE THIS APPEARS TO HAVE RESULTED IN DO UBLE ADDITION IN AS MUCH AS THE AO HAS NOT ALLOWED YEAR-WISE REDUCTION ON ACCOUNT O F THE SURRENDER ALREADY MADE BY THE ASSESSEE ON THIS ACCOUNT IN A.Y.2007-08. IN OUR VIEW THE AUTHORITIES CANNOT BE PERMITTED TO MAKE DOUBLE ADDITIONS. MOREOVER WHE N WE HAD HELD THAT THE ADDITIONS CAN ONLY BE MADE IN THE ASSESSMENT YEAR 2 007 -2008 ON ACCOUNT OF MONEY LENDING ACTIVITIES NO SEPARATE ADDITIONS CAN BE MAD E IN THE EARLIER YEARS. 43 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. IN THE DEPARTMENTAL APPEAL, WE CONCUR WITH THE FIND ING OF THE LD. CIT(A) THAT IN A.Y.2003-04 , 2004-05, 2005-06 THERE WERE NEGATIVE PEAK BALANCES AND BECAUSE OF EXCESS RECOVERY THAN THE MONEY LENT, NO ADDITION CO ULD HAVE BEEN MADE. SUCH FINDING HOWEVER, COULD NOT BE REBUTTED BY THE LD. D R DURING THE COURSE OF HEARING. NEEDLESS TO ADD THAT ONCE BASED ON THE SAME SEIZED MATERIAL, WHEN IN SOME OF THE YEARS THERE APPEARS THE MONEY LENT THE ADDITION WAS JUSTIFIED, AT THE SAME TIME HOWEVER, WHEN IN OTHER YEARS, BASED ON THE SAME MAT ERIAL THERE APPEARS NO MONEY LENT BUT THERE WAS EXCESS RECOVERY, NO ADDITION WAS JUSTIFIED. THE RELIEF GRANTED BY THE LD. CIT(A) IN THESE YEARS WAS NOT CONFINED ONLY ON THE BASIS OF THE POSSIBLE RECOVERIES OUT OF ADVANCES GIVEN IN EARLIER YEARS P RIOR TO A.Y.2001-02 BUT ALSO IN OTHER GROUNDS THAT THE CASH BALANCES AS PER SEIZED DIARIES TURNED TO NEGATIVE DUE TO EXCESS MONEY RECEIVED AND THE AO DID NOT GIVE ANY R EASON OR BASIS HOW THE PEAK BALANCE COULD BE ADDED AS MONEY LENT IN THESE YEARS . IN OUR CONSIDERED OPINION THEREFORE, WE HOLD THAT T HE LD. CIT(A)WAS FULLY JUSTIFIED IN DELETING THE ADDITION IN A.Y.2003-04, 2004-05 & 200 5-06. HENCE, THE DELETION OF RS.17.60LAKHS, RS.68.72 LAKHS & RS.39.49 LAKHS RESP ECTIVELY IS HEREBY CONFIRMED. CONSEQUENTLY, REVENUES GROUND NO. 3IN A.Y.2003-04, GROUND NO. 3 IN A.Y.2004-05 AND GROUND NO. 1 & 2IN A.Y.2005-06 ARE DISMISSED. THUS, TO SUM UP, IN THE YEARS WHEREIN THE ADDITIONS ON ACCOUNT OF MONEY LENT HAS BEEN SUSTAINED, SHOULD BE FIRST SET OFF EACH YEAR, AGAINST THE TRADING ADDITION ON ACCOUNT OF UNRECORDED TURNOVER, IF ANY SUSTAINED IN THE RESPECTIVE YEAR/S. THE REMAINING ADDITION, IF ANY SHOULD FURTHER BE REDUCE D FROM THE INCOME ALREADY DISCLOSED IN A.Y.2007-08. 44 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. 11. GROUND NO. 6 IS NOT PRESSED BY THE LD. A/R OF THE ASSESSEE, THE REFORE, THE SAME IS DISMISSED AS NOT PRESSED. 12. IN THE RESULT, APPEAL OF THE ASSESS EE IS PARTLY ALLOWED. 13. NOW WE TAKE UP THE APPEALS IN ITA NOS. 448, 449, 450, 451, 452 & 453/JP/2011 FOR THE ASSESSMENT YEARS 2002-03, 03-04 , 04-05,05-06, 06-07 & 07-08. 14. SINCE THE ISSUES INVOLVED IN ALL THE SE APPEALS HAVE BEEN DEALT WITH IN ITA NO. 447/JP/2011 FOR THE A.Y. 2001-02 AND THERE IS N O CHANGE EXCEPT IN FIGURES, WE DECIDE THESE APPEALS ON THE BASIS OF DECISION ARRIV ED AT IN ITA NO. 447/JP/2011 FOR THE ASSESSMENT YEAR 2001-02. THEREFORE, THE APPEALS OF THE ASSESSEE PARTLY ALLOWED. 15. NOW WE TAKE UP DEPARTMENTAL APPEALS IN I TA NOS. 488, 489, 490 & 491/JP/2011 FOR THE A.YS. 2003-04, 04-05, 05-06 & 0 7-08. 16. THE GROUNDS RAISED IN ITA NOS. 488, 4 89, 490/JP/2011 ARE AS UNDER :- 1) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT (A) (CENTRAL), JAIPUR HAS ERRED IN LAW AND FACT IN DELE TING THE ADDITION OF RS. 39,49,000/- MADE BY THE AO ON ACCOUNT OF PEAK OF MO NEY LENDING OR RECEIPTS OF INCOME REALIZED THERE FROM. 2) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A)(CENTRAL), JAIPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF PEAK OF MONEY LENDING OR RECEIPTS OF INCOME REALIZED THERE FROM DESPITE THE FACT THAT TH E ASSESSEE COULD NOT FURNISH ANY SOURCE OF THE MONEY REALIZED. 3) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A)(CENTRAL), JAIPUR HAS ERRED IN LAW AND ON FACTS IN OBSERVING THAT IF IT IS PRESUMED THAT THE RECOVERIES WERE OUT OF ADVANCES G IVEN IN EARLIER YEARS PRIOR TO AY 2001-02 THEN ALSO THESE CAN NOT BE TAXE D IN THE YEAR OF RECEIPTS AS NO ACTION CAN BE TAKEN BY THE AO FOR TH E PERIOD PRIOR TO THE AY 2001-02 DESPITE THE FACT THAT WHEN THERE WAS NO EVIDENCE TO PROVE THE DATE OF ADVANCE GIVEN IT CAN NOT BE HELD THAT T HE RECEIPT WAS OUT OF 45 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. THE ADVANCES GIVEN PRIOR TO A.Y. 2001-02 AND ACCORD INGLY THE SAME IS TAXABLE IN THE YEAR OF RECEIPT. 17. THE ISSUES RELATING TO GROUNDS RAISED B Y THE REVENUE IN THESE APPEALS HAVE BEEN DEALT WITH BY US IN THE ASSESSEES APPEALS HER EIN ABOVE AND DECIDED. THEREFORE, THESE GROUNDS OF REVENUE HAVE BECOME INF RUCTUOUS AND THE SAME ARE REJECTED. THE GROUNDS RAISED IN ITA NOS. 491/JP/2011 ARE AS U NDER :- 1.(I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF TH E CASE, THE CIT (A) (CENTRAL), JAIPUR HAS ERRED IN LAW AND FACTS IN DEL ETING THE ADDITION OF RS. 1,64,350/- MADE BY THE AO ON ACCOUNT OF UNEXPLA INED EXCESS CASH FOUND DURING THE COURSE OF SEARCH OPERATION. 1(II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF TH E CASE, THE CIT (A)(CENTRAL), JAIPUR HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE AO WAS NOT JUSTIFIED IN ADDING EXCESS CASH SEPARATE LY WHEN UNACCOUNTED INCOME WAS ADDED. 2(I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF TH E CASE, THE CIT (A) (CENTRAL), JAIPUR HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE UNACCOUNTED NET PROFIT TO RS. 44,04,068/- (RS.56,79 ,668/- LESS RS. 12,75,000/-) AS AGAINST THE ADDITION MADE BY THE AO OF RS. 99,20,000/- RESULTING INTO RELIEF OF RS. 55,15,392/ - ON THIS ACCOUNT. 2(II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE CIT (A) (CENTRAL), JAIPUR HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO APPLY NET PROFIT RATE OF 5.89% AS AGAINST THE NET PROFIT RATE OF 11.61% ON THE UNACCOUNTED TURNOVER WITHOUT ANY JUSTIFICATION DESP ITE THE FACT THAT THE NET PROFIT RATE APPLIED BY THE AO WAS BASED ON THE ASSESSEES OWN NET PROFIT RATE. GROUND NO. 1(I) & 1(II) RELATES TO A DDITION OF RS. 1,64,350/- ON ACCOUNT OF UNEXPLAINED EXCESS CASH. THE AO NOTICED THAT DURIN G THE COURSE OF SURVEY U/S 133A ON 22.3.2007 CASH OF RS. 32,150/- WAS FOUND AT THE BUSINESS PREMISES OF THE ASSESSEE. ON BEING ASKED TO RECONCILE THE SAME FRO M THE CASH BOOK, THE ASSESSEE 46 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. EXPLAINED VIDE LETTER DATED 15.4.2008 THAT THERE WA S A CASH BALANCE OF RS. 3,99,983/- AS PER CASH BOOK AS ON 22.3.2007. IT WAS FURTHER EXPLAINED THAT CASH OF RS. 9,175/- HAS ALSO BEEN FOUND AT THE RESIDENCE OF SHRI BHAGAT RAM LOHIYA. SIMILARLY CASH OF RS. 5,23,208/- HAS ALSO BEEN FOUN D AT THE RESIDENCE OF SHRI CHETAN PRAKASH AGARWAL. THUS THERE WAS AN EXCESS CASH AVAI LABLE OF RS. 1,64,550/- WHICH THE ASSESSEE COULD NOT EXPLAIN SATISFACTORILY. THER EFORE, THE AO MADE THE ADDITION OF THIS AMOUNT AND ADDED TO THE TOTAL INCOME OF THE AS SESSEE. ON APPEAL BEFORE LD. CIT (A), THE LD. CIT ( A) DELETED THE ADDITION BY OBSERVING AS UNDER :- 4.2. I HAVE CONSIDERED THE SUBMISSION OF LD. A. R AND HAVE PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT T HE AO HAS RIGHTLY ADDED HIGHER OF THE TWO AMOUNT IN DIFFERENT ASSESSMENT YEARS NAMELY UNACCOUNTED INCOME OR THE UNACCOUNTED INVESTMENT/ASSET. ACCORDINGLY, HE WAS NOT JUSTIFIED IN NOT CONSIDERING THE CASH FOUND AS PART OF UNACCOUNTED A SSET AND NOT JUSTIFIED IN SEPARATELY ADDING IT. THE AO HAS H IMSELF MENTIONED ON PAGE 13 OF THE ASSESSMENT ORDER IN THE CHART THAT PEAK AMOUNT OF THE MONEY ADVANCED IS RS. 35.47 LAKH S AND AS THE APPELLANT HAS SURRENDERED UNACCOUNTED INCOME ON UNACCOUNTED TURNOVER AMOUNTING TO RS. 112 LAKHS AND HAS HELD THAT NO ADDITION NEED TO BE MADE, CONSIDERING THAT THE UNACCOUNTED BUSINESS INCOME OFFERED IS MORE THAN TH E UNACCOUNTED INVESTMENT. EVEN AFTER INCLUDING THE UN ACCOUNTED ASSET IN THE FORM OF CASH FOUND, THE UNACCOUNTED IN COME OFFERED FOR TAXATION IS MORE AND ACCORDINGLY, SEPAR ATE ADDITION OF UNACCOUNTED CASH IS HEREBY DELETED. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD. D/R FOR THE REVENUE HAS SUPPORTED TH E ORDER OF THE AO AND REQUESTED TO SET ASIDE THE ORDER OF LD. CIT (A) TO THE EXTENT OF DELETING THE ADDITION MADE ON ACCOUNT OF EXCESS CASH FOUND. 47 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. THE LD. A/R FOR THE ASSESSEE SUPPORTED THE O RDER OF LD. CIT (A). WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIAL AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE ORDERS OF THE LOWE R AUTHORITIES. AFTER CONSIDERING THE ORDER OF LD. CIT (A), WE FIND NO INFIRMITY IN T HE ORDER OF LD. CIT (A) AND THE SAME IS HEREBY UPHELD. THE GROUNDS OF THE REVENUE ARE DI SMISSED. GROUND NO. 2(I) & 2(II) RELATES TO RESTRICTI NG THE UNACCOUNTED NET PROFIT TO RS.44,04,068/-. WE HAVE ALREADY DECIDED THIS GROUND IN ASSES SEES APPEAL IN ITA NO. 447/JP/2011 AND PARTLY ALLOWED THE APPEAL OF THE AS SESSE. THEREFORE, THESE GROUNDS OF THE REVENUE HAS BECOME INFRUCTUOUS AND THEREFORE , THE SAME ARE DISMISSED. 6. IN THE RESULT, APPEALS OF THE ASSESSEE AND APPEA LS OF THE REVENUE IN ITA NO. 488, 489, 490 & 491/JP/2011 ARE PARTLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 22/06/201 6. SD/- SD/- VH-VKJ-EHUK YFYR DQEKJ (T.R. MEENA) (LALIET KUMAR) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 22/06/2016 DAS/ VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S. BHARTIYA SPINNERS LTD., BHILWAR A. 2. IZR;FKHZ @ THE RESPONDENT- THE DCIT, CENTRAL CIRCLE-3, AJMER. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 48 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD. 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 2447(11)/JP/2011) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR 49 ITA NO. 447(11)/JP/2011 M/S. BHARTIYA SPINNERS LTD.