M/s. Mahashian Di Hatti Ltd., New Delhi V. DCIT, New Delhi

ITA 4576/DEL/2010

• Counselvise Citation: 457620114 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 13-03-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 15-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RA J TANDON; PEEYUSH JAIN TP
• Assessee Lawyers: SWEETY KOTHARI CAS
• Keywords: Unexplained investment; Value adopted by valuation officer; Unexplained expenditure; Business income; Transfer pricing; Income from undisclosed sources; Loose papers; Document seized; Charitable institution; International transaction; Corroborative evidences; Valuation report; Retraction; Documents seized
• Section: 92C; 153A; 147; 131; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E: NEW DELHI BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER I.T.A.NOS.4576, 4577 & 4578/DEL/2010 ASSESSMENT YEARS : 2005-06, 2006-07 & 2007-08 M/S. MAHASHIAN DI HATTI LTD., DY. COMMISSIO NER OF INCOME-TAX, 9/44, KIRTI NAGAR INDUSTRIAL AREA, VS. CENTR AL CIRCLE 25, NEW DELHI. NEW DELHI. PAN: AAACM4165F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VINOD KUMAR BINDAL & MS. SWEETY KOTHARI, CAS. RESPONDENT BY : SHRI RAJ TANDON, C IT-DR & SHRI PEEYUSH JAIN, CIT-DR (TP) O R D E R PER K.D. RANJAN, ACCOUNTANT MEMBER THESE APPEALS BY THE ASSESSEE FOR ASSESSMENT YEARS 2005-06, 2006- 07 AND 2007-08 ARISE OUT OF THE ORDERS OF ASSESSING OFFICER PASSED UNDER SECTION 153A/143(3) READ WITH SECTION 144C OF THE I NCOME-TAX ACT, 1961 (THE ACT). THE GROUNDS RAISED BY THE ASSESSEE ARE REPRODUCED AS UNDER:- ITA NO.4576/DEL/2010 (A.Y. 2005-06) : 1. THE ASSESSING AUTHORITIES INCLUDING THE DISPUTE RESOLUTION PANEL (DRP) ERRED IN LAW AND ON FACTS AND ALSO BY I GNORING THE EVIDENCES ON RECORD IN MAKING AN ADDITION OF RS.11, 00,00,000/- ON ACCOUNT OF ALLEGED UNDISCLOSED PROFIT THOUGH NO EVIDENCE OF ANY NATURE WHATSOEVER WAS FOUND AT THE TIME OF SEAR CH SHOWING I.T.A.NOS.4576, 4577 & 4578/DEL/2010 2 THAT THE APPELLANT WAS ENGAGED IN ANY ACTIVITIES OU TSIDE THE BOOKS OF ACCOUNT. THUS, THE ADDITION MADE ON SURMI SES AND CONJECTURES MUST BE DELETED. 2. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS.21,66,50,4 51/- ON ACCOUNT OF UNDISCLOSED SPECULATION BUSINESS INCOME THOUGH NO EVIDENCE OF ANY NATURE WHATSOEVER WAS FOUND AT THE TIME OF SEARCH SHOWING THAT THE APPELLANT WAS ENGAGED IN SU CH ACTIVITIES. THUS, THE ADDITION MADE ON SURMISES AN D CONJECTURES MUST BE DELETED. 3. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING A DISALLOWANCE OF RS.2,38,70 ,600/- OUT OF THE ADVERTISEMENT AND PUBLICITY EXPENSES ON SURM ISES AND CONJECTURES WITHOUT APPRECIATING THE EXIGENCIES OF THE BUSINESS. THUS, THE ADDITION MADE ON SURMISES AND CONJECTURES MUST BE DELETED. 4. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS.1,13,71,75 9/- ON ACCOUNT OF ALLEGED INFLATION IN PURCHASE PRICE OF R AW SPICES BY IGNORING THE EVIDENCES ON RECORD. THUS, THE ADDITI ON MADE ON SURMISES AND CONJECTURES MUST BE DELETED. 5. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING THE FOLLOWING ADDITIONS TOWA RDS SO- CALLED `UNPROVED TRANSACTIONS BASED ON SOME MATERI AL SEIZED FROM A THIRD PARTY FROM HIS PREMISES WHILE IGNORING THE EVIDENCE ON RECORD: ASSTT. ORDER SEIZED MATERIAL REFERENCE AMOUNT OF PARA NO. ADDITION (RS.) PARA 11.5 PAGES NO.51 & 52 OF 54,58,600/- ANNEXURE A-4/O-18 PARA 11.6.1 PAGES NO.14-22 OF 35,99,840/- ANNEXURE A-4/O-18 I.T.A.NOS.4576, 4577 & 4578/DEL/2010 3 THUS, THE ABOVE ADDITIONS MADE ON SURMISES AND CON JECTURES WITHOUT CONFRONTING THE STATEMENTS RECORDED AT THE BACK OF THE ASSESSEE AND WITHOUT ALLOWING ANY OPPORTUNITY OF CR OSS EXAMINATION AND WHICH ARE OTHERWISE ALSO DOUBLE ADD ITION MUST BE DELETED. 6. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING THE ADDITION OF RS.37,35,000 /- ON ACCOUNT OF ALLEGED UNEXPLAINED INVESTMENT BY WAY OF DONATIONS FOR CONSTRUCTION OF SCHOOL BUILDING AT BYADGI IN KA RNATAKA MADE BY AN INDEPENDENT ASSESSABLE TRUST, WHILE IGNO RING THE EXPLANATION ON RECORD. THUS, THE ADDITION MUST BE D ELETED. 7. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING THE ADDITION OF RS.44,98,279 /- TOWARDS UNEXPLAINED INVESTMENT IN CONSTRUCTION OF SCHOOL BU ILDING AT BYADGI IN KARNATAKA OF SCHOOL BUILDING AT BYADGI IN KARNATAKA ON THE BASIS OF DVO REPORT, WHILE BEING FULLY AWARE BUT IGNORING THAT THE OWNERSHIP OF THE SAID SCHOOL VEST ED WITH AN INDEPENDENT ASSESSABLE TRUST AND, THEREFORE, NO SUC H ADDITION COULD BE MADE IN THE HANDS OF THE APPELLANT. THUS, THE ADDITION MADE ON SURMISES AND CONJECTURES MUST BE DELETED. 8. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING THE ADDITION OF RS.52,91,986 /- ON ACCOUNT OF ARMS LENGTH PRICING THAT TOO ON AN EXPO RT TURNOVER OF RS.1,66,69,806/- TO THE ASSOCIATED ENTERPRISES, WHICH IS CHALLENGED ON THE FOLLOWING GROUNDS: A. THE TRANSFER PRICING ORDER COMPUTING THE ARMS LENG TH PRICE AT A HIGHER FIGURE THAN THE ACTUAL FIGURES PASSED B Y THE TRANSFER PRICING OFFICER, DCIT, TPO 1(6), NEW DELHI IS BAD IN LAW AND ON FACTS AS THE SAME WAS PASSED WITHOUT APPROVAL OF DIRECTOR OF INCOME-TAX (TRANSFER PRICING) IN SPI TE THE CBDT INSTRUCTION NO.3 DATED 20/5/2003 RENDERING THE SAID ORDER VOID AB INITIO. B. THE TRANSFER PRICING PROCEEDINGS INITIATED AND UNDE RTAKEN ARE BAD IN LAW AND ON FACTS FOR THE SPECIFIC REASON S I.T.A.NOS.4576, 4577 & 4578/DEL/2010 4 MENTIONED BELOW, ALSO COMMUNICATED TO THE TPO VIDE LETTER DATED 12/01/09, BESIDES OTHER REASONS SUBMITTED LAT ER ON: I) THE PROCEEDINGS INITIATED REFERRED TO SOME NAME, WHICH WAS A NON-EXISTENT ASSESSEE. II) THE SAME DID NOT REFER TO EACH TRANSACTION FOR WHICH ARMS LENGTH PRICE WAS TO BE DETERMINED. III) THE SAME WAS REFERRED ONLY FOR THE SAKE OF SEEKING EXTENSION OF THE LIMITATION TO COMPLETE THE ASSESSMENT BY 31/12/08. IV) THE REFERENCE WAS ALSO NOT ENTERPRISES SPECIFIC. V) THE INTERNATIONAL TRANSACTIONS WERE OF A SMALL AMOUNT OF WHICH NO REFERENCE WAS DESIRED AS PER THE CBDT INSTRUCTIONS. C. THE INTERNATIONAL TRANSACTIONS WERE OF A SMALL AMOU NT OF WHICH NO REFERENCE WAS DESIRED AS PER THE CBDT INSTRUCTIONS. THE TRANSFER PRICING ORDER COMPUTING THE ARMS LENGTH PRICE AT A HIGHER FIGURE THAN THE ACTU AL FIGURES IS BAD IN LAW AND ON FACTS AS THE SAME DOES NOT CON SIDER THE FACTS THAT THE ENTIRE ARMS LENGTH SALES WERE MADE TO WHOLLY OWNED SUBSIDIARIES OF THE APPELLANT AND THOSE SUBSI DIARIES WERE WORKING AS AN EXTENSION OF THE APPELLATE TO FU RTHER SALES AND NOT AS A COMPETITOR OF THE OVERSEAS BUYER S; AND DESPITE THAT THE SAID SUBSIDIARIES WERE NOT SELLING PRODUCE OF ANY OTHER PERSON AND ALL THE EXPENSES OF THOSE SUBS IDIARIES WERE TO BE MET BY THEM OUT OF MARGIN TO BE RETAINED FROM THE SALES AS PER THE DIRECTIONS OF THE RESERVE BANK OF INDIA. D. THE ADDITION IS NOT ONLY BASED ON SOME UNREALISTIC AVERAGE RATE NOT OF EACH PRODUCT BUT OF BOXES OF ALL THE PR ODUCTS HAVING DIFFERENT VALUES BUT ALSO THE SAME IS INCORR ECT AS SEVERAL ITEMS EXPORTED WERE NOT AT ALL COMPARABLE. THUS, THE SAME MUST BE DELETED. E. THE TRANSFER PRICING OFFICER/ASSESSING OFFICER/DRP HAS ERRED IN LAW AND ON FACTS IN IGNORING THAT PRICING OF EXPORTS TO EACH COUNTRY VARIES DUE SEVERAL FACTORS, E.G., P ACKING, FUMIGATION, SHELF-LIFE, LOCAL FOOD CONTROL REGULATI ONS, ETC. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 5 FURTHER NO CONSIDERATION HAS BEEN TAKEN WHILE COMPU TING THE ARMS LENGTH PRICE FOR THE QUANTITY SUPPLIED TO AES AND NON-AES. IT IS WELL KNOWN THAT THE RATE OF SUPPLIE S FOR LARGE QUANTITIES IS ALWAYS LOWER THAN THE RATES AT WHICH SUPPLIES OF SMALL QUANTITIES ARE MADE. THE AES WERE SUPPLIED A VERY LARGE QUANTITY AS COMPARED TO THE OTHER BUYERS. IN NUTSHELL THE ENTIRE EXERCISE TO COMPUTE THE IMPUGNED ARMS L ENGTH PRICE AND THE ALLEGED DIFFERENCE BY THE TPO IS INCO RRECT AND MUST BE STRUCK DOWN. F. THE TRANSFER PRICING OFFICER/ASSESSING OFFICER/DRP HAS ERRED IN LAW AND ON FACTS IN REJECTING THE TNM METH OD OF COMPUTING THE EXPORTS PRICE AND SUBSTITUTING THE SA ME WITH CUP THOUGH IN THE CASE OF THE APPELLANT TNMM IS THE MOST SUITABLE METHOD CONSIDERING THE FACTORS AND CIRCUMS TANCES OF THE WHOLLY OWNED SUBSIDIARIES OVERSEAS WHO ARE W ORKING TO ESTABLISH NEW MARKET OVERSEAS FOR THE PRODUCTS O F THE APPELLANT AND ALL SUCH EXPENSES WERE THE SOLE RESPO NSIBILITY OF THE APPELLANT. 9. THE DIRECTIVE ORDER DATED 31/08/10 OF THE DRP IS BAD IN LAW AND ON FACTS AS IT DOES NOT MENTION THE SUBMISSIONS OF THE APPELLANT ON ALL THE ISSUES RATHER CONTAINS AN INCO RRECT AVERMENT THAT NO ARGUMENT OR INFORMATION WAS SUBMIT TED BY THE APPELLANT. THUS, THE SAME HAS TO BE ANNULLED. 10. THE ASSESSMENT ORDER FRAMED WITHOUT ALLOWING AN OPPORTUNITY TO CROSS EXAMINE THE EVIDENCE COLLECTED AND STATEMENTS RECORDED AT THE BACK OF THE APPELLANT IS BAD IN LAW AND MUST BE ANNULLED. ITA NO.4577/DEL/2010 (A.Y.2006-07) : 1. THE ASSESSING AUTHORITIES INCLUDING THE DISPUTE RESOLUTION PANEL (DRP) ERRED IN LAW AND ON FACTS AND ALSO BY I GNORING THE EVIDENCES ON RECORD IN MAKING AN ADDITION OF RS.14, 00,00,000/- ON ACCOUNT OF ALLEGED UNDISCLOSED PROFIT THOUGH NO EVIDENCE OF ANY NATURE WHATSOEVER WAS FOUND AT THE TIME OF SEAR CH SHOWING THAT THE APPELLANT WAS ENGAGED IN ANY ACTIVITIES OU TSIDE THE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 6 BOOKS OF ACCOUNT. THUS, THE ADDITION MADE ON SURMI SES AND CONJECTURES MUST BE DELETED. 2. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS.25,01,66,6 69/- ON ACCOUNT OF UNDISCLOSED SPECULATION BUSINESS INCOME THOUGH NO EVIDENCE OF ANY NATURE WHATSOEVER WAS FOUND AT THE TIME OF SEARCH SHOWING THAT THE APPELLANT WAS ENGAGED IN SU CH ACTIVITIES. THUS, THE ADDITION MADE ON SURMISES AN D CONJECTURES MUST BE DELETED. 3. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING A DISALLOWANCE OF RS.2,11,27 ,739/- OUT OF THE ADVERTISEMENT AND PUBLICITY EXPENSES ON SURM ISES AND CONJECTURES WITHOUT APPRECIATING THE EXIGENCIES OF THE BUSINESS. THUS, THE ADDITION MADE ON SURMISES AND CONJECTURES MUST BE DELETED. 4. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS.1,25,43,29 3/- ON ACCOUNT OF ALLEGED INFLATION IN PURCHASE PRICE OF R AW SPICES BY IGNORING THE EVIDENCES ON RECORD. THUS, THE ADDITI ON MADE ON SURMISES AND CONJECTURES MUST BE DELETED. 5. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING THE ADDITION OF RS.12,36,300 /- TOWARDS INFLATION IN EXPENSES BASED ON PAGES NO.14 22 OF ANNEXURE A-4/O-18 OF THE MATERIAL SEIZED FROM A THIRD PARTY WHILE IGNORING THE SUBMISSION. THUS, THE ABOVE ADDITION MADE ON SURMISES AND CONJECTURES AND MOREOVER BEING DOUBLE ADDITION MUST BE DELETED. 6. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING THE ADDITION OF RS.50,00,000 /- TOWARDS UNEXPLAINED INVESTMENT ON ACCOUNT OF CONTRIBUTION O F CAPITAL IN A PARTNERSHIP FIRM MADE BY THE TWO DIRECTORS OF THE APPELLANT COMPANY, WITHOUT ANY EVIDENCE BUT MERELY ALLEGING T HAT THE SAME WAS MADE BY THE APPELLANT-COMPANY ON THEIR BEH ALF AND I.T.A.NOS.4576, 4577 & 4578/DEL/2010 7 WHILE IGNORING THE EVIDENCE AVAILABLE ON RECORD. T HUS, THE ADDITION SO MADE ON SURMISES AND CONJECTURES MUST B E DELETED. 7. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING THE ADDITION OF RS.51,44,224 /- TOWARDS UNEXPLAINED INVESTMENT IN CONSTRUCTION OF SCHOOL BU ILDING AT BYADGI IN KARNATAKA ON THE BASIS OF DVO REPORT, WHI LE BEING FULLY AWARE BUT IGNORING THAT THE OWNERSHIP OF THE SAID SCHOOL VESTED WITH AN INDEPENDENT ASSESSABLE TRUST AND, TH EREFORE, NO SUCH ADDITION COULD BE MADE IN THE HANDS OF THE APP ELLANT. THUS, THE ADDITION SO MADE ON SURMISES AND CONJECTU RES MUST BE DELETED. 8. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING THE ADDITION OF RS.1,12,52,6 32/- ON ACCOUNT OF ARMS LENGTH PRICING THAT TOO ON AN EXPO RT TURNOVER OF RS.4,05,75,626/- TO THE ASSOCIATED ENTERPRISES, WHICH IS CHALLENGED ON THE FOLLOWING GROUNDS: A. THE TRANSFER PRICING ORDER COMPUTING THE ARMS LENG TH PRICE AT A HIGHER FIGURE THAN THE ACTUAL FIGURES PASSED B Y THE TRANSFER PRICING OFFICER, DCIT, TPO 1(6), NEW DELHI IS BAD IN LAW AND ON FACTS AS THE SAME WAS PASSED WITHOUT APPROVAL OF DIRECTOR OF INCOME-TAX (TRANSFER PRICING) IN SPI TE THE CBDT INSTRUCTION NO.3 DATED 20/5/2003 RENDERING THE SAID ORDER VOID AB INITIO. B. THE TRANSFER PRICING PROCEEDINGS INITIATED AND UNDE RTAKEN ARE BAD IN LAW AND ON FACTS FOR THE SPECIFIC REASON S MENTIONED BELOW, ALSO COMMUNICATED TO THE TPO VIDE LETTER DATED 12/01/09, BESIDES OTHER REASONS SUBMITTED LAT ER ON: I) THE PROCEEDINGS INITIATED REFERRED TO SOME NAME, WHICH WAS A NON-EXISTENT ASSESSEE. II) THE SAME DID NOT REFER TO EACH TRANSACTION FOR WHIC H ARMS LENGTH PRICE WAS TO BE DETERMINED. III) THE SAME WAS REFERRED ONLY FOR THE SAKE OF SEEKING EXTENSION OF THE LIMITATION TO COMPLETE THE ASSESSM ENT BY 31/12/08. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 8 IV) THE REFERENCE WAS ALSO NOT ENTERPRISES SPECIFIC. V) THE INTERNATIONAL TRANSACTIONS WERE OF A SMALL AMOU NT OF WHICH NO REFERENCE WAS DESIRED AS PER THE CBDT INSTRUCTIONS. C. THE TRANSFER PRICING ORDER COMPUTING THE ARMS LEN GTH PRICE AT A HIGHER FIGURE THAN THE ACTUAL FIGURES IS BAD I N LAW AND ON FACTS AS THE SAME DOES NOT CONSIDER THE FACTS TH AT THE ENTIRE ARMS LENGTH SALES WERE MADE TO WHOLLY OWNED SUBSIDIARIES OF THE APPELLANT AND THOSE SUBSIDIARIE S WERE WORKING AS AN EXTENSION OF THE APPELLATE TO FURTHER SALES AND NOT AS A COMPETITOR OF THE OVERSEAS BUYERS; AND DES PITE THAT THE SAID SUBSIDIARIES WERE NOT SELLING PRODUCE OF A NY OTHER PERSON AND ALL THE EXPENSES OF THOSE SUBSIDIARIES W ERE TO BE MET BY THEM OUT OF MARGIN TO BE RETAINED FROM THE S ALES AS PER THE DIRECTIONS OF THE RESERVE BANK OF INDIA. D. THE ADDITION IS NOT ONLY BASED ON SOME UNREALISTIC AVERAGE RATE NOT OF EACH PRODUCT BUT OF BOXES OF ALL THE PR ODUCTS HAVING DIFFERENT VALUES BUT ALSO THE SAME IS INCORR ECT AS SEVERAL ITEMS EXPORTED WERE NOT AT ALL COMPARABLE. THUS, THE SAME MUST BE DELETED. E. THE TRANSFER PRICING OFFICER/ASSESSING OFFICER/DRP HAS ERRED IN LAW AND ON FACTS IN IGNORING THAT PRICING OF EXPORTS TO EACH COUNTRY VARIES DUE SEVERAL FACTORS, E.G., P ACKING, FUMIGATION, SHELF-LIFE, LOCAL FOOD CONTROL REGULATI ONS, ETC. FURTHER NO CONSIDERATION HAS BEEN TAKEN WHILE COMPU TING THE ARMS LENGTH PRICE FOR THE QUANTITY SUPPLIED TO AES AND NON-AES. IT IS WELL KNOWN THAT THE RATE OF SUPPLIE S FOR LARGE QUANTITIES IS ALWAYS LOWER THAN THE RATES AT WHICH SUPPLIES OF SMALL QUANTITIES ARE MADE. THE AES WERE SUPPLIED A VERY LARGE QUANTITY AS COMPARED TO THE OTHER BUYERS. IN NUTSHELL THE ENTIRE EXERCISE TO COMPUTE THE IMPUGNED ARMS L ENGTH PRICE AND THE ALLEGED DIFFERENCE BY THE TPO IS INCO RRECT AND MUST BE STRUCK DOWN. F. THE TRANSFER PRICING OFFICER/ASSESSING OFFICER/DRP HAS ERRED IN LAW AND ON FACTS IN REJECTING THE TNM METH OD OF COMPUTING THE EXPORTS PRICE AND SUBSTITUTING THE SA ME WITH I.T.A.NOS.4576, 4577 & 4578/DEL/2010 9 CUP THOUGH IN THE CASE OF THE APPELLANT TNMM IS THE MOST SUITABLE METHOD CONSIDERING THE FACTORS AND CIRCUMS TANCES OF THE WHOLLY OWNED SUBSIDIARIES OVERSEAS WHO ARE W ORKING TO ESTABLISH NEW MARKET OVERSEAS FOR THE PRODUCTS O F THE APPELLANT AND ALL SUCH EXPENSES WERE THE SOLE RESPO NSIBILITY OF THE APPELLANT. 9. THE DIRECTIVE ORDER DATED 31/08/10 OF THE DRP IS BAD IN LAW AND ON FACTS AS IT DOES NOT MENTION THE SUBMISSIONS OF THE APPELLANT ON ALL THE ISSUES RATHER CONTAINS AN INCO RRECT AVERMENT THAT NO ARGUMENT OR INFORMATION WAS SUBMIT TED BY THE APPELLANT. THUS, THE SAME HAS TO BE ANNULLED. 10. THE ASSESSMENT ORDER FRAMED WITHOUT ALLOWING AN OPPORTUNITY TO CROSS EXAMINE THE EVIDENCE COLLECTED AND STATEMENTS RECORDED AT THE BACK OF THE APPELLANT IS BAD IN LAW AND MUST BE ANNULLED. ITA NO.4578/DEL/2010 (A.Y. 2007-08) : 1. THE ASSESSING AUTHORITIES INCLUDING THE DISPUTE RESOLUTION PANEL (DRP) ERRED IN LAW AND ON FACTS AND ALSO BY I GNORING THE EVIDENCES ON RECORD IN MAKING AN ADDITION OF RS.9,0 2,38,560/- ON ACCOUNT OF ALLEGED UNDISCLOSED PROFIT THOUGH NO EVIDENCE OF ANY NATURE WHATSOEVER WAS FOUND AT THE TIME OF SEAR CH SHOWING THAT THE APPELLANT WAS ENGAGED IN ANY ACTIVITIES OU TSIDE THE BOOKS OF ACCOUNT. THUS, THE ADDITION MADE ON SURMI SES AND CONJECTURES MUST BE DELETED. 2. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS.30,00,00,0 00/- ON ACCOUNT OF UNDISCLOSED SPECULATION BUSINESS INCOME THOUGH NO EVIDENCE OF ANY NATURE WHATSOEVER WAS FOUND AT THE TIME OF SEARCH SHOWING THAT THE APPELLANT WAS ENGAGED IN SU CH ACTIVITIES. THUS, THE ADDITION MADE ON SURMISES AN D CONJECTURES MUST BE DELETED. 3. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING A DISALLOWANCE OF RS.2,46,82 ,361/- OUT OF THE ADVERTISEMENT AND PUBLICITY EXPENSES ON SURM ISES AND I.T.A.NOS.4576, 4577 & 4578/DEL/2010 10 CONJECTURES WITHOUT APPRECIATING THE EXIGENCIES OF THE BUSINESS. THUS, THE ADDITION MADE ON SURMISES AND CONJECTURES MUST BE DELETED. 4. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS.1,32,63,58 8/- ON ACCOUNT OF ALLEGED INFLATION IN PURCHASE PRICE OF R AW SPICES BY IGNORING THE EVIDENCES ON RECORD. THUS, THE ADDITI ON MADE ON SURMISES AND CONJECTURES MUST BE DELETED. 5. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING THE ADDITION OF RS.15,00,000 /- TOWARDS INFLATION IN EXPENSES BASED ON PAGES NO.14 22 OF ANNEXURE A-4/O-18 OF THE MATERIAL SEIZED FROM A THIRD PARTY WHILE IGNORING THE SUBMISSION. THUS, THE ABOVE ADDITION MADE ON SURMISES AND CONJECTURES AND MOREOVER BEING DOUBLE ADDITION MUST BE DELETED. 6. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING THE ADDITION OF RS.12,46,90, 000/- TOWARDS UNEXPLAINED CASH TRANSACTIONS NOTED IN THE SEIZED PAGE NO.40 OF THE ANNEXURE A-3/O-2, WHILE IGNORING THE E VIDENCE FURNISHED AND SUBMISSIONS MADE THAT THE IMPUGNED PA GE CONTAINED THE BANK TRANSACTIONS WHICH WERE DULY ACC OUNTED FOR IN THE REGULAR BOOKS OF ACCOUNT EVEN PRIOR TO THE S EARCH. THUS, THE ADDITION SO MADE ON SURMISES AND CONJECTURES MU ST BE DELETED. 7. THE LD. ASSESSING AUTHORITIES INCLUDING THE DRP ERRED IN LAW AND ON FACTS IN MAKING THE ADDITION OF RS.11,00 ,00,000/- TOWARDS SOME HYPOTHETICAL DISCREPANCY IN CLOSING ST OCK AND BUSINESS TRANSACTIONS, MAINLY ON THE BASIS OF SURRE NDER TAKEN FROM A DIRECTOR AT THE TIME OF SEARCH IN AN UNETHIC AL MANNER, WHICH ON THE BASIS OF EVIDENCE WAS A COERCIVE AND W HICH WAS RETRACTED IMMEDIATELY THEREAFTER, AND ALSO WHILE NE ITHER BRINGING ON RECORD ANY PHYSICAL INVENTORY OF STOCK, IF ANY, PREPARED DURING THE COURSE OF SEARCH BY THE VISITIN G REVENUE PERSONNEL NOR POINTING OUT ANY SPECIFIC INSTANCES O F THE ALLEGED DISCREPANCIES IN THE BUSINESS TRANSACTIONS. THUS, THE ADDITION SO MADE ON SURMISES AND CONJECTURES MUST BE DELETED . I.T.A.NOS.4576, 4577 & 4578/DEL/2010 11 8. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING THE ADDITION OF RS.73,000/- TOWARDS UNEXPLAINED ADVANCES ON THE BASIS OF SOME STATEMENT OF AN ACCOUNTANT OF SOME OTHER FIRM THAT TOO IN ITS CASE AND NOT OF THE APPELLANT RECORDED WITHOUT PROVIDING A COPY OF THE SAME TO THE APPELLANT AND ALSO WITHOUT AFFORDING OPPORTUNITY OF CROSS- EXAMINATION OF THE SAID PERSON TO IT. THUS, THE SA ID ADDITION IS BAD IN LAW AND MUST BE DELETED. 9. THE ASSESSING AUTHORITIES INCLUDING THE DRP ERRE D IN LAW AND ON FACTS IN MAKING THE ADDITION OF RS.5,14,66,4 56/- ON ACCOUNT OF ARMS LENGTH PRICING THAT TOO ON AN EXPO RT TURNOVER OF RS.8,89,40,732/- TO THE ASSOCIATED ENTERPRISES, WHICH IS CHALLENGED ON THE FOLLOWING GROUNDS: A. THE TRANSFER PRICING ORDER COMPUTING THE ARMS LENG TH PRICE AT A HIGHER FIGURE THAN THE ACTUAL FIGURES PASSED B Y THE TRANSFER PRICING OFFICER, DCIT, TPO 1(6), NEW DELHI IS BAD IN LAW AND ON FACTS AS THE SAME WAS PASSED WITHOUT APPROVAL OF DIRECTOR OF INCOME-TAX (TRANSFER PRICING) IN SPI TE THE CBDT INSTRUCTION NO.3 DATED 20/5/2003 RENDERING THE SAID ORDER VOID AB INITIO. B. THE TRANSFER PRICING PROCEEDINGS INITIATED AND UNDE RTAKEN ARE BAD IN LAW AND ON FACTS FOR THE SPECIFIC REASON S MENTIONED BELOW, ALSO COMMUNICATED TO THE TPO VIDE LETTER DATED 12/01/09, BESIDES OTHER REASONS SUBMITTED LAT ER ON: I) THE PROCEEDINGS INITIATED REFERRED TO SOME NAME, WHICH WAS A NON-EXISTENT ASSESSEE. II) THE SAME DID NOT REFER TO EACH TRANSACTION FOR WHIC H ARMS LENGTH PRICE WAS TO BE DETERMINED. III) THE SAME WAS REFERRED ONLY FOR THE SAKE OF SEEKING EXTENSION OF THE LIMITATION TO COMPLETE THE ASSESSM ENT BY 31/12/08. IV) THE REFERENCE WAS ALSO NOT ENTERPRISES SPECIFIC. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 12 V) THE INTERNATIONAL TRANSACTIONS WERE OF A SMALL AMOU NT OF WHICH NO REFERENCE WAS DESIRED AS PER THE CBDT INSTRUCTIONS. C. THE TRANSFER PRICING ORDER COMPUTING THE ARMS LEN GTH PRICE AT A HIGHER FIGURE THAN THE ACTUAL FIGURES IS BAD I N LAW AND ON FACTS AS THE SAME DOES NOT CONSIDER THE FACTS TH AT THE ENTIRE ARMS LENGTH SALES WERE MADE TO WHOLLY OWNED SUBSIDIARIES OF THE APPELLANT AND THOSE SUBSIDIARIE S WERE WORKING AS AN EXTENSION OF THE APPELLATE TO FURTHER SALES AND NOT AS A COMPETITOR OF THE OVERSEAS BUYERS; AND DES PITE THAT THE SAID SUBSIDIARIES WERE NOT SELLING PRODUCE OF A NY OTHER PERSON AND ALL THE EXPENSES OF THOSE SUBSIDIARIES W ERE TO BE MET BY THEM OUT OF MARGIN TO BE RETAINED FROM THE S ALES AS PER THE DIRECTIONS OF THE RESERVE BANK OF INDIA. D. THE ADDITION IS NOT ONLY BASED ON SOME UNREALISTIC AVERAGE RATE NOT OF EACH PRODUCT BUT OF BOXES OF ALL THE PR ODUCTS HAVING DIFFERENT VALUES BUT ALSO THE SAME IS INCORR ECT AS SEVERAL ITEMS EXPORTED WERE NOT AT ALL COMPARABLE. THUS, THE SAME MUST BE DELETED. E. THE TRANSFER PRICING OFFICER/ASSESSING OFFICER/DRP HAS ERRED IN LAW AND ON FACTS IN IGNORING THAT PRICING OF EXPORTS TO EACH COUNTRY VARIES DUE SEVERAL FACTORS, E.G., P ACKING, FUMIGATION, SHELF-LIFE, LOCAL FOOD CONTROL REGULATI ONS, ETC. FURTHER NO CONSIDERATION HAS BEEN TAKEN WHILE COMPU TING THE ARMS LENGTH PRICE FOR THE QUANTITY SUPPLIED TO AES AND NON-AES. IT IS WELL KNOWN THAT THE RATE OF SUPPLIE S FOR LARGE QUANTITIES IS ALWAYS LOWER THAN THE RATES AT WHICH SUPPLIES OF SMALL QUANTITIES ARE MADE. THE AES WERE SUPPLIED A VERY LARGE QUANTITY AS COMPARED TO THE OTHER BUYERS. IN NUTSHELL THE ENTIRE EXERCISE TO COMPUTE THE IMPUGNED ARMS L ENGTH PRICE AND THE ALLEGED DIFFERENCE BY THE TPO IS INCO RRECT AND MUST BE STRUCK DOWN. F. THE TRANSFER PRICING OFFICER/ASSESSING OFFICER/DRP HAS ERRED IN LAW AND ON FACTS IN REJECTING THE TNM METH OD OF COMPUTING THE EXPORTS PRICE AND SUBSTITUTING THE SA ME WITH CUP THOUGH IN THE CASE OF THE APPELLANT TNMM IS THE MOST I.T.A.NOS.4576, 4577 & 4578/DEL/2010 13 SUITABLE METHOD CONSIDERING THE FACTORS AND CIRCUMS TANCES OF THE WHOLLY OWNED SUBSIDIARIES OVERSEAS WHO ARE W ORKING TO ESTABLISH NEW MARKET OVERSEAS FOR THE PRODUCTS O F THE APPELLANT AND ALL SUCH EXPENSES WERE THE SOLE RESPO NSIBILITY OF THE APPELLANT. 10. THE DIRECTIVE ORDER DATED 31/08/10 OF THE DRP IS BAD IN LAW AND ON FACTS AS IT DOES NOT MENTION THE SUBMISS IONS OF THE APPELLANT ON ALL THE ISSUES RATHER CONTAINS AN INCO RRECT AVERMENT THAT NO ARGUMENT OR INFORMATION WAS SUBMIT TED BY THE APPELLANT. THUS, THE SAME HAS TO BE ANNULLED. 11. THE ASSESSMENT ORDER FRAMED WITHOUT ALLOWING AN OPPORTUNITY TO CROSS EXAMINE THE EVIDENCE COLLECTED AND STATEMENTS RECORDED AT THE BACK OF THE APPELLANT IS BAD IN LAW AND MUST BE ANNULLED. 2. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT T HE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN MANUFACTURING OF EDIBLE SPICES. THE COMPANY HAS LARGE NETWORK OF ASSOCIATED CONCERNS TH AT ARE ENGAGED IN PROCUREMENT OF RAW MATERIAL FOR THE MANUFACTURING O F PRODUCTS. THE ASSESSEE HAD NETWORK OF DISTRIBUTORS/SUPER STOCKIES T FOR ALL INDIA DISTRIBUTION OF ITS PRODUCTS. THE PRODUCTS PORTFOLIO OF THE COMP ANY HAD ALSO DIVERSIFIED AND SEVERAL NEW PRODUCTS SUCH AS DANT MANJAN AND AG ARBATTIES ARE BEING MANUFACTURED. ANOTHER COMPANY M/S. SUPER DELICACIE S PVT. LTD. HAD BEEN SET UP TO MANUFACTURE THESE NEW PRODUCTS. THE COMP ANY HAD ALSO BEEN EXPORTING ITS PRODUCTS TO FOREIGN COUNTRIES SUCH AS EUROPE AND USA. ITS I.T.A.NOS.4576, 4577 & 4578/DEL/2010 14 OVERSEAS BUSINESS WAS LOOKED AFTER BY 100% SUBSIDIA RIES NAMELY M/S. MARK SPICES LTD, UK AND M/S. R. PURE AGRO LTD. (UAE). 3. A SEARCH & SEIZURE OPERATION WAS CARRIED OUT ON THE ASSESSEE COMPANY ON 22 ND NOVEMBER, 2006. DURING THE COURSE OF SEARCH THE B USINESS PREMISES OF THE ASSESSEE COMPANY AT MDH HOUSE 9/44, KIRTI N AGAR, NEW DELHI; 216, UDYOG VIHAR, PHASE-I, GURGAON; AND 139, UDYOG VIHAR , PHASE-I, GURGAON WERE SEARCHED. THE RESIDENCES OF THE DIRECTORS AT E-6/6, VASANT VIHAR, NEW DELHI WAS ALSO SEARCHED. FOR ASSESSMENT YEARS 2005 -06, 2006-07 AND 2007-08 THE MATTER WAS REFERRED TO THE TRANSFER PRI CING OFFICER FOR DETERMINATION OF ARMS LENGTH PRICE IN RESPECT OF E XPORT BY THE ASSESSEE TO ITS ASSOCIATED CONCERNS. 4. THE FIRST ISSUE WHICH IS COMMON IN ALL THE THREE YEARS UNDER CONSIDERATION RELATES TO CONFIRMING THE UNDISCLOSED PROFIT ON ACCOUNT OF ALLEGED UNDISCLOSED SALES AND PURCHASES. DURING TH E COURSE OF SEARCH A BUNCH OF LOOSE PAPERS WERE SEIZED (MARKED AS ANNEXU RE A-9/O-1) FROM THE BUSINESS PREMISES OF M/S. MDH LTD. AT 9/44, KIRTI N AGAR INDUSTRIAL AREA, NEW DELHI. AS PER THESE PAPERS PAGES 48 TO 57 WERE THE PRINTED PAPERS TITLED ALL INDIA SALES REPORT OF MDH AND THE SALE S MONTH-WISE & STATE- I.T.A.NOS.4576, 4577 & 4578/DEL/2010 15 WISE HAD BEEN RECORDED FOR THE FINANCIAL YEARS 2000 -01 TO 2004-05. SIMILAR PRINTED STATEMENTS HAD ALSO BEEN SEIZED VIDE PAGES 26 TO 42 OF ANNEXURE AA-9/O-2 SEIZED IN THE BUSINESS PREMISES OF M/S. SU PER DELICACY PVT. LTD. FURTHER SIMILAR STATEMENTS WERE SEIZED AS PER ANNEX URE A-II/O-3 FROM BUSINESS PREMISES AT 139, UDYOG VIHAR, PHASE-I, GUR GAON. THESE PRINTED STATEMENTS CONTAINED ALL INDIA SALES REPORT OF MDH LTD. FOR THE YEARS 2000- 01 TO 2005-06 MONTH-WISE FOR EACH STATE IN THE COUN TRY. THE TOTAL SALES AS PER THESE REPORTS ARE TABULATED ON PAGE 7 OF ASSESS MENT ORDER AS UNDER:- F. Y. TURNOVER 2000-2001 RS. 94,63,07,936/- 2001-2002 RS.111,45,48,904/- 2002-2003 RS.129,36,49,261/- 2003-2004 RS.146,44,65,482/- 2004-2005 RS.156,78,66,369/- 2005-2006 RS.181,90,67,134/-. AS AGAINST THIS, THE SALES TURNOVER DECLARED BY THE ASSESSEE IN ITS INCOME TAX RETURN FOR THE RELEVANT ASSESSMENT YEAR WERE AS UND ER:- A. Y. TURNOVER 2001-2002 RS. 79,33,60,172/- 2002-2003 RS. 88,21,35,772/- 2003-2004 RS.103,99,58,000/- 2004-2005 RS.121,22,34,000/- 2005-2006 RS.128,61,99,000/- 2006-2007 RS.148,51,76,310/- 2007-2008 RS.178,10,24,213/- I.T.A.NOS.4576, 4577 & 4578/DEL/2010 16 FROM ABOVE NOTED FIGURES THE ASSESSING OFFICER NOTE D THAT THE TURNOVER DECLARED BY THE ASSESSEE IN THE RETURNS OF INCOME F OR THE VARIOUS ASSESSMENT YEAR CITED ABOVE WERE LESS THAN THE FIGURES FINDING MENTION IN THIS ALL INDIA SALES REPORT FOR MDH LTD. IN EACH ASSESSMENT YEAR BY THE SUBSTANTIAL MARGIN AS BELOW:- ASST. YEAR SALES AS PER ROI SALES AS PER ALL INDIA SALES RE- PORT OF MDH UNACCOUNTED SALES 2001-02 79,33,60,172 94,63,07,936 15,29,47,764 2002-03 88,21,34,772 111,45,48,904 23,24,14,132 2003-04 103,99,58,000 129,36,49,261 25,36,91,261 2004-05 121,22,24,000 146,44,65,482 25,22,41,482 2005-06 128,61,99,000 156,78,66,369 28,16,67,396 2006-07 148,51,76,310 181,90,67,134 33,38,90,824 2007-08 178,10,24,213 5. DURING THE COURSE OF SEARCH AT THE BUSINESS AND RESIDENTIAL PREMISES OF SHRI PREM KUMAR ARORA, THE SUPPLIER OF RAW MATERIAL OF THE ASSESSEE, A NOTE BOOK WAS SEIZED AS ANNEXURE A6/PARTY H6. AS PER TH IS NOTE BOOK THERE WERE DETAILS OF DATE-WISE PURCHASE OF SPICES AND DR Y-FRUITS (MAGAJ & ILAICHI) FOR APRIL, 2005 TO MAY, 2005. THESE PURCHASES WERE NOT RECORDED IN THE BOOKS OF ACCOUNT OF M/S. NANAK ENTERPRISES, OWNED A ND CONTROLLED BY SHRI PREM KUMAR ARORA. THE TOTAL UNACCOUNTED PURCHASES AS PER DETAILS IN THE NOTE BOOK WERE OF RS.3,35,19,690/-. THESE PURCHASE S ON CLOSER SCRUTINY WERE RELATED TO THE ASSESSEE COMPANY. THE AO THERE FORE, CONCLUDED THAT THE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 17 ASSESSEE COMPANY HAD NOT ONLY BEEN MAKING UNACCOUNT ED SALES BUT ALSO MADE UNACCOUNTED PURCHASES ON LARGE SCALE. 6. THE TOTAL UNACCOUNTED PURCHASES FOR TWO MONTHS I N F.Y. 2005-06 WAS RS.3,35,19,690/- WHICH GAVE MONTHLY AVERAGE OF RS.1 ,67,59,845/-. THE EVIDENCE SEIZED WAS RECORDED IN A DIARY/NOTE PAD TI TLED MDH SAMBHAR MASALA. MOST OF THE RAW MATERIAL PURCHASED RECORD ED IN THIS POCKET NOTE BOOK WERE ITEMS LIKE JEERA, DHANIA, MAGAJ, IMLI, PU DINA, AJWAIN WHICH ARE THE PRODUCTS REQUIRED IN THE MANUFACTURING OF MASAL AS. THE QUANTITIES PURCHASED WERE ALSO ON VERY LARGE, WHICH COULD BE O NLY FOR THE PURPOSE OF A LARGE UNDERTAKING LIKE M/S. MDH LTD. THE PECULIAR FEATURE OF THE ENTRIES RECORDED IN NOTE PAD IS THAT IT HAS FOUR COLUMNS WH ERE THE FIRST COLUMN CONTAINED THE QUANTITY, THE SECOND COLUMN CONTAINED THE DESCRIPTION OF THE ITEM PURCHASED, THE THIRD COLUMN CONTAINED THE RATE OF THE ITEM AND THE FOURTH COLUMN CONTAINED THE NAME OF THE PARTY IN CO DES FROM WHOM THESE ITEMS WERE PURCHASED. SHRI PREM KUMAR ARORA HAD A DMITTED THE COMMISSION INCOME @ 1% IN HIS RETURN OF INCOME ON T HESE TRANSACTIONS. THIS EVIDENCE ESTABLISHED THAT THESE PURCHASES WERE UNACCOUNTED. THEY WERE NOT REFLECTED IN THE BOOKS OF ACCOUNT OF MDH L TD. HOWEVER, THE EVIDENCE POINTED TO THE FACT THAT THOSE PURCHASES W ERE CASH PURCHASES MADE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 18 FOR MDH LTD. THE FACTS THAT THE DETAILS CONTAINED ONLY THE NAME OF SUPPLIER SUCH AS SCS, RJCS ETC. BUT NO NAME OF THE PURCHASER CLEARLY SHOWED THAT THE ONLY PURCHASER WAS MDH LTD., WHOSE NAME WAS NOT CON SIDERED NECESSARY TO BE RECORDED BY SHRI ARORA AS ALL THE PURCHASES WERE MEANT FOR THE ASSESSEE COMPANY. THE AVAILABILITY OF A HUGE AMOUNT OF CASH MORE THAN RS.1 CRORE WITH SHRI ARORA WAS ALSO A POINTER TO THE FACT THAT HE WAS HANDLING THE UNACCOUNTED CASH OF MDH LTD. AS HE HIMSELF WAS A DE DICATED SUPPLIER OF THE ASSESSEE COMPANY AND HIS FINANCIAL STANDING COULD N OT EXPLAIN THE HUGE CASH FOUND. 7. THE AO FURTHER OBSERVED THAT EXISTENCE OF UNACCO UNTED PURCHASES WAS NOT ONLY CONFINED TO F.Y. 2005-06 ALONE AS EVIDENCE D FOR UNACCOUNTED SALES WERE FOUND FOR ALL THE YEARS FROM 2000-01 TO 2006-0 7. ON A QUERY BY THE AO IT WAS SUBMITTED BY THE ASSESSEE THAT NECESSARY ENQUIRIES REGARDING ANNEXURE A-6/H-6 SEIZED FROM THE PREMISES OF SHRI P REM KUMAR ARORA WERE MADE. IT WAS EXPLAINED THAT ANNEXURE A-6/H-6 WAS A NOTE PAD WHICH CONTAINED THE DETAILS OF ALL MATERIAL ARRANGED BY H IM FOR VARIOUS PARTIES INCLUDING THE ASSESSEE. WHEREVER NAME OF THE ASSESS EE IS APPEARING ON TOP OF THE PAGE THE MATERIAL HAS BEEN SOLD BY THE PARTIES MENTIONED THEREIN TO THE ASSESSEE AND THE SAID PURCHASES WERE DULY RECORDED IN THE BOOKS OF ACCOUNT I.T.A.NOS.4576, 4577 & 4578/DEL/2010 19 OF THE ASSESSEE, WHICH MAY BE VERIFIED FROM THE BOO KS OF ACCOUNT. IT WAS INCORRECT TO ALLEGE THAT THE ENTRIES RECORDED WERE UNACCOUNTED PURCHASES OF THE ASSESSEE. THE ASSESSEE CATEGORICALLY STATED TH AT NO UNACCOUNTED PURCHASES WERE MADE BY THE ASSESSEE. IT WAS ALSO S UBMITTED THAT IN RESPECT OF OTHER TRANSACTIONS RECORDED IN THE NOTE BOOK THE ASSESSEE WAS NOT HAVING ANY KNOWLEDGE ABOUT THE SAME AND SHRI PREM KUMAR AR ORA SHOULD BE CONFRONTED AND VERIFIED FROM HIS BOOKS OF ACCOUNTS THOUGH AS PER HIM THE SAID NOTE BOOK CONTAINED THE TRANSACTIONS WHICH WER E NOT CONNECTED WITH THE ASSESSEE. NOWHERE IN THE SAID ANNEXURE NAME OF THE ASSESSEE OR ANY SUPPLIES MADE BY HIM TO THE ASSESSEE WERE MENTIONED . HE ALSO INFORMED THAT INCOME ON THE BASIS OF SAID ANNEXURE HAD ALREA DY BEEN OFFERED BY HIM IN HIS RETURNS OF INCOME FILED AFTER THE SEARCH. T HUS, THERE WAS NO REASON TO PRESUME THAT THE ASSESSEE HAD MADE ANY UNACCOUNTED PURCHASES FROM M/S.NANAK ENTERPRISES OR SHRI PREM KUMAR ARORA AT A NY TIME. IT WAS ALSO INFORMED THAT SHRI PREM KUMAR ARORA HAD ALSO NOT ST ATED THAT ANY SALE WAS MADE BY HIM TO MDH LTD. WHICH WAS NOT RECORDED IN T HE BOOKS OF ACCOUNT. IN THIS REGARD IT WAS IMPORTANT TO APPRECIATE THAT SHRI ARORA HAS BEEN RUNNING A MARKET OUTLET IN KHARI BAOLI, DELHI WHICH IS WHOL ESALE MARKET AND SELLS GOODS TO OTHER BUYERS. IT WAS NOT THAT HE WAS SOLE LY WORKING FOR THE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 20 ASSESSEE. THEREFORE, PROPOSITION MADE BY THE AO WA S BASELESS AND WITHOUT ANY EVIDENCE AND SHOULD NOT BE ACTED UPON. 8. HOWEVER, THIS EXPLANATION OFFERED BY THE ASSESSE E WAS NOT FOUND SATISFACTORY BY THE AO. THE AO OBSERVED THAT MOST OF THE PURCHASES FROM KHARI BAOLI, DELHI WERE MADE THROUGH SHRI PREM KUMA R ARORA. SHRI RAJIV GULATI MADE DISCLOSURE U/S 132(4) THAT THE SAME WAS TOWARDS DISCREPANCIES FOUND IN THE ACCOUNTS OF SUPPLIERS. THE AO FURTHER OBSERVED THAT THE PREPONDERANCE OF PROBABILITY WEIGHED STRONGLY IN FA VOUR OF THE CONCLUSION THAT THOSE PURCHASES WERE UNACCOUNTED CASH PURCHASE S MADE BY M/S. MDH LTD. THE TOTALITY OF THE EVIDENCES SEIZED AS PER ANNEXURE A-6/H-6 AND PAGES 14-22 OF A-4/O-18 SHOWED THAT THE ASSESSEE CO MPANY HAD USED CASH TO MAKE PURCHASES THROUGH ITS SUPPLIERS. THIS MODU S OPERANDI WAS NOTICED IN F.Y. 2003-04, 2004-05 AND 2005-06. THEREFORE, E XISTENCE OF UNACCOUNTED PURCHASES IN F.Y. 2004-05, 2005-06 AND 2006-07 WAS NOT MERELY A STRONG POSSIBILITY BUT A FACT THAT COULD NOT BE EASILY BRU SHED ASIDE. 9. THE AO FURTHER OBSERVED THAT IN THE COMPLETED AS SESSMENTS A PROCEDURE TO DETERMINE THE ESTIMATED INCOME HAS BEE N FOLLOWED. THE UNACCOUNTED YEARLY PURCHASE WAS ARRIVED AT ON ESTIM ATE BASIS TAKING THE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 21 UNACCOUNTED PURCHASE FOR THE MONTHS OF APRIL AND MA Y, 2005 (A.Y. 2006- 07) FOUND RECORDED IN THE SEIZED MATERIAL TOTALING RS.3,35,19,690/-. THE YEARLY FIGURE OF UNACCOUNTED PURCHASE WAS ARRIVED A T BY MULTIPLYING IT WITH SALES RATIO OF THE SALES DECLARED IN THE RETURN OF INCOME DIVIDED BY THE TOTAL SALES RELATING TO THE PERIOD IN WHICH THE UNACCOUNT ED PURCHASES WERE FOUND. THE AO FOR THE A.Y. 2006-07 ESTIMATED UNACCOUNTED PURCHASES AT RS.17,41,73,225/-. 10. THE AO FURTHER NOTED THAT EVIDENCE CONTAINED IN THE PAPERS WAS ACTUALLY USED BY THE TOP MANAGEMENT I.E. DIRECTORS OF THE COMPANY FOR REVIEWING THE SALES PERFORMANCE OF THE COMPANY IN D IFFERENT REGIONS OF THE COUNTRY. THE DETAILED ANALYSIS ON THESE PAPERS WAS ALSO A POINTER TO THE ACCURACY OF THE DATA IN THOSE PAGES. THE RETURN OF INCOME FILED BY THE ASSESSEE HAS ALL DETAILS OF DISCOUNTS AND COMMISSIO N GIVEN IN THE YEAR. THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE COMPANY FOR T HE YEAR UNDER CONSIDERATION SHOWED GROSS SALES OF RS.135,46,53,00 0/- FROM WHICH DISCOUNTS AND COMMISSION OF RS.4,10,20,000/- WAS RE DUCED AND THE NET SALES WAS WORKED OUT AT RS.128,61,99,000/-. THE AO FURTH ER NOTED THAT THE CLAIM OF THE ASSESSEE THAT FIGURES IN ALL INDIA SALES REP ORT WERE FIGURES BEFORE THE ADJUSTMENT OF DISCOUNTS AND COMMISSION DID NOT SEEM TO BE CORRECT AS I.T.A.NOS.4576, 4577 & 4578/DEL/2010 22 COMPARISON WAS BEING MADE WITH RESPECT TO GROSS SAL ES OF RS.1,56,78,66,369/- FROM WHICH DISCOUNTS AND COMMIS SION OF RS.4,10,20,000/- IF REDUCED THEN THE NET SALES WOUL D NOT COME TO RS.128,61,99,000/-. HE FURTHER OBSERVED THAT GROSS SALES IN THE RETURN OF INCOME AND ALL INDIA SALES REPORT WERE AT VARIANCE. THE ASSESSEES CLAIM THAT FIGURES IN ALL INDIA SALES REPORT WERE FIGURES BEFORE THE ADJUSTMENT OF DISCOUNT AND COMMISSION ALSO WAS NOT CORRECT AS THE COMPARISON WAS BEING MADE WITH RESPECT TO GROSS SALES IN THE RETURN OF I NCOME. THE EXPLANATION OFFERED BY THE ASSESSEE WAS NOT AT ALL SATISFACTORY . HE THEREFORE, REJECTED THE EXPLANATION OFFERED BY THE ASSESSEE. THE AO APPLIE D GP RATE OF 37.62% ON UNACCOUNTED SALES OF RS.18,16,67,639/- AND DETERMIN ED THE PROFIT AT RS.10,59,63,264/-. HOWEVER, SINCE UNACCOUNTED PURCH ASES WERE ALSO ESTIMATED AT RS.17,41,73,226/-, THE AO MADE AN ADDI TION OF RS.11,00,00,000/- ON ACCOUNT OF PROFIT FROM UNACCOU NTED SALES FOR THE YEAR UNDER CONSIDERATION. 11. THE ASSESSEE OBJECTED TO THE ESTIMATED ADDITION ON ACCOUNT OF PROFIT BEFORE DRP. DRP SUSTAINED THE ADDITION ON THE GROU ND THAT IDENTICAL ADDITIONS MADE IN ASSESSMENT YEAR 2001-02, 2002-03, 2003-04 AND 2004-05 WERE CONFIRMED BY THE CIT(A). SINCE THE ADDITIONS MADE BY THE AO WERE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 23 IDENTICAL AND OBJECTIONS AND ARGUMENTS OF THE LEARN ED AR OF THE ASSESSEE WERE ALSO IDENTICAL, THE OBJECTIONS RAISED BY THE A SSESSEE WERE REJECTED AND THE ADDITION MADE BY THE AO WAS CONFIRMED. 12. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMIT TED THAT THE ISSUE WAS SQUARELY COVERED BY THE EARLIER DECISION OF ITAT WH EREIN ADDITIONS MADE BY THE AO ON ESTIMATE BASIS WERE DELETED. ON THE OTHE R HAND, THE LEARNED CIT- DR SUBMITTED THAT THERE WAS DIFFERENCE BETWEEN ALL INDIA MIS SALES REPORT AND SALES RECORDED IN THE BOOKS OF ACCOUNTS. DURIN G THE COURSE OF SEARCH AT THE PREMISES OF SHRI PREM KUMAR ARORA A NOTE PAD WA S FOUND ON WHICH SHRI ARORA, THE SUPPLIER OF RAW MATERIAL TO THE ASS ESSEE COMPANY HAS MADE NOTINGS IN RESPECT OF UNACCOUNTED SUPPLIES MADE TO THE ASSESSEE. HE FURTHER SUBMITTED THAT UNACCOUNTED CASH WAS FOUND IN THE PR EMISES OF SHRI PREM KUMAR ARORA, THE SUPPLIER TO THE ASSESSEE COMPANY. THE CASH FOUND WITH SHREE PREM ARORA WAS THAT OF THE ASSESSEE. THE LEA RNED CIT-DR SUPPORTED THE ORDER OF THE AO STRONGLY. 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS SQ UARELY COVERED BY THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR A.Y. 20 01-02 TO 2004-05 DATED I.T.A.NOS.4576, 4577 & 4578/DEL/2010 24 29.10.2010 IN ITA NOS.1270, 1271, 1272 & 1273(DEL) OF 2011 WHEREIN THE ADDITION MADE HAS BEEN DELETED BY OBSERVING AS UNDE R:- 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT THE FIGURES MENTIONED IN ALL INDIA SALES REPORT ARE CORRECT. HE HAS STAT ED THAT THE BILLS ARE RAISED AT PRODUCT VALUE I.E. 70 PER CENT OF MRP. TH E MRP OF THE PRODUCT IS TAKEN AS SALES IN AISR. BUT WHILE BILLIN G THE SALES THE AMOUNT OF TRADE DISCOUNTS AND OTHER DISCOUNTS ARE R EDUCED AND ON THE NET AMOUNT SALES TAX IS CHARGED AND THE RESULTANT A MOUNT IS TAKEN AS SALES MADE BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. IN OTHER WORDS, IN MIS REPORT THE PRODUCT VALUE IS TAKEN WHEREAS IN THE BOOKS OF ACCOUNTS THE SALES AFTER ALLOWING TRADE DISCOUNT AN D SALES-TAX PAYABLE THEREON IS TAKEN. DURING THE COURSE OF HEARING, TH E LD. AR OF THE ASSESSEE RECONCILED THE FIGURES WITH MIS REPORT AND THE SALES RECORDED IN THE BOOKS OF ACCOUNTS. TO CITE AN EXAM PLE, M/S. ANURAG AND COMPANY IS SUPER-STOCKISTS FOR HARYANA. THE SA LES AS PER BOOKS OF ACCOUNTS FOR THE MONTH OF JULY, 2000 ARE AT RS.5 9,39,028.01 WHEREAS AS PER MIS REPORT THE SALES IN RESPECT OF H ARYANA FOR THE MONTH OF JULY, 2000 IS AT RS.65,17,979/-. THE LD. COUNSEL FOR THE ASSESSEE RECONCILED THIS FIGURE AS UNDER :- 1. LOCAL SALES (SPICES) RS.63,69,942.80 2. LOCAL SALES (HAWAN) RS. 1,38,240.00 3. LOCAL SALES (HINA) RS. 6,966.00 4. LOCAL SALES (AGGARBATTI) RS. 3,280.00 RS. 65,17,978.80 I.T.A.NOS.4576, 4577 & 4578/DEL/2010 25 WE HAVE ALSO GONE THROUGH THE COPY OF BILLS RAISED BY THE ASSESSEE. AS PER INVOICE NO. L-0247 DATED 1ST JULY, 2000 THE SALE VALUE IS RS.6,000/- WHICH GOES TO MIS STATEMENT. TRADE DISC OUNT WAS ALLOWED AT RS.720/- AND ON BALANCE OF RS.5,280/- CASH DISCO UNT AT THE RATE OF 2 PER CENT AMOUNTING TO RS.105.60 WAS ALLOWED. THE N ET SALE PRICE OF THE PRODUCT IS RS.5,174.40 ON WHICH 10 PER CENT SAL ES TAX AT RS.517.44 WAS CHARGED. THE GROSS SALES INCLUSIVE OF SALES TA X THUS COMES TO RS.5,691.84. THIS SALE PRICE IS TAKEN TO BOOKS OF ACCOUNTS. SIMILARLY, AS PER BILL NO.0248 THE SALE PRICE AS PER PRODUCT V ALUE IS RS.37,500/- WHICH GOES TO MIS REPORT. ON THIS AMOUNT TRADE DIS COUNT INCLUSIVE OF ADDITIONAL DISCOUNT OF RS.6,000/- WAS ALLOWED. ON THE BALANCE OF RS.31,500/- CASH DISCOUNT AT THE RATE OF 2 PER CENT AMOUNTING TO RS.630/- WAS ALLOWED. ON THE BALANCE OF RS.30,870/ - SALES TAX AT THE RATE OF 10 PER CENT WAS CHARGED AMOUNTING TO RS.3,0 87/-. THUS THE TOTAL SALE PRICE IS AT RS.33,957/-. THIS AMOUNT GO ES TO THE BOOKS OF ACCOUNTS, AS SALE OF THE PRODUCT AS AGAINST RS.37,5 00/- GOES TO THE MIS REPORT. SIMILARLY, BILL NO. L-0249 DATED 3RD J ULY, 2000 IS FOR RS.1,92,012/- AND GOES TO MIS REPORT. AFTER ALLOWI NG TRADE DISCOUNT, CASH DISCOUNT AND LEVY OF SALES TAX, THE SALES ARE AT RS.1,73,870.71. THE AMOUNT OF RS.1,92,012/- GOES TO MIS REPORT AND RS.1,73,870.71 TO BOOKS OF ACCOUNTS. SIMILAR IS THE POSITION IN RESP ECT OF INVOICE NO. L- 0250 DATED 3RD JULY, 2000. THE PRODUCT VALUE WHICH GOES TO MIS REPORT IS RS.3,815/- WHEREAS THE SALES RECORDED IN THE BOOKS OF ACCOUNTS ARE AT RS.3,536.81. LIKEWISE, WE HAVE ALS O GONE THROUGH THE SALES IN RESPECT OF HARYANA, AS PER LEDGER ACCOUNT OF M/S. ANURAG AND COMPANY, IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE TOTAL SALES AS I.T.A.NOS.4576, 4577 & 4578/DEL/2010 26 PER PRODUCT VALUE IS OF RS.1,23,14,799/- CONSISTING OF LOCAL SALES (SPICES) AT RS.1,20,43,691/-; LOCAL SALES (HAWAN) A T RS.90,190/-; LOCAL SALES (AGGARBATTI) RS.1,63,738/- AND LOCAL SALES (H EENA) RS.17,180/-. THE GROSS SALES FIGURES AFTER ALLOWING THE TRADE DI SCOUNT AND LEVY OF SALES TAX IS AT RS.1,12,05,803.15 WHICH GOES TO THE BOOKS OF ACCOUNTS WHEREAS THE SALES OF RS.1,23,14,799/- GOES TO MIS R EPORT. WE HAVE ALSO GONE THROUGH THE SAMPLE VOUCHERS FOR THE MONTH OF FEBRUARY, 2000. THE PERUSAL OF THESE VOUCHERS AGAIN SHOWS TH AT THE ASSESSEE HAS DEDUCTED THE TRADE DISCOUNT AND CASH DISCOUNT F ROM THE PRODUCT VALUE AND AFTER LEVY OF SALES TAX THE SALES ARE REC ORDED IN THE BOOKS OF ACCOUNTS. WE HAVE ALSO GONE THROUGH THE ANNUAL REC ONCILIATION FOR ASSESSMENT YEAR 2001-02, WHICH IS PLACED AT PAGE NO .574 OF THE PAPER BOOK. THE SALES AS PER INVOICE ARE AT RS.94,63,07, 936/- WHICH HAS BEEN RECORDED IN MIS REPORT. THE DISCOUNT AS PER I NVOICE HAVE BEEN ALLOWED AT RS.14,86,41,784/-. THE RESULTANT SALES OF RS.79,76,66,153/- HAS BEEN RECORDED IN THE BOOKS OF ACCOUNTS. SIMILA R IS THE POSITION FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05. THE REFORE, THERE IS NO DIFFERENCE BETWEEN THE FIGURES REPORTED IN MIS I NFORMATION AND AS PER THE BOOKS OF ACCOUNTS. THE ASSESSEE HAD BEEN F OLLOWING THIS ACCOUNTING POLICY FOR RECORDING SALES IN THE BOOKS OF ACCOUNTS CONSISTENTLY. IF THE ASSESSEE HAD NOT DEDUCTED THE TRADE DISCOUNT, CASH DISCOUNT OR OTHER DISCOUNTS ALLOWED AT THE TIME OF SALES, THE ASSESSEE WOULD HAVE PAID HIGHER SALES TAX, WHICH WAS NOT REQ UIRED. THEREFORE, IN OUR CONSIDERED OPINION, THERE IS NO DIFFERENCE B ETWEEN THE FIGURES REPORTED IN ALL INDIA SALES REPORT (MIS REPORT) AND SALES RECORDED IN THE BOOKS OF ACCOUNTS. THESE DETAILS AND RECONCILI ATION WAS FILED I.T.A.NOS.4576, 4577 & 4578/DEL/2010 27 BEFORE THE ASSESSING OFFICER AS WELL AS THE LD. CIT (A). THE LD. CIT (A) WHILE CONFIRMING THE ADDITION HAS REJECTED THE CONT ENTION OF THE ASSESSEE ON THE GROUNDS THAT NO DOCUMENTARY EVIDENC E WAS FILED TO SUPPORT THE CONTENTION THAT TRADE DISCOUNT WAS ALLO WED BY THE ASSESSEE AT THE TIME OF MAKING SALES. IN VIEW OF T HE ABOVE FACTS, IN OUR CONSIDERED OPINION, NO ADVERSE INFERENCE CAN BE TAK EN ABOUT THE SALES RECORDED IN THE BOOKS OF ACCOUNTS AND THE FIGURES F OUND RECORDED IN MIS REPORTS FOR ALL THE YEARS. 18. AS REGARDS THE UN-ACCOUNTED PURCHASES DETERMINE D BY THE ASSESSEE THE LD. CIT (A) HAS NOT UPHELD THE FINDING S OF THE ASSESSING OFFICER. HE HAS IN PARA 11.2 AT PAGE NO. 30 OF THE ORDER OBSERVED AS UNDER:- 'I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND, DO NOT FIND JUSTIFICATION IN THE SAME IN AS MUCH AS EVIDEN CE FOUND AT THE PREMISES OF MR. PREM KUMAR ARORA CANNOT BE TAKE N AS ANY BASIS TO HOLD THAT THE ASSESSEE MADE UNACCOUNTED PU RCHASES. I HAVE PERUSED THE SEIZED PAPER, THE SAME DOES NOT CO NTAIN ANY NAME OF THE APPELLANT. NEITHER IN THE STATEMENT, MR . PRERN KUMA ARORA HAS ALLEGED THAT SUCH TRANSACTIONS PERTA INED TO THE APPELLANT. IN FACT, IN THE AFFIDAVIT FILED BEFORE M E, THE SAME CANNOT BE RELIED UPON. IN FACT, AT THAT TIME, THE P APER DOES NOT PERTAIN TO THE BUSINESS OF THE APPELLANT COMPANY. I T IS WELL SETTLED POSITION OF LAW THAT DOCUMENT FOUND FROM TH E THIRD PERSON CANNOT BE APPLIED AGAINST THE APPELLANT AND THE BURDEN LAYS UPON THE DEPARTMENT TO SHOW THAT SAME REFLECTS TRANSACTIONS OF THE APPELLANT COMPANY. RELIANCE IS PLACED ON I.T.A.NOS.4576, 4577 & 4578/DEL/2010 28 THE JUDGMENT IN THE CASE OF CIT VS SUKHDAYAL RAMBIL AS REPORTED IN 136 ITR 414 WHEREIN IT HAS BEEN HELD TH AT WHAT IS APPARENT IS NOT REAL, THE BURDEN TO ESTABLISH THIS IS ON THE PERSON WHO ALLEGES THIS. SIMILAR VIEW HAS BEEN EXPR ESSED IN THE CASE OF CIT VS DAULAT RAM RAWATMULL REPORTED IN 87 ITR 349. IN SUCH CIRCUMSTANCES, IN MY OPINION, THE ASSESSING OFFICER INFERENCES ON THE BASIS OF SEIZED NOTE BOOK AND HEL D THAT THERE ARC UNDISCLOSED PURCHASES MADE BY THE APPELLANT IS NOT JUSTIFIED.' 19. IN THIS REGARD WE WOULD ALSO LIKE TO RECORD OUR FINDINGS ABOUT THE NOTE PAD MAINTAINED BY SHRI PREM KUMAR ARORA. THE ASSESSING OFFICER HAS ESTIMATED THE UNACCOUNTED PURCHASES ON THE BASIS OF THIRD COLUMN, WHICH ACCORDING TO THE ASSESSING OFFICER IS THE RATE. ON THE OTHER HAND, ACCORDING TO THE ASSESSEE THE THIRD COL UMN REPRESENTS THE LOT NO. ON THE GROUND THAT THE NEW PAISA CANNOT BE IN THREE FIGURES E.G. 7856/260 CANNOT BE READ AS RS.7,856 AND 260 PA ISE. LIKEWISE 7898/100 CANNOT BE RS.7,898 AND.100 PAISE. ACCORDI NG TO THE ASSESSEE IT IS LOT NO. FOR EXAMPLE AT PAGE NO. 13 9 OF THE PAPER BOOK, THE SALES AS ON 20TH APRIL, 2005 HAS BEEN RECORDED. SOME OF THE ENTRIES ARE AS UNDER: 25K MAGAZ 6191/KDI (SLCS) 25K MAGAZ 50/DL (SLCS) I.T.A.NOS.4576, 4577 & 4578/DEL/2010 29 THE ENTRY 25K REPRESENTS SOME UNIT IN FORM OF KATTA OR BAG WHICH IS EVIDENT THE TOTAL MADE AT 100 ITEMS. THEREFORE, IT IS NOT THE WEIGHT IN KGS., BUT QUANTITY IN KATTAS / BAGS. LIKEWISE FOR MAGAZ THE RATE CANNOT BE RS.6191/KDI AND FOR ANOTHER QUANTITY OF 2 5 KATTA THE RATE CANNOT BE RS.50/DL. THE FIGURES TAKEN AS SALE PRIC E DOES NOT REFLECT THE PRICE, BUT IT COULD BE EITHER LOT NO OR SOMETHI NG ELSE BECAUSE NEW PAISA CANNOT BE IN THREE DIGITS AS HAD BEEN MENTION ED AT SEVERAL PLACES. MERELY BECAUSE THE ENTRIES HAD BEEN RECORD ED ON NOTE PAD OF 'MDH MASALA' IT CANNOT BE PRESUMED THAT THE PURCHAS ES OUTSIDE THE BOOKS OF ACCOUNTS WERE MADE BY THE ASSESSEE. THESE ENTRIES NOWHERE REFLECT THAT UNACCOUNTED PURCHASES WERE MADE. THER EFORE, THE LD. CIT (A) WAS CORRECT IN COMING TO THE CONCLUSION THAT TH E ENTRIES RECORDED ON NOTE PADS / NOTE BOOKS CANNOT REPRESENT THE PURC HASES MADE BY THE ASSESSEE. FROM THE DECISION OF THE LD. CIT (A) IT IS EVIDENT THAT THERE WAS NO MATERIAL WITH THE ASSESSING OFFICER TO ESTIM ATE THE UNDISCLOSED PURCHASES. THE REVENUE HAS NOT FILED APPEAL AGAINS T THIS FINDING OF THE LD. CIT (A). THEREFORE, NO ADVERSE INFERENCE C AN BE DRAWN ON THE BASIS OF ENTRIES RECORDED ON THE NOTE PAD MAINTAINE D BY SHRI PREM KUMAR ARORA. 20. HOWEVER, THE LD. CIT (A) ON THE BASIS OF UNDISC LOSED SALES DETERMINED AS PER AISR REPORT AND AS PER BOOKS OF A CCOUNTS HE APPLIED GROSS PROFIT RATE OF 2.45 PER CENT TO SUSTA IN THE ADDITION. WE HAVE ALREADY HELD THAT THERE IS NO DIFFERENCE BETWE EN THE SALES RECORDED IN MIS REPORTS AND AS PER BOOKS OF ACCOUNT S. THEREFORE, NO ADDITION ON ACCOUNT OF UNDISCLOSED PROFIT CAN BE MA DE. WE ACCORDINGLY DELETE THE ADDITION IN ALL THE FOUR YEA RS. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 30 14. SINCE THE ISSUE IN ASSESSMENT YEARS 2005-06, 20 06-07 AND 2007-08 IS IDENTICAL TO THAT OF EARLIER ASSESSMENT YEARS, RESP ECTFULLY FOLLOWING THE DECISION OF ITAT DATED 29 TH OCTOBER, 2010, THE ADDITIONS MADE BY THE AO AT RS.11,00,00,000/- FOR ASSESSMENT YEAR 2005-06; RS.1 4,00,00,000/- FOR ASSESSMENT YEAR 2006-07; AND RS.9,02,38,560/- FOR A SSESSMENT YEAR 2007- 08 ARE DELETED. 15. NEXT ISSUE FOR CONSIDERATION RELATES TO ADDITIO N OF RS.21,66,50,451/- IN A.Y.2005-06; RS.25,01,66,669/- FOR A.Y. 2006-07; AN D RS.30,00,00,000/- IN A.Y. 2007-08. THE ADDITIONS HAVE BEEN MADE BY THE AO ON THE GROUND THAT THE ASSESSEE HAD EARNED UNDISCLOSED SPECULATION BUS INESS INCOME. THE AO OBSERVED THAT DURING THE COURSE OF SEARCH AT THE RE SIDENCE OF THE DIRECTOR OF THE COMPANY, SHRI RAJIV GULATI CASH OF RS.48,00,000 /- WAS FOUND IN HIS BED- ROOM AND RS.24.86 LACS WAS FOUND FROM THE BED-ROOM OF SHRI DHARAM PAL GULATI. WHEN ASKED ABOUT THE SOURCE OF CASH FOUND, BOTH THE DIRECTORS IN THEIR STATEMENTS U/S 132(4) ADMITTED THAT THEY HAVE BEEN DOING SPECULATION IN COMMODITIES DURING THE FINANCIAL YEAR 2006-07. BOT H THE DIRECTORS HAVE ALSO DECLARED SUBSTANTIAL INCOME OF RS.15.00 CRORES EACH AS INCOME TOWARDS SPECULATIVE TRADING IN COMMODITIES. IN THEIR STATE MENTS THEY HAVE ALSO I.T.A.NOS.4576, 4577 & 4578/DEL/2010 31 ADMITTED THAT THE SPECULATIVE TRADING CARRIED OUT B Y THEM WERE IN CASH AND THE COMMODITY TRADING WAS IN RESPECT OF THE AGRICUL TURAL COMMODITIES. THEY FURTHER ADMITTED THAT THE INCOME FROM THIS SPECULAT IVE TRADING WAS NOT REFLECTED ANYWHERE IN THE BOOKS OF ACCOUNT. SHRI R AJIV GULATI ALSO GAVE DETAILS OF INVESTMENTS MADE OUT OF SUCH INCOME BY S TATING THAT THEY HAVE BEEN INVESTING IN PURCHASE OF JEWELLERY, IMPROVEMEN T OF HOME AND ADVANCES AGAINST PURCHASE OF PROPERTIES, CONTRIBUTION TOWARD S CHARITABLE TRUSTS, ADVANCES GIVEN TO DIFFERENT PARTIES FOR SPECULATIVE TRADING ETC. SIMILARLY SHRI DHARAM PAL GULATI IN HIS STATEMENT U/S 132(4) HAS GIVEN DETAILS AS TO HOW HE HAD INVESTED HIS UNACCOUNTED INCOME FROM SPE CULATIVE TRADING. THE AO NOTED THAT THERE WAS EVIDENCE FOR SPECULATION IN COMMODITY TRADING DURING THE COURSE OF SEARCH PROCEEDINGS. THE CRUCI AL EVIDENCE OF SPECULATION IN HALDI AND CHILLIES HAVE BEEN SEIZED VIDE PAGES 14-15 AND 19 TO 22 OF THE SEIZED MATERIAL ANENXURE A-4/O-18. SP ECULATIVE TRADING IN DHANIA HAS BEEN CARRIED OUT THROUGH M/S. RADHEY SHY AM & CO., RAMGANJ, MANDI FOR WHICH EVIDENCES WERE RECORDED ON PAGES 5 & 8 AND PAGES 8 TO 13 OF ANNEXURE A-4/O-18. THE EVIDENCES CONTAINED IN P AGES 14-15 AND 19 TO 22 MENTIONED THAT THE SPECULATIVE TRADING IN HALDI AND CHILLIES THROUGH M/S. KARNI SONS (KS), M/S. KARNI ENTERPRISES (KE), M/S. JITESH KUMAR BHUPESH KUMAR & CO. (JB) AND ALSO ONE BALKISHAN. THE PROFI TS FROM SPECULATION I.T.A.NOS.4576, 4577 & 4578/DEL/2010 32 TRADING CONSIST OF RATE DIFFERENCES GENERATED IN TH E PROCESS OF PURCHASE PRICE AND THE FINAL PRICE AT WHICH THE STOCKS WERE RECORD ED IN THE BOOKS OF ACCOUNT. THE ASSESSEE COMPANY MAKES PURCHASES WHEN THE PEAK SEASON ARRIVES BUT THE STOCK IS HELD BY THE PARTIES AND IS SENT TO THE PREMISES OF THE ASSESSEE COMPANY DEPENDING UPON THE ACTUAL REQUIREM ENTS OF INVENTORY IN THE MANUFACTURING PROCESS. THE AO FURTHER NOTED TH AT THE ASSESSEE WAS ALSO ENGAGED IN SPECULATION IN GOLD TRADING REFLECTED AT PAGES 20-21 TO ANNEXURE AA-O1 FOR THE PERIOD 13.04.2004 TO 01.10.2004. FOR THIS LIMITED PERIOD OF 8 MONTHS THE TOTAL TURNOVER DONE BY THE ASSESSEE WAS IN THE RANGE OF RS.2 CRORES TO RS.3 CRORES. IN THIS CONNECTION, SHRI VI JAY KUMAR, JEWELLER WAS SUMMONED TO VERIFY THE TRANSACTIONS OF M/S. MDH LTD IN THE ENTIRE PERIOD 2000-01 TO 2006-07. THE ASSESSEE WAS ASKED TO EXPL AIN THE CONTENTS OF THE TRANSACTIONS RECORDED ON PAGES 20 & 21 OF AA-4-01DU RING THE ASSESSMENT PROCEEDINGS FOR THE A.Y. 2001-02 TO 2004-05. IT WA S SUBMITTED BY THE ASSESSEE THAT PAGE NOS. 20 & 21 OF ANNEXURE AA-4 CO NTAINED THE STATEMENT OF ACCOUNT OF GOLD ORNAMENTS OF MDH FROM 01.04.2004 TO 31.10.2004 RECEIVED FROM M/S. VIJAY KUMAR JEWELLERS, KAROL BAG H, NEW DELHI. THE ASSESSEE COMPANY HAD INTRODUCED THE SCHEME OF GIVIN G OUT GOLD CHAINS TO ITS PARTIES AS INCENTIVE FOR INCREASING ITS SALES. ACC ORDINGLY, MDH LTD. HAD ENGAGED THE SERVICES OF THE SAID JEWELER TO MAKE TH ESE GOLD CHAINS FROM GOLD I.T.A.NOS.4576, 4577 & 4578/DEL/2010 33 BARS ALSO PURCHASED FROM THE SAID PARTY ONLY. THE SAID STATEMENT SHOWS THE DATE-WISE STOCK OF GOLD OF .995 PURITY AND ALLOW IN GRAMS (G.) MILLIGRAMS (MG.). IT WAS FURTHER STATED THAT ALLOY IS MIXED A S IMPURITY WITH THE PURE GOLD TO MAKE ANY ORNAMENT. THUS, GOLD BARS AS WELL AS ALLOY WAS BOUGHT AND GIVEN TO THE SAID PARTY BY MDH LTD. IN THE STATEME NT `CREDIT COLUMN REPRESENTED GOLD CHAINS (NEW ORNAMENTS) PRODUCED AN D SUPPLIED TO MDH BY THE SAID JEWELER WHEREAS WEIGHTS OF THE BALANCE GOL D REMAINING ON A PARTICULAR DAY WITH THE JEWELER WAS MENTIONED IN TH E LAST COLUMN. THE FIRST ROW OF THE STATEMENT SHOWS AN OPENING BALANCE AS ON 1.4.04 OF GOLD HAVING 93% PURITY LEVEL AND WEIGHING 208.343 GMS. (I.E. 20 8 G. & 343 MG.). IN THIS NEXT ROW, ON 13.4.04 THE JEWELER RECEIVED 2 KGS OF GOLD OF .995 PURITY AND THE SAME WAS WRITTEN BELOW THE `CREDIT COLUMN AS 2 000.000 GMS. (I.E. 2000G & 000 MG.) WHEN HE ALSO RECEIVED ALLOY WEIGHING 139 .784 GMS. ON THE SAME DAY. LIKEWISE, ALL OTHER RECEIPTS OF GOLD AND ALLO YS WERE RECORDED. ON 28.04.04, 211 PIECES OF GOLD CHAINS (I.E. NEW ORNAM ENTS) WERE SUPPLIED TO MDH LTD., WHICH WERE RECORDED UNDER `DEBIT COLUMN HAVING TOTAL WEIGHT OF 2970.690 GMS. THE BALANCE OF GOLD REMAINING ON THA T DATE (I.E. 28.04.04) WITH THE JEWELER WAS MENTIONED BY HIM AS 447.329 GM S. THUS, IT WAS STATED THAT THE ASSERTION OF THE AO WAS WRONG AND NO SUCH ADDITION AS PROPOSED BY THE AO WAS CALLED FOR. ALL TRANSACTIONS OF PURCHAS E OF GOLD AND ALLOY AND I.T.A.NOS.4576, 4577 & 4578/DEL/2010 34 MAKING CHARGES PAID TO THE JEWELER WERE FULLY ACCOU NTED FOR IN THE BOOKS OF ACCOUNT OF MDH LTD. COPY OF ACCOUNT OF THE SAID PA RTY FOR THE FY 2004-05 WAS ALSO FURNISHED BY THE ASSESSEE FOR VERIFICATION . 16. THE REPLY OF THE ASSESSEE WAS CONSIDERED BY THE AO. ACCORDING TO THE AO THE ASSESSEE HAD TRIED TO MISLEAD BY STATING THA T ENTRIES REPRESENTED STOCK OF GOLD KEPT WITH THE JEWELER FOR MAKING ORNAMENTS FOR THE SCHEME FLOATED BY THE COMPANY. IT WAS NOT UNDERSTOOD AS TO WHY TH E ASSESSEE COMPANY HAD MAINTAINED STOCK OF GOLD WITH A PRIVATE JEWELER FOR MANUFACTURING ORNAMENTS WHEN SUCH PURCHASES COULD BE MADE BY PAYMENT OF CAS H. IF THE ASSESSEE WANTED TO HAVE THE JEWELLERY ACCORDING TO ITS CHOIC E EVEN THEN THE FINAL PAYMENT FOR THE TOTAL COST OF ORNAMENTS WOULD BE MA DE RATHER THAN PURCHASING GOLD AND ALLOY SEPARATELY FOR THE PURPOS E. THE EXPLANATION OFFERED BY THE ASSESSEE WAS FOUND TO BE MISLEADING. THE AO FURTHER NOTED THAT A MAJOR ELEMENT IN THE PURCHASE TRANSACTIONS W AS A SPECULATIVE PROFIT IN WHICH DELIVERIES WERE NOT TAKEN AND RATE DIFFERENCE S HAD ACCRUED AND ARISEN IN THE HANDS OF THE ASSESSEE COMPANY BUT THE SAME W AS NOT REFLECTED IN THE BOOKS OF ACCOUNT. THE CLINCHING EVIDENCE CONTAINED ON PAGES 14 TO 22 AND IN PARTICULAR PAGE 19 SHOWED GENERATION OF UNACCOUN TED CASH BY SYSTEMATIC INFLATION OF PURCHASES THROUGH THE SUPPLIERS AND TH E COMMISSION AGENTS AND I.T.A.NOS.4576, 4577 & 4578/DEL/2010 35 UTILIZATION OF THE CASH TO MAKE PURCHASES IN THE PE AK SEASON AND GENERATION OF PROFITS THROUGH RATE DIFFERENCES BY TAKING ADVAN TAGE OF THE RISING PRICE SPIRAL AS THE PEAK SEASON OF PROCUREMENT SLOWLY TAP ERS OFF WITH THE LESSER SUPPLIES AND INCREASING PRICES. THE EVIDENCE ON TH ESE PAGES RELATED TO THE YEARS 2003-04, 2004-05 AND 2005-06 BUT THE MODUS OP ERANDI CLEARLY SHOWED THAT THE ASSESSEE WAS DOING THIS AS A MATTER OF BUS INESS PRACTICE. THE AO ALSO RELIED ON THE STATEMENT OF SHRI SUSHIL TREHAN. FURTHER THE DIRECTORS OF THE ASSESSEE COMPANY HAD ADMITTED INCOME OF RS.30 C RORES ON THIS ACCOUNT FOR THE FINANCIAL YEAR 2006-07. THE INCOME HOWEVER , BELONGED TO THE ASSESSEE COMPANY AS THE SAME WAS EARNED BY DEPLOYIN G THE FUNDS OF THE COMPANY, BY USING THE PURCHASE NETWORK OF THE ASSES SEE COMPANY AND THIS INCOME AROSE IN THE NATURAL COURSE OF BUSINESS OF T HE ASSESSEE COMPANY. THE INCOME FOR F.Y. 2004-05 FROM THE COMMODITY SPECULAT ION WAS ESTIMATED BY USING THE ADMITTED PROFITS OF SPECULATION IN THE FI NANCIAL YEAR 2006-07 AT RS.30 CRORES AS THE YARD-STICK IN THE HANDS OF THE COMPANY. THE AO ESTIMATED THE PROFIT FOR ALL THE THREE YEARS IN THE SAME PROPORTION AS THE TURNOVER OF FINANCIAL YEAR 2004-05 AS IT BEARS TO T HE TURNOVER OF FINANCIAL YEAR 2006-07. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 36 17. THE ADDITION PROPOSED BY THE AO WAS OBJECTED BE FORE THE DRP. HOWEVER, THE DRP SUSTAINED THE ADDITION ON THE GROU ND THAT IDENTICAL ADDITIONS WERE MADE IN ASSESSMENT YEARS 2001-02 TO 2004-05. THE DRP FURTHER NOTED THAT THE ADDITION WAS MADE BY THE AO BUT WAS DELETED BY THE CIT(A). HOWEVER, THE DEPARTMENT WAS IN APPEAL BEFO RE THE ITAT. THE DRP IN VIEW OF THESE FACTS REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE FOR ASSESSMENT YEAR 2005-06, 2006-07 AND 2007-08. 18. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMIT TED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT WHEREIN TH E ADDITION DELETED BY THE LEARNED CIT(A) WAS UPHELD. THE LEARNED CIT-DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE AO. 19. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. ITAT DELHI BENCH `E NEW DELH I IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 TO 2004-05 DIS CUSSED THE ISSUE RELATING TO SPECULATION ACTIVITY IN AGRICULTURAL CO MMODITY AND GOLD IN THE FOLLOWING WORDS:- 28. THE FIRST ISSUE IN THE REVENUES' APPEAL RELATE S TO DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON THE BASIS OF DOCUMENTS I.T.A.NOS.4576, 4577 & 4578/DEL/2010 37 SEIZED RELATING TO SPECULATION ACTIVITY IN AGRICULT URAL COMMODITY AND GOLD. THE ASSESSING OFFICER NOTED THAT THERE WAS E VIDENCE FOR SPECULATION IN COMMODITY TRADING DURING THE COURSE OF SEARCH PROCEEDINGS. SPECULATIVE TRADING IN DHANIA HAS BEE N CARRIED THROUGH M/S. RADHEY SHYAM AND CO., RAMGANJ MANDI. HE ALSO NOTED THAT SPECULATIVE TRADING WAS ALSO DONE IN HALDI AND CHIL LIES THROUGH KARNI SONS, M/S. KARNI ENTERPRISES AND M/S. JITESH KUMAR BHUPESH KUMAR & CO. AND ALSO ONE BAL KISHAN. HE ALSO NOTED THAT VARIOUS DOCUMENTS SEIZED FROM THE POSSESSION OF SHRI SUSHIL TREHAN CONTAINED DETAILS OF UNDISCLOSED SPECULATIVE TRANSACTIONS UND ERTAKEN WITH ITS SUPPLIERS BY THE ASSESSEE. FURTHER SEIZED MATERIAL ALSO REVEALED THAT THE ASSESSEE HAD INDULGED IN THE UNDISCLOSED SPECUL ATION BUSINESS IN GOLD TRADING WITH M/S. VIJAY KUMAR JEWELLERS, KAROL BAGH, NEW DELHI, DURING THE PERIOD FROM 1/04/2004 TO 31/10/20 04. THE ASSESSING OFFICER ALSO NOTED THAT THERE WAS NO NEED TO MAINTA IN STOCK OF GOLD WITH PRIVATE JEWELER SINCE DIRECT PURCHASES OF ORNA MENTS COULD BE MADE INSTEAD OF BUYING GOLD AND ALLOW SEPARATELY TH AN GETTING IT MANUFACTURED, WHICH SHOWS ITS INVOLVEMENT IN SPECUL ATIVE TRADING. HE ALSO OBSERVED THAT THE SEIZED DOCUMENT SHOW THE GENERATION OF UNACCOUNTED CASH AND UTILIZATION IN MAKING PURCHASE S IN THE PEAK SEASON THAN GENERATED PROFIT THROUGH RATE DIFFERENC E. THE ASSESSING OFFICER RELIED ON THE SURRENDER MADE BY TWO DIRECTO RS ON ACCOUNT OF SPECULATIVE ACTIVITIES OF RS.15 CRORES EACH, CARRIE D OUT BY THEM. THE ASSESSING OFFICER TOOK THE AMOUNT OF RS.30 CROR ES AS BASE FIGURE FOR MAKING THE IMPUGNED ADDITIONS IN ALL THE ASSESS MENT YEARS. THE ASSESSING OFFICER IN ORDER TO WORK OUT UNDISCLOSED INCOME OF EACH OF I.T.A.NOS.4576, 4577 & 4578/DEL/2010 38 THE FOUR YEARS ADOPTED FORMULA BY WHICH HE MULTIPLI ED THE SAID RS.30 CRORES WITH THE ASSESSEE'S TURNOVER FOR EACH ASSESS MENT YEAR AND BY DIVIDING THE TURNOVER OF THE ASSESSEE FOR ASSESSMEN T YEAR 2006-07 IN WHICH SEARCH TOOK PLACE AND ALLEGED SPECULATIVE INC OME OF RS.30 CRORES WAS OFFERED BY THE TWO DIRECTORS IN THEIR PE RSONAL HANDS. 29. ON APPEAL IT WAS SUBMITTED THAT ANNEXURE A-4 WA S FOUND FROM THE POSSESSION OF SHRI SUSHIL TREHAN, WHO HAD OWNED UP AND THE INCOME ARISING ON ACCOUNT OF SAID ANNEXURE WAS DULY DECLARED BY HIM, WHICH HAS ALSO BEEN ASSESSED IN HIS HANDS. IT WAS ALSO SUBMITTED THAT THERE WAS NO SPECULATION IN CHILLY AND HALDI B Y ANY PERSON AS THE SEIZED MATERIAL DOES NOT INDICATE SO. AS REGARDS P URCHASE OF GOLD, IT WAS SUBMITTED THAT THE ASSESSEE DISTRIBUTED GOLD CH AINS AS A PART OF SALES-PROMOTION SCHEME. IN ORDER TO PROCURE GOLD CH AINS, THE ASSESSEE PURCHASED GOLD AND ALLOYS AND GAVE THE METAL TO VIJ AY KUMAR JEWELLERS FOR MANUFACTURE OF THE GOLD CHAINS. AS A ND WHEN THE CHAINS WERE SUPPLIED, M/S. VIJAY KUMAR JELLWERS WAS GIVING THE ACCOUNTS AND ANOTHER QUANTITY OF GOLD WAS PURCHASED. THE DI STRIBUTION OF THE CHAINS UNDER THE SCHEME WAS DECLARED ON BIRTHDAY SC HEME OF MAHASHAYA DHARAM PAL GULATI. PAGE NOS. 20-21 OF AN NEXURE AA- 4/O-1 EXHIBITS THE TRANSACTION WITH M/S. VIJAY KUMA R JEWLLERS. UNDISPUTEDLY THE PROOF OF DELIVERY WAS IN THE SEIZE D MATERIAL ITSELF. IN BRIEF THE ASSESSEE PURCHASED GOLD AND ALLOY FOR MAN UFACTURE OF GOLD CHAINS. M/S. VIJAY KUMAR JELLWERS AFTER MANUFACTUR E OF GOLD CHAINS GAVE THE ACCOUNTS WHICH TALLIED WITH THE BOOKS OF A CCOUNTS. THEREFORE, THE CONTENTION OF THE ASSESSING OFFICER THAT THE ASSESSEE WAS ENGAGED IN SPECULATION BUSINESS OF GOLD IS NOT CORR ECT. IT WAS FURTHER I.T.A.NOS.4576, 4577 & 4578/DEL/2010 39 SUBMITTED THAT THE SAID STATEMENT RELATED TO THE PE RIOD FOR ASSESSMENT YEAR 2004-06 AND HAS BEEN REFERRED TO BY THE ASSESS ING OFFICER IN ORDER TO SUPPORT HIS PRESUMED HIGH-PITCHED ASSESSME NTS. THE SEARCH DID NOT YIELD IN ANY EVIDENCE SUGGESTING OF RECEIPT OF ANY SUCH INCOME THAT TOO OF SUCH A LARGE SUM OF RS.30 CRORES IN PAR TICULAR FINANCIAL YEAR 2006-07 AND OTHER AMOUNTS AS HAVE ASSESSED IN OTHER YEARS WITHOUT ANY EVIDENCE. THE ASSESSING OFFICER HAD PL ACED RELIANCE ON STATEMENT OF DIRECTORS OF THE COMPANY FOR MAKING AD DITION THOUGH THE SAME WERE RETRACTED BY THEM IMMEDIATELY THEREAFTER DURING THE CONTINUATION OF SEARCH PROCEEDINGS ON 28/11/2006. THE LD. CIT (APPEALS), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION. HE ACCEPTED THE CONTENTION OF THE AS SESSEE AS CORRECT. HE OBSERVED THAT THE ASSESSING OFFICER HAD MADE ADD ITION IN A.YS. 2001-02 TO 2004-05 RELYING ON SURRENDER OF INCOME I N ASSESSMENT YEAR 2007-08. HE ALSO NOTED THAT NO ADDITION CAN BE MADE BY ALLEGING THAT THE ASSESSEE ALSO MUST HAVE EARNED SI MILAR INCOME THAT TOO IN EARLIER YEARS WITHOUT ANY EVIDENCE OF NATURE ON RECORD. AS REGARDS THE ALLEGATION OF PARALLEL CASH BALANCE ON THE BASIS OF PAGE NO. 40 OF ANNEXURE A-3/O-2,LD CIT(A) OBSERVED THAT THE ASSESSEE HAS EXPLAINED ITS NATURE AND GOT IT TALLIED WITH THE EN TRIES IN THE REGULAR BANK ACCOUNT STATEMENT MAINTAINED WITH HDFC BANK, L UDHIANA. 30. BEFORE US THE LD. [CIT] - DR SUBMITTED THAT ONC E THE SURRENDER WAS MADE DURING THE COURSE OF SEARCH, THE ASSESSEE WAS BOUND TO DECLARE THE SAME IN THE RETURN OF INCOME AND PAY TA XES THEREON. SHE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ON T HE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE REITERATED SIMILAR ARG UMENTS BEFORE THE LD. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 40 CIT (A). HE SUBMITTED THAT WHEN SURRENDER IS RETRA CTED, THEN ONUS IS ON THE REVENUE TO PROVE THAT THE SURRENDER WAS CORR ECT ON THE BASIS OF EVIDENCES GATHERED AT THE TIME OF SEARCH OR THEREAF TER. MERELY BECAUSE SURRENDER WAS MADE THE SAME IS NOT BINDING ON THE ASSESSEE UNLESS PROVED OTHERWISE BY THE REVENUE. IN FACT RE TRACTION OF SURRENDER WAS ALSO ACCEPTED BY THE INVESTIGATION UN IT AS THE CHEQUES TAKEN BY THE INCOME-TAX OFFICIALS AT THE TIME OF SU RRENDER AGAINST THE INCOME-TAX LIABILITY THEREON WERE NOT AT ALL PRESEN TED FOR ENCASHMENT ON THE DUE DATES. HE, THEREFORE, SUPPORTED THE ORD ER OF THE LD. CIT (A). ITAT AFTER CONSIDERING THE ABOVE FACTS HELD AS UNDE R:- 31. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE MATERIAL AVAILABLE ON RECORD. DURING THE COURSE OF SEARCH, NO EVIDENCE WAS FOUND TO THE EFFECT THAT THE ASSESSEE COMPANY WAS E NGAGED IN SPECULATIVE TRADING IN AGRICULTURAL COMMODITIES. T HE ASSESSING OFFICER MADE A REFERENCE TO THE ALLEGED OVER INVOICING OF H ALDI AND CHILLY AS A SPECULATIVE TRANSACTION. IT IS A FACT THAT THE C OMPANY ANNOUNCES SEVERAL SALES PROMOTION SCHEMES. ONE OF THE SCHEME IS PRONOUNCED ON THE BIRTHDAY OF MAHASHAYA DHARAM PAL GULATI. ON THIS DATE GOLD CHAINS ARE DISTRIBUTED TO THE DEALERS, WHO ACHIEVE CERTAIN TARGETS. FOR THIS PURPOSE THE ASSESSEE HAD PURCHASED GOLD AN D ALLOY AND GOT THEM CONVERTED FROM THE JEWELER, NAMELY, VIJAY KUMA R JEWELLERS. THE ASSESSEE HAD REGULAR ACCOUNT WITH HIM FOR MANUFACT URING OF GOLD CHAINS. FROM THE DETAILS AVAILABLE ON RECORD WHENE VER FRESH GOLD WAS PURCHASED THE SAME WAS HANDED OVER TO THE JEWELER F OR MANUFACTURE OF GOLD CHAINS. THE EXPENDITURE INCURRED BY WAY OF MAKING CHARGES I.T.A.NOS.4576, 4577 & 4578/DEL/2010 41 AS WELL AS PURCHASE OF GOLD IS REFLECTED IN THE BOO KS OF ACCOUNTS. WE ARE UNABLE TO UNDERSTAND AS TO HOW SUCH TRANSACTION S CAN BE TREATED AS A SPECULATION TRANSACTION. THE ASSESSEE IS NOT ENGAGED IN PURCHASE AND SALE OF GOLD ON THE BASIS OF WHICH IT COULD BE PRESUMED THAT THE ASSESSEE WAS ENGAGED IN SPECULATIVE BUSINESS. THE SURRENDER MADE BY THE DIRECTORS DURING THE COURSE OF SEARCH WAS RE TRACTED IMMEDIATELY THEREAFTER. IF THE REVENUE WANTED TO R ELY ON THE SURRENDER MADE BY THE DIRECTORS, NECESSARY EVIDENCE SHOULD HAVE BEEN BROUGHT ON RECORD TO JUSTIFY THAT THE SURRENDE R MADE BY THE ASSESSEE WAS CORRECT. INCOME CANNOT BE ASSESSED ON PRESUMPTION BASIS. WHEN THE RETRACTION FOR ASSESSMENT YEAR 200 7-08 WAS MADE, THE SAME FIGURE CANNOT BE TAKEN FOR ESTIMATING THE SPECULATIVE BUSINESS FOR ASSESSMENT YEARS 2001-02 TO 2004-05. NO ADDITION CAN BE MADE WITHOUT ANY SUPPORTING EVIDENCE. IN THE IN STANT CASE, THE ASSESSING OFFICER HAS PRESUMED THAT THE ASSESSEE MI GHT HAVE DONE SPECULATIVE BUSINESS IN AGRICULTURAL COMMODITY AND GOLD IN ASSESSMENT YEARS UNDER CONSIDERATION. THEREFORE, I N OUR CONSIDERED OPINION, THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER PASSED BY THE LD. CIT (A) DELETING THE ADDITION FOR ALL ASSESSMEN T YEARS. 20. SINCE THE ISSUE INVOLVED IN THE YEARS UNDER CON SIDERATION IS IDENTICAL AND REVENUE HAS NOT BROUGHT ANY MATERIAL CONTRARY T O ASSESSMENT YEARS 2001-02 TO 2004-05, WE DO NOT FIND ANY REASON TO DI FFER FROM THE DECISION I.T.A.NOS.4576, 4577 & 4578/DEL/2010 42 TAKEN IN EARLIER YEARS. WE ACCORDINGLY DELETE THE ADDITION ON ACCOUNT OF SPECULATIVE BUSINESS IN AGRICULTURAL COMMODITIES AN D GOLD. 21. NEXT ISSUE FOR CONSIDERATION RELATES TO CONFIRM ING THE ADDITION ON ACCOUNT OF ADVERTISEMENT EXPENDITURE OF RS.2,38,70, 600/- IN A.Y. 2005-06; RS.2,11,27,739/- IN A.Y. 2006-07; AND RS.2,46,82,36 1/- IN A.Y. 2007-08. THE FACTS OF THE CASE ARE THAT THE ASSESSEE INCURRE D RS.11,93,53,000/- ON ADVERTISEMENT EXPENDITURE IN A.Y. 2005-06; RS.10,56 ,38,697/- IN A.Y. 2006-07; AND RS.12,34,11,805/- IN A.Y. 2007-08. TH E AO OBSERVED THAT EXPENSES INCURRED ON ADVERTISEMENT WERE HIGH. HE R EFERRED TO THE REASONS FOR DISALLOWANCE OF ADVERTISEMENT EXPENSES IN A.Y. 2001-02 TO 2004-05. THE AO WHILE DISALLOWING THE ADVERTISEMENT EXPENSES OBSERVED THAT IN ALL THE ADVERTISEMENTS GIVEN BY THE ASSESSEE COMPANY IN PRINT AND VISUAL MEDIA, THE NAME OF THE MAIN PROMOTER DIRECTOR SHRI DHARAM PAL GULATI WAS PROMINENTLY DISPLAYED AND ADVERTISED. THE ATTEMPT IN MEDIA CAMPAIGN WAS TO PROMOTE THE MAHASHAYAJI AS AN ICON. THE QUESTIO N THAT AROSE WAS WHETHER THE ENTIRE EXPENDITURE ON ADVERTISEMENT COULD BE TA KEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE BRAND `MDH ACTUALLY REFERS TO DHARAM PAL GULATI. THE OW NERSHIP OF THE BRAND WAS NOT DEFINED AS ON DATE. IT WAS NOT CLEAR WHETH ER THE TITLE TO THE BRAND I.T.A.NOS.4576, 4577 & 4578/DEL/2010 43 WAS IN THE HANDS OF THE ASSESSEE COMPANY. IN THE A BSENCE OF THE SAME CERTAIN PORTION OF THE EXPENDITURE ATTRIBUTABLE TO THE SAME COULD NOT BE ALLOWED. THE AO DISALLOWED THE EXPENDITURE ON THE GROUND THAT AN ATTEMPT HAS BEEN MADE BY THE COMPANY TO PROMOTE SHRI DHARAM PAL GULATI AND NOT THE PRODUCT. THE AO THEREFORE, PROPOSED THE DISALL OWANCE OF 20% OF THE ADVERTISEMENT EXPENDITURE. HOWEVER, DRP UPHELD THE ADDITION ON THE GROUND THAT SIMILAR ADDITIONS WERE MADE IN ASSESSME NT YEARS 2001-02 TO 2004-05. THE DRP FURTHER OBSERVED THAT THESE ADDIT IONS WERE DELETED BY THE CIT(A). HOWEVER, THE DEPARTMENT HAS FILED APPEAL B EFORE ITAT AND HAS CONTESTED THE DELETION OF DISALLOWANCE BY THE CIT(A ). DRP IN ORDER TO PROTECT THE INTERESTS OF THE REVENUE UPHELD THE DIS ALLOWANCES IN ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08. 22. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMIT TED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT IN THE CAS E OF THE ASSESSEE FOR ASSESSMENT YEAR 2001-02 TO 2004-05. ON THE OTHER H AND, THE LEARNED CIT- DR SUPPORTED THE ORDER OF THE AO. FOR DISALLOWANCE U/S 40A(2)(A) THE LEARNED CIT-DR PLACED RELIANCE ON THE DECISION IN T HE CASE OF SHATRUNJAY DIAMONDS VS. CIT (2003) 261 ITR 258 (BOM.) FOR THE PROPOSITION THAT BURDEN WAS ON THE ASSESSEE TO ESTABLISH THAT PRICE PAID BY IT WAS NOT I.T.A.NOS.4576, 4577 & 4578/DEL/2010 44 EXCESSIVE OR UNREASONABLE. HE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. NE PC INDIA LTD., 303 ITR 271 AND DECISION IN THE CASE OF CIT VS. PAAREL IMPORTS & EXPORTS (P) LTD. 171 TAXMAN 209 (KER.). AS REGARDS DECISIONS RELIED UPON IN THE CASE OF SEC. 40A(2)(A) THE LEARNED AR OF THE ASSESSEE SU BMITTED THAT THE DECISIONS RELIED UPON ARE IN RESPECT OF PAYMENTS OF EXCESS PA YMENTS TO ITS SISTER CONCERN. SAID PAYMENTS HAVE BEEN MADE TO SAID CONC ERN IN EARLIER YEARS BUT NO DISALLOWANCE HAS EVER BEEN CALLED FOR. DISALLOW ANCE HAS BEEN MADE NOT UNDER SEC. 40A(2)(B) BUT ON ESTIMATE BASIS @ 20% ON OTHER EXPENSES. IN CASE OF SHATRUNJAY DIAMONDS (SUPRA) THE AO COMPARED THE PRICE OF DIAMONDS IMPORTED BY THE ASSESSEE THROUGH THE RELAT ED PARTIES AND OTHER PARTIES AND HAD CAME TO THE CONCLUSION THAT THE ASS ESSEE HAD PAID EXTRA PRICE TO THE RELATED PARTIES AND THEREFORE, THE DISALLOWA NCE WAS MADE. THE MATTER WAS REMANDED FOR VERIFICATION TO THE ASSESSING OFFI CER. IN THE CASE OF ASSESSEE NO SUCH COMPARISON OF PRICE HAS BEEN DRAWN BY THE AO AND NO EVIDENCE HAS BEEN BROUGHT ON RECORD AND THEREFORE F ACTS OF THE CASE ARE ENTIRELY DIFFERENT. IT WAS ALSO SUBMITTED THAT FAC TS OF NEPC INDIA LTD. (SUPRA) AND PAAREL IMPORTS & EXPORTS (P) LTD. (SUPR A) ARE ENTIRELY DIFFERENT AND THEREFORE, THEY ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 45 23. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS CO VERED BY THE DECISION OF ITAT FOR ASSESSMENT YEAR 2001-02 TO 2004-05. ITAT DELETED THE ADDITION BY OBSERVING AS UNDER:- 34. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT THE EXPENDITURE INCURRED ON ADVERTISEMENT IS GENUINE. THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER MERELY ON THE GROUND THAT INSTEAD OF PRODUCTS, THE CMD OF THE COMPANY IS BEING PROMOTED. IN OUR CONSI DERED OPINION, THIS IS A SILLY PROPOSITION ON THE PART OF THE ASSE SSING OFFICER. HAD THE ASSESSEE ENGAGED A BIG CELEBRITY FOR PROMOTION OF ITS PRODUCTS, THE ASSESSEE WOULD HAVE INCURRED HUGE EXPENDITURE AND T HAT WOULD HAVE BEEN ALLOWED IN FULL BY THE ASSESSING OFFICER. THE EXPENDITURE HAS BEEN INCURRED ON PROMOTION OF THE PRODUCT. THEREFO RE, IN OUR CONSIDERED OPINION, THE LD. CIT (A) IS JUSTIFIED IN DELETING THE ADDITION. MERELY BECAUSE MR. DHARMA PAL GULATI NAME COMES TO PROMINENCE, IT CANNOT BE SAID THAT THE EXPENDITURE WAS NOT INCURRE D FOR THE PURPOSE OF BUSINESS. THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF STAR INDIA P. LTD. VS. ADIT 103 I.T.D. 73 (MUM.) (TM) WHEREIN IT HAS BEEN HELD THAT ADVERTISEMENT EXPENSES INCURRED FOR THE BUSINESS PU RPOSES ARE ALLOWABLE AND IT DOES NOT MATTER THAT OTHER PARTY I S ALSO BENEFITED BY SUCH ADVERTISEMENT. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 46 24. SINCE IDENTICAL ISSUE IS INVOLVED AND NO EVIDEN CE ON THE BASIS OF WHICH CONTRARY DECISION COULD BE TAKEN WAS BROUGHT ON RECORD, WE RESPECTFULLY FOLLOWING THE DECISION OF ITAT, DELETE THE ADDITION ON ACCOUNT OF ADVERTISEMENT EXPENDITURE FOR ALL THE THREE YEAR S. 25. NEXT ISSUE FOR CONSIDERATION RELATES TO ADDITIO N MADE ON ACCOUNT OF INFLATION OF PURCHASE PRICE OF RAW SPICES. THE AO MADE THE FOLLOWING ADDITIONS:- ASSESSMENT YEAR ADDITION 2005-06 RS.1,13,71,759/- 2006-07 RS.1,25,43,293/- 2007-08 RS.1,32,63,588/- DURING THE COURSE OF SEARCH OPERATION ANNEXURE A-4/ O-18 WAS SEIZED FROM THE OFFICE OF SHRI SUSHIL KUMAR TREHAN LOCATED IN M ATA CHANAN DEVI HOSPITAL AT C-1, JANAKPURI, NEW DELHI. DURING THE COURSE OF SEARCH SHRI SUSHIL KUMAR TREHAN, SON-IN-LAW OF SHRI DHARAM PAL GULATI ADMITTED IN HIS STATEMENT RECORDED U/S 132(4) OF THE ACT THAT HE WA S LOOKING AFTER PURCHASES OF MDH GROUP. PAGE NO.14 TO 22 OF ANNEXURE A-4/O-18 ARE THE STATEMENT OF ACCOUNT OF M/S. KARNI SONS (KS) (PAGE 14), M/S. KARNI ENTERPRISES (KE) (PAGE 19) AND M/S. JITESH KUMAR BHUPESH KUMAR & CO ,. (PAGES 20-21) WHEREIN DATE-WISE, BILL-WISE QUANTITATIVE DETAILS O F CHILLIES AND HALDI I.T.A.NOS.4576, 4577 & 4578/DEL/2010 47 PURCHASED FROM THESE FIRMS ARE RECORDED. THE DETA ILS PERTAINED TO FINANCIAL YEARS 2003-04, 2004-05 AND 2005-06. THE TOTAL QUAN TITY OF CHILLIES AND HALDI PURCHASED IS MULTIPLIED BY 3 FOR HALDI AND BY 5 FOR CHILLIES. THE AO ON THE BASIS OF ENTRIES RECORDED HAD NOTED THAT THE PU RCHASE INVOICES OF CHILLIES AND HALDI RAISED BY THESE PARTIES WERE FOR MDH LTD. THE PURCHASES WERE OVER INVOICED TO THE EXTENT OF RS.3/- PER KG IN THE CASE OF HALDI AND RS.5/- PER KG. IN THE CASE OF CHILLIES. IN RESPONSE TO A QUERY RAISED BY THE AO IT WAS STATED THAT PAGES 14-22 PERTAINED TO SHRI SUSHI L KUMAR TREHAN AND THE RELEVANT INCOME HAS BEEN DECLARED BY HIM IN HIS HAN DS. ALTHOUGH THE ASSESSEE ADMITTED THAT THE STOCK IN QUESTION BELONG TO IT YET INFLATION IN THE PURCHASES OF HALDI AND CHILLIES RECORDED ON THESE P AGES WAS THE WORK OF SHRI SUSHIL KUMAR TREHAN IN HIS INDIVIDUAL CAPACITY . THE ASSESSEE ALSO ADMITTED THAT THE RAW MATERIAL WAS PURCHASED BY THE ASSESSEE AT THE INVOICE PRICE ONLY AND NOT AT INFLATED PRICE. THE AO HOWEV ER, REJECTED THE CONTENTION OF THE ASSESSEE. HE OBSERVED THAT AN AT TEMPT HAS BEEN MADE BY THE ASSESSEE TO SHIFT THE BLAME ON SHRI SUSHIL KUMA R TREHAN, SON-IN-LAW OF SHRI DHARAM PAL GULAI. THE EXPLANATION OF THE ASSE SSEE COMPANY COULD NOT BE ACCEPTED FOR THE REASONS THAT SHRI SUSHIL KUMAR TREHAN COULD NOT TAKE SUCH DECISION WITHOUT THE CONSENT OF THE DIRECTOR O F THE COMPANY AS HE DID NOT HOLD ANY POSITION IN THE COMPANY AND IF HE HAD INDULGED IN SUCH I.T.A.NOS.4576, 4577 & 4578/DEL/2010 48 UNAUTHORIZED ACTIVITY, HOW IT WAS NOT DETECTED BY T HE ASSESSEE FOR SO LONG. THE ASSESSEE COMPANY HAD BEEN IN THE BUSINESS OF PR OCUREMENT OF RAW MATERIAL FOR DECADES AND THEY COULD NOT HAVE MISLED ABOUT THE PRICE AT WHICH TWO OF THE MOST IMPORTANT RAW MATERIALS WERE BEING INVOICED. FURTHER THE UTILIZATION OF SURPLUS GENERATED WAS ALSO IN ACCORD ANCE WITH THE DIRECTIONS OF THE DIRECTORS OF THE ASSESSEE COMPANY. THEREFORE, INCOME EARNED IN THIS PROCESS BELONGED TO THE ASSESSEE COMPANY AND SHOULD BE TAXED AS INCOME IN ITS HANDS. THE AO ESTIMATED INCOME BY MULTIPLYING THE QUANTITY OF HALDI AND CHILLISES PURCHASED BY THE ASSESSEE BY RS.3/- A ND RS.5/- RESPECTIVELY. FOR ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08 T HE INFLATION IN THE PURCHASE PRICE WAS DETERMINED AS UNDER:- A.Y.2005-06 HALDI 713613 KGS. X RS.3.00 = RS.21,40,839/- CHILLIES 1846184 KGS. X RS.5.00 = RS.92,30,920/- TOTAL = RS.1,13,71,759/- A.Y.2006-07 HALDI 713226 KGS. X RS.3.00 = RS.21,39,678/- CHILLIES 2080723 KGS. X RS.5.00 = RS.1,04,03 ,615/- TOTAL = RS.1,25,43,293/- IN A.Y. 2007-08 I.T.A.NOS.4576, 4577 & 4578/DEL/2010 49 HALDI 859361 KGS. X RS.3.00 = RS.25,78,083/- CHILLIES 2137101 KGS. X RS.5.00 = RS.1,06,85,5 05/- TOTAL = RS.1,32,63,588/- THE ASSESSING OFFICER PROPOSED ADDITION OF ABOVE M ENTIONED AMOUNTS IN THE HANDS OF ASSESSEE IN THE DRAFT ORDERS FOR ASSESSMEN T YEARS 2005-06, 2006-07 AND 2007-08. 26. THE ASSESSEE OBJECTED TO ADDITIONS PROPOSED BY THE AO FOR INFLATION OF PURCHASES. DRP OBSERVED THAT THE AO HAD DISCUSSED THE ADDITIONS IN PARA 9 OF DRAFT ASSESSMENT ORDERS FOR A.Y. 2005-06 AND 20 06-07 AND IN PARA 8 OF DRAFT ASSESSMENT ORDER FOR A.Y. 2007-08. IT HAS AL SO BEEN OBSERVED THAT SIMILAR ADDITIONS WERE MADE FOR A.Y. 2001-02, 2002- 03, 2003-04 AND 2004- 05 ON IDENTICAL FACTS. THESE ADDITIONS WERE CONFIR MED BY THE CIT(A). THE ASSESSEE HAS RAISED SIMILAR ARGUMENTS FOR THESE YEA RS ALSO. SINCE THE ADDITIONS WERE CONFIRMED BY THE CIT(A), THE OBJECTI ONS RAISED BY THE ASSESSEE IN RESPECT OF ALL THE ASSESSMENT YEARS UND ER CONSIDERATION I.E. 2005-06, 2006-07 AND 2007-08 WERE REJECTED. 27. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMIT TED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT FOR ASSESS MENT YEARS 2001-02 TO I.T.A.NOS.4576, 4577 & 4578/DEL/2010 50 2004-05. THE LEARNED AR OF THE ASSESSEE PLACED REL IANCE ON THE DECISION OF HONBLE HIGH COURTS IN THE CASES OF CIT VS. SHIV PR AKASH AGGARWAL (2007) 165 TAXMAN 141 (DELHI); CIT VS. ASHOK KUMAR (2006) 286 ITR 541 (ALL.); & DISTRICT SUPERINTENDENT OF POLICE, CHANNAI VS. K. INBASAGARAN (2006) 282 ITR 435 (SC) FOR THE PROPOSITION THAT IF A PERSON A CCEPTS AND OWNS THE ASSETS OR SEIZED MATERIAL, ADDITION CANNOT BE MADE IN THE HANDS OF THE PERSON FROM WHOSE PREMISES IT WAS SEIZED. ON THE OTHER HAND, T HE LEARNED CIT-DR SUBMITTED THAT EVIDENCE WAS FOUND DURING THE COURSE OF SEARCH THAT PURCHASES WERE INFLATED BY RS.3/- IN RESPECT OF H ALDI AND RS.5/- IN RESPECT OF CHILLIES. SHRI RAJIV GULATI HAD ADMITTED IN HIS STATEMENT THAT THERE WAS OVER INVOICING IN PURCHASES. THE PARTIES FROM WHOM PURCHASES HAVE BEEN MADE I.E. JITESH KUAMR BHUPESH KUMAR, M/S. KARNI SO NS AND M/S. KARNI ENTERPRISES HAVE ALSO STATED IN THEIR STATEMENTS RE CORDED UNDER SEC. 131 OF THE ACT THAT THEY CHARGED HIGHER PRICES TO M/S. MDH LTD. BUT NO EXPLANATION FOR SUCH OVER INVOICING WAS GIVEN. THE EXPLANATION OF THE ASSESSEE THAT IT WAS DONE BY SHRI SUSHIL KUMAR TREHAN WAS NOT ACCEPT ABLE. THE DRP HAS CONFIRMED THE INFLATION OF PURCHASES. THE LEARNED C IT-DR PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. A.K. JAIN 2012-TIOL-354-HC0DEL-IT FOR THE PROPOSITION THAT EV EN IF INCOME HAS BEEN ASSESSED IN THE HANDS OF A THIRD PERSON BECAUS E OF THE DECLARATION MADE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 51 IN THE RETURN, INCOME MUST BE ASSESSED AND TAXED IN THE HANDS OF REAL OWNER OR RECIPIENT OR PERSON, WHO HAD MADE THE INVESTMENT . HE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF ITO VS. CH. ATCHAIAH, 218 ITR 239 (SC). 28. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE T HROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS SQ UARELY COVERED BY THE DECISION OF ITAT DATED 29 TH OCTOBER, 2010 FOR A.Y. 2001-02 TO 2004-05. WE HAVE GONE THROUGH THE STATEMENT GIVEN BY SHRI RA JIV GULATI. IN HIS STATEMENT SHRI RAJIV GULATI STATED THAT SHRI SUSHIL KUMAR TREHAN WAS LOOKING AFTER SUPPLIES OF RAW-MATERIAL TO M/S. MDH LTD. IT WAS ALSO STATED THAT THERE WAS NO PRACTICE IN MDH LTD. TO INFLATE T HE PURCHASE PRICE. SHRI SUSHIL KUMAR TREHAN WAS DOING ON HIS OWN ACCOUNT AN D INITIALLY TO ESCAPE THE LIABILITY OF TAX HE HAD MADE STATEMENT THAT PU RCHASE INFLATION WAS ON ACCOUNT OF PURCHASES MADE BY MDH LTD. IT WAS ALSO STATED THAT SHRI SUSHIL KUMAR TREHAN HAS ADMITTED INCOME FROM OVER INVOICIN G IN HIS RETURN OF INCOME. ITAT DELHI BENCH `E, NEW DELHI IN ORDER D ATED 29 TH OCTOEBR, 2010 IN ITA NOS.1270 TO 1273(DEL) OF 2010 IN ASSESS EES OWN CASE FOR ASSESSMENT YEARS 2001-02 TO 2004-05 IN PARA 27 HAS DISCUSSED THE ISSUE IN DETAIL. THE ADDITION MADE BY THE AO WAS DELETED BY OBSERVING AS UNDER:- I.T.A.NOS.4576, 4577 & 4578/DEL/2010 52 27. WE HAVE HEARD BOTH THE PARTIES. THERE IS NO D ISPUTE ABOUT THE FACT THAT THE PAPERS ON THE BASIS OF WHICH ADDITIO N WAS MADE, WERE FOUND FROM THE OFFICE OF SHRI SUSHIL KUMAR TREHAN, WHO WAS CFO OF MATA CHANAN DEVI HOSPITAL. SHRI SUSHIL TREHAN WAS ENGAGED IN THE PROCUREMENT OF HALDI AND CHILLIES. SHRI SUSHIL KUM AR TREHAN HAS ADMITTED THE INCOME IN HIS RETURN OF INCOME, WHICH HAS BEEN ASSESSED BY THE ASSESSING OFFICER. NO APPEAL AGAINST THE AS SESSMENT ORDER MADE UNDER SECTION 153-A OF THE ACT HAS BEEN MADE. SHRI SUSHIL KUMAR TREHAN HAD PAID THE TAX ALONG WITH INTEREST. THEREFORE, THE DIFFERENCE BETWEEN THE PURCHASE PRICE PAID BY MDH L TD. AND THE AMOUNT PAID TO THE SUPPLIERS HAD BEEN RETAINED BY S HRI TREHAN. IF AN AMOUNT IS RETAINED, BY A PERSON, WHO HAS RENDERED S ERVICES BY WAY OF PROCUREMENT, DEFINITELY THE SAME WILL REPRESENT THE COMMISSION. IT IS ALSO A FACT THAT SHRI SUSHIL TREHAN WAS NOT PAID AN YTHING FOR THE SERVICES RENDERED TO THE COMPANY. MOREOVER, THE STATEMENT RECORDED DDIT WAS NOT CONFRONTED TO THE ASSESSEE. THEREFORE, IT CANNOT BE SAID THAT THE AMOUNT OF RS.3/- PER KG. AN D RS.5/- PER KG. WHICH HAS BEEN ADMITTED BY SHRI SUSHIL TREHAN, IN H IS RETURN OF INCOME, HAS COME TO THE ASSESSEE. NO SUCH EVIDENCE DURING THE COURSE OF SEARCH WAS FOUND FROM THE POSSESSION OF T HE ASSESSEE INDICATING THAT ACTUAL BENEFICIARY IS THE ASSESSEE. SINCE THE ADDITION HAS BEEN MADE IN THE HANDS OF SHRI SUSHIL TREHAN, T HE DISALLOWANCE TO THAT EXTENT CANNOT BE MADE IN THE HANDS OF THE ASSE SSEE. MOREOVER, THE TRANSACTIONS INVOLVING OVER INVOICING WAS FOUND IN ASSESSMENT YEAR 2004-05, BUT THE AO MADE ADDITION OF EQUAL AMO UNT IN AY 2001- 02, 2002-03 AND 2003-04 ALSO WITHOUT ANY MATERIAL F OUND DURING THE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 53 COURSE OF SEARCH. THE ADDITION MADE IN AY 2001-02, 2002-03 AND 2003-04 IS BASED ON MERE SUSPICION AND PRESUMPTION AND IS NOT SUPPORTED BY ANY EVIDENCE FOUND DURING THE COURSE O F SEARCH THAT SHRI SUSHIL TREHAN HAS EARNED COMMISSION ON PURCHASE OF HALDI AND CHILLY IN THESE YEARS ALSO. THE AO HAD ADDED THE S AME AMOUNT IN ALL THE FOUR YEARS. SINCE THE INCOME HAS BEEN ASSESSED IN THE HANDS OF SHRI SUSHIL TREHAN, THE AMOUNT TO THAT EXTENT IS IN NATURE OF COMMISSION INCOME AND BECOMES THE EXPENDITURE IN TH E HANDS OF THE ASSESSEE PARTICULARLY WHEN NO EVIDENCE SUGGESTING T HAT OVER INVOICING WAS DONE AT THE INSTANCE OF THE ASSESSEE WAS FOUND. MOREOVER THE SAME INCOME CANNOT BE TAXED TWICE, ONCE IN THE HAND OF SUSHIL TREHAN AS HIS INCOME AND AGAIN IN THE HANDS OF ASSESSEE BY WAY OF DISALLOWANCE OF THE EXPENDITURE. THEREFORE, IN OUR CONSIDERED OPINION, NO ADDITION CAN BE SUSTAINED IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, WE DELETE THE ADDITION IN ALL THE YEAR S UNDER CONSIDERATION. 29. THE ABOVE MENTIONED VIEW OF THE TRIBUNAL IS SU PPORTED BY FOLLOWING DECISIONS: (I) IN THE CASE OF CIT VS. SHIV PRAKASH AGGARWAL (SUPRA ) A SEARCH WAS CONDUCTED AT THE PREMISES OF THE ASSESSEE WHO W AS RESIDING ALONG WITH HIS FATHER. THE AO ISSUED NOTICE UNDER SEC. 158BC TO THE ASSESSEE FOR FILING OF BLOCK RETURN BUT THE ASSESSEE OBJECTED TO SAME STATING THAT SEARCH WARRANT WAS IN THE NAME OF I.T.A.NOS.4576, 4577 & 4578/DEL/2010 54 HIS FATHER AND NOT IN HIS NAME. THE ASSESSEE ALSO EXPLAINED THAT DOCUMENTS/MATERIAL SEIZED FROM DURING SEARCH ALSO B ELONGED TO HIS FATHER. THE AO REJECTED THE ASSESSEES REPLY A ND MADE CERTAIN ADDITIONS. HONBLE DELHI COURT HAS HELD THA T SINCE THE FATHER OF THE ASSESSEE HAS OWNED UP THE DOCUMENTS S EIZED DURING THE COURSE OF SEARCH AND HAS ALSO FILED AFFI DAVIT TO THAT EFFECT, ANY ADDITION ON ACCOUNT OF SUCH SEIZED DOCU MENTS COULD NOT BE MADE IN THE HANDS OF THE ASSESSEE. (II) IN THE CASE OF CIT VS. ASHOK KUMAR (SUPRA) IN THE C OURSE OF THE SEARCH CONDUCTED IN RESIDENTIAL PREMISES OCCUPIED J OINTLY BY THE ASSESSEE AND HIS FATHER CERTAIN BOOKS OF ACCOUNT WE RE FOUND INCLUDING TWO BOOKS MAINTAINED IN THE NAME OF THE A SSESSEES FATHER AND MOTHER. THE ASSESSEE DENIED THE OWNERSH IP BUT THE ASSESSEES FATHER ACCEPTED OWNERSHIP OF THE BOOKS B Y FILING AN AFFIDAVIT. THE AO ADDED THE INTEREST EARNED ON INV ESTMENT FOUND IN THE BOOKS TO THE INCOME OF THE ASSESSEE BU T THIS WAS DELETED BY THE CIT(A) AND THE DELETION WAS UPHELD B Y THE TRIBUNAL. ON FURTHER APPEAL THE HONBLE HIGH COURT HELD THAT THE FINDINGS RECORDED BY THE COMMISSIONER (APPEALS) AND I.T.A.NOS.4576, 4577 & 4578/DEL/2010 55 UPHELD BY THE TRIBUNAL WAS BASED ON APPRECIATION OF EVIDENCE AND MATERIAL ON RECORD AND NEEDED NO INTERFERENCE. (III) IN THE CASE OF DISTRICT SUPERINTENDENT OF POLICE, C HANNAI VS. K. INBASAGARAN (SUPRA) SEARCH IN PREMISES OF PUBLIC SE RVANT TOOK PLACE. WIFE OF PUBLIC SERVANT CLAIMED THE OWNERSHI P OF MONEY AND ASSETS. DEPARTMENT ASSESSED HER TO TAX. EVIDE NCE GIVEN BY WIFE AND OTHERS ALSO WERE CONSIDERED IN PROCEEDINGS . IT HAS BEEN HELD THAT PUBLIC SERVANT NOT GUILTY OF CHARGE UNDER PREVENTION OF CORRUPTION ACT, 1988, SEC. 13(1)(E) R EAD WITH SECTION 132(4) OF THE INCOME-TAX ACT, 1961. 30. IN THE CASE OF THE ASSESSEE THE DOCUMENTS CONTA INING OVER INVOICING BY RS 5 AND RS 3 ON PURCHASES OF CHILLIES AND HALDI WE RE SEIZED FROM THE OFFICE OF SUSHIL KUMAR TREHAN WHO HAS OWNED UP THE DOCUMEN TS AND INCOME ARISING THEREFROM AS COMMISSION FOR PROCUREMENT SER VICES RENDERED BY HIM. AND HAD ADMITTED IN THE RETURNS OF INCOME. SINCE TH E ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT, IN OUR CONSIDERED OPINION, ADDITION CANNOT BE MADE IN THE HANDS OF THE ASSESSEE. FOLLOWING TH E DECISION OF ITAT FOR I.T.A.NOS.4576, 4577 & 4578/DEL/2010 56 EARLIER YEARS, WE DELETE THE ADDITIONS IN ASSESSMEN T YEARS UNDER CONSIDERATION. 31. NEXT ISSUE FOR CONSIDERATION WHICH IS COMMON FO R ALL THE THREE YEARS RELATES TO ADDITION TOWARDS INFLATION IN EXPENSES B ASED ON DOCUMENTS SEIZED UNDER ANNEXUREA-4/O-18. THE AO EXAMINED THE ENTRIE S FOUND RECORDED ON PAGES 51-52 & 89 OF ANNEXURE A-4/O-18. THE ASSESSE E PURCHASED CHILLIES FROM M/S. B.D. PATIL INDUSTRIES, VINAYAK TRADERS, M /S B.D, PATIL SONS & SHRI SOMESHWAR COMMISSION COMPANY. THERE WAS INFLA TION OF PRICES @ RS.5/- PER KG. FOR CHILLIES. THE AO FOUND INFLATIO N OF PURCHASES IN ASSESSMENT YEAR 2005-06 AT RS.54,48,600/-. ON A QU ERY RAISED BY THE AO IT WAS STATED THAT PAGE NO.52 ON THE LETTER-HEAD OF M/ S. B.D. PATIL INDUSTRIES HAD BEEN EXPLAINED BY SHRI SUSHIL KUMAR TREHAN AND DECLARED UNACCOUNTED INCOME NOTED THEREIN. FURTHER IT WAS STATED THAT N O ADVERSE COGNIZANCE CAN BE TAKEN AS THE ASSESSEE HAS NO KNOWLEDGE OF WHAT S HRI SUSHIL KUMAR TREHAN MIGHT HAVE BEEN DOING AT HIS BACK FOR HIS OW N PERSONAL GAINS. IT WAS ALSO STATED THAT THE DIRECTOR OF THE ASSESSEE COMPA NY NAMELY SHRI RAJIV GULATI IN HIS STATEMENT DATED 15.12.2008 HAD DENIED THAT SAID AMOUNTS OF RS.5/- AND RS.3/- PER KG. OF CHILLIES AND HALDI WER E RECEIVED BY THE ASSESSEE COMPANY. THE AO ALSO MENTIONED THAT IN ASSESSMENT YEAR 2001-02 TO I.T.A.NOS.4576, 4577 & 4578/DEL/2010 57 2004-05 IT WAS HELD THAT THE ASSESSEE WAS EARNING I NCOME BY INFLATING THE PURCHASES OF CHILLIES BY RS.5/- PER KG. AND OF HALD I BY RS.3/- PER KG. IT WAS HELD THAT SHRI SUSHIL KUAMR TREHAN HAD BEEN BLAMED FOR ALL THE WRONG DOINGS FOUND IN THE SEARCH BUT IN FACT HE WAS ACTIN G FOR THE COMPANY. THE AO CONCLUDED THAT THE ASSESSEE HAS INFLATED EXPENSE S BY RS.3/- AND RS.5/- PER KG. IN RESPEDCT OF HALDI AND CHILLIES. REFERRI NG THE STATEMENT OF SHRI SUSHIL KUMAR TREHAN, THE AO STATED THAT SHRI SUSHIL KUMAR TREHAN ADMITTED THE INFLATION OF PURCHASES BY MDH LTD. AR GUMENT OF THE ASSESSEE THAT SHRI SUSHIL KUMAR TREHAN WAS INVOLVED IN INFLA TION OF PURCHASES WITHOUT THE KNOWLEDGE OF COMPANY COULD NOT BE ACCE PTED SINCE AT PAGE 52 RELATING TO INFLATION OF PURCHASES ETC. THE NAME OF MDH, DELHI AND GURGAON BRANCHES HAD BEEN MENTIONED BY SHRI SURESH PATIL. THEREFORE, THE AO CONCLUDED THAT THE INFLATION OF EXPENSES WAS DEFINI TELY DONE BY THE ASSESSEE AND EXECUTION OF THE SAME WAS CARRIED OUT BY THE SO N-IN-LAW OF CHAIRMAN OF MDH LTD. I.E. SHRI MAHASHIYA DHARAM PALJI. THE AO FURTHER NOTED THAT NO LEGAL ACTION WAS TAKEN BY THE ASSESSEE COMPANY AGAI NST SHRI SUSHIL KUMAR TREHAN FOR CARRYING OUT SUCH ACTIVITIES. FROM THIS IT WAS CLEAR THAT SHRI SUSHIL KUMAR TREHAN WAS CARRYING OUT SUCH ACTIVITIE S WITH THE TACIT/VERBAL APPROVAL OF THE ASSESSEE. AS REGARDS DECLARATION O F INCOME ON ACCOUNT OF INFLATION OF EXPENSES BY SHRI SUSHIL KUMAR TREHAN I N HIS RETURN OF INCOME I.T.A.NOS.4576, 4577 & 4578/DEL/2010 58 WOULD NOT ABSOLVE THE ASSESSEE COMPANY FROM THE A DDITION BECAUSE HE WAS ONLY ACTING ON BEHALF OF THE ASSESSEE COMPANY. THE AO THEREFORE, ADDED THE AMOUNT OF RS.54,48,600/-. 32. THE ASSESSEE OBJECTED TO ADDITION OF RS.54,48,6 00/- BEFORE DRP. IT WAS SUBMITTED THAT THE ENTRIES RECORDED ON SEIZED P APER WERE NOT BY WAY OF ANY INFLATION OF PURCHASES BUT IT WAS THE SECRET CO MMISSION RECEIVED BY SHRI SUSHIL KUMAR IN THE SUPPLIES OF HALDI AND CHILLIES TO THE ASSESSEE. IT WAS ALSO SUBMITTED THAT SHRI SUSHIL KUMAR TREHAN, SON-I N-LAW OF THE MANAGING DIRECTOR OF THE COMPANY, WAS IN-CHARGE OF PROCURING SUPPLIES OF HALDI & CHILLIES FOR THE ASSESSEE. HE WAS NOT PAID ANY REM UNERATION FOR THE SERVICES RENDERED BY HIM. IN THE PROCESS OF PROCURING THE SU PPLIES OF CHILLIES AND HALDI FOR THE ASSESSEE SHRI SUSHIL KUMAR TREHAN REC EIVED SECRET COMMISSION @ RS.5/- PER KG. FOR CHILLIES AND RS.3/- PER KG. FO R HALDI FOR HIMSELF. HE HAD SURRENDERED AMOUNT OF SECRET COMMISSION IN HIS RETURN OF INCOME. THEREFORE, NO ADDITION COULD BE MADE IN THE HANDS O F THE ASSESSEE. HOWEVER, THE DRP WAS OF THE VIEW THAT THE EXPLANATION OFFERE D BY THE ASSESSEE WAS AN AFTERTHOUGHT. THE DISCLOSURE OF UNACCOUNTED INCOME IN THE HANDS OF SHRI SUSHIL KUMAR TREHAN COULD BE FOR ANY REASON BUT IT DID NOT EXPLAIN IN ANY WAY THE ACTION OF THE ASSESSEE IN INFLATING ITS PUR CHASE OF CHILLI AND HALDI. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 59 THE FACT REMAINED THAT SHRI TREHAN WAS NEITHER A DI RECTOR NOR AN EMPLOYEE OF THE ASSESSEE COMPANY. IN FACT THE PRICE OF CHIL LI AND HALDI AT THE PREVAILING MARKET RATE ON THE DATE OF ALL THESE SUP PLIES WAS LOWER BY RS.5/- PER KG IN CASE OF CHILLI AND RS.2/- PER KG. FOR HAL DI WHEN THESE HAVE BEEN PURCHASED BY THE ASSESSEE. THE INFLATED PRICE HAD BEEN RECEIVED BY THE ASSESSEE AS KICK BACK THROUGH SHRI TREHAN WHO IS A CLOSE RELATIVE OF THE MANAGING DIRECTOR OF THE COMPANY. THE AMOUNT RECEI VED AS KICK BACK FROM THE SUPPLIERS OF CHILLI AND HALDI HAD ACTUALLY BEEN RECEIVED BY THE MD/DIRECTORS OF THE COMPANY THROUGH SHRI SUSHIL KUM AR TREHAN. THE DRP FURTHER MENTIONED THAT THE ASSESSEE HAD NOT SHOWN A NY EVIDENCE THAT SHRI SUSHIL KUMAR HAD ACTUALLY WORKED FOR THE ASSESSEE F OR PROCUREMENT OF CHILI AND HALDI OR FOR SUPPLIER TO JUSTIFY ANY RECEIPT OF COMMISSION BY SHRI TREHAN FROM THE SUPPLIERS. THE STORY OF SHRI TREHAN RECEI VING THE SECRET COMMISSION FROM THE SUPPLIERS OF CHILI AND HALDI HA D BEEN ADVANCED ONLY TO PROTECT THE COMPANY WHOSE MD AND DIRECTORS WERE CLO SE RELATIVE OF SHRI SUSHIL KUMAR TREHAN. THE DRP ACCORDINGLY REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE IN RESPECT OF ADDITIONS PROPOSED BY THE AO ON ACCOUNT OF INFLATION OF EXPENSES. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 60 33. BEFORE US THE LEARNED AR OF THE ASSESSEE REFERR ING OBSERVATION OF DRP IN RESPECT OF DISCLOSURE OF UNACCOUNTED INCOM E IN THE HANDS OF SHRI TREHAN COULD BE FOR ANY REASON, IT HAS BEEN SUBMITT ED THAT THIS OBSERVATION IS INCORRECT BECAUSE THE INCOME WAS DISCLOSED BY SHRI SUSHIL KUMAR TREHAN AS IT WAS EARNED BY HIM AND DOCUMENTS MENTIONING THE S AID INCOME WERE SEIZED FROM HIS POSSESSION. IT IS INCORRECT ON THE PART OF THE DRP TO CONCLUDE THAT THE ASSESSEE HAD RECEIVED KICK-BACK T HROUGH SHRI TREHAN SINCE NO DOCUMENT EVIDENCING SUCH RECEIPT WAS FOUND DURIN G THE COURSE OF SEARCH OPERATION FROM ANY OF THE PREMISES OF THE ASSESSEE. HOWEVER, THIS STATEMENT IS CONTRADICTORY TO THE EARLIER FINDINGS OF THE DRP THAT KICK BACK WAS RECEIVED BY THE COMPANY. IF THE KICK BACK HAS BEEN RECEIVED BY THE DIRECTORS THEN IT SHOULD BE ADDED IN THEIR HANDS AND NOT IN T HE HANDS OF THE COMPANY. DURING THE COURSE OF SEARCH NO DOCUMENT HAS BEEN FO UND TO SHOW THAT SAID KICK BACK WAS RECEIVED EITHER BY THE ASSESSEE OR BY THE DIRECTORS OF THE ASSESSEE COMPANY. SHRI SUSHIL KUMAR TREHAN IN REPL Y TO QUESTION NO.4 HAS STATED THAT HE LOOKED AFTER THE PROCUREMENT OF RAW MATERIAL LIKE CHILLIES, HALDI AND JEERA ETC. IT HAS FURTHER BEEN SUBMITTED THAT THE DRP ON ONE HAND HAS HELD THAT NO EVIDENCE WAS SHOWN TO PROVE THAT S HRI SUSHIL KUMAR TREHAN WORKED FOR THE PROCUREMENT OF HALDI & CHILLIES. ON THE OTHER HAND, IT PUTS AN ALLEGATION THAT KICK BACK WAS RECEIVED BY THE AS SESSEE AND THEN IN THE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 61 NEXT LINE IT PUTS AN ALLEGATION THAT KICK BACK WAS RECEIVED BY THE DIRECTORS OF THE COMPANY. THEREFORE, THE FINDINGS OF THE DRP AR E CONTRADICTORY AND CANNOT BE RELIED UPON. IT WAS FURTHER SUBMITTED TH AT INCOME ON THE BASIS OF PAGE NOS. 40, 51 & 89 HAS BEEN DECLARED BY SHRI SUS HIL KUMAR IN HIS RETURN OF INCOME U/S 153A OF THE ACT. THEREFORE, THE SAME CANNOT BE ADDED IN THE HANDS OF THE ASSESSEE. THE LEARNED AR OF THE ASSES SEE FURTHER SUBMITTED THAT THE AO HAD MADE ADDITION OF RS.1,13,71,759/- FOR OV ER INVOICING OF CHILLIES AND HALDI BY CONSIDERING THE QUANTITY OF SAID ITEMS PURCHASED DURING THE ENTIRE YEAR BY THE ASSESSEE COMPANY. THUS THE ADD ITION AGAIN MADE FOR OVER INVOICING OF PURCHASE OF CHILLIES AND HALDI ON THE BASIS OF SEIZED MATERIAL REFERRING TO THE INTERMEDIATE PERIOD AMOUNTS TO DOU BLE ADDITION BECAUSE EVEN THE QUANTITY PURCHASED DURING THE PERIOD TO WHICH T HE SEIZED MATERIAL REFERRED HAVE ALREADY BEEN CONSIDERED IN THE ADDITI ON MADE FOR OVER INVOICING BY GROUND NO.4. THUS THE ADDITION OF RS. 54,48,600/- IS A CASE OF TWO TIER DOUBLE ADDITION. FIRSTLY, THE SUM OF RS.2 3,36,100/- FORMS PART OF RS.31,12,500/-. THUS ADDED TWICE TO THAT EXTENT AN D SECONDLY, EVEN THE COMPOSITE SUM OF RS.54,48,600/- IS COVERED IN THE O VERALL ADDITION OF RS.1,13,71,759/- PROPOSED ON ACCOUNT OF ALLEGED PRI CE INFLATION OF PURCHASES. AS REGARDS PAGE NOS. 14 TO 22 OF ANNEXURE A-4/O-18 SEIZED FROM THE POSSESSION OF SHRI SUSHIL KUMAR TREHAN FROM THE PRE MISES OF MATA CHANAN I.T.A.NOS.4576, 4577 & 4578/DEL/2010 62 DEVI HOSPITAL, THE SAID PAGES HAVE BEEN OWNED UP BY SHRI SUSHIL KUMAR AND INCOME ON THE BASIS OF SUCH DOCUMENTS HAS BEEN DEC LARED IN HIS RETURN OF INCOME AND THEREFORE, NO ADVERSE COGNIZANCE OF THE SAME COULD BE TAKEN AGAINST THE ASSESSEE. FURTHER THESE TRANSACTIONS R ELATE TO RS.3/- AND RS.5/-, INFLATION FOR WHICH AN OVERALL ADDITION OF RS.1,13, 71,759/- AS PER GROUND NO.4, HAS BEEN MADE IN THE HANDS OF ASSESSEE FOR TO TAL QUANTITY PURCHASED DURING THE YEAR. THE SAID ADDITION WAS ARRIVED AT BY MULTIPLYING THE SAID DIFFERENTIAL RATES OF RS.5/- AND RS.3/- PER KG. WIT H THE TOTAL QUANTITY OF CHILLIES AND HALDI RESPECTIVELY PURCHASED DURING TH E PERIOD CONCERNED AS PER BOOKS OF ACCOUNTS OF THE ASSESSEE. THUS THIS ACTIO N OF THE ASSESSING OFFICER SHOWS THAT THE QUANTITIES FOUND RECORDED IN THE IMP UGNED SEIZED DOCUMENTS STANDS ACCEPTED BY THE DEPARTMENT AS DULY RECORDED IN THE BOOKS OF ACCOUNT. 34. ON THE OTHER HAND, THE LEARNED CIT-DR RELYING O N THE ASSESSMENT ORDER SUBMITTED THAT THE PARTIES SUCH AS KARNI SONS , KARNI INDUSTRIES AND JITESEH KUMAR BHUPESH KUMAR WERE SYSTEMATICALLY INF LATING THE PURCHASES @ RS.3/- PER KG. IN THE CASE OF HALDI AND RS.5/- PE R KG. IN THE CASE OF CHILIES. ALL THE EVIDENCES IN RESPECT OF SUCH MANI PULATION WERE SEIZED FROM THE CUSTODY OF SHRI SUSHIL KUMAR TREHAN EITHER AT H IS RESIDENCE OR AT HIS BUSINESS PREMISES. HE HAD ADMITTED IN HIS STATEMEN T THAT THERE WAS INFLATION I.T.A.NOS.4576, 4577 & 4578/DEL/2010 63 OF PURCHASES. HE HAD ALSO ADMITTED THAT MONEY WAS SIPHONED FROM THE ACCOUNT OF ASSESSEE COMPANY AND WAS INVESTED BY ITS SUPPLIERS AS PER THE DIRECTIONS GIVEN BY THE ASSESSEE COMPANY. SUBSEQUE NTLY AT THE TIME OF SEARCH SHRI RAJIV GULATI ADMITTED THESE FACTS WHEN HE CONFIRMED THE DISCLOSURE GIVEN BY SHRI SUSHIL KUMAR TREHAN. THE FACT THAT THE DIRECTORS OF THE COMPANY ADMITTED TO SUCH DISCREPANCIES IN THE R ECORDS AND IN THE STATEMENTS GIVEN BY THEM WHERE NOT ONLY THEY ADMITT ED THE DISCREPANCY IN THE RECORD OF THE ASSESSEE BUT ALSO GIVING HUGE DIS CLOSURE OF UNDISCLOSED INCOME. 35. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. DURING THE COURSE OF SEARCH S HRI SUSHIL KUMAR TREHAN HAS ADMITTED THAT HE WAS PURCHASING HALDI, CHILLIES AND JEERA ON BEHALF OF THE ASSESSEE COMPANY. THERE IS NO DISPUTE ABOUT TH E FACT THAT THOSE PAPERS CONTAINING OVER INVOICING WERE FOUND FROM HIS CUSTO DY. IT IS ALSO A FACT THAT SHRI SUSHIL KUMAR TREHAN WAS NOT PAID ANY REMUNERAT ION. SHRI RAJIV GULATI IN HIS STATEMENT ADMITTED THAT THERE WAS NO SUCH PR ACTICE IN MDH LTD. TO INFLATE THE PURCHASES. HE ALSO ADMITTED THAT THOSE TRANSACTIONS WERE MADE BY SHRI SUSHIL KUMAR ON HIS OWN ACCOUNT AND INITIALLY TO ESCAPE THE LIABILITY OF TAX ON THE BASIS OF THOSE PAPERS, HE MADE STATEMENT THAT PURCHASE INFLATION I.T.A.NOS.4576, 4577 & 4578/DEL/2010 64 WAS ON ACCOUNT OF PURCHASES DONE BY MDH LTD. IT WA S FURTHER STATED BY SHRI RAJIV GULATI THAT INCOME ARISING FROM THOSE PA PERS WAS ADMITTED BY SHRI SUSHIL KUMAR TREHAN. SHRI RAJIV GULATI ALSO S TATED THAT SHRI SUSHIL KUMAR TREHAN WAS INVOLVED IN SUPPLY OF RAW SPICES T O THE MDH FOR HIS OWN BENEFIT. ITAT DELHI BENCH ` E IN ORDER DATED 29 TH OCTOBER, 2010 HAS HELD THAT SHRI SUSHIL KUMAR WAS ENGAGED IN THE PROCUREME NT OF HALDI AND CHILIES. NO REMUNERATION WAS PAID TO SHRI SUSHIL K UMAR TREHAN FOR SERVICES RENDERED BY HIM BY WAY OF PROCUREMENT. THE STATEME NT RECORDED BY THE DDIT WAS NOT CONFRONTED TO THE ASSESSEE. IT WAS HE LD THAT IT COULD NOT BE SAID THAT AMOUNTS OF RS.3/- PER KG. AND RS.5/- PER KG. IN RESPECT OF HALDI AND CHILIES, WHICH HAD BEEN ADMITTED BY SHRI SUSHIL KUMAR TREHAN IN HIS RETURN OF INCOME HAD COME TO THE ASSESSEE. NO SUCH EVIDENCE DURING THE COURSE OF SEARCH WAS FOUND FROM THE POSSESSION OF T HE ASSESSEE INDICATING THAT ACTUAL BENEFICIARY OF OVER INVOICING WAS THE A SSESSEE. IT WAS ALSO HELD THAT SINCE THE ADDITION HAS BEEN MADE IN THE HANDS OF SHRI SUSHIL KUMAR, NO DISALLOWANCE TO THAT EXTENT COULD BE MADE IN THE HA NDS OF THE ASSESSEE. MOREOVER, TRANSACTIONS INVOLVING OVER INVOICING WER E FOUND IN THE A.Y. 2005-06. IT HAS BEEN HELD THAT SINCE INCOME HAS BE EN ASSESSED IN THE HANDS OF SHRI SUSHIL KUMAR TREHAN, THE AMOUNT TO THAT EXT ENT IS IN THE NATURE OF COMMISSION INCOME AND BECOMES EXPENDITURE IN THE HA NDS OF THE ASSESSEE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 65 PARTICULARLY WHEN NO EVIDENCE SUGGESTING THAT OVER INVOICING WAS DONE AT THE INSTANCE OF THE ASSESSEE WAS FOUND. 36. WE ALSO FIND THAT ENTRIES RECORDED ON PAGE 89 A RE IN RESPECT OF TOTAL QUANTITY OF SUPPLIES MADE TO MDH (DELHI & GURGAON) AT 6225 KGS. WHEREAS ENTRIES RECORDED ON PAGE 51 ARE IN RESPECT OF 4672. 20 KGS. THE OVER INVOICING IN RESPECT OF ENTRIES RECORDED ON PAGE 51 AMOUNTING TO RS.23,36,100/- IS INCLUDED IN THE ENTRIES MADE AT P AGE 89 OF RS.31,12,500/- . THEREFORE, ONCE ADDITION OF RS.31,12,500/- IS MADE NO SEPARATE ADDITION IN RESPECT OF RS.23,36,100/- IS TO BE MADE. FURTHER, WE ALSO FIND THAT THE AO HAD MADE ADDITION OF RS.1,13,71,759/- ON ACCOUNT OF INFLATION IN PURCHASES OF CHILIES AND HALDI. THE ADDITION OF RS.54,48,600 /- IS ALSO IN RESPECT OF INFLATION OF PURCHASES WHICH HAS BEEN FOUND TO BE R ECORDED AT AGES 51, 52 AND 89. SINCE THE ADDITION OF RS.1,13,71,759/- HAS BEEN MADE WHICH INCLUDES THE SUM OF RS.54,48,600/-, IN OUR CONSIDER ED OPINION, NO SEPARATE ADDITION SHOULD HAVE BEEN MADE. WE ACCORDINGLY DELE TE THE ADDITION OF RS 54,48,600/- 37. GROUND NO.5 (B) RELATES TO ADDITION OF RS.35,99 ,840/- MADE ON THE BASIS OF PAGE NOS. 14 TO 22 OF ANNEXURE A-4/O-18 FO R PURCHASE INFLATION IN I.T.A.NOS.4576, 4577 & 4578/DEL/2010 66 HALDI AND CHILLIES. DURING THE COURSE OF SEARCH LO OSE PAPERS CONTAINING PURCHASES MADE FROM KARNI SONS, JITESH KUMAR BHUPES H KUMAR, KARNI ENTERPRISES WERE FOUND. THESE DOCUMENTS PERTAIN TO PURCHASES OF HALDI AND CHILLIES MADE ON BEHALF OF MDH LTD. THE AO ON THE BASIS OF ENTRIES RECORDED ON LOOSE PAPERS OF ANNEXURE A-4/O-18 MADE THE ADDITIONS AS BELOW:- SL.NO. PAGE NO. NAME OF THE PERSON AMOUNT . 1. 14 KARNI SONS RS.19,03,530/- 2. 15 JITESH KUMAR BHUPESH KUMAR RS. 7,02,810 /- 3. 19 KARNI ENTERPRISES RS. 5,00,000/- 4. 21 JITESH KUMAR BHUPESH KUMAR RS. 4,93,500 /- ------------------ TOTAL RS.35,99,840/- ------------------- 38. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS SUBMITTED BY THE ASSESSEE THAT THESE PAPERS WERE FOUND FROM THE POSS ESSION OF SHRI SUSHIL KUMAR FROM THE PREMISES OF MATA CHANAN DEVI HOSPITA L. THE ENTRIES RECORDED ON THE SAID PAPERS HAVE BEEN OWNED UP BY S HRI SUSHIL KUMAR AND HAVE BEEN DECLARED IN HIS RETURN OF INCOME. THESE ENTRIES RELATE TO OVER INVOICING BY RS.5/- IN RESPECT OF CHILLIES AND RS. 3/- IN RESPECT OF HALDI. IT WAS ALSO SUBMITTED THAT THE TRANSACTIONS RECORDED A T PAGES 14, 15, 19 & 21 RELATE TO RS.3/- AND RS.5/- INFLATION FOR WHICH AN OVERALL ADDITION OF RS.1,13,71,759/- HAS BEEN MADE IN THE HANDS OF THE ASSESSEE FOR TOTAL I.T.A.NOS.4576, 4577 & 4578/DEL/2010 67 QUANTITY PURCHASED DURING THAT YEAR. THE SAID ADDI TION WAS ARRIVED AT BY MULTIPLYING SAID DIFFERENTIAL RATES OF RS.3/- AND R S.5/- PER KG. WITH THE TOTAL QUANTITY OF CHILLIES AND HALDI RESPECTIVELY DURING EACH PREVIOUS YEAR. THE AO REJECTED THE CONTENTION OF THE ASSESSEE ON THE G ROUND THAT SHRI SUSHIL KUMAR COULD NOT TAKE SUCH DECISION WITHOUT THE CONS ENT OF THE DIRECTORS OF THE COMPANY AS HE HELD NO POSITION IN THE COMPANY. IF HE HAD INDULGED IN SUCH UNAUTHORIZED ACTIVITY, HOW IT WAS NOT DETECTED BY THE ASSESSEE FOR LONG. THE AO THEREFORE, CONCLUDED THAT OVER INVOICING WAS DONE ON BEHALF OF THE ASSESSEE BY THE PERSON IN-CHARGE OF MANAGING COMPAN Y LIKE DIRECTORS. MOREOVER, SHRI SUSHIL KUMAR WAS COMPLETELY DEPENDEN T ON THE ASSESSEE AND SINCE HE WAS PARTNER WITH MAHASHAY DHARAM PAL, THE CHAIRMAN IN TWO FIRMS NAMELY M/S. GANGA JAMUNA TRADING AGENCY AND M/S. DI N BANDHU TRADERS ENGAGED IN HOLDING AGENCIES AND TRADING IN SPICES O F THE ASSESSEE. THE AO THEREFORE, REJECTED THE REPLY AND ADDED THE AMOUNT IN THE HANDS OF THE ASSESSEE. 39. THE ASSESSEE RAISED OBJECTIONS BEFORE THE DRP. SINCE THE ISSUE WAS IDENTICAL TO THE ADDITION OF RS.54,48,600/-, THE DR P UPHELD THE ADDITION BY REJECTING THE OBJECTIONS RAISED BY THE ASSESSEE. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 68 40. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMIT TED THAT THE DOCUMENTS WERE SEIZED FROM THE POSSESSION OF SHRI S USHIL KUMAR FROM THE PREMISES OF MATA CHANAN DEVI HOSPITAL. THE SAID PA GES HAVE BEEN OWNED UP BY SHRI SUSHIL KUMAR AND INCOME ON THE BASIS OF SUCH DOCUMENTS HAD BEEN DECLARED IN HIS RETURN OF INCOME AND THEREFORE , NO ADDITION COULD BE MADE IN THE HANDS OF THE ASSESSEE. IT WAS ALSO SUB MITTED THAT THE ADDITION OF RS.35,99,840/- WAS PART OF OVERALL ADDITION OF RS.1 ,13,71,759/-. THEREFORE, NO SEPARATE ADDITION COULD BE MADE. OTHERWISE IT W OULD AMOUNT TO DOUBLE ADDITION. THE LEARNED CIT-DR ON THE OTHER HAND SUB MITTED THAT CONTENTION OF THE ASSESSEE THAT BOTH THE PAPERS WERE RELATED T O SHRI SUSHIL KUMAR IS NOT CORRECT. THE ASSESSEE HAD INFLATED THE PURCHASES A ND THEREFORE, THE AO HAD ISSUED QUESTIONNAIRE TO THE ASSESSEE. THE ASSESSEE S EXPLANATION WAS NOT FOUND TO BE ACCEPTABLE. THEREFORE, THE AO AS WELL AS THE DRP WERE JUSTIFIED IN MAKING THE ADDITION IN THE HANDS OF THE ASSESSEE . 41. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE FACTS RELATING TO THIS GR OUND ARE IDENTICAL TO THE GROUND RELATING TO ADDITION OF RS.54,48,600/-. FOR THE SAME REASONS IT IS HELD THAT NO ADDITION CAN BE MADE IN THE HANDS OF THE AS SESSEE WHEN SHRI SUSHIL TREHAN HAS OWNED UP THE PAPERS FOUND IN HIS POSSESS ION. HE WAS COLLECTING I.T.A.NOS.4576, 4577 & 4578/DEL/2010 69 RS.5/- AND RS.3/- PER KG. IN RESPECT OF CHILLIES AN D HALDI WITHOUT THE KNOWLEDGE OF MANAGEMENT. MOREOVER, THIS ADDITION I S ALSO PART OF ADDITION OF RS.1,13,71,759/-. THEREFORE, THE ADDITION OF RS .35,99,840/- AMOUNTS TO DOUBLE ADDITION. THEREFORE, IN OUR CONSIDERED OPIN ION ADDITION IS NOT REQUIRED IN THE HANDS OF THE ASSESSEE. WE, THEREFOR E, DELETE THE ADDITION OF RS35,99,840/-. 42. NEXT ISSUE FOR CONSIDERATION RELATES TO ADDITIO N OF RS.37,35,000/- ON ACCOUNT OF UNEXPLAINED INVESTMENT BY WAY OF DONATIO NS FOR CONSTRUCTION OF SCHOOL BUILDING AT BYADGI IN KARNATAKA. DURING THE COURSE OF SEARCH PAGES 41 & 42 OF ANNEXURE A-4/O-18 WERE SEIZED FROM THE P REMISES OF MATA CHANAN DEVI HOSPITAL. ON THESE PAGES DATE-WISE CAS H RECEIVED FROM MDH ACCOUNT AND DONATIONS GIVEN ARE MENTIONED. AT PAGE 41 THERE WERE CASH DONATIONS FROM 3 RD MAY, 2004 TO 3 RD NOVEMBER, 2004 AMOUNTING TO RS.10,60,000/-. ON PAGE 42 THERE WAS CASH DONATION S FROM 2.04.2004 TO 14.11.2004 AMOUNTING TO RS.21,75,000/-. THERE WAS ANOTHER ENTRY OF RS.5 LAKH ON 19.10.2004 PAID BY CHEQUE. THE AO REQUIRED THE ASSESSEE TO EXPLAIN THE DONATIONS MENTIONED ON PAGES 41 & 42 OF ANNEXUR E A-4/O-18. IT WAS SUBMITTED BY THE ASSESSEE THAT THE DONATIONS WERE M ADE OUT OF UNACCOUNTED INCOME DECLARED BY SHRI SUSHIL TREHAN. AS REGARDS DONATION OF RS.5 LAKH ON I.T.A.NOS.4576, 4577 & 4578/DEL/2010 70 19.10.2004 IT WAS STATED THAT THE SAME WAS VERIFIAB LE FROM THE BOOKS OF THE ASSESSEE BUT NO SUCH EVIDENCE WAS FILED BY THE ASSE SSEE WITH THE REPLY. THE EXPLANATION OFFERED BY THE ASSESSEE WAS CONSIDERED BY THE AO AS AN AFTERTHOUGHT ON THE GROUND THAT THE WORDS WRITTEN O N PAGE 42 WERE CASH FROM MDH ACCOUNT. THE AO FURTHER NOTED THAT THE C OMPANY WAS MAINTAINING SEPARATE CASH ACCOUNT. THE ASSESSEE HA D ADMITTED THAT THE CASH AMOUNT OF RS.28,75,000/- ON PAGE 42 OF ANNEXURE A-4 /O-18 WAS OF SHRI SUSHIL KUMAR AND NOT THE ASSESSEE. IF A PARTICULAR INCOME BELONGS TO THE ASSESSEE AND IF THE SAME IS DECLARED BY ANOTHER PER SON, EVEN THEN IT IS ASSESSABLE IN THE HANDS OF THE ASSESSEE. THE WORDS MDH ACCOUNT SIGNIFIES THAT CASH OF RS.28,75,000/- BELONGED TO T HE ASSESSEE. THEREFORE, IT SHOULD BE ADDED IN THE HANDS OF THE ASSESSEE. THE AO FURTHER OBSERVED THAT OUT OF RS.28,75,000/-, RS.7 LAKH WAS PAID ON 15.01. 2004 AND THE AMOUNT OF RS. 21,75,000/- WAS RELATABLE TO ASSESSMENT YEAR UN DER CONSIDERATION. AS REGARDS ENTRIES RECORDED ON PAGE 41, THE AO OBSERVE D THAT THE ASSESSEE HAD NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE SUM OF RS.5 LAKH WAS DULY RECORDED IN THE BOOKS OF ACCOUNT. IF THAT WAS SO THE ASSESSEE WOULD HAVE CLAIMED THE SAME FOR DEDUCTION U/S 80G. SINCE THE ASSESSEE WAS NOT ABLE TO EXPLAIN THE TOTAL CASH OF RS.15,60,000/- (R S.10,60,000 + 5,00,000) PERTAINING TO THE ASSESSMENT YEAR 2005-06, TRUE NAT URE OF THESE DOCUMENTS I.T.A.NOS.4576, 4577 & 4578/DEL/2010 71 WAS NOT ESTABLISHED. THE PRESUMPTION AS PER SEC. 2 92C OF THE ACT WAS THAT THE PAPER BELONGED TO THE ASSESSEE AND ITS CONTENTS WERE PROVED. THE AO THEREFORE, MADE THE ADDITION OF RS.37,35,000/-( RS. 21,75,000/- + RS.15,60,000/-). 43. THE ASSESSEE RAISED OBJECTION BEFORE THE DRP. THE DRP REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUND THA T THE ADDITION MADE WAS BASED ON SEIZED PAPERS. 44. BEFORE US IT WAS SUBMITTED THAT PAGES 41-42 OF ANNEXURE A-4/O-18 CONTAIN DETAILS OF DONATIONS COLLECTED BY MAHASHAY CHUNNI LAL CHARITABLE TRUST AND THE SAME WERE FOUND FROM THE PREMISES OF MATA CHANAN DEVI HOSPITAL FROM THE POSSESSION OF SHRI SUSHIL TREHAN WHO HAD OWNED UP SAID DOCUMENTS AND HAD GIVEN CASH DONATIONS OF RS.11.3 L AKH AND RS.28.75 LAKH NOTED THEREIN OUT OF HIS UNDISCLOSED INCOME. THE C ASH BOOK OF SHRI SUSHIL KUMAR TREHAN FOR SUCH PERIOD CLEARLY SHOWS THAT ALL DONATIONS TOTALING INTO RS.52.85 LAKHS (RS.11.3 LAKH + 28.75 LAKH + 12.80 L AKH) HAD BEEN RECORDED AS PAID OUT OF UNDISCLOSED INCOME DECLARED BY HIM U /S 153A OF THE ACT. AS REGARDS THE AMOUNT OF RS.5 LAKH IT WAS SUBMITTED TH AT THE SAME WAS PAID THROUGH BANK ACCOUNT OF MAHASHAY CHUNNI LAL CHARITA BLE TRUST. PHOTOCOPY I.T.A.NOS.4576, 4577 & 4578/DEL/2010 72 OF THE RECEIPT ISSUED BY BYADGI UNIT AND ITS BANK A CCOUNT CLEARLY SHOWED THE RECEIPT OF THE SAID SUM FROM ITS DELHI HEAD OFFICE WHICH ARE PLACED AT PAGES 540-543 OF THE PAPER BOOK. THE SAID DD WAS NOT GOT MADE BY THE ASSESSEE (MDH LTD) BUT BY THE DELHI HO OF THE TRUST, WHICH I S LOCATED IN THE SAME PREMISES AT KIRTI NAGAR AS THAT OF THE ASSESSEE COM PANY. IT WAS THEREFORE, SUBMITTED THAT THE DONATION WAS NOT MADE BY THE ASS ESSEE. IT WAS FURTHER SUBMITTED THAT THE AMOUNT OF RS.11.3 LAKH AND RS.28 .75 LAKH HAD BEEN PAID OUT OF UNACCOUNTED INCOME WHICH WAS ADMITTED BY SH. SUSHIL KUMAR TREHAN. ONCE THE INCOME BASED ON SOURCE HAS BEEN T AXED, THE SAME CANNOT BE ADDED WHEN IT IS UTILIZED. IT WAS FURTHER SUBMI TTED THAT THE PAPERS WERE NOT SEIZED FROM THE ASSESSEE AND DID NOT BELONG TO THE ASSESSEE BUT TO THE TRUST. THEREFORE, NO ADDITION COULD BE MADE IN THE HANDS OF THE ASSESSEE. ON THE OTHER HAND, THE LEARNED CIT-DR SUPPORTED THE OR DERS OF THE ASSESSING OFFICER AS WELL AS OF THE DRP. 45. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE ABOUT THE FACT THAT PAGES 41 & 42 OF ANNEXURE A-4/O-18 WERE SEIZED FROM THE PREMISES OF MATA CHANAN DEVI HOSPITAL FROM THE POSSESSION OF SHRI SUSHIL KUMAR T REHAN WHO HAD OWNED UP THE SAID DOCUMENTS. NO EVIDENCE WAS FOUND DURIN G THE COURSE OF SEARCH I.T.A.NOS.4576, 4577 & 4578/DEL/2010 73 TO ESTABLISH THAT THE DONATIONS WERE MADE BY THE AS SESSEE OUT OF UNDISCLOSED INCOME. RATHER SHRI SUSHIL KUMAR TREHAN HAD OWNED UP THE ENTRIES RECORDED ON PAGES 41-42 OF ANNEXURE A-4/O-18. SHRI SUSHIL TREHAN HAD DONATED THE AMOUNT OUT OF UNDISCLOSED INCOME DECLAR ED BY HIM UNDER SEC. 153A OF THE ACT. 46. WE HAVE GONE THROUGH PAGE 40 OF ANNEXURE A-4/O- 18. ON THIS PAGE AMOUNT RECEIVED RELATES TO ASSESSMENT YEARS 2003-04 AND 2004-05. THE TOTAL RECEIPTS ARE OF RS.85,88,372/- INCLUDING THE AMOUNT OF RS.11.30 LAKHS AND RS.28.75 LAKHS. THUS THE SOURCE OF INCOME OUT OF WHICH THE PAYMENT OF RS.11.30 LAKHS AND RS.28.75 LAKHS HAS BEEN MADE EXI STS IN EARLIER YEARS. THEREFORE, THE AMOUNT OF RS.10.60 LAKHS AND RS.21.7 5 LAKHS WHICH IS PART OF RS.11.3 LAKHS AND RS.28.75 LAKHS RESPECTIVELY CANNO T BE ASSESSED IN A.Y. 2005-06 AS THE SOURCE OF THE INCOME PERTAINS TO EAR LIER YEARS. AS REGARDS THE AMOUNT OF RS.5 LAKHS, PAGES 540 AND 541 ARE RECEIPT S OF RS.5 LAKH WHICH HAS BEEN RECEIVED BY DEMAND DRAFT NO.767248 DATED 5.03. 2004 FROM MAHASHAY CHUNNI LAL CHARITABLE TRUST. WE HAVE ALSO GONE THR OUGH THE BANK STATEMENT OF MAHASHAY CHUNNI LAL CHARITABLE TRUST WITH SYNDIC ATE BANK WHICH GIVES THE DETAILS OF RS.5 LAKHS DEBITED TO THE ACCOUNT. RS.5,00,000/- HAS BEEN PAID ON 19.10.2004 FROM THE BANK ACCOUNT OF MAHASHAY CHU NNI LAL CHARITABLE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 74 TRUST. THEREFORE, RS.5,00,000/- PAYMENT PERTAINED TO MAHASHAY CHUNNI LAL CHARITABLE TRUST. THERE IS NOTHING ON RECORD TO SU GGEST THAT THESE AMOUNTS HAD BEEN PAID BY THE ASSESSEE. THUS THE SOURCE OF I NCOME OF RS.10.60 LAKHS WHICH IS PART OF RS.11.30 LAKHS AND RS.21.75 LAKHS WHICH IS PART OF RS.28.75 LAKHS FALLS IN ASSESSMENT YEAR 2004-05 AND RS.5,00, 000/- WAS PAID FROM BANK ACCOUNT OF MAHASHAY CHUNNI LAL CHARITABLE TRUS T. THEREFORE, NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE C OMPANY. THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 292C FOR THE PRESUMPTION THAT THE SAID PAPERS WERE SEIZED FROM THE POSSESSION OF THE ASSESSEE AND CONTENTS THEREOF WERE CORRECT. SECTION 292C WAS INSERTED BY THE FINANCE ACT, 2007 W.R.E.F. 1.10.1975 AND READS AS UNDER: 292C. WHERE ANY BOOKS OF ACCOUNT, OTHER DOCUMENTS, MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING ARE OR IS FOUND IN THE POSSESSION OR CONTROL OF ANY PERSON IN THE COURSE O F A SEARCH UNDER SECTION 132, IT MAY, IN ANY PROCEEDING UNDER THIS A CT, BE PRESUMED (I) THAT SUCH BOOKS OF ACCOUNT, OTHER DOCUMENTS, MO NEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING BELONG OR BELONGS TO SUCH PERSON; (II) THAT THE CONTENTS OF SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS ARE TRUE; AND (III) THAT THE SIGNATURE AND EVERY OTHER PART OF SU CH BOOKS OF ACCOUNT AND OTHER DOCUMENTS WHICH PURPORT TO BE IN THE HAND WRITING OF ANY PARTICULAR PERSON OR WHICH MAY REASONABLY BE AS SUMED TO HAVE BEEN SIGNED BY, OR TO BE IN THE HANDWRITING OF , ANY PARTICULAR PERSON, ARE IN THAT PERSONS HANDWRITING, AND IN TH E CASE OF A DOCUMENT STAMPED, EXECUTED OR ATTESTED, THAT IT WAS DULY STAMPED AND EXECUTED OR ATTESTED BY THE PERSON BY WHOM IT P URPORTS TO HAVE BEEN SO EXECUTED OR ATTESTED. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 75 THERE IS NO DISPUTE THAT PAGES 41-42 OF ANNEXURE A- 4/O-18 WERE SEIZED FROM THE OFFICE OF SH. SUSHIL KUMAR TREHAN LOCATED IN MATA CHANAN DEVI HOSPITAL. THUS AS PER PROVISIONS OF SECTION 292C TH E PRESUMPTION IS THAT SAID DOCUMENTS RELATE TO SH. SUSHIL KUMAR TREHAN AND NOT TO THE MDH LTD., THE ASSESSEE. HENCE THE ASSESSING OFFICER HAS WRONGLY A PPLIES THE PROVISIONS OF SECTION 292C. PROVISIONS OF SECTION 292C SUPPORT TH E CASE OF SH. SUSHIL KUMAR TREHAN. WE ACCORDINGLY DELETE THE ADDITION. 47. NEXT ISSUE FOR CONSIDERATION RELATES TO ADDITIO N OF RS.44,98,279/-. DURING THE COURSE OF SEARCH PAGES 45 TO 49 WERE SEI ZED WHICH FORMED PART OF ANNEXURE A-4/O-18. ANNEXURE A-4/O-18 WAS SEIZED FR OM THE POSSESSION OF SHRI SUSHIL KUMAR TREHAN FROM THE PREMISES OF MATA CHANAN DEVI HOSPITAL AND CONTAINS EXPENSES INCURRED ON CONSTRUCTION OF S CHOOL BUILDING AT BYADGI. THE SAID SCHOOL BELONGS TO MAHASHAY CHUNNI LAL CHAR ITABLE TRUST, AN INDEPENDENT ASSESSEE. ON A QUERY IT WAS SUBMITTED THAT THE ASSESSEE COMPANY HAD NO CONNECTION WITH SAID PAPERS WHICH WE RE FOUND FROM THE POSSESSION OF SHRI SUSHIL TREHAN. IT WAS ALSO STAT ED THAT IT WAS INCORRECT TO SAY THAT THE ASSESSEE COMPANY WAS INFLATING PURCHAS ES IN ORDER TO INVEST IN CONSTRUCTION. SHRI SUSHIL KUMAR TREHAN IN HIS STAT EMENT RECORDED ON OATH I.T.A.NOS.4576, 4577 & 4578/DEL/2010 76 ON DATE OF SEARCH HAD ADMITTED WHILE REPLYING QUEST ION NO.23 THAT EXPENSES IN SCHOOL BUILDING WERE OUT OF BOOKS. THE AO FURTH ER OBSERVED THAT IN THE PAST COMPLETED ASSESSMENT IT HAD BEEN HELD THAT ON THE BASIS OF SEIZED RECORD THAT M/S. MDH LTD. WAS INFLATING EXPENSES AND INVES TING IN PROPERTIES. MAHASHYA DHARAM PAL WAS THE MAIN PERSON BEHIND THE TRUST. THE AO FURTHER OBSERVED THAT MAHASHYA DHARAM PAL WAS ALSO CHAIRMAN AND MAIN DERIVING FORCE BEHIND THE ASSESSEE COMPANY. ALL OT HER COMPANIES WERE DEPENDENT ON THE ASSESSEE COMPANY FOR THEIR ACTIVIT IES. THEREFORE, THE AO CONCLUDED THAT SHRI SUSHIL KUAMR TREHAN HAD BEEN MA DE FALL GUY THAT IS HOW HE HAD OWNED UP ALL THE TRANSACTION. THE AO THEREF ORE, MADE ADDITION OF RS.44,98,279/- (RS.17,57,274 + 27,41,005). 48. THE ASSESSEE OBJECTED TO THE PROPOSED ADDITION BEFORE THE DRP. BEFORE DRP IT WAS SUBMITTED BY THE LEARNED AR OF TH E ASSESSEE THAT SCHOOL BELONGS TO MAHASHAYA CHUNNI LAL CHARITABLE TRUST AN D IF ANY ADDITION IS REQUIRED TO BE MADE ON ACCOUNT OF THESE PAPERS, SHO ULD BE MADE IN THE HANDS OF THE TRUST ONLY. THIS CONTENTION OF THE ASSESSEE WAS REJECTED ON THE GROUND THAT THE EXPENDITURE ON CONSTRUCTION OF SCHOOL BUIL DING AT BYADGI WAS BEING MADE BY THE ASSESSEE. THE ADDITION ON ACCOUNT OF U NEXPLAINED EXPENDITURE IN SCHOOL ALSO HAS TO BE MADE IN THE HANDS OF THE A SSESSEE. MOREOVER ON I.T.A.NOS.4576, 4577 & 4578/DEL/2010 77 SEIZED PAPER NO.45 TO 50, IT WAS NOWHERE MENTIONED THAT NON-ACCOUNT EXPENDITURE WAS INCURRED ON SCHOOL BUILDING AT BYAD GI BELONGING TO THE TRUST. IT WAS THEREFORE, FOR THE ASSESSEE TO SHOW THAT THIS EXPENDITURE WAS IN RELATION TO SCHOOL BUILDING AT BYADGI FOR WHICH SEP ARATE ADDITION HAS BEEN MADE IN THE CASE OF THE TRUST BY THE AO ON THE BASI S OF VALUATION REPORT OF THE VALUER. DRP FURTHER NOTED THAT IT WAS NOT EVEN CLE AR AS TO WHICH SCHOOL THE UNACCOUNTED EXPENDITURE WAS RELATED. IT WAS THE AS SESSEE TO ESTABLISH THIS FACT. SINCE THE ASSESSEE HAD FAILED TO PRODUCE SUC H EVIDENCE, THE ADDITION PROPOSED TO BE MADE IN THE HANDS OF THE ASSESSEE WA S UPHELD. 49. BEFORE US IT WAS SUBMITTED BY THE ASSESSEE THAT SAID PAPERS WERE SEIZED FROM THE POSSESSION OF SHRI SUSHIL KUMAR TRE HAN FROM THE PREMISES OF MATA CHANAN DEVI HOSPITAL AND CONTAINED THE EXPE NSES INCURRED ON CONSTRUCTION OF SCHOOL BUILDING AT BYADGI. THE SAI D SCHOOL BELONGS TO MAHASHAYA CHUNNI LAL CHARITABLE TRUST, AN INDEPENDE NT ASSESSEE TO WHOM NOTICE UNDER SEC. 148 WAS ISSUED BY THE AO FOR ASSE SSMENT YEAR 2005-06, A COPY OF WHICH IS PLACED AT PAGES 566 TO 568 OF THE PAPER BOOK. IT WAS FURTHER SUBMITTED THAT THE AMOUNTS WERE SPENT OUT O F DONATIONS OF RS.11.30 LAKHS AND RS.28.75 LAKHS RECEIVED Y THE TRUST AS ME NTIONED ON PAGES 40 TO 42 OF ANNEXURE A-4/O-18. IT WAS ALSO SUBMITTED THA T RS.7 LAKHS MENTIONED I.T.A.NOS.4576, 4577 & 4578/DEL/2010 78 AS CASH FROM MDH ACCOUNT ON 15.01.2004 AND THE SAME HAS BEEN UTILIZED FOR PURCHASE OF LAND ON 17.01.2004 WHICH MEANS THAT THE SAID INVESTMENT IN SCHOOL BUILDING WAS OUT OF THE SAID SUM. THE DONAT IONS WERE GIVEN BY SHRI SUSHIL KUMAR TREHAN OUT OF HIS UNDISCLOSED INCOME A ND THEREFORE, NO ADDITION COULD BE MADE IN THE HANDS OF THE ASSESSEE . IT WAS FURTHER SUBMITTED THAT ADDITION OF RS.37,35,000/- HAS BEEN MADE IN THE YEAR IN WHICH INCOME WAS EARNED AND THEREFORE, NO SEPARATE ADDIT ION FOR THE UTILIZATION OF THE SAID AMOUNT COULD BE MADE AS IT WOULD TANTAMOUN T TO DOUBLE ADDITION WHICH IS NOT PERMISSIBLE BY LAW. IT WAS THEREFORE, SUBMITTED THAT ADDITION FOR UTILIZATION OF DONATIONS RECEIVED BY THE TRUST IN T HE HANDS OF THE ASSESSEE SHOULD BE DELETED BECAUSE THOSE TRANSACTIONS DO NOT PERTAIN TO THE ASSESSEE AND ADDITION OF THE SAID AMOUNT WILL LEAD TO DOUBLE ADDITION. 50. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. PAGE 45 OF ANNEXURE A-4/O-18 PLACED AT PAGE 424 OF THE PAPER BOOK CONTAINS DETAILS OF RS.27,41,005/-. THIS PAGE DOES NOT CONTAIN NAME OF THE PERSON FROM WHOM THE MONEY OF R S.27,41,005/- HAD COME FOR INVESTMENT IN SCHOOL BUILDING. PAGES 46 T O 49 CONTAIN DETAILS OF EXPENDITURE OF RS.17,57,274/-. THERE IS NO NAME OF ANY PERSON FROM WHOSE ACCOUNT THE MONEY HAS COME FOR INVESTMENT IN SCHOOL BUILDING. THERE IS NO I.T.A.NOS.4576, 4577 & 4578/DEL/2010 79 INDICATION ON THESE PAGES THAT AMOUNT OF RS.44,98,2 79/- HAS COME FROM THE ACCOUNT OF THE ASSESSEE COMPANY. THEREFORE, NO ADD ITION CAN BE MADE IN THE HANDS OF THE ASSESSEE COMPANY. THE CONTENTION OF T HE ASSESSEE THAT AMOUNT HAS BEEN SPENT OUT OF UNDISCLOSED INCOME EARNED BY SHRI SUSHIL KUMAR TREHAN HAS BEEN BRUSHED ASIDE MERELY ON PRESUMPTION THAT THE AMOUNT OF RS.44,98,279/- HAS COME FROM THE COFFERS OF THE COM PANY. SINCE THE SCHOOL IS OWNED BY MAHASHAYA CHUNNI LAL CHARITABLE TRUST T HE ADDITION CAN BE MADE IF AT ALL, IN THE HANDS OF THE TRUST AND NOT I N THE HANDS OF THE ASSESSEE WHEN THERE IS NO INDICATION ON THE PAPERS PLACED AT PAGES 45 TO 49 OF THE ANNEXURE A-4/O-18 TO THE EFFECT THAT THE AMOUNT OF RS.44,98,279/- HAS COME FROM THE COFFERS OF THE ASSESSEE COMPANY. ACCORDIN GLY IN OUR CONSIDERED OPINION ADDITION IN THE HANDS OF THE ASSESSEE WAS N OT JUSTIFIED. WE ACCORDINGLY DELETE THE ADDITION. A.Y. 2006-07 51. NEXT ISSUE FOR CONSIDERATION RELATES TO ADDITIO N OF RS.12,36,300/- TOWARDS INFLATION IN EXPENSES BASED ON PAGES 14-22 OF ANNEXURE A-4/O-18. THIS ADDITION IS IDENTICAL TO GROUND NO.5 OF ASSESS MENT YEAR 2005-06 WHEREIN ISSUE RELATING TO ADDITION OF RS.35,99,840/ - HAS BEEN DISCUSSED. IN ASSESSMENT YEAR 2005-06 WE HAVE DELETED THE ADDITIO N. FOR THE SAME REASONS I.T.A.NOS.4576, 4577 & 4578/DEL/2010 80 THE ADDITION MADE IN ASSESSMENT YEAR 2006-07 DESERV ES TO BE DELETED. WE ORDER ACCORDINGLY. 52. NEXT ISSUE FOR CONSIDERATION RELATES TO ADDITIO N OF RS.50,00,000/- TOWARDS UNEXPLAINED INVESTMENT ON ACCOUNT OF CONTRI BUTION OF CAPITAL IN A PARTNERSHIP FIRM MADE BY THE TWO DIRECTORS OF THE A SSESSEE COMPANY ON THE BASIS OF ENTRIES RECORDED ON PAGE NO.82 OF ANNEXURE A-4/O-18 WHICH IS PLACED AT PAGE 454 OF THE PAPER BOOK. DURING THE C OURSE OF SEARCH A LETTER FROM M/S. VINAYAK TRADERS GIVING THE DETAILS OF BAL ANCE WITH NEW DELHI ACCOUNT(1,22,17,083.00) AND GURGAON ACCOUNT(34,44,4 61.00) TOTALING TO RS.1,56,61,544/- WAS FOUND AND SEIZED. THERE IS CR EDIT ENTRY OF RS.50 LAKH WHICH HAS BEEN DIVIDED EQUALLY BETWEEN MAHASHAYAJI AND SHRI RAJIVJIS CAPITAL ACCOUNT I.E. RS.25 LAKH EACH. THE ASSESSEE WAS ASKED TO EXPLAIN THE SOURCE OF RS.50 LAKHS AND ALSO THE SOURCE OF BALANC E AMOUNT OF RS.1,06,61,544/-. THE ASSESSEE IN RESPONSE TO THE ABOVE NOTED QUERY STATED THAT THE SAID TRANSACTIONS WERE DULY RECORDED IN TH E BOOKS OF ASSESSEE AND HENCE NO ADDITION WAS REQUIRED TO BE MADE. HOWEVER, THE ASSESSING OFFICER PROPOSED THE ADDITION OF RS 1,56,61,544/-. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 81 53. BEFORE DRP IT WAS EXPLAINED THAT ENTRIES ON SEI ZED PAGE 82 WERE ACTUALLY REFLECTED IN THE BOOKS OF ACCOUNT OF THE A SSESSEE. IN SUPPORT OF HIS ARGUMENT THE LEARNED AR OF THE ASSESSEE REFERRED TO PAPER BOOK PAGES 551 TO 561 OF PAPER BOOK. IT WAS SUBMITTED THAT PAGE 551 OF THE PAPER BOOK IS THE ACCOUNT OF M/S. VINAYAK TRADERS A SUPPLIER OF ASSESSEE (GURGAON OFFICE A/C OF THE ASSESSEE ) AND PAGE 552 OF THE PAPER BOO K IS THE COPY OF ACCOUNT OF M/S. VINAYAK TRADERS (DELHI OFFICE A/C) OF THE A SSESSEE. IT WAS SUBMITTED THAT THE CLOSING BALANCE OF RS.34,44,461/- IN GURG AON OFFICE A/C AS ON 7/12/05 AND THE CLOSING BALANCE OF RS.1,22,17,083/- IN DELHI OFFICE A/C AS ON 6/12/2005 IS REFLECTED ON LETTER DATED 9.12.20 05 AND THE SUM OF RS.50,00,000/- IS SUM TOTAL OF TWO ENTRIES OF RS.25 LAKHS EACH WHICH IS THE CAPITAL CONTRIBUTION OF MAHASHAYAJI WHICH IS A REFE RENCE TO THE MD OF THE COMPANY WHO IS KNOWN AS MAHASHAYAJI AND RAJIVJI WHI CH IS A REFERENCE TO THE DIRECTOR OF THE ASSESSEE COMPANY. THE DRP HOWE VER NOTED THAT THE SUBMISSIONS OF THE AR THAT THESE WERE THE CLOSING B ALANCE OF THE ACCOUNT OF M/S. VINAYAK TRADERS DEALING WITH ASSESSEES GURGAO N OFFICE AND DELHI OFFICE WERE FOUND TO BE CORRECT. THE CLOSING BALAN CES WERE ACTUALLY REFLECTED ON PAGES 79 & 80 OF THE SEIZED DOCUMENTS ITSELF WHICH WERE THE ACCOUNT OF M/S. VINAYAK TRADERS IN ASSESSEES GURGA ON AND DELHI OFFICE. BOTH THESE ACCOUNTS WERE DATE-WISE ACCOUNT OF THE R ECEIPT OF INVOICES WITH I.T.A.NOS.4576, 4577 & 4578/DEL/2010 82 CLEAR INDICATION OF INVOICE NUMBERS AND THE DETAILS OF THE PAYMENTS BY CHEQUE NUMBERS AND DRAFT NUMBERS. THE CLOSING BA LANCE OF 7/12/2005 AND 6/12/2005 FROM ASSESSEES ACCOUNT WAS ALSO PROVED B Y THE DATE OF THE LETTER OF M/S. VINAYAK TRADER WHICH WAS SEIZED AT PAGE 82. THE DATE OF LETTER IS 9/12/2005 I.E. 2-3 DAYS AFTER THE DATE OF CLOSING B ALANCE. HOWEVER, THE AR OF THE ASSESSEE HAD NOT BEEN ABLE TO SHOW WITH REFEREN CE TO BOOKS OF ACCOUNT ANY ACCOUNT OF RS.25 LAKHS EACH TOTALING TO RS.50 L AKHS PAID TO M/S VINAYAK TRADER ON BEHALF OF MAHASHAYAJI AND SHRI RAJIVJIS CAPITAL ACCOUNT. ACCORDINGLY, OBJECTION RAISED BY THE ASSESSEE WAS R EJECTED. THE ASSESSING OFFICER WAS DIRECTED TO MAKE ADDITION OF RS 50,00,0 00/- AS UNEXPLAINED INVESTMENT. 54. BEFORE US IT WAS SUBMITTED THAT NO QUERY WAS RA ISED REGARDING THE AMOUNT OF RS.50 LAKHS FROM THE ASSESSEE. THE SEIZE D PAPER CLEARLY MENTIONS THE NAMES OF THE PARTNERS OF THE FIRM WHOSE CAPITAL ACCOUNT HAS BEEN CREDITED. THE NAME OF THE ASSESSEE HAS NOT BEEN ME NTIONED AS PARTNER. SINCE THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE W ITH THE SAID FIRM HAVE BEEN DULY RECORDED IN THE BOOKS OF ACCOUNT OF THE A SSESSEE COMPANY, NO ADVERSE COGNIZANCE COULD BE TAKEN AGAINST THE ASSE SSEE. SHRI DHARAM PAL GULATI AND SHRI RAJIV GULATI WERE TWO SEPARATE ASSE SSEES THAN THE COMPANY I.T.A.NOS.4576, 4577 & 4578/DEL/2010 83 AND WERE ALSO ASSESSED BY THE SAME ASSESSING OFFICE R. IF THE ASSESSING OFFICER WAS NOT SATISFIED, THEN THE ADDITION, IF AN Y, COULD HAVE BEEN MADE IN THEIR HANDS AND NOT IN THE HANDS OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT ON PERUSAL OF BALANCE-SHEET OF M/S. VINAYAK TRADERS AS ON 31 ST MARCH, 2005 AT PAGE 548 OF THE PAPER BOOK, IT WOULD BE SEEN THA T IT SHOWS THAT CAPITAL OF RS.25,05,000/- HAS BEEN INTRODUCED BY EACH OF THE P ARTNER AND THE ASSESSEE COMPANY IS NOT PARTNER THEREIN. THE DRP ACCEPTED T HAT SAID SUM WAS PAID BY MAHASHAYAJI AND RAJIVJI AS CAPITAL IN THE SAID F IRM. LD AR OF THE ASSESSEE, THEREFORE, SUBMITTED THAT SINCE THE SAID AMOUNT WAS PAID BY TWO PERSONS WHO ARE INDEPENDENTLY ASSESSED, NO ADDITION COULD BE MADE IN THE HANDS OF THE ASSESSEE. THUS THE ADDITION OF RS.50 LAKHS COULD NOT BE MADE IN THE HANDS OF THE ASSESSEE. 55. LD. CIT-DR HAS SUBMITTED THAT THE AO PROPOSED ADDITION OF RS.1,56,61,544/- BASED ON ENTRIES OF RS.1,22,17,083 /- AGAINST NEW DELHI AND RS.34,44,461/- AGAINST GURGAON ON THE BASIS OF ENTR IES RECORDED ON PAGE 82 OF THE SEIZED MATERIAL A LETTER DATED 9.12.2005 FR OM M/S. VINAYAK TRADERS. HOWEVER, THE DRP NOTED THAT THE AR HAS NOT BEEN ABL E TO SHOW WITH REFERENCE TO BOOKS OF ACCOUNTS THE AMOUNT OF RS.25 LAKHS EACH TOTALING TO RS.50 LAKHS PAID TO M/S. VINAYAK TRADERS ON ACCOUNT OF CAPITAL CONTRIBUTION I.T.A.NOS.4576, 4577 & 4578/DEL/2010 84 BY MAHASHYAJI AND RAJIVJI. ACCORDINGLY, THE ASSESS EES CONTENTION REGARDING THE AMOUNT OF RS.50 LAKHS WAS TO BE REJEC TED. THE AO IN VIEW OF DRPS ORDER MADE THE ADDITION OF RS.50 LAKH. THE L EARNED CIT-DR SUBMITTED THAT THE DRP HAS UPHELD THE ADDITION AND THEREFORE, THE ADDITION HAS TO BE UPHELD. IT WAS ALSO SUBMITTED THAT THE D ECISION OF ITAT MUMBAI IN THE CASE OF DREGGING INTERNATIONAL IS NOT APPLICABL E TO THE FACTS OF THE ASSESSEES CASE. THE LEARNED CIT-DR FURTHER SUBMIT TED THAT THE AO HAD NOT EXAMINED THE CASE IN RIGHT PERSPECTIVE AND THEREFOR E, IT SHOULD GO BACK TO THE AO FOR FRESH EXAMINATION. 56. THE ASSESSEE IN REJOINDER SUBMITTED THAT THE AM OUNT OF RS.50 LAKHS REPRESENTS CAPITAL OF MAHASHAYA DHARAM PAL AND SHRI RAJIV GULATI. THE ADDITION MADE IS DIFFERENT FROM THE AMOUNT FOR WHIC H ADDITION OF RS.1,56,61,544/- WAS PROPOSED BY THE AO AND THEREF ORE, THE DRP CANNOT ISSUE DIRECTIONS TO MAKE ADDITION FOR SUCH AMOUNT. FURTHER, THE SAID AMOUNT BELONGS TO TWO PERSONS WHO ARE SEPARATE ASSESSEES W HO CONTRIBUTED THE AMOUNT AS CAPITAL IN THE FIRM DULY DECLARED IN THEI R BOOKS AND SEIZED MATERIAL ALSO. THEREFORE, NO ADVERSE VIEW CAN BE TAKEN AGAI NST THE ASSESSEE. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 85 57. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE ENTR IES MADE ON PAGE 82 OF ANNEXURE A-4/O-18. FROM THE ENTRIES MADE IT IS CLE AR THAT THE AMOUNT OF RS.1,22,17,083/- WAS DUE FROM NEW DELHI ACCOUNT AND RS.34,44,461/- FROM GURGAON ACCOUNT. THE BALANCE AS ON 9.12.2005 TALLIE S WITH THE ACCOUNTS OF M/S VINAYAK TRADERS DELHI AND GURGAON OFFICE IN THE BOOKS OF MDH LTD. THEREFORE, DRP WAS RIGHT IN NOT APPROVING THE ADDIT ION OF RS 1,56,61,544/-. M/S VINAYAK TRADERS IS A PARTNERSHIP FIRM OF THREE PARTNERS NAMELY SHRI MAHASHAYA DHARAM PAL GULATI AND SHRI RAJIV GULATI AND SH. SURESH PATIL. THIS FIRM WAS PURCHASING HALDI AND CHILLIES FOR MDH LTD. IN BALANCE SHEET OF M/S VINAYAK TRADERS CAPITAL ACCOUNTS OF SHRI DH ARAM PAL GULATI AND SHRI RAJIV GULATI HAVE BEEN CREDITED BY SUM OF R S 25,05,000/- EACH. THE AMOUNT OF RS.50 LAKHS HAS BEEN TRANSFERRED FROM OUT STANDING BALANCE OF M/S VINAYAK TRADERS IN THE CAPITAL ACCOUNT OF SHRI MAH ASHAYA DHARAM PAL GULATI AND SHRI RAJIV GULATI I.E. RS.25 LAKHS EAC H. SH. SURESH PATIL HAS SENT THE ACCOUNT IN LAYMANS WAY AFTER CAPITAL CONTRIBUT ION BY SH. DHARAM PAL GULATI AND SH. RAJIV GULATI AMOUNT DUE WAS 1,06,6 1,544/-. BECAUSE THIS THE AMOUNT OF RS.50 LAKHS HAS BEEN REDUCED FROM THE FIG URE OF RS.1,56,61,544/-. THEREFORE, THE AMOUNT OF RS.25 LAKHS EACH IN THE NA MES OF THE PARTNERS HAS BEEN CONTRIBUTED THEM. IN CASE THE AMOUNT IS NOT E XPLAINABLE THE ADDITION I.T.A.NOS.4576, 4577 & 4578/DEL/2010 86 SHOULD HAVE BEEN IN THE HANDS OF PARTNERS AND NOT I N THE HANDS ASSESSEE. ACCORDINGLY NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE. 58. IN THE DRAFT ASSESSMENT ORDER THE AO HAS PROPO SED ADDITION OF RS.1,56,61,544/- WHICH WAS BASED ON THE OUTSTANDING AMOUNT IN RESPECT OF MDH DELHI AND MDH GURGAON. THE DRP HAS NOT APPROVED THE ADDITION OF RS.1,56,61,544/-. HOWEVER, THEY HAVE APPROVED THE ADDITION OF RS.50 LAKHS CREDITED TO THE ACCOUNT OF THE PARTNERS. ACCORDING TO LD AR OF THE ASSESSEE DRP CANNOT SUGGEST FRESH ADDITION OTHER THAN REFERR ED TO BY THE ASSESSING OFFICER. UNDER SECTION 144C(8) DRP HAS POWER TO CON FIRM, REDUCE OR ENHANCE THE VARIATION PROPOSED IN DRAFT ORDER. HOW EVER, FINANCE ACT 2012 HAS INSERTED EXPLANATION TO SECTION 144C(8) W.R.E F 1.4,2009 THAT DRP HAS POWER TO CONSIDER ANY MATTER ARISING OUT OF DRAT AS SESSMENT ORDER. HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER DIRECTING TH E ADDITION OF RS 50,00,000/-. HENCE LEGAL ISSUE RAISED BY THE ASSES SEE IS REJECTED. 59. NEXT ISSUE FOR CONSIDERATION RELATES TO ADDITIO N OF RS.51,44,224/- MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN SCHOOL BUILDING AT BYADGI ON THE BASIS OF DVOS REPORT. THE AO VIDE QUESTIONNAI RE DATED 23 RD OCTOBER, 2009 FORWARDED COPY OF VALUATION REPORT VALUING SCH OOL BUILDING AT I.T.A.NOS.4576, 4577 & 4578/DEL/2010 87 RS,75,86,000/- AS ON 31.3.2006. IN THE BOOKS OF AC COUNT OF THE TRUST THE INVESTMENT IN THE SCHOOL WAS SHOWN AT RS.24,41,776/ - AS ON 31.3.2006, WHEREAS THE VALUER HAD VALUED THE SAME AT RS.75,86, 000/-. THUS, THERE WAS AN UNEXPLAINED INVESTMENT OF RS.51,44,224/- IN THE SCHOOL. THE ASSESSEE WAS ASKED TO GIVE THE COMMENTS ON THE DIFFERENCE OF INVESTMENT VALUE AS DECLARED FOR THE INCOME-TAX PURPOSES WITH SUPPORTIV E EVIDENCE. IT WAS STATED BY THE ASSESSEE THAT ANY QUESTION REGARDING VALUATION OF BUILDING SHOULD BE DIRECTED TO THE TRUST TO WHICH THE SCHOOL BELONGS AND NOT TO THE ASSESSEE. THE AO HOWEVER, OBSERVED THAT THE INVEST MENT IN SCHOOL BUILDING AND THE TRUST ARE MANAGED BY THE MDH OR ON ITS BEHA LF BY OTHERS CONNECTED WITH THE BUSINESS OF MDH. THE ASSESSEE AS WELL AS THE TRUST WAS DIRECT UNDER THE CONTROL OF MAHASHYA DHARAM PAL GULATI. T HE DOCUMENTS SEIZED ALSO PROVE THE SAME AND ESTABLISH THE LINK BETWEEN INVESTMENT IN SCHOOL AND THE ASSESSEE. HE ALSO NOTED THAT THE ASSESSEE WAS AVOIDING THE REPLY ON THE QUESTIONS RAISED. SINCE THE ASSESSEE WAS NOT ABLE TO DISCHARGE THE ONUS OF PROVING THE SOURCE OF INVESTMENT IN SCHOOL BUILDING , THE AO MADE ADDITION OF RS.51,44,224/-. 60. BEFORE DRP IT WAS ARGUED BY THE LD. AR OF THE A SSESSEE THAT SCHOOL WAS BEING CONSTRUCTED BY A CHARITABLE TRUST. THE A DDITION WAS MADE ON THE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 88 BASIS OF VALUERS REPORT IN RESPECT OF INVESTMENT I N SCHOOL BUILDING AT BYADGI WHICH WAS OWNED BY THE TRUST. THEREFORE, IF ANY AD DITION WAS REQUIRED TO BE MADE IT SHOULD HAVE MADE IN THE HANDS OF THE TRUST. HOWEVER, THE DRP REJECTED THE CONTENTION OF THE ASSESSEE. IT WAS OB SERVED THAT PAGE NOS. 51, 82, 89, 14, 22, 41 & 42 OF ANNEXURE A-4/O-18 CLEARL Y SHOWED THAT EXPENDITURE ON CONSTRUCTION OF BUILDING HAD BEEN MA DE BY THE ASSESSEE. THE SCHOOL WAS BEING RUN IN THE NAME OF FAMILY MEMBER O F MD OF THE COMPANY. THE DRP THEREFORE, REJECTED THE OBJECTIONS RAISED B Y THE ASSESSEE AND AFFIRMED THE DRAFT ASSESSMENT ORDER ON THIS GROUND. 61. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMIT TED THAT SCHOOL AT BYADGI BELONGS TO MAHASHAYA CHUNNI LAL CHARITABLE T RUST WHICH IS A SEPARATE ASSESSEE BEING ASSESSED BY THE SAME AO. I F THE VALUATION OF THE SAID PROPERTY OWNED BY THE SAID TRUST IS FOUND TO B E HIGHER THEN THE ADDITION COULD BE MADE IN THE HANDS OF THE SAID TRUST AND NO T IN THE HANDS OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT NOTICE U/S 14 8 WAS ISSUED BY THE AO FOR THE A.Y. 2005-06 TO THE SAID TRUST. THUS, THE SAID PAGES DO NOT PERTAIN TO THE ASSESSEE AND THEREFORE, NO ADDITION OF THE SAID AMO UNT CAN BE MADE IN THE HANDS OF THE ASSESSEE. IT WAS FURTHER SUBMITTED TH AT PAGES 45 TO 49 OF ANNEXURE A-4/O-18 SHOW SOME AMOUNT OTHER THAN RECOR DED IN BOOKS HAS I.T.A.NOS.4576, 4577 & 4578/DEL/2010 89 BEEN INCURRED ON THE SAID SCHOOL FOR WHICH ADDITION OF RS.44,98,279/- HAS BEEN MADE IN ASSESSMENT YEAR 2005-06. THEREFORE, T HE ADDITION OF RS.51,44,224/- INCLUDES THE ADDITION OF RS.44,98,27 9/-. IT WAS ALSO SUBMITTED THAT INVESTMENT IN THE SCHOOL BUILDING WA S MADE BY SHRI SUSHIL TREHAN OUT OF UNDISCLOSED INCOME OFFERED FOR TAXATI ON. THE LEARNED AR OF THE ASSESSEE FURTHER SUBMITTED THAT THE PEOPLE OF V ILLAGE ALSO CONTRIBUTED IN THE CONSTRUCTION OF SCHOOL BY WAY OF LABOUR OR DONA TION IN KIND WHICH WAS NOT INCLUDED IN THE COST DECLARED IN THE BOOKS OF A CCOUNT AS THERE CAN BE NO ENTRY FOR DONATIONS RECEIVED IN KIND. THUS, HIGHER VALUATION OF SCHOOL AS COMPARED TO VALUE IN BOOKS WAS OTHERWISE ALSO FULLY JUSTIFIED. NO ADDITION IS CALLED FOR OTHERWISE IT WOULD AMOUNT TO DOUBLE A DDITION. THE LEARNED AR OF THE ASSESSEE FURTHER SUBMITTED THAT THE DRP IN I TS DIRECTION HAS STATED THAT IT WAS NOT MENTIONED ON THE SEIZED PAPER THAT NON-A CCOUNT EXPENDITURE WAS INCURRED ON THE SCHOOL BUILDING BELONGING TO THE AB OVE TRUST. IT WAS FOR THE ASSESSEE TO SHOW THAT THIS EXPENDITURE WAS IN RELAT ION TO SCHOOL BUILDING AT BYADGI, KARNATAKA. IN THIS REGARD THE LEARNED AR O F THE ASSESSEE SUBMITTED THAT THE PAPERS WERE SEIZED FROM THE POSSESSION OF SHRI SUSHIL TREHAN WHO HAD STATED IN REPLY TO QUESTION NO.3 OF HIS STATEME NT THAT THESE PAGES PERTAINED TO SCHOOL BUILDING CONSTRUCTION AT BYADGI , KARNATAKA. SHRI SUSHIL TREHAN HAD INCURRED EXPENDITURE FOR CONSTRUCTION OF SCHOOL BUILDING OUT OF I.T.A.NOS.4576, 4577 & 4578/DEL/2010 90 HIS UNDISCLOSED INCOME. THEREFORE, IT WAS ESTABLIS HED THAT THE EXPENDITURE WAS INCURRED ON SCHOOL AT BYADGI WHICH WAS OWNED BY THE TRUST AND THEREFORE, NO SEPARATE ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE. 62. BEFORE US THE LEARNED CIT-DR SUPPORTING THE ORD ER OF THE AO HAS SUBMITTED THAT ADDITIONS BASED ON DVOS REPORT WAS UNEXPLAINED INVESTMENT WHICH WAS ONLY A QUANTIFICATION OF UNDI SCLOSED INVESTMENT DETECTED ON THE BASIS OF SEIZED MATERIAL. THE LEA RNED AR OF THE ASSESSEE IN REJOINDER SUBMITTED THAT THE SCHOOL DOES NOT BELONG TO THE ASSESSEE AND THEREFORE, NO ADDITION CAN BE MADE IN ITS HANDS. N OTICE U/S 148 HAD ALREADY BEEN ISSUED TO THE TRUST WHO IS THE OWNER OF THE SA ID SCHOOL. 63. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE ABOUT THE FACT THAT THE AO HAD ISSUED NOTICE U/S 148 ON THE BASIS OF VALUATION REP ORT FOR A.Y. 2005-06. THERE IS ALSO NO DISPUTE THAT SCHOOL IS OWNED BY TH E TRUST. NO EVIDENCE WAS FOUND DURING THE COURSE OF SEARCH THAT MDH LTD. HAS INCURRED EXPENDITURE ON CONSTRUCTION OF SCHOOL BUILDING AT BYADGI. ON T HE CONTRARY SHRI SUSHIL KUMAR HAS OWNED UP THE EXPENDITURE OUT OF HIS UNDIS CLOSED INCOME. WE HAVE ALSO GONE THROUGH THE REASONS RECORDED U/S 148 FOR REOPENING OF THE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 91 CASE OF THE TRUST. AS PER REASONS RECORDED PROCE EDINGS U/S 147 HAVE BEEN INITIATED ON THE BASIS OF VALUATION REPORT OF THE S CHOOL BUILDING AT RS.75,86,800/-. THE AMOUNT OF RS.75,86,800/- HAS B EEN BIFURCATED IN TWO ASSESSMENT YEARS I.E. RS.36,26,490/- IN A.Y. 2005-0 6 AND RS.39,60,310 IN THE A.Y. 2006-07. FROM THESE FACTS IT IS CLEAR THA T THE AO HAS ISSUED NOTICE U/S 148 FOR THE A.Y. 2005-06 TO THE ASSESSEE. THE AMOUNT OF RS.36,26,490 WHICH ACCORDING TO HIM HAS ESCAPED ASSESSMENT IN A. Y.2005-06. THE AO HAS ALSO ALLOTTED RS.39,60,310/- TO A.Y. 2006-07. WE HAVE ALSO GONE THROUGH THE BALANCE-SHEET OF SCHOOL AS ON 31 ST MARCH, 2006 WHEREIN SCHOOL BUILDING EXPENDITURE WAS SHOWN AT RS.24,41,776/-. SINCE THE SCHOOL BELONGS TO MAHASHAYA CHUNNI LAL CHARITABLE TRUST, NO ADDITI ON IN THE HANDS OF THE ASSESSEE CAN BE MADE BASED ON VALUATION REPORT. WE ACCORDINGLY DELETE THE ADDITION. A.Y. 2007-08 64. NEXT ISSUE FOR CONSIDERATION IN A.Y. 2007-08 RE LATES TO ADDITION OF RS.15,00,000/- MADE ON THE BASIS OF PAGE 51 OF ANNE XURE A-4/O-18. THIS ISSUE IS IDENTICAL TO GROUND NO.5 FOR A.Y. 2005-06 WHEREIN ADDITION OF RS.54,48,600/- WAS INVOLVED. AS PER ENTRY RECORDED ON PAGE 51 OF ANNEXURE A-4/O-18 (1) RS.9,50,000/- WAS TRANSFERRED TO SCHOOL AND (2) RS.5,50,000/- WAS RECEIVED AND UTILIZED FOR SCHOOL BUILDING CONSTRUCTION. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 92 PAGE 51 CONTAINS TRANSACTIONS FOR THE PERIOD RELATE D TO JANUARY, 2004 TO MAY, 2004. THEREFORE, NO ADDITION COULD BE MADE BY THE AO IN ASSESSMENT YEAR 2007-08. THE AO OBSERVED THAT DECLARATION OF INCOM E DUE TO INFLATION OF EXPENSES BY SHRI SUSHIL KUMAR IN HIS RETURN OF INCO ME WOULD NOT ABSOLVE THE ASSESSEE FROM ADDITION BECAUSE HE WAS ONLY ACTI NG ON BEHALF OF THE ASSESSEE COMPANY. THE AO THEREFORE, TREATED THE EX PENDITURE OF RS.15 LAKHS IN THE A.Y. 2007-08 AS UNEXPLAINED. THE AO ACCORDI NGLY, ADDED THE AMOUNT OF RS.15 LAKHS IN THE A.Y. 2007-08. 65. THE LEARNED AR OF THE ASSESSEE HOWEVER, SUBMITT ED THAT THE ENTRIES OF RS.9,50,000/- AND RS.5,50,000/- RELATE TO A.Y. 2004 -05 AND 2005-06 AND THEREFORE, NO ADDITION CAN BE MADE IN A.Y. 2007-08. IT WAS ALSO SUBMITTED THAT RS.9,50,000/- IS PAYMENT OUT OF RS.23,36,100/- WHICH WAS ADDED IN A.Y. 2005-06. THEREFORE, WHEN ADDITION FOR SOURCE HAS ALREADY BEEN MADE, THEN AN ADDITION FOR ITS UTILIZATION CANNOT BE MADE . IT WAS FURTHER SUBMITTED THAT RS.6.25 LAKHS WAS UTILIZED FOR PURCHASE OF LAN D AND RS.3.25 LAKHS AGGREGATING TO RS.9,50,000/- WAS USED FOR SCHOOL CO NSTRUCTION AS PER DETAILS ON PAGE 48 OF ANNEXURE A-4/O-18 FOR WHICH SEPARATE ADDITION HAS BEEN MADE IN A.Y. 2005-06 AND THEREFORE, NO SEPARATE ADD ITION FOR THIS AMOUNT CAN BE MADE IN THE A.Y. 2007-08. MOREOVER, THE PAY MENT HAS BEEN MADE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 93 OUT OF UNDISCLOSED INCOME OF SHRI SUSHIL KUMAR TREH AN AND HENCE, NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE. ON THE OTHER HAND, THE LEARNED CIT-DR SUPPORTED THE ORDER OF THE AO. 66. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE ENTRIES RECORDED ON PAGE 51 OF ANNEXURE A-4/O-18. WE FIND THAT THE E NTREES ON PAGE 51 RELATE UPTO 15.05.2004. SOME OF THE ENTREES RELATE TO YEAR ENDED ON 31.03.2004. THUS THE AMOUNT EXPENDED ON CONSTRUCTIO N OF SCHOOL BUILDING RELATE TO ASSESSMENT YEARS 2004-05 AND 2005-06. THE SOURCE OF INCOME IS COMMISSION OF RS 5/- PER KG OF CHILIES CHARGED BY S H. SUSHIL TREHAN ON PURCHASES MADE BY HIM FOR MDH LTD. THIS COMMISSION HAS BEEN ASSESSED IN HIS HANDS. THE ASSESSING OFFICER HAS TAKEN THE ADDI TIONS FOR ASSESSMENT YEAR 2007-08 IN VIEW OF PRESUMPTIVE PROVISIONS OF SECTIO N 292C OF THE ACT. UNDER SECTION 292C WHERE ANY BOOKS OF ACCOUNT, OTHER DOCUMENTS, M ONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THI NG ARE OR IS FOUND IN THE POSSESSION OR CONTROL OF ANY PERSON IN THE COURSE O F A SEARCH UNDER SECTION 132, IT MAY, IN ANY PROCEEDING UNDER THIS ACT, BE P RESUMED (I) THAT SUCH BOOKS OF ACCOUNT, OTHER DOCUMENTS, MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING BELONG OR BELONGS TO SUCH PERSON; (II) THAT THE CONTENTS OF SUCH BOOKS OF ACCOUNT AND OTHER DOCUMEN TS ARE TRUE; AND (III) I.T.A.NOS.4576, 4577 & 4578/DEL/2010 94 THAT THE SIGNATURE AND EVERY OTHER PART OF SUCH BOO KS OF ACCOUNT AND OTHER DOCUMENTS WHICH PURPORT TO BE IN THE HANDWRITING OF ANY PARTICULAR PERSON OR WHICH MAY REASONABLY BE ASSUMED TO HAVE BEEN SIG NED BY, OR TO BE IN THE HANDWRITING OF, ANY PARTICULAR PERSON, ARE IN THAT PERSONS HANDWRITING, AND IN THE CASE OF A DOCUMENT STAMPED, EXECUTED OR ATTE STED, THAT IT WAS DULY STAMPED AND EXECUTED OR ATTESTED BY THE PERSON BY W HOM IT PURPORTS TO HAVE BEEN SO EXECUTED OR ATTESTED. THUS SECTION 292C OF THE ACT DOES NOT EMPOWER THE ASSESSING OFFICER TO PRESUME THE INCOME OF A PARTICULAR YEAR AS INCOME OF ANY OTHER YEAR. THEREFORE, THE AMOUNT OF RS 15,00,000/- CANNOT BE ASSESSED IN ASSESSMENT YEAR 2007-08. IT CAN ALSO NOT BE ASSESSABLE IN THE HANDS OF ASSESSEE WHEN SUCH INCOME HAS ALREADY BEEN ASSESSED IN THE HANDS OF SH. SUSHIL KUMAR TREHAN IN EARLIER ASSESSMENT YE ARS. WE, THEREFORE, DELETE ADDITION OF RS 15,00,000/-. 67. THE NEXT ISSUE FOR CONSIDERATION RELATES TO ADD ITION OF RS.12,46,90,000/- ON ACCOUNT OF DAILY OPERATING BAN K BALANCES. DURING THE COURSE OF SEARCH LOOSE PAPERS NUMBERED 1 TO 55 WERE SEIZED AS ANNEXURE A- 3/O-2 FROM THE BUSINESS PREMISES OF M/S. SUPER DELI CACY PVT. LTD. AT GURGAON. PAGE 40 OF ANNEXURE A-3/O-2 CONTAINS ENT RIES DATE-WISE. AS PER ASSESSING OFFICER THE ENTRIES ARE IN HANDWRITING OF SHRI DAHARAM PAL GULATI I.T.A.NOS.4576, 4577 & 4578/DEL/2010 95 AS IT MATCHES WITH THE DIARY SEIZED AS A-2/O-1. TH E ENTRIES ON THIS PAGE WERE RECORDED IN A TYPICAL MANNER. ON EVERY DATE T OP ENTRY REPRESENTS CASH BALANCE FOR THE DATE AND MIDDLE ENTRY IS CASH RECEI PT FOR THE DAY. NONE OF THE ENTRIES WERE REFLECTED IN THE BOOKS OF ACCOUNT. TO TAL OF CASH RECEIPTS AS PER PAGE 40 ALONE IS AT RS.12,46,90,000/- FOR THE PERIO D OF FOUR MONTHS IN FINANCIAL YEAR 2006-07 RELEVANT TO ASSTT. YEAR 2007 -08. 68. ON A QUERY IT WAS EXPLAINED BY THE ASSESSEE THA T PAGE NO.40 OF THE ANNEXURE A-2/O-1 CONTAINED BALANCES IN THE BANK ACC OUNT OF LUDHIANA BRANCH OF MDH LTD ON THE PARTICULAR DAY MENTIONED T HEREIN. THE ASSESSEE SUBMITTED PHOTO COPIES OF THE BANK STATEMENTS IN SU PPORT OF ITS CONTENTION. THESE FIGURES WERE NOTED TELEPHONICALLY BY MR. GUPT A, THE ACCOUNTANT IN GURGAON BRANCH OF MDH LTD. ON COMPARISON OF ENTRIES WITH BANK STATEMENTS THE ASSESSING OFFICER FOUND THAT ONLY ON E ENTRY TALLIED COMPLETELY DATE-WISE AND DEPOSIT-WISE. THE ASSESSI NG OFFICER TEST CHECKED 33 ENTRIES. EXCEPT A DEPOSIT OF RS.4,00,000/- ON 2 2-08-2006 NONE OF THE OTHER ENTRIES TALLIED. SINCE THE ASSESSEE HAD INFL ATED PURCHASE OF HALDI AND CHILLIES AND WAS ALSO INDULGING SPECULATION OF AGRI CULTURAL COMMODITIES, GOLD ETC., THE ASSESSING OFFICER CONCLUDED THAT CAS H WAS GENERATED BY VARIOUS MEANS. SINCE THE ASSESSEE WAS NOT ABLE TO EXPLAIN ENTRIES RELATING TO I.T.A.NOS.4576, 4577 & 4578/DEL/2010 96 CASH ACCOUNT RECORDED ON PAGE 40, THE ASSESSING OFF ICER ADDED THE AMOUNT OF RS.12,46,90,000/- AS UNEXPLAINED INCOME. 69. THE ASSESSEE OBJECTED TO ADDITION PROPOSED BY THE AO BEFORE THE DRP. THE OBJECTIONS RAISED WERE TREATED OF GENERAL NATURE BY DRP AND THE PROPOSED ADDITION WAS APPROVED. 70. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMIT TED THAT OBJECTIONS RAISED ARE PLACED AT PAGES 1060 TO 2062. THE DRP R EJECTED THE OBJECTIONS WITHOUT CONSIDERING THEM. THE LD. AR OF THE ASSESS EE FURTHER SUBMITTED THAT DAILY OPERATING/AVAILABLE BALANCES IN HDFC BANK ACC OUNT AT LUDHIANA BRANCH OF THE ASSESSEE WERE RECORDED BY AN ACCOUNTA NT IN GURGAON TO PLAN THE AMOUNT AVAILABLE FOR DISBURSEMENTS. IN HDFC LU DHIANA BRANCH THE BUYERS IN PUNJAB TERRITORY WERE DEPOSITING CHEQUES DIRECTLY. THIS EXERCISE WAS UNDERTAKEN BY HIM ON TELEPHONE DAILY TO USE THO SE FUNDS FROM GURGAON OFFICE AS THE CHEQUE BOOK FOR THE SAID BANK ACCOUNT WAS AT GURGAON ONLY. THE AMOUNTS WERE TALLYING DAILY IN PAISAS ALSO AS P ER THE BANK STATEMENT. AS REGARDS THE HANDWRITING, THE LEARNED AR OF THE ASSE SSEE SUBMITTED THAT THE HANDWRITING HAS NOT BEEN EXAMINED BY ANY HANDWRITIN G EXPERT BEFORE MAKING AN AVERMENT BY THE AO. THE ACCOUNTANT HAS N EVER BEEN CONFRONTED. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 97 ALL ENTRIES ARE MENTIONED ON SAME PAGE IN SIMILAR M ANNER. THE ASSESSEE HAS SUBMITTED A CHART SHOWING APPEARANCE AND RECONCILIA TION OF THE ENTRIES MENTIONED THEREIN WITH THE BANK BALANCE STATEMENT I N PAPER BOOK AT PAGES 595 TO 597. THE LD. AR OF THE ASSESSEE, THEREFORE, SUBMITTED THAT SAID SEIZED PAGES WERE NOT STATEMENT OF ANY PARALLEL CAS H BALANCES MAINTAINED ON A DAY-TO-DAY BASIS BY THE ASSESSEE AS ALLEGED PRESU MABLY, BUT WERE ROUGH SHEETS USED FOR RECORDING AVAILABLE/USABLE CASH BAL ANCE ON DAY-TO-DAY BASIS OF THE BANK ACCOUNT DULY DECLARED IN REGULAR BOOKS OF ACCOUNT. HE, THEREFORE, PLEADED THAT THE ADDITION IS TOTALLY SUP ERFLUOUS AND DESERVED TO BE DELETED. ON THE OTHER HAND, LEARNED CIT-DR SUPPORTE D THE ORDER OF THE AO. 71. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE AO HAD ADDED THE AMOUNT O F RS.12,46,90,000/- ON THE BASIS OF ENTRIES RECORDED ON PAGE 40 OF ANNEXUR E A-3/O-2 ON THE GROUND THAT THE ASSESSEE WAS HAVING LARGE CASH GENERATED F ROM UNACCOUNTED BUSINESS. HE ALSO OBSERVED THAT THE AVAILABILITY O F CASH DATE-WISE RECORDED ON PAGE 40 WAS TALLYING WITH THE BANK STATEMENT. O N THE OTHER HAND, THE CONTENTION OF THE ASSESSEE IS THAT THE ACCOUNTANT O F THE COMPANY USED TO OBTAIN TELEPHONICALLY THE AVAILABILITY OF CASH IN H DFC BANK, LUDHIANA WHERE THE CUSTOMERS WERE DEPOSING THE CHEQUES DIREC TLY IN THE ACCOUNT. TO I.T.A.NOS.4576, 4577 & 4578/DEL/2010 98 DEMONSTRATE ENTRIES THE LEARNED AR OF THE ASSESSEE EXPLAINED ENTRIES BEFORE THE AO AS BELOW:- TO ILLUSTRATE THE SAME, ON THE FRONT SIDE OF PAGE N O. 40/A- 3/O-2 (MARKED AS SIDE B IN THE EXPLANATIONS GIVEN NOW), IN THE SECOND COLUMN (MARKED AS 1 NOW) CLOSING BALANCE OF 21/8/ 06 (I.E. OF THE PREVIOUS DAY) IS STATED ON THE THIRD ROW AS RS.19, 68,739.55, WHICH IS THE CLEAR / USABLE OPENING BANK BALANCE AVAILABLE O N 22/8/06, RS. 4,00,000/- STATED JUST ABOVE IT REPRESENTS THE VALU E OF THE POST-DATED CHEQUE DATED 22/8/06 DEPOSITED ON 21/8/06 IN THE BA NK, BUT WHICH WAS NOT READILY AVAILABLE FOR USE ON 21/8/06 AS EXPLAIN ED. THE SAME IS SQUARELY VERIFIABLE FROM THE COPY OF THE BANK STATE MENT OF THE RELEVANT DATES FURNISHED HEREWITH. FURTHER, THE SUM OF RS. 19,43,739.55 STATED RIGHT ON TOP OF THE SAID TWO SUMS IS THE BALANCE AF TER REDUCING RS. 25,000/- FOR CHEQUE ISSUED BUT NOT YET PRESENTED ON 21/8/06 FROM THE SAID AVAILABLE BALANCE OF RS. 19,68,739.55. IN FACT , THE TWO CHEQUES OF RS. 7,500/- AND RS . 25,000/- ISSUED PRIOR TO 21/8/06 WERE PRESENTED FOR PAYMENT IN THE BANK ON 21/08/06 AND 22/8/06 RES PECTIVELY. EVEN THESE HAVE BEEN STATED IN COLUMN NO. 1 AND CAN AL SO BE VERIFIED FROM THE BANK STATEMENT. ACCORDINGLY, IN THE EXPLANATORY STATEMENT PREPARED FOR RECONCILING THE BALANCES AS PER THE BA NK STATEMENT AND AS I.T.A.NOS.4576, 4577 & 4578/DEL/2010 99 PER THE SEIZED LOOSE PAPER, THE SAID TRANSACTIONS F OR 21/8/06 HAVE BEEN RECONCILED AS UNDER : PARTICULARS AMO UNT (RS.) OPENING BALANCE AS ON 21/08/06 19,76,239.55 AS PER BANK STATEMENT ADD : CHEQUE DT. 22/8/06 DEPOSITED ON 21/8/06 4,00,000.00 23,76,239.55 LESS : CHEQUE PRESENTED FOR PAYMENT 7,500.00 CLOSING BALANCE AS ON 21/8/06 AS PER BANK STATEMENT (MARKED B-I) 23,68,739.55 LESS : POST DATED VALUE CHEQUE 4,00,000.00 CLOSING BALANCE AS ON 21/8/06 (MARKED AS B-1) 19,68,739.55 [BEING THE CLEAR / USABLE BALANCE AVAILABLE ON THE NEXT DAY (I.E. ON 22/8/06) AS RECORDED IN COLUMN I ON B SIDE OF THE LOOSE SHEET] SIMILARLY, ON THE BACK SIDE OF PAGE NO. 40/A-3/0-2 (MARKED AS SIDE A IN THE EXPLANATIONS GIVEN NOW), IN THE FIRST COLUMN (M ARKED AS I NOW) CLOSING BALANCE OF 11/10/06 (I.E. OF THE PREVIOUS DAY) IS STATED ON THE THIRD ROW AS RS. 30,05,244.55, WHICH IS THE CLEAR / USABLE OPENI NG BANK BALANCE AVAILABLE ON 12/10/06. RS. 20,50,000/- STATED JUST ABOVE IT R EPRESENTS THE TOTAL VALUE OF TWO POST-DATED CHEQUES OF RS. 15 LACS AND 5.50 LAC S DATED 11/10/06 AND 12/10/06 DEPOSITED ON 10/10/06 AND 11/10/06 AS EXPL AINED. THE SAME IS SQUARELY VERIFIABLE FROM THE COPY OF THE BANK STATE MENT OF THE RELEVANT DATES FURNISHED HEREWITH. FURTHER, THE SUM OF RS. 15,05,2 44.55 STATED RIGHT ON TOP I.T.A.NOS.4576, 4577 & 4578/DEL/2010 100 OF THE SAID TWO SUMS IS THE BALANCE BEFORE ADDING R S. 15,00,000/- FOR CHEQUE DATED 11/10/06, DEPOSITED ON 10/10/06 FROM THE SAID AVAILABLE BALANCE OF RS. 30,05,244.55 ON 11/10/06 WHICH IS AGAIN VERIFIABLE FROM THE BANK STATEMENT ITSELF. ACCORDINGLY, IN THE EXPLANATORY STATEMENT P REPARED FOR RECONCILING THE BALANCES AS PER THE BANK STATEMENT AND AS PER THE S EIZED LOOSE PAPER, THE SAID TRANSACTIONS FOR 11/10/06 HAVE BEEN RECONCILED AS U NDER : PARTICULARS AMOUNT (RS.) OPENING BALANCE AS ON 11/10/06 AS PER BANK STATEMENT 43, 05,244.55 ADD : CHEQUE DT. 12/10/06 DEPOSITED ON 11/10/06 5,50,000.00 48,55,244.55 LESS: CHEQUE PRESENTED FOR PAYMENT 13,00,000.00 CLOSING BALANCE AS ON 11/10/06 AS PER BANK STATEMENT (MARKED AS A-1) 35,55,244 .55 LESS : POST DATED VALUE CHEQUE 5,50,000.00 CLOSING BALANCE AS ON 11/10/06 (MARKED AS A-1) 30,05,244.55 [BEING THE CLEAR / USABLE BALANCE AVAILABLE ON THE NEXT DAY (I.E. ON 12/10/06) AS RECORDED IN COLUMN I ON A SIDE OF THE LOOSE SHEET] 72. WE HAVE ALSO VERIFIED THE ENTRIES AND WE FIND T HAT THE ENTRIES RECORDED ON PAGE 40 OF ANNEXURE A-3/O-2 RELATE TO THE BANK A CCOUNT WITH HDFC BANK LUDHIANA. THE CASH DEPOSITS TAKEN ON DIFFEREN T DATES TALLIED WITH THE BANK STATEMENT. FOR EXAMPLE ON 24 TH AUGUST, 2006 THE OPENING BALANCE IS I.T.A.NOS.4576, 4577 & 4578/DEL/2010 101 RS.14,43,739.55 WHICH IS CLOSING BALANCE ON 23 RD AUGUST, 2006. THE DEPOSIT OF RS.7,00,000/- ON 23 RD AUGUST WHICH IS MENTIONED ON 24 TH AUGUST SUGGESTING THAT THE ACCOUNTANT WAS ASCERTAINING THE AVAILABILITY OF CASH FOR THE USE. SIMILARLY THE CASH DEPOSITS AS PER THESE ENTRIES ARE REFLECTED IN THE BANK ACCOUNT. THE ASSESSEE HAS EXPLAINED THE ENTRI ES THE MANNER IN WHICH THE ACCOUNTANT WAS RECORDING ON THE PAGE. THEREFOR E, THE ENTRIES RECORDED ARE IN RESPECT OF AVAILABILITY OF CASH FOR USE IN H DFC BANK LUDHIANA AND DO NOT REPRESENT CASH AVAILABLE WITH THE ASSESSEE AS A LLEGED BY THE AO. WE THEREFORE, ARE IN AGREEMENT WITH THE CONTENTION OF THE ASSESSEE THAT THE ENTRIES RECORDED ON PAGE 40 TO ANNEXURE A-3/O-2 ARE IN RESPECT OF HDFC BANK LUDHIANA. THE ACCOUNTANT HAS MADE ENTRIES IN ORDER TO KNOW THE AVAILABILITY OF CASH ON A PARTICULAR DATE. ACCORDI NGLY, NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE. THE ASSESSING OF FICER HAD NOT REFERRED THE PAGE 40 FOR HAND WRITING EXPERT TO KNOW AS TO WHO H AS MADE ENTRIES ON THIS PAGE. THE OPINION OF THE ASSESSING OFFICER THAT HAN D WRITING TALLIES WITH THAT OF SH. DHARAM PAL GULATI IS ONLY GUESS OR JUST PRES UMPTION OF THE ASSESSING OFFICER. WE ACCORDINGLY DELETE THIS ADDITION. 73. NEXT ISSUE FOR CONSIDERATION RELATES TO ADDITIO N OF RS.11 CRORES FOR DISCREPANCY IN CLOSING STOCK. DURING THE COURSE OF SEARCH CERTAIN PAPERS I.T.A.NOS.4576, 4577 & 4578/DEL/2010 102 WERE FOUND. THE AO REQUIRED THE ASSESSEE TO EXPLAI N SOME OF THE WORDS AND FIGURES MENTIONED AGAINST STOCK OF AMCHOOR, A NARDANA AND AJWAIN. IT WAS STATED BY THE ASSESSEE THAT ANNEXURE CONTAINED PROJECTIONS OF EXPECTED SALES IN KGS. AND THE POSITION OF STOCK WHETHER IT WAS SURPLUS OR DEFICIT. IT WAS STATED THAT THOSE SIGN (+) MEANS EXCESS EXPECTE D STOCK. FINALLY IT WAS STATED THAT SINCE THESE WERE EXPECTED FIGURES, THES E WERE NOT ENTERED IN THE BOOKS OF ACCOUNT. THIS REPLY OF THE ASSESSEE WAS C ONSIDERED BY THE AO AS SELF-SERVING REPLY. HE OBSERVED THAT ON THE SEIZED PAPERS NOTHING LIKE PROJECTIONS ETC. WAS MENTIONED. THEREFORE, THE REP LY OF THE ASSESSEE WAS REJECTED AS NO EVIDENCE WAS FILED IN SUPPORT OF THE CONTENTION OF THE ASSESSEE. AS REGARDS PAGES 78 TO 82 OF ANNEXURE A -6/O-1 IT WAS EXPLAINED BY THE ASSESSEE THAT SAID PAGES WERE PRINT OUT OF S TOCK SUMMARY FOR A.Y. 2005-06 IN RESPECT OF KIRTI NAGAR FACTORY. IT WAS STATED THAT THE STOCK REGISTER WAS PRODUCED. HOWEVER, THE AO OBSERVED TH AT NO SUCH ENTRIES WERE RECORDED ON THE NOTE-SHEET. THEREFORE, THE ASSESSE E COULD EASILY ATTACH THE COPIES OF FOUR PAGES OF THE STOCK REGISTER IN SUPPO RT. THE AO THEREFORE, TREATED THE BUNCH OF PAPERS 78 TO 82 AS UNEXPLAINED . AS REGARDS PAGE 87 OF ANNEXURE A-8/O-1 THE ASSESSEE WAS ASKED TO RECONCIL E THE STOCK AS ON 30.10.2006 FOR VARIOUS ITEMS LIKE AGARBATTI (54 CAS ES), DHOOP FANCY (3084 CASES), HAWAN (375 CASES), MANJAN (76 CASES), MEHAN DI (58 CASES),PAPAD (1 I.T.A.NOS.4576, 4577 & 4578/DEL/2010 103 CASE), POUCH (461 CASES), POUCH FANCY (213 CASES), SACHETTES (115 CASES), SOYA TIN (400 CASES) TOTALLING 4837 CASES. THE AS SESSEE GAVE THE SIMILAR REPLY AS WAS GIVEN IN RESPECT OF PAGES 78-82 OF ANN EXURE A-6/O-1. THE AO AGAIN REJECTED THE EXPLANATION OFFERED BY THE ASSES SEE. AS REGARDS ANNEXURE A-4/O-2 IT WAS BUNCH OF 147 PAPERS. PAGE NOS. 39 TO 47 CONTAINED SUMMARY AS ON 18.01.2006. THE STOCK WAS 4495 CASES. HOWEV ER, PAGES 45 O 47 SHOWED A STOCK OF 5801 CASES AS ON 20.11.2007 AND A S ON 26.10.2008 5001,569 PIECES. THE ASSESSEE GAVE THE REPLY AS IN RESPECT OF PAGES 78 TO 82. DURING THE COURSE OF SEARCH THERE WAS HUGE DIS CREPANCIES ALLEGED TO HAVE BEEN DETECTED DURING PHYSICAL STOCK TAKEN BY T HE SEARCH PARTIES IN THE FACTORIES AT KIRTI NAGAR, GURGAON, GHAZIABAD ETC. STOCK OF RAW-MATERIAL AND WORK IN PROGRESS WHICH WAS MORE THAN THAT DISCLOSED IN THE BOOKS OF ACCOUNT WHICH WAS CONFRONTED TO THE DIRECTOR SHRI RAJIV GUL ATI WHO HAD AGREED TO THE DISCREPANCIES AND HAD SURRENDERED RS.10 CRORES IN A.Y. 2007-08 ON ACCOUNT OF SUCH DISCREPANCIES. ANOTHER QUESTION WA S PUT TO SHRI RAJIV GULATI ACCORDING TO WHICH (QUESTION NO.22) WHILE CO NDUCTING SEARCH AND SURVEY OPERATIONS AT THE BUSINESS PREMISES SOME PAP ERS/DOCUMENTS, RECORDS/COMPUTER ETC. CONTAINING INCRIMINATING DOCU MENTS WERE FOUND WHICH WERE RELATED TO THE BUSINESS TRANSACTIONS. AFTER E XAMINING THE RECORD IT WAS FOUND THAT NONE OF BUSINESS TRANSACTIONS WERE REFLE CTED IN THE BOOKS OF I.T.A.NOS.4576, 4577 & 4578/DEL/2010 104 ACCOUNT. SHRI RAJIV GULATI AFTER GOING THROUGH THE RECORDS ACCEPTED THAT THERE WAS SOME DISCREPANCY AND HE OFFERED A SUM OF RS. ONE CRORES TOWARDS SUCH DISCREPANCIES. THUS SHRI RAJIV GULATI SURREND ERED RS.11 CRORES TOWARDS DISCREPANCY IN STOCK. 74. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE AMOUNT OF RS.10 CRORES AND RS.ONE CRORES MAY NOT BE ADDED BACK TO THE INCOME OF THE A.Y. 2007-08. T HE ASSESSEE WAS ALSO ASKED TO TALLY THE STOCK LYING AT EVERY WORK PLACE INCLUDING GODOWN, FACTORY, DISTRIBUTORS, WORK-IN-PROGRESS, COLD STORAGE, SALE OUTLET ETC. AS ON THE DATE OF SEARCH I.E. 22.11.2006. THE ASSESSEE VIDE LETTER D ATED 28 TH OCTOBER, 2009 STATED THAT THERE WAS NO DISCREPANCY IN THE CLOSING STOCK. THERE WAS NO BRANCH IN GHAZIABAD WHICH WAS ALSO MENTIONED ALONG WITH FACTORY AT GURGAON AND KIRTI NAGAR FACTORIES. IT WAS SUBMITTE D THAT THERE WAS MENTAL PRESSURE EXERTED BY THE INCOME-TAX AUTHORITIES DURI NG THE COURSE OF SEARCH TO EXTRACT SURRENDER. THE ASSESSEE REFERRED TO QUESTI ON NOS. 21 TO 23. THE ASSESSEE RETRACTED THE SURRENDER. SHRI RAJIV GULAT I WAS NOT INFORMED AS TO HOW THE VALUATION OF INVENTORIES WAS PREPARED I.E. WHETHER IT WAS ON MRP OR AT COST. MANY COLD STORAGES WERE NOT SURVEYED OR S EARCHED WHERE THE GOODS WERE KEPT. THE ASSESSEE CONTENDED THAT THERE WAS N O DISCREPANCY IN THE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 105 STOCK. THE AO REFERRED TO PROVISIONS OF SEC. 292C OF THE ACT. HE OBSERVED THAT THERE WAS PRESUMPTION THAT THE MATERIAL FOUND IN THE SEARCH BELONGED TO THE ASSESSEE AND CONTENTS OF THE SAME ARE TRUE AND ONUS WAS ON THE ASSESSEE TO PROVE OTHERWISE. AS REGARDS MENTIONING OF GHAZI ABAD FACTORY ALONG WITH GURGAON AND KIRTI NAGAR FACTORY, THE AO NOTED THAT IT WAS A MISTAKE IN TYPING. SUCH MISTAKE COULD NOT VITIATE THE PROCEED INGS AND ALSO HAD NO IMPACT ON ADMISSION OF THE ASSESSEE REGARDING THE S URRENDERING OF STOCK VALUING RS.11 CRORES DUE TO DISCREPANCIES FOUND. T HE AO THEREFORE, ADDED THE AMOUNT OF RS.11 CRORES RS.10 CRORES TOWARDS S TOCK AND RS.1 CRORE TOWARDS DISCREPANCIES. 75. THE DRP REJECTED THE OBJECTION RAISED BY THE AS SESSEE ON THE GROUND THAT THE OBJECTIONS RAISED BY THE ASSESSEE WERE OF GENERAL NATURE AND WERE NOT SUBSTANTIATED BEFORE THEM. 76. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMIT TED THAT THE DRP REJECTED THE OBJECTIONS OF THE ASSESSEE BY SIMPLY M ENTIONING THAT THE OBJECTION WAS GENERAL AND WAS NOT SUBSTANTIATED BY THE ASSESSEE WHICH IS INCORRECT ASSERTION. THE ASSESSEE HAS RAISED OBJEC TION TO THIS FINDING OF THE DRP VIDE LETTER DATED 22 ND SEPTEMBER, 2010, A COPY OF WHICH IS PLACED AT I.T.A.NOS.4576, 4577 & 4578/DEL/2010 106 PAGES 1060-1062 OF THE PAPER BOOK INDICATING THE EV IDENCES PLACED ON THE RECORD OF DRP BY THE ASSESSEE TO SUBSTANTIATE ITS C ONTENTION. THUS, THE DRP REJECTED THE OBJECTIONS OF THE ASSESSEE WITHOUT CON SIDERING THE SUBMISSIONS OF THE ASSESSEE. AS REGARDS PAGE 3 OF ANNEXURE A-6 /O-1 IT WAS SUBMITTED THAT THE FIGURE RELATED TO EXPECTED DEMAND AND SUP PLY POSITION OF VARIOUS MASALAS NOTED DOWN BY THE PRODUCTION PERSONNEL TO P LAN THE PRODUCT-WISE PRODUCTION. THE AO BRUSHED ASIDE THE EXPLANATION O FFERED BY THE ASSESSEE AS SHAM EXPLANATION. AS REGARDS PAGE 78 TO 82 OF A NNEXURE A-6/O-1 THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE AO HA D NOTED THAT THERE WAS NOTHING ON RECORD TO SUGGEST THAT VERIFICATION HAD TAKEN PLACE SINCE THE ORDER-SHEET DID NOT RECORD SO. THE LEARNED AR OF T HE ASSESSEE SUBMITTED THAT THE ASSESSEE COULD NOT BE BLAMED FOR THE DEFAULT OR SLACKNESS ON THE PART OF THE AO TO MENTION IN THE ORDER-SHEET THAT THE SAID PAPERS WERE VERIFIED FROM THE RECORD. PAGE 87 OF ANNEXURE A-8/O-1 WAS SEIZED FROM THE FACTORY PREMISES OF MDH LTD. AT KIRTI NAGAR. THE ASSESSEE GAVE THE EXPLANATION VIDE LETTER DATED 26/12/2008. PAGE 39 TO 47 OF ANN EXURE A-4/O-2 WERE SEIZED FROM THE FACTORY PREMISES OF MDH GURGAON.. IT WAS RAW MATERIAL RECEIPT REGISTER MAINTAINED AT THE FACTORY ENTRANCE GATE AND WHICH WAS GOT MATCHED WITH THE PURCHASES BEFORE THE THEN AO. THU S THERE WAS NO DISCREPANCY IN THE CLOSING STOCK AS ON THE DATE OF SEARCH. NO DETAILS OF THE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 107 DIFFERENCE IN STOCK FOUND DURING THE COURSE OF SEAR CH HAVE BEEN MENTIONED. IT WAS SUBMITTED THAT IT WAS NOT UNDERSTOOD AS TO H OW THE EVIDENCE OF DISCREPANCY IN THE STOCK WAS BROUGHT TO THE RESIDEN CE OF SHRI RAJIV GULATI WHERE HE SURRENDERED THE AMOUNT OF RS.11 CRORES ON ACCOUNT OF DISCREPANCY IN STOCK. FURTHER THE SURRENDER WAS RETRACTED BY T HE DIRECTOR. MR. RAJIV GULATI WAS NOT INFORMED AS TO HOW THE VALUATION OF INVENTORY WAS PREPARED, WHETHER AT COST OR MRP. MANY COLD STORAGES WERE NO T SURVEYED OR SEARCHED WHERE THE GOODS WERE KEPT. THEN HOW THE DISCREPANC Y IN STOCK WAS COMPUTED WAS NOT UNDERSTOOD. THE STATEMENT OF SHRI RAJIV GULATI WAS RECORDED DURING THE COURSE OF SEARCH PROCEEDINGS ON 28.11.2006 WHEREIN REPLY TO QUESTION NO.20, HE STATED THAT HE WAS MISL ED WITH THE PRESSURE AND PRESUMPTION THAT THERE WAS DISCREPANCY IN THE STOCK . A GENERAL QUESTION WAS PUT WITH NO ACTUAL FIGURES SUGGESTING THAT THE DISC LOSURE BE MADE TO CLOSE THE ISSUE THOUGH NO DISCREPANCY IN ANY PREMISES WAS POI NTED OUT IN THE FIGURES. IT HAS BEEN STATED THAT EVEN THOUGH SURRENDER OF RS .10 CRORES WAS MADE, THE AO WAS DUTY BOUND TO WORK OUT THE EXACT QUANTITY OF STOCK AS ON THE DATE OF SEARCH AND TO COMPARE THE SAME WITH THE STOCK RECOR DED IN THE BOOKS. HE SUBMITTED THAT ITAT IN ITS DECISION FOR A.Y. 2001-0 2 TO 2004-05 HAS HELD IN PARA 31 OF PAGE 25 THAT SURRENDER MADE BY THE DIREC TORS DURING THE COURSE OF SEARCH WAS RETRACTED IMMEDIATELY THEREAFTER. IF TH E REVENUE WANTED TO RELY I.T.A.NOS.4576, 4577 & 4578/DEL/2010 108 ON THE SURRENDER MADE BY THE DIRECTORS, NECESSARY E VIDENCE SHOULD HAVE BEEN BROUGHT ON RECORD TO JUSTIFY THE SURRENDER MAD E BY THE ASSESSEE. IN VIEW OF ABOVE, IT HAS BEEN PLEADED THAT NO ADDITION CAN BE MADE ON ACCOUNT OF SURRENDER MADE BY THE DIRECTOR. THE ASSESSEE PL ACED RELIANCE ON INSTRUCTION F.NO.286/2/2003-IT (INV.II) OF CBDT ISS UED ON 10 TH MARCH, 2003. ON THE OTHER HAND LD. CIT(DR) SUBMITTED TH AT THE ASSESSEE DURING THE COURSE OF SEARCH HAD ADMITTED UNDISCLOSED INCOM E IN THE GROUP TO THE EXTENT OF RS.51 CRORES. HOWEVER, THE ASSESSEE AND ITS DIRECTORS HAVE RETRACTED THE SURRENDER MADE DURING THE COURSE OF S EARCH U/S 132(4). IT WAS SUBMITTED THAT ONCE SURRENDER HAS BEEN MADE, RETRAC TION IS NOT PERMITTED IN VIEW OF THE JUDICIAL PRONOUNCEMENTS. HE PLACED REL IANCE ON THE DECISION OF KERALA HIGH COURT IN THE CASE OF CIT VS. O ABDUL RA ZAK (2012) 20 TAXMANN.COM 48 (KER.) FOR THE PROPOSITION THAT VOL UNTARY SURRENDER MADE COULD NOT BE RETRACTED. THE RETRACTION MADE BY THE ASSESSEE WAS A SELF SERVING AND AFTERTHOUGHT AND NO RELIANCE COULD BE P LACED ON THE SAME TO DISBELIEVE CLEAR ADMISSIONS MADE IN STATEMENT RECOR DED UNDER SEC. 132(4) OF THE ACT. HE ALSO PLACED RELIANCE ON THE DECISION O F ALLAHABAD HIGH COURT IN THE CASE OF DR. S.C. GUPTA VS. CIT, 248 ITR 782 FOR THE PROPOSITION THAT AN ADMISSION IS EXTREMELY IMPORTANT PIECE OF EVIDENCE THOUGH NOT CONCLUSIVE AND THEREFORE, THE STATEMENT MADE VOLUNTARILY BY TH E ASSESSEE COULD FORM I.T.A.NOS.4576, 4577 & 4578/DEL/2010 109 BASIS OF STATEMENT. HE ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF CIT VS. KARAN KHANDELWAL 2012-TIOL-319-HC-DEL-IT FOR TH E PROPOSITION THAT ONUS PLACED BY THE REVENUE NEED NOT NECESSARILY BE DISCHARGED BY PRODUCING DIRECT EVIDENCE OF THE ASSESSEE HAVING RE CEIVED MORE THAN THE CONSIDERATION DISCLOSED IN THE SALE DOCUMENTS. THE HONBLE DELHI HIGH COURT HAS HELD THAT THE CONTENTION OF THE REVENUE T HAT THE ASSESSING OFFICER MAY NOT ALWAYS BE IN A POSITION TO PRODUCE DIRECT E VIDENCE TO THIS EFFECT. THE ONUS PLACED ON REVENUE CAN BE DISCHARGED BY EST ABLISHING FACTS AND CIRCUMSTANCES, FROM WHICH IT COULD BE REASONABLY IN FERRED THAT THE OSTENSIBLE CONSIDERATION WAS NOT THE REAL CONSIDERATION AND TH AT THE ASSESSEE HAD, IN FACT, RECEIVED AN AMOUNT HIGHER THAN THE AMOUNT DIS CLOSED BY HIM IN THE SALE DOCUMENTS, AND CONSEQUENTLY THERE WAS UNDERSTATEMEN T OR CONCEALMENT OF THE CONSIDERATION. THE LEARNED CIT-DR ON THE RETRAC TION OF ADMITTED INCOME ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS:- (I) ACIT VS. ESPRESSO INVESTMENTS, 8 SOT 287 (MUM.). (II) MANMOHAN SINGH VIG VS. DCIT, 6 SOT 18 (MUM.). 77. WE HAVE HEARD BOTH THE PARTIES. DURING THE COU RSE OF SEARCH SHRI RAJIV GULATI SURRENDERED THE AMOUNT OF RS.10 CRORES TOWARDS DIFFERENCE IN STOCK AND RS.1 CRORE ON ACCOUNT OF CERTAIN DISCREPA NCIES. THUS THE TOTAL I.T.A.NOS.4576, 4577 & 4578/DEL/2010 110 AMOUNT SURRENDERED WAS RS.11 CRORES. DURING THE CO URSE OF SEARCH INVENTORY OF STOCK LYING IN DIFFERENT PREMISES I.E . FACTORY AT KIRTI NAGAR, GURGAON COLD STORAGE, GODOWN ETC WAS MADE. AS PER S TOCK INVENTORY SO MADE THE HAD TOTAL STOCK RS 13,04,15,172/-. THE AU THORIZED OFFICERS OBTAINED THE SURRENDER BY STATING THAT THERE WAS DI FFERENCE IN STOCK. THE CONTENTION OF THE ASSESSEE IS THAT DURING THE COURS E OF SEARCH SHRI RAJIV GULATI, DIRECTOR OF THE COMPANY WAS MISLED WITH THE PRESSURE DUE TO SEARCH OPERATION AND PRESUMPTION THAT THERE WAS A DISCREPA NCY IN THE STOCK. THE GENERAL QUESTION WAS PUT WITH NO FACTUAL FIGURES SU GGESTING THAT DISCLOSURE BE MADE TO CLOSE THE ISSUE WITHOUT POINTING OUT DIS CREPANCIES IN THE STOCK FOUND IN VARIOUS PREMISES. SHRI RAJIV GULATI HAD R ETRACTED THE SURRENDER ON 28.11.2006. 78. AS A NORMAL PRACTICE THE STOCK INVENTORY IS D ONE AT THE TIME OF SEARCH AND SURVEY AND THE DIFFERENCE IF ANY IS WORKED OUT ON THE BASIS OF SUCH INVENTORY. IN THE CASE OF ASSESSEE NO DISCREPANCY O N THE BASIS OF SUCH INVENTORY OF STOCK OF THE ASSESSEE AT VARIOUS PREMI SES WAS MADE. THE ASSESSEE HAS RELIED ON CBDT INSTRUCTION NO. F.NO.28 6/2/2003-IT (INV.II) DATED 10-3-2003 WHICH READS AS UNDER:- I.T.A.NOS.4576, 4577 & 4578/DEL/2010 111 INSTANCES HAVE COME TO THE NOTICE OF THE BOARD WHE RE ASSESSEES HAVE CLAIMED THAT THEY HAVE BEEN FORCED T O CONFESS THE UNDISCLOSED INCOME DURING THE COURSE OF THE SEA RCH & SEIZURE AND SURVEY OPERATIONS. SUCH CONFESSIONS, I F NOT BASED UPON CREDIBLE EVIDENCE, ARE LATER RETRACTED BY THE CONCERNED ASSESSEES WHILE FILING THE RETURNS OF INCOME. IN T HESE CIRCUMSTANCES, SUCH CONFESSIONS DURING THE COURSE O F SEARCH & SEIZURE AND SURVEY OPERATIONS DO NOT SERVE ANY USEF UL PURPOSE. IT IS, THEREFORE, ADVISED THAT THERE SHOULD BE FOCU S AND CONCENTRATION ON COLLECTION OF EVIDENCE OF INCOME W HICH LEADS TO INFORMATION ON WHAT HAS NOT BEEN DISCLOSED OR IS NOT LIKELY TO BE DISCLOSED BEFORE THE INCOME-TAX DEPARTMENT. SIM ILARLY, WHERE RECORDING STATEMENT DURING THE COURSE OF SEAR CH & SEIZURE AND SURVEY OPERATIONS NO ATTEMPT SHOULD BE MADE TO OBTAIN CONFESSION AS TO THE UNDISCLOSED INCOME. AN Y ACTION ON THE CONTRARY SHALL BE VIEWED ADVERSELY. FURTHER, IN RESPECT OF PENDING ASSESSMENT PROCEEDI NGS ALSO ASSESSING OFFICER SHOULD RELY UPON THE EVIDENC ES/MATERIALS GATHERED DURING THE COURSE OF SEARCH AND SURVEY OPE RATIONS OR THEREAFTER WHILE FRAMING THE RELEVANT ASSESSMENT OR DERS. FROM THE PERUSAL OF INSTRUCTION NO.286 IT IS CLEAR THAT IN THE ABSENCE OF ANY DISCREPANCY IN INVENTORY, NO ADDITION CAN BE MADE. AS THE FIGURES OF DISCREPANCY ARE NOT AVAILABLE WITH THE DEPARTMENT A ND THE DIRECTOR OF THE ASSESSEE COMPANY HAS RETRACTED FROM THE SURRENDER M ADE BY HIM ON ACCOUNT OF STOCK DIFFERENCE, NO ADDITION CAN BE MADE ON THE BASIS OF STATEMENT RECORDED U/S 132(4) OF THE ACT. IF THE AO WANTED T O ADD THE AMOUNT OF RS.11 CRORES ON ACCOUNT OF STOCK INVENTORY, HE SHOU LD HAVE BROUGHT MATERIAL ON RECORD. IN THE ABSENCE OF SUCH MATERIAL, IN OUR CONSIDERED OPINION, NO ADDITION CAN BE MADE. WE, THEREFORE, DELETE THE AD DITION. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 112 79. NEXT ISSUE FOR CONSIDERATION RELATES TO ADDITIO N OF RS.73,000/- ON THE BASIS OF STATEMENT OF ASSISTANT ACCOUNTANT OF M/S. SATVIK TRADERS. SURVEY UNDER SEC.133A WAS CONDUCTED AT THE PREMISES OF M/S . SATVIK TRADERS, 6680 KHARI BAOLI, DELHI. STATEMENT OF SHRI P.C. SATI, A SSISTANT ACCOUNTANT ON OATH HAD ACCEPTED THAT ADVANCES WERE RECEIVED FROM THE CUSTOMERS AND THE SAME WERE NOT ENTERED IN THE BOOKS. AT PAGE 9 OF TH E STATEMENT HE ACCEPTED THAT RS.73,000/- WAS ACCEPTED AS ADVANCE ON 21.11.2 006. FURTHER HE ADMITTED THAT THIS AMOUNT OF RS.73,000/- WAS UNACCO UNTED FOR. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE AMOUNT OF RS.73,000/- SHOULD NOT BE ADDED AS INCOME OF THE ASSESSEE. IT WAS SUBMITT ED BY THE ASSESSEE THAT M/S. SATVIK TRADERS WAS NOT CONCERN OF THE ASSESSEE . IT WAS NO CONCERN OF THE ASSESSEE WHETHER M/S. SATVIK TRADERS HAD ACCEPT ED THE SUM AS ADVANCE WITHOUT RECORDING THE SAME IN THEIR BOOKS OR NOT. THE STATEMENT OF SHRI P.C. SATI WAS RECORDED BECAUSE HE WAS LOOKING AFTER THE ACCOUNTS OF SATVIK TRADERS AND HE HAPPENED TO BE THERE DURING THE SURV EY. THE AO HOWEVER, TREATED THE REPLY OF THE ASSESSEE AS NOT CORRECT. HE MADE THE ADDITION OF RS.73,000/-. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 113 80. THE ASSESSEE OBJECTED TO THE DRP. HOWEVER, THE DRP REJECTED THE OBJECTION RAISED BY THE ASSESSEE ON THE GROUND THAT IT WAS OF GENERAL NATURE AND NO EVIDENCE WAS BROUGHT ON RECORD IN SUPPORT OF THE CONTENTION OF THE ASSESSEE THAT THE ADDITION WAS NOT TO BE MADE IN TH E HANDS OF THE ASSESSEE. 81. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMIT TED THAT THE ASSISTANT ACCOUNTANT OF M/S. SATVIK TRADERS WAS NOT AUTHORIZE D TO GIVE STATEMENT ON BEHALF OF THE ASSESSEE. FURTHER NO CROSS-EXAMIANTI ON OF THE SAID PERSON WAS ALLOWED TO THE ASSESSEE. STATEMENT OF THIRD PARTY HAS BEEN RELIED UPON WITHOUT CROSS EXAMINATION, THAT TOO AS REGARDS M/S. SATVIK TRADERS, A SEPARATE ASSESSEE. THE PREMISES WHERE SURVEY TOOK PLACE DO NOT BELONG TO THE ASSESSEE. THEREFORE, NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE. 82. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ACCOUNTANT OF M/S. SATVIK TRADERS HAD STATED THAT HE WAS ACCEPTING CERTAIN AMOUNT WITHOUT RECORDING I T IN THE BOOKS OF ACCOUNTS. IF THAT IS THE CASE, ADDITION SHOULD BE MADE IN THE HANDS OF M/S. SATVIK TRADERS AND NOT IN THE HANDS OF THE ASSESSEE . NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT THE AMOUNT OF RS .73,000/- WAS PAID BY THE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 114 ASSESSEE TO M/S. SATVIK TRADERS WITHOUT RECORDING T HE SAME IN THE BOOKS OF ACCOUNT. IT IS A SETTLED LAW THAT THIRD PARTY EVIDE NCE CANNOT BE BASE OF ADDITION UNLESS CROSS EXAMINATION IS ALLOWED. THE A SSESSEE CANNOT BE CONDEMNED WITH HEARING. IN THE ABSENCE OF ANY SUCH EVIDENCE/CROSS EXAMINATION, IN OUR CONSIDERED OPINION NO ADDITION CAN BE MADE. ACCORDINGLY, WE DELETE THE ADDITION OF RS.73,000/-. 83. THE LAST ISSUE FOR CONSIDERATION WHICH IS COMMO N IN ALL THE THREE YEARS RELATES TO ADDITION ON ACCOUNT OF ARMS LENGTH PRIC E. THE ASSESSEE FILED FORM NO.3CEB SHOWING TOTAL VALUE OF FOREIGN TRANSA CTION OF RS.4,05,75,626/- IN ASSESSMENT YEAR 2005-06, RS.4,0 5,75,626/- IN A.Y. 2006-07 AND RS.8,89,40,732/- IN A.Y. 2007-08. THE AO REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER FOR DETERMINATION O F ARMS LENGTH PRICING ON 22.12.2008 AFTER OBTAINING THE PERMISSION FROM THE COMMISSIONER OF INCOME-TAX, CENTRAL-I, NEW DELHI. THE TRANSFER PRI CING OFFICER DETERMINED VIDE ORDER U/S 92C(3) DATED 23 RD OCTOBER, 2009 DIRECTING THE ASSESSING OFFICER THAT ARMS LENGTH PRICING SHOWN BY THE ASSE SSEE FOR EXPORT TO THE ASSOCIATED ENTERPRISES, BE INCREASED BY RS.52,91,98 6/- IN A.Y. 2005-06, RS.1,12,52,632/- IN A.Y. 2006-07 AND RS.5,14,66,456 /- IN A.Y. 2007-08. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE ON 3 0-10-2009 ADMITTED THAT I.T.A.NOS.4576, 4577 & 4578/DEL/2010 115 COPY OF THE SAID ORDER HAD BEEN RECEIVED BY THE ASS ESSEE. THE AO FURTHER NOTED THAT TRANSFER PRICING OFFICER HAS OBSERVED TH AT NO DOCUMENTATION HAS BEEN PRESCRIBED UNDER SUB-RULE 10D(1)(E) TO10D (1)( M) COULD BE FILED. NO TRANSFER PRICING STUDY/WORKING IN REGARD TO THE INT ERNATIONAL TRANSACTIONS WAS UNDERTAKEN AND MOST OF METHOD CLAIMED TO HAVE B EEN APPLIED AND REPORTED IN FORM NO.3CED HAS BEEN GIVEN. THE AO BA SED ON THE REPORT OF THE TPO MADE ADDITION IN RESPECTIVE ASSESSMENT YEAR S. 84. BEFORE DRP THE ASSESSEE FILED OBJECTIONS TO THE ADDITIONS. THE DRP UPHELD THE ADDITIONS WORKED OUT BY THE TPO. 85. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMIT TED THAT THE DRP HAS BRUSHED ASIDE ALL THE OBJECTIONS RAISED BY THE ASSE SSEE REGARDING THE APPROVAL OF THE DIT, REFERENCE TO CIRCULAR, METHOD ADOPTED B Y THE TPO FOR COMPUTING ALP ETC. AND HAS REJECTED THE OBJECTION OF THE ASSE SSEE MERELY BY STATING THAT THE ASSESSEE HAS MADE GENERAL SUBMISSIONS REGARDING THE ALP DETERMINED BY THE TPO AND HAS NOT POINTED OUT ANYTHING ON THE BAS IS OF WHICH ORDER OF THE TPO COULD BE FAULTED WITH. THE DRP HAS REFERRED ON LY ONE OF THE SUBSIDIARIES I.E. MARK AND SPICES LTD. AND HAS NOT REFERRED TO THE OTHER SUBSIDIARY COMPANY IN ITS ORDER. THUS, THE DIRECTI VE ORDER IS DEVOID OF MERIT I.T.A.NOS.4576, 4577 & 4578/DEL/2010 116 AND THE ASSESSMENT PASSED ON THE BASIS OF SUCH ORDE R SHOULD BE CANCELLED. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE ASSESSEE HA D RAISED AN OBJECTION REGARDING NON-DISPOSAL OF ALL THE OBJECTIONS BEFORE THE DRP VIDE LETTER DATED 22/09/2010. 86. THE LEARNED AR OF THE ASSESSEE FURTHER SUBMITTE D THAT PROPER APPROVAL FROM THE DIT (TP) HAS NOT BEEN TAKEN BY THE AO AS C AN BE SEEN FROM THE LETTERS PLACED ON RECORD AT PAGES 737-742 OF THE PA PER BOOK. ON PERUSAL OF THE SAME, IT WOULD BE SEEN THAT THE DRAFT ORDER PAS SED UNDER SEC. 92CA(3) WAS FOR APPROVAL VIDE LETTER DATED 23/10/2009 WHERE AS THE APPROVAL WAS GRANTED BY THE DIT (TP)-I REFERRING TO LETTER DATED 22.10.2009. THE ONUS IS ON THE REVENUE TO PROVE THAT THE SAME WAS TYPOGRAPH ICAL ERROR WHICH COULD BE JUST FOR ONE YEAR AND NOT FOR ALL THE THREE YEAR S. THE LEARNED AR OF THE ASSESSEE FURTHER SUBMITTED THAT SUCH A MISTAKE SHOW S THAT NO APPLICATION OF MIND BY THE DIT (TP) WAS THERE AND ONLY IN A MECHAN ICAL MANNER THE APPROVAL LETTERS WERE ISSUED FOR ALL THE THREE YEAR S. THIS FACT WAS LEARNT BY THE ASSESSEE ONLY ON INSPECTION UNDERTAKEN ON ITS B EHALF ON 09-03-2010. HE FURTHER SUBMITTED THAT IT IS A LEGAL OBJECTION WHIC H GOES TO THE ROOT OF THE SUBJECT AND THUS CAN BE RAISED AT ANY TIME IN ASSES SMENT PROCEEDINGS. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 117 87. IT HAS FURTHER BEEN SUBMITTED THAT THE TRANSFER PRICING PROCEEDINGS INITIATED AND UNDERTAKEN ARE BAD IN LAW AND ON FACT S FOR THE SPECIFIC REASONS MENTIONED BELOW ALSO COMMUNICATED TO THE TPO VIDE L ETTER DATED 12/01/2009 BESIDES OTHER REASONS SUBMITTED LATER ON AND MUST BE TAKEN ON RECORD UNDER SEC. 292BB OF THE ACT:- (I) THE SAME WAS REFERRED IN RESPECT OF SOME NAME, WHIC H WAS A NON- EXISTENT ASSESSEE. (II) THE SAME DID NOT REFER TO EACH TRANSACTION FOR WHIC H ARMS LENGTH PRICE WAS TO BE DETERMINED. (III) THE SAME WAS REFERRED ONLY FOR THE SAKE OF SEEKING EXTENSION OF THE LIMITATION TO COMPLETE THE ASSESSMENT BY 31/12/ 2008. (IV) THE REFERENCE WAS ALSO NOT ENTERPRISES SPECIFIC. (V) THE INTERNATIONAL TRANSACTIONS WERE LESS THAN RS.5 CRORES OF WHICH NO REFERENCE WAS DESIRED AS PER THE INSTRUCTION NO. 3 DATED 20/05/2003 OF THE CBDT PLACED AT PAGES NO.722-724 O F THE PAPER BOOK AS FOLLOWED IN THE DECISION OF SONY INDIA (P) LTD. VS. CBDT (2007) 288 ITR 52 (DEL.). 88. FURTHER THE ASSESSEE IS DEALING IN A NUMBER OF PRODUCTS HAVING DIFFERENT VARIETIES, RATES, PACKING, PROPORTION OF SPICES BLENDED THEREIN, COST I.T.A.NOS.4576, 4577 & 4578/DEL/2010 118 ETC. A NUMBER OF ITEMS HAVING DIFFERENT VALUE AND PACKING ARE BILLED TOGETHER IN AN EXPORT INVOICE. HOWEVER, THE TP OFF ICER MADE THE ADDITION BY COMPUTING THE AVERAGE RATE OF CARTON (BY DIVIDING T HE TOTAL VALUE OF INVOICE WITH TOTAL NUMBER OF CARTONS) IGNORING THAT THE SAI D CARTONS DOES NOT HAVE SAME/COMPARABLE ITEMS (PAGES 933-955 OF THE PAPER B OOK). THE SAID AVERAGE WAS THEN COMPARED WITH THE AVERAGE COMPUTED FOR THE BILLS RAISED ON UNCONTROLLED PARTY DURING THE SAME PERIOD AND TH EN THE DIFFERENCE THEREIN WAS MULTIPLIED WITH THE NUMBER OF CARTONS TO ARRIVE AT THE AMOUNT OF ADDITION. THUS THE TP OFFICER HAS COMPARED TWO INC OMPARABLE FIGURES TO ARRIVE AT ARMS LENGTH PRICE WHICH IS NOT PERMISSIBL E AT ALL. THE TPO WAS DUTY BOUND TO CONSIDER THE RATES OF EACH PRODUCT AS GIVEN IN THE BILLS, COPIES OF WHICH WERE PLACED ON HIS RECORD AND WERE ALSO EX AMINED BY HIM AS IS MENTIONED IN HIS ORDER. THE TRANSFER PRICING ORDER COMPUTING THE ARMS LENGTH PRICE AT A HIGHER FIGURE THAN THE ACTUAL FIG URES IS BAD IN LAW AND ON FACTS AS THE SAME DOES NOT CONSIDER THE FACT THAT T HE ENTIRE ARMS LENGTH SALES WAS MADE TO WHOLLY OWNED SUBSIDIARIES OF THE ASSESS EE WHICH WERE WORKING AS AN EXTENSION OF THE ASSESSEE FOR FURTHER SALES O F THE PRODUCE AND NOT AS COMPETITOR OF THE OVERSEAS BUYERS. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 119 89. IT IS ON RECORD THAT THE SAID SUBSIDIARIES WERE NOT SELLING PRODUCE OF ANY OTHER COMPANY THOUGH THE OTHER BUYERS WERE SELL ING OTHER PRODUCTS ALSO. THEY WERE TRYING TO ESTABLISH NEW MARKETS FOR THE A SSESSEE. ALL THE EXPENSES OF THOSE SUBSIDIARIES WERE TO BE MET BY THEMSELVES OUT OF MARGIN TO BE RETAINED BY THEM FROM THE SALES BECAUSE AS PER THE DIRECTIONS OF THE RESERVE BANK OF INDIA PERMITTING THOSE SUBSIDIARY COMPANIES , ALL EXPENSES OF THOSE COMPANIES WERE TO BE MET BY THEM. (RBI PERMISSION ON PAGE 798-801 OF PB). THE SAID PERMISSION LETTER WAS PLACED ON RECO RD OF THE TRANSFER PRICING OFFICER VIDE LETTER DATED 14/10/09, COPY PLACED ON PAGE 796-797 IN PB). PHOTOCOPIES OF THE ANNUAL ACCOUNTS OF THE SUBSIDIAR Y COMPANY WERE PLACED ON RECORD AT PAGES NO.802 TO 827 OF PB ENCLOSED WIT H THE LETTER DATED 14/10/09. ON PERUSAL OF THE ANNUAL ACCOUNTS IT WOU LD BE SEEN THAT THE EXPENSES INCURRED BY THE SAID AE WERE IN THE RANGE OF 17 TO 20% OF THE SALES THERE AND THE PROFITS WERE IN THE RANGE OF 4.5 TO 6 % OF THE SALES THERE AND WHICH WAS ITS MARGIN ON INVESTMENT. INCURRENCE OF ALL THESE EXPENSES WAS THE SOLE RESPONSIBILITY OF THE ASSESSEE AS IT WAS T HE ASSESSEE WHO WAS ESTABLISHING ITS OWN MARKETING SETUP THERE. THUS M ORE DISCOUNTS WAS GIVEN TO THE ASSOCIATED ENTERPRISE WHO WERE CATERING TO T HE SMALL RETAIL OUTLETS OVERSEAS AS COMPARED TO THE NON AES WHO WERE THE LA RGE STORE CHAINS OVERSEAS AND COULD AFFORD TO BUY ONE CONTAINER LOAD GOODS AT A TIME. BUT THE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 120 SMALL RETAILERS WERE ALSO TO BE GIVEN THE SAME MARG IN AS THE BIG STORE CHAINS AS THE CONSUMER PURCHASES THE PRODUCE AT THE SAME R ATE FROM ANY NEAREST STORE AND MRP IS PRINTED ON EACH PACKET. IF THOSE S UBSIDIARIES HAD NOT BEEN OPENED BUT BRANCHES WERE OPENED, THEN THE EXPENSES INCURRED THERE WOULD HAVE BEEN MET BY THE ASSESSEE ONLY. THE TRANSFER PR ICING OFFICER/ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS IN IGNORING T HAT PRICING OF EXPORTS TO EACH COUNTRY VARIES DUE SEVERAL FACTORS, E.G., PACK ING SIZE AND QUALITY, FUMIGATION, SHELF LIFE, LOCAL FOOD CONTROL REGULATI ONS, ETC. IT IS WELL KNOW THAT THE RATE OF SUPPLIES FOR LARGE QUANTITIES IS ALWAYS LOWER THAN THE RATES AT WHICH SUPPLIES OF SMALL QUANTITIES ARE MADE. THE A ES WERE SUPPLIED A VERY LARGE QUANTITY AS COMPARED TO THE OTHER BUYERS. H OWEVER, NO CONSIDERATION HAS BEEN GIVEN FOR THE QUANTITY SUPPLIED TO AES AND NON AES WHILE COMPUTING THE ARMS LENGTH PRICE. 90. THE TRANSFER PRICING OFFICER/ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS IN REJECTING THE TNM METHOD OF COMPUTING T HE EXPORTS PRICE AND SUBSTITUTING THE SAME WITH CUP THOUGH IN THE CASE O F ASSESSEE TNMM IS THE MOST SUITABLE METHOD CONSIDERING THE FACTORS AND CI RCUMSTANCES OF THE WHOLLY OWNED SUBSIDIARIES OVERSEAS WHO ARE NOT UNDE RTAKING ANY BUSINESS OTHER THAN FOR THE GOODS SUPPLIED BY THE ASSESSEE A ND ARE WORKING TO I.T.A.NOS.4576, 4577 & 4578/DEL/2010 121 ESTABLISH NEW MARKET OVERSEAS FOR THE PRODUCTS OF T HE ASSESSEE AND ALL SUCH EXPENSES WERE THE SOLE RESPONSIBILITY OF THE ASSESS EE. IN NUTSHELL THE ENTIRE EXERCISE TO COMPUTE THE IMPUGNED ARMS LENGTH PRICE AND THE ALLEGED DIFFERENCE BY THE TPO IS INCORRECT AND MUST BE STRU CK DOWN. 91. ON THE OTHER HAND LD. CIT (DR) SUBMITTED THAT THE ASSESSEE HAD NOT GIVEN COMPARABLES ON THE PLEA THAT PRODUCT MIX W AS ENTIRELY DIFFERENT AND THERE WERE NO COMPARABLES IN PUBLIC DOMAIN. HE FURT HER SUBMITTED THAT FOR TNMM EACH TRANSACTION IS BENCH MARKED AND PROFITABI LITY IS TO BE DETERMINED. IN TP PROCEEDINGS THE STATUTORY BURDEN IS ON ASSESSEE TO PROVE THAT GOODS HAVE BEEN SOLD TO AE AT ARMS LENGTH PRIC E. FOR THIS PROPOSITION RELIANCE IS PLACED ON THE DECISION OF DELHI TRIBUN AL IN THE CASE OF PEROT SYSTEMS TSI (INDIA) LTD 5 ITR (TRIB)106 (DELHI). TH ERE IS NO LEGAL REQUIREMENT THAT THE ASSESSING OFFICER SHOULD PRIMA FACIE DEMONSTRATE THAT THERE IS TAX AVOIDANCE BEFORE INVOKING RELEVANT PRO VISIONS. HE PLACED RELIANCE ON THE DECISION OF SPECIAL BENCH OF ITAT I N THE CASE OF AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD 107 ITD 141 (BAN G)(SB). LD CIT (DR) FURTHER SUBMITTED THAT RBI IS NOT TP AUTHORITY AND HENCE THE RESTRICTIONS IMPOSED ON ASSESSEE FOR INVESTMENT IS NOT RELEVANT. THE PURPOSE FOR WHICH PERMISSION WAS GRANTED BY RBI IS ONLY CONCERNED WIT H FOREIGN EXCHANGE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 122 REGULATIONS AND NOT FOR ALP. HE PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V NESTLE INDIA LTD. 337 ITR 129. CHOICE OF DETERMINATION OF ALP IS NOT UNFETTERED CHOICE O N THE PART OF THE TAXPAYER AND THIS CHOICE IS TO BE EXERCISED ON THE TOUCH STO NE OF PRINCIPLES GOVERNING SELECTION OF MOST APPROPRIATE METHOD SET OUT IN SE CTION 92C (1). WHERE THE ASSESSING OFFICER FINDS THAT THAT SELECTION OF MOST APPROPRIATE IS NOT CORRECT, HE HAS THE POWERS AS WELL AS CORRESPONDING DUTY TO SELECT THE MOST APPROPRIATE METHOD AND COMPUTE ALP BY APPLY THAT ME THOD. IN THE ABSENCE OF ANY COMPARABLES FORTHCOMING FROM THE ASSESSEE ON THE FORM OF AN APPROPRIATE TP REPORT, AO HAS RIGHTLY ADJUSTED THE ALP AND MADE THE ADDITIONS. HE THEREFORE SUPPORTED THE ORDER OF ASSE SSING OFFICER. 92. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL ON RECORD. IN THIS CASE THE ASSESSEE HAS NOT GIVEN TP STUDY REPORT ON THE GROUND THAT THERE WAS NO PUBLIC DOMAIN COMPARABLE IN THE L INE OF THE BUSINESS OF THE ASSESSEE. THE TPO HAS DETERMINED ALP AND MADE THE ADDITION BY COMPUTING THE AVERAGE RATE OF CARTONS (BY DIVIDING THE TOTAL VALUE OF INVOICE WITH TOTAL NUMBER OF CARTONS) IGNORING THAT THE SAI D CARTONS DO NOT HAVE SAME/COMPARABLE ITEMS. IN OUR CONSIDERED VIEW THE ALP CANNOT BE DETERMINED WITHOUT PROPER COMPARABLES. WE ARE UNABL E TO AGREE WITH THE I.T.A.NOS.4576, 4577 & 4578/DEL/2010 123 CONTENTION THAT NO COMPARABLES ARE AVAILABLE IN PUB LIC DOMAIN. TO OUR UNDERSTANDING NEARLY SIMILAR TYPES OF SPICES, CONDI MENTS AND THEIR MIXTURES ARE SOLD BY OTHER BRANDS LIKE, EVEREST MASALA, RAMD EO MASALA, ASHOK MASALA AND OTHER MANUFACTURERS. WE ARE IN 2012 AND BY NOW PUBLIC DOMAIN COMPARABLES SHOULD BE ABUNDANTLY AVAILABLE. ANY ISS UE ABOUT THE YEAR CAN BE ADJUSTED BY THE TPO TO MAKE THE ALP WORKING REAS ONABLE TO THE POSSIBLE EXTENT. IN OUR VIEW FRESH TP STUDY FOR DETERMINATIO N OF A FAIR ALP SHOULD BE THE PROPER SOLUTION UNDER THESE CIRCUMSTANCES. CONS EQUENTLY WE SET ASIDE THE TP ADJUSTMENTS TO THE FILE OF AO TO UNDERTAKE THE S AME A FRESH IN ACCORDANCE WITH LAW AND IN THE LIGHT OF THESE OBSERVATIONS. 93. IN THE RESULT THESE APPEAL ARE ACCORDINGLY, PAR TLY ALLOWED FOR STATICALLY PURPOSES. 94. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 17.8. 2012. SD/- SD/- (R.P. TOLANI) (K.D. RANJAN) JUDICIAL MEMBER ACOUNTANT MEMBER DATED: 17.8. 2012. I.T.A.NOS.4576, 4577 & 4578/DEL/2010 124 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.