THE ACIT CEN CIR-13, MUMBAI V. SHRI SURESH V. JAIN, MUMBAI

ITA 5091/MUM/2007

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 3995 (ITAT-MUMBAI)
• Duration Of Justice: 12 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2005-2006
• Appeal Filed On: 25-07-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L K S DEHIYA
• Keywords: Unexplained cash credit; Rejection of books of accounts; Unexplained investment; Business income; Search and seizure; Loose papers; Document seized; Principle of natural justice; Maximum Marginal Rate; Question of law; Corroborative evidences; Block assessment; Reason to believe; Documents seized; Reassessment proceedings; Set aside
• Section: 40A(3); 143(3); 133A; 153A; 250; 64; 44AB; 158BC; 43; 48; 73; 72; 13; 22; 153C; 147; 131; 132

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI S . RIFAUR RAHMAN, AM & SHRI RAM LAL NEGI , JM ./ I.T.A. NO . 5091 / MUM/ 2007 ( / ASSESSMENT YEAR: 20 05 - 06 ) DCIT CC - 13, OLD CGO BUILDING, M. K. ROAD, MUMBAI - 400 020 / VS. SHRI SURESH V. JAIN, C/O - CHANDAN PARMAR& CO. OFFICE NO. 1, 3 RD FLOOR, CHAMAN CHAMBERS, CINEMA LANE, NEAR METRO CINEMA, MUMBAI - 400 020 ./ ./ PAN NO. A A UPJ 3284 B ( / APPELLANT ) : ( / RESPONDENT ) AND ./ I.T.A. NO . 4198 / MUM/ 2007 & CROSS OBJECTION NO. 261/MUM/2007 ( / ASSESSMENT YEAR: 20 05 - 0 6 ) SHRI SURESH V. JAIN, C/O - CHANDAN PARMAR& CO. OFFICE NO. 1, 3 RD FLOOR, CHAMAN CHAMBERS, CINEMA LANE, NEAR METRO CINEMA, MUMBAI - 400 020 / VS. DCIT CC - 13, OLD CGO BUILDING, M. K. ROAD, MUMBAI - 400 020 ( / APPELLANT ) : ( / RESPONDENT ) 2 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN / APPELLANT BY : SHRI L. K. S. DEHIYA, DR / RESPONDENTBY : SHRI RAJIV KHANDELWAL, AR / DATE OF HEA RING : 19.11 .2019 / DATE OF PRONOUNCEMENT : 10.12.2019 / O R D E R PER S. RIFAUR RAHMAN (ACCOUNTANT MEMBER) : THE ABOVE TWO APPEAL S HAVE BEEN FILED BY THE REVENUE AND ASSESSEE AGAINST THE ORDER OF COMMIS S IONER OF INCOME TAX (APPEALS) - CENTRAL VII , MUMBAI, DATED 24.05.2007 FOR AY 20 05 - 06 RESPECTIVE LY AND FURTHER CO FILED BY THE ASSESSEE AGAINST THE GROUND NO. (II) OF THE APPEAL FILED BY THE REVENUE. 2. SINC E THE ISSUES RAISED IN BOTH THE APPEALS AND CO ARE IDENTICAL, THEREFORE, FOR TH E S AKE OF CONVENIENCE, THESE APPEALS /CO ARE CLUBBED, HEARD AND DISPOSED OF BY THIS CONSOLIDATED ORDE R. 3 . THE BRIEF FACT S OF THE CASE ARE, ASSESSEE IS AN INDIVIDUAL, RUNNING A PROPRIETARY CONCERN UNDER THE NAME AND STYLE OF M/S RAJGURU BULLIONS PVT. LTD. WHI CH WAS ENGAGED IN THE BUSINESS OF TRADING IN GOLD AND SILVER BULLION. 3 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN ITS HEAD OFFICE IS SITUATED AT JAIPUR AND BRANCHES ARE IN COIMBATORE, MUMBAI AND AHMEDABAD. 4. TWO PERSONS NAMELY SHRI AMRIT MALI AND SHRI JAL A RAM TOLAJIDEVASI WERE INTERCEPTED AT SANTACR UZ AIRPORT, MUMBAI ON 09.12.04 CARRYING 54 KG S OF GOLD BULLION AND WHEN ASKED ABOUT THE SOURCE OF GOLD, THE Y INFORMED THAT IT BELONGS TO THE ASSESSEE, THE PROPRIETOR OF M/S RAJGURU BULLION. CONSEQUENTLY, ACTION U/S 132(1) AND 133A WERE CARRIED OUT BY THE D EPARTMENT AT THE RESIDENCE PLACE AND OFFICE PREMISES OF THE ASSESSEE ON 09.12.04. IN THE ABOVE PROCEEDING, CASH OF RS. 6.5 LAKHS WAS SEIZED FROM THE OFFICE PREMISES OF THE ASSESSEE, APART FROM GOLD BULLION SEIZED AT AIRPORT, MUMBAI. APART FROM THE ABOVE, D EPARTMENT FOUND LOOSE PAPERS, DOCUMENTS AND BOOKS OF ACCOUNT FROM THE RESIDENCE AND OFFICE PREMISES OF THE ASSESSEE. 5. SUBSEQUENTLY, NOTICE U/S 153A WAS ISSUED AND SERVED ON THE ASSESSEE. IN RESPONSE, ASSESSEE FILED HIS RETURN OF INCOME ON 07.07.06 DISCL OSING LOSS OF RS. 1,75,90,920/ - . DURING THE ASSESSMENT PROCEEDINGS, AO OBSERVED THAT THE MAIN INCOME IS FROM BUSINESS OF PROPRIETARY CONCERN AND THE ABOVE BUSINESS WAS STARTED IN AROUND AUG, 2004 AND THE ASSESSEE IS A REGISTERED DEALER UNDER THE SALES TAX ACT. 4 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 6. AO COMPLETED THE ASSESSMENT U/S 153A R.W.S 143(3) OF THE ACT BY PRESUMING MODUS OPERANDI OF THE ASSESSEE WHICH HE HAS DISCUSSED IN HIS ORDER IN PARA NO. 3, WHICH IN SHORT, IN THE MONTH OF JUNE /JULY 2004, THE SALES TAX WAS REDUCED TO THE RANGE OF 0.01% TO 0.06% IN RAJASTHAN AND 0.25% IN GUJRAT AND PREVAILING SALES TAX RATE IN MAHARASHTRA WAS 1% AND OCTROI DUTY IS 0.10%. THEREFORE, HE PRESUMED A MODUS OPERANDI, WHICH ASSESSEE WOULD HAVE OPERATED I.E. A BULLION TRADER SAY A DECIDES TO PURCHASE GOLD BULLION FROM JAIPUR OR AHMDEDABAD AND TO SELL THAT IN MUMBAI IN CASH WITHOUT ANY BILL AT THE PREVAILING QUOTED RATE OF GOLD ON THAT DATED. THEN, HE BASICALLY EARNS DIFFERENCE OF SALES TAX. FOR THIS PURPOSE, THE ABOVE SAID TRADER EMPLOYS 2 TYPE OF PERSONS I.E. I ) A CARRIER (SAY C) AND II) A FACILITATOR (SAY B), WHO HAS A BANK FACILITY. WITH THE ABOVE PRESUMPTION, HE GAVE AN EXAMPLE IN HIS ORDER THAT IN THE MONTH OF DECEMBER 2004, THE RATE OF PURE GOLD WAS AROUND 6,50,000/ - PER KG. THE DIFFERENCE OF SALE TAX BETWEEN MUMBAI AND JAIPUR @0.94% COMES TO RS. 6,110 PER KG. THIS PROFIT WILL BE DISTRIBUTED BETWEEN ABOVE SAID 3 PERSONS. IN MOST OF THE CASES, C WILL GET TRANSPORT COST OF RS. 500 PER KG AND B WILL INCUR CERTAIN EXPENDITURE LIKE TICKETING CHARGES , STAY CHARGES AND BANK CHARGES, ETC, WHCH MAY BE AROUND OF RS. 1000 TO 1500 AND THE BALANCE PROFIT WHICH MAY BE AROUND 4000 TO 4500 COME TO THE TRADER A. ACCORDINGLY, 5 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN AO PRESUMED THAT THE ROLE OF B AND C IS PLAYED BY THE ASSESSE AND THE ROLE OF A IS PLAYED BY PUSHPAK BULLION PVT. LTD. HE CAME TO CONCLUSION WITH THE FOLLOWING OBSERVATIONS: - (I) THE CAPITAL OF SHRI SURESH V. JAIN IN THE BUSINESS OF GOLD IS ALMOST NIL. THE SOURCE OF CAPITAL FOR THE ALLEGED BULLION BUSINESS HAS BEEN TO THE TUNE OF RS.13 C R ORES ADVANCED BY M/S.PUSHPAK BULLION PVT.LTD. MR.KETAN SHROFF IN HIS STATEMENT RECORDED U/S.131 OF THE ACT HAS VOLUNTARILY OFFERED AN ADDITIONAL INCOME OF RS.2.50 CRORES ON PURCHASE AND SALE OF GOLDS DONE THROUGH SUCH BUSINESS INCLUDING FROM MONEY ADVANCED TO SHRI SURESH V. JAIN. (II) EVEN THOUGH IN HIS STATEMENT SHRI SURESH V. JAIN CATEGORICALLY STATED THAT HE HAS NOT MADE ANY PURCHASE OR SALES ON 9/12/2004 OR ISSUED ANY CHEQUE IN FAVOUR OF ANY PERSON, PURCHASE OF GOLD F OR MORETHAN RS. 11 CROR ES WAS MADE BY RAJGURU BULLION PVT.LTD. FROM ZAVERI & CO. AHMEDABAD, DELIVERY OF WHICH WAS TAKEN AND SOLD . CHEQUES OF MORE THAN RS.5. 80 CRORES DEPOSITED AND WITHDRAWN FROM HIS BANK ACCOUNTS IN 1CICI BANK IN MUMBAI. IT WAS STATED BY HIS FAMILY MEMBERS THAT SH RI S.V.JAIN DID NOT COME TO MUMBAI BETWEEN 29/11/2004 TO 9/12/2004 BUT HIS BANK ACCOUNTS AT MUMBAI SHOW DEPOSITS OF CASH AND ISSUE OF CHEQUES OF MORE THAN RS.50 CRORES DURING THIS PERIOD. SHRI SURESH JAIN ADMITTED HAVING GIVEN BLANK SIGNED CHEQUE TO OTHERS AT MUMBAI. THIS CLEARLY PROVES THAT HE WAS NOT THE ACTUAL OWNER OF THE BUSINESS BUT ONLY A FRONT MAN OR NAMELENDER. 7. FURTHER, AO COMPLETED THE ASSESSMENT BY RELYING SOLELY ON THE STATEMENT OF ASSESSEES SON SHRI KALPESH SURESH JAIN STATEMENT RECORDED U/ S 131 OF THE ACT, WHO HAS DISCLOSED THE NATURE OF THE BUSINESS OF HIS FATHER AND STATEMENT OF TWO CARRIERS WHO WERE INTERCEPTED IN MUMBAI AIRPORT AND FINALLY STATEMENT OF THE ASSESSEE. IN THE STATEMENT RECORDED BY THE ASSESSEE 6 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN WERE BROUGHT ON RECORD BY THE AO IN HIS ORDER IN PARA 2.5 OF THE ORDER, AS PER WHICH ASSESSEE HAS CONFIRMED THAT HE WAS IN THE BULLION TRADING BUSINESS AND HE BUYS GOLD BULLION AND SELLS THE SAME IN JAIPUR ITSELF IN CA S H AND THE GOLD BULLION WERE DELIVERED THROUGH T HE CARRIERS, ETC I N JAIPUR ITSELF ON THE SAME DAY OF PURCHASE AND COLLECTED THE CASH , THE SAME WERE DEPOSITED IN MUMBAI, SO THAT HE CAN PURCHASE THE GOLD BULLION FOR THE NEXT TRANSACTION. HE HAS EXPLAINED THE ENTRIES IN THE LOOSE PAPERS AND THE DIARY WHICH WAS CONFISCATED B Y THE DEPARTMENT DURING SEARCH. 8. FURTHER, AO REJECTED THE CONTENTIONS OF THE ASSESSEE THAT ASSESSEE HAS SOLD 623.42 CRORES IN JAIPUR BRANCH AND HE OPINED THAT ASSESSEE HAS PURCHASED THE GOLD BULLION IN JAIPUR AND SOLD THE SAME IN MUMBAI, BRINGING THE AB OVE GOLD TO MUMBAI AND SELLING IT IN CASH. THEREFORE, HE REJECTED THE CONTENTION OF THE ASSESSEE THAT IT HAS INCURRED LOSS IN THIS TRANSACTION AND WITH THE MODUS OPERANDI IN MIND, HE COMPLETED THE ASSESSMENT MAKING THE FOLLOWING ADDITIONS AS BELOW: - 6.2 AS DISCUSSED IN THE MODUS OPERANDI , THE ASSESSEE AS FRONT MAN IN THE ROLE OF B & C HAS EARNED RS.1.92 CRORES OUT OF PROFIT ON ACCOUNT OF CASH SALES AMOUNTING TO RS.623.42 CRORES I.E. RS.623.42 X 0.94% X 32.78% = 1.92 CRORES ( FOR JAIPUR PURCHASES). FOR AHMED ABAD PURCHASES, THE ASSES SEE HAS EARNED A PROFIT OF RS.5. 20 LAKHS I.E. 1.68 CRORES X 0.94% X 32.78% = 5.20 LAKHS. EVENTHE SHARE PROFIT OF TRADER I.E. OF A HAS TO BE INCLUDE D IN THE HANDS OF SHRI S.V.JAIN ON PROTECTIVE BASIS, WHICH IS COMPUTED AT 3.94 CRORE S AGAINST THE JAIPUR PURCHASES AND 7 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 10.74 LAKHS AGAINST AHMEDABAD PURCHASES. THE UN ACCOUNTED INVESTMENTS IN GOLD / BULLION OF 54 KGS. SEIZED IN MUMBAI HAS TO BE TAXED IN THE HANDS OF THE ASSESSEE. THE VALUE OF THE SAID BULLION IS RS.3.46 CRORES. DURING THE C OURSE OF SEARCH AT JAIPUR, SHRI SURESH V. JAIN I.E. ASSESSEE MADE DISCLOSURE OF ADDITIONAL INCOME OF RS.12.70 LAKHS. THE ASSESSEE HAS NOT GIVEN ANY LETTER RETRACTING THE STATEMENT. HOWEVER, IN THE RETURN OF INCOME, HE HA S ALSO NOT SHOWN ON THE ADDITIONAL I NCOME OF RS.12.70 LAKHS DISCLOSED AT JAIPUR. IN THE CIRCUMSTANCES, THE SAME IS ADDED TO THE TOTAL INCOME. SO THE TOTAL DISALLOWANCE IN THIS REGARD IS COMPUTED AS UNDER : (I) 1.92 CRORES + RS.3.94 CRORES = RS.5.86 CRORES (II) 0.05 CRORES:+ RS.0.1 0 CRORES = RS.0.15 CRORES 6.01 CRORES ADD : UNACCOUNTED INVESTMENTS IN GOLD 3.43 CRORES 9.47 CRORES 9. FURTHER, AO MADE ADDITION OF RS. 4,70,000/ - AS UNACCOUNTED COMMISSION INCOME IN THE HANDS OF THE ASSESSEE. 10. AGGRIEVED WITH THE ABOVE ORDER, ASSESSE E PREFERRED APPEAL BEFORE LD. CIT(A) AND MADE AN ELABORATE SUBMISSION ON THE FOLLOWING ISSUES: A) REJECTION OF BOOK RESULTS BY THE AO B) ADDITION OF RS. 1.97 CRORES ON SUBSTANTIVE BASIS AND ADDITION OF RS. 4.04 CRORES ON PROTECTIVE BASIS ON UNACCOUNTED PROFIT ON CASH SALES. C) ADDITION OF RS. 3.46 CRORES ON ACCOUNT OF ALLEGED UNEXPLAINED INVESTMENT IN THE SEIZED GOLD BULLION. D) UNDISCLOSED INCOME OF RS. 11.7 LAKHS. E) UNDISCLOSED INCOME OF RS. 4.50 LAKHS 8 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 11. THE ABOVE SUBMISSIONS OF THE ASSESSEE ARE REPRODUCED BELOW: - A) REJECTION OF BOOK RESULTS BY THE AO : 1. THE ASSESSEE SUBMITTED AS BELOW: 'AT THE OUTSET IT IS SUBMITTED THAT THE REJECTION OF BOOKS OF ACCOUNTS IS A SERIOUS MATTER. THE ASSESSING OFFICER MUST GIVE CLEAR FINDING AS 'TO WHY THE APPELLANT BOOKS OF ACCOUNTS CANNO T BE RELIED UPON. THE ASSESSING OFFICER IS DUTY BOUND TO POINT OUT SPECIFIC DEFECTS / DISCREPANCIES, IF ANY. THE ASSESSING OFFICER MUST GIVE A FINDING THAT THE DEFECTS / DISCREPANCIES POINT OUT ARE SO SERIOUS IN NATURE THATTHE CORRECT PROFITS CANNOT BE WOR KED OUT FROM THE BOOKS OF ACCOUNTS OF THEAPPELLANT. IT IS ONLY AFTER GIVING SUCH A FINDING THAT THE ASSESSING OFFICER CAN REJECT BOOKS OF ACCOUNTS AND ESTIMATE GROSS PROFIT. THE APPELLANT'S CONTENTIONS ARESUPPORTED BY FOLLOWING DECISIONS IN THE CASE OF CI T V/S. JAYALAKSHMI TRADING CO. TAX LR 349, 352 (MAD) THE TRIBUNAL WAS HELD JUSTIFIED IN ALLOWING THE ASSESSEE'S APPEAL ON THE GROUND OF THE ABSENCE OF A SPECIFIC FINDING ON THE PART OF INCOME TAX OFFICER THAT THE TRUE PROFITS COULD'NOT BE ASCERTAINED FROM T HE METHOD OF ACCEPTING ADOPTED BY THE ASSESSEE. IN THE CASE OF ALUMINIUM INDUSTRIES PVT. LTD. VS C1T 80 TAXMANN 184 (GAUB) THETRIBUNAL WAS HELD NOT JUSTIFIED IN LAW IN UPHOLDING THE ADDITION OF RS.50,000 TO THE BOOK PROFITS OF THE ASSESSEE ON THE ONLY PREM ISES THAT THE GROSS PROFIT WAS LOW WITHOUT GIVING A SPECIFIC FINDING THAT THE ACCOUNTS OF THE ASSESSEE WERE NOT CORRECT AND COMPLETE AND/OR THAT THE INCOME COULD NOT 9 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN BE PROPERLY DEDUCED FROMTHE ACCOUNTING METHOD EMPLOYED BY THE ASSESSEE. IN VIEW OF ABOVE I T IS SUBMITTED THAT WITHOUT GIVING A CLEAR AND SPECIFIC FINDING THE ASSESSING OFFICER CANNOT REJECT BOOKS OF ACCOUNTS AND MAKE AN ADDITION ONACCOUNT OF ESTIMATED GROSS PROFIT. APART FROM ABOVE THE REJECTION OF BOOKS OF ACCOUNTS AND DISALLOWANCE OF THE LOSS IS UNWARRANTED AND UNJUSTIFIED FOR FOLLOWING AMONGST OTHER REASONS THE ACCOUNTS OF THE APPELLANT ARE AUDITED U/S 44AB OF INCOME TAX ACT 1961. AUDITED ACCOUNTS CANNOT BE REJECTED UNLESS SOME GLARING DEFECTS OR SOME SERIOUS DISCREPANCIES WERE NOTICED OR POI NTED OUT BY THE LD. AO. YOUR HONOUR'S KIND ATTENTION IS INVITED TO THE DECISION OF THE DELHI HIGH COURT IN ADDL. C/T DELHI 11 V.JAY ENGINEERING WORKS LTD. (113 ITR 389) WHEREIN IT/S HELD BY THE H'BLE DELHI HIGH COURT THAT WHERE BOOKS OF ACCOUNTS WERE DESTR OYED BY FIRE THE IT IS QUITE COMPETENT FOR THE INCOME TAX AUTHORITIES NOT ONLY TO ACCEPT THE AUDITORS' REPORT BUTALSO TO DRAW THE PROPER INFERENCE FROM THE SAME AND ALLOW DEDUCTIONS CLAIMED ON THE BASIS OF THE AUDIT REPORT. THE FACTS OF THE PRESENT CASE AR E STILL BETTER AS BOTH AUDITED REPORT AS ALSO THE AUDITED BOOKS OF ACCOUNTS ARE AVAILABLE BEFORE THE LD. AO. FOR VERIFICATION. THE REJECTION OF BOOKS OF ACCOUNTS UNDER THE CIRCUMSTANCES IS NOT AT ALL WARRANTED OR JUSTIFIED. COMPLETE DETAILS OF GOODS PURCHA SED AND SOLD WERE SUBMITTED TO THE LD. AO. COMPLETE QUANTITATIVE DETAILS OF GOODS TRADED HAVE BEEN .GIVEN IN THE TAX AUDIT REPORT. NO DISCREPANCIES WERE NOTICED / POINTED OUT IN THE DETAILS SUBMITTED BY THE APPELLANT. THERE IS NOT A 10 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN SINGLE GRAM DIFFERENCE IN THE QUANTITATIVE DETAILS OF GOODS TRADED. CO MPLETE BOOKS OF ACCOUNTS INCLUDING STOCK BOOKS WERE PRODUCED BEFORE THE AO AND VERIFIED BY HIM. THE COMPLETE STOCK BOOK IS ENCLOSED HEREWITH AND MARKED E XHIBIT B. NO DEFECTS OR DISCREPANCIES HAVE BE EN POINTED O UT IN THE BOOKS OF ACCOUNTS. ALL PURCHASES AND SALES BILLS WERE FOUND AND SEIZED DURING THE COURSE OF THE SEARCH. PRESUMPTION U/S. 132(4A) IS THAT WHATEVER FOUND DURING THE COURSE OF THE SEARCH IS CORRECT AND MUST BE ACCEPTED AS CORRECT. IT IS THEREFORE SU BMITTED THAT THE SALES AND PURCHASES BILLS MUST BE ACCEPTED AS CORRECT AND THE LOSS AS PERBOOKS OF ACCOUNTS MUST BE ACCEPTED AS CORRECT. CONFIRMATION LETTERS OF ALL THE MAJOR SUPPLIERS WERE FILED BEFORE THE AO. THE AO HAS NOT POINTED OUT ANY DEFECT IN THE CONFIRMATION LETTERS FILED. THE AO HAS NOT POINTED OUT EVEN A SINGLE RUPEE DIFFERENCE IS THE PURCHASES OF THE APPELLANT. THE SALES BILLS WERE FOUND AND SEIZED DURING THE COURSE OF THE SEARCH. THE SALES REGISTER WAS PRODUCED BEFORE THE LD. AO. THE LD. AO DI D NOT FIND DIFFERENCE OF EVEN A SINGLE RUPEE IN THE SALES RECORDED IN THE BOOKS OF ACCOUNTS. THERE WAS NOT EVEN A SINGLE INSTANCE OF ANY UNACCOUNTED SALES. THE LD. AO HAS ALSO NOT ALLEGED THAT THE PURCHASES OR THE SALES OF THE APPELLANT ARE NOT PROPERLY AC COUNTED. THE FACT THAT THE GOODS WERE PURCHASED AT PRICE FIXED IN ADVANCE FOR DELIVERY AT A LATER DATE IS CONFIRMED BY THE STATEMENT OF ONE OF THE DIRECTOR OF MAJOR SUPPLIER NAMELY M/S. PU S HPAK BULLION PVT. LTD PLEASE SEE EXHIBIT J). IN A STATEMENT RECORDE D U/S. 131 THE DIRECTOR OF M/S. PUSHPAK BULLION PVT. LTD. SHRI KETAN SHROFF HAS 11 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN CONFIRMED THAT THE GOODS WERE SOLD AT A PRICE FIXED IN ADVANCE FOR DELIVERY ON A FUTURE DATE. IN SUCH CASES IF THE RATES OF BULLION FALL SUBSEQUENT TO THE PRICE ALREADY FIXED T HEN THE APPELLANT IS BOUND TO SUFFER A LOSS'. THE APPELLANT HAS ALSO RELIED ON VARIOUS CASE LAWS AND HAS AGREED THAT THE REJECTION OF BOOKS OF ACCOUNTS IS NEITHER WARRANTED NOR JUSTIFIED. THE APPELLANT HAS FURTHER STATED THAT SINCE THE AO HAS NOT GIVEN ANY REASONS FOR REJECTION OF BOOKS OF ACCOUNTS OR POINTED OUT ANY DISCREPANCIES IN THE BOOKS OF ACCOUNTS OR DETAILSFILED AND SINCE THE COMPLETE DETAILS INCLUDING QUANTITATIVE DETAILS OF STOCK HAVEBEEN GIVEN THE LOSS AS CLAIMED MAY BE ALLOWED. 2. ON NON MAINT ENANCE OF BOOKS : ASSESSEE SUBMITTED AS BELOW: 1. 'AS REGARDS THE CONTENTIONS OF THE AO THAT THE APPELLANT HAS NOT MAINTAINED BOOKS OF ACCOUNTS OF ACCOUNTS IT/S SUBMITTED THAT NOT ONLY THE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED BUT WERE UPTO DATE AS ON THE DATE OF SEARCH. ALL SALES AND PURCHASES BILLS HAVE BEEN SEIZED. THE PHOTOCOPIES OF THESE SEIZED DOCUMENTS WERE NOT GIVEN TO THE APPELLANT. YET THE APPELLANT WAS ABLE TO COMPLETE BOOKS OFACCOUNTS, DRAW FINANCIAL STATEMENTS AND FILE RETURN OF INCOME ALONGWIT H THESE FINANCIAL STATEMENTS. THIS CLEARLY PROVES THAT NOT ONLY T HE APPELLANT HAD MAINTAINED BOOKS OF ACCOUNTS BUT THE BOOKS OF ACCOUNTS WERE WRITTEN UPTO THE DATE OF SEARCH. 2. IT IS FURTHER SUBMITTED THAT MOST OF THE BOOKS OF ACCOUNTS INCLUDING PURCHASES REGISTER; SALES REGISTER, STOCK REGISTER, SALES INVOICES AND PURCHASES INVOICES WERE 12 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN FOUND AND SEIZED BY THE INCOME TAX DEPARTMENT AND ARE STILL LYING WITH THEM. THECOPIES OF PANCHNAMA FOR SEIZURE OF BOOKS, DOCUMENTS OTHER LOOSE PAPER / DOCUMENTS ARE ENCLO SED HEREWITH. ANNEXURE WISE AND PAGE WISE (WHERE APPLICABLE) EXPLANATION FOR THE SEIZED DOCUMENTS ARE ALSO ENCLOSED HEREWITH. IT CAN BE SEEN THAT FOLLOWING BOOKS / DOCUMENTS WERE SEIZED DURING THE COURSE OF THE SEARCH WHICH CLEARLY INDICATES THAT THE BOOKS OF ACCOUNTS WERE MAINTAINED. OUT OF DOCUMENTS /BOOKS SEIZED FROM GANPATI PLAZA, JAIPUR ANNX. NO. PAGE NOS. EXPLANATION A - 1 THIS IS STOCK REGISTER FOR FINANCIAL YEAR 2004 - 05. THIS IS PART OF REGULAR BOOKS OF ACCOUNTS AND AS SUCH ACCOUNTED FOR. A - 2 THIS IS PURCHASE REGISTER FOR FINANCIAL YEAR 2004 - 05. THIS IS PART OF REGULAR BOOKS OF ACCOUNTS AND AS SUCH ACCOUNTED FOR._ A - 3 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE, DELIVERY CHALLANS AND COPIES OF CHEQUES / PAY ORDER ISSUED FOR PURCHASES. ALL THE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 13 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN A - 4 THIS IS SALES REGISTER FOR FINANCIAL YEAR 2004 - 05. THIS IS PART OF REGULAR BOOKS OF ACCOUNTS AND AS SUCH ACCOUNTED FOR. A - 5 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE AND DELIVERY CHALLANS. ALL THE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 6 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE AND DELIVERY CHALLANS. ALL THE PURC HASER, ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 7 TO A - 15 THESE FILES CONTAIN SALES BILLS FOR THE - FINANCIAL YEAR 2004 - 05. ALL THE SALES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 16 THIS FILE CONTAINS BILLS IN RESPECT O' THE PURCHASES MADE AND DELIVERY CHALLANS. ALL THE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 17 1 - 8 THESE ARE SALES TAX FORMS, BRANCH TRANSFER MEMOS AND DELIVERY CHALLANS IN RESPECT OF THE GOODS PROPOSED TO BE TRAN SFERRED TO BRANCH OFFICE AT COIMBATORE. THE GOODS WERE TO BE TRANSFERRED F R OM STOCK IN TRADE AVAILABLE. THE CORRESPONDING PURCHASES MADE FROM ZAVERI& CO. AND OSWAL TRADING CO. ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 14 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 1 2 - 33 THESE ARE CASH M EMOS IN RESPECT OF THE SALES MADE. AL! THESE BILLS ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 34 - 36 THESE ARE DELIVERY CHALLANS IN RESPECT OF THE PURCHASES MADE FROM M/S. ZAVERI& CO. AHMEDABAD. ALL THESE PURCHASES ARC - ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 18 1 - 80 THESE ARE CASH MEMOS IN RESPECT OF THE SALES MADE. ALL THESE BILLS ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 81 THIS IS PURCHASE BILL IN RESPECT OF THE PURCHASES M ADE FROM OSWAL TRADING CORPORATION. THIS BILL IS ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 83 THIS IS PURCHASE BILL IN RESPECT OF THE PURCHASES MADE FROM OSWAL TRADING CORPORATION. THIS BILL IS ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNT S. 84 - 85 THESE ARE DELIVERY CHALLANS IN RESPECT OF THE PURCHASES MADE FROM M/S. ZAVERI& CO. AHMEDABAD. ALL THESE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 15 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 90 - 92 THIS IS STOCK REGISTER FOR THE PERIOD 4.12.2004 - 6.12.2004. THIS STOCK REGISTER IS PART OF REGULAR BOOKS OF ACCOUNTS AND AS SUCH ACCOUNTED FOR. 93 - 94 THESE ARE BILLS IN RESPECT OF THE PURCHASES MADE FROM M/S. PUSHPAK BULLION PVT. LTD. ALL THESE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BO OKS OF ACCOUNTS. OUT OF D O CUMENTS /BOOKS SEIZED FROM BAN, PARK. JAIPUR ANNX. NO. PAGE NOS. EXPLANATION A - 2 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE AND DELIVERY CHALLANS. ALL THE PURCHASES ARE ACCOUNTED FOR IN THE REGUL AR BOOKS OF ACCOUNTS. A - 9 3 - 7 THIS IS THE STOCK TRANSFER MEMO. THE STOCK TRANSFER MEMO BEARS UNIQUE SERIAL NOS. WHICH AR E ALSO ETCHED ON THE GOODS FOUND AND SEIZED. THIS PROVES BEYOND ALL REASONABLE DOUBTS THAT THE GOODS FOUND AND SEIZED ON 9.12 .2004 ARE PART OF STOCK IN TRADE. THESE GOODS WERE TO BE TRANSFERRED FROM JAIPUR TO BRANCH AT COIMBATORE. A - 10 5 THIS IS MEMO FOR STOCK TRANSFER TO BRANCH AT COI MBATORE. THE STOCK WAS 16 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN INTENDED TO BE TRANSFERRED FROM STOCK IN HAND WHICH WAS OUT OF PURCHA SES MADE FROM ZAVERI& CO. AND M/S. OSWAL 13 - 14 THIS IS STOCK REGISTER FOR 7.12.2004 . THIS STOCK REGISTER IS PART OF REGULAR BOOKS OF ACCOUN TS AND AS SUCH ACCOUNTED FOR 15 - 69 THESE ARE SALES BILLS FOR THE FINANCIAL YEAR 2004 - 05. ALL THE SALES ARE ACC OUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS FROM THE ABOVE IT I S VERY CLEAR THAT THE REGULAR BOOKS OF ACCOUNTS WERE MAINTAINED AND MANY OF THESE BOOKS OF ACCOUNTS ARE PART OF THE DOCUMENTS FOUND AND SEIZED DURING THE COURSE OF THE SEARCH. 3. AS REGARDS R EJECTION OF LOSS AS CLAIMED IN THE RETURN OF INCOME THE ONLY REASONS GIVEN BY THE LD. AO IS THAT / HAVE NOT BEEN ABLE TO IDENTIFY THE BUYERS IN RESPECT OF THE CASES SALES MADE BY ME. IT IS SUBMITTED THAT EACH AND EVERY CASH MEMOS CONTAINS THE NAME AND ADDR ESS OF THE BUYER AND HENCE THIS OBSERVATION OF THE LD. AO IS NOT CORRECT. IT IS FURTHER SUBMITTED THAT THE ISSUE OF NON - MENTION OFADDRESSES OF PURCHASERS IN CASH TR ANSACTIONS CAME UP BEFORE THE HON BLE MUMBAI HIGH COURT. IT WAS HELD BY THE H'BLE MUMBA, HIG H COURT IN R.B. JESSARAMFATECHAND V. CIT [1970] 75 ITR 33 (BORN.) THAT IN THE CASE OF A CASH TRANSACTION WHERE DELIVERY OF GOODS IS TAKEN AGAINST CASH PAYMENT, IT IS HARDLY, NECESSARY FOR THE SELLER TO BOTHER ABOUT THE NAME AND ADDRESS OF THE PURCHASER. AC CORDINGLY, IN SUCH CASES, 17 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN THE ACCOUNT BOOKS OF THE ASSESSEE CANNOT BE REJECTED MERELY ON THE GROUND THAT HE ADDRESSES OF THE PURCHASERS ARE NOT MENTIONED IN THE CASE OF CASH TRANSACTIONS. SIMILAR JUDGEMENT HAS BEEN DELIVERED BY THE PUNE BENCH OF ITA T IN A SSTT. CIT V. MAHESH T. PATODIA [2001] 79 LTD 40 (PUNE) WHEREIN IT IS HAS BEEN HELD THAT ABSENCE OF NAME AND ADDRESSES OF PURCHASERS IN RESPECT OF CASH SALES COULD NOT BE CONSIDERED AS A FACTOR FOR APPLICATION OF PROVISO TO SECTION 145(1). IT WASFURTHER HEL D THAT WHERE ALL PURCHASES AND SALES WERE FULLY VOUCHED, QUANTITY TALLY IN RESPECT OF EACH BILL WAS AVAILABLE AND STOCK REGISTER WAS MAINTAINED IN RESPECT IF EACH COUNT OF YARN, IF WOULD NOT BE HELD THAT PROFITS COULD NOT BE DEDUCED HORN ACCOUNTS MAINTAINE D BY ASSESSEE. THE ISSUE OF REJECTION OF BOOKS OF ACCOUNTS CAME UP BEFORE THE SPECIAL BENCH OF ITAT IN SHANKER RICE CO. V. /TO [2000] 72 ITD 139/110 TAXMAN 62 (MAG.) (ASR.) (SB). THE SPECIAL BENCH OF ITAT HELD THAT PROVISO TO SECTION 145(1) IS TO BE APPLIE D ONLY ON THE BASIS OF THE POSITIVE MATERIAL AND EVIDENCE IN POSSESSION OF THE DEPARTMENT AND NOT ON THE BASIS OF ANY SURMISES AND CONJECTURES. WHERE ACCOUNTS ARE AUDITED AND PROPER BOOKS OF ACCOUNT ARE MAINTAINED PROVISO TO SECTION 145(1) CANNOT BE INVOKE D. IN RESPECT OF APPLICATION OF PROVISO TO SECTION 145(1), THE BENCHES AT AMRITSAR AND CHANDIGARH HAVE BEEN CONSISTENTLY TAKING THE VIEW THAT THE SAME CANNOT BE INVOKED WHERE THE ACCOUNTS ARE AUDITED, PROPER BOOKS OF ACCOUNT ARE MAINTAINED, STATUTORY REGIS TERS AND RECORDS AS REQUIRED BY THE STATE GOVERNMENT ARE KEPT AND NO DEFECT IS POINTED OUT EITHER IN THE BOOKS OF ACCOUNT OR THE STATUTORY REGISTERS 18 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN MAINTAINED. THE SPECIAL BENCH FURTHER HELD THAT IT WOULD BE GREAT HARDSHIP TO AN ASSESSEE CARRYING ONA PART ICULAR TRADE IF HIS TRADING RESULTS ARE REJECTED AND PROVISO TO SECTION 145(1) IS APPLIED JUST BECAUSE SOME OTHER ASSESSEE IN THE SAME TRADE IS SHOWING SOMETHING MORE, MAY BE EVEN LESS THAN I PER CENT SIMILARLY THE AHMEDABAD BENCH OF ITAT HAS HELD IN PUSHP ANJALIDYEING & PRINTING MILLS (P.) L TD. V. IT. CIT [2001] 72 TTJ (A HD.) 886 HELD THAT WHERE COMPLETE BOOKS OF ACCOUNT HAVE BEEN MAINTAINED AND DULY AUDITED THERE WILL BE NO JUSTIFICATION FOR REJECTION OF ACCOUNT MERELY BECAUSE THERE WAS DECLINE IN GROSS PR OFIT AND NET PROFIT RATE THE DELHI BENCH OF THE ITAT HAS HELD IN STEEL HOME V. ASSIT. CIT [1999] 69 LTD 240 (DELHI) THAT THE ACCOUNTS MAINTAINED HAVE TO BE ACCEPTED AS CORRECT UNLESS THERE ARE REASONS TO HOLD THAT THEY ARE UNRELIABLE; IN CASE OF LATTER IT IS NOT OPEN TO THE ASSESSING OFFICER TO DISCARD THE BOOKS OF ACCOUNT ALTOGETHER. THE RATIO OF ABOVE JUDGEMENTS ARE DIRECTLY APPLICABLE TO THE FACTS OF MY CASE AND THEREFORE IT IS SUBMITTED THAT THE DISALLOWANCE OF THE LOSS AS CLAIMED IS NOT WARRANTED. 12. AFTER CONSIDERING THE SUBMISSION OF ASSESSEE, LD. CIT(A) REJECTED THE FINDINGS OF AO AND ALLOWED THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD WITH THE FOLLOWING FINDINGS: - 6. 5. I HAVE CAREFULLY CONSIDERED THE FINDINGS OF THE AO. 19 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN I HAVE ALSO CONSIDERE D THE EXPLANATION FILED BY THE ASSESSEE DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND THE SUBMISSIONS MADE D URING THE COURSE OF THE APPELLATE PROCEEDINGS. I HAVE CONSIDERED THE VARIOUS CASE LAWS CITED BY THE APPELLANT. I PERUSED THE DETAILS FILED BY THE APPELLANT IN THE PAPER BOOK INCLUDING THE AUDITED ACCOUNTS AUDIT REPORT AND THE STOCK BOOK. THE TRADING ACCOUNT CONTAINS ONLY TWO ITEMS PURCHASES AND SALES. 6.6 THE FACT OF THE MATTER IS THAT THE PURCHASES OF THE APPELLANT ARE FULLY VERIFIABLE AND BEYON D ANY COMPLETE D ETAILS OF PURCHASES ARE FILED BY THE APPELLANTINCLUDING THE CONFIRMATION OF ALL SUPPLIERS. ALL THE PAYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUES. I HAVE PERUSED THE ENTIRE ASSESSMENT ORDER AND FIND NO DISCUSSION ON ACCOUNT OF ANY DEFECTS OR DI SCREPANCIES IN THE AUDITED STATEMENT OF ACCOUNTS OR BOOKS OF ACCOUNTS OR THE DETAILS FILED DURING THE COURSE OF THE ASSESSMENT. THE SALES AND PURCHASES BILLS WERE FOUND AND SEIZED DURING THE COURSE OF THE SEARCH. THE PRESUMPTION U/S 132(4A) WHICH IS NOW APP LICABLE TO THE ASSESSMENT PROCEEDINGS ALSO IS THAT WHATEVER FOUND DURING THE COURSE OF THE SEARCH IS TRUE IS CLEARLY APPLICABLE. UNDER THE CIRCUMSTANCES THE PURCHASES OF THE APPELLANT HAVE TO BE ACCEPTED AS CORRECT. 6.7 THE FACT THAT THE GOODS WERE PURCHAS ED AT PRICE FIXED IN ADVANCE FOR DELIVERY AT A LATER DATE IS CONFIRMED BY THE STATEMENT OF ONE OF THE DIRECTOR OF MAJOR SUPPLIER NAMELY M/S. PU S HPAK BULLION PVT. - LTD.IN A STATEMENT RECORDED U/S. 131 THE DIRECTOR OFM/S. PUSHPAK BULLION PVT. LTD. SHRI KETAN SHROFF HAS CONFIRMED THAT THE GOO D S WERE SOLD AT A PRICE FIXED IN ADVANCE FOR DELIVERY ON A FUTURE DATE. IN SUCH CASES IF THE RATES OF BULLION FALL SUBSEQUENT TO THE PRICE ALREADY FIXED THEN THE APPELLANT IS BOUND TOSUFFER A LOSS. THUS THE REASONS FOR THE LOSSES GIVEN BY THE APPELLANT HAVE BEEN CONFIRMED BY OTHER EXTERNAL SOURCES IN A STATEMENT RECORDED BY THE 20 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN DEPARTMENT. THIS IS AN INDEPENDENT CONFIRMATION OF THE REASONS GIVEN BY THE APPELLANT FOR INCURRING LOSSES OTHER THAN WHAT IS REFLECTED IN THE AUDIT ED BOOKS OF ACCOUNTS. ITIS FURTHER SEEN FROM THE STOCK REGISTER PRODUCED BEFORE ME THAT ON 1.12.2004 THE APPELLANT H A D PURCHASED 145 KGS. OF GOLD BULLION FROM M/S. PUSHPAK BULLION PVT. LTD. AT RS. 6,61 000 PER KG. HOWEVER THE SALES PROCEEDS REALIZED ONTHAT DAY WAS RS. 6,45,500THE APPELLANT HAS INCURRED A LOSS OF RS. 15,500 PER KG. IN T CASE THE SAME HAD NOT BEEN REFUTED OR ANY MATERIAL FOUND TO CONTROVERT IT. THE ASSESSING OFFICER HAD NOT POINTED OUT ANY DISCREPANCY IN THE BOOKS MAINTAINED BY THE APPELLANT WITH REFERENCE TO ITS CLAIMS. 6.8THE AO HAS NOT GIVEN ANY REASONS FOR REJECTION OF LOSS CLAIMED BY THE APPELLANT APART FROM SAYING THAT THE APPELLANT HAS NOT PRODUCED ANY EVIDENCES IN SUPPORT OF ITS CLAIM. HOWEVER THE EVIDENCES IN FORM OF PURCHASES AND SA LES BILLS AND BRANCH TRANSFER VOUCHERS WERE FOUND AND SEIZED BY THE INCOME TAX DEPARTMENT AND ARE LYING WITH THE AO. IT IS SEEN FROM THE PANCHANAMAS AND THE WRITTEN SUBMISSIONS FILED BEFORE ME THAT FOLLOWING DOCUMENTS IN RESPECT OF THE REGULAR BOOKS OF ACC OUNTS WERE FOUND AND SEIZED FROM VARIOUS PREMISES . OUT OF DOCUMENTS / BOOKS SEIZED FROM GANPATI PLAZA, JAIPUR ANNX. NO. PAQE NOS. EXPLANATION 21 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN A - 1 THIS IS STOCK REGISTER FOR FINANCIAL YEAR 2004 - 05. THIS IS PART OF REGULAR BOOKS OF ACCOUNTS AN D AS SUCH ACCOUNTED FOR. A - 2 THIS IS PURCHASE REGISTER FOR FINANCIAL YEAR 2004 - 05. THIS IS PART OF REGULAR BOOKS OF ACCOUNTS AND AS SUCH ACCOUNTED FOR. A - 3 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE, DELIVERY CHALLANS AND COPIES OF CHEQUES / PAY ORDER ISSUED FOR PURCHASES. ALL THE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 4 THIS IS SALES REGISTER FOR FINANCIAL YEAR 2004 - 05. THIS IS PART OF REGULAR BOOKS OF ACCOUNTS AND AS SUCH ACCOUNTE D FOR. A - 5 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE AND DELIVERY CHALLANS. ALL THE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 6 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE AND DELIV ERY CHALLANS. ALL THE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 22 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN A - 7 TO A - 1 5 THESE FILES CONTAIN SALES BILLS FOR THE FINANCIAL Y EAR 2004 - 05. ALL THE SALES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 1 6 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE AND DELIVERY CHALLANS. ALL THE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 1 7 H - 8 THESE ARE SALES TAX FORMS, BRANCH TRANSFER MEMOS AND DELIVERY CHALLANS IN RES PECT OF THE GOODS PROPOSED TO BE TRANSFERRED TO BRANCH OFFICE AT COIMBATORE. THE GOODS WERE TO BE TRANSFERRED FROM STOCK IN TRADE AVAILABLE. THE CORRESPONDING PURCHASES MADE FROM ZAVERI& CO. AND OSWAL TRADING CO. ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 12 - 33 THESE ARE CASH MEMOS IN RESPECT OF THE SALES MADE. ALL THESE BILLS ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 34 - 36 THESE ARE DELIVERY CHALLANS IN RESPECT OF THE PURCHASES MADE FROM M/S. ZAVERI& CO. AHMEDABAD. ALL THESE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 23 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN A - 18 1 - 80 THESE ARE CASH MEMOS IN RESPECT OF THE SALES MADE. ALL THESE BILLS ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 81 THIS IS PURCHASE BILL IN RESPECT OF THE PURCHASES MADE FROM OSWAL TRADING CORPORATION. THIS BILL IS ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 83 THIS IS PURCHASE BILL IN RESPECT OF THE PURCHASES MADE FROM OSWAL TRADING CORPORATION. THI S BILL IS ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 84 - 85 THESE ARE DELIVERY CHALLANS IN RESPECT OF THE PURCHASES MADE FROM M/S. ZAVERI& CO. AHMEDABAD. ALL THESE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 90 - 92 THIS IS STOCK REGISTER FOR THE PERIOD 4.12.2004 - 6.12.2004. THIS STOCK REGISTER IS PART OF REGULAR BOOKS OF ACCOUNTS AND AS SUCH ACCOUNTED FOR. 24 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 93 - 94 THESE ARE BILLS IN RESPECT OF THE PURCHASES MAPLE FROM M/S. PUSHPAK BULLION PVT. LTD. ALL THESE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. OUT OF DOCUMENTS / BOOKS SEIZED FROM BANI PARK. JAIPUR ANNX. NO. PAGE NOS. EXPLANATION A - 2 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE AND DELIVERY CH ALLANS. ALL THE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 9 3 - 7 THIS IS THE STOCK TRANSFER MEMO. THE STOCK TRANSFER MEMO BEARS UNIQUE SERIAL NOS. WHICH ARE ALSO ETCHED ON THE GOODS FOUND AND SEIZED. THIS PROVES BEYOND ALL R EASONABLE DOUBTS THAT THE GOODS FOUND AND SEIZED ON 9.12.2004 ARE PART OF STOCK IN TRADE. THESE GOODS WERE TO BE TRANSFERRED FROM JAIPUR TO BRANCH AT COIMBATORE. A - 10 5 THIS IS MEMO FOR STOCK TRANSFER TO BRANCH AT COIMBATORE. THE STOCK WAS INTENDED TO BE TRANSFERRED FROM STOCK IN HAND WHICH WAS OUT OF PURCHASES MADE FROM ZAVERI& CO. AND M/S. OSWAL TRADING CO. 25 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 13 - 14 THIS IS STOCK REGISTER FOR 7.12.2004. THIS STOCK REGISTER IS PART OF REGULAR BOOKS OF ACCOUNTS AND AS SUCH ACCOUNTED FOR 15 - 69 THESE ARE SALES BILLS FOR THE FINANCIAL YEAR 2004 - 05. ALL THE SALES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 6.9. THESE PURCHASES AND SALES BILLS AND BRANCH TRANSFER VOUCHERS ARE PROPERLY RECORDED IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE APPELLANT. THE ASSESSING OFFICER HAD NOT ANYWHERE CONTROVERTED THE SAME. THUS IT IS NOT CORRECT TO SAY THE APPELLANT HAS NOT PRODUCED ANY EVIDENCES IN SUPPORT OF HIS CLAIM. THERE ARE NO FINDINGS BY THE ASSESSING OFFICER THAT THE STATE OF AFFAIRS IS DI FFERENT THAN WHAT WAS S TA TED BY THE APPELLANT. THE EVIDENCES PERTAINING TO THE BOOKS OF ACCOUNTS MAINTAINED BY THE APPELLANT WERE LYING WITH THE INCOME TAX DEPARTMENT. 6.10. IN VIEW OF ABOVE I FIND CONSIDERABLE FORCE IN THE ARGUMENTS AND SUBMISSIONS THAT T HE REJECTION OF BOOKS OF ACCOUNTS AND DISALLOWANCE OF LOSS AS PER BOOKS OF ACCOUNTS IS NEITHER WARRANTED NOR JUSTIFIED. U ' 6.11. THIS VIEW IS SUPPORTED BY THE VARIOUS CASE LAWS CITED BY THE APPELLANT WHICH ARE DISCUSSED BELOW IN THE CASE OF CIT V/S. JAYA LAKSHMI TRADING CO. TAX LR 349, 352 (MAD) THE TRIBUNAL WAS HELD JUSTIFIED IN ALLOWING THE ASSESSEE'S APPEAL ON THE GROUND OF THE ABSENCE OF A SPECIFIC FINDING ON THE PART OF INCOME TAX OFFICER THAT THE TRUE PROFITS COULD NOT BE ASCERTAINED FROM THE METHOD OF AC C OUN TING ADOPTED BY THE ASSESSEE. 26 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN IN THE CASE OF ALUMINIUM INDUSTRIES PVT. LTD. VS CIT 80 TAXMANN 184 (GAUH) THE TRIBUNAL WAS HELD NOT JUSTIFIED IN LAW IN UPHOLDING THE ADDITION TO THE BOOK PROFITS OF THE ASSESSEE ON THE ONLY PREMISES THAT THE GROSS P ROFIT WAS LOW WITHOUT GIVING A SPECIFIC FINDING THAT THE ACCOUNTS OF THE ASSESSEE WERE NOT CORRECT AND COMPLETE AND/OR THAT THE INCOME COULD NOT BE PROPERLY DEDUCED FROM THE ACCOUNTING METHOD EMPLOYED BY THE ASSESSEE. THE DELHI HIGH COURT IN ADDL. CIT DELHI II V. JAY ENGINEERING WORKS LTD. (113 ITR 389) HELD THAT WHERE BOOKS OF ACCOUNTS WERE DEST R OYED BY FIRE THEN IT IS QUITE COMPETENT FOR THE INCOME TAX AUTHORITIES NOT ONLY, TO ACCEPT THE AUDITORS' REPORT BUT ALSO TO DRAW THE PROPER INFERENCE FROM THE SAME AND ALLOW DEDUCTIONS CLAIMED ON THE BASIS OF THE AUDIT REPORT. THE FACTS OF THE PRESENT CASE ARE STILL BETTER AS BOTH AUDITED REPORT AS ALSO THE AUDITED BOOKS OF ACCOUNTS ARE AVAILABLE BEFORE THE LD. AO. FOR VERIFICATION. IT WAS HELD BY THE H'BLE JAIPUR BE NCH OF ITAT THAT WHERE NO DEFECTS HAD BEEN FOUND BY ASSESSING OFFICER AND BOOKS OF ACCOUNT SHAD BEEN AUDITED UNDER INCOME TAX ACT AND THE SALES ARE DECLARED BY THE APPELLANT HAVE BEEN ACCEPTED BY THE SALES TAX DEPARTMENT AND BY THE AO, THE AO WAS NOT JUSTIF IED IN MAKING TRADING ADDITIONS. ACIT V. MOUNT MALT BRU LTD. [2006] 155 TAXMAN 128 (JP.) (MAG.). IT IS HELD BY THE H'BLE AHMEDABAD BENCH OF TAT THAT WHERE ASSESSEE WAS MAINTAINING REGULAR BOOKS OF ACCOUNT AND COMPLETE DETAILS WITH RESPECT OF OPENING STOCK , PURCHASES AND CLOSING STOCK OF VARIOUS RAW MATERIAL, AND ACCOUNTS WERE DULY AUDITED, REJECTION OF BOOKS BY ASSESSING OFFICER ONLY ON GROUND THAT NET GAIN SHOWN BY ASSESSEE WAS LOW WAS NOT CORRECT. ITO V. RINKESH PRINTS (P) LTD. [2006] 152 TAXMAN 44 (AL - I D.) (MAG.) 27 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN ANOTHER CASE TO THE POINT IN APPEAL IS DECISION OF HON'BLE RAJKOT BENCH OF ITAT WHEREIN IT WAS HELD THAT WHERE NO DEFECTS HAD BEEN POINTED BY THE ASSESSING OFFICER EITHER IN THE BOOKS OF ACCOUNTS OR WITH RESPECT TO QUANTITATIVE DETAILS FURNISHED BY THE ASSESSEE, NOR IN METHOD OF ACCOUNTING FOLLOWED BY ASSESSEE FOR COMPUTING ITS BUSINESS INCOME, REJECTION OF BOOKS OF ACCOUNT BY ASSESSING OFFICER WAS NOT JUSTIFIED MERELY ON GROUND THAT IN RESPECT OF SOME OF CASH TRANSACTIONS, NAMES AND ADDRESSES OF BUYER WERE NOT RECORDED FULLY. ITO V GIRISH M.MEHTA [2006] 155 TAXMAN 41 (MAG.) 99 TTJ 394 (RAJKOT). ANOTHER CASE RELEVANT TO THE POINT IN APPEAL IS DECISION OF H'BLE AHMEDABAD BENCH OF ITAT WHEREIN IT WAS HELD THAT WHERE ASSESSEE WAS ENGAGED IN THE BUSIN ESS OF SALE AND PURCHASE OF ACCESSORIES AND SPARE PARTS, NON MAINTENANCE OF QUANTITATIVE DETAILS OF SPARES PARTS COULD NOT BE A GROUND FOR [EJECTION OF BOOKS OF ACCOUNT WITHOUT PINPOINTING SPECIFIC DEFECTS AND THEREBY MAKING AN AD HOC ADDITION WHEN DISCREP ANCIES WHICH WHERE FOUND BY THE ASSESSING OFFICER WERE RECONCILED BEFORE LOWER AUTHORITIES. ACIT V. LMP TRACTORS (P.) LTD. [2005] 148 TAXMAN 52 (AHD.) (MAG.). THE FACTS OF THE CASE OF THE APPELLANT ARE FAR BETTER AS IN THE PRESENT CASE THE APPELLANT HAS MA INTAINED COMPLETE QUANTITATIVE DETAILS. ALSO UNLIKE THE CASE CITED ABOVE THE AO HAS NOT POINTED OUT ANY DISCREPANCIES AND THEREFORE REJECTION OF BOOKS OF ACCOUNTS IS NEITHER WARRANTED NOR JUSTIFIED. SIMILAR VIEW HAS BEEN EXPRESS BY H'BLE KOLKATA HIGH COURT IN THE CASE OF ASHOK REFRACTORIES (P.) LTD. V. CIT [2005] 148 TAXMAN 653 (CAL.) WHEREIN IT HAS BEEN HELD BY THE H'BLE HIGH COURT AS UNDER. IN ABSENCE OF STOCK REGISTER OR FAILURE TO MAINTAIN ITEM WISE STOCKS IN STOCK REGISTER BOOKS OF ACCOUNTS COULD NOT B E REJECTED UNLESS THERE WAS A FINDING OR OPINION EITHER THAT RECORDS WERE INCORRECT AND INCOMPLETE OR 28 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN THAT METHOD OF ACCOUNTING APPLIED WAS SUCH THAT INCOME COULD NOT BE DEDUCED FROM AMOUNTS MAINTAIN BY ASSESSEE. THE ISSUE OF NON - MENTION OF ADDRESSES OF PU RCHASERS IN CASH TRANSACTIONS CAME UP BEFORE THE H'BLE MUMBAI HIGH COURT. IT WAS HELD BY THE H'BLEMUMHAI HIGH COURT IN R.B. JESSARAMFATECHAND V. CIT [1970] 75 ITR 33 (BORN.) THAT IN THE CASE OF A CASH TRANSACTION WHERE DELIVERY OF GOODS IS TAKEN AGAINST CA SH PAYMENT, IT IS HARDLY NECESSARY FOR THE SELLER TO BOTHER ABOUT THE NAME AND ADDRESS OF THE PURCHASER. ACCORDINGLY, IN SUCH CASES, THE ACCOUNT BOOKS OF THE ASSESSEE CANNOT BE REJECTED MERELY ON THE GROUND THAT THE ADDRESSES OF THE PURCHASERS ARE NOT MEN TIONED IN THE CASE OF CASH TRANSACTIONS. SIMILAR JUDGEMENT HAS BEEN DELIVERED BY THE PUNE BENCH OF I TAT IN ASSTT. CIT V. MAHESH T. PATODIA [2001] 79 I TD 40 (PUNE) WHEREIN IT IS HAS BEEN HELD THAT ABSENCE OF NAME AND ADDRESSES OF PURCHASERS IN RESPECT OF CA SH SALES COULD NOT BE CONSIDERED AS A FACTOR FOR APPLICATION OF PROVISO TO SECTION 145(1). IT WAS FURTHER HELD THAT WHERE ALL PURCHASES AND SALES WERE FULLY VOUCHED, QUANTITY TALLY IN RESPECT OF EACH BILL WAS AVAILABLE AND STOCK REGISTER WAS MAINTAINED IN RESPECT O F EACH COUNT OF YARN, IT WOULD NOT BE HELD THAT PROFITS COULD NOT BE DEDUCED FROM ACCOUNTS MAINTAINED BY ASSESSEE. THE ISSUE OF REJECTION OF BOOKS OF ACCOUNTS CAME UP BEFORE THE SPECIAL BENCH OF ITAT IN SHA NKER RICE CO. V. ]TO [2000] 72 I TD 139/11 0 TAXMAN 62 (MAG (ASR.)(SB). THE SPECIAL BENCH OF IT AT HELD THAT PROVISO TO SECTION 145(1) IS TO BE APPLIED ONLY ON THE BASIS OF THE POSITIVE MATERIAL AND EVIDENCE IN POSSESSION OF THE DEPARTMENT AND NOT ON THE BASIS OF ANY SURMISES AND CONJECTURES. WHERE ACCOUNTS ARE AUDITED AND PROPER BOOKS OF ACCOUNT ARE MAINTAINED PROVISO TO 145(1), THE BENCHES AT AMRITS AR HAVE BEEN CONSISTENTLY TAKING THE 29 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN VIEW THAT THE SAME CANNOT BE INVOKED WHERE THE ACCOUNTS ARE AUDITED, PROPER BOOKS OF ACCOUNT ARE MAINTAINED, STATUTO RY REGISTERS AND RECORDS AS REQUIRED BY THE STATE GOVERNMENT ARE KEPT AND NO DEFECT IS POINTED OUT EITHER IN THE BOOKS OF ACCOUNT OR THE STATUTORY REGISTERS MAINTAINED. THE SPECIAL BENCH FURTHER HELD THAT IT WOULD BE GREAT HARDSHIP TO AN ASSESSEE CARRYING ON A PARTICULAR TRADE IF HIS TRADING RESULTS ARE REJECTED AND PROVISO TO SECTION 145(1) IS APPLIED JUST BECAUSE SOME OTHER ASSESSEE IN THE SAME TRADE IS SHOWING SOMETHING MORE, MAY BE EVEN LESS THAN ONE PER CENT. SIMILARLY THE AHMEDABAD BENCH OF ITAT HAS H ELD IN PUSHPANJALI DYEING & PRINTING MILLS (P.) LTD. V. JT. CIT [2001] 72 TTJ (AHD.) 886 HELD THAT WHERE COMPLETE BOOKS OF ACCOUNT HAVE BEEN MAINTAINED AND DULY AUDITED, THERE WILL BE NO JUSTIFICATION FOR REJECTION OF ACCOUNT MERELY BECAUSE THERE WAS DECLI NE IN GROSS PROFIT AND NET PROFIT RATE THE DELHI BENCH OF THE ITAT HAS HELD IN STEE L HOME V. ASSTT. CIT [1999] 69 I TD 240 (DELHI) THAT THE ACCOUNTS MAINTAINED HAVE TO BE ACCEPTED AS CORRECT UNLESS THERE ARE REASONS TO HOLD THAT THEY ARE UNRELIABLE; IN CAS E OF LATTER IT IS NOT OPEN TOTHE A.O. TO DISCARD THE BOOKS OF ACCOUNT ALTOGETHER. ALL THE CASE CITED ABOVE MAKES IT CLEAR THAT IN THE CASE OF THE APPELLANT THE REJECTION OF BOOKS OF ACCOUNTS AND DISALLOWANCE OF THE LOSS AS DECLARED BY THE ' APPELLANT WAS N EITHER WARRANTED NOR JUSTIFIED. 12. THE ASSESSING OFFICER HAD NOT BROUGHT ANY MATERIALS OR ANY COGENT REASONS TO LEAD TO A REASONABLE CONCLUSION THAT THE BOOKS OF ACCO UNT S MAINTAINED ARE UNRELIABLE AND THEREBY LIABLE TO BE REJECTED. THE ASSESSING OFFICER N OWHERE IN HIS ASS ESSMENT ORDE R HAD DISPUTED OR RAISED ANY DOUBT ABOUT THE PURCHASES OR THEIR SOURCES. THE THRUST IN THE ASSTT. ORDER IS THAT THE 30 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN SALES WERE NOT MADE AT JAIPUR AS CLAIMED BY THE APPELLANT BUT IN MUMBAI. IN THIS REGARD, THE AO HAS ALREADY MAD E SEPARATE ADDITIONS IN RESPECT OF THE SUPPRESSED PROFITS ON CASH SALE BASED ON THE SAME SET OF BOOKS OF ACCOUNTS MAINTAINED BY THE APPELLANT WHICH ARE BEING CONSIDERED IN GROUNDS NO. 3, 4 AND 5 BELOW. SINCE THE AO HAS ALREADY MADE SEPARATE ADDITIONS IN RE SPECT OF THE SUPPRESSED PROFITS ON CASH SALES THE DISALLOWANCE OF BOOK LOSS WITHOUT PIN - POINTING ANY DISCREPANCIES IN THE BOOKS OF ACCOUNTS OF THE APPELLANT IS NOT WARRANTED B) ADDITION OF RS. 1.97 CRORES ON SUBSTANTIVE BASIS AND ADDITION OF RS. 4.04 CRORES ON PROTECTIVE BASIS ON UNACCOUNTED PROFIT ON CASH SALES. 13. THE BRIEF FACTS RELATING TO THE ABOVE ADDITIONS ARE SUMMED UP BY LD. CIT(A) IN HIS ORDER AT PAR A NO. 7.3 WHICH IS REPRODUCED BELOW: - 1. THE APPELLANT DOES NOT HAVE THE CAPACITY TO RUN SUCH A BIG BUSINESS AND THAT HE HAS BEEN FINANCED BY PUSHPAKBUILLING PVT. LTD. 2. ON THE DATE OF SEARCH THE APPELLANT WAS UNABLE TO EXPLAIN THE PURCHASES AND SALES M ADE ON 9.12.2004. PURCHASES OF MORE THAN RS. 11 CRORES WERE MADE ON 9.12.2004. A SUM OF NEARLY RS. 5 .80 CRORES WERE DEPOSITED AND WITHDRAWN ON THAT DAY. A SUM OF RS. 50 CRORES WAS DEPOSITED IN BANK ACCOUNTS IN MUMBAI DURING THE PERIOD 29.11.2004 - 9.12.2004 INSPITE OF THE FACT THAT THE APPELLANT DID NOT COME TO MUMB AI DURING THIS PERIOD. 3. THE APPELLAN T'S BUSINESS IN MUMBAI WAS NOT CONDUCTED BY HIM 31 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 4. THE ENTIRE GOODS PURCHASED AT JAIPUR WERE TRANSPORTED TO MUMBAI AND SOLD IN CASH IN MUMBAI. THE ENTIRE SHOW WAS MANAGED BY 3 PARTIES NAMELY A TRADER, A NAME LENDER AND A CARRIER. 5. THE PROFITS EARNED A RE NOT FULLY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. THE PROFITS SO EARNED WERE SHARED BY THREE PARTIES SOME HYPOTHETICAL PERSON TRADER A', AND THE APPELLANT WHO PERFORMS DUAL ROLE OF B AND C. 6. THE APPELLANT WAS NOT KEEPING ANY BOOKS OF ACCOUNTS. THE AP PELLANT WAS NOT ABLE TO ABLE TO PRODUCE BOOKS OF ACCOUNTS AND I OR COMPUTER DURING THE COURSE OF THE SEARCH. NO BOOKS OF ACCOUNTS ARE BEING - MAINTAINED BY THE APPELLANT. 7. THE APPELLANT HAS MENTIONED WRONG PAN ON THE RETURN OF INCOME FILED BY HIM. THE AP PELLANT HAS FILED RETURN OF INCOME AT AHE M DABADINSPITE OF THE FACT THAT JURISDICTION DOES NOT LIE AT. AHMEDABAD. 8. DIARY FOUND DURING THE COURSE OF THE SEARCH INDICATED THAT T HE GOLD BULLION WERE SOLD IN MUM BAI. THE APPELLANT WAS NO T IN A POSITION TO EXP LAIN THAT NOTINGS IN DIARY. 9. THE APPELLANT HAS NOT BEEN ABLE TO IDENTIFY ANY OF THE PARTY TO WHOM THE GOODS WERE SOLD. IT WAS HIGHLY IMPROBABLE THAT SALES WERE MADE AT JAIPUR BUT THE CASH COLLECTED WAS DEPOSITED IN MUMBAI. 10. IT WAS HIGHLY IMPROBABLE THAT THE APPELLANT WILL HAVE SUCH A TURNAROUND OF FORTUNES TO ACHIEVE A TURNOVER OF RS. 622 CRORES IN JUST FOUR MONTHS. THIS SHOWS THAT THE APPELLANT IS A FRONT MAN OF SOMEBODY 61SE. 11. THE APPELLANT WAS UNABLE TO EXPLAIN THE SOURCES OF CAPITAL ON THE DATE OF SEAR CH. 32 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 12. THE DIARY REVEALS THAT THE GOLD WAS TRANSPORTED TO MUMBAI. NO TICKETS WERE PURCHASED F OR ONWARD JOURNEY TO COIMBATORE. 13. THOUGH GOLD BULLION WAS PURCHASED ON 9.12.2004 THE APPELLANT WAS UNABLE TO GIVE THE DETAILS OF THE SAME ON THE DATE OF SEARCH. 14. THE FA CT THAT THE BALANCE GOODS WERE BROUGHT BACK TO JAIPUR AND SOLD AT JAIPUR IS NOT RELIABLE. 15. THE CARRIERS WERE TRAVELLING IN FAKE NAMES. 16. IN VIEW OF THE ABOVE THE AO CONCLUDED THAT THE APPELLANT IS ONLY A NAME LENDER AND THE GOLD FOUND AND SEIZED DURING THE CO URSE OF THE SEARCH WAS N OT HIS OWN STOCK IN TRADE. 14. ON THE ABOVE, ASSESSEE HAS FILED A DETAIL ED SUBMISSION BEFORE CIT(A) , WHICH IS REPRODUCED BELOW: 'A) THE NATURE OF BUSINESS AND MODUS OPERANDI. 1. SHRI SURESH JAIN IS CONDUCTING BUSINESS OF TRADING IN GOLD BULLION UNDER THE PROPRIETARY CONCERN RUNNING UNDER THE NAME AND STYLE OF RAJGURU BULLION. THE SAID BUSINESS WAS STARTED IN AND AROUND AUGUST 2004. THE ASSESSEE IS A REGISTERED DEALER UNDER THE SALES TAX ACT. THE ASSESSEE HAS OFFICE JAIPU R , MUMBAI, A HMEDABAD AND COIMBATORE. THE ASSESSEE IS A SEMI WHOLESALER WHO BUYS GOODS FROM WHOLESALER AND SELLS IT JEWELERS / JEWELLERY MANUFACTURERS AND ACTUAL BUYERS /INVESTORS. 2. THE ASSESSEE'S MAJOR PURCHASES ARE FROM WHOLESALERS SUCH M/S. PUSHPAK BULLION PVT. LTD., ZAVERI& CO. LTD., OSWAL TRADING CO. ETC. THE PAYMENTS ARE MADE TO ALL THESE SUPPLIERS STRICTLY BY ACCOUNT PAYEE CHEQUE. 33 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 3. THE ASSESSEE'S SALES ARE MAINLY IN CASH. THE SALES ARE MAINLY MADE TOVARIOUS MANUFACTURERS OF JEWELLERY AND JEWELERS IN JAIP UR. THE SALES ARE STRICTLY AGAINST CASH AND THEREFORE THERE IS NO NEED TO KEEP ANY RECORD OF THEBUYER. THE CASH SALES ARE NOT PROHIBITED UNDER ANY LAWS WHETHER IT IS INCOMETAX ACT AND / OR SALES TAX ACT. THE TRANSACTIONS OF THE SALES ARE ACCOUNTEDFOR I N THE REGULAR BOOKS OF ACCOUNTS. THE SALES ARE REPORTED TO SALES TAXDEPARTMENT IN THE PERIODIC RETURNS FILED WITH SALES TAX DEPARTMENTS. THE SALESTAX DEPARTMENT HAS ACCEPTED THE TURNOVER AS DECLARED BY THE ASSESSEE. 4. 'AS PER NORMAL BUSINESS PRACTICE THE APPELLANT PURCHASES GOODS FROM VARIOUS PARTIES STATED ABOVE, SELLS THE GOODS, COLLECT THE PAYMENTS FOR THE GOODS, DEPOSITS THE SAME IN THE BANK ACCOUNT AND MAKES THE PAYMENTS FOR THE GOODS SO THAT HE CAN IMMEDIATELY TAKE THE NEXT CONSIGNMENT AND ROLL THE GOODS OVER. IT IS A LARGE VOLUME BUSINESS DONE ON WAFER THIN MARGINS WHERE TURNOVER OF GOODS IS OF PARAMOUNT IMPORTANCE. 5. AGAIN AS PER THE NORMAL PRACTICE PREVALENT IN THIS TRADE THE PAYMENT FOR GOODS SOLD IS NORMALLY RECEIVED IN MUMBAI IRRESPECTIVE OF P LACE OF SALE AND DELIVERY. ONE O F THE REASONS IS THAT THE BANK IN SMALLER CENTERS ARE NOT EQUIPPED WITH NECESSARY INFRASTRUCTURE OR THE MANPOWER TO HANDLE HUGE CASH INFLOWS. ONLY THE BANK WITH A CURRENCY CHEST , REQUISITE CASH COUNTING MACHINES AND THE NECE SSARY MANPOWER ARE READY TO ACCEPT AND HAVE THE CAPABILITY TO HANDLE LARGE CASH FLOWS. SUCH BANKS ARE NORMALLY FOUN D IN MUMBAI ONLY. ALSO MOST OF BIGGER BUYERS HAVE OFFICES IN MUMBAI AND THEREFORE EVEN IF THE GOLD BULLION IS SOLD AND DELIVERY OF BULLION IS GIVEN IN JAIPUR THE ARRANGEMENT FOR PAYMENT OF SUCH GOLD AND SILVER BULLION IS MADE IN MUMBAI, AT TIMES IF THE PAYMENT IS RECEIVED IN JAIPUR THE SAME IS TRANSPORTED TO MUMBAI AND DEPOSITED IN BANK ACCOUNTS IN MUMBAI. B) CHRONOLOGYOF EVENTS LEADING TO SEIZ URE OF STOCK IN TRADE 1. DURING THE COURSE OF RUNNING BUSINESS OF M/S. RAJGURU BULLION THE APPELLANT PURCHASED 110 KG. OF GOLD BULLION FROM M/S. 34 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN ZAVERI& CO. PVT. LTD., JAIPUR AND 50 KGS. GOLD BULLION FROM M/S. OSWAL TRADING CORPORATION, JAIPUR ON 8.12.200 4. THE COPIES OF CORRESPONDING PURCHASE BILLS AND THE PURCHASE ACCOUNT FOR CORRESPONDING PERIOD ARE ENCLOSED HEREWITH AND MARKED EXHIBIT C. THE COPIES OF LEDGER ACCOUNTS OF M/S. ZAVERI& CO. PVT. LTD., JAIPUR AND M/S.OSWAL TRADING CORPORATION, JAIPUR ARE EN CLOSED HEREWITH AND MARKED EXHIBIT D. OUT OF ABOVE PURCHASES OF 160 KGS., 78 KGS OF GOLD BULLION WAS SOLD ON 8.12.2004. THE COPY OF SALES ACCOUNT FOR 8.12.2004 SHOWING SALES OF 78 KGS. IS ENCLOSED HEREWITH AND MARKED EXHIBIT E. 2. THE BALANCE 82 KGS WAS SENT THROUGH THREE CARRIER FOR TRANSFERRING THE SAME TO BRANCH AT COIMBATORE AS PER DETAILS GIVEN HEREUNDER NAME OF THE CARRIER TOTAL QUANTITY FOUND AND SEIZED AMRIT MALI 28 KGS. JHALARAM TO/A//' DEVASI (ALIAS SAN/AY T. JAIN) 26 KGS. NARAYAN J AT 28 KGS. TOTAL 82 KGS. THE AFFIDAVITS OF THE FOLLOWING PERSONS CONFIRMING THE ABOVE FACTS ARE ENCLOSED HEREWITH AND MARKED EXHIBIT F. A. MR.SURESHVALCHAND JAIN, PROPRIETOR OF FIRM B. MR.NARAYANJAT - CARRIER C. MR.AMRIT MALI CARRIER D. MR. JHALARA M (URF SANJAY T. JAIN) CARRIER. 35 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN IT IS SUBMITTED THAT AN AFFIDAVIT IS A LEGAL EVIDENCE AND SHOULD BE REGARDED AS SUFFICIENT PROOF. AN AFFIDAVIT IN ITSELF CONSTITUTES THE EVIDENCE AND IT CANNOT BE REJECTED MERELY ON THE GROUND THAT IT IS NOT SUPPORTED BY D OCUMENTARY EVIDENCE, UNLESS THERE IS A MATERIAL TO SUGGEST THAT SOME DOCUMENTARY EVIDENCE EXISTS AND HAS NOT BEEN PRODUCED BY THE ASSESSEE, DESPITE BEING REQUIRED TO DO SO. AN AFFIDAVIT IS A PIECE OF EVIDENCE WHICH ALONG WITH OTHER MATERIAL ON RECORD, HAS TO BE CONSIDERED BY THE ASSESSING OFFICER BEFORE ARRIVING AT A PARTICULAR FINDING. THE AFFIDAVIT FILE BY THE ASSESSEE CANNOT BE REJECTED EITHER ON MERE GROUND THAT THAT THE DEPONENT HAS NOT PRODUCED ANY DOCUMENTARY EVIDENCE OR IN ABSENCE OF ANY EVIDENCE TO SHOW THAT IT WAS BOGUS AND OTHERWISE UNRELIABLE. ONCE YOUR APPELLANT FURNISHED EXPLANATION WHICH IN THE OPINION OF THE ASSESSING OFFICER IS NOT TRUE THEN THE BURDEN IS ON ASSESSING OFFICER TO PROVE THE SAME. IT IS RELEVANT TO NOTE THAT IF AN AFFIDAVIT IS FILED BY THE ASSESSEE AND HE IS NEITHER CROSS EXAMINED ON THAT POINT NOR HE IS CALLED UPON BY THE DEPARTMENT TO PRODUCE ANY DOCUMENTARY EVIDENCE, THE ASSESSEE MAY ASSUME, THAT THE INCOME TAX AUTHORITIES ARE SATISFIED WITH THE AFFIDAVIT AS SUFFICIENT PROOF ON THE POINT IN QUESTION [L. SOHAN LAL GUPTA V/S. CIT 33 ITR 786, 7 91 (ALL)]. THIS IS SO BECAUSE THE REJECTION OF AFFIDAVIT FILED BY THE ASSESSEE IS NOT JUSTIFIED UNLESS THE DEPONENT HAS EITHER BEEN DISCREDITED IN CROSS EXAMINATION OR HAS FAILED TO PRODUCE OTHER SUPPORTING EVIDENCE WHEN CALLED UPON TO DO SO [MEHTA PARIKH & CO. V/S. CIT 30 ITR 181, 187 (SC)]. 3. AN ACTION U/S. 132 WAS CONDUCTED AT MUMBAI AIRPORT ON 9.12.2004 ON THESE CARRIERS. DURING THE COURSE 54 KGS OF GOLD BULLION WAS FOUND AND SEIZED FR OM THE TWO PERSONS CARRYING THE SAID GOLD BULLION ON BEHALF THE APPELLANT TO HIS BRANCH OFFICE AT COIMBATORE AS PER DETAILS GIVEN HEREUNDER: NAME OF THE CARRIER TOTAL QUANTITY FO U ND AND SEIZED AMRIT MALI 28KGS JHALARAMTOLAJIDEVASI (ALIAS SANJAY T. JA IN) 26 KGS. 36 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 'TOTAL 54 KGS. 4. THE INCOME TAX DEPARTMENT, JAIPUR CARRIED OUT SURVEY AT THE PREMISES OF M/S. ZAVERI& CO. PVT. LTD. AND M/S. OSWAL TRADING CORPORATION JAIPUR. DURING THE COURSE OF SURVEY THE PURCHASES MADE BY THEM AND CORRESPONDING SAL ES MADE TO US HAVE BEEN VERIFIED BY THE INCOME TAX DEPARTMENT AND THE SAME WERE FOUND TO BE CORRECT. TH E CONFIRMATIONS OF ACCOUNTS ISSUED BY THESE SUPPLIERS ARE ENCLOSED {PLEASE SEE EXHIBIT D}. THESE SUPPLIERS HAVE CONFIRMED THE PURCHASE OF GOODS BY THE AP PELLANT. 5. IT WAS THEREFORE EXPLAIN ED TO THE AO THAT THE 54 KGS FOUND AND SEIZED FROM MUMBAI AIRPORT REPRESENTS STOCK IN TRADE OF M/S. RAJGURU BULLION THE PROPRIETARY CONCERN OF THE APPELLANT AND WAS FULLY ACCOUNTED FOR AND RECORDED IN THE REGULAR BOOKS O F ACCOUNTS OF M/S. RAJGURU BULLION. A CERTIFICATE FROM M/S. GAJENDRAKHANDELWAL& CO. CHARTERED ACCOUNTANTS IS ENCLOSED HEREWITH AND MARKED EXHIBIT G. THEY HAVE EXAMINED OUR BOOKS OF ACCOUNTS AND OTHER RELEVANT DOCUMENTS AND HAVE CERTIFIED THAT WE ARE DOING B USINESS OF GOLD AND SILVER BULLION. THEY HAVE FURTHER EXAMINED ALL THE DOCUMENTS RELATING TO TRANSACTIONS FROM 8.12.2004 TO 10.12.2004 AND ANNEXED STOCK REGISTER DULY VERIFIED AND CERTIFIED BY THEM GIVING COMPLETE DETAILS OF ALL PURCHASES, SALES AND STOCK IN TRADE SEIZED BY THE INCOME TAX DEPARTMENT. 6. SINCE THIS SEIZURE WAS ILLEGAL I HAD VIDE MY LETTER DATED 11.12.2004 FILED ON 13.12.2004 REQUESTED THE DIRECTOR GENERAL 6F INCOME TAX (INVESTIGATION), MUMBAI TO RELEASE THE SAID SEIZED GOLD BULLION. THE COP Y OF THE SAID LETTER DATED 11.12 .2004 FILED ON 13.12.2004 IS ENCLOSED HEREWITH. COMPLETE DETAILS INCLUDING THE BOOKS OF ACCOUNTS WERE SENT TO DEPUTY DIRECTOR OF INCOME TAX (INVESTIGATION) MUMBAI. C. VALIDITY OF PROTECTIVE ADDITIONS IN SEARCH ASSESSMENTS. 1 . DURING THE COURSE OF THE SEARCH THE DEPARTMENT IS EMPOWERED TO LAY THEIR HANDS ON WHATEVER EVIDENCE IS AVAILABLE IN THE PREMISES OF THE ASSESSEE. ON THE BASIS OF THE EVIDENCE COLLECTED THE INCOME OF THE ASSESSEE IS DETERMINED 'U/S. 153A. SOMETIMES IT 37 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN HA PPENS THAT THE SEIZED ASSETS OR BOOKS OF ACCOUNTS AND OTHER DOCUMENTS BELONG TO A PERSON OTHER THAN A PERSON WHOSE PREMISESARE SEARCHED. UNDER SUCH CIRCUMSTANCES THE ASSETS OR BOOKS OF ACCOUNTSHAVE TO BE HANDED OVER TO THE ASSESSING OFFICER HAVING JURISDIC TION OVER SUCHOTHER PERSON. SUBSEQUENT PROCEEDINGS WILL BE TAKEN OVER BY THAT ASSESSING OFFICER HAVING JURISDICTION OVER SUCH OTHER PERSON AND HE WILL PROCEED TO COMPLETE HIS ASSESSMENT U/S. 153C. AS PER THE SCHEME OF ASSESSMENT PURSUANT TO SEARCH INCOME C AN BE ASSESSED U/S. 153A OR U/S. 153C ONLY. THERE CANNOT BE ANY THIRD METHOD FOR DETERMINING THE UNDISCLOSED INCOME UNEARTHED PURSUANT TO SEARCH. THERE IS NO SCOPE FOR MAKING A PROTECTIVE ASSESSMENT OF INCOME PURSUANT TO SEARCH. THE AO HAS EITHER TO ASSESS INCOME U/S. 153A OR IF THE INCOME BELONGS TO ANY OTHER PERSON REFER THE MATTER TO THE AO OF SUCH OTHER PERSON U/S. 153C. 2. THIS VIEW IS SUPPORTED BY THE DECISION OF MUMBAI BENCH OF ITAT IN THE CASE OF MRS. MOHINIHIRANANDANI V/S. ACIT RANGE 17(2.) MUMBA I. THE COPY OF THE SAIDHEREWITH AND MARKED AS EXHIBIT H. W HIL E DECIDING THE MATTER OF PROTECTIVE ASSESSMENT OF UNDISCLOSED INCOME THE HON'BLE ITAT HAS HELD THAT PROTECTIVE ASSESSMENT U /S. - 158BB IS NOT PERMISSIBLE. THEREFORE PROTECTIVE ASSESSMENT MADE U/S. 158BB OF THE ACT IS BAD IN LAW. 3. IT IS SUBMITTED THAT THE NEW SCHEME OF THE ASSESSMENTS U/S. 153A AND 153C ARE SIMILAR TO PROVISIONS OF SECTION 158BC AND 158BD. IT IS THEREFORE SUBMITTED THAT PROTECTIVE ASSESSMENTS / ADDITIONS CANNOT BE MADE U/S. 153A. D. REBUTTAL OF FINDINGS OF THE AO. 1. ENTIRE ADDITIONS IS BASED ON SOME HYPOTHETICAL STORY THAT GOODS ARE PURCHASED AT JAIPUR AND SOLD AT MUMBAI TO TAKE ADVANTAGE OF SALES TAX DIFFERENTIAL. BASIC FLAW IN THE REASO NING OF THE LD. AO IS THAT SOME ONE WILL C OLLECT/PAY SALES TAX ON CASH TRANSACTIONS WHICH ARE NOT BE ACCOUNTED IN THE REGULAR BOOKS OF ACCOUNTS OR NOT LIKELY TO BE ACCOUNTED IN THE BOOKS OF ACCOUNTS. IT IS HIGHLY IMPROBABLE THAT THE APPELLANT WOULD BE ABLE TO COLLECT SALES TAX FROM CASH SALES MADE AT MUMBAI, IF ANY SINCE HE IS NOT 38 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN GOING TO ISSUE BILLS TO PARTIES IN MUMBAI. FURTHER THE MANNER OF ADDITIONS MADE CLEARLY SHOWS THAT THE ENTIRE ADDITIONS IS MADE ON ESTIMATED BASIS IN ADHOC MANNER IN ROUND FIGURE WITHOUT ANY SUPPORTING EVIDENCES AND/OR DO CUMENTS . 2. EACH AND VERY SOURCE OF FINANCING IS EXPLAINED TO THE LD. AO. THE LOANCONFIRMATION LETTERS FOR EACH AND EVERY LOAN TAKEN WAS FILED BEFORE THE LD. AOAND THE LD. AO HAS ACCEPTED ALL THE LOANS TAKEN BY THE APPELLANT. IT IS FURTH ER SUBMITTED THAT JUST BECAUSE BUSINESS IS CONDUCTED FROM LOAN FUNDS AND NOT FROM THE OWN FUNDS THAT DOES NOT MEAN THAT THE APPELLANT IS A FRONT MAN. EACH AND EVERY MAJOR BUSINESS IF FINANCED FROM LOANS TAKEN FROM BANKS AND , FINANCIAL INSTITUTIONS. BY THIS LOGIC EACH AND E VERY BUSINESSMAN WOULD ONLY BE A FRONT MAN OF THE BANK AND NOT THE OWNER OF THE BUSINESS. THE SOURCE OF FINANCING CANNOT AND DOES NOT DETERMINE THE OWNERSHIP OF BUSINESS. THE OWNER OF BUSINESS IS ONE WHO IS ASSOCIATED WITH RISKS AND REWARDS OF THE BUSINESS . IN THE PRESENT CASE SH RI SURESH JAIN IS OWNER OF M/S. RAJGURU BULLION AND HE IS ASSOCIATED WITH THE RISK AND REWARDS OF M/S. RAJGURU BULLION 3. IN TODAY'S WORLD NO PERSON CAN RUN THE ENTIRE BUSINESS SINGLE HANDEDLY ON HIS OWN. THE BUSINESS IS RUN WITH T HE HELP FROM EMPLOYEES, ASSOCIATES, CONSULTANTS, ETC. THIS IS TRUE FOR EACH AND EVERY BUSINESS WHICH IS RUN TODAY NOT A SINGLE BUSINESS IS RUN INDEPENDENTLY BY ONE PERSON. 4. THE PROFITS EARNED ARE FULLY ACCOUNTED FO R IN THE REGULAR BOOKS OF ACCOUNTS . TH E PURCHASES AND SALES BILLS IN RESPECT OF THE GOODS TRADED WERE FOUND D URING THE COURSE OF THE SEARCH. THERE ARE NO DISCREPANCIES IN THE SALES OR PURCHASES RECORDED IN THE BOOKS OF ACCOUNTS. IN ANY CASE THE ENTIRE MODUS OPERAND I DESCRIBED BY THE LD. AO IS BASED PURELY ON PRESUMPTIONS AND ASSUMPTIONS, GUESS WORK AND SURMISES. THE LD. AO HAS GIVEN A HYPOTHETICAL SITUATION WHICH IS NOT SUPPORTED BY ANY EVIDENCE FOUND DURING THE COURSE OF THE SEARCH OF THEREAFTER. TO ILLUSTRATE THE LD. AO HAS STATED THAT THE MA JOR PROFITS ARE POCKETED BY 'SOME TRADER'WHOM HE DESCRIBES AS A. THE LD. AO HAS NAMED ONE OF THOSE TRADERS AS M/S. PUSHPAK BULLION PVT. LTD. BUT HAS EVEN FAILED TO NAME THE 39 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN OTHER TRADERS WHO ARE ALLEGEDLY THE REAL OWNER AND FOR WHOM THE APPELLANT IS WORKIN G AS A FRONT MAN. ALSO THE RATES ADOPTED BY THE LD. AO ARE ASSUMED RATES. THE ENTIRE ADDITIONS ARE MADE ON THE BASIS OF PRESUMPTIONS AND ASSUMPTIONS, GUESS WORK ANDSURMISES. THE ASSESSMENTS SO MADE ARE BAD IN LAW AND VOID. THE VALIDITY OF SUCH ASSESSMENTS IS DISCUSSED AT LENGTH BELOW. IT IS FURTHER SUBMITTED THAT THE DEPARTMENT HAS TILL DATE FAILED TO PROVE THE ALLEGATIONS. THE DEPARTMENT HAS FAILED TO BRING EVEN AN IOTA OF EVIDENCE TO ESTABLISH THE IDENTITY OFSOCALLED REAL PERSON ALLEGEDLY BEHIND THE ASSE SSEE.THE DEPARTMENT HAS ALREADY SEIZED THE PURCHASE AND SALES BILLS WHICH CLEARLY PROVED THAT THE APPELLANT WAS DEALER IN GOLD BULLION. THE ENTIRE PURCHASES AND SALES ARE VERIFIABLE FROM THE BILLS FOUND AND SEIZED. THE ENTIREBANK BOOK WAS PRODUCED BEFORE T HE DDIT(LNV.) JAIPUR AND IS STILL LYING WITH HIM. THE ENTIRE BOOKS OF ACCOUNTS WERE, SENT TO DDIT(LNV.) MUMBAI WHO FOR REASONS BEST KNOWN TO HIM DID NOT CHOSE TO VERIFY THE SA M E. THE BANK BOOKS WERE PRODUCED BEFORE THE AO AND THE BANK BOOK FOR THE MONTH OF AUGUST, 2004 WAS FILED BEFORE THE AO. ALL THE RETURNS TILL A.Y. 2005 - 06 WERE FILED BEFORE THE AO AND SOURCES OF CAPITAL FULLY EXPLAINED. INCIDENTALLY NO ADDITION IS MADE ON ACCOUNT OF UNEXPLAINED CASH CREDITS IN THE HANDS OF APPELLANT WHICH CLEARLY SHOWS THAT SOURCES OF FUNDS HAVE BEEN EXPLAINED BY THE APPELLANT AND HAVE BEEN EXPLAINED TO THE SATISFACTION OF THE LD. AO AND THE EXPLANATION OF THE APPELLANT IS ACCEPTED BY THE LD. AO. 5. AS REGARDS OBSERVATION OF THE LD. AO IN PARA 4.8 IT IS SUBMITTED THAT SI NCE THE PRINTOUTS WERE ALREADY SENT / PRODUCED BEFORE THE DEPARTMENT TIME AND AGAIN THE FACT THAT COMPUTER WAS NOT PRODUCED HAS NO RELEVANCE. IT IS FURTHER SUBMITTED THAT EVEN IF THE APPELLANT FAILED TO PRODUCE BOOKS OF ACCOUNTS DURING THE COURSE OF SEARCH IT DOES NOT CONDEMN THE CASE OF THE APPELLANT FOREVER, FOR LIFE . THE APPELLANT PRODUCED ALL BOO KS OF ACCOUNTS DURING THE COURSE OF THE ASSESSMENT. 40 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 6. AS REGARDS OBSERVATION OF THE LD. AO IN PARA 4.9 IT IS SUBMITTED THAT THE APPELLANT SENT COMPLETE PRINTO UTS OF BOOKS OF ACCOUNTS, BANK STATEMENTS, PURCHASE AND SALES BILLS, ETC., TO DDIT(LNV.) MUMBAI, AND PRODUCED THE SAME BEFORE THE DDIT(LNV.) JAIPUR AND THE AO DURING THE COURSE OF THE ASSESSMENT. THE BOOKOF ACCOUNTS CLEARLY ESTABLISH THE CLAIM THAT THE GO O DS SEIZED WERE PART OF STOCK IN TRADE AND THE STOCK IN TRADE WAS FULLY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. AS STATED ABOVE THE APPELLANT SENT COMPLETE PRINTOUTS OF BOOKS OF ACCOUNTS, BANK STATEMENTS, PURCHASE AND SALES BILLS, ETC., TO DDIT(LNV.) MUMBAI , AND PRODUCED THE SAME BEFORE THE DDIT(LNV.) JAIPUR AND THE AO DURING THE COURSE OF THE ASSESSMENT. THE BOOKS OF ACCOUNTS CLEARLY ESTABLISH THE CLAIM THAT THE GODS SEIZED WERE PART OF STOCK IN TRADE AND THE STOCK IN TRADE WAS FULLY ACCOUNTED FOR IN THE BO OKS OF ACCOUNTS. SINCE THE BOOKS OF ACCOUNTS WERE PRODUCED BEFORE THE AO , THE CONTENTIONS THAT BOOKS OF ACCOUNTS WERE NOT MAINTAINED IS WITHOUT ANY BASIS. 7. AS REGARDS OBSERVATION OF THE LD. AO IN PARA 4.10 IT IS SUBMITTED THAT THE PAN MENTIONED ON RETURN OF INCOME IS CORRECT. ONLY THE LETTER 'U' IN PAN WAS WRONGLY FED INTO COMPUTER DATABASE AS 'V' BY CHART ERED ACCOUNTANTS' CLERK. SINCE IT WAS WRONGLY FED INTO MASTER DATABASE IT WAS WRONGLY TYPED IN DOCUMENTS PRINTED IN CHARTERED ACCOUNTANTS OFFICE. HOWEVER IN THE STATEMENT RECORDED U/S. 133A ON 9.12.2004 THE APPELLANT HAD GIVE N THE CORRECT PAN. YOUR HONOUR'S KIND ATTENTION IS INVITED TO THE ANSWER NO. 11 OF THE STATEMENT RECORDED U/S. 133A WHEREIN THE CORRECT PAN IS GIVEN BY THE APPELLANT AT THE FIRST INSTA NCE. IT IS FURTHER SUBMITTED THAT THE APPELLANT WAS RUNNING IN THE NAME AND STYLE OF M/S. RAJ BULLION IN THE YEARS 2001 - 2003 AND THE REGISTERED OFFICE OF THE SAID RAJ BULLION WAS IN AHMEDABAD. THE RETURNS OF INCOME ARE FILED AT AHEMDABAD AS THE JURISDICT ION OVER CASE LIES AT AHEMDABAD. IT IS THEREFORE SUBMITTED THAT THE RETURNS OF INCOME ARE CORRECTLY FILED AT AHEMDABAD. IN THE PROCEEDINGS U/S. 153A THE LD. AO HAS FRAMED ASSESSMENT FOR A.Y. 2002 - 03 WHERE HE HAS ACCEPTED THAT THE APPELLANT WAS A 41 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN GOLD DEALE R AND HAS ASSESSED INCOME FROM PROPRIETARY CONCERN M/S. RAJ BULLION WHICH WAS IDENTICAL BUSINESS. 8. AS REGARDS OBSERVATION OF THE LD. AO IN PARA 4.10 IT IS SUBMITTED THAT THE ASSESSEE HAS EXPLAINED THAT HE REQUIRED TO MAKE DEPOSITS OF CASH IN BANK IN MUMB AI. THIS IS FOR THE REASONS THAT THE BANKS IN SMALLER CITIES ARE NOT EQUIPPED WITH FACILITIES TO HANDLE SUCH A VOLUME OF CASH. EVEN IN MUMBAI THE CASH IS REQUIRED TO BE DEPOSITED IN CURRENCY CHESTS WHICH HAVE CASH COUNTING MACHINES AND MANPOWER TO HANDLE T HE CASH OF THIS MAGNITUDE. THE TICKETS WERE REQUIRED FOR CARRYING CASH FROM JAIPUR TO MUMBAI AND DEPOSITING THE SAME AT MUMBAI. 9. AS REGARDS OBSERVATION OF THE LD. AO IN PARA 4.12 IT IS SUBMITTED THAT THE APPELLANT HAS EXPLAINED THAT THE GOODS WERE SOLD I N CASH. THE NAME OF THE PERSONS TO WHOM THE GOODS WERE SOLD IS MENTION ED IN THE CASH MEMOS WHICH ARE FOUND AND SEIZED BY THE INCOME TAX DEPARTMENT. THUS THE PERSONS TO WHOM THE GO L DS ARE SOLD ARE IDENTIFIED AND THE NAMES OF ALL PERSONS ARE AVAILABLE WITH T HE INCOME TAX DEPARTMENT. 10. AS REGARDS OBSERVATION OF THE LD. AO IN PARA 4.13 AND 4.14 IT IS SUBMITTED THAT THE ALLEGATIONS ARE TOTALLY BASELESS. THERE IS NOTHING UNUSUAL OR IMPROBABLE ABOUT THE TURNOVER ACHIEVED BY A BULLION TRADER. THIS IS HIGH VOLUME LOW MARGIN BUSINESS AND HIGH TURNOVER OF THE GOLD BULLION IN COUNTRY LIKE INDIA IS QUITE COMMON. THIS IS NORMAL IN THIS LINE OF BUSINESS. AS EXPLAINED IN THE DETAILED NOTE GIVEN EARLIER THIS IS A VOLUME DRIVEN BUSINESS DONE ON WAFER THIN MARGINS WHERE TURN OVER IS OF PARAMOUNT IMPORTANCE. THE ASSESSEE CANNOT BREAK EVEN IF HE DOES NOT ACHIEVE A HIGH TURNOVER. HIGH TURNOVER IS POSSIBLE ONLY IF SALES ARE MADE STRICTLY AGAINST CASH, CASH DEPOSITED IN BANK, PAYMENT IS MADE AND THE DELIVERY OF NEXT CONSIGNMENT TAK EN. THE ASSESSEE HAS EXPLAINED THAT IT HAD SUFFICIENT FUNDS IN FORM OF OWN CAPITAL, BORROWING FROM FRIENDS, RELATIVES AND BUSINESS ASSOCIATES AND SUPPLIER CREDITS TO CONDUCT THE BUSINESS. THE ASSESSEE HAS FILED RETURN FOR EARLIER YEARS. THE ASSESSEE HAS AL SO FILED RETURN OF INCOME IN RESPONSE TO NOTICE U/S. 153A ISSUED BY 42 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN THE DEPARTMENT. THE SOURCES OF FUNDS UTILIZED FOR THE PURPOSE OF BUSINESS ARE FULLY EXPLAINED IN THE RETURNS FILED BY THE ASSESSEE THE ASSESSEE HAS IN PAST DONE BUSINESS OF BULLION TRADING UNDER THE NAME AND STYLE OF M/S. RAJ BULLION AND CLOCKED A TURNOVER OF MORE THAN 600 CRORES. THE ASSESSEE HAS SUFFICIENT EXPERIENCE IN THE LINE OF BUSINESS. THE SAID BUSINESS OF THE MODUS OPERAND I , THE TURNOVER AND THE TRADING RESULTS HAVE BEEN ACCEPTED B Y THE VERY SAME OFFICE WHILE FRAMING ASSESSMENT FOR A. Y. 2002 - 03 U/S. 153AOFTHEACT. 11.AS REGARDS OBSERVATION OF THE LD. AO IN PARA 4.15 AND 4.16 IT IS SUBMITTED THAT THERE IS NO DOUBT THAT ON 9.12.2004 THE GOODS WERE TRANSPORTED TO MUMBAI FOR ONWARD TRAN SPORTATION TO COIMBATORE. THE NECESSARY ARRANGEMENTS WERE BEING MADE AT MUMBAI FOR ONWARD JOURNEY TO COIMBATORE. HOWEVER SINCE THE TICKETS FOR ECONOMIC CLASS WERE NOT AVAILABLE THE APPELLANT WAS UNABLE TO OBTAIN THE TICKETS FOR ONWARD JOURNEY TO COIMBATORE . THE AO HAS STATED THE TICKETS FOR EXECUTIVE CLASS WERE AVAILABLE. THE COST OF THESE TICKETS ARE EXTREMELY HIGH AND THEREFORE IT WAS NOT VIABLE TO TRAVEL BY EXECUTIVE CLASS. THE BUSINESS AT COIMBATORE WAS JUST BEING STARTED AND THEREFORE THERE WAS NO BUSI NESS ACTIVITY AT COIMBATORE. THE APPELLANT WAS TRYING TO DEVELOP THE MARKET AND THE CONSIGNMENT WAS BEING SENT TO 'DEVELOP THIS MARKET. INCIDENTALLY RATES OF BULLION AT COIMBATORE IS NORMALLY HIGHER THAN THE RATES IN JAIPUR ' . 12. AS REGARDS OBSERVATION OF THE AO IN PARA 4.17 IT IS SUBMITTED THAT THE CONFIRMATION LETTER OF M/S. NAKSHATRA BULLION IS FILED BEFORE THE AO AND IS ON RECORD. THE CONFIRMATION LETTER CONTAIN COMPLETE DETAILS OF ALL TRANSACTIONS ENTERED INTO WITH M/S. NAKSHATRA BULLION THERE IS NO RE ASON TO DISBELIEVE THE SALES MADE TO THE SAID PARTY ON 10.12.2004. 13. AS REGARDS OBSERVATION OF THE LD. AO IN PARA 4.17 IT IS SUBMITTED THAT THE CARRIERS WERE NOT TRAVELING IN FAKE NAMES. THEY WERE ONLY FILLING UP FOR THE PERSONS WHO WERE UNABLE TO TRAVEL ON THAT PARTICULAR DAY. THE TICKETS WERE BROUGHT IN ADVANCE IN ANTICIPATION OF CERTAIN PERSON TRAVELLING ON THAT DAY. SINCE THE 43 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN PERSON IN WHOSE NAMES THE TICKETS WERE INITIALLY OBTAINED WERE NOTAVAILABLE THESE PERSONS WERE SENT AS A REPLACEMENT TO FILL UP FOR PERSONS WHO WERE ORIGINALLY STATED TO TRAVEL. AT THE HIGHEST IT IS AN IRREGULARITY AND NOTILLEGALITY. 14. AS REGARDS OBSERVATION OF THE AO IN PARA 4.18 IT IS SUBMITTED THAT THE CIRCUMSTANCE THAT LED TO SEIZURE OF STOCK HAVE BEEN EXPLAINED. IN ANY CASE WHAT IS IMPORTANT IS THAT WHAT EVIDENCE THE LD. AO HAS IN HIS POSSESSION TO BRUSH ASIDE THE CLAIM OF THE APPELLANT THAT THE STOCK IN TRADE IS FULLY ACCOUNTED. THE AO CANNOT BRUSH ASIDE VOLUMINOUS EVIDENCES SUBMITTED BY THE APPELLANT AND CITE THE CIRCUMSTA NCES THAT LED TO SEIZURE OF STOCK. THE PROCEEDINGS U/S. 132(1) ARE DISTINCT AND DIFFERENT AND SEPARATE FROM THE ASSESSMENT PROCEEDINGS. THE APPELLANT HAS GIVEN COMPLETE DETAILS OF PURCHASES AND SALES INCLUDING THE QUANTITATIVE DETAILS, CONFIRMATION LETTERS , LOAN CONFIRMATION LETTERS, DETAILS OF EXPENSES AND ALL OTHER DETAILS AS CALLED FOR BY THE LD. AO WHICH CLEARLY PROVES THAT THE GOLD BULLION FOUND WAS PART OF STOCK IN TRADE OF M/S. RAJGURU BULLION WHICH IS FULLY ACCOUNTED FOR AND COMPLETELY EXPLAINED AND VERIFIABLE . THERE IS NO QUESTION OF THESE GOODS BELONGING TO ANYONE ELSE LEAST OF ALL M/S. PUSHPAK BULLION PVT. LTD. INCIDENTALLY THE BALANCE IN THE ACCOUNT OF M/S. PUSHPAK BULLION PVT. LTD. AS ON TODAY IS NIL AND THEREFORE THE GOODS FOUND AND SEIZED CANNO T BELONG TO M/S. PUSHPAK BULLION PVT. LTD. 15. AS REGARDS GOLD BULLION FOUND AND SEIZED DURING THE COURSE OF SEARCH ON 9.12.2004 IT IS NOT KNOWN AS TO HOW THE LD. AO HAS REACHED TO A CONCLUSION THAT THE SAID GOLD BULLION REPRESENTS THE UNACCOUNTED INVESTME NTS OF THE APPELLANT. THE LD. AO HAS HIMSELF STATED THAT THE APPELLANT HAS PURCHASED THE GOODS AT JAIPUR AND TRANSFERRED IT TO MUMBAI. THE SOURCES OF THE PURCHASES HAVE BEEN THOROUGHLY VERIFIED. - THE FACT THAT THE SAME REPRESENTS STOCK IN TRADE OF THE APPE LLANT IS ALSO CONFIRMED BY THE LD. AO WHEN HE HIMSELF STATES THAT THESE GOODS ARE PURCHASED AT JAIPUR AND SOLDAT MUMBAI AND THAT THE APPELLANT HAS EARNED SOME AMOUNT OF UNDISCLOSED PROFIT ON THESE TRANSACTIONS. THUS THE ONLY ALLEGATION OF THE LD. AO (BASED ON ASSUMPTIONS, PRESUMPTIONS, SURMISES AND GUESS WORK) IS THAT THE APPELLANT HAS PURCHASED GOODS AT JAIPUR AND HAS ALLEGEDLY SOLD THE SAME AT 44 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN MUMBAI (INSTEAD OF JAIPUR AS CORRECTLY CLAIMED). THE FACT THAT THE GOODS FOUND AND SEIZED FROM MUMBAI ARE PART OF SUCH SCHEME IS NOT DENIED EVEN BY THE LD. AO. THUS THE ADDITION ON RS. 3,46,00,000 IS CONTRARY TO HIS FINDINGS GIVEN IN THE ASSESSMENT ORDER. WITHOUT PREJUDICE TO ABOVE IT IS ALSO CONTRARY, TO THE FINDINGS OF THE LD. AO IN PARA 5 ON PAGE NO. 15 WHEREIN TH E LD. AO HASCONCLUDED THAT T HE GOLD FOUND AT THE AIRPORT IS NOT HIS OWN STOCK IN TRADE. ,; 16. IN VIEW OF THE ABOVE IT IS SUBMITTED THAT THE APPELLANT IS AN INDEPENDENT BUSINESSMAN CARRYING ON AN INDEPENDENT BUSINESS. THE GOLD BULLION FOUND AND SEIZED DURI NG THE COURSE OF THE SEARCH AT AIRPORT IS PART OF ACCOUNTED STOCK IN TRADE. 17. THE ADDITION IS MADE ON TOTALLY IRRELEVANT AND IMMATERIAL CONSIDERATIONS. IT IS SETTLED JUDICIAL POSITION LAID DOWN BY THE SUPREME COURT IN DHIRAJLA L GIRDHARILAL V. CIT 26 ITR 7 36 WHICH WAS APPLIED BY PATNA HIGH COURT IN SURAJMALCHAMPALAL V. CIT 66 ITR 396 WHERE THE COURT HELD : 'IF AN ESTIMATE IS BASED ON PARTLY IRRELEVANT MATERIAL AND PARTLY ON RELEVANT MATERIAL, IT IS DIFFICULT TO SUSTAIN THE ESTIMATE BECAUSE IT CANN O T BE SAID TO WHAT EXTENT AND WHICH PART OF THE FIGURE OF ESTIMATE WAS DEPENDENT UPON THE IRRELEVANT PORTION OR THE MATERIAL.' 18. WITHOUT PREJUDICE TO ABOVE THE REJECTION OF BOOKS OF ACCOUNTS AND DISALLOWANCE OF BOOK LOSS HAS ALREADY RESULTED INTO ADDITION OFRS. 1. 75 CRORES. A FURTHER ADDITION OF RS. 1,97,00,000 ON ACCOUNT OF ALLEGED SUPPRESSION OF PROFIT WOULD RESULT INTO A DOUBLE ADDITION. AT THE HIGHEST IN THE WORST CASE SCENARIO ONLY ONE OF THE TWO ADDITIONS CAN BE SUSTAINED AND NOT BOTH. 19. IN VIEW OF THE ABOV E YOUR HONOUR IS REQUESTED TO DELETE THE ADDITIONS OF RS. 4,04,00,000 ON PROTECTIVE BASIS AND 1,97,00,000 ON SUBSTANTIVE BASIS ON ACCOUNT OF THE ALLEGED UNACCOUNTED PROFIT ON CASH SALE OF GOODS AND THE ADDITION OF RS. 3,46,00,000 ON ACCOUNT OF ALLEGED UNEX PLAINED INVESTMENTS IN THE GOLD' BULLION. 45 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 7.5.1. IN FURTHER WRITTEN SUBMISSIONS THE ASSESSEE HAS FURTHER STATED AS UNDER : 1. THE COPY OF AUDIT REPORT AND AUDITED STATEMENT OF ACCOUNTS OF M/S. RAJ BULLION MY PROPRIETARY CONCERN IS ENCLOSED HEREWITH. THE COP Y OF ASSESSMENT ORDER FOR A.Y. 2002 - 03 PASSED U/S. 153A BY THE VERY SAME ASSESSING OFFICER IS ALSO ENCLOSED HEREWITH. IT CAN BE SEEN THAT THE VERY SAME OFFICE HAS ACCEPTED THAT I WAS PROPRIETOR OF M/S. RAJ BULLION WHICH WAS ENGAGED IN THE IDENTICAL BUSINES S OF TRADING IN GOLD AND SILVER BULLION. IT CAN ALSO BE SEEN THAT DURING THE PREVIOUS YEAR RELEVANT TO A. Y. 2002 - 03. I HAVE ACHIEVED A TURNOVER OF MORE THAN RS. 800 CRORES. 2. THE AO HAS FURTHER STATED THAT THE APPELLANT WAS UNABLE TO EXPLAIN THE TRANSA CTION OF PURCHASES OF GOODS OF NEARLY 11 CRORES ON 9.12.2004 AND DEPOSITSAND WITHDRAWALS OF NEARLY 5.80 CRORES ON 9.12.2004. IT IS SUBMITTED WITH GREATEST OF RESPECT THAT THESE OBSERVATIONS OF THE AO ARE FACTUALLY INCORRECT. AT THE OUTSET IT IS SUBMITTED T HAT THE APPELLANT HAS NOT MADE ANY PURCHASES ON 9.12.2004. THE PURCHASES REFERRED TO BY THE AO WERE MADE ON 8.12.2004. YOUR HONOUR'S KIND ATTENTION IS INVITED TO STATEMENT OF SH SURESH JAIN RECORDED U/S. 133A AND ANOTHER STATEMENT RECORDED U/S. 132(4) BOTH ON 9.12.2004 {PLEASE REFER EXHIBIT L AND M ON PAGES NOS. 247 AND 250 RESPECTIVELY}. IN A STATEMENT RECORDED U/S. 133A ON 9.12.2004 AT 2.20 P.M. THE APPELLANT WAS SPECIFICALLY ASKED TO EXPLAIN THE PURCHASES AND SALES MADE BY RAJGURU BULLION ON 8.12.2004. I N THE ANSWER TO QUESTION NO. 4 OF THE SAID STATEMENT THE APPELLANT HAS CLEARLY EXPLAINED THAT M/S. RAJGURU BULLION HAD PURCHASED 110 KGS. OF GOLD BULLION FROM M/S. ZAVERI& CO. AND 50 KGS. OF GOLD BULLION FROM OSWAL TRADING COMPANY. HE HAS STATED THAT APART FROM THESE, THERE ARE NO OTHER PURCHASES MADE ON 8.12.2004. FURTHER IN ANSWER TO QUESTION NO. 6 OF THE SAME STATEMENT THE APPELLANT HAS GIVEN COMPLETE DETAILS OF THE SALES MADE OUT OF THE SAID PURCHASES. IN ANSWER TO QUESTION NO. 8 HE HAS GIVEN COMPLETE DE TAILS OF THE BANK ACCOUNTS OF THE SAID FIRM. IN ANSWER TO QUESTION NO. 9 HE HAS GIVEN DETAILS OF HIS BRANCHES. IN ANSWER TO QUESTION NO. 10 HE HAS GIVEN DETAILS OF HIS CHARTERED ACCOUNTANTS AND HIS PAN. IN THE ANSWER TO QUESTION NO. 19 HE HAS CLEARLY EXPLA INED THAT THE DEPOSITS OF RS. 5.88 CRORES IN HIS BANK ACCOUNT ON 9.12.2004 I S OUT OF SALES PROCEEDS 46 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN RECEIVED ON ACCOUNT OF THE SALE OF 78 KGS. GOLD EFFECTED ON 8.12.2004 AND HAS FURTHER EXPLAINED THAT THIS AMOUNT WAS DEPOSITED BY HIS ACCOUNTANT SHRI SUSHANT MALEKAR. HE HAS FURTHER EXPLAINED THAT THE PAYMENTS MADE TO SUPPLIERS TOO HAS BEEN MADE BY HIS ACCOUNTANT' TO WHOM HE HAD HANDED OVER PRESIGNED CHEQUES. IN ANSWER TO QUESTION NO. 22 HE HAS CATEGORICALLY DENIED THAT HE IS MERELY A CARRIER AND HAS STATED ON OATH THAT HE IS A PROPRIETOR OF M/S. RAJGURU BULLION. IN ANSWER TO QUESTION NO. 23 HE HAS GIVEN COMPLETE DETAILS OF 82 KGS. WHICH WAS INTENDED TO BE TRANSFERRED TO THE BRANCH ATCOIMBATORE. 3. AS REGARDS THE CONTENTIONS OF THE AO THAT THE APPELLANT HAS NOT MAINTAINED BOOKS OF ACCOUNTS IT IS SUBMITTED THAT NOT ONLY THE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED BUT WERE UPTO DATE AS ON THE DATE OF SEARCH. ALL SALES AND PURCHASES BILLS HAVE BEEN SEIZED. THE PHOTOCOPIES OF THESE SEIZED DOCUMENTS WERE NOT GIVEN TO T HE APPELLANT. YET THE APPELLANT WAS ABLE TO COMPLETE BOOKS OF ACCOUNTS, DRAW FINANCIAL STATEMENTS AND FILE RETURN OF INCOME ALONGWITH THESE FINANCIAL STATEMENTS. THIS CLEARLY PROVES THAT NOT ONLY THE APPELLANT HAD MAINTAINED BOOKS OF ACCOUNTS BUT THE BOOKS OF ACCOUNTS WERE WRITTEN UPTO THE DATE OF SEARCH. 4. IT IS FURTHER SUBMITTED THAT MOST OF THE BOOKS OF ACCOUNTS INCLUDING PURCHASES REGISTER, SALES REGISTER, STOCK REGISTER, SALES INVOICES AND PURCHASES INVOICES WERE FOUND AND SEIZED BY THE INCOME TAX DEP ARTMENT AND ARE STILL LYING WITH THEM. THE COPIES OF PANCHANAMA FOR SEIZURE ARE OF BOOKS, DOCUMENTS AND OTHER LOOSE PAPER DOCUMENTS ARE ENCLOSED HEREWITH. ANNEXURE WISE AND PAGE WISE (WHERE APPLICABLE) EXPLANATION FOR THE SEIZED DOCUMENTS ARE ALSO ENCLOSED HEREWITH. IT CAN BE SEEN THAT FOLLOWING BOOKS / DOCUMENTS WERE SEIZED DURING THE COURSE OF THE SEARCH WHICH CLEARLY INDICATES THAT THE BOOKS OF ACCOUNTS WERE MAINTAINED. OUT OF DOCUMENTS / BOOKS SEIZED FROM GANPATI PLAZA. JAIPUR 47 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN A - 1 THIS IS STO CK REGISTER FOR FINANCIAL YEAR 2004 - 05. THIS IS PART OF REGULAR BOOKS OF ACCOUNTS AND AS SUCH ACCOUNTED FOR. A - 2 THIS IS PURCHASE REGISTER FOR FINANCIAL YEAR 2004 - 05. THIS IS PART OF REGULAR BOOKS OF ACCOUNTS AND AS SUCH ACCOUNTED FOR. A - 3 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE, DELIVERY CHALLANS AND COPIES OF CHEQUES /PAY ORDER ISSUED FOR PURCHASES. ALL THE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 4 THIS IS SALES REGISTER FOR FINA NCIAL YEAR 2004 - 05. THIS IS PART OF REGULAR BOOKS OF ACCOUNTS AND AS SUCH - ACCOUNTED FOR. A - 5 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE AND DELIVERY CHALLANS. ALL THE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 6 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE AND DELIVERY CHALLANS. ALL THE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 7 TO A - 15 THESE FILES CONTAIN SALES BILLS FOR THE FINANCIAL YEAR 2004 - 05. ALL THE SALES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 48 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN A - 16 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE AND DELIVERY CHALLANS. ALL THE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 1 7 1 - 8 THESE ARE SALES TAX FORMS, BRANCH TRANSFER MEMOS AND DELIVERY CHALLANS IN RESPECT OF THE GOODS PROPOSED TO BE TRANSFERRED TO BRANCH OFFICE AT COIMBATORE. THE GOODS WERE TO BE TRANSFERRED FROM STOCK IN TRADE AVAILABLE. THE CORRESPONDING PURCHAS ES MADE FROM ZAVERI& CO. AND OSWAL TRAD ING CO. ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 12 - 33 THESE ARE CASH MEMOS IN RESPECT OF THE SALES MADE. ALL THESE BILLS ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 34 - 36 TH ESE ARE DELIVERY CHALLANS IN RESPECT OF THE PURCHASES MADE FROM M/S. ZAVERI& CO. AHMEDABAD. ALL THESE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. A - 18 1 - 80 THESE ARE CASH MEMOS IN RESPECT OF THE SALES MADE. ALL THESE BILLS ARE A CCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 81 THIS IS PURCHASE BILL IN RESPECT OF THE PURCHASES MADE FROM OSWAL TRADING CORPORATION. THIS, BILL IS ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 49 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 83 THIS IS PURCHASE BILL IN RESPECT OF THE PURCHASES MADE FROM OSWAL TRADING CORPORATION. THIS BILL IS ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 84 - 85 THESE ARE DELIVERY CHALLANS IN RESPECT OF THE PURCHASES MADE FROM M/S. ZAVERI& CO. AHMEDABAD. ALL THESE PURCHASES ARE ACCOUN TED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 90 - 92 THIS IS STOCK REGISTER FOR THE PERIOD 4.12.2004 - 6.12.2004. THIS STOCK REGISTER IS PART OF REGULAR BOOKS OF ACCOUNTS AND AS SUCH ACCOUNTED FOR. 93 - 94 THESE ARE BILLS IN RESPECT OF T HE PURCHASES MADE FROM M/S. PUSHPAK BULLION PVT. LTD. ALL THESE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. OUT OF DOCUMENTS / BOOKS SEIZED FROM BANI PARK, JAIPUR ANNX. NO. PAGE NOS. EXPLANATION A - 2 THIS FILE CONTAINS BILLS IN RESPECT OF THE PURCHASES MADE AND DELIVERY CHALLANS. AH THE PURCHASES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 50 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN A - 9 3 - 7 THIS IS THE STOCK TRANSFER MEMO. THE STOCK TRANSFER MEMO BEARS UNIQUE SERIAL NOS. WHICH ARE ALSO ETCHED ON THE G OODS FOUND AND SEIZED. THIS PROVES BEYOND ALL REASONABLE DOUBTS THAT THE GOODS FOUND AND SEIZED ON 9.12.2004 ARE PART OF STOCK IN TRADE. THESE GOODS WERE TO BE TRANSFERRED FROM JAIPUR TO BRANCH AT COIMBATORE. A - 10 5 THIS IS MEMO FOR STOCK T RANSFER TO BRANCH AT COIMBATORE. THE STOCK WAS INTENDED TO BE TRANSFERRED FROM STOCK IN HAND WHICH WAS OUT OF PURCHASES MADE FROM ZAVERI& CO. AND M/S. OSWAL TRADING CO. 13 - 14 THIS IS STOCK REGISTER FOR 7.12.2004. THIS STOCK REGISTER IS PART OF REGULAR BOOKS OF ACCOUNTS AND AS SUCH ACCOUNTED FOR. 15 - 69 THESE ARE SALES BILLS FOR THE FINANCIAL YEAR 2004 - 05. ALL THE SALES ARE ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. FROM THE ABOVE IT IS VERY CLEAR THAT THE REGULAR BOOKS OF ACC OUNTS WERE MAINTAINED AND MANY OF THESE BOOKS OF ACCOUNTS ARE PART OF THE DOCUMENTS FOUND AND SEIZED DURING THE COURSE OF THE SEARCH. 15. AFTER CONSIDERING THE DETAIL SUBMISSION OF THE ASSESSEE, LD. CIT(A) CONFIRMED THE ADDITIONS OF RS. 1.97 CRORES ON ESTI MATION OF SUPPRESSION OF 51 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN PROFIT ON CASH SALES IN THE HAND OF THE ASSESSEE AND DELETED THE PROTECTIVE ASSESSMENT MADE IN THE HANDS OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS: - 7.12 THE AO HAS STATED THAT THE DIARY FOUND DURING THE COURSE OF THE SEARCH INDICATED THAT THE GOLD BULLION WAS PURCHASED AT JAIPUR AND AHEMDABAD AND SOLD IN MUMBAI. THE APPELLANT WAS NOT IN A POSITION TO EXPLAIN THAT NOTINGS IN DIARY. I DO NOT AGREE WITH THE FINDINGS OF THE AO THAT THE DIARY INDICATES THAT THE GOLD BULLION WAS PU RCHASED AT JAIPUR AND AHEMDABAD AND SOLD IN MUMBAI. IN FACT THE DIARY DOES NOT CONTAIN ANY DETAILS OF SALES. THE DIARY CONTAINS DETAILS OF QUANTITY OF GOODS RECEIVED AND QUANTITY OF GOODS HANDED OVER TO VARIOUS PERSONS TO MAKE DELIVERY. HOWEVER THE DIARY D OES NOT CONTAIN ANY NOTINGS IN RESPECT OF THE SALES OF GOLDS . IT IS FURTHER SEEN FROM PAGE NO. 21 - 23 OF THE ASSESSMENT ORDER THAT WHILE ANSWERING QUESTIONS 8 - 16 OF THE STATEMENT, RECORDED ON 23.12.2006 THE APPELLANT HAS ANSWERED ALL THE QUERIES RAISED BY THE ASSESSING OFFICER ABOUT THE SEIZED DIARY. THE ASSESSING OFFICER HAS NOT CONTROVERTED THESE EXPLANATIONS. 7.13 THE AO HAS STATED THAT THE APPELLANT HAS NOT BEEN ABLE TO IDENTIFY ANY OF THE P ARTY TO WHOM THE GOODS WERE SOLD. IT WAS HIGHLY IMPROBABLE T HAT SALES WERE MADE AT JA IPUR BUT THE CASH COLLECTED WAS DEPOSITED IN MUMBAI. THE SALES BILLS WERE SEIZED BY THE INCOME TAX DEPARTMENT DURING THE COURSE OF THE SEARCH WHICH CONTAINS THE NAME OF THE PERSON TO WHOM THE GOOD S HAVE BEEN SOLD. AT THE SAME TI ME T HERE IS A CONSIDERABLE FORCE IN THE FINDINGS OF THE AO THAT IT WAS HIGHLY IMPROBABLE THAT SALES W E RE MADE AT JAIPUR BUT THE CASH COLLECTED WAS DEPOSITED IN MUMBAI. THE APPELLANT'S ARGUMENTS THAT THE BANKS AT JAIPUR WERE NOT EQUIPPED WITH FACILITIES TO HAND LE SUCH HUGE VOLUME DOES NOT APPEAR VERY CONVINCING AS JAIPUR IS ONE OF THE BIGGEST CITY OF INDIA AND THE BANKS THERE WOULD HAVE FACILITY TO HANDLE ANY VOLUME OFCASH. 52 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 7.14 THE AO HAS FURTHER STATED THAT IT WAS HIGHLY IMPROBABLE THAT THE APPELLANT WILL HAVE SUCH A TURNAROUND OF FORTUNES TO ACHIEVE A TURNOVER OF RS. 622 CRORES IN JUST FOUR MONTHS. THE APPELLANT WAS UNABLE TO EXPLAIN THE SOURCES OF CAPITAL ON THE DATE OF SEARCH. I FIND CONSIDERABLE FORCE IN THE SUBMISSIONS OF THE APPELLANT THAT THERE IS NOTHIN G UNUSUAL OR IMPROBABLE ABOUT THE TURNOVER ACHIEVED BY A BULLION TRADER. THIS IS HIGH VOLUME LOW MARGIN BUSINESS AND HIGH TURNOVER OF THE GOLD BULLION IN COUNTRY LIKE INDIA IS QUITE COMMON. THIS IS NORMAL IN THIS LINE OF BUSINESS. THE APPELLANT HAS EXPLAIN ED THAT IT HAD SUFFICIENT FUNDS IN FORM OF OWN CAPITAL, BORROWING FROM FRIENDS, RELATIVES AND BUSINESS ASSOCIATES AND SUPPLIER CREDITS TO CONDUCT THE BUSINESS. THE SOURCES OF FUNDS UTILIZED FOR THE PURPOSE .OF BUSINESS ARE FULLY EXPLAINED IN THE RETURNS FI LED BY THE ASSESSEE AND THE EXPLANATION OF THE APPELLANT IS ACCEPTED BY THE AO. THE ASSESSEE HAS IN PAST DONE BUSINESS OF BULLION TRADING UNDER THE NAME AND STYLE OF M/S. RAJ BULLION AND CLOAKED A TURNOVER OF MORE THAN 800 CRORES. THE ASSESSEE HAS SUFFICIE NT EXPERIENCE IN THE LINE OF BUSINESS. THE SAID BUSINESS, THE MODUS OPERAND!, THE TURNOVER AND THE TRADING RESULTS HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT FOR A.Y. 2002 - 03 U/S. 153A OF THE ACT. THE APPELLANT HAS FILED BEFOR E ME THE ASSESSMENT ORDER PASSED U/S. 153A FOR A.Y. 2002 - 03 BY THE VERY SAME AO ACCEPTING THE BUSINESS DONE IN THE NAME AND STYLE OF M/S. RAJ BULLION. 7.15 ANOTHER THING THAT I HAVE NOTICED IS THAT THE AO HAS HEAVILY RELIED ON THE EVENTS HAPPENING ON THE D ATE OF SEARCH AND THE STATEMENTS RECORDED AT THAT TIME. THE AO HAS STATED THAT THE APPELLANT WAS NOT IN A POSITION TO EXPLAIN CERTAIN THINGS DURING THE COURSE OF THE SEARCH PROCEEDINGS AND THAT THAT THE APPELLANT DID NOT PRODUCE BOOKS OF ACCOUNTS DURING TH E COURSE OF THE SEARCH. HOWEVER HE HAD NOT GIVEN ANY FINDINGS IN RESPECT OF THE DOCUMENTARY EVIDENCES PRODUCED BY THE APPELLANT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND THE EXPLANATIONS GIVEN DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. I AG REE WITH THE APPELLANT THAT FAILURE TO GIVE EXPLANATION DURING THE COURSE OF THE SEARCH DOES NOT CONDEMN THE APPELLANT FOREVER AND THAT HE IS WITHIN HIS RIGHTS TO EXPLAIN THINGS HE WAS NOT ABLE TO EXPLAIN EARLIER. THE EXPLANATION 53 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN GIVEN AND DETAILS FILED DU RING THE COURSE OF THE ASS ESSMENT PROCEEDINGS CANNOT BE BRUSHED ASIDE ONLY ON THE GROUND THAT SUCH 'DETAILS AND EXPLANATIONS WERE NOT GIVEN EARLIER. MOREOVER, THE ASSESSING OFFICER HAD NOT DISPUTED OR BROUGHT ANY EVIDENCE TO DISPROVE THE EXPLANATION GIVEN BY THE APPELLANT. 7. 16 AS REGARDS THE STOCK IN TRADE THE APPELLANT HAS PRODUCED DOCUMENTARY EVIDENCE TO PROVE THAT HE WAS DOING THE BUSINESS IN THE NAME AND STYLE OF M/S. RAJGURU BULLION. HE HAS PROVED BEYOND ALL REASONABLE DOUBTS THAT HE WAS PROPRIETOR OF THE SAID BUSINESS. HE HAS DONE SIMILAR BUSINESS 'UNDER NAME AND STYLE OF M/S. RAJ BULLION AND HAS ACHIEVED A TURNOVER OF MORE THAN RS. 800 CRORES. THE VERY SAME AO HAS ACCEPTED THE RETURN OF INCOME FOR A.Y. 2000 - 01, 2001 - 02 AND 2002 - 03 WHEREIN THE APPEL LANT HAS DECLARED A PROFIT FROM M/S. RAJ BULLION. IN FACT IN THE YEAR 2002 - 03 THE APPELLANT HAS ACHIEVE A TURNOVER OF MORE THAN RS. 800 CRORES. IF IN EARLIER YEARS THE APPELLANT'S BUSINESS IS ACCEPTED THERE IS NO REASON TO DISBELIEVE THAT HE CANNOT CONDUCT SIMILAR BUSINESS IN SUBSEQUENT YEARS. 7.17 AT THE SAME TIME IT CANNOT BE SAID THAT THE SALES OF THE APPELLANT ARE COMPLETELY VERIFIABLE. IT IS TRUE THAT THE SALES BILLS WERE FOUND AND SEIZED DURING THE COURSE OF THE SEARCH. IT IS ALSO TRUE THAT THE AO HA S NOT POINTED OUT ANY DISCREPANCIES IN SALES. BUT THE FACT OF THE MATTER IS THAT WHEN THE SALES ARE COMPLETELY IN CASH IT CANNOT BE SAID THAT THE SALES ARE FULLY VERIFIABLE. ANOTHER PECULIAR THING TO NOTE IS THAT EACH OF THE CASH MEMO IS IN EXCESS OF RS. 2 0,000. IT IS SEEN FROM THE STOCK BOOK FILED BY THE APPELLANT THAT NO BILLS ARE FOR LESS THAN 1 KG. OF GOLD BULLION. THUS EACH AND EVERY CASH MEMO WOULD BE MORE THAN RS. 20,000. THIS MEANS THAT THE PURCHASES IN THE HANDS OF THE BUYER WOULD BE DISALLOWABLE U /S. 40A(3). NO PRUDENT BUSINESSMEN WOULD MAKE SUCH HUGE PURCHASES IN CASH AND INVITE DISALLOWANCES U/S. 40A(3). THE EXPLANATIONS OF THE APPELLANT REGARDING MAKING SALES AT JAIPUR AND DEPOSITING SALES PROCEEDS IN MUMBAI IS ALSO NOT VERY CONVINCING. THE BANK IN JAIPUR AND AHMEDABAD ARE FULLY EQUIPPED TO ACCOMMODATE ANY AMOUNT OF CASH. IT ALSO NOT POSSIBLE TO TRANSFER SUCH HUGE AMOUNTS OF CASH WITHIN A SHORT PERIOD FROM JAIPUR TO MUMBAI. IT IS HIGHLY PROBABLE THAT THE PROFIT ON CASH SALES MAY HAVE BEEN SUPPRES SED. IN VIEW OF ABOVE 54 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN I HOLD THAT THE AO WAS CORRECT IN ESTIMATING SUPPRESSION OF PROFIT ON CASH SALES AT RS. 1,97,00,000 AND ADDING THE SAME TO THE TOTAL INCOME OF THE APPELLANT. WITH REGARD TO DELETION ON PROTECTIVE ADDITION: - 7.18 AS REGARDS PROTECTIVE ADDITION OF RS. 4,04,00,000 MADE ON ACCOUNT OF THE PROFIT OF SOME TRADERS WHO ACCORDING TO THE AO IS THE REAL OWNER I FIND CONSIDERABLE FORCE IN THE ARGUMENTS OF THE APPELLANT THAT PROTECTIVE ADDITIONS CANNOT BE MADE IN THE ASSESSMENT FRAMED U/S. 153A. TH IS VIEW IS SUPPORTED BY THE DECISION OF H'BLE MUM BAI BENCH OF INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF SMT. MOHINIDEVIHIRANANDANI C ITED BY THE APPELLANT. I AM ALSO IN AGREEMENT THAT NO ADDITIONS CAN BE MA DE IN THE HANDS OF THE APPELLANT ON BASIS OF MERE PRESUMPTIONS AND ASSUMPTIONS WITHOUT ESTABLISHING THE IDENTITY OF THE TRADER A. 7.19 IT IS ESTABLISHED POSITION IN LAW NO ASSESSMENT CAN BE BASED PURELY ON ASSUMPTIONS, PRESUMPTIONS, SURMISES, CONJECTURES AND GUESS WORK. IN MAKING AN ASSESSMENT THE AO IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL: THERE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPORT THE ASSESSMENT. IN OTHER WORDS, THE ASSESSMENT OF ANY PARTICULAR YEAR MUST BE BA SED NOT ON MERE SUSPICION OR BARE GUESS, BUT IN LEGITIMATE MATERIAL FROM WHICH A REASONABLE INFERENCE OF INCOME HAVING BEEN EARNED DURING THE ACCOUNTING YEAR COULD BE DRAWN AND THE INITIAL BURDEN OF FINDING SUCH MATERIAL, HOWEVER SLIGHT, IS ON THE INCOME T AX AUTHORITIES AND NOT ON THE ASSESSEE. THE ASSESSMENT IS NOT A LEAP IN THE DARK. THE AO IS NOT ENTITLED TO MAKE A GUESS WITHOUT ANY EVIDENCE. THIS VIEW IS SUPPORTED BY THE FOLLOWING DECISIONS : - A) DHAKESWARI COTTON MILLS LTD. (1954) 26 ITR 775 (SC). B) RA J MOHAN SAHAVRS. CIT (1964) 52 ITR 231 (ASSAM) C) CIT V. GOKALDAS HUKUMCHAND (1943) 11 ITR 462 (BOM). D) RAM DATTASITA RAM OF BASTI (1947) 15 ITR 61 (ALL) E) NARAYAN CHANDRA BAIDYA V. CIT (1951) 20 ITR 287. 55 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN F) GOPINATHAGARWALA V. CIT (1955) 28 ITR 753 (A LL) G) UNITED PATEL CONSTRUCTION CO. V. CIT (1966) 59 ITR 424 (MP). H) CIT V. R. Y. DURLABHJI (1995) 211 ITR 178 (RAJ.) I) BANSHIDHARONKARMALL V. CIT (1953) 23 ITR 353 (ORISSA). J) CIT V. KAMESHWAR SINGH (1933) 1 ITR 94. K) SETH NATHURAMMUNNALAL V. CIT 25 ITR 216 (NAG.) IN THE CASE OF DHAKESHWARI COTTON MILLS LTD. V/S. CIT 26 ITR 775 (SC) THE H'BLE SUPREME COURT HELD THAT THE ASSESSING OFFICER IS NOT ENTITLED TO MAKE PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. THERE MUST BE MORE THAN BARE SUSPICION TO SUPPORT THE ASSESSMENT UNDER SECTION 143(3). THERE IS NO PRESUMPTION OF BAD FAITH AGAINST AN ASSESSEE. IT IS ALSO AN ESTABLISHED PRINCIPLE OF LAW THAT SUSPICION, HOWSOEVER STRONG IT MAY BE, DOES NOTTAKE PLACE OF PLACE OF PROOF. THE SEIZED DOCUMENTS CANNOT TAKE PLACE OF PROOF, RATHER THEY MERELY CREATE SUSPICION. THIS VIEW IS SUPPORTED BY THE DECISION OF'H'BLE - MADRAS HIGH COURT IN THE CASE OF SIVAN PILLAI V/S. CIT 34 ITR 328 AND THE DECISION OF H'BLE ALLAHABAD H IGH COURT IN CIT V/S. CHIMANLALDHINGRA 121 TAXATION 272, 273. THE LEGAL POSITION IN THIS RESPECT IS FIRMLY SETTLED BY NOW. WHILE COMPLETING AN ASSESSMENT THE ASSESSING OFFICER IS NOT A COURT. HE IS ALSO NOT BOUND BY TECHNICAL RULES OF EVIDENCE. AT THE SAME TIME THOUGH TECHNICAL RULES OF EVIDENCE DO NOT APPLY, THE ASSESSING OFFICER IS BOUND BY THE PRINCIPLES OF NATURAL JUSTICE. HE CANNOT DRAW HIS INFERENCES ON THE BASIS OF SUSPICION, CONJECTURES AND SURMISES. SUSPICION HOWSOEVER STRONG, CANNOT TAKE PLACE OF MATERIAL IN SUPPORT OF FINDINGS OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHOULD ACT IN A JUDICIAL MANNER, PROCEED WITH A JUDICIAL SPIRIT AND COME TO A JUDICIAL CONCLUSION, AS HELD BY HON'BLE ALLAHABAD HIGH C OURT IN THE CA SE OF SWADESHI COTTON MILLS C O. LTD. V. ITO [1978] 112 ITR 1038. WHILE RECOGNISING THAT THE ASSESSING OFFICER IS NOT FETTERED BY TECHNICAL RULES OF EVIDENCE, HON'BLE SUPREME COURT LAID DOWN AS EARLY AS IN THE CASE OFDHAKESHWARI COTTON MILLS LTD. V. CIT [1954] 26 ITR 775 56 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN THAT THE ASSES SING OFFICER HAS TO ACT FAIRLY AS A REASONABLE PERSON AND NOT ARBITRARILY OR CAPRICIOUSLY. AN ASSESSMENT BASED ON NO MATERIAL AT ALL OR BASED ON INADEQUATE MATERIAL IS, THEREFORE, BAD IN LAW LIABLE TO BE SET ASIDE. THE ADDITIONS MADE BY THE AO IS PURELY ON THE BASIS OF HEAR SAY EVIDENCES AND NOT ON ANY TANGIBLE EVIDENCES. THE H'BLE MUMBAI BENCH OF ITAT WAS FACED WITH A SIMILAR SITUATION WHILE DECIDING THE CASE OF ITO V. W. D. ESTATE PVT. LTD. [1993] 45 ITD 473 (MUM.). IN THE SAID CASE ADDITIONS WERE MADE ON ACCOUNT OF THE ON MONEY RECEIVED BY THE ASSESSEE IN RESPECT OF SALE OF PROPERTY. THE COMMISSIONER (APPEALS) CONFIRMED ADDITION PARTLY AFTER BEING INFLUENCED BY A REPORT PUBLISHED BY MINISTRY OF FINANCE WHEREIN PREVALENCE OF NOTORIOUS PRACTICE OF PAYMENT O F BLACK MONEY IN REAL ESTATE TRANSACTION IN METROPOLITAN CITY OF BOMBAY WAS DISCUSSED. THE H'BLE ITAT DELETED THE ADDITIONS. IN THIS CASE THERE WAS A STATEMENT BY ONE OF THE DISGRUNTLED EMPLOYEE OF THE ASSESSEE. THE COMPARABLE CASES IN THE VICINITY DID SUG GEST PAYMENT OF ON MONEY. THERE WAS A REPORT OF EXPERTS IN FINANCE MINISTRY HIGHLIGHTING SUCH PRACTICE. INSPITE OF ALL THESE THE H'BLE ITAT HELD THAT THE ADDITIONS CANNOT BE MADE ON THE BASIS OF THE REPORT PREPARED BY THE EXPERTS IN THE MINISTRY OF FINANCE . A SURVEY REPORT WHICH ONLY HIGHLIGHTED THE PREVAILING PRACTICE COULD NOT BE ADEQUATE SUBSTITUTE FOR TANGIBLE EVIDENCE. THUS, WHEN SUCH WAS THE POSITION, THE ADDITION MADE BY THE ASSESSING OFFICER COULD NOT BE SUSTAINED EVEN IF ONE TOOK INTO CONSIDERATION THE PREVAILING PRACTICE OF PAYMENT OF ON MONEY IN REAL ESTATE TRANSACTIONS. THE FACTS OF THE CASE OF THE APPELLANT ARE STILL BETTER AND THERE IS NO SUCH REPORT OF ANY STATUTORY AUTHORITIES SUGGESTING SUCH PRACTI C E AS DESCRIBED BY THE AO IN THE ASSESSMENT ORDER. 7.20 THE PRESENT ADDITIONS AND THE MANNER IN WHICH THE ADDITION' IS MADE MAKES IT VERY DIFFICULT FOR ME TO SUSTAIN SUCH ADDITIONS. THE AO IS FREE TO IDENTIFY AND TAKE NECESSARY ACTIONS IN THE CASE OF TRADER 'A' AS REPRESENTED BY OTHER CONCERNS U/S. 153C OF THE INCOME TAX ACT, 1961. IN VIEW OF ABOVE, I HOLD THAT THE AO WAS NOT CORRECT IN MAKING ADDITION OF RS. 4,04,00,000 ON PROTECTIVE BASIS. 57 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN D) UNDISCLOSED INCOME OF RS. 11 .7 LAKHS. 16. IN THIS REGARD, ASSESSEE HAS MADE THE FOLLOWING SUBMISSIONS: - 1. TH E ADDITION IS MADE PURELY ON THE BASIS OF THE STATEMENT RECORDED U/S. 132(4) OF THE ACT. IT IS A SETTLED JUDICIAL POSITION THAT MERELY A STATEMENT RECORDED U/S. 132(4) CANNOT FORM THE BASIS OF MAKING ANY ADDITIONS IN THE HANDS OF THE APPELLANT. THE STATEME NT U/S. 132(4) MUST BE SUPPORTED BY THE INDEPENDENT AND COGENT EVIDENCES AND INQUIRIES TO SUPPORT THE DECLARATION OF INCOME. IF A CONFESSION IS NOT MADE VOLUNTARILY OR IS NOT CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE, SUCH DISCLOSURE/CONFESSION/ADMISS ION CANNOT FORM THE BASIS OF MAKING ANY ADDITIONS IN THE HANDS OF THE APPELLANT 2. THE CONTENTIONS OF THE APPELLANT ARE SUPPORTED BY THE FOLLOWING CASES LAWS A) PULLANGODE RUBBER PRODUCE CO.LTD. VS. STATE OFKERALA: [91ITR 18 (SC)] B) KISHA NLAL SHIV CHAND R AI VS. CIT [88 ITR 293 (P&H)] C) SRI KRISHNA VS. KURUKSHETRA UNIVERSITY [AIR (1976) SC376] D) DIPCHAND& CO. VS. CIT [51 TTJ 421] E) PUSHPAVIHAR VS. CIT [48 TTJ 389] F) KISHORE MESWANI VS. CIT G) J. R.BODA& CO. PVT.LTD. VS. CIT H) NAGESHNAVALGUND VS. CIT(A) I)SURESH CHANDRA AGARWAL VS. ACIT - ITA NO7900/BOM/92. 3. IN ADDITION TO THE ABOVE THE APPELLANT WANTS TO PLACE FURTHER RELIANCE ON THE JUDGMENT OF THE AP HIGH COURT IN THE CASE OF CIT 58 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN VS. RAMDAS MOTOR TRANSPORT [238 ITR 177 AT 183]. WITH REGARD TO THE POWE R OF - RECORDING STATEMENT BY THE AUTHORISED OFFICER U/S. 132(4), IT WAS HELD THEREIN AS FOLLOWS: - 'FORM THE ABOVE, IT IS CLEAR THAT THE QUESTION OF EXAMINING ANY PERSON BY THE AUTHORIZED OFFICER ARISES O NLY WHEN HE FOUND SUCH PERSON IN POSSESSION OF ANY UND ISCLOSED MONEY T>R BOOKS OF ACCOUNT, THUS, WHERE A PERSON IS FOUND TO BE NOT IN POSSESSION OF ANY INCRIMINATING MATERIAL, QUESTION OF EXAMINING HIM BY THE AUTHORISED OFFICER DURING THE COURSE OF SEARCH AND RECORDING ANY STATEMENT FROM HIM BY INVOKING THE P OWER UNDER SECTION 132(4), DOES NOT ARISE. THEREFORE, THE STATEMENT OF SUCH A PERSON, RECORDED PATENTLY UNDER SECTION 132(4), DOES NOT HAVE ANY EVIDENTIARY VALUE, THIS PROVISION EMBEDDED IN SECTION 132(4) IS OBVIOUSLY BASED ON THE WELL ESTABLISHED RULE OF EVIDENCE THAT MERE CONFESSIONAL STATEMENT WITHOUT THERE BEING ANY DOCUMENTARY PROOF SHALL NOT BE USED IN EVIDENCE AGAINST THE PERSON WHO MADE SUCH STATEMENT. WHERE THE FINDING OF THE TRIBUNAL IS BASED ON THE ABOVE WELL - SETTLED PRINCIPLE, SUCH FINDING CANNO T GIVE RISE TO A QUESTION OF LAW.' 4. THE OBSERVATION OF I.T.A.T., AHMEDABAD BENCH IN THE CASE OF MRS.SUSHILA DEVI AGARWAL; [50 ITD 524] AT 526, AS BELOW, MAY ALSO BE REFERRED TO IN THIS CONNECTION: - 'ALL THAT IS STATED BY ANY DEPONENT ON THE SEARCH DAY SH OULD NOT BE TAKEN AS TRUTH, THE WHOLE TRUTH AND NOTHING BUT TRUTH. SUCH STATEMENTS UNDOUBTEDLY HAVE EVIDENTIARY VALUE AND CREDIBILITY IN LAW, BUT THE SAME SHOULD BE VIEWED WITH GREAT CAUTION, PARTICULARLY WHEN, THE SAME IS DENIED, VARIED OR RETRACTED OR ES TABLISHED BY THE DEFENDANT TO HAVE BEEN OBTAINED OR GIVEN UNDER MENTAL STRESS, COERCION, UNDUE INFLUENCE OR DUE TO ANY OTHER ABNORMAL CONDITION AND CIRCUMSTANCES WHEN SUCH STATEMENT WAS GIVEN.' 5. IT HAS BECOME THE PRACTICE OF THE DEPARTMENTAL OFFICERS ENG AGED IN SEARCH TO APPLY VARIOUS TACTICS ON THE SEARCHED PARTIES TO EXTRACT DISCLOSURE/CONFESSION/ ADMISSION FROM THEM UNDER COERCION, PRESSURE AND VARIOUS INDUCEMENTS. THE CBDT BECAME AWARE OF SUCH MAT - PRACTICE ON THE PART OF THE DEPARTMENTAL OFFICERS ENGA GED IN SEARCH AND SEIZURE OPERATIONS AND A/SO OF THE LACK OF NAY EVIDENTIARY VALUE OF SUCH SO - CALLED DISCLOSURE/CONFESSION/ADMISSION MADE BY THE SEARCHED PARTIES 59 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN DURING THE COURSE OF SEARCH, WHICH ARE NOT BACKED BY. OR CORROBORATED WITH ANY MATERIAL FOUND DURING SEARCH. THAT IS WHY THE CBDT, IN ITS WISDOM, ISSUED A NEW INSTRUCTION IN F.NO.286/2/2603 - IT(LNV - LL) DATED 10.3.2003 DIRECTING ITS OFFICIALS TO REFRAIN FROM MAKING SUCH - ATTEMPTS TO OBTAIN CONFESSION OF UNDISCLOSED INCOME WITHOUT CORROBORATIVE EVIDEN CES. IN THE SAID CIRCULAR, AGAIN, THE CBDT EXPRESSED ITS OPINION ABOUT THE LACK OF RELIABILITY OF SUCH SO - CALLED CONFESSIONS AND DIRECTED ITS OFFICIALS TO SOLELY RELY UPON THE EVIDENCES/MATERIALS GATHERED DURING THE COURSE OF SEARCH OR THEREAFTER INSTEAD O F SUCH SO - CALLED CONFESSIONS. THE INSTRUCTION GIVEN BY THE CBDT IS BEING EXTRACTED B ELOW FOR THE SAKE OF READY REFERENCE: 'TO ALL CHIEF COMMISSIONER OF INCOME TAX (CADRE CONTROLLING) & ALL DIRECTORS GENERAL OF INCOME TAX (INV.) SIR, SUBJECT: CONFESSION OF ADDITIONAL INCOME DURING THE COURSE OF SEARCH & SEIZURE AND SURVEY OPERATION - REGARDING. INSTANCES HAVE COME TO THE NOTICE OF THE BOARD WHERE ASSESSEE HAVE CLAIMED THAT THEY HAVE BEEN FORCED TO CONFESS THE UNDISCLOSED INCOME DURING THE COURSE OF THE SEARC H & SEIZURE AND SURVEY OPERATIONS. SUCH CONFESSIONS, IF NOT BASED UPON CREDIBLE EVIDENCE, ARE LATER RETRACTED BY THE CONCERNED ASSESSEE WHILE FILING RETURNS OF INCOME. IN THESE CIRCUMSTANCES, SUCH CONFESSIONS DURING THE COURSE OF SEARCH & SEIZURE AND SURVEY OPERATION DO NOT SERVE ANY USEFUL PURPOSE. IT IS, THEREFORE, ADVISED THAT THERE SHOULD BE FOCUS AND CONCENTRATION ON COLLECTION OF EVIDENCE OF INCOME WHICH LEADS TO INFORMATION ON WHAT HAS NOT BEEN DISCLOSED OR IS NOT LIKELY TO BE DISCLOSED THE INCOME TAX DEPARTMENT. SIMILARLY, WHILE RECORDING STATEMENT DURING THE COURSE OF SEARCH & SEIZURE AND SURVEY OPERATIONS, NO ATTEMPT SHOULD BE MADE TO OBTAIN CONFESSION AS TO THE UNDISCLOSED INCOME. ANY ACTION ON THE CONTRARY SHALL BE VIEWED ADVERSELY. FURTHER, IN RE SPECT OF PENDING ASSESSMENT PROCEEDINGS ALSO, ASSESSING OFFICERS SHOULD RELY UPON THE EVIDENCES/MATERIALS 60 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN GATHERED DURING THE COURSE OF SEARCH/SURVEY OPERATION OR THEREAFTER WHILE FRAMING THE RELEVANT ASSESSMENT ORDERS.' THE AWARENESS OF CBDT IN THIS REGAR D AS EXPRESSED THROUGH DEPARTMENTAL INSTRUCTION IS EVIDENCE ENOUGH OF NON - RELIABILITY OF THE SO - CALLED DISCLOSURE/CONFESSION/ADMISSION MADE BY SEARCHED PARTIES WHICH ARE NOT CORROBORATED BY ANY MATERIAL EVIDENCE. IT IS THUS CLEAR THAT NO RELIANCE CAN BE PL ACED ON THE SO - CALLED DISCLOSURE MADE BY AN ASSESSEE OR ANYBODY ON HIS BEHALF AT THE TIME SEARCH, UNLESS THE SAID DISCLOSURE IS CORROBORATED BYEVIDENCES ON RECORD, EITHER FOUND DURING THE COURSE OF SEARCH OR COLLECTED THEREAFTER BY THE DEPARTMENT BY EXERCI SING ITS POWER TO MAKE ENQUIRIES. THERE ARE A LARGE NUMBER OF DECISIONS SOME OF WHICH ARE BEING CITED BELOW, TO THE EFFECT THAT UNLESS THE SEARCH REVEALS ANY UNDISCLOSED INCOME, THE SAME CANNOT BE ASSUMED AND NO ADDITION CAN THUS BE MADE IN THE BLOCK ASSES SMENT ON THE BASIS OF ESTIMATE, CONJECTURE AND SURMISES. A) VIRENDER BHATIA &ORS (ITAT DEL) [74 TTJ 60] B) K MOIDU - (ITAT COCHIN BENCH, 3 RD MEMBER) [81 ITD 242] C) KHOPADEKISHAN RAO MANIK RAO - (ITAT PUNE) (69 TTJ 135] HOLDING 'BLOCK ASSESSMENT IS TO BE BA SED ON THE EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNTS OR DOCUMENTS AND SUCH OTHER MATERIAL OR INFORMATION AS AVAILABLE WITH THE AP'. D) RAVIKDNT JAIN, DELHI [250 ITR 141] E) VINOD DHANCHANDGHODAWAT, BOMBAY - [247 ITR 448] F) R AJENDRA PD. GUPTA, RAJASTHAN - [248 ITR 350] G) POOJA BHATT - ITAT MUMBAI [73 ITD 208] H) A. SADASIVAN - ITAT CAL [255 ITR (A T) 1] IN VIEW OF THE ABOVE IT IS SUBMITTED THAT NO ADDITIONS CAN BE MADE MERELY ON THE BASIS OF THE STATEMENTS RECORDED U/S. 132(4) AND THE ADDITIONS SO MADE DESERVES TO BE DELETED. 61 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 6. WITHOUT PREJUDICE TO ABOVE IT IS FURTHER SUBMITTED THAT THE DISCLOSURE OF APPARENTLY TO COVER UNEXPLAINED CASE FOUND DURING THE COURSE OF THE SEARCH. ITIS SUBMITTED THAT THE CASH ON HAND FOUND DURING THE COURSE OF SEARCH IS FULLY EXPLAINED AND NO ADDITION IS MADE ON ACCOUNT OF UNEXPLAINED CASH. THIS CLEARLY SHOWS THAT THE DISCLOSURE MADE WAS INCORRECT IN FIRST PLACE AND THEREFORE NO ADDITION CAN BE MADE ON ACCOUNT OF THE ALLEGED UNDISCLOSED INCOME EARNED A ND DISCLOSED DURING THE COURSE OF THE SEARCH. 7. WITHOUT PREJUDICE TO ABOVE IT IS FURTHER SUBMITTED THAT THE ADDITION ON ACCOUNT OF ALLEGED UNDISCLOSED INCOME OUGHT TO TELESCOPED INTO 'OTHER ADDITIONS MADE, IF ANY, AND A SEPARATE ADDITION ON ACCOUNT OF THE ALLEGED UNDISCLOSED INCOME SHOULD NOT BE MADE.' 17. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, LD. CIT(A) DELETED THE ADDITION WITH THE OBSERVATION THAT ADDITION WAS MADE ON ACCOUNT OF SUPPRESSION OF PROFIT ON CASH SALES AND SINCE THE ADDITION IS ALREADY CONFIRMED FOR SUPPRESSED INCOME 1.97 CRORES, NO FURTHER ADDITION CAN BE MADE BASED ON THE STATEMENT RECORDED U/S 132(4) OF THE ACT. E) UNDISCLOSED INCOME OF RS. 4.50 LAKHS 18. WITH REGARD TO UNDISCLOSED COMMISSION INCOME, LD. CIT(A) HAS CONFIRMED TH E ADDITION BY OBSERVING THAT ASSESSEE HAS NOT DISCLOSED THE COMMISSION EVEN THOUGH THE PAPERS FOUND DURING SEARCH INDICATE THAT HE HAS EARNED CERTAIN COMMISSION INCOME. 62 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 19. AGGRIEVED WITH THE ABOVE ORDER, REVENUE AS WELL AS ASSESSEE IN IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS: - GROUNDS OF APPEAL RAISED BY THE REVENUE : - 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED : (I) IN DECIDING THAT LOSS OF RS. 1.75 CRORES INCURRED IN THE BUSINESS IS ALLOWABLE, AS HE F AIL ED TO APPRECIATE THE FACT THAT ASSESSEE'S ENTIRE SALES ARE IN CASH AND THE CUSTOMERS ARE NOT IDENTIFIABLE BY THE ASSESSEE. MOREOVER, IN THE SIMILAR LINE OF BUSINESS OF M/S.PUSHPAK BULLION PVT . LTD., HAS DECLARED PROFIT FOR THE SAME ASSESSMENT YEAR. THOUGH LD .CIT(A) ALSO DECIDED THIS CASE, HE IGNORED THIS FACT, THEREFORE, SECOND APPEAL IS RECOMMENDE D. (II) WHILE CONFIRMING THE ADDITION OF RS. 1.97 CRORES ON ACCOUNT OF SUPPRESSION OF PROFIT ON CASH SALES ON ESTIMATE BASIS, THE LD.CIT(A) FAILED TO APPRECIATE TH E FACT THAT THE ASSESSING OFFICER HAS MADE THE ADDITION ON ACCOUNT OF EVASION OF SALES TAX ON THE TURNOVER BY THE ASSESSEE. THEREFORE, SECOND APPEAL IS RECOMMENDED TO SUBSTANTIATE THE STAND OF THE ASSESSING OFFICER. (III) IN DELETING THE PROTECTIVE ADDITIO N MADE OF RS.4.04 CRORES ON ACCOUNT OF THE PROFIT OF SOME TRADERS MORE P REDOMINANTLY PUSHPAK BULLION PVT. LTD. THE SAME L D.CIT(A) HAS GRANTED RELIEF IN THE CASE OF PUSHPAK BULLION PV T LTD. TO KEEP THE ISSUE ALIVE, SECOND APPEAL RECOMMENDED. (IV ) IN TREATING THE SEIZURE OF GOLD WORTH RS.3.46 CRORES AS STOCK - IN - TRADE WHEREAS THE ASSESSEE ON OATH HAS DECLARED THAT TOTAL SALES IS AT JAIPUR. THE GOLD IS SEIZED AT MUMBAI AIRPORT WHICH CLEARLY INDICATES THAT THE GOLD SEIZED, IS OUT OF BOOKS INVESTMENT THE L D.CIT(A) HAS FAILED TO ACKNOWLEDGE THIS FACT THEREFORE, SECOND APPEAL IS RECOMMENDED. 63 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN (V) IN DELETING THE ADDITION OF RS. 12.70 LAKHS DECLARED AS UNDISCLOSED INCOME BY THE ASSESSEE AT THE TIME OF SEARCH AS THIS STATEMENT WAS NOT RETRACTED BY THE ASSESSEE AT ANY PO INT OF TIME. HOWEVER, THE ASSESSEE HAS NOT REFLECTED THIS AMOUNT SEPARATELY IN THE PROFIT & LOSS ACCOUNT THE L D.CIT(A) ERRED IN ALLOWING THIS ADDITION STATING THAT THIS CRORES HAS NO RELEVANCE WITH THE DECLARATION MADE BY THE ASSESSEE OF RS. 12.70 LAKHS. T HEREFORE, SECOND APPEAL IS RECOMMENDED.' 2. THE APPELLANT CRAVES TO LEAVE TO ADD, TO AMEND AND / OR TO ALTER ANY OF THE GROUNDS OF APPEAL, IF NEED BE. 3. THE APPELLANT, THEREFORE, PRAYS THAT ON THE GROUNDS STATED ABOVE, THE ORDER OF THE CIT(A), CENTRAL - VII , MUMBAI, MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. GROUNDS O F APPEAL RAISED BY THE ASSESSEE 1. THE LEARNED CIT(A) ERRED IN SUSTAINING THE ADDITION OF RS. 1,97,00,000 ON ACCOUNT OF THE ALLEGED SUPPRESSION OF PROFIT ON CASH SALES. ON TH E FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE SAID ADDITION IS WRONGLY MADE AND OUGHT TO HAVE DELETED THE SAME. 2. THE LEARNED CIT(A) ERRED IN SUSTAINING THE ADDITION OF RS. 4,70,000 ON ACCOUNT OF THE ALLEG ED UNACCOUNTED COMMISSION INCOME. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE SAID ADDITION IS WRONGLY MADE AND OUGHT TO HAVE DELETED THE SAME. 3. THE LEARNED CIT(A) ERRED IN NOT HOLDING THAT THE ASSESSMENT MADE WAS BAD IN LAW AND VOID. 64 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE SAID ASSESSMENT MADE WAS BAD IN LAW AND VOID AND OUGHT TO HAVE QUASHED THE SAME. 4. THE APPELLANT CRAVES LEAV E TO ADD TO, ALTER, AMEND, MODIFY AND / OR DELETE ANY OR ALL OF THE ABOVESAID GROUND(S) OF APPEAL. 20. BEFORE US, LD. DR SUBMITTED A DETAIL SUBMISSIONS, WHICH IS REPRODUCED BELOW: - LD DR BRIEFLY EXPLAINED THE FACTS OF THE CASE AND THE MODUS OPERANDI OPER ATED BY THE ASSESSEE AS PER THE FINDINGS OF THE AO IN HIS ORDER AND TOOK US TO THE PARAS 4.5 TO 4.19 OF THE ASSESSMENT ORDER. FURTHER HE BROUGHT TO OUR NOTICE THE STATEMENTS RECORDED BY THE ASSESSEE, TWO CARRIERS AND IN PARTICULAR THE STATEMENT OF ASSESSEE S SON. WITH THE ABOVE BACK GROUND, HE EXPLAINED THE FINDINGS OF AO AS BELOW: THE ABOVE DISCUSSION AND RECORDS HAVE LED THE AO TO HOLD THAT THE ASSESSEE SHRI SURESH V JAIN IS NOT THE ACTUAL OWNER OF THE BULLION BUT IS ONLY ACTING AS A FRONT MAN FOR SOME OT HER ENTITY/PERSON. IN PARA - 6,1 TO 6.3, THE AO HAS SUMMARISED HIS ORDER. THE AO HAS ALSO REJECTED THE CLAIM OF THE ASSESSEE OF HAVING INCURRED LOSS IN HIS BUSINESS. THE AO ALSO REJECTED THE CLAIM OF THE ASSESSEE THAT HE HAD ENTERED INTO UNFIXED - PRICE CONTRAC TS AND SINCE THE PRICE OF BULLION ROSE CONSISTENTLY DURING THE PERIOD, HE HAD INCURRED A LOSS. THE AO NOTED THAT THE ASSESSEE HAS ADDUCED NO EVIDENCE TO THIS ACCOUNT. COMPUTATION OF PROFIT OF THE ASSESSEE: 65 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN IN PARA 3 OF THE ASSESSMENT ORDER (LAST PARAGRAPH ON PAGE 2) THE AO HAD NOTED THAT THE DIFFERENCE OF SALE TAX BETWEEN MUMBAI AND JAIPUR ON ONE KILOGRAM OF GOLD CONIES TO RS.6, 110/ - WHICH GETS DIVIDED BETWEEN PERSON 'A', 'B' AND COURIER(S) 'C' AS UNDER: - THE COURIER ('C') GETS ABOUT RS. 500 PER KG (THE ST ATEMENTS OF THE COURIERS MENTION THE FI G URE OF RS 500/ - THOUGH IT IS NOT CLEAR WHETHER IT WAS PER KG OR NOT) - 'B'GETS ABOUT RS 1500 PER KG FOR HIS EFFORTS (IN THIS CASE THE ASSESSEE) - THE PERSON 'A' GETS THE REST. IN PARA 6.2 OF THE ASSESSMENT ORDER, THE A O HAS INTER - ALIA QUANTIFIED THAT THE TOTAL OF RS 500/ - PLUS RS. 1500/ - (SHARES OF PERSONS 'A' AND B') COMES TO RS. 2000/ - WHICH COMES TO 32.7% OF RS. 6110/ - THE AO ALSO NOTED THAT THE TOTAL CASH SALES OF THE ASSESSEE IN RESPECT OF JAIPUR PURCHASES DURING T HIS PERIOD CONIES TO RS.632.42 CRORES AND TAKING THE SALE TAX DIFFERENTIAL OF 0.94% AND THE SHARE OF 'FT& 'C' AT 32.7/B, THE ASSESSEE HAS EARNED RS. 1.92 CRORES. SIMILARLY, IN RESPECT OF THE PURCHASES AT AHMEDABAD, THE CORRESPONDING PROFIT COMES TO RS.5.2 0 LAKHS. THE AO ALSO COMPUTED THE PROFIT ATTRIBUTABLE TO THE PERSONS 'A' AT RS. 3.94 CRORES AT JAIPUR AND RS. 10.74 LAKHS AT AHMEDABAD. THE AO HELD THAT THE ENTIRE PROFIT ATTRIBUTABLE TO 'A' AND 'C' IS ALSO REQUIRED TO BE ADDED IN THE HANDS OF THE ASSESSEE (PERSON 'B') ON PROTECTIVE BASIS. THUS, THE AO ADDED UP RS. 1.92 CRORES, RS. 5.2 LAKHS, RS. 3.94 CRORES AND RS. 10.74 LAKHS AND MADE AN ADDITION OF RS, 6.01 CRORES IN THE HAND OF THE ASSESSEE. THE AO ALSO ADDED THE UNACCOUNTED INVESTMENT COMPUTED AT RS. 3 .46 CRORES IN RESPECT OF THE 54 KILOGRAM OF GOLD SEIZED AT MUMBAI. IN ADDITION TO THE ABOVE, THE AO ALSO REFERRED TO CERTAIN LOOSE PAPERS FOUND DURING THE COURSE OF THE SEARCH CONTAINING 66 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN DETAILS OF COMMISSION INCOME RECEIVED. THE SAME WERE QUANTIFIED BY TH E AO AT RS. 470 LAKHS IN PARA 6.3 OF THE ASSESSMENT ORDER AND BROUGHT TO TAX. IN ADDITION, THE AO HAS ALSO ADDED THE ADDITIONAL INCOME SURRENDERED BY THE ASSESSEE DURING THE COURSE OF SEARCH AT JAIPUR ON ACCOUNT OF CASH DEPOSITS TAKEN BY THE ASSESSEE (AS M ENTIONED IN THIS NOTE ABOVE). THIS ADDITION WAS MADE AT RS, 12.70 LAKHS. IT IS ALSO RELEVANT TO NOTE THAT THE AO HAS ALLOWED EXPENSES TO THE TUNE OF RS. 3215 LACS FROM THE ASSESSED INCOMES AND THE NET TAXABLE INCOME OF THE ASSESSEE WAS COMPUTED AT RS. 9,32 ,24,330/ - . ANALYSIS OF CIT(A)'S ORDER: ON DISALLOWANCE OF RETURNED LOSS OF RS. 1,75,90,922/ - : BEFORE THE CIT(A) THE ASSESSEE CLAIMED THAT HE ENTERS INTO TWO TYPES OF CONTRACTS: (I) FIXED - PRICE CONTRACT, AND (II) UNFIXED PRICE CONTRACTS. UNDER THE FIXED - PRI CE CONTRACTS THE PURCHASE RATE IS FIXED ON ENTERING INTO THE CONTRACT AND TAKING DELIVERY OF GOODS. UNDER THE UNFIXED PRICE CONTRACT, THE PURCHASE RATE CAN BE FIXED AT ANY TIME WITHIN A PERIOD OF 11 DAYS FROM THE DATE OF ENTERING THE CONTRACT. THE ASSESSEE CLAIMED THAT HE DID NOT HAVE ADEQUATE FINANCE OF HIS OWN ON AND THEREFORE HE IS FORCED TO SELL IN CASH AT WHATEVER RATE HE CAN OBTAIN SO THAT HE CAN MAKE PAYMENT FOR THE GOLD PURCHASED BY HIM. IT WAS CLAIMED THAT HE OPERATES ON WAFER - THIN MARGINS AND SINC E GOLD BULLION WAS RISING DURING THIS PERIOD, HE INCURRED THE LOSS. THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE IN PARA 6.12 OF HIS APPELLATE ORDER. THIS RELIEF IS NOT LAWFUL AND HAS BEEN CONTESTED BY THE REVENUE. THE CIT(A) HAS ALLOWED THE RELIEF ON THE GROUND THAT THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL OR COGENT REASONS TO LEAD TO A REASONABLE CONCLUSION THAT THE BOOKS OF ACCOUNT 67 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN MAINTAINED BY THE ASSESSEE WERE UNRELIABLE. THE CIT(A) HAS STATED THAT THE AO HAS NOT RAISED ANY DOUBT ABOUT THE PU RCHASES OF GOLD OR ITS SOURCE AND THE ENTIRE FOCUS OF THE AO IS ON THE SALE BEING MADE IN MUMBAI, THE CIT(A) HAS HELD THAT SINCE THE AO HAS MADE SEPARATE ADDITIONS IN RESPECT OF SUPPRESSED PROFIT SOME CASH SALE, THE DISALLOWANCE OF BOOK LOSS WITHOUT POINTI NG OUT ANY DISCREPANCY IN THE BOOKS OF ACCOUNT IS NOT WARRANTED. THE RELIEF GIVEN BY THE CIT(A) HAS NO BASIS. IT HAS BEEN ARGUED AT LENGTH BY THE UNDERSIGNED DR ON EARLIER HEARINGS THAT THE ASSESSEE HAD NOT MAINTAINED ANY BOOKS OF ACCOUNT AT ALL. EVEN ON T HE DATE OF THE SEARCH, THE ASSESSEE HAD CLAIMED THAT THE BOOKS OF ACCOUNT ARE MAINTAINED ONLY ON COMPUTER. THIS COMPUTER WAS NOWHERE TO BE FOUND. EVEN THE SON OF THE ASSESSEE REFUTED THE CLAIM OF THE ASSESSEE THAT THE COMPUTER IS AT MUMBAI. SUBSEQUENTLY, W ITHOUT PRODUCING THE COMPUTER, THE ASSESSEE CLAIMED THAT THE COMPUTER HAD BEEN SOLD AFTER THE DATE OF SEARCH. THIS IS A BLATANT REFUSAL OF THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNT OR THE COMPUTERISED BOOKS OF ACCOUNT. IT IS ALSO TO BE NOTED THAT THE AS SESSEE HAS NO EVIDENCE OF THE BUYERS OF THE GOLD. IN ALL HIS STATEMENTS, THE ASSESSEE HAS MAINTAINED THAT HE IS NOT REQUIRED TO MAINTAIN PROPER RECORDS OF THE BUYERS OR OF THEIR ADDRESSES. IN THE FACE OF SUCH ADMISSIONS AND ALSO IN VIEW OF THE FACT THAT NO RECORD OF ANY FIXED OR UNFIXED CONTRACT WAS FOUND DURING THE COURSE OF THE SEARCH, IT FAILS TO REASON AS TO HOW THE CIT(A) CAN CLAIM THAT THE AO HAS NOT POINTED OUT ANY FAULT IN THE BOOKS OF ACCOUNT M AINTAIND BY THE ASSESSEE. IT IS ALSO TO BE NOTED THAT D URING THE COURSE OF THE SEARCH AND SUBSEQUENTLY. THE AO HAS NOTED AND TAKEN THE VIEW THAT THE ASSESSEC HAS NOT MAINTAIN PROPER BOOKS AND THAT NO STOCK REGISTERS ARE BEING MAINTAINED. IN FACT, NO EVIDENCE OF ANY BOOKS OF ACCOUNT HAS BEEN FOUND DURING THE CO URSE OF THE SEARCH/SURVEY AT ANY OF THE PREMISES OF THE ASSESSEE. ALL THESE SALES OF THE ASSESSEE 68 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN CLAIMED TO HAVE BEEN MADE IN CASH AND THE CASH HAS BEEN FOUND DEPOSITED IN THE BA N K ACCOUNT OF THE ASSESSEE ONLY AT MUMBAI. THE CHAIN OF EVENTS HAS NOT BEEN P ROVED BY THE ASSESSEE AT ALL. IT IS SUBMITTED THAT THE CIT(A) HAS SIMPLY IGNORED THE FACTS OF THE CASE AND THE MODUS OPERANDI ADMITTED BY THE SON OF THE ASSESSEE ALSO. THE CIT(A) HAS IGNORED THE FACT THAT THE ASSESSEE WAS ONLY A FRONT TO TAKE ADVANTAGE OF THE DIFFERENCE IN BULLION SALES TAX RATES. THERE IS NO REASON FOR THE ASSESSEE TO SUFFER A LOSS AS THAT IS THE OUTLOOK OF THE MAIN PERSON BEHIND THE SCENES. THE NEW UNPROVEN CLAIM OF THE ASSESSEE FLIES IN THE FACE OF ALL THE AVERMENTS AND STATEMENTS MADE B Y THE ASSESSEE THAT HE DOES NOT KNOW THE BUYER AND THAT HE IDENTIFIES THE BUYERS BY THE SERIAL NUMBER ON CURRENCY NOTES. UNDER SUCH A SCENARIO, IT IS UNBELIEVABLE TO ARGUE THAT THE ASSESSEE HAS EVEN ENTERED INTO FIXED/UNFIXED CONTRACTS AND THE RATES WERE D ECIDED FOR IN ADVANCE. THE WHOLE CRUX OF THE SUBMISSION OF THE ASSESSEE IS THAT THERE IS NO INFORMATION WITH HIM ABOUT THE BUYERS. THE WHOLE IDEA OF A TIME LAG BETWEEN PURCHASE OF GOLD AND SALE OF GOLD WAS INTRODUCED BY THE ASSESSEE AS A SMOKESCREEN BEFORE THE CIT(A), WHO HAS PASSED AN ORDER WITHOUT APPRECIATING THE FACTS INVOLVED. THE RELIEF GIVEN BY THE CIT(A) IS ACADEMIC AND NOT BASED ON THE SPECIAL CIRCUMSTANCES OF THE CASE. THE REVENUE SUBMITS THAT IT IS NOT THE CLAIM OF THE AO THAT THE ASSESSEE HAS N OT BOUGHT GOLD. IN FACT, DUE TO THE STRICT REQUIREMENT OF THE BULLION DEALERS, THE ASSESSEE HAS PAID FOR THE GOLD BY CHEQUE/DDS. IT IS THE OTHER SIDE OF THE TRANSACTION I.E. OF SALES, THAT IS BOGUS. THE ASSESSEE HAS NOT INFORMED THE NAMES AND ADDRESSES OF ITS BUYERS BUT CLAIMS THAT THE ENTIRE SALE WAS MADE IN CASH ON THE SAME DAY ON WHICH HE TOOK DELIVERY OF THE GOLD. THE ASSESSEE HAS NO EXPLANATION FOR THE FACT THAT CASH PURCHASES ABOVE A CERTAIN LIMIT WOULD BE 69 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN DISALLOWED IN THE HANDS OF THE BUYERS UNDER S ECTION 40 A(3). THE ASSESSEE IS NOT EVEN ABLE TO PROVE THAT THE GOLD WAS BEING TRANSPORTED BY HIM TO COIMBATORE. ON THE CONTRARY. THE ASSESSEE'S CLAIM IS THAT THE SALES HAVE BEEN MADE IN JAIPUR IN CASH. IF THE SALE IS BEING MADE IN CASH. THEN ON WHAT AUTHO RITY OR SECURITY WAS THE ASSESSEE TRANSPORTING THE GOLD TO MUMBAI IN THE FIRST PLACE. FURTHER IF THE ASSESSEE IS MAKING SALES AT JAIPUR, THEN WHY COULDN'T THE BUYERS BUY THE GOLD FROM THE BANKS THEMSELVES. THE BANKS DO NOT HAVE A VOLUME LIMIT. ALSO, THE AS SESSEE HAS NO EXPLANATION FOR THE FACT THAT OVER 160 AIR TICKETS HAD BEEN BOOKED BY HIM FOR THE MONTHS OF DECEMBER 2004 TO FEBRUARY 2005 IN THE NAME OF UNKNOWN PERSONS FOR TRAVEL BETWEEN JAIPUR AND MUMBAI. III 6.9, THE C1T(A) HAS WRONGLY MENTIONED THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING THAT THAT STATE OF AFFAIRS WAS DIFFERENT THAN WHAT WAS PRESENTED BY THE ASSESSEE. THIS STATEMENT OF THE CIT(A) IS MISCHIEVOUS, MISLEADING AND FALSE SINCE THE ENTIRE CASE OF THE AO IS THAT THE ASSESSEE IS A FRONT MAIL DOING A SHAM BUSINESS OF GOLD BULLION TO TAKE BENEFIT OF THE DIFFERENCE IN SALE TAX RATES BETWEEN RAJASTHAN/GUJARAT AND MAHARASHTRA. THE ASSESSEE HAS LAID A LOT OF FOCUS ON CERTAIN DESCRIPTION OF SEIZED MATERIAL FOUND FROM GANPATHY PLAZA, JAIPUR. IT IS CLAIMED THAT THESE WERE BOOKS OF ACCOUNT. THIS CLAIM OF THE ASSESSEE IS NEGATED. NO BOOKS OF ACCOUNT WERE MAINTAINED BY THE ASSESSEE IN BOOK FORM AND IT IS THE SWORN STATEMENTS OF THE ASSESSEE THAT BOOKS OF ACCOUNTS ARE ONLY MAINTAINED ON COMPUTER. FURT HER. THE CIT(A) HAS NOT EVEN DONE A PRELIMINARY STUDY TO SEE WHETHER THE DESCRIPTION GIVEN BY THE ASSESSEE AS TO THE PAPERS FOUND IS CORRECT OR NOT. THE CIT(A) HAS NOT EVEN SEEN THE DOCUMENTS. IT HAS ALREADY BEEN POINTED OUT THAT THE PURCHASE OF THE ASSESS EE IS NOT DISTURBED BY THE REVENUE AND IT IS THE STAND OF THE REVENUE THAT THE CLAIM OF THE ASSESSEEOF HAVING MADE SALES IN JAIPUR IS FALSE. THIS IS SUPPORTED BY THE ADMISSION BY THE ASSESSEE THAT CASH IS 70 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN RECEIVED BY HIM ONLY IN MUMBAI AND THAT TOO INTER A LIA FROM PERSONS HE DOES NOT KNOW. THIS ALSO PROVES THAT WHATEVER SALE BILLS ETC MAY HAVE BEEN FOUND CARRY NO RELEVANCE FOR THE PURPOSE OF MAKING THE ASSESSMENT. THE PRESUMPTION U/S 132(4) IS ONLY UPTO THE POINT OF MAKING AN ORDER U/S 132(5) AND NO FURTHER . FURTHER THE REVENUE HAS ENOUGH EVIDENCE TO REBUT THE STATE OF AFFAIRS CLAIMED BY THE ASSESSEE. THE REVENUE ENCLOSES A PHOTOCOPY OF THE SEIZED DIARY WHICH HAS DETAILS OF SALES AND TRANSPORT TO MUMBAI AND THIS DIARY INFORMS THAT THE CLAIM OF THE ASSESSEE A BOUT HAVING MAINTAINED PROPER AND TRUTHFUL BOOKS DETAILING SALES AT JAIPUR AS FALSE. IT IS ALSO SUBMITTED THAT THE CLAIM OF THE ASSESSEE OF HAVING MAINTAINED A STOCK REGISTER IS ALSO FALSE AND THE ASSESSEE HAS ALSO ADMITTED THIS IN HIS STATEMENT. THE REVEN UE TAKES STRONG OBJECTION TO THE CLAIM OF THE ASSESSEE THAT THE STATEMENT OF KETAN SHROFF, DIRECTOR OF PUSHPAKBULILIONPVT LTD (REFER PAGES 229 TO 234 OF THE ASSESSEE'S PAPER BOOK) SUPPORTS ITS CLAIM. THE STATEMENT ONLY MENTIONS AT ONE POINT THAT THE COMPAN Y HAS GIVEN CREDIT SALES/LOANS/ADVANCES TO NINE PARTIES, OUT OF WHICH THE ASSESSEE IS ONE. THE EXACT TRANSACTION WITH THE ASSESSEE HAS NEVER BEEN SPECIFIED IN THE STATEMENT. ON THE CONTRARY THE STATEMENT VALIDATES THE STAND OF THE REVENUE THAT BULLION DEAL ERS WERE INVOLVED IN MASSIVE TRANSFER OF GOLD TO TAKE ADVANTAGE OF DIFFERENCE IN SALES TAX ON BULLION ILL DIFFERENT STATES (SEE Q . 3 AND THE ANSWER GIVEN BY KETAN SHROFF). THE HON'BLE ITAT WOULD AGREE THAT THE BENEFIT OF THE SALES TAX DIFFERENCE ONLY HAPPE NS IF GOLD IS BOUGHT IN RAJASTHAN/GUJRAT AND SOLD IN E.G MAHARASHTRA. IT DOES NOT GIVE ANY BENEFIT IF THE SALES ARE ALSO CLAIMED TO HE MADE IN THE SAME STATE WHERE THE GOLD WAS PURCHASED. THIS TOTALLY NEGATES THE ARGUMENTS OF THE ASSESSEE. THE ARGUMENT OF THE ASSESSEE THAT HIS SALES TAX RETURNS HAVE 71 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN BEEN ACCEPTED IN RAJASTHAN CARRIES NO WEIGHT AS THE ASSESSEE IS BOUND TO HAVE PAID SALES TAX. THE ASSESSEE WAS ONLY A FRONT FOR MAKING SUBSEQUENT SALES TO UNKNOWN PERSONS IN MU M BAI, THE DEPARTMENT ALSO RELIES ON THE DOCTRINE OF 'PREPONDERANCE OF P ROBA BILITY' AS APPROVED BY THE SUPREME COURT IN ITS VARIOUS CASES E.G. SUMATIDAYAL CASE, DURGA PRASAD MORE CASE ETC. IT IS SUBMITTED THAT THE RELIEF GIVEN BY THE CIT(A) TO ALLOW BOOK LOSS IS PERVERSE AND SHOULD BE REVERS ED. ON ADDITION OF RS, 1 . 97 CRORES MADE ON SUBSTANTIVE BASIS IN RESPECT OF PROFIT OF THE ASSESSEE: THE CI T(A) HAS CONFIRMED THE ADDITION AND THE ASSESSEE IS IN APPEAL. THE REVENUE SUPPORTS THE ORDER OF THE AO AND THE CIT(A) ON THIS ISSUE. IN ADDITION TO T HE DETAILED ORAL ARGUMENT MADE EARLIER, KIND ATTENTION IS INVITED TO PARA 7.3 OF THE CIT'(A)'S ORDER WHERE HE HAS SUMMARISED A FEW ARGUMENTS TAKEN BY THE AO. IN ADDITION, IT IS SUBMITTED THAT BEFORE THE CIT(A) THE ASSESSEE HAS IN HIS WRITTEN SUBMISSIONS DEC LARED THAT HE IS NOT SUPPOSED TO KEEP ANY RECORD OF THE BUYER AND YET THE ASSESSEE CLAIMS THAT AS PER THE NORMAL PRACTICE PREVALENT IN HIS TRADE, THE PAYMENT FOR GOODS SOLD WAS NORMALLY RECEIVED B Y HIM I N M U M B AI IRRESPECTIVE OF THE PLACE OF SALE AND DELIVER Y THEREOF. THE REASON GIVEN BY THE ASSESSEE WAS THAT THE SMALLER CITIES ARE NOT EQUIPPED TO HANDLE HUGE CASH INFLOWS. THIS ARGUMENT OF THE ASSESSEE ITSELF DESTROYS THE WHOLE CLAIM OF THE ASSESSEE REGARDING THE SANCTITY OF HIS BOOKS OF ACCOUNT AND THE CONCO CTED STORY OF NOT POSSESSING ANY ADDRESS OF THE BUYERS OR DETAILS OF THE BUYERS. BEFORE THE CIT(A). THE ASSESSEE SOUGHT TO PRODUCE AFFIDAVITS OF THE COURIERS IN SUPPORT OF LII ARGUMENTS BUT THE ASSESSEE'S ACTION IS MISPLACED BECAUSE CALLING FOR AN AFFIDAVI T IS THE 72 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN DISCRETION OF THE COURT AND IT CANNOT BE SUBMITTED AT THE WHIM AND FANCY OF ANY DEPONENT. FURTHER THE ASSESSEE SOUGHT TO FILE AFFIDAVITS OF PERSONS/COURIERS, WHO USED TO TRAVEL IN FAKE NAMES BY AIR. THE ASSESSEE HAS SOUGHT TO MAKE A HUT DEAL ABOUT ISSUING CASH SALE HILLS AND IT IS A FACT THAT THE DISALLOWANCE UNDER SECTION 40A(3) APPLIES TO STOCK IN TRADE ALSO AND NO GENUINE BUYER WOULD OBTAIN AND FILE SUCH A BILL. THE ASSESSEE HAS WRONGLY AND INACCURATELY ARGUED THAT HE HAS DONE A SIMILAR BUSINESS IN EARLIER YEARS AND THAT HIS BUSINESS/MODUS OPERAND 1/TURNOVER AND TRADING RESULTS HAVE BEEN ACCEPTED BY THE DEPARTMENT. THIS CLAIM OF THE ASSESSEE IS NOT CORRECT SINCE IN EARLIER YEARS THE ASSESSEE WAS NOT DOING ANY BULLION BUSINESS AND IN THE RETURN OF INCOME FOR AY 2002 - 03 AND 2003 - 04, THE ASSESSEE WAS ONLY RETURNING INCOME FROM OTHER SOURCES. EVEN THESE RETURNS HAD BEEN FILED BY THE ASSESSEE AFTER THE DATE OF SEARCH. ON DELETION OF PROTECTIVEADDITION OF RS. 4.04 CRORES: THE CIT(A) HAS TAKEN A VIEW THA T PROTECTIVE ADDITION CANNOT BE MADE IN ASSESSMENT FRAMED UNDER SECTION 153A. A WRITTEN SUBMISSION ON THIS ISSUE HAS ALREADY BEEN SUBMITTED BEFORE THE BENCH EARLIER, IT HAS BEEN STATED THAT THE COURTS HAVE ACCEPTED THE POSSIBILITY OF PROTECTIVE ADDITION EV EN IN SEARCH ASSESSMENT. AS REGARDS THE OBSERVATION OF THE BENCH AS TO HOW A PROTECTIVE ADDITION CAN BE MADE IN THE ESSENCE OF ANY SUBSTANTIVE ADDITION, A DETAILED SUBMISSION IS BEING SUBMITTED SEPARATELY TODAY, WHEREIN AFTER A CONSPECTUS OF VARIOUS CASE L AWS AND SUPREME COURT/HIGH COURT DECISIONS IT IS SUBMITTED THAT THE LAW PERMITS MAKING OF PROTECTIVE ADDITIONS IN CASES WHERE THE PERSON IN WHOSE HAND SUBSTANTIVE ADDITION IS TO MADE IS NOT TRACEABLE OR NOT KNOWN. 73 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN ON DELETION OF UNEXPLAINED INVESTMENT IN G OLD AMOUNTING TO RS. 3.46 CRORES: THE CIT(A) HAS DELETED THIS ADDITION WITHOUT ANY DISCUSSION IN HIS ORDER (REFER PARA 7.21 OF THE CIT'(A) ORDER). THE AO HAD MADE THE ADDITION IN THE ABSENCE OF BOOKS OF ACCOUNT AND EVIDENCE OF THE SOURCE OF THE INVESTMENT. THE ORDER OF CIT(A) IS SILENT ON THIS AND THEREFORE THE MATTER MAY BE SET - ASIDE TO THE CIT(A) FOR MAKING A DECISION. ON DELETION OF ADDITION OF RS. 12.70 LAKHS: THE CIT(A) HAS DELETED THE ADDITION MERELY ON THE BASIS OF THE FACT THAT A STATEMENT MADE UNDE R SECTION 132(4) IS NOT SUFFICIENT TO MAKE ANY ADDITION. THE CIT(A) HAS SIMPLY NOTED THAT THE ADDITION WAS MADE TO COVER THE CASH FOUND DURING THE COURSE OF SEARCH AND RECEIPTS IN THE NAME OF VARIOUS PERSONS IN THE DIARY. HOWEVER, THE CIT(A) HAS ERRED IN H OLDING THAT THE DISCLOSURE OF AD HOC FIGURE CANNOT BE CONSIDERED CONCLUSIVE UNLESS THERE ARE CORROBORATIVE EVIDENCES. THE CIT(A) HAS ALSO OPINED THAT THE AO DOES NOT HAVE A BASIS FOR ARRIVING AT THE FIGURE OF RS. 12.70 LAKHS. FURTHER THE CIT(A) HAS HELD TH AT THE ADDITION CAN BE TELESCOPED IN THE ADDITION OF RS. 1.97 CRORES AND FURTHER ADDITION IS NOT REQUIRED TO BE MADE. THE RELIEF GIVEN BY THE CIT(A) IS NOT PROPER. IT IS SUBMITTED THAT THE DECLARATION MADE BY THE ASSESSEE DURING THE TIME OF SEARCH WAS INVO LUNTARY AND IT WAS NOT BASED ON ANY SPECIFIC REQUEST BY THE SEARCH TEAM. IT IS NECESSARY TO POINT OUT THAT THE TRANSACTIONS CONTAINED IN DIARY ANNEXURE - A EXHIBIT - ] I MENTIONS AMOUNT RECEIVED FROM VARIOUS PERSONS AND THESE AMOUNTS ARE NOT CONNECTED WITH THE BUSINESS PROFITS OF THE ASSESSEE. WHEN THE ASSESSEE WAS QUESTIONED TO GIVE DETAILS OF THESE LOANS AND CONFIRMATIONS OF THE GIVERS, THE ASSESSEE HAD SUBMITTED THAT THE AMOUNTS WERE RECEIVED FROM PEOPLE KNOWN 74 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN TO HIM BUT THAT THEY WOULD NOT ACCEPT THE SAME B EFORE THE DEPARTMENT AS THEY HAD GIVEN THE MONEY IN CASH. THE ASSESSEE HAD DECLARED THAT THE AMOUNTS WOULD BE IN THE VICINITY OF RS. 10 TO 12 LAKH AND HE WANTS TO DECLARE RS. 12 LAKH AS HIS UNEXPLAINED INCOME. IT IS THUS CLEAR THAT THIS SURRENDER OF ADDITI ONAL INCOME IS NOT OUT OF THE PROFITS OF RS. 1.97 CRORES EARNED BY THE ASSESSEE BUT REPRESENTS CASH LOANS TAKEN FROM THIRD PARTIES. EVEN AT THE TIME OF SEARCH AND SUBSEQUENTLY, THE ASSESSEE HAS CHOSEN NOT TO INDICATE THE FULL NAMES AND ADDRESSES OF THE LOA N GIVERS. THEREFORE, THE AO WAS CORRECT TO MAKE A SEPARATE ADDITION IN RESPECT OF THESE CASH LOANS. AS REGARDS THE DIFFERENCE IN THE FIGURE TAKEN BY THE AO (RS. 12.70 LAKHS INSTEAD OF RS. 12 LAKHS), IT IS SUBMITTED THAT THIS IS ONLY A TYPOGRAPHICAL ERROR W HICH SHOULD HAVE BEEN RECTIFIED BY THE CJT(A), THE CIF(A) WAS WRONG IN HOLDING THAT MERELY BECAUSE OF THE TYPOGRAPHICAL ERROR, THE ADDITION CANNOT BE MADE. FURTHER, THE CIT(A) HAS ALSO ERRED III NOT VERIFYING OR DIRECTING THE ASSESSEE TO GIVE EVIDENCE OF T HE SOURCE OF THE LOAN FUNDS. IN THIS CASE, NEITHER THE ASSESSEE HAS GONE BACK ON HIS STATEMENT NOR HAS HE OFFERED TO DISCLOSE THE SOURCE OF THE SAID LOANS. THEREFORE. THE RELIEF GIVEN THE CIT(A) SHOULD HE REVERSED. ON ADDITION OF RS. 4.70 LAKHS MADE ON ACC OUNT OF COMMISSION INCOME: T HIS ADDITION HAS BEEN CONFIRMED BY THE CI T (A) FOR THE REASON THAT THE ASSESSEE HAD NOT OFFERED ANY SUCH INCOME TO TAX EVEN THOUGH THE SEIZED DOCUMENTS INDICATED ADDING OF COMMISSION BY THE ASSESSEE. THE ORDER OF THE AO/CIT(A) IS SUPPORTED BY THE REVENUE. 21. WHEN THE BENCH ASKED CIT - DR TO SUBSTANTIATE THE 75 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN ARGUMENT THAT WHEN THERE IS NO SUBSTANTIVE ASSESSMENT IN THE CASE OF SEARCH ASSESSMENT, WHETHER AO CAN MAKE PROTECTIVE ASSESSMENT, LD DR SUBMITTED THE FOLLOWING SUBMISSIONS: A. LEGAL BACKGROUND OF THE CONCEPT: 1. TO START WITH, IT IS A FACT THAT THERE IS NO SPECIFIC PROVISION IN THE INDIAN INCOME - TAX ACT, AND THAT THE CONCEPT HAS BEEN BORROWED FROM THE LAW AND PRACTICE AS PREVALENT IN ENGLAND. THE LEADING CASE ON THE SUBJECT IS ATTORNEY - GENERAL V. ARAMAYO& OTHERS 1192511 KB 86 ; 9 TAX CAS. 445 (AS REFERRED TO IN CASE MENTIONED IN PARA 3 BELOW). THE FACTS OF THIS CASE WERE AS FOLLOWS: AN ENGLISH COMPANY WAS FORMED TO CARRY ON THE BUSINESS OF GENERAL MERCHANTS AND MINE - OWNERS IN BO LIVIA. THE CONTROL AND MANAGEMENT OF ITS BOLIVIAN BUSINESS WAS TRANSFERRED TO A LOCAL BOARD OF THAT COUNTRY, THE DUTIES OF THE DIRECTORS IN LONDON BEING CONFINED TO THE DECLARATION OF DIVIDENDS AND THE FORMAL BUSINESS NECESSARY FOR ITS CONTINUANCE AS A COM PANY. THE ENGLISH COMPANY DENIED LIABILITY TO PAY INCOME - TAX. THE SPECIAL COMMISSIONERS MADE AN ASSESSMENT ON THE LOCAL BOARD IN THE NAME OF THE LONDON FIRM AS AGENTS. AS THE TAX DUE UNDER THE ASSESSMENT REMAINED UNPAID, PROCEEDINGS FOR ITS RECOVERY WERE C OMMENCED BY WAY OF INFORMATION AGAINST THE INDIVIDUAL MEMBERS OF THE LONDON FIRM WHO THEN TOOK VARIOUS OBJECTIONS. MEANWHILE AS A PRECAUTIONARY MEASURE BEFORE THE TIME LIMIT EXPIRED, THE SPECIAL COMMISSIONERS MADE AN ALTERNATIVE ASSESSMENT FOR 1917 - 18 ON T HE COMPANY ITSELF IN THE SAME AMOUNT AS THAT PREVIOUSLY MADE ON THE LOCAL BOARD. ONE OF THE QUESTIONS RAISED WAS THAT THIS ALTERNATIVE ASSESSMENT WAS VALID OR NOT. ROWLATT, J., SAID AS FOLLOWS P484): 76 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN NOW I PASS FROM THAT INFORMATION TO THE TWO CASES STATED : THEY ARISE OUT 0/THESE FACTS WHEN THE MATTER HAD BEEN DRAGGING ON FOR NEARLY TWO YEARS MORE, JUST BEFORE THE TIME RAN OUT, THE REVENUE TO MAKE SURE OF THEIR GROUND CAUSED AN ASSESSMENT TO BE MADE UPON THE COMPANY (WHICH UNDOUBTEDLY, AT ANY RATE SO F AR AS THE SPECIAL COMMISSIONERS WERE CONCERNED, ALWAYS WANTED TO GO BEFORE THEM) AS RESIDENT IN LONDON AND NOT UPON THE BOLIVIAN BOARD BY ITS AGENT HERE. SO THAT THE CASE COMES BEFORE ME ALTERNATIVELY, IS THIS BUSINESS LIABLE TO INCOME TAX EITHER BY WAY U/ASSES SMENT UPON THE FIRM AS REPRESENTING THE BOLIVIAN BOARD, OR BY WAY OF ASSESSMENT UPON THE COMPANY? IF IT IS RESIDENT IN LONDON, OF COURSE IT IS ASSESSED DIRECTLY IN ITS OWN NAME. NOW IT LOOKS AT FIRST SIGHT THAT ONE OR THE OTHER MUST HE RIGHT IF THESE PROFI TS ARE ASSESSABLE AT ALL. THERE CANNOT BE ANY DIFF I CULT Y ABOUT THE PERSON TO BE ASSESSED NOW, AS YOU HAVE THEM BOTH ALTERNATIVELY BEFORE THE COURT. BUT MR. EDWARDES JONES DOES NOT AGREE WITH THAT. HE SAYS, 'NO, BECAUSE YOU HAD ONE ASSESSMENT WHICH MAY BE O N THE WRONG MAN, THAT PREVENTS YOU HAVING ANOTHER ASSESSMENT ON THE RIGHT MAN. 'THAI SEEMS TO ME A HARD SAYING, AND LAM PERFECTLY SATISFIED THAT IT IS NOT WELL F OUNDED. O F COURSE THERE ARE PROVISIONS IN THE ACT WHICH SAY YOU SHALL NOT HAVE TWO ASSESSMENTS FOR THE SAME PROPERLY ON THE SAME PERSON; IF ONE HAS GONE WRONG, YOU CANNOT HAVE ANOTHER. IF II IS THOUGHT THAT WE HAVE ASSESSED THIS BUSINESS IN THE NAME OF ROBINSON AND IT IS REALLY CARRIED ON BY SMITH, IF IT IS SMITH NOW AND IT WAS SMITH OR ROBINSON BEF ORE, I CANNOT SEE THE SLIGHTEST OBJECTION TO IT IN COMMON SENSE, AND 1 CANNOT SEE ANY FROM THE POINT OF VIEW OF/HE STATUTE; SO THAT THAT DIFFICULTY GOES AND THE NEXT THING 1 HAVE TO CONSIDER IS WHO IS THE RIG/IT PERSON TO BE ASSESSED. 2. THE HIGH COURT OF CALCUTTA IN THE CASE OF B.K. BAGCHI AND ANOTHER V. MESSRS. LADHURAMTAPARIA APPEAL FROM THE 77 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN ORIGINAL ORDER NO. 71 OF 1951, DATED JANUAR Y 17, 1952 AFTER CONSIDERING THE FACTS THEREIN, STATED AS FOLLOWS (AS REFERRED TO IN CASE MENTIONED IN PARA 3 BELOW): 'THE INCOME - TAX AUTHORITIES ALSO MADE AN ALTERNATIVE ASSESSMENT, ASSESSING EACH OF THE FIRMS SEPARATELY AND THIS WAS WHAT IS REFERRED TO AS A PROTECTIVE ASSESSMENT AND IS PERMISSIBLE IN ORDER TO PREVENT ASSESSMENT BEING BARRED BY LIMITATION. 3. THE CALCUTTA 1 - UGH COURT IN THE CASE O F.JAGANNATHHANUMANBUX VS. ITO 119571 31 ITR 603 (CAL.) HAS REFERRED TO THE ABOVE CASE LAW AND HELD THAT UNDER THE INDIAN LAW IT IS PERMISSIBLE TO MAKE A PROTECTIVE ASSESSMENT. 4. A PROTECTIVE ASSESSMENT IS REGARDED AS BEING PROTECTIVE B ECAUSE IT IS AN ASSESSMENT WHICH IS MADE EX ABUNDANTICAUTELAWHERE THE DEPARTMENT HAS A 'DOUBT AS TO THE PERSON WHO IS OR WILL BE DEEMED TO BE IN RECEIPT OF THE INCOME'. SUCH A PROTECTIVE ASSESSMENT IS CARRIED OUT IN ORDER TO ENSURE THAT IMPUGNED INCOME MAY NOT ESCAPE TAXATION ALTOGETHER PARTICULARLY IN CASES WHERE THE REVENUE HAS TO BE PROTECTED AGAINST THE BAR OF LIMITATION. 5. THE ISSUE OF PROTECTIVE ASSESSMENT HAS SINCE BEEN UPHELD BY THE CONSTITUTIONAL BENCH OF THE HON'BLE SUPREME COURT IN THE CASE OF LAIJ IHARIDAS VS. [TO 11961143 ITR 387 (SC). IN THIS CASE THE SUPREME COURT HAS TAKEN JUDICIALLY NOTICE OF THE PRACTICE OF MAKING A PRECAUTIONARY OR PROTECTIVE ASSESSMENT. 6. THE LAW IS CLEAR THAT IN CERTAIN CASES THE ASSESSING OFFICER MAY HAVE TO ASSESS THE SAME INCOME IN MORE THAN ONE PLACE. SOMETIMES THEY MAY BE MADE BY DIFFERENT OFFICERS AS, FOR EXAMPLE, WHERE AN OFFICER ASSESSING A THINKS THAT CERTAIN 78 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN INCOME BELONGS TO HIM BUT ANOTHER OFFICER ASSESSING B IS OF THE OPINION THAT THE INCOME IS HIS. SOMETIMES THE SAME OFFICER MAY FIND THAT AN ASSESSEE BEFORE HIM IS RETURNING A PARTICULAR INCOME BUT IS OF THE OPINION THAT IT SHOULD BE ASSESSED IN THE HANDS OF A FIRM OR A FAMILY AND NOT IN THE HANDS OF THE PERSON WHO RETURNED IT. B. ITAT DECISION WHERE A DIFFERENT VI EW HAS BEEN TAKEN THAT SUBSTANTIVE ADDITION HAS TO PRECEDE PROTECTIVE ADDITION THE DECISIONS OF THE ITAT WHERE A VIEW IS STATED TO EMANATE THAT THERE CAN BE NO PROTECTIVE ADDITION UNLESS A SUBSTANTIVE ADDITION IS MADE HAVE TO BE SEEN IN THE CONTEXT OF WHAT WAS BEING DECIDED THEREIN. THIS CAN BE SEEN FROM THE CASE OF M.P. RAMACHANDRAN VS DCIT 120091 32 SOT 592 (MUM.). IN THIS CASE, THE FACTS OF THE MATTER AND THE REASON WHY THE ITAT HELD AS IT DID IS MADE VERY CLEAR FROM THE FOLLOWING EXTRACT OF THE ORDER: ' 21. HERE IT WILL HE RELEVANT TO NOTE THAT WHAT IS MEANT BY THE PROTECTIVE ASSESSMENT. IT IS AN UNDISPUTED POSITION THAT THE PROTECTIVE ASSESSMENT IS NOT RECOGNIZED BY THE ACT. AT THESAME TIME IT CANNOT BE SAID THAT IT IS A LIEN TO THE INCOME - TAX PROCEEDING S IN AS MUCH AS IT HAS BEEN WIDELY RECOGNIZED BY THE COURTS. THE HON'BLE SUPREME COURT IN THE CASE OF LALJIHARIDAS V. ITO [1961] 43 ITR 387, WHILE UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN ISSUING NOTICE FOR MAKING PROTECTIVE ASSESSMENT HELD THAT 'I N CASES WHERE IT APPEARS TO THE IT AUTHORITIES THAT CERTAIN INCOME HAS BEEN RECEIVED DURING THE RELEVANT ASSESSMENT YEAR BUT IT IS NOT CLEAR WHO HAS RECEIVED THAT INCOME AND PRIMA FADE IT APPEARS THAT THE INCOME MAY HAVE BEEN RECEIVED EITHER BY A OR B OR B Y BOTH TOGETHER, IT WOULD BE OPEN TO THE RELEVANT INCOME - TAX AUTHORITIES TO DETERMINE THE SAID QUESTION BY TAKING APPROPRIATE PROCEEDINGS BOTH AGAINST A AND B. THAT 79 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN BEING SO, THE APPELLANT WOULD NOT BE JUST ULED IN RESISTING THE ENQUIRY WHICH IS PROPOSED T O BE HELD BY THE RESPONDENT NO. I IN PURSUANCE OF THE IMPUGNED NOTICE ISSUED BY HIM AGAINST THE APPELLANT'. FROM THE ABOVE OBSERVATIONS OF THEIR LORDSHIPS OF THE HON'BLE SUPREME COURT, IT IS APPARENT THAT WHERE THE ASSESSING OFFICER IS NOT FULLY SATISFIED ABOUT THE CORRECT PERSON TO BE TAXED IN RESPECT OF AN INCOME, HE IS COMPETENT TO PROCEED AGAINST THE OTHER POSSIBLE PERSON(S) BY WAY OF PROTECTIVE MEASURE, WHO IN HIS OPINION, MIGHT HAVE EARNED THAT INCOME. THUS IT IS AN ALTERNATIVE ASSESSMENT OF ANOTHER P ERSON SUBJECT TO THE FINALITY OF THE DECISION IN WHOSE HANDS THE ASSESSMENT IS SUBSTANTIVELY MADE. IN OUR OPINION THE SCOPE OF THE PROTECTIVE ASSESSMENT CANNOT BE CABINED IN CASE OF TWO OR MORE PERSONS ONLY. IT MAY BE POSSIBLE THAT THE ASSESSING OFFICER MA Y BE SURE OF ONLY ONE PERSON HAVING EARNED AN INCOME, BUT HE MAY BE UNCERTAIN OF THE YEAR IN WHICH THE INCOME WAS EARNED, THAT IS YEAR ONE OR YEAR TWO. IN SUCH A CASE, HE CAN TAX SUCH INCOME IN BOTH THE YEARS, OF COURSE SUBJECT TO THE OTHER PROVISIONS, IN ONE YEAR ON SUBSTANTIVE BASIS AND IN THE OTHER YEAR ON THE PROTECTIVE BASIS. 22. COMING BACK TO OUR POINT WE HAVE TO EXAMINE WHETHER PROTECTIVE ASSESSMENT/ADDITION IS POSSIBLE UNDER SECTION 147 IN RESPECT OF THE SAME PERSON AND FOR THE SAME PERIOD. WHEN A REGULAR ASSESSMENT IS MADE AND LATER ON IT COMES TO THE NOTICE OF THE ASSESSING OFFICER THAT SOME INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, HE CAN RESORT TO THESE PROVISIONS FOR REASSESSMENT. BUT IT AS IS THE CASE UNDER CONSIDERATION, AFTER THE PASS ING OF THE REGULAR ASSESSMENT ORDER THE ASSESSIN G, OFFICER HAS PASSED A BLOCK ASSESSMENT ORDER UNDER SECTION 158B C PURSUANTTO SEARCH AND SEIZURE PROCEEDINGS UNDER SECTION 132 AND INCLUDED ONE INCOME IN THE BLOCK ASSESSMENT, J HE EMPOWERED TO INCLUDE THE SAM E 80 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN INCOME, ON PROTECTIVE BASIS, IN THE REASSESSMENT OF THE ORIGINAL REGULAR ASSESSMENT FOR THE YEAR, WHICH IS INCLUDED IN THE BLOCK P ERIOD? BEFORE ANSWERING THIS QUESTION, IT WILL BE RELEVANT TO SEE THE EFFECT OF THE ANSWER IN POSITIVE OR NEGATIVE. IF THE A NSWER IS GIVEN IN AFFIRMATIVE IT WILL MEAN THAT THE ASSESSING OFFICER IS EMPOWERED TO INCLUDE IT IN THE REASSESSMENT ON THE PROTECTIVE BASIS. THUS THERE WILL BE PRESUMPTION THAT THOUGH THE ASSESSING OFFICER HAD INCLUDED SUCH INCOME IN THE BLOCK ASSESSMENT, BUT HE STILL HAS THE REASON TO BELIEVE THAT THIS INCOME IS ALSO TAXABLE IN THE RE2ULAR ASSESSMENT. THIS PRESUMPTION WILL BELIE THE CONCEPT OF REASSESSMENT WHICH IS ALWAYS THERE TO TAX AN INCOME WHICH IS CHARGEABLE TO TAX BUT HAS ESCAPED ASSESSMENT. IN ORD ER TO GIVE A DIFFERENT COLOUR, THE ID. DR. CONTENDED THAT THIS DISALLOWANCE WAS MADE ON PROTECTIVE BASIS ONLY AND HENCE CANNOT BE EQUATED WITH THE SUBSTANTIVE DISALLOWANCE. WE HAVE NOTED ABOVE ABOUT THE VALIDITY AND PRESUMPTION OF THE PROTECTIVE ASSESSMENT IN GENERAL. PROTECTIVE ASSESSMENT CANNOT BE INDEPENDENT OF SUBSTANTIVE ASSESSMENT. THUS PROTECTIVE ASSESSMENT IS ALWAYS SUCCESSIVE TO THE SUBSTANTIVE ASSESSMENT. THERE M4Y BE A SUBSTANTIVE ASSESSMENT WITHOUT ANY PROTECTIVE ASSESSMENT, BUT THERE CANNOT BE ANY PROTECTIVE ASSESSMENT WITHOUT THERE A SUBSTANTIVE ASSESSMENT. IN SIMPLE WORDS THERE HAS TO BE SOME SUBSTANTIVE ASSESSMENT/ADDITION FIRST WHICH ENABLES THE ASSESSING OFFICER TO MAKE A PROTECTIVE ASSESSMENT/ADDITION. SUBSTANTIVE ADDITION/ASSESSMENT IS MA DE IN THE HANDS OF THE PERSON IN WHOSE HAND S THE ASSESSING OFFICER PRIMA FA CIE HOLDS THE OPINION THAT THE INCOME IS RIGHTLY TAXABLE. HAVING DONE SO AND WITH A VIEW TO PROTECT THE INTEREST OF THE REVENUE, IF THE ASSESSING OFFICER IS NOT SURE THAT THE PERSON IN WHOSE HANDS HE HAD MADE THE SUBSTANTIVE ADDITION RIGHTLY, HE EMBARKS UPON THE PROTECTIVE ASSESSMENT. THUS THE PROTECTIVE ASSESSMENT IS BASICALLY BASED ON THE DOUBT OF THE ASSESSING 81 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN OFFICER AS DISTINCT FROM HIS BELIEF WHICH IS THERE IS THE SUBSTANTIVE A SSESSMENT. OBVIOUSLY THERE IS NO PLACE FOR 'DOUBT' IN THE SCHEME OF REASSESSMENT, AS IT HAS TO BE BELIEF OF THE ASSESSING OFFICER ABOUT THE ESCAPEMENT OF INCOME, WHICH IS THE FOUNDATION FOR ASSESSMENT OR REASSESSMENT UNDER SECTION 147. EVEN IF FOR A MOMENT WE AGREE WITH THE ID. DR THAT THE PROTECTIVE ADDITION IS DIFFERENT FROM SUBSTANTIVE ADDITION AND HENCE THE REASSESSMENT PROCEEDINGS BE UPHELD, WE FIND THAT ULTIMATELY THE SAME CONCLUSION WILL FOLLOW IF THE SUBSTANTIVE ADDITION IS STRUCK DOWN AT A PLACE WH ERE IT WAS MADE. IN SUCH A SCENARIO THE PROTECTIVE ADDITION WILL GET CONVERTED INTO SUBSTANTIVE ADDITION IN THE REASSESSMENT. THAT WILL ALSO RUN CONTRARY TO THE FORMAT OF REASSESSMENT, BEING TO TAX AN INCOME WHICH HAS ESCAPED ASSESSMENT. IN THAT CASE AGAIN IT WILL TANTAMOUNT TO REOPENING ASSESSMENT ON THE BASIS OF AN ITEM OF INCOME OR DISALLOWANCE, WHICH HAS ALREADY BEEN MADE IN BLOCK ASSESSMENT OF THE ASSESSEE, THEREBY LEAVING NO INCOME ESCAPING ASSESSMENT.' (EMPHASIS SUPPLIED) IT CAN BE SEEN FROM THE ABOV E DECISION, THAT AFTER CITING THE SUPREME COURT DECISION, THE ITAT HAS ON ITS OWN ACCORD HELD THAT 'PROTECTIVE ASSESSMENT CANNOT BE INDEPENDENT OF SUBSTANTIVE ASSESSMENT. THUS PROTECTIVE ASSESSMENT IS ALWAYS SUCCESSIVE TO THE SUBSTANTIVE ASSESSMENT'. THIS VIEW DOES NOT EMANATE FROM THE DECISION OF THE SUPREME COURT WHERE IT WAS OBSERVED TO THE CONTRARY THAT IN CASES WHERE IT APPEARS TO THE IT AUTHORITIES THAT CERTAIN INCOME HAS BEEN RECEIVED DURING THE RELEVANT ASSESSMENT YEAR BUT IT IS NOT CLEAR WHO HAS RE CEIVED THAT INCOME AND PRIMA FADE IT APPEARS THAT THE INCOME MAY HAVE BEEN RECEIVED EITHER BY A OR B OR BY BOTH TOGETHER, IT WOULD BE OPEN TO THE RELEVANT INCOME - TAX AUTHORITIES TO DETERMINE THE SAID QUESTION BY TAKING APPROPRIATE PROCEEDINGS BOTH AGAINST A AND B. THE ITAT HAS VENTURED INTO THE DOMAIN OF LAW MAKING BY HOLDING THAT SUBSTANTIVE ADDITION HAS TO PRECEDE PROTECTIVE ADDITION WHEN 82 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN SUCH A POSSIBILITY IS NOT MENTIONED BY THE SUPREME COURT ITSELF AND ANY PERSON (A OR B) CAN BE TERMED TO HAVE BEEN ASS ESSED ON A PROTECTIVE OR SUBSTANTIVE BASIS AT THE SAME TIME. THEREFORE, IT IS SUBMITTED THAT THE DECISION OF THE ITAT DOES NOT FLOW FROM THE ORDER OF THE HON'BLE SUPREME COURT THOUGH IT IS CLAIMED AS SUCH. HENCE, IT IS NOT A VALID PRECEDENT. FURTHER IT IS SUBMITTED THAT THE ABOVE VIEW TAKEN BY THE ITAT IS NEITHER SUPPORTED BY THE DECISION OF SUPREME COURT IN THE CASE OF LAIJIHARIDAS (SUPRA) OR BY VARIOUS HIGH COURTS. C. CASES WHERE HIGH COURTS HAVE HELD THAT PROTECTIVE ADDITION DOES NOT DEPEND ON SUBSTANTIV E ADDITION PRECEDING IT: 1. THE ARGUMENT THAT THERE CAN BE NO PROTECTIVE ADDITION UNLESS THERE IS A SUBSTANTIVE ADDITION FIRST HAS BEEN REJECTED BY THE DELHI HI GH COURT IN THE CASE OF SOHAN SINGH VS CIT 119861 158 ITR 174 (DELHI). IN THIS CASE THE AO OF A FIRM FOUND THAT THE INCOME SHOULD BELONG TO A THIRD PERSON SHSOHAN SINGH, WHO WAS NOT ASSESSED WITH HIM. THEREFORE, THE AO SIMPLY ASSESSED THE FIRM ON A PROTECTIVE BASIS. SUBSEQUENTLY THE CONCERNED AO OF SOHAN SINGH TOOK ACTION U/S 147 AND MADE ADDITIONS TO INCOME IN HIS HANDS. THE HIGH COURT HAS CONFIRMED THE ACTION OF THE AO OF THE FIRM ALSO AS SEEN IN PARA 8 OF THE ORDER. THIS IMPLICITLY NEGATES THE ARGUMENT OF THE ASSESSEE THAT SUBSTANTIVE ADDITION HAS TO PRECEDE THE PROTECTIVE ADDITION. FURTHER, IN THE ABOVE CASE THE HIGH COURT HAD ALSO NOTED THE ISSUE OF DIFFERENT ASSESSING OFFICERS AND THAT THE FIRST ASSESSMENT CAN BE PROTECTIVE ADDITION. 2. SIMILARLY, IN THE CASE OF CUT VS. SMT. MEENAKSHI DEVI AVARU 12019] 410 ITR 306 (KARNATAKA), THE HIGH COURT HAS UPHE LD THE PROTECTIVE ADDITIONS EVEN WHEN NO SUBSTANTIVE 83 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN ADDITION WAS MADE. IN THIS CASE THE ISSUE WAS THE WEALTH TAX ASSESSMENT ON THE 'BANGALORE PALACE', WHICH WAS INITIALLY OWNED BY THE MAHARAJA OF MYSURU. ON A PARTITION IN THE YEAR 1984, THE CHILDREN OF LA TE MAHARAJA INCLUDING THE ASSESSEE - DAUGHTERS GOT THEIR RESPECTIVE SHARES. IN SUCH PARTITION EACH OF THE ASSESSEE - SISTERS GOT APPROXIMATELY 28 ACRES OF LAND APPURTENANT TO 'BANGALORE PALACE', WHILE THE REMAINING LAND AND THE BUILDING OF THE PALACE ITSELF FE LL IN THE SHARE OF THE BROTHER. IN RESPECT OF SAID PALACE, THE BANGALORE PALACE (ACQUISITION AND TRANSFER) ACT, 1996 WAS ENACTED BY THE STATE GOVERNMENT. THE CONSTITUTIONAL VALIDITY AND THE VIRES OF THE SAID ENACTMENT CAME TO BE CHALLENGED BY ALL THE ASSES SEES BEING THE BROTHER AND THE SISTERS. THE APPEALS WERE PENDING ADJUDICATION BEFORE THE NINE JUDGES' BENCH OF THE SUPREME COURT OF INDIA. THE ASSESSING AUTHORITY UNDER THE WEALTH - TAX ACT, 1957 PASSED THE 'PROTECTIVE ASSESSMENTS' IN THE HANDS OF THE ASSES SEE - SISTERS, IMPOSING WEALTH - TAX ON THE 'URBAN LAND' FALLING IN THEIR SHARE MEASURING ABOUT 28 ACRES AFTER DETERMINING ITS MARKET VALUE. THE HIGH COURT HAS SET - ASIDE THE ORDER OF THE ITAT CANCELLING THE PROTECTIVE ADDITIONS AND HAS DIRECTED THE REVENUE TO PASS ORDERS ON SUBSTANTIVE BASIS. 3. IN A CASE SIMILAR TO THE PRESENT ASSESSEE, THE HIGH COURT OF ALLAHABAD HAS HELD THAT A SIMPLE PROTECTIVE ADDITION CAN BE MADE WITHOUT ANY SUBSTANTIVE ADDITION. IN THE CASE OF CIT VS. RAM CHAND TILLI WORKS 120131 35 TAXMANN.COM 80 (ALLAHABAD) THE RESPONDENT - ASSESSEE (TRUST) HAD FILED A RETURN OF INCOME IN THE STATUS OF INDIVIDUAL (TRUST) SHOWING AN INCOME OF RS. 1,93.398/ - , WHICH WAS SUBSEQUENTLY REVISED SHOWING NIL INCOME WITH A NOTE THAT THE INCOME OF THE TRUST IS LIABLE TO BE ASSESSED IN THE INDIVIDUAL HANDS OF EACH BENEFICIARY AS PROVIDED UNDER SECTION 161 OF THE ACT. HOWEVER, THE ASSESSMENT WAS COMPLETED ON AN INCOME OF RS. I,93,398/ - ON PROTECTIVE BASIS IN THE STATUS OF THE AOP AND THE TAX WAS CHARGED AT THE MAXIMUM MARGINAL RATE WITH THE OBSERVATION 84 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN THAT THE TRUST WAS NOT GENUINE. IT WAS ALSO NOTED THAT A SUBSTANTIVE ASSESSMENT WOULD BE MADE IN THE HANDS OF THE REAL OWNER OF THE INCOME. ON FURTHER APPEAL BEFORE THE TRIBUNAL, THE TRIBUN AL ALLOWED THE APPEAL OF THE ASSESSEE HOLDING THAT IT WAS NECESSARY TO INDICATE WHO WAS THE REAL OWNER AND THE ORDER DID NOT INDICATE THE SAME IN THESE CIRCUMSTANCES THE ASSESSMENT FRAMED ON THE ASSESSEE WAS TO BE TREATED AS SUBSTANTIVE ASSESSMENT. THE ORD ER OF THE ITAT WAS SET - ASIDE BY THE HIGH COURT AS UNDER: '4. THE LEARNED STANDING COUNSEL APPEARING FOR THE REVENUE SUBMITTED THAT THE TRIBUNAL WAS NOT CORRECT IN HOLDING THAT IN THE ABSENCE OF INDICATING ABOUT THE REAL OWNER OF THE INCOME NO PROTECTIVE AS SESSMENT CAN BE MADE AND THE ONLY COURSE LEFT OPEN TO THE ASSESSING OFFICER WAS TO MAKE A SUBSTANTIVE ASSESSMENT. HE SUBMITTED THAT THE APEX COURT IN THE CASE OF ITO V. BACHU LAL KAPOORFI 966] 60 ITR 74 HAS CATEGORICALLY HELD THAT WHEN THERE WAS A DOUBT AS TO WHICH PERSON AMONG TWO WAS LIABLE TO B E ASSESSED, PARALLEL PROCEEDINGS MIGHT BE STARTED AGAINST BOTH; AND ALSO LAID DOWN AN EQUITABLE PROCEDURE TO HE FOLLOWED TO MAKE PROTECTIVE ASSESSMENT. HE FURTHER SUBMITTED THAT IT IS SETTLED LAW THAT WHERE THERE I S DOUBT OR AMBIGUITY ABOUT THE REAL ENTITY IN WHOSE HANDS A PARTICULAR INCOME IS TO BE ASSESSED, THE ASSESSING AUTHORITY IS ENTITLED TO HAVE RECOURSE TO MAKING PROTECTIVE ASSESSMENT IN THE CASE OF ONE AND REGULAR ASSESSMENT IN THE CASE OF OTHER. ACCORDING TO HIM THE ASSESSING OFFICER IS NOT AWARE AS TO WHO IS THE REAL OWNER OF THE INCOME EVEN IN THAT CASE PROTECTIVE ASSESSMENT CAN BE MADE WHERE RETURN HAS BEEN FILED BY A PERSON. 5. THE LEARNED COUNSEL APPEARING FOR THE RESPONDENT, HOWEVER, JUSTIFIED THE ORD ER PASSED BY THE TRIBUNAL BY SUBMITTING THAT IF THE ASSESSING OFFICER WAS NOT AWARE OF/HE REAL OWNER OF THE INCOME THEN IN THAT EVENT THERE IS NO QUESTION O F MAKING ANY PROTECTIVE ASSESSMENT. 85 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 6. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE VARIOUS PLEA R AISED BY THE LEARNED COUNSEL FOR THE PARTIES. IT IS NOT IN DISPUTE THAT THE ASSESSING OFFICER WAS NOT AWARE AS TO WHO WAS THE REAL OWNER OF THE INCOME AND IN WHOSE HANDS THE SUBSTANTIVE ASSESSMENT HAS TO BE MADE. HOWEVER, IT WOULD NOT MEAN THAT A PROTECTIV E ASSESSMENT CANNOT BE MADE AGAINST A PERSON WHO HAS VOLUNTARILY FILED A RETURN. IF THE ASSESSING OFFICER HAS DOUBT ABOUT THE GENUINENESS AND VERACITY OF THE CLAIM MADE BY THE PERSON, WHO HAS FILED THE RETURN IN THAT EVENT HE WILL BE WELL WITHIN HIS RIGHTS TO MAKE A PROTECTIVE ASSESSMENT. WE MAY MENTION HERE THAT IN THE CASE OF DOUB T OR AMBIGUITY ABOUT REAL ENTITY IN WHOSE HANDS A PARTICULAR INCOME IS TO BE ASSESSED THE ASSESSING AUTHORITY IS ENTITLED TO HAVE RECOURSE TO MAKE APROTECTIVE ASSESSMENT. THAT B EING THE POSITION WE ARE OF THE CONSIDERED OPINION THAT THE TRIBUNAL WAS NO T JUSTIFIED IN HOLDING THAT IN THE ABSENCE O F T HE REAL OWNER AND AS THE ASSESSING OFFICER WAS NOT AWARE AS TO WHO IS THE REAL OWNER OF THE INCOME A PROTECTIVE ASSESSMENT SHOULD NOT HAVE BEEN MADE AND INSTEAD A SUBSTANTIVE ASSESSMENT HAS TO BE MADE '. 4. CONCLUSION: IN THE PRESENT CASE AT HAND ALSO, THE AO IS NOT THE ASSESSING OFFICER OF THE PERSONS WHO CAN BE HELD ACCOUNTABLE FOR SUBSTANTIVE ADDITIONS. INFACT THE ASSESSEE HAS NOT EVE N DISCLOSED THEIR NAMES. HENCE, THE AO WAS CORRECT IN FRAMING A PROTECTIVE ASSESSMENT AND SINCE THE ASSESSEE HAS NOT DIVULGED THE NAMES OF THE RELEVANT PERSONS IT IS REQUESTED THAT THE ADDITION MADE BY THE AO BE TERMED SUBSTANTIVE SO THAT A PROPER FACT FIN DING IS ARRIVED AT. INCIDENTALLY THE REVENUE HAS ALREADY PLACED THE ORDER OF THE DELHI HIGH COURT ON THE RECORD AT THE LAST HEARING IN THE CASE OF CIT VS. MAHINDRA FINLEASE (P.) LTD [2012] 343 ITR 464 (DELHI) WHERE IT WAS HELD THAT PROTECTIVE ADDITION CAN BE MADE IN BLOCK ASSESSMENT CASES ALSO. IT IS AGAIN 86 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN REITERATED THAT THE PRESENT CASE INVOLVES NO ACTION UNDER SECTION 147/153C WHERE REASONS TO BELIEVE ARE INVOLVED. D. REQUEST OF THE REVENUE TO TREAT THE PROTECTIVE ADDITION TO BE SUBSTANTIVE 1. THE LAW IS CL EAR THAT THE PROCEDURE OF FRAMING PROTECTIVE ASSESSMENTS IS PERMITTED ONLY AT THE STAGE OF THE ASSESSMENT AS, AT HIGHER LEVELS, IT IS POSSIBLE FOR THE APPELLATE OR REVISIONAL AUTHORITY TO GIVE A CLEAR FINDING AS TO THE ASSESSEE WHO IS LIABLE TO BE SO ASSES SED LEAVING THE ONE WHO IS AGGRIEVED TO GET REDRESS BY APPROPRIATE PROCEEDINGS. THIS HAS BEEN HELD SO IN THE CASE OF SMT. HEMLATA AGARWAL VS. CIT [1967J 64 ITR 428 (ALL.) IN VIEW OF THIS, THE HON'BLE IT AT IS REQUESTED TO GIVE A FACT FINDING AS TO THE OWNER OF THE PROFIT AND DECIDE WHETHER THE ADDITION IN THE CASE OF THE ASSESSEE IS TO BE PROTECTIVE OR SUBSTANTIVE. 2. THE ITAT IS THE FINAL FACT - FINDING AUTHORITY AND IT CANNOT GIVE RELIEF ON THE BASIS OF OMISSIONS OF THE ASSESSING OFFICER AS HELD BY THE DELHI HI GH COURT IN THE CASE OF CIT VS. JANSAMPARK ADVERTISING & MARKETING (P.) LTD 120151 56 TAXMANN.COM 286 (DELHI). IN THIS CASE THE MATTER RELATED TO UNACCOUNTED ENTRIES FOUND IN BOOKS OF ACCOUNT OF ASSESSEE. THE HIGH COURT H ELD THAT THOUGH IT IS OBLIGATION OF ASSESSING OFFICER TO CONDUCT PROPER SCRUTINY OF MATERIAL, IN EVENT OF ASSESSING OFFICER FAILING TO DISCHARGE HIS FUNCTIONS PROPERLY, OBLIGATION TO CONDUCT PROPER INQUIRY SHIFTS TO COMMISSIONER (APPEALS) AND TRIBUNAL AND THEY CANNOT SIMPLY DELETE ADDITION MADE BY ASSESSING OFFICER ON GROUND OF LACK OF INQUIRY. THE HIGH COURT HELD THAT IN THE HIERARCHY OF THE AUTHORITIES, THE AO IS PLACED AT THE BOTTOM RUNG. THE TWO LAYERS OF APPEALS, BEFORE THE MATTER ENGAGES THE APPELLATE JURISDICTION OF THE COURT, ARE AUTHORITIES VESTED WITH THE JURISDICTION, POWER AND OBLIGATION TO REACH APPROPRIATE FINDINGS ON FACTS. IT IS ONLY 87 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN THE APPEAL TO THE HIGH COURT, UNDER SECTION 260 - A, WHICH IS RESTRICTED TO CONSIDERATION OF 'SUBSTANTIAL QUESTI ON OF LAW', IF ANY ARISING. THE HON'BLE HIGH COURT HAS HELD THAT: THE OBLIGATION TO MAKE PROPER INQUIRY AND REACH FINDING ON F A CTS DOES NOT END WITH THE AO. THIS OBLIGATION MOVES UPWARDS TO CIT (APPEALS), AND ALSO ITAT, SHOULD IT COME TO THEIR NOTICE THA T THERE HAS BEEN DELAULT IN SUCH RESPECT ON THE PART Q /THE AO. IN SUCH EVENT, IT IS THEY WHO ARE DUTY BOUND TO EITHER THEMSELVES PROPERLY INQUIRE OR CAUSE SUCH INQUIRY TO BE COMPLETED. I/THIS WERE NOT TO BE DONE, THE POWER UNDER SECTION 148 W OULD BE RENDERE D PRONE TO ABUSE '. FURTHER THE HIGH COURT HAS ALSO HELD AS UNDER: '42. THE AO HERE MAY HAVE FAILED TO DISCHARGE HIS OBLIGATION TO CONDUCT APROPER INQUIRY TO TAKE THE MATTER TO LOGICAL CONCLUSION. BUT CIT (APPEALS , ), HAVING NOTICED WANT OF P ROPER INQUIRY, C OULD NOT HAVE CLOSED THE CHAPTER SIMPLY BY ALLOWING THE APPEAL AND DELETING THE ADDITIONS MADE. IT WAS ALSO THE OBLIGATION OF THE FIRST APPELLATE AUTHORITY, AS INDEED OF ITA T, TO HAVE ENSURED THAT EFFECTIVE INQUIRY WAS CARRIED OUT, PARTICULARLY IN THE FAC E OF THE ALLEGATIONS OF THE REVENUE THAT THE ACCOUNT STATEMENTS REVEAL A UNIFORM PATTERN OF CASH DEPOSITS OF EQUAL AMOUNTS IN THE RESPECTIVE ACCOUNTS PRECEDING THE TRANSACTIONS IN QUESTION. THIS NECESSITATED A DETAILED SCRUTINY OF THE MATERIAL SUBMITTED BY THE ASSESSEE IN RESPONSE TO THE NOTICE UNDER SECTION 148 ISSUED BY THE AO, AS ALSO THE MATERIAL SUBMITTED AT THE STAGE OF APPEALS, IT DEEMED PROPER BY WAY OF MAKI NG OR CAUSING TO HE MADE A 'FURT HER INQUIRY' IN EXERCISE OF THE POWER UNDER SECTION 250(4). T HIS APPROACH NOT HAVING BEEN ADOPTED, THE IMPUGNED ORDER OF ITA T, AND CONSEQUENTLY THAT OF CIT (APPEALS), CANNOT BE APPROVED OR UPHELD'. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT SINCE THE ASSESSEE 88 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN HAD CHOSEN NOT TO GIVE DETAILS OF THE PERSON WHO ARE THE BEHIND THE SCENE BULLION DEALERS, THE ASSESSEE HAS TO BE HELD AS TAXABLE FOR THE ENTIRE SET OF PROFIT IN THIS CASE ON SUBSTANTIVE BASIS. RELYING ON THE ABOVE CASE LAWS AND THE DETAILED ORAL ARGUM ENTS MADE EARLIER, THE HON'BLE IT AT IS REQUESTED TO DIRECT A CCORDINGLY. 22. ON THE OTHER HAND, LD. AR SUBMITTED A DETAIL SUBMISSION, WHICH IS REPRODUCED BELOW: 1. RE GROUND OF APPEAL NO (I ) - DISALLOWANCE OF LOSS OF RS 1.75 CRORES 1.1. ASSESSEE'S CLAIM FOR LOSS PER RETURN OF INCOME REJECTED BY THE AO - PARA 6.1 , PAGE NO 25 OF ASSESSMENT ORDER MAINLY ON THE GROUND THAT THE SALES, BEING EFFECTED IN CASH AND THAT THE APPELLANT IS NOT ABLE TO GIVE THE ADDRESS OF THE BUYER(S). 1.2. REFER LIST OF DOCUMENTS FOUND AND SEIZED FROM JAIPUR OFFICE (GANPATI PLAZA) - PAGE NO S 12 TO 14 OF THE ORDER OF THE CIT(A). LIST INTER ALIA CONTAINS STOCK REGISTER, PURCHASE REGISTER, SALES REGISTER, PURCHASE AND SALES BILLS, DELIVERY CHALLANS, SALES TAX FORMS, CASH MEMOS, ETC. THERE IS NO DISCREPANCY BETWEEN THE DOCUMENTS SEIZED AND THE B OOKS OF ACCOUNT/ RETURN OF INCOME FILED BY THE ASSESSEE. AO COULD NOT HIGHLIGHT A SINGLE DISCREPANCY - REFER SECTION 132(4A) PER DR - PRESUMPTION OF SECTION 132(4A) NOT AVAILABLE AND THEN LD. DR READ THROUGH THE PROVISIONS OF THE SECTION. OUR SUBMISSIONS - AS THE DOCUMENTS ARE SEIZED DURING SEARCH PROCEEDINGS, THE PRESUMPTION OF SECTION 132(4A) IS AVAILABLE PER DR REBUTTABLE PRESUMPTION . OUR SUBMISSIONS IN FACT, WE ARE RELYING ON THE PRESUMPTION; THEREFORE, THERE IS NO QUESTION OF REBUTTING THE EVIDENCE B Y THE 89 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN APPELLANT IT IS POSITIVE UNDENIABLE EVIDENCE FOUND DURING SEARCH 1.3. REFER PARA 6.3 OF THE ORDER OF THE CIT(A) 1.4.COMPLETE STOCK BOOK/ REGISTER NO DISCREPANCY FOUND EITHER BY THE CIT(A) OR ASSESSING OFFICER 1.5.CONFIRMATIONS OF MAJOR SUPPLIERS ALSO FILED BEFORE THE ASSESSING OFFICER 1.6. REFER STATEMENT ON OATH OF MRKETANSHOFF, DIRECTOR OF PUSHPAK BULLION CONFIRMING HAVING SOLD GOLD BULLION TO THE APPELLANT. REFER PAGE NOS 229 TO 234 @ PAGE NO 230 1.7.QUANTITATIVE DETAILS REFER TAX AUDIT REP ORT PAGE NO 18 OF THE PAPER BOOK. 1.8.SALES TAX RETURNS HAVE BEEN ACCEPTED BY SALES TAX AUTHORITIES, IN JAIPUR THUS, THE SALES IN JAIPUR OUGHT TO BE ACCEPTED BY THE INCOME - TAX AUTHORITIES RELIANCE IS PLACED ON THE DECISION OF MADRAS HIGH COURT IN THE C ASE OF SMTSHAKUNTALA DEVI KHETAN 352 ITR 484 (MAD) FURTHER, THE CLAIM OF THE INCOME - TAX DEPARTMENT THAT THE APPELLANT HAS MADE SALES IN MUMBAI AND THEREBY EARNED DUE TO THE RATE DIFFERENCE IN SALES TAX BETWEEN JAIPUR AND MUMBAI IS ONLY HYPOTHETICAL, WIT HOUT EVIDENCE THERE ARE NO PROCEEDINGS TAKEN BY THE SALES TAX DEPARTMENT OF MAHARASHTRA AGAINST THE APPELLANT, WHICH IS VERY UNLIKELY - IF THERE WAS ANY EVASION OF SALES TAX DUE TO THE SALES TAX DEPARTMENT IN MAHARASHTRA FOR THE ALLEGED SALES EFFECTED I N MUMBAI AS CLAIMED BY THE INCOME - TAX DEPARTMENT,THEY WOULD HAVE COMMENCED PROCEEDINGS TO COLLECT THE SALES TAX FROM THE APPELLANT BUT THERE ARE NO PROCEEDINGS INITIATED AGAINST THE APPELLANT, CONFIRMS THAT THE HYPOTHESIS OF THE INCOME - TAX DEPARTMENT IS NOT CORRECT. 1.9. FURTHER, THE THEORY OF SALES IN MUMBAI FALLS FLAT IF ONE 90 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN LOOKS AT THE SEIZED DIARY - REFER PARA 7.12 OF THE CIT(A) ORDER - PER CIT(A) : 'I DO NOT AGREE WITH THE FINDINGSOF THE AO THAT THE DIARY INDICATES THAT THE GOLD BULLION WAS PURCH ASED IN JAIPUR AND AHMEDABAD AND SOLD IN M UMBAI. IN FACT, THE DIARY DOES NOT CONTAIN ANY DETAILS OF SALES. THE DIARY CONTAINS DETAILS OF QUANTITY OF GOODS RECEIVED AND QUANTITY OF GOODS HANDED OVER TO VARIOUS PERSONS TO MAKE DELIVERY. HOWEVER THE DIARY DOE S NOT CONTAIN ANY NOTINGS IN RESPECT OF SALES OF GOODS. IT IS FURTHER SEEN FROM PAGE NOS 21 - 23 OF THEASSESSMENT ORDER THAT WHILE AN S WERING QUESTIONS 8 - 16 OF THE STATEMENT RECORDED ON 23.12.2006 THE APPELLANT HAS ANSWERED ALL THE QUERIES RAISED BY THE A SSESSING OFFICER ABOUT THE SEIZED DIARY. THE ASSESSING OFFICER HAS NOT CONTROVERTED THESE EXPLANATIONS.' 1.10. RE CASH SALES - NO PROVISION IN INCOME - TAX LAWS PROHIBITED AT THE RELEVANT POINT IN TIME, RECEIPT OF CASH ON ACCOUNT OF SALES IN THE YEAR UNDER R EFERENCE. FURTHER, THERE WAS NO NECESSITY FOR AN ASSESSEE TO MAINTAIN ADDRESSES OF CUSTOMERS WHO HAVE PAID IN CASH REFER R.B. JESSARAMFATEHCHAND VS CIT REPORTED IN 75 ITR33 [BORN] 119701 AND ASSTT CIT VS MA HESH T. PATODIA REPORTED IN 79 I TD 40 (PN). LATER , SECTION 269ST WAS INSERTED W.E.F. 01.04.2017 WHICH PROHIBITS CERTAIN RECEIPTS IN CASH - THIS WAS NOT ON THE STATUE BOOKS DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2005 - 06. PER DR - 'A' SELLS IN JAIPUR AND OBTAINS CASH IN MUMBAI - THUS, 'A' HAS TO HAVE DETAILS OF BUYERS. OUR SUBMISSIONS - THE FACT IS THAT WHEN DELIVERY OF GOLD BULLION IS GIVEN IN JAIPUR, THE ASSOCIATE OF THE APPELLANT IN MUMBAI WOULD RECEIVE THE CASH IN MUMBAI SIMULTANEOUSLY; THUS, THERE IS NO NEED FOR THE APPELLANT TO HAVE THE ADDRESS MENTIONED ON THE CASH MEMOS. 1.11. PER DR (IN THE NOTE) - THE DR ALSO MENTIONS THAT THERE 91 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN IS PROFIT IN THE CASE OF PUSHPAK BULLIONS AND HENCE, THE LOSS IN THE HANDS OF THE APPELLANT SHOULD BE IGNORED OUR SUBMISSIONS - LOSS IN THE HANDS OF THE APPEL LANT IS AS PER RETURN OF INCOME. IN ANY INDUSTRY, SOME PLAYERS MAY HAVE PROFITS AND SOME MAY INCUR LOSSES. IT DOES NOT MEAN THAT THE LOSSES SHOULD BE IGNORED ONLY BECAUSE SOME PLAYERS HAVE PROFITS. 1.12. FINDINGS OF THE CIT(A) - PARAS 6.6, 6.7 AND 6.8 ON PAGE NO 11 AND PARA 6.9 AND 6.10 ON PAGE NO 14 OF THE CIT(A) ORDER. IN VIEW OF THE ABOVE, AND IN VIEW OF THE OVERWHELMING EVIDENCES, THE GROUND OF APPEAL NO (I) OF THE DEPARTMENT SHOULD FAIL. 1.13. GENERAL FACTS FOR GROUND OF APPEAL NOS (I) TO (IV) - REFE R SUBMISSIONS OF THE APPELLANT REPRODUCED BY THE CIT(A) IN PARA 7.4 UNDER THE HEADING A. THE NATURE OF BUSINESS AND MODUS OPERANDI - PAGE NOS 27 AND 28; B. CHRONOLOGY OF EVENTS LEADING TO SEIZURE OF STOCK - IN - TRADE - PAGE NOS 28 TO 30; C. VALIDITY OF PRO TECTIVE ADDITIONS IN SEARCH ASSESSMENTS - PAGE NOS 30 AND 31; D. REBUTTAL OF FINDINGS OF THE AO - PAGE NOS 31 TO 43 2. GROUND OF APPEAL NO (III) - PROTECTIVE ADDITION OF RS 4.04 CRORES IN RESPECT OF P ROFIT OF A TRADER 2.1. PER AO - THE APPELLANT IS ONLY A FRONT OF SOME 'UNKNOWN 92 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN PERSON' AND THE ENTIRE BUSINESS ACTIVITY THOUGH DONE BY THE APPELLANT, BELONGS TO THE 'UNKNOWN PERSON' AND HENCE, MADE A PROTECTIVE ASSESSMENT IN THE HANDS OF THE APPELLANT. THE APPELLANT IS NOT THE ACTUAL OWNER OF THE BUSINESS OF R AJGURU BULLION - PARA 5 ON PAGE NO 15 OF THE ASSESSMENT ORDER 2.2 PER AO - THE ASSESSEE COULD NOT EXPLAIN THE TRANSACTIONS OF PURCHASES ON 08.12.2004 - PARA 4.15 ON PAGE NO 12 OF THE ASSESSMENT ORDER 2.3. PER DR - THE DR RELIED ON THE DECISION OF DELHI HI GH COURT IN THE CASE OF MAHINDRA LEASE PVT LTD (COPY OF THE DECISION GIVEN) 2.4. PER DR (IN THE NOTE) - THE DR HAS STATED THAT TILL THE CASE OF PUSHPAK BULLION IS NOT FINALISED, THE PROTECTIVE ASSESSMENT IN THE HANDS OF THE APPELLANT SHOULD BE SUSTAINED. O UR SUBMISSIONS 2.5 AVERMENT OF THE A O THAT THE ASSESSEE IS ONLY A 'FRONT' IS ONLY BASED ON ASSUMPTIONS, PRESUMPTIONS, SURMISES AND CONJECTURES. THE ASSESSING OFFICER HAS NOT BEEN ABLE TO BRING ON RECORD 'THE UNKNOWN PERSON'. FURTHER, NO SUBSTANTIVE ADDITIO N IS MADE BY THE AU ON ANY PERSON; WITHOUT A SUBSTANTIVE ADDITION, THERE CANNOT BE A PROTECTIVE ASSESSMENT; HENCE, THE PROTECTIVE ASSESSMENT ON THE APPELLANT SHOULD FAIL. 2.6. RE PURCHASES OF 08.12.2004 - FINDING OF THE AO THAT THE ASSESSEE COULD NOT EXPL AIN THE PURCHASES ON 08.12.2004 IS FACTUALLY INCORRECT - REFER PARA 7.8 TO 7.12 ON PAGE NOS 44 TO 48 OF CIT(A)'S ORDER. 2.7. CONCLUSION OF CIT(A) - PARA 7.20 AND 7.21 ON PAGE NO 52 OF CIT(A)'S ORDER. 93 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 2.8. THE DECISION OF THE DELHI HIGH COURT RELIED ON BY THE DR IS ON 'WHETHER THE PROTECTIVE ASSESSMENT CAN BE FRAMED IN THE PROCEEDINGS UNDER SECTION 158BC/ I S8BD' OUR SUBMISSION - THE ISSUE IS WHETHER A PROTECTIVE ASSESSMENT CAN BE SUSTAINED IN THE ABSENCE OF A SUBSTANTIVE ASSESSMENT MADE BY THE DEPARTMENT I N THE HANDS OF SOME OTHER ASSESSEE. THE APPELLANT SUBMITS THAT WITHOUT A SUBSTANTIVE ASSESSMENT IN THE HANDS OF SOME OTHER ASSESSEE, THE ASSESSING OFFICERCANNOT MAKE A PROTECTIVE ASSESSMENT; IN SUCH A CASE THE PROTECTIVE ASSESSMENT WOULD HAVE NO LEGS TO ST AND ON - RELIANCE IS PLACED ON THE DECISION OF DELHI TRIBUNAL IN THE CASE OF FUSSY FINANCIAL SERVICES PVT LTD 2.9. DR HAS STATED THAT TILL THE CASE OF PUSHPAK BULLION IS N OTFINALI Z ED, THE PROTECTIVE ASSESSMENT IN THE HANDS OF THE APPELLANT SHOULD BE SUSTAI NED; HOWEVER, NO ADDITION OF RS 4.04 CRORES SEEMS TO HAVE BEEN MADE IN THE HANDS OF PUSHPAK BULLION . 3. GROUND OF APPEAL NO (IV) - ADDITION OF STOCK - IN - TRADE - RS 3.46 CRORES 3.1. THE ADDITION OF RS 3.46 CRORES IS NOTHING BUT THE VALUE OF 54 KGS OF GOLD SEIZED BY THE DEPARTMENT - PARA 6.2 ON PAGE NO 25 OF THE ASSESSMENT ORDER 3.2. AO REFERS TO THE AFORESAID RS 3.46 CRORES AS 'UNACCOUNTED INVESTMENTS' OF THE APPELLANT. 3.3. PER DR - THE CIT(A) HAS NOT DEALT WITH THIS . OUR SUBMISSIONS 3.4 THE ASSESSING OFFI CER HAS NOT BEEN ABLE TO PIN POINT THE 'UNKNOWN PERSON'/ THE FRONT PERSON OF THE APPELLANT AND 94 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN IN THESE CIRCUMSTANCES, THE ONLY NATURAL COROLLARY IS THAT THE BUSINESS IS OF THE APPELLANT, AND IF THAT BE SO, THE STOCK SEIZED BELONGS TO THE APPELLANT; HENCE, THE APPELLANT OUGHT TO GET DEDUCTION OF THE LOSS INASMUCH AS THE LOSS IS OF STOCK - IN - TRADE - T.C. REDDY 256 ITR 516 (AP) 3.5. THE AFORESAID RS 3.46 CRORES IS NOT 'UNACCOUNTED' - REFER AUDITED PROFIT AND LOSS ACCOUNT AND BALANCE SHEET - PAGE NO 23 OF THE P APER BOOK 3.6. THE SAID VALUE RS 3.46 CRORES IS PART OF PURCHASES ON THE DEBIT SIDE OF THE PROFIT AND LOSS ACCOUNT AND IS ALSO CREDITED IN THE PROFIT AND LOSS ACCOUNT AS SEIZED STOCK; AND THUS, IS REFLECTED IN THE RETURNED LOSS OF RS 1.75 CRORES. 3.7. THE CIT(A) HAS DEALT WITH THIS ADDITION OF RS 3.46 CRORES (GROUND NO 5 OF THE APPEAL TO THE CIT(A)) TOGETHER WITH OTHER ADDITIONS OF RS 1.97 CRORES AND RS 4.04 CRORES (GROUND NO 3 AND 4 TO THE CIT(A), RESPECTIVELY) - PARA 7 ON PAGE NO 18 OF THE CIT(A)'S ORDER. 3.8. REFER CIT(A) ORDER PAGE NOS 44 TO 48, PARA NOS 7.8 TO 7. 3.9. CONCLUSION OF CIT(A) - RS 3.46 CRORES IS PROPERLY ACCOUNTED IN THE BOOKS OF THE ASSESSEE AND HENCE, THE ADDITION IS DELETED - PARA 7.21 ON PAGE NO 52 OF CIT(A)'S ORDER. THUS, THE CIT(A) HA S DEALT WITH THE GROUND OF APPEAL OF THE A PP ELLANT - THE GROUND OF APPEAL OF THE DEPARTMENT ON PROTECTIVE ASSESSMENT SHOULD THEREFORE, FAIL WITHOUT PREJUDICE : 3.10. ON THE ONE HAND, THE AO STATES THAT THE BUSINESS DOES NOT BELONG TOTHE ASSESSEE AND ON THE OTHER HAND, THE AO MAKES ADDITION OF THE GOLD SEIZED AS UNACCOUNTED INVESTMENT OF THE 95 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN ASSESSEE. IF ASSESSEE IS HELD TO BE A FRONT AS ALLEGED BY THE AO, THEN THE GOLD SEIZED OF THE VALUE OF RS 3.46 CRORES CANNOT BE SAID TO BE ASSESSEE'S UNACCOUNTED INVESTME NT AND HENCE, THE IMPUGNED ADDITION OUGHT NOT TO BE MADE. 4. GROUND OF APPEAL NO (V) - DISCLOSURE PER STATEMENT UNDER SECTION 132(4) - RS 12.70 LACS 4.1. PER DR - RELIED ON THE ORDER OF THE AO OUR SUBMISSIONS - REFER PARA 8.2 OF THE ORDER OF THE CIT(A) ON PAGE NOS 52 TO 56. THE APPELLANT FURTHER RELIES ON CBDT CIRCULARS DATED 10 - 3 - 2003 AND 18 - 12 - 2014. 4.2. THE APPELLANT RELIES ON THE ORDER OF THE CIT(A) IN PARA 8.3 TO 8.6. 22 . CONSIDERED THE RIVAL SUBMISSION AND MATERIAL PLACED ON RECORD . W E NOTICE F ROM THE RECORDS THAT THE ASSESSEE IS A TRADER IN BULLION TRADE, WHO IS SEMI WHOLESALER, BUYS GOLD BULLION FROM WHOLESALERS LIKE NAKSHATRA AND PUSHPAK BULLION. ASSESSEE REGULARLY PURCHASES FROM THE WHOLESALERS BY PAYING THRU PAY ORDER OR BANK TRANSFER. THER E IS NO DISPUTES WITH REGARD TO THE PURCHASES AS THE AO HAS ALREADY VERIFIES THE GENUINENESS AND ASSESSEE ALSO SUBMITTED RELEVANT CONFIRMATIONS FROM THE SUPPLIERS. THE MAIN ISSUE IS RELATING TO SALE AND SUBSEQUENT REALIZATION OF THE SALE CONSIDERATION. THE ASSESSEE IS DEALING WITH THIS TYPE OF BUSINESS IN THE EARLIER YEAR ALSO AND DECLARED SIMILAR TURNOVER. 96 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 23. FROM RECORDS WE NOTICE THAT THE ASSESSEE PURCHASES THE GOLD BULLION FROM THE WHOLESALERS AND SELLS THE SAME BY CASH ON THE SAME DAY OR NEXT DAY WIT H THE WAFER THIN MARGIN. SINCE IT IS VOLUME BUSINESS AND THE ASSESSEE ALSO A REGISTERED DEALER IN SALES TAX. THE CONTROVERSY STARTED WHEN THE TWO CARRIERS WERE INTERCEPTED IN THE MUMBAI AIRPORT WITH THE 54 KGS OF GOLD IN THERE POSSESSION ON 9.12.2004. THE C ARRIERS INFORMED THAT IT BELONGS TO THE ASSESSEE. ON THE SAME DAY, THE DEPARTMENT CARRIED OUT SEARCH OPERATIONS IN THE RESIDENCE AND BRANCH OFFICES OF THE ASSESSEE. IT ALSO CARRIED OUT SURVEY OPERATIONS IN THE RESIDENCE OF CARRIERS AND OFFICE OF THE PUSHPA K BULLION. IT WAS FOUND THAT THE ASSESSEE INVOLVED IN THE TRADING OF GOLD BULLION AND SELLS THE BULLION FOR CASH. THE DEPARTMENT HAS CONFISCATED THE PURCHASE, SALES INVOICE, DELIVERY CHALLAN, HAND WRITTEN DIARIES AND OTHER LOOSE PAPERS BELONGING TO THE ASS ESSEE. THE DEPARTMENT ALSO TAKEN STATEMENTS FROM THE CARRIERS, SON OF ASSESSEE AND ASSESSEE. THE CARRIERS HAVE CONFIRMED THAT THEY DELIVER THE BULLION AS PER THE DIRECTION OF ASSESSEE AND SON OF ASSESSEE HAS BRIEFLY EXPLAINED THE OPERATION OF THE ASSESSEE WITH REGARD TO THE TRANSACTION IN MUMBAI BRANCH EVEN THOUGH HE IS NOT INVOLVED IN ANY OF THE OPERATION. HE HAS CONFIRMED THAT HIS FATHER PURCHASES IN JAIPUR AND DISTRIBUTES THRU CARRIERS. HE IS NOT AWARE OF ANY OTHER DETAILS. HE ALSO CONFIRMED THAT SOME OF THE DELIVERIES WERE MADE IN MUMBAI. BUT THE 97 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN ASSESSEE MAINTAINED THAT HE PURCHASES THE BULLION IN JAIPUR AND SELLS THE SAME ONLY IN JAIPUR AND DELIVERS THE BULLION AS PER THE DIRECTION OF PURCHASERS. 24. ALL ALONG THE DETAILS OF PURCHASE AND SALES WERE WI TH THE DEPARTMENT AND AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO REFUTE THE SUBMISSIONS OF THE ASSESSEE. THE AO HAS COMPLETED THE ASSESSMENT U/S 153A WITH THE PRESUMPTION THAT THE MODUS OPERATION OF THE ASSESSEE IS, HE PURCHASES THE BULLION IN JAIPUR AND SELLS THE SAME IN MUMBAI TO MAKE ADDITIONAL PROFIT IN SAVING THE SALES TAX DIFFERENCE BETWEEN THE PREVAILING RATES IN MADHYA PRADESH AND MAHARASHTRA. AO CONCLUDED THE ASSESSMENT WITH THE PRESUMPTION THAT THE ASSESSEE IS ONLY A NAME GIVER IN THE TRANSACTIO N AND HE IS TRADING ON BEHALF OF THE UNKNOWN TRADER. LATER HE SUGGEST THAT THE ASSESSEE WORKS ON BEHALF OF PUSHPAK BULLION, WITH WHOM ASSESSEE PURCHASES AND WHO HAS GIVEN TRADE LOANS TO ASSESSEE. 25. IN RESPONSE TO THE PROCEEDINGS U/S 153A, ASSESSEE FILED ITS RETURN OF INCOME AND AUDITED FINANCIAL STATEMENTS. THE AO COMPLETED THE ASSESSMENT BASED ON THE PRESUMPTION THAT ASSESSEE IS A NAME LENDER AND CARRIER. ACCORDINGLY , AO MADE THE ADDITION ON THE SUPPRESSED INCOME OF CASH SALES NOT ONLY THE SHARE ALLOCAB LE TO THE ASSESSEE BASED ON THE MODUS 98 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN OPERANDI PRESUMED BY THE AO AND ALSO THE SHARE OF THE UNKNOWN TRADER. BUT IN THE ASSESSMENT ORDER, AO HAS NOT EVEN WHISPERED THE REASONS FOR REJECTING THE BOOK RESULTS OF THE ASSESSEE WHICH IS AUDITED. 26. W ITH THE AB OVE BACK GROUND , WE ADJUDICATE THE APPEAL OF THE ASSESSEE AND THE REVENUE IN GROUND WISE. 27. WITH REGARD TO FIRST GROUND (I) OF DEPARTMENT THAT ASSESSEE HAS ENTIRE SALE IN CASH, CUSTOMERS ARE NOT IDENTIFIABLE AND FURTHER, M/S PUSHPAK BULLION P. LTD HAS DE CLARED PROFIT FOR THE SAME YEAR . W ITH THE ABOVE FACTS, LEARNED CIT(A) HAS ALLOWED THE L OSS DECLARED BY ASSESSEE TO THE EXTENT OF RS. 1.75 CRORES. WE NOTICE THAT LD CIT(A) HAS ANALYZED THE ASSESSEE S SUBMISSION IN PARAS 6.5 TO 6.10 OF HIS ORDER. AFTER CONSI DERING THE ASSESSEE S SUBMISSION, LD CIT(A)S FINDINGS ARE: A) TRADING ACCOUNT OF ASSESSEE CONTAINS ONLY PURCHASE AND SALES . B) THE COMPLETE PURCHASE TRANSACTIONS ARE VERIFIABLE AND ASSESSEE ALSO FILED CONFIRMATION LETTERS FROM THE SUPPLIERS. ALL THE PAYMENTS A RE MADE THROUGH ACCOUNT PAYEE CHEQUES. C) THE SALES AND PURCHASE BILLS WERE FOUND DURING SEARCH AND SEIZURE PROCEEDINGS AND THEY WERE SEIZED BY THE DEPARTMENT. THE AO HAS NOT DISCUSSED ANY DISCREPANCIES ABOUT THE PURCHASE AND SALES BILLS SEIZED AND AS PER PRE SUMPTIONS, THE DETAILS FOUND DURING THE SEARCH IS TRUE AND 99 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN BELONGS TO THE SEARCH ED PARTY. IT HAS TO BE ACCEPTED AS CORRECT. D) THE DETAILS OF PRICE AND SETTLEMENT WAS ALSO CORROBORATED BY THE STATEMENT OF THE DIRECTOR OF M/S PUSHPAK BULLION P LTD. THEY ARE IN DEPENDENT/EXTERNAL SOURCE CONFIRMATION. E) THE FINANCIAL RESULTS SUBMITTED BY THE ASSESSEE ARE AUDITED AND AO HAS NOT GIVEN ANY REASON FOR REJECTION OF BOOK RESULTS SUBMITTED BY THE ASSESSEE. EVEN THOUGH ALL THE B ILLS RELATING TO PURCHASE AND SALES ARE WITH T HE DEPARTMENT. F) THE MAIN ACTIVITIES OF THE ASSESSEE ARE PURCHASE AND SALES ONLY, THESE DOCUMENTS ARE WITH THE DEPARTMENT AND AO HAS NOT FOUND ANY CONTRARY FINDINGS THAT THE STATE OF AFFAIRS ARE DIFFERENT THAN IT WAS DECLARED BY ASSESSEE. G) THE ASSESSING OFFIC ER HAS NOT GIVEN ANY SPECIFIC FINDING CONTRARY TO THE RESULT SUBMITTED BY THE ASSESSEE OR THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE. 28. BY RELYING ON VARIOUS CASE LAW, LD CIT(A) OBSERVED THAT ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL TO LEAD T O A REASONABLE CONCLUSION THAT THE BOOKS OF ACCOUNT MAINTAINED BY ASSESSEE ARE NOT RELIABLE AND THEREBY LIABLE TO BE REJECTED. AO HAS NOT FOUND ANY DISCREPANCIES WITH RESPECT TO PURCHASES BUT ONLY ISSUE RAISED BY AO ARE THAT THE SALES WERE MADE AT MUMBAI O NLY AND NOT IN JAIPUR. FURTHER , FOR ABOVE SAID PURPOSE AO HAS ALREADY ESTIMATED THE INCOME ON SUPPRESSED PROFIT ON CASH SALES. 100 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN THEREFORE THE AO HAS NOT BROUGHT ON RECORD ANY DISCREPANCIES ON THE BOOKS OF ACCOUNT, WHICH ARE ON MAIN ACTIVITIES OF THE ASSESSE E I.E., TRADING OF B U LLION TRADE, THE RESULT DECLARED BY THE ASSESSEE CANNOT BE REJECTED. 29. BEFORE US, LEARNED DR SUBMITTED THAT ASSESSEE HAS BROUGHT TO THE NOTICE OF LD CIT(A) ABOUT THE TERMS OF SETTLEMENT ON BULLION CONTRACT AND THE MARGIN OF ASSESSEE IS WAFER THIN. THE LD CIT(A) HAS ACCEPTED THE ABOVE CONTENTION AND GAVE RELIEF TO THE ASSESSEE, WHICH IS NOT LAWFUL. ACCORDING TO HIM LD CIT(A) HAS GIVEN RELIEF FOR THE SIMPLE REASON THAT AO HAS NOT BEEN POINTED ANY DISCREPANCIES ON THE RESULT OR METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. AO WAS FOCUSED ONLY ON THE SALE IS BEING MADE IN MUMBAI , SI NCE THE AO MADE SEPARATE ADDITION . F URTHER HE SUBMITTED THAT ASSESSEE HAS NOT MAINTAINED ANY BOOKS AND AS PER ASSESSEE THE BOOKS WERE MAINTAINED IN COMPUTER, W HICH WAS NEVER FOUND . A CCORDING TO LD DR ASSESSEE HAS NOT MAINTAINED ANY RECORDS OF ANY TRADING ACTIVITIES. FURTHER HE SUBMITTED THAT THE LD CIT(A) HAS IGNORED THE FACT THAT ASSESSEE HAS NOT DISCLOSED THE PARTIES TO WHOM HE HAS SOLD IN MUMBAI , EVEN THOUGH, ASSESSEES SON DISCLOSED THE ACTIVITIES OF THE ASSESSEE IN HIS STATEMENT. CIT(A) HAS COMPLETELY IGNORED THE FACT THAT ASSESSEE HAS EARNED THE DIFFERENCE IN SALE TAX RATES BY SELLING THE GOLD IN MUMBAI. LEARNED D R STRESSED HIS SUBMISSION ONLY ON THE MODUS OPERANDI ADOPTED BY THE ASSESSEE 101 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN AND SUPPORTED THE FINDINGS OF THE AO. FURTHER HE SUBMITTED THAT THE DEPARTMENT RELIES ON THE DOCTRINE OF PREPONDERANCE OF PROBABILITIES AS PER THE CASE OF SUMATI DAYAL (SC) . 30. AFTER CAREFUL CONSIDERATION OF FACTS, WE ARE INCLINED TO ACCEPT THE FINDINGS OF THE LD CIT(A) FOR THE SIMPLE REASON THAT THE MAIN ACTIVITIES OF THE ASSESSEE ARE TRADING OF GOLD BULLION . IN THIS BUSINESS, ASSESSEE PURCHASES THE GOLD BULLION FROM WHOLESALERS AND S ELLS THE SAME TO THE PROSPECTIVE BUYERS ON CASH ONLY. THIS TYPE OF BUSINESS IN FACT HAVING VERY THIN MARGIN. THE ASSESSEE HAS SUBMITTED THE BOOK RESULTS BASED ON THE PURCHASE AND SALES BILLS. IN FACT THE ASSESSEE PURCHASES BY MAKING ACCOUNT PAYEE CHEQUES AND S ELLS THE SAME IN CASH. SINCE THE TR ANSACTION IS OVER AND MOST OF THE SALES ARE COMPLETED ON CASH BASIS , HE NEED NOT HAVE TO MAKE ANY RECORDS OF CUSTOMERS AND THE SALES BILLS HAS THE NAME OF PURCHASER. HE HAS TO ONLY MAINTAIN STOCK THE STOCK REGISTER . THIS STOCK IS MAINTAINED BY ASSESSEE IN A DIARY WHICH IS FOUND DURING SEARCH. ASSESSEE HAS TO MAINTAIN A RECORD ONLY OF THOSE TRANSACTIONS FOR WHICH DELIVERY HAS ALREADY TAKEN PLACE AND SETTLEMENT WAS NOT COMPLETED. AS FAR AS PURCHASES AND SALES ARE CONCERNED, ASSESSEE HAS ALREADY DISCLOSED BEF ORE SALES TAX DEPARTMENT. ALL THE PURCHASES AND SALES BILLS ARE ALREADY AVAILABLE WITH THE DEPARTMENT. THE AO HAS NOT VERIFIED THE RELEVANT BILLS ALREADY WITH THE DEPARTMENT AGAINST 102 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN THE BOOK RESULTS SUBMITTED BY THE ASSESSEE . WH EN THE ASSESSEE FILED THE R ETURN OF INCOME, ASSESSEE HAS DISCLOSED THE METHOD OF ACCOUNTING AND SETTLEMENT OF BULLION CONTRACT BASED ON THE BASIS OF FIXED OR FLEXIBLE. IT IS THE DUTY OF THE AO TO VERIFY THE FINANCIAL STATEMENTS, METHOD OF ACCOUNTING EMPLOYED BY THE ASSES SEE , IF HE I S NOT SATISFIED WITH THE METHOD OF ACCOUNTING OR RESULTS , HE SHOULD HAVE REJECTED THE BOOKS . NOW BEFORE US LD D R SUBMITS THAT NO RECORDS WERE MAINTAINED BY THE ASSESSEE HOWEVER WE NOTICE THAT THE ASSESSEE HAS BROUGHT TO THE NOTICE OF THE LD CIT(A) THE LIST S OF RE CORDS CONFISCATED BY THE DEPARTMENT AND IT CONTAINS THE BASIC RE CORDS LIKE PURCHASE AND SALES BILLS, STOCK REGISTERS ET C., I N OUR VIEW , IT IS ENOUGH TO FORM THE OPINION ABOUT THE BOOK RESULTS DECLARED BY THE ASSESSEE, WHETHER IT IS PROPER OR NOT . I N OUR VIEW THE BASIC RE CORDS WERE IN THE POS SESSION OF THE DEPARTMENT AND WE ARE IN AGREEMENT WITH THE LD CIT(A) THAT AO HAS NOT REJECTED THE BOOKS AND NOT FOUND ANY MATERIAL IN CONTRARY TO THE RESULTS DECLARED BY THE ASSESSEE. IT IS FACT THAT AO WAS HIGHLY FOCUSED ON THE SALES BEING MADE IN MUMBAI AND HE HAS CREATED THE MODES OF OPERANDI BASED ON HIS PRESUMPTION. WE ARE INCLINED TO ACCEPT THE FINDINGS OF THE LD CIT(A) AND FURTHER, WE NOTICE THAT REVENUE IS IN APPEAL ON THE BASIS OF RESULT DECLARED BY M/S P USHPAK BULLION P LTD, WHICH IS PROFIT AND THE BUSINESS OF THE ASSESSEE IS SIMILAR TO PUSHPAK BULLION. WE CANNOT AGREE WITH THE 103 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN PROPOSITION THAT MERELY BECAUSE PUSHPAK BULLION MADE PROFIT, EVEN ASSESSEE SHOULD MAKE PROFIT. WE OBSERVE THAT ACTIVITIES OF ONE COMPANY WILL NOT FETCH THE SAME RESULT IN ANOTHER COMPANY. THE DEPARTMENT HAS NOT BROUGHT ON RECORD ON WHAT BASIS THE ACTIVITIES OF BOTH COMPANIES ARE SIMILAR . T HE REFORE WE REJECT THE GROUND RAISED BY THE REVENUE AND ACCORDINGLY DISMISS THE GROUND. 31. WIT H REGARD TO GROUND NO. (II), WE NOTICE THAT LD. CIT(A) HAS ACCEPTED THE FINDINGS OF AO AND SUSTAINED THE SUPPRESSION OF PROFIT ON CASH SALES ALLOCATED BY THE AO, WHICH IS TAXABLE IN THE HANDS OF THE ASSESSEE. THEREFORE, THERE IS NO GRIEVANC E TO THE REVENUE . WHEREAS THE ASSESSEE HAS FILED APPEAL /CO MAINLY ON THIS GROUND. WE NOTICE THAT AO HAS FRAMED A MODUS OF OPERANDI WITHOUT ANY BASIS OR ANY SUPPORTING MATERIAL ON RECORD. THE FACT THAT AO FORMED THIS OPINION BASED ON THE FOLLOWING: THE TWO C ARRIERS AND A S SESSEES SONS , WHO GAVE STATEMENT THAT CERTAIN BULLIONS WERE DELIVERED IN MUM BAI , SOME TICKETS WERE FOUND IN THE POSSESSION OF THE ASSESSEE , ALSO ASSESSEE DOES NOT HA VE CAPITAL IN HIS BOOK S AND IT LED TO THE PRESUMPTION THAT ASSESSEE IS ONLY A CARRIER AND NAME LENDER. ACCORDINGLY, AO CONCLUDED THAT ASSESSEE MUST HAVE EARNED THE PORTION OF THE SUPPRESSED PROFIT I.E., 33% OF THE PROFIT BASED ON SAVINGS IN DIFFERENTIAL SALES TAX RATE. 104 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 32. IN OUR VIEW, THE MODUS OPERANDI SUGGESTED BY THE AO IS ONLY A PRESUMPTI ON AND ASSESSEE HAS ALREADY DECLARED THE SOURCES FOR THE PURCHASE MADE IN GOLD BULLION AND IT IS NOT NECESSARY THAT THE TRADER SHOULD HAVE TOTAL CAPITAL REQUIRED FOR TRA DING. MOST OF THE TRADERS DOES BUSINESS ON BUYER S CREDIT OR TRADE LOANS. THE AO HAS AC CEPTED THE PURCHASES, IT SHOWS THAT THE FRONT END OF BUSINESS IS PROPER I.E. PURCHASE ACTIVITIES AND HE ONLY DISBELIEVED THE PLACE OF SALES, WHETHER IT IS IN JAIPUR OR MUMBAI. IT IS ALSO THE FINDINGS OF LD. CIT(A) THAT THE DIARY CONFISCATED BY THE DEPARTME NT DOES NOT HAVE ANY DETAILS ABOUT THE SALE TRANSACTION AND IT IS ONLY STOCK MOVEMENT DETAILS AND IT GAVE DETAILS ABOUT POINT OF DELIVERY ONLY . THE LD. AR MERELY SUBMITTED BEFORE US THAT THE ADDITION IS BASED ON THE THEORY ADVOCATED BY THE AO IS ON PRESUMP TION AND THE ADDITION DETERMINED BY AO NEEDS TO BE DISMISSED. 33. FURTHER, WE NOTICE THAT IT IS ASSESSEES REGULAR BUSINESS IN DEALING IN GOLD BULLION, ASSESSEE HAS TRADING HISTORY IN JAIPUR AND HE HAD CARRIED ON THE TRADING BUSINESS IN JAIPUR IN EARLIER YEAR ALSO . THE LD. AR HAS BROUGHT O N RECORD THE PREVIOUS YEAR TURNOVER AND ASSESSMENT ORDER, IN WHICH THE AO HAS ACCEPTED THE TURNOVER. THEREFORE, IT IS CLEAR FROM THE RECORD THAT ASSESSEE HAS GOOD TRADING PRESENCE IN JAIPUR AND IT IS NOT CLEAR HOW MUCH TR ADING ACTIVITIES CARRIED ON BY ASSESSEE IN JAIPUR AND MUMBAI. 105 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 34. WE ARE NOT INCLINED TO ACCEPT THE SUBMISSION S OF THE ASSESSEE THAT WHOLE SALES WERE MADE ONLY IN JAIPUR. IT IS FACT THAT GOLD WAS CONFISCATED IN MUMBAI AIRPORT AND ASSESSEE HAS NOT BROUGHT ON RECORD ANY TRADING ACTIVITIES IN COIMBATORE, IT INDICATES THAT ASSESSEE HAS SOLD CERTAIN QUANTITY OF GOLD BULLION IN MUMBAI. IT IS NOT CLEAR FROM THE RECORD SUBMITTED BEFORE US . T HE AO HAS PRESUMED THAT ALL THE ENTRIES IN THE DIARY ARE RELATING TO THE T RANSACTION WHICH HAS TAKEN PLACE ONLY IN MUMBAI, WHEREAS THE ASSESSEE HAS GOOD PRESENCE IN JAIPUR CONSIDERING THE RESULT S OF PREVIOUS AY. THEREFORE, IN OUR CONSIDERED VIEW, ALL THE SALES WERE NOT TAKEN PLACE ONLY IN MUMBAI. IN ORDER TO MEET THE ENDS OF JUS TIC E, WE DIRECT THE AO TO TREAT 10% OF THE CASH SALES AS TAKEN PLACE IN MUMBAI. ACCORDINGLY, WE DIRECT AO TO SUSTAIN 10% OF THE ESTIMATED SUPPRESSED INCOME DETERMINED BY HIM. WE REACHED THIS CONCLUSION BASED ON THE FACT THAT ASSESSEE VOLUNTARILY CAME FORWA RD TO DECLARE RS. 11.70 LAKHS AS HIS INCOME AT THE TIME OF SEARCH OPERATION. IT MIGHT BE THE AMOUNT ASSESSEE MUST HAVE EARNED IN THIS TRANSACTION. ACCORDINGLY, GROUND NO. (II) RAISED BY REVENUE IS DISMISSED AND THE GROUND RAISED IN ASSESEES APPEAL AND CO FILED BY THE ASSESSEE IS PARTLY ALLOWED. 35. WITH REGARD TO PROTE CTIV E ASSESSMENT, THE REVENUE IS IN APPEAL BEFORE US WITH THE PLEA THAT THE PROTECTIVE ASSESSMENT WAS MADE ON ACCOUNT 106 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN OF PROFIT SOME TRADERS PREDOMINANTLY M/S PUSHPAK BULLION PVT. LTD. AND T HE SAME, LD. CIT(A) HAS GRANTED RELIEF IN THE CASE OF PUSHPAK BULLION PVT. LTD. IN ORDER TO KEEP THE ISSUE ALIVE, REVENUE HAS RAISED THIS GROUND. BEFORE US, LD. DR SUBMITTED DETAILED SUBMISSION , HOW THE PROTECTIVE ASSESSMENT CAN BE CONVERTED INTO SUBSTANTI VE. HE SUBMITTED GENERAL SITUATION IN WHICH THE PROTECTIVE ASSESSMENT CAN BE MADE AND HE RELIED ON SEVERAL CASE LAWS TO SUPPORT HIS VIEW. EVEN THOUGH , THE BENCH HAS ASKED, IN THE SIMILAR SITUATION OF THE ASSESSEE IE. WHETHER IN SEARCH ASSESSMENT , WHEN AO H AS MATERIAL RELATING TO OTHER PERSON, CAN HE MAKE PROTECTIVE ASSESSMENT IN THE HANDS OF THE PERSON WHO WAS SEARCHED. AS PER THE PROVISION OF SECTION 153A AND 153C, THE AO TO MAKE ADDITION ONLY IN THE HANDS OF THE SEARCHED PERSON TO THE EXTENT HE HAS FOUND SUBSTANTIVE MATERIAL RELATING TO THE SEARCHED PERSON. WITH REGARD TO T HE MATERIAL FOUND RELATING TO ANY OTHER PERSON, THEN THE AO ON SATISFACTION THAT IT BELONGS TO OTHER PERSON, THE SEIZED MATERIAL HAS TO HANDOVER TO THE RESPECTIVE AO OF THE OTHER PERSON . THE RESPECTIVE AO HAS TO MAKE THE ASSESSMENT. AO HAS NO JURISDICTION OR CAN MAKE ANY PROTECTIVE ASSESSMENT IN THE HANDS OF THE SEARCHED PERSON. LD. DR HAS NOT SUBMITTED ANY CONVINCING SUBMISSION IN THIS REGARD. WE NOTICE THAT IN THE GIVE N CASE, THE AO HAS FORMED OPINION AND PRESUMED THAT THE MAIN TRADER IS M/S PUSHPAK BULLION, IF THAT IS THE CASE, THE CONCERN AO CAN MAKE SUBSTANTIVE 107 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN ADDITION ONLY IN THE HANDS OF PUSHPAK BULLION AND CANNOT MAKE PROTECTIVE ASSESSMENT IN THE HANDS OF THE ASSESSEE. A FTER CONSI DERING THE FINDINGS OF THE LD. CIT(A), WE ARE INCLINED TO ACCEPT THE FINDINGS, MOREOVER, THERE IS NO OTHER COGENT MATERIAL AT THE DISPOSAL OF AO TO MAKE ADDITION IN THE HANDS OF THE ASSESSEE. FURTHER , THE AO ONLY PRESUMES THAT THE REAL TRADER IS PUSHPAK BU LLION AND HAS NO CONVINCING EVIDENCE. IT IS ONLY A PRESUMPTION AND A THEORY DEVISED BY THE AO WITHOUT ANY SUBSTANTIVE MATERIAL IN HIS HAND. ACCORDINGLY, GROUND RAISED BY THE REVENUE IS DISMISSED. 36. WITH REGARD TO GROUND NO. (IV) ADDITION OF RS. 3.46 CRO R ES, WHICH IS THE VALUE OF GOLD CONFISCATED IN MUMBAI AIRPORT. ACCORDING TO THE AO, THE ASSESSEE HAS ON OATH DECLARED THAT ALL ITS SALES ARE IN JAIPUR. THEREFORE, THIS IS THE INVESTMENT OUT OF THE BOOKS. WE FAIL TO UNDERSTAND THE STAND OF THE AO. ONE HAND HE PROPOSES TO MAKE ADDITION ON SUPPRESSION OF PROFIT IN CASH SALES AND IN ANOTHER HAND, HE TREATS THE STOCK CONFISCATED AT MUMBAI AS THE INVESTMENT OUT OF BOOKS. THE ASSESSEE HAS SUBMITTED THE BOOKS AND STOCK REGISTER WAS IN THE POSSESSI ON OF THE DEPARTME NT. MOREOVER, THE WHOLE ASSESSMENT MADE BY THE A O ONLY RELYING ON THE ENTRY IN THE DIARY , MAINTAINED BY THE ASSESSEE AND ASSESSEE HAS DECLARED THE PURCHASES ON WHICH NO DISCREPANCIES FOUND BY THE DEPARTMENT, FURTHER THE ASSESSEE HAS ALREADY FILED THE CONFI RMATION FROM THE SUPPLIERS. WHEN THE ASSESSEE PROVED 108 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN THE PURCHASES AS GENUINE AND ALL THE PURCHASE WERE PAID THROUGH ACCOUNT PAYEE CHEQUE. THEREFORE, THE SOURCES FOR SUCH INVESTMENT IN PURCHASES OF GOLD WERE ALREADY ESTABLISHED. HENCE THE GOLD CONFISCATED AT AIRPORT IS BELONGS TO THE ASSESSEE AND ALREADY DECLARED IN THE DELIVERY CHALLAN. THEREFORE, WE ARE INCLINED TO ACCEPT THE FINDINGS OF LD. CIT(A) AND ACCORDINGLY, GROUND RAISED BY REVENUE IS DISMISSED. 37. WITH REGARD TO GROUND NO. (V), THE LD. CIT(A) H AS DELETED THE ADDITION MA DE ON ACCOUNT OF UNDISCLOSED INCOME OF RS. 12.70 LAKH. THE ASSESSEE HAS DISCLOSED THE ABOVE AMOUNT AT THE TIME OF SEARCH OPERATION. SINCE THE AO HAS PROPOSED TO MAKE ADDITION ON ACCOUNT OF SUPPRESSE D PROFIT IN CASH SALES, WHICH WE ARE DIRECTING HIM TO RESTRICT AT 10% CONSIDERING OUR FINDINGS. THIS ADDITIONAL INCOME OFFERED BY ASSESSEE IS IN RESPECT OF UNDISCLOSED INCOME . THE ADDITION PROPOSED BY AO IS MERELY RELYING ON THE STATEMENT GIVEN BY ASSESSEE AT THE TIME OF SEARCH AND THE A O HAS NOT SUBSTANTIATED THE ABOVE DECLARATION OF INCOME BY ASSESSEE WITH COGENT MATERIAL. THEREFORE, WE ARE IN AGREEMENT WITH THE LD. CIT(A) IN DELETING THIS ADDITION. ACCORDINGLY, GROUND RAISED BY THE REVENUE IS DISMISSED. 38. WITH REGARD TO GROUND NO. 2 RAISED BY ASSESSEE , IN HIS APPEAL, WE 109 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN NOTICE THAT AT THE TIME OF SEARCH, CERTAIN LOOSE SHEETS WERE FOUND AND AS PER WHICH, THE ASSESSEE HAS CARRIED ON CERTAIN TRANSACTIONS RELATING TO DEALING IN HOUSE HOLD ITEMS. THE COMMISSION EARNED BY THE ASSESSE ARE N OT DECLARED IN HIS BOOKS. THEREFORE, AO MADE THE ADDITION. THE ASSESSEE FAILED TO MAKE ANY SUBMISSION BEFORE LD. CIT(A) OR BEFORE US. THEREFORE, WE CONFIRM THE ADDITION MADE BY THE AO. ACCORDINGLY, GROUND RAISED BY ASSESSEE IS DISMISSED. 39. THE OTHER GRO UND S RAISED BY ASSESSEE IS GENERAL IN NATURE. 40 . IN THE NET RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND APPEAL AND CO FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH DEC 2019. SD/ - SD/ - ( RAM LAL NEGI ) (S. RIFAUR RAHMAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 10 . 12 .201 9 SR.PS. DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 110 I.T.A. NO. 5091 & 4198 /MUM/ 20 07 & CO - 261/MUM/2007 SHRI SURESH V. JAIN 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI