ACIT, New Delhi V. M/s. Gee Ispat Private Ltd., New Delhi

ITA 5550/DEL/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9966 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-09-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 02-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RRS GILL; SUMIT BAJ PAI
• Keywords: Unexplained investment; Sale consideration of property below Jantri Value; Business income; Income from undisclosed sources; Loose papers; Document seized; Principle of natural justice; Opportunity of cross examination; Third party statement; Valuation report; Retraction; Documents seized
• Section: 143(3); 50C; 234B; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI B.C. MEENA ITA NO. 5550/DEL/2012 ASSESSMENT YEAR: 2010-11 ASSISTANT CIT, VS. GEE ISPAT PVT. LTD., CENTRAL CIRCLE-5, A-28, SECTOR 19, NEW DELHI. ROHINA, NEW DELHI. (PAN: AACCG0954G) (APPELLANT) (RESPONDENT) ITA NO. 5589/DEL/2012 ASSESSMENT YEAR: 2010-11 GEE ISPAT PVT. LTD., VS. ASSISTANT CIT, A-28, SECTOR 19, CENTRAL CIRCLE-5, ROHINA, NEW DELHI. NEW DELHI. (PAN: AACCG0954G) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI GAUTAM JAIN, CA RESPONDENT BY: S/SHRI SUMIT BAJ PAI & RRS GILL, CIT(DR) DATE OF HEARING : 12.03.2015 DATE OF PRONOUNCEMENT: 18:05.2015 ORDER PER I.C. SUDHIR: JUDICIAL MEMBER THESE ARE THE CROSS APPEALS PREFERRED BY THE PARTIE S AGAINST THE COMMON FIRST APPELLATE ORDER ON DIFFERENT ISSUES. 2. THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(APPEALS) IS NOT CORRECT IN LAW AND FACTS: 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES, LEARNED CIT(APPEALS) HAS ERRED IN RESTRICTING THE ADDITION OF RS.8,37,60 ,000 ( 5% OF 83076 CRORE) MADE BY THE ASSESSING OFFICER ON ACCOU NT OF UNDISCLOSED GP RATE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(APPEALS) HAS ERRED IN RESTRICTING THE ADDITION OF RS.11,69,98,750 TO THE ACCOUNT OF THE UNDISCLOSED S TOCK. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(APPEALS) HAS ERRED IN REDUCING THE ADDITION OF RS.2,04,91,750 TO RS.89,51,760 MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF UNDISCLOSED INCOME IN THE INVESTMENT OF PROPERTY. 3. THE ASSESSEE ON THE OTHER HAND HAS IMPUGNED FIRS T APPELLATE ORDER ON THE FOLLOWING GROUNDS: 1. THAT THE LEARNED CIT(APPEALS)-XXXI, NEW DELHI H AS ERRED BOTH IN LAW AND ON FACTS IN SUSTAINING AN ADDITION OF RS.4,18,80,000 OUT OF AN AGGREGATE ADDITION OF RS.8,37,60,000 BY A PPLYING THE RATE OF 5% ON ALLEGED SUPPRESSED SALES ASSUMED ON THE BASIS OF A DIARY SEIZED FROM THIRD PARTY. 1.1 THAT THE LEARNED CIT(APPEALS)-XXXI, NEW DELHI HAS F AILED TO APPRECIATE THAT DIARY MARKED AS ANNEXURE A-I FOUND ADND SEIZED FROM RESIDENTIAL PREMISES OF SHRI SALEK CHAN D GARG AND THE STATEMENT RECORDED SHRI SALEK CHAND GARG NEITHE R IN LAW AND NOR ON FACT COULD BE MADE A BASIS TO ASSUME THA T APPELLANT HAD MADE UNDISCLOSED SALES AND AS SUCH, ADDITION MA DE ON THE 3 BASIS OF IRRELEVANT AND INADMISSIBLE EVIDENCE IS IL LEGAL, INVALID AND UNSUSTAINABLE. 1.2 THAT THE LEARNED CIT(APPEALS)-XXXI, NEW DELHI HAS F URTHER ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING THE ADD ITION WITHOUT APPRECIATING THAT TRADING ADDITION MADE WITHOUT REJ ECTING THE BOOKS OF ACCOUNT U/S. 145(3) OF THE ACT IS ILLEGAL, INVALID AND THEREFORE, WHOLLY UNTENABLE. 1.3 THAT THE LEARNED CIT(APPEALS)-XXXI, NEW DELHI HAS F AILED TO APPRECIATE THAT SEIZED DIARY FROM SHRI SALEK CHAND GARG PERTAINS TO HIS OWN TRANSACTIONS AND NOT TO THE APP ELLANT COMPANY AND THEREFORE, ADDITION SUSTAINED IS WHOLLY UNSUSTAINABLE. 1.4 THE FINDING OF THE LEARNED CIT(APPEALS) THAT THE SU BSEQUENT STATEMENT OF SHRI SALEK CHAND GARG RECORDED IN RESP ONSE TO SUMMONS U/S. 1341 OF THE ACT CREATES DOUBTS IN THE MIND THAT WHY SHRI SALEK CHAND GARG HAS DENIED WHEN HE HIMSEL F ADMITTED EARLIER ITSELF ESTABLISHES THE ADDITION HA S BEEN SUSTAINED ON SURMISES, SUSPICION AND CONJECTURES AN D BY DISREGARDING THE EXPLANATION AND EVIDENCE TENDERED BY THE APPELLANT COMPANY. 1.5 THAT THE LEARNED CIT(APPEALS) HAS FAILED TO APPRECI ATE THAT IN ABSENCE OF ANY MATERIAL MUCH LESS ANY VALID MATERIA L HAVING BEEN FOUND FROM THE PREMISES OF THE APPELLANT COMPA NY EVEN AS A RESULT OF SEARCH, NO TRADING ADDITION COULD BE MA DE ON A HYPOTHETICAL ASSUMPTIONS AND PRESUMPTIONS AND, HENC E THE SAME IS UNSUSTAINABLE. 4 2. THAT THE LEARNED CIT(APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN SUSTAINING AN ADDITION OF RS.6,62,35,000 O UT OF AN AGGREGATE ADDITION OF RS.17,69,98,750 REPRESENTING ALLEGED UNEXPLAINED INVESTMENT-IN-STOCK. 2.1 THAT THE LEARNED CIT(APPEALS) WHILE UPHOLDING T HE ADDITION HAS FAILED TO APPRECIATE THAT ONCE THE PHYSICAL STO CK DULY TALLIED WITH THE STOCK RECORDED IN THE BOOKS OF ACCOUNT NO ADDITION COULD BE MADE ON ACCOUNT OF ALLEGED UNEXPLAINED INV ESTMENT- IN-STOCK, MORE PARTICULARLY WHEN THE SAME WAS SUPPO RTED BY ORDER OF ASSESSMENT FROM EXCISE DEPARTMENT AND VAT AUTHORITIES. 2.2 THAT THE LEARNED CIT(APPEALS) HAVING ACCEPTED T HAT INVENTORY GIVEN TO THE BANK HAD BEEN INFLATED IN FEW OF THE I TEMS OF RAW MATERIAL SO AS TO OBTAIN HIGHER FUNDING, THE FINDIN G THAT THERE IS UNEXPLAINED INVESTMENT IN STOCK IS HIGHLY ARBITRARI LY, ILLEGAL AND THEREFORE UNTENABLE, PARTICULARLY SINCE NO EVIDENCE EITHER ALLEGING OR ESTABLISHING PURCHASE OR SALES OUTSIDE BOOKS WAS FOUND FROM THE PREMISES OF THE APPELLANT COMPANY. 2.3 THAT THE LEARNED CIT(APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN PROCESSING TO SUSTAIN THE ADDITION ON ACCO UNT OF ALLEGED UNEXPLAINED INVESTMENT-IN-STOCK ON THE BASIS OF DIA RY FOUND FROM THIRTY PARTY. 2.4 THAT EVER OTHERWISE THE COMPUTATION OF ALLEGED PEAK IS BASED ON SURMISES, CONJECTURE AND HENCE UNSUSTAINABLE. 3. THAT THE LEARNED CIT(APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING THE ADDITION OF RS.61,26,760 OUT OF ADDITION OF RS.2,04,91,450 REPRESENTING UNEXPLAINED INVESTME NT IN 5 PROPERTY BY RELYING ON THE CIRCLE RATE AND, SECTION 50C OF THE ACT. 4. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN BOTH IN LAW AND ON FACTS IN NOT TELESCOPING THE ADDITION MADE ON ACCOU NT OF ALLEGED UNDISCLOSED PROFIT WITH ALLEGED UNEXPLAINED INVESTM ENT AND HENCE THE ADDITION SO SUSTAINED IS OTHERWISE TOO UN JUSTIFIED AND, NOT SUSTAINABLE. 5. THAT THE LEARNED CIT(APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING THE LEVY OF INTEREST UNDER SEC. 234B OF THE ACT WHICH IS NOT LEVIABLE ON THE FACTS AND CIRCUMST ANCES OF THE CASE OF THE APPELLANT COMPANY. 4. GROUND NO.1 OF THE APPEAL PREFERRED BY THE REVEN UE IS GENERAL IN NATURE, HENCE, DOES NOT NEED INDEPENDENT ADJUDICATI ON. 5. GROUND NO.2 (REVENUE ) & GROUND NOS. 1, 1.1 TO 1 .5(ASSESSEE) : THE ISSUE INVOLVED IN THE GROUNDS IS AS TO WHETHER THE LEARNED CIT(APPEALS) WAS JUSTIFIED IN RESTRICTING THE ADDITION OF RS.4,18,80 ,000 OUT OF THE ADDITION OF RS.8,37,60,000 MADE BY THE ASSESSING OFFICER BY APP LYING G.P. RATE OF 5% ON THE ALLEGED SUPPRESSED SALES ASSUMED ON THE BASI S OF A DIARY SEIZED FROM THIRD PARTY. 6. THE RELEVANT FACTS ARE THAT THE ASSESSMENT ORDER HAS BEEN FRAMED IN PURSUANCE TO SEARCH CARRIED OUT AT THE PREMISES OF THE ASSESSEE COMPANY AND 6 OTHERS ON 07.01.2010. THE ASSESSING OFFICER ON THE BASIS OF THE DIARY FOUND AT THE PREMISES OF SHRI SALEK CHAND GARG AMOUNTING TO RS.8,37,60,000 ADDED THE AMOUNT IN THE INCOME OF THE ASSESSEE ON A CCOUNT OF UNDISCLOSED PROFIT ON UNACCOUNTED SALES. THE LEARNED CIT(APPEA LS) HAS RESTRICTED THE ADDITION TO RS.4,18,80,000. THUS, THE PARTIES ARE I N CROSS APPEALS. 7. THE LEARNED AR SUBMITTED THAT THE AFORESAID ADDITION HAS BEEN MADE BY APPLYING A RATE OF PROFIT OF 10% ON ALLEGED UNDISCL OSED SALES OF RS. 83.76 CRORES WHICH HAS BEEN ARRIVED IN THE MANNER HEREUNDER: SR. NO. ALLEGED UNDISCLOSED SALES (RS. IS CRORES) PAGES OF THE ORDER OF ASSESSMENT I) 44.94 6.12 II) 38.82 14-16 TOTAL 83.76 7.1 THE LEARNED AR SUBMITTED THAT THE REVENUE HAS N OT DISPUTED THAT THE AFORESAID FIGURES OF RS. 44.94 CRORES AS BEEN ARRIVED BY ADOP TING A RATE FROM THE DIARY SEIZED FROM SHRI SALEK CAND GARG. IT IS NOT DISPUT ED THAT THERE IS NO MATERIAL THAT THE SALES MADE BY THE ASSESSEE COMPANY ARE AT THE R ATES STATED IN THE DIARY. THE ENTIRE ADDITION IS BASED ON SUPPOSITION AND PRESUMP TION. HE SUBMITTED THAT FOLLOWING ARE THE UNDISPUTED FACTS OF THE PRESENT C ASE: A) THAT COMPLETE BOOKS OF ACCOUNTS HAVE BEEN MAINTA INED BY THE ASSESSEE COMPANY; B) THAT SUCH BOOKS OF ACCOUNTS ARE DULY AUDITED; C) THAT GOODS MANUFACTURED AND SOLD BY THE ASSESSEE COMPANY ARE EXCISABLE GOODS AND NO DEFECT HAS EVEN BEEN ALLOWED BY EXCISE AUTHORITIES. THE COPIES OF THE EXCISE RETURN HAVE BEEN PLACED AT PAG ES 279 TO 313 OF PAPER BOOK; 7 D) THAT EVEN THE VAT AUTHORITIES HAVE ACCEPTED THE TURNOVER DECLARED BY THE ASSESSEE COMPANY. THE RETURN FILED WITH THE VAT AU THORITIES ARE PLACED AT PAGES 314 TO 329 OF PAPER BOOK; E) THAT NO EVIDENCE EITHER IN THE SHAPE OF UNEXPLAI NED CASH OR UNEXPLAINED INVESTMENT OR MATERIAL HAS BEEN FOUND FROM THE PREM ISES OF THE ASSESSEE COMPANY AS A RESULT OF SEARCH F) THAT ENTIRE STOCK FOUND IN THE COURSE OF SEARCH WAS DULY RECONCILED WITH THE BOOKS OF ACCOUNTS. THE COPY OF THE STOCK REGIS TER IS PLACED AT PAGES 112 TO 230 OF PAPER BOOK; G) THAT ENTIRE SALE AS MADE BY THE ASSESSEE COMPANY IN THE INSTANT YEAR AGGREGATE TO RS. 699.73 CRORES (PAGE 21 OF PAPER BO OK) WHICH SALE OF MANUFACTURE GOODS IS OF RS. 257.51 CRORES. THE QUA NTITY WISE DETAILS IS PLACED AT PAGES 29 AND 30 OF PAPER BOOK WHICH HAVE BEEN ACCEPTED AS SUCH; H) THAT THE SALES HAVE BEEN MADE TO THE IDENTIFIABL E AND VERIFIABLE PARTIES AND NO EVIDENCE HAS BEEN GATHERED POST SEARCH TO ALLEGE UNACCOUNTED SALES; I) THAT NOT A SINGLE PARTY HAS BEEN EXAMINED OR EVE N ATTEMPTED TO BE EXAMINED BEFORE DRAWING ADVERSE INFERENCE OF SUCH A MAGNITUDE FASTENING A HEAVY DEMAND ON THE ASSESSEE COMPANY; J) THAT BOOKS OF ACCOUNTS AS MAINTAINED BY THE ASES SEE COMPANY STANDS ACCEPTED AS SUCH; 7.2 THE LEARNED AR SUBMITTED MERE SUBSTITUTION OF R ATE BASED ON THE DIARY OF THIRD PARTY SO AS TO ASSUME UNDISCLOSED SALES OF THE APPE LLANT COMPANY AND AS SUCH THE FIGURES OF RS. 44.94 CRORES IS UNDISCLOSED SALES IS ENTIRELY MISCONCEIVED, MISPLACED AND UNTENABLE. 8 THE LEARNED AR SUBMITTED THAT EVEN THE FIGURE OF RS. 38.82 CRORES IS BASED ON HYPOTHETICAL ASSUMPTION AND PRESUMPTION. 8 8.1 IT WAS SUBMITTED THAT THE SAID FIGURE HAS BEEN ARRIVED BY AGGREGATING THE FIGURES STATED AT PAGES 179 TO 183 OF ANNEXURE A-I I.E. DIA RY SEIZED FROM THE PREMISES OF SHRI SALEK CHANG GARG. 8.2 IT WAS SUBMITTED THAT THE REVENUE BEFORE MAKING THE IMPUGNED ADDITION HAS NOT ESTABLISHED ANY NEXUS OF THE SAID FIGURES WITH THE APPELLANT COMPANY 8.3 IT WAS SUBMITTED THAT IN ABSENCE OF ANY NEXUS O F THE SAID FIGURES ADVERSE INFERENCE DRAWN IS ENTIRELY MISPLACED MORE PARTICULARLY IN LI GHT OF THE UNDISPUTED FACTS SUBMITTED IN SUB-PARA (A) TO (J) OF PARA 2.1 OF THI S SYNOPSIS. 8.4 IT WAS SUBMITTED THAT THE STATEMENT OF SHRI SAL EK CHAND GARG WAS RECORDED ON THE DATE OF SEARCH PAGES 53A TO 71A OF TYPED COPIES OF STATEMENT SHOWS THAT SHRI SALEK CHAND GARG WAS CARRYING ON HIS OWN BUSIN ESS IN THE NAME OF M/S ASHUTOSH HOT RE-ROLLING AND M/S SHIVAM INDUSTRI ES. INFACT EVEN THE DIARY ALSO ESTABLISHES THAT BUT FOR FEW PAGES I.E. 179-18 4 ALL OTHER PAGES ADMITTEDLY HAVE NOT EVEN BEEN ALLEGED TO PERTAIN TO APPELLANT COMPA NY 8.5 IT WAS SUBMITTED EVEN VIS--VIS THE ABOVE PAGES NAMELY 179-184 NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SHOW THAT SUCH ENTRIES NA MELY ENTRIES AT PAGES 179 TO 184 ARE SALES OF THE APPELLANT COMPANY 8.6 THE LEARNED AR ADDED HERE THAT EVEN SHRI SALEK CHAND GARG IN A SUBSEQUENT STATEMENT RECORDED ON 21.10.2011 (PAGES 108A-110A O F TYPE COPIES OF STATEMENT) HAS NOT EVEN ALLEGED THAT SUCH DIARIES PERTAINS TO APPELLANT COMPANY. ON THE CONTRARY HE HAS ADMITTEDLY TO THE FACT THAT SUCH DI ARY PERTAINS TO HIS BUSINESS. IT WAS ALSO SUBMITTED THAT THE LEARNED ASSESSING OFFIC ER HAS THEREFORE DELIBERATELY IN THE ORDER OF ASSESSMENT OVERLOOKED THE AFORESAID ST ATEMENT BEFORE MAKING THE ADDITIONS. MOREOVER EVEN THE LEARNED CIT(A) AFTER HAVING FOUND AND HELD THAT SHRI SALEK CHAND GARG HAD DENIED HIS ADMISSION EARL IER YET PROCEEDED TO MAKE ADDITION ON CONJECTURE, SURMISES AND SUSPICION. IT WAS SUBMITTED BOTH THE AUTHORITIES NAMELY THE AO AND LD.CIT(A) HAVE OVERLO OKED THE INITIAL STATEMENT OF SHRI VIJAY PAL GARG, MD OF THE APPELLANT COMPANY (P AGES 103A TO 105A OF TYPE 9 COPIES OF STATEMENT) WHEREIN IT WAS DENIED THAT THE RE IS ANY CONNECTION OF SHRI SALEK CHAND GARG WITH THE APPELLANT COMPANY. IT WA S CLEARLY STATED THAT ASSESSEE HAD ONLY DEALING WITH SHRI SAWAR MAL GOYAL AND THER E IS NO MATERIAL ON RECORD TO ESTABLISH ANY DEALING WITH SHRI SALEK CHAND GARG. 8.7 IT WAS SUBMITTED THAT THE REVENUE HAS NOT LED A NY MATERIAL TO REBUT THE ABOVE STATEMENT DESPITE HAVING FRAMED ASSESSMENT TWENTY O NE MONTHS AFTER RECORDING THE SAID STATEMENT OF THE DIRECTOR. ALSO EVEN SHRI SAWAR MAL GOYAL HAS NOT BEEN EXAMINED BY THE AUTHORITIES BELOW BEFORE MAKING OR SUSTAINING THE ADDITION. 8.8 IT WAS THUS SUBMITTED THAT THE ASSUMPTION THAT RS. 83.76 CRORES REPRESENTS UNDISCLOSED SALES IS NOT IN ACCORDANCE WITH LAW AND THEREFORE UNTENABLE. 8.9 THE LEARNED DR IN THE COURSE OF HIS SUBMISSION HAS PLACED ON RECORD TABLES STATING THE VARIOUS FIGURES FROM THE DIARY IF ARE ANALYZED THEN THEY ALL INDICATE THAT THERE WAS UNACCOUNTED SALES OF APPROXIMATED RS. 38.82 COR ES. 9. IT WAS SUBMITTED BY THE ASSESSEE THAT MERE INFER ENCES CANNOT BE A GROUND TO OVERLOOK, REJECT AND DISCARD TANGIBLE DOCUMENTARY E VIDENCE. IT WAS ALSO SUBMITTED THAT THE SAID INFERENCES ARE ALSO BEING D RAWN ON THE BASIS OF RECORD OF A THIRD PARTY WHOSE TESTIMONY WAS UNBELIEVABLE AS HE HAS HIMSELF ADOPTED SHIFTING STANDS. RELIANCE WAS PLACED ON THE JUDGMENT OF HON BLE APEX COURT IN THE CASE OF CIT VS. P.V. KALYNSUNDARAM REP ORTED IN 294 ITR 49 HOLDING THAT IN WHICH ALLEGATIONS OF ON MONEY TRANSACTION ON THE BA SIS ON NON CONVINCING LOOSE SHEETS FOUND DURING THE COURSE OF SEARCH AND CONFLI CTING STATEMENT OF THE SELLER WAS THERE, THE ADDITION WAS RIGHTLY DELETED BY THE TRIBUNAL AND AFFIRMED BY THE HONBLE HIGH COURT. MOREOVER IT WAS ALSO SUBMITTED THAT HONBLE APEX COURT IN THE CASE OF K.P. VARGHESE VS. ITO REPORTED IN 131 I TR 597 HELD THAT THE BURDEN OF PROVING IS THAT OF REVENUE WHEN THERE IS ALLEGATION OF UNDERSTATEMENT ON CONCEALMENTS IN THE CONSIDERATION SHOWN. INFACT BO TH THE ABOVE JUDGMENTS WERE RELIED UPON BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. PREM PRAKASH NAGPAL REPORTED IN 220 TAXMAN 168 (DEL) (MAG) (PAGE S 963-966 OF JPB) TO HOLD 10 THAT THIRD PARTY EVIDENCE CANNOT BE A GROUND FOR MA KING ADDITION IN ABSENCE OF ANY CORROBORATIVE MATERIAL FOUND FROM THE ASSESSEE. 9.1 THE LEARNED AR SUBMITTED THAT THE SALE IS ALWAY S BETWEEN TWO PARTIES AND ONCE THERE IS NO EVIDENCE EITHER SEIZED OR GATHERED FROM THE TWO PARTIES THEN IT WOULD NOT ONLY BE HIGHLY IMPROPER BUT ALSO UNJUST AND ARB ITRARY TO ASSUME UNDISCLOSED SALES BETWEEN THE SAID PARTY . HE THUS SUBMITTED T HAT THE FIGURE OF RS. 83.76 CRORES IS NOTHING BUT A FIGMENT OF IMAGINATION AND, CONTRARY TO THE MATERIAL PLACED ON RECORD. HE SUBMITTED THAT, THE READING OF THE MA TERIAL EVEN RELIED UPON WOULD FURTHER ESTABLISH THAT THERE IS NO MATERIAL TO SUGG EST LET ALONE CONCLUDE THAT THERE IS UNDERSTATEMENT OF CONSIDERATION. THE DIARY RELIED UPON BY THE ASSESSING OFFICER HAS ABSOLUTELY NO CONNECTION WITH WHATEVER TRANSACT IONS ENTERED INTO BY ASSESSEE COMPANY. IN OTHER WORDS, THERE IS NOT EVEN A SINGLE INSTANCE REFERRED TO BY THE ASSESSING OFFICER IN THE ORDER OF ASSESSMENT, WHICH IS BASED ON CONCLUDED SALES TRANSACTION. THEREFORE, IN ABSENCE OF ANY MATERIAL TO SUSPECT LET ALONE ESTABLISH THAT ANY OF THE ACTUAL SALES MADE BY THE APPELLANT COMPANY HAD AN ELEMENT OF UNDERSTATEMENT OF CONSIDERATION, THE ALLEGATION REM AINS TOTALLY AND, WHOLLY UNSUBSTANTIATED AND, AS SUCH THE ADDITION MADE IS U NTENABLE, UNWARRANTED AND, UNSUSTAINABLE. THE LEARNED AR SUBMITTED THAT, IN THE CASE OF ACIT VS. SHAILESH S SHAH REPORTED IN 63 ITD 153 (MUM), IT HAS BEEN HE LD THAT, BURDEN IS ON THE REVENUE TO ESTABLISH THAT LOOSE PAPERS CONSTITUTE I NCOME OF THE ASSESSEE. SIMILARLY, IN THE CASE OF ITO VS. M.A. CHIDAMBARAM REPORTED IN 63 ITD 203 (CHENNAI), IT HAS BEEN HELD THAT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DEPARTMENT HAD NOT BROUGHT ANY MATERIAL OR ESTABLISHED ANY LINK BE TWEEN THE PAPERS THAT WERE SEIZED FROM N AND THE BUSINESS TRANSACTION OF THE ASSESSEE 9.2 THE LEARNED AR CONTENDED THAT LAST BUT NOT THE LEAST EVEN THE STATEMENT RECORDED OF SHRI SALEK CHAND GARG ON 7.1.2010 IS BEHIND THE BACK OF ASSESEE AND THEREFORE PERSE THE SAME CANNOT BE RELIED UPON AS HAS BEEN HE LD IN THE FOLLOWING CASES: I) 125 ITR 713 (SC) KISHNI CHAND CHELLA RAM V CIT ( PAGES 944-948 OF JPB) II) 288 ITR 345 (DEL) CIT VS. SMC SHARE STOCK BROKE RS 11 III) 293 ITR 43 (DEL) CIT VS S M AGGARWAL (PAGES 89 6-898 OF JPB) IV) 295 ITR 105 (DEL) CIT VS. DHARAM PAL PREM CHAND LTD V) 303 ITR 95 (DEL) CIT VS. PRADEEP KUMAR GUPTA VI) 315 ITR 265 (DEL) CIT VS. M/S JINDAL VEGETABLES PRODUCTS LIMITED VII) 306 ITR 227 (DEL) CIT VS. RAJESH KUMAR 9.3 THE LEARNED AR FURTHER SUBMITTED THAT, THE AFOR ESAID MATERIAL EVEN OTHERWISE AND, IN ABSENCE OF ANY CORROBORATIVE EVIDENCE FOUND FROM THE POSSESSION OF THE ASSESSEE COMPANY, CANNOT FORM BASIS FOR MAKING ANY ADDITION. IN SUPPORT TO ITS CONTENTION, THE LEARNED AR PLACES RELIANCE ON THE F OLLOWING JUDICIAL PRONOUNCEMENTS: I) 72 ITD 340 (MUM) D.A. PATEL VS. DCIT II) 40 TTJ 668 (IND) BRIJ LAL RUPCHAND VS. ITO III) 63 TTJ 532 AT 535 (DELHI) S K GUPTA VS. DCIT 9.4 THE LEARNED AR HUMBLY SUBMITTED FURTHER THAT NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY LEARNED ASSESSING OFFICER TO CONNECT THE SEIZED DOCUMENTS WITH THE ASSESSEE. INFACT THE HONBLE ITAT IN THE CASE OF AS HWANI KUMAR REPORTED AT 39 ITD 183 AT PAGE 193 HAS HELD THAT MERE FINDING OF D UMB DOCUMENT CANNOT BE MADE THE BASIS FOR MAKING ANY ADDITION. IT WENT ON FURTHER TO HOLD THAT UNLESS THE REVENUE IS ABLE TO ESTABLISH THAT DOCUMENT WAS IN P OSSESSION OR CONTROL OF THE ASSESSEE NO ADVERSE INFERENCE COULD BE DRAWN AGAINS T SUCH AN ASSESSEE. HE ALSO PLACED RELIANCE UPON THE CASE OF AMARJI SINGH BAKSH I (HUF) V ACIT REPORTED IN 263 ITR 75 (AT) (TM) (PAGES 828-868 OF JPB). 9.5 THE LEARNED AR SUBMITTED THAT, ONCE THE DOCUMEN T IS UNSIGNED, IT IS MERELY A LOOSE PAPER. IN FACT, IT IS SETTLED LAW THAT, EVEN IF THE DOCUMENT HAS BEEN SIGNED THEN TOO, IF THERE IS NO CORROBORATIVE EVIDENCE AND SUCH DOCUMENT HAS BEEN FOUND FROM THE POSSESSION OF THIRD PARTY AND, THERE IS NO MATERIAL TO SHOW THAT ANY MONEY HAS BEEN RECEIVED, NO INCOME CAN BE BROUGHT T O TAX. RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASES OF CIT VS. 12 KULWANT RAI REPORTED IN 291 ITR 36 AND CIT VS, D.K. GUPTA REPORTED IN 308 ITR 230. 9.6 THE LEARNED AR ALSO PLACED RELIANCE ON THE DECI SION IN THE CASE OF CIT V GENESIS COMMET (P) LTD REPORTED IN 163 TAXMAN 482 (DEL), WH EREIN IT HAS BEEN HELD THAT, AN OFFICER, IF HE WAS NOT INCLINED TO BELIEVE THE M ATERIAL PLACED BY ASSESSEE HE COULD HAVE USED COERCIVE POWERS AVAILABLE TO HIM. INFACT, HONBLE DELHI HIGH COURT IN THE CASE OF CIT V VED PARKASH CHAUDHARY RE PORTED IN 305 ITR 245 (PAGES 575-577 OF JPB) WHEREIN EVEN WHERE AN MOU WA S FOUND THEN TOO IN VIEW OF THE DENIAL OF THE PARTIES TO THE MOU, IT WAS HEL D THAT, NO ADDITION IS TENABLE IN VIEW OF THE NON-AVAILABILITY OF THE CORROBORATIVE E VIDENCE. THE CASE OF THE ASSESSEE IS FAR STRONGER IN AS MUCH AS NO MOU IS FO UND BUT UNSIGNED PAPER HAVE BEEN FOUND FROM THE RESIDENTIAL PREMISES OF FORMER DIRECTOR OF THE APPELLANT COMPANY. INFACT, HERE TOO THE APPELLANT HAS DENIED RECEIPT/PAYMENT OF ANY MONEY AND, EVEN THE BUYERS OF SPACE IN THE PROJECTS HAVE NEVER ALLEGED PAYMENT OF ANY ON MONEY. FURTHER, THERE IS NO CORROBORATIVE EVIDEN CE AND, IN SUCH CIRCUMSTANCES, THE PAPER IS A DUMB DOCUMENT. 10. THE LEARNED AR CONTENDED THAT IT IS SETTLED LAW THAT NO ADDITION CAN BE MADE ON THE BASIS OF SURMISES, SUSPICION AND CON JECTURES. RELIANCE FOR THIS PROPOSITION IS PLACED ON THE JUDGMENT OF H ONBLE APEX COURT IN THE CASE OF UMA CHARAN SHAW & BROS. CO. VS. CIT REPORTED IN 37 ITR 271. IT HAS BEEN FURTHER HELD IN THE FOLLOWING CASES THAT SUSPICION HOWSOEVER STRONG CANNOT TAKE THE PLACE OF PROOF: A) 37 ITR 151(SC) OMAR SALAY MOHAMMAD SAIT VS. CIT B) 26 ITR 736 (SC) DHIRAJLAL GIRDHARILAL VS. CIT C) 26 ITR 775 (SC) DHAKESHWARI COTTON MILLS LTD. V S. CIT (PAGES 875-879 OF JPB) D) 37 ITR 288 (SC) LAL CHAND BHAGAT AMBICA RAM VS. CIT 13 LEARNED AR ALSO PLACED RELIANCE ON THE JUDGMENT DE LIVERED BY HONBLE SUPREME COURT IN THE CASE OF CBI VS. V.C. S HUKLA AND OTHERS REPORTED IN 3 SCC 410 (SC) (PAGES 537-550 OF JPB) (ARISING OUT OF SLP CRL. NOS. 1716 OF 1997); WHEREIN IT WAS HELD TH AT EVIDENCE TO BE USED AGAINST ACCUSED SHOULD BE EVIDENCE ACCEPTABLE TO PROCESS OF LAW. AN EVIDENCE, WHICH IS NOT FOUND IN POSSESSION OF A PERSON, CANNOT BE USED AGAINST HIM UNLESS THE EVIDENCE BEING USED IS SUPPORTED BY OTHER CONCRETE EVIDENCE. 11. APART FROM THE ABOVE IT WAS SUBMITTED THAT EVEN THE GROSS PROFIT RATE ADOPTED AT 10% BY THE LEARNED ASSESSING OFFICER AND 5% BY THE LEARNED CIT(A) IS WITHOUT ANY BASIS AND THEREFORE NOT TENABLE. 12. THE LEARNED AR SUBMITTED THAT THE DECLARED PROF IT IN THE INSTANT YEAR AS MANUFACTURE SALES ALONE IS 1.24% (PAGE 17 OF CIT(A) ORDER) AND AVERAGE PROFIT IS LOSS OF 14.54% IN ALL THE FOUR YEARS NAMELY ASSESSM ENT YEARS 2007-08 TO 2010-11. THIS POSITION IS ALSO CONFIRMED FROM THE RESULT OF THE COMPARATIVE COMPANIES TABULATED AT PAGE 22 OF CIT(A) ORDER . 13. IN SUCH CIRCUMSTANCES THE SUBMISSION OF THE LEA RNED AR REMAINED THAT ON ANY OF THE GROUND THE ADDITION MADE IS NOT TENABLE AND UNS USTAINABLE. 14. WITHOUT PREJUDICE TO THE AFORESAID, THE LEARNED AR SUBMITTED THAT LEARNED AO HAS APPLIED A GP RATE OF 10% AND LEARNED CIT(A) HAS RED UCED SUCH GP RATE TO 5% FAILING TO APPRECIATE THAT GP RATE DECLARED BY THE APPELLANT IN RESPECT OF MANUFACTURING WAS MERELY 1.24% AS SUCH, IF THE GP R ATE HAS TO BE APPLIED THEN IT IS THE GP RATE OF 1.24% THAT HAS TO BE APPLIED AS S UCH, ADDITION SUSTAINED BY THE LEARNED CIT(A) OF RS. 4,18,80,000/- IS LIABLE TO B E DELETED. 14 15. THE LEARNED CIT(DR) ON THE OTHER HAND TRIED TO JUSTIFY THE ASSESSMENT ORDER. HE SUBMITTED THAT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY WAS REQUIRED TO E XPLAIN THE DOCUMENTS FOUND AND SEIZED IN THE COURSE OF SEARCH, TO WHICH THE ASSESSEE HAS THOROUGHLY FAILED TO, HENCE, THE ASSESSING OFFICER WAS HAVING NO OPTION BUT TO ESTIMATE THE SUPPRESSED PROFIT BY APPLYING G.P. RATE OF 10% ON THE UNDISCLOSED SALES OF RS.83.76 CRORES RESULTING INTO THE ADDITION OF RS.8,37,60,000 ON ACCOUNT OF PROFIT MADE ON UNDISCL OSED SALES BY THE ASSESSEE COMPANY. THE LEARNED CIT(DR) SUBMITTED THA T THE STATEMENTS RECORDED DURING THE COURSE OF SEARCH HAS GOT SUBSTA NTIAL VALUE THAN THE RETRACTION MADE LATER. HE SUBMITTED THAT DATEWISE P AYMENTS HAS BEEN RECORDED IN THE DIARY SEIZED. THE LEARNED CIT(DR) POINTED OUT THAT FIGURE OF RS.44.94 CRORES AS UNDISCLOSED SALES HAS BEEN AR RIVED AT BY ADOPTING A RATE FROM THE DIARY SEIZED FROM SHRI SALEK CHAND GARG AN D FIGURE OF RS.38.82 CRORES ON THE BASIS THAT THE ASSESSEE COMPANY HAD S OLD THE GOODS OUTSIDE THE BOOKS OF ACCOUNT AND PROFIT EARNED ON THE SALES WAS NOT REFLECTED IN THE BOOKS OF ACCOUNT. HE FURNISHED TABLES STATING THAT VARIOUS FIGURES FROM THE DIARY IF ARE ANALYZED THEN THEY ALL INDICATE THAT T HERE WAS UNACCOUNTED SALES OF AROUND RS.38.82 CRORES. THUS, THE TOTAL SALES WO RKED OUT TO RS.83.76 CRORES (RS.38.82 + RS.44.94). ON THE SAID AMOUNT OF SALES, A G.P. @ 10% IS 15 COMPUTED RESULTING INTO PROFIT OF RS.8,37,60,000 ON ACCOUNT OF UNDISCLOSED SALES. 16. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT THE ADDITION OF RS.8,37,60,000 WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PROFIT ON ALLEGED UNDISCLOSED SALES MADE BY THE ASSESSEE ON T HE BASIS OF ANNEXURE-A1, A DIARY CONTAINING PAGES 1 TO 191 SEIZED FROM THE P REMISES OF SHRI SALEK CHAND GARG AT PITAMPURA, DELHI. THE ASSESSING OFFIC ER HAS ALSO REFERRED STATEMENT OF SHRI SALEK CHAND GARG RECORDED ON 07.0 1.2010 I.E. THE DATE OF SEARCH. THE ASSESSING OFFICER ON THE BASIS OF THE D IARY SEIZED FROM THE PREMISES OF SALEK CHAND GARG COMPUTED THE SALES OUT SIDE THE BOOKS OF ACCOUNT AND HE NOTED THAT PROFIT ON SALE OF THE AFO RESAID AMOUNT HAS NOT BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS, HE ESTIMATE D THE PROFIT BY APPLYING GROSS PROFIT RATE AT 10% OF THE SALES AMOUNT. THE L EARNED CIT(APPEALS) HAS HELD THAT THE STATEMENT OF SHRI SALEK CHAND GARG RE CORDED AT THE TIME OF SEARCH WAS SPONTANEOUS, HENCE, IS MORE RELIABLE AND AS SUCH TRANSACTION RECORDED IN DIARY BELONG TO THE ASSESSEE. HE, HOWEV ER, HELD THAT GROSS PROFIT RATE APPLIED BY THE ASSESSING OFFICER AT 10% IS EXC ESSIVE AND HE TOOK THE GROSS PROFIT OF ASSESSEE @ 5% AND DELETED THE ADDIT ION OF RS.4,18,80,000 AND SUSTAINED THE ADDITION OF RS.4,18,80,000. 16 17. ON PERUSAL OF THE FACTS RELATING TO THE ISSUES RAISED IN THE GROUNDS UNDER CONSIDERATION, WE FIND THAT FOLLOWING THREE S UB-ISSUES ARE TO BE ADJUDICATED UPON TO DECIDE THE MAIN ISSUE. THESE AR E (I) AS TO WHETHER THE DOCUMENTS SEIZED DURING THE COURSE OF SEARCH AND TH E STATEMENTS RECORDED DURING SEARCH AND POST-SEARCH WAS SUFFICIENT TO DRA W AN INFERENCE ABOUT UNDISCLOSED SALES? ; (II) AS TO WHETHER A PROFIT CA N BE ESTIMATED WITHOUT REJECTING BOOKS OF ACCOUNT WITH THIS FINDING THAT O N THE BASIS OF THE SAID BOOKS OF ACCOUNT, PROPER INCOME CANNOT BE ADDUCED? ; & (III) EVEN IF, IT IS HELD THAT NON-RELIANCE ON THE BOOKS OF ACCOUNT WAS JUSTIFIED, THEN AS TO WHETHER APPLICATION OF G.P. RATE AT 10% BY ASSESSIN G OFFICER AND 5% BY LEARNED CIT(APPEALS) WAS REASONABLE TO ESTIMATE THE PROFIT? 18. SUB-ISSUE NO. (I) : IT IS AN ADMITTED FACT THAT ANNEXURE A1, A DIAR Y WAS SEIZED FROM ONE SHRI SALEK CHAND GARG FROM HIS PREMISES AND HIS STATEMENTS WERE RECORDED DURING THE COURSE OF SEARC H AND AFTER SEARCH DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND BASED UPON THE SAME, THE ASSESSING OFFICER HAS WORKED OUT THE UNDISCLOSED SA LES AT RS.83.76 CRORES. IN HIS STATEMENT RECORDED ON 07.01.2010 I.E. DURING THE COURSE OF SEARCH, SHRI SALEK CHAND GARG STATED THAT DIARY BELONGS TO HIM A ND HE ALONG WITH SHRI 17 SAWARMAL GOEL USED TO WORK AS COMMISSION AGENT OF A SSESSEE AND THE TRANSACTION RECORDED IN THE DIARY ARE THE BUSINESS TRANSACTION MADE ON BEHALF OF THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, IN HIS STATEMENT RECORDED ON 21.10.2011 BY THE ASSESSING O FFICER, SHRI SALEK CHAND GARG VIDE QUESTION NO.2 WAS REQUIRED TO STATE HIS BUSINESS AND SOURCE OF INCOME. IN RESPONSE, HE STATED THAT HE IS PROPRI ETOR OF M/S. ASHUTOSH HOT REROLLING WHICH IS SITUATED AT B-31, INDUSTRIAL ARE A, WAZIRPUR, NEW DELHI, WHERE HE DOES JOB WORK. HE REPLIED FURTHER THAT HE IS ALSO THE PROPRIETOR OF SHIVAN INDUSTRIES, SHAHBAD, DAULTPUR WHERE HE DOES JOB WORK. HE REPLIED THAT THESE ARE HIS SOURCE OF INCOME AND APART FROM THE AFORESAID, HE SALES AND PURCHASES STEEL PATRA AND SHEETS. AGAIN IN REPLY TO QUESTION NO. 11, WHEREBY HE WAS REQUIRED TO EXPLAIN TRANSACTION RECORDED IN DIARY, HE SUBMITTED THAT MAINLY THE TRANSACTIONS RECORDED IN THE DIARY ARE I N CASH AND ARE INCURRED WITH DIFFERENT ENTITIES/BUSINESSMAN. HE REPLIED THA T DETAILS THEREOF WERE NOT POSSIBLE AS THE PERSONS WHO TRANSACT IN CASH, PARTI CULARS OF THAT PERSON ARE NOT RECORDED AS THE SAME ARE NOT REQUIRED TO BE RE CORDED. WE THUS FIND THAT IN HIS STATEMENT RECORDED UNDER SEC. 131 OF THE ACT SHRI SALEK CHAND GARG HAS NOT STATED THAT HE HAS ANY BUSINESS CONNECTION WITH THE ASSESSEE. HE STATED THAT TRANSACTION RECORDED IN THE DIARY BELON GS TO HIM AND WERE CASH TRANSACTIONS ENTERED WITH DIFFERENT ENTITIES/BUSINE SSMAN. HE ALSO STATED 18 DURING THE ASSESSMENT PROCEEDINGS THAT HE NEVER STA TED THAT HE WORKED AS COMMISSION AGENT FOR THE ASSESSEE AND TRANSACTION R ECORDED IN THE DIARY PERTAINED TO SALE AND PURCHASE MADE ON BEHALF OF TH E ASSESSEE. SHRI VIJAY PAL GARG, DIRECTOR OF THE ASSESSEE IN HIS STATEMENT REC ORDED ON 16.3.2010 HAS STATED THAT HE DOES NOT HAVE ANY BUSINESS RELATION WITH SHRI SALEK CHAND GARG, HOWEVER, ASSESSEE HAS BUSINESS RELATION WITH SHRI SAWAR MAL GOEL WHO SELLS THE GOODS OF THE ASSESSEE IN BHIWANI ON C OMMISSION. IT WAS SPECIFICALLY STATED BY HIM THAT SHRI SAWMAR MAL GOE L COLLECTS THE PAYMENT FROM THE PARTIES AND SENDS THE CHEQUES TO THE ASSES SEE AND IN CONSIDERATION TO THE AFORESAID, COMMISSION WAS PAID TO SHRI SAWMA R MAL GOEL BY CHEQUES AND TDS WAS ALSO DEDUCTED. 19. IT IS AN ESTABLISHED PROPOSITION OF LAW THAT EN TRIES FOUND RECORDED IN THE BOOKS OF ACCOUNT OF THIRD PARTY OR STATEMENT RE CORDED UNDER SEC. 132(1) OF THE ACT OR 131 OF THE ACT OF A THIRD PARTY ARE B INDING UPON HIM IN HIS OWN CASE ONLY AND THE SAME CANNOT BE FOISTED UPON THE O THER PARTY IN THE ABSENCE OF SUFFICIENT CORROBORATIVE MATERIAL, MORE PARTICUL ARLY, WHEN SUCH THIRD PARTY DO NOT ADMIT ANY BUSINESS RELATIONSHIP WITH THE ASS ESSEE. THE STATUTORY PRESUMPTION UNDER SEC. 132(4A) OF THE ACT CANNOT BE RAISED AGAINST THE ASSESSEE IN RESPECT OF THE ENTRIES RECORDED IN THE SAID DIARY FOUND FROM THE PREMISES FROM SHRI SALEK CHAND GARG BUT AGAINST THE SHRI SALEK CHAND GARG 19 CONSEQUENT TO SEARCH. THERE IS NO ANY EVIDENCE OR M ATERIAL TO CORROBORATE THE ENTRIES OF THE DIARY AND THUS THE TRANSACTIONS RECO RDED IN THE DIARIES CANNOT BE MADE THE SOLE BASIS OF ADDITION IN THE HANDS OF THE ASSESSEE. HON'BLE SUPREME COURT IN THE CASE OF CBI VS. V.C. SHUKLA (S UPRA) HAS BEEN PLEASED TO HOLD THAT AN EVIDENCE WHICH IS NOT FOUND IN THE POSSESSION OF A PERSON CANNOT BE USED AGAINST HIM UNLESS THE EVIDENCE BEIN G USED IS SUPPORTED BY OTHER CONCRETE EVIDENCE. WHEN THE REVENUE IN THE PR ESENT CASE SOUGHT TO RELY UPON THE STATEMENT OF SHRI SALEK CHAND GARG AN D DIARY FOUND FROM HIS POSSESSION, THE BURDEN WAS ON THE REVENUE TO PRODUC E SHRI SALEK CHAND GARG FOR CROSS EXAMINATION OF THE ASSESSEE AND THE ADDITION MADE WITHOUT AFFORDING THIS OPPORTUNITY OF CROSS EXAMINATION TO THE ASSESSEE, IS IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. IT IS ALSO NOTED THAT THE ALLEGATION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS AFFE CTED SALES TO THE MAGNITUDE OF RS.83.76 CRORES OUTSIDE ITS BOOKS OF ACCOUNT IS APPROXIMATELY 12% OF THE DECLARED SALES BUT NO EVIDENCE IN SUPPORT EITHER IN THE SHAPE OF UNEXPLAINED CASH OR UNEXPLAINED INVESTMENT OR MATERIAL HAS BEEN FOUND FROM THE PREMISES OF THE ASSESSEE COMPANY AS A RESULT OF SEA RCH. THE ENTIRE STOCK FOUND IN THE COURSE OF THE SEARCH WAS DULY RECONCIL ED WITH THE BOOKS OF ACCOUNT. THE ENTIRE SALES AS MADE BY THE ASSESSEE D URING THE YEAR AGGREGATE TO RS.699.73 CRORES AND SALE OF MANUFACTURED GOODS IS OF RS.257.51 CRORES 20 AND THE QUANTITY-WISE DETAILS FURNISHED BY THE ASSE SSEE HAVE BEEN ACCEPTED AS SUCH. NOT A SINGLE PARTY HAS BEEN EXAMINED BEFOR E DRAWING ADVERSE INFERENCE REGARDING UNDISCLOSED SALES MADE BY THE A SSESSEE. IT IS ALSO WORTH NOTING THAT THE SALE IS ALWAYS MADE BETWEEN THE TWO PARTIES AND ONCE THERE IS NO EVIDENCE EITHER SEIZED OR GATHERED FROM THE TWO PARTIES THEN IT WOULD NOT ONLY BE HIGHLY IMPROPER BUT ALSO UNJUST AND ARBITRA RY TO ASSUME UNDISCLOSED SALES BETWEEN THE SAID PARTIES. WE ARE THUS OF THE VIEW THAT THE SEIZED DIARY DURING THE COURSE OF SEARCH AND THE STATEMENTS OF S HRI SALEK CHAND GARG RECORDED DURING THE COURSE OF SEARCH AND POST-SEARC H WAS NOT SUFFICIENT TO DRAW AN INFERENCE ABOUT THE ALLEGED UNDISCLOSED SAL ES DEHORS CORROBORATIVE EVIDENCE SUPPORTING THE THIRD PARTY STATEMENTS AND THE ENTRIES RECORDED IN THE DIARY FOUND FROM THE POSSESSION OF THE THIRD PARTY DURING THE COURSE OF SEARCH. THE SUB-ISSUE NO. (I) IS ACCORDINGLY DECIDE D IN FAVOUR OF THE ASSESSEE. 20. SUB-ISSUE NO. (II) : THE CONTENTION OF THE LEARNED AR REMAINED THAT THE ENTIRE ADDITION IS BASED ON PRESUMPTION. THE AS SESSEE HAS MAINTAINED COMPLETE BOOKS OF ACCOUNT, WHICH ARE AUDITED, THE G OODS MANUFACTURED AND SOLD BY THE ASSESSEE ARE EXCISABLE AND NO DEFECTS H AS EVEN BEEN FOUND BY EXCISE AUTHORITY. THE VAT AUTHORITIES HAVE ACCEPTED THE TURNOVER DECLARED BY THE ASSESSEE. THE ENTIRE STOCK FOUND IN THE COUR SE OF SEARCH WAS DULY 21 RECONCILED WITH THE BOOKS OF ACCOUNT. IT WAS SUBMIT TED THAT ENTIRE SALES AS MADE BY THE ASSESSEE DURING THE YEAR AGGREGATE TO R S.699.73 CRORES OUT OF WHICH THE SALE OF MANUFACTURED GOODS IS OF RS.257.5 1 CRORES. THE QUANTITY- WISE DETAIL WAS MAINTAINED AND HAS BEEN ACCEPTED AS SUCH. THE SALES HAVE BEEN MADE TO THE IDENTIFIABLE AND VERIFIABLE PARTIE S AND NO EVIDENCE HAS BEEN GATHERED POST-SEARCH TO UNACCOUNTED SALES. IT WAS A LSO CONTENDED THAT NOT A SINGLE PARTY HAS BEEN EXAMINED BEFORE DRAWING ADVER SE INFERENCE. 21. IN OUR VIEW, IT IS A SETTLED POSITION OF LAW TH AT ESTIMATION OF PROFIT BY APPLYING A REASONABLE G.P. RATE CAN BE ADOPTED AND APPLIED ONLY WHEN IT IS NOT POSSIBLE FOR THE ASSESSING OFFICER TO DEDUCE TH E PROFIT OF THE ASSESSEE ON THE BASIS OF BOOKS OF ACCOUNTS PRODUCED BY THE ASSE SSEE. IN SUCH A SITUATION, THE ASSESSING OFFICER WILL HAVE TO AFFORD OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE TO MEET OUT THE DEFECTS POINTED OUT BY THE ASSESSING OFFICER IN THE BOOKS OF ACCOUNT AND IF THE ASSESSING OFFICER IS NO T SATISFIED WITH THE EXPLANATION OF THE ASSESSEE TO THOSE DEFECTS POINTE D OUT BY THE ASSESSING OFFICER, THEN THE ASSESSING OFFICER WILL REJECT THE BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SEC. 145(3) OF THE ACT A ND WILL ESTIMATE THE PROFIT. IN THE PRESENT CASE, IN VIEW OF THE ABOVE FINDING O N SUB-ISSUE NO.(I), THE ASSESSING OFFICER WAS HAVING NO REASON TO REJECT TH E BOOKS OF ACCOUNT OF THE 22 ASSESSEE, HENCE, HE WAS NOT JUSTIFIED TO JUMP ON TH E SECOND STEP FOR ESTIMATION OF THE PROFIT BY APPLYING DIFFERENT G.P. RATE THAN THAT SHOWN BY THE ASSESSEE. THE SUB-ISSUE NO.( II ) IS THUS DECIDED I N FAVOUR OF THE ASSESSEE. 22. SUB-ISSUE NO.(III) : NO PLAUSIBLE REASON HAS BEEN ASSIGNED BY THE ASSESSING OFFICER FOR APPLICATION OF G.P. RATE AT 1 0% NOR HAS THE LEARNED CIT(APPEALS) ASSIGNED ANY CONVINCING REASON FOR APP LYING THE G.P. RATE AT 5% OF THE TURNOVER. THE G.P. RATE DECLARED BY THE A SSESSEE IN RESPECT OF MANUFACTURING WAS 1.24%. ALSO KEEPING IN MIND THE A BOVE FINDINGS ON OTHER SUB-ISSUES, THE ISSUE IS DECIDED IN FAVOUR OF THE A SSESSEE. 23. IN TOTALITY OF THE ABOVE DISCUSSION, THE ASSESS ING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS.8,37,60,000 ON ACCOUNT OF PROFIT ON THE ALLEGED UNDISCLOSED SALES MADE BY THE ASSESSEE. THE LEARNED CIT(APPEALS) WAS THUS NOT RIGHT IN SUSTAINING THE ADDITION EVEN BY RESTRICTING IT BY APPLYING G.P. RATE AT 5% AGAINST 10% APPLIED BY THE ASSESSING OFFICER. WE THUS WHILE SETTING ASIDE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 4,18,80,000 SUSTAINED BY THE LEARNED CIT(APPEALS). THE GROUND NOS. 1, 1.1 TO 1.5 OF THE APPEAL 23 PREFERRED BY THE ASSESSEE ON THE ISSUE ARE THUS ALL OWED AND GROUND NO. 2 OF THE APPEAL PREFERRED BY THE REVENUE IS THUS REJECTE D. 24. GROUND NOS. 2, 2.1 TO 2.4 (ASSESSEE ) & GROUND NO.3 (REVENUE) : THE ASSESSING OFFICER MADE ADDITION OF RS.17,69,98,750 ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK. THE LEARNED CIT(AP PEALS) HAS SUSTAINED THE ADDITION TO THE EXTENT OF RS.6,62,35,000, THUS THE PARTIES ARE IN APPEALS. 25. IN SUPPORT OF THE GROUND OF THE REVENUE, THE LE ARNED CIT(DR) PLACED RELIANCE ON THE ASSESSMENT ORDER WITH THIS CONTENTI ON THAT THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING THE ADDITION IN QUE STION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK WITH THIS OBSERVATI ON THAT THERE WAS DIFFERENCE OF RS.17,69,98,750 IN THE VALUATION OF S TOCK AS PER BANK STATEMENT FURNISHED TO THE BANK AND THE STOCK AS PER STOCK RE GISTER SEIZED AS PAGE NOS. 1 TO 119 OF ANNEXURE A-9 AND ANNEXURE A-35. HE PLAC ED RELIANCE ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF B.T. STEELS LTD. VS. CIT (2011) 196 TAXMANN 362 (P&H) HOLDING THAT THE ITAT WAS JUSTIFIED IN SUSTAINING THE ADDITION MADE BY THE AS SESSING OFFICER ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK ON THE BASIS OF DIFFERENCE OF STOCK SHOWN BY THE ASSESSEE HYPOTHECATED BY THE BANK AND THE ST OCK SHOWN IN THE ASSESSEES BOOKS OF ACCOUNT. 24 26. THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTI FY THE FIRST APPELLATE ORDER ON THE ISSUE. HE SUBMITTED THAT THE LEARNED C IT(APPEALS) HAS NOTED THE BREAK-UP OF THE STOCKS AS DECLARED TO THE BANK AND STOCK REGISTER AS WELL AS THE DIFFERENCE IN RESPECT OF RAW-MATERIAL ONLY I N QUALITY OF SIX ITEMS OUT OF TWELVE ITEMS AND THAT THERE WAS NO DIFFERENCE IN RA TES. THE VARIATION IN QUANTITY OF RAW-MATERIAL OF SIX ITEMS WAS IMAGINARY TO OBTAIN CREDIT FACILITY FROM BANK ON ACCOUNT OF FINANCIAL CRISES. THE LEARN ED AR SUBMITTED THAT THERE WAS NO DIFFERENCE IN THE STOCK ON THE DATE OF SEARCH AND THE STOCK WAS NOT PLEDGED WITH THE BANK BUT ONLY HYPOTHECATED TO BANK. LEARNED AR CONTENDED THAT THE STOCK STATEMENT GIVEN TO THE BAN K CANNOT BE A BASIS TO ASSUME UNEXPLAINED INVESTMENT IN STOCK AND PLACED R ELIANCE ON THE FOLLOWING DECISIONS: I) ASHOK KUMAR VS. ITO 201 CTR 178 (J&K); II) RELAXO FOOTWEAR 259 ITR 744 (RAJ.); III) SIDHO RICE & GENERAL MILLS 281 ITR 428 ( P&H); IV) CIT VS. VEERTIP ROLLERS (P) LTD. 323 ITR 341 (GUJ .); V) CIT VS. ACROW INDIA LTD. 298 ITR 447 (BOM.); VI) CIT VS. DAS INDUSTRIES 303 ITR 199 (ALL.); VII) CIT VS. APCOM COMPUTERS (P) LTD.- 292 ITR 630 (CHEN NAI); 27. THE LEARNED AR SUBMITTED FURTHER THAT THE ASSES SING OFFICER HAD ALSO REFERRED TO ANNEXURE A1 (DIARY) SEIZED FROM SHRI SA LEK CHAND GARG. ON THE 25 BASIS OF THE DIARY, HE OBSERVED THAT THERE IS UNEXP LAINED INVESTMENT IN STOCK OF RS.11,97,85,000 WHICH WAS NOT SEPARATELY BEING M ADE AS IT WAS COVERED BY THE ADDITION OF RS.17,69,98,750. THE LEARNED CIT (APPEALS) HAS DEALT WITH THIS ISSUE AT PAGE NOS. 35 TO 40 OF THE FIRST APPELLATE ORDER. HE SUBMITTED FURTHER THAT COMPLETE BOOKS OF ACCOUNT AR E DULY SUPPORTED BY STOCK REGISTER MAINTAINED BY THE ASSESSEE COMPANY W HICH WAS AUDITED AS PER THE COMPANYS ACT, 1956. NO DEFECT HAS BEEN POINTED OUT IN THE BOOKS OF ACCOUNT NOR ANY INCRIMINATING MATERIAL HAS BEEN DET ECTED DURING THE COURSE OF SEARCH TO SHOW UNEXPLAINED INVESTMENT IN STOCK A ND THE PHYSICAL STOCK FOUND DURING THE COURSE OF SEARCH HAS BEEN DULY TAL LIED WITH THE STOCK RECORD OF THE ASSESSEE. HE SUBMITTED THAT THE CLOSING STOC K AS ON 31.3.2010 HAS BEEN ACCEPTED AS SUCH. THE EXCISE AUTHORITIES AND VAT A UTHORITIES HAVE ACCEPTED THE STOCK DECLARED BY THE ASSESSEE COMPANY . THE BOOKS OF THIRD PARTY ALONE CANNOT BE A BASIS TO PRESUME THAT THERE WAS UNEXPLAINED INVESTMENT IN STOCKS, PARTICULARLY WHEN NATURE OF S TOCK WAS ALSO NOT KNOWN, WHERE IT WAS KEPT. IT IS ALSO CONTRARY TO THE STATE MENTS OF THE PERSONS FROM WHOSE POSSESSION DIARY HAD BEEN SEIZED BY THE REVEN UE. HE HAD ALSO NOT ALLEGED THAT HE WAS IN POSSESSION OF ANY STOCK OF T HE ASSESSEE. 28 THE LEARNED AR SUBMITTED FURTHER THAT THE LEA RNED CIT(APPEALS) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS.6,62 ,35,000 OUT OF THE ADDITION 26 OF RS.17,69,98,650 MADE ON ACCOUNT OF UNEXPLAINED I NVESTMENT IN STOCK. HE SUBMITTED THAT THE LEARNED CIT(APPEALS) HAS HELD TH AT THE STOCKS AS ON 1.4.2009 OF 1324.70 MT IS UNEXPLAINED INVESTMENT, WHICH PERS E IS A MISNOMER. IT WAS SUBMITTED THAT THIS CONCLUSION IS BASED ON THE PAGE 177-178 O F DIARY WHICH HAS BEEN TABULATED AT PAGE 38 OF THE ORDER OF LEARNED CIT(A). IT IS SUBM ITTED THAT, THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT ONCE CLOSING STOCK OF 31. 3.2009 STANDS ACCEPTED IN AN ORDER U/S 143(3) OF THE ACT THEN THERE CAN BE NO UNEXPLAINED INVESTMENT IN OPENING STOCK. THE RELEVANT EVIDENCES ARE AS UNDER: I) AUDITED FINANCIAL STATEMENTS AS ON 31.3.2009 (PA GES 231-278 OF PAPER BOOK) II) ORDER OF ASSESSMENT FOR ASSESSMENT FOR ASSESSME NT YEAR 2009-10 (PAGES 767-769 OF PAPER BOOK) RELIANCE HAS ALSO BEEN PLACED ON THE FOLLOWING JUDG MENTS IN SUPPORT OF THE CONTENTION THAT IF CLOSING STOCK IS ACCEPTED TH EN OPENING STOCK CANNOT BE DISTRIBUTED: I) 318 ITR 204 (SC) V. K. J. BUILDERS AND CONTRACTO RS PVT. LTD. VS. CIT II) 318 ITGR 116 (BOM) CIT VS. MAHALAXMI GLASS WORK S (P) LTD. III) 324 ITR 406 (P&H) CIT VS. PUNJAB STATE WAREHOU SING CORPORATION IV) 278 ITR 213 (ALL) CIT VS. INDIAN NATIONAL TANNE RY PVT. LTD. V) 63 ITR 51 (ALL) RAM LUXMAN SUGAR MILLS VS. CIT VI) 202 ITR 789 (BOM) MELMOULD CORPORATION VS. CIT J) THAT CLOSING STOCK AS ON 31.3.2009 IN ANY CASE C ANNOT BE ADDED AS UNEXPLAINED INVESTMENT FOR ASSESSMENT YEAR 2010-11 AS ITS IS THEN UNEXPLAINED INVESTMENT FOR ASSESSMENT YEAR 2009-10, AS HAS BEEN HELD IN THE CASE OF CIT VS. OM PRAKASH MAHAJAN REPORTED IN 152 ITR 583 (DEL) 27 K) THAT EVEN OTHERWISE THE CLOSING STOCK HAVING BEE N ACCEPTED, IT HAS TO BE HELD THAT SUCH STOCK WAS SOLD AND THEREFORE THERE W AS LOSS AND, AS SUCH NO ADDITION IS UNTENABLE. THIS WAS HELD BY THE JUDGME NT OF HONBLE DELHI HIGH COURT IN THE CASE OF J.M. WIRE INDS. VS. CIT I N ITA NO. 96/1989 DATED 15.7.2010 4.4 IN VIEW OF THE AFORESAID, THE ADDITION SUSTAINE D OF RS. 6,62,35,000/- MAY KINDLY BE DELETED, ARGUED THE LEARNED AR. 29. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT THE ASSESSING OFFICER HAS DEALT WITH THE ISSUES IN PARA NOS 5 TO 7 AT PAG E NOS. 18 TO 22 OF THE ASSESSMENT ORDER AND HAS MADE THE ADDITION IN THE F OLLOWING MANNER: SR. NO. PARTICULARS AMOUNT (RS.) I) VALUATION OF STOCK AS PER BANK STATEMENT FURNISH ED TO BANK 27,43,33,861 (PAGE 18 PARA 5 OF ORDER) II) VALUATION OF STOCK AS PER STOCK REGISTER, SEIZE D AS PAGES 1-119 OF ANNEXURE A-9 AND ANNEXURE A-35 9,73,35,111 (PAGE 19 OF ORDER) ADDITION 17,69,98,750- 30. THE LEARNED CIT(APPEALS) HAS DEALT WITH THE ISS UE IN PARA NOS. 6.5.1 TO 6.5.4 AT PAGE NO. 30 TO 34 OF THE FIRST APPELLAT E ORDER WHILE DELETING THE ADDITION OF RS.11,69,98,750 OUT OF RS.17,69,98,750 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNEXPLAINED INVESTMENT. THE L EARNED CIT(APPEALS) HAS NOTED THE BREAK UP OF THE STOCKS AS DECLARED TO THE BANK AND STOCK REGISTER AS UNDER: 28 SR. NO. PARTICULARS AMOUNT (RS.) STOCK REGISTER DIFFERENCE I) FINISHED GOODS 1,10,95,230 1,10,95,230 NIL II) RAW MATERIALS 24,29,50,221 6,59,51,471 17,59,98,750 III) STORES SPARES 2,02,88,410 2,02,88,410 NIL TOTAL 27,43,33,861 9,73,35,111 17,69,98,750 31. IN RESPECT OF RAW MATERIAL, THE LEARNED CIT(APP EALS) NOTED THAT THE DIFFERENCE WAS ONLY IN QUALITY OF SIX ITEMS OUT OF TWELVE ITEMS AND THEREIN NO DIFFERENCE IN RATES WAS THERE AS EVIDENT FROM THE F OLLOWING CHART: SR. NO. PARTICULARS RATE (RS.) QUANTITY DIFFERENCE BANK STATEMENT (MT) STOCK REGISTER (MT) TALLIED I) SCRAP 18,200 1680 1680 3,05,76,000 II) SILICON MANGANESE 49,000 44.70 44.70 21,90,300 III) FLOURSPAR 21,500 153.40 153.40 32,98,100 IV) DOLOMITE 2,800 45.00 45.00 1,26,000 V) LIME 2500 108.00 108.00 2,70,000 VI) MET COKE 4625 23.00 23.00 1,06,375 SUB TOTAL (A) 3,65,66,775 SR. NO. PARTICULARS QUANTITY BANK STATEMENT STOCK REGISTER DIFFERENCE QUANT ITY VALUE NOT TALLIED I) S S SCRAP 360000 551.10 51.10 500 1,80,00,000 II) HC FERRO CHAROME 43300 1110.00 110.00 1000 4,33 ,00,000 III) FERRO MAGANESE 1 45250 896.00 43.00 853 3,85,9 8,250 IV) FERRO SILICON-NE 56000 1140.00 140.00 1000 5,60 ,00,000 V) COPPER 278810 68.365 18.365 50 1,39,40,500 VI) NICKLE 716000 21.00 11.00 10 71,60,000 SUB TOTAL (B) 17,69,98,750 GRAND TOTAL (A+B) 17,69,98,750 29 32. THE LEARNED CIT(APPEALS) THEREAFTER HAS HELD TH AT VARIATION IN QUANTITY OF RAW MATERIAL OF SIX ITEMS WAS IMAGINARY TO OBTAIN CREDIT FACILITY FROM BANK ON ACCOUNT OF ACCOUNTS FINANCIAL CRISES. HE ALSO HELD THAT THERE WAS NO DIFFERENCE IN STOCK ON THE DATE OF SEARCH AN D THAT THE STOCK HAS NOT BEEN PLEDGED WITH THE BANK BUT ONLY HYPOTHECATED TO BANK AS SUCH STOCK STATEMENT GIVEN TO BANK CANNOT BE A BASIS TO ASSUME UNEXPLAINED INVESTMENT IN STOCK. IN THIS REGARD, HE PLACED RELIANCE ON SEV ERAL DECISIONS. WE ALSO FIND THAT ON THE ISSUE, THERE ARE SEVERAL DECISIONS IN F AVOUR OF THE ASSESSEE AS WELL AS THE REVENUE. IN SUCH A SITUATION, IT IS NOW A W ELL SETTLED POSITION OF THE LAW THAT IN ABSENCE OF DECISION OF HON'BLE JURISDIC TIONAL HIGH COURT ON THE ISSUE, THE DECISION FAVORING THE ASSESSEE WILL HAVE TO BE FOLLOWED. THE FINDING OF THE LEARNED CIT(APPEALS) ON THE ISSUE FO LLOWING THE DECISION IN FAVOUR OF THE ASSESSEE THUS CANNOT BE HELD ERRONEOU S. THE SAME IS UPHELD. GROUND NO. 3 OF THE REVENUE IS ACCORDINGLY REJECTED . 33. SO FAR AS ADDITION OF ADDITION OF RS.6,62,35,00 0 SUSTAINED BY THE LEARNED CIT(APPEALS) IS CONCERNED, THE ASSESSING OF FICER ON THE BASIS OF DIARY I.E. ANNEXURE A1, SEIZED FROM SHRI SALEK CHAN D GARG OBSERVED THAT THERE WAS UNEXPLAINED INVESTMENT IN STOCK WORTH RS. 11,97,85,000 WHICH WAS NOT SEPARATELY ADDED AS IT WAS COVERED BY THE ADDIT ION OF RS.17,69,98,750. 30 THE LEARNED CIT(APPEALS) OBSERVED THAT THE ASSESSIN G OFFICER HAS FURNISHED TWO ACCOUNTS EXTRACTED FROM THE SEIZED DI ARY OF SHRI SALEK CHAND GARG. ONE ACCOUNT PERTAINED TO PAGE NO. 179-184 OF THE DIARY AND THE OTHER ACCOUNT PERTAINS TO PAGE NO. 177 AND 178 OF THE DIA RY. THE LEARNED CIT(APPEALS) HAS REPRODUCED THESE TWO ACCOUNTS IN T ABULATED FORM MARKED AS TABLE-I AND TABLE-2. ON COMPARISON OF BOTH THE T ABLES, THE LEARNED CIT(APPEALS) OBSERVED THAT TABLE-I CONTENDS THE PEA K MAXIMUM STOCK AS ON 22.6.2009 OF 1020 MTS @ RS.52.50 PER KG. TOTALING T O RS.5,35,50,000 AND TABLE-2 CONTENDS THE PEAK AS ON 01.04.2009 OF 1324. 7 MTS. @ 50 PER KG. TOTALING TO RS.6,62,35,000. THE LEARNED CIT(APPEALS ) HAS FURTHER OBSERVED THAT WHILE CALCULATING THE PEAK INVESTMENT IN THE S TOCK, THE ASSESSING OFFICER HAS TAKEN THE PEAK FIGURE OF STOCK FROM BOTH THE AC COUNTS WHICH IS NOT JUSTIFIED BECAUSE DATA OF TABLE-1 AND TABLE-2 ALMOS T RELATES TO SAME TRANSACTION AND TALLIED DATEWISE. THEREFORE, EITHER OF THE TWO TABLES IS TO BE CONSIDERED FOR PEAK INVESTMENT IN STOCK. IT WAS FOU ND THAT MAXIMUM STOCK WAS AVAILABLE AS ON 01.04.2009 FOR 1324.7 MTS AS PE R TABLE-2. AFTER COMPARING BOTH THE TABLES, THE LEARNED CIT(APPEALS) TOOK PEAK FIGURE OF TABLE-2 AS PEAK INVESTMENT IN STOCK WORTH RS.6,62,3 5,000. THE LEARNED CIT(APPEALS) WAS THUS OF THE VIEW THAT NO ADDITION IS CALLED FOR ON THE BASIS OF IMAGINARY FIGURE OF STOCK GIVEN TO THE BANK WHER E THERE WAS NO DIFFERENCE 31 FOUND IN STOCK AT THE TIME OF SEARCH, HOWEVER, PEAK INVESTMENT IN STOCK FOR RS.6,62,35,000 IS LIABLE FOR ADDITION. THE LEARNED CIT(APPEALS) OBSERVED FURTHER THAT THE TWO TABLES SHOW VARIATION IN RATES OVER A PERIOD OF TIME. THE RATES FOR ARRIVING AT PEAK FIGURE HAVE THUS BEEN TA KEN OF AS OF THE DATE ON WHICH MAXIMUM STOCK WAS AVAILABLE. HE, THEREFORE, R ESTRICTED THE ADDITION OF RS.17,69,98,750 ON ACCOUNT OF UNDISCLOSED STOCK TO THE AMOUNT OF PEAK INVESTMENT OF RS.6,62,35,000. WE, HOWEVER, FIND SU BSTANCE IN THE CONTENTION OF THE LEARNED AR AGAINST THE SUSTENANCE OF THE ADDITION OF RS.6,62,35,000 MADE BY THE LEARNED CIT(APPEALS) THA T ONCE CLOSING STOCK AS ON 31.3.2009 HAS BEEN ACCEPTED IN THE ASSESSMENT ORDER FRAMED UNDER SEC. 143(3) OF THE ACT, THERE CANNOT BE UNEXPLAINED INVE STMENT IN OPENING STOCK. IN SUPPORT, THE ASSESSEE HAS FURNISHED AUDITED FINA NCIAL STATEMENT AS ON 31.3.2009 AS WELL AS ASSESSMENT ORDER FOR THE ASSES SMENT YEAR 2009-10. COPIES OF THESE AUDITED FINANCIAL STATEMENT AND ASS ESSMENT ORDER HAVE BEEN MADE AVAILABLE AT PAGE NOS. 231 TO 278 OF THE PAPER BOOK AND PAGE NOS. 767 TO 769 OF THE PAPER BOOK RESPECTIVELY. WE ALSO CONC UR WITH THE CONTENTION OF THE ASSESSEE THAT BOOKS OF THIRD PARTY ALONE CANNOT BE A BASIS TO PRESUME THAT THERE WAS UNEXPLAINED INVESTMENT IN STOCKS, PARTICU LARLY WHEN NATURE OF STOCK IS ALSO NOT KNOWN, WHERE IT WAS KEPT. IT IS A LSO NOT THE CASE OF THE REVENUE THAT SHRI SALEK CHAND GARG WAS IN POSSESSIO N OF ANY STOCK OF THE 32 ASSESSEE. THE CONCLUSION OF THE LEARNED CIT(APPEALS ) THAT STOCKS AS ON 01.04.2009 OF 1324.70 MTS IS BASED ON PAGE NOS. 177 TO 178 OF THE DIARY, TABULATED AT PAGE NO. 31 OF THE FIRST APPELLATE ORD ER, PER SE IS A MISNOMER. THE CLOSING STOCK AS ON 31.3.2009 IN ANY CASE CANNO T BE ADDED AS UNEXPLAINED INVESTMENT FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION AS IN THAT CASE IT WILL BE AMOUNTING TO UNEXPLAINED INVES TMENT FOR THE ASSESSMENT YEAR 2009-10, ESPECIALLY WHEN THE CLOSING STOCK OF THAT ASSESSMENT YEAR WAS ACCEPTED. IN THIS REGARD, WE FIND SUPPORT FROM THE CITED DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. OM PRAKASH MAHAJAN (SUPRA) AND IN THE CASE OF J.M. WIRE INDUSTRIES VS. CIT (SUPRA). T HE ADDITION OF RS.6,62,35,000 SUSTAINED BY THE LEARNED CIT(APPEALS ) IS THUS NOT TENABLE. THE SAME IS DIRECTED TO BE DELETED. THE GROUND NO. 3 OF THE APPEAL PREFERRED BY THE REVENUE IS THUS REJECTED AND GROUND NO. 2, 2 .1 TO 2.4 ARE ALLOWED. 34. GROUND NO.4 (REVENUE) AND GROUND NO.3(ASSESSEE) : THE ASSESSING OFFICER ON THE BASIS OF THE DOCUMENTS SEIZED FROM T HE OFFICIAL PREMISES OF THE ASSESSEE OBSERVED THAT THE SAID OFFICIAL PREMIS ES WAS PURCHASED FROM ONE SHRI SAROJ BALA GUPTA ON 17.12.2009 FOR THE CONSIDE RATION OF RS.28,25,000. THE CIRCLE RATE AT WHICH THE SALE DEED WAS REGISTER ED WAS RS.49,85,010 WHEREAS THE ASSESSEE HAD SHOWN PAYMENT MADE TO THE TUNE OF RS.28,25,000. 33 THE ASSESSING OFFICER THUS DREW AN INFERENCE THAT C ERTAIN CASH PAYMENTS HAVE BEEN MADE BY THE ASSESSEE AS ACTUAL SALES PRIC E WAS MENTIONED LESS THAN THE REGISTERED VALUE OF THE PROPERTY. IN COURS E OF SEARCH, A VALUATION REPORT OF THE PROPERTY WAS ALSO FOUND AND SEIZED IN WHICH VALUE OF THE PROPERTY WAS MENTIONED AS RS.2,33,16,750. THE ASSES SING OFFICER ACCORDINGLY HELD THAT ASSESSEE COMPANY HAD PAID BAL ANCE AMOUNT TO THE SELLER IN CASH OUTSIDE THE BOOKS OF ACCOUNT BY UTIL IZING UNACCOUNTED INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND HEL D THE INVESTMENT AS UNDISCLOSED INVESTMENT WITHIN THE PROVISIONS OF SEC . 69 OF THE INCOME-TAX ACT, 1961. 35. THE ASSESSEE CONTENDED ABOVE ACTION OF THE ASSE SSING OFFICER WITH THIS SUBMISSION THAT THE ASSESSING OFFICER HAS APPL IED THE PROVISIONS OF SEC. 50C OF THE ACT ON THE BUYER, WHEREAS THE SAID PROVI SIONS WILL ALWAYS BE APPLICABLE ON THE SELLER OF THE PROPERTY AND THAT O F THE REPORT SHOWN BY THE VALUER FOUND DURING THE COURSE OF SEARCH WHICH WAS MEANT FOR SUBMISSION TO THE BANK TO AVAIL THE CREDIT FACILITY AND WITHOUT A NY CORROBORATION. THE LEARNED CIT(APPEALS) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE VALUATION REPORT FOUND DURING THE COURSE OF SEARCH MEANT FOR SUBMISSION TO THE CONSORTIUM OF BANKS TO AVAIL THE CREDIT FACILIT IES SHOWING THE VALUE OF THE 34 PROPERTY AT RS.2,33,16,750 AS ON 28.7.2009, CANNOT BE A BASIS TO ACCEPT THE SAID VALUE OF THE PROPERTY IN ABSENCE OF FINDING OF INCRIMINATING PAPERS RELATING TO THE TRANSACTION OF CASH OR OTHERWISE OR ANY OTHER CORROBORATIVE EVIDENCE TO SUPPORT. THE LEARNED CIT(APPEALS) HAS, HOWEVER, ADOPTED THE COST OF CONSTRUCTION SHOWN AT RS.39,66,750 IN THE S AID VALUATION REPORT AS BASED ON CPWD/GOVT. APPROVED SCHEDULE OF RATES AND THE VALUE OF THE LAND AS PER CIRCLE RATE. THE LEARNED CIT(APPEALS) ADDED THE ABOVE STATED TWO VALUES I.E. VALUE OF THE CONSTRUCTION ON THE LAND A ND VALUE OF THE LAND AS PER CIRCLE RATE AS TOTAL VALUE OF THE PROPERTY AND WORK ED OUT THE AMOUNT IN DIFFERENCE AT RS.61,26,760 IN VIEW OF THE VALUE OF THE PROPERTY SHOWN IN THE AGREEMENT TO SALE AT RS.28,25,000. 36. IN SUPPORT OF THE GROUND NO.4 OF THE APPEAL PRE FERRED BY THE REVENUE, THE LEARNED CIT(DR) HAS BASICALLY PLACED RELIANCE O N THE ASSESSMENT ORDER WITH THE SUBMISSION THAT THE LEARNED CIT(APPEALS) W AS NOT JUSTIFIED IN INTERFERING WITH THE VALUE OF THE PROPERTY ADOPTED BY THE ASSESSING OFFICER AS THE SAME WAS BASED UPON THE VALUE SHOWN IN THE V ALUATION REPORT FOUND DURING THE COURSE OF SEARCH FROM THE OFFICIAL PREMI SES OF THE ASSESSEE. THE AR ON THE OTHER HAND REITERATED THE SUBMISSIONS MAD E BEFORE THE AUTHORITIES BELOW IN THIS REGARD. HE SUBMITTED THAT NO EVIDENCE WAS FOUND DURING THE 35 COURSE OF THE SEARCH OR GATHERED DURING THE ASSESSM ENT PROCEEDINGS TO ALLEGE UNEXPLAINED INVESTMENT IN PROPERTY. ON THE OTHER HA ND, THERE WERE SUFFICIENT EVIDENCE ON RECORD TO SUPPORT HIS SUBMISSIONS THAT NO INVESTMENT OVER AND ABOVE THE DECLARED CONSIDERATION WAS MADE BY THE AS SESSEE. THESE EVIDENCES WERE LEDGER ACCOUNT OF SMT. SAROJ GUPTA FROM WHOM T HE ASSESSEE HAD PURCHASED THE PROPERTY, SHOWING PAYMENT BY ACCOUNT PAYEE CHEQUES DATED 20.7.2005 AND 25.11.2009 ( PAGE NOS. 335 AND 336 O F THE PAPER BOOK); BANK STATEMENTS SHOWING REMITTANCES (PAGE NOS. 337 AND 3 38 OF THE PAPER BOOK); AGREEMENT TO SELL DATED 20.7.2005 (PAGE NOS. 330 TO 334 OF PAPER BOOK), WHEREIN CLAUSE 12 SPECIFICALLY PROVIDES THAT VENDOR IS TO OBTAIN CONSENT FROM HUSBAND, SONS AND DAUGHTERS BEFORE SALE DEED; AND SALE DEED DATED 17.12.2009 ( PAGE NOS. 345 TO 352 OF THE PAPER BOO K). 37. THE LEARNED AR SUBMITTED FURTHER THAT IN CASE O F A BUYER, CIRCLE RATE CANNOT BE MADE A BASIS TO ALLEGE UNEXPLAINED INVEST MENT IN PROPERTY UNDER SEC. 69 OF THE ACT AND PLACED RELIANCE ON THE FOLLO WING DECISIONS: A) 256 CTR 371 (DEL) CIT VS. KHOOBSURAT RESORTS (P) LTD.; B) 323 ITR 510 (P&H) CIT VS. CHANDNI BHUCHAR; C) 220 TAXMAN 112 (GUJ) (MAG) CIT VS. SARJAN REALITIES LTD. ; D) 217 TAXMAN 35 (GUJ (MAG) CIT VS. MEGHJIBHAI POPATBH AI VIRANI; E) 138 ITD 255 (AHD) DCIT V. VIRJIBHAI KALYANBHAI K UKADIA; F) 38 SOT 486 (AHD.) ITO V. HARLEY STREET PHARMACEU TICALS LTD. 36 38. THE LEARNED AR CONTENDED FURTHER THAT VALUATION REPORT DATED 28.7.2009 ALSO CANNOT BE RELIED UPON AS ADMITTEDLY IT WAS FOR BANK PURPOSE AND IS PRIOR TO SALE DATED 17.12.2009. THE FACT THA T THE REPORT MENTIONED THAT PROPERTY WAS UNDER SALE OWNERSHIP IS ALSO INCORRECT , AS THE PROPERTY HAD NOT VESTED WITH THE ASSESSEE AND PAYMENT OF RS.20 LACS WAS OUTSTANDING. THE LEARNED CIT(APPEALS) HAS ALSO NOTED THAT THE RATE O F LAND ADOPTED FOR VALUATION AT RS.90,000 PER SQ. YD. IS NOT EVEN THE RATE AS PER A CATEGORY WHEREAS PROPERTY IS IN D/E CATEGORY. EVEN OTHERWI SE, VALUATION REPORT CANNOT BE MADE THE BASIS OF ADDITION, PARTICULARLY WHEN BOOKS HAVE BEEN ACCEPTED AND THERE IS NO MATERIAL TO DISBELIEVE THE SALE DEED. HE PLACED RELIANCE ON THE FOLLOWING DECISION IN SUPPORT: A) 328 ITR 516 (DEL) CIT V. NAVEEN GERA; B) 328 ITR 604 (DEL) CIT V. SMT. SURAJ DEVI; C) 338 ITR 485 (DEL) CIT V. PUNEET SABHARWAL; D) 328 ITR 7 (DEL) CIT V. I.P. CHAUDHARI E) 294 ITR 143 (DEL) CIT V. ASHOK KHETRAPAL F) 196 TAXMAN 415 (DEL) CIT V MAHESH KUMAR G) ITA 1104/2011 HIGH COURT OF DELHI CIT V ARVIND KHANNA H) ITA 482/2010 DATED 05.05.2010 CIT V VINOD SINGH AL I) 357 ITR 671 (DEL) CIT VS. LAHSA CONSTRUCTION (P) LTD. J) 352 ITR 595 (DEL) CIT VS. SADHNA GUPTA K) ITA NO. 3760/D/2011 A.Y. 2003-04 DATED 11.4.2014 ACIT VS. RASHMI CHATURVEDI 39. THE LEARNED AR CONTENDED FURTHER THAT UNDER SEC . 69 OF THE ACT, THE BURDEN IS UPON THE REVENUE TO ESTABLISH THAT THE AS SESSEE HAD MADE 37 INVESTMENT, WHICH BURDEN REMAINED TO BE DISCHARGED. THUS, IT WAS NOT PERMISSIBLE IN LAW TO DRAW ADVERSE INFERENCE AGAINS T THE ASSESSEE. IN SUPPORT, HE CITED THE FOLLOWING DECISIONS: A) 131 ITR 597 (SC) K.P. VARGHESE V. ITO B) 316 ITR 46 (DEL) CIT V. SHAKUNTALA DEVI; C) 335 ITR 572 (DEL) CIT V. BAJRANG LAL BANSAL D) 261 ITR 664 (DEL) CIT VS . NARESH KHATTAR (HUF); 40. THE LEARNED AR SUBMITTED FURTHER THAT EVEN THE ADDITION SUSTAINED BY THE LEARNED CIT(APPEALS) PARTLY RELYING UPON THE CI RCLE RATE AND THE VALUATION REPORT IS ALSO UNSUSTAINABLE. 41. CONSIDERING THE ABOVE SUBMISSIONS AND HAVING GO NE THROUGH THE DECISIONS RELIED UPON, WE CONCUR WITH CONTENTION OF THE LEARNED AR THAT PROVISIONS LAID DOWN UNDER SEC. 50C OF THE ACT ARE NOT APPLICABLE IN THE CASE OF BUYER AND THE VALUATION REPORT IN ABSENCE OF COR ROBORATIVE EVIDENCE IN SUPPORT CANNOT BE THE SOLE BASIS TO ARRIVE AT A CON CLUSION BEYOND DOUBT THAT THE VALUE SHOWN THEREIN WAS INVESTED BY THE ASSESSE E TO PURCHASE THE PROPERTY IN QUESTION. IT IS ALSO AN ESTABLISHED POS ITION OF LAW THAT A DOCUMENT IS RELIABLE OR UNRELIABLE IN ITS ENTIRETY. THE LEAR NED CIT(APPEALS) WAS THUS NOT JUSTIFIED IN RELYING UPON THE VALUATION REPORT ONLY FOR THE PURPOSE OF THE VALUE OF CONSTRUCTION RAISED ON THE PROPERTY SHOWN IN THE SAID VALUATION REPORT. ON THE OTHER HAND, WE FIND THAT THE EVIDENC E FILED IN THE SHAPE OF 38 AGREEMENT, SALE DEED, REMITTANCE OF THE ACCOUNTS FR OM THE LEDGER AS WELL AS BANK ACCOUNT WERE SUFFICIENT EVIDENCE TO ACCEPT SAL E CONSIDERATION SHOWN IN THOSE DOCUMENTS. THE ASSESSING OFFICER WAS THUS NOT JUSTIFIED IN MAKING ADDITION SOLELY ON THE BASIS OF VALUATION REPORT AN D THE LEARNED CIT(APPEALS) WAS ALSO NOT JUSTIFIED IN SUSTAINING T HE PART ADDITION PARTLY ON THE BASIS OF THE VALUATION AND APPLYING THE PROVISI ONS OF SEC. 50C OF THE ACT IN THE CASE OF BUYER. THE ADDITION MADE AND SUSTAIN ED BY THE AUTHORITIES BELOW ON THE ACCOUNT OF UNDISCLOSED INVESTMENT IN T HE PROPERTY IS THUS DIRECTED TO BE DELETED. THE GROUND NO.4 PREFERRED B Y THE REVENUE IS REJECTED AND GROUND NO. 3 AND 4 OF THE APPEAL OF THE ASSESSE E ARE ALLOWED. 20. IN GROUND NO. 5 OF THE ASSESSEE, CHARGING OF IN TEREST UNDER SEC. 234B OF THE INCOME-TAX ACT, 1961 HAS BEEN QUESTIONED WHI CH IS CONSEQUETIAL IN NATURE HENCE DOES NOT NEED INDEPENDENT ADJUDICATION . 19. IN RESULT, APPEAL PREFERRED BY THE REVENUE IS D ISMISSED AND THAT PREFERRED BY THE ASSESSEE IS ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 18 .05.201 5 SD/- SD/- ( B.C. MEENA ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18/05/2015 MOHAN LAL 39 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR DATE DRAFT DICTATED ON COMPUTER 05.05.2015 DRAFT PLACED BEFORE AUTHOR 06.05.2015 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 18.05.20 15 APPROVED DRAFT COMES TO THE SR.PS/PS 22.05.2015 KEPT FOR PRONOUNCEMENT ON 18.05.2015 FILE SENT TO THE BENCH CLERK 22.05.2015 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.