Jt. CIT (OSD) Cen. Cir.1, Nashik, Nashik V. Prakash Construwell Pvt.Ltd., Nashik

ITA 556/PUN/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1682 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-01-2016
• Assessment Year: misc
• Appeal Filed On: 29-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S B MOREY
• Keywords: Bogus purchase; Document seized; Block assessment; Retraction; Documents seized
• Section: 44AD; 40A(3); 143(3); 133A; 131; 132; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 556/PN/2011 BLOCK PERIOD: 1997-98 TO 2003-04 JOINT COMMISSIONER OF INCOME TAX (OSD), CENTRAL CIRCLE 1, NASHIK ....... / APPELLANT ' / V/S. PRAKASH CONSTRUWELL PVT. LTD., 6/7, FALCON PLAZA, NATIONAL URDU HIGH SCHOOL ROAD, NASHIK PAN : AABCP3573F / RESPONDENT / ITA NO. 885/PN/2007 %' ( ')( / ASSESSMENT YEAR : 2003-04 DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1, NASHIK ....... / APPELLANT ' / V/S. M/S. PRAKASH CONSTRUWELL PVT. LTD., 6/7, FALCON PLAZA, NATIONAL URDU HIGH SCHOOL ROAD, NEAR SARDA CIRCLE, NASHIK PAN : AABCP3573F / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI S.B. MOREY / DATE OF HEARING : 26-04-2016 / DATE OF PRONOUNCEMENT : 27-06-2016 2 ITA NOS. 556/PN/2011 & 885/PN/2007 * / ORDER PER VIKAS AWASTHY, JM : THESE TWO APPEALS HAVE BEEN FILED BY THE REVENUE. ITA N O. 556/PN/2011 HAS BEEN FILED BY THE REVENUE AGAINST THE O RDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, NASHIK DATED 14-02 -2011 FOR THE BLOCK PERIOD 1997-98 TO 2003-04 (UP TO 09-10-2002 ). THE APPEAL BY THE REVENUE IS IN SECOND ROUND OF LITIGATION. EARLIER T HE ASSESSEE HAD FILED APPEAL IN ITA NO. 475/PN/2006 ASSAILING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, NASHIK, DATED 21-02 -2006 FOR THE ABOVE MENTIONED BLOCK PERIOD. ONE OF THE GROUNDS RA ISED IN THE APPEAL BY THE ASSESSEE WAS THAT THE COMMISSIONER OF INC OME TAX (APPEALS) HAD ERRED IN DECIDING THE APPEAL WITHOUT ALLOWING A NY OPPORTUNITY OF HEARING TO THE APPELLANT IN SPITE OF SPECIFIC R EQUEST. THE TRIBUNAL VIDE ORDER DATED 11-09-2009 REMANDED THE MATT ER BACK TO THE FILE OF COMMISSIONER OF INCOME TAX (APPEALS) FOR DE NOVO ADJUD ICATION AFTER GRANTING REASONABLE OPPORTUNITY OF HEARING TO BOTH THE SIDES. THE COMMISSIONER OF INCOME TAX (APPEALS) IN THE SECOND ROUND O F HEARING ACCEPTED THE CONTENTION OF THE ASSESSEE AND DELETED TH E ADDITION OF ` 1,87,35,428/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF IN FLATED EXPENDITURE. IN ITA NO. 885/PN/2007 THE REVENUE HAS ASSAILED THE FINDI NGS OF COMMISSIONER OF INCOME TAX (APPEALS)-I, NAGPUR DATED 05- 03-2007 FOR THE ASSESSMENT YEAR 2003-04, DELETING THE ADDITION OF ` 46,00,000/- ON ACCOUNT OF PAYMENTS MADE TO SUB-CONTRACTORS. THE ASS ESSING OFFICER HELD THE SAID PAYMENTS AS BOGUS. 3 ITA NOS. 556/PN/2011 & 885/PN/2007 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE COMPANY IS ENGAGED IN ACCOMPLISHING CIVIL CONTRACT S. THE COMPANY BELONGS TO LADDHA GROUP. A SEARCH U/S. 132 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) IN THE CASE OF LA DDHA GROUP WAS CONDUCTED ON 09-10-2002 WHICH CONCLUDED ON 15-11-2002. THE SEARCH ACTION WAS CARRIED OUT AT THE OFFICE PREMISES, VARIOUS CONSTRUCTION SITES OF THE COMPANY, RESIDENTIAL AND BUSINES S PREMISES OF THE DIRECTORS AND OTHER RELATED PERSONS. NOTICE U/S. 15 8BC WAS ISSUED TO THE ASSESSEE ON 10-03-2003. IN RESPONSE TO THE N OTICE ISSUED U/S. 158BC, THE ASSESSEE FURNISHED BLOCK RETURN ON 28-04-200 3 DECLARING UNDISCLOSED INCOME OF ` 13,00,000/-. DURING THE COURSE OF SEARCH PROCEEDINGS STATEMENT OF SHRI SANJAY SONAR WAS RECORDE D U/S. 132(4) ON 09-10-2002. WHILE RECORDING HIS STATEMENT A DOCUMENT WHICH WAS SEIZED DURING THE SURVEY MARKED AS A16 PAGE 55 EXHIBIT K WAS CONFRONTED TO HIM. SHRI SANJAY SONAR GAVE A CATEGORIC R EPLY THAT THE SAID DOCUMENT CONTAINS THE NAME OF 11 PERSONS SHOWN A S SUB- CONTRACTORS/LABOUR CONTRACTORS IN THE BOOKS OF THE ASS ESSEE COMPANY. THE ASSESSEE WAS USING THEIR NAMES TO INFLATE THE EXPEND ITURE. THE AMOUNTS WERE DEPOSITED IN THEIR BANK ACCOUNTS OPENED W ITH ORIENTAL BANK OF COMMERCE, NASHIK WHICH WERE IMMEDIATELY WITHDRAWN THROUGH SELF CHEQUES BY THE OFFICE STAFF OF THE ASSESSEE COMPANY. T HE WITHDRAWN AMOUNT WAS THEREAFTER HANDED OVER TO SHRI PR AKASH P. LADDHA. DURING THE COURSE OF SEARCH, STATEMENT OF SHRI PRAKASH P. LADDHA WAS ALSO RECORDED U/S. 132(4). IN HIS STATEMENT HE ALSO ADMITTED THAT CERTAIN EXPENSES WERE BOOKED TO REDUCE PROFIT AND TAX INCIDENCE. SHRI PRAKASH P. LADDHA ADMITTED THAT THERE IS ELEMENT OF INFLATION OF EXPENDITURE TO THE TUNE OF ` 12 TO 13 LACS. SUBSEQUENTLY, 4 ITA NOS. 556/PN/2011 & 885/PN/2007 BOTH SHRI SANJAY SONAR AND SHRI PRAKASH P. LADDHA RET RACTED FROM THEIR RESPECTIVE STATEMENTS MADE U/S. 132(4). IN THE BAC KDROP OF THE STATEMENTS MADE BY SHRI SANJAY SONAR AND SHRI PRAKASH P. LADDHA U/S. 132(4) OF THE ACT, THE DOCUMENTS SEIZED DURING THE CO URSE OF SEARCH OPERATION AND OTHER SURROUNDING CIRCUMSTANCES, T HE ASSESSING OFFICER MADE ADDITION OF ` 2,02,47,758/- DURING THE BLOCK PERIOD 1997- 98 TO 2003-04. ON SIMILAR GROUNDS THE ASSESSING OFFICER MA DE ADDITIONS IN THE INCOME RETURNED BY THE ASSESSEE VIDE ASS ESSMENT ORDER DATED 28-03-2006 FOR THE ASSESSMENT YEAR 2003-04. AGGRIEVED BY THE ASSESSMENT ORDER DATED 29-10-2004 P ASSED U/S. 158BC R.W.S. 143(3) FOR THE BLOCK PERIOD 1997-98 TO 2003-0 4, THE ASSESSEE PREFERRED APPEAL BEFORE THE COMMISSIONER OF INCO ME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE ORD ER DATED 21-02-2006 CONFIRMED THE FINDINGS OF ASSESSING OFFICER WITH RE GARD TO INFLATION OF EXPENDITURE TO THE TUNE OF ` 1,87,35,428/-. THE ASSESSEE CARRIED THE MATTER IN APPEAL TO THE TRIBUNAL IN ITA NO. 4 75/PN/2006. THE TRIBUNAL VIDE ORDER DATED 11-09-2009 REMITTED THE M ATTER BACK TO THE FILE OF COMMISSIONER OF INCOME TAX (APPEALS) TO DECIDE T HE APPEAL AFRESH AFTER AFFORDING OPPORTUNITY OF HEARING TO BOTH THE SIDES. IN SECOND ROUND, THE COMMISSIONER OF INCOME TAX (APPEALS) ACC EPTED THE CONTENTIONS OF ASSESSEE AND DELETED THE ADDITIONS OF ` 1,87,35,428/-. THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ACCEPTED THE CONTENTIONS OF THE ASSESSEE IN RESPECT OF OTHER EXPENDIT URE/PAYMENTS MADE TO THE PARTIES FOR PURCHASE OF CEMENT, STEEL, ETC. NOW, THE REVENUE IS IN APPEAL ASSAILING THE FINDINGS OF COMMISSIONER OF I NCOME TAX (APPEALS) IN THE IMPUGNED ORDER. 5 ITA NOS. 556/PN/2011 & 885/PN/2007 3. THE GROUNDS RAISED BY THE REVENUE IN APPEAL FOR BLOC K PERIOD ASSESSMENT ARE AS UNDER : (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(A)-I, NASHIK IS JUSTIFIED IN DELETING T HE ADDITION MADE ON ACCOUNT OF INFLATED EXPENDITURE IN THE GUISE OF PAYMENT TO SUB- CONTRACTORS, IGNORING THE FACT THAT THE ADDITION WA S BASED ON SEIZED DOCUMENTS MARKED AS PAGE NO.65, SEIZED FROM OF THE 'ASSESSEE AND THE ASSESSEE AND THE STATEMENT OF SHR I SANJAY M. SONAR, ACCOUNTANT OF THE ASSESSEE AND ANOTHER STATE MENT OF SHRI PRAKASH P. LADDHA, MANAGING DIRECTOR OF THE ASSESSE E, RECORDED U/S.132 (4) OF THE ACT. (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (A)-I, NASHIK IS JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF INFLATED E XPENDITURE OF PURCHASE OF CEMENT AND STEEL FROM SATISH JAJDA & CO ., IGNORING THE FACT THAT PURCHASE OF CEMENT AND STEEL WERE FRO M THE GREY MARKET AND PAYMENT WERE MADE IN CASH AND FICTITIOUS BILLS WERE OBTAINED FROM THE FIRM M/S. SATISH JAJDA & CO. WHIC H HAPPENED TO BE A CONCERN OF SHRI VIJAYGOPAL ATAL, ONE OF THE DIRECTORS OF ASSESSEE COMPANY. (III) THE APPLICANT CRAVES/LEAVES TO ADD/ALTER/AMEN D ANY GROUNDS OF APPEAL. (IV) ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 4. SHRI S.B. MOREY REPRESENTING THE DEPARTMENT SUBMITTED THAT A LOOSE PAPER MARKED AS A16 PAGE 55 EXHIBIT K (AT PAGE 170 OF PAPER BOOK) WAS SEIZED DURING SEARCH OPERATION. THE SAID PAPER CONTAINS THE NAME OF 11 PERSONS ALONG WITH THEIR BANK ACCOUNTS AT OR IENTAL BANK OF COMMERCE, NASHIK. ALL THE SAID PERSONS WERE EITHER EMPLOY EES OR FORMER EMPLOYEES OF THE ASSESSEE. THE ASSESSEE IN ORDE R TO REDUCE TAXABLE INCOME INFLATED ITS EXPENDITURE BY SHOWING PAYMENTS TO LABOUR CONTRACTORS IN THE NAME OF SAID PERSONS. THE BANK ACCO UNTS IN THE NAME OF SO CALLED LABOUR CONTRACTORS NAMED IN THE LOOSE SHEET WERE OPENED IN ORIENTAL BANK OF COMMERCE, NASHIK. AT THE TIME O F OPENING OF BANK ACCOUNTS THEY WERE INTRODUCED BY SHRI SANJAY S ONAR WHO IS ACCOUNTANT/MANAGER OF THE ASSESSEE COMPANY. THE AMOU NTS WERE 6 ITA NOS. 556/PN/2011 & 885/PN/2007 DEPOSITED IN THE BANK ACCOUNTS OF THE SAID PERSONS AND ON THE VERY NEXT DAY THE AMOUNTS WERE WITHDRAWN BY SELF CHEQUES. T HE CASH WITHDRAWN FROM THE ACCOUNTS WAS THEN PASSED ON TO SHR I PRAKASH P. LADDHA. THIS MODUS OPERANDI OF INFLATING EXPENSES WAS DISCLO SED BY SHRI SANJAY SONAR IN HIS STATEMENT RECORDED U/S. 132(4) O F THE ACT WHICH IS AT PAGE 171 OF THE PAPER BOOK. SHRI PRAKASH P. LADDHA ALSO ADMITTED THIS MODUS OPERANDI TO INFLATE EXPENDITURE IN HIS STATEMENT RECORDED U/S. 132(4) WHICH IS AT PAGE 204 OF THE PAPER BO OK. ALTHOUGH, SUBSEQUENTLY, BOTH SHRI SANJAY SONAR AS WELL AS SHRI PRA KASH P. LADDHA RETRACTED FROM THEIR EARLIER STAND, A PERUSAL OF R ETRACTION STATEMENT SHOWS THAT THE STATEMENT HAS BEEN MADE WIT HOUT ANY CORROBORATIVE EVIDENCE, WHEREAS WHILE RECORDING THE STATE MENT U/S. 132(4), SPECIFIC ANSWERS WERE GIVEN BY SHRI SANJAY SONAR A ND SHRI PRAKASH P. LADDHA EXPLAINING THE MODUS OPERANDI FOR INFLATIN G THE EXPENDITURE. A PERUSAL OF STATEMENT RECORDED U/S. 132(4) WOULD FURTHER MAKE IT AMPLY CLEAR THAT THE PERSONS MAKING STA TEMENTS WERE NOT UNDER ANY MENTAL STRESS OR TENSION AND MADE THE S TATEMENTS ON THEIR OWN WILL. MAKING OF STATEMENT UNDER TENSION OR STRES S AS ALLEGED IN THE SUBSEQUENT RETRACTION STATEMENT IS MERELY AN AFT ERTHOUGHT TO WRIGGLE OUT OF ADMISSION MADE DURING SEARCH PROCEEDINGS. T HE LD. AR REFERRED TO THE EARLIER ORDER OF COMMISSIONER OF INCOME T AX (APPEALS) DATED 21-02-2006 WHEREIN IT HAS BEEN MENTIONED THAT TH E PERSONS TO WHOM PAYMENTS WERE MADE WERE NOT AWARE OF THE WORK C ARRIED OUT BY THEM. THE LD. DR CONTENDED THAT THE COMMISSIONER OF INCO ME TAX (APPEALS) ON THE SAME SET OF FACTS HAS REVERSED ITS OWN FIN DINGS IN THE SECOND ROUND OF LITIGATION. 7 ITA NOS. 556/PN/2011 & 885/PN/2007 4.1 IN RESPECT OF GROUND NO. 2 RELATING TO ISSUE OF INFLATION OF EXPENDITURE BY SHOWING PURCHASE OF CEMENT AND STEEL FRO M M/S. SATISH JAJDA & CO. THE LD. DR SUBMITTED THAT IT WAS PROVED TH AT THE BILLS OF M/S. SATISH JAJDA & CO. WERE OBTAINED BY THE ASSESSEE TO SHOW PURCHASE OF CEMENT AND STEEL FROM GREY MARKET. THE FIRM M/S. SATISH JAJDA & CO. IS A PROPRIETARY CONCERN OF SHRI VIJAYGOPAL ATAL, WHO IS ALSO ONE OF THE DIRECTORS OF ASSESSEE COMPANY. ON EXAMINATIO N OF REGULAR BOOKS OF ACCOUNT OF THE ASSESSEE IT WAS FOUND THAT TH E ENTIRE PAYMENTS FOR SUCH PURCHASES WERE MADE IN CASH. IT WAS FURTHER O BSERVED THAT IN RESPECT OF PURCHASES MADE FROM M/S. SATISH JAJDA & CO. CORRESPONDING ENTRIES IN THE SEIZED DOCUMENTS/ACCOUNTS WERE NOT FOUND . THUS, THE BILLS WERE FOUND TO BE FICTITIOUS. THE LD. DR PRAYED FOR REVE RSING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON BOTH THESE ISSUES. 5. ON THE OTHER HAND SHRI NIKHIL PATHAK APPEARING ON BEH ALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONE R OF INCOME TAX (APPEALS) ON THE ISSUES IMPUGNED BY THE REVENUE IN AP PEAL. THE LD. AR SUBMITTED THAT IN GROUND NO. 1 THE DEPARTMENT HA S ASSAILED THE ACTION OF COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION AMOUNTING TO ` 1,87,35,428/-. THE SAID PAYMENT WAS MADE BY THE ASSESSEE TO THE SUB-CONTRACTORS. THE ADDITION WAS MAD E MERELY ON THE BASIS OF STATEMENT OF SHRI SANJAY SONAR AND SHRI PRAKASH P. LADDHA RECORDED U/S. 132(4) OF THE ACT. EXCEPT FOR THE STATEMEN T THERE IS NO OTHER CORROBORATIVE EVIDENCE FOR MAKING SUCH ADDITION. TH E LD. AR CONTENDED THAT A PERUSAL OF LIST OF PERSONS AS MENTIONED IN THE LOOSE PAPER WHICH WAS SEIZED (AT PAGE 170 OF THE PAPER BOOK) DURING THE SEARCH PROCEEDINGS AND THE LIST OF SUB-CONTRACTORS GIVE N BY THE COMMISSIONER OF INCOME TAX (APPEALS) ON PAGE 3 OF HIS ORDE R DO NOT 8 ITA NOS. 556/PN/2011 & 885/PN/2007 TALLY. THERE WERE SEVERAL DISCREPANCIES IN THE LISTS OF S UB-CONTRACTORS. NO CORROBORATIVE MATERIAL WAS FOUND DURING THE SEARCH TO MAKE ADDITIONS. THE STATEMENT RECORDED DURING THE SEARCH PR OCEEDINGS CANNOT BECOME BASIS FOR MAKING ADDITIONS IN THE BLOCK ASS ESSMENT. IN SUPPORT OF HIS SUBMISSIONS THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS : I. DEPUTY COMMISSIONER OF INCOME TAX VS. PARTAP SINGH RAJEN DRA CHAMOLA & CO., 19 DTR 182 (CHD.-TRIB.); II. COMMISSIONER OF INCOME TAX VS. T. SIVAPRABHASKAR, 50 DTR 3 29 (MAD.); III. AJAY SHARMA VS. ASSISTANT COMMISSIONER OF INCOME TAX, 10 1 TTJ 1065 (DELHI-TRIB.); IV. MONGA R.P. VS. DY. CIT, 87 ITD 287 (TM)); V. JYOTICHAND BHAICHAND SARAF & SONS PVT. LTD., VS. DCIT, 154 TTJ 226 (PUNE-TRIB.); AND VI. COMMISSIONER OF INCOME TAX VS. BALAJI, 304 ITR 393 (DELHI). 5.1 THE LD. AR FURTHER SUBMITTED THAT EXCEPT FOR TWO PERS ONS THE ASSESSEE PRODUCED ALL THE SUB-CONTRACTORS. ALL THE CON TRACTORS IN THEIR RESPECTIVE STATEMENTS ADMITTED TO HAVE CARRIED OUT THE WORK. IT IS AN UNDISPUTED FACT THAT WORK HAS BEEN DONE. IT IS NOT THE CASE OF REVENUE THAT THE PAYMENTS HAVE BEEN MADE WITHOUT THERE BEING ANY WORK. THE ASSESSING OFFICER MADE ADDITION IN THE BLOCK ASSESSMENT PER IOD MERELY ON PRESUMPTIONS AND ASSUMPTIONS. THE STATEMENTS OF SHR I SANJAY SONAR AND SHRI PRAKASH P. LADDHA RECORDED DURING SEARC H PROCEEDINGS CANNOT BE USED TO MAKE ADDITIONS, AS THE SAID STATEMENT S ARE NOT BACKED BY ANY CORROBORATIVE EVIDENCE, FURTHER BOTH THE PERSONS HAVE RETRACTED FROM THEIR RESPECTIVE STATEMENTS. 9 ITA NOS. 556/PN/2011 & 885/PN/2007 5.2 THE LD. AR CONTENDED THAT THE LIST OF BANK ACCOUNTS O F THE SUB- CONTRACTORS WAS MAINTAINED BY SHRI SANJAY SONAR AS HE WAS RESPONSIBLE FOR MAKING PAYMENTS TO THE SUB-CONTRACTORS FROM THE HEAD OFFICE. THE BANK ACCOUNTS WERE OPENED BY THE SUB-CONTR ACTORS ON THE INSISTENCE OF THE ASSESSEE SO THAT THE ASSESSEE COULD C OMPLY WITH THE PROVISIONS OF ACT AND AVOID VIOLATION OF SECTION 40A(3) OF THE ACT BY MAKING PAYMENTS THROUGH BANKING CHANNEL TO LABOUR CONTR ACTORS AND TO MAINTAIN AUDIT TRIAL. IN SO FAR AS WITHDRAWAL OF THE AMOUNTS FROM THE ACCOUNTS OF THE SUB-CONTRACTORS IS CONCERNED, THE SUB- CONTRACTORS WERE WORKING AT DISTANT SITES, THE SUB-CONTRACTORS REQUESTED THE ASSESSEE TO WITHDRAW THE AMOUNTS AND REMIT THE SAME TO THEM. THE LD. AR CONTENDED THAT DURING THE COURSE OF SEARCH ACTION NO BLANK CHEQUES SIGNED BY THE SUB-CONTRACTORS WAS FOUND WITH THE ASSES SEE. IN THE SEIZED PAPER EXHIBIT K ONLY 7 OUT OF 11 ACCOUNTS WERE ALLEGED TO BE OF BOGUS SUB-CONTRACTORS AND THERE WAS NOTHING IN THE SE IZED PAPER TO INDICATE THAT THE SAID PAYMENTS WERE MADE TO THE BOGUS SUB- CONTRACTORS. THUS, IT IS AMPLY CLEAR THAT NO DISALLOWANCE COULD HAVE BEEN MADE ON THE BASIS OF THE LOOSE PAPER MARKED AS A1 6 PAGE 55 EXHIBIT K. 5.3 IN RESPECT OF STATEMENT OF SHRI SANJAY SONAR RECOR DED U/S. 132(4) THE LD. AR CONTENDED THAT BEFORE CONCLUSION OF THE SEARCH ACTION ON 15-11-2002, SHRI SANJAY SONAR RETRACTED FROM THE SAID S TATEMENT, IN HIS STATEMENT RECORDED U/S. 131 ON 01-11-2002. FURTH ER IN HIS SUBSEQUENT STATEMENT RECORDED U/S. 131 BEFORE THE ASS ESSING OFFICER ON 28-09-2004, SHRI SANJAY SONAR HAD STATED THAT HE H AD ACTUALLY EXECUTED SUB-CONTRACT WORK FOR THE ASSESSEE. THE SUB -CONTRACTORS TO WHOM PAYMENTS WERE MADE CONFIRMED THAT THEY HAD EXECU TED SUB- 10 ITA NOS. 556/PN/2011 & 885/PN/2007 CONTRACT WORK FOR THE ASSESSEE. THEIR STATEMENTS ARE PLACED ON RECORD AT PAGES 218 TO 246 OF THE PAPER BOOK. THE LD. AR POIN TED THAT DURING THE COURSE OF SEARCH, MEASUREMENT REGISTER MAINTAINED BY THE SITE INSPECTOR WAS ALSO SEIZED. AN EXAMINATION OF SAME WOULD M AKE IT AMPLY CLEAR THAT SUB-CONTRACT WORK WAS ACTUALLY EXECU TED. THE ASSESSING OFFICER HAD COMPLETELY OVERLOOKED THE SAID REGIST ER DURING ASSESSMENT PROCEEDINGS. THE LD. AR SUBMITTED THAT SAMPLE PAGE OF THE MEASUREMENT REGISTER IS AT PAGES 211 TO 217 OF THE PAP ER BOOK. THE LD. AR FURTHER CONTENDED THAT SUB-CONTRACT WAS EXECUTED IN RELATION TO CONSTRUCTION OF 432 QUARTERS FOR POLICE HOUSING CORPORATION AT DHULE FOR WHICH SUB-CONTRACT PAYMENT OF ` 1.87 CRORES WAS MADE. THE ASSESSEE HAD SHOWN G.P. OF 10.56% FROM THIS PROJECT AND THE NET PR OFIT OF 7.03% FROM THE PROJECT. IF THE SAID PAYMENTS WERE DISALLOWED TH E NET PROFIT FROM THE SAID PROJECT WOULD SHOOT UP TO 18.49% WHICH IS V ERY MUCH ON THE HIGHER SIDE CONSIDERING THE NATURE OF BUSINESS AND C OMPETITIVE MARKET. THE LD. AR REFERRED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FOR DHULE SITE FOR THE FINANCIAL YEAR 1999-2000 AT PAGE 421 OF THE PAPER BOOK. THE LD. AR CONTENDED THAT THE PROFIT FROM THE PROJ ECT OFFERED TO TAX WAS 7.03% OF THE TOTAL CONTRACT RECEIPTS AND AFTER D ISALLOWANCE OF SUB-CONTRACTS IT ROSE 18.49%. SIMILARLY, IN RESPECT OF PROF IT AND LOSS ACCOUNT FOR LATUR SITE FOR THE FINANCIAL YEAR 1997-1998 A T PAGE 422 OF THE PAPER BOOK PROFIT FROM THE PROJECT OFFERED TO TAX WERE 7.05% OF THE TOTAL CONTRACT RECEIPTS WHEREAS AFTER DISALLOWANCE OF PAYM ENTS OF SUB- CONTRACTS IT ROSE 12.59%. THE LD. AR CONTENDED THAT AFTE R DISALLOWANCE THE PAYMENTS OF SUB-CONTRACTS THE NET PROFIT PERCENTAG E INCREASED ABNORMALLY. 11 ITA NOS. 556/PN/2011 & 885/PN/2007 5.4 THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HAD DISA LLOWED THE PAYMENT OF ` 1.87 CRORES MADE TO THE SUB-CONTRACTORS WHICH WERE DEPOSITED IN THE BANK ACCOUNTS AT NASHIK. APART FROM T HESE PAYMENTS THE ASSESSEE HAD ALSO MADE PAYMENTS OF ` 77.72 LACS TO VARIOUS SUB- CONTRACTORS IN THE BANK ACCOUNT HELD BY THEM AT DHULE. THE GENUINENESS OF THE PAYMENTS MADE TO SUB-CONTRACTORS H AVING BANK ACCOUNT AT DHULE WERE NOT DOUBTED BY THE ASSESSING OFFICER. THE COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER HAS CATEGORICALLY OBSERVED THAT THE PAYMENTS MADE TO SUB- CONTRACTORS FOR THE WORK AT DHULE SITE WERE CONSIDERED AS GENUINE AD WE RE ALLOWED BY THE ASSESSING OFFICER BUT THE PAYMENTS MADE FROM NASHIK FO R SAME WORK WERE CONSIDERED AS NON-GENUINE. THERE IS NO BASIS FOR SUCH DIFFERENTIAL TREATMENT AT THE TWO SITES. 5.5 THE LD. AR SUBMITTED THAT THE ASSESSEE ALSO FURNISHED DETAILED EXPLANATIONS WITH RESPECT TO THE OTHER ADDITIONS MADE BY THE ASSESSING OFFICER. THE ASSESSEE EXPLAINED THAT NONE OF THE SUB-CONT RACTORS EXCEPT SHRI SANJAY SONAR WERE EMPLOYEES OF THE ASSESSEE DURING THE RELEVANT PERIOD AND THIS CONTENTION HAS NOT BEEN REFUTED BY THE ASSESSING OFFICER IN HIS REMAND REPORT. WITH RESPECT TO THE CONTENTIO N OF THE ASSESSING OFFICER REGARDING NON MAINTENANCE OF RECORDS BY VARIOUS SUB- CONTRACTORS, IT WAS SUBMITTED THAT ALL THESE PERSONS WER E PETTY SUB- CONTRACTORS WITH THE TURNOVER BELOW ` 40 LACS AND HENCE, THEY WERE NOT LIABLE TO MAINTAIN BOOKS OF ACCOUNT AS PER THE PROVISIONS O F SECTION 44AD OF THE ACT. IT WAS ALSO EXPLAINED THAT THESE PERSO NS MAY HAVE PROCURED MATERIAL FROM UNREGISTERED DEALERS IN ORDER TO S AVE SALES TAX AND HENCE, THEY COULD NOT FURNISH BILLS ISSUED BY SUCH UNR EGISTERED SUPPLIERS. WITH REGARD TO THE CONTENTION OF THE ASSESSING OFFICER THAT 12 ITA NOS. 556/PN/2011 & 885/PN/2007 THE PAYMENTS WERE MADE BY THE ASSESSEE TO THE SUB C ONTRACTORS AT THE END OF THE YEAR AND HENCE, THE SOURCE OF THE INCOME TH ROUGH WHICH THE CONTRACT WORK WAS EXECUTED BY THE SUB-CONTRACTORS R EMAINED UNEXPLAINED, IT WAS SUBMITTED THAT THE PAYMENTS MADE TO THESE PERSONS AT DHULE WERE AVAILABLE WITH THEM. FURTHER, IT W AS ALSO EXPLAINED THAT THE ASSESSEE HAD ALSO GIVEN ADVANCES TO THESE PERSONS WHICH WERE NOTED IN THE SEIZED PAPERS. 5.6 THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE ALSO EXPLAINED THAT THE CONTENTION OF THE ASSESSING OFFICER REGARDING SU BMITTING BOGUS DELIVERY CHALLANS BEFORE THE CONTRACTEES WAS NOT RELEVANT FOR THE PURPOSES OF MAKING DISALLOWANCE OF SUB CONTRACT EXPENSES. IT WAS SUBMITTED THAT THE BOGUS DELIVERY CHALLANS PERTAIN TO OT HER SITES AND THE PURCHASES RELATING TO THESE CHALLANS WERE NOT DEBITE D IN THE BOOKS. HENCE, THE QUESTION OF ASSESSEE SUPPRESSING THE PROFITS BY DEBITING BOGUS PURCHASES DOES NOT ARISE AT ALL. FURTHER, IT WAS A LSO EXPLAINED THAT THE GENUINENESS OF PAYMENTS MADE TO THE SUB CON TRACTORS WERE DULY PROVED IN VIEW OF VARIOUS FACTS ABOVE AND THEREFORE, THERE WAS NO REASON TO MAKE ANY DISALLOWANCE OF SUCH SUB CONTRACT EX PENSES ON THE BASIS OF THE SEIZED DELIVERY CHALLANS. 5.7 IN RESPECT OF DISALLOWANCE OF CEMENT AND STEEL PURCHA SED FROM M/S. SATISH JAJDA & CO., THE LD. AR SUBMITTED THAT ACTUAL CONSUMPTION OF THE MATERIAL DEBITED IN THE BOOK WAS LITTLE LOWER THAN TH E STANDARD QUANTITY REQUIRED FOR EXECUTION OF WORK. THUS, THE PURCH ASES DEBITED IN THE NAME OF M/S. SATISH JAJDA & CO. WERE ACTUALLY MAD E BY THE ASSESSEE FROM GREY MARKET. THEREFORE, THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED. 13 ITA NOS. 556/PN/2011 & 885/PN/2007 THE ASSESSING OFFICER DID NOT DISPUTE THE ACTUAL CONSUMPT ION OF THE CEMENT AND STEEL CLAIMED BY THE ASSESSEE. FURTHER, THE CLAIM OF THE ASSESSEE IS ALSO SUPPORTED BY THE CERTIFICATE FROM AN ENG INEER. THE COMMISSIONER OF INCOME TAX (APPEALS) IN THE BACK DROP OF TH ESE FACTS HAS RESTRICTED THE DISALLOWANCE TO ` 71,218/- ON ACCOUNT OF DISCOUNT @ 5% ON TOTAL PURCHASE OF ` 14,24,355/-. THE LD. AR OF THE ASSESSEE PRAYED FOR DISMISSING THE APPEAL OF THE REVENUE AND UPHO LDING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). 5.8 THE LD. AR MADE AN ALTERNATE PRAYER THAT IF BOOKS A RE NOT TO BE ACCEPTED, THE NET PROFIT SHOULD NOT BE ESTIMATED MORE TH AN 8% OF THE GROSS CONTRACT RECEIPTS. TO SUPPORT HIS ALTERNATE PR AYER THE LD. AR RELIED ON THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI NISHIKANT T. PATNE VS. ASSTT. COMMISSIONER OF INCOME TAX IN ITA NO. 55/PN/2012 FOR THE ASSESSMENT YEAR 2007-08 DE CIDED ON 15-07-2013. 6. CONTROVERTING THE SUBMISSIONS MADE BY THE LD. AR OF TH E ASSESSEE, THE LD. DR SUBMITTED THAT THE STATEMENTS OF SH RI SANJAY SONAR AND SHRI PRAKASH P. LADDHA RECORDED U/S. 132(4) WE RE BACKED BY THE SUFFICIENT EVIDENCE. THE STATEMENTS OF OTHER SUB-C ONTRACTORS WERE RECORDED AFTER SHRI SANJAY SONAR RETRACTED FROM H IS STATEMENT. THEREFORE, ALL THE OTHER SUB-CONTRACTORS WERE SUFFICIENTLY TUTORED. THE RETRACTION HAS BEEN MADE BY SHRI SANJAY SONAR AS WELL A S SHRI PRAKASH P. LADDHA IN VERY VAGUE MANNER. THE SUB-CONTRACTORS D O NOT HAVE ANY RUNNING ACCOUNT WITH THE MAIN CONTRACTOR. THEREFORE, THE CONTENTION OF THE LD. AR OF THE ASSESSEE THAT ADVANCE PAYMENTS WERE MADE TO THEM FOR CARRYING OUT OPERATIONS IS NOT TENABLE. THE LD. DR VE HEMENTLY RELIED 14 ITA NOS. 556/PN/2011 & 885/PN/2007 ON THE ASSESSMENT ORDER AND PRAYED FOR REVERSING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENT ATIVES OF RIVAL SIDES AT LENGTH AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE REVENUE IS IN APPEAL AGAINST THE ACTION OF COMM ISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION MADE BY ASSES SING OFFICER ON ACCOUNT OF ALLEGED BOGUS PAYMENTS TO SUB-CONTRACTORS FOR INFLAT ING OF EXPENDITURE. THE ADDITION WAS MADE BY THE ASSESSING OFFICE R PRIMARILY ON THE BASIS OF LOOSE PAPER SEIZED MARKED AS ANNEXURE A16 EXHIBIT K WHICH CONTAIN THE NAMES OF LABOUR SUB-CONTRACTORS TO WH OM PAYMENTS WERE MADE FOR ALLEGEDLY INFLATING THE EXPENDITURE. THE CONT ENTION OF DEPARTMENT IS THAT THE AMOUNTS WERE DEPOSITED IN THE S AVING BANK ACCOUNTS WHICH WERE OPENED AT ORIENTAL BANK OF COMMERCE , NASHIK, THEREAFTER CASH WAS WITHDRAWN THROUGH SELF CHEQUES AND WAS HANDED OVER TO SHRI PRAKASH P. LADDHA. THE MODUS OPERANDI FOR INFLATING THE EXPENDITURE BY DEPOSITING THE CHEQUES IN BANK ACCOUNTS OF ALLEGED SUB- CONTRACTORS AND THEREAFTER WITHDRAWING THE SAME AND RE TURNING THE CASH TO SHRI PRAKASH P. LADDHA WAS EXPLAINED BY SHRI SAN JAY SONAR IN HIS STATEMENT RECORDED U/S. 132(4) OF THE ACT. DURING THE COURSE OF SEARCH SHRI PRAKASH P. LADDHA IN HIS SEPARATE STATEMENT RECORDED U/S. 132(4) ADMITTED THE FACT THAT HE HAD INFLATED THE EXPENDIT URE TO REDUCE TAX INCIDENCE. HOWEVER, BOTH SHRI SANJAY SONAR AND SHRI PRAKASH P. LADDHA RETRACTED FROM THEIR RESPECTIVE STATEMENTS. THE ASSESSING OFFICER ON THE BASIS OF LOOSE SHEET MARKED AS EXHIBIT K WHIC H IS AT PAGE 170 OF THE PAPER BOOK AND MODUS OPERANDI EXPLAINED BY S HRI SANJAY SONAR AND ADMISSION OF SHRI PRAKASH P. LADDHA WHICH WERE 15 ITA NOS. 556/PN/2011 & 885/PN/2007 SUBSEQUENTLY RETRACTED MADE ADDITION OF ` 1.87 CRORES IN THE INCOME RETURNED BY THE ASSESSEE ON ACCOUNT OF INFLATED EXPENDITURE. 8. THE LIST OF 11 SUB-CONTRACTORS AS GIVEN IN EXHIBIT K (LOOSE SHEET) FOUND DURING THE SEARCH IS AS UNDER : SR. NO. NAME OF ACCOUNT HOLDER ACCOUNT NO. 1 KESHAV KAWALE 6102 2 MANISH BANG 6105 3 UMESH KASAT 6383 4 POPAT GAWANDE 6472 5 SHIVAJI BORADE 6473 6 SALIM SHAIKH 6474 7 KHANDU SHINDE 6475 8 GAUTAM JIGANE 6476 9 BHIMRAO NAIK 6477 10 NANDAN JAMDADE 6478 11 ABHIJEET ANIL KOTSTHANE 6480 THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER HAS OBSERV ED THAT 3 PERSONS NAMELY: (I) SHRI SANJAY M. SONAR BANK ACCOUNT NO. 5780, (II) SHRI SAHEBRAO AGHAM BANK ACCOUNT NO. 1097, AND (III) SHRI V ITTHAL AGHAM BANK ACCOUNT NO. 1098 WERE ALSO IN THE LIST OF SUB -CONTRACTORS TO WHOM PAYMENTS WERE MADE TO INFLATE THE EXPENDITURE. UNDISPUTEDLY, THE AMOUNTS WERE DEPOSITED IN THE BANK A CCOUNTS OF THE AFORESAID PERSONS. IT HAS ALSO COME ON RECORD THAT THE AMOUNTS WERE WITHDRAWN FROM THE BANK ACCOUNTS OF THE AFORESAID PERSON S THROUGH SELF CHEQUES. HOWEVER, THE FACT THAT THE AMOUNT HAS TRA VELLED BACK TO SHRI PRAKASH P. LADDHA IS NOT SUBSTANTIATED FROM ANY DOC UMENTARY EVIDENCE EXCEPT THE STATEMENT OF SHRI SANJAY SONAR WHIC H HE HAS SUBSEQUENTLY RETRACTED. THE RELEVANT EXTRACT OF THE S TATEMENT OF SHRI SHRI SANJAY SONAR RECORDED U/S. 132(4) ON 09-10-2002 WH ERE HE HAS 16 ITA NOS. 556/PN/2011 & 885/PN/2007 EXPLAINED THE MODUS OPERANDI FOR INFLATING THE EXPENDITURE AND REDUCE TAX INCIDENCE IS REPRODUCED AS UNDER : Q. NO. 14 PLEASE FURNISH COMPLETE DETAILS OF ALL T HE SUB CONTRACTORS & EXPLAIN WHY YOU ARE KEEPING THEIR A/C NOS. PLEASE FURNISH THE NAME & ADDRESS OF THE BRANCH AS IT APPEARS THAT ALL OF THEM HAVE ACCOUNTS IN THE SAME BRANCH? ANS. 14 THIS LIST CONTAINS LIST OF 11 PERSONS WHO A RE SHOWN AS SUB CONTRACTORS/LABOUR CONTRACTORS IN THE BOOKS OF P.C. P.L. THEIR A/CS HAVE BEEN OPENED IN ORIENTAL BANK OF COMMERCE, NASHIK DETAILS AS BELOW : A/C NO. NAME OF THE A/C HOLDER 6102 KESHAV KAWALE 6105 MANISH BANG 6383 UMESH KASAT 6472 POPAT GAWANDE 6473 SHIVAJI BORADE 6474 SALIM SHAIKH 6475 KHANDU SHINDE 6476 GAUTAM JIGANE 6477 BHIMRAO NAIK 6478 NANDAN JAMDADE 6480 ABHIJEET ANIL KOTSTHANE P.C.P.L. IS UTILIZING THE NAMES OF THESE PERSONS THROUGH THEIR BANK A/CS IN SHOWING PAYMENTS MADE TO THEM WH ICH ARE IMMEDIATELY WITHDRAWN BY SELF CHEQUE BY THE OFF ICE STAFF OF P.C.P.L. & CASH IS HANDED OVER TO SHRI PRA KSH LADDHA. THIS IS DONE TO REDUCE THE PROFIT/TAX INCI DENCE. THEREAFTER ON 01-11-2002 SHRI SANJAY SONAR RETRACTED FROM HIS STATEMENT ON THE GROUND THAT DURING THE COURSE OF REC ORDING THE STATEMENT HE WAS UNDER MENTAL TENSION AND HENCE, MADE T HE STATEMENT UNDER STRESS. 9. SHRI PRAKASH P. LADDHA IN HIS INITIAL STATEMENT RECORDED U/S. 132(4) ON 10-10-2002 ADMITTED THAT CERTAIN EXPENSES WER E BOOKED FOR 17 ITA NOS. 556/PN/2011 & 885/PN/2007 INFLATING THE EXPENDITURE. THE RELEVANT EXTRACT OF HIS STAT EMENT IS REPRODUCED AS UNDER : Q. NO. 35 DURING THE COURSE OF THE SEARCH ON THE B ASIS OF CERTAIN BANK A/C NUMBERS AND TDS CERTIFICATES FOUND INQUIRI ES MADE WITH ORIENTAL BANK OF COMMERCE DETAILS OF WHIC H ARE AS PER THE STATEMENT RECORDED OF SHRI SANJAY M. SON AR YOUR ACCOUNTANT. IN THE STATEMENT SHRI SONAR HAS EXPLAI NED IN DETAILS THE MODUS-OPERANDI ADOPTED BY THE COMPANY B Y UTILIZING FICTITIOUS. SUB-CONTRACTORS TO REDUCE TH E TAXABLE PROFITS INQUIRES CONDUCTED IMMEDIATELY AS REVEALED THAT ON THIS ACCOUNT AN AMOUNT OF RS.2,17,00,000/- HAS BEEN REDUCED FROM THE TAXABLE INCOME BY BOOKING EXPENSES ON THE NAMES OF THESE PERSONS, ISSUING CHEQUES ON THEI R NAMES AND IMMEDIATELY MAKING WITHDRAWALS BY SELF CHEQUES WHICH IS HANDED OVER TO YOU. IN THIS RESPE CT PLEASE OFFERED YOUR COMMENTS. ANS. I ADMIT THAT THIS IS CORRECT AND BY BOOKING S UCH EXPENSES TAXABLE PROFITS HAVE BEEN REDUCED FURTHER ON ACCOUN TS OF INFLATION OF CASH EXPENSES THERE IS ELEMENT OF INFL ATION TO THE TUNE OF 12 TO 13 LAKHS ALSO. IN ALL AN AMOUNT OF RS.2,30,00,000/- IS OFFERED TO TAX AS ADDITIONAL UNEXPLAINED INCOME. THIS IS SUBJECT TO PROPER EXAM INATION FOR NATURE AS WELL AS ARITHMETICAL ACCURACY AND TRU E AND CORRECT UNDISCLOSED INCOME WILL BE OFFERED TO TAX I N THE BLOCK RETURN WHICH WILL BE FILED SUBSEQUENTLY. SHRI PRAKASH P. LADDHA VIDE HIS LETTER DATED 15-11-2002 RETRACTED FROM HIS STATEMENT RECORDED U/S. 132(4). 10. A PERUSAL OF THE ABOVE STATEMENTS AND THE ADMISSIONS MADE BY SHRI SANJAY SONAR AND SHRI PRAKASH P. LADDHA IN FIRST INST ANCE WOULD SHOW THAT CERTAIN EXPENDITURES WERE CLAIMED BY THE ASS ESSEE TO REDUCE THE PROFIT AND THEREBY SUPPRESSING THE INCOME. HOWEVER, IN THE ABSENCE OF ANY CORROBORATIVE DOCUMENTARY EVIDENCE, THE ADDITIONS CANNOT BE SUSTAINED MORE SO WHEN THE STATEMENTS HAVE BEEN RETRACTED 18 ITA NOS. 556/PN/2011 & 885/PN/2007 WHICH FORMS THE BASIS OF ADDITION. THE LOOSE SHEET EXHIBIT K MERELY CONTAINS THE NAME OF PERSONS AND THEIR BANK ACCOUNT NUM BERS. IT DOES NOT SHOW THAT THE AMOUNT DEPOSITED IN THE SAID BANK AC COUNTS HAS TRAVELED BACK TO THE ASSESSEE OR SHRI PRAKASH P. LADDH A. THE ADDITIONS CANNOT BE SUSTAINED MERELY ON THE BASIS OF STATEMENTS RECORDED IN VIEW OF THE CBDT CIRCULAR. THE CBDT HAS DEPRECIATED THE PRA CTICE OF MAKING ADDITION ON THE BASIS OF STATEMENT RECORDED DURING SEARCH/SURVEY PROCEEDINGS ALONE. THE RELEVANT EXTRACT OF THE CBDT INSTRUCTIONS DATED 10.03.2003 AND 18.12.2014 ARE REPRODU CED HERE-IN- BELOW :- CONFESSION OF ADDITIONAL INCOME DURING THE COURSE OF SEARCH & SEIZURE AND SURVEY OPERATION F. NO. 286/2/2003-IT (INV) GOVERNMENT OF INDIA MINISTRY OF FINANCE & COMPANY AFFAIRS DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES ROOM NO. 254/NORTH BLOCK, NEW DELHI, THE 10TH MARCH , 2003 TO ALL CHIEF COMMISSIONERS OF INCOME TAX, (CADRE CONTR A) & ALL DIRECTORS GENERAL OF INCOME TAX INV. SIR SUBJECT : CONFESSION OF ADDITIONAL INCOME DURING TH E COURSE OF SEARCH & SEIZURE AND SURVEY OPERATION -REGARDING INSTANCES HAVE COME TO THE NOTICE OF THE BOARD WHER E ASSESSEES HAVE CLAIMED THAT THEY HAVE BEEN FORCED TO CONFESS THE U NDISCLOSED INCOME DURING THE COURSE OF THE SEARCH & SEIZURE AND SURVE Y OPERATIONS. SUCH CONFESSIONS, IF NOT BASED UPON CREDIBLE EVIDENCE, A RE LATER RETRACTED BY THE CONCERNED ASSESSEES WHILE FILING RETURNS OF INC OME. IN THESE CIRCUMSTANCES, ON CONFESSIONS DURING THE COURSE OF SEARCH & SEIZURE AND SURVEY OPERATIONS DO NOT SERVE ANY USEFUL PURPOSE. IT IS, THEREFORE, ADVISED THAT THERE SHOULD BE FOCUS AND CONCENTRATIO N ON COLLECTION OF EVIDENCE OF INCOME WHICH LEADS TO INFORMATION ON WH AT HAS NOT BEEN DISCLOSED OR IS NOT LIKELY TO BE DISCLOSED BEFORE T HE INCOME TAX 19 ITA NOS. 556/PN/2011 & 885/PN/2007 DEPARTMENTS. SIMILARLY, WHILE RECORDING STATEMENT D URING THE COURSE OF SEARCH IT SEIZURES 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 RESPECT OF PENDING ASSESSMENT PROCEEDIN GS ALSO, ASSESSING OFFICERS SHOULD RELY UPON THE EVIDENCES/MATERIALS G ATHERED DURING THE COURSE OF SEARCH/SURVEY OPERATIONS OR THEREAFTER WH ILE FRAMING THE RELEVANT ASSESSMENT ORDERS YOURS FAITHFULLY, SD/- (S. R. MAHAPATRA] UNDER SECRETARY (INV. II) ***************** ADMISSIONS OF UNDISCLOSED INCOME UNDER COERCION/PRE SSURE DURING SEARCH/SURVEY F. NO. 286/98/2013-IT (INV.II) GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES ROOM NO. 265A, NORTH BLOCK NEW DELHI, THE 18TH DECEMBER, 2014 TO 1. ALL PRINCIPAL CHIEF COMMISSIONERS OF INCOME TAX 2. ALL CHIEF COMMISSIONERS OF INCOME TAX 3. ALL DIRECTORS GENERAL OF INCOME TAX (INV.) 4. DIRECTOR GENERAL OF INCOME TAX (I & CI), NEW DEL HI SUBJECT: ADMISSIONS OF UNDISCLOSED INCOME UNDER COE RCION/PRESSURE DURING SEARCH/SURVEY REG. REF: 1) CBDT LETTER F. NO. 286/57/2002-IT (INV.II) DT. 03-07-2002 2) CBDT LETTER F. NO. 286/2/2003-IT (INV.11) DT. 10 -03-2003 3) CBDT LETTER F. NO. 286/98/2013-IT (INV.11) DT. 0 9-Q1-2014 20 ITA NOS. 556/PN/2011 & 885/PN/2007 SIR/MADAM, INSTANCES/COMPLAINTS OF UNDUE INFLUENCE/COERCION HA VE COME TO NOTICE OF THE CBDT THAT SOME ASSESSEES WERE COERCED TO ADMIT UNDISCLOSED INCOME DURING SEARCHES/SURVEYS CONDUCTED BY THE DEP ARTMENT. IT IS ALSO SEEN THAT MANY SUCH ADMISSIONS ARE RETRACTED IN THE SUBSEQUENT PROCEEDINGS SINCE THE SAME ARE NOT BACKED BY CREDIB LE EVIDENCE. SUCH ACTIONS DEFEAT THE VERY PURPOSE OF SEARCH/SURVEY OP ERATIONS AS THEY FAIL TO BRING THE UNDISCLOSED INCOME TO TAX IN A SUSTAIN ABLE MANNER LEAVE ALONE LEVY OF PENALTY OR LAUNCHING OF PROSECUTION. FURTHER, SUCH ACTIONS SHOW THE DEPARTMENT AS A WHOLE AND OFFICERS CONCERN ED IN POOR LIGHT 2. I AM FURTHER DIRECTED TO INVITE YOUR ATTENTION T O THE INSTRUCTIONS/GUIDELINES ISSUED BY CBDT FROM TIME TO TIME, AS REFERRED ABOVE, THROUGH WHICH THE BOARD HAS EMPHASIZED UPON THE NEED TO FOCUS ON GATHERING EVIDENCES DURING SEARCH/SURVEY AND TO STRICTLY AVOID OBTAINING ADMISSION OF UNDISCLOSED INCOME UNDER COE RCION/UNDUE INFLUENCE. 3. IN VIEW OF THE ABOVE, WHILE REITERATING THE AFOR ESAID GUIDELINES OF THE BOARD, I AM DIRECTED TO CONVEY THAT ANY INSTANCE OF UNDUE INFLUENCE/COERCION IN THE RECORDING OF THE STATEMEN T DURING SEARCH/SURVEY/OTHER PROCEEDING UNDER THE I.T. ACT, 1961 AND/OR RECORDING A DISCLOSURE OF UNDISCLOSED INCOME UNDER UNDUE PRESSURE/ COERCION SHALL BE VIEWED BY THE BOARD ADVERSELY. 4. THESE GUIDELINES MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED IN YOUR REGION FOR STRICT COMPLIANCE. 5. I HAVE BEEN FURTHER DIRECTED TO REQUEST YOU TO C LOSELY OBSERVE/OVERSEE THE ACTIONS OF THE OFFICERS FUNCTIONING UNDER YOU I N THIS REGARD. 6. THIS ISSUES WITH APPROVAL OF THE CHAIRPERSON, CB DT (K. RAVI RAMCHANDRAN) DIRECTOR (INV.)-II, CBDT 11. THE HONBLE MADRAS HIGH COURT IN THE CASE OF COMMISS IONER OF INCOME TAX VS. S. KHADER KHAN SON REPORTED AS 300 IT R 157 (MAD) WHILE ADJUDICATING THE ISSUE RELATING TO ADDITION ON THE BAS IS OF STATEMENT OF THE ASSESSEE ALONE HAS HELD AS UNDER : 7. FROM THE FOREGOING DISCUSSION, THE FOLLOWING PR INCIPLES CAN BE CULLED OUT : (I) AN ADMISSION IS AN EXTREMELY IMPORTANT PIECE OF EVIDENCE BUT IT CANNOT BE SAID THAT IT IS CONCLUSIVE AND IT IS OPEN TO THE PERSON WHO MADE THE ADMISSION TO SHOW THAT IT IS INCORRECT AND THAT THE ASSESSEE SHOULD BE 21 ITA NOS. 556/PN/2011 & 885/PN/2007 GIVEN A PROPER OPPORTUNITY TO SHOW THAT THE BOOKS O F ACCOUNT DO NOT CORRECTLY DISCLOSE THE CORRECT STATE OF FACTS, VIDE DECISION OF THE APEX COURT IN PULLANGODE RUBBER PRODUCE CO. LTD. V. STATE OF K ERALA [1973] 91 ITR 18 ; (II) IN CONTRADISTINCTION TO THE POWER UNDER SECTIO N 133A, SECTION 132(4) OF THE INCOME-TAX ACT ENABLES THE AUTHORIZED OFFICER T O EXAMINE A PERSON ON OATH AND ANY STATEMENT MADE BY SUCH PERSON DURING S UCH EXAMINATION CAN ALSO BE USED IN EVIDENCE UNDER THE INCOME-TAX A CT. ON THE OTHER HAND, WHATEVER STATEMENT IS RECORDED UNDER SECTION 133A OF THE INCOME- TAX ACT IS NOT GIVEN ANY EVIDENTIARY VALUE OBVIOUSL Y FOR THE REASON THAT THE OFFICER IS NOT AUTHORISED TO ADMINISTER OATH AN D TO TAKE ANY SWORN STATEMENT WHICH ALONE HAS EVIDENTIARY VALUE AS CONT EMPLATED UNDER LAW, VIDE PAUL MATHEWS AND SONS V. CIT [2003] 263 I TR 101 (KER) ; (III) THE EXPRESSION 'SUCH OTHER MATERIALS OR INFOR MATION AS ARE AVAILABLE WITH THE ASSESSING OFFICER' CONTAINED IN SECTION 15 8BB OF THE INCOME-TAX ACT, 1961, WOULD INCLUDE THE MATERIALS GATHERED DUR ING THE SURVEY OPERATION UNDER SECTION 133A, VIDE CIT V. G. K. SEN NIAPPAN [2006] 284 ITR 220 (MAD) ; (IV) THE MATERIAL OR INFORMATION FOUND IN THE COURS E OF SURVEY PROCEEDING COULD NOT BE A BASIS FOR MAKING ANY ADDITION IN THE BLOCK ASSESSMENT, VIDE DECISION OF THIS COURT IN T. C. (A) NO. 2620 O F 2006 (BETWEEN CIT V. S. AJIT KUMAR [2008] 300 ITR 152 (MAD) ; (V) FINALLY, THE WORD 'MAY' USED IN SECTION 133A(3) (III) OF THE ACT, VIZ., 'RECORD THE STATEMENT OF ANY PERSON WHICH MAY BE US EFUL FOR, OR RELEVANT TO, ANY PROCEEDING UNDER THIS ACT', AS ALREADY EXTR ACTED ABOVE, MAKES IT CLEAR THAT THE MATERIALS COLLECTED AND THE STATEMEN T RECORDED DURING THE SURVEY UNDER SECTION 133A ARE NOT CONCLUSIVE PIECE OF EVIDENCE BY ITSELF. 8. FOR ALL THESE REASONS, PARTICULARLY, WHEN THE CO MMISSIONER AND THE TRIBUNAL FOLLOWED THE CIRCULAR OF THE CENTRAL B OARD OF DIRECT TAXES DATED MARCH 10, 2003, EXTRACTED ABOVE, FOR ARRIVING AT THE CONCLUSION THAT THE MATERIALS COLLECTED AND THE STATEMENT OBTAI NED UNDER SECTION 133A WOULD NOT AUTOMATICALLY BIND UPON THE ASSESSEE , WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE TRIBU NAL. THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF COMMISS IONER OF INCOME TAX VS. S. KHADER KHAN SON REPORTED AS 352 ITR 480 (SC) HAS UPHELD THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE AFORESAID CASE. 12. THE LD. AR OF THE ASSESSEE HAS DRAWN OUR ATTENTION TOWARDS THE STATEMENT OF SOME OF THE SUB-CONTRACTORS AT PAGES 33 0 TO 358 OF THE PAPER BOOK. A PERUSAL OF THE STATEMENTS OF SUB-CONTRAC TORS WHOSE 22 ITA NOS. 556/PN/2011 & 885/PN/2007 NAME APPEARED IN THE LIST EXHIBIT K SHOWS THAT THEY HA VE ADMITTED THAT THEY HAVE PERFORMED THE WORK AND HAVE RECEIVED T HE PAYMENTS. THE LD. AR OF THE ASSESSEE HAS ALSO PLACED ON RECORD TH E ASSESSMENT ORDERS OF SOME OF THE SUB-CONTRACTORS WHO HAVE DISCLOSE D THE PAYMENTS RECEIVED IN THEIR RESPECTIVE RETURN OF INCOME. IN SOME OF THE CASES THE ASSESSING OFFICER HAS MADE ADDITION ON PROTECTIVE BASIS WHILE IN THE CASE OF OTHERS THE ASSESSMENTS HAVE BEEN MADE ON SUBSTANTIVE BASIS. 13. IT IS AN UNDISPUTED FACT THAT WORK AT SITE HAS BEEN CARRIED OUT. IT IS NOT THE CASE OF THE REVENUE THAT NO WORK WAS CARR IED OUT AT THE SITE. NO ADDITION CAN BE SUSTAINED MERELY ON PRESUMPTIONS AND ASSUMPTIONS. IT IS A WELL SETTLED LAW THAT ADDITION DURING T HE POST SEARCH ASSESSMENT CAN BE MADE ONLY ON THE BASIS OF INC RIMINATING MATERIAL. THE ADDITIONS IN BLOCK ASSESSMENT CANNOT BE M ADE SOLELY ON THE BASIS OF STATEMENT RECORDED DURING SEARCH [DY. CIT V S. PARTAP SINGH RAJENDRA CHAMOLA & CO. (SUPRA)]. THUS, IN VIEW OF TH E FACTS OF THE CASE WE DO NOT FIND ANY MERIT IN THE GROUND NO. 1 RA ISED IN THE APPEAL BY THE DEPARTMENT. 14. IN GROUND NO. 2 THE REVENUE HAS ASSAILED THE PAYMEN TS MADE TO SATISH JAJDA & CO. AND ALLOWED BY THE COMMISSIONER OF INC OME TAX (APPEALS) AS GENUINE EXPENDITURE. THE ASSESSING OFFICER HAD D ISALLOWED THE PAYMENTS OF ` 14,24,355/- MADE TO SATISH JAJDA & CO. THE COMMISSIONER OF INCOME TAX (APPEALS) RESTRICTED THE DISALLOW ANCE TO ` 71,218/- WITH THE FOLLOWING OBSERVATIONS : 6 . 5 I HAVE CAREFULLY CON S IDERED THE ASSESSMENT ORDER, REMAND REPORTS AND THE RI V AL SUBMISSIONS ON THIS ISSUE. IT IS A FACT THAT THE LD. A .O . HAS NOT BROUGHT ON RECORD ANY MATERIAL TO DISPROV E THE CLAIM OF THE APPELLANT REGARDING TH E ACTUAL CONSUMPT I ON OF STEEL AND CEMENT AND THE THEORETICAL CONSUMPTION OF THESE ITE MS . FROM THIS 23 ITA NOS. 556/PN/2011 & 885/PN/2007 TECHNICAL V IEW OF THE M A TTER, IT IS QUITE EVIDENT THAT THE PURCHASES WERE EFFECTED BY THE APPELLANT . FURTHER, THERE IT IS A LSO TRUE THAT, THERE IS NO LOGIC IN INFLATING EXPENSES ON ONE SITE AND SUPPRESSING THE SAME AT OTHER SITE. THEREFORE, IT IS EVIDENT TH AT THE STEEL AND CEMENT, PURPORTEDLY SHOWN AS PURCHASED FROM M / S SATISH ]AJDA & CO . , HAD ACTUALLY BEEN PURCHASED AND CONSUMED IN THE W ORK OF CONSTRUCTION OF 432 POLICE QUARTERS AT DHULE, HOWEVER, THE ONLY QUESTION THAT POSSIBLY REMAINS IS OF THE PRICE P A ID FOR SUCH PURCHASES . SINCE THE PURCHAS E S WERE EFFECTED FROM GREY MARKET, THE APPELLANT MUST HAVE EARNED DISCOUNT ON THESE PURCHA SES. AT 5% (AS ADOPTED U/S 44AF) OF PURCHASE PRICES PAID, THE INCOM E FROM SUCH DISCOUNT WORK OUT TO RS . 71,218/-. THIS MAY BE THE INCOME OF THE APPELLANT THAT MAY BE ASSESSED FROM THE TRANSACTION S OF PURCHASES OF CEMENT AND STE E L FROM THE GREY MARKET . THE CLAIM OF APPELLANT THAT THERE IS NO LINK BETWEEN THE SEIZED MATERIAL A ND THE PURCHASES IS HOWEVER NOT CORRECT . THE ADDITION IS THE RESULT OF THE SEIZED PAPERS RELATING TO THE TRANSACTIONS WITH M/S SATISH ]AJDA & CO., IN WHICH THE SAID GREY MARKET PURCHASES BY APPELLANT D ID NOT APPEAR . THEREFORE , SINCE THE ENQUIRY EMANATING FROM THE SEIZED MATERIAL REVEALED THAT THE SAID PURCHASES WERE NOT FROM SATISH ]AJDA & CO. THERE EXISTED A LINK WITH THE SEIZED MA TERIAL . HENCE , CONSIDERING . ABOVE FINDINGS, IT IS THAT THE UNDISCLOSED INCOME O F THE APPELLANT FROM THE TRANSACTIONS OF CEMENT AND STEEL PURCHASES FROM M/S SATISH ]AJDA & CO . AMOUNTED TO RS . 71,218/- FOR A . Y . 1998-99. ACCORDINGLY, THIS GRO U ND OF APPEAL IS PARTLY ALLOWED AND APPE L LANT GETS RELIEF OF RS.13,53,137/ - . HOWEVER, NO SEPARATE ADDITION IS REQUIRED FOR THE UNDISCLOSED INCOME OF RS.71,218/-, AS THE SAME IS TO BE ADJUSTED AGAINST THE AD-HOC RETURNED UNDISCLO SED INCOME OF RS.13,00,000/-. 15. THE LD. DR COULD NOT CONTROVERT THE FINDINGS OF COMMISSIO NER OF INCOME TAX (APPEALS) ON THIS ISSUE. THUS, WE DO NOT FIND AN Y REASON TO INTERFERE WITH THE FINDINGS OF COMMISSIONER OF INCOME TAX (APP EALS) IN RESTRICTING THE DISALLOWANCE TO ` 71,218/-. THEREFORE, THE GROUND NO. 2 RAISED IN THE APPEAL BY THE DEPARTMENT IS ALSO DISMISSED. 24 ITA NOS. 556/PN/2011 & 885/PN/2007 16. IN THE RESULT, THE APPEAL BY THE DEPARTMENT IS DISMIS SED BEING DEVOID OF MERIT. ITA NO. 885/PN/2007 (A.Y. 2003-04) 17. IN THE APPEAL FOR ASSESSMENT YEAR 2003-04 THE REV ENUE HAS ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION OF ` 46,00,000/- ON ACCOUNT OF BOGUS PAYMENTS MADE BY THE ASSESSEE TO SUB-CONTRACTORS. 18. THE GROUNDS RAISED BY THE REVENUE IN APPEAL ARE AS UNDER : 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED C.I.T. (APPEALS) ERRED IN DELETING THE ADDITION OF RS.46,00,000/- MADE BY THE AO. FOR BOGUS PAYMENTS CLAIMED BY THE ASSESSEE ON ACCOU NT OF SUB- CONTRACT PAYMENTS. 2. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED C.I.T (APPEALS) ERRED IN RELYING ON THE SAME EVIDENCES OF THE ASSESSEE WHICH WERE ANALYSED AND THEN REJECTED BY THE AO. AT THE TIME OF ASSESSMENT AND THAT THE RELIANCE, THIS PLACE DID NOT COME OUT OF ANY OF THE FACT NOT CONSIDERING BY AO. 3. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) ERRED IN CONSIDERING FURTHER EVIDENCES AT THE APPELLATE STAGE WHICH WAS NEITHER PRODUCE BY THE ASSESSEE AT THE TI ME ASSESSMENT PROCEEDINGS NOR EXAMINED BY THE A.O. AS SUCH. 4. ANY OTHER GROUND THAT MAY BE RAISED DURING THE COUR SE OF HEARING OF APPEAL. 19. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL FOR ASSESSMENT YEAR 2003-04 ARE SIMILAR TO THE ISSUE RAISED IN GROUND N O. 1 IN APPEAL BY THE REVENUE FOR BLOCK PERIOD 1997-98 TO 2003-04. T HE ADDITION WAS MADE BY ASSESSING OFFICER ON SAME SET OF FACTS. SINCE, THIS ISSUE HAS 25 ITA NOS. 556/PN/2011 & 885/PN/2007 BEEN DEALT IN DETAILED BY US IN APPEAL ITA NO. 556/PN/2011 , FOR SIMILAR REASONS THE APPEAL OF THE DEPARTMENT FOR ASSESSMENT Y EAR 2003-04 IS DISMISSED. 20. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE D ISMISSED BEING DEVOID OF MERITS. ORDER PRONOUNCED ON MONDAY, THE 27 TH DAY OF JUNE, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 27 TH JUNE, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-I, NAGPUR 4. ' / THE CIT(CENTRAL), NAGPUR 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE