ITO, Jaipur V. SHRI RITESH SOMANI PROP. SWASTIK, Kota

ITA 592/JPR/2011

• Counselvise Citation: 59223114 RSA 2011
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-10-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 10-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHRI
• Assessee Lawyers: C M BIRLA
• Keywords: Rejection of books of accounts; Business income; Depreciation; Loose papers; Opportunity of being heard; Principle of natural justice; Period of limitation; Additional evidence; Assessment record; Block assessment; Time period of passing order
• Section: 40A(3); 143(3); 133A; 14A; 133(6); 131; 68; 148; 144

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.592/ JP/2011 ASSESSMENT YEAR 2003-04 PAN: ASRPS 1606 B THE ITO VS. SHRI RITESH KUMAR SOMANI WARD- 2(1) PROP. M/S. SWASTIK STONE CRUSHER KOTA KUNARI, BUNDI ROAD, KOTA (APPELLANT ) (RESPONDENT) ITA NO.618/ JP/2011 ASSESSMENT YEAR 2003-04 PAN: ASRPS 1606 B SHRI RITESH KUMAR SOMANI VS. THE ITO PROP. M/S. SWASTIK STONE CRUSHER WARD- 2 (1) KUNARI, BUNDI ROAD, KOTA KOTA (APPELLANT ) (RESPONDENT) ITA NO.593/ JP/2011 ASSESSMENT YEAR 2004-05 PAN: ASRPS 1606 B THE ITO VS. SHRI RITESH KUMAR SOMANI WARD- 2(1) PROP. M/S. SWASTIK STONE CRUSHER KOTA KUNARI, BUNDI ROAD, KOTA (APPELLANT ) (RESPONDENT) ITA NO.619/ JP/2011 ASSESSMENT YEAR 2004-05 PAN: ASRPS 1606 B SHRI RITESH KUMAR SOMANI VS. THE ITO PROP. M/S. SWASTIK STONE CRUSHER WARD- 2 (1) KUNARI, BUNDI ROAD, KOTA KOTA (APPELLANT ) (RESPONDENT) 2 ITA NO.594/ JP/2011 ASSESSMENT YEAR 2005-06 PAN: ASRPS 1606 B THE ITO VS. SHRI RITESH KUMAR SOMANI WARD- 2(1) PROP. M/S. SWASTIK STONE CRUSHER KOTA KUNARI, BUNDI ROAD, KOTA (APPELLANT ) (RESPONDENT) ITA NO.620/ JP/2011 ASSESSMENT YEAR 2005-06 PAN: ASRPS 1606 B SHRI RITESH KUMAR SOMANI VS. THE ITO PROP. M/S. SWASTIK STONE CRUSHER WARD- 2 (1) KUNARI, BUNDI ROAD, KOTA KOTA (APPELLANT ) (RESPONDENT) ITA NO.595/ JP/2011 ASSESSMENT YEAR 2006-07 PAN: ASRPS 1606 B THE ITO VS. SHRI RITESH KUMAR SOMANI WARD- 2(1) PROP. M/S. SWASTIK STONE CRUSHER KOTA KUNARI, BUNDI ROAD, KOTA (APPELLANT ) (RESPONDENT) ITA NO.621/ JP/2011 ASSESSMENT YEAR 2006-07 PAN: ASRPS 1606 B SHRI RITESH KUMAR SOMANI VS. THE ITO PROP. M/S. SWASTIK STONE CRUSHER WARD- 2 (1) KUNARI, BUNDI ROAD, KOTA KOTA (APPELLANT ) (RESPONDENT) ITA NO.596/ JP/2011 ASSESSMENT YEAR 2007-08 PAN: ASRPS 1606 B THE ITO VS. SHRI RITESH KUMAR SOMANI WARD- 2(1) PROP. M/S. SWASTIK STONE CRUSHER KOTA KUNARI, BUNDI ROAD, KOTA (APPELLANT ) (RESPONDENT) 3 ITA NO.622/ JP/2011 ASSESSMENT YEAR 2007-08 PAN: ASRPS 1606 B SHRI RITESH KUMAR SOMANI VS. THE ITO PROP. M/S. SWASTIK STONE CRUSHER WARD- 2 (1) KUNARI, BUNDI ROAD, KOTA KOTA (APPELLANT ) (RESPONDENT) ITA NO.597/ JP/2011 ASSESSMENT YEAR 2008-09 PAN: ASRPS 1606 B THE ITO VS. SHRI RITESH KUMAR SOMANI WARD- 2(1) PROP. M/S. SWASTIK STONE CRUSHER KOTA KUNARI, BUNDI ROAD, KOTA (APPELLANT ) (RESPONDENT) ITA NO.623/ JP/2011 ASSESSMENT YEAR 2008-09 PAN: ASRPS 1606 B SHRI RITESH KUMAR SOMANI VS. THE ITO PROP. M/S. SWASTIK STONE CRUSHER WARD- 2 (1) KUNARI, BUNDI ROAD, KOTA KOTA (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI VINOD JOHRI ASSESSEE BY : SHRI C.M. BIRLA DATE OF HEARING: 20-10-2011 DATE OF PRONOUNCEMENT: 30-12-2011 ORDER PER BENCH THE ASSESSEE AS WELL AS REVENUE FILED THE APPEALS AGAINST RESPECTIVE ORDERS OF THE LD. CIT(A). 2.0 FIRST OF ALL, WE TAKE UP THE APPEAL OF THE ASSE SSEE FOR THE ASSESSMENT YEAR 2003-04 IN ITA NO. 618/JP/20/JP/2011. 4 2.1 THE GROUND OF APPEAL NO. 1 AND 2 OF THE ASSESSE E ARE AS UNDER:- 1. THAT UNDER THE FACTS AND CIRCUMSTANCES OF T HE CASE THE LEARNED CIT(A) ERRED IN NOT ANNULLING THE ORDER OF THE LEARNED AO WHICH WAS BASED ON REPORT OF THE LEARNED SPECIAL AUDITORS WHO WERE APPOINTED FOR THE ASSIGNMENTS BEYOND THE PROVISIONS OF SEC.142(2A ) OF THE INCOME TAX ACT, 1961. RELIANCE IN THIS REGARD IS MADE ON DECIS ION OF HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. BAJRANG TEXTIL ES 205 CTR 287 (RAJ.). 2. THAT UNDER THE FACTS AND CIRCUMSTANCES OF TH E CASE THE LEARNED CIT(A) FURTHER ERRED IN NOT ANNULLING ORDER OF THE LEARNED AO WHICH WAS FRAMED BY HIM BEYOND TIME PROVIDED IN SECTION 1 53(2) OF THE IT ACT 1961 WHICH WAS EXTENDED BY LEARNED AO BY APPOINTING SPECIAL AUDITORS U/S 142(2A) AND EXTENDING THEIR TIME AGAIN AND AGAI N THUS TAKING BENEFIT OF PROVISO TO SEC.153(4). 2.2 A SURVEY U 133A OF THE ACT WAS CARRIED OUT ON 01-10-2008 AT THE BUSINESS PREMISES OF THE ASSESSEE. ON THE BASIS OF THE LOOSE PAPERS AND INCRIMINATING DOCUMENTS FOUND DURING THE COURSE OF SURVEY, A NOTICE U/S 148 OF THE ACT WAS ISSUED ON 2 ND MARCH, 2009 WITH PRIOR APPROVAL OF THE ADDL. CIT, RANGE 2, KOTA. THE NOTICE WAS DULY SERVED ON THE ASSESSEE ON 4-3-2009. IN RESPONSE TO THIS NOTIC E, THE ASSESSEE VIDE LETTER DATED 8 TH APRIL, 2009 SUBMITTED THAT ORIGINAL RETURN WHICH WA S FILED ON 3 RD DEC. 2003 MAY BE TREATED AS RETURN IN RESPONSE TO NOTICE U/S 148 OF THE ACT. THE AO IN HIS ASSESSMENT ORDER HAS OBSERVED THAT THE ASSESSEE WAS TOTALLY NON-COOP ERATIVE NOT ONLY DURING THE COURSE OF SURVEY BUT ALSO DURING THE ASSESSMENT PROCEEDINGS. ALL THE REPLIES IN RESPECT OF THE QUESTIONS WHICH WERE RAISED DURING THE COURSE OF SU RVEY, SHOW THAT THE ASSESSEE DID NOT GIVE ANY REPLY TO THE QUESTIONS RAISED DURING THE C OURSE OF SURVEY. THE AO HAS REFERRED TO REPLY OF THE ASSESSEE IN RESPONSE TO QUESTION NO. 5 IN WHICH THE ASSESSEE STATED THAT HE IS LOOKING AFTER PRODUCTION AND SUPPLY AND HE IS NOT A WARE ABOUT THE BOOKS OF ACCOUNTS AND THEREFORE, HE CANNOT GIVE ANSWER TO QUESTIONS IN RE SPECT OF THE QUERIES RAISED ON ACCOUNTS. HE STATED THAT SHRI BABU LAL SOMANI, HIS FATHER IS LOOKING AFTER THE ACCOUNTS. 5 2.3 THE AO ON THE BASIS OF THE NATURE AND COMPLEXIT IES OF THE ACCOUNTS, LOOSE PAPERS AND INCRIMINATING DOCUMENTS FOUND DURING THE COURSE OF SURVEY SUBMITTED A PROPOSAL TO THE LD. CIT, KOTA FOR GIVING APPROVAL FOR SPECIAL A UDIT U/S 142(2A) OF THE ACT. BEFORE SANCTIONING THE PROPOSAL FOR SPECIAL AUDIT, THE AO VIDE LETTER DATED 17 TH DEC 2009 GAVE AN OPPORTUNITY TO THE ASSESSEE TO EXPLAIN AS TO WHY TH E SPECIAL AUDIT SHOULD NOT BE ORDERED. ACCORDING TO THE AO, THE ASSESSEE DID NOT FILE ANY REPLY AND THEREFORE, REFERENCE WAS MADE FOR SPECIAL AUDIT U/S 142(2A) OF THE ACT. 2.4 THE AO IN HIS ORDER HAS MENTIONED THAT LETTER N O. 625 DATED 14-05-2009 WAS ISSUED TO THE ASSESSEE IN RESPONSE TO LETTER FILED BY THE ASSESSEE ON 5-05-2009 AND AS PER THIS LETTER, THE ASSESSEE WAS ASKED TO INTIMATE TIM E AND DATE FOR GIVING COPIES OF THE IMPOUNDED DOCUMENTS. THE AO ALSO VIDE HIS LETTER DA TED 14 TH MAY, 2009 REQUIRED THE ASSESSEE TO BE PRESENT SON THAT THE STATEMENT AND C LARIFICATIONS MAY BE TAKEN. AS PER THE AO, THE ASSESSEE VIDE LETTER DATED 21-05-2009 INTIM ATED THE DATE AS 15-06-09 FOR ATTENDING THE OFFICE OF THE AO TO OBTAIN THE COPIES OF THE IMPOUNDED DOCUMENTS AND TO EXPLAIN THE ENTRIES OR TO OFFER THE EXPLANATION. ON THE APPOINTED DATE, NEITHER THE ASSESSEE NOR HIS AUTHORIZED REPRESENTATIVE ATTENDED THE PROC EEDINGS. AN OPPORTUNITY WAS ALSO AFFORDED TO THE ASSESSEE VIDE WHICH THE ASSESSEE WA S ASKED TO EXPLAIN AS TO WHY THE SPECIAL AUDIT BE NOT MADE. THE DATE FIXED WAS 17-09 -2009 BUT ON THIS DATE NEITHER THE ASSESSEE NOR HIS AUTHORIZED REPRESENTATIVE ATTENDED THE PROCEEDINGS. THE AO ACCORDINGLY REFERRED THE CASE FOR SPECIAL AUDIT AND LD. CIT, KO TA APPROVED THE PROPOSAL OF THE AO TO REFER THE CASE FOR SPECIAL AUDIT. 6 2.5 BEFORE THE LD. CIT(A), THE ASSESSEE FILED THE W RITTEN SUBMISSIONS AND SUCH WRITTEN SUBMISSIONS ARE AVAILABLE AT PARA 4.2 OF LD. CIT(A) S ORDER WHICH ARE REPRODUCED AS UNDER:- 4.2 APPELLANT IN HIS WRITTEN SUBMISSIONS ARGUE D THAT COPIES OF IMPOUNDED DOCUMENTS WERE NOT GIVEN TO HIM BEFORE FI LING OF RETURN. IT WAS ALSO ARGUED THAT COPIES OF IMPOUNDED DOCUMENTS WERE NOT GIVEN EVEN BEFORE REFERRING THE CASE FOR SPECIAL AUDIT U/S 142(2A). IT WAS FURT HER ARGUED THAT THERE WAS NO COMPLEXITY IN THE ACCOUNTS, WHICH REQUIRED SPECIAL AUDIT. IN SUPPORT OF HIS ARGUMENT, APPELLANT RELIED ON FOLLOWING JUDICIAL DE CISIONS: (A) PEERLESS GENERAL FINANCE & INVESTMENT CO.LTD.& ANR VS. DY.CIT & ORS (1991) 156 CTR (CAL) 512. (B) MUTHOOTTU MINI JURIES VS. DY.CIT & ANR (2001) 166 CTR (KER) 180. (C) STATE FOREST CORPORATION VS. JOINT CIT (2001) 170 CTR (HP) 133. (D) ALLIDHARA TEXPRO ENGINEERING (P) LTD. VS. DY.CI T (2009) 223 CTR (GUJ) 481. (E) WEST BENGAL STATE CO-OPERATIVE BANK LTD.VS. JT. CIT & ORS (2004) 190 CTR (CAL) 245. (F) RAJESH KUMAR & ORS VS. DY.CIT & ORS (2006) 206 CTR (SC) 175. (G) HIND SAMACHAR LTD. VS. CIT & ANR (2008) 216 CT R (SC) 303. (H) SAHARA INDIA (FIRM) VS. CIT & ANR (2008) 216 C TR (SC) 303. (I) CIT VS. BAJRANG TEXTILES 205 CTR (RAJ) 287. 2.6 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE DISMISSED THE GROUNDS NO. 1, 2 AND 3 RELATING TO REFERENCE THE C ASE FOR SPECIAL AUDIT AFTER OBSERVING AS UNDER: 4.4 ARGUMENTS OF THE APPELLANT HAVE BEEN CAREFULL Y CONSIDERED. FROM THE PERUSAL OF RECORDS IT IS FOUND THAT APPELLANT ADOPTED NON CO-OPERATIVE ATTITUDE, NOT ONLY DURING THE COURSE OF SURVEY BUT ALSO IN SUBSEQUENT PROCEEDINGS BEFORE AO . IN VARIOUS STATEMENTS RECORDED DURING SURVEY, EVASIVE REPLIES WERE GIVEN. NO EXPLANATION WAS GIVEN REGARDING ENTRIES IN VARIOUS DOCUMENTS AND LOOSE PAPERS FOUND DURING THE COURSE OF SURVEY. NO REGULAR BOOKS OF ACCOUNTS WERE MAINTAINED BY APPELLANT. NO BOOKS OF ACCOUNTS WERE FOUND DURING SURVEY WHICH CAN BE CALLED CORREC T AND COMPLETE. IN VIEW OF ALL THESE FACTS, DECISION OF A O TO REFER THE CASE FOR SPECIAL AUDIT U/S 142(2A) IS JUSTIFIED. AO ALSO PROVIDED 7 VARIOUS OPPORTUNITIES TO THE APPELLANT TO EXPLAIN H IS CASE, BUT THERE WAS NOT COMPLIANCE OR PARTIAL COMPLIANCE ONLY. THER EFORE CONTENTION OF THE APPELLANT THAT JUSTICE WAS DENIED BY AO AND THE ASSESSMENT WAS COMPLETED WITHOUT PROVIDING PROPER O PPORTUNITY IS NOT ACCEPTABLE. GROUND NO.1,2 & 3 OF THE APPEAL ARE THUS DISMISSED. 2.7 BEFORE US, THE LD. AR HAS FILED THE WRITTEN SUB MISSIONS WHICH ARE REPRODUCED AS UNDER:- (I) THAT SURVEY OPERATIONS WERE CARRIED ON 1 ST OCT. 2008 AT BUSINESS PREMISES OF SOMANIS GROUP I.E. SOMANI CARRIERS & SOMANI & CO. - PROP. BABULAL SOMANI; SWASTIK STONES PROP.SMT. MEENA SOMANI; AND SWASTI K STONE CRUSHERS PROP.RITESH KUMAR SOMANI WHO ARE FATHER, MOTHER AND SON RESPECTIVELY. (II) DURING SURVEY NOT EVEN SINGLE RUPEE EXTRA MON EY, SINGLE PENNY EXTRA STOCK OR ANY EVIDENCE FOR INVESTMENT (EXCEPT ONE PAPER FO R RS. 30000/- INVESTMENT) BEYOND WHAT IS APPEARING IN BOOKS WERE FOUND. MORE THAN 90 00 PAGES OF ACCOUNTS BOOKS /VOUCHERS /BILLS ETC. WERE IMPOUNDED BY DEPTT. (III) APPELLANTS VIDE THEIR LETTERS DATED 07.10.20 08, 18.03.2009, 25.03.2009, 21.04.2009, 26.08.2009 & 17.09.2009 (PB 15 TO 20 & 22) MADE REQUEST FOR PROVIDING COPIES OF THE IMPOUNDED DOCUMENTS, HOWEVE R TILL 30.04.2010 IT WAS NOT GIVEN. IN THESE REQUESTS LETTER THE APPELLANT HAD R EPEATEDLY STATED THAT IN ABSENCE OF SUCH COPIES IT WAS NOT POSSIBLE FOR HIM TO PROVIDE INFORMATION CALLED FOR BY THE AUTHORITIES, REPLY QUESTIONS POSED FROM THEM BY DEP TT. COMPUTE CONCEALED INCOME, IF ANY, PREPARE RETURN IN COMPLIANCE TO NOTICE U/S 148 AND TO VERIFY IF THERE ARE COMPLEXITIES IN ACCOUNTS WHICH JUSTIFIES APPOINTMEN T OF SPECIAL AUDITORS IN CONSONANCE TO PROVISIONS OF SEC.142(2A) OF THE INCO ME TAX ACT, 1961 ETC.ETC. (IV) DURING 01.10.2008 TO 07.09.2009 THE LEARNED A O DID NOT CALLED ME FOR ANY EXPLANATION ON IMPOUNDED PAPERS. (V) VIDE HIS LETTER NO.2236 DATED 07.09.2009 THE LEARNED AO ASKED ME TO EXPLAIN ON OR BEFORE 17.09.2009 WHY CONSIDERING NAT URE AND COMPLEXITY OF THE ACCOUNTS SEEN IN MY IMPOUNDED RECORDS AND IN THE IN TEREST OF REVENUE MY ACCOUNTS/ IMPOUNDED RECORDS FOR ASS.YEAR 2003-04 TO 2007-08 B E NOT GOT AUDITED U/S 142(2A) OF THE IT ACT, 1961. IT WAS ALSO MENTIONED IN THE L AST PARA OF THIS LETTER THAT THIS IS LAST OPPORTUNITY TO ME AND THAT IF I DID NOT COMPLIED TH IS LETTER THERE SHALL BE NO OPTION BUT TO ASSUME BY HIM THAT I DO NOT HAVE ANY OBJECTION (PB 21). I MAY ADD HERE BEFORE THIS LETTER I NEVER RECEIVED ANY COMMUNICATION FROM LEAR NED AO OR ANY OTHER AUTHORITIES EITHER IN RELATION TO IMPOUNDED PAPERS OR ON MY RET URN OF INCOME FILED. ON 17.09.2009 I WENT TO OFFICE OF THE LEARNED AO TO EX PLAIN HIM THAT THERE WAS NO COMPLEXITY IN MY ACCOUNTS WHICH MAY SUGGEST FOR APP OINTMENT OF SPECIAL AUDITORS U/S 142(2A) HOWEVER I WAS DENIED PERSONAL MEETING A ND THEREFORE I FILED LETTER DATED 17.09.2009 (PB 22) ON SAME DAY AT RECEIPT COUNTER M ENTIONING THEREIN THAT COPIES OF 8 IMPOUNDED PAPERS BE GIVEN TO ME SO THAT I MAY ASCER TAIN FROM THEM IF THERE IS ANY JUSTIFICATION IN APPOINTING AUDITORS U/S 142(2A). T HOUGH DENIAL OF PERSONAL HEARING DOES NOT APPEAR FROM ORDER SHEETS ETC. HOWEVER IT I S EVIDENT FROM INDIRECT EVIDENCES. DURING HEARING OF APPEAL I HAD SUBMITTED SO IN MY L ETTER DATED 04.01.2011 (PB 129) WHICH WAS SUBMITTED TO HONBLE CIT(A) AND COPY OF T HE SAME WAS GIVEN TO LEARNED AO. DURING HEARING OF APPEAL BOTH LEARNED AO AND LE ARNED ADDL.CIT RANGE -2 WERE PRESENT HOWEVER THEY DID NOT OBJECT IT EITHER DURIN G HEARING OF APPEAL OR IN REMAND REPORT. (VI) IN REPLY TO MY LETTER DATED 17.09.2009 I RECE IVED LETTER DATED 17.09.2009 (PB 23) FROM THE LEARNED AO WHEREIN HE MENTIONED MY NON-ATTENDANCE. HE WROTE IN THIS LETTER THAT UNDER SECTION 142(2A) NO WHERE IT IS PROVIDED TO ISSUE ZEROX COPIES OF THE IMPOUNDED RECORDS BEFORE SPECIAL AUDIT. (VII) I RECEIVED LETTER DATED 19.11.2009 (PB 24 TO 26) FROM LEARNED AO WHEREIN HE INTIMATED ME THAT CONSIDERING THE NATURE AND COM PLEXITY OF ACCOUNTS IN MY CASE AND ALSO IN THE INTEREST OF JUSTICE I AM DIRECTED T O GET MY ACCOUNTS FOR ASS.YEAR 2003- 04 TO ASST.YEAR 2008-09 AUDITED U/S 142(2A) FROM SH RI P.KHANDELWAL OF M/S P.KHANDELWAL & CO. WHO HAS BEEN NOMINATED AS SPECIA L AUDITOR BY LEARNED CIT, KOTA. IN THE SAID LETTER TERMS AND REFERENCE OF AUD IT WERE ALSO GIVEN. I MAY MENTION BEFORE SUCH NOMINATION OF SPECIAL AUDITORS NEITHER LEARNED AO NOR HONBLE CIT THOUGHT APPROPRIATE TO APPRISE ME ABOUT ANY COMPLEX ITY IN MY ACCOUNTS WHICH MAY JUSTIFY THIS NOMINATION I MAY ALSO ADD IN HIS LETTE R DATED 07.09.2009 (PB 21) AND ALSO IN ORDER SHEET U/S 142(2A) (PB 27 TO 29) THE LEARNE D AO ASKED MY EXPLANATION FOR AUDIT OF BOOKS OF ACCOUNTS FOR ASST.YEAR 2003-04 TO 2007-08 BUT AUDITORS WERE APPOINTED FOR A.Y. 2008-09 ALSO. (VIII) IN CONSONANCE TO PROVISIONS OF SEC.142(2A) ASSESSEE IS TO GET ACCOUNTS AUDITED FROM SPECIAL AUDITORS AND SUBMIT REPORT IN CONSONANCE TO SEC. 142(2C) WITH IN TIME SPECIFIED BY THE LEARNED AO. TIME LIMIT AS PER LETTER DATED 19.11.2009 WAS 31.12.2009. IN CONSONANCE TO PROVISO TO SEC. 142(2C ) THE LEARNED AO MAY EXTEND TIME EITHER SUO MOTTO OR ON AN APPLICATION MADE IN THIS BEHALF BY THE ASSESSEE FOR ANY GOOD AND SUFFICIENT REASONS. (IX) IN THIS REGARD I REPRODUCE SEC.142(2C) WHICH READS: - (2C) EVERY REPORT UNDER SUB-SECTION (2A) SHALL BE FURNISHED BY THE ASSESSE TO THE [ASSESSING] OFFICER WITHIN SUCH PERIOD AS MAY BE SP ECIFIED BY THE [ASSESSING] OFFICER: PROVIDED THAT THE [ASSESSING] OFFICER MAY, [SUO MOT U, OR] ON AN APPLICATION MADE IN THIS BEHALF BY THE ASSESSEE AND FOR ANY GOOD AND SU FFICIENT REASON , EXTEND THE SAID PERIOD BY SUCH FURTHER PERIOD OR PERIODS AS HE THIN KS FIT; SO, HOWEVER, THAT THE AGGREGATE OF THE PERIOD ORIGINALLY FIXED AND THE PE RIOD OR PERIODS SO EXTENDED SHALL NOT, IN ANY CASE, EXCEED ONE HUNDRED AND EIGHTY DAY S FROM THE DATE ON WHICH THE DIRECTION UNDER SUB-SECTION (2A) IS RECEIVED BY THE ASSESSEE. 9 IN THIS CASE TIME WAS EXTENDED BY THE LEARNED ITO FROM 31.12.2009 TO 28.02.2010, FROM 28.02.2010 TO 28.03.2010 AND FROM 28.03.2010 T O 30.04.2010 (PB 31, 33 & 35) ON REQUEST OF SPECIAL AUDITORS WHICH IS BEYOND PROV ISIONS OF SECTION 142(2C). FROM THESE REQUEST LETTERS OF SPECIAL AUDITOR NO WHERE I T TRANSPIRES THAT EXTENSION WAS SOUGHT BY THEM FOR GOOD AND SUFFICIENT REASONS (PB 30, 32 & 34). BESIDES REQUEST BY SPECIAL AUDITORS FOR EXTENSION OF TIME BEYOND 28.02 .2010 WAS MADE AFTER LAPSE OF TIME AVAILABLE U/S 142(2C) (PB 32). THE LEARNED ITO SUO MOTTO FURTHER EXTENDED TIME FROM 30.04.2010 TO 10.05.2010. (X) THAT AS PER SCHEME OF THE ACT AUDIT U/S 142(2A ) IS TO BE GOT DONE BY AUDITEE. SPECIAL AUDIT IS VERY CLOSE TO INVESTIGATI ON WHEREIN LEARNED SPECIAL AUDITORS MINUTELY EXAMINES EACH IMPOUNDED PAPERS/DO CUMENTS AND THEN FORM HIS OPINION ON SAME. SUCH EXAMINATION THEREFORE NEEDS A SSISTANCE FROM ASSESSEE AND HIS ACCOUNTS STAFF AS WELL. AUDITORS VIDE THEIR LETTER DATED 13.01.2010, 16.03.2010, 08.04.2010 AND 12.04.2010 ASKED ME TO PRODUCE BEFOR E THEM BOOKS OF ACCOUNTS AND COPIES OF IMPOUNDED RECORDS FOR AUDIT AND I VERY EA RNESTLY SUBMITTED THEM VIDE MY LETTERS DATED 21.01.2010, 22.03.2010, 10.04.2010 AN D 16.04.2010 THAT OUR ALL RECORDS ARE IMPOUNDED BY DEPTT. AND THEY HAVE NOT PROVIDED ME COPIES OF THE SAME. I THEREFORE EXPRESSED MY INABILITY IN PRODUCING THE S AME TO THEM FOR AUDIT TILL COPIES OF THE IMPOUNDED PAPERS ARE PROVIDED TO ME. (XI) AS APPEARS FROM LETTER DATED 04.12.2009 AND 2 5.03.2010 (PB 30 & 34) OF SPECIAL AUDITORS ADDRESSED TO THE LEARNED ITO SPECI AL AUDITORS HAVE GONE THROUGH THE IMPOUNDED RECORDS LYING AT OFFICE OF THE LEARNED ITO. FROM THESE LET TERS IT IS VERY CLEAR THAT THEY HAD GONE THROUGH THE RECORDS. THERE WERE MORE THAN 9000 IMPOUNDED PAPERS/PAGES AND WHILE SITTING IN OFFICE OF THE LEA RNED AO WHERE THERE ARE MANY INTERVENTIONS THEREFORE THERE AUDITORS CAN GO THROU GH PAPERS / RECORDS ONLY AND CANNOT DO AUDIT AND THAT TOO SPECIAL AUDIT WHEREIN PAPERS/DOCUMENTS HAVE TO BE DEEPLY LOOKED INTO AND WHICH EXERCISE AS HAS BEEN HELD B Y HONBLE APEX COURT IN SAHARA INDIA CASE (2008) 216 CTR 203 IS MORE OR LESS IN TH E NATURE OF INVESTIGATION AND IN SOME CASES MAY EVEN TURN OUT TO BE STIGMATIC. HOW M ANY PAPERS WERE EXAMINED BY THE LEANED SPECIAL AUDITORS IS UNKNOWN TO ME BECAUS E IT WAS IN BETWEEN HIM AND LEARNED AO ONLY. THERE IS EVERY PROBABILITY THAT HE EXAMINED THOSE PAPERS ONLY WHICH WERE MADE AVAILABLE BY THE LEARNED AO TO HIM. THIS IS INDIRECTLY SUPPORTED WITH THIS FACT THAT EVEN WHEN IMPOUNDED PAPERS WERE EXAMINED BY SPECIAL AUDITOR NEITHER HE NOR LEARNED AO THOUGHT APPROPRIATE TO CA LL ME FOR ASSISTANCE. 2.2 AS SUBMITTED IN PARA 2(VII) ABOVE THE TERMS OF REFERENCES OF AUDIT WERE GIVEN IN LETTER DATED 19.11.2009 WHICH INCLUDES:- (A) TO EXAMINE ALL THE BOOKS OF ACCOUNT, BILLS, VO UCHERS, LOOSE PAPERS, DOCUMENTS, BANK STATEMENTS ETC. AND TO PREPARE CASH INFLOW/ OUTFLOW STATEMENTS, CAS H BOOK, LEDGER, TRIAL BALANCE, FINAL ACCOUNTS I.E. TRADING AND PROF IT AND LOSS ACCOUNT, BALANCE SHEET ETC. FOR DIFFERENT YEARS AS MENTIONED ABOVE WITH 10 THE AIM TO ENABLE THE DEPARTMENT TO ARRIVE AT THE TRUE STATE OF FINANCIAL AFFAIRS OF THE VARIOUS CONCERNS IN WHICH THE ASSESSES IS ASSOCIATE D EITHER AS A PROPRIETOR OR PARTNER (BOTH IN INDIVIDUAL OR HUF CAPACITY) OR A DIRECTOR OF COMPANY . (B) TO LIST ALL THE TRANSACTIONS OF LOANS / DEPOSI TS TAKEN /ACCEPTED BY THE ASSESSEE DURING THE AFORESAID ASSESSMENT YEAR ABOVE RS. 2000 0/- EACH OTHERWISE THAN THROUGH ACCOUNT PAYEE CHEQUE, GIVING SUCH PARTICULARS AS NA ME AND ADDRESS OF THE BORROWER, DATE OF LOAN, PERIOD OF LOAN,, INTEREST RATE, AMOUNT OF INTEREST, DETAILS AND SECURITY, AMOUNT RECEIVED BACK, MODE OF REPAYMENT ETC. (C) TO LIST ALL THE TRANSACTIONS OF LOANS GIVEN BY THE ASSESSEE DURING THE AFORESAID ASSESSMENT YEAR ABOVE RS. 20000/- EACH OTHER WISE T HAN THROUGH ACCOUNT PAYEES CHEQUE, GIVING SUCH PARTICULARS AS NAME AND ADDRESS OF THE BORROWER, DATE OF LOAN, PERIOD OF LOAN, INTEREST RATE, AMOUNT OF INTEREST, DETAILS AND SECU RITY, AMOUNT RECEIVED BACK, MODE OAF REPAYMENT ETC. (D) TO LIST ALL IMMOVABLE PROPERTIES ACQUIRED AND / OR CONSTRUCTED BY THE ASSESSE DURING THE AFORESAID YEARS GIVING, INTER-ALIA, PART ICULARS OF IDENTITY OF BUYER/SELLER ADDRESSED OF THE LOCATION OF THE PROPERTY, DATE OF OCCUPATION, CONSIDERATION, MODE OF PAYMENT ETC. (E) TO REPORT ANY IRREGULARITIES, ILLEGAL OR UNLAW FUL TRANSACTION OR TRANSACTIONS NOT PERMITTED IN THE LAW IF NOTICED IN THE ACCOUNTS SO RECASTED, REFRAMED ON THE BASIS OF ENTRIES AVAILABLE IN THE BOOKS OF ACCOUNTS, LOOSE PAPERS, D OCUMENTS ETC.IMPOUNDED IN THE CASE OF THE ASSESSEE. (F) TO STATE AND REPORT THE INSTANCES OF VIOLATION OF PROVISIONS OF SECTION 269SS, 269T AND 40A(3) OF THE INCOME TAX ACT, 1961. (G) TO REPORT ANY FACTS AND CIRCUMSTANCES WHICH COME TO THE NOTICE OF THE AUDITOR AND WHICH HAVE THE BEARING ON THE DETERMINATION OF INCOME OF THE ASSESEE FOR THE ASSESSMENT YEARS AS AFORESAID . (H) TO ASCERTAIN THE CAPITAL EMPLOYED BY THE ASSES SEE IN VARIOUS VENTURES AND TRANSACTIONS INCLUDING OPENING CAPITAL, CAPITAL INT RODUCED AND CLOSING CAPITAL. (I) TO DRAW THE LIST OF CREDITORS AND DEBTORS IN R ESPECT OF EACH BUSINESS AND PERTAINING TO EACH FINANCIAL YEAR RELEVANT TO THE A SSESSMENT YEARS MENTIONED ABOVE, WHICH HAVE A BEARING OVER THE INCOME AS WELL AS ASSETS BE LONGING TO THE ASSESSEE. (J) TO EXAMINE ENTRIES OF VARIOUS BANK ACCOUNTS OF VARIOUS BUSINESS CONCERNS AND INDIVIDUAL TO FIND OUT THE NATURE OF TRANSACTIONS, WHICH ARE NOT RECORDED OR WHICH HAVE NOT BEEN EXECUTED THROUGH BANKING CHANNELS. 2.3 FROM ABOVE IN GENERAL AND (A), (D) & (J) IN PA RTICULAR IT APPEARS SPECIAL AUDITORS WERE APPOINTED WITH AN INTENTION TO SHIFT RESPONSIBILITY OF THE LEARNED AO TO COMPUTE CORRECT TAXABLE INCOME TO THE SPECIAL AUDIT ORS. AS APPEARS FROM ORDER SHEET RELATING TO SPECIAL AUDIT THE HONBLE CIT ALS O DID NOT THOUGHT APPROPRIATE TO UNDERSTAND WHETHER THERE WAS REALLY COMPLEXITY IN A CCOUNTS WHICH MAY SUGGEST APPOINTMENT U/S 142(2A) BESIDES FROM THIS ORDER SHE ET IT ALSO DOES NOT TRANSPIRES THAT 11 HOW THE INTEREST OF REVENUE SHALL BE SUB-SERVED WIT H APPOINTMENT OF SPECIAL AUDITORS (PB 27 TO 29). 2.4 THE HONBLE CALCUTTA HIGH COURT IN WEST BENGAL STATE CO-OPERATIVE BANK LTD. VS. JOINT COMMISSIONER OF INCOME TAX & OR S. (2004) 190 CTR (CAL) 245 . WHILE DISCUSSING COMPLEXITY OF THE ACCOUNTS HAS HELD:- AUDIT SPECIAL AUDIT UNDER S. 142(2A) - CONDITION S PRECEDENT ASSESSEE-CO OPERATIVE BANKS ACCOUNTS ALREADY AUDITED NOT ONLY UNDER S.44A B BUT ALSO BY THE DIRECTORATE OF CO- OPERATIVE AUDIT APPOINTED BY THE STATE GOVERNMENT NEITHER BOOKS OF ASSESSEE EXAMINED BY AO SO AS TO FORM AN OPINION AS REGARDS COMPLEXIT Y OF ACCOUNTS NOR OPPORTUNITY OF HEARING GIVEN WHICH WAS NECESSARY IN VIEW OF CIVIL CONSEQUENCES OF ORDER UNDER S.142(2A) CIT GRANTING APPROVAL IN A MECHANICAL WAY ORDER OF AO UNDER S. 142(2A) AND APPROVAL OF CIT INVALID, HENCE QUASHED. BEFORE HE COMES TO THE CONCLUSION, AS TO THE NATURE AND COMPLEXITY OF THE ACCOUNTS, HE SHALL MAKE A GENUINE AND HONEST ATTEMPT TO UNDERSTA ND THE ACCOUNTS OF THE ASSESSEE AND APPRECIATE THE ENTRIES THEREIN AND IN CASE OF DOUBT , HE SHOULD SEEK EXPLANATION FROM THE ASSESSEE OR HIS REPRESENTATIVE. A CURSORY LOOK AT T HE BOOKS OF ACCOUNT IS NOT SUFFICIENT FOR FORMATION OF OPINION BY THE AO FOR EXERCISE OF POWE R UNDER S. 142(2A) OF THE SAID ACT. HIS OPINION MUST BE BASED UPON OBJECTIVE CONSIDERATIONS AND NOT ON THE BASIS OF SUBJECTIVE SATISFACTION. NATURALLY THE AO MUST HAVE OCCASION A ND OPPORTUNITY TO EXAMINE THE ACCOUNTS OF THE ASSESSEE TO FORM HIS OPINION. THEREFORE, I CONCLUDE THAT THE AO WITHOUT EXAMINING THE BOOKS OF ACCOUNT HAS FORMED HIS OPINION REGARDING THE NATURE AND COMPLEXITY AND THE CIT, OVERLOOKING THIS SERIOUS LEGAL LAPSE, HAS MECHANICALLY APPROVED. IT IS TRUE THEY H AVE MATERIAL, BUT WITH THESE MATERIALS NO ONE CAN REASONABLY AND RATIONALLY FORM AN OPINIO N. IN HIS PROPOSAL, HE HAS NOT STATED HOW THE INTEREST OF THE REVENUE WILL BE SUB SERVED WITH SUCH SPECIAL AUDIT. IN MY VIEW INFERENCE AND/OR PRESUMPTION CANNOT B E THE BASIS FOR FORMATION OF AN OPINION . 2.5 HONBLE APEX COURT IN SAHARA INDIA (2008) 216 CTR 302 WHILE DEALING WITH THE PROVISIONS OF SEC.142(2A) HAD HELD AS UNDE R:- THUS, BEFORE DUBBING THE ACCOUNTS TO BE COMPLEX OR DIFFICULT TO UNDERSTAND, THERE HAS TO BE A GENUINE AND HONEST ATTEMPT ON THE PART OF THE AO TO UNDERSTAND ACCOUNTS MAINTAINED BY THE ASSESSEE; APPRECIATE THE ENTRIES MADE THEREIN AND IN THE EVENT OF ANY DOUBT, SEEK EXPLANATION FROM THE ASSESSEE, BUT OPINION REQUIRED TO BE FORMED BY THE AO FOR EXERCISE OF POWER UNDER THE SAID PROVISI ON MUST BE BASED ON OBJECTIVE CRITERIA AND NOT ON THE BASIS OF SUBJECTIVE SATISFA CTION. THERE IS NO GAINSAYING THAT RECOURSE TO THE SAID PROVISION CANNOT BE HAD BY THE AO MERELY TO SHIFT HIS RESPONSIBILITY OF SCRUTINIZING THE ACCOUNTS OF AN A SSESSEE AND PASS ON THE BUCK TO THE SPECIAL AUDITOR. SIMILARLY, THE REQUIREMENT OF PREV IOUS APPROVAL OF THE CHIEF CIT OR THE CIT IN TERMS OF THE SAID PROVISION BEING AN INB UILT PROTECTION AGAINST ANY ARBITRARY OR UNJUST EXERCISE OF POWER BY THE AO, CA STS A VERY HEAVY DUTY ON THE SAID NIGH RANKING AUTHORITY TO SEE TO IT THAT THE REQUIR EMENT OF THE PREVIOUS APPROVAL, 12 ENVISAGED IN THE SECTION IS NOT TURNED INTO AN EMPT Y RITUAL. NEEDLESS TO EMPHASIZE THAT BEFORE GRANTING APPROVAL, THE CHIEF CIT OR THE CIT, AS THE CASE MAY BE, MUST HAVE BEFORE HIM THE MATERIAL ON THE BASIS WHEREOF A N OPINION IN THIS BEHALF HAS BEEN FORMED BY THE AO. THE APPROVAL MUST REFLECT THE APP LICATION OF MIND TO THE FACTS OF THE CASE. 2.6 FROM LETTERS DATED 07.09.2009 AND 17.09.2009 ( PB 21 & 23) IT APPEARS THAT THE LEARNED ITO WAS VERY SURE THAT THERE SHALL BE A PPOINTMENT OF SPECIAL AUDITORS, COPIES OF IMPOUNDED PAPERS SHALL NOT BE GIVEN TO ME TO ENABLE ME TO GET IT AUDITED FROM SPECIAL AUDITORS BUT AUDITORS SHALL GO THROUGH RECORDS IN INCOME TAX OFFICE, HIS GO THROUGH TO THE RECORDS SHALL BE LIMITED TO T HOSE PAPERS ONLY WHICH SHALL BE THOUGHT APPROPRIATE BY THE LEARNED AO, PERIOD FOR S UBMISSION OF REPORT BY AUDITORS SHALL BE EXTENDED AGAIN AND AGAIN AND THAT AFTER CO MPLETION OF AUDIT ONLY FOR EYEWASH COPIES OF IMPOUNDED RECORDS SHALL BE GIVEN TO ME. I T APPEARS IT WAS COLLUSION WHEREIN UNFORTUNATELY AUDITORS ALSO SUPPORTED DEPTT. SUPPOR TED BECAUSE HONBLE SPECIAL AUDITORS WERE WELL AWARE OF AUDIT ETHIC AND WHEN IT WAS NOT POSSIBLE FOR HIM TO CONDUCT AUDIT IN PRESENCE OF AUDITEE, HE COULD HAVE REFUSED FOR THE SAME. NORMALLY AFTER VERIFICATION OF PAPERS/ DOCUMENTS AUDITORS PL ACE THEIR IDENTIFICATION MARK THEREON TOGETHERWITH THEIR SEAL TO ENABLE HIM TO JU STIFY THAT WHO HAD VERIFIED A PARTICULAR PAPER, HOWEVER FROM THE ZEROX COPIES OF THE IMPOUNDED PAPERS IT APPEARS THAT HE HAS NOT DONE SO IN THIS CASE WHICH SUPPORTS THAT NO VERIFICATION OF RECORDS AND EVEN IMPORTANT PAPERS WAS MADE BY HIM. SIMPLY SOME PAPERS APPEARS TO BE SHOWN TO AUDITORS BY LEARNED AO OR IT MAY BE THAT SPECIAL AU DITORS MIGHT BE BRIEFED BY LEARNED AO AS TO SOME IMPORTANT PAPERS. 2.7 I SUBMIT AS PER TERMS AND REFERENCE ASSIGNED J OB OF AUDITORS NARRATED IN PARA 2.2(A) ABOVE INCLUDES PREPARATION OF CASH INFL OW/ OUTFLOW STATEMENTS, CASH BOOK, LEDGER, TRIAL BALANCE, FINAL ACCOUNTS I.E. TRADING AND PROFIT AND LOSS ACCOUNT, BALANCE SHEET ETC. FOR DIFFERENT YEARS WITH THE AIM TO ENAB LE THE DEPARTMENT TO ARRIVE AT THE TRUE STATE OF FINANCIAL AFFAIRS OF THE VARIOUS CONC ERNS IN WHICH THE ASSESSES IS ASSOCIATED EITHER AS A PROPRIETOR OR PARTNER (BOTH IN INDIVIDUAL OR HUF CAPACITY) OR A DIRECTOR OF COMPANY AUDITORS JOB, WITH RESPECT, DOE S NOT INCLUDES ALL THIS, HE IS NOT SUPPOSED TO PREPARE CASH BOOK, LEDGER, TRIAL BALANC E, ETC. 2.8 WHILE DECIDING THE ISSUE SIMILAR TO US HONBLE ITAT JODHPUR BENCH IN BAJRANG TEXTILES VS. DY.CIT (2004) 83 TTJ 566 (JD) WHILE TAKING SUPPORT FROM THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN SWADESH I COTTON MILLS CO. LTD. VS. CIT (1985) 171 ITR 634 (ALL) HELD THAT ONLY VOLUMIN OUS RECORDS OR THAT TIME FOR GATHERING OF INFORMATIONS CANNOT BE EQUATED TO THE COMPLEXITY IN ACCOUNTS. THE HONBLE BENCH FURTHER HELD THAT TO PREPARE CASH BOO K, LEDGER, TRADING & P&L A/C ETC IS NOT THE SUBJECT OF SPECIAL AUDITORS. 2.9 THIS DECISION WAS AFFIRMED BY RAJASTHAN HIGH C OURT IN CIT VS. BAJRANG TEXTILES (2006) 205 CTR 287 (RAJ). THE HONBLE COUR T HELD- THE TRIBUNAL FOUND THAT MERELY BECAUSE ACCOUNTS AN D DOCUMENTS WERE VOLUMINOUS, IT IS NOT TAKEN TO ASSUME COMPLEXITY SO AS TO INVOKE THE PROVISIONS OF S.142(2A) OF THE IT ACT AS 13 A MATTER OF COURSE. THE TRIBUNAL ALSO NOTICED THAT THE AO HAS NOT MERELY REFERRED THE ACCOUNTS TO BE AUDITED UNDER SPECIAL AUDIT BY AN AU DITOR NAMED BY HIM, BUT HE HAS DIRECTED THE SPECIAL AUDITOR TO PREPARE THE BOOKS OF ACCOUN T IN THE FORM OF CASH BOOK, LEDGER, ON THE BASIS OF DOCUMENTS/PAPERS SEIZED DURING THE COURSE OF SEARCH AS PER HIS DIRECTIONS. THE AUDITOR WAS ALSO REQUIRED TO PREPARE TRADING, P&L A /C, WHICH WERE RECORDED IN THE REGULAR BOOKS OF ACCOUNT AND FURTHER TO DETERMINE THE UNDIS CLOSED INCOME OF THE BLOCK PERIOD. APPARENTLY THE ORDER WAS FOR PREPARING FRESH BOOKS RATHER THEN TO CONDUCT A SPECIAL AUDIT. THIS WAS ON THE FACE, OF IT BEYOND THE SCOPE OF PRO VISIONS OF S. 142(2A) OF THE IT ACT. NO AUTHORITY HAS BEEN GIVEN TO THE AO TO DIRECT THE PR EPARATION OF FRESH BOOKS BY REFERRING THE MATTER TO AN AUDITOR UNDER SPECIAL AUDIT. AUDIT IS FOR THE PURPOSE OF SATISFYING ONE ABOUT AUTHENTICITY AND CREDIBILITY OF ACCOUNTS PREPARED B Y THE ASSESSEE BUT NOT FOR PREPARING NEW ACCOUNT BOOKS AS PER DIRECTIONS OF AOS. APPARENTLY THE TRIBUNAL FOUND THAT IT WAS ABUSE OF PROCESS BY THE AO. THE FINDINGS GIVEN BY THE TRIBUN AL ARE FINDINGS OF FACT BASED UPON THE RELEVANT MATERIAL. 2.10 REPORT OF SPECIAL AUDITORS FOR ASS.YEAR 2003- 04 TO 2008-09 IS AT PB 37 TO 56 OF WHICH REPORTS FOR ASS.YEAR 2003-04 TO 2005-06 ARE REPRODUCED BELOW:- COMMENTS & OBSERVATIONS OF THE AUDITORS APPOINTED U /S 142(2A) FOR THE ASSESSMENT YEAR 2003-04 & 2004-05 WE HAVE BEEN APPOINTED AUDITORS U/S 142(2A) BY THE WORTHY CI T, KOTA VIDE HIS OFFICE LETTER NO. CIT/KOTA/ITO(T)/2009-10/2540 DATED 13.11.20 09. AFTER EXAMINING THE IMPOUNDED BOOKS AND DOCUMENTS LYING WITH THE INCOME TAX OFFICER, WARD-2 (1), KOTA OUR COMMENTS AND OBSERVATION ARE AS FOLLOWS:- 1. LETTERS OF REQUIREMENT OF DOCUMENTS, INFORMATION AND EXPLANATION WERE SENT ON 13.01.2010, 16.03.2010, 08.04.2010 &12.04.2010. THE ASSESSEE REPLIED VIDE HIS LETTER DATED 21.01.2010, 25.01.2010, 22.03.2010, 10.04.2010 & 16.04.2010 SUB MITTED THAT REGULAR BOOKS OF ACCOUNTS FOR THE PERIOD HAVE BEEN IMPOUNDED DURING THE SURVEY AND LYING IN THE INCOME TAX DEPARTMENT. REGULAR BOOKS OF ACCOUNT ARE NOT AVAILABLE FOR A UDIT. UNDER SUCH CIRCUMSTANCES, WE ARE UNABLE TO PREPARE AND SUBMIT SPECIAL AUDIT REPORT FO R THE GIVEN PERIOD BUT COMMENTS AND OBSERVATIONS HAVE BEEN PREPARED AFTER EXAMINING THE IMPOUN DED RECORDS WITH THE DEPARTMENT. 2. GRIT SALES AGGREGATING TO RS. 1102817/-, RELATING TO ASS.YEAR 2003-04, AS PER LOOSE PAPER NO. 143 TO 151 OF ANNEXURE NO. 43 IS SUBJECT TO VERIFICATION AT YOUR END. THANKING YOU, YOURS FAITHFULLY, SD/- (P.KHANDELWAL) CHARTERED ACCOUNTANT 14 COMMENTS & OBSERVATIONS OF THE AUDITORS APPOINTED U/S 142(2A) FOR THE ASSESSMENT YEAR 2005-06 WE HAVE BEEN APPOINTED AUDITORS U/S 142(2A) BY THE WORTHY CI T, KOTA VIDE HIS OFFICE LETTER NO. CIT/KOTA/ITO(T)/2009-10/2540 DATED 13.11.2009. AFTER EXAMINING THE IMPOUNDED BOOKS AND DOCUMENTS LYING WITH THE INCOME TAX OFFICER, WARD-2(1), KOT A OUR COMMENTS AND OBSERVATION ARE AS FOLLOWS:- 1. LETTERS OF REQUIREMENT OF DOCUMENTS, INFORMATION AND EXPLANATION WERE SENT ON 13.01.2010, 16.03.2010, 08.04.2010 &12.04.2010. THE ASSESSEE REPLIED VIDE HIS LETTER DATED 21.01.2010, 25.01.2010, 22.03.2010, 10.04.2010 & 16.04.2010 SUB MITTED THAT REGULAR BOOKS OF ACCOUNTS FOR THE PERIOD HAVE BEEN IMPOUNDED DURING THE SURVEY AND LYING IN THE INCOME TAX DEPARTMENT. REGULAR BOOKS OF ACCOUNT ARE NOT AVAILABLE FOR A UDIT . UNDER SUCH CIRCUMSTANCES, WE ARE UNABLE TO PREPARE AND SUBMIT SPECIAL AUDIT REPORT FO R THE GIVEN PERIOD BUT COMMENTS AND OBSERVATIONS HAVE BEEN PREPARED AFTER EXAMINING THE IMPOU NDED RECORDS WITH THE DEPARTMENT . 2. GRIT AND /OR SAND SALES HAVE BEEN MADE TO FOLLOWING PA RTIES AS PER ANNEXURE NO.41(LOOSE PAPERS) OF IMPOUNDED DOCUMENTS. THUS THE SAME IS SUBJECT TO VERIFICATION AT YOUR END. LOOSE PAPER NO. PARTY NAME PERIOD SALES (AMOUNT) OPENING BALANCE 62 JANTA CONSTRUCTION CO.BUNDI 16.03.05 TO 31.03.05 33492 335627 70 & 71 JANTA CONSTRUCTION CO.BUNDI 16.01.05 TO 31.01 .05 128819 72 JANTA CONSTRUCTION CO.BUNDI 16.11.04 TO 30.11.04 54037 73 JANTA CONSTRUCTION CO.BUNDI 01.12.04 TO 15.12.04 67175 74 & 75 JANTA CONSTRUCTION CO.BUNDI 01.11.04 TO 15.11 .04 109839 1216 76 JANTA CONSTRUCTION CO.BUNDI 01.01.05 TO 15.01.05 6050 77 JANTA CONSTRUCTION CO.BUNDI 01.02.05 TO 15.02.05 83940 78 & 79 JANTA CONSTRUCTION CO.BUNDI 16.02.05 TO 28.02 .05 126554 39076 80 & 81 JANTA CONSTRUCTION CO.BUNDI 01.03.05 TO 15.03 .05 169997 97 & 98 01.02.05 TO 15.02.05 115700 TOTAL: 895603 375919 3. NO EXPLANATION/VERIFICATION IS AVAILABLE, ABOUT THE CLOS ING STOCK OF RS. 228200/- APPEARING IN LOOSE PAPER NO.45 ANNEXURE NO. 23 OF IMPOUNDED BOOKS, WHICH IS OF RS. 244200/- IN BALANCE SHEET. THANKING YOU, YOURS FAITHFULLY, SD/- (P.KHANDELWAL) CHARTERED ACCOUNTANT FROM THESE REPORTS YOU WILL PLEASE FIND THAT AUDIT ORS HAVE GATHERED INFORMATIONS FOR LEARNED AO TO ENABLE HIM TO TAKE DECISION ON THOSE INFORMATIONS. WE WITH RESPECT SUBMIT IT NEITHER REFLECTS ANY COMPLEXITY IN ACCOUN TS NOR IT JUSTIFIES ROLE OF THE SPECIAL AUDITORS IN TERMS OF PROVISIONS OF SEC.142( 2A). 15 2.11 AS MENTIONED IN THE LEARNED AOS APPOINTMENT L ETTER DATED 19.11.2009 THE AUDITORS WERE TO GIVE THEIR REPORT BY 31.12.2009. U/S 142(2C ) SUCH PERIOD CAN BE EXTENDED BY THE AO EITHER SUO MOTO OR ON REQUEST OF THE ASSESSE E FOR ANY GOOD AND SUFFICIENT REASONS. HOWEVER, IT CAN NOT BE EXTENDED ON REQUEST OF AUDITORS. BUT IN THIS CASE PERIOD WAS EXTENDED FROM 31.12.2009 TO 28.02.2010, FROM 28.02.2010 TO 28.03.2010 AND FROM 28.03.2010 TO 30.04.2010 ON REQUEST OF AUD ITORS WHICH IS WITNESSTH FROM LETTERS DATED 21.12.2009 & 04.03.2010 OF THE LEARNE D AO (PB 30 & 32). I MAY FURTHER MENTION SECOND EXTENSION IS REQUESTED BY AUDITORS A FTER LAPSE OF TIME AVAILABLE TO HIM. 2.12 FROM MY AFORESAID SUBMISSIONS IT IS EVIDENT TH AT:- (I) DURING SURVEY NO EXTRA MONEY / EXCESS STOCK / A DDITIONAL INVESTMENT OTHER THAT WHAT IS INCORPORATED IN BOOKS WAS FOUND; (II) INSPITE OF REPEATED REQUESTED COPIES OF IMPOUN DED PAPERS WERE NOT GIVEN TO ME FOR 18 MONTHS; (III) DURING 02.10.2008 TO 07.09.2009 THE LEARNED A O DID NOT CALL ME TO ASSIST HIM TO EXPLAIN ANY COMPLEXITY IN IMPOUNDED PAPERS OR PAPER S ATTACHED WITH ROI FILED. (IV) ON 17.09.2009 WHEN I WENT TO THE OFFICE OF THE LEARNED AO FOR EXPLAINING COMPLEXITY IN ACCOUNTS IN CONTEXT OF HIS LETTER DATED 07.09.20 09 (PB 21) I WAS DENIED PERSONAL ATTENDANCE BY LEARNED AO; (V) NO COMPLEXITY IN ACCOUNTS WAS JUDGED BY LEARNED AO OR HONBLE CIT BEFORE APPOINTMENT U/S 142(2A); (VI) AUDIT WAS CONDUCTED AT INCOME TAX OFFICE IN MY ABSENCE AND THEREFORE I WAS DENIED OPPORTUNITY TO EXPLAIN THE DOCUMENTS /ACCOUNTS (PB 30 TO 34); (VII) IMPOUNDED PAPERS WERE GIVEN TO ME ON 01.05.20 10 IN SUCH A SHAPE THAT I COULD NOT SYSTEMATICALLY ARRANGE THEM FOR COUPLE OF WEEKS AND THEREFORE I COULD NOT OFFER ANY EXPLANATION TO SPECIAL AUDITORS ON HIS QUESTIONNAIR E VIDE LETTER DATED 12.04.2010 ( PB 227 TO 231). (VIII) FROM AUDIT REPORTS IT IS CRYSTAL CLEAR THAT THERE WAS NO COMPLEXITY IN MY ACCOUNTS; (IX) THE QUESTIONNAIRE DATED 26.05.2010 (PB 78,82, 86 & 87, 91 TO 95, 102 TO 107 & 111 TO 119) OF LEARNED AO APPEARS TO BE FULLY BASED ON QUESTIONNAIRE DATED 12.04.2010 FROM SPECIAL AUDITORS (PB 227 TO 231) WHICH STRENGT HS OUR SUBMISSION THAT AUDITORS WERE APPOINTED TO SHIFT RESPONSIBILITY OF LEARNED A O TO HIM. (X) THOUGH THE LEARNED AO HAS QUOTED 3 INSTANCES OF NON COOPERATION IN BODY OF HIS ASSESSMENT ORDER OF WHICH IN FIRST INSTANCE I DID NOT REPLIED IN WRITING BUT TELEPHONICALLY MY COUNSEL HAD SUBMITTED TO LEARNED AO THAT RETURN HAS BEEN FILED IN HIS WARD ON 31.03.2009 MANUALLY. SECOND INSTANCE WA S DUE TO ILLNESS OF SHRI BABU 16 LAL SOMANI AND THIRD I HAD VISITED OFFICE OF THE LE ARNED AO BUT LEARNED AO DID NOT ALLOWED ME TO ENTER IN HIS CHAMBER. 2.13 FROM ABOVE IT IS CLEAR THAT PURPOSE OF APPOINT MENT OF SPECIAL AUDITORS U/S 142(2A) WAS TWO FOLD - (I) THAT HE SHOULD ASSIST LEARNED AO IN COMPUTING CONCEALED INCOME; AND (II) TIME AVAILABLE U/S 153(2) IS GOT EXTENDED . 2.14 IN VIEW OF AFORESAID SUBMISSIONS AND ALSO IN L IGHT OF DECISION OF HONBLE JODHPUR ITAT BENCH IN BAJRANG TEXTILES VS. DY CIT WHICH IS AFFIRMED BY, HONBLE RAJASTHAN HIGH COURT IN BAJRANG TEXTILE (SUPRA) AND ALSO DECISION OF HONBLE APEX COURT SAHARA INDIA (SUPRA) I REQUEST ORDERS FROM AS S.YEAR 2003-04 TO 2008-09 DESERVES ANNULMENT AND THEREFORE I PRAY FOR THE SAM E. 2.8 ON THE OTHER HAND, THE LD. DR SUBMITTED THAT TH E AO GAVE THE OPPORTUNITY TO THE ASSESSEE BEFORE REFERRING THE MATTER OF SPECIAL AU DIT TO THE LD. CIT, KOTA. THE ASSESSEE HAS NOT AVAILED THE OPPORTUNITY. THE ASSESSEE WAS N OT AT ALL COOPERATIVE DURING THE COURSE OF SURVEY OR ASSESSMENT PROCEEDINGS. IT WAS FURTHER SUBMITTED THAT PROVISO TO SECTION 142(2A) IS CLARIFICATORY AND THEREFORE, THE AO WAS HAVING JURISDICTION TO EXTEND THE DATE OF FILING OF AUDIT REPORT ON THE BASIS OF THE SUFFI CIENT REASONS. 2.9 WE HAVE HEARD BOTH THE PARTIES. THE AO IN HIS A SSESSMENT ORDER HAS MENTIONED THAT THE ASSESSEE WAS NEITHER COOPERATIVE DURING TH E COURSE OF SURVEY NOR DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE AO HAS REFERR ED TO THE STATEMENT RECORDED AT THE TIME OF SURVEY. AS PER ASSESSMENT ORDER, THE DATE O F STATEMENT IS 14 TH OCT. 2008 WHILE SURVEY WAS CARRIED OUT ON 01-10-2008. THUS THE ASS ESSEE WAS NOT ABLE TO EXPLAIN THE DETAILS CONTAINED IN THE BOOKS OF ACCOUNTS. THE LD. AR HAS NOT FILED THE COPY OF THE STATEMENT. WE HAVE GONE THROUGH THE STATEMENT OF FA CTS FILED BEFORE THE LD. CIT(A). IN THIS STATEMENT OF FACTS, IT IS NOWHERE MENTIONED TH AT THE ASSESSEE WAS COOPERATIVE DURING THE COURSE OF SURVEY. IT IS TRUE THAT THE IN THE S TATEMENTS OF FACTS, IT IS MENTIONED THAT COPIES OF THE STATEMENTS DURING SURVEY WERE NOT PRO VIDED TO HIM. THE COPY OF LETTER DATED 7-10-2008, WHICH IS AVAILABLE AT PAPER BOOK PAGE 15 , SHOW THAT SHRI BABU LAL SOMANI ON 17 BEHALF OF M/S. SOMANI & COMPANY REQUESTED THE AO TO GIVE COPIES OF THE LOOSE PAPERS AND THE BOOKS IMPUNDED DURING THE COURSE OF SURVEY SO THAT REPLY CAN BE GIVEN TO THE QUESTIONS RAISED BY THE AO. THIS IS NOT A LETTER FR OM THE ASSESSEE BUT THE LETTER IS FROM M/S. SOMANI & COMPANY. THE ASSESSEE IS PROP. OF M/S . SWASTIK STONE CRUSHER. PAGE 16 OF THE PAPER BOOK CONTAINS THE COPY OF LETTER SENT BY SHRI BABU LAL SOMNAI TO THE AO AND THIS LETTER HAS BEEN SHOWN TO HAVE BEEN RECEIVE D BY THE OFFICE OF THE ITO ON 18-03- 2009. VIDE THIS LETTER, SHRI B.L. SOMANI MADE A REQ UEST TO GET THE PHOTOSTAT COPIES AND THE LOOSE PAPERS INCLUDED IN ANNEXURE 18, 23, 39, 4 0, 41, 42, 43, 48 , 56 AND 11 RELATING TO M/S. SOMANI & COMPANY. THE LOOSE PAPERS OF ANNEX URE A-4 RELATE TO M/S. SWASTIK STONE CRUSHER. THIS LETTER HAS BEEN SIGNED BY SHRI BABU LAL SOMANI ON THE LETTER HEAD OF SOMANI & COMPANY. VIDE THIS LETTER, A REQUEST WAS M ADE TO GET THE PHOTOSTAT COPY OF LEDGER AND CASH BOOK OF M/S. SWASTIK STONE CRUSHER FOR THE FINANCIAL YEAR 2006-07. IN THIS LETTER, SHRI BABU LAL SOMANI ALSO MADE A REQUE ST FOR GETTING THE COPIES OF CRUSHER DIARY, LEDGER OF DEEPAK STONE, CASH BOOK OF 2003-04 AND LEDGER FROM 21-04-02 TO 5-1-09. ALL THESE DOCUMENTS HAVE BEEN MENTIONED RELATING TO M/S. SOMANI & COMPANY. THE PHOTOSTAT COPY OF LETTER SIGNED BY SHRI BABU LAL SO MANI ON THE LETTER HEAD OF M/S. SOMANI & CO. DATED 25-03-09 IS AVAILABLE AT PAGE 1 8 OF THE PAPER BOOK. IN THIS LETTER, THE REQUEST HAS BEEN MADE TO GIVE PHOTOSTAT COPY OF THE DOCUMENTS MENTIONED AT SERIAL NO. 1 TO 9. THE ASSESSEE SHRI RITESH SOMANI VIDE LETTER D ATED 21-04-09 REQUESTED THE AO TO PROVIDE THE PHOTOSTAT COPY OF THE BOOKS OF ACCOUNTS SEIZED AND TO GIVE COPIES OF THE STATEMENT RECORDED. AGAIN A REQUEST WAS MADE VIDE L ETTER DATED 26-08-2009. THE AO VIDE LETTER DATED 17 TH SEPT. 2009 GAVE AN OPPORTUNITY TO THE ASSESSEE TO SHOW CAUSE AS TO WHY MATTER BE NOT REFERRED TO SPECIAL AUDIT. PAGE 22 O F THE PAPER BOOK CONTAINS THE LETTER DATED 18 17-09-2009 OF THE ASSESSEE IN WHICH THE ASSESSEE SU BMITTED THAT PHOTOSTAT COPIES OF THE DOCUMENTS BE GIVEN AND THEREAFTER SOME TIME SHOULD BE PROVIDED SO AS TO ENABLE THE ASSESSEE TO EXPLAIN AS TO WHETHER THE SPECIAL AUDIT IS NEEDED OR NOT. PAGE 23 OF THE PAPER BOOK CONTAINS THE LETTER DATED 17-09-2009 ISSUED BY THE AO. IN THIS LETTER, THE AO HAS MENTIONED THAT NONE HAS ATTENDED THE PROCEEDINGS I N RESPONSE TO LETTER DATED 7 TH SEPT. 2009. THE AO ALSO INFORMED THE ASSESSEE THAT THE IM POUNDED DOCUMENTS WERE SHOWN TO THE ASSESSEE AS AND WHEN THE ASSESSEE ATTENDED THE PROCEEDINGS IN RESPONSE TO THE SUMMON ISSUED U/S 131 OF THE ACT. THE ASSESSEE WAS ASKED TO INSPECT THE DOCUMENTS AND SUCH REQUEST OF THE AO WAS NOT AVAILED OF BY THE AS SESSEE. IT IS INTERESTING TO NOTE THAT AO ISSUED NOTICE U/S 148 OF THE ACT AND THE IN RESP ONSE TO THAT NOTICE THE ASSESSEE STATED THAT ORIGINAL RETURN SHOULD BE TREATED AS A RETURN FILED IN RESPECT OF NOTICE U/S 148 OF THE ACT. WHEN THE NOTICE U/S 148 OF THE ACT IS ISSUED A FTER RECORDING THE REASONS AND THAT TOO ONLY ON THE BASIS OF THE DOCUMENTS FOUND DURING THE COURSE OF SURVEY, IT WAS THE DUTY OF THE ASSESSEE TO DISCLOSE THE CORRECT RETURN IN RESP ONSE TO NOTICE U/S 148 OF THE ACT. THE FILING OF LETTER IN WHICH IT WAS STATED THAT ORIGIN AL RETURN BE TREATED AS RETURN IN RESPONSE TO NOTICE U/S 148 OF THE ACT MEANS THAT THOUGH THERE A RE ITEMS OF INCOME IN IMPOUNDED THE DOCUMENTS WHICH COULD BE CONSIDERED FOR THE PURPOSE OF ESCAPED INCOME. PAGE 79 TO 81 OF THE PAPER BOOK CONTAINS THE LETTER DATED 06-06-2 010 ADDRESSED TO THE AO. IN THIS LETTER, IT IS MENTIONED THAT THE ASSESSEE HAS ALREADY SURRE NDERED THE AMOUNT OF RS. 2,78,381/- IN THE YEAR UNDER ASSESSMENT AND PROFIT IS GENERATED FROM THE BUSINESS ACTIVITY. SO ANY LAPSE IN ACCOUNTS OR OTHER INFORMATION IS COVERED BY THE SURRENDER MADE BY THE ASSESSEE. IN THE ORIGINAL RETURN , THE NET PROFIT WAS ONLY RS. 69,15 0/-. PAGE 24 TO 26 OF THE PAPER BOOK CONTAINS THE COPY OF THE LETTER ADDRESSED BY THE AO TO THE ASSESSEE. IN THIS LETTER, THE AO 19 HAS INTIMATED THAT SPECIAL AUDIT IS TO BE CARRIED O UT KEEPING IN VIEW THE PROVISIONS OF RULE 14A AND SECTION 142(2A) WITH TERMS OF REFERENCE MEN TIONED IN THAT LETTER. THE TERMS OF REFERENCE CLEARLY INDICATE THAT THE AO APPLIED HIS MIND BEFORE REFERRING THE MATTER FOR THE SPECIAL AUDIT. 2.10 BEFORE US, THE LD. AR HAS RELIED UPON THE DECI SION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BAJRANG TEXTILES (SUPR A). IN THIS CASE, THE AO ISSUED THE DIRECTIONS TO GET THE ASSESSEE'S ACCOUNTS AUDITED O N 29 TH DEC. 1999 WHEN ONLY ONE DAY WAS LEFT FOR COMPLETION OF THE BLOCK ASSESSMENT. TH E AO ALSO DIRECTED THE SPECIAL AUDITOR TO PREPARE THE BOOKS OF ACCOUNTS IN THE FORM OF CAS H BOOK, LEDGER ON THE BASIS OF THE DOCUMENTS/ PAPERS SEIZED DURING THE COURSE OF SEARC H AS PER HIS DIRECTIONS. THE AUDITOR WAS ALSO REQUIRED TO PREPARE THE TRADING AND PROFIT AND LOSS ACCOUNT WHICH WERE RECORDED IN THE REGULAR BOOKS OF ACCOUNT AND FURTHER TO DETE RMINE THE UNDISCLOSED INCOME OF THE BLOCK PERIOD. THE HON'BLE HIGH COURT OBSERVED THAT APPARENTLY THE ORDER WAS FOR PREPARING FRESH BOOKS RATHER THAN TO CONDUCT THE SP ECIAL AUDIT. HON'BLE HIGH COURT OBSERVED THAT NO AUTHORITY HAS BEEN GIVEN TO THE AS SESSEE TO DIRECT THE PREPARATION OF FRESH BOOKS BY REFERRING THE MATTER TO THE AUDITOR UNDER SPECIAL AUDIT. THE AUDIT IS FOR THE PURPOSE OF SATISFYING ONE ABOUT THE AUTHENTICITY AN D CREDIBILITY OF THE ACCOUNTS PREPARED BY THE ASSESSEE BUT NOT FOR PREPARING THE NEW ACCOU NT BOOKS AS PER DIRECTION OF THE AO. IN THE INSTANT CASE THE AO ASKED THE SPECIAL AUDITOR T O DO THE SPECIAL AUDIT IN VIEW OF THE PROVISIONS OF RULE 14A. RULE 14A SAYS THAT REPORT O F THE AUDIT IS TO BE GIVEN IN THE FORM NO. 6B. FORM NO. 6 B MENTIONS ABOUT VARIOUS ITEMS O N WHICH THE SPECIAL AUDITOR HAS TO GIVE HIS REPORT. SUCH ITEMS CONTAINED IN FORM NO. 6 B WAS ALSO INTIMATED TO THE SPECIAL AUDITOR. IT IS TRUE THAT THE AO REQUIRED THE AUDITO R TO EXAMINE ALL THE ACCOUNT BOOKS, BILLS, 20 VOUCHERS, LOOSE PAPERS, DOCUMENTS BANK STATEMENT ET C. AND TO PREPARE THE CASH INFLOW/ OUTFLOW STATEMENTS , CASH BOOK, LEDGER, TRIAL BALAN CE, FINAL ACCOUNTS, TRADING AND PROFIT AND LOSS ACCOUNT , BALANCE SHEET ETC. FOR DIFFERENT ASSESSMENT YEARS AS MENTIONED ABOVE WITH THE AIM TO ENABLE THE DEPARTMENT TO ARRIVE AT THE TRUE STATE OF AFFAIRS OF VARIOUS CONCERNS IN WHICH THE ASSESSEE IS ASSOCIATED EITHER AS A PROPRIETOR OR PARTNER. THE BASIC PURPOSE WAS FOR EXAMINATION OF THE BOOKS OF ACCOUNT S AND TO GIVE THE COMMENTS ON DIFFERENT ISSUES INCLUDING THE VIOLATION OF PROVISI ONS OF SECTION 269SS, 269T AND SECTION 40A(3 OF THE ACT. THE AO HAS MENTIONED IN THE LETTER THAT AUDIT IS TO BE CARRIED OUT IN VIEW OF THE PROVISIONS OF RULE 14A. ONE HAS TO READ ENTIRE LETTER TOGETHER AND FROM THIS LETTER ONE CANNOT INFER THAT THE AO REFERRED T HE MATTER FOR SPECIAL AUDIT FOR GETTING THE BOOKS OF ACCOUNTS PREPARED. THE FACTS IN THE INSTAN T CASE ARE DISTINGUISHABLE FROM THE FACTS OF CIT VS. BAJRANG TEXTILES (SUPRA) IN WHICH THE AUDIT WAS REFERRED JUST ONE DAY PRIOR TO THE LIMITATION PERIOD. THE HON'BLE APEX CO URT IN THE CASE OF SAHARA INDIA (FIRM) VS. CIT, 300 ITR 403 HAS REFERRED TO THE FOLLOWING PORTION OF THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF RAJESH KUMAR VS. DCIT, (2 006), 287 ITR 91. THE WORD AND IN SECTION 142(2A) RELATING TO CO MPULSORY AUDIT OF ACCOUNTS SIGNIFIES CONJUNCTION AND NOT DISJUNCTI ON. THE TWIN CONDITIONS OF NATURE AND COMPLEXITY OF ACCOUNTS AND THE I NTEREST OF THE REVENUE ARE THE PRE-REQUISITE FOR THE EXERCISE OF THE POWER U/S 142(2A). BEFORE DUBBING THE ACCOUNTS AS COMPLEX AND DIFFICUL T TO UNDERSTAND, THERE HAS TO BE A GENUINE AND HONEST AT TEMPT O THE PART OF THE AO TO UNDERSTAND THE ACCOUNTS MAINTAINED BY THE ASS ESSEE , APPRECIATE THE ENTRIES MADE THEREIN AND, IN THE EVENT OF DOUBT, SE EK EXPLANATION FROM THE ASSESSEE. THE OPINION REQUIRED TO BE FORMED Y THE A O FOR EXERCISE OF POWER U/S 142(2A) MUST BE BASED ON OBJECTIVE CRITER IA AND NOT ON THE BASIS 21 OF SUBJECTIVE SATISFACTION. RECOURSE TO THAT PROVIS IONS CANNOT BE HAD BY THE AO MERELY TO SHIFT HIS RESPONSIBILITY OF SCRUTINIZI NG THE ACCOUNTS OF AN ASSESSEE AND PASS THE BUCK TO THE SPECIAL AUDITOR. SIMILARLY THE REQUIREMENT OF PREVIOUS APPROVAL OF CHIEF COMMISSIO NER OR THE COMMISSIONER, BEING AN INBUILT PROTECTION AGAINST A NY ARBITRARY OR UNJUST EXERCISE BY OF POWER BY THE AO CASTS A VERY HEAVY D UTY ON THE SAID HIGH RANKING AUTHORITY TO SEE THAT THE REQUIREMENT OF PR EVIOUS APPROVAL IS NOT TURNED INTO AN EMPTY RITUAL. BEFORE GRANTING APPROV AL, THE CHIEF COMMISSIONER OR THE COMMISSIONER, AS THE CASE MAY B E, MUST HAVE BEFORE HIM MATERIAL ON THE BASIS WHEREOF AN OPINION IN THI S BEHALF HAS BEEN FORMED BY THE AO. THE APPROVAL MUST REFLECT THE APP LICATIONS OF MIND TO THE FACTS OF THE CASE. RULES OF NATURAL JUSTICE ARE NOT EMBODIED RULES. TH E EXPRESSION NATURAL JUSTICE IS ALSO NOT CAPABLE OF A PRECIS E DEFINITION. THE UNDERLYING PRINCIPLE BY NATURAL JUSTICE, EVOLVED UN DER THE COMMON LAW, IS TO CHECK ARBITRARY EXERCISE OF POWER BY THE STATE O R ITS FUNCTIONARIES. THEREFORE, THE PRINCIPLE IMPLIES A DUTY TO ACT FAIR LY I.E., FAIR PLAY IN ACTION. THE AIM OF RULES OF NATURAL JUSTICE IS TO SECURE JU STICE OR TO PUT IT NEGATIVELY, TO PREVENT MISCARRIAGE OF JUSTICE. THES E RULES CAN OPERATE ONLY IN AREAS NOT COVERED BY ANY LAW VALIDLY MADE THEY D O NOT SUPPLANT THE LAW BUT SUPPLEMENT IT. 2.11 THE PROVISO TO SECTION 142(2A) WAS INSERTED BY THE FINANCE ACT 2007 W.E.F. 01- 06-2007 VIDE WHICH IT WAS PROVIDED THAT THE AO WILL NOT DIRECT THE ASSESSEE TO GET THE ACCOUNTS AUDITED UNLESS THE ASSESSEE HAS BEEN GIVEN REASONABLE OPPORTUNITY OF BEING HEARD. IN THE INSTANT CASE, THE AO HAS GIVEN ADEQUA TE OPPORTUNITY. THE AO HAS MENTIONED THAT THE ASSESSEE WAS ASKED TO INSPECT THE DOCUMEN TS. THE AO HAS REFERRED TO THE STATEMENT RECORDED AFTER THE SURVEY. THE ASSESSEE N OWHERE STATED THAT ALL THE DOCUMENTS CAN BE EXPLAINED BY HIM. SUBSEQUENTLY, THE ASSESSEE HIMSELF HAS SURRENDERED INCOME . 22 ONE HAS TO CONSIDER ALL THE FACTS THEN IT CANNOT BE SAID THAT THE ORDER OF THE AO IN DIRECTING THE CASE FOR SPECIAL AUDIT IS INVALID. TH ERE IS SUFFICIENT MATERIAL TO SUGGEST THAT THE AO HAS EXAMINED THE IMPOUNDED DOCUMENTS AND FOR MED HIS OPINION ABOUT THE COMPLEXITIES OF THE ACCOUNTS. IN THE ABSENCE OF NON -COOPERATION FROM THE ASSESSEE, THE COMPLEXITY WAS APPARENT. 2.12 BEFORE THE LD. CIT(A), THE ASSESSEE HAS RELIED UPON THE NUMBER OF JUDGEMENTS AND THESE ARE DISCUSSED AS UNDER:- 1. PEERLESS GENERAL FINANCE & INVESTMENT CO. LTD. V S. DCIT, 156 CTR 512 (CAL.) IN THIS CASE, IT WAS NOTICED THAT NO PREVIOUS APPRO VAL WAS SOUGHT FOR THE AUDIT BUT MERELY A PROPOSAL WAS PLACED FOR PERUSAL OF THE CCIT FOR APPOINTMENT OF SPECIAL AUDITOR. THE PROPOSAL OF THE ORDER VIDE WHICH SPECIAL AUDITOR WAS APPOINTED SHOWS THAT THE AO HAS TAKEN INTO SEVERAL LITIGATIONS BETWEEN THE PETITIONER AND THE RBI. THE HON'BLE HIGH COURT HELD THAT SUCH LITIGATION IS NOTHING TO DO WITH THE ORDER OF THE ASSESSMENT. IN THE INSTANT CASE, THE FACTS ARE DISTINGUISHABLE AND THEREFORE, THIS DECISION IS OF NO HELP TO THE ASSESSEE . 2. STATE FOREST CORPORATION VS. JCIT , 170 CTR 133 (HP) IN THIS THE HON'BLE HIGH COURT NOTICED THAT THE ORD ER DOES NOT STATE THAT THE AO HAS CONSIDERED THE RELEVANT FACTS WHICH WERE REQUIRED TO BE BORNE IN MIND UNDER SUB-SECTION (2A) OF SECTION 142 OF THE ACT. HOWEVER, IN THE INSTANT CASE, THE AO HAS PROVIDED OPPORTUNIT Y AND HAS REFERRED TO THE CONDITIONS ON THE BASIS OF WHICH MATTER OF REFE RRING TO SPECIAL AUDIT ARE TO BE CONSIDERED. HENCE, THIS DECISION IS OF NO HEL P TO THE ASSESSEE. 3. MUTHOOTTU MINI JURIES VS. DCIT, 166 CTR 180 (K ER) IN THIS CASE, THE PROPOSAL FOR SPECIAL AUDIT WAS FO RWARDED TO THE LD CIT BECAUSE THE ASSESSMENT FOR THE LAST THREE PRECE DING YEARS COMPLETED 23 U/S 144 OF THE ACT AS THE ASSESSEE WAS NOT COOPERAT ING IN COMPLETION OF THE ASSESSMENT FOR THE ASSESSMENT YEAR FOR WHICH SPECIA L AUDIT WAS ORDERED. THE HEARINGS WERE FIXED ON TWO DATES AND ON THESE T WO DATES, THE ASSESSEE HAS NOT APPEARED. THE HON'BLE HIGH COURT REFERRED T HAT THE AUDIT WAS REFERRED FOR THE CONTINGENCIES NOT REFERRED U/S 14 2(2A). THE AUDIT WAS NOT REFERRED ON THE GROUND THAT THERE WAS COMPLEXITY OF ACCOUNTS AND THE ORDER OF REFERENCE OF SPECIAL AUDIT WAS CANCELLED. THUS THIS CASE IS ALSO OF NO HELP TO THE ASSESSEE BECAUSE THE AO HAS TAKEN IN TO CONSIDERATION THE FACTORS MENTIONED IN SECTION 142(2A) BEFORE MAKING THE PROPOSAL OF REFERRING THE MATTER FOR SPECIAL AUDIT. 3. ALLIDHARA TEXPRO ENGINEERING (P) LTD. VS. DCIT , 223 CTR 481 (GUJ. IN THIS CASE, THE HON'BLE HIGH COURT NOTICED THAT THE SHOW CAUSE ISSUED BY THE AO DOES NOT CONTAIN ANY WHISPER IN RE SPECT OF THE COMPLEXITY OF ACCOUNTS EITHER FROM FFPL OR GTPL. HE NCE, IN RESPECT OF THESE TWO COMPANIES, THE HON'BLE HIGH COURT CANCELL ED THE ORDERS OF THE AO FOR REFERRING THE MATTER FOR SPECIAL AUDIT. HOWE VER, IN RESPECT OF OTHER TWO COMPANIES IT WAS NOTICED THAT THE AUDITORS SUB MITTED THEIR REPORT AND THE ASSESSMENTS HAVE BEEN MADE ON 31-03-2008 WHILE THESE TWO COMPANIES HAVE FILED THE PETITION ONLY 12-05-2008. AFTER PASSING OF THE ASSESSMENT ORDER, NO STEPS WERE TAKEN WHEN THE ORDE R U/S 142(2A) DATED 31-12-2007 WAS PASSED. HENCE ORDER FOR SPECIAL AUDI T WAS NOT CANCELED. IN THE INSTANT CASE, THE ASSESSEE HAS NOT CHALLENGED T HE SPECIAL AUDIT BEFORE THE HON'BLE HIGH COURT IN. THEREFORE, THIS DECISION IS IMPLIEDLY IN FAVOUR OF THE REVENUE. 4. WEST BENGAL STATE CO-OPERATIVE BANK LTD. VS. J CIT, 190 CTR 245 IN THIS CASE, THE PLEA WAS TAKEN THAT THE LD. CIT(A ) HAS NOT EXAMINED THE BOOKS OF ACCOUNTS AND HAVE NOT RELIED UPON THE RECORDS NAMELY ASSESSMENT ORDER , PROFIT AND LOSS ACCOUNT AND BALANCE SHEET. THIS 24 CONTENTION STANDS ACCEPTED BY THE REVENUE AS PER FA CTS AVAILABLE IN THE DECISION. HENCE, ON THESE GROUNDS, THE HON'BLE CAL CUTTA HIGH COURT CANCELLED THE ORDER U/S 142(2A) OF THE ACT. IN THE INSTANT CASE THE AO EXAMINED THE DOCUMENTS AND EVEN TRIED TO EXTRACT TH E INFORMATION FROM THE ASSESSEE DURING POST SURVEY PROCEEDINGS. HENCE, THI S DECISION IS OF NO HELP TO THE ASSESSEE. 5. RAJESH KUMAR & OTHERS, 206 CTR 175 (SC) IN THIS CASE OF THE ASSESSEE, THE ISSUE BEFORE HON' BLE APEX COURT WAS AS TO WHETHER THE OPPORTUNITY SHOULD BE PROVIDE D BEFORE REFERRING THE MATTER OF SPECIAL AUDIT U/S 142(2A). THE ACT STANDS AMENDED AND IN THE INSTANT CASE, THE AMENDED PROVISIONS ARE APPLICABLE . THE AO HAS PROVIDED THE OPPORTUNITY AND HENCE THIS DECISION IS OF NO HE LP TO THE ASSESSEE. 6. HIND SAMACHAR LTD. VS. ACIT , 216 CTR 303 (SC) IN THIS CASE ALSO, THE HON'BLE APEX COURT HELD THAT REASONABLE OPPORTUNITY OF BEING HEARD SHOULD BE GIVEN BEFORE P ASSING THE ORDER U/S 142(2A). THE ACT STANDS AMENDED AND THE AO HAS PROV IDED OPPORTUNITY TO THE ASSESSEE AS PER AMENDED PROVISIONS. THEREFORE, THIS DECISION IS OF NO HELP TO THE ASSESSEE. 2.13 WE HAVE ALREADY REFERRED THAT THE AO TRIED TO EXTRACT THE INFORMATION FROM THE ASSESSEE DURING POST SURVEY PROCEEDINGS IN RESPECT OF THE BOOKS OF ACCOUNTS AND DOCUMENTS. THE AO ALLOWED THE ASSESSEE TO INSPECT T HE BOOKS OF ACCOUNTS. THE ASSESSEE HIMSELF SURRENDERED THE INCOME AND SUCH INCOME IS N OT IN ROUND FIGURES. LOOKING TO THE DISCUSSIONS CONTAINED IN ABOVE PARAS, WE HOLD THAT THE AO WAS JUSTIFIED IN REFERRING THE MATTER FOR SPECIAL AUDIT U/S 142(2A) OF THE ACT. 3.1 THE NEXT ISSUE BEFORE US IS TO SEE AS TO WHETHE R THE AO HAS SUO MOTO POWER TO EXTEND THE PERIOD FOR COMPLETING THE SPECIAL AUDIT. 25 3.2 IT WILL BE USEFUL TO REPRODUCED SECTION 142(2C) OF THE ACT 142(2C) EVERY REPORT UNDER SUB-SECTION (2A) SHALL BE FURNISHED BY THE ASSESSEE TO THE ASSESSING OFFICER WITHIN SUCH PERIO D AS MAY BE SPECIFIED BY THE ASSESSING OFFICER: PROVIDED THAT THE ASSESSING OFFICER MAY, SUO MOTU, OR ON AN APPLICATION MADE IN THIS BEHALF BY THE ASSESSEE AND FOR ANY GOOD AND SUFFICIENT REASON, EXTEND THE SAID PERIOD BY SUCH F URTHER PERIOD OR PERIODS AS HE THINKS FIT ; SO, HOWEVER, THAT THE AGGREGATE OF THE PERIOD ORIGINALLY FIXED AND THE PERIOD OR PERIODS SO EXTENDED SHALL N OT, IN ANY CASE, EXCEED ONE HUNDRED AND EIGHTY DAYS FROM THE DATE ON WHICH THE DIRECTION UNDER SUB-SECTION (2A) IS RECEIVED BY THE ASSESSEE. 3.3 THE WORD SUO MOTU IN THE PROVISO HAS BEEN INS ERTED BY THE FINANCE ACT 2008 W.E.F. 01-04-2008. IN THE INSTANT CASE, THE AUDIT W AS PROPOSED VIDE LETTER DATED 17TH SEPT 2009 AND AT THAT RELEVANT TIME, THE AO AS PER PROVI SION TO SECTION 142(2 C)) WAS HAVING THE POWER TO EXTEND THE PERIOD FOR SUBMITTING THE R EPORT BY THE SPECIAL AUDITOR, EVEN OTHERWISE, THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF GHAZIABAD DEVELOPMENT AUTHORITY VS. CIT , 244 CTR 397 HELD THAT AMENDMEN T IN PROVISO IS CLARIFICATORY. EVEN BEFORE AMENDMENT, THE AO WAS HAVING THE POWERS TO E XTEND THE DATE IN CASE THERE ARE GOOD AND SUFFICIENT REASONS. IT IS NOT THE CASE OF THE ASSESSEE THAT THE AO HAS EXTENDED THE PERIOD AT THE REQUEST OF THE AUDITOR AND SUCH PERIO D EXCEEDS 180 DAYS. IF THE PERIOD EXTENDED IS NOT BEYOND THE PERIOD OF 180 THEN THE P OWER EXERCISED BY THE AO IS WITHIN THE PROVISIONS OF LAW AND ORDER CANNOT BE HELD AS I NVALID ON THIS POINT. THE AO IN HIS ORDER HAS MENTIONED THAT THE ASSESSEE HAS NOT BEEN COOPERATIVE DURING THE ASSESSMENT PROCEEDINGS AS WELL AS DURING SURVEY PROCEEDINGS. I N THE STATEMENTS OF FACTS BEFORE THE LD. 26 CIT(A), NO AVERMENT HAS BEEN MADE AGAINST SUCH FIND INGS OF THE AO. THE AO HAS ALSO MENTIONED THAT HE REQUESTED THE ASSESSEE TO INSPECT THE DOCUMENTS AND WAS WILLING TO PROVIDE COPIES OF THE DOCUMENTS IN CASE THE ASSESSE E IS PREPARED TO GET THE STATEMENT RECORDED. THE REVENUE WHILE CONDUCTING SEARCH AND SURVEY NOTICED INCRIMINATING DOCUMENTS AND WANTED TO HAVE THE EXPLANATION OF TH E ASSESSEE IN RESPECT OF SUCH DOCUMENTS SO AS TO EXTRACT THE CORRECT INFORMATION. THE ASSESSEE HAS NOT FILED ANY AFFIDAVIT BEFORE THE LD. CIT(A) THAT THE FACTS STAT ED BY THE AO IN HIS ASSESSMENT ORDER ARE WRONG. NOTHING HAS BEEN PLACED BEFORE US TO SUGGEST THAT THE ASSESSEE APPROACHED THE HIGHER AUTHORITIES AGAINST THESE GRIEVANCES ABOUT T HE AO THAT PHOTOSTAT COPIES OF THE DOCUMENTS ARE NOT BEING PROVIDED. THIS ASPECT IS AL SO HAVING A BEARING TO COME TO CONCLUSION THAT THE AO WAS JUSTIFIED IN MAKING A RE FERENCE FOR SPECIAL AUDIT AFTER CONSIDERING THE COMPLEXITIES OF THE ACCOUNTS AND IN THE INTEREST OF REVENUE. THUS GROUND NO. 1 AND 2 OF THE ASSESSEE ARE DISMISSED. 4.1 THE GROUND NO. 3(I) OF THE ASSESSEE AND GROUND NO. 1 OF THE REVENUE RELATE TO THE SAME ISSUE AND THEREFORE, THESE ARE DISPOSED OFF TO GETHER. BOTH THESE GROUNDS ARE AS UNDER:- GOA NO.3(I) OF ASSESSEE - THE LEARNED CIT(A) ERRED IN ESTIMATING UNDISCLOSED INVESTMENT OF RS. 129134/- IN LIME STONE BUSINESS RUN IN NAME OF DEEP AK STONES. GOA NO.1 OF DEPTT .- THE LEARNED CIT(A) ERRED IN RESTRICTING ADDITION O N ACCOUNT OF INCOME FROM UNRECORDED BUSINESS FROM RS. 3694908/- TO RS.407515 /-. 4.2 DURING THE COURSE OF SURVEY, A FIRM NAMELY M/S. DEEPAK STONE COMPANY WAS FOUND IN THE NAME OF THE ASSESSEE BUT AT THE TIME THE ASSESSEE SAID NOTHING ABOUT THIS 27 FIRM IN THE STATEMENT. THE ASSESSEE WAS ASKED ABOUT THE GROSS INCOME OF RS. 1,00,843/- OF M/S. DEEPAK STONE CO. DURING THE COURSE OF ASSESSME NT PROCEEDINGS, THE ASSESSEE WAS SHOWN RESPECTIVE ANNEXURES I.E. PAGE 23 AND 48 OF IMPOUNDED MATERIAL AND AS REPORTED IN SPECIAL AUDIT U/S 142(2A) BY THE AUDITORS. AFTER PERUSING THE SAID ANNEXURES, THE ASSESSEE HIMSELF SURRENDERED UNDISCLOSED INCOME OF RS. 2,78,381/- WHICH IS 7.8% OF TOTAL TURNOVER OF RS. 36,94,608/- FROM THAT FIRM. THE AO HAS NOT ACCEPTED SUCH SURRENDER AND ACCORDING TO HIM, THE UNRECORDED SALES ARE TO BE AD DED TO THE INCOME OF THE ASSESSEE. THUS THE AO MADE AN ADDITION OF RS. 36,94,609/- AS AGAINST RS. 2,78,381/- DISCLOSED BY THE ASSESSEE. DURING APPEAL PROCEEDINGS, THE ASSESS EE REQUESTED TO THE LD CIT(A) THAT IT IS LIME STONE SALE TO SHRIRAM CEMENT WORKS WHEREIN THE RE IS VERY LITTLE MARGIN. THE ASSESSEE HOWEVER ADMITTED THAT HE DID NOT HAVE BO OKS OF ACCOUNTS FOR THIS BUSINESS AND THEREFORE OFFERED 5% NP THEREON WHICH IS AT PAR TO SEC.44AF. THE LD CIT(A) HOWEVER SUSTAINED INCOME FROM THIS BUSINESS AT RS. 2,78,381 /- AGAINST RS. 36,94,608/- DETERMINED BY THE AO. BESIDES, THE AO ALSO MADE ADDITION OF RS. 129134/- ON ACCOUNT OF UNDISCLOSED INVESTMENT. 4.3 BEFORE US, THE LD. AR HAS FILED THE FOLLOWING S UBMISSIONS. 3.04 WHEREAS DEPTT. IS IN APPEAL ON RELIEF OF RS . 3287093/- (3694608-407515(278381 +129134)) WHILE THE ASSESSEE IS IN APPEAL FOR ADDITION OF RS. 129134/-. 3.05 THERE IS NO DENIAL TO THIS FACT THAT DURING SU RVEY PAGE 48 OF ANNEXURE 23 WAS FOUND WHEREIN TRADING A/C WITH SALE S OF RS 3694608/- AND GP OF RS. 278381/- ARE APPEARING. IT IS ALSO FA CT THAT IN ORDER TO ARRIVE REAL INCOME FROM GP DIFFERENT EXPENSES OF THE ADMIN ISTRATIVE/ FINANCIAL NATURE ARE DEDUCTIBLE, HOWEVER, AS I WAS NOT HAVING ANY EVIDENCE FOR THE SAME I DID NOT DISPUTE TO INCOME OF RS. 278381/-. A PPEAL OF THE DEPTT.ON 28 THIS ISSUE IS NOT MAINTAINABLE BECAUSE DEPTT HAS TO ACCEPT THE IMPOUNDED PAPERS /DOCUMENT IN TOTO. IN THE TRADING A/C SALES OF RS. 3694608/-, VARIOUS EXPENSES TOTALING TO RS.3416227/- AND GP 27 8381/- ARE APPEARING HONBLE CIT(A) HAS VERY FAIRLY TAKEN GP OF RS.27838 1/-. IN VIEW OF THESE FACTS APPEAL OF THE DEPTT. BEING NOT SUSTAINABLE TH EIR THIS GROUND OF APPEAL NEEDS DISMISSAL. 3.06 THE LEARNED AO HAS MADE ADDITION OF RS. 129134 /- ON ACCOUNT OF UNDISCLOSED INVESTMENT. THE LEARNED AO D ID NOT APPRECIATED THIS FACT THAT I WAS DOING THIS BUSINESS IN ASS.YEA R 2002-03 ALSO, WHICH IS EVIDENT FROM (PB 232 & 233) ALSO. I MAY ALSO SUBMIT I HAD FILED ROI FOR ASS.YEAR 2002-03 WHICH INCLUDES DEEPAK STONES INCOM E ALSO (PB 240) I THEREFORE REQUEST THAT ADDITION OF RS. 129134/- BE DELETED. 4.4 ON THE OTHER HAND, THE LD. DR STATED THAT ALL T HE EXPENSES STAND INCLUDED IN THE TRADING ACCOUNT FILED ALONGWITH RETURN AND THEREFOR E, AND THEREFORE, ENTIRE SALES SHOULD BE ADDED AS INCOME. 4.5 WE HAVE HEARD BOTH THE PARTIES. THE LD. AR IN H IS WRITTEN SUBMISSION HAS MENTIONED THAT PAGE 61 OF THE PAPER BOOK CONTAINS T HE TRADING ACCOUNT OF M/S. DEEPAK STONE CO.. HOWEVER, PAGE 61 OF THE PAPER BOOK CONTA INS THE TRADING ACCOUNT WHICH WAS FILED ALONGWITH ORIGINAL RETURN. PAGE 232 OF THE PA PER BOOK IS A COPY OF LETTER FROM M/S. SHRIRAM CEMENT WORKS ADDRESSED TO THE AO. IT IS MEN TIONED IN THAT LETTER THAT M/S. DEEPAK STONE CO. WAS SUPPLYING THE LIME STONE. THE FIRM M/S. SWASTIK STONE CRUSHER IN WHICH ASSESSEE IS PROPRIETOR WAS MAKING SALES OF GI TTI. THUS THE SALES RELATING TO LIME CEMENT CANNOT BE CONSIDERED TO BE INCLUDED IN THE A CCOUNTS FILED WITH THE ORIGINAL RETURN. WHEN THERE ARE UNRECORDED SALES, THE ASSESSEE HAS A LREADY SURRENDERED PROFIT. IT IS NOT THE CASE OF THE REVENUE THAT SUCH SALES REPRESENTS THE EXCESS CASH OF THE SALE PRICE AS 29 SHOWN IN THE BOOKS OF ACCOUNTS SO THAT THE SAME CAN BE CONSIDERED AS PROFIT. IF AN AMOUNT IS RECEIVED OVER AND ABOVE THE BILL THEN SUCH AMOUN T CAN BE ADDED AS INCOME. AS PER PROVISIONS OF SECTION 292C, THE DOCUMENT FOUND DURI NG THE COURSE OF SURVEY IS TO BE CONSIDERED AS CORRECT AND THEREFORE, THE GROSS PROF IT REFLECTED IN THAT PAPER IS TO BE PRESUMED AS CORRECT PROFIT. MOREOVER, THE SALES IN M/S. SWASTIK STONE CRUSHER WERE ONLY TO THE EXTENT OF RS. 20.71 LACS AND THEREFORE, THE ENTIRE AMOUNT DURING THE COURSE OF SURVEY CANNOT BE ADDED AS INCOME. 4.6 M/S. SHREE RAM CEMENT WORKS HAS STATED IN THEIR LETTER THAT THEY HAVE RECEIVED SUPPLIES FROM M/S. DEEPK STONE COMPANY IN THE FINAN CIAL YEAR 2001-02 TO 2003-04. THE PROFIT EARNED IN THE IMMEDIATELY PRECEDING YEAR FR OM M/S. DEEPAK STONE CO. WAS SUFFICIENT FOR THE CAPITAL REQUIRED FOR CONDUCTING THE BUSINESS OF M/S. DEEPAK STONE CO. THUS THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 1,29,132/-. HENCE, THE GROUND OF APPEAL NO. 3(I) OF THE ASSESSEE IS A LLOWED WHILE GROUND OF APPEAL NO. 1 OF THE REVENUE IS DISMISSED. 5.1 THE GROUND NO. 3(II) OF THE ASSESSEE AND THE GR OUND NO. 3 OF THE DEPARTMENT MENTIONED BELOW RELATE TO THE SAME ISSUE AND THEREF ORE, THESE ARE DISPOSED OFF TOGETHER GOA NO.3(II) OF ASSESSEE - THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN ESTIMATING PROFIT RATE OF 35% ON UNDISCLOSED SALES OF RS.1102817/- AS AGAINST DISCLOSED NP RATE OF 6.31% AS PER TRADING A/C ATTAC HED WITH ROI GOA NO.3 OF DEPTT .- THE LEARNED CIT(A) ERRED IN RESTRICTING ADDITION O N ACCOUNT OF UNRECORDED GRIT SALES FROM RS.1102817/- TO RS. 385986/-. 5.2 THE AO ON PERUSAL OF ANNEXURE NO. 43 OF THE IM PUGNED MATERIAL NOTICED THAT THE ASSESSEE HAS MADE GRIT SALES AGGREGATING TO RS. 11,02,817/-. THE ASSESSEE WAS ASKED 30 TO EXPLAIN SUCH SALES. THE ASSESSEE SUBMITTED THAT SUCH SALES STANDS ALREADY INCLUDED IN THE TOTAL SALES. THE ASSESSEE WAS ASKED TO PRODUCE THE BILL, VOUCHERS, BOOKS OF ACCOUNTS AND PARTY-WISE DETAILS BUT HE FAILED TO PRODUCE THE SAME. THE AO ACCORDINGLY TREATED THE SALES OUTSIDE THE BOOKS OF ACCOUNTS. 5.3 BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED A S UNDER:- DURING ASSESSMENT PROCEEDING I HAD SUBMITTED THAT THESE SALES ARE TO M/S SOMANI & CO. WHICH ARE APPEARING I N THEIR BOOKS OF ACCOUNTS AS WELL AS THEIR REPORT IN FORM 3CD AND WHICH IS PART OF SALES DISCLOSED BY ME IN MY ROI. HOWEVER AS MY L EDGER BOOK WAS NOT AVAILABLE THE LEARNED AO TAXED THE SAME IN MY HANDS. I MAY SUBMIT THE LEARNED SALES TAX AUTHORITIES HAVE N OT DISPUTED MY DISCLOSED SALES RS. 2017758/-. IN VIEW OF THESE FACTS I SUBMIT ADDITION OF RS. 1102817/- ARE UNCALLED FOR. THE LEA RNED AO HAS TAXED THESE SALES @ 100%. IN ALTERNATE TO PURCHASE PEACE I ACCEPT THE SALES BUT AS MY NP RATE SUBJECT TO DEPRECIATION IS 6.31% WHICH IS EVIDENT FROM ANNEXED COMPARATIVE GP/NP CHART ALS O, ADDITION @ 6.31% ON RS. 1102817/- I.E. RS. 69587/- BE MADE A ND RESTS RS. 1033230/- BE DELETED. 5.4 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE RESTRICTED THE ADDITION TO RS. 3,85,986/- AFTER OBSERVING AS UNDER :- 7.3 THE REQUEST OF THE APPELLANT TO APPLY NP RATE OF 6.31% IS NOT ACCEPTABLE. DURING THE COURSE OF SURVE Y ANNEXURE A- 18 WAS FOUND IN WHICH APPELLANT HAS DRAWN TRADING & PROFIT & LOSS ACCOUNT SHOWING GP OF 62.47% AND NP OF 32.12%. IT WILL BE THEREFORE REASONABLE TO ESTIMATE PROFIT @ 35% ON UN RECORDED SALES OF RS. 1102817/-, WHICH GIVES FIGURE OF RS. 385986/ -. AO IS 31 THEREFORE DIRECTED TO RESTRICT ADDITION TO RS. 3859 86/- UNDER THIS HEAD. GROUND NO.4(III) IS THUS PARTLY ALLOWED. 5.5 BEFORE US, THE LD. AR HAS FILED THE SUBMISSIONS AS UNDER:- (I) THAT I AM SUBJECT TO SALES TAX AND AS SUCH RE GISTERED DEALER UNDER THE PROVISIONS OF SALES TAX ACT. SALES TAX AUTHORITIES HAVE NOT DISPUTED MY DISCLOSED SALES. UNDISCLOSED T URNOVER BASIS WHEREOF IS LETTER DATED 12.04.2010 OF HONBLE SPECI AL AUDITORS (PB 227) AS WELL AS LETTER DATED 26.05.2010 OF LEAR NED AO (PB 78) ONLY ARE WITHOUT ANY SUPPORTING. IT IS THEREFORE SU BMITTED THAT THE SAME BE BRUSHED ASIDE AND ADDITION SUSTAINED ON BAS IS OF SAME BY HONBLE CIT(A) BE DELETED; (II) IN ALTERNATE I SUBMIT THAT EVEN IF MY AFORESAI D SUBMISSION IS NOT ACCEPTED AND UNDISCLOSED SALES AS WORKED OUT BY LEARNED AO IS RETAINED NP RATE OF 5% WHICH IS AT PAR TO SEC.44AF OR NP RATE AS PER OUR BOOKS 6.31% (PB 58) (RELIANCE IS MADE ON CIT VS . BALCHAND AJIT KUMAR 186 CTR (MP) 419; MANMOHAN SADANI VS.CIT 304 ITR 52 (MP) & CIT VS. PRESIDENT INDUSTRIES 158 CTR 372) (GUJ)) OR NP RATE OF 7.45% AS DETERMINED IN COMPARABLE CASE OF M /S MAHESHWARI CRUSHERS, KOTA ASS.YEAR 2007-08 (PB 225-226) BE A PPLIED. 5.6 ON THE OTHER HAND, THE LD. DR STATED THAT ENTIR E SALES SHOULD BE ADDED AS INCOME. 5.7 WE HAVE HEARD BOTH THE PARTIES. THE SPECIAL AUD ITOR IN HIS REPORT HAS SUBMITTED THAT GRIT SALES AGGREGATING TO RS. 1,02,817/- ARE T O BE SUBJECTED FOR VERIFICATION BY THE AO. IT MEANS THAT SUCH SALES WERE NOT VERIFIABLE FROM T HE REGULAR BOOKS OF ACCOUNT. THE ONUS WAS ON THE ASSESSEE TO HAVE ESTABLISHED THAT SUCH S ALES ARE PART OF THE SALES INCLUDED IN THE REGULAR BOOKS OF ACCOUNT. IN RESPECT OF UNRECORDED SALES, ONE HAS TO APPLY THE PROFIT FOR ESTIMATING THE INCOME FROM SUCH SALES. THE LD. CIT( A) HAS DIRECTED TO ESTIMATE THE PROFIT @ 35% ON RECORDED SALES. THE PROFIT SO ESTIMATED IS EXCESSIVE AS PER PROFIT DISCLOSED ON THE RECORDED SALES. THE ASSESSEE HAS SHOWN THE GROS S PROFIT RATE 7.8%. IT WILL BE FAIR AND REASONABLE TO APPLY GROSS PROFIT RATE OF 7.8% ON UN RECORDED SALES FOR ESTIMATING THE 32 INCOME ON SUCH SALES. THUS GROUND NO. 3(II) OF THE ASSESSEE IS ALLOWED AND GROUND NO. 3 OF THE REVENUE IS DISMISSED. 6.1 THE GROUND NO. 3 (III) OF THE ASSESSEE IS AS UN DER:- THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN CONFIRMING TRADING ADDITION OF RS. 548805/- APPLYING GP RATE OF 35% ON DISCLOSED SALES OF RS. 2 017758/- ON BASIS OF IMPOUNDED PAPERS FOUND DURING SURVEY (ANNEXURE 18 PAGE 56- 57) WHICH RELATES TO ASS.YEAR 2007-08 / 2008-09 (BO TH YEARS PARTLY) AND WHICH WAS PREPARED BY ACCOUNTANT ON FLIMSY FIGU RES IN ORDER TO PLAN FOR MACHINERY LOAN WHICH HAS NO MATCH WITH THE APPELLANTS BOOKS OF ACCOUNTS. 6.2 THE AO NOTICED THAT THE ASSESSEE HAS SHOWN THE GROSS PROFIT RATE OF 62.47% IN THE DOCUMENTS AVAILABLE AS ANNEXURE NO 18 OF THE IMPOUN DED MATERIAL. THE ASSESSEE HAS ACTUALLY SHOWN THE GROSS PROFIT RATE OF 7.8%. THE D OCUMENT OF ANNEXURE NO. 18 RELATES TO ASSESSMENT YEAR 2007-08 AND 2008-09. IT WAS SUBMITT ED THAT THE TRADING ACCOUNT AS MENTIONED IN THE DOCUMENT DOES NOT CONTAIN NUMBER O F THE EXPENSES. THE ASSESSEE WAS ASKED TO PRODUCE THE BOOKS OF ACCOUNTS, BILLS AND V OUCHERS BUT SUCH BOOKS OF ACCOUNTS AND DETAILS WERE NOT FILED. THE AO THEREFORE, APPLI ED THE GROSS PROFIT RATE OF 35% AND MADE THE ADDITION OF RS. 5,48,805/-. 6.3 BEFORE THE LD. CIT(A), THE ASSESSEE HAS MADE TH E FOLLOWING SUBMISSIONS. THE LEARNED AO ON THE STRENGTH OF SEIZED PAPERS ANNEXURE-18 PAGE 56 & 57 WORKED OUT NP RATE OF 35% ON SALES R S. 2017758/- AND MADE ADDITION OF RS. 548805/-. I SUBMIT THESE ANNEX URES RELATES TO ASS.YEAR 2007-08 & 2008-09 AND HAVE NO RELEVANCY WI TH ASS.YEAR 2003- 04. IN THIS REGARD ONLY GUIDE MAY BE EITHER PAST H ISTORY OR A COMPARABLE CASE. AS THERE IS NO PAST HISTORY IN MY CASE BEST G UIDELINES MAY ONLY BE DRAWN FROM COMPARABLE CASE. I HAVE COME TO KNOW THA T IN CASE OF MAHESHWARI CRUSHERS THE LEARNED ACIT, CIRCLE-1, KOT A HAS ACCEPTED NP RATE OF 7.45%. COPY OF ASSESSMENT ORDER IS ENCLOSED . I THEREFORE SUBMIT THAT IN MY CASE REASONABLE NP RATE OF 7.45% BE APPL IED WHICH SHALL BRING ADDITION TO RS. 81211/- AND RESTS ADDITIONS OF RS. 467594/- BE DELETED. 33 6.4 THE LD. CIT(A) HAS CONFIRMED THE ADDITION AFTER OBSERVING AS UNDER:- 8.3 FROM THE PERUSAL OF ASSESSMENT RECORDS IT IS FOUND THAT DURING THE COURSE OF SURVEY LOOSE PAPER WAS FOUND, IN WHICH TRADING & PROFIT & LOSS ACCOUNT FOR THE PERIOD 01.01.2007 TO 30.11.2007 IS DRAWN. AS PER THIS ACCOUNT GP OF RS. 5927309/- IS DECLARED ON TOTAL SALE OF RS. 94,87,962/-, WHICH IS 62.47% AND NP OF RS. 30,48,09 7/- WHICH IS APPROXIMATELY 32.12%. IT WAS ARGUED BY THE APPELLANT THAT THIS AC COUNT WAS PREPARED FOR OBTAINING BANK FINANCE, BUT AS POINTED OUT BY AO NO FINANCE HAS BEEN TAKEN BY APPELLANT FROM ANY INSTITUTION. THEREFORE THIS ARGU MENT IS NOT ACCEPTABLE. IT WAS FURTHER ARGUED THAT A SUITABLE RATE MAY BE APPL IED ON THE BASIS OF RATES DECLARED BY OTHER TRADERS IN SIMILAR LINE OF BUSINE SS. THIS ARGUMENT OF APPELLANT IS ALSO NOT ACCEPTABLE. THIS IS A SPECIFI C DOCUMENT FOUND DURING THE COURSE OF SURVEY FROM THE PREMISES OF APPELLANT HIM SELF AND THEREFORE THE SAME REPRESENTS TRUE STATE OF HIS AFFAIRS. AO IS JUSTIFI ED IN ESTIMATING PROFIT @ 35% ON TOTAL SALES IN VIEW OF THIS LOOSE PAPER. ADDITION O F RS. 5,48,805/- IS IN ORDER AND THE SAME IS CONFIRMED. GROUND NO. 4(IV) IS THUS DIS MISSED 6.5 BEFORE US, THE LD. AR SUBMITTED THAT FOLLOWI NG SUBMISSIONS WERE FILED BEFORE THE LD. CIT(A) AND SUCH SUBMISSIONS WERE NOT ACCEPT ED BY THE LD. CIT(A). 5.02 DURING SURVEY ANNEXURE 18 PAGE 56-57 (PB 59- 60) WERE FOUND WHEREIN WORKING OF TRADING A/C & PROFIT & LOS S A/C FOR THE PERIOD 01.01.2007 TO 30.11.2007 I.E. FOR 11 MONTHS WAS MAD E. IN CONSONANCE TO THESE PAPERS GP OF RS. 5927309/- AND NP OF RS. 3048 097/- ON SALES OF RS. 9487962/- WAS SHOWN WHICH WAS 62.47% AND 32.12% RES PECTIVELY. DURING ASSESSMENT PROCEEDINGS WHEN THE LEARNED AO QUESTION ED APPLICABILITY OF THIS GP RATE ON MY SALE OF RS. 2017758/- VIDE MY LETTER DATED 06.06.2010 (PB 79 TO 81) I SUBMITTED - IT IS PERTINENT TO POINT OUT HERE THAT THE NORMALL Y THE GP IN THE IDENTICAL TYPE OF CASES IS 10%. IT IS ALSO PERTINENT TO JOINT OUT HERE THAT THE QUANTITY WISE THE PRODUCTION GRIT IS 65 % OF THE DABORA PURCHASE + OPENING STOCK. IN THE INSTANT CASE ON THE PERUSAL OF THE SEIZED PAPERS AS MENTIONED BY YOUR GOOD SELF IT IS FOUND THAT NEITHER THE OPENING STOCK OF DABORA I S MENTIONED NOR THERE IS ANY 34 MENTION OF DEPRECIATION ETC.BEFORE GOING INTO THE F URTHER DETAILS IT IS IMPORTANT TO POINT OUT THAT THE SALES TAX IS RS. 40/- PER TROLLE Y AND A TROLLEY CONTAINS 5 TONS MATERIAL AS NORMALLY CONSIDERED BY THE GOVT AUTHORI TIES. THE ROYALTY IS RS. 50 PER TON. ON THE PERUSAL OF THE PAPERS AS MENTIONED BY YOUR HONOR , IT IS FOUND THAT THE ROYALTY HAS BEEN MENTIONED AT RS. 250022/- WHICH IF DIVIDED BY RS. 50/- THEN THE WEIGHT CONIES TO 5000 TROLLEYS AND LIKE W ISE THE SALES TAX IS RS. 40 PER TROLLEY AND IF THE AMOUNT OF RS. 410190/- IS DIVIDE D BY RS. 40/- THEN THE NUMBER OF TROLLEYS COME TO 10255 MEANING THERE BY THAT THE AS SESSES HAS 5255 TROLLEYS IN THE OPENING STOCK WHICH HAS NOT BEEN MENTIONED ON T HOSE LOSE ROUGH PAPERS. THE WEIGHT IN THOSE 5255 TROLLEYS WOULD BE 26275 TONS T HE VALUE OF WHICH AT COST PRICE AT RS. 545/- PER TROLLEY WHICH INCLUDES ALL L EVIES WHICH WOULD COME TO RS. S45/- X 5255 = 2863975/- MEANING THERE BY THAT THE ASSESSES HAD THAT MUCH OPENING STOCK, IN HAND ON WHICH ROYALTY HAS BEEN PA ID AS THE SAME HAS BEEN PRODUCED FROM MINES BUT SALES TAX WAS NOT PAID AS T HE SAME WAS NOT TRANSPORTED TO CRUSHER SITE, ALTHOUGH THE SAME WAS LYING IN THE STOCK AT MINES. . AS STATED ABOVE THE NORMAL WEIGHT IN A TROLLEY IN D ABORA IS 5 TONS AND IF THE TOTAL NUMBER OF TROLLEYS IN STOCK AND IN PUR CHASE IS MULTIPLIED BY THIS FACTOR THEN TOTAL WEIGHT WOULD BE 10255 X 5 = 51275 TONS A ND AVERAGE YIELD OF GRIT IS 65 % WHICH INCLUDES SAND AND SMALLER SIZES AS WELL AS SUCH THE PRODUCTION OF FINAL MATERIAL WOULD BE 65% OF 51275 TONS = 33329 T ONS AND AVERAGE AREA COVERED BY A TON IS 35 EFT. ON THE BASIS OF ABOVE FORMULA THE SALES OF GRIT IN THE LOOSE PAPER WILL BE 9487962 / RS. 8.2 = 1157069 EFT AND IF 35 EFT BE TH E PER TON PRODUCTION THEN THE CONVERSION INTO TONS WILL BE 11 57069 / 35 = 33059 THAT MEANS THE SAME WILL ALMOST TALLY WITH THE FIGURES AS MENTIONED ABOVE. THE NORMAL SELLING PRICE IS RS. L4/- FOR THE GRIT O F 40 MM SIZE AND 20 M SIZE AND THE RATE OF SALE OF THIN GRIT IS ONLY RS. 5/- PER SQ FT. AND THE PRODUCTION OF GRIT SIZE 20 MM AND 40 MM IS 80% AND THAT OF SMALL SIZE AND SAND IS 20% MEANING THERE BY THAT THE AVERAGE RATE OF SALE IS O NLY RS. 8/20 PER FT. EXCLUDING TRANSPORT BASED ON SEIZED PAPERS ( ANNEX 18/60) AND IF THE AMOUNT OF SALES OF RS. 9487.962 AS SHOWN IN THE ALLEGED SEIZED PAPER I S DIVIDED BY THIS AMOUNT THEN THE QUANTITY COMES TO 1157069 EFT. NOW IF THE TRADING ACCOUNT IS RE CASTED ON THIS BAS IS THEN THE FOLLOWING FIGURES WILL EMERGE: OPENING STOCK 2601225 SALES 9 487962 PURCHASES DABORA 2726441 STOCK NIL SALES TAX 410190 ROYALTY 250022 GRIT PURCHASE 174000 ------------ ------------ 6161908 9487962 GROSS PROFIT 33 2605 4 NOW ON THE ABOVE BASIS, IF THE P/L A/C IS RECASTED THEN THE FOLLOWING FIGURES WILL EMERGE: 35 RECASTED P/L ACCOUNT: EXPENSES AS SHOWN IN GROSS PROFIT THE, SAID PAPER 2879211 AS ABOVE 33 26054 BANK INTEREST 100000 DEPRECIATIQN 100000 NET PROFIT 246843 SO BASED ON ABOVE PAPER THE NET PROFIT SUBJECT TO D EPRECIATION AND BANK INTEREST COMES TO RS. 446843/- ONLY WHICH YIELDS A NP RATE AT 4.7! % AGAINST WHICH THE ASSESSEE HAS DECLARED A NP RATE OF 5.87% MEANING THERE BY THAT THE RESULTS DECLARED BY THE ASSESSEE ARE BETTER AS COMP ARED TO THOSE SHOWN ON THE ALLEGED PAPER. IT IS RE ITERATED THAT THE SAID PAPER IS NEITHER IN THE HAND WRITING OF THE ASSESSEE NOR IN THE HAND WRITING OF HIS FATHER. IT IS ALSO PERTINENT TO MENTION THAT THERE ARE MORE PAPERS IN THE POSSESSION OF THE DEPARTMENT WHICH WERE SEIZED AT T HE TIME OF SURVEY AND WHICH YIELD LESSER AMOUNT OF PROFIT OR ARE IN CONSONANCE WITH THE RESULTS DECLARED BY THE ASSESSEE. THE ASSESSEE WILL BE PLEASED TO SUBMIT ANY FURTHER EXPLANATION IF NEEDED BE . ( 5.03 FROM ABOVE LETTER YOU WILL PLEASE FIND THAT WE HAD REQUESTED LEARNED AO THAT IN ORDER TO HAVE SALES OF RS. 9487962/- CONSIDERING SALES RATE PER CFT. IT IS NECESSARY THA T THERE SHOULD BE OPENING STOCK OF GITTI / DABORA OR EXTRA PURCHASE OF GITTI/ DABORA RS. 2601225/-. BESIDES IF NP IS TO BE WORKED OUT IT IS NECESSARY T HAT DEDUCTION SHOULD BE GIVEN FOR DEPRECIATION AND FINANCIAL EXPENSES ALSO. THE LEARNED AO AFTER THIS LETTER DID NOT ASK ANY QUESTION BUT APPLIED PR OFIT RATE OF 35% AND AFTER REDUCING DISCLOSED GP OF RS. 157400/- MADE ADDITION OF RS. 548805/-. 5.04 DURING HEARING OF APPEAL I SUBMITTED AS UNDER: - (I) THE LEARNED AO FAILED TO APPRECIATE THIS FACT T HAT THESE PAPERS WERE PREPARED FOR BANK FACILITIES WHEREIN SALES WER E INFLATED, OPENING AND CLOSING STOCK WAS NOT TAKEN AND SOME EXPENSES WERE NOT SHOWN. ITS PERIOD 01.01.2007 TO 30.11.2007 IS TAKEN INTENTIONALLY SO THAT THESE FIGURES CAN NOT BE MATCHED WITH THE ROI FIGURES OR ACCOUNTS BOOKS. (II) THE LEARNED AO ALSO DID NOT CONSIDER THE FACT THAT THIS ANNEXURE RELATES TO ASS.YEAR 2007-08 & 2008-09 AND HAVE NO R ELEVANCY TO ASSESSMENT YEAR 2003-04. 36 (III) THAT LEARNED AO DID NOT FOUND ANY DISCREPANCY IN OUR ACCOUNTS WHICH IS SUPPORTED BY VOUCHER WHICH MAY SUGGEST HIM FOR ANY ADDITIONS. (IV) THAT IN OUR LINE OF BUSINESS GP RATE IS GENERA LLY ABOUT 10% AND NP RATE ABOUT 5%. HOWEVER, IN MY CASE THERE IS PECU LIAR FEATURE I HAVE LITTLE SALES IN MARKET AND SUBSTANTIAL SALES ARE TO MY FAT HER SHRI BL SOMANI WHO MAKES SALES / SUPPLIES TO RAILWAYS WHEREIN HE IS ALREADY SHOWING NP. CONSIDERING THESE FACTS NP RATE DISCLOSED BY ME AT 6.31% BEING VERY R EASONABLE I SUBMIT IT DOES NOT CALL FOR ANY INTERFERENCE. (V) IN VIEW OF THESE FACTS I REQUEST FOR DELETION O F ADDITION OF RS. 548805/- OR TO SUBSTITUTE IT AS PER REQUEST MADE AB OVE. BESIDES DURING APPEAL PROCEEDINGS I ALSO FILED A CO NSOLIDATED STATEMENT OF DISCLOSED GP AND NP CHART AS PER ROI F ILED FROM ASS.YEAR 2003-04 TO 2008-09 WITH UNSYMMETRY IN THEIR PRESENT ATION (PB 57) AS WELL AS CONSOLIDATED STATEMENT WITH SYMMETRY IN PRESENTA TION OF GP/NP FOR ASS.YEAR 2003-04 TO 2008-09 (PB 58) AND SUBMITTED T HAT THE LEARNED AO HAS, WHILE APPLYING PROFIT RATE, DEDUCTED GP SHOWN RS. 157410/- IN ASS.YEAR 2003-04; RS.305858/- IN ASS.YEAR 2004-05; RS. 370893/- IN ASS.YEAR 2005-06; RS. 326744/- IN ASS.YEAR 2006-07, RS. 194184/- (IT SHOULD BE RS.1231262/-) IN ASS.YEAR 2007-08; RS. 24 34466/- IN ASS.YEAR 2008-09 WHICH IS BECAUSE THESE ACCOUNTS FOR DIFFERE NT YEARS ARE PREPARED BY DIFFERENT ACCOUNTANTS WHO HAVE TAKEN EXPENSES IN TRADING A/C OR P&L A/C AS PER THEIR UNDERSTANDING. I THEREFORE IN PB 5 8 ARRANGED IT IN SYMMETRY TO MAKE IT IN MATCH WITH EACH OTHER. AS D ISCLOSED GP OF ASS.YEAR 2008-09 WAS BASED ON AUDIT U/S 44AB WHILE PREPARING CONSOLIDATED STATEMENTS IN SYMMETRY I WAS GUIDED BY TRADING ACCOUNT AND PROFIT AND LOSS ACCOUNT ATTACHED WITH ROI FOR ASS.Y EAR 2008-09. AS MY GP FOR ASS.YEAR 2003-04 WITH THIS PRESENTATION WAS GIVING GP RATE OF 44.06% I REQUESTED HONBLE CIT(A) FOR DELETION OF A DDITION OF RS. 548805/-. 6.6 BEFORE US, THE LD. AR HAS SUBMITTED AS UNDER:- 5.07 AS SUBMITTED BEFORE HONBLE CIT(A) ALSO DURI NG PERIOD RELATED TO ASS.YEAR 2008-09 I WAS IN PROCESS OF EXP ANSION OF MY BUSINESS FOR WHICH THERE WERE 2 OPTIONS (I) TO GO FOR BIG SIZE JAW MACHINE AND ALSO ONE MORE DUMPER FOR THE SAME; OR (II) TO GO FO R SMALL SIZE JAW MACHINE (PB 219 TO 221). TO GO FOR FIRST OPTION WAS TO BE SUPPORTED BY BANK FINANCE AND FOR IT MY ACCOUNTANT WAS MAKING EX ERCISE OF OBTAINING MAXIMUM BANK LOAN. THESE PAPERS MAY RELATE TO SAID EXERCISE WHICH HAS NO RELEVANCY WITH MY BUSINESS. DURING APPEAL HEARI NG I ALSO SUBMITTED THAT THESE PAPERS RELATE TO ASS.YEAR 2007-08 AND /O R ASS.YEAR 2008-09 AND 37 NOT TO EARLIER YEARS. EVEN HONBLE SPECIAL AUDITORS HAVE TAKEN IT IN THEIR REPORTS RELATING TO ASS.YEAR 2007-08 (PB 45) & ASS .YEAR 2008-09 (PB 53) ONLY AND NOT IN EARLIER YEARS. IN MY BUSINESS T O HAVE GP AT 62% & NP AT 32% IS NOT POSSIBLE. BESIDES FROM A LOOK OF THES E PAPERS YOUR HONOUR WILL PLEASE OBSERVE THAT THERE IS NEITHER OPENING/C LOSING STOCK NOR IT HAS EXPENSES, LIKE INTEREST, DEPRECIATION ETC. WHICH HA VE SUBSTANTIAL EFFECT ON GP / NP. BESIDES PURCHASES VIZ--VIZ SALES OF RS.94 87962/- ARE SUBSTANTIALLY LESS. THIS ALL APPEARS TO BE DONE TO IMPROVE TRADING RESULTS TO GET MAXIMUM BANK FINANCE. 5.08 I ALSO SUBMIT SIR THAT THE APPROACH OF LEARNED AO WHILE GIVING DEDUCTION OF GP WAS NOT FAIR. HE DID NOT APP RECIATE THIS FACT THAT MY ACCOUNTANT HAD PREPARED ACCOUNTS UNSCIENTIFICALL Y. IF MY ACCOUNTS RIGHT FROM ASS.YEAR 2003-04 TO 2006-07 ALSO PRESENT ED IN THE MANNER IT WAS PRESENTED IN ASS.YEAR 2007-08 & 2008-09 (PB 57) MY GP RATE IN ALL SIX YEARS SHALL MATCH TO EACH OTHERS (PB 58). 5.09 IN VIEW OF AFORESAID FACTS I SUBMIT AS UND ER:- (I) PAGE 56-57 OF ANNEXURE 18 HAVE NO RELEVANCE TO ASS.YEAR 2003-04 AND IT SHOULD NOT BE APPLIED IN ASS.YEAR 20 03-04; (II) GP DISCLOSED IN ASS.YEAR 2008-09 HAS NOT BEEN DISPUTED BY THE LEARNED AO. THIS GP IS BASED ON TRADING ACCOUNTS P REPARED DURING AUDIT U/S 44AB ( I WAS NEVER SUBJECT TO AUDI T U/S 44AB EARLIER). IN ASS.YEAR 2007-08 THE LEARNED AO HAS DE DUCTED NP (SUBJECT TO DEPRECIATION) WHILE ARRIVING ADDITIONS. IN ORDER TO HAVE SYMMETRY IN ALL 6 YEARS I HAVE RECASTED GP IN ALL 6 YEARS IN PB 58. I SUBMIT THE GP SO ARRIVED BE DEDUCTED IN ALL 6 YEA RS WHILE COMPUTING ADDITIONS IF ANY BASED ON GP RATE. AS GP WITH THIS CONSOLIDATED STATEMENT PREPARED ON SYMMETRY BASIS I N ASS.YEAR 2003-04 BEING 44.06% THERE IS NO ROOM FOR ANY ADDIT ION IN ASS.YEAR 2003-04. (III) IN ALTERNATE I REQUEST YOUR HONOUR FOR APPLIC ATION OF NP RATE AT PAR TO COMPARABLE CASE OF M/S MAHESHWARI CR USHERS, KOTA ASS.YEAR 2007-08 (PB 225 & 226) I.E. 7.45% AS AGAIN ST 6.31% DISCLOSED (SUBJECT TO DEPRECIATION) BY ME. 6.7 ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ERS OF THE AUTHORITIES BELOW. 6.8 WE HAVE HEARD BOTH THE PARTIES. THE COPIES OF A NNEXURE 18 ARE AVAILABLE AT PAGES 59 AND 60 OF THE PAPER BOOK. WHILE DETERMINING THE GROSS PROFIT RATE AS PER THIS 38 DOCUMENT, ONLY PURCHASE EXPENSES, SALES TAX AND ROY ALTY HAS BEEN CONSIDERED. THE DEPRECIATION IS ALSO NOT AT ALL CONSIDERED. THE BA NK INTEREST IS ALSO NOT BEING CONSIDERED . MOREOVER, THESE PAPERS DID NOT RELATE TO THE ASSESS MENT YEAR UNDER CONSIDERATION HENCE ON THESE BASIS OF PAPERS, THE AO COULD NOT HAVE CON CLUDED THAT GROSS PROFIT WAS 35%. SURVEY HAS BEEN CONDUCTED AND INCRIMINATING DOCUMEN TS WERE IMPOUNDED. THE SPECIAL AUDITOR ALSO GAVE THE REPORT. THERE IS NOTHING ON R ECORD TO SUGGEST AS TO HOW THE GROSS PROFIT RATE OF 35% CAN BE APPLIED FOR THE ASSESSMEN T YEAR UNDER CONSIDERATION. WE THEREFORE, HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFI ED IN CONFIRMING THE ADDITION OF RS. 5,28,805/- 7.0 NOW WE TAKE UP REMAINING GROUND OF APPEAL OF RE VENUE IN ITA NO.592/ JP/2011. 7.1 THE GROUND NO. 2 OF THE REVENUE IS AS UNDER:- THE LEARNED CIT(A) ERRED IN DELETING ADDITION ON A CCOUNT OF UNRECORDED INVESTMENT RS. 348100/-. 7.2 DURING THE COURSE OF SURVEY, A LEDGER ANNEXURED AS 24 SHOWED THAT THE ASSESSEE HAS MADE ADVANCE OF RS. 2.95 LACS. THIS HAS BEEN RE PORTED BY THE AUDITORS ALSO. THE ASSESSEE WAS ASKED TO EXPLAIN THE SOURCE OF SUCH AD VANCE BEFORE THE AO. THE ASSESSEE STATED THAT THIS ANNEXURE DOES NOT RELATE TO THE AS SESSEE AND RELATE TO HIS FATHER AND MOTHER. HOWEVER, NO SUPPORTING MATERIALS WERE FURN ISHED BY THE ASSESSEE IN THE FORM OF CONFIRMATION FROM HIS FATHER AND MOTHER. THEREFORE, THE AO TREATED THE ADVANCE AS UNEXPLAINED U/S 69B OF THE ACT AND ALSO INCLUDED TH E INTEREST RECEIVABLE ON SUCH ADVANCE @ 18% . THUS THE AO MADE TOTAL ADDITION OF RS. 3,48 ,100/-. 7.3 BEFORE THE LD. CIT(A), THE ASSESSEE HAS MADE T HE FOLLOWING SUBMISSIONS. 39 ON THE BASIS OF ANNEXURE 24 THE LEARNED AO HAS MAD E ADDITIONS OF LOANS OF RS. 295000/- AND INTEREST @ 1 8% THEREON AT RS. 53100/- THUS TOTALING TO RS. 348100/-. THE LEAR NED AO DID NOT APPRECIATE THIS FACT THAT INVESTMENT WAS OF RS. 555 000/- IN ACCOUNT OF ALLANOOR, RS. 50000/- IN ACCOUNT OF ASHOK JAIN, RS. 125000/- IN A/C OF GANESH LAL GUJAR AND RS. 50000/- IN ACCOUNT OF PRAMOD JAIN THUS TOTALING TO RS. 780000/- WHICH WERE ALREADY DI SCLOSED BY SMT.MEENA SOMANI IN HER BOOKS OF ACCOUNTS SMT. MEEN A SOMANI DURING ASSESSMENT PROCEEDINGS HAD SUBMITTED THAT AN NEXURE-24 PERTAINS TO HER BUSINESS ACTIVITIES AND MYSELF AND MY FATHER SHRI BL SOMANI WERE ALSO TELLING THE SAME THING. THE LEA RNED AO HAS ACCEPTED THE INTEREST RS. 150500/- DISCLOSED BY MY MOTHER SMT. MEENA SOMANI IN HER ASSESSMENT. ONE INCOME IS TO BE TAXED AT ONE PLACE ONLY. I MAY ALSO SUBMIT THAT WHILE COMPLETING ASSESSMENT U/S 143(3) FOR ASS.YEAR 2008-09 IN CASE OF SMT. MEENA S OMANI THE LEARNED AO HAS ACCEPTED THE RETURNED FIGURES OF LOA NS AND INTEREST ON LOANS AND DID NOT MADE ANY ADDITIONS LIKE EARLIE R YEARS. COPY OF ORDER IS ENCLOSED VIDE ANNEXURE-D TO THIS LETTER. I N VIEW OF THESE FACTS I SUBMIT ADDITIONS IN MY HANDS ARE UNCALLED F OR AND IT MAY BE DELETED. 7.4 THE LD. CIT(A) DELETED THE ADDITION AFTER OBSER VING AS UNDER:- FROM THE PERUSAL OF RECORDS IT IS FOUND THAT ADVA NCES IN ANNEXURE A-24 ARE DISCLOSED BY SMT.MEENA SOMANI, MO THER OF THE APPELLANT IN HER BOOKS OF ACCOUNTS. INTEREST INCOME IN RESPECT OF THESE ADVANCES HAS ALSO BEEN DISCLOSED IN RETURNS F ILED BY SMT. MEENA SOMANI FOR VARIOUS YEARS. AO HAS NOT BOTHERED TO EXAMINE THE DETAILS FURNISHED ALONG WITH RETURN OF INCOME O F SMT.MEENA SOMANI EITHER DURING ASSESSMENT PROCEEDINGS OR REMA ND PROCEEDINGS. MOREOVER WHEN ADDITION HAS BEEN MADE I N THE CASE OF SMT.MEENA SOMANI ON THE BASIS OF ENTRIES IN ANNEXUR E A-24 ITSELF, THERE IS NO JUSTIFICATION FOR MAKING FURTHER ADDITI ON IN THE CASE OF APPELLANT ON THE BASIS OF ENTRIES IN THE SAME ANNEX URE. THEREFORE ADDITION OF RS. 348100/- IN THE CASE OF APPELLANT I S NOT JUSTIFIED AND THE SAME IS DIRECTED TO BE DELETED. GROUND NO.4(II) IS THUS ALLOWED. 40 7.5 BEFORE US, THE LD. DR SUBMITTED THAT THE ANNEXU RE SHOWS THAT THE ADVANCE WAS GIVEN BY THE ASSESSEE. THE ASSESSEE HAS NOT BEEN AB LE TO SHOW THE SOURCE FROM WHICH ADVANCE WAS GIVEN. THE AO THEREFORE, WAS JUSTIFIED IN MAKING THE ADDITION. 7.6 BEFORE US, THE LD. AR HAS FILED THE FOLLOWING S UBMISSIONS. (I) THAT BASE OF ANNEXURE-24 STARTS FROM ASS.YEAR 2 002-03 AND NOTICE U/S 148 FOR ASS.YEAR 2002-03 WAS GIVEN TO SM T.MEENA SOMANI ONLY WHICH MEANS THAT THE THEN AO WAS SATISFIED THA T THIS ANNEXURE CONTAINS HER FINANCIAL ACTIVITIES ONLY. (II) IN RESPONSE TO NOTICE U/S 148 SMT.MEENA SOMANI HAD FILED HER ROI FOR ASS.YEAR 2002-03 TO 2005-06 IN APRIL/MAY 20 09 WHEREIN ALL ENTRIES RELATING TO ANNEXURE-24 IS VERIFIABLE. COPI ES OF IMPOUNDED PAPERS WERE GIVEN TO HER ON 01.05.2010 I.E. AFTER M ORE THAN ONE YEAR OF ROI FILED. (III) NO NOTICE U/S 148 WAS GIVEN TO SMT.MEENA SOMA NI FOR ASS.YEAR 2006-07 & 2007-08. (IV) ASSESSMENT OF SMT.MEENA SOMANI FOR ASS.YEAR 20 08-09 WAS MADE U/S 143(3) AND NO ADDITION ON THIS ISSUE WERE MADE LIKE ASS.YEAR 2002-03 TO 2005-06. (V) WHEN TOGETHERWITH LETTER DATED 21.12.2010 COPY OF THE CASH BOOK AND LEDGER ACCOUNTS OF PARTIES WERE FILED DURI NG APPEAL PROCEEDINGS OF SMT.MEENA SOMANI BEFORE THE HONBLE CIT(A) AND HONBLE CIT(A) FORWARDED A COPY OF THE SAME TO LEAR NED AO HE MADE NO COMMENTS ON THIS ISSUE IN HIS REMAND REPORT . (VI) THE HONBLE CIT(A) HAD ALSO VERIFIED CASH BOOK AND LEDGER ACCOUNTS DURING APPEAL PROCEEDINGS OF SMT.MEENA SOM ANI AND FOUND IT MATCHING WITH ANNEXURE 24. (VII) MATTER IN RELATION TO ASS.YEAR 2004-05 TO 200 8-09 IN CASE OF MYSELF, SHRI BABULAL SOMANI AND SMT.MEENA SOMANI FO R LIMITED PURPOSE I.E. VERIFICATION OF CASH BOOK OF SMT.MEENA SOMANI VIZ-A- VIZ ANNEXURE-24 WAS REMITTED BACK TO LEARNED AO BY HONBLE CIT(A). THE LEARNED AO VERIFIED ALL ENTRIES FROM AS S.YEAR 2002-03 TO 2008-09 AND DID NOT FOUND ANY WRONG THEREIN (PB 241 TO 250). 41 7.7 WE HAVE HEARD BOTH THE PARTIES. THE LD. CIT(A) HAS CLEARLY MENTIONED THAT THE ADDITIONS HAVE BEEN MADE IN THE CASE OF SMT. MEENA SOMANI ON THE BASIS OF THE ENTRIES IN ANNEXURE A- 24. IF THAT DOCUMENT IS CONSIDERED TO B E BELONGING TO SMT. MEENA SOMANI THEN THE ADDITION CAN BE MADE IN HER HANDS ON THE B ASIS OF SUCH DOCUMENTS AND NOT IN THE HANDS OF THE ASSESSEE. THE ONUS WAS ON THE REVENUE TO ESTABLISH THAT ENTRIES AVAILABLE IN ANNEXURE A-24 WERE RELATING TO THE ASSESSEE IN THE DOCUMENTS BELONGING TO THE ASSESSEE. WE THEREFORE, FEEL THAT LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. ITA NO. 619/ JP/2011 ASSESSEE A.Y. 2004-05 8.1 THE GROUND NO. 1 AND 2 OF THE ASSESSEE ARE SIMI LAR TO THE GROUND NO. 1 AND 2 OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04. 8.2 FOLLOWING OUR FINDINGS FOR THE ASSESSMENT YEAR 2003-04, THESE GROUND NO. 1 AND 2 OF THE ASSESSEE ARE DISMISSED. 9.1 GROUND NO. 3 (I) OF THE ASSESSEE IS AS UNDER:- THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN CONFIRMING TRADING ADDITION OF RS. 753999/- APPLYING GP RATE OF 35% ON DISCLOSED SALES OF RS. 3028156/- ON BASIS OF IMPOUNDED PAPERS FOUND DURING SURVEY (ANNEXURE 18 PAGE 56-5 7) WHICH RELATES TO ASS.YEAR 2007-08 / 2008-09 (BOTH YEARS PARTLY) AND WHICH WAS PREPARED BY ACCOUNTANT ON FLIMSY FIGURES IN ORDER TO PLAN FOR M ACHINERY LOAN WHICH HAS NO MATCH WITH THE APPELLANTS BOOKS OF ACCOUNTS. 9.2 THIS ISSUE HAS ALSO BEEN CONSIDERED WHILE DISPO SING OFF THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04. FOLLOWING OUR ORDE R FOR THE ASSESSMENT YEAR 2003-04, WE HOLD THAT THE GROSS PROFIT RATE COULD NOT HAVE B EEN ENHANCED ON THE BASIS OF THE PAPERS WHICH RELATED TO ASSESSMENT YEAR 2007-08 AND 2008-0 9 AND WHEN THE ASSESSEE HAS FILED THE EXPLANATION IN RESPECT OF SUCH PAPERS AND THE A DDITION CONFIRMED BY THE LD. CIT(A) IS DELETED. 42 10.1 GROUND NO. 3 (II) OF THE ASSESSEE IS IN RESPEC T OF DISALLOWANCE OF RS. 6700/- FROM GENERAL EXPENSES WHICH HAS NOT BEEN PRESSED BY THE LD. AR DURING HEARING BEFORE THE BENCH. HENCE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED BEING NOT PRESSED. ITA NO. 593/ JP/2011 REVENUE A.Y. 2004-05 11.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF UNRECORDED SALES FROM R S. 16,86,335/- TO RS. 1,26,981/-. 11.2 WE HAVE HEARD BOTH THE PARTIES. THE DOCUMENTS FOUND DURING THE COURSE OF SEARCH SHOWED THAT THE ASSESSEE HAS SUPPLIED THE LINE STON E TO M/S. SHREE RAM CEMENT WORKS. AS PER THE DOCUMENTS, THE GROSS PROFIT WAS RS., 1,0 0,843/-. THE LD. CIT(A) HAS UPHELD THE PROFIT TO RS. 1,26,981/- AFTER APPLYING THE GROSS P ROFIT RATE OF 7.53%. THIS ISSUE HAS BEEN CONSIDERED IN THE CASE OF THE ASSESSEE FOR THE ASSE SSMENT YEAR 2003-04 AND WE HAVE UPHELD THAT ESTIMATED PROFIT IS TO BE APPLIED ON TH E SALES WHICH HAVE BEEN MADE OUTSIDE THE BOOKS OF ACCOUNTS FOR WHICH TRADING HAS BEEN FO UND DURING THE COURSE OF SURVEY. THUS WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN RESTRI CTING THE ADDITION FROM RS. 16,86,335/- TO RS. 1,26,981/- 12.1 THE SECOND GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF UNRECORDE D INVESTMENT OF RS. 3,54,000/-. 12.2 WE HAVE HEARD BOTH THE PARTIES. THE ADDITION I S BASED ON ANNEXURE A-24 AND ON THE BASIS OF SUCH ANNEXURE, THE ADDITION HAS BEEN D ELETED IN THE ASSESSMENT YEAR 2003-04 BECAUSE IT HAS BEEN HELD THAT SUCH ANNEXURE BELONGS TO SMT. MEENA SOMANI. FOLLOWING OUR FINDINGS FOR THE ASSESSMENT YEAR 2003-04, WE HO LD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 3.54 LACS. ITA NO. 620/ JP/2011 ASSESSEE A.Y. 2005-06 43 13.1 THE FIRST GROUND OF THE ASSESSEE IS THE SAME A S IN THE ASSESSMENT YEAR 2003-04. FOLLOWING OUR FINDINGS FOR THE ASSESSMENT YEAR 2003 -04, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 14.1 THE GROUND OF APPEAL NO.2(I) OF ASSESSEE READ S AS UNDER:- THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN CONFIRMING TRADING ADDITION OF RS. 904582/- APPLYING GP RATE OF 35% ON DISCLOSED SALES OF RS. 3644210/- ON BASIS OF IMPOUNDED PAPERS FOUND DURING SURVEY (ANNEXURE 18 PAGE 56-5 7) WHICH RELATES TO ASS.YEAR 2007-08 / 2008-09 (BOTH YEARS PARTLY) AND WHICH WAS PREPARED BY ACCOUNTANT ON FLIMSY FIGURES IN ORDER TO PLAN FOR M ACHINERY LOAN WHICH HAS NO MATCH WITH THE APPELLANTS BOOKS OF ACCOUNTS. 14.2 THE AO NOTICED THAT THE PAPERS FOUND DURING TH E COURSE OF SURVEY SHOWED THAT THE ASSESSEE HAS DISCLOSED GROSS PROFIT OF 62.47% AND N ET PROFIT OF 32.12% FOR THE PERIOD FROM JAN. 2007 TO 30 TH NOV. 2007 AND THEREFORE, THE AO REQUIRED THE ASSES SEE TO EXPLAIN AS TO WHY THE GROSS PROFIT RATE OF 35% BE NOT APPLI ED. BEFORE THE AO, THE ASSESSEE SUBMITTED AS UNDER:- IT IS PERTINENT TO POINT OUT HERE THAT THE NORMALL Y THE GP IN THE IDENTICAL TYPE OF CASES IS 10%. IT IS ALSO PERT INENT TO JOINT OUT HERE THAT THE QUANTITY WISE THE PRODUCTION GRIT IS 65 % OF THE DABORA PURCHASE + OPENING STOCK. IN THE INSTANT CAS E ON THE PERUSAL OF THE SEIZED PAPERS AS MENTIONED BY YOUR G OOD SELF IT IS FOUND THAT NEITHER THE OPENING STOCK OF DABORA IS M ENTIONED NOR THERE IS ANY MENTION OF DEPRECIATION ETC. BEFORE GOING INTO THE FURTHER DETAILS IT IS IMPORTA NT TO POINT OUT THAT THE SALES TAX IS RS. 40/- PER TROLLEY AND A TROLLEY CONTAINS 5 TONS MATERIAL AS NORMALLY CONSIDERED BY THE GOVT AU THORITIES. THE ROYALTY IS RS. 50 PER TON. ON THE PERUSAL OF THE PA PERS AS MENTIONED BY YOUR HONOR , IT IS FOUND THAT THE ROYALTY HAS BE EN MENTIONED AT RS. 250022/- WHICH IF DIVIDED BY RS. 50/- THEN THE WEIGHT CONIES TO 5000 TROLLEYS AND LIKE WISE THE SALES TAX IS RS. 40 PER TROLLEY AND IF THE AMOUNT OF RS. 410190/- IS DIVIDED BY RS. 40/- T HEN THE NUMBER OF TROLLEYS COME TO 10255 MEANING THERE BY THAT THE ASSESSES HAS 5255 TROLLEYS IN THE OPENING STOCK WHICH HAS NOT BE EN MENTIONED ON THOSE LOSE ROUGH PAPERS. THE WEIGHT IN THOSE 525 5 TROLLEYS 44 WOULD BE 26275 TONS THE VALUE OF WHICH AT COST PRIC E AT RS. 545/- PER TROLLEY WHICH INCLUDES ALL LEVIES WHICH WOULD C OME TO RS. S45/- X 5255 = 2863975/- MEANING THERE BY THAT THE ASSESSES HAD THAT MUCH OPENING STOCK, IN HAND ON WHICH ROYALTY H AS BEEN PAID AS THE SAME HAS BEEN PRODUCED FROM MINES BUT SALES TAX WAS NOT PAID AS THE SAME WAS NOT TRANSPORTED TO CRUSHER SIT E, ALTHOUGH THE SAME WAS LYING IN THE STOCK AT MINES. . AS STATED ABOVE THE NORMAL WEIGHT IN A TROLLEY IN D ABORA IS 5 TONS AND IF THE TOTAL NUMBER OF TROLLEYS IN ST OCK AND IN PURCHASE IS MULTIPLIED BY THIS FACTOR THEN TOTAL WEIGHT WOUL D BE 10255 X 5 = 51275 TONS AND AVERAGE YIELD OF GRIT IS 65 % WHICH INCLUDES SAND AND SMALLER SIZES AS WELL AS SUCH THE PRODUCTION OF FINAL MATERIAL WOULD BE 65% OF 51275 TONS = 33329 TONS AND AVERAGE AREA COVERED BY A TON IS 35 EFT. ON THE BASIS OF ABOVE FORMULA THE SALES OF GRIT IN THE LOOSE PAPER WILL BE 9487962 / RS. 8.2 = 1157069 EFT AND I F 35 EFT BE THE PER TON PRODUCTION THEN THE CONVERSION INTO TONS WI LL BE 11 57069 / 35 = 33059 THAT MEANS THE SAME WILL ALMOST TALLY WI TH THE FIGURES AS MENTIONED ABOVE. THE NORMAL SELLING PRICE IS RS. L4/- FOR THE GRIT O F 40 MM SIZE AND 20 M SIZE AND THE RATE OF SALE OF THIN GRI T IS ONLY RS. 5/- PER SQ FT. AND THE PRODUCTION OF GRIT SIZE 20 MM AN D 40 MM IS 80% AND THAT OF SMALL SIZE AND SAND IS 20% MEANING THER E BY THAT THE AVERAGE RATE OF SALE IS ONLY RS. 8/20 PER FT. EXCLU DING TRANSPORT BASED ON SEIZED PAPERS ( ANNEX 18/60) AND IF THE AM OUNT OF SALES OF RS. 9487.962 AS SHOWN IN THE ALLEGED SEIZED PAPE R IS DIVIDED BY THIS AMOUNT THEN THE QUANTITY COMES TO 1157069 EFT. NOW IF THE TRADING ACCOUNT IS RE CASTED ON THIS BAS IS THEN THE FOLLOWING FIGURES WILL EMERGE: OPENING STOCK 2601225 SALES 94 87962 PURCHASES DABORA 2726441 STOCK NIL SALES TAX 410190 ROYALTY 250022 GRIT PURCHASE 174000 ------------ ------------ 6161908 9487962 GROSS PROFIT 33 26054 NOW ON THE ABOVE BASIS, IF THE P/L A/C IS RECASTED THEN THE FOLLOWING FIGURES WILL EMERGE: 45 RECASTED P/L ACCOUNT: EXPENSES AS SHOWN IN GROSS PROFIT THE, SAID PAPER 2879211 AS ABOVE 332 6054 BANK INTEREST 100000 DEPRECIATIQN 100000 NET PROFIT 246843 SO BASED ON ABOVE PAPER THE NET PROFIT SUBJECT TO D EPRECIATION AND BANK INTEREST COMES TO RS. 446843/- ONLY WHICH YIEL DS A NP RATE AT 4.7! % AGAINST WHICH THE ASSESSEE HAS DECLARED A NP RATE O F 5.87% MEANING THERE BY THAT THE RESULTS DECLARED BY THE ASSESSEE ARE BE TTER AS COMPARED TO THOSE SHOWN ON THE ALLEGED PAPER. IT IS RE ITERATED THAT THE SAID PAPER IS NEITHER IN THE HAND WRITING OF THE ASSESSEE NOR IN THE HAND WR ITING OF HIS FATHER. IT IS ALSO PERTINENT TO MENTION THAT THERE ARE MORE PAPERS IN THE POSSESSION OF THE DEPARTMENT WHICH WERE SEIZED AT T HE TIME OF SURVEY AND WHICH YIELD LESSER AMOUNT OF PROFIT OR ARE IN CONSO NANCE WITH THE RESULTS DECLARED BY THE ASSESSEE. THE ASSESSEE WILL BE PLEASED TO SUBMIT ANY FURTHER EXPLANATION IF NEEDED BE . 12.03 FROM ABOVE LETTER YOU WILL PLEASE FIND THAT W E HAD REQUESTED LEARNED AO THAT IN ORDER TO HAVE SALES OF RS. 9487962/- CONSIDERING SALE RATE PER CFT. IT IS NECESSARY THAT THERE SHOULD BE OPENING STOCK OF GITTI / DABORA OR EXTRA PURCHASE OF GITTI / DABORA OF RS.2601225/- . BESIDES IF NP IS TO BE WORKED OUT IT IS NECESSARY THAT DEDUCTION SHOULD BE GIVEN FOR DEPRECIATION AND FINANCIAL EXPENSES ALSO. THE LEARNED AO AFTER THIS LETTER DID NOT ASK ANY QUESTION BUT APPLIED PR OFIT RATE OF 35% AND AFTER REDUCING DISCLOSED GP OF RS. 370893/- MADE ADDITION OF RS. 904582/-. 14.3 BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED AS UNDER:- (I) THE LEARNED AO FAILED TO APPRECIATE THIS FACT T HAT THESE PAPERS WERE PREPARED FOR BANK FACILITIES WHEREIN SA LES WERE INFLATED, OPENING AND CLOSING STOCK WAS NOT TAKEN AND SOME EX PENSES WERE NOT SHOWN. ITS PERIOD 01.01.2007 TO 30.11.2007 IS TAKE N INTENTIONALLY SO THAT THESE FIGURES CAN NOT BE MATCHED WITH THE ROI FIGUR ES OR ACCOUNTS BOOKS. (II) THE LEARNED AO ALSO DID NOT CONSIDER THE FACT THAT THIS ANNEXURE RELATES TO ASS.YEAR 2007-08 & 2008-09 AND HAVE NO RELEVANCY TO ASSESSMENT YEAR 2005-06. 46 (III) THAT LEARNED AO DID NOT FOUND ANY DISCREPANCY IN OUR ACCOUNTS WHICH IS SUPPORTED BY VOUCHER WHICH MAY SUGGEST HIM FOR ANY ADDITIONS. (IV) THAT IN OUR LINE OF BUSINESS GP RATE IS GENERA LLY ABOUT 10% AND NP RATE ABOUT 5%. HOWEVER, IN MY CASE THERE IS PECULIA R FEATURE I HAVE LITTLE SALES IN MARKET AND SUBSTANTIAL SALES ARE TO MY FATHER SHRI BL SOMANI WHO MAKES SALES/ SUPPLIES TO RAILWAYS WHEREIN HE IS ALREADY SHOWING NP. CONSIDERING THESE FACTS NP RATE DISCLOSED BY ME AT 3.87% BEING VERY REASONA BLE I SUBMIT IT DOES NOT CALL FOR ANY INTERFERENCE. (V) IN VIEW OF THESE FACTS I REQUEST FOR DELETION O F ADDITION OF RS. 904582/- OR TO SUBSTITUTE IT AS PER REQUEST MADE AB OVE. BESIDES DURING APPEAL PROCEEDINGS I ALSO FILED A CO NSOLIDATED STATEMENT OF DISCLOSED GP AND NP CHART AS PER ROI F ILED FROM ASS.YEAR 2003-04 TO 2008-09 WITH UNSYMMETRY IN THEIR PRESENT ATION (PB 57) AS WELL AS CONSOLIDATED STATEMENT WITH SYMMETRY IN PRESENTA TION OF GP/NP FOR ASS.YEAR 2003-04 TO 2008-09 (PB 58) AND SUBMITTED T HAT THE LEARNED AO HAS, WHILE APPLYING PROFIT RATE, DEDUCTED GP SHOWN RS. 157410/- IN ASS.YEAR 2003-04; RS. 305858/- IN ASS.YEAR 2004-05; RS. 370893/- IN ASS.YEAR 2005-06; RS. 326744/- IN ASS.YEAR 2006-07, RS. 194184/- (IT SHOULD BE RS.1231262/-) IN ASS.YEAR 2007-08; RS. 24 34466/- IN ASS.YEAR 2008-09 WHICH IS BECAUSE THESE ACCOUNTS FOR DIFFER ENT YEARS ARE PREPARED BY DIFFERENT ACCOUNTANTS WHO HAVE TAKEN EXPENSES IN TRADING A/C OR P&L A/C AS PER THEIR UNDERSTANDING. I THEREFORE IN PB 5 8 ARRANGED IT IN SYMMETRY TO MAKE IT IN MATCH WITH EACH OTHER. AS D ISCLOSED GP OF ASS.YEAR 2008-09 WAS BASED ON AUDIT U/S 44AB WHILE PREPARING CONSOLIDATED STATEMENTS IN SYMMETRY I WAS GUIDED BY TRADING ACCOUNT AND PROFIT AND LOSS ACCOUNT ATTACHED WITH ROI FOR ASS.Y EAR 2008-09. AS MY GP FOR ASS.YEAR 2005-06 WITH THIS PRESENTATION WAS GIVING GP RATE OF 39.31% I REQUESTED HONBLE CIT(A) FOR DELETION OF A DDITION OF RS.904582/-. 14.4 THE LD. CIT(A) CONFIRMED THE ADDITION. 14.5 BEFORE US THE LD. AR HAS FILED THE FOLLOWING S UBMISSIONS. 12.7 AS SUBMITTED BEFORE HONBLE CIT(A) ALSO DURING PERIOD RELATED TO ASS.YEAR 2008-09 I WAS IN PROCESS OF EXPANSION OF MY BUSINESS FOR WHICH THERE WERE 2 OPTIONS (I) TO GO FOR BIG SIZE JAW MACHINE AND ALSO ONE MORE DUMPER FOR THE S AME. OR (II) TO GO FOR SMALL SIZE JAW MACHINE (PB 219 TO 221). T O GO FOR FIRST OPTION WAS TO BE SUPPORTED BY BANK FINANCE AND FOR IT MY ACCOUNTANT WAS WAS MAKING EXERCISE OF OBTAINING MAX IMUM BANK LOAN. THESE PAPERS MAY RELATE TO SAID EXERCISE WHIC H HAS NO 47 RELEVANCY WITH MY BUSINESS. DURING APPEAL HEARING I ALSO SUBMITTED THAT THESE PAPERS RELATE TO ASS.YEAR 2007 -08 AND / OR ASS.YEAR 2008-09 AND NOT TO EARLIER YEARS. EVEN HON BLE SPECIAL AUDITORS HAVE TAKEN IT IN THEIR REPORTS RELATING TO ASS.YEAR 2007-08 (PB 45) & ASS.YEAR 2008-09 (PB 53) ONLY AND NOT IN EARLIER YEARS. IN MY BUSINESS TO HAVE GP AT 62% & NP AT 32% IS NOT POSSIBLE. BESIDES FROM A LOOK OF THESE PAPERS YOUR HONOUR WILL PLEASE OBSERVE THAT THERE IS NEITHER OPENING/CLOSIN G STOCK NOR IT HAS EXPENSES, LIKE INTEREST, DEPRECIATION ETC. WHICH HA VE SUBSTANTIAL EFFECT ON GP / NP. BESIDES PURCHASES VIZ--VIZ SALE S OF RS. 9487962/- ARE SUBSTANTIALLY LESS. THIS ALLAPPEARS T O BE DONE IN ORDER TO IMPROVE TRADING RESULTS TO GET MANIMUM BAN K FINANCE. 12.08 I ALSO SUBMIT SIR THAT THE APPROACH OF LEARNE D AO WHILE GIVING DEDUCTION OF GP WAS NOT FAIR. HE DID N OT APPRECIATE THIS FACT THAT MY ACCOUNTANT HAD PREPARED ACCOUNTS UNSCIENTIFICALLY. IF MY ACCOUNTS RIGHT FROM ASS.YEAR 2003-04 TO 2006- 07 ALSO PRESENTED IN THE MANNER IT WAS PRESENTED IN ASS.YEA R 2007-08 & 2008-09 (PB 57) MY GP RATE IN ALL SIX YEARS SHALL M ATCH TO EACH OTHERS (PB 58). 12.09 IN VIEW OF AFORESAID FACTS I SUBMIT AS UNDER: - (I) PAGE 56-57 OF ANNEXURE 18 HAVE NO RELEVANCE TO ASS.YEAR 2005-06 AND IT SHOULD NOT BE APPLIED IN AS S.YEAR 2005- 06; (II) GP DISCLOSED IN ASS.YEAR 2008-09 HAS NOT BEEN DISPUTED BY THE LEARNED AO. THIS GP IS BASED ON TRA DING ACCOUNTS PREPARED DURING AUDIT U/S 44AB ( I WAS NEVER SUBJEC T TO AUDIT U/S 44AB EARLIER). IN ASS.YEAR 2007-08 THE LEARNED AO H AS DEDUCTED NP (SUBJECT TO DEPRECIATION) WHILE ARRIVING ADDITIO NS. IN ORDER TO HAVE SYMMETRY IN ALL 6 YEARS I HAVE RECASTED GP IN ALL 6 YEARS IN PB 58. I SUBMIT THE GP SO ARRIVED BE DEDUCTED IN A LL 6 YEARS WHILE COMPUTING ADDITIONS IF ANY. WITH THIS GP IN ASS.YEA R 2005-06 BEING 39.31% THERE SHALL BE NO ADDITION IN ASS.YEAR 2005-06. (III) IN ALTERNATE I REQUEST YOUR HONOUR FOR APPLIC ATION OF NP RATE AT PAR TO COMPARABLE CASE (PB 225 & 226) I.E. 7.45% AS AGAINST 3.87% DISCLOSED (SUBJECT TO DEPRECIATION) B Y ME. 14.6 ON THE OTHER HAND, THE LD. DR SUPPORTED THE O RDERS OF THE AUTHORITIES BELOW. 48 14.7 WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSE D THE CHART AVAILABLE AT PAGE 58 OF THE PAPER BOOK. IF THE ACCOUNTS ARE PREPARED ON THE SAME BASIS FOR DIFFERENT ASSESSMENT YEARS THEN NET PROFIT FOR DIFFERENT ASSESSMENT YEAR S VARIES FROM 3.87% TO 9.96%. THE GROSS PROFIT RATE VARIES FROM 35.39% TO 44.06%. AFT ER CONSIDERING THIS CHART AND TAKING INTO ACCOUNT, THE ALTERNATIVE REQUEST OF THE ASSESS EE, WE FEEL THAT IT WILL BE FAIR AND REASONABLE TO APPLY NET PROFIT RATE OF 7.45% BEFORE DEPRECIATION. ACCORDINGLY, THE GROUND OF APPEAL OF ASSESSEE IS PARTLY ALLOWED. 15.1 THE FOLLOWING GROUND OF APPEAL 2(I) OF THE ASS ESSEE AND THE GROUND OF APPEAL NO. 2 OF THE REVENUE ARE IN RESPECT OF THE SAME ISSUE. T HEREFORE, THESE GROUNDS ARE BEING DISPOSED OFF TOGETHER. GOA NO.3(I) OF ASSESSEE - THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN ESTIMATING PROFIT RATE OF 35% ON UNDISCLOSED SALES OF RS.895903/- AS AGAINST DISCLOSED NP RATE OF 3.87% AS PER TRADING A/C ATTAC HED WITH ROI GOA NO.2 OF DEPTT .- THE LEARNED CIT(A) ERRED IN RESTRICTING ADDITION O N ACCOUNT OF UNRECORDED GRIT SALES FROM RS.895603/- TO RS. 313461/-. 15.2 THE SPECIAL AUDITOR INTIMATED THE AO THAT THER E ARE GRIT SALES TO THE EXTENT OF RS. 8L95,603/- WHICH ARE NOT VERIFIABLE. BEFORE THE AO, THE ASSESSEE CONTENDED THAT SUCH SALES ARE PART OF THE RECORDED SALES. HOWEVER, THE SUBMIS SIONS OF THE ASSESSEE WAS NOT ACCEPTED AND ADDITION WAS MADE AT RS. 8,95,603/-. BEFORE THE LD. CIT(A), ASSESSEE SUBMITTED AS UNDER:- THE LEARNED AO ON THE STRENGTH OF THE REPORT OF THE AUDITORS HAVE TAKEN UNRECORDED GRIT SALES AT RS. 895603/-. IN VIE W OF MY SUBMISSIONS IN EARLIER PARAS AS AUDIT HAS BEEN CARRIED IGNORING PR INCIPLES OF NATURAL JUSTICE AND ALSO AGAINST THE PROVISIONS OF SEC. 142(2A) AND THEREFORE I HAVE MADE REQUEST FOR ANNULMENT OF ORDER. I AM REGD.DEALER UN DER THE RAJASTHAN SALES TAX ACT AND THE LEARNED ACTO, CIRCLE-2(A), KOTA VID E HIS ORDER DATED 26.06.2006 HAS ACCEPTED MY SALES AT RS. 3644210/- W HICH IS IN MATCH WITH 49 SALES DISCLOSED IN TRADING A/C ATTACHED WITH ROI. C OPY OF ORDER IS ENCLOSED VIDE ANNEXURE-I TO THIS LETTER. HOWEVER WI THOUT PREJUDICE TO ABOVE I SUBMIT THAT EVEN IF THE UNDISCLOSED GITTI S ALES ARE TAKEN AT RS. 895603/- A REASONABLE NET PROFIT THEREON SHOULD BE APPLIED AND LEVIED. GP RATE OF 10.18% HAS BEEN DISCLOSED BY ME AND THEREFO RE IT SHOULD BE APPLIED ON UNDISCLOSED SALES ALSO. I THEREFORE REQUEST YOUR HONOUR TO RESTRICT ADDITIONS TO 5% OF RS. 895003/- I.E. RS. 44780/- (A T PAR TO SEC.44AF) OR TO 10.18% OF RS. 895603/- I.E. RS. 90998/- ONLY. DURING APPEAL PROCEEDINGS I FILED COPY OF SALES TAX ORDER (PB 67- 70) WHEREIN SALES FIGURES WERE MATCHING WITH MY DIS CLOSED SALES. MY STRESS THEREFORE WAS THAT THERE IS NO UNDISCLOSED S ALES. HOWEVER TO PURCHASE PEACE I SUBMITTED THAT EVEN IF UNDISCLOSED SALES ARE THERE MY DISCLOSED NP RATE OF 3.87% (SUBJECT TO DEPRECIATION ) OR NP RATE AT 5% WHICH IS AT PAR TO SEC. 44AF BE APPLIED. IN ALTERNA TE I SUBMITTED THAT IN CASE OF MAHESHWARI CRUSHERS, KOTA ASST.YEAR 2007- 08 DISCLOSED NP RATE OF 7.45% WAS ACCEPTED BY HONBLE ACIT CIRCLE-1 KOTA AND SAME SHOULD BE APPLIED. HOWEVER, THE HONBLE CIT(A) DID NOT ACCEPT MY SUBMISSIONS AND APPLIED RATE OF 35% WHICH IS AT PAR TO RATE APPLIED BY THE LEARNED AO AND CONFIRMED BY HIM IN CASE OF DISCLOSE D SALES THUS GIVING RELIEF OF RS. 582142/- (895603-313461). 15.3 BEFORE US, THE LD. AR HAS FILED THE SUBMISSION S AS UNDER:- (I) THAT I AM SUBJECT TO SALES TAX AND AS SUCH REGI STERED DEALER UNDER THE PROVISIONS OF SALES TAX ACT. SALES TAX AUTHORITIES HAVE NOT DISPUTED MY DISCLOSED SALES. UNDISCLOSED TURNOV ER BASIS WHEREOF IS LETTER DATED 12.04.2010 OF HONBLE SPECIAL AUDITORS (PB 227) AS WELL AS LETTER DATED 26.05.2010 OF LEARNED AO (PB 87) WHICH ARE WITHOUT ANY SUPPORTING. IT IS THEREFORE SUBMITTED THAT THE SAME BE BRUSHED ASIDE AND ADDITION SUSTAINED ON BASIS OF SAME BY HONBLE CIT( A) BE DELETED. (II) IN ALTERNATE I SUBMIT THAT EVEN IF MY AFORESAI D SUBMISSION IS NOT ACCEPTED AND UNDISCLOSED SALES AS WORKED BY LEARNED AO IS RETAINED NP RATE OF 3.87% (SUBJECT TO DEPRECIATION) AS PER M Y BOOKS OF ACCOUNTS BE APPLIED (PB 58). (RELIANCE IS MADE ON CIT VS. BAL CHAND AJIT KUMAR 186 CTR (MP) 419; MANMOHAN SADANI VS.CIT 304 ITR 52 (MP ) & CIT VS. PRESIDENT INDUSTRIES 158 CTR 372)(GUJ)) OR NP RATE OF 5% WHICH IS AT PAR TO SEC.44AF OR NP RATE OF 7.45% AS ACCEPTED IN COMPAR ABLE CASE OF M/S MAHESHWARI CRUSHER, KOTA ASS.YEAR 2007-08 (PB 225 -226) BE APPLIED. 15.4 ON THE OTHER HAND, THE LD. DR STATED THAT EXPE NSES STANDS ALREADY INCLUDED. THEREFORE, THE UNRECORDED SALES SHOULD BE CONSIDERE D AS INCOME. 50 15.5 WE HAVE HEARD BOTH THE PARTIES. THIS ISSUE HAS BEEN CONSIDERED BY US IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04 AND FOLLOWING OUR FINDING FOR THE ASSESSMENT YEAR, WE HOLD THAT THE PROFIT RATE IS TO BE APPLIED ON SUCH RECORDED SALES. WE FEEL THAT IT WILL BE FAIR AND REASONABLE TO APPLY T HE PROFIT RATE OF 7.45% ON THE UNRECORDED SALES WITHOUT ALLOWING ANY FURTHER DEDUCTION. 16.1 GROUND NO. 2(III) WAS NOT PRESSED BY THE ASSES SEE DURING THE COURSE OF HEARING. THEREFORE, THE SAME IS DISMISSED BEING NOT PRESSED. ITA NO. 594/ JP/2011 REVENUE A.Y. 2005-06 17.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF UNRECORDED INV ESTMENT OF RS. 23,30,500/- 17.2 WE HAVE HEARD BOTH THE PARTIES. THIS ADDITION HAS BEEN BASED ON ANNEXURE A-24. ON THE BASIS OF THIS ANNEXURE, THE ADDITION HAS BEE N DELETED FOR THE ASSESSMENT YEAR 2003-04 ON THE GROUND THAT SUCH ANNEXURE BELONGS TO SMT. MEENA SOMANI. FOLLOWING OUR FINDINGS FOR THE ASSESSMENT YEAR 2003-04, WE H OLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 23,30,500/- 18.1 THE THIRD GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELEING THE ADDITION OF UNRECORDED BUSINESS OF RS. 1,15,700/-. 18.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE AO INTIMATED THAT THERE ARE UNDISCLOSED SALES OF RS. 1,15,700/- BESIDES SALES O F RS. 8,95,603/-. BEFORE THE AO, IT WAS SUBMITTED THAT SUCH SALES ARE INCLUDED IN THE SALES OF RS. 8,95,603/-. THE AUDITOR HAS ALSO POINTED OUT THE UNDISCLOSED SALES OF RS. 8,95,603/- . THE AO HAS RECEIVED INFORMATION U/S 133(6) OF THE ACT AND INCLUDED THE SUM AS INCOME RE PRESENTING UNDISCLOSED SALES.. 51 18.3 THE LD. CIT(A) HAS DECIDED THIS ISSUE AFTER OB SERVING AS UNDER:- THE REQUEST OF THE APPELLANT TO APPLY NP RATE OF 3 .87% IS NOT ACCEPTABLE. DURING THE COURSE OF SURVEY, ANNEX URE A-18 WAS FOUND IN WHICH APPELLANT HAS DRAWN TRADING & PROFIT & LOSS ACCOUNT SHOWING GP OF 62.47% AND NP OF 32.12%. IT W ILL BE THEREFORE REASONABLE TO ESTIMATE PROFIT @ 35% ON UN RECORDED SALES OF RS. 8,95,603/-, WHICH GIVES FIGURE OF RS. 3,13,4 61/-. AO IS THEREFORE DIRECTED TO RESTRICT ADDITION TO RS. 3,13 ,461/- AS AGAINST RS.8,95,603/- MADE BY HIM UNDER THIS HEAD. MOREOVER AS EXPLAINED BY APPELLANT, THE SALE OF RS. 1,15,700/- ARE INCLUD ED IN THE FIGURE OF RS. 8,95,603/-, THERE IS NO JUSTIFICATION FOR SEPAR ATE ADDITION OF RS.1,15,700/- MADE BY AO. ADDITION OF RS. 1,15,700/ - IS DIRECTED TO BE DELETED. GROUND NO. 5(II) IS THUS PARTLY ALL OWED. 18.4 WE HAVE HEARD BOTH THE PARTIES. THE SPECIAL AU DITOR AFTER CONSIDERING THE IMPOUNDED DOCUMENTS MENTIONED THAT SALES TO THE EXT ENT OF RS. 8,95,603/- ARE TO BE VERIFIED. THE REPORT OF THE AUDITOR IS AVAILABLE AT PAGE 38 OF THE PAPER BOOK. IN THIS REPORT, THE AUDITOR HAS REFERRED TO LOOSE PAPERS NO. 97 AND 98 IN RESPECT OF SALE OF RS. 1,15,700/- TO M/S. GOODLUCK CRUSHERS. THIS IS INCLUDED IN THE TOTAL OF RS. 8,95,603/-. THUS THIS SALES STANDS INCLUDED IN RS. 8,95,603/- AND HENCE NO SEPA RATE ADDITION WAS REQUIRED TO BE MADE. THUS GROUND NO. 3 OF THE REVENUE IS DISMISSED ITA NO. 621/ JP/2011 ASSESSEE A.Y. 2006-07 19.1 THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS THE SAME AS RAISED IN ASSESSMENT YEAR 2003-04 AND OUR FINDING IS ALSO THE SAME. THEREFORE , THE GROUND OF APPEAL NO. 1 OF THE ASSESSEE IS DISMISSED. 20.1 THE GROUND OF APPEAL NO.2(I) OF ASSESSEE AND GOA NO. 2 OF THE DEPTT READS AS UNDER:- GOA NO.2(I) OF ASSESSEE - THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN ESTIMATING PROFIT RATE OF 35% ON UNDISCLOSED SALES OF RS.1858687/- AS AGAINST DISCLOSED NP RATE OF 4.87% AS PER TRADING A/C ATTAC HED WITH ROI 52 GOA NO.2 OF DEPTT .- T HE LEARNED CIT(A) ERRED IN RESTRICTING ADDITION ON ACCOUNT OF UNRECORDED GRIT SALES FROM RS.2772584/- TO RS. 650540/-. 21.1 THE FACTS ARE THE SAME AS FOR THE Y 2005-06. T HE ALTERNATE SUBMISSION BY THE ASSESSEE FOR APPLICATION OF NET PROFIT RATE AT PAR TO COMPARABLE CASE I.E. 7.45% BE APPLIED SUBJECT TO DEPRECIATION. THIS ALTERNATIVE SUBMISSIO N HAS BEEN ACCEPTED IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06. THEREFORE , WE HOLD THAT NET PROFIT RATE OF 7.45% BEFORE DEPRECIATION IS TO BE APPLIED AND THEREAFTER DEDUCTION OF DEPRECIATION BE GIVEN. 22.1 THE GROUND OF APPEAL NO. 2 (II) OF ASSESSEE A ND GROUND OF APPEAL NO. 3 OF THE DEPTT ARE OF THE SAME ISSUE. THEREFORE, THESE GROU NDS OF APPEAL ARE DISPOSED OF TOGETHER AND THE GROUND OF APPEALS ARE READ AS UNDER:- GOA NO.2(II) OF ASSESSEE - THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN ESTIMATING PROFIT RATE OF 35% ON UNDISCLOSED SAL ES OF RS. 132244/- AS AGAINST DISCLOSED NP RATE OF 4.87% AS PER TRADING A /C ATTACHED WITH ROI GOA NO.3 OF DEPTT .- THE LEARNED CIT(A) ERRED IN RESTRICTING ADDITION O F UNRECORDED RECEIPTS FROM RS. 132244/- TO RS. 46285/-. 22.2 THE SPECIAL AUDITOR HAS MENTIONED THAT THERE U NRECORDED GRIT SALES OF RS. 217,72,584/-. BEFORE THE AO, THE ASSESSEE SUBMITTED THAT SUCH SALES INCLUDED THE RECORDED SALES. BEFORE THE AO, THE ASSESSEE SUBMITTED THAT N ET PROFIT RATE BE APPLIED ON THE BALANCE UNRECORDED SALES OF RS. 18,58,687/- BUT THE AO DID NOT ACCEPT THE SUBMISSIONS AND MADE THE ADDITION OF RS. 27,72,584/-. 22.3 BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED AS UNDER:- THE LEARNED AO ON THE STRENGTH OF THE REPORT OF THE AUDITORS HAVE TAKEN UNRECORDED GRIT SALES AT RS. 2772584/-. AS SUBMITTED ABOVE 53 THIS SALE WAS NOT MENTIONED BY SPECIAL AUDITORS IN THEIR LETTER DATED 12.04.2010, THEREFORE IT APPEARS IT WAS ON GUIDANCE FROM DEPTT. BESIDES IN VIEW OF MY SUBMISSIONS IN EARLIER PARAS AS AUDIT HAS BEEN CARRIED IGNORING PRINCIPLES OF NATURAL JUSTICE AND ALSO AGA INST THE PROVISIONS OF SEC. 142(2A) AND THEREFORE I HAVE MADE REQUEST FOR ANNULMENT OF ORDER. I AM REGD.DEALER UNDER THE RAJASTHAN SALES TAX ACT AN D THE LEARNED ACTO, CIRCLE-2(A), KOTA VIDE HIS ORDER DATED ______ _______ HAS ACCEPTED MY SALES AT RS. 3529561/- WHICH IS IN MATC H WITH SALES DISCLOSED IN TRADING A/C ATTACHED WITH ROI. COPY OF ORDER IS ENCLOSED VIDE ANNEXURE-J TO THIS LETTER. WITHOUT PREJUDICE TO MY REQUEST FOR ANNULMENT OF OR DER I SUBMIT UNRECORDED SALES, EVEN IF TAKEN BY AO IGNORING THAT IT IS NOT SUPPORTED BY ANY EVIDENCE, INCLUDES, SALES OF RS. 913897/- WHICH IS APPEARING IN ACCOUNTS AND FOR WHICH WORKING WAS GIVEN VIDE LETTE R DATED 03.06.2010 DURING ASSESSMENT PROCEEDINGS COPY WHEREOF IS ENCLO SED VIDE ANNEXURE- K TO THIS LETTER. THIS WILL REDUCE UNRECORDED SALES TO RS. 1858687/- I SUBMIT THAT REASONABLE RATE OF 5% (AT PAR TO SEC. 4 4AF) BE APPLIED THEREON WHICH SHALL BRING ADDITION TO RS. 92934/-. IN ALTERNATE GP RATE OF 9.26%, AS DISCLOSED AS PER TRADING ACCOUNT, BE APPL IED AND SUITABLE DEDUCTION BE PROVIDED FOR P&L EXPENSES. I PRAY FOR RELIEF ACCORDINGLY. DURING APPEAL PROCEEDINGS, I SUBMITTED THAT EVEN IF UNDISCLOSED SALES ARE THERE IT IS RS. 1858687/- WHE REON MY DISCLOSED NP RATE OF 4.87% (SUBJECT TO DEPRECIATION) OR NP RA TE AT 5% WHICH IS AT PAR TO SEC. 44AF BE APPLIED. IN ALTERNATE I SUBM ITTED THAT IN CASE OF M/S MAHESHWARI CRUSHERS, KOTA ASS.YEAR 2007-08 DI SCLOSED NP RATE OF 7.45% WAS ACCEPTED BY HONBLE ACIT CIRCLE-1 KOTA AND SAME SHOULD BE APPLIED. THE HONBLE CIT(A) ACCEPTED MY S UBMISSION PARTLY AND APPLIED RATE OF 35% WHICH IS AT PAR TO R ATE APPLIED IN CASE OF DISCLOSED SALES ON UNDISCLOSED SALE OF RS. 18586 87/- THUS GIVING RELIEF OF RS. 2122044/- (2772584-650540) 22.4 BEFORE US, THE LD. AR HAS SUBMITTED AS UNDER:- (I) THAT THERE ARE NO UNDISCLOSED GITTI SALES IN MY BUSINESS. MY SALES ARE OF RS. 3529561/- ONLY WHICH IS ACCEPTE D BY SALES TAX DEPTT ALSO. IN VIEW OF THIS FACT ADDTIONS BASED ON UNDISCLOSED GITTI SALES OF RS. 1858687/- BE DELETED. (II) IN ALTERNATE I SUBMIT THAT EVEN IF MY AFORESAI D SUBMISSION IS NOT ACCEPTED AND UNDISCLOSED SALES AS PER ORDER OF HONBLE CIT(A)S ORDER IS RETAINED AT RS.1858687/- NP RATE OF 4.87% (SUBJECT TO DEPRECIATION) AS PER MY BOOKS OF ACCOUNTS BE APP LIED (PB 58). (RELIANCE IS MADE ON CIT VS. BALCHAND AJIT KUMAR 18 6 CTR (MP) 419; MANMOHAN SADANI VS.CIT 304 ITR 52 (MP) & CIT V S. PRESIDENT INDUSTRIES 158 CTR 372)(GUJ)) OR NP RATE OF 5% WHICH IS AT PAR TO SEC.44AF OR NP RATE OF 7.45% AS ACCEPTED IN COMPARABLE CASE 54 M/S MAHESHWARI CRUSHERS, KOTA ASS.YEAR 2007-08 ( PB 225-226) BE APPLIED. 22.5 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE H AS SHOWN THE SALES TO THE EXTENT OF RS. 35,29,561/- TO THE SALES TAX DEPARTMENT. IN THE COMPARATIVE CHART AT PAGE 58 OF THE PAPER BOOK, THE ASSESSEE HAS SHOWN THE SALES TO THE EXTENT OF RS. 35,29,561/-. THE NET PROFIT RATE BEFORE DEPRECIATION IS 4.87%. IN THE PR ECEDING YEAR, WE HAVE HELD THAT NET PROFIT RATE OF 7.45% BE APPLIED BEFORE DEPRECIATION . ACCORDINGLY THE AO WILL APPLY THE NET PROFIT RATE OF 7.45% ON THE SALES WHICH INCLUDE D BOTH RECORDED OR UNRECORDED SALES AFTER ADOPTING TOTAL SALE AT RS. 35,29,561/-. 23.1 GROUND NO. 2(II) IS IN RESPECT OF ESTIMATING THE PROFIT RATE OF 35% ON UNDISCLOSED SALE OF RS. 1,32,244/-. 23.2 IN RESPECT OF THE SALES, THE LD. CIT(A) HAS DI RECTED TO APPLY GROSS PROFIT RATE OF 35% AS AGAINST THE ADDITION MADE BY THE AO TO THE E XTENT OF SALES. LOOKING TO OUR FINDINGS FOR THE GROUND OF APPEAL 2(I), WE HOLD THA T NET PROFIT RATE OF 7.45% BE APPLIED AND NO FURTHER DEDUCTION IS TO BE MADE FROM SUCH ES TIMATED INCOME. 24.1 GROUND NO. 2(III) IS IN RESPECT OF ADDITION O F RS. 9,08,609/- BY APPLYING OF 35% FOR DISCLOSED SALES OF RS. 35,29,561/- ON THE BASIS OF IMPUGNED PAPERS FOUND DURING THE COURSE OF SURVEY. 24.2 THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE IN EARLIER YEARS. THEREFORE, WE HOLD THAT THE GROSS PROFIT RATE OF 35% CANNOT BE APPLIED ON THE BASIS OF IMPUGNED PAPERS RELATING TO ASSESSMENT YEAR 2007-08 AND 2008 -09. 25.1 GROUND NO. 2(IV) WAS NOT PRESSED BY THE ASSESS EE DURING THE COURSE OF HEARING. THEREFORE, THE SAME IS DISMISSED BEING NOT PRESSED. ITA NO. 595/ JP/2011 REVENUE A.Y. 2006-07 55 26.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF UNRECORDED INV ESTMENT OF RS. 20.06 LACS. 26.2 THIS ADDITION IS BASED ON ANNEXURE A-24. WE HA D ALREADY HELD THAT ANNEXURE A- 24 BELONGS TO SMT. MEENA SOMANI AND HENCE ADDITION CANNOT BE MADE IN THE HANDS OF THE ASSESSEE. ITA NO. 622/ JP/2011 ASSESSEE A.Y. 2007-08 27.1 THE FIRST GROUND OF APPEAL FILED BY THE ASSESS EE IS THE SAME AS RAISED IN THE APPEAL OF ASSESSMENT YEAR 2003-04. FOLLOWING OUR FI NDINGS IN RESPECT OF THIS GROUND OF APPEAL FOR EARLIER ASSESSMENT YEARS, WE HOLD THAT T HE AO WAS JUSTIFIED IN REFERRING THE MATTER FOR SPECIAL AUDIT U/S 142(2A) OF THE ACT. 28.1 THE GROUND NO. 2 (I) OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES OF RS. 11,3 07/-. THIS ISSUE WILL BE ADJUDICATED UPON WHILE ADJUDICATING THE GROUND OF APPEAL 2(V) O F THE ASSESSEE. 29.1 THE GROUND NO. 2(II) OF THE ASSESSEE IS THAT T HE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 10,15,500/- UNDER THE HEAD SUND RY CREDITORS. 29.2 THE AO NOTICED FROM THE LEDGER FOLIO NO. 67 TH AT THE ASSESSEE HAS SHOWN THE JCB MACHINE RENT AMOUNTING TO RS. 12,45,500/- UNDER THE HEAD SUNDRY CREDITORS. THE AMOUNT OF RS. 10,15,500/- WAS FURTHER TRANSFERRED TO M/S. SOMANI & COMPANY IN ASSESSMENT YEAR 2008-09. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WH Y THIS SUM SHOULD NOT BE TREATED AS INCOME FOR ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE VIDE RELY DATED 3-6-2010 STATED THAT DURING THE LAST PRECEDING ASSESSMENT YE ARS, HE HAS OFFERED THE UNDISCLOSED INCOME FROM UNRECORDED SALES. THE TOTAL VOLUNTARY D ISCLOSURE FROM ASSESSMENT YEAR 2003- 04 TO 2006-07 AND AFTER INCLUDING UNDISCLOSED INCOM E FOR THE ASSESSMENT YEAR UNDER 56 CONSIDERATION CAME TO RS. 8,91,358/-. THE ASSESSEE OFFERED INCOME EMERGING OUT OF THE ENTIRE ENTRIES WHICH WILL COME TO RS. 1,24,142/-AND IT WILL REPRESENT THE DIFFERENCE BETWEEN RS. 10,15,500/- AND RS. 8,91,358/-. THIS CO NTENTION WAS NOT ACCEPTED TO THE AO BECAUSE VOLUNTARY DISCLOSURE OF INCOME WAS AGAINST UNRECORDED SALES AND SUCH PROFIT DID NOT PERTAIN TO JCB RENT. THE AO ACCORDINGLY MADE TH E ADDITION OF RS. 10,15,500/-. 29.3 BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED A S UNDER:- SIR, I DO NOT HAVE ANY JCB AND THEREFORE NO CASE O F ANY JCB RECEIPTS. THESE CREDITS ARE FROM DABORAWALAS TOWARD S DABORA PURCHASE WHICH HAS BEEN TFD.TO MY FATHERS FIRM IN SUBSEQUENT YEAR WHEN PAYMENT WERE MADE TO DABORAWALAS BY SAID FIRM. WHEN SUCH PA YMENT WAS MADE IN MY FATHERS FIRM IT SHOULD HAVE BEEN DEBITED TO M Y ACCOUNT BUT INSTEAD IT WAS DEBITED TO DABORAWALAS A/C. MY ACCOUNTANT WI THOUT UNDERSTANDING THAT IN INCOME TAX WE ARE TWO SEPARAT E UNITS HE TFD. IT THERE. IT HAS BEEN NAMED AS JCB RECEIPTS BY OUR ACC OUNTANT IN IGNORANCE BECAUSE ITS PAYMENT PARTLY WAS ADJUSTED B Y MY FATHER FROM JCB RENT. IN VIEW OF THIS FACT I REQUEST YOUR HONOU R TO PLEASE DELETE THE ADDITIONS. 29.4 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIO NS CONFIRMED THE ADDITION AFTER OBSERVING AS UNDER:- 7.3 ARGUMENT OF THE APPELLANT IS NOT ACCEPTABLE. NO EVIDENCE HAS BEEN FILED REGARDING CLAIM OF APPELLANT THAT THE CREDITS ARE FROM DABO RAWALAS TOWARDS DABORA PURCHASE, EITHER BEFORE AO OR THE UNDERSIGNED. APPELLANT CLAIMED THAT DUE TO MISTAKE OF ACCOUNTANT, THE SAME HAS BEEN TERMED AS JCB RECEIPTS. N O PROOF HI SUPPORT OF THIS CLAIM WAS FURNISHED AT ANY STAGE AND THEREFO RE THIS CLAIM IS NOT ACCEPTABLE THAT DUE TO MISTAKE OF ACCOUNTANT IT IS TERMED AS JCB REC EIPTS, HI ANY CASE THESE RECEIPTS ARE NOT ACCOUNTED FOR HI REGULAR BOOKS OF ACCOUN TS OF APPELLANT 29.5 BEFORE US, THE LD. AR HAS SUBMITTED AS UNDER:- I REQUEST YOUR HONOUR THAT THESE CREDITS RELATES TO PAYMENT DUE TO DABORAWALAS WHICH I WAS FAILED TO SUBSTANTIATE AT A SSESSMENT STAGE. I THEREFORE REQUEST YOUR HONOUR TO REMIT THIS ISSUE B ACK TO THE LEARNED AO TO REEXAMINE THE ISSUE AFRESH. IN ALTERNATE I REQUEST YOUR HONOUR TO PLEASE PROVIDE ME TELESCOPY BENEFIT. 29.6 ON THE OTHER HAND, THE LD. DR DREW OUR ATTENTI ON THAT THE ASSESSEE HIMSELF OFFERED 57 A SUM OF RS. 1,24,142/- AS INCOME ON ACCOUNT OF SU CH CREDIT ENTRIES APPEARING IN THE BALANCE SHEET. THE INCOME WHICH WAS SURRENDERED IN THE IMMEDIATELY PRECEDING YEAR ON THE BASIS OF SALES OF LINE STONE CANNOT BE CONSIDER ED AS INCOME FROM JCB RENT. IT WAS THEREFORE, SUBMITTED THAT LOWER AUTHORITIES WERE JU STIFIED IN CONFIRMING THE ADDITION OF RS. 10,15,500/-. 29.7 WE HAVE HEARD BOTH THE PARTIES. IT IS NOTICED THAT THE ASSESSEE HAS GIVEN DIFFERENT EXPLANATION BEFORE THE LD. CIT(A) AS AGAINST THE EX PLANATION GIVEN TO THE AO. THE EXPLANATION SO GIVEN BEFORE THE LD. CIT(A) HAS NOT BEEN CONSIDERED AND HAS ALSO NOT BEEN REJECTED. WE THEREFORE, FEEL THAT AN OPPORTUNITY IS REQUIRED TO BE GIVEN TO THE ASSESSEE SO AS TO EXPLAIN THE CREDIT ENTRIES OF RS. 10,15,500/- . HENCE, THIS ISSUE IS RESTORED BACK ON THE FILE OF THE AO. 30.1 GROUND NO. 2(III) OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 2.00 LACS ON ACCOUNT OF CLOSIN G STOCK BASED ON ROUGH PAPER. 30.2 DURING THE COURSE OF SURVEY A PAPER WAS FOUND WHICH SHOWS PREPARATION OF TRADING ACCOUNT, PROFIT AND LOSS ACCOUNT AND BALANC E SHEET PREPARED MANUALLY. IN THIS PAPER, THE CLOSING STOCK WAS ALTERED FROM RS. 12,21 ,400/- TO RS. 10,21,400-. THUS NET PROFIT WAS REDUCED TO RS. 2.00 LACS. THE ASSESSEE V IDE LETTER DATED 26 TH MAY, 2010 2 WAS ASKED TO EXPLAIN AS TO WHY A SUM OF RS. 2.00 LACS B E NOT ADDED. THE ASSESSEE VIDE REPLY DATED 3-6-2010 STATED THAT THE BALANCE SHEET AS MAD E BY THE ASSESSEE SHOW THE CORRECT FIGURE OF CLOSING STOCK. THE AO CONCLUDED THAT MIST AKE IN PAPER WAS MADE BY THE ASSESSEE INTENTIONALLY TO SHOW THE LESS NET PROFIT TO EVADE THE TAX. THE AO ACCORDINGLY MADE THE ADDITION OF RS. 2.00 LACS. 58 30.3 BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED AS UNDER:- THE LEARNED AO ON THE STRENGTH OF A PAPER WHEREON STOCK WAS EARLIER WRITTEN AT RS. 1221400/- WAS STRUCK AND THE N WRITTEN AS RS. 1021400/- HAS MADE ADDITIONS OF RS. 200000/-. THE LEARNED AO HAS DONE IT ON THE STRENGTH OF THE REPORT OF AUDITORS. IN VIEW OF MY SUBMISSIONS I N EARLIER PARAS AS AUDIT HAS BEEN CARRIED IGNORING PRINCIPLES OF NATURAL JUSTICE AND ALSO AGAINST THE PROVISIONS OF SEC. 142(2A) AND THEREFORE I HAVE MAD E REQUEST FOR ANNULMENT OF ORDER. ALTERNATIVELY I REQUEST THAT AT THE TIME OF FINALIZ ATION OF ACCOUNTS MANY ROUGH EXERCISE IS BEING MADE AND THEREFORE THIS WAS ALSO A PART OF THE SAME WHICH IS EVIDENT FROM THE PAPER COPY WHEREOF IS ENC LOSED VIDE ANNEXURE-J TO THIS LETTER. IN VIEW OF THESE FACTS I SUBMIT ADDITIONS O F RS. 200000/- BE DELETED. I FURTHER SUBMIT THAT IF THIS ADDITION IS SUSTAINED I TS SET OFF BE PROVIDED IN NEXT YEAR. 30.4 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIO NS RECORDED HIS FINDING AS UNDER:- ARGUMENT OF THE APPELLANT THAT IT WAS ONLY A ROUGH EXERCISE IS NOT ACCEPTABLE. IN THE ABSENCE OF SATISFACTORY EXPL ANATION REGARDING DIFFERENCE OF RS. 200000/- EITHER BEFORE AO OR THE UNDERSIGNED, THE ADDITION IS JUSTIFIED AND THE SAME IS CONFIRMED. ALTERNATIVE ARGUMENT OF THE APPELLANT IS THAT IF TH IS ADDITION IS CONFIRMED, CREDIT FOR THE SAME MAY BE PROVIDED IN S UBSEQUENT YEAR. THIS ARGUMENT OF THE APPELLANT IS ACCEPTABLE. SINCE THE ADDITION OF RS 200000/- IS CONFIRMED ON ACCOUNT OF SUPPRESSION IN THE VALUE OF CLOSING STOCK FOR THIS YEAR, CREDIT FOR THE SAME SHALL BE A LLOWED BY AO IN THE SUBSEQUENT YEAR. FOR A.Y. 2008-09 THE OPENING STOCK SHALL BE INCREASED BY RS.200000/-. GROUND NO. 5(IV) IS THUS PARTLY ALL OWED. 30.5 BEFORE US, THE LD. AR HA SUBMITTED THAT NOT ON LY THE CLOSING STOCK BUT OTHER THREE ITEMS WERE ALSO OVERWRITTEN. AS PER THIS PAPER, THE NET PROFIT WAS AT RS.1,43,056/- WHEREAS AS PER PROFIT AND LOSS ACCOUNT ATTACHED WI TH THE RETURN OF INCOME THE NET PROFIT WAS AT RS. 1,60,830/-. SUCH EXERCISE IS MADE MANY T IMES BEFORE FINALIZING THE ACCOUNTS AND ERRORS IN RESPECT OF CERTAIN ITEMS ARE CORRECT ED. IT WAS THEREFORE, SUBMITTED THAT ADDITION BE DELETED. 30.6 ON THE OTHER HAND, THE LD. DR SUPPORTED THE OR DERS OF THE AUTHORITIES BELOW. 59 30.7 WE HAVE HEARD BOTH THE PARTIES. WE ARE NOT HAV ING BENEFIT OF GOING THROUGH THIS PAPER. THE LD. CIT(A) HAS DIRECTED THE AO TO ADOPT THE CLOSING STOCK OF THIS YEAR AS AGAINST OPENING STOCK OF SUBSEQUENT YEAR MEANING TH EREBY THE OPENING STOCK SHOULD BE INCREASED BY RS. 2.00 LACS. THE REVENUE IS NOT IN A PPEAL BEFORE US ON THIS ISSUE. THUS WE CONFIRM THE FINDINGS OF THE LD. CIT(A). 31.1 GROUND NO. 2(IV) IS THAT THE LD. CIT(A) HAS ER RED IN ESTIMATING THE PROFIT RATE OF 35% ON UNDISCLOSED SALES OF RS. 27,12,701/- 31.2 THE REVENUE IN GROUND NO. 2 IS AGGRIEVED THAT THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION ON ACCOUNT OF UNRECORDED BUSINESS FROM RS. 27,12,701/- TO RS. 9,49,445/-. 31.3 WE HAVE HEARD BOTH THE PARTIES. IT HAS BEEN NO TICED FROM THE IMPUGNED DOCUMENTS THAT THE ASSESSEE HAS MADE SALES OUTSIDE THE BOOKS OF ACCOUNTS. THE ASSESSEE HAS SURRENDERED THE PROFIT OF RS. 2,35,798/- ON THE UNR ECORDED SALES OF RS. 26,45,349/-. INSTEAD OF ACCEPTING THE SURRENDER OF ADDITION OF R S. 2,35,798/-, THE AO HAS MADE AN ADDITION OF RS. 27,12,701/- WHICH REPRESENTED UNREC ORDED SALES. THE LD. CIT(A) HAS DIRECTED THE AO TO APPLY THE NET PROFIT RATE OF 35% . THIS ISSUE HAS BEEN CONSIDERED IN THE CASE OF THE ASSESSEE FOR EARLIER ASSESSMENT YEARS. FOLLOWING OUR FINDING FOR THOSE ASSESSMENT YEARS, WE HOLD THAT THE NET PROFIT RATE OF 7.45% BE APPLIED ON UNDISCLOSED SOURCES OF RS. 27,12,701/-. THE AO WILL COMPUTE THE ADDITION TO BE MADE AS AGAINST SURRENDER OF RS. 2,35,798/-. 32.1 GROUND NO. 2(V) OF THE ASSESSEE IS AGAINST TRA DING ADDITION OF RS. 9,69,257/- BY APPLYING THE GROSS PROFIT RATE OF 35% ON THE UNDISC LOSED SALES OF RS. 33,27,207/-. 32.2 BEFORE THE AO, THE ASSESSEE FILED THE FOLLOWIN G. 60 IT IS PERTINENT TO POINT OUT HERE THAT THE NORMALL Y THE GP IN THE IDENTICAL TYPE OF CASES IS 10%. IT IS ALSO PERTINENT TO JOINT OUT HERE THAT THE QUANTITY WISE THE PRODUCTION GRIT IS 65 % OF THE DABORA PURCHASE + OPENING STOCK. IN THE INSTANT CASE ON THE PERUSAL OF THE SEIZED PAPERS AS MENTIONED BY YOUR GOOD SELF IT IS FOUND THAT NEITHER THE OPENING STOCK OF DABORA I S MENTIONED NOR THERE IS ANY MENTION OF DEPRECIATION ETC. BEFORE GOING INTO THE FURTHER DETAILS IT IS IMPORTA NT TO POINT OUT THAT THE SALES TAX IS RS. 40/- PER TROLLEY AND A TROLLEY CON TAINS 5 TONS MATERIAL AS NORMALLY CONSIDERED BY THE GOVT AUTHORITIES. THE ROYALTY IS RS. 50 PER TON. ON THE PERUSAL OF THE PAPERS AS MENTIONED BY YOUR HONOR , IT IS FO UND THAT THE ROYALTY HAS BEEN MENTIONED AT RS. 250022/- WHICH IF DIVIDED BY RS. 5 0/- THEN THE WEIGHT CONIES TO 5000 TROLLEYS AND LIKE WISE THE SALES TAX IS RS. 40 PER TROLLEY AND IF THE AMOUNT OF RS. 410190/- IS DIVIDED BY RS. 40/- THEN THE NUMBER OF TROLLEYS COME TO 10255 MEANING THERE BY THAT THE ASSESSES HAS 5255 TROLLEY S IN THE OPENING STOCK WHICH HAS NOT BEEN MENTIONED ON THOSE LOSE ROUGH PAPERS. THE WEIGHT IN THOSE 5255 TROLLEYS WOULD BE 26275 TONS THE VALUE OF WHICH AT COST PRICE AT RS. 545/- PER TROLLEY WHICH INCLUDES ALL LEVIES WHICH WOULD COME TO RS. S45/- X 5255 = 2863975/- MEANING THERE BY THAT THE ASSESSES HAD TH AT MUCH OPENING STOCK, IN HAND ON WHICH ROYALTY HAS BEEN PAID AS THE SAME HAS BEEN PRODUCED FROM MINES BUT SALES TAX WAS NOT PAID AS THE SAME WAS NOT TRAN SPORTED TO CRUSHER SITE, ALTHOUGH THE SAME WAS LYING IN THE STOCK AT MINES. . AS STATED ABOVE THE NORMAL WEIGHT IN A TROLLEY IN D ABORA IS 5 TONS AND IF THE TOTAL NUMBER OF TROLLEYS IN STOCK AND IN PUR CHASE IS MULTIPLIED BY THIS FACTOR THEN TOTAL WEIGHT WOULD BE 10255 X 5 = 51275 TONS A ND AVERAGE YIELD OF GRIT IS 65 % WHICH INCLUDES SAND AND SMALLER SIZES AS WELL AS SUCH THE PRODUCTION OF FINAL MATERIAL WOULD BE 65% OF 51275 TONS = 33329 T ONS AND AVERAGE AREA COVERED BY A TON IS 35 EFT. ON THE BASIS OF ABOVE FORMULA THE SALES OF GRIT IN THE LOOSE PAPER WILL BE 9487962 / RS. 8.2 = 1157069 EFT AND IF 35 EFT BE TH E PER TON PRODUCTION THEN THE CONVERSION INTO TONS WILL BE 11 57069 / 35 = 33059 THAT MEANS THE SAME WILL ALMOST TALLY WITH THE FIGURES AS MENTIONED ABOVE. THE NORMAL SELLING PRICE IS RS. L4/- FOR THE GRIT O F 40 MM SIZE AND 20 M SIZE AND THE RATE OF SALE OF THIN GRIT IS ONLY RS. 5/- PER SQ FT. AND THE PRODUCTION OF GRIT SIZE 20 MM AND 40 MM IS 80% AND THAT OF SMALL SIZE AND SAND IS 20% MEANING THERE BY THAT THE AVERAGE RATE OF SALE IS O NLY RS. 8/20 PER FT. EXCLUDING TRANSPORT BASED ON SEIZED PAPERS ( ANNEX 18/60) AND IF THE AMOUNT OF SALES OF RS. 9487.962 AS SHOWN IN THE ALLEGED SEIZED PAPER I S DIVIDED BY THIS AMOUNT THEN THE QUANTITY COMES TO 1157069 EFT. NOW IF THE TRADING ACCOUNT IS RE CASTED ON THIS BAS IS THEN THE FOLLOWING FIGURES WILL EMERGE: OPENING STOCK 2601225 SALES 94 87962 PURCHASES DABORA 2726441 STOCK NIL SALES TAX 410190 ROYALTY 250022 GRIT PURCHASE 174000 61 ------------ ------------ 6161908 9487962 GROSS PROFIT 33 26054 NOW ON THE ABOVE BASIS, IF THE P/L A/C IS RECASTED THEN THE FOLLOWING FIGURES WILL EMERGE: RECASTED P/L ACCOUNT: EXPENSES AS SHOWN IN GROSS PROFIT THE, SAID PAPER 2879211 AS ABOVE 332 6054 BANK INTEREST 100000 DEPRECIATION 100000 NET PROFIT 246843 SO BASED ON ABOVE PAPER THE NET PROFIT SUBJECT TO D EPRECIATION AND BANK INTEREST COMES TO RS. 446843/- ONLY WHICH YIELDS A NP RATE AT 4.7! % AGAINST WHICH THE ASSESSEE HAS DECLARED A NP RATE OF 5.87% MEANING THERE BY THAT THE RESULTS DECLARED BY THE ASSESSEE ARE BETTER AS COMP ARED TO THOSE SHOWN ON THE ALLEGED PAPER. IT IS RE ITERATED THAT THE SAID PAPER IS NEITHER IN THE HAND WRITING OF THE ASSESSEE NOR IN THE HAND WRITING OF HIS FATHER. IT IS ALSO PERTINENT TO MENTION THAT THERE ARE MORE PAPERS IN THE POSSESSION OF THE DEPARTMENT WHICH WERE SEIZED AT T HE TIME OF SURVEY AND WHICH YIELD LESSER AMOUNT OF PROFIT OR ARE IN CONSONANCE WITH THE RESULTS DECLARED BY THE ASSESSEE. 32.3 HOWEVER, THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT ACCEPTED BY THE AO AND THE AO WITHOUT MAKING ANY FURTHER QUERY APPL IED THE NET PROFIT RATE OF 35%. BEFORE THE LD. CIT(A) , THE ASSESSEE SUBMITTED AS UNDER:- AT THE OUT SET I SUBMIT AS AUDIT HAS BEEN CARRIED IGNORING PRINCIPLES OF NATURAL JUSTICE AND AS WHILE CONDUCTI NG AUDIT PROVISIONS OF SEC. 142(2A) ARE ALSO NOT COMPLIED WI TH THEREFORE AS FINDINGS OF THE AUDITORS ARE THE BASE OF THIS ADDIT ION THESE ADDITIONS NEEDS TO BE ANNULLED. HOWEVER WITHOUT PRE JUDICE TO ABOVE I FURTHER SUBMIT AS UNDER:- (I) THE LEARNED AO FAILED TO APPRECIATE THIS FACT T HAT THESE PAPERS WERE PREPARED FOR BANK FACILITIES WHER EIN SALES WERE INFLATED, OPENING AND CLOSING STOCK WAS NOT TAKEN A ND SOME 62 EXPENSES WERE NOT SHOWN. ITS PERIOD 01.01.2007 TO 30.11.2007(3 MONTHS OF ASS.YEAR 2007-08 & 8 MONTHS OF ASS.YEAR 2 008-09) IS TAKEN INTENTIONALLY SO THAT THESE FIGURES CAN NOT B E MATCHED WITH THE ROI FIGURES OR ACCOUNTS BOOKS. (II) THAT IN PERIOD RELATED TO ASS.YEAR 2007-08 MY TOTAL SALES ARE RS. 3327260/- AND IN PERIOD RELATED TO AS S.YEAR 2008-09 IT IS RS. 6897900/-. THESE SALES ARE NOT DISPUTED B Y THE SALES TAX DEPTT. (III) THAT LEARNED AO DID NOT FOUND ANY DISCREPANCY IN OUR ACCOUNTS, WHICH IS SUPPORTED BY VOUCHER WHICH M AY SUGGEST HIM FOR REJECTION OF GP RATE / NP RATE. (IV) THAT IN OUR LINE OF BUSINESS GP RATE GENERALLY REMAINS ABOUT 10% AND NP RATE ABOUT 5%. HOWEVER, IN MY CASE THERE IS PECULIAR FEATURE I HAVE LITTLE SALES IN MA RKET AND SUBSTANTIAL SALES ARE TO MY FATHER SHRI BL SOMANI W HO MAKES SALES/ SUPPLIES TO RAILWAYS WHEREIN HE IS ALREADY S HOWING NP. CONSIDERING THESE FACTS NP RATE DISCLOSED BY ME AT 5.87% BEING VERY REASONABLE I SUBMIT IT DOES NOT CALL FOR ANY I NTERFERENCE. (V) IN VIEW OF THESE FACTS I REQUEST FOR DELETION O F ADDITION OF RS. 908609/- OR TO SUBSTITUTE IT AS PER REQUEST MADE ABOVE. (VI) WITHOUT PREJUDICE TO ABOVE I SUBMIT THAT VIDE LETTER DATED 30.06.2010 WE HAD SUBMITTED TO THE LEARNED AO THAT FROM PURCHASES OF DABORA (STONE) TO THE EXTENT OF RS. 27 26441/- THERE CAN NOT BE PRODUCTION OF GRIT OF WORTH SALE OF RS. 9487962/-. IN SAID LETTER WE HAD MADE EXPLANATION QUA QUANTITY OF STONE PER DABORA (STONE) VIZ-A-VIZ PRODUCTION THEREFROM OF DI FFERENT SIZE AND THEIR SALE PRICE AND THEREBY TRIED TO WORK OUT THAT EITHER THERE IS OPENING STOCK OF RS. 2601225/- OR THERE IS FURTHER PURCHASE OF STONE OF RS. 2601225/- OR BOTH TO MATCH SALE OF RS. 9487962/-. WE SUBMIT IT MAY BE PARTLY OUT OF STOCK BECAUSE CLOSIN G STOCK AS PER PAPERS ATTACHED TO ROI FOR ASS.YEAR 2007-08 IS RS. 1021400/- WHEREAS AS ON 31.03.2008 AS PER PAPERS ATTACHED TO ROI IT IS RS. 38033/- AND PARTLY IT MAY BE OUT OF UNACCOUNTED PUR CHASES. IN VIEW OF THESE FACTS WE SUBMIT THAT TRADING, P&L A/C AVAILABLE AT PAGE 56-57 OF ANNEXURE-18 ARE SIMPLY WORKING BASED ON FILMSY SALES TO OBTAIN HIGHER BANK LOAN AND THEREFORE SHOU LD BE DISCARDED. IN ALTERNATE I SUBMIT IN THE SAID TRADING, P&L A/C, IF AT ALL IT IS TO MADE RELIABLE FOLLOWING WORKING SHOULD BE MADE. 63 (I) INCORPORATION OF FIGURES OF STOCK CONSIDERING S TOCK AS ON 31.03.2007 AND 31.03.2008. (II) FIGURES OF FURTHER DABORA (STONE) PURCHASES TO MATCH SALES AND PURCHASES QUA PRODUCTION PER CFT OF DABORA (S TONE) PURCHASE AND SALE PRICE PER CFT. (III) TO CONSIDER BANK INTT, FUEL & DEPRECIATION. T HESE THREE EXPENSES DURING PERIOD RELATED TO ASS.YEAR 2008-09 AS PER PAPERS ATTACHED TO ROI WERE RS. 110572/-, 125171/- & 18764 8/- TOTAL RS. 423391/- RESPECTIVELY QUA PERIOD COVERED (8 MONTH S) TOTAL EXPENSES SHALL BE RS. 282260/-. FOR ITEM NO.(II) THE BEST GUIDING FACTOR MAY BE OUR LETTER DATED 30.06.2010 (SUPRA). IN LAST ALTERNATE THE ONLY GUIDING SOURCE MAY BE RA TE OF PROFIT IN COMPARABLE CASE. NEED NOT OUT OF PLACE TO MENTION T HERE ARE ABOUT 10-12 CRUSHERS IN MY AREA. I THEREFORE PRAY THAT ADDITIONS EITHER BE DELETED O R SUBSTITUTED VIZ-A-VIZ COMPARABLE CASE. (VII) IN VIEW OF THESE FACTS I REQUEST FOR DELETION OF ADDITION OF RS. 908609/- OR TO SUBSTITUTE IT AS PER REQUEST MAD E ABOVE. BESIDES I ALSO FILED A STATEMENT OF DISCLOSED GP AN D NP CHART AS PER ROI FILED FROM ASS.YEAR 2003-04 TO 200 8-09 WITH UNSYMMETRY IN THEIR PRESENTATION (PB 57) AS WELL AS STATEMENT WITH SYMMETRY IN PRESENTATION OF GP/NP FOR ASS.YEAR 2003 -04 TO 2008- 09 (PB 58) AND SUBMITTED THAT THE LEARNED AO HAS, W HILE APPLYING PROFIT RATE, DEDUCTED GP SHOWN RS. 157410/- IN ASS. YEAR 2003-04; RS. 305858/- IN ASS.YEAR 2004-05; RS. 370893/- IN A SS.YEAR 2005- 06; RS. 326744/- IN ASS.YEAR 2006-07, RS. 194184/- (IT SHOULD BE RS.1231262/-) IN ASS.YEAR 2007-08; RS. 2434466/- IN ASS.YEAR 2008-09 WHICH IS BECAUSE THESE ACCOUNTS ARE PREPARE D FOR DIFFERENT YEARS BY DIFFERENT ACCOUNTANTS WHO HAVE T AKEN EXPENSES IN TRADING A/C OR P&L A/C AS PER THEIR UNDERSTANDIN G. I THEREFORE IN PB 58 ARRANGED IT IN SYMMETRY TO MAKE IT IN MATC H WITH EACH OTHER. AS DISCLOSED GP OF ASS.YEAR 2008-09 (WHICH W AS BASED ON AUDIT U/S 44AB) WAS ACCEPTED BY LEARNED AO WHILE AP PLYING RATE FOR ASS.YEAR 2008-09. AS MY DISCLOSED GP WITH THIS PRESENTATION IS MORE THAN PROFIT WORKED OUT BY LEARNED AO MY SUBMIS SION TO HONBLE CIT(A) WAS THAT ADDITION IS UNCALLED FOR. 32.4 BEFORE US, THE LD. AR HAS SUBMITTED AS UNDER:- (I) PAGE 56-57 OF ANNEXURE 18 WAS AN EXERCISE FOR B ANK 64 FINANCE AND FIGURES APPEARING IN THE SAID PAPERS BE ING BASED ON FILMSY FIGURES THEIR RESULTS BE OT APPLIED IN MY CA SE; (II) THE LEARNED AO HAS GROSSLY ERRED IN GIVING DED UCTION FOR DISCLOSED PROFIT AT RS. 195184/- WHICH SHOULD B E RS. 1231262/-. THIS FIGURE BEING MORE THAN PROFIT WORKED OUT BY LE ARNED AO NO ADDITION ARE CALLED FOR; (III) IN ALTERNATE I REQUEST YOUR HONOUR FOR APPLIC ATION OF NP RATE AT PAR TO COMPARABLE CASE (PB 225 & 226) I.E. 7.45% AS AGAINST 5.87% DISCLOSED (SUBJECT TO DEPRECIATION) B Y ME. 32.5 ON THE OTHER HAND, THE LD. DR HAS SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW. 32.6 WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSE D THE RELEVANT ANNEXURES AS COPIES OF SUCH ANNEXURES ARE AVAILABLE IN THE PAPER BOOK. ONCE THE ASSESSEE IS MAINTAINING THE BOOKS OF ACCOUNTS AND THE INCRIMINATING PAPERS HAVE BEEN SCRUTINIZED THEN THE ADDITION CAN BE MADE ON THE BASIS OF INCRIMINATING DOCUMENTS . THIS ANNEXURE DID NOT CONTAIN THE DETAILS OF THE EXPENSES. MOREOVER, THE COMPARABLE C ASES SHOW THE NET PROFIT RATE OF 7.45% BEFORE DEPRECIATION. WE THEREFORE, FEEL THAT NET PR OFIT RATE OF 7.45% BEFORE DEPRECIATION SHOULD BE APPLIED. 32.7 SINCE WE HAVE DIRECTED TO APPLY NET PROFIT RAT E OF 7.45%, THEREFORE, DISALLOWANCE OF EXPENSES OF RS. 11,307/- WILL BE CONSIDERED TO B E INCLUDED IN SUCH ADDITION. HENCE, DISALLOWANCE OF RS. 11,307/- CONFIRMED BY THE LD. C IT(A) IS DELETED. THUS GROUND NO. 2(I) OF THE ASSESSEE IS ALLOWED. ITA NO. 596/ JP/2011 REVENUE A.Y. 2007-08 33.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF UNRECORDED INV ESTMENT OF RS. 14,39,600/-. 33.2 WE HAVE HEARD BOTH THE PARTIES. THE ADDITION H AS BEEN MADE ON THE BASIS OF ANNEXURE A-24. WE HAD ALREADY HELD IN THE CASE OF T HE ASSESSEE FOR THE EARLIER ASSESSMENT 65 YEARS THAT ANNEXURE A-24 BELONGS TO SMT. MEENA SOMA NI. THEREFORE, THE ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE AND THE LD. CIT(A ) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 14,39,600/-. 34.1 THE THIRD GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF PROVISIONS OF SECTION 40A(3) OF RS. 9,42,663/-. 34.2 THE AO NOTICED FROM THE CASH BOOK THAT THE ASS ESSEE HAS MADE PURCHASES / EXPENSES OF RS. 9,42,663/- IN CASH. SUCH ENTRIES EX CEEDED RS. 20,000/- AND THEREFORE, THE PROVISIONS OF SECTION 40A(3) STANDS VIOLATED. THE A SSESSEE SUBMITTED THAT HE OWNS A CRUSHER FOR WHICH RAW MATERIAL IS DABROA AND SUCH R AW MATERIAL IS PROCURED FROM NANTA, DHANESWAR AND JAGMOON. THE EXPENSES INCLUDED THE EX PENSES FOR MAKING PAYMENT TO THE LABOURERS. THE AO HELD THAT PAYMENT OF RS. 9,42,663 /- RELATE TO PURCHAE OF DABORA. THE AO ADDED A SUM OF RS. 9,42,663/-U/S 40A(3) OF THE A CT. 34.3 BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED A S UNDER:- I SUBMIT SIR I AM PURCHASING STONE FROM DABORAWALA S WHO ARE VILLAGERS AND WITH THE ASSISTANCE OF LADIES COLLECTS STONE FR OM FOREST FROM WHICH WE MANUFACTURE GRIT. THEY DO NOT HAVE BANK ACCOUNTS. P AYMENT IS THEREFORE MADE BY US IN CASH. IF WE DO NOT DO SO THEY WILL STOP SUPPL IES. IN VIEW OF THESE FACTS I SUBMIT ADDITIONS OF RS. 942663/- BE DELETED. IN ALTERNATE I REQUEST YOUR HONOUR THAT AS IN MY CA SE BOOKS ARE REJECTED AND RATE IS APPLIED SUCH ADDITIONS MAY NOT BE MADE. RELIANCE IN THIS REGARD IS MADE ON:- I) ACTIT VS. ASHOKA TRADERS XIV TW 276 (JP) II) ACIT VS. SMT.GYANWATI DEVI 29 TW 268 (JP) III) VIJAY SOLVEX LTD. VS. DCIT 31 TW 122 (JP) IV) NARMADA STEEL LTD. VS. ACIT 108 TTJ 741 (AMRITS AR) 34.4 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIO NS DELETED THE ADDITION AFTER OBSERVING AS UNDER:- 66 IT HAS BEEN HELD BY VARIOUS JUDICIAL AUTHORITIES TH AT IF BOOKS ARE REJECTED AND INCOME IS ESTIMATED BY APPLYING PR OFIT RATE, THEN NO FURTHER ADDITION IS JUSTIFIED U/S 40A(3). IN THE CA SE OF APPELLANT INCOME HAS BEEN ESTIMATED BY APPLYING 35% PROFIT RATE ON H IS TURNOVER. THEREFORE NO SEPARATE ADDITION U/S 40A(3) IS JUSTIF IED. ADDITION OF RS. 942663/- IS DIRECTED TO BE DELETED. GROUND NO. 5(VI ) IS THUS ALLOWED' 34.5 THE LD. DR HAS SUBMITTED THAT THE AO HAS RIGHT LY MADE THE ADDITION BECAUSE THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 40( 3) AND THE ASSESSEE HAS NOT BEEN ABLE TO SHOW THAT SUCH PAYMENTS ARE COVERED BY THE RULE 6DD 34.6 BEFORE US, THE LD. AR HAS SUBMITTED AS UNDER:- WE SUBMIT SIR THAT IN OUR CASE BOOKS OF ACCOUNTS ARE REJECTED BY LEARNED AO. BOOKS OF ACCOUNTS ARE TREAT ED AS REJECTED BY IMPLICATION ALSO. (RELIANCE IS MADE ON CHOUDHARY & BROTHERS VS. ITO 45 TW PAGE 99 (JP)). ONCE BOOKS ARE REJECTE D DISALLOWANCE U/S 40A(3) SHOULD NOT BE MADE. RELIANC E IS MADE ON CIT VS. G.K.CONTRACTOR (2009) 19 DTR 305 (RAJ) FOLL OWED IN ITO VS. SADHWANI BROS. 58 DTR 368 (JP) ALSO RAJENDRA KU MAR KEDIA 22 TW 506 & KIRAN UDHYOG 34 TW 80. 34.7 WE HAVE HEARD BOTH THE PARTIES. DABORA WHICH I S A MATERIAL FOR MANUFACTURING GITTI IS BEING PURCHASED FROM THE PERSONS WHO PROCU RED SUCH MATERIAL FROM THE MINES. SUCH PERSONS ARE NOT HAVING THEIR BANK ACCOUNT. IT IS NOT THE CASE OF THE REVENUE THAT SUCH PERSONS ARE HAVING THEIR BANK ACCOUNT OR ARE SELLIN G THE GOODS TO OTHER PARTIES AND RECEIVING THE PAYMENT THROUGH CHEQUE. MOREOVER, BOO KS OF ACCOUNTS HAVE BEEN REJECTED. THE JAIPUR BENCH IS HOLDING THAT IN CASE THE BOOKS OF ACCOUNTS ARE REJECTED THEN NO DISALLOWANCE U/S 40A(3) BE MADE. IT WILL BE USEFUL TO REPRODUCE OUR FINDINGS ON THIS ISSUE IN THE CASE OF SHRI SHANKAR LAL KHANDELWALA (ITA NO . 392/ JP/2011 DATED 12-08-2011). 5.9 WE HAVE HEARD BOTH THE PARTIES. THE LD. AR DURI NG THE COURSE OF PROCEEDINGS BEFORE US HAS ARGUED THAT NO 67 DISALLOWANCE U/S 40A(3) CAN BE MADE IN CASE THE BOO KS OF ACCOUNTS ARE REJECTED. OUR ATTENTION WAS DRAWN TOWA RDS THE FACT THAT THE AO HAS REJECTED THE BOOKS OF ACCOUNTS AND HAS MADE THE ADDITION ON ACCOUNT OF CONSTRUCTION AND WORK I N PROGRESS EXPENSES AND HAS ALSO MADE DISALLOWANCE OF TAXI RUN NING EXPENSES. THE ADDITION MADE UNDER BOTH THE HEADS AR E SUBSTANTIAL. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. G.K. CONTRACTORS, 19 DTR 305 HELD THAT IF T HE PROFIT IS ESTIMATED BY APPLYING HIGHER NET PROFIT RATE AFTER REJECTING THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SEC TION 145(3)OF THE ACT THEN NO SEPARATE ADDITION CAN BE M ADE ON ACCOUNT OF CASH CREDIT U/S 68 OF THE ACT. THE HON' BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SMT. SAN TOSH JAIN, 296 ITR 324 HELD THAT SECTION 40A(3) CANNOT BE INVO KED WHEN THE INCOME IS ESTIMATED BY APPLYING THE GROSS PROFI T RATE. THE HON'BLE PUNJAB & HARYANA HIGH COURT FOLLOWED THE DE CISION OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. BANWARI LAL BANSI DHAR, 229 ITR 229. THE JAIPUR TRI BUNAL IN THE CASE OF SINGHAL BUILDERS CONTRACTOR VS. ADDL. C IT, 133 TTJ 102 HAS ALSO HELD THAT ONCE AN INCOME OF THE ASSESS EE IS ESTIMATED BY APPLYING THE GROSS PROFIT RATE OR NET PROFIT RATE THEN NO DISALLOWANCE CAN BE MADE U/S 40A (3) OR ANY OTH ER PROVISIONS. THE PROVISO TO SECTION 40A(3) MAKES AN EXCEPTION THAT CASH PAYMENT IS NOT TO BE DISALLOWED IF IT IS AN ACCOUNT OF BUSINESS EXPEDIENCY. AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE, WE FEEL THAT NO SEPARATE ADDITION IS REQU IRED TO BE MADE U/S 40A(3) BECAUSE THE BOOKS OF ACCOUNTS HAS B EEN 68 REJECTED AND THERE HAS BEEN . THE ADDITION OF RS. 3 .21 LACS MADE U/S 40A(3) IS DELETED. THUS GROUND NO. 3 OF THE REVENUE IS DISMISSED. 35.1 THE FOURTH GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF OTHER EXPENSES OF RS. 1,74,100/-. 35.2 THE AO HAS DISALLOWED 20% ON ADHOC BASIS FROM THE EXPENSES OF RS. 8,.70,507/-. THE DISALLOWANCE HAS BEEN MADE ON THE GROUND THAT T HE ASSESSEE HAS FAILED TO PRODUCE THE BILLS AND VOUCHERS. SINCE WE HAD ALREADY HELD THAT NET PROFIT RATE IS TO BE APPLIED AND THEREFORE, NO ADDITION IN RESPECT OF EXPENSES IS T O BE MADE. WE THEREFORE, HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION O N ACCOUNT OF OTHER EXPENSES OF RS. 1,74,100/-. 36.1 THE FIFTH GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN WRONGLY ALLOWING TELESCOPIC BENEFIT OF RS. 10,15,50 0/-. 36.2 SINCE THE ISSUE OF ADDITION OF RS. 10,15,500/- IS RESTORED BACK ON THE FILE OF THE AO, THEREFORE, THIS ISSUE IS AGAIN TO BE CONSIDERED BY THE AO AFTER PROVIDING OPPORTUNITY TO THE ASSESSEE WITHOUT BEING INFLUENCED BY THE FIN DINGS OF THE LD. CIT(A). ITA NO. 623/ JP/2011 ASSESSEE 2008-09 37.1 THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS THE SAME AS RAISED IN EARLIER ASSESSMENT YEARS. FOLLOWING OUR FINDINGS FOR THE EA RLIER ASSESSMENT YEARS, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN REFERRING THE MATTE R FOR SPECIAL AUDIT. 69 38.1 GROUND NO. 2(I) OF THE ASSESSEE IS THAT THE L D. CIT(A) HAS ERRED IN ESTIMATING THE PROFIT RATE OF 35% ON UNDISCLOSED SALES OF RS. 18,3 9,789/- AGAINST DISCLOSED NET PROFIT RATE OF 9.96 AS PER TRADING ACCOUNT ATTACHED WITH THE R ETURN OF INCOME. 38.2 GROUND NO. 4 OF THE REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN RESTRICTING THE ADDITION ON ACCOUNT OF UNRECORDED BUSINESS FRO RS. 60,49,841/- TO RS. 6,43,926/-. 38.3 BOTH THESE GROUNDS RELATE TO THE SAME ISSUE AN D THEREFORE, THESE GROUNDS ARE DISPOSED OFF TOGETHER.. 38.4 THE SPECIAL AUDITOR ON THE BASIS OF ANNEXURE 2 1, A/9 AND 15 REPORTED THAT THESE ANNEXURES CONTAIN THE DETAILS OF SALES OF RS. 60,49 ,841/- FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE SUBMITED THAT SALES OF RS. 20,20,052/- IS ALREADY RECORDED IN THE BOOKS OF ACCOUNTS AND SUCH SALES ARE PART OF ANNEXURE A-15 I N WHICH SALES OF RS. 30,99,905/- HAVE BEEN REPORTED BY THE SPECIAL AUDITOR. THE ASSESSEE HAS ALSO SHOWN SALES ORS 21.90 LACS IN THE AUDIT REPORT. THE ASSESSEE SURRENDERED A SUM OF RS1.90 LACS ON THE BALANCE UNRECORDED SALES. HOWEVER, THE AO ADDED THE SUM OF RS. 60,49,8 41/-. 38.5 BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITED A S UNDER:- THE LEARNED AO ON THE STRENGTH OF ANNEXURE A-9, A-1 5 AND A- 21 HAS WORKED OUT UNDISCLOSED GITTI SALES AT RS. 18 99680/- RS. 3099905/- & RS. 1050256/- RESPECTIVELY THUS TOTALING TO RS. 6 049841/-. OUT OF RS. 6049841/- SALES OF RS. 3099905/- IS, WHICH IS EVIDE NT FROM ANNEXURE ALSO, TO M/S JANTA CONSTRUCTION CO.AND RESTS SALES ARE EITHER ON CASH OR TO PETTY PURCHASES WHO HAVE MADE CASH PAYMENT AFTER SOMETIME. DURING THE COURSE OF HEARING VIDE OUR LETTER DATED 03.06.2 010 WE HAD REQUESTED TO THE LEARNED AO THAT OUT OF SALES OF RS 3099905/- SALES OF RS. 2020052/- ARE APPEARING IN OUR BOOKS WHICH NEEDS SE T OFF. BESIDES WE HAD ALSO MADE REQUEST THAT SALES OF RS. 2190000/- H AS ALREADY BEEN SHOWN BY US, AS SUBMITTED IN GROUND NO.4 (III), AND THEREFORE THIS ALSO NEEDS SET OFF . AFTER THESE TWO SET OFF BALANCE SAL ES REMAINS AROUND RS. 1900000/- WHEREON NETT NP RATE MAY BE APPLIED, COPY OF LETTER IS ENCLOSED VIDE ANNEXURE-L TO THIS LETTER. THE LEARNED AO DID NOT ACCEPT OUR SUBMISSIONS AND N OT ONLY TOOK SALES FIGURE AT RS. 6049841/- BUT ALSO TAXED I T FULLY AS AGAINST APPLICATION OF REASONABLE NP RATE THEREON. 70 AS SUBMITTED WHILE DEALING WITH GROUND NO.4(III) SA LES OF RS. 2190000/- HAS BEEN SHOWN BY US IN ROI. BESIDES SALE S OF RS. 2020052/- IS ALREADY IN ACCOUNTS WHICH IS EVIDENT FROM ACCOUN T OF M/S JANTA CONSTRUCTION COMPANY ALSO COPY WHEREOF IS ENCLOSED VIDE ANNEXURE-M TO THIS LETTER. I THEREFORE SUBMIT THESE TWO SALES OF RS. 21900000/- + RS. 2020052/- TOTALING TO RS. 4210052/- SHOULD BE EXCL UDED FROM RS. 6049841/- AND RESTS SALES OF RS. 1839789/- RS. (604 9841 4210052) BE TAKEN AS UNDISCLOSED SALES WHEREON A REASONABLE NP RATE MAY BE APPLIED. WE THEREFORE PRAY TO YOUR HONOURS TO DIREC T TO THE LEARNED AO TO DO SO. DURING APPEAL PROCEEDINGS, I SUBMITTED THAT EVEN IF UNDISCLOSED SALES ARE THERE IT IS RS. 1839789/- WHE REON MY DISCLOSED NP RATE (SUBJECT TO DEPRECIATION) BE APPLIED. IN AL TERNATE I SUBMITTED THAT IN CASE OF MAHESHWARI CRUSHERS, KOTA ASS.YEA R 2007-08 DISCLOSED NP RATE OF 7.45% WAS ACCEPTED BY HONBLE ACIT CIRCLE-1 KOTA AND SAME SHOULD BE APPLIED. THE HONBLE CIT(A) ACCEPTED MY SUBMISSIONS PARTLY AND APPLIED RATE OF 35% ON UNDIS CLOSED SALE OF RS. 1839787/- THUS GIVING RELIEF OF RS. 5405915/- (6049 841-643926). 38.6 BEFORE US, THE LD. AR HAS SUBMITED AS UNDER:- (I) THAT I AM SUBJECT TO SALES TAX AND AS SUCH RE GISTERED DEALER UNDER THE PROVISIONS OF SALES TAX ACT. SALES TAX AU THORITIES HAVE NOT DISPUTED MY DISCLOSED SALES (PB-75). UNDISCLOSE D TURNOVER BASIS WHEREOF IS REPORT OF HONBLE SPECIAL AUDITORS AS WELL AS LETTER DATED 26.05.2010 OF LEARNED AO ARE WITHOUT A NY BASE AND DUE TO MY ABSENCE BEFORE AUDIT TEAM. IT IS THEREFOR E SUBMITTED THAT THE SAME BE BRUSHED ASIDE AND ADDITION SUSTAINED ON BASIS OF SAME BY HONBLE CIT(A) BE DELETED. (II) IN ALTERNATE I SUBMIT THAT EVEN IF MY AFORESAI D SUBMISSION IS NOT ACCEPTED AND UNDISCLOSED SALES AS WORKED BY LEARNED AO IS RETAINED NP RATE OF 9.96% (SUBJECT TO DEPRECIATION) AS PER M Y BOOKS OF ACCOUNTS BE APPLIED (PB 58). (RELIANCE IS MADE ON C IT VS. BALCHAND AJIT KUMAR 186 CTR (MP) 419; MANMOHAN SADANI VS.CIT 304 ITR 52 (MP) & CIT VS. PRESIDENT INDUSTRIES 158 CTR 372) (GUJ)). 38.7 ON THE OTHER HAND, THE LD. DR SUPPORTED THE OR DER OF THE AO. 38.8 WE HAVE HEARD BOTH THE PARTIES. THE UNRECORDED SALES AS PER ANNEXURES RELATE TO SALES TO M/S. JANTA CONSTRUCTION CO.. THE PART OF S UCH SALES ARE INCLUDED IN THE BOOKS OF ACCOUNTS. THUS THE ANNEXURES CONTAINED THE DETAILS OF TOTAL SALES WHICH CONTAINED THE 71 RECORDED SALES ALSO. WE THEREFORE, FEEL THAT THE LD . CIT(A) WAS JUSTIFIED IN HOLDING THAT UNRECORDED SALES ARE OF RS. 18,39,789/-. THE ASSESS EE HAS SHOWN THE NET PROFIT RATE OF 9.96%. ON THESE UNRECORDED SALES, THE AO SHOULD APP LY THE NET PROFIT RATE OF 9.96. NO SEPARATE DEDUCTION OF DEPRECIATION WILL BE ALLOWED. THE AO WILL COMPUTE THE ADDITION AS AGAINST RS. 1.90 LACS SURRENDERED BY THE ASSESSEE IN THE RETURN. 39.1 GROUND NO. 2(II) OF THE ASSESSEE IS AS UNDER:- THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN CONFIRMING TRADING ADDITION OF RS. 324694/- APPLYING GP RATE OF 35% ON DISCLOSED SALES OF RS. 6897900/- ON BASIS OF IMPOUNDED PAPERS FOUND DURING SURVEY (ANNEXURE 18 PAGE 56-57) WHICH RELATES TO ASS.YEAR 2007-08 / 2008-09 (BOTH YEARS PARTLY) AND WHICH WAS PREPARED BY ACCOUNTANT ON FLIMSY FIGURES IN ORDER TO PLAN FOR M ACHINERY LOAN WHICH HAS NO MATCH WITH THE APPELLANTS BOOKS OF AC COUNTS. 39.2 WE HAVE HEARD BOTH THE PARTIES. IN THE WRITTEN SUBMISSION, IT HAS BEEN MENTIONED THAT TYPOGRAPHICAL ERROR IN DRAFTING THE GROUND OF APPEAL AND FIGURE OF 35% SHOULD BE MODIFIED TO 40%. THIS ISSUE HAS BEEN CONSIDERED IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08. FOLLOWING OUR FINDING FOR THE ASSESSMENT YEAR 2007-08, WE HOLD THAT THE GROSS PROFIT RATE OF 40% IS NOT TO BE APPLIED DURING THE YEAR UNDER REFERENCE. THE NET PROFIT RATE IS BETTER AS COMPARED TO PRECED ING YEAR. IT IS TRUE THAT THE BOOKS OF ACCOUNTS ARE TO BE REJECTED BECAUSE THEY DO NOT CON TAIN ALL THE NECESSARY DETAILS. SINCE THE NET PROFIT RATE IS BETTER AS COMPARED TO PRECEDING YEAR, THEREFORE, THERE IS NO CASE OF MAKING TRADING ADDITION ON DISCLOSED SALES. ITA NO. 597/ JP/2011 REVENUE A.Y. 2008-09 40.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF UNRECORDED INV ESTMENT OF RS. 2,95,000/-. 72 40.2 WE HAVE HEARD BOTH THE PARTIES. THIS ADDITION IS BASED ON ANNEXURE A-24 AND FOLLOWING OUR FINDINGS FOR THE EARLIER ASSESSMENT Y EARS, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 2.95 LACS . 41.1 THE SECOND GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF EXCESS EXPENSES OF RS. 1,1 5,921/-. 41.2 THE AO NOTICED THAT THE ASSESSEE HAS MADE BUIL DING EXPENSES OF RS. 1,15,921/- AND SUCH EXPENSES HAVE BEEN CAPITALIZED IN PLANT AN D MACHINERY A/C AND DEPRECIATION @ 15% HAS BEEN CLAIMED. THE ASSESSEE IN RESPONSE TO Q UERY RAISED FROM THE AO SUBMITTED THAT HE HAS ONLY CLAIMED DEPRECIATION IN THE ADDITI ON IN BUILDING A/C WHICH IS AS PER LAW AND RULES. ACCORDING TO THE AO, THE ASSESSEE HAS C LAIMED EXCESS EXPENSES TO REDUCE THE INCOME. 41.3 BEFORE THE LD. CIT(A), THE ASSESSEE HAS MADE F OLLOWING SUBMISSIONS. IN PARA 4 OF HIS ORDER, THE LEARNED AO HAS DISALLO WED CLAIM OF RS.115921/- ON THE PLEA THAT IT IS SHOWN IN ACCOUNT S AS BUILDING EXPENSES AND AS BUILDING IS NOT APPEARING IN BALANCE SHEET T HEREFORE HE HAS MADE ADDITION OF RS. 115921/-. I SUBMIT I NEVER CLAIMED IT AS EXPENSE. IT APPEARS NEITHER THE SPECIAL AUDITORS NOR THE LEARNED AO COU LD UNDERSTAND IT. DURING THE YEAR UNDER REFERENCE I HAVE INSTALLED ONE MORE NEW CRUSHER AT EXISTING PLACE ITSELF WHEREIN EXPENSES OF RS.115921/- HAS BE EN SPENT ON CRUSHER PLATFORM WHICH WERE FIRST DEBITED IN BUILDING ACCOU NT AND FROM THIS ACCOUNT, IT HAS BEEN SHIFTED TO MACHINERY ACCOUNT BECAUSE IT IS PART OF MACHINERY. CRUSHER CANNOT WORK WITHOUT PLATFORM. THIS FACT IS EVIDENT FROM BUILDING A/C AND MACHINERY A/C APPEARING IN MY BOOKS OF A/CS & PROFIT & LOSS A/C AND SCHEDULE OF FIXED ASSETS FILED WITH ROI WHEREIN THIS HAS BEEN SHOWN AS PART OF MACHINERY & DEPRECIATION IS CLAIMED THEREON COPIES WHEREOF ARE ENCLOSED VIDE ANNEXURE J-1 TO J-4 TO THIS LETTER. I N VIEW OF THESE FACTS ADDITION IS UNCALLED FOR AND THEREFORE I PRAY FOR I TS DELETION. BESIDES, DEPRECIATION IS ALLOWABLE WHICH IS IN FACT HAS BEEN ALLOWED BY THE LEARNED AO ALSO. 41.4 THE LD. CIT(A) HAS HELD AS UNDER:- FROM THE PERUSAL OF ASSESSMENT ORDER IT IS FOUND THAT A O MADE THIS 73 ADDITION ONLY ON HIS PRESUMPTION. FIRST OF ALL THE EXPEN SES OF RS. 115921/- ARE NOT CLAIMED BY APPELLANT IN THE PROFIT & LOSS ACCOUNT. AS MENTI ONED BY AO HIMSELF, THE BUILDING EXPENSES HAVE BEEN CAPITALIZED IN PLANT & MACHINERY ACCOUNT AND ONLY DEPRECIATION @ 15 % THEREON IS CLAIMED, IN VIEW OF REPLY OF APPELLANT AS MENTIONED ABOVE, ADDITION OF RS.115921/- IS NOT JUSTIFI ED AND THE SAME IS DIRECTED TO BE DELETED. GROUND NO. 4(II) IS THUS ALLOWED. 41.5 BEFORE US, THE LD. DR HAS STATED THAT THE ASSE SSEE HAS NOT BEEN ABLE TO SHOW THE NATURE OF THE EXPENSES AND THEREFORE, THE EXPENSES CRYSTALLIZED ARE TO BE ADDED. 41.6 ON THE OTHER HAND, THE LD. AR SUBMITTED AS UND ER:- WE SUBMIT SIR THAT THESE ADDITIONS WERE MADE BY T HE LEARNED AO ON PRESUMPTIONS ONLY. WE HAVE NOT CLAIME D EXPENSES OF RS.115921/- BUT HAVE CAPTALIZED PLATFORM EXPENSE S AND CALIMED DEPRECIATION ON IT BY TRANSFERRING IT TO MACHINERY ACCOUNT. IN VIEW OF THESE FACTS ADDITION HAS VERY FAIRLY BEEN DELETE D BY HONBLE CIT(A). THUS GROUND OF APPEAL OF DEPTT. THUS NEEDS DISMISSAL. 41.7 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE H AS NOT CLAIMED ENTIRE EXPENSES IN THE COMPUTATION OF INCOME. THE ASSESSEE HAS ONLY CL AIMED DEPRECIATION. BEFORE THE LD. CIT(A), THE ASSESSEE HAS GIVEN AN EXPLANATION AND S UCH EXPLANATION HAS NOT BEEN FOUND AS FALSE OR INCORRECT. WE THEREFORE, HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 1,15,921/-. 42.1 THE THIRD GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF EXCESS CASH OF RS. 21.90 LACS. 42.2 THE AO NOTICED FROM THE CASH BOOK THAT THE ASS ESSEE HAS INCREASED THE CASH OF RS. 21.90 LACS BY PENCIL IN CASH BOOK WITHOUT GIVING AN Y CREDIT IN OTHER ACCOUNT. THE ASSESSEE WAS ASKED TO EXPLAIN THE SAME. THE ASSESSEE STATED THAT THE AMOUNT AS SHOWN IS THE AMOUNT OF SALE WHICH HAS BEEN SHOWN AS CASH SALES I N THE AUDITED ACCOUNT. THE ASSESSEE WAS ASKED TO JUSTIFY HIS CLAIM BUT HE FAILED TO DO SO. ACCORDINGLY, THE AO MADE THE ADDITION OF RS. 21.90 LACS. 74 42.3 BEFORE THE LD. CIT(A), ASSESSEE SUBMITED AS UN DER:- IN PARA 5 OF HIS ORDER, THE LEARNED AO HAS MADE AD DITION OF RS.2190000/- (INCREASED CASH WRITTEN BY PENCIL IN C ASH BOOK). I SUBMIT THIS IS MY CASH SALE WHICH HAS BEEN CLUBBED IN SALE S WHILE FILING MY ROI. IN FACT MY ACCOUNTANT HAD TAKEN TOTAL SALES AT RS. 3907900/- BUT WHILE FINALIZING BOOKS FOR ROI I FOUND THAT CORRECT SALES IS RS. 4707900/- PLUS CASH SALES WHICH IS WRITTEN IN CASH BOOK IN PENCIL RS. 2190000/- AND THEREFORE I HAVE TAKEN IN MY TRADING ACCOUNT SALES AT RS 6897900/- (RS.4707900 + RS.2190000). THE SAME SALES HAS BEEN SHOWN IN MY ROI AS WELL AS TO SALES TAX DEPTT. AND IT HAS BEEN ACCE PTED BY SALES TAX AUTHORITIES ALSO. IN PARA 4 OF SPECIAL AUDITORS REP ORT AS WELL AS PARA 17 OF LEARNED AOS LETTER DATED 26.05.2010 ALSO SALES AS PER BOOKS OF ACCOUNTS AND SALES AS PER AUDITED A/C ARE STATED AT RS. 3907900/- & 6897900/- RESPECTIVELY. AS INCREASED SALES, WHICH I S INCLUSIVE OF RS.2190000/- HAS ALREADY BEEN CONSIDERED BY ME IN A UDITED STATEMENTS APPENDED WITH ROI FURNISHED U/S 139(1) AND HAVE BEE N SHOWN IT AS SALES AND IT HAS BEEN CONSIDERED BY THE LEARNED AO ALSO. COPIES OF GITTI SALES A/C, (PAGE NO. 1,2,3,4 OF THE LEDGER); PAGE NO. 1 OF THE SPECIAL AUDIT REPORT, PAGE NO. 7 OF TH E LETTER DATED 26.05.2010 OF THE LEARNED AO, AND COPY OF AUDITED T RADING A/C AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING ON 31.03. 2008 ARE ENCLOSED VIDE ANNEXURE K-1 TO K-4 TO THIS LETTER WHEREIN TH ESE FACTS ARE APPEARING. A COPY OF SALES TAX ASSESSMENT ORDER IS ALSO ENCLOSED VIDE ANNEXURE K-5 WHEREIN SALES OF RS. 6897900/- IS ASSE SSED. IT IS THEREFORE SUBMITTED ADDITIONS OF RS. 2190000/- ARE UNCALLED F OR AND IT MAY BE DELETED. 42.4 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIO NS HELD AS UNDER:- IT WAS EXPLAINED BY APPELLANT BEFORE AO THAT FIGURE OF RS. 2190000/- REPRESENTS HIS CASH SALES. IN THE ASSESSMENT ORDER THE AO HIMSELF HAS MENTIONED IN PARA 6 OF THE ASSESSMENT ORDER THAT 'TH E ABOVE CONTAINS OF THE ASSESSEE IS NOT ACCEPTABLE AS THE SALE SHOWN IN HIS RETU RN OF RS. 2190000/- IS ALREADY RECORDED IN HIS REGULAR BOOKS...... '. IN VIEW OF THIS AND FOR EXPLANATION GIVEN BY APPELLANT AS ABOVE, ADDITION O F RS. 2190000/- IS NOT JUSTIFIED AND THE SAME IS DIRECTED TO BE DELETED. GROU ND NO. 4(III) IS THUS ALLOWED. 42.5 WE HAVE HEARD BOTH THE PARTIES. IT WAS SUBMITT ED BEFORE US THAT ON DIFFERENT DATES ENTRIES IN RELATION TO SALES WERE MADE IN PENCIL BY THEIR ACCOUNTANT AND THESE ARE SHOWN AS SALES IN THE AUDITED BOOKS OF ACCOUNTS. MOREOVER, T HE REVENUE HAS CONDUCTED THE SURVEY AND DURING THE COURSE OF SURVEY NO EXCESS CASH WAS FOUND AND THE ASSESSEE HAS GIVEN EXPLANATION AND THE EXPLANATION HAS NOT BEEN HELD A S INCORRECT OR FALSE. THUS THERE WAS NO 75 CASE OF MAKING ADDITION WITHOUT CORROBORATIVE EVID ENCE. WE THEREFORE, HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 21.90 LACS . 43.1 THE FIFTH GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF UNEXPLAINED PU RCHASE OF MACHINE OF RS. 3,38,000/-. 43.2 THE AO NOTICED FROM THE LOOSE PAPERS NO. 53 OF ANNEXURE 18 THAT THE ASSESSEE MADE AN ORDER FROM M/S. LABH ENGINEERING WORKS FOR PURCHASE OF CRUSHER MACHINE FOR RS. 7.50 LACS. AS PER ANNEXURE 14, IT WAS NOTICED T HAT THE ASSESSEE HAS PAID A SUM OF RS. 4.12 LACS. THE AO THEREFORE, HOLD THAT A SUM OF RS. 3.38 WAS PAID OUTSIDE THE BOOKS OF ACCOUNTS. 43.3 BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED AS UNDER:- IN PARA 7 OF HIS ORDER, THE LEARNED AO HAS MADE AD DITION OF RS. 338000/- ON THE REASONING THAT IN ANNEXURE 18 LOOSE PAPER NO. 53, THERE WAS AN ESTIMATE FROM LADDHA (IT SHOULD BE LABH) ENG INEERING WORKS FOR RS. 750000/- WHEREAS BILLS IS FOR RS. 412000/- AND PAYMENT OF RS. 412000/- ONLY HAS BEEN MADE FOR IT. DURING ASSESSME NT PROCEEDINGS, WE HAD SUBMITTED THAT EARLIER WE WERE PLANNING FOR BIG SIZE CRUSHER BUT AS FOR IT WE WERE REQUIRED TO OBTAIN LOAN FROM BANK BE CAUSE CRUSHER WAS TO BE SUPPORTED BY ONE MORE JCB AND TRUCKS WE DID NOT OPT FOR BIG SIZE MACHINE AND DECIDED TO GO FOR SMALL SIZED MACHINE. WE HAD FILED COPY OF BILL ALSO WHEREFROM DIFFERENCE WAS VERIFIABLE. HOWE VER, THE LEARNED AO DID NOT ACCEPTED THE PLEA AND MADE ADDITIONS. WE AR E ENCLOSING HEREWITH COPIES OF THE ESTIMATE DATED 04.05.2007, BILL DATED 27.10.2007 AND ALSO CLARIFICATION MADE BY THE PARTY DATED 06.09.2010. V IDE ANNEXURE N-1 TO N-3 TO THIS LETTER. IN CLARIFICATION LETTER DATED 0 6.09.2010 THE PARTY HAS EXPLAINED SIZE OF MACHINE ORDERED AND SIZE OF MACHI NE ACTUALLY DELIVERED. IN VIEW OF THESE FACTS I SUBMIT ADDITION S OF RS. 338000/- BE DELETED. 43.4 THE LD. CIT(A) HAS HELD AS UNDER:- IF AO WAS OF THE OPINION THAT THE APPELLANT HAS PAI D SUM OF RS. 338000/- OUT OF HIS UNEXPLAINED SOURCE, HE SHOULD HAVE MADE INQUIRY FROM SUPPLIER OF THE MACHINE I.E. M/S LABH ENGINEERING WORKS AND ASCERTAINED THE AMOUNT RECEIV ED BY THIS PARTY FOR SUPPLY OF MACHINE TO THE APPELLANT. IN TH E ABSENCE OF ANY SUCH EXERCISE PRESUMPTION OF AO THAT APPELLANT MADE PAYMENT OF RS. 338000/- OUT OF HIS UNEXPLAINED SOURCE IS WITHOUT 76 ANY BASIS. ADDITION OF RS. 338000/- IS NOT JUSTIFIED AND THE SAME IS DIRECTED TO BE DELETED. GROUND NO. 4(V) IS THUS ALLOWED. 43.5 DURING THE COURSE OF PROCEEDINGS BEFORE US, TH E LD. DR SUBMITTED THAT THE DOCUMENTS FOUND DURING THE COURSE OF SURVEY ARE TO BE ACCEPTED AS CORRECT. IT WAS FURTHER SUBMITED THAT THE LD. CIT(A) HAS DELETED THE ADDITI ON ON THE BASIS OF ADDITIONAL EVIDENCE FILED. 43.6 ON THE OTHER HAND, THE LD. AR SUBMITTED AS UND ER:- THERE IS NO DENIAL TO THIS FACT THAT DURING SURVE Y PAGE NO.53 OF ANNEXURE 18 ORDER FORM DATED 04.05.2007 OF M/S LABH ENGINEERING WORKS BUTAL TEH.DHANSURA DISTT.SABAKANTHA (GUJRAT) WAS FOUND (PB 219). THIS IS ALSO A FACT THAT IN SEARCH PAPER BILL NO.18 DATED 27.10.2007 OF THE SAME PARTY FOR RS.412000/- (PB 220) AND IN BOOK S OF ACCOUNTS PAYMENT TO THE PARTY AT RS. 412000/- WAS FOUND. AS A NOTE TO THIS EFFECT WAS APPEARING AT PAGE 5 OF AUDIT REPORT THE LEARNED AO TAXED RS.338000/- (750000-412000) WITHOUT FURTHER ENQUIRIES. THE LEAR NED AO DID NOT THOUGHT IT APPROPRIATE TO SUBSTITUTE MACHINE ADDITI ON OF RS. 412000/- TO RS. 750000/- AND PROVIDE DEPRECIATION ACCORDINGLY ( PB 224). DURING THE APPEAL PROCEEDINGS I ALSO FILED A CLEARI FICATORY LETTER DATED 06.09.2010 FROM SAID PARTY (PB 222) WHEREIN S AID PARTY HAS MENTIONED THAT THERE IS MATERIAL DIFFERENCE IN 2 MA CHINES REFERRED IN ORDER FORM DATED 04.05.2007 AND BILL DATED 27.10.2007 AND THAT I AM BEING SUPPLIED MACHINE MENTIONED IN BILL NO. 18 DATED 27. 10.2007 ONLY. DURING APPEAL PROCEEDINGS VIDE PARA G OF LETTER DAT ED 13.01.2011 WE EXPLAINED IT IN DETAIL AND ALSO FILED COPIES OF THESE ALL PAPERS TO HIM. A COPY OF LETTER AND ANNEXURES WERE GIVEN TO THE LEAR NED AO ALSO BUT HE DID NOT MADE ANY COMMENTS IN THIS REGARD IN HIS REMAND REPORT. IN VIEW OF THESE FACTS DEPARTMENTAL APPEAL ON THIS GROUND IS N OT MAINTAINABLE AND THEIR THIS GROUND OF APPEAL BE DISMISSED. 43.7 WE HAVE HEARD BOTH THE PARTIES. THE LD. AR HAS SUBMITTED THAT A COPY OF LETTER AND ANNEXURE WERE GIVEN TO THE AO BUT HE DID NOT MAKE A NY COMMENTS IN THIS REGARD IN HIS REMAND REPORT . THE LD. CIT(A) HAS NOT MENTIONED AB OUT THE REMAND REPORT. THE PAPER BOOK ALSO DO NOT CONTAIN THE COPY OF THE REMAND REP ORT IF ANY. PAGE NO. 212 TO 218 IS THE 77 COPY OF LETTER DATED 10-2-2011 TO THE LD. CIT(A) IN RESPECT OF ADDITION OF RS. 3.38 LACS. THE ASSESSEE AT PAGE 218 OF THE PAPER BOOK HAS MENT IONED THAT THE FACTS HAS BEEN CONFIRMED BY THE SUPPLIER VIDE LETTER DATED 6-09-20 10. IT DOES NOT MENTION ABOUT THE REMAND REPORT IF ANY. THE ASSESSEE VIDE LETTER DATE D 13-01-2011 AVAILABLE AT PAGE 197 TO 211 OF THE PAPER BOOK MENTIONED AT PAGE 208 THAT TH E DIFFERENCE IN RESPECT OF SUM OF RS. 7.50 LACS AND RS. 4.12 LACS IS ON ACCOUNT OF PURCH ASING OF SMALL SIZE MACHINE AS AGAINST BIG SIZE MACHINE ORDERED AS PER LOOSE PAPERS. WE TH EREFORE, FEEL THAT AO HAS NOT BEEN AFFORDED OPPORTUNITY. THEREFORE, THIS ISSUE IS REST ORED BACK ON THE FILE OF THE AO. 44.1 THE SIXTH GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF MISC. EXPENSES OF RS. 8,020/-. 44.2 THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED M ISC. EXPENSES OF RS. 40.103/-. THE ASSESSEE FAILED TO PRODUCE THE BILLS AND VOUCHE RS AND THEREFORE, THE AO ESTIMATED THE DISALLOWANCE OF 20% OF THE EXPENSES CLAIMED AND THU S MADE THE ADDITION OF RS. 8,020/-. 44.3 THE LD. CIT(A) HAS HELD THAT MISC. EXPENSES CL AIMED ARE REASONABLE AND THEREFORE, ADHOC DISALLOWANCE WAS DELETED. 44.4 WE HAVE HEARD BOTH THE PARTIES. IT IS TRUE THA T THE ASSESSEE MAY NOT BE HAVING COMPLETE VOUCHERS AND BILLS BUT IN CASE THE EXPENDI TURE IS REASONABLE THEN THERE IS NO CSE OF MAKING ANY DISALLOWANCE. WE THEREFORE, FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. 44.5 DURING THE COURSE OF PROCEEDING BEFORE US, THE ASSESSEE HAS RAISED THE ADDITIONAL GROUND OF APPEAL FOR THE ASSESSMENT YEAR 2004-05 TO 2008-09. 44.6 THE ADDITIONAL GROUND IS THE SAME AS RAISED IN THE ASSESSMENT YEAR 2003-04 AS SECOND GROUND OF APPEAL. WE HAD ALREADY DISPOSED OF F THE SECOND GROUND OF APPEAL FOR 78 THE ASSESSMENT YEAR 2003-04. HENCE, THE ADDITIONAL GROUND OF APPEAL FOR THE 2004-05 TO 2008-09 IS ADMITTED AND THIS IS DISMISSED AS PER OU R FINDINGS RECORDED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04. 45. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AND THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2003-04 TO 2006-07 ARE DISMISSED AND APPEAL FOR THE ASSESSMENT YEAR 2007-08 AND 2008-09 PARTLY ALLOWED THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 30-12 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 30 /12/2011 *MISHRA COPY FORWARDED TO :- 1. THE ITO WARD- 2 (1), KOTA 2. SHRI RITESH SOMANI, KOTA 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.592 TO 623/JP /11) A.R, ITAT, JAIPUR 79 80