DY.C.I.T.,RANGE 8(3), Mumbai V. M/S. SONY MONY ELECTRONICS LTD., MUMBAI

ITA 5948/MUM/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62294 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 16-02-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 30-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Keywords: Unexplained cash credit; Business income; Depreciation; Proportionate interest; Revenue expenditure
• Section: 143(3); 133(6); 194C; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M. JAGTAP, A.M. AND SHRI V. DURGA RAO , J.M. ITA NO. 5352/MUM/2008 ASSESSMENT YEAR : 2005-06 SONY MONY ELECTRONICS LTD., APPELLANT 1-8, SHREEJI APARTMENTS 45, J.P. ROAD, ANDHERI (W) MUMBAI 400 058 (PAN - AAACS 9371 H) VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDENT CIRCLE 8(3), MUMBAI. ITA NO. 5948/MUM/2008 ASSESSMENT YEAR : 2005-06 DY. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE 8(3), MUMBAI. VS. SONY MONY ELECTRONICS LTD., RESPONDEN T 1-8, SHREEJI APARTMENTS 45, J.P. ROAD, ANDHERI (W) MUMBAI 400 058 (PAN - AAACS 9371 H) ASSESSEE BY : MR. HARISH N. MOTIWALA/ MR. JAYANT BHATT REVENUE BY : MR. B. JAYAKUMAR DATE OF HEARING : 16/02/2012 DATE OF PRONOUNCEMENT : 13//0 4/2012 ORDER PER V. DURGA RAO, J.M.: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE OR DER OF THE CIT(A)- XXIX, MUMBAI PASSED ON 11/07/2008 FOR THE ASSESSMEN T YEAR 2005-06. ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 2 ITA NO. 5352/MUM/08 APPEAL BY THE ASSESSEE 2. GROUNDS NO. 1, 2 & 3 ARE AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO PASSED U/S 143(3) O F THE ACT, PARTICULARLY WHEN THE SAID ORDER WAS BASED ON THE SPECIAL AUDITORS REPORT U/S 142(2A) OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE SAID LD CIT(A) ERRED IN CONFIRMING THAT THE SPECIAL AUDIT REPORT U/S 14 2(2A) OF THE ACT IS VALID PARTICULARLY WHEN THE AO HAS NOT RECORDED AN Y COMPLEXITY IN THE ACCOUNTS AND THE SAID SPECIAL AUDITOR WAS APPOINTE D WITHOUT THE PREVIOUS APPROVAL OF THE CIT AND THUS THERE WAS NO REASONABLE OPPORTUNITY GIVEN TO THE APPELLANT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE ORDER U/S 143(3) OF THE ACT IS ILLEGAL, BAD IN LAW, AB INITIO VOID AS THE SAME IS BASED ON SPECIAL AUDITORS REPORT U/S 142(2A) OF THE ACT PAR TICULARLY WHEN THERE WAS NO NECESSITY TO APPOINT SPECIAL AUDITORS, BECA USE IN THE DELUGE ON 26 TH JULY, 2005 IN MUMBAI, THE APPELLANTS OFFICES WERE INUNDATED BY FLOOD WATERS RESULTING IN DESTRUCTION OF APPELLANT S COMPUTERS AND OTHER RECORDS AND COMPUTER DATA GETTING FULLY CORRUPTED. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY FILED ITS RETURN FOR THE YEAR UNDER CONSIDERATION ON 31/10/05 DECLARING TOTAL INCOME AT RS. 24,21,111/- ALONG WITH AUDIT REPORT U/S 44AB IN FORM NO. 3CB & 3CD, PROFIT & LOSS A/C AND BALANCE SHEET. THE ASSE SSEE COMPANY WAS INCORPORATED ON 09/01/95 AND IS DEALING IN WHITE GO ODS AND ALLIED PRODUCTS OF BRANDED COMPANIES WHICH ARE PROCURED DIRECTLY FR OM THE MANUFACTURERS/AUTHORIZED DISTRIBUTORS. THE ASSESSEE IS EFFECTING SALES MOSTLY ACROSS THE COUNTERS TO THE CUSTOMERS AND THE PAYMENTS ARE RECEIVED IN CASH/CREDIT CARD OR SOMETIMES BY WAY OF ACCOUNT PAYEE CHEQUES. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY BY ISSUE OF NOTICE U/S 143(2) ON 03/08/06 AND THE SAME WAS SERVED ON THE A SSESSEE IN TIME. THE AO NOTED THAT A SURVEY WAS CONDUCTED BY DDIT(INV.), MUMBAI ON 02/12/05 AT THE BUSINESS PREMISES OF THE ASSESSEE. THE DDIT HAD REPORTED THAT THERE WERE VARIOUS DISCREPANCIES BETWEEN THE BOOKS OF ACC OUNTS AND RETURN FILED. THE ASSESSEE HAD STATED THAT ITS ACCOUNTS WERE DAMA GED IN THE FLOOD OF ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 3 26/07/05. THE AO ON THE OTHER HAND NOTED THAT THE S TATUTORY AUDITOR HAD NOT INDICATED ANY DAMAGE TO ACCOUNTS IN THE AUDIT R EPORT. THE AO HAD NOTED THAT AFTER VERIFICATION OF BOOKS OF ACCOUNT THE FIG URES IN THE BOOKS OF ACCOUNT WERE NOT FOUND MATCHING WITH FIGURES IN THE P&L ACCOUNT AND BALANCE SHEET FILED ALONG WITH THE RETURN OF INCOME . THEREFORE, A SPECIAL AUDIT U/S 142(2A) WAS CONDUCTED IN THIS CASE. BEFOR E COMPLETION OF THE AUDIT, THE ASSESSEE HAD FILED A WRIT PETITION BEFOR E THE HONBLE HIGH COURT AND THE HONBLE HIGH COURT HAD DIRECTED AS UNDER:- THE CONCERNED CIT SHALL APPOINT SUBSTITUTED CHARTER ED ACCOUNTANT AS SPECIAL AUDITORS TO CARRY OUT A SPECIAL AUDIT IN T HE CASE OF THE PETITIONER RELATING TO AY 2005-06. THE PETITIONERS SHALL PAY TO M/S AGARWAL CHHAJED CHARTERED ACCOUNTANTS THE FEE AT T HE RATE PRESCRIBED LETTER DATED 31/05/07 IN RESPECT OF SPECIAL AUDIT ALREADY CARRIED OUT BY THEM. THE PETITIONER AGREE AND UNDERTAKE TO THIS C OURT TO COOPERATE WITH THE SUBSTITUTED SPECIAL AUDITOR TO BE APPOINTED BY THE CIT AND AGREE TO PAY TO THE SUBSTITUTED CAS FEES FOR THE SPECIAL AU DIT AT THE RATE PRESCRIBED IN THE LETTER DATED 31/05/07. 4. AS PER THE DIRECTIONS OF THE HONBLE HIGH COURT, THE NEW AUDITORS M/S SHAPARIA AND MEHTA, CAS WERE APPOINTED TO CARRY OUT THE AUDIT. IT WAS STATED THAT THE AUDIT REPORT WAS SUBMITTED AND THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE FOR WHICH THE ASSESSEE HAD S UBMITTED ITS REPLY BEFORE THE AO. AGGRIEVED BY THE ORDER OF THE AO, THE ASSES SEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) CHALLENGING THE ACTION OF THE AO IN DIRECTING TO HAVE SPECIAL AUDIT U/S 142(2A) OF THE ACT. 5. BEFORE THE CIT(A), THE ASSESSEE FILED WRITTEN SU BMISSIONS WHEREIN IT WAS ARGUED THAT THE AO SHOULD NOT HAVE DIRECTED TO SPECIAL AUDIT U/S 142(2A) OF THE ACT AND THAT THE REPORT OF THE SUBST ITUTED SPECIAL AUDITOR IS NOT RELIABLE AS HE HAD PREPARED THE REPORT IN HASTE . THE ASSESSEE FURTHER OBJECTED TO AOS REFERENCE TO THE REPORT OF THE FIR ST SPECIAL AUDITOR M/S AGRAWAL & CHHAJED WHO HAD DONE ONLY PART OF THE AUD IT AND WERE SUBSTITUTED BY ANOTHER AUDITOR. HE HAD BEEN FURTHER ARGUED THAT SPECIAL AUDITOR WENT BEYOND THE BOOKS OF ACCOUNT AND, THERE FORE, SUCH REPORT WAS WITHOUT ANY AUTHORITY OF LAW. THE ASSESSEE FURTHER ARGUED THAT AO ALSO ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 4 TRAVELLED BEYOND THE REPORT AND, THEREFORE, HE WAS ALSO NOT JUSTIFIED IN DOING SO AND FRAMING ASSESSMENT GOING BEYOND THE REPORT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) HELD AS UND ER:- I) AS REGARDS THE ASSESSEES OBJECTION TO AOS DIRE CTION FOR GETTING THE BOOKS OF ACCOUNT AUDITED U/S 142(2A) OF THE ACT, TH E CIT(A) OBSERVED THAT THE OBJECTION OF THE ASSESSEE IS LIABLE TO BE REJECTED AT THE OUTSET AS PROVISIONS OF SECTION 142(2A) IS NOT APPEALABLE. FURTHER, IT IS SEEN FROM THE RECORD AS NOTED BY THE AO IN THE ASSESSMEN T ORDER THAT THE AUTHORIZED COUNSEL OF THE APPELLANT HAD AGREED FOR SPECIAL AUDIT IN VIEW OF THE SPECIAL CIRCUMSTANCES PREVAILING IN ITS CASE . IT IS NOT OPEN TO THE APPELLANT TO MAKE THIS KIND OF OBJECTION ONCE IT HA S AGREED TO SUCH ACTION ON THE PART OF THE AO. APPARENTLY, THIS IS F OR THIS REASON THAT EVEN BEFORE HONBLE HIGH COURT IN THE WRIT MATTER T HE APPELLANT DID NOT SUCCEED AGAINST DIRECTION OF AO FOR SPECIAL AUDIT A ND ONLY SPECIAL AUDITORS WERE SUBSTITUTED BY ANOTHER SET OF SPECIAL AUDITOR. BEFORE THE HONBLE HIGH COURT THIS ISSUE WAS WITHDRAWN. THE MA TTER HAS ALREADY BEEN SETTLED BY HONBLE HIGH COURT. THEREFORE, THIS OBJECTION OF THE ASSESSEE IS HEREBY REJECTED. II) AS REGARDS THE OBJECTION AGAINST THE ACTION OF THE AO IN TAKING INTO COGNIZANCE THE REPORT OF SPECIAL AUDITOR M/S AGRAWA L & CHHAJED, WHO WERE SUBSTITUTED ON THE DIRECTION OF THE HONBLE HI GH COURT, THE CIT(A) OBSERVED THAT I DO NOT FIND ANY LEGAL INFIRMITY ON THE PART OF THE AO IN REFERRING TO THE REPORT OF M/S AGRAWAL & CHHAJED. M /S AGRAWAL & CHHAJED HAD INITIATED THE PROCESS OF SPECIAL AUDIT AND TILL THE DATE THEY WERE CONTINUING, THEY WERE VALID SPECIAL AUDITORS. IN FACT EVEN HONBLE HIGH COURT HAS DIRECTED THAT THEY SHOULD BE PAID FO R THE WORK OF SPECIAL AUDIT DONE BY THEM. THE WORK DONE BY M/S AG RAWAL & CHHAJED AND REPORT SUBMITTED BY THEM ARE PERFECTLY LEGAL RE PORTS AND THERE IS ABSOLUTELY NO REASON FOR THE AO NOT TO CONSIDER THE IR REPORT WHILE FRAMING THE ASSESSMENT. EVEN OTHERWISE, THERE IS NO DIMINISHING IN EVIDENTIARY NATURE OF REPORT SUBMITTED TO AO BY THE AUDITORS. FURTHER, THE AO HAS MADE USE OF THE REPORTS ONLY AFTER GIVIN G OPPORTUNITY TO THE APPELLANT. THIS OBJECTION HAS NO MERIT AND THE SAME IS REJECTED. III) AS REGARDS THE OBJECTION THAT AUDITORS HAVE ST ATED THAT THEY WERE CONSTRAINED BY TIME IN MAKING FURTHER ENQUIRIES INT O APPELLANTS ACCOUNTS AND, THEREFORE, THEIR REPORT IS NOT RELIAB LE, THE CIT(A) OBSERVED THAT THIS CONTENTION OF THE ASSESSEE IS NOT MAINTAI NABLE. SPECIAL AUDITORS HAVE POINTED THAT THEY HAVE BEEN CONSTRAIN ED BY LIMITATION FACTOR IN MAKING FURTHER ENQUIRIES WHICH SIMPLY MEA N THAT AUDITORS COULD HAVE MADE FURTHER ENQUIRIES INTO OTHER ASPECT S OF THE ACCOUNTS IF THEY WERE NOT CONSTRAINED BY LIMITATION FACTOR. THE AUDITORS WERE GIVEN ONLY 17 WORKING DAYS. IT DOES NOT MEAN THAT WHATEVE R ENQUIRIES THEY MADE INTO ACCOUNTS SHOULD NOT BE REFERRED TO BY AO. IT IS ALSO A MATTER OF RECORD THAT THE AUDITORS WERE CONSTRAINED MORE B Y THE FACT THAT NO ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 5 DETAILS WERE FURNISHED BY THE APPELLANT ON THE GROU ND THAT ACCOUNTS WERE DESTROYED/CORRUPTED DURING MUMBAI FLOOD IN JUL Y 2005. THIS FACT HAD BEEN HIGHLIGHTED BY AUDITORS IN VARIOUS PLACED. THE APPELLANT CANNOT TAKE A PLEA THAT IT WAS JUSTIFIED IN NOT FUR NISHING INFORMATION AS REQUIRED BY AUDITOR BECAUSE THE INFORMATIONS WERE D ESTROYED/CORRUPTED DURING FLOOD AND THEN HOLD THIS AGAINST AUDITORS. T HIS OBJECTION IS NOT MAINTAINABLE. IV) IN ANOTHER OBJECTION THE APPELLANT HAS STATED T HAT SPECIAL AUDITORS WERE NOT JUSTIFIED IN GOING BEYOND BOOKS OF ACCOUNT AND THEREBY MAKING THEIR REPORT WITHOUT ANY AUTHORITY OF LAW. THIS GRO UND IS SELF- CONTRADICTORY AS THE APPELLANT ITSELF IS TAKING A S TAND THAT ITS BOOKS OF ACCOUNT WERE DESTROYED IN MUMBAI FLOOD. IF THERE AR E NO BOOKS OF ACCOUNT, HOW IT CAN BE SAID THAT AUDITORS WENT BEYO ND BOOKS OF ACCOUNT. IN ANY CASE, THE APPELLANT HAS NOT POINTED OUT ANY SPECIFIC STAND WHERE AUDITORS HAVE GONE BEYOND BOOKS OF ACCO UNT. FURTHER, THE AO HAD GIVEN FULL OPPORTUNITY BEFORE MAKING USE OF AUDITORS REPORT. THIS OBJECTION IS NOT MAINTAINABLE. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 6. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE VERY INITIAL STAGE OF ASSESSMENT PROCEEDINGS WITHOU T EXAMINING THE BOOKS OF ACCOUNT AND WITHOUT APPLYING HIS OWN MIND TO THE FA CTS AND CIRCUMSTANCES OF THE CASE, THE AO ON THE BASIS OF REPORT OF SURVE Y TEAM AS REGARDS DIFFERENCES IN FIGURES OF THE PRINTOUTS GENERATED F ROM THE COMPUTER SYSTEM AT THE TIME OF SURVEY WITH THE FIGURES AUDITED ACCO UNTS FILED WITH THE RETURN OF INCOME AND ON THE BASIS OF RECOMMENDATION OF SUR VEY TEAM PROPOSED SPECIAL AUDIT U/S 142(2A) OF THE ACT. HE CONTENDED THAT NEITHER THE AO NOR THE CIT GAVE EFFECTIVE OPPORTUNITY TO THE ASSESSEE TO MAKE SUBMISSIONS AGAINST PROPOSED SPECIAL AUDIT. HE FURTHER CONTENDE D THAT THE ENTIRE PROCEEDING OF PROPOSING AND ORDERING SPECIAL AUDIT WAS COMPLETED BY THE OFFICE OF THE AO AND THE CIT IN JUST COUPLE OF DAYS AND NEITHER AO S PROPOSAL NOR CITS ORDER BRING OUT HOW NATURE AND C OMPLEXITY OF BOOKS OF ACCOUNT OF THE PRESENT CASE JUSTIFY ORDERING OF SPE CIAL AUDIT. THE PROPOSAL AND ORDER U/S 142(2A) WAS BASED ON ARBITRARY CONCLU SION WITHOUT ANY BASIS THAT SPECIAL AUDIT IS REQUIRED TO BE CARRIED OUT. I T IS SUBMITTED THAT WITH A VIEW TO EXTEND CO-OPERATION INITIALLY DID NOT OPPOS E SPECIAL AUDIT AND ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 6 COOPERATED WITH THE SPECIAL AUDITOR M/S AGRAWAL & C HHAJED APPOINTED BY THE CIT VIDE ORDER DATED 31/05/07. HOWEVER, THE SAI D SPECIAL AUDITOR WAS ACTING IN ARBITRARY MANNER IN CONDUCTING AUDIT AND THEREFORE THE ASSESSEE CHALLENGED APPOINTMENT OF SPECIAL AUDITOR BEFORE TH E HONBLE HIGH COURT OF BOMBAY. THE HONBLE HIGH COURT ORDERED REMOVAL OF T HE SAID AUDITORS AND, THEREFORE, NEW AUDITORS M/S SHAPARIA & MEHTA HAVE B EEN APPOINTED VIDE ORDER DATED 25/10/07. THE LEARNED COUNSEL CONTENDED THAT THE SPECIAL AUDIT WAS ORDERED ON 31/05/07 AND THE REPORT WAS SUBMITTE D ON 26/11/07 AND THE ASSESSMENT WAS HURRIEDLY COMPLETED BY THE AO ON 24/01/08 WITHOUT GIVING EFFECTIVE AND PROPER OPPORTUNITY TO THE ASSE SSEE. HE FURTHER CONTENDED THAT THE AO WHILE COMPLETING THE ASSESSME NT GONE BEYOND THE FINDINGS OF SPECIAL AUDIT WITHOUT JUSTIFYING DEVIAT ION FROM FINDINGS OF SPECIAL AUDIT. THE CUMULATIVE RESULT OF ARBITRARY AND ADHOC METHOD OF COMPLETING ASSESSMENT HAD RESULTED IN HIGH PITCHED ASSESSMENT. THE AO HAD ASSESSED THE TOTAL INCOME AT RS. 15,27,37,740/- AS AGAINST T HE INCOME OF RS. 24,21,111/- RETURNED BY THE ASSESSEE. HE SUBMITTED THAT THE GROSS SALE OF THE ASSESSEE AS PER AUDITED ANNUAL ACCOUNTS FOR THE YEAR UNDER APPEAL IS RS. 45,76,86,254/- AND THE NET INCOME ASSESSED BY T HE AO AT RS. 15,27,37,740/- WORKS OUT TO ABOUT 33%. HE POINTED O UT THAT THIS TYPE OF NET MARGIN IN THE TRADING BUSINESS OF ASSESSEE IS NOT P OSSIBLE TO EARN, WHICH SHOWS ABSURDITY OF THE ASSESSMENT FRAMED. THE LEARN ED COUNSEL FOR THE ASSESSEE RELIED UPON THE FOLLOWING CASE LAWS IN SUP PORT OF ASSESSEES CASE: 1. RAJESH KUMAR AND OTHEI VS. DCIT, [2006] 287 ITR 91 (SC) 2. SAHARA INDIA VS. CIT, [2008] 300 ITR 403 (SC) 7. ON THE OTHER HAND, THE LEARNED DR BESIDES RELYIN G UPON THE ORDERS OF THE AUTHORITIES BELOW SUBMITTED THAT THE ASSESSEE I TSELF HAD AGREED FOR SPECIAL AUDIT IN VIEW OF THE SPECIAL CIRCUMSTANCES PREVAILING IN ITS CASE, THE FACTUM OF WHICH HAS BEEN MENTIONED BY THE AO IN ASS ESSMENT ORDER. THEREFORE, THE LEARNED DR SUBMITTED THAT THE CONTEN TION OF THE ASSESSEE THAT THE ORDERING FOR SPECIAL AUDIT IS NOT AT ALL C ORRECT, IS NOT PROPER. ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 7 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW AS WELL AS THE DECISIONS CITED. IT IS OBSERVED THAT A SURVEY WAS C ONDUCTED BY DDIT(INV.), MUMBAI ON 02/12/05 AT THE BUSINESS PREMISES OF THE ASSESSEE. THE DDIT HAD REPORTED THAT THERE WERE VARIOUS DISCREPANCIES BETWEEN THE BOOKS OF ACCOUNTS AND RETURN FILED. THE ASSESSEE HAD STATED THAT ITS ACCOUNTS WERE DAMAGED IN THE FLOOD OF 26/07/05. THE AO HAD NOTED THAT AFTER VERIFICATION OF BOOKS OF ACCOUNT THE FIGURES IN THE BOOKS OF ACC OUNT WERE NOT FOUND MATCHING WITH FIGURES IN THE P&L ACCOUNT AND BALANC E SHEET FILED ALONG WITH THE RETURN OF INCOME. THEREFORE, A SPECIAL AUDIT U/ S 142(2A) WAS CONDUCTED IN THIS CASE. BASED ON THE SPECIAL AUDIT, THE AO FR AMED THE ASSESSMENT. THE CIT(A) GAVE A FINDING THAT IT IS SEEN FROM THE RECORD AS NOTED BY THE AO IN THE ASSESSMENT ORDER THAT THE AUTHORIZED COUNSEL OF THE APPELLANT HAD AGREED FOR SPECIAL AUDIT IN VIEW OF THE SPECIAL CIRCUMSTAN CES PREVAILING IN ITS CASE. IT IS NOT OPEN TO THE APPELLANT TO MAKE THIS KIND OF O BJECTION ONCE IT HAS AGREED TO SUCH ACTION ON THE PART OF THE AO. APPARENTLY, T HIS IS FOR THIS REASON THAT EVEN BEFORE HONBLE HIGH COURT IN THE WRIT MATTER T HE APPELLANT DID NOT SUCCEED AGAINST DIRECTION OF AO FOR SPECIAL AUDIT A ND ONLY SPECIAL AUDITORS WERE SUBSTITUTED BY ANOTHER SET OF SPECIAL AUDITOR. BEFORE THE HONBLE HIGH COURT THIS ISSUE WAS WITHDRAWN. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ACTION OF THE AO IN REFERRING TO SPECIAL AUDIT U/S 142(2A) OF THE ACT. THE CASE LAWS RELIED UPON BY THE LEARNED COUNSEL FOR TH E ASSESSEE ARE DISTINGUISHABLE ON FACTS TO THE CASE OF THE ASSESSE E. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE UPHOLD THE ORDER OF T HE CIT(A) ON THIS ISSUE AND DISMISS THE GROUNDS RAISED BY THE ASSESSEE. 9. GROUND NO. 4 READS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE SAI D LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO VERIFY THE IDENTIFIAB LE CUSTOMERS IN RESPECT OF AMOUNT RECEIVED FROM THEM BY WAY OF ADVANCES AM OUNTING TO RS. 1,82,23,720/- PARTICULARLY WHEN SUCH ADVANCES WERE ADJUSTED AGAINST SALES MADE IN THE SUBSEQUENT YEARS WHERE THE AFORE SAID AMOUNT HAS ALREADY BEEN OFFERED AS INCOME AND ASSESSED ACCORD INGLY. ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 8 10. THE AO HAD NOTED THAT AFTER GOING THROUGH THE B OOKS OF ACCOUNT AND THE REPORTS OF SPECIAL AUDITORS, VARIOUS ISSUES LIK E ADVANCES ETC. HAD EMERGED WHICH WERE DISCUSSED IN THE ASSESSMENT ORDE R. THE AO HAD ALSO REPRODUCED THE COMMENTS OF SPECIAL AUDITOR M/S SHAP ARIA AND MEHTA IN THE ASSESSMENT ORDER. THE AO ISSUED NOTICE U/S 133(6) T O 665 PERSONS FROM WHOM THE ASSESSEE HAD CLAIMED TO HAVE RECEIVED THE ADVANCES. THE REPLY RECEIVED FROM THESE PERSONS HAD BEEN GIVEN TO THE A SSESSEE FOR ITS COMMENTS. THE ASSESSEES REPLY FOR THE SAME WAS REP RODUCED BY THE AO IN THE ASSESSMENT ORDER. THE AO DID NOT ACCEPT THE CON TENTION OF THE ASSESSEE AND HAD STATED THAT THE ASSESSEE HAD SHOWN RS. 2,11 ,37,959/- ON THE LIABILITY SIDE OF THE BALANCE SHEET AS ADVANCES REC EIVED FROM CUSTOMERS. THE AO HAD OBSERVED THAT THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE EITHER DURING THE COURSE OF SURVEY OR SPECIAL AUDIT OR DUR ING THE ASSESSMENT PROCEEDINGS THE AO HAD STATED THAT THE ASSESSEE HAD NOT DISCHARGED THE PRIMARY ONUS OF PROVING THE GENUINENESS OF THE RECE IPTS. HE FURTHER STATED THAT IN RESPECT OF CREDIT OF RS. 41,83,553/- THE AS SESSEE HAD NOT GIVEN THE ADDRESSES OF THE CUSTOMERS FROM WHOM THE ADVANCES A RE ALLEGED TO HAVE BEEN RECEIVED. ON RECEIPT OF REPLIES FROM THE ALLE GED CUSTOMERS, IT WAS OBSERVED BY THE AO THAT MAJORITY OF THE CASES THE C USTOMERS HAD STATED THAT THEY HAVE NOT ADVANCED TO THE ASSESSEE FOR PURCHASE OF GOODS, AS CLAIMED. FURTHER, BILLS HAD BEEN ISSUED BY THE ASSESSEE TO C USTOMERS MUCH BEFORE 31/12/2004. THE ASSESSEE HAD SHOWN OUTSTANDING ADVA NCES AS ON 31/03/2005 AT RS. 2,11,37,959/-. IT WAS NOTED THAT ONLY 92 CUSTOMERS HAD ACCEPTED IN THEIR REPLIES THAT THEY HAD GIVEN ADVAN CES T THE ASSESSEE WHICH WERE OUTSTANDING AS ON 31/03/2005. THE TOTAL AMOUNT RECEIVED FROM SUCH CUSTOMERS WAS AT RS. 22,96,068/- AND THE BALANCE AM OUNT OF RS. 1,82,23,720/- HAD REMAINED UNEXPLAINED FOR THE FOLL OWING REASONS:- I) IN MANY CASES THE ASSESSEE HAD NOT FURNISHED THE ADDRESSES OF THE CUSTOMERS. II) THE LETTERS ISSUED WERE NOT SERVED ON THE SAID PARTIES. III) THOUGH THE LETTERS WERE SERVED NO REPLIES WER E RECEIVED. IV) THE CUSTOMERS HAVE NOT ACCEPTED THAT THEY HAVE PAID ADVANCES. V) THE ASSESSEE HAD SHOWN THE ADVANCES IN THE NAME S OF THE CUSTOMERS, BUT THE CUSTOMERS HAVE REPLIED THAT THE Y HAD GIVEN ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 9 ADVANCES IN FY 2004-05 BUT ALSO RECEIVED THE GOODS IN FY 2004-05 ITSELF AGAINST THE BILLS ISSUED BY THE ASSESSEE LE AVING NO QUESTION OF ANY OUTSTANDING ADVANCE AS ON 31/03/05. IN MOST OF THE CASES, THE BILLS WERE ISSUED BY THE ASSESSEE PRIOR TO 31/12/0 4. THIS SHOWN THAT THE ASSESSEE HAD MERELY UTILIZED THE NAMES AND ADD RESSES OF THESE PARTIES AVAILABLE WITH IT TO CREATE ITS BOGUS ADVA NCES OUTSTANDING AS ON 31/03/05. IN VIEW OF THE ABOVE, THE AO HELD RS. 1,82,23,720/ - AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. AGGRIEVED BY THE ORD ER OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 11. BEFORE THE CIT(A), THE ASSESSEE FILED WRITTEN S UBMISSIONS, WHICH WERE REPRODUCED BY THE CIT(A) AT PAGES 5 TO 12 OF HIS OR DER. IT WAS STATED THAT THE ASSESSEE IS IN THE BUSINESS OF RETAIL TRADE, IT S CUSTOMERS ARE FROM AMONG THE GENERAL PUBLIC, TOTAL STRANGERS TO AS, ANY BODY CAN WALK IN TO STORE, AND IF SUCH PERSON WALKS INTO STORE AND PAYS AN ADVANCE , IT IS CUSTOMARY NOT TO INSIST ON ANY IDENTIFICATION OR PROOF OF ADDRESS. T HE ASSESSEE HAS TO BELIEVE WHATEVER THE PERSON SAYS ON THIS ACCOUNT. IT WAS FU RTHER STATED THAT THE ADVANCES RECEIVED WERE NOT LOANS OR ADVANCES IN THE NATURE OF LOANS, THEY WERE TRADE ADVANCES GIVEN BY WALK-IN CUSTOMERS, SOM ETIMES NAME AND ADDRESS IS FURNISHED BY THE CUSTOMER, AND SOME TIME S ONLY NAME IS PROVIDED BY THE CUSTOMER, THERE IS NO VERIFICATION CONDUCTED BY THE ASSESSEE ON THE CORRECTNESS OF THE NAME AND ADDRESS, BECAUSE IT DOES NOT AFFECT IT IN ANY WAY, THE CUSTOMER ALWAYS COMES TO CLAIM THE ADV ANCE EITHER BY WAY OF REFUND OR BY WAY OF PURCHASE OF GOODS FROM THE ASSE SSEE. IT WAS ALSO SUBMITTED THAT THE POSSIBILITY OF THE PERSON WHO HA S DEPOSITED CASH ADVANCE WITH IT NOT HAVING DISCLOSED THE SAME IN HI S/HER INCOME TAX DETAILS, AND THEREFORE NOT ACCEPTING THE SAME COULD NOT BE R ULED OUT, AND HENCE THE DENIAL OF PAYMENT OF CASH ADVANCE BY SOME PERSONS C OULD NOT BE HELD IS THE BASIS OF ADDITIONS. AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE, THE CIT(A) OBSERVED THAT THE ASSESSEE HAD NOT BEEN SUCC ESSFUL IN REBUTTING THE FINDINGS OF THE AO AND THE SPECIAL AUDITOR IN THIS REGARD. DURING THE COURSE OF STATEMENT RECORDED U/S 133A, MANAGING DIRECTOR H AD STATED THAT NO ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 10 RECEIPT WAS ISSUED TO THE CUSTOMER IN RESPECT OF AD VANCES AND ONLY AN ORDER FORM WAS ISSUED. INTERESTINGLY, IT WAS STATED THAT NO DUPLICATE COPY OF SUCH ORDER FORM WAS KEPT BY THE ASSESSEE AND THEREFORE A T THE TIME OF SURVEY, THEY SHOWED INABILITY TO FURNISH ANY EVIDENCE IN RE SPECT OF SUCH ADVANCES. HE FURTHER OBSERVED THAT THE AO RECEIVED RESPONSES IN 321 CASES, OUT OF THAT ONLY 92 ACCEPTED OF HAVING GIVEN ADVANCES AND 229 COMPLETELY DENIED THAT ANY ADVANCE WAS GIVEN BY THEM, WHICH WAS CONFR ONTED TO THE ASSESSEE BY THE AO. THE CIT(A) ALSO OBSERVED THAT AFTER EXAM INING THE ISSUE IN DETAILS AND CONSIDERING THE ASSESSEES REPLY, THE A O MADE ADDITION OF RS. 1,82,23,720/- FROM THE TOTAL OUTSTANDING RS. 2,11,3 7,959/-. THE ONUS WAS ON THE ASSESSEE TO PROVE GENUINENESS OF AMOUNT SHOW N AS OUTSTANDING IN THE ACCOUNTS AND THE ASSESSEE HAD FAILED TO DO SO. THE ASSESSEE RAISED A POINT BEFORE THE AO THAT IT WANTS TO CROSS EXAMINE THE CUSTOMERS, WHO HAVE DENIED THE FACT OF GIVING ADVANCE. THE CIT(A) OBSER VED THAT THE CLAIM OF THE ASSESSEE THAT AN AMOUNT OF RS. 1,16,66,342/- HAVE B EEN ADJUSTED AGAINST ACTUAL SALES AND, THEREFORE, THE SAME SHOULD BE ALL OWED, CANNOT BE ACCEPTED ON FACE VALUE AS THE ASSESSEE ITSELF HAS BEEN INSIS TING THAT DATA AVAILABLE IN ITS COMPUTERS RETRIEVED BOTH AT THE TIME OF SURVEY AS WELL AS AT THE TIME OF SPECIAL AUDIT IS NOT RELIABLE. HOWEVER, THE CIT(A) DIRECTED THE AO THAT IF THE SALE HAS BEEN MADE TO IDENTIFIABLE CUSTOMERS AND TH EIR IDENTITY IS ESTABLISHED BEYOND DOUBT, THE SAME MAY BE ALLOWED A ND NOT OTHERWISE. AGGRIEVED, BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 12. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO HAS FAILED TO APPRECIATE THE SUBMISSIONS OF THE ASS ESSEE IN PROPER PERSPECTIVE AND THE AO ALSO FAILED TO TAKE COGNIZAN CE OF THE SPECIAL AUDITORS OBSERVATION TO THE EFFECT THAT OUT OF TOTAL ADVANCE OF RS. 2,01,11,921/-, A SUM OF RS. 1,6,66,342/- IS ADJUSTED SALES AND A SUM OF RS. 70,52,757/- IS REFUNDED TO THE CUSTOMERS. IT IS SUBMITTED THAT THE AO HAS CONTENDED THAT THE ASSESSEE HAS FAILED TO FURNISH THE DOCUMENTARY EVIDENCE IN RESPECT OF ADVANCES/REFUND OF ADVANCES AND ADDRESSES OF THE CU STOMERS AND THE AO HAS ALSO ALLEGED THAT THE ASSESSEE HAS MERELY USED NAME AND ADDRESSES OF ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 11 THE PARTIES TO CREATE BOGUS ADVANCES. ON THESE CONT ENTIONS, HE HAS MADE ADDITION OF RS. 1,82,23,720/- AS ALLEGED UNEXPLAINE D CASH CREDIT U/S 68 AFTER CONSIDERING ADVANCES OF RS. 22,96,068/- AS GE NUINE IN RESPECT OF 92 CUSTOMERS WHO CONFIRMED THE FACT OF GIVING ADVANCES . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADDITION MADE B Y THE AO IN UTTER DISREGARD OF THE FACTS OF THE CASE AND WITHOUT APPR ECIATING THE NATURE OF TRADING BUSINESS OF THE ASSESSEE. 13. ON THE OTHER HAND, THE LEARNED DR HAS RELIED UP ON THE ORDERS OF THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT ASSESS EE NOT HAVING ANY RECORD WITH HIM WITH REGARD TO PAYMENTS REFUNDED TO THE CUSTOMERS. THE ASSESSEE ONLY GIVEN ADDRESSES OF THE 80 PARTIES AND THE ADDRESS OF REMAINING PARTIES COULD NOT BE GIVEN. THERE IS NO E VIDENCE THAT THE ASSESSEE HAS RECEIVED ADVANCES FROM THE CUSTOMERS. THE LD. D R FURTHER SUBMITTED THAT ONCE THE DEPARTMENT NOTICED THAT THE ASSESSEE IS HAVING HUGE MONEY WITH HIM THEN THE ASSESSEE SUBMITTED THAT HE HAS RE TURNED THE ADVANCES BACK. IT IS AN AFTER-THOUGHT AND A SMART IDEA. THER E IS NO EVIDENCE THAT THE ADVANCES HAVE BEEN RETURNED OR ADJUSTED. INSOFAR AS THE CONTENTIONS RAISED BY THE ASSESSEE THAT NO SUMMONS ISSUE, THE LD. D.R. SUBMITTED THAT IT IS NOT REQUIRED TO ISSUE SUMMONS. EVEN IF PAYMENTS WERE MA DE BY CHEQUE, ALL THE CONDITIONS HAVE TO BE FULFILLED. 14. WE HAVE HEARD THE PARTIES, PERUSED THE RECORD A ND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS OBSERVED TH AT THE AO HAD MADE THE ADDITION OF RS. 1,82,23,720/- AS UNEXPLAINED CASH C REDIT U/S 68 ON THE GROUND THAT THE ASSESSEE HAD SHOWN THE ADVANCES IN THE NAMES OF THE CUSTOMERS, BUT THE CUSTOMERS HAVE REPLIED THAT THEY HAD GIVEN ADVANCES IN FY 2004-05 BUT ALSO RECEIVED THE GOODS IN FY 2004-0 5. THE CLAIM OF THE ASSESSEE THAT AN AMOUNT OF RS. 1,16,66,342/- HAVE B EEN ADJUSTED AGAINST ACTUAL SALES AND THEREFORE THE SAME SHOULD BE ALLOW ED. IN THIS CONNECTION, THE CIT(A) HELD THAT MERELY BECAUSE ADVANCES HAD BE EN SHOWN AS ADJUSTED AGAINST SALES, THE SAME ARE NOT ALLOWABLE UNLESS TH E SAME IS FURTHER PROVED ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 12 BY IDENTIFIABLE CUSTOMERS. HOWEVER, THE CIT(A) DIRE CTED THE AO THAT IF THE SALE HAS BEEN MADE TO IDENTIFIABLE CUSTOMERS AND TH EIR IDENTITY IS ESTABLISHED BEYOND DOUBT, THE SAME MAY BE ALLOWED. THE EXPLANATION OF THE ASSESSEE BEFORE US THAT IN RETAIL TRADE THIS IS COM MON PRACTICE OF CUSTOMERS TO PAY BOOKING ADVANCE, AND IT IS ALSO ESTABLISHED FACT THAT THE CUSTOMER MAY OR MAY NOT PROVIDE HIS ADDRESS WHILE PAYING THE ADVANCE. THERE IS NO DENYING THE FACT THAT ADVERTISEMENT WAS INSERTED IN NEWSPAPER INVITING PUBLIC TO DEPOSIT ADVANCE, THERE IS THEREFORE STRON G CIRCUMSTANTIAL EVIDENCE AND SUPPORT OF CUSTOM AND USAGE OF TRADE WHICH LEND STRENGTH TO OUR CLAIM THAT ADVANCES HAVE IN FACT BEEN RECEIVED. SIMILARLY , THERE ARE LARGE NUMBER OF CASES WHERE ADVANCES ARE RECEIVED BY CHEQUES OR CREDIT CARDS, WHICH ALSO CLEARLY SUPPORTS THE FACT THAT ADVANCES ARE BEING R ECEIVED IN ITS LINE OF BUSINESS. AFTER CONSIDERING THE FACTS OF THE CASE, SUBMISSIONS OF THE ASESSEE AND CONSIDERING THE ORDERS OF THE AUTHORITIES BELOW , WE ARE OF THE VIEW THAT TO MEET THE ENDS OF JUSTICE, THE MATTER MAY BE REST ORED TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE SUBM ISSIONS OF THE ASSESSEE AND WE ALSO DIRECT THE A.O. THAT THE AMOUNT IN QUES TION WAS ADJUSTED AGAINST THE SALES AND IF THE ASSESSEE PROVES THAT T HE AMOUNT WAS ACTUALLY ADJUSTED AGAINST SUCH SALES IN SUBSEQUENT YEARS, TH E SALES FORM PART OF INCOME ITSELF. IF THE ASSESSEE PROVES THAT SUCH AMO UNT WAS ADJUSTED AGAINST THE SALES IN SUBSEQUENT YEAR, THE ADDITION MAY BE D ELETED. ACCORDINGLY, THE A.O. IS DIRECTED TO VERIFY THE DETAILS AND DECIDE T HE ISSUE DENOVE IN ACCORDANCE WITH LAW AFTER PROVIDING ADEQUATE OPPORT UNITY OF HEARING TO THE ASSESSEE KEEPING IN VIEW OF THE AFORESAID OBSERVATI ONS. 15. GROUND NO. 6 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN TREATING RS 2,39,80,280/- AS INCOME FROM SHORT TERM CAPITAL GAIN ON SALE AND PURCHASE OF PROPERTY, DURING THE YEAR AFTER BECOMIN G PART OF THE BLOCK OF ASSETS. ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 13 16. THE ASSESSEE HAD SHOWN RS. 1,10,00,000/- GIVEN AS ADVANCE TO AMEYA DEVELOPERS IN THE SCHEDULE OF LOANS & ADVANCES IN A Y 2004-05. DURING THE YEAR, THE ASSESSEE HAD PAID FURTHER AMOUNT OF RS. 2 8,19,750/- THIS WAS SHOWN UNDER THE HEAD SHOW ROOM IN THE SCHEDULE OF FIXED ASSETS. THIS WAS SOLD IN FY 2004-05 AND THE SALE CONSIDERATION RECEI VED OF RS. 3,78,00,000/- WAS REDUCED FROM BLOCK OF ASSETS. THE AO HAD ALSO N OTED THAT SPECIAL AUDITORS HAD CALLED FOR THE AGREEMENTS RELATING TO THE ABOVE PROPERTY WHICH WAS NOT SUBMITTED BY THE ASSESSEE TO SPECIAL AUDITO RS. THE AO HAD OBSERVED FROM THE AGREEMENT THAT THE ASSESSEE HAD P URCHASED THIS PROPERTY FROM M/S AMEYA DEVELOPERS FOR RS. 1,33,56,000/- AND THE ASSESSEE HAD PAID RS. 6,60,800/- AS STAMP DUTY ON THIS CONSIDERA TION. IN THE AGREEMENT FOR SALE WITH M/S CEENIK EXPORTS (I) LTD., IT WAS N OTICED THAT THE ASSESSEE HAD LEASED THIS PROPERTY TO M/S VIJAYA BANK FOR A P ERIOD OF 10 YEARS. THE RELEVANT PORTION OF LEASE DEED IS REPRODUCED IN THE ASSESSMENT ORDER. THE AO HELD THAT THE ASSESSEE HAD NO INTENTION TO USE T HIS PREMISES AS SHOW ROOM OR FOR THE PURPOSE OF TRADING BUSINESS. FURTHE R SINCE THE ASSESSEE HAD GIVEN THE PROPERTY ON LEASE ON 02/11/2004 TO VIJAYA BANK, THE SAID PROPERTY WAS NOT A SHOW ROOM WHEN IT WAS SOLD TO M/ S CEENIK EXPORTS (I) LTD. ON 20/12/04. THE AO AFTER EXAMINING THE FACTS OF THE CASE AND THE SUBMISSION OF THE ASSESSEE, CAME TO THE CONCLUSION THAT ONE PREMISES WAS PURCHASED ON 30/08/04 WHICH WAS SOLD ON 21/12/04. S INCE BOTH THE TRANSACTIONS HAD TAKEN PLACE WITHIN THREE MONTHS TH E AO CONSIDERED PROFIT ON ACCOUNT OF SALE OF THIS PREMISES AS SHORT TERM C APITAL GAIN AND ADDED THE AMOUNT OF RS. 2,39,80,250/-. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 17. BEFORE THE CIT(A), THE ASSESSEE FILED WRITTEN S UBMISSIONS, WHICH WERE REPRODUCED BY THE CIT(A) AT PAGES 15 TO 18 OF HIS O RDER. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) HELD TH AT THE PROPERTY WAS PURCHASED ONLY IN AUGUST04 AND IT WAS SOLD IN DECE MBER04 AND IT WAS NEVER INTENDED TO BE USED FOR THE PURPOSE OF BUSINE SS OF TRADING OF ELECTRONIC GOODS. THE AO WAS JUSTIFIED IN HOLDING T HAT PROFIT EARNED ON THIS ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 14 IS SHORT TERM CAPITAL GAIN. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 18. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PROPERTY WAS PURCHASED BY THE ASSESSEE WITH AN INTENTION TO USE THE SAME AS A SHOWROOM FOR THE PURPOSE OF BUSINESS. FOR THE ABOVE PROPOSIT ION, HE HAS POINTED OUT FROM THE AGREEMENT ENTERED BY THE ASSESSEE WHICH IS PLACED AT PAPER BOOK PAGE-78. THE LEARNED COUNSEL FURTHER SUBMITTED THAT AFTER THE PROPERTY PURCHASED BY THE ASSESSEE AND STARTED USING IT FOR THE PURPOSE OF BUSINESS, THE BUILDER GAVE A NOTICE DATED 15.9.2004, WHICH IS AT PAPER BOOK PAGE-367, INSTRUCTED THE ASSESSEE NOT TO USE THE SHOW ROOM FO R THE PURPOSE OF KEEPING THE MATERIAL. THEREFORE, UNDER THE COMPELLING CIRCU MSTANCES, ON 20.10.2004 THE ASSESSEE ENTERED INTO AN AGREEMENT WITH ANOTHER PARTY TO SELL THE PROPERTY WHICH IS PLACED AT PAPER BOOK PAGE-36. 19. THE LD. COUNSEL FURTHER SUBMITTED THAT THE LETT ER DATED 15.9.2004, ISSUED BY THE BUILDER / DEVELOPER, WAS NEITHER CONS IDERED BY THE A.O. NOR BY THE CIT(A). HE FURTHER SUBMITTED THAT THE ASSET WAS PURCHASED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS AND THE ASSET ONCE ENTERED INTO BLOCK ASSETS, IT CANNOT BE SAID THAT THE SALE MONEY RECEI VED BY THE ASSESSEE IS A SHORT TERM CAPITAL GAIN. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE THAT THE PRO PERTY WAS PURCHASED FOR THE PURPOSE OF BUSINESS. SIMPLY BECAUSE THE BUI LDER GAVE A LETTER DATED 15.9.2004, OBJECTING THAT THE SHOWROOM SHOULD NOT B E USED FOR THE PURPOSE OF GODOWN, THE SAME CANNOT BE TAKEN NOTE OF IT. THE ASSESSEE SIMPLY PURCHASED A PROPERTY AND SOLD NOT USING FOR THE PUR POSE OF THE BUSINESS. 20. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECOR DS AND THE ORDERS OF THE AUTHORITIES BELOW. THE ONLY ISSUE INVOLVED IN T HIS APPEAL IS WHETHER THE SALE AMOUNT RECEIVED BY THE ASSESSEE IS A BUSINESS INCOME OR SHORT TERM CAPITAL GAIN. THE ASSESSEE HAS PURCHASED THE ABOVE DISPUTED PROPERTY VIDE SALE AGREEMENT DATED 30.8.2004, FROM M/S. AMEYA DEV ELOPERS (PG.75 OF THE PAPER BOOK). THE INTENTION OF THE ASSESSEE IS CLEAR FROM THE AGREEMENT PAGE- 4 AND PAPER BOOK PAGE NO.78 THAT THE PROPERTY WAS P URCHASED FOR THE PURPOSE OF SHOWROOM NO.1. AFTER PURCHASING THE PRO PERTY, ASSESSEE STARTED ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 15 IT AS A GODOWN, THE BUILDER MR. AMAYE DEVELOPERS IS SUED A NOTICE DATED 15.9.2004, BY STATING THAT WE HAVE STARTED USING IN THE PREMISES FOR STORAGE OF ELECTRONIC ITEMS, CARTOONS, PACKING MATERIALS AN D OLD REFRIGERATORS, T.V. SETS IN THE SAID PREMISES. THIS IS NOT PERMITTED AN D IS ALSO CAUSING NUISANCE AND HINDRANCE TO THE ADJOINING OCCUPANTS, YOU ARE FORTHWITH DIRECTED TO DISCONTINUE TO USE THE PREMISES FOR STO RAGE AND TO START USING IT ONLY FOR THE PURPOSE OF SHOWROOM (PAGE-367 OF THE P APER BOOK). SUBSEQUENTLY, ON 20.10.2004, THE ASSESSEE ENTERED INTO A SALE AGREEMENT AND SOLD THE PROPERTY (PAPER BOOK PAGE-35. FROM THE ABOVE TRANSACTIONS, IT IS VERY CLEAR TO US THAT THE ASSESSEE S ORIGINALLY PURCHASED A SHOWROOM FOR THE PURPOSE OF BUSINESS AND USED THE SAME PREMISES FOR STORING ELECTRONIC ITEMS, CARTOONS, PACKING MATERIALS AND OLD REFRIGER ATORS, T.V. WHEN THE BUILDER OBJECTED NOT TO USE THE SHOW ROOM AS A GOOD OWN, THE ASSESSEE SOLD THE PROPERTY. UNDER THE ABOVE CIRCUMSTANCES, WE ARE OF THE OPINION, THE SHOW ROOM WAS PURCHASED FOR THE PURPOSE OF BUSINESS AND FORMED PART OF RELEVANT STOCK OF ASSETS. THE SALE OF THE SAID ASSE T THEREFORE CANNOT GIVE RISE ANY CAPITAL GAIN AS HELD BY THE AO & CIT(A). THE TR EATMENT GIVEN BY THE ASSESSEE IN THIS REGARD WAS CORRECT AND IN ACCORDAN CE WITH LAW. WE, THEREFORE, SET ASIDE THE ORDER OF LD. CIT(A) ON THI S ISSUE AND DIRECT THE AO TO ACCEPT THE TREATMENT GIVEN BY THE ASSESSEE. GROUND NO. 6 OF THE ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. 21. GROUND NO. 7 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN TREATING RS. 42,85,578/- RECEIVED DURING THE YEAR AGAINST AD VANCE MADE IN THE EARLIER AS UNEXPLAINED CASH CREDIT. 22. THE AO NOTED THAT THE SPECIAL AUDITOR HAS OBSER VED THAT THERE WAS AN OPENING BALANCE OF RS. 42,85,578 SHOWN AS OTHER ADV ANCES GIVEN BY THE COMPANY DURING FY 2003-04. THE ASSESSEE VIDE ITS LE TTER DATED 21/01/08 STATED THAT THIS BEING AN ISSUE OF AMOUNT RECEIVED BACK OUT OF BROUGHT FORWARD BALANCE UNDER THE HEAD OTHER ADVANCES, IT H AS NO BEARING ON THE ASSESSMENT OF TOTAL INCOME WHILE CREDIT SHOULD BE G IVEN IN RESPECT OF THE AMOUNT RECOVERED AGAINST ADDITION, IF ANY, ON ACCOU NT OF, UNEXPLAINED ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 16 ADVANCES OR NEGATIVE CASH BALANCE. SINCE THE ASSES SEE HAD NOT SUBMITTED ANY EXPLANATION, THE AO TREATED THE SAME AS UNEXPLA INED CASH CREDIT AND ADDED RS. 42,85,578 TO THE INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE CIT(A). 23. BEFORE THE CIT(A), THE ASSESSEE FILED WRITTEN S UBMISSIONS WHEREIN IT WAS STATED THAT THE ASSESSEE WAS EXPLAINED DURING T HE COURSE OF ASSESSMENT PROCEEDINGS VIDE SUBMISSION DATED 21/01/08 THAT THE AMOUNT RECEIVED BACK OUT OF BROUGHT FORWARD BALANCE UNDER THE HEAD OTHER ADVANCES AND THEREFORE IT HAS NO BEARING ON THE ASSESSMENT OF TO TAL INCOME OF THE ASSESSEE. THEREFORE, IT WAS SUBMITTED THAT THE DEBI T BALANCE BROUGHT FORWARD FROM EARLIER YEAR WHICH HAS BEEN RECOVERED DURING THE YEAR UNDER APPEAL AND THEREFORE IT IS NOT A CASE FALLING U/S 6 8. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) HELD AS UND ER:- 18.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND S UBMISSION MADE BY AR OF APPELLANT. THIS GROUND RELATES TO AD DITION OF RS. 42,85,579/- MADE U/S 68 OF THE IT ACT. THE FACTS A S NOTED IN THIS REGARD IS THAT BOTH THE SPECIAL AUDITORS HAVE POIN TED OUT THAT THE APPELLANT HAD SHOWN RECEIPT OF RS. 42,85,578/- IN CASH WHICH WAS STATED TO BE RECOVERY OF LOANS AND ADVANCES GIVEN DURING FY 2004-05. SPECIAL AUDITORS IN THEIR LETTER DATED 13/1107, 17 /11/07 AND 20/11/07 HAD ASKED FOR FURTHER DETAILS AND THE ACC OUNTS OF THOSE PARTIES FOR PURPOSE OF VERIFICATION. HOWEVER, NO D ETAILS WERE FURNISHED TO THE SPECIAL AUDITORS. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE AO AGAIN ASKED FOR COMPLETE DETAILS IN RESPECT OF PERSONS FROM WHOM AMOUNTS HAVE STATED TO HAVE BEEN RECEIVED. EX CEPT STATING THAT THE ACCOUNTS WERE CORRUPTED, THE APPELLANT DID NOT FURNISH ANY INFORMATION IN THIS REGARD. THE APPELLANT HAS COMP LETELY FAILED TO DISCHARGE ITS ONUS IN THIS REGARD. I HAVE ALREADY HELD THAT THE APPELLANT HAS BEEN LESS THAN FORTHCOMING ON VARIOUS ISSUES. NOT ALL DISCREPANCY IN THE RETURN OF INCOME/ACCOUNTS CAN BE BRUSHED AW AY, BLAMING THE DELUGE. THE APPELLANT HAS NOT PROVED THAT SUCH CRE DITS ARE RETURN OF EARLIER YEARS BALANCE. THE AO WAS FULLY JUSTIFIED IN MAKING THIS ADDITION U/S 68 OF THE ACT. THIS GROUND IS REJECTE D. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE U S. 24. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS AN OPENING BALANCE OF RS. 42,85,578/- SHOWN AS OTHER ADVANCES GIVEN ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 17 BY THE ASSESSEE DURING FY 2003-04 AS THESE ADVANCES WERE RECEIVED BACK DURING THE YEAR UNDER APPEAL AND THERE WAS NO OUTST ANDING BALANCE AT THE YEAR END. HE CONTENDED THAT THE AO WITHOUT APPRECIA TING THE FACT THAT THE DEBIT BALANCE BROUGHT FORWARD FROM EARLIER HAS BEEN RECOVERED, TREATED THE SAID AMOUNT AS UNEXPLAINED CASH CREDIT U/S 68 OF TH E ACT. 25. ON THE OTHER HAND, THE LEARNED DR HAS PLACED R ELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 26. WE HAVE HEARD THE PARTIES, PERUSED THE RECORD A ND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THIS GROUND RELATE S TO ADDITION OF RS. 42,85,578/- MADE U/S 68 OF THE IT ACT. THE FACTS AS NOTED IN THIS REGARD IS THAT BOTH THE SPECIAL AUDITORS HAVE POINTED OUT THA T THE APPELLANT HAD SHOWN RECEIPT OF RS. 42,85,578/- IN CASH WHICH WAS STATED TO BE RECOVERY OF LOANS AND ADVANCES GIVEN DURING FY 2004-05. SPECIA L AUDITORS IN THEIR LETTER DATED 13/1107, 17/11/07 AND 20/11/07 HAD ASK ED FOR FURTHER DETAILS AND THE ACCOUNTS OF THOSE PARTIES FOR PURPOSE OF VE RIFICATION. HOWEVER, NO DETAILS WERE FURNISHED TO THE SPECIAL AUDITORS. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO AGAIN ASKED FOR COMP LETE DETAILS IN RESPECT OF PERSONS FROM WHOM AMOUNTS HAVE STATED TO HAVE B EEN RECEIVED. THE CIT(A) HELD THAT EXCEPT STATING THAT THE ACCOUNTS W ERE CORRUPTED, THE ASSESSEE DID NOT FURNISH ANY INFORMATION IN THIS RE GARD. THE ASSESSEE HAS COMPLETELY FAILED TO DISCHARGE ITS ONUS IN THIS REG ARD. AFTER CONSIDERING THE FACTS OF THE CASE AND PERUSING THE ORDERS OF THE AU THORITIES BELOW, SINCE THE ASSESSEE FAILED TO EXPLAIN AND UNABLE TO PROVE THAT SUCH CREDITS ARE RETURN OF EARLIER YEARS BALANCE, THE AO HAS RIGHTLY MADE T HE ADDITION U/S 68 OF THE ACT. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN UPHOLDING THE ACTION OF THE AO AND THE ORDER OF THE CIT(A) IS HEREBY UPHELD. THUS, THIS GROUND OF APPEAL IS DISMISSED. ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 18 27. GROUND NO. 8 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE ON PRESUMPTION BASIS OF RS. 24,87, 798/- U/S 40A(IA) OF THE ACT. 28. THE AO NOTED THAT THE SPECIAL AUDITORS HAVE MEN TIONED THAT AS PER TAX AUDIT REPORT U/S 44AB DATED 17/08/05, THE INADMISSI BLE U/S 40(A)(IA) WAS STATED AS NIL. HOWEVER, ON VERIFICATION FROM E-TDS, THE AO NOTICED THAT THE ASSESSEE HAD NOT FURNISHED COMPLETE ITEM WISE/PARTY WISE TDS DEDUCTION, THEREFORE, HE WORKED OUT THE DISALLOWANCE AS UNDER: - A) FROM THE CHART SUBMITTED BY THE SPECIAL AUDITOR , IT WAS SEEN THAT THE ASSESSEE HAD MADE PAYMENT OF RS. 68,92,483/- O N ACCOUNT OF CONTRACT U/S 194C TO VARIOUS PARTY EXCEEDING RS. 2 0,000/-. THE ASSESSEE WAS LIABLE TO DEDUCT TDS @ 2.1% OF RS. 68 ,92,483/- WHICH WORKS OUT TO BE RS. 1,44,742/-. THE ASSESSEE HAS D EDUCTED RS. 1,17,838/-. HENCE, THERE WAS A SHORT FALL OF RS. 2 6,904/-. FURTHER ASSESSEE HAD PAID RS. 16,346/- AFTER THE DUE DATE. THERE WAS A TOTAL SHORT FALL OF TDS OF RS. 43,250/-. ON RS. 20,59,52 3/-, THE ASSESSEE HAD NOT DEDUCTED TDS AND THE AO DISALLOWED THE SAM E U/S 40A(IA) OF THE ACT. B) FROM THE CHART SUBMITTED BY THE SPECIAL AUDITOR , IT WAS SEEN THAT THE ASSESSEE HAD MADE PAYMENT OF RS. 12,47,451/- O N ACCOUNT OF PROFESSIONAL FEES U/S 194J TO VARIOUS PARTIES EXCE EDING RS. 20,000/-. THE ASSESSEE WAS LIABLE TO DEDUCT TDS @ 5.1% OF RS . 12,47,451/- WHICH WORKS OUT TO BE RS. 63,620/-. THE ASSESSEE H AD DEDUCTED RS. 51,778/-. THUS, THERE IS A SHORT FALL OF RS. 11,84 2/-. THE ASSESSEE HAD PAID RS. 10,000/- AFTER THE DUE DATE. THERE IS TOT AL SHORT FALL OF TDS OF RS. 21,842/-. ON RS. 4,8,275/- THE ASSESSEE HAD NOT DEDUCTED TDS AND THE AO DISALLOWED THE SAME U/S 40A(IA) OF THE ACT. THUS, THE TOTAL DISALLOWANCE MADE BY THE AO IS RS. 24,87,798/-. ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 19 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CAR RIED THE MATTER IN APPEAL BEFORE THE CIT(A). 29. BEFORE THE CIT(A), THE ASSESSEE FILED WRITTEN S UBMISSIONS WHEREIN IT WAS STATED THAT THE AO HAS MADE REVERSE WORKING TO ARRIVE AT THE AMOUNT OF EXPENSES TO BE DISALLOWED U/S 40A(IA) ON ACCOUNT OF SHORT DEDUCTION OF TAX. HOWEVER, WHILE DOING SO, THE AO HAS FAILED TO TAKE INTO CONSIDERATION THE POINTS THAT I) IN RESPECT OF CONTRACT PAYMENTS, THE RE IS ALSO A NON-DEDUCTION LIMIT OF RS. 50,000/- IN AGGREGATE ALONG WITH BILL WISE LIMIT OF RS. 20,000/-, II) THERE CAN BE LOW/NON DEDUCTION OF TAX, AND III) IN RESPECT OF PAYMENTS TOWARDS ADVERTISEMENT CONTRACT, THE RATE FOR DEDUCT ION OF TAX IS 1% AS AGAINST 2% FOR OTHER CONTRACTS. AFTER CONSIDERING T HE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) HELD AS UNDER:- 192.THE SPECIAL AUDITORS HAD STATED IN TH E REPORT THAT CERTAIN AMOUNTS OF TDS WERE MADE AFTER DUE DA TE. IT WAS FURTHER NOTED BY THE AO THAT THERE WERE SHORT DEDUCTION OF TDS IN SOME CASES. ACCORDINGLY, THE AO HAS MADE TOTAL DISALLOWANCE OF RS. 24,87,798/- UNDER THIS HEAD. THE APPELLANT HAS NOT FURNISHED A NY SATISFACTORY EXPLANATION IN THIS REGARD EITHER BEFORE THE AO OR EVEN AT THE TIME OF APPELLATE PROCEEDINGS AND THEREFORE, THIS GROUND I S REJECTED AND THE ADDITION IS SUSTAINED. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 30. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REITERATED THE SUBMISSIONS AS MADE BEFORE THE CIT(A). ON THE OTHER HAND, THE LEARNED DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW . 31. WE HAVE HEARD THE PARTIES, PERUSED THE RECORD A ND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS OBSERVED THA T SINCE THE ASSESSEE HAD NOT FURNISHED COMPLETE ITEM WISE/PARTY WISE TDS DED UCTION, THE AO WORKED OUT THE DISALLOWANCE OF RS. 24,87,798/- AND DISALLO WED THE SAME U/S 40A(IA) OF THE ACT. THE CONTENTION OF THE ASSESSEE IS THAT THE AO WHILE ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 20 WORKING DISALLOWANCE U/S 40A(IA) FAILED TO TAKE INT O CONSIDERATION THE FOLLOWING POINTS:- I) IN RESPECT OF CONTRACT PAYMENTS, THERE IS ALSO A NON-DEDUCTION LIMIT OF RS. 50,000/- IN AGGREGATE ALONG WITH BILL WISE LIMIT OF RS. 20,000/-, II) THERE CAN BE LOW/NON DEDUCTION OF TAX, AND III) IN RESPECT OF PAYMENTS TOWARDS ADVERTISEMENT CONTRACT, THE RATE FOR DEDUCTION OF TAX IS 1% AS AGAINST 2% FOR OTHER CONTRACTS. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF TH E CASE AND PERUSING THE ORDERS OF THE AUTHORITIES BELOW, WE ARE OF THE VIEW THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH AFTER TAKING INTO CONSIDERATION THE POINTS RAISED BY THE ASSESSEE AND IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING T O THE ASSESSEE. WE ORDER ACCORDINGLY. THE ASSESSEE IS DIRECTED TO FURNISH CO MPLETE ITEM WISE/PARTY WISE TDS DEDUCTION IN SUPPORT OF HIS CASE. THUS, TH IS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 32. GROUND NO. 9 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN NOT APPRECIATING THE FACT THAT THE DATA RETRIEVED FROM THE DAMAGED COMPUTER SYSTEMS WAS NOT RELIABLE AND THEREBY ERRED IN CONFI RMING THE FOLLOWING ADDITIONS TOTALING TO RS. 17,78,967/- MADE BY THE A O:- A) ON ACCOUNT OF ALLEGED SUPPRESSION OF OTHER INCO ME RS. 6,43,916/- B) ON ACCOUNT OF ALLEGED DIFFERENCE IN SALARY PAID RS. 7,00,000/- C) ON ACCOUNT OF ALLEGED INFLATION IN INCENTIVE PA ID TO EMPLOYEE RS. 50,000/- D) ON ACCOUNT OF ALLEGED INFLATION IN STAFF WELFAR E EXPENSES RS. 38,349/- E) ON ACCOUNT OF ALLEGED INFLATION IN COMMISSION T O AGENTS RS. 5,773/- F) ON ACCOUNT OF ALLEGED INFLATION IN MOTOR CAR EX PENSES RS. 2,07,952/- ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 21 G) ON ACCOUNT OF ALLEGED INFLATION IN REPAIR AND M AINTENANCE EXPENSES RS. 13,369/- H) ON ACCOUNT OF ALLEGED INFLATION IN ACCOUNTING C HARGES RS. 1,19,608/-. 33. THE LD. CIT(A), BY FOLLOWING THE OBSERVATIONS O F THE A.O. CONFIRMED THE ABOVE ADDITIONS. AGGRIEVED, THE ASSESSEE CARRIED TH E MATTER IN APPEAL BEFORE US. 34. THE LD. COUNSEL SUBMITTED THAT THE ADDITION WAS MADE BY THE A.O. ON ACCOUNT OF FIGURES NOTED IN TRIAL BALANCE AND SHOWN IN THE RETURN OF INCOME. IT IS SUBMITTED THAT THE FIGURES QUOTED BY THE A.O. FROM THE COMPUTER CANNOT BE RELIED BECAUSE COMPUTER WAS ALREADY CORRU PTED ON THE BASIS OF THAT NO ADDITION CAN BE MADE. ON THE OTHER HAND, TH E LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 35. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECOR DS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE AFORESAID ADDITIONS MADE BY THE A.O. ON THE BASIS OF FIGURES NOTED IN THE TRIAL BAL ANCE AND SHOWN IN THE RETURN. IT IS A FACT THAT THE COMPUTERS ARE CORRUPT AND THE IMPUGNED ADDITIONS CANNOT SURVIVE BASED ON THE CORRUPT DATA. WHY THE DATA IS CORRUPT AND WHY THE ADDITIONS CANNOT SURVIVE, WE HAVE CONSI DERED THIS ASPECT IN DETAIL WHILE DEALING WITH GROUND NO.5 OF THE ASSESS EE, SAME REASONS MAY APPLY TO THIS GROUND ALSO. WE, THEREFORE, OF THE OP INION THAT THE ADDITIONS CANNOT SURVIVE AND, ACCORDINGLY, DELETE THE SAME. T HE GROUND IS ALLOWED. ITA NO. 5948/MUM/08 - REVENUES APPEAL 36. GROUND NO. 1 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN ALLOWING DEPRECIATION TO THE ASSESSEE ON THE SHOW ROOM PURCH ASED ON 25/08/04. ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 22 37. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO NOTED THAT THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS. 82,27,081/ -. HE FURTHER NOTED THAT SINCE SALE OF THE PROPERTY WAS TREATED AS SHORT TER M CAPITAL GAIN, THE ADDITION AND DELETION SHOWN UNDER THE HEAD SHOW ROO M SHOULD BE EXCLUDED FROM THE BLOCK OF ASSETS. 38. THE AO HAS FURTHER NOTED THAT THE ASSESSEE HAD CLAIMED DEPRECIATION AT THE RATE OF 10% ON SHOW ROOM OF RS. 82,27,081/-, BUT, THE ASSESSEE HAD SHOWN BLOCK OF ASSETS OF RS. 6,33,70,811/- AS ON 31 /03/05. THE AO ALSO NOTED THAT THE SPECIAL AUDITORS HAD ALSO BROUGHT TH E FACT OF EXCESS CLAIM OF DEPRECIATION MADE BY THE ASSESSEE. ON APPEAL, THE C IT(A) HELD THAT IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE ASSESSEE HA D NOT CLAIMED DEPRECIATION ON SHOW ROOM, BUT, THE ASSESSEE WAS MA DE THE CLAIM BEFORE THE AO AND THE AO HAD, HOWEVER, NOT DISCUSSED THE ISSUE . THE DEPRECIATION OF RS. 11,22,550/- IS ALLOWABLE. AGGRIEVED BY THE ORDE R OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 39. THE LEARNED DR HAS RELIED UPON THE ORDER OF THE AO AND THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE ORDER OF THE CIT(A). 40. AFTER HEARING THE LEARNED REPRESENTATIVES OF TH E PARTIES, AND PERUSING THE RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A), THEREFORE, TH E SAME IS HEREBY UPHELD. 41. GROUND NO. 3 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN DELETING THE DISALLOWANCE OF INTEREST OF RS. 11,86,766/-. 42. ON THE BASIS OF THE REPORT OF THE EX-SPECIAL AU DITOR M/S AGRAWAL AND CHHAJED, THE AO WAS OF THE OPINION THAT EXPENDITURE INCURRED PRIOR TO 30/05/04 SHOULD HAVE BEEN CAPITALIZED AND CANNOT BE CLAIMED AS REVENUE EXPENDITURE. DURING THE YEAR UNDER CONSIDERATION, T HE ASSESSEE HAD CLAIMED INTEREST OF RS. 88,60,730/- ON TERM LOAN TAKEN FOR PURCHASE OF VILE PARLE ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 23 SHOW ROOM. OUT OF THIS, RS. 17,40,076/- THE AO DISA LLOWED AS PRIOR PERIOD INTEREST. OUT OF REMAINING INTEREST OF RS. 71,20,65 4/- THE AO DISALLOWED AND CAPITALIZED PROPORTIONATE INTEREST AMOUNTING TO RS. 11,86,776/- FOR TWO MONTHS, I.E. UP TO 30/05/2004. THE AO ALSO DISALLOW ED AND CAPITALIZED PROFESSIONAL FEES TOWARDS BANK LOAN AND ARCHITECT F EES AGGREGATING TO RS. 10,32,484/-. ON APPEAL, BEFORE THE CIT(A), THE ASSE SSEE CONTENDED THAT THE AO HAD FAILED TO UNDERSTAND THAT DATE OF FIRST TRAD ING TRANSACTION CANNOT BE TAKEN AS BASIS FOR DECIDING THE FACT OF PUT TO USE OF AN ASSET. HE FURTHER CONTENDED THAT AN ASSET CAN BE SAID TO BE PUT TO US E WHEN IT IS KEPT READY FOR USE AND THE AO FAILED TO CONSIDER THIS ASPECT. HE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DC IT VS. CORE HEALTH CARE LTD. (CIVIL APPEAL NO. 3592-3955 OF 2002. THE CIT(A ) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FOLLOWING THE SAID DECISION OF THE HONBLE SUPREME COURT, HELD THAT THE CASE OF THE ASSESSEE I S SQUARELY COVERED BY THE RATIO OF THE ABOVE DECISION AND, THEREFORE, PROPORT IONATE DISALLOWANCE OF INTEREST AMOUNTING TO RS. 11,86,766/- IS NOT CORREC T. HE, THEREFORE, DELETED THE SAID DISALLOWANCE. AGGRIEVED BY THE ORDER OF TH E CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 43. THE LEARNED DR HAS PLACED RELIANCE ON THE ORDER OF THE AO AND THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON TH E ORDER OF THE CIT(A). 44. AFTER HEARING THE PARTIES AND PERUSING THE RECO RD AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW, NOTHING WAS BROUGHT ON RE CORD TO SHOW THAT THE FINDINGS GIVEN BY THE CIT(A) ARE NOT CORRECT. WE, T HEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) IN DELETING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS. 11,86,766/- AND, THERE FORE, THE ORDER OF THE CIT(A) IS HEREBY UPHELD. 45. THE COMMON ISSUE INVOLVED IN GROUND NO. 2 OF TH E REVENUES APPEAL AND GROUND NO.5 OF THE ASSESSEES APPEAL RELATES TO THE ADDITIONS OF RS.9,62,59,581/- MADE BY THE AO ON ACCOUNT OF SUPPR ESSION OF SALES, ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 24 INFLATED PURCHASES AND UNACCOUNTED CASH WHICH HAS B EEN SUSTAINED BY THE LEARNED CIT(APPEALS) TO THE EXTENT OF RS.1,24,64,35 9/-. 46. DURING THE COURSE OF SURVEY CARRIED OUT AT THE VARIOUS BUSINESS PREMISES OF THE ASSESSEE ON 02-12-2005, THE TRIAL B ALANCE AND OTHER STATEMENTS GENERATED FROM COMPUTERS WERE IMPOUNDED BY THE DEPARTMENT. THE FIGURES REFLECTED IN THE SAID STATEMENT REPRESE NTING COMPUTER DATA AND THE CORRESPONDING FIGURES REFLECTED IN THE BALANCE SHEET AND PROFIT & LOSS ACCOUNT FILED BY THE ASSESSEE ALONG WITH ITS RETURN OF INCOME WERE FOUND TO BE DIFFERENT BY THE AO. ON THE BASIS OF THESE DIFFE RENCES, THE AO MADE VARIOUS ADDITIONS TO THE TOTAL INCOME OF THE ASSESS EE REJECTING THE EXPLANATION OF THE ASSESSEE IN RESPECT TO THE SAID DIFFERENCES WHICH MAINLY WAS THAT THE DATA AVAILABLE ON THE COMPUTER AT THE TIME OF SEARCH WAS CORRUPTED DUE TO DAMAGE CAUSED BY THE FLOOD IN THE MONTH OF JULY, 2005 AND THE SAME, THEREFORE, WAS NOT RELIABLE FOR MAKIN G ANY ADDITION TO ITS TOTAL INCOME. AS PER THE STATEMENT GENERATED FROM A CCOUNTING PACKAGE USED BY THE ASSESSEE TO MAINTAIN COMPUTERIZED ACCOUNTS, TOTAL QUANTITY OF CLOSING STOCK AS ON 31-03-2005 WAS 5097 UNITS WHERE AS THE ASSESSEE HAD SHOWN A CLOSING STOCK OF 1698 UNITS AS PER THE BALA NCE SHEET. THE VALUE OF THIS DIFFERENCE IN STOCK WORKED OUT AT RS.5,35,37,6 49/- WAS TREATED BY THE AO AS SALES MADE BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNT. SIMILARLY THE DIFFERENCE IN THE FIGURE OF SALES AS REFLECTED IN COMPUTER PRINTOUT AND AS SHOWN BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT FILED ALONG WITH THE RETURN OF INCOME WAS ADDED BY THE AO TO THE TOTAL I NCOME OF THE ASSESSEE TO THE EXTENT OF RS.5,79,84,663/- TREATING IT AS SALES SUPPRESSED BY THE ASSESSEE. ON THE BASIS OF IMPOUNDED COMPUTERIZED ST ATEMENTS AS WELL AS THE DETAILS GIVEN BY THE SPECIAL AUDITOR ON THE BAS IS OF STATEMENTS GENERATED BY THEM FROM THE COMPUTER OF THE ASSESSEE , THE AO NOTED THAT THERE WERE 176 ITEMS WHICH WERE RECEIVED BY THE ASS ESSEE FREE OF COST AND WERE NOT RECORDED IN ITS STOCK REGISTER. THE AO HEL D THAT THESE ITEMS WOULD HAVE BEEN SOLD BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNT AND VALUE THEREOF TAKEN AT RS.27,72,176/- WAS ADDED BY HIM TO THE TOTAL INCOME OF THE ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 25 ASSESSEE. THE AO ALSO COMPARED AND VERIFIED THE FIG URES OF PURCHASES REFLECTED IN THE COMPUTERIZED STATEMENTS IMPOUNDED DURING THE COURSE OF SURVEY WITH THE FIGURES OF PURCHASES DECLARED BY TH E ASSESSEE IN ITS FINAL ACCOUNTS FILED ALONG WITH THE RETURN OF INCOME. ON SUCH VERIFICATION, HE FOUND A DIFFERENCE OF RS.1,39,76,130/- WHICH WAS TR EATED BY HIM AS PURCHASES INFLATED BY THE ASSESSEE AND THE SAME WAS ALSO ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THERE WAS ALSO A DIFFERENCE FOUND IN THE MONTHWISE CASH BALANCE REFLECTED IN THE COMPUTERIZED STATEMEN TS AND THE ACCOUNTS OF THE ASSESSEE. SINCE THE EXPLANATION OFFERED BY THE ASSESSEE IN RESPECT OF THESE DIFFERENCES WAS NOT FOUND ACCEPTABLE BY THE A O, THE TOTAL DIFFERENCE AGGREGATING TO RS.1,09,16,154/- WAS ADDED BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE. ACCORDINGLY, TOTAL ADDITIONS OF RS.9, 62,59,581/- WERE MADE BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE ON THE B ASIS OF COMPUTER GENERATED STATEMENTS IMPOUNDED DURING THE COURSE OF SURVEY AS WELL AS THE REPORT OF THE SPECIAL AUDITOR. 47. THE ADDITIONS MADE BY THE AO ON THE BASIS OF IM POUNDED COMPUTERIZED DATA WERE CHALLENGED BY THE ASSESSEE I N AN APPEAL FILED BEFORE THE LEARNED CIT(APPEALS) AND ELABORATE SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) IN SUP PORT OF ITS CASE THAT NONE OF THE ADDITIONS MADE BY THE AO ON THE BASIS O F IMPOUNDED COMPUTERIZED DATA WAS SUSTAINABLE. THE MAIN THRUST OF THE ASSESSEES ARGUMENT WAS THAT THE IMPOUNDED MATERIAL REPRESENTI NG COMPUTER PRINTOUT TAKEN DURING THE COURSE OF SURVEY FROM THE DAMAGED COMPUTER SYSTEM AND THAT TOO WITHOUT FOLLOWING PROPER SEQUENCE OF GIVIN G COMMANDS WAS NOT RELIABLE AND THE AO WAS NOT JUSTIFIED TO RELY THERE ON TO MAKE THE IMPUGNED ADDITIONS. IN THIS REGARD, A DETAILED SUBMISSION WA S MADE BY THE ASSESSEE POINTING OUT VARIOUS DISCREPANCIES AND INCONSISTENC IES IN THE DATA EXTRACTED FROM THE COMPUTER IN ORDER TO SUPPORT AND SUBSTANTI ATE ITS STAND THAT THE SAID DATA WAS CORRUPTED AS A RESULT OF DAMAGE CAUSE D TO THE COMPUTER AS A RESULT OF FLOOD. IT WAS CONTENDED BY THE ASSESSEE T HAT THE SAID COMPUTER DATA REFLECTED DISTORTED FIGURES WHICH SHOULD NOT B E RELIED UPON AND TAKEN ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 26 AS THE BASIS TO MAKE HUGE ADDITIONS TO ITS TOTAL IN COME. IT WAS SUBMITTED THAT AS A RESULT OF DAMAGE CAUSED TO THE COMPUTER, FULL DATA COULD NOT BE RETRIEVED AND WHATEVER DATA THAT WAS PARTIALLY RETR IEVED AS A RESULT OF CORRUPTED SYSTEM GAVE MISLEADING AND DISTORTED RESU LT. IT WAS CONTENDED THAT THE UNRELIABILITY OF THE COMPUTER DATA TO MAKE SUCH HUGE ADDITIONS WAS EVIDENT FROM THE FACT THAT THE GROSS PROFIT RATE WO RKED OUT ON THE BASIS OF VARIOUS ADDITIONS MADE BY THE AO GAVE AN EXORBITANT FIGURE AS AGAINST THE GP ATE OF 9.85% DECLARED BY THE ASSESSEE WHICH WAS HIGHER THAN THE GP RATES DECLARED IN THE IMMEDIATELY PRECEDING YEARS. 48. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE A SSESSEE IN THE LIGHT OF MATERIAL AVAILABLE ON RECORD INCLUDING THE IMPOUNDE D COMPUTERIZED STATEMENTS, THE LEARNED CIT(APPEALS) FOUND THAT VAR IOUS FIGURES REFLECTED IN THE IMPOUNDED DOCUMENTS AS WELL AS DOCUMENTS EXTRAC TED FROM THE COMPUTER AT THE TIME OF SPECIAL AUDIT DID NOT TALLY WITH EACH OTHER. HE ALSO FOUND THAT ONLY SOME OF THE FIGURES AS REFLECTED IN THE COMPUTERIZED DATA WERE ADOPTED BY THE AO ON SELECTED BASIS WITHOUT GIVING ANY REASON WHATSOEVER. HE ALSO NOTED THAT WHILE MAKING THE DIF FERENT ADDITIONS, RELIANCE WAS PLACED BY THE AO ON DIFFERENT FIGURES REFLECTED IN THE DIFFERENT DOCUMENTS AND THERE WAS NO CONSISTENCY IN THIS REGA RD. IN THIS REGARD, HE NOTED THAT TRADING ACCOUNT EXTRACTED AT THE TIME OF SURVEY AS PER ANNEXURE 8 SHOWED GROSS PROFIT OF RS.2,20,24,480/- WHEREAS O N THE SAME DATE, BALANCE SHEET SHOWED NET PROFIT OF RS.7,48,00,000/- IN ONE DOCUMENT AND RS.7,25,00,000/- IN ANOTHER DOCUMENT. HE FOUND THAT THE RELIANCE OF SPECIAL AUDITORS AND THE AO ON DIFFERENT SET OF DOC UMENTS FOR MAKING VARIOUS ADDITIONS WAS MUTUALLY CONTRADICTORY ON SE VERAL POINTS. HE NOTED THAT WHILE MOST OF THE FIGURE OF TRIAL BALANCE GENE RATED FROM COMPUTER HAD BEEN ACCEPTED BY THE AO, STOCK VALUE WAS ADOPTED FR OM THE DATA EXTRACTED FROM THE COMPUTER AT THE TIME OF SPECIAL AUDIT. HE NOTED THAT OTHER FIGURES REFLECTED IN THE SAME TABLE, HOWEVER, WERE NOT ADOP TED BY THE AO. HE HELD THAT IT WAS, THEREFORE, NOT IN THE INTEREST OF JUST ICE TO ADOPT ONE FIGURE FROM ONE SET OF DOCUMENT AND ANOTHER FIGURE FROM ANOTHER SET OF DOCUMENT FOR ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 27 THE PURPOSE OF ADDITION. ACCORDING TO THE LEARNED C IT(APPEALS), THERE WAS ALSO SERIOUS CONTRADICTIONS IN THE STAND TAKEN BY T HE ASSESSEE ON THIS ISSUE AT DIFFERENT STAGES. HE FURTHER NOTED THAT IN THE L ETTER GIVEN TO THE D.N. NAGAR, POLICE STATION, ANDHERI, MUMBAI, LIST OF REC ORDS AND DOCUMENTS DESTROYED IN THE FLOOD WAS GIVEN BY THE ASSESSEE WH ICH DID NOT INCLUDE COMPUTERS. HE ALSO NOTED THAT ON 27-01-2007, THE AS SESSEE COMPANY HAD FILED AN ADDENDUM REVISING THE FIGURES OF SALES AND PURCHASES. ACCORDING TO THE LEARNED CIT(APPEALS), WHEN THE COMPLETE DATA WA S CORRUPTED AS STATED DURING THE COURSE OF SURVEY CARRIED OUT IN DECEMBER , 2005, HOW SUCH ADDENDUM WAS PREPARED AND FURNISHED BY THE ASSESS EE. HE HELD THAT EVEN THE ACCOUNTS FILED BY THE ASSESSEE ALONG WITH ITS R ETURN OF INCOME WERE NOT RELIABLE AND THE ASSESSEES REQUEST TO ACCEPT THE R ETURNED FIGURES COULD NOT BE ACCEDED TO. HE, THEREFORE, PROCEEDED TO ESTIMATE THE SALES OF THE ASSESSEE AT RS.52,70,00,000/- ON THE BASIS OF FIGURES OF SAL ES APPEARING IN VARIOUS DOCUMENTS EXTRACTED FROM THE COMPUTER TREATING THE SAME AS FAIR AND REASONABLE. IN THE YEAR UNDER CONSIDERATION, THE GP AT THE RATE OF 9.8% WAS DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME AS AGAINST 7.11% DECLARED IN THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT Y EAR 2004-05 AND 6.74% DECLARED IN THE IMMEDIATELY SUCCEEDING YEAR I.E. AS SESSMENT YEAR 2006-07. ACCORDING TO THE LEARNED CIT(APPEALS), THE GP RATE OF 6.74% WAS LOWER THAN NORMAL BECAUSE OF THE LOSS SUFFERED BY THE ASSESSEE TO THE STOCK OF GOODS DURING THE FLOOD. HE NOTED THAT THE GP RATE DECLARE D BY THE ASSESSEE IN ASSESSMENT YEAR 2007-08 WAS 12.84% AND TAKING THE S AME AS BASIS, HE CONSIDERED IT REASONABLE TO ADOPT THE GP RATE OF 11 .5% FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, APPLYING THE SAID GP RA TE TO THE ESTIMATED SALES OF RS.52.70 CRORES, THE LEARNED CIT(APPEALS) COMPUT ED THE INCOME OF THE ASSESSEE WHICH RESULTED IN TRADING ADDITION OF RS.1 ,24,64,359/- AS AGAINST THE TOTAL ADDITIONS OF RS.9,62,59,581/- MADE BY THE AO. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE, TH E ASSESSEE AND REVENUE BOTH HAVE RAISED THIS ISSUE IN THEIR RESPECTIVE APP EALS FILED BEFORE THE TRIBUNAL. ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 28 49. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NO BASIS FOR THE TRADING ADDITION MADE BY THE AO AND SUSTAINED BY THE LEARNED CIT(APPEALS). HE SUBMITTED THAT HUGE ADDITIONS TO T HE GROSS PROFIT DECLARED BY THE ASSESSEE WERE MADE BY THE AO RELYING ON THE COMPUTER DATA GENERATED FROM COMPUTERS DURING THE COURSE OF SURVE Y AS WELL AS SUBSEQUENTLY BY THE SPECIAL AUDITORS. HE SUBMITTED THAT THE SAID DATA WAS NOT RELIABLE SINCE THE COMPUTER DISK WAS CORRUPTED AS A RESULT OF DAMAGE DUE TO FLOOD AND THIS POSITION POINTED OUT BY THE A SSESSEE BY PUTTING FORTH VARIOUS CONTRADICTIONS AND INCONSISTENCIES IN THE F IGURES REFLECTED IN COMPUTER DATA WAS ACCEPTED BY THE LEARNED CIT(APPEA LS). HE CONTENDED THAT THE LEARNED CIT(APPEALS), HOWEVER, MADE THE ESTIMAT ION OF SALES RELYING ON THE SAID COMPUTER DATA AND SUSTAINED THE TRADING AD DITION MADE BY THE AO BY APPLYING HIGHER GP RATE OF 11.5% ON THE BASIS OF HIGHER GP RATE DECLARED BY THE ASSESSEE IN ASSESSMENT YEAR 2007-08 I.E. AFT ER A GAP OF TWO YEARS. HE SUBMITTED THAT THE GP RATE OF 9.84% SHOWN BY THE AS SESSEE IN THE YEAR UNDER CONSIDERATION WAS HIGHER THAN THE GP RATE DEC LARED BY IT IN THE EARLIER YEARS AND THERE WAS NO REASON FOR THE LEARN ED CIT(APPEALS) TO APPLY A HIGHER GP RATE. HE CONTENDED THAT SINCE THE FINAN CIAL DATA AVAILABLE ON THE COMPUTER WAS NOT RELIABLE, THE PROFIT SHOWN BY THE ASSESSEE IN THE AUDITED FINANCIAL STATEMENTS FILED ALONG WITH THE R ETURN OF INCOME SHOULD HAVE BEEN ACCEPTED AND NO TRADING ADDITION SHOULD H AVE BEEN MADE ON THIS ISSUE. 50. THE LEARNED DR, ON THE OTHER HAND, STRONGLY SUP PORTED THE ORDER OF THE AO BY SUBMITTING THAT THE DIFFERENCES NOTICED I N THE FIGURES REFLECTED IN COMPUTER DATA IMPOUNDED DURING THE COURSE OF SURVEY AND THE CORRESPONDING FIGURES SHOWN BY THE ASSESSEE IN ITS ACCOUNTS FILED ALONG WITH THE RETURN OF INCOME WERE SUFFICIENT TO SHOW THAT T HE FIGURES REFLECTED IN THE ACCOUNTS OF THE ASSESSEE WERE NOT RELIABLE. HE SUBM ITTED THAT THESE DIFFERENCES COULD NOT BE EXPLAINED BY THE ASSESSEE SATISFACTORILY AND EVEN THE LEARNED CIT(APPEALS) ACCEPTED THE FACT THAT DIF FERENT STAND WAS TAKEN BY THE ASSESSEE IN THIS REGARD AT DIFFERENT STAGES. HE SUBMITTED THAT SPECIFIC ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 29 ADDITIONS WERE MADE BY THE AO IN RESPECT OF EACH AN D EVERY DIFFERENCE POINTED OUT BY HIM WHICH THE ASSESSEE FAILED TO EXP LAIN. HE CONTENDED THAT THE LEARNED CIT(APPEALS), HOWEVER, SUSTAINED ONLY O NE ADDITION IN LUMPSUM BY ESTIMATING THE GROSS PROFIT OF THE ASSESSEE IGNO RING THAT THE SPECIFIC ADDITIONS MADE BY THE AO ON DIFFERENT ISSUES HAD SE PARATE AND SOUND BASIS. HE SUBMITTED THAT FOR INSTANCE, THE ADDITION ON ACC OUNT OF DIFFERENCE IN CLOSING STOCK INVOLVED A SEPARATE ISSUE UNCONNECTED WITH THE ISSUE OF UNACCOUNTED SALES AND THE LEARNED CIT(APPEALS) SHOU LD HAVE CONSIDERED AND DECIDED THE SAME SEPARATELY. HE CONTENDED THAT SHORTAGE OF STOCK AS POINTED OUT BY THE AO CLEARLY SHOWS THAT ONLY PURCH ASES WERE RECORDED BY THE ASSESSEE WHEREAS CORRESPONDING SALES WERE SUPPR ESSED BY THE ASSESSEE. HE CONTENDED THAT IN SUCH CIRCUMSTANCES, THE ENTIRE SALES VALUE WAS LIABLE TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS RIGHTLY HELD BY THE AO AND THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN R ESTRICTING THE SAME ONLY TO THE EXTENT OF GROSS PROFIT. 51. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT VA RIOUS ADDITIONS TO THE TRADITIONS RESULTS OF THE ASSESSEE COMPANY WERE MAD E BY THE AO ON THE BASIS OF TRIAL BALANCE AND OTHER DOCUMENTS GENERATE D FROM THE COMPUTERS OF THE ASSESSEE DURING THE COURSE OF SURVEY AS WELL AS THE REPORT OF SPECIAL AUDITOR WHICH WAS ALSO BASED ON THE DATA GENERATED FROM THE COMPUTERS OF THE ASSESSEE. THE SAID DATA RELIED UPON BY THE AO W AS CLAIMED TO BE NOT RELIABLE BY THE ASSESSEE ON THE GROUND THAT THE SAM E REPRESENTED DISTORTED FIGURES AS THE COMPUTER SYSTEM WAS CORRUPTED DUE TO DAMAGE CAUSED TO IT BECAUSE OF FLOOD. IN ORDER TO SUPPORT AND SUBSTANTI ATE THIS CLAIM, VARIOUS DISCREPANCIES AND INCONSISTENCIES IN THE FIGURES RE FLECTED IN DIFFERENT STATEMENTS GENERATED FROM COMPUTERS WERE POINTED OU T BY THE ASSESSEE. AS POINTED OUT BY THE ASSESSEE, ANNEXURE 7 AND 8 BEING PRINT OUTS TAKEN BY THE SURVEY PARTY SHOWED NET PROFIT OF RS.7,25,4,077 /- WHEREAS TRIAL BALANCE EXTRACTED FROM THE COMPUTER SHOWED A NET PROFIT OF RS.8,87,96,976/-. ANNEXURE 7 WHICH WAS BALANCE SHEET OF THE ASSESSEE SHOWED NEGATIVE ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 30 OPENING BALANCE OF RS.8,99,35,881/- WHICH AGAIN WAS NOT REALISTIC AS THE BALANCE SHEET CANNOT HAVE ANY OPENING BALANCE. THE LOANS AND ADVANCES AS REFLECTED IN ANNEXURE 7 WERE TO THE EXTENT OF RS.10 ,66,54,345/- WHILE ANNEXURE 8 SHOWED LOANS AND ADVANCES AT RS.19,04,65 ,948/-. SIMILARLY GROSS PROFIT IN ANNEXURE 8 WAS REFLECTED AT RS.2,20 ,24,480/- WHILE NET PROFIT SHOWN IN THE SAME ANNEXURE WAS RS.7,48,28,390/-. TH ESE DISCREPANCIES AND INCONSISTENCIES AS WELL AS OTHER DISCREPANCIES AND INCONSISTENCIES POINTED OUT BY THE ASSESSEE CLEARLY ESTABLISHED THA T THE DATA GENERATED FROM COMPUTER OF THE ASSESSEE WAS CORRUPTED AS A RESULT OF DAMAGE CAUSED TO THE COMPUTER IN THE FLOODS AND THE SAME REPRESENTED DIS TORTED FIGURES WHICH COULD NOT BE RELIED UPON TO DRAW ANY ADVERSE INFERE NCE AGAINST THE ASSESSEE MUCH LESS ANY INFERENCE ABOUT UNDISCLOSED INCOME HA VING BEEN EARNED BY THE ASSESSEE. 52. AS A MATTER OF FACT, EVEN THE LEARNED CIT(APPEA LS) ACCEPTED THIS POSITION CLEARLY EVIDENT FROM THE RELEVANT RECORD B Y OBSERVING THAT VARIOUS FIGURES NOTED IN THE IMPOUNDED DOCUMENTS AS WELL AS DOCUMENTS EXTRACTED FROM THE COMPUTERS AT THE TIME OF SPECIAL AUDIT DID NOT TALLY WITH EACH OTHER. HE ALSO FOUND THAT FOR MAKING DIFFERENT ADDI TIONS, THE AO HAD RELIED UPON DIFFERENT DOCUMENTS AND THERE WAS NO CONSISTEN CIES IN THIS REGARD. HE ALSO NOTED THAT THE RELIANCE BY SPECIAL AUDITORS AN D AO ON DIFFERENT SET OF DOCUMENTS FOR MAKING VARIOUS ADDITIONS WAS MUTUALLY CONTRADICTORY ON SEVERAL POINTS. HE NOTED IN THIS REGARD THAT WHILE MOST OF THE FIGURES OF TRIAL BALANCE HAD BEEN ACCEPTED BY THE AO, THE OTHER FIGU RES REFLECTED IN THE SAME STATEMENT WERE NOT ADOPTED BY HIM. HE HELD THA T THERE WAS THUS NO JUSTIFICATION IN THE ACTION OF THE AO TO ADOPT ONE FIGURE FROM ONE SET OF DOCUMENTS AND ANOTHER FIGURE FROM ANOTHER DOCUMENT FOR THE PURPOSE OF MAKING ADDITIONS. HAVING ARRIVED AT THIS CONCLUSION , THE LEARNED CIT(APPEALS), HOWEVER, PROCEEDED TO MAKE HIS OWN ES TIMATE REJECTING THE BOOK RESULTS OF THE ASSESSEE AND SUSTAINING THE ADD ITION MADE BY THE AO TO THE EXTENT OF RS.1,24,64,359/- BY APPLYING A HIGHER GP RATE OF 11.5% TO THE SALES OF THE ASSESSEE ESTIMATED AT RS.52,70,00,000/ -. ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 31 53. AFTER HAVING CONSIDERED ALL THE FACTS AND CIRCU MSTANCES OF THE CASE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, WE FIND I T DIFFICULT TO UPHOLD THIS ACTION OF THE LEARNED CIT(APPEALS). 54. FIRST OF ALL, THE INCOME DECLARED BY THE ASSESS EE IN ITS RETURN OF INCOME WAS BASED ON AUDITED BALANCE SHEET AND PROFI T & LOSS ACCOUNT FILED WITH THE RETURN OF INCOME ITSELF ALONG WITH THE AUD IT REPORT AND THERE WAS NO SPECIFIC AND MATERIAL DEFECT POINTED OUT BY THE LEARNED CIT(APPEALS) TO JUSTIFY THE REJECTION OF FINANCIAL RESULTS DECLARED BY THE ASSESSEE ON THE BASIS OF AUDITED BOOKS OF ACCOUNTS. NO DOUBT, THE B OOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ON COMPUTERS WERE CORRUP TED AS A RESULT OF DAMAGE CAUSED TO THE COMPUTER IN THE FLOODS BUT THE BOOKS SO MAINTAINED WERE ALREADY VERIFIED BY THE AUDITORS PRIOR TO THE DAMAGE AND THE RESULTS DECLARED THEREIN WERE FOUND TO BE TRUE AND FAIR. TH ERE WAS NO DEFECT SPECIFICALLY POINTED OUT BY THE LEARNED CIT(APPEALS ) WHICH WAS SO MATERIAL TO JUSTIFY THE REJECTION OF BOOK RESULTS AND COMPUT ATION OF INCOME OF THE ASSESSEE ON ESTIMATED BASIS. EVEN THE GROSS PROFIT RATE OF 9.85% DECLARED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION WAS MO RE THAN THE GP RATE OF 7.11% DECLARED IN THE IMMEDIATELY PRECEDING YEAR I. E. ASSESSMENT YEAR 2004-05. AS ALREADY NOTED, THE COMPUTER DATA GENERA TED DURING THE COURSE OF SURVEY AS WELL AS SUBSEQUENTLY BY THE SPECIAL AU DITOR WAS FOUND TO BE UNRELIABLE BY THE LEARNED CIT(APPEALS) ON THE BASIS OF VARIOUS DISCREPANCIES AND INCONSISTENCIES POINTED OUT BY THE ASSESSEE. HE , HOWEVER, STILL RELIED ON THE SAME DATA TO ESTIMATE THE SALES OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AT RS.52,70,00,000/- WHICH, IN OUR OP INION, WAS TOTALLY UNJUSTIFIED AND UNFOUNDED. EVEN HIS ACTION OF ADOPT ING A HIGHER GP RATE OF 11.5% AS AGAINST 9.84% DECLARED BY THE ASSESSEE WAS UNSUSTAINABLE AS THIS HIGHER GP RATE WAS ADOPTED BY HIM ON THE BASIS OF G P RATE OF 12.84% DECLARED BY THE ASSESSEE IN SUBSEQUENT YEAR RELEVAN T TO ASSESSMENT YEAR 2007-08 IGNORING THAT THE GP RATE OF 9.84% DECLARED BY THE ASSESSEE WAS MUCH HIGHER THAN GP RATES OF 3.73%, 4.22% AND 7.11% DECLARED BY THE ITA NOS. 5352 & 5948/MUM/08 SONY MONY ELECTRONICS LTD. 32 ASSESSEE IN THE IMMEDIATELY PRECEDING THREE YEARS I .E. ASSESSMENT YEARS2002-03, 2003-04 AND 2004-05. IT IS NEEDLESS T O MENTION THAT WHAT IS RELEVANT FOR THE PURPOSE OF ASCERTAINING THE REASON ABILITY OF GP RATE IS THE RELEVANT HISTORY OF ASSESSEES OWN CASE AND NOT THE RESULTS DECLARED BY THE ASSESSEE IN FUTURE. AS SUCH, CONSIDERING ALL THE FA CTS OF THE CASE, WE ARE OF THE VIEW THAT THE VARIOUS ADDITIONS MADE BY THE AO ON THE BASIS OF UNRELIABLE DATA GENERATED FROM THE COMPUTERS OF THE ASSESSEE WHICH REPRESENTED DISTORTED AND CORRUPT FIGURES WERE NOT SUSTAINABLE AND THE LEARNED CIT(APPEALS) OUGHT TO HAVE DELETED THE SAID ADDITIONS ENTIRELY. THE SUSTENANCE OF THE SAID ADDITIONS BY THE LEARNED CIT (APPEALS) EVEN PARTLY IS NOT JUSTIFIED EITHER IN LAW OR IN THE FACTS OF THE CASE AND DELETING THE SAME, WE DISMISS GROUND NO.2 OF THE REVENUES APPEAL AND ALLOW GROUND NO. 5 OF THE ASSESSEES APPEAL. 55. TO SUM UP, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL FILED BY THE RE VENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF APRIL, 2012. SD/- SD/- (P.M. JAGTAP) (V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 13 TH APRIL, 2012. KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, E BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.