DCIT Cen,Cir.1(1), Pune, V. Sairang Developers Pvt..Ltd,

ITA 647/PUN/2004

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7528 (ITAT-PUNE)
• Duration Of Justice: 6 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-02-2011
• Assessment Year: misc
• Appeal Filed On: 29-04-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Business income; Income from undisclosed sources; Search and seizure; Loose papers; Document seized; Principle of natural justice; Assessment record; Block assessment; Documents seized; Revenue expenditure
• Section: 143(3); 142(1); 131; 69; 145; 144; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 647/PN/2004 BLOCK ASSESSMENT PERIOD 1997-98 TO 2002-03 DY. CIT CENT. CIR. 1(1) PUNE APPELLANT VS. SAIRANG DEVELOPERS & PROMOTERS PVT.LTD., 501-502 CORPORATE PLAZA SENAPATI BAPAT ROAD NEAR CHATURSHINGHI ROAD, SHIVAJINAGAR, PUNE-400 016 RESPONDENT APPELLANT BY: SHRI S.K. SINGH RESPONDENT BY: SHRI SUNIL PATHAK AND SHRI NIKHIL PATHAK ORDER PER SHAIALENDRA KUMAR YADAV, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-I PUNE DATED 2-1-2004/23-2-2004 ON THE FOLLOWING GROUNDS: 1. THE CIT(1)ERRED IN NOT CONSIDERING THE RECASTED TRADING P& L A/C IN THE BLOCK ASSESSMENT ORDER 1ADE ON THE BASIS OF ENTRIES BORNE OUT FROM SEIZED PAPER NO . 17 & 55 WHICH DEPICTED THE FINAL CONSOLIDATED POSITION O F BUSINES8 AFFAIRS OF THE ASSESSEE FOR THE BLOCK PERI OD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS ES AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF UNDISCLOSED PROFITS OF RS. 7.66 CRORES BY ADOPTING DIFFERENT METHODS OF VALUATION FOR OPENING AND CLOSING STOCK. ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 2 3. THE. CIT(A) HAS ERRED IN NOT PROPERLY APPRECIAT ING ISSUES OF BOOKS OF ACCOUNTS AND THE CLOSING STOCK A S NO BOOKS WERE PRODUCED EITHER BEFORE THE CIT(A) OR BEF ORE THE A.O. AND ALSO THAT THE CORRECTNESS OF THE VALUA TION OF THE DOSING STOCK OF LAND WAS NOT PROPERLY VERIFIED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E & IN LAW, THE CIT(A) ERRED IN NOT SUSTAINING THE ADDITION EVEN WHEN VALUE OF CLOSING STOCK IS TAKEN ON COST A S IS EVIDENT FROM THE LD. CIT(A)'S OWN FINDINGS GIVEN IN PARA NO.4.1, 4.1.2, 4.6.2, 4.8.1 OF THE APPELLATE ORDER. 5. THE CIT(A) ERRED IN NOT CONSIDERING THE REMAND REPORT DATED 20-2-2004 OF THE ASSESSING OFFICER AS ALSO THE ADJOURNMENT LETTER DATED 13-2-2004 AND 17-2-200 4. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E: & IN LAW, THE LD. CIT(A) ERRED IN NOT SUSTAINING AN ALTERNATE ADDITION AS BROUGHT OUT IN THE REMAND REP ORT DATED 20-2-2004 OF RS. 6.56 CRORES U/S 69 OF THE IT ACT WHICH IN FACT EMANATED FROM THE ASSESSEE'S OWN SUBMISSIONS BEFORE THE A.O DATED 26-4-2003 AND BEFO RE THE CIT(A) DURING THE APPELLATE PROCEEDINGS ON 22-1 0- 2003. 7. THE APPELLANT RESERVES THE RIGHT TO, ADD, ALTER, AMEND, AND MODIFY THE GROUNDS OF APPEAL AT THE TIM E OF HEARING. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF LAND DEVELOPMENT. THE ASSESSEE PURCHASES LAND FROM THE RURAL CULTIVATORS AND AFTER DEVELOPMENT OF THE SAME SELLS IT TO VARIOUS CUSTOMERS IN AND AROUND PUNE CITY. 3. A SEARCH AND SEIZURE ACTION U/S132 OF THE ACT WA S CARRIED OUT AT THE OFFICE PREMISES OF THE ASSESSEE ON 11-4-2001. THE ASSESSING OFFICER MADE AN ADDITION O F RS. 7,66,28,884/- ON ACCOUNT OF SUPPRESSION OF ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 3 BUSINESS RECEIPTS. THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN PARA 7 TO 15 OF THE BLOCK ASSESSMENT ORDER. THE ADDITION IS BASED UPON TWO PAPERS NAMELY PAGE NO. 17 OF BUNDLE NO. 2 SEIZED BY PARTY NO.1A AND PAPER NO.55 OF BUNDLE NO. 2. 4. THE ASSESSING OFFICER AFTER TAKING INTO CONSIDER ATION THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE CONCLUDE D THE MATTER AS UNDER: '12. ON PERUSAL AND CAREFUL CONSIDERATION OF ASSESS EE'S SUBMISSIONS AND CONTENTIONS THEREIN, IT HAS BEEN OBSERVED THAT IN ORDER TO EXPLAIN THE TRANSACTIONS IN RESPECT OF PURCHASE AND SALES OF LAND, ASSESSEE HAS MAINLY RELIED UPON HIS SYSTEM OF ACCOUNTING. IN THI S CONTEXT THE SALIENT FEATURES WHICH EMERGE FROM ASSE SSEE'S CONTENTIONS ARE AS FOLLOWING: 1. THAT THE ASSESSEE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING. 2. THAT THE ASSESSEE ACCOUNT FOR THE SALE OF LAND OF PLOTS ON THE BASIS OF EITHER WHEN SALE DEED IS EXEC UTED OR POSSESSION OF PLOTS OF LAND IS GIVEN TO BUYER ON RE CEIPT OF TOTAL SALE CONSIDERATION WHICHEVER IS EARLIER. 3. THAT UNTIL POSSESSION IS GIVEN OR SALE DEED IS EXECUTED, TILL THAT PERIOD WHATEVER AMOUNT RECEIVED BY ASSESSEE AGAINST SALE OF PLOTS OF LAND IS SHOWN AS LIABILITY AGAINST THE HEAD ADVANCE AGAINST SALE OF PLOTS IN THE BALANCE SHEET AND IT IS AT THE POSSESSION OR FINAL DEED IS EXECUTED THAT ASSESSEE ACCOUNT FOR IT AS SALE. 4. THAT IT IS BUT FOR THE TECHNICAL REASON THAT TH E LAND REFLECTED IN THE BALANCE SHEET OF COMPANY IS ACTUAL LY IN THE NAME OF INDIVIDUAL DIRECTORS AS N.A. IS NOT PERMISSIBLE FOR COMPANIES. 5. THAT THE DEFINITION OF TRANSFER PROVIDED U/S 2( 47) OF THE IT. ACT IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES AND METHOD OF ACCOUNTING OF THE ASSES SEE COMPANY. 6. THAT CONSIDERING THESE ASPECTS THE SALES REFLEC TED IN SEIZED LOOSE PAPER NO. 17 ARE NOT COMPLETE SALE AND ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 4 ENTIRE AMOUNT OF SALE SHOWN AT RS. 14.57 CORES MAY NOT BE CONSIDERED AS TOTAL SALES AND ONLY THAT PORTION WHICH IS COVERED UNDER THE HEAD ADVANCE AGAINST SALE OF P LOTS' ONLY SHOULD BE TAKEN AS SALE BY COMPANY. THAT ALL THE TRANSACTION APPEARED IN PAPER NO. 17 & 55 HAVE DULY BEEN RECORDED IN THE REGULAR BOOKS OF ACCOUNTS . THUS THE ASSESSEE COMPANY HAS CONTENDED THAT THERE ARE NO SUPPRESSED PROFITS WITH REFERENCE TO SALES AS PER SEIZED PAPER NO. 17. 13. I HAVE CAREFULLY PERUSED THE SEIZED DOCUMENTS A ND PAPERS AND HAVE GONE THROUGH THE ORAL AND WRITTEN SUBMISSIONS OF THE ASSESSEE. ON CLOSE SECURITY AND ANALYSIS OF SEIZED PAPERS AND SUBMISSIONS OF THE CONTENTIONS OF THE ASSESSEE COMPANY ARE NOT ACCEPTA BLE FOR THE REASONS ENUMERATED BELOW. 13. 1. THE ASSESSEE EVEN THOUGH IN HIS STATEMENT U/ S 132(4) HAS STATED THAT HIS BOOKS OF ACCOUNTS ARE MAINTAINED ON COMPUTER, BUT NO SUCH BOOKS OF ACCOUN TS WERE FOUND TO HAVE BEEN MAINTAINED ON COMPUTER AS O N THE DATE OF SEARCH. THESE BOOKS OF ACCOUNTS WERE NE ITHER PRODUCED AT THE TIME OF SEARCH NOR THESE BOOKS WERE PRODUCED IN THE POST SEARCH PROCEEDINGS BEFORE THE INVESTIGATION WING AND IT IS THE FIRST TIME THAT TH E ASSESSEE PRODUCED SOME COMPUTERIZED SETS OF BOOKS O F ACCOUNTS WHICH WAS NEITHER SEIZED, NOR MARKS OF IDENTIFICATION WERE FOUND ON THESE BOOKS OF ACCOUNT S WHICH IS A CLEAR INDICATION THAT BOOKS WERE NOT AVAILABLE AT THE TIME OF SEARCH. AS SUCH NO BOOKS OF ACCOUNTS WERE EITHER FOUND (EXCEPT MANUAL REGISTERS RELATING TO S ALE OF LAND) AND SEIZED. SOME BOOKS OF ACCOUNTS MAINTAINED MANUALLY IN THE FORM OF SALES REGISTER SEIZED VIDE ANNEXURE A TO PANCHNAMA DATED 24-4-2001 WAS FOUND BUT NO REGISTER RELATING TO PURCHASE WAS FOUND OR SEIZED. EVEN THE ENTRIES IN THE MANUALLY MAINTAINED SALES REGISTER ARE NOT COMPLETE AND THESE REGISTERS DO NO T GIVE CONCLUSIVE AND COMPLETE PICTURE OF SALES AND AS SUC H THE ENTRIES ON THIS PAPER DOES NOT TALLY WITH THE SALES DEPICTED ON PAPER NO. 17 SEIZED AT BUNDLE 2. 13.2. THAT ASSESSEE DOES NOT MAINTAIN STOCK REGISTE R AND AS SUCH NO QUANTITATIVE DETAILS HAVE BEEN MAINTAINE D BY ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 5 THE ASSESSEE. NO SUCH REGISTER WAS FOUND AT THE TIM E OF SEARCH. AN ATTEMPT WAS MADE TO MATCH THE QUANTITATI VE DETAILS WITH THE FORM NO. 3 CO PART OF AUDIT REPORT , HOWEVER, NO SUCH DETAILS HAVE BEEN FOUND ENCLOSED W ITH THE AUDIT REPORTS ENCLOSED WITH THE RETURNS FILED F OR THE PERIOD A. Y. 97-98 TO 2000-01. 13.3. THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND THE FINAL SALE DEED OR POSSESSION OF PLOT IS NOT RELEVANT IN THE CASE OF THE ASSESSEE COMPANY PARTICULARLY FOR THE OBVIOUS AND PATENT REASONS FIR STLY BECAUSE ASSESSEE COMPANY RECEIVED SUBSTANTIAL AMOUN T AT THE TIME OF TRANSACTIONS OF SALE AND FOR THE BAL ANCE AMOUNT RECEIVABLE ASSESSEE COMPANY OBTAINED POST DA TED CHEQUES FROM BUYERS AS SECURITY WHICH IS SURFACED F ROM THE SEIZED DOCUMENTS AND ON DEFAULT OR CHEQUE GETTI NG BOUNCED THE ASSESSEE COMPANY EITHER CANCEL THE TRANSACTION OR FORFEIT EARNEST MONEY. BUT NO SUCH EVIDENCE OF CHEQUE GETTING BOUNCED AND CANCELLATION OF SALE TRANSACTION WAS FOUND OR PRODUCED DURING ASST. PROCEEDINGS AND AS SUCH NO SUCH RECORDS ARE MAINTAI NED BY THE COMPANY. IN ANY CASE EVEN IF A SALE TRANSACT ION IS CANCELLED, IT IS EITHER SOLD TO ANOTHER BUYER OR IT WILL REMAIN IN CLOSING STOCK. SECONDLY IN THE ABSENCE OF ANY STOCK REGISTER OR QUANTITATIVE DETAILS, CONTENTIONS OF THE ASSESSEE ARE NOT VERIFIABLE FROM THE AVAILABLE RECO RDS. 13.4. THE ENTRIES ON PAPER NO. 17 & 55 GIVES THE CONSOLIDATED POSITIONS OF BUSINESS AFFAIRS OF ASSES SEE COMPANY AND ALL ENTRIES ON THIS PAPER HAS TO BE CONSIDERED IN CONSOLIDATED MANNER AND NONE OF THE ENTRIES CAN BE CONSIDERED OR EXPLAINED IN ISOLATION . THE ASSESSEE ADMITTED THAT THE PURCHASE ARE GENUINE BUT NO RECORDS EITHER FOUND AT THE TIME OF SEARCH OR PRODU CED DURING THE POST SEARCH ASST. PROCEEDINGS IN SUPPORT THEREOF BESIDES IT IS OF IMMENSE SIGNIFICANCE TO ME NTION THAT THE SEIZED LOOSE PAPER NO. 17 AT BUNDLE NO.2 A LSO GIVES DETAILS OF EXPENSES OF RS. 5.04 CRORES FOR DEVELOPMENT AND ADMINISTRATIVE EXPENSES WHICH ARE FOUND COMMENSURATE TO THE EXPENSES CLAIMED IN THE RETURNS FILED. BUT. SALES ARE NOT RECONCILED, HENCE NOT RECORDED IN REGULAR BOOKS OF ACCOUNTS. 13.5. THE PAPER NO. 55 OF BUNDLE NO. 5 GIVES DETAIL S OF CASH PURCHASES OF RS 62 ,44,4701-OUT OF WHICH ASSES SEE ITSELF HAS ADMITTED RS. 20,91 ,000/- AS NOT DISCLOS ED AND ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 6 HAVE OFFERED IN THE BLOCK RETURN. IT IS AN INDICATI ON THAT THE ASSESSEE HAD INDULGED INTO PURCHASE AND SALES OUTSIDE BOOKS AND ALSO WHEN NO BASIC RECORDS HAVE B EEN MAINTAINED BY THE ASSESSEE. 13.6. THE ACCOUNTING SYSTEM ADOPTED BY THE ASSESSEE I. E. SALES TREATED FINAL AND OFFERED TO TAXES AS AND WHEN FINAL SALES DEED IS EXECUTED OR POSSESSION IS GIVEN TO BUYER IS NOT OF VITAL SIGNIFICANCE ONCE THE ASSESSE E FAILS TO PROVE THAT WHETHER OR NOT THE TRANSACTIONS BORNE OU T FROM THE SEIZED PAPERS ARE ACTUALLY REFLECTED IN BO OKS OF ACCOUNTS, IF ANY, MAINTAINED BY ASSESSEE COMPANY OR NOT. 13.7. THE EXPENSES MENTIONED ON THE PAPER NO. 17 PERTAIN TO F. Y. 1997-98 TO 2000-01 WHICH THE ASSES SEE ADMITS TO BE GENUINE , THEREFORE, THE REMAINING CON TENTS OF THE SEIZED PAPER 17 RELATING TO PURCHASE, SALES AND CLOSING STOCK ITEMS IN QUANTITY AND VALUE HAS TO BE CONSIDERED ACTUAL TRANSACTIONS OF ASSESSEE'S BUSINE SS BUT NOT FOUND RECORDED IN BOOKS OF ACCOUNTS. 13.8. THE ASSESSEE IN ITS LETTER HAS RAISED THE ISS UES REGARDING NON AVAILABILITY OF ASSETS TO THE EXTENT OF UNDISCLOSED INCOME PROPOSED IN THE TRADING ACCOUNT. IN THIS RESPECT, IT IS MENTIONED THAT ASSESSEE COMPANY CAME INTO EXISTENCE W.E.F 24.10.1996 AND HAS BEEN DEALI NG IN LAND. ON THE DATE OF COMMENCEMENT, THERE WAS NIL OPENING STOCK. FROM THE INFORMATION REVEALED FROM T HE PAGE NO. 17, IT CAN BE SEEN THAT WITHIN A VERY SHOR T SPELL OF TIME ASSESSEE HAS ACCUMULATED HUGE ASSETS IN THE LAND TRANSACTIONS AND IT HAS REFLECTED IN THE CLOSI NG STOCK OF LAND AT RS. 7,99, 10,613/-. SUCH GENERATION OF P ROFIT FROM THE TRADING OF LAND CANNOT BE IGNORED. THUS, T HE SUBMISSION MADE BY ASSESSEE IN ITS LETTER HAS NO ME RITS. 14. IN THE LIGHT OF ABOVE FACTS AND MATERIAL EVIDEN CES BORNE OUT FROM THE SEIZED DOCUMENTS, THE SUPPRESSIO N OF NET PROFIT OF RS. 7,66,28,884/- ON THE BASIS OF TRA DING PROFIT AND LOSS ACCOUNT RECASTED IS JUSTIFIED AND A LSO THAT ASSESSEE'S CONTENTIONS OF VALUING CLOSING STOCK AT COST PRICE HAS NO MERITS. 5. THE MATTER WAS CARRIED IN APPEAL BEFORE THE FIRS T APPELLATE AUTHORITY WHEREIN THE FIRST APPELLATE AUT HORITY EXAMINED NOT ONLY THE RELEVANT PAGE NO. 17 BUT ALSO THE ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 7 BACKGROUND IN WHICH WHOLE ISSUE HAS BEEN DEALT WITH BY THE ASSESSING OFFICER. THE SEQUENCE OF EVENTS LEADING T O THE SEIZURE OF PAGE NO. 17 AND SUBSEQUENT INVESTIGATION HAS BEEN EXAMINED AND IT THROWS CONSIDERABLE LIGHT ON THE NA TURE OF THE ADDITIONS MADE BY THE ASSESSING OFFICER. 5.1. AFTER SEIZURE OF THE PAPERS, IN THE FIRST INST ANCE, MANAGING DIRECTOR OF THE COMPANY WAS REQUIRED TO EX PLAIN THE SAME IN THE STATEMENT ON OATH RECORDED U/S 131 OF T HE ACT ON 18-4-2001. IN THE FIRST STATEMENT RECORDED SUBSEQU ENT TO SEARCH, THE MANAGING DIRECTOR OF THE COMPANY SHRI K .M.A. RASHEED HAS SUBMITTED AS UNDER: ' Q.11 NOW I AM SHOWING PAGE NO.17 OF BUNDLE NO.2 WHICH? APPARENTLY SHOWS THE DETAILS OF LAND COST, A MOUNT PAID, BALANCE TO BE PAID, TOTAL SALES, AMOUNT RECEI VED AND RECEIVABLE, SQ.FT. OF LAND PURCHASED / SOLD, STOCK (CLOSING) OF LAND AND VALUE THEREOF BESIDES EXPENDITURE INCUR RED FOR THE YEARS 1998, 1999, 2000 & 2001. PLEASE EXPLAIN THE ENTRIES OF THIS PAGE? ANS. THE ENTRIES IN THIS PAGE HAVE BEEN MADE BY ACCOUNTANT MR. ME ERA NAIR. HOW SHE HAS MADE THE ENTRIES CANNOT READILY BE NARRATED BY ME SINCE THE ENTRIES HAVE BEEN MADE BY HER. I SHALL BE ABLE TO EXPLAIN I T AFTER CONSULTING MY ACCOUNTANT. Q.12 I ONCE AGAIN REQUEST YOU TO GIVE ATTENTION CAREFULL Y TO THIS PAGE. TO THIS PAGE (I.E. PAGE NO.17 OF BUND LE NO.2) AS I UNDERSTAND FROM THE READING OF THIS PAGE THAT YOUR COMPANY IS PURCHASING AND SELLING LAND AFTER DEVELOPMENT IN RESPECT OF SITES VIZ. SAIRUNG VILLA, SAIRUNG GARDEN, SAIRUNG AVENUE, SAIRUNG CITY, SAIRUNG PARAD ISE, SAIRUNG SARDINIA & SAIRUNG AVIHAL. IN ALL THESE SCH EMES, YOU HAVE SOLD LAND FOR RS.14,57,63,221/- AND PURCHA SED RAND FOR RS.9,06,00,333/-. YOU HAVE ALSO PAID LAND COST AT RS. 4, 57, 99, 808/- AND STILL TO BE PAID RS. 4, 48, 00, 525/-. MOREOVER, YOU HAVE ALREADY RECEIVED TOWARDS SALE' OF LAND RS. 9, 66, 44, 496/ AND STILL RECEIVABLE FROM THE CUSTOMERS RS. 9, 91, 18,725/-. PLEASE CONFIRM THE SAME. ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 8 ANS. I HAVE ALREADY STATED IN REPLY TO Q. NO. 11 THAT TH IS PAPER HAS BEEN WRITTEN BY MY EMPLOYEE AND I AM NOT IN A POSITION NOW TO EXPLAIN THESE ENTRIES. SINCE IT HAS BEEN WRITTEN BY THAT EMPLOYEE AND HOW SHE HAS RECEIVED T HE DATA IS NOT KNOWN TO ME. HOWEVER I SHALL TRY TO EXP LAIN. THE SAME LATER ON AFTER CONSULTING MY EMPLOYEE ACCOUNTANT. 5.2. THE SECOND INSTANCE RELATING TO THE EXPLANATIO N OF THIS PAPER WAS DONE BY THE LETTER DATED 11.05.2001 BY TH E ASSESSEE ADDRESSED TO THE ADD!. DIT, (INVESTIGATION), PUNE W HICH HAS ALSO BEEN QUOTED VERBATIM BY THE CONCERNED ASSESSIN G OFFICER AT THE RELEVANT POINT OF TIME. 5.3. AT THE STAGE OF THE PROCEEDINGS BEFORE THE FIR ST APPELLATE AUTHORITY, THE ASSESSING OFFICER WAS ASKED TO EXAM INE THE EXACT DATES OF PURCHASES AND SALES OF LAND AND PAYM ENTS MADE TO SELLERS OF LAND AND DETAILS OF AMOUNT RECEI VED FROM PURCHASERS OF LAND VIS--VIS DETAILS OF EXPENSES CL AIMED AS SHOWN ON PAGE NO. 17. DETAILED VERIFICATION OF REG ULAR BOOKS OF ACCOUNTS AND OTHER REGISTERS VIS--VIS ENTRIES O N THIS PAGE WAS REQUIRED TO BE MADE SO AS TO WORK OUT EXACT FIG URE OF UNDISCLOSED INCOME. APART FROM THIS PERUSAL OF PAR A-11 OF THE ASSESSMENT ORDER REVEALS THAT THE ASSESSING OFFICER HAS APPARENTLY CONDUCTED THE ENQUIRY AND FOUND THAT NO DISPUTE WITH THE FIGURES NOTED ON THE RELEVANT PAGE NO. 17 AND CERTAIN QUERIES WERE MADE WITH REGARDS TO THE SAME BY THE A SSESSING OFFICER AT THE RELEVANT POINT OF TIME. 5.4. THE CIT(A) OBSERVED THAT THE ASSESSING OFFICE R ISSUED A NOTICE U/S 142(1) ON 6-1-2003 WHEREIN DETAILS ON VARIOUS ASPECTS OF THE SEARCH HAVE BEEN CALLED FOR IN GENER AL. IN THIS FIRST NOTICE U/S 142(1), THE ASSESSING OFFICER HAS ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 9 REQUIRED THE ASSESSEE TO EXPLAIN THE CONTENTS OF PA GE NO. 17 IN DETAIL. THE ASSESSING OFFICER HAS ALSO TAKEN NOTE OF A LETTER FILED BY THE ASSESSEE IN RESPECT OF THESE NO TINGS AND HAS REQUIRED INFORMATION ABOUT HOLDINGS OF STOCKS/P LOTS IN THE INDIVIDUAL NAME. THE PART OF THE NOTICE IS GIV EN HEREUNDER: 'PAGE NO. 17 .' THE CONTENTS NOTED ON THIS PAGE ARE REQUIRED T BE EXPLAINED IN DETAIL. WHILE EXPLAINING THE ELEMENT OF PROFIT REVEALED OUT OF IT ALSO REQUIRES TO BE CLARIFIED. YOU HAVE ALREADY FILED A LETTER IN RESPE CT OF THE NOTING, HOWEVER, THE INFORMATION ABOUT HOLDING OF STOCK/PLOTS IN THE INDIVIDUAL NAME REQUIRES TO BE C LARIFIED IN DETAIL. THE DATE WISE DETAILS OF PURCHASE AND SA LES ABOUT THE TRANSACTIONS ON THE BASIS OF NOTING ON TH IS PAGE REQUIRE TO BE EXPLAINED. YOU ARE REQUESTED TO FILE A STATEMENT SHOWING EXACT DATE OF PURCHASE AND SALE OF LAND AND PAYMENT MADE TO SE LLERS OF LAND, DATE WISE RECEIPT FROM THE CUSTOMERS NOTED IN THE ABOVE PAGE VIS--VIS DETAILS OF EXPENSES CLAIMED AS SHOWN IN THE ABOVE PAGE. PLEASE ANALYZE THE DETAILS NOTED IN THE ABOVE PAGE NO.17 WITH REFERENCE TO YOUR BOOKS OF ACCOUNTS.' 5.5. THEREAFTER A NOTICE U/S 142(1) DATED 23-4-2003 WHICH HAS BEEN SERVED ON THE ASSESSEE ON 24-4-2003. IT I S CLEAR FROM THIS SECOND NOTICE THAT THE ASSESSING OFFICER HAS PREPARED TRADING ACCOUNT ON THE BASIS OF SEIZED PAP ER NO. 17 AND THUS THE CLOSING STOCK HAS BEEN TAKEN AT A VALU E SHOWN IN THE SEIZED PAPER. IT WAS CLEAR FROM THE AFORESAID N OTICE THAT THE ASSESSING OFFICER WAS NOT IN ANY WAY DISPUTING THE FACT RELATING TO THE ASSESSEE HAVING BOOKS OF ACCOUNTS A T THE POINT OF HEARING BEFORE HIM. THE ENTRIES ON PAGE 17 WERE WEIGHED ON THE MIND OF THE ASSESSING OFFICER AND THESE ONLY FO RMED THE BASIS OF MAKING THE ADDITION OF UNDISCLOSED INCOME WHICH HAS BEEN MADE FOR THE BLOCK PERIOD AS A WHOLE AND NOT F OR DIFFERENT ASSESSMENT YEARS IN THE BLOCK PERIOD. ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 10 5.6. THE PERUSAL OF THE SUBMISSIONS DATED 25-2-2003 , WHICH IS A PART OF ASSESSMENT ORDER SHOWS THAT THE ASSESS EE HAS SUBMITTED AS UNDER: BUNDLE NO. 2 (PAGE NO. 17) THIS PAGE CONTAINS A TENTATIVE PROJECTED STATEMENT FOR THE MANAGEMENT INFORMATION PURPOSE PREPARED MANUALLY BY CLERICAL STAFF AROUND IN THE MONTH OF FEBRUARY 2001 . IT CONTAINS PROJECTED FUNDS FLOW DETAILS FOR THE VARIO US PROJECTS OF THE COMPANY AS TO TOTAL TENTATIVE LAND AREA PURCHAS ED, TOTAL TENTATIVE COST THEREOF, TOTAL AMOUNT PAID THEREFORE AND - BALANCE TO BE PAID. WE WISH TO DRAW YOUR KIND ATTENTION TO THE FACT THAT W HILE PREPARING THE PROJECTED/TENTATIVE FUNDS FLOW STATEM ENT ON PAGE NO. 17, THE PERSON PREPARING THE SAID STATEMENT HAS NOT FOLLOWED ANY STANDARD METHOD OF ACCOUNTING REGULARL Y EMPLOYED BY THE COMPANY IN RESPECT OF PURCHASES, SA LES, QUANTITY AND STOCK VALUATION, ETC. AND PREPARED THE STATEMENT ENTIRELY AT ITS OWN JUDGMENT AND DISCRETION. FURTHER, THE CLERICAL STAFF HAS PREPARED THE STATEM ENT TO PLEASE THE EMPLOYER AND THEREFORE THE SAID STATEMENT IS NO T FREE FROM CLERICAL ERRORS / OMISSIONS, ETC. SINCE THE STATEME NT WAS PREPARED BY THE CLERICAL STAFF AND THEREFORE NOT KN OWING ALL ACCOUNTING PRINCIPLES AND PREPARED THE STATEMENT IN HALF- HAZARD WAY TO PLEASE THE EMPLOYER. IT ALSO INCLUDES DETAILS AS TO TENTATIVE TOTAL PLOT BOOKING ASSUMED AS SALES, T OTAL AMOUNT SO FAR RECEIVED INCLUSIVE OF POST DATED CHEQUES REC EIVED AGAINST PLOT BOOKING AND BALANCE TO BE RECEIVED ON ACCOUNT OF PLOT BOOKING AND IN FEW CASES ON ACCOUNT OF SALES. FURTHER IT SHOWS THE TENTATIVE STOCK OF LAND REMAIN ING IN HAND AFTER PLOT BOOKING AND IN FEW CASES SALES TO CUSTOM ERS. THE TENTATIVE STOCK OF LAND IN HAND WAS NOT VALUED AT C OST AS PER REGULAR METHOD OF STOCK VALUATION. DETAILED NOTE ON THE COLUMNS CONTAINED IN THIS STAT EMENT IS AS UNDER :- 1) NOTE ON COLUMN NO. 1 THIS COLUMN CONTAINS NAMES OF THE VARIOUS PROJECTS ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 11 DEVELOPED BY THE COMPANY. THERE ARE TOTAL SEVEN PRO JECTS UNDERTAKEN BY THE COMPANY FOR DEVELOPMENT/PLOT BOOK ING AND PROJECT AT SR. NO.8 NAMED AS 'SCHOOL 12/9' BELONGING TO M/S. SAIRUNG DEVELOPERS PROP. SHRI K.M.A. RASHEED. EVERY INDIVIDUAL PROJECT IS CREATED BY CONSOLIDATIO N OF VARIOUS LANDS LOCATED AT DIFFERENT SURVEY NOS. AT DIFFERENT VILLAGES ACQUIRED BY THE COMPANY FOR DEVELOPMENT/PLOT BOOKIN G. KINDLY REFER SEPARATE SHEET ENCLOSED HEREWITH GIVIN G BRIEF OF SURVEY NOS., VILLAGE, AREA ACQUIRED, ETC. 2) NOTE ON COLUMN NO. 2 NAMED AS TOTAL LAND COST THIS COLUMN PERTAINS TO PROJECT WISE AGGREGATE TOTA L AMOUNT OF THE VARIOUS LANDS ALREADY ACQUIRED AND PROPOSED TO BE ACQUIRED FOR CONSOLIDATION OF LAND FOR A PARTICULAR PROJECT, IRRESPECTIVE OF PAYMENTS MADE FOR ACQUIRING THOSE L ANDS. THE COMPANY PURCHASES THE LAND FROM THE LAND OWNERS / FARMERS VIDE AGREEMENT TO SALE/SALE DEED/POWER OF A TTORNEY AND THE BALANCE CONSIDERATION IS PAID OVER DEFERRED PERIOD AS PER MUTUAL TERMS. KINDLY REFER ANNEXURE A1 TO A8 ENCLOSED HEREWITH GIVING THE BRIEF DETAILS OF TOTAL AMOUNT IN RESPECT OF EACH LA ND ACQUIRED AND PROPOSED TO BE ACQUIRED OF EVERY INDIVIDUAL PRO JECT. 3) NOTE ON COLUMN NO. 3 IN RESPECT OF PAID: THIS COLUMN CONTAINS PROJECT WISE ACTUAL AGGREGATE PAYMENTS MADE TO THE VARIOUS LANDOWNERS.' THE COMPANY HAS ISSUED THE CHEQUES FOR THE PAYMENT TOWARDS SUCH PURCHASES AND ON FEW OCCASIONS COMPANY HAS PAI D CASH. THE DETAILS OF AMOUNTS PAID IN CHEQUE OR CASH TOWAR DS VARIOUS LAND PURCHASE TRANSACTIONS ARE BRIEFED IN ANNEXURE A 1 TO AB ENCLOSED HEREWITH. ALL CHEQUES PAYMENTS AND ALL THE CASH PAYMENTS EXCE PT AGGREGATE CASH PAYMENTS OF RS.20,91,2501- ARE ALREA DY ACCOUNTED IN BOOKS OF ACCOUNTS AND COMPUTERIZED ACC OUNT EXTRACTS ENCLOSED HEREWITH TO ANNEXURE A1 TO A8 COR ROBORATE TO THIS FACT. OUT OF ABOVE SAID AGGREGATE CASH PAYMENT OF RS.20,9 1,250/-, ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 12 CASH PAYMENT OF RS. 15,00,000/-PERTAINS TO SAIRUNG VILLA PROJECT OF M/S. SAIRUNG DEVELOPERS & PROMOTERS (P) LTD. AND RS. 5,91, 250/- PERTAINS TO SAIRUNG SCHOOL 12/9 BELONGING TO M/S SAIRUNG DEVELOPERS PROP. SHRI K. M.A. RASHEED. THE AFORESAID CASH PAYMENT OF RS. 15,00,0001- IN RE SPECT OF SAIRUNG DEVELOPERS & PROMOTERS (P) LTD WAS MADE OUT OF UNDISCLOSED INCOME OF THE PROPRIETOR AND THE SAME H AS ALREADY BEEN DECLARED IN THE BLOCK RETURN FOR THE ABOVE SAI D BLOCK PERIOD. 4) NOTE ON COLUMN NO. 4 NAMED AS BLC TO BE PAID THE AGGREGATE AMOUNTS APPEARING IN THIS COLUMN ARE WORKED OUT AFTER DEDUCTING AGGREGATE FIGURES/AMOUNTS OF CO LUMN NO. 3 FROM THE AGGREGATE FIGURES/AMOUNTS OF COLUMN NO. 2 IN RESPECT OF LANDS ALREADY ACQUIRED AND PROPOSED TO B E ACQUIRED. 5) NOTE ON COLUMN NO.5 NAMED AS 'TOTAL SALES': THIS COLUMN PERTAINS TO AGGREGATE AMOUNT OF PLOTS B OOKINGS INCLUDING POST DATED CHEQUES (I.E. P.D.C.) RECEIVED AS WELL AS RECEIVABLE AND PLOT SALES INCLUDING AMOUNT RECEIVAB LE AGAINST SALES. FURTHER IT IS USEFUL TO NOTE THAT, THE COMPANY IS A CCOUNTING THE SALE/TRANSFER OF PLOTS EITHER ON SALE DEED BASI S OR ON THE BASIS OF POSSESSION OF LAND/PLOT AFTER RECEIPT OF F ULL CONSIDERATION WHICH EVER IS EARLIER AS PER DEFINITI ON OF 'TRANSFER' IN THE I. T. ACT. IN RESPECT OF PLOT BOOKING, THE COMPANY ACCOUNTS FO R THE AMOUNTS RECEIVED INCLUDING ONLY P.D.C. REALIZED, UN DER THE ACCOUNTING HEAD AS ADVANCE FROM CUSTOMERS UNDER THE HEAD OF CURRENT LIABILITIES OF THE BALANCE SHEET OF THE COMPANY AND ONLY AFTER THE RECEIPT OF ENTIRE CONSID ERATION AND CONSEQUENT TO ITS SALES DEEDS/POSSESSION OF PLOTS, THE AMOUNTS RECEIVED IN RESPECT OF PLOT BOOKING AND APP EARING IN CURRENT LIABILITIES ARE TRANSFERRING TO SALES. IN R ESPECT OF SALE DEED/POSSESSION OF PLOTS, THE TOTAL SALES A MOUNTS ARE CREDITED TO SALES APPEARING IN THE PROFIT * LOSS ACCOUNT AND BALANCE RECEIVABLE IF ANY AGAINST SALES ARE APPEARI NG UNDER THE HEAD 'RECEIVABLE FROM CUSTOMERS' UNDER THE CURRENT ASSET IS BALANCE SHEET OF THE COMPANY. THE COMPANY IS ACCEPTING BOOKINGS OF PLOTS FROM THE ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 13 PROSPECTIVE CUSTOMERS BY ACCEPTING THE TOKEN AMOUNT AND GRANTING THE INSTALLMENTS RANGING MAXIMUM UPTO 60 M ONTHLY INSTALLMENTS, IN SUCH PLOT BOOKINGS, THE COMPANY NE ITHER GIVE ANY POSSESSION OF PLOT/LAND NOR CREATING ANY RIGHT, TITLE, INTEREST WHATSOEVER IN NATURE IN PLOT/LAND AND ONLY AFTER RECEIPT OF FULL CONSIDERATION THE POSSESSION/SALES/ TRANSFER ARE EFFECTED VIDE SALE DEED, TOTAL SALES CONSIDERATION FOR THE PROPOSED PLOT/LAN D AND PAYMENT SCHEDULE IS MENTIONED IN THE BOOKING AGREEMENTS/LETTERS/SALE DEED WITH THE PROSPECTIVE C USTOMERS, THE AMOUNTS OF BOOKING AGREEMENTS IS ALSO INCLUDED IN THE COLUMN 'TOTAL SALES' TO ARRIVE THE PROJECTED PRESEN T TENTATIVE FUND FLOW. THUS IT IS USEFUL TO NOTE THAT THE MAJOR AMOUNTS AP PEARING IN THE COLUMN NO,5 NAMED AS 'TOTAL SALES' ARE THE AGGR EGATE AMOUNT OF TOTAL PLOT BOOKING AMOUNTS RECEIVED AND R ECEIVABLE INCLUDING P.D. C. AMOUNTS AS EXPLAINED ABOVE, WE WISH TO DRAW YOUR KIND ATTENTION TO THE FACT THAT T HE ENTIRE AGGREGATE AMOUNT APPEARING IN COLUMN NO. 5 IS ALREA DY REFLECTED IN THE REGULAR BOOKS OF ACCOUNTS, LOOKING TO THE ABOVE FACTS AND CIRCUMSTANCES, YOUR HONOUR WILL APPRECIATE THAT THE AGGREGATE AMOUNT APPEARING IN THE COLUMN NO. 5 IS NOT SALES, KINDLY REFER ANNEXURE B 1 TO B 7 ENCLOSED HEREWITH GIVING THE BRIEF DETAILS OF PROJECT WISE TOTAL PLOT BOOKING/SA LES INCLUSIVE OF AMOUNT OF P.D.C. RECEIVED/RECEIVABLE, 6) NOTE ON COLUMN NO. 6 NAMED AS RECD THIS COLUMN REFLECTS THE PROJECT WISE AGGREGATE ACT UAL AMOUNTS RECEIVED FROM CUSTOMERS INCLUDING AMOUNT OF POST DATED CHEQUES (P.D.C.) THE PROSPECTIVE CUSTOMERS PAY THE AMOUNT IN INSTALL MENTS RANGING MAXIMUM UPTO SIXTY INSTALLMENTS BY GIVING P OST DATED CHEQUES, IN CASE OF P.D.C. RECEIVED, ENTRIES ARE MA DE IN BOOKS OF ACCOUNTS ONLY AFTER REALIZATION OF THOSE P. D. C . AND WHEREAS THE COLUMN NO. 6 NAMED AS 'RECD,' REFLECTS TOTAL AGGREGATE AMOUNT INCLUDING P.D.C. RECEIVED BUT NOT REALIZED, IT IS USEFUL TO NOTE THAT THE MARKETING PERSONNEL WHO MAINTAINS THE PROJECT WISE BOOKING REGISTER RECORD THE ENTIRE POS T DATED ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 14 CHEQUES RECEIVED/RECEIVABLE IN SPITE OF THE FACT TH AT THE SAID P. O. C. ARE NOT REALIZED. KINDLY REFER ANNEXURE B1 TO B7 ENCLOSED HEREWITH WH ICH GIVE THE BRIEF DETAILS OF AMOUNTS RECEIVED AND RECO NCILIATION ENCLOSED HEREWITH ALSO GIVE BRIEF DETAILS OF AMOUNT S RECEIVED AS PER REGULAR BOOKS OF ACCOUNTS AND AMOUNTS APPEAR ING IN COLUMN NO. 6. THE AGGREGATE AMOUNT ACTUALLY RECEIVED INCLUDING TH E P.D. C. REALIZED APPEARING IN THE COLUMN NO. 6 ARE ALREADY REFLECTED IN THE REGULAR BOOKS OF ACCOUNTS. AND THE SAME CAN BE EASILY CROSS . VERIFIED. 7. NOTE ON COLUMN NO. 7 NAMED AS RECEIVABLE. THE AGGREGATE AMOUNTS APPEARING IN THIS COLUMN ARE WORKED OUT AFTER DEDUCTING AGGREGATE FIGURES/AMOUNTS OF CO LUMN NO. 6 FROM THE AGGREGATE FIGURES/AMOUNTS OF COLUMN NO. 5 IN RESPECT OF PLOT BOOKING/SALE INCLUDING P.D.C. RECEI VED AND RECEIVABLE. THUS THIS COLUMN OF THE STATEMENT ALSO INCLUDED THE AGGREGATE AMOUNTS RECEIVABLE IN RESPECT OF PLOT BOOKING EVEN THOUGH THE SALES/POSSESSION OF THE SAID PLOT BOOKING WERE NOT MADE AND WHEREAS IN THE BOOKS OF ACCOUNTS AMOUNT RECEIVABLE FROM CUSTOMERS ARE APPEARING ONLY AFTER SALE/POSSESSION OF PLOT AS EXPLAINED ABOVE. 8) NOTE ON COLUMN NO. 8 NAMED AS PURCHASE AREA. THIS COLUMN REPRESENTS PROJECT WISE TOTAL AGGREGATE AREA IN SQ. FT. OF THE LAND ACQUIRED/PROPOSED TO BE ACQUIRED. T HE SAME CAN BE VERIFIED FROM THE ANNEXURE A 1 TO A8 ENCLOSE D HEREWITH. THIS AREA COLUMN IS RELATED TO THE COLUMN NO. 2 NAM ED AS 'LAND COST' RELEVANT TO TOTAL LAND ACQUIRED AND PRO POSED TO BE ACQUIRED. WE WISH TO DRAW YOUR KIND ATTENTION TO THE FACT THAT T HE LAND AREA MENTIONED IN THE COLUMN 8 ARE ENTIRELY COVERED BY THE LAND COST MENTIONED IN COLUMN NO.2 OF THE SAME STAT EMENT AND VICE VERSA. IT IS USEFUL TO NOTE THAT WHILE DEVELOPING/PLOTTING THE LAND, ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 15 PART OF THE AREA OF THE LAND IS USED FOR INTERNAL R OAD, OPEN SPACE, CHILDREN PLAY PARK, AND FOR OTHER COMMON AME NITIES. AND THEREFORE, AFTER DEDUCTING THE LAND FOR THE ROA D AND OTHER AMENITIES AS ABOVE SAID, THE NET AREA IS ONLY AVAIL ABLE FOR THE PURPOSE OF SALE. ' 9) NOTE ON COLUMN NO.9 NAMED AS 'SOLD SQ. FT THIS COLUMN PERTAINS TO PROJECT WISE AGGREGATE TOTA L AREA IN SQ. FT. FOR THE PLOT BOOKINGS INCLUDING P.D.C. CHEQUES RECEIVED AND RECEIVABLE AND PLOTS SOLD INCLUDING THE AREA OF INT ERNAL ROAD AND OTHER AMENITIES AS EXPLAINED ABOVE. THE AREA OF THE INTERNAL ROAD AND OTHER AMENITIES A RE WRONGLY INCLUDED IN SALES AREA. THIS AREA COLUMN IS RELATED TO THE COLUMN NO.5 NAME D AS 'SALES' RELEVANT TO TOTAL AMOUNTS RECEIVED/RECEIVAB LE AGAINST PLOT BOOKINGS INCLUDING P.D.C. RECEIVED/RECEIVABLE AND SALE OF PLOT'S. THE SAME CAN BE VERIFIED FROM THE ANNEXURE B1 TO B7 ENCLOSED HEREWITH. WE WISH TO DRAW YOUR KIND ATTENTION TO THE FACT THA T THE LAND AREA EXCLUDING AREA OF INTERNAL ROADS AND OTHER AME NITIES MENTIONED IN THE COLUMN 9 ARE ENTIRELY COVERED BY T HE SALES/ PLOT BOOKING AMOUNTS INCLUDING P.D.C. RECEIVED/RECE IVABLE MENTIONED IN COLUMN NO. 5 OF THE SAME STATEMENT AND VICE VERSA. 10) NOTE ON COLUMN NO 10 NAMED AS ' STOCK' THIS COLUMN IS INDICATING THE AGGREGATE PROJECT WIS E BALANCE AREA WORKED OUT AFTER DEDUCTING THE AREA MENTIONED IN COLUMN NO 9 RELATED TO PLOT BOOKING/SALES AND THE AREA LEF T! RESERVED FOR INTERNAL ROAD, OPEN SPACE AND OTHER AMENITIES A S EXPLAINED ABOVE FROM THE AREA MENTIONED IN COLUMN NO 8 RELATE D TO TOTAL LAND AREA ACQUIRED/PROPOSED TO BE ACQUIRED. 11) NOTE ON COLUMN NO 11 NAMED AS ' VALUE' ( I.E. STOCK VALUATION: THIS COLUMN REPRESENTS PROJECT WISE TOTAL AGGREGATE VALUATION OF STOCK MADE BY THE PERSON WHO HAS PREPARED THIS S TATEMENT. THE STOCK MIGHT HAVE VALUED ON THE BASIS OF QUANTIT Y MENTIONED IN COLUMN NO 10. ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 16 IT IS WORTH TO NOTE THAT AFTER THE VERIFICATION OF THE STOCK VALUATION, YOUR HONOUR SHALL CERTAINLY OBSERVE THAT THE' STOCK WAS NOT VALUED CERTAINLY AT COST AS PER REGULAR MET HOD OF ACCOUNTING FOLLOWED BY THE COMPANY. LOOKING TO THE FACT, THE VALUATION OF THE STOCK MADE BY THE CLERICAL STAFF S HALL BE IGNORED. 12) NOTE ON BOTTOM PART OF THE STATEMENT: THE BOTTOM PART OF THE STATEMENT REPRESENTS THE ACT UAL YEAR WISE EXPENDITURE INCURRED BY THE COMPANY FROM 1997 TO DECEMBER 2000 GROUPED IN THE STATEMENT UNDER MAJOR EXPENDITURE HEAD. THE COLUMN NO 4 OF THE BOTTOM PART OF THE STATEMENT REFLECTS THE YEAR WISE SUMMARY OF AGGREGATE EXPENDITURE SINC E F. Y 97- 98 TO 2000-01. ALL THE AGGREGATE EXPENDITURE MENTIONED IN THE STAT EMENT HAS ALREADY BEEN REFLECTED IN THE REGULAR BOOKS OF ACCO UNTS AND RELEVANT PROFIT AND LOSS ACCOUNT AND OTHER FINANCIA L STATEMENTS OF THE COMPANY. KINDLY REFER ANNEXURE C ENCLOSED HEREWITH SHOWING T HE BREAK UP OF THE AGGREGATE EXPENDITURE MENTIONED IN THE ST ATEMENT AND THE SAME CAN BE EASILY CROSS VERIFIED WITH THE ACCOUNT EXTRACTS ENCLOSED HEREWITH AND THE BOOKS OF ACCOUNT S. LOOKING TO THE ABOVE FACTS AND CIRCUMSTANCES AND AF TER VERIFICATION YOUR HONOUR WILL APPRECIATE THAT THE S TATEMENT ON PAGE NO 17 IS THE TENTATIVE PROJECTED FUNDS FOR STA TEMENT PREPARED BY THE CLERICAL STAFF SOLELY TO PLEASE THE EMPLOYER AND CONTAINING CLERICAL ERRORS AND OMISSIONS AND PREPAR ED WITHOUT FOLLOWING ANY STANDARD ACCOUNTING PRINCIPLES. THERE FORE, THE STATEMENT ON PAGE NO 17 IS NOT VALID, AUTHENTICATE AND BONA- FIDE LEGAL STATEMENT AND THEREFORE THE SAME CAN NOT BE RELIED UPON. FURTHER, THE SUPPORTING DOCUMENTS ENCLOSED HEREWITH CORROBORATE TO THE FACT THAT THE STATEMENT ON PAGE NO 17 IS TENTATIVE PROJECTED FUNDS FLOW STATEMENT. IT IS USE FUL TO NOTE THAT NO SUPPORTING INCREMENTAL DOCUMENTS/PAPERS WERE FOUND IN SEIZED DOCUMENTS IN RESPECT OF STATEMENT ON PAGE NO 17. WE THEREFORE REQUEST YOUR HONOUR THAT IN VIEW OF THE A BOVE FACTS AND CIRCUMSTANCES, THE STATEMENT ON PAGE NO 1 7 SHALL ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 17 NOT BE RELIED UPON AND THEREFORE THE SAID STATEMENT SHALL BE IGNORED. 5.7. FROM THIS THE CIT(A) OBSERVED THAT THE ASSESSE E HAD GIVEN IT'S VERSION IN DETAIL REGARDING THE NATURE O F THE PAGE NO.17 AND ALSO POINTED OUT THAT IT WAS PREPARED MAN UALLY BY THE CLERICAL STAFF IN THE MONTH OF FEBRUARY, 2001. IN THIS BACKGROUND, THE CIT(A) OBSERVED THAT THE ABOVE SAID PAPER WAS WRITTEN BY THE ACCOUNTANT OF THE COMPANY. IT W AS ALSO OBSERVED THAT THE ACCOUNTANT AT THE RELEVANT POINT OF TIME WAS NOT IN THE EMPLOYMENT OF THE ASSESSEE BUT AT LATTER STAGE APPEARED BEFORE THE ASSESSING OFFICER DURING THE AS SESSMENT PROCEEDINGS TIME AND AGAIN. FIRST OF ALL, THE ASSE SSING OFFICER WAS REQUIRED TO EXAMINE THE WRITER OF THE PAGE NO. 17 WITH REGARD TO VARIOUS ENTRIES BEFORE ARRIVING AT ANY RE ASONABLE CONCLUSION ABOUT THE SAME. HOWEVER, THE ASSESSING OFFICER DID NOT EXAMINE THIS ACCOUNTANT AT ANY STAGE THOUGH SHE WAS SUPPOSED TO HAVE EXPLAINED THE PAGE NO. 17 OF BUNDL E NO. 2 TO THE ASSESSING OFFICER ON 7-4-2003 AS PER PAGE 2 OF THE ORDER SHEET IN THE ASSESSMENT RECORDS OF THE ASSESSING OF FICER AND HAS ALSO CORRELATED THE SAME WITH PAGE NO. 55 OF BU NDLE NO. 6. APART FROM THIS, THE SAID ACCOUNTANT MRS. MEERA SAT ISH NAIR ALSO FILED AN AFFIDAVIT ON BEHALF OF THE COMPANY DU RING THE APPELLATE PROCEEDINGS WHICH READ AS UNDER: ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 18 I UNDERSIGNED MRS. MEERA S. NAIR, WIFE OF MR. SATI SH N. NAIR, AGE 36 YEARS, OCCUPATION - SERVICE, PRESENTLY RESID ING AT GOPURATHINGAL HOUSE, NERUVISSER, P.O. ARAWTUPUZHA, TRICHUR, DIST. KERAL 680562 AND PRESENTLY ARRIVED IN PUNE AN D EARLIER WORKING AS AN ACCOUNTANT OF SAIRANG DEVELOPERS & PROMOTERS PVT. LTD./M/S. SAIRANG DEVELOPERS OF PUNE DO HEREBY STATE AND AFFIRM ON SOLEMN AFFIRMATION AS UNDER: 1. THAT EARLIER, I WAS WORKING AS ACCOUNTANT WITH S AIRANG DEVELOPERS & PROMOTERS PVT. LTD. & SAIRANG DEVELOPERS FROM 1998 TO MARCH 2001 AND LATER ON JANUARY TO AUGUST 2 003. 2. THAT I HAD PREPARED THE PROJECTED STATEMENT OF F UND FLOW SHOWING THE PROJECT WISE TENTATIVE DETAILS IN RESPECT OF PURCHASES, INCLUDING THE TENTATIVE FUTURE PROJECT P ROPOSALS, SALES INCLUDING THE TOTAL AGGREGATE OF PLOT BOOKING ADVANCES RECEIVED AND AGGREGATE TENTATIVE FUTURE INSTALLMENT S RECEIVABLES INCLUDING UNREALIZED POST DATED CHEQUES SHOWING THE AREA SQ.FT. OF SALES/PURCHASES/STOCK, AREA OF R OAD/COMMON AMENITIES CLUBBED IN SALES AREA, AND STOCK WAS VALU ED AT TENTATIVE MARKET RATES. 3. THAT THE ABOVE SAID TENTATIVE STATEMENT WAS PREP ARED ONLY FOR MANAGEMENT PURPOSE TO PLAN THE TENTATIVE FUTURE/PROJECTED FIELD FLOWS. 4. THAT THE ABOVE SAID TENTATIVE PROJECTED STATEMEN T WAS PREPARED MANUALLY BY ME IN HALF HAZARD WAY FOR MANA GEMENT PURPOSE ONLY. 5. THAT ABOVE SAID TENTATIVE STATEMENT WAS PREPARED WITHOUT FOLLOWING ANY STANDARD ACCOUNTING METHOD/SY STEM AND WITHOUT STOCK VALUATION METHOD REGULARLY EMPLOY ED BY THE APPELLANT IN RESPECT OF PURCHASES/SALES/STOCK VALUA TION/ QUANTITY ETC. 6. THAT THE ABOVE SAID TENTATIVE STATEMENT WAS PREP ARED ENTIRELY AT MY DISCRETION/JUDGMENT AND THEREFORE THE SAID STATEMENT MIGHT BE SUBJECT TO ERRORS AND OMISSIONS. THE ABOVE STATEMENTS ARE TRUE & CORRECT TO THE BEST OF MY KNOWLEDGE AND BELIEF SOLEMNLY AFFIRMED AT PUNE ON 2 1 S1 NOVEMBER, 2003.' 5.8. APART FROM THIS, THE CIT(A) OBSERVED THAT MRS . MEERA S. NAIR WHO WAS THE AUTHOR OF THE IMPUGNED PAPER WAS N OT EXAMINED DURING THE ASSESSMENT PROCEEDINGS. HOWEVE R, SHE ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 19 WAS PRODUCED BEFORE THE CI(A) AND WAS CROSS EXAMIN ED BY THE ASSESSING OFFICER. ALL THE DETAILS OF THE STATEMENT RECORDED ON 22.12.2003 REVEALED THE DETAILS OF THE TRANSACTION IN QUESTION AS PER ANNEXURE 3 ATTACHED TO THE APPELLATE ORDER. STATEMENT ON OATH OF SMT MEERA SATISH NAIR, WIFE OF SATISH N. NAIR AGE 36 YEARS RESIDENT OF GOPURTHINGAL HOUSE, NERUVISSERY P.O. APATTUPUZHA, TRICHUR, DISTI. KERALA RECORDED ON 22-12-2003 AT 1.00 P.M. DURING THE APPELLATE PROCEEDINGS IN THE CASE OF M/S. SAIRANG DEVELOPERS AND PROMOTERS PVT. LTD. (FOR BLOCK PERIOD ENDING ON 11-4-2001) AT TE OFFICE OF COMMISIOSNER OF INCOME TAX (APPEALS) I PUNE OATH IS ADMINISTERED IN THE NAME OF GOD SD/- (SMT. MEERA S. NAIR) R.J.LAHOTI, CA. IS THE WITNESS. A. SUNDARAM, DCIT. CEN. CIR. L(I), PUNE IS PRESENT 011 THE BEHALF OF THE ASSESSI NG OFFICER. EXAMINATION IN CHIEF BYTHE APPELLANT'S REPRESENTATIVE SHRI.R.J.LAHOTI A.I MY NAME IS SMT. MEERA\SATISH NAIR. I WAS WORKI NG WITH SAIRANG DEVELOPERS & PROMOTERS PVT. LTD. FROM MAY, 1998 TO MARCH, 2001 AND AGAIN FROM JANUARY, 2003 TO 31 1T AUGUST, 2003. AT PRESENT, I AM RESIDING IN KERALA HAD NOT W ORKING ANYWHERE. Q.2 WHAT IS YOUR QUALIFICATION AND WHAT WORK WERE YOU DOING IN THE ABOVE COMPANY? A.2 MY QUALIFICATION IS B.A. IN ECONOMICS FROM CAL ICUT UNIVERSITY, KERALA. I WAS WORKING AS AN ACCOUNTANT IN THE ABOVE COMPANY AND WAS CARRYING ON ENTIRE ACCOUNTING INCLUDING COMPUTERIZED ACCOUNTING AND MANAGEMENT INFORMATION SYSTEM. Q.3 WHERE WERE YOU WHEN SEARCH WAS CONDUCTED ON 11.04.2001 IN THE ABOVE SAID COMPANY? A.3 I HAD RESIGNED THE JOB IN MARCH, 2001 AND WENT TO KERALA. I WAS IN KERALA DURING THE SEARCH CONDUCTED IN THE ABOVE SAID COMPANY. Q.4 WHEN AND HOW DID YOU COME TO KNOW ABOUT THE SEA RCH IN THE ABOVE SAID COMPANY? ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 20 ANS.MR. K.M.A. RASHID ALIAS K.R. MALIK, MANAGING DI RECTOR OF THE COMPANY HAD INTIMATED ME ABOUT THE SEARCH IN THE MONTH OF MAY, 2001 AFTER SEARCH TOOK PLACE. Q.5 HAVE YOU FILED AN AFFIDAVIT ON 21.11.2002 GIVI NG THE BRIEF FACTS OF THE SEIZED PAGE NO.17, BUNDLE NO.2. SEIZED DURING THE SEARCH IN APPEAL PROCEEDINGS OF THE ABOV E SAID COMPANY? ANS. YES, I HAVE FILED AN AFFIDAVIT BEFORE HON. CIT (A)-I, PUNE IN RESPECT OF PAGE NO.17, BUNDLE NO.2 DURING T HE BLOCK APPEAL PROCEEDINGS OF THE ABOVE SAID COMPANY. Q.6 PLEASE GO THROUGH THE: PAGE NO.17 OF BUNDLE NO .2 AND CONFIRM THAT WHETHER YOU HAVE YOU PREPARED THE PAGE DO.17 OF BUNDLE NO.2 AND WHEN? ANS. I HAVE GONE THROUGH PAGE NO.17 AND CONFIRM THA T I HAD PREPARED THE PAGE NO.17 IN FEB. 2001. ANS. IT WAS PROJECTED ROUGH STATEMENT OF FUND FLOW SHOWING THE PROJECT WISE TENTATIVE DETAILS IN RESPECT OF PU RCHASES INCLUDING THE TENTATIVE FUTURE PROJECT PROPOSALS, P LOT BOOKING ALSO WRONGLY TREATED AS SALES IN PAGE NO.17 INCLUDING THE TOTAL AGGREGATE OF ~LOT BOOKING ADVAN CES AND TENTATIVE FUTURE INSTALLMENTS RECEIVABLES INCLUDING UNREALIZED POST DATED CHEQUES SHOWING THE AREA SQ.F T. OF SALES/PURCHASES/STOCK, AREA OF ROAD/COMMON AMENITIE S WRONGLY CLUBBED IN SALES AREA AND STOCK WAS VALUED AT TENTATIVE MARKET RATE. Q.8 WHAT WAS THE PURPOSE OF PREPARING PAGE NO.17 A ND ON WHOSE INSTRUCTION IT WAS PREPARED? ANS. MR. MALIK, M.D HAD INSTRUCTED ME. HE WANTED TO KNOW HOW MUCH AMOUNT HAD TO BE PAID TO THE FARMERS/WHAT IS THE LIABILITY, HOW MUCH STOCK WILL BE THERE BECAUSE COMPANY HAD TO PAY HUGE AMOUNT TO FARMERS AND HE HA D TO KNOW HOW MUCH AMOUNT HE WILL GET FROM THE SALES INCLUDING ADVANCES. EXAMINATIN IN CHIEF IS OVER. CROSS EXAMINATION OF MRS.MEERA S. NAIR BY MRS.A. SUNDARAMA, DCIT, CENTRAL CIRCLE. L(L), PUNE ON 22.12.2003 AT 3.00 P.M. OATH IS ADMINISTERED IN THE NAME OF GOD SD/- (MEERA S. NAIR) C.Q. 1 I AM SHOWING YOU PAGE, NO.17 OF BUNDLE NO.2 WHICH IS WRITTEN IN PENCIL. PLEASE SAY WHEN YOU MADE IT A ND WHO TOLD YOU TO MAKE TO IT AND FROM WHERE YOU GOT THE D ATA TO MAKE IT? ANS. I MADE IN FEB. 2001 ON THE DIRECTIONS OF SHRI.K.R.MALIK, MANAGING DIRECTOR OF THE COMPANY AN D I MADE IT WITH THE HELP OF THE REGULAR BOOKS OF ACCOU NTS, BOOKING REGISTER AND A NOTE BOOK IN WHICH DETAILS O F FUTURE ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 21 PURCHASES WERE DICTATED BY MR. MALIK. C.Q 2 : KINDLY EXPLAIN THE VARIOUS COLUMNS ON THE U PPER HALF OF PAGE NO. 17? ANS : FIRST COLUMN IS 'PROJECTS' WHICH GIVES THE VA RIOUS PROJECTS OF THE COMPANY. THE SECOND COLUMN 'LAND CO ST' WHICH GIVES THE DETAILS OF COST OF EACH PROJECT AS PER THE BOOKS OF ACCOUNTS AS WELL AS THE FUTURE PURCHASES FROM THE NOTE BOOK AS TOLD BY MR. MALIK AND NOTED BY ME. THE THIRD COLUMN 'PAID' GIVES THE DETAILS OF THE AMOUNT PAID FOR EACH PROJECT. THE FOURTH COLUMN IS 'BALANCE TO BE PAID' IS THE DIFFERENCE BETWEEN THE SECOND AND THIRD COLUMN. THE FIFTH COLUMN IS 'TOTAL SALES' WHICH IS THE SALE AMOUNT AS PER THE BOOKS OF ACCOUNTS FOR THE SALES WHICH HAS BEEN COMP LETED AND ALSO INCLUDES THE TOTAL SALE PRICE OF THE PLOTS AGAINST WHICH BOOKING ADVANCE HAS BEEN RECEIVED. THE SIXTH COLUMN 'RECEIVED' IS THE ACTUAL AMOUNT RECEIVED AGA INST SALES AS PER THE BOOKS OF ACCOUNTS AND THE AMOUNTS RECEIVED AGAINST THE PLOT BOOKING SHOWN AS LIABILIT Y IN THE BOOKS OF ACCOUNTS. THE NEXT COLUMN 'RECEIVABLE' IS THE DIFFERENCE BETWEEN PREVIOUS TWO COLUMNS. THE NEXT C OLUMN 'PURCHASE AREA' IS THE AREA IN SQ. FT. OF DIFFERENT PROJECTS INCLUDING THE FUTURE PURCHASES. THE NEXT COLUMN 'SOLD/AT/RD' REFLECTS ACTUAL SALES AND THE PLOT BOO KING AREA INCLUDING ROAD AND AMENITIES. THE NEXT COLUMN 'STOCK' IS THE DIFFERENCE OF EARLIER TWO COLUMNS AND THE FI GURES WRITTEN BELOW THE STOCK FIGURE IN THIS STOCK COLUMN GIVES THE MARKET VALUE OF THE PROJECTS PER SQ.FT. AS TOLD TO ME BY THE MARKETING PEOPLE SHRI.BABU, DIRECTOR AND MRS. BEENA GONZALVIS. THIS IS THE MAXIMUM RATE WHICH IS EXPECT ED 0F THESE PROJECTS. THE LAST COLUMN GIVES THE TOTAL MAR KET VALUE OF THE CLOSING STOCK. THE LOWER HALF OF THE SHEET PAGE NO. 17 CONTAINS TH E DETAILS OF EXPENDITURE INCURRED FOR THE YEARS 1998, 1998, 2 000 AND 2001 TOTALLING TO RS. 5.04 CRORES AS PER THE BOOKS OF ACCOUNTS AS ON FEBRUARY 2001. THIS WAS WORKED OUT BY ME AS MR. MALIK WANTED TO KNOW THE DIFFERENCE BETWEEN THE TOTAL RECEIPTS AND THE TOTAL PAYMENTS. THERE IS ANO THER FIGURES OF RS. 6,45,000/- BELOW COLUMN 4 TO BE PAYA BLE TO SOMA ROMA BENUSE FOR THE PROJECT SAIRANG MEDO. C.Q. 3 : WHETHER THIS IS THE FIRST TIME YOU HAVE MA DE THIS STATEMENT OR REGULARLY YOU PREPARE SUCH STATEMENTS? Q. 3 : WHO ASKED YOU TO FILE THE AFFIDAVIT DATED 2 1.11.2003 SUBMITTED BEFORE ME AND WHO DRAFTED THE CONTENTS TH EREOF? ANS : MR MALIK ASKED ME AS TO WHETHER I COULD FILE AN AFFIDAVIT BEFORE THE INCOME TAX AUTHORITIES AND I A GREED FOR THE SAME. MR.KHALADKAR, ADVOCATE DRAFTED THE CONTEN TS. Q. 4 : WHAT WAS THE PURPOSE OF FILING THIS AFFIDAVI T AND WHAT HAVE YOU STATED THEREIN? ANS : THE PURPOSE OF FILING THIS AFFIDAVIT WAS TO S TATE THAT PAGE NO.17, BUNDLE NO.2 HAS BEEN WRITTEN BY ME AND THAT IT WAS TENTATIVE STATEMENT OF PROJECTED FUND FLOW. THE PURPOSE OF THIS STATEMENT WAS TO HELP THE COMPANY TO FIND O UT IT'S ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 22 RECEIVABLES AND PAYABLES IN FEB. 2001. THIS STATEME NT WAS PREPARED BY ME UNDER THE GUIDANCE OF THE COMPANY DIRECTORS AND WITH THE HELP OF THE BOOKS OF ACCOUNT S AND BOOKING REGISTER. THE ASSERTION MADE BY ME IN POINT 4,5 AND 6 OF THE ABOVE AFFIDAVIT MAY ACCORDINGLY BE CONSIDE RED MODIFIED. WHILE THE PREPARATION WAS DONE BY ME, I T OOK THE HELP OF THE RECORDS AND THE CONCERNED PERSONS FOR K NOWING THE MARKET DATA AND FUTURE PURCHASES. OF COURSE, AS I AM NOT A COMMERCE GRADUATE, I DID NOT TAKE THE VALUATI ON AS MARKET VALUE OR COST, WHICHEVER IS LESSER. Q.5 : WHEN THE PURPOSE 'OF THE STATEMENT PREPARED W AS TO FIND OUT RECEIVABLES AND PAYABLES, PLEASE STATE AS TO WHY ANY OTHER SYSTEM THAN THAT HAS BEEN FOLLOWED REGARD ING MARKET VALUE ETC. SHOULD HAVE BEEN TAKEN BY YOU? ANS: I AM NOT SURE. Q..6 : BETWEEN MAY, 2001 AND JANUARY, 2003, DID ANY BODY FROM THE COMPANY GIVE YOU A COPY OF PAGE NO.17 AND ASKED FOR ANY CLARIFICATION? ANS. NO. THE FIRST TIME I SAW PAGE NO. 17 BUNDLE NO .2 WAS IN JANUARY, 2003 WHEN IT WAS SHOWN TO ME BY ACCOUNTS PEOPLE IN PUNE. Q.7 : PLEASE LET ME KNOW AS TO WHY YOU DID NOT FILE ANY AFFIDAVIT BETWEEN JANUARY, 2003 AND NOVEMBER, 2003 AND WHAT PROMPTED YOU TO FILE THE SAME NOW? ANS. I APPEARED DURING ASSESSMENT PROCEEDINGS AND EXPLAINED THE PAPER TO THE ASSESSING OFFICER. NOW T HAT I AM IN KERALA, OUR CONSULTANT THOUGHT IT FIT TO EXPLAIN THE TRUTH I FILE THE AFFIDAVIT. Q.8 : ARE YOU AWARE THAT THE CONTENTS OF YOUR AFFID AVIT AND THE CONTENTS OF THE STATEMENT ABOVE ARE CONTRADICTO RY AT SEVERAL POINTS? ANS: YES. ANS. REGULARLY I DO NOT MAKE THIS STATEMENT. ONLY I N DECEMBER, 2000 I MADE IT ONCE AND SECOND TIME I MAD E IT IN FEB. 2001. C.Q. 3 : WHY DID YOU MAKE THE STATEMENT ON PAGE NO. 17 OF BUNDLE NO. 2? ANS. MR.MALIK, M.D. WANTED TO KNOW THE POSITION OF AMOUNT PAYABLE TO THE FARMERS AND HOW MUCH AMOUNT IS TO BE RECEIVED FROM THE PLOT BOOKING AS WELL AS THE STOCK LEFT. WE HAD LOT OF LIABILITIES OF FARMERS. C.QA WHAT DID YOU DO WITH THE NOTEBOOK ON WHICH FUT URE PURCHASES WERE WRITTEN BY YOU AS DICTATED BY MR.MAL IK? ANS. WHEN I LEFT THE SERVICE IN MARCH, 2001 I KEPT WITH ME ONLY AS IT WAS OF NO USE. I MIGHT HAVE DESTROYED I T LATER. C.Q.5 WHO ASKED YOU TO MAINTAIN THIS NOTEBOOK AND W HO ASKED YOU TO DESTROY THE SAME? ANS. I MAINTAINED IT FOR MY PURPOSE ONLY TO RECORD DETAILS REQUIRED TO PREPARE THE STATEMENT ETC. NOBODY ASKED ME TO DESTROY IT. ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 23 QUESTIONS BY CIT(A)-I PUNE. Q.I WHEN DID YOU JOIN THE COMPANY AND IN WHAT CAPA CITY? ANS I JOINED THE COMPANY IN MAY, 1998 AS AN ACCOUNT ANT. I LEFT IT IN MARCH, 2001. I REJOINED IT IN JANUARY, 2 003 TO LEAVE AGAIN IN AUGUST, 2003. I JOINED AS AN ACCOUNTANT. T HERE WERE ONLY TWO PEOPLE IN THE ACCOUNTS DEPARTMENT DURING M Y FIRST TENURE, THE OTHER BEING MR. SUNII ARANKE, M.COM. I USED TO LOOK AFTER CHEQUE PREPARATION, DATA ENTRY AND BOOKI NG REGISTER WHEREAS MR. SUNIL WAS LOOKING AFTER BALANCE SHEET W ORK AND BANKING MATTERS. DURING MY SECOND TENURE, I WAS CAL LED TO ASSIST ONLY FOR INCOME TAX ASSESSMENT WORK AND THER E WERE TWO OTHER PERSONS INCLUDING MR. SUNIL IN THE ACCOUN TS DEPARTMENT. Q.2 HOW DID YOU COME TO KNOW ABOUT THE SEARCH IN S AIRANG DEVELOPERS. WHO INFORMED YOU AND WHAT WAS THE EXACT COMMUNICATION TO YOU? ANS: I CAME TO KNOW OF IT IN MAY, 2001 WHEN MR. MAL IK INFORMED ME OVER PHONE. I OFFERED TO HELP IN WHATEV ER WAY POSSIBLE AND I FELT BAD. HE INFORMED ME ABOUT THE S EIZURE OF PAPERS INCLUDING PAPER NO.17 IN QUESTION. HE DID NO T EITHER INFORM ME THE CONTENTS THEREOF IN DETAIL NOR DID HE ASK ME TO EXPLAIN THE SAME. RE-EXAMINATION BY SHRI R.J. LAHOTI, CA. RE-EXAMINATION DENIED BY SHRI R.J. LAHOTI, C.A. READ, UNDERSTOOD AND FOUND CORRECT. SD/- (SMT. MEERA S. NAIR) RECORDED BEFORE ME SD/- (PRADEEP SHARMA) CIT(A)-I PUNE. 5.9 IT IS OBSERVED BY THE CIT(A) THAT AN IMPORTANT ISSUE WHICH REQUIRED TO BE ADDRESSED AT THIS STAGE WAS TH E CLAIM OF THE ASSESSING OFFICER THAT THE ASSESSEE DID NOT MAI NTAIN BOOKS OF ACCOUNTS AND NO BOOKS OF ACCOUNTS WERE FOUND AND SEIZED. THIS OBSERVATION HAS BEEN MADE BY THE ASSESSING OFF ICER IN CONTRA DISTINCTION TO PARA 11 OF THE ASSESSMENT ORD ER QUOTED BELOW AND PARA 13.7 OF THE ASSESSMENT ORDER WHICH R EADS AS ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 24 UNDER: THUS, THERE IS NO DISPUTE AS REGARDS THE FACTS AND FIGURES NOTED ON THIS SEIZED PAPER NO. 17 WHICH GIVES THE F INAL CONSOLIDATED POSITION OF BUSINESS AFFAIRS OF ASSESS EE COMPANY. IN CONNECTION WITH THE ABOVE INFORMATION A QUERY WAS ALSO RAISED DURING STATEMENT RECORDED U/S 131 OF THE MANAGING DIRECTOR, SHRI RASHID ON 4-6-2001 W HO REPLIED IN RESPONSE TO Q.NO. 2 THAT ENTIRE EXPENSES AS SHOWN IN THIS PAGE HAVE BEEN SHOWN IN REGULAR BOOKS OF ACCOUNTS FOR RESPECTIVE ASSESSMENT YEARS. IT WAS A LSO SUBMITTED BY HIM THAT ALL SUCH EXPENSES WERE RECORD ED AS SUMMARY OF REVENUE EXPENDITURE ON VARIOUS ITEMS AND ALSO CONSOLIDATED FIGURES HAVE BEEN SHOWN IN THIS P AGE. 5.10. BESIDES THIS, HAVING GONE THROUGH THE SUBMIS SIONS MADE ON BEHALF OF THE ASSESSEE, CIT(A) ALSO OPINED THAT THE STATEMENT ON OATH OF THE MANAGING DIRECTOR OF THE A SSESSEE, PANCHANAMA PREPARED AT THE TIME OF SEARCH AND SUBSE QUENT ASSESSMENT PROCEEDINGS, THAT THE FINDINGS OF THE AS SESSING OFFICER IN THIS REGARD IS CONTRARY TO THE FACTS ON RECORD. AS PER PANCHANAMA GIVING INVENTORY OF DOCUMENTS/PAPERS SEI ZED, ITEMS NO. 9 TO 12 REFER TO COMPUTERIZED CASH BOOK A ND BANK BOOK FOR A.Y. 1997-98 TO F.Y. 1999-00. BESIDES THI S, IN THE FIRST STATEMENT U/S 131 RECORDED BY THE INVESTIGATI ON OFFICIALS, THE MANAGING DIRECTOR HAS TIME AND AGAIN REFERRED T O THE BOOKS OF ACCOUNTS ON COMPUTER AT THE TIME OF SEARCH ITSELF. THE COMPUTERS WERE EXISTING AT THE TIME OF SEARCH I S ALSO BORNE OUT BY THE ORDER U/S 132(3) DATED 16-4-2001 W HEREIN THE FIRST ITEM IS FOLDERS, DOCUMENTS, COMPUTERS KEP T IN THE CABIN WHERE SEALS HAVE BEEN PLACED ON THAT DATE. I N THE STATEMENT ON OATH OF THE MANAGING DIRECTOR BEFORE T HE ADI (INV) THERE ARE FREQUENT REFERENCES TO REGULAR BOOK S OF ACCOUNTS AND THERE WAS CLEAR CUT MENTION OF PRODUCTION OF RE GULAR ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 25 COMPUTERIZED BOOKS OF ACCOUNTS BEFORE THE DDI (INV) . A COPY OF ASSESSEES LETTER DATED 5-6-2001 BEFORE THE ADI (INV) IS GIVEN IN ANNEXURE 4 TO THE APPELLATE ORDER AND THE SAME M AKES IT CLEAR THAT THE BOOKS OF ACCOUNTS WERE PRODUCED AT L EAST BEFORE THE INVESTIGATION OFFICER. THE CIT(A) ALSO OBSERVE D THAT IN THE NOTICE U/S 142(1) DATED 6-1-2003 THE ASSESSING OFFI CER HAS TIME AND AGAIN REFERRED TO REGULAR BOOKS OF ACCOUNT S AND CLARIFICATION WITH REFERENCE TO THE SAME IN SO FAR AS THE SEIZED MATERIAL WAS CONCERNED. HOWEVER, AT NO STAGE THE A SSESSING OFFICER HAS REFERRED TO NON-EXISTENCE OF BOOKS OF A CCOUNTS. IN FACT, HE HAS, IN THE ORDER SHEET ENTRY DATED 2-11-2 003 REFERRED TO VERIFICATION OF THE DETAILS FILED BY THE ASSESSE E BESIDES THE CLEAR CUT MENTION OF CORRELATION OF PAGE NO. 17 IN THE ORDER SHEET DATED 7-4-2003. IN THIS BACKGROUND, THE CIT( A) WAS SURPRISED THAT SUCH AN IMPORTANT ASPECT REMAINED TO BE BROUGHT ON RECORD. IN THE LIGHT OF THESE FACTS ON RECORD OF THE DEPARTMENT THERE IS NO JUSTIFICATION IN THE STAND O F THE ASSESSING OFFICER IN PARA 13.1 OF THE ASSESSMENT OR DER WHICH WAS CONTRARY TO HIS OWN STAND IN PARA 11 OF THE ASS ESSMENT ORDER WITH REGARDS TO BOOKS OF ACCOUNTS. 5.11 . IN THIS BACKGROUND, THE CIT(A) OBSERVED THAT IT WOULD BE NECESSARY TO POINT OUT THAT THE ASSESSING OFFICER WAS GIVEN AN OPPORTUNITY TO SUBMIT A REMAND REPORT ON V ARIOUS SUBMISSIONS OF THE ASSESSEE BEFORE HIM AND THE REMA ND REPORT HAS BEEN SUBMITTED BY THE ASSESSING OFFICER THROUGH ADDL. CIT THROUGH LETTER NO. ADDL. CIT/CENTRAL RANGE -1/282 D ATED 29- 10-2003. AN IMPORTANT POINT WHICH HAS BEEN NOTICED BY HIM INS IN PARA 12 OF THE REMAND REPORT WHICH READS AS UNDER: IN PARA C OF THE SUBMISSIONS THE ASSESSEE HAS CLAI MED THAT THE INFORMATION ON PAGE NO. 17 IS ALREADY ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 26 REFLECTED/DISCLOSED IN THE SEIZED RECORD/BOOKS OF ACCOUNT/REGULAR RETURN EXCLUDING THE PROPOSED/PROJE CTED BUSINESS PROPOSALS. ON VERIFICATION OF THE CONTENT S NOTED ON THIS PAGE IT IS SEEN THAT THERE IS NO SUCH MARKI NG ON THIS PAGE INDICATING ASSESSEES CONTENTION AS PROPO SED OR ESTIMATED AND HENCE THE SUBMISSIONS OF ASSESSEE IS NOT COMMENSURATE WITH THE CONTENTS NOTED ON THIS PAGE. 5.12. THE CIT(A) FURTHER OBSERVED THAT THERE WAS AN IMPORTANT MARKING ON PAGE 17 WHICH READ RECEIVABLES AND THE SAME HAS ALSO BEEN NOTED BY THE ASSESSING OFFICER WHILE REPRODUCING IT ON PAGE NO. 5 OF THE ASSESSMENT ORDE R ITSELF. THUS, IT WAS NOT FOUND CORRECT TO SAY THAT THIS PAP ER HAS NO MARKING RELATING TO OR INDICATING THE ASSESSEES CO NTENTION THAT IT WAS PROPOSED OR ESTIMATED, ALBEIT IN AN IND IRECT MANNER. IN ANY CASE, THE MARKING WAS THERE AND THE TERM RECEIVABLES WAS REQUIRED TO BE LOOKED INTO AND NO T MERELY IGNORED. THE CONNOTATION OF THE TERM WAS AN IMPORT ANT ASPECT FOR WORKING OUT THE TRUE INTENT OF THE PAGE NO. 17. FURTHER, COMING TO PARA 13 OF THE REMAND REPORT COUPLED WITH THE STATEMENT ON OATH OF THE ACCOUNTANT (REFER TO C.Q. 2) IT WAS OBSERVED THAT THE STOCK HAS NOT BEEN VALUED AT AN E STIMATED MARKET VALUE. IT HAS BEEN CLEARLY STATED BY THE AC COUNTANT IN THE STATEMENT U/S 131 THAT THE STOCK HAS BEEN AS PE R THE MARKETING VALUE OF THE PROJECT PER SQ. FT. AS TOLD TO HER BY THE MARKETING PEOPLE OF THE COMPANY. IN FACT, SHE HAS E VEN CONFIRMED THAT THE LAST COLUMN GIVES THE TOTAL MARK ET VALUE OF THE CLOSING STOCK. IT WAS ALSO NOTED BY THE CIT(A ) THAT IN THE RELEVANT COLUMN OF STOCK, THE RATE HAS BEEN SHOWN S EPARATELY FOR DIFFERENT PROJECTS AS MULTIPLICATION TO THE ARE A OF THE STOCK LEFT. IN SUCH A SITUATION IT WAS NOT JUSTIFIED TO S AY THAT THE STOCK HAS NOT BEEN SHOWN AT MARKET VALUE. FURTHER RELEVANT PAGE NO. 17 DID NOT BEAR ANY DATE AND THEREFORE THE WHOLE ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 27 INTERPRETATION THAT HAS BEEN WORKED OUT BY THE ASSE SSING OFFICER WAS WITHOUT ANY EVIDENCE HAVING BEEN ON REC ORD BEFORE HIM. IN FACT, IN RESPONSE TO QUESTION NO. 6 IN THE STATEMENT ON OATH BEFORE THE CIT(A) THAT THE ACCOUNTANT CONFIRME D THAT THIS PAGE WAS PREPARED BY HER IN FEBRUARY 2001. IN SUCH A SITUATION, EVEN IF THE ADDITION IS ENQUIRED TO BE M ADE, IT COULD HAVE BEEN MADE ONLY IN A.Y. 2001-02 AFTER DULY APPL YING THE RELEVANT PROVISIONS OF INCOME-TAX ACT INCLUDING SEC TION 145 OF THE ACT. MERELY REJECTING THE CONTENTION OF THE A SSESSEE WITHOUT GOING THROUGH THE EVIDENCE ON RECORD OR BY IGNORING PART OF THE EVIDENCE ON RECORD, SUCH AS, THE RATES HAVING BEEN MENTIONED IN THE STOCK COLUMN ITSELF, WOULD CERTAIN LY NOT LEAD TO A PROPER CONCLUSION. THE CIT(A) FURTHER OBSERVE D FROM THE ASSESSMENT ORDER THAT IN THE REMAND REPORT IN PARA 14, THE ASSESSING OFFICER HAS REFERRED TO THE BOOKS OF ACCO UNT NOT HAVING BEEN THERE AT THE TIME OF SEARCH. THIS OBSE RVATION OF THE ASSESSING OFFICER WAS NOT BASED ON ANY VERIFIAB LE EVIDENCE IN SO FAR AS THE NOTICE U/S 142(1) SENT BY THE ASSE SSING OFFICER HIMSELF IN APRIL 2003 ALSO REFERS TO THE BOOKS OF A CCOUNTS WITH WHICH THE ASSESSEE WAS REQUIRED TO COMPARE THE TRAD ING ACCOUNT WORKED OUT BY THE ASSESSING OFFICER. 5.13 IN THIS BACKGROUND THE CIT(A) OBSERVED THAT I T WOULD NOT BE CORRECT TO SAY IN THE LIGHT OF AN UNCONTROVERTED STATEMENT ON OATH U/S 131 AT THE TIME OF SEARCH AND THEREFORE INDIRECTLY ADMITTED IN THE NOTICE U/S 142(1) SENT BY THE ASSES SING OFFICER TOWARDS THE END OF ASSESSMENT PROCEEDINGS IN SO FAR AS THE BOOKS OF ACCOUNTS ARE CONCERNED. IT WAS ALSO NOTED BY THE CIT(A) THAT IF THE BOOKS OF ACCOUNTS WERE NOT THERE , THE ASSESSING OFFICER WAS REQUIRED TO MAKE REFERENCE OF THE SAME IN THE NOTICES ISSUED AND THE ASSESSEE OF THE SAME DURING THE ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 28 ASSESSMENT PROCEEDINGS ITSELF. THE CIT(A) FURTHER OBSERVED THAT AS PER LETTER DATED 3-2-2004 RECEIVED FROM THE OFFICE OF THE CIT (CENTRAL) A REQUEST WAS MADE FOR ALLOWING PERMI SSION TO THE ADDL. CIT CENTRAL RANGE 1,PUNE TO SUBMIT AN ADD ITIONAL REMAND REPORT. THE ADDITIONAL REMAND REPORT WAS SU BMITTED BY THE ADDL. CIT ON 12-2-2004 AND A COPY OF THE SAM E WAS ENCLOSED TO THE APPELLATE ORDER AS ANNEXURE 5 WHICH READS AS UNDER: SUB:- APPELLATE PROCEEDINGS IN THE CASE OF M/S. SAI RUNG DEVELOPERS & PROMOTERS (P) LTD.SUPPLEMENTARY REMAND REPORT REG NO. PN /ADDL. CIT{C)/ RG-L,L2003/04/455 OFFICE OF THE ADDITIONAL COMMISSIONER OF INCOME-TAX (CENTRAL) RANGE 1, PUNE DATE: 11-02-2004 FORWARDED TO THE COMMISSIONER OF INCOME TAX(APPEA1S ), PUNE FOR FURTHER NECESSARY ACTION. 2. THE DCIT CENT. CIR. 1(1) PUNE ATTENDED BEFORE TH E CIT(A) ON 23/10/2004 AND CROSS EXAMINED SMT. MEERA NAIR EX - EMPLOYEE OF M/S. SAIRUNG DEVELOPERS AND PROMOTERS P VT. LTD. NO INTIMATION ABOUT SUCH DEVELOPMENTS AT APPEL LATE PROCEEDINGS WAS RECEIVED IN THIS OFFICE FROM ' THE CIT (A)I, PUNE. EVEN THE DCIT CENT. CIR 1(1) DISCREETLY ATTEN DED THE PROCEEDINGS WITHOUT APPRAISING UNDERSIGNED AND THE UNDERSIGNED WAS THUS RECANTED/PREEMPTED OF AVAILING OPPORTUNITY TO ATTEND BEFORE THE CIT(A) TO GIVE REB UTTAL TO THE CONTENTS OF THE AFFIDAVIT FILED BY SMT. MEERA NAIR. IN THIS CASE OF M/S. SAIRUNG DEVELOPERS AND PROMOTERS PVT. LTD. AN ADDITION OF RS. 7.66 CRORES HAS BEEN MADE ON THE BA SIS OF SEIZED PAPERS. THEREFORE, IN ORDER TO STRENGTHEN TH E DEPARTMENTS CASE, THE DIRECTIONS OF THE DGIT (INV) THAT THE ADDL. CIT SHOULD REPRESENT THE CASES BEFORE CIT(A) COULD NOT BE CARRIED OUT FOR WANT OF COMMUNICATION BOTH FROM A.D. AND CIT(A). IT IS ALSO VITAL TO MENTION HERE THAT T HE DCIT CENT. CIR. 1(1) SMT. A. SUNDARAM WAS NOT THE A.O IN THIS CASE AND SINCE SEARCH ASSESSMENT ORDER WAS PASSED W ITH PREVIOUS APPROVAL OF THE ADDL. CIT CR.L. IT, THEREF ORE, BECOMES OBLIGATORY FOR THE DCOT TO APPRAISE THE APP ROVING AUTHORITY AS REGARDS THE REPRESENTATIONS BEFORE THE CIT(A) AND IN SUCH' APPROVED SEARCH AND SEIZURE CASES, AN Y REPRESENTATION BEFORE THE APPELLATE AUTHORITY SHOUL D BE THROUGH THE ADDL. CIT.CR.L AND AS SUCH REPRESENTATI ON WHICH HAS TAKEN PLACE IN ISOLATION WITHOUT PROPER C HANNEL HAS CAUSED PREJUDICE TO THE INTEREST OF REVENUE. TH EREFORE SUPPLEMENTARY REMAND REPORT MAY KINDLY BE CONSIDERE D. ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 29 YOURS FAITHFULLY SD/- (B.L. MEENA) ADDL. CIT (CENTRAL) I PUNE 5.14 . THE ASSESSEE WAS GIVEN AN OPPORTUNITY TO SUB MIT ITS COMMENTS VIDE SUBMISSIONS DATED 16-2-2004 AND THE S AME HAS BEEN MARKED AS ANNEXURE 6 TO THE APPELLATE ORDE R. THE ASSESSING OFFICER WAS ALSO GIVEN AN OPPORTUNITY TO PRESENT ANY ADDITIONAL INFORMATION THAT MAY BE CONSIDERED NECES SARY FOR STRENGTHENING THE CASE OF THE DEPARTMENT AND THE CO NCERNED ADDL. CIT CR 1 APPEARED ON 16-2-2004. HOWEVER, THE ASSESSING OFFICER WAS NOT ABLE TO FURNISH ANY INFOR MATION ON THE RELEVANT ISSUE WITH REFERENCE TO THE PANCHANAMA DRAWN AT THE TIME OF SEARCH, STATEMENTS ON OATH U/S 132(4), SUBMISSIONS OF THE ASSESSEE BEFORE THE DDI (INV) AN D VARIOUS REFERENCES TO PAGE 17 IN THE ASSESSMENT ORDER. THE REAFTER, ON THE EVENING OF 16-2-2004 A SUBMISSIONS, SUPPOSEDLY FINAL, WAS RECEIVED FOR PLACING ON RECORD FROM THE ADDL. CIT W HICH IS REPRODUCED AS UNDER: 'NO PN/ADDL/CIT G.R.. 1/2003-04/465 OFFICE OF THE ADDL. COMMISSIONER OF INCOME-TAX CENIFALRANGE-1, PUNE DATE: 16.02.2004 TO, THE COMMISSIONER OF INCOME TAX(APPEAL)- I, PUNE. SIR, SUB:- APPELLATE PROCEEDINGS IN THE CASE OF M /S. SAIRUNG DEVELOPERS PROMOTERS (P) LTD. -REG KIND REFERENCE IS INVITED TO THE APPELLATE PROCEEDI NGS ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 30 TOOK PLACE TODAY ON 16-02-2004 WITH THE UNDERSIGNE D ALONG WITH A. O. WHEREIN THE CONTENTS OF THE LETTER DATED 22-12-2003 (ANNEXURE-5) FILED BY ASSESSEE HAD BEEN DISCUSSED. IN THIS REGARD MY FOLLOWING SUBMISSION M AY KINDLY BE PLACED ON RECORD. 1. PARA 3.2.3 THE SEIZED PAPER NO. 17 VIDE BUNDLE NO. 2 CLEARLY DEPICT THE FINAL CONSOLIDATED POSITION OR BUSINESS AFFAIRS OF ASSESSEE IN RESPECT OF A PROJECTS LAUNCHED BY ASSESSEE DURING T HE BLOCK PERIOD. IT GIVES THE DETAILS OF OPENING STOCK, PURC HASES, SALES AND CLOSING STOCK IN' TERMS OF QUANTITY AND VALUE. NO BOOKS OF ACCOUNTS WERE EITHER FOUND OR SEIZED NOR PRODUCED B Y ASSESSEE AT THE TIME OF BLOCK ASSESSMENT PROCEEDING S, THEREFORE, THE RECONCILIATION DONE BY ASSESSEE ON T HE BASIS OF BOOKS AND COMPARING SUCH RESULTS WITH THE PROFITS A RRIVED AT BY A. O. ON THE BASIS OF SEIZED PAPER IS NOT RELEVANT. THIS FACTUAL ASPECT HAS ALREADY BEEN ELABORATELY DISCUSS ED IN THE ASSESSMENT ORDER, REMAND REPORT DATED 23/10/2003 AN D SUPPLEMENTARY REMAND REPORT DATED 12/02/2004 WHEREI N IT HAS CLEARLY BEEN ESTABLISHED THAT THE ENTRIES DEPIC TED ON SEIZED PAPERS HAVE NOT BEEN EXPLAINED BY ASSESSEE W ITH REFERENCE TO HIS RETURNS OF INCOME FILED OR BOOKS O F ACCOUNTS. FURTHER, IT IS MENTIONED THAT QUESTION OF POINTING OUT ANY DEFECTS IN BOOKS DOES NOT ARISE IN THE ABSENCE OF M AINTAINING SUCH BOOKS OF ACCOUNTS. II) PARA 3.2.4 COMING TO THE JUDICIAL DECISIONS CITED IN PARA 3.2. 4 OF ASSESSEE'S LETTER, IT IS SUBMITTED THAT NONE OF THE CASE LAWS CITED PERTAIN TO BLOCK SEARCH ASSESSMENT (SEARCH AN D SEIZURE ASSESSMENTS) AND THE RATIO LAID DOWN IN THESE JUDIC IAL DECISIONS IS NOT APPLICABLE IN THE PRESENT CASE IN AS MUCH AS NO BOOKS OF ACCOUNTS WERE FOUND AND SEIZED IN THE C ASE OF ASSESSEE TO COMPARE AND TALLY THE ENTRIES BORNE OUT FROM SEIZED PAPERS NO. 17 AND 55. HOWEVER, THE HON. CIT(A) MAY DECIDE THE ISSUE ON TH E FACTS OF THE CASE AND JUDICIAL DECISIONS CITED (EMPHASIS SUP PLIED). YOURS FAITHFULLY SD/- (B.L. MEENA) ADDL. CIT (CENTRAL) I PUNE 5.15. IN THE ABOVE LETTER, THE CONCERNED ADDL. CIT HAS SUBMITTED THAT HOWEVER, THE HONBLE CIT(A) MAY DEC IDE THE ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 31 ISSUE ON THE FACTS OF THE CASE AND JUDICIAL DECISIO NS CITED. THE CIT(A) FOUND THAT THE ADDITIONAL REMAND REPORT SUBMITTED BY THE ASSESSING OFFICER WAS BASICALLY A REPETITION OF THE ASSESSMENT ORDER. REGARDING THE SUBMISSIONS OF THE ADDL. CIT DATED 16-2-2004 THE MAIN EMPHASIS GIVEN WAS ON THE BOOKS OF ACCOUNTS NOT BEING FOUND OR SEIZED OR PRODUCED BY T HE ASSESSEE AT THE TIME OF BLOCK ASSESSMENT PROCEEDING S. BESIDES WHAT HAS BEEN DISCUSSED IN THE APPELLATE PR OCEEDINGS, AT DIFFERENCE PLACES, THE CIT(A) POINTED OUT THAT T HIS STAND OF THE ADDL. CIT WAS NOT CORRECT AS IT WAS NOT BORNE O UT BY THE RECORDS AND THE LEGAL AND FACTUAL ASPECTS OF THE IS SUES DESCRIBED HEREUNDER. (I) IN THE STATEMENT U/S 132(4) OF SHRI. K.SHABBIR BABU, DIRECTOR OF THE APPELLANT COMPANY RECORDED ON THE F IRST DAY OF THE SEARCH I.E. ON 11.02.2001, THERE IS A DIRECT REFERENCE TO THE BOOKS OF ACCOUNTS IN QUESTION NO.8 QUOTED HEREUNDER: 'Q.NO.8. DO YOU MAINTAIN BOOKS OF ACCOUNTS FOR THE BUSINESS. PLEASE GIVE DETAILS THEREOF? ANS. YES, WE ARE MAINTAINING BOOKS OF ACCOUNTS AND ALL TRANSACTIONS ARE FED TO THE COMPUTER REGULARLY. AND I SHALL SUBMIT THE PRINT OUT IN THE SHORT TIME.' IN RESPONSE TO QUESTION NO.10, IN THE SAME STATEMEN T THE CASH BALANCE AS ON 31.03.2002 AS PER CASH BOOK HAS ALSO BEEN GIVEN. TO QUOTE: Q.NO. 10: KINDLY STATE WHAT IS YOUR CASH BALANCE A S ON 10- 4-2001? ANS: WE HAVE COMPLETED BOOKS FOR SDPPL AS WELL AS PROPRIETARY CONCERNS UPTO 31-3-2001 AND AS PER THAT CLOSING CASH BALANCE OF SDPPL WAS RS. 15,88,713.11, FURTHER NO BOOKS SO FAR WRITTEN. IN SUCH A SITUATION, IT IS TO BE PUT ON RECORD THAT THE BOOKS OF ACCOUNTS AS ON 31.03.2001 WERE AVAILABLE AT THE TIME OF SEARCH. (II) AS PER PANCHANAMA DATED 24.04.2001, COPY OF WH ICH IS ENCLOSED AS ANNEXURE - 7 TO THIS APPELLATE ORDER, COMPUTERIZED CASH BOOK AND BANK BOOK FOR F.YS. 1997 -98, ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 32 1998-99 AND 1999-2000 WERE FOUND AT THE TIME OF SEA RCH. IN THE LIGHT OF THIS SPECIFIC MENTION OF THE BOOKS OF ACCOUNTS IN THE INVESTIGATION RECORD, IT IS NOT UNDERSTOOD AS T O HOW THE DEPARTMENTAL OFFICERS ARE CLAIMING TODAY THAT THE B OOKS OF ACCOUNTS WERE NOT FOUND AT THE TIME OF SEARCH. IT M AY ONLY BE TRUE, IF AT ALL, THAT THE BOOKS OF ACCOUNTS FOR THE PERIOD 01.04.2001 TO 10.04.2001 WERE PERHAPS NOT AVAILABLE , BUT THAT WOULD NOT MAKE ANY DIFFERENCE IN RECONCILING T HE POSITION WHICH IS ADMITTEDLY FOR FEBRUARY, 2001 IN SO FAR AS THE SEIZED PAPER NO. 17 IS CONCERNED. (III) A COPY OF THE SEIZED PAPER NO.17 SUBMITTED BY THE ASSESSING OFFICER IS GIVEN IN ANNEXURE - 8 TO THIS APPELLATE ORDER. IT IS NOTE-WORTHY THAT THE LOWER HALF OF THE PAGE NO.17 HAS BEEN ADMITTED TO BE REFLECTED IN THE BOOKS OF A CCOUNTS BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AN D NO ADDITION/DISTURBANCE ON THAT ACCOUNT HAS BEEN MADE. IN PARA 11 OF THE ASSESSMENT ORDER, THE ASSESSING OFFI CER HAS ADMITTED THAT THERE IS NO DISPUTE AS REGARDS THE FA CTS AND FIGURES NOTED ON THE SEIZED PAPER NO.17 AND HAS ALS O REFERRED TO THE STATEMENT U/S.131 DATED 04.06.2001 OF THE MANAGING DIRECTOR MR. K.M.A. RASHEED WHEREIN HE HAD STATED THAT ALL EXPENSES ARE RECORDED IN THE REGULA R BOOKS OF ACCOUNTS IN THE RESPECTIVE ASSESSMENT YEARS. A COPY OF THE FIRST FOUR PAGES OF THE SAID STATEMENT OF OATH U/S.131 IS GIVEN IN ANNEXURE -9 TO THE APPELLATE ORDER. IT IS NOT UNDERSTOOD AS TO HOW A PART OF THE SEIZED PAPER COULD BE CONSI DERED AS BEING REFLECTED IN THE REGULAR BOOKS OF ACCOUNTS BY THE REVENUE AND FOR THE OTHER HALF, THEY ARE NOT ABLE T O EVEN ACCEPT THE EXISTENCE OF THE BOOKS OF ACCOUNTS. THIS IS SOMETHING REALLY AMISS. (IV) LEGALLY SPEAKING, IT WAS THE DUTY OF THE ASSES SING OFFICER TO POINT IT OUT TO THE APPELLANT THAT THE BOOKS OF ACCOUNTS WERE NOT FOUND. THE PRINCIPLE OF NATURAL JUSTICE EM BODIED IN THE LATIN DICTUM 'AUDI ALTERAM PARTEM' ONLY MEANS T HAT A PERSON HAS RIGHT TO BE HEARD BY WAY OF AN OPPORTUNI TY, WHICH SHOULD BE ADEQUATE AND REASONABLE, SO AS TO E NABLE THE PERSON AFFECTED TO MEET THE CASE AGAINST HIM. I T IS THIS PRINCIPLE WHICH WAS ENFORCED BY A BENCH OF THREE JU DGES IN RAKESH C. RASTOGI V. APPROPRIATE AUTHORITY (2002) 2 53 ITR 94 (SC) SETTING ASIDE THE ORDER OF THE APPROPRIATE AUTHORITY, WHERE THE COMPARATIVE INSTANCES RELIED UPON BY THE APPELLANT WERE NOT CONSIDERED BEFORE AN ORDER WAS P ASSED AND THE~ REASONS WHICH PROMPTED THE AUTHORITY TO RE JECT THE COMPARABILITY OF THE CASES RELIED UPON WERE NOT DIS CLOSED. IN ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 33 ALL SUCH CASES, IT IS CLEAR THAT A FAIR OPPORTUNITY MEANS NOT ONLY HEARING THE ASSESSEE ON THE INFERENCE DRAWN, B UT ALSO GIVING A FURTHER OPPORTUNITY, WHEN THE EXPLANATION GIVEN IS NOT SATISFACTORY. IT IS ONLY SUCH OPPORTUNITY, WHIC H MEETS THE REQUIREMENTS OF BASIC PRINCIPLES OF NATURAL JUS TICE. V) WHEN THE STATEMENT ON OATH OF MRS. MEERA NAIR, , EX- ACCOUNTANT WAS RECORDED AND THE CROSS EXAMINATION W AS DONE BY THE ASSESSING OFFICER DURING THE APPELLATE PROCEEDINGS, BASICALLY A FAILURE OF THE PRINCIPLES OF NATURAL JUSTICE WAS SOUGHT TO BE MADE GOOD BY THE CIT(APPEA LS) AS NO QUERIES WERE RAISED BY THE ASSESSING OFFICER FRO M THE SAID AUTHOR OF PAGE NO. 17. HOWEVER, AS THERE IS NO POWE R OF SET ASIDE IS NOW AVAILABLE, FOLLOWING THE LAW LAID DOWN IN THE CASE OF TIN BOX CO. VS. CIT, 249 ITR 216 (SC), A PR OPER OPPORTUNITY WAS ALLOWED NOT ONLY TO THE APPELLANT B UT ALSO TO THE DEPARTMENT. EVEN AT THAT STAGE, THE ISSUE OF TH E BOOKS OF ACCOUNTS NOT BEING PRESENT AND THE FIGURES NOT BEIN G REFLECTED IN THE REGULAR BOOKS OF ACCOUNT WAS NOT A T ALL RAISED BY. THE DEPARTMENT EITHER IN THE CROSS EXAMI NATION OR IN ANY SUBMISSION SUBSEQUENT THERETO. IT WOULD, THE REFORE, NOT BE PROPER TO REVERT BACK NOW AND MAKE A SEEMING LY FRIVOLOUS ALLEGATION NOT BASED ON FACTS. (VI) SECTION 132(4A) RAISES A PRESUMPTION THAT WH AT IS FOUND DURING SEARCH BELONGS TO THE APPELLANT AND TH AT IS TRUE. BUT SUCH A RULE IS INTENDED TO HELP THE SEARC H OFFICER TO SEIZE THE ASSETS WHEN THERE IS NO PROPER EXPLANATIO N FOR THE SAME. IT DOES NOT JUSTIFY THE ASSESSMENT WITH REFER ENCE TO THE SEIZED RECORDS WITHOUT ANY ENQUIRY ON THE SAME. WHERE IT WAS THE ASSESSEE'S CASE THAT THE TRANSACTIONS CO NTAINED IN THE PAPERS WERE PERTAINING TO A COMPANY OF WHICH HE WAS A DIRECTOR, THE PRESUMPTION APPLICABLE IN THE SEARCH PROVISIONS CANNOT JUSTIFY THE ASSESSMENT WITHOUT AN Y ENQUIRY AS TO THE TRUE NATURE OF THE PAPERS SEIZED. THIS WAS THE LAW THAT WAS DECIDED IN MANSUKHLAL NANJIBHAI PA TEL V DY CIT (2001 )251 ITR 341 (GUJ). SIMILAR VIEW WAS TAKE N IN CIT V P.R. METRANI (HUF) (2001) 251 ITR 244(KAR). (VII) WHAT WE ASSESS IS THE UNDISCLOSED INCOME OF THE APPELLANT IN THE BLOCK ASSESSMENT PROCEEDINGS. SECT ION 15.~BB ENVISAGES A POSITION IN WHICH BOOKS OF ACCOU NT HAVE NOT BEEN FOUND. BUT IN OUR CASE NOT ONLY THERE ARE SEIZED PAPERS AND MANUAL REGISTERS AS HAS BEEN ADMITTED BY THE AS SESSING OFFICER IN PARA 13.1 (AND ALSO SALES REGISTERS REFE RRED TO BY THE ASSESSING OFFICER IN THE SAME PARAGRAPH) OF THE ASS ESSMENT ORDER. THE QUESTION IS AS TO WHETHER THESE REGISTERS AND P APERS COULD ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 34 HAVE BEEN UTILIZED FOR THE PURPOSES OF COMPUTING UN DISCLOSED INCOME VIS--VIS THE SEIZED MATERIAL. AT THIS STAGE , IT WOULD BE RELEVANT TO LOOK INTO THE FOLLOWING LEGAL ASPECTS O F THE ISSUE. SECTION 158 88(1) IS AS UNDER: 'THE UNDISCLOSED INCOME OF THE BLOCK PERIOD SHALL B E THE AGGREGATE OF THE TOTAL INCOME OF THE PREVIOUS YEARS FALLING WITHIN THE BLOCK PERIOD COMPUTED, (WEF 1-7-1995 IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, ON THE B ASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION AS ARE AVAILABLE WITH THE ASSESSING OFFICER AND RELATABLE TO SUCH EVIDENCE), AS REDUCED BY THE AGGREGATE OF THE TOTAL INCOME, OR, A S THE CASE MAY BE, AS INCREASED BY THE AGGREGATE OF THE L OSSES OF SUCH PREVIOUS YEARS DETERMINED, - (A) WHERE ASSESSMENTS UNDER SECTION 143 OR SECTION 144 OR SECTION 47 (WEF 1-7-95 HAVE BEEN CONCLUDED P RIOR TO THE DATE OF COMMENCEMENT OF THE SEARCH OR THE DA TE OF REQUISITION), ON THE BASIS OF SUCH ASSESSMENTS; (B) WHERE RETURNS OF INCOME HAVE BEEN FILED UNDER SECTION 139 (WEF 1-7-1995 OR IN RESPONSE TO A NOTIC E ISSUED UNDER SUB SECTION (1) OF SECTION 142 OR 148) BUT ASSESSMENT HAVE NOT BEEN MADE TILL THE DATE OF SEAR CH OR REQUISITION, ON THE BASIS OF THE INCOME DISCLOSED I N SUCH RETURNS W.E.F. 1-7-1995 (C) WHERE THE DUE DATE FOR FILING A RETURN OF INCO ME HAS EXPIRED, BUT NO RETURN OF INCOME HAS BEEN FILED, - (A) ON THE BASIS OF ENTRIES AS RECORDED IN THE BOO KS OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMA L COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUI SITION WHERE SUCH ENTRIES RESULT IN COMPUTATION OF LOSS FO R ANY PREVIOUS YEAR FALLING IN THE BLOCK PERIOD; OR (B) ON THE BASIS OF ENTRIES AS RECORDED IN THE BOO KS OF ACCOUNTS AND OTHER DOCUMENTS MAINTAINED IN THE NORM AL COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUI SITION WHERE SUCH INCOME DOES NOT EXCEED THE MAXIMUM AMOUNT NOT CHARGEABLE TO TAX FOR ANY PREVIOUS YEAR FALLING IN THE BLOCK PERIOD; (CA) WHERE THE DUE DATE FOR FILING A RETURN OF INC OME HAS EXPIRED, BUT NO RETURN OF INCOME HAS BEEN FILED, AS NIL, IN CASES NOR FALLING UNDER CLAUSE (C) ; ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 35 (D) WHERE THE PREVIOUS YEAR HAS NOT ENDED OR THE D ATE OF FILING THE RETURN OF INCOME UNDER SUB SECTION (1 ) OF SECTION 139 HAS NOT EXPIRED, ON THE BASIS OF ENTRIE S RELATING TO SUCH INCOME OR TRANSACTIONS AS RECORDED IN THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEFORE THE DATE OF SEARCH O R REQUISITION RELATING TO SUCH PREVIOUS YEARS; (E) WHERE ANY ORDER OF SETTLEMENT HAS BEEN MADE UN DER SUB SECTION (4) OF SECTION 245D, ON THE BASIS OF SU CH ORDER; (F) WHERE AN ASSESSMENT OF UNDISCLOSED INCOME HAD B EEN MADE EARLIER UNDER CLAUSE (C) OF SECTION 158BC, ON THE BASIS OF SUCH ASSESSMENT. WHILE DISCUSSING THIS ISSUE, HON. ITAT MUMBAI BENCH HAS IN THE ORDER OF SHRI BHUPENDRA M. SHAH, KAILASH CHAND JAIN & CO. VS. DCIT SR 51, MUMBAI IN IT(SS) A NO. 87/MUM/98 REPORTED IN PCAS JOURNAL VOL. 1 PART (DECEMBER 2002) HELD AS UNDER: THE SCHEME OF BLOCK ASSESSMENT ALSO TAKES INTO CONSIDERATION THE NON MAINTENANCE OF CONVENTIONAL B OOKS I.E. CASH BOOK AND LEDGER, AND THEREFORE, IT POSTUL ATES THAT THE DISCLOSED INCOME SHOULD BE ADOPTED AS PER THE ENTRIES IN THE BOOKS OF ACCOUNTS AND DOCUMENTS ETC. IF THE SOLE EMPHASIS OF BLOCK ASSESSMENT WAS ON MAINTENANCE OF REGULAR BOOKS, THE SAME SHOULD HAVE BEEN PROVIDED CLEARLY AND THE WORDS DOCUMENTS MAINTAINED IN REGULAR COURSE WOULD NOT HAVE BEEN I N THE SUB-SECTION. THE SOLE REASON OF A.OS MAKING THE ADDITION IS THAT THE BOOKS WERE WRITTEN AFTER THE S EARCH. THE ASSESSEE RELIED ON ITAT MUMBAI BENCH DECISION I N THE CASE OF SHRI BABU SAMUEL VS. ACIT IN IT (SS) A NO. 8/MUM/97. IN THIS CASE ALSO, THE ASSESSEE HAD WRIT TEN THE BOOKS AFTER THE SEARCH. THE A.O MADE THE ADDIT ION REGARDING THE SOURCE OF CASH ONLY ON THE GROUND THA T THE BOOKS WERE WRITTEN AFTER THE SEARCH. IN VIEW OF THIS CLEAR CUT POSITION OF LAW, THE EMPH ASIS BY THE ADDL. CIT CR 1, PUNE IS ENTIRELY MISPLACED. (VIII) IT IS ON RECORD THAT THE APPELLANT HAD PRODU CED BOOKS OF ACCOUNTS BEFORE THE DDI (INV) AND THIS ASP ECT HAS ALSO BEEN BROUGHT OUT BY THE APPELLANT IN ITS SUBMISSION DATED 16-2-2004 IN WHICH A COPY OF LETTE R ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 36 DATED 5-6-2001 BEFORE THE DDI (INV) HAS BEEN ENCLOS ED BY THE APPELLANT IN THE LETTER DATED 16-2-2004. NOT O NLY THIS, THE APPELLANT HAS ALSO SUBMITTED DETAILED EXT RACTS FROM BOOKS OF ACCOUNTS BEFORE THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS AS DISCUSSED LATER IN THIS ORDER. 5.16 CIT(A) FURTHER EXAMINED WHETHER IN ABSENCE OF BOOKS OF ACCOUNTS, IT WOULD BE REASONABLE TO DRAW A INFERENCE BY DRAWING THE TRADING ACCOUNT BY TAKING THE CLOSING S TOCK REFLECTED ON PAGE NO. 17 AT MARKET VALUE AND BY TOT ALLY DISREGARDING THE METHOD OF ACCOUNTING REGULARLY FOL LOWED BY THE ASSESSEE AND ADMITTED BY THE DEPARTMENT IN THE REGULAR ASSESSMENT PROCEEDINGS. HON. DELHI HIGH COURT IN TH E CASE OF CIT VS. GOWAR SONS (PVT. LTD.), 250 ITR 460 THAT TH E TRADE PRACTICES ARE REQUIRED TO BE LOOKED INTO BEFORE REC OGNITION OF INCOME IN SEIZED PAPERS SO FAR AS VALUATION OF INVENTORY OR STOCK IS CONCERNED. IT IS SETTLED LAW THAT IT IS OP EN TO THE TAX PAYER TO ADOPT ANY RECOGNIZED METHOD OF VALUATION A S LONG AS SUCH METHOD IS CONSISTENTLY FOLLOWED. THE ASSESSING OFFICER IS BOUND TO ACCEPT SUCH METHOD, SINCE IT IS BINDING ON HIM U/S 145 OF THE I.T ACT. THE SUPREME COURT IN CIT V BRIT ISH PAINTS INDIA LTD. (1991) 188 ITR 44 (SC) HAS CLARIFIED TH AT THE METHOD SHOULD BE ONE, WHICH IS RECOGNIZED' AND DOES NOT DISTORT THE INCOME. EVEN THE ADOPTION OF THE AVERAG E PRICE PREVAILING IN THE LAST MONTH OF THE ACCOUNTING YEAR AS A ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 37 METHOD MAY BE ACCEPTABLE AS HELD IN CIT VS FAZILKA CO-OP SUGAR MILLS LTD (2002) 255 ITR 411 ( P & H ), SINCE THERE COULD BE NO LOSS FOR THE REVENUE IN THE METHOD FOLLOWED. IT WAS FURTHER OBSERVED BY THE CIT(A) THAT THE VALUE ADOPT ED BY THE ASSESSEE WAS NOT LESS THAN THE COST. IT , THEREFORE , UPHELD THE ORDER OF THE TRIBUNAL , WHICH APPROVED THE METHOD, BECAUSE IT WAS CONSISTENTLY FOLLOWED. THE SYSTEM FOLLOWED SHOU LD ORDINARILY BE A RECOGNIZED ONE AND SHOULD NOT DISTO RT THE INCOME. 5.17 THE CIT(A) FURTHER OBSERVED VALUATION OF STOC K IS A MATTER OF ACCOUNTING. WHERE THE ASSESSEE HAS CONSIS TENTLY NOT TAKEN EXCISE ELEMENT IN VALUATION OF STOCK, AND SUC H PRACTICE HAS ALSO BEEN ACCEPTED IN THE PAST, THE MATTER OF V ALUATION CANNOT EVER BE SUBJECT MATTER OF ANY PROCEEDINGS U/ S 147. THE DECISION OF THE SUPREME COURT IN WALACE FLOUR MILLS CO LTD V COLLECTOR OF CENTRAL EXCISE (1990) 186 ITR 440 (SC) TO THE EFFECT THAT MANUFACTURE CONSTITUTE TAXABLE EVENT, I T WAS FOUND, WOULD NOT BE RELEVANT, IF AS A MATTER OF VALUATION, IT WAS NOT CONSISTENTLY TAKEN INTO ACCOUNT, BUT ALL THE SAME N OT IGNORED BECAUSE IT WAS BEING ACCOUNTED BY TREATING SUCH LIA BILITY AS CRYSTALLIZED ON THE DATE OF EXPANDING AND ACCOUNTED ON THAT BASIS. THERE IS NO ESCAPEMENT OF INCOME IN SUCH CAS ES AS HAD BEEN DECIDED IN SIMILAR CIRCUMSTANCES ' IN CAPRIHAN S INDIA ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 38 LTD. V. PRAKASH CHANDRA (2002) 256 ITR 721 (BOM) FO LLOWING THE DECISION IN HINDUSTAN LEVER LTD. V. V.K.PANDEY, JT. CIT (2001) 251 ITR 209 (BOM). SUCH BEING THE POSITION O F LAW, THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE, COS T OR MARKET VALUE' WHICHEVER IS LOWER, IS ONLY TO BE EMPLOYED I N THE TRADING ACCOUNT TO COMPUTE PROFITS, IF ANY, FROM THE SEIZED PAPER NO. 17. 5.18 AFTER PROCEEDINGS ON 16.02.2004 WAS CONCLUDED, A REQUEST LETTER WAS RECEIVED ON 17.02.2004 FROM MRS. V.TEREDESAI, DCIT FOR GIVING TIME OF ONE WEEK FOR F URTHER WRITTEN SUBMISSIONS. ON NO SUBMISSIONS HAVING BEEN FILED ON 23.02.2004, THE CIT (A) DECIDED TO VISIT THE ROOM O F ACIT.CR.1 (1), PUNE TO PERSONALLY INSPECT THE SEIZED MATERIAL S ONCE AGAIN AND PERUSED THE CASE RECORDS WHICH HAD BEEN RETURNE D TO THE ASSESSING OFFICER. IT HAS BEEN VERIFIED BY HIM, IN THE PRESENCE OF THE ASSESSING OFFICER AND THE ITO OF THE CIRCLE THAT, WHILE THE CASE RECORDS WERE SENT TO THE CIT(A) ONLY IN ONE FO LDER, THE REGULAR SUBMISSIONS OF THE ASSESSEE DURING ASSESSME NT PROCEEDINGS, IN ONE BOX FILE WERE SEPARATELY KEPT I N THE ALMIRAH OF THE OFFICER. INCIDENTALLY, THIS BOX FILE CONTAINS FULL AND COMPLETE DETAILS OF THE SUBMISSIONS OF THE ASSE SSEE INCLUDING THE COPIES OF ACCOUNT SUBMITTED BY THE AP PELLANT DURING THE ASSESSMENT PROCEEDINGS BEFORE THE ASSESS ING OFFICER ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 39 AND MOST OF WHICH HAD BEEN SUBMITTED BEFORE THE CIT (A) IN THE PAPER BOOK FORM VIDE LETTER DATED 09.06.2003. THUS, WHAT EVER HAD BEEN PRODUCED BY THE ASSESSEE BEFORE THE ASSESS ING OFFICER HAS ONLY BEEN PRODUCED BEFORE THE CIT(A) AND IT GIV ES A FULL AND COMPLETE EXPLANATION OF THE ASSESSEE WITH REGAR D TO THE SEIZED PAPER NO. 17 WITH THE HELP OF EXTRACTS OF BO OKS OF ACCOUNTS. THE CIT(A) WAS SURPRISED THAT THE SAME H AS BEEN TOTALLY IGNORED BY THE ASSESSING OFFICER IN THE ASS ESSMENT PROCEEDINGS AND THEREAFTER THE SAME HAS ALSO NOT BE EN PRODUCED BEFORE HIM ALONG WITH THE CASE RECORDS. IN THIS BACKGROUND THE CIT(A) OBSERVED THAT THERE WAS NO NE ED FOR ANY FURTHER SUBMISSIONS BY THE DEPARTMENTAL AUTHORI TIES AS THE ISSUES WERE CRYSTAL CLEAR AND SUFFICIENT DETAIL S ARE AVAILABLE IN THE ASSESSMENT RECORDS OF THE ASSESSING OFFICER. AS STATED ABOVE THE CIT(A) HAD ALREADY CONDUCTED ENQUIRIES HI MSELF BY GETTING THE STATEMENT ON OATH OF SMT. MEERA S. NAIR , AUTHOR OF THE SEIZED PAPER NO. 17 RECORDED BEFORE HIM DURING THE APPELLATE PROCEEDINGS AND GIVING THE ASSESSING OFFI CER AN OPPORTUNITY TO CROSS EXAMINE HER. FURTHERMORE, THE ASSESSING OFFICER'S REMAND REPORT HAS BEEN SENT TO THE APPELL ANT AND REPLY OF THE APPELLANT ON THE SAME HAS BEEN OBTAINE D BEFORE PASSING OF THE FINAL ORDER. FURTHERMORE, IN VIEW OF THE DECISION OF HON. KARNATAKA HIGH COURT IN THE CASE OF SHRI.SH ANKAR ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 40 KHANDASARI SUGAR MILLS VS. CIT, 193 ITR 669 (KAR), WHEREIN IT HAS BEEN HELD THAT THE REVENUE MUST ACT FAIRLY IN T HE MATTER OF ASSESSMENT AS MUCH AS IT IS INTERESTED IN COLLECTIN G THE TAX. THE CIT(A) THEREFORE, PROCEEDED TO PASS THE APPELLA TE ORDER IN THIS CASE. THE CIT(A) FURTHER OBSERVED THAT THE PAP ER BOOK SUBMITTED BY THE APPELLANT DURING APPELLATE PROCEED INGS WAS SENT TO THE ASSESSING OFFICER FOR REMAND REPORT AS EARLY AS ON 09.06.2003. WHEN THE OFFICER WHO HAS PASSED THE ASS ESSMENT ORDER WAS IN OFFICE. NOT ONLY THIS, HE WAS REMINDED TO SUBMIT THE SAME VIDE HIS LETTER DATED 23.09.2003 AS WELL. 5.19 ON PERUSAL OF THE SEIZED MATERIALS CIT(A) FUR THER FOUND THAT MRS. MEERA S. NAIR, EX-ACCOUNTANT OF THE ASSE SSEE, WHO WAS THE AUTHOR OF THE SEIZED PAPER NO. 17 HAS BEEN MAKING SUCH ROUGH NOTINGS FROM TIME TO TIME. THIS GOT REFL ECTED FROM THE SEIZED MATERIAL A-3-3, WHICH IS A DIARY AND ON PAGE 4 AND 5 THEREOF THERE ARE DETAILS OF AMOUNTS PAID TO LAND OWNERS AND THE BALANCE TO BE PAID AS ON DECEMBER, 2000 AND JUN E, 2001 I.E. AFTER THE DATE OF THE SEARCH. A COPY OF THE RE LEVANT PAGE NOS. 4 AND 5 OF ANNEXURE A-3-3 IS ANNEXED AS ANNEX URE 10 TO THE IMPUGNED ORDER. FURTHERMORE, IN THE DIARY OF MR S. MEERA S.NAIR SEIZED ON 11.04.2001 AS PER ANNEXURE A-1-8, THERE ARE UMPTEEN DETAILS OF ROUGH ENTRIES PROJECT WISE OF TH E CHEQUES ISSUED AND CHEQUES TO BE RECEIVED ON DIFFERENT DATE S INCLUDING ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 41 MAY, 2001, JUNE, 2001 ETC. THIS REFLECTED THAT THE LADY OFFICIAL WAS REGULARLY ENGAGED IN PREPARING SUCH DETAILS OF RECEIVABLES AS WERE REFLECTED IN THE SEIZED PAGE NO.17. THUS, T HE SEIZED MATERIAL ITSELF GIVES FULL CREDENCE TO THE SUBMISSI ONS OF THE APPELLANT AND THE EXAMINATION OF MRS. MEERA S. NAIR . 5.20 BEFORE CONCLUDING, THE CIT(A) OBSERVED THAT T HE LEGAL POSITION WITH REGARD TO THE TWO MAIN ISSUES I.E. TH E ESTIMATION OF SALES AND VALUATION OF CLOSING STOCK WAS NOT IN FAVOUR OF THE STAND THAT HAS BEEN ERRONEOUSLY ADOPTED BY THE ASSE SSING OFFICER. THE DECISION OF HON. MUMBAI HIGH COURT IN THE CASE OF ESTATE INVESTMENT CO. LTD. VS. CIT, 121 ITR 580 (MU MBAI) LAID DOWN THAT THE PROFITS ACCRUE ONLY WHEN CONVEYANCE I S EXECUTED AND REGISTERED WHERE MERCANTILE SYSTEM OF ACCOUNTING IS BEING FOLLOWED. IN SO FAR AS VALUATIO N OF CLOSING STOCK IS CONCERNED, THERE ARE WELL ACCEPTED PRINCIP LES LAID DOWN BY A SERIES OF COURT DECISIONS SUCH AS CIT VS. BRITISH PAINTS VS. CIT, 188 ITR 44 (S.C) THAT THE VALUATION OF CLOSING STOCK IS REQUIRED TO BE DONE AT COST OR MARKET PRIC E, WHICHEVER IS LOWER. NOT ONLY THIS, IT IS THE RIGHT OF AN ASSE SSEE TO ADOPT A PARTICULAR SYSTEM OF ACCOUNTING AND THE ASSESSING O FFICER HAS TO LOOK AT THE SUBSTANCE OF THE SITUATION AND DECID E THE MATTER IN SUCH A MANNER THAT NEITHER THE REVENUE IS PUT TO UNREASONABLE LOSS NOR THE ASSESSEE IS SUBJECTED TO ANY ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 42 UNREASONABLE HARDSHIP -SHALIGRAM KANHAIYALAL VS. CI T, 133 ITR 915 (P&H) SLP DISMISSED - 143 ITR (81.) 65 (SC) . IN CIT VS. HAZARIBAUG COAL BOARD, 171 ITR 135 (CAL), THE P RACTICE FOLLOWED BY THE ASSESSEE YEAR AFTER YEAR IN TREATIN G THE EXPENDITURE AND REIMBURSEMENT FROM COAL BOARD IN IT 'S ACCOUNTS WAS HELD TO BE A REGULAR METHOD FOR KEEPIN G THE ACCOUNTS. IN THE PRESENT CASE THE ASSESSEE HAS BEEN FOLLOWING A WELL ACCEPTED METHOD OF ACCOUNTING FOR SALES ONLY WHEN REGISTRATION IS DONE OR FULL CONSIDERATION IS RECEI VED COUPLED WITH WELL KNOWN STOCK VALUATION POSITION, COST OR M ARKET VALUE, WHICHEVER IS EARLIER. THE CIT(A) FOUND NO RE ASON TO REJECT SUCH A REGULAR SYSTEM OF ACCOUNTING ON AN AD HOC BASIS ON THE BASIS OF A PAPER, WHICH HAS BEEN FOUND AT TH E TIME OF SEARCH, PREPARED BY AN ACCOUNTANT OF THE COMPANY FO R A PARTICULAR PURPOSE, WHICH WAS REQUIRED TO BE PROPER LY EVALUATED BY THE ASSESSING OFFICER BEFORE JUMPING T O THE CONCLUSION IN THE MANNER WHICH HAS BEEN DONE. 5.21 IN SO FAR AS THE VALUATION OF CLOSING STOCK IS CONCERNED, THE CIT(A) FOUND THAT ERRONEOUS STAND HAS BEEN TAKE N BY THE ASSESSING OFFICER AS REFLECTED IN PARA 18 OF THE RE MAND REPORT BY STATING AS UNDER: 'THE ASSESSEE CLAIMS THAT' THERE IS NO REALISTIC RE ALIZED REFLECTION OF ANY ASSETS INCLUDING STOCK AT COST OU T OF EXCEPTIONAL HUGE PROFIT BY A. 0 WITHOUT ANY BONAFID E ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 43 AUTHENTICATE GROUND. THEREFORE THE HUGE ADDITION IS MADE BY AO IS TOTALLY UNJUSTIFIED AND HENCE NOT TENABLE. ' THE CLAIM OF THE ASSESSEE IS INCORRECT IN VIEW OF T HE FACT THAT THE PAPER NO 17 SHOWS THE VALUE OF THE PLOT AT RS 7,99,10,613/-. THESE PAPERS WERE FOUND AND SEIZED I N THE OFFICE PREMISES OF THE ASSESSEE ON WHICH ASSESS EE IS RELYING FOR ITS DAY TO DAY FUNCTIONING AND AS SUCH THE ASSETS CAN BE TREATED AS REALIZABLE AND GENUINE. PA RA NO 13.8 MAY ALSO BE CONSIDERED ON WHICH IT IS DISCUSSE D THAT SUCH GENERATION OF PROFIT AND ACCUMULATION THERE OF IN THE LAND VALUE CAN NOT BE IGNORED . IN THE CIRCUMST ANCES THE SUBMISSION MADE BY THE ASSESSEE HAS NO MERITS. THE VALUE OF STOCK IN TRADE AVAILABLE WITH THE ASSESSEE TO THE AMOUNT OF RS 9 CRORES IS A REFLECTION OR INVESTMENT IN ASSETS. ON ONE SIDE, THE ASSESSING OFFICER HAS TAKEN THE MA RKET VALUE OF THE CLOSING STOCK AND THEREAFTER CALLED IT INVES TMENT IN THE ASSETS WHICH IS NOT JUSTIFIED. ANOTHER WRONG STAND WHICH THE ASSESSING OFFICER HAD TAKEN WAS THAT THE INFORMATIO N DEPICTED ON PAGE 17 AS ON THE DATE OF SEARCH AND AS NOTED BY THE CIT(A) ABOVE, THE SAME WAS NOT TRUE. THE RESULTANT DETERMI NATION OF UNDISCLOSED INCOME ON THE BASIS OF THESE WRONG SURM ISES COULD, THEREFORE, NOT BE CONSIDERED AS PROPER. IN A TULKUMAR JAIN, 64 TT J (DEL) 786, HON. TRIBUNAL HAS HELD THA T THE ADDITION ON THE BASIS OF AN UNCORROBORATED SEIZED M ATERIAL ON PRESUMPTIONS/ASSUMPTIONS WITHOUT BRINGING ANY CORROBORATIVE MATERIAL EVIDENCE IN SUPPORT IS NOT J USTIFIED. ACCORDING TO THE CIT(A), THE ASSESSING OFFICER HAS NOT INDICATED ANY PURCHASE OR SALE OUTSIDE THE BOOKS OF ACCOUNTS OR HAS EVEN TRIED TO EXAMINE THE POSITION IN THIS REGARD. AS AGAINST ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 44 THIS, IN THE SUBMISSION DATED 22.12.2003, THE ASSES SEE HAS DELINEATED THE POSITION OF PROFIT AS PER PAGE NO. 1 7 AND THE VARIANCE IN SALES HAVE BOTH BEEN RECONCILED PROJECT WISE AND ALL THIS IS GIVEN IN ANNEXURE-11 TO THE APPELLATE O RDER. IN SATNAMSINGH CHABRA, 74 TT J (LUCKNOW) 976, THE ITAT HAS HELD THAT UNCORROBORATED LOOSE PAPERS FOUND DURING SEARCH CANNOT BE TAKEN AS A SALE FOR THE ESTIMATION OF UND ISCLOSED INCOME. THE ITAT PUNE BENCH IN THE CASE OF KHOPADE KISHANRAO MANIKRAO VS. ACIT, 250 ITR 18 (AT) AND TH E ITAT, DELHI BENCH IN THE CASE OF AMARJIT SINGH BAKSHI (HU F) VS. ACIT (DECISION OF THIRD MEMBER) 263 ITR 75 (AT) HAS TAKEN SIMILAR VIEW. 5.23 IN VIEW OF THE AFORESAID DISCUSSION ON VARIOUS ASPECTS OF THE ISSUES INVOLVED AND AFTER GOING THROUGH THE SUB MISSIONS OF THE APPELLANT AND FACTS OF THE CASE, THE CIT(A) CON CLUDED THAT PAGE 17 BUNDLE NO.2 GIVES A ROUGH WORKING OF THE ES TIMATED PROFITS OF THE COMPANY FROM DIFFERENT PROJECTS WHIC H WOULD ARISE IN FUTURE. THE STAND OF THE ASSESSING OFFICER THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG IS CORRECT BUT THAT WOULD NOT PERMIT THE ASSESSING OFF ICER TO TAKE THE VALUE OF THE STOCK AT MARKET VALUE AS AGAINST T HE COST. FURTHER MORE, THE ASSESSING OFFICER HAS HIMSELF ADM ITTED THAT ONLY WHEN POSSESSION IS GIVEN OR SALE DEEDS EXECUTE D, AMOUNT ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 45 RECEIVED BY THE ASSESSEE IS TREATED AS ADVANCE AGAI NST SALE OF PLOTS AND THEREFORE NOT AKIN TO TAXABLE RECEIPTS FO R THE BLOCK PERIOD. IN VIEW OF THIS THE CIT(A) HELD THAT THE AS SESSING OFFICER HAS NOT FOUND ANY DEFECTS EITHER IN THE BOOKS OF AC COUNTS OR IN THE METHOD OF ACCOUNTING OF THE APPELLANT. THE ASSE SSEE HAS BEEN ABLE TO EXPLAIN THE POSITION AS GIVEN IN PAGE NO. 17 WITH THE BOOKS OF ACCOUNTS AND THE STAND OF THE ASSESSIN G OFFICER THAT BOOKS OF ACCOUNTS WERE NOT THERE IS NOT BORNE OUT BY EVIDENCE GATHERED AT THE TIME OF SEARCH OR RECORDS OF THE ASSESSING OFFICER. CONSIDERING ALL THESE ASPECTS, I T WOULD NOT BE POSSIBLE TO SUSTAIN THE ADDITION MADE BY THE ASSESS ING OFFICER. 6. BEFORE US THE LEARNED DR RELIED ON DECISION OF A .O AND SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN NOT CONSIDERING THE RECASTED TRADING P & L A/C IN THE BLOCK ASSESSM ENT ORDER MADE ON THE BASIS OF ENTRIES BORNE OUT FROM SEIZED PAPER NO. 17 AND 55 WHICH DEPICTED THE FINAL CONSOLIDATED POS ITION OF BUSINESS AFFAIRS OF THE ASSESSEE FOR THE BLOCK PERI OD. FURTHER, THE CIT(A) WAS ALSO NOT JUSTIFIED IN DELETING THE ADDITION OF UNDISCLOSED PROFITS OF RS. 7.66 CRORES BY ADOPTING DIFFERENT METHODS OF VALUATION FOR OPENING AND CLOSING STOCK. THE CIT(A) ERRED IN NOT PROPERLY APPRECIATING THE ISSUES OF BO OKS OF ACCOUNTS AND H CLOSING STOCK AS NO BOOKS WEE PRODUC ED EITHER BEFORE THE CT(A) OR BEFORE THE ASSESSING OFFICER AN D ALSO THAT ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 46 THE CORRECTNESS OF THE VALUATION OF CLOSING STOCK O F LAND AS NOT PROPERLY VERIFIED. THE CIT(A) WAS NOT JUSTIFIED IN CONSIDERING THE REMAND REPORT DATED 20-2-2004 OF THE ASSESSING OFFICER AS ALSO THE ADJOURNMENT LETTER DATED 13-2-2004 AND 17- 2-2004. IN THIS BACKGROUND, IT WAS SUBMITTED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFIC ER BE CONFIRMED. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A) AND REIT ERATED THE SUBMISSIONS MADE BEFORE HIM AND SUBMITTED THAT THE REASONED AND DETAILED ORDER OF THE CIT(A) SHOULD BE UPHELD. 7. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERI AL ON RECORD, WE FIND THAT THERE WAS A SEARCH ON THE ASSE SSEE ON 11.04.2001. IN RESPONSE TO THE NOTICE U/S. 158BC, T HE ASSESSEE FILED THE RETURN DECLARING TOTAL UNDISCLOS ED INCOME OF RS. 15,57,000/-. THE LEARNED A.O. COMPLETED THE ASS T. BY DETERMINING THE TOTAL UNDISCLOSED INCOME OF RS. 7,8 1,85,884/- BY MAKING THE ADDITION OF RS. 7,66,28,884/-. THE A. O. HAS MADE THE ADDITION OF RS. 7,66,28,884/- ON THE BASIS OF LOOSE PAPER NOS. 17 & 55 OF BUNDLE NO. 2 FOUND DURING THE COURSE OF SEARCH. THE SAID LOOSE PAPER NO 17 HAS ALSO BEEN PL ACED ON PAGE 1 OF THE PAPER BOOK AND PAPER NO. 55 IS GIVEN ON RECORD. ACCORDING TO THE A.O., THE SAID LOOSE PAPER NO. 17 GIVES THE DETAILS OF THE PROJECTS OF THE ASSESSEE, LAND COST, AMOUNT PAID, ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 47 AMOUNT TO BE PAID, TOTAL SALES OF LAND, AMOUNT RECE IVED, AMOUNT RECEIVABLE, PURCHASE AREA, SOLD AREA, STOCK AND VALUE OF STOCK IN RESPECT OF DIFFERENT PROJECTS CARRIED O UT BY THE ASSESSEE. THE A.O. HAS STATED THAT THE NOTINGS ON T HE SAID LOOSE PAPER REGARDING THE EXPENSES OF RS. 5.04 CROR ES FOR DEVELOPMENT AND ADMINISTRATIVE EXPENSES TALLIED WIT H THE AMOUNTS RECORDED IN THE BOOKS. HOWEVER, ACCORDING T O THE A.O., THE FIGURE OF SALES AND STOCK NOTED ON THE SE IZED PAPER ARE NOT RECONCILED WITH THE AMOUNT RECORDED IN THE BOOKS. FURTHER, THE A.O. HAS STATED THAT THE ASSESSEE HAS NOT MAINTAINED ANY BOOKS OF ACCOUNTS AND HENCE, THE FIG URES ON THE LOOSE PAPER CANNOT BE RECONCILED WITH THE DISCL OSED INCOME. THE A.O. HAS HELD THAT WHEN THE FIGURES PER TAINING TO EXPENSES NOTED ON THE LOOSE PAPER HAVE TALLIED, THE OTHER FIGURES OF SALES, PURCHASES AND STOCK VALUATION NOT ED ON THE SAID PAPER ARE ALSO TO BE CONSIDERED AS TRUE AND CO RRECT. THUS, HE HAS DRAWN THE TRADING ACCOUNT BY CONSIDERING THE FIGURES OF SALES, PURCHASE, EXPENSES AND CLOSING STOCK NOTED O N THE SAID PAPER. ACCORDINGLY, HE HAS WORKED OUT THE PROFIT AT RS. 8,46,10,501/- AND AFTER DEDUCTING THE PROFIT DISCLO SED BY THE ASSESSEE IN THE RETURNS FILED PRIOR TO SEARCH, THE A.O. HAS WORKED OUT THE UNDISCLOSED INCOME OF RS. 7,66,28,88 4/-. ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 48 8. THE STAND OF THE ASSESSEE BEFORE US HAS BEEN THA T THE ADDITION MADE BY THE A.O. OF RS. 7,66,28,884/- IS N OT JUSTIFIED AT ALL. THE A.OS FINDING THAT THE ASSESSEE DID NOT MAINTAIN BOOKS OF ACCOUNTS IS NOT CORRECT. THE ASSESSEE HAD MAINTAINED REGULAR BOOKS OF ACCOUNTS. IN FACT, DURING THE COUR SE OF HEARING, THE ASSESSEE SUBMITTED A NOTE GIVING THE R EFERENCES TO VARIOUS NOTINGS OF THE A.O. IN THE ASSESSMENT ORDER AND HIS REMAND REPORTS WHEREIN REFERENCE TO THE BOOKS OF AC COUNTS MAINTAINED BY THE ASSESSEE HAS BEEN MADE BY HIM ONL Y. THUS, THE CONSTANT CONTENTION OF THE A.O. THAT THE ASSESS EE HAD NOT MAINTAINED THE BOOKS IS NOT JUSTIFIED. 8.1 IT WAS SUBMITTED THAT PROPER BOOKS OF ACCOUNTS WERE MAINTAINED BY THE ASSESSEE. IN FACT, THE LEARNED CI T(A) HAS NOTED THIS FACT THAT THE ASSESSEE HAS MAINTAINED PR OPER BOOKS OF ACCOUNTS. IN PARA 4.6.4, PAGE 21 OF THE ORDER, T HE CIT(A) HAS RIGHTLY HELD THAT THE ASSESSEE MAINTAINED PROPER BO OKS OF ACCOUNTS. EVEN IN THE SHOW CAUSE NOTICE ISSUED BY T HE A.O., THERE IS A REFERENCE TO THE BOOKS OF ACCOUNTS MAINT AINED BY THE ASSESSEE. IN CASE, THE BOOKS OF ACCOUNTS ARE NOT MA INTAINED, HOW, THE A.O. COULD MAKE REFERENCE OF THE SAME IN T HE SHOW CAUSE NOTICE. 8.2 THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSMENT FOR SOME OF THE YEARS FALLING WITHIN THE BLOCK PERIOD W ERE ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 49 COMPLETED PRIOR TO SEARCH AND THE COPIES OF THE ASS T. ORDERS ARE GIVEN ON PAGE 367 TO 373 OF THE PAPER BOOK FILE D BEFORE US. THE COPIES OF THE INCOME TAX RETURN AND THE BALANCE SHEET ARE ALSO GIVEN FOR THE VARIOUS YEARS FROM PAGE 218 TO 3 66 OF THE PAPER BOOK. IT IS SUBMITTED THAT FOR A.Y. 1997 - 98 , THE LEARNED A.O. HAS COMPLETED THE ASSESSMENT U/S 143(3) AND HA S CLEARLY NOTED THAT THE ASSESSEE HAS MAINTAINED REGULAR BOOK S OF ACCOUNTS. ACCORDINGLY, THE ASSESSEE SUBMITTED THAT IT HAD MAINTAINED PROPER BOOKS OF ACCOUNTS AND THE CONTENT ION OF THE A.O. THAT NO BOOKS OF ACCOUNTS WERE MAINTAINED IS NOT JUSTIFIED. 8.3 SECONDLY, ON MERITS, IT WAS SUBMITTED THAT THE A.O. HAD TOTALLY ERRED IN MAKING THE ADDITION OF RS. 7 .66 C RORES. ON THE BASIS OF LOOSE PAPER NO. 17 FOUND DURING THE COURSE OF SEARCH. IT WAS SUBMITTED THAT THE SAID PAPER GIVES THE DETA ILS OF THE VARIOUS PROJECTS CARRIED OUT BY THE ASSESSEE, THE T OTAL LAND COST, AMOUNT PAID TOWARDS LAND, AMOUNT PAYABLE TOWA RDS LAND, TOTAL SALES, AMOUNT RECEIVED TOWARDS SALES, B ALANCE AMOUNT RECEIVABLE, PURCHASE AREA, SALE AREA, CLOSIN G STOCK AND VALUE. THE ASSESSEE STATED THAT THIS PAGE WAS PREPA RED BY MRS. MEERA S. NAIR, ACCOUNTANT IN THE MONTH OF FEBR UARY, 2001 FOR MANAGEMENT PURPOSES ONLY. THIS FACT HAS BE EN DEPOSED ON OATH BY THE ACCOUNTANT IN HER AFFIDAVIT GIVEN ON ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 50 PAGE NO. 122 124 INTER ALIA, EXPLAINED THAT THE S AID PAPER WAS GIVING THE DETAILS OF THE RECEIVABLES IN THE VA RIOUS PROJECTS INCLUDING THE STOCK IN HAND WHICH WAS ALSO VALUED A T MARKET PRICE. THIS PAPER WAS ONLY A NOTE FOR THE MANAGEMEN T TO JUDGE THE RECEIVABLES INCLUDING THE MARKET VALUE OF THE S TOCK. 8.4 AS REGARDS, THE LAND COST NOTED ON THE SAID PAG E, THERE IS NO DISPUTE BETWEEN THE ASSESSEE AND THE A. O. AND THE ASSESSEE HAS ACCEPTED THE ADDITION OF RS. 15,57 ,000/- IN THE BLOCK RETURN TOWARDS THE CASH PAID FOR THE PURCHASES. THE ONLY DISPUTE WAS REGARDING THE VALUE OF SALES AND THE VALUE OF CLOSING STOCK WHICH WAS ADOP TED BY THE A.O. AS PER THE SAID PAPER AS THE CORRECT FIGUR ES FOR WORKING OUT THE INCOME. IN THIS BACKGROUND, IT WAS SUBMITTED THAT THE ASSESSEE WAS RECOGNIZING SALES O NLY WHEN THE POSSESSION WAS HANDED OVER TO THE CUSTOMER OR UPON EXECUTION OF SALE DEED WHICHEVER WAS EARLIER. THIS METHOD OF ACCOUNTING HAS BEEN ACCEPTED BY THE DEPT. PRIOR TO SEARCH. THE COPIES OF THE ASST. ORDERS FOR A.Y. 1997 - 98, 1999 - 2000,2002 - 03 AND 2003 - 04 ARE GIVEN ON PA GES 367 TO 385 OF THE PAPER BOOK. 8.5 IN CASE OF THE PLOTS FOR WHICH POSSESSION IS NOT HANDED OVER OR THE SALE DEEDS WERE NOT EXECUTED, THE AMOUN TS RECEIVED FROM THE PLOT OWNER WERE SHOWN AS AN ADVAN CE IN THE ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 51 BOOKS. THESE ADVANCES WERE TAKEN TO SALES ONLY WHEN THE POSSESSION WAS GIVEN OR THE CONVEYANCE WAS MADE. ON THE PAPER NO. 17 AND 55, THE ASSESSEE SUBMITTED THAT TH E SALES FIGURE INCLUDED ALL THE AGREEMENTS WHICH WERE MADE BY THE ASSESSEE WITH THE PURCHASERS TILL FEB, 2001. THIS I S BECAUSE FROM THE ANGLE OF THE MANAGEMENT, ALL THESE PLOTS W ERE SOLD. SO, ONLY THE REMAINING PLOTS WERE TAKEN TO THE CLOS ING STOCK. THE ASSESSEE HAS GIVEN A CHART RECONCILING THE FIGU RES OF SALES VIS--VIS THE SALES SHOWN IN THE BOOKS AS WELL THE AGREEMENTS ENTERED INTO BEFORE FEB, 2001 AND IN WHICH THE ADVA NCES RECEIVED FROM THE CUSTOMERS ARE SHOWN IN THE BALANC E SHEETS. 8.6 THE ASSESSEE ALSO CLAIMED TO CO RELATE ALL THE AMOUNTS NOTED AS SALES ON THE LOOSE PAPER WITH THE ACTUAL S ALES RECORDED IN THE BOOKS AND THE PROPOSED SALES WHICH ARE SHOWN AS ADVANCES IN THE BOOKS. FROM PAGES 3 TO 36 OF THE PAPER BOOK, IT WAS SUBMITTED THAT ALL THE FIGURES NOTED O N THE LOOSE PAPER ARE CO RELATED WITH THE AMOUNTS AS PER BOOKS. FOR INSTANCE IN RESPECT OF PROJECT SAIRANG VILLA, THE AMOUNT OF SALES NOTED ON THE SEIZED PAPER WAS RS. 5,28,46,912 /- WHILE THE AMOUNT RECORDED IN THE BOOKS WAS RS. 3,35,54,45 0/-. FURTHER, THE AMOUNT OF RS. 1,93,92,462/- WAS PERTA INING TO THE PENDING AGREEMENTS IN RESPECT OF WHICH THE POSS ESSION HAD NOT BEEN HANDED OVER OR CONVEYANCE WAS NOT MADE . IN ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 52 CASE, THE FIGURE OF ACTUAL SALES AND THE PROPOSED S ALE TRANSACTIONS ADDED I.E. (RS. 3,35,54,450 + RS. 1,93 ,92,462), ONE CAN ARRIVE THE AMOUNT OF SALES NOTED ON THE SEI ZED PAPER. ACCORDINGLY, IT WAS ATTEMPTED TO CLARIFY THAT THE A MOUNT OF SALES NOTED ON THE SEIZED PAPER TALLY WITH THE AMOU NT OF SALES RECORDED IN THE BOOKS AND THE PROPOSED SALE TRANSAC TIONS. SIMILAR EXERCISE HAS BEEN CARRIED OUT IN RESPECT OF THE OTHER PROJECTS OF THE ASSESSEE. 8.7 THE ASSESSEE ALSO CLARIFIED THAT IN RESPECT OF ALL THE PROJECTS WHOSE DETAILS WERE NOTED ON THE SEIZED PAP ER, THE FIGURE OF SALES TALLY WITH THE BOOKS OF ACCOUNTS AS PER THE RECONCILIATION EXPLAINED ABOVE. IT WAS ALSO POINTED OUT THAT IN RESPECT OF PROJECT SAIRANG PARADISE, THE AMOUNT OF SALES AND THE PROPOSED SALES AS PER BOOKS IS MORE THAN RS. 1, 61,401/- VIS--VIS THE AMOUNT NOTED ON THE SEIZED PAPER. THI S WAS BECAUSE, THE SEIZED PAPER WAS WRITTEN IN FEB, 2001 WHILE THE BOOKS OF ACCOUNTS WERE TAKEN INTO CONSIDERATION TIL L 11TH APRIL, 2001 I.E. THE DATE OF SEARCH. THERE WAS A SALE IN T HE MONTH OF MARCH, 2001 OF RS. 1,61,401/- WHICH WAS NOT CONSIDE RED WHILE PREPARING THE SEIZED PAPER AND HENCE, THE AMOUNT DO ES NOT TALLY TO THAT EXTENT. 8.8 ASSESSEE ATTEMPTED TO RECONCILE THE FIGURE OF AMOUNT RECEIVED AS PER BOOKS ON ACCOUNT OF SALES AND PROPO SED SALE ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 53 TRANSACTIONS VIS--VIS THE AMOUNT NOTED ON THE SEIZ ED PAPER. IT WAS SUBMITTED THAT THE FIGURES WERE RECONCILED. FUR THER, THE AMOUNTS AS PER BOOKS OF ACCOUNTS WERE MORE THAN THE AMOUNT NOTED ON THE SEIZED PAPER. THIS IS BECAUSE THE SEIZ ED PAPER IS WRITTEN IN FEB, 2001 WHILE THE BOOKS OF ACCOUNTS AR E TAKEN ARE TILL 11 TH APRIL, 2001 I.E. THE DATE OF SEARCH. NOW, SOME OF T HE AMOUNTS WERE RECEIVED FROM MARCH TO APRIL AND HENCE , THE AMOUNT AS PER THE BOOKS WAS MORE. THE ASSESSEE HAD ALSO GIVEN THE DETAILS OF THE AMOUNTS RECEIVED IN MARCH AND APRIL 2001 IN ITS PAPER BOOK NO 2 ON PAGES 401 - 413. ACC ORDINGLY, IT IS SUBMITTED THAT ALL THE SALES NOTED ON THE SEI ZED PAPER, AMOUNTS RECEIVABLE AND AMOUNTS RECEIVED ARE DULY RE CONCILED WITH THE CORRESPONDING FIGURES IN THE BOOKS OF ACCO UNTS AND THEREFORE, THERE ARE NO SALES OUTSIDE THE BOOKS OF ACCOUNTS NOR WAS THERE ANY UNACCOUNTED INCOME INVOLVED IN SEIZED PAPER. 8.9 ASSESSEE FURTHER, SUBMITTED THAT THE ADDITION HAS BEEN MADE BECAUSE OF THE FACT THAT WHILE PREPARING THE S EIZED PAPER, THE CLOSING STOCK HAS BEEN CONSIDERED AT MAR KET VALUE AS AGAINST THE VALUATION AT COST. THE ASSESSEE HAD BEEN VALUING THE CLOSING STOCK AT COST. HOWEVER, THE VAL UE OF CLOSING STOCK HAS BEEN TAKEN AT MARKET VALUE IN THE PAPER. THIS WAS APPARENT FROM THE SEIZED PAPER ITSELF. FOR EXAMPLE, IN RESPECT OF PROJECT SAIRANG VILLA, THE TOTAL AREA IS 12,71,8 33 SQ. FT WHILE ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 54 THE TOTAL LAND COST IS RS. 1,27,15,000/-. THE AREA SOLD WAS 11,64,224 SQ FT. AND THE BALANCE AREA WAS LYING AS CLOSING STOCK. IN CASE, THE COST PER SQ. FT. IT WOULD COME TO RS. 9.99. THE AREA OF CLOSING STOCK WAS 1,07,609 AND HENCE, I F WE VALUE THE CLOSING STOCK AT COST, THE VALUATION COMES TO R S. 10,75,808. HOWEVER, THE VALUE OF CLOSING STOCK IS C ONSIDERED AT RS. 42,04,360 WHICH IS AROUND 4 TIMES THE COST PER SQ. FT. ACCORDINGLY, SINCE THE CLOSING STOCK HAS BEEN VALUE D AT MARKET VALUE AS AGAINST COST, NATURALLY WHILE PREPARING TH E TRADING ACCOUNT, THE PROFITS HAVE INCREASED. THUS, BY CONSI DERING THE CLOSING STOCK AT MARKET VALUE AS AGAINST COST, THE PROFITS HAVE INCREASED WHILE WORKING OUT THE TRADING ACCOUNT AS PER THE FIGURES MENTIONED ON THE SEIZED PAPER. IN RESPECT O F OTHER PROJECTS, SIMILAR DIFFERENCE WAS NOTED ON ACCOUNT O F CLOSING STOCK DUE TO THE FACT THAT THE CLOSING STOCK HAD BE EN CONSIDERED AT MARKET VALUE AS AGAINST COST. THE CIT (A) HAS DEALT WITH THE ABOVE ISSUES FROM PARA 4.10 ONWARDS. HE HAS RIGHTLY STATED THAT THE ASSESSEE HAS A RIGHT TO ADO PT A PARTICULAR SYSTEM OF ACCOUNTING FOR VALUATION OF ST OCK. IN THIS CASE, THE ASSESSEE'S SYSTEM IS RECOGNIZED IN LAW. H E HAS REFERRED TO THE SUPREME COURT DECISION IN THE CASE OF BERGER PAINT LTD. [188 ITR 44] WHEREIN IT HAS BEEN HELD TH AT THE STOCK SHOULD BE VALUED AT COST OR MARKET PRICE WHICHEVER IS LOWER. ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 55 THE LEARNED CIT(A) IN PARA 4.6.2 OF HIS ORDER HAS A LSO REFERRED TO THE STATEMENT OF THE MRS. MEERA NAIR, ACCOUNTANT WHERE SHE CONFIRMED THAT THE CLOSING STOCK HAS BEEN VALUED AS PER THE MARKETING VALUE OF THE PROJECT PER SQ. FT AS TOLD T O HER BY THE MARKETING PEOPLE. ACCORDINGLY, THE CIT(A) HAS RIGHT LY HELD THAT THE LEARNED A.O. HAS ERRED IN HOLDING THAT THE CLOS ING STOCK WAS NOT SHOWN AT MARKET VALUE. IN THIS BACKGROUND, WE FIND THAT THE LOOSE PAPERS DO NOT REVEAL ANY UNACCOUNTED INCOME. ALL THE FIGURES OF SALES, STOCK, RECEIVABLE, ETC, E TC. TALLY WITH THE BOOKS OF ACCOUNTS. THE A.O. HAS NOT DEMOLISHED THE ASSESSEE'S CONTENTION. IN THE REMAND REPORTS, HE HAS SIMPLY ST ATED THAT THE BOOKS ARE NOT MAINTAINED. HE HAS NOT GIVEN REAS ONED FINDING THAT THE SEIZED PAPER NOTINGS DO REFLECT AN Y UNACCOUNTED INCOME. THE A.O. HAS NOT POINTED OUT AN Y DEFECTS IN THE BOOKS OF ACCOUNTS MAINTAINED AND ALSO THE BA LANCE SHEETS AND THE RETURNS FILED PRIOR TO SEARCH. IN V IEW OF THE ABOVE, CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIO N IN QUESTION. WE UPHOLD THE SAME. 9. AS A RESULT, APPEAL OF THE R EVENUE IS DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 4 TH MARCH 2011. SD/- SD/- (G.S. PANNU) ACCOUNTANT MEMBER (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER PUNE DATED THE 4 TH MARCH 2011 ITA NO. 647/PN/04 SAIRANG DEVELOPERS BLOCK PERIOD: 1997-98 TO 2002-03 56 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)- I PUNE 4. THE CIT I PUNE 5. THE D.R, B BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, PUNE.