Smt. Chhayadevi V. Kothari, Jalna V. Income-tax Officer, Jalna

ITA 794/PUN/2010

• Counselvise Citation: 79424514 RSA 2010
• Duration Of Justice: 4 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 26-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Keywords: Unexplained investment; Unexplained expenditure; Business income; Depreciation; Business expenditure; Additional evidence; Block assessment; Onus to prove
• Section: 69C; 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.793 TO 795/PN/2010 (ASSESSMENT YEARS : 2004-05 TO 2006-07) SMT. CHHAYADEVI V. KOTHARI, PROP. OF M/S. KOTHARI UDYOG, NEAR DHAVALESHWAR MANDIR, BHOKARDAN ROAD, JALNA PAN NO AKYPK 1481F .. APPELLANT VS. ITO, WARD-1(3), JALNA .. RESPONDENT ITA NO.796 TO 798/PN/2010 (ASSESSMENT YEARS : 2004-05 TO 2006-07) ITO, WARD-1(3), JALNA .. APPELLANT VS. SMT. CHHAYADEVI V. KOTHARI, PROP. OF M/S. KOTHARI UDYOG, NEAR DHAVALESHWAR MANDIR, BHOKARDAN ROAD, JALNA PAN NO AKYPK 1481F .. RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI P.L. PATHADE DATE OF HEARING : 08-05-2014 DATE OF PRONOUNCEMENT : 30-06-2014 ORDER PER R.K. PANDA, AM : THE ABOVE CROSS APPEALS FOR THE ASSESSMENT YEARS 20 04-05 TO 2006-07 ARE DIRECTED AGAINST THE COMMON ORDER DATED 17-03-2010 OF THE CIT(A), AURANGABAD. FOR THE SAKE OF CONVENIENCE, A LL THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER. 2 ITA NO.793/PN/2010 (A.Y. 2004-05) : 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF MANUFACTURING OF MITHA M ASALA AS PROPRIETOR OF M/S. KOTHARI UDYOG. A SURVEY ACTION U/S.133A OF THE ACT WAS CONDUCTED AGAINST THE ASSESSEE ON 22-10-2005. THE A SSESSEE HAD FILED HER RETURN OF INCOME FOR THE A.Y.2004-2005 ON 31-10 -2004 DECLARING TOTAL INCOME AT RS.1,69,196/-. DESPITE SERVICE OF NOTICE U/S.148 DATED 23-05-2006 NO RETURN OF INCOME FOR A.Y.2004-05 WAS FILED. THE RETURN OF INCOME FOR A.Y. 2005-06 WAS FILED ON 31-10-2007 DECLARING TOTAL INCOME OF RS.2,93,810/-. THE A.O. HAS TREATED THE D ELAYED RETURN OF INCOME AS NON-EST. THE RETURN FOR A.Y.2006-2007 WAS FILED ON 31-10- 2007 DECLARING INCOME OF RS.90,151/-. 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE IMPUGNED ASSESSMENT YEAR THE AO OBSERVED FROM THE AUDIT REPO RT OF THE SPECIAL AUDITOR THAT THE TURNOVER AS PER THE IMPOUNDED BOOK S WAS RS.2,24,71,294/- AS AGAINST THE TURNOVER AS PER RET URN OF INCOME FILED AT RS.93,42,796/-. THUS THERE WAS A DIFFERENCE OF RS. 1,31,28,497/- IN THE TURNOVER DECLARED BY THE ASSESSEE AND THE TURNOVER AS PER THE SPECIAL AUDIT REPORT. THE AO, THEREFORE, ASKED THE ASSESSE E TO EXPLAIN THE REASON FOR THE HUGE VARIATION IN SUCH TURNOVER AND EXPLAIN AS TO WHY THE DIFFERENCE IN THE TURNOVER TO THE TUNE OF RS.1.3 CR ORE IN THE BOOKS OF ACCOUNT IMPOUNDED AND THE AUDITED FINANCIAL STATEME NTS SHOULD NOT BE TREATED AS SUPPRESSION OF TURNOVER WITH GROSS PROFI T. 3 2.2 IN RESPONSE TO THE SAID NOTICE THE HUSBAND AND GPA HOLDER OF THE ASSESSEE SHRI VINAYKUMAR KOTHARI APPEARED BEFORE TH E AO AND STATED THAT THERE ARE 2 PARALLEL BUSINESS AND THE TRANSACT IONS IN THE IMPOUNDED BOOKS RELATES TO 2 PARALLEL BUSINESSES. IT WAS CONT ENDED THAT THE AUDITOR HAS PREPARED THE TRIAL BALANCES ON THE BASIS OF IMP OUNDED BOOKS WHICH HAS AGGREGATED THE TRANSACTIONS OF BOTH THE BUSINES SES. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE THE AO H ELD THAT THIS WAS A DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO K EEP THE TURNOVER TO THE EXTENT OF RS.1,31,28,497/- OUT OF THE REGULAR BOOKS OF ACCOUNT FOR WHICH RETURN OF INCOME WAS FILED. 2.3 THE AO FURTHER NOTED THAT NO REGISTRATION CERTI FICATE WITH CENTRAL EXCISE, SALES TAX, AND MSEB IN SUPPORT OF THE SAID BUSINESS OF M/S. KOTHARI FOODS WAS PRODUCED BY THE ASSESSEE AS SUCH MANUFACTURING BUSINESS HAVING TURNOVER OF RS.1 CRORE CANNOT BE CA RRIED OUT WITHOUT PAYMENT OF EXCISE DUTY. HE FURTHER NOTED THAT THE RATE OF EXCISE DUTY, SALES TAX AND ELECTRICITY CHARGES ARE MUCH LESS FOR A BUSINESS HAVING TURNOVER OF LESS THAN RS.1 CRORE AND THEREFORE THE CLAIM OF THE ASSESSEE OF HAVING 2 PARALLEL BUSINESSES IS ONLY TO EVADE TH E REVENUE. THE AO ACCORDINGLY REJECTED THE CLAIM OF THE ASSESSEE OF H AVING 2 PARALLEL BUSINESSES. APPLYING THE RATIO OF GP @19.84%, WHIC H THE ASSESSEE HAD DECLARED IN HER REGULAR BOOKS OF ACCOUNT, THE A O DETERMINED THE GROSS PROFIT OF RS.24,04,693/- ON THE SUPPRESSED TU RNOVER AT RS.1,31,28,497/-. SIMILARLY, THE AO MADE ADDITION OF RS.4,86,172/- BEING UNEXPLAINED INVESTMENT IN PURCHASES FOR SUCH SUPPRESSED TURNOVER U/S.69 OF THE I.T. ACT. 4 2.4 THE AO FURTHER OBSERVED FROM THE REPORT OF THE SPECIAL AUDITOR THAT THERE ARE WIDE VARIATION IN THE EXPENDITURE AS PER THE IMPOUNDED BOOKS OF ACCOUNT AS WELL AS THE EXPENDITURE CLAIMED IN THE RETURN OF INCOME, THE DETAILS OF WHICH ARE AS UNDER : SR.NO. ITEMS EXPENDITURE AS PER IMPOUNDED BOOKS OF ACCOUNTS EXPENDITURE CLAIMED IN THE RETURN OF INCOME DIFFERENCE MANUFACTURING A/C : 1 COUPUN PURCHASES RS.14,97,590/- NIL RS.14,97,590/- 2 ELECTRICITY CHARGES RS.1,53,130/- RS.1,13,300/- RS,39,830/- 3 FACTORY EXPENSES RS.4,72,724/- NIL RS.4,72,724/- 4 GENERATOR EXPENSES RS.62,015/- RS.55,831/- RS,6,184/- 5 LABOUR PAYMENT RS.3,53,462/- RS.2,31,850/- RS.1,21,612/- 6 MACHINERY MAINT. RS.1,52,366/- NIL RS.1,52,366/- 7 SCHEME ACCOUNT RS.4,68,166/- NIL RS.4,68,166/- 8 TRUCK MAINTENANCE RS.2,16,654/- RS.77,600/- RS.1,39,054/- 9 WEIGHT & MEASUREMENT RS.5,400/- NIL RS.5,400/- P&L ACCOUNT : 1 ADVERTISEMENT EXP. RS.1,79,750/- RS.1,27,081/- RS.52,669/- 2 BANK COMMISSION RS.13,139/- RS.3,376/- RS.9,763/- 3 BUILDING MAINT. RS.2,080/- NIL RS.2,080/- 4 INSURANCE RS.80,181/- RS.54,720/- RS.25,461/- 5 INTEREST PAID RS.5,15,536/- RS.4,50,555/- RS.64,981/- 6 SALES TAX RS.22,173/- NIL RS.22,173/- 7 TOUR EXPENSES RS.5,65,955/- NIL RS.5,65,955/- 8 TRANSPORTATION EXP. RS.2,75,513/- NIL RS.2,75,513/- 9 SALARY PAID RS.4,80,719/- RS.1,93,200/- RS.2,87,519/- 10 TELEPHONE RS.98,584/- RS.73,116/- RS.25,468/- TOTAL RS.42,34,805/- REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASS ESSEE THE AO MADE ADDITION OF RS.42,34,805/- U/S.69C OF THE INCOME TA X ACT. 2.5 WHILE EXAMINING THE BOOKS OF ACCOUNT OF THE ASS ESSEE THE AO NOTED THAT THE ASSESSEES PERSONAL AFFAIRS AND BUSI NESS AFFAIRS ARE MIXED TOGETHER. THE BORROWED FUNDS FROM THE BANKS AS WEL L AS OTHER INDIVIDUALS AND CONCERNS HAVE BEEN UTILIZED EITHER FOR INVESTMENT IN PERSONAL ASSETS OR HAS BEEN WITHDRAWN FOR UNKNOWN D ESTINATION. FROM THE REPORT OF THE SPECIAL AUDITORS HE OBSERVED THAT THE TOTAL FUNDS 5 DIVERTED FOR UNKNOWN DESTINATION IS RS.5,63,865/-. SIMILARLY, CERTAIN FUNDS HAVE BEEN DIVERTED FOR INVESTMENT IN HOUSE. SINCE THE ASSESSEE WAS PAYING INTEREST @12% ON HER INTEREST BEARING FU NDS EITHER FROM THE BANKS OR FROM INDIVIDUALS THE AO DISALLOWED AN AMOU NT OF RS.67,663/- BEING INTEREST @12% ON RS.5,63,865/- BEING INTEREST BEARING BORROWED FUNDS DIVERTED FOR NON-BUSINESS PURPOSES. 2.6 THE AO FURTHER OBSERVED FROM THE SPECIAL AUDIT REPORT THAT ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 40A (3) BY MAKING CASH PAYMENT EXCEEDING RS.20,000/-. SUCH EXPENSES WERE INCURRED BOTH FOR PURCHASES AS WELL AS FOR EXPENSES. REJECTING THE V ARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE THE AO MADE ADDITION OF RS.57 ,960/- AND RS.12,50,401/- U/S.40A(3) BEING EXPENSES INCURRED I N CASH EITHER BY ACCOUNT PAYEE CHEQUE OR BANK DRAFT TOWARDS EXPENSES AND PURCHASES RESPECTIVELY. THUS, THE AO MADE ADDITION OF RS.87, 01,694/- TO THE TOTAL INCOME OF THE ASSESSEE. 3. BEFORE THE CIT(A) THE ASSESSEE STRONGLY CHALLENG ED THE ASSESSMENT MADE BY THE AO AND MADE DETAILED WRITTEN SUBMISSIONS. IT WAS SUBMITTED THAT THE BUSINESS NAMELY M/S. KOTHARI UDYOG AND M/S. KOTHARI FOODS WERE CARRIED ON FROM THE SAME PREMISE S AND AS THE NATURE OF BUSINESS WAS ALMOST THE SAME THE BOOKS OF ACCOUNTS WERE MAINTAINED IN A SINGLE REGISTER FOR THE TIME BEING AND THE SAME WERE SUBSEQUENTLY SEPARATELY RECORDED IN THE COMPUTERIZE D BOOKS OF M/S. KOTHARI UDYOG AND M/S. KOTHARI FOODS CARRIED OUT BY THE ASSESSEE AND HER HUSBAND SHRI VINAYKUMAR KOTHARI RESPECTIVELY. IT WAS ARGUED THAT THE AO REJECTED THE CLAIM OF THE ASSESSEE ON THE GR OUND THAT THERE WAS NO SEPARATE EVIDENCE AND NO RETURN OF INCOME WAS FI LED BY SHRI 6 VINAYKUMAR KOTHARI IN RESPECT OF THE SO-CALLED PARA LLEL PROPRIETORSHIP BUSINESS UNDER THE NAME AND STYLE OF M/S. KOTHARI F OODS TILL THE DATE OF SURVEY. 3.1 THE ASSESSEE MADE THE FOLLOWING CLAIM IN SUPPOR T OF HER COMPANY OF 2 PARALLEL BUSINESSES : I. SHRI VINAYKUMAR KOTHARI HAS GOT THE SSI REGISTRA TION IN THE NAME OF M/S. KOTHARI FOODS. II. IN THE REGISTERS FOUND DURING THE SURVEY ACTION THERE IS MENTION OF THE NAME OF M/S. KOTHARI FOODS IN RESPEC T OF CERTAIN AMOUNTS. THE AO TAXED THE INCOME OF M/S. KOTHARI F OODS ON THE BASIS OF DIARIES/REGISTERS FOUND DURING SURVEY. SHRI VINAYKUMAR KOTHARI HAS FILED RETURNS OF INCOME DECL ARING THE INCOME ON ACCOUNT OF REGISTERS FOUND DURING SURVEY ACTION. III. SHRI VINAYKUMAR KOTHARI, I.E. HUSBAND OF THE A SSESSEE HAS BEEN CARRYING ON BUSINESS OF SALE OF MITHA MASALA U NDER DIFFERENT BRAND NAMES. IN STATEMENT RECORDED PURSU ANT TO THE SURVEY SHRI VINAYKUMAR KOTHARI, HUSBAND OF THE ASSE SSEE, HAS STATED THAT THE UNRECORDED SALES PERTAIN TO HIS PRO PRIETARY CONCERN NAMELY M/S. KOTHARI FOODS. IV. ON SOME OCCASIONS THE UNACCOUNTED SALE PROCEEDS HAVE BEEN RECEIVED BY CHEQUES AND THE SAME HAVE BEEN DEP OSITED IN THE PERSONAL BANK ACCOUNT OF SHRI VINAYKUMAR KOTHAR I. 3.2 BASED ON THE SUBMISSIONS MADE BY THE ASSESSEE T HE LD.CIT(A) CALLED FOR A REMAND REPORT FROM THE AO. REGARDING THE ADDITIONAL EVIDENCES FILED BEFORE HIM TO SUPPORT THE EXISTENCE OF ANY PROPRIETARY CONCERN OF HUSBAND OF THE ASSESSEE SHRI VINAYKUMAR KOTHARI UNDER THE NAME AND STYLE OF M/S. KOTHARI FOODS, JALNA, THE AO CALLED FOR INFORMATION U/S.133(6) FROM THE GENERAL MANAGER, DI STRICT INDUSTRIES CENTRE, JALNA. AFTER OBTAINING THE INFORMATION FRO M THE GENERAL MANAGER, DISTRICT INDUSTRIES CENTRE, JALNA THE AO S TATED BEFORE CIT(A) THAT THE HUSBAND OF THE ASSESSEE HAD MERELY MADE AN APPLICATION FOR PROVISIONAL REGISTRATION AS A SMALL SCALE INDUSTRY AND NOT FOR GRANTING 7 SSI REGISTRATION WHICH WAS ACCEPTED BY THE AUTHORIT Y ON 01-09-2003. IT WAS STATED THAT SUCH APPLICATION FOR PROVISIONAL RE GISTRATION WAS FOR M/S. KOTHARI FOOD PRODUCTS AND NOT FOR M/S. KOTHARI FOODS. FURTHER, THE APPLICATION WAS SIGNED AND SEALED BY SHRI VINAY KUMAR KOTHARI IN THE CAPACITY OF PARTNER AND NOT AS PROPRIETOR. THE REFORE, THE APPLICATION IN QUESTION WAS FOR A PROPOSED PARTNERSHIP BUSINESS AND NOT FOR A PROPRIETARY BUSINESS. 3.3 THE AO FURTHER STATED THAT ALONG WITH THE APPLI CATION THE ASSESSEE FURNISHED A COPY OF PARTNERSHIP DEED ON NO N-JUDICIAL STAMP PAPER OF RS.500/- AND A PROJECT REPORT. THEREFORE, THE DOCUMENTS REVEAL THAT A PARTNERSHIP DEED WAS EXECUTED ON 28-0 8-2003 BY AND BETWEEN THE ASSESSEE AND HER HUSBAND SHRI VINAYKUMA R KOTHARI HAVING SHARED PROFIT AND LOSS ACCOUNT TO THE EXTENT OF 50% EACH. THE INSPECTOR WAS DEPUTED TO INSPECT THE SITE FROM WHERE SUCH ACT IVITY WAS CARRIED ON WHO REPORTED THAT THE UNIT IN QUESTION HAD NEVER BE EN INSTALLED COMPLETELY AND THE SAME HAD NEVER BEGUN FUNCTIONING EARLIER IN THE PAST OR PRESENT. THE AO FURTHER NOTED THAT THE VAR IOUS EVIDENCES COLLECTED FROM THE GENERAL MANAGER, DISTRICT INDUST RIES CENTRE, JALNA SHOW THAT THE ASSESSEE HAD NOT FULFILLED THE REQUIR ED CRITERIA FOR THE BENEFITS OF GOVERNMENTS SCHEME FOR WHICH THE DIC, JALNA HAS REJECTED THE PROPOSAL FOR THE SCHEME VIDE THEIR LET TER DATED 18-12-2008. THE ASSESSEE WAS UNABLE TO PRODUCE ANY DOCUMENT/CIR CUMSTANTIAL EVIDENCE TO SHOW THAT THE HUSBAND OF THE ASSESSEE W AS RUNNING A PROPRIETARY CONCERN UNDER THE NAME AND STYLE OF M/S . KOTHARI FOODS. THE AO IN THE CONCLUDING PARA OF HIS REMAND REPORT SUBMITTED AS UNDER 8 WHICH HAS BEEN REPRODUCED BY THE CIT(A) AT PAGE 13 AND 14 OF HIS ORDER AND WHICH READS AS UNDER : IN VIEW OF THE FACTS STATED ABOVE, IT IS TO CONCLUDE AND SUBMIT THAT : (I) THERE HAD NEVER BEEN ANY PROPRIETARY BUSINESS OF A SSESSEES HUSBAND SHRI VINAYKUMAR R.KOTHARI UNDER THE NAME AND STYLE OF M/S. KOTHARI FOODS (II) THE SSI REGISTRATION ON WHICH THE ASSESSEE HAD RELIED IS IN RESPECT OF A PARTNERSHIP CONCERN UNDER THE NAME AN D STYLE OF M/S. KOTHARI FOOD PRODUCTS AND NOT IN RESPECT OF A PROPRIE TARY CONCERN UNDER THE NAME AND STYLE OF M/S.KOTHARI FOODS AND THAT THE PROVISIONALLY SSI REGISTERED UNIT WAS NEVER OPERATIONAL, (III) THE ADDR ESSES, TELEPHONE NUMBERS AND PIN CODE NUMBERS MENTIONED ON THE PACKING /LAMINATION MATERIAL RELATES TO THE EXISTING BUSINESS OF THE ASSESSEE O NLY AND NOT THAT OF THE SO CALLED NON EXISTENT PROPRIETARY BUSINESS OF TH E ASSESSEE'S HUSBAND UNDER THE NAME M/S.KOTHARI FOODS, (IV) IF AT A LL ANY ACTIVITIES ARE ACTUALLY BEING CARRIED OUT BY THE ASSESSEE IN HER P REMISES UNDER THE NAME OF KOTHARI FOODS OR IN ANY OTHER NAME, THAN TH E SAME ENTITY OR ENTITIES CONSTITUTES THE PROPRIETARY BUSINESS OF THE ASSESSE E AND THERE WILL BE NO DIFFERENCE, IF INCOME OF BOTH THE PROPRI ETARY CONCERNS ARE TAXED TOGETHER, (V) THE UNIT AT SURVEY NO. 65, AHAN KAR, DEVALGAON, NANDAPUR PATI, SHINDKHED RAJA ROAD, JALNA HAD NEVER BEEN INSTALLED COMPLETELY AND HAD NEVER STARTED ITS FUNCTIONING EITH ER IN THE PAST OR PRESENT AND (VI) THERE IS NO IOTA OF EVIDENCE WHICH SU GGESTS THAT THERE IS IN EXISTENCE A PROPRIETARY BUSINESS IN THE NAME AND STYL E OF M/S.KOTHARI FOODS. THEREFORE, IN THE BACKGROUND OF THE ABOVE DISCUSSIONS, ABSENCE OF CIRCUMSTANTIAL EVIDENCES, EVIDENCES COLLECTED, IMPOUN DED BOOKS OF ACCOUNT/MATERIAL, SPECIAL AUDITOR'S REMARKS, EXHAUSTIV E AND ELABORATE DISCUSSIONS MADE ON EACH AND EVERY ISSUE WHILE PASSING THE ASSESSMENT, THE CLAIM OF THE ASSESSEE FOR TWO SEPARATE ENTITIES INCL UDING TAXING THE INCOMES IN THE HANDS OF TWO SEPARATE INDIVIDUALS DESERVE S TO BE REJECTED AS THE AFORESAID SO CALLED ENTITY IN THE NAME OF M/S. K OTHARI FOODS EVEN IF CREATED APPEARS WAS MERELY CREATED FOR THE PURPOSES OF DIVERSION OF THE TURNOVER OF ASSESSEE'S BUSINESS VIZ. M/S. KOTHARI UDYOG, JA LNA, TO AVOID EXCISE DUTY IMPLICATIONS. ' 4. AS REGARDS THE CONTENTION OF THE ASSESSEE THAT T HE AO HAS TAXED THE INCOME ON THE BASIS OF DIARIES /REGISTERS FOUND DURING SURVEY, THE A.O. POINTED-OUT IN THE REMAND REPORT THAT THE REGU LAR BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WERE FOUND IN SURVEY ACT ION WHICH WERE IMPOUNDED AND ON THE BASIS OF THE SAME THE INCOME W AS TAXED IN THE HANDS OF THE ASSESSEE AND NOT ON THE BASIS OF REGIS TERS AND DIARIES AS CLAIMED BY THE ASSESSEE. 9 4.1 AFTER CONSIDERING THE SUBMISSION BY THE ASSESSE E AND REMAND REPORT OF THE AO, THE LD.CIT(A) REJECTED THE THEORY OF 2 SEPARATE CONCERNS, ONE BY THE ASSESSEE AND THE OTHER BY HER HUSBAND. HE HELD THAT THE SALE AND INCOME FOUND IN SURVEY ACTION IN RESPECT OF THE BUSINESS OF MITHA MASALA BELONG TO THE ASSESSEE ONL Y AND NO PART OF THE SAME BELONG TO HER HUSBAND SHRI VINAYKUMAR KOTHARI. THE ASSESSEE IS NOT IN APPEAL AGAINST THE ABOVE OBSERVATION OF THE CIT(A). THEREFORE, WE ARE NOT CONCERNED WITH THE SAME. 4.2 HOWEVER, AS REGARDS THE ADDITION ON ACCOUNT OF GROSS PROFIT OF RS.26,04,693/- IS CONCERNED HE DIRECTED THE AO TO DELETE THE SAME AND INSTEAD ADD THE NET PROFIT DECLARED BY HER HUSBAND IN THE PROFIT AND LOSS ACCOUNT FILED BY HIM UNDER THE NAME AND STYLE OF M/ S. KOTHARI FOODS. HE ALSO GAVE SOME RELIEF TO THE ASSESSEE ON ACCOUNT OF EXPENSES WHICH WERE NOT CLAIMED IN THE PROFIT AND LOSS ACCOUNT BUT WERE RECORDED BY THE SPECIAL AUDITOR FROM THE IMPOUNDED BOOKS. THE RELEVANT OBSERVATION OF THE CIT(A) READS AS UNDER : 5. THE FIRST ADDITION CONTESTED FOR ALL THE ASSESSMENT YEARS IN APPEAL IS GROSS PROFIT ADDITION ON SUPPRESSED SALES OF THE BUSINESS OF THE APPELLANT. ON THE BASIS OF IMPOUNDED BOOKS AND THE RE PORT OF THE SPECIAL AUDITOR THE A.O. HAS WORKED-OUT THE TOTAL SALES OF TH E APPELLANT'S BUSINESS, SALES DECLARED BY THE APPELLANT IN RETURN OF I NCOME FILED AND THE UNDISCLOSED SALES. THE A.O. HAS WORKED-OUT GROSS PR OFIT ON UNDISCLOSED SALE ON THE BASIS OF THE GROSS PROFIT PERCENTAGE SHOWN BY THE APPELLANT ON THE DISCLOSED SALES. THE DETAILS OF THE SAME ARE AS UNDE R: A.Y. SALES AS PER IMPOUNDED BOOKS SALES DECLARED BY THE APPELLANT DIFFERENCE IN SALES GROSS PROFIT APPLIED GROSS PROFIT ADDITION 04 - 05 2,24,71,294 93,42,796 1,31,28,497 19.84% 26,04,693 05 - 06 3,74,28,724 97,21,986 2,77,06,738 29.67% 82,20,589 06 - 07 1,97,95,411 77,01,430 *97,31,716 1,20,93,981 20.60% 24,91,360 10 * ACTUAL SALE DECLARED BY THE APPELLANT FOR A.Y.2 006-2007 IS RS.97,31,716/-. 5.1 THE APPELLANT HAS CLAIMED THAT THE GROSS PROFIT P ERCENTAGE APPLIED BY THE A.O. IS ON HIGHER SIDE AS THE BRANDS OF MITHA M ASALA WERE ENTIRELY NEW IN THE MARKET AND HENCE DID NOT COMMAND ANY PREMIU M. THE APPELLANT HAS CLAIMED THAT THE FIGURES OF UNDISCLOSED SALES WERE INCORRECTLY ARRIVED AT. THE APPELLANT HAS FURTHER POIN TED-OUT THAT THE A.O. WHILE ARRIVING AT UNDISCLOSED SALE OF RS. 1 ,20,93,981/- FOR THE A.Y.2006-2007 HAS NOT CONSIDERED SALES OF POST-SURVEY PERIOD AMOUN TING TO RS.20,30,286/-. 5.2 IN VIEW OF THE ABOVE CLAIMS OF THE APPELLANT, I T IS NECESSARY VERIFY THE SALES AND THE GROSS PROFIT DECLARED BY SHRI VINAYK UMAR KOTHARI ON THE SAID UNDISCLOSED SALE ACCEPTED AND RETURNED BY HIM AFTER SURVEY ACTION ON THE APPELLANT. THE DETAILS OF YEAR-WISE SA LES, GROSS PROFIT, NET PROFIT, DISALLOWANCE U/S.40A(3) AND TAXABLE INCOME OF M/S. KOTHARI FOODS OFFERED TO TAX BY SHRI VINAYKUMAR KOTHARI, I.E. T HE HUSBAND OF THE APPELLANT, ARE AS UNDER : A.Y. SALES GROSS NET PROFIT DISALLOWANCE TOTAL PROFIT U/S.40A(3) TAXABLE INCOME OF M/S.KOTHARI FOODS 04 - 05 1,31,48,500 33,46,873 1,81,553 9,59,756 11,49,309 05 - 06 2,67,68,924 1,08,79,954 51,97,912 34,65,018 86,62,930 06 - 07 1,03,78,462 27,73,808 11,46,286 18,70,854 30,17,140 5.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER OF THE A. O., SUBMISSION OF THE APPELLANT AND OTHER RELEVANT RECORD. ON PERUSAL OF THE SAME, IT IS NOTICED THAT THE APPELLANT HAS ARRIVED AT GROSS PROFIT MORE THAN THE SAME WAS WORKED-OUT AND TAXED BY THE A.O. FOR A RRIVING AT THE GROSS PROFIT AND ALSO THE NET PROFIT, THE HUSBAND OF THE A PPELLANT SHRI VINAYKUMAR KOTHARI HAS PREPARED BOOKS OF ACCOUNTS. THE NET PROFIT OF THE SAID BUSINESS OF KOTHARI UDYOG CLAIMED TO HAVE BEEN CARRIED OUT BY SHRI VINAYKUMAR KOTHARI IS OFFERED TO TAX AFTER CLAIMING EXPENSES INCURRED FROM THE ABOVE GROSS PROFIT. THE A.O. WHILE TAXING TH E GROSS PROFIT HAS NOT ALLOWED ANY EXPENSES WHICH ARE OF REVENUE NATURE. T HE APPELLANT HAS RAISED GROUND NO.4 CLAIMING THAT THE GROSS PROFIT WAS TAXED B Y THE A.O. WITHOUT REDUCING THE OTHER BUSINESS EXPENSES, WHICH ARE ALSO NOTE D IN THE BOOKS/DOCUMENTS IMPOUNDED DURING THE SURVEY. THE CLAI M OF THE APPELLANT IS REASONABLE AND HENCE ACCEPTABLE. THE DET AILS OF EXPENDITURE CLAIMED BY THE APPELLANT AND HER HUSBAND IN THE PROF IT & LOSS ACCOUNT AND THE EXPENDITURE DEBITED IN PROFIT & LOSS ACCOUNT AS PER PROFIT & LOSS ACCOUNT PREPARED ON THE BASIS OF MATERIAL FOUND IN SURVEY ACTION AND ENCLOSED AS ANNEXURE C/D TO THE ORDER OF THE A.O. ARE AS UNDER: A.Y. EXPS. DEBITED TO P & L A/C AS CLAIMED BY THE APPELLANT AS PROPRIETOR OF M/S.KOTHARI UDYOG EXPS. DEBITED TO P & L A/C OF KOTHARI FOODS AS CLAIMED BY VINAYKUMAR KOTHARI TOTAL EXPENSES CLAIMED IN RETURNS FILED BY THE APPELLANT AND SHRI VINAYKUMAR KOTHARI EXPS. AS PER P & L A/C PREPARED AS PER MATERIAL IMPOUNDED AND DEPRECIATION AND BANK INTEREST 2004-2005 16,72,611 31,64,920 48,37,531 45,73,807 *6,61,976 52,35,783 11 *DEPRECIATION **BANK INTEREST & VEHICLE LOAN INTEREST 5.4 IN VIEW OF THE ABOVE FACTS AND FIGURES, IT IS N OTICED THAT THE APPELLANT HAS REASONABLY CLAIMED ACTUAL EXPENDITURE INCURRED AND HAS BIFURCATED THE SAME BETWEEN KOTHARI UDYOG AND KOTHARI FOODS. T HE CLAIM OF THE APPELLANT THAT THE EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT IS TO BE ALLOWED FROM GROSS PROFIT RAISED BY THE APPELLANT V IDE GROUND NO.4 IS ACCEPTED. THE EXPENSES DEBITED BY THE APPELLANT TO PROFIT & LOSS ACCOUNT OF KOTHARI UDYOG AND KOTHARI FOODS CLAIMED IN RETUR NS FILED BY THE APPELLANT AND HER HUSBAND ARE ALLOWABLE. HOWEVER, A S ALREADY HELD IN EARLIER PARAGRAPH, THE INCOME OF THE KOTHARI FOODS CLAIMED BY THE APPELLANT AS BELONGING TO HER HUSBAND IS TO BE ASSESSED TO TAX IN THE HANDS OF THE APPELLANT. THE A.O. IS THEREFORE DIRECTE D TO ADD NET PROFIT OF KOTHARI FOODS DECLARED BY SHRI VINAYKUMAR KOTHARI I N THE HANDS OF THE APPELLANT AND DELETE THE ADDITION OF GROSS PROFIT MAD E BY HIM. 5.5 THE ADDITION CONFIRMED AND RELIEF GRANTED ON TH E ABOVE COUNT IS AS UNDER : ASSESSMENT YEAR ADDITION OF GROSS PROFIT ADDITION CONFIRMED OF NET PROFIT RELIEF GRANTED 2004-05 26,04,693/- 1,81,553/- 24,83,140/- 2005-06 82,20,589/- 51,97,912/- 30,22,677/- 2006-07 24,91,360/- 11,46,286/- 13,45,074/- TOTAL 1,33,16,642/- 65,25,751/- 67,90,891/- THE GROUND NO.4 IS ALLOWED AS DECIDED ABOVE. 5. SO FAR AS THE ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN PURCHASES IN RESPECT OF THE UNDISCLOSED SALES IT WA S CLAIMED THAT THE ASSESSING OFFICER MADE THE ADDITION OF RS.4,86,172/ -, RS.3,52,050/- AND RS.9,03,390/- FOR THE A.YRS. 2004-05 TO 2006-07 RES PECTIVELY ON ACCOUNT OF INITIAL INVESTMENT IN UNACCOUNTED PURCHASES WITH OUT REALISING THAT THE ASSESSEE HAD SUFFICIENT FUNDS AVAILABLE OUT OF THE UNDISCLOSED SALES. IT WAS CLAIMED THAT THE SALES WERE MAINLY CASH SALES W HEREAS THE PURCHASES 2005-2006 26,08,265 56,82,042 82,90,307 72,24,833 *7,79,628 **3,21,169 83,25,530 2006-2007 18,34,763 16,27,522 34,62,285 29,10,970 *6,14,720 35,25,690 12 WERE PARTLY ON CREDIT. IT WAS ARGUED THAT RAW MATE RIAL IS AVAILABLE ON CREDIT AND THE SALES ARE ON CASH BASIS ONLY WHICH I S EVIDENT FROM THE REGISTERS SEIZED DURING THE SURVEY. THEREFORE, THE RE WAS NO NECESSITY ON THE PART OF THE ASSESSING OFFICER TO MAKE SUCH ADDI TION ON ACCOUNT OF INITIAL INVESTMENT. ALTERNATIVELY, IT WAS ARGUED T HAT THE ADDITION MADE BY THE ASSESSING OFFICER WAS ON THE HIGHER SIDE AND SO ME REASONABLE AMOUNT ONLY CAN BE ADDED AND DEFINITELY NOT HUGE AD DITION OF RS.4,86,142/- AS INITIAL INVESTMENT FOR A.Y. 2004-0 5. 5.1 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION ON ACCOUNT OF INITIAL INVESTME NT BY OBSERVING AS UNDER : 6.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDERS, R EMAND REPORT OF THE A.O. AND SUBMISSIONS OF THE APPELLANT. IT IS WELL - ESTABLISHED FACT THAT THE APPELLANT HAS CARRIED-OUT SUBSTANTIAL BUSINESS OF MANUFACTURING MITHA MASALA OUTSIDE THE BOOKS. THE INITIAL EXPENDITUR E TO BE INCURRED TOWARDS MATERIAL, LABOUR AND OTHER EXPENSES FOR MANUFA CTURING GOODS IS OUT OF THE BOOKS. THE A.O. HAS ESTIMATED THE SAID EXPEN SES FOR A.YS 2004- 2005, 2005-2006 AND 2006-2007 AT RS.4,86,172/-, RS.3, 52,050/- AND RS.9,03,090/- RESPECTIVELY AND ADDED THE SAME U/S.69C O F THE ACT. IT IS ALSO A FACT THAT THE HUSBAND OF THE APPELLANT SHRI VI NAYKUMAR KOTHARI HAS PREPARED BOOKS OF ACCOUNTS AND HAS FILED COMPUTER GENE RATED PROFIT & LOSS ACCOUNT IN RESPECT OF THE BUSINESS CARRIED-OUT OUTSID E THE BOOKS. THE SAID BOOKS OF ACCOUNTS WERE PREPARED CONSIDERING TH E MATERIAL IMPOUNDED AT THE TIME OF SURVEY ACTION U/S.133A OF TH E ACT. THE APPELLANT ARGUED THAT AS PER THE SAID BOOKS THERE IS NO DEFICIT OF CASH BALANCE. IN VIEW OF THE ABOVE FACTS AND CLAIMS OF THE APPELLANT, THE CONTENTION OF THE APPELLANT IS ACCEPTED. THE ADDITI ONS OF RS.4,86,172/- RS.3,52,050/- AND RS.9,03,090/- MADE IN THE .YS. 2004- 05, 2005-06 AND 2006-07 RESPECTIVELY IS THEREFORE DELETED. THE A.O. IS DIRECTED ACCORDINGLY. THE GROUND NO.7 FOR AYS. 2004-05, 2005 -06 AND 2006-07 IS ALLOWED. 6. SO FAR AS THE ADDITION ON ACCOUNT OF UNEXPLAINED EXPENDITURE TOWARDS PURCHASE EXPENSES U/S.69C IS CONCERNED IT W AS SUBMITTED THAT THE ADDITION IS NOT JUSTIFIED. IT WAS ARGUED THAT AS PER THE PROVISIONS OF SECTION 69C WHERE AN EXPENDITURE IS INCURRED BY THE ASSESSEE AND NO EXPLANATION IS OFFERED BY THE ASSESSEE REGARDING TH E SOURCE OF THE 13 EXPENDITURE INCURRED THEN THE AMOUNT CAN BE ADDED A S UNEXPLAINED EXPENDITURE. HOWEVER, IN THE PRESENT CASE SUBSTANT IAL SALES, WHICH ARE NOT RECORDED IN THE BOOKS, ARE FOUND FROM THE REGIS TERS. THUS THE SALE PROCEEDS WERE AVAILABLE TO THE ASSESSEE FOR INCURRI NG THE EXPENSES WHICH WERE COMPLETELY IGNORED BY THE ASSESSING OFFICER. IT WAS ARGUED THAT WHEN THE SALES ARE MADE OUTSIDE THE BOOKS THE SALE PROCEEDS ARE AVAILABLE FOR INCURRING EXPENSES WHICH ARE ALSO NOT RECORDED IN THE BOOKS. IT WAS ARGUED THAT THE QUESTION OF MAKING A NY ADDITION U/S.69C WOULD COME UP ONLY WHEN THE ASSESSEE HAS NOT BEEN A BLE TO PROVE THE SOURCE OF THE EXPENDITURE INCURRED. HOWEVER, IN TH E INSTANT CASE SUCH SOURCE CAN BE PROVED EASILY FROM THE UNACCOUNTED SA LE PROCEEDS. THEREFORE, THE ADDITION OF RS.42,34,805/- MADE U/S. 69C IS NOT WARRANTED. 6.1 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITI ON BY OBSERVING AS UNDER : 7.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDERS, R EMAND REPORT OF THE A.O. AND SUBMISSIONS OF THE APPELLANT. THE A.O. HAS MADE THE ADDITION OF UNRECORDED PURCHASES AND BUSINESS EXPENSES U/ S.69C OF THE ACT, TREATING THE SAME AS UNEXPLAINED EXPENDITURE. TH E APPELLANT SUBMITTED THAT THE SAID UNRECORDED EXPENDITURE WAS INC URRED OUT OF UNRECORDED SALES, WHICH IS MUCH MORE THAN THE SAID UNRE CORDED EXPENSES. THE ABOVE EXPLANATION OFFERED BY THE APPELL ANT IS SATISFACTORY AND HENCE ACCEPTED. THE A.O. HAS MADE ADDITIONS U/S.69 C OF THE ACT AMOUNTING TO RS.42,34,805/-, RS.66,58,018/- AND RS.17, 09,704/- FOR THE A.YS 2004-2005, 2005-2006 AND 2006-2007 RESPECTIVELY TOWARDS UNRECORDED PURCHASES AND EXPENSES OF THE BUSINESS IGNORIN G THE REASONABLE EXPLANATION ABOUT THE SOURCE OF THE SAID EX PENDITURE. IN VIEW OF THE ABOVE FACTS AND DISCUSSION, THE ADDITIONS MADE U/ S.69C OF THE ACT AMOUNTING TO RS.42,34,805/-, RS.66,58,018/- AND RS.17, 09,704/- FOR THE A.YS 2004-2005, 2005-2006 AND 2006-2007 RESPECTIVELY ARE DELETED. THE GROUND NO.8 FOR ALL THE ASSESSMENT YEARS STANDS ALLOW ED. THE A.O. IS DIRECTED ACCORDINGLY. 7. AS REGARDS THE DISALLOWANCE OF INTEREST ON NOTIO NAL BASIS FOR DIVERSION OF INTEREST BEARING FUNDS OF RS.5,63,865/ - TOWARDS NON- 14 BUSINESS PURPOSES FOR THE A.Y. 2004-05 IS CONCERNED (RS.18,48,353/- FOR A.Y. 2005-06 AND RS.25,91,131 FOR A.Y. 2006-07) IT WAS ARGUED THAT THE AO HAS NOT POINTED OUT ANY NEXUS REGARDING THE INTE REST BEARING FUNDS USED FOR NON-BUSINESS PURPOSES. IT WAS SUBMITTED T HAT THE ASSESSEE HAD SUBSTANTIAL OWN CAPITAL MORE THAN THE AMOUNT DIVER TED FOR NON-BUSINESS PURPOSES. RELYING ON VARIOUS DECISIONS IT WAS ARGU ED THAT NO DISALLOWANCE ON THIS ACCOUNT IS CALLED FOR. 7.1 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED SUCH ADDITION BY OBSERVING AS UNDER : 8.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDERS, R EMAND REPORT OF THE A.O. AND THE SUBMISSIONS OF THE APPELLANT . IT IS NOTICED THAT THE CAPITAL ACCOUNT BALANCES OF THE APPELLANT AS PER THE BALANCE SHEETS, PROFIT OF KOTHARI FOODS ASSESSED IN THE HANDS OF THE APP ELLANT WHICH IS ALSO NON-INTEREST BEARING FUND AVAILABLE WITH THE APP ELLANT AND OTHER RELEVANT DETAILS ARE AS UNDER: A.Y. CAPITAL A/C PROFIT OF AMOUNT AMOUNT BALANCE KOTHARI TREATED BY ADVANCED TO FOODS THE A.O. AS KOTHARI ASSESSED IN INTEREST - FREE FOODS THE HANDS OF ADVANCE FOR WITHOUT THE APPELLANT NON-BUSINESS INTEREST PURPOSES 2004-2005 20,05,248 1,81,553 5,63,865 - 2005-2006 21,22,515 51,97,912 18,48,353 12,00,240 2006-2007 36,45,164 11,46,286 25,91,131 11,15,119 FROM THE ABOVE FACTS AND FIGURES IT CAN BE NOTICED TH AT THE AMOUNT TREATED BY THE A.O. AS NON-INTEREST BEARING ADVANCE I NCLUDES SUBSTANTIAL AMOUNT GIVEN TO KOTHARI FOODS. NOW IT IS HELD THAT TH E PROFIT OF KOTHARI FOODS BELONGED TO THE APPELLANT ONLY AND TAXABLE IN THE HANDS OF THE APPELLANT. FURTHER THE NON-INTEREST BEARING FUNDS AVA ILABLE IN THE FORM OF CAPITAL AND ALSO PROFIT OF KOTHARI FOODS TAXED IN THE HAND OF THE APPELLANT IS MUCH MORE THAN THE ALLEGED FUNDS UTILIZE D BY THE APPELLANT FOR NON-BUSINESS PURPOSES. FURTHER, THE HON'BLE BOMBAY H IGH COURT IN THE CASE CIT VS. RELIANCE UTILITIES LTD. 221 CTR 435 H AS LAID DOWN THAT WHERE NEXUS BETWEEN INTEREST-BEARING FUNDS AND FUNDS AD VANCED WITHOUT INTEREST IS NOT ESTABLISHED BY THE A.O., THEN N ON-INTEREST BEARING ADVANCES ARE TO BE TREATED FROM OUT OF INTER EST-FREE FUNDS. HENCE, THE ADDITION MADE BY THE A.O. IS NOT JUSTIFIE D. THE A.O. IS DIRECTED TO DELETE THE ADDITIONS OF RS.67,663/-RS.2,21,802/- AN D RS.3,10,935/- FOR THE A.YS 2004-2005, 2005-2006 AND 2006-2007 RESPE CTIVELY ON ACCOUNT OF DISALLOWANCE OF INTEREST. GROUND NO.5 FOR THE A.YS 2004- 2005, 2005-2006 AND 2006-2007 STANDS ALLOWED. 15 8. AS REGARDS THE DISALLOWANCE U/S.40A(3) FOR EXPEN SES AS WELL AS THE PURCHASE OF MATERIAL BY MAKING CASH PAYMENT EXC EEDING RS.20,000/- IS CONCERNED IT WAS ARGUED THAT (A) THE AO HAS ESTIMATED THE PROFIT AND (B) THAT THE AO HAS NOT PROVED THAT THE INDIVIDUAL PAYMENTS MADE BY THE ASSESSEE IN EACH TRANSACTION E XCEEDED RS.20,000/-. IT WAS ACCORDINGLY ARGUED THAT THE AB OVE DISALLOWANCE IS NOT JUSTIFIED. IT WAS FURTHER SUBMITTED THAT THE E XPENDITURE OF RS.62,52,007/- IN RESPECT OF WHICH THE DISALLOWANCE U/S.40A(3) HAS BEEN MADE BY THE AO WERE RECORDED IN THE BOOKS. IT WAS ARGUED THAT WHEN THE AO ADOPTS GP BY REJECTING THE BOOK RESULTS , NO DISALLOWANCE U/S.40A(3) CAN BE MADE. FOR THE ABOVE PROPOSITION, THE ASSESSEE RELIED ON VARIOUS DECISIONS. IT WAS FURTHER SUBMITTED THA T ON CERTAIN OCCASIONS THE ASSESSEE HAS MADE PAYMENT IN RESPECT OF MORE TH AN 1 BILL AND INDIVIDUALLY THE BILL AMOUNT IS LESS THAN RS.20,000 /-. RELYING ON THE DECISION OF HONBLE ORISSA HIGH COURT IN THE CASE O F ALOO SUPPLY COMPANY REPORTED IN 121 ITR 680 IT WAS SUBMITTED TH AT NO DISALLOWANCE U/S.40A(3) CAN BE MADE. 8.1 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) CALLED FOR A REMAND REPORT FROM THE AO WHO SUBMITTE D AS UNDER : 'THE ABOVE REFERRED PARAS ARE RELATING TO ADDITION M ADE U/S.40A(3) OF THE I.T.ACT, 1961. THIS ISSUE IN QUESTION HAS BEEN ELABO RATELY DISCUSSED IN THE BODY OF ASSESSMENT ORDER AT PARA 5 RELYING WITH VAR IOUS JUDGMENTS OF THE HON'BLE SUPREME COURT AND HIGH COURTS. FURTHER, IN THE BODY OF ASSESSMENT ORDER, THIS ISSUE HAS MADE U/S.40A(3) OF THE I T. ACT, 1961. THE HON'BLE CIT(A) IS REQUESTED TO KINDLY CONSIDER TH E SAME. IN ADDITION TO THIS, IT IS TO SUBMIT THAT, THE SPECIAL AUDITOR HAS A LSO BEEN QUANTIFIED THE AMOUNT PAID BY THE ASSESSEE IN CONTRAVENTION TO THE PROVISIONS OF SECTION 40A(3) OF THE I.T.ACT, 1961 IN HIS AUDIT REP ORT. THE ASSESSEE HAS RELIED UPON THE FOLLOWING JUDGMENTS IN THE CASE OF: I. CIT VS. BANWARI LAL BANSIDHAR (229) ITR 22 9 (ALL.) II. CIT VS. SANTOSH JAIN (296 ITR 324 (P & H) III ACIT VS. DHANWARSHA BUILDERS & DEVELOPERS P. LTD. 102 ITD 375 16 IN THESE CASES, THE BOOK RESULTS OF THE ASSESSEE WERE REJECT ED AND GROSS PROFITS ESTIMATED AFTER INVOKING SECTION 145(1) OF TH E ACT. IN THE CASE OF THE APPELLANT, THE INCOME IS COMPUTED ON THE BASIS OF BOOKS OF ACCOUNT AND APPLYING THE METHOD OF ACCOUNTING/ACCOUNTING STA NDARDS. FURTHER, IN THE APPELLANT'S CASE A SUPPRESSED TURNOVER IS WORKED-OUT ON THE BASIS OF RESPECTIVE LEDGER ACCOUNT MAINTAINED IN THE BOOKS OF ACCOUNTS AND WORKED-OUT THE CONCEALED PROFIT ON THE SUPPRESSED SALES. THEREFORE IN APPELLANT'S CASE PROVISIONS OF SECTION 40A(3) OF THE AC T ARE RIGHTLY APPLIED.' 8.2 AFTER CONSIDERING THE ARGUMENTS OF THE ASSESSEE AND THE REMAND REPORT OF THE AO AND THE LD.CIT(A) CONFIRMED SUCH A DDITION MADE BY THE AO U/S.40A(3) BY OBSERVING AS UNDER : 9.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDERS, R EMAND REPORT OF THE A.O. AND SUBMISSIONS OF THE APPELLANT. THE APPE LLANT HAS CONSIDERED THE UNDISCLOSED TURNOVER AND PURCHASES IN THE HANDS OF THE HUSBAND OF THE APPELLANT AND OFFERED THE PROFIT OF K OTHARI FOODS TO TAX IN RETURNS OF INCOME FILED CONSIDERING DISALLOWANCE U/S.40 A(3) OF THE ACT. THE DETAILS OF THE DISALLOWANCE MADE BY THE A.O. IN T HE HANDS OF THE APPELLANT AND DISALLOWANCE U/S.40A(3) OF THE ACT ACC EPTED BY THE HUSBAND OF THE APPELLANT IN THE RETURNS FILED IN RESPE CT OF M/S. KOTHARI FOODS ARE AS UNDER : A.Y. DISALLOWANCE MADE BY THE A.O. DISALLOWANCE ACCEPTED BY VINAYKUMAR KOTHARI IN HIS RETURN DIFFERENCE 04-05 13,08,361 9,59,756 3,48,605 05-06 34,65,018 34,65,018 NIL 06-07 22,06,947 18,70,854 3,36,093 IT HAS BEEN HELD IN THE EARLIER PARAGRAPH THAT THE IN COME OF KOTHARI UDYOG OFFERED TO TAX BY SHRI VINAYKUMAR KOTHARI FOR A.YS 2004-2005, 2005- 2006 AND 2006-2007 BY PREPARING BOOKS OF ACCOUNTS AN D AS PER COMPUTER GENERATED PROFIT & LOSS ACCOUNT BELONGED TO THE APPELLANT AND THE SAME IS TO BE ASSESSED IN HER HANDS. THE INCOME A S DECLARED IN THE MANUFACTURING AND TRADING AND PROFIT AND LOSS ACCOUNT WAS ACCEPTED AS DECLARED AND HENCE NO ESTIMATION WAS RESORTED TO. HEN CE THE CLAIM OF THE APPELLANT THAT THE ADDITION U/S.40A(3) OF THE ACT CA NNOT BE MADE IN THE CASES WHERE GROSS PROFIT IS ESTIMATED IS REJECTED. FURTHER, THE APPELLANT'S RELIANCE ON THE DECISION OF HON'BLE I.T.A.T., PUNE IN THE CASE OF DHANVARSHA BUILDERS 102 ITD 375 CANNOT BE ACCEPTED A S THE FACTS OF THE CASE OF THE APPELLANT ARE DIFFERENT FROM THE FACTS OF THE CASE RELIED ON BY HER. FURTHER, THE CONTENTION OF THE APPELLANT IS ALSO NOT ACCEPTABLE IN VIEW OF THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. HYNOUP FOODS & OIL INDIA PVT. LTD. 290 ITR 702 WHER EIN IT HAS BEEN LAID DOWN THAT WHERE INCOME FROM UNDISCLOSED BUSINESS IS BR OUGHT TO TAX, PROVISIONS OF SECTION 40A(3) AND ALL OTHER RELEVANT PR OVISIONS COME INTO PLAY. FURTHER THE APPELLANT HAS NOT RECONCILED THE A BOVE STATED DIFFERENCE IN RESPECT OF DISALLOWANCE OF CASH PAYMENTS AS DISALLOWED BY THE A.O. AND AS OFFERED TO TAX BY THE APPELLANT'S H USBAND IN THE CASE OF M/S. KOTHARI FOODS WHICH IS TO BE TAXED IN THE HANDS O F THE APPELLANT AS 17 HELD IN EARLIER PARAGRAPH. THE ADDITIONS OF CASH PAY MENTS MADE BY THE A.O. IN THE HANDS OF THE APPELLANT AMOUNTING TO RS. 13,08,361/-, RS.34,65,018/-AND RS.22,06,947/- FOR THE A.YS. 2004 -2005, 2005-2006 AND 2006-2007 RESPECTIVELY ARE THEREFORE CONFIRMED. GROUN D NO.6 FOR ALL THE YEARS STANDS DISMISSED. 9. BASED ON SUCH PART RELIEF GIVEN BY THE CIT(A) TH E REVENUE AS WELL AS THE ASSESSEE ARE IN APPEAL BEFORE US WITH T HE FOLLOWING GROUNDS: ITA NO.793/PN/2010 (A.Y. 2004-05) (BY ASSESSEE): THE FOLLOWING GROUNDS ARE TAKEN WITHOUT PREJUDICE TO EACH OTHER ON FACTS AND IN LAW, 1] THE LEARNED CIT(A) ERRED IN DIRECTING THE L EARNED A.O. TO ADD THE NET PROFIT OF RS.1,81,553/- DECLARED IN THE HANDS OF SHRI VINAY KUMAR KOTHARI AS INCOME OF THE ASSESSEE WITHOUT APPRECIATING THE COR RECT FACTS OF THE CASE. 2] THE LEARNED CIT(A) FAILED TO APPRECIATE THA T THERE WAS NO REASON TO MAKE ANY ADDITION ON ACCOUNT OF UNDISCLOSED SALE MADE BY THE ASSESSEE AND THEREFORE, THE ABOVE ADDITION CONFIRMED BY LEARNED CIT(A) MAY KINDLY BE DELETED. 3] THE LEARNED CIT(A) ERRED IN CONFIRMING AN A DDITION OF RS.13,08,361/- U/S 40A(3) OF THE ACT ON THE GROUND THAT THE ASSESSEE H AD MADE CASH PAYMENTS EXCEEDING RS.20,000/- IN CASH AND THEREFORE, THE DIS ALLOWANCE WAS JUSTIFIED. 4] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE DISALLOWANCE U/S 40A(3) WAS NOT JUSTIFIED SINCE THE PAYMENTS WERE UNACC OUNTED PAYMENTS AND IN VIEW OF THE DECISION OF ITAT PUNE IN THE CASE OF DHANVARSHA BUILDERS AND DEVELOPERS PVT. LTD. [102 ITD 375], THE DISALLOWANCE WAS NOT WARRANTED SINCE HON'BLE ITAT HAS HELD THAT THE PROV ISIONS OF SECTION 40A(3) ARE NOT APPLICABLE IN RESPECT OF PAYMENTS MADE WHICH ARE NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS AND ACCORDINGLY, IN T HIS CASE, THE PROVISIONS OF SECTION 40A(3) COULD NOT BE INVOKED. 5] THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT THE ADDITION U/S 40A(3) WAS NOT WARRANTED SINCE THE LEARNED A.O. HAD ESTIMATED THE G.P. AND ACCORDINGLY, THERE WAS NO REASON TO CONFIRM THE ADDITION MADE U/S.40A(3). 6] THE LEARNED CIT(A) ERRED IN NOT ALLOWING TH E CLAIM OF DEDUCTION U/S 80IA ON THE FOLLOWING GROUNDS : A. THE ASSESSEE HAD NOT MADE THE CLAIM IN THE ORIGINAL RETURN OF INCOME AND THEREFORE, IN VIEW OF DECISION OF SUPREME COURT IN THE CASE OF GOETZE INDIA LTD., THE CLAIM OF THE ASSESSEE WAS NOT MAINTAI NABLE. B. THE ASSESSEE HAD NOT FILED THE AUDIT REPORT DULY C ERTIFIED BY THE CHARTERED ACCOUNTANT ALONG WITH THE RETURN OF INCOME AND THEREFORE, THE ASSESSEE WAS NOT ENTITLED TO CLAIM THE DEDUCTIO N. 7] THE LEARNED CIT(A) ERRED IN NOT ALLOWING TH E CLAIM OF DEDUCTION U/S 80IA(80IB). 18 8] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE WAS A REGISTERED SMALL SCALE INDUSTRIAL UNDERTAKING AND A S THE ASSESSEE HAD SATISFIED ALL THE CONDITIONS OF SECTION 80IA(80IB), THE DEDUCTION OUGHT TO HAVE BEEN GRANTED ON THE PROFITS EARNED BY THE ASSESSEE. 9] THE LEARNED CIT(A) ERRED IN HOLDING THAT TH E ASSESSEE WAS NOT ELIGIBLE TO CLAIM THE DEDUCTION ON THE GROUND THAT SHE HAD NOT CL AIMED THE SAME IN THE ORIGINAL RETURN WITHOUT APPRECIATING THAT ALL T HE FACTS WERE ON RECORD AND HENCE, THE CLAIM OF THE ASSESSEE WAS MAINTAINABLE. 10] THE LEARNED CIT(A) FAILED TO APPRECIATE THA T THE ASSESSEE HAD FILED THE AUDIT REPORT IN THE COURSE OF APPELLATE PROCEEDINGS AND THEREFORE, THERE WAS NO REASON TO DENY THE DEDUCTION ON THE GROUND THAT T HE AUDIT REPORT WAS NOT FILED ALONG WITH THE RETURN OF INCOME. ITA NO.796/PN/2010 (A.Y.2004-05) (BY REVENUE) : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE AND IN LAW, THE HON'BLE CIT(A) HAS ERRED IN ALLOWING THE SUPPRESSED EXP ENSES OUT OF G.P COMPUTED ON SUPPRESSED TURNOVER; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE AND IN LAW, THE HON'BLE CIT(A) HAS ERRED IN ALLOWING EXPENSES OUT OF P ROFITS ESTIMATED IN ASSESSMENT, AS IT IS BASED ON INCORRECT APPRECIATION OF FA CTS; 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE AND IN LAW, HON'BLE CIT(A) ERRED IN ALLOWING OF FURTHER EXPENSES OF RS. 3 1,64,920/-, AS DEDUCTION IS ALLOWED WITHOUT CONSIDERING THE FACT THA T THIS AMOUNT WAS ALREADY INCLUDED IN RS. 2,30,55,486/- ALLOWED AS EXPE NSES IN THE AUDIT DONE U/S 142(2A); 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE A ND IN LAW, THE HON'BLE CIT(A) HAS ERRED IN NOT ACCEPTING THE NET PR OFIT COMPUTED BY THE SPECIAL AUDITOR ON THE BASIS OF IMPOUNDED MATERIAL, FO R THE REASON THAT THE A.O HAS NOT GIVEN ANY FINDING FOR REJECTION OF C ONCLUSION DRAWN BY THE SPECIAL AUDITOR AND CALCULATING IT WITH HIS OWN E STIMATE OF GROSS PROFIT, 5. ON FACTS AND IN THE CIRCUMSTANCES OF THIS CASE AND IN LAW, THE HON'BLE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.4,86, 172/- TOWARDS UNEXPLAINED INVESTMENT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE AND IN LAW, THE HON'BLE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.4,86,172/- TOWARDS UNEXPLAINED INVESTMENT, AS THE ASSESSEE HAS NOT DISC HARGE HER ONUS TO PROVE THE SOURCE OF SAID INVESTMENT. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE AND IN LAW, THE HON'BLE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.4,86,172/- TOWARDS UNEXPLAINED INVESTMENT, AS DURING THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSEE HIMSELF HAS CLAIMED RELIEF ON ADD ITION OF UNEXPLAINED INVESTMENT FOR OTHER YEARS ON THE BASIS OF ADDITION OF UNEXPLAINED ADDITION FOR THE YEAR UNDER CONSIDERATIO N. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE AN D IN LAW, THE HON'BLE CIT(A) AS ERRED IN DELETING THE ADDITION OF RS. 42,34,805/- TOWARDS UNEXPLAINED PURCHASES, AS THE CLAIM OF ASSESSEE THA T UNRECORDED 19 PURCHASES WERE MADE OUT OF UNRECORDED SALES CONSIDERATIO N IS NOT PROVED WITH EVIDENCE. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE AN D IN LAW, THE HONBLE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.42,34,805/- TOWARDS UNEXPLAINED PURCHASES, AS ASSESSEE IS NOT ABLE TO L INK THE UNRECORDED PURCHASE MADE OUT OF UNRECORDED SALES CONSI DERATION. 10. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUNDS OF APPEAL NO. 6 TO 10 FOR WHICH THE L D. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION. ACCORDINGLY, GROU NDS OF APPEAL NO. 6 TO 10 BY THE ASSESSEE ARE DISMISSED AS NOT PRESSED . 11. SO FAR AS THE OTHER GROUNDS BY THE REVENUE AS W ELL AS THE ASSESSEE ARE CONCERNED THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACT URING OF SWEET SUPARI WHICH IS A NON-TOBACCO PRODUCT. DURING THE COURSE OF SURVEY U/S.133A OF THE ACT ON 26-10-2005 CERTAIN DIARIES/R EGISTERS WERE FOUND WHICH CONTAINS THE SALES, PURCHASES AND OTHER EXPEN SES. DURING THE COURSE OF SURVEY THE ASSESSEE HAD SUBMITTED THAT TH E UNACCOUNTED SALES PERTAIN TO THE BUSINESS CARRIED OUT BY HER HUSBAND SHRI VINAYKUMAR KOTHARI. THE AO DID NOT ACCEPT THE THEORY OF THE B USINESS OF HER HUSBAND AND HELD THAT ALL THESE NOTINGS IN THE SEIZ ED PAPERS PERTAIN TO THE ASSESSEE. HE ACCORDINGLY TAXED THE INCOME ON T HE BASIS OF THE SEIZED REGISTERS IN THE HANDS OF THE ASSESSEE. WHIL E DOING SO, THE AO ADOPTED THE NET PROFIT ON THE SUPPRESSED TURNOVER A T THE RATE IN WHICH THE ASSESSEE HAD DECLARED THE GROSS PROFIT. HE SUB MITTED THAT THE ASSESSEE CHALLENGED THE VARIOUS ADDITIONS MADE BY T HE AO BEFORE THE CIT(A). IN APPEAL THE LD.CIT(A) REJECTED THE CONTE NTION OF THE ASSESSEE THAT THERE WAS A PARALLEL BUSINESS CARRIED ON BY THE HUSBAND OF THE ASSESSEE. THE ASSESSEE IS NOT IN APPEAL AGAINS T THE SAID OBSERVATION. 20 HE SUBMITTED THAT THE LD.CIT(A) HAS DIRECTED THE AO TO TAKE THE PROFIT AS DISCLOSED BY THE HUSBAND OF THE ASSESSEE IN THE COMPUTERIZED SET OF BOOKS OF ACCOUNTS FOR THE PARALLEL BUSINESS AS THE INCOME OF THE ASSESSEE. ACCORDING TO THE LD.CIT(A) THE NET PROFI T DECLARED BY SHRI VINAYKUMAR KOTHARI IN THE PROFIT AND LOSS ACCOUNT F ILED ALONG WITH HIS RETURN OF INCOME DECLARED ON THE BASIS OF THE UNACC OUNTED TRANSACTIONS IN THE SEIZED DIARY SHOULD BE CONSIDERED AS INCOME IN THE HANDS OF THE ASSESSEE. THE NET PROFIT AS PER SUCH UNDISCLOSED T URNOVER FOR THE THREE ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07 IS 0. 90%, 18.76% AND 9.47% RESPECTIVELY. THE RATES OF NET PROFIT COMPUT ED VARIES FROM YEAR TO YEAR. 11.1 REFERRING TO PAGE 18 OF THE ASSESSMENT ORDER W HICH SHOWS THE DIFFERENCE BETWEEN VARIOUS EXPENSES AS PER IMPOUNDE D BOOKS AS WELL AS EXPENDITURE CLAIMED IN THE RETURN OF INCOME HE SUBM ITTED THAT THERE IS A DIFFERENCE OF EXPENDITURE TO THE TUNE OF RS.42,34,8 05/- WHICH ARE NOT CONSIDERED BY THE ASSESSEE IN THE PROFIT AND LOSS A CCOUNT ALTHOUGH THOSE EXPENSES WERE NOTED IN THE SEIZED DIARIES. THEREFO RE, WHILE DETERMINING THE PROFIT, THE VARIOUS EXPENSES NOTED IN THE DIARIES CANNOT BE IGNORED. FURTHER, THESE EXPENSES ARE TABULATED BY THE SPECIAL AUDITORS APPOINTED BY THE DEPARTMENT ONLY. UNDER T HESE FACTS AND CIRCUMSTANCES OF THE CASE, HE SUBMITTED THAT SOME R EASONABLE PROFIT SHOULD HAVE BEEN ESTIMATED AND NO ADDITION U/S.69C IS CALLED FOR. HE SUBMITTED THAT ONCE THE PROFIT IS ESTIMATED THERE C ANNOT BE ANY ADDITION ON ACCOUNT OF SECTION 40A(3). FOR THIS PROPOSITION HE RELIED ON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. M/S. RUSHIRAJ BUILDERS AND DEVELOPERS VIDE ITA NO.1802/PN/2005 21 ORDER DATED 13-02-2012, DECISION IN THE CASE OF KIR TIKUMAR VISHNUDAS BHUTADA VIDE ITA NO.207/PN/2007 ORDER DATED 14-05-2 012 FOR BLOCK ASSESSMENT PERIOD 1997-98 TO 2003-04 AND THE DECISI ON IN THE CASE SATISHKUMAR VISHNUDAS BHUTADA VS. ACIT VIDE ITA NOS .1522, 1619 AND 1620/PN/2011 AND OTHER CONNECTED APPEALS ORDER DATED 19-04- 2013. HE ACCORDINGLY SUBMITTED THAT THE ADDITION DELETED BY THE CIT(A) SHOULD BE UPHELD AND THE ADDITION SUSTAINED BY THE CIT(A) SHOULD BE SET-ASIDE. 12. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND WHILE SUPPORTING THE ORDER OF THE AO SUBMITTED THAT THERE WAS PERSISTENT NON- COMPLIANCE BY THE ASSESSEE. THE ASSESSEE NEVER COO PERATED WITH THE AO BY FURNISHING THE VARIOUS DETAILS. THE ASSESSEE WAS NOT MAINTAINING PROPER ACCOUNTS AND HAS SUPPRESSED ITS TURNOVER WHI CH WAS DETECTED BY THE SURVEY PARTY AT THE TIME OF SURVEY WHICH WAS RE CORDED IN THE SEIZED DIARIES AND REGISTERS. THEREFORE, UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE AO WAS JUSTIFIED IN ESTIMATING THE GRO SS PROFIT OF SUCH SUPPRESSED TURNOVER AT THE SAME RATE AS DECLARED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT DECLARED TO THE DEPARTMENT. HE SUBMITTED THAT SINCE THE VARIOUS EXPENSES WERE FOUND IN THE SEIZED DIARY THE AO WAS FULLY JUSTIFIED IN MAKING THE ADDITION U/S.69C. SI MILARLY, SINCE THERE WAS SUPPRESSED TURNOVER. THEREFORE, THE ASSESSEE M UST HAVE INVESTED EXTRA CAPITAL FOR MAKING PURCHASES WHICH IS KNOWN A S INITIAL INVESTMENT AND THEREFORE THE AO WAS FULLY JUSTIFIED IN MAKING ADDITION ON ACCOUNT OF INITIAL INVESTMENT FOR VARIOUS YEARS. 22 12.1 AS REGARDS THE ADDITION ON ACCOUNT OF VIOLATIO N OF PROVISIONS OF SECTION 40A(3) IS CONCERNED HE SUBMITTED THAT THE A O WAS FULLY JUSTIFIED IN MAKING THE ADDITION U/S.40A(3). HE AC CORDINGLY SUBMITTED THAT THE ORDER OF THE AO BE UPHELD AND THAT OF THE ORDER OF THE CIT(A) GRANTING RELIEF TO THE ASSESSEE BE REVERSED. 13. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSE SSEE IN THE INSTANT CASE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF MITH A MASALA PRODUCTS. DURING THE COURSE OF SURVEY CERTAIN DIARIES/REGISTE RS WERE IMPOUNDED WHICH SHOWS THAT CERTAIN SALES, PURCHASES AND OTHER EXPENSES ARE NOTED WHICH ARE NOT DISCLOSED TO THE DEPARTMENT AS PER T HE AUDIT REPORT OF THE SPECIAL AUDITORS THERE WAS HUGE VARIATION IN THE SA LES DECLARED TO THE DEPARTMENT AND SALES FOUND AS PER THE SEIZED DIARIE S. WE FIND SUCH UNACCOUNTED TURNOVER FOR A.Y. 2004-05 WAS RS.1,31,2 8,497/- FOR A.Y. 2005-06 WAS RS.2,77,06,738/- AND FOR A.Y. 2006-07 WAS RS.1,20,93,981/-. IT WAS THE ARGUMENT OF THE ASSES SEE BEFORE THE LOWER AUTHORITIES THAT HER HUSBAND SHRI VINAYKUMAR KOTHAR I WAS RUNNING THE BUSINESS UNDER THE NAME AND STYLE OF M/S. KOTHARI F OODS. WE FIND, BASED ON THE IMPOUNDED DIARIES, THE HUSBAND OF THE ASSESSEE FILED HIS RETURN OF INCOME DECLARING INCOME OF RS.1,81,553/- FOR A.Y. 2004-05, RS.51,97,712/- FOR A.Y. 2005-06 AND RS.11,46,286/- FOR A.Y. 2006-07. WE FIND THE ASSESSING OFFICER APPLYING THE GROSS PR OFIT RATE OF 19.84% FOR A.Y. 2004-05, 29.67% FOR A.Y. 2005-06 AND 20.60 % FOR A.Y. 2006- 07 MADE ADDITION OF RS.26,04,693/-, RS.82,20,589/- AND RS.24,91,360/- 23 FOR A.Y. 2004-05 TO 2006-07 RESPECTIVELY. THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO TAKE THE NET PROFIT DECLARED B Y THE HUSBAND OF THE ASSESSEE AT RS.1,18,553/- FOR A.Y. 2004-05, RS.51,9 7,912/- FOR A.Y. 2005-06 AND RS.11,46,286/- FOR A.Y 2006-07 IN THE RETURN OF INCOME FILED BY HIM AS THE PROFIT ON ACCOUNT OF SUCH SUPPR ESSED TURNOVER. SIMILARLY, THE LD.CIT(A) DELETED THE ADDITION ON AC COUNT INITIAL INVESTMENT AND ADDITION ON ACCOUNT OF UNEXPLAINED E XPENDITURE. AGAINST SUCH RELIEF GIVEN BY THE LD.CIT(A), THE REVENUE IS IN APPEAL BEFORE US. SO FAR AS THE DISALLOWANCE U/S.40A(3) MADE BY THE A SSESSING OFFICER WHICH HAS BEEN CONFIRMED BY THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 13.1 FROM THE VARIOUS DETAILS FURNISHED BY THE ASSE SSEE IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS SUPPRESSED HER TURNOVER. FURTHER, AS PER PAGE 18 OF THE PAPER BOOK WHICH SHOWS THE DETAILS OF UNE XPLAINED EXPENDITURE AS POINTED OUT BY THE SPECIAL AUDITOR, WE FIND THER E ARE VARIOUS EXPENSES WHICH ARE FOUND IN THE SEIZED DIARIES/REGISTERS BUT NOT RECORDED IN THE BOOKS OF ACCOUNTS. EXTENT OF SUCH EXPENDITURE COME S TO RS.42,34,805/- FOR A.Y. 2004-05, RS.66,58,018/- FOR A.Y. 2005-06 A ND RS.17,09,704/- FOR A.Y. 2006-07. SUCH HUGE DIFFERENCE IN THE SALE S AND EXPENDITURE SHOWS THAT THE ACCOUNTS OF THE ASSESSEE ARE NEITHER CORRECT NOR RELIABLE. WE, THEREFORE, ARE OF THE CONSIDERED OPINION THAT U NDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE NET PROFIT OF THE ASS ESSEE SHOULD BE ESTIMATED. 13.2 FROM THE VARIOUS DETAILS FURNISHED BY THE ASSE SSEE IN THE PAPER BOOK WE FIND THE TURNOVER OF THE ASSESSEE BOTH RECO RDED AS WELL AS SUPPRESSED FOR THE 3 ASSESSMENT YEARS ARE AS UNDER : 24 ASST. YEAR TURNOVER DECLARED TURNOVER IN THE IMPOUNDED BOOKS AS PER SPECIAL AUDITOR 2004-05 93,42,796/- 2,24,71,294/- 2005-06 97,21,986/- 3,74,28,724/- 2006-07 97,31,716/- 1,97,95,411/- 13.3 WE FIND THE ASSESSEE IN HER PROFIT AND LOSS AC COUNT HAS DECLARED THE NET PROFIT AT RS.1,69,196/- FOR A.Y. 2004-05, R S.2,93,810/- FOR A.Y. 2005-06 AND RS.90,151/- FOR A.Y. 2006-07. SIMILARL Y, THE HUSBAND OF THE ASSESSEE HAS DECLARED NET PROFIT OF RS.1,81,553 /- FOR A.Y. 2004-05, RS.51,97,912/- FOR A.Y. 2005-06 AND RS.11,46,286/- FOR A.Y. 2006-07. SUCH TURNOVER OF THE HUSBAND HAS BEEN ACCEPTED AS T HE SUPPRESSED TURNOVER BY THE ASSESSEE. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND CONSIDERING THE FACT THAT THE ASSESSEE HAS ALSO INCURRED VARIOUS EXPENSE WHICH WERE FOUND FROM THE IMPOUNDED DIARIES/REGISTERS AND WHICH WERE NOT RECORDED IN TH E BOOKS OF ACCOUNTS, WE ARE OF THE CONSIDERED OPINION THAT ADOPTION OF NET PROFIT OF 5% FOR A.Y. 2004-05, 15% FOR A.Y. 2005-06 AND 7.5% FOR A.Y . 2006-07 ON THE TURNOVER AS PER IMPOUNDED BOOKS WILL BE REASONABLE AND WILL MEET THE ENDS OF JUSTICE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE FOR ALL THE 3 YEARS ARE A CCORDINGLY PARTLY ALLOWED AND THE GROUNDS BY THE ASSESSEE ARE DISMISS ED. 13.4 SO FAR AS THE ADDITION MADE BY THE ASSESSING O FFICER U/S.69 AND 69C OF THE I.T. ACT ARE CONCERNED WE FIND THE ASSES SEE HAS PREPARED BOOKS OF ACCOUNTS IN THE NAME OF KOTHARI FOOD PRODU CTS WHICH WAS SHOWN TO BE RUN BY HER HUSBAND. AS PER THE SAID CO MPUTERISED BOOKS PRODUCED BEFORE THE ASSESSING OFFICER THERE WAS NO CASH DEFICIT, A FACT POINTED OUT BY THE LD.CIT(A) AND WHICH COULD NOT BE CONTROVERTED BY 25 THE LD. DEPARTMENTAL REPRESENTATIVE. SIMILARLY, TH E ASSESSEES SUBMISSION BEFORE THE LOWER AUTHORITIES THAT THE VA RIOUS UNACCOUNTED EXPENSES ON ACCOUNT OF PURCHASE AND VARIOUS OTHER E XPENSES ARE OUT OF UNACCOUNTED SALES ALSO FINDS SOME MERIT. MOREOVER ONCE THE BOOKS OF ACCOUNTS ARE REJECTED AND THE PROFIT IS ESTIMATED T HEN THIS EXERCISE IN OUR OPINION BECOMES FUTILE SINCE IT TAKES CARE OF THOSE LOOP-HOLES THAT ARE FOUND IN THE BOOKS OF ACCOUNTS. IN THIS VIEW OF TH E MATTER, WE ARE OF THE CONSIDERED OPINION THAT NO DISALLOWANCE U/S.69 AND 69C ARE WARRANTED. THE GROUNDS OF THE REVENUE FOR ALL THE 3 YEARS ON T HIS ISSUE ARE ACCORDINGLY DISMISSED. 13.5 SO FAR AS THE ORDER OF THE CIT(A) CONFIRMING T HE DISALLOWANCE MADE U/S.40A(3) IS CONCERNED IT IS THE SUBMISSION O F THE LD. COUNSEL FOR THE ASSESSEE THAT ONCE PROFIT IS ESTIMATED THERE IS NO REQUIREMENT FOR ADDITION U/S.40A(3). WE FIND MERIT IN THE ABOVE SU BMISSION OF THE LD. COUNSEL FOR THE ASSESSEE. THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ANAND SATISHKUMAR BHUTADA VIDE ITA NO.1523/ PN/2011 FOR A.Y. 2007-08 AND ITA NOS. 58 TO 60/PN/2012 FOR A.Y. 2005-06 TO 2007-08 WHILE DELETING THE ADDITION U/S.40A(3) WHER E THE PROFITS ARE ESTIMATED HAS OBSERVED AS UNDER : 32. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARI OUS DECISIONS CITED BY BOTH THE SIDES. THERE IS NO DISPUTE TO THE F ACT THAT IT IS A CASE OF NON-MAINTENANCE OF ACCOUNTS AND PROFIT HAS BEEN ESTIMA TED BY REJECTING THE BOOK RESULTS. THERE IS ALSO NO DISPUTE TO THE FACT THAT DISALLOWANCE OF RS.6,08,222/- HAS BEEN MADE ON ACCOUNT OF VIOLATION O F PROVISIONS OF SECTION 40A(3). IT IS THE CASE OF THE ASSESSEE THAT SINCE PROFIT HAS BEEN ESTIMATED AND ASSESSEE DOES NOT MAINTAIN ANY ACCOUNTS, TH EREFORE, NO ADDITION CAN BE MADE U/S.40A(3) IN VIEW OF THE VARIO US DECISIONS. IT IS THE CASE OF THE REVENUE THAT EVEN IN CASE WHERE PROFI T IS ESTIMATED DISALLOWANCE U/S.40A(3) CAN BE MADE. 26 33. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF KIRTIKUMAR VISHNUDAS BHUTADA (SUPRA) UNDER SOMEWHAT SIMILAR CIRCUM STANCES HAS DELETED THE DISALLOWANCE MADE U/S.40A(3) BY HOLDING A S UNDER : 19. HAVING GONE THROUGH THE ABOVE CITED DECISIONS BY THE PARTIES, WE FIND THAT IN VIEW OF SEVERAL DECISIONS INCLUDING THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M /S. SAI METAL WORKS (SUPRA), THE PUNE BENCH OF THE TRIBUNAL IN ITS RECENT DECISION IN THE CASE OF ACIT VS. M/S. RUSHIRAJ BUILDERS & DEVELOPERS (SUPRA) HAS COME TO THE FOLLOWING CONCLUSION ON THE ISSUE : 9. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT THE L EARNED CIT(A) HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE F OLLOWING THE DECISION OF NAGPUR BENCH OF THE TRIBUNAL IN THE CASE OF SADHURAM WADHWANI (SUPRA) HOLDING THAT THE DISALLOWA NCE U/S. 40A(3) IN THE BLOCK ASSESSMENT WAS OUTSIDE THE AMBIT OF CHAPTER XIV B OF THE I.T. ACT. THE LD CIT(A) HAS DISCUSSED SEVE RAL DECISIONS RELIED UPON BEFORE HIM INCLUDING THE DECISIONS OF PUN E BENCH OF THE TRIBUNAL IN THE CASE OF JANATA TILES, 66 TTJ 69 5 (PUNE) AND SHARMA ASSOCIATES, 55 ITD 171 (PUNE) HOLDING THAT ONCE THE TRANSACTIONS ARE UNRECORDED AND UNDISCLOSED FROM THE RE GULAR BOOKS OF ACCOUNT, THERE CAN'T BE FURTHER DISALLOWANCE U/S. 40A(3) OF THE ACT. RELIANCE HAS ALSO BEEN PLACED ON THE DECI SION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF WESTERN INDIA BAKERS (P) LTD. VS. DCIT (2004) 84 TTJ (MUM) 223 EXPRESSING T HE SIMILAR VIEW WITH THIS OBSERVATION THAT HEADING OF CHAPTER XI V B IS SPECIAL PROCEDURE FOR ASSESSMENT OF SEARCH CASES. SECTION 158BA DE ALS ASSESSMENT OF UNDISCLOSED INCOME AS A RESULT OF SEARCH. TH IS SECTION OPENS WITH A NON-OBSTINATE CLAUSE AND THIS ENA CTS PROVISIONS OF OVERRIDING NATURE SO AS TO PREVAIL OVER A NY OTHER PROVISIONS OF THE ACT. THE ASSESSED UNDISCLOSED INCOME IS AS SESSED AT THE HIGHER RATE OF 60% U/S. 113 OF THE ACT, OBSERV ED THE TRIBUNAL. WE, HOWEVER, FIND THAT DIFFERENT VIEWS HAV E BEEN EXPRESSED BY DIFFERENT HIGH COURTS ON THE ISSUE AND NO D ECISION OF HON'BLE JURISDICTIONAL HIGH COURT ON THE ISSUE HAS BEEN BROUGHT TO OUR NOTICE BY THE PARTIES. UNDER THESE CIRCUMSTANCES, I N VIEW OF THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASES OF CIT VS. VEGETABLE PRODUCTS (SUPRA) AND CIT VS. PODAR CEMENT P VT. LTD. (SUPRA), WE ADOPT THE JUDGMENT ON THE ISSUE WHICH IS F AVOURABLE TO THE ASSESSEE. WE THUS RESPECTFULLY ARE FOLLOWING THE D ECISION OF CARGO CLEARING AGENCY (GUJ.) VS. JCIT (SUPRA) & OTHE RS RELIED UPON BY THE LD. A.R. HOLD THAT THE LD CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE U/S. 40A(3) OF THE ACT MADE BY THE A.O W ITH DIRECTION TO DELETE THE SAME INVOLVING AMOUNT OF RS.2 4,15,160/-. THE SAME IS UPHELD. GROUND NO.3 TO 5 INVOLVING THIS ISSU E IS THUS REJECTED.' IN VIEW OF THE ABOVE DECISION OF THE PUNE BENCH IN T HE CASE OF ACIT VS. M/S.RUSHIRAJ BUILDERS & DEVELOPER (SUPRA), WE THUS H OLD THAT ONCE THE TRANSACTIONS ARE UNRECORDED AND UNDISCLOSED F ROM THE REGULAR BOOKS OF ACCOUNT, THERE CANNOT BE FURTHER DI SALLOWANCE U/S. 40A(3) OF THE ACT. WE THUS WHILE SETTING ASIDE ORD ERS OF THE AUTHORITIES BELOW DIRECT THE A.O. TO DELETE THE DISAL LOWANCE OF RS.2,27,978/- MADE U/S. 40 A(3) OF THE ACT. THE GROUN D NO. 4 IS THUS ALLOWED. 34. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDI NATE BENCH OF THE TRIBUNAL WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIR ECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE U/S.40A(3) IN TH E INSTANT CASE WHERE ADMITTEDLY PROFIT HAS BEEN ESTIMATED IN ABSENCE OF MA INTENANCE OF BOOKS OF ACCOUNTS. GROUNDS RAISED BY THE ASSESSEE ARE ACCORDING LY ALLOWED. 27 13.6 RESPECTFULLY FOLLOWING THE ABOVE DECISION, THI S GROUND BY THE ASSESSEE CHALLENGING THE SUSTAINING OF ADDITION U/S .40A(3) BY THE CIT(A) IS ALLOWED. THE ASSESSING OFFICER IS DIRECTED TO D ELETE THE DISALLOWANCE U/S.40A(3) FOR ALL THE 3 YEARS. 14. THERE IS ONE MORE ISSUE IN THE APPEALS FILED BY THE ASSESSEE FOR A.YRS. 2005-06 AND 2006-07 WHEREIN THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.3,04,934/- FOR A.Y. 2006-07 AND RS.5,59,802/- FOR A.Y. 2005-06 U/S .40(A)(IA) FOR NON DEDUCTION OF TAX. 14.1 THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME O F HEARING DID NOT PRESS THE ABOVE GROUNDS DUE TO SMALLNESS OF THE AMO UNTS. THERE WAS NO OBJECTION BY THE LD. DEPARTMENTAL REPRESENTATIVE ON THIS ISSUE. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE FOR THE ABOVE YEARS ON ACCOUNT OF ADDITION U/S.40(A)(IA) ARE DISMISSED. 15. IN THE RESULT, THE APPEALS FILED BY THE REVENUE AS WELL AS THE ASSESSEE ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 30-06-2014. SD/- SD/- (R.S. PADVEKAR) (R.K. PA NDA) JUDICIAL MEMBER ACCOUN TANT MEMBER PUNE DATED: 30 TH JUNE, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A), AURANGABAD 4. THE CIT, AURANGABAD 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE