DCIT, Nashik V. Shri Narendra Mithailal Agarwal, Nashik

ITA 811/PUN/2010

• Counselvise Citation: [2012] 120 COUNSELVISE.COM (IT) 0010 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 26-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Unexplained investment; Unexplained expenditure; Business income; Depreciation; Business expenditure; Income from undisclosed sources; Search and seizure; Document seized; Retrospective amendment; Difference of opinion; Block assessment; Documents seized
• Section: 40A(3); 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI R.K.PANDA, ACCOUNTANT MEMBER. ITA.NO.811 & 808/PN/2010 (ASSTT. YEAR : 2006-07 & 2000-01) DCIT, CENTRAL CIRCLE-1, NASHIK. .. APPELLANT VS. SHRI NARENDRA MITHAILAL AGRAWAL, 532, NEAR HERO HONDA SHOW ROOM, 60, FEET ROAD, SARDA CIRCLE, NASHIK. .. RESPONDENT PAN: ABGPA9107R AND ITA.NO.813 & 812/PN/2010 (ASSTT. YEAR : 2006-07 & 2000-01) DCIT, CENTRAL CIRCLE-1, NASHIK. .. APPELLANT VS. SHRI ARVIND MITHAILAL AGRAWAL, 532, NEAR HERO HONDA SHOW ROOM, 60, FEET ROAD, SARDA CIRCLE, NASHIK. .. RESPONDENT PAN: ADPPA4146F AND ITA.NO.807/PN/2010 (ASSTT. YEAR : 2006-07) DCIT, CENTRAL CIRCLE-1, NASHIK. .. APPELLANT VS. SHRI RAJENDRA MITHAILAL AGRAWAL, 532, PHALKE ROAD, LOKHAND BAZAR, NASHIK. .. RESPONDENT PAN: ADMPA6123D 2 AND ITA.NO.814 & 815/PN/2010 (ASSTT. YEAR : 2005-06 & 2006-07) DCIT, CENTRAL CIRCLE-1, NASHIK. .. APPELLANT VS. SHRI AMRITLAL MITHAILAL AGRAWAL, KAUT GHAT, NEAR SBI COLONY, MUMBAI AGRA ROAD, NASHIK. .. RESPONDENT PAN: AANPA7735K AND ITA.NO.805 & 806/PN/2010 (ASSTT. YEAR : 2001-02 & 2002-03) DCIT, CENTRAL CIRCLE-1, NASHIK. .. APPELLANT VS. SHRI CHANDRABHAN GORAKHNATH MISHRA, 27, LATA KUNJ, NASHIK ROAD, NASHIK. .. RESPONDENT PAN: AGGPM3645P ASSESSEE BY : SMT.DEEPA KHARE DEPARTMENT BY : SHRI S.K.SINGH,CIT(DR) DATE OF HEARING : 28.08.2012 DATE OF PRONOUNCEMENT : 26.09.2012 ORDER PER BENCH : ALL THESE CASES BELONG TO AGRAWAL GROUP SO THEY AR E BEING DISPOSED OFF BY A COMMON ORDER. ITA.NO.811/PN/2010-A.Y.2006-07-SHRI NARENDER MITHAI LAL AGRAWAL. 2. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINS T THE ORDER OF THE CIT(A) ON VARIOUS ISSUES WHICH ARE BEING DEALT AS UNDER. 3 3. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUS INESS OF STEEL TRADING. A SEARCH AND SEIZURE ACTION U/S.132 OF TH E ACT WAS CONDUCTED BY THE DEPARTMENT IN AGRAWAL GROUP OF CAS ES OF NASHIK WHEREIN RESIDENTIAL PREMISES OF THE ASSESSEE ALONGW ITH VARIOUS OTHER ASSESSEES OF THIS GROUP WERE ALSO COVERED. T HE ASSESSEE FILED RETURN OF INCOME ON 31.10.2006 DECLARING TOTAL INCO ME OF RS.1,87,31,600/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S.143(3) R.W.S. 153A OF THE ACT BY MAKING FOLLOWI NG ADDITIONS/DISALLOWANCES: A) ADDITION U/S.40A(3) RS.69,07,964/- B) CASH AVAILABLE FROM UNDISCLOSED SOURCES RS. 27,865/- C) UNEXPLAINED EXPENDITURE ON RENOVATION OF FLAT RS. 20,045/- D) OTHER EXPENSES RS. 1,56,000/- 4. BEING AGGRIEVED BY THE ORDER, THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY WHEREIN ASSESSEE HAS FILED DETAILED SUBMISSIONS ON THE ISSUES UNDER APPEAL. THE SUBMIS SIONS OF THE ASSESSEE WERE FORWARDED TO THE ASSESSING OFFICER FO R REMAND REPORT VIDE OFFICE LETTER DATED 29.09.2009, WHO HAD SUBMIT TED HIS REMAND REPORT VIDE LETTER DATED 06.11.2009. THE ASSESSEE FILED FURTHER COMMENTS BY HIS LETTER DATED 08.01.2010. AFTER CON SIDERING THE ASSESSMENT ORDER AND THE REMAND REPORT OF THE ASSES SING OFFICER AS WELL AS THE SUBMISSIONS OF THE ASSESSEE, THE CIT (A) GRANTED RELIEF TO THE ASSESSEE ON ALL ACCOUNTS. SAME HAS BEEN OPP OSED BEFORE US. 5. FIRST ISSUE IS WITH REGARD TO ADDITION OF RS.69, 07,964/- U/S.40A(3) OF THE ACT ON ACCOUNT OF PURCHASES. AS PER MATERIAL SEIZED DURING THE COURSE OF SEARCH, UNACCOUNTED PUR CHASES MADE BY THE ASSESSEE DURING THE A.Y. 2006-07 WERE QUANTI FIED AT RS.6,90,79,640/-. AS THESE PURCHASES WERE OUT OF U NACCOUNTED CASH, THE ASSESSING OFFICER THEREFORE, CONFRONTED T HE ASSESSEE TO SHOW CAUSE AS TO WHY 20% OF THE VALUE OF THESE PURC HASES SHOULD 4 NOT BE DISALLOWED AS PER PROVISIONS OF SECTION 40A( 3) OF THE ACT. THE ASSESSEE VIDE HIS REPLY DATED 25.10.2007 SUBMITTED THAT PROVISIONS OF 40A(3) OF THE ACT WERE NOT APPLICABLE AS THESE T RANSACTIONS WERE OUTSIDE THE BOOKS OF ACCOUNT AND ALSO IN VIEW OF TH E FACT THAT PROFIT WAS DETERMINED BY APPLYING A G.P. RATE. HE SUPPORTE D HIS CONTENTIONS BY VARIOUS JUDICIAL PRONOUNCEMENTS. TH E ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE AND ALSO DECISIONS RELIED BY HIM, REJECTED THE ASSESSEES CO NTENTION AND PROCEEDED TO MAKE ADDITION/DISALLOWANCE U/S. 40A(3) OF THE ACT @ 20% OF UNACCOUNTED PURCHASES AND EXPENSES CLAIMED B Y THE ASSESSEE RESULTING IN ADDITION OF RS.69,07,964/-. THE RELEVANT PORTION OF THE ASSESSMENT ORDER IS EXTRACTED AS UND ER: 'I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE ASSESSEE, THE CASE LAWS RELIED UPON BY HIM AND THE MATERIAL S EIZED DURING THE COURSE OF SEARCH ACTION. THE SAME IS ANA LYZED AS UNDER: SECTION 40A(3) READS, 'WHERE THE ASSESSEE INCURS AN Y EXPENDITURE ........................... IN A SUM EX CEEDING [TWENTY] THOUSAND RUPEES OTHERWISE THAN BY [AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK[ DRAFT], TWEN TY PER CENT OF SUCH EXPENDITURE SHALL NOT BE ALLOWED AS A DEDUCTION '. THE MAIN OBJECT OF SECTION 40A(3) OF THE ACT IS TO REGULATE THE FINANCIAL TRANSACTIONS AND TO PREVENT THE USE OF UN ACCOUNTED MONEY OR REDUCE THE CHANCES OF USE OF BLACK MONEY F OR BUSINESS TRANSACTIONS. PLAIN READING OF THE ABOVE S ECTION REVEALS THAT THE PROVISIONS OF THIS SECTION HIT THE ASSESSEE IF TWO CONDITIONS ARE SIMULTANEOUSLY SATISFIED. FIRST THERE HAS TO BE AN EXPENDITURE CLAIMED BY THE ASSESSEE. SECONDLY , HE SHOULD HAVE MADE PAYMENT EXCEEDING RS.20,OOO/- BY A NY MEANS OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE/DRA FT. NOWHERE, DOES THE SECTION REFER TO THE REGULAR BOOK S OF ACCOUNTS OF THE ASSESSEE. IN THE INSTANT CASE, SEARCH ACTION HAS BEEN CARRIED OUT ON THE BUSINESS OF THE ASSESSEE GROUP. DOCUMENTS SHOWING T HAT THE ASSESSEE IS CARRYING OUT HIS BUSINESS OUTSIDE THE R EGULAR BOOKS OF ACCOUNT, HAVE BEEN FOUND AND SEIZED. THE 5 UNACCOUNTED PURCHASES, SALES AS WELL AS EXPENDITURE HAVE BEEN WORKED OUT BASED ON THESE SEIZED DOCUMENTS. TH E UNACCOUNTED PURCHASES MADE BY THE ASSESSEE HAVE BEE N ACCEPTED BY THE ASSESSEE, HE HAS CLAIMED THIS EXPEN DITURE IN THE RETURNS OF INCOME FILED U/S 153A OF THE ACT, AN D OFFERED THE ADDITIONAL INCOME ON THESE TRANSACTIONS FOR TAX ATION. IT IS A DIFFERENT MATTER THAT THE ASSESSEE CHOSE TO COMPUTE THE ADDITIONAL INCOME BY ADOPTING A CERTAIN PERCENTAGE OF THE SALES AS INCOME. IT IS NOWHERE ASSESSEE'S CONTENTIO N THAT HE HAS NOT MADE THE PAYMENT FOR THESE PURCHASES BY ACC OUNT PAYEE CHEQUE/DRAFT. HENCE HE IS SQUARELY HIT U/S 40 A(3) OF THE ACT. THUS, THE CONTENTION OF THE ASSESSEE, THAT PRO VISIONS OF SECTION 40A(3) OF THE ACT ARE NOT APPLICABLE IN RES PECT OF TRANSACTIONS OUTSIDE BOOKS OF ACCOUNT, IS REJECTED. IT MAY BE MENTIONED THAT THE PROVISIONS OF SECTION 40A(3) WER E BROUGHT ON THE STATUTE BY FINANCE ACT TO MEET THIS KIND OF SITUATION. THE VERY PURPOSE OF THE SECTION IS TO DISCOURAGE SU CH TRANSACTION AND PARALLEL ECONOMY. ALTERNATELY, THE ASSESSEE WHO MAINTAINS THE REGULAR BOOKS OF ACCOUNTS DISCLOSES THE PROFITS WHICH ARE CHARGED TO TAX. IN CASE HE MAKES ANY PURCHASES ABOVE THE PRESCRIBED LI MITS BY ANY MEANS OTHERWISE THAN BY A CROSSED ACCOUNT PAYEE CHEQUE OR DRAFT, WHICH ARE CLAIMED AS A DEDUCTION, HE IS H IT BY THE PROVISION OF SECTION 40A(3). AN ASSESSEE WHO DOES N OT DISCLOSE HIS TRUE PROFITS AND CONCEALS A PART OF HIS BUSINES S FOR THE PURPOSES OF INCOME TAX ACT, CANNOT BE PLACED AT A P REMIUM VIS-A-VIS AN ASSESSEE WHO HAS PROPERTY MAINTAINED H IS BOOKS OF ACCOUNTS. IN FACT SUCH A PROPOSITION WILL BE VIO LATIVE OF THE BASIC PRINCIPLES OF EQUALITY ENSHRINED IN THE CONST ITUTION. THUS THE CONTENTION OF THE ASSESSEE, THAT THE PURCHASES MADE IN CASH ABOVE THE PRESCRIBED LIMITS, ON THE TRANSACTIO NS NOT REFLECTED IN THE REGULAR BOOKS OF ACCOUNTS ARE NOT HIT BY THE PROVISIONS OF SECTION 40A(3), IS REJECTED. IN THIS REGARD THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF HON'BLE 1. T.A. T. IN THE CASE OF HYNOUP FOOD AN D OIL INDUSTRIES CITED AT 48 ITD 202 (AHD.). IN THE CASE OF HYNOUP, THE ASSESSEE WAS CARRYING ON BUSINESS AND WAS MAINT AINING REGULAR BOOKS OF ACCOUNT. DURING THE COURSE OF SEAR CH PROCEEDINGS, CERTAIN DOCUMENTS WERE SEIZED AND UNAC COUNTED BUSINESS TRANSACTIONS IN THE SAME LINE OF BUSINESS WERE FOUND. IN THE BUSINESS, WHICH WAS NOT REFLECTED IN THE BOO KS OF ACCOUNT, THE TRANSACTIONS WERE IN CASH AND AFTER AS CERTAINING THE PURCHASES, FOR SUCH BUSINESS, ON PERUSAL OF SEI ZED DOCUMENTS, THE ASSESSING OFFICER, MADE DISALLOWANCE S UNDER SECTION 40A(3) OF THE ACT. THE DECISION OF LD. 1. T .A. T, 6 AHMEDABAD BENCH CITED BY THE ASSESSEE, HAS BEEN REV ERSED BY THE HON'BLE HIGH COURT OF GUJARAT CITED AT 290ITR 7 02 (GUJARAT) AND THE FINDINGS OF THE HON'BLE COURT ARE REPRODUCED AS UNDER: 'HELD, THAT THE TRIBUNALS ORDER NO WHERE REFLECTED HOW AND IN WHAT MANNER THE ASSESSEE HAD ESTABLISHED THE BUSINESS EXPEDIENCY AND THEREAFTER EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES. THERE WAS NO EVIDENCE TO SHOW THAT PAYMENT BY CROSS CHEQUE OR DRAFT WAS NOT PRACTICABLE HAVING REGARD TO THE NATURE OF THE TRAN SACTION AND THE NECESSITY FOR EXPEDITIOUS SETTLEMENT. THERE WAS ALSO NO EVIDENCE TO SHOW THAT PAYMENT BY CROSSED CH EQUE OR DRAFT WOULD HAVE CAUSED GENUINE DIFFICULTY TO TH E PAYEE HAVING REGARD TO THE NATURE OF THE TRANSACTIO N AND THE NECESSITY OF EXPEDITIOUS SETTLEMENT. THE ASSESS EE HAD NOT DISCHARGED THE ONUS TO ESTABLISH THE GENUINENES S OF THE PAYMENT AND IDENTITY OF THE PAYEE. THE TRIBUNAL HAD NOT SEEN THE DISTINCTION BETWEEN AN ENTIRE BUSINESS THAT IS ILLEGAL AND A BUSINESS THAT IS OTHERWISE LAWFUL, WHERE IN THE ASSESSEE RESORTS TO UNLAWFUL MEANS TO AUGMEN T HIS PROFITS. THEREFORE, THE REASONING OF THE TRIBUNAL T HAT ONCE THE BUSINESS WAS NOT REFLECTED IN THE REGULAR BOOKS , PAYMENT BY CROSSED CHEQUE OR DRAFT WOULD NOT HAVE B EEN PRACTICABLE, CONSIDERING THE NATURE OF THE TRANSACT ION WAS FALLACIOUS, WHEN ONE CONSIDERED THE OBJECT WITH WHICH THE PROVISION HAD BEEN BROUGHT ON THE STATUTE BOOK. THUS, THE CONTENTION OF THE ASSESSEE ON THIS ISSUE STANDS REJECTED. AND IN FACT THE SAID DECISION SUPPORTS TH E VIEW THAT SEC.40A(3) APPLIES TO PURCHASES OUTSIDE THE RE GULAR BOOKS. EVEN THE CASE OF HYNOUP WAS DECIDED WHEN THE RULE 6DD(J) WAS IN EXISTENCE AND AN EXCEPTION TO TH E APPLICATION TO THE SECTION WAS PROVIDED. PRESENTLY NO EXCEPTION IS PROVIDED TO SEC.40A(3). THE COUNSEL FOR ASSESSEE HAS FURTHER PLACED RELIANC E ON THE DECISION OF LD. I.T.A.T., IN THE CASE OF SHARMA ASSOCIATES V/S A.C.I.T. (1995) 55 ITD 171 (PUNE). I N THAT CASE, THERE WAS A DIFFERENCE OF OPINION BETWEEN THE HON'BLE MEMBERS OF THE TRIBUNAL AND HENCE THE MATTE R WAS REFERRED TO THE THIRD MEMBER. HERE, IT WAS HELD THAT, 'FOR THE PURPOSE OF APPLYIN G SECTION 40A(3), IT IS MANDATORY THAT ONE SINGLE PAY MENT 7 MUST EXCEED THE PRESCRIBED LIMIT. IT WAS FURTHER HE LD THAT, THERE IS NO MATERIAL ON RECORD TO SUGGEST THA T THE ENTIRE SUM WAS PAID AS ONE TRANSACTION OR THE VARIO US PAYMENTS ON VARIOUS DATES OR MONTHS EXCEEDED THE STATUTORY LIMIT LAID DOWN BY THE SECTION 40A (3). T O INVOKE SECTION 40A(3), A CLEAR FINDING WITH EVIDENC E IS NECESSARY THAT THE SINGLE PAYMENT BY AN ASSESSEE EXCEEDED THE STATUTORY LIMIT. IF THE DISALLOWANCE I S BASED ON MERE GUESS WORK, UNTOLD HARM IS LIKELY TO VISIT AN HONEST TAX PAYER'. THE DECISION OF LD. I.T.A.T. SUPRA IS CLEARLY DISTI NGUISHABLE ON THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE'S CASE. IN THE CASE OF THIS ASSESSEE, SEARCH ACTION WAS CARRIED OUT AND INCRIMINATING DOCUMENTS, DETAILING THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE, OUTSIDE THE REGULAR BOOKS OF A CCOUNT WERE FOUND AND SEIZED. FULL DETAILS, DATE WISE, PARTY WI SE ARE FOUND WRITTEN IN THE DOCUMENTS SEIZED DURING THE COURSE O F SEARCH. THE ASSESSEE IS IN THE BUSINESS OF TRADING AND MANU FACTURING OF STEEL PRODUCTS. ALL THESE TRANSACTIONS FOR PURCH ASE OF UNACCOUNTED RAW MATERIAL FOR MANUFACTURING OPERATIO N AS WELL AS UNACCOUNTED PURCHASES OF FINISHED STEEL PRODUCTS FOR TRADING OPERATIONS ARE HIGH VALUE TRANSACTIONS AND HARDLY ANY OF THEM ARE BELOW THE PRESCRIBED LIMIT OF RS.20,000 /-. HOWEVER, THE CONTENTS OF THE ENTIRE SEIZED MATERIAL HAVE BEEN ANALYZED AND THE TRANSACTIONS OF VALUE LESS THEN RS .20,000/- HAVE BEEN IGNORED FOR THE PURPOSES OF THE DISALLOWA NCES U/S 40A(3). FURTHER, THE ASSESSEE IN HIS SUBMISSION HAS NOT CHALLENGED THE EVIDENCE OF THE PAYMENTS BEING BELOW THE LIMITS PRESCRIBED UNDER THE ACT. THE AFORESAID DISCUSSION CLEARLY SHOWS THAT THE ASSESSEE'S CASE IS DISTINGUISHABLE F ROM THE FACTS OF THE CITED CASE. UNDER THESE CIRCUMSTANCES, THE CONTENTION OF THE ASSESSEE ON THIS ISSUE ALSO STAND S REJECTED. THE COUNSEL FOR ASSESSEE HAS FURTHER PLACED RELIANC E ON THE DECISION OF LD. 1.T.A.T., IN THE CASE OF SADHURAM W ADHWANI (2003) 81 ITJ 839 (NAG.). IN THIS CASE, IT HAS BEEN HELD THAT, 'DISALLOWANCE MADE BY THE AO U/S 40A(3) IN RESPECT OF PURCHASES DULY RECORDED IN THE BOOKS WAS OUTSIDE TH E AMBIT OF CHAPTER XIV-B OF THE ACT. ' EVEN PLAIN READING OF THE FINDING OF THE LD. ITAT S HOWS THAT THE DECISION HAS NO RELEVANCE TO THE FACTS AND CIRC UMSTANCES OF THE ASSESSEE'S CASE. IN THE CITED CASE, THE PURC HASES IN RESPECT OF WHICH, DISALLOWANCES WERE MADE U/S 40A(3 ) OF THE ACT WERE DULY RECORDED IN THE REGULAR BOOKS OF ACCO UNT. 8 FURTHER THE ADDITION MADE BY THE AO UNDER THE PROVI SION OF CHAPTER XIV-B OF THE ACT. HOWEVER, THE ADDITIONS IN THE ASSESSEE'S CASE RELATE TO THE PURCHASES WHICH HAVE NOT BEEN RECORDED IN THE REGULAR BOOKS OF ACCOUNT AND THE AS SESSMENT IS BEING DONE U/S 153A OF THE ACT. THE PROVISIONS O F CHAPTER XIV-B OF THE ACT ARE NO MORE ON THE STATUTE. CHAPTE R XIV IS A SEPARATE AND COMPLETE CODE FOR ASSESSING UNDISCLOSE D INCOME WHAT IS SOUGHT TO BE ASSESSED THEREIN IS 'TOTAL INC OME' AND NOT UNDISCLOSED INCOME AS PER THE PROVISIONS OF CHA PTER XIVB. HAVING REGARD TO THE ABOVE DISCUSSION, THE CONTENTI ON OF THE ASSESSEE ON THIS COUNT IS REJECTED. THE ASSESSEE HAS FURTHER RELIED UPON THE DECISION I N THE CASE OF CIT VIS BANWARILAL BANSIDHAR CITED AT 229 ITR 22 9 (ALL). IN THIS CASE, THE HON'BLE HIGH COURT HAS HELD THAT, 'W E SEE FORCE IN THE VIEW TAKEN BY THE IT AT THAT WHEN THE INCOME OF THE ASSESSEE WAS COMPUTED APPLYING THE GROSS PROFIT RAT E AND WHEN NO DEDUCTION WAS ALLOWED IN RESPECT OF PURCHAS ES OF THE ASSESSEE, THERE WAS NO NEED TO LOOK INTO THE PROVIS IONS OF SECTION 40A(3) AND RULE 6DD(J) AS NO DEDUCTION WAS ALLOWED TO AND CLAIMED BY THE ASSESSEE IN RESPECT OF THE PURCH ASES' THIS DECISION RELIED UPON BY THE ASSESSEE IS AGAIN DISTINGUISHABLE ON THE FACTS OF THE ASSESSEE'S CASE . IN THE INSTANT CASE, SEARCH ACTION HAS BEEN CARRIED OUT ON THE BUSINESS OF THE ASSESSEE GROUP. DOCUMENTS SHOWING T HAT THE ASSESSEE IS CARRYING OUT HIS BUSINESS OUTSIDE THE R EGULAR BOOKS OF ACCOUNT HAVE BEEN FOUND AND SEIZED. THE UNACCOUNTED PURCHASES, SALES AS WELL AS EXPENDITURE HAVE BEEN WORKED OUT BASED ON THESE SEIZED DOCUMENTS. TH E UNACCOUNTED PURCHASES MADE BY THE ASSESSEE HAVE BEE N ACCEPTED BY THE ASSESSEE, HE HAS CLAIMED DEDUCTION FOR THIS EXPENDITURE IN THE RETURNS OF INCOME FILED U/S 153A OF THE ACT, AND OFFERED THE ADDITIONAL GROSS PROFITS ON THESE T RANSACTIONS FOR TAXATION. THUS, THE CITED CASE DOES NOT COME TO THE RESCUE OF THE ASSESSEE. IT IS WORTHWHILE TO NOTE THAT THE CONSTITUTIONAL VA LIDITY OF THE PROVISIONS OF SECTION 40A(3) READ WITH RULE 6DD(J) HAS BEEN CHALLENGED ON TWO OCCASIONS. FOR THE FIRST TIME THE VALIDITY OF SECTION 40A(3) WAS QUESTIONED ON THE GROUND THAT IM POSITION OF TAX ON ASSUMED INCOME AMOUNTS TO PUTTING A RESTR ICTION ON THE RIGHT TO CARRY ON BUSINESS AND HENCE VIOLATIVE OF ARTICLES 14 AND 19(1)(G) OF THE CONSTITUTION. THE HON'BLE SUPRE ME COURT OF INDIA IN THE CASE OF ATTAR SINGH GURMUKH SINGH V/S I.T.O. 191 ITR 667 UPHELD THE VALIDITY OF THE SAID SECTION ON' THE 9 PREMISES THAT RULE 6DD OF THE RULES AMPLY TAKES CAR E OF THE ASSESSEE IN CASES OF GENUINE TRANSACTIONS. THE PROV ISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIES OF THE ASSESSEE. THE HON'BLE COURT FURTHER HELD THAT 'IN INTERPRETIN G A TAXING STATUTE, THE COURT CANNOT BE OBLIVIOUS OF PROLIFERA TION OF BLACK MONEY WHICH IS UNDER CIRCULATION IN OUR COUNTRY. AN Y RESTRAINT INTENDED TO CURB THE CHANCES AND OPPORTUNITY TO USE OR CREATE BLACK MONEY SHOULD NOT BE REGARDED AS CURTAILING TH E FREEDOM OF TRADE OR BUSINESS'. SUBSEQUENTLY, W.E.F. 25.07.1995 CLAUSE (J) OF RULE 6DD WAS OMITTED. AT THIS POINT, THE CONSTITUTIONAL VALIDITY OF SECTION 40A(3) WAS ONCE AGAIN CHALLENGED. IN THE CASE OF SM T. MANGAYAMMA VIS UNION OF INDIA, 239 ITR 687 (AP) IT WAS HELD THAT, 'THERE ARE ABSOLUTELY NO MERITS IN THE CHALLE NGE MADE AS TO VALIDITY OF SECTION 40A(3) OF THE ACT BY MERE DE LETION OF SUB- CLAUSES (1) & (2) OF RULE 6DD(J). THE SAID PROVISIO N IS PERFECTLY VALID AND WE MAY HASTEN TO ADD THAT THE DELETION OF SUB- CLAUSES (1) & (2) OF RULE 6DD(J) IS ONLY A STEP FOR WARD IN ACHIEVEMENT OF THE AVOWED OBJECT ENVISAGED U/S 40A( 3) OF THE ACT. HAVING REGARD TO THE ENTIRE DISCUSSION ABOVE, THE A SSESSEE'S CONTENTION IN FACTS AND IN LAW THAT THE TRANSACTION S OUTSIDE THE REGULAR BOOKS OF ACCOUNT ARE NOT HIT BY SEC.40A (3) OF THE ACT, IS REJECTED. ON VERIFICATION OF DETAILS OF THE UNRECORDED PURCHASES IT IS SEEN THAT THE PURCHASES HAVE BEEN M ADE IN CASH EXCEEDING RS.20000/- ON EACH OCCASION VIOLATIN G THE PROVISIONS OF SEC.40A(3) TOTAL TO RS.69079640/-. TH E QUANTUM OF PURCHASES, EACH PURCHASES EXCEEDING RS.20000 HAV E BEEN COMMUNICATED TO THE ASSESSEE VIDE THIS OFFICE SHOW CAUSE NOTICE DATED 8.10.07. THE ASSESSEE HAS NOT DISPUTED THE QUANTUM OF SUCH PURCHASES BUT HAS ONLY DISPUTED THE PRINCIPLES OF APPLICATION OF SEC.40A(3). HENCE, 20% OF THE UNACCOUNTED PURCHASES AND EXPENDI TURE CLAIMED BY THE ASSESSEE IN COMPUTATION OF THE GROSS PROFITS ON TRANSACTIONS OUTSIDE THE BOOKS OF ACCOUNT, WHICH AR E ABOVE THE LIMITS PRESCRIBED UNDER THE ACT, IS DISALLOWED AT RS.13815928/- AND ADDED BACK TO THE TOTAL OF THE PE RIOD UNDER ASSESSMENT. 50% OF THE ABOVE DISALLOWANCE IS BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE AT RS.69079640/ - THE BALANCE 50% IN THE HANDS OF HIS BROTHER SHRI ARVIND M.AGRAWAL. I AM SATISFIED THAT IT IS FIT CASE FOR I NITIATION OF PENAL PROCEEDINGS U/S.271(1)( C). 10 5.1. DURING THE COURSE OF APPELLATE PROCEEDINGS, TH E ASSESSEE FILED DETAILED SUBMISSIONS ON 18.06.2009. THE ASSESSEE FI LED FURTHER SUBMISSIONS ELABORATELY BY WAY OF PAPER BOOK DATED 15.09.2009. THE RELEVANT PORTION OF ASSESSEES SUBMISSIONS IS E XTRACTED AS UNDER: '1.1 THE LEARNED ASSESSING OFFICER HAS MADE THE ADD ITION OF RS.69,07,964/- UNDER THE PROVISIONS OF SECTION 40A( 3) IN RESPECT OF PURCHASES OF STEEL ETC. AS FOUND BY HIM FROM THE ENTRIES AND NOTING IN THE SEIZED DOCUMENTS. HE FOUN D THAT SUCH PURCHASES WERE NOT RECORDED IN THE REGULAR BOO KS,-'OF ACCOUNTS OF ANY OF THE VARIOUS BUSINESS CONCERNS OF THE GROUP AND CONCLUDED THAT THEY WERE MADE BY MAKING PAYMENT S IN CASH. HE IDENTIFIED THE ENTRIES EXCEEDING RS.20,000 /- OUT OF SUCH PURCHASES AND QUANTIFIED THE AGGREGATE OF SUCH ALLEGED CASH PURCHASE ENTRIES AT RS. 6,90,79,640/-. AS DISC USSED BY HIM IN PARA 6 OF THE ASSESSMENT ORDER HE ARRIVED AT THE AMOUNT OF DISALLOWANCE U/S 40A(3) AT RS.1,38,15,928 /- BEING 20% OF SUCH PURCHASES OF RS.6,90,79,640/-. THE ADDI TION FOR SUCH DISALLOWANCE RS.1,38,15,928/- WAS EQUALLY DIVI DED BY HIM IN THE HANDS OF TWO INDIVIDUAL ASSESSES OF THE GROUP, NAMELY THE PRESENT APPELLANT SHRI NARENDRA MITHAILA L AGRAWAL AND HIS BROTHER SHRI ARVIND MITHAILAL AGRAWAL. HENC E, THE ADDITION OF RS. 69, 07, 964/- MADE IN THE CASE OF T HE PRESENT APPELLANT IS THE ISSUE CONTESTED IN THIS GROUND OF APPEAL. 1.2 THE APPELLANT HAD FILED THE RETURN OF INCOME OF INCOME FOR A.Y. 2006-07 ON 31/10/2006 ON THE INCOME OF RS.1,87,31,600/-. THIS RETURN WAS ACCOMPANIED BY TH E COMPUTATION OF INCOME AND IT IS GIVEN AT PAGE NO. - ----- OF THE PAPER-BOOK. THE COMPUTATION OF INCOME STARTS WITH T HE NET PROFIT AS PER PROFIT & LOSS ACCOUNT AS PER REGULAR BOOKS OF ACCOUNTS TO WHICH ITEMS OF INCOME ARISING OUT OF SE ARCH MATTERS WAS ADDED AS UNDER: THUS THE ADDITIONAL INCOME AMOUNT OF RS.1,82,00,000 /- & RS.40,00,000/- WAS SHOWN IN THE RETURN ON ACCOUNT O F CASH FOUND AND SEIZED WHILE THE ADDITIONAL INCOME AMOUNT OF RS.76,06,864/- WAS SHOWN ON ACCOUNT TRANSACTIONS AN D ENTRIES RECORDED IN THE SEIZED DOCUMENTS. THIS ADDI TIONAL INCOME OF RS76,06,864/- SHOWN ON ACCOUNT TRANSACTIO NS AND ENTRIES RECORDED IN THE SEIZED DOCUMENTS WAS ESTIMA TED AS PER THE WORKING GIVEN AT PAGES OF THE PAPER BOOK. 11 1.3 DURING THE COURSE OF SEARCH THE STATEMENT U/S 1 32(4) OF SHRI ARVIND MITHAILAL AGRAWAL WAS RECORDED ON 22/09 /2005. IN ANSWER TO QUESTION NO.22 OF THE SAID STATEMENT, THE INCOME OF RS.2,45,64,226/- WAS DISCLOSED JOINTLY IN THE HA NDS OF THE APPELLANT SHRI NARENDRA MITHAILAL AGRAWAL AND SHRI ARVIND MITHAILAI AGRAWAL. 1.4 IN PARTICULAR IN THE CASES OF THE PRESENT APPEL LANT AND HIS BROTHER SHRI ARVIND MITHAILAL AGRAWAL, THE TOTAL SA LES AS PER SEIZED DOCUMENTS WERE RS.9,72,10,265/- AND THE GROS S PROFIT THEREON WAS ESTIMATED AT RS.82,19,438/-. FROM SUCH ESTIMATED GROSS PROFIT OF RS.82,19,438/-, THE EXPEN SES AS PER SEIZED RECORDS WERE DEDUCTED AND THE NET PROFIT WAS ARRIVED AT RS.76,06,864/-. THE DETAILED WORKING OF SUCH NET PR OFIT FILED WITH THE LEARNED A.G. IS GIVEN AT PAGE NO.---- OF T HE PAPER- BOOK. THIS NET PROFIT OF RS.76, 06, 864/- WAS DIVID ED EQUALLY BETWEEN THE TWO BROTHERS NAMELY, THE PRESENT APPELL ANT SHRI NARENDRA MITHAILAL AGRAWAL AND HIS BROTHER SHRI ARV IND MITHAILAL AGRAWAL. SUCH HALF SHARE OF THE APPELLANT WAS RS.38,03,432/-. SINCE, THE GROSS PROFIT WAS ESTIMAT ED ON THE SALES AND THE NET PROFIT ARRIVED AT AFTER DEDUCTING CERTAIN EXPENSES FROM SUCH ESTIMATED GROSS PROFIT, IT IS CL AIMED THAT THE NET PROFIT WAS ALSO ESTIMATED. THIS ESTIMATED N ET PROFIT OF RS.38,03,432/- WAS FURTHER ENHANCED BY THE CASH DIS CLOSED OF RS. 91, 00,000/- AND TOTAL ADDITIONAL INCOME OF RS. 1, 09, 03,432/- WAS SHOWN IN THE RETURN BY THE APPELLANT. SIMILARLY, THE APPELLANT'S BROTHER SHRI ARVIND MITHAILAL AGRAW AL ALSO HAD SHOWN THE TOTAL ADDITIONAL INCOME OF RS.1,09,03,432 /- CONSISTING OF ESTIMATED NET PROFIT OF RS. 38, 03,43 2//AND THE CASH DISCLOSED OF RS.91,00,000/-. THIS CASH DISCLOS ED WAS SHOWN UNDER THE HEAD BUSINESS INCOME. THUS, THE EST IMATED BUSINESS INCOME OF RS.1,09,03,432/- WAS SHOWN IN EA CH THE RETURNS OF THE APPELLANT AND HIS BROTHER SHRI ARVIN D. THIS FACT HAS BEEN RECOGNIZED BY THE LEARNED A.O. AND IN PARA 6 ON PAGE 4 OF THE ASSESSMENT ORDER, HE HAS STATED AS UNDER: THE ASSESSEE CHOOSE TO COMPUTE THE ADDITIONAL INCO ME BY ADOPTING A CERTAIN PERCENTAGE OF THE SALES AS INCOM E'. 1.5 THIS ESTIMATED NET PROFIT FIGURE HAS ALSO BEEN TAKEN BY THE LEARNED A.O. IN THE COMPUTATION ON PAGE 14 OF THE A SSESSMENT ORDER. THUS THE LEARNED A.O. HAS ALSO ASSESSED THE INCOME BY ACCEPTING THE NET BUSINESS INCOME COMPUTED ON THE B ASIS OF GROSS PROFIT ESTIMATED ON THE TURNOVER, WHICH WAS T AKEN AS PER TRANSACTIONS RECORDED IN THE SEIZED DOCUMENTS. HOWE VER, THE 12 ADDITION IN RESPECT OF DISALLOWANCE U/S 40A(3) WAS MADE BY HIM. 1.6 WE CLAIM THAT THE ENTIRE BUSINESS TRANSACTIONS AS PER SEIZED DOCUMENTS WERE GENUINE BUSINESS TRANSACTIONS . BECAUSE OF THE PECULIAR CIRCUMSTANCES, THE APPELLAN T AND HIS BROTHER SHRI ARVIND WERE COMPELLED TO DO SUCH BUSIN ESS WITHOUT RECORDING IN THE REGULAR BOOKS OF ACCOUNTS. OBVIOUSLY, THE SALES WERE IN CASH AND PURCHASES WERE ALSO IN C ASH BUT BOTH ARE GENUINE TRANSACTIONS. THE LEARNED A.O. HAS ACCEPTED THE FIGURE OF SALES AS PER SEIZED DOCUMENTS. WE CLA IM THAT PURCHASES AS PER THE SAME SEIZED DOCUMENTS CANNOT T REATED AS NOT GENUINE. THE LEARNED A.O. HAS ALSO NOWHERE S TATED THAT HE IS ACCEPTING ONLY SALES OUT OF THE SEIZED DOCUME NTS. HE HAS NOT GIVING ANY FINDING THAT THE PURCHASES ARE NOT G ENUINE. ON THE OTHER HAND, THE PROVISIONS OF SECTION 292C INSE RTED BY FINANCE ACT, 2007 WITH A RETROSPECTIVE EFFECT FROM 01/10/1975, PROVIDE THAT THE CONTENTS OF SEIZED BOO KS OF ACCOUNT AND OTHER DOCUMENTS ARE TRUE. HENCE WE CLAI M THAT THE PURCHASES AS PER SEIZED DOCUMENTS ARE GENUINE, THOUGH THEY ARE IN CASH AND WERE UNRECORDED IN THE REGULAR BOOKS OF ACCOUNTS. CONSIDERING SUCH PECULIAR CIRCUMSTANCES, THE PROVISIONS OF SECTION 40A(3) ARE NOT APPLICABLE. 1.7. IT IS FURTHER CLAIMED ON BEHALF OF THE APPELLA NT THAT WHEREVER THE INCOME IS ASSESSED BY ESTIMATING THE G ROSS PROFIT OR NET PROFIT IN SUCH MANNER, THE DISALLOWANCE U/S 40A(3) CANNOT BE MADE. IN THIS RESPECT, WE RELY ON THE FOL LOWING HIGH COURT DECISIONS 1) CIT VS. BANWARILAL BANSIDHAR (19 98) 148 CTR (ALL) 533: (1998) 229 ITR 229 (ALL) - BUSINESS EXPENDITURE- DISALLOWANCE UNDER S.40A(3)-INCOME ASSESSED AT G.P. RATE- WHERE INCOME IS ASSESSED AT G.P. RATE BY REJECTING THE BOOKS OF ASSESSEE UNDER S.145(1) PROVISO, NO DISALLOWANCE CAN BE MADE SEPARATELY UNDER S.40A(3). THIS IS ONE OF THE FOREMOST DECISION ON THIS POINT WHICH IS BEING FOLLOWED BY OTHER SEVERAL HIGH COURTS AND ITA T BENCHES EVEN AFTER THE SUBSEQUENT AMENDMENTS IN SECTION 40A (3) AS WELL AS IN RULE 6DD(J). IN PARA 3 OF THIS DECISION, THE HONOURABLE HIGH COURT OF ALLAHABAD HAS STATED AS UN DER: '3. ALL THE THREE QUESTIONS, REFERRED TO THIS COURT , REVOLVE ROUND THE SAME CONTROVERSY. THE QUESTION FOR CONSIDERATION IS THAT WHEN NO DEDUCTION WAS SOUGHT AND ALLOWED UNDER S.40A(3), WAS THERE ANY N.EED TO GO I NTO S.40A(3) AND R.6DD(J). WE SEE FORCE IN THE 'VIEW TA KEN BY 13 THE TRIBUNAL THAT WHEN INCOME OF THE ASSESSEE WAS COMPUTED APPLYING THE GROSS PROFIT RATE AND THAT WH EN NO DEDUCTION WAS ALLOWED IN REGARD TO THE PURCHASES OF THE ASSESSEE, THERE WAS NO NEED TO LOOK INTO THE PROVIS IONS OF S.40A(3) AND R.6DD(J). NO DISALLOWANCE COULD HAVE B EEN MADE IN VIEW OF THE PROVISIONS OF S.40A(3) R/W R.6D D(J) AS NO DEDUCTION WAS ALLOWED TO AND CLAIMED BY THE ASSE SSEE IN RESPECT OF THE PURCHASES. WHEN GROSS PROFIT RATE IS APPLIED, THAT WOULD TAKE CARE OF EVERYTHING AND THE RE WAS NO NEED FOR THE AO TO MAKE SCRUTINY OF THE AMOUNT INCURRED ON THE PURCHASES BY THE ASSESSEE. NO LAW CONTRARY TO THE VIEW TAKEN BY THE TRIBUNAL, HAS BEEN SHOWN BY THE STANDING COUNSEL.' WE CLAIM THAT EVEN NOW THERE IS NEITHER ANY LAW NOR ANY JUDICIAL DECISION OF ANY HIGH COURT CONTRARY TO THI S VIEW. 2) CIT VS. S. MOHAMMAD DHURABUDEEN (2008) 4 DTR (MA D) 218 BUSINESS EXPENDITURE - DISALLOWANCE UNDER S.40A (3) - INCOME ESTIMATED BY APPLYING GP RATE-WHEN DISALLOWA NCE UNDER S.40A(3) IS MADE, THE OVERALL INCOME SHOULD N OT EXCEED THE PROBABLE PERCENTAGE OF PROFIT - GENUINENESS OF THE TRANSACTION, NATURE OF THE PAYMENTS AND THE NATURE OF THE BUSINESS ARE ALSO TO BE TAKEN INTO ACCOUNT - IT WAS HELD THAT THE DISALLOWANCE UNDER S. 40A(3) SHOULD NOT BE APPL IED MECHANICALLY AND WHEN SUCH DISALLOWANCES ARE MADE, IT SHOULD NOT EXCEED THE OVERALL PROBABLE PERCENTAGE O F PROFIT AND THE DECISION OF CIT VS. BANWARILAL BANSHIDHAR (1998 ) 148 CIR (ALL) 533: (1998) 229 I1R 229 (ALL) WAS RELIED ON. 3) CIT VS. SMT.SANTOSH JAIN (2008) 296 ITR 324 (P&H ): (2007) 159 TAXMAN 392 (P&H) - BUSINESS EXPENDITURE-DISALLO WANCE UNDER S. 40A(3)-ESTIMATION OF INCOME BY APPLYING GP RATE- WHEN INCOME OF THE ASSESSEE IS COMPUTED BY APPLYING GP RATE, THERE IS NO NEED TO INVOKE THE PROVISIONS OF S. 40A (3), AS APPLYING THE GP RATE TAKES CARE OF EXPENDITURE PAID OTHERWISE BY WAY OF CROSSED CHEQUE ALSO (CIT VS. BANWARI LAL BANSHIDHAR (1998) 148 CTR (ALL) 533: (1998) 229 ITR 229 (ALL) CONCURRED WITH. 4) CIT VS. PURUSHOTTAMLAL TAMRAKAR UCHEHRA (2003) 1 84 CTR (MP) 349: (2004) 270 ITR 314 (MP) - SEARCH AND SEIZ URE - BUSINESS EXPENDITURE - DISALLOWANCE UNDER S.40A(3) - APPLICATION OF NET PROFIT RATE SEC.40A(3) IS NOT APPLICABLE 14 WHEN INCOME IS DETERMINED BY THE AD BY APPLYING NET PROFIT RATE - IN PARA 8 OF THIS DECISION, THE HONOURABLE H IGH COURT OF MADHYA PRADESH HAS HELD AS UNDER: '8. IT IS SUBMITTED BY MR.PUROHIT THAT THE AO HAS DETERMINED THE INCOME BY APPLYING THE PRINCIPLE OF NET PROFIT RATE THEREBY TAKING INTO CONSIDERATION THE W HOLE AMOUNT WHICH WAS TRANSACTED BELOW THE PERMISSIBLE L IMIT UNDER S. 40A(3). IT IS CONTENDED BY HIM THAT ONCE T HE WHOLE AMOUNT IS COMPUTED ON THE FORMULA OF NET RATE INCOME, THERE IS NO QUESTION OF GRANT OF DEDUCTION AS ENVISAGED UNDER S. 40A(3). WE ARE OF THE CONSIDERED OPINION THAT THE SUBMISSION OF MR. PUROHIT HAS SUBSTANTIAL FORCE AND THE TRIBUNAL HAS RIGHTLY TREA TED 'THAT S. 40A(3) IS NOT APPLICABLE, WHEN NET PROFIT RATE IS APPLIED BY THE AO. ' 5) INDWELL CONSTRUCTIONS VS. CIT (1999) 151 CTR (AP ) 207: (1998) 232 IIR 776 (AP) - INCOME - ADDITION - REJEC TION OF BOOKS - REVENUE CANNOT RELY ON SAME BOOKS FOR ADDIT ION OF EXPENDITURE SHOWN IN P & L A/C - WE CLAIM THAT THOUGH THIS DECISION IS IN RESPECT OF INCOME ASSESSED ON ESTIMATION BY REJECTION OF REGULAR BOOK S OF ACCOUNTS AND IN RESPECT OF ADDITION OF EXPENDITURE, THE RATIO EQUALLY APPLIES TO THE UNRECORDED TRANSACTIONS OR T O THE TRANSACTIONS AS PER DUPLICATE SET OF BOOKS OF ACCOU NTS AND ALSO TO THE DISALLOWANCE U/S 40A(3). 1.9 THE SAME VIEW IS CONSISTENTLY TAKEN BY SEVERAL ITAT BENCHES AND THEY HAVE HELD THAT DISALLOWANCE U/S 40 A(3) CANNOT BE MADE IN A CASE WHERE IN THE INCOME IS ASS ESSED BY ESTIMATING EITHER THE GROSS PROFIT OR NET PROFIT. WE RELY ON THE FOLLOWING ITAT DECISIONS IN THIS RESPECT: (I) CHHATTISGARH STEEL CASTING (P) LTD. VS. ACIT (2 008) 8 DTR (BILASPUR)(TRIB) 14 - BUSINESS EXPENDITURE - DISALL OWANCE UNDER S.40A(3) - ESTIMATION OF INCOME - DISALLOWANC E UNDER S.40A(3) MADE BY AO OUT OF UNRECORDED PURCHASES FRO M THE RECORD SEIZED BY EXCISE DEPARTMENT WAS UNCALLED FOR WHERE INCOME WAS ESTIMATED - CIT VS. SMT.SANTOSH JAIN (20 08) 296 ITR 324 (P&H), CIT VS. PURSHOTTAMLAL TAMRAKAR UCHEH RA (2003) 184 CTR (MP) 349: (2004) 270 ITR 314 (MP), C IT VS. BANWARILAL BANSHIDHAR (1998) 148 CTR (ALL) 533: (19 98) 229 15 ITR 229 (ALL) RELIED ON - IN PARA 43 OF THE ORDER T HE HONOURABLE ITAT MEMBERS HAVE REMARKED AS UNDER: (II) J.K. CONSTRUCTION CO. VS. ITO (2006) 100 TTJ ( JODHPUR) 1101 - AFTER APPLYING GP RATE, IT WAS NOT OPEN TO T HE AO TO CONSIDER THE EXPENSES SEPARATELY AND THEREFORE NO S EPARATE ADDITION UNDER S. 40A(3) CAN BE MADE - OBVIOUSLY, W HEN THE GP RATE OF 5 PER CENT WAS APPLIED BY REJECTING THE BOOKS OF ACCOUNT, THE AO BECAME POWERLESS TO AGAIN GO THROUG H THE BOOKS OF ACCOUNT AND MAKE SEPARATE ADDITIONS UNDER S. 40A(3). WHERE THE AO HAS MADE TRADING ADDITION AFTE R REJECTING BOOKS OF ACCOUNT AND APPLIED GP RATE, NO SEPARATE ADDITION UNDER S. 40A(3) CAN BE MADE. CIT VS. BHANW ARI LAL BANSIDHAR (1998) 148 CTR (ALL) 533: (1998) 229 ITR 229 (ALL) FOLLOWED. (III) ITO VS. KENARAM SAHA & SUBHASH SAHA (2008) 11 6 TTJ (KOL)(SB) 289: (2009) 116 ITD 1: (2008) 8 DTR 124 - BUSINESS EXPENDITURE - DISALLOWANCE UNDER S.40A(3) - ESTIMAT ION OF INCOME BY APPLYING NET PROFIT RATE-ONCE A NET PROFI T RATE IS APPLIED, THERE IS NO SCOPE FOR FURTHER DISALLOWANCE UNDER S.40A(3) - CIT VS. BANWARILAL BANSHIDHAR (1998) 148 CTR (ALL) 533: (1998) 229 ITR 229 (ALL) FOLLOWED (IV) ARMOUR CHEMICALS LTD. VS. JT.CIT (2007) 17 SOT 467 (MUMBAI) ACCOUNTS-REJECTION-ESTIMATION OF NET PROFI TS- BUSINESS EXPENDITURE-DISALLOWANCE UNDER S. 40A(3)-B OOKS REJECTED AND NET PROFITS ESTIMATED-AMOUNT EQUAL TO DISALLOWANCE MADE UNDER S.40A(3) IS REQUIRED TO BE REDUCED FROM ESTIMATED PROFITS (V) INDIA SEED HOUSE VS. ACIT (2000) 69 TTJ (DEL) ( TM) 241 SEARCH AND SEIZURE - BLOCK ASSESSMENT - COMPUTATION OF UNDISCLOSED INCOME - ASSESSEE ADMITTED UNACCOUNTED SALES AS WORKED OUT BY AO AND ACCEPTED G.P. RATE OF 7 PER CE NT - BUSINESS EXPENDITURE - DISALLOWANCE UNDER S.40A(3) - ASSESSMENT AFTER APPLYING GROSS PROFIT RATE - NO DI SALLOWANCE UNDER S. 40A(3) COULD BE MADE WHEN INCOME IS ESTIMA TED AFTER APPLYING GROSS PROFIT RATE - CIT VS. BANWARILAL BAN SI DHAR (1998) 148 CTR (ALL) 533 : (1998) 229 ITR 229 (ALL) FOLLOWED. (VI) P.C.MUNDRA VS. ACIT (2003) 80 TTJ (JP) 945 - B USINESS EXPENDITURE - DISALLOWANCE UNDER S.40A(3) - ESTIMAT ION OF INCOME BY APPLYING GROSS PROFIT RATE-WHERE NO BOOKS EXIST AND TRADING ADDITION HAS BEEN MADE BY ESTIMATING GROSS PROFIT 16 RATE, PROVISION OF S.40A(3) CANNOT BE INVOKED - P.C .MUNDRA (ITA NOS.1342/JP/1997 AND 1448/]P/1997 DT. 7TH APRI L, 2000) FOLLOWED (VII) ACIT VS. PADAM CHAND BHANSALI (2004) 85 TTJ ( JD) 215 BUSINESS EXPENDITURE - DISALLOWANCE UNDER S.40A(3) - INCOME COMPUTED BY APPLYING NET PROFIT RATE-INCOME HAVING BEEN COMPUTED BY REJECTING THE BOOK RESULTS AND BY APPLY ING THE NET PROFIT RATE, NO ADDITION UNDER S.40A(3) COULD B E MADE - CIT VS. BANWARILAL BANSHIDHAR (1998) 148 CTR (ALL) 533 : (1998) 229 ITR 229 (ALL) AND INDWELL CONSTRUCTIONS VS. CIT (1999) 151 CTR (AP) 207: (1998) 232 ITR 776 (AP) FOLLOWED (VIII) JAGADISH LAL VS. ITO (2005) 94 TTJ (JD) 1119 - BUSINESS EXPENDITURE - DISALLOWANCE UNDER S.40A(3)-REJECTION OF BOOK RESULTS AND ESTIMATION OF INCOME - ONCE GP RATE IS APPLIED TO COMPUTE THE INCOME, EXPENSES ARE DEEMED TO BE CONSI DERED - CONSEQUENTLY, NO FURTHER DISALLOWANCE UNDER S. 40A( 3) CAN BE MADE - CIT VS. BANWARILAL BANSIDHAR (1998) 148 CTR (ALL) 533: (1998) 229 ITR 229 (ALL) AND CIT VS. PURSHOTTAMLAL TAMRAKAR UCHEHRA (2003) 184 CTR (MF) 349: (2004) 270 ITR 314 (MP) FOLLOWED. (IX) GOPALSINGH R. RAJPUROHIT VS. ACIT (2005) 94 TT J (AHD) 865 - BUSINESS EXPENDITURE - DISALLOWANCE UNDER S.40A(3 ) - ASSESSMENT UNDER S.44AF - ASSESSEE ENGAGED IN RETAI L BUSINESS DISCLOSED NET PROFIT LESS THAN THAT PRESCR IBED UNDER S.44AF, GOT HIS ACCOUNTS AUDITED AND WAS ASSESSED ACCORDINGLY - PROVISIONS OF SS.28 TO 43C, INCLUDING S. 40A(3), ARE NOT APPLICABLE WHERE THE RETAIL TRADERS ARE TAX ED IN A PRESUMPTIVE MANNER UNDER THE PROVISIONS OF S.44AF - ASSESSEE HAVING AGREED TO ASSESSMENT UNDER SA4AF(L) , AO IS DIRECTED TO APPLY NET PROFIT RATE OF 5 PER CENT ON TOTAL TURNOVER AND DELETE THE DISALLOWANCE UNDER S.40A(3). (X) NEW NARAYAN BUILDERS VS. ITO (1992) 43 IT] (AHD ) 508 BUSINESS EXPENDITURE - DISALLOWANCE UNDER S.40A(3) - CASH PAYMENT EXCEEDING RS.2,500 - ASSESSMENT FRAMED ON B EST JUDGMENT BASIS AFTER REJECTING BOOKS OF ACCOUNTS - PROVISIONS OF S.40A(3) CANNOT BE APPLIED - THIS IS AN OLD DECI SION GIVEN MUCH BEFORE THE DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. BANWARILAL BANSIDHAR (1998) 148 CTR (ALL ) 533: (1998) 229 ITR 229 (ALL). EVEN OTHER BENCHES OF ITA T ALSO HAD GIVEN SIMILAR FINDINGS, WHICH ARE QUOTED BY US SEPA RATELY. BUT IN THIS PARTICULAR DECISION, THE ITAT AHMEDABAD BEN CH HAD GIVEN THE FOLLOWING REASONING IN THEIR JUDGMENT: 17 THIS IS A CASE WHERE THE METHOD OF ACCOUNTING AS W ELL AS THE ACCOUNT BOOKS HAVE BEEN REJECTED AND THE PROFITS HA VE BEEN COMPUTED BY APPLYING A FLAT RATE OF NET PROFIT ON T HE DECLARED AMOUNT OF CONTRACT RECEIPTS. PROVISIONS OF 145(2) H AVE, THEREFORE, BEEN CLEARLY INVOKED. THE PROVISIONS OF S. 40A ENUMERATE EXCEPTIONS OF PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES. SUB-S (3) OF S.40A PROVIDES FOR DISA LLOWANCE OUT OF EXPENDITURE CLAIMED BY THE ASSESSEE IN RESPE CT OF THOSE EXPENDITURE THE PAYMENT OF WHICH IS MADE OTHERWISE THAN BY A CROSSED CHEQUE OF A SUM EXCEEDING RS. 2,500. SINCE THE ENTIRE AMOUNT OF EXPENDITURE CLAIMED BY THE ASSESSEE AS TH E PER BOOKS OF ACCOUNTS HAVE BEEN TOTALLY IGNORED AND THE PROFITS HAVE BEEN ESTIMATED BY APPLYING A FLAT NET PROFIT R ATE BEFORE DEPRECIATION, THE PROVISIONS OF S.40(3) WOULD NOT B E APPLICABLE. THE RESTRICTIONS CONTAINED IN S.40A(3) RELATING TO ALLOWABILITY OF ANY EXPENDITURE WOULD COME INTO PLAY ONLY WHEN SUCH EXPENDITURE IS OTHERWISE TREATED AS ALLOWABLE UNDER SS.30 TO 37. IF THE INCOME OF THE ASSESSEE IS DETERMINED BY APPLYING A FLAT NET PROFIT RATE THE QUESTION OF CONSIDERING TH E ALLOWABILITY OF DIFFERENT ITEMS OF EXPENSES DOES NOT ARISE AT AL L. THEREFORE IN CASES WHERE THE PROVISIONS OF S.145(2) ARE INVOKED AND THE INCOME OF THE ASSESSEE IS ESTIMATED BY APPLYING A F LAT RATE OF NET PROFIT NO SEPARATE ADDITION BY RESORTING TO S.4 0A CAN BE VALIDLY MADE.' AS CLAIMED EARLIER WE STATE THAT THO UGH THIS DECISION IS IN RESPECT OF INCOME ASSESSED ON ESTIMA TION BY REJECTION OF REGULAR BOOKS OF ACCOUNTS, THE RATIO E QUALLY APPLIES TO THE UNRECORDED TRANSACTIONS OR TO THE TRANSACTIO NS AS PER DUPLICATE SET OF BOOKS OF ACCOUNTS. (XI) ITO VS. M.SREEDHARA PANICKER - (1979) 7 TTJ (C OCH) 573 ACCOUNTS-REJECTION-DISALLOWANCE UNDER S.40A(3) - TH ERE IS NO RULE THAT WHEN ACCOUNTS ARE REJECTED AN ADDITION TO TRADING ACCOUNT IS INEVITABLE BUSINESS EXPENDITURE-DISALLOW ANCE UNDER S.40A(3) - SCOPE - ESTIMATION OF REASONABLE P ROFITS BY BEST JUDGMENT ASSESSMENT - CERTAIN ITEMS WERE PURCH ASED ON CASH PAYMENT EXCEEDING RS.2,500 - IT CANNOT BE SAID THAT SPECIFIC ITEMS OF EXPENDITURE EXCEEDING RS.2,500 IN CASH HAVE GONE INTO THE COMPUTATION OF THE ESTIMATE OF REASON ABLE PROFITS-NO SCOPE OF DISALLOWANCE THEREFORE - SAME D ELETED ' (XII) SARWAN SIGH CONTRACTORS VS. ITO (1995) 55ITD (CHD) 192 ASSESSMENT - DETERMINATION OF INCOME - ADDITIONS UN DER S. 40A(3) - REJECTION OF ACCOUNT BOOKS AND APPLICATION OF FLAT RATE ON GROSS RECEIPTS - THERE WAS NO JUSTIFICATION IN A GAIN LOOKING INTO ACCOUNTS FOR MAKING FURTHER ADDITIONS UNDER S. 40A(3) 18 1.10 DURING THE COURSE OF ASSESSMENT PROCEEDINGS WE HAD RELIED ON THE DECISION OF ITAT, AHMEDABAD BENCH IN THE CASE OF HYNOUP FOOD & OIL INDUSTRIES (P) LTD. VS. ACIT ( 1993) 47 TTJ (AHD) 556. BUT IN PARA 6 ON PAGE 4 OF THE ASSES SMENT ORDER, THE LEARNED A.O. HAS STATED THAT THE SAID DE CISION OF ITAT HAS BEEN REVERSED BY GUJARAT HIGH COURT IN CIT VS. HYNOUP FOOD & OIL IND. (P) LTD. (2005) 199 CTR (GUJ ) 350: (2007) 290 ITR 702 (GUJ): (2006) 150 TAXMAN 194 (GU J). HOWEVER, WITH DUE RESPECT, WE BRING TO YOUR KIND NO TICE THAT THE SAID DECISION WAS GIVEN BY THE HONOURABLE HIGH COURT IN ABSENCE OF ANY REPRESENTATION ON BEHALF OF THE RESP ONDENT ASSESSEE. FURTHER THE DEPARTMENTAL COUNSEL IN THAT CASE HAD NOT BROUGHT TO THE NOTICE OF THE HIGH COURT THAT TH E GROSS PROFIT WAS ESTIMATED BY THE A.O. AND THE ISSUE OF D ISALLOWANCE U/S 40A(3) UNDER BACKGROUND OF SUCH ESTIMATION OF G ROSS PROFIT WAS NOT AT ALL REFERRED AND NOT ALL CONSIDER ED BY THE HIGH COURT. ON THE OTHER HAND, IN THIS CASE THE ITAT, AH MEDABAD, HAD REFERRED THE FOLLOWING QUESTION FOR THE OPINION OF THE HONOURABLE GUJARAT HIGH COURT UNDER S. 256(1) OF TH E IT ACT, 1961 (THE ACT), AT THE INSTANCE OF THE CIT, GUJARAT CENTRAL, AHMEDABAD: 'L. WHETHER THE TRIBUNAL IS RIGHT IN LAW AND ON FAC TS IN DELETING THE DISALLOWANCE MADE UNDER S.40A(3) HOLDING THAT T HE EXCEPTIONS TO THAT SECTION IN R. 6DD(J) CAN BE APPL IED FOR PAYMENTS WHICH WERE MADE IN THE COURSE OF A BUSINES S OUTSIDE THE BOOKS?' THERE WAS NO OTHER QUESTION REFERRED TO THE HONOURA BLE GUJARAT HIGH COURT IN THIS CASE. HENCE IT WAS HELD BY THE HONOURABLE GUJARAT HIGH COURT THAT '22. THE QUESTION REFERRED TO THE COURT IS, THEREFO RE, ANSWERED IN THE NEGATIVE I.E., IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE.' HENCE, IT CANNOT BE SAID THE HONOURABLE GUJARAT HIGH COURT HAS LAID DOWN ANY RATIO CONTRARY TO THE CLAIM OF THE APPELLANT THAT IF THE INCOME IS ESTIMATED ON GR OSS PROFITS RATE, NO FURTHER DISALLOWANCE CAN BE MADE UNDER S.4 0A(3).' 5.2. THE ASSESSING OFFICER IN HIS REMAND REPORT DAT ED 06.11.2009 SUBMITTED AS UNDER: 19 'DURING THE COURSE OF SEARCH AND SEIZURE ACTION CAR RIED OUT IN 'AGRAWAL GROUP' OF CASES AT NASHIK., THE AO NOTICED THAT CERTAIN PURCHASES WERE NOT RECORDED IN REGULAR BOOK S OF ACCOUNTS AND PAYMENTS TOWARDS PURCHASES WERE MADE I N CASH IN CONTRAVENTION OF PROVISIONS OF SECTION 40A(3) OF THE I.T. ACT. THE AO WORKED OUT SUCH DISALLOWANCE AT RS.1,38,15,9 28/- ON TOTAL PURCHASES OF RS. 6, 90, 79,640/-. SINCE THE P URCHASES WERE MADE BY TWO BROTHERS NAMELY 1) SHRI ARVIND M.A GRAWAL & 2) SHRI NARENDRA M.AGRAWAL, 50% OF ADDITION I.E. RS.69,07,964/- WERE MADE IN THE HANDS OF ABOVE ASSE SSEE. THE ASSESSEE HAD CLAIMED THAT THE ENTIRE BUSINESS TRANSACTIONS NOTICED DURING SEARCH ACTION WERE GENU INE AND NEVER DENIED BY THE ASSESSEE. THE SALES/PURCHASES I N CASH WERE ALSO GENUINE AND CONTENDED THAT THE PROVISIONS OF SECTION 40A (3) ARE NOT APPLICABLE. THE ASSESSEE IN HIS WRI TTEN SUBMISSION IN SUPPORT OF ABOVE CONTENTION HAS QUOTE D VARIOUS CASE LAWS AND HIGH COURT CITATIONS WHICH ARE AS UND ER: 1) CIT VIS BANWARILAL BANSIDHAR (1998) 2) CIT VIS SMT. SANTOSH JAIN (2008) 3) CIT VS. MOHAMMAD DHURABUDEEN (2008) (MAD) 4) CIT VS. PURUSHOTTMLALA TAMARAKAR UCHEHRA (2003) (MP) 5) INDWELL CONSTRUCTIONS VS. CIT (1999) APART FROM THE ABOVE HIGH COURT DECISIONS, THE APPE LLANT HAS FURTHER RELIED ON THE FOLLOWING ITAT DECISIONS. 1) CHHATTISGARH STEEL CASTING (P) LTD. VS. ACIT (20 08) 8 DTR (BILASPUR) (TRIB) 14 2) J.K.CONSTRUCTION CO. VS. ITO (2006) 100 TTJ (JOD HPUR) 1101 3) ITO VS. KENARAM SAHA & SUBHASH SAHA (2008) 116 T TJ (KOL) (SB) 289 4) ARMOUR CHEMICALS LTD., VS. JT.CIT (2007) 17 SOT 467 (MUMBAI) 5) INDIA SEED HOUSE VS. ACIT (2000) 69 TTJ (DEL) (T M) 241 6) P.C.MUNDRA VS. ACIT (2003) 80 TTJ (JP) 945 7) ACIT VS. PADAM CHAND BHANSALI (2004) 85 TTJ (JD) 215 8) ]AGADISH LAL VS. ITO (2005) 94 TTJ (JD) 1119 9) GOPALSINGH R. RAJPUROHIT VS. ACIT (2005) 94 TTJ (AHD) 865 10) NEW NARAYAN BUILDERS VS. ITO (1992) 43 TTJ (AHD ) 508 11) ITO VS. M.SREEDHARA PANICKER ( 1979)7 TTJ (COCH ) 573 SARWAN SINGH CONTRACTORS VS. ITO (1995) 55 ITD (CHD ) 192 THE ABOVE QUOTED JUDICIAL PRONOUNCEMENTS FROM VARIO US HIGH COURTS AND ITATS, RELIED ON BY THE APPELLANT ARE RA THER MORE ACADEMIC THAN SQUARE APPLICABILITY TO THE FACTS AND THE 20 CIRCUMSTANCES OF THE CASE. THE SAID JUDGMENTS DO NO T PERTAIN TO THE CASES IDENTICAL TO THE CASE OF THE PRESENT A PPELLANT. HOWEVER, THE MOST CRUCIAL DECISION SQUARELY APPLICA BLE TO THE FACTS AND THE CIRCUMSTANCES OF THE APPELLANT'S CASE QUOTED BY THE ASSESSEE HIMSELF IN HIS SUBMISSION VIDE PARA 1. 10 OF THE GROUND NO.1 HAS BEEN VERY CONVENIENTLY TWISTED BY T HE ASSESSEE SO AS TO INTERPRET IN HIS FAVOUR, EVEN THO UGH THE SAID DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE C ASE OF HYNOUP FOOD & OIL INDUSTRIES PVT. LTD., REPORTED AT 290 ITR 702 HAS REVERSED THE FINDINGS OF THE ITAT AHEMDABAD BENCH, QUOTED BY THE APPELLANT IN HIS FAVOUR. THE FINDINGS OF THE HON'BLE HIGH COURT ARE REPRODUC ED AS UNDER: 'HELD, THAT THE TRIBUNALS ORDER NO WHERE REFLECTED HOW AND IN WHAT MANNER THE ASSESSEE HAD ESTABLISHED THE BUSINE SS EXPEDIENCY AND THEREAFTER EXCEPTIONAL AND UNAVOIDAB LE BY CROSS CHEQUE OR DRAFT WAS NOT PRACTICABLE HAVING RE GARD TO THE NATURE OF THE TRANSACTION AND THE NECESSITY FOR EXP EDITIOUS SETTLEMENT. THERE WAS ALSO NO EVIDENCE TO SHOW THAT PAYMENT BY CROSSED CHEQUE OR DRAFT WOULD HAVE CAUSED GENUIN E TRANSACTION AND THE NECESSITY OF EXPEDITIOUS SETTLE MENT. THE ASSESSEE HAD NOT DISCHARGED THE ONUS TO ESTABLISH T HE GENUINENESS OF THE PAYMENT AND IDENTITY OF THE PAYE E. THE BUSINESS THAT IS ILLEGAL AND A BUSINESS THAT IS OTH ERWISE LAWFUL, WHERE IN THE ASSESSEE RESORTS TO UNLAWFUL MEANS TO AUGMENT HIS PROFITS. THEREFORE, THE REASONING OF THE TRIBUN AL THAT ONCE THE BUSINESS WAS NOT REFLECTED IN THE REGULAR BOOKS , PAYMENT BY CROSSED CHEQUE OR DRAFT WOULD NOT HAVE BEEN PRAC TICABLE, CONSIDERING THE NATURE OF TRANSACTION WAS FALLACIOU S, WHEN ONE CONSIDERED THE OBJECT WITH WHICH THE PROVISION HAD BEEN BROUGHT ON STATUTE BOOK. 1.1 SECTION 40A(3) CLEARLY PROVIDES FOR DISALLOWANC E OF EXPENDITURE EXCEEDING RS.20,000/- IN CASH. IT IS AL SO CLEARLY PROVIDED IN SECTION 40A(3)/RULE 6DD THE CIRCUMSTANC ES IN WHICH THE CASH PAYMENTS SHALL NOT BE DISALLOWED UND ER SECTION 40A (3). IT IS NOWHERE PROVIDED IN THE SAID SECTION OR RULE THAT WHERE THE PAYMENTS ARE MADE OUT OF BOOKS THE DISALLOWANCE SHALL NOT BE MADE. RULES 6DD(J) IN ITS ORIGINAL FORM HAS BEEN AMENDED W.E.F. 25/07/1995. ON ITS SUBSTITUTION IT IS NO LONGER POSSIBLE TO ACCEPT A T RANSACTION IN CASH MERELY BECAUSE IT IS GENUINE AND THE PAYMENT I N CASH HAD BEEN OCCASIONED BY UNAVOIDABLE CIRCUMSTANCES. 1.2 THE MAIN OBJECT OF SECTION 40A(3) OF THE ACT IS TO REGULATE THE FINANCIAL TRANSACTIONS AND TO PREVENT THE USE O F 21 UNACCOUNTED MONEY OR REDUCE THE CHANCES OF USE OF B LACK MONEY IN BUSINESS TRANSACTION. IN THE CASE OF THE A PPELLANT SEARCH ACTION HAS BEEN CARRIED OUT AND MATERIAL SHO WING THAT THE ASSESSEE HAS CARRIED OUT PART OF HIS BUSINESS O UT OF THE REGULAR BOOKS OF ACCOUNTS WAS FOUND. THE UNACCOUNTE D PURCHASES & SALES HAVE BEEN WORKED OUT ON THE BASIS OF THE SEIZED MATERIAL AND ACCORDINGLY THE PROFIT OF THE B USINESS WAS ARRIVED AT THE APPELLANT AND ASSESSED BY THE A.O. I F THE CONTENTION OF THE APPELLANT THAT AS THE TRANSACTION WAS OUT OF THE BOOKS IT WAS IMPOSSIBLE TO MAKE PAYMENT BY ACCO UNT PAYEE CHEQUE OR DD IS ACCEPTED THAN THE ASSESSES WH O ARE MAINTAINING REGULAR BOOKS OF ACCOUNTS AND ACCOUNTIN G FOR CASH PAYMENTS IN EXCESS OF RS.20,000/- SHALL SUFFER DISALLOWANCE U/S.40A(3) OF THE ACT WHEREAS THE ASSE SSEE NOT RECORDING THE TRANSACTION IN THE BOOK OF ACCOUNTS F OR SUPPRESSING PROFIT SHALL NOT SUFFER DISALLOWANCE U/ S.40A(3). IT CAN NOT BE THE INTENTION OF THE LEGISLATURE TO PLAC E THE ASSESSEES SUPPRESSING THEIR PROFIT AT A PREMIUM VIS -A-VIS THE ASSESSEES WHO ARE PROPERLY ACCOUNTING ALL TRANSACTI ON IN THEIR BOOKS OF ACCOUNTS. ' 1.3 THE CONTENTION OF THE ASSESSEE THAT THE CIRCUMS TANCES WERE PECULIAR IN ASSESSEE'S CASE WHICH WARRANTED PA YMENTS IN CASH IS NOT SUPPORTED BY EVIDENCE. MOREOVER, IT CAN NOT BE OVERLOOKED THAT IT WAS REVEALED DURING SEARCH AND S EIZURE OPERATION THAT THE MODUS OPERANDI OF THE ASSESSEE W AS TO MAKE PART OF THE PURCHASE AND THE SALES OUT OF BOOK S OF ACCOUNTS. HAD NOT THE DEPARTMENT CARRIED OUT THE AC TION U/S.132, SUCH INCOME WOULD NOT HAVE BEEN BROUGHT TO TAX. 1.4 IN THE CASE OF THE PRESENT APPELLANT DURING THE SEARCH ACTION IT WAS REVEALED THAT THE ASSESSEE WAS CARRYI NG OUT HIS BUSINESS TRANSACTIONS OUTSIDE THE REGULAR BOOKS OF ACCOUNTS AND THE UNACCOUNTED PURCHASES HAVE PEE D BY THE ASS ESSEE AND HAVE ALSO BEEN CLAIMED EXPENDITURE IN THE I COM E TAX RETURN FILED U/S.153A OF THE I.T. ACT. ANY DECISION IN FAVOUR OF THE APPELLANT WILL PASS AN ADVERSE MESSAGE TO ALL T HOSE WHO ARE MAINTAINING THE REGULAR BOOKS OF ACCOUNTS AND M AKING PAYMENTS BY THE MODE OTHER THAN CASH I.E. CROSSED CHEQUES/DD ETC. FROM THE ABOVE DISCUSSIONS, ON THE GROUND NO.1 OF T HE APPELLANT, IT IS CRYSTAL CLEAR THAT PROVISIONS OF S ECTION 40A(3) CLEARLY HIT THE CASE OF THE PRESENT APPELLANT AND T HE DISALLOWANCE WORKED OUT BY THE ASSESSING OFFICER WA S JUST, PROPER AND LOGICAL. 22 5.3. THE CIT(A) HAVING CONSIDERED THE ASSESSMENT OR DER AND REMAND REPORT AS WELL AS SUBMISSIONS OF THE ASSESSE E IN THIS REGARD DELETED THE ADDITION MADE BY THE ASSESSING O FFICER. WHILE DOING SO, HE DEALT THE FACTUAL POSITION OF PRESENT CASE AS UNDER: I. THERE WAS A SEARCH & SEIZURE ACTION U/S.132(1) OF T HE ACT IN THE APPELLANTS GROUP OF CASES. II. DURING THE COURSE OF THE SEARCH ACTION CARRIED OUT BY THE DEPARTMENT, CERTAIN DOCUMENTS WERE SEIZED SHOWING T HAT THE APPELLANT WAS CARRYING OUT A PART OF HIS STEEL BUSINESS WITHOUT SHOWING IT TO THE DEPARTMENT. III. THE APPELLANT ADMITTED DURING THE COURSE OF THE SEA RCH THAT THE TRANSACTIONS WERE NOT DECLARED FOR THE PUR POSE OF TAX AND AGREED TO DISCLOSE THE INCOME THEREON. IV. ACCORDINGLY, THE APPELLANT ESTIMATED THE GROSS PROF IT BASED ON THE SALES RECORDED IN THE SEIZED DOCUMENTS AND OFFERED THE SAME AS BUSINESS INCOME IN THE COMPUTAT ION MEMO. V. DURING THE ASSESSMENT PROCEEDINGS, THE APPELLANT FI LED THE DETAILS OF SALES, PURCHASES AND OTHER EXPENSES AND THE WORKINGS OF THE ESTIMATED INCOME. AS PER THESE DETAILS, THE G.P. IS ESTIMATED 8.46% OF THE UNACCOU NTED SALES. 5.4. HE OBSERVED THAT WHILE COMPLETING THE ASSESSME NT, THE ASSESSING OFFICER TOOK A STAND THAT PURCHASES WERE LIABLE FOR DISALLOWANCE U/S. 40A(3) OF THE ACT AS SAME WERE OU T OF UNACCOUNTED CASH. THE ASSESSEE TOOK A PLEA BEFORE THE ASSESSING OFFICER THAT PROFIT ADMITTED ON UNACCOUNTED BUSINES S WERE OUTSIDE THE REGULAR BOOKS OF ACCOUNT AND PROVISIONS OF SECT ION 40A(3) OF THE ACT WOULD NOT BE APPLICABLE. EVEN OTHERWISE, NO DI SALLOWANCE WAS CALLED FOR AS PROFITS WERE ESTIMATED CONSIDERING TH E NATURE OF BUSINESS. IT WAS NOT IN DISPUTE THAT PURCHASES OF RS.6,90,79,640/- WERE OUT OF UNACCOUNTED CASH. HOWEVER, ASSESSEE AD MITTED THE ESTIMATED GROSS PROFIT ON SALES AND CLAIMED ONLY TH E OTHER EXPENSES AND ARRIVED AT NET PROFIT ON THESE TRANSACTIONS AS PER THE STATEMENT FILED AT THE TIME OF ASSESSMENT PROCEEDINGS. NO SE PARATE DEDUCTION WAS CLAIMED BY THE ASSESSEE IN COMPUTATION OF INCOM E ON ACCOUNT OF SUCH CASH PURCHASES. THE ASSESSEE STATED BEFORE THE ASSESSING 23 OFFICER THAT PROVISIONS OF SECTION 40A(3) OF THE AC T WERE NOT APPLICABLE TO THE FACTS OF HIS CASE. HOWEVER, THE ASSESSING OFFICER REJECTED THE CONTENTIONS PUT FORWARD BY THE ASSESSE E IN SUPPORT OF HIS CLAIM AND FOLLOWING DECISIONS OF HONBLE GUJARA T HIGH COURT IN HYNOUP FOOD AND OIL INDUSTRIES (290 ITR 702), DECID ED THE CASE AGAINST THE ASSESSEE. HE NOTED THAT HONBLE GUJARA T HIGH COURT IN HYNOUP FOOD AND OIL INDUSTRIES (SUPRA) HAS HELD THA T WHERE INCOME FROM UNDISCLOSED BUSINESS IS BROUGHT TO TAX, PROVIS IONS OF SECTION 40A(3) AND ALL OTHER RELEVANT PROVISIONS COME INTO PLAY AND RULE 6DD(J) HAS NO APPLICATION IN SUCH A CASE. FACTS OF THE SAID CASE ARE THAT ASSESSEE ORIGINALLY FILED A RETURN DECLARING N IL INCOME WHICH WAS REVISED LATER SHOWING INCOME CLAIMING CASH PURC HASES AND SALES OF UNACCOUNTED BUSINESS DETECTED DURING THE C OURSE OF SEARCH ACTION. WHEN THE SAID ASSESSEE CLAIMED THAT UNACCO UNTED TRANSACTIONS WERE ALWAYS MADE IN CASH, THE PROVISIO NS OF SECTION 40A(3) OF THE ACT COULD NOT BE APPLIED AND ALTERNAT IVELY THE CASE WOULD BE GOVERNED BY EXCEPTIONS CARVED OUT AND RULE 6DDJ OF THE I.T.RULES, 1962. IN THESE CIRCUMSTANCES, HONBLE G UJARAT HIGH COURT IN HYNOUP FOOD AND OIL INDUSTRIES (SUPRA) HEL D THAT IN CASE OF AN ILLEGAL BUSINESS, THE PROVISIONS OF SECTION 4 0A(3) OF THE ACT ALONGWITH OTHER RELEVANT PROVISIONS WOULD COME INTO PLAY AND TAXABLE INCOME HAS TO BE COMPUTED ACCORDINGLY. 5.5. HOWEVER, THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE ON THE OTHER HAND RELIED ON THE DECISIONS OF OTHER HIG H COURTS AS PER WHICH NO DISALLOWANCE U/S. 40A(3) OF THE ACT COULD BE MADE IN RESPECT OF CASH PURCHASES WHEN INCOME IS DETERMINED BASED ON ESTIMATION. ONE OF SUCH DECISION IS RENDERED BY HO NBLE ALLAHABAD HIGH COURT IN THE CASE OF BANWARILAL BANSIDHAR 229 ITR 229. SIMILAR VIEW WAS EXPRESSED BY HONBLE MADRAS HIGH C OURT IN CASE OF MOHAMMED DHURABUDDIN 4 DTR 218. IN A SIMILAR CA SE, HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SMT.SANT OSH JAIN 296 24 ITR 324, HELD THAT WHILE INCOME OF ASSESSEE IS COMP UTED BY APPLYING G.P. RATE, THERE IS NO NEED TO INVOKE PROV ISIONS OF SECTION 40A(3) OF THE ACT AS APPLYING G.P. RATE TAKES CARE OF EXPENDITURE PAID OTHERWISE BY WAY OF CHEQUE ALSO. SAME VIEW HA S BEEN EXPRESSED BY HONBLE MADHYA PRADESH HIGH COURT IN T HE CASE OF PURUSHOTTAM TAMRAKAR UCHEHRA 278 ITR 314. THUS, V ARIOUS HIGH COURTS HAVE TAKEN VIEWS WHICH GO IN FAVOUR OF THE A SSESSEE. HOWEVER, THE ASSESSING OFFICER CHOSE TO RELY ON THE CASE OF HYNOUP FOOD AND OIL INDUSTRIES (SUPRA). IT IS NOT IN DISP UTE THAT GROSS PROFIT ON UNACCOUNTED BUSINESS WAS ARRIVED AT BASED ON SEIZED DOCUMENTS AND ADMITTED BY THE ASSESSEE IN THE RETUR N OF INCOME. THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE SEPARA TELY ON ACCOUNT OF CASH PURCHASES IN COMPUTATION MEMO. IN FACT IT WAS EVIDENT FROM THE FINDING OF THE ASSESSING OFFICER I N THE ASSESSMENT ORDER AT PAGE 4 THAT ADDITIONAL INCOME WAS COMPUTED BY ADOPTING CERTAIN PERCENTAGE OF SALES AS INCOME. THE RELEVAN T PORTION IS EXTRACTED BELOW: THE UNACCOUNTED PURCHASES MADE BY THE ASSESSEE HAV E BEEN ACCEPTED BY THE ASSESSEE, HE HAS CLAIMED THIS EXPEN DITURE IN THE RETURNS OF INCOME FILED U/S.153A OF THE ACT, AN D OFFERED THE ADDITIONAL INCOME ON THESE TRANSACTIONS FOR TAX ATION. IT IS A DIFFERENT MATTER THAT THE ASSESSEE CHOSE TO COMPUTE THE ADDITIONAL INCOME BY ADOPTING A CERTAIN PERCENTAGE OF THE SALES AS INCOME. 5.6. THE STAND OF THE ASSESSEE HAS BEEN THAT WHEN T HE INCOME FROM UNACCOUNTED BUSINESS WAS ESTIMATED AND ADMITTED IN THE RETURN, THERE SHOULD NOT BE DISALLOWANCE U/S. 40A(3) OF THE ACT. VARIOUS DECISIONS OF THE HONBLE HIGH COURTS HAVE LAID DOWN THAT THERE IS NO APPLICATION OF SECTION 40A(3) IF INCOME IS ESTIMATE D APPLYING GROSS PROFIT RATE AS DISCUSSED ABOVE. IN FACT THESE DECI SIONS WERE RENDERED EVEN IN CASES WHERE REGULAR BOOKS OF ACCOU NT WERE MAINTAINED. WHEREAS IN THE INSTANT CASE ASSESSEES BUSINESS WAS 25 UNACCOUNTED AND PURCHASES/SALES WERE GATHERED BASED ON SEIZED DOCUMENTS AND INCOME WAS ARRIVING AT APPLYING FIXED GROSS PROFIT RATE WITHOUT CONSIDERING PURCHASES AS CAN BE OBSERV ED FROM STATEMENT FILED AT THE TIME OF ASSESSMENT PROCEEDIN GS. THEREFORE, PRINCIPLES LAID DOWN BY VARIOUS HIGH COURTS APPLY T O THE FACTS OF THE PRESENT CASE. HE ACCORDINGLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER U/S.40A(3) OF THE ACT WHICH HAS B EEN OPPOSED BY THE REVENUE BEFORE US. 5.7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. IT IS NOT IN DISPUTE THAT PROVISIONS OF SEC TION 40A(3) WERE INTRODUCED AS A DETERRENT FOR CHECKING UNACCOUNTED BUSINESS TRANSACTIONS. HOWEVER, ASSESSEE IN THE INSTANT CAS E WAS SUBJECTED TO SEARCH AND SEIZURE ACTION TO BRING OUT UNACCOUNT ED INCOME AND ASSESSEE ADMITTED SUCH UNACCOUNTED INCOME BASED ON SEIZED DOCUMENTS. INCOME ADMITTED BY THE ASSESSEE WAS ACC EPTED BY THE DEPARTMENT AND NO DOUBT WAS RAISED IN RESPECT OF GE NUINENESS OF PURCHASES OR SALES AS ASSESSING OFFICER ADOPTED FIX ED PERCENTAGE AS GROSS PROFIT. THE ASSESSING OFFICER HAVING ACCEPTE D SUCH UNACCOUNTED INCOME IN ASSESSMENT HAS RESORTED TO DI SALLOWANCE U/S.40A(3) WHICH IN OUR OPINION WAS NOT IN ACCORDAN CE WITH PRINCIPLES LAID DOWN BY VARIOUS HIGH COURTS. AS DIS CUSSED ABOVE, IT HAS BEEN HELD BY VARIOUS HIGH COURTS AND BENCHES OF THE TRIBUNAL THAT NO DISALLOWANCE U/S.40A(3) IS CALLED FOR WHEN INCOME WAS ESTIMATED APPLYING GROSS PROFIT RATE. WE ARE AWARE THAT HONBLE GUJARAT HIGH COURT IN HYNOUP FOOD AND OIL INDUSTRIE S (SUPRA) HAS TAKEN A VIEW CONTRARY TO THE VARIOUS DECISIONS OF O THER HIGH COURTS AND ONCE THERE IS A DIVERGENT VIEW, THE VIEW IN FAV OUR OF THE ASSESSEE HAS TO BE FOLLOWED AS HELD BY THE HONBLE SUPREME COURT IN CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 19 2 (SC). IN VIEW OF THIS, THE CIT(A) IN OUR OPINION WAS FACTUALLY AN D LEGALLY JUSTIFIED IN HOLDING THAT DISALLOWANCE OF RS.69,07,964/- U/S. 40A(3) WAS NOT 26 CORRECT IN PRESENT FACTS OF THE CASE AND SAME WAS R IGHTLY DIRECTED TO BE DELETED. THIS REASONED FACTUAL AND LEGAL FINDIN G OF THE CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 6. THE NEXT ISSUE IS WITH REGARD TO ADDITION OF RS. 27,865/- AS CASH AVAILABLE FROM UNDISCLOSED SOURCES. DURING TH E COURSE OF SEARCH PROCEEDINGS, UNACCOUNTED CASH OF RS.2.53 CRO RES WAS SEIZED. THE ASSESSEE PREPARED AND SUBMITTED CASH BOOK AND C ASH FLOW STATEMENT FROM THE PERIOD 01.04.2005 TO 20.09.2005, AS APPEARING ON PAGE 9 OF THE ASSESSMENT ORDER DATED 31.10.2007. AFTER CONSIDERING THE POSITION OF CASH IN HAND AS ON 20.0 9.2005, THE ASSESSING OFFICER FOUND CASH SHORTAGE OF RS.55,730/ - AND THEREFORE, PROCEEDED TO MAKE ADDITION OF RS.27,865/- ON THIS A CCOUNT BEING ASSESSEES 50% SHARE. 6.1. SIMILARLY THE OTHER ISSUE IN THE APPEAL IS WIT H REGARD TO ADDITION OF RS.20,045/- ON ACCOUNT OF RENOVATION OF THE FLAT. DURING THE COURSE OF SEARCH ACTION, VIDE REPLY TO QUESTION NO.21 DATED 22.09.2005, THE ASSESSEE OFFERED AN AMOUNT OF RS.1, 00,000/- ON ACCOUNT OF RENOVATION OF THE FLAT. HOWEVER, NO SUC H AMOUNT WAS OFFERED TO TAX BY THE ASSESSEE. AFTER VERIFYING TH E SEIZED MATERIAL, THE ASSESSING OFFICER ARRIVED AT THE UNEXPLAINED EX PENDITURE OF RS.40,091/ AND THEREFORE ADDED AN AMOUNT OF RS.24,0 45/- BEING ASSESSEES 50% SHARE ON THIS ACCOUNT. 6.2. SIMILARLY, OTHER ISSUE IS WITH REGARD TO ADDIT ION OF RS.1,56,000/- AS IRREGULAR EXPENSES. THE ASSESSING OFFICER NOTICED THAT IN TRADING ACCOUNT OF UNACCOUNTED TRANSACTIONS , PROFIT AND LOSS ACCOUNT WAS DEBITED WITH EXPENSES OF RS.3,12,0 00/- UNDER NOMENCLATURE IRREGULAR EXPENSES. THE ASSESSING O FFICER CONCLUDED THAT SAID EXPENSES WERE NOT PERTAINING TO BUSINESS ACTIVITY AND MADE AN ADDITION OF RS.1,56,000/- AS EXTRA COMMERCI AL EXPENSES BEING 50% SHARE OF THE ASSESSEE. 27 6.3. IN RESPECT OF ABOVE DISALLOWANCES/ADDITIONS, S TAND OF THE ASSESSEE HAS BEEN THAT HE HAD DISCLOSED AN AMOUNT O F RS.3,00,000/- TO COVER ANY SHORTFALL IN RESPECT OF INCOME COMPUTED. THE ASSESSING OFFICER REJECTED SUCH GROUND WITHOUT PROPER APPRECIATION OF THE STAND TAKEN BY THE ASSESSEE IN THIS REGARD. RATHER HE COMMENTED IN REMAND REPORT THAT TOTAL DIS ALLOWANCES WERE WORKED OUT TO RS.4,07,820/- AGAINST DISCLOSURE OF RS.3 LAKHS. HENCE, ARGUMENT OF ASSESSEE WAS NOT APPRECIATED BY THE ASSESSING OFFICER. THIS REASONING BY THE ASSESSING OFFICER W AS NOT FOUND CORRECT BY THE CIT(A) WHO HELD THAT AN AMOUNT OF RS .3,00,000/- DISCLOSED BY THE ASSESSEE TO COVER ANY SHORTFALL HA S TO BE LOOKED INTO AND GIVE SET OFF AS THERE WAS NO OTHER MATERIA L FOUND FOR SUBSTANTIATING THIS DISCLOSURE. IN VIEW OF THIS, O UT OF TOTAL DISALLOWANCES OF RS.2,03,910/- BEING ASSESSEES 50% SHARE OUT OF TOTAL DISALLOWANCES OF RS.4,07,820/- THE AMOUNT OF DISCLOSURE OF RS.1,50,000/- (BEING ASSESSEES 50% SHARE OF TOTAL DISCLOSURE OF RS.3,00,000/-) WAS TO BE REDUCED AND BALANCE WAS AM OUNT OF RS.53,910/- WAS DIRECTED TO BE TAXED BY THE CIT(A). THIS REASONED FACTUAL FINDING NEEDS NO INTERFERENCE FROM OUR SIDE . WE UPHOLD THE SAME. 7. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA.NO.808/PN/2010 FOR A.Y. 2001-02 - SHRI NARENDER MITHAILAL AGRAWAL. 8. THIS APPEAL HAS BEEN FILED BY THE REVENUE ON TWO GROUNDS. THE FIRST IS WITH REGARD TO DISALLOWANCE MADE BY TH E ASSESSING OFFICER U/S.40A(3) OF RS.12,13,862/- ON THE BASIS O F MATERIAL SEIZED DURING THE COURSE OF SEARCH. MATTER WAS CARRIED BE FORE THE FIRST APPELLATE AUTHORITY WHEREIN THE CIT(A) OBSERVED THA T DISALLOWANCE U/S.40A(3) HAS BEEN LITERALLY DISCUSSED AND IT IS I N ASSESSEES OWN 28 CASE FOR A.Y. 2006-07 WHEREIN CONTENTION OF THE ASS ESSING OFFICER IN THE ASSESSMENT ORDER AND REMAND REPORT AS ALSO THE SUBMISSIONS OF THE ASSESSEE WERE CONSIDERED. AS THE FACTS OF T HE PRESENT CASE WERE IDENTICAL, DECISION TAKEN BY THE CIT(A) VIDE O RDER IN APPEAL NO.NSK/CIT(A)-II/267/08-09 DATED 26.02.2010 WAS APP LICABLE. IN PRESENT CASE AS WELL UNDER THE SAID ORDER OF THE CI T(A) ON THIS ISSUE HAS BEEN UPHELD BY US VIDE PARA 5 OF THIS ORDER. F ACTS BEING SIMILAR, SO FOLLOWING SAME REASONING, WE ARE NOT IN CLINED TO INTERFERE WITH THE FINDING OF THE CIT(A) WHO HAS DELETED SIMI LAR ADDITION IN QUESTION. SAME IS UPHELD. 9. THE NEXT ISSUE IS WITH REGARD TO RESTRICTING ADD ITION MADE BY THE ASSESSING OFFICER TOWARDS UNACCOUNTED CASH INTR ODUCED INTO BUSINESS FROM RS.5,19,631/- TO RS.25,883/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON THE BASIS OF THE SEIZED MATERIAL, THE ASSESSING OFFICER MADE ANALYSIS OF ASSETS DETECTED, ASSETS REPORTED AND INCOME OFFERED BY ASSESSEE FOR TAXATION. ACCOR DINGLY, THE ASSESSING OFFICER ARRIVED AT TOTAL DIFFERENCE OF RS .10,39,262/- AND MADE ADDITION OF RS.5,19,631/- BEING ASSESSEES 50% SHARE AND UNRECORDED CASH INTRODUCED IN THE BUSINESS. THE RE LEVANT PORTION OF THE ASSESSMENT ORDER IS REPRODUCED AS UNDER, FOR THE SAKE OF CONVENIENCE: DURING THE SEARCH ACTION CERTAIN BOOKS OF ACCOUNTS AND DOCUMENTS WERE FOUND AND SEIZED FROM THE RESIDENCE, SHOP AND OFFICE PREMISES OF THE SUB-GROUP OF THE ASSESSE E. FROM THE SEIZED MATERIALS, THE COPIES OF WHICH WERE OBTAINED BY THE ASSESSEE POST SEARCH THE ASSESSEE HAS FILED CASH FL OW STATEMENT WHEREIN THE ASSETS DETECTED DURING THE SE ARCH ACTION WERE IDENTIFIED AND INCORPORATED IN SUCH CAS H FLOW. THE SOURCES OF UNRECORDED ASSETS AS PER SEIZED MATERIAL HAVE ALSO BEEN GIVEN BY THE ASSESSEE IN THE CASH FLOW STATEME NT. THE SUMMARY OF INVESTMENT IN UNRECORDED ASSETS AS FILED BY THE ASSESSEE VIDE RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S.153A, FOR THE YEAR UNDER CONSIDERATION ARE AS U NDER. 29 FLAT RS. 323532/- HOUSE FURNITURE RS. 40092/- TELEVISION RS. 7000/- GOLD RS. 4239/- WITHDRAWAL RS. 160848/- NMC BANK (ARVIND) RS. 57407/- NMC BANK (NARENDRA) RS. 74668/- CLOSING CASH BALANCE RS. 597417/- TOTAL RS.1265203/- AS AGAINST THIS THE ASSESSEE HAS OFFERED NET PROFIT FROM UNRECORDED TRANSACTION AT RS.505866/-, CASH DISCLOS URE RS.715000/- AND MISC. INCOME RS.42400/- ALL TOTALIN G TO RS.1263266/-. THE ASSESSEE AS WELL AS HIS BROTHER BOTH HAVE CONTR OLLING INTEREST IN RAJRANI STEEL CASTING PVT. LTD., AND M/ S.AARTI STEEL INDUSTRIES. AS DISCUSSED IN THE ASSESSMENT ORDER TH E YEAR UNDER CONSIDERATION IN THE CASE OF RAJRANI STEEL CA STING PVT. LTD. WHICH IS NOT YET INCORPORATED, THE EXCESS CLAI M ON ACCOUNT OF BURNING LOSS HAS BEEN DETERMINED AT RS.N IL AND SIMILARLY THE EXCESS OF BURNING LOSS IN THE CASE OF AARTI STEEL INDUSTRIES WHEREIN NO BUSINESS IS DONE DURING THE Y EAR, IN THAT CASE HAS BEEN DETERMINED AT RS.NIL .AS DISCUSS ED IN THE FORGOING PARAGRAPHS OF THE ASSESSMENT ORDERS THERE ARE ADDITIONS DETERMINED ON ACCOUNT OF INADEQUATE G.P. SHOWN AT RS.347875/- AND UNRECORDED INTRODUCTION OF CASH BRO UGHT FROM HOME AT RS.2654340/-. THE BUSINESS OF THE ASSE SSEE SUB-GROUP BEING SAME I.E. MANUFACTURING AND TRADING IN STEEL GOODS AND THE UNRECORDED TRANSACTIONS DETECTED AS P ER SEARCH ACTION RUNNING PARALLEL TO THE REGULAR BOOKS OF THE ASSESSEE, A TELESCOPIC SET-OFF IS CONSIDERED NECESSARY FOR THE UNRECORDED ASSETS EMERGING OUT OF UNRECORDED BUSINESS OFFERED BY THE ASSESSEE IN THE RETURN FILED U/S.153A AND THE TOTAL OF THE ADDITIONS ON ACCOUNT OF FURTHER ADDITION TO G. P. D ETERMINED, ADDITION ON ACCOUNT OF BURNING LOSS AND CASH INTROD UCTION TOGETHER. THE TELESCOPIC SET-OFF IS GIVEN AS UNDER. ADDITIONS BURNING LOSS RAJRANI STEEL CASTING PVT. LTD., RS. NIL THE INTRODUCTION OF CASH ADDITION ANNEXURE A-3 &A-4 RS.2652340/- ADDITIONAL G. P. DETERMINED AS PER TRADING ACCOUNT RS. 347875/- 30 LESS: THE NET ASSETS AS DISCUSSED ABOVE. RS.12652 03/- TOTAL RS.1039262/- THEREFORE AFTER GIVING THE TELESCOPIC SET-OFF OF TH E INCOME OFFERED AND ACCOUNTED FOR THE ASSESSEE IN FORM OF A SSETS INVESTMENTS THE BALANCE AMOUNT OF RS.L039262/- IS A DDED TO THE TOTAL INCOME COVERING THE ADDITIONS DETERMINED UNDER THE HEAD G. P. ADDITION, CASH INTRODUCED AND THE BURNIN G LOSS DETERMINED IN THE CASE OF RAJRANI STEEL CASTING PVT . LTD., AND AARTI STEEL INDUSTRIES. PENAL PROCEEDINGS U/S.271(L )(C) ARE SEPARATELY INITIATED AGAINST THIS BALANCE AFTER THE TELESCOPIC SET-OFF. THE 50% OF THE ABOVE AMOUNT WORKING OUT TO RS.519631/- IS TAKEN IN THE HANDS OF THE ASSESSEE A ND 50% IN THE CASE OF HIS BROTHER SHRI NARENDRA M.AGRAWAL.' 9.1. DURING THE COURSE OF APPELLATE PROCEEDINGS IN THIS REGARD ASSESSEE SUBMITTED AS UNDER: 'AS PER OUR REPLIED TO THE SHOW CAUSE DATED 08.10.0 7 WHICH IS INSERTED IN THE ASSESSMENT ORDER ON PG. NO.14 WE HA VE PREPARED DETAIL CHART OF RECORDED AS WELL AS UNRECO RDED TRANSACTION WHICH IS REFLECTED IN ANNEXURE A-3 AND A-4 AND SUBMIT THE RETURN ACCORDINGLY, WHILE PREPARING CHAR T OF THE SEIZED RECORD, WE HAVE DISTINGUISHED BETWEEN RECORD ED & UNRECORDED TRANSACTIONS & AS RECORDED TRANSACTION A RE ALREADY SHOWN IN EXISTING BOOKS OF MR. NARENDRA AGRAWAL I.E . BOOKS OF ACCOUNTS OF AARTI STEEL (PROP. NARENDRA AGRAWAL). W E HAVE PREPARED ADDITIONAL BOOKS OF ACCOUNT FOR UNRECORDED TRANSACTION, WHILE PREPARING THIS BOOKS OF ACCOUNT BY ASSESSING OFFICER HE HAD NOT DISTINGUISHED BETWEEN RECORDED & UNRECORDED TRANSACTION OF SEIZED MATERIAL HENCE DIF FERENCE ARISE IN CASH RECEIPT SALES, PURCHASES & EXPENSES, DETAILS OF ADDITIONAL BOOKS OF ACCOUNTS PREPARED BY US AND ADD ITIONAL BOOKS OF ACCOUNTS PREPARE BY ASSESSING OFFICER ARE AS FOLLOWS. PARTICULARS OUR BOOKS OF ACCOUNTS AS PER BOOKS PREPARE BY ASSESSING OFFICER CASH RECEIPT SALE RS.1,64,59,297/ - RS.1,92 ,11,670/ - PURCHASE AND EXPENSES RS.1,74,16,896/ - AT THE TIME OF ASSESSMENT THE OFFICER HAD NOT CONSI DER NOTING GHAR SE WHICH IS OUT OF CASH IN HAND, HE CONSIDER A S RECEIPT 31 THEIRFORE THE DIFFERENCE OCCURS IN RECEIPT SIDE AS PER OUR SUBMISSION. IN OUR SUBMISSION ON DATE 12.10.07 WE REQUESTED A.O. TO RECONCILE THE SEIZED RECORDS BUT THE A.O. HAD REJECTED OUR REQUEST. WE ONCE AGAIN STATE THAT THE ASSESSING OFFICER'S FIGURE WHATEVER STATED ABOVE IS NOT CORRE CT AND IT IS VERY DIFFICULT TO EXPLAIN IN WRITING HENCE WE REQUE ST YOU TO RECONCILE OUR CHART WITH ORIGINAL SIZED RECORD ACRO SS THE TABLE. 9.2. THE CIT(A) HAVING CONSIDERED THE ASSESSMENT OR DER AND SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT WHILE AR RIVING AT UNACCOUNTED INVESTMENT OF RS.10,39,262/-, THE ASSES SING OFFICER HAD NOT WORKED OUT INTRODUCTION OF THE CASH AS PER ANNEXURES A3 AND A4 CORRECTLY. THE CIT(A) FROM PARA 6 OF THE AS SESSMENT ORDER OBSERVED THAT ASSESSING OFFICER WORKED OUT CASH DET AILS. AS PER ANNEXURE-A4 DOCUMENT, THE CLOSING BALANCE WAS ARRIV ED AT RS.41,74,817/- AND SAME WAS TAKEN AS OPENING BALANC E WHILE WORKING OUT CASH BALANCE AS PER ANNEXURE-A3. THE C LOSING BALANCE AS PER ANNEXURE-A3 WAS WORKED OUT AT RS.51,62,114/- . THUS THERE WAS AN INCREASE IN CASH BALANCE OF RS.9,87,297/- (R S.51,62,114/- MINUS RS.41,74,817/-) WHICH SHOULD HAVE BEEN CONSID ERED WHILE ARRIVING AT INTRODUCTION OF THE CASH OF RS.26,52,34 0/-. IF THIS IS CONSIDERED, THE TOTAL WOULD BECOME RS.32,92,362/- ( RS.23,04,465/- + RS.9,87,297/-). AS THE NET ASSET WORKED OUT BY T HE ASSESSING OFFICER IS RS.12,65,203/-, THE DIFFERENCE WOULD WOR K OUT TO RS.51,965/- (RS.12,65,203 + RS,9,87,297 - RS.23,04, 465). THEREFORE, ADDITION SHOULD HAVE BEEN 50% OF RS.52,9 65/- AS AGAINST RS.5,19,631/- MADE BY THE ASSESSING OFFICER. AS TH ERE WAS A MISTAKE WHILE ARRIVING AT THE CASH DEFICIT WHICH HA S BEEN WORKED OUT MORE, HENCE, ASSESSING OFFICER WAS RIGHTLY DIRE CTED TO RESTRICT THE ADDITION TO RS.25,983/- AS AGAINST RS.5,19,631/ -. THIS FACTUAL AND REASONED FINDING OF THE CIT(A) NEEDS NO INTERFE RENCE FROM OUR SIDE. SAME IS UPHELD. 10. AS A RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. 32 ITA.NO. 813/PN/2010 FOR A.Y. 2006-07 AND ITA.NO.81 2/PN/2010 FOR A.Y. 2000-01 SHRI ARVIND MITHAILAL AGRAWAL 11. IN ITA.NO.813/PN/2010, THE REVENUE HAS FILED TH E APPEAL AGAINST THE ORDER OF CIT(A) ON VARIOUS GROUNDS WHIC H ARE BEING DEALT AS UNDER. THE FIRST ISSUE IS WITH REGARD TO ADDITI ON OF RS.69,07,964/- BY INVOKING PROVISIONS OF SECTION 40 A(3) ON THE BASIS OF SEIZED MATERIAL. MATTER WAS CARRIED BEFOR E THE FIRST APPELLATE AUTHORITY WHEREIN THE CIT(A) FOLLOWING TH E REASONING IN THE CASE OF SHRI NARENDRA MITHAILAL AGRAWAL FOR A.Y. 20 06-07, IN ITS APPEAL NO.NSK/CIT(A)-II/267/08-09 DATED 26.02.2010, DELETED THE ADDITION IN QUESTION. THE ABOVE SAID SIMILAR DELET ION OF ADDITION MADE U/S. 40A(3) OF THE ACT IN SHRI NARENDRA MITHAI LAL AGRAWALS CASE HAS BEEN UPHELD BY US VIDE PARA 5 OF THIS ORDE R. FACTS BEING SIMILAR, FOLLOWING SAME REASONING, WE ARE NOT INCLI NED TO INTERFERE WITH THE FINDING OF THE CIT(A) WHO HAS DELETED THE ADDITION OF RS.69,07,964/- MADE BY THE ASSESSING OFFICER BY INV OKING PROVISIONS OF SECTION 40A(3). SAME IS UPHELD. 12. SIMILARLY, THE ASSESSING OFFICER MADE FOLLOWING ADDITIONS: (A) RS.27,865/- ON ACCOUNT OF CASH AVAILABLE FROM UNACCOUNTED SOURCES. (B) ADDITION OF RS.20,045/- ON ACCOUNT OF UNEXPLAINED EXPENDITURE RENOVATION OF FLAT. (C) ADDITION OF RS.1,56,000/- MADE ON ACCOUNT OF IRREGULAR EXPENSES. 13. ADDITIONS OF SIMILAR AMOUNTS BEING 50% SHARE OF THE ASSESSEE WERE MADE IN THE CASE OF SHRI NARENDRA MITHAILAL AG RAWAL IN A.Y. 2006-07 WHICH WERE DELETED BY THE CIT(A). THE ORDER OF THE CIT(A) DELETING THE ABOVE THREE ADDITIONS HAVE BEEN UPHELD BY US VIDE PARA 6 OF THIS ORDER. FACTS BEING SIMILAR, SO FOLLOWING SAME REASONING, DELETION OF ADDITION OF RS.27,865/-, RS.20,045/- AN D RS.1,56,000/- NEED NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME 33 14. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA.NO.812/PN/2010 FOR A.Y. 2000-01 SHRI ARVIND MITHAILAL AGRAWAL. 15. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAIN ST THE ORDER OF THE CIT(A) WHEREIN DELETION OF ADDITION OF RS.12,13 ,861/- MADE U/S. 40A(3) OF THE ACT HAS BEEN OPPOSED. SIMILAR ISSUE AROSE IN CASE OF SHRI NARENDRA MITHAILAL AGRAWAL IN ITA.NO.808/PN/20 10 FOR SAME YEAR I.E. A.Y. 2000-01, WHICH HAS BEEN DELETED BY T HE CIT(A) VIDE PARA 4 OF HIS ORDER, FOLLOWING ITS REASONING IN THE CASE OF SHRI NARENDRA MITHAILAL AGRAWAL FOR A.Y. 2006-07, WHICH HAS BEEN APPROVED BY US VIDE PARA 5 OF THIS ORDER. FACTS BE ING SIMILAR, SO FOLLOWING SAME REASONING, WE ARE NOT INCLINED TO IN TERFERE IN THE FINDING OF THE CIT(A) WHO HAS DELETED THE DISALLOWA NCE OF RS.12,13,861/- MADE BY THE ASSESSING OFFICER U/S.40 A(3) OF THE ACT. SAME IS UPHELD. 16. THE NEXT ISSUE IN REVENUES APPEAL IS WITH REGA RD TO RESTRICTING ADDITION FROM RS.5,19,631/- TO RS.25,983/- BEING UN ACCOUNTED CASH INTRODUCED IN THE BUSINESS. SIMILAR ADDITION WAS MADE IN THE CASE OF SHRI NARENDRA MITHAILAL AGRAWAL BEING 50% S HARE WHICH WAS DELETED BY THE CIT(A) IN A.Y. 2000-01 AND SAME HAS BEEN DELETED BY US VIDE PARA 6 OF THIS ORDER. FACTS BEING SIMILAR AND SO FOLLOWING SAME REASONING WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF THE CIT(A) WHO HAS RESTRICTED THE ADDITION TO RS.25,983 /- AS AGAINST RS.5,19,613/-. SAME IS UPHELD. 17. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 34 ITA.NO.807/PN/2010 FOR A.Y. 2006-07 SHRI RAJENDRA MITHAILAL AGRAWAL. 18. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAIN ST THE ORDER OF THE CIT(A) WHEREIN DELETION OF ADDITION OF RS.27,71 ,963/- MADE BY THE ASSESSING OFFICER U/S.40A(3) OF THE ACT HAS BEE N OPPOSED. SIMILAR ADDITION WAS MADE IN SHRI NARENDRA MITHAILA L AGRAWALS CASE IN ITA.NO.811/PN/2010 FOR A.Y. 2006-07 WHICH H AS BEEN DELETED BY THE CIT(A) AND WE HAVE UPHELD THE SAME V IDE PARA 5 OF THIS ORDER. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDING OF T HE CIT(A) WHO HAS DELETED THE ADDITION OF RS.27,71,963/- MADE BY THE ASSESSING OFFICER BY INVOKING PROVISIONS OF SECTION 40A(3) OF THE ACT. SAME IS UPHELD. 19. AS A RESULT, THIS APPEAL OF THE REVENUE IS DISM ISSED. ITA.NO.814/PN/2010 FOR A.Y. 2005-06 - SHRI AMRITH LAL MITHAILAL AGRAWAL 20. THE FIRST ISSUE IS WITH REGARD TO DELETION OF A DDITION OF RS.32,48,264/- MADE BY THE ASSESSING OFFICER BY INV OKING PROVISIONS OF SECTION 40A(3) OF THE ACT. SIMILAR A DDITIONS WERE MADE BY THE ASSESSING OFFICER IN THE CASE OF SHRI NAREND RA MITHAILAL AGRAWAL FOR A.Y. 2006-07 IN ITA.NO.811/PN/2010 WHIC H HAS BEEN DELETED BY THE CIT(A) AND WE HAVE UPHELD THE SAME V IDE PARA 5 OF THIS ORDER. FACTS BEING SIMILAR, SO FOLLOWING SAME REASONING, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF THE CIT (A) WHO HAS DELETED THE ADDITION OF RS.32,48,264/- MADE BY THE ASSESSIN G OFFICER BY INVOKING PROVISIONS OF SECTION 40A(3) OF THE ACT. SAME IS UPHELD. 21. THE NEXT ISSUE IS AGAINST THE DELETION OF ADDIT ION OF RS.70,025/-. THE ASSESSING OFFICER NOTICED THAT AS SESSEE HAS 35 SHOWN HIS CAPITAL ACCOUNT OF PROPRIETORY CONCERN OF SURAJ STEEL DAILY COLLECTION OF RS.70,025/-. AS THE SAID AMOUN T WAS NOT OFFERED FOR TAXATION, ASSESSEE WAS CONFRONTED WITH THE MATT ER. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THA T SAID AMOUNT WAS DRAWN BY HIM FROM M/S.SURAJ STEEL AS PER REVISE D ACCOUNT DATED 26.10.2007. HOWEVER, STATED THAT INTRODUCTIO N OF CASH AS DAILY COLLECTION IS AS PER EXCESS CAPITAL ACCOUNT O F ASSESSEE IN AUDITED ACCOUNTS OF SURAJ STEEL AND SAME COULD NOT BE CLAIMED TO BE ARISING OUT OF WITHDRAWAL FROM THE REVISED ACCOU NT OF SAL STEEL. THEREFORE, THE ASSESSING OFFICER MADE ADDITION OF R S.70,025/- ON THIS ACCOUNT. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF O F THE ASSESSEE. THE CIT(A) AFTER CONSIDERING THE SAME OBSERVED THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE EXPLAINED THAT CREDIT IN SURAJ STEEL WAS OUT OF WITHDRAWALS FROM SAL STEEL. HOWEV ER, ASSESSING OFFICER REJECTED WITHOUT VERIFYING THE SAME. THE A SSESSEE WAS SHOWN AS A DEBTOR IN NAME OF SURAJ STEEL IN BOOKS O F SAL STEEL FOR THE CORRESPONDING CREDIT IN HIS ACCOUNT AND THERE W AS NO NEED FOR ANY ADDITION ON THE BASIS THAT WITHDRAWALS ARE UNAC COUNTED. ACCORDINGLY, THE ASSESSING OFFICER WAS DIRECTED TO DELETE THE ADDITION OF RS.70,025/- AS WITHDRAWALS WERE FULLY R EFLECTED IN AUDITED BOOKS OF ACCOUNTS. THIS REASONED AND FACTU AL FINDING NEEDS NO INTERFERENCE FROM OUR SIDE BECAUSE THE ASSESSEE WAS SHOWN AS DEBTOR IN THE NAME OF SURAJ STEEL IN THE BOOKS OF S AL STEEL FOR THE CORRESPONDING CREDIT IN ITS ACCOUNT. SO THERE WAS NO NECESSITY FOR ANY ADDITION ON THIS BASIS THAT WITHDRAWALS WERE UN ACCOUNTED ONE. SAME IS UPHELD. 22. AS A RESULT, THE REVENUES APPEAL IS DISMISSED. 36 ITA.NO.815 FOR A.Y. 2006-07 SHRI AMRUTLAL MITHAIL AL AGRAWAL 23. THE ONLY GROUND IN THIS APPEAL IS WITH REGARD T O DELETION OF ADDITION OF RS.2,00,58,467/- MADE BY THE ASSESSING OFFICER BY INVOKING PROVISIONS OF SECTION 40A(3) OF THE ACT. SIMILAR ADDITION MADE BY THE ASSESSING OFFICER IN THE CASE OF SHRI N ARENDRA MITHAILAL AGRAWAL FOR A.Y. 2006-07 IN ITA.NO.811/PN/2010 WHIC H HAS BEEN DELETED BY THE CIT(A) AND WE HAVE UPHELD THE SAME V IDE PARA 5 OF THIS ORDER. FACTS BEING SIMILAR, SO FOLLOWING SAME REASONING, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF THE CIT (A) WHO HAS DELETED THE ADDITION OF RS. 2,00,58,467/- MADE BY THE ASSES SING OFFICER BY INVOKING PROVISIONS OF SECTION 40A(3) OF THE ACT. SAME IS UPHELD. 24. AS A RESULT THIS APPEAL OF REVENUE IS DISMISSED . ITA.NO.805/PN/2010 FOR A.Y. 2001-02 - SHRI CHANDRAB HAN GORAKHNATH MISHRA 25. THE ONLY GROUND IN THIS APPEAL IS WITH REGARD T O DELETION OF ADDITION OF RS.13,04,808/- MADE BY THE ASSESSING OF FICER BY INVOKING PROVISIONS OF SECTION 40A(3) OF THE ACT. SIMILAR ADDITION MADE BY THE ASSESSING OFFICER IN THE CASE OF SHRI N ARENDRA MITHAILAL AGRAWAL FOR A.Y. 2006-07 IN ITA.NO.811/PN/2010 WHIC H HAS BEEN DELETED BY THE CIT(A) AND WE HAVE UPHELD THE SAME V IDE PARA 5 OF THIS ORDER. FACTS BEING SIMILAR, SO FOLLOWING SAME REASONING, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF THE CIT (A) WHO HAS DELETED THE ADDITION OF RS. 13,04,808/- MADE BY THE ASSESSI NG OFFICER BY INVOKING PROVISIONS OF SECTION 40A(3) OF THE ACT. SAME IS UPHELD. 26. AS A RESULT, THIS APPEAL OF REVENUE IS DISMISSE D. 37 ITA.NO.806/PN/2010 FOR A.Y. 2002-03 - SHRI CHANDRAB HAN GORAKHNATH MISHRA 27. THE ONLY GROUND IN THIS APPEAL IS WITH REGARD T O DELETION OF ADDITION OF RS. RS.10,34,806/- MADE BY THE ASSESSIN G OFFICER BY INVOKING PROVISIONS OF SECTION 40A(3) OF THE ACT. SIMILAR ADDITION MADE BY THE ASSESSING OFFICER IN THE CASE OF SHRI N ARENDRA MITHAILAL AGRAWAL FOR A.Y. 2006-07 IN ITA.NO.811/PN/2010 WHIC H HAS BEEN DELETED BY THE CIT(A) AND WE HAVE UPHELD THE SAME V IDE PARA 5 OF THIS ORDER. FACTS BEING SIMILAR, SO FOLLOWING SAME REASONING, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF THE CIT (A) WHO HAS DELETED THE ADDITION OF RS. RS.10,34,806/- MADE BY THE ASSE SSING OFFICER BY INVOKING PROVISIONS OF SECTION 40A(3) OF THE ACT. SAME IS UPHELD. 28. IN THE RESULT, THIS APPEAL OF REVENUE IS ALSO D ISMISSED. 29. IN THE RESULT, ALL APPEALS OF REVENUE ARE DISMI SSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 26 TH DAY OF SEPTEMBER, 2012. SD/- SD/- ( R.K.PANDA ) ( SHAILENDRA KUMAR YAD AV ) ACCOUNTANT MEMBER JUDICIAL MEMBER GSPS PUNE, DATED THE 26 TH SEPTEMBER, 2012. COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DCIT, CENTRAL CIRCLE-I, NASHIK. 3. THE CIT(A)-II, NASHIK. 4. THE CIT(CENTRAL), NAGPUR. 5. THE DR B BENCH, PUNE. 6. GUARD FILE. BY ORDER //TRUE COPY// PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE.