M/s. Balaji Transport Agency, Hyd, Hyderabad V. ACIT, Central Circle-3, Hyderabad

ITA 899/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69717 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 04-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Unexplained cash credit; Business income; Depreciation; Search and seizure; Loose papers; Document seized; Initiation of penalty proceedings; Documents seized
• Section: 40A(3); 143(3); 153A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER SR. NO. APPEAL NO. A.Y. APPELLANT RESPONDENT 1. ITA NO. 899/HYD/2012 2003-04 M/S. BALAJI TRANSPORT AGENCY, HYDERABAD PAN: AADFB5100D THE ACIT CENTRAL CIRCLE-3 HYDERABAD 2. ITA NO. 900/HYD/2012 2004-05 3. ITA NO. 901/HYD/2012 2005-06 4. ITA NO. 902/HYD/2012 2006-07 5. ITA NO. 903/HYD/2012 2007-08 6. ITA NO. 904/HYD/2012 2008-09 7. ITA NO. 905/HYD/2012 2009-10 8. ITA NO. 278/HYD/2012 2003-04 THE ACIT CENTRAL CIRCLE-3 HYDERABAD M/S. BALAJI TRANSPORT AGENCY, HYDERABAD PAN: AADFB5100D 9. ITA NO. 279/HYD/2012 2004-05 10. ITA NO. 280/HYD/2012 2005-06 11. ITA NO. 281/HYD/2012 2006-07 12. ITA NO. 282/HYD/2012 2007-08 13. ITA NO. 283/HYD/2012 2008-09 14. ITA NO. 284/HYD/2012 2009-10 ASSESSEE BY: SRI P. MURALI MOHAN RAO REVENUE BY: SRI D. SUDHAKAR RAO DATE OF HEARING: 26 .0 6 .2013 DATE OF PRONOUNCEMENT: 02.08.2013 O R D E R PER CHANDRA POOJARI, AM: THE ABOVE 14 APPEALS ARE CROSS APPEALS DIRECTED AG AINST THE COMMON ORDER OF THE CIT(A)-VII, HYDERABAD DATED 29.11.2011 FOR ASSESSMENT YEARS 2003-04 TO 2009-10. 2. BRIEF FACTS OF THE CASE ARE THAT IN THIS CASE THERE WAS A SURVEY WAS CONDUCTED IN THE BUSINESS PREMISES OF TH E ASSESSEE FIRM ON 29.12.2008, AND WAS SUBSEQUENTLY CONVERTED INTO A SEARCH & SEIZURE PROCEEDINGS. SEARCH WAS ALSO COND UCTED AT THE RESIDENCE OF THE MANAGING PARTNER, MR. K.CH. SU BBA RAO. BASED ON THE FINDINGS OF SEARCH, NOTICES WERE ISSUE D FOR INITIATING THE PROCEEDINGS U/S 153A OF THE IT ACT, 1961, IN THE CASE OF THE FIRM AND THE PARTNERS, CONCERNED. IN TH E COURSE OF ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 2 SEARCH, FEW DOCUMENTS/LOOSE SHEETS/SCRIBBLING PADS WERE FOUND AND SEIZED AND MARKED AS ANNEXURES A/KCH/RES/L TO 6 AT THE RESIDENCE OF THE MANAGING PARTNER OF THE FIRM, INDI CATING CERTAIN TRANSACTIONS SUCH AS TRADING IN COAL THROUGH E-AUCT ION PURCHASES, ADVANCES TO LORRY OWNERS TOWARDS FREIGHT CHARGES, PAYMENTS TO THE STAFF OF SINGARENI COLLIERIES CO. L TD (SCCL) AND INDIA CEMENTS LTD (ICL), ETC. FURTHER, AN AMOUNT O F RS. 34,50,000 WAS SEIZED OUT OF CASH OF RS. 34,65,800 F OUND, AT THE BUSINESS PREMISES OF THE ASSESSEE. 2.1 THE ASSESSEE FIRM CONSTITUTED WITH MR. K.CH. SUBBA RAO AND SRI C.V. SUBRAMANYAM AS PARTNERS AND INTO THE B USINESS OF TRANSPORT CONTRACT FOR LAST SEVERAL YEARS AND FILIN G RETURNS OF INCOME, REGULARLY. BOOKS OF ACCOUNT STATED TO HAVE BEEN MAINTAINED AND REVENUES FOR THE ASSESSEE FIRM ARISI NG FROM TRANSPORT BUSINESS ON ACCOUNT OF CONTRACTS ENTERED WITH CEMENT COMPANIES SUCH AS M/S INDIA CEMENTS LTD ETC., FOR T RANSPORTING COAL FROM THE MINES OF M/S SINGARENI COLLIERIES CO. LTD, TO THE SITES OF ICL LOCATED AT VISHNUPURAM, TANDUR AND ERR AGUNTLA ETC. MAJOR EXPENSES OF THE ASSESSEE ARE THE 'FREIGH T CHARGES' PAID TO TRUCK OWNERS AND THE SAME INDICATED TO HAVE CONS TITUTED 98.50% FOR A.Y. 2004-05, 97.25% FOR A.Y. 2009-10, O F THE TOTAL/GROSS RECEIPTS OF THE BUSINESS. NET PROFITS O F THE BUSINESS INCOME SHOWN TO HAVE RANGED FROM 0.40% TO 1.87% FOR A.YS. 2003-04 TO 2009-10. ASSESSEE FIRM, SHOWN TO BE ENG AGING THE TRUCKS ON HIRE, SINCE THE FIRM NOT HAVING TRUCKS OF ITS OWN. WHILE THE CONTRACT RECEIPTS/HIRE CHARGES ARE SAID T O BE RECEIVED THROUGH BANKING CHANNELS, THE PAYMENTS TO TRUCK OWN ERS ARE SHOWN TO HAVE BEEN MADE IN CASH. EACH YEAR, THE ASS ESSEE COMPANY SHOWING TRANSPORT/CONTRACT RECEIPTS, FORMIN G THE TURNOVERS OF THE BUSINESS. MERCANTILE METHOD OF ACC OUNTS FOLLOWED, SHOWING DEBTORS FOR THE AMOUNTS RECEIVABL ES FROM ICL ETC., AND THE SUNDRY CREDITORS FOR THE AMOUNTS PAYA BLE, MAINLY ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 3 TO THE TRUCK OWNERS. THE PROFILE OF THE ASSESSEE FI RM INDICATING THE DETAILS OF TURNOVER, FREIGHT CHARGES, PROFITS, SUNDRY CREDITORS & SUNDRY DEBTORS, FOR THE YEARS UNDER REFERENCE ARE AS UNDER: PARTICULARS A .Y. 03 - 04 A.Y. 04 - 05 A.Y. 05 - 06 A.Y. 06 - 07 A.Y. 07 - 08 A.Y. 08 - 09 A.Y. 09 - 10 GROSS RECEIPTS 10,76,33,585 22,11,31,800 44,41,76,463 52,50,95,136 51,37,64,675 75,46,70,035 83,36,64,404 FREIGHT CHARGES PAID 10,56,66,264 21,79,17,603 43,80,76,584 51,42,39,528 50,12,39,814 73,62,80,931 81,06,51,623 PROFIT (PBT) 4,29,545 (0.40%) 8,78,559 (0.40%) 26,13,933 (0.60%) 52,14,101 (0.99%) 66,80,555 (1.30%) 1,22,70,084 (1.63%) 1,55,77,914 (1.87%) SUNDRY DEBTORS 2,00,94,545 1,99,92,796 5,53,38,127 8,74,73,942 1,5 2,16,773 2,50,30,325 19,87,63,406 SUNDRY CREDITORS 2,43,63,210 2,74,47,729 5,22,95,163 9,21,67,401 4,6 8,27,440 7,37,91,578 22,17,20,893 2.2 THE ASSESSING OFFICER MADE ADDITIONS/DISALLOWANCES UNDER VARIOUS HEADS FOR ALL THE ASSESSMENT YEARS AS UNDER IN ADDITION TO THE ESTIMATION OF INCOME FROM TRANSPORT BUSINESS: S. NO. DESCRIPTION OF HEAD AMOUNT (RS.) A.Y. REMARKS (BASIS OF ADDITION/ DISALLOWANCE) 1. CASH FOUND 34,65,800 09 - 10 REPRESENTS THE CASH FOUND DURING SEARCH HAS BEEN HELD UNACCOUNTED BY THE AO RELYING ON SOME ENTRIES INDICATED IN LOOSE SHEETS OF SEIZED MATERIAL. 2. PROFITS OF THE COAL BUSINESS THROUGH E-AUCTION. 66,22,467 40,00,000 09 - 10 08-09 BASED ON THE INFORMATION AVAILABLE IN THE SEIZED MATERIAL, FOR A BROKEN PERIOD, OF TWO MONTHS, WHICH WAS AGGREGATED AND EXTENDED TO THE THIRD MONTH IN THE FY 2008-09. FOR A.Y. 2008-09, IT IS ESTIMATED @ RS. 10 LAKHS PER MONTH, FOR 4 MONTHS. 3. FREIGHT PAYMENTS 1,00,00,000 1,50,00,000 1,00,00,000 1,00,00,000 90,00,000 09 - 10 08-09 07-08 06-07 05-06 ESTIMATION BASIS. 4. CREDITORS 12,95,53,492 3,98,72,238 2,48,47,434 30,84,519 2,43,63,210 09 - 10 06-07 05-06 04-05 03-04 TREATED THE SUNDRY CREDITORS AS UNEXPLAINED FOR WANT OF INFORMATION SUCH AS NAME & ADDRESS OF THE CREDITORS. QUANTIFICATION IS NET OF CLOSING BALANCE AND OPENING BALANCE OF CREDITORS OF RESPECTIVE FINANCIAL YEAR. FOR A.Y. 2009-10, CLOSING BALANCE OF THE YEAR IS NETTED AGAINST OPENING BALANCE OF A.Y. 2006-07 AND IN THE CASE OF A.Y. 03-04, ENTIRE CLOSING BALANCE OF SUNDRY CREDITORS TAKEN AS UNEXPLAINED. 5. ILLEGAL PAYMENTS 5,00,000 5,00,000 5,00,000 5,00,000 5,00,000 5,00,000 5,00,000 09 - 10 08-09 07-08 06-07 05-06 04-05 03-04 FOR A.Y. 2009 - 10, THE ADDITION IS BASED ON ENTRIES IN LOOSE SHEETS OF SEIZED MATERIAL. FOR BALANCE OF YEARS, THE INFORMATION WAS PRESUMED BASED ON THE STATEMENT AND EXTRAPOLATED, BASED ON RATIO OF DECISIONS IN CASE LAWS OF: A) RAJNIK & CO. VS. ACIT (AP) (251 ITR 561) B) HM EUSAF ALI VS. CIT (SC) (90 ITR 271) ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 4 2.3 AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE TH E CIT(A). THE FINDINGS OF THE CIT(A) ON THESE ISSUES ARE AS FOLLOWS: 2.4 ADDITION TOWARDS CASH FOUND DURING THE SEARCH ACTIO N RS. 34,65,800 (A.Y. 2009-10) : THE ASSESSEE FAILED TO EXPLAIN THE SOURCES FOR THE CASH FOUND ON THE DAY OF SEARCH WIT H THE HELP OF CASH BOOK/BOOKS OF ACCOUNT, WITH REFERENCE TO THE N OTINGS IN THE SEIZED MATERIAL AS RELIED UPON BY THE ASSESSING OFFICER. IT IS AN UNDISPUTABLE FACT THAT THE ASSESSEE IS INDULGING IN CASH PAYMENTS TOWARDS THE HIRE CHARGES TO THE TRUCK DRIV ERS AND CASH IS TRANSFERRED TO THE BRANCH/SITE OFFICES FOR PAYMENT OF THE SAME. SINCE TRANSACTIONS ARE TAKING PLACE ON REGULA R NOTE, INVOLVING CASH TRANSFER, ENTRY WISE TRANSACTIONS CO ULD NOT HAVE BEEN EXPLAINED, UNLESS THE CASH FOUND, THOUGH STATE D TO HAVE DRAWN FROM THE BANKS, BROUGHT INTO AND EXPLAINED TH ROUGH THE BOOKS OF ACCOUNT. FURTHER, AS POINTED OUT BY THE AS SESSING OFFICER IN THE RELEVANT PARA OF THE ASSESSMENT ORDE R, THERE ARE CERTAIN REFERENCES TO THE TRANSFER OF EQUALLY BIG A MOUNTS TO THE VARIOUS BRANCH OFFICES, MATCHING WITH THE BANK WITH DRAWALS WHICH WERE NOT DISPUTED BY THE ASSESSEE. UNLESS SUC H TRANSACTIONS ARE EXPLAINED THROUGH THE RECONCILIATI ON OF RELEVANT ACCOUNTS INVOLVED, IT CANNOT BE TREATED AS EXPLAINE D. HENCE, THE ADDITION OF RS. 34,65,800 TREATING THE CASH FOUND A S UNEXPLAINED MONEY, IS SUSTAINED. THUS, THE CIT(A) D ISMISSED THE ASSESSEE'S GROUND ON THIS ISSUE. 2.5 REGARDING ADDITION TOWARDS PROFIT FROM COAL BUSINES S RS. 66,22,467 A.Y. 2009-10 : AS COULD BE SEEN FROM THE COPIES OF THE SEIZED MATERIAL RELIED UPON BY THE ASSESSING OFFICER, THERE IS NO DISPUTE ABOUT THE CO AL BUSINESS BEING CARRIED OUT AND PROFITS GENERATED BY IT. HOWEVER, THE REFERENCES ARE ALSO MADE TO FEW INDIVIDUALS, INCLUDING THE MANAGING PARTNER WHO IS ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 5 ASSOCIATED WITH SUCH BUSINESS AS PER THE CONTENTS O F THE SEIZED MATERIAL. THE FIGURES ARE AVAILABLE, FOR THE MONTHS OF SEPTEMBER, OCTOBER AND NOVEMBER 2008, AS REFERRED IN ASSESSMENT ORDER. NO EFFORTS HAVE BEEN MADE BY THE ASSESSEE BEFORE THE ASSESSING OFFICER, TO EXPLAIN THE TRANSACTIONS, EXCEPT TO SAY THAT SAID PROFITS DO NOT REPRESENT THE CONCEALED INCOMES OF F IRM. IN THE COURSE OF THE APPELLATE PROCEEDINGS ALSO, SI MILAR SUBMISSIONS ARE MADE BY THE ASSESSEE, WITHOUT ANY EVIDENCE PRODUCED, TO REBUT THE FINDINGS MADE/ CONCLUSIONS DRAWN BY THE ASSESSING OFFICER. HENCE, THE FINDINGS OF THE ASSESSING OFFICER AS REGARDS TO THE TAXABILITY OF THE SAID INCOME IN THE HANDS OF THE ASSESSEE FIRM, IS JUSTIFIED AND CONFIRMED. THE INCO ME GENERATED NEED TO BE OFFERED FOR TAX IN THE HANDS O F THE PERSON WHO EARNS IT. BUT NO SUCH COMPLIANCE SEEMS T O HAVE BEEN MADE BY THE ASSESSEE IN THIS REGARD. HOWEVER, KEEPING THE APPLICABILITY OF THE PROVISION S OF SEC. 132(4A) OF THE IT ACT, 1961, SUCH INCOME IS TAXABLE IN THE HANDS OF THE FIRM, IN WHOSE CASE THE INCRIMINATING MATERIAL WAS FOUND, WHICH STOOD UNEXPLAINED. IN THE INSTANT CASE, THE INFORMATION FOUND IN THE POSSESSION OF THE ASSESSEE AS SUCH ONU S LIES ON IT. FURTHER, NO SUCH INCOMES HAVE BEEN OFFE RED FOR TAX IN ANY OTHER HANDS INCLUDING THE MANAGING PARTNER MR. K.CH. SUBBA RAO. HENCE, THE CIT(A) CONFIRMED THE ADDITION IN THE HANDS OF THE ASSESSEE FIRM. 2.6 HOWEVER, WHILE QUANTIFYING SUCH INCOME, THE ASSESSING OFFICER MADE ON ESTIMATION, INSTEAD OF CONSIDERING THE ACTUAL INFORMATION RELATED TO THE PROFITS OF COAL BUSINESS AS INDICATED IN THE SEIZED ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 6 MATERIAL, SPECIFIC FOR EACH OF THE MONTH. THERE IS NO REASON OR BASIS FOR THE METHOD ADOPTED BY THE ASSESSING OFFICER, WHERE CLEAR EVIDENCE IS AVAILABL E. AGGREGATION BASED ON THE GENERALIZATION OF THE ISSU E MAY NOT BE CORRECT IN LIGHT OF THE FACT THAT THE SA ID BUSINESS IS STATED TO BE SEASONAL AND CARRIED OUT O N INTERMITTENT BASIS, WHERE THE VARIATIONS ARE QUITE POSSIBLE. IN THIS CASE, THE ASSESSING OFFICER AGGRE GATED THE PROFITS OF 3 MONTHS (SEPTEMBER TO NOVEMBER 2008 ) AND APPLIED FOR 4 MONTHS (SEPTEMBER TO DECEMBER 2008), WHEREAS THE SPECIFIC INFORMATION IS AVAILABL E, IN THE SEIZED MATERIAL FOR EACH OF THE MONTH SEPARATEL Y. IN THIS REGARD, THE AMOUNTS OF INCOME SHOWN TO HAVE GENERATED OUT OF COAL BUSINESS ARE RS. 46,51,350 FO R THE MONTHS OF OCTOBER TO NOVEMBER 2008 AND RS. 3,15,005 FOR SEPTEMBER, 2008, WITH NO AMOUNTS INDICATED FOR DECEMBER 2008. WHERE THERE IS CLARITY ON INFORMATION, THE NEED FOR ESTIMATION OR EXTRAPOLATI ON SHOULD NOT ARISE. IN THIS CASE ALSO, SUCH RATIONALE APPLIES AND THE ASSESSING OFFICER IS NOT JUSTIFIED IN ESTIMATION AND IS DIRECTED TO COMPUTE THE INCOME BASED ON THE ACTUAL FIGURES, FOR ALL THE THREE MONT HS, BASED ON THE INFORMATION AVAILABLE IN THE SEIZED MATERIAL. IN THIS MANNER, THE ADDITION IS RESTRICTE D TO RS. 49,66,355 AS AGAINST RS. 66,22,467 MADE BY THE ASSESSING OFFICER. THE CIT(A) ALLOWED THE APPEAL PARTLY, ON THIS GROUND, FOR ASSESSMENT YEAR 2009-10 . 2.7 REGARDING ADDITION TOWARDS PROFIT FROM COAL BUSINES S RS. 40,00,000 A.Y. 2008-09: IT IS A FACT THAT ADDITIONS WERE MADE BASED ON THE NOTINGS OF THE SEIZED MATERIAL RELATED TO THE SAID BUSINESS FALLING IN FEW MONTHS OF THE FINANCIAL YEAR PERTAINING TO THE ASSESSMENT YEA R ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 7 2009-10. SINCE THE ADDITIONS WERE MADE BASED ON SPECIFIC INFORMATION AS REVEALED THROUGH THE SEIZED MATERIAL FOUND DURING THE COURSE OF SEARCH PROCEEDINGS, THE SAME WAS CONFIRMED BASED ON THE ACTUAL QUANTIFICATIONS FOR THE AY 2009-10. THE ADDITION WAS ALSO CONFIRMED IN THE HANDS OF THE FIR M AS AGAINST IN THE HANDS OF MR. K.CH. SUBBA RAO. COMING TO THE FACTS FOR THE YEAR UNDER REFERENCE, I T IS REVEALED THAT THERE IS NO SUCH INFORMATION AVAILABL E FOR THE ASSESSING OFFICER TO MAKE THE SAID ADDITION. ACCORDINGLY, THE ADDITIONS WERE MADE ON ESTIMATE BASIS BY DRAWING INFERENCES FROM THE INFORMATION FOUND FOR THE IMMEDIATE SUBSEQUENT YEAR. THERE WAS A STATEMENT RECORDED FROM THE MANAGING PARTNER OF THE FIRM IN THE EARLIER PART OF THE SEARCH & SEIZURE PROCEEDINGS, INDICATING THE INCOME ON SUCH BUSINESS , WHICH WAS RETRACTED SUBSEQUENTLY, AS SUCH THE INFORMATION OF THE ORIGINAL STATEMENT COULD NOT HAV E BECOME THE ULTIMATE BASIS FOR THE ADDITIONS. FURTHE R, THOUGH THE ASSESSING OFFICER COULD NOT REBUT THE RETRACTED STATEMENT OF THE MANAGING PARTNER, IT IS NOT DENIED THAT THE SEIZED MATERIAL INDICATE THE SPORAD IC INFORMATION AS REGARD TO THE EARNINGS OF BUSINESS O F COAL TRADING. THOUGH SUCH INFORMATION IS NOT ENOUGH TO ARRIVE AT THE EXACT FIGURE OF INCOME, AS ARRIVED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, THER E IS AN INDICATION OF SUCH BUSINESS CARRIED FOR TWO YEAR S AS PER THE INITIAL STATEMENT OF THE MANAGING PARTNER. THE SAID INITIAL STATEMENT WAS ALSO INDICATING THE QUAN TUM OF TURNOVER AND PERCENTAGE OF INCOME ON IT. KEEPING ALL THE FACTS OF THE CASE THAT HAVE EMERGED IN THE COUR SE OF SEARCH PROCEEDINGS AND SUBSEQUENT PROCEEDINGS, T HE ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 8 CIT(A) CONCLUDED THAT SUCH TRADING ACTIVITY WAS CAR RIED FOR TWO YEARS I.E. A.YS. 2008-09 & 2009-10. HOWEVER , NO SPECIFIC INFORMATION IS AVAILABLE THAT CAN HELP IN QUANTIFICATION OF THE INCOME FOR AY 2008-09. ACCORDINGLY, THE CONCLUSION AS REGARDS TO THE QUANT UM OF PROFIT OF THE SAID BUSINESS IS DERIVED FROM THE ORIGINAL STATEMENT OF THE MANAGING PARTNER. THE BAS IS FOR ESTIMATING THE PROFITS FOR THE YEARS OTHER THAN THE YEARS FOR WHICH THE EVIDENCE AVAILABLE GETS THE BAS IS AND SUPPORT FROM THE DECISION OF JURISDICTIONAL HIG H COURT IN THE CASE OF RAJNIK & CO. (251 ITR 561). 2.8 AS FAR AS QUANTIFICATION OF THE INCOME RELATED TO THE TRADING IN COAL CARRIED OUT, IT WAS REFERRED TO THE STATEMENT OF THE MANAGING PARTNER RECORDED IN THE INITIAL PERIODS OF SEARCH PROCEEDINGS WHEREIN IT WA S CATEGORICALLY STATED BY HIM THAT THE BUSINESS OF TRADING IN COAL BY VIRTUE OF THE PURCHASES MADE THROUGH E-AUCTION WAS CARRIED DURING THE PREVIOUS YEARS RELATED TO THE ASSESSMENT YEARS 2008-09 & 200 9- 10 AND THE PROFITS RELATED TO SUCH BUSINESS WAS SHO WN TO BE AROUND 8% ON THE TURNOVERS. THOUGH IT IS A FA CT THAT HE HAS RETRACTED THE STATEMENT SUBSEQUENTLY, T HE ORIGINAL STATEMENT INDICATES THE NATURE OF ACTIVITY THAT WAS CARRIED ON AND SUCH INFORMATION WAS TAKEN AS BASIS FOR ESTIMATING THE PROFIT IN ABSENCE OF THE SPECIFIC INFORMATION AVAILABLE. SINCE THE INCOME CA NNOT BE QUANTIFIED EXACTLY, THE ADDITIONS MADE BY THE ASSESSING OFFICER WERE MODERATED BY THE CIT(A). ACCORDINGLY, THE ADDITION OF RS. 40,00,000 MADE @ R S. 10,00,000 PER MONTH IS RESTRICTED TO 50% OF THE SAM E AND THE ADDITION IS CONFIRMED IN THE HANDS OF THE F IRM. ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 9 2.9 ADDITION TOWARDS FREIGHT PAYMENT : AYS 2005-06 (RS. 90 LAKHS), 2006-07 (RS. 1 CRORE), 2007-08 (RS. 1 CRORE), 2008-09 (RS. 1.5 CRORES) AND 2009-10 (RS. 1 CRORE): THE CIT(A) OBSERVED THAT THE INFORMATION EMBEDDED IN THE ASSESSMENT ORDER INDICATES THAT THE ASSESSING OFFICER RESORTED TO ADDITIONS IN ROUND FIGURES AND MULTIPLES OF MILLIONS. INDEED THE EXPEN SES UNDER THE REFERRED HEAD ARE HUGE, BEFITTING THE SIZ E AND NATURE OF THE BUSINESS AND MOST OF SUCH EXPENSE S ARE BEING PAID IN CASH. NONETHELESS, NO BASIC REFER ENCE WAS MADE TO THE BOOKS OF ACCOUNT/CONCERNED VOUCHERS/BILLS WITH REFERENCE TO THE LAPSES, IF ANY , IN MAINTENANCE OF THEM. THERE IS NO REFERENCE IN THE ASSESSMENT ORDER, AS TO THE SPECIFIC EVIDENCE SHOWN TO HAVE BEEN FOUND IN THE SEARCH PROCEEDINGS AND NO ENQUIRIES WERE CARRIED OUT, IN THIS REGARD TO ARRIV E AT SUCH CONCLUSION. WHILE RELYING ON THE BOOKS OF ACCOUNT, THE ASSESSING OFFICER RESORTED TO ESTIMATI ONS, THAT TOO WITHOUT ANY BASIS, FOR MAKING THE DISALLOWANCES UNDER THE HEAD OF EXPENDITURE UNDER REFERENCE. 2.10 THE CIT(A) FURTHER OBSERVED THAT IN THE SERIES OF THE ASSESSMENT ORDERS PASSED U/S 153A, RELATED TO T HE SEARCH CONDUCTED IN THIS GROUP, THE ASSESSING OFFIC ER HAS CHOSEN NOT TO MAKE ANY DISALLOWANCES UNDER THE SAID HEAD OF EXPENSES, FOR THE A.Y. 2004-05 AND A.Y . 2003-04, THOUGH SIMILAR FACTS WERE PREVAILING FOR T HE SAID YEARS. IN THE ORIGINAL ASSESSMENT ORDER U/S 14 3(3) PASSED ON 1.12.2005, BOTH IN THE CASE OF AY 2004-05 AND AY 2003-04, CERTAIN DISALLOWANCES WERE MADE, UNDER THE HEAD 'FREIGHT CHARGES', OBSERVING THAT 'F REIGHT PAYMENT NOT VOUCHED PROPERLY' AND THE AMOUNTS OF ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 10 DISALLOWANCES WERE RS. 6,01,221 AND RS. 8,98,364 FO R AY 2003-04 AND AY 2004-05, RESPECTIVELY. WHILE MAKING THE DISALLOWANCES, THE ASSESSING OFFICER REFERRED TO CERTAIN DEFECTS IN MAINTENANCE OF BILLS/VOUCHERS AND BOOKS OF ACCOUNTS. SIMILARLY, IN PASSING THE ASSESSMENT ORDERS RELATED TO AY 2005-06 AND AY 2006-07, THE ASSESSING OFFICER DISALLOWED PORTION OF 'FREIGHT CHARGES' WHILE GIVING SPECIFIC FINDINGS THAT THE ENTRIES WERE NOT EXPLAINED OR PRO VED BY CORRESPONDING VOUCHERS/TRIP SHEETS, BEFORE ASSESSING OFFICER, THE BOOKS OF ACCOUNT ARE TO BE REPORTED U/S 145 OF THE IT ACT, 1961. IN VARIOUS JUDGEMENTS IN THIS REGARD HAVE UPHELD THAT ABSENCE OF CASH MEMO, VOUCHERS ETC., MAY GIVE RISE TO LEGITIMA TE INTERFERENCE THAT ALL IS NOT WELL WITH THE BOOKS OF ACCOUNT AND REJECTION OF BOOKS OF ACCOUNT CAN BE JUSTIFIED. 2.11 FURTHER, THE ASSESSING OFFICER HIMSELF MENTIONED IN THE ASSESSMENT ORDER THAT THE GROSS RECEIPTS ADMITTED BY THE ASSESSEE ARE NOT SUBJECT MATTER OF DOUBT AND RETURNS ARE FILED ON THE BASIS OF AUDIT REPORTS OF A QUALIFIED CHARTERED ACCOUNTANT, BOOKS ARE ACCEPTED. IF THE OBSERVATIONS OF THE ASSESSING OFFI CER ARE HELD TO BE CORRECT, THERE WOULD NOT BE ANY BASI S FOR DISALLOWANCE SINCE THE RETURNS ARE FILED BY THE ASSESSEE BASED ON THE AUDIT REPORTS OF A QUALIFIED CHARTERED ACCOUNTANT AND AS SUCH, THE DISALLOWANCES MAY NOT BE JUSTIFIED THAT TOO IN ABSENCE OF ANY DEFICIENCIES POINTED OUT IN SUCH RETURNS OF INCOME OR BOOKS. 2.12 THE CIT(A) FURTHER OBSERVED THAT IN CASE OF THE ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 11 ASSESSMENTS PASSED U/S 143(3) OF THE ACT, DISALLOWANCES WERE MADE BY REFERRING TO THE SPECIFI C DEFECTS IN MAINTENANCE OF BILLS OR BOOKS, WHEREAS I N THE SEARCH RELATED ASSESSMENT, THERE IS A MARKED DEVIATION IN OPINION OF THE ASSESSING OFFICER AND T HE DISALLOWANCES WERE BEING MADE SUMMARILY WITHOUT MAKING ANY REFERENCE TO ANY SPECIFIC FINDINGS OF SE ARCH OR THE DEFECTS POINTED OUT IN MAINTENANCE OF BILLS/BOOKS OR ANY OTHER BASIS. IN THE PRESENT CASE , AS FAR AS DISALLOWANCES UNDER THE HEAD 'FREIGHT CHARGE S', WERE MADE BY MAKING A GENERAL REFERENCE TO THE SEAR CH FINDINGS, WITHOUT MAKING OUT THE SHORTCOMING OR THE DEFECTS IN ACCOUNTS. WHEN THE ACCOUNTS ARE UNRELIAB LE, THE OPTION AVAILABLE FOR THE ASSESSING OFFICER WOUL D BE EITHER TO EXAMINE THE BOOKS WITH REFERENCE TO PARTICULAR DEFECTS OR MAKING THE ADDITIONS ON THE SPECIFIC DEFECTS POINTED OUT OR TO RESORT TO ESTIMA TION OF THE PROFIT BY REJECTING THE BOOKS. HOWEVER, IN T HIS CASE, THE ASSESSING OFFICER HAS CHOSEN TO BLOW HOT AND COLD TOGETHER. WITHOUT REJECTING THE BOOKS AND WITH OUT POINTING OUT ANY DEFECTS, EXPENSES ARE DISALLOWED O N ESTIMATION BASIS. AS INDICATED IN THE ASSESSMENT ORDERS FOR AY 2003-04 & 2004-05 U/S 143(3} OF THE I T ACT, 1961, ESTIMATION OF CERTAIN EXPENDITURES WERE MADE BASED ON THE SPECIFIC DEFECTS IN MAINTENANCE O F BILLS SUCH AS 'NON-VOUCHING OF FREIGHT EXPENSES' ET C., BUT WITHOUT REJECTING THE BOOKS. THIS HAS BEEN ACCEPTED BY THE ASSESSING OFFICER WHILE PASSING THE ORDERS U/S 143(3) R.W.S. 153A, WHERE NO DISALLOWANC ES UNDER THE HEAD 'FREIGHT PAID' WERE MADE. WHEREAS IN THE ASSESSMENT YEARS WHERE BOOKS WERE REJECTED IN T HE ORIGINAL ASSESSMENT ORDER, AS IN THE CASE OF AY 200 5- ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 12 06 AND 2006-07 FOR THE PURPOSE OF ESTIMATING THE PROFIT WERE REFUSED TO BE CONSIDERED BY THE ASSESSI NG OFFICER, WHILE CONTINUED TO MAKE DISALLOWANCES OF EXPENSES ON ESTIMATION BASIS. ABSENCE OF INFORMATIO N OR DEFECTS IN MAINTENANCE OF PARTICULAR BILLS OR VOUCHERS, WILL CERTAINLY LEAD TO ESTIMATION. HOWEVE R, THE DISALLOWANCES MADE ON MERE ESTIMATIONS, THAT TO O IN ROUND SUM FIGURES WITHOUT ANY BASIS WHATSOEVER D O NOT HELP THE ADDITIONS TO BE SUSTAINED. IN COMPLET ING THE ASSESSMENT FOR ALL THE YEARS UNDER REFERENCE WH ICH HAPPENED TO BE ON THE SAME DATE, THE ASSESSING OFFI CER SEEMS TO HAVE ADOPTED THE DIFFERENT YARDSTICK FOR DIFFERENT ASSESSMENT YEARS WHILE QUANTIFYING THE DISALLOWANCE UNDER THE SAME HEADING IN THE CASE OF THE SAME ASSESSEE WHICH INDICATE THAT THE ADDITIONS WERE MADE WITHOUT NAY BASIS OR DEFECTS POINTED OUT, AS SUCH THE ADDITIONS MADE UNDER THE HEAD 'FREIGHT CHARGES' MERELY ON ESTIMATION ARE NOT SUSTAINABLE. HENCE, THE CIT(A) DELETED THE SAME. 2.13 ADDITION TOWARDS CREDITORS FOR A.YS. 2003-04 (RS. 2,43,63,210), 2004-05 (RS. 30,84,519), 2005-06 (RS. 2,48,47,434), 2006-07 (RS. 3,98,72,238): THE MAIN BUSINESS OF THE ASSESSEE IS THAT OF TRANSPORT CONTRACTS WITH CLIENTS SUCH AS INDIA CEMENTS LIMITED AND ON FEW OCCASIONS OTHER PARTIES AND DERIVED PROFITS FROM THEREIN. AS THE FIRM DO NOT HAVE TRUCKS OF ITS OWN, THE SAME WERE HIRED ON PAYMENT. WHILE THE RECEIPTS ARE IN CHEQUE SUPPORTED BY THE TDS WHEREAS THE PAYMENTS ARE IN CASH AND EXPENSE UNDER THE HEAD 'FREIGHT PAYMENT' TO TRUCK DRIVERS IS THE MAJOR EXPENSE WHIC H SHOWN TO HAVE CONSTITUTED 97.25% OF THE TOTAL RECEI PTS IN AY 2009-10 TO 98.5% IN AY 2004-05. THOUGH SUCH ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 13 AMOUNTS ARE PAID IN CASH, THE ASSESSEE FOLLOWING MERCANTILE METHOD OF ACCOUNTING AND ACCORDINGLY THE CREDITORS AND DEBTORS ARE REFLECTED THROUGH THE BAL ANCE SHEET. CREDITORS AS WELL AS DEBTORS ARE SHOWN TO BE OUTSTANDING FOR TWO TO THREE MONTHS AND AS PER THE INFORMATION FURNISHED, THEIR RATIOS TO THAT OF THE AMOUNTS UNDER THE RESPECTIVE HEADS OF RECEIPTS/EXPENSES FOR FEW OF THE YEARS ILLUSTRATED AS BELOW. A.Y. % OF CREDITORS TO THE EXPENSES % OF DEBTORS TO THE RECEIPTS 2003-04 23.05 18.66 2006-07 17.92 16.66 2009-10 27.35 23.84 AS COULD BE SEEN FROM THE ABOVE, FOR THE ASSESSMENT YEAR 2003-04 & 2009-10, THE PERCENTAGE OF CREDITORS AS WELL AS DEBTORS ARE ON HIGHER SIDE COMPARED TO OTHER YEARS AS THE SAME ARE EXTENDING FOR FOURTH MONTH AS PER THE DATA SUBMITTED BY THE ASSESSEE WHICH IS AGAINST THE NORMAL PERIOD OF 2-3 MONTHS, AS SUBMITTED BY THE ASSESSEE. 2.14 WHILE COMPLETING THE ASSESSMENT AND IN MAKING THE ADDITIONS UNDER THE HEAD 'UNEXPLAINED CREDITS' ON ACCOUNT OF THE OUTSTANDING PAYMENTS TO THE TRUCK DRIVERS, THE ASSESSING OFFICER HAS ARRIVED AT A CONCLUSION THAT ASSESSEE FIRM ITSELF HAS ADMITTED T HAT IT DOES NOT HAVE ANY DOCUMENTATION OF PAYMENTS MADE TO LORRY DRIVERS. HOWEVER, THIS CONCLUSION APPEARS TO BE AWAY FROM THE TRUTH IN LIGHT OF THE SUBMISSIONS MADE BY THE ASSESSEE WITH REFERENCE TO THE FACTS OF THE CASE, BEFORE THE ASSESSING OFFICER AS WELL AS THE APPELLATE AUTHORITY AND IN A CASE WHERE BOOKS OF ACCOUNT WERE MAINTAINED, AUDITED AND EXAMINED BY TH E DEPARTMENT FOR MANY YEARS EITHER DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS OR SURVEY PROCEEDINGS OR ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 14 SEARCH & SEIZURE PROCEEDINGS. ASSESSING OFFICER ALS O REFERRED TO THE STATEMENTS RECORDED FROM THE MANAGI NG PARTNER AND THE ACCOUNTANT OF THE FIRM TO ARRIVE AT THE CONCLUSION THAT THERE IS NO SCOPE FOR EXISTENCE OF THE CREDITORS WHERE CASH HAS BEEN USED FOR PAYMENT TO T HE TRUCK DRIVERS. HOWEVER, ON CLOSE EXAMINATION OF THE REPLIES GIVEN BY THE MANAGING PARTNER AND THE ACCOUNTANT OF THE FIRM, VIDE THEIR SWORN STATEMENTS REVEAL THAT AT NO POINT OF TIME, THE ASSESSEE SHOWN TO HAVE ADMITTED THAT THESE CREDITORS ARE BOGUS OR NON - EXISTING. VIDE THE STATEMENTS, ALL ALONG IT WAS TRI ED TO EXPLAIN THE TRANSACTIONS INVOLVING THE PAYMENTS TO THE TRUCK DRIVERS WHICH HAS SOME OBVIOUS DIFFICULTIES I N MAINTENANCE OF ACCOUNTS. THIS FACT WAS ALSO NOTICED AND APPRECIATED BY THE ASSESSING OFFICER WHILE COMPLETING THE SCRUTINY PROCEEDINGS IN THE ORIGINAL ASSESSMENT. IT APPEARS THAT NO SUCH HINT WAS GIVEN BY THE ASSESSEE REPRESENTED THROUGH ITS MANAGING PARTN ER TO INDICATE THAT THE ENTIRE CREDITORS ARE BOGUS AND NON-EXISTENT. HENCE, THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER BASED ON FEW GENERAL REFERENCES I N THE SEIZED MATERIAL AND STATEMENTS RECORDED ARE ONL Y HYPOTHETICAL AND NOT ON SOUND FOOTING. ACCORDINGLY, ON THIS ISSUE ALSO, THE STAND TAKEN BY THE ASSESSING OFFICER DO NOT HOLD GOOD. 2.15 THE CIT(A) FURTHER OBSERVED THAT THE REFERENCES ARE MADE BY THE ASSESSING OFFICER TO THE SEIZED MATERIAL REGARDING THE POOLING OF CASH AND PAYMENTS IN CASH. EVEN IF IT IS BELIEVED TO BE TRUE, SUCH PAYME NTS MAY BE PAID IN FULL OR MAY NOT BE PAID IN FULL. THE SAME PAYMENTS MIGHT BE REFERRING TO THE PART PAYMENTS MADE. FURTHER, THERE IS NO REFERENCE TO SU CH ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 15 PAYMENTS SHOWN TO HAVE PAID EITHER FULLY OR IN PART . UNDER THE CIRCUMSTANCES, IT CAN BE ONLY TERMED AS A N INFERENCE WHERE THE POSSIBILITY IS AN EQUIVOCAL PROPOSITION. FOR THE SAID REASONS, IT MAY NOT BE CO RRECT ON THE PART OF THE ASSESSING OFFICER TO CONCLUDE ON THE NON-EXISTENCE OF THE CREDITORS WHICH IS ON ACCOUNT OF PRESUMPTION BY HIM THAT ENTIRE PAYMENTS WERE MADE IN CASH AND IN FULL. THE MAIN THRUST OF THE ASSESSI NG OFFICER WAS ON THIS ISSUE, TO SAY AND CONCLUDE THAT ASSESSEE MAKES THE PAYMENTS OF FREIGHT IN CASH AND IN FULL AMOUNT AS A SINGLE PAYMENT AND THEREFORE, THER E IS NO SCOPE FOR EXISTENCE OF CREDITORS. THIS APPEARS T O BE A HYPOTHETICAL AND MISPLACED BELIEF, BASED ON WHICH , THE CREDITORS OUTSTANDING AS ON THE LAST DATE OF TH E FINANCIAL YEAR WERE TREATED AND ADDED AS INCOME TREATING THEM AS UNEXPLAINED CREDITS, BUT ONLY AFTE R SETTING OFF THE SAME WITH THE OPENING BALANCES OF CREDITORS AT THE BEGINNING OF THE YEAR. THIS PRACTI CE MAY NOT REFLECT ANY SCIENTIFIC BASIS SINCE THE CRED ITORS ARE DYNAMIC BUT NOT STATIC FIGURES, ESPECIALLY FOR A RUNNING BUSINESS, AS SUCH BUNDLING THEM TOGETHER MA Y NOT BE THE CORRECT APPROACH IN TACKLING THE ISSUE. TO ILLUSTRATE, THE CREDITORS STANDING AS OPENING BALAN CE, AT THE BEGINNING OF THE YEAR, MIGHT HAVE BEEN CLEAR ED BY THE ASSESSEE WHILE MAKING THE PAYMENTS SUBSEQUENTLY AND DURING THE YEAR FRESH CREDITORS IF ANY MAY BE GETTING ADDED, ON ACCOUNT OF EXPENSES INCURR ED ON CREDIT BASIS, DURING THE YEAR. 2.16 IT IS FURTHER NOTICED BY THE CIT(A) THAT EVEN IN PRESUMPTIONS MADE BY THE ASSESSING OFFICER, THERE I S NO CONSISTENCY. TO ILLUSTRATE, {I} IN THE ASSESSMEN T YEAR 2009-10, THE CLOSING BALANCES OF CREDITORS (RS. ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 16 22,17,20,893) HAS BEEN SET-OFF AGAINST THE OPENING BALANCE OF CREDITORS FOR AY 2006-07 (RS. 9,21,67,40 1) TO ARRIVE AT NET CREDITORS' FIGURE OF (RS. 12,95,53 ,492), AS AGAINST THE ACTUAL OPENING BALANCE OF THE CREDIT ORS FOR THE ASSESSMENT YEAR 2009-10 (RS. 7,37,91,578). (II) FOR ASSESSMENT YEARS 2008-09 & 2007-08, THERE IS NO SUCH ADJUSTMENT AND ACCORDINGLY NO ADDITIONS ON ACCOUNT OF THE UNEXPLAINED CREDITORS FOR THE TWO ASSESSMENT YEARS (III) FOR ASSESSMENT YEAR 2003-04, WHILE COMPUTING THE UNEXPLAINED CREDITORS, THE ASSESSING OFFICER HAS TAKEN ENTIRE CLOSING BALANCE OF THE CREDITORS (I.E. RS. 2,43,63,210) WITHOUT CONSID ERING THE OPENING BALANCES OF CREDITORS FOR THE YEAR. 2.17 FURTHER, IT WAS OBSERVED BY THE CIT(A) THAT THE ADDITION ON ACCOUNT OF CREDITORS ALONG WITH THE DISALLOWANCE OF FREIGHT CHARGES AMOUNTED TO DOUBLE DISALLOWANCE. THE CREDITORS BEING THE SUNDRY CREDIT ORS AND DIRECTLY ARISEN OUT OF THE EXPENSES, MORE PARTICULARLY THE FREIGHT CHARGES IN THIS CASE, IF DISALLOWED WITHOUT POINTING OUT TO A PARTICULAR TRANSACTION OR PARTY, THERE IS EVERY POSSIBILITY OF DUPLICATION OF ADDITION/DISALLOWANCE, SINCE ADDITIO NS/ DISALLOWANCES ALSO MADE FOR FREIGHT PAID. 2.18 IT APPEARS FROM THE RECORD AND HISTORY OF THE ASSESSEE, THAT THOUGH THE BOOKS WERE MAINTAINED AND AUDITED, THERE WERE CERTAIN DEFICIENCIES, AS POINTE D OUT ON EARLIER OCCASIONS, WITH FEW QUESTIONS RAISED AND THE SAID ACCOUNTS SUBJECTED TO DETAILED SCRUTINY. THERE WERE ALSO OCCASIONS WHERE SPECIFIC DEFICIENCIES WER E POINTED OUT BY THE ASSESSING OFFICER FOR EARLIER YE ARS SUCH AS AY 2005-06 WHEREIN THE ASSESSING OFFICER, ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 17 WHILE POINTING OUT THE DEFICIENCIES AND DIFFICULTIE S FACED BY THE ASSESSEE ON ACCOUNT OF VOLUMES AND NATURE OF BUSINESS WHICH HAVE ALSO RESULTED IN REJECTION OF BOOKS AND ESTIMATION OF PROFITS OR DISALLOWABLE EXPENSES. AS REGARDS THE DEFICIENCIES IN MAINTENANCE OF THE BOOKS FOR EARLIER YEARS, IT MAY BE RELEVANT TO REFER TO THE COMMENTS OF THE ASSESSING OFFICER WHO HAS REJECTED THE BOOKS FOR AY 2005-06 WHEREIN IT WAS OBSERVED THAT THE ASSESSEE DID NOT SUBMIT THE LORRY-WISE AND VEHICLE WISE DETAILS AND THE ENTRIES HAD BEEN PASSED BY WAY OF SINGLE JOURNAL VOUCHER ENTRY PER MONTH IN EVERY BRANCH FOR THE TOT AL OF THE CREDIT PAYMENTS ACCOUNTED FOR IN THAT MONTH AND THE DAY-WISE PAYMENTS OR THE PARTY-WISE PAYMENT S AS RECORDED IN THE JOURNAL BOOKS OR THE DAY BOOKS MAINTAINED BY THE ASSESSEE WERE NOT PRODUCED. 2.19 IN THIS CASE, AS IT APPEARS AND OBSERVED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, THERE AR E LAPSES ON THE PART OF THE ASSESSEE IN EXPLAINING TH E CREDITORS AS DESIRED BY THE ASSESSING OFFICER ALONG WITH THE RELEVANT INFORMATION WHICH APPEARS TO HAVE PROMPTED THE ASSESSING OFFICER TO RESORT TO THE ESTIMATION. BUT EVEN IN ESTIMATION, THERE IS NO CONSISTENCY, AS ILLUSTRATED IN THE EARLIER PARA WHI CH WAS ALSO RESORTED TO WITHOUT REJECTING THE BOOKS OF ACCOUNTS. IT IS HELD ALL ALONG WHERE ESTIMATIONS AR E POSSIBLE AND RESORTED TO, SUCH ESTIMATION SHOULD BE REASONABLE, FAIR AND BASED ON THE INFORMATION EITHE R AVAILABLE ON RECORD OR GATHERED BY THE ASSESSING OFFICER. IT IS RELEVANT TO REFERRED TO THE OBSERVAT IONS OF HON'BLE SUPREME COURT REGARDING THE DISTINCTIONS BETWEEN AN 'ASSESSMENT BASED ON ACCOUNTS' AND THE ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 18 'BEST JUDGEMENT ASSESSMENT' AS REFERRED TO, IN THE CASE OF CST VS. H.M. EUSUF ALI H.M. ABDULALI (90 ITR 271 ) (SC) WHICH IS REPRODUCED AS UNDER: 'SOMETIMES THERE MAY BE INNOCENT OR TRIVIAL MISTAKE IN THE ACCOUNTS MAINTAINED BY THE ASSESSEE. THERE MAY BE EVEN CERTAIN UNINTENDED OR UNIMPORTANT OMISSIONS IN THOSE ACCOUNTS; BUT YET THE ACCOUNTS MAY BE ACCEPTED AS GENUINE AND SUBSTANTIALLY CORRECT. IN SUCH CASES, THE ASSESSMENTS ARE MADE ON THE BASIS OF THE ACCOUNTS MAINTAINED EVEN THOUGH THE ASSESSING OFFICER MAY ADD BACK TO THE ACCOUNTS, PRICE OF ITEMS THAT MIGHT HAVE BEEN OMITTED TO BE INCLUDED IN THE ACCOUNTS. IN SUCH A CASE, THE ASSESSMENT MADE IS NOT A BEST JUDGEMENT ASSESSMENT. IT IS PRIMARILY MADE ON THE BASIS OF THE ACCOUNTS MAINTAINED BY THE ASSESSEE. BUT, WHEN THE ASSESSING OFFICER COMES TO THE CONCLUSION THAT NO RELIANCE CAN BE PLACED ON THE ACCOUNTS MAINTAINED BY THE ASSESSEE, HE PROCEEDS TO ASSESS THE ASSESSEE ON THE BASIS OF HIS BEST JUDGEMENT. IN DOING SO, HE MAY TAKE SUCH ASSISTANCE AS THE ASSESSEE'S ACCOUNTS MAY AFFORD; HE MAY ALSO RELY ON OTHER INFORMATION GATHERED BY AS WELL AS SURROUNDING CIRCUMSTANCES OF THE CASE. THE ASSESSMENTS MADE ON THE BASIS OF ASSESSEES ACCOUNTS AND THOSE MADE ON BEST JUDGEMENT BASIS ARE TOTALLY DIFFERENT TYPES OF ASSESSMENTS.' 2.20 THE CIT(A) FURTHER OBSERVED THAT IN THIS CASE, THE ADDITIONS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TREATING THE SUNDRY CREDITORS, RELATED TO THE OUTSTANDING PAYMENTS TO TRUCK DRIVERS AS UNEXPLAINE D CREDITS, REVEAL THAT THE ASSESSING OFFICER NEITHER BASED HIS ADDITIONS ON THE BEST JUDGEMENT OR BASED ON THE ACCOUNTS OF THE ASSESSEE. EVEN IN THE BEST JUDGEME NT, THE SCOPE FOR THE ASSESSING OFFICER IS LIMITED AND AS IT WAS OBSERVED IN MANY JUDICIAL DECISIONS, THE ESTIMATION SHOULD BE BONA-FIDE ESTIMATE AND BASED O N A RATIONAL BASIS. ACCORDINGLY, IT IS HELD THAT IN THIS CASE, NO SUCH SYSTEM HAS BEEN FOLLOWED OR NO ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 19 CONSISTENT BASIS IS ADOPTED IN TREATING THE SUNDRY CREDITORS AS UNEXPLAINED CREDITS. HENCE, THE ADDITI ONS MADE UNDER THIS HEAD FOR ALL THE ASSESSMENT YEARS UNDER REFERENCE ARE DELETED. THEREFORE, THE CIT(A) ALLOWED THIS GROUND OF APPEAL FOR ALL THE SEVEN YEA RS UNDER REFERENCE. 2.21 ADDITION TOWARDS ILLEGAL PAYMENTS RS. 5,00,000 - FOR A.Y. 2009-10 : THE CIT(A) OBSERVED THAT THESE EXPENSES ARE RECOGNIZED THROUGH THE SEIZED MATERIAL , AND BELIEVED TO BE RELATED TO THE ASSESSEE, SINCE F OUND IN THE POSSESSION OF THE ASSESSEE IN THE COURSE OF SEARCH PROCEEDINGS. IT HAS BEEN HELD THAT SINCE THE MATERIAL/INFORMATION, ALONG WITH INCOME / EXPENSE / INVESTMENT FOUND IN THE PREMISES/POSSESSION OF THE PERSON IN THE COURSE OF SEARCH & SEIZURE PROCEEDING S, THE SAME WILL BE TREATED AS BELONGING TO THE SAID PERSON, UNLESS IT IS PROVED OTHERWISE, AS PER THE PROVISIONS OF SEC. 132(4A) OF THE IT ACT, 1961. THE ASSESSEE ADMITTED TO HAVE INCURRED SUCH EXPENDITURE S BUT IN THE COURSE OF THE BUSINESS FOR THE PURPOSE O F BUSINESS. BUT ON CLOSE EXAMINATION OF THE SAME, IT REVEALS THAT SUCH EXPENSES REPRESENT THE AMOUNTS PA ID TO THE EMPLOYEES OF THE ICL & SCCL, THOUGH THE ASSESSEE IS NOT LIABLE TO PAY AS PER THE STANDARD BUSINESS PRACTICES. SINCE THIS EXPENDITURE ASSUMES THE NATURE OF DISALLOWABLE EXPENSE AND FOR THE REAS ONS THAT IT IS NOT REFLECTED IN THE BOOKS OF ACCOUNTS, THE ADDITION MADE BY THE ASSESSING OFFICER IS SUSTAINAB LE. HENCE, THE ADDITION RS. 5,00,000 MADE BY THE ASSESSING OFFICER FOR THE AY 2009-10 IS CONFIRMED. SINCE THE AMOUNTS WERE NOT REFLECTED IN THE BOOKS O F ACCOUNTS, THE DISALLOWANCE IS NOT HIT BY THE ESTIMA TION ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 20 OF PROFITS OF THE BUSINESS, IF ACCEPTED AS PER THE CONTENTION OF THE ASSESSEE. 2.22 ADDITION TOWARDS ILLEGAL PAYMENTS RS. 5,00,000 FOR A.YS. 2003-04 TO 2008-09 : THE CIT(A) OBSERVED THAT HAVING HELD THE ESTIMATION TO BE VALID, THE IS SUE OF QUANTIFICATION OF THE EXPENDITURE BASED ON ESTIMATION, ARISES. HOLDING THAT SUCH PAYMENTS ARE THERE FOR ALL THE YEARS AND BASED ON THE PERIOD OF PAYMENTS WITH REFERENCE TO THE VOLUME OF BUSINESS, THE EXPENSES DISALLOWED BY THE ASSESSING OFFICER @ RS. 5,00,000 PER YEAR GETS MODIFIED AND ACCORDINGLY IT IS RESTRICTED TO THE DISALLOWANCE OF RS. 4,00,000 FOR A.Y. 2007-08, RS. 3,00,000 EACH FOR A.Y. 2005-06 AND 2006-07, RS. 2,00,000 EACH FOR A.YS. 2003-04 AND 2004-05. THE DISALLOWANCE OF RS. 5,00,000 MADE FOR AY 2008-09 GETS CONFIRMED. ACCORDINGLY, THE ASSESSEE G OT A RELIEF OF RS. 10,00,000 FOR THE SEVEN YEARS UNDER REFERENCE OUT OF THE TOTAL DISALLOWANCE OF RS. 30,0 0,000 MADE FOR SEVEN YEARS. 2.23 ADDITION TOWARDS ESTIMATION OF PROFIT FOR A.YS. 200 5-06 AND 2006-07 : THE CIT(A) REJECTED THE BOOKS OF ACCOUNT AND DIRECTED THE ASSESSING OFFICER TO ESTIMATE INCOME O F THE ASSESSEE AT 2% OF THE GROSS RECEIPTS. HE ALSO RELIED ON THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF MADDI SUDA RSNAM OIL MILLS CO. VS. CIT (37 ITR 359) (AP). 2.24 ADDITION TOWARDS ESTIMATION OF PROFIT FOR A.YS. 20 03-04, 2004-05, 2007-08, 2008-09 AND 2009-10 : THE CIT(A) REJECTED THE BOOKS OF ACCOUNT AND DIRECTED THE ASSESSING OFF ICER TO ESTIMATE INCOME OF THE ASSESSEE AT 2% OF THE GROSS RECEIPTS ON THE BASIS OF FINDING OF THE CIT(A) FOR A.Y. 2005-06 AT 2% OF THE ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 21 GROSS RECEIPTS. AGAINST GIVING RELIEF THE REVENUE IS IN APPEAL AND FOR SUSTAINING ADDITIONS THE ASSESSEE IS IN APP EAL BEFORE US. FOR CLARITY WE TABULATE THE GROUNDS OF REVENUE AS W ELL AS THE ASSESSEE AS IN THE FOLLOWING: ASSESSEE'S APPEALS SL. NO. GROUND OF APPEAL ITA NO. 899/H/12 A.Y. 03-04 ITA NO. 900/H/12 A.Y. 04-05 ITA NO. 901/H/12 A.Y. 05-06 ITA NO. 902/H/12 A.Y. 06-07 ITA NO. 903/H/12 A.Y. 07-08 ITA NO. 904/H/12 A.Y. 08-09 ITA NO. 905/H/12 A.Y. 09-10 1. GR. 1. CIT(A) ERRED IN CONFIRMING THE REJECTION OF BOOKS MADE BY THE AO. AO CANNOT CHANGE THE METHOD OF ACCOUNTING WITHOUT ASSIGNING ANY REASON. YES YES YES YES YES YES YES 2. GR. 2. SECTION 145 OF IT ACT REPRODUCED YES YES YES YES YES YES YES 3. GR. 3. ALL NECESSARY EXPLANATIONS GIVEN TO AO STILL ADDITIONS MADE TO RETURNED INCOME. YES YES YES YES YES YES YES 4. GR. 4. INCOME OFFERED BY ASSESSEE SHOULD BE CONSIDERED AND RETURNED INCOME MAY BE ACCEPTED YES YES YES YES YES YES YES 5. GR. 5. ALTERNATIVELY, AVERAGE INCOME BASED ON AVERAGE OF EARLIER SHALL BE CONSIDERED INSTEAD OF 2%. YES YES YES YES YES YES YES 6. GR. 6. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE TOWARDS ILLEGAL PAYMENTS YES YES YES YES YES NA NA 7. GR. 7. CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE EXP. IS INCURRED IN NORMAL COURSE OF BUSINESS AND HENCE CANNOT BE DISALLOWED YES YES YES YES YES NA NA 8. GR. 8. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE TOWARDS ILLEGAL PAYMENTS BASED ON LOOSE SHEETS YES YES YES YES YES NA NA 9. GR. 9. ASSESSEE HAS RELIED ON THE ORDER OF HYD TRIBUNAL IN THE CASE OF VISHAL INFRASTRUCTURE LTD. VS. ACIT (104 ITD 537) YES NA NA NA NA NA NA 10. GR. 10. PENALTY PROCEEDINGS U/S. 271(1)(C) ARE NOT CORRECT YES NA NA NA NA NA NA 1 1 . GR. 6. CIT(A) ERRED IN SUSTAINING DISALLOWANCE TOWARDS INCOME FROM COAL BUSINESS NA NA NA NA NA YES YES 1 2 . GR. 7. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE IGNORING THE FACT THAT TURNOVER & PROFIT FROM COAL BUSINESS IS RELATED TO PARTNER K.CH. SUBBA RAO NA NA NA NA NA YES YES 1 3 . GR. 8. AS SESSEE PRAYS THAT THE ADDITION OF INCOME FROM COAL BUSINESS IN THE HANDS OF FIRM MAY BE DELETED AS IT RELATES TO K.CH. SUBBA RAO, ONE OF THE PARTNER. NA NA NA NA NA YES YES ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 22 1 4 . GR. 9. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE TOWARDS ILLEGAL PAYMENTS NA NA NA NA NA YES YES 1 5 . GR. 10. CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE EXP. IS INCURRED IN NORMAL COURSE OF BUSINESS AND HENCE CANNOT BE DISALLOWED NA NA NA NA NA YES YES 1 6 . GR. 11. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE TOWARDS ILLEGAL PAYMENTS BASED ON LOOSE SHEETS. NA NA NA NA NA YES YES 1 7 . GR. 12. CIT(A) ERRED IN SUSTAINING THE ADDITION MADE TOWARDS UNEXPLAINED CASH NA NA NA NA NA NA YES 1 8 . GR. 13. CASH FOUND DURING THE SEARCH REPRESENTS THE AMOUNT WITHDRAWN ON 24.2.2008 AND HENCE CANNOT BE ADDED U/S. 69A. NA NA NA NA NA NA YES 19 . GR. 15. TELESCOPY OF CASH FOUND AGAINST THE ESTIMATED INCOME AND INCOME ARISEN DUE TO DISALLOWANCES. NA NA NA NA NA NA YES 2 0 . GR. 6. CIT(A) RIGHTLY ESTIMATED INCOME AND DELETED FREIGHT PAYMENTS & FREIGHT CREDITORS AS THESE ARE ORIGINATED FROM P & L A/C. YES (GR. 12) YES (GR. 10) YES (GR. 10) YES (GR. 10) YES (GR. 10) YES (GR. 13) YES (GR. 16) REVENUE APPEALS SL. NO. GROUND OF APPEAL ITA NO. 278/H/12 AY 03-04 ITA NO. 279/H/12 AY 04-05 ITA NO. 280/H/12 AY 05-06 ITA NO. 281/H/12 AY 06-07 ITA NO. 282/H/12 AY 07-08 ITA NO. 283/H/12 AY 08-09 ITA NO. 284/H/12 AY 09-10 1. THE CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO BY DISALLOWING FREIGHT CHARGES. YES YES YES YES YES YES YES 2. THE CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF CREDITORS AS ON ONE HAND CIT(A) HAS STATED THAT DISALLOWANCE OF CREDITORS MAY LEAD TO DUPLICATIONS OF ADDITION SINCE FREIGHT IS ALSO DISALLOWED BUT IN ORDER PASSED. CIT(A) HAS DISALLOWED BOTH FREIGHT & CREDITORS. YES YES YES YES YES YES YES 3. THE CIT(A) ERRED IN REJECTION OF BOOKS AND ESTIMATION OF GROSS RECEIPTS YES YES YES YES YES YES YES 4. ANY OTHER GROUND THAT MAY BE ARGUED AT THE TIME OF HEARING. YES YES YES YES YES YES YES 3. THE AR SUBMITTED THAT IN THESE CASES BASICALLY THER E WAS NO EVIDENCE IN THE FORM OF SEIZED MATERIAL TO ESTIM ATE THE INCOME OF THE ASSESSEE OR TO MAKE ANY ADDITION. AC CORDING TO HIM, THE DECISION OF MUMBAI SPECIAL BENCH OF THIS T RIBUNAL IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. VS. DCI T (137 ITD 287) SUPPORTS THE CASE OF THE ASSESSEE WHEREIN IT W AS HELD AS UNDER: ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 23 '58. THUS, QUESTION NO. 1 BEFORE US IS ANSWERED AS UNDER: A) IN ASSESSMENTS THAT ARE ABATED, THE AO RETAINS THE ORIGINAL JURISDICTION AS WELL AS JURISDICTION CONFERRED ON HIM U/S 153A FOR WHICH ASSESSMENTS SHALL BE MADE FOR EACH OF THE SIX ASSESSMENT YEARS SEPARATELY. B) IN OTHER CASES, IN ADDITION TO THE INCOME THAT HAS ALREADY BEEN ASSESSED, THE ASSESSMENT U/S 153A WILL BE MADE ON THE BASIS OF INCRIMINATING MATERIAL, WHICH IN THE CONTEXT OF RELEVANT PROVISIONS MEANS (I) BOOKS OF ACCOUNT, OTHER DOCUMENTS, FOUND IN THE COURSE OF SEARCH BUT NOT PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT, AND (II) UNDISCLOSED INCOME OR PROPERTY DISCOVERED IN THE COURSE OF SEARCH. 3.1 FURTHER WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, HE SUBMITTED THAT ESTIMATION OF INCOME AT 2% BY THE CI T(A) IS NOT JUSTIFIED. THE AVERAGE RATE OF NET PROFIT FOR THE EARLIER ASSESSMENT YEARS IS AS FOLLOWS: 2003-04 - 0.96% 2004-05 - 0.80% 2005-06 - 2.00% 2006-07 - 2.00% 3.2 HE PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL DAT ED 4.5.2012 IN ITA NO. 2048/HYD/2011 FOR A.Y. 2007-08 IN THE CASE OF ECI ENGINEERING & CONSTRUCTION CO. LTD. WHE REIN IT WAS HELD AS UNDER: '11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE THE ASSESSEE IN S PITE OF GIVING SUFFICIENT OPPORTUNITIES TO PRODUCE THE B OOKS OF ACCOUNT COULD NOT PRODUCE THE SAME BEFORE THE LOWER AUTHORITIES. BEING SO, HAVING NO OTHER OPTIO N, THE ASSESSING OFFICER ESTIMATED THE INCOME OF THE ASSESSEE BUT WHILE DOING SO, HE HAS MADE FURTHER ADDITIONS U/S. 40A(3), 40(A)(IA) OF THE ACT AND ALS O TOWARDS PRIOR PERIOD INCOME. IT IS ADMITTED FACT TH AT THE ASSESSEE DID NOT PRODUCE BOOKS OF ACCOUNT IN SUPPORT OF THE CLAIM OF EXPENDITURE. WHEN THE ASSESSEE CLAIMED ANY EXPENDITURE, IT IS MANDATORY ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 24 ON THE PART OF THE ASSESSEE TO PRODUCE BOOKS OF ACCOUNT SUPPORTED BY PROPER BILLS AND VOUCHERS. SINCE THE ASSESSEE HAS NOT PRODUCED PROPER BOOKS OF ACCOUNT, TRUE PROFITS OR LOSS CANNOT BE ASCERTAINED BY THE ASSESSING OFFICER AND THE ASSESSING OFFICER HAVING NO OTHER OPTION HAS TO ESTIMATE THE INCOME O N THE BASIS OF THE AVAILABLE RECORD. IN THESE CIRCUMSTANCES, REJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF INCOME OF THE ASSESSEE IS JUSTIFIED. IN OUR OPINION, ESTIMATION OF INCOME IN THIS CASE HAS TO BE MADE. HOWEVER, THE ESTIMATION OF INCOME CANNOT BE MADE AT 8% OF THE GROSS RECEIPTS BECAUSE THE ASSESSEE HAS BORROWED HUGE AMOUNT AND WAS PAYING INTEREST. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, INCOME OF THE ASSESSEE HAS TO BE ESTIMATED AT AN AVERAGE RATE OF ASSESSED INCOME BEFORE DEPRECIATION AND INTEREST TO GROSS RECEIPTS FOR THE LAST THREE PRECEDING ASSESSMENT YEARS AND THEREAFTER DEDUCTION TOWARDS INTEREST AND DEPRECIATION HAS TO BE ALLOWED. WE ARE CONSIDERING THE LAST THREE YEARS AVERAGE RATE OF ASSESSED INCOM E BEFORE DEPRECIATION AND INTEREST TO GROSS RECEIPT S AS BASIS FOR DETERMINING THE INCOME OF THE PRESENT ASSESSMENT YEAR AS THE PAST HISTORY OF THE ASSESSEE ITSELF IS THE BEST YARDSTICK TO ASSESS THE INCOME O F THE ASSESSEE INSTEAD OF APPLYING 8% ON GROSS RECEIPT. THE ASSESSING OFFICER WHILE DETERMINING THE GROSS RECEIPTS, HE HAS TO CONSIDER ENTIRE CONTRACT RECEIP TS. REGARDING INSURANCE RECEIPTS, IT IS TO BE INCLUDED IN GROSS RECEIPTS, IF IT IS RECEIVED WITH REFERENCE TO CURRENT ASSET. ON OTHER HAND, IF IT IS ON FIXED ASS ETS, ONLY PROFIT ELEMENT TO BE CONSIDERED AS INCOME IN ADDITION TO INCOME FROM CONTRACTS. 12. HOWEVER, FURTHER ADDITION IS NOT CORRECT AS HEL D BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF IND WELL CONSTRUCTIONS VS. CIT (232 ITR 776) (AP). THEIR LORDSHIPS OF THE HIGH COURT HELD AS UNDER: HELD, REVERSING THE ORDER OF THE TRIBUNAL, THAT TH ERE WAS A BIG DIFFERENCE BETWEEN PROFIT EARNED WITH OWN CAPITAL AND PROFIT EARNED WITH BORROWED CAPITAL AND SUCH A DIFFERENCE COULD HAVE BEEN TAKEN INTO ACCOUNT BY THE INCOME-TAX OFFICER WHILE MAKING AN ESTIMATE. IF THE COMMISSIONER HAD SET ASIDE THE ESTIMATE ON THE GROUND THAT THE VITAL FACT THAT THE BUSINESS WAS CARRIED ON WITH OWN CAPITAL AND NOT WITH BORROWED CAPITAL HAD BEEN IGNORED BY THE ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 25 INCOME-TAX OFFICER, THERE MIGHT NOT HAVE BEEN ANY DIFFICULTY IN UPHOLDING THAT ORDER. BUT WHEN HE PROPOSED TO ADD BACK AN EXACT ITEM IN THE PROFIT AND LOSS ACCOUNT, HE WAS RELYING ON THE REJECTED BOOKS, WHICH HE COULD NOT DO. THERE WAS ALSO A FURTHER DIFFICULTY IF SECTION 40 WAS TO BE TAKEN IN TO ACCOUNT EVEN AFTER MAKING AN ESTIMATE. WHEN THERE ARE CERTAIN OTHER DEDUCTIONS WHICH ARE TO BE DISALLOWED AS WEALTH-TAX PAYMENT IN SECTION 40, IT CANNOT BE SAID THAT AFTER MAKING AN ESTIMATE THE WEALTH-TAX CHARGED IN THE PROFIT AND LOSS ACCOUNT SHOULD AGAIN BE ADDED BACK IN TO THE PROFIT. THEREFORE, IT WAS NOT CORRECT IN LAW TO MAKE THE SEPARATE ADDITION OF RS. 63,859 REPRESENTING THE INTEREST AND REMUNERATION PAID TO THE PARTNERS TO THE INCOME ALREADY ESTIMATED AND ASSESSED FROM CONTRACTS. 13. IT IS CLEAR FROM THE ABOVE JUDGEMENT THAT WHERE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED THE REVENUE CANNOT RELY ON THE SAME BOOKS OF ACCOUNT FOR MAKING ANY OTHER ADDITION. IT WAS ALSO HELD THAT WHEN AN ESTIMATE IS MADE TOWARDS INCOME OF THE ASSESSEE, IT IS IN SUBSTITUTION OF THE INCOME THAT IS TO BE COMP UTED U/S. 29 AND IN OTHER WORDS, ALL THE DEDUCTIONS WHIC H ARE REFERRED TO U/S. 29 ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT, WHILE MAKING SUCH AN ESTIMATE. THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN SECTION 40 IS ALSO TAKEN INTO ACCOUNT. IT HAS BEEN HELD IN THE CONCLUDING PARAS OF 4 AND 5 OF THE JUDGEMENT OF HIGH COURT CITED SUPRA, AS FOLLOWS: 4. THE PATTERN OF ASSESSMENT UNDER THE IT ACT IS GIVEN BY S. 29 WHICH STATES THAT THE INCOME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SS. 30 TO 43D. SEC. 40 PROVIDES FOR CERTAIN DISALLOWANCES IN CERTAIN CASES NOTWITHSTANDING THAT THOSE AMOUNTS ARE ALLOWED GENERALLY UNDER OTHER SECTIONS. THE COMPUTATION UNDER S. 29 IS TO BE MADE UNDER S. 145 ON THE BASIS OF THE BOOKS REGULARLY MAINTAINED BY THE ASSESSEE. IF THOSE BOOKS ARE NOT CORRECT OR COMPLETE, THE INCOME TAX OFFICER MAY REJECT THOSE BOOKS AND ESTIMATE THE INCOME TO THE BEST OF HIS JUDGEMENT. WHEN SUCH AN ESTIMATE IS MADE IT IS IN SUBSTITUTION OF THE INCOME THAT IS TO BE COMPUTED UNDER S. 29. IN OTHER WORDS, ALL THE DEDUCTIONS WHICH ARE REFERRED TO UNDER S. 29 ARE DEEMED TO ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 26 HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIMATE. THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN S. 40 IS ALSO TAKEN INTO ACCOUNT. 5. NO DOUBT THERE IS BIG DIFFERENCE BETWEEN PROFIT EARNED WITH OWN CAPITAL AND PROFIT EARNED WITH BORROWED CAPITAL AND SUCH A DIFFERENCE COULD HAVE BEEN TAKEN INTO ACCOUNT BY THE INCOME TAX OFFICER WHILE MAKING AN ESTIMATE. IF THE CIT HAD SET ASIDE THE ESTIMATE ON THE GROUND THAT THE VITAL FACT THAT THE BUSINESS WAS CARRIED ON WITH OWN CAPITAL AND NOT WITH BORROWED CAPITAL HAS BEEN IGNORED BY THE ITO, THERE MAY NOT HAVE BEEN ANY DIFFICULTY IN UPHOLDING THAT ORDER. BUT, WHEN HE PROPOSES TO ADD BACK AN EXACT ITEM IN THE P&L A/C, HE WAS RELYING ON THE REJECTED BOOKS WHICH HE COULD NOT DO SO AS HELD BY THE BENCH OF THIS COURT IN MADDI SUDA RSANAM OIL MILLS CO. VS. CIT (SUPRA). THERE I S ALSO A FURTHER DIFFICULTY IF S. 40, AS ARGUED BY LEARNED COUNSEL, IS TO BE TAKEN INTO ACCOUNT EVEN AFTER MAKING AN ESTIMATE. WHEN THERE ARE CERTAIN OTHER DEDUCTIONS WHICH ARE TO BE DISALLOWED SUCH AS WEALTH-TAX PAYMENT IN S. 4, CAN IT BE SAID THAT AFT ER MAKING AN ESTIMATE, THE WEALTH-TAX CHARGED IN THE P&L A/S SHOULD AGAIN BE ADDED BACK TO THE PROFIT. THIS EXAMPLE, ILLUSTRATES HOW THE CONTENTION OF THE REVENUE, THAT S. 40(B) MAKES A DIFFERENCE IN THE SITUATION, IS UNTENABLE.. 14. THE ABOVE DECISION OF THE ANDHRA PRADESH HIGH COURT HAS BEEN FOLLOWED AND A SIMILAR VIEW HAS BEEN TAKEN BY THE SPECIAL BENCH (KOLKATA) OF THIS TRIBUN AL IN THE CASE OF INCOME TAX OFFICER VS. KENARAM SAHA & SUBHASH SAHA (2008) 116 TTJ (KOL) (SB) 289; (2008) 8 DTR (KOL) (SB) (TRIB) 124; (2008) 301ITR 171 (KOL ) (SB) (AT) WHEREIN DISALLOWANCE MADE IN TERMS OF S. 40A(3) HAS BEEN DELETED. 15. IN VIEW OF THE ABOVE DISCUSSION, THERE CANNOT B E ANY FURTHER ADDITION U/S. 40A(3), 40(A)(IA) OF THE ACT OR TOWARDS PRIOR PERIOD INCOME. HOWEVER, WE MAKE IT CLEAR THAT THE INCOME SO DETERMINED CONSEQUENT T O THIS ORDER, AFTER CONSIDERING THE ABOVE DIRECTIONS, SHALL NOT GO BELOW THE INCOME RETURNED BY THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, IF SO RETURNED INCOME TO BE CONSIDERED.' ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 27 3.3 THUS, HE SUBMITTED THAT THE RATE AT WHICH THE INCOM E IS ESTIMATED FOR ALL THESE ASSESSMENT YEARS IS AT HIGH ER SIDE. IT SHOULD BE AVERAGE RATE OF NET PROFIT FOR EARLIER AS SESSMENT YEARS TO BE CONSIDERED TO DETERMINE THE INCOME OF THE ASS ESSEE. FURTHER HE RELIED ON THE JUDGEMENT IN THE CASE OF V ISHAL INFRASTRUCTURE LTD. VS. ACIT (104 ITD 537) FOR THE PROPOSITION THAT WHEN THE ASSESSEE MAINTAINED THE REGULAR BOOKS OF ACCOUNT AND THE DEPARTMENT ACCEPTED THE METHOD OF ACCOUNTIN G FOLLOWED BY THE ASSESSEE IN EARLIER ASSESSMENT YEARS, THE BO OKS OF ACCOUNT COULD NOT BE REJECTED WITHOUT THERE BEING A NY MATERIAL CHANGE IN THE FACTS. MORE SO, WHEN SUCH ACCOUNTS A RE DULY AUDITED BY A CHARTERED ACCOUNTANT AND DEFECTS WERE NOT FOUND OUT BY THE ASSESSING OFFICER. HE ALSO SUBMITTED TH AT THERE CANNOT BE ANY ADDITION LIKE ILLEGAL PAYMENTS AS THE RE IS NO CONCLUSIVE MATERIAL OTHER THAN THE LOOSE SLIPS. AC CORDING TO HIM, THE RELIANCE PLACED BY THE LOWER AUTHORITIES I S ON DUMB DOCUMENTS AND IS INCORRECT. HE ALSO SUBMITTED THAT COAL BUSINESS WAS DONE BY ONE OF THE PARTNERS, MR. K. CH . SUBBA RAO AND THAT INCOME FROM COAL BUSINESS CANNOT BE CO NSIDERED IN THE HANDS OF THE ASSESSEE. HE ALSO SUBMITTED TH AT ONCE THE INCOME IS ESTIMATED BY REJECTING BOOKS OF ACCOUNT T HE ASSESSING OFFICER CANNOT RELY ON THE SAME BOOKS OF ACCOUNT SO AS TO TREAT THE CREDITORS AS UNEXPLAINED CREDITS. FURTHER HE S UBMITTED THAT THE CASH FOUND DURING THE COURSE OF SEARCH ACTION I S INCOME FROM BUSINESS. THE DEPARTMENT HAS NOT ACCEPTED THE BOOKS OF ACCOUNT AND ESTIMATED THE INCOME AND MAKING FURTHER ADDITION TOWARDS CASH FOUND AND THE CASH FOUND WAS NOTHING B UT INCOME GENERATED FROM THE BUSINESS OF THE ASSESSEE AND DUE TELESCOPING IS TO BE GIVEN OUT OF THE ADDITION MADE TOWARDS INC OME OF THE ASSESSEE. OTHERWISE IT AMOUNTS TO DOUBLE ADDITION. 4. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT DU RING THE COURSE OF SEARCH, SRI. K. CH. SUBBA RAO AND THE ACCOUNTANT ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 28 OF THE FIRM HAVE STATED THAT THE BUSINESS IS ENTIRE LY UNORGANISED AND THE TRUCK OWNERS ARE COMMITTED TO WORK ONLY ON CASH PAYMENT BASIS. THUS, IT IS CLEAR THAT THE ASSESSEE FIRM IS MAKING ADVANCE PAYMENT TOWARDS TRUCK PROCUREMENT AND IT HA S ALSO STATED THAT THEY ARE NOT MAINTAINING ANY RECORD, DO CUMENTATION, ETC., FOR THE PAYMENTS MADE BY M/S. BALAJI TRANSPOR T AGENCY TO LORRY DRIVERS. IN VIEW OF THE ABOVE SUBMISSIONS, TH E ASSESSEE FIRM ITSELF HAS ADMITTED THAT IT DOES NOT HAVE ANY DOCUMENTATION OF PAYMENTS MADE TO THE LORRY DRIVERS. IT ALSO GOES TO PROVE THAT IT CANNOT DIFFERENTIATE TO WHOM THE PAYMENTS ARE DU E. 4.1 THE DR SUBMITTED THAT HOWEVER, FROM THE BALANCE SHE ET FILED ALONG WITH THE RETURN OF INCOME FOR A.Y. 2003 -04, THE ASSESSEE FIRM HAS SHOWN CREDITORS OF RS. 2,43,63.21 0/-. WHEN ASKED TO EXPLAIN THE NATURE OF CREDITORS, THE ASSES SEE STATED THAT THESE REPRESENT THE TRUCK DRIVERS TO WHOM THE PAYMENTS ARE OUTSTANDING. IN VIEW OF THE FACT THAT THE ASSES SEE IS NOT MAINTAINING ANY ACCOUNT, ANY DOCUMENT WITH REGARDS TO THE PAYMENT MADE TO THE TRUCK DRIVERS THE CONTENTION OF THE ASSESSEE THAT IT OWES RS. 2,43,63,210 AS OUTSTANDIN G PAYMENTS TO CREDITORS IS SELF CONTRADICTING AND NON VERIFIAB LE, AS THE ASSESSEE HIMSELF HAS NOT MAINTAINED ANY EVIDENCE OR RECORD TOWARDS PAYMENTS MADE TO THE LORRY DRIVERS OR FOR O UTSTANDING PAYMENTS. THUS, THE CONTENTION THAT AN AMOUNT OF RS . 2,43,63,320 IS OUTSTANDING TOWARDS PAYMENTS TO TRUC K DRIVERS IS ONLY SELF SERVING STATEMENT WITHOUT ANY BASIS. 4.2 THE DR SUBMITTED THAT DURING THE COURSE OF SEARCH, THREE SCRIBBLING PADS WERE FOUND AND SEIZED AS ANNEXURE A/KCSR/RES/04-06. THESE SCRIBBLING PADS CONTAIN HAN D WRITTEN DETAILS OF DAILY ACCOUNT OF CASH RECEIVED A ND CASH PAID. IN OTHER WORDS, THESE PADS ARE THE CASH BOOKS MAINT AINED BY SRI. K.CH. SUBBA RAO FOR KEEPING TRACK OF THE CASH TRANSACTIONS. ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 29 THE SCRIBBLING PAD SEIZED AND MARKED AS A/KCSR/RES/ 05 CONTAINS HAND WRITING OF SRI. K. SUBBA RAO, ASSISTA NT OF THE MANAGING PARTNER, WHEREAS, THE OTHER TWO SCRIBBLING PADS CONTAIN THE HAND WRITING OF SRI. K. CH. SUBBA RAO. THESE SCRIBBLING PADS MAINLY SHOW CASH PAYMENTS MADE TO ' TRUCK PROCUREMENT AGENTS' FOR ARRANGING TRUCKS AND MAKING CASH ADVANCES TO THE TRUCK OWNERS IN VARIOUS PLACES FROM WHERE COAL ETC., IS TO BE LOADED. THERE ARE INSTANCES WHEN THE TRUCK PROCUREMENT AGENTS RETURN THE CASH GIVEN TO THEM IN ADVANCE BY THE PARTNERS OF THE FIRM. THE ENTRIES IN THE SE IZED DOCUMENTS CLEARLY INDICATE THAT THE ASSESSEE IS POOLING IN CA SH FROM ALL THE AVAILABLE SOURCES TO MAKE ADVANCE PAYMENTS TO THE T RUCK PROCUREMENT AGENTS, WHO IN TURN MAKE CASH PAYMENTS TO THE TRUCK DRIVERS. THESE ENTRIES FURTHER SUBSTANTIATE T HE STATEMENT GIVEN BY SRI. K.CH. SUBBA RAO EXPLAINING THE MODUS OPERANDI OF THE ASSESSEE FIRM. 4.3 FURTHER, IN VIEW OF THE FACT THAT, THE ASSESSEE IS DRAWING HUGE CASH ON REGULAR BASIS AND SENDING THE SAME TO ITS TRUCK PROCUREMENT AGENTS FOR PAYMENT OF CASH ADVANCE, THI S THEORY OF ASSESSEE OF OUTSTANDING CREDITORS REPRESENTED BY TR UCK DRIVERS IS NOT ACCEPTABLE AND IT ONLY REPRESENTS ITS OWN UNACC OUNTED INVESTMENT WHICH THE ASSESSEE IS TRYING TO GIVE THE COLOUR OF OUTSTANDING CREDITORS REPRESENTED BY TRUCK DRIVERS. FROM THE MODUS OPERANDI OF THE ASSESSEE AS EXPLAINED BY THE MANAGING PARTNER AND THE ACCOUNTANT, IT IS AMPLY CLEAR THAT THE ENTIRE BUSINESS IS RUN ON CASH BASIS ONLY. DURING THE ASSE SSMENT PROCEEDINGS TO VERIFY THE CONTENTION OF THE ASSESSE E, THE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF THE CRE DITORS FOR THE YEAR UNDER CONSIDERATION AS NO LIST OF CREDITORS WA S FILED. THE ASSESSEE FILED THE SAME, FROM WHICH IT IS OBSERVED THAT THE ASSESSEE HAS GIVEN THE DETAILS OF THE LORRY NUMBERS ONLY, THIS LIST DOES NOT EVEN CONTAIN THE NAME OF THE DRIVER T O WHOM THE ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 30 ALLEGED PAYMENTS ARE OUTSTANDING OR TO WHOM THESE A MOUNTS ARE PAYABLE. FURTHER, IN THE STATEMENT FURNISHED TH E ASSESSEE HAS SHOWN AN ADVANCE OF RS. 5,000 EACH ONLY PAID TO ALL. SINCE THE ASSESSEE IS NOT HAVING ANY EVIDENCE EXCEPT FOR THE SELF MADE STATEMENT, THE INFORMATION FIELD BY THE ASSESSEE IS SELF MADE, NON-VERIFIABLE AND WITHOUT ANY CORRESPONDING DOCUME NTARY EVIDENCE. IN THE ABSENCE OF ANY EVIDENCE IT IS DIFF ICULT TO COMPREHEND HOW THE ASSESSEE WILL BE ABLE TO IDENTIF Y THE TRUCK DRIVERS WITH THE LORRY NUMBERS ONLY, TO WHOM THE AL LEGED BALANCES ARE PAYABLE. THUS, IT IS CLEARLY EVIDENT T HAT THE ASSESSEE HAS FAILED TO PRODUCE SUFFICIENT EVIDENCE IN SUPPORT OF ITS CLAIM OF CREDITORS. ACCORDINGLY, THE AMOUNT SHO WN AS OUTSTANDING SUNDRY CREDITORS PAYABLE TO TRUCK DRIVE RS IS ADDED AS UNEXPLAINED CREDIT AND ADDED BACK TO THE TOTAL I NCOME OF THE ASSESSEE AMOUNTING TO RS. 2,43,63,210. 4.4 THE DR SUBMITTED THAT AS THE ASSESSEE HAS CONCEALED ITS INCOME BY WAY OF BOGUS CREDITORS, THE ASSESSING OFF ICER RIGHTLY INITIATED THE PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE IT ACT, 1961. 4.5 REGARDING ILLEGAL PAYMENTS MADE TO THE STAFF OF ICL AND SCL THE DR SUBMITTED THAT DURING THE COURSE OF SEAR CH, CERTAIN PAPERS WERE FOUND AND SEIZED AS PER ANNEXURE A/KCSR / RES/01. SRI K.CH. SUBBA RAO, MANAGING PARTNER OF TH E FIRM WAS ASKED TO EXPLAIN THE NATURE OF THE NOTINGS FOUN D IN PAGES 71 TO 73, 83, 85, 87-93. IN HIS STATEMENT RECORDED ON 28.01.2009, HE STATED THAT, THESE PAGES SHOW MISCEL LANEOUS EXPENSES OF THE FIRM M/S. BALAJI TRANSPORT AGENCY A ND THAT THESE EXPENSES ALSO INCLUDED CERTAIN ILLEGAL PAYMEN TS LIKE KICK BACKS ETC., PAID TO THE STAFF OF M/S. INDIA CEMENTS LIMITED AND M/S. SINGARENI COLLIERIES LIMITED WHICH AMOUNT TO R OUGHLY RS. ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 31 5,00,000/- IN A YEAR. THE RELEVANT PORTION OF HIS STATEMENT IS AS UNDER: 'PA GES 71 TO 73, 83 - 85 AND 87-93 CONTAIN THE DETAILS OF MISCELLANEOUS EXPENSES OF M/S. BALAJI TRANSPORT AGENCY. PAGE NO. 87 CONTAINS HANDWRITING OF SRI. K. SUBBA RAO MY ASSISTANT. THE MISCELLANEOU S EXPENSES ALSO INCLUDE CERTAIN ILLEGAL PAYMENTS LIKE KICK BACKS ETC., PAID TO THE STAFF OF ICL AND SCL WHICH AMOUNT TO ROUGHLY RS. 5,00,000 IN A YEAR.' 4.6 THE DR FURTHER SUBMITTED THAT AS CAN BE SEEN FROM T HE EVIDENCE FOUND DURING THE COURSE OF THE SEARCH AND AS DEPOSED BY THE MANAGING PARTNER OF THE FIRM, THESE PAYMENTS ARE ILLEGAL PAYMENTS LIKE KICK BACKS WHICH ARE PAID TO THE STAF F OF ICL AND SCL AND ON AN AVERAGE AN AMOUNT OF RS. 5,00,000 IS PAID EVERY YEAR. 4.7 THE DR SUBMITTED THAT THE ASSESSEE IS INTO THE SAME LINE OF BUSINESS SINCE THE YEAR 1995 AND HAS BEEN DEALIN G WITH THE SAME COMPANIES. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSEE RETRACTED FROM HIS STATEMENT VIDE REPL Y DATED 01.09.2010 AND STATED THAT THESE AMOUNTS ARE PERTAI NING TO THE EXPENDITURE OF THE FIRM. BUT IN VIEW OF THE CLEAR E VIDENCE FOUND IN THE SEIZED DOCUMENTS AND ASSESSEE'S OWN ADMISSIO N DURING THE COURSE OF SEARCH, THE REPLY OF THE ASSESSEE IS NOT AT ALL ACCEPTABLE. 4.8 THE LEARNED DR SUBMITTED THAT IN THE LIGHT OF THE E VIDENCE FOUND REGARDING THE ILLEGAL PAYMENTS DURING THE COU RSE OF SEARCH AND SEIZURE OPERATIONS AND THE CONFESSION OF THE SAME BY THE MANAGING PARTNER IN HIS STATEMENT RECORDED DURI NG THE COURSE OF SEARCH WITH REGARD TO ITS PRACTISE OF ILL EGAL PAYMENTS AND RELYING ON THE JUDGEMENT OF THE HON'BLE A.P. HI GH COURT IN THE CASE OF RAJNIK & CO VS. ACIT REPORTED IN 251 IT R 561 AND JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF H .M. EUSAFALI VS. CIT 90 ITR 271, THOUGH THE EVIDENCE IS FOUND ONLY ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 32 FOR FY 2008-09 RELEVANT FOR A.Y. 2009-10, APPLYING THE RATIO AS DISCUSSED IN THE ABOVE CASES, THE CIT(A) MADE THE A DDITION FOR AY 2003-04 ALSO AND DISALLOWED EXPENSES OF RS. 5,00 ,000/- REPRESENTING ILLEGAL PAYMENTS LIKE KICKBACKS PAID T O THE STAFF OF ICL AND SCL BY THE AS ASSESSEE FIRM AS THE SAME ARE ILLEGAL IN NATURE. 4.9 THE DR, REGARDING THE INCOME FROM COAL BUSINESS, SUBMITTED THAT WHILE COMPUTING THE TAXABLE INCOME O F THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09, THE ASSES SING OFFICER MADE AN ADDITION OF RS. 40,00,000 TO THE TOTAL INCO ME REPRESENTING THE PROFIT EARNED FROM COAL BUSINESS C ARRIED, WHICH WAS NOT OFFERED FOR TAX. THIS ADDITION HAS BEEN MAD E ON THE LINES OF ADDITION MADE FOR THE ASSESSMENT YEAR 2009 -10 AND WHILE BRINGING SUCH AMOUNT UNDER THE TAX NET, THE A SSESSING OFFICER HAS FALLEN ON THE SWORN STATEMENT OF SRI K. CH. SUBBA RAO, THE MANAGING PARTNER OF THE FIRM RECORDED ON 2 8.1.2009. THE EXTRACT OF THE SAME WAS TAKEN FROM THE STATEMEN T WHICH RUNS AS UNDER; 'THE FIRM M/S BALAJI TRANSPORT AGENCY BUYS COAL FROM M/S SINGARENI COLLIERIES LTD., THROUGH E- AUCTIONING AND THIS COAL IS MAINLY SOLD TO BRICK MANUFACTURERS THROUGH AGENTS. THIS BUSINESS IS THE UNDISCLOSED BUSINESS DONE BY M/S BALAJI TRANSPORT AGENCY. THIS IS SEASONABLE BUSINESS AND THE RATE OF PROFIT IN THIS BUSINESS IS 7% TO 8% OF THE TURNOVER .... THE TOTAL TURNOVER PURCHASED THROUGH E-AUCTION HAS BEEN ROUGHLY RS. 1.25 CRORES IN EACH OF THE FINANCI AL YEARS 2007-08 & 2008-09 ...' 4.10 THE DR SUBMITTED THAT SUCH STATEMENT WAS RETRACTED BY MR. K.CH. SUBBA RAO VIDE HIS SUBSEQUENT STATEMENT D ATED 5.2.2009, WHEREIN IT WAS STATED THAT THEY HAVE DONE THIS BUSINESS ONLY DURING THE CURRENT FINANCIAL YEAR (FY 2008-09) WITH A TURNOVER OF RS. 10 TO RS. 12 LAKHS AND NO PR OFIT WAS MADE ON THE SAID BUSINESS. THE ASSESSING OFFICER WE NT ON TO ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 33 MAKE THE ADDITION OF RS. 40 LAKHS BEING THE PROFIT @ RS. 10 LAKHS PER MONTH ESTIMATED FOR THE MONTHS OF SEPTEMB ER TO DECEMBER, 2007 IGNORING THE SUBSEQUENT STATEMENT OF SRI K.CH. SUBBA RAO, THE MANAGING PARTNER. THE ADDITIONS WERE MADE BY DRAWING THE INFERENCE FROM THE ASSESSMENT YEAR 2009 -10. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. WE ARE INCLINED TO ADJUDICATE THE GROUND S OF APPEAL OF BOTH THE PARTIES IN A CUMULATIVE MANNER, INSTEAD OF ADJUDICATING THE SAME IN SERIATIM. IN THESE CASES, THERE WAS SEARCH ACTION ON THE ASSESSEE. THE ASSESSEE HAS NO T MAINTAINED PROPER BOOKS OF ACCOUNT. THE BUSINESS O F THE ASSESSEE WAS UNORGANISED. THE ASSESSEE ITSELF HAS ADMITTED THAT IT HAS NOT MAINTAINED PROPER RECORDS AND DOCUM ENTS FOR PAYMENTS MADE BY IT TO DRIVERS. HUGE AMOUNT IS SHO WN AS RECEIVABLE AS WELL AS PAYABLE. THERE WAS SEIZED MA TERIAL WHICH WAS FOUND AND SEIZED MARKED AS A/KCSR/RES/04-06, A/KCSR/RES/05 AND A/KCSR/RES/01. THE ASSESSEE WAS N OT ABLE GIVE SATISFACTORY EXPLANATION. WHEN BOOKS OF ACCOUNT DID NOT REFLECT THE TRUE AND CORRECT PICTURE OF THE ASS ESSEE'S BUSINESS, IT IS INCUMBENT UPON THE ASSESSING OFFICE R TO DETERMINE THE INCOME BY INDULGING INTO ESTIMATION O F INCOME. BEING SO, THE ASSESSING OFFICER HAS NO OTHER OPTION BUT TO ESTIMATE INCOME OF THE ASSESSEE ON THE BASIS OF AVA ILABLE MATERIAL. IN THESE CIRCUMSTANCES, ESTIMATION OF IN COME BY THE ASSESSING OFFICER IS JUSTIFIED. 5.1 THE ASSESSING OFFICER ESTIMATED THE INCOME OF THE ASSESSEE AT 3%. HOWEVER, THE CIT(A) CONSIDERED THE INCOME AT 2%. THIS IS BASED ON THE RATE OF NET PROFIT ACCEPT ED BY THE ASSESSEE IN THE ASSESSMENT ORDER U/S. 143(3) FOR A. YS. 2005-06 AND 2006-07 AT 2%. BEING SO, CONSIDERING THE PAST HISTORY OF THE ASSESSEE ESTIMATION OF INCOME AT 2% OF GROSS TR ANSPORT ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 34 RECEIPTS IS JUSTIFIED. WE CONFIRM THE SAME. THIS GROUND IN THE ASSESSEE'S APPEALS IS REJECTED. CONSEQUENTLY CORRE SPOND GROUND REVENUE APPEALS IS DISMISSED. IN OTHER WORDS, ESTI MATION OF INCOME AT 2% ON GROSS TRANSPORT RECEIPTS IS CONFIRM ED AND THIS GROUND IN BOTH THE ASSESSEE AND REVENUE APPEALS IS DISMISSED. 5.2 REGARDING THE DISALLOWANCE OF ILLEGAL PAYMENTS, TH ESE PAYMENTS ARE NOT REFLECTED IN THE BOOKS OF ACCOUNT AND NOT FORM PART OF ESTIMATION OF INCOME FROM TRANSPORT BUSINES S. WHEN IT DOES NOT FORM PART OF THE EXPENDITURE RECORDED IN T HE BOOKS OF ACCOUNT, WE ARE OF THE OPINION THAT SEPARATE ADDITI ON IS REQUIRED TO BE MADE TOWARDS ILLEGAL PAYMENTS. BEING SO, THE CIT(A) IS JUSTIFIED IN SUSTAINING THE ADDITION TOWARDS ILLEGA L PAYMENT AND THE SAME IS CONFIRMED. THIS GROUND IN ASSESSEE'S A PPEALS IS DISMISSED. 5.3 REGARDING THE INCOME FROM COAL BUSINESS, IT IS THE CONTENTION OF THE ASSESSEE'S COUNSEL THAT IT IS NOT PART OF THE ASSESSEE'S BUSINESS BUT IT IS THE BUSINESS CARRIED ON BY ONE OF THE PARTNERS, MR. K. CH. SUBBA RAO. WE FIND NO MER IT IN THE ARGUMENT OF THE ASSESSEE'S COUNSEL. THE SEIZED MAT ERIAL REFLECTING COAL BUSINESS WAS FOUND DURING THE COURS E OF SEARCH AT THE PREMISES OF THE ASSESSEE. BEING SO, IT IS T O BE TREATED AS INCOME OF THE ASSESSEE ONLY. FURTHER IN THE CASE O F AHURA HOLDINGS VS. DCIT (346 ITR 106) IT WAS HELD THAT TH OUGH THE PARTNERS RECEIVED ON-MONEY INDIVIDUALLY ON SALE OF PLOTS OWNED BY THE ASSESSEE-FIRM, SUCH ON-MONEY RECEIPT BY THE PARTNERS IS TO BE CONSIDERED AS INCOME OF THE ASSESSEE FIRM ONL Y. FURTHER IN THE CASE OF SRI JAGADMBA PEARL DEALERS & OTHERS IN ITA NO. 387 -389/HYD/2012 & ORS., THE CO-ORDINATE BENCH OF THE TRIBUNAL VIDE ORDER DATED 17.6.2013 HELD AS FOLLOWS: '26. BEING SO, IF ANY PARTNER USE THE PROPERTY OF THE ASSESSEE FIRM, BENEFIT DERIVED FROM THAT PROPERTY SHALL GO TO THE COMMON POOL OF THE ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 35 ASSESSEE FIRM, WHICH IS FOR THE COMMON ADVANTAGE TO ALL THE PARTNERS. IF ANY PARTNER UN-AUTHORISEDLY CARRIES ON ANY BUSINESS BY USING NAME AND GOODWILL OF THE FIRM, PROFIT DERIVED FROM THAT BUSINESS SHALL BE THE INCOME OF ASSESSEES FIRM. FURTHER, NO PARTNER IS ENTITLED TO CARRY ON ANY BUSINESS WHICH IS IN THE NATURE OF COMPETING WITH THE BUSINESS OF THE ASSESSEE FIRM. THE PARTNERS ARE JOINTLY AND SEVERALLY RESPONSIBLE FOR ANY ACTS DONE BY THEM THOUGH INDIVIDUALLY AND JOINTLY. IF THE PARTNERS CARRY ON ANY BUSINESS CONTRARY TO THE PROVISIONS OF PARTNERSHIP DEED OR PARTNERSHIP ACT, THEY ARE NOT ENTITLED TO THAT PROFIT OR LOSS DERIVE D FROM SUCH TRANSACTIONS IT DOES NOT BELONG TO INDIVIDUAL PARTNERS AND ON THE OTHER HAND IT BELONGS TO THE FIRM AS A WHOLE. THE LEARNED COUNSEL SUBMITTED THAT PARTNERS HAVE CONFIRMED THAT THEY ARE NOT AWARE OF THE UNDISCLOSED BUSINESS CARRIED ON BY SHRI RAVINDER KUMAR. IN OUR OPINION, THE AFFIDAVIT FILED BY THE ASSESSEE IS A SELF-SERVING DOCUMENT AND THE ACT DONE CONTRARY TO THE PARTNERSHIP ACT CANNOT BE CONSIDERED AS VALID AND HAS NO LEGAL SANCTITY. SRI RAVINDER KUMAR IS WORKING PARTNER OF THE FIRM AND HE HAS TO ACT FOR THE BEST ADVANTAGE OF THE ASSESSEE FIRM. HE CANNOT CARRYON ANYTHING AGAINST THE INTEREST OF THE ASSESSEE FIRM AND HE SHALL USE THE PROPERTY OF THE ASSESSEE FIRM FOR THE MUTUAL BENEFIT OF PARTNERS AND ACT DONE CONTRARY TO THE PROVISIONS OF THE PARTNERSHIP ACT CANNOT SUPPORT THE PLEA OF THE ASSESSEES COUNSEL. IN THIS CONNECTION, WE REFER TO THE DECISION OF THE COORDINATE BENCH IN THE CASE O F SHRI GOPAL LAL BADRUKA AND OTHERS IN ITA NOS. 354 TO 357/HYD/2010 AND OTHERS VIDE ORDER DATED 26 TH NOVEMBER, 2010 WHEREIN SIMILAR ISSUE WAS CONSIDERED AND THE COORDINATE BENCH HELD THAT THE ON-MONEY RECEIPTS, THOUGH RECEIVED BY THE PARTNERS, THE PARTNERS HAVE RECEIVED ON BEHALF OF THE FIRM IN THEIR REPRESENTATIVE CAPACITY AND AS IT S AGENTS, AND THEY HAVE NOTHING TO DO WITH THE BUSINESS OF THE ASSESSEE FIRM, OTHER THAN AS A PARTNER. THE ON-MONEY IS HAVING DIRECT NEXUS WITH THE LAND BUSINESS TRANSACTIONS OF THE ASSESSEE FIRM. IT LEADS TO ABSURD RESULTS, IF THE REGULAR INCOME FROM THE SALE OF PLOTS IS ASSESSED IN THE HANDS OF THE FIRM AND THE ON-MONEY IN RELATION TO THE VERY SAME TRANSACTIONS OF THE FIRM WAS ASSESSED IN THE HANDS OF THE PARTNERS FIRM DIRECTLY. THESE FINDINGS OF THE TRIBUNAL HAS BEEN CONFIRMED HONBLE AP HIGH COURT IN THE CASE OF GOPAL LAL BHADRUKA AND OTHERS, REPORTED AT [2012] 346 ITR 106. IN VIEW OF THIS, WE ARE INCLINED TO HOLD THAT THE INCOME GENERATED FROM THE ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 36 SUPPRESSED SALES HAS TO BE CONSIDERED AS INCOME IN THE HANDS OF THE ASSESSEE FIRM AND NOT IN THE INDIVIDUAL HANDS OF SHRI RAVINDER KUMAR. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DISMISSED.' 5.4 IN VIEW OF THE ABOVE DISCUSSION, THE INCOME FROM CO AL BUSINESS IS TO BE CONSIDERED AS INCOME OF THE ASSES SEE. THIS GROUND OF THE ASSESSEE IS DISMISSED. 5.5 THE NEXT ISSUE FOR OUR CONSIDERATION IS WITH REGAR D TO ADDITION TOWARDS UNEXPLAINED CASH. THE CONTENTION OF THE ASSESSEE IS THAT DUE TELESCOPING HAS TO BE GIVEN TO WARDS CASH FOUND DURING THE COURSE OF SEARCH ACTION OUT OF THE ADDITION MADE TOWARDS UNDISCLOSED INCOME OF THE ASSESSEE. W E FIND FORCE IN THE ARGUMENT OF THE ASSESSEE'S COUNSEL. O NCE THE INCOME IS ESTIMATED BY REJECTING BOOKS OF ACCOUNT A ND THEREAFTER DUE TELESCOPING OF EXCESS CASH/ASSETS FOUND DURING THE COURSE OF SEARCH ACTION IS TO BE GIVEN OUT OF DETERMINED U NDISCLOSED INCOME, OTHERWISE IT AMOUNTS TO DOUBLE ADDITION. T HIS GROUND IS ALLOWED. 5.6 THE NEXT ISSUE FOR OUR CONSIDERATION IS WITH REGARD TO ADDITION TOWARDS FREIGHT PAYMENT AND ADDITION TOWAR DS SUNDRY CREDITORS. AS RIGHTLY RELIANCE PLACED BY THE LEARN ED COUNSEL FOR THE ASSESSEE IN THE CASE OF INDWELL CONSTRUCTIONS V S. CIT (232 ITR 776) (AP) WHEREIN HELD THAT NO SEPARATE ADDITIO N SHOULD BE MADE TOWARDS BUSINESS INCOME ONCE THE ASSESSING OFF ICER ESTIMATED THE BUSINESS INCOME BY REJECTING THE BOOK S OF ACCOUNT. BEING SO, PLACING RELIANCE ON THE JUDGEME NT OF JURISDICTIONAL HIGH COURT (CITED SUPRA), WE CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. 5.7 THE ASSESSEE ALSO CHALLENGED INITIATION OF PENALTY PROCEEDINGS BY THE ASSESSING OFFICER U/S. 271(1)(C) OF THE ACT IN THE ASSESSMENT ORDER. THIS GROUND BY THE ASSESSEE IS ITA. NO. 899/HYD/2012 & ORS. M/S. BALAJI TRANSPORT AGENCY ======================== 37 MISCONCEIVED AND PREPOSTEROUS AND REQUIRES NO ADJUD ICATION AS THE ASSESSEE IS AT LIBERTY TO CHALLENGE PENALTY ORD ER INDEPENDENTLY. ACCORDINGLY, THIS GROUND IS DISMISS ED. 6. IN THE RESULT, ALL THE ASSESSEE'S APPEALS ARE PARTL Y ALLOWED AND ALL THE REVENUE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND AUGUST, 2013. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 2 ND AUGUST, 2013 TPRAO COPY FORWARDED TO: 1. M/S. BALAJI TRANSPORT AGENCY, C/O. M/S. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2. THE ACIT, CENTRAL CIRCLE 3, HYDERABAD. 3 . THE CIT(A) - VII, HYDERABAD. 4. THE CIT (CENTRAL), HYDERABAD. 5 . THE DR 'A' BENCH, ITAT, HYDERABAD