RAJKUMARI SINGH, NAVI MUMBAI V. DCIT CEN CIR 8, MUMBAI

ITA 946/MUM/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5770 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 25-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKEYAN
• Keywords: Bogus purchase; Unexplained cash credit; Bogus Share capital; Capital asset; Business income; Depreciation; Income from undisclosed sources; Loose papers; Document seized; Share purchase agreement; Earning of tax free income; Source of fund; Non-deduction of tax; Wrong claim; Deemed dividend; Accommodation entries; Revised return
• Section: 44AD; 143(3); 142(1); 153A; 2(22)(e); 14A; 40(a)(ia); 133(6); 143(1); 147; 68; 148; 132; 144; 15; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI JOGINDER SINGH (VICE PRESIDENT) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO 946/MUM/2016 - AY 2005-06 ITA NO 947/MUM/2016 - AY 2008-09 ITA NO 948/MUM/2016 - AY 2009-10 RAJKUMARI SINGH A-1201, BUILDING NO.2 12 TH FLOOR, SEAWOODS ESTATE NRI COMPLEX, NERUL, NAVI MUMBAI PAN : AMJPS2625N VS DY.CIT, CENT.CIR.8, MUMBAI APPELLANT RESPONDEDNT ITA NO 847/MUM/2017 - AY 2008-09 SHRI HARBHAJAN SINGH A-1201, BUILDING NO.2 12 TH FLOOR, SEAWOODS ESTATE NRI COMPLEX, NERUL, NAVI MUMBAI PAN : AANPS8492B VS DY.CIT, CENT.CIR.8, MUMBAI APPELLANT RESPONDEDNT ITA NO 3095/MUM/2016 - AY 2005-06 ITA NO 3096/MUM/2016 - AY 2006-07 ITA NO 3097/MUM/2016 - AY 2007-08 ITA NO 3098/MUM/2016 - AY 2009-10 DY.CIT, CENT.CIR.2(1), MUMBAI VS SHRI HARBHAJAN SINGH A-1201, BUILDING NO.2 12 TH FLOOR, SEAWOODS ESTATE NRI COMPLEX, NERUL, NAVI MUMBAI PAN : AANPS8492B APPELLANT RESPONDEDNT 2 HYDROAIR TECTONICS (PCD) LTD ITA NO 4172/MUM/2016 (ASSESSMENT YEAR : AY 2007-08) DY.CIT, CENT.CIR.2(1), MUMBAI VS SHRI ASHISH HARBHAJAN SINGH REPRESENTATIVE ASSESSEE SHRI HARBHAJAN SINGH A-1201, BUILDING NO.2 12 TH FLOOR, SEAWOODS ESTATE NRI COMPLEX, NERUL, NAVI MUMBAI PAN : AHCPS2709P APPELLANT RESPONDEDNT ITA NO 3949/MUM/2017 - AY 2005-06 ITA NO 3950/MUM/2017 - AY 2006-07 ITA NO 3951/MUM/2017 - AY 2007-08 ITA NO 3952/MUM/2017 - AY 2008-09 ITA NO 3953/MUM/2017 - AY 2009-10 ITA NO 3954/MUM/2017 - AY 2010-11 HYDROAIR TECTONICS (PCD) LTD OFFICE NO.106, CONCORDE PREMISES CO-OP. SOCIETY LTD, PLOT NO.66A, SECTOR-11, CBD BELAPUR, NAVI MUMBAI 400 614 PAN : AAACH9686C DY.CIT, CENT.CIR.2(1), MUMBAI APPELLANT RESPONDEDNT ITA NO 3420/MUM/2016 - AY 2010-11 ITA NO 3421/MUM/2016 - AY 2011-12 M/S PRIA CETP (INDIA) LTD 115/116, RAHEJA ARCADE, PLOT NO.61, SECTOR 11, CBD BELAPUR, NAVI MUMBAI PAN : AACCP2696L VS DY.CIT, CENT.CIR. 2(1), MUMBAI (ERSTWHILE DCCC-08, MUMBAI) APPELLANT RESPONDEDNT 3 HYDROAIR TECTONICS (PCD) LTD ITA NO 4167/MUM/2016 - AY 2005-06 ITA NO 4168/MUM/2016 - AY 2006-07 ITA NO 4169/MUM/2016 - AY 2007-08 ITA NO 4170/MUM/2016 - AY 2009-10 ITA NO 4196/MUM/2016 - AY 2008-09 ITA NO 4304/MUM/2016 - AY 2011-12 ITA NO 4291/MUM/2016 - AY 2010-11 DY.CIT, CENT.CIR.2(1), MUMBAI DY.CIT, CENT.CIR.2(3), MUMBAI VS M/S PRIA CETP (INDIA) LTD., 106, CONCORDE PREMISES CO.OP SOCIETY LTD., PLOT NO.66-A, SECTOR 11, CBD BELAPUR, NAVI MUMBAI PAN : AACCP2696L SHRI HARBHAJAN SINGH, A-1201, BUILDING NO. 2, 12 TH FLOOR, NERUL APPELLANT RESPONDEDNT ITA NO.4171/MUM/2016 (ASSESSMENT YEAR : 2007-08) DY.CIT, CENT.CIR.2(1), MUMBAI VS SMT. RAJKUMARI SINGH A-1201, BUILDING NO.2 12 TH FLOOR, SEAWOODS ESTATE NRI COMPLEX, NERUL, NAVI MUMBAI PAN : AMJPS2625N APPELLANT RESPONDEDNT ITA NO 3926/MUM/2017 - AY 2005-06 ITA NO 3927/MUM/2017 - AY 2006-07 ITA NO 3928/MUM/2017 - AY 2007-08 ITA NO 3929/MUM/2017 - AY 2008-09 ITA NO 3930/MUM/2017 - AY 2009-10 ITA NO 3931/MUM/2017 - AY 2010-11 DY.CIT, CENT.CIR.2(1), MUMBAI VS M/S. HYDROAIR TECTONICS (PCD) LTD 106, CONCORDE PREMISES CO-OP. SOCIETY LTD, PLOT NO.66A, SECTOR-11, CBD BELAPUR, NAVI MUMBAI 400 614 PAN : AAACH9686C APPELLANT RESPONDEDNT 4 HYDROAIR TECTONICS (PCD) LTD ITA NO 1442/MUM/2017 - AY 2005- 06 ITA NO 1434/MUM/2017 - AY 2006-07 ITA NO 1435/MUM/2017 - AY 2007-08 ITA NO 1436/MUM/2017 - AY 2008-09 ITA NO 1437/MUM/2017 - AY 2009-10 DY.CIT, CENT.CIR.2(1), MUMBAI VS M/S. HYDROAIR ENVIROTECH PVT. LTD., 115/116, 1 ST FLOOR, RAHEJA ARCHADE, SECTOR-11, PLOT NO. 61, CBD BELAPUR, NAVI MUMBAI 400 614 PAN : AABCH1153R APPELLANT RESPONDEDNT ASSESSEE BY SHRI RAJKUMAR SINGH REVENUE BY SHRI ABI RAMA KARTIKEYAN DATE OF HEARING 18-01-2019 DATE OF PRONOUNCEMENT 30 -01-2019 O R D E R PER G MANJUNATHA, AM : THIS BUNCH OF 36 CROSS APPEALS FILED BY DIFFERENT ASSESSEES BELONGING TO HYDROAIR TECTONICS (PCD) LTD GROUP OF COMPANIES AND ITS PROMOTERS AND THE REVENUE ARE DIRECTED AGAINST SEPARATE, BUT IDENTICA L AND INTER-RELATED ORDERS PASSED BY THE CIT(A)-48, MUMBAI DATED 28-12-2015 FO R THE ASSESSMENT YEARS 2005-06 TO 2010-11. SINCE FACTS AND ISSUES INVOLVE D IN THESE APPEALS ARE IDENTICAL AND ALSO INTER-CONNECTED, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS CON SOLIDATED ORDER. 2. THE BRIEF FACTS OF THE CASE EXTRACTED FROM ITA N O.946/MUM/2016 FOR AY 2005-06 ARE THAT A SEARCH & SEIZURE ACTION U/S 132 OF THE INCOME-TAX ACT, 1961 5 HYDROAIR TECTONICS (PCD) LTD WAS CARRIED OUT ON M/S HYDROAIR TECTONICS (PCD) LTD AND ITS PROMOTERS. DURING THE COURSE OF SEARCH & SEIZURE, SMT. RAJKUMARI SING H, DIRECTOR AND PROMOTER OF HYDROAIR TECTONICS (PCD) LTD CONFESSED IN HER STATE MENT RECORDED U/S 132(4) OF THE ACT, THAT THE GROUP WAS INDULGING IN PROCURI NG BOGUS PURCHASE BILLS IN ORDER TO SIPHON OFF MONEY FROM THE BUSINESS TO FACI LITATE PAYMENT TO VARIOUS PERSONS FOR GETTING CONTRACTS / ORDERS AND ACCORDIN GLY SURRENDERED AN AMOUNT OF RS.60.39 CRORES AS ADDITIONAL INCOME SPREAD OVER FOR AYS 2007-08 TO 2010- 11 IN THE HANDS OF M/S HYDROAIR TECTONICS (PCD) LTD . DURING THE COURSE OF SEARCH, DOCUMENT CONTAINING INFORMATION ABOUT BOGUS PURCHASES AND SALES WERE FOUND AND SEIZED. WHEN THE SAID DOCUMENT WAS CONFRONTED TO THE DIRECTOR, SHE ADMITTED THAT THE GROUP WAS INDULGING IN OBTAINING ACCOMMODATION ENTRIES IN FORM OF PURCHASES AND ALSO INDULGED IN BOOKING FICTITIOUS SALES IN ORDER TO SHOW MORE TURNOVERS IN BOOKS OF ACCOUNT FOR THE PURPOSE OF GETTING LOANS FROM BANKS AND FINANCIAL I NSTITUTIONS. CONSEQUENT TO SEARCH, THE CASE OF THE ASSESSEE ALONG WITH OTHER G ROUP CASES HAVE BEEN CENTRALISED. THEREAFTER, NOTICES U/S 153A HAVE BEE N ISSUED CALLING FOR RETURNS OF INCOME IN RESPECT OF SIX ASSESSMENT YEARS IMMEDI ATELY PRECEDING THE YEAR IN WHICH SEARCH TOOK PLACE. IN RESPONSE TO THE SAID N OTICE, THE ASSESSEE HAS FILED RETURN OF INCOME ON 06-01-2012 DECLARING TOTAL INCO ME OF RS.13,68,435. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF THE 6 HYDROAIR TECTONICS (PCD) LTD ACT, WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTH ORISED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED VARIO US DETAILS, AS CALLED FOR. THE ASSESSMENT HAS BEEN COMPLETED U/S 144 R.W.S. 15 3A OF THE ACT, ON 28-03- 2013 DETERMINING TOTAL INCOME AT RS.29,60,160 BY MA KING VARIOUS ADDITIONS INCLUDING ADDITION TOWARDS CASH DEPOSITS IN BANK AC COUNT, ADHOC DISALLOWANCE OF EXPENDITURE, ADDITION TOWARDS DEEMED DIVIDEND U/ S 2(22)(E) OF THE INCOME TAX ACT, 1961. THE AO ALSO MADE ADDITION TOWARDS B OGUS PURCHASES AND FICTITIOUS SALES BOOKED BY THE ASSESSEE IN ITS BOOK S OF ACCOUNT ON THE GROUND THAT ALTHOUGH THE ASSESSEE CLAIMS TO HAVE BOOKED FI CTITIOUS SALES IN ITS BOOKS OF ACCOUNT IN ORDER TO ENHANCE SALES TURNOVER FOR THE PURPOSE OF OBTAINING BANK FINANCE, BUT FAILED TO FILE NECESSARY EVIDENCE TO P ROVE THAT SALES TURNOVER BOOKED IN BOOKS OF ACCOUNT IS FICTITIOUS EXCEPT PAS SING JOURNAL ENTRIES IN BOOKS OF ACCOUNT IN SUBSEQUENT YEARS FOR REVERSAL OF SALE S TURNOVER AS WELL AS PURCHASE TURNOVER. THE AO HAS ALSO MADE ADDITION T OWARDS UNEXPLAINED CASH CREDITS IN FORM OF SHARE CAPITAL IN CERTAIN CASES O N THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE IDENTITY, GENUINENESS OF TRANSA CTIONS AND CREDITWORTHINESS OF THE PARTIES. SIMILARLY, THE AO HAS MADE ADDITIO N TOWARDS VARIOUS PAYMENTS MADE TO CERTAIN PERSONS ON THE BASIS OF SEIZED DOCU MENT FOUND DURING THE COURSE OF SEARCH. 7 HYDROAIR TECTONICS (PCD) LTD 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS TAKEN A LEGAL PLEA CHALLENGING ADDITION MADE BY THE AO IN ALL CASES WI THOUT REFERENCE TO ANY SEIZED MATERIAL FOUND DURING THE COURSE OF SEARCH I N LIGHT OF CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONBLE JURISD ICTIONAL HIGH COURT IN THE CASE OF CIT VS CONTINENTAL WAREHOUSING (NAVA SHEVA) CORPORATION LTD 374 ITR 645 (BOM) AND ALSO THE DECISION OF HONBLE DELHI HI GH COURT IN THE CASE OF CIT VS KABUL CHAWLA 388 ITR 573(DELHI). THE MAIN CONTE NTION OF THE ASSESSEE BEFORE THE LD.CIT(A) ARE THAT IN ABSENCE OF ANY SEI ZED MATERIAL, NO ADDITION CAN BE MADE IN RESPECT OF ASSESSMENTS WHICH HAVE BEEN C ONCLUDED / UNABATED AS ON THE DATE OF SEARCH. IN THIS CASE, SEARCH TOOK P LACE ON 28-01-2011 AND BY THAT TIME, THE ASSESSMENTS FOR AYS 2005-06 TO 2009- 10 WERE EITHER COMPLETED U/S 143(3) OR U/S 143(1) AND ALSO TIME LIMIT FOR I SSUE OF NOTICE U/S 143(2), WHERE ASSESSMENT HAS BEEN COMPLETED U/S 143(1) WAS EXPIRED. THEREFORE, IN ABSENCE OF ANY INCRIMINATING MATERIAL FOUND AS A RE SULT OF SEARCH, NO ADDITION CAN BE MADE. AS REGARDS ADDITION MADE BY THE AO IN RESPECT OF DEEMED DIVIDEND U/S 2(22)(E), ADHOC DISALLOWANCE OF EXPENS ES, CASH DEPOSITS IN BANK ACCOUNT AND ALSO VARIOUS ADDITION MADE U/S 68 OF TH E INCOME-TAX ACT, 1961, THE ISSUES HAVE BEEN CONTESTED ON MERITS BY FILING ELABORATE WRITTEN 8 HYDROAIR TECTONICS (PCD) LTD SUBMISSIONS. THE ASSESSEE ALSO CHALLENGED ADDITION MADE BY THE AO TOWARDS REVERSAL OF FICTITIOUS SALES IN SOME CASES. 4. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMIS SIONS OF THE ASSESSEE AND ALSO BY FOLLOWING CERTAIN JUDICIAL PRECEDENTS INCLU DING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS CONTINENTAL WAREHOUSING (NAVA SHEVA) CORPORATION LTD (SUPRA), DELETED ADDITION MA DE BY THE AO IN ALL CASES WHERE THE ASSESSMENT FOR THOSE ASSESSMENT YEARS HAS BEEN COMPLETED / UNABATED AS ON THE DATE OF SEARCH BY HOLDING THAT I N ABSENCE OF ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH, NO ADDITION COULD BE MADE WHERE THE ASSESSMENT HAS BEEN UNABATED. INSOFAR AS ADDITION MADE BY THE AO TOWARDS UNEXPLAINED CASH CREDIT U/S 68 AND OTHER AD DITIONS, THE LD.CIT(A) CONFIRMED ADDITION MADE BY THE AO IN SOME CASES; HO WEVER, ALLOWED THE BENEFIT OF TELESCOPING OUT OF INCOME ESTIMATED FROM SALES TURNOVER AGAINST ADDITION MADE TOWARDS CASH CREDITS AND OTHER DISALL OWANCES. INSOFAR AS ADDITION MADE BY THE AO TOWARDS FICTITIOUS SALES TU RNOVER REVERSED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT, THE LD.CIT(A) HAS DETERMINED SALES TURNOVER OF THE ASSESSEE BY TAKING INTO ACCOUNT SALES DECLAR ED IN REGULAR BOOKS OF ACCOUNT + 25% OF SALES TURNOVER REVERSED BY THE ASS ESSEE AND THEN ESTIMATED NET PROFIT OF 30% ON SALES TURNOVER TO MAKE ADDITIO N TOWARDS UNDISCLOSED INCOME. 9 HYDROAIR TECTONICS (PCD) LTD 5. AGGRIEVED BY THE ORDER OF LD.CIT(A), THE ASSESSE E AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. IN THIS BUNCH OF APPEALS, THERE ARE ABOUT 36 APPEALS FILED BY BOTH REVENUE AS WELL AS THE ASSESSEE. THE ASSESSEE HAS FILED APPEAL AGAINST ORDERS OF THE LD. CIT(A), WHEREVER THE CIT( A) CONFIRMED ADDITIONS/DISALLOWANCES MADE BY THE AO. THE REVENUE HAS CHALLENGED ORDER OF THE CIT(A), IN ALL CASES MAINLY ON THE ISSUE OF DEL ETION OF ALL ADDITIONS MADE IN ASSESSMENTS FRAMED U/S 153A, IN ABSENCE OF ANY INCR IMINATING MATERIALS, ON TECHNICAL GROUND, I.E. WHERE ASSESSMENTS ARE UNABAT ED NO ADDITION COULD BE MADE IN ABSENCE OF ANY INCRIMINATING MATERIALS. THE REVENUE ALSO AGITATED SEVERAL OTHER ISSUES WHEREVER THE LD. CIT(A) DELETE D ADDITIONS MADE BY THE AO. BOTH, REVENUE AS WELL AS THE ASSESSEE HAD TAKEN SEV ERAL GROUNDS OF APPEAL IN THEIR RESPECTIVE APPEALS FOR ALL ASSESSMENT YEARS. THEREFORE, WE DEEM IT NOT NECESSARY TO REPRODUCE GROUNDS OF APPEAL TAKEN IN E ACH APPEAL BY BOTH PARTIES, RATHER PROCEED TO DISPOSE OF APPEALS ON TH E BASIS OF ISSUES INVOLVED IN THESE APPEALS WHICH WE FELT MORE CONVENIENT. 6. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON MAINLY FROM REVENUES APPEAL AND ALSO FROM ASSESSEES APPEAL IS ADDITION MADE BY THE AO TOWARDS CERTAIN DISALLOWANCES/ADDITIONS IN ABSENCE OF INCRI MINATING MATERIAL FOUND AS A RESULT OF SEARCH WHERE THE ASSESSMENTS HAVE BEEN CO MPLETED / UNABATED AS ON THE DATE OF SEARCH. THE PRIMARY ISSUE WHICH IS REQ UIRED TO BE ADJUDICATED IN 10 HYDROAIR TECTONICS (PCD) LTD MAJORITY OF THESE APPEALS IS ABOUT THE SCOPE OF ASS ESSMENTS U/S 153A OF THE ACT. 7. THE LD. AR FOR THE ASSESSEE, REFERRING TO THE PR OVISIONS OF SECTION 153A OF THE ACT, SUBMITTED THAT CONSEQUENT UPON SEARCH, THE AO IS REQUIRED TO ISSUE NOTICE TO THE PERSONS SEARCHED AND ALSO REQUIRED TO ASSESSEE OR RE-ASSESS THE TOTAL INCOME OF THAT PERSON FOR SIX ASSESSMENT YEAR S IMMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR I N WHICH SUCH SEARCH IS CONDUCTED. THE LD.AR FURTHER SUBMITTED THAT IN CAS ES, WHERE THE ASSESSMENTS ARE PENDING AS ON THE DATE OF SEARCH, THOSE ASSESSM ENTS SHALL ABATE AND THE AO SHALL HAVE THE POWER TO ASSESS OR RE-ASSESS THE TOTAL INCOME OF THOSE ASSESSMENT YEARS WHICH ARE ABATED AS ON THE DATE OF SEARCH ON THE BASIS OF BOOKS OF ACCOUNT AND OTHER INCRIMINATING MATERIALS FOUND AS A RESULT OF SEARCH. IN A CASE, WHERE THE ASSESSMENT IS CONCLUDED / UNAB ATED AS ON THE DATE OF SEARCH, THEN THE AO SHALL HAVE POWERS TO ASSESS OR RE-ASSESS THE TOTAL INCOME OF THOSE ASSESSMENT YEARS ON THE BASIS OF INCRIMINA TING MATERIAL FOUND AS A RESULT OF SEARCH. IN THIS CASE, IF THE ADDITION MA DE BY THE AO IN CERTAIN CASES IS LOOKED INTO, IT WAS CLEAR THAT THERE IS NO REFERENC E TO ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. THEREFORE, T HE ADDITION MADE BY THE AO ON THE BASIS OF REGULAR BOOKS OF ACCOUNT IN ABSENCE OF ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH IN ASSESSMENTS FRAMED U/S 153A IS 11 HYDROAIR TECTONICS (PCD) LTD UNJUSTIFIED. THE LD.AR FURTHER SUBMITTED THAT THOU GH THE LD.DR HAS MENTIONED IN HIS SUBMISSION THAT NO SUCH CLASSIFICATION EXIST S UNDER THE LAW, THE SECOND PROVISO TO SUB SECTION (1) OF SECTION 153A MAKES SU CH DEMARCATION BY LIMITING THE ABATEMENT OF THE ASSESSMENT ONLY WHERE IT WAS P ENDING AS ON THE DATE OF INITIATION OF SEARCH. THE LD.AR FURTHER SUBMITTED THAT IF ONE GO THROUGH THE ASSESSMENT MADE BY THE AO AND RELATED DOCUMENTS, TH ERE IS NO DISPUTE WITH REGARD TO THE FACT THAT ALL THE ADDITIONS / DISALLO WANCE MADE IN ALL ASSESSMENTS ARE NOT BASED ON ANY INCRIMINATING MATERIALS OR EV EN A WHISPER REGARDING ANY INCRIMINATING MATERIAL AS BASIS OF MAKING ADDITION / DISALLOWANCE. THE LD.AR FURTHER SUBMITTED THAT EVEN IF ONE GO THROUGH THE G ROUNDS OF APPEAL TAKEN BY THE REVENUE CHALLENGING ORDER OF LD.CIT(A), NOWHERE THE REVENUE STATES THAT ADDITION / DISALLOWANCE MADE BY THE AO ARE BASED ON INCRIMINATING MATERIAL. THE REVENUE MAINLY CHALLENGED THE JUDGEMENT OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS CONTINENTAL WAREHOUSING (NAVA SHEVA) CORPORATION LTD (SUPRA) BY STATING THAT THE DEPARTMENT HAS NOT ACCEPTED THE JUDGEMENT RENDERED BY THE HONBLE BOMBAY HIGH COURT AND SLP H AS BEEN FILED WHICH HAS BEEN ADMITTED BY THE APEX COURT. THEREFORE, WHEN T HE MATTER IS PENDING BEFORE THE HONBLE APEX COURT FOR ADJUDICIATION, TH E ISSUE NEEDS TO BE DECIDED ON MERITS, RATHER THAN GOING ON THE ISSUE OF ABATEM ENT / UN ABATEMENT WHEN THE STATUTE DOES NOT PROVIDE FOR THE WORDS UNABATE D ASSESSMENTS. THE LD.AR 12 HYDROAIR TECTONICS (PCD) LTD FURTHER REFERRING TO PLETHORA OF JUDGEMENTS INCLUDI NG THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CIT VS KABUL CHAWLA (SU PRA) ARGUED THAT THE ISSUE IS NO LONGER RES INTEGRA AND VARIOUS HIGH COURTS AND T RIBUNALS HAVE CONSISTENTLY HELD THAT IN A CASE WHERE THE ASSESSMENT HAS BEEN U NABATED AS ON DATE OF SEARCH, NO ADDITION COULD BE MADE IN ABSENCE OF INC RIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. IN THIS REGARD, HE RELIED U PON THE FOLLOWING JUDGEMENTS:- 1. CIT V. CONTINENTAL WAREHOUSING CORPORATION 374 I TR 645 (BOM) 2. CIT V. GURINDER SINGH BAWA 386 ITR 483 (BOM) 3. CIT V. SKS ISPAT & POWER LTD. 398 ITR 584 (BOM) 4. PR. CIT V. MARYTIME SUPPLIERS PVT. LTD. ITA NO. 50/2017 5. PR. CIT V. DHARAMPAL AGRAWAL ITA NO. 52/2017 6. CIT V. DEEPAK KUMAR AGARWAL 398 ITR 586 (BOM) 7. CIT V. MURLI AGRO PRODUCTS LTD. 49 TAXMANN.COM 1 72 (BOM) 8. PR. CIT V. SAUMYA CONSTRUCTION P. LTD. 387 ITR 5 29 (GUJ) 9. PR. CIT V. DEVANGI ALIAS RUPA 98 CCH 51 10. PR. CIT V. DESAI CONSTRUCTION (P) LTD. 81 TAXMA NN.COM 271 11. CIT V. KABUL CHAWLA 380 ITR 573 (DEL) 12. PR. CIT V. LATA JAIN ITA NO. 274/2016 (DEL) 8. THE LD. DR, ON THE OTHER HAND, FILED WRITTEN SUB MISSIONS IN CONTINUATION OF HIS ELABORATE ARGUMENTS ON THE TECHNICAL ISSUE O F THE LD.CIT(A) CANCELLING THE ASSESSMENT IN CASE OF UNABATED ASSESSMENTS ON B EING BAD IN LAW, WHERE 13 HYDROAIR TECTONICS (PCD) LTD ORDER U/S 153A WAS PASSED IN ABSENCE OF SEIZED / IN CRIMINATING DOCUMENTS FOUND DURING THE COURSE OF SEARCH. THE DR FURTHER SUBMITTED THAT THE LD.CIT(A) FAILED TO APPRECIATE THE VITAL FACT THAT IN SOME CA SES, THERE WERE ONLY ORDERS U/S 143(1) AND THERE WAS NO SCRUTINY ASSESSMENTS AN D HENCE, THERE WAS NO OCCASION TO PRODUCE THE BOOKS OF ACCOUNT AND OTHER RELEVANT DOCUMENTS AND HENCE, IT IS INCORRECT TO SAY THAT MERELY FOR THE R EASON THE TIME LIMIT FOR ISSUE OF NOTICE U/S 143(2) HAS BEEN EXPIRED, THE ASSESSME NTS HAVE BEEN UNABATED AND NO FURTHER ACTION CAN BE INITIATED INCLUDING AS SESSMENTS CANNOT BE MADE U/S 153A IN ABSENCE OF ANY INCRIMINATING MATERIAL. THE LD. DR FURTHER REFERRING TO THE PROVISIONS OF SECTION 153A(1)(B) OF THE ACT, SUBMITTED THAT IN CASE WHERE SEARCH CARRIED OUT U/S 132, THE AO IS MANDATED TO A SSESS OR RE-ASSESS TOTAL INCOME OF SIX ASSESSMENT YEARS IMMEDIATELY PRECEDIN G THE YEAR IN WHICH THE SEARCH IS CARRIED OUT. IT MAY BE NOTED THAT THE TE XT OF THE PROVISION ONLY TALKS OF THE AO BEING DUTY BOUND TO ASSESS OR RE-ASSESS T HE INCOME OF SIX ASSESSMENT YEARS IMMEDIATELY PRECEDING THE SEARCH, HOWEVER, NO WHERE THE LEGISLATURE HAS STATED OR INTENDED THAT THE SCOPE OF OTHER CATEGORY OF ASSESSMENTS, I.E., THAT DID NOT ABATE SHOULD BE RESTRICTED TO ADDITION BASE D ON SEIZED / INCRIMINATING MATERIALS. THE LD.DR FURTHER SUBMITTED THAT ANY PR OVISION OF LAW SHOULD BE INTERPRETED BY ADOPTING THE RULE OF LITERAL CONSTR UCTION, I.E. TO READ THE PROVISIONS AS IT IS, BY NEITHER ADDING NOR SUBTRACT ING ANYTHING FROM IT AND BY 14 HYDROAIR TECTONICS (PCD) LTD NOT READING SOMETHING EXTRA IN IT WHICH WAS NEVER I NTENDED BY THE LEGISLATURE. ON THIS ISSUE AS WELL, IT IS AMPLY CLEAR THAT GOING BY THE ABOVE RULE AND THE PLAIN READING OF THE PROVISION, THE AO HAS TO ASSESS OR R E-ASSESS THE TOTAL INCOME OF THE ASSESSEE AS PROVIDED AND THERE IS NO MENTION IN THE SECTION ABOUT ANY INCRIMINATING MATERIAL. THE MOMENT SEARCH TAKES PL ACE, THE AO IS BOUND TO ASSESS OR RE-ASSESS THE TOTAL INCOME OF THE ASSESSE E INCLUDING ANY INCOME UNEARTHED DURING THE COURSE OF SEARCH ON THE BASIS OF INCRIMINATING MATERIAL, AND THEREFORE, THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE THAT NO ADDITION CAN BE MADE IN ABSENCE OF ANY SEIZED MATER IAL. THE LD.DR FURTHER REFERRING TO THE DECISION OF HONBLE KERALA HIGH CO URT IN THE CASE OF E.N. GOPAKUMAR VS CIT (2015) 75 TAXMAN.COM 215 SUBMITTED THAT THE HONBLE HIGH COURT HELD THAT ASSESSMENT PROCEEDINGS GENERATED BY ISSUANCE OF A NOTICE U/S 153A CAN BE CONCLUDED AGAINST INTEREST OF THE ASSES SEE INCLUDING MAKING ADDITION EVEN WITHOUT ANY INCRIMINATING MATERIAL BE ING AVAILABLE AGAINST THE ASSESSEE IN SEARCH U/S 132 ON THE BASIS OF WHICH NO TICE WAS ISSUED U/S 153A OF THE ACT. THE LD.DR FILED ELABORATE WRITTEN SUBMISS IONS ON THE ISSUE AND ALSO TRIED TO DISTINGUISH THE CASE LAWS IN FAVOUR OF THE ASSESSEE. THE LD.DR ALSO RELIED UPON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF RAJESH JHAVERI STOCK BROKERS PVT LTD VS CIT 161 TAXMAN.COM 316 TO DISTINGUISH ASSESSMENTS U/S 143(3) AND INTIMATION U/S 143(1) AN D ARGUED THAT THE HONBLE 15 HYDROAIR TECTONICS (PCD) LTD SUPREME COURT CLEARLY HELD THAT 143(1) INTIMATION I S NOT AN ASSESSMENT. IN THESE CASES MANY OF THE ASSESSMENTS HAVE BEEN COMPL ETED U/S 143(1) WITHOUT SCRUTINISING THE BOOKS OF ACCOUNT OF THE ASSESSEE. THEREFORE, MERELY FOR REASON THAT THERE WAS SEARCH ACTION AND NO INCRIMINATING M ATERIAL IN RESPECT OF CERTAIN ADDITION, THOUGH THERE IS REAL ISSUES WHICH NEEDS T O BE CONSIDERED BY THE AO IN THE INTEREST OF REVENUE, THE AO CANNOT LOOK INTO TH OSE ISSUES IF THE ARGUMENT ADVANCED BY THE ASSESSEE ARE ACCEPTED THAT NO ADDIT ION CAN BE MADE WHERE THERE IS NO INCRIMINATING MATERIAL FOUND AS A RESUL T OF SEARCH. THE LD.DR FURTHER REFERRING TO THE DECISION OF ITAT, MUMBAI S PECIAL BENCH IN THE CASE OF M/S ALL CARGO GLOBAL LOGISTICS LTD VS DCIT 23 TAXMA NN.COM 103 SUBMITTED THAT BOOKS OF ACCOUNT, OTHER DOCUMENTS FOUND IN THE COUR SE OF SEARCH, BUT NOT PRODUCED IN THE ORIGINAL ASSESSMENT HAS BEEN EXPLAI NED BY THE TRIBUNAL THAT WHERE IN CASES ASSESSMENTS HAVE BEEN COMPLETED U/S 143(1), THE QUESTION OF PRODUCING BOOKS OF ACCOUNT BEFORE THE AO DID NOT AR ISE AND HENCE, IF ONE GO BY THE RATIONALE OF THE JUDGEMENT OF SPECIAL BENCH OF THE TRIBUNAL, THEN WHERE THE ASSESSMENT HAS BEEN COMPLETED U/S 143(1), IT CA NNOT BE SAID THAT THE ASSESSMENT HAS BEEN UNABATED MERELY FOR THE REASON THAT TIME LIMIT FOR ISSUE OF NOTICE U/S 143(2) HAS BEEN EXPIRED. THE LD.DR F URTHER REFERRING TO THE PROVISIONS OF SECTION 148 SUBMITTED THAT WHEREVER T IME LIMIT IS AVAILABLE, THE AO CAN ISSUE 148 NOTICE WHERE THE ASSESSMENT HAS BE EN COMPLETED U/S 143(1), 16 HYDROAIR TECTONICS (PCD) LTD BUT IF WE ACCEPT THE ANALOGY OF THE JUDGEMENTS RELI ED UPON BY THE ASSESSEE, THEN THERE IS NO MEANING FOR THE WORD RE-ASSESSMEN T AS THE PROVISION SPECIFICALLY STATES THAT ALL PENDING ASSESSMENTS AS ON DATE OF SEARCH ARE ABATED AND THE AO SHALL HAVE POWER TO ASSESS OR RE-ASSESS TOTAL INCOME OF THESE ASSESSMENT YEARS. IF WE CURTAIL THE POWER OF THE A O IN ASSESSMENT FRAMED U/S 153A, THEN OBVIOUSLY, THE REVENUE WILL HAVE NO CHAN CE TO ASSESS THE INCOME WHICH IS ESCAPED FROM TAX EVEN BY REOPENING THE ASS ESSMENT U/S 148 BECAUSE THE LAW SPECIFICALLY PROVIDES IN A CASE OF SEARCH F OR ABATEMENT OF ASSESSMENT TILL THE DATE OF SEARCH. THEREFORE, HE SUBMITTED T HAT THERE IS NO MERIT IN THE ARGUMENTS OF THE ASSESSEE THAT NO ADDITION COULD BE MADE IN ABSENCE OF ANY INCRIMINATING MATERIAL. 9. THE LD. AR FOR THE ASSESSEE, IN REPLY TO ARGUMEN TS ADVANCED BY THE LD. DR FILED HIS REJOINDER DISTINGUISHING ARGUMENTS OF THE LD. DR IN LIGHT OF CERTAIN JUDICIAL PRECEDENTS. THE RELEVANT EXTRACT OF WRITTE N SUBMISSION IS REPRODUCED BELOW. THE LEARNED CIT (DR) HAS FILED A DETAILED SUBMISSI ON DATED 23-3-2018 WITH REGARD TO THE LEGAL ISSUE ABOUT SCOPE OF ASSESSMENT UNDER SECTION 153A IN RESPECT OF THOSE CASES WHERE NO ASSESSMENT WAS PEND ING AS ON THE DATE OF SEARCH. IN HIS SUBMISSION, LEARNED CIT (DR) HAS MENTIONED T HAT THE CIT (A) HAS CANCELLED THE ASSESSMENTS MADE U/S. 153A AS BEING B AD IN LAW IN CASE OF UNABATED ASSESSMENTS I.E. WHERE NO ASSESSMENT WAS P ENDING AS ON THE DATE OF SEARCH. AT THE OUTSET, WE WOULD LIKE TO CLARIFY THA T THE CIT (A) HAS NOT ANNULLED OR CANCELLED ANY OF THE ASSESSMENTS AS BAD IN LAW BUT DELETED THE ADDITIONS MADE BY THE AO IN THE ABSENCE OF ANY INCRIMINATING MATER IALS FOUND RELATED TO SUCH ADDITIONS. THERE IS A MATERIAL DIFFERENCE BETWEEN A NNULLING THE ASSESSMENT AS BAD IN LAW AND DELETING CERTAIN ADDITIONS MADE IN S UCH ASSESSMENT WITHOUT DISTURBING ITS VALIDITY. THEREFORE, THE ISSUES AND CONTENTIONS RAISED SHOULD BE CONSIDERED WITH THIS CLARITY. 17 HYDROAIR TECTONICS (PCD) LTD THE LEARNED CIT (DR) HAS MAINLY RAISED FOLLOWING TW O CONTENTIONS: 1. EVEN IN RESPECT OF ASSESSMENT YEARS FOR WHICH NO ASSESSMENT WAS PENDING AS ON THE DATE OF SEARCH, THE SCOPE OF ASSESSMENT U/S. 153A IS NOT LIMITED TO THE INCRIMINATING MATERIALS FOUND AS A RESULT OF SEARCH BUT WIDE ENOUGH TO COVER ANY ISSUES. THOUGH HONOURABLE BOMBAY HIGH COURT HAS HEL D CONTRARY, THE LEARNED CIT (DR) HAS RELIED UPON DECISIONS OF SEVERAL OTHER HIGH COURTS. 2. THE COMPLETION OF ASSESSMENT U/S. 143(3) AND A CCEPTANCE OF RETURN OF INCOME U/S. 143(1) PRIOR TO THE DATE OF SEARCH SHOU LD BE VIEWED DIFFERENTLY WHILE INTERPRETING THE DECISIONS OF TRIBUNALS & COURTS 1 WHICH ARE CONTRARY TO THE FIRST CONTENTION AND HAVE NOT PERMITTED THE AO TO MAKE AD DITIONS SANS ANY INCRIMINATING MATERIALS. THE LEARNED CIT (DR) HAS A TTEMPTED TO DRAW SUPPORT FROM THE SUPREME COURT'S DECISION IN THE CASE OF AC IT VS. RAJESH JHAVEN STOCK BROKERS (P) LTD. AND CLAIM THAT THIS DECISION OF SU PREME COURT HAS NOT BEEN DEALT WITH BY THE LOWER COURTS AND TRIBUNALS WHILE ADJUDI CATING THE ISSUE UNDER CONSIDERATION. FIRSTLY, WE WOULD LIKE TO SUBMIT THAT BOTH THE ABOV E CONTENTIONS ARE NOT SUSTAINABLE IN VIEW OF THE FOLLOWING DECISIONS OF H ONOURABLE BOMBAY HIGH COURT: I. CIT VS. CONTINENTAL WAREHOUSING CORPORATION 374 ITR 645 (BOM) - IT IS A LEADING DECISION ON THE ISSUE REGARDING SCOPE OF AS SESSMENT WHICH IS THE FIRST CONTENTION RAISED BY LEARNED CIT (DR). II. CIT VS. GURINDER SINGH BAWA 386 ITR 483 (B OM) - IN A LATER CASE, THE HIGH COURT DEALT WITH THE CASE WHERE RETURN WAS ACCEPTED U/S. 143(1) AND NO ASSESSMENT WAS MADE U/S. 143(3) PRIOR TO THE DATE O F'SEARCH. THUS, THE ATTEMPT MADE LEARNED CIT (DR) IN DISTINGUISHING THE EARLIER DECISION OF CONTINENTAL WAREHOUSING (SUPRA) IS FUTILE AND CONTRARY TO THE V IEW TAKEN BY HON'BLE BOMBAY HIGH COURT. III. CIT VS. SKS ISPAT & POWER LTD. 398 ITR 58 4 (BOM) - REAFFIRMING BOTH THE ABOVE DECISIONS. IV. PR. CIT VS. MARYTIME SUPPLIERS PVT. LTD. - ITA NO. 50/2017 - BOMBAY HIGH COURT, NAGPUR BENCH V. PR. CIT VS. DHARAMPAL AGRAWAL - ITA NO. 52/ 2017 - BOMBAY HIGH COURT, NAGPUR BENCH VI. CIT VS. DEEPAK KUMAR AGARWAL 398 ITR 586 ( BOM) - IN THIS CASE, BOMBAY HIGH COURT HAS DISCUSSED THE SUPREME COURT'S DECISI ON IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (SUPRA) WHICH HAS BEEN RELIED UPON BY LEARNED CIT (DR). THUS, THE ISSUES RAISED BY LEARNED CIT (DR) ARE DIR ECTLY COVERED BY THE DECISIONS PRONOUNCED BY HON'BLE JURISDICTIONAL COURT. ACCORDI NGLY, THE ADDITIONS MADE BY THE AO IN RESPECT OF COMPLETED ASSESSMENTS WHICH AR E NOT BASED ON ANY INCRIMINATING MATERIALS MAY PLEASE BE DELETED IN ADDITION TO PLACING RELIANCE ON THE BINDING PREC EDENTS, WE WOULD ALSO LIKE TO SUBMIT THE FOLLOWING EXPLANATION ON MERITS OF THE C ONTENTIONS RAISED BY LEARNED CIT (DR): I. LIMITATION ON SCOPE OF ASSESSMENT U/S. 153A [PARA 3 & 4 OF CIT (DR)'S SUBMISSION]: 1.1 VIDE PARA 3 & 4, THE LEARNED CIT (DR) HA S CONTENDED THAT NO LIMITATION CAN BE PLACED ON THE SCOPE OF ASSESSMENT U/S. 153A AND THE AO IS EMPOWERED TO ASSESS OR REASSESS THE TOTAL INCOME EVEN OVER AN D ABOVE THE SEIZED MATERIALS / DOCUMENTS IN CASE OF THE UNABATED ASSESSMENTS. 1.2 IT IS CLAIMED THAT THE LEGISLATURE NEVER INTENDED THAT THE SCOPE OF ASSESSMENT WHICH DOES NOT ABATE SHOULD BE RESTRICTE D TO ADDITION BASED ON SEIZED / INCRIMINATING MATERIALS / DOCUMENTS. HOWEV ER, GUJARAT HIGH COURT HAS CONSIDERED THE INTENTION OF LEGISLATURE AS FAR AS P ROVISIONS OF SECTION 153A ARE CONCERNED IN PARA 16 AND HELD AS FOLLOWS: 18 HYDROAIR TECTONICS (PCD) LTD 16. SECTION 153 'A BEARS THE HEADING 'ASSESSMENT IN CASE OF SEARCH OR REQUISITION', TT IS WELL SETTLED AS HELD BY THE SUP REME COURT IN A CATENA OF DECISIONS THAT THE HEADING OF THE SECTION CAN BE RE GARDED AS A KEY TO THE INTERPRETATION OF THE OPERATIVE PORTION OF THE SECT ION AND IF THERE IS NO AMBIGUITY IN THE LANGUAGE OR IF IT IS PLAIN AND CLEAR, THEN THE HEADING USED IN THE SECTION STRENGTHENS THAT MEANING. FROM THE HEADING OF SECTI ON 153, THE INTENTION OF THE LEGISLATURE IS CLEAR VIZ., TO PROVIDE FOR ASSESSMEN T IN CASE OF SEARCH AND REQUISITION. WHEN THE VERY PURPOSE OF THE PROVISION IS TO MAKE ASSESSMENT IN CASE OF SEARCH OR REQUISITION, IT GOES WITHOUT SAYI NG THAT THE ASSESSMENT HAS TO HAVE RELATION TO THE SEARCH OR REQUISITION. IN OTHE R WORDS, THE ASSESSMENT SHOULD BE CONNECTED WITH SOMETHING FOUND DURING THE SEARCH OR REQUISITION, VIZ., INCRIMINATING MATERIAL WHICH REVEALS UNDISCLOSED IN COME. THUS, WHILE IN VIEW OF THE MANDATE OF SUB-SECTION (1) OF SECTION 153A OF T HE ACT, IN EVERY CASE WHERE THERE IS A SEARCH OR REQUISITION, THE ASSESSING OFF ICER IS OBLIGED TO ISSUE NOTICE TO SUCH PERSON TO FURNISH RETURNS OF INCOME FOR THE SI X YEARS PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE SEARCH IS CONDUCTED OR REQUISITION IS MADE, ANY ADDITION OR DISALLOWANC E CAN BE MADE ONLY ON THE BASIS OF MATERIAL COLLECTED DURING THE SEARCH OR RE QUISITION. IN CASE NO INCRIMINATING MATERIAL IS FOUND, AS HELD BY THE RAJ ASTHAN HIGH COURT IN THE CASE OF JAI STEEL (INDIA) (SUPRA), THE EARLIER ASSESSMENT W OULD HAVE TO BE REITERATED. IN CASE WHERE PENDING ASSESSMENTS HAVE ABATED, THE ASS ESSING OFFICER CAN PASS ASSESSMENT ORDERS FOR EACH OF THE SIX YEARS DETERMI NING THE TOTAL INCOME OF THE ASSESSEE WHICH WOULD INCLUDE INCOME DECLARED IN THE RETURNS, IF ANY, FURNISHED BY THE ASSESSEE AS WELL AS UNDISCLOSED INCOME, IF ANY, UNEARTHED DURING THE SEARCH OR REQUISITION. IN CASE WHERE A PENDING REASSESSMEN T UNDER SECTION 147 OF THE ACT HAS ABATED, NEEDLESS TO STATE THAT THE SCOPE AN D AMBIT OF THE ASSESSMENT WOULD INCLUDE ANY ORDER WHICH THE ASSESSING OFFICER COULD HAVE PASSED UNDER SECTION 147 OF THE ACT AS WELL AS UNDER SECTION 153 A OF THE ACT 1.3 THUS, THE INTERPRETATION AS CANVASSED BY LEARNED CIT (DR) IS IN FACT CONTRARY TO THE INTENTION OF LEGISLATURE AS EXPLAIN ED BY GUJARAT HIGH COURT. 1.4 THE CIT (DR) HAS ALSO PLACED RELIANCE ON SEVERAL DECISIONS OF KERALA, KARNATAKA, ALLAHABAD & DELHI HIGH COURTS. 1.5 AS FAR AS KARNATAKA HIGH COURT IS CONCERNE D, IN A LATER DECISION I.E. CIT VS. LANCY CONSTRUCTIONS 66 TAXMANN.COM 264, IT APPR OVED ITAT'S DECISION WHICH WAS BASED ON ALL CARGO GLOBAL LOGISTICS LTD. (MUMBA I - SB). 1.6 AS FAR AS DELHI HIGH COURT IS CONCERNED, T HE SUPREME COURT HAS GRANTED STAY OVER THE DECISION OF DAYAWANTI VS. CIT WHICH H AS BEEN RELIED UPON BY LEARNED CIT (DR). OTHER TWO DECISIONS OF DELHI HIGH COURT RELIED UPON BY LEARNED CIT (DR) I.E. ANIL KUMAR BHATIA & FILATEX INDIA LTD . HAVE BEEN CONSIDERED IN LATER DECISIONS OF DELHI HIGH COURT IN KABUL CHAWLA & MEE TA GUTGUTIA WHICH ARE IN FAVOUR OF THE ASSESSEE. 1.7 THE POSITION TAKEN BY DIFFERENT HIGH COURTS ON THE ISSUE UNDER CONSIDERATION IS SUMMARIZED AS UNDER: 18 CIT VS. CONTINENTAL WAREHOUSING CORPORATION 374 ITR 645 (BOM) CIT VS. GURINDER SINGH BAWA 386 ITR 483 (BOM) CIT V S. SKS ISPAT & POWER LTD. 398 ITR 584 (BOM) PR. CIT VS. MARYTIME SUPPLIERS PVT. LTD. - ITA NO. 50/2017 PR. CIT VS. DHARAMPAL A GRAWAL - ITA NO. 52/2017 CIT VS. DEEPAK KUMAR AGARWAL 398 ITR 58 6 (BOM) CIT VS. MURLI AGRO PRODUCTS LTD. 49 TAXMANN.COM 172 (BOM) 19 HYDROAIR TECTONICS (PCD) LTD PR. CIT VS. SAUMYA CONSTRUCTION P. LTD. 387 ITR 529 (GUJ) PR. CIT VS. DEVANGI ALIAS RUPA 98 CCH 51 PR. CIT VS. DIPAK J. PANCHAL 98 CCH 74 PR. CIT VS. DESAI CONSTRUCTION (P) LTD. 81 T AXMANN.COM 271 CIT VS. KABUL CHAWLA 380 ITR 573 (DEL) PRINCIPAL CI T VS. LATA JAIN - ITA NO 274/2016 (DEL) PR. CIT VS. MEETA GUTGUTIA 395 ITR 526 (DEL) PR. CIT VS. BEST INFRASTRUCTURE (INDIA) PVT. LTD 99 CCH 163 (DEL) CIT VS. AMR INDIA LTD. - ITA NO. 357 OF 2014 CIT VS . HYDERABAD HOUSE PVT. LTD. - ITA NO. 266 OF 2013 CIT VS. M/S. SREE LALITHA CONSTRUCTIONS - ITA NO. 368 OF 2014 CIT VS. LANCY CONSTRUCTIONS 66 TAXMANN.COM 264 E.N. GOPAKUMAR VS. CIT 75 TAXMANN.COM 215 CIT VS. S T. FRANSCIS CLAY DECOR TILES 385 ITR 624 CIT VS. RAJ KUMAR ARORA 367 ITR 517 CIT VS. KESARWA NI ZARDA BHANDAR SAHSON - ITA NO. 270 OF 2014 CANARA HOUSING DEVELOPMENT CO. VS. DCIT 49 TAXMANN. COM 98 DAYAWANTI VS. CIT 390 ITR 496 CIT VS. ANIL KUMAR BH ATIA 352 ITR 493 1.8 IN VIEW OF THE FACT THAT MAJORITY OF THE HIGH C OURTS HAVE TAKEN A VIEW FAVOURING THE ASSESSEE ON THE ISSUE UNDER CONSIDERA TION, THAT VIEW IS REQUIRED TO BE FOLLOWED. ALSO, IN CASE WHERE TWO VIEWS PREVAIL, THE VIEW FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED IN PREFERENCE TO THE VIE W AGAINST THE ASSESSEE. II. DIFFERENTIATION BETWEEN COMPLETION OF ASSE SSMENT U/S. 143(3) AND ACCEPTANCE OF RETURN U/S. 143(1) WITHOUT MAKING ANY ASSESSMENT: 2.1 AT THE OUTSET, IT IS CLARIFIED THAT ALL THE CASES IN WHICH C!T (A) HAS GIVEN RELIEF ON ACCOUNT OF ABOVE DISCUSSED LIMITATION ON SCOPE O F ASSESSMENT ARE NOT 143(1) CASES BUT SOME OF THEM ARE 143(3) CASES AS WELL. FO R FURTHER DETAILS, THE DETAILED GIVEN IN RESPECT OF EACH ASSESSEE IN ITS RESPECTIVE PAPER-BOOK AS WELL AS WRITTEN SYNOPSIS DATED 27-3-2018 MAY PLEASE BE SEEN. 2.2 IN PARA 5.2 TO 5.4, THE LEARNED CIT (DR) HAS MADE A CRITICAL ANALYSIS OF DELHI HIGH COURT'S DECISION IN THE CASE OF KABUL CHAWLA ( SUPRA) WHICH IS IN FACT IN FAVOUR OF THE ASSESSEE. HOWEVER, THE FOLLOWING INFERENCE HAS BEEN DRAWN FROM THIS DECISION AS STATED IN PARA 5.5: '// MAY BE POINTED OUT HERE THAT THE DECISION OF DELHI HON'BLE HIGH COURT WAS AGAINST REVENUE ONLY ON THE BASIS OF THE FACTS BEIN G DIFFERENT IN SO FAR AS THERE WAS A CATEGORICAL FINDING THAT NO SEIZED MATERIAL W AS FOUND IN SEARCH AND HENCE WILL NOT AFFECT THE POSITION WHERE NO BOOKS OF ACCOUNTS WERE PRODUCED IN THE ORIGINAL ASSESSMENT.' 2.3 THUS, IN OPINION OF THE LEARNED CIT (DR) , THE AFORESAID DECISION WILL NOT APPLY TO THE CASE WHERE ONLY THE RETURN WAS PROCESSED U/S . 143(1) AND NO ASSESSMENT WAS 20 HYDROAIR TECTONICS (PCD) LTD MADE U/S 143(3). THIS IS BECAUSE, IN THE ABSENCE OF ANY ASSESSMENT, BOOKS OF ACCOUNTS WERE NEVER PRODUCED PRIOR TO THE SEARCH. 2.4 HOWEVER, IN THE CASE OF KABUL CHAWLA ITSELF, THE HI GH COURT WAS DEALING WITH A CASE WHERE RETURNS WERE PROCESSED U/S. 143(1) ONL Y AND NO ASSESSMENTS U/S. 143(3) WERE MADE. REFER PARA 3 OF THE DECISION FOR THESE FACTS. THE HIGH COURT DELETED THE ADDITION MADE U/S. 2(22)(E) WHICH MUST HAVE ARISEN FROM THE BOOKS OF ACCOUNTS AND THOSE BOOKS MUST NOT HAVE BEEN PRODUCE D BEFORE THE SEARCH IN THE ABSENCE OF ASSESSMENT U/S. 143(3). 2.5 HOW THE ADDITION MADE ON ACCOUNT OF DEEM ED DIVIDEND U/S. 2(22)(E) IN THE CASES UNDER DISPUTE (RAJKUMARI SINGH AND HARBHAJAN SINGH) BE SUSTAINED BY RELYING UPON THE DECISION IN THE CASE OF KABUL CHAWLA IN WH ICH THE SAME ADDITION HAS BEEN DELETED 7 THE VIEW CANVASSED BY LEARNED CIT (DR) IN PARA 5.5 IS CERTAINLY NOT THE ONE WHICH CAN EVEN REMOTELY BE INFERRED FROM THE DECISI ON OF DELHI HIGH COURT. 2.6 THEREAFTER, REFERRING TO BOMBAY HIGH COURT DECISION IN THE CASE OF CONTINENTAL WAREHOUSING CORP. (SUPRA) AND MUMBAI SP ECIAL BENCH DECISION IN THE CASE OF ALL CARGO GLOBAL LOGISTICS (SUPRA) IN PARA 5.6 & 5.7, IT HAS BEEN MENTIONED THAT THE ASSESSMENT WAS ALLOWED TO BE MADE IN THESE CASES BY RELYING UPON THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS NOT PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT BUT FOUND IN THE COURSE OF SEARCH. 2.7 IT IS WORTH MENTIONING THAT IN THE CASE OF ALL CARGO GLOBAL LOGISTICS (SUPRA), FOR A.Y. 2005-06 & 2006-07, THE RETURNS WERE PROCESS U/S. 143(1). IT W AS ONLY FOR A.Y. 2004-05 THE ASSESSMENT WAS MADE U/S. 143(3). THESE FACTS CAN BE NOTICED FROM PARA 5 OF THE SPECIAL BENCH'S ORDER. T HUS, THE VERY CASE WHICH HAS BEEN REFERRED WAS THE CASE WHERE BOOKS OF ACCOUNTS MUST NOT HAVE BEEN PRODUCED BEFORE THE SEARCH AND DEDUCTION U/S. 80-IA WAS DENIED BY THE AO WHILE ASSESSING U/S. 153A. THE COURT AND TRIBUNAL HELD TH AT DEDUCTION WHICH STANDS ALLOWED CANNOT BE DISTURBED IN THE ABSENCE OF ANY I NCRIMINATING MATERIALS 2.8 THE PHRASE 'BOOKS OF ACCOUNTS OR OTHER D OCUMENTS NOT PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT BUT FOUND IN THE COUR SE OF SEARCH' CANNOT BE INTERPRETED TO INCLUDE THOSE BOOKS OF ACCOUNTS OR D OCUMENTS WHICH HAVE BEEN MAINTAINED IN THE REGULAR COURSE OF BUSINESS, TO WH ICH PROVISIONS OF SECTION 44AA / 44AB ARE APPLICABLE, ON THE BASIS OF WHICH THE RE TURN OF INCOME HAS BEEN SUBMITTED BUT WERE NEVER CALLED FROM THE ASSESSEE A S NO ASSESSMENT WAS MADE. IT SHOULD BE ONLY THOSE BOOKS OF ACCOUNTS WHICH HAV E BEEN CALLED FOR VERIFICATION BUT NOT PRODUCED BY THE ASSESSEE. IF THE AO HAS CON SCIOUSLY TAKEN A DECISION TO NOT TO MAKE THE ASSESSMENT AND, HENCE, NOT TO VERIF Y THE BOOKS OF ACCOUNT OR DOCUMENTS IN SUPPORT OF THE RETURN OF INCOME FILED BY THE ASSESSEE, THEN HOW CAN IT BE SAID THAT THE ASSESSEE HAS NOT PRODUCED SUCH BOOKS OF ACCOUNTS OR DOCUMENTS BEFORE THE SEARCH? WHILE REFERRING TO BOO KS OF ACCOUNTS OR OTHER DOCUMENTS NOT PRODUCED, THE COURT WAS REFERRING TO THE DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO HIDE THEM FROM THE AO AND F OR WHICH THE SEARCH U/S. 132 HAS BEEN CONDUCTED. 2.9 IN PARA 5.8 & 5.9, THE LEARNED CIT (DR) HAS POINTED OUT THE SUPREME COURT'S DECISION IN THE CASE OF RAJESH JHAVERI STOC K BROKERS (P) LTD. (SUPRA) WHEREIN IT WAS HELD THAT INTIMATION U/S. 143(1) CAN NOT BE EQUATED WITH THE ASSESSMENT. IT HAS BEEN CLAIMED THAT THIS DECISION OF SUPREME COURT HAS NOT BEEN DISCUSSED IN ANY OF THE CASES FAVOURING THE AS SESSEE AS FAR AS SCOPE OF ASSESSMENT U/S, 153A IS CONCERNED. HOWEVER, IN THE CASE OF CIT VS. DEEPAK KUMAR AGARWAL 398 ITR 586 (BOM), THE REVENUE HAD PL ACED RELIANCE OF THIS SUPREME COURT DECISION AND THE SAME WAS CONSIDERED BY HON'BFE BOMBAY HIGH COURT VIDE PARA 20 TO 25 AND IT WAS HELD THAT THERE WOULD NOT HAVE BEEN ANY DIFFERENCE EVEN IF THIS JUDGMENT HAD BEEN BROUGHT T O THE NOTICE OF THE COURT 2.10 APART FROM THE DECISION IN THE CASE OF DEEPAK KUMAR AGARWAL (SUPRA), IN NUMBER OF OTHER CASES, BOMBAY HIGH COURT HAS HELD T HAT THE SCOPE OF 21 HYDROAIR TECTONICS (PCD) LTD ASSESSMENT U/S. 153A IS LIMITED TO THE INCRIMINATIN G MATERIALS ONLY IRRESPECTIVE OF WHETHER THE ASSESSMENT HAS BEEN COMPLETED U/S. 143( 3) OR RETURN HAS BEEN ACCEPTED U/S. 143(1) WITHOUT MAKING ANY ASSESSMENT. THESE CASES ARE. I. CIT VS. GURINDER SINGH BAWA 386 ITR 483 (BOM) II. CIT VS. SKS ISPAT & POWER LTD. 398 ITR 584 (BOM) III. PR. CIT VS. MARYTIME SUPPLIERS PVT. LTD. IV. PR. CIT VS. DHARAMPAL AGRAWAL 2.11 THE RELIANCE PLACED BY LEARNED CIT (DR) O N THE DECISION OF INDULATA RANGWALA VS. DCIT 384 ITR 337 (DEL) IS MISPLACED BE CAUSE IT RELATED TO REASSESSMENT U/S. 147 AND NOT THE ASSESSMENT U/S. 1 53A, THE ONE WITH WHICH WE ARE CONCERNED ABOUT IN THE CASES UNDER CONSIDERATIO N. 2.12 IN PARA 5.11, IT HAS BEEN PLEADED THAT EF FECTIVELY NO ASSESSMENT WOULD TAKE PLACE BECAUSE OF SUCH AN INTERPRETATION IF NO INCRIMINATING MATERIALS ARE FOUND DURING THE COURSE OF SEARCH. THERE CANNOT BE ANY GRIEVANCE ABOUT THIS ON THE PART OF REVENUE, THIS IS BECAUSE IF THE SEARCH HAS NOT YIELDED ANYTHING THEN THE REVENUE SHOULD NOT BE ALLOWED TO GAM OUT OF THE RESULTANT PROCEEDING OF ASSESSMENT WHICH WOULD NOT HAVE BEEN POSSIBLE OTHER WISE FURTHER, THE REVENUE MAY TAKE RECOURSE TO OTHER REMEDIES WHICH ARE AVAIL ABLE UNDER THE ACT. 2.13 IN PARA 5.12, IT HAS BEEN MENTIONED THAT THERE IS NO CLASSIFICATION LIKE ABATED AND NON-ABATED ASSESSMENT. THE SECOND PROVIS O TO SUB-SECTION (1) OF SECTION 153A PROVIDES FOR ABATEMENT OF ASSESSMENT I F THE APPLICABLE CONDITIONS ARE SATISFIED. THEREFORE, THE ASSESSMENT WHICH DOES NOT ABATE AS PER SECOND PROVISO IS THE UN-ABATED ASSESSMENT. THIS DEMARCATI ON IS VERY CLEAR FROM THE READING OF PROVISIONS OF SECTION 153A AND THEY ARE ALSO REQUIRED TO BE HANDLED DIFFERENTLY. 2.14 THE USAGE OF TWO DIFFERENT WORDS I.E. 'AS SESS OR REASSESS' HAS BEEN EXPLAINED BY DELHI HIGH COURT IN THE CASE OF KABUL CHAWLA (SUPRA). IN NO WAY SUCH DIFFERENT WORDS USED IN THE PROVISIONS OF SECT ION 153A SUPPORTS THE ARGUMENT RAISED IN THE SUBMISSION THAT THE ASSESSME NT CAN BE MADE WITHOUT ANY FETTERS U/S, 153A IF NO ASSESSMENT HAS TAKEN PLACE EARLIER U/S. 143(3). 2.15 THE SECOND PROVISO TO SUB-SECTION (1) AND ALSO SUB-SECTION (2) OF SECTION 153A ARE APPLICABLE ONLY TO THE ABATED ASSE SSMENT. THEY DO NOT CONFLICT IN ANY MANNER WHATSOEVER WITH THE INTERPRETATION OF THE PROVISIONS RELATING TO THE SCOPE OF ASSESSMENT WHERE NO ABATEMENT TAKES PLACE. THE DIFFICULTY EXPRESSED IN PARA 5.14 REGARDING HARMONIOUS INTERPRETATION DO ES NOT ARISE AT ALL. 2.16 IN CONCLUDING PARA 6.1, IT HAS BEEN CLAIM ED THAT 'INCRIMINATING MATERIAL' WOULD ALSO INCLUDE BOOKS OF ACCOUNTS FOUND DURING T HE SEARCH, BUT NOT PRODUCED AT THE TIME OF THE ORIGINAL ASSESSMENT, THERE BEING ONLY 143(1). THE POSITION WITH REGARD TO THIS CONTENTION HAS ALREADY BEEN EXPLAINE D IN THIS REJOINDER AT PARA 2.8. AT THE COST OF REPETITION, WE WOULD LIKE TO SUBMIT THAT THE 'BOOKS OF ACCOUNT OR OTHER DOCUMENT FOUND IN THE COURSE OF SEARCH BUT NO T PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT' CANNOT BE EXTENDED TO INCLUDE THOSE BOOKS OF ACCOUNTS WHICH HAVE BEEN MAINTAINED IN THE REGULAR COURSE OF BUSINESS, ON THE BASIS OF WHICH THE RETURN OF INCOME HAS ALREADY BEEN FILED. MERELY BECAUSE SUCH BOOKS OF ACCOUNTS HAVE NOT BEEN VERIFIED AS NO ASSESSMENT HA D BEEN MADE U/S. 143(3) CANNOT MAKE THEM AS 'INCRIMINATING MATERIAL'. THE W ORD 'FOUND' USED THEREIN INDICATES THAT IT IS INTENDED TO APPLY TO ONLY THOS E BOOKS OF ACCOUNT OR DOCUMENTS WHICH THE ASSESSEE HAS ATTEMPTED TO HIDE THEM SO AS TO EVADE THE TAX. 2.17 IT IS BUT OBVIOUS THAT THE BOOKS OF ACCOU NTS MAINTAINED BY THE ASSESSEE IN THE REGULAR COURSE OF BUSINESS WOULD BE AVAILABL E IN HIS PREMISES AT THE TIME OF SEARCH. IF SUCH BOOKS ARE ALLOWED TO BE CONSIDERED AS 'INCRIMINATING MATERIALS' ONLY BECAUSE THEY WERE NOT VERIFIED EARLIER, THEN T HE WHOLE ISSUE OF LIMITING THE SCOPE OF ASSESSMENT U/S. 153A WOULD BECOME REDUNDAN T. THE VIEW TAKEN BY 22 HYDROAIR TECTONICS (PCD) LTD BOMBAY HIGH COURT IN THE CASES MENTIONED IN PARA 2. 10 ABOVE WOULD NOT BE A POSSIBLE VIEW AT ALL AS NO BOOKS OF ACCOUNT MUST HA VE BEEN PRODUCED BY THE ASSESSEES IN THOSE CASES AS THEY WERE 143(1) CASES AND NOT 143(3). 10. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. WE HAVE ALSO CAREFULLY CONSIDERED CASE LAWS RELIED UPON BY BOTH COUNSELS. IN THESE CASES, SEARCH TOOK PLACE ON 28-01-2011. ADMITTEDLY, DURIN G THE COURSE OF SEARCH, CERTAIN INCRIMINATING MATERIAL WAS FOUND AS PER WHI CH, THE ASSESSEE GROUP WAS INDULGING IN BOOKING BOGUS PURCHASES IN ORDER TO SI PHON OFF MONEY FOR MAKING GRACIOUS PAYMENTS TO VARIOUS PERSONS FOR SECURING C ONTRACTS / WORK ORDERS. DURING THE COURSE OF SEARCH, A TABULAR PRESENTATION OF SEVERAL AMOUNTS OF PURCHASES AND SALES GIVING YEAR-WISE BREAK-UP AS WE LL AS BROKER-WISE BREAK-UP WAS FOUND AS PER PAGE 27 OF ANNEXURE A1. THE STATE MENT OF THE BROKERS, WHOSE NAMES WERE MENTIONED IN THE TABULAR INFORMATI ON WERE OBTAINED BY THE SEARCH OFFICERS. WHEN THESE DOCUMENTS WERE CON FRONTED TO THE ASSESSEE, THE DIRECTOR OF M/S HYDROAIR TECTONICS (PCD) LTD, SMT. RAJKUMARI SINGH IN HER STATEMENT RECORDED U/S 132(4) DATED 29-01-2011 ADMI TTED THAT THE ASSESSEE GROUP HAD BOOKED ENTRIES OF ACCOMMODATION PURCHASES AS WELL AS FOR ACCOMMODATION SALES. DURING THE COURSE OF ASSESSME NT, THE AO HAS MADE VARIOUS ADDITIONS INCLUDING ADDITION TOWARDS ADHOC DISALLOWANCE OF EXPENSES, CASH DEPOSITS IN BANK ACCOUNT, ADDITION TOWARDS DEE MED DIVIDEND U/S 2(22)(E) 23 HYDROAIR TECTONICS (PCD) LTD OF THE ACT, ALONG WITH ADDITION TOWARDS BOGUS PURCH ASES AS WELL AS BOGUS SALES. IT WAS THE CONTENTION OF THE ASSESSEE BEFORE THE LO WER AUTHORITIES THAT NO ADDITION COULD BE MADE IN CASES WHERE THE ASSESSMEN TS HAVE BEEN UNABATED AS ON DATE OF SEARCH, IN ABSENCE OF ANY INCRIMINATI NG MATERIAL FOUND AS A RESULT OF SEARCH. THE ASSESSEE HAS RELIED UPON PLETHORA O F JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS CONTINENTAL WAREHOUSING (NAVA SHEVA) CORPORATION LT D (SUPRA). ADMITTEDLY, THE ISSUE, I.E. WHETHER THE AO CAN MAKE ADDITION IN ASSESSMENTS FRAMED U/S 153A IN ABSENCE OF ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH WHERE THE ASSESSMENT HAS BEEN UNABATED IS NO LONGER RES INTEGRA. THE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS CONTINE NTAL WAREHOUSING (NAVA SHEVA) CORPORATION LTD (SUPRA) HAS HELD THAT IN ABS ENCE OF ANY SEIZED MATERIAL FOUND DURING SEARCH, NO ADDITION CAN BE MADE IN RES PECT OF ASSESSMENTS WHICH HAVE UNABATED / CONCLUDED AS ON THE DATE OF SEARCH. THIS LEGAL PROPOSITION IS FURTHER SUPPORTED BY THE DECISION OF DIVISION BENCH OF HONBLE BOMBAY HIGH COURT IN THE CASE OF MURLI AGRO PRODUCTS LTD (SUPRA ) WHEREIN IT WAS HELD THAT NO ADDITION COULD BE MADE IN RESPECT OF UNABATED AS SESSMENTS WHICH HAVE BECOME FINAL IF NO INCRIMINATING MATERIAL IS FOUND DURING SEARCH. A SERIES OF JUDGEMENTS RENDERED BY VARIOUS HIGH COURTS AND TRIB UNALS HAVE CONSISTENTLY HELD THAT TO MAKE ADDITION IN AN ASSESSMENT FRAMED U/S 153A, WHERE THE 24 HYDROAIR TECTONICS (PCD) LTD ASSESSMENTS HAVE BEEN UNABATED, THERE SHOULD BE A R EFERENCE TO INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. IN ABSENCE O F ANY INCRIMINATING MATERIAL, NO ADDITION CAN BE MADE AND THE ASSESSMENT SHOULD N OT BE DISTURBED WHERE THE ASSESSMENT HAS BEEN UNABATED / CONCLUDED AS ON THE DATE OF SEARCH. THIS PROPOSITION IS RE-ITERATED BY THE HONBLE DELHI HIG H COURT IN CASE OF CIT VS KABULI CHAWLA (SUPRA), WHERE IT WAS CATEGORICALLY H ELD THAT IN ABSENCE OF ANY INCRIMINATING MATERIAL, THE COMPLETED ASSESSMENT RE ITERATED AND THE ABATED ASSESSMENT OR RE-ASSESSMENT CAN BE MADE. THE WORD ASSESS IN SECTION 153A IS RELATABLE TO ABATED PROCEEDINGS (I.E. THAT IS PE NDING AS ON THE DATE OF SEARCH) AND THE WORD RE-ASSESS TO COMPLETED ASSESSMENT PR OCEEDINGS. IT WAS FURTHER HELD THAT COMPLETED ASSESSMENT CAN BE INTERFERED WI TH BY THE AO WHILE MAKING THE ASSESSMENT U/S 153A ONLY ON THE BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURING THE COURSE OF SEARCH OR U NDISCLOSED INCOME OR PROPERTY DISCOVERED IN THE COURSE OF SEARCH WHICH W ERE NOT PRODUCED OR NOT ALREADY DISCLOSED OR MADE KNOWN IN THE COURSE OF OR IGINAL ASSESSMENT. THE RELEVANT OBSERVATIONS OF THE COURT ARE EXTRACTED BE LOW:- ON A CONSPECTUS OF SECTION 153A(1), READ WITH THE P ROVISOS THERETO, AND IN THE LIGHT OF THE LAW EXPLAINED IN VARIOUS DECI SIONS, THE LEGAL POSITION THAT EMERGES IS AS UNDER: (I) ONCE A SEARCH TAKES PLACE UNDER SECTION 132, NOTICE UNDER SECTION 153A(1) WILL HAVE TO BE MANDATORILY ISSUED TO THE PERSON SEARCHED REQ UIRING HIM TO FILE RETURNS FOR SIX ASSESSMENT YEARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR RELEVANT TO THE 25 HYDROAIR TECTONICS (PCD) LTD ASSESSMENT YEAR IN WHICH THE SEARCH TAKES PLACE. (II) ASSESSMENTS AND REASSESSMENTS PENDING ON THE DATE O F THE SEARCH SHALL ABATE. THE TOTAL INCOME FOR SUCH ASSESSMENT YEARS WILL HAVE TO BE COMPUTED BY THE ASSESSING OFFICERS AS A FRESH EXERCISE. (III) THE ASSESSI NG OFFICER WILL EXERCISE NORMAL ASSESSMENT POWERS I N RESPECT OF THE SIX YEARS PREVIOUS TO THE RELEVANT ASSESSMENT YEAR IN W HICH THE SEARCH TAKES PLACE. THE ASSESSING OFFICER HAS THE POWER TO ASSESS AND REASS ESS THE 'TOTAL INCOME' OF THE AFOREMENTIONED SIX YEARS IN SEPARATE ASSESSMENT ORDERS FOR EACH OF THE SIX YEARS. IN OTHER WORDS THERE WILL BE ONLY ONE ASSESSMENT ORDER IN RESPECT OF EACH OF THE SIX ASSESSMENT YEARS 'IN WHICH BOTH THE DISCLOSED AND T HE UNDISCLOSED INCOME WOULD BE BROUGHT TO TAX'. (IV) A LTHOUGH SECTION 153A DOES NOT SAY THAT ADDITIONS SH OULD BE STRICTLY MADE ON THE BASIS OF EVIDENCE FOUND IN THE COURSE OF THE SEARCH , OR OTHER POST- SEARCH MATERIAL OR INFORMATION AVAILABLE WITH THE ASSESSING OFFICER WH ICH CAN BE RELATED TO THE EVIDENCE FOUN D, IT DOES NOT MEAN THAT THE ASSESSMENT 'CAN BE ARB ITRARY OR MADE WITHOUT ANY RELEVANCE OR NEXUS WITH THE SEIZED MATE RIAL. OBVIOUSLY AN ASSESSMENT HAS TO BE MADE UNDER THIS SECTION ONLY ON THE BASIS OF SEIZED MATERIAL.' (V) IN ABSENCE OF ANY INCRIMINATING MATERIAL, THE COMPLETED ASSESSMENT CA N BE REITERATED AND THE ABATED ASSESSMENT OR REASSESSMENT CAN BE MA DE. THE WORD 'ASSESS' IN SECTION 153A IS RELATABLE TO ABATED PROCEEDINGS ( I.E. , THOSE PENDING ON THE DATE OF SEARCH) AND THE WORD 'REASSESS' TO COMPLETE ASSESSMENT PROC EEDINGS. (VI) INSOFAR AS PENDING ASSESSMENTS ARE CONCERNED, THE J URISDICTION TO MAKE THE ORIGINAL ASSESSMENT AND THE ASSESSMENT UNDER SECTION 153A ME RGES INTO ONE. ONLY ONE ASSESSMENT SHALL BE MADE SEPARATELY FOR EACH ASSES SMENT YEAR ON THE BASIS OF THE FINDINGS OF THE SEARCH AND ANY OTHER MATERIAL EXIST ING OR BROUGHT ON THE RECORD OF THE ASSESSING OFFICER. (VII) COMPLETED ASSESSMENTS CAN BE INTERFERED WITH BY THE ASSESSING OFFICER WHILE MAKING THE ASSESSMENT UNDER SECTIO N 153A ONLY ON THE BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURING THE COURSE OF SEARCH OR R EQUISITION OF DOCUMENTS OR UNDISCLOSED INCOME OR PROPERTY DISCOVERED IN THE CO URSE OF SEARCH WHICH WERE NOT PRODUCED OR NOT ALREADY DISCLOSED OR MADE KNOWN IN THE COURSE OF ORIGINAL ASSESSMENT. [PARA 37] THE PRESENT APPEALS CONCERN ASSESSMENT YEARS 2002-0 3, 2005-06 AND 2006- 07. ON THE DATE OF THE SEARCH THE SAID ASSESSMENTS ALREADY STOOD CO MPLETED. SINCE NO INCRIMINATING MATERIAL WAS UNEARTHED DURING THE SEARCH, NO ADDITIONS COULD HAVE BEEN MADE TO THE INCOME ALREADY ASSESSED. [PARA 38] 11. COMING TO THE ARGUMENTS OF THE LD.DR IN THE LIG HT OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS RAJESH JHAVERI STOCK BROKERS LTD (SUPRA) WHERE IT WAS HELD THAT 143(1) INTIMATION IS NOT A ASSESSMENT AND 26 HYDROAIR TECTONICS (PCD) LTD HENCE, WHERE THE ASSESSMENT HAS BEEN COMPLETED U/S 143(1), THE AO DID NOT HAVE AN OCCASION TO GO THROUGH THE BOOKS OF ACCOUNT AND ALSO THE QUESTION OF ASSESSEE BEING PRODUCING THOSE BOOKS OF ACCOUNT BEF ORE THE AO DOES NOT ARISE AND HENCE, THE AO CAN VERY MUCH MAKE ASSESSMENT ON THE BASIS OF REGULAR BOOKS OF ACCOUNT AND OTHER INCRIMINATING MATERIAL F OUND AS A RESULT OF SEARCH IN ASSESSMENT FRAMED U/S 153A. HAVING CONSIDERED AR GUMENTS OF BOTH THE SIDES, WE DO NOT FIND ANY MERITS IN THE ARGUMENTS O F LD.DR FOR THE REASON THAT THE HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS GUR INDER SINGH BAWA 386 ITR 483 (BOM) HAS CONSIDERED SIMILAR ISSUE IN LIGHT OF ASSESSMENTS COMPLETED U/S 143(1) AND HELD THAT EVEN IF ASSESSMENT HAS BEEN CO MPLETED U/S 143(1), IF TIME LIMIT FOR ISSUE OF NOTICE U/S 143(2) HAS BEEN EXPIR ED AS ON THE DATE OF SEARCH, THEN THOSE ASSESSMENTS ARE UNABATED AND THE AO CANN OT MAKE ANY ADDITION IN ABSENCE OF ANY INCRIMINATING MATERIAL FOUND AS A RE SULT OF SEARCH. INSOFAR AS THE LD.DRS ARGUMENT IN LIGHT OF DECISION OF HONBL E KERALA HIGH COURT IN THE CASE OF N.E. GOPAKUMAR VS CIT (SUPRA), WE FIND THAT THOUGH THE HONBLE KERALA HIGH COURT HAS TAKEN A CONTRARY VIEW AND HELD THAT U/S 153A, THE AO CAN MAKE ADDITION EVEN WITHOUT ANY INCRIMINATING MATERIAL BE ING AVAILABLE AGAINST THE ASSESSEE IN THE SEARCH U/S 132 OF THE ACT, BUT FACT REMAINS THAT THE HONBLE SUPREME COURT HAS DISMISSED SLP FILED BY THE REVENU E AGAINST THE JUDGEMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS K ABUL CHAWLA (SUPRA). 27 HYDROAIR TECTONICS (PCD) LTD THEREFORE, IT COULD BE SAFELY CONCLUDED THAT THE DE CISION OF HONBLE DELHI HIGH COURT NEEDS TO BE CONSIDERED ON THE MAIN ISSUE WHER E IT WAS CATEGORICALLY HELD THAT NO ADDITION CAN BE MADE IN ASSESSMENTS WHICH A RE UNABATED AS ON DATE OF SEARCH IN ABSENCE OF ANY INCRIMINATING MATERIAL. F URTHER, THE JURISDICTIONAL HIGH COURT, IN NUMBER OF CASE HAS CONSISTENTLY HELD THAT EVEN IF ASSESSMENT HAS BEEN COMPLETED U/S 143(1), IF TIME LIMIT FOR ISSUE OF NOTICE U/S 143(2) HAS BEEN EXPIRED AS ON DATE OF SEARCH, THEN NO ADDITION COUL D BE MADE IN ABSENCE OF ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. ON ANALYSIS OF JUDGEMENTS CITED BY BOTH PARTIES, WE FIND THAT ALTHOUGH DIVERG ENT VIEWS HAD BEEN EXPRESSED BY DIFFERENT HIGH COURTS, YET, MAJORITY O F HIGH COURTS INCLUDING JURISDICTIONAL HIGH COURT, DIVISION BENCH IN CIT VS MURLI AGRO PRODUCTS LTD (SUPRA) HAS RULED IN FAVOUR OF THE ASSESSEE. IT IS A SETTLED LAW THAT WHEN THERE ARE CONTRADICTING JUDGEMENTS OF DIFFERENT HIGH COUR TS, THE VIEW WHICH IS IN FAVOUR OF THE ASSESSEE SHOULD BE CONSIDERED. FURTH ER, JUDICIAL DISCIPLINE DEMANDS THAT THE LOWER COURT IN THE JURISDICTION OF HIGH COURT IS BOUND TO FOLLOW THE JURISDICTIONAL HIGH COURT. THEREFORE, B Y FOLLOWING THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF CIT VS CONTINENT AL WAREHOUSING (NAVA SHEVA) CORPORATION LTD (SUPRA), WE ARE OF THE CONSI DERED VIEW THAT NO ADDITION COULD BE MADE IN ABSENCE OF ANY INCRIMINATING MATER IAL FOUND AS A RESULT OF SEARCH, WHERE THE ASSESSMENT HAS BEEN UNABATED AS ON THE DATE OF SEARCH. 28 HYDROAIR TECTONICS (PCD) LTD 12. IN THIS CASE, ON PERUSAL OF MATERIALS AVAILABLE ON RECORD, IT IS ABUNDANTLY CLEAR THAT IN SOME CASES AND ON SOME ISSUES, THE AO HAS MADE ADDITIONS WHICH ARE NOT BASED ON ANY INCRIMINATING MATERIAL FOUND A S A RESULT OF SEARCH. THE AO HAS MADE ADDITION TOWARDS CASH DEPOSITS IN BANK, ADHOC DISALLOWANCE OF EXPENSES, DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT A ND OTHER SIMILAR DISALLOWANCE / ADDITIONS ON THE BASIS OF REGULAR BO OKS OF ACCOUNT AND RETURN FILED BY THE ASSESSEE U/S 153A OF I.T. ACT, 1961. THERE IS NO IOTA OF DISCUSSION OF ANY SEIZED / INCRIMINATING MATERIALS. EVEN DURI NG REMAND PROCEEDINGS, THE AO HAS NOT BROUGHT ON RECORD ANY INCRIMINATING MATE RIAL TO SUPPORT VARIOUS ADDITIONS MADE IN ASSESSMENTS WHICH ARE UNABATED AS ON DATE OF SEARCH. ADMITTEDLY, SEARCH TOOK PLACE ON 28-01-2011 AND BY THAT TIME, THE ASSESSMENT FOR AYS 2005-06 TO 2009-10 HAVE BEEN UNABATED. THE TIME LIMIT FOR ISSUE OF 143(2) NOTICE HAS BEEN EXPIRED. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN MAKING VARIOUS ADDITIONS IN ASS ESSMENTS FRAMED U/S 153A IN ABSENCE OF ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. THE LD.CIT(A), AFTER CONSIDERING RELEVANT FACTS HAS RIG HTLY HELD THAT NO ADDITION COULD BE MADE WITHOUT ANY INCRIMINATING MATERIAL. HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF LD.CIT(A) AND REJECT GROUND TAKEN BY THE REVENUE CHALLENGING THE ACTION OF THE LD.CIT(A) IN DELETING ADDITION WHEREVER THERE IS NO INCRIMINATING MATERIAL FOUND AS A RESULT OF SEAR CH TO SUPPORT THOSE 29 HYDROAIR TECTONICS (PCD) LTD ADDITIONS. HOWEVER, THIS ISSUE IS INVOLVED IN NUMB ER OF CASES AND THE FACT THAT WHETHER THOSE ADDITIONS ARE SUPPORTED BY ANY INCRIM INATING MATERIAL FOUND DURING SEARCH OR NOT HAS TO BE EXAMINED WITH REFERE NCE TO EACH AND EVERY ADDITION MADE BY THE AO. ALTHOUGH THE ASSESSEE CLA IMS THAT NONE OF ADDITIONS ARE SUPPORTED BY ANY INCRIMINATING MATERIAL FOUND D URING THE COURSE OF SEARCH, YET, WE ARE OF THE CONSIDERED VIEW THAT FOR THE LIM ITED PURPOSE OF VERIFICATION, WHETHER THESE ADDITIONS ARE BASED ON ANY INCRIMINAT ING MATERIAL FOUND DURING THE COURSE OF SEARCH OR NOT, THE ISSUE NEEDS TO BE SET ASIDE TO THE FILE OF THE AO. IF, THE AO FINDS THAT THE ADDITION MADE IN UNAB ATED ASSESSMENTS IS NOT BASED ON ANY INCRIMINATING MATERIAL FOUND AS A RESU LT OF SEARCH, THEN THE AO IS DIRECTED TO DELETE THOSE ADDITIONS, WHICH ARE NOT S UPPORTED BY ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH IN ALL ASSESSMENTS AND IN ALL ASSESSES WHERE THE ASSESSMENTS HAVE BEEN UNABATED / CONCLUDED AS ON THE DATE OF SEARCH IN TERMS OF OUR DISCUSSION HEREINABO VE. 13. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IN CASE OF PRIA CETP (INDIA) LTD FOR AYS 200-11 AND 2011-12 IS WITH REGA RD TO DEDUCTION CLAIMED U/S 80IA OF THE INCOME-TAX ACT, 1961. THE FACTUAL MATRIX OF THE IMPUGNED DISPUTE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF OPERATION AND MAINTENANCE OF A COMMON EFFLUENT TREATMENT PLAN T AT MIDC, PATALGANGA AND RASAYANI INDUSTRIAL AREA FOR COLLECTION AND TRE ATMENT OF EFFLUENTS 30 HYDROAIR TECTONICS (PCD) LTD DISCHARGED BY INDUSTRIAL UNITS. SINCE THE ACTIVITI ES CARRIED OUT BY THE ASSESSEE IS IN THE NATURE OF INFRASTRUCTURAL FACILITY AND THE S AID INFRASTRUCTURAL FACILITY QUALIFIES FOR DEDUCTION U/S 80IA, THE ASSESSEE HAS CLAIMED DEDUCTION TOWARDS PROFIT DERIVED FROM THE BUSINESS. THE AO HAS DISAL LOWED DEDUCTION CLAIMED U/S 80IA OF THE ACT, ON THE GROUND THAT CERTAIN DEFECTS WERE NOTICED IN THE AUDIT REPORT AS PER WHICH, THE ASSESSEE IS NOT ENTITLED F OR DEDUCTION. THE LD.CIT(A) ALLOWED THE CLAIM OF DEDUCTION U/S 80IA ON THE GROU ND THAT THE AO NEVER DISPUTED THE ELIGIBILITY OF THE ASSESSEE TO CLAIM D EDUCTION AS IT HAS FULFILLED ALL CONDITIONS PRESCRIBED UNDER THE SAID SECTION, BUT O NLY DENIED ON TECHNICALITIES FOR INCORRECT DETAILS IN AUDIT REPORT. ACCORDINGLY , HE DIRECTED THE AO TO RE- EXAMINE THE CLAIM OF DEDUCTION U/S 80IA. THE LD.AO , IN ACCORDANCE WITH THE DIRECTIONS OF THE LD.CIT(A) REGARDING DEDUCTION U/S 80IA, RE-VERIFIED THE CLAIM AND GRANTED DEDUCTION VIDE HER ORDER DATED 15-12-20 17 IN ORDER GIVING EFFECT TO THE ORDER OF LD.CIT(A). INSOFAR AS DISALLOWANCE OF CERTAIN EXPENSES, THE LD.AO HAS DENIED THE BENEFIT OF DEDUCTION, BUT THE LD.CIT(A) HAS DELETED CERTAIN DISALLOWANCES AND AFFIRMED DISALLOWANCES MA DE BY THE AO FOR CERTAIN EXPENSES. THE ASSESSEE, AS WELL AS THE REVENUE HAS CHALLENGED THE FINDING OF LD.CIT(A) INSOFAR AS SETTING ASIDE THE ISSUE TO THE FILE OF THE AO FOR RE- VERIFICATION OF FACTS. THE ASSESSEE AGITATED ON TH E FINDINGS OF LD.CIT(A) BY STATING THAT THE LD.CIT(A) OUGHT TO HAVE DECIDED TH E ISSUE ON THE BASIS OF FACTS 31 HYDROAIR TECTONICS (PCD) LTD AVAILABLE ON RECORD. THE REVENUE HAS CHALLENGED TH E FINDINGS OF THE LD.CIT(A) IN ALLOWING DEDUCTION U/S 80IA OF THE INCOME TAX AC T, 1961. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FAC T THAT THE ASSESSEE HAS FULFILLED ALL CONDITIONS PRESCRIBED U/S 80IA SO AS TO GET THE BENEFIT OF DEDUCTION FOR ELIGIBLE PROFIT OF AN UNDERTAKING OF DEVELOPING AND MAINTAINING INFRASTRUCTURE FACILITY. THE LD. CIT(A) HAS NEGATE D OBSERVATIONS OF THE AO INSOFAR AS DEFECTS IN AUDIT REPORT AND ALLOWED THE BENEFIT OF DEDUCTION ON ENHANCED INCOME ON ACCOUNT OF DISALLOWANCE OF CERTA IN EXPENSES BY HOLDING THAT ONCE THE PROFIT OF AN UNDERTAKING IS ELIGIBLE FOR DEDUCTION, THEN THE ENHANCED PROFIT ON ACCOUNT OF DISALLOWANCE OF CERTA IN EXPENSES IS ALSO ELIGIBLE FOR DEDUCTION. WE FURTHER NOTICE THAT THE AO IN OR DER GIVING EFFECT TO THE ORDER OF LD.CIT(A), HAS ALLOWED THE BENEFIT OF DEDUCTION U/S 80IA. THE ONLY QUESTION REMAINS IS WHETHER THE ENHANCED PROFIT ON ACCOUNT O F DISALLOWANCE OF CERTAIN EXPENDITURE IS ELIGIBLE FOR DEDUCTION U/S 80IA OF T HE ACT OR NOT IS TO BE DECIDED. THE ISSUE OF DEDUCTION OF ENHANCED PROFIT IS NO LON GER RES INTEGRA. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS SUN IL BISHAMBER TIWARI 63 TAXMAN.COM 241 HAS CONSIDERED THE ISSUE AND AFTER R EFERRING TO THE CIRCULAR NO.37 OF 2016 DATED 02-11-2016 ISSUED BY CBDT, HELD THAT DISALLOWANCE MADE U/S 32, 40(A)(IA), 40A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANCES 32 HYDROAIR TECTONICS (PCD) LTD RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH CHAP TER VIA DEDUCTION HAS BEEN CLAIMED RESULTING IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBLE BUSINESS AND THAT DEDUCTION UNDER CHAPTER VIA IS ADMISSIBLE ON T HE PROFIT SO ENHANCED BY THE DISALLOWANCES. THE CIRCULAR FURTHER STATED THA T HENCEFORTH APPEALS MAY NOT BE FILED ON THIS ISSUE BY OFFICERS OF THE DEPARTMEN T AND APPEALS ALREADY FILED IN COURTS / TRIBUNALS MAY BE WITHDRAWN / NOT PRESSED U PON. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO GRIEVANCE FROM THE REVENUE SIDE AND ACCORDINGLY, WE REJECT THE GROUNDS TAKEN BY THE REV ENUE FOR BOTH THE ASSESSMENT YEARS CHALLENGING THE FINDINGS OF LD.CIT (A) IN ALLOWING DEDUCTION U/S 80IA ON THE ENHANCED PROFITS. SINCE THE ASSESS EE HAS GOT RELIEF FROM THE AO, THE APPEALS FILED BY THE ASSESSEE AGAINST THE O RDER OF THE LD.CIT(A) BECOME INFRUCTUOUS AND HENCE, THE SAME ARE DISMISSED. 15. AS A RESULT, BOTH APPEALS FILED BY THE REVENUE AND BOTH APPEALS FILED BY THE ASSESSEE ARE DISMISSED. 16. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEE AS WELL AS REVENUES APPEAL IN CASE OF M/S HYDROAIR TECTONI CS (PCD) LTD FOR AYS 2006- 07 TO 2010-11 IS EXCLUSION OF BOGUS SALES / PURCHAS ES AND ESTIMATION OF PROFITS. THE ROOT CAUSE OF THIS ISSUE IS PAGE 27 OF ANNEXURE A-1 FOUND DURING THE COURSE OF SEARCH WHEREIN YEAR-WISE DATA RELATED TO ACCOMMO DATION ENTRIES OF PURCHASES AND SALES WAS RECORDED. DURING THE COURS E OF SEARCH ACTION, THE 33 HYDROAIR TECTONICS (PCD) LTD DIRECTOR OF ASSESSEE, SMT. RAJKUMARI SINGH ADMITTED IN HER STATEMENT RECORDED U/S 132(4) THAT THE ASSESSEE COMPANY HAD BOOKED ENT RIES FOR ACCOMMODATION PURCHASES AS WELL AS FOR ACCOMMODATION SALES. DURI NG THE COURSE OF SEARCH, ON THE BASIS OF DOCUMENT FOUND AND SEIZED AS ANNEXURE A1, ADDITIONAL INCOME OF RS.60.39 CRORES REPRESENTING EXCESS OF PURCHASES OV ER SALES HAS BEEN QUANTIFIED. THE ASSESSEE, WHILE FILING RETURN OF I NCOME U/S 153A REWORKED THE AMOUNT OF BOGUS PURCHASES AND SALES IN ALL 5 YEARS. THE ASSESSEE HAS ELIMINATED TOTAL PURCHASES FOR 5 YEARS AT RS.771,38 ,43,203. THE ASSESSEE HAS ALSO ELIMINATED SALES FOR 5 ASSESSMENT YEARS AT RS. 862,57,89,04. AS A RESULT OF ELIMINATION OF PURCHASES AND SALES, IT HAS RE-WORKE D ITS INCOME WHICH RESULTED INTO REDUCTION OF INCOME ADMITTED IN RETURN FILED U /S 139(1) OF RS.91.19 CRORES. ALTHOUGH, THE ASSESSEE HAS ELIMINATED INCOME BY RS. 91.19 CRORES, BUT IN ITS SUBMISSION BEFORE THE LD.CIT(A), THE ASSESSEE HAD A GREED TO IGNORE SUCH REDUCTION BECAUSE INCOME CANNOT BE REDUCED IN THE R ETURNS FILED U/S 153A OF THE ACT. THE AO IGNORED REVERSAL OF BOGUS PURCHASES , HOWEVER, REVERSAL OF BOGUS SALES WAS DENIED AND THE INCOME OF THE ASSESS EE HAS BEEN ENHANCED TO THE EXTENT OF RS.771,38,43,203. ON APPEAL BEFORE T HE CIT(A), THE LD.CIT(A) HAS UPHELD THE FINDINGS OF THE AO IN REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE I.T. ACT, 1961. HOWEVER, HE RE-WORKED THE TOTAL TU RNOVER OF THE ASSESSEE BY ELIMINATING 75% OF BOGUS SALES CLAIMED, BY RETAININ G 25% OF BOGUS SALES TO 34 HYDROAIR TECTONICS (PCD) LTD ARRIVE AT NET SALES FIGURE FOR ALL 5 ASSESSMENT YEA RS AT RS.610,29,18,093. FURTHER, THE LD.CIT(A) HAS ESTIMATED NET PROFIT OF 30% ON THE REVISED SALES TURNOVER OF EACH YEAR AND CONFIRMED ADDITION TO THE EXTENT OF RS.69.97 CRORES. THE ASSESSEE, AS WELL AS THE REVENUE CHALLENGED THE FINDINGS OF THE LD.CIT(A) OF EXCLUSION OF 75% OF BOGUS SALES ON ADHOC BASIS. NE ITHER OF THE PARTY IS DISPUTED REJECTION OF BOOKS OF ACCOUNT. 17. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT WHEN THE SEIZED MATERIAL FOUND DURING THE COURSE OF SEARCH, WHICH CONTAINED YEAR-WISE DATA RELATED TO ACCOMMODATION ENTRIES OF PURCHASE AND SALES, THE LD .CIT(A) OUGHT TO HAVE ACCEPTED EXCLUSION OF BOGUS PURCHASES AND BOGUS SAL ES MADE BY THE ASSESSEE IN THE REVISED RETURN FILED PURSUANT TO SEARCH COND UCTED U/S 132 OF THE ACT. THE LD.AR FURTHER SUBMITTED THAT THE REVENUE IS NOT DISPUTING THE FACT THAT THE SAID DOCUMENT FOUND DURING THE COURSE OF SEARCH MAR KED AS ANNEXURE A1 CONTAINED BOGUS PURCHASES AND BOGUS SALES FOR FYS 2 006-07 TO 2010-11. THE TOTAL PURCHASES FOR 5 YEARS IS AT RS.81.41 CRORES A ND TOTAL SALES FOR THE ABOVE 5 YEARS IS AT RS.21.02 CRORES AND AS A RESULT OF WHIC H THE NET BOGUS PURCHASES FOR THE ABOVE 5 YEARS IS AT RS.60.39 CRORES. THE LD.AR FURTHER SUBMITTED THAT IT MAY BE NOTED THAT SUCH ADMISSION MADE WAS NOT ONLY IN RESPECT OF BOGUS PURCHASES, BUT ALSO IN RESPECT OF BOGUS SALES. IT IS FURTHER SUBMITTED THAT THE ASSESSEE HAS BOOKED TWO TYPES OF BOGUS PURCHASES AN D SALES. THE FIRST TYPE 35 HYDROAIR TECTONICS (PCD) LTD WAS ACCOMMODATION BILLS WHICH WERE PROCURED FROM BO GUS PARTIES THROUGH AGENTS, LIKE SHRI KISHORE JAIN, ETC. IT WAS CONFES SED BY THE ASSESSEE THAT SUCH ACCOMMODATION BILLS WERE OBTAINED IN ORDER TO GENER ATE CASH, WHICH, IN TURN WAS PAID AS KICKBACK TO SEVERAL PERSONS FOR PROCURI NG ORDERS AND CONTRACTS. THE SECOND TYPE WAS MERE FICTITIOUS ENTRIES OF PURC HASES AND SALES RECORDED IN THE BOOKS OF ACCOUNT HAVING NO CORRESPONDING BANKIN G TRANSACTIONS AT ALL. IT WAS DONE TO GET BANK FINANCE AND FOREIGN EQUITY. T HE ASSESSEE FURTHER SUBMITTED THAT THE LD.AO HAS MADE ADDITION OF BOGUS SALES IN ALL FIVE YEARS, WHICH RESULTED IN ASTRONOMICAL AMOUNT AGGREGATING T O RS.862.58 CRORES OVER A PERIOD OF 5 YEARS. HAD IT BEEN GENUINE SALES, THEN IT WOULD HAVE BEEN REFLECTED IN THE FORM OF SOME ASSETS IN THE HANDS OF ASSESSEE . HOWEVER, THE FACT IS THAT THE NET WORTH OF THE ASSESSEE HAS BECOME NEGATIVE I MMEDIATELY AFTER REVERSAL OF THE BOGUS PURCHASES AND SALES ENTRIES DURING FI NANCIAL YEAR 2010-11 AS PER WHICH, THE NET WORTH OF THE ASSESSEE AS ON 31-03-20 10 IS AT (- RS.225,16,90,041). THE LD.AR FURTHER SUBMITTED THA T IT IS NOT THE CASE OF THE LOWER AUTHORITIES THAT THE SEARCH PARTY UNEARTHED H UGE UNACCOUNTED INCOME IN FORM OF MONEY, BULLION, JEWELLERY OR ANY OTHER VALU ABLE ASSETS. IN FACT, NOTHING HAS BEEN POINTED OUT DURING THE COURSE OF SEARCH EX CEPT CERTAIN LOOSE SLIPS ON THE BASIS OF WHICH THE ASSESSEE HAS GIVEN DECLARATI ON OF ADDITIONAL UNDISCLOSED INCOME OF RS.60.39 CRORES. THERE IS NO ALLEGATION OF THE AO THAT THE ASSESSEE 36 HYDROAIR TECTONICS (PCD) LTD OR ITS RELATED PARTY OWNS ANY ASSETS WHICH HAS NOT BEEN DISCLOSED TO THE DEPARTMENT. ALSO THERE IS NO ALLEGATION THAT THE M ONEY REPRESENTED OF BOGUS SALES HAS BEEN SIPHONED OFF FROM THE COMPANY AND IN VESTED SOMEWHERE IN THE FORM OF UNDISCLOSED ASSETS. NOT AN IOTA OF EVIDENC E IS FOUND DURING THE COURSE OF SEARCH WHICH CAN INDICATE THAT THE ASSESSEE OR A NY OF ITS RELATED PARTY HAS AMASSED ANY WEALTH WHETHER IN THE BOOKS OR OUTSIDE THE BOOKS. 18. THE LD.AR FURTHER SUBMITTED THAT ANOTHER IMPORT ANT ASPECT WHICH IS WORTH CONSIDERING IS THAT THE ASSESSEE HAS AVAILED LOANS FROM SEVERAL BANKS IN CONSORTIUM FINANCE WITH VIJAYA BANK, AS THE LEAD BA NK. THE ASSESSEE HAS DEFAULTED IN REPAYING THE FINANCE AND THE AMOUNT DU E TO THE BANKS AS ON 01- 10-2011 WAS AT RS.196,36,13,596. THE BANKS HAVE FI LED SUIT AGAINST THE ASSESSEE AS ITS ACCOUNT BECOME NPA AND POSSESSION O F SEVERAL ASSETS OF THE ASSESSEE AS WELL AS THE GUARANTORS HAVE BEEN TAKEN BY THE BANK UNDER SARFARSI ACT, 2002. THE LD.AR FURTHER SUBMITTED THAT MAJORI TY OF THE BOGUS ENTRIES PASSED FOR THE IMPUGNED BOGUS PURCHASES AND SALES W ERE UNILATERAL ENTRIES PASSED BY THE ASSESSEE IN ITS BOOKS. THE CORRESPON DING DEBTORS AND CREDITORS RAISED ON ACCOUNT OF PASSING OF SUCH UNILATERAL ENT RIES WERE SQUARED UP AGAINST EACH BY PASSING JOURNAL ENTRIES IN THE BOOKS. THUS , SUCH ENTRY BOOKED IN THE BOOKS OF THE ASSESSEE WAS NOT HAVING ANY MONETARY I NVOLVEMENT TO THAT EXTENT. NEITHER MONEY WAS RECEIVED BY THE ASSESSEE AGAINST SUCH SALES NOR 37 HYDROAIR TECTONICS (PCD) LTD WAS MONEY PAID BY THE ASSESSEE AGAINST THE CORRESPO NDING PURCHASES. THE AGGREGATE AMOUNT OF SUCH ENTRIES IS APPROXIMATELY R S.666.76 CRORES. FURTHER, IT WAS SUBMITTED THAT DURING THE COURSE OF REMAND P ROCEEDINGS, THE LD.AO MADE ENQUIRIES WITH THE PARTIES IN WHOSE ACCOUNT TH E ASSESSEE HAD BOOKED BOGUS SALES. IT MAY BE NOTED THAT A DIFFERENCE OF RS.145.07 CRORES HAS BEEN FOUND ONLY FROM VERIFICATION OF 12 PARTIES. THE BA LANCE OF ABOUT 56 PARTIES WERE YET TO BE VERIFIED AS ON THE DATE OF ISSUE OF REMAND REPORT EITHER BECAUSE THEY DID NOT REPLY OR BECAUSE THE NOTICES WERE RETU RNED BACK. THE LD.AR FURTHER SUBMITTED THAT ONE MORE IMPORTANT ASPECT OF THE CASE WHICH THROW LIGHT ON THE ISSUE IS SUBSEQUENT BUSINESS TURNOVER OF THE ASSESSSEE. THE ASSESSEES BUSINESS TURNOVER IN SUBSEQUENT FINANCIA L YEAR HAS DRASTICALLY REDUCED WHICH CLEARLY INDICATES THAT THE ASSESSEE W AS INFLATING ITS PURCHASES AS WELL AS SALES IN ORDER TO SHOW HUGE TURNOVER TO BE QUALIFIED FOR PARTICIPATING IN BIDS AS WELL AS FOR GETTING MORE FINANCES FROM THE BANK. THE LD.AR HAS EXTENSIVELY ARGUED THE ISSUE AND ALSO COUNTERED THE ARGUMENTS OF LD.DR TO STATE THAT THERE IS NO MONETARY CONSIDERATION INVOL VED EXCEPT TO THE EXTENT OF RS.32.69 CRORES, WHICH CONSTITUTE 3.79% OF TOTAL BO GUS SALES. THEREFORE, THERE IS NO REASON TO RETAIN EXCLUSION OF BOGUS PURCHASES AS WELL AS BOGUS SALES. THE LD. AR ALSO ARGUED THE CASE IN LIGHT OF PROVISIONS OF SECTION 153A AND SUBMITTED THAT IT DOES NOT AMOUNT TO FRESH CLAIM IN RETURN FI LED U/S 153A. THE LD.AR 38 HYDROAIR TECTONICS (PCD) LTD FURTHER SUBMITTED THAT IN CASE OF ABATED ASSESSMENT S, THE ASSESSEE CAN VERY WELL MAKE A CLAIM WHICH WAS NOT MADE IN ORIGINAL RE TURN FILED U/S 139(1). THIS IS VERY CLEAR FROM THE PROVISIONS OF THE ACT ITSELF . IN CASE OF UNABATED ASSESSMENTS, THE ASSESSEE CAN MAKE A CLAIM IF SUCH CLAIM IS BASED ON ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. IN THIS CASE, THE ASSESSEE HAS EXCLUDED SALES AS WELL AS PURCHASES ON THE BASI S OF MATERIAL FOUND DURING THE COURSE OF SEARCH. THEREFORE, THIS CANNOT BE CO NSIDERED AS FRESH CLAIM AND ALSO SUPPORTED BY THE CASE LAW RELIED UPON BY THE L D.DR IN CASE OF JAYESH STEEL (INDIA) JODHPUR VS ACIT 259 ITR 251 (JODH). 19. AS REGARDS ESTIMATION OF PROFIT OF 30%, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE AO HAS MADE EXORBITANT ESTIMATIO N WITHOUT THERE BEING ANY COMPARABLE CASES OF SIMILAR LINE OF BUSINESS SO AS TO PROVE THAT THE ASSESSEE IS HAVING 30% NET PROFIT IN THIS KIND OF B USINESS. THE LD.AR REFERRING TO PLETHORA OF JUDGEMENTS SUBMITTED THAT WHILE MAKI NG BEST JUDGEMENT ASSESSMENT AFTER REJECTION OF BOOKS OF ACCOUNT, THE AO HAS TO MAKE A REASONABLE ESTIMATE HAVING REGARD TO THE FACTS OF E ACH CASE AND SUCH ESTIMATION MADE BY THE AO SHOULD NOT BE EXORBITANT. IN THIS REGARD, HE RELIED UPON VARIOUS JUDICIAL PRECEDENTS AND ARGUED THAT IN THIS KIND OF BUSINESS, THE PROFIT ELEMENT IS ONLY 2% TO 3% AND IN FACT THE ASS ESSEE NEVER EARNED MORE 39 HYDROAIR TECTONICS (PCD) LTD THAN 6% PROFIT IN ANY OF THE YEARS, THEREFORE, ESTI MATING PROFIT OF 30% IS HIGHLY INCORRECT. THE RELEVANT PART OF SUBMISSIONS OF THE ASSESSEE IS EXTRACTED BELOW:- 3.34 THE LEARNED ASSESSING OFFICER HAS RAISED S EVERAL ISSUES IN HIS ASSESSMENT ORDER AS WELL AS REMAND REPORT WITH REGARD TO THE DENIAL OF REVERSAL OF BOGUS SALES. EACH OF THE CONTENTIONS RAISED BY THE AO AND THE APPELLANT'S CO UNTER-ARGUMENTS WITH REGARD TO IT HAVE BEEN DEALT WITH IN THE FOLLOWING PARAGRAPHS. 3.35 RECEIPT OF MONEY: THE FIRST ISSUE RAISED BY THE LEARNED ASSESSING OF FICER IS THAT THE APPELLANT HAS ALREADY RECEIVED MONEY FROM THE C ONCERNED DEBTORS. THE LEARNED ASSESSING OFFICER HAS RELIED UPON WRONG FACTS. THE APPELLANT HAS SUBMITTED THE VOLUMINOUS DETAILS OF BOGUS SALES WHICH CONTAIN THE INFORMATION REGARDING HOW THE BOGUS SALES BOOKED WERE REVERSED SUBSEQUENTLY IT CAN BE N OTICES THAT OUT OF BOGUS SALES BOOKED AMOUNTING TO ? 862.57 CRORES, THE APPELLANT HAS RECEIVED MONEY ONLY TO THE EXTENT OF ? 32.69 CRORES WHICH CONSTITUTES 3.79% OF TOTAL BOGUS SALES ONLY. MAJORITY OF THE BOGUS SALES WERE REVERSED AGAINST THE BOGUS PURCHAS ES BOOKED. THEREFORE, THE ASSESSING OFFICER HAS WRONGLY ALLEGED THAT THE APPE LLANT HAS RECEIVED ENTIRE MONEY REPRESENTING BOGUS SALES OF RS. 862.57 CRORES. 3.36 RAISINQ OF SHARE CAPITAL AND PLOUGHING BACK MONEY - BALAJI FIBRE RE-INFORCE PVT. LTD.: THE ASSESSING OFFICER HAS ATTEMPTED TO ALLEGE PLOU GHING BACK OF MONEY IN THE FORM OF SHARE CAPITAL. HOWEVER, HE HAS NOT BEEN ABLE TO SUPPORT HIS CONTENTION ON THE BASIS OF ANY EVIDENCES. HE HAS REFERRED TO THE TRANSACTION W ITH M/S. BALAJI RE-INFORCE PVT. LTD. THE FACTS REGARDING THE SAID TRANSACTION IS THAT THE AP PELLANT HAD BOOKED BOGUS PURCHASES OF 20,90,79,045 IN THE LEDGER OF M/S. BALAJI FIBER R EINFORCE PVT. LTD. DURING A.Y, 2010-11 WITHOUT BRINGING IT TO THE KNOWLEDGE OF THAT PARTY. IN FACT, THE SAME AMOUNT WAS BOOKED AS BOGUS PURCHASES IN TWO OTHER PARTIES ALSO NAMELY M/ S. ANKITA ENTERPRISES & M/S. PAVITRA INFRASTRUCTURE IN ORDER TO NULLIFY THE BOGUS LIABIL ITIES STANDING TO THE CREDIT OF AFORESAID THREE PARTIES AGGREGATING TO ? 62,72,35,875, THE AP PELLANT ALLOTTED ITS EQUITY SHARES AS ON 31.3.2010 AND SQUARED UP THE OUTSTANDING LIABILITIE S. THE DETAILS OF EQUITY SHARES SHOWN TO HAVE BEEN ALLOTTED BY HTPL TO THE AFORESAID THRE E PARTIES ARE AS FOLLOWS: NAME OF PARTY NO.OF EQUITY SHARES ALLOTTED FACE VALUE PER EQUITY SHARE PREMIUM PER EQUITY SHARE ISSUE PRICE PER EQUITY SHARE TOTAL AMOUNT (INCLUDING PREMIUM) ANKITA ENTERPRISES 6,63,741 10 305 315 20,90,78,415 PAVITRA INFRASTRUCTURE 6,63,741 10 305 315 20,90,78,415 BALAJI FIBER REINFORCE PVT LTD 6,63,741 10 305 315 20,90,78,415 3.37 HOWEVER, THE FACT WAS THAT THESE ENTRIES OF PURCHASES AND THEREAFTER ALLOTMENT OF SHARES AGAINST THE OUTSTANDING LIABILITIES WERE BOG US ENTRIES MADE UNILATERALLY BY THE APPELLANT. NONE OF THESE PARTIES INCLUDING M/S. BAL AJI FIBRE REINFORCE PVT. LTD. HAD SOLD ANY GOODS TO THE APPELLANT OR SUBSCRIBED TO THE EQU ITY SHARES OF THE APPELLANT SHOWN AS ABOVE. THESE FACTS HAVE BEEN CONFIRMED BY M/S. BALA JI FIBRE REINFORCE PVT. LTD. IN ITS REPLY TO NOTICE U/S. 133(6) VIDE LETTER DATED 14.2. 2013 AS STATED IN THE ASSESSMENT ORDER ITSELF. 3.38 HOWSOEVER FICTITIOUS IT WAS BUT AS A RESULT OF THE ABOVE, THE AFORESAID THREE PARTIES, WHICH WERE OUTSIDERS, BECAME ENTITLED TO 19,91,225 EQUITY SHARES OF THE APPELLANT, AT LEAST AS PER RECORDS, WHICH CONSTITUTED ABOUT 11.44 % OF TOTAL EQUITY SHARES AS ON 31.3.2010 (I.E. 1,74,03,188 EQUITY SHARES). IN ORDE R TO ENSURE THAT THOSE PARTIES DO NOT CLAIM OWNERSHIP OF SUCH SHARES, THE APPELLANT IMMED IATELY THEREAFTER SHOWED THAT THOSE 19,91,225 EQUITY SHARES WERE TRANSFERRED BY ALL THR EE PARTIES TO THE HYDROAIR ENVIROTECH 40 HYDROAIR TECTONICS (PCD) LTD PVT. LTD. AS ON 24.5.2010. THEREAFTER, IN THE IMMED IATE SUBSEQUENT FINANCIAL YEAR I.E. F.Y. 2010-11, THE APPELLANT REVERSED THE FICTITIOUS SHAR E CAPITAL AND SHARE PREMIUM AGGREGATING TO ? 62,72,35,875 IN ITS BOOKS OF ACCOU NTS. 3.39 THE ABOVE STATED FACTS CLEARLY INDICATE THE RE WAS NO MONETARY INVOLVEMENT BETWEEN ANY OF THE PARTIES I.E. APPELLANT AND M/S. BALAJI FIBRE REINFORCE PVT. LTD. IN SPITE OF THIS, THE LEARNED ASSESSING OFFICER HAS DRAWN A WRONG INFERENCE BY STATING THAT 'IT IS VERY CLEAR THAT THE ASSESSEE UNDER THE DIRECTIONS O F THE CHAIRMAN HAD CARRIED OUT ALL THESE FINANCIAL TRANSACTIONS. SO IT IS CLEAR THAT T HE ASSESSEE'S CLAIM THAT THERE IS NO FINANCIAL TRANSACTION IS DEVOID OF MERIT.....' 3.40 NON-SUBMISSIUN OF DETAILS: IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS STATED THAT THE APPELLANT HAS NOT SUBMITTED ANY CHA RT SHOWING YEAR-WISE BREAKUP OF AMOUNT OF BOGUS PURCHASES AND FICTITIOUS SALES WITH AMOUNT RECEIVED IN CASH, AMOUNT PAID IN CASH, AMOUNT RECEIVED BY CHEQUE, AMOUNT PAI D BY CHEQUE, HOW THE LEDGER ACCOUNTS OF THESE BOGUS PARTIES ARE SPREAD OVER YEA R-WISE. HOWEVER, VOLUMINOUS DETAILS OF BOGUS SALES WERE SUBMITTED BEFORE THE CIT (A) WH ICH CONTAIN ALL OF THE REQUIRED DETAILS. THE REMAND REPORT WAS ALSO CALLED FROM THE AO IN TH IS REGARD. THEREFORE, THIS CONTENTION OF LEARNED ASSESSING OFFICER IS NO MORE RELEVANT. 3.41 FINANCIAL INVOLVEMENT OF MORE THAN RS. 193 CRORES: THE LEARNED ASSESSING OFFICER HAS MADE SOME CALCULATION IN HIS ASSESSMENT ORDER S HOWING THAT FINANCIAL TRANSACTIONS TO THE TUNE OF ? 193,11,35,928 OUT OF BOGUS SALES OF ? 862.57 CRORES. HOWEVER, THERE WAS NO MONETARY MOVEMENT WITH RESPECT TO BOGUS SALES EX CEPT FOR RECEIPT OF ? 32.69 CRORES AS STATED IN PARA 3.35 ABOVE. THE ASSESSING OFFICER HAS FAILED IN CONSIDERING THE DETAILS IN TOTALITY E.G. THE CREDITORS ADJUSTED THROUGH SHA RES CAPITAL & PREMIUM AMOUNTING TO ? 62,72,35,875 AS STATED ABOVE IN PARA 3.38 ABOVE, TH E CREDITORS ADJUSTED THROUGH CAPITAL RESERVE AMOUNTING TO ? 10,57,95,666. THE CREDITORS REVERSED DUE TO RECORDING PURCHASE RETURNS AMOUNTING TO ? 1,25,00,000, THE CREDITORS R EVERSED AGAINST GENERAL RESERVES AMOUNTING TO RS.9,44,90,819 ETC. IT IS BEYOND ANY D OUBT THAT NO SUCH MONETARY TRANSACTIONS HAVING MAGNITUDE OF 1193 CRORES HAVE B EEN ROUTED THROUGH THE APPELLANT'S BOOKS OF ACCOUNTS. DOES IT TANTAMOUNT TO THE FRESH CLAIM IN THE RETURN FILE D U/S. 153A? 3.42 THE REVENUE IS CHALLENGING THE CIT (A)'S OR DER ON THE GROUND THAT HE HAS ENTERTAINED THE CLAIM OF THE ASSESSEE OF BOGUS SALE S WITHOUT APPRECIATING THAT THE ASSESSEE CANNOT MAKE THE FRESH CLAIM IN THE RETURN FILED IN RESPONSE TO NOTICE U/S. 153A. FOR THIS PURPOSE, RELIANCE IS PLACED ON JAI STEEL ( INDIA) JODHPUR VS. ACIT 259 ITR 281. 3.43 THE ASSESSEE SUBMITS THAT THIS CANNOT BE VI EWED AS FRESH CLAIM DUE TO FOLLOWING REASONS: (I). THE PAPER FOUND DURING THE COURSE OF SEAR CH SHOWED NOT ONLY BOOKING OF ACCOMMODATION ENTRIES IN RELATION TO PURCHASES BUT ALSO IN RELATION TO SALES. (II). THE ADMISSION OF THE ASSESSEE IN THE STA TEMENT WAS NOT REGARDING BOGUS PURCHASES BUT ALSO REGARDING BOGUS SALES. (III). IT WAS ONLY THE EXCESS OF BOGUS PURCHASE S OVER BOGUS SALES WAS OFFERED TO TAX WHICH IS THE BASIS FOR MAKING THE ADDITIONS. (IV). WHAT WAS FOUND AS A RESULT OF SEARCH WAS T HAT THE ASSESSEE INDULGED ITSELF INTO BOOKING OF BOGUS PURCHASES AND SALES BOTH. (V). THEREFORE, ONLY THE NET IMPACT THEREOF IS REQUIRED TO BE CONSIDERED WHILE MAKING THE ASSESSMENT U/S. 153A SUBJECT TO THE CONDITION THAT IT DOES NOT RESULT INTO REDUCTION OF INCOME OTHERWISE DECLARED IN A RETURN FILED U/S. 139(1). (VI). THE DECISION RELIED UPON BY THE REVENUE IN THE CASE OF JAI STEEL (INDIA), JODHPUR IS WITH RESPECT TO DIFFERENT FACTS AS IN THAT CASE THE ASSESSEE SOUGHT TO CLAIM DEDUCTION OF A PARTICULAR ITEM FOR THE FIRST TIME IN A RETURN FILED U/S. 153A. 3.44 WHEN THE ASSESSEE CLAIMS A DEDUCTION, EXEMP TION OR ANY SUCH RELIEF IN THE RETURN FILED U/S. 153A WHICH WAS NOT CLAIMED IN THE RETURN FILED U/S. 139, IT CAN BE CONSIDERED AS A 'FRESH CLAIM' MADE BY THE ASSESSEE. HOWEVER, IN T HE PRESENT CASE, THE QUESTION IS OF DETERMINATION OF THE CORRECT AMOUNT OF INCOME TAKIN G INTO ACCOUNT THE FACT THAT SEVERAL BOGUS / FICTITIOUS ENTRIES HAVE BEEN RECORDED IN TH E BOOKS OF THE ASSESSEE. THE ASSESSEE DID NOT SEEK THE REDUCTION IN ITS INCOME WHICH IT H AS ALREADY DECLARED IN THE RETURN FILED U/S. 139 BY MAKING ANY FRESH CLAIM. WHAT HAS BEEN C LAIMED BY THE ASSESSEE IS TO 41 HYDROAIR TECTONICS (PCD) LTD RECONSIDER ITS SALES AND PURCHASES WHILE DETERMININ G ITS INCOME SUBJECT TO THE CONDITION THAT INCOME FINALLY DETERMINED SHOULD NOT BE LESS T HAN WHAT HAS BEEN ALREADY OFFERED. PERCENTAGE OF BOGUS SALES TO BE RETAINED AND PERCEN TAGE OF PROFITS TO BE ESTIMATED 3.45 THE CIT (A) HAS RETAINED 25% OF BOGUS SALES IN ORDER TO COVER UP SEVERAL DEFICIENCIES NOTICED BY HIM IN THE DETAILS FURNISHE D TO HIM. IT MEANS THAT, OUT OF TOTAL BOGUS SALES OF ? 862.57 CRORE, SALES OF ? 215-64 CR ORE HAS BEEN RETAINED FOR THE PURPOSE OF ESTIMATING OF PROFITS THEREON. 3.46 ONE OF THE IMPORTANT REASONS MENTIONED BY T HE CIT (A) FOR RETAINING 25% OF THESE SALES IS THAT THE ASSESSEE HAS RECEIVED PAYMENTS AG GREGATING TO ? 32,69,34,601 AGAINST THEM AS MENTIONED IN THE DETAILED WORKING SUBMITTED BY THE ASSSESSEE. AS AGAINST THE RECEIPTS OF ? 32.69 CRORE, THE SALES OF ? 215.64 HA S BEEN RETAINED WHICH IS NOT JUSTIFIED. THERE ARE FEW OTHER DISCREPANCIES WHICH HAVE ALSO B EEN NOTED BY THE CIT (A) BUT THEY ARE NOT HAVING ANY ECONOMIC IMPACT. 3.47 IN VIEW OF THIS, TO COVER UP THE AMOUNT ACT UALLY RECEIVED AND SEVERAL OTHER DISCREPANCIES, YOUR HONOUR MAY DIRECT TO RETAIN 5% TO 10% OF THE AGGREGATE BOGUS SALES AMOUNTING TO ? 862.57 CRORE. 3.48 REGARDING THE ESTIMATION OF PROFITS @ 30%, THE ASSESSEE SUBMITS THAT IT IS TOO HIGH AS COMPARED TO WHAT HAS BEEN EARNED BY THE ASSESSEE IN THE EARLIER AND SUBSEQUENT YEARS. THE COMPARATIVE POSITION OF TURNOVERS AND PR OFITABILITY IN EARLIER YEARS, YEARS UNDER CONSIDERATION AND SUBSEQUENT YEARS IS GIVEN IN ANNE XURE 4 TO THE SYNOPSIS. 3.49 THE COURTS HAVE LAID DOWN VARIOUS PRINCIPLE S WITH REGARD TO MAKING OF BEST JUDGMENT ASSESSMENT AFTER REJECTION OF BOOKS OF ACC OUNTS. SUCH BEST JUDGMENT ASSESSMENT CANNOT BE MADE DISREGARDING THE MATERIAL S AVAILABLE ON RECORD. AS EMPHASIZED BY THE SUPREME COURT IN STATE OF KERALA VS. C. VELUKUTTY (1966) 60 ITR 239 (SC) THOUGH THERE IS AN ELEMENT OF GUESS-WORK IN BE ST JUDGMENT ASSESSMENT, IT SHOULD NOT BE A WILD ONE AND SHOULD HAVE A REASONABLE NEXU S TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF EACH CASE. LIKEWISE, IT HAS BEEN L AID DOWN BY THE SUPREME COURT IN THE CASE OF STATE OF ORISSA VS. MAHARAJA SHRI B.P. SING H DEO (1970) 76 ITR 690 (SC) : TC11R.251 THAT 'THE MERE FACT THAT THE MATERIAL PLA CED BY THE ASSESSEE BEFORE THE ASSESSING AUTHORITIES IS UNRELIABLE DOES NOT EMPOWE R THOSE AUTHORITIES TO MAKE AN ARBITRARY ORDER. THE POWER TO LEVY ASSESSMENT ON TH E BASIS OF BEST JUDGMENT IS NOT AN ARBITRARY POWER; IT IS AN ASSESSMENT ON THE BASIS O F BEST JUDGMENT. IN OTHER WORDS, THAT ASSESSMENT MUST BE BASED ON SOME RELEVANT MATERIAL. IT IS NOT A POWER THAT CAN BE EXERCISED UNDER THE SWEET WILL AND PLEASURE OF THE CONCERNED AUTHORITIES.' 3.50 IN BRIJ BHUSAN LAL PARDUMAN KUMAR VS. CIT ( 1962) 46 ITR 262 (ASSAM) : TC11R.266 THE SUPREME COURT ONCE AGAIN OBSERVED THA T EVEN THOUGH ARBITRARINESS CANNOT BE AVOIDED IN A BEST JUDGMENT ASSESSMENT, TH E SAME MUST NOT BE CAPRICIOUS BUT SHOULD HAVE A REASONABLE NEXUS TO THE AVAILABLE MAT ERIAL. 3.51 IN S.M. HASSAN VS. NEW GRAMAPHONE HOUSE AI R 1977 SC 1788, THE SUPREME COURT OPINED THAT AN ASSESSING AUTHORITY WHILE MAKI NG A BEST JUDGMENT ASSESSMENT, INSTEAD OF LAUNCHING UPON PURE PREMISES, SHOULD MAK E AN INTELLIGENT WELL-GROUNDED ESTIMATE. WHERE, THEREFORE, IT IS NOT POSSIBLE TO D ISCOVER ANY BASIS, RATIONAL OR OTHERWISE, FROM THE ORDER OF THE ASSESSING AUTHORITY, THE ESTI MATE MADE CANNOT BE ANYTHING BUT ARBITRARY, AND, SO, CANNOT BE SUSTAINED. 3.52 IN THE CASE OF CIT VS. INANI MARBLES (P) LT D. 316 ITR 125, RAJASTHAN HIGH COURT HELD THAT THE AUTHORITIES DO NOT GET UNFETTERED POW ERS TO APPLY ANY GP RATE OF THEIR CHOICE. IN ABSENCE OF ANY CHANGE IN FACTUAL POSITION, PROFI T RATE DECLARED AND ACCEPTED IN PRECEDING YEARS CONSTITUTED A GOOD BASIS FOR WORKIN G OUT GROSS PROFIT RATE. 3.53 ONCE THE BOOKS OF ACCOUNT OF ASSESSEE ARE R EJECTED, THEN, PROFIT HAS TO BE ESTIMATED ON THE BASIS OF PROPER MATERIAL AVAILABLE . AN ASSESSING OFFICER IS NOT FLATTERED BY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, AND H E IS ENTITLED TO ACT ON MATERIAL WHICH MAY NOT BE ACCEPTED AS EVIDENCE IN COURT OF LAW. NE VERTHLESS, THE AO IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITH REFER ENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. THERE MUST BE SOMETHING MORE THAN MERE SUSPICION TO SUPPORT AN ASSESSMENT UNDER SECTION 143(3) OF THE ACT. THE RUL E OF LAW ON THIS SUBJECT HAS BEEN FAIRLY AND RIGHTLY STATED BY THE LAHORE HIGH COURT IN THE CASE OF SHETH GURMUKH SINGH V/S. 42 HYDROAIR TECTONICS (PCD) LTD CIT (1944) 12 ITR 393 AND THE SUPREME COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD., V/S. CIT (1954) 26 ITR 775. 3.54 THE ESTIMATE OF TURNOVER AND FIXATION OF GR OSS PROFIT RATE ARE TWO IMPORTANT PARAMETERS WHICH AFFECT THE ASSESSMENT. IF THESE AR E FIXED OR CALCULATED IN SUCH A WAY THAT THEY ADVERSELY AFFECT THE ASSESSEE'S CASE, THE N HE IS ENTITLED TO KNOW THE BASIS AND TO BE GIVEN AN OPPORTUNITY TO REBUT THE SAME. THE R ULE OF LAW ON THIS SUBJECT HAS BEEN WELL SETTLED THAT ESTIMATES FRAMED WITHOUT GIVING T HE BASIS FOR THEIR FIXATION OR WITHOUT FURNISHING TO THE ASSESSEE THE MATERIAL ON WHICH TH E RATE OF GROSS PROFIT IS ARRIVED AT OR WITHOUT GIVING AN OPPORTUNITY TO THE ASSESSEE TO RE BUT IT ARE BAD. [DHAKESWARI COTTON MILLS LTD., V/S. CIT (1954) 26 ITR 775]. 3.55 THE RATE OF GROSS PROFIT IN A PARTICULAR YE AR DEPENDS ON MANY FACTORS NAMELY THE GENERAL MARKET CONDITIONS BASED ON DEMAND AND SUPPL Y POSITION, THE RISE OR FALL IN MARKET RATES, SPECIALLY ABRUPT ONES, THE CAPITAL POSITION VIZ-A-VIZ THE TURNOVER ACHEIVED AND MANY OTHERS. IT IS FOR THE ASSESSEE TO EXPLAIN THE FALL, IF SO HAPPENS AND TO SUBSTANTIATE THE REASONS. EVEN IF, THEREAFTER, THE ASSESSING OFFICER CONSIDERS THE MATERIAL PLACED BEFORE HIM BY THE ASSESSEE TO BE UNRELIABLE, KEEPING IN VI EW THE COMPARATIVE STATEMENT OF ACCOUNTS OF THE EARLIER YEARS, HE CANNOT PROCEED TO MAKE AN ARBITRARY ADDITION AND BASE HIS CONCLUSION PURELY ON GUESS WORK. HE CAN DO SO O NLY IF HE RELATES TO SOME EVIDENCE OR MATERIAL ON THE RECORD. THE COURTS HAVE HELD THAT I F THE PROFIT SHOWN BY THE ASSESSEE IN HIS RETURN IS NOT ACCEPTED, IT IS FOR THE TAXING AU THORITIES TO PROVE THAT THE ASSESSEE MADE MORE PROFITS. [INTERNATIONAL FOREST COMPANY V/S. CI T (1975) 101 ITR 721 (J & K)]. 3.56 IN VIEW OF THE ABOVE, THE ASSESSEE HUMBLY S UBMITS THAT THE PROFITS OF 30% IS TOO HIGH. THE ASSESSEE IS ENGAGED INTO UNDERTAKING PROJ ECTS OF EFFLUENT TREATMENT WHICH ARE MAINLY AWARDED BY THE GOVERNMENT AUTHORITIES. NOBOD Y CAN EARN THE PROFITS OF 30% AND THAT TOO NET PROFITS OF 30% FROM SUCH GOVERNMENT CO NTRACTS. SECTION 44AD {AS IT STOOD EARLIER) ITSELF HAD PROVIDED THE PROFIT RATE OF 8% FOR CIVIL CONSTRUCTION CONTRACTS. THE KIND OF CONTRACTS UNDERTAKEN BY THE ASSESSEE IS AKIN TO CIV IL CONSTRUCTION. CONSIDERING THE USAGE OF TECHNICAL EXPERTISE, THE PROFITABILITY CAN BE ES TIMATED TO BE LITTLE HIGHER THAN 8% BUT IT CAN NEVER BE 30%. 3.57 THE ANALYSIS OF PAST YEAR'S PROFITABILITY S HOWS THAT THE ASSESSEE NEVER EARNED MORE THAN 6%. IN THE SUBSEQUENT YEARS, THE ASSESSEE HAD INCURRED LOSSES. 3.58 CONSIDERING THE FACTS OF THE CASE, ADDITION AL PROFITS @ 2% TO 3% OF THE REVISED TURNOVER OF SALES (AFTER ALLOWING DUE RELIEF IN RES PECT OF BOGUS SALES) MAY BE ADDED TO THE TAXABLE INCOME OF THE ASSESSEE OVER AND ABOVE WHAT HAS ALREADY BEEN DECLARED. 20. THE LD.DR, ON THE OTHER HAND, VEHEMENTLY ARGUED THE ISSUE IN LIGHT OF PROVISIONS OF SECTION 153A AND SUBMITTED THAT THERE IS NO PROVISION IN THE ACT TO MAKE A FRESH CLAIM IN RETURN FILED U/S 153A. TH E SAID PROVISION IS ONLY FOR THE BENEFIT OF THE REVENUE, CONSEQUENT UPON A SEARCH. THEREFORE, THE LD.CIT(A) WAS ERRED IN EXCLUDING 75% OF BOGUS SALES. THE LD. DR FURTHER SUBMITTED THAT THE LD.CIT(A) HAS ADOPTED AN ADHOC METHOD TO EXCLUD E 75% OF ALLEGED BOGUS SALES WITHOUT THERE BEING ANY FINDING AS TO HOW THE REMAINING 25% IS BOGUS AND 75% IS GENUINE SALES TURNOVER MADE BY THE ASSES SEE. THE FACT THAT THE 43 HYDROAIR TECTONICS (PCD) LTD DIRECTOR OF THE COMPANY HAS ADMITTED BOOKING BOGUS PURCHASES AND BOGUS SALES IN THE BOOKS OF ACCOUNT SO AS TO SIPHON OFF M ONEY FROM THE BOOKS TO GIVE KICKBACKS TO VARIOUS PERSONS FOR OBTAINING CONTRACT S STANDS UNCONTROVERTED. IT IS ALSO ADMITTED FACT THAT THE DOCUMENT SEIZED DURI NG THE COURSE OF SEARCH CLEARLY INDICATED THAT THE ASSESSEE HAS BOOKED BOGU S SALES AND BOGUS PURCHASES AND THE NET RESULT OF WHICH IS EXCESS BOG US PURCHASES OF RS.60.39 CRORES AND THE SAME HAS BEEN ADMITTED AS UNDISCLOSE D INCOME. THESE FACTS HAVE BEEN UNEQUIVOCALLY ACCEPTED IN THEIR STATEMENT ON OATH DATED 29-01- 2011 AND 22-03-2011. THE LD.DR FURTHER REFERRING T O THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF JAYESH STEEL, J ODHPUR VS ACIT 36 TAXMANN.COM 323 SUBMITTED THAT THE HONBLE COURT CA TEGORICALLY HELD THAT IT IS NOT OPEN FOR THE ASSESSEE TO SEEK DEDUCTION OR EXPE NDITURE NOT CLAIMED IN ORIGINAL ASSESSMENT WHICH STANDS COMPLETED. THE LD .DR FURTHER REFERRING TO THE FINDINGS OF LD. CIT(A) IN EXCLUDING 75% OF THE BOGUS SALES, SUBMITTED THAT THERE IS NO SOUND RATIONALE BEHIND EXCLUSION OF SUC H BOGUS SALES AS THE VERIFICATION CARRIED OUT DURING THE REMAND PROCEEDI NGS CLEARLY INDICATE THAT ONLY FEW PARTIES HAVE ACCEPTED THE FACT THAT THEY H AVE NOT TRANSACTED WITH THE ASSESSEE AS AGAINST ONLY 17% OF TOTAL BOGUS SALES C LAIMED TO HAVE BOOKED BY THE ASSESSEE. THEREFORE, EXCLUDING 75% OF BOGUS SA LES IS HIGHLY INCORRECT AND WITHOUT ANY BASIS. THE ADDITION MADE BY THE AO ON ACCOUNT OF BOGUS 44 HYDROAIR TECTONICS (PCD) LTD PURCHASES IS ABSOLUTELY VALID IN LAW SINCE THE ASSE SSEE HAS FAILED TO ADDUCE EVIDENCE REGARDING THE GENUINENESS OF SUCH TRANSACT IONS. THE ASSESSEES ARGUMENT THAT NOT ENOUGH ACCOUNTED / UNACCOUNTED AS SETS WERE FOUND DURING SEARCH IS OUTSIDE THE ISSUE AT HAND SINCE THE ASSES SEE HAS FAILED TO EITHER DEMONSTRATE THE MODUS OPERANDI OF BOGUS SALES OR EV EN TO GET CONFIRMATION FROM PARTIES IN MOST OF THE CASES THAT THE SALES AR E INDEED BOGUS. MOREOVER, IT IS HIGHLY INCORRECT TO SAY THAT THE GOVERNMENT AGEN CIES WERE INDULGING IN OBTAINING ACCOMMODATION ENTRIES FROM THE ASSESSEE. THE LD.DR FURTHER SUBMITTED THAT THE ASSESSEE CANNOT DEBUNK THE ABOVE WORKING BASED ON THE AOS REPORT AS TO THE PARTY-WISE POSITION HAD REALLY CONFIRMED BOGUS SALES SINCE THE AO DILIGENTLY MADE THE ENQUIRIES BUT GOT LITTLE RESPONSE FROM THE PARTIES. THEREFORE, THE ASSESSEES STAND ON THIS ISSUE FALLS WAY SHORT OF MEETING THE REQUIREMENT OF PROOF. THE LD.CIT(A), WITHOUT APPRE CIATING THESE FACTS, SIMPLY EXCLUDED 75% OF BOGUS SALES WITHOUT GIVING ANY REAS ON AS TO HOW THE EXCLUSION WAS SUPPORTED BY ANY MATERIAL OR WHICH WAS BASED ON A SINGLE YARDSTICK FOR ARRIVING AT THE SAME. THEREFORE, HE SUBMITTED THAT THE ADDITION MADE BY THE AO TOWARDS BOGUS SALES NEEDS TO BE CONFIRMED. 21. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. WE HAVE ALSO CAREFULLY CONSIDERED VARIOUS CASE LAWS CITED BY THE ASSESSEE AND ALSO FEW CASES 45 HYDROAIR TECTONICS (PCD) LTD CITED BY THE LD.DR. FIRST OF ALL, WE ADMIT THAT DE TERMINATION OF TURNOVER AND ESTIMATION OF PROFIT UNDER THE FACT OF PRESENT CASE TOTALLY STAND IN A DIFFERENT FOOTING AND THIS CANNOT BE CONSIDERED AS AN ISSUE W HICH CAN BE COMPARED TO CERTAIN JUDGEMENTS RENDERED EITHER TO MAKE ESTIMATI ON OF PROFIT OR DETERMINATION OF TURNOVER FOR THE REASON THAT THE F ACTS OF THE PRESENT CASE IS UNIQUE WHERE THE ASSESSEE IS A HABITUAL OFFENDER OF FALSIFICATION OF ITS BOOKS OF ACCOUNT BY INFLATING PURCHASES AS WELL AS SALES TO WINDOW DRESS ITS ACCOUNTS FOR VARIOUS REASONS AS CLAIMED BY THE ASSESSEE, ITSELF. THEREFORE, EXCEPT FOR THE LIMITED PURPOSE OF CERTAIN DEGREE OF GUESS WORK IN ESTIMATING NET PROFIT, THE CASE LAWS RELIED UPON BY THE ASSESSEE AS WELL AS RE VENUE IN TOTAL NOT CONSIDERED WHILE ARRIVING AT A CONCLUSION IN THE SU BSEQUENT PARAGRAPHS. 22. HAVING SAID SO, LET US COME TO THE ISSUE IN QUE STION. THE BASIC PREMISES ON WHICH THE AO MADE HUGE ADDITION TOWARDS BOGUS SA LES IN ASSESSMENT FOR ALL THESE YEARS IS A DOCUMENT FOUND DURING THE COURSE O F SEARCH MARKED AS ANNEXURE A1 WHICH CONTAINED YEAR-WISE DATA OF ACCOM MODATION ENTRIES OF BOGUS PURCHASES AS WELL AS BOGUS SALES. DURING THE COURSE OF SEARCH, THE DETAILS HAVE BEEN WORKED OUT AS PER WHICH, THE NET RESULT OF EXCESS OF PURCHASES OVER BOGUS SALES IS AT RS.60.39 CRORES AN D THE SAME HAS BEEN ADMITTED AS UNDISCLOSED INCOME. TAKING A CLUE FROM THE ABOVE SAID DOCUMENT, THE ASSESSEE HAS RECASTS ITS BOOKS OF ACCOUNT BY EX CLUDING BOGUS PURCHASES AS 46 HYDROAIR TECTONICS (PCD) LTD WELL AS BOGUS SALES AND THE NET RESULT OF WHICH COM ES TO RS.91.19 CRORES. THE AO HAS IGNORED EXCLUSION OF BOGUS PURCHASES IN THE RETURN FILED U/S 153A OF THE ACT. HOWEVER, HE RETAINED BOGUS SALES EXCLUDED BY THE ASSESSEE IN THE RETURN FILED U/S 153A WHICH RESULTED IN HUGE ADDITION OF R S.862,57,89,204. THE AO HAS GIVEN VARIOUS REASONS TO COME TO THE CONCLUSION THAT THE CONDUCT OF THE ASSESSEE IN EXCLUDING BOGUS SALES IN RETURN FILED U /S 153A IS AN AFTERTHOUGHT TO CIRCUMVENT ADMISSION OF ADDITIONAL INCOME OF RS.60. 39 CRORES DURING THE COURSE OF SEARCH. THE ASSESSEE HAD GIVEN VARIOUS R EASONS TO ARGUE THAT WHEN DOCUMENT FOUND DURING THE COURSE OF SEARCH ITSELF C LEARLY SHOWED BOGUS PURCHASES AS WELL AS BOGUS SALES, THERE IS NO REASO N FOR THE AO TO IGNORE REVERSAL OF BOGUS PURCHASES AND CONSIDER REVERSAL O F BOGUS SALES TO MAKE SUCH A HUGE ADDITION. ACCORDING TO THE ASSESSEE, IT HAS BOOKED TWO TYPES OF BOGUS PURCHASES AS WELL AS BOGUS SALES, AS PER WHICH HARD LY ABOUT 10% OF BOGUS PURCHASES BOOKED BY OBTAINING ACCOMMODATION ENTRIES FROM ENTRY PROVIDERS. THE REMAINING 90% OF BOGUS PURCHASES AS WELL AS 100 % OF BOGUS SALES IS BOOKED IN BOOKS OF ACCOUNT BY PASSING UNILATERAL EN TRIES WITHOUT EVEN BRINGING THESE FACTS TO THE CONCERNED PARTIES SO AS TO INCRE ASE THE TURNOVER FOR TWO REASONS, I.E. FOR THE PURPOSE OF GETTING CONTRACTS AND ALSO FOR THE PURPOSE OF GETTING BETTER FINANCE FROM BANKS. THE ASSESSEE HA S ALSO TAKEN SUPPORT FROM THE VERIFICATION CONDUCTED BY THE AO DURING REMAND PROCEEDINGS, WHERE IT WAS 47 HYDROAIR TECTONICS (PCD) LTD PROVED THAT WHEN ENQUIRIES WERE CONDUCTED IN CASE O F 12 PARTIES, NONE OF THE PARTIES HAVE RESPONDED TO THE NOTICES ISSUED BY THE AO AND THE SUM TOTAL OF WHICH WORKED OUT TO ABOUT RS.145 CRORES. ALL THESE FACTS GO TO PROVE AN UNDOUBTED OR UNDISPUTED INFERENCE THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE CONTAIN BOGUS PURCHASES AS WELL AS BOGUS SALES. WH EN SUCH BEING THE CASE, IN ORDER TO CLEAN UP ITS BOOKS OF ACCOUNT AND TO ARRIV E AT TRUE PROFIT FOR THE PURPOSE OF TAXATION, THE ASSESSEE HAS ELIMINATED BO GUS PURCHASES AS WELL AS BOGUS SALES WHICH RESULTED IN REDUCTION OF INCOME D ECLARED IN THE ORIGINAL RETURN FILE U/S 139(1) TO THE TUNE OF RS.91.19 CROR ES. BUT SUCH FINANCIAL RESULTS ARE TRUE AND CORRECT WHICH ARE BASED ON RELEVANT MA TERIALS ON RECORD. HOWEVER, THE AO HAS PROCEEDED ON A WRONG PREMISE TH AT THE ASSESSEE HAS RECASTED ITS BOOKS OF ACCOUNT TO CIRCUMVENT ADDITIO NAL INCOME DISCLOSED DURING THE COURSE OF SEARCH. 23. THE LD.CIT(A) HAS RECORDED CATEGORICAL FINDING IN HIS ORDER THAT BOGUS PURCHASES ELIMINATED BY THE ASSESSEE CANNOT BE ACCE PTED BECAUSE THE ASSESSEE COULD NOT ADDUCE ANY EVIDENCE EXCEPT TAKI NG A CLUE FROM THE SEIZED DOCUMENT MARKED AS ANNEXURE A1 WHICH CONTAINED LIMI TED DATA OF BOGUS PURCHASES WHEREAS THE ASSESSEE HAS ELIMINATED HUGE BOGUS PURCHASES OF RAS.774.67 CRORES. INSOFAR AS ELIMINATION OF BOGUS SALES, THE LD.CIT(A) HAS ACCEPTED THE FACT THAT THERE APPEARS BOGUS SALES IN THE BOOKS OF ACCOUNT OF THE 48 HYDROAIR TECTONICS (PCD) LTD ASSESSEE BECAUSE, IF THE DISALLOWANCE OF BOGUS PURC HASES HAS BEEN INCORPORATED, THEN THE PROPORTION OF SALES TO PURCH ASES WOULD BE VERY HIGH AND UNREALISTIC. THE LD.CIT(A) HAS GIVEN DETAILS I N A TABULAR FORM FOR ALL 5 YEARS, AS PER WHICH, THE ASSESSEE HAS DECLARED TOTAL SALES AT RS.1,257 CRORES AS AGAINST GENUINE PURCHASES AT RS.222 CRORES (AFTER EXCLUDING BOGUS PURCHASES OF RS.774.67 CRORES). THIS LEADS TO AN UNREALISTIC FI GURE WHICH WOULD NOT BE POSSIBLE EXCEPT WHERE IT IS A MONOPOLISTIC BUSINESS WHICH IS NOT THE CASE OF THE ASSESSEE. THE LD.CIT(A) HAS RECORDED ANOTHER IMPOR TANT POINT SO AS TO REACH TO A CONCLUSION THAT THERE IS AN ELEMENT OF BOGUS S ALES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, AS PER WHICH, IT HAD TAKEN INTO AC COUNT INVESTIGATION CARRIED OUT BY THE AO DURING REMAND PROCEEDINGS BY ISSUING NOTICES U/S 133(6) WHERE NONE OF THE 12 PARTIES EITHER RESPONDED TO NOTICES OR FILED ANY DETAILS AND AMOUNT INVOLVED IN 12 CASES WHICH IS AT RS.145 CROR ES. THE LD.CIT(A) ALSO TOOK NOTE OF THE FACT THAT THE ASSESSEE, IN ORDER TO WIN DOW DRESS ITS ACCOUNTS BY PASSING JOURNAL ENTRIES BETWEEN SUNDRY CREDITORS AN D SUNDRY DEBTORS TO RETAIN ONLY PURCHASES AND SALES AS PER WHICH THERE IS NO E LEMENT OF MONETARY CONSIDERATION IS INVOLVED. HOWEVER, THE LD.CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT SALES TO THE EXTENT OF RS.862,.57 CRORES ELIMINATED BY THE ASSESSEE FROM ITS BOOKS OF ACCOUN T WHILE FILING RETURN OF INCOME FOR THE REASON THAT ALTHOUGH THERE IS A TRUT H IN THE CLAIM OF BOGUS SALES, 49 HYDROAIR TECTONICS (PCD) LTD BUT IT IS VERY DIFFICULT TO ASCERTAIN WHAT WOULD BE THE EXTENT OF BOGUS SALES, THEREFORE, BY ADOPTING VARIOUS PARAMETERS OF THE CA SE INCLUDING THE CONDUCT OF THE ASSESSEE SUBSEQUENT TO REVERSAL OF BOGUS PURCHA SES AS WELL AS BOGUS SALES, REVERSAL OF SUNDRY DEBTORS AND SUNDRY CREDITORS AND ALSO PASSING JOURNAL ENTRIES TO CREATE SHARE CAPITAL, THE ONLY BEST WAY TO DETERMINE THE TURNOVER AND PROFIT OF THE ASSESSEE BY MAKING SOME ADHOC EST IMATION. THE LD.CIT(A) HAS TAKEN SUPPORT FROM THE FACT THAT EVEN THE ASSES SEE COULD NOT FILE NECESSARY DETAILS TO RECONCILE EVERY PURCHASE AND SALES AND A LSO THE AO HAS CATEGORICALLY ACCEPTED THAT THIS EXERCISE COULD NOT BE DONE. THE REFORE, HE HAS REJECTED BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145(3) OF THE ACT AND ESTIMATED SALES TURNOVER BY RETAINING 25% OF BOGUS SALES ELIMINATED BY THE ASSESSEE FROM ITS BOOKS OF ACCOUNT, THEREBY RETAINING TOTAL SALE FOR ALL 5 YEARS @25% OF SALES DECLARED IN NORMAL RETURNS FILED U/S 139(1) AND THE REAFTER DETERMINED NET PROFIT OF THE BUSINESS BY ESTIMATING 30% PROFIT FRO M THE BUSINESS. WHILE DOING SO, THE LD.CIT(A) HAS TAKEN SUPPORT FROM THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF KANCHWALA GEMS VS CIT 288 ITR 10 (SC) WHERE THE HONBLE SUPREME COURT OBSERVED THAT IN A BEST JUDGEMENT ASS ESSMENT, THERE IS ALWAYS A CERTAIN DEGREE OF GUESS WORK. NO DOUBT, THE AUTH ORITIES CONCERNED SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF THE INCO ME EVEN IN A BEST JUDGEMENT ASSESSMENT AND SHOULD NOT GO TOTALLY ARBI TRARY, BUT THERE IS 50 HYDROAIR TECTONICS (PCD) LTD NECESSARILY SOME AMOUNT OF GUESS WORK INVOLVED IN A BEST JUDGEMENT ASSESSMENT AND IT IS THE ASSESSEE HIMSELF, WHO IS T O BLAME AS IT DID NOT SUBMIT PROPER ACCOUNT. IN THIS CASE, THERE IS NO DOUBT WI TH REGARD TO THE FACTS THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE FALSIFIED AND THE ASSESSEE CLAIMS TO HAVE PASSED UNILATERAL ENTRIES OF BOGUS PURCHASES, BOGUS SALES AND FICTITIOUS SHARE CAPITAL. THEREFORE, THE BOOKS OF ACCOUNT OF THE AS SESSEE COULD NOT BE RELIED UPON AT ALL, SO AS TO DETERMINE NET PROFIT FROM THE BUSINESS. UNDER THESE FACTS, THE ONLY POSSIBLE WAY OUT IS TO GO FOR BEST JUDGEME NT ASSESSMENT TO DETERMINE PROFIT FROM THE BUSINESS. IN THIS CASE, THE LD.CIT (A) HAS DONE THE SAME THING WHICH IS SUPPORTED BY THE DECISION OF THE HONBLE S UPREME COURT. ALTHOUGH THE BEST JUDGEMENT ASSESSMENT MADE BY THE LD.CIT(A) MIGHT HAVE SOME GUESS WORK, BUT UNDER THE FACTS OF PRESENT CASE, IT IS TH E ONLY WAY OUT TO DETERMINE THE PROFIT AND ACCORDINGLY, WE DO NOT FIND ANY ERRO R IN THE FINDINGS OF LD.CIT(A) IN ESTIMATING SALES TURNOVER. 24. INSOFAR AS DETERMINATION OF PROFIT, ALTHOUGH TH E ASSESSEE CLAIMS THAT THE PERCENTAGE OF PROFIT ADOPTED BY THE LD.CIT(A) IS AT HIGHER SIDE WHEN COMPARED TO THE NATURE OF BUSINESS, WE DO NOT FIND ANY MERIT S IN ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT IT APPEARS FROM THE FI NDINGS OF FACT RECORDED BY THE LD.CIT(A) THAT ALTHOUGH, THE LD. CIT(A) HAS ADO PTED LITTLE HIGHER NET PROFIT PERCENTAGE BUT, IT IS AGAIN BASED ON THE FACT THAT THE DIRECTOR OF THE ASSESSEE 51 HYDROAIR TECTONICS (PCD) LTD COMPANY HAS QUANTIFIED UNDISCLOSED INCOME OF RS.60. 39 CRORES ON THE BASIS OF SEIZED MATERIALS. THE LD.CIT(A), TAKING A CLUE FRO M THE ABOVE FACT, HAS ARRIVED AT A FAIR METHOD OF DETERMINATION OF TURNOVER AND T HEN APPLIED 30% PROFIT WHICH IS ALMOST EQUAL OR LITTLE HIGHER THAN THE AMO UNT OF UNDISCLOSED INCOME DECLARED BY THE ASSESSEE IN THE STATEMENT RECORDED U/S 132(4) OF THE ACT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NOTHING WRONG IN THE METHOD ADOPTED BY THE AO TO DETERMINE THE TURNOVER AND ALSO IN APPLYING 30% PROFITS FROM THE BUSINESS. EVEN BEFORE US, THE ASSESSEE, EXCEPT STATING THAT THE METHOD FOLLOWED BY THE LOWER AUTHORITIES I N DETERMINING THE TURNOVER IS NOT BASED ON ANY SCIENTIFIC METHOD OR ANY EVIDEN CE, AND ALSO THE PROFIT PERCENTAGE APPLIED BY THE AUTHORITIES IS ON HIGHER SIDE, FAILED TO DEMONSTRATE THAT HOW IT COULD ESTABLISH THE FACT OF BOOKING BOG US SALES TO THE EXTENT OF RS.862.57 CRORES, WHEN INVESTIGATION CARRIED OUT DU RING THE COURSE OF REMAND PROCEEDINGS DID NOT YIELD DESIRED RESULTS. FURTHER , WE ARE OF THE CONSIDERED VIEW THAT WHEN THE ASSESSEE IS A HABITUAL OFFENDER OF FALSIFICATION OF ITS BOOKS OF ACCOUNT BY BOOKING BOGUS PURCHASES AS WELL AS BO GUS SALES, SO AS TO SIPHON OFF THE MONEY FROM THE BUSINESS TO MAKE GRACIOUS PA YMENTS TO VARIOUS PERSONS FOR OBTAINING CONTRACTS, IT IS HIGHLY IMPOS SIBLE TO RELY UPON THE BOOKS OF ACCOUNT OF THE ASSESSEE AND PROFIT DECLARED IN I TS BOOKS OF ACCOUNT. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERRO R IN THE FINDINGS OF THE 52 HYDROAIR TECTONICS (PCD) LTD LD.CIT(A) IN DETERMINING TOTAL TURNOVER AS WELL AS ESTIMATION OF PROFIT AND HENCE, WE ARE INCLINED TO UPHOLD THE FINDING OF THE LD.CIT(A) AND REJECT ARGUMENTS OF ASSESSEE AS WELL AS THE REVENUE. 25. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FOR AY 2009-10 FROM REVENUE APPEAL IN ITA 3930/MUM/2017 IN CASE OF HYDR OAIR TECTONICS (PCD) LTD IS ADDITION OF CLOSING STOCK DIFFERENCE OF RS.60 CR ORES. THE ASSESSEE, WHILE FILING RETURN U/S 153A HAD CLAIMED THAT ITS CLOSING STOCK AS APPEARING IN P&L ACCOUNT WAS OVERVALUED OF RS.60 CRORES. THEREFORE, IT HAS CLAIMED REDUCTION TO THAT EXTENT. THE AO ADDED BACK THE AMOUNT OF RS.60 CROR ES AS THE ASSESSEE HAS NOT JUSTIFIED ITS CLAIM. THE LD.CIT(A) DELETED ADDITIO N MADE BY THE AO BECAUSE, HE HAD ESTIMATED PROFIT FROM THE BUSINESS BY REJECTING BOOKS OF ACCOUNT U/S 145(3) AND ONCE BOOKS OF ACCOUNT ARE REJECTED, THE VALUE OF CLOSING STOCK AS APPEARING IN THE BOOKS OF ACCOUNT IS OF NO RELEVANC E. 26. HAVING HEARD BOTH THE SIDES, WE FIND THAT THE V ERY PURPOSE OF REJECTING BOOKS OF ACCOUNT WAS THAT THEY WERE INCORRECT AND U NVERIFIABLE. HAVING CONSIDERED THE BOOKS AS UNRELIABLE, HOW COULD THE V ALUE OF STOCK RECORDED IN THE SAME BOOKS, BE RELIED TO COMPUTE THE INCOME. T HE LD.CIT(A), AFTER HAVING ESTIMATED PROFIT FROM THE BUSINESS IGNORED ADDITION MADE BY THE AO TOWARDS DIFFERENCE IN STOCK. THEREFORE, WE ARE OF THE CONS IDERED VIEW THAT THERE IS NO ERROR IN THE FINDING OF THE LD.CIT(A) IN DELETING A DDITION MADE BY THE AO 53 HYDROAIR TECTONICS (PCD) LTD TOWARDS DIFFERENCE IN VALUE OF CLOSING STOCK AS ONC E BOOKS OF ACCOUNT ARE REJECTED TO ESTIMATE PROFIT FROM BUSINESS ON THE BA SIS OF TURNOVER, THE VALUE OF STOCK AS APPEARING IN THE SAME BOOKS OF ACCOUNT HAS NO RELEVANCE IN COMPUTATION OF INCOME OF THE ASSESSEE. ACCORDINGLY , WE REJECT THE GROUND TAKEN BY THE REVENUE. 27. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITION OF RS.10 CRORES ON ACCOUNT OF REVALUATION OF OPENING AND CLO SING STOCK FOR AY 2010-11 IN ITA NO. 3931/MUM/2017. THIS ISSUE HAS BEEN RAISED I N THE REVENUES APPEAL IN THE CASE OF M/S HYDROAIR TECTONICS (PCD) LTD FOR AY 2010-11. IN ADDITION TO THE CLAIM OF THE ASSESSEE REGARDING VALUATION OF CLOSIN G STOCK FOR AY 2009-10, THE ASSESSEE MADE SIMILAR CLAIM OF OVER VALUATION OF CL OSING STOCK AS ON 31-03-2010 PERTAINING TO AY 2010-11. THE DIFFERENCE BETWEEN C LOSING STOCK AND OPENING STOCK HAS BEEN REDUCED FROM THE PROFIT WHILE FILING RETURN U/S 153A OF THE ACT. THE AO HAD REJECTED THE CLAIM OF THE ASSESSEE IN RE DUCING THE AMOUNT OF CLOSING STOCK. ACCORDINGLY, HE MADE ADDITION OF RS .10 CRORE. THE LD.CIT(A) HAS DELETED ADDITION BY HOLDING THAT WHEN BOOKS OF ACCO UNT ARE REJECTED FOR DETERMINING THE INCOME FROM THE BUSINESS ON THE BAS IS OF TURNOVER, THE VALUE OF STOCK AS APPEARING IN THE BOOKS OF ACCOUNT HAS NO RELEVANCE IN COMPUTATION OF INCOME. WE FIND THAT THE LD.CIT(A) HAS RIGHTLY APPRISED THE FACTS IN LIGHT OF FACTS OF PRESENT CASE, WHILE DELETING ADDITION MADE BY THE AO TOWARDS 54 HYDROAIR TECTONICS (PCD) LTD DIFFERENCE IN STOCK OF RS.10 CRORE AS THE INCOME FO R THE YEAR HAS BEEN DETERMINED ON THE BASIS OF TURNOVER. THEREFORE, AN Y OTHER EXPENSES INCLUDING VALUE OF CLOSING STOCK IS NOT AT ALL RELEVANT FOR T HE PURPOSE OF DETERMINATION OF INCOME. ACCORDINGLY, WE AFFIRM THE FINDINGS OF LD. CIT(A) AND REJECT GROUND RAISED BY THE REVENUE. 28. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL AS WELL AS REVENUES APPEAL FOR AYS 2006-07 TO 2010-11 IS TELESCOPING OF CERTAIN ADDITIONS AGAINST PROFITS ESTIMATED FROM TH E BUSINESS. THIS ISSUE IS REGARDING TWO TYPES OF ADDITIONS MADE BY THE AO. T HE AO HAS MADE ADDITION OF RS.3.85 CRORES IN 5 YEARS TOWARDS POSSIBLE EXPEN DITURE INCURRED FOR OBTAINING BOGUS PURCHASE BILLS FROM VARIOUS PARTIES . THE AO HAS ESTIMATED 0.5% OF BOGUS PURCHASES TOWARDS POSSIBLE EXPENDITUR E INCURRED ON COMMISSION PAYMENTS TO ACCOMMODATION ENTRY PROVIDER S. FURTHER, THE AO HAS MADE VARIOUS ADDITIONS ON THE BASIS OF CERTAIN NOTI NG FOUND ON LOOSE PAPERS / DIARIES FOR THE REASON THAT THEY REPRESENT PAYMENTS MADE BY THE ASSESSEE OUT OF BOOKS OF ACCOUNT AND AGGREGATE OF SUCH PAYMENTS IS AT RS.30.07 CRORES. THESE PAYMENTS INCLUDE PAYMENTS TO CERTAIN INDIVIDU ALS IN RELATION TO CERTAIN PROJECT EXECUTED BY THE ASSESSEE. THE DETAILS HAVE BEEN FURNISHED BY THE ASSESSEE IN PAPER BOOK AT ANNEXURE 5. THE LD.CIT(A ) DID NOT DISCUSS THESE ADDITIONS ON MERITS. HOWEVER, HE HAD ALLOWED RELIE F TO THE ASSESSEE BY 55 HYDROAIR TECTONICS (PCD) LTD TELESCOPING THE SAID ADDITIONS AGAINST ADDITION MAD E ON ACCOUNT OF ESTIMATION OF PROFIT FROM BUSINESS. 29. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FAC T THAT THE ASSESSEE, IN ITS STATEMENT RECORDED U/S 132(4) HAS CATEGORICALLY ADM ITTED THAT THE COMPANY HAS GENERATED CASH BY BOOKING VARIOUS EXPENDITURE A ND THE SAME HAS BEEN USED TO MAKE CERTAIN PAYMENTS TO GET THE CONTRACTS. FURTHER, ON PERUSAL OF DETAILS OF PAYMENTS GIVEN IN ANNEXURE 5, WE FIND TH AT ALL THESE PAYMENTS HAVE BEEN MADE TO CERTAIN INDIVIDUALS IN RELATION TO CER TAIN PROJECTS EXECUTED BY THE ASSESSEE AT VARIOUS PLACES. FURTHER, SAID ADDITION IS ALSO BASED ON LOOSE SHEETS / DIARY ENTRIES FOUND DURING THE COURSE OF SEARCH. THE LD.CIT(A), AFTER CONSIDERING RELEVANT FACTS AND ALSO BY TAKING INTO ACCOUNT THE STATEMENT GIVEN BY THE DIRECTOR OF THE ASSESSEE DURING THE COURSE O F SEARCH, HELD THAT THERE IS A DIRECT NEXUS BETWEEN BOOKING BOGUS PURCHASE ENTRIES AND VARIOUS PAYMENTS MADE TO CERTAIN INDIVIDUALS, HENCE HE CAME TO THE C ONCLUSION THAT SINCE SOURCE IS AVAILABLE TO THE ASSESSEE ON ACCOUNT OF ESTIMAT ION OF PROFITS ON THE APPROPRIATE AMOUNT OF TURNOVER AND THE SAME HAS NOT BEEN BROUGHT INTO THE BOOKS OF ACCOUNT, EVEN IF CERTAIN ADDITIONS ARE MAD E ON THE BASIS OF LOOSE SLIPS COULD BE EXPLAINED OUT OF ADDITIONAL INCOME. THE A SSESSEE HAS ALSO ACCEPTED THE FACT THAT MONEY WAS SIPHONED OFF FROM THE BOOKS OF ACCOUNT THROUGH 56 HYDROAIR TECTONICS (PCD) LTD BOOKING OF BOGUS PURCHASES AND SALES. THEREFORE, H E CAME TO THE CONCLUSION THAT VARIOUS ADDITIONS MADE BY THE AO ON THE BASIS OF LOOSE PAPERS / DIARY ENTRIES ON THE GROUND THAT THESE ARE PAYMENTS MADE OUTSIDE BOOKS OF ACCOUNT SHALL BE TELESCOPED AGAINST ADDITIONAL INCOME ESTIM ATED ON THE TOTAL TURNOVER. WE FURTHER NOTICE THAT ONCE A SOURCE OF INCOME IS A VAILABLE ON ACCOUNT OF ESTIMATION OF HIGHER INCOME OVER AND ABOVE INCOME D ECLARED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT, THEN OBVIOUSLY, THE ADDITI ONAL INCOME WORKED OUT NEEDS TO BE TELESCOPED AGAINST VARIOUS ADDITIONS MA DE ON THE BASIS OF LOOSE SHEETS / DAIRY ENTRIES BECAUSE THERE IS A DIRECT NE XUS BETWEEN ADDITIONAL INCOME ESTIMATED ON TOTAL TURNOVER AND PAYMENT MADE OUTSIDE BOOKS OF ACCOUNT. THIS LEGAL PROPOSITION IS SUPPORTED BY TH E DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS K GURUSWAMY NADAR & SONS (1984) 19 TAXMAN 533 (MAD), WHERE THE HONBLE COURT OBSERVED THAT TH E ADDITIONAL INCOME WORKED OUT ON THE BASIS OF ESTIMATION OF PROFIT NEE DS TO BE TELESCOPED WITH THE ADDITIONS MADE FOR CASH CREDITS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE FINDINGS OF THE LD.CI T(A) IN DIRECTING THE AO TO ALLOW THE BENEFIT OF TELESCOPING TOWARDS VARIOUS AD DITIONS MADE IN RESPECT OF COMMISSION EXPENDITURE OF RS.3.85 CRORES AND OTHER PAYMENTS OF RS.30.07 CRORES AGAINST ADDITIONAL INCOME ESTIMATED FROM THE BUSINESS. HENCE, WE ARE 57 HYDROAIR TECTONICS (PCD) LTD INCLINED TO UPHOLD THE FINDINGS OF LD.CIT(A) AND RE JECT GROUND TAKEN BY THE REVENUE AND ALSO ALLOWED GROUND TAKEN BY THE ASSESS EE. 30. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL FOR AY 2009-10 IS ADDITION OF RS.1.6 CRORES ON ACCOUNT OF ALLEGED PAYMENT TO ONE SHRI AVDE SAHEB. THE AO HAS ADDED A N AMOUNT OF RS.1.6 CRORES ON THE BASIS OF NOTING MADE BY SHRI HARBHAJA N SINGH. THE ASSESSEE CLAIMS THAT THOUGH SIMILAR OTHER ADDITION MADE HAS BEEN DISPUTED, THIS ADDITION REMAINED TO BE DISPUTED BEFORE THE LD.CIT( A) DUE TO AN INADVERTENT ERROR. 31. HAVING CONSIDERED THE ARGUMENTS OF BOTH SIDES, WE FIND THAT THE AO HAS MADE VARIOUS ADDITIONS IN RELATION TO PAYMENT MADE TO CERTAIN PERSONS IN RESPECT OF VARIOUS PROJECTS. THE ASSESSEE HAS CHAL LENGED ALL ADDITIONS MADE BY THE AO BEFORE THE LD.CIT(A), BUT THIS ADDITION WAS NOT CHALLENGED. THE ASSESSEE CLAIMS THAT SAID ADDITION WAS NOT CHALLENG ED BEFORE THE LD.CIT(A) DUE TO AN INADVERTENT ERROR. WE FIND MERIT IN THE ARGU MENT OF THE ASSESSEE FOR THE REASON THAT WHEN ASSESSEE HAS CHALLENGED ALL ADDITI ONS OF SIMILAR NATURE, THERE IS NO REASON TO PURPORTEDLY IGNORE SAID ADDITION. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS MERIT IN THE ARGUMENT OF THE ASSESSEE THAT DUE TO AN INADVERTENT ERROR, THE SAME WAS NOT CHALLENGED B EFORE THE CIT(A). THEREFORE, WE ADMIT THE GROUND TAKEN BY THE ASSESSE E CHALLENGING ABOVE 58 HYDROAIR TECTONICS (PCD) LTD ADDITION. FURTHER, WE NOTE THAT THIS ADDITION IS AL SO AKIN TO VARIOUS OTHER ADDITIONS MADE BY THE AO. THE LD.CIT(A) HAS ALLOWED THE BENEFIT OF TELESCOPING AGAINST THOSE ADDITIONS. THEREFORE, WE DIRECT THE A O TO CONSIDER THIS ADDITION ALSO FOR THE PURPOSE OF TELESCOPING AGAINST INCOME ESTIMATED FROM THE BUSINESS FOR THE YEAR UNDER CONSIDERATION. HOWEVER , WE MAKE IT VERY CLEAR THAT THE BENEFIT OF TELESCOPING SHOULD BE ALLOWED T O THE ASSESSEE TO THE EXTENT OF ADDITIONAL INCOME ESTIMATED OVER AND ABOVE THE N ORMAL PROFIT DECLARED IN THE BOOKS OF ACCOUNT. 32. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL IN THE CASE OF M/S HYDROAIR TECTONICS (PCD) LTD FOR AY 2010-11 IS DISALLOWANCE OF CERTAIN EXPENSES U/S 40(A)(IA) VIS- A-VIS REJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF INCOME. THE ASSESSEE HAS DEDUCTED TDS IN RESPECT OF ABOVE EXPENSES AND THE SAME WAS PAID IN THE MONT H OF FEBRUARY, 2011, I.E. SUBSEQUENT TO THE DUE DATE FOR FURNISHING RETURN OF INCOME U/S 139(1). THOUGH THIS AMOUNT WAS NOT DISALLOWED WHILE FILING RETURN OF INCOME U/S 139(1), IT WAS DISALLOWED WHILE FILING RETURN U/S 153A. THE AO HA S ADDED THIS AMOUNT ON THE BASIS OF DISALLOWANCE OFFERED BY THE ASSESSEE. BEF ORE THE CIT(A), THOUGH THE ASSESSEE HAS TAKEN A GROUND RELATING TO THIS DISALL OWANCE, IT WAS NOT PRESSED SUBSEQUENTLY AS IT WAS OFFERED VOLUNTARILY BY THE A SSESSEE, ITSELF. THE LD.CIT(A) HAS REJECTED BOOKS OF ACCOUNT OF THE ASSESSEE ON TH E GROUND THAT THEY ARE 59 HYDROAIR TECTONICS (PCD) LTD INCORRECT AND UNVERIFIABLE AND ESTIMATED PROFIT FRO M THE BUSINESS. SINCE THE ASSESSEE HAS NOT CHALLENGED THE DISALLOWANCE MADE B Y THE AO, THE LD.CIT(A) HAS CONFIRMED THIS DISALLOWANCE. 33. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE A SSESSEE CAME TO KNOW ABOUT THE FACT OF REJECTION OF BOOKS OF ACCOUNT UPO N RECEIPT OF ORDER OF LD.CIT(A). THOUGH THE ASSESSEE DID NOT DISPUTE THI S DISALLOWANCE BEFORE THE LD.CIT(A), HAS TAKEN A GROUND BEFORE THE ITAT FOR T HE FIRST TIME CHALLENGING DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) IN THE LI GHT OF REJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF PROFIT. THE LD.AR FURTHE R SUBMITTED THAT WHEN BOOKS OF ACCOUNT ARE REJECTED AND INCOME HAS BEEN D ETERMINED ON ESTIMATION, THEN SECTION 40(A)(IA) CANNOT BE INVOKED TO MAKE FU RTHER ADDITION. THIS IS BECAUSE THE ESTIMATION OF INCOME TAKES CARE OF THE IRREGULARITIES COMMITTED BY THE ASSESSEE. IN THIS REGARD HE RELIED UPON THE DE CISION OF HYDERABAD BENCH OF ITAT IN CASE OF TEJA CONSTRUCTION VS ACIT 39 SOT 13 (HYD). 34. HAVING CONSIDERED ARGUMENTS OF BOTH SIDES, WE F IND MERIT IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT WHEN BOOKS OF ACCOUNT ARE REJECTED FOR ESTIMATION OF PROFIT FROM THE BUSINESS , THEN THE SAME BOOKS OF ACCOUNT COULD NOT BE RELIED UPON TO MAKE ADDITION T OWARDS DISALLOWANCES U/S 40(A)(IA) FOR FAILURE TO DEDUCT TAX AT SOURCE UNDER RESPECTIVE ACTS. FURTHER, EVEN THOUGH THE ASSESSEE, BY MISTAKE DISALLOWED CER TAIN PAYMENTS IN ITS 60 HYDROAIR TECTONICS (PCD) LTD STATEMENT OF TOTAL INCOME, IT IS FOR THE ASSESSING OFFICER TO COMPUTE CORRECT INCOME FOR THE PURPOSE OF TAXATION BY CORRECTING MI STAKES OR OMISSIONS COMMITTED BY THE ASSESSEE. IN THIS CASE, THE BOOKS OF ACCOUNT HAVE BEEN REJECTED AND INCOME HAS BEEN ESTIMATED ON THE BASIS OF TOTAL TURNOVER BY APPLYING CERTAIN PERCENTAGE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT NO EXPENDITURE COULD BE DISALLOWED EVEN U/S 40(A)(IA) ONCE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED FOR THE PURPOSE OF ESTIMATION OF PROFIT. ACCORDINGLY, WE DIRECT THE AO TO DELETE ADDITION TOWARDS DISALLOWAN CE OF CERTAIN PAYMENTS U/S 40(A)(IA) OF THE ACT. 35. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FOR AY 2010-11 IN THE DEPARTMENTS APPEAL IN CASE OF M/S HYDROAIR TECTONI CS (PCD) LTD IS DISALLOWANCE OF EXPENSES ON ADHOC BASIS VIS-A-VIS R EJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF INCOME. WE HAVE ALREADY NOTED IN THE PRECEDING PARAGRAPHS THAT ONCE BOOKS OF ACCOUNT HAVE BEEN REJECTED, THEN THE SAME BOOKS OF ACCOUNT COULD NOT BE USED TO MAKE ANY DISALLOWANCE OF EXPENDITURE AND THE FINDINGS GIVEN BY US IN THE PRECEDING PARAGRAPHS IS EQUALLY APPLICABLE TO THIS GROUND. THE LD.CIT(A), AFTER CONSIDERING RELEVANT FACTS, HAS RIGHTLY DELETED ADDITION MADE BY THE AO TOWARDS ADHOC DISALLOWANCE OF EXPENSES. WE DO NOT FIND ANY ERROR IN THE FINDING OF LD.CIT(A); HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF LD.CIT(A) AND REJECT GROUND TAKEN BY TH E REVENUE. 61 HYDROAIR TECTONICS (PCD) LTD 36. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FOR AY 2007-08 FROM ASSESSEES APPEAL IN THE CASE OF M/S HYDROAIR TECTO NICS (PCD) LTD IS ADDITION OF SHARE APPLICATION MONEY OF RS.16 CRORES AND ADDITIO N OF EXPENSES ON ESTIMATE BASIS @4% OF RS.64 LAKHS ON SAID SHARE APPLICATION MONEY. THE FACTUAL MATRIX OF THE IMPUGNED DISPUTE IS THAT THE ASSESSEE HAS RE CEIVED SHARE APPLICATION MONEY FROM CERTAIN COMPANIES. THE AO HAS MADE ADDI TION TOWARDS SHARE APPLICATION MONEY OF RS.16 CRORES ON THE GROUND THA T THE ASSESSEE HAS FAILED TO FILE NECESSARY DETAILS TO PROVE IDENTITY, GENUIN ENESS OF TRANSACTIONS AND CREDITWORTHINESS OF THE PARTIES. FURTHER, THE AO A LSO MADE DISALLOWANCE OF EXPENSES @4% ON TOTAL SHARE APPLICATION MONEY RECEI VED AND MADE ADDITION OF RS.64 LAKHS FOR POSSIBLE EXPENDITURE INCURRED IN GETTING SHARE APPLICATION MONEY FROM VARIOUS PARTIES. INITIALLY, OUT OF THE AGGREGATE AMOUNT OF RS.16 CRORES, THE AMOUNT OF RS.12 CRORES WAS ADDED U/S 68 IN AY 2008-09 VIDE ASSESSMENT ORDER U/S 143(3) DATED 24-12-2010. THOU GH, THE SHARE AGAINST RECEIPT OF RS.12 CRORES WERE ALLOTTED DURING THE PR EVIOUS YEAR RELEVANT TO AY 2008-09, THE SAID AMOUNT WAS NOT RECEIVED DURING TH AT YEAR BUT WAS RECEIVED DURING THE YEAR 2007-08. WHEN THIS FACT WAS POINTE D OUT TO THE CIT(A) DURING THE APPELLATE PROCEEDINGS, THE LD.CIT(A) DELETED AD DITION OF RS.12 CRORES MADE FOR AY 2008-09 AND DIRECTED THE AO TO TAKE NECESSAR Y ACTION IN THE YEAR IN 62 HYDROAIR TECTONICS (PCD) LTD WHICH THE SAID SUM WAS RECEIVED, I.E. AY 2007-08. THIS DIRECTION WAS GIVEN UNDER THE PROVISIONS OF SECTION 150(1) OF THE ACT. 37. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT NO SU CH ADDITION CAN BE MADE IN THE ABSENCE OF ANY INCRIMINATING MATERIAL RELATI NG TO THESE TRANSACTIONS, FOUND AS A RESULT OF SEARCH, AS THE ASSESSMENT U/S 153A IS MADE PURSUANT TO SEARCH ACTION CARRIED OUT U/S 132 OF THE ACT AND SU CH ASSESSMENT SHOULD BE SOLELY ON THE BASIS OF INCRIMINATING MATERIAL FOUND , AS A RESULT OF SEARCH. SINCE THE ADDITION MADE BY THE AO IS ON THE BASIS OF REGU LAR BOOKS OF ACCOUNT, NO ADDITION COULD BE MADE WHEN THE ASSESSMENT HAS BEEN ABATED. THE LD.AR, ON MERITS, FURTHER SUBMITTED THAT ASSESSEE HAS FILED V ARIOUS DETAILS TO PROVE IDENTITY, GENUINENESS OF TRANSACTIONS AND CREDITWOR THINESS OF THE PARTIES. WHEN THE IDENTITY HAS BEEN PROVED AND ALSO VARIOUS DETAILS HAVE BEEN FILED TO PROVE GENUINENESS OF TRANSACTIONS, THE AO CANNOT MA KE ADDITION TOWARDS CREDITS U/S 68 IN THE HANDS OF THE ASSESSEE COMPANY . IF AT ALL THE AO DOUBTS THE CREDITWORTHINESS OF THE PARTIES, THEN HE IS FRE E TO REOPEN THE ASSESSMENT OF INDIVIDUAL CREDITORS, BUT ADDITION CANNOT BE MAD E IN THE HANDS OF THE ASSESSEE. THE ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS ON THE ISSUE INCLUDING ON THE LEGALITY OF ADDITION U/S 153A, WHI CH IS REPRODUCED HEREUNDER:- 10.7 THIS CONTENTION MAY SOUND TO BE IRRELEVA NT ON ACCOUNT OF THE FACT THAT THE CIT (A) HAS ISSUED THE DIRECTION U/S. 150(1) TO CONSIDE R THE TAXABILITY OF THIS AMOUNT IN A.Y. 2007-08 WHILE ADJUDICATING THE APPEAL FILED BY THE ASSESSEE FOR A.Y. 2008-09. HOWEVER, IT WOULD BE UNJUSTIFIED LO BRUSH ASIDE THIS CONTENTION MERELY ON ACCOUNT OF THIS REASON WITHOUT APPRECIATING THAT - 63 HYDROAIR TECTONICS (PCD) LTD (I). THE DIRECTION OF THE CIT(A) IS RESTRICTED T O THE AMOUNT OF RS. 12 CRORE AND NOT FULLY FOR RS 16 CRORE. (II). IT HAS BEEN GIVEN U/S. 150(1} WHICH IS LINK ED WITH THE REASSESSMENT TO BE MADE U/S. 147. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS CONSIDERED THIS ISSUE WHILE 'MAKING THE ASSESSMENT U/S. 153A. THE DIRECTION ISSUED U/S. 150(1) WOULD NOT HAVE ANY RELEVANCE WHILE MAKING THE ASSESSMENT U/S. 153A. 10.8 AT THE OUTSET, IT IS CLARIFIED THAT THIS CONTE NTION (ABSENCE OF INCRIMINATING MATERIALS) WAS RAISED BY THE ASSESSEE BEFORE THE CIT(A) IN THE APPELLATE PROCEEDING AGAINST THE ASSESSMENT U/S. 153A. HOWEVER, THE CIT (A) HAS FAIL ED TO CONSIDER THIS CONTENTION AND HE HAS DIRECTLY DEALT WITH THE MERITS OF THIS ISSUE. 10.9 THE APPELLANT WOULD LIKE TO SUBMIT THAT THE AS SESSMENT FOR THE YEAR UNDER CONSIDERATION (I.E. A.Y. 2007-U8) WAS ALREADY COMPL ETED VIDE ORDER PASSED U/S. 143(3) DATED 16.11.2009 WHEREIN NO ADDITIONS WERE MADE WIT H REGARD TO THE AFORESAID AMOUNTS. THIS ASSESSMENT HAS ATTAINED FINALITY AS IT HAS NOT BEEN ABATED AS A RESULT OF INITIATION OF SEARCH PROCEEDINGS U/S. 153A. AS A RESULT, NO ADDIT ION CAN BE MADE U/S. 68 IN THE ABSENCE OF ANY INCRIMINATING 'MATERIAL REGARDING TH ESE TRANSACTIONS. 10.10 FOR THE REASONS AS TO WHY NO SUCH ADDITIO N CAN BE MADE IN THE ABSENCE OF ANY INCRIMINATING MATERIALS, THE APPELLANT RELIES UPON ITS DETAILED EXPLANATION MADE IN THIS SUBMISSION AT PARA NO. 1. 10.11 THE APPELLANT ALSO RELIES UPON A DIRECT DECISION KOLKATA ITAT IN THE CASE OF MRIDUL COMMODITIES (P.) LTD. VS. DCIT 78 TAXMANN.CO M 337 WHEREIN IT HAS BEEN HELD THAT WHERE PURSUANT TO NOTICE ISSUED UNDER SECTION 153A, ASSESSEE-COMPANY FILED ITS RETURNS FOR RELEVANT YEARS, SINCE ASSESSMENT FOR SA ID YEARS HAD ALREADY COMPLETED AND NO INCRIMINATING MATERIAL HAD BEEN FOUND IN COURSE OF SEARCH PROCEEDINGS, IMPUGNED ADDITION MADE BY ASSESSING OFFICER UNDER SECTION 68 IN RESPECT OF SHARE APPLICATION MONEY RECEIVED FROM NON-EXISTENT SUBSCRIBERS, WAS T O BE SET ASIDE. 10.12 FOR THE PURPOSE OF MAKING THIS ADDITION, THE ASSESSING OFFICER HAS RELIED UPON PAGE NO. 13 OF A NOTE PAD (MARKED AS ANNEXURE - 3) FOUND AND SEIZED IN THE COURSE OF SEARCH AT THE PREMJSSSOF MR. HARBHAJAN SINGH (THE D IRECTOR OF THE APPELLANT). THIS PAGE IS AVAILABLE AT PAGE NO. 68 OF HE PAPER-BOOK NO.4. 10.13 THE ASSESSING OFFICER HAS ALLEGED THAT IT DEPICTS HOW ONE MR. JAIN OF CALCUTTA WILL INFUSE FUNDS IN THE APPELLANT COMPANY, HOW THE MONEY WILL COME, THEN HOW THE SHARES WILL BE TRANSFERRED TO THE PROMOTER'S FAMILY . IT MAY BE NOTICED THAT THERE IS NO SUCH MENTION ON THE \ SAID PAGE AS ALLEGED BY THE LEARNED ASSESSING OFFIC ER. NOWHERE HAS IT BEEN STATED ABOUT HOW THE SHARES ALLOTTED CAN BE TR ANSFERRED BACK TO THE PROMOTER'S FAMILY. IT MERELY SUMMARISES THE ARRANGEMENT OF FIN ANCING IN THE FORM OF SHARE CAPITAL WHICH WAS ARRANGED BY THE INVESTORS. IT MENTIONS TH E NAMES OF THE SAME PARTIES FROM WHOM THE SHARE CAPITAL WAS RECEIVED BY THE APPELLAN T. THUS, THE LEARNED ASSESSING OFFICER'S ALLEGATIONS ARE BASELESS AND CONTRARY TO THE FACTS. 10.14 THIS PARTICULAR PAGE CANNOT BE CONSIDERED AS 'INCRIMINATING MATERIAL' AS NOWHERE IT SHOWS THAT THE ASSOSSEE HAS INTRODUCED I TS OWN MONEY IN THE FORM SUCH SHARE APPLICATION MONEY / SHARE CAPITAL. ON PERUSAL OF TH IS PAGE, IT CAN BE SEEN THAT IT DOES NOT CONTAIN ANY ADDITIONAL INFORMATION WHICH IS NOT TAL LYING WITH THE BOOKS OF ACCOUNT OR THE FACTS AS SUBMITTED BY THE APPELLANT REGARDING THESE TRANSACTIONS. 10.15 THE ASSESSING OFFICER HAS OBSERVED THAT O N THIS PAGE THERE IS A MENTION OF AMOUNT OF 4 TO 3 WHICH CLEARLY SHOWS THE PERCENTAGE OF AMOUNT TO BE SPENT FOR DOING THIS WORK. HOWEVER, THE APPELLANT SUBMITS THAT THE SAID NOTING AS APPEARING ON THE CONCERNED PAGE IS '4 - 3' AND NOT '4 TO 3'. FURTHER, A BOX HA S BEEN DRAWN AROUND '4' AND '3' RESPECTIVELY AND SEVERAL OTHER NAMES HAVE ALSO BEEN WRITTEN AROUND THAT BOX. THE NAMES WRITTEN AROUND FIRST BOX HAVING 4 ARE NV, DELCORN, MR. N. DOSHI & S. THE LETTERS WRITTEN AROUND SECOND BOX OF 3 ARE A, O & M. 10.16 THE MEANING OF THESE NOTING IS AS UNDER: FIRST BOX OF 4: FOUR DIFFERENT ENTITIES WOULD BE INVESTING IN THE APPELLANT COMPANY WHICH WERE NASWAR VANIJYA (WRITTEN AS NV), DESTINY DEALCOM PVT. LTD. (WRITTEN AS DELCOM), MR. NEETISH R DOSHI (WRITTEN AS MR. N. DOS HI) AND SWEET SOLUTIONS LTD. (WRITTEN AS S). 64 HYDROAIR TECTONICS (PCD) LTD SECOND BOX OF 3: THREE DIFFERENT ENTITIES WOUL D BE INVESTING IN THE APPELLANT COMPANY WHICH WERE ASTOR TRADECOM PVT. LTD. (WRITTEN AS 'A' ), ORBIT VYAPAAR PVT. LTD. (WRITTEN AS 'O') AND MAHAD SYNTHETICS PROCESSORS LTD. (WRITTEN AS 'M'). 10.17 THESE FACTS ARE EXACTLY TALLYING WITH THE AGREED TERMS AS PER MOD MADE WITH THE INVESTORS (AS EXPLAINED IN DETAIL IN THE SUBSEQUENT PARAGRAPHS) AND CORRESPONDING INVESTMENTS MADE BY THEM. THUS, THE LEARNED ASSESSI NG OFFICER HAS DRAWN A WRONG INFERENCE OF '4 TO 3' AS A COMMISSION / COST INCURR ED BY THE APPELLANT OF RAISING THE SHARE CAPITAL. 10.18 THUS, THE PAGE ON WHICH THE ASSESSING OFF ICER HAS PLACED RELIANCE CANNOT BE CONSIDERED AS 'INCRIMINATING MATERIAL' AS IT DOES N OT REVEAL ANY HIDDEN FACTS ABOUT THE IMPUGNED TRANSACTIONS ON THE BASIS OF WHICH ANY ADV ERSE INFERENCE CAN BE DRAWN. IN THE ABSENCE OF ANY INCRIMINATING MATERIALS RELATED TO T HE IMPUGNED TRANSACTIONS OF SHARE APPLICATION MONEY / SHARE CAPITAL, NO ADDITION CAN BE MADE WHILE MAKING THE ASSESSMENT U/S. 153A. 10.19 IN ORDER TO APPRECIATE THE NATURE AND SOU RCE OF THE AGGREGATE AMOUNT OF ? 16 CRORE RECEIVED DURING THE YEAR UNDER CONSIDERATION, THE MEMORANDUM OF UNDERSTANDING DATED 12.12.2006 EXECUTED BETWEEN THE APPELLANT, IT S DIRECTOR MR. H. B. SINGH, ONE MR. SAMIR THAKKAR AND NASWAR VANIJYA PVT. LTD. IS VERY RELEVANT. THE COPY OF THIS MOD IS AVAILABLE AT PAGES 120 TO 129 OF THE PAPER-BOOK NO. 6. 10.20 THE SALIENT FEATURES OF THIS MOD ARE AS FO LLOWS: (I). MR. SAMIR THAKKAR AND NASWAR VANIJYA PVT . LTD. HAVE AGREED TO RAISE EQUITY FUNDING TO THE TUNE OF T 112 CRORES FOR THE APPELLANT IN THREE DIFFERENT TRANCHES WHICH INCLUDED COMING OUT WITH PUBLIC ISSUE OF SHARES EVENTUALLY, (II). NASWAR VANIJYA PVT. LTD. AGREED TO SUBSC RIBE FOR CERTAIN EQUITY SHARES OF THE APPELLANT COMPANY AND BRING SHARE CAPITAL TO THE FOLLOWING EX TENT IMMEDIATELY: A. SHARE CAPITAL OF T 1 CRORE AGAINST ALLOTMENT O F 10,00,000 SHARES AT A PRICE OF ? 10 EACH B. SHARE CAPITAL OF 12 CRORES AGAINST ALLOTMENT OF 10,00,000 SHARES AT A PRICE OF 120 EACH (III). IT WAS AGREED THAT THE AFORESAID MONEY TO THE EXTENT OF RS. 13 CRORES WOULD BE BROUGHT BY NASWAR VANIJYA PVT. LTD. ON ITS OWN OR THROUGH OTHE R STRATEGIC INVESTORS, (IV). ACCORDINGLY, THE FIRST LOT OF ? 1 CRORE WAS RECEIVED FROM DESTINY DE ALCOM PVT. LTD. (ANOTHER STRATEGIC INVESTOR AS ARRANGED BY NASWAR V ANIJYA PVT. LTD.) AND SECOND LOT OF 12 CRORES WERE RECEIVED FROM A GROUP OF THREE PERSO NS INCLUDING NASWAR VANIJYA PVT. LTD. AND ANOTHER TWO STRATEGIC INVESTORS NAMELY SWE ET SOLUTIONS LTD. AND NEETISH R. DOSNI. (V). THE APPELLANT AGREED TO ALLOT 30,00,000 E QUITY SHARES (AT PAR) AS 'INCENTIVE SHARES' TO THREE DIFFERENT COMPANIES - 9,00,000 SHARES TO ASTOR TRAD ECOM PVT. LTD., 9,00,000 SHARES TO ORBIT VYAPAAR PVT. LTD. AND 12,00,000 SHARES TO MAH AD SYNTHETICS PROCESSORS LTD. ACCORDINGLY, THE APPELLANT RECEIVED TOTAL AMOUNT OF T 3 CRORES FROM THESE THREE COMPANIES (VI). THE OWNERSHIP AND DIRECTORSHIP OF THREE COMPANIES AS STATED ABOVE WAS TO REMAIN WITH THE PROMOTERS (H B SINGH & FAMILY) TILL THE TIME SA MIR THAKKER AND NASWAR VANIJYA PVT. LTD. COULD ARRANGE THE EQUITY FINANCE FOR THE APPEL LANT IN SECOND AND THIRD TRANCHES. (VII). UPON ARRANGEMENT OF SECOND TRANCHE OF EQ UITY FINANCE AMOUNTING TO ? 25 - 35 CRORES, THE OWNERSHIP OF ASTOR TRADECOM PVT. LTD. WAS TO BE TRA NSFERRED TO NASWAR VANIJYA PVT. LTD. (VIII). UPON ARRANGEMENT OF SECOND TRANCHE OF EQ UITY FINANCE AMOUNTING TO ? 65 - 75 CRORES, THE 65 HYDROAIR TECTONICS (PCD) LTD OWNERSHIP OF ORBIT VYAPAAR PVT. LTD.. WAS TO BE TRA NSFERRED TO NASWAR VANIJYA PVT. LTD. AND OWNERSHIP OF MAHAD SYNTHETICS PROCESSORS LTD. W AS TO BE TRANSFERRED TO MR. SAMIR THAKKER. 10.21 THUS, AN EXHAUSTIVE PLAN FOR RAISING FINA NCE THROUGH ISSUE OF EQUITY SHARES WAS CHALKED OUT IN THE SAID MOU. THE APPELLANT WAS IN T HE ACUTE NEED OF SUCH FINANCE AS IT WAS ABOUT GET HUGE ORDERS FROM VARIOUS AGENCIES. 10.22 THE APPELLANT HAD RECEIVED THE SAID SUM T OWARDS EQUITY CAPITA! WHICH IS IN DISPUTE FROM DIFFERENT ENTITIES AS PER THE AGREED T ERMS OF THE MOU. 10.23 THE APPELLANT HAS ALSO SUBMITTED THE VARI OUS DOCUMENTS IN ORDER TO PROVE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE T RANSACTIONS. THE IMPORTANT DOCUMENTS OUT OF ALL DOCUMENTS SUBMITTED ARE AS FOLLOWS: (I). CERTIFICATES OF INCORPORATION OF ALL SUBSCRIBE R COMPANIES FII). COPIES OF PAN CARDS OF ALL SUBSCRIBERS (III). COPIES OF SHARE APPLICATION FORMS (IV). COPIES OF CHEQUES WHICH WERE RECEIVED AGAINST THE SHARE CAPITAL (V). COPIES OF BANK STATEMENT OF THE APPELLANT REFLECTING THE IMPUGNED RECEIPTS (VI). COPIES OF AUDITED BALANCE SHEETS OF SUBSCRIBER COMPANIES REFLECTING T HE INVESTMENT MADE BY THEM IN THE SHARES OF THE APPELLANT COMPANY THESE DOCUMENTS ARE AVAILABLE AT PAGES 154 TO 275 O F THE PAPER-BOOK NO. 6. 10.24 THOUGH THE APPELLANT IS NOT REQUIRED TO E XPLAIN THE SOURCE OF SOURCE I.E. SOURCE OF MONEY INVESTED IN THE HANDS OF THE RESPECTIVE SH AREHOLDERS, THE APPELLANT WOULD LIKE TO PRESENT THE DETAILS OF SOURCE OF SOURCE OF FEW SHAR EHOLDERS AS CAN BE SEEN IN THE AUDITED BALANCE SHEET SUBMITTED FOR YOUR HONOUR'S KIND REFE RENCE: NAME OF THE PARTY SHARE CAPITAL RECEIVED DETAILS OF SOURCE SWEET SOLUTIONS LTD 5,40,00,000 NET WORTH AS ON 31.3.2006 WAS RS.80.84 CRORES CONSISTING OF SHARE CAPITAL OF RS.3.85 CRORES AND RESERVES & SURPLUS OF RS.76.99 CRORES NASWAR VANJIYA PVT LTD 3,00,00,000 ADVANCES O RS.3 CRORES FROM SWEET SOLUTIONS LTD., DOYEN MARKETING (P) LTD AND PENTIUM INVESTMENTS & INFRASTRUCTURE LTD DESTINY DEALCOM PVT LTD 1,00,00,000 ADVANCES OF RS.1 CRORE FROM KHAZANA TRADELINKS LTD ORBIT VYAPAAR PVT LTD 90,00,000 UNSECURED LOAN OF RS.90,00,000 TAKEN FROM KHAZANA TRADELINKS LTD ASTOR TRADECOM PVT LTD 90,00,000 UNSECURED LOAN OF RS.90,00,000 TAKEN FROM KHAZANA TRADELINKS LTD 10.25 AS THE INVESTORS FAILED TO ARRANGE FOR FU RTHER EQUITY FINANCE AS IT WAS AGREED, THE APPELLANT WAS UNHAPPY WITH THEM AND IT ENTERED INTO A TERMINATION AGREEMENT DATED 15.11.2008 (PAGES 276 TO 283 OF PAPER-BOOK NO.6) AN D REPURCHASED ALL THE SHARES ALLOTTED TO THEM THROUGH ANOTHER SISTER CONCERN NAM ELY HYDROAIR ENVIROTECH PVT. LTD. THE APPELLANT ONLY GAVE MONEY OF ? 16 CRORES TO HYDROAI R ENVIROTECH PVT. LTD. WHICH WAS 66 HYDROAIR TECTONICS (PCD) LTD UTILISED TO PURCHASE THE SHARES OF THE APPELLANT CO MPANY FROM ALL THE PARTIES MENTIONED ABOVE. 10.26 IT MAY BE NOTED THAT THE SHARES WERE PURCHASE D AT THE SAME PRICE AT WHICH THEY WERE ALLOTTED TO ALL THE PARTIES MENTIONED ABOVE. T HUS, IT WAS NOT THE CASE OF INTRODUCING THE APPELLANT'S OWN MONEY UNDER THE GARB OF INVESTM ENT OF SHARE CAPITAL BY THIRD PARTIES AND THEN REPURCHASING SHARES FROM THEM AT A VERY NO MINAL OR THROWAWAY PRICE. 10.27 IN VIEW OF THE ABOVE, THE APPELLANT SUBMI TS THAT THE NATURE AND SOURCE OF THE IMPUGNED AMOUNT OF 3 16 CRORES RECEIVED ON ACCOUNT OF SHARE CAPITAL HAS BEEN DULY EXPLAINED WHICH IS REQUIRED TO BE ACCEPTED. 10.28 IN THE REMAND PROCEEDINGS, THE LEARNED ASSESS ING OFFICER HAS FAILED TO MAKE INQUIRIES OF ANY SORT IN ORDER TO VERIFY THE GENUIN ENESS OF THE APPELLANT'S CLAIM. THE LEARNED ASSESSING OFFICER COULD HAVE SUMMONED THE P ARTIES AND THEIR DIRECTORS, COULD HAVE INQUIRED WITH THEIR JURISDICTIONAL ASSESSING O FFICER OR EVEN OBTAINED THE BANK STATEMENTS OF THE PARTIES FROM THEIR BANKERS. IN TH E REMAND REPORT DATED 3.3.2017 (PAGES 176-177 OF PAPER-BOOK NO. 3), THE LEARNED ASSESSING OFFICER HAS MERELY COMMENTED UPON THE PROFITABILITY OF SOME OF THE SHAREHOLDER C OMPANIES OR EXISTENCE OF RESERVES IN THEIR HANDS AND NOTHING MORE THAN THAT. THE APPELLA NT HUMBLY SUBMITS THAT IT DOES NOT HAVE CONTROL OVER THE PROFITABILITY OF ITS SHAREHOL DERS. IT CANNOT BE EXPECTED FROM THE APPELLANT THAT IT SHOULD HAVE RAISED SHARE CAPITAL ONLY FROM THOSE PERSONS WHO ARE MAKING GOOD AMOUNT OF PROFITS. THE LEARNED ASSESSING OFFIC ER COULD HAVE BROUGHT EVIDENCES TO PROVE THAT THE MONEY INVESTED BY THEM WAS NOT REALL Y BELONGING TO THEM BUT BELONGING TO THE APPELLANT ONLY. BUT THE LEARNED ASSESSING OFFIC ER HAS FAILED TO DO SO. 10.29 THE CIT(A) HAS CONFIRMED THIS ADDITION PRI MARILY BY DOUBTING GENUINENESS OF THE AFORESAID MOD. HE HAS NOTED THAT THE ASSESSEE START ED RECEIVING FUNDS EVEN BEFORE THE DATE ON WHICH THIS MOD WAS EXECUTED. THE APPELLANT IS NOT DENYING THIS FACT. IN FACT, IT IS ONLY AFTER THE APPELLANT GAINED CONFIDENCE WITH THE INVESTORS ON ACCOUNT OF THE INITIAL AMOUNT RECEIVED FROM THEM, IT WENT AHEAD AND SIGNED MOD WITH THEM. 10.30 IT HAS ALSO BEEN STATED BY THE CIT(A) THAT THE OWNERSHIP AND DIRECTORSHIP OF THREE COMPANIES I.E. ASTOR TRADECOM PVT. LTD., ORBIT VYAP AAR PVT. LTD. AND MAHAD SYNTHETICS PROCESSORS LTD. SHOULD HAVE BEEN WITH THE PROMOTERS OF THE APPELLANT COMPANY. HOWEVER, DOCUMENTS OF THESE THREE COMPANIES SUBMITT ED TO THE CIT (A) WERE NOT ENDORSING THIS FACT. REGARDING THIS OBSERVATION OF THE CIT (A), THE APPELLANT WOULD LIKE TO SUBMIT THAT THIS WAS THE VERY REASON OF DISPUTES BE ING CREATED WITH THE INVESTORS AND WHICH ULTIMATELY RESULTED INTO THE TERMINATION AGRE EMENT BEING EXECUTED WITH THEM. 10.31 REGARDING THE CLT(A)'S OBSERVATION ABOUT THE ISSUANCE OF SHARES AT TWO DIFFERENT PRICES TO THE SAME GROUP OF INVESTORS AND THAT TOO DURING THE SAME TIME PERIOD, IT IS SUBMITTED THAT IT WAS ONE OF THE BUSINESS TACTICS U SED IN ORDER TO INCENTIVISE THE INVESTORS. THE LEAD INVESTORS WHICH WERE PARTIES TO THE MOU WE RE ALSO ACTING AS FACILITATOR TO GET MORE FINANCE. THE PLAN WAS TO GO FOR PUBLIC ISSUE O F THE SHARES OF THE APPELLANT COMPANY EVENTUALLY. SO, IN ORDER TO PROVIDE ATTRACTIVE INCE NTIVE TO THEM, SOME OF THE SHARES WERE ISSUED TO THEM AT JUST FACE VALUE WHEREBY THEY CAN SELL THESE SHARES AFTER THE APPELLANT COMPANY'S SHARES ARE LISTED IN ORDER TO ENCASH THEI R EFFORTS FOR MOBILISING THE REQUIRED FINANCE. WITHOUT PREJUDICE, THE HONOURABLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GREEN INFRA LTD. (78 TAXMANN.COM 340) HAS HELD THAT EVEN IF THE PREMIUM AT WHICH THE SHARES ARE ISSUED DEFIES COMMERCIAL PRUDENCE, THE R ECEIPT CANNOT BE ASSESSED AS 'UNEXPLAINED CREDIT' IF THE IDENTITY OF THE PAYER, GENUINENESS OF THE TRANSACTION AND CAPACITY OF THE SUBSCRIBER ARE NOT DISPUTED. 38. THE ASSESSEE ALSO RELIED UPON VARIOUS JUDICIAL PRECEDENTS TO ARGUE THAT ONCE IDENTITY AND GENUINENESS OF TRANSACTION HAS BE EN PROVED, MERELY FOR THE 67 HYDROAIR TECTONICS (PCD) LTD REASON THAT CREDITWORTHINESS HAS NOT PROVED TO THE SATISFACTION OF THE AO, ADDITION COULD NOT BE MADE U/S 68 OF THE ACT. THE LD.AR FOR THE ASSESSEE HAS ALSO TAKEN AN ALTERNATIVE ARGUMENT TO THE EFFECT TH AT IF AT ALL ADDITION IS CONFIRMED, THEN BENEFIT OF TELESCOPING SHALL BE ALL OWED AGAINST ENHANCEMENT OF INCOME DUE TO ESTIMATION OF PROFITS. IN THIS RE GARD, HE RELIED UPON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE O F CIT VS KSM GURUSWAMY NADAR & SONS 19 TAXMAN 533(MAD). 39. THE LD.DR, ON THE OTHER HAND, SUBMITTED THAT TH E AO WAS WELL WITHIN HIS RIGHTS TO MAKE ADDITION TOWARDS SHARE APPLICATION M ONEY U/S 68 OF THE INCOME- TAX ACT, 1961 AS SAID ADDITION WAS BASED ON INCRIMI NATING MATERIAL FOUND AS A RESULT OF SEARCH, WHICH IS MARKED AS ANNEXURE 3 AS PER WHICH THE ASSESSEE HAD OBTAINED ACCOMMODATION ENTRIES OF SHARE APPLICATION MONEY THROUGH ONE SHRI JAIN OF CALCUTTA TO RE-ROUTE ITS OWN FUNDS INTO THE BOOKS OF ACCOUNT. ALTHOUGH, THE ASSESSEE HAS FILED CERTAIN EVIDENCES TO PROVE I DENTITY OF THE CREDITORS, BUT FACT REMAINS THAT GENUINENESS OF TRANSACTION AND CR EDITWORTHINESS OF THE PARTIES ARE STILL DOUBTFUL AS THOSE PARTIES ARE FRO M KOLKATA WHEREAS THE ASSESSEE IS DOING ITS BUSINESS IN MUMBAI AND THEREF ORE, IT IS HIGHLY IMPROBABLE AND IMPROPER TO ACCEPT THE ARGUMENTS OF THE ASSESSE E THAT THE COMPANIES REGISTERED OR OPERATING FROM KOLKATA ARE INVESTING IN ASSESSEE COMPANY DOING BUSINESS IN MUMBAI WITH A HUGE PREMIUM WITHOUT KNOW ING EACH OTHER. THE 68 HYDROAIR TECTONICS (PCD) LTD LD.CIT(A) HAS RIGHTLY APPRECIATED THESE FACTS TO CO NFIRM THE ADDITION MADE BY THE AO TOWARDS SHARE APPLICATION MONEY AND HIS ORDE R SHOULD BE UPHELD. AS REGARDS TELESCOPING, THERE IS NO MERIT IN THE ARGUM ENT OF THE ASSESSEE FOR THE REASON THAT AS PER ASSESSEES ADMISSION ITSELF, THE BOGUS PURCHASES HAVE BEEN BOOKED TO INFLATE EXPENDITURE SO AS TO SIPHON OFF M ONEY FROM BOOKS OF ACCOUNT TO MAKE VARIOUS CASH PAYMENTS TO CERTAIN PERSONS TO OBTAIN CONTRACTS. WHEN THE ASSESSEE ITSELF HAS ADMITTED THAT INFLATED EXPE NDITURE HAS BEEN USED TO MAKE PAYMENTS, IT IS HIGHLY INCORRECT ON THE PART O F ASSESSEE TO SEEK TELESCOPING BENEFIT AGAINST CASH CREDITS FOUND IN T HE BOOKS OF ACCOUNT FROM ADDITIONAL INCOME DETERMINED ON THE BASIS OF ESTIMA TION OF PROFIT. 40. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS AN ADMITTED FACT THAT WHEN THE ASSESSMENTS HAVE BEEN UNABATED / CONCLUDED AS ON THE DATE OF SEARCH, NO ADDITION COULD BE MADE IN ABSENCE OF ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. THIS LEGAL POSITION H AS BEEN LAID DOWN BY VARIOUS HIGH COURTS AND TRIBUNALS. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSMENT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION HAS BEEN UN ABATED AS ON THE DATE OF SEARCH. BUT THE FACT REMAINS THAT THE ADDITION MAD E BY THE AO TOWARDS SHARE APPLICATION MONEY AND CONSEQUENT EXPENDITURE IS ON THE BASIS OF INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH WHICH IS MARKE D AS ANNEXURE A3. THE SAID 69 HYDROAIR TECTONICS (PCD) LTD DOCUMENT WAS SEIZED FROM THE PREMISES OF SHRI HARBH AJAN SINGH, DIRECTOR OF THE COMPANY AS PER WHICH, THE ASSESSEE WAS OBTAININ G ACCOMMODATION ENTRIES FROM CERTAIN AGENTS IN KOLKATA IN FORM OF SHARE APP LICATION MONEY. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO MERI T IN THE ARGUMENT OF THE ASSESSEE FOR THE REASON THAT SAID ADDITION WAS NOT BASED ON ANY INCRIMINATING MATERIAL. CONSEQUENTLY, WE REJECT LEGAL ARGUMENT T AKEN BY THE ASSESSEE. 41. COMING TO THE ISSUE ON HAND, THE AO HAS MADE AD DITION TOWARDS SHARE APPLICATION MONEY RECEIVED FROM CERTAIN PARTIES FOR THE REASON THAT THOUGH THE IDENTITY OF THE PARTIES HAS BEEN PROVED BY FILING C ERTAIN DOCUMENTS, YET, THE GENUINENESS OF TRANSACTION AND CREDITWORTHINESS OF THE PARTIES ARE STILL IN DOUBT AS THE ASSESSEE FAILED TO EXPLAIN HOW THEY HA VE COME IN CONTACT WITH THE ASSESSEE WHEN BOTH ARE SITUATED AND DOING THEIR BUS INESS FROM DIFFERENT PLACES AND NOT KNOWN TO EACH OTHER. THE AO HAD EXTENSIVEL Y DISCUSSED THE ISSUE IN THE LIGHT OF CERTAIN JUDICIAL PRECEDENTS TO COME TO THE CONCLUSION THAT MERE FURNISHING OF NAMES AND ADDRESSES, THEIR PAN WOULD NOT BE SUFFICIENT COMPLIANCE TO DISCHARGE THE IDENTITY. THE IDENTITY MEANS - BOTH PARTIES SHOULD BE KNOWN TO EACH OTHER AND THEIR TRANSACTION SHOULD BE GENUINE IN TERMS OF NORMAL COMMERCIAL TRANSACTIONS BETWEEN AN INVESTOR AND INVESTEE. IT IS THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE HAS RE CEIVED SHARE APPLICATION MONEY FROM THOSE COMPANIES WHICH WAS ON THE BASIS O F MEMORANDUM OF 70 HYDROAIR TECTONICS (PCD) LTD UNDERSTANDING AS PER WHICH THE COMPANIES WERE INVES TING FOR PURCHASE OF SHARES OF ASSESSEE COMPANY. THE ASSESSEE FURTHER C ONTENDED THAT THOSE COMPANIES ARE HAVING HUGE NET-WORTH TO EXPLAIN SOUR CE OF INVESTMENT IN SHARES OF ASSESSEE COMPANY. THE ASSESSEE HAS FILED VARIOUS DETAILS INCLUDING CERTIFICATE OF INCORPORATION, COPIES OF PAN, ETC,. 42. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIAL ON RECORD, WE FIND THAT IN ORDER TO OVERCOME THE SHADOW OF PROVISIONS OF SECTION 68, IT IS FOR THE ASSESSEE TO FILE COMPLETE DETAILS OF CREDITS FOUND IN ITS BOOKS OF ACCOUNT TO DISCHARGE THE ONUS CAST UPON U/S 68 OF THE ACT. ME RE FURNISHING OF CERTAIN DOCUMENTS INCLUDING PAN WOULD NOT BE SUFFICIENT ENO UGH TO DISCHARGE THE IDENTITY WHEN THE CONDUCT OF THE PARTIES IS IN DOUB TFUL. IN THIS CASE, THE AO HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT THOSE PA RTIES ARE REGISTERED IN KOLKATA AND THE ASSESSEE FAILED TO PROVE HOW BOTH CAME IN C ONTACT WHILE MAKING HUGE INVESTMENT IN ASSESSEE COMPANY. EVEN THE SEIZED DO CUMENT FOUND DURING THE COURSE OF SEARCH CLEARLY INDICATE THAT THE ASSESSEE HAS OBTAINED ACCOMMODATION ENTRIES FROM ENTRY PROVIDERS AND THIS FACT HAS BEEN ADMITTED BY THE DIRECTOR SHRI HARBHAJAN SINGH. THEREFORE, W E ARE OF THE CONSIDERED VIEW THAT IT CANNOT BE SAID THAT THE ASSESSEE HAS DISCHA RGED IDENTITY OF THE PERSONS TO THE SATISFACTION OF THE AO. AS REGARDS GENUINEN ESS OF TRANSACTIONS, WE FIND THAT ALTHOUGH THE ASSESSEE HAS FILED BANK STATEMENT S TO PROVE GENUINENESS OF 71 HYDROAIR TECTONICS (PCD) LTD TRANSACTIONS, WHEN IT COMES TO THE CONDUCT OF THE P ARTIES AND THEIR PLACE OF BUSINESS COUPLED WITH INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH CLEARLY PROVES THE FACT THAT THESE PARTIES ARE ENTR Y PROVIDERS INVOLVED IN PROVIDING ACCOMMODATION ENTRIES. THE ASSESSEE IS T HE BENEFICIARY OF ACCOMMODATION ENTRIES PROVIDED BY ENTRY PROVIDERS I N FORM OF SHARE APPLICATION MONEY. THE LOWER AUTHORITIES BROUGHT O UT CLEAR FACTS TO THE EFFECT THAT IN THE BANK STATEMENT OF THE PARTIES, EXCEPT D EBIT / CREDITS ON THE SAME DAY NO OTHER ENTRIES IN RESPECT OF GENUINE BUSINESS TRANSACTIONS ARE FOUND. EVEN ON PERUSAL OF FINANCIAL STATEMENTS OF THE SUBS CRIBERS, WE FIND THAT THOSE COMPANIES ARE CARRYING HUGE RESERVES IN THEIR BALAN CE-SHEETS WITHOUT THERE BEING ANY BUSINESS ACTIVITY. WHEN WE GO THROUGH TH E P&L ACCOUNT, THEY HAVE DECLARED A MEAGRE TURNOVER AND ALSO THAT IN SOME CA SES, NEGATIVE PROFIT. WHEN WE COMPARE THE YEAR OF INCORPORATION OF THE CO MPANY WITH THEIR DECLARED PROFIT, THERE IS A MISMATCH BETWEEN RESERV ES & SURPLUS AND PROFIT GENERATED FROM THE BUSINESS. UNDER THESE FACTS, IT IS HIGHLY INCORRECT ON THE PART OF THE ASSESSEE TO CLAIM THAT TRANSACTIONS BET WEEN CREDITORS AND THE ASSESSEE ARE GENUINE AND IT HAS PASSED THE TEST OF GENUINENESS OF TRANSACTIONS AS PROVIDED U/S 68 OF THE ACT. SIMILAR IS THE CASE WITH CREDITWORTHINESS OF THE PARTIES, AS NONE OF THE SUBSCRIBER HAS CREDIBLE BUS INESS ACTIVITY, WHICH IS EVIDENT FROM THE FACT THAT THOSE COMPANIES HAVE NOT DECLARED ANY PROFITS OR 72 HYDROAIR TECTONICS (PCD) LTD EVEN CONSIDERABLE AMOUNT OF TURNOVER. FURTHER, WHE N WE GO THROUGH THEIR BALANCE-SHEETS, IT IS NOTICED THAT IN THE BALANCE-S HEET THEY CARRY ONLY SHARE CAPITAL AND RESERVES IN THE LIABILITY SIDE AND LOAN S AND ADVANCES IN THE ASSET SIDE WITHOUT THERE BEING ANY FIXED ASSETS, TRADE CR EDITORS, TRADE RECEIVABLES AND STOCK IN TRADE. UNDER THESE FACTS, THE CREDITW ORTHINESS OF THE PARTIES IS HIGHLY DOUBTFUL AND ACCORDINGLY, THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE THAT THOSE PARTIES ARE HAVING CREDITWORTHI NESS TO SUBSCRIBE TO THE CAPITAL OF THE ASSESSEE COMPANY. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS FAILED TO PROVE GENUINENESS O F TRANSACTIONS AND CREDITWORTHINESS OF THE PARTIES. INSOFAR AS CASE LA WS RELIED UPON BY THE ASSESSEE, WE FIND THAT ALTHOUGH PLETHORAS OF JUDGEM ENTS HAVE BEEN RELIED UPON BY THE LD.AR FOR THE ASSESSEE IN SUPPORT OF HI S ARGUMENT, NONE OF THE CASE LAWS ARE APPLICABLE TO THE FACTS OF THE PRESEN T CASE. THEREFORE, THE CASE LAWS RELIED UPON BY THE ASSESSEE IS SUMMARILY REJEC TED. 43. COMING TO THE ALTERNATIVE PLEA TAKEN BY THE LD. AR FOR THE ASSESSEE. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT IN CASE ADDIT ION IS CONFIRMED, THE BENEFIT OF TELESCOPING SHALL BE ALLOWED TO THE ASSESSEE AGA INST ADDITIONAL INCOME ESTIMATED FROM TOTAL TURNOVER. WE FIND THAT THOUGH THE BENEFIT OF TELESCOPING IS AVAILABLE TO CERTAIN ADDITION MADE ON THE BASIS OF LOOSE SLIPS / DIARY ENTRIES AGAINST ESTIMATION OF ADDITIONAL INCOME OVER AND AB OVE PROFIT DECLARED FROM 73 HYDROAIR TECTONICS (PCD) LTD BOOKS OF ACCOUNT, BUT IN THIS CASE ON PERUSAL OF FA CTS WE FIND THAT THE ASSESSEE HAS INFLATED BOGUS PURCHASES SO AS TO SIPHON OFF MO NEY TO MAKE VARIOUS GRATUITOUS PAYMENTS TO CERTAIN PERSONS FOR GETTING CONTRACTS AND HENCE, IT IS HIGHLY INCORRECT TO SAY THAT THE ADDITIONAL INCOME ESTIMATED FROM TURNOVER IS AVAILABLE TO THE ASSESSEE TO EXPLAIN SOURCE OF CRED IT FOUND IN ITS BOOKS OF ACCOUNT. THEREFORE, WE REJECT THE ARGUMENTS OF THE ASSESSEE FOR TELESCOPING FOR ADDITION MADE TOWARDS SHARE APPLICATION MONEY A GAINST ADDITIONAL INCOME ESTIMATED FROM TURNOVER. 44. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITION OF UNEXPLAINED SHARE CAPITAL U/S 68 AMOUNTING TO RS.62 ,72,35,875 AND CONSEQUENT EXPENDITURE OF RS.2,19,53,255 INCURRED T O RAISE SUCH BOGUS SHARE CAPITAL. THIS ISSUE HAS BEEN RAISED IN THE DEPARTM ENTS APPEAL IN THE CASE OF M/S HYDROAIR TECTONICS (PCD) LTD FOR AY 2010-11. T HE FACTUAL MATRIX OF THE IMPUGNED DISPUTE ARE THAT DURING THE FINANCIAL YEAR RELEVANT TO AY 2010-11, THE ASSESSEE CLAIMS TO HAVE BOOKED BOGUS PURCHASES AMOUNTING TO RS.328,18,70,325. THE ASSESSEE FURTHER CLAIMED THA T OUT OF TOTAL BOGUS PURCHASES, IT HAS PASSED UNILATERAL PURCHASES ENTRI ES FROM THREE PARTIES, VIZ. ANKITA ENTERPRISES, PAVITRA INFRASTRUCTURE AND BALA JI FIBRE REINFORCE LTD. THE ASSESSEE FURTHER CLAIMS THAT THESE PURCHASES WERE S ECOND TYPE OF BOGUS PURCHASES AS EXPLAINED IN THE SUBMISSION RELATED TO BOGUS PURCHASES AND SALES, 74 HYDROAIR TECTONICS (PCD) LTD I.E. THEY ARE MERELY FICTITIOUS ENTRIES PASSED UNIL ATERALLY IN THE BOOKS OF THE ASSESSEE AND WITHOUT INVOLVING IN MONETARY TRANSACT IONS. THESE BOGUS PURCHASES WERE CREDITED TO THE RESPECTIVE PARTIES A CCOUNT AND IN ORDER TO NULLIFY THE CREDIT APPEARING IN THE BOOKS OF ACCOUN T, THE ASSESSEE HAS PASSED JOURNAL ENTRIES IN THE BOOKS OF ACCOUNT TO CREDIT S HARE CAPITAL AND SHARE PREMIUM AND DEBITED TRADE CREDITORS ACCOUNTS. THE AO HAS MADE ADDITION TOWARDS SHARE CAPITAL ON THE GROUND THAT THE ASSESS EE HAS FAILED TO PROVE THE IDENTITY, GENUINENESS OF TRANSACTIONS AND CREDITWOR THINESS OF THE PARTIES. IT IS THE CONTENTION OF THE ASSESSEE THAT THE SHARE CAPIT AL IS A UNILATERAL ENTRY PASSED IN THE BOOKS OF ACCOUNT TO CREATE FICTITIOUS SHARE CAPITAL WITHOUT ANY MONETARY CONSIDERATION. THE SAID ENTRIES HAVE BEEN REVERSED IN SUBSEQUENT FINANCIAL YEAR. THE ASSESSEE FURTHER CONTENDED THA T IT HAS FILED COMPLETE DETAILS INCLUDING FINANCIAL STATEMENTS OF BALAJI FI BRE REINFORCE LTD AS PER WHICH THERE IS NO INVESTMENT IN THE NAME OF THE ASSESSEE COMPANY IN THEIR BALANCE- SHEET. SIMILARLY, IN RESPECT OF ANKITA ENTERPRISES , IT HAS OBTAINED THE CONFIRMATION AS PER WHICH THE PARTY DENIED ANY INVE STMENT IN SHARES OF THE ASSESSEE COMPANY. THE LD.AR FURTHER SUBMITTED THAT THE LD.AO HAS ACCEPTED THE ADMISSION OF BOGUS PURCHASES AND ALSO THIS FACT HAS BEEN CONFIRMED DURING REMAND PROCEEDINGS, AS PER WHICH, NONE OF THE PARTI ES HAVE RESPONDED TO NOTICES U/S 133(6). IN VIEW OF THE ABOVE, IT IS CO NCLUSIVELY ESTABLISHED THAT THE 75 HYDROAIR TECTONICS (PCD) LTD ASSESSEE NEVER RECEIVED SHARE CAPITAL AMOUNTING TO RS.62,72,35,875 FROM THE AFORESAID 3 PARTIES. THE ASSESSEE HAS FILED ELABOR ATE WRITTEN SUBMISSIONS ON THE ISSUE ALONG WITH CERTAIN JUDICIAL PRECEDENTS WH ICH ARE REPRODUCED HEREUNDER:- 11.1 THIS ISSUE HAS BEEN RAISED IN THE DEPAR TMENT'S APPEAL IN THE CASE OF HYDROAIR TECTONICS (PCD) LTD. FOR A.Y. 2010-11. REFER GROUND NO. (IV) OF THE DEPARTMENTAL APPEAL (ITA NO. 3931/MUM-2017). 11.2 FOR THE YEAR UNDER CONSIDERATION (I.E. A. Y. 2010-11), THE APPELLANT HAS ADMITTED THAT IT HAD BOOKED BOGUS PURCHASES AMOUNTI NG TO ? 328,18,70,325. THESE BOGUS PURCHASES AS ADMITTED BY THE APPELLANT INCLUDED THE PURCHASES BOOKED IN THE NAME OF FOLLOWING THREE PARTIES. PART Y-WISE DETAILS OF BOGUS PURCHASES BOOKED IN THE YEAR UNDER CONSIDERATION IS AVAILABLE AT PAGE 9-10 OF THE PAPER-BOOK NO. 7: SR.NO. NAME OF THE PARTY AMOUNT OF BOGUS PURCHASES (IN RS. ) 1. ANKITA ENTERPRISE 20,90,78,415 2. PAVITA INFRASTRUCTURE 20,90,78,415 3. BALAJI FIBER REINFORCE PVT LTD 20,90,79,045 TOTAL 67,72,35,875 11.3 THESE PURCHASES WERE THE SECOND TYPE OF BOGUS PURCHASES AS EXPLAINED IN THE SUBMISSION RELATED TO BOGUS PURCHASES & SALES I.E. THEY WERE MERELY FICTITIOUS ENTRIES PASSED UNILATERALLY IN THE BOOKS OF THE ASSESSEE AN D WITHOUT INVOLVING ANY MONETARY TRANSACTIONS. 11.4 THESE BOGUS PURCHASES WERE CREDITED TO TH E AFORESAID PARTIES' ACCOUNTS RESPECTIVELY. HOWEVER, IT WAS A BOGUS LIABILITY CRE ATED IN THE BOOKS OF ACCOUNTS AS NO REAL AND GENUINE TRANSACTIONS HAD TAKEN PLACE BETWEEN TH E APPELLANT AND THESE COMPANIES. IN ORDER TO NULLIFY THESE BOGUS LIABILITIES STANDIN G TO THE CREDIT OF AFORESAID THREE PARTIES AGGREGATING TO ? 62,72,35,875, THE APPELLANT SHOWED IN ITS BOOKS THAT IT HAD ALLOTTED ITS EQUITY SHARES AS ON 31.3.2010 TO THEM. ACCORDINGLY, THE FICTITIOUS LIABILITY WAS SQUARED UP BY PASSING FICTITIOUS ENTRIES OF ALLOTMENT OF SHARE S. THE DETAILS OF EQUITY SHARES SHOWN TO HAVE BEEN ALLOTTED BY THE APPELLANT TO THE AFORESAI D THREE PARTIES ARE AS FOLLOWS: NAME OF PARTY NO. OF EQUITY SHARES ALLOTTED FACE VALUE PER EQUITY SHARE PREMIUM PER EQUITY SHARE ISSUE PRICE PER EQUITY SHARE TOTAL AMOUNT (INCLUDING PREMIUM) ANKITA ENTERPRISE 6,63,741 10 305 315 20,90,78,415 PAVITA INFRASTRUCTURE 6,63,741 10 305 315 20,90,78,415 BALAJI FIBER REINFORCE PVT LTD 6,63,743 10 305 315 20,90,79,045 TOTAL 19,91,225 62,72,35,875 11.5 THE LEDGER ACCOUNTS OF ALL THREE PARTIES IN TH E BOOKS OF ACCOUNTS OF THE APPELLANT FOR THE F.Y. 2009-10 SHOWING BOOKING OF BOGUS PURCHASES AND TRANSFERRING THE LIABILITY TO SHARE CAPITAL & SHARE PREMIUM OF THAT COMPANY ARE A VAILABLE AT PAGES 1-8 OF PAPER-BOOK 76 HYDROAIR TECTONICS (PCD) LTD NO. 7. THE APPELLANT ALSO SUBMITTED RETURN OF ALLOT MENT IN FORM 2 TO REGISTRAR OF COMPANIES REFLECTING ALLOTMENT OF SHARES TO THE AFO RESAID PARTIES. 11.6 HOWEVER, THE FACT WAS THAT THESE ENTRIES OF PURCHAS ES AND THEREAFTER ALLOTMENT OF SHARES AGAINST THE OUTSTANDING LIABILI TIES WERE BOGUS ENTRIES MADE UNILATERALLY BY THE ASSESSEE. NONE OF THESE COMPANI ES HAD SOLD ANY GOODS TO THE ASSESSEE AS SHOWN ABOVE OR SUBSCRIBED TO THE EQ UITY SHARES OF THE ASSESSEE SHOWN AS ABOVE. IN FACT, THESE THREE PARTI ES WERE NOT AWARE AT ALL ABOUT ALL SUCH ENTRIES MADE BY THE APPELLANT IN THEIR LEDGER ACCOUNTS. 11.7 IN RESPECT OF BALAJI FIBER REINFORCE PRIVATE LIMITE D, WE ARE PROVIDING THE COPIES OF FORM 23AC, WHICH IS A FORM FOR FILING BALANCE SHEET WITH THE REGISTRAR OF COMPANIES, FOR THE YEAR ENDED 31 ST MARCH, 2010 AS WELL AS 31 S1 MARCH, 2011 ALONG WITH ITS AUDITED BALANCE SHEETS FOR BOTH YEARS. ITS BALANCE SHEET AS ON 31.3.2010 SHOWS THAT IT HAS ONLY INVESTMENTS IN GOLD & SILVER COINS AMOUNTING TO T 8 ,39,006 AND NO OTHER INVESTMENTS AT ALL. FURTHER, ITS BALANCE SHEET AS ON 31.3.2011 ALS O SHOWS THAT IT HAS ONLY INVESTMENTS IN GOLD & SILVER COINS AMOUNTING TO ? 13,06,90 AND NO OTHER INVESTMENTS AT ALL. [REFER PAGES 11-42 OF THE PAPER-BOOK NO. 7]. 11.8 IN RESPECT OF ANKITA ENTERPRISES, THE APPELLAN T HAS BEEN ABLE TO OBTAIN A CONFIRMATION THAT IT HAD NEVER INVESTED IN SHARES OF THE APPELLA NT COMPANY DURING THE FINANCIAL YEAR 2009-10. THE COPY OF CONFIRMATION IS AVAILABLE AT P AGE 43 OF THE PAPER-BOOK NO. 7. 11.9 FURTHER, THE LEARNED ASSESSING OFFICER H AS ACCEPTED THE ADMISSION OF BOGUS PURCHASES AMOUNTING TO I 328,18,70,325 AS STATED ABOVE. FURTHER, REGARDING T HE ALLOTMENT OF SHARES TO THE AFORESAID THREE PARTIES, THE LEARNED ASSESSING OFFICER MADE INQUIRIES WITH THEM BY ISSUING NOTICES U/S. 133(6). IT HAS BEEN STATED BY THE LEARNED ASSESSING OFFICER HIMSELF THAT IN RESPONSE TO NOTIC E U/S. 133(6) ALL THE THREE PARTIES DENIED BEING SHAREHOLDERS OF THE APPELLANT COMPANY. 1110 IN VIEW OF THE ABOVE, IT IS CONCLUSIVELY ESTABLISHE D THAT THE APPELLANT NEVER RECEIVED SHARE CAPITAL AMOUNTING TO F 62,72,35,875 FROM THE AFORESAID THREE PARTIES. IT HAD PASSED THE JOURNAL ENTRIES FOR TRANSFERRING THE OUTSTANDING LIABILITIES IN RESPECT OF BOGUS PURCHASES TO ITS SHARE CAPITAL AND SHARE PREMIUM ACCOUNTS. 11.11 HOWSOEVER FICTITIOUS IT WAS BUT AS A RESU LT OF THE ABOVE, THE AFORESAID THREE PARTIES, WHICH WERE OUTSIDERS, BECAME ENTITLED TO 1 9,91,225 EQUITY SHARES OF THE APPELLANT COMPANY, AT LEAST AS PER RECORDS, WHICH C ONSTITUTED ABOUT 11.44% OF TOTAL EQUITY SHARES AS ON 31.3.2010 (I.E. 1,74,03.188 EQU ITY SHARES). IN ORDER TO ENSURE THAT THOSE PARTIES DO NOT CLAIM OWNERSHIP OF SUCH SHARES , THE APPELLANT IMMEDIATELY THEREAFTER SHOWED THAT THOSE 19,91,225 EQUITY SHARES WERE TRAN SFERRED BY ALL THREE PARTIES TO ONE OF ITS SISTER CONCERN I.E. HYDROAIR ENVIROTECH PVT. LT D. AS ON 24.5.2010. 11.12 THE APPELLANT MERELY RECORDED TRANSFER OF 19,91,225 EQUITY SHARES FROM THE NAMES OF AFORESAID THREE PARTIES TO HYDROAIR ENVIRO TECH PVT. LTD. IN ITS RECORDS LIKE SHAREHOLDER'S REGISTER AND ANNUAL RETURN. THERE WAS NO FLOW OF CONSIDERATION FROM HYDROAIR ENVIROTECH PVT. LTD. TO ANY OF THE AFORESA ID PARTIES FOR ACQUIRING SHARES OF THE APPELLANT COMPANY. THE AFORESAID THREE PARTIES NEVER SUBSCRIBED TO THE IMPUGNED SHARES OF THE APPELLANT COMPANY, NEVER PAID ANY MON EY TO THE APPELLANT COMPANY AGAINST SHARE CAPITAL, NEVER SOLD/TRANSFERRED ANY S HARES OF THE APPELLANT COMPANY TO HYDROAIR ENVIROTECH PVT. LTD., NEVER RECEIVED AN Y CONSIDERATION FOR SELLING/TRANSFERRING SHARES OF THE APPELLANT COMPAN Y TO HYDROAIR ENVIROTECH PVT. LTD. 11.13 THE APPELLANT WOULD LIKE TO SUBMIT THAT T HERE WERE NO OTHER SUPPORTING DOCUMENTS WHICH COULD BE FOUND DURING THE COURSE OF SEARCH WHICH CAN FURTHER SUPPORT THE FACT THAT THE APPELLANT COMPANY HAS RECEIVED SH ARE CAPITAL AMOUNTING TO ? 62,72,35,875 FROM THOSE THREE PARTIES I.E. ANKITA E NTERPRISES, PAVITRA INFRASTRUCTURE OR BALAJI FIBER REINFORCE PVT. LTD. THE SEARCH TEAM CO ULD NOT FIND ANY OF THE BELOW MENTIONED DOCUMENTS WHICH MAY SUBSTANTIATE THE FACT OF RECEIPT OF SHARE CAPITAL BY THE APPELLANT COMPANY AMOUNTING TO RS. 62,72,35,875 - ANY COMMUNICATION BETWEEN APPELLANT AND THESE THREE PARTIES REGARDING RAISING OF SHARE CAPITAL OF AN AMOUNT MORE THAN ? 62 CRORES. SHARE CERTIFICATES ISSUED BY THE APPELLANT TO AFORESAID THREE PARTIES. ANY BANK ACCOUNT OF THE APPELLANT WHEREIN AMOU NT OF T 62,72,35,875 GOT CREDITED. 77 HYDROAIR TECTONICS (PCD) LTD 11.14 ALSO, A GROUP CONCERN OF THE APPELLANT, H YDROAIR ENVIROTECH PVT. LTD. WAS ALSO COVERED IN SEARCH OPERATION U/S. 132 SIMULTANEOUSLY . EVEN IN THAT CONCERN'S CASE, NONE OF THE BELOW MENTIONED DOCUMENTS OR EVIDENCES WERE FOUND WHICH CAN SUGGEST THAT IT HAD PAID CONSIDERATION TO ALL THREE PARTIES AS MENT IONED ABOVE FOR REACQUIRING SHARES OF THE APPELLANT COMPANY - COMMUNICATION BETWEEN THEM NEGOTIATING TRANSFE R OF SHARES OF THE APPELLANT COMPANY. ANY BANK ACCOUNT OF HYDROAIR ENVIROTECH PVT. L TD. REFLECTING PAYMENTS MADE BY IT TO THREE PARTIES FOR PURCHASING SHARES OF THE APPELLAN T COMPANY. TRANSFER FORMS DULY SIGNED BY AFORESAID THREE PARTIES WHEREIN THEY HAVE AGREED TO TRANSFER THE SHARES IN THE NAME OF HYDROAIR ENVIROT ECH PVT. LTD. AND ALSO STATING THE CONSIDERATION RECEIVED FOR TRANSFER OF SHARES. SHARE CERTIFICATES DULY TRANSFERRED IN THE NAM E OF HYDROAIR ENVIROTECH PVT. LTD. PAYMENT OF STAMP DUTY ON TRANSFER OF SHARES. 11.15 THE VERY FACT THAT NONE OF THE ABOVE DOCU MENTS WERE FOUND EITHER IN THE PREMISES OF THE APPELLANT COMPANY OR IN THE PREMISE S OF HYDROAIR ENVIROTECH PVT. LTD. DURING THE COURSE OF SEARCH PROCEEDING SUGGESTS THA T THE APPELLANT COMPANY NEVER RECEIVED A SHARE CAPITAL AMOUNTING TO ? 62,72,35,87 5 AT ALL. IT WAS MERELY THE BOOK ENTRIES WHICH WERE PASSED BY THE APPELLANT UNILATER ALLY IN ORDER TO COVER UP ITS OWN PROBLEMS. 11.16 IN THE IMMEDIATE SUBSEQUENT FINANCIAL YEA R I.E. F.Y. 2010-11, THE APPELLANT REVERSED THE FICTITIOUS SHARE CAPITAL AND SHARE PRE MIUM AGGREGATING TO ? 62,72,35,875 IN ITS BOOKS OF ACCOUNTS. A REFERENCE CAN BE MADE TO N OTE NO. 4 ON 'SHARE CAPITAL' IN THE AUDITED BALANCE SHEET AS ON 31.3.2011 (REFER PAGES 65-68 OF PAPER-BOOK NO. 7) WHEREIN IT HAS BEEN STATED AS FOLLOWS: 'THE TOTAL PAID UP SHARE CAPITAL AS AT MARCH 31, 20 11 IS ? 33,65,54,410. THIS DOES NOT INCLUDE THE ERRONEOUSLY FILED FORM 2 WITH MINISTRY OF CORPORATE AFFAIRS FOR A TOTAL EQUITY SHARE CAPITAL OF F 1,99,12,250 DIVIDED INTO 19,91,225 EQUITY SHARES OF F 10 EACH WRITTEN BACK ALONGWITH PREMIUM OF ? 60,73,23,625 DURING THE YEAR AS THESE ARE THE SHARES ISSUED ERRONEOUSLY WITHOUT PROPER CONSIDERATION DUR ING THE PREVIOUS YEAR ENDED MARCH 31, 2010.' THE SHARE PREMIUM AMOUNTING TO 60,73,23,625 WAS W RITTEN BACK AND ADJUSTED AGAINST GENERAL RESERVE WHICH CAN BE SEEN FROM THE DETAILED NOTE ON SEVERAL ADJUSTMENTS MADE TO GENERAL RESERVES. 11.17 THE APPELLANT HAS ALSO REVERSED/CANCELLED 19,91,225 EQUITY SHARES STANDING IN THE NAME OF HYDROAIR ENVIROTECH PVT. LTD. IN ITS SU BSEQUENT ANNUAL RETURN FILED WITH MINISTRY OF CORPORATE AFFAIRS. 11.18 THE FOLLOWING CONCLUSION CAN BE DRAWN ON T HE BASIS OF FACTS AS EXPLAINED ABOVE - THE APPELLANT NEVER RECEIVED MONEY TO THE EXTE NT OF T 62,72,35,875 IN ANY FORM. EVEN NO EVIDENCES HAVE BEEN FOUND DURING THE COURSE OF S EARCH EVIDENCING THE RECEIPT OF MONEY TO THAT EXTENT BY THE APPELLANT. THE SHARE CAPITAL (INCLUDING SHARE PREMIUM) SH OWN TO HAVE BEEN RAISED DURING THE YEAR IS AN OUTCOME OF WEB OF BOGUS ENTRIES MADE BY THE APPELLANT IN ITS BOOKS OF ACCOUNT. THE CONCERNED PARTIES WERE NOT HAVING ANY KNOW LEDGE OF SUCH BOGUS ENTRIES PASSED BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS. THEY HAV E NOT CONFIRMED ANY OF THE ENTRIES WHICH HAVE BEEN PASSED BY THE APPELLANT IN THEIR AC COUNTS. THEY HAVE ALSO DENIED THE FACT OF ANY INVESTMENT MADE BY THEM IN THE SHARE CA PITAL OF THE APPELLANT COMPANY. THE BOGUS ENTRIES WHICH RESULTED INTO INCREASE IN SHARE CAPITAL DURING THE YEAR UNDER CONSIDERATION HAVE BEEN REVERSED IN THE IMMEDIATE S UBSEQUENT YEAR. THE NET IMPACT OF PASSING BOGUS ENTRIES IN THE YEAR UNDER CONSIDERATION AND THEIR REVERSAL IN THE IMMEDIATE SUBSEQUENT YEAR CAN BE EX PLAINED IN THE SIMPLE MANNER AS FOLLOWS: PARTICULARS DEBIT CREDIT ENTRY NO.1: PURCHASES (BOGUS) 62,72,35,875 78 HYDROAIR TECTONICS (PCD) LTD TO ANKITA ENTERPRISES 20,90,78,415 TOPAVITRA INFRASTRUCTURE 20,90,78,415 TO BALAJI FIBER REINFORCE PVT LTD 20,90,79,045 ENTRY NO.2 ANKITA ENTERPRISES 20,90,78,415 PAVITRA INFRASTRUCTURE 20,90,78,415 BALAJI FIBER REINFORCE PVT LTD 20,90,79,045 TO SHARE CAPITAL 1,99,12,250 TO SHARE PREMIUM 60,73,23,625 ENTRY NO.3 SHARE CAPITAL 1,99,12,250 SHARE PREMIUM 60,73,23,625 TO GENERAL RESERVES 62,72,35,875 11.19 THE LEARNED ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 68 IN ORDER TO ADD THE AMOUNT OF RS. 62,72,35,875 TO THE TAXABL E INCOME OF THE APPELLANT. SECTION 68 READS AS UNDER: WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSES MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATI ON ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, I N THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. 11.20 THE TITLE OF THE SECTION I.E. 'CASH CREDITS' ITSELF IMPLIES THAT THIS SECTION CAN BE INVOKED ONLY IF CASH I.E. MONEY IS INVOLVED AND NOT OTHERWISE. IN THE APPELLANT'S CASE, IT IS CRYSTAL CLEAR THAT NO MONEY IS INVOLVED AT ALL AND THE IMPUGNED AMOUNT OF 62,72,35,875 REPRESENTED CREDIT ARISING ON ACCOUNT OF MERE JOURN AL ENTRIES PASSED WHICH WERE BOGUS IN NATURE, WHICH WERE PASSED UNILATERALLY WITHOUT OBTA INING CONSENT OF THE CONCERNED PARTIES AND WHICH WERE REVERSED IN THE IMMEDIATE SUBSEQUENT YEAR. 11.21 FURTHER, SECTION 68 PROVIDES THAT 'WHERE ANY SUM IS FOUND CREDITED......'. HERE, 'SUM' IS REQUIRED TO BE INTERPRETED AS THAT SUM WHI CH REPRESENTS MONEY. IN THIS CONNECTION THE WORD 'SUM' IS OF PARAMOUNT IMPORTANCE. THE WORD S 'ANY SUM' CANNOT BE TAKEN AS PARALLEL TO 'ANY ENTRY'. THOUGH AN AMOUNT HAS BEEN CREDITED IN THE BOOKS, IT CANNOT BE COVERED WITHIN THE PURVIEW OF SECTION 68 IF IT DOES NOT REPRESENT ANY MONEY. 11.22 THE APPELLANT RELIES UPON THE DECISION IN THE CASE OF ACIT VS. MAHENDRA KUMAR AGARWAL [23 TAXMANN.COM 285 - JAIPUR ITAT] WHEREIN UPON SIMILAR FACTS, THE ITAT HELD THAT THE PROVISIONS O( SECTION 68 ARE NOT APPLICABL E. THE FACTS OF THIS CASE HAVE EXPLAINED IN PARA 32 & 33 OF THE ORDER WHICH IS REPRODUCED BE LOW: '32. ON PERUSAL OF ACCOUNTS OF M/S RAJESH SALES COR PORATION THE AO FOUND THAT M/S RAJESH SALES CORPORATION WAS STANDING AS A CRED ITOR IN THE ASSESSEE'S ACCOUNT FOR RS. 1,31,74,265. THAT FROM THE MONTH OF OCTOBER ONWARDS THERE WERE ONLY RECEIPTS TO THE TUNE OF RS. 3,99,74,265 AND ON 31ST MARCH, 2007 A JOURNAL ENTRY WAS PASSED. MAHENDRA KUMAR AGARWAL'S CURRENT ACCOUNT WAS CREDITED BY RS. 2,68,00,000 AND RAJESH SALES CORPORATION'S ACCOUNT WAS DEBITED BY THE SAME AMOUNT. THE AO HAS OBSERVED THAT OUT OF RECEIPTS OF RS. 3,99,74,265, RS. 2.68 CRORES WAS TRANSFERRED TO THE CURRENT ACCOUNT OF TH E ASSESSEE AND BALANCE RS. 1,31,74,265 WAS CARRIED FORWARDED TO THE NEXT FINAN CIAL YEAR. IN THE BOOKS OF M/S RAJESH SALES CORPN. THE SAME AMOUNT WAS CREDITED TO M/S MOHANLAL MAHENDRA KUMAR JEWELLERS AND DEBITED TO M/S AMIT AGENCY THRO UGH A JOURNAL ENTRY, SHRI KEWAL CHAND JAIN EXPLAINED THAT THE ENTRY PASSED BY M/S RAJESH SALES CORPN. WAS WITH A VIEW TO ADJUST ACCOUNTS OF BOTH THE PART IES WITH THEIR CONSENT. FROM THE 79 HYDROAIR TECTONICS (PCD) LTD STATEMENT OF ACCOUNT OF M/S AMIT AGENCY IN THE BOOK S OF ASSESSEE IT WAS SEEN BY THE AO THAT THERE WAS AN OPENING CREDIT BALANCE OF RS. 2,17,96,260 AGAINST WHICH CORRESPONDING SALES OF THE SAME AMOUNT WERE MADE AN D THERE WAS NO OUTSTANDING BALANCE. CONSIDERING THE FACT THAT JOURNAL ENTRY WA S PASSED BY ASSESSEE BY DEBITING THE ACCOUNT OF M/S RAJESH SALES CORPN. AND CREDITING THE CURRENT ACCOUNT OF THE ASSESSEE, AO CONSIDERED RS. 2.68 CRO RES AS UNEXPLAINED CASH CREDIT. 33. IT WAS SUBMITTED BY THE ASSESSEE THAT THE JOURN AL ENTRY PASSED BY DEBITING RAJESH SALES CORPORATION AND CREDITING THE ASSESSEE'S CURRENT ACCOUNT WAS WRONGLY PASSED AND WRONG ENTRY WAS RECTIFIED ON 30T H SEPT., 2009. HOWEVER, THE ASSESSEE FAILED TO PROVIDE COPY OF LEDGER ACCOU NT IN WHICH RECTIFICATION ENTRY WAS PASSED. THE AO CONSIDERED REVERSING OF EN TRY AS AN AFTERTHOUGHT. THAT FOR TWO YEARS RS. 2.68 CRORES REMAINED WITH TH E ASSESSEE AND HE COULD NOT RECTIFY THE ENTRY. THE ACCOUNTS WERE AUDITED AN D RETURNS WERE FILED. AS THE BOOKS OF ACCOUNTS OF THE CURRENT YEAR WERE OPEN AND THEREFORE, ADJUSTMENT WAS MADE. DURING THE YEAR A SURVEY WAS CONDUCTED ON 2ND SEPT., 2009 AND ADJUSTMENT ENTRY WAS PASSED AFTER THE DATE OF SURVE Y. IN ANY CASE PASSING OF RECTIFICATION ENTRY DOES NOT TAKE AWAY THE BASIC NA TURE OF THE TRANSACTION. THAT CREDITS WERE TRANSFERRED TO THE CURRENT ACCOUNT OF SHRI MAHENDRA KUMAR FOR WHICH NO EXPLANATION WAS OFFERED. THE AO HAS FURTHE R OBSERVED THAT M/S RAJESH SALES CORPORATION HAS NOT PASSED SUCH RECTIF ICATION ENTRY AS INFORMED BY SHRI KEWAL CHAND JAIN VIDE HIS LETTER DT. 29TH D EC., 2009. FURTHER EXPLANATION OF THE ASSESSEE THAT IT WAS NOT A REAL CREDIT WAS NOT ACCEPTED BY THE AO AS IT WAS FACTUALLY INCORRECT. RS. 2.68 CROR ES WAS NOT IN THE NATURE OF JOURNAL ENTRY BUT A CONSOLIDATED ENTRY OF VARIOUS BANK CREDITS WHICH WE RE TRANSFERRED TO THE CURRENT ACCOUNT OF SHRI MAHENDRA KUMAR. WITH THIS THE AO MADE ADDITION OF RS. 2.68 CRORES AS UNEXPLAINED CAS H CREDITS.' THE DECISION OF THE IT AT IN THESE FACTS AS CONTAIN ED IN PARA 38 ONWARDS IS REPRODUCED BELOW: '38. CONTENTION OF THE AUTHORISED REPRESENTATIVE IS CONSIDERED. THE ISSUE TO BE DECIDED IS WHETHER THE JOURNAL ENTRY PASSED FOR RS. 2.68 CRORES CAN BE ADDED AS UNEXPLAINED CASH CREDIT UNDER S. 68 OF IT ACT. 39. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE LEARNED CIT(A) OBSERVED THAT THIS ISSUE IS TO BE DE CIDED WHETHER JOURNAL ENTRY PASSED FOR RS. 2.68 CRORES OR ODD CAN BE ADDED AS U NEXPLAINED CASH CREDIT UNDER S. 68 OF THE ACT. THEREAFTER THE CIT(A) DISCU SSED THE ISSUE IN DETAIL AT PP. 14 TO 16 AND GAVE FOLLOWING FINDING : 'RAJESH SALES CORPN. MADE PAYMENT OF RS. 3,99,74,265 TO THE APPELLANT IN THE PROPRIETARY CONCERN OF M/S MOHANLAL MAHENDRA KUMAR JEWELLERS AND THIS PAYMENT RECEIVED BY THE APPELLANT IS UNDISPUTED. ON 31ST MARCH, 2007 A JOURNAL ENTRY HAS BEEN MADE IN THE BOOKS OF ACCOUNTS OF THE APPELLANT BY DEBITING M/S RAJESH SALES CORPORATION AND CREDITING THE CURRENT ACCOUNT OF SHRI MAHENDRA AGAR WAL BY THE AFORESAID BALANCE AMOUNT OF RS. 2.68 CRORES RESULTING NO AMOU NT PAYABLE TO RAJESH SALES CORPN. IN THE BOOKS OF ACCOUNTS OF THE APPELL ANT AS ON 31ST MARCH, 2007. IN THE LOGICAL SEQUENCE IN THE BOOKS OF ACCOUNTS OF RAJESH SALES CORPN. THE ENTRY SHOULD HAVE BEEN MADE BY CREDITING THE ACCOUN T OF THE APPELLANT AND DEBITING THE PARTNER'S CURRENT ACCOUNT BY THE AFORE SAID SUM OF RS. 2.68 CRORES. HOWEVER, IN THE BOOKS OF ACCOUNTS OF RAJESH SALES C ORPN. THE APPELLANT'S ACCOUNT WAS CORRECTLY CREDITED BUT IT WAS DEBITED T O M/S AMIT AGENCY. THIS ENTRY HAS BEEN MADE IN THE BOOKS OF ACCOUNTS OF M/S RAJESH SALES CORPN. BECAUSE THE APPELLANT WAS INSTRUCTED TO MAKE THE PA YMENT TO M/S AMIT AGENCY AND THEREFORE, WITH THE MUTUAL CONSENT OF ALL CONCE RNED PARTIES THESE ADJUSTMENT ENTRIES WERE TO BE MADE. HERE IT IS IMPO RTANT TO NOTE THAT AS ON 31ST 80 HYDROAIR TECTONICS (PCD) LTD MARCH, 2007 NO PAYMENT HAS BEEN RECEIVED OR MADE BY ANY OF THE PARTIES NAMELY THE APPELLANT, AMIT AGENCY AND BY M/S RAJESH SALES CORPN. THIS FACTUAL SITUATION IS NOT IN DISPUTE AND IS ALSO NOT CHALLENGED BY THE AO IN HIS REPORTS FROM TIME TO TIME AND IN THE DISCUSSION BEF ORE ME DURING THE COURSE OF APPELLATE PROCEEDINGS- WITH THESE FACTS, IT IS ABSO LUTELY CLEAR THAT THERE IS NO CREDIT WHICH CAN BE SAID AS UNEXPLAINED FOR THE AMOUNT OF RS. 2.68 CRORES IN THE BOOKS OF ACCOUNTS OF THE APPELLANT FOR WHICH TH E ADDITION HAS BEEN MADE BY AO UNDER S. 68 OF IT ACT. IN FACT, IN APPELLANT'S B OOKS THERE IS DEBIT ENTRY OF RS. 2.68 CRORES DEBITING TO RAJESH SALES CORPN. THE AO IS NOT FOUND CORRECT IN MAKING OBSERVATION THAT ANY PAYMENT WAS DUE TO M/S AMIT AGENCY AS APPELLANT HAS NOT MADE ANY PURCHASES DIRECTLY FROM M/S AMIT AGENCY. ON THE CONTRARY SALES WERE MADE BY THE APPELLANT TO M/S AM IT AGENCY, FURTHER, INTRODUCTION OF UNDISCLOSED INCOME IN THE BOOKS CAN NOT BE MADE BY PASSING JOURNAL ENTRY BECAUSE FROM JOURNAL ENTRY CASH CANNO T BE INTRODUCED IN THE BOOKS. FURTHER, THE AO HAS NOT POINTED OUT THE INTR ODUCTION OF UNDISCLOSED ASSETS IN THE BOOKS OF ASSESSES CORRESPONDING TO THIS JOURNAL ENTRY. WITH THIS DISCUSSION IT IS CLEAR THAT THE AO HAS NOT UNDERSTO OD THE ACCOUNTING SEQUENCE OF AFORESAID ADJUSTMENT ENTRY AND WRONGLY CONSIDERE D THE SAME AS UNEXPLAINED CREDIT WHICH WAS FACTUALLY INCORRECT. S UBSEQUENTLY ON BEING REALIZED THAT THERE WAS WRONG ADJUSTMENT ENTRY IT W AS REVERSED BY WAY OF RECTIFICATION ENTRY ON 30TH SEPT., 2009 AND CONSEQU ENT TO SUCH REVERSAL ENTRY IN THE BOOKS OF THE APPELLANT THE ANOTHER PARTY NAMELY , RAJESH SALES CORPN. HAS ALSO PASSED AN ADJUSTMENT ENTRY ON 17TH FEB., 2010 BY REVERSING THE EARLIER ADJUSTMENT ENTRY IN WHICH THE APPELLANT'S ACCOUNT W AS DEBITED AND THE ACCOUNT OF AMIT AGENCY WAS CREDITED WITH THE AMOUNT OF RS. 2.68 CRORES. THE AFORESAID MISTAKE HAS BEEN RECTIFIED ON 17TH FEB., 2010 IN WH ICH THE EARLIER ENTRY WAS REVERSED. SUBSEQUENTLY, RAJESH SALES CORPN. HAS REC EIVED THE AFORESAID AMOUNT OF RS. 2.68 CRORES THROUGH THREE DIFFERENT C HEQUES OF RS. 70 LACS, RS. 1.20 CRORE AND RS. 78 LACS. THE SAME PAYMENT HAS BE EN SHOWN BY THE APPELLANT IN HIS BOOKS OF ACCOUNTS ALSO. THE JOURNA L ENTRY HAS NO CONSEQUENCE AS FAR AS APPLICATION OF S. 68 IS CONCERNED. IN ORD ER TO ATTRACT THE PROVISIONS OF S. 68 OF IT ACT IT IS PRIMARY CONDITION THAT THE AP PELLANT SHOULD HAVE RECEIVED AMOUNT IN HIS BOOKS WHICH OBVIOUSLY SHOULD HAVE BEE N PAID BY THE CREDITOR. IF SUCH CREDIT IS CONSIDERED AS UNEXPLAINED THEN ONLY IT CAN BE A CASE OF MAKING ADDITION UNDER S. 68 OF IT ACT AS UNEXPLAINED CASH CREDIT. SINCE THERE IS NO SUCH CREDIT OF SUM AT ALL, THERE CAN BE NO QUESTION THAT WHETHER SUCH CREDIT IS SATISFACTORY OR UNSATISFACTORY BECAUSE THIS QUESTIO N WILL ARISE ONLY WHEN THERE IS CREDIT OF SUM IN THE BOOKS OF ACCOUNTS OF THE APPEL LANT. IN FACT THERE IS NO SUCH CREDIT OF RS. 2.68 CRORES AS AMOUNT RECEIVED IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. WITH THIS DISCUSSION IT IS CLEAR THAT TH E AO WAS FACTUALLY INCORRECT AND WRONG IN MAKING AFORESAID ADDITION OF RS. 2.68 CROR ES UNDER S. 68OFLTACT. THE AO IS HEREBY DIRECTED TO DELETE THE SAME. THE ABOVE FI NDINGS FIND SUPPORT FROM THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT V. HAZARIMAL MILAPCHAND SURANA[2002] 178 CTR (RAJ) 50 : [2003] 2 62 ITR 573 (RAJ.) WHEREIN THE HON'BLE COURT HAS HELD THAT MERE BOOK ENTRY DOE S NOT CREATE INCOME. THE FOURTH GROUND OF APPEAL IS THEREFORE, DECIDED IN FA VOUR OF THE APPELLANT.' 40. THE LEARNED CIT-DEPARTMENTAL REPRESENTATIVE PLA CED RELIANCE ON THE ORDER OF AO. 41. ON THE OTHER HAND, LEARNED COUNSEL OF THE ASSESSES PLACED RELIANCE ON THE ORDER OF LEARNED CIT (A). HE FURTHER PLACED RELIANCE ON THE WRITTEN SUBMISSIONS WHICH ARE IN LINE OF THE SUBMISSIONS MADE BEFORE LEARNED CIT(A). 42. AFTER CONSIDERING THE ORDERS OF AO AND LEARNED CIT(A), WE FIND NO INFIRMITY IN THE FINDINGS OF LEARNED CIT(A). THE FINDINGS OF LEARNED CIT(A) ARE FINDINGS OF FACT WHICH ARE REPRODUCED SOMEWHERE ABOVE IN THIS ORDER. THESE FIN DINGS COULD NOT BE CONTROVERTED NOR ANY OTHER MATERIAL BROUGHT ON RECORD TO ESTABLISH O THERWISE. THEREFORE, IN VIEW OF THE REASONING GIVEN BY LEARNED CIT (A) WE CONFIRM HIS O RDER ON THIS ISSUE.' 81 HYDROAIR TECTONICS (PCD) LTD 11.23 THUS, ITAT HAS CLEARLY HELD THAT NO ADDITION CAN BE MADE U/S. 68 WITH REGARD TO CREDIT ARISING THROUGH 'JOURNAL ENTRIES' ESPECIALLY WHEN THEY HAVE BEEN REVERSED SUBSEQUENTLY. THIS DECISION OF I TAT IS SQUARELY AP PLICABLE TO THE FACTS OF THE APPELLANT. 11.24 WE ARE ALSO REPLYING UPON A DECISION OF CALCUTTA HIGH COURT IN THE CASE OF JATIA INVESTMENT CO. VS. CIT 206 ITR 718 WHEREIN THE FACTS OF THE CASE WERE EVEN WORSE THAN THE FACTS OF THE APPELLANT'S CASE. IN TH IS CASE, THE PARTNERS OF THE ASSESSEE-FIRM WERE MEMBERS OF THE 'J' FAMILY RUNNIN G SEVERAL BUSINESSES AND INDUSTRIES THROUGH NUMEROUS FIRMS, CONCERNS AND COM PANIES COMMONLY KNOWN AS THE 'J' GROUP. THE ACCOUNT BOOKS OF THE ASSESSEE SHOWED THAT IT BORROWED CERTAIN AMOUNT FROM GB, A PROPRIETARY CONCERN OF ONE OF THE PARTNERS JM. THE MONEY WAS INVESTED IN PURCHASE OF SHARES. ON EXAMINATION OF B OOKS OF ACCOUNT OF GB, THE ITO CAME TO THE CONCLUSION THAT GB HAD NO CASH BALANCE TO ADVANCE SAID AMOUNT TO THE ASSESSEE. THE ITO, THUS, CONCLUDED THAT THE SOURCE OF FUNDS FOR THE PURCHASE OF SHARES BY THE ASSESSEE WAS NOT EXPLAINED, AND, ACCO RDINGLY, ASSESSED THE AMOUNT IN QUESTION AS INCOME FROM UNDISCLOSED INCOME. THE ASS ESSEE CONTENDED THAT ACTUALLY NO CASH HAD PASSED BUT THE ENTRIES WERE MERE ADJUST MENT ENTRIES. IT WAS CONTENDED BY THE ASSESSEE, INTER ALIA, THAT THE ENTIRE TRANSA CTIONS WERE EFFECTED BETWEEN THE ASSESSEE-FIRM AND THE CONCERNS BELONGING TO THE 'J' GROUP ONLY FOR THE REQUIREMENT OF COMPLYING WITH THE DIRECTIONS OF THE RESERVE BANK OF INDIA THAT CAST ON THE COMPANIES A STATUTORY OBLIGATION TO REDUCE THEIR BORROWING TO M AINTAIN PARITY WITH THE LOAN AND CAPITAL RATIO AS PRESCRIBED. IT WAS FURTHER URGED THAT THE TRANSACTIONS AS ALSO THE CREATION OF THE ASSESSEE-FIRM WERE DEVICES TO AVOID THE MISCHIEF OF THE CEILING IMPOSED BY THE RESERVE BANK OF INDIA ON THE AFORESAID THREE NON-FINANCIAL COMPANIES. THE ASSESSEE-FIRM STEPPED INTO THE SHOES OF THE SAID THREE COMPANIES AND THE COMPANIES CEASED TO BE DEBTORS AND, TO THAT EXTENT, THE MAGNITUDE OF ITS LOAN FELL WITH IN THE PRESCRIBED RATIO. IT WAS FINALLY EMPHASISED BY THE ASSESSEE THAT THE ULTIMATE RESULT WAS THAT THE FIRM BECAME A DEBTOR TO GB AND THE THREE NON-FINANCIAL COMPANIES OF THE GRO UP NOT DISCHARGED AND THAT, AT THE WORST, IT COULD BE SAID THAT THE ASSESSEE-FIRM HAD RECEIVED VALUABLE ASSETS BEING THE SHARES OF THE EQUIVALENT VALUE OF THE DEBT TAKEN OV ER BY IT FROM THE COMPANIES. THEREFORE, THE QUESTION OF CASH CREDIT DID NOT COME IN THERE B EING NO ACTUAL PASSING OR RECEIPT OF CASH. IN OTHER WORDS, THE TRANSACTIONS WERE MERE BO OK ENTRIES. IN VIEW OF THE SAID FACTS, THE HIGH COURT HELD AS U NDER: 'WE HAVE PERUSED THE ASSESSMENT ORDER CAREFULLY. WE FIND THAT CASH DID NOT PASS AT ANY STAGE THOUGH ENTRIES WERE MADE IN THE C ASH BOOK SHOWING PAYMENTS AND RECEIPTS ; BUT SINCE THE ENTRIES MADE A COMPLETE ROUND, NO PASSING OF CASH WAS NECESSARY FOR THE PURPOSE OF MA KING THE ENTRIES. THAT THERE WAS NO PASSING OF CASH IS ALSO ADMITTED BY TH E INCOME-TAX OFFICER HIMSELF. WE HAVE ALREADY EXTRACTED THE OBSERVATION OF THE INCOME-TAX OFFICER IN PARAGRAPH 14 OF HIS ASSESSMENT ORDER. THE INCOME-TA X OFFICER HAS CLEARLY OPINED THAT ALL THE RESPECTIVE PARTIES DID NOT RECE IVE CASH NOR DID PAY CASH AS NONE HAD ANY CASH FOR THE PURPOSE. THE ONLY POINT I N THE ASSESSMENT ORDER IS THAT THE ENTRIES NOT INVOLVING THE PASSING OF CASH SHOULD NOT HAVE FOUND A PLACE IN THE CASH BOOK, BUT IN THE LEDGER ACCOUNT THROUGH JOURNAL ENTRIES. THERE IS ANOTHER SELF-CONTRADICTION IN THE INCOME-TAX OFFICE R'S FINDING THAT, IF THERE WAS NO REAL CASH ENTRY ON THE CREDIT SIDE OF THE CASH B OOK, BUT MERELY A NOTIONAL OR FICTITIOUS CASH ENTRY, AS ADMITTED BY HIM, THERE IS NO REAL CREDIT OF CASH TO ITS CASH BOOK ; THE QUESTION OF INCLUSION OF THE AMOUNT OF THE ENTRY AS UNEXPLAINED CASH CREDIT CANNOT ARISE. ONE OF THE GROUNDS OF THE TRIBUNAL FOR DISBELIEVING THE ASSESSEE'S CASE IS THAT THE ADJUSTMENT ENTRIES WERE MADE BY NOTIONAL CASH E NTRIES WITH A VIEW TO BRINGING DOWN THE DEBT-AND-CAPITAL RATIO, I.E., THA T WHILE BEING DISCHARGED OF THE DEBT THE SAID COMPANIES ALSO JETTISONED THEIR ASSET S, I. E., THE SHARES HELD BY THEM OF EQUIVALENT SUM WITHOUT ACHIEVING THE AVOWED PURPOSE. HERE THE 82 HYDROAIR TECTONICS (PCD) LTD TRIBUNAL CERTAINLY MISDIRECTED ITSELF. THE RATIO TO BE REDUCED IS OF THE LOAN IN RELATION TO THE SHARE CAPITAL AND THE RESERVES. JET TISONING THE SHARES HAD THE DESIRED EFFECT OF REDUCING THE BORROWED CAPITAL. AGAIN, AS REGARDS THE TRIBUNAL'S REFUSAL TO TAKE NO TICE OF THE DIRECTIONS OF THE RESERVE BANK, IT IS NOT CORRECT FOR THE TRIBUNAL TO HOLD THAT THE SAID DOCUMENT WAS A NEW EVIDENCE IN THE TRUE SENSE OF THE TERM. THE ASSESSEE HAS BEEN CONSISTENTLY PLEADING BEFORE THE LOWER AUTHORITIES THAT THE ENTRIES HAD TO BE MADE IN ORDER TO BRING THE COMPANIES IN CONFORMITY WITH THE SAID DIRECTION. MOREOVER, THE DIRECTION OF THE RESERVE BANK IS A PUBLIC DOCUMENT WITHIN THE MEANING OF SECTION 74 OF THE EVIDENCE ACT, 1872. DOCUMENTS OF A PUBLIC NATURE AND PUBLIC AUTHORITY ARE GENERALLY ADMISSIBLE IN EVIDENCE SUBJECT TO THE MODE OF PROVING THEM AS LAID DOWN IN SECTIONS 76 AND 78 OF THE EVIDENCE ACT. IN OUR VIEW, THE EFFECT AND IMPORT OF THE TRANSACTI ONS IS THAT THE ASSESSEE TOOK OVER THE LIABILITY OF THE AFORESAID NON-FINANCIAL COMPAN IES TO GB AND CO. IN EXCHANGE FOR THE SHARES AS AFORESAID.' 11.25 HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF C IT V. HAZARIMA! MILAPCHAND SURANA [2003] 262 ITR 573 / [2002] 125 TAXMAN 115 (RAJ) HA S HELD THAT MERE BOOK ENTRY DOES NOT CREATE INCOME. HON'BLE SUPREME COURT IN THE CAS E OF KEDARNATH JUTE MFG. CO. LTD. V. CIT [1971] 82 ITR 363 HAS ALSO HELD THAT MERE ACCOU NTING ENTRY WOULD NOT GIVE RISE TO INCOME UNLESS INCOME HAS RESULTED IN REAL TERMS. 11.26 THE PROVISIONS OF SECTION 68 ARE REQUIRED TO BE APPLIED IN ITS TRUE SPIRIT. CONSIDERING THE FACT THAT THE APPELLANT HAD NEVER RECEIVED ANY MONEY / BENEFIT TO THE EXTENT OF ? 62,72,35,875 AND THERE WERE BOGUS ENTRIES PASSED BY THE APPELLANT IN ITS BOOKS WHICH WERE SUBSEQUENTLY REVERSED AS WELL, THE ADDITION MA DE BY THE LEARNED ASSESSING OFFICER IN THIS REGARD HAS BEEN RIGHTLY DELETED BY THE CIT (A). 11.27 SINCE THE ADDITION OF T 62,75,35,875 ITSE LF IS DEVOID OF MERITS, FURTHER ADDITION MADE BY THE LEARNED ASSESSING OFFICER ON ACCOUNT OF COST OF 3.5% I.E. ? 2,19,53,255 ALLEGED TO HAVE BEEN INCURRED BY THE APPELLANT CANN OT BE SUSTAINED AT ALL. 45. THE LD.DR, ON THE OTHER HAND, SUBMITTED THAT TH E FACT THAT THE CREDIT APPEARING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE I S NEVER DISPUTED. THE ASSESSEE DID NOT PROVE IDENTITY, GENUINENESS OF TRA NSACTIONS AND CREDITWORTHINESS OF THE PARTIES IS ALSO NOT DISPUTE D. THE SUBSEQUENT REVERSAL OF ENTRIES SUO MOTO BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT BY CLAIMING THAT IT HAS PASSED UNILATERAL ENTRIES IN THE BOOKS OF ACCOU NT WITHOUT ANY MONETARY CONSIDERATION IS FAR FROM THE TRUTH AND ALSO TO CIR CUMVENT THE ADDITION MADE BY THE AO. THEREFORE, NO CREDENCE COULD BE GIVEN T O THE ARGUMENTS OF THE 83 HYDROAIR TECTONICS (PCD) LTD ASSESSEE THAT THESE ARE FICTITIOUS ENTRIES UNILATER ALLY PASSED IN THE BOOKS OF ACCOUNT. THE LD.DR FURTHER SUBMITTED THAT THE ASSE SSEE NEVER DISPUTED THE FACT THAT IT COULD NOT FILE ANY EVIDENCE TO PROVE T HE CREDITS. THEREFORE, THERE IS NO REASON FOR THE LD.CIT(A) TO DELETE ADDITIONS BY RELYING UPON THE SUBMISSIONS OF THE ASSESSEE SUBSEQUENT TO THE DATE OF SEARCH. 46. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE NEVER DISPUTED THE FACT THAT THE CREDITS IN THE FORM OF SHARE CAPITAL AND SHARE PREMIUM APPEARED IN ITS BOO KS OF ACCOUNT FOR THE RELEVANT FINANCIAL YEAR. IT IS ALSO AN ADMITTED FA CT THAT THE ASSESSEE COULD NOT FILE ANY EVIDENCE TO PROVE IDENTITY, GENUINENESS OF TRANSACTIONS AND CREDITWORTHINESS OF PARTIES. THE ASSESSEES ARGUME NTS OF FICTITIOUS ENTRIES AND REVERSAL OF SUCH ENTRIES IN SUBSEQUENT FINANCIAL YE AR IS NOT BASED ON ANY EVIDENCE. ONCE THE ASSESSEE HAS TAKEN A DIFFERENT STAND SUBSEQUENT TO THE DATE OF SEARCH, IT COULD BE SAFELY CONCLUDED THAT I T IS AN AFTERTHOUGHT MADE TO OVERCOME OR CIRCUMVENT THE ADDITION MADE BY THE LOW ER AUTHORITIES IN RESPECT OF CREDIT FOUND IN THE BOOKS OF ACCOUNT. THEREFORE , THERE IS NO NEED TO GIVE MUCH CREDENCE TO THE SUBSEQUENT SUBMISSIONS MADE BY THE ASSESSEE TO ARGUE THAT THESE ARE FICTITIOUS ENTRIES UNILATERALLY PASS ED IN THE BOOKS OF ACCOUNT, RATHER, IT NEEDS TO BE CONSIDERED IN THE LIGHT OF F ACTS GATHERED DURING THE COURSE OF SEARCH COUPLED WITH FURTHER ENQUIRIES CON DUCTED DURING THE COURSE 84 HYDROAIR TECTONICS (PCD) LTD OF ASSESSMENT PROCEEDINGS WHERE IT WAS CATEGORICALL Y PROVED THAT THE ASSESSEE IS FOUND WITH CREDIT IN THE FORM OF SHARE CAPITAL A ND SHARE APPLICATION MONEY IN THE BOOKS OF ACCOUNT FOR WHICH NO EXPLANATION HAS B EEN OFFERED INCLUDING IDENTITY, CREDITWORTHINESS AND GENUINENESS OF TRANS ACTIONS. THE LD.CIT(A), WITHOUT APPRECIATING THESE FACTS, SIMPLY ON THE BAS IS OF SUBMISSIONS OF THE ASSESSEE, WHICH IS NOT BASED ON ANY EVIDENCE, DELET ED ADDITION MADE BY THE AO. INSOFAR AS CASE LAWS RELIED UPON BY THE ASSESS EE, WE FIND THAT THESE CASE LAWS ARE RENDERED UNDER DIFFERENT SET OF FACTS AND HENCE, THE SAME CANNOT BE CONSIDERED IN THE LIGHT OF FACTS OF ASSESSEES CASE AS THE ASSESSEE HAS FALSIFIED ITS BOOKS OF ACCOUNT BY MAKING VARIOUS ENTRIES INCL UDING BOGUS PURCHASES AND BOGUS SALES ALONGWITH SHARE CAPITAL AND SHARE PREMI UM. HENCE, THE CASE LAWS RELIED UPON BY THE ASSESSEE IS REJECTED. 47. IN THIS VIEW OF THE MATTER AND ALSO CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE, WE FIND THAT THE AO WAS RIGHT IN MAKING ADDITION TOWARDS SHARE CAPITAL AND SHARE PREMIUM AS THE ASSE SSEE COULD NOT PRODUCE ANY KIND OF EVIDENCE TO COME OUT OF THE SHADOW OF P ROVISIONS OF SECTION 68 OF THE I.T. ACT, 1961; HENCE, WE REVERSE THE FINDINGS OF LD.CIT(A) AND CONFIRM THE ADDITION MADE BY THE AO. 48. NOW COMING TO THE ALTERNATIVE PLEA OF THE ASSES SEE. THE LD.AR FOR THE ASSESSEE HAD TAKEN A PLEA THAT IN CASE ADDITION IS CONFIRMED, THE BENEFIT OF 85 HYDROAIR TECTONICS (PCD) LTD TELESCOPING SHALL BE ALLOWED TO THE ASSESSEE AGAINS T ADDITIONAL INCOME ESTIMATED FROM TOTAL TURNOVER FOR THE YEAR UNDER CO NSIDERATION. WE HAVE ALREADY NOTED IN THE PRECEDING PARAGRAPHS THAT THER E IS DIRECT NEXUS BETWEEN INFLATION OF EXPENDITURE AND SIPHONING OFF MONEY FO R THE PURPOSE OF MAKING VARIOUS GRATUITOUS PAYMENT FOR GETTING CONTRACTS, T HEREFORE, IT IS IMPROBABLE AND INAPPROPRIATE TO ACCEPT THE ARGUMENTS OF THE AS SESSEE THAT THE SOURCE IS AVAILABLE TO EXPLAIN THE CREDITS IN THE FORM OF SHA RE CAPITAL AND SHARE PREMIUM. HENCE, WE REJECT THE ARGUMENTS OF THE ASSESSEE. 49. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM DEPARTMENTS APPEAL IN THE CASE OF M/S HYDROAIR TECTONICS (PCD) FOR AYS 2009-10 & 2010-11 IS ADDITION ON ACCOUNT OF CAPITAL SUBSIDY AND DISAL LOWANCE OF DEPRECIATION. THE FACTS WITH REGARD TO THE IMPUGNED DISPUTE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF SETTING UP EFFLUENT TREATMENT PROJECT A T SEVERAL LOCATIONS IN THE STATES OF HARYANA, TAMIL NADU AND UTTAR PRADESH. D URING THE PREVIOUS YEAR RELEVANT TO AY 2009-10, THE ASSESSEE RAISED ITS CLA IM OVER THE RELEVANT AUTHORITIES IN RESPECT OF CAPITAL SUBSIDY IN RESPEC T OF ITS VARIOUS PROJECTS AGGREGATING TO RS.53,68,41,735. THIS AMOUNT WAS DI RECTLY CREDITED TO THE CAPITAL RESERVE ACCOUNT IN THE BOOKS OF ACCOUNT. A S PER THE AGREED TERMS WITH THE AGENCIES, THE ASSESSEE WAS REQUIRED TO EXECUTE THE TOTAL PROJECT ON ITS OWN AND THEREAFTER, THE CONCERNED AGENCIES WERE REQUIRE D TO CONTRIBUTE / 86 HYDROAIR TECTONICS (PCD) LTD REIMBURSE THE PORTION OF THE CONTRACT COST, WHICH T HEY HAD AGREED TO CONTRIBUTE. THE COST INCURRED BY THE ASSESSEE WAS CAPITALISED TO CAPITAL WORK- IN-PROGRESS IN ITS BOOKS OF ACCOUNT AND THE CONTRIB UTION / REIMBURSEMENT RECEIVED / RECEIVABLE FROM ALL SUCH AGENCIES WAS SE PARATELY ACCOUNTED AS CAPITAL SUBSIDY WHICH WAS CREDITED TO CAPITAL RESER VE ACCOUNT. THE AO HAS ALLEGED THAT 80% OF THE PROJECT COST IS BOGUS AND I NFLATED. AFTER REDUCING 80% OF THE PROJECT COST, THE LD.AO CALCULATED EXCESS OF CAPITAL SUBSIDY OVER REMAINING 20% OF THE PROJECT COST, WHICH AMOUNTED T O RS.31,59,17,207. THIS EXCESS CAPITAL SUBSIDY OVER 20% OF THE PROJECT COST HAS BEEN ADDED AS INCOME OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS GOT BENEFIT TO THAT EXTENT. THE AO HAS COME TO THE CONCLUSION THAT 80% OF COST OF ASSETS IS BOGUS IN NATURE ON THE BASIS OF ASSESSEES OWN CONDUCT OF RE VERSAL OF 80% OF COST OF ASSETS DURING AY 2011-12 AMOUNTING TO RS.119 CRORES . 50. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT FIRST LY IT IS REQUIRED TO BE NOTED THAT SUBSIDIES ARE RELATED TO THE FIXED ASSET S OF PROJECT EXECUTED BY THE ASSESSEE. THEREFORE, PRIMARILY, AMOUNT OF SUBSIDY I S REQUIRED TO BE REDUCED FROM THE ACTUAL COST OF THE RELEVANT ASSET, IT IS O NLY BECAUSE THE AGGREGATE OF THE COST OF THE RELEVANT ASSET HAS BEEN REDUCED BY THE AO. SECONDLY, THE AO HAS LOST THE JURISDICTION TO DECIDE THE TAXABILITY ON THE ISSUE ON ACCOUNT OF THE FACT THAT THE AO HAS ACCEPTED THE CLAIM OF CAPITAL SUBSIDY IN THE RETURN FILED U/S 87 HYDROAIR TECTONICS (PCD) LTD 139(1) AND NO NOTICE U/S 143(2) HAD BEEN ISSUED BEF ORE INITIATION OF SEARCH. FURTHER, NO INCRIMINATING MATERIAL OR EVIDENCE HAVE BEEN FOUND DURING THE COURSE OF SEARCH WHICH COULD LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS RECEIVED BENEFIT AS THE CAPITAL SUBSIDY WAS HIGHER THAN THE COST OF THE RELEVANT PROJECT. THE LD.AR FURTHER SUBMITTED THAT CERTAIN PURCHASES WHICH WERE CAPITALISED WERE TRANSFERRED BACK TO CAPITAL WORK-I N-PROGRESS DURING AY 2011- 12 AS THEY WERE NOT READY FOR USE AND ALSO CERTAIN PROJECTS WERE TRANSFERRED TO A SPECIAL PURPOSE VEHICLE, VIZ. M/S ACCORD HYDRAULI CS PVT LTD IN ACCORDANCE WITH JOINT VENTURE AGREEMENT. THESE FACTS HAVE BEEN DUL Y EXPLAINED IN NOTE 9 ON FIXED ASSETS IN THE AUDITED FINANCIAL STATEMENTS. THE LD.AR FURTHER SUBMITTED THAT EVEN DEPRECIATION CLAIMED ON ALL SUCH PROJECTS FOR THE CONCERNED ASSESSMENT YEARS HAVE ALSO BEEN REVERSED WHILE FILI NG RETURNS U/S 153A OF THE ACT. THE LD.AR FURTHER SUBMITTED THAT OUT OF TOTAL COST OF RS.116.30 CRORES ONLY AN AMOUNT OF RS.52.90 CRORES HAS BEEN TREATED AS BO GUS / FICTITIOUS WHICH CONSTITUTE 45.49% ONLY. FROM THE ABOVE ANALYSIS, I T CAN BE INFERRED THAT THE LD.AO MIGHT HAVE CONSIDERED THE AMOUNT OF RS.47.59 CRORES WHICH REPRESENTS RE-TRANSFER FROM ASSETS TO CAPITAL WORK-IN-PROGRESS AND ALSO THE AMOUNT OF RS.15.80 CRORES WHICH REPRESENTS TRANSFER OF PROJEC TS TO ANOTHER ENTITY WHILE DETERMINING THE AMOUNT OF RS.119 CRORES AS REVERSAL OF BOGUS / FICTITIOUS ASSETS. THE LD.AR FURTHER REFERRING TO THE WORKING FURNISHED IN ITS PAPER BOOK, 88 HYDROAIR TECTONICS (PCD) LTD SUBMITTED THAT ASSESSEE HAS REVERSED CAPITAL SUBSID Y BY EXCLUDING BOGUS PURCHASES ADDED TO CAPITAL ASSETS AND AFTER EXCLUDI NG REVERSAL OF CAPITAL SUBSIDY, THE NET AMOUNT OF SUBSIDY IS RS.23.59 CROR ES ONLY. AS AGAINST THIS, THE ASSESSEE HAS INCURRED COST AGGREGATING TO RS.63.39 CRORES AFTER ELIMINATING BOGUS / FICTITIOUS PURCHASES. IN VIEW OF THE ABOVE , IT CANNOT BE SAID THAT THE ASSESSEE HAS RECEIVED ANY BENEFIT OUT OF CAPITAL SU BSIDY AS ITS AMOUNT IS FAR LESSER THAN THE AGGREGATE COST OF THE CONCERNED PRO JECT. 51. THE LD.DR, ON THE OTHER HAND, SUBMITTED THAT AL THOUGH THE ASSESSEE HAS REVERSED BOGUS PURCHASE ELEMENT INVOLVED IN CAPITAL WORK-IN-PROGRESS, ON WHICH CAPITAL SUBSIDY HAS BEEN CLAIMED AND CREDITED TO CAPITAL ACCOUNT, SUCH UNILATERAL REVERSAL OF ENTRIES IN SUBSEQUENT YEARS MAY BE AT BEST, COULD BE CONSIDERED AS AN ATTEMPT TO CIRCUMVENT ADDITION, BU T NOT BASED ON ANY EVIDENCE. IN THIS CASE, THE ASSESSEE HAS INFLATED EXPENDITURE BY OBTAINING BOGUS PURCHASE BILLS AND WHICH IS EXTENDED TO EVEN CAPITAL WORK-IN-PROGRESS MAINLY FOR THE PURPOSE OF MAKING BOGUS CLAIM OF CAP ITAL SUBSIDY FROM THE AGENCIES. THERE IS NO FACTS EITHER IN THE ORDER OF THE AO OR IN THE ORDER OF THE LD.CIT(A) WITH REGARD TO THE ACTUAL AMOUNT OF SUBSI DY RECEIVED FROM THE AGENCIES. THEREFORE, THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE AO TO ASCERTAIN THE CORRECT FACTS AND TO MAKE APPROPRIATE COMPUTATION OF ADDITION TOWARDS CAPITAL SUBSIDY AS WELL AS DEPRECIATION ON SUCH CAPITAL ASSET. 89 HYDROAIR TECTONICS (PCD) LTD 52. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE WHOLE CONTROVERSY REVOLVES AROUND THE ISSUE OF CLAIM OF CAPITAL SUBSIDY FROM CERTAIN STATE GOVERNMENTS ON PROJECT E XECUTED BY THE ASSESSEE UNDER THE SCHEME CAPITAL SUBSIDY FLOATED BY VARIO US GOVERNMENT DEPARTMENTS. IN THE ORIGINAL RETURN FILED U/S 139( 1), THE ASSESSEE HAS INFLATED ITS CAPITAL WORK-IN-PROGRESS BY BOOKING BOGUS PURCH ASES AND MADE CLAIM BEFORE THE AUTHORITIES TOWARDS THEIR SHARE OF CONTR IBUTION TO THE PROJECT. IN RETURN FILED U/S 153A, THE ASSESSEE HAS ELIMINATED BOGUS PURCHASES BY PASSING REVERSE ENTRIES, IN ITS BOOKS OF ACCOUNT AND SUCH E XERCISE HAS BEEN DONE BY REVERSING CAPITAL WORK IN PROGRESS AND CORRESPONDIN G CAPITAL SUBSIDY. THE AO HAS NOT ACCEPTED THE WORKINGS FURNISHED BY THE ASSE SSEE FOR THE REASON THAT SUCH WORKINGS ARE NOT BASED ON ANY EVIDENCE. THERE FORE, HE WENT UPON TO REDUCE THE BOGUS PURCHASE ELEMENT IN CAPITAL WORK-I N-PROGRESS ON ADHOC BASIS BY APPLYING 80% TOWARDS BOGUS PURCHASE COMPONENT AN D BALANCE AS GENUINE PURCHASES. FROM THAT, THE AO HAS ARRIVED AT AN EXC ESS AMOUNT OF CAPITAL SUBSIDY CLAIMED FROM GOVERNMENT DEPARTMENTS AND ACC ORDINGLY, HE MADE ADDITION TOWARDS EXCESS AMOUNT OF CAPITAL SUBSIDY A S INCOME OF THE ASSESSEE. IT IS THE CLAIM OF THE ASSESSEE THAT IN AY 2011-12 IT HAS REVERSED ALMOST 40% OF BOGUS PURCHASES INVOLVED IN CAPITAL WORK-IN-PROGRES S BY REVERSING CAPITAL SUBSIDY CREDITED IN CAPITAL RESERVE ACCOUNT AND ALS O BY CREDITING TO CONCERNED 90 HYDROAIR TECTONICS (PCD) LTD TRADE CREDITORS ACCOUNT. AFTER EXCLUDING REVERSAL OF CAPITAL SUBSIDY, THE NET AMOUNT OF SUBSIDY IS RS.23.51 CRORES. AS AGAINST T HIS, THE ASSESSEE HAS INCURRED PROJECT COST AGGREGATING TO RS.63.40 CRORES, THEREF ORE, THE QUESTION OF DERIVING BENEFIT BY CLAIMING EXCESS SUBSIDY FROM THE GOVERNM ENT DEPARTMENT DOES NOT ARISE AND ALSO MAKING ADDITION TOWARDS SUCH EXCESS CAPITAL SUBSIDY IS INCORRECT. 53. HAVING HEARD BOTH THE SIDES, WE FIND THAT THE A SSESSEE HAS MADE A REVISED CLAIM OF CAPITAL SUBSIDY BY RECASTING ITS B OOKS OF ACCOUNT AFTER THE DATE OF SEARCH TO ELIMINATE BOGUS PURCHASES INVOLVED IN CAPITAL WORK-IN-PROGRESS AND SUCH WORKING MADE BY THE ASSESSEE IN THE RETURN FILED U/S 153A IS NOT BASED ON ANY EVIDENCES. FURTHER, THE ASSESSEE IS I N THE HABIT OF FALSIFICATION OF ITS BOOKS OF ACCOUNT BY WINDOW DRESSING FINANCIAL S TATEMENTS SO AS TO GET VARIOUS BENEFITS INCLUDING FINANCE FROM BANKS. THI S FACT HAS BEEN ACCEPTED BY THE ASSESSEE EVEN BEFORE US. THEREFORE, THE POSSIB ILITY OF INFLATING CAPITAL WORK-IN-PROGRESS FOR THE PURPOSE OF MAKING CLAIM FR OM THE CONCERNED AUTHORITIES CANNOT BE RULED OUT. ALTHOUGH, THE ASS ESSEE HAS REVERSED BOGUS PURCHASES INVOLVED IN CAPITAL WORK-IN-PROGRESS IN S UBSEQUENT ASSESSMENT YEAR, BUT SUCH WORKING IS NOT BASED ON ANY EVIDENCES. TH OUGH THERE IS A POSSIBILITY OF BOOKING BOGUS PURCHASES IN CAPITAL WORK-IN-PROGR ESS SO AS TO MAKE HIGHER CLAIM OF CAPITAL SUBSIDY, BUT WHAT IS THE AMOUNT OR WHAT IS THE DEGREE OF BOGUS PURCHASES DEBITED TO CAPITAL WORK-IN-PROGRESS TO GE T THE CAPITAL SUBSIDY CANNOT 91 HYDROAIR TECTONICS (PCD) LTD BE ASCERTAINED FROM THE RECORDS. EVEN THE AO HAS N OT MADE OUT ANY ATTEMPT TO FIND OUT WHAT IS THE EXACT AMOUNT OF CLAIM MADE BEFORE THE AUTHORITIES. THIS IS VERY IMPORTANT BECAUSE ANY AMOUNT OF CAPITA L SUBSIDY RECEIVED FROM THE GOVERNMENT AGAINST PROJECT EXECUTED BY THE ASSESSEE SHALL BE EITHER REDUCED FROM THE COST OF THE ASSET FOR THE PURPOSE OF CLAIM ING DEPRECIATION OR IT SHOULD BE CREDITED TO P&L ACCOUNT IN EQUAL INSTALMENTS OVE R THE PERIOD OF LIFE OF THE ASSET. IN THIS CASE, THE ASSESSEE HAS UNILATERALLY REVERSED ENTRIES IN SUBSEQUENT FINANCIAL YEAR TO REDUCE THE AMOUNT OF CAPITAL WORK -IN-PROGRESS IN ITS BOOKS OF ACCOUNT. ALTHOUGH, THE ASSESSEE HAS REVERSED CAPIT AL SUBSIDY CREDITED TO CAPITAL RESERVE ACCOUNT, BUT THERE IS NO CLEAR FACT S AS TO WHETHER THE ASSESSEE HAS MADE A REVISED CLAIM BEFORE THE AUTHORITIES OR NOT. FURTHER, EVEN THERE IS NO FACT EMERGING FROM THE ORDERS OF LOWER AUTHORITI ES REGARDING ACTUAL CLAIM MADE BEFORE THE AUTHORITIES AND AMOUNT OF SUBSIDY R ECEIVED FROM THE SAID AGENCIES. UNLESS WE KNOW THESE FACTS, IT IS VERY D IFFICULT TO ASCERTAIN THE EXACT AMOUNT OF DEPRECIATION NEEDS TO BE ALLOWED AGAINST SUCH CAPITAL ASSETS. SINCE THE LOWER AUTHORITIES HAVE FAILED TO BRING OUT CLEA R FACTS ON THIS ASPECT AND ALSO THE ASSESSEE IS IN THE HABIT OF FALSIFICATION OF IT S BOOKS OF ACCOUNT BY PASSING FICTITIOUS ENTRIES FOR THE PURPOSE OF INFLATING EXP ENDITURE, WE ARE OF THE CONSIDERED VIEW THAT THE WHOLE ISSUE INCLUDING ADDI TION TOWARDS CAPITAL SUBSIDY AS WELL AS ALLOWABILITY OF DEPRECIATION ON CAPITAL ASSET NEEDS TO BE SET 92 HYDROAIR TECTONICS (PCD) LTD ASIDE TO THE FILE OF THE AO FOR THE PURPOSE OF DETA ILED VERIFICATION. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIREC T HIM TO CAUSE NECESSARY ENQUIRIES IN THE LIGHT OF REVERSAL OF ENTRIES PASSE D BY THE ASSESSEE IN SUBSEQUENT FINANCIAL YEAR IN ITS BOOKS OF ACCOUNT. WE FURTHER, DIRECT THE AO TO CAUSE NECESSARY ENQUIRIES WITH THE CONCERNED AGENCI ES ABOUT EXACT CLAIM MADE BEFORE THEM FOR CLAIMING CAPITAL SUBSIDY. THE AO IS ALSO DIRECTED TO RE- WORK DEPRECIATION BY REDUCING THE AMOUNT OF ACTUAL CAPITAL SUBSIDY RECEIVED OR RECEIVABLE FROM THE CONCERNED AUTHORITIES TO THE CA PITAL ASSET AND RE-WORK DEPRECIATION ALLOWABLE TO THE ASSESSEE. AS A RESUL T, THE GROUND RAISED BY THE REVENUE FOR AYS 2009-10 & 2010-11 IS ALLOWED, FOR STATISTICAL PURPOSE. 54. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL IN THE CASE OF M/S HYDROAIR TECTONICS (PCD) LTD FOR AYS 2009-10 & 2010- 11 IS DEDUCTION U/S 80IA IN RESPECT OF ELIGIBLE PRO FIT. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF WASTE WATER TREATMENT OR EFFLUENT T REATMENT. IT HAD UNDERTAKEN A PROJECT TO DEVELOP, OPERATE AND MAINTA IN EFFLUENT TREATMENT PLANT AT ROHA AND ICHALKARANJI. THE ASSESSEE HAS C LAIMED DEDUCTION U/S 80IA IN RESPECT OF PROFITS OF THE ELIGIBLE UNITS. THE FIRS T YEAR IN WHICH DEDUCTION U/S 80IA WAS CLAIMED WAS AY 2008-09. THE CLAIM OF THE ASSESSEE WAS FIRST EXAMINED DURING ASSESSMENT PROCEEDINGS U/S 143(3) F OR AY 2008-09. THE AO, AFTER CONSIDERING RELEVANT FACTS, HAS DENIED THE DE DUCTION FOR ROHA UNIT 93 HYDROAIR TECTONICS (PCD) LTD PRIMARILY ON THE GROUND THAT THE ASSESSEE HAS NOT E XECUTED A VALID AGREEMENT WITH THE CENTRAL GOVERNMENT OR STATE GOVERNMENT OR A LOCAL AUTHORITY AS REQUIRED U/S 80IA(4) OF THE ACT. IN RESPECT OF ICH ALKARANJI UNIT, THE AO ALLOWED DEDUCTION, BUT RE-WORKED AMOUNT OF DEDUCTION AFTER REALLOCATING SEVERAL EXPENSES IN ADDITION TO WHAT WAS ALLOCATED BY THE A SSESSEE. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). HO WEVER, THE LD.CIT(A) CONFIRMED THE STAND TAKEN BY THE AO. UPON FURTHER APPEAL, THE ITAT, VIDE ITS ORDER DATED 02-03-2016, SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FURTHER VERIFICATION IN THE LIGHT OF MEMORANDUM OF UNDERSTA NDING ENTERED INTO BETWEEN THE ASSESSEE AND MIDC. IN THE MEANTIME, TH E AO PASSED THE ASSESSMENT ORDER U/S 153A FOR AY 2008-09, WHEREIN H E COMPLETELY DISALLOWED DEDUCTION U/S 80IA FOR THE REASON THAT IN THE ORIGI NAL ASSESSMENT PROCEEDINGS IT WAS DISALLOWED WHICH WAS LATER ON CONFIRMED BY C IT(A). WHILE DEALING WITH THE ISSUE IN THE APPEAL AGAINST ASSESSMENT ORDER PA SSED U/S 153A, THE LD.CIT(A) TOOK COGNIZANCE OF THE ITAT ORDER SETTING ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION, IN HIS ORDER DATED 1 4-03-2017, HE DIRECTED THE AO TO RE-EXAMINE THE ISSUE IN THE LIGHT OF OBSERVAT IONS OF THE ITAT. 55. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT ONCE THE DEDUCTION CLAIMED U/S 80IA WAS ACCEPTED IN INITIAL YEAR THERE IS NO REASON TO TAKE DIFFERENT STAND FOR SUBSEQUENT ASSESSMENT YEAR UNLESS THERE IS CHAN GE IN FACTS. THE LD.AR 94 HYDROAIR TECTONICS (PCD) LTD FURTHER SUBMITTED THAT THE AO PASSED ORDER GIVING E FFECT TO THE ITATS ORDER ON 05-01-2018 WHEREIN SHE HAS ALLOWED DEDUCTION U/S 80 IA IN RESPECT OF BOTH THE UNITS. SINCE THE ISSUE HAS BEEN THOROUGHLY EXAMINE D IN THE INITIAL YEAR AND ALLOWED THE CLAIM, THE ASSESSEE IS AUTOMATICALLY EL IGIBLE FOR DEDUCTION FOR SUBSEQUENT ASSESSMENT YEARS. THEREFORE, THE AO MAY BE DIRECTED TO DO SO. IN THIS REGARD, HE RELIED UPON CERTAIN JUDICIAL PRECED ENTS INCLUDING THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS ACE MULTITAXES SYSTEMS PVT LTD (2009) 317 ITR 207 (KAR). 56. THE LD.DR, ON THE OTHER HAND, STRONGLY SUPPORTI NG THE ORDER OF THE LD.CIT(A) SUBMITTED THAT THE ASSESSEE HAS NOT FILED ALL EVIDENCES TO PROVE WHETHER IT IS ELIGIBLE FOR CLAIMING DEDUCTION U/S 8 0IA IN RESPECT OF TWO OF ITS PURCHASES. THEREFORE, THERE IS NO ERROR IN THE ORD ER OF THE LOWER AUTHORITIES AND, HENCE THEIR ORDER SHOULD BE UPHELD. 57. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE LD.AO HAS ALLOWED DEDUCTIO N CLAIMED U/S 80IA IN RESPECT OF BOTH UNITS IN THE ORDER GIVING EFFECT TO ITATS ORDER VIDE HER ORDER DATED 05-01-2018. IT IS ALSO AN ADMITTED FACT THAT THE DEDUCTION CLAIMED U/S 80IA HAS BEEN MAINLY DENIED FOR THE REASON THAT THE ASSESSEE HAS FILED TO FILE AGREEMENT ENTERED INTO WITH THE CONCERNED AUTHORITI ES. BUT, THE OBSERVATIONS OF THE AO HAD BEEN CONSIDERED BY THE ITAT FOR THE A SSESSMENT YEAR 2008-09 95 HYDROAIR TECTONICS (PCD) LTD AND AFTER CONSIDERING RELEVANT AGREEMENTS SUBMITTED BY THE ASSESSEE RESTORED THE MATTER BACK TO THE FILE OF THE AO FOR FURTHER V ERIFICATION OF DEDUCTION CLAIMED. THE LD.AO, AFTER CONSIDERING RELEVANT FAC TS AND AFTER THOROUGHLY EXAMINING THE FACTS, ALLOWED THE BENEFIT OF DEDUCTI ON U/S 80IA. ONCE THE DEDUCTION CLAIMED U/S 80IA IS ALLOWED IN THE INITIA L YEAR, THEN THE AO CANNOT DISALLOW SUCH CLAIM IN THE SUBSEQUENT ASSESSMENT YE ARS, UNLESS THERE IS CHANGE IN FACTS. IN THIS CASE, ON PERUSAL OF FACTS, WE FI ND THAT THE AO HAS DISALLOWED THE CLAIM BY FOLLOWING HIS FINDINGS FOR THE AY 2008 -09. BUT SUCH FINDING HAS BEEN CONSIDERED BY THE ITAT TO ALLOW THE BENEFIT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO REASON FOR THE AO TO DENY THE BENEFIT OF CLAIM MADE U/S 80IA. THIS LEGAL PROPOSITION IS SUPPORTED BY THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS ACE MULT ITAXES SYSTEMS PVT LTD (SUPRA). FURTHER, THE LD.CIT(A) HAS DENIED THE BEN EFIT ON THE GROUND THAT THE ASSESSEE HAS FAILED TO SUBMIT AUDIT REPORT IN FORM 10CCB. THE ASSESSEE HAS FILED COPIES OF AUDIT REPORT IN FORM 10CCB WHICH IS ENCLOSED IN PAPER BOOK PAGES 85 TO 98. THEREFORE, WE ARE OF THE CONSIDERE D VIEW THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IA IN RESPECT OF TWO U NITS AND ACCORDINGLY, WE DIRECT THE AO TO ALLOW DEDUCTION AS CLAIMED BY THE ASSESSEE FOR AYS 2009-10 & 2010-11. 96 HYDROAIR TECTONICS (PCD) LTD 58. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITION OF INCOME FROM UNDISCLOSED SOURCES ON THE BASIS OF NOTING MAD E IN THE DIARY. THE AO HAS MADE ADDITION OF RS.25,51,000 FOR AY 2008-09 IN THE HANDS OF SHRI HARBHAJAN SINGH ON THE BASIS OF A NOTING FOUND DURING THE COU RSE OF SEARCH. ON THE BASIS OF SAID NOTING, THE AO INFERRED THAT THE ASSESSEE H AS PURCHASED A FLAT AT KHARGHAR FOR RS.72,79,000 OUT OF WHICH, AN AMOUNT O F RS.25,51,000 WAS PAID IN CASH ON OR BEFORE 29-01-2009. THE LD.AR FOR THE AS SESSEE SUBMITTED THAT THESE NOTING IS NEITHER IN THE HANDWRITING OF THE A SSESSEE NOR OF HIS WIFE. THE PROPERTY CLAIMS TO HAVE BEEN PURCHASED BY THE ASSES SEE WAS NOT APPEARING IN THE LIST OF PROPERTIES SUBMITTED BEFORE THE AO. IT WAS EXPLAINED BEFORE THE AO THAT ONE OF THE EMPLOYEES OF THE ASSESSEE, WHO PROP OSED TO PURCHASE A RESIDENTIAL FLAT FOR HIM AND WANTED LOAN FOR THE PU RPOSE FOR WHICH HE HAS MADE NOTING IN THE DIARY. THE AO HAS MADE ADDITION PURE LY ON SUSPICION AND SURMISES ONLY ON THE PRESUMPTION THAT ONCE A DOCUME NT IS FOUND IN THE POSSESSION OF THE ASSESSEE, AS PER PROVISIONS OF SE CTION 132(4A), IT IS PRESUMED THAT THE DOCUMENT BELONGS TO THE ASSESSEE AND CONTE NTS OF SUCH DOCUMENT IS CORRECT, WITHOUT APPRECIATING THE FACT THAT THESE A RE NOT BELONGING TO THE ASSESSEE AND THE ASSESSEE NEITHER PURCHASED THE FLA T NOR MADE ANY PAYMENT. 59. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIAL ON RECORD, WE FIND THAT THE AO HAS MADE ADDITION OF RS.25,51,000 ON TH E BASIS OF A NOTING FOUND 97 HYDROAIR TECTONICS (PCD) LTD IN THE DIARY WITHOUT THERE BEING ANY CORRESPONDING EVIDENCE TO SHOW THAT THE ASSESSEE HAS IN FACT PURCHASED A FLAT AS CLAIMED BY THE LD.AO. ON THE OTHER HAND, THE ASSESSEE HAS MADE OUT A CASE THAT THE PRO PERTY PURPORTEDLY PURCHASED BY ASSESSEE WAS NEITHER APPEARING IN THE LIST OF PROPERTIES FURNISHED BEFORE THE AO NOR ANY PAYMENT HAS BEEN MADE AGAINST SUCH PROPERTY. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A O WAS INCORRECT IN MAKING ADDITION ONLY ON THE BASIS OF NOTING FOUND IN THE D IARY WITHOUT THERE BEING ANY CORRESPONDING EVIDENCE TO PROVE THAT THE ASSESSEE H AS, IN FACT, PURCHASED THE PROPERTY. IN THIS CASE, THERE IS NO IOTA OF DISCUS SION IN THE ORDER OF THE AO WHETHER THE ASSESSEE IS IN POSSESSION OF THE SAID P ROPERTY OR NOT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO REAS ON TO MAKE ADDITION FOR THE AO WHEN THE ASSESSEE HAS PROVED THAT HE HAS NOT PUR CHASED ANY PROPERTY AS MENTIONED IN THE SAID DIARY. ACCORDINGLY WE DIRECT THE AO TO DELETE ADDITION OF RS.25,51,000. 60. SIMILARLY, THE AO HAS MADE ADDITION F RS.12,44, 750 FOR AY 2005-06 IN THE CASE OF M/S HYDROAIR TECTONICS (PCD) LTD. THIS ADD ITION HAS BEEN MADE SOLELY ON THE BASIS OF SOME SCRIBBLING MADE ON PAGE 4 OF P OCKET TELEPHONE DIARY FOUND DURING THE COURSE OF SEARCH AT THE OFFICE PRE MISES OF THE ASSESSEE. ON THE BASIS OF AFORESAID NOTHING, THE LD.AO INFERRED THAT 5% COMMISSION WAS PAID FOR PROCURING BALGOTRA PROJECT. 98 HYDROAIR TECTONICS (PCD) LTD 61. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT EXCEP T A PIECE OF PAPER IN FORM OF POCKET TELEPHONE DIARY, NOTHING WAS IN THE POSSESSION OF THE AO TO INFER THAT THE ASSESSEE HAS PAID MONEY TO ONE MR. S UDHIR KUMAR FOR GETTING BALGOTRA PROJECT. THE AO HAS MADE ADDITION PURELY ON SUSPICION AND SURMISE WITHOUT THERE BEING ANY CORRESPONDING EVIDENCE TO P ROVE THAT THE ASSESSEE HAS PAID 5% COMMISSION TO THE SAID PARTY FOR GETTIN G CONTRACT. 62. HAVING HEARD BOTH THE SIDES, WE FIND THAT THE A DDITION MADE BY THE AO IS SOLELY BASED ON A NOTING FOUND IN POCKET TELEPHONE DIARY, WITHOUT ANY CORRESPONDING EVIDENCE TO PROVE THAT THE ASSESSEE H AS PAID 5% COMMISSION TO ONE MR. SUDHIR KUMAR FOR GETTING BALGOTRA PROJECT. ALTHOUGH THE PROVISIONS MADE IT MANDATORY FOR THE ASSESSEE TO PROVE THAT TH E DOCUMENT FOUND IN HIS POSSESSION AND ITS CONTENTS ARE INCORRECT, BUT MERE LY ON THE BASIS OF PRESUMPTIONS DRAWN AS PER THE PROVISIONS OF SECTION 132(4A), ADDITION COULD NOT BE MADE UNLESS THERE IS CORRESPONDING EVIDENCE IN THE POSSESSION OF THE AO TO PROVE THAT THE NOTING FOUND IN THE DIARY REPR ESENTS UNDISCLOSED INCOME OF THE ASSESSEE. THEREFORE, WE DIRECT THE AO TO DE LETE ADDITION OF RS.12,44,750. 63. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U /S 14A. THIS ISSUE HAS BEEN RAISED IN THE DEPARTMENTAL APPEAL IN THE CASE OF M/S HYDROAIR TECTONICS 99 HYDROAIR TECTONICS (PCD) LTD (PCD) LTD FOR AY 2010-11. THE AO HAS DISALLOWED A SUM OF RS.32,43,922 U/S 14A BY APPLYING RULE 8D(2) OF I.T. RULES, 1962. I T IS THE CLAIM OF THE ASSESSEE THAT IT HAS EARNED DIVIDEND INCOME OF RS.2,000, THE REFORE, IF AT ALL DISALLOWANCE IS REQUIRED U/S 14A, THE SAME SHOULD BE RESTRICTED TO THE AMOUNT OF ACTUAL EXEMPT INCOME EARNED FOR THE YEAR. 64. HAVING CONSIDERED BOTH THE PARTIES, WE FIND MER IT IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THIS ISSUE IS NO L ONGER RES-INTEGRA. THE HONBLE DELHI HIGH COURT IN CASE OF JOINT INVESTMENT PVT LT D VS. CIT(2015) 372 ITR 694 HAD CONSIDERED SIMILAR ISSUE AND HELD THAT DISALLOW ANCES CONTEMPLATED U/S 14A CANNOT SHALLOW WHOLE EXEMPT INCOME. THE CO-ORDI NATE BENCHES OF ITAT, HAVE TAKEN A CONSISTENT VIEW THAT DISALLOWANCE CONT EMPLATED U/S 14A NEEDS TO BE RESTRICTED TO THE EXTENT OF EXEMPT INCOME EARNED FOR THE YEAR UNDER CONSIDERATION. IN THIS CASE, THERE IS NO DISPUTE W ITH REGARD TO THE FACT THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.2,000 ONLY. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT DISALLOWANCES CONTEMPLATED U/S 14A CANNOT EXCEED THE AMOUNT OF EXEMPT INCOME. THE LD.CIT(A), AFTER CONS IDERING RELEVANT FACTS HAS RIGHTLY DELETED ADDITION MADE BY THE AO. HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF LD.CIT(A) AND REJECT GROUND TAKEN BY TH E REVENUE. 65. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF INTEREST ON ACCOUNT OF INTEREST FREE ADVANCES GIVEN TO SISTER CONCERN. THIS ISSUE 100 HYDROAIR TECTONICS (PCD) LTD HAS BEEN RAISED IN THE ASSESSEES APPEAL IN CASE OF M/S HYDROAIR TECTONICS (PCD) LTD FOR AY 2010-11. THE AO HAS DISALLOWED IN TEREST EXPENDITURE OF RS.1.92 CRORES ON THE GROUND THAT THE ASSESSEE HAS DIVERTED ITS INTEREST BEARING FUNDS TO SISTER CONCERNS. ACCORDING TO THE AO, THE ASSESSEE HAS GIVEN ADVANCES OF RS.16 CRORES TO M/S HYDROAIR ENVIRO TECTONICS (P CD) LTD WITHOUT CHARGING ANY INTEREST. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS SUFFICIENT OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES. T HEREFORE, ONCE THERE IS A MIXED FUND, INCLUDING BORROWED FUNDS, GENERAL PRESU MPTION IS THAT INVESTMENTS ARE OUT OF OWN FUNDS. IN THIS REGARD, THE ASSESSEE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F RELIANCE UTILITIES LTD VS CIT 338 ITR 340 (BOM). 66. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. NO DOUBT, THE HONBLE BOMBAY HIGH COURT I N THE CASE OF RELIANCE UTILITIES LTD VS CIT (SUPRA) HAS HELD THAT ONCE THE ASSESSEE HAS PROVED AVAILABILITY OF MIXED FUNDS INCLUDING BORROWED FUND S AND ALSO ITS OWN FUNDS IS MORE THAN THE AMOUNT OF INVESTMENTS, THEN A GENERAL PRESUMPTION IS THAT INVESTMENTS ARE OUT OF OWN FUNDS. CONSEQUENTLY, NO DISALLOWANCE CAN BE MADE TOWARDS INTEREST EXPENDITURE. BUT, IN THIS CA SE, ABSOLUTELY, THERE IS NO FACTS WITH REGARD TO THE AVAILABILITY OWN FUNDS. A T THE SAME TIME, THE ASSESSEE HAS BORROWED HUGE FUNDS FROM BANKS AND DIVERTED PAR T OF ITS FUNDS TO SISTER 101 HYDROAIR TECTONICS (PCD) LTD CONCERNS WITHOUT CHARGING ANY INTEREST. THE FACT T HAT WHETHER THE ASSESSEE IS HAVING OWN FUNDS IN EXCESS OF THE AMOUNT OF LOAN GI VEN TO SISTER CONCERNS AT THE RELEVANT POINT OF TIME IS A FACT WHICH NEEDS TO BE ASCERTAINED FROM THE BOOKS OF ACCOUNT. THEREFORE, WE ARE OF THE CONSIDE RED VIEW THAT THE ISSUE NEEDS TO BE RE-EXAMINED BY THE AO IN LIGHT OF THE C LAIM OF THE ASSESSEE THAT IT HAS SUFFICIENT OWN FUNDS IN EXCESS OF LOAN GIVEN TO SISTER CONCERNS. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIREC T HIM TO CONSIDER THE ISSUE AFRESH IN LIGHT OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES LTD VS. CIT (SUPRA). 67. IN THE RESULT, ITA.NO. 946/MUM/2016, ITA.NO. 94 7/MUM/2016 ITA.NO. 948/MUM/2016, ITA.NO. 4171/MUM/2016 ITA.NO. 4172/MU M/2016 ITA.NO. 3095/MUM/2016 ITA.NO. 3096/MUM/2016 ITA.NO. 3097/MU M/2016 ITA.NO. 3098/MUM/2016 ITA.NO. 1442/MUM/2017 ITA.NO. 1434/MU M/2017 ITA.NO. 1435/MUM/2017 ITA.NO. 1436/MUM/2017 ITA.NO. 1437/MU M/2017 ITA.NO. 4167/MUM/2016 ITA.NO. 4168/MUM/2016 ITA.NO. 4169/MU M/2016 ITA.NO. 4196/MUM/2016 AND ITA NO. 4170/MUM/2016 ARE DISMISS ED. FURTHER, ITA NO. 3420/MUM/2016, 3421/MUM/2016, 4291/MUM/2016 AND ITA .NO. 4304/MUM/2016 IS ALSO DISMISSED. FURTHER, APPEALS F ILED BY THE ASSESSEE M/S HYDROAIR TECTONICS (PCD) LTD IN ITA.NO. 3949/MUM/20 17, ITA.NO. 3950/MUM/2017, ITA.NO. 3951/MUM/2017, ITA.NO. 3952/ MUM/2017, ITA.NO. 102 HYDROAIR TECTONICS (PCD) LTD 3953/MUM/2017, ITA.NO. 3954/MUM/2017, ARE PARTLY AL LOWED. THE APPEALS FILED BY THE REVENUE IN ITA.NO. 3926/MUM/2017, ITA. NO. 3927/MUM/2017, ITA.NO. 3928/MUM/2017, ITA.NO. 3929/MUM/2017, ITA.N O. 3930/MUM/2017 AND ITA.NO. 3931/MUM/2017 ARE PARTLY ALLOWED. SIMIL ARLY, ITA NO. 847/MUM/2017 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30-01-201 9 SD/- SD/- (JOGINDER SINGH) (G MANJUNATHA) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DT : 30 TH JANUARY, 2019 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI