ITO, Bangalore V. M/s. Saravana Constructions Pvt. Ltd., Bangalore

ITA 950/BANG/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5524 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-04-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 27-06-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Document seized; Peak credit; Documents seized
• Section: 143(3); 153A; 131; 68; 132; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NOS. 859 TO 864/BANG/2008 ASSESSMENT YEARS : 1998-99 TO 2003-04 M/S. SARAVANA CONSTRUCTIONS (P) LTD., NO.155B, 4 TH MAIN, HAL II STAGE, DEFENCE COLONY, BANGALORE 560 038. : APPELLANT VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(2), BANGALORE. : RESPONDENT ITA NOS. 950 TO 956/BANG/2008 ASSESSMENT YEARS : 1998-99 TO 2003-04 THE ITO, WARD 12(2), BANGALORE. : APPELLANT VS. M/S. SARAVANA CONSTRUCTIONS, (P) LTD., BANGALORE. : RESPONDENT ASSESSEE BY : SHRI ASHOK KULKARNI, ADVOCATE REVEMUE BY : SHRI G.V. GOPALA RAO, CIT-I(DR) O R D E R PER BENCH THESE THIRTEEN APPEALS INSTITUTED (I) SIX APPEALS BY THE ASSESSEE & (II) THE REMAINING SEVEN APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE CONSOLIDATED ORDER OF THE LD. CIT (A)-VI, BANGALORE IN ITA NOS. 209/210/211/212/213/214/215 /ACIT/CC-1(2)/BLORE/CIT(A)- I/2006- 07 DATED 25.3.2008 FOR THE ASSESSMENT YEARS 1998-99, 1999-00, 2000- 01, 2001-02, 2002-03, 2003-04 & 2004-05 RESPECTIVELY. ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 2 OF 28 I. ITA NOS.859,860,861,862,863 & 864/B/08 AYS 98-99,99-00,00-01, 01-02,02-03 & 03-04 (BY THE ASSESSEE) . 2. THE ASSESSEE HAD RAISED NINE IDENTICAL GROUNDS (EXCEPT THE FIGURE OF DISALLOWANCE AMOUNT OF EXPENSES CLAIMED) IN ALL THE AYS UNDER CHALLENGE, IN WHICH, GROUND NOS. 1 AND 9 BEING GENERAL IN NATURE AND NO SPECIFIC ISSUES INVOLVED, THEY HAVE BECOME INCONSEQ UENTIAL. IN THE REMAINING GROUNDS, THE CRUX OF THE ISSUE RAISED BEI NG THAT THE LD. CIT (A) ERRED IN UPHOLDING THE DISALL OWANCES OF RS.26.82 LAKHS,RS.56.08 LAKHS, RS. 78.54 LAKHS, RS .123.13 LAKHS, RS. 0.32 LAKH AND RS. 21.55 LAKHS FOR THE AYS. 1998 -99, 99-00, 2000- 01, 01-02, 02-03 AND 03-04 RESPECTIVELY BEING INCRE ASE IN EXPENSES CLAIMED BY THE ASSESSEE ON THE BASIS OF MATERIALS S EIZED DURING THE COURSE OF SEARCH II. ITA NOS.950,951,952,953,954, 955 & 956/B/08 AYS 98-99,99- 00,00-01, 01-02,02-03, 03-04 & 04-05 (BY THE REVE NUE) . 3. LIKEWISE, THE REVENUE HAS ALSO RAISED THIRTEEN IDENTICAL GROUNDS FOR ALL THE AYS UNDER DISPUTE [AYS 98-99 TO 2004-05], OUT OF WHICH, GROUND NOS. 1, 12 & 13 BEING GENERAL AND EXPLANATORY IN NATURE, THEY DO NOT QUALIFY FOR ADJUDICATION. IN THE REMAI NING GROUNDS, THE SUBSTANCES OF THE ISSUES RAISED ARE REFORMULATED IN A CONCISE MANNER, FOR THE SAKE OF CLARITY, AS UNDER: (I) THE LD. CIT (A) HAD ERRED IN DELETING THE ADDI TIONS MADE TOWARDS UNSECURED LOAN OF RS.28.93 CRORES FOR THE AYS 98-99 TO 04-05; & THE CIT (A) OUGHT TO HAVE CONSIDERED THAT THE ASSES SEE FAILED TO FURNISH HOW IT HAS ARRIVED AT THE PEAK CREDIT OF RS.32.78 L AKHS AND OFFERED THE SAME FOR AY 1998-99. ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 3 OF 28 3.1. SUBSEQUENTLY, THE REVENUE HAD, VI DE ITS COMMUNICATION DATED: 28.7.2009, CAME UP WITH A SET OF REVISED GRO UNDS OF APPEAL FOR ALL THE AYS UNDER CHALLENGE WHICH ARE AS UNDER: (1) FOR THE AY 1998-99, THE REVENUE HAD COME UP WITH 11 GROUNDS, OUT OF WHICH, GROUND NO. 1 BEING GENERAL, IT DOESNT QUALIFY FOR ADJUDICATION. IN THE REMAINING GROUNDS, THE SUBSTA NCES OF THE ISSUES RAISED ARE REFORMULATED IN A CONCISE MANNER, AS UNDER: (I) THE LD. CIT (A) HAD ERRED IN DELETING THE ADDI TIONS MADE TOWARDS UNSECURED LOAN OF RS.1,71,11,114/- FOR THE AY 98-99 ; (II) THE CIT (A) OUGHT TO HAVE CONSIDERED THAT THE ASSESSEE FAILED TO FURNISH HOW IT HAS ARRIVED AT THE PEAK CREDIT OF RS .32.78 LAKHS AND OFFERED THE SAME FOR AY 1998-99; & (III) THE CIT (A) OUGHT TO HAVE APPRECIATED THE PO SITION OF LAW THAT THE BURDEN IS ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE CREDITS APPEARING IN ITS BOOKS U/S 132(4A) OF THE ACT AND S UCH PRESUMPTION WAS FURTHER STRENGTHENED BY INSERTION OF S.292C BY FINANCE ACT, 2008 W.R.E.F. 1.10.1975. (2) FOR THE REMAINING AYS 1999-00 TO 2004-05, THE REVENUE HAD RAISED IDENTICAL 10 GROUNDS (EXCEPT THE FIGURE OF UNSECURE D LOAN AMOUNT), IN WHICH, GROUND NO. 1 BEING GENERAL, IT HAS NOT BEEN ADDRESSED TO. IN TH E REMAINING GROUNDS, THE SUBSTANCES OF THE ISSUES ARE REFORMULATED, CONCISELY, AS UNDER: (I) THE LD. CIT (A) HAD ERRED IN DELETING THE ADDI TIONS MADE TOWARDS UNSECURED LOAN OF RS.2.50 CRORES, RS.4.82 CRORES, R S.3.70 CRORES, RS.4.54 CRORES, RS.4.71 & RS.6.93 CRORES FOR THE AYS 99-00, 2000-01, 01-02, 02-03, 03-04 AND 04-05 RESPECTIVELY; (II) THE CIT (A) OUGHT TO HAVE APPRECIATED THE POSI TION OF LAW THAT THE BURDEN IS ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE CREDITS APPEARING IN ITS BOOKS U/S 132(4A) OF THE ACT AND S UCH PRESUMPTION WAS FURTHER STRENGTHENED BY INSERTION OF S.292C BY FINANCE ACT, 2008 W.R.E.F. 1.10.1975. ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 4 OF 28 4. AS THE ISSUES CONFRONTED IN THESE APPEAL S BEING COMMON AND INTER-LINKED PERTAINING TO THE SAME ASSESSEE, FOR T HE SAKE OF CLARITY AND CONVENIENCE, THEY WERE HEARD, CONSIDERED AND DISPOS ED OFF IN THIS COMMON ORDER. THE ISSUES RAISED BY THE ASSESSEE AS WELL A S THE REVENUE ARE RATHER INTER-LINKED, WE SHALL PROCEED TO DEAL WITH THE BOTH TOGETHER FOR THE SAKE OF COHESION AS UNDER: 5. THE ISSUES, IN BRIEF, ARE THAT THE ASSESSEE [IN THE STATUS OF AN INDIVIDUAL (SIC) COMPANY] WAS IN THE BUSINESS O F CONSTRUCTION. THERE WAS AN ACTION U/S 132 OF THE ACT IN THE RESIDENTIAL PRE MISES OF SHRI L. SAMBASIVA REDDY, MANAGING DIRECTOR OF THE ASSESSEE AND HIS ASSOCIATE CONCERNS AND, ACCORDING TO THE REVENUE, THE ASSESSE E WAS CARRYING ON CIVIL CONSTRUCTION WORK AT NEW DELHI, PUNE, COCHIN, BANGALORE AND VARIOUS OTHER PLACES. DURING THE COURSE OF SEARCH OPERATIO N, ACCORDING TO THE REVENUE, CERTAIN INCRIMINATING DOCUMENTS RELATING T O THE ASSESSEE SUCH AS SALE OF IMMOVABLE PROPERTIES AND ITS GROUPS TRANSA CTIONS, NAMELY, CASH CREDITS, REPAYMENT OF CASH LOANS AND PAYMENT OF INT EREST ON THOSE LOANS TO VARIOUS PARTIES WERE UNEARTHED. IN COMPLIANCE TO NOTICES U/S 153A OF THE ACT, THE ASSESSEE HAD FURNISHED ITS RETURNS OF INCO ME FOR THE AYS UNDER CHALLENGE ON 10.8.2005 ADMITTING ITS INCOME/LOSS, T HE DETAILS OF WHICH ARE AS UNDER (ASSESSMENT YEAR-WISE): ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 5 OF 28 ASSESSMENT YEAR INCOME/LOSS 1998-99 RS. 67.39 LAKHS 1999-00 (-)RS. 38.16 LAKHS 2000-01 (-)RS.166.45 LAKHS 2001-02 (-)RS. 18.12 LAKHS 2002-03 (-)RS.105.60 LAKHS 2003-04 (-)RS.578.68 LAKHS 2004-05 (-)RS.113.25 LAKHS 5.1. AFTER CONSIDERING THE SUBMISSION OF THE A SSESSEES CONTENTIONS, THE LD. AO, FOR THE AYS 1998-99 TO 2003-04, AMONG OTHER S, HAD MADE ADDITIONS ON TWO COUNTS, NAMELY, (I) UNSECURED LOAN S AND (II) INCREASE IN EXPENSES CLAIMED, FOR THE ELABORATE REASONS RECORDE D IN HIS IMPUGNED ORDERS. 6. AGGRIEVED, THE ASSESSEE HAD TAKEN UP THE ISSUES WITH THE LD. CIT (A) FOR SOLACE. AFTER DUE CONSIDERATION OF THE LEN GTHY AND EXHAUSTIVE WRITTEN SUBMISSION OF THE ASSESSEE AND ALSO KEEPING IN VIEW OF THE LD. AOS REMAND REPORTS AND REJOINDER OF THE ASSESSEE TO THE REMAND REPORT ETC., THE LD. CIT (A) HAD OBSERVED THUS WITH REGARD TO INCREASE IN EXPENSES DISALLOWED : (ON PAGE 27) THE ABOVE ARGUMENTS WERE ANALYZED. I FIND SO FAR ASSESSMENT U/S 153A OF I.T. ACT IS CONCERNED, UNLIK E AN ASSESSMENT U/S 158 BC OF I.T. ACT, THE AO IS FREE TO UTILIZE WHATEVER EVIDENCE HE HAS GOT EITHER AVAILABLE TO HIM DURING THE COURSE OF SEARCH OR BEF ORE OR AFTER THE SEARCH. IN THIS CASE, HE HAS UTILIZED ALL THE INFORMATION A VAILABLE TO HIM IN THE RETURNS FILED U/S 139 AS WELL AS U/S 153A AS WELL A S THE INFORMATION AVAILABLE IN THE AUDITED BOOKS AS WELL AS KUCCHA BO OK SEIZED DURING THE COURSE OF SEARCH. I FIND THAT, AT FIRST HE HAD ARR IVED AT THE CONCLUSION THAT EXPENSES WERE BEING INFLATED BY EXAMINING AND COMPA RING THE SEIZED DOCUMENTS VIZ., AUDITED BOOKS AND KUCCHA CASH BOOK. IN ORDER TO QUANTIFY THE SAME, HE HAS RIGHTLY RESORTED TO THE COMPARISON OF THE REGULAR RETURNS FILED U/S 139 OF I.T. ACT WITH THE SEARCH RETURNS F ILED U/S 153A OF I.T. ACT. RETURNS REFLECT PENULTIMATE STATE OF AFFAIRS OF AN ASSESSEE WHILE THE SEIZED MATERIAL MAY SHOW IT PARTIALLY OR IN TRUNCATED SHAP E. THEREFORE, I ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 6 OF 28 APPRECIATE HIS ACTION OF COMPARISON OF EXPENSES SHO WN IN ORIGINAL RETURN WITH THAT OF THE RETURNS RECEIVED U/S 153A OF I.T. ACT WHICH IS SHOWN IN PARA 7.7. OF THE ASSESSMENT ORDER OF AY 1998-99. T HE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF JAIKUMAR JAIN V . ASST. CIT (2007) 164 TAXMAN 38 IN FAVOUR OF THE REVENUE IS ALSO BASE D ALMOST ON SIMILAR FACTS. IN THAT CASE, THE AO FOUND THAT INCOME RETUR NED WAS LESS THAN THAT OF NET PROFIT SHOWN IN PROFIT & LOSS ACCOUNT. HE T REATED THE DIFFERENCE AS UNDISCLOSED INCOME WHICH WAS CONFIRMED BY THE HIGH COURT. IN VIEW OF THE ABOVE, I HOLD THE ACTION OF AO JUSTI FIED AND UPHOLD THE ADDITIONS. 7. AGITATED, THE ASSESSEE HAS COME UP WITH THE PRESENT APPEALS. DURING THE COURSE OF THE HEARING, IT WAS THE CASE O F SHRI A A KULKARNI, THE LD. A R THAT - - DURING THE COURSE OF SEARCH A KUTCHA CASH BOOK CO NTAINING CASH TRANSACTIONS WHICH WERE NOT FOUND IN THE REGULAR BO OKS WAS SEIZED WHICH MAINLY CONTAINED THE DETAILS OF LOANS RECEIVE D IN CASH AND ALSO CERTAIN ITEMS OF INCOME AND EXPENDITURE WHICH WERE ALSO IN CASH; THAT CONSEQUENT TO THE ISSUANCE OF NOTICES U/S 153A OF T HE ACT FOR ALL THE AYS UNDER DISPUTE, THE ASSESSEE CONSIDERED ALL THES E ITEMS OF INCOME AND EXPENDITURE IN THE KUTCHA CASH BOOK AND INCORP ORATED THE SAME IN THE REGULAR BOOKS AND DECLARED THE INCOME ACCORDING LY; - THAT WHILE CONCLUDING THE ASSESSMENT, THE AO HAD TAXED THE ADDITIONAL INCOMES OFFERED AS PER THE ENTRIES IN TH E KUTCHA BOOK WHICH WAS ALSO IN THE NATURE OF REDUCTION OF EXPENSES IN THE REGULAR BOOKS, BUT, HAD NOT ALLOWED THE EXPENDITURE CLAIMED; - THAT THE TRANSACTIONS WERE IN CASH WHICH WERE COM PUTED ON THE BASIS OF ENTRIES IN THE KUTCHA CASH BOOK; THAT WHILE CONC LUDING THE ASSESSMENTS, THE AO HAD SELECTIVELY ACCEPTED THE EN TRIES WHICH WERE FAVOURABLE TO THE REVENUE AND HAVE THE EFFECT OF IN CREASE IN INCOME AS GENUINE, BUT, IGNORED THE ENTRIES WHICH HAVE THE EF FECT OF REDUCING THE INCOME; THAT THE AO HAD ACCEPTED DECREASE IN EXPENS ES, BUT, REJECTED THE CLAIM OF INCREASE IN EXPENSES; THAT THE STAND O F THE AO IN SELECTIVELY ACCEPTING THE ENTRIES IN THE KUTCHA CAS H BOOK; - THAT THE ENTRIES IN THE KUTCHA CASH BOOK WERE NOT ONLY IN THE NATURE OF INCREASE IN EXPENSES, BUT, ALSO IN THE NATURE OF DE CREASE IN EXPENSES; THAT THE EXPENSES WHICH WERE IN THE REGULAR BOOKS H AVE BEEN REDUCED AFTER CONSIDERING THE ENTRIES IN THE KUTCHA CASH BO OK; THAT IT HAD ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 7 OF 28 RESULTED IN INCREASING THE INCOME. AT THE SAME TIM E UNDER SOME HEADS OF EXPENDITURE, THERE WAS AN INCREASE IN EXPENSES A S PER KUTCHA CASH BOOK WHEN COMPARED TO THE EXPENSES IN THE REGULAR B OOKS; THAT THE ASSESSEE HAD CONSIDERED ALL THESE TRANSACTIONS AND HAD OFFERED THE NET INCOME FOR TAXATION; THAT, THE AO HAD ACCEPTED THE TRANSACTIONS WHICH HAVE THE EFFECT OF REDUCING THE EXPENDITURE AS GENU INE, BUT, IGNORED THE TRANSACTIONS WHICH HAVE THE EFFECT OF INCREASING TH E EXPENSES; THAT IN THE JUDICIAL PARLANCE, THE AO WAS NOT EXPECTED TO S ELECTIVELY PRESUME THE TRANSACTIONS TO BE GENUINE; - THAT THE ASSESSEE HAD OFFERED ADDITIONAL INCOME O N THE BASIS OF ENTRIES IN THE KUTCHA CASH BOOK AND THAT EVEN THESE TRANSAC TIONS WERE NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE, HOWEVER, THE ONLY BASIS WAS ENTRIES IN THE KUTCHA CASH BOOK AND THAT THE AO HAD ACCEPTED THIS INCOME OFFERED, BUT, DISALLOWED THE EXPENDITURE; & - THAT THE ENTRIES IN THE KUTCHA CASH BOOK WERE GEN UINE AND THE SAME REQUIRED TO BE ACCEPTED IN TOTALITY; THAT THE AO CO ULD NOT HAVE SELECTIVELY PRESUMED THE TRANSACTIONS TO BE GENUINE ; THAT UNDER LAW, THE AO COULD NOT HAVE ACCEPTED THE GENUINENESS ONLY IN RESPECT OF TRANSACTIONS WHICH WERE FAVOURABLE TO THE REVENUE A ND REJECT THE TRANSACTIONS WHICH WERE NOT FAVOURABLE TO THE REVEN UE AND THAT SINCE BOTH THE TRANSACTIONS WERE ON THE BASIS OF THE SAME EVIDENCE, THE AO COULD NOT HAVE ACCEPTED THE SAME SELECTIVELY; - WITH REGARD TO THE TAXABILITY OF WHAT WERE SAID T O BE CREDITS IN THE PAPERS/DOCUMENTS SEIZED DURING THE COURSE OF THE SE ARCH AT THE PREMISES OF THE ASSESSEE ESPECIALLY HAVING REGARD T O THE PROVISIONS OF S. 132(4A), S. 292C AND S. 68 OF THE ACT, THAT IN T HE KUTCHA BOUND BOOK CERTAIN SUMS WERE SHOWN AS CREDITS AGAINST WHICH AL PHABETS FIGURES IN CODE LANGUAGE WHICH MAY POSSIBLY BE INDICATIVE OF T HE NAMES OF THE CREDITORS; - EXTENSIVELY QUOTING THE PROVISIONS OF S.132(4A), S.292C, S.2 (12A) OF THE ACT AND WITH REGARD TO S.68 OF THE ACT, IT WAS CONTENDED THAT - ASSUMING WITHOUT ADMITTING THAT S. 68 CAN BE USED I N MAKING ASSESSMENTS WITH REFERENCE TO ENTRIES IN THE SEIZED DOCUMENTS/BOOKS FOUND AS IN THE PRESENT CASE. NON-APPLICABILITY OF THE PROVISIONS OF S.68, IT WAS EXPLAINED THAT PRIMA FACIE, THE ENTRIE S MADE IN SECRETED ACCOUNT BY THAT VERY NATURE WERE TRUE AND REFLECTS THE CORRECT POSITION. ALSO S.292C CREATES PRESUMPTION IN FAVOUR OF THE CO RRECTNESS OF THE ENTRIES THAT IS BY WAY OF CREDIT. ALSO THE FACT TH AT THE REVENUE ITSELF ACCEPTS REPAYMENTS MADE TO THE CREDITORS SHOW THAT THEY WERE GENUINE. THE HONBLE APEX COURT HAD DEALT WITH THE TREATMENT OF ENTRIES APPEARING IN THE BOOKS IN THE CASE OF CIT V. P.MOHA NAKALA [291 ITR ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 8 OF 28 278 (SC)]. IT WAS NOT A CASE WHERE NO EXPLANATION HAS BEEN OFFERED BY THE ASSESSEE. IN WHAT CIRCUMSTANCES CAN THE AO REJ ECTS SUCH EXPLANATION. THE HONBLE COURT HAD RULED THAT THE R EJECTION OF THE EXPLANATION WAS TO BE BASED ON PROPER APPRECIATION OF THE MATERIAL AND OTHER ATTENDING CIRCUMSTANCES AVAILABLE ON RECO RD. APPLICATION OF MIND IS THE SINE QUO NON FOR FORMING THE OPINION. IT WAS ASSERTED THAT IN CASES WHERE THE EXPLANATION OFFERED BY THE ASSE SSEE ABOUT THE NATURE AND SOURCE OF SUMS FOUND CREDITED IN THE BOO KS IS NOT SATISFACTORY THERE IS, PRIMA FACIE, EVIDENCE AGAINS T THE ASSESSEE, VIZ., THE RECEIPT OF MONEY, THE BURDEN IS ON THE ASSESSEE TO REBUT THE SAME, AND IF HE FAILS TO REBUT IT, IT CAN BE HELD AGAINST THE ASSESSEE THAT IT WAS A RECEIPT OF AN INCOME NATURE. THE HONBLE COURT RECOGNIZES AS IS EVIDENT FROM THE VERY TERMINOLOGY OF S. 68 THAT EVEN WHERE THE EXPLANATION OFFERED IS NOT SATISFACTORY STILL THE AO HAS TO EXERCISE HIS DISCRETIONARY POWER U/S 68 HAVING REGARD TO THE ATTENDING CIRCUMSTANCES AND THE SURROUNDING FAC TS OF THE CASE BEFORE TAXING AN ITEM AS INCOME; - THAT MANY ENTRIES FOUND IN THE SEIZED DOCUMENTS R ELATING TO CREDITS STOOD PROVED BY THE FACT THAT THE CREDITORS PLACES WERE ALSO SEARCHED/SURVEYED AND ALL OF THEM OWNED UP CREDITS SHOWING THE GENUINENESS OF THE ENTRIES IN THE BOOKS/SEIZED DOCU MENTS. IN THE OTHER CASES WHERE CORRECT NAMES AND/OR ADDRESSES COULD NO T BE GIVEN AS THE LOANS WERE RECEIVED THROUGH MIDDLEMEN, THE NAMES OF MIDDLEMEN HAVE BEEN FURNISHED. ON EXAMINATION, THE MIDDLEMEN AGRE ED THAT THEY TOOK LOAN FROM THIRD PARTIES WHICH WERE CREDITED TO THE ACCOUNTS OF THE ASSESSEE. IT WAS SUCH CREDITS WHICH WERE IN DISPUT E. THEREFORE, ON AN ALL OVERALL VIEW OF THE MATTER, IT WAS CLEAR THAT T HE ATTENDING CIRCUMSTANCES IN THE CASE, EVEN WITHOUT THE PRESUMP TIONS IN FAVOUR OF THE ASSESSEE SHOWED THAT THE ENTRIES WERE GENUINE A ND THE DISCRETION SHOULD BE EXERCISED NOT TOAD BY INVOKING SEC. 68. EVEN THE MIDDLEMEN WERE ALSO TAXED ON THE AMOUNTS PROCURED BY THEM, BU T, THEY GOT AWAY DUE TO SOME TECHNICAL FLAWS IN THE ORDERS. HAVING REGARD TO THESE FACTS, IT WAS CLEAR THAT THE PROVISIONS OF S.68 OF THE ACT CANNOT BE INVOKED AND THAT NO AMOUNT CAN BE BROUGHT TO TAX. RELIED ON THE FOLLOWING CASE LAWS: P.R. METRANI V. CIT (2006) 287 ITR 209 (SC); M/S. FIFTH AVENUE V. CIT (CENTRAL) IN ITA NO.87 O F 2004 DT: 10.7.2008 OF HONBLE HIGH COURT OF KARNATAKA FINANC E BILL 2007 ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 9 OF 28 TO STRENGTHEN HIS ARGUMENTS, THE LD. A R HAD FURNISHED SEVEN VOLUMINOUS PAPER BOOKS RUNNING INTO HUNDREDS OF PAG ES, WHICH CONSIST OF, AMONG OTHERS, COPIES OF (I) CORRESPONDENCE WITH AUT HORITIES, STATEMENTS OF VARIOUS PERSONS; (II) AUDIT REPORT, FINANCIAL STATE MENTS, (III) DETAILS OF UNSECURED LOANS, CORRESPONDENCE WITH THE AO; (IV) S WORN STATEMENTS OF CREDITORS, FINANCIAL STATEMENTS, (V) SUMMARY OF LOA N CREDITORS, BANK STATEMENTS, STATEMENTS OF CCOD ACCOUNTS (ING VYSYA BANK LTD) (VI) BANK STATEMENTS [LORD KRISHNA BANK] ETC., 7.1. ON HIS PART, SHRI G.V. GOPALA RAO, THE LD . D R WAS VERY EMPHATIC IN HIS RESOLVES THAT THE LD. CIT (A) HAD ANALYZED T HE ISSUE IN DEPTH AND ARRIVED AT A CONCLUSION JUDICIALLY WHEREBY APPRECIA TING THE LD. AOS EFFORTS IN UTILIZING ALL THE INFORMATION AVAILABLE IN THE RETU RNS FURNISHED U/S 139 AS WELL AS KUTCHA BOOKS SEIZED AND ARRIVED AT A CONCLU SION THAT THE EXPENSES WERE BEING INFLATED BY EXAMINING AND COMPARING THE SEIZED DOCUMENTS, VIZ., AUDITED BOOKS AND KUTCHA CASH BOOK ETC., IT WAS, THEREFORE, PASSIONATELY PLEADED THAT THE STAND OF THE LD. CIT (A) ON THIS COUNT REQUIRES NO INTERVENTION BY THIS BENCH AT THIS JUNC TURE. BEFORE CONCLUDING, THE LD. D R HAD PLACED HIS FAITH IN THE RULING OF T HE HONBLE SUPREME COURT IN THE CASE OF P.R. METRANI V. CIT REPORTED IN (200 6) 287 ITR 209 (SC). 8. WE HAVE ATTENTIVELY CONSIDERED THE R IVAL SUBMISSIONS, METICULOUSLY PERUSED THE RELEVANT RECORDS AND ALSO THE VOLUMINOUS DOCUMENTARY EVIDENCES ADVANCED BY THE LD. A R IN TH E SHAPE OF PAPER BOOKS AND ALSO VARIOUS CASE LAWS ON WHICH, STRONG R ELIANCE WAS PLACED. ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 10 OF 28 8.1. BRIEFLY, THE RESIDENTIAL PREMISES OF SHRI L. SAMBASIVA REDDY, THE MANAGING DIRECTOR OF THE ASSESSEE AND HIS OTHER ASS OCIATE CONCERNS WERE SUBJECTED TO AN ACTION U/S 132 OF THE ACT. DURING THE COURSE OF SUCH ACTION, CERTAIN INCRIMINATING DOCUMENTS AND AMONG OTHERS, T WO SETS OF CASH BOOKS WERE APPEARED TO HAVE BEEN UNEARTHED AND SUBSEQUENT LY, ASSESSMENTS WERE CONCLUDED U/S 143(3) R.W.S. 153A OF THE ACT, B Y MAKING CERTAIN ADDITIONS AND DISALLOWANCES AS ELABORATELY DISCUSSE D IN THE RESPECTIVE IMPUGNED ORDERS UNDER CHALLENGE. 8.1.1. ON A CRITICAL PERUSAL OF THE I MPUGNED ASSESSMENT ORDERS FRAMED BY THE LD. A O, FOR EXAMPLE, FOR THE AY 1998 -99 AND WITH REGARD TO UNEXPLAINED CASH CREDITS, THE ASSESSEE WAS REQUIRED TO EXPLAIN THE NATURE OF THE CREDITS APPEARING IN THOSE SEIZED BOOKS OF A CCOUNTS. ACCORDING TO THE AO, THOUGH THE ASSESSEE HAD ADMITTED THAT CASH LOANS WERE TAKEN FROM VARIOUS PARTIES, BUT, WAS NOT IN A POSITION TO PROV E AND, ACCORDINGLY, THE CREDITS APPEARING IN THE NAMES OF DOUBTFUL CREDITOR S WERE SUMMARIZED AND THE PEAK CREDIT WORKED OUT AT RS.32.78 LAKHS WAS OF FERED TO TAXATION. 8.1.2. AFTER CONSIDERING TH E EXPLANATION OFFERED, THE AO TREATED THE SAME AMOUNT OF RS.32.78 LAKHS AS PEAK O F UNEXPLAINED CASH CREDITS APPEARING IN THE SEIZED BOOKS OF ACCOUNTS. IN RESPECT OF UNSECURED LOANS, IT WAS THE STAND OF THE LD. AO THAT THE SEIZ ED MATERIALS HAVE INDICATED THAT THE ASSESSEE HAD ALLEGED TO HAVE REC EIVED AMOUNTS FROM VARIOUS PARTIES AS LOANS AND AT THE TIME OF SEARCH, THE CREDITS APPEARING IN THE NAMES OF CERTAIN PERSONS HAVE BEEN EXAMINED AND FOUND THAT THEY HAVE NOT ADVANCED MONIES TO THE ASSESSEE AND THE AS SESSEE HAD ALSO NOT ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 11 OF 28 PROVED THE CREDIT WORTHINESS BY PRODUCING THE ALLEG ED CREDITORS FOR VERIFICATION OF GENUINENESS OR OTHERWISE OF THE TRA NSACTIONS AND, SUBSEQUENTLY, THE ASSESSEE WAS REQUIRED TO PRODUCE THE CREDITORS ALONG WITH THEIR BOOKS OF ACCOUNTS/PAN/BANK PASS BOOKS FO R EXAMINATION, FOR WHICH, THE ASSESSEE APPEARED TO HAVE PLEADED ITS IN ABILITY TO COMPLY WITH THE AOS REQUIREMENT AS THE CREDITORS WERE NOT CO-O PERATING TO PART WITH CONFIRMATION LETTERS ETC., AS CONCEDED BY THE LD. A O, THE ASSESSEE HAD INCORPORATED ALL THE TRANSACTIONS APPEARING IN THE UNACCOUNTED BOOKS OF ACCOUNTS IN THE STATEMENTS FURNISHED ALONG WITH THE RETURNS OF INCOME U/S 153A OF THE ACT, THE AO RESORTED TO A RANDOM CHECK OF CERTAIN CREDITS APPEARING IN THE LIST OF ALLEGED CREDITORS, NAMELY, SHRI LAXMAN B TUKREL, SHRI R.G. RAO, SHRI B.S. HANUMAN AND SHRI S. NARASI MHAMURTHY WHO HAVE REPORTEDLY DENIED THE LOANS ADVANCED TO THE ASSESSE E. 8.1.3. COUNTERING THE AOS STAND, THE ASSESSEE IN ITS REPLY TO THE AO [ SOURCE: PARA 6.4 OF THE ASST. ORDER], ASSERTED THAT 1.1..IN THE CASE OF SHRI S. NARASIMHAMURTHY, THERE IS NO CASH LOAN WHICH SANDS UNEXPLAINED. IN THIS CONNECT ION, WE ENCLOSED COPY OF AFFIDAVIT FILED BY SHRI L. SAMBASHIVA REDDY IN CONNECTION WITH ASSESSMENT PROCEEDINGS OF SHRI S. NARASIMHAMURTHY. AS EXPLAINED THEREIN, AN AMOUNT OF RS.10 LAKHS WAS RECEIVED BY C HEQUE TOWARDS PURCHASE OF FLAT BY SHRI S. NARASIMHAMURTHY AND HIS SON AND BALANCE RS.7 LAKHS TOWARDS PURCHASE OF FLAT. 1.2. SMT AND SHRI S. NARASIMHAMURTHY HAVE OBTAINED LOAN OF RS.10 LAKHS FROM M/S. LORD KRISHNA BANK BY PLEDGING THEIR SHARES WHICH HAS BEEN ADVANCED TO THE COMPANY AND HAS BEEN ACCOUNTED IN KUTCHA BOOKS. THE INTEREST ON THIS LOAN HAS BEEN PAID BY THE COMPANY OUT OF ITS BANK ACCOUNT. 1.3. HENCE, THERE IS NO CASH LOAN FROM SHRI S. NAR ASIMHAMURTHY TO CONSIDER AS UNEXPLAINED CREDIT. FURTHER, THE OTHER CREDITS AND DEBITS IN ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 12 OF 28 HIS NAME ARE TOWARDS DELHI OFFICE AND NOT LOAN FROM HIM, PLEASE REFER: AFFIDAVIT. 2. IN THE CASE OF SHRI R. G. RAO, THE AMOUNTS HAS B EEN OFFERED AT THE TIME OF SEARCH AND THE SAME HAS BEEN CONSIDERED FOR WORKING OUT THE PEAK CREDIT, NOW OFFERED TO TAX FOR THE ASSESSMENT YEAR 1998-99. HENCE, NO COMMENTS. 3. REGARDING SHRI LAXMAN B TUKREL, WE SUBMIT THAT HE HAS ADVANCED AMOUNT THAT IS WHY THE AMOUNT WERE CREDITED AND DEB ITED IN HIS NAME. THIS CAN BE VERIFIED FROM SEIZED KUTCHA BOOKS OF AC COUNT. 4. SHRI B. S. HANUMAN HAS LENT AND HAS BEEN SUBSTAN TIALLY REPAID. BALANCE OUTSTANDING AS ON 31.3.2004 IS RS.2,00,000/ -, THE SAME HAS BEEN REFLECTED IN THE KUTCHA BOOK SEIZED BY THE DEP ARTMENT. 5. S.132(4) OF THE ACT STIPULATES THAT THE CONTENT S OF SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS FOUND AT THE TIME OF SE ARCH ARE TRUE. HENCE, PRIMARILY THE ENTRIES APPEARING IN THESE ACC OUNTS ARE CORRECT AND TRUE. TO CONCLUDE THE BORROWALS FROM SHRI LAXM AN B TUKREL AND SHRI B. S. HANUMAN ARE GENUINE AND ARE TO BE ACCEP TED. 8.1.4. HOWEVER, THE LD. AO TOOK A STA ND THAT THE ASSESSEE CLAIMED THAT THE CASH CREDITORS APPEARING IN THE SE IZED MATERIALS WERE GENUINE AND PART OF THE CASH CREDITORS WERE NOT GEN UINE AND WHILE COMPUTING THE PEAK CREDITS OF RS.32.78 LAKHS, THE A SSESSEE HAD CONSIDERED FEW CREDITS AND OFFERED THEM AS UNEXPLAI NED CASH CREDITS IN THE AY. 98-99. HOWEVER, NO BREAK UP/WORKING OF THE CASH CREDITS CONSIDERED AS NOT GENUINE/NON-EXISTING HAS BEEN FURNISHED. TAKIN G THESE ASPECTS INTO CONSIDERATION AND ALSO SEEKING REFUGE IN VARIOUS CA SE LAWS AS MENTIONED IN HIS IMPUGNED ORDERS, THE AO WAS OF THE VIEW THAT TH E CREDITORS APPEARING IN THE BOOKS OF ACCOUNTS WHICH WERE APPEARING IN THE F INANCIAL STATEMENTS FILED ALONG WITH THE RETURNS OF INCOME IN RESPONSE TO NOTICE U/S 153A OF THE ACT WERE TREATED AS NOT GENUINE. ACCORDINGLY, THE LD. AO TREATED THE ENTIRE CREDITORS AS NOT GENUINE AND THE CREDITS AMOUNTING TO RS.1.71 CRORES FOR ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 13 OF 28 THE AY 1998-99 WAS BROUGHT TO TAX AS INCOME FROM O THER SOURCES. LIKEWISE THE AMOUNTS OF CREDITS OF RS.2.50 CRORES, RS.4.82 CRORES, RS.3.70 CRORES, RS.4.54 CRORES, RS.4.71 CRORES AND RS.6.93 CRORES FOR THE REMAINING ASSESSMENT YEARS 99-00 TO 2004-05 RESPECTIVELY WERE TREATED AS INCOME FROM OTHER SOURCES. 8.1.5. WITH REGARD TO INCREASE IN EXPENSES, WHILE FURNISHING RETURNS OF INCOME U/S 153A OF THE ACT FOR THE AYS UNDER CHA LLENGE, THE ASSESSEE HAD INCORPORATED THE EXPENSES APPEARING IN THE SEIZ ED BOOKS OF ACCOUNTS INTO THE BOOKS AND THE FINANCIAL STATEMENTS FILED. WHILE EXAMINING OF THESE EXPENSES DEBITED IN THE TRADING, P & L ACCOUNTS, TH E LD. AO NOTICED THAT THE ASSESSEE HAD ENHANCED THE EXPENSES IN THE REVIS ED STATEMENTS. BEING QUERIED, THE ASSESSEE HAD PRODUCED THE BOOKS OF ACCOUNTS AND OTHER DETAILS RELATING TO THE REGULAR BOOKS WHICH W ERE AUDITED, HOWEVER, DETAILS IN RESPECT OF INCREASE IN EXPENSES DEBITED TO THE P & L ACCOUNTS FURNISHED ALONG WITH THE RETURNS OF INCOME U/S 153A OF THE ACT WERE NOT FORTH-COMING. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, IT WAS EXPLAINED BY THE ASSESSEE THAT THOUGH THESE EXPENSE S WERE INCURRED AS PER KUTCHA CASH BOOK, NO VOUCHERS WERE AVAILABLE FO R THESE PAYMENTS. AFTER TAKING INTO ACCOUNT THESE ASPECTS, THE LD. AO WAS OF THE VIEW THAT THE REGULAR BOOKS OF ACCOUNTS WERE AUDITED AND ON THE B ASIS OF WHICH, REGULAR RETURNS WERE FILED AND THE ASSESSEE HAD NO DETAILS FOR THE INCREASE IN THE EXPENDITURE AND, ACCORDINGLY, THE EXCESS EXPENSES C LAIMED WITHOUT ANY PROPER PROOF/BASIC MATERIALS WAS DISALLOWED FROM TH E P & L ACCOUNT FURNISHED BY THE ASSESSEE. HOWEVER, ON THE OTHER HA ND, THE AO HAD IGNORED THE DECREASE IN EXPENSES SHOWN BY THE ASSES SEE. IT WAS THE ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 14 OF 28 CASE OF THE LD. AO THAT AS THE ASSESSEE HAD NOT PRO DUCED THE DETAILS IN RESPECT OF THE ADDITIONAL EXPENDITURE CLAIMED IN 15 3A RETURNS, THE EXCESS OF EXPENSES CLAIMED OVER AND ABOVE THE ORIGINAL RETURN S WERE DISALLOWED FROM THE P & L ACCOUNTS AND BROUGHT TO TAX-NET FOR THE A YS UNDER CONSIDERATION FOR THE REASONS RECORDED IN HIS IMPUGNED ORDERS. 8.1.6. WHEN THESE ISSUES WERE PLACED BEFORE T HE LD. CIT (A) FOR ADJUDICATION, THE LD. CIT (A) OBSERVED THAT THE BOOKS WERE SEIZED FROM THE ASSESSEE AND THE ENTRIES SHOW THAT THE ASSESSEE HAD TAKEN CREDITS. THEREFORE, THE ONUS WAS ON THE DEPARTMENT TO SUBSTA NTIATE THAT THESE WERE NOT LOANS FROM OTHERS, BUT, THE ASSESSEES OWN MONE Y REFLECTED IN THE SHAPE OF CREDITS IN SEIZED BOOKS, THAT THE PRIMARY ONUS H ERE WAS NOT DISCHARGED BY THE DEPARTMENT RATHER THE BURDEN HAS BEEN THROWN TO THE ASSESSEE TO PROVE THE GENUINENESS OF THE CREDITS ETC., U/S 68 OF I.T. ACT. THIS IS WRONG APPRECIATION OF LAW ETC., THE LD. CIT (A) DREW STRENGTH FROM THE RULING OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F H. NABHIRAJA V. DCIT (2007) 163 TAXMAN 501 (KAR) (SIC) 296 ITR 119 AND OBSERVED THAT THE FINDING OF THE HONBLE COURT WOULD HAVE BEEN SQUARE LY APPLICABLE TO THE FACTS OF THE CASE, HAD THE OTHER CREDITORS APPEARIN G IN KCB WOULD HAVE DISOWNED SUCH CASH CREDITS. 8.1.7. IN TAKING INTO ACCOUNT THE SEQUE NCE OF EVENTS, THE OBSERVATIONS OF THE LD. AO IN HIS IMPUGNED ORDERS I N ARRIVING AT A CONCLUSION THAT THE ENTIRE CREDITORS WERE TREATED A S NOT GENUINE AND THE ENTIRE CREDITS WERE SUBJECTED TO TAX AS INCOME OF T HE ASSESSEE FROM OTHER ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 15 OF 28 SOURCES FOR ALL THE AYS UNDER DISPUTE AND ALSO THE REASONING OF THE LD. CIT (A) IN HIS IMPUGNED ORDER IN DELETING THE SAME, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUES HAVE NOT BEEN PROPE RLY DEALT WITH - AS THEY WERE REQUIRED TO - EITHER AT THE ASSESSMENT PROCEED INGS LEVEL OR AT THE APPELLATE STAGE. PRECISELY, THE FIRST APPELLATE AUT HORITY OUGHT TO HAVE ANALYZED THE GAMUT OF THE ISSUES PLACED BEFORE HIM IN DEPTH, IN STEAD, TO VIEW IT GENTLY; HE HAD COME TO A CONCLUSION IN A HA LF-BAKED MANNER THAT THE ADDITIONS WERE WRONG AND DELETED THE SAME. 8.1.8. ON HIS PART, THE LD. AO CONCLUDED THAT THE ASSESSEE HAD MAINTAINED TWO SEPARATE SET OF BOOKS AND BOTH WERE FOUND AND SEIZED DURING THE COURSE OF SEARCH, ONE OF WHICH RECORDED ITS ACCOUNTED TRANSACTIONS (AUDITED BOOKS) AND IN THE OTHER UNACC OUNTED TRANSACTIONS (KUTCHA CASH BOOK) AND SINCE THE UNSECURED LOANS WE RE FOUND IN THE KUTCHA CASH BOOK, HE HAD CONVENIENTLY ADDED THE ALL EGED UNACCOUNTED SECURED LOANS TO THE INCOME OF THE ASSESSEE UNDER T HE HEAD OTHER SOURCES. 8.1.9. THE MOOT QUESTION IS - WHETHER THE LD. AO WAS JUSTIFIED IN CHOOSING THE ALLEGED CREDITORS AT RANDOM AND ON THE IR EXAMINATION, DISBELIEVED THE EXPLANATION OFFERED BY THE ASSESSEE NOT ONLY IN RESPECT OF THE FOUR CREDITORS, BUT ALSO OTHERS BY EXTENSIVELY QUOT ING VARIOUS JUDICIAL PRONOUNCEMENTS? FOR INSTANCE, THE LD. AO HAD, ON PARA 6.3 OF HIS IMPUGNED ORDER [AY 98-99], OBSERVED THUS 6.3.CERTAIN CREDITS APPEARING IN THE LIST OF ALLEGED CREDITORS HAVE BEE N VERIFIED INCLUDING ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 16 OF 28 SRI LAXMAN B.TUKREL, SRI R.G.RAO, SRI B.S.HANUMAN A ND SRI S.NARASIMHAMURTHY AND FOUND THAT THESE CREDITORS HAVE DENIED THE LOAN ADVANCED TO THE ASSESSEE COMPANY. WHEREAS THE SAID SRI NARASIMHAMURTHY, IN HIS SWORN STATEMENT RECORDED U/ S 131 OF THE ACT ON 30.10.2003 (SOURCE: PAGE 22 -26 OF ADDL. PB AR), HAD SOLEMNLY AFFIRMED TO QUESTION NO.5 THAT ANS: I HAVE NOT TAKEN ANY LOAN FROM ANYBODY FROM 1.4.1997 ONWARDS. HOWEVER, I HAVE GIVEN MONEY OF R S.10 LAKHS BY CHEQUE TO M/S. SARAVANA CONSTRUCTIONS PVT. LTD TO ASSIST S RI L. S. REDDY AS HE WAS IN GREAT FINANCIAL NEED. I DO NOT IMMEDIATELY RECA LL THE PARTICULARS OF CHEQUE. THE CHEQUES HAVE BEEN ISSUED FROM SYNDICAT E BANK, R. T. NAGAR BRANCH, BANGALORE. THIS AMOUNT HAD BEEN REALIZED B Y ME BY DISPOSAL OF A HOUSE. I HAVE ALSO ASSISTED MR. L. S. REDDY (OR M/ S. SARAVANA CONSTRUCTIONS PVT. LTD) BY MORTGAGING SHARES HELD B Y ME IN LORD KRISHNA BANK, LALBAGH ROAD, BANGALORE THE ABOVE ASSERTION OF SHRI NARASIMHAMURTHY WAS QUITE CONTRAST TO THE OBSERVATI ON OF THE LD. AO THAT THE CREDITORS HAVE DENIED THE LOANS ADVANCED TO THE ASSESSEE COMPANY. 8.1.10. DURING THE COURSE OF HEARING, T HE LD. A R HAD FURNISHED A PAPER BOOK CONTAINING THE PARTICULARS OF LOAN CREDI TORS FOR THE AYS 1998-99 TO 2003-04 ALONG WITH COPIES OF LEDGER ACCOUNTS, CO PIES OF BANK STATEMENTS OF LORD KRISHNA BANK, ING VYSYA BANK LTD., THE LAKS HMI VILAS BANK LTD. ON A GLIMPSE OF THE IMPUGNED ASSESSMENT ORDERS FOR THE AYS UNDER CONSIDERATION, WE FIND THAT THE RELEVANT SUMMARY LO AN CREDITORS ALONG WITH ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 17 OF 28 THEIR LEDGER ACCOUNTS, BANK STATEMENTS HAVE NOT BEE N FURNISHED FOR THE PERUSAL OF THE LD. A.O. IN THE ABSENCE OF THE ABOV E RELEVANT PARTICULARS AND ON THE BASIS OF THE MATERIALS AVAILABLE ON RECO RDS, THE LD. AO HAD, PERHAPS, ARRIVED AT A CONCLUSION THAT THE ALLEGED L OAN CREDITORS WERE NOT GENUINE AND CONCLUDED THE ASSESSMENTS AS SUCH. 8.1.11. IN RESPECT OF DISALLOWANCES OF INCREASE IN EXPENSES CLAIMED, IT WAS THE CASE OF THE ASSESSEE THAT DURIN G THE COURSE OF SEARCH TWO SETS OF BOOKS WERE FOUND I.E., ONE BEING AUDITE D BOOKS AND THE OTHER KUTCHA CASH BOOK. THE KUTCHA CASH BOOK NOT ONLY CO NTAINED THE DETAILS OF LOANS RECEIVED AND REPAID, BUT, ALSO DETAILS OF EXP ENSES INCURRED WITH REFERENCE TO THE PROJECTS UNDERTAKEN. HOWEVER, THE LD. AO TOOK A DIVERGENT VIEW THAT THE AUDITED BOOKS SHOWED MORE E XPENSES THAN THAT OF THE DETAILS CONTAINED IN THE KUTCHA CASH BOOK AND A LSO THE RETURNS WERE PREPARED ON THE BASIS OF SUCH AUDITED BOOKS AND SO THE KUTCHA BOOK SHOWED THE REAL AND ACTUAL DAY-TO-DAY TRANSACTIONS OF THE ASSESSEE AND THAT THE EXPENSES CLAIMED IN THE RETURNS OF INCOME PREPARED ON THE BASIS OF THE AUDITED BOOKS WERE MORE THAN WHAT WAS RECORDED IN THE KUTCHA BOOK. ACCORDINGLY, HE TREATED THE DIFFERENCE AS INFLATION OF EXPENDITURE TO REDUCE THE REAL PROFIT/INCOME AND DISALLOWED THE SAME. 8.1.12. WHEN THE ISSUE WENT BEFORE THE LD. CIT (A) FOR CONSIDERATION, HE UPHOLD THE ACTION OF THE LD. AO B Y REASONING THAT AT FIRST THE AO ARRIVED AT THE CONCLUSION THAT THE EXPENSES WERE BEING INFLATED BY COMPARING THE SEIZED DOCUMENTS VIZ., AUDITED BOOKS AND KUTCHA CASH BOOK ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 18 OF 28 AND TO QUANTIFY THE SAME, HE HAD RIGHTLY COMPARED T HE FIGURES OF REGULAR RETURNS (U/S 139 OF THE ACT) WITH THAT OF SEARCH RE TURNS (U/S 153A OF THE ACT). 8.1.13. BEFORE US, IT WAS CONTENDED T HAT THE CIT (A) HAD FAILED TO APPRECIATE THAT CONSEQUENT TO ACTION U/S 132 OF THE ACT, CERTAIN BOOKS OF ACCOUNTS AND DOCUMENTS WERE SEIZED; THAT THE ASSESS EE ON THE BASIS OF SUCH SEIZED MATERIALS, PREPARED RETURNS OF INCOME A ND INCORPORATED DECREASE IN EXPENSES UNDER CERTAIN HEADS AND CLAIME D INCREASE IN EXPENSES IN CERTAIN OTHER HEADS. THE AO DID NOT DI STURB THE CLAIM OF DECREASE IN EXPENSES WHICH WAS FAVOURABLE TO THE RE VENUE, BUT, HAD DISALLOWED THE CLAIM OF INCREASE IN EXPENSES, THAT THE CIT (A) OUGHT TO HAVE APPRECIATED THAT BOTH THE CLAIMS EMANATE FROM THE SAME SEIZED MATERIAL AND THE EVIDENCE CANNOT BE INTERPRETED SEL ECTIVELY. 8.2. TO ILLUSTRATE FURTHER, THE IS SUES RAISED BY THE ASSESSEE/REVENUE UNDER VARIOUS CAPTIONS ARE ANALYZE D IN A CHRONOLOGICAL ORDER AS UNDER: I. UNSECURED LOANS: (I) DURING THE COURSE OF HEARING, IT WAS SUBMITT ED BY THE ASSESSEE THAT THE LD. AO HAD ADDED THE CLOSING BALANCES OF OUTSTA NDING CREDITORS AS APPEARING IN THE BALANCE SHEET OF EACH OF THE AYS U NDER CHALLENGE AS NOT EXPLAINED. THE CLOSING BALANCES UNDER THE HEAD OUTS TANDING CREDITORS AS APPEARING IN THE BALANCE SHEETS FOR THE AYS 1998-99 TO 2004-05 AND THE OPENING BALANCES FOR EACH OF THE AY AS FURNISHED BY THE ASSESSEE ARE ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 19 OF 28 ASSESSMENT YEAR CREDITORS CLOSING BALANCE OPENING BALANCE ADDITIONS MADE BY THE AO 1998-99 1,71,11,114 73,66,779 1,71,11,114 1999-00 2,50,51,813 1,71,11,114 2,50,51,813 2000-01 4,82,27,074 2,50,51,813 4,82,27,074 2001-02 3,70,14,792 4,82,27,074 3,70,14,792 2002-03 4,54,07,931 3,70,14,792 4,54,07,931 2003-04 4,70,31,810 4,54,07,931 4,70,31,810 2004-05 6,93,75,319 4,70,31,810 6,93,75,319 (II) ON A GLIMPSE OF THE IMPUGNED ASSESSMENT OR DERS UNDER CHALLENGE, WE FIND THAT THE LD. AO HAD RESORTED TO ADD THE CLO SING BALANCES AS APPEARING IN THE BOOKS OF EACH OF THE YEARS AS NOT EXPLAINED. IT IS AN UNDISPUTED FACT THAT IF THE CREDITORS NOT BEING PR OVED THEIR GENUINENESS, THE ADDITION WAS, OF COURSE, TO BE MADE UNDER THE EXPLI CIT PROVISIONS OF S. 68 OF THE ACT DURING THE PREVIOUS YEAR. AS ASSERTED BY T HE ASSESSEE, THE DETAILS OF CREDITORS FOR EACH ASSESSMENT YEAR, E.G., THE NA MES OF THE CREDITORS, THE AMOUNTS OUTSTANDING ETC., WERE FURNISHED TO THE AO. IN SUCH A SCENARIO, THE LD. AO OUGHT TO HAVE RESTRICTED THE ADDITIONS O NLY TO THE EXTENT WHERE THE CREDITS UNDER THE SCANNER DURING THE PREVIOUS Y EAR AND NOT THAT OF THE CUMULATIVE BALANCES IN EACH OF THE ACCOUNTS FOR ALL THE AYS IN WHICH THE CREDITORS AND THEIR CREDIT BALANCES APPEARED. HOWE VER, THE LD. AO HAD DONE QUITE OPPOSITE AND THE SAME CANNOT BE SUSTAINE D. IN PRECISE, THE LD. AO OUGHT NOT TO HAVE ADDED THE CUMULATIVE BALANCES AS APPEARING IN THE BALANCE SHEET(S). AS A MATTER OF FACT, THE LOANS A PPEARING UNDER OUTSTANDING CREDITORS IN THE BALANCE SHEETS, AS CAM PAIGNED BY THE LD. A R, COMPRISED OF THE ALLEGED LOANS THROUGH CHEQUES AS W ELL AS CASH AS REFLECTED IN THE REGULAR BOOKS AND IN THE KUTCHA BO OK UNEARTHED DURING THE SEARCH OPERATION. AS PER THE ASSESSEES VERSION, T HE LOANS RECEIVED BY ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 20 OF 28 CHEQUES WERE ALREADY REFLECTED IN THE RETURNS FURNI SHED UP-TO THE AY 2003- 04 AS ON THE DATE OF SEARCH. SUBSEQUENT TO SEARCH AND AFTERMATH, THE ASSESSEE HAD FURNISHED ITS RETURNS FROM 1998-99 TO 2004-05 INCORPORATING THE ALLEGED TRANSACTIONS FOUND IN THE KUTCHA BOOK A LSO AND, THUS, THE LIST CONTAINING THE SUNDRY CREDITORS BOTH RECEIVED BY CH EQUES AS REPRESENTED IN THE REGULAR BOOKS AS WELL AS THE CASH PORTRAYED IN THE KUTCHA CASH BOOK. THE DETAILS OF LOANS APPEAR TO HAVE BEEN RECEIVED D URING THE AYS UNDER CHALLENGE THROUGH CHEQUES AS WELL AS CASH ARE, AS F URNISHED BY THE ASSESSEE, AS UNDER: ASSESSMENT YEAR LOANS RECEIVED DURING THE YEAR CHEQUES REFLECTED IN REGULAR BOOKS CASH REFLECTED IN KUTCHA BOOK 1998-99 1,17,36,011 55,65,511 61,70,500 1999-00 1,36,54,003 61,36,831 75,17,172 2000-01 3,10,00,961 1,87,73,411 1,22,27 ,550 2001-02 96,35,700 16,50,000 79, 85,700 2002-03 1,25,44,964 25,34,964 1,00,1 0,000 2003-04 29,80,750 5,50,000 24 ,30,750 2004-05 2,35,72,071 1,02,02,888 1,33,69 ,183 TOTAL 10,51,24,460 4,54,13,605 5, 97,10,855 (III) ON A QUICK PERUSAL OF THE FIGURES QUOTED ABOVE, WE OBSERVE THAT THE TOTAL LOANS ALLEGED TO HAVE BEEN RECEIVED EITHER CH EQUES OR CASH AGGREGATING TO RS. 10.51 CRORES FOR THE AYS UNDER C HALLENGE AND CANNOT BE THE FABULOUS FIGURE OF RS.28.92 CRORES AS ADDED BY THE AO FOR THE AYS 1998-99 TO 2004-05. II. LOANS THROUGH CHEQUES - RS.4,54,13,605/- : (I) THE FORCEFUL CONTENTION OF THE ASSESSEE WAS THAT THE LOANS AGGREGATING TO RS.4.54 CRORES RECEIVED THROUGH CHEQUES WERE APPEARING ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 21 OF 28 IN THE REGULAR BOOKS OF ACCOUNTS OF THE ASSESSEE W HICH HAVE BEEN DULY REFLECTED IN THE REGULAR RETURNS OF INCOME FURNISHE D UP-TO AY 2003-04 (PRIOR TO SEARCH OPERATION). THESE TRANSACTIONS, ACCORDIN G TO THE ASSESSEE, WERE REFLECTED IN ITS BANK ACCOUNTS AND ALSO FINDING A P LACE IN ITS REGULAR BOOKS AS WELL AS BALANCE-SHEETS FURNISHED ALONG WITH ITS RETURNS OF INCOME. IT WAS THE CASE OF THE ASSESSEE THAT THE NAMES AND THE ADDRESSES OF THE CREDITORS WHO ADVANCED THEIR LOANS THROUGH CHEQUES HAVE DULY BEEN FURNISHED TO THE DEPARTMENT ALONG WITH THE RETURNS OF INCOME. ACCORDING TO THE ASSESSEE, ALL SUCH TRANSACTIONS HAVE DULY BEEN REFLECTED IN ITS BANK ACCOUNTS. IT WAS ASSERTED, DURING THE COURSE HEARI NG, THAT IN MOST OF THE LOAN CREDITORS, THE LOANS HAVE ALSO BEEN REPAID AND SUCH REPAYMENTS WERE THROUGH BANKING CHANNELS. TO CEMENT HIS ARGUMENTS, THE ASSESSEES LD. A.R ASSERTED THAT SUCH DETAILS WERE AVAILABLE IN TH E BOOKS OF ACCOUNT WHICH DULY EXAMINED BY THE LD. AO DURING THE COURSE OF AS SESSMENT PROCEEDINGS. TO STRENGTHEN HIS VOCIFEROUS ARGUMENT , THE LD. AR ALSO FURNISHED VOLUMINOUS PAPER BOOKS CONTAINING BANK ST ATEMENTS FOR THE PERUSAL OF THIS BENCH. HOWEVER, ON A GLANCE OF TH E IMPUGNED ASSESSMENT ORDERS, THE LD. AO HAD NOT BROUGHT ON RECORD ANY CR EDIBLE DOCUMENTARY EVIDENCE TO REBUFF THE ASSESSEES LOUD CLAIM OF GEN UINENESS OF SUCH CREDITS RECEIVED THROUGH CHEQUES. TO STRENGTHEN ITS ARGUME NT, THE ASSESSEE HAD FURNISHED THE DETAILS OF CREDITS REPRESENTING LOANS RECEIVED THROUGH CHEQUES IN THE RESPECTIVE ASSESSMENT YEARS AND ALSO THE DETAILS OF REPAYMENTS MADE THROUGH BANKING CHANNELS, COPIES OF BANK ACCOUNTS OF LORD KRISHNA BANK, ING VYSYA BANK LTD., THE LAKSHMI VILAS BANK LTD. ETC., [SOURCE: ADDL. PAPER BOOK V OF AR]. ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 22 OF 28 (II) WE HAVE ALSO NOTICED AN ELEMENT OF REASONA BLENESS IN THE ASSESSEES PLEADING THAT OWING TO THE FACT THAT THE TRANSACTIONS RELATE TO PERIOD OF LATE NINETIES AND THE REPAYMENT OF SUCH L OANS HAVE ALSO TAKEN PLACE SUBSEQUENTLY, ITS PRACTICAL DIFFICULTY IN SEC URING THE PRESENCE OF SUCH CREDITORS FOR EXAMINATION AT THIS JUNCTURE. HOWEVE R, THE LD. A R HELD HIS GROUND IN ASSERTING THAT THE LOAN CREDITORS HAVE EI THER BEEN EXAMINED BY THE DEPARTMENT FOR WHICH EVIDENCES ARE AVAILABLE WI TH THE DEPARTMENT OR THE LOANS HAVE BEEN REPAID FOR WHICH THE BANK STATE MENTS STAND TESTIMONY THAT THE GENUINENESS OF SUCH TRANSACTIONS WERE ABOV E THE BOARD, BESIDES THE CREDITORS HAVE DULY BEEN IDENTIFIED. (III) IN SUBSTANCE, IT IS NOTICED THAT THE LOAN RECEIPTS TO THE TUNE OF RS.4.54 CRORES DURING THE PERIOD FROM 1998-99 TO 20 04-05 AND ALSO THE REPAYMENTS WERE THROUGH BANKING CHANNELS. SUCH BEI NG THE SCENARIO, WE FIND IT DIFFICULT TO PATRONIZE THE FINDING OF THE L D. AO ON THIS POINT. (IV) SINCE THE TRANSACTIONS ARE CLAIMED TO BE BY CHEQUES THE QUESTION OF DISALLOWANCE DOESNT ARISE. HOWEVER, AS A MATTER O F CAUTION, THE LD. AO IS DIRECTED TO ALLOW THE SAME AFTER CONFIRMING THAT TH E TRANSACTIONS ARE THROUGH BANKING CHANNELS. III. LOANS THROUGH CASH: (I) THE LOAN AMOUNTS APPEARED TO HAVE BEEN R ECEIVED BY CASH DURING THE AYS 1998-99 TO 2004-05 WAS TO THE TUNE OF RS.5. 97 CRORES. CONSEQUENT TO THE SEARCH OPERATION AND UNEARTHING O F THE KUTCHA CASH BOOK WAS THE BASIS OF INCORPORATING THESE CREDITS I N THE REGULAR BOOKS OF ACCOUNTS WHILE FURNISHING THE RETURNS OF INCOME IN LIEU OF NOTICES U/S 153A ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 23 OF 28 OF THE ACT. IT WAS THE STRONG CONTENTION OF THE AS SESSEE THAT DURING THE COURSE OF SEARCH PROCEEDINGS, THE REVENUE HAD EXAMI NED VARIOUS PERSONS IN WHOSE NAMES THE CREDITS WERE FOUND THE KUTCHA CA SH BOOK AND THEY HAVE CONFIRMED THE CASH TRANSACTIONS IN THEIR STATE MENTS RECORDED ON 11.11.2003 BY THE ADIT, UNIT 1(1) BANGALORE. TH E DETAILS OF SUCH CASH RECEIPTS IN ASSESSMENT YEARS-WISE, CONFIRMED ON ENQ UIRIES BY THE DEPARTMENT AND BALANCE AMOUNTS ARE AS UNDER: ASST. YEAR CASH RECEIPTS AS REFLECTED IN KUTCHA BOOK CONFIRMED IN ENQUIRIES/REPAID NOT EXAMINED BY THE DEPARTMENT 1998-99 61,70,500 59,70,500 2,00,000 1999-00 75,17,172 69,97,612 5,19,560 2000-01 1,22,27,550 75,02,550 47,25,000 2001-02 79,85,700 56,35,700 23,50,000 2002-03 1,00,10,000 78,50,000 21,60,000 2003-04 24,30,750 17,94,750 6,36,000 2004-05 1,33,69,183 1,29,12,963 4,56,220 TOTAL 5,97,10,855 4,86,64,075 1,10,46,780 A.Y. 1998-99: (A) DURING THE YEAR, THE CASH RECEIPTS WERE OF RS.61.70 LAKHS, OUT OF WHICH, SHRI S. NARASIMHAMURTHY (RS.6.5 LAKHS) IN HI S SWORN STATEMENT U/S 131 OF THE ACT [SOURCE: P.2/3/4/6 OF ADDL. PB IV] H AD CONFIRMED THE TRANSACTION, SHRI LAKSHMAN [RS.6.80 LAKHS] IN HIS S TATEMENT DT.25.11.2003 [REFER: P 8/9 OF ADDL. PB IV] HAD DENIED CHANNELING ANY CASH LOAN THROUGH HIM TO THE ASSESSEE AND M/S. BLUE LINES (P) LTD. [R S.46.40 LAKHS], THE RELEVANT TRANSACTION WAS CONFIRMED IN THE POST SEAR CH INVESTIGATION, AS REFERRED TO BY THE ADIT (INV), UNIT 1(1), BANGALORE (REFER: P 43/44 OF ADDL. P.B.IV). ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 24 OF 28 A.Y 1999-2000 : (B) OUT OF RS.75.17 LAKHS, SHRI LAKSHMAN (RS.13. 94 LAKHS), AS IN FOR THE AY 98-99, HAD DENIED FOR HAVING CHANNELED ANY CASH LOANS THROUGH HIM TO THE ASSESSEE; M/S. BLUE LINES (P) LTD {RS.21.18 LA KHS} HAD CONFIRMED THE CASH LOAN TO THE ASSESSEE [REFER: P 44 OF PB IV], S HRI L.SAMBASHIVA REDDY [RS.33.04 LAKHS] THE CREDITS WERE REFLECTED IN HIS RETURNS WHICH WERE ACCEPTED BY THE AO WHO WAS THE AO FOR THE ASSE SSEE AND SHRI P.S.NAYAK (RS.1.80 LAKHS) HAD CONFIRMED THE CASH PA YMENTS MADE TO THE ASSESSEE THROUGH SHRI SAMBASHIVA REDDY [SOURCE: STA TEMENT U/S 131 P 17/20 OF ADDL. P.B IV]. A.Y 2000-01 : (C) OUT OF RS.1.22 CRORES, SHRI P.S. NAYAK (RS.19 .5 LAKHS) HAD CONFIRMED THE CASH PAYMENTS [REFER: P 17/20 OF ADDL. P.B. IV] , SHRI SURYANARAYAN (BLUELINES (P) LTD) OF RS.17.93 LAKHS, SHRI B.S. HA NUMAN (RS.2 LAKHS) AND B.M. ELECTRICALS (RS.20 LAKHS) HAVE SINCE CONFIRMED SUCH CASH TRANSACTIONS [REFER: P 44 OF PB IV]. WITH REGARD TO CHEQUES DIS COUNTING OF RS.11.40 LAKHS, THE ASSESSEES CONTENTION WAS THAT THE AMOUN TS HAVE BEEN REPAID IN THE LATER YEARS AS PER KUTCHA CASH BOOK. THIS REQU IRES EXAMINATION BY THE AO. A.Y 2001-02 : (D) OUT OF RS.79.85 LAKHS, M/S. B.M. ELECTRICA LS (RS.30 LAKHS) AND SHRI SURAYANARAYANAN (RS.15.35 LAKHS), THE RELEVANT TRAN SACTIONS HAVE BEEN CONFIRMED [PAGE 44 OF P.B. IV]. WITH REGARD TO RS. 6 LAKHS, SHRI P.S.NAYAK HAD CONFIRMED THE SAME IN HIS STATEMENT [P.17/20 OF P.B.IV]. SHRI T.R. ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 25 OF 28 NATARAJAN [RS.5 LAKHS] HAD CONFIRMED SUCH TRANSACTI ON [REFER: P 32 OF ADDL.PB IV]. A.Y 2002-03 : (E) OUT OF RS.1 CRORE, M/S. B.M. ELECTRICALS (R S.50 LAKHS), SHRI P.S. NAYAK [RS.1 LAKH] AND SHRI T.R. NATARAJAN [RS.20.5 LAKHS] HAVE DULY CONFIRMED SUCH TRANSACTIONS [SUPRA]. WITH REGARD TO RS.7 LAKHS OF LOAN FROM M/S. SHREYAS INVESTMENTS, IT WAS CONTENTED THAT THE RE HAVE BEEN REPAYMENTS AS PER KUTCHA BOOK SEIZED DURING THE LAT ER YEARS. THIS REQUIRES EXAMINATION BY THE LD. AO. A.Y 2003-04 : (F) OUT OF RS.24.3 LAKHS, SHRI LAKSHMAN [RS.5.99 LAKHS] HAD DENIED ANY SUCH CASH TRANSACTION WITH THE ASSESSEE, HOWEVER, S RI SURYANARAYANAN [RS.8.7 LAKHS] AND SHRI T.R. NATARAJAN [RS.3.25 LAK HS] HAVE CONFIRMED THEIR TRANSACTIONS WITH THE ASSESSEE. A.Y 2004-05 : (G) OUT OF RS. 1.33 CRORES, IT WAS THE CONTENTIO N OF THE ASSESSEE THAT RS.1.29 CRORES WAS LENT BY NONE OTHER THAN SHRI L. SAMBASHIVA REDDY WHO WAS BEING ASSESSED BY THE SAME AO. (II) IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANC ES OF THE ISSUE AS EXHAUSTIVELY ANALYZED IN THE FOREGOING PARAGRAPHS, THE LD. AO IS DIRECTED TO ACCEPT THE CASH CREDITS WHEREVER THE LENDERS HAV E CONFIRMED FOR HAVING LENT THE MONIES TO THE ASSESSEE EITHER BEFORE THE I NVESTIGATION AUTHORITY OR THROUGH LETTERS. ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 26 OF 28 (III) WITH REGARD TO INCREASE IN EXPENSES AS C LAIMED BY THE ASSESSEE, WE FIND THAT THE TRANSACTIONS WERE CONDUCTED IN CASH A ND ALSO COMPUTED ON THE BASIS OF ENTRIES IN THE KUTCHA CASH BOOK. HOWEV ER, WHILE CONCLUDING THE ASSESSMENTS, THE LD. AO, AS ALLEGED BY THE LD. A.R. , HAD SELECTIVELY ACCEPTED THE ENTRIES IN THE SENSE THAT WHEREVER THE EFFECT OF INCREASE IN INCOME AS GENUINE, BUT HAD IGNORED THE ENTRIES WHIC H HAVE THE EFFECT OF REDUCING THE INCOME. IN ESSENCE, THE AO HAD ACCEPT ED THE DECREASE IN EXPENSES, BUT, HAD REJECTED THE CLAIM OF INCREASE I N EXPENSES. (IV) ON A QUICK LOOK AT THE WORKING OF THE ASSESSE E, IT WAS OBSERVED THAT THE EXPENSES IN THE REGULAR BOOKS HAVE BEEN REDUCED AFTER CONSIDERING THE ENTRIES IN THE KUTCHA CASH BOOK. THIS HAD, PERHAPS , RESULTED IN INCREASING THE INCOME. HOWEVER, AT THE SAME TIME, UNDER SOME HEADS OF EXPENDITURE, THERE WAS AN INCREASE IN EXPENSES AS PER KUTCHA BOO K WHEN COMPARED TO THE EXPENSES IN THE REGULAR BOOKS. THE ASSESSEE, IT APPEARS, HAD OFFERED THE NET INCOME FOR TAXATION AFTER HAVING CONSIDERED ALL THOSE TRANSACTIONS. HOWEVER, THE LD. AO WAS RATHER SELECTIVE IN ACCEPTI NG THE TRANSACTIONS WHICH HAVE THE EFFECT OF REDUCING THE EXPENDITURE A S GENUINE, BUT, DISALLOWED THE TRANSACTIONS WHICH HAVE THE EFFECT O F INCREASE IN EXPENSES. THIS STAND OF THE LD. AO, IN OUR CONSIDERED VIEW, W AS NOT ON THE SOUND FOOTING. WHEN THE AO WAS INCLINED TO DEAL WITH THE ASSESSEES CLAIM IN DECREASE IN EXPENDITURE, A SIMILAR YARDSTICK SHOULD HAVE BEEN APPLIED WHILE CONSIDERING THE CLAIM OF THE ASSESSEE IN INCREASE I N EXPENDITURE ALSO. ACCORDINGLY, WE DIRECT THE LD. AO TO TAKE INTO ACCO UNT THE INCREASE IN EXPENDITURE WHILE COMPUTING THE INCOME OF THE ASSES SEE. ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 27 OF 28 (V) THE REVENUE, FOR THE AY 1998-99, AMONG OTHERS , HAD RAISED A GROUND THAT THE CIT (A) OUGHT TO HAVE CONSIDERED THAT THE ASSE SSEE FAILED TO FURNISH HOW IT HAD ARRIVED AT THE PEAK CREDIT OF RS .32.78 LAKHS AND OFFERED THE SAME FOR AY 1998-99. ON A GLANCE AT THE IMPUGNED ORDER, IT WAS NOTICED THAT THE LD. AO HAD OBSERVED THAT 6.4IT IS OBSERVED THAT THE ASSESSEE CLAIMS THA T THE CASH CREDITORS APPEARING IN THE SEIZED MATERIALS ARE GENUINE AND P ART OF THE CASH CREDITORS ARE NOT GENUINE. AS SUCH, WHILE COMPUTING THE PEAK CREDITS OF RS.32,78,000/- THE ASSESSEE HAS CONSIDERED FEW CRED ITORS AND OFFERED IT AS UNEXPLAINED CASH CREDITS IN THE ASSESSMENT YEAR 199 8-99. HOWEVER, NO BREAK-UP/WORKING OF CASH CREDITORS CONSIDERED AS NO T GENUINE/NON-EXISTING HAS BEEN FURNISHED. IN THE LIGHT OF THE FACT, IT I S VERY CLEAR THAT THE CASH CREDITS APPEARING IN THE SEIZED BOOKS OF ACCOUNTS A RE NOT GENUINE.. AND WENT AHEAD IN ADDING THE ENTIRE UNSECURED LOANS TO THE EXTENT OF RS.1.71 CRORES, THEREBY IGNORING THE PEAK CREDITS OF RS.32. 78 LAKHS COMPUTED BY THE ASSESSEE. THE LD. AO HAS SINCE BEEN DIRECTED BY THIS BENCH AT PARA III . (II) (SUPRA) TO ACCEPT THE CASH CREDITS WHEREVER THE LENDERS HAVE C ONFIRMED FOR HAVING LENT THE MONIES TO THE ASSESSEE EITHER BEFORE THE INVEST IGATION AUTHORITY OR THROUGH LETTERS, AND, THEREFORE, THE ISSUE RAISED BY THE REVENUE BEC AME REDUNDANT WHICH HAS NOT BEEN ADDRESSED TO. BEFORE PARTING WITH, WE WOULD LIKE TO EMPHASIZE T HAT THE CASE LAWS ON WHICH THE RIVAL PARTIES PLACED THEIR FAITH HAVE BEEN KEPT IN VIEW WHILE DECIDING THE ISSUES. 8.3. IN THE RESULT : (I) THE ASSESSEES APPEALS FOR THE AYS 1998-99 TO 2003-04 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES; & ITA NOS.859 TO 864/B/ 08 & 950 TO 956/B/08 PAGE 28 OF 28 (II) THE REVENUES APPEALS FOR THE AYS 1998-99 TO 2004-05 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JUNE, 2011. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 30 TH JUNE, 2011. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.