Purnachandra Janardan Rao, Solapur V. Deputy Commissioner of Income-tax,

ITA 993/PUN/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4931 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-10-2020
• Assessment Year: misc
• Appeal Filed On: 12-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARISE OUT OF
• Assessee Lawyers: AND OTHER
• Keywords: Unexplained investment; Business income; Search and seizure; Document seized; Period of limitation; Bad and doubtful debts; Valuation report; Block assessment; Time period of passing order; Documents seized; Set aside
• Section: 40A(3); 142(1); 143(2); 192; 142(2A); 158BC; 113; 13; 22; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO. 993/PUN/2016 BLOCK PERIOD : 1997-98 TO 2002-03 PURNACHANDRA JANARDHAN RAO, PLOT NO.1,SHRADDHA VIHAR APARTMENT, MODI, SOLAPUR 413 001 PAN : AAQPR5980E VS. DCIT, CENTRAL CIRCLE-1(2), PUNE APPELLANT RESPONDENT ITA NO. 1259/PUN/2016 BLOCK PERIOD : 1997-98 TO 2002-03 DCIT, CENTRAL CIRCLE-1(2), PUNE VS. PURNACHANDRA JANARDHAN RAO, PLOT NO.1,SHRADDHA VIHAR APARTMENT, MODI, SOLAPUR 413 001 PAN : AAQPR5980E APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE CI T(A)-13, PUNE ON 28-03-2016 IN RELATION TO THE BLOCK PERIOD 01-04-1 996 TO 27-08-2002. ASSESSEE BY SHRI KRISHNA GUJARATHI REVENUE BY SHRI DEEPAK GARG DATE OF HEARING 13-10-2020 DATE OF PRONOUNCEMENT 16-10-2020 ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 2 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SEARCH U /S.132 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) WAS CARRIED OUT IN RAO GROUP OF CASES ON 27-08-2002, OF WH ICH THE ASSESSEE IS A MEMBER. SEVERAL INCRIMINATING DOCUMENTS/MATERI AL WERE FOUND DURING THE COURSE OF SEARCH. NOTICE U/S.158B C OF THE ACT WAS ISSUED AND WAS SERVED ON THE ASSESSEE ON 18-02 -2003 REQUIRING HIM TO FILE RETURN FOR THE BLOCK PERIOD. THE ASSE SSEE FILED BLOCK RETURN ON 04-04-2003 DECLARING UNDISCLOSED INCOME OF RS.4,43,77,020/-. THE ASSESSING OFFICER (AO) PASSED TH E BLOCK ASSESSMENT ORDER ON 26.6.2008 DETERMINING TOTAL UNDISCLOSED INCOME AT RS.9,16,76,879/-. THE ASSESSEE PARTLY SUCCEED ED BEFORE THE LD. CIT(A). THIS IS HOW, BOTH THE SIDES HAVE PREFERRED RESPECTIVE APPEALS BEFORE THE TRIBUNAL. 3. THE ASSESSEE HAS FILED CONCISE GROUNDS AND ALSO AN A DDITIONAL GROUND. THE ASSESSEE, THROUGH THE ADDITIONAL GROUND, CLAI MS THAT THE ASSESSMENT ORDER PASSED U/S.143(3) R.W.S. 158BC IS BAD IN LAW INASMUCH AS THE SAME SHOULD HAVE BEEN PASSED U/S.144 R .W.S. 158BC BECAUSE THE ASSESSEE COMMITTED DEFAULT AS LAID DOWN IN SECTION 144. HOWEVER, NO ARGUMENT WAS ADVANCED BY THE LD. AR ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 3 ON SUCH ADDITIONAL GROUND DURING THE COURSE OF HEARING BE FORE THE TRIBUNAL. AS SUCH, THE SAME IS DISMISSED. 4. THROUGH THE FIRST THREE CONCISE GROUNDS, THE ASSESSEE HAS CHALLENGED THE BLOCK ASSESSMENT ORDER ON THE ISSUE OF LIMITA TION. FOR APPRECIATING THE CONTENTION ON THE QUESTION OF LIMITATION, CHRONOLOGY OF THE EVENTS IN THIS CASE IS REQUIRED TO BE SEEN . THE SAME HAS BEEN SET OUT BY THE LD. CIT(A) ON PAGES 7 TO 9 OF THE IMPUGNED ORDER, WHICH IS AS UNDER:- S.NO. PARTICULARS DATE 01 SEARCH AND SEIZURE TOOK PLACE ON 27-08-2002 02 THE AO UNDISPUTEDLY ADMITTED VIDE PARA NO.4(D) P AGE NO.2 OF SUBMISSION MADE BEFORE HON. BOMBAY HIGH COURT, DATED 14-02-2008, THAT THE LAST AUTHORIZATIO N SERVED ON THE APPELLANT ON 27-08-2002 03 A NOTICE U/S.158(BC) FOR FILING THE RETURN OF BL OCK PERIOD WAS SERVED ON THE APPELLANT 18-08-2002 04 APPELLANT SUBMITTED BLOCK RETURN DECLARING UNDIS CLOSED INCOME OF RS.443.77 LAKHS 04-04-2003 05 FIRST NOTICE U/S.143(2) SERVED FOR ASSESSMENT ON THE APPELLANT 07-11-2003 06 DURING THE COURSE OF ASSESSMENT PROCEEDING, APPE LLANT FILED PETITION FOR SETTLEMENT OF INCOME TO THE INCO ME-TAX SETTLEMENT COMMISSION 26-07-2004 07 CIT FILED REPORT BEFORE THE SETTLEMENT COMMISSIO N STATING THAT, THERE ARE NO COMPLEXITIES IN THE ACCO UNTS, THEREFORE, THE PETITION OF THE APPELLANT NEEDS TO B E REJECTED 18-20-2004 08 SETTLEMENT COMMISSION REJECTED THE PETITION OF T HE APPLICANT AND THE ORDER OF REJECTION RECEIVED BY CI T 19-06-2006 09 THE SECOND NOTICE U/S.143(2) AND 142(1) WAS SERV ED ON THE APPELLANT WITH A VIEW TO COMPLETE THE ASSESSMEN T PROCEEDING AFTER THE REJECTION OF SETTLEMENT PETITI ON 11-07-2006 10 THE AO PASSED AN ORDER U/S.142(2A) FOR SPECIAL A UDIT AND SERVED THE ORDER ON THE SAME DAY 02-08-2006 11 APPELLANT FILED WRIT PETITION NO.2534 OF 2006 BE FORE HON. BOMBAY HIGH COURT AGAINST ORDER U/S.142(2A) AND OTHER GROUNDS 17-09-2006 12 HON. BOMBAY HIGH COURT GRANTED THE STAY AGAINST THE PROCEEDING U/S.142(2A) ONLY (NO STAY WAS GRANTED AGAINST THE ASSESSMENT PROCEEDING) 09-10-2006 ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 4 13 HON. BOMBAY HIGH COURT QUASHED AND SET ASIDE THE ORDER DATED 02-08-2006 OF AO PASSED U/S.142(2A) AND ISSUED THE DIRECTIVES FOR FRESH OPPORTUNITY TO THE APPELLANT FOR THE PURPOSE OF SPECIAL AUDIT 14-01-2008 14 AO ISSUED THIRD NOTICE U/S.143(2) 11-02-2008 15 AO ISSUED NOTICE U/S.142(2A), DATED 11-02-2008 AND SERVED ON 11-02-2008 16 APPELLANT FILED HIS STAY IN RESPECT OF SHOW CAUS E NOTICE U/S.142(2A) 13-02-2008 17 AO PASSED THE ORDER U/S.142(2A) 14-02-2008 18 APPELLANT FURTHER FILED A WRIT PETITION TO BOMBA Y HIGH COURT AGAINST THE NOTICE U/S.143(2) DATED 11-02-200 8 AND AN ORDER U/S 142(2A) DATED 14.2.2008 U/S 143(2) DAT ED 11-02-2008 AND AN ORDER U/S.142(2A) DATED 14-02-200 8 02-04-2008 19 AO FILED AN AFFIDAVIT, DATED 16-04-2008 TO THE H ON. BOMBAY HIGH COURT 16-04-2008 20 HON. BOMBAY HIGH COURT PASSED THE ORDER DIRECTIN G THE AO TO COMPLETE THE ASSESSMENT SUBJECT TO THE CONTEN TION OF THE PETITIONER ASSESSMENT BARRED BY LIMITATION. PETITION BE PLACED FOR FINAL HEARING AFTER THE ASSE SSMENT PROCEEDINGS ARE COMPLETED. LIBERTY TO THE PARTIES TO MOVE THIS COURT FOR A FIXED DATE OF HEARING AFTER T HE ASSESSMENT PROCEEDINGS ARE COMPLETED 03-06-2008 21 THE ASSESSMENT WAS COMPLETED BY THE AO AND BLOCK ASSESSMENT ORDER SERVED ON THE APPELLANT 26-06-2008 5. THE LD. AR HAS MADE OUT A CASE THAT THE LAST AUTHORIZATIO N FOR SEARCH U/S.132 IN THIS CASE WAS EXECUTED ON 27-08-2002 AND GOING BY THE PERIOD PRESCRIBED U/S.158BE(B), THE ASSESSMENT OU GHT TO HAVE BEEN ORDINARILY COMPLETED BY 31-08-2004. SINCE THE A SSESSEE FILED APPLICATION BEFORE THE SETTLEMENT COMMISSION ON 26-07-2004 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHICH WAS REJECTED ON 19-06-2006, THE TIME LIMIT AVAILABLE FOR COMPLETING ASSESS MENT IN TERMS OF PROVISO TO EXPLANATION 1 TO SECTION 158BE GOT EXTE NDED TO 18-08-2006, BEING A PERIOD OF TWO MONTHS FROM THE DATE OF REJECTION OF APPLICATION BY THE SETTLEMENT COMMISSION. AS AGAINST ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 5 THAT, THE ASSESSMENT ORDER WAS ACTUALLY PASSED ON 26-06-2 008, WHICH WAS CLAIMED TO BE TIME BARRED. 6. IN ORDER TO PROPERLY ANALYZE THE QUESTION OF LIMITATIO N RAKED UP IN THIS APPEAL, IT WOULD BE APPOSITE TO CONSIDER THE MANDATE OF THE RELEVANT PARTS OF SECTION 158BE DEALING WITH THE TIME LIMIT F OR COMPLETION OF BLOCK ASSESSMENT, AS UNDER: - TIME LIMIT FOR COMPLETION OF BLOCK ASSESSMENT. 158BE. (1) THE ORDER UNDER SECTION 158BC SHALL BE P ASSED (A) (B) WITHIN TWO YEARS FROM THE END OF THE MONTH IN W HICH THE LAST OF THE AUTHORISATIONS FOR SEARCH UNDER SECTION 132 OR FOR REQUISITION UNDER SECTION 132A, AS THE CASE MAY BE, WAS EXECUTE D IN CASES WHERE A SEARCH IS INITIATED OR BOOKS OF ACCOUNT OR OTHER DO CUMENTS OR ANY ASSETS ARE REQUISITIONED ON OR AFTER THE 1ST DAY OF JANUAR Y, 1997. (2) . EXPLANATION 1.IN COMPUTING THE PERIOD OF LIMITATIO N FOR THE PURPOSES OF THIS SECTION, (I) . (II) THE PERIOD COMMENCING FROM THE DAY ON WHICH THE ASSESSING OFFICER DIRECTS THE ASSESSEE TO GET HIS ACCOUNTS AU DITED UNDER SUB- SECTION (2A) OF SECTION 142 AND ENDING ON THE DAY O N WHICH THE ASSESSEE IS REQUIRED TO FURNISH A REPORT OF SUCH AU DIT UNDER THAT SUB- SECTION; OR (III) . (IV) IN A CASE WHERE AN APPLICATION MADE BEFORE THE SETTLEMENT COMMISSION UNDER SECTION 245C IS REJECTED BY IT OR IS NOT ALLOWED TO BE PROCEEDED WITH BY IT, THE PERIOD COMMENCING ON T HE DATE ON WHICH SUCH APPLICATION IS MADE AND ENDING WITH THE DATE O N WHICH THE ORDER UNDER SUB-SECTION (1) OF SECTION 245D IS RECEIVED B Y THE PRINCIPAL COMMISSIONER OR COMMISSIONER UNDER SUB-SECTION (2) OF THAT SECTION, SHALL BE EXCLUDED: PROVIDED THAT WHERE IMMEDIATELY AFTER THE EXCLUSION OF THE AFORESAID PERIOD, THE PERIOD OF LIMITATION REFERRED TO IN SUB -SECTION (1) OR SUB- SECTION (2) AVAILABLE TO THE ASSESSING OFFICER FOR MAKING AN ORDER ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 6 UNDER CLAUSE (C) OF SECTION 158BC IS LESS THAN SIXT Y DAYS, SUCH REMAINING PERIOD SHALL BE EXTENDED TO SIXTY DAYS AND THE AFORESAID PERIOD OF LIMITATION SHALL BE DEEMED TO BE EXTENDED ACCORDINGLY. EXPLANATION 2. (EMPHASIS SUPPLIED BY US) 7. A GLANCE AT THE PROVISION TRANSPIRES THAT THE TIME LIMIT FOR COMPLETION OF ASSESSMENT U/S 158BC IS TWO YEARS FROM THE EN D OF THE MONTH IN WHICH THE LAST OF THE AUTHORISATIONS FOR SEARCH UNDER SECTION 132 WAS EXECUTED. INDISPUTABLY, LAST AUTHORIZATIO N IN THIS CASE WAS EXECUTED ON 27.8.2002. THIS PROVIDED A LIM ITATION FOR COMPLETION OF ASSESSMENT TO THE AO BY 31.8.2004. EXP LANATION 1 TO SECTION 158BE EXPANDS THE LIMITATION PERIOD IN CERTAIN CASES BY PROVIDING THAT IN THE STIPULATED FOUR SITUATIONS AS ENUMERATE D IN CLAUSES (I) TO (IV), THE LIMITATION WILL BE COUNTED BY EXCLUDING TH E PERIOD GIVEN IN SUCH FOUR CLAUSES. PROVISO TO THE EXPLANATION 1 TO SECTION 158BE, FURTHER STATES THAT WHERE IMMEDIATELY AFTER TH E EXCLUSION OF THE PERIOD IN THE FOUR CLAUSES, THE PERIOD AVA ILABLE WITH THE AO FOR COMPLETING THE ASSESSMENT IS REDUCED TO LESS TH AN 60 DAYS, THEN SUCH REMAINING PERIOD SHALL BE EXTENDED TO 6 0 DAYS. THE RELEVANT CLAUSES IN THE EXTANT APPEAL ARE (II) AND (IV). CLAUSES (IV) DEALS WITH A SITUATION IN WHICH THE ASSESSEE MOVES THE SETTLEMENT COMMISSION AND SUCH APPLICATION IS REJECTED OR NOT ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 7 ALLOWED TO BE PROCEEDED. IN SUCH A SITUATION, THE PERIOD COMMENCING ON THE DATE ON WHICH SUCH APPLICATION IS MADE AN D ENDING WITH THE DATE ON WHICH THE ORDER U/S 245D(1) IS RECEIV ED BY THE PRINCIPAL COMMISSIONER ETC., IS EXCLUDED AND IF AFTER SU CH EXCLUSION, THE TIME AVAILABLE FOR COMPLETION OF ASSESSMENT FA LLS SHORT OF 60 DAYS, THEN THE TIME LIMIT GETS EXTENDED TO 60 D AYS. THE LD. AR HAS ACCEPTED THIS POSITION AND HAS MADE OUT A CASE THAT THE TIME LIMIT IN THE CASE OF THE ASSESSEE STOOD INCREASED TO 18 .8.2006, BEING, A PERIOD OF 60 DAYS FROM THE DATE OF THE REJECTION OF APPLICATION BY THE SETTLEMENT COMMISSION. 8. IN THE CHRONOLOGY OF EVENTS, WE HAVE NOTICED ABOVE THAT THE AO PASSED ORDERS U/S 142(2A) TWICE IN THIS CASE, NAMELY, O N 2.8.2006 AND 14.2.2008. WHEN THE ATTENTION OF THE LD. AR WAS INVITED TOWARDS THIS FACT AND THE CORRESPONDING CLAUSE (II) O F EXPLANATION 1, HE SUBMITTED THAT SUCH ORDERS PASSED BY THE AO WERE INVALID AND THE PERIOD GIVEN IN THE CLAUSE COULD NOT BE EXCLUDED. THIS CONTENTION WAS BASED ON THE FACT THAT THE ASSE SSEE HAD NOT MAINTAINED ANY REGULAR BOOKS OF ACCOUNT AND HENCE THERE COULD HAVE BEEN NO QUESTION OF ORDERING ANY AUDIT U/S 142( 2A) OF THE ACT. ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 8 9. WE ARE AFRAID THAT THIS CONTENTION IS SANS MERIT. IT IS NOTICED THAT WHEN THE AO PASSED THE FIRST ORDER U/S 142(2A) ON 2.8 .2006, THE ASSESSEE FILED A WRIT PETITION BEFORE THE HONBLE BOMBAY H IGH COURT. IN THE FIRST WRIT PETITION, THE ASSESSEE CHALLENGED TWO IS SUES COVERED BY TWO ORDERS, VIZ., THE ORDER OF THE SETTLEMENT COMMISSION REFUSING TO ADMIT HIS APPLICATION AND SECOND, THE FIR ST ORDER PASSED BY THE AO U/S 142(2A) OF THE ACT. INSOFAR AS THE SECOND ISSUE IS CONCERNED, THE OPERATIVE PART OF THE FINA L JUDGMENT DATED 14.1.2008 OF THE HONBLE HIGH COURT, AS CONTAINED IN PARA 8, READS AS UNDER : `IN SO FAR AS CONSEQUENTIAL ORDER DATED 2.8.2006 UN DER SECTION 142(2A) OF THE INCOME TAX ACT, LEARNED COUNSEL FAIR LY CONCEDED THAT THEY WOULD GIVE HEARING TO THE PETITI ONER. IN THE LIGHT OF THAT, ORDER DATED 2.8.2006 IS QUASHED AND SET ASIDE. THE MATTER IS REFERRED BACK TO THE RESPONDENT NO. 2 TO PASS FRESH ORDER AFTER GIVING THE PETITIONER AN OPPORTUNITY OF HEARING. 10. ON GOING THROUGH THE OPERATIVE PART OF THE HONBLE B OMBAY HIGH COURT JUDGMENT, IT IS MANIFESTED THAT THE ORDER U/S 142 (2A) WAS NOT QUASHED ON MERITS. RATHER, THE MATTER WAS RESTORE D TO THE AO FOR PASSING A SEPARATE ORDER AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE. 11. ON PASSING OF THE FINAL JUDGMENT BY THE HONBLE HIGH COURT ON 14.01.2008 SETTING ASIDE THE ORDER U/S 142(2A), THE TIM E FOR ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 9 EXCLUSION STOPPED RUNNING IN TERMS OF CLAUSE (II) OF EXPLA NATION 1 TO SECTION 158BE, WHICH TALKS OF EXCLUDING THE PERIOD COMMENCING FROM THE DAY ON WHICH THE ASSESSING OFFICER D IRECTS THE ASSESSEE TO GET HIS ACCOUNTS AUDITED UNDER SUB-SECTION ( 2A) OF SECTION 142 AND ENDING ON THE DAY ON WHICH THE ASSESS EE IS REQUIRED TO FURNISH A REPORT OF SUCH AUDIT UNDER THAT SUB- SECTION. IN SUCH PANORAMA, IT BECAME INCUMBENT UPON THE AO TO EITHER PROCEED WITH THE ASSESSMENT AND FINALIZE THE SAME BY 13.3.2 008 (A PERIOD OF 60 DAYS FROM THE DATE OF THE JUDGMENT, THAT IS, 14.1.2008) WITHOUT MAKING ANY REFERENCE FOR THE FURTHER S PECIAL AUDIT; OR MAKE A REFERENCE FOR THE SPECIAL AUDIT U/S 142(2A) BY 13.3.2008. THE AO ISSUED NOTICE U/S 142(2A) ON 11.2.2 008 AND PASSED AN ORDER MAKING REFERENCE FOR SPECIAL AUDIT, AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE, ON 14.2.2008 ITSELF, THAT IS MUCH PRIOR TO THE LIMITATION PERIOD. 12. THE ASSESSEE AGAIN APPROACHED THE HONBLE HIGH CO URT CONTENDING, INTER ALIA, THAT IN THE ABSENCE OF ANY BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE, THERE COULD HAVE BEEN NO ORD ER OF AUDIT U/S 142(2A). SUCH ASSERTION OF THE ASSESSEE APPEARS ON PAGE 94 OF THE PAPER BOOK WHICH IS A PART OF THE WRIT PETITION FILE D BEFORE ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 10 THE HONBLE BOMBAY HIGH COURT. THE REVENUE IN ITS AFFIDAVIT IN REPLY, COPY AT PAGE 124 OF THE PAPER BOOK, SUBMITTED BEF ORE THE HONBLE BOMBAY HIGH COURT THAT MAINTENANCE OF REGULAR BOOKS OF ACCOUNT WAS NOT A CONDITION PRECEDENT FOR AUDIT U/S.142(2A) . THE REVENUE RELIED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN RAJESH KUMAR, PROP. SURAJ TRADING IN DCIT (2005) 275 ITR 641(DEL) LAYING DOWN THAT: ` THERE IS ALSO NO MERIT IN THE CONTENTION RAISED ON BEHALF OF THE PETITIONER THAT THE EXPRESSION 'ACCOUNTS OF THE ASSESSEE CAN ONLY REFER TO THE BOOKS OF A CCOUNT OF THE ASSESSEE AND NOT THE OTHER RECORDS AVAILABLE BEFORE THE AO FOR EXAMINATION OR OTHERWISE. THE COMPLEXITY OF ACCOUNTS OF THE ASSESSEE IS TO BE DETERMINED NOT ONLY BY THE BOOKS OF ACCO UNT, BUT EVEN BY OTHER DOCUMENTS WHICH ARE AVAILABLE, IN THE COURSE OF AN ASSESSMENT AND AT ANY STAGE SUBSEQUENT THERETO MAY BECOME AVAILABLE TO THE AO. TO GIVE A NARROW MEANING TO THE EXPRESS ION 'ACCOUNTS' SO AS TO CONFINE IT TO THE BOOKS OF ACCOUNT, S UBMITTED BY THE ASSESSEE SIMPLICITOR, WOULD AMOUNT TO GIVING AN INTERPRETA TION WHICH WOULD COMPLETELY DEFEAT THE VERY OBJECT OF THE SECTION. THE REVENUE IN ITS AFFIDAVIT IN REPLY FURTHER ARGUED THAT INCRIMINATIN G DOCUMENTS WERE SEIZED FROM THE PREMISES OF THE ASSESSEE, WHICH ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 11 REQUIRED EXPERT EXAMINATION AND FURTHER DURING THE COURSE O F HEARING BEFORE THE RESPONDENT NO.2, BEFORE GRANTING APPR OVAL FOR PROPOSAL OF ORDER U/S.142(2A), IT WAS CONCEDED BY THE PETITIONER THAT BOOKS OF ACCOUNT WERE MAINTAINED BUT THESE WERE NOT P RESENTLY WITH THE PETITIONER , AS WAS ENUMERATED IN PARA 6 OF THE ORDER GRATING APPROVAL OF THE PROPOSAL U/S.142(2A) BY RESPONDEN T NO.2 ON 14-02-2008. CONSIDERING THE ARGUMENTS FROM BOTH THE SIDES, THE HONBLE BOMBAY HIGH COURT IN ITS INTERIM ORDER PASSED O N 3.6.2008, AGAINST THE SECOND ORDER U/S 142(2A), HELD AS UNDER:- `HEARD THE LEARNED COUNSEL FOR THE PARTIES. PERUSED THE AFFIDAVIT IN REPLY. SPECIALLY FOR THE REASON STATED IN THE AFFIDAVIT IN REPLY , WE ARE NOT INCLINED TO STAY THE ASSESSMENT PROCEEDI NGS . HOWEVER, WE MAKE IT CLEAR THAT THE ASSESSMENT PROCE EDINGS WILL BE SUBJECT TO THE CONTENTION OF THE PETITION THAT I T IS BARRED BY THE LAW OF LIMITATION. 13. IT IS A MATTER OF RECORD THAT PURSUANT TO THE PASSING OF THE ASSESSMENT ORDER ON 26.6.2008, THE ASSESSEE WITHDREW ITS WRIT PETITION FROM THE HONBLE BOMBAY HIGH COURT, WHICH IS APPAREN T FROM ITS JUDGMENT DATED 23.6.2014, COPY AT PAGE 143 OF THE PAPER BOOK. 14. IT WAS PURSUANT TO SUCH ORDER OF THE HONBLE HIGH COU RT PASSED ON 03-06-2008 THAT THE AO GOT A PERIOD OF 60 DAYS FOR COMPLETING THE ASSESSMENT FROM 3.6.2008, EVEN IF WE PRE SUME THAT ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 12 THE AUDIT REPORT WAS SUBMITTED DURING THE CURRENCY OF PROCE EDINGS BEFORE THE HONBLE HIGH COURT. AS AGAINST THAT, THE AO COMP LETED THE ASSESSMENT ON 26-06-2008, WHICH IS WELL WITHIN THE LIMITATION PERIOD. THUS, IT CLEARLY EMERGES THAT THE CASE OF THE ASSESS EE IS EVENTUALLY COVERED BY CLAUSE (II) OF EXPLANATION 1 TO SECTION 158BE READ ALONG WITH THE PROVISO, BEING THE DATE ON WHICH TH E HONBLE BOMBAY HIGH COURT DISPOSED OFF THE ASSESSEES WR IT PETITION ON 03-06-2008 AND NOT THE DATE OF REJECTION OF APPLICA TION BY THE SETTLEMENT COMMISSION, AS HAS BEEN CONTENDED BY THE LD. AR. 15. THE LD. AR CONTENDED THAT THE HONBLE BOMBAY HIGH C OURT DID NOT RENDER ANY SPECIFIC ADJUDICATION ON THE VALIDITY OF SEC OND ORDER U/S.142(2A) IN ITS INTERIM ORDER DATED 3.6.2008 AND HENCE THE PERIOD OF LIMITATION SHOULD NOT CONSIDERED WITH REFERENCE TO S UCH DATE. 16. WE ARE AGAIN UNABLE TO COMPREHEND THE VIEW POINT OF TH E ASSESSEE. THE HONBLE BOMBAY HIGH COURT IN ITS ORDER DATE D 03- 06-2008 HAS CATEGORICALLY HELD THAT : `SPECIALLY FOR THE REASON STATED IN THE AFFIDAVIT IN REPLY, WE ARE NOT INCLINED TO STAY THE ASSESSMENT PROCEEDINGS. AT THIS JUNCTURE, IT IS RELEVANT TO ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 13 REITERATE THE SETTLED LEGAL POSITION ON THE MEANING OF THE TERM ASSESSMENT PROCEEDINGS - AS THE ONE STARTING WITH THE FILING OF RETURN OR ISSUE OF NOTICE AND TERMINATING WITH THE ISSUE OF DEM AND NOTICE. SUCH VIEW HAS BEEN TAKEN BY NONE OTHER THAN THE H ONBLE SUPREME COURT IN AUTO AND METAL ENGINEERS & ORS. VS. UNION OF INDIA & ORS. (1998) 229 ITR 399 (SC) AND REITERATED IN VLS FINANCE LTD. & ANR. VS. CIT & ANR. (2016) 384 ITR 1 (SC) . THE ASSESSMENT PROCEEDINGS THUS APPARENTLY COMMENCE WITH THE F ILING OF RETURN OR ISSUE OF NOTICE AND TERMINATE WITH THE ISSUANCE O F NOTICE OF DEMAND ON COMPLETION OF ASSESSMENT. SPECIAL AUDIT U/S.142(2A) IS A PART OF ASSESSMENT PROCEEDINGS . EVEN THE CAPTION OF SECTION 142 NAMELY I NQUIRY BEFORE THE ASSESSMENT , WHICH FALLS WITHIN CHAPTER XIV, BEING, PROCEDURE FOR ASSESSMENT, MAKES IT CLEAR THAT SPECIAL AUDIT U/S.142(2A) IS A PART OF ASSESSMENT PROCEEDINGS. EVEN SUB-SECTION (2A) OF SECTION 142, DEA LING WITH THE SPECIAL AUDIT, ITSELF STATES THAT: `IF, AT ANY STAGE OF THE PROCEEDINGS BEFORE HIM , THE ASSESSING OFFICER, HAVING REGARD TO THE NATURE AND COMPLEXITY OF THE ACCOUNTS, VOLUME OF THE AC COUNTS, DOUBTS ABOUT THE CORRECTNESS OF THE ACCOUNTS, MULTIPLICITY OF TRANSACTIONS IN THE ACCOUNTS OR SPECIALISED NATURE OF BUSINESS ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 14 ACTIVITY OF THE ASSESSEE, AND THE INTERESTS OF THE REVENUE, IS OF THE OPINION THAT IT IS NECESSARY SO TO DO, HE MAY,. DIRECT THE ASSESSEE TO GET THE ACCOUNTS AUDITED. AS THE HONBLE HIGH COURT IN ITS INTERIM JUDGMENT DATED 03-06-2008 CATEGORICALLY ORDERED THAT IT WAS ` NOT INCLINED TO STAY THE ASSESSMENT PROCEEDINGS , IT EVIDENTLY MEANT THAT THE 2 ND ORDER U/S.142(2A) WAS NOT INVALIDATED BY IT. THERE REMAINS NO IOTA OF DOUBT ON THIS POSITION, WHEN WE OB SERVE THAT THE WRIT PETITION FILED AGAINST THE SECOND ORDER U/S 142(2A ) WAS EVENTUALLY WITHDRAWN BY THE ASSESSEE. 17. TO SUM UP, WE HOLD THAT THE BLOCK ASSESSMENT ORDER PASSED BY THE AO ON 26.6.2008 IS WITHIN THE LIMITATION PERIOD SEEN IN THE LIGHT OF CLAUSE (II) OF EXPLANATION 1 TO SECTION 158BE READ WITH THE PROVISO. EX CONSEQUENTI , THESE GROUNDS ARE DISMISSED. 18. CONCISE GROUND NO.4 OF THE ASSESSEES APPEAL HAS SUB- GROUNDS (A) TO (L). THE LD. AR PRESSED ONLY SUB-GROUND S AT (A), (D) AND (E). THE OTHER SUB-GROUNDS, THEREFORE, STAND DISMIS SED AS NOT PRESSED. 19. GROUND NO. 4(A) IS AGAINST THE CONFIRMATION OF ADDITION O F RS.13,34,231/- TOWARDS UNEXPLAINED INVESTMENT IN SAI FARM HO USE AND CATTLE SHED. ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 15 20. THE FACTUAL MATRIX OF THIS GROUND IS THAT DURING THE COUR SE OF SEARCH, THE ASSESSEE WAS FOUND TO HAVE INVESTED CERTAIN S UM IN SAI FARM HOUSE AND CATTLE SHED AS PER THE SEIZED MATERIAL. IN TH E BLOCK RETURN, THE ASSESSEE OFFERED RS.53,91,887/- ON TH IS COUNT. THE AO OBSERVED THAT THE ASSESSEE DID NOT OFFER FULL AMOU NT IN THE BLOCK RETURN. ON BEING CALLED UPON TO EXPLAIN THE REASON, THE ASSESSEE SUBMITTED THAT CATTLE SHED AND SAI FARM HOUSE WERE LOCATED IN THE SAME PLOT ON WHICH EXPENDITURE WAS INCURRED SIMULTANEOUSLY. HE FURTHER SUBMITTED THAT TOTAL WITHDRAWAL AS PER SEIZED MATERIAL WORKED OUT TO RS.53,91,887/- ON THIS SCORE. THE AO MADE A REFERENCE TO THE DEPARTMENTAL VALUATION OFFICER F OR DETERMINING THE VALUE OF SAI FARM HOUSE AND CATTLE SHED, WHO DETERMINED SUCH VALUE AT RS.49,76,971/- AND RS.9,82,430 /- RESPECTIVELY TOTALING TO RS.59,59,401/-. THE ASSESSEE ALSO FURNISHED REPORT OF A REGISTERED VALUER VALUING INVESTMENT IN SAI FARM HOUSE AT RS.37,05,500/- AND CATTLE SHED AT RS.12,37, 000/- TOTALING TO RS.49,42,500/-. THE AO NOTICED ITEMIZED VALUE OF INVESTMENT MADE IN SAI FARM HOUSE AT RS.54,88,518/- AND CATTLE SHED AT RS.2,77,727/-, AS PER THE SEIZED DOCUMENTS, BRE AK-UP OF WHICH HAS BEEN TABULATED AT PAGES 13 AND 14 OF THE BLOCK ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 16 ASSESSMENT ORDER. HE TOOK VALUE OF TOTAL INVESTMENT IN SAI F ARM HOUSE AT RS.54,88,518/-, BEING, THE AMOUNT AS PER SEIZED MATERIAL AND THE CATTLE SHED AT RS.12,37,000/-, BEING, THE AMOUNT DETERMINED BY THE REGISTERED VALUER. IN THIS WAY, HE COMPU TED THE TOTAL UNDISCLOSED INVESTMENT MADE BY THE ASSESSEE IN SAI FARM HOUSE AND CATTLE SHED AT RS.66,26,118/- (RS.54,88,518 + 12,37,600). AFTER REDUCING THE AMOUNT OFFERED BY THE A SSESSEE AT RS.53,91,887/-, THE AO MADE ADDITION OF RS.13,34,231/-. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL, AGAINST WHICH THE ASSESSEE HAS PREFERRED THE INSTANT APPEAL. 21. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RE LEVANT MATERIAL ON RECORD. BEFORE PROCEEDING TO DECIDE THE AMOUN T LIABLE TO BE ADDED BECAUSE OF UNEXPLAINED INVESTMENT IN SAI FARM H OUSE AND CATTLE SHED, IT IS RELEVANT TO NOTE THAT SECTION 158BC DEALS WITH THE PROCEDURE FOR BLOCK ASSESSMENT IN THE CASE OF PER SON SEARCHED U/S.132 OF THE ACT. CLAUSE (B) OF SECTION 158BC , WHICH IS RELEVANT FOR OUR PURPOSE, PROVIDES THAT: ` THE ASSESSING OFFICER SHALL PROCEED TO DETERMINE THE UNDISCLOSED INCOME OF THE BLOCK PERIO D IN THE MANNER LAID DOWN IN SECTION 158BB AND THE PROVISIONS OF SECTION 142. . . . . . . SHALL, SO FAR AS MAY BE APPLY . THIS BRINGS US ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 17 TO SECTION 158BB, WHICH DEALS WITH THE COMPUTATION OF UNDISCLOSED INCOME OF THE BLOCK PERIOD. SUB SECTION (1) OF SECTION 158BB PROVIDES THAT THE UNDISCLOSED INCOME OF THE BLOCK PERIOD SHALL BE THE AGGREGATE OF THE TOTAL INCOME .. ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION AS ARE AVAILABLE WITH THE ASSESSING OFFICER AND RELATABLE TO SUCH EVIDENCE, .. DEFINITION OF `UNDISCLOSED INCOME HAS BEEN ENSHRINED IN 158BB(B) TO INCLUDE : `ANY M ONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY INCOM E BASED ON ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCU MENTS OR TRANSACTIONS, WHERE SUCH MONEY, BULLION, JEWELLERY, VALUABLE ARTICLE, THING, ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUME NT OR TRANSACTION REPRESENTS WHOLLY OR PARTLY INCOME OR PROPERTY W HICH HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PUR POSES OF THIS ACT, OR ANY EXPENSE, DEDUCTION OR ALLOWANCE CLAIMED U NDER THIS ACT WHICH IS FOUND TO BE FALSE. ON CIRCUMSPECTION OF T HE DEFINITION OF `UNDISCLOSED INCOME AND SECTION 158BC R.W.S. 158BB, IT CLEARLY EMERGES THAT UNDISCLOSED INCOME, WHICH IS THE ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 18 SUBJECT MATTER OF TAXATION IN BLOCK ASSESSMENT , INTER ALIA, REFERS TO ANY INCOME BASED ON THE EVIDENCE FOUND AS A RESULT OF SE ARCH ETC. 22. WITH THE ABOVE UNDERSTANDING, WE NOW PROCEED TO DETERM INE THE INSTANT ISSUE. IT IS SEEN THAT THE AMOUNT AS PER SEIZED MA TERIAL REPRESENTING INVESTMENT IN SAI FARM HOUSE STOOD AT RS.54,88,51 8/- WHICH THE AO HAS RIGHTLY CONSIDERED FOR THE PURPOSES OF AD DITION. INSOFAR AS THE INVESTMENT IN CATTLE SHED IS CONCERNED, THE A O TOOK VALUE OF RS.12,37,000/- AS PER THE VALUATION REPORT OF TH E REGISTERED VALUER. AS AGAINST THAT, THE AMOUNT OF UNDISCLOSE D INVESTMENT IN CATTLE SHED AS PER THE SEIZED MATERIAL STOOD AT RS.2,77,727/-. THE LD. AR CONTENDED THAT THE INVESTMENT IN SAI FARM HOUSE AND CATTLE SHED WAS COMMON, WHICH AMOUNT WAS RS.54,88,518/- ONLY IN TOTAL. ON GOING THROUGH PAGES 13 AND 14 OF THE ASSESSMENT ORDER DEALING WITH THE SEIZED MATERIAL FOUND RELATING TO INVESTMENT IN SAI FARM HOUSE AND CATTLE SHED, WE FIND THAT ALL THE ITEMS ON BOTH THE PAGES ARE DIFFERENT FROM EACH O THER. IN OTHER WORDS, THERE IS NO COMMON EXPENDITURE WHICH HAS BEEN RECORDED ON BOTH THE PAGES. THIS SHOWS THAT THE AMOUNT OF UNDISCLOSED INVESTMENT IN SAI FARM HOUSE, AS PER THE SEIZED MATERIAL, STOOD AT RS.54,88,518/- AND IN CATTLE SHED SEPARATE LY ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 19 STOOD AT RS.2,77,727/-. DESPITE THE FACT THAT THE AMOUNT OF INVESTMENT IN CATTLE SHED AS PER THE SEIZED MATERIAL WAS RS.2,77,727/-, THE AO PREFERRED TO GO WITH THE HIGHER VALU E, ON THE BASIS OF REGISTERED VALUERS REPORT, AT THE TIME OF DETERMIN ING TOTAL UNDISCLOSED INCOME TOWARDS THE INVESTMENT IN CATTLE SHED. WHILE CONSIDERING UNDISCLOSED INVESTMENT IN SAI FARM HOUSE, THE AO ADOPTED THE VALUE AS PER THE SEIZED MATERIAL, WHICH WAS MOR E THAN THE AMOUNT DETERMINED BY THE REGISTERED VALUER AT RS.37,05, 500/- AND THE DVO AT RS.49,76,921/-. HOWEVER, WHILE FINDING O UT UNEXPLAINED INVESTMENT IN CATTLE SHED, THE AO CHOSE TO GO WITH THE HIGHER VALUE GIVEN BY THE REGISTERED VALUER IN PREFEREN CE TO THE AMOUNT AS APPEARING IN THE SEIZED MATERIAL. SUCH APPROA CH, IN OUR CONSIDERED OPINION, IS NOT CORRECT. THE AO WAS SUPP OSED TO DETERMINE THE EXTENT OF UNDISCLOSED INCOME TOWARDS UNDISCLOSED INVESTMENT IN SAI FARM HOUSE AND CATTLE SHED ON THE BASIS OF SEIZED MATERIAL. THE TOTAL AMOUNT WHICH CALLED FOR THE ADDITIO N COMES TO RS.57,66,245/- (RS.54,88,518 + RS.2,77,727 ). AS AGAINST THIS, THE ASSESSEE VOLUNTARILY DECLARED UNDISCLOSED INCO ME OF RS.53,91,887/-. THIS SHOWS THAT FURTHER ADDITION ON THIS SCORE IS CALLED FOR AT RS.3,74,358/-. WE, THEREFORE, RESTRICT THE ADDITION ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 20 MADE AND SUSTAINED IN THE FIRST APPEAL AT RS.13,34,231/- TO RS.3,74,358/-. THIS SUB-GROUND IS PARTLY ALLOWED. 23. GROUND NO.4(D) DEALS WITH CONFIRMATION OF ADDITION OF RS.90,51,032/- TOWARDS DISALLOWANCE OF BAD DEBTS IN RELATION TO VAISHNAVI PETROL PUMP. 24. THE FACTUAL MATRIX OF THIS GROUND IS CONNECTED WITH I TEM NO.5 OF ANNEXURE-A TO THE PANCHANAMA PREPARED AT THE B USINESS PREMISES OF M/S SUSHILA VANSALE HIGHWAY SERVICES, TAKALI. TH IS BOOK CONTAINED FULL TRANSACTIONS, I.E. OPENING READING OF THE METER, OPENING STOCK AND CLOSING STOCK, TOTAL SALES ETC. EFFECTED O N DAY-TO- DAY BASIS. ON THE REVERSE SIDE OF PAGE 42 (NUMBERED B Y MACHINE), PERTAINING TO THE DATE 26-08-2002, THE NARRATION WAS AS UNDE R : DAY OP STANDING 1,61,35,853.60 CREDIT 53,208.83 ------ -------------- 1,61,89,062.43 DEBIT 2,68,395.89 ------------------- CLOSING 1,59,20,666.54 ACTUAL 1,59,20,666.54 ------------------- 25. FROM THE ABOVE DETAILS CONTAINING BUSINESS DONE OUTSIDE THE BOOKS OF ACCOUNT, THE AO OBSERVED THAT OUTSTANDING DEBTOR S OF ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 21 M/S SUSHILA VANSALE HIGHWAY SERVICES, TAKALI WERE RS.1,59,20,667/- AS ON 26-08-2002. THE SAID DEBTORS WERE NOT REFLECTED IN THE REGULAR BOOKS OF ACCOUNT MAINTAINED FOR THE SAID BUSINESS. MS. S.D. VANSALE, LICENSEE OF THE SAID BUSINESS , IN HER STATEMENT SUBMITTED THAT SHE RECEIVED ONLY COMMISSION @0.5% OF SALES OF DIESEL, PETROL ETC. PURCHASED FROM BPCL. SHE FURTH ER DENIED THE OWNERSHIP OF THE PETROL PUMP BUSINESS INCLUDING SU CH DEBTORS. THE ASSESSEE, IN HIS STATEMENT, ACCEPTED THAT HE LOOKED AFTER THE BUSINESS AND ENJOYED PROFITS THERE FROM AS OWN ER. HE FURTHER ADMITTED THAT ONLY COMMISSION @0.5% ON SALES WAS GIVE N TO THE LICENSEE AS A CONSIDERATION. AS AGAINST THE OUTSTANDING DEBTORS FROM THE BUSINESS RUN OUTSIDE THE BOOKS OF ACCOUN T, RECORDED ON SUCH PAGE AT RS.1.59 CRORE, THE ASSESSEE INCLUDED A SUM OF RS.68,69,634/- IN THE BLOCK RETURN AS UNDISCLOSED INCOME.. THE AO OBSERVED THAT THE ASSESSEE WROTE OFF DEBTORS OF RS.90,51,032/- AS BAD DEBTS OUT OF SUCH TOTAL DEBTORS AND OFFERED ONLY RS.68.69 LAKH AS UNDISCLOSED INCOME. ON BEING CALLED UPON TO EXPLAIN HIS STAND, THE ASSESSEE SUBMITTED THAT DURING THE CO URSE OF SEARCH AND SEIZURE, COMPUTER DISK OF SUNDRY DEBTORS WAS SEIZED FROM THE HARDWARE MAINTAINED AT VANSALE HIGHWAY SERVICES WHI CH ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 22 CONTAINED DETAILS OF YEAR-WISE DEBTORS TURNING BAD STARTING WITH THE FINANCIAL YEAR 1996-97. AS REGARDS THE F.Y. 96-97, THERE WERE 192 ACCOUNTS OF THE TRUCK OWNERS TO WHOM CREDIT SALES WERE MADE BUT THE AMOUNT OF RS.3,25,637/- WAS NOT REALIZABLE. SIMILAR LY FOR THE F.Y.1997-98, THE ASSESSEE STATED THAT THERE WERE 58 ACC OUNTS OF THE TRUCK OWNERS TO WHOM CREDIT SALES WERE MADE BUT THERE WERE NO OPERATIONS IN SUCH ACCOUNTS, MAKING THE AMOUNT RECOVERABLE AS BAD DEBT. AMOUNT OF SUCH BAD DEBTS WAS DETERMINED AT RS.1,2 8,953/-. SIMILARLY FOR THE F.Y. 1998-99, THERE WERE 104 ACCOUNTS OF THE TRUCK OWNERS TO WHOM CREDIT SALES WERE MADE WITH WHOM THERE WERE NO OPERATIONS AMOUNTING TO RS.2,39,473/-. IN THE LIKE MANNER, FROM THE F.Y.1998-99 UPTO 31-08-2002, THE AMO UNT OF SUCH BAD DEBTS WAS TABULATED AT RS.8,22,841/-, RS.18,02, 789, RS.34,80,771/- AND RS.12,50,568/- RESPECTIVELY, TOTALING IN ALL TO RS.80,51,032/-. THE ASSESSEE SUBMITTED THAT HE MAINTAINE D PARTY- WISE CREDIT SALE CARDS WHICH REFLECTED SALE TRANSACTIONS AS WE LL AS RECOVERY FROM DEBTORS WHICH WAS ACTUALLY VERIFIED IN THE COU RSE OF SEARCH U/S.132. THE ASSESSEE FURTHER SUBMITTED THAT THE RE ASONS FOR SUCH BAD DEBTS WAS THAT IF VEHICLE DID NOT TURN UP TO PETROL PU MP WITHIN A PERIOD OF 3 TO 6 MONTHS, THE AMOUNT DUE FROM SUCH TRUCK ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 23 OWNERS WAS CONSIDERED AS BAD DEBT BECAUSE IN MOST OF SU CH CASES THE POSSIBILITIES WERE EITHER VEHICLE WAS SEIZED BY THE FINANCE COMPANY OR VEHICLE WAS SOLD OR VEHICLE MET WITH AN ACCIDENT O R CHANGE OF DRIVER OR CHANGE OF ROUTE BY THE DRIVER OR D ELIBERATE INTENTION OF NON-PAYMENT BY THE DRIVER. HOWEVER, WHILE OFF ERING UNDISCLOSED INCOME, THE ASSESSEE REDUCED A SUM OF RS.9 0,51,032/- TOWARDS ACTUAL BAD DEBTS. NOT CONVINCED WITH THE ASSESSEES SUBMISSIONS, THE AO MADE ADDITION OF RS.90,51,032/- BY HO LDING THAT THERE WAS NO BAD DEBTS OF THIS MAGNITUDE. THE ASSESSE E REMAINED UNSUCCESSFUL BEFORE THE LD. CIT(A) AS WELL. 26. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE R ELEVANT MATERIAL ON RECORD, IT IS INDISPUTABLY FOUND THAT THE ASSESSEE ACCEPTED THE OWNERSHIP OF THE PETROL PUMP, THOUGH RUN IN THE NAME OF MS. S.D.VANSALE. ITEM NO.5 OF ANNEXURE-A OF PANCHAN AMA PREPARED AT THE BUSINESS PREMISES OF M/S SUSHILA VANSALE HIGH SERVICES REVEALED THAT ON THE BACKSIDE OF PAGE 42 THERE W AS A TABLE DEPICTING THE CARRYING ON BUSINESS OF SALE OF PETROL, DIESEL OU TSIDE THE BOOKS OF ACCOUNT. DESCRIPTION ON THE BACKSIDE OF PAGE 42 HAS BEEN SET OUT ABOVE, WHICH WAS THE POSITION AS ON 26-08-200 2. AS PER THIS DOCUMENT, THE AMOUNT RECEIVABLE FROM DEBTORS AS ON THE ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 24 OPENING OF THE DAY STOOD AT RS.1.61 CRORE. FRESH CREDIT SALES OF RS.53,208/- WERE MADE ON 26-08-2002. A SUM OF RS.2 ,68,395/- WAS RECEIVED, LEAVING CLOSING BALANCE OF DEBTORS OF UNACC OUNTED BUSINESS AT RS.1.59 CRORE. THE ASSESSEE SUO MOTU OFFERED UNDISCLOSED INCOME RS.68.69 LAKH ON THIS SCORE IN THE BLOCK RETURN BY EXPLAINING THAT THE REMAINING AMOUNT OF RS.90.51 LAKH WAS BAD DEBTS. HOWEVER, THE DOCUMENTS FOUND AT THE TIME OF SEARC H CONTAINING DETAILS OF AMOUNTS NOT REALIZED RELATING TO THE RELEVA NT FINANCIAL YEARS DIVULGED ACTUAL UNREALIZED AMOUNT AT RS.80,51,032/-. AS AGAINST THAT, THE ASSESSEE WRONGLY W ROTE OFF RS.90,51,032/- BY MAKING TOTALLING MISTAKE OF RS.10.00 LAKH . SINCE THE VERY BASIS OF THE GROSS AMOUNT OF ADDITION OF RS. 1.59 CRORE IS THE DOCUMENT FOUND AT THE TIME OF SEARCH, IT IS BUT NATURAL THAT OTHER DOCUMENTS FOUND AT THE TIME OF SEARCH HAVING REC ORD OF TRANSACTIONS RELATING TO SUCH GROSS UNDISCLOSED INCOME OF RS. 1.59 CRORE ALSO OUGHT TO HAVE BEEN CONSIDERED FOR DETERMININ G THE NET UNDISCLOSED INCOME INCLUDIBLE IN THE TOTAL INCOME. DETAILS OF BAD DEBTS FROM SUCH BUSINESS OUTSIDE THE BOOKS OF ACCOUNT FO UND AT THE TIME OF SEARCH DEPICTED A FIGURE OF RS.80.51 LAC, WHICH S HOULD ALSO HAVE BEEN CONSIDERED. ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 25 27. IT IS CARDINAL PRINCIPLE THAT INSOFAR AS BUSINESS OUTSIDE THE BOOKS OF ACCOUNT IS CONCERNED, IT IS THE INITIAL INVESTMENT AN D PROFIT MARGIN FROM SUCH BUSINESS, WHICH CALLS FOR ADDITION AND NOT THE FULL AMOUNT OF SALE. INSTANTLY, WE ARE CONCERNED WITH THE S ALE OF PETROL AND DIESEL ETC. OUTSIDE THE BOOKS OF ACCOUNT, WHICH RU NS ON THIN MARGIN. ONCE THERE IS A CYCLE OF MAKING PURCHASE OF P ETROL AND DIESEL ETC. OUTSIDE AND BOOKS OF ACCOUNT AND ITS LATER SALE, TH E AO SHOULD HAVE CONSIDERED THE PROFIT ELEMENT FROM SUCH SALE A ND THE INITIAL INVESTMENT. AS AGAINST THE TOTAL SALE OUTSIDE THE BOOKS OF ACCOUNT AT RS.1.59 CRORE, THE ASSESSEE ITSELF OFFERED UND ISCLOSED INCOME OF RS.68.69 LAKH. 28. IT IS DUTY OF THE AUTHORITIES TO GUIDE THE ASSESSEE, IF THERE IS SOME EXCESS OFFERING OF INCOME ON A MISCONCEPTION AND THE N CORRECT IT. ATTEMPT SHOULD BE TO DETERMINE CORRECT INCOME AND NOT TO TAKE UNDUE ADVANTAGE OF THE ASSESSEES IGNORANCE. SINC E THE SUO MOTU OFFERING OF INCOME BY THE ASSESSEE ON THIS COUNT IS MUC H MORE THAN THE INCOME THAT OUGHT TO HAVE BEEN OFFERED, IF P ROPERLY INSTRUCTED, WE ORDER TO DELETE THE ADDITION OF RS.90.51 LAKH. ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 26 29. GROUND NO.4(E) IS AGAINST THE CONFIRMATION OF ADDITION OF RS.63,53,316/- TOWARDS DISALLOWANCE OF BAD DEBTS RELATING TO M. S. SWAMI PETROL PUMP. 30. THE ASSESSEE WAS RUNNING ANOTHER PETROL PUMP IN THE NAME OF M/S. M.S. SWAMI HIGHWAY SERVICES, OMERGA. HERE AGAIN, THE SAME MODUS OPERANDI WAS ADOPTED THAT M.S. SWAMI, THE APPARENT OWNER, WAS ENTITLED TO ONLY CERTAIN COMMISSION. THE ASSESSE E ADMITTED SUCH FACT DURING THE COURSE OF SEARCH. HERE ALSO , THE SAME MECHANISM OF MAKING SALES OUTSIDE THE BOOKS OF ACCOUNT WA S ADOPTED. A SUM OF RS.68,57,438/- WAS FOUND AS RECOR DED ON SEIZED PAPERS REPRESENTING DEBTORS FROM UNDISCLOSED BUSIN ESS AS ON 03-06-2002. AS AGAINST SUCH OUTSTANDING DEBTORS, THE AS SESSEE OFFERED A SUM OF RS.5,04,122/- IN THE BLOCK RETURN. R EGARDING THE DIFFERENTIAL AMOUNT, THE ASSESSEE SUBMITTED THAT A SUM OF RS.28,22,774/- REFLECTED RECOVERIES FROM 03-06-2002 TO 17-08- 2002; A SUM OF RS.14,43,754/- REPRESENTED THE AMOUNT DU E FROM M.S. SWAMI WRONGLY ENTERED IN THE LIST; A SUM OF RS.20,86,788 /- WAS AMOUNT OF BAD DEBTS PERTAINING TO FINANCIAL YEARS 1996-97 TILL 2001-02, THEREBY LEAVING NET INCOME OF RS.5,04,122/-, W HICH WAS OFFERED FOR TAXATION. NOT CONVINCED WITH THE ASSESSEES ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 27 SUBMISSIONS, THE AO MADE AN ADDITION OF RS.63,53,316/- (RS.68,57,438 MINUS RS.5,04,122), WHICH CAME TO BE UPH ELD IN THE FIRST APPEAL. 31. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE R ELEVANT MATERIAL ON RECORD, IT IS FOUND AS AN ADMITTED POSITION THAT THE FACTS AND CIRCUMSTANCES OF THIS GROUND ARE MUTATIS MUTANDIS SIMILAR TO GROUND NO.4(D) WHICH HAS BEEN DEALT WITH HEREINABOVE. FRO M THE RELEVANT CLAIM BY THE ASSESSEE BEFORE THE AO, ENUMERATE D AT PAGES 33 AND 34 OF THE ASSESSMENT ORDER, IT IS SEEN THAT THE ASSE SSEE CLAIMED THAT A SUM OF RS.28,22,794/- WERE RECOVERED BE TWEEN 03- 06-2002 TO 17-08-2002, WHICH THE LD. AR COULD NOT SUBSTA NTIATE WITH ANY EVIDENCE. SIMILARLY, THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE REGARDING THE AMOUNT OF RS.14,43,754/- DUE FRO M M.S. SWAMI HIGHWAY SERVICES WRONGLY ENTERED IN THE LIST. THE ASSESSEES CONTENTION TO THIS EXTENT CANNOT BE ACCEPTED. AS REGARDS THE BAD DEBTS OF RS.20,86,788/-, WE ARE INCLINED TO ACCEP T THE CONTENTION OF THE ASSESSEE FOR THE REASONS GIVEN HEREINBEF ORE. IF THE AMOUNT OF BAD DEBTS IS REDUCED, THE NET AMOUNT OF DEB TORS OUTSIDE THE BOOKS OF ACCOUNT COMES TO RS.47,70,650/-. W HEN WE CONSIDER SUCH SALE OUTSIDE THE BOOKS OF ACCOUNT AND THE AM OUNT ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 28 OFFERED BY THE ASSESSEE AT RS.5.04 LAKH WITH THE SURPLUS A MOUNT OFFERED IN RESPECT OF M/S SUSHILA VANSALE HIGHWAY SERVICES, W E HOLD THAT NO ADDITION IS CALLED FOR. THE COMBINED POSITION OF B OTH THE PETROL PUMPS ON THIS SCORE IS THAT THERE WERE GROSS SALE S OUTSIDE THE BOOKS OF ACCOUNT AT RS.2.28 CRORE (RS.1.59 CRORE P LUS RS.68.57 LAKH). COMBINED AMOUNT OF BAD DEBTS IS RS.1.01 CRORE ( RS.80.51 LAKH PLUS RS.20.86 LAKH). COMBINED NET GOOD SALES MADE OU TSIDE THE BOOKS OF ACCOUNT COME TO RS. 1.27 CRORE (RS.2.28 CRORE MINUS RS.1.01 CRORE). AS AGAINST THIS, THE COMBINED AMOUNT OFFE RED BY THE ASSESSEE IS RS.73.73 LAKH (RS.68.69 LAKH PLUS RS.5. 04 LAKH). THIS GIVES INCOME AT THE RATE OF 58% OF THE NET SALES MADE O UTSIDE THE BOOKS OF ACCOUNT. WHEN WE CONSIDER THE LOWER LEVEL OF PROFIT ON THE SALE OF PETROL AND DIESEL ETC., THIS AMOUNT TURNS OUT TO BE MUCH MORE THAN THE NORMAL INITIAL INVESTMENT IN SUCH TYPE OF BUSINESS AND THE PROFIT THEREON. GROUNDS NO. 4(D) AND (E ) ARE THUS ALLOWED. ITA NO.1259/PUN/2016 (REVENUES APPEAL) : 32. GROUND NO.1 OF THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.24,14,161/- ON ACCOUNT OF UNEXPLAINED A SSETS OVER LIABILITIES OF THE TWO PETROL PUMPS. ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 29 33. THE FACTS ANENT TO THIS ISSUE ARE THAT THE AO COMPUTED UNEXPLAINED ASSETS OVER LIABILITIES IN THE CASE OF MS.SUSHILA VANSALE AND MR. M.S. SWAMI FROM THE RESPECTIVE BALANCE SHE ETS OF THE PETROL PUMPS AS ON THE DATE OF SEARCH. THE ASSESSE E FILED BIFURCATION OF THE ASSETS BELONGING TO MS.SUSHILA VANSALE AND MR.M.S. SWAMI IN THEIR INDIVIDUAL AND SEPARATE CAPACITIES AND REMAINING ASSETS AND LIABILITIES FROM SUCH PETROL PUMPS BELONGING TO HIM, WHICH HAS BEEN TABULATED AT PAGES 55 AND 56 OF THE ASSESSMENT ORDER. THE AO COMPUTED VALUE OF EXCESS OF ASSETS OVER LIABILITIES PERTAINING TO THE ASSESSEE AT RS.16,16,352/- IN RELATION TO S.D. VANSALE AND RS.7,97,807/- IN RELATION TO MR. M. S. SWAMI, AS INCLUDIBLE IN THE TOTAL INCOME OF THE ASSESSEE. THE LD. CIT(A) DELETED SUCH ADDITION. 34. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE RE LEVANT MATERIAL ON RECORD, IT IS SEEN THAT THERE IS NO DISPUTE THAT THE A O ACCEPTED THAT SOME OF THE ASSETS AND LIABILITIES FROM BOTH THE P ETROL PUMPS DID NOT BELONG TO THE ASSESSEE BUT TO MS. S.D. VANSA LE AND M.S. SWAMI, FOR WHICH OBVIOUSLY NO ADDITION HAS BEEN MADE IN THE HANDS OF THE ASSESSEE. HOWEVER, AS REGARDS THE EXCESS OF OTHER ASSETS OVER LIABILITIES PERTAINING TO THE ASSESSEE, THE AO MADE ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 30 COMPUTATION BY REDUCING THE FIGURES OF RS.3,95,896 AND RS.1,52,803 AS RELATABLE TO THE APPARENT OWNERS. ACTUALLY TH ESE TWO FIGURES REPRESENT THE EXCESS OF ASSETS OVER LIABILITIES AT THE BEGINNING OF THE BLOCK PERIOD AND NOT THE FIGURES PERTAINING TO THE APPARENT OWNERS. THE CORRECT PROCEDURE FOR CALCULATING THE UNDISCLOSED BLOCK INCOME OF THE ASSESSEE ON THIS ISSUE WAS TO FIND OUT THE EXCESS OF ASSETS OVER LIABILITIES OF THE TWO PETROL PUMP S ON THE DATE OF SEARCH, THEN REDUCE THE EXCESS OF ASSETS OVE R LIABILITIES AS AT THE BEGINNING OF THE BLOCK PERIOD AND THEN FURTHER RED UCE IT BY THE FIGURE OF EXCESS OF ASSETS OVER LIABILITIES AS PERTAINING T O THE APPARENT OWNERS. IF WE MAKE SUCH A CALCULATION, THE AMOUN T OF EXCESS OF ASSETS OVER LIABILITIES RELATABLE TO THE ASSESSEE IN R ELATION TO THE TWO PETROL PUMPS COMES TO RS.9,93,429, AS HAS BEE N TABULATED AT PAGE 95 OF THE IMPUGNED ORDER. IT IS THIS AMOUN T WHICH WAS LIABLE TO BE INCLUDED IN THE TOTAL INCOME. THE LD. AR ADMITTED THAT RS.9,93,429/- WAS NOT INCLUDED BY THE ASSESSEE THE B LOCK RETURN. WE, THEREFORE, CONFIRM THE ADDITION TO THE EXTENT OF RS.9,93,429/- AGAINST RS.24,14,161/- DELETED BY THE LD.CI T(A). ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 31 35. THE ONLY OTHER GROUND WHICH REMAINS IN THE REVENUE S APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.2.01 CRORE MADE BY THE AO U/S.40A(3) OF THE ACT. 36. SUCCINCTLY, THE FACTS OF THIS GROUND ARE THAT DURING THE COURSE OF VERIFICATION OF RECORD, THE AO FOUND THAT THE ASSESSEE M ADE PAYMENTS IN CASH OF RS.10,07,15,113/- EXCEEDING RS.20, 000/- IN CONTRAVENTION OF SECTION 40A(3) OF THE ACT. 20% OF SUCH AMOUNT WAS DISALLOWED U/S.40A(3) LEADING TO ADDITION OF RS.2,01,43,0 22/-. THE LD. CIT(A), RELYING ON CERTAIN DECISIONS REFERRED TO ON PAGES 113 AND 114 OF HIS ORDER, CAME TO HOLD THAT ADDITION U/S.40A (3) COULD NOT BE MADE IN THE COMPUTATION OF UNDISCLOSED INCOME U/S.158BC OF THE ACT. AGGRIEVED THEREBY, THE REVENUE HAS APPROACHED THE TRIBUNAL. 37. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROU GH THE RELEVANT MATERIAL ON RECORD. THE LD. DR RELIED ON CIT VS. HYNOUP FOOD & OIL INDUSTRIES (P) LTD. (2007) 290 ITR 702 (GUJ) TO SUPPORT THE CONTENTION THAT ADDITION U/S.40A(3) WAS CALLED FOR. HOWEVER, ON PERUSAL OF THIS JUDGMENT, WE FIND THAT IT PERTAINS TO A.Y. 1986-87. AS AGAINST THAT, THE CHAPTER XIV-B CONTAIN ING SPECIAL PROCEDURE IN ASSESSMENT OF SEARCH CASES WAS INSE RTED BY ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 32 THE FINANCE ACT, 1995 W.E.F. 01-07-1995. SINCE THE CASE CO NSIDERED BY THE HONBLE GUJARAT HIGH COURT DOES NOT DEAL WITH BLOCK ASSESSMENT, RELIANCE ON THIS JUDGMENT IS MISPLACED. THE LD. D R RELIED ON ANOTHER JUDGMENT OF HONBLE ANDHRA PRADESH HIGH C OURT IN S. VENKATA SUBBA RAO VS. CIT (1988) 173 ITR 340 (AP) . THIS JUDGMENT RELATES TO THE A.Y. 1974-75. THOUGH THE SUBJECT M ATTER IS DISALLOWANCE U/S.40A(3) BUT IT IS DE HORS THE BLOCK ASSESSMENT. THIS JUDGMENT AGAIN DOES NOT FORTIFY THE VIEW OF THE REVENUE. PER CONTRA, THE LD. CIT(A) HAS RELIED ON SEVERAL DECISIONS HOLDIN G THAT SECTION 40A(3) DOES NOT APPLY IN RESPECT OF BLOCK ASSESSME NT. THE LD. AR RELIED ON ANOTHER JUDGMENT OF PUNE BENCH OF THE TRIBU NAL IN DHANVARSHA BUILDERS & DEVELOPERS PVT. LTD. VS. DCIT (2006) 105 TTJ 376 (PUNE) . THIS CASE PERTAINS TO BLOCK ASSESSMENT WHEREIN IT HAS BEEN CATEGORICALLY HELD THAT PROVISIONS OF SECTIO N 40A(3) ARE NOT APPLICABLE TO THE BLOCK ASSESSMENT. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE SATISFIED THAT NO INFIRMITY CAN B E TRACED IN VIEW POINT CANVASSED BY THE LD. CIT(A) IN DELETING TH IS ADDITION. ITA NO. 993 AND 1259/PUN/2016 PURNACHANDRA JANARDHAN RAO 33 38. IN THE RESULT, THE BOTH THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH OCTOBER, 2020. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 16 TH OCTOBER, 2020 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13, PUNE 4. 5. THE PR.CIT, CENTRAL, PUNE , , / DR B, ITAT, PUNE 6. / GUARD FILE / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 13-10-2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 15-10-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *