M/s Sawaria Agro Oils Ltd, Bhopal V. The ACIT 1 (1),

ITSSA 18/IND/2006

• Counselvise Citation: [2011] 124 COUNSELVISE.COM (IT) 8394 (ITAT-INDORE)
• Duration Of Justice: 5 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 30-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-02-2011
• Assessment Year: misc
• Appeal Filed On: 24-02-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income; Search and seizure; Loose papers; Document seized; Period of limitation; Wrong claim; Bad and doubtful debts; Block assessment; Onus to prove; Time period of passing order
• Section: 143(3); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AACCS1449N I.T.(SS)A.NO. 18/IND/2006 BLOCK PERIOD : 01.4.1996 TO 25.10.2002 M/S.SANWARIA AGRO OILS LIMITED, ACIT, 1(1), BHOPAL. VS BHOPAL APPELLANT RESPONDENT PAN NO. : AACCS1449N I.T.(SS)A.NO. 23/IND/2006 BLOCK PERIOD : 01.4.1996 TO 25.10.2002 ACIT, 1(1), M/S.SANWARIA AGRO OILS LIMITED, BHOPAL VS BHOPAL. APPELLANT RESPONDENT PAN NO. : AACCS1449N I.T.A.NO. 299/IND/2008 A.Y. : 2005-06 ACIT, 1(1), M/S.SANWARIA AGRO OILS LIMITED, BHOPAL VS 24-28, KHEDA, INDUSTRIAL AREA, ITARSI, DISTT. HOSHANGABAD APPELLANT RESPONDENT -: 2: - 2 PAN NO. : AACCS1449N C.O. NO. 57/IND/2008 (ARISING OUT OF I.T.A.NO. 299/IND/2008) A.Y. : 2005-06 ACIT, 1(1), M/S.SANWARIA AGRO OILS LIMITED, BHOPAL VS BHOPAL. APPELLANT RESPONDENT PAN NO. : AAOFS4933Q I.T(SS).A.NO. 22/IND/2006 BLOCK PERIOD : 01.4.1996 TO 25.10.2002 ACIT, 1(1), M/S. SURYA TRADING CORPORATION, BHOPAL VS 9 TH LANE, ITARSI APPELLANT RESPONDENT PAN NO. : AAOFS4933Q I.T.A.NO. 517/IND/2007 A.Y. : 2003-04 ACIT, 1(1), M/S. SURYA TRADING CORPORATION, BHOPAL VS 9 TH LANE, ITARSI APPELLANT RESPONDENT ASSESSEE BY : SHRI ANIL KHABYA, C. A. DEPARTMENT BY : SHRI DARSHAN SINGH, CIT DR -: 3: - 3 O R D E R PER R. C. SHARMA, A.M. I.T(SS)A.NOS. 18 & 23/IND/2006 : THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE A ND REVENUE AGAINST THE ORDER OF CIT(A) FOR THE BLOCK P ERIOD 01.04.1996 TO 25.10.2002 IN THE MATTER OF ORDER PAS SED BY THE ASSESSING OFFICER U/S 158BC READ WITH SECTION 143(3 ) OF THE INCOME-TAX ACT, 1961. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. 3. THE FACTS, IN BRIEF, ARE THAT THE SEARCH AND SEIZUR E ACTION U/S 132(1) OF THE INCOME-TAX ACT, 1961, WAS CARRIED OUT ON 23.10.02 AND 24.10.02 AT THE FACTORY PREMISES AT INDUSTRIAL AREA, ITARSI AND AT THE OFFICE PREMISES AT 9 TH LANE, ITARSI. DURING THE COURSE OF SEARCH AND SEIZURE ACTION AT T HE PREMISES CASH, BOOKS OF ACCOUNT AND LOOSE PAPERS ETC. WERE F OUND AND OUT OF WHICH BOOKS OF ACCOUNT AND LOOSE PAPERS WERE SEIZED. FURTHER THERE WAS A CONSTRUCTIVE SEIZURE OF THE EXC ESS STOCK OF SOYABEAN, WHEAT, GRAMS, GUMS AND SOYA REFINED OIL O N -: 4: - 4 24.10.02. WHILE COMPLETING ASSESSMENT U/S 158BC, TH E AO MADE FOLLOWING ADDITIONS :- TOTAL UNDISCLOSED INCOME DECLARED AS PER BLOCK RETURN : ADD : ON ACCOUNT OF STOCK RS.25,67,436/- ON ACCOUNT OF UNEXPLAINED EXPENSES IN FURNITURE AND OTHER ITEMS RS. 75,000/- ON ACCOUNT OF UNRECORDED PURCHASE OF PLYWOOD RS. 2,29,724/- ON ACCOUNT OF LOOSE PAPERS RS. 1,90,700/- ON ACCOUNT OF TRANSACTION WITH SURYA TRADING CORPORATION RS. 1,47,420/- ON ACCOUNT OF BENAMI TRANSACTIONS IN THE NAME OF SURYA TRADING CORPORATION RS.56,13,228/- TOTAL : RS.88,23,508/- OR SAY RS. 88,23,510/- 4. FIRST GROUND OF THE ASSESSEE WAS WITH REGARD TO THE FACT THAT ASSESSMENT WAS BARRED BY LIMITATION, THER EFORE, DESERVES TO BE ANNULLED. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM RECORD THAT SEARCH OPERATION WAS CONDUCTED ON -: 5: - 5 23.10.2002. NORMAL TIME LIMIT FOR COMPLETION OF BLO CK ASSESSMENT WAS AVAILABLE UP TO 31.10.2004. HOWEVER, THE AO REFERRED THE MATTER FOR SPECIAL AUDIT U/S 142(2A) O F THE INCOME-TAX ACT, 1961, ON 29.10.2004. AS THE CASE WA S REFERRED FOR SPECIAL AUDIT, THE AO RELIED ON EXPLANATION 1 T O SECTION 158BE(1)(B) AND COMPLETED ASSESSMENT ON 5.5.2005. T HERE IS NO INFIRMITY IN THE ORDER OF THE AO WITH REGARD TO THE LIMITATION PERIOD IN SO FAR AS EXPLANATION 1, CLAUSE (B) PROVI DED THAT WHILE COMPUTING PERIOD OF LIMITATION FOR THE PURPOS E OF SECTION 158BE, THE PERIOD COMMENCING FROM THE DAY ON WHICH THE AO DIRECTS THE ASSESSEE TO GET ITS ACCOUNT AUDITED U/S 142(2A) AND ENDING ON THE DAY ON WHICH THE ASSESSEE HAS REQ UESTED TO FURNISH A REPORT OF SUCH AUDIT UNDER THAT SUB SECTI ON, SHALL BE EXCLUDED. IF WE EXCLUDE THE PERIOD TAKEN BY THE SPE CIAL AUDIT OR AS PROVIDED UNDER CLAUSE (II) OF EXPLANATION 1, THE ASSESSMENT SO COMPLETED U/S 158BC ON 5.5.2005 WAS W ELL WITHIN STATUTORY TIME LIMIT. ACCORDINGLY, GROUND NO .1 RAISED BY THE ASSESSEE IS DISMISSED. 6. NEXT ADDITION WAS MADE BY THE ASSESSING OFFICER WIT H REGARD TO UNEXPLAINED INVESTMENT IN STOCK OF SOYABE AN -: 6: - 6 AMOUNTING TO RS. 9,15,840/-, OUT OF WHICH THE LD. CIT(A) DELETED THE ADDITION OF RS. 3 LAKHS. BOTH THE ASSES SEE AND REVENUE ARE IN APPEAL BEFORE US. 7. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FIND THAT ADDITION WAS MADE ON ACCOUNT OF PHYSICAL STOCK OF S OYABEAN SEEDS TAKEN AT THE FACTORY PREMISES DURING THE COUR SE OF SEARCH. WHILE TAKING THE PHYSICAL STOCK, THE AO HAS ALSO TAKEN 280 BAGS OF SOYABEAN, WHICH WAS RECEIVED FOR WORK I N PROGRESS. THE LD. CIT(A) HAS CORRECTLY OBSERVED THA T 280 BAGS OF SOYABEAN, WHICH WAS IN PROGRESS WAS REQUIRED TO BE REDUCED FROM THE EXCESS STOCK OF SOYABEAN WORKED OU T BY THE ASSESSING OFFICER WEIGHING 76.32 M. T. THUS, IT WAS FOUND THAT ADDITION IN RESPECT OF UNEXPLAINED INVESTMENT IN SO YABEAN SEEDS WAS TOBE MADE IN RESPECT OF 51.32 M. T., THE VALUE OF WHICH WAS WORKED OUT BY THE LD. CIT(A) AT RS. 6,15, 840/-. ACCORDINGLY, THE RELIEF GIVEN BY THE LD. CIT(A) WAS RS. 3 LAKHS AND THE ADDITION WAS RESTRICTED TO RS. 6,15,840/-. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR ALLOW ING CREDIT OF 280 BAGS OF SOYABEAN, WHICH WAS STATED TO BE WORK I N -: 7: - 7 PROGRESS. ACCORDINGLY, THE GROUND TAKEN BY THE REVE NUE AND ASSESSEE BOTH ARE DISMISSED. 8. THE AO HAS ALSO MADE ADDITION ON ACCOUNT SOYABEAN REFINED OIL AMOUNTING TO RS. 14,43,600/- BY TREATIN G THE SAME AS UNEXPLAINED INVESTMENT WHILE COMPUTING EXCESS ST OCK OF SOYABEAN REFINED OIL. IN THIS REGARD, THE LD. CIT(A ) OBSERVED THAT OIL UNDER PROCESS WEIGHING 36.985 M. T. WAS NO T INCLUDIBLE AND ONLY REFINED OIL IN TANKS WEIGHING 2 62.215 M. T. SHOULD HAVE BEEN TAKEN BY THE ASSESSING OFFICER. IT WAS FOUND BY THE LD. CIT(A) THAT IF REFINED OIL UNDER PROCESS IS EXCLUDED, THEN EXCESS REFINED OIL IN TANK AND AS PER BOOKS OF ACCOUNT IS WORKED OUT TO BE 1.511 M.T. ACCORDINGLY, THE LD. CI T(A) RESTRICTED THE ADDITION IN TERMS OF WEIGHT WEIGHING 1.511 M. T. AND EXCLUDED 36.985 M. T., WHICH WAS STATED TO BE I N PROCESS. THE LD. CIT(A) ALSO FOUND THAT PROPER RECORDS ARE M AINTAINED IN RESPECT OF FINISHED SOYABEAN REFINED OIL AND ,AC CORDINGLY, WHATEVER SOYABEAN REFINED OIL WAS FOUND IN SEARCH W AS FOUND IN TANK WAS THE SAME AND REQUIRED TO BE COMPARED WI TH SOYABEAN REFINED OIL AS RECORDED ON THE DATE OF SEA RCH IN THE BOOKS OF ACCOUNT. ACCORDINGLY, THE ADDITION ON ACCO UNT OF -: 8: - 8 SOYABEAN REFINED OIL WAS RESTRICTED TO RS. 57,000/- . WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). GROUNDS TAKEN BY BOTH ASSESSEE AND REVENUE ARE DISMISSED. 9. THE AO HAS ALSO MADE ADDITION WITH REFERENCE TO 81 2 BAGS OF GRAM ALLEGED TO BE STORED AT SHRINATHJI WAR EHOUSING CORPORATION. THE LD. CIT(A) FOUND THAT 812 BAGS OF GRAM DO NOT BELONG TO THE ASSESSEE BUT WERE OWNED BY THE FIRM M /S. NATHURAM SHRINARAYAN AGARWAL, WHICH IS A SEPARATE A SSESSEE. AFTER RECORDING THE FINDING THAT 812 BAGS OF GRAM W AS OWNED BY NATHURAM SHRINARAYAN AGARWAL, THE CIT(A) DELETED THE ADDITION. THIS FINDING HAS NOT BEEN CONTROVERTED BY REVENUE. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD . CIT(A) FOR DELETING THE ADDITION OF RS. 1,81,440/- IN RESPECT OF GRAMS. 10. NEXT GRIEVANCE OF THE REVENUE RELATES TO DELETI ON OF ADDITION OF RS. 56,13,228/- OF M/S. SURYA TRADING CORPORATION. 11. THE FACTS, IN BRIEF, ARE THAT THE LOOSE PAPERS MARK ED AS M/S. SAOL BS/SAOL/76 WERE SEIZED FROM THE ASSESSE ES BUSINESS PREMISES. IT WAS A DIARY AND CONTAINS RECO RDS OF SEVERAL TRANSACTION. THE ASSESSEE TRIED TO CORRELAT E THE -: 9: - 9 TRANSACTIONS WITH THE ENTRIES IN THE BOOKS OF ACCOU NT. MOST OF THE TRANSACTIONS COULD NOT BE TALLIED. AFTER RECORD ING DETAILED FINDING WITH REGARD TO THESE TRANSACTIONS AT PAGE N OS. 11,12,13 & 14 OF THE ASSESSMENT ORDER AND AFTER RECORDING ST ATEMENT OF SHRI BHAGWANDAS BANSAL, SANTOSH KUMAR TIWARI, DINE SH CHOUDARY, KANHAIYALAL JAIN, THE AO REACHED TO THE C ONCLUSION THAT SURYA TRADING CORPORATION IS A BENAMI CONCERN OF THE ASSESSEE, THEREFORE, THE ENTIRE AMOUNT WORKED OUT O F THESE DOCUMENTS WERE TREATED AS ASSESSEES INCOME. FOLLOW ING WAS THE PRECISE OBSERVATION OF THE AO IN THIS REGARD :- ALL THE ABOVE STATEMENTS OF SHRI BHAGWAN DAS BANSAL, SMT KUSUM TIWARI, SHRI SANTOSH TIWARI, SHRI DINESH CHAWDHARY, SHRI KANHAYA LAL JAIN , SHRI SATISH AGARWAL AND SHRI ASHOK AGARWAL CLEARLY INDICATE THE FACT THAT M/S. SURYA TRADING CONCERN IS A BENAMI CONCERN OF SANWARIA GROUP. THE FACTS AND CIRCUMSTANCES OF THE CASE SHOWS THAT SHRI BHAGWAN DAS BANSAL IS A MERE WORKER IN M/S. SAOL AND BEING A RELATIVE HE LOOKS AFTER THE FACTOR Y AND MANAGES THE WORK THERE. THE FACTS CLEARLY -: 10: - 10 INDICATE THE SMT KUSUM TIWARI HAS LENT HER NAME FOR THE FIRM. HER ABSENCE DURING THE RECORDING OF THE STATEMENT OF SH SANTOSH TIWARI AND HIS CONFESSION THAT UNDER THE DIRECTION OF SETHJI ( SH RN AGARWAL) SHE WAS SENT TO OTHER PLACE AT ITARSI CLEARLY INDICATE THAT OUT OF FEAR SHE WAS SENT TO SOME OTHER PLACE SO THAT NO INFORMATION CAN BE GATHERED FROM HER AND NO ENQUIRY FROM HER CAN BE MADE. THE STATEMENT OF SH DINESH CHAUDHARY BRING OUT THE FACT THAT ALL THE OFFICIAL WORKS ARE CARRIED OUT BY HIM AND NO SALARY FROM M/S. STC IS GIVEN TO HIM. HIS STATEMENT THAT SHRI ASHOK AGARWAL CONTROLS THE AFFAIRS OF THE FIRM ALSO CORROBORATES THE FACT THAT IT IS BEING MANAGED BY THE AGARWAL FAMILY. EVEN THE ACCOUNTANT ARE SAME FOR ALL THE CONCERNS OF SANWARIA GROUP AND STC. THE BOOKS OF ACCOUNTS AND OTHER IMPORTANT DOCUMENTS WERE FOUND AT THE BUSINESS PREMISES OF SAOL CLEARLY ESTABLISHES THE FACT THAT AGARWAL FAMILY CONTROLS ITS AFFAIRS. WHEN CONFRONTED SH -: 11: - 11 ASHOK AGARWAL COULD NOT GIVE ANY CONVINCING REPLY TO THE QUESTIONS ASKED TO HIM REGARDING THE STATEMENTS OF SH BANSAL AND SH CHAUDHARY AND THE FACT THAT STC IS BEING CONTROLLED BY THE MEMBERS OF AGARWAL FAMILY ONLY. NOW THE FINANCIAL ASPECT OF STC IS NEEDED TO BE ANALYSED. THE ASSESSEE (STC) DEALS IN TRADING OF SOYABEEN, SOYAMEAL, WHEAT, CHANA AND RNASUR. IT IS ALLEGED THAT -' INSTEAD OF SELLING SOYAMEAL (DOC) DIRECTLY TO THE OUTSIDE PARTY, SAOL SELLS IT ON PAP ER TO STC AT A LOWER PRICE WHICH THEN SHOWS SALE TO OUTSIDE PARTY AT A HIGHER PRICE. IT IS ALLEGED THAT IT APPEARS THAT THE EXPENSES ARE BEING INFLATED IN HANDS OF STC SO AS TO SHOW MINIMUM PROFIT OR NO PROFIT. IN THIS MANNER THE PROFIT AT SAOL IS BEING SUPPRESSED. HAD SAOL MADE DIRECT SALES TO THE OUTSIDE PARTY ITS PROFIT WOULD HAVE BEEN SUBSTANTIA LLY INCREASED. THEREFORE, THE DIFFERENCE IN PURCHASE AN D SALE PRICE OF DOC SHOWN TO HAVE PURCHASED BY STC IS IN FACT THE SUPPRESSED PROFIT OF SAOL -: 12: - 12 12. THE AO WORKED OUT TOTAL PURCHASE AND SALE OF WHEAT, GRAM/SOYABEAN AND COMPUTED TOTAL PROFIT OF RS. 58,8 6,001/- EARNED BY STC, AS THIS FIRM WAS HELD TO BE BENAMIDA R OF THE ASSESSEE, ENTIRE AMOUNT WAS INCLUDED IN ASSESSEES INCOME AS UNDISCLOSED INCOME AS A.O.L. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ENTIRE ADDITION AFTER OBSERVING AS UNDER :- I HAVE VERY CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD.COUNSEL IN THIS REGARD. I HAVE ALSO VERY CAREFULLY GONE THROUGH THE DETAILED FINDINGS GIVEN BY THE AO IN THE ORDER ON THIS ISSUE AND AFTER DUE CONSIDERATION I FIND THAT AO WAS NOT AT ALL JUSTIFIED IN MAKING ADDITION OF RS. 56,13,228/- FIRSTLY BECAUSE THE SUM OF RS. 56,13,228/- IS A BUSINESS INCOME OF BLOCK PERIOD OF M/S. SURYA TRADING CORPORATION ON THE BASIS OF AUDITED ACCOUNTS WITHOUT CONSIDERING THE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT IN THE BLOCK PERIOD EXCEPT THE EXPENSES ON TRANSPORTATION ON RAILWAYS AND SECONDLY SUCH -: 13: - 13 INCOME IS NOT BASED ON ANY EVIDENCE FOUND DURING THE COURSE OF SEARCH. DISCLOSED BUSINESS INCOME OF SURYA TRADING CORPORATION CANNOT BE TREATED AS UNDISCLOSED INCOME OF THE APPELLANT BY ANY STRETCH OF IMAGINATION. UNDISCLOSED INCOME IS TO BE COMPUTED ONLY ON THE BASIS OF EVIDENCE FOUND DURING THE COURSE OF SEARCH. NO EVIDENCE WAS FOUND OF ON ANY NATURE WHICH COULD JUSTIFY THE ACTION OF THE AO TO TREAT THE DISCLOSED BUSINESS INCOME OF SURYA TRADING CORPORATION AS UNDISCLOSED INCOME OF THE APPELLANT. AO HAS NOT DISCHARGED THE ONUS TO PROVE THE BENAMI NATURE OF SURYA TRADING CORPORATION OF THE APPELLANT. AO HAD NO WHERE RECORDED THE FINDING THAT SURYA TRADING CORPORATION IS A BENAMI CONCERN OF THE APPELLANT. AO HAD GIVEN ONLY VAGUE FINDING THAT M/S. SURYA TRADING CORPORATION IS A BENAMI CONCERN OF SANWARIA GROUP. I THEREFORE HOLD THAT AO WAS NOT AT ALL JUSTIFIED IN TREATING THE -: 14: - 14 DISCLOSED BUSINESS INCOME OF THE BLOCK PERIOD OF SURYA TRADING CORPORATION AS UNDISCLOSED INCOME OF THE APPELLANT. THIS ADDITION BEING UNSUSTAINABLE IN LAW AS THE SAME IS NOT BASED ON ANY EVIDENCE FOUND IN THE SEARCH IS HEREBY DELETED. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM RECORD THAT VARIOUS DOCUMENTS WERE F OUND DURING COURSE OF SEARCH AND THEREAFTER AO RECORDED STATEMENT OF VARIOUS PARTNERS AND EMPLOYEES OF THE ASSESSEES AND REACHED TO THE CONCLUSION THAT TRANSACTION RECORDED IN THE LOOSE PAPERS/DIARY WAS PERTAINING TO THE BUSINESS O F M/S. SURYA TRADING CORPORATION. IN TERMS OF THE STATEMEN T SO RECORDED, IT WAS FOUND THAT M/S. SURYA TRADING CORP ORATION WAS ACTUALLY BELONGED TO THE ASSESSEE, THEREFORE, E NTIRE INCOME WORKED OUT OF THESE TRANSACTIONS AMOUNTING TO RS. 56,13,228/- WAS ADDED IN ASSESSEES INCOME. THE LD. CIT(A) DELETED THE ENTIRE ADDITION JUST BY STATING THAT M/ S. SURYA TRADING CORPORATION IS A SEPARATE ENTITY. THE LD. C IT(A) ALSO -: 15: - 15 OBSERVED THAT DISCLOSED BUSINESS INCOME OF THE M/S. SURYA TRADING CORPORATION CANNOT BE TREATED AS UNDISCLOSE D INCOME OF ASSESSEE FIRM BY ANY STRETCH OF IMAGINATION. WE DO NOT FIND ANY MERIT IN THE CIT(A)S ACTION IN SO FAR AS HE HA S NOT CONTROVERTED THE DETAILED FINDINGS RECORDED BY THE ASSESSING OFFICER WITH REGARD TO THE TRANSACTIONS RECORDED ON VARIOUS LOOSE PAPERS FOUND DURING COURSE OF SEARCH VIS--VI S STATEMENT OF THE PARTNERS OF THE ASSESSEE FIRM AND EMPLOYEES RECORDED DURING THE COURSE OF SEARCH. EVEN NOTHING WAS BROUG HT ON RECORD BY THE ASSESSEE TO SUBSTANTIATE THAT SUCH IN COME WAS DISCLOSED TO THE DEPARTMENT AT ANY TIME. THE CONTEN TION OF THE LD. AUTHORIZED REPRESENTATIVE BEFORE US WAS THAT M/ S. SURYA TRADING CORPORATION IS AN INDEPENDENT ENTITY AND TH E LD. CIT(A) HAS RECORDED THE CATEGORICAL FINDING THAT TH E AO HAS NOT DISCHARGED THE ONUS TO PROVE THE BENAMI NATURE OF M /S. SURYA TRADING CORPORATION AND NO WHERE RECORDED A FINDING THAT M/S. SURYA TRADING CORPORATION IS A BENAMI CONCERN OF THE ASSESSEE. 14. THE OBSERVATIONS MADE BY THE LD. CIT(A) IS NOT BASE D ON ANY DOCUMENTS NOR HE HAS CONTROVERTED THE FINDIN GS -: 16: - 16 RECORDED BY THE ASSESSING OFFICER WITH RESPECT TO T HE TRANSACTION RECORDED ON VARIOUS LOOSE PAPERS FOUND DURING COURSE OF SEARCH NOR THE STATEMENT OF VARIOUS PERSO NS AS RECORDED DURING SEARCH WAS CONTROVERTED BY THE LD. CIT(A). THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY , WE RESTORE THE ENTIRE ISSUE BACK TO THE FILE OF CIT(A) FOR DEC IDING AFRESH AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE TO SUB STANTIATE ITS CLAIM THAT M/S. SURYA TRADING CORPORATION IS AN IND EPENDENT ENTITY WHO HAS PAID DUE TAXES ON ITS INCOME. IT IS PERTINENT TO MENTION HERE THAT VARIOUS EXPENDITURE WAS FOUND REC ORDED EITHER IN THE LOOSE PAPERS OR IN THE PROFIT AND LOS S ACCOUNT OF M/S. SURYA TRADING CORPORATION, WHICH ARE REQUIRED TO BE TAKEN INTO CONSIDERATION WHILE WORKING OUT NET INCO ME EARNED OUT OF THESE TRANSACTIONS. IF DURING THE COURSE OF SEARCH, ENTRIES ARE FOUND RECORDED WITH REFERENCE TO THE CE RTAIN EXPENDITURE, SAME IS REQUIRED TO BE TAKEN IN TO CON SIDERATION FOR ARRIVING AT THE NET INCOME FROM THESE TRANSACTI ONS. THE AO CANNOT IGNORE THE ENTRIES WITH REGARD TO EXPENDITUR E RECORDED THEREIN WHILE TAKING THE NET INCOME OUT OF THESE TR ANSACTIONS. WE, THEREFORE, DIRECT THE CIT(A) TO REWORK-OUT THE CORRECT PROFIT -: 17: - 17 ARISING OUT OF THESE TRANSACTIONS AFTER GIVING DUE CREDIT OF THE EXPENDITURE INCURRED FOR THESE TRANSACTIONS. WE DIR ECT ACCORDINGLY. 15. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO THE ADDIT ION OF RS. 75,000/- ON ACCOUNT OF ALLEGED INVESTMENT IN HO USE HOLD FURNITURE. 16. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. DURING THE COURSE OF SEARCH, THE HOUSE HO LD GOODS WORTH RS. 2,29,500/- WERE FOUND. THESE HOUSE HOLD G OODS WERE PURCHASED FOR USE OF GUESTS AT BHOPAL SINCE 19 92 BY THE ASSESSEE. ALL THESE ITEMS OF FURNITURE WERE VERY OL D, THEREFORE, THE ASSESSEE WAS NOT IN A POSITION TO STATE THE YEA R IN WHICH SUCH GOODS WERE PURCHASED. HOWEVER, NO EVIDENCE WAS FOUND IN SEARCH THAT THESE ITEMS WERE PURCHASED DURING TH E PERIOD FALLING IN THE BLOCK PERIOD. THE LD. CIT(A) ALSO RE CORDED A FINDING THAT GUEST HOUSE IN BHOPAL WAS SINCE 1992. THE ASSESSEE HAS ALSO TRIED TO GIVE DETAILS OF VARIOUS ITEMS. WITHOUT BRINGING ANY COGENT MATERIAL ON RECORD, THE AO HAS WORKED OUT RS. 75,000/- AS ITEM OF FURNITURE ACQUIRED DURI NG THE BLOCK PERIOD AS UNEXPLAINED. WE DO NOT FIND ANY MER IT IN THE -: 18: - 18 ACTION OF THE AO. SINCE THESE WERE THE OLD FURNITUR E AND ACQUIRED DURING THE PERIOD FALLING BEYOND THE BLOCK PERIOD, NO ADDITION IS WARRANTED WITH RESPECT TO SUCH OLD FURN ITURE FOUND DURING SEARCH. THE AO IS DIRECTED TO DELETE THE SAM E. 17. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO THE ADDIT ION OF RS. 2,29,724/- ON ACCOUNT OF ALLEGED INVESTMENT IN PURCHASE OF PLY WOOD. 18. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. DURING THE COURSE OF SEARCH, TOTAL PURCHAS E OF PLY WOOD AT RS. 4,82,433/- WAS FOUND, OUT OF WHICH PURC HASE WORTH RS. 2,52,709/- WAS FOUND RECORDED IN THE BOOK S OF THE ASSESSEE, THEREFORE, THE BALANCE WAS ADDED BY THE A SSESSING OFFICER IN ASSESSEES INCOME. BY THE IMPUGNED ORDER , THE LD. CIT(A) CONFIRMED THE ADDITION. CONTENTION OF THE LD . AUTHORIZED REPRESENTATIVE WAS THAT AN ADDITION OF RS. 86,595/- WAS ALREADY MADE IN THE HANDS OF SHRI ANIL AGARWAL AND WAS AGAIN MADE IN THE HANDS OF THE ASSESSEE COMPANY. TO THE L IMITED EXTENT TO VERIFY THE FACT OF ADDITION OF RS. 86,595 /- HAVING BEEN MADE IN THE HANDS OF SHRI ANIL AGARWAL, MATTER IS R ESTORED BACK TO THE FILE OF THE AO FOR DECIDING AFRESH. BAL ANCE ADDITION -: 19: - 19 IS CONFIRMED, AS NOTHING WAS BROUGHT ON RECORD BY T HE LD. AUTHORIZED REPRESENTATIVE TO CONTROVERT THE FINDING RECORDED BY THE ASSESSING OFFICER WITH REGARD TO THE TOTAL P URCHASES OF PLY WOOD AND ITS ENTRY IN THE REGULAR BOOKS OF ACCO UNT. 19. NEXT ISSUE PERTAINS TO ADDITION OF RS. 1,90,700/- O N ACCOUNT OF ALLEGED ENTRIES IN DIARIES FOUND DURING COURSE OF SEARCH. 20. THE AO HAS DISCUSSED THIS ISSUE ON PAGE 10 IN PARA 4. AO HAS REFERRED TO THE DOCUMENT SEIZED FROM THE BUS INESS PREMISES OF THE ASSESSEE WHICH IS A DIARY AND WHICH CONTAINS THE RECORD OF CERTAIN TRANSACTIONS. AO REQUIRED THE ASSESSEE TO EXPLAIN THE NOTINGS AS FOUND RECORDED IN THESE DIAR IES. HE FOUND THAT CERTAIN PAYMENTS WERE MADE AS PER THESE TRANSACTIONS AND TOTAL PAYMENTS AMOUNTED TO RS. 1,9 0,700/-. AO FOUND THAT THESE AMOUNTS ARE NOT FOUND RECORDED IN THE REGULAR BOOKS OF THE ASSESSEE. ASSESSEE SUBMITTED B EFORE THE AO THAT IT WAS A PERSONAL DIARY OF THE EMPLOYEE AND DENIED TO HAVE MADE ANY PAYMENT AS FOUND MENTIONED IN THE DIA RY. HOWEVER, AO HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND MADE ADDITION OF RS. 1,90,700/- ON ACCOUNT OF -: 20: - 20 TRANSACTIONS FOUND RECORDED IN THE DIARY AND WHICH ARE NOT REFLECTED IN THE REGULAR BOOKS OF THE ASSESSEE. 21. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED TH E ADDITION. NOTHING WAS BROUGHT ON RECORD BY THE LD. AUTHORIZED REPRESENTATIVE TO CONTROVERT THE FINDINGS RECORDED BY THE LOWER AUTHORITIES. WE, THEREFORE, CONFIRM THE ADDITION OF RS.1,90,700/- MADE BY THE ASSESSING OFFICER. 22. WITH REGARD TO THE ADDITION OF RS. 1,47,420/- ON ACCOUNT OF SETTLEMENT OF TRANSACTION WITH M/S. SURY A TRADING CORPORATION, THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT THE CLAIM OF LOSS WAS GENUI NE AND IT WAS NOT A BOGUS CLAIM OF LOSS. THEREFORE, THE AO WA S NOT JUSTIFIED IN MAKING THE ADDITION. 23. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT EVEN IN THE SPECIAL AUDIT REPORT U/S 142 (2A) THE AUDITOR HAS OBSERVED THAT LOSS OF RS. 1,47,420/- CL AIMED BY THE ASSESSEE WAS A FALSE CLAIM. THEREFORE, THE SAME DESERVES TO BE ADDED. NOTHING WAS BROUGHT BY THE LOWER AUTHORIT IES TO PERSUADE US TO DEVIATE FROM THE OBSERVATIONS MADE B Y THE -: 21: - 21 LOWER AUTHORITIES AND ALSO BY THE SPECIAL AUDITOR. ACCORDINGLY, WE CONFIRM THE ADDITION MADE BY THE ASSESSING OFFIC ER. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE AND REVEN UE ARE ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. I.T.A.NO. 299/IND/2008 & C.O. NO. 57/IND/2008 : 25. THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECT ION BY THE ASSESSEE ARE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 2005-06. 26. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. 27. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A COM PANY ENGAGED IN THE MANUFACTURING AND TRADING IN COMMODI TIES. IN THE COURSE OF ASSESSMENT, THE AO OBSERVED THAT DURI NG THE YEAR UNDER CONSIDERATION SALES ARE SHOWN AT RS. 1,74,75,27,850/-. NET PROFIT FOR THE YEAR HAS BEEN WORKED OUT AT RS. 4,29,90,690/-. THIS IS IN COMPARISON TO SALE S OF PREVIOUS YEAR OF RS. 2,57,93,99,003/- WHICH RESULTE D INTO PROFIT BEFORE TAX AMOUNTING TO RS. 8,99,04,076/-. I T HAS BEEN NOTED THAT THE ASSESSEE HAS CARRIED OUT MANUFACTURI NG AS WELL AS TRADING ACTIVITY DURING THE YEAR. -: 22: - 22 28. THE AO FOUND THAT THE ASSESSEE HAS SUPPRESSED VALUE OF ITS CLOSING STOCK BY VALUING THE SAME AT LOWER P RICE. HE OBSERVED THAT WHILE INVENTORIES AS PER THE BALANCE SHEET ARE RS. 29,98,08,791/-, THE FIGURE OF INVENTORY IN THE P&L IS A DERIVED FIGURE IN SCHEDULE-M. SCHEULE-M MENTIONS TH E CLOSING STOCK AT RS. 4,81,66,073/-. THIS FIGURE AS WELL AS THE FIGURE OF OPENING STOCK MENTIONED AT RS. 8,25,92,292/- DOES N OT MATCH WITH THE RESPECTIVE FIGURES OF INVENTORY IN THE BAL ANCE SHEET. THESE FIGURES HAVE INDIRECTLY BEEN ACCOUNTED FOR IN THE CONSUMPTION OF MATERIAL FIGURE MENTIONED IN THE COS T OF MATERIAL. AS A RESULT OF THESE MANIPULATIONS, THE P ROFIT AND LOSS ACCOUNT INCLUDING THE ANNEXURE DOES NOT REVEAL THE TRUE AND CORRECT FIGURES OF OPENING AND CLOSING STOCK AS WELL AS PURCHASE MADE DURING THE YEAR. AFTER TABULATING OPE NING PRICE, PURCHASE PRICE AND THE PRICE TAKEN BY THE AS SESSEE FOR COMPUTING CLOSING STOCK THE AO HAVE WORKED OUT THE DIFFERENCE AT RS. 5,46,51,030/- BREAK UP OF WHICH I S AS UNDER :- -: 23: - 23 S.NO. PARTICULARS UNDER VALUATION OF CLOSING STOCK AMOUNT (RS.) 1. SOYASEED YELLOW GOOD 8613342.86 2. SOYASEED YELLOW DAMAGE 17495000.00 3. SOYASEED BLACK - GOOD 717772.83 4. DRB STOCK YELLOW GOOD 6002160.00 5. DRB STOCK YELLOW SHORTAGE 16348442.00 6. SOYA OIL 681660.00 7. REFINED OIL LOOSE 3733101.00 8. CRUDE OIL 754120.00 9. COAL 305431.00 TOTAL R/O RS. 54651030.00 29. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION. 30. IT WAS CONTENDED BY THE LD. CIT DR THAT THE AO HAS CORRECTLY VALUED THE CLOSING STOCK AS PER THE CLOSI NG RATES OF THE VARIOUS GOODS AND WITHOUT BRINGING ANY COGENT M ATERIAL ON RECORD, THE LD. CIT(A) HAS DELETED THE ADDITION. HE FURTHER MENTIONED THAT AT PAGES 5, 6 & 7, THE AO HAS VERY E LABORATELY BROUGHT ON RECORD THE RATE OF OPENING STOCK, RATE O F PURCHASE RATE OF CLOSING STOCK IN DIFFERENT ITEMS LIKE SOYAB EAN SEEDS, YELLOW SOYABEAN, SOYABEAN SEEDS BLACK, DRB STOCK YE LLOW. SOYA OIL, REFINED OIL LOOSE, CRUDE OIL, COAL ETC. A ND AFTER APPLYING THE RATE OF CLOSING STOCK, THE AO HAS CORR ECTLY WORKED -: 24: - 24 OUT THE OF STOCK AND DIFFERENCE WAS ADDED IN ASSESS EES INCOME. 31. ON THE OTHER HAND, THE LD. AUTHORIZED REPRESENTATIV E SUBMITTED THAT THE CIT(A) HAS WORKED OUT AVERAGE PR ICE OF SOYABEAN DURING THE YEAR AT RS. 13,249/- PER M. T. AS AGAINST OPENING STOCK VALUE OF RS. 16,450/- PER M. T, WHICH ITSELF GOES TO SHOW THAT DURING THE YEAR, THERE WAS SHARP FALL IN VALUE OF SOYABEAN. SINCE THE PRICE OF RAW MATERIAL HAS FALLE N, THE PRICE OF FINISHED GOODS ALSO DECLINED DURING THE YEAR, TH EREFORE, THE LD. CIT(A) HAS CORRECTLY TAKEN THE VALUE OF CLOSING STOCK. AS PER LD. AUTHORIZED REPRESENTATIVE, NO INTERFERENCE IS R EQUIRED IN THE ORDER OF THE LD. CIT(A). 32. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM RECORD THAT THE AO HAS MADE DETAILED EXE RCISE FOR WORKING OUT THE VALUE OF CLOSING STOCK WITH RESPECT TO EACH AND EVERY ITEM THE ASSESSEE WAS DEALING WITH. HOWEVER, IT APPEARS THAT THE ASSESSEE HAS ALSO FURNISHED COPY OF SOME O F THE PURCHASE BILLS INDICATING LOWER PRICES AS AT THE EN D OF THE YEAR. AS PER CONSIDERED VIEW, THE CLOSING STOCK IS TO BE VALUED AS PER COST OR MARKET PRICE, WHICHEVER IS LOWER. HOWEVER, THE LD. -: 25: - 25 CIT(A) HAS NOT CONTROVERTED THE VARIOUS VALUES BROU GHT ON RECORD BY THE ASSESSING OFFICER FOR ARRIVING AT THE VALUE OF CLOSING STOCK ALONG WITH RATES AND QUANTITY . CIT(A ) HAS PROCEEDED ON GENERAL OBSERVATION RATHER THAN DEALIN G WITH THE RATES QUOTED BY THE ASSESSING OFFICER IN HIS ORDER FOR ARRIVING AT CLOSING VALUE OF STOCK POSSESSED BY ASSESSEE. WE , THEREFORE, SET-ASIDE THE ORDER OF THE CIT(A) AND MATTER IS RES TORED BACK TO THE FILE OF CIT(A) FOR DECIDING THE VALUE OF CLOSIN G STOCK IN TERMS OF ITS COST PRICE OR MARKET PRICE, WHICHEVER IS LOWER AS PER ACCOUNTING PRINCIPLES. THE ASSESSEE IS AT LIBER TY TO SUBMIT NECESSARY EVIDENCE BEFORE THE AO FOR ARRIVING AT TH E CORRECT VALUATION OF THE CLOSING STOCK. THE AO SHALL DECIDE THE MATTER AFRESH. 33. IN THE RESULT, GROUND NOS. 1, 2 & 3 OF REVENUES APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. 34. NEXT ADDITION HAS BEEN MADE BY THE ASSESSING OFFICE R WITH REGARD TO THE BAD DEBTS WRITTEN OFF BY THE ASS ESSEE IN ITS BOOKS OF ACCOUNT AMOUNTING TO RS. 23,51,188/-. 35. IN THIS REGARD, WE FOUND THAT DURING THE COURSE OF ASSESSMENT, THE AO HAS ASKED THE ASSESSEE TO FURNIS H DETAILS -: 26: - 26 OF SUCH BAD DEBTS, SO AS TO FIND OUT WHETHER CONDIT ION WITH REGARD TO SUCH AMOUNT HAVING BEEN RECORDED AS INCOM E IN THE EARLIER YEARS CAN BE FOUND DUE. HOWEVER, THE ASSESS EE HAS NOT FURNISHED IN DETAILS. IN AN APPEAL FILED BEFORE THE CIT(A), THE ADDITION WAS DELETED BY OBSERVING THAT THERE IS ONL Y ONE ACCOUNT, WHICH IS WRITTEN OFF IN THE PROFIT AND LOS S ACCOUNT AND DETAILS OF THAT ARE AVAILABLE IN THE BOOKS OF ACCOU NT EXAMINED BY THE ASSESSING OFFICER. WE DO NOT FIND ANY MERIT IN THE CIT(A)S ACTION IN SO FAR AS BEFORE ALLOWING ANY CL AIM OF BAD DEBTS U/S 36(1)(VII), CONDITIONS AS MENTIONED U/S 3 6(II) IS REQUIRED TO BE FULFILLED, WHICH, INTER ALIA, PROVID ES THAT NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBTS HAS BE EN TAKEN IN TO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESS EE OF THE EARLIER YEAR. SINCE THE ASSESSEE HAS NOT FURNISHED DETAILS, THE AO COULD NOT VERIFY THIS CONDITION AS HAVING BEEN F ULFILLED. IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE BACK TO THE FILE OF AO AND ASSESSEE IS DIRECTED TO FURNISH DETAILS OF S UCH BAD DEBTS AND THE DETAILS WITH REGARD TO SUCH AMOUNT HA VING BEEN ACCOUNTED AS INCOME IN EARLIER YEARS, SO THAT THE A O MAY DECIDE THE ISSUE AFRESH. WE DIRECT ACCORDINGLY. -: 27: - 27 36. THE AO HAS ALSO MADE ADDITION ON ACCOUNT OF TRAININ G AND DEVELOPMENT EXPENDITURE INCURRED BY THE ASSESSE E BY OBSERVING THAT THE ASSESSEE HAS INCURRED THESE EXPE NSES FOR EDUCATION OF MR. RAJUL AGRAWAL AT KARDIFF UNIVERSIT Y (UK) FOR MBA COURSE. THE EXPENSES INCLUDE EVERYTHING FROM TR AVEL TO FEE PAYABLE TO LIVING EXPENSES IN U.K. THE ASSESSEE WAS ASKED TO JUSTIFY HOW THESE EXPENSES CAN BE TERMED AS TRAI NING AND DEVELOPMENT EXPENSES INCURRED WHOLLY AND EXCLUSIVEL Y FOR BUSINESS PURPOSES. THE ASSESSEE HAS REPLIED VIDE LE TTER DATED 07.11.2007 WHICH IS PARTLY REPRODUCED AS BELOW :- DUE TO POLICY OF RESERVATION IT HAS BECOME EXTREMELY DIFFICULT FOR FAMILY MEMBERS OF BANIA CAST TO SEEK ADMISSION IN GOOD INSTITUTIONS. .. THE MANAGEMENT OF COMPANY BEING TRADITIONAL FAMILY MANAGEMENT FEEL IT PRUDENT NOT T O RELY ON HIRED EXECUTIVES BECAUSE THEY ARE UNCOMMITTED, EXPENSIVE AND HARD TO RETAIN. 37. BY CONCLUDING THAT EXPENDITURE WAS INCURRED ON THE FAMILY MEMBERS, THEREFORE, THE SAME CANNOT BE TREAT ED AS -: 28: - 28 WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE AO DISALLOWED ENTIRE SUM OF RS. 22,17,683/-. 38. BY THE IMPUGNED ORDER, THE LD. CIT(A) RESTRICTED TH E DISALLOWANCE TO THE EXTENT OF 25 % OF THE EXPENDITU RE BY TREATING THE SAME AS PERSONAL IN NATURE. ACCORDINGL Y, OUT OF TOTAL ADDITION OF RS. 22,17,683/-, THE LD. CIT(A) D ELETED ADDITION OF RS. 16,63,262/-, BOTH ASSESSEE AND REVE NUE ARE IN APPEAL BEFORE US AGAINST THE ORDER OF LD. CIT(A). 39. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM RECORD THAT THE ASSESSEE COMPANY HAS SPE NT THIS AMOUNT ON EDUCATION FOR ONE OF THE DIRECTORS, SHRI RAJUL AGARWAL AT KADIF UNIVERSITY OF U.K. FOR DOING M.B.A . COURSE. AS THE ASSESSEE COMPANY HAS PLANNED TO ENHANCE ITS SOY A CRUSHING CAPACITY UP TO 1800 M. T. THE COMPANY ALSO PROPOSES TO MANUFACTURE AND MARKET OTHER SOYA PRODU CTS. THE COMPANY IS ALSO PLANNING DIVERSIFICATION INTO P OWER GENERATING FACILITIES. ALL THIS REQUIRES TRAINED MA NPOWER HAVING ACQUAINTANCE WITH MODERN TECHNIQUES. DUE TO POLICY OF RESERVATION, IT HAS BECOME EXTREMELY DIFFICULT FOR FAMILY MEMBERS OF BANIA CASTE TO SEEK ADMISSION IN GOOD -: 29: - 29 INSTITUTIONS. THE MANAGEMENT OF COMPANY, BEING TRAD ITIONAL FAMILY MANAGEMENT, FEEL IT PRUDENT NOT TO RELY ON H IRED EXECUTIVES. THEY ARE UNCOMMITTED, EXPENSIVE AND HAR D TO RETAIN. ALL THESE FACTORS WERE CONSIDERED BY THE BO ARD AND DECIDED TO SEND TO CARDIFF UNIVERSITY, ENGLAND TO A CQUIRE MANAGEMENT DEGREE IN A GOOD FOREIGN INSTITUTE AND S ERVE THE COMPANY ON RETURN. 40. WE DO NOT FIND ANY REASON TO TREAT THE EXPENDITURE AS HAVING BEEN INCURRED AS PERSONAL IN SO FAR ASSESSEE IS A LIMITED COMPANY AND FOR ITS BETTER MANAGEMENT, IT HAD DECIDED THAT ONE OF ITS DIRECTORS SHOULD JOIN M. B. A. COURSE FOR BETTERMENT OF ASSESSEES BUSINESS. ACCORDINGLY, WE DELETE THE ENTI RE ADDITION MADE BY THE ASSESSING OFFICER. 41. IN THE RESULT, THE GROUND TAKEN BY THE REVENUE IS DISMISSED, WHEREAS GROUND TAKEN BY THE ASSESSEE IS ALLOWED. -: 30: - 30 42. NEXT GRIEVANCE OF THE REVENUE RELATES TO THE ADDITION OF RS. 20 LAKHS ON ACCOUNT OF DISALLOWANCE U/S 40A(2B) OF WAREHOUSE EXPENSES. BUT FROM THE RECORD, WE FOUND THAT THE ASSESSEE COMPANY WAS STORING ITS GOODS IN THE WAREHOUSES OWNED BY ITS SIS TER CONCERN. THE WAREHOUSE CHARGES HAVE BEEN PAID TO THAT CONCERN. THE PRESCRIBED AUTHORITY HAS LICENSED THE WAREHOUSE AND THE AUTHORITY HAS APPROVED THE WAREHOUSE CHARGES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, DETAILED INFORMATION OF GOODS STORED IN THE WAREHOUSE, NUMBER OF DAYS GOODS WERE STORED ETC. , WAS FILED ON RECORD. 43. WITHOUT REFERRING TO THE PREVAILING MARKET RATE OF SUCH WAREHOUSES CHARGES, THE AO HAD MADE DISALLOWAN CE BY INVOKING PROVISIONS OF SECTION 40A(2B). AS PER OUR CONSIDERED VIEW, WHILE MAKING ANY DISALLOWANCE U/S 40A(2B), TH E ONUS LIES ON THE REVENUE TO PROVE THAT THE ASSESSEE HAS INCURRED EXPENDITURE ON THE SISTER CONCERN MORE THAN PREVAIL ING MARKET -: 31: - 31 RATE. HOWEVER, IN THE INSTANT CASE BEFORE US, NOTHI NG WAS BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SUBST ANTIATE THAT THE ASSESSEE HAS PAID CHARGES TO ITS SISTER CO NCERN WHICH IS MORE THAN THE PREVALENT MARKET RATE. WE FOUND TH AT THE PRESCRIBED AUTHORITY HAS LICENSED WAREHOUSES AND TH E AUTHORITY HAS APPROVED THE WAREHOUSING CHARGES, THE REFORE, THERE IS NO REASON TO DISALLOW ANY PART OF SUCH CHA RGES BY INVOKING PROVISIONS OF SECTION 40A(2B) WITHOUT BRIN GING ON RECORD ANY MATERIAL TO SUGGEST THAT THE ASSESSEE HA S PAID MORE THAN THE PREVAILING MARKET RATE. 44. IN THE RESULT, THE ADDITION DELETED BY THE LD. CIT( A) IS UPHELD. 45. NEXT GRIEVANCE OF THE REVENUE RELATES TO THE DELET ION OF ADDITION MADE ON ACCOUNT OF KEYMAN POLICY. 46. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION S AND FOUND THAT THE ASSESSEE HAS PAID KEYMAN INSURAN CE POLICY TO THE INSURANCE COMPANY. THE ASSESSEE HAS ENTERED INTO CONTRACT OF INSURANCE WITH THE INSURANCE COMPANIES TO INSURE KEY MANAGEMENT PERSONS OF THE COMPANY. THE ASSESSEE HAS ENTERED INTO THESE CONTRACTS DURING THE FINANCIAL Y EAR AND PAID -: 32: - 32 THE PREMIUM BY WAY OF CHEQUES, WHICH WERE REALIZED WITHIN A WEEK AFTER CLOSE OF ACCOUNTING YEAR. THE AO HAS DI SALLOWED THE EXPENDITURE MERELY ON THE GROUND THAT THE CHEQU ES WAS REALIZED NEXT YEAR. 47. THE CIT(A) DELETED THE ADDITION BY OBSERVING THAT W HEN PAYMENT IS MADE BY CHEQUES, ONCE A CHEQUES IS HONOU RED, THE EFFECTIVE DATE OF PAYMENT RELATES BACK TO THE DATE OF CHEQUES. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CI T(A) FOR DELETING THE ADDITION. C.O. NO. 57/IND/2008: 48. IN THE CROSS OBJECTION, THE ASSESSEE HAS ALSO TAKE N GROUNDS FOR DISALLOWANCE OF COMMERCIAL TAX OF RS. 1 3,21,911/- PAID DURING THE YEAR. IN THIS REGARD, WE FOUND THAT THE ASSESSEE HAS PAID PURCHASE TAX ON RS. 13,21,911/-, THIS AMOUNT WAS NOT CLAIMED IN THE PROFIT AND LOSS ACCOU NT AS EXPENSES. HOWEVER, BEFORE THE CIT(A), IT WAS CONTEN DED THAT THE ASSESSEE HAS PAID THE PURCHASE TAX IN ADVANCE A S PER DIRECTION OF THE HON'BLE HIGH COURT AND SINCE THE A SSESSEE HAS CHALLENGED THE PROVISIONS OF INTRODUCTION OF PURCHA SE TAX AS INTRODUCED DURING THE YEAR IN THE HIGH COURT, THE A SSESSEE DID -: 33: - 33 NOT CHARGE THIS PAYMENT IN THE PROFIT AND LOSS ACCO UNT BUT SHOWED IT AS ADVANCE. CONTENTION OF THE ASSESSEE WA S THAT IT WAS CLAIMED IN THE COMPUTATION OF INCOME. HOWEVER, NOTHING WAS BROUGHT ON RECORD BY THE ASSESSEE TO SAY THAT I T WAS CLAIMED IN THE COMPUTATION OF INCOME. AS PER THE OB SERVATION OF THE CIT(A), THIS AMOUNT WAS ALSO NOT CLAIMED IN THE COMPUTATION OF INCOME NOR ANY CLAIM WAS MADE BEFORE THE AO. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE CONTENT ION OF ASSESSEE FOR ALLOWING SUCH CLAIM WHICH HAS NEITHER ACCRUED NOR CLAIMED AS EXPENDITURE IN THE PROFIT AND LOSS A CCOUNT OR IN THE COMPUTATION OF INCOME. 49. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE ARE ALLOWED IN PART IN TERMS INDICATED ABOVE. I.T.A.NO. 517/IND/2007 : 50. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 2003-04, IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME-TAX ACT, 1 961. -: 34: - 34 51. FIRST GRIEVANCE OF THE REVENUE RELATES TO THE ADDIT ION OF RS. 5,16,761/- MADE BY THE ASSESSING OFFICER OUT OF CLAIM FOR SHORTAGE. 52. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS ENGAG ED IN TRADING OF SOYABEAN PRODUCTS. A SHORTAGE OF RS. 3,9 6,856/- WAS CLAIMED. DURING THE COURSE OF ASSESSMENT, THE A SSESSEE WAS ASKED TO FURNISH DETAILS OF SHORTAGE AND REBATE ETC. DEBITED IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSE E VIDE ITS REPLY HAS GIVEN COPY OF ACCOUNT WITH A LIST OF AMOU NT AND NAMES OF PARTIES. BY OBSERVING THAT SINCE THERE IS NO COMMUNICATION OR BRIEF FROM THE AUTHORITIES WITH RE GARD TO SUCH SHORTAGE AS CLAIMED BY THE ASSESSEE, THE AO DE CLINED THE DEDUCTION. BY THE IMPUGNED ORDER, THE LD. CIT(A) DE LETED THE ADDITION JUST BY OBSERVING THAT THE AO DID NOT MAKE ANY INQUIRY FROM THE PARTIES, THEREFORE, DISALLOWANCE W AS NOT JUSTIFIED. WE DO NOT FIND ANY MERIT IN THE CIT(A)S ACTION IN SO FAR AS POWERS OF THE CIT(A) ARE CO-TERMINUS WITH TH AT OF THE AO AND IF THE AO HAS FAILED TO DO THE SAME, CIT(A) IS FULLY COMPETENT TO DO THE SAME. WITHOUT RECORDING ANY POS ITIVE FINDING, DELETION OF DISALLOWANCE BY THE LD. CIT(A) IS NOT -: 35: - 35 JUSTIFIED. WE, THEREFORE, SET ASIDE THE ORDER OF CI T(A) ON THIS GROUND AND THE MATTER IS RESTORED BACK TO THE FILE OF AO WITH DIRECTION TO THE ASSESSEE TO FILE DETAILS OF SUCH S HORTAGE ALONGWITH CONFIRMATIONS FROM PARTIES AND THE AO IS TO DECIDE THE ISSUE AFRESH AFTER GIVING DUE OPPORTUNITY TO TH E ASSESSEE. 53. IN THE COURSE OF ASSESSMENT, THE AO HAS ALSO DISALLOWED SALARY PAID TO THE PARTNERS BY OBSERVING THAT THE ASSESSEE IS A BENAMI FIRM OF M/S. SANWARIA AGRO OIL S LIMITED, ITARSI. WITHOUT CONTROVERTING THIS FINDING, THE CIT (A) DELETED THE DISALLOWANCE OF SALARY BY OBSERVING THAT IN THE APPELLATE PROCEEDINGS, IN CASE OF SANWARIA AGRO OILS LIMITED, THE FINDING OF BENAMI HAS NOT BEEN ACCEPTED. WE DO NOT FIND ANY MERIT IN CIT(A)S ACTION, IN SO FAR AS THE DECISION OF CIT(A ) IN THE CASE OF SOAL WAS NOT FINAL AND THE SAME WAS ALSO CHALLENGED BY THE REVENUE BEFORE THE TRIBUNAL. FURTHERMORE, WITHOUT R ECORDING ANY FINDING GIVING JUSTIFICATION FOR THE DELETION, THE CIT(A) HAS WRONGLY DELETED THE DISALLOWANCE WITHOUT CONTROVERT ING THE FINDINGS OF THE AO. IN THE INTEREST OF JUSTICE, WE RESTORE THIS GROUND ALSO BACK TO THE FILE OF THE AO FOR DECIDING AFRESH AFTER CONSIDERING THE ACTUAL SERVICES RENDERED BY THESE P ARTNERS AND -: 36: - 36 THE TERMS OF THE PARTNERSHIP DEED PROVIDING FOR SUC H REMUNERATION. WE DIRECT ACCORDINGLY. 54. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. I.T(SS).A.NO. 22/IND/2006 : 55. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 10.1.2006, IN THE MATTER OF O RDER PASSED U/S 158BC OF THE INCOME-TAX ACT, 1961. 56. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A FIR M CLAIMED TO BE HAVING SHRI BHAGWANDAS BANSAL AND KUS UM TIWARI AS PARTNERS. THERE WAS A SEARCH U/S 132(1) O N 23.10.2002 AT THE FACTORY PREMISES AT INDUSTRIAL AR EA, ITARSI, AND AT THE OFFICE PREMISES AT 9 TH LANE ITARSI OF M/S. SANWARIA AGRO OILS LIMITED, ITARSI (SAOL) AND AT THE OFFICE PREMISES OF M/S. SURYA TRADING CORPORATION (STC). DURING THE CO URSE OF SEARCH AND SEIZURE ACTION MANY LOOSE PAPERS DOCUMEN TS, BANK RELATED DOCUMENTS AND BOOKS OF ACCOUNT OF M/S. SURY A TRADING CORPORATION WERE FOUND AT THE OFFICE AND FA CTORY PREMISES OF SAOL. IN THE BLOCK ASSESSMENT ORDER OF SAOL, THE UNDISCLOSED PROFIT GENERATED BY SAOL IN THE NAME OF STC HAS -: 37: - 37 BEEN COMPUTED AND THE SAME HAS BEEN ADDED TO THE UNDISCLOSED INCOME OF THE SAOL. 57. WHILE FRAMING ASSESSMENT U/S 158BC, THE AO HAS ALSO MADE PROTECTIVE ADDITION IN THE HANDS OF ASSESSEE F IRM WITH RESPECT TO THE AMOUNT WHICH HAVE ALREADY BEEN ASSES SED IN THE HANDS OF SAOL ON SUBSTANTIVE BASIS, BY TAKING T HE ASSESSEE FIRM AS BENAMIDAR. ONCE THE AMOUNT HAS ALR EADY BEEN ADDED ON SUBSTANTIVE BASIS IN THE HANDS OF SAO L, THERE IS NO MERIT FOR SUCH ADDITION ON PROTECTIVE BASIS I N THE HANDS OF THE ASSESSEE FIRM, WHICH HAS ALREADY BEEN TREATE D AS BENAMIDAR OF SAOL. THE LD. CIT(A) DELETED THE ADDIT ION AFTER HAVING THE FOLLOWING OBSERVATIONS:- I HAVE VERY CAREFULLY CONSIDERED THE SUBMISSIONS O F THE LEARNED COUNSEL IN THIS REGARD. I HAVE ALSO SEE N THE REASONS GIVEN BY THE ASSESSING OFFICER FOR HOLDING THE APPELLANT AS BENAMI CONCERN AND FOR MAKING THE ADDITION ON PROTECTIVE BASIS AMOUNTING TO RS. 56,13,228/-. AFTER DUE CONSIDERATION IN THE MATTER, I HOLD THAT THE AO WAS NOT JUSTIFIED IN TREATING THE DISCLOSED INCOME OF THE APPELLANT OF T HE -: 38: - 38 BLOCK PERIOD AS UNDISCLOSED INCOME OF THE APPELLANT . SINCE A SUM OF RS. 56,13,228/- IS DISCLOSED INCOME OF THE APPELLANT, IT DOES NOT SEEM TO BE OF ANY JUSTIFICATION TO TREAT IT OR TO TAKE AS INCOME ON PROTECTIVE BASIS. SINCE INCOME OF RS. 56,13,228/- I S BASED ON DISCLOSED FACTS AS PER AUDIT ACCOUNTS OF THE APPELLANT FOR THE BLOCK PERIOD, THE SAME CANNOT BE BY ANY STRETCH OF IMAGINATION TREATED AS UNDISCLOSED INCOME OF ANY ONE. SINCE ADDITION AS MADE BY HIM IN PROTECTIVE BASIS AMOUNTING TO RS. 56,13,228/- IS NOT BASED ON ANY EVIDENCE FOUND DURING THE COURSE OF SEARCH EXCEPT THE BOOKS OF ACCOUNT WHEREIN SUCH PROFIT ARE DULY REFLECTED, THE ADDITION MADE BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW AND SAME IS HEREBY DELETED. 58. THE ISSUE WITH REGARD TO TREATMENT OF ASSESSEE FIRM STC AS BENAMIDAR OF SAOL HAS BEEN DEALT BY US ELABO RATELY AT PARA 10 TO 13 IN CASE OF SAOL, AND MATTER WAS RESTO RED BACK TO THE FILE OF CIT(A). ON THE VERY SAME REASONING, WE RESTORE -: 39: - 39 THIS GROUND TO THE FILE OF CIT(A) TO DECIDE AFRESH AS DIRECTED HEREINABOVE. 59. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 30 TH MAY, 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH MAY, 2011. CPU* 2.5