DCIT (Central)-2, Indore V. M/s Rathi Iron and Steels I ndustries Ltd. , Indore

ITSSA 230/Ind/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 5014 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 10-03-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 30-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Unexplained expenditure; Income from undisclosed sources; Document seized; Documents seized; TDS
• Section: 69C; 139; 143(3); 142(1); 133A; 153A; 143(2); 194J; 72; 145(3)

Judgement Text

आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI MAHAVIR PRASAD, JUDICIALMEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER VIRTUAL HEARING IT(SS)A No.229 to 231/Ind/2019 Assessment Year:2013-14 to 2015-16 DCIT Central-2, Indore बनाम/ Vs. M/s Rathi Iron & Steel Industries Ltd., Indore (Appellant) (Respondent ) P.A. No.AACCR2011B IT(SS)A No.232 to 234/Ind/2019 Assessment Year:2014-15 to 2016-17 M/s Rathi Iron & Steel Industries Ltd., Indore बनाम/ Vs. DCIT Central-2, Indore (Appellant) (Respondent ) P.A. No.AACCR2011B Revenue by Shri P.K. Mitra, CIT-DR Assessee by S/Shri C.P.Rawka & Venus Rawka, CA Date of Hearing: 12.01.2022 Date of Pronouncement: 11.03 .2022 आदेश / O R D E R M/s.Rathi Iron & Steel Industries. Ltd., Indore 2 PER BENCH The above appeals filed by Revenue for the Assessment Years 2013-14 to 2015-16 and by assessee for the Assessment Years 2014-15 to 2016-17 are directed against the common and consolidated order of learned CIT(A)-3, Bhopal passed on 28.8.2019relating to Sec. 153A/143(3) of the I.T. Act in the consolidated assessment order of the DCIT, Central-2, Indore passed on 29.12.2017 u/s 153A/143(3) of the I.T. Act. 2. Facts, in brief, as culled out from the record are that the assessee is a company engaged in the business of manufacturing and sale of iron & steel products i.e. bullets, ingots and TMT bars. The assessee company had filed original Returns of Income, declaring income as follows: A.Y. Date of Filing of Return of Income Returned Income as per ITR u/s. 139 Time Limit u/s. 143(2) 2010-11 30/09/2010 23,51,929 30/09/2011 2011-12 25/02/2012 24,44,185 30/09/2012 2012-13 30/09/2012 50,64,390 30/09/2013 2013-14 01/11/2013 1,82,19,410 30/09/2014 2014-15 03/10/2014 2,72,25,710 30/09/2015 2015-16 23/03/2017 51,00,360 30/09/2017 2016-17 25/03/2017 70,66,600 30/09/2017 M/s.Rathi Iron & Steel Industries. Ltd., Indore 3 Survey Operations u/s. 133A were conducted in assessee’s premises on 21/08/2014 by Deputy Commissioner of Income Tax, 1(1), Indore – (M.P.). However, no incriminating material and/or document was found during the course of survey and no discrepancy was noticed in production records and stock of raw materials and finished goods during the course of survey after thorough verification of production records and preparing of inventory of material and finished goods. Subsequently, there was a search and seizure operation in group cases of Moira Steel which incepted on 17/06/2015 and ended on 21/06/2015.The case was centralised vide order dated 15/11/2017 passed u/s 127 of the Act by Principal Commissioner of Income Tax, Delhi-7, New Delhi. Notice u/s. 153A was issued in this case by Deputy Commissioner Central-2, Indore. The details of returned income as per Income Tax Return u/s. 153A are as follows: Assessment Year Returned Income as per ITR u/s. 153A Date of return 2010-11 23,51,929 18/12/2017 2011-12 24,44,185 18/12/2017 2012-13 50,64,390 18/12/2017 2013-14 1,82,19,410 18/12/2017 2014-15 2,72,25,710 18/12/2017 2015-16 51,00,360 18/12/2017 M/s.Rathi Iron & Steel Industries. Ltd., Indore 4 The learned Assessing Officer has initiated proceedings u/s. 153A by issuing a questionnaire u/s. 142(1) dated 15/12/2017. The assessee company complied with all the notices and letters timely during the entire proceedings filing elaborate submission explaining all issues. However, the ld. Assessing officer did not agree with the submissions of the assessee and made additions as reflected in the appended table: Assessment Year Returned Income Total Additions Assessed Income 2010-11 23,51,929 - 23,51,929 2011-12 24,44,185 - 24,44,185 2012-13 50,64,390 - 50,64,390 2013-14 1,82,19,410 2,10,73,237 3,92,92,647 2014-15 2,72,25,710 2,86,09,588 5,58,35,298 2015-16 51,00,360 3,15,45,405 3,66,45,765 2016-17 70,66,600 65,58,160 1,36,24,760 3. Being aggrieved, the assessee went into appeals before ld. Commissioner of Income Tax (Appeals) – III, Indore and learned CIT(A) disposed of the same vide order dated 28.08.2019 in the following manner: S.No. Particulars of additions Amount Decision of CIT(A) M/s.Rathi Iron & Steel Industries. Ltd., Indore 5 A.Y. 2013-14 1 On account of Gross Profit on Out of Book Sales 1,87,59,037 Deleted 2 On account of Gold Incentive 23,14,200 Deleted A.Y. 2014-15 1 On account of Gross Profit on Out of Book Sales 2,61,46,894 Partially sustained (upto 0.28%) 2 On account of Gold Incentive 24,62,695 Partially sustained (upto Rs. 14,42,254/-) A.Y. 2015-16 1 On account of Gross Profit on Out of Book Sales 2,93,73,915 Partially sustained (upto 0.28%) 2 On account of Gold Incentive 21,71,491 Partially sustained (upto Rs. 15,13,310/-) A.Y. 2016-17 1 On account of Gross Profit on Out of Book Sales 59,79,610 Partially sustained (upto 0.28%) 2 On account of Gold Incentive 5,78,550 Partially sustained (upto Rs. 3,23,205/-) 4. Now, the department is in appeals before this Tribunal for the Assessment Years 2013-14 to 2015-16 challenging the deletion of relevant additions whereas the assessee is in appeals for the Assessment Years 2014-15 to 2016-17 challenging the confirmation of relevant additions. The Revenue has filed the appeal i.e. IT(SS)A No.229/Ind/2019 for the Assessment Year 2013-14 on the following grounds: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.1,87,59,037/- made by the Assessing Officer on account of unaccounted sales. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 23,14,200/- made by the Assessing Officer on account of unexplained expenditure of gold incentives. M/s.Rathi Iron & Steel Industries. Ltd., Indore 6 3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deciding the unrecorded income by adopting the average net profit as a reference for computation of tax rather than gross profit. The Revenue has filed the appeal i.e. IT(SS)A No.230/Ind/2019 for the Assessment Year 2014-15 on the following grounds: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in restricting the addition of Rs. 45,24,068/- made by the Assessing Officer on account of unaccounted sales. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in deleting the addition of Rs. 10,20,440/- made by the assessing Officer on account of unexplained expenditure of gold incentives. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in maintaining that the seized documents pertain to 12 months only without appreciating that the seized documents pertain to 16 months and were extrapolated for 25 months i.e. from April 2013 to April 2015. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deciding the unrecorded income by adopting the average net profit as a reference for computation of tax rather than gross profit. The Revenue has filed the appeal i.e. IT(SS)A No.231/Ind/2019 for the Assessment Year 2015-16 on the following grounds: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in restricting the addition of Rs. 54,99,550/- made by the Assessing Officer on account of unaccounted sales. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in deleting the addition of Rs. 6,58,181/- made by the assessing Officer on account of unexplained expenditure of gold incentives. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in maintaining that the seized documents pertain to 12 months only without appreciating that the seized documents pertain to 16 months and were extrapolated for 25 months i.e. from April 2013 to April 2015. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in refuting the rate of TMT @ Rs. 45,800/- without appreciating the fact that the same rate M/s.Rathi Iron & Steel Industries. Ltd., Indore 7 was taken after due verification on the basis of incriminating documents seized from the premises of Shri Gaurav Sanghvi, one of company associates. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deciding the unrecorded income by adopting the average net profit as a reference for computation of tax rather than gross profit. The Assessee has filed the appeal for the Assessment Year 2014-15 bearing IT(SS)A No.232/Ind/2019 on the following grounds of appeal: 1. Ld. CIT(A) erred in facts of the case and failed to consider that there was infringement of section 132(9A) as seized material was not handed over to Assessing Officer within 60 days from the conclusion of search. 2. Ld. CIT(A) erred in law and facts of the case and confirmed the addition of sales outside the books of Rs. 45,24,068/-. The action of Ld. CIT(A) is without appreciating the facts and legal position. 3. Ld. CIT(A) erred and confirmed the action of Assessing Officer in making the addition of unaccounted sales taking cognizance of documents seized from the premises of Shri Gaurav Sanghvi which were immaterial and irrelevant in the Assessee’s case. 4. Ld. CIT(A) erred in law and facts of the case and confirmed the addition of Rs. 14,42,254/- being unexplained expenditure. The action of Assessing Officer confirmed by CIT(A) was without appreciation of the facts. The Assessee has filed the appeal for the Assessment Year 2015-16 bearing IT(SS)A No.233/Ind/2019 on the following grounds of appeal: 1. Learned CIT (A) erred in facts of the case and failed to consider that there was infringement of section 132(9A) as seized material was not handed over to Assessing Officer within 60 days from the conclusion of search. M/s.Rathi Iron & Steel Industries. Ltd., Indore 8 2. Learned CIT (A) erred in law and facts of the case and confirmed the addition of sales outside the books of Rs.54,99,550/-. The action of Learned CIT (A) is without appreciating the facts and legal position. 3. Learned CIT (A) erred and confirmed the action of Assessing Officer in making the addition of unaccounted sales taking cognizance of documents seized from the premises of Shri. Gaurav Sanghvi which were immaterial and irrelevant in the Assessee’s case. 4. Learned CIT (A) erred in law and facts of the case and confirmed the addition of Rs.15,13,310/- being unexplained expenditure. The action of Assessing Officer confirmed by CIT (A) was without appreciation of the facts. The Assessee has filed the appeal for the Assessment Year 2016-17 bearing IT(SS)A No.234/Ind/2019 on the following grounds of appeal: 1. Ld. CIT(A) erred in facts of the case and failed to consider that there was infringement of section 132(9A) as seized material was not handed over to Assessing Officer within 60 days from the conclusion of search. 2. Ld. CIT(A) erred in law and facts of the case and confirmed the addition of sales outside the books of Rs. 11,31,685/-. The action of Ld. CIT(A) is without appreciating the facts and legal position. 3. Ld. CIT(A) erred and confirmed the action of Assessing Officer in making the addition of unaccounted sales taking cognizance of documents seized from the premises of Shri Gaurav Sanghvi which were immaterial and irrelevant in the Assessee’s case. 4. Ld. CIT(A) erred in law and facts of the case and confirmed the addition of Rs. 3,23,205/- being unexplained expenditure. The action of Assessing Officer confirmed by CIT(A) was without appreciation of the facts. That the appellant craves to leave, add, alter or amend any of the ground at or before hearing. M/s.Rathi Iron & Steel Industries. Ltd., Indore 9 5. From the perusal of above grounds of appeals filed by Revenue and assessee, we find that through the above grounds of appeals, the following three issues have been raised: - Issue No.1 - Alleged infringement of section 132(9A) Issue No.2 - Alleged unaccounted sales and application of n.p. rate. Issue No.3 - Alleged unexplained expenditure of gold incentives. 6. At the outset, both the parties submitted that facts and circumstances of the present appeals are identical to the facts and circumstances of the case of M/s. Jaideep Ispat & Alloy P. Ltd. bearing IT(SS)A Nos.261 to 266 & 268 to 271/Ind/2019 and ITA Nos.22 & 23/Ind/2021 earlier heard on 5.1.2022 wherein detailed submissions were put forth on behalf of both the parties and therefore, the same arguments may be taken on record and the decisions taken in the case of M/s. Jaideep Ispat & Alloy P. Ltd. shall prevail the present appeals too. In view of submissions of both the parties, we are deciding the present appeals issue-wise as under: 7. Issue No.1 is with regard to alleged infringement of section 132(9A). However, the same was not pressed by the learned M/s.Rathi Iron & Steel Industries. Ltd., Indore 10 Counsel for the assessee during the course of hearing. Therefore, issue no.1 raised by the assessee is dismissed as not pressed. 8. Issue No.2 raised by the Revenue for the Assessment Years 2013-14, 2014-15 and 2015-16 and by the assessee for the Assessment Years 2014-15, 2015-16 & 2016-17 are with regard to alleged unaccounted cash sales and application of net profit rate. Facts, in brief, are that the Assessing Officer made these additions forming the basis of a modus operandi as discussed at page 5 & 6 of the assessment order. During search operations as well as post search investigation certain documents were seized by the department from the possession of Shri Gaurav Sanghvi. The related statements were said to be given by Shri Gaurav Sanghvi confirming the modus operandi. Also some evidences were said to be gathered by the AO in the form of envelops, bilties, etc. which were disowned by the assessee company. The Assessing Officer also mentioned about some dummy companies and transporters which were being alleged to be used by assessee company for executing the cash sales. In addition to this, the AO has also connected Shri V.A. Thomas to the case and tried to decode certain things from his M/s.Rathi Iron & Steel Industries. Ltd., Indore 11 mobile in relation to the alleged modus operandi. The Assessing Officer had worked out the figures of the seized documents in terms of the quantity and price of the TMT Bars. A major part was also tried to decode in terms of the incentive given against the sales to various dealers. Further on the basis of the seized documents, the Assessing Officer concluded that the information relates to 11 months which were then spread over for the period April 2013 to April 2015 (cumulative period comes to 25 months i.e. three financial years).The total quantity considered by the Revenue as unaccounted was 65033 MT of which monthly average was taken as 6500 MT per month (65033/10). For arriving at the figure of rate of steel, actual bills were considered by AO and average rate for each year was calculated. After that, the total unaccounted sales were extrapolated for the seven years on the basis of above-mentioned figures as mentioned at page 38 & 39 of the assessment order. The total unaccounted sales arrived by the AO was then divided between Jaideep Ispat & Alloy Pvt. Ltd. and Rathi Iron & Steel Industries Ltd. (Assessee) as mentioned at page 39 & 40, para 7.25 of the assessment order. The same is reproduced hereunder: M/s.Rathi Iron & Steel Industries. Ltd., Indore 12 Month FY Quantity Rate Value Yearly Total April 09-10 4700 26,655 12,52,78,500 May 09-10 4700 26,655 12,52,78,500 June 09-10 4700 26,655 12,52,78,500 July 09-10 4700 26,655 12,52,78,500 August 09-10 4700 26,655 12,52,78,500 September 09-10 4700 26,655 12,52,78,500 October 09-10 4700 26,655 12,52,78,500 November 09-10 4700 26,655 12,52,78,500 December 09-10 4700 26,655 12,52,78,500 January 09-10 4700 26,655 12,52,78,500 February 09-10 4700 26,655 12,52,78,500 March 09-10 4700 26,655 12,52,78,500 1,50,33,42,000 April 10-11 4700 32,900 15,46,30,000 May 10-11 4700 32,900 15,46,30,000 June 10-11 4700 32,900 15,46,30,000 July 10-11 4700 32,900 15,46,30,000 August 10-11 4700 32,900 15,46,30,000 September 10-11 4700 32,900 15,46,30,000 October 10-11 4700 32,900 15,46,30,000 November 10-11 4700 32,900 15,46,30,000 December 10-11 4700 32,900 15,46,30,000 January 10-11 4700 32,900 15,46,30,000 February 10-11 4700 32,900 15,46,30,000 March 10-11 4700 32,900 15,46,30,000 18,55,56,000 April 11-12 4700 40,400 18,98,80,000 May 11-12 4700 40,400 18,98,80,000 June 11-12 4700 40,400 18,98,80,000 July 11-12 4700 40,400 18,98,80,000 August 11-12 4700 40,400 18,98,80,000 September 11-12 4700 40,400 18,98,80,000 October 11-12 4700 40,400 18,98,80,000 November 11-12 4700 40,400 18,98,80,000 December 11-12 4700 40,400 18,98,80,000 January 11-12 4700 40,400 18,98,80,000 February 11-12 4700 40,400 18,98,80,000 March 11-12 4700 40,400 18,98,80,000 2,27,85,60,000 April 12-13 6500 34,100 22,16,50,000 May 12-13 6500 34,100 22,16,50,000 June 12-13 6500 34,100 22,16,50,000 July 12-13 6500 34,100 22,16,50,000 August 12-13 6500 34,100 22,16,50,000 September 12-13 6500 34,100 22,16,50,000 October 12-13 6500 34,100 22,16,50,000 November 12-13 6500 34,100 22,16,50,000 December 12-13 6500 34,100 22,16,50,000 January 12-13 6500 34,100 22,16,50,000 M/s.Rathi Iron & Steel Industries. Ltd., Indore 13 February 12-13 6500 34,100 22,16,50,000 March 12-13 6500 34,100 22,16,50,000 2,65,98,00,000 April 13-14 6500 35,175 22,86,37,500 May 13-14 6500 35,175 22,86,37,500 June 13-14 6455.142 35,175 22,70,59,620 July 13-14 5415.181 35,175 19,04,78,992 August 13-14 6554.22 35,175 23,05,44,689 September 13-14 6906.100 35,175 24,29,22,068 October 13-14 5889.815 35,175 20,71,74,243 November 13-14 6440.300 35,175 22,65,37,553 December 13-14 8273.530 35,175 29,10,21,418 January 13-14 6500 35,175 22,86,37,500 February 13-14 6500 35,175 22,86,37,500 March 13-14 6500 35,175 22,86,37,500 2,75,89,26,080 April 14-15 6500 45,800 29,77,00,000 May 14-15 6500 45,800 29,77,00,000 June 14-15 6500 45,800 29,77,00,000 July 14-15 6224.700 45,800 28,50,91,260 August 14-15 6854.520 45,800 31,39,37,016 September 14-15 6019.310 45,800 27,56,84,398 October 14-15 6500 45,800 29,77,00,000 November 14-15 6500 45,800 29,77,00,000 December 14-15 6500 45,800 29,77,00,000 January 14-15 6500 45,800 29,77,00,000 February 14-15 6500 45,800 29,77,00,000 March 14-15 6500 45,800 29,77,00,000 3,55,40,12,674 April 15-16 12341.170 32,750 40,41,73,318 May 15-16 6500 32,750 21,28,75,000 June 15-16 3250 32,750 10,64,37,500 72,34,85,818 Total 425323.99 15,33,36,86,572 The total sale was then bifurcated between Jaideep Ispat & Alloys Pvt. Ltd. and the present assessee in the ratio of 2.62:1, which was based on their actual production. The same is summarized as under: F.Y. Yearly Sales Unaccounted Sales by RISIL Unaccounted Sales by JIAPL 09-10 1503342000 0 1503342000 M/s.Rathi Iron & Steel Industries. Ltd., Indore 14 10-11 1855560000 0 1855560000 11-12 2278560000 0 2278560000 12-13 2659800000 7327774900 1927025100 13-14 2758926080 760084135 1998841945 14-15 3554012674 979130491.7 2574882182 15-16 723485818 199320342.9 524165475.1 Total 15,33,36,86,572 2,67,13,09,870 12,66,23,76,702 The AO then rejected the books and applied the Gross Profit Rate by invoking the section 145(3) of the Act. On the total figure of sales arrived, Gross Profit Rate was then applied which was taken as the actual GP rates from the regular books of accounts as mentioned at page 40 para 7.26 of the assessment order. Being aggrieved, the assessee approached the learned CIT(A) and learned CIT(A) deleted the additions partly. 9. From the facts and material available on record, we find that the facts and circumstances are identical to the case of Jaideep Ispat and Alloys P. Ltd. decided vide order dated 08.03.2022 [IT(SS)A No.261/Ind/2019 and others] by this Indore Tribunal as also submitted by both the parties. Before us, both the parties also reiterated the identical submissions as put forth in the case of Jaideep Ispat and Alloys P. Ltd. (supra). M/s.Rathi Iron & Steel Industries. Ltd., Indore 15 10. We have considered rival contentions and gone through the material available on record. We find that the ld. Assessing Officer rejected the books and applied the Gross Profit Rate by invoking the section 145(3) of the Act. On the total figure of sales arrived, Gross Profit Rate was then applied which was taken as the actual GP rates from the regular books of accounts. The learned CIT(A) confirmed the action of the Assessing Officer but considering the factual aspects of the matter, deleted the additions partly applying n.p. rate @4%. To understand the issue as identical and findings of learned CIT(A) thereof, we are reproducing the relevant part of the order of the learned CIT(A) hereunder: - “4.2 Ground No. 2 to 4 for A.Ys. 2013-14 to 2016-17:- Through these grounds of appeal the appellant has challenged the addition of Rs. 1,87,59,037/- in A.Y. 2013-14, Rs. 2,61,46,894/- in A.Y. 2014-15, Rs. 2,93,73,914/- in A.Y. 2015-16 & Rs. 59,79,610/- in A.Y. 2016-17 on account of unaccounted income generated by way of out of books sales. The Assessing officer made the addition by estimating the sales and applying gross profit rate on sales estimated outside the books as under: Assessment Year Sales estimated outside the books Addition (based on G.P. Rate) 2013-14 73,27,74,900 1,87,59,037 2014-15 76,00,84,135 2,61,46,894 2015-16 97,91,30,492 2,93,73,915 2016-17 19,93,20,343 59,79,610 The AO has discussed the same at Page No. 38 to Page No. 41 of Assessment order u/s. 143(3) dated 19/12/2017. 4.2.1 The estimate is made after rejecting the books of accounts. The additions are based on the documents seized from the third party (i.e. from the premises of Shri Gaurav Sanghvi) only. Shri Gaurav Sanghvi is not on the rolls of the company. Shri Gaurav Sanghvi neither holds the position of director in the assessee company or any group company nor he holds any share or voting right M/s.Rathi Iron & Steel Industries. Ltd., Indore 16 of the company or any group company. The Income Tax Returns of the said person are also filed declaring income in business/ profession head. His returns do not include any income from salary from Assessee Company. The assessee company or group companies also deducted TDS u/s. 194J for the services rendered by him as a consultant. The Assessing officer has erred in treating Shri Gaurav Sanghvi as key personnel of Moira Group. The Assessing officer relied upon the documents seized from the residential premises of Shri Gaurav Sanghvi. It is pertinent to restate that the documents which were seized from the premises of Shri Gaurav Sanghvi, who entirely is a third party to the affairs of the company. The part of Paragraph No. 7.10 on Page No. 31 of the Assessment Order. The excerpts are as follows: “On examination of seized documents, it is seen that incriminating documents indicating out of book sales were for 16 months. These 16 months were spread over beginning from April, 2013 to April, 2015. Thus, the cumulative period comes to 25 months spreaded over three financial years.” Further Paragraph No. 7.17 & 7.18 of Page No. 36 of the Assessment Order is reproduced as under: “When the details of various parties reflecting in LPS-2 and LPS-3, on sample basis, .....................” “From the examination of above details it is seen that there are documents in respect of ten months wherein out of book sales of goods have been recorded. The total quantity involved in respect of these months is 65033 MT and so the average removal works out to 6500 MT per month (65033/10). Looking to the fact that various documents have been found during the course of search which provides details in respect of unrecorded sales but the year cannot be inferred as above, the average unaccounted sales of 6500 MT can be assumed for balance months.” 4.2.2 In reference to Paragraph 7.10, the authorised officer seized documents relating to 16 months (pertaining to period of April, 2013 to April, 2015) from the premises of third party, which in the view of the assessing officer are incriminating. In reference to Paragraph 7.17 & 7.18, the assessing officer has loosely made out a calculation from the documents seized from the premises of third party. In the light of preceding paragraphs, it is observed that the authorised officer has found out documents only for the 16 months which is relevant to F.Y. 2013-14, F.Y. 2014-15 and F.Y. 2015-16. However, the assessing officer has made additions in all seven assessment year ranging from A.Y. 2010- 11 to A.Y. 2016-17, though irrelevant in this case. However, reference is invited to table envisaged on Page No. 30 & Page No. 31 of the Assessment Order dated 19/12/2017. This table clearly depicts that incriminating material (as per Assessing Officer) relevant to unaccounted sales is relevant to only 12 months and not 16 months for that matter. The relevant part of table is appended below: M/s.Rathi Iron & Steel Industries. Ltd., Indore 17 F.Y. A.Y. Month Quantity (As per Assessment Order) A B C D 2013-14 2014-15 June 6,455.142 2013-14 2014-15 July 5,415.181 2013-14 2014-15 August 6,554.220 2013-14 2014-15 Septemb er 6,906.100 2013-14 2014-15 October 5,889.815 2013-14 2014-15 Novembe r 6,440.300 2013-14 2014-15 Decembe r 8,273.530 Total (a) 45,934.288 2014-15 2015-16 July 6,224.700 2014-15 2015-16 August 6,854.520 2014-15 2015-16 Septemb er 6,019.310 2014-15 2015-16 January 34,979.800 2014-15 2015-16 February 2014-15 2015-16 March Total (b) 54,078.330 2015-16 2016-17 April 12,341.170 Total (c) 12,341.170 Grand Total (a)+(b)+(c) 1,12,353.7 88 It is very clear that the Assessing officer has clearly aggrandized the amount of quantity of alleged unaccounted sales of TMT Bars in Metric Tonnes from 1,12,353.788 MT to 4,25,323.990 MT (Reference is invited to Page No. 70 of Assessment order). The estimations drawn out by the Assessing officer amounts to be 2.79 times more than what was discovered in the alleged incriminating documents were supposed by the Assessing officer. 4.2.3 The addition as well as extrapolation is unjustified in the instant case. The assessing officer unwarrantedly assumed on the basis of scrap documents recovered from the premises of third party that the assessee might have incurred out of book sales in remaining 72 months (84 months – 12 months). The same M/s.Rathi Iron & Steel Industries. Ltd., Indore 18 view is expressed in PCIT v. Sunrise Finlease (P.) Ltd. (2018), (2018) 305 CTR 0421 (Guj), High Court of Gujarat It is quite evident that when assessing officer failed to find any error in the seized material of third party, she parked her reliance on extrapolation. The case is moving in direction of extrapolations based on evidences which are not there. The addition should be confined to the months for which incriminating documents (as per assessing officer) have been discovered. In other words, the addition on the basis of unaccounted sales should be restricted to those 12 months which are referred above. 4.2.4 The assessee is engaged in production of Iron & Steel products such as billets, ingots, TMT Bars. The said production process requires industrial scrap as raw material, oil (furnace oil) and power to complete the process of manufacturing. No any incriminating document or evidence was found either during the course of Survey Operations and Search Proceedings by the respective authorised officers, relating to purchase, production or stock of raw material or finished goods. As such the extrapolation made by the Assessing officer is without any logic and reasoning. Based on extrapolation, the Assessing officer rejected the books of accounts. It is settled position that unless and until any discrepancy is found in maintenance of books of accounts and other records, the addition cannot be made. The Assessing officer has not appreciated the statutory provision of Section 145(3). The prime condition for invoking Section 145(3) is that the Assessing officer is required to establish that Assessee’s books of accounts are incomplete or incorrect. She has failed to point out any single defect in regular books of accounts as such as the case could not be hit by mischief of Section 145(3). 4.2.5 The appellant company is subjected to excise under the Central Excise Authorities (who are responsible for collecting excise duty on production/ sales) and after due verification, the Hon’ble Principal Commissioner, CGST & Central Excise, Ujjain dropped the proceedings regarding unaccounted sales by way of clandestine removal of goods. Reference is invited to the relevant order passed by the Hon’ble Principal Commissioner, CGST & Central Excise, Ujjain in the subject matter.The assessing officer failed to find out any drawback or error in books of accounts. 4.2.6 The assessing officer has relied upon CommissionerOf Sales-Tax, vs M/S. H.M. Esufall, H. M. Abdulali, 1973 SCR (3)1005. It is submitted that the assessee is bound by the said judgment of Hon’ble Supreme Court but the facts of the said judgment are quite skewed with that of the instant case. The distinguishing factors are as follows: 1) In the said judgment, the assessee was a trader but in the instant case the assessee is a manufacturer. 2) In the said judgment, the estimation was done on the basis of incriminating material found from the premises of the assessee whereas in the instant case no evidence was found from the premises of the assessee, but the assessing officer relied upon the documents seized from the premises of third party. 3) In the said judgment, the revenue authority casted doubt on the sales of the assessee. However, in the instant case, no variance has been casted by other revenue authorities on the sales of assessee. M/s.Rathi Iron & Steel Industries. Ltd., Indore 19 The Central Excise Authorities, who are responsible for levying excise duty on manufacturing, have not found any discrepancy regarding illicit removal of goods and unaccounted sales thereof. This fact was also confirmed by Hon’ble Principal Commissioner, CGST & Central Excise, Ujjain. The Sales Tax Department who is responsible for collection of Value Added Tax, Central Sales Tax and Entry Tax, has also not found any discrepancy regarding the issue of out of books sales. 4.2.7 The AO could not telescope the loose papers found for particular month and made addition in subsequent month. The AO has not realized that the evidence pertains to the period for which the addition can be made and no addition can be made for the period for which no evidence is there. The business conditions undergo frequent changes and what has been received in a certain period cannot become a thumb rule for all times to come, especially keeping in mind the slow down and recession in the steel sector. 4.2.8 The addition can be made for the period related to search and evidence found. The appellant has manufactured the steel and the same has been taken by the assessee in books itself. It is very clear that if at all any such thing existed in search years; the same is not there for all assessment years. After search, no corroborative evidence from which it could be established that the assessee continued the sale out of the books for whole period under consideration. In relation to the years under consideration, no incriminating material is found in search or thereafter, evidencing sale out of the books for the entire period. There is no admission statement by the assessee in the current year with respect to sale out of the books. 4.2.9 The sale out of the books depends on various factors like market position, buyers and availability of raw material. Therefore, it is not necessary that the appellant is engaged in the sale out of the books for whole of the time. Reliance is places on the decision of Hon’ble ITAT, Pune Bench in the case of Ashoka Infrastructure Ltd. v/s ACIT 163 DTR 321 wherein it was held that evidence found during the course of search indicating that full toll receipts were not recorded in the books for certain period can be utilized for extrapolation of income for the relevant Financial year. However, the said material cannot be made the basis for working out the income for other years for which no incriminating documents or entries were found. 4.2.10 The reliance is also placed on the decision in the case of Principal CIT vs. Income-Tax Settlement Commission and another; 409 ITR 495 (Guj) where in it was held that additional disclosure of undisclosed income for one assessment year during settlement proceedings, does not amount to untrue disclosure for other assessment years under settlement proceedings. Commission accepting disclosures made by assessees and passing orders on their settlement applications. Order of Settlement Commission not erroneous M/s.Rathi Iron & Steel Industries. Ltd., Indore 20 4.2.11 The Hon’ble Supreme Court in its several decisions have held that the principle of res judicata is inapplicable in tax matters and the general rule is not to apply this doctrine. In Instalment Supply P Ltd. AIR 1962 SC 53, Hon’ble Apex Court held that in the tax matters, there is no question of res judicata because each year’s assessment is final only for that year and does not govern later years. In Radhaswami Satsang 193 ITR 321, the Hon’ble Supreme Court observed that each assessment is a separate unit. Decision in one year may not carry forward and held for a subsequent year. An issue which is significant only for a particular year once decided cannot be held res judicata for a subsequent year 4.2.12 The evidence of one month cannot be utilized for another month. The said evidence material cannot be made the basis for working out the income in the hands of the assessee for other months for which no incriminating documents or entries were found in search. 4.2.13 Reliance is further placed on the ratio laid down by the Hon’ble Bombay High Court in the case of CIT vs. M/s. Thakkar Popatlal Velji Sales Ltd. in Income Tax Appeal No. 2266 of 2013, judgment dated 29.03.2016, which has confirmed the ratio laid down by the aforesaid Pune Bench of Tribunal. The claim of Revenue in the said decision was that where the register evidencing the sales were found for certain period, the Revenue was entitled to extrapolate the sales recorded therein for the entire assessment year. The Hon‟ble High Court vide para 9 held as under:- “9. So far as the next submission on behalf of the Revenue viz. of extrapolation of evidence found during search is concerned, this Court in All Cargo Global Logistics Ltd. had negatived the revenue‟s submission before it that the assessment under section 153A of the Act is not to be restricted only to the incriminating material found during the course of search but would extend to other material also. Therefore in the facts of present case, this issue is covered by the decision of this Court in All Cargo Global Logistics Ltd. in favour of the respondent-assessee inasmuch as it restricts the assessment to be made only to the incriminating material found during the course of search.” 4.2.14 It has been held by several Courts that no income could be estimated for the other period on the basis of evidence found for one period especially when there was no incriminating evidence pertained to any other period. Reliance is placed on:- • Royal Marwal Tobacco Products (P) Ltd (120 TTJ 387) (Ahd) • H.C. Chandna (P) Ltd. vs. DCIT (91 TTJ 243 (Del)) • ACIT vs. Smt. Radha Rani (101 TTJ 1017 (JP)) • ACIT vs. Ambica Food Industries Ltd. (110 TTJ 680 (Hyd)) • ACIT vs. M.M. Sales Agencies (97 TTJ 575 JP) 4.2.15 When no evidence was found for particular period, no addition on this account is to be made in the hands of the appellant. When the evidence is found the same is to be restricted for that part only. The evidence cannot be used M/s.Rathi Iron & Steel Industries. Ltd., Indore 21 for extrapolation the receipt for balance period. No evidence has been brought on record to establish that the same practice has been followed by the appellant at all time. The addition is to be made for the period for which incriminating documents were found. The evidence for one month cannot be utilized for another month to estimate the income. The evidence found during the course of search could not be utilized for extrapolation of income for the relevant financial year. The said material cannot be made the basis for working out the income in the hands of appellant for other month for which not incriminating document were found during the course of search. Regarding inflated rates considered by the Assessing officer in A.Y. 2015-16 The assessing officer has erred in assuming rate per metric ton of TMT Bars. The Assessing officer has considered Rs. 45,800/- per metric ton in A.Y. 2015-16. This rate is highly skewed with the rates prevailing in the market at that particular point of time. It is observed that the rates which the Assessing officer has presumed never existed during the previous year relevant to A.Y. 2015-16. 4.2.16 The Assessing officer failed to verify the rate with the actual rates prevailing in the market. In the aforesaid paragraphs it has established that in previous year relevant to A.Y. 2015-16, the alleged documents relating to six months have been discovered by the Authorised officer of search. The variance between the assumed rates and the actual rates is envisaged in the table below: F.Y. A.Y. Month Rate (As per Assessment Order) Actual rates 2014-15 2015-16 July 45,800 38,068 2014-15 2015-16 August 45,800 36,067 2014-15 2015-16 Septemb er 45,800 36,592 2014-15 2015-16 January 45,800 34,324 2014-15 2015-16 Februar y 2014-15 2015-16 March 4.2.17 Moreover, there was no point of time in the entire year in which the actual market rates ever breached the mark of Rs. 39,000/-. The rate of Rs. 45,800/- taken by the Assessing officer is irrational. The Assessing officer has not traced out any single rate in the seized material which suppresses the stand of assessee regarding this issue. There is no evidence with the Assessing officer which proves that the rate of Rs. 45,800/- per M.T. is feasible or attainable. The monthly average market rates for the previous year relevant to A.Y. 2015- 16 are envisaged in the table below: Particulars Amount M/s.Rathi Iron & Steel Industries. Ltd., Indore 22 Therefore, on the basis of documents found the unaccounted sale of the appellant is worked out as under:- A.Y (A) Unacco unted sale asper AO (in MT) (B) Unaccounte d sale as per documents found (in MT) (C) Rate as per AO (In Rs.) (D) Rate as per sale bill (in Rs.) (E) Sale out of the books ( In Rs.) (F=C x E) 2014- 15 78434.2 8 45934.288 35,175 /- 35,175 /- 1,61,57,38,580/- 2015- 16 77598.5 3 54078.330 45,800 /- 36,320 /- 1,96,41,24,945.6/- 2016- 17 22091.1 7 12341.170 32,750 /- 32,750 /- 40,41,73,317/- The addition based on documents seized from the premises of Shri Gaurav Sanghvi is to be restricted to 12 months (in which incriminating material is found). In so far as the present case is concerned, it is illogical to think and treat that if a person has committed a defect or default in particular, then intervening period would also suffer from the same defect or mistake. Sequence of transactions cannot be hypothetical but it is ought to be real and true. Imaginary figures cannot be substituted on the basis of ill founded opinion of the authority. 4.2.18 The Assessing officer has used gross profit rates on alleged unaccounted sales. The working of the learned Assessing officer (kindly refer Page No. 80 of the Assessment order) is reproduced below: Assessment Year Sales estimated Gross Profit Rate (in %) Addition (based on G.P. April 37,725 May 38,478 June 38,721 July 38,068 August 36,067 September 36,592 October 36,863 November 35,645 December 34,711 January 34,363 February 34,227 March 34,382 Average Rate (Annual) 36,320 M/s.Rathi Iron & Steel Industries. Ltd., Indore 23 outside the books Rate) 2014-15 1,99,88,41,945 8.32 16,63,03,650 2015-16 2,57,48,82,182 6.00 15,44,92,931 2016-17 52,41,65,475 6.00 3,14,49,929 The Assessing officer has erred in applying gross profit ratio instead of net profit ratio. This is so because Assessing officer has treated some documents which were discovered from the premises of third party i.e. Shri Gaurav Sanghvi as evidences of incentive paid to various dealers. The alleged incentive paid to various dealers stands to be other expense. The Assessing officer has made additions on account of alleged incentives paid. However, she did not allow deductions of these incentives to the assessee. Other expenses attributable to the revenue generated, if any, from the alleged unrecorded sales cannot be ruled out, considering the business exigency in this line of business like sales commission, other expenses, etc. It is illogical and unjustified to apply Gross Profit Ratio instead of Net Profit Ratio. 4.2.19 The Assessing officer has contradicted herself by not using the net profit rates. On one side, the Assessing officer has applied the gross profit rates and on the other hand the Assessing officer has made addition on account of incentives. Since, the authorised officer of search has found some documents which the assessing officer treated incriminating in respect of incentive paid to dealers, the benefit of such expenses is ought to be allowed to assessee. The use of gross profit rates is completely irrational because the net profit rate stands to be a sensible basis of addition. The relief of other expenses incurred by the assessee, should be considered while making addition. The table depicting the net profit is appended below: T instead of gross profit rate adopted by AO on sale out of the books. Therefore, the unaccounted income of the appellant is as under:- A.Y Unaccounted sale Average net Unaccounted income Rathi Iron & Steel Industries Ltd. Particulars A.Y. 2012- 13 A.Y. 2013- 14 A.Y. 2014-15 A.Y. 2015- 16 F.Y. 2011- 12 F.Y. 2012- 13 F.Y. 2013-14 F.Y. 2014- 15 Sales 75,08,49,318 2,06,91,95,1 84 2,17,31,9 6,440 1,80,41,85, 042 Net Profit (before considerations) 52,63,856 1,75,08,591 2,49,92,0 74 (2,09,71,46 5) Less: Other Income 17,94,564 13,56,165 12,55,026 9,36,484 Net Profit 34,69,292 1,61,52,426 2,37,37,0 48 (2,19,07,9 49 ) Net Profit Rate 0.46% 0.78% 1.09% -1.21% Average Net Profit Rate 0.28% M/s.Rathi Iron & Steel Industries. Ltd., Indore 24 profit 2014- 15 1,61,57,38,580/- 0.28 45,24,068/- 2015- 16 1,96,41,24,945.6/ - 0.28 54,99,550/- 2016- 17 40,41,73,317.5/- 0.28 11,31,685/- Therefore, the addition made by AO amounting to Rs. 45,24,068/- in A.Y. 2014- 15, Rs. 54,99,550/- in A.Y. 2015-16 & Rs. 11,31,685/- in A.Y. 2016-17 are Confirmed and the appellant will get Rs. 1,87,59,037/- in A.Y. 2013-14, Rs. 2,16,22,826/- in A.Y. 2014-15, Rs. 2,38,74,364/- in A.Y. 2015-16 & Rs. 48,47,925/- in A.Y. 2016-17. Therefore, the appeal on these grounds for A.Y. 2013-14 is Allowed and for A.Ys. 2014-15 to 2016-17 are Partly Allowed.” 11. On consideration of above, we find that the same issue of alleged unaccounted cash sales and adoption of n.p. rate has been taken into consideration by this Indore Tribunal in the case of Jaideep Ispat and Alloys P. Ltd. decided vide order dated 08.03.2022 [IT(SS)A No.261/Ind/2019 and others] (supra) wherein on making detailed discussion on the present identical issue, we have dismissed the grounds of the Revenue and partly allowed the grounds raised by the assessee revising the n.p. rate. The relevant portion of the same is reproduced hereunder: “13. We further find that learned counsel for the assessee explained that the plant is designed for production of a specific quantity of goods and there is no scope of production over and above the quantity more than the capacity of the plant as the production process in the assessee’s plant requires consumption of power which is related to the goods produced. Thus, over utilization of power is always subject to check by the electricity agency and the ld. Assessing Officer failed to pinpoint even a single case of over drawl of power registered against the assessee. We also find that alternatively, learned Counsel for the assessee explained, objecting the M/s.Rathi Iron & Steel Industries. Ltd., Indore 25 computation part as well as extrapolation that sales is always loaded with the expenditure on account of direct expenses and indirect expenses, therefore, gross profit could never be income earned or received by a trader. Thus, application of gross profit was unjustified. We find force in the contention of the learned Counsel for the assessee because the Revenue had conducted survey u/s 133A in September 2014 during which all the goods available including raw material and finished goods were inventoried and tallied with regular books of accounts as well as RG 4 register. No discrepancy was found during the said operation. Subsequently, during the course of search in June 2015 also all the goods found in the premises were tallied with the regular books of accounts resulting into no discrepancies. Had the assessee been adopting practice of unaccounted sales, extra stock of finished goods would have been found in the premises to the extent of large quantity considering the allegation of unaccounted sales of large quantity. 14. On consideration of above facts, we find force in the alternative submission of the learned counsel for the assessee because the sales worked out by the Assessing Officer could not be extrapolated for the whole year on the basis of material detected for a short period. The findings of the Central Excise Authority could not be brushed aside because the capacity of a plant as well as the aspect of consumption of power was not ignorable. We find that the approach of Assessing Officer for extrapolating the sales figures was not accepted by Ld. CIT(A) being unrealistic in nature as is evident from the page 83 para 6.34 of the appellate order wherein the Ld. CIT(A) agreed with the contention of assessee and formed an opinion that “the AO should have considered and reduced these expenses from the income calculated on the impugned unrecorded sales. I fully agree with the contention of the appellant that the same documents cannot be interpreted by the AO in a different manner. If, the income has been drawn from the said documents the AO is bound to consider expenses also. Similarly, there may be a number of other expenses like commission, salaries and other overhead expenses which must have been incurred by the appellant while effecting sales out of books. Therefore, in order to arrive at real taxable income, the application of gross profit rate cannot be considered as reasonable and realistic.” 15. On consideration of above, we find that the Learned Assessing Officer worked out unaccounted sales by extrapolating the sales worked out from seized documents for a very brief period and the Ld. CIT(A) M/s.Rathi Iron & Steel Industries. Ltd., Indore 26 deleted the additions on this ground in AY 2010-11, AY 2011-12, AY 2012- 13 and AY 2013-14 holding that documents found in a particular year cannot affect in other years. However, the Ld. CIT(A) upheld the Assessing Officer’s action of extrapolation in the year in which incriminating documents pertained. But, we find that while doing so, the Ld. CIT(A) failed to appreciate that the statute of taxation of income has been enacted with the basic object of taxing real income and not any abstract or hypothetical income. The aspect of ‘real income’ being very vital cannot be ignored as no person should be subjected to tax on the income which has not been earned, received or accrued and in the instant case, we find that the income taxed by extrapolation neither accrued, earned or received. As regards analogy of the period/year for the purpose of extrapolation, we find that the Ld. CIT(A) has taken double standard on the question of period for extrapolation. In fact, year is a part of period and period is a part of year and extrapolation cannot be done in other year; it should not be done in other period within the year itself. It has to be worked out for the period for which incriminating documents are found as if we go through assessment procedure for search cases provided as per section 153A to section 153D and it clarifies that the underlined principles laid down in Chapter XIV B have been incorporated in the new scheme of assessment of search cases. The fundamental aspects of assessment in Chapter XIV B happen to be the ‘undisclosed income’ which shows that the income which has not been disclosed emanates from incriminating documents, undisclosed cash, money, bullion, jewellery and nothing else. We find that that the case-law relied upon by Ld. Assessing Officer in the assessment order for extrapolating the sales figures to all the assessment yearsare clearly distinguished by Ld. Commissioner of Income Tax (Appeals) in the appellate order Page 67 at para 6.15, which is reproduced hereunder: “Further it is also observed that the AO has tried to justify the theory of extrapolation on the strength of decision of Hon’ble Supreme Court in the case of Commissioner of Sales Tax vs. HM Esufall HM Abdulali 1973 AIR 2266, 1973 SCR (3) 1005 (SC) without appreciating the fact that in the said decisions, Hon’ble Supreme Court had approved Intra-assessment year extrapolation. Hon’ble Apex Court has never said that the incriminating documents indicating unaccounted sale for particular period/dates falling in a particular year could be extrapolated to arrive at the unaccounted sale figures of another assessment year. In the case law cited supra, Hon’ble Supreme Court had held that sale record of 19 days M/s.Rathi Iron & Steel Industries. Ltd., Indore 27 can be sufficient basis for the AO to determine the sale of entire year in the absence of anything contrary brought on record by the assessee. The AO has also not brought on record any piece of statement of directors or any other responsible persons recorded on the issue of unrecorded sales during the course of search. There is no evidence brought on record to prove that the appellant had been making out of books during the period relevant to these assessment years.” Thus, we are of the view that the ld. Assessing Officer unwarrantedly assumed that the asssessee might have incurred out of book sales for the remaining months for which no incriminating document was found. We find that ld. CIT(A) did not appreciate the fact that the assessee co. is subjected to excise under the Central Excise Authorities (who are responsible for collecting excise duty on production/sales) and after due verification, the Hon’ble Principal Commissioner, CGST & Central Excise, Ujjain dropped the proceedings regarding unaccounted sales by way of clandestine removal of goods as is evident from the relevant order passed by the Hon’ble Principal Commissioner, CGST & Central Excise, Ujjain filed before us. Further, the ld. Assessing Officer could not telescope the loose papers found for particular month and made addition in subsequent months. The sale out of the books depends on various factors like market position, buyers and availability of raw material. Therefore, it is not necessary that the assessee was engaged in the sale out of the books for whole of the time. Also, no evidence was brought on record to establish that the same practice had been followed by the assesseeat all time, and hence the extrapolation cannot be made for the other period i.e. for the other months of A.Y. 2014-15, 2015-16 & 2016-17. Thus, the computation of sales on the basis of incriminating documents is summarized as under- in the ratio of 2.62:1 A.Y. Quantity (in MT) Rate (in Rs.) Sales (in Rs.) Jaideep Rathi 2014-15 45,934.288 35,175 1,61,57,38,580 1,16,94,01,956 44,63,36,624 2015-16 19,098.53 45,800 87,47,12,674 63,30,79,339 24,16,33,335 2016-17 12,341.17 32,750 40,41,73,318 29,25,23,230 11,16,50,088 Total 77,373.988 2,89,46,24,572 2,09,50,04,525 79,96,20,047 In view of the above, we are of the view that the real essence of the matter was skipped to be taken into consideration because if the assessee company would have made cash sales then definitely some cash M/s.Rathi Iron & Steel Industries. Ltd., Indore 28 expenditures (direct & indirect both) would also have been incurred in connection to them. Therefore, the rate which is to be applied shall be Net Profit Rate and not Gross Profit Rate. But Ld. CIT(A) did not consider this view completely and stated that “now the average net profit rate as calculated by the appellant as per the chart appended above shall be considered reasonable in view of above discussion and for the reasons that the most of the expenses related to purchase of raw material, manufacturing, establishment expenses must have been already claimed by the appellant in the regular books of account.”Considering the factual aspects of the present matter in the light of the above discussion, we are of the view that it is a misconstrued notion of the Ld. CIT(A) that most of the expenses must have been already claimed by the assessee because if this was done then the financial ratios of assessee company would have been affected badly and the financial position would have looked pathetic. It is obvious that giving half of the effect to any transaction; i.e. considering only expenses and not income; would result into an absurd view of the company’s financial statements, which no company or organisation will want to happen. No company will prefer to lower down its profit rate and deteriorate its position in front of its shareholders and market unnecessarily. Therefore, the net profit rate applied and the expenses claimed by the assessee were genuine and were only related to the sales recorded in the books. The unrecorded sales would definitely have been made on the cost of unrecorded expenses which are ought to be deducted from the sales and for which the application of Net Profit Rate is realistic and logical. Therefore, if the unrecorded sales are to be added to the income, then the respective percentage of expense deduction shall also be granted. Therefore, the application of Net Profit Rate is genuine and realistic. The net profit rate for different years is reproduced hereunder: - A.Y. 2012-13 = 1.47% A.Y. 2013-14 = 1.86% A.Y. 2014-15 = 1.50% Average Net Profit Rate = 1.55% A.Y. 2015-16 = 0.28% A.Y. 2016-17 = 2.64% In view of the above facts, we are of the view that this factual aspect was completely overlooked by Ld. CIT(A) while forming the opinion of applying net profit rate of 4%, though the term used by ld. CIT(A) was “net profit rate” only and inspite of using the term “net profit rate”, Ld. CIT(A) failed to appreciate all the facts related to net profit rate and concluded with an M/s.Rathi Iron & Steel Industries. Ltd., Indore 29 unrealistic rate of 4% instead of average rate of 1.55%.The ld. Assessing Officer is directed to give the effect by applying 1.55% net profit rate for the assessment years 2014-15 to 2016-17 on the unrecorded sales of Rs.2,09,50,04,525/- spread over AY 2014-15 to AY 2016-17 (details given hereinabove) appearing in the seized document. Therefore, we set aside the orders of the Revenue Authorities on the subject issues and partly allow ground no.1 commonly raised by the assessee for the Assessment Years 2014-15, 2015-16 & 2016-17 whereas ground nos.1 & 2 raised by the Revenue for the Assessment Years 2014-15&2015-16 are dismissed.” 12. From above, it is apparent that the issue in hand has been decided by us. Therefore, following the same reasoning and the findings recorded in case of Jaideep Ispat & Alloys Ltd. decided vide order dated 08.03.2022 [IT(SS)A No.261/Ind/2019 and others] (supra), we hereby confirm the average n.p. rate @0.28% applied by the ld. CIT(A). Thus, grounds raised by the Revenue for the Assessment Years 2013-14, 2014-15 and 2015-16 on this issue are dismissed whereas grounds raised by the assessee for the Assessment Years 2014-15, 2015-16 & 2016-17 on this issue are also dismissed. 13. Now, the last issue i.e. issue no.3 left is with regard to alleged unexplained expenditure of gold incentives. Facts, in brief, are that the ld. Assessing Officer estimated production and sales thereof and applied a ratio of 1 gram gold per 10 MT sales. The additions are based on the documents seized from the third party (i.e. from the premises of Shri Gaurav Sanghvi) only. The Ld. CIT(A) confirmed additions partly on account of gold incentive by relying upon the documents and diaries seized during the course of search and M/s.Rathi Iron & Steel Industries. Ltd., Indore 30 summed up all the figures printed upon it. Being aggrieved, the assessee and Revenue are in appeals before this Tribunal. 14. From the facts and material available on record, we find that the facts and circumstances are identical to the case of Jaideep Ispat and Alloys P. Ltd. as also submitted by both the parties. We have decided the case of Jaideep Ispat and Alloys P. Ltd. vide order dated 08.3.2022. Before us, both the parties also reiterated the identical submissions as put forth in the case of Jaideep Ispat and Alloys P. Ltd. (supra). 15. We have considered rival contentions and gone through the material available on record. We find that the ld. Assessing Officer estimated production and sales thereof and applied a ratio of 1 gram gold per 10 MT sales. The additions are based on the documents seized from the third party (i.e. from the premises of Shri Gaurav Sanghvi) only. To understand the issue as identical and findings of learned CIT(A) thereof, we are reproducing the relevant part of the order of the learned CIT(A) hereunder: - “4.3 Ground No. 5 for A.Ys. 2013-14 to 2016-17:- Through these grounds of appeal the appellant has challenged the addition of Rs. 23,14,200/- in A.Y. 2013-14, Rs. 24,62,694/- in A.Y. 2014-15, Rs. 21,71,491/- in A.Y. 2015-16 & Rs. 5,78,550/- in A.Y. 2016-17 on account of unexplained expenditure u/s 69C of the Income Tax Act 1961. This ground relates to addition made by the Assessing officer by estimating production and sales thereof and applying a ratio of 1 gram gold per 10 MT sales are as under: Assessment Year Sales estimated outside the books Addition (based on ratio) 2013-14 73,27,74,900 23,14,200 2014-15 76,00,84,135 24,62,695 M/s.Rathi Iron & Steel Industries. Ltd., Indore 31 2015-16 97,91,30,492 21,71,491 2016-17 19,93,20,343 5,78,550 The AO discussed the same at Page No. 54 to Page No. 58 of Assessment order u/s. 143(3) dated 19/12/2017. The estimate is made after rejecting books of accounts. The additions are based on the documents seized from the third party (i.e. from the premises of Shri Gaurav Sanghvi) only. 4.3.1 The estimate is made after rejecting the books of accounts. The additions are based on the documents seized from the third party (i.e. from the premises of Shri Gaurav Sanghvi) only. Shri Gaurav Sanghvi is not on the rolls of the company. Shri Gaurav Sanghvi neither holds the position of director in the assessee company or any group company nor he holds any share or voting right of the company or any group company. The Income Tax Returns of the said person are also filed declaring income in business/ profession head. His returns do not include any income from salary from Assessee Company. The assessee company or group companies also deducted TDS u/s. 194J for the services rendered by him as a consultant. The Assessing officer has erred in treating Shri Gaurav Sanghvi as key personnel of Moira Group. The Assessing officer solely relied upon the documents seized from the residential premises of Shri Gaurav Sanghvi. 4.3.2 It is pertinent to restate that the documents which were seized from the premises of Shri Gaurav Sanghvi, who entirely is a third party to the affairs of the company. The part of Paragraph No. 7.10 on Page No. 31 of the Assessment Order. The excerpts are as follows: “On examination of seized documents, it is seen that incriminating `documents indicating out of book sales were for 16 months. These 16 months were spread over beginning from April, 2013 to April, 2015. Thus, the cumulative period comes to 25 months spreaded over three financial years.” Further, paragraph No. 7.17 & 7.18 of Page No. 36 of the Assessment Order is also reproduced as under: “When the details of various parties reflecting in LPS-2 and LPS-3, on sample basis, .....................” “From the examination of above details it is seen that there are documents in respect of ten months wherein out of book sales of goods have been recorded. The total quantity involved in respect of these months is 65033 MT and so the average removal works out to 6500 MT per month (65033/10). Looking to the fact that various documents have been found during the course of search which provides details in respect of unrecorded sales but the year cannot be inferred as above, the average unaccounted sales of 6500 MT can be assumed for balance months.” In reference to Paragraph 7.10, the authorised officer seized documents relating to 16 months (pertaining to period of April, 2013 to April, 2015) from the premises of third party, which the assessing officer considers incriminating. M/s.Rathi Iron & Steel Industries. Ltd., Indore 32 4.3.3 In reference to Paragraph 7.17 & 7.18, the assessing officer has loosely made out a calculation from the documents seized from the premises of third party. In the light of preceding paragraphs, it is observed that the authorised officer has found out documents only for the 16 months which is relevant to F.Y. 2013-14, F.Y. 2014-15 and F.Y. 2015-16. However, the assessing officer has made additions in all seven assessment year ranging from A.Y. 2010-11 to A.Y. 2016-17, though irrelevant in this case. However, reference is invited to table envisaged on Page No. 30 & Page No. 31 of the Assessment Order dated 19/12/2017. This table clearly depicts that incriminating material (as per Assessing Officer) relevant to unaccounted sales is relevant to only 12 months and not 16 months for that matter. The relevant part of table is appended below: F.Y. A.Y. Month Quantity (As per assessment Order) A B C D 2013-14 2014-15 June 6,455.142 2013-14 2014-15 July 5,415.181 2013-14 2014-15 August 6,554.220 2013-14 2014-15 September 6,906.100 2013-14 2014-15 October 5,889.815 2013-14 2014-15 November 6,440.300 2013-14 2014-15 December 8,273.530 Total (a) 45,934.288 2014-15 2015-16 July 6,224.700 2014-15 2015-16 August 6,854.520 2014-15 2015-16 September 6,019.310 2014-15 2015-16 January 34,979.800 2014-15 2015-16 February 2014-15 2015-16 March Total (b) 54,078.330 2015-16 2016-17 April 12,341.170 Total (c) 12,341.170 Grand Total (a)+(b)+(c) 1,12,353.788 M/s.Rathi Iron & Steel Industries. Ltd., Indore 33 It is very clear that the Assessing officer has clearly aggrandized the amount of quantity of alleged unaccounted sales of TMT Bars in Metric Tonnes from 1,12,353.788 MT to 4,25,323.990 MT (Reference is invited to Page No. 70 of Assessment order). The estimations drawn out by the Assessing officer amounts to be 2.79 times more than what was discovered in the alleged incriminating documents were supposed by the Assessing officer. 4.3.4 The addition as well as extrapolation is unjustified in the instant case. The assessing officer unwarrantedly assumed on the basis of scrap documents recovered from the premises of third party that the assessee might have incurred out of book sales in remaining 72 months (84 months – 12 months). The same view is expressed in PCIT v. Sunrise Finlease (P.) Ltd. (2018), (2018) 305 CTR 0421 (Guj), High Court of Gujrat It is quite evident that when assessing officer failed to find any error in the seized material of third party, she parked her reliance on extrapolation. The case is moving in direction of extrapolations based on evidences which are not there. 4.3.5 The addition should be confined to the months for which incriminating documents (as per assessing officer) have been discovered. In other words, the addition on the basis of unaccounted sales should be restricted to those 12 months which are referred above. The assessee is engaged in production of Iron & Steel products such as billets, ingots, TMT Bars. The said production process requires industrial scrap as raw material, oil (furnace oil) and power to complete the process of manufacturing. No any incriminating document or evidence was found either during the course of Survey Operations and Search Proceedings by the respective authorised officers, relating to purchase, production or stock of raw material or finished goods. As such the extrapolation made by the Assessing officer is without any logic and reasoning. Based on extrapolation, the Assessing officer rejected the books of accounts. It is settled position that unless and until any discrepancy is found in maintenance of books of accounts and other records, the addition cannot be made. The Assessing officer has not appreciated the statutory provision of Section 145(3). The prime condition for invoking Section 145(3) is that the Assessing officer is required to establish that Assessee’s books of accounts are incomplete or incorrect. She has failed to point out any single defect in regular books of accounts as such as the case could not be hit by mischief of Section 145(3). 4.3.6 The appellant company is subjected to excise under the Central Excise Authorities (who are responsible for collecting excise duty on production/ sales) and after due verification, the Hon’ble Principal Commissioner, CGST & Central Excise, Ujjain dropped the proceedings regarding unaccounted sales by way of clandestine removal of goods. Reference is invited to the relevant order passed by the Hon’ble Principal Commissioner, CGST & Central Excise, Ujjain in the subject matter. The assessing officer failed to find out any drawback or error in books of accounts. The assessing officer has relied upon CommissionerOf Sales-Tax, vs M/S. H.M. Esufall, H. M. Abdulali, 1973 SCR (3)1005. It is submitted that the assessee is bound by the said judgment of Hon’ble Supreme Court but the facts of the said M/s.Rathi Iron & Steel Industries. Ltd., Indore 34 judgment are quite skewed with that of the instant case. The distinguishing factors are as follows: 1) In the said judgment, the assessee was a trader but in the instant case the assessee is a manufacturer. 2) In the said judgment, the estimation was done on the basis of incriminating material found from the premises of the assessee whereas in the instant case no evidence was found from the premises of the assessee, but the assessing officer relied upon the documents seized from the premises of third party. 3) In the said judgment, the revenue authority casted doubt on the sales of the assessee. However, in the instant case, no variance has been casted by other revenue authorities on the sales of assessee. 4.3.7 The Central Excise Authorities, who are responsible for levying excise duty on manufacturing, have not found any discrepancy regarding illicit removal of goods and unaccounted sales thereof. This fact was also confirmed by Hon’ble Principal Commissioner, CGST & Central Excise, Ujjain. The Sales Tax Department who is responsible for collection of Value Added Tax, Central Sales Tax and Entry Tax, has also not found any discrepancy regarding the issue of out of books sales. 4.3.8 The AO could not telescope the loose papers found for particular month and made addition in subsequent month. The AO has not realized that the evidence pertains to the period for which the addition can be made and no addition can be made for the period for which no evidence is there. The business conditions undergo frequent changes and what has been received in a certain period cannot become a thumb rule for all times to come, especially keeping in mind the slow down and recession in the steel sector. 4.3.9 The addition can be made for the period related to search and evidence found. The assessee has manufactured the steel and the same has been taken by the assessee in books itself. It is very clear that if at all any such thing existed in search years; the same is not there for all assessment years. After search, no corroborative evidence from which it could be established that the assessee continued the sale out of the books for whole period under consideration. In relation to the years under consideration, no incriminating material is found in search or thereafter, evidencing sale out of the books for the entire period. There is no admission statement by the assessee in the current year with respect to sale out of the books. 4.3.10 The sale out of the books depends on various factors like market position, buyers and availability of raw material. Therefore, it is not necessary that the appellant is engaged in the sale out of the books for whole of the time. Reliance is places on the decision of Hon’ble ITAT, Pune Bench in the case of Ashoka Infrastructure Ltd. v/s ACIT 163 DTR 321 wherein it was held that evidence found during the course of search indicating that full toll receipts were not recorded in the books for certain period can be utilized for extrapolation of income for the relevant Financial year. However, the said material cannot be M/s.Rathi Iron & Steel Industries. Ltd., Indore 35 made the basis for working out the income for other years for which no incriminating documents or entries were found. 4.3.11 The reliance is also placed on the decision in the case of Principal CIT vs. Income-Tax Settlement Commission and another; 409 ITR 495 (Guj) where in it was held that additional disclosure of undisclosed income for one assessment year during settlement proceedings, does not amount to untrue disclosure for other assessment years under settlement proceedings. Commission accepting disclosures made by assessees and passing orders on their settlement applications. Order of Settlement Commission not erroneous 4.3.12 The Hon’ble Supreme Court in its several decisions have held that the principle of res judicata is inapplicable in tax matters and the general rule is not to apply this doctrine. In Instalment Supply P Ltd. AIR 1962 SC 53, Hon’ble Apex Court held that in the tax matters, there is no question of res judicata because each year’s assessment is final only for that year and does not govern later years. In Radhaswami Satsang 193 ITR 321, the Hon’ble Supreme Court observed that each assessment is a separate unit. Decision in one year may not carry forward and held for a subsequent year. An issue which is significant only for a particular year once decided cannot be held res judicata for a subsequent year 4.3.13 The evidence of one month cannot be utilized for another month. The said evidence material cannot be made the basis for working out the income in the hands of the assessee for other months for which no incriminating documents or entries were found in search. Reliance is further placed on the ratio laid down by the Hon‟ble Bombay High Court in the case of CIT vs. M/s. Thakkar PopatlalVelji Sales Ltd. in Income Tax Appeal No. 2266 of 2013, judgment dated 29.03.2016, which has confirmed the ratio laid down by the aforesaid Pune Bench of Tribunal. The claim of Revenue in the said decision was that where the register evidencing the sales were found for certain period, the Revenue was entitled to extrapolate the sales recorded therein for the entire assessment year. The Hon‟ble High Court vide para 9 held as under:- “9. So far as the next submission on behalf of the Revenue viz. of extrapolation of evidence found during search is concerned, this Court in All Cargo Global Logistics Ltd. had negatived the revenue‟s submission before it that the assessment under section 153A of the Act is not to be restricted only to the incriminating material found during the course of search but would extend to other material also. Therefore in the facts of present case, this issue is covered by the decision of this Court in All Cargo Global Logistics Ltd. in favour of the respondent-assessee inasmuch as it restricts the assessment to be made only to the incriminating material found during the course of search.” 4.3.14 It has been held by several Courts that no income could be estimated for the other period on the basis of evidence found for one period especially when there was no incriminating evidence pertained to any other period. Reliance is placed on:- M/s.Rathi Iron & Steel Industries. Ltd., Indore 36 • Royal Marwal Tobacco Products (P) Ltd (120 TTJ 387) (Ahd) • H.C. Chandna (P) Ltd. vs. DCIT (91 TTJ 243 (Del)) • ACIT vs. Smt. Radha Rani (101 TTJ 1017 (JP)) • ACIT vs. Ambica Food Industries Ltd. (110 TTJ 680 (Hyd)) • ACIT vs. M.M. Sales Agencies (97 TTJ 575 JP) 4.3.15 When no evidence was found for particular period, no addition on this account is to be made in the hands of the appellant. When the evidence is found the same is to be restricted for that part only. The evidence cannot be used for extrapolation the receipt for balance period. No evidence has been brought on record to establish that the same practice has been followed by the appellant at all time. The addition is to be made for the period for which incriminating documents were found. The evidence for one month cannot be utilized for another month to estimate the income. The evidence found during the course of search could not be utilized for extrapolation of income for the relevant financial year. The said material cannot be made the basis for working out the income in the hands of appellant for other month for which not incriminating document were found during the course of search. A.Y (A) Unaccounted sale as per AO (in MT) (B) Unaccounted sale as per documents found (in MT) (C) Addition made by AO (D) Addition to be confirmed (E = C/B x D) 2014-15 78434.28 45934.288 24,62,695 14,42,254/- 2015-16 77598.53 54078.330 21,71,491 15,13,310/- 2016-17 22091.17 12341.170 5,78,550 3,23,205/- Therefore, the addition made by AO amounting to Rs. 14,42,254/- in A.Y. 2014- 15, Rs, 15,13,310/- in A.Y. 2015-16 & Rs. 3,23,205/- in A.Y. 2016-17 is Confirmed and the appellant will get relief of Rs. 23,14,200/- in A.Y. 2013-14, Rs. 10,20,440/- in A.Y. 2014-15, Rs. 6,58,181/- in A.Y. 2015-16 & Rs. 2,55,345/- in A.Y. 2016-17. Therefore, the appeal on these grounds is for A.Y. 2013-14 is Allowed and for A.Ys. 2014-15 to 2016-17 are Partly Allowed.” 16. On consideration of above, we find that the same issue of alleged unexplained expenditure of gold incentives has been taken into consideration by this Tribunal in the case of Jaideep Ispat and Alloys P. Ltd. (supra) wherein on making detailed discussion on this issue, we have decided the issue against the Revenue. The relevant portion of the same is reproduced hereunder: M/s.Rathi Iron & Steel Industries. Ltd., Indore 37 “15. Ground no.2 raised by the assessee for the Assessment Years 2014- 15 to 2016-17 is related to additions made by the Ld. AO on account of unaccounted expenditure in gold and cash incentives u/s 69C of the I.T. Act by estimating production and sales thereof and applying a ratio of 1 gram gold per 10 MT sales. The Assessing Officer worked out total unaccounted expenditure at Rs.5,25,21,000/- for the Assessment Years 210-11 to 2016-17 on the basis of incriminating documents seized as BALANCE-SHEET-1, LPS-2 and LPS-3 as discussed in the assessment order at page nos.85 to 90. The Assessing Officer worked out the unaccounted and unexplained expenditure on account of gold and cash incentives in the same method and manner by extrapolating the figures for Assessment Years 2014-15 to 2016-17 on the basis of the alleged incriminating documents and bifurcated the amount of unaccounted incentives between the assessee and RathiIspat and Steel Industries Ltd. in the ratio of 2.62:1 and accordingly the Assessing Officer made additions totalling to Rs.4,49,94,055/- for the Assessment Years 2010-11 to 2016- 17. Being aggrieved, the assessee approached the learned CIT(A) and learned CIT(A) deleted the additions for the Assessment Years 2010-11 to 2013-14 on the ground that in these years, no incriminating material was found. However, for the Assessment Years 2014-15 to 2016-17, the learned CIT(A) confirmed the addition holding that for these years, the incriminating material was found and as such, the Assessing Officer was justified in extrapolating the amount of sales and unaccounted expenditure. Being aggrieved, the assessee is before this Tribunal for the Assessment Years 2014-15 to 2016-17. 16. Before us, learned Counsel for the assessee submitted that the Ld. CIT(A) as well as Ld. AO erred in blindly relying upon the documents and diaries seized during the course of search which appear to contain some rough work, best known to the writer of the document only, therefore, no addition could be made on the basis of such documents. Moreover, no independent enquiry was conducted by AO to substantiate the opinion of the Investigation Wing who recommended addition on this ground. Further, without prejudice to the above, learned Counsel for the assessee submitted that since the Ld. CIT(A) applied NP rate, therefore all the expenses are deemed to be accounted for out of those alleged unaccounted cash sales and no any separate treatment is required to be given to any other expense or income. Further, learned Counsel for the assessee submitted that Ld. AO has contradicted herself by one side applying the gross profit rates and on the other hand making additions on account of incentives. Since the authorised officer of search has found some documents which the AO treated incriminating in respect of incentive paid to dealers, the benefit of such expenses is ought to be allowed to assessee and thus, the M/s.Rathi Iron & Steel Industries. Ltd., Indore 38 separate additions on account of gold incentives and any other expenses is required to be deleted to ultimately give effect to the net profit rate which is to be applied on unaccounted cash sales. 19. Per contra, ld. CIT-DR relied upon the order of the Revenue Authorities and submitted that for the Assessment Years 2014-15 to 2016- 17, the incriminating material was found, therefore, the learned CIT(A) rightly confirmed the additions. 20. We have heard rival contentions and considered the material available on record. We find that the estimate was specifically objected to AO by the assessee. The learned AO made the additions on account of gold incentive on the basis of the documents seized from the third party (i.e. from the premises of Gaurav Sanghvi) and summed up all the figures printed upon it. From perusal of the said documents, we find that they appear to contain some rough work/jottings suggesting no concluding idea and as such, no addition could be made on the basis of such documents as per ratio laid down by the Hon’ble Supreme Court in case of Common Cause vs UOI (Sahara Diaries) in W.P. No.505 of 2015, order dated 11.1.2017 wherein it is held that the loose papers, diaries etc. do not constitute to be a valid incriminating material for charging an accused and in the instant case, we find that the authorised officer of search proceedings discovered some loose paper sheets and other documents from the premises of Gaurav Sanghvi which appear to be rough sheets as they do not constitute to be part of books of accounts. Even they do not form to be a formal document and the Assessing Officer failed to establish the assessee’s indulgence in any such activity of awarding incentive. Moreover, no independent enquiry was conducted by AO to substantiate the opinion of the Investigation Wing who recommended addition on this ground despite the fact that the assessee disowned the same explaining that the documents under reference have no link and relation with the assessee co. in any manner. Therefore, we are of the view that no cognizance of these documents can be taken in the case of the assessee. Further, since the Net Profit Rate has been applied on the cash sales by the learned CIT(A), all the expenses are deemed to be accounted for out of those unaccounted cash sales and no any separate treatment was required to be given to any other expense or income because if there is consideration of unaccounted cash sales then there shall be consideration of proportionate expenses out of it and for which net profit rate was applied, therefore, the Revenue Authorities should have considered the fact M/s.Rathi Iron & Steel Industries. Ltd., Indore 39 that the addition of an expense of any nature will temper the effect given by applying net profit rate, which would in turn increase the rate of net profit which would give an unreasonable and incorrect effect to the ultimate figure of net profit & net profit rate. We find that the Ld. AO has contradicted herself by one side applying the gross profit rates and on the other hand making additions on account of incentives and thus, we are of the view that since the authorised officer of search found some documents which the AO treated incriminating in respect of incentive paid to dealers, the benefit of such expenses is ought to be allowed to the assessee and therefore, the separate additions on account of gold incentives and any other expenses are deleted. Moreover, in view of our findings recorded while deciding issue no.1 above, we do not find any merit in the action of the Assessing Officer and learned CIT(A). Accordingly, we set aside the orders of the Revenue on this issue. Thus, ground no.2 commonly raised by the assessee for the Assessment Years 2014-15 to 2016-17 is allowed. ” 17. In the instant case, we find that the additions were based on the documents seized from the third party (i.e. from the premises of Shri Gaurav Sanghvi) only. However, considering the findings recorded by us in case of Jaideep Ispat & Alloys Ltd. (supra), it is apparent that the issue in hand is covered in favor of the assessee. Considering the facts in the light of the order in case of Jaideep Ispat and Alloys Ltd. (supra), we are of the view that the learned Assessing Officer and ld. CIT(A) were not justified in making/confirming the additions on account of gold incentive by relying upon the documents and diaries seized during the course of search and summed up all the figures printed upon it because the M/s.Rathi Iron & Steel Industries. Ltd., Indore 40 same do not constitute to be a valid incriminating material as the same simply contain some rough work, best known to the writer of the document only. Thus, no addition could have been made on the basis of such documents. In the judgment of Hon’ble Supreme Court, Common Cause vs UOI (Sahara Diaries) in W.P. No.505 of 2015, order dated 11.1.2017. the Hon’ble Supreme Court clearly held that the loose papers, diaries etc. do not constitute to be a valid incriminating material for charging an accused and in the present case, the authorised officer of search proceedings discovered some loose paper sheets and other documents from the premises of Shri Gaurav Sanghvi. These loose paper sheets found by the authorised officer were simply rough sheets and the same do not constitute to be part of books of accounts. They even do not form to be a formal document and the ld. Assessing Officer failed to establish the assessee’s indulgence in any such activity of awarding incentive. Moreover, no independent enquiry was conducted by AO to substantiate the opinion of the Investigation Wing who recommended addition on this ground. Further, since the Net Profit Rate has been applied on the cash sales by the learned CIT(A), all the expenses are deemed to be accounted for out of those M/s.Rathi Iron & Steel Industries. Ltd., Indore 41 unaccounted cash sales and no any separate treatment was required to be given to any other expense or income because if there is consideration of unaccounted cash sales then there shall be consideration of proportionate expenses out of it and for which net profit rate was applied, therefore, the Revenue Authorities should have considered that fact that the addition of an expense of any nature will temper the effect given by applying net profit rate, which would in turn increase the rate of net profit which would give an unreasonable and incorrect effect to the ultimate figure of net profit & net profit rate. We find that the Ld. AO has contradicted herself by one side applying the gross profit rates and on the other hand making additions on account of incentives and thus, we are of the view that since the authorised officer of search found some documents which the AO treated incriminating in respect of incentive paid to dealers, the benefit of such expenses is ought to be allowed to the assesse. On considerate of above, we do not find any merit in the action of the Assessing Officer for making and learned CIT(A) for confirming the additions on this issue and accordingly, the additions on account of gold incentives are deleted. Thus, issue no.3 being covered by our order dated 08.3.2022 passed in case of M/s.Rathi Iron & Steel Industries. Ltd., Indore 42 Jaideep Ispat & Alloys Ltd. [IT(SS)A No.261/Ind/2019 and others] (supra) is decided in favour of the assessee. Thus, assessee’s grounds for the Assessment Years 2014-15 to 2016-17 on this issue are allowed whereas grounds raised by the Revenue for the Assessment Years 2013-14 to 2015-16 on this issue are dismissed. 18. In result, the appeals filed by the Revenue bearing IT(SS)A Nos.229 to 231/Ind/2019 for the Assessment Years 2013-14 to 2015-16 are dismissed whereas appeals filed by the assessee bearing IT(SS)A Nos.232 to 234/Ind/2019 for the Assessment Years 2014-15 to 2016-17are partly allowed. The order pronounced as per Rule 34 of ITAT Rules, 1963 on 11.03.2022. Sd/- Sd/- (MAHAVIR PRASAD) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER दनांक /Dated : 11.03.2022 !vyas! Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. By Order, Sr. Private Secretary, I.T.A.T., Indore