M/s. Explorer Marketing Pvt. Ltd., Indore V. The A.C.I.T., Indore

ITSSA 40/IND/2010

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 9316 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 28-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2002-2003
• Appeal Filed On: 06-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V K KARAN
• Assessee Lawyers: H P VERMA SHRI MAHESH AGRAWAL; ASHISH GOYAL ADV CAS
• Keywords: Rejection of books of accounts; Depreciation; Search and seizure; Loose papers; Document seized; Peak credit; Reason to believe; Documents seized; Reassessment proceedings
• Section: 143(3); 142(1); 80HHC; 133A; 153A; 139(5); 147; 132; 139

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. : AAACE3635J I.T(SS).A.NOS. 39 TO 43/ IND/201 0 AND 78/IND/2010 A.YS. : 2001-02 TO 2005-06 & 2006-07 EXPLORER MARKETING PVT.LTD., 12/5, CHHOTI GWALTOLI, INDORE. VS. ACIT, CIRCLE 4(1), INDORE. APPELLANT RESPONDENT I.T(SS).A.NO. 60/IND/2010 A.Y. : 2006-07 ACIT, CIRCLE 4(1), INDORE. VS. EXPLORER MARKETING PVT.LTD., 12/5, CHHOTI GWALTOLI, INDORE. APPELLANT RESPONDENT C.O.NO. 16/IND/2010 (ARISING I.T(SS).A.NO.60/IND/2010) A.Y. : 2006-07 EXPLORER MARKETING PVT.LTD., 12/5, CHHOTI GWALTOLI, VS. ACIT, CIRCLE 4(1), INDORE. -: 2: - 2 INDORE. CROSS OBJECTOR RESPONDENT I.T .A.NO. 428/IND / 2010 A.Y. : 2007-08 EXPLORER MARKETING PVT.LTD., 12/5, CHHOTI GWALTOLI, INDORE. VS. ACIT, CIRCLE 4(1), INDORE. APPELLANT RESPONDENT I.T .A.NO. 380/IND/2010 A.Y. : 2007-08 ACIT, CIRCLE 4(1), INDORE VS. EXPLORER MARKETING PVT.LTD., 12/5, CHHOTI GWALTOLI, INDORE. APPELLANT RESPONDENT C.O.NO. 18/IND/2010 (ARISING OUT OF I.T.(SS).A.NO. 380/IND/2010 A.Y. : 2007-08 EXPLORER MARKETING PVT.LTD., 12/5, CHHOTI GWALTOLI, VS. ACIT, CIRCLE 4(1), INDORE -: 3: - 3 INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI H.P.VERMA, SHRI MAHESH AGRAWAL AND SHRI ASHISH GOYAL, ADV./CAS. RESPONDENT BY : SHRI V.K.KARAN, CIT DR DATE OF HEARING : 07 . 0 6 .201 3 DATE OF PRONOUNCEMENT : 28 . 0 6 .201 3 O R D E R PER R. C. SHARMA, A.M. THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE A ND REVENUE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSM ENT YEARS 2001-02 TO 2003-04, 2004-05, 2005-06, 2006-07, 2007 -08 IN THE MATTER OF ORDER PASSED U/S 143(3) READ WITH SEC TION 153A OF THE INCOME-TAX ACT, 1961. 2. FACTS IN BRIEF ARE THAT A SEARCH AND SEIZURE OPERATION U/S 132 OF THE ACT WAS CARRIED OUT IN THE BUSINESS PREMISES OF THE ASSESSEE ON 27.2.2007. THE AO ISSUED NOTICE U/S 153A ON 28.5.07 REQUIRING THE -: 4: - 4 ASSESSEE TO FILE ITS RETURN OF INCOME WITHIN 30 DAYS OF THE RECEIPT OF THE NOTICE. THEREAFTER, NOTICE U/S 142(1) WAS ISSUED ON 12.2.08. RETURNS WERE FILED FOR ALL THE A.YS INVOLVED TOGETHER ON 7.3.08 DECLARING INCOME LOSS. THE AO AFTER ISSUE OF STATUTORY NOTICES U/S 143(2) AND 142(1) AND CONSIDERING THE COMPLIANCES MADE AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE, HAS REJECTED THE CLAIM OF THE ADJUSTMENT ON ACCOUNT OF DIFFERENCE IN STOCK CLAIMED AND HAS FURTHER DISALLOWED EXPENSES CLAIMED UNDER THE HEAD TELEPHONE EXPENSES, VEHICLE REPAIRS AND MAINTENANCE AND CAR DEPRECIATION FOR PERSONAL USER. IN THE ASSESSMENT YEAR 2006-07 ADDITIONS WERE MADE ON THE BASIS OF SEIZED PAPER MARKED BS-4. 3. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER WITH RESPECT TO CLA IM OF ADJUSTMENT ON ACCOUNT OF DIFFERENCE IN STOCK AND DI SALLOWANCE OF EXPENSES ON TELEPHONE, VEHICLE REPAIR ETC. HOWEV ER, PART -: 5: - 5 RELIEF WAS GIVEN BY CIT(A) IN RESPECT OF ADDITION B ASED ON BS-4. BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 4. THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER WITH REGARD TO THE ADDITION MADE ON ACCOUNT OF DIFFERENCE IN STOCK AFTER HAVING THE FOLLOWING O BSERVATIONS :- 4.1 COMING TO THE FIRST ISSUE INVOLVED REGARDING REJECTION OF APPELLANT'S FRESH CLAIM PLACED IN PROCEEDINGS U/S. 153A FOR REDUCING THE VALUE OF STOCK, IT IS SURPRISING TO NOTE THAT HAVING KNOWINGLY MANIPULATED THE STOCK VALUE, IF THE APPELLANT'S CONTENTIONS ARE TO BE ACCEPTED AS TRUE THAT THE CORRECT VALUE OF STOCK WAS LESSER, THE APPELLANT IS NOW REFERRING TO THE BASIC PRINCIPLES OF ACCOUNTANCY AS IF SUCH BASIC PRINCIPLE OF ACCOUNTANCY WERE NOT APPLICABLE WHEN THE ORIGINAL RETURN OF INCOME FILED. THE APPELLANT HAVING KNOWINGLY MANIPULATED THE STOCK VALUES -: 6: - 6 ACCORDING TO ITS OWN CONVENIENCE CANNOT BE NOW PERMITTED TO GO BACK ON THE SAME AND PLEAD THAT THE SAME WAS NOT ACCORDING TO THE BASIC PRINCIPLES OF ACCOUNTANCY OR REAL INCOME THEORY SHOULD BE APPLIED FOR ASSESSING CORRECT INCOME. 4.1.1 IN FACT, IT DOES NOT LIE IN THE MOUTH OF THE APPELLANT TO CLAIM AND CONTEND THAT THE BASIC PRINCIPLE OF ACCOUNTANCY SHOULD BE APPLIED TO ARRIVE AT THE CORRECT VALUE OF STOCK. FURTHER, IT IS SOUND PRINCIPLE OF JURISPRUDENCE THAT NO PERSON CAN BE PERMITTED TO TAKE ADVANTAGES OUT OF ITS OWN WRONGS COMMITTED KNOWINGLY/INTENTIONALLY. HON'BLE CALCUTTA HIGH COURT OF AMAL KUMAR CHAKRABORTHY V. CIT, 207 ITR 376 (CAL) ON PAGE 390 HAS OBSERVED - -: 7: - 7 'HERE, WE ARE TO GO BY THE DICTUM 'FALSUS IN UNO FALSUS IN OMNIBUS'. THOUGH APPLICABLE IN CRIMINAL LAW, IT IS A SOUND PRINCIPLE TO APPLY TAXATION WHEN THE MATTER IS ONE OF THE FINDING OF FACT ON THE BASIS OF STATEMENTS OF A WITNESS AND THEIR JUDICIAL EVALUATION.' THUS, SUCH CONTENTIONS ADVANCED BY THE APPELLANT AT THIS STAGE WHEN MANIPULATION OF ACCOUNTS AND THE CORRECT STATE OF AFFAIRS HAS BEEN EXPOSED BY SEARCH AND SEIZURE OPERATION CARRIED OUT BY THE DEPARTMENT CANNOT BE IN ANY WAY GIVEN ANY WEIGHTAGE AND ARE LIABLE TO BE STRAIGHTAWAY REJECTED AND ARE SO REJECTED. 4.1.2 FURTHER, IT IS SETTLED POSITION OF LAW BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT V. SUN ENGINEERING WORKS PVT. LTD -: 8: - 8 (SC) THAT RE-ASSESSMENT PROCEEDINGS ARE FOR THE BENEFIT OF REVENUE AND THE ASSESSEE/ APPELLANT CANNOT PRESS CLAIM OF DEDUCTION, ADJUSTMENT ETC., IN SUCH RE-ASSESSMENT PROCEEDINGS. THE RELEVANT PORTION READS AS UNDER: 'A MATTER NOT AGITATED IN THE CONCLUDED ORIGINAL ASSESSMENT PROCEEDINGS ALSO CANNOT BE PERMITTED TO BE AGITATED IN THE REASSESSMENT PROCEEDINGS UNLESS RELATABLE TO THE ITEMS SOUGHT TO BE TAXED AS 'ESCAPED INCOME'. INDEED, IN THE REASSESSMENT PROCEEDINGS FOR BRINGING TO TAX ITEMS WHICH HAD ESCAPED ASSESSMENT, IT WOULD BE OPEN TO THE ASSESSEE TO PUT FORWARD CLAIMS FOR DEDUCTION OF ANY EXPENDITURE IN RESPECT OF THAT INCOME OR REGARDING THE NON-TAXABILITY OF THE ITEMS AT ALL. SECTION 147, BEING FOR THE BENEFIT OF THE -: 9: - 9 REVENUE OF NOT THE ASSESSEE, THE ASSESSEE CAN NOT BE PERMITTED TO CONVERT THE REASSESSMENT PROCEEDINGS INTO AN APPEAL OR REVISION IN DISGUISE, AND SEEK RELIEF IN RESPECT OF ITEMS EARLIER REJECTED OR CLAIM RELIEF IN RESPECT OF ITEMS NOT CLAIMED IN THE ORIGINAL ASSESSMENT PROCEEDINGS, UNLESS RELATABLE TO 'ESCAPED INCOME' . EVEN IN CASES WHERE THE CLAIMS OF THE ASSESSEE DURING THE COURSE OF REASSESSMENT PROCEEDINGS RELATING TO THE ESCAPED INCOME ARE ACCEPTED, STILL THE ALLOWANCE OF SUCH CLAIMS HAS TO BE LIMITED TO THE EXTENT TO WHICH THEY REDUCE THE INCOME TO THAT ORIGINALLY ASSESSED. THE INCOME, FOR PURPOSES OF 'REASSESSMENT CANNOT BE REDUCED BEYOND THE INCOME ORIGINALLY ASSESSED.' -: 10: - 10 4.1.3 IT HAS TO BE FURTHER NOTED THAT PROVISION OF SECTION 139(5) PERMITS REVISION OF RETURN ON DETECTION OF BONA FIDE MISTAKES AND OMISSION ONLY, THAT TOO WITHIN A SPECIFIED PERIOD OF ONE YEAR FROM THE END OF THE RELEVANT A.Y. IF THE APPELLANT'S CONTENTIONS ARE TO BE ACCEPTED, THAT WILL GO STRAIGHTAWAY AGAINST THE LEGISLATIVE MANDATE CONTAINED IN PROVISION OF SECTION 139(5) AS THAT WILL BE PERMITTING REVISION OF RETURN FOR INTENTIONAL WRONG COMMITTED AND THAT TOO AFTER DETECTION OF THE SAME AFTER SEARCH AND SEIZURE OPERATION AND STILL FURTHER BEYOND THE TIME LIMIT PRESCRIBED U/S. 139(5). THUS, SUCH PLEA HAS ABSOLUTELY NO LEGAL SANCTION. FURTHER STILL, THE APPELLANT HAS TOTALLY FAILED TO BRING ANY MATERIAL ON RECORD EITHER IN COURSE OF ASSESSMENT PROCEEDINGS OR IN COURSE OF APPEAL PROCEEDINGS THAT SUCH FRESH CLAIM HAD -: 11: - 11 ANYTHING TO DO WITH ADDITIONAL/ ESCAPED INCOME BEING BROUGHT TO TAX IN THE A.YS UNDER CONSIDERATION. 4.1.4 NOW IT WILL BE APPROPRIATE TO TAKE NOTE OF THE PROVISION OF SECTION 153A WHICH LAYS THAT NOTWITHSTANDING ANY CONDITIONS IN SECTION 139, 147 TO 149, 151 AND 153 IN THE CASE OF A PERSON WHERE SEARCH IS INITIATED U/S. 132, THE AO SHALL ISSUE NOTICE TO SUCH PERSON TO FURNISH RETURN OF INCOME WITHIN SPECIFIED PERIOD IN RESPECT OF EACH A.Y. FALLING WI THIN 6 A.YS IMMEDIATELY PRECEDING SEARCH YEAR IN THE PRESCRIBED FORM AND ASSESS OR REASSESS THE TOTAL INCOME OF 6 A.YS IMMEDIATELY PRECEDING THE A.Y RELEVANT TO THE P.Y IN WHICH SEARCH IS CONDUCTED. HON'BLE ITAT JODHPUR BENCH IN THE CASE OF SUN CITY ALLOYS PVT. LTD. V. ACIT IN ITS DECISION REPORTED O N 124 TTJ 74 (JD.) HAS EXAMINED THIS LEGAL POSITION IN DE TAIL WITH REFERENCE TO THE PROVISION OF SECTION 139(5) A ND -: 12: - 12 153A OF LT. ACT AND HAS CATEGORICALLY HELD THAT NO NEW CLAIM OF DEDUCTION OR ALLOWANCE CAN BE MADE BY ASSESSEE IN ASSESSMENT OR RE-ASSESSMENT MADE PURSUANT TO NOTICE U/S. 153A. THUS, THE AO'S ACTION ON THIS COUNT IN REJECTING THE FRESH CLAIM PUT FORWARD BY THE APPELLANT BY WAY OF REVISING THE VALUE OF STOCK DOWNWARD HAS TO BE NECESSARILY APPROVED AND IS ACCORDINGLY APPROVED. 4.2.1 IN VIEW OF THE AFORESAID FINDINGS RECORDED WHICH ARE EQUALLY APPLICABLE TO THE A.Y UNDER CONSIDERATION, THE AO'S ACTION IN REJECTING THE REVISED CLAIM OF THE APPELLANT PUT FORWARD FOR THE FIRST TIME IN 153A RETURN FILED FOR DIFFERENCE IN VALUE OF STOCK AT RS. 22,85,542/- IS FOUND TO BE PERFECTLY JUSTIFIED AND IN ORDER AND IS ACCORDINGLY REJECTED. -: 13: - 13 5. WITH RESPECT TO ADDITION MADE ON ACCOUNT OF INCRIMINATING DOCUMENTS FOUND DURING COURSE OF SEAR CH, THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS. 63,08 ,793/- IN PLACE OF PEAK WORKING SUBMITTED BY THE ASSESSEE AT RS. 16,93,308/-. THE LD. CIT(A) AFTER DISCUSSING ISSUE AT PARA 4.3 RESTRICTED THE ADDITION TO RS. 40 LAKHS AS ADMITTED BY THE ASSESSEE COMPANYS DIRECTOR, SHRI ALOK GARG IN PLAC E OF ADDITION OF RS. 63,08,793/- MADE BY THE ASSESSING O FFICER. AGAINST THIS PART OF ORDER OF CIT(A), BOTH THE ASSE SSEE AND REVENUE ARE IN APPEAL BEFORE US. 6. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS DE ALING IN AUTO PARTS OF BRANDED COMPANIES LIKE ESCORTS MAHIE LTD., GOETZE INDIA LIMITED, GOETZE TP INDIA LIMITED, TALBROS AUT O. HEAD OFFICE OF THE COMPANY IS SITUATED AT INDORE, WHEREA S BRANCHES ARE AT RAIPUR AND BHOPAL. THERE WAS SURVEY AT ASSES SEES BUSINESS PREMISES U/S 133A IN THE FINANCIAL YEAR 19 99-2000. AGAIN SURVEY WAS CONDUCTED ON 27.2.2007, WHICH WAS CONVERTED INTO SEARCH. DURING SEARCH, THE ASSESSEE SURRENDERED RS. 40 LAKHS AS ADDITIONAL INCOME. IN T HE RETURN -: 14: - 14 FILED U/S 143(3) ON 7.3.2008 SURRENDERED AMOUNT OF RS. 17 LAKHS CONTINUED, HOWEVER, BALANCE OF RS. 23 LAKHS W AS RETRACTED. IN THE ASSESSMENT ORDER, THE ASSESSING O FFICER OBSERVED THAT STOCK WAS FOUND LESS AT HEAD OFFICE, INDORE AND BRANCH OFFICE AT BHOPAL. HOWEVER, AT RAIPUR, STOCK WAS FOUND EXCESS AS COMPARED TO THE STOCK AS PER BOOKS OF ACC OUNT. THE DIFFERENCE IN STOCK WAS WORKED OUT ON THE BASIS OF PHYSICAL VERIFICATION CONDUCTED BY THE DEPARTMENT. IT WAS EX PLAINED THAT STOCK AS PER BOOKS HAD BEEN TAKEN ON THE BASIS OF COMPUTERIZED STOCK SUMMARY BY THE SEARCH PARTY. HOW EVER, THE PROFIT ACCOUNT PREPARED BY THE HEAD OFFICE BY A PPLYING GROSS PROFIT RATE SHOWS STOCK AT RS. 9,82,417/-. TH E MODUS OPERANDI OF STOCK WAS EXPLAINED BY THE ASSESSEE AS UNDER :- ASSESSEE IS MAINTAINING REGULAR BOOKS OF ACCOUNT I N SOFTWARE. ASSESSEE USED TO KEEP QUANTITATIVE DETAIL S OF EVERY ITEM IN COMPUTER SYSTEM, FOR EVERY ITEM OF TRADING AND CLOSING STOCK, WHICH WAS PROPERLY MAINTAINED. HOWEVER, WHILE FILING THE INCOME-TAX RETURNS, THE A CTUAL CLOSING STOCK WAS NEVER TAKEN INTO ACCOUNT AND THE CLOSING STOCK WAS ALWAYS WORKED OUT BY APPLYING GROSS PROFIT RATE ON SALES OF THE -: 15: - 15 COMPANY AND SUCH ESTIMATED CLOSING STOCK WAS ALWAYS ACCOUNTED FOR IN THE TRADING ACCOUNT PREPARED FROM YEAR TO YEAR AND ALSO GOT AUDITED AS SUCH BY THE C. A. IN THE AU DITED ACCOUNTS, IT WAS MENTIONED THAT THE QUANTITATIVE TA LLY WAS NOT AVAILABLE. THIS FACT IS THAT : 1. P.B. -3 THE BOOKS OF ACCOUNT MAINTAINED HAVE BE EN MENTIONED IN PARA 9(B) OF THE FORM NO. 3 CD REPORT. IT IS STATED CASH BOOK, BANK BOOK, LEDGER, JOURNAL ( ALL BOOKS ARE GENERATED BY A COMPUTER SYSTEM) ARE MAINTAINED. DA Y-TO-DAY STOCK/STOCK RECORDS HAVE NOT BEEN MENTIONED. 2. P.B -6 THE QUANTITATIVE DETAILS HAVE NOT BEEN RE PORTED. IT IS STATED THAT NOT MAINTAINED DUE TO PRACTICAL DIFFIC ULTIES AS ITEMS RUN IN THOUSANDS. 3. P.B.-12 AUDITORS REPORT PARA 3-6 ARE IMPORTANT. IT READS AS UNDER :- 3. AS INFORMED TO US, THE STOCKS OF GOODS DEALT-I N (TRADED GOODS) LYING AT ITS LOCATION HAVE BEEN PHY SICALLY VERIFIED BY THE MANAGEMENT AT REASONABLE INTERVALS . 4. THE PROCEDURE OF PHYSICAL VERIFICATION OF STOCK FOLLOWED BY THE MANAGEMENT ARE REASONABLE AND ADEQU ATE -: 16: - 16 IN REGARD TO THE SIZE OF THE COMPANY AND THE NATURE OF ITS BUSINESS. 5. AS INFORMED TO US, NO DAY-TO-DAY STOCK REGISTER OF TRADED GOODS WAS MAINTAINED DUE TO LARGE NUMBER OF ITEMS, HAVING VARIOUS SIZE AND DENOMINATIONS, AND H ENCE QUESTION OF ANY DISCREPANCIES BETWEEN BOOK RECORD A ND PHYSICAL VERIFICATION DOES NOT ARISE. HOWEVER, OPEN ING AND CLOSING INVENTORIES WERE VALUED, ACCORDINGLY DIFFER ENCE, IF ANY, IN PHYSICAL VERIFICATION HAVE BEEN IMPLIEDLY D EALT WITH IN THE BOOKS OF ACCOUNTS. 6. IN OUR OPINION AND ON THE BASIS OF OUR EXAMINATI ON THE VALUATION OF STOCK IS FAIR AND PROPER IN ACCORDANCE WITH THE NORMALLY ACCEPTED ACCOUNTING PRINCIPLES AND IS ON T HE SAME BASIS AS IN THE PRECEDING YEARS. THE COMMENTS OF THE AUDITOR ON YEAR-TO-YEAR BASIS HAS BEEN MENTIONED AT P.B. 465-467 III IN A CHART FO RM. 4. P.B.-22 . NOTES TO CLAUSES IT IS MENTIONED TH AT QUANTITATIVE FIGURES HAVE NOT BEEN GIVEN SINCE QUANTITATIVE DETAILS ARE NOT MAINTAINED, AS THE SA ME RUNS IN THOUSANDS. -: 17: - 17 THE ASSESSEE, HOWEVER, WAS MAINTAINING QUANTITATIVE TALLY, BUT THE SAME WAS NOT GIVEN TO THE AUDITOR. THE CLOSING STOCK WAS SHOWN AT AN ESTIMATED FIGURE IN THE AUDITED ACCOUNT S. THIS WAS DONE, AS THE AUDITED ACCOUNTS AND THE STOCK STATEME NTS WERE GIVEN TO THE BANKS TO GET THE REQUIRED LIMIT FROM T HE BANKS, FOR THE DAY TO DAY BUSINESS OF THE ASSESSEE. THE BUSINE SS OF THE ASSESSEE IS SUCH THAT IT IS HEAVILY DEPENDENT ON TH E BANK LOANS. DURING THE COURSE OF SEARCH, A COMPUTER HARD DISK W AS SEIZED. PB-296/II. IN THE HARD DISK SO SEIZED, THE ACTUAL Q UANTITATIVE TALLY WAS FOUND IN SOFT COPY. THE ACTUAL QUANTITATI VE DETAILS EXPLAINS THE REASON FOR SHORTAGE IN THE STOCK SO FO UND DURING SEARCH. DURING THE SEARCH ITSELF, AT VARIOUS OCCASI ONS, IT WAS POINTED AT THAT THE QUANTITATIVE STOCK IS MAINTAINE D:- (A) PB-295/II , QUE 2. IT WAS STATED IN THE PRELIMINARY STATEMENT THAT BOOKS, ACCOUNTS AND STOCK REGISTER I S KEPT IN COMPUTER RECORDS. (B) PB-280/II , QUE 2. EXCESS STOCK AT RAIP UR EXPLAINED. SHORTAGE OF STOCK WAS ACCEPTED AT 62,43,929. (C) PB-280/II , QUE 3.8. THE REASONS FOR SHO RT STOCK WAS EXPLAINED. IT WAS EXPLAINED THAT THE STOCK IS OFFER ED IN -: 18: - 18 BOOKS AT A HIGHER FIGURE ( BASED ON ESTIMATION OF S AME BASED ON AVERAGE G.P.). THIS WAS DONE ONLY TO OBTAI N HIGHER LIMIT FROM THE BANK. THE PHYSICAL STOCK AS FOUND IN THE SEARCH TALLIES WITH THE QUANTITATIVE TALLY IN THE DAY-TO-DAY STOCK SHEET FO UND. THE DETAILS OF CLOSING STOCK YEAR-TO-YEAR AS PER THE AU DITED ACCOUNTS AND AS PER THE QUANTITATIVE TALLY FOUND DURING SEAR CH IS AS UNDER :- THUS, IN THE REGULAR RETURNS, EXCESS STOCK WAS SHOW N WRONGLY AT A HIGHER FIGURE. THIS WAS DONE TO OBTAIN BANK FI NANCE, AS ON HIGHER VALUE OF STOCK, A HIGHER LIMIT WAS ANTICIPAT ED. THE BUSINESS OF THE APPELLANT WAS HEAVILY DEPENDENCE ON BANK FINANCE. THE FINANCIAL STATEMENTS AND THE STOCK STA TEMENTS F.Y STOCK AS SHOWN ACTUAL STOCK EXCESS STOCK SHOWN 1999-2000 7479298 7479298 NIL 2000-01 7815608 6565233 1250375 2001-02 9397139 8016213 130551 2002-03 9781487 6662093 1738468 2003-04 10698774 7754491 (-) 175111 2004-05 12630128 9828574 (-) 142729 2005-06 9499842 4413992 2284296 -: 19: - 19 WERE FILED BEFORE THE BANK, ON THE BASIS OF WHICH T HE BANK HAD GRANTED A HIGHER LIMIT. ON THE BASIS OF THE QUANTITATIVE TALLY FOUND DURING SEARCH, THE RETURNS U/S 153A WERE FILED IN ALL THE YEARS, THE I NCOME WAS SUBSTANTIALLY REDUCED. LIKE IN ASSESSMENT YEAR 2001 -02, RETURN U/S 139 WAS FILED SHOWING PROFIT OF RS. 4,90,820/-. HOWEVER, ON THE BASIS OF THE QUANTITATIVE TALLY, THE RETURN U/S 153A WAS FILED SHOWING LOSS OF RS. 6,04,177. SIMILARLY, IN A SSESSMENT YEAR 2002-03, RETURN U/S 139 WAS FILED SHOWING PROF IT OF RS. 4,28,810/-. HOWEVER, ON THE BASIS OF THE QUANTITATI VE TALLY, THE RETURN U/S 153A WAS FILED SHOWING A PROFIT OF NIL. THE DAY-TO-DAY INVENTORY OF STOCK SO MAINTAINED WA S NEVER TAKEN INTO ACCOUNT WHILE DISCLOSING THE BUSIN ESS RESULTS UNDER THE COMPANIES ACT OR IN THE INCOME TAX RETURN S. HOWEVER, IT WAS SUBMITTED THAT THE SAME SHOULD BE CONSIDERED IN THE ASSESSMENT AS THE ASSESSEE HAS CONSIDERED THE SAME IN THE RETURNS FILED U/S 153A. LD. ASSESSING OFFICER DENIED THE SHORTAGE OF STOCK, AS FOUND DURING THE COURSE OF SEARCH. THIS ORDER WAS CONFIRM ED BY THE LD.CIT(A). -: 20: - 20 CONTENTION OF LD. AUTHORIZED REPRESENTATIVE BEFORE US WAS AS UNDER :- IT IS A PERTINENT FACT THAT THIS FACT IS UNCONTROV ERTED BOTH BY LD. ASSESSING OFFICER AND LD. CIT(A) THAT THE DAY-T O-DAY STOCK STATEMENT WAS FOUND DURING SEARCH, OR THAT THE STOC K SHOWN IN THE SAID RECORDS TALLIED WITH THE PHYSICAL STOCK SO FOUND, OR THAT THE STOCK VALUE DIN THE AUDITED ACCOUNTS WAS ONLY O N ESTIMATED BASIS (BASED ON AVERAGE G.P.). THE DISPUTE IS WHETHER ASSESSEE CAN REDUCE ITS PROF ITS (BASED ON MATERIAL FOUND DURING SEARCH ) IN THE RETURN U/S 153A. THE ACTUAL STOCK SO FOUND BASED ON THE MATERIAL FOU ND DURING THE SEARCH SHALL BE GIVEN CONSIDERATION. THE REASONS FOR DISALLOWANCE AND THE SUBMISSIONS OF THE APPELLANT ARE DISCUSSED AS UNDER :- 1. A.O. PG. 5 PARA (1). THE SO CALLED STOCK INVENT ORY HAS NEVER BEEN TAKEN INTO ACCOUNT BY THE ASSESSEE FOR T HE PURPOSES OF COMPUTATION OF INCOME AND FOR THE PREPARATION OF BALANCE SHEET, TRADING & PROFIT AND LOSS ACCOUNT, COMPUTATI ON OF BOOK PROFIT UNDER COMPANIES ACT OR IN THE INCOME TAX RET URN FILED. -: 21: - 21 (A) ALTHOUGH THE STOCK INVENTORY FOUND DURING THE SEARCH WAS NEVER TAKEN INTO ACCOUNT FOR PREPARING T HE REGULAR BOOKS AND BALANCE SHEET YET, THE FACT THAT IN REALI TY THIS STOCK EXISTED HAS NEVER BEEN DOUBTED. THE PHYSICAL STOCK FOUND DURING THE COURSE OF SEARCH TALLIED WITH THE STOCK SHOWN IN THIS SHEET. THIS FACT IS NOT DENIED BY THE LD. ASSESSING OFFICER ANYWHERE. (B) IT IS SUBMITTED THAT THIS RECORDED WAS NOT KEPT FOR PREPARING THE BOOKS OF ACCOUNT. HOWEVER, IT IS A SE TTLED LAW THAT THE BOOKS OF ACCOUNT ARE NOT SACROSANCT FOR COMPUTI NG THE INCOME. MERELY FOR THE REASON ANY INCOME IS NOT TAX ABLE IT CANNOT BE TAXED FOR THE REASON IT RECORDED IN THE B OOKS OF ACCOUNT. THE ASSESSEE HAS, FOR WHATEVER BE THE REAS ONS , RECORDED THE STOCK AT A HIGHER VALUE IN THE BOOKS. CAN THIS BE THE ONLY BASIS FOR TAXING THE STOCK IN THE HANDS OF THE ASSESSEE, MOREOVER WHEN THE ID AO/CIT(A) ARE THEMSELVES CONVINCED ABOUT THE FACT THAT THE STOCK WAS NOT AT ALL IN EXISTENCE. -: 22: - 22 (C) THE REASON FOR NOT CONSIDERING THE SAME IN THE BALANCE SHEET AND TRADING, PROFIT AND LOSS ACCOUNT HAS BEEN DULY EXPLAINED. (D) IT IS SUBMITTED THAT THE INCOME TAX IS A TAX ON INCOME. ONLY REAL INCOME CAN BE TAXED. THE DOCTRINE OF REAL INCO ME FOR THE PURPOSES OF TAXATION IS A SETTLED ONE WHAT CAN BE T AXED IS ONLY REAL INCOME. IF ASSESSEE HAS NOT PREPARED ITS ACCOU NTS ON THE THEORY OF REAL INCOME, LD AO IS REQUIRED TO DISREGARD THE SAME AND COMPUTE THE REAL INCOME. VARIOUS CASES HAVE BEE N GIVEN WITH REGARD TO REAL INCOME, WHICH ARE GIVEN AT PG. 5 (BOTTOM) OF LD. CIT(A) TO PG. 8. LD CIT(A) CHOSE NOT DISTINGUIS H THOSE CASES. (E) ARTICLE 265 OF THE CONSTITUTION IN TURN PROMISES TH AT NO TAX CAN BE COLLECTED BY AUTHORITY OF LAW. THE REAL INCO ME, AND ONLY THAT CAN BE TAXED. ONCE THE LD. ASSESSING OFFI CER IS CONVINCED THAT THE INCOME OF THE ASSESSEE WAS ONLY AS SHOWN IN THE RETURN U/S 153A, LD. ASSESSING OFFICER CAN NOT DENY THE CLAIM OF THE ASSESSEE. (F) IT MAY THAT THE ASSESSEE HAS FILED ITS RETURN EARLI ER NOT SHOWING THE PROFITS. THERE ARE VARIOUS CONSEQUENCES OF NOT FURNISHING CO RRECT FIGURES. FOR ONE -: 23: - 23 OFFENCE, A PERSON CANNOT BE PUNISHED IN ANOTHER MAN NER. FOR THE REASON ASSESSEE HAS NOT SHOWN PROPER FIGURES, ASSESSEE CAN NOT BE LIABLE FOR OTHER PUNISHMENT IN THE FORM OF TAX LIABILITY. 2. A.O. PG. 5 PARA (II). THE SO CALLED INVENTORY HAS NEVER BEEN TAKEN INTO CONSIDERATION BY THE ASSESSEE OR DISCLOSED BY THE ASSESSEE FOR THE PURPOSES OF AVAILING C. C. LIMITS OR SECURED LOAN FROM THE BANK S AND ANY OTHER INSTITUTION. THUS, THERE IS NO INDICATION THAT THE SO CALLED STO CK INVENTORY WAS EVER USED FOR THE PURPOSES OF BUSINESS OR EVER USED AS HAVING ANY RELEVANCE IN HIS BUSINESS. SUBMISSIONS : (A) IT IS SUBMITTED THAT THE ASSESSEE HAD OBTAINED THE C.C. LOAN SECURED BY WAY OF HYPOTHECATION OF STOCK AND BOOK DEBTS. (B) ONCE A PERSON TAKES A CC LIMIT FROM BANK, THE BANK IS REQUIRED TO REGULARLY MONITOR THE BANK LOAN ACCOUNT BY OBTAININ G THE STOCK STATEMENTS ON MONTHLY BASIS AND ALSO THE ANNUAL FINANCIAL STATEME NTS OF THE BORROWER. ON THE BASIS OF SAME, THE DRAWING POWER IS CALCULATED. THE REQUIREMENT IS SO STRINGENT THAT IF THE STOCK STATEMENTS ARE NOT GIVEN FOR 6 MO NTHS, THE ACCOUNT WOULD BE TREATED AS A NON-PERFORMING ASSET. THE ASSESSEE HAS REGULARLY FILED THESE STATEMENTS BEFORE THE BANK. (C) COPY OF THE STOCK/DEBTORS STATEMENTS FILED BEFORE THE BANK HAS BEEN SUBMITTED ON ILLUSTRATIVE BASIS. -: 24: - 24 PB REF. STOCK STATEMENT AS ON P8437 28.02.2001 PB 457-458 30.03.2004 PB477-478 28.02.2005 PB 500-501 30.03.20065 IF THE STOCK STATEMENTS WOULD BE SEEN, IT WILL BE N OTICED THAT THE BANK HAS CALCULATED THE DRAWING POWER OF THE AS SESSEE ON THE BASIS OF THE STOCK STATEMENT SUBMITTED BY TH E ASSESSEE. BANK HAS REDUCED A MARGIN OF 50 % FROM TH E NET STOCK OF THE ASSESSEE. 3. AO PG. 5 PARA (III). THE SO CALLED STOCK INVENTORY LACKS CREDIBILITY AND RELIABILITY. IT WAS NEVER AUDITED U NDER ANY LAW BY THE AUDITOR AND WAS ALWAYS KEPT OUTSIDE THE PURV IEW OF AUDIT AND NEVER FORMED PART OF ITS AUDITED ACCOUNTS . SUBMISSIONS :- (A) IT IS A SETTLED LAW THAT MERELY IF THE ACCOUNTS ARE AUDITED THE SAME NEED NOT BE ACCEPTED. ON THE SAME ANALOGY, MERELY BECAUSE THE ACCOUNTS ARE NOT AUDITED, THE SAME NEED NOT BE REJECTED, UNLESS ANY DISCREPANCY IN THE ACCOUNTS IS FOUND AND NOTICED BY THE LD. ASSESSING OFFICER. NO SUCH DISCR EPANCY HAS -: 25: - 25 BEEN NOTICED BY THE LD. ASSESSING OFFICER. (B) THESE RECORDS WERE FOUND IN SEARCH AND WERE SE IZED. THE ASSESSEE IN THE STATEMENT DURING SEARCH ITSELF EXPL AINED THE SHORTAGE OF STOCK. THE EXPLANATION OF THE ASSESSEE HAS NOT BEEN CONTROVERTED BY BRINGING ANY MATERIAL TO SHOW THAT THE STOCK REGISTERS FOUND DURING SEARCH WERE FABRICATED . 4. A.O. PG. 5 PARA (III). DURING COURSE OF SEARCH, A SSESSEE WAS FOUND TO BE INVOLVED IN THE SALES OUTSIDE HIS R EGULAR BOOKS OF ACCOUNT (INSTANCES OF THE SAME ARE GIVEN A ND DISCUSSED IN THE SUBSEQUENT PARA IN THIS ORDER). SUBMISSIONS : ALTHOUGH LD. ASSESSING OFFICER NOTES THAT THE INSTA NCES ARE GIVEN IN SUBSEQUENT PARAS, THE SAME HAVE NEVER BEEN ANYWH ERE. THE FINDINGS OF THE LD. ASSESSING OFFICER ARE BASED ON CONJECTURES AND SURMISES. NOT EVEN A SINGLE INSTANCES OF THE SA ME HAS BEEN NOTED BY THE LD. ASSESSING OFFICER. THERE ARE NO SA LES OUTSIDE BOOKS. 5. CIT(A) PG. 20 PARA 4.1 . THE APPELLANT HAVING MANIPULATED THE STOCK VALUES ACCORDING TO ITS OWN CONVENIENCE C ANNOT BE PERMITTED TO GO BACK ON THE SAME AND PLEA THAT THE SAME WAS -: 26: - 26 ACCORDING TO BASIC PRINCIPLES OF ACCOUNTANCY OR REA L INCOME THEREOF SHALL BE COMPUTED. HE RELIED ON AMAL KUMAR CHAKRABORTHY, 207 ITR 376 (CAL) PAG. 390, WHERE IT WAS OBSERVED :- HERE, WE ARE TO GO BY THE DICTUM FALSUS IN UNO F ALSUS IN OMNIBUS. THOUGH APPLICABLE IN CRIMINAL LAW, IT IS A SOUND PRINCIPLE TO APPLY IN TAXATION WHEN THE MATTER IS O NE OF THE FINDING OF FACT ON THE BASIS OF STATEMENT OF A WITN ESS AND THEIR JUDICIAL EVALUATION. SUBMISSIONS: - (A) THE ENGLISH MEANING OF FALSUS IN UNO FALSUS IN OMNIBUS IS FALSE IN ONE TING, FALSE IN ALL. (B) IN THE CASE OF AMAL KUMAR (SUPRA), THE ASSESSE E HAD CHANGED HIS STANDS ON VARIOUS OCCASION WHILE EXPLAI NING THE SOURCE OF INVESTMENT. FURTHER. THERE WAS NO EVIDENC E TO PROVE THE STAND TAKEN BY ASSESSEE AS ALL THE RECORDS WERE DESTROYED. HOWEVER, IN PRESENT CASE, THE DEPARTMENT IS NOT PLEADING THAT THE FALSE HAS BEEN STATED BY THE ASSE SSEE. ALSO, RECORDS ARE AVAILABLE. (C) IN NISAR ALI V. STATE OF UTTAR PRADESH, AIR 195 7 S.C. 366, IT -: 27: - 27 HAS BEEN HELD THAT THIS MAXIM HAS NOT RECEIVED GENE RAL ACCEPTANCE IN DIFFERENT JURISDICTIONS IN INDIA: NO R HAS THIS MAXIM COME TO OCCUPY THE STATUS OF A RULE OF LAW. IT IS MERELY A RULE OF DISREGARDED ANT THAT IT MUST BE DISREGARDED . ALSO IN RE SRI SEVUGA MOOPALL AIR 1957 MAD 7S0) (D) IN UDGAR AHIR VS STATE OF BIHAR, AIR 1965 SC 27 7, IT WAS HELD THAT THE MAXIM IS NEITHER A SOUND RULE OF LAW NOR A RULE OF PRACTICE. HARDLY ONE COMES ACROSS A WITNESS WHOS E EVIDENCE DOES NOT CONTAIN A GRAIN OF UNTRUTH. IN BH E RAM VS. STATE OF HARYANA, (1980), 1 SCC 201, IT WAS HELD TH AT THE DOCTRINE IS NOT EVEN APPLICABLE IN CRIMINAL TRIALS. THE LATEST IN THE SERIES IS RAM UDGAR SINGH VS. STATE OF BIHAR, ( 2004) 10 SCC 443, WHERE IT WAS HELD THAT THE MAXIM IS NOT AP PLICABLE IN INDIA. COURT CAN ACCEPT A PART OF THE DISPOSITIO N. THE COURT NEEDS TO SEPARATE THE WHEAT FROM THE CHAFF. (E) IN THE STATE OF PUNJAB VS. HARI SINGH, AIR 197 4 S.C.116, IT WAS HELD THAT IF AFTER CONSIDERING THE WHOLE MAS S OF EVIDENCE, A RESIDUE OF ACCEPTABLE TRUTH IS ESTABLISHED BY THE PROSECUTION BEYOND REASONABLE DOUBT, THE COURTS ARE BOUND TO GI VE EFFECT TO -: 28: - 28 THE RESULT FLOWING FROM IT, AND NOT THROW IT OVER BOARD ON PURELY HYPOTHETICAL AND CONJECTURAL GROUNDS. IN PRESENT CASE, THE ASSESSEE HAS BEEN ABLE TO ESTA BLISH ON THE BASIS OF THE EVIDENCE FOUND DURING SEARCH AND EXCES S STOCK WAS RECORDED IN THE BOOKS. THE LD. ASSESSING OFFICER CA NNOT THROW THE EVIDENCE MERELY HOLDING THAT ONCE A FALSE, ALWA YS A FALSE. (F) THE COURTS HAVE GONE TO THE EXTENT OF HOLDING T HAT MORTALITY AND ETHICS HAS NOTHING TO DO WITH INCOME-TAX. INCOM E TAX IX CONCERNED WITH A VERY LIMITED QUESTION AS TO, WHETH ER THE AMOUNT BROUGHT TO TAX CONSTITUTES THE INCOME OF THE ASSESSEE. IN A CLASSICAL DECISION IN RAMDAS DOSSA & CO., 29 ITR 1001 ( BOM), IT WAS HELD THAT IT IS NOT PERMISSIBLE FOR TH E DEPARTMENT TO TAX THE ASSESSEE MERELY BECAUSE THE ASSESSEE HAS DO NE SOMETHING WRONG. THE LATEST IN THE SERIES IS THE JUDGMENT OF T. A. QURESHI ( DR.) 8 ITJ 69 ( S.C.). IN THAT CASE, IT WAS HELD T HAT COURTS SHOULD NOT ADOPT EMOTIONAL AND MORAL APPROACH RATHE R THAN LEGAL APPROACH. CASES ARE TO BE DECIDED BY COURTS O N LEGAL PRINCIPLES AND NOT ON ONES OWN MORAL VIEWS. LAW IS DIFFERENT FROM MORALITY. -: 29: - 29 6 . CIT(A) PG. 21 PG. 4.1.2. IT IS SETTLED POSITION O F LAW BY THE DECISION IN CIT VS. SUN ENGINEERING WORKS PVT LTD. (SC) THAT RE-ASSESSMENT PROCEEDINGS ARE FOR THE BENEFIT OF REVENUE AND THE ASSESSEE/ APPELLANT CANNOT PRESS CLAIM OF DEDUC TION, ADJUSTMENT, ETC. IN SUCH PROCEEDINGS. SPECIFICALLY IN RESPECT TO SECTION 153A, HON'BLE JODHPUR TRIBUNAL IN SUN CITY ALLOYS, 124 TTJ 74 (JD.) HAS HELD THAT NO DEDUCTION OR ALLOWANCE CA N BE MADE BY ASSESSEE IN ASSESSMENT OR REASSESSMENT M ADE IN PURSUANCE OF NOTICE U/S 153A. SUBMISSIONS: (D) THE CASE OF CIT VS SUN ENGINEERING WORKS (SUPRA), A ND THE CASE OF ASSESSEE WHO IS COVERED U/S. 153A ARE DIFFE RENT FOR FOLLOWING REASONS :- (I) IN CASE OF REASSESSMENT U/S 147, THE REOPENING IS DONE, WHEN THERE IS A REASON TO BELIEVE THAT 'INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT'. ON REOPENING, LD. A.O. ASSESSES 'SUCH INCOME' AND ALS O 'OTHER INCOME'. IN SECTION 153A, THE PROCEEDINGS START WHEN THE SEA RCH IS CONDUCTED U/S 132. ALTHOUGH BEFORE INITIATING A -: 30: - 30 SEARCH, THERE EXISTS A REASON TO BELIEVE, ONCE A SE ARCH IS CONDUCTED, THE LD. ASSESSING OFFICER ASSES TOTAL INCOME. IT IS NOT SUCH INCOME WHICH HAS ESCAPE D ASSESSMENT IS ASSESSED. (II) IN SUN ENGINEERING, THE ASSESSEE HAD FILED L OSS RETURNS, WHICH WERE FILED BEYOND TIME. LD AO HELD THAT THE L OSS CANNOT BE ALLOWED. ASSESSEE PREFERRED APPEAL TO LD. CIT(A), WHO DENIED THE LOSS TO BE CARRIED FORWARD. ASSESSEE DID NOT PREFER APPEAL TO I.T.A.T. THEREAFT ER WHEN PROCEEDINGS U/S 147 WERE INITIATED, ASSESSEE CONTENDED THAT THE LOSS SHALL BE ALLOWED TO BE CARR IED FORWARD. IN THESE FACTS, IT WAS HELD THAT THE ASSES SEE CANNOT MAKE A FRESH CLAIM OR REAGITATE THE ISSUES ALREADY CONCLUDED. THE FACTS OF THE ASSESSEE ARE VERY DIFFERENT FROM THAT OF SUN ENGG. THE ASSESSEE HAD NEVER DISCLOSED THE CORR ECT STOCK IN THE RETURN. THE ASSESSEE IS DISCLOSING THE CORRECT STOCK IN THE RETURN U/S 153A. SUN ENGG. CAS E DOES NOT PROHIBIT THE ASSESSEE FROM DISCLOSING CORR ECT INCOME IN THE PROCEEDINGS U/S 153A. -: 31: - 31 (III) IT HAS BEEN HELD EVEN IN THE CONTEXT OF SECTI ON 147, THAT ASSESSEE CAN RAISE ISSUES WHICH WERE EARLIER NOT CLAIMED. IN ITO & ANR. VS. TAMILNADU MINERALS LIMIT ED, 128 TTJ 386 (CHENNAI )( TM), ASSESSEE DID NOT CLAIM DEDUCTION U/S 80HHC IN THE ORIGINAL RETURN. IN THE RETURN U/S 148, ASSESSEE CLAIMED THE DEDUCTION. IT WAS HELD THAT THE ASSESSEE WAS PROPER IN CLAIMING SUCH DEDUCTION. (B) IN ALL CARGO GLOBAL (MUM) (S.B.), IT WAS HELD IN PARA 58 THAT IF THE ASSESSMENT HAS BEEN COMPLETED U/S 14 3(3), THEN ONLY UNDISCLOSED INCOME SHALL BE ASSESSED. BUT IF THE ASSESSMENT HAS NOT BEEN COMPLETED ( I.E. ASSESSMENTS HAVE ABATED), TOTAL INCOME CAN BE ASSES SED. IT IS PERTINENT TO NOTE THAT ALL THE RETURNS OF THE ASSESSEE FOR ASSESSMENT YEAR 2001-02 TO 2007-08 WERE ACCEPTED U/ S 143(1). THE ASSESSMENT U/S 143(3) WAS NOT DONE. THE DEPARTMENT MAY CONTEND THAT ONE NEEDS TO ASSESS WHETHER THE ASSESSEE FALLS IN PARA UNDER THE PARA 5 8(A) OF THE JUDGMENT OR 58(B) OF THE JUDGMENT. IN ATITHI M. PATEL (MUM), THE HON'BLE TRIBUNAL MUMB AI HAS -: 32: - 32 HELD THAT IF THE TIME LIMIT FOR INITIATING PROCEEDI NGS U/S 143(2) HAS ELAPSED, THEN IT WOULD BE TREATED AS IF THE ASS ESSMENT HAS BEEN COMPLETED, AND ONLY INCRIMINATING MATERIAL CAN BE USED. ASSESSEE SUBMITS THAT EITHER IF THE ASSESSEE FALLS IN PARA 58(A) OR 58(B), THE CLOSING STOCK SHALL BE VALUED ON THE BASIS OF THE SEIZED RECORD, IN CASE THE ASSESSMENTS ARE H ELD TO BE NON ABATED, THE 'TOTAL INCOME' SHALL BE ASSESSED. I N CASE ASSESSMENTS ARE HELD TO BE DEBATED, THE ASSESSEE CONTENDED THAT STOCK REGISTERS WERE SEIZED DURING T HE COURSE OF SEARCH. THERE WERE NOT DISCLOSED EARLIER. THEREF ORE, THESE WERE INCRIMINATING. ON THE BASIS OF THIS, THE UNDI SCLOSED INCOME OF THE ASSESSEE SHALL BE ASSESSED. THE INCO ME ASSESSED THEREOF MAY BE POSITIVE OR NEGATIVE. (C) THE DECISION OF SUN CITY ALLOYS, 124 TTJ 674 (JODH) WAS BASED ON THE FOOTING THAT THE PROCEEDINGS U/S 153A ARE NOT DE NOVO PROCEEDINGS AND ONLY MATERIAL FOUND DURING SEARCH CAN BE CONSIDERED. ASSESSEE CANNOT CLAIM ANY FRESH CLAIM IN THE PROCEEDINGS U/S 153A. IT IS SUBMITTED THAT - -: 33: - 33 (I) ONCE IN ALL CARGO LOGISTICS (SUPRA) THE SCOPE OF SECTION 153A HAS BEEN HELD THAT PROCEEDINGS U/S 153A ARE DE - NOVO PROCEEDINGS AND ALL MATERIAL CAN BE CONSIDERED IN THE CASE OF ABATED ASSESSMENT, ASSESSEE WOULD B E VERY WELL BE ENTITLED TO MAKE A FRESH CLAIM. (II) FURTHER, ASSESSEE IS MAKING A CLAIM ONLY ON T HE BASIS OF SEIZED RECORDS. ON THE BASIS OF ABOVE, AND RELYING ON VARIOUS CAS E-LAWS SUBMITTED, IT IS MOST HUMBLY PRAYED THAT THE REAL INCOME OF THE ASSESSEE MAY BE COMPUTED AND TAXED. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT ASSES SEES CONTENTION. THE LD. CIT(A) ALSO CONFIRMED THE ADDIT ION. 7. IT WAS ARGUED BY THE LD. AUTHORIZED REPRESENTATIVE THAT BOTH STOCK INVENTORY WAS FOUND DURING SEARCH W AS NEVER TAKEN INTO ACCOUNT FOR PREPARING THE REGULAR BOOKS AND BALANCE SHEET, YET THE FACT THAT IN REALITY, THIS S TOCK ADJUSTED HAS NEVER BEEN DOUBTED AND THAT PHYSICAL STOCK FOUN D DURING COURSE OF SEARCH PARTY WITH THE STOCK SHOWN IN THE SHEET. -: 34: - 34 8. WE HAVE CAREFULLY GONE THROUGH THE MATERIAL PLACED ON RECORD VIS--VIS STATEMENT RECORDED U/S 132(4) AND FOUND THAT THE ASSESSEE ITSELF IN THE AUDITED ACCOUNT HAVE INC ORPORATED THE STOCK, WHICH WAS SUBSEQUENTLY ALLEGED TO BE NOT CORRECT, IN SO, FAR AS STOCK WAS SHOWN AT A HIGHER FIGURE ONLY TO AVAIL HIGHER BANK LIMIT WHEN THE CORRECT POSITION OF STOC K WAS FOUND BY THE SEARCH PARTY DURING SEARCH AND SEIZURE OPERA TION. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT MANI PULATED ACCOUNTS WERE FURNISHED TO THE DEPARTMENT, CANNOT B E ACCEPTED. THERE IS NO DISPUTE TO WELL SETTLED LEGAL PROPOSITION THAT NO PERSON CAN BE PERMITTED TO TAKE ADVANTAGE O UT OF ITS WRONGS COMMITTED KNOWINGLY/INTENTIONALLY. THE ASSES SEE HAVING KNOWINGLY OFFERED THE VALUE OF STOCK IN ITS AUDITED ACCOUNTS FOR ITS OWN CONVENIENCE, CANNOT BE NOW PER MITTED TO GO BACK ON THE SAME AND PLEAD THAT THE SAME WAS NO T ACCORDING TO BASIC PRINCIPLE OF ACCOUNTANCY, AND R EAL INCOME THEORY SHOULD BE APPLIED FOR ASSESSING CORRECT INCO ME. HON'BLE SUPREME COURT IN THE CASE OF SUN ENGINEERING WORKS (SUPRA) HELD THAT REASSESSMENT PROCEEDINGS ARE FOR THE BENE FIT OF THE REVENUE, THE ASSESSEE CANNOT PRESS A CLAIM OF DEDUC TION SO AS -: 35: - 35 TO REDUCE ITS RETURNED INCOME IN THE COURSE OF REAS SESSMENT PROCEEDINGS. EVEN THE PROVISIONS OF SUB SECTION (5) OF SECTION 139 PERMITS REVISION OF RETURN ON DETECTION OF BONA FIDE MISTAKE, THAT TOO WITHIN THE SPECIFIED PERIOD OF ON E YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR. SINCE NO R EVISED RETURN WAS FILED BY THE ASSESSEE WITHIN THE PERIOD SPECIFIED U/S 139(5), ASSESSEES CLAIM FOR REVISING THE STOCK VALUATION CANNOT BE ACCEPTED AFTER THE THINGS HAVE COME ON RE CORD AFTER SEARCH AND SEIZURE OPERATION AT THE ASSESSEES BUSI NESS PREMISES. DETAILED FINDING HAS BEEN RECORDED BY THE LD.CIT(A) WITH REGARD TO THE ADDITIONS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DIFFERENCE IN VALUE OF STOCK IN ALL THE YEARS UNDER CONSIDERATION. NOTHING WAS BROUGHT TO OUR NOTICE SO AS TO PERSUADE US TO DEVIATE FROM THE FINDINGS RECORDED B Y THE LOWER AUTHORITIES. ACCORDINGLY, WE DO NOT FIND ANY INFIRM ITY IN THIS PART OF THE ORDER OF THE CIT(A) AND CONFIRMED THE A CTION OF ASSESSING OFFICER WITH RESPECT TO THE ADDITION MADE ON ACCOUNT DIFFERENCE IN STOCK IN ALL THE YEARS UNDER CONSIDER ATION. -: 36: - 36 9. DURING THE COURSE OF SEARCH, THE ADDITION WAS MADE ON THE BASIS OF ENTRIES FOUND RECORDED IN THE SEIZED P APER MARKED AS BS-4. THE NOTING SO FOUND ON THE SEIZED PAPER IN DICATED CASH TRANSACTION OF THE ASSESSEE COMPANY AND ITS MA NAGING DIRECTOR, SHRI ALOK AGARWAL WITH OTHERS SHOWING THE ROTATION OF MONEY. IT WAS CONTENDED BY THE LD. AUTHORIZED REPRE SENTATIVE THAT AT THE TIME OF SEARCH, THE SEIZED PAPERS BS-4 COULD NOT BE EXAMINED AND HENCE THE AMOUNT OF RS. 40 LAKHS WAS O FFERED ON THE SAFER SIDE. HOWEVER, IN THE RETURNS SO FILED , PEAK WAS WORKED OUT AT RS. 16,93,308/- IN THE ASSESSMENT YEA R 2006- 07 AND RS. 61,742/- IN THE ASSESSMENT YEAR 2007-08. 10. IT IS PERTINENT TO MENTION THAT THE ASSESSEE HAD MA DE SURRENDER OF RS. 40 LAKHS DURING THE COURSE OF SEAR CH ITSELF. HOWEVER, AT THE TIME OF MAKING THE SURRENDER, THE S EIZED PAPERS BS-4 COULD NOT BE EXAMINED, HENCE THE AMOUNT OF RS. 40 LAKHS WAS OFFERED ON THE SAFER SIDE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS FILED DETA ILED WORKING IN RESPECT OF CALCULATION OF PEAK AMOUNTS. WHEN THE ASSESSING OFFICER QUESTIONED METHOD OF WORKING THE PEAK AMOUNT, THE ASSESSEE EXPLAINED THAT WHATEVER WAS FO UND -: 37: - 37 UNEXPLAINABLE OR UNRECORDED WAS ARRANGED DATE-WISE/ AMOUNT- WISE BEGINNING FROM FINANCIAL YEAR 2005-06 IN RUNNI NG MANNER AND THIS EXERCISE RESULTED IN A PEAK CREDIT AMOUNTI NG TO RS. 16,93,308/- FOR THE ASSESSMENT YEAR 2006-07. THE AS SESSING OFFICER HAS EXAMINED THE WORKING OF PEAK, HOWEVER, NO DEFECT WAS POINTED OUT. IT WAS CLEARLY EXPLAINED BY THE AS SESSEE THAT THE PEAK WAS WORKED OUT DISREGARDING THE NATURE OF THE UNEXPLAINED ENTRIES AND ALSO DISREGARDING THE PERSO NS WITH WHOM SUCH ENTRIES RELATE I.E. WHETHER THOSE ENTRIES PERTAIN TO THE COMPANY OR ANY OTHER INDIVIDUAL. IT WAS ALSO EX PLAINED THAT ALL THE ENTRIES, WHICH WERE FOUND UNRECORDED O R WAS NOTICED OR FOUND UNEXPLAINABLE IN THE SEIZED RECORD S WAS INCLUDED IN SUCH WORKING OF PEAK. HOWEVER, THE ASSE SSING OFFICER HAS DECLINED TO ACCEPT THE SAME MERELY ON T HE PLEA THAT THERE WERE DIFFERENT PERSONS AND HENCE ENTRIES SHOU LD BE SEGREGATED PEAK BE ARRIVED AT FOR EACH PERSON SEPAR ATELY. AS PER OUR CONSIDERED VIEW WHEN THE ASSESSEE HAS OWNED ALL THE TRANSACTIONS, THEREFORE, THERE WAS NO NECESSITY TO SEGREGATE THE ENTRIES. THE ASSESSING OFFICER ALSO OBSERVED THAT T HERE WAS NO ROTATION OF THE AMOUNT, HENCE PEAK IS NOT PROPER ME THOD TO -: 38: - 38 DETERMINE THE MAXIMUM INVESTMENT. WE FOUND THAT THE RE WAS ROTATION OF FUND MARKED AS A TO A, B TO B ETC. AND 1 TO 1 AND 2 TO 2 ETC. AS PER THE DETAILS FURNISHED AT PAPER BOO K PAGE NO. 532 TO 541. IN THE CHART OF PEAK CREDIT SO SUBMITTE D, THERE WAS NO AMOUNT, WHICH HAS GONE IRRETRIEVABLY. THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT MONEY WAS APPLIED FOR ANY EXPENSES OR INVESTMENT. THERE WAS CONTINUOUS ROTATI ON OF THE AMOUNT. THE ASSESSEE HAS ALSO REDUCED THE PEAK OF E ARLIER YEAS FROM THE PEAK OF SUBSEQUENT YEARS. AS PER THE PEAK STATEMENT, WE FOUND THAT TOTAL RECEIPTS OF RS. 63,0 8,793/- WAS ADDED TO THE INCOME BY THE ASSESSING OFFICER WITHOU T TAKING INTO ACCOUNT ROTATION OF THE FUND IN THE VERY SAME ACCOUNT. THE PAYMENT WAS TO THE TUNE OF RS. 49,18,477/- GIVI NG THE DIFFERENCE OF RS. 13,90,316/-. HOWEVER, AS AGAINST THIS, THE ASSESSEE SURRENDERED RS. 16,93,308/- FOR THE ASSESS MENT YEAR 2006-07 AND RS. 61,742/- FOR THE ASSESSMENT YEAR 20 07-08 BY DATE-WISE ARRANGING THE DEBIT AND CREDIT. THERE IS NO DISPUTE TO THE PROPOSITION THAT STATEMENT U/S 132(4) HAS A GREATER EVIDENTIARY VALUE TILL IT IS PROVED TO BE INCORRECT . -: 39: - 39 11. IN THE INSTANT CASE, SURRENDER WAS MADE WITHOUT GOI NG INTO THE DETAILS OF THE DOCUMENTS. DURING ASSESSMEN T PROCEEDINGS, THE ASSESSEE HAS EXPLAINED THE DOCUMEN TS FULLY AND ALSO FILED STATEMENT OF WORKING THE PEAK CRED IT IN WHICH NO DEFECT WAS POINTED OUT. IT IS ALSO SETTLED POSIT ION OF LAW THAT ADMISSION MADE BY THE ASSESSEE U/S 132(4) IS AN IMP ORTANT PIECE OF EVIDENCE BUT THE SAME IS NOT CONCLUSIVE AN D IT IS OPEN TO THE ASSESSEE, WHO MADE THE ADMISSION TO SHOW THA T IT IS INCORRECT AND THE SAME WAS MADE UNDER A MISTAKEN BE LIEF OF FACTS OR LAW. WE HAD VERIFIED THE PEAK STATEMENT PL ACED ON RECORD WHEREIN EACH RECEIPT AND PAYMENT IS ARRANGED DATE- WISE/AMOUNT-WISE BEGINNING FROM FINANCIAL YEAR 2005 -06. PEAK OF RS. 16,93,308/- IS WORKED OUT IN ASSESSMENT YEAR 2006-07, WHEREAS PEAK OF RS. 61,742/- IS WORKED OUT IN ASSESSMENT YEAR 2006-07. ACCORDINGLY, WE MODIFY THE ORDERS OF LOWER AUTHORITIES AND DIRECT THE ASSESSING OFFIC ER TO RESTRICT THE ADDITION TO THE EXTENT OF PEAK AMOUNT WORKED OU T AT RS. 16,93,308/- FOR THE ASSESSMENT YEAR 2006-07 AND RS. 61,742/- FOR THE ASSESSMENT YEAR 2007-08. -: 40: - 40 12. IN THE ASSESSMENT YEAR 2007-08, ADDITION OF RS. 5,98,792/- (-) MADE BY THE ASSESSING OFFICER ON ACC OUNT OF PROFIT ON SHORTAGE OF STOCK. AN ADDITION OF RS. 3,2 2,639/- WAS ALSO MADE ON ACCOUNT OF NET PROFIT ON RS. 62,43,929 /-. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION OF RS. 5,98,792/- BUT UPHELD ADDITION OF RS. 3,22,6390/- A FTER HAVING THE FOLLOWING OBSERVATIONS :- 4.3. NOW COMING TO THE GROUND NOS.1 AND 4, IN WHICH REJECTION OF BOOKS OF ACCOUNTS IS CHALLENGED AND FURTHER THE ADDITION OF RS. 5,98,792/- ON SHORTAGE OF STOCK FOUND AND DETERMINATION OF NP AT RS. 3,22,639/- ARE CHALLENGED ARE TAKEN UP TOGETHER FOR CONSIDERATION. THE APPELLANT BY HIS OWN ADMISSION WAS NOT REFLECTING CORRECT STOCK POSITION IN THE P&L AND TRADING ACCOUNT OF EARLIER YEARS. FURTHER, STILL, LOOSE PAPERS EVIDENCING UNRECORDED TRANSACTIONS WERE FOUND IN COURSE OF SEARCH AND SEIZURE -: 41: - 41 OPERATION AND THE SAME HAS BEEN ADMITTED TO BE CONTAINING BUSINESS FINANCIAL TRANSACTIONS OF THE APPELLANT COMPANY AND THE DIRECTOR OF THE APPELLANT COMPANY HAS OFFERED AN AMOUNT OF RS.40 LAKHS AS UNDISCLOSED INCOME ON THE BASIS OF SUCH SEIZED DOCUMENTS FOR TAXATION IN COURSE OF SEARCH AND SEIZURE OPERATION AND HAS FURTHER OFFERED MORE THAN RS. 17 LAKHS OF UNDISCLOSED INCOME IN THE RETURNS FOR A.Y. 2006-07 AND 2007-08. HENCE, THE BOOKS OF ACCOUNTS OF THE APPELLANT DURING THE YEAR UNDER CONSIDERATION ALSO CANNOT BE SAID TO BE COMPLETE AND RELIABLE IN ANY MANNER. THE AO HAS DISCUSSED THE ISSUE THREAD-BARE AS ALREADY EXTRACTED ABOVE AND THE APPELLANT CANNOT DRAW ANY ASSISTANCE AND SUPPORT FROM VARIOUS JUDICIAL DECISIONS CITED IN VIEW OF CLEAR -: 42: - 42 FACTUAL POSITION EMERGING ABOUT THE UNRELIABILITY OF THE BOOKS OF ACCOUNTS AND OTHER RECORDS MAINTAINED BY THE APPELLANT AS THE FACTS PREVALENT IN THE APPELLANT'S CASE ARE NOT SIMILAR TO THE FACTS NOTICED IN JUDICIAL DECISIONS AS REPORTED AND RELIED BY THE APPELLANT. THE AO HAS FAIRLY APPLIED THE GP ARTE OF 9.59% ON THE RECASTED TRADING RESULTS. HENCE, THE AO'S ACTION IN DETERMINATION OF NP AGAINST THE LOSS CLAIMED BY THE APPELLANT IS FOUND TO BE FULLY JUSTIFIED AND ACCORDINGLY IS REQUIRED TO BE CONFIRMED AND IS SO CONFIRMED. 4.3.1 HOWEVER, THE FURTHER ACTION OF THE AO IN MAKING SEPARATE ADDITION OF RS.5,98,792/- ON SHORTAGE OF STOCK FOUND CONSIDERING THE OTHER FACTS NOTICED IN SEARCH AND SEIZURE OPERATION AND ALSO -: 43: - 43 CONSIDERED BY AO IN REJECTING THE BOOK RESULTS CANNOT BE SAID TO BE JUSTIFIED IN ANY MANNER. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CONCLUSION DRAWN THAT THE SHORTAGE DETERMINED ON THE BASIS OF STOCK FOUND IN SEARCH & SEIZURE OPERATION VIS-A-VIS STOCK AS PER BOOK WAS SOLD OUTSIDE BOOKS DOES NOT APPEAR TO BE LOGICAL AND PROPER INFERENCE DRAWN IN FACTS AND CIRCUMSTANCES OF THE CASE AND HENCE SEPARATE ADDITION MADE AT RS. 5,98,792/- IS DIRECTED TO BE DELETED BEING UNSUSTAINABLE ON FACTS AND IN LAW. 13. WE HAVE CONSIDERED THE RIVAL CONTENTION AND FOUND THAT THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS. 3,22,639/- ON ACCOUNT OF THE NET PROFIT ON SHORTAGE OF STOCK. HOWEVER, THE ASSESSING OFFICER HAS ALSO APPLIED GRO SS PROFIT RATE OF 0.59 % ON THE RECASTED TRADING RESULT, ACCO RDINGLY, AN ADDITION OF RS. 5,98,792/- WAS MADE AFTER GIVING DE TAILED -: 44: - 44 REASONING AT PARA 4.3. THE LD. CIT(A) HAS UPHELD TH E ADDITION OF RS. 3,22,639/- ON ACCOUNT OF NET PROFIT, HOWEVER , SEPARATE ADDITION MADE ON ACCOUNT OF GROSS PROFIT AT RS. 5,9 8,792/- WAS DELETED. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) IN SO FAR AS CIT(A) HAS ALREADY SUSTAINED ADDITION ON ACCOUNT OF NET PROFIT RATE. NO ADDITION WAS JUSTIFIED ON ACCOU NT OF GROSS PROFIT, WHEN ADDITION ON ACCOUNT OF NET PROFIT HAS ALREADY BEEN UPHELD. ACCORDINGLY, WE CONFIRM THE ACTION OF CIT(A ) FOR UPHOLDING THE ADDITION ON ACCOUNT OF NET PROFIT OF RS. 3,22,639/- AND DELETION OF GROSS PROFIT ADDITION OF RS. 5,98,792/-. NO INTERFERENCE IS REQUIRED IN THIS PAR T OF ORDER OF CIT(A). 14. THE ASSESSEE IS ALSO AGGRIEVED FOR DISALLOWANCE MAD E BY THE ASSESSING OFFICER ON ACCOUNT OF TELEPHONE, V EHICLE CHARGES, CAR DEPRECIATION ETC., WE FOUND THAT THE A SSESSEE IS A CORPORATE ENTITY WHEREIN NO DISALLOWANCE CAN BE MAD E ON ACCOUNT OF PERSONAL USE AS HELD BY THE HON'BLE GUJA RAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGINEERING CO. LTD., 121 TAXMAN 41. RESPECTFULLY FOLLOWING THE SAME, THE DIS ALLOWANCE -: 45: - 45 MADE FOR THE TELEPHONE, VEHICLE EXPENSES AND BUSINE SS INCOME ETC. ARE DELETED. 15. IN VIEW OF THE ABOVE DISCUSSION, WE CONFIRM THE ACT ION OF THE LOWER AUTHORITIES WITH REGARD TO THE ADDITIO N MADE ON ACCOUNT OF EXCESS STOCK AS UNDER :- A.Y. 2001-02 RS. 12,50,375/- A.Y. 2002-03 RS. 1,30,000/- A.Y. 2003-04 RS. 17,38,000/- 16. IN VIEW OF OUR DISCUSSION AT PARA 8 HEREINABOVE VI S-- VIS THE FINDINGS RECORDED AT PARA 4.2.1 OF LD. CIT( A)S ORDER IN ASSESSMENT YEAR 2006-07, WE CONFIRM THE ACTION OF C IT(A) FOR REJECTING THE REVISED CLAIM OF ASSESSEE PUT FORWARD FOR THE FIRST TIME IN 153A RETURN FILED FOR DIFFERENCE IN VALUE O F STOCK AT RS. 22,85,542/-. 17. IN VIEW OF OUR DISCUSSION AT PARA 8 HEREINABOVE VIS -- VIS THE FINDINGS RECORDED AT PARA 4.2.1 OF CIT(A)S ORDER IN ASSESSMENT YEAR 2007-08, WE CONFIRM THE ACTION OF C IT(A) FOR REJECTING ASSESSEES CLAIM PUT FORWARD FOR THE FIRS T TIME IN 153A RETURN FOR DIFFERENCE IN VALUE OF STOCK AT RS. 63,4 7,064/-. 18. AS THE BOOKS OF ACCOUNT HAVE BEEN REJECTED, THE GRO SS PROFIT ADDITION AT RS. 3,22,699/- MADE IN THE ASSES SMENT YEAR -: 46: - 46 2007-08 IS CONFIRMED. WE DO NOT FIND ANY INFIRMITY IN THIS PART OF ORDER OF CIT(A). 19. IN THE RESULT, THE APPEALS ARE ALLOWED IN PART IN T ERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 28 TH JUNE, 2013. SD/- SD/- (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH JUNE, 2013. CPU* 19266