DCIT, New Delhi V. Sh. Iftkhar Ali Khan, Prop., New Delhi

ITSSA 54/DEL/2008

• Counselvise Citation: [2016] 122 COUNSELVISE.COM (IT) 1699 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 09-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-01-2016
• Assessment Year: misc
• Appeal Filed On: 10-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD KUMAR GARG; R S NEGI
• Assessee Lawyers: A K SAROHA
• Keywords: Unexplained investment; Business income; Search and seizure; Document seized; Additional evidence; Documents seized
• Section: 40A(3); 132; 15; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C: NEW DELHI BEFORE SH. I.C. SUDHIR, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER IT(SS)A NO. 39/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 SH. IFTIKHAR ALI KHAN, 12, DELHI (PAN: AEOPK8624B) VS. DCIT, CENTRAL CIRCLE, NEW DELHI (APPELLANT) (RESPONDENT) AND IT(SS)A NO. 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 DCIT, CENTRAL CIRCLE, NEW DELHI VS. SH. IFTIKHAR ALI KHAN, 12, DELHI (PAN: AEOPK8624B) (APPELLANT) (RESPONDENT) APPELLANT BY SH. VINOD KUMAR GARG, CA & SH. R.S. NEGI, ADV. RESPONDENT BY SH. A.K. SAROHA, CIT(DR) DATE OF HEARING 28.01.2016 DATE OF PRONOUNCEMENT 09.03.2016 ORDER PER O.P. KANT, A.M.: THESE CROSS APPEALS BY THE ASSESSEE AND REVENUE A RE DIRECTED AGAINST THE ORDER DATED 09.01.2008 OF THE LD. CIT(A)-II, NEW DE LHI, IN RESPECT OF BLOCK PERIOD FROM 01.04.1996 TO 16.08.2002. BOTH THE APPE ALS BEING CONNECTED , ARE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO NSOLIDATED ORDER. 2 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 IT(SS)A NO. 39/DEL/2008 2. THE GROUND OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: L. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN REJECTIN G THE BOOKS OF ASSESSEE WITHOUT APPRECIATING AND ADMITTING THE ADD ITIONAL EVIDENCES FILED DURING APPELLATE PROCEEDINGS. 2. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN MAKING AN ADDITION OF RS.9,27,0001- FOR THE AY 2003-04 ON ACCOUNT OF CASH FOUND. 3. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN MAKING NEW ADDITION OF RS.3,92,700/- (ENHANCEMENT) ON ACCOUNT OF UNEXPLAIN ED INVESTMENT IN PURCHASES OF RAW MATERIAL DURING THE A.Y. 1998-9 9. 4. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN ENHANCIN G THE ADDITION ON ACCOUNT OF NET PROFIT FROM RS.3,55,5811- TO RS.9,45 ,485/- FOR AY 1999-2000 TO 2003-04 (UP TO 16.08.2002) BY ARBITRAR ILY APPLYING THE NET PROFIT RATE OF 10% ON TOTAL SALES. 5. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDI NG THE ADDITION OF RS. 40,000/- U/S 69 FOR THE AY 2003-04 ON ACCOUNT OF PU RCHASE OF KVP IN JOINT NAME WITH WIFE OUT OF HER 'MEHAR' MONEY. 6. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN MAKING AN ADDITION OF RS.L,54,7701- U/S 69 FOR THE A Y 2003-04 ON ACCOUNT OF CASH PAYMENT FOR PURCHASE OF SANTRO CAR. 7. THAT THE LD.CIT(A) IS NOT JUSTIFIED IN UPHOLDI NG AN ADDITION OF RS. L,00,000/- U/S 69 FOR THE A Y 2003-04 FOR UNDER VAL UATION OF THE STOCK FOUND. 9. THAT THE LD.CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE VARIOUS ADDITIONS AS TAXATION CAN BE OF THE REAL INCOME AND ONLY TO THE EXTENT OF SOURCE OF INCOME WHICH COULD GIVE RISE TO SUCH INCOME AND NOT BEYOND THAT. 10 THAT THE LD.CIT(A) IS NOT JUSTIFIED IN ASSESSING THE INCOME AT RS.15,14,470/- (AFTER TELESCOPING) WITHOUT GIVING B ENEFIT OF INITIAL INVESTMENT OF 150,000/- AND ALSO OF PROFITS PLOUGHE D BACK BY THE ASSESSEE IN BUSINESS. 11 THAT THE ASSESSEE HEREBY DISPUTES THE VERY LEVY AND OF INTEREST U/S 158 BF A(1),(2). 12. THAT THE ASSESSEE HEREBY PRAYS FOR ANY CONSEQUE NTIAL RELIEF AND OR LEGAL CLAIM ARISING OUT OF THIS APPEAL BEFORE THE D ISPOSAL OF THE SAME. 13. THAT THE ASSESSEE CRAVES LEAVES LEAVE FOR ANY A DDITION, DELETION, AMENDMENT, MODIFICATION, RECTIFICATION IN THE GROUN DS OF APPEAL BEFORE THE DISPOSAL OF THE SAME. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WAS EN GAGED IN THE BUSINESS OF KITES IN THE NAME OF PROPRIETARY CONCERN M/S LALU K ITES CENTRE IN RELEVANT 3 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 PERIOD. A SEARCH AND SEIZURE ACTION UNDER SECTION 132 OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) WAS CONDUCTED AT THE PRE MISES OF THE ASSESSEE ON 16 TH AUGUST, 2002. IN SEARCH ACTION CASH OF RS. 10,27,00 0/- ALONGWITH INCRIMINATING DOCUMENTS INDICATING SALE AND PURCHASE OF KITES WER E FOUND AND SEIZED. . CONSEQUENT TO THE SEARCH, A NOTICE UNDER SECTION 15 8 BC OF THE ACT WAS ISSUED FOR FILING RETURN OF ITS UNDISCLOSED INCOME FOR THE BLOCK PERIOD FROM 01.04.1996 TO 16.08.2002. THE ASSESSEE FILED ITS RETURN DECLARING UNDISCLOSED INCOME OF RS. 29,666/- ON 09.01.2003. THE CASE WAS TAKEN UP FOR S CRUTINY BY WAY OF ISSUE OF NOTICE UNDER SECTION 143(2) OF THE ACT. THE ASSESSI NG OFFICER DID NOT ACCEPT THE BOOKS OF ACCOUNT PRODUCED BY THE ASSESSEE IN THE CO URSE OF THE ASSESSMENT PROCEEDINGS, AND HE MADE THE FOLLOWING ADDITIONS: (I) ON ACCOUNT OF CASH FOUND AND SEIZED FROM THE RE SIDENTS DURING THE SEARCH ACTION - RS. 10,27,000/- (II) UNDISCLOSED INCOME FROM PURCHASE, SALE AND INV ESTMENT IN THE BUSINESS OF KITES RS. 5,05,581/- (III) UNACCOUNTED INVESTMENT IN KISAN VIKAS PATRA - RS. 40,000/- (IV) UNACCOUNTED INVESTMENT IN PURCHASE OF SANTRO C AR 1,54,770/- (V) UNEXPLAINED INVESTMENT IN STOCK RS. 1,50,962/- 3. AGGRIEVED BY THE ABOVE ADDITIONS, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE REJECTION OF BOOKS OF ACCOUNT OF THE ASSESSEE, AND NOT ONLY CONFIRMED THE ADDITIONS BUT ALSO ENHANCED INCOME FROM PURCHASE AND SALE OF KITES FROM RS. 3,55,581/- TO RS. 9,45,485/- AND UNEXPLAINED INVESTMENT AT THE OPENING OF THE BLOCK PERIOD FROM RS. 1,50,000/- TO RS. 3,92,7000/-.THE LD. CIT(A) ALSO ALLOWED TELESCOPING OF THE UNEXPLAINED INVESTMENT/EXPENDITURE AGAINST THE UNDISCLOSED INCOME EARNED AND FINALLY C ONFIRMED THE ADDITION OF RS. 15,14,470/-. 4 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 4. THE ASSESSEE PREFERRED AN APPEAL AGAINST VARIOUS ADDITIONS SUSTAINED AND ENHANCED BY THE LD. CIT(A), WHEREAS THE REVENUE HAS PREFERRED APPEAL AGAINST THE BENEFIT OF TELESCOPING ALLOWED TO THE ASSESSEE. 5. IN GROUND NO. 1 OF THE APPEAL, THE ASSESSEE HAS AGITATED THE ISSUE OF REJECTING THE BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A). 5.1 THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE F ILED PAPER BOOK CONTAINING PAGE NO. 1 TO 302 AND SUBMITTED THAT THE BOOKS OF ACCOUNT WERE PREPARED ON THE BASIS OF THE DOCUMENTS FOUND AND SE IZED IN THE COURSE OF SEARCH. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER AND LD. CIT(A) HAS AT TIMES RELIED ON THE EVIDENCE SUBMITTED BY THE ASSESSEE. L D. AUTHORIZED REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS RE LIED ON THE BOOKS OF ACCOUNT SUBMITTED BY THE ASSESSEE FOR THE FIGURE OF SALES A ND PURCHASE. HE FURTHER SUBMITTED THAT THE BOOKS OF ACCOUNT WERE PRODUCED B EFORE THE LD. CIT(A) ALSO AND THE MATTER WAS REMANDED TWICE TO THE ASSESSING OFFICER AND NO ADVERSE VIEW WAS TAKEN BY THE ASSESSING OFFICER AND, THEREF ORE, THERE WAS NO REQUIREMENT TO REJECT THE BOOKS OF ACCOUNT. 5.2 ON THE OTHER HAND, LD. CIT(DR) RELIED ON THE OR DERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE REJECTION OF THE BOOKS OF ACCOUNT HAS BEEN RIGHTLY UPHELD BY THE LD. CIT(A) IN THE CIRCUMSTANC ES OF THE CASE. 5.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. IN THE CASE OF THE ASSESSEE, IN THE COURSE OF SEARC H ACTION FEW DOCUMENTS INDICATING SALES/PURCHASE, CASH VOUCHERS ETC. WERE FOUND AND NO BOOKS OF 5 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 ACCOUNT WERE FOUND. DURING THE COURSE OF SEARCH, TH E ASSESSEE STATED THAT THE PERSONS WHO USED TO WRITE THE BOOKS OF ACCOUNT OF T HE ASSESSEE WAS NOT IN DELHI AND, THEREFORE, HE COULD NOT SHOW THE BOOKS OF ACCO UNT AND HE SOUGHT MORE TIME TO PRODUCE THE BOOKS OF ACCOUNT. HOWEVER, IT HAS BE EN NOTICED BY THE ASSESSING OFFICER THAT DESPITE PROVIDING FIVE OPPORTUNITIES B ETWEEN 26.08.2002 TO 20.09.2002 BY THE DEPUTY DIRECTOR OF INCOME TAX (IN VESTIGATION) IN POST SEARCH PROCEEDINGS, THE ASSESSEE FAILED TO PRODUCE BOOKS O F ACCOUNT BEFORE HIM. THE LD. CIT(A) HAS ALSO OBSERVED THAT THOUGH THE BOOKS OF A CCOUNT WERE PREPARED PARTLY ON THE BASIS OF THE DOCUMENTS AND EVIDENCES FOUND D URING THE COURSE OF SEARCH, HOWEVER, THE ALL THE ENTRIES MADE IN THE BOOKS OF A CCOUNT COULD NOT BE SUBSTANTIATED BY THE VOUCHERS OR OTHER EVIDENCES FO UND DURING THE COURSE OF SEARCH. THE LD. CIT(A) HAS GIVEN DETAILED FINDING I N RESPECT OF THE DEFECTS NOTICED IN THE BOOKS OF ACCOUNT FROM PARA 4.5 TO 4. 6 OF HIS ORDER, WHICH ARE REPRODUCED AS UNDER: 4.5 THE BOOKS OF ACCOUNTS PREPARED AFTER THE SEAR CH AND RELIED UPON BY THE APPELLANT CANNOT BE TREATED AS RELIABLE . FOLLOWING POINTS NEED TO BE NOTED: 1. THE BOOKS WERE NOT AVAILABLE AT THE TIME OF THE SEARCH. EVEN SUBSEQUENTLY THE BOOKS OF ACCOUNTS WERE NOT PRODUCE D BEFORE THE ADIT ALTHOUGH FIVE SPECIFIC NOTICES WERE ISSUED TO THE APPELLANT. THE QUESTION OF LEVY OF PENALTY FOR NON-PRODUCTION OF B OOKS IS A DIFFERENT ISSUE. BUT SUCH ACTION INDICATES THAT THE APPELLANT NEEDED TIME TO MANIPULATE THE BOOKS WITH PARTICULAR MOTIVE. THE BO OKS WERE ACTUALLY PREPARED /CREATED IN SUCH MANNER. 2. AS DISCUSSED EARLIER THERE IS NO INDEPENDENT CRO SS VERIFIABLE EVIDENCE TO SUPPORT THE VARIOUS ENTRIES IN BOOKS OF ACCOUNTS . ALL THE BUSINESS TRANSACTIONS ARE STATED TO BE IN CASH. THERE ARE NO BUSINESS TRANSACTIONS DONE IN BANK WHICH COULD HAVE LENT CON FIDENCE OF GENUINENESS TO ENTRIES. THE AO'S OBSERVATIONS ON TH IS ASPECT WERE THEREFORE CORRECT. 6 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 3. AS ABOUT THE ARGUMENT THAT THE APPELLANT WAS NOT REQUIRED TO MAINTAIN BOOKS AS PER SEC 44AA, IT MAY BE MENTIONED THAT THE PROVISIONS DOES NOT MANDATE MAINTENANCE OF BOOKS FOR CERTAIN ASSESS EES. HOWEVER IT CANNOT STOP THEM FROM DOING SO. MOREOVER IT IS THE APPELLANT WHO HAS PREPARED BOOKS & IS INSISTING ON ACCEPTING THE SAME AS CORRECT WHEREAS THE AO HAS REJECTED THEM. IF THE APPELLANT DOES NOT WISH TO RELY ON BOOKS HE MAY WELL NOT OBJECT TO THEIR REJEC TION. 4. IT WAS REPEATEDLY STATED THAT THE BOOKS HAVE BEE N PREPARED & RECONCILED WITH REFERENCE TO THE SEIZED MATERIAL BE ING KACHCHA RECORD OF BUSINESS TRANSACTIONS MAINTAINED BY THE APPELLAN T WHO WAS UNEDUCATED & WORKING IN UNORGANIZED SECTOR. ON EXAM INATION, THE SEIZED RECORD WAS FOUND TO BE HIGHLY CASUAL, UNSYST EMATIC AND HAPHAZARD WHICH WAS IN THE FORM OF MERE ROUGH NOTIN GS. IT IS DIFFICULT TO DERIVE ANY LOGICAL CONCLUSIONS ABOUT NATURE OF H IS BUSINESS. I PERSONALLY TEST CHECKED THE BOOKS WITH REFERENCE TO THE SEIZED MATERIAL & THE EXPLANATION SUBMITTED BY THE APPELLANT ABOUT NATURE OF HIS BUSINESS. LARGE SCALE DISCREPANCIES, INCONSISTENCIE S AND CONTRADICTIONS WERE FOUND DURING THAT CHECK. SOME O F THE POINTS ARE DISCUSSED AS FOLLOWS:- A. THERE WAS NO CONSISTENCY IN REPRODUCING THE NOTI NGS IN SEIZED KACHCHA DAIRY TO BOOKS. SIMILAR TYPE OF NOTINGS IN SEIZED DIARY WERE ENTERED DIFFERENTLY IN BOOKS. LIKE NOTINGS ON LEFT/RIGHT OF THE DIARY WERE SOMETI MES TREATED AS SALES / PURCHASE & AT OTHERS PAYMENTS. MOREOVER NOTINGS OF JAMA HAVE BEEN SOMEWHERE TREATED AS RECEIPT AND AT OTHER PAYMENT. SOME JAMA NOTINGS WER E NOT ENTERED IN BOOKS AT ALL. B. NO PURCHASE BILLS WERE SEIZED. SALES BILLS SEIZE D ARE ALSO NOT COMPLETE. THEREFORE ALL PURCHASE & SALE ENTRIES CANNOT BE TREATED AS AU THENTIC. MOREOVER THERE IS NOT EVIDENCE TO PROVE THAT THE PURCHASE / SALE WAS CASH OR CREDIT. IT WAS INTERPRETED FROM NOTINGS IN SEIZED DIARY ONLY, WHICH WERE NOT C LEAR & CONSISTENT/SYSTEMATIC. C. EVEN IF THE PURCHASE/SALE WAS TREATED AS CREDIT, THERE IS HARDLY ANY BASIS FOR THE DATE OF ACTUAL CASH TRANSACTION (PAYMENT OR RECEIPT). IT WA S FOUND THAT THE DATE OF TRANSACTION MENTIONED IN THE BOOKS AT MANY INSTANCE S WAS DIFFERENT THAN THE DATE NOTED ON THE SEIZED DIARY OR THE SALE/ PURCHASE BIL LS. AT MANY PLACES ENTRIES IN DIFFERENT DATES IN SEIZED DAIRY WERE CLUBBED TOGETH ER & NOTED ON ONE DATE. D. MANY NOTINGS IN SEIZED DIARIES AND THEIR CORRESP ONDING ENTRY IN BOOKS COULD NOT BE EXPLAINED. SOME FINDINGS AS A RESULT OF TEST CHE CK OF BOOKS WERE NOTED ON SEPARATE PAPER & A COPY OF THE SAME WAS GIVEN TO TH E AR ALSO. E. FROM THE LIST OF SEIZED ITEMS IT IS FOUND THAT N O RECORD PERTAINING TO FY 98- 99 WAS SEIZED. HOW THESE ACCOUNTS WERE PREPARED IS NOT KNO WN. 5. WITHOUT PREJUDICE TO THE ABOVE AN IMPORTANT ASPE CT IS THAT THE APPELLANT HAD FILED P&L ACCOUNT AND BALANCE SHEET W ITH THE ORIGINAL RETURNS FILED BY HIM FOR AY 99-00 ONWARD. COPY OF O RIGINAL P&L A/C & BALANCE SHEET FOR AY 99-00 TO 02-03 (FY 98-99 TO 01-02) WHICH WERE SUBMITTED BEFORE ME ARE TREATED AS PART OF THI S ORDER & AS ANNEXURE-A (8 PAGES). THE REVISED P&L ETC & BALANCE SHEET MADE NOW ON THE BASIS OF NEWLY PREPARED BOOKS OF ACCOUNT S, AND FILED AS 7 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 PART OF PAPER BOOK BEFORE ME, ARE POLES APART FROM THE ORIGINAL FINAL ACCOUNT FILED WITH THE RETURNS. THESE ARE ALSO TREA TED AS PART OF THIS ORDER AS ANNEXURE-B (10 PAGES). THE COMPARISON OF S ALE TURNOVER, NP & STOCK AS PER ORIGINAL ETC FILED WITH RETURN AND R EVISED BOOKS OF ACCOUNTS ARE AS FOLLOWS: ASTT. YEAR TURNOVER IN RETURN TURNOVER IN BOOKS** PROFITS IN RETURN*** PROFITS IN BOOKS STOCK IN RETURN STOCK IN BOOKS 99-00 93500 462000 35100 53175 18500 265090 00-01 115000 2176967 7210 68251 9260 842510 01-02 92650 1153353 19400 64034 35800 168500 0 02-03 175000 3757316 35096 88215 45380 945240 03-04* NA 2145288 NA 81406 NA 150962 *(TILL 16/8/02) ** LABOUR CHRG. RCD NOT INCLUDED * ** OTHER INCOME EXCLUDED 6. THE MAIN MOTIVE TO MAKE BOOKS IS TO SHOW HIGHLY INFLATED CASH BALANCE WHICH HAS BEEN DONE BY SHOWING HUGE CREDITORS. COMP ARISON OF CREDITORS, DEBTORS & CASH IN B/S FILED WITH ORIGINAL RETURNS A ND NOW SHOWN IN BOOKS IS AS UNDER: YEAR ENDING CREDITORS IN RETURN CREDITORS IN BOOKS DEBTORS IN RETURN DEBTORS IN BOOKS CASH BAL IN RETURN CASH BAL IN BOOKS 31/3/99 NIL 630590 NIL NIL 12158 0 509235 31/3/00 72500 2235576 65000 74601 89968 791646 31/3/01 72500 3190623 65000 1611792 94444 58277 31/3/02 148250 4527513 184500 3697562 207045 91468 16/8/02 NA 5405056 NA 4485823 NA 103795 0 7. THE MONTH WISE AVERAGE, MAXIMUM & MINIMUM CASH B ALANCE FOR ENTIRE PERIOD IS SHOWN AS UNDER: MONTH MINIMUM MAXIMUM AVERAGE APR-98 142100 150643 145891 MAY-98 150643 179005 159372 JUN-98 179005 192276 184772 JUL-98 191876 323950 231779 AUG-98 341480 584245 522335 SEP-98 584245 584354 584248 OCT-98 584354 584993 584374 8 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 NOV-98 574777 584993 584358 DEC-98 563759 574427 574082 JAN-99 539950 563759 557525 FEB-99 525766 539950 539029 MAR-99 505235 525766 522567 APR-99 446610 505235 478521 MAY-99 428200 447610 443864 JUN-99 306868 428200 371488 JUL-99 203301 306868 254135 AUG-99 174986 216071 207320 SEP-99 174986 234986 202427 OCT-99 168353 293353 238775 NOV-99 256848 637173 468278 DEC-99 325296 687173 514617 JAN-00 415301 915006 652754 FEB-00 826493 877505 860380 MAR-00 778283 826493 798931 APR-00 783091 794846 792960 MAY-00 714371 783091 750786 JUN-00 477815 658960 590090 JUL-00 141111 477815 332214 AUG-00 28766 269581 156641 SEP-00 84317 147317 121880 OCT-00 128725 141220 138236 NOV-00 128725 158725 132038 DEC-00 113441 144115 140434 JAN-01 97971 113441 109877 FEB-01 88316 97971 97626 MAR-01 58277 88316 67957 APR-01 46002 58277 57867 MAY-01 11462 46002 43304 JUN-01 11462 16477 11629 JUL-01 15568 312618 110862 AUG-01 192110 293367 233114 SEP-01 159588 192110 173607 OCT-01 49588 159588 116270 NOV-01 57053 169228 99249 DEC-01 132955 393555 275499 JAN-02 1035 272535 217021 FEB-02 76734 242310 215434 MAR-02 61646 91468 68286 APR-02 16072 165276 88103 MAY-02 19365 49285 34347 JUN-02 498 61034 27969 JUL-02 17819 266649 144432 9 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 AUG-02 291074 1037950 781227 AS CAN BE SEEN FIRSTLY HUGE CASH BALANCE ON CONTINU OUS BASIS SHOWN IN THE BOOKS IS UNBELIEVABLE AND NOT COMMENSURATE TO T HE NATURE OF BUSINESS OR THE KIND OF ASSESSEE (ECONOMIC LEVEL) T HE APPELLANT HAS BEEN PORTRAYED TO BE. IT IS PERTINENT TO NOTE THAT THE APPELLANT WAS NOT HAVING BANK ACCOUNT DURING THE RELEVANT PERIOD (SO AS TO KEEP LIQUID FUND IN BANK AND EARN SOME INTEREST) AND MUST BE KE EPING THE FUNDS IN CASH (IF AT ALL IT WAS REALLY AVAILABLE) WHICH DOES NOT APPEAR TO BE REAL POSSIBILITY CONSIDERING HUGE QUANTUM. SECONDLY ONE NEEDS CREDIT ONLY IF HE IS SHORT OF CASH. IF THE APPELLANT WAS HAVING SUFFICIENT LIQUID FUNDS THERE WAS NO NEED TO PURCHASE RAW MATERIAL ON CREDIT AND HAVE HUGE LIST OF CREDITORS. THIRDLY THE LEVEL OF CREDIT ORS & DEBTORS IS HIGHLY UNBELIEVABLE. IN MANY YEARS, THE DEBTORS ARE MORE T HAN TOTAL SALES OF THE YEAR & CREDITORS MORE THAN TOTAL PURCHASES. 8. FOR AY 02-03 (FY ENDING 31/3/02) THERE WAS YET A NOTHER SET OF BALANCE SHEET AND P & L A/C WHICH WERE SUBMITTED BE FORE THE AO ALONG WITH LETTER DT.12/7/04. THIS IS MADE PART OF THIS ORDER AS ANNEXURE-C (3 PAGES). IT MAY BE SEEN THAT P & L A/C IS DIFFERENT THAN THE ONE FILED IN APPEAL AS ORIGINAL ACCOUNT (ANNEXU RE-A PG 8) AS WELL AS FINAL P & L A/C ON THE BASIS OF BOOKS FILED AS P ART OF PAPER BOOK (ANNEXURE-B PG 8). THIS SHOWS THAT THERE IS NO SANC TITY OF EITHER BOOKS OF ACCOUNTS OR THE FINAL ACCOUNTS MADE ON ITS BASIS . THEY ARE CHANGED AND MANIPULATED AT WILL ACCORDING TO THE NEED & CON VENIENCE. IT MAY BE NOTED THAT ALL THESE DOCUMENTS ARE SIGNED BY THE APPELLANT. 9. IT IS STATED THAT THE APPELLANT'S BUSINESS OF MA KING KITES IS A SEASONAL BUSINESS AND MAJOR SALE TAKES PLACE IN THE MONTHS O F JULY-AUGUST AS THE KITES FLYING SEASON IS ON RAKHI AND 15TH AUGUST . THE APPELLANT HAS ALSO VEHEMENTLY INSISTED THAT THE CASH FOUND DURING THE SEARCH REFLECTED THE SALE PROCEEDS AS THE SALE WAS CLEARLY OVER BY 15TH OF AUGUST EVERY YEAR. IF THAT WERE TRUE THERE WOULD NO T HAVE BEEN ANY STOCK OF GOODS ON 31ST MARCH WHICH IS NO SEASON FOR KITES. THE APPELLANT HAS SHOWN HUGE STOCK IN REVISED BOOKS (RE FER TO TABLE IN CLAUSE 5. ABOVE) . 10. FURTHER, IF THE DETAILS OF MONTH WISE SALES SH OWN IN THE BOOKS OF ACCOUNTS ARE ANALYZED IT IS FOUND THAT IN MOST OF T HE YEARS THE MAJOR SALE WAS SHOWN IN THE MONTHS OF SEPT, OCT, NOV & DE C. ONLY FOR THE PERIOD FROM 1/4/02 TO16/8/02 (DATE OF SEARCH) THE S ALE HAS BEEN SHOWN FROM THE MONTHS OF APRIL TO AUGUST. A COPY OF STATE MENT SHOWING MONTH WISE PURCHASE AND SALES IS MADE PART OF THIS ORDER AS ANNEXURE-D (5 PAGES). 11. SIMILAR DISCREPANCIES AND CONTRADICTIONS CAN BE OBSERVED FORM THE LOOK AT MONTH WISE PURCHASES. IT WAS CONTENDED THAT THE PURCHASES ARE MADE IN THE LEAN SEASON WHEN THE GOODS COULD BE OBT AINED AT LOWER PRICE. THE SEASON FOR SALE IS STATED TO BE JULY, AU GUST AND THEREFORE 10 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 THE PURCHASE SEASON FOR RAW MATERIAL SHOULD BE FROM APRIL TO JUNE. ACCORDING TO THE EXPLANATION REGARDING THE NATURE O F APPELLANT'S BUSINESS THE MONTHS OF PURCHASES AND SALES SHOULD H AVE BEEN SIMILAR IN A' YEARS. THERE SHOULD BE A CLEAR PATTERN COMMEN SURATE TO THE EXPLANATION WHICH IS ABSENT IN THIS CASE. IT IS FOU ND THAT MAJOR PURCHASES IN FY 99-00 AND 01-02 ARE SHOWN IN THE MO NTHS OF SEPT TO DEC. IN FY 00-01 AND PART PERIOD IN 02-03 THE PURCH ASES ARE FROM APRIL TO AUGUST. 12. FROM THE DETAILS 'OF MONTH WISE PURCHASE AND SA LE FOR FY 98-99 IT IS SEEN THAT THE APPELLANT HAD MADE SALE OF RS 4,62,00 0 FROM THE MONTHS OF APRIL TO AUGUST BUT THERE ARE NO PURCHASES IN TH OSE MONTHS. THE PURCHASES ARE SHOWN ONLY IN THE MONTHS OF OCT, NOV & FEB MARCH OF THE FINANCIAL YEAR. 4.6 IN VIEW OF THE ABOVE DISCUSSION IT MAY BE NOTE D THAT EVEN IF THE ROUGH NOTINGS IN THE SEIZED DIARY ARE TREATED AS SO ME BASIC DATA OF BUSINESS TRANSACTIONS, THE ENTRY IN BOOKS CANNOT BE TREATED AS RELIABLE. ALL THE TRANSACTIONS ARE IN CASH AND THERE IS NO EV IDENCE TO THE ACTUAL DATE OF CASH CHANGING HANDS. MOREOVER THE DATES MEN TIONED IN DAIRY HAVE BEEN CHANGED IN BOOKS. THE PICTURE PRESENTED I N BOOKS REGARDING CASH TRANSACTIONS IS QUITE DIFFERENT THAN THE NOTINGS IN SEIZED PAPERS. SINCE SEIZED PAPERS ARE INCOMPLETE, THE REAL POSITION OF BUSINESS CANNOT BE DETERMINED FROM THE SEIZED RECOR DS. IT FOLLOWS THAT ON NONE OF THE DATES OF THE YEAR THE CASH BALANCE S HOWN IN THE CASH BOOK REFLECTS THE TRUE POSITION OF THE CASH AVAILAB LE. THE ACTUAL TRANSACTIONS ARE CARRIED OUT IN DIFFERENTLY, AND EN TRIES IN THE CASH BOOK ARE MADE IN ALTOGETHER DIFFERENT MANNER. A COP Y OF THE PAPER ON WHICH SOME FINDINGS OF TEST .CHECK OF BOOKS OF ACCO UNTS WERE NOTED (COPY OF THE SAME WAS GIVEN TO APPELLANT'S AR ALSO) IS MADE PART OF THIS ORDER AS ANNEXURE-E. HENCE IT MAY BE CONCLUDED THAT THERE IS NO PRIMARY EVIDENCE IN SUPPORT OF TRANSACTIONS NOTED I N SO CALLED BOOKS OF ACCOUNTS. 4.7 WHEN THIS WAS POINTED OUT TO THE AR IT WAS STAT ED THAT EVEN THOUGH THE PURCHASE/SALE HAS BEEN SHOWN ON DIFFERENT DATE IN BOOKS, THE TOTAL PURCHASE/SALE DO TALLY WITH THE SEIZED DOCUMENTS & THE ANNUAL PROFIT PER BOOKS OF ACCOUNT IS CORRECTLY STATED. HOWEVER T HIS KIND OF ARGUMENTS IS QUITE FALLACIOUS BECAUSE IF THE TRANSA CTIONS ARE NOT RECORDED IN THE BOOKS ON CORRECT DATES, THE BOOKS C ANNOT BE SAID TO BE RELIABLE AND CONCLUSIONS DRAWN WOULD BE ERRONEOUS. IF IT WAS SUFFICIENT TO SIMPLY INCLUDE ALL PURCHASE AND SALE TRANSACTIONS ON ANY DATE ON WHATSOEVER, THERE WAS NO PURPOSE OF MAKING ANY BOOKS OF ACCOUNTS. ONLY THE P&L A/C COULD BE PREPARED DIRECT LY AT THE END OF THE YEAR. MOREOVER IF SIMPLY THE DATE OF CASH TRANS ACTION IS CHANGED IN ANY CASH BUSINESS, THE FINAL RESULTS OF ACCOUNTS MAY UNDERGO HUGE 11 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 CHANGE EVEN IF PURCHASE & SALES BILLS REMAIN THE SA ME. ON THE BASIS OF SAME PURCHASE/SALES ANY NUMBER OF SET OF BOOKS M AY BE PREPARED TO SHOW HUGE CASH BALANCE/MINIMUM CASH BALANCE OR E VEN NEGATIVE CASH BALANCE BY SIMPLY CHANGING THE DATE OF CASH EX CHANGE. THEREFORE EVEN IF THE TOTAL PURCHASE & SALES FOR DI FFERENT YEARS ARE ACCEPTED AS BASED ON NOTING IN SEIZED MATERIAL, MAN IPULATION OF DATE OF CASH TRANSACTION RENDERS THE BOOKS UNRELIABLE AS IT GIVES A LOT OF LEEWAY FOR ADJUSTMENT OF DATES OF TRANSACTION ACCOR DING TO THE CONVENIENCE OF THE ASSESSEE TO BUILD UP CASH BALANC E TO EXPLAIN CASH INVESTMENTS ETC. THE BOOKS CANNOT BE SAID TO BE COR RECT IN TERMS OF SECTION 145(3). ACCORDINGLY THE AO'S ACTION TO REJE CT THE BOOKS OF ACCOUNTS IS CONFIRMED. 5.4 IN VIEW OF THE DEFECTS POINTED OUT BY THE ASSE SSING OFFICER AND LD. CIT(A) IN THE BOOKS OF ACCOUNT, WE ARE OF CONSIDERED OPINI ON THAT THE BOOKS OF ACCOUNT CANNOT BE SAID TO BE CORRECT IN TERMS OF SECTION 14 5(3) OF THE ACT AND WE FIND THE ORDER OF THE LD CIT AS WELL REASONED AND NO INTERFE RENCE IS REQUIRED BY US, ACCORDINGLY, WE UPHOLD THE FINDING OF LD. CIT(A) ON THIS ISSUE IN DISPUTE. THIS GROUND OF THE ASSESSEE IS ACCORDINGLY DISMISSED. 6. IN GROUND NO. 2, THE ASSESSEE IS CONTESTING THE ADDITION OF RS. 9,27,000/- AS UNEXPLAINED CASH. THE AO HAD MADE ADDITION OF ENTIR E CASH FOUND OF RS. RS. 10,27,000/-, HOWEVER, THE LD CIT(A) ALLOWED RELIEF OF RS. 1,00,000/- AS CASH AS CORRESPONDING TO REGULAR BUSINESS ACTIVITY AND SUST AINED THE BALANCE AMOUNT OF RS. 9,27,000/- , AGAINST WHICH THE ASSESSEE IS IN A PPEAL. THE LD. AUTHORIZED REPRESENTATIVE REFERRING TO THE STATEMENT OF THE AS SESSEE AT PAGE 84 OF THE PAPER BOOK SUBMITTED THAT THE MONEY FOUND DURING THE SEAR CH WAS OUT OF SALE PROCEEDS OF THE KITES , BESIDES MONEY BELONGED TO RELATIVES AND CONSIGNEE PARTIES. FURTHER, HE SUBMITTED THAT THE DENOMINATION OF CURRENCY OF T HE MONEY FOUND WAS ALSO MOSTLY OF RS. 10 TO RS. 100. IT WAS SUBMITTED THAT MAXIMUM SALE OF THE ASSESSEE 12 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 WAS IN THE MONTH OF JULY AND AUGUST AND THE ASSESSE E HAS EXPLAINED THE AVAILABILITY OF CASH WITH THE HELP OF CASH BOOK, WH ICH WAS PRODUCED BEFORE THE ASSESSING OFFICER. ACCORDINGLY TO THE SAID CASH BOO K, THE CASH BALANCE OF RS. 10,37,950/- WAS AVAILABLE ON THE DATE OF SEARCH AND THUS THE CASH FOUND SHOULD NOT BE TREATED AS UNEXPLAINED. 6.1 THE LD. CIT(DR), ON THE OTHER HAND, RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE ADDITION UPHELD BY THE CIT(A) MAY BE SUSTAINED. 6.2 THE LD. CIT(A) HAS OBSERVED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE NOT RELIABLE AND CASH RECEIPT IN THE BOOKS OF ACCOUNT WERE NOT APPEARING IN THE NOTING IN THE SEIZED DIARY AND HUGE CASH SALES OF MORE THAN RS. 4 LAKHS WAS SHOWN ON VARIOUS DATES IN THE MONTH OF AUGUST, 2002 WITHOUT ANY CORRESPONDING EVIDENCE IN SEIZED PAPERS. THE LD. CIT(A) ALSO OBSE RVED THAT THERE WERE MANIPULATIONS IN THE BILL BOOKS AND THE ASSESSEE HA D SHOWN UNSECURED LOANS OF RS. 2,46,500/- TAKEN IN THE MONTH OF JULY AND AUGUS T, 2002, JUST FEW DAYS BEFORE THE SEARCH AND HELD THAT THE ASSESSEE COULD NOT JUS TIFY TAKING OF SUCH LOANS DESPITE BEING AVAILABILITY OF CASH BALANCE AS PER T HE CASH BOOK PREPARED. CONSIDERING FACTS AND CIRCUMSTANCES, THE LD. CIT(A) ADMITTED THE AVAILABILITY OF CASH OF RS. 1 LAKH IN NORMAL BUSINESS AND HE HELD T HE REST CASH AVAILABLE OF RS. 9,27,000/- AS UNEXPLAINED. THE RELEVANT PARAGRAPH O F THE ORDER IS REPRODUCED AS UNDER: 5.1 NOW I COME TO THE EXPLANATION ABOUT SEIZED C ASH. HEAVY RELIANCE HAS BEEN PLACED OF BOOKS OF ACCOUNTS, THE BOOKS HAVE AL READY BEEN REJECTED AS UNRELIABLE AND PREPARED WITH PARTICULAR MOTIVE. HOW EVER WITHOUT PREJUDICE TO 13 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 THAT, THE MANNER OF CASH BUILT UP IN THE BOOKS WAS FURTHER EXAMINED. DURING TEST CHECK IT WAS FOUND THAT ENTRY OF CASH RECEIPT OF RS 16,500 ON 16/4/02 IN THE NAME WAS WRONG AS THERE WAS NO SUCH NOTING IN SEIZE D DIARY. SIMILARLY, CASH RECEIPT OF RS 47,000 IS SHOWN ON 23/4/02 FROM REHAN BHAI WHEREAS AMOUNT NOTED IN SEIZED DAIRY IS ONLY RS 7000. MOREOVER HUGE CASH SALES OF MORE THAN RS 4 LACS HAVE BEEN SHOWN ON VARIOUS DATES OF AUGUST 02. IT MAY BE PERTINENT TO NOTE THAT THERE WAS NO EVIDENCE TO THIS EFFECT IN SEIZED PAPERS. A BILL BOOK WAS PRODUCED TO SHOW CASH SALES BUT IT CANNOT BE TREATE D AS RELIABLE EVIDENCE BECAUSE NOTHING IS MENTIONED ON THE BILLS AS TO THE NATURE OF SALE. IN BOOKS SOME ITEMS ARE TREATED AS CASH & OTHERS AS CREDIT. NORMA LLY CASH SALE IS OF SMALL AMOUNTS, BUT IN BILL BOOK SINGLE BILLS OF RS. 62000 & 66,000 WERE MADE ON 15/8/02 ITSELF WHICH APPEARED TO BE MANIPULATED. TH IS WAS DONE OBVIOUSLY TO INFLATE CASH BALANCE AS ON THE DATE OF SEARCH. 5.2 FURTHER FROM THE BALANCE SHEET AS ON 16/8/02 (D ATE OF SEARCH) IT IS SEEN THAT THE APPELLANT HAS SHOWN UNSECURED LOANS OF RS 2,46, 500. THE LOAN WAS SHOWN TO HAVE BEEN TAKEN IN THE MONTHS OF JULY AND AUG 02. I T IS NOTED THAT THAT CASH BALANCE ACCORDING TO THE BOOKS OF APPELLANT AS ON 1 /7/02 WAS RS 17,819 AND IT CONTINUOUSLY INCREASED THEREAFTER TO BECOME MORE TH AN RS 10 LAC AS ON 16/8/02. A COPY OF STATEMENT SHOWING DATE WISE CASH BALANCE IN JULY-AUG 02 IS MADE PART OF THIS ORDER AS ANNEXURE-F. LOAN IS NORMALLY TAKEN BY A PERSON IF HE NEEDS FUNDS. A BUSINESSMAN MAY NEED FUNDS FOR MAKING PURC HASE OF RAW MATERIAL OR SOME ASSETS OR PAYMENT TO CREDITORS ETC. IT IS HIGH LY ABSURD THAT ONE WOULD TAKE LOAN TO BUILD UP ONLY CASH BALANCE AS IS DONE IN TH E CASE OF APPELLANT. THE CASH BALANCE ON THE DATES ON WHICH ALLEGED LOAN WAS CLAI MED TO BE TAKEN BY THE APPELLANT IS SHOWN AS UNDER. DATE NAME AMOUNT CASH BAL 20/4/02 BANO BEQUM 15000 100197 1/7/02 ABDUL HAI ANSARI 8000 17819 2/7/02 AASAF ALI 15000 46069 4/7/02 NAYIM AKHATAR 15000 44094 8/7/02 ABDUL HAI ANSARI 10000 91970 11/7/02 ABDUL SALAM 15000 115466 19/7/02 KHUSQADARI 8500 166601 22/7/02 WAKIL AHMED 12000 193624 25/7/02 ERFAN ULLAH 15000 242325 27/7/02 KAMAL AHMED 16000 234425 29/7/02 SARIF MOHMAD 15000 262375 1/8/02 PARVEZ AKHTAR 15000 291074 5/8/02 SALIM AKHTAR 15000 368181 6/8/02 EKWAL HASAN 15000 393531 7/8/02 RASID ALI 10000 402881 9/8/02 WAKIL AHMED 12000 497521 11/8/02 SHAMIM AKHTAR 10000 504112 14 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 12/8/02 ARSAD ALI 10000 681155 13/8/02 ACHHE MIYAN 15000 751065 TOTAL 246500 THIS SHOWS THAT THE STORY OF TAKING LOAN IS PART OF EXERCISE OF FABRICATING BOOKS OF ACCOUNTS TO BUILD UP IMAGINARY CASH BALANCE. IT MAY BE PERTINENT TO NOTE THAT NONE OF THE LOAN ENTRY WAS FOUND RECORDED IN THE SE IZED DIARY. THESE ENTRIES WERE MERELY MADE IN BOOKS OF ACCOUNTS.THIS FURTHER PROVES THAT THE BOOKS ARE UNRELIABLE & ENTRIES THEREIN ARE FABRICATED WITH PA RTICULAR MOTIVE. 5.3 IN THE APPEAL PROCEEDINGS THE APPELLANT'S AR F ILED CONFIRMATION LETTERS FROM VARIOUS PERSONS WHO ALLEGEDLY GAVE LOAN TO THE APPELLANT. THE AO IN HIS REPORT DATED 3/11/05 SPECIFICALLY MENTIONED THAT NO CONFIRMATION LETTER EITHER FROM ANY PERSONS GIVING LOANS OR ALLEGED CREDITORS (THE CASH BALANCE WAS INFLATED ON THE BASIS OF THESE TWO) WAS SUBMITTED D URING THE ASSESSMENT PROCEEDINGS. HENCE THE CONFIRMATION LETTERS FROM LO ANS PARTIES & CREDITORS ARE IN THE NATURE OF ADDITIONAL EVIDENCE. THE APPELLANT HAS NOT MADE ANY SPECIFIC REQUEST TO ADMIT ADDITIONAL EVIDENCE EXPLAINING THE CIRCUMSTANCES AS PER RULE 46A WHICH PREVENTED HIM FROM FILING THEM BEFORE THE AO. IN ANY CASE SINCE THE BOOKS OF ACCOUNTS ITSELF HAVE BEEN REJECTED AS UNRE LIABLE AND THE CLAIM OF TAKING LOAN IS HELD TO BE MADE UP STORY, THE CONFIRMATION LETTERS FOR LOANS AND CREDITS ARE MERELY SELF SERVICING DOCUMENTS AND BECOME IRRE LEVANT. ACCORDINGLY THE QUESTION OF ADMISSION OF THE SAME NEED NOT BE EXAMI NED. EVEN THE VERIFICATION OR ENQUIRY, IF ANY, IN RESPECT OF THE CREDITS/LOANS MADE BY THE AO IS IRRELEVANT. 5.4 IT IS SEEN THAT DURING THE COURSE OF SEARCH INI TIALLY THE APPELLANT STATED THAT HE WAS HAVING CASH OF ABOUT RS 3 LACS. SUBSEQUENTLY WHEN HUGE CASH OF MORE RS 10 LACS WAS FOUND FROM HIS HOUSE, HE STATED THAT IT BELONGS TO VARIOUS PERSONS BEING CONSIGNEES OF THE APPELLANT. BUT NO EVIDENCE TO SUPPORT THIS CLAIM WAS SHOWN DURING THE SEARCH. EVEN THE NAMES OF SUCH PER SONS WERE NOT GIVEN AT THAT TIME. SUBSEQUENTLY ALSO THE APPELLANT DID NOT PRODU CE THE BOOKS OR OTHER DOCUMENTS/ EVIDENCE IN RESPONSE TO THE SPECIFIC NOT ICE BY THE ADIT. THIS WAS OBVIOUSLY FOR THE REASON THAT THE STORY TO EXPLAIN THE CASH WAS TO BE MADE UP & EVIDENCE WAS TO BE CREATED. TIME WAS NEEDED TO PREP ARE BOOKS SO AS TO BE ABLE TO SHOW CASH BALANCE ON SPECIFIC DATES WHEN THERE W AS ANY INVESTMENT ETC. THE APPELLANT WAS ABLE TO PREPARE BOOKS BY ARRANGING EN TRIES IN SUCH MANNER AS TO BUILD UP HUGE CASH BALANCE ON VARIOUS DATES WHENEVE R SOME INVESTMENT FOUND DURING SEARCH WAS TO BE EXPLAINED. HOWEVER IN DOING SO, THE DISTORTED PICTURE OF THE BUSINESS WAS PRESENTED IN THE BOOKS DUE TO UNUS UAL NATURE OF ENTRIES AS DISCUSSED ABOVE. THIS PROVED THE BOOKS TO BE UNRELI ABLE & HENCE THEY WERE RIGHTLY REJECTED. 5.5 IN VIEW OF THIS IT MAY BE SEEN THAT THE APPELLA NT DOES NOT HAVE ANY EXPLANATION FOR THE CASH FOUND DURING THE SEARCH. T HEREFORE THE AO RIGHTLY TREATED THE SAME AS UNEXPLAINED. HOWEVER IT IS TO B E NOTED IS THAT FACT THAT THE APPELLANT WAS CARRYING OUT BUSINESS OF KITE MAKING IS UNDISPUTED. EVEN IF THE BOOKS AND IMAGINARY HUGE CASH BALANCE BUILT UP IS R EJECTED AS UNTRUE, THERE HAS 15 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 TO BE SOME CASH BELONGING TO THE BUSINESS OF THE AP PELLANT IF JUDICIOUS VIEW OF THE ISSUE IS TAKEN. CONSIDERING FACTS & CIRCUMSTANC ES SUM OF RS. 1 LAC IS TREATED AS NORMAL BUSINESS CASH OF THE APPELLANT & HENCE CO NSIDERED AS EXPLAINED. THAT LEAVES ONLY RS. 9,27,000 AS UNEXPLAINED CASH FOUND DURING THE SEARCH. THE ADDITION OF UNDISCLOSED INCOME ON THIS A/C IS THERE FORE REDUCED TO RS. 9,27,000. 6.3 IN VIEW OF ABOVE, WE FIND THAT THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE ARE WELL REASONED AND NO INTERFERENCE IS REQUIRED. ACCORDINGLY, WE UPHOLD HIS FINDING AND CONFIRM THE ADDITION OF RS. 9,27,000 AS UNEXPLAINED CASH. THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS THUS STA NDS DISMISSED. 7.1 IN GROUND NO. 3, THE ASSESSEE HAS CHALLENGED T HE ENHANCEMENT OF UNEXPLAINED INVESTMENT IN PURCHASE OF RAW MATERIAL FROM RS. 1,50,000/- TO RS. 3,92,700/-. 7.2 THE LD AR SUBMITTED THAT NO ADDITION WAS JUSTIF IED IN THE CASE OF THE ASSESSEE AS THE ASSESSEE WAS HAVING ENOUGH SAVING O F THE PAST PERIOD WHICH EXPLAIN THE INITIAL INVESTMENT IN THE BUSINESS. THE LD CIT DR ON THE OTHER HAND RELIED ON ORDERS OF THE LOWER AUTHORITIES. 7.3 THE ASSESSING OFFICER NOTED THAT THE ASSESSEE W OULD HAVE NEEDED INVESTMENT FOR SETTING UP THE UNACCOUNTED BUSINESS. HE FURTHER NOTED THAT THE ASSESSEE WAS HAVING STOCK WORTH OF RS. 1,50,962/- A FTER MAXIMUM SALE OF KITES FOR THE RELEVANT YEAR UPTO 15 TH AUGUST, 2002, THEREFORE, HE ESTIMATED A SUM OF RS. 1,50,000/- AS INVESTMENT IN THE BUSINESS AT THE OPE NING OF THE BLOCK PERIOD ,WHICH WAS NOT DISCLOSED IN THE RETURN. ACCORDINGLY , HE MADE THE ADDITION OF RS. 1,50,000/- UNDER SECTION 69 OF THE ACT AS UNEXPLAIN ED INVESTMENT. 7.4 IN THE APPELLATE PROCEEDINGS BEFORE THE LD. CI T(A), IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE STARTED BUSINESS IN THE YEAR 1998 AND HE INVESTED SEED 16 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 MONEY OF RS. 1,50,000/- WHICH WAS OUT OF THE PAST S AVINGS OF THE ASSESSEE AS THE ASSESSEE WAS DOING SOME WORK FOR OTHER PERSONS ON E MPLOYMENT BASIS FOR PAST 23 YEARS. THE LD. CIT(A) DID NOT ACCEPT THE PLEA OF THE ASSESSEE THAT THE INVESTMENT OF RS. 1,50,000/- WAS OUT OF THE SAVINGS OF EARLIER YEARS AS THE SAME WAS NOT SUPPORTED BY ANY EVIDENCES. THE LD. CIT(A) WAS OF THE VIEW THAT THE LIMITED EARNING MADE BY THE APPELLANT WHILE IN SERV ICE, MIGHT HAVE BEEN USED FOR HOUSEHOLD EXPENSES AND, THEREFORE, IN THE ABSENCE O F ANY EVIDENCE, HE REJECTED THE CONTENTION OF THE ASSESSEE. 7.5 THE LD. CIT(A), ON THE OTHER HAND, HELD THAT IN THE VERY FIRST YEAR OF THE BUSINESS, THE ASSESSEE MADE SALES OF RS. 4,62,000/- WITHOUT ANY CORRESPONDING PURCHASES. THEREFORE, AFTER ALLOWING GROSS PROFIT @ 15%, HE ESTIMATED THE REMAINING AMOUNT AS UNACCOUNTED INVESTMENT IN PURCH ASES, AMOUNTING TO RS. 3,92,700/- INSTEAD OF RS. 1,50,000/- ESTIMATED BY T HE ASSESSING OFFICER. THE RELEVANT PARAGRAPH OF THE FINDING OF THE CIT(A) IS REPRODUCED AS UNDER: 7.4 THE APPELLANT DID NOT MAKE ANY SUBMISSIONS RE GARDING POINT NO (II) OF ENHANCEMENT NOTICE REGARDING UNEXPLAINED INVESTMENT . THE ISSUE ON WHICH ENHANCEMENT NOTICE WAS GIVEN IS THAT IN THE VERY FI RST YEAR OF OWN BUSINESS THE APPELLANT MADE SALES OF RS 4,62,000 FROM APRIL 98 T O AUG 98 WITHOUT THERE BEING ANY PURCHASES. THE PURCHASES HAVE BEEN SHOWN IN THE MONTHS OF SEPT 98 ONWARDS. ACCORDINGLY THERE IS NO EXPLANATION ABOUT THE SOURCE OF PURCHASES WHICH RESULTED IN SALES OF RS 4.62 LACS. SINCE PROF IT FOR THE YEAR @ 15% HAS ALREADY BEEN ESTIMATED & TAXED, THE UNACCOUNTED INV ESTMENT IN PURCHASE IS WORKED OUT AT RS. 3,92,700 (85% OF 4,62,000). THERE FORE INSTEAD OF RS. 1,50,000 ADDED BY THE ASSESSING OFFICER AS UNEXPLAINED INVES TMENT, ADDITION OF RS. 3,92,700 IS TO BE MADE. THIS AGAIN RESULTS IN ENHAN CEMENT OF UNDISCLOSED INCOME. 7.6 THE LD. CIT(A), RELYING ON THE EVIDENCES OF SA LES FOUND DURING THE COURSE OF SEARCH AND INABILITY OF THE ASSESSEE TO EXPLAIN THE CORRESPONDING PURCHASES , 17 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 LOGICALLY HELD THE AMOUNT OF RS. 3,92,700/- AFTER A LLOWING THE GROSS PROFIT @ 15% ON SALES OF RS. 4,62,000/- AS UNEXPLAINED INVES TMENT. WE FIND THAT THE DECISION OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE IS WELL REASONED AND WE DO NOT FIND ANY INFIRMITY IN HIS FINDINGS. ACCORDINGLY, TH IS GROUND OF THE ASSESSEE IS DISMISSED. 8. IN GROUND NO. 4, THE ASSESSEE HAS CHALLENGED TH E ENHANCEMENT OF ADDITION ON ACCOUNT OF NET PROFIT FROM RS. 3,55,581/- TO RS. 9, 45,485/- BY THE LD. CIT(A) APPLYING THE NET PROFIT RATE OF 10% ON TOTAL SALES. 8.1 BEFORE US, THE LD AR SUBMITTED THAT THE CIT(A) HAS ADOPTED THE GROSS PROFIT RATE OF 10% ON ARBITRARY BASIS, WITHOUT ANY COMPARABLE CASE. FURTHER, HE RELIED ON THE SUBMISSION MADE BEFORE THE CIT(A). ON THE OTHER HAND, THE LD CIT DR RELIED ON THE ORDER OF THE CIT(A). 8.2 THE ASSESSING OFFICER AND LD. CIT(A) HAVE NOTIC ED THAT THE SALES AND PURCHASES RECORDED IN DIARIES AND OTHER DOCUMENTS S EIZED DURING THE COURSE OF SEARCH ARE MORE THAN THE SALES AND PURCHASES SHOWN BY THE ASSESSEE IN THE REGULAR RETURN FILED. THE ASSESSING OFFICER CONFRON TED ALL THE SEIZED DOCUMENTS CONTAINING PURCHASE AND SALE OF TRANSACTION TO THE ASSESSEE AND ON THE BASIS OF WHICH THE ASSESSEE PREPARED YEAR-WISE LISTS OF SALE S AND PURCHASES, WHICH THE ASSESSEE FURTHER, REVISED IN THE BOOKS OF ACCOUNT P REPARED AND PRODUCED BEFORE THE ASSESSING OFFICER. THOUGH THE ASSESSING OFFICER REJECTED BOOKS OF ACCOUNT, HOWEVER, TOOK THE FIGURE OF SALES FROM THOSE BOOKS OF ACCOUNT AND AFTER APPLYING NET PROFIT RATIO, COMPUTED THE UNACCOUNTED NET PROF IT AT RS. 3,55,581/- AND HELD THE SAME AS UNDISCLOSED INCOME OF THE ASSESSEE. 18 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 8.2 THE LD. CIT(A) THOUGH ACCEPTED THE FIGURE OF SA LES TAKEN BY THE ASSESSING OFFICER, HOWEVER, HE PROPOSED UNIFORM NET PROFIT RA TE OF 10% AND ISSUED A NOTICE TO THE ASSESSEE PROPOSING ENHANCEMENT OF THE INCOME . AFTER PROVIDING OPPORTUNITY TO THE ASSESSEE AND TAKING INTO CONSIDE RATION THE DISALLOWANCE FOR EXPENSES IN CASH EXCEEDING THE LIMIT PROVIDED IN SE CTION 40A(3) OF THE ACT, ,THE NET PROFIT RATE DECLARED BY THE ASSESSEE IN REGULAR RETURN OF INCOME AND ALSO AS PER THE REVISED AND MANIPULATED BOOKS FOR THE BLOCK PERIOD, , HE APPLIED THE NET PROFIT RATE OF 10% OVER THE SALES AND LABOUR CHARGE S SHOWN BY THE ASSESSEE FOR THE BLOCK PERIOD AND AFTER ALLOWING THE PROFIT ALRE ADY DECLARED BY THE ASSESSEE IN THE REGULAR RETURN OF INCOME, HE MADE THE ADDITION OF RS. 9,45,485/-, AS AGAINST THE ADDITION OF RS. 3,55,581/- MADE BY THE ASSESSIN G OFFICER. THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE REPRODUCED AS UNDER: 6.5 THE APPEAL COULD NOT BE DECIDED EARLIER AS T HERE WAS CHANGE OF INCUMBENT OF THE O/O CIT(A)-XI. THEN THERE WAS SOME DELAY IN GETTING REMAND REPORT. THE APPELLANT'S AR HAD ALSO SOUGHT ADJOURNMENT ON VARIO US OCCASIONS. BUT THERE CANNOT BE DENIAL OF JUSTICE WHEN APPELLANT IS BEING GRANTED PROPER OPPORTUNITY ON ALL ISSUES. MOREOVER TILL THE APPEAL ORDER IS PA SSED NO DECISION IS TAKEN HENCE THERE CANNOT BE ANY INJUSTICE. FURTHER WHEN DECISIO N HAS NOT BEEN TAKEN WHERE IS THE QUESTION OF REVIEW? THE FACT IS THAT THE APP ELLANT'S AR WAS DULY CONDUCTING HEARINGS TILL NOV 07 WITHOUT ANY OBJECTI ON. EVEN THE BOOKS & DOCUMENTS WERE PRODUCED. HOWEVER IT WAS ONLY WHEN E NHANCEMENT NOTICE WAS ISSUED ON SPECIFIC MATTERS POINTING OUT DISCREPANCI ES, THAT THE NON-COMPLIANCE BEGAN & ALL KIND OF OBJECTIONS CAME TO BE TAKEN. SI NCE THE AR HAD FILED WRITTEN REPLY BUT DID NOT ATTEND TO PRODUCE BOOKS & OTHER D OCUMENTS, HE WAS CONTACTED ON PHONE & WAS REQUESTED TO ATTEND THE HEARING TO P RODUCE BOOKS. THE HEARING WAS FIXED ON 31/12/07 WITH CONSENT OF MR GURJEET SI NGH. HOWEVER EVEN ON 31/12/07 THERE WAS NO COMPLIANCE. IN THE INTEREST O F JUSTICE ONE MORE OPPORTUNITY WAS GIVEN BY LETTER DTD 31/12/07 TO PRO DUCE BOOKS OF ACCOUNTS. IN RESPONSE TO THAT MR. R S NEGI ADV ANOTHER AR ATTEND ED & PRODUCED BOOKS OF ACCOUNTS. 6.6 I SHALL FIRST TAKE UP THIRD ISSUE OF DISALLOWA NCE U/S 40A(3). IN OLD PROVISIONS ENTIRE PAYMENT EXCEEDING THE PRESCRIBED LIMIT WAS DISALLOWED. 19 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 HOWEVER THERE WAS RULE 6DD(J) WHICH SPECIFIED CERTA IN CIRCUMSTANCES NEEDING CASH PAYMENT BY ASSESSEE. THE AO THEN HAD DISCRETIO N NOT TO INVOKE SEC 40A(3) IF THOSE CONDITIONS WERE FULFILLED. HOWEVER AFTER A MENDMENT OF SEC 40A(3) WEF 1/4/96 THE DISCRETION OF THE AO HAS' BEEN TAKEN AWA Y & IN CASE OF DEFAULT 20% OF THE CASH PAYMENT IS TO BE DISALLOWED STRAIGHT UNLES S THE PAYMENT FALLS IN ANY OF THE SPECIFIC EXEMPTIONS PROVIDED IN RULE 600. THE D ECISIONS RELIED UPON BY THE AR ARE NOT RELEVANT AND NOT APPLICABLE TO THIS CASE BECAUSE IN ALL CASES THE OLD PROVISIONS OF SEC 40A(3) WERE APPLICABLE WHEN RULE 600(J) WAS IN EXISTENCE. MOREOVER THE BASIS OF THE DECISION (THAT IN CASE OF ESTIMATE OF PROFIT SPECIFIC DISALLOWANCE U/S 40A(3) IS NOT TO BE MADE) IS THAT ALL FACTORS INCLUDING CASH PAYMENTS ARE TREATED TO HAVE BEEN CONSIDERED WHILE MAKING ESTIMATE. HENCE SEPARATE DISALLOWANCE IS NOT TO BE MADE U/S 40A(3). IN EFFECT PRESENT SEC 40A(3) MEANS THAT PURCHASES/EXPENSES WHICH HAVE BEEN PAID IN CASH EXCEEDING PRESCRIBED LIMIT ARE TO BE TREATED TO HAVE BEEN INF LATED BY 20% (SINCE 20% OF THE AMOUNT HAS TO BE DISALLOWED). THEREFORE IF THE RATI O OF THESE DECISIONS IS APPLIED, EVEN WITHOUT ACCEPTING THE SAME, THE PROFI T RATE TO BE APPLIED TO ESTIMATE THE NP HAS TO BE ADOPTED TAKING INTO ACCOU NT THE CASH PAYMENTS IN EXCESS OF LIMIT IN SEC 40A(3). 6.7 NOW I COME TO ESTIMATION OF NET PROFIT OF THE U NACCOUNTED BUSINESS WHICH IS POINT NO (I) OF ENHANCEMENT NOTICE. IN THE NOTIC E 10% NP RATE WAS PROPOSED. THIS WAS IN THE LIGHT OF NP RATES OF 37.54%, 6.26%, 20.93% & 20.05% FROM AY 99-00 TO 02-03. EVERI AS PER REVISED & MANIPULATED BOOKS THE NP RATE FOR AY 98- 99 WAS 11.51%. THE APPELLANT HAS NOT MADE ANY S UBMISSIONS AGAINST THIS 10% NP RATE FOR ESTIMATION OF PROFIT EXCEPT THAT IT SHOULD BE REASONABLE & RATIONAL. CONSIDERING THE NP RATES IN APPELLANT'S O WN ACCOUNTS FILED WITH ORIGINAL RETURN, NP RATE OF 10% APPEARS TO BE QUITE REASONABLE. MOREOVER AS DISCUSSED IN THE PARA 6.6 THE FACT OF CASH PAYMENTS IN EXCESS OF RS 20000 MADE IN CONTRAVENTION OF SEE 40A(3) IS ALSO TO BE CONSID ERED WHILE ESTIMATING NET PROFIT. ACCORDINGLY CONSIDERING THE FACT OF CASH PA YMENTS IN EXCESS OF RS 20000, THE NP RATE OF 10% PROPOSED IN THE ENHANCEMENT NOTI CE IS APPLIED IN THE CASE OF APPELLANT TO ESTIMATE THE NET PROFIT FROM BUSINESS. MOREOVER THE TURNOVER FOR THIS PURPOSE HAS BEEN TAKEN TO INCLUDE LABOUR CHARGES SH OWN TO BE RECEIVED. THIS IS BECAUSE IF LABOUR CHARGES ARE TREATED AS DIRECT INC OME, THE PROFIT WILL INCREASE SUBSTANTIALLY. ON THE OTHER HAND IF THESE ARE TREAT ED AS PART OF ESTIMATED PROFIT THEN EXCLUDING SUCH DIRECT INCOME, THERE WOULD BE E FFECTIVELY HUGE TRADING LOSS IN THE KITE BUSINESS EVERY YEAR. HENCE MOST REASONA BLE WAY IS TO TREAT THE LABOUR CHARGES ALSO THE TURNOVER FOR ESTIMATION. THE PROFI T FOR VARIOUS YEARS AS PER THE ABOVE ESTIMATE IS WORKED OUT AS UNDER: ASTT. YEAR TURNOVE R IN RETURN PROFITS IN RETURN** * TURNOVER IN BOOKS** LABOUR CHARGES TOTAL TURNOVER BUSINESS PROFIT @ 10% UNDISCLO SED PROFIT (G-C) A B C D E F G E 20 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 99-00 93500 35100 462000 105000 567000 56700 21600 00-01 115000 7210 2176967 49842 2226809 222681 215471 01-02 92650 19400 1153353 215680 13692033 136903 117503 02-03 175000 35096 3757316 262180 4019496 401950 366854 03-04* NA 0 2145288 95280 2240568 224057 224057 TOTAL 945485 FROM THE ESTIMATED PROFIT FOR VARIOUS YEARS, THE NE T PROFIT ALREADY DECLARED IN THE ACCOUNTS FILED WITH ORIGINAL RETURN IS EXCLUDED TO ARRIVE AT THE UNDISCLOSED INCOME FROM BUSINESS IN LAST COLUMN OF THE ABOVE TA BLE. ACCORDINGLY THE ADDITION OF RS 3,55,581 MADE BY THE AO IS TO BE REP LACED BY RS 9,45,485 WHICH RESULTS IN ENHANCEMENT OF UNDISCLOSED INCOME. 8.3 IN VIEW OF ABOVE, WE FIND THAT THE LD. CIT(A) AS TAKEN INTO CONSIDERATION ALL THE ASPECTS WHILE ARRIVING AT HIS CONCLUSION IN CLUDING THE FACT OF CASH EXPENDITURE, THE NET PROFIT RATE DECLARED BY THE AS SESSEE IN REGULAR RETURN, NET PROFIT RATE DECLARED IN THE BOOKS OF ACCOUNT PREPAR ED SUBSEQUENTLY AFTER SEARCH AND THE SALES RECORDED IN SEIZED PAPERS AS WORKED O UT BY THE ASSESSEE INCLUDING THE LABOUR CHARGES. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE FINDING ARE WELL REASONED, THUS, WE UPHOLD THE SAME. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DISMISSED. 9. GROUND NO. 5 IS REGARDING ADDITION OF RS. 40,00 0/- UNDER SECTION 69 ON ACCOUNT OF PURCHASE OF KISAN VIKAS PATRA IN THE JO INT NAME OF WIFE OF THE ASSESSEE. 9.1 THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED TH AT THE MONEY WAS INVESTED OUT OF THE MEHAR MONEY OF THE WIFE AND THUS THE I NVESTMENT DULY STOOD EXPLAINED AND NO ADDITION WAS REQUIRED TO BE MADE I N THE HANDS OF THE ASSESSEE. 9.2 ON THE OTHER HAND, LD. CIT(DR) RELIED ON THE F INDINGS OF THE LOWER AUTHORITIES. 21 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 9.3 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE LD. CIT(A) HAS DECIDED THE ISSUE IN PARAS 8.1 T O 8.3 OF HIS ORDER. THE LD. CIT(A) HAS CONSIDERED ALL THE SUBMISSION OF THE ASS ESSEE IN RESPECT OF THE MEHAR MONEY OF THE WIFE. HOWEVER, THE SAME WAS NOT FOUND ACCEPTABLE BY HIM. THE FINDINGS OF THE CIT(A) IN THIS RESPECT ARE AS UNDER : 8.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF APPELLANT. I HAVE SEEN THE COPY OF KVPS F ILED IN PAPERBOOK. IT IS NOTED THAT THE INVESTMENT IN KVPS (4 NUMBERS OF RS. 10,000 EACH) WAS MADE ON 29/4/00. IT IS ALSO NO TED THAT THE KVPS STAND IN JOINT NAMES OF APPELLANT & MRS. ZAHID A KHAN. THE FIRST NAME IS THAT OF APPELLANT. IF THE AMOUNT WAS OUT OF MEHAR RECEIVED BY MUSLIM WOMEN AT THE TIME OF MARRIAGE, I T WOULD HAVE BEEN INVESTED IN HER INDIVIDUAL NAME. IT IS A KIND OF HER PERSONAL PROPERTY SIMILAR TO STRIDHAN FOR HINDU LADIES. MORE OVER THE APPELLANT HAS NOT PRODUCED ANY EVIDENCE TO SHOW THA T THE INVESTMENT WAS OUT OF MATURITY PROCEEDS OF EARLIER KVPS. IN VIEW OF THIS THE INVESTMENT IN KVPS REMAINS UNEXPLAINED AND ACCORDINGLY THE ADDITION OF THIS AMOUNT AS UNDISCLOSED INCOME I S CONFIRMED. HOWEVER, THE UNDISCLOSED INCOME ON THIS A/C IS RELA TED TO AY 01-02 & NOT 02-03 AS MENTIONED IN ASSESSMENT ORDER. 9.4 WE FIND FROM THE ABOVE THAT THE LD. CIT(A) HAS PASSED A WELL REASONED ORDER ON THIS ISSUE AND WE DO NOT FIND ANY INFIRMIT Y IN HIS FINDINGS. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DISMISSED. 10. GROUND NO. 6 IS REGARDING ADDITION OF RS. 1,54 ,770/- FOR THE PURCHASE OF SANTRO CAR. THE LD. AUTHORIZED REPRESENTATIVE EXPLA INED THAT THE INVESTMENT ON THE SAID CAR WAS DULY EXPLAINED ON THE BASIS OF THE AVAILABILITY OF CASH IN THE CASH BOOK WHICH WAS PRODUCED BEFORE THE ASSESSING O FFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS. THE LD. CIT(DR), ON THE OTH ER HAND, RELIED ON THE ORDER OF THE LD. CIT(A). 22 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 10.1 WE HAVE HEARD RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE LD. CIT(A) HAS ALREADY MENTIONED THE DEFECTS IN THE CASH BOOK PREPARED BY THE ASSESSEE AND ALREADY HELD THE BOOKS OF ACCOUNT UNRE LIABLE AND REJECTED. THE RELEVANT PARAGRAPHS OF THE ORDER OF THE LD. CIT(A) ARE REPRODUCED AS UNDER:] 9.1 GROUND NO 5 IS AGAINST ADDITION OF RS 1,54,77 0 BEING CASH PAYMENT FOR FINANCING THE PURCHASE OF SANTRO CAR ON INSTALL MENTS. IT WAS FOUND BY THE AO THAT THE APPELLANT HAD MADE THIS PAYMENT TO M/S ORIEN AUTOMOBILES DELHI PVT LTD ON 25/4/02 FOR ACQUISITIO N OF SANTRO CAR. WHEN ASKED TO EXPLAIN THE SOURCE OF PAYMENT IT WAS STATE D THAT THE PAYMENT WAS MADE OUT OF CASH AVAILABLE IN BUSINESS AND THE SAME WAS REFLECTED IN THE CASH BOOK. THE AO DID NOT ACCEPT THE EXPLANATION SI NCE THE BOOKS OF ACCOUNT HAD BEEN REJECTED. HE THEREFORE, TREATED TH E SUM OF RS 1,54,770 AS UNDISCLOSED INCOME OF THE APPELLANT FOR FY 02-03 . 9.2 IN THE APPEAL PROCEEDINGS AGAIN THE RELIANCE WA S PLACED ON THE BOOKS OF ACCOUNT AND IT WAS SUBMITTED THAT THE PAYMENT WA S DULY REFLECTED THEREIN. THE PAYMENT WAS MADE OUT OF BUSINESS FUNDS AND CANNOT BE TREATED AS UNDISCLOSED INCOME. THE APPELLANT WAS NO T HAVING ANY OTHER SOURCE OF BUSINESS EXCEPT THE KITE BUSINESS. 9.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E BY THE APPELLANT. THE REJECTION OF BOOKS OF ACCOUNT BY THE AO HAS BEE N UPHELD AS PER DISCUSSION IN THE EARLIER PARAGRAPHS OF THE ORDER. THE BOOKS HAVE BEEN PROVED TO BE MANIPULATED AND PREPARED WITH A PARTIC ULAR MOTIVE TO EXPLAIN WHERE DISCREPANCIES FOUND DURING THE SEARCH PROCESS. THE FACT THAT THE BOOKS WERE MANIPULATED TO INFLATE THE CASH BALANCE IS PROVED BY THE RESULTS OF TEST CHECK OF BOOKS CONDUCTED BY ME PERSONALLY. DURING TEST CHECK IT WAS FOUND THAT ENTRY OF CASH RECEIPT OF RS 16,500 ON 16/4/02 IN THE NAME OF ARIFBHAI WAS WRONG AS THERE WAS NO SUCH NOTING IN SEIZED DIARY. SIMILARLY CASH RECEIPT OF RS 47,000 IS SHOWN ON 23/4/02 FROM REHANBHAI WHEREAS AMOUNT NOTED IN SEIZED DAIRY IS O NLY RS 7000. FICTITIOUS LOAN FROM ONE BANO BEGUM IS ALSO SHOWN O N 20/4/02. IT MAY THEREFORE BE SEEN THAT THE APPELLANT HAD MADE INCOR RECT/FICTITIOUS ENTRIES IN THE BOOKS JUST TO INFLATE CASH ON 25/4/02 THE DA TE WHEN CASH PAYMENT FOR SANTRO CAR WAS MADE. NO OTHER EXPLANATION ABOUT THE SOURCE OF CASH EXCEPT RELIANCE ON BOOKS OF ACCOUNT HAS BEEN GIVEN. ACCORDINGLY THE ADDITION OF RS 1,54,770 AS UNDISCLOSED INCOME FOR A Y 03-04 IS CONFIRMED. 23 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 10.2 WE FIND THAT THE ORDER OF THE LD. CIT(A) ON T HE ISSUE IN DISPUTE IS WELL REASONED AND NO INTERFERENCE IS REQUIRED BY US IN H IS FINDINGS. ACCORDINGLY, WE UPHOLD THE SAME AND DISMISS THIS GROUND OF APPEAL O F THE ASSESSEE. 11. IN GROUND NO. 7, THE ASSESSEE HAS CHALLENGED T HE ADDITION OF RS. 1 LAKH UPHELD BY THE LD. CIT(A) FOR UNEXPLAINED INVESTMENT IN THE STOCK. THE ASSESSING OFFICER HELD THAT THE STOCK OF RS. 1,50,962/- DURIN G THE COURSE OF SEARCH AS UNEXPLAINED AS THE ASSESSEE COULD NOT SUBSTANTIATE THE SAME WITH THE HELP OF BOOKS OF ACCOUNT. BEFORE THE LD. CIT(A), THE ASSESS EE SUBMITTED THAT COMPLETE BOOKS OF ACCOUNT WERE PRODUCED BEFORE THE ASSESSING OFFICER, HOWEVER, THE SAME WERE NOT ACCEPTED. THE LD. CIT(A) AFTER ALLOWI NG RS. 50,952/- AS LEGITIMATE STOCK OF BUSINESS , HELD THE BALANCE AMO UNT OF RS. 1 LAKH AS UNEXPLAINED STOCK/UNDISCLOSED INCOME OF THE ASSESSE E. THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE REPRODUCED AS UNDER: 10.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT. THE APPELLANT'S CLAIM THAT THE BOOKS OF ACCOUNT WERE MAINTAINED ON REGULAR BASIS AND WERE NOT AVAILABLE AT THE TIME OF SEARCH BECAUSE THEY WERE TAKEN BY PART TIME ACCOUNTANT IS FACTUALLY INCORRECT. IT HAS BEEN PROVED THAT THE APPELLANT WAS NOT MAINTAIN ING ANY BOOKS OF ACCOUNT REGULARLY. THE COMPUTERIZED BOOKS WERE PREP ARED SUBSEQUENT TO THE SEARCH AND MANIPULATED/ADJUSTED WITH A PARTICUL AR MOTIVE TO EXPLAIN THE MATERIAL FOUND DURING SEARCH. IF THE BOOKS WERE AVAILABLE WITH THE PART TIME ACCOUNTANT THEY COULD HAVE BEEN PRODUCED BEFORE THE ADIT IMMEDIATELY AFTER THE SEARCH. IN THE EARLIER PART O F THIS ORDER IT HAS ALSO BEEN PROVED THAT THERE ARE LARGE SCALE MANIPULATED/ ADJUSTMENTS IN THE BOOKS PARTICULAR REGARDING DATES OF TRANSACTIONS WH ICH RENDERED THE BOOKS OF UNREALIZABLE. HENCE THESE BOOKS CAN ALSO N OT BE TREATED AS THE BASIS FOR EXPLAINING THE STOCK FOUND DURING THE SEA RCH. FURTHER IT IS NOTED THAT HUGE STOCK IN THE RANGE OF RS 16 LACS WAS SHOW N IN BOOKS WHICH PROVES THAT THE BOOKS ARE MANIPULATED. THE STOCK AT THE END OF ACCOUNTING YEAR HAS TO BE PUT AFTER PHYSICAL VERIFICATION AND CANNOT BE BALANCING FIGURE AS CLAIMED BY THE APPELLANT. THEREFORE APPEL LANT'S EXPLANATION REGARDING THE STOCK FOUND DURING THE SEARCH IS NOT ACCEPTABLE. HOWEVER 24 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 EVEN IF BOOKS ARE REJECTED AS UNRELIABLE, IT CANNOT BE SAID THAT NO STOCK IN ANY BUSINESS WOULD BE AVAILABLE, EVEN THOUGH THE PE AK SALE SEASON WAS OVER. IN MY VIEW A SUM OF RS 50,952 CAN BE TREATED AS LEGITIMATE STOCK OF BUSINESS AND CONSIDERED AS EXPLAINED. THE ADDITION OF UNDISCLOSED INCOME ON THIS COUNT IS REDUCED TO RS 1,00,000 ONLY. 11.1 FROM THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS EVIDENT THAT THE ASSESSEE WAS ENGAGED IN SALES AND PURCHASES OF KITE S WHICH DID NOT APPEAR IN THE RETURN OF INCOME FILED AND THUS CERTAIN AMOUNT OF S TOCK WAS NOT AS PER THE TRADE FIGURE REPORTED IN RETURN OF INCOME. WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) HAS ALLOWED A REASONABLE AMOUNT OF STOCK TOW ARDS LEGITIMATE STOCK OF BUSINESS AND THE ADDITIONS SUSTAINED BY HIM IS REAS ONABLE AND JUSTIFIED. ACCORDINGLY, WE UPHOLD THE FINDING OF THE LD. CIT(A ) AND DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. 12. IN GROUND NO. 9, THE ASSESSEE HAS RAISED ISSUE FOR VARIOUS ADDITIONS WHICH CAN BE MADE OF THE REAL INCOME AND ONLY TO THE EXTE NT OF SOURCE OF INCOME AND NOT BEYOND THAT. 12.1 WE HAVE ALREADY CONSIDERED VARIOUS ARGUMENTS OF THE ASSESSEE IN RESPECT OF OTHER GROUNDS OF ADDITION AND THUS THIS GROUND O F THE ASSESSEE IS RENDERED INFRUCTUOUS AND IS DISMISSED. 13. IN GROUND NO. 10, THE ASSESSEE HAS RAISED THE ISSUE OF NOT ALLOWING INITIAL INVESTMENT OF RS. 1,50,000/- AND THE PROFIT PLOUGHE D BACK BY THE ASSESSEE IN THE BUSINESS. IN THIS RESPECT, THE LD. AUTHORIZED REPRE SENTATIVE SUBMITTED THAT THE BENEFIT OF PROFITS OF EACH YEAR SHOULD BE ALLOWED T O THE ASSESSEE AGAINST RESPECTIVE INVESTMENT. 25 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 13.1 LD. CIT(DR), ON THE OTHER HAND, SUBMITTED THAT THE LD. CIT(A) HAS ALREADY ALLOWED THE BENEFIT OF TELESCOPING WITHOUT ESTABLIS HING THE LINK BETWEEN THE INCOME AND THE INVESTMENT. 13.2 WE FIND THAT THE LD. CIT(A) HAS DULY CONSIDER ED THE INVESTMENTS WHICH PRECEDED THE INCOME FOR THE PURPOSE OF TELESCOPING AND WHEREVER THERE IS NO INCOME TO EXPLAIN THE INVESTMENT, HE HAS HELD THE S AME AS UNEXPLAINED INVESTMENT. ACCORDINGLY, HE HAS NOT ALLOWED THE SET OFF OF UNDISCLOSED INVESTMENT OF RS. 3,92,700/- , HOWEVER, FOR THE SU BSEQUENT INVESTMENTS, WHERE EVER THE INCOME WAS AVAILABLE FOR SET OFF OF INVEST MENT, HE HAS ALLOWED THE SETOFF. THE RELEVANT PARA OF THE CIT(A)S ORDER IS REPRODUCED AS UNDER: 11.1 IN GROUND NO 7 THE APPELLANT HAS MADE A REQU EST, WITHOUT PREJUDICE TO THE SUBMISSION IN RESPECT OF SPECIFIC ISSUES, TO ALLOW TELESCOPING OF VARIOUS ADDITIONS THAT WERE CONFIRMED IN APPEAL. IN OTHER WORDS WHAT IS CONTENDED IN APPEAL IS THAT THE ADDITIONS ARE IN THE FORM OF UNDISCLOSED I NCOME OR UNEXPLAINED INVESTMENT/EXPENDITURE. ADDITION OF BOTH, THE INCOM E AS WELL AS EXPENDITURE/INVESTMENT IS NOT JUSTIFIED BECAUSE THE INVESTMENT HAS BEEN MADE OUT OF INCOME ITSELF. THEREFORE ONLY HIGHER OF THE TWO SHOULD BE TAXED. EVEN IN THE LAST REPLY TO THE ENHANCEMENT NOTICE THIS PLEA WAS REPEATED. 11.2 I HAVE CONSIDERED THE ALTERNATIVE PLEA OF THE APPELLANT. THE CONTENTION IS BASED ON THE LOGIC THAT ANY INVESTMENT OR EXPENDITU RE IS MADE OUT OF INCOME EARNED. THEREFORE BOTH THE INCOME AND THE INVESTMEN T/EXPENDITURE SHOULD NOT BE BROUGHT TO TAX OTHERWISE IT WILL AMOUNT TO DOUBLE A DDITION. THIS IS BECAUSE THE INCOME FROM WHATEVER SOURCE & BASED ON WHATEVER DOC UMENT, DENOTES INFLOW OF FUNDS. ON THE OTHER HAND THE INVESTMENT OR EXPENDIT URE INVOLVES OUTFLOW OR UTILIZATION OF SUCH FUNDS. IF INCOME IS EARNED FIRS T, THE EXPENDITURE/INVESTMENT CAN OBVIOUSLY BE SAID TO HAVE BEEN MADE OUT OF SUCH INCOME. IN PRINCIPLE THE ARGUMENT OF THE APPELLANT APPEARS TO BE QUITE REASO NABLE & SHOULD BE ACCEPTED. 11.3 HOWEVER WHAT IS TO BE NOTED IS THAT THE SET O FF OR TELESCOPING OF INCOME WITH EXPENDITURE CAN BE ALLOWED ONLY IF IT CAN BE S HOWN PRIMA-FACIE THAT THE INVESTMENT COULD HAVE BEEN MADE OUT OF INCOME. IN O THER WORDS IF THE INCOME WHICH IS CLAIMED TO BE SOURCE OF SOME INVESTMENT PR ECEDES IT THEN ONLY IT CAN BE SET OFF. IF THE INCOME IS EARNED AFTER A PARTICULAR INVESTMENT HAS BEEN MADE, IT WILL NOT BE POSSIBLE TO SET OFF THE TWO AGAINST EAC H OTHER BECAUSE THERE WAS NO 26 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 INFLOW OF FUNDS BEFORE THE OUTFLOW. THEREFORE APART FROM THE BROAD CATEGORIZATION OF INCOME AND EXPENDITURE/INVESTMENT , THE CHRONOLOGICAL ORDER OR THE PERIOD RELATING TO EACH ITEM IS ALSO TO BE T AKEN INTO CONSIDERATION. THE VARIOUS ITEMS OF INFLOW AND OUTFLOW ON THE BASIS OF WHICH ADDITIONS HAVE BEEN CONFIRMED/MADE IN THIS ORDER ARE SHOWN IN THE FOLLO WING TABLE IN CHRONOLOGICAL ORDER: S. NO. ITEMS DATE/FY/PERI OD INCOME INVESTMENT/ EXPENDITURE 1. UNEXPLAINED INVESTMENT IN PURCHASE 98-99 --- 3,92,700 2. UNDISCLOSED BUSINESS PROFIT 98-99 21,600 --- 3. UNDISCLOSED BUSINESS PROFIT 99-00 2,15,471 --- 4. UNACCOUNTED INVESTMENT IN KVPS 29/4/00 ---- 40,000 5. UNDISCLOSED BUSINESS PROFIT 00-01 1,17,503 --- 6. UNDISCLOSED BUSINESS PROFIT 01-02 3,66,854 --- 7. UNACOCUNTED CASH PAYMENT FOR ACQUIRING CENTRO CAR 25/4/02 --- 1,54,770 8. UNDISCLOSED BUSINESS PROFIT 1/4/02- 16/8/02 2,24,057 --- 9. CASH FOUND AT THE RESIDENCE DURING SEARCH & SEIZURE 16/08/02 --- 9,27,000 10. UNACCOUNTED STOCK FOUND DURING SEARCH 16/08/02 --- 1,00,000 TOTAL 9,45,485 15,14,470 IT MAY BE NOTED THAT THERE IS NO INCOME (INFLOW OF FUNDS) BEFORE THE UNDISCLOSED INVESTMENT OF RS 3,92,700. THEREFORE THIS AMOUNT CA NNOT BE SET OFF WITH ANY INCOME. THEREAFTER THERE IS SUFFICIENT INCOME BEFOR E ANY OTHER UNDISCLOSED INVESTMENT SHOWN IN THE TABLE. THEREFORE INCOME (IN FLOW) AND EXPENDITURE/INVESTMENT (OUTFLOW) CAN BE SET OFF AGA INST EACH OTHER AND ONLY HIGHER OF THE TWO IS TO BE TAXED. THE INFLOW IS RS 9,45,485 WHEREAS OUTFLOW IS RS 11,21,770 (RS 15,14,470 - 3,92,700). HENCE INVESTME NT TO THE EXTENT OF RS 9,45,485 CAN BE TREATED TO HAVE BEEN MADE OUT OF IN COME EARNED. HENCE BOTH INCOME & INVESTMENT MAY NOT BE TAXED. INVESTMENT BE ING HIGHER OF THE TWO IS ONLY BROUGHT TO TAX. THEREFORE THE TOTAL UNDISCLOSE D INCOME TO BE TAXED THEREFORE WORKS OUT TO RS 15,14,470 (RS 3,92,700 +11,21,770) IN VIEW OF THE TELESCOPIC BENEFIT ALLOWED TO THE APPELLANT. THE AO IS DIRECTE D TO COMPUTE THE TAX ACCORDINGLY. 27 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 13.3 IN VIEW OF ABOVE, WE DO NOT FIND ANY INFIRMIT Y IN THE FINDING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND HE HAS ALLOWED T HE TELESCOPING AFTER DUE CONSIDERATION OF THE PERIOD OF INVESTMENT AND INCOM E. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALSO DISMISSED. 14. GROUND NO. 11 IS CONSEQUENTIAL TO THE ABOVE GRO UNDS OF APPEAL AND GROUND OF NOS. 12 & 13 ARE GENERAL IN NATURE, THEREFORE, N OT REQUIRED TO ADJUDICATE UPON. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS D ISMISSED. IT(SS)A NO. 54/ DEL/ 2008 16. THE GROUNDS OF APPEAL RAISED IN THE APPEAL OF T HE REVENUE ARE AS UNDER: 1. THE ORDER OF THE LD. CIT(A) IS NOT CORRECT IN LAW AND FACTS. 2. WHETHER THE LD. CIT(A)-XI NEW DELH I IS JUSTIFIED IN FACTS AND IN THE LAW IN DIRECTING THE AO TO ALLOW THE APPELLANT THE BENEFIT OF THE TELESCOPIC METHOD, THEREBY ALLOWING THE ASSESSEE TO SET OFF HIS INVESTMENTS AGAINST THE UNDISCLOSED INCOME WITH EST ABLISHING THE ACCOUNTING LINK BETWEEN THE TWO. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AM END ANY ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HE ARING OF THE APPEAL. 17. THE GROUND NO. 1 AND 3 OF THE APPEAL ARE GENERA L AND HENCE, NO ADJUDICATION REQUIRED. THE GROUND NO. 2 OF THE APPEAL HAS ALREAD Y BEEN DISCUSSED AND ADJUDICATED IN GROUND NO. 10 OF THE ASSESSEES APPE AL IN IT(SS)A NO. 39/DEL/2008, ACCORDINGLY, FOLLOWING THE DECISION GI VEN THERE, THIS GROUND OF THE REVENUE IS DISMISSED. 28 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 9 TH MARCH, 2016. SD/- SD/- (I.C. SUDHIR) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 9 TH MARCH, 2016. RK/- COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 29 IT(SS)A NO. 39 & 54/DEL/2008 BLOCK PERIOD: 01.04.1996 TO 16.08.2002 SL. NO. PARTICULARS DATE 1. DATE OF DICTATION (HAND WRITTEN ) 24.02.2016 2. DATE ON WHICH THE DRAFT IS PLACED BEFORE THE DICTATING MEMBER 25.02.2016 3. DRAFT PLACED BEFORE THE OTHER MEMBER 4. APPROVED DRAFT COMES TO THE SR. PS/PS 5. KEPT FOR PRONOUNCEMENT ON 6. FINAL ORDER RECEIVED AFTER PRONOUNCEMENT 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILES GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE ASSISTANT REGISTRAR 10. DATE OF DISPATCH OF ORDER