The ACIT, Central Circle-2(2), Ahmedabad V. Black Diamond Trading Company, Ahmedabad

ITSSA 596/AHD/2010

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 0177 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 13 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-07-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 12-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Income from undisclosed sources; Document seized; Peak credit; Documents seized
• Section: 44AD; 40A(3); 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER IT(SS)A NO.594,595,596,597,598,599/AHD/2010 & ITA N O.2312/AHD/2010 A.YS. 2001-2002 TO 2007-2008 ACIT, CENTRAL CIRCLE 2(2) AHMEDABAD. VS BLACK DIAMOND TRADING COMPANY. 403-404, MAHARANA PRATAP, COMMERCIAL COMPLEX, OPP. MAHAKANT, ELLISBRIDGE, AHMEDABAD. PAN: AABFB 5940P (APPELLANT) (RESPONDENT) CO NO.245, 246, 247 & 248/AHD/2010 A.YS.2001-02, 2002-03, 2003-04, 2007-08 BLACK DIAMOND TRADING COMPANY. 403-404, MAHARANA PRATAP, COMMERCIAL COMPLEX, OPP. MAHAKANT, ELLISBRIDGE, AHMEDABAD. PAN: AABFB 5940P VS ACIT, CENTRAL CIRCLE 2(2) AHMEDABAD. (APPELLANT) (RESPONDENT) / // / DATE OF HEARING : 16/07/2014 / DATE OF PRONOUNCEMENT: 25/07/2014 / O R D E R PER BENCH ALL THESE APPEALS ALONG WITH THE CROSS OBJECTIONS HAVE BEEN CONSOLIDATED AND HEREBY DECIDED BY THIS COMMON ORDE R. IN THE REVENUE BY : SHRI SUBHASH BAINS, CIT- D.R., ASSESSEE(S) BY : SHRI TUSHAR P. HEMANI, A.R. IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 2 - ASSESSMENT YEARS 2001-02 TO 2007-08, LEARNED CIT(A) -III AHMEDABAD HAS PASSED THE COMMON ORDER DATED 5.5.2010. THE LEA D ASSESSMENT YEAR IS 2001-02 AND WE SHALL DEAL GROUND NO.2 FIRST ALON G WITH THE CROSS OBJECTIONS OF THE ASSESSEE PERTAINING TO A.Y. 2001- 02, 2002-03, 2003-04. GROUND NO.2 RAISED BY THE REVENUE 2). THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS A ND IN CIRCUMSTANCES OF THE CASE IN REDUCING THE GROSS PROFIT TO THE EXTENT OF RS.16,04,036/- AFTER ALLOWING THE UNACCOUNTED EXPENSES AS AGAINST THE GROSS PROFI T ADDITION OF RS.16,15,803/- GROUNDS RAISED BY THE ASSESSEE IN CO ARE : 1. LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONF IRMING THE ESTIMATED TOTAL UNACCOUNTED INCOME AT (RS.16,04,036/- FOR A.Y.2001- 02), (RS.31,87,728 FOR A.Y.2002-03) AND (RS.25,04,025/- FOR A.Y.2003-04) A S AGAINST THE ESTIMATED TOTAL UNACCOUNTED INCOME OFFERED BY THE ASSESSEE AT (RS.14,85,000/- FOR A.Y.2001-02), (RS.17,86,000/- FOR A.Y.2002-03) AND (RS.14,58,000/- FOR A.Y.2003-04) FOR THE YEAR UNDER CONSIDERATION. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.153A R.W.S. 143(3), DATED 29.12.2008 WER E THAT THE ASSESSEE- FIRM IS IN THE BUSINESS OF COAL TRADING. A SEARCH W AS CONDUCTED ON DOSANI GROUP ON 4 TH OF AUGUST, 2006. IN COMPLIANCE OF A NOTICE U/S.153A A RETURN WAS FILED ON 7 TH OF AUGUST, 2008 DECLARING AN INCOME OF RS.18,82,090/-. CONSEQUENCE UPON A SEARCH FOUR KAC CHA NOTE BOOKS MARKED AS ANNEXURE A/2, A/3, A/5 AND A/8 WERE SEIZE D. IT WAS FOUND THAT THE ASSESSEE WAS DAILY RECORDING CASH TRANSACT IONS WHICH WERE STATED TO BE AS FOLLOWS: (I) ACCOUNTED PURCHASES (II) ACCOUNTED SALES, (III) ACCOUNTED EXPENSES, (IV) UNACCOUNTED PURCHASES, (V) UNACCOUNTED SALES, (VI) UNACCOUNTED EXPENSES. IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 3 - 2.1 ACCORDING TO AO, IN THOSE KACCHA NOTE BOOKS T HE ASSESSEE HAD SHOWN THE ACCOUNTED TRANSACTIONS, WHICH WERE DULY F OUND RECORDED AS PER THE ORIGINAL RETURN FILED. HOWEVER, IT WAS ALSO NOT ED THAT THERE WERE CERTAIN UNACCOUNTED TRANSACTIONS WHICH WERE NOT REC ORDED IN THE REGULAR BOOKS OF ACCOUNT. THEREFORE, AFTER THE SEARCH IN AD DITION TO THE INCOME AS PER ORIGINAL RETURN, THE RETURN FILED IN COMPLIANCE OF NOTICE U/S.153A THE UNACCOUNTED TRANSACTION WAS ALSO OFFERED OF RS.14,8 5,000/-. THE ASSESSEE HAD ADOPTED AN ESTIMATION OF PROFIT @ 5% ON THE UNACCOUNTED CASH SALES OF RS. 2,96,89,000/-. THOSE ACCOUNTED CASH SALES W ERE ALSO FOUND RECORDED IN THE SEIZED KACCHA NOTE BOOK. THE AO W AS NOT IN AGREEMENT WITH THE ESTIMATION OF INCOME @ 5% APPLIED ON THE U NACCOUNTED CASH SALES. THE AO HAS GIVEN THE FOLLOWING REASONS: (I) IN THE KACCHA NOTE BOOKS, NOT ONLY UNACCOUNTED CASH SALES ARE RECORDED, BUT UNACCOUNTED CASH PURCHASES AND UNACCO UNTED CASH EXPENSES ARE ALSO RECORDED METICULOUSLY. IN VIEW OF THIS FAC T, INCOME CAN EASILY BE DEDUCED BY SUBTRACTING PURCHASES AND EXPENSES FROM THE SALES AND HENCE ONE CANNOT RESORT TO ESTIMATION OF INCOME. II) DURING THE ASSESSMENT PROCEEDINGS HE HAS FURNI SHED STATEMENT OF SUCH UNACCOUNTED SALES, UNACCOUNTED PURCHASES AND UNACCO UNTED EXPENSES. 2.2 THEREFORE, THE AO HAS COMPUTED THE PROFIT ON TH E BASIS OF THE TOTAL UNACCOUNTED SALES AND THE UNACCOUNTED PURCHASES ETC . IN THE FOLLOWING MANNER: RS. (A) UNACCOUNTED SALES 29689586 (B) UNACCOUNTED PURCHASES 27748034 (C) UNACCOUNTED EXPENSES: 519425 (D) PERSONAL & CHARITY EXPENSES: 193676 PROFIT = A-[B-(C-D)] 16,15,803 IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 4 - 2.3 THE RESULT OF THE ABOVE CALCULATION WAS THAT TH E AO HAD WORKED OUT THE PROFIT AT RS.16,15,803/- WHICH WAS HELD AS UNACCOUNTED PROFIT AND ACCORDINGLY TAXED IN THE HANDS OF THE ASSESSEE. IN REST OF THE YEARS THE SAME PATTERN WAS FOLLOWED BY THE AO, HOWEVER IN A.Y .2002-03 & A.Y.2007-08, AS LOSS WAS COMPUTED. 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY, SINCE HE WAS DECIDING THE APPEALS OF ALL THE YEARS, THEREFORE, A CONSOLIDATED CHART OF THE PROFIT RATIO AS CALCULATE D BY THE AO, VIZ-A-VIZ, 5% PROFIT SHOWN BY THE ASSESSEE, WAS COMPARED IN TH E FOLLOWING MANNER: A.Y S . INCOME OFFERED BY ASSESSEE I.E. @ 5% OF THE TOTAL OF RECEIPTS IN SEIZED DIARIES (RS.) INCOME DETERMINED BY AO AS PER SEIZED RECORDS / DIARIES RS. PROFIT RATIO AS PER AO'S CALCULATION 2001-02 14,85,000 16,15,803 5.44% 2002-03 17,86,000 -10,25,499 -2.87% 2003-04 14,58,000 21,67,076 7.43% 2004-05 16,63,554 26,54,974 10.51% 2005-06 16,63,554 5,19,318 7.90% 2006-07 15,53,775 25,01,070 10.25% 2007-08 0 -21,12,276 -2.41% 96,09,883 63,20,466 AVERAGE PROFIT RATIO 5.17% IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 5 - 3.1 IN ADDITION TO THE ABOVE CHART, LEARNED CIT(A) HAS ALSO COMPARED THE INCOME DISCLOSED BY THE ASSESSEE WITH THE INCOM E DECLARED AS PER THE ORIGINAL RETURN. A.Y. ORIGINAL RETURNED INCOME 5% INCOME ON CREDIT ENTRIES IN SEIZED RECORDS DECLARED BY APPELLANT OTHER UN- ACCOUNTED INCOMES DISCLOSED IN RETURNS INCOME RETURNED U/S. 153A 2001-02 2,97,090 14,85,000 1,00,000 18,82,090 2002-03 2,83,264 17,86,000 1,25,000 21,94,264 2003-04 3,29,700 14,58,000 4,50,000 22,37,700 2004-05 6,27,513 16,63,554 1,50,000 24,41,067 2005-06 7,48,977 16,63,553 1,50,000 25,62,530 2006-07 13,52,179 15,53,775 1,50,000 30,55,954 2007-08 0 0 0 0 TOTAL 36,38,723 96,09,882 11,25,000 1,43,73,605 3.2 THE OBSERVATION OF LEARNED CIT(A) WAS THAT THE TOTAL INCOME DISCLOSED BY THE ASSESSEE AT RS.96.09 LACS ON THE B ASIS OF 5% PROFIT ON UNACCOUNTED CREDIT ENTRIES WAS IN PROXIMITY WITH TH E INCOME DISCLOSED OF RS.1 CRORE BY THE ASSESSEE IN THE STATEMENT RECORDE D ON 05.08.2006. HE HAS ALSO FOUND THAT THE AO HAS SOUGHT DETAILS OF SU PPLIERS OF RAW MATERIALS, BUYERS, BANK ACCOUNTS, UNSECURED LOANS, ETC., WHICH WERE FURNISHED TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. RATHER, IT WAS SO REMARKED IN A REMAND REPORT OF THE AO DAT ED 28.09.2009. THE SUBMISSIONS OF THE ASSESSEE IN THAT REGARD WERE ACC EPTED. THERE WAS ONE IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 6 - MORE OBSERVATION OF THE LEARNED CIT(A) THAT DURING THE COURSE OF SEARCH THERE WERE NO EVIDENCE OF UNACCOUNTED SALE INVOICES , PURCHASE BILLS, STOCK REGISTER, CREDITOR/DEBTOR REGISTER . EVEN NO EXCESS STOCK OF COAL WAS FOUND AT THE TIME OF SEARCH. FOR THE SAID REASO N, THE EXPLANATION OF THE ASSESSEE WAS THAT THERE WAS UNACCOUNTED COMMISS ION INCOME ONLY BECAUSE THE ASSESSEE HAS ALSO EARNED COMMISSION INC OME AS A COMMISSION AGENT. FURTHER MORE LEARNED CIT(A) HAS A LSO REFERRED FEW FINDINGS ON FACTS AS UNDER: 9B. THE APPELLANT HAS POINTED OUT THAT THE METHOD A DOPTED BY THE AO TO DETERMINE PROFITS / INCOME FROM THE ENTRIES IN THE SEIZED DIARIES WAS INHERENTLY DEFECTIVE AND UNSCIENTIFIC, IN ABSENCE OF VITAL DET AILS. THUS, GOING BY THE AO'S COMPUTATION, THE PROFIT RATIO HAS PLUMMETED FROM 5. 44% IN A.Y. 2001-02 TO THE NEGATIVE FIGURE OF (-)2.87% IN A.Y. 2002-03. FU RTHER THE POSITIVE INCOME, AS PER THE AO, DURING THE ENTIRE PERIOD, PERTAINING TO A.Y. 2001- 02 TO A.Y. 2007-08, ON THE BASIS OF THESE SEIZED DIARIES, COME S TO A TOTAL OF RS.63,20,466/-, WHEREAS THE APPELLANT IN THE STATEM ENTS / RETURNS HAD DISCLOSED RS. 96,09,882/-. IT IS MOREOVER NOTEWORTH Y THAT THE SEIZED DIARIES DID NOT CONTAIN THE ENTRIES FOR THE ENTIRE PREVIOUS YEAR, PARTICULARLY OF THE PREVIOUS YEARS RELATED TO A.Y. 2004-05, A.Y. 2005-0 6 AND A.Y. 2006-07. THIS IS SEEN FROM THE FACT THAT THESE DIARIES ARE FOR TH E PERIOD 7/6/98 TO 3/8/06 AND THERE IS NO RECORD/ENTRIES FOR THE PERIOD 12/10/03 TO 6/7/05. THE DETAILS ARE AS UNDER : ANNEXURE PERIOD COVERED A-2 17/07/00 TO 30/03/02 A-3 07/06/98 TO 17/07/00 A-5 16/04/02 TO 11/10/03 A-8 07/07/05 TO 03/08/06 THUS THERE IS NO RECORD FOR A.Y. 2005-06, WHILE IT IS PARTLY FOR THE PERIOD RELEVANT TO A.Y. 2006-07 (NONE BEFORE 7/7/05), A.Y. 2004-05 (UPTO 11/10/2003). SINCE THE ENTRIES IN RESPECT OF THESE ASSESSMENT YEARS WERE NOT COMPLETE, THE PROFITS IN THIS PERIOD COULD NOT BE D EDUCTED AND HAD TO BE ESTIMATED EVEN BY THE AO. 3.3 AN ALTERNATE PLEA HAS ALSO BEEN RAISED THAT EVE N IF CONSIDERED THE PEAK CREDIT OF THE DIARIES THEN THE SAME WAS FOUND TO BE AT RS.1,06,29,052/-, HOWEVER, AS AGAINST THAT THE ASSE SSEE HAD SUO MOTU IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 7 - DISCLOSING RETURN U/S.153A DECLARING INCOME OF RS.1 .07 CRORES, THEREFORE, THE DISCLOSED INCOME HAS EXCEED THE PEAK CREDIT. 3.4 FURTHER AN ANOTHER ALTERNATE PLEA HAS ALSO BEEN RAISED THAT IF CONSIDERED THE APPLICATION OF UNACCOUNTED INCOME, T HAT TOO HAS NOT EXCEEDED FROM THE DISCLOSED INCOME OF RS.1,07,34,88 2/-. THE LEARNED CIT(A) HAS EXAMINED THE YEAR-WISE APPLICATION OF IN COME. AS PER THE CHART PLACED ON PAGE 15 OF THE APPELLATE ORDER, NEE D NOT TO BE REPRODUCED KEEPING BREVITY IN MIND. FINALLY, THE LEARNED CIT(A ) HAS CONCLUDED THAT THE INCOME OFFERED @ 5% WAS MORE THAN THE NET PROFI T DISCLOSED IN THE REGULAR TRADING BUSINESS AS IT WAS EVIDENT FROM A C HART PRODUCED IN THE APPELLATE ORDER AT PAGE 16, AND THEREAFTER HE HAS C ONCLUDED THE ISSUE AS FOLLOWS: 9E. ON THE OTHER HAND THE INCOME COMPUTED BY THE A O, YIELDS AN AVERAGE PROFIT RATIO OF 5.17% (AS DETAILED IN PARA 5 OF THIS ORDER). THE AVERAGE GP OF THE APPELLANT, (AS PER PARA 9D OF THIS ORDER) ON THE REGULAR SALES IS 6.5%. SINCE, THE DETAILS IN TH E SEIZED DIARIES ARE MISSING IN RESPECT OF A.Y. 2005-06 AND INCOMPLETE I N RESPECT OF A.Y. 2004-05, A.Y. 2006-07, IT WOULD BE APPROPRIATE TO CONFIRM THE INCOME FOR THESE ASSESSMENT YEARS AS DISCLOSED BY THE APPELLANT. IN RESPECT OF A.Y. 2001-02, A.Y. 2002-03, A.Y. 2003-04 AND A.Y. 2007-08, IT WOULD BE APPROPRIATE TO COMPUTE INCOME AT THE G.P. RATE OF THE APPELLANT, ON REGULAR SALES IN THE SE ASSESSMENT YEARS. ACCORDINGLY, THE INCOME FOR THESE YEARS IS W ORKED OUT AS UNDER: IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 8 - A.Y. TOTAL OF CREDIT ENTRIES IN SEIZED DIARIES G.P. RATE OF APPELLANT ON REGULAR SALES G.P. (RS.) LESS UNACCOUNTED NET EXPENSES COMPUTED BY AO TOTAL INCOME 2001-02 29689000 6.5% 1929785 325749 1604036 2002-03 35711612 11.8% 4213970 1026242 3187728 2003-04 29151749 9.3% 2711112 207089 2504023 2007-08 (FROM 01/04/06 TO 03/08/06) 4554591 3.2% 145747 109664 36083 4. FROM THE SIDE OF THE REVENUE, LEARNED CIT-DR, MR . SUBHASH BAINS HAS APPEARED AND PLEADED THAT THIS ISSUE IS T O BE DECIDED ALONG WITH THE ISSUE AS RAISED BY THE REVENUE DEPARTMENT IN GR OUND NO.1, RELATED TO DISALLOWANCE BY INVOKING THE PROVISION OF SECTION 4 0A(3) OF IT ACT. HIS VEHEMENT CONTENTION WAS THAT THE AO HIMSELF HAS TAK EN A VERY REASONABLE APPROACH IN DETERMINING THE YEAR-WISE PR OFIT OF THE ASSESSEE. THIS ACTION OF THE AO WAS BASICALLY BECAUSE OF A RE ASON THAT HE WAS KEEPING IN MIND THE OTHER SUBSTANTIVE ADDITION TO B E MADE UNDER SECTION 40A(3) OF IT ACT. HE HAS, THEREFORE, PLEADED THAT I N A SITUATION WHEN THE AO HIMSELF HAS ADOPTED A REASONABLE WORKING OF PROF IT, THEN THERE WAS NO JUSTIFICATION TO DISTURB THE SAME BY LEARNED CIT (A). 5. FROM THE SIDE OF THE RESPONDENT-ASSESSEE, LEARNE D AR, MR. TUSHAR P. HEMANI HAS APPEARED AND SUPPORTED THE ORDER OF L EARNED CIT(A). HE HAS REITERATED THAT THE ASSESSEE HAS EARNED PROFIT AS A TRADER OF COAL AS WELL AS A COMMISSION AGENT. THE TRADING ACTIVITY WA S DULY RECORDED IN THE REGULAR BOOKS OF ACCOUNT. THE TRANSACTION ON WHICH COMMISSION WAS EARNED WAS NOT RECORDED IN THE BOOKS OF ACCOUNT. EV EN AFTER THE SEARCH IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 9 - WAS CONDUCTED NO UNACCOUNTED SALES BILLS OR PURCHAS E BILLS WERE RECOVERED. LEARNED CIT(A) HAS EXAMINED NOT ONLY THE PEAK THEORY BUT ALSO EXAMINED THE INCOME APPLICATION THEORY. AS P ER BOTH THE THEORY, THE ASSESSEE HAD SATISFIED THE CLAIM OF DISCLOSURE OF 5% PROFIT EARNED AS COMMISSION ON ACCOUNTED SALES. HE HAS ALSO ARGUED T HAT THE NET PROFIT DISCLOSED @ 5% WAS IN LINE WITH THE PROVISIONS OF S ECTION 44AD AND SECTION 44AF OF IT ACT. 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE CAREFULLY EXAMINED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF THE CASE RECORD AND THE COMPILATION FILED. 6.1 AT THE OUTSET, IT IS WORTH TO MENTION THAT THE REVENUE DEPARTMENT HAS RAISED THIS GROUND OF ESTIMATION ON GROSS PROFI T ONLY FOR A.Y. 2001- 02, HOWEVER IN REST OF THE YEARS THE REVENUE HAS RA ISED ONLY ONE GROUND PERTAINING TO DISALLOWANCE OF SECTION 40A(3). IT IS INTERESTING TO MENTION AT THIS JUNCTURE THAT WHILE DECIDING THIS ISSUE VID E PARA 9E LEARNED CIT(A) HAS HELD THAT THE PROFIT AS DISCLOSED BY THE ASSESSEE FOR A.Y.2004-05, 2005-06, 2006-07 IS TO BE AFFIRMED, BUT EVEN THEN NOT CHALLENGED BY THE REVENUE DEPARTMENT. RATHER WE HAVE FOUND THAT THE RESPONDENT ASSESSEE IS IN CROSS OBJECTION FOR A.Y. 2001-02, 2002-03 AND 2003-04 AND 2007-08 CHALLENGING THE ESTIMATE OF INC OME BY LEARNED CIT(A) AGAINST THE DISCLOSED PROFIT BY THE ASSESSEE . 6.2 THE ADMITTED FACTUAL POSITION WAS THAT FEW DIAR IES WERE RECOVERED AT THE TIME OF SEARCH WHICH WAS MARKED AS ANNEXURE OF THE SEIZED MATERIAL. THOSE DIARIES CONTAINED SOME OF THE TRANS ACTIONS WHICH WERE IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 10 - NOT RECORDED IN THE BOOKS OF ACCOUNTS. SO THE FACTS OF THE CASE HAVE REVEALED THAT THE DIARIES CONTAINED TWO TYPES OF TR ANSACTIONS, ONE WAS RELATED WITH THE COAL TRADING AND THAT WAS FOUND DU LY RECORDED IN THE REGULAR BOOKS OF ACCOUNTS FORMING PART OF THE INCOM E TAX RETURN FILED FOR RESPECTIVE YEARS. BUT IT WAS ALSO FOUND THAT THE DI ARIES HAVE CONTAINED UNACCOUNTED INCOME STATED TO BE FROM COMMISSION. TH E EXPLANATION OF THE ASSESSEE IS THAT THE COAL RECEIVED THROUGH RAIL WAY WAGONS HAS DIRECTLY BEEN PURCHASED AND ALSO DELIVERED TO THE BUYERS AND ON SUCH DIRECT SALES THE ASSESSEE RECEIVED ONLY 5% COMMISSION OFFERED ON ESTIMATION. TO CORROBORATE THE CORRECTNESS OF THE DISCLOSURE OF 5% INCOME, THE ASSESSEE HAS ALSO RAISED TWO PLEAS TO SUBSTANTIATE THE CLAIM . ONE PLEA OF THE ASSESSEE WAS IN RESPECT OF MATCHING THE APPLICATION OF UNACCOUNTED INCOME TOWARDS PURCHASE OF DOMESTIC ARTICLES, ETC. THE SAME HAD TALLIED WITH THE SAID DISCLOSED AMOUNT. THE OTHER PLEA OF T HE ASSESSEE WAS THAT THE TOTAL OF THE PEAK CREDIT IN THOSE DIARIES HAD T ALLIED WITH THE TOTAL UNACCOUNTED INCOME OF THE GROUP, DECLARED BY THE AS SESSEE. THERE IS NO DISPUTE THAT THROUGH THESE METHODS IN CASES OF SEAR CH AN UNACCOUNTED INCOME CAN BE DETERMINED BY APPLYING THESE TWO THEO RIES, I.E., PEAK THEORY OR INVESTMENT THEORY. THESE METHODS ARE T O BE APPLIED IN A SITUATION WHEN THE DETAILS OF THE UNACCOUNTED INCOM E ARE INCOMPLETE, HOWEVER, THE CORRESPONDING INVESTMENT IS AVAILABLE IN THE SEIZED MATERIAL. BUT IN THE PRESENT CASE, THE SITUATION IS OTHERWISE BECAUSE OF THE PRIMARY REASON THAT THE SEIZED DIARIES HAVE NOT CON TAINED THE COMPLETE DETAILS OF THE UNACCOUNTED PURCHASES OF COAL BUT SI MULTANEOUSLY HAVE RECORDED THE UNACCOUNTED SALE OF COAL. SIMULTANEOUS LY; IN THOSE DIARIES THERE WERE RECORDED SALES AS WELL AS RECORDED PURCH ASES DISCLOSED IN THE TAX RETURNS STATED TO BE IN THE REGULAR COURSE . TH E CRUX OF THIS FACTUAL IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 11 - SITUATION WAS THAT THE DIARIES HAVE MIXED RECORDS B OTH ACCOUNTED AND UNACCOUNTED. RIGHT NOW WE ARE CONCERNED WITH THE UN ACCOUNTED CREDITS/SALES. 6.3 LEARNED CIT(A) HAS ALSO MIXED UP HIS FINDINGS B Y ADOPTING THE METHOD OF PROFIT CALCULATION FOR A.Y.2001-02, 2002- 03, 2003-04 AND 2007-08, AND THE OTHER METHOD FOR A.Y. 04-05, 05-06 , & 06-07 AS ADOPTED BY THE ASSESSEE. WE ARE NOT INCLINED TO MIX UP THE ISSUE IN THAT MANNER, HENCE FOR A.Y. 2001-02, 2002-03 AND 2003-04 ALSO APPLY A REASONABLE RATE OF PROFIT. FROM THE FACTS AS DISCUS SED ABOVE IT HAS REVEALED THAT THE ASSESSEE HAD DISCLOSED THE PROFIT ON THE UNACCOUNTED SALES @ 5%, BUT THE AO HAD ADOPTED THE AVERAGE PROF IT RATE AT 5.17%. THAT TOO WAS NOT UNIFORMLY APPLIED BECAUSE IN SOME OF THE YEARS UNACCOUNTED PURCHASES WERE REDUCED FROM THE UNACCOU NTED SALES TO ARRIVE AT THE UNACCOUNTED PROFIT. LIKEWISE, LEARNED CIT(A) HAS ALSO NOT ADOPTED A UNIFORM POLICY TO ARRIVE AT A REASONABLE RATIO OF PROFIT. IN SOME OF THE YEARS HE HAS APPROVED THE RATE OF PROFIT AS DECLARED BY THE ASSESSEE AND IN REST OF THE YEARS HE HAS REDUCED THE EXPENSE S TO WORK OUT THE PROFIT. WE ARE OF THE VIEW THAT BOTH THE LOWER AUTH ORITIES HAVE CONFUSED THE ISSUE WHICH WAS FURTHER INTRICATED BY THE REVEN UE DEPARTMENT BY NOT RAISING THE GROUND AGAINST THE PART RELIEF GRANTED BY LEARNED CIT(A). 6.4 TO SUM UP; FACTS HAVE REVEALED THAT THE ASSESSE E HAD ADOPTED 5% RATE OF PROFIT FOR ALL THE YEARS. AS AGAINST THAT T HE AO HAD ADOPTED AN AVERAGE PROFIT AT 5.17%. THE NET PROFIT PERCENTAGE BY LEARNED CIT(A) HAD VARIED FROM 5.4% TO 8.9% IN A.Y. 2001-02 AND A.Y. 2 002-03. IT HAS FURTHER VARIED FROM 8.5% TO 0.79% IN A.Y.2003-04 TO 2007-08 AS PER THE IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 12 - CALCULATION APPEARED ON PAGE 17 OF THE APPELLATE OR DER. THE OVER ALL AVERAGE THUS ARRIVES AT 5.8% FOR THOSE FOUR YEARS. BUT IN A SITUATION WHEN THERE IS NO UNIFORMITY AND VAST VARIATION IN THE PE RCENTAGE OF YEAR WISE PROFITS; WHICH HAD SHOWN STEEP RISE UPTO 8.9% AND T HEREAFTER STEEP FALL UPTO 0.79% HENCE SEEMS TO BE IMPRACTICAL METHOD OF CALCULATION OF PROFIT IN THIS CASE. WHEN THE ADMITTED FACTUAL POSITION IS THAT THERE WERE NO SALES/PURCHASE BILLS WERE DETECTED; NO UNACCOUNTED COAL STOCK WAS UNEARTHED, NO ASSETS BEYOND THE INCOME OFFERED WAS SEIZED AND THE APPLICATION OF UNACCOUNTED INCOME HAS MATCHED WITH THE ASSETS/EXPENDITURE HENCE THE INCOME SO OFFERED BY A ND LARGE APPEARS TO BE REASONABLE. STILL TO COVER UP THE DIFFERENCE BET WEEN THE DISCLOSURE OF 1.07CRORE AND INCOME OFFERED FOR ALL THE YEARS AT R S.96,09,883/- BY ADOPTING RATE AT 5%; WE HEREBY HOLD THAT FOR THE AS SESSMENT YEAR 2001- 02, 2002-03, 2003-04, THE PROFIT IS TO BE CALCULATE D BY ADOPTING NET PROFIT RATE AT 5.2%. WE DIRECT ACCORDINGLY. IN THIS MANNER , THE GROUND NO.1 OF THE REVENUE DEPARTMENT AND THE CROSS OBJECTION OF T HE ASSESSEE ARE HEREBY PARTLY ALLOWED. 7. GROUND NO.1 RAISED BY THE REVENUE FOR A.Y. 2001- 02 TO 2007-08 IS AS UNDER: 1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS AND IN CIRCUMSTANCES OF THE CASE IN DELETING THE DISALLOWANCE OF (RS.55,13,155/ - FOR A.Y.2001-02), (RS.7,85,099/ FOR A.Y.2002-03), (RS.52,65,814/- FOR A.Y.2003-04) (RS.44,25,760/- FOR A.Y.2004-05), (RS.12,04,180/- F OR A.Y.2005-06) U/S. 40A(3) OF THE IT ACT MADE BY THE ASSESSING OFFICER AFTER CONSIDERING THE UNACCOUNTED TRANSACTIONS OF CASH PURCHASES AND ON R ELYING ON DIRECTLY RELATED JUDGMENTS REFERRED TO IN HIS ASSESSMENT ORDER. 7.1 APROPOS TO GROUND NO.1, THE AO HAD OBSERVED THA T THE ASSESSEE HAD MADE UNACCOUNTED CASH PURCHASES WHICH WAS IN CO NTRAVENTION OF THE IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 13 - PROVISION OF SECTION 40A(3) OF IT ACT. HE HAD MADE AN OBSERVATION THAT THE PROVISIONS OF SECTION 40A(3) WAS TO BE APPLIED BOTH IN RESPECT OF PURCHASES AS WELL AS OTHER EXPENSES AS HELD IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO, 191 ITR 667 (SC) . HE HAS ALSO REMARKED THAT THE PROVISIONS OF SECTION 40A(3) APPLIES ON ILLEGAL BUSINESS AS HELD IN THE CASE OF S. VENKATA SUBBA RAO, 173 ITR 340 (AP) . THEN HE HAS ALSO REFERRED A DECISION OF HONBLE GUJARAT HIGH COURT P RONOUNCED IN THE CASE OF CIT VS. HYNOUP FOOD AND OIL INDUSTRIES (P) LTD., 290 ITR 702 (GUJ.). ACCORDING TO AO KACCHA NOTE BOOKS SEIZED DURING T HE SEARCH WAS A COMPLETE SET OF BOOKS OF ACCOUNT WHICH CONTAINED CA SH TRANSACTIONS FOR PURCHASES AND EXPENSES. ON THE OTHER HAND, ASSESSEE S CONTENTION WAS THAT THE INCOME WAS OFFERED ON ESTIMATION BASIS, TH EREFORE, THE PROFIT DISCLOSED WAS NOT ON THE BASIS OF THE EXPENDITURE B UT MERELY ON AN ESTIMATION; THEREFORE, THE PROVISIONS OF SECTION 40 A(3) SHOULD NOT BE ATTRACTED. THE AO WAS NOT CONVINCED AND AFTER REPRO DUCING A PORTION OF THE VERDICT OF M/S. HYNOUP FOOD AND OIL INDUSTRIES (SUPRA), HE HAS COMPUTED THE DISALLOWANCE AS UNDER: TOTAL PURCHASES PURCHASES NOT COVERED U/S.40A(3) PURCHASES LIABLE TO DISALLOWA NEE U/S.40A(3) OTHER EXPENSES COVERED U/S.40A(3) TOTAL [C] + [D] DISALLOWANCE @ 20% OF [E] [A] [B] [C]= [A] - [B] [D] [E] [F] 27748034 262261 27485773 80000 27565773 5513155 8. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY, A YEAR-WISE BIFURCATION OF THE PURCHASES, COVERED U /S.40A(3) FOR DISALLOWANCE, WAS MADE AND THEREUPON ON SUCH PURCHA SES WHICH WERE IN IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 14 - CASH A DISALLOWANCE @ 20% WAS WORKED OUT, MOREOVER A REVISED WORKING HAS ALSO BEEN INCORPORATED IN THE SAID APPELLATE OR DER. THE ASSESSEES MAIN ARGUMENT WAS THAT THE FIRM WAS ENGAGED IN COAL BUSINESS AND EARNED THE PROFIT AS A TRADER AS WELL AS A COMMISSI ON AGENT. THE TRADING ACTIVITY WAS DULY RECORDED IN THE REGULAR BOOKS OF ACCOUNT. HOWEVER, THE TRANSACTIONS RELATED TO A COMMISSION WERE NOT RECOR DED IN THE BOOKS BUT RECORDED IN THE SEIZED NOTE BOOKS. FOR THE COMMISSI ON INCOME THE ASSESSEE WAS ONLY ACTING AS A BAILEE OR AN AGENT ON BEHALF OF THE PRINCIPALS. THE ASSESSEE HAD NOT TAKEN THE POSSESSI ON OF THE COAL RELATED TO THE COMMISSION TRANSACTION. THE TRANSACTION WHIC H WAS RECORDED IN THE SEIZED NOTE BOOKS WAS NOT IN THE NATURE OF PURCHASE AND SALE OF THE GOODS. THEREFORE AN INCOME @ 5% WAS OFFERED IN THE LINE OF THE PROVISIONS OF SECTION 44 AF OF IT ACT. EVEN, THOUGH THE PROFIT ON SUCH TRANSACTION WAS MUCH LESS THAN THE PERCENTAGE OFFERED. IT WAS FURTH ER SUBMITTED AS FOLLOWS: THE APPELLANT HAD ACTED ONLY AS A COMMISSION AGENT / INTERMEDIARY / FACILITATOR, IN RESPECT OF THE TRANSACTIONS ENTERED IN THE SEIZED NOTE BOOKS. THE APPELLANT HAD NOT CLAIMED ANY SUCH EXPENSES / PURCH ASES. THIS ASPECT WAS BROUGHT OUT IN THE NOTE FILED WITH THE RETURNS U/S. 153A. THE DECISION REPORTED IN 177 TAXMAN 450, IN CASE OF ANAND SWARUP KHANDELW AL, WAS CITED TO STATE THAT ONCE THE APPELLANT ACTED AS A BAILEE OF GOODS/ COMMISSION AGENT, THE PROVISIONS OF SECTION 40A(3) WOULD NOT BE ATTRACTED . IT WAS ALSO ARGUED THAT AS PER JUDICIAL DECISION(S), THE PROVISIONS OF SECTION 40A(3) EVEN OTHERWISE, CANNOT BE CONSIDERED IN ASSESSMENTS U/S. 153A. THE DECISION REPORTED IN CASE OF CIT VS. BANWARILAL BANSIDHAR, 229 ITR 229 WAS AL SO REFERRED TO STATE THAT ONCE IT WAS CONSIDERED PRUDENT TO ESTIMATE PROFITS THERE WAS NO NEED TO INVOKE PROVISIONS OF SECTION 40A(3)/RULE 6DD(J). THE OTHER DECISIONS REPORTED IN 229 ITR 229 (AIL), 296 ITR 324(P&H), 301 ITR 171, 43 TT J 508 (ABD), 87 ITD 607(MUM.), ETC. WERE ALSO CITED. SIMILARLY THE JURI SDICTIONAL HIGH COURT IN CASE OF PRESIDENT INDUSTRIES, 258 ITR 654(GUJ) AND IN CASE OF GURUBACCHAN SINGH, 302 ITR 63 (GUJ) HAS HELD THAT ADDITIONS CAN BE MADE ONLY TO THE EXTENT OF ESTIMATED PROFITS, EMBEDDED IN UNACCOUNTE D SALES AND THE APPELLANT HAD ALSO ACTED ACCORDINGLY. THERE IS NO EVIDENCE OF UNEXPLAINED INVESTMENT AND NONE HAS BEEN BROUGHT ON RECORD BY THE AO, AS W ELL. IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 15 - 8.1 LEARNED CIT(A) HAS REPRODUCED QUESTION NO.9 PUT TO MOHD. MOHSIN WHILE RECORDING HIS STATEMENT ON 5 TH AUGUST, 2006 WHEREIN A DISCLOSURE WAS MADE, RELEVANT PORTION IS EXTRACTED BELOW: THE SEARCH WAS CONDUCTED ON 04.08.2006. DURING THE SEARCH THE DIARY CONTAINING FINANCIAL TRANSACTION WAS FOUND. S OME OF THE ENTRIES FROM THE SAID DIARIES WERE NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS. SUCH TYPE OF CREDIT ENTRY RELATE D TO SALE MADE BY ASSESSEE BUT NOT RECORDED IN THE BOOKS OF ACCOUN TS. THE EXACT PROFIT DERIVED FROM THE SALE CANNOT BE ESTIMATED ON THE BASIS OF THE ENTRIES OF SUCH RECORD IN THE ABSENCE OF PROPER EVI DENCE. THEREFORE 5% PROFIT OF SUCH SALE BEING TOTAL OF CRE DIT ENTRIES IS ESTIMATED AND SHOWN AS INCOME. 8.2 AGAIN IT WAS EMPHASIZED THAT THERE WAS NOT A SI NGLE SALE INVOICE, PURCHASE BILLS, STOCK REGISTER OR THE BILLS OF THE CREDITORS / DEBTORS, AT THE TIME OF SEARCH; HENCE, THE UNACCOUNTED BUSINESS REC ORDED WAS THE BUSINESS CARRIED OUT AS A COMMISSION AGENT. HENCE, TO MAINTAIN PEACE AN OFFER WAS MADE IN RESPECT OF THE COMMISSION INCOME. THE CIT(A) HAS CONCLUDED AS FOLLOWS: 9F. AS THE INCOME HAS BEEN ESTIMATED FOR ALL THE AS SESSMENT YEARS, THE RATIO OF THE DECISIONS CITED BY THE APPELLANT IS APPLICABLE AND SO THE DISALLOWANCE MADE BY THE AO, U/S. 40A(3) OF THE ACT IS RENDERED INFRUCTUOUS AND HENCE DELETED. THEREFORE THE ADDITIONS MADE BY THE AO ARE MODIFIED AS UNDER: A.Y. ADDITION MADE BY AO MODIFIED ADDITION UPHELD 2001-02 RS. 16,15,803 RS.16,04,036 2002-03 RS. (-) 10,25,499 RS.31,87,728 2003-04 RS. 21,67,076 RS.25,04,023 2004-05 RS. 26,54,974 RS.16,63,554 2005-06 RS.. 5,19,318 RS.16,63,553 2006-07 RS. 25,01,070 RS.15,53,775 2007-08 RS. (-) 21,12,276 RS.36,083 IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 16 - 9. FROM THE SIDE OF THE REVENUE, LEARNED CIT-DR, MR . SUBHASH BAINS HAS PLACED RELIANCE UPON THE DECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF HYNOUP FOOD AND OIL INDUSTRIES (SUPRA) AND STATED THAT EVEN IN THE CASE WHERE UNACCOUNTED AND UNDISCL OSED INCOME WAS CAME TO THE NOTICE OF THE REVENUE DEPARTMENT CONSEQ UENCE UPON A SEARCH, THEN ALSO THE PROVISIONS OF SECTION 40A(3) CAN BE APPLIED. LEARNED DR HAS ALSO PLACED RELIANCE UPON THE DECISI ON OF HONBLE APEX COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO, 191 ITR 667 (SC) FOR THE LEGAL PROPOSITION THAT EVEN AFTER THE PAYMENT WERE PROVED TO BE GENUINE STILL IT CAN COME UNDER MISCHIEF OF SECT ION 40(3). MANDATORY CONTRAVENTION OF RULE 6DD IS NOT EXPLAINED SATISFAC TORILY TO THE AO. 10. ON THE OTHER HAND FROM THE SIDE OF THE ASSESSEE , LEARNED AR, MR. TUSHAR P. HEMANI APPEARED AND PLEADED THAT WHERE TH E INCOME IS DETERMINED ON ESTIMATION THEN NO DISALLOWANCE CAN B E MADE U/S.40A(3). CASE LAWS CITED ARE AS FOLLOWS: (I) CIT VS. BANWARLAL BANSIDHAR, 229 ITR 229 (ALL) (II) CIT VS. SMT. SANTOSH JAIN, 296 ITR 324 (P&H) (III) ITO VS. KENARAM SAHA SUBHASH & SUBHASH SAHA, 301 ITR 171 @ 216 (CAL) (AT) (SB) (IV) CIT VS. AGGRAWAL ENGG. CO., 302 ITR 246 (P&H) 11. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE PERUSED THE CASE LAWS AS CITED BY BOTH THE SIDES. IN THE LIGHT OF THE FACTS OF THE CASE AND THE COMPILATION FILED, THE ADMITTED FACTUAL POS ITION WAS THAT A DIARY WAS SEIZED IN WHICH THE ASSESSEE HAS RECORDED THE T RADING ACTIVITY OF COAL WHICH WAS DULY RECORDED IN THE REGULAR BOOKS OF ACC OUNT AND THE RETURN OF INCOME WAS DISCLOSED ON THE BASIS OF THE SAID BO OK RESULTS. BUT IT WAS ALSO FOUND IN THE SAID DIARY THAT THE ASSESSEE WAS HAVING CERTAIN OTHER IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 17 - TYPE OF TRANSACTIONS WHICH WAS NOT DISCLOSED TO THE REVENUE DEPARTMENT. THE CLAIM OF THE ASSESSEE WAS THAT THE WAGONS LOAD OF COAL WHICH WAS DIRECTLY TRANSFERRED TO THE PARTIES HAS NOT BEEN SO LD BY HIM AS A TRADING ACTIVITY BUT THE ASSESSEE HAS EARNED ONLY COMMISSIO N. THIS FACT WAS INFORMED TO THE REVENUE DEPARTMENT, THEREFORE, WRIT TEN SUBMISSION AND RELEVANT PORTION FROM PAGES 88 AND 89 OF THE WRITTE N SUBMISSION IS REPRODUCED BELOW TO UNDERSTAND THE MODUS OPERANDI OF THE ASSESSEE. 4. HOWEVER, THE APPELLANT IS MAINTAINING KACHCHA B OOKS FOR ANOTHER KIND OF ACTIVITY WHICH IN THE NATURE OF COMMISSION AGENT. I N SUCH KIND OF KACHCHA BOOKS THE APPELLANT MAINTAINS THE DETAILS ON BEHALF OF THE SAID PARTIES, FOR WHOM, THE COAL ARE SOLD, ON WHICH THE APPELLANT IS GETTING ONLY CERTAIN PERCENTAGE OF COMMISSION ON SALES. 5. THE APPELLANT IS NEITHER REQUIRED TO MAKE COLLEC TION FROM THE PARTIES TO WHOM COAL ARE SOLD ON BEHALF OF OTHER PARTIES NOR I S REQUIRED TO MAKE PAYMENT TO THE SAID OTHER PARTIES, TRANSACTIONS ARE DIRECTLY SETTLED IN BETWEEN BOTH THE PARTIES. THE APPELLANT ONLY RECEIVES COMMI SSION ON SUCH SALES. YOUR HONOURS WOULD APPRECIATE THAT DURING THE COURSE OF SEARCH CARRIED OUT THE AUTHORIZED PERSONS HAVE NOT FOUND ANY CREDITORS OR DEBTORS FOR THE SAID TRANSACTION IN KACHCHA BOOKS OF THE APPELLANT, WHIC H IS ALSO EVIDENT THAT THE APPELLANT IS ONLY CONCERNED WITH ITS COMMISSION ON SALES AND NOT WITH COLLECTION AND PAYMENT OF SUCH TRANSACTIONS. THE ON LY PURPOSE OF MAINTAINING SUCH KACHCHA BOOKS WAS TO ENSURE THAT THE APPELLANT CLAIMS ITS COMMISSION ON ALL SUCH KIND OF SALES OF COAL WHICH WERE EFFECTED THROUGH THE APPELLANT. THE NOTING IN KACHCHA BOOKS DOES NOT GIVE ANY PROFIT OR LOSS, PURCHASE OR SELL DATA IN PARTICULAR. DETAILS PROVIDED IN PARTICULAR FORMAT DURING THE SEARCH OPERATION WAS ONLY ON THE REQUEST OF THE AUTHORIZED PERSONS. THE LD. ASSESSING OFFICER HAD NEVER ISSUED A SHOW CAUSE NOTICE SEEKIN G ANY CLARIFICATION REGARDING DISALLOWANCES BEING MADE U/S 40A(3) OF TH E ACT, OTHERWISE DURING THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF, BUSINE SS MODUS OPERANDI COULD HAVE BEEN \ EXPLAINED. YOUR HONOURS WOULD ALSO APPR ECIATE THAT EVEN IN APPRAISAL REPORT AT PARA 7(III) WHILE DISCUSSING AB OUT BUSINESS MODUS OPERANDI OF THE APPELLANT, IT HAS BEEN CATEGORICALL Y MENTIONED THAT THE APPELLANT IS PROCURING /WAGONLOADS OF COALS AND THE WAGONLOADS ARE SOLD DIRECTLY TO MANY PARTIES AT A GOOD COMMISSION. COP Y OF THE RELEVANT EXTRACT OF THE APPRAISAL REPORT IS ANNEXED HERETO AND MARKE D AS ANNEXURE A TO THIS ADDITIONAL SUBMISSION. 11.1 IN THOSE CIRCUMSTANCES, WE HAVE EXAMINED THE C ASE LAWS REFERRED BY BOTH THE SIDES. IN ONE OF THE DECISION CITED AS ANAND SWAROOP IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 18 - KHANDELWAL, 171 TAXMAN 450 (DEL.) , IT WAS FOUND THAT THE ASSESSEE HAD ACTED AS A BAILEE AND AT NO POINT OF TIME FOUND THE BULLION WAS PASSED OVER TO THE ASSESSEE. IN THAT CASE, THE REVENUE DEP ARTMENT WAS NOT IN A POSITION TO ESTABLISH THAT THE ASSESSEE HAD RECEIVE D THE POSSESSION OF THE BULLION AS AN ACTUAL BUYER. SO IT WAS HELD THAT THE TRANSACTION QUESTION BEING NOT A PURCHASE AND SALE OF THE ASSESSEE IN HI S OWN RIGHTS, THEREFORE, THERE WAS NO QUESTION OF DISALLOWANCE OF ANY EXPEND ITURE BECAUSE THE PROFIT WAS DECLARED ON ESTIMATION; HENCE, THE PROVI SIONS OF SECTION 40A(3) WAS NOT TO BE ATTRACTED. WE HAVE CAREFULLY P ERUSED THE CASE LAW OF HYNOUP FOOD AND OIL PVT. LTD. (SUPRA) PRONOUNCED BY THE HONBLE HIGH COURT AND HAVE NOTED THAT AS PER THE QUESTION FRAMED BEFORE THE HONBLE COURT IT WAS TO DECIDE THAT WHETHER THE APP ELLATE TRIBUNAL IS RIGHT IN LAW AND ON FACTS IN DELETING THE DISALLOWA NCE MADE U/S.40A(3) HOLDING THAT THE EXCEPTIONS TO THAT SECTION IN RULE 6DD(J) CAN BE APPLIED FOR PAYMENTS WHICH WERE MADE IN THE COURSE OF A BUS INESS OUTSIDE THE BOOKS? THUS THE ISSUE BEFORE THE HONBLE HIGH COURT WAS THAT IN CASE THE PAYMENTS MADE OUTSIDE THE BOOKS AN ASSESSEE CAN RES ORT TO EXCEPTIONAL CLAUSES AS PROVIDED UNDER RULE 6DD(J) OF IT ACT. NA TURALLY, THE ANSWER SHOULD GO IN FAVOUR OF THE REVENUE, HOWEVER, THE QU ESTION AS TO WHETHER A DISALLOWANCE CAN BE MADE U/S.40A(3), WHEN THE INC OME IS BASED ON ESTIMATION, WAS NOT BEFORE THE HONBLE COURT. SO TH E QUESTION ITSELF WAS DISTINGUISHABLE; HENCE, THIS ISSUE OF THE APPLICABI LITY OF THE PROVISIONS OF SECTION 40A(3) IS TO BE DECIDED ON THE MERITS AND F ACTS OF THIS CASE ONLY. FACTS OF THIS CASE HAVE REVEALED THAT EVEN AFTER TH E SEARCH WAS CARRIED OUT THERE WERE NO EVIDENCE OF EXPENDITURE AND THE AO WA S NOT ABLE TO LAY HANDS ON UNACCOUNTED PURCHASES. BECAUSE THE EVIDENC E OF TOTAL EXPENDITURE OR PURCHASES WAS NOT AVAILABLE TO THE R EVENUE DEPARTMENT, IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 19 - THEREFORE, THE ASSESSEE AS WELL AS THE AO, BOTH HAV E DECIDED TO DETERMINE THE INCOME BY APPLYING A REASONABLE ESTIMATE OF PRO FIT. THAT ESTIMATION WAS VERY CLOSE TO THE INCOME OFFERED BY THE ASSESSE E. RESULTANTLY, THE GROUNDS RAISED FOR ALL THE YEARS BY THE REVENUE ARE HEREBY DISMISSED. C. FOR A.Y. 2007-08, THE REVENUE HAS RAISED GROUND NO.2 AND THE ASSESSEE HAS ALSO RAISED GROUNDS OF A.Y.2007-08, TH E GROUNDS OF REVENUE AS WELL AS ASSESSEE, BOTH ARE REPRODUCED BE LOW: GROUND NO.2 FOR A.Y.2007-08 RAISED BY THE REVENUE . 1. THE LEARNED CIT(A) HAS FURTHER ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE AMOUNT OF RS.20,02,612/- BEING THE VALUE OF UNDISCLOSED CLOSING STOCK ADDED BY THE ASS ESSING OFFICER AFTER CONSIDERING THE SEIZED DOCUMENTS PERTAINING TO ASSE SSMENT YEAR UNDER CONSIDERATION. GROUNDS FOR A.Y.2007-08 RAISED BY THE ASSESSEE. 1. LD. CIT HAS ERRED IN LAW AND ON FACTS IN CONFI RMING THE ESTIMATED TOTAL UNACCOUNTED INCOME AT RS.36,083/- FOR THE YEAR UNDE R CONSIDERATION. 2. LD. C1T(A) HAS ERRED IN LAW AND ON FACTS IN CONF IRMING THE ACTION OF LEARNED AO IN LEVYING INTEREST UNDER SEC.234A/B/C/D OF THE ACT. 3. LD. CI'I'(A) HAS ERRED IN LAW AND ON FACTS IN CO NFIRMING THE ACTION OF LEARNED AO IN INITIATING PENALTY UNDER SECTION 271( L)(C) OF THE ACT WITHOUT RECORDING MANDATORY SATISFACTION AS CONTEMPLATED UN DER THE ACT. 14. IN RESPECT OF THE CLOSING STOCK AO IN THE ASSES SMENT YEAR FOR A.Y. 2007-08 DATED 29.12.2008 PASSED U/S.143(3) HAS HELD THAT SINCE MOST OF THE PURCHASES WERE MADE IN THE MONTH OF JUNE AND JU LY AND THERE WAS NO SALES RECORDED; HENCE, ACCORDING TO HIM THE GOOD PU RCHASED MUST BE LYING IN ASSESSEES GODOWN. THE AO WAS OF THE VIEW THAT THE PURCHASES (- MINUS) SALES WAS THE CLOSING STOCK MUST BE LYING WITH THE ASSESSEE. HE HAS COMPUTED THE VALUE OF THE CLOSING STOCK AT RS.2 0,02,602/- AND TAXED IN THE HANDS OF THE ASSESSEE. IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 20 - 15. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST AP PELLATE AUTHORITY, LEARNED CIT(A) HAS DELETED THE ADDITION AS PER THE FOLLOWING OBSERVATION: IN RESPECT TO A.Y.2007-08 THE AO HAD NOTED THAT TH E ENTRIES IN THE SEIZED DIARIES WERE FOR THE PERIOD OF 01.04.2006 TO 04.08. 2006. ALSO THAT PURCHASES WERE MADE IN THE MONTH OF JUNE AND JULY AND THE GOO DS PURCHASED MUST BE LYING IN GODOWNS, SINCE NO SALES WERE RECORDED. SUC H STATED GOODS WERE COMPUTED BY THE AO TO BE OF THE VALUE OF RS.20.02 LACS AND TREATED AS UNACCOUNTED CLOSING STOCK. IN TERMS OF PREVAILING P RICE, THE QUANTUM OF SUCH GOODS WOULD BE APPROX. 793 MT (I.E. @ 2554/- PER MT ). AT THE TIME OF SEARCH 04/08/2006, THE STOCK OF GOODS (COAL) WAS FOUND TO BE 625 MT APPROX. WHICH WAS RECONCILED BY THE APPELLANT AS OPENING SSTOCK O F 440 MT ON 04/08/2006 AND INWARDS OF 207 MT FROM 01/08/2006 TO 04/08/2006 LESS OUTWARD OF 14.9 MT I.E. STOCK OF 632 MT AS ON 04/08/2006. IF THE AS SUMPTION OF THE AO WAS VALID IN RESPECT OF A.Y. 2007-08, THE STOCK AVAILAB LE WITH THE APPELLANT SHOULD HAVE BEEN ANOTHER 793 MT. HOWEVER, SUCH A QUANTITY (632 MT + 793 MT) OF STOCK WAS NOT FOUND. HENCE, THE ADDITION FOR UNACCO UNTED STOCK, WAS BASED ON A CONJECTURE AND CAN NOT BE SUSTAINED. IT IS THEREF ORE DELETED AND THE RELATED GROUND OF APPEAL IS ALLOWED. 16. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES. WE ARE OF THE VIEW THAT LEARNED CIT(A) HAS CORRECTLY APPRECIATED THE FACTS OF THE CASE AND HELD THAT IN THE ABSENCE OF ANY STOCK FOUND AT THE TIME OF SEARCH THERE WAS NO JUSTIFICATION TO TAX UNACCOUNTED STOCK IN TH E HANDS OF THE ASSESSEE. WE HAVE ALSO NOTED THAT THE AO WAS NOT DEFINITE ABO UT THE SAID STOCK; HENCE, NO AUTHENTIC FINDING WAS GIVEN BUT IT WAS HE LD BY HIM THAT THERE MIGHT BE STOCK IN GODOWN. WE, THEREFORE, HOLD THAT IN SUCH A SITUATION LEARNED CIT(A) WAS CORRECT IN DELETING THE ADDITION WHICH ACCORDING TO HIM WAS BASED UPON CONJECTURE ONLY. RESULTANTLY, WE FIND NO FORCE IN THIS GROUND OF THE REVENUE; HENCE DISMISSED. 17. NOW WE ARE LEFT WITH THE CROSS OBJECTION OF THE ASSEESEE FOR A.Y.2007-08. WE HAVE NOTED THAT FOR THE ASSESSMENT YEAR 2007-08 THE PERIOD WAS ONLY FROM 01.04.2006 TO 3 RD AUGUST, 2006; HENCE, IT WAS NOT FOR THE COMPLETE FINANCIAL YEAR. BECAUSE OF THAT RE ASON THE REVENUE IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 21 - AUTHORITIES HAVE COMPUTED THE PROFIT BY TAKING THE CREDIT ENTRIES OF THAT BROKEN PERIOD AND LIKEWISE TAKEN INTO ACCOUNT THE E XPENSES OF THAT BROKEN PERIOD ONLY. THE AO HAS COMPUTED A LOSS OF R S.21,12,276/- AND THE ASSESSEE HAS DECLARED NIL PROFIT. AS AGAINST TH AT LEARNED CIT(A) HAS ASSESSED RS.36,083/-. SINCE THERE WAS NO UNIFORMITY IN ANY OF THE THREE APPROACHES ONE BY THE ASSESSEE AND TWO BY THE REVEN UE AUTHORITIES, WE ARE OF THE VIEW THAT INSTEAD OF CONFIRMING EITHER A LOSS OR A NIL PROFIT IT IS JUSTIFIABLE TO AFFIRM THE PROFIT OF RS.36,083/- AS COMPUTED BY LEARNED CIT(A). RESULTANTLY, THE CROSS OBJECTION OF THIS AS SESS HAS NO FORCE. HENCE DISMISSED. 18. RESULTANTLY FOR A.Y. 2007-08 GROUND NO.2 OF THE REVENUE IS DISMISSED AND LIKEWISE CROSS OBJECTION OF THE ASSES SEE IS ALSO DISMISSED. 19. TO SUM UP THE RESULT IS AS FOLLOWS: (I) APPEAL FOR A.Y. 2001-02 OF THE REVENUE DEPARTME NT IS PARTLY ALLOWED. (II) APPEAL FOR A.Y.2002-03 TO 2006-07 OF THE REVEN UE DEPARTMENT ARE DISMISSED. (III) APPEAL FOR A.Y.2007-08 OF THE REVENUE DEPARTM ENT IS DISMISSED. (IV) CROSS OBJECTIONS OF THE ASSESSEE FOR A.Y. 2001 -02 TO 2003-04 ARE PARTLY ALLOWED. (V) CROSS OBJECTION OF THE ASSESSEE FOR A.Y.2007-08 IS DISMISSED. SD/- SD/- (ANIL CHATURVEDI) (MUK UL KR. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 25/07/2014 PRABHAT KR. KESARWANI, SR. P.S. IT(SS)A NO.594,595,596,597,598,599/AHD/2010, ITA NO .2312 /AHD/2010 & CO NO.245,246,247&248/AHD/10 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD VS. BLACK DIAMO ND TRADING COMPANY FOR A.Y. 2001-02 TO 2007-08 - 22 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. #$#% ' '& / CONCERNED CIT 4. ' '&() / THE CIT(A)-III, AHMEDABAD 5. )*' %, ' ' % , ,-$ / DR, ITAT, AHMEDABAD 6. *./ 0 / GUARD FILE. / BY ORDER, 1 11 1/ // /,' #2 ,' #2 ,' #2 ,' #2 ( DY./ASSTT.REGISTRAR) ' ' % ' ' % ' ' % ' ' % , , , , ,-$ ,-$ ,-$ ,-$ / ITAT, AHMEDABAD