M/S SHIV SHANKAR PLYWOOD AND VEENER HOUSE,INDORE V. DCIT CDENTRAL CIRCLE-2, INDORE

ITSSA 52/IND/2023

AI Insights

The case involves multiple appeals by M/s. Shiv Shankar Plywood and Veener House against the additions made by the AO for various assessment years following a search and seizure operation. The main legal contention revolved around whether the additions made were justified in the absence of incriminating material specifically related to the years in question. The Tribunal examined the legality of the additions under sections 68, 69A, 69B, and 115BBE of the Income Tax Act, 1961, considering the principles of natural justice and the evidentiary value of the documents and statements collected during the search. The Tribunal's decision highlighted the need for specific incriminating material directly linked to the assessment years under consideration for any additions to be legally sustainable.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 36523 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 18-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 18-09-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 08-09-2023
• Other Referred Cases: Pr. CIT, Central-3 v. Abhisar Buildwell (P.) Ltd., Pr. CIT vs. King Buildcon P. Ltd., CIT vs. Kabul Chawla, Pr. CIT vs. Saumya Construction P. Ltd., CIT vs. C.J. Shah & Co., DCIT vs. Jaideep Ispat & Alloy Pvt. Ltd., KNR Roofing Pvt. ltd. vs. ACIT, Sanjay Mehta vs. ACIT
• Laws Referred To: Income-Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM KUMAR YADAV
• Assessee Lawyers: S.N. AGRAWAL; BHAVESH
• Keywords: Set aside; Business income; Reassessment proceedings; Question of law; Unexplained cash credit; Unexplained investment; Cost of acquisition; Document seized; Documents seized; Principle of natural justice; TDS; Search and seizure; Valuation report; Block assessment; Loose papers; Opportunity of cross examination; Bogus
• Section: 142(1); 143(2); 64; 48; 153; 132; 153A; 131; 43; 22; 113; 69C; 69B; 13; 69A; 139; 20

Judgement Text

"आयकर अपीलȣय अͬधकरण, इंदौर Ûयायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER IT(SS)ANo.47 to 53/Ind/2023 (Assessment Years: 2013-14 to 2019-20) M/s. Shiv Shankar Plywood and Veener House 140/1/1, Rala Mandal, Near, Bypass Square Indore Vs. DCIT, (Central) Circle-2 Indore (Appellant / Assessee) (Respondent/ Revenue) PAN: ABKFS1438H ITANo.54 to 57/Ind/2023 (Assessment Years -2016-17 to 2019-20) DCIT, (Central) Circle-2 Indore Vs. M/s. Shiv Shankar Plywood and Veener House 140/1/1, Rala Mandal, Near, Bypass Square Indore (Appellant / Assessee) (Respondent/ Revenue) PAN: ABKFS1438H Assessee by Shri, S.N. Agrawal & Bhavesh Agrawal, ARs Revenue by Shri Ram Kumar Yadav, CIT- DR Date of Hearing 18.09.2024 Date of Pronouncement 18.10.2024 IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 2 of 68 O R D E R Per Bench : These seven appeals by assesse for A.Y.2013-14 to 2019-20 and four cross appeals by the revenue for A.Y.2016-17 to 2019-20 are directed against Composite order of Commissioner of Income Tax (Appeal) dated 14th August 2023. For A.Y.2013-14 the assesse has raised following grounds: 1. “That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming various additions made by the Assessing Officer to the total income of the appellant in absence of any incriminating documents/ material found and seized during the course of search more so when Assessment Year 2013-14 is a non-abate assessment year and no addition could have been made to the total income of the appellant in the absence of any incriminating documents/ material found and seized during the course of search warranting such addition. 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming various additions made by the Assessing Officer to the total income of the appellant even when no unrecorded/ undisclosed assets were found during the course of search. 3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 1,68,94,039/- made by the Assessing Officer to the total income of the appellant on account of multiplication of ad-hoc GP rate of 15% (Actual GP rate was 7.31%) with the amount of alleged suppressed sales of Rs. 11,26,26,928/- without properly appreciating the facts of the case and submissions made before him and that too merely by extrapolating the sales of the appellant even when the appellant was not involved in any suppression of sales during the year under consideration. 4. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 1,68,94,039/- made by the Assessing Officer to the total income of the appellant on account of multiplication of ad-hoc GP rate of 15% with the amount of alleged suppressed sales of Rs. 11,26,26,928/- more so when only the element IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 3 of 68 of net profit embedded therein could have been subject to tax and not the element of gross profit. 5. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 22,120/- made by the Assessing Officer to the total income of the appellant on account of alleged amount of cash received against out of books sales by treating it as undisclosed income/ money under section 69A of the Income-Tax Act, 1961 without properly appreciating the facts of the case and submissions made before him even when the appellant was not involved in making any out of books sales. 6. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 22,120/- made by the Assessing Officer to the total income of the appellant on account of alleged amount of cash received against out of books sales by treating it as undisclosed income/ money under section 69A of the Income-Tax Act, 1961 more so when only the element of net profit embedded in such sales could have been subject to tax and not the entire amount of sales. 7. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the amount of tax liability computed by the Assessing Officer by invoking the provisions of section 115BBE of Income-Tax Act, 1961 in respect of addition made to the total income more so when such addition fell within the purview of income under the head ‘Income from Business or Profession’ thereby leaving no scope for invoking the provisions of section 68 to 69D of the Income-Tax Act, 1961 and for consequentially charging tax as per the provisions of section 115BBE of the Income-Tax Act, 1961. 8. The appellant reserves the right to add, alter and modify the grounds of appeal as taken by it.” 2. Ground no.1 & 2 is regarding sustainability of the addition made by the AO in absence of any incriminating material found and seized during the course of search and seizure action. This issue is common for A.Y.2013-14 to 17-18 as these five assessment years were not pending as on the date of initiation of search u/s 132 of the Act on 04.01.2019. Ld. AR of the assesse has submitted that the AO has made addition on account of gross profit on alleged IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 4 of 68 suppressed sales by adopting GP @ 15%, cash received against out of book sales as well as cash deposit in the bank account and transactions in the bank account of employees of the assesse treated as bogus. He has pointed out that all these additions were made by the AO without any incriminating material found or seized during the course of search and seizure action disclosing any undisclosed income for A.Y.2013-14 to 2017-18. He has pointed out that whatsoever documents were found during the course of search were related to A.Y.2018-19 & 2019-20 but the AO has extrapolating those transactions for all years and consequently made addition on account of GP on alleged suppressed sales, cash received against out of book sales and unaccounted purchases. The other addition on account of unsecured loan and cash deposit in the bank account were made on the basis of the entries in the books of account. Therefore, all these additions for A.Y.2013-14 to 2017-18 were made without any incriminating material found or seized during the course of search and seizure action. He has referred to the details of return of income filed by the assesse for A.Y.2013-14 to 2017-18 as given by the AO and submitted that none of these assessment years were pending as on the date of search on 04.01.2019. The Ld. AR has submitted that it is settled proposition of law that in case of non-abated assessment addition can be made only on the basis of incriminating documents/material found and seized during the course of search. In the case of the assessee the AO made various additions to the total income of the assessee for A.Y.2013-14 to 2017-18 without any incriminating IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 5 of 68 material and therefore, those additions made by the AO in the proceedings u/s 153A are unjustified and unwarranted. He has further submitted that the AO has though referred to the seized documents which were seized from the premises and possession of Shri Shashi Nihalchandani an employee of the assessee but the same cannot be considered an incriminating material found from the possession of the assessee. Further, the said documents does not make any reference of the assesse and also contains the alleged transactions relating to the F.Y.2018-19 relevant to A.Y.2019-20 only therefore, the alleged documents cannot be considered as incriminating material for A.Y.2013-14 to 2017-18 for making any addition. The AO has made addition of GP of suppressed sales on the basis of the said documents. Similarly another addition of alleged cash received against out of book sales also made by the AO based on the loose paper found and seized from the premises and possession of Shri Shashi Nihalchandani having reference of transactions for F.Y.2017-18 & 2018-19. The AO has just made addition for A.Y.2013-14 to 2017-18 by estimating out of book sales. Therefore, these additions were made by the AO without any incriminating material. 2.1 The next addition made by the AO on account of unaccounted purchase is also based on the some loose papers which pertain to the A.Y.2019-20 and there is no incriminating material for A.Y.2013-14 to 2017-18 to disclose any unaccounted purchase or undisclosed income of assessee. The remaining addition on account of unsecured loan and cash deposit in the bank account as well as IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 6 of 68 transactions in the bank account of the employees are based on the entries in the books of account of the assesse and therefore, those additions are not sustainable in absence of any incriminating material found. Ld. AR has relied upon the judgment of Hon’ble Supreme Court in case of Pr. CIT, Central-3 v. Abhisar Buildwell (P.) Ltd. reported in [2023] 454 ITR 212 (SC) and submitted that the Hon’ble Supreme Court has held that the intention of the legislation seems to reopen the completed/unabated assessments, unless any incriminating material is found with respect to concern assessment year falling within last six years preceding the search in assessment u/s 153A. The AO would have jurisdiction to assessee or reassess the total income of any unabated/completed assessment by taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns if any furnished by the assesse as well as undisclosed income. However, in case during the search no incriminating material is found, in case of complete/unabated assessment only remedy available to the revenue to initiate reassessment proceedings u/s 147/148 of the Act, subject to fulfilment of the conditions mentioned in section 147/148 of the Act. This view has been reiterated by the Hon’ble Supreme Court in case of Pr. CIT vs. King Buildcon P. Ltd. 456 ITR 770. Ld. AR has also relied upon the other decisions on this point including the judgment of Hon’ble Delhi High Court in case of CIT vs. Kabul Chawla 380 ITR 573 as well as judgment of Hon’ble Gujarat High court in case of Pr. CIT vs. Saumya Construction P. Ltd. 387 ITR 529 and submitted that the IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 7 of 68 Hon’ble High Courts have held that in case no incriminating material is found completed assessment can be reiterated as the same can be interfered by the AO while making assessment u/s 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Hence, Ld. AR has submitted that in absence of any incriminating material found during the course of search to disclose any undisclosed income for A.Y.2013- 14 to 2017-18 the additions made by the AO are not sustainable and liable to be deleted. Ld. AR has also referred to the statement recorded u/s 132(4) and submitted that nothing has been detected even from the statement recorded u/s 132(4) of the Act. 3. On the other hand, Ld. DR has submitted that during the course of search small diaries marked as BS-9 &10 and loose paper marked as LPS-1 to 9 were found from residential premises of Shri Shashi Nilchandani. The AO has given details of various seized documents as found from the premises of M/s Shanti Plywood, premises of the assesse, premises of Swastic Corporate, and therefore, the AO has made the additions on the basis of the seized material revealing supressing of sales by the assessee and corresponding unaccounted purchase. This fact of suppression of sales/purchase was detected during the search from the seized material including invoices wherein one zero is supressed and coded invoice are partly recorded in the books of account. Shri IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 8 of 68 Shashi Nilchandani in his statement recorded on 04.10.2019 has admitted that the assessee and other group companies are involved in issuing suppressed or coded invoices. The statement of Shri Shailendra Kadam of M/s Balaji Plywood one of the trader /party of the assesse firm was also recorded during the post search investigation on 20.05.2019. In his statement he admitted that the assessee firm has issued Pakka bills @ 50% of the actual cost. Thus, the purchaser has to pay 50% amount through banking channels and balance amount in cash. Further discrepancies in the sale price was found during the course of search in respect of the rate as mentioned in the bills for the sale of Mareen Gold 18MM & Mareen Gold 12MM in comparison to the DPL of the same product was found @1/4th of the rate mentioned in the bill. Thus, Ld. DR has submitted that the additions were made by the AO based on the seized material revealing practice of the assesse in suppressing sales by manipulating the sale price in the invoices and regarding supressed sale in the books of account. He has relied upon the order of the CIT(A) on this issue and submitted that the CIT(A) has considered objections of the assesse on this legal point in the light of the seized material and therefore, the AO was having jurisdiction to make additions in respect of the assessment years 2013-14 to 2017-18. 4. We have considered rival submissions as well as relevant material on record. The assesse and other group concerns were subjected to search and seizure action u/s 132(1) of the Act carried out on 04.01.2019. The AO has given details of return of income IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 9 of 68 filed by the assessee u/s 139 of the Act as well as in response to notice u/s 153A of the Act at page no.2 as under: A.Y. Date of filing of return u/s 139(1) Returned income (In Rs.) Date of filing of return in response to the notice u/s 153A Income declared in return u/s 153A (In Rs.) Additional income offered by the assessee (In Rs.) 2009-10 30.09.2009 1148320 08.08.2020 1148320 Nil 2010-11 14.10.2010 1197290 08.08.2020 1197290 Nil 2011-12 30.09.2011 1689910 08.08.2020 1689910 Nil 2012-13 30.09.2012 1632562 08.08.2020 1632562 Nil 2013-14 29.10.2013 1374750 08.08.2020 1374750 Nil 2014-15 19.11.2014 1578160 08.08.2020 1578160 Nil 2015-16 30.09.2015 2346240 08.08.2020 2346240 Nil 2016-17 16.10.2016 2433410 08.08.2020 2433410 Nil 2017-18 30.10.2017 3094630 08.08.2020 3094630 Nil 2018-19 31.10.2018 4053320 08.08.2020 4053320 Nil 4.1 Therefore, it is clear that the assessment year 2013-14 to 2017-18 were not pending as on the date of search and therefore, these were unabated assessments for the purpose of section 153A of the Act. The AO while framing assessment u/s 153A of the Act has made addition for A.Y.2013-14 to 2017-18 as under: A.Y.2013-14 IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 10 of 68 Income Shown in the Return u/s 153A Rs 13,74,700/- Add: As per para 4.15 as business income Rs 1,68,94,039/- Add: As per para 4.16 u/s 69A Rs 22,120/- Add: As per para 8 u/s 68 Rs 7,43,000/- Total Assessed Income Rs 1,90,33,859/- Rounded up Rs 1,90,33,860/- Α.Υ. 2014-15 Income Shown in the Return u/s 153A Rs 15,78,160/- Add: As per para 4.15 as business income Rs 1,91,26,390/- Add: As per para 4.16 u/s 69A Rs 30,576/- Add: As per para 8 u/s 68 Rs 43,50,000/- Total Assessed Income Rs 2,50,85,126/- Rounded up Rs 2,50,85,130/- Α.Υ. 2015-16 Income Shown in the Return u/s 153A Rs 23,46,250/- Add: As per para 4.15 as business income Rs 2,53,87,876/- Add: As per para 4.16 u/s 69A Rs 27,552/- Total Assessed Income Rs 2,77,61,678/- Rounded up Rs 2,77,61,680/- Α.Υ. 2016-17 Income Shown in the Return u/s 153A Rs 24,33,430/- Add: As per para 4.15 as business income Rs 2,57,38,408/- Add: As per para 4.16 U/s 69A Rs 1,12,745/- Add: As per para 8 u/s 68 Rs 37,50,000/- IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 11 of 68 Add: As per para 10 u/s 68 Rs 4,95,33,500/- Add: As per para 11 u/s 69A Rs 15,30,962/- Total Assessed Income Rs 8,30,99,045/- Α.Υ. 2017-18 Income Shown in the Return u/s 153A Rs 30,94,650/- Add: As per para 4.15 as business income Rs 2,98,83,007/- Add: As per para 4.16 U/s 69A Rs 1,13,546/- Add: As per para 5 U/s 69B Rs 1,20,42,864/- Add: As per para 7 U/s 69B Rs 94,60,568/- Add: As per para 10 U/s 68 Rs 4,09,84,300/- Add: As per para 11 U/s 69A Rs 6,84,775/- Total Assessed Income Rs 9,62,63,710/- 4.2 Thus, the AO has made three additions for A.Y.2013-14 to 2014-15 on account of GP addition on suppressed sale, unaccounted sales and on account of unsecured loan. The addition made on account of unsecured loan is undisputedly on the basis of entries in the books of accounts and therefore, the said addition is undisputedly not based on any incriminating material found or seized during the course of search and seizure action. So far as the addition made on account of GP on suppressed sale is concerned AO has relied upon seized documents marked as BS-9, BS-10, LPS- 1 to 9 found from the premises of Shri Shashi Nihalchandani. The assesse has disputed these documents belonging to the assesse IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 12 of 68 and also raised objection that these are not incriminating belonging to the assesse to disclose any undisclosed income. Even the presumption u/s 132(4A) cannot be raised against the assesse as these documents were not found from the possession of the assessee. The assesse also raised the objection that these documents do not disclosed any transactions which is not recorded in the books of account. For the purpose of deciding the issue of addition made in respect of unabated assessment we find that none of these documents pertains to assessment year 2013-14 to 2017- 18. Thus, even if it is presumed that these documents are incriminating still no transactions for A.Y.2013-14 to 2017-18 are found recorded in these documents which are considered by AO as sale invoices whereas the assesse has submitted that these are only challans for the purpose of delivery of the goods containing actual sale price and the discount allowed by the assesse to the distributor wholesalers and traders. The said discount is indicated in the coded form to maintain secrecy of trade and therefore, the assesse has claimed that there is no difference in the actual sale price as well as price recorded in the books of account. The AO has considered only challans and not actual invoices which are giving sale price as recorded in the books of account and there is no discrepancy found in the price mentioned in the invoices and recorded in the books of account. At this stage without going into controversy of whether these seized material constitutes incriminating material or not, we find that all these challans and invoices pertains to the F.Y.2018- 19. Therefore, none of the seized documents relates to the IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 13 of 68 assessment years 2013-14 to 2017-18. The another aspect is regarding statement recorded by the department of various persons however, all those statements do not disclosed any undisclosed income for A.Y.2013-14 to 2017-18 and hence, when seized material found during the course of search does not contain any transactions relating to the A.Y.2013-14 to 2017-18 then the same cannot be considered as incriminating material for A.Y.2013-14 to 2017-18. Hence, the additions were made by the AO on the presumption that the assesse might have suppressed sales for these assessment years which is a pure guess work and as the AO has no jurisdiction u/s 153A to make such addition by estimating income of the assesse without any incriminating material related to these assessment years which were not pending as on the date of search and were not got abated by virtue of search and seizure action. The Hon’ble Supreme Court has settled this issue in case of Pr. CIT vs. M/s Abhisar Buildwell Pvt. ltd. 424 ITR 212 as under: 9. While considering the issue involved, one has to consider the object and purpose of insertion of Section 153A in the Act, 1961 and when there shall be a block assessment under Section 153A of the Act, 1961. 9.1 That prior to insertion of Section 153A in the statute, the relevant provision for block assessment was under Section 158BA of the Act, 1961. The erstwhile scheme of block assessment under Section 158BA envisaged assessment of ‘undisclosed income’ for two reasons, firstly that there were two parallel assessments envisaged under the erstwhile regime, i.e., (i) block assessment under section 158BA to assess the ‘undisclosed income’ and (ii) regular assessment in accordance with the provisions of the Act to make assessment qua income other than undisclosed income. Secondly, that the ‘undisclosed income’ was chargeable to tax at a special rate of 60% under section 113 whereas income other than ‘undisclosed income’ was required to be assessed under regular assessment procedure and was taxable at normal rate. Therefore, section 153A came to be inserted and brought on the statute. IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 14 of 68 Under Section 153A regime, the intention of the legislation was to do away with the scheme of two parallel assessments and tax the ‘undisclosed’ income too at the normal rate of tax as against any special rate. Thus, after introduction of Section 153A and in case of search, there shall be block assessment for six years. Search assessments/block assessments under Section 153A are triggered by conducting of a valid search under Section 132 of the Act, 1961. The very purpose of search, which is a prerequisite/trigger for invoking the provisions of sections 153A/153C is detection of undisclosed income by undertaking extraordinary power of search and seizure, i.e., the income which cannot be detected in ordinary course of regular assessment. Thus, the foundation for making search assessments under Sections 153A/153C can be said to be the existence of incriminating material showing undisclosed income detected as a result of search. 10. On a plain reading of Section 153A of the Act, 1961, it is evident that once search or requisition is made, a mandate is cast upon the AO to issue notice under Section 153 of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Section 153A of the Act reads as under: “153A. Assessment in case of search or requisition - (1) Notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153, in the case of a person where a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132-A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under Section 132 or making of requisition under Section 132-A, as the case may IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 15 of 68 be, shall abate. (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or Section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub- section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside Explanation.—For the removal of doubts, it is hereby declared that,— (i) save as otherwise provided in this section, Section 153- B and Section 153-C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.” 11. As per the provisions of Section 153A, in case of a search under Section 132 or requisition under Section 132A, the AO gets the jurisdiction to assess or reassess the ‘total income’ in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or re- assessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate. As per sub-section (2) of Section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to subsection (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the ‘total income’ for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under Section 132 or requisition under Section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 16 of 68 undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy. 12. If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under Section 153A of the Act is linked with the search and requisition under Sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and subsection (2) of Section 153A would be redundant and/or rewriting the said provisions, which is not permissible under the law. 13. For the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material. 14. In view of the above and for the reasons stated above, it is concluded as under: i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A; IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 17 of 68 ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs. 4.3 Thus the Hon’ble Supreme Court has upheld the view taken by the Hon’ble Delhi High Court in case of CIT vs. Kabul Chawla (Supra) as well as Hon’ble Jurisdictional High Court in case of Pr. CIT vs. Gahoi & Oil Mills and Ors. and in the case of Pr. CIT vs. M/s Great Galleon Ventures ltd (supra). In the case in hands all additions made by the AO for A.Y.2013-14 to 2017-18 are either based on the entries in the books of account or by estimating the income of the assesse on the alleged suppressed sales and out of book sales based on the alleged incriminating material relating to the assessment year 2019-20. Therefore, the additions made by the AO in absence of any incriminating material are not sustainable in law and the same are liable to be deleted. Thus, the assesse secceed in getting relief of additions made for A.Y.2013-14 to 2017-18. IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 18 of 68 For A.Y.2018-19 the assesse has raised following grounds of appeal: 1. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming various additions made by the Assessing Officer to the total income of the appellant in absence of any incriminating documents/ material found and seized during the course of search more so when Assessment Year 2018-19 is a non-abate assessment year and no addition could have been made to the total income of the appellant in the absence of any incriminating documents/ material found and seized during the course of search warranting such addition. 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming various additions made by the Assessing Officer to the total income of the appellant even when no unrecorded/ undisclosed assets were found during the course of search. 3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 2,98,03,955/- made by the Assessing Officer to the total income of the appellant on account of multiplication of ad-hoc GP rate of 15% (Actual GP rate was 10.81%) with the amount of alleged suppressed sales of Rs. 19,86,93,035/- without properly appreciating the facts of the case and submissions made before him and that too merely by extrapolating the sales of the appellant even when the appellant was not involved in any suppression of sales during the year under consideration. 4. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 2,98,03,955/- made by the Assessing Officer to the total income of the appellant on account of multiplication of ad-hoc GP rate of 15% with the amount of alleged suppressed sales of Rs. 19,86,93,035/- more so when only the element of net profit embedded therein could have been subject to tax and not the element of gross profit. 5. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 6,07,006/- made by the Assessing Officer to the total income of the appellant on account of alleged amount of cash received against out of books sales by treating it as undisclosed income/ money under section 69A r.w.s. 115BBE of the Income-Tax Act, 1961 without properly appreciating the facts of the case and submissions made before him even when the appellant was not involved in making any out of books sales. 6. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 6,07,006/- made by the Assessing Officer to the total income of the appellant on account of alleged amount of cash received against out of books sales by treating it IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 19 of 68 as undisclosed income/ money under section 69A of the Income-Tax Act, 1961 more so when only the element of net profit embedded in such sales could have been subject to tax and not the entire amount of sales. 7. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 1,61,474/- out of addition to the extent of Rs. 58,11,406/- made by the Assessing Officer to the total income of the appellant on account of other payables outstanding as on 31-03-2018 by treating it as undisclosed cash credit under section 68 r.w.s. 115BBE of the Income-Tax Act, 1961 without properly appreciating the facts of the case and submissions made before him. 8. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 1,11,898/- out of addition of Rs. 22,91,706/- made by the Assessing Officer to the total income of the appellant by considering the transactions appearing in the bank account of employees as bogus and by treating it as unexplained money under section 69A r.w.s. 115BBE of the Income-Tax Act, 1961 without properly appreciating the facts of the case and submissions made before him. 9. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 1,11,898/- out of addition of Rs. 22,91,706/- made by the Assessing Officer to the total income of the appellant by considering the transactions appearing in the bank account of employees as bogus and by treating it as unexplained money under section 69A of the Income-Tax Act, 1961 without issuing any show cause notice prior to making the aforesaid addition thereby grossly violating the principles of natural justice. 10. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the amount of tax liability computed by the Assessing Officer by invoking the provisions of section 115BBE of Income-Tax Act, 1961 in respect of various additions made to the total income more so when such additions fell within the purview of income under the head ‘Income from Business or Profession’ thereby leaving no scope for invoking the provisions of section 68 to 69D of the Income-Tax Act, 1961 and for consequentially charging tax as per the provisions of section 115BBE of the Income-Tax Act, 1961. 11. The appellant reserves the right to add, alter and modify the grounds of appeal as taken by it.” 5. Ground no.1 & 2 are regarding sustainability of the addition made by the AO in absence of any incriminating material found and seized during the search and seizure action. IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 20 of 68 6. We have heard Ld. AR as well as Ld. DR and considered the relevant material on record. At the outset we note that the assessment year 2018-19 was pending as on the date of search carried out on 04.01.2019 as time to issue notice u/s 143(2) was up to 30.09.2019 and therefore, this assessment year is abated assessment and assessment u/s 153A would be in the nature of regular assessment and not in the nature of re-assessment of income of the assessee. Therefore, in view of the judgment of Hon’ble Supreme Court in case of Pr. CIT vs. Abhishar Buildwell (supra) the AO has jurisdiction to assess the income of the assesse based on the incriminating material if any as well as the other material available with the AO. Accordingly Ground No.1 & 2 of the assesse’s appeal are dismissed. 7. Ground no.3 & 4 are regarding GP additions on the alleged suppressed sales. Ld. AR of the assesse has submitted that the AO has presumed that the supplier is supplying goods to the assesse firm in 40-60 ratio of unaccounted purchase and unaccounted sales and in turn the assessee selling goods to retailers in the same ratio. The entire modus operandi carried out by the assesse firm was also explained in the statement of Shri Shashi Nihalchandani, statement of Naresh Navlani & Shri Shailendra Kadam proprietor of Balaji Plywood (Trader). The AO has calculated suppressed sale on the basis of LPS-13, LPS-14 & LPS-17 by comparing with tally Data. IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 21 of 68 7.1 He has contended that the entire amount of purchase and sale made by the assesse are duly accounted in its regular books of account which are duly audited by the auditor. The same can also be verified independently from suppliers as well as the customers of the assesse. Even the AO has no basis for presumption that the assesse was involved in making unaccounted purchase and unaccounted sales in the ratio of 40:60. Ld. AR has referred to the statement of Shri Naresh Navlani recorded during the course of search wherein he has explained that the purchase price of goods is increased by the amount of freight and profit @ 4% to arrive at the figure of sales price and accordingly amount of sale and purchase accounted for in the books of account. He has further contended that the AO has considered only vague details which are not actual invoice but only the challans prepared as the transactions are done through agents and therefore, to maintain secrecy of the trade the coded amounts were mentioned which are understood by the parties so that the agent should not misuse the information. 7.2 Ld. AR has submitted that the statement of Shri Naresh Navlani was recorded u/s 132(4) and in question no.32, 44,45,53 to 56 has categorically stated that the assesse is maintaining proper books of account, recording the correct amount of purchase and sales without any suppression. The turnover of the assessee was not disputed by the commercial tax department/GST department and only actual discount allowed is considered by the AO as suppressed sale received in cash. He has submitted that only one sales invoice is prepared in the business by the assesse firm. There IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 22 of 68 is no practice of preparing separate printed invoice generated on a parallel system as alleged by the AO showing 1/10 of the actual sale price. The partner of the assessee firm has explained that the difference in the purchase and sale price is only on account of freight charges GST and profit about 4% which is understood by the AO as 40%. Further the small diaries marked as BS-9/BS-10 containing day to day income and expenditure details made in cash, nowhere contain the name of the assessee firm even these notes BS9/BS10 are rough notes maintained by Shri Shashi Nihalchandani which have no financial impact whatsoever in the case of the assesse firm. Ld. AR has further submitted that Shri Shashi Nihalchandani was merely a marketing and collection agent of M/s Shiv Shankar Plywood and Veener House and M/s Rahul Laminates. The various loose papers and diaries found from his possession did not contain the name of the assesse firm and therefore, it cannot be assumed that the details of transactions in the loose papers and diaries representing transactions of the assesse firm. It was explained in the statement of Shri Naresh Navlani that an employee of the assesse firm does not have knowledge about business carried out by the assessee firm because they did only the limited work which was assigned to them. He has referred to question no.13 of the statement of Shri Naresh Navlani wherein he has explained that the employees are only doing the work assigned to them not having business knowledge which is done by him as he was looking after business of purchase and sales. He has referred to question 53 to 55 of the statement of Shri IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 23 of 68 Naresh Navlani wherein it is stated that 50% discount is allowed to all dealers even additional discount is also given and therefore, invoices are prepared on the net amount after discount allowed not separately mentioned in the invoices. Ld. AR has thus, submitted that there is no discrepancies in the actual price and the price recorded in the books of account and the AO has made addition based on misconceive facts even verifying actual facts from the record the sales of the assesse are also verified and not disputed by VAT etc. and CST as well as GST in the assessment order passed for these years. Ld. AR has pointed out that except three documents which pertain to F.Y.2017-18 of other documents pertain to F.Y.2018-19 relevant to A.Y.2019-20. 7.3 In support of his contention he has relied upon the judgment of Hon’ble Bombay High Court in case of CIT vs. C.J. Shah & Co. 246 ITR 671 (Bom) wherein the Hon’ble High Court held that in absence of any seized material to show any figure to be included for the earlier period addition is not justified. He has also relied upon following decisions: (i) CIT vs. Standard Tea Processing CO. 34 taxmann.com31 (Gujarat HC) (ii) DCIT vs. Jaideep Ispat & Alloy Pvt. Ltd. IT(SS)A No.261 to 266/Ind/2019 (ITAT, Indore) 7.4 Thus, Ld. AR has submitted that the addition made by the AO on the basis of suspicion is not sustainable. Alternatively he has IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 24 of 68 submitted that the AO has applied 15% GP as against declared GP of the assesse is between 6 to 12% for all these years. 8. On the other hand, Ld. DR has relied upon the order of the AO as well as CIT(A) and submitted that the AO has given finding based on the seized material as well as statements recorded during the course of search and post search inquiries which establishes that the assessee along with suppliers and the retailers indulged in suppression of sale price. 9. We have considered rival submissions as well as relevant material on record. During the course of search and seizure action certain loose paper as well as diaries were found from the possession of the employees of the assessee Shri Shashi Nihalchandani. From the said seized record the AO found that the assesse is maintaining parallel invoices one is shown actual amount of purchase and sales and another invoice is representing entries in the books of account which is 50% to 60% suppressed from the actual amount of purchase and sale. The AO has concluded that the assesse is receiving goods from suppliers and in some of the cases the price shown as 40-60 ratio and the payment made in cash is suppressed and corresponding sales is also in the same ratio by suppressing almost 60% of the sale price which is received as per the AO in cash. Accordingly the AO has applied the said ratio of suppressed sale and purchase for all the assessment years and consequently entire turnover for all assessment years was reworked by the AO and then calculated the suppressed sale IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 25 of 68 by applying ratio of 60% concealment. For A.Y.2018-19 the A.O worked out the suppressed sales at Rs.1,41,99,342/- on which the AO adopted GP @15%. It is pertinent to note that the AO has applied these ratio on sale of the entire year and not on the transactions which are found recorded in the seized documents. Though the assessee claimed that actual price recorded in the books of account is amount after discount received as well as allowed by the assesse in the transactions of purchase and sales of the goods which is plywood. However, this discount claimed by the assesse is not reflected either in the invoices which are part of the books of account of the assessee nor in the ledger account except normal discount of 3 to 5% shown in the invoices. Therefore, as per the record this claim of the assessee is not established that the difference is representing the discount received and allowed by the assessee in the transactions of purchase and sale. In any case once the assessee is getting discount as purchases and allow discount of equal percentage as sales then the income on such transactions can be estimated only by applying GP as declared by the assessee for the relevant assessment year which is otherwise not disputed by the AO so far on the turnover declared by the assessee is concerned. The only supporting fact to the claim of the assessee is that the return for VAT and GST filed by the assessee are accepted by the AO for Commercial Tax Department and GST however, that itself would not epso facto prove that there is no suppression of purchase as well as sales prices by the assesse. In any case the AO cannot go beyond the incriminating material found during the IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 26 of 68 search to make addition on account of suppressed purchase and sales by adopting GP that too by applying an arbitrary and unjustified rate ignoring the GP rate declared by the assessee for the relevant assessment years on the recorded turnover. The AO has not disturbed the GP declared by the assesse on the recorded turnover but simply made addition on the suppressed sale by apply GP @ 15%. The Hon’ble Bombay High Court in case of CIT vs. C.J. Shah & Co. 246 ITR 671 (Bom) has held in para 3 as under: “3. It is well-settled that in cases where material is detected after search and seizure operations are carried out, the Assessing Officer is required to determine the undisclosed income. In such cases additions are generally based on estimates. In matters of estimation some amount of latitude is required to be shown to the Assessing Officer, particularly when relevant documents are not forthcoming. However, it does not mean that the Assessing Officer can arrive at any figure without any basis by adopting an arbitrary method of calculation. In the present matter, A3, A4 and A6 nowhere records the turnover of the assessee as found by the Tribunal and yet on the wrong basis of the incoming and outgoing cash transactions, the Assessing Officer has arrived at the turnover. Moreover, the peak investment was Rs. 40,14,806 for three months. However, there is no material seized to justify any figure to be included for a period earlier to the said period of three months. In the circumstances, the Tribunal has recorded a finding of fact and has held that the addition of Rs. 3.40 crores was totally unjustified. The entire finding of the Tribunal is based on the facts. No substantial question of law arises. Hence, the appeal is dismissed.” 9.1 Similarly the Hon’ble Gujarat High Court in case of CIT vs. Standard Tea Processing CO (supra) has held in para 6 as under: “6. We are broadly in agreement with the view of the Tribunal noted above. It may be that on the basis of the seized material for a certain period, during the part of the block period, certain additions were made by the Assessing Officer. In the present case, however, such materials admittedly related to a brief period between 1.4.98 till 29.7.98. Thereafter, for the entire block period to extrapolate the same basis of modus operandi, that too without any basis or material from the seized documents, in our opinion, was simply not permissible. The Assessing Officer, presumed several things such as, the continued purchase by the IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 27 of 68 assessee through the same agency at artificially inflated price. He also projected the rate at which such higher purchases were made for the said period about four months in absence of any evidence that such activities continued for the entire block period. In other words, in absence of any documents found during search to even link the assessee's activities for the entire period, to project by way of extrapolation the facts found during the brief period of about four months would not be permissible and rightly so held by the Tribunal.” 9.2 Thus, it is settled proposition of law that the AO cannot make addition on account of suppressed purchase or sale beyond the specific period for which the material is found and seized and consequently the extrapolation to the entire block period on the basis of the modus operandi without any basis or material is not permissible. Accordingly we set aside this issue to the record of the AO for fresh adjudication to limit addition for the period relating to which transactions are found recorded in the seized material and further the GP cannot be more than the GP declared by the assessee for the relevant assessment year and accepted by the AO. 10. Ground no.5 & 6 is regarding the addition made by the AO on account of cash received against out of book sales. The AO has observed that apart from under reporting/suppression of sales the assessee has also made sales which are not at all recorded in the books of account as reflected from the details in the loose papers seized during the search and seizure action. The AO concluded that the assesse has received cash against out of book sales for A.Y.2013-14 to 2019-20 as under: Addition: A.Y 2013-14:- Rs 22,120/- IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 28 of 68 Α.Υ 2014-15:- Rs 30,576/- Α.Υ 2015-16:- Rs 27,552/- Α.Υ 2016-17:- Rs 1,12,745/- Α.Υ 2017-18:- Rs 1,13,546/- Α.Υ 2018-19:- Rs 6,07,006/- Α.Υ 2019-20:-Rs 24,41,459/- 10.1 For A.Y.2018-19 the AO has made addition of Rs.6,70,006/-. The Ld. AR of the assesse has reiterated his contention as advance in respect of the issue of addition made by the AO by taking gross profit @ 15% of suppressed sales and submitted that all sales are duly recorded in the books of account which is verified and examined by the VAT, etc. CST as well as GST/Department while scrutinizing the return filed by the assessee. The Ld. AR has further contended that all the relevant records including ledger account of the parties to whom the goods were sold were produced before the AO along with confirmation of the account by the parties. He has also submitted that when the addition made on account of cash sales then the source and nature of the income as business income of the assessee is not in dispute and therefore, the provisions of section 69A of the Act are not attracted and consequently the provisions of section 115BBE are also not applicable. 11. On the other hand, ld. DR has relied upon the orders of the authorities below and submitted that the AO has examined the IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 29 of 68 seized material and found that the assessee has received cash against the sales which is not recorded in the books of account and consequently the addition was made. 12. We have considered rival submissions as well as relevant material on record. The first AO has made two additions on the basis of the seized material. The addition was made by taking GP @ 15% on the suppress sales and then the separate addition was made by the AO on account of cash received by the assessee against sales which is not recorded in the books of account. The nature of transactions are identical as the AO has taken suppressed sales which is recorded in the books of account at deflated price and cash received by the assessee against sales which is also as per AO not recorded in the books of account therefore, separate treatment cannot be given to the sales which is found not recorded in the books of account whether it is suppressed sales or cash sales. It is pertinent to note that the AO has taken entries from the seized material being the invoices showing sales at actual price against which the assessee has shown part receipt through banking channel and part in cash and therefore, the cash received by the assessee against the same transactions cannot be given separate treatments. Hence, in view of our finding in respect of the GP addition on the suppressed sales this issue is also set aside to the record of the AO for taking only gross profit on the cash sales which is not recorded in the books of account. The GP rate shall be taken as declared by the assessee for the relevant assessment year. Accordingly this issue of addition on IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 30 of 68 account of cash received against the sales is allowed for statistical purposes for A.Ys.2018-19 & 2019-20. 13. Ground no.7 is regarding the addition made by the AO on account of other payables outstanding as on 31.03.2018 which was restricted by the CIT(A) to Rs.1,61,474/- therefore, both assesse as well as revenue are in appeal. 14. Ld. AR of the assessee has submitted that the assessee has shown amount of other payables at Rs.3,51,18,677/- consisting mainly of the amount due to the suppliers on account of purchase of goods, amount received as advance from the customers against sale of goods and amount payable to the employees of the assesse firm. The assessee filed complete details of the amounts shown as other payables outstanding as on 31.03.2018 along with copy of ledger account of these parties in the books of the assessee for the year under consideration and subsequent years. The assessee also produced copies of supporting purchase bills in respect of which amount was outstanding to substantiate the fact that the amount was outstanding as on 31.03.2018 as due due to the suppliers. The assessee has also filed leger account of these parties in the books for the year under consideration and for the subsequent year to establish the fact that the goods were sold to the parties in the subsequent year and consequently outstanding amount was either paid off or converted to actual sale. The AO ignoring the details filed by the assessee has made addition of Rs.58,11,406/- to the total income of the assessee on account of other payable/outstanding on IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 31 of 68 the ground that the assessee did not submit complete documents such as bills/vouchers in some cases and merely submitted ledger account of those parties. Ld. AR has submitted that the assessee has filed the record to show the subsequent sales as well as amount which was outstanding to the employees was also claimed as expenses incurred by the assessee. Ld. AR has pointed out of Rs.58,11,406/-. The AO has made addition of Rs.47,77,716/- in respect of two parties namely Bee Cee Hardware and Jet Corporation against them outstanding of Rs.32,30,327/- and Rs.15,47,389/- respectively were shown as on 31.03.2018. He has pointed out that these two amounts are outstanding since beginning of the year and no amount was credited during the year and therefore, there is no justification for making addition u/s 68 of the Act when these credits were not incorporated during the year under consideration. Further the amounts were repaid in the entirety in subsequent year. 14.1 In support of his contention he has relied upon decision of Bangalore Benches of the Tribunal in case of KNR Roofing Pvt. ltd. vs. ACIT in ITAno.3125/Bang/2018 as well as the decision of Kolkata Benches of the Tribunal in case of Sanjay Mehta vs. ACIT in ITANo.1440/Kol/2018. Thus, Ld. AR has submitted that the CIT(A) has considered all these facts and deleted the addition of Rs.56,49,932/-. Ld. AR has submitted that the assessee furnished relevant record to show that the addition sustained by the CIT(A) to the extent of Rs.1,61,474/- is also not justified as the said amount was paid or was adjusted against the sales in the subsequent year. IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 32 of 68 15. On the other hand, ld. DR has relied upon order of the AO and submitted that the assessee has produced only the ledger account which was not substantiated by the documentary evidences of bills and vouchers to show that the purchases are made on credit and subsequently the amount was paid as well as advances were received against sales which were subsequently made through valid bills and vouchers. Similarly the outstanding in the name of employees is also required to be substantiated by the documentary evidences that the same was on account of their services rendered and paid subsequently. 16. We have considered rival submissions as well as relevant material on record. The CIT(A) has considered and decided this issue in para 3.12.2 & 3.12.3 as under: “3.12.2 I have considered the facts of the case, plea raised by the appellant and findings of the ld AO. The appellant during appellate proceedings has stated that amount of Rs. 3,51,18,677/- was shown as other payable in balance sheet as on 31.03.2018 which mainly consisted amount due to suppliers on account of purchase of goods, advance received from customers against sale of goods and amount payable to employees. The appellant filed details with supportive evidences, ledger accounts, purchase bills which were partly considered genuine. However, the ld AO made addition of Rs. 58,11,406/- for which as per ld AO no documentary evidence was filed by the appellant. The appellant before me has stated that the necessary documents with supportive ledger account were furnished, however, the same were not considered by the ld AO. I find that the ld AO is factually incorrect, the appellant alongwith its written submission has filed desired details which have also been mentioned in the body of assessment order. The appellant before me has filed copies of all the relevant evidences which were also filed before ld AO. The appellant through its written submission has further contended that out of total outstanding amount of Rs. 58,11,406/-, addition of Rs. 47,77,716/- has been made in respect of two group concerns and filed following details:- IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 33 of 68 S. No Name of the concern PAN Amount outstanding as on 31-03-2018 [in Rs.] Remarks 1 Bee Cee Hardware AAOFB2322G 32,30,327 The entire amount outstanding as on 31-03-2018 was outstanding since the beginning of the year and no amount was credited during the year.Further, the amount outstanding as on 31-03- 2018was repaid in entirety during the Financial Years 2018-19 and 2019-20. Hence, there was absolutely no justification for making addition on this count and that too under section 68 of the Act more so when such amount was repaid in entirety subsequently. 2 Jet Corporation AAHFJ2460N 15,47,389 The entire amount outstanding as on 31-03-2018 was outstanding since the beginning of the year and no amount was credited during the year. Further, the amount outstanding as on 31-03-2018 was repaid in entirety during the Financial Year 2020-21. Hence, there was absolutely no justification for making addition on this count and that too under section 68 of the Act more so when such amount was repaid in entirety subsequently. Total 47,77,716 On perusal of ledger account of both the group concern it has been observed that the amounts outstanding as on 31.03.2018 were carried forwarded from earlier year. Meaning thereby, no fresh amount was received by the appellant from both the concerns and therefore, the ld AO was not justified in making additions by invoking provisions of section 68 of the Act. IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 34 of 68 Most importantly, both the concerns were also covered under search proceedings and were also assessed by same ld AO and no adverse view was taken by the AO in the year of investment either in the case of appellant or in the case of both the concerns. Therefore, Ld AO was not justified in making additions on account of opening balance u/s 68 of the Act. In support of this proposition reliance is placed on the decision of Hon'ble ITAT Kolkata in the case of Sanjay Mehta vs ACIT in ITA No 1440/Kol/2018 wherein addition made on account of opening balance u/s 68 were deleted. The relevant extract of the decision is appended hereunder:- “10. As regards the addition of Rs. 4 lakhs made u/s. 68 of the Act, we find that the assessee took a loan of Rs. 4 lakhs from M/s. Attitude Merchants Pvt. Ltd in preceding year. A perusal of confirmation of accounts placed at page 33 of the P.B dt. 23-11-20 for the F.Y 2013-14 relevant to A.Y 2014-15 shows that there was an opening credit balance of Rs. 7 lakhs as on 1-4-2013. The assessee took a loan of Rs. 4 lakhs on 1-1-2014. Interest was paid and TDS was deducted and the closing balance was at Rs. 11,00,000/-. Further, during the year under appeal i.e F.Y 2014-15 from perusal of paper book at page-34, we find that in confirmation of accounts there is no transaction during the year and interest has been charged on the opening balance. Other documentary evidence in the form of bank statement has also been filed to prove that the alleged fund was not received during the assessment year under consideration. This fact remains undisputed at the end of the ld. DR also. We, therefore, under the facts and circumstances of the case, are of the considered view that since the alleged sum of Rs. 4 lakhs was not received during the A.Y under consideration, the addition made u/s. 68 of the Act is not called for during the A.Y under consideration. We, thus, set aside the finding of the ld. CIT(A) and delete the addition of Rs. 4 lakhs made u/s. 68 of the Act. Accordingly, ground nos. 5 & 6 of assessee’s appeal are allowed.” 3.12.3 Regarding balance addition of Rs. 10,33,690/-, the appellant submitted that the said amount is outstanding amount due to its employees in lieu of services and advance received from customers against sale of goods. The appellant has also filed details of the said outstanding amount alongwith copies of ledger account. The details furnished by appellant are briefly summarized as under:- S. No Name of the parties PAN Address Amount outstandin g as on 31- 03-2018 [in Rs.] Whether employee or Trader 1 Anil Tiwari BOEPT8833D Near Patel College, Ralamandal Square, Khandwa Road, Indore 9,000 Employee 2 Arjun Driver 8,500 Employee 3 Babu Bhai Patel 7,576 4 Balaji Action Buildwell AAHFB6176D Plot No. C-34 & C-34(A), Eldeco Sidcul Industrial Park, 32,941 Trader IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 35 of 68 Sitarganj, Uttarakhand- 262405 5 Bhatia Transport Co. 17,650 6 Brajesh Driver 4,133 Employee 7 Chitra Devgirkar BGOPC3612B Gali No. 4, Tejaji Nagar, Khandwa Road, Indore 10,820 Employee 8 Deepak Kushwah Near Imperial Academy School, Khandwa Road, Indore 11,600 Employee 9 Dewanis Ply & Lam. Shop No. 2 & 3, Rajeev Complex, Near Shitla Mata Mandir, Itarsi- 461114 15,534 Trader 10 Green Ply Industries Ltd. Plot No. 2, Sector 9, Integrated Industrial Estate, Pantnagar, Rudrapur, Uttarakhand-263153 14,116 Trader 11 Hitesh Katariya AYHPK9615L 72, Jairam Pur Colony, Near Collector Office, Indore- 452007 13,000 Employee 12 Iqbal Hussain & Co. Dhar Road, Indore (Mobile No.: 9827008952) 228,235 Trader 13 Johar Ply House AEAPS5370R Sanghi Street, Mhow-453441 (Mobile No.: 9425928810) 98,375 Trader 14 Kapil Premchandani (Commission) BJFPP6612Q 115, Main Road, Sindhi Colony, Ujjain 35,000 Employee 15 Kothari Plywood AAEHK7955G Fast Lane, M.G. Road, Itarsi (Mobile No.: 9425043095) 3,764 16 Manish Laminate AIWPB6034D Bohar Badi, Sironj-464228 (Mobile No.: 9926355050) 19,574 Trader 17 Mukesh Joshi 48,000 Employee 18 Munot Home Decorates BGCPM8370G Mahatma Gandhi Marg, Mahidpur City-453443 (Mobile No.: 9827555871) 22,795 Trader 19 Nandu Driver Village Choral, Mhow 7,600 Employee 20 Narayans ADLPL7591F 202, Lakkad Pitha Maharana Pratap Bus Stand, Mandsaur- 458001 (Mobile No.: 9826081090) 20,393 Employee 21 Naresh Plywood & H/w AIYPA0191J 116, Station Road, Opp. Nilam Guest House, Ratlam (Mobile No.: 9074782048) 18,119 Employee 22 Om Sai Agro Agency 40,000 Employee 23 Others 112,560 24 Ply King BDXPS8811C 61, Jawahar Marg, Near Prem Sukh Talkies, Indore (Mobile No.: 9826058452) 1,310 25 Ply Palace ABPPC9063K Kanadia Road, Indore (Mobile No.: 9893088624) 238 26 Pradeep Hardware & Ply Place ATUPB8859P Main Road, Lateri-464114 (Mobile No.: 9893530071) 1,674 27 Prakash Driver Choral Village District Mhow 8,500 Employee 28 Raj Enterprises Vikas Chouraha, Ujjain (Mobile No.: 7898148555) 5,527 IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 36 of 68 29 Raj Hans Home Decore CJOPP6958H Alirajpur Road, Opp. Gas Agency, Kukshi (Mobile No.: 9575143000) 60,847 Trader 30 Rameshwar Yadav Village Choral, Mhow 12,784 Employee 31 Ram Singh Driver Village Choral, Mhow 8,500 Employee 32 Sai Shubham Hardware CGQPP1930E A.B. Road, Dhamnod-454552 (Mobile No.: 9425107525) 40,352 Trader 33 Shashi Kapoor (Commission) AGGPK1103N 101-B, Shri Ji Tower, Khatiwala Tank, Indore 30,000 Employee 34 Satguru Wood & Plywood 2 Teen Batti Chouraha, Sanwer Road, Ujjain (Mobile No.: 7342518164) 8,383 35 Shankar Driver 5, Ganesh Nagar, Khandwa Road, Indore 5,451 Employee 36 Shree Om Plywood AECPT2198G 22, Stadium Complex, Chhindwara-480001 (Mobile No.: 9425871023) 24,047 Trader 37 Shri Durga Laminate ALNPK1462E Near Sapna Sangeeta Theatre, Indore (Mobile No.: 9827024448) 2,792 38 Vikas Chouhan (Commission) APUPC1554N 6/1, Tatya Sarvate Nagar, Indore 24,000 Employee On perusal of above it is evident that the amount of Rs. 10,33,690/- includes amount due to employees and advance from traders. Here it is important to mention that the expenses debited in lieu of payments to be made to employees have fully been accepted as genuine by the ld AO. Meaning thereby, the ld AO on one hand has accepted expenditure on account of payments to employees (either salary or commission) and on other hand the same amount has been disallowed as unexplained cash credit u/s 68 of the Act. The ld AO has not considered the facts of the case properly. The ld AO ought to have considered the fact that no fresh credit in books of account has been received by appellant from the said employees. Thus, the AO was not justified in making impunged addition on this account. Further, the amount includes advance received from traders which were subsequently adjusted with sale in next year, where no adverse view has been taken by the ld AO. However, there are other credits in the books of account of the appellant amounting to Rs. 1,61,474/- for which no explanation with supportive document have been filed. Thus, the addition made by the is restricted to Rs. 1,61,474/- and appellant would get relief of Rs.56,49,932/-. Therefore, appeal on this ground is partly allowed. IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 37 of 68 16.1 Thus, the CIT(A) has examined each and every transactions of outstanding towards the payment to the employees, traders on account of purchase as well as advances received against sales and come to the conclusion that when the AO has accepted the expenses debited in lieu of the payments to the employees as genuine then the addition on account of outstanding payment to the employees is not justified. Similarly the majority of the amounts as explained by the assessee in the table reproduced by the CIT(A) in para No. 3.12.2 and impugned order shows that a sum of Rs.47,77,716/- was opening outstanding balance and not a fresh credit entries during the year under consideration. Accordingly in view of the facts emerging from record we do not find any error or illegality in the impugned order of the CIT(A) in deleting the addition to the extent of the amount representing opening outstanding balance as well as the amount received as advance from the traders and it was subsequently adjusted against the sales made in the next year. Consequently Ground No.7 of the assessee’s appeal and Ground No.6 of the Departments appeal stand dismissed. Ground No. 8 & 9: 17. These grounds are regarding the addition made by the A.O on account of transactions appearing in the bank accounts of the employees by treating them as bogus and unexplained money u/s 69A of the Act which was sustained by the CIT(A) to the extent of Rs.1,11,898/-. Therefore, the assessee as well as IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 38 of 68 Revenue have raised these issues in Ground No.8 &9 and Ground No.2 respectively. During the assessment proceedings the Assessing Officer noted from the bank account statement of Shri Govind Cheema that contract payment of Rs.34,22,322/- was deposited in his account. The details of the deposits are reproduced by the A.O in para 11.2 as under: Deposit date Amount (In Rs.) 27.01.2016 6,65,355 05.03.2016 7,72,002 18.11.2016 48,000 05.12.2016 48,000 24.11.2017 7,12,800 03.01.2016 4,50,000 30.03.2019 7,26,165 Total 34,22,322 17.1 The A.O referred to the statement of Shri Govind Cheema recorded u/s 131 of the Act by the Investigation Wing wherein he has stated that he was an employee with Shiv ShankarPlywood & Veneer House since 2013 and the amounts were transferred in their accounts on the behest of key persons of group Shri Naresh Navlani and Sunny Choudhary. Further he stated that in the statement that the amounts were immediately withdrawn through self cheque and handed over to Shri Sunny Choudhary. Based on this statement the A.O has made addition of Rs.22,91,706/- u/s 69 of the Act. On appeal the CIT(A) has deleted the addition except a sum of Rs.1,11,898/-. IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 39 of 68 17.2 Before the Tribunal the Ld. AR has submitted that the A.O has made the addition on account of transactions appearing in the bank account of the employees treating them as bogus and unexplained money without even issuing any show cause notice to the assessee which is a clear violation of principal of natural justice. Ld. AR has submitted that the Assessing Officer has not raised any query either in the notice issued u/s 142(1) of the Act or otherwise requiring the assessee to prove the genuineness of the transactions entered into by it with its employees. Therefore, the addition made by the Assessing Officer without issuing a proper valid show cause notice is not sustainable as it violates the principle of natural justice. In support of his contention he has relied upon the judgment of Hon’ble Himachal Pradesh High Court in the case of Anand Chouhan V/s CIT 273 CTR 296 as well as the judgment of Hon’ble Karnataka High Court in the case of Shaik Madar Amanulla v/s ITO 269 Taxman 280. Thus, the Ld. AR has submitted that in view of the binding judicial precedents the addition made by the AO without issuing the show cause notice is not sustainable and liable to be quashed. He has relied upon the decision of this tribunal dated 31.10.2023 in case of Ganesh Realmart Private ltd. vs. DCIT in IT(SS) no.30 & 31/Ind/2022 dated 31.10.2023 wherein an identical issue has been considered and decided by this tribunal arising from the same search and seizure action. IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 40 of 68 17.3 The Ld. AR has further contended that the assessee did not entered into any transaction with these persons namely Shri Govind Cheema and Deepak Kushwaha during the assessment year 2016-17 and 2019-20 however, the assessee paid commission to Shri Deepak Kushwaha during the assessment year 2017-18 and 2018-19 as an incentive to boost the sales. The commission amount paid to the employee was subjected to TDS and through banking channel. Thus, the Ld. AR has submitted that the transactions being entries in the bank account do not related to any amount paid or transferred by the assessee except the payment of commission which is duly recorded in the books of accounts of the assessee and also subjected to TDS. 17.4 On the other hand Ld. Departmental Representative has relied upon the order of A.O and submitted that in the statement recorded u/s 131 of the Act the employee of the assessee admitted that their account has been used by the assessee for alleged bogus transactions and subsequently the said amount was withdrawn by the key persons of the assessee and therefore it was unexplained/unaccounted money of the assessee. 17.5 We have considered the rival submissions as well as relevant material on record. An addition has been made by the Assessing Officer on the basis of the entries appearing in the bank account of the employees of the assessee namely Shri IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 41 of 68 Govind Cheema and Shri Deepak Kushwaha. It is pertinent to note that the statement of Govind Cheema which was relied upon by the Ld. Assessing Officer was not recorded during the course of search and seizure action and further the said statement was not confronted with the assessee during the course of assessment proceedings before the addition made by the A.O based on such statements. The question arise whether the Investigation Wing has the jurisdiction to record the statement u/s 131 of the Act as the provisions of Section 132 specifically provide to record the statement u/s 132(4) of the Act. The statement u/s 131 of the Act can be recorded only by the A.O in the assessment proceedings or other proceedings conducted by the A.O under the Act. Further in the said statement of Shri Govind Cheema the only allegation is regarding the key persons of the assessee who have handed over the amount and on their instruction the employee withdrawn the amount from the bank account and then handed over to Shri Sunny Choudhary or other key persons of the group. Thus prime facie it appears that these amounts were not given back to the assessee but these are allegedly taken by the individual persons who are the key persons of the assessee. There is no dispute that the Assessing Officer has neither issued a show cause notice nor confronted the assessee with the statement of Shri Govind Cheema before making the addition on the basis of the said statement. The CIT(A) has considered this issue in para 3.8.3 to 3.8.4 as under: IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 42 of 68 “3.8.3 I have considered the facts of the case, written submission of the appellant and findings of the AO. I find that statement of Shri Govind Cheema was recorded on 23.11.2020 and of Shri Deepak Kushwaha was recorded on 19.11.2020. In their statement both of them admitted that their account have been used by key person of appellant group including Shri Naresh Navlani and Shri Sunny Choudhary. Funds were transferred in their bank accounts and were subsequently withdrawn in cash by Shri Sunny Kushwaha and were subsequently handed over to Shri Naresh Navlani. On perusal of written submission filed alongwith ledger account of both the parties, it has been observed that appellant during AY 2017-18 and 2018-19 has paid amount of Rs. 2.06.575- and Rs. 1,11,898 respectively on account of commission for boosting sales. It is important to mention that Shri Deepak Kushwaha was employed as 'cashier with the appellant and therefore, there was no justification of paying commission to a cashier on account of boosting up sales. The payment of commission seems justified to sales or marketing representatives and not to cashier or accountant. Therefore, transaction of commission seems suspicious and not justified. However, no amount was transferred in AYS 2016-17 & 2019-20. Further, no amount was transferred by appellant in bank account of Shri Govind Cheema. Therefore. the AO was not justified in making impunged addition in the hands of appellant when no amount was transferred by appellant. On perusal of extract of bank account statement of Shri Deepak Kushwaha it was observed that there were various entries in the name of 'Pandhana party. During statement he was required to explain transaction with the said Pandhan party. In reply Shri Deepak Kushwaha stated that the said party is related to appellant and does not has GST number therefore, cash/neft was deposited in his bank account and the same was withdrawn in cash and handed over to appellant. The Id AO here was not justified in treating the statement of Shri Deepak Kushwaha as a gospel truth and did not made any independent enquiry from the said party or from bank. Since, various NEFTs and direct bank transfer were also received from the said party in bank account of Shri Deepak Kushwaha from were information's of the said party and further enquiry could have been made. However, no enquiry was made. Therefore, Ld AO was not justified in making impunged additions without having anything contrary on record except the statement of Shri Deepak Kushwaha and Shri Govind Cheema, I my view their statements can be relied upto amounts directly transferred by the appellant and cannot be ipso facto applied to each and every deposit in their bank account. 3.8.4 In view of the above discussion, the additions made by the AO are restricted to Rs. 2,06,575/-in AY 2017-18 and Rs. 1.11,898/- in IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 43 of 68 AY 2018- 19 u/s 69C of the Act. The appellant would get relief of Rs. 15,30,962/- in AY 2016-17. Rs. 4,78,200/-in AY 2017-18. Rs.21.79,808/-in AY 2018-19 and Rs. 12,37,783/- in AY 2019-20. Therefore, appeal on these grounds is partly allowed.” 17.6 After considering the bank accounts of these two employees, ledger account of the key parties in respect of the commission payment by the assessee to the employees for boosting the sales the CIT(A) noted that no amount was transferred by the assessee to the bank account of Shri Govind Cheema. Therefore, the addition made by the A.O in respect of the amount reflected in the bank account of Shri Govdind Cheema was held as not justified. The A.O has not conducted any enquiry to find out the correct facts and particularly in respect of any direct or indirect connection between the assessee and entries in the bank account of Shri Govind Cheema and Shri Deepak Kushwaha. The CIT(A) noted that except few payments to Shri Deepak Kushwaha through NEFT direct bank transfer there was no other transaction found between the assessee and the said employee. The CIT(A) has restricted the addition to the direct payments for the respective Assessment Years. It is pertinent to note that the assessee has claimed that the said payment was made on account of commission to these employees which is also subjected to TDS. This fact has not been disputed by the department that the amount which was paid by the assessee is duly recorded in the books of accounts and was subjected to TDS. The claim of commission payment may be questioned by the A.O while IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 44 of 68 considering the allowability deduction of expenditure but the transactions cannot be questioned as bogus when the said transaction is through banking channel and subjected to TDS. The A.O has not disallowed any claim of expenditure and therefore, the addition sustained by the CIT(A) by not accepting the payment being in the nature of commission is not justified. We further note that this tribunal in case of Ganesh Realmart Pvt. Ltd. vs. DCIT in ITANo.30 & 31/Ind/2022 has considered an identical issue in para 15 & 16 as under: “15. We have considered rival submissions of both sides and perused the orders of lower-authorities and the documents filed in the paper-book to which our attention has been drawn. After a careful consideration, we find that the AO has done investigation and analysis of facts to discern the modus operandi adopted by assessee for booking of expenses and generating cash. But there is a weightage in certain fundamental/legal aspects raised by Ld. AR. Firstly, Ld. AR is justified in claiming that in the notice u/s 142(1) dated 01.12.2020, the AO asked the assessee to provide certain information which the assessee furnished. But thereafter the AO has straightway reflected his decision of making addition in assessment- order without even show-causing the assessee qua his understanding of the facts and proposed action. This is a violation of principle of natural justice. Secondly, Ld. AR has a merit in claiming that the AO has recorded statement of Shri Govind Cheema at the back of assessee and used such statement against assessee without confronting assessee and without providing any opportunity of cross- examination to assessee. Ld. AR is also claiming that Shri Govind was a disgruntled employee of assessee and his statements were biased. Therefore, we agree that the AO has violated the principle of natural justice by neither show-causing assessee qua the proposed addition nor confronting assessee with the statement/affidavit of Shri Govind Cheema. It is an accepted principle in various judicial rulings including Anand Chauhan Vs. CIT (supra) relied upon by Ld. AR that if the AO violates the principle of natural justice by not confronting the assessee with the material in his possession, the IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 45 of 68 irregularity committed by AO could be and must be corrected by remitting the matter. Besides this, Ld. AR is very right in claiming that no enquiry has been done from other 3 contractors, Shri Vishal Devgirkar, Shri Gulab Chand Kumau and Shri Tarun Virwani, and yet the AO has made addition. Looking into these infirmities in the action of AO, we are of the considered view that this is a fit case for remitting to the file of AO who shall resolve the assessee’s grievances by making in-depth enquiries qua all contractors and provide sufficient opportunity to assessee to make his submissions and only then, pass order afresh. While doing so, the AO shall consider assessee’s all submissions including those made before us and stay uninfluenced by his previous order. 16. We would, at this stage, also like to address one more contention raised by Ld. AR. He has submitted that the invocation of section 69C itself is wrong in present case because the expenditure is already recorded in books of account and the source of expenditure is not at all in doubt. We find the contention raised by Ld. AR is very much correct but, in numerous judicial rulings, it has been vehemently held that mere mention of wrong section cannot give any benefit to assessee. Therefore, the argument of Ld. AR cannot be accepted. Moreover, since we are remitting this issue back to the file of AO, the AO shall take necessary care in this regard while re-framing his order.” 17.7 Moreover the additions sustained by the CIT(A) cannot be treated as unexplained money u/s 69A of the Act when these transactions are recorded in the books of accounts of the assessee and consequently the provision of Section 69A r.w.s 115BBE of the Act are not applicable. Accordingly the ground No.8 & 9 of the appeal of the assessee is allowed and Ground No.2 of the revenue appeal is dismissed. 18. In Ground No.10 the assessee has challenged the applicability of Section 68(2) to 69D r.w.s. 115 BBE of the Income Tax Act in respect of various additions made to the IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 46 of 68 total income of the assessee. We have already considered this issue while deciding specific issues/additions under the respective grounds raised by the assessee and therefore, no specific adjudication is required in respect of Ground No.10. Assessment Year 2019-20 19. The assessee has raised following grounds: 1. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming various additions made by the Assessing Officer to the total income of the appellant even when no unrecorded/ undisclosed assets were found during the course of search. 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 24,41,459/- made by the Assessing Officer to the total income of the appellant on account of alleged amount of cash received against out of books sales by treating it as undisclosed income/ money under section 69A r.w.s. 115BBE of the Income-Tax Act, 1961 without properly appreciating the facts of the case and submissions made before him even when the appellant was not involved in making any out of books sales. 3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 24,41,459/- made by the Assessing Officer to the total income of the appellant on account of alleged amount of cash received against out of books sales by treating it as undisclosed income/ money under section 69A of the Income-Tax Act, 1961 more so when only the element of net profit embedded in such sales could have been subject to tax and not the entire amount of sales. 4. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 33,03,045/- on account of multiplication of ad-hoc GP rate of 15% (Actual GP rate was 9.45%) with the amount of alleged unaccounted purchases, out of addition of Rs. 2,20,20,299/- made by the Assessing Officer to the total income of the appellant on account of alleged unaccounted purchases by treating it as undisclosed investment under section 69B r.w.s. 115BBE of the Income-Tax Act, 1961 without properly IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 47 of 68 appreciating the facts of the case and submissions made before him even when the appellant was not involved in making any unaccounted purchases in cash from the suppliers. 5.That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 33,03,045/- on account of multiplication of ad-hoc GP rate of 15% (Actual GP rate was 9.45%) with the amount of alleged unaccounted purchases, out of addition of Rs. 2,20,20,299/- made by the Assessing Officer to the total income of the appellant on account of alleged unaccounted purchases by treating it as undisclosed investment under section 69B of the Income-Tax Act, 1961 more so when only the element of net profit embedded therein could have been subject to tax. 6.That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 24,08,380/- on account of multiplication of ad-hoc GP rate of 15% (Actual GP rate was 9.45%) with the amount of alleged unaccounted purchases, out of addition of Rs. 1,41,99,342/- made by the Assessing Officer to the total income of the appellant on account of alleged unaccounted purchases made from M/s Hindustan Plywood Industries by treating it as unexplained investment in stock under section 69B r.w.s. 115BBE of the Income- Tax Act, 1961 without properly appreciating the facts of the case and submissions made before him. 7. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 24,08,380/- on account of multiplication of ad-hoc GP rate of 15% (Actual GP rate was 9.45%) with the amount of alleged unaccounted purchases, out of addition of Rs. 1,41,99,342/- made by the Assessing Officer to the total income of the appellant on account of alleged unaccounted purchases made from M/s Hindustan Plywood Industries by treating it as unexplained investment in stock under section 69B of the Income-Tax Act, 1961 by placing reliance on the statements of third parties which were never confronted with the appellant thereby depriving the appellant of an opportunity of cross examination which is grossly violative of the principles of natural justice. 8.That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 24,08,380/- on account of multiplication of ad-hoc GP rate of 15% (Actual GP rate was 9.45%) with the amount of alleged unaccounted purchases, out of addition of Rs.1,41,99,342/- made by the Assessing Officer to the total income of the appellant on account of alleged unaccounted purchases made from M/s Hindustan Plywood Industries by treating IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 48 of 68 it as unexplained investment in stock under section 69B of the Income-Tax Act, 1961 more so when only the element of net profit embedded therein could have been subject to tax. 9.That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 2,03,49,150/- made by the Assessing Rs. Officer to the total income of the appellant [As on account of alleged excess stock found 115E during the course of search by treating it as unexplained investment in stock under Surc section 698 r.w.s. 115BBE of the Income- Cess Tax Act, 1961 without properly appreciating the facts of the case and submissions made before him 10.That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the amount of tax liability computed by the Assessing Officer by invoking the provisions of section 115BBE of Income-Tax Act, 1961 in respect of various additions made to the total income more so when such additions fell within the purview of income under the head 'Income from Business or Profession' thereby leaving no scope for invoking the provisions of section 68 to 69D of the Income-Tax Act, 1961 and for consequentially charging tax as per the provisions of section 115BBE of the Income-Tax Act, 1961. 11.That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming various additions made by the Assessing Officer to the total income of the Legal c appellant without allowing proper set-off of additions made in the earlier years as well as during the year under consideration which is neither legal nor proper. 12. The appellant reserves the right to add, alter and modify the grounds of appeal as taken by it.” 20. Ground No. 1 to 8 & 10 are common to the grounds of appeal for Assessment Year 2018-19 and the same stand disposed off in the same terms as for Assessment Year 2018- 19. IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 49 of 68 21. There is only an extra ground for Assessment Year 2019-20 as raised in ground No.9 regarding addition made by the A.O on account of excess stock found during the course of search and seizure action which was confirmed by the CIT(A). 21.1 The A.O has noted that during the course of search and seizure action physical verification of the stock was done and it was also valued in the presence of the key persons of the assessee by the Government approved Valuer. The details of the valuation as per the Government approved valuer and books of accounts are given as under: 1. Physical stocks taken and valuation made by Govt. Approved Registered Valuer Rs.3,81,04,600/- 1. Stocks found as per Books of accounts Rs.1,77,55,450/- Difference in stock value Rs.2,03,49,150/- 21.2 The A.O has further noted that since the assessee has not made any explanation during the course of search and seizure against the difference in the value of stock therefore the same is added as unexplained investment in stock. The CIT(A) confirmed the addition made by the A.O. IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 50 of 68 21.3 Before the Tribunal the Ld. AR of the assessee submitted that the addition has been made by the A.O only on the valuation determined by the Government approved Valuer based on the market rate whereas the assessee has recorded the stock at the cost price which is strictly as per the accounting standard which requires that the valuation of the stock/inventory should be at cost or realizable value whichever is less. He has further submitted that no difference was found in the quantity of the stock as recorded in the books of accounts at the time of physical verification done by the search party. Thus he has contended that the addition made on the basis of the inflated value taken by the valuer is not sustainable as this is a revenue neutral item when the assessee has booked the expenditure of purchase and closing stock will be taken at the same value as well as the opening stock of the subsequent year. The stock is valued by the assessee in the books as per the actual bills of the purchase and therefore this cannot be valued at a different price which is against the accounting standard. Ld. A.O has further submitted that detailed working was done by the assessee as per the quantity and size by considering the actual rates at which the stock was acquired duly supported by the invoices and therefore the stock shown in the books of accounts of the assessee was proper and correct valuation therefore, there is no justification for making the addition on account of alleged difference in the valuation of stock based on the valuation done IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 51 of 68 by the valuer when there was no discrepancy found in the quantity of stock. He has further submitted that the valuation was taken on adhoc basis by the valuer without considering the actual measurement of thickness of individual sheets of various items therefore, the difference in the value without any difference in the quantity cannot be a ground for addition. Thus, he has pleaded that the addition made by the A.O and sustained by CIT(A) is not justified and same is to be deleted. 22. On the other hand Ld. DR has submitted that the stock was physically verified in the presence of the key persons of the assessee. The valuation was done by the Government approved valuer without any bias therefore, the same cannot be questioned. Further during the course of search and seizure proceedings the assessee was found in suppressing the purchase as well as sales to the extent of 60% and therefore the under valuation of the stock cannot be ruled out. He has relied upon the orders of authorities below. 23. We have considered the rival submissions as well as relevant material on record. The CIT(A) has confirmed the addition made by the A.O on account of excess stock value in para 3.11.2 and 3.11.3 of impugned order as under: “3.11.2 1 have considered the facts of the case, plea raised by the appellant and findings of the AO. The appellant during appellate proceedings has stated that during the course of search physical measurement of stock was done by government approved valuer who determined stock of Rs. 3.81,04,600/-, whereas, the appellant has shown stock of Rs. 1.77.55.450/-in its books of account as on date IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 52 of 68 of search i.e. 04.01.2019 and accordingly a difference in value of stock was evaluated at Rs. 2,03,49.150-. The appellant has contended the arbitrary approach of the Ld AO in ipso facto accepting the valuation report of the valuer and without considering the objections raised during assessment proceedings as well as statement recorded on cath. The appellant before the O as well as before me has stated that the valuation report does not mention any quantitative difference in the stock shown by appellant and that measured by the valuer, however, the difference in stock has only been arrived for one reason that the rates adopted by the valuer are way too much higher than that at which appellant has recorded in its books of account which were based on actual purchase bills. Further, the valuer has taken valuation of stock on adhoc basis instead of valuing the stock inventory wise. The valuer measured thickness in totality rather than counting individual sheets. Shri Rahul Navlani in his statement recorded on oath has also pointed out this defect. The appellant also stated that if the valuer had measured thickness sheet wise then the value of stock would have arrived at Rs. 1,68,48,105/- instead of stock of Rs. 1.77.55.450/- shown in books of account. 3.11.3 After considering plea of the appellant and findings of the AO. I find that the Valuer as on 05.01.2019 valued the stock of appellant at Rs. 3,81,04,600/- and an item-wise report was furnished. The appellant has filed copy of valuation report of the valuer and position of stock in its books of account. On conjoint perusal of both statements I find that there do not exist any quantitative difference in the stock shown by appellant in its books of account and that measured by the valuer. The difference is attributed due to adoption of rates which are higher than that shown by appellant in its books of accounts. The appellant has also contended that the valuer did not determined value of stock item wise and has measured the thickness of complete lot. I find claim of the appellant factually correct. The registered valuer in its report has clearly mentioned that the stock has been measured on volumetric basis for the reason that individual counting of stock was not practically feasible. However, I find that the method of valuation of stock is not in anyway prejudicial to appellant There is no difference in quantity of stock as per books of appellant and as measured by the valuer. Now the moot question arises out here is whether the valuer was justified in determining value of stock as per market survey and on average basis. I find that the appellant has shown stock in its books of account at cost price which is supportive of evidences (purchase bills) furnished by appellant before the AO as well as before me. However, the purchase recorded in the books of account of the IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 53 of 68 appellant are suppressed. Various evidences relating to suppression of purchase price and making payments in cash to the suppliers has also been seized in the course of search. One of the suppliers has also been surveyed who confirmed this modus operandi adopted by it and the appellant. One of the group person Shri naresh navlani and its employee Shri Shahsi Kapoor have also confirmed the suppression of purchase and sale price and making payments and receiving sales proceeds outside the books of account. Hence, the cost of purchases recorded by the appellant is not reliable. Approximately 40% of total cost has been found to be recorded in the books of account of the appellant. If the ratio of suppression of purchase cost is adopted, the value of stock as per books will be worked out to Rs. 4,43,88,625/- (Rs. 1,77,55,450x100/40). Thus, the valuation done by the valuer appears to be justified. The contentions of the appellant are devoid of any merit when large numbers of evidences shows suppression of purchase price. Accordingly. I find that the id AO is justified in making addition of Rs. 2.03,49,150/- u/s 69B of the Act. Thus, addition made by the Id AO amounting to Rs. 2,03,32,727/- is hereby confirmed. Therefore, appeal on this ground is dismissed.” 23.1 The CIT(A) has specifically recorded the facts that there was no discrepancy in the quantity of stock as recorded in the books of accounts as well as found during the physical verification at the time of search. Once this fact is manifested from the record that there was no difference in the quantity of stock as recorded in the books of accounts as it was found during the course of search and seizure action on physical verification the the only dispute is regarding the valuation of the stock as recorded by the assessee in the books of accounts as against the value determined by the departmental valuer which is resulted a difference of Rs.2,03,32,727/- . Thus, it is clear that the difference in question is only due to the valuation taken by department valuer without any discrepancy IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 54 of 68 in the quantity. At the outset it is pertinent to note that the valuation of stock in the books of accounts shall have no revenue effect as the same value will be taken as opening stock in the subsequent year and further the valuation if it is based on the cost of acquisition as done by the assessee as reflected in corresponding purchases then it is revenue neutral transaction. Even otherwise as per the accounting standards the valuation of stock is done at the cost price or realization value whichever is less. Therefore, the addition made by the A.O and confirmed by the CIT(A) purely on the basis of difference between the valuation recorded by the assessee in the books of accounts and valuation done by the valuer at the time of search and seizure is not justified. The A.O as well as CIT(A) has made this addition on the assumption that the assessee has suppressed the value of the stock in the same manner as purchase and sales are suppressed and a separate addition was made on account of suspicion of sales and purchases. In any case when the valuation of stock of the current year will be taken as opening stock of the subsequent year of same value then the addition made purely on the basis of valuation difference without any discrepancy in the quantity is highly arbitratory and not justified and the same is deleted. This Ground is allowed. 24. Revenue has raised common grounds for 2016-17 to 2019- 20 as under: IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 55 of 68 Assessment Year 2016-17 “1 [1A] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs. 4,95,33,500/- made on account of unexplained cash deposits in bank accounts? [IB] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 4,95,33,500/- made on account of unexplained cash deposits in bank accounts ignoring, inter alia, that: a) the assessee has failed to explain the sources of such cash deposits? b) during the course of search, it was noticed that bank accounts of the employees were misused by the key persons of the group for routing their unaccounted money (para 10.3 of AO)? c) No cash books and other books of account were found during the course of search proceedings (para 10.2 of AO)? 2 [2A] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs. 15,30,962/- made on account of bogus payments to contractors? [2B] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs. 15,30,962/- made on account of bogus payments to contractors, ignoring, inter alia, that Shri Govind Cheema and Shri Deepak Kushwaha, the employees of the assessee, have admitted under oath (para 10.2 of AO) that: a) the assessee has misused their bank accounts? b) Amounts were transferred in their accounts primarily at the behest of the key persons of theassessee group? c) These amounts were immediately withdrawn in cash through self cheques, as also evidenced from bank statements, and handed over to key persons of the group? 3 Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 37,50,000/- on account of unexplained cash credits u/s 68 of the IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 56 of 68 Income Tax Act, 1961, ignoring that the assessee has failed (para 8 of AO) to establish identity and creditworthiness of the lenders and genuineness of the transaction? Assessment Year 2017-18 1 [1A] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs. 4,09,84,300/- made on account of unexplained cash deposits in bank accounts? [1B] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 4,09,84,300/- made on account of unexplained cash deposits in bank accounts ignoring, inter alia, that: a) the assessee has failed to explain the sources of such cash deposits? b) during the course of search, it was noticed that bank accounts of the employees were misused by the key persons of the group for routing their unaccounted money (para 10.3 of AO)? c) No cash books and other books of account were found during the course of search proceedings (para 10.2 of AO)? 2 [2A] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs. 4,78,200/- made on account of bogus payments to contractors? [2B] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified indeleting the addition of Rs. 4,78,200/- made on account of bogus payments to contractors, ignoring. inter alia, that Shri Govind Cheema and Shri Deepak Kushwaha, the employees of the assessco, have admitted under oath (para 10.2 of AO) that: a) the assessee has misused their bank accounts? b)Amounts were transferred in their accounts primarily at the behest of the key persons of the assessee group? c) These amounts were immediately withdrawn in cash through self cheques, as also evidenced from bank statements, and handed over to key persons of the group? IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 57 of 68 3 [3A] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 94,60,568/- on account of unexplained investment in stock? [3B] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 94,60,568/- on account of unexplained investment in stock, ignoring, inter alia, that: a) the basis of the addition approved valuer establishing the difference in stock found on physical verification vis-à-vis stock recorded in regular books of accounts. b) Evidences uncovered during the search & seizure including at the business premise of Hindustan Plywood Industries (covered u/s 133A) and admittance of undisclosed sales to the assessee? c) Excess stock was indeed found during the search (para 7 of AO) and, to this extent, Ld. CIT(A) has erred in observing that \"no excess stock was found (in terms of quantity)\" and basing his decision thereof? d) The GP addition would not cover the addition made on this count by the AO? 4 A] Whether on the facts and on the circumstances (of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 1,20,42,864/- on account of unexplained investment in unaccounted purchases? [4B] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 1,20,42,864/-on account of unexplained investment in unaccounted purchases on the ground that AO has already determined concealed sales by applying GP@15% which, in view of Ld. CIT(A), covers all unaccounted expenses including unaccounted purchases, without appreciating, inter alia, that: a) The additions were made (para 5 of AO) on the basis of incriminating material found during the course of search and evidences on record? b) Gross profit derived from suppressed sale covers only profit derived while the addition made seeks to cover the unexplained investment in unaccounted purchases? IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 58 of 68 c) For any unaccounted sale to take place, first the assessee has to make investment in unaccounted purchases? Assessment Year 2018-19 1 [1A] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs. 2,30,52,000/- made on account of unexplained cash deposits in bank accounts? [1B] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 2,30,52,000/- made on account of unexplained cash deposits in bank accounts ignoring, inter alia, that: a) the assessee has failed to explain the sources of such cash deposits? b) during the course of search, it was noticed that bank accounts of the employees were misused by the key persons of the group for routing their unaccounted money (para 10.3 of AO)? c) No cash books and other books of account were found during the course of search proceedings (para 10.2 of AO)? 2 [2A] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs. 21,79,808/- made on account of bogus payments to contractors? [2B] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified indeleting the addition of Rs. 21,79,808/- made on account of bogus payments to contractors, ignoring. inter alia, that Shri Govind Cheema and Shri Deepak Kushwaha, the employees of the assessco, have admitted under oath (para 10.2 of AO) that: a) the assessee has misused their bank accounts? b)Amounts were transferred in their accounts primarily at the behest of the key persons of the assessee group? c) These amounts were immediately withdrawn in cash through self cheques, as also evidenced from bank statements, and handed over to key persons of the group? IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 59 of 68 3 [3A] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 94,60,568/- on account of unexplained investment in stock? [3B] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 94,60,568/- on account of unexplained investment in stock, ignoring, inter alia, that: a) the basis of the addition approved valuer establishing the difference in stock found on physical verification vis-à-vis stock recorded in regular books of accounts. b) Evidences uncovered during the search & seizure including at the business premise of Hindustan Plywood Industries (covered u/s 133A) and admittance of undisclosed sales to the assessee? c) Excess stock was indeed found during the search (para 7 of AO) and, to this extent, Ld. CIT(A) has erred in observing that \"no excess stock was found (in terms of quantity)\" and basing his decision thereof? d) The GP addition would not cover the addition made on this count by the AO? 4 A] Whether on the facts and on the circumstances (of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 2,92,89,773/- on account of unexplained investment in unaccounted purchases? [4B] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 2,92,89,773/- on account of unexplained investment in unaccounted purchases on the ground that AO has already determined concealed sales by applying GP@15% which, in view of Ld. CIT(A), covers all unaccounted expenses including unaccounted purchases, without appreciating, inter alia, that: a) The additions were made (para 5 of AO) on the basis of incriminating material found during the course of search and evidences on record? b) Gross profit derived from suppressed sale covers only profit derived while the addition made seeks to cover the unexplained investment in unaccounted purchases? IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 60 of 68 c) For any unaccounted sale to take place, first the assessee has to make investment in unaccounted purchases? Assessment Year 2019-20 “1 [1A] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs. 12,37,783/- made on account of bogus payments to contractors? [1B] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs. 12,37,783/- made on account of bogus payments to contractors, ignoring, inter alia, that Shri Govind Cheema and Shri Deepak Kushwaha, the employees of the assessee, have admitted under oath (para 10.2 of AO) that: a) the assessee has misused their bank accounts? b) Amounts were transferred in their accounts primarily at the behest of the key persons of the assessee group? c) These amounts were immediately withdrawn in cash through self cheques, as also evidenced from bank statements, and handed over to key persons of the group? [2A] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 2,67,42,300/- made on account of hawala transactions? [2B] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 2,67,42,300/- made on account of hawala transactions on the ground that additions in respect of gross profit from suppressed sales has already been made, ignoring, inter alia, that: a) No such addition on account of suppressed sale for AY 2019-20 has made in assessment order? b) The quantum of hawala transactions is much more that total amount of unaccounted purchases of Rs. 2,20,20,299/-? [3A] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 1,17,90,962/- on account of unexplained investment in stock? IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 61 of 68 [3B] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in law in deleting the addition of Rs. 1,17,90,962/- on account of unexplained investment in stock, ignoring, inter alia, that: a) the basis of the addition (para 7 of AO) was valuation done by government approved valuer establishing the difference in stock found on physical books of accounts? b) Evidences uncovered during the search & seizure including at the business premise of Hindustan Plywood Industries (covered u/s 133A) and admittance of undisclosed sales to 3 the assessee? c) Excess stock was indeed found during the search (para 7 of AO) and, to this extent, Ld. CIT(A) has erred in observing that \"no excess stock was found (in terms of quantity)\" and basing his decision thereof? d) The GP addition would not cover the addition made on this count by the AO? 4A] Whether on the facts and on the circumstances (entrof the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs. 1,87,17,254/-on account of unexplained investment in unaccounted purchases? [4B] Whether on the facts and on the circumstances of the case and in law, Ld. CIT(A) was justified in deleting the addition of Rs. 1,87,17,254/-on account of unexplained investment in unaccounted purchases on the ground that AO has already determined concealed sales by applying GP@15% which, in view of Ld. CIT(A), in view of Ld. CIT(A), covers all unaccounted expenses including unaccounted purchases, without appreciating, inter alia, that: a) The additions were made (para 5 of AO) on the basis of incriminating material found during the course of search and evidences on record? b) Gross profit derived from suppressed sale covers only profit derived while the addition made seeks to cover the unexplained investment in unaccounted purchases? c) For any unaccounted sale to take place, first the assessee has to make investment in unaccounted purchases?” IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 62 of 68 25. While deciding the assessee’s appeals we have deleted the addition made by the A.O for the Assessment Years 2012-13 to 2016-17 on the ground of absence of any incriminating material found or seized during the course of search and seizure action because these assessment years were not pending on the date of initiation of search therefore, the appeal of the revenue for Assessment Year 2016-17 & 2017-18 stands dismissed. 26. Ground No.2 for the Assessment Year 2018-19 and Ground No.1 for the Assessment Year 2019-20 are common to the grounds in the assessee’s appeal and accordingly in view of our finding the same stand dismissed. 27. Ground No.3 & 4 for the Assessment Year 2018-19 and 2019-20 are also common to the Ground No. 4 to 8 of the assessee’s appeal for Assessment Year 2019-20 and therefore in view of our finding for deciding the assessee’s appeal the same stand disposed off. 28. Ground No.6 for Assessment Year 2018-19 is common to the Ground No.7 of the assessee’s appeal for Assessment Year 2018-19 and therefore in view of our finding in the appeal of the assessee the same stand disposed off while deciding the appeal of the assessee. 29. Ground No.5 for Assessment Year 2018-19 and Ground No.2 for Assessment Year 2019-20 are regarding the additions IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 63 of 68 made by the A.O on account of hawala transactions and deleted by the CIT(A). The A.O has made addition on account of hawala transactions of Rs.2,00,000/- for Assessment Year 2018-19 and Rs.2,67,42,300/- for Assessment Year 2019-20 on the basis of whats app messages found in the mobile of Shri Shashi Kapoor alias Shashi Nishal Chandani. The A.O noted that these whats app messages in the mobile of the employee of the assessee are written in coded form and figure of 5 kg is representing Rs.5 lakhs and consequently the A.O converted the figures of kg into lakhs. On appeal the CIT(A) has deleted the addition by considering the fact that if these messages are representing the transactions of suppressed purchases and sales which are also separately added by adopting the Gross profit rate and therefore, this addition amounts double addition made by the A.O. Aggrieved by the impugned order the department has filed the present appeals. 29.1 Ld. DR has relied the order of Ld.A.O and submitted that the A.O has transcripted the message and reproduced in the assessment order whereby sum of Rs.2 lakh was found for the Assessment Year 2018-19 representing the hawala transactions carried out by the assessee and the balance amount of Rs.2,67,42,300/- was found for the Assessment Year 2019-20 on account of hawala transactions carried out by the assessee. Thus, the Ld. DR has submitted that when these are IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 64 of 68 the hawala transactions then the question of double addition does not arise on account of suppressed purchase and sales. 29.2 On the other hand Ld. AR of the assessee submitted that during the search and seizure proceedings the assessee explained that the alleged messages found in the mobile of Shri Shashi Nishal Chandani do not represent the transactions of the assessee. The Ld. AR further submitted that in those messages there is no mention of assessee so as to relate the transactions with the assessee. The A.O has drew an adverse reference from the alleged messages found from the mobile of Shri Shashi Nishal Chandani and relied upon the statement of Shri Shashi Nishal Chandani the employee of the assessee where he has explained the nature of transactions. He has further contended that those employees were not involved in the business transactions of the assessee and therefore, in the absence of any incriminating information in the alleged messages the addition made by the A.O purely on the basis of suspicion is not justified. Alternatively the Ld. AR has submitted that when these are considered as hawala transactions related to the purchase and sale of goods by the assessee then no separate addition can be made once the A.O has already made addition on account of suppressed purchase and sales. The A.O has already made the addition to the total income of the assessee on account of alleged amount of cash received out of book sales as well as un accounted purchases in respect of which only the net profit could have been IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 65 of 68 considered for Income Tax purpose. He has relied upon the impugned order of CIT(A). 30. We have considered rival submissions as well as materials available on record. The A.O has made the addition based on the encrypted details of the whats App messages found in the mobile of one Shri Shashi Nishal Chandani the employee of the assessee and concluded that the transactions found in those messages are business transaction of the assessee in hawala mode. Accordingly, the A.O made additions of Rs.2,00,000/- for Assessment Year 2018-19 and Rs.2,67,42,300/- for Assessment Year 2919-20. The CIT(A) has considered this issue in para 3.8.9 as under: 3.9.8 However, before deciding fate of additions made in AY 2019- 20, I find it appropriate to discuss and decide other relevant issues (hawala transaction) which are interlinked with the issues under consideration in AY 2019-20. During the course of search, various watsapp messages were found from mobile phone of Shri Shashi Kapoor which were related to hawala transaction. As per ld AO the appellant has done these transactions through Shri Shashi Kapoor. A print out of these messages were taken and were seized as page no 1 to 50 of LPS-18. The Id AO on the basis of these messages determined transactions amounting to Rs. 2,00,000/- in AY 2018- 19 and Rs. 2,67,42,300/- in AY 2019-20. On plain reading, it has been observed that the transactions includes payments made to some parties at Yamuna Nagar, and Delhi. As discussed above, the appellant had made purchase of goods from two parties namely Mis Subhash Chand Saw Mill and M/s Neel Kanth Plywood which are located at Yamuna Nagar which is adjacent to Delhi. It is also important to mention that statement of Sri Shashi Kapoor, which has been relied upon by the Id AO, was recorded on oath u/s 132(4) wherein, with regard to impunged watsapp messages seized as page no 1 to 50 of LPS-18, he stated that on directions from Shri Naresh IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 66 of 68 Navlani he collected amounts from the dealers and out of these collected funds, amounts were paid to suppliers. The relevant extract of his statement is reproduced hereunder:- Ĥæन 22- जैसा ͩक आपने Ĥæन Đमांक 21 क े ĤǓतउƣर मे आपने अपने whatsapp chat से क ुछ लोगɉ क े नाम देखकर बताया था ͩक वे मेसस[ ͧशवशंकर Üलायवुड एवं मेसस[ राहुल लेͧमनेट से संबंͬधत cash transaction करते हɇ । क ृपया आपक े chat मɅ “NN” क े साथ whatsapp chat है, क ृपया इसे देखे एवं बताये ͩक यह ͩकस Ĥकार कȧ हे एवं इसका Ĥयोजन Èया है ? इस संबंध मɅ, मɇ आपसे कहना चाहता हूँ ͩक आज chat मɅ भी Įी नरेश जी नवलानी ɮवारा मुझे direction Ǒदए गए है एवं उÛहȣं क े Ǔनदȶशानुसार मɇने या तो ͪवͧभÛन पाǑट[यɉ से िजÛहɅ Sale कȧ गई है उनसे payment collect ͩकया है एवं ͪवͧभÛन parties को िजनसे purchase कȧ गई है, को payment ͩकया गया है। Hence, the impugned payments, made through hawala, relates to both purchase and sale of goods through suppression of purchase/sales and actual purchase/sales Therefore, the Id AO was not justified in making addition of both the transaction i.e suppression of purchase and hawala transactions even when such transaction have been explained by Shri Shashi Kapoor as interlinked with each other. Rather the Id NO ought to have provided with set-off with the hawala transaction with the suppressed sales/purchase transaction. The Id AO has also determined hawala transaction of Rs. 2,00,000/- in AY 2018-19. I find that addition in AY 2018-19 on account of suppression of sales was made by the Id AO and gross profit element has already been confirmed vide para 3.4 of this order, therefore, making further addition towards hawala transaction will tantamount to double taxation in the light of statement of Shri Shashi Kapoor (reproduced herein above). Thus, the Id AO ought should have provided necessary set-off, keeping in view entire facts, and before making impugned addition. Further gross profit on concealed purchase in AY 2019-20 has also been confirmed in para 3.9.9 of this order. Thus, entire additions made on account of hawala transaction amounting to Rs. 2,00,000/- in AY 2018-19 and Rs. 2,67,42,300/- in AY 2019-20 is hereby deleted.” 30.1 Thus CIT(A) has deleted the addition by considering the fact the A.O has already made the addition on account of IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 67 of 68 suppressed purchases and suppressed sales transactions made outside of the books of accounts and amount of those transactions are common as found from the record and consequently the addition was treated as double addition in respect of the same transactions. In the statement Shri Shashi Kapoor stated that alleged payment and receipt are on account of purchase and sales. The department has not brought any fact or material before us to contradict the factual finding of CIT(A). Accordingly we do not find any error or illegality in the impugned order of the CIT(A) on this issue. Ground No.5 for Assessment Year 2018-19 and Ground No.2 for Assessment Year 2019-20 stand dismissed. 31. In the result Assessee’s appeal for Assessment Year 2013- 2014 to 2017-18 are allowed and for the Assessment Year 2018-19 and 2019-20 are partly allowed. Department’s appeal for Assessment Years 2016-17 to 2019-20 are dismissed. Order pronounced in the open court on 18.10.2024. Sd/- Sd/- (B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member Indore, 18.10.2024 Dev/Sr. PS IT(SS)ANo.27/Ind/2023 and Others Shiv Shankar Plywood & Veener House Page 68 of 68 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore "