TaxTMI 
TaxTMI 
2017 (1) TMI 1813
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..... I.T.(SS)A.Nos. 91/Ind/2016 - A.Y. 2009-10: On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition made by AO of Rs. 69,500/- on account of unrecorded and unexplained transactions appeared in LPS-14 to LPS-21 without appreciating the facts and evidences brought into light by the AO during assessment proceedings. I.T.(SS)A.Nos. 93/Ind/2016 - A.Y. 2010-11: On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition made by AO of Rs. 81,76,821/- on account of unrecorded and unexplained transactions appeared in LPS-14 to LPS-21 without appreciating the facts and evidences brought into light by the AO during assessment proceedings. I.T.(SS)A.Nos. 94/Ind/2016 - A.Y. 2011-12: On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition made by AO of Rs. 3,97,87,559/- on account of unrecorded and unexplained transactions appeared in LPS-14 to LPS-21 without appreciating the facts and evidences brought into light by the AO during assessment proceedings. I.T.A.No. 674/Ind/2016 - A.Y. 2012-13: On the facts a....
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....lding that highest of the adjusted NP ratio which comes to 4.76 % out of the five assessment years under consideration, rounded to 5.00 % be applied at uniform rate on the Total Receipts for each of the assessment years from assessment year 2008-09 to 2012-13, resulting into addition of Rs. 4,09,891/- towards net profit element for the impugned year. 2. in holding that there is no justification seen in application of NP ratio as per the audited accounts on the unaccounted Total Receipts applied by the assessee while offering additional income in the return for each of the assessment years from AY 2008-09 to 2012-13 towards net profit element, more particularly when trading in agri-products (garlic & onion) is the only source of income for the assessee. I.T.(SS)A.Nos. 120/Ind/2016 - A.Y. 2011-12: On the facts and in the circumstances of the case, the ld. CIT(A)-3, Indore, erred :- 1. in holding that highest of the adjusted NP ratio which comes to 4.76 % out of the five assessment years under consideration, rounded to 5.00 % be applied at uniform rate on the Total Receipts for each of the assessment years from assessment year 2008-09 to 2012-13, re....
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....P rate of 5% instead respective NP rate on the basis of audited accounts. Therefore, these grounds of appeal of Revenue and assessee are being discussed in consolidated manner and being disposed by this common order for the sake of brevity and convenience. 5. Briefly stated, the facts of the case are that the assessee is individual and belongs to Hotwani family of Mandsaur having source of income from business of agricultural commodities, share and profit in partnership firm, who also deal in agricultural activities and interest. The assessee is carrying on its business in the name of proprietory concern named and style as M/s. Ambika Trading Co. A search and seizure operation u/s 132 of the Act was carried out on 19.01.2012 at the business as well as residential premises of the assessee group. During the course of search, Shri Shiv Kumar Hotwani, father of the assessee being one of the senior members of the extended family has made an ad hoc surrender of Rs. 3 crores in the name of the assessee and out of overall ad hoc surrender of Rs. 14 crores for the group at his place of residence on behalf of his family. A search and seizure warrant u/s 132 was also issued in the name of ....
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....PS-14 to LPS-21 were found and seized from the residential premises of the assessee, which are writing pads containing various details of sales and purchases of garlic and onion. Therefore, the assessee was asked to explain the transaction appearing on the loose papers. In compliance thereof, the assessee filed his reply vide letter dated 17.02.2014, which has been reproduced by the AO at para 12.1 of his order. However, the explanation offered by the assessee was not found acceptable by the AO for the reasons that gross profit and peak theory can be applied where the assessee is able to substantiate all the receipts recorded in loose papers and papers were only in the nature of sales/turnover, are as elaborately discussed in para 12.2 of the assessment order. Briefly, the reasons for rejection of reply can be summarized, as the net profit rate applied on unaccounted receipts by the assessee was not found acceptable and also the assessee's theory of peak application and benefit of telescoping was not found acceptable as the same was according to the AO was not supported by proper documents. The AO also noted that the assessee has taken the credit of undisclosed income offered in ea....
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....(4) i.e. Rs. 3,00,00,000/-. No further addition is being made on this account. Aggrieved with the order, the assessee has filed the appeal before the CIT(A). 8. Before the ld. CIT(A), detailed submission was made by the assessee in respect of aforesaid year by taking various grounds of appeal, which have been reproduced by the ld. CIT(A) in the appellate order from para 4 - page nos. 5 to 15. The ld. CIT(A) has also reproduced the findings of the AO for not accepting the assessee's explanation at para 4.1 - page 15 to 16. The ld. CIT(A) noted that during the course of assessment proceedings, the assessee after going through each and every entry recorded in seized documents LPS-14 to LPS-21 worked out the total receipts and payment for every year which has been taken as the basis for making the addition of Rs. 5,88,15,870/- for assessment year 2008-09, Rs. 69,500/- for assessment year 2009-10, Rs. 81,76,821/- for assessment year 2010-11, Rs. 4,48,68,759/- for assessment year 2011-12 and Rs. 2,95,66,927/- for assessment year 2012-13 to the total income. In para 12 of the assessment order, the AO stated that LPS-14 to 21 are writing pad containing various details of sales and purch....
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.... one of the seized writing pads, dated 14/12/10 on the right hand top. There are four columns appearing on the page which divides the page into two parts. First two columns from the left side of the paper contain entries recorded for the brought forward balance of cash from the immediately preceding date and cash received during the day first column contains amounts written in figures and second column, a brief description for the nature of amounts received. Last two columns of the paper contain entries recorded for various payments made during the day and the closing cash balance to be carried forward to the next date - column third contains amounts written in figures and fourth column contains a brief description for the nature of amounts paid. Both the columns for amounts, viz. first and third columns, at their bottom have totals made which equals for the purpose of reconciliation of transactions at the end of the date. 4.5.12 The typed English version of the above referred paper available is as under :- 14-12-2010 Amount Description for Receipts Amount Description for Payments 124039 Cash 1000 Expenses 1000 SFD....
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.... reproduced in typed English version ­ Break up of labour paid for Rs. 32085 above - Amount Labour 1010 Yasmi 830 Rabiya 920 Salma 920 Shabnam 155 Mobin 415 Jambu 905 Ramkanya 1075 Sheela 1140 Manju 980 Guddi 925 Vishnu 1110 Sugan 565 Kamla 555 Lila 70 Dhapu 560 Geeta 950 Lal 450 Kamla 980 Hussain 880 Rusar 820 Sunil 670 Rusar 50 Jarina 380 Ruksana 110 Saeed 860 Kamla 510 Saeed 140 Bheru Amjad 1180 1380 Jayda 700 Rani 630 Sita 1245 Chanda 1155 Shanu 690 Anil 1330 Attarsingh 1540 Krishna 1060 Nepal Singh 1030 Shanu 300 Total 32085 4.5.15 Referring to another paper PB 153 (Vol. 01), it is a page of one of the seized writing pads, dated 09/07/10 on the right hand top. 4.5.16 The typed English version of the above referred paper available at PB 153 is as under- 09-07-2010 Amount Description for Receipts Amount Description for Payments 15565 Cash 550000 Mandi 550000 ATC 120 ....
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.... discrepancies, whereas the AO has considered higher of the two figures viz. higher of total receipts and total payments in each assessment year to make the addition as either unexplained receipts or unexplained payments as tabled in para 12.3 of assessment order. The ld. CIT(A) observed that she did not find any force in the approach of the AO for adding the entire receipts side or payment side of the seized papers by taking the higher of the two figures. Since recording of these unaccounted transaction is on day to day basis, containing date wise entries for payments of various expenses recorded against entries for receipts, with brought down and carry forward cash balance from the preceding day to the next day and each day balance recorded on seized papers matching. The CIT(A) has held that there is no justification and merit for the AO to add the entire receipts side or the entire payment side of the seized papers by taking the higher figure out of the two for each assessment year. The ld. CIT(A) further noted that the assessee has offered net profit element in the returns by applying the net profit ratio as per the audited accounts on the total receipts for the respective year....
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.... Nil Nil Nil Nil Total of Credit side of P & L a/c 21,514,574 20,355,020 16,471,955 14,566,755 10,898,360 Freight 5,477,229 6,794,953 4,174,072 4,412,056 1,829,294 Warehouse & cold storage charges, rent, etc. 550,198 474,265 310,245 318,343 205,404 Harnrnali Labour & Grading Charges 3,731,721 2,508,763 2,302,546 2,128,225 1,417,146 Salary Nil Nil Nil Nil Nil Insurance Nil Nil Nil Nil Nil Commission & Brokerage 1,403,594 1,140,299 1,305,923 587,706 1,320,472 Travelling expenses 14,204 100,012 12,900 57,068 53,215 Telephone expenses Nil Nil Nil Nil Nil Other Taxes(mandi profession, entry, etc) Nil Nil Nil Nil Nil Audit fees Nil Nil Nil Nil Nil Bank Charges Nil Nil Nil Nil Nil Discount 803,991 167,470 473,250 235,193 24,049 Electricity Nil Nil Nil Nil Nil Job work 325,400 81,280 205,025 127,630 Legal fees Nil Nil Nil Nil Nil Mandi Licence& Other Licence Nil Nil Nil Nil ....
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....ance, highest figure was taken as peak investment for the purpose of making addition towards unexplained expenditure, based on credit balance recorded in seized papers worked out peak credit as under :- Particulars A.Y.2008-09 A.Y.2009-10 A.Y.2010-11 A.Y. 2011-12 A.Y.2012-13 Date of peak credit for each year 19.10.2007 01.04.2008 29.09.2009 30.11.2010 20.07.2011 Peak credit during the year on the date mentioned above 6,61,708 1,56,490 2,24,012 72,40,388 71,53,418 8.3 From the table above, it is evidently clear that for the assessment year 2008-09, the initial peak credit of Rs. 6,661,708/- is to be added as unexplained expenditure after allowing credit of Rs. 6,61,708/- for assessment year 2008-09. 9. It is undisputed that the Assessing Officer also has given credit for the additional income already offered by the assessee while making additions to the total income. The claim of assessee for credit in subsequent years of additional income offered in preceding years is accepted as it has been claimed by the assessee and also allowed by the Assessing Officer on the premise that the said undisclosed income of the....
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.... 2,93,55,236 Date of peak credit for each year B 19.10.2007 01.04.2008 29.09.2009 30.11.2010 20.07.2011 Peak credit during the year on the date mentioned above C 6,61,708 1,56,490 2,24,012 72,40,388 71,53,418 Less: Initial payments recorded on the seized documents without any cash in hand or receipts (5th & 6th June 2007) D 1,39,787 - - - - - Less: Peak credit for preceding years already considered for addition E - - ­ 6,61,708 - Addition for Peak Credit F=C-D-E 5,21,921 65,78,680 - Addition for Initial payments recorded on the seized documents without any cash balance in hand or cash receipts(5th & 6th June 2007) D 1,39,787 - - - - Addition for Profit element on Total Receipts per adjusted NP Ratio@5% discussed above G=5% of 32,37,469 3,500 4,09,891 17,58,452 14,67,762 Total Additions H= F+D+G 38,99,177 3,500 4,09,891 83,37,132 14,67,762 Income already offered in the relevant year under consideration I 68,22,000 500 21,000 1,25,000 2,25,000 Income already offered in the prec....
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....,39,787 is already considered for addition towards initial payments without the availability of cash. Accordingly, the balance of Rs. 5,21,921 (6,61,708-1,39,787) is considered for addition towards peak credit as unexplained expenditure. 12.5 In the assessment year 2007-08, assessee has offered Rs. 6,00,000 in the return u/s 153A on account of discrepancies noticed post search. The total additional income offered -by the assessee in the returns filed u/s 153A for AY 2007-08 and 2008-09 is Rs. 74,22,000 (6,00,000+59,38,000+1,52,000+7,32,000) which constitutes his fund available with him, from which the assessee may draw subsequently for meeting the expenditure or introducing amounts in his account books. Accordingly, set off of Rs. 38,99,177 (1,39,787 + 5,21,921 + 32,37,469) is given out of the income of Rs. 74,22,000 already offered by the assessee resulting in Rs. 35,22,823 (74,22,000- 38,99,177) as credit balance available to the assessee for set off in the subsequent years. 12.6 Though income of Rs. 38,99,177 is sustained on account of entries in the seized documents LPS-14 to LPS-21 nothing gets added to the total returned income after giving credit from the a....
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....om the additional income already offered by and available to the assessee. 13.6 In summary, for the assessment year 2009-10, as stated above, following amount is considered for addition to the total income of the assessee - Net profit @5.00 % Rs. 3,500 Less: Credit from income already offered Rs. 3,500 Addition sustained Nil Addition made by the AO Rs. 69,500 Addition sustained Nil Relief given to the assessee Rs. 69,500 13.7 Ground Nos. 2 (a) to 2 (f) are therefore allowed. 14. Assessment Year 2010-11 14.1 The income disclosed in the regular return of income filed is Rs. 4,60,850. Additional income of Rs. 21,000/- is offered on account of profit element based on NP ratio in the return filed u/s 153A. Thus total income offered in the return u/s 153A is Rs. 4,81,850. 14.2 Total receipts for the year are Rs. 81,97,821 on which the assessee has offered net profit of Rs. 21,000 considering NP Ratio of 0.25% as per the audited P&L account for the year. As discussed above, considering the adjusted NP Ratio @ 5% on total receipts of Rs. 81,97,821, the net profit comes to Rs. 4,09,891. The assessee has already offer....
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....it is Rs. 72,40,388 which is considered for addition. However, in AY 2008-09, the amount of Rs. 6,61,708 has already been considered towards peak credit addition. Accordingly, credit is given for Rs. 6,61,708 and balance of Rs. 65,78,680 (72,40,388-6,61,708) is sustained as addition for peak credit in AY 2011-12 as unexplained expenditure. 15.4 For the impugned Assessment Year 2011- 12, the addition of Rs. 17,58,452 is considered towards undisclosed income on account of net profit and Rs. 65,78,680 towards peak credit as unexplained expenditure, totalling to Rs. 83,37,132. 15.5 The assessee already has a balance of Rs. 31,30,932 brought forward from AY 2010-11 and Rs. 1,25,000 has been offered in the current year in the return u/s 153A towards profit element. Accordingly, after giving credit of Rs. 32,55,932 (31,30,932+1,25,000), the balance of Rs. 50,81,200 (83,37,132-32,55,932) is considered for addition in A.Y. 2011-12. 15.6 In summary, for the assessment year 2011-12 following amounts are considered for addition to the total income of the assesseeI. Net profit @5.00 % Rs. 17,58,452 Peak credit on 30.11.2010 considering credit already offered ....
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....he Assessing Officer since it is evident from the descriptive narratives dealt above for certain representative seized loose papers that cash balance for each day is carried forward to the next date and is available for payment transactions. The process of carry forward of cash is continuous and on day-to-day basis. 17.1 Accordingly, balance of cash from the preceding day and the cash received during the day were available as source for meeting the payments each day. Thus the source of expenditure incurred is available on the same page of the seized paper where the said expenditures/payments are recorded. 17.2 Also, the Assessing Officer has arrived at the amount of addition by taking higher of the Total Receipts and Total Payments. Where the 'Total Payments' have been considered for making addition as Unexplained Expenditure by the Assessing Officer, their source is self-explained from the 'Total Receipts' which the Assessing Officer did not consider. Accordingly, the ground no. 2(g) taken by the assessee on application of Section 69C is allowed in favour of the assessee for assessment years 2008-09 to 2012-13." 14. Aggrieved with the findings ....
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....rofit element and other misc. discrepancies noticed. For arriving at profit element, the net profit ratio as per tax audit report for the respective years were used since the assessee dealt in the same agricultural commodity i.e. Garlic and Onion for both accounted transaction dealt in audited accounts and those not accounted dealt in seized papers. However, the AO proceeded solely on the basis of details furnished by the assessee to make addition of 'higher figure out of the unrecorded receipts or unexplained payments. The Ld. Counsel for the assessee contended that the highest of the adjusted net profit ratio of 4.76 % rounded to 5% and not considering the net profit ratio as per audited profit and loss account not correct when the assessee is trading in agricultural products and same is only source of income of the assessee. The ld. CIT(A) after calling the remand report from the AO and perusing the voluminous seized material as well as submissions made before the AO, computed the adjusted NP ratio by taking a view that certain expenses are not incurred in the conduct of business transactions which are not accounted in regular books of account, whereas the assessee has offered n....
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...., accordingly, there is no merit in the grounds of the appeal of the Revenue with regard to this issue and ,accordingly, dismissed." The Ld. Authorized Representative of the assessee further cited decision in the case of Nem Chand Daga [2005] 1 SOT 515 (Delhi Trib.), wherein it was held that "whether when a material seized has to be relied upon, entire content appearing on it should be considered and department cannot ignore some of entries which do not suit it and accept other". Further, reliance was also placed in the case of Ishwardass Mutha [2004] 141 Taxman 555 (Raj), "where the Assessing Officer made an addition to income of assessee on account of unexplained investment in money lending business - Said addition was made by Assessing Officer by taking into account debit side only - On appeal, Tribunal reduced amount of addition sustaining only to extent of peak credit only - Whether, in view of above facts, no referable question arose from order of Tribunal for consideration - Held, yes." 18. We have considered the facts, rival submissions and perused the material available on record. We find that Shri Shiv Kumar Hotwani, father of the assessee had made a disclosure of Rs. ....
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....2 (Ahm.Tri), Jagdish Narayan Ratan Kumar, (2015) 61 taxmann.com 173 (Raj), wherein it was held that when addition of disclosure made by the assessee in statement recorded u/s 132(4), it cannot be sustained despite retraction, when Revenue could not furnish any positive evidence in support of such addition. Therefore, we are unable to uphold the findings of the AO and inclined to agree with ld. CIT(A). Further, the Hon'ble Rajasthan High Court in the case of Jagdish Narayan Ratan Kumar (supra) has held that statement made during search must be correlated with records, which are found and if there is no ambiguity, explanation given by the assessee should be taken into consideration before making assessment. Thus, based on these decisions, we are of the opinion that the addition made by merely based on statement u/s 132(4) without linking to the seized books of accounts, other documents, money, bullion, jewellery, other valuable articles or things is not sustainable in law. We also find that the ld. CIT(A) has held that the assessee has surrendered Rs. 75,68,500/- + Rs. 2,25,000/- as an additional income and further addition of Rs. 50,81,200/- is confirmed, hence, further addition....
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.... AO was not justified in making the addition of the entire receipts/payments whichever is higher without allowing peak and set-off.. We are of the considered opinion that when entire entries of seized documents are to be considered, it cannot be taken in part or peace-meal and whole document should be considered as a whole. We find that the seized material, documents were found during the course of search, therefore, the entries recorded thereon whether it is a receipt or expenditure, has to be accepted as genuine. Therefore, for taxing, the real income is required to be taxed and not the receipts when document contains receipts and expenditure. Therefore, we are of the considered view that the peak of the debit and credit entries of the seized documents is to be considered and set off of carried forward, disclosure or income being taxed either being accounted or unaccounted income is to be allowed. Therefore, to this extent, we find that the findings given by the ld. CIT(A) is justified. We find support from the decision of the Hon'ble High Court of Gujarat in the case of Tirupati Construction, (2015) 55 Taxmann.com 308 (Guj), relied upon by the ld. Authorized Representative o....
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.... 6,47,49,380 70,000 81,97,821 3,51,69,030 2,93,55,236 Date of peak credit for each year B 19.10.2007 01.04.2008 29.09.2009 30.11.2010 20.07.2011 Peak credit during the year on the date mentioned above C 6,61,708 1,56,490 2,24,012 72,40,388 71,53,418 Less: Initial payments recorded on the seized documents without any cash in hand or receipts (5th & 6th June 2007) D 1,39,787 - - ­ - Less: Peak credit for preceding years already considered for addition E - - - 6,61,708 - Addition for Peak Credit F = C-D-E 5,21,921 - - 65,78,680 - Addition for Initial payments recorded on the seized documents without any cash balance in hand or cash receipts (5th & 6th June 2007) D 1,39,787 - - - - - Adjusted net profit rate as Worked out by the ld. CIT(A) 2.85 % 4.76% 3.27 % 2.51% 3.73 % Addition for Profit element on Total Receipts as per adjusted NP Ratio-given in above column discussed above G 18,45,357 3,332 2,68,069 8,82,743 10,94,950 ....