9911796707
TMI Blog2013 (12) TMI 712X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessee are bogus - The AO presumed that these bank accounts belonged to the Assessee - The amount withdrawn by a person from his bank account cannot be regarded to be his income - Under Sec. 4 of the Income Tax Act the income tax is chargeable only on the real income - The amount withdrawn from the bank account represents only the current asset of the Assessee – Decided in favour of assessee. Undisclosed cash payment – Held that:- The Assessee has disclosed only a sum of Rs.6,31,00,000/- during the year as undisclosed income of the Assessee - The Assessee had made cash payment during the year amounting to Rs. 8,50,39,441 - Until and unless the income is earned by the Assessee, the Assessee cannot make the payment - Income is earned by the Assessee prior to making of the cash payment - The Assessee has not utilized the income for making the cash payments - The income declared by the Assessee in the subsequent year cannot cover the cash payments made by the Assessee during the year - Therefore, out of the cash payments of Rs. 8,50,39,441/-, we allow telescoping only to the extent of Rs. 6,31,00,000/- - Partly allowed in favour of assessee. Unaccounted sales – Held that:- The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms which were without bills were shown by the assessee in his books of accounts as if the assessee has made purchases from various parties - The sales made by the assessee were duly accepted by the revenue - At the most, where the Assessee had saved any tax in procuring the bogus bills, the Assessee could have made more profit but the purchases made by the Assessee cannot be disallowed - The gross profits as per the books of assessee were 16.35% and 6.06% for the assessment year 2007-08 and 2008-09 respectively - Once the purchases are disallowed the gross profit will increase to 50.9% and 90.7% for the assessment year 2007-08 and 2008-09 respectively - No material or evidence whatsoever showing the comparative instance was produced before us to justify such a high gross profit - No addition on account of bogus iron ore purchases can be made as without procuring the iron ore by incurring the cost in our opinion the assessee cannot sell the iron ore - The revenue could have added the profit on such purchases @ 4% as the assessee categorically stated that he was carrying out the sales on behalf of Shri Anil H. Lad on commission basis and the evidences found during the course of sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of expenditure and that these expenses were incurred by the appellant. The appellant never incurred or spent any such amount and therefore the addition, having been made on the wrong premise and being erroneous both on facts and law is to be deleted. 6.3 In any case the enhancement as made by Commissioner of Income-tax (Appeals) being bad in law is to be deleted." 4. In the A.Y. 2005-06, ground nos. 1 to 5 and ground no. 8 was not pressed and therefore the only effective grounds remaining for adjudication reads as under : "6.1 The learned Assessing Officer had erred in adding a sum of Rs.1,69,768/- u/s. 40A(3) of the Act and the learned Commissioner of Income Tax (Appeals) had erred in enhancing this amount of Rs. 81,05,775/- holding that the entire expenses is not accounted and hence the entire amount liable is to be added to the income of the appellant, though no separate addition is sustained on this count by the Commissioner of Income-tax (Appeals) on account of Telescoping. 6.2 The lower authorities have erred in holding that the scribbling in the seized documents were in the nature of expenditure and that these expenses were incurred by the appellant. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income-tax (Appeals) has erred in confirming the same. 5.2 The lower authorities have erred in holding that the appellant had control over the bank accounts. Further the lower authorities have also erred in holding that the expenses claimed by the appellant are bogus to the extent of amounts withdrawn from the bank. This conclusion of the lower authorities being without basis and being only on surmises and conjectures are to be totally ignored and additions as made by Assessing Officer and sustained by Commissioner of Income-tax (Appeals) is to be deleted." 6. In the A.Y. 2007-08, ground nos. 1 to 4 and 12 were not pressed and therefore the effective grounds remaining for adjudication reads as under : "5.1 The learned assessing officer has erred in holding that a sum of Rs. 1,85,63,104/- is liable to be disallowed u/s. 40(A)(3) of the Act, though no disallowance is made after telescoping the same against declaration made by the appellant. 5.2 The learned Commissioner of Income-tax (Appeals) has erred in making a fresh addition of Rs.9,28,15,521/- by way of enhancement of income holding that the entire expenses are not accounted and hence the entire amount is to be ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is account as sustained being totally bad on fact and in law, requires to be deleted. 8.1 The learned Assessing Officer has erred in holding a sum of Rs. 1,43,000/- as unexplained investment in plots and learned Commissioner of Income-tax (Appeals) has erred in confirming the same. There were no unaccounted investment in plots and therefore the addition being bad in law and on facts is to be deleted. 8.2 In any case and without prejudice the addition is excessive and in any case it requires to be telescoped. 9.1 The learned Assessing Officer had erred in making an addition on protective basis of Rs.5,88,72,447/- and on substantive basis Rs.7,25,86,033/- as bogus purchases and the learned Commissioner of Income-tax (Appeals) has erred in confirming this entire addition as substantive addition in the hands of the appellant. The addition as made and sustained being wholly erroneous on fact and in law be deleted. 9.2 In any case the addition as sustained is erroneous and excessive. 10.1 The learned Assessing Officer had erred in adding a sum of Rs.86,97,774/- as suppressed undisclosed income. On account of difference between the net profit shown in the balance sheet seized and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the Income-tax Department. The addition was made on conjecture and hence being without basis and confirmed by Commissioner of Income-tax (Appeals) also without basis requires to be deleted. 7.1 The learned Assessing Officer had erred in making an addition of Rs.43,00,000/- (39,09,130 + 3,90,870) as income on account of unexplained investment in purchase of iron ore and profit on such unaccounted sales. The addition as made by Assessing Officer being wholly on suspicion and surmises was wholly erroneous. 7.2 The learned Commissioner of Income-tax (Appeals) had however restricted the above addition to 4,30,000/- only by holding that the appellant had made a unaccounted turnover of Rs.43,00,000/- on behalf of third person and that on such turnover be made a profit of 10%. 7.3 The conclusions drawn by Commissioner of Income-tax (Appeals) based on various observation in the course of appellate order are absolutely without any bases the observations are totally unsubstantiated and are therefore to be totally ignored. 7.4 The addition on this account as sustained being totally bad on fact and in law, requires to be deleted. 8.1 The learned Assessing Officer had erred in making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies but made a disallowance on protective basis, the substantive addition being in the hands of the individual parties. The Assessee went in appeal before CIT(A). CIT(A) noted that the Assessee has been dealing in electronics under the name of M/s. Mahaveer Electronics as its proprietor. The Assessee's turnover and business income declared in respect of business of M/s. Mahaveer Electronics has been primarily accepted by the AO. In addition, the Assessee is also dealing in iron ore in the name of M/s. Guru Rajendra Mineral Trading Company. The profits from this business have been declared under the name of M/s. Guru Rajendra Mining Company, M/s. Guru Rajendra Mineral Processing Company and M/s. Rajendra Transport Company. The CIT(A) also noted that the financials of the business carried out in the name of these 3 concerns are merged in the financials of M/s. Guru Rajendra Mineral Trading Company which is the consolidated result of all other mining related businesses. A.Y 2004-05 - 9. The only issue remains for adjudication before us in A.Y 2004-05 is the disallowance made by the AO u/s 40A(3) sustained by CIT(A) on other ground. The facts relating to this ground are that as per s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments, worked out the details in respect of payments above Rs. 20,000/- at Rs. 8,48,843/-. The AO verified the same and found that the payment made by the Assessee in excess of Rs. 20,000/- relating to the impugned year are Rs. 8,48,843/- and therefore, he disallowed 20% thereof amounting to Rs. 1,69,768/-. When the matter went before CIT(A), CIT(A) enhanced the disallowance. CIT(A) took the view that these expenditure have been incurred outside the books of accounts. Therefore, CIT(A) after giving opportunity to the Assessee vide letter dt. 6.5.2013, enhanced the addition to Rs.81,05,775/- even ignoring the fact that the total payment made by the Assessee during the impugned assessment were Rs. 8,91,043/- which includes sum of Rs.8,48,843/- which were in excess of Rs.20,000/-. But CIT(A) since made the addition amounting to Rs.2,88,25,000/- on account of amount withdrawn from the bank allowed telescoping of this addition against that addition. 10.1 We have heard the rival submissions and carefully considered the same. We noted that these expenses have been incurred by the assessee outside the books of accounts. Details of these expenses/payments alongwith vouchers were fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perated through Bank of India, Hospet were found. The passbooks and the cheque books of these bank accounts which were lying with the Assessee were seized. The seized documents were marked GRM/1-GRM/26. Details in respect of each of the bank accounts and the year covered by the bank account are given at pg. 6-8 of the assessment order. On the basis of these details, the AO noted that the Assessee has withdrawn the following amounts totalling to Rs. 9,32,77,760/- in different financial years :- F.Y 2004-05 Rs. 2,88,25,000/- F.Y 2005-06 Rs. 1,47,48,900/- F.Y 2006-07 Rs. 4,96,39,000/- Total Rs. 9,32,77,760/- On this basis the AO asked the Assessee why the amount so withdrawn should not be treated as income of the Assessee, the Assessee explained that the said bank accounts belonged to independent transport operators and they are not associated with the concern of the Assessee in any capacity except as transport operators. Copies of the ledger accounts of the transport operators were filed. It was stated that these transport operators are not employees of the Assessee and same can be cross-verified from the schedule of Salaries given in the financial statement. He stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese accounts bogus. All these account holders are in existence, available and regular tax payers. These persons have duly filed their respective returns. These persons have confirmed that all the relevant bank accounts belonged to them only. The bank accounts are duly reflected in the balance sheet filed by each of the account holders. All these persons are transport operators who worked for the Assessee transporting the goods dealt in by the Assessee. The Assessee in order to comply with the law and in order to make the transporters have their operations through banking channel assisted them in opening the bank accounts. The fact that the appellant encouraged transaction through banking channel and tried to avoid cash transaction should be appreciated instead of being condemned. The transporters are away from their business place for various reasons. The Assessee offered the services of its staff to offer banking transaction for the transporters. The cheque leaves, passbooks etc. were found in the Assessee's premises due to this reason. It is also incorrect to state that the Assessee or his employees withdrew the cash from these accounts. There is no such evidence being found or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee from the bank account is deemed to be his income. The amount withdrawn by a person from his bank account cannot be regarded to be his income. Under Sec. 4 of the Income Tax Act the income tax is chargeable only on the real income. The amount withdrawn from the bank account represents only the current asset of the Assessee. On this very basis, the addition so made is liable to be deleted. We, therefore, set aside the order of CIT(A) and delete the addition in respect of the amount withdrawn from the bank accounts of the Assessee in each of the A.Y. 2005-06, 2006-07 and 2007-08. Thus, ground no. 7 in the A.Y 2005-06 is allowed. A.Y 2006-07 - 12. As ground nos. 1 to 3 and 6 & 7 were not pressed, therefore, there remains only 2 grounds i.e. ground nos. 4 & 5 for our adjudication. 13. Ground no. 4 relates to the sustenance of the addition made by the AO u/s 40A(3) amounting to Rs. 11,17,400/-. The brief facts relating to this issue are that as per the seized document marked A/MJ/7 dt. 1.4.2008 it was noticed that the Assessee made cash payment amounting to Rs.2,68,97,758/-. The AO, therefore, sought an explanation from the Assessee for disallowing 20% of the same amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be treated as expenditure in respect of which the source stands explained and it is only the addition for the balance amount amounting to Rs. 27,97,758/- (Rs. 2,68,97,758 - Rs. 2,41,00,000) to be treated as unexplained and can be added to the income of the Assessee. To that extent, we delete the addition. So far as the telescoping allowed by CIT(A) to the extent of Rs. 1,47,48,900/- is concerned, we have already deleted the addition in respect of the withdrawal made from 25 bank accounts while dealing with ground no. 7 in A.Y. 2005-06. Therefore, the telescoping for Rs.1,47,48,900/- can no more be allowed to the Assessee. We, accordingly, sustain the addition only up to the sum of Rs. 27,97,758/-. Thus, this ground is partly allowed. 14. Ground no. 5 relates to sustenance of the addition of Rs. 1,47,48,900/- being the amount withdrawn from 25 bank accounts. This addition has been made by the AO on the basis of the 25 bank accounts which were treated to be bogus bank accounts on the basis of withdrawal from these accounts amounting to Rs. 9,32,77,760/- during the A.Y 2005-06 to 2007-08. Both the parties agreed that whatever view this Bench may take on this addition during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accounts were already covered by the declaration made by the Assessee. Our attention was drawn towards the declaration made by the Assessee and it was pointed out that the correct amount in respect of cash payment as per seized document A/MJ/29 for impugned A.Y. was Rs. 8,50,39,441/-. In this regard, our attention was drawn towards the declaration made by the Assessee dt. 20.11.2008 before the Asst. Director of Income-Tax (Inv.). It was pointed out that there were 3 cash payments in Annexure A/MJ/38 which relate to A.Y. 2008-09. There were cash payments as per the revenue of Rs.7,90,97,320/- for assessment year 2008-09 which contains duplicate entries at pg. 4 & 5 for Rs. 3 crores. The net cash payments were only Rs. 4,90,97,320/- for the assessment year 2008-09. The cash payment as per Annexure A/MJ/29 for A.Y. 2006-07 were Rs. 2,68,67,758/- while the cash payment for the impugned A.Y as per Annexure A/MJ/29 were Rs. 8,50,39,441/- and not Rs.9,28,15,521/-. All these three cash payments were duly considered by the Assessee while making the declaration. It was pointed out that the Assessee has declared a sum of Rs. 16,10,04,519/- as his undisclosed income. Rs. 11 crores were decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2 The ld. DR on the other hand, contended that no doubt the Assessee had submitted letters before the Asst. Director of Income-Tax (Inv.) dt. 23.4.2008 and 20.11.2008 making the total disclosure of Rs. 16,10,04,519/-. The sum of Rs. 11 crores were disclosed vide letter dt. 23.4.2008 while the sum of Rs.5,10,04,519/- were declared vide letter dt. 20.11.2008 and while working out the additional income of Rs. 5,10,04,519/- the Assessee has mentioned cash payment for the impugned A.Y as per Annexure A/MJ/29 at Rs. 8,50,39,441/- but in fact the Assessee has disclosed only a sum of Rs. 6.31 crores for the impugned A.Y. Our attention was drawn towards para 6 of the letter dt. 20.11.2008 and it was pointed out that as per this letter, the Assessee has given the year-wise break-up of the income disclosure as under : Rupees in crores Asst year Stock Inadmissible Expenditure Admissible Expenditure Book Reconciliation diff with VSL Total (In Rs) (In Rs) (In Rs) (In Rs) 2006-07 2.41 2.41 2007-08 6.00 0.23 0.08 0.00 6.31 2008-09 6.41 0.83 0.14 7.38 Our attention was also drawn towards copy of the computation statement for the returns submitted by the Assessee in the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006-07 2.41 2.41 2007-08 6.00 0.23 0.08 0.00 6.31 2008-09 6.41 0.83 0.14 7.38 We have also gone through the statement of total income computed by the Assessee and filed before the AO alongwith the return filed in response to notice issued u/s 153A. As per the said return also (copy of which is available in the paper book), we noted that the Assessee has disclosed only a sum of Rs.6,31,00,000/- during the year as undisclosed income of the Assessee. It is undisputed fact even as per the assessee, that the Assessee had made cash payment during the year amounting to Rs. 8,50,39,441/-. Additional income which has been disclosed by the Assessee during the aforesaid assessment year is only Rs. 6,31,00,000/-. At the most, at the most the sum of Rs.6,31,00,000/- can be said that during the year only a sum of Rs. 6,31,00,000/- were available with the Assessee to cover up the cash payment made by the Assessee outside the books of accounts. Until and unless the income is earned by the Assessee, in our opinion, the Assessee cannot make the payment. Income is earned by the Assessee prior to making of the cash payment. It cannot be said that the Assessee has utilized the income for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing Rs.39,09,130/- during the assessment year 2008-09. The brief facts relating to this ground are that during the search document marked as A/MJ/29 dt. 2.4.2008 was seized and on that basis, the AO noted that the Assessee has made unaccounted cash sales to the extent of Rs.22,35,21,842/- detailed as under :- SI. No. Document No. Particulars Unaccounted cash sale A.Y. 1 A/MJ/29 dated 2/4/2008 Unaccounted cash sales made to 35 different parties 18,01,25,800 2007-08 2 A//MJ/29 dated 2/4/2008 PAGE No. 22 to 24 Unaccounted cash sales (hand written extract without name of the party) 4,33,96,042 2007-08 TOTAL 22,35,21,842 The AO further noted that during the impugned A.Y, the Assessee has declared the net profit at 3.84% but during the A.Y. 2006-07, the net profit was 14.33%. The AO, therefore, after giving opportunity to the Assessee applied net profit @ 9.09% on unaccounted sales of Rs. 22,35,21,842/- and added the sum of Rs.2,03,18,135/- into the income of the Assessee. The AO, after deducting from the unaccounted sales the net profit estimated by him, worked out the unrecorded purchases at Rs.20,32,03,707/- and added the same as unexplained investment. Similarly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash sales. The unaccounted cash sales as per the documents seized being A/MJ/29 which contains the details for both A.Y 2007-08 and 2008-09 were only Rs. 22,35,21,842/- for the impugned assessment year as has been worked out by the AO. In this regard, our attention was drawn towards the remand report of the AO dt. 29.4.2013 particularly at pg. 217-219 of the paper book. It was pointed out that it is apparent from the seized records that the Assessee is providing bills to Anil Lad's concern and he was only getting Commission between 2-4%. Even the AO has also accepted this fact in the remand report at para 2 in pg. 204 which reads as under : "2. Various incriminating documents found during the course of Search and seizure proceedings and post search investigations conducted in this case revealed that Sri. Manoj Kumar Jain was acting as an agent for Anil Lad group of concerns to regularize their unaccounted illegally extracted iron-ore and sale thereof through his own concerns. Such unaccounted and illegally extracted iron-ore was brought to the market as purchases from unregistered dealers in the concern of Sri. Manoj Kumar Jain. The sales proceeds received in cheques on such sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was providing accommodation entries to Shri Anil Lad and his firm, the mining lease do not belong to the assessee, but he simply estimated the profit @ 10%. Even no comparative instance was brought on record to justify the adaption of profit @ 10%. Reliance was placed on the following decisions for the proposition of law that in respect of undisclosed sales, it is only the net profit element which can be added:- CIT vs. Aggarwal Engineering Co. 302 ITR 246 (P&H) CIT vs. Gurubachan Singh Juneja, 302 ITR 63 (Guj) CIT vs. Dhani Ram, 326 ITR 394 (P&H) CIT vs. Samir Synthetics Mill, 326 ITR 410 (Guj) It was pointed out that the CIT(A) ultimately enhanced the sale and estimated the profit by applying enhanced net profit rate. This amounted to enhancement of the income. As per section 251, CIT(A) was bound to give notice to the assessee before making any enhancement. No notice for enhancement of the sales or profit was given by the CIT(A). On this basis itself, the enhancement be quashed. 18.3 The ld. DR, on the other hand, relied on the order of CIT(A). On a query from the bench by referring to pg. 38 of the paper book as to from where CIT(A) has taken the quantity of purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to Mr. Anil H Lad and his concerns e. Transactions noting which clearly mentions that Mr. Manoj Kumar Jain has acted on instructions of Sri. Anil Lad and his employees with regard to various unaccounted transactions. f. Copy of agreement duly signed by Mr. Anil Lad with regard to profit sharing with Mr.Manoj Kumar Jain for trading of iron ore extracted from B R Yogendranath Singh mines. g. Further the various sworn statements recorded from Mr. Manoj Kurnar Jain given the transaction details with Anil lad group of cases." In para 5 of the remand report, it is specifically mentioned by AO that the evidence found and seized and marked as A/MJ/29 at pg. 51-56 from the premises of Shri Manoj Kumar Jain contains the details of the agreement entered into on 7.10.2005 for marketing and profit sharing on the sale of the iron ore extracted from the mines belonging to B.R. Yogendra Nath Singh between Shri Anil H. Lad, Shri Manoj Kumar Jain and Shri K. Shamshulhaq Khan. Copy of the agreement was placed before us and is available at pg. 181-182 of the paper book. As per this agreement, we noted that the Assessee is entitled for 20% of the profit for the services rendered by him for taki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uter hard disk marked A/MJ/77 was also seized from the office premises of the Assessee. This contains information in Excel at pg. 216-217. From the statement for the months of August to December, the AO mentioned that the Excel statements contained details of cash payment as well as cheque payments and unaccounted cash sales. Even it has also been clearly mentioned that the Assessee is paying Commission @ 4% for procuring the bills as per the instructions of Shri Anil H. Lad. The quantum of charges paid for procuring such bills for these months has also been mentioned and given in the remand report. In respect of Annexure A/MJ/29, the AO mentioned in the remand report that it contains details of iron ore sales by GRMTC (the proprietorship concern of the Assessee) to various parties during the F.Y 2006-07 and 2007-08 and the Assessee has used the code CQ for cheque and CC for cash sales. In the statement recorded on 5.4.2008 the Assessee confirmed that CC means unaccounted cash sales. Details of these unaccounted cash sales are the same as reproduced earlier amounting to Rs.22,35,21,842/-. In the remand report, the question answer of the statement recorded on 2.4.2008 has been produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in seized material as CC sales. 24.6.08 : Ques no. 4 During the course of search proceedings the computerized data available in the computers kept in your office was seized in the form of CD's /hard disc. During the course of post search proceedings the computerized data has been verified and print out of certain incriminating documents were obtained. I am showing you some of the computer print outs of such data in the form of excel sheets. These sheets are clubbed under the head "Annexure E". You are requested to go through the page no 2 and 31. Please go through the same and offer your comments with reference to question no. 3. Ans. I have already admitted in my earlier statements recorded u/s 132(4) and 131 during the course of search and seizure proceedings and post search investigations that I was operating the mines of Sri. Anil H Lad group of concerns. While doing their business a part of the transactions are routed through M/s GRMTC for which I got only commission of 2 to 4 % for accommodating part of their business. The transactions mentioned by you in ques no. 2 are also of the similar nature i.e accommodation only and myself nor my staff member got more than 2 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Shri Anil H. Lad for selling his unaccounted, illegally extracted iron ore and the sale proceeds so received was also delivered by him to Shri Anil H. Lad or being utilized for making the payments on behalf of Shri Anil H. Lad or his group concerns. This fact is apparent from the cash payment made outside the books of account found during the course of search. The Assessee was simply getting Commission on these unaccounted sales. The AO has worked out the figure of the unaccounted sales for the impugned A.Y at Rs. 22,35,21,842/- and estimated profit @ 9.09%. The CIT(A) has enhanced the unaccounted turnover to Rs. 29,25,88,981/- and even estimated profit @10%, though accepted the explanation of the Assessee with respect to the cash sales outside the books that these pertained to Shri Anil H. Lad and he has only earned a profit margin of certain percentage of these sales, merely by observing that the Commission of 2-4% claimed by the Assessee is too small. CIT(A), we noted, even increased the quantum of the sales even though no notice for enhancement was issued by CIT(A). The provisions of Sec. 251(2) which are very clear and mandatory stipulates that the CIT(A) shall not enhance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Department may like. Once CIT(A) was not agreeing with the statement of the Assessee, in our opinion, the onus lies on the revenue to prove that the Assessee has earned profit @ 10%. The search in the case of the Assessee had taken place on 25.3.2008. During the impugned A.Y, the Assessee has shown net profit @ 3.84%. So far as the unaccounted sales are concerned, in our opinion, once the revenue has found the statement of the Assessee to be correct that the Assessee was engaged in unaccounted sales to accommodate the illegal mining carried out by Shri Anil H. Lad, there cannot be any falsity in the statement of the Assessee that the Assessee was earning Commission on this unaccounted sales from 2-4%. The revenue cannot be permitted to blow hot and cold whenever they like. The estimation of the profit cannot be at the whims of the A.O that he may apply any rate of profit. The estimation of the profit must be based on the material evidence found during the course of search or as may be gathered by the A.O to support that the estimate made by the A.O is not arbitrary and is bonafide. This is a settled law that part of the statement cannot be accepted as true and the other part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessee. It was generated in Tally package before passing the final entries. The statement of the Accountant was also recorded on 6.11.2009 and the Accountant also stated these facts. It was merely a rough unaudited tally data and does not represent the true and fair view of the profit shown by the Assessee. 19.2 The ld. DR, on the other hand, relied on the order of CIT(A). 19.3 We have heard the rival submissions and carefully considered the same. We have also perused the print out of the Balance sheet seized during the course of the search, copy of which was filed before us. From this print out of the Balance sheet it is apparent that this Balance sheet is subject to Audit and was not signed by any of the responsible persons. It does not contain the Profit & Loss Account. Only on the Liabilities side of the Balance Sheet, Profit & Loss for the current year is mentioned. It is a normal practice that the print out of the Balance Sheet subject to passing of the final entries is taken out and the Balance Sheet is finalised only after passing the closing entries. The Balance Sheet so found and seized, in our opinion, does not have any conclusive evidence on the basis of whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineral Traders 40,815,840.00 2,142,832.00 03 Balaji Impex 143,993,357.00 7,559,651/ 3,933,590.00 Similarly, additions were made for bogus purchase on substantive basis alongwith the profit thereon in respect of the following parties : Purchases made from the following parties treated as bogus for A.Y. 2007-08 SI. No. Name of the Party Amount Profit thereon 01 Prime Zak Mines & Minerals 9,360,000.00 491,400.00 02 Raghavendra Agencies 15,500,00.00 813,750.00 03 Sairam Associates 12,409,800,00 651,515.00 04 Venkateshwara Minerals 31,637,450.00 1,660,966.00 Purchases made from the followinq parties treated as bogus for A.Y. 2008-09 SI. No. Name of the Party Amount Profit thereon 01 Prime Zak Mines & Minerals 42,633,200.00 22,43,572.00 02 Gulab Shah Traders 42,557,580.00 22,34,272.00 03 Raghavendra Agencies 32,110,000.00 16,85,775.00/ 37,81,037.00 04 APN Enterprises 166,447,840.00 87,38,512.00 05 Shakambari Trading Co., 78,916,831.00 41,43,133.00 06 S R Trading Co., 29,642,500.00 15,56,231.00 07 M/s Harihant Enterprises 29,622,500.00 15,55,181.00 08 M/s Hemant Trading Co., 29,635,000.00 15,55,838.00 09 Sai Minerals 220 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ü Benefit of URD purchase on purchase of Rs.5 crores is decided to be given at the rate of 0.25% i.e., Rs. 1,25,000 on the purchase of Rs.5 crores. ü VAT and Income Tax will be paid by GRMTC. Capital will be retained by GRMTC. ü Employee will be given either benefit of loading or benefit URD which will be decided on quarterly basis and the benefit amount will be kept in FD for 3 years compulsorily. ü Monthly expenses from Rs.13,000 to Rs.20,000 will be given to employees which includes salary, rent, office expenses, petrol, mobile and stationery. ü Per file sales tax will be given at Rs.1500. ü Per file Income Tax of Rs.5,000 will be given. ü VAT cheque statement to be given for transferring of funds and issuing cheques. ü All the required vouchers will be maintained and handed over within 30 days of every month. Some of the employee's names are also written on these pages. They are none other than so called proprietors of various bogus entities from which the assessee has shown as he has made unregistered purchases. Name written on the seized material Name of the Proprietary concern shown in the books Ashok Ashok Chajjer Jain Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and Bhavani Enterprises. Letters/summons were duly served by the AO. These parties appeared before the AO. Even their statements were also recorded. Even these parties have filed their income tax returns before issuance of notice u/s 153C. All the sales made to the Assessee are duly shown. The total purchases from the unregistered dealers are much less. Within the group, purchases are to the extent of Rs. 33,75,75,865/- while the total purchases made by the Assessee in both the years is Rs. 89,06,89,046/-. Our attention was also drawn towards the sales tax return filed by these concerns as well as their Trading Account which are appearing from pg. 152-165 of the paper book. On this basis, it was contended that in some cases the employees of the Assessee may be the proprietor but all these concerns are genuine concerns. In respect of the rest of the concerns, our attention was drawn towards the order of the A.O and it was stated that all these concerns are income tax Assessees and are being regularly charged to income tax. Even otherwise, it was contended that the Assessee has submitted the quantitative statement of the purchases and sales of the iron ore which was duly verified b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belong to the owner of the mine. In this regard reliance was placed on the decision of Hon'ble Supreme Court in Civil Appeals Nos. 4540-4548 of 2000 in the case of Threesiamma Jacob & Ors vs Geologists, Dptt. Of Mining & Geology & Ors in which Hon'ble Supreme Court vide order dated 8th July, 2013 Hon'ble Supreme Court held under para 57 of its order that ownership of sub-soil/mineral wealth should normally follow the ownership of the land, unless the owner of the land is deprived of the same by some valid process. Even in this case the Hon'ble Supreme Court was of the opinion that there is nothing in law which declares that all mineral wealth sub-soil rights vest in the state. Before us copy of the trading account for both the years ended as on 31.3.2007 and 31.3.2008 were filed and it was contended that the gross profit during the year 31.3.2007 as per the books comes to 16.5% while for the year ended 31.3.2008 comes to 6.06%. If the purchases disallowed are confirmed the gross profit for the year ended 31.3.2007 will shoot up to 50.89% while for the year ended 31.3.2008 it will shoot up to 90.72%. This showed totally unrealistic gross profit. 21.3 The ld. DR, on the other hand, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying out the trading in iron ore the assessee has accommodated Shri Anil H. Lad and M/s VSL and Sons for selling iron ore procured by them through illegal mining carried out in their mining. Thus, the purchases made by the assessee from these firms which were without bills were shown by the assessee in his books of accounts as if the assessee has made purchases from various parties so that it may appear that the assessee has made the purchases for these parties. It is also uncontroverted fact that the assessee did not own any mine and was engaged only in trading of iron ore through its proprietorship concern. The sales made by the assessee were duly accepted by the revenue. We have gone through the decision of the Hon'ble Supreme Court in Civil Appeals Nos. 4540-4548 of 2000 in the case of Threesiamma Jacob & Ors vs Geologists, Dptt. of Mining & Geology & Ors in which Hon'ble Supreme Court vide order dated 8th July, 2013 Hon'ble Supreme Court held under para 57 of its order that ownership of sub-soil/mineral wealth should normally follow the ownership of the land, unless the owner of the land is deprived of the same by some valid process. Even in this case the Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not made the purchases. It is not a case where the Assessee has inflated the purchases i.e. the quantity of the purchases are much more than the quantity of the iron ore sold. The AO in his remand report has categorically accepted the fact that the Assessee was working on behalf of Shri Anil H. Lad who want owned the mines and has extracted iron ore illegally much more than permissible. To cover up the quantities of purchase made from Shri Anil H. Lad concern M/s VSL & Sons, the Assessee had to procure the purchase bills. It is not the case of the revenue that the iron ore purchases and sales made by the Assessee are not reconcilable. The Assessee has submitted the quantitative reconciliation statement which has been referred to by the AO in his remand report. The sales accounted for and made by the Assessee have not been disputed by the Revenue. At the most, in our opinion, where the Assessee had saved any tax in procuring the bogus bills, the Assessee could have made more profit but the purchases made by the Assessee cannot be disallowed. There are evidences that these firms were duly registered with the income tax as well as sale tax authorities. The vat has duly been paid on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad disallowed the expenses incurred by the assessee for the purchases u/s 37(1)of the Income Tax Act. We, therefore, in view of our aforesaid discussion delete the addition made on account of bogus purchases. The purchase cost in the case of a trader in our opinion is allowed as deduction u/s 28 itself as u/s 28 is only the profit and gains of any business or profession which are chargeable to Inc. The consideration received by the assessee on the sales cannot be regarded to be the profit and gains of the profession. Section 28(1) does not make total revenue receipt to be chargeable to Income Tax Act. On this basis also the order of the CIT(A) cannot be sustained in our opinion on this issue. In view of our aforesaid discussion we delete the addition made on account of bogus purchases made by A.O and sustained by the CIT(A). In both the assessment years thus the ground no. 9 in assessment year 2007-08 and ground no. 8 in assessment year 2008-09 are allowed. Assessment Year 2008-09: 22. Ground No.5 relates to the addition of Rs.7,90,97,320/- enhanced from Rs. 1,58,19,464/-. The facts relating to this ground are that the A.O from the seized document marked as A/MJ/38 dated 1.4.2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, no addition should be made in this regard. The cash payments were made out of the cash receipt from the business carried on by the assessee for which the necessary evidence were found during the course of search by way of unaccounted sales as well as unaccounted purchases. In this regard separate addition were made by the A.O. Ultimately, as on the date of the search the assessee got the undisclosed assets to the extent of stock being of eleven crores. Our attention was also drawn towards para 8 of the impugned assessment order. The AO also agreed that the correct figure of the cash payment outside the books of accounts for the A.Y were Rs.4,90,97,320/-. It was also contended that whatever income is generated by making unaccounted sales and purchase the said income has either be invested, consumed or withdrawal for making personal assets. There had been search in the case of the assessee and ultimately all these payments made outside the books of accounts culminated into an unaccounted asset by way of stock. It was stated that the A.O made separate addition on estimate basis in respect of the profit earned by the assessee on unaccounted purchase and sale carried outside the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e letter dtd. 23.4.2008 the Assessee agreed to disclose a sum of Rs. 11 crores in the following manner : Value of stock lying at Krishnapatnam port, AP Around 35000-40000, kept for export/sales To exporters Rs. 10,75,00,000/- Additional amount declared to cover for any further Deficiencies in seized material, books of accounts And for other disallowances that may be called for Rs. 25,00,000/- Total Rs. 11,00,00,000/- We further noticed that vide letter dt. 20.11.2008 the Assessee further agreed to make an additional declaration of Rs. 5,10,04,519/- in addition to the sum of Rs. 11 crores as under : 1. Cash payments made as noted in the seized material A/MJ/38 Rs. 7,90,97,320/- Less : Duplication entry at page 4 and 5 Rs. 3,00,00,000/- Undisclosed Income based on the above seized material Rs. 4,90,97,320/- 2. Cash payments as per A/MJ/29 Rs. 2,68,67,758/- 3. Cash payments as per A/MJ/29 Rs. 8,50,39,441/- Rs.16,10,04,519/- Less : Disclosure already given earlier Rs.11,00,00,000/- Balance being disclosed now Rs. 5,10,04,519/- 25.1 We have also noted that for A.Y 2008-09 the Assessee mentions that the cash payment as per the seized documents are Rs. 4,90,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was shortage of Rs. 2,31,00,000/- stock. The assessee in the statement recorded u/s 132(4) dated 23.4.2008 stated that unaccounted stock of iron ore of M/s JRMTC amounting to Rs.10.75 crores was lying at Krishnapatnam, Nellore, District Andhra Pradesh. The assessee claimed that this stock is accumulated out of the cash withdrawn and cash generated out of the unaccounted sales. The assessee submitted when questioned by the A.O that the assessee duly considered the stock declared by him in the return. The A.O noted that the assessee declared during the impugned assessment year stock to the extent of Rs.6,41,00,000/-and claimed cascading effect of Rs.6,00,00,000/-for assessment year 2006-07. The A.O after giving the effect of Rs. 6,00,00,000/- out of Rs. 10,75,00,000/- made the addition of Rs.4,75,00,000/- as during the year after deducting Rs. 6,00,00,000/- the net declaration was only Rs.41,00,000/-. The assessee went in appeal before the CIT(A). The CIT(A) confirmed the addition. 27. We heard the rival submissions and carefully considered the same along with the orders of the tax authorities below as well as the declaration made by the assessee. We noted from the computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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