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TMI Blog2014 (3) TMI 1213X X X X Extracts X X X X X X X X Extracts X X X X ..... ared turnover as against the trading addition of Rs. 13,42,358 made by the AO by applying NP 8.5 per cent on total turnover of Rs. 10,41,88,767 after allowing deduction of depreciation and interest of Rs. 1,95,075. (iii) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming that there was suppression of investment of Rs. 6,11,16,770 in the land purchased by M/s Kamakshi International. (iv) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the addition of Rs. 61,11,677 on substantive basis in the hands of the assessee as against addition of Rs. 62,06,000 made by AO in the hands of the assessee on protective basis and in the hands of the firm M/s Kamakshi International on substantive basis under s. 69 of IT Act, 1961, without appreciating the fact that the Department has carried out intensive search over the assessee and no material was found to show that the assessee has made any undisclosed investment in the purchase of the land by the partnership firm M/s Kamakshi international. (v) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintenance of account mentioned in the assessment order. (ii) On the facts and in the circumstances of the case, the learned CIT(A), Central, Jaipur has erred in excluding the addition of Rs. 1,29,00,000 made under s. 69B and interest thereon Rs. 4,35,110 on account of alleged unaccounted/undisclosed investment from the hands of the assessee ignoring the fact that addition confirmed in her appellate order dt. 16th Aug., 2013 has already been challenged before the Hon'ble Tribunal, by the other assessee Shri Manish Tambi. 2. Now, we are taking the appeals of the assessee and the Revenue for the asst. yr. 2009-10 as under : 3.1 Ground Nos. 1 and 2 of assessee's appeal (ITA No. 867/Jp/2013) are interconnected and related to rejection of books of account and trading addition of Rs. 12,76,960 by estimation on net profit of contract business. And ground No. 1 of Revenue's appeal (ITA No. 881/Jp/2013) is common and relates to reducing the trading addition by Rs. 65,398. 3.2 Briefly stated, the facts of the case are that the assessee is an individual and derives income from his partnership firm M/s Vishal Enterprises and proprietorship concern M/s Padmawati Constructions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .25 per cent as against estimated by AO at 8.5 per cent and declared by the assessee @ 7.02 per cent on total turnover of Rs. 10,41,88,767. However, she did not allow deduction of depreciation and interest of Rs. 1,95,075. 3.3 Aggrieved from the order of learned CIT(A), the assessee as well as Revenue both are in appeal before us on this issue. The assessee objected the order of learned CIT(A) on the addition sustained by her by raising ground Nos. 1 and 2 before us. The Revenue has also objected the addition reduced by learned CIT(A) vide ground No. 1 raised before us. 3.4 The learned Authorised Representative submitted before us that Department has carried out intensive search operations and no incriminating document or material was found to visualize that the assessee has suppressed the contract income during this year. As regards the rejection of the books of account by the lower authorities, the learned Authorised Representative submitted 'that the defects pointed out by the AO are of general in nature and are not serious defects.' The assessee is maintaining proper books of account, and following the accounting policies and accounting standards regularly. Each case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infrastructure Ltd. v. Asstt. CIT [2007] 104 ITD 537/11 SOT 386 . As regards the wages register the learned Authorised Representative submitted that the contract work is is being carried out through labour contractors or causal labours directly hired by the assessee. The payment to labour contractors is verifiable and payment was made after deducting TDS thereon. The assessee is maintaining labour register for labour directly hired by the assessee. The wages register was produced before the AO for examination during the course of assessment. As regards the estimation of the profit, the learned Authorised Representative submitted that the estimation of net profit is at very higher side. The AO estimated the net profit by applying rate of 8.50 per cent and he allowed further deduction on account of depreciation and interest. Therefore, the effective NP rate applied by the AO is 8.31 per cent as against 7.02 per cent shown by the assessee. The learned CIT(A) applied NP rate of 8.25 per cent of contract receipts and no further deduction on account of depreciation and interest was given. Nor any comparable case was given in support of the estimation. The learned CIT(A) has estimated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of 5.25 per cent of contract receipts as against 8.50 per cent applied by the AO. The defects pointed out by the learned AO in the books of account are major defects and on the basis of defective books of account, true profit cannot be calculated. The learned Departmental Representative submitted that the profit estimated by AO is reasonable and the addition made in the order of AO should be sustained. 3.6 We have heard the rival contentions and perused the facts of the case and material on records. We find that books of account of the assessee are defective for the reasons mentioned in the order of the AO and the learned CIT(A) and no cogent explanation in this regard has been brought on record and, therefore, we find no infirmity in the order of learned CIT(A) who has rightly confirmed the action of the AO for invoking the provisions of s. 145(3) of the Aet. As regards the estimation, no comparable case was given by AO and learned CIT(A). Further, we find force in the contention of the learned Authorised Representative that this year was the second year of the assessee in contract business. However, in current year the contract receipts of the assessee have increased by more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are that the assessee was a partner in the firm M/s Kamakshi International, Jaipur. During the year under consideration the above mentioned firm has purchased a Plot No. D-81, Ghiya Marg, Bani Park, Jaipur, measuring 1,058 sq. yards from M/s Om Builders & Colonizers (P) Ltd. for a consideration of Rs. 1.20 crore vide registered agreement dt. 25th Feb. 2009. The AO opined that the market value of plot Nos. D-112A and D-112B which are in same locality and vicinity is Rs. 70,000 per square yard, therefore the market value of plot No. D-81 which was purchased by M/s Kamakshi International, Jaipur should not he less than this; hence the market value of plot No. D-81 should be Rs, 7,40,60,000 and the balance amount of Rs. 6,20,60,000 was paid to the seller which did not find recorded. The AO has further held that the seller of this plot (D-81) in October, 2007 took the loan of Rs. 1,25,00,000 from ICICI Bank for purchases of this plot and in the valuation report submitted to ICICI Bank the valuation of this property was shown Rs. 3.53,29,230 hence the sales value of property cannot be less than the cost price. On the basis of this finding the learned AO made addition of Rs. 6,20,60,000 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought on the record by the AO to disprove the reply of the assessee. The learned Authorised Representative submitted that the AO compared the purchases value of plot No. D-81 from value of plot Nos. D-112A and D-112B but both the properties are at different locations, different uses and the transactions were also carried out in different period. The plot No. D-18 is a residential plot situated on internal small road, while the plot Nos. D-112A and D-112B are commercial plots and situated at main road. The rates of the commercial plots are always very higher to the residential plots and this may also be seen from difference in DLC rates. Further, the firm has purchased the plot at the rates/value which was accepted by the Government authorities for stamp duty purpose. The plot No. D-81 was purchased in asst. yr. 2009-10 while as per notice of AO the transaction of Plot Nos. D-112A and D-112B was made in asst. yr. 2010-11. Therefore, the value of both the properties are not comparable. Further, even if it is presumed that the market value of impugned plot was higher than the consideration shown in the sale deed, still it cannot be presumed that on-money was passed to the seller of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Authorised Representative further submitted that the Department has carried out search over the assessee and no any incriminating document was found from the possession of the assessee to show undisclosed investment by the assessee in purchase of the impugned plot by the partnership firm. The learned Authorised Representative submitted that the learned CIT(A) sustained the addition in the hands of the assessee on the ground that the firm has no source of income. The learned Authorised Representative submitted that the same theory also applies for this assessee also. The Department has carried out search over the assessee and no secret business was found. The assessee's source of income are partnership firm Vishal Enterprises. The learned AO has examined the assessee's income in this firm and no undisclosed income was found. The other source of assessee's income is Padmawati Constructions. The income of this contract business has been estimated and such estimation is under dispute before Hon'ble Tribunal. Therefore, the assessee has no source of income to make huge undisclosed investment in purchase of the plot in the name of partnership firm. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being brought to tax contrary to the strict provisions of Art. 265 of the Constitution of India and Entry 82 in List I of the Seventh Schedule thereto which deals with 'taxes on income other than agricultural income'. This was one of the major considerations that weighed with the Supreme Court in K.P. Varghese (supra) in which case the provisions of sub-s. (2) of s. 52 fell for interpretation. It was observed that Parliament cannot choose to tax as income an item which in no rational sense can be regarded as a citizen's income or even receipt. Sec. 52(2) (which now stands omitted) applied to the transferor of property for a consideration that was lesser than the fair market value by 15 per cent or more; in such a case, the AO was conferred the power to adopt the fair market value of the property as the sale price and compute the capital gains accordingly. The Supreme Court held that it was the burden of the AO to prove that there was understatement of consideration and once that burden was discharged it was not required of him to prove the precise extent of understatement and he could adopt the difference between the stated consideration and the fair market value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of understatement of the investment; it does not even give the AO the option of applying any reasonable yardstick to measure the precise extent of understatement of the investment once the fact of understatement is proved. It appears to us that the AO is not only required to prove understatement of the purchase price, but also to show the precise extent of the understatement. There is no authority given by the section to adopt some reasonable yardstick to measure the extent of understatement. But since it may not be possible in all cases to prove the precise or exact amount of undisclosed investment, it is perhaps reasonable to permit the AO to rely on some acceptable basis of ascertaining the market value of the property to assess the undisclosed investment. Whether the basis adopted by the AO is an acceptable one or not may depend on the facts and circumstances of the particular case. That question may however arise only when actual understatement is first proved by the AO. It is only to this extent that the rigour of the burden placed on the AO may be relaxed in cases where there is evidence to show understatement of the investment, but evidence to show the precise extent there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal filed by the "Revenue is for deletion of the addition of Rs, 66,50,000 made under s. 69B and interest thereon Rs. 7,090 on account of alleged unaccounted/undisclosed investment from the hands of the assessee. Briefly stated, the brief facts of the case are that the AO held that during the course of search over Shri Manish Tambi, a finance broker, some documents marked as Annexs. A-1 to A-4 were seized and the seized documents were analyzed and a ledger of assessee was prepared from the entries reflected in the day book of Shri Manish Tambi. It is seen that the assessee has made undisclosed investment of Rs. 66,50,000 and earned undisclosed interest of Rs. 7,090 in asst. yr. 2009-10. The AO has presumed that the name Vishnu Maharwal as appearing in the seized dairies from Shri Manish Tambi is of the assessee. The AO has held that Shri Manish Tambi has not disclosed the identity of the assessee but since its name is appearing in the impugned document and it is reasonably evident that it is the same assessee. The AO has further held that the assessee is well-known to Shri Manish Tambi and arranged the finance through him by way of banking channels, therefore, the transactions r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated requests. Even opportunity to check the arithmetic accuracy of assessee's ledger was not given to the assessee. Further, the assessment order is completely silent about the persons who took loan from the assessee through Shri Manish Tambi. It appears that no inquiry was made from these persons. Further, it is prevailing practice of market that Hundi/receipt is written by the persons who take loans and these hundies/receipts are delivered to the persons who give loan. Such types of Hundies/receipts were not found from the possession of the assessee, this shows that the assessee has not made any undisclosed loan through Shri Manish Tambi. Further, no record or ledger of Shri Manish Tambi was found from the possession of the assessee. The seized records (copy of which was given in response to the remand report) show that there was regular transaction of deposits and withdrawals. Without maintaining a record, no person could know his balance with Shri Manish Tambi. Had the money was given by the assessee, such records must have been found from the possession of the assessee. During the course of assessment proceedings the assessee has objected that no addition could be made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiries behind the back of the assessee, he must disclose the substance of all such material, though not the sources thereof [Dal Chand & Sons v. CIT [1944] 12 ITR 458 (Lahore) ] to the assessee and if this is not done, the principles of natural justice stand violated Kishinchand Chellaram v. CIT [1980] 125 ITR 713/4 Taxman 29 (SC) ; Addl. ITO v. Ponkunnam Traders [1976] 102 ITR 366 (Ker.) ; International Forest Co. v. Commissioner Of Income-Tax, Patiala. [1975] 101 ITR 721 (J&K) ; Sales Tax Officer, Ganjam v. Uttareswari Rice Mills [1973] 89 ITR 6 (SC); Motipur Zamindari Co. (P.) Ltd. v. Agrl ITO [1972] 83 ITR 778 (Pat.); CIT v. East Coast Commercial Co. Ltd. [1967] 63 ITR 449 (SC) ; Harmukhrai Dulichand v. CIT [1928] 3 ITC 198 (Cal.) Further, the entries in the accounts of an assessee are to be believed. The section in the Indian Evidence Act, 1872 that prima facie, seems relevant is s. 34 relating to entries in the books of account and reads as under : "Entries in books of account, regularly kept in the course of business, are relevant whenever they refer to a matter into which the Court has to inquire, but such statements shall not alone be sufficient evidence to charge any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed. The learned AO at p. 5 of order mentioned that the Department has seized A-1 to A-4 from the office/residence of Shri Manish Tambi, which is list of clientele wherein name of assessee is also appearing but the fact remains that the AO has not correlated any entry from the books of account of the assessee with the seized records of Shri Manish Tambi. The learned Authorised Representative further submitted that the onus under s. 69B is on the AO to prove the investment. Therefore, here the onus was on the learned AO to prove by positive evidence that the assessee has invested 66,50,000 through Manish Tambi. In the case of the assessee, the learned AO has not brought any document or material to prove that the assessee has made cash loans through Manish Tambi. The onus of the learned AO cannot stand discharged merely rejecting the explanation of the assessee, or on surmises, possibilities and probabilities, Reliance was placed on the following decisions : (i) Tribunal, Jaipur Bench 'A' Jaipur, in the case of ITO v. Ansha Jain [2010] 36 SOT 263 (JP). (ii) CIT v . Naresh Khattar (HUF) [2003] 261 ITR 664/130 Taxman 15 (Delhi); (iii) Lal Chand Agarwal v. Asstt. CIT 21 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents were seized) did not disclose the name and identity of the assessee then on presumption and assumption, the AO held that the name appearing in the seized documents of Shri Manish Tamabi is same person who is being assessed by him. (ii) The learned AO mentioned in the assessment order that some of such names as appearing in these documents are that of Shri Vishnu Maharwal, Smt. Aruna Sankhala, Kamakshi International and Hotel Neelam, etc. It is presumed that these persons are the same persons who are currently being assessed with him in the search cases of Mahaveer Singh Sankhala Group so when Shri Manish Tambi had not admitted such fact, therefore, the same is against the settled position of law. (iii) In the assessment order the learned AO mentioned that some of the persons whose names were figuring in these impugned documents had owned up that they had invested their undisclosed money in the market through Shri Manish Tambi and also earned interest on the same. The learned AO mentioned that the above instance proves that the various names mentioned in the impugned seized material are not fictitious and are existing entries. Owning of entries by some persons for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and last but not the least the Department and Shri Manish Tambi both had admitted that the documents are personal documents of said Shri Manish Tambi. The AO however provided the copies of the seized documents (paper book pp. 120-140) and casting of assessee's ledger account on the basis of documents seized from the possession of Shri Manish Tambi (paper book pp. 118 to 119). (a) The document relied upon in present case was neither speaking one nor incriminating one, but a dumb document. The figure of Rs. 66,50,000 is not arriving from these documents for current year therefore, the addition of Rs. 66,50,000 in the income of the current year purely based on guesswork and the learned AO not been able to provide computation for the working of this figure till date. The figure of 66,50,000 is not arriving from the ledger casted by the AO (paper book p. 118). (b) Further, the tally ledger in the name of assessee prepared by then AO on the basis of A-1 to A-4 seized from Manish Tambi is patently wrong and incorrect and on arbitrary basis. In some cases figures were taken at same value as written in seized documents whereas in some cases figures were taken by adding '00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possession of Shri Manish Tambi which suggested that the assessee made some undisclosed investment then still it could not be used against the assessee until it is proved by documentary evidence that the assessee actually made some undisclosed investment and the entries recorded in the documents found from the possession of Shri Mansih Tambi are correct. 7.5 We have heard the rival contentions, perused the facts and material available before us. We find that the AO has not brought any positive material to show that the assessee has made investment in loans through Shri Manish Tambi. The AO has not provided the copy of seized material to the assessee and effective opportunity of confrontation was not given to the assessee. The inquiries or material if any was gathered behind the back of the assessee, the same cannot be used against the assessee without providing opportunity of confrontation to the assessee. If the AO proposes to act on such material as he might have gathered as a result of his private enquiries behind the back of the assessee, he must disclose the substance of all such material to the assessee and if this is not done, the principles of natural justice stand violat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n) nature and our business secrets. We do not want to share them with anyone. The information desired by him may also harm and damage us in day-to-day business and safety of family members. Therefore, you are requested not to give any information to Shri Vishnu Maharwal and oblige. 5. In view of the above submission the desired information cannot be given to the applicant as the third party has objected it and also the requisition of information is personal and no interest of public at large is involved." From the above note sheet, reply of the assessee and order under RTI Act, it is clear that the copy of the relevant seized documents was not provided to the assessee. All the inquiries, or material if any were gathered behind the back of the assessee), therefore the same cannot be used against the assessee until and unless the opportunity of effective confrontation was not given. Here in the case of the assessee the copy of seized documents from the possession of Shri Mansih Tambi was not provided to the assessee, therefore, the same cannot be used against the assessee. Further, the Department has carried out intensive search over the assessee and no any material was found in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee's appeal ITA No 868/Jp/2013 are regarding rejecting the books of account by applying the provisions of s. 145(3) of IT Act, 1961 and confirming the addition of Rs. 26,35,657 by estimation the profit of proprietorship concern of assessee Padmawati Constructions at Rs. 97,42,020 on the turnover of Rs. 8,42,75,256. And ground No. 1 of Revenue's appeal (ITA No. 882/Jp/2013) is common and relates to reducing the trading addition by estimation of net profit by applying NP rate of 8 per cent as against 8.5 per cent applied by the AO. 9.2 As regards the rejection of books of account, the facts are similar to asst. yr. 2009-10, We have upheld the rejection of books of account in appeal of the assessee in ITA No. 867/Jp/2013 for asst. yr. 2009-10 and on the basis of same findings we uphold the rejection of the books of account here also for asst. yr. 2010-11, Thus, the ground No. 1 of the assessee's appeal is dismissed. 9.3 As regards the estimation of the profit, the facts are that in search the assessee has surrendered Rs. 30,00.000 on account of cash found by the search party and for other items stating that the same are represented by the suppressed business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial on records. In support of the estimation of net profit, no any comparable case was given by AO and learned CIT(A). Further, we find force in the contention of the learned Authorised Representative that in search statement the assessee has surrendered Rs, 30,00,000 stating that the cash found by the search party and other items represents his business income. The assessee has shown profit from the contract business Rs. 41,06,363. The assessee has increased this profit by the surrendered amount of Rs. 30,00,000. Thus, the net profit from the contract business was offered for tax was Rs. 71,06,363 on the contract receipts of Rs. 8,42,75,256 which gives the NP rate of 8.43 per cent which is better than last year. Therefore, in view of decision of Hon'ble jurisdictional Court in the case of Bhawan V. Path Nirman (Bohra) & Co. (supra) the past history of the assessee is best guiding factor. In the present case the assessee declared better results than the preceding years and therefore in view of the decision of Hon'ble jurisdictional High Court in the case of Gotan Lime Khaniz Udhyog (supra), even if the provisions of s. 145(3) are invoked, in the present circumstances and fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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