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TMI Blog2017 (2) TMI 1553X X X X Extracts X X X X X X X X Extracts X X X X ..... r gross profit @ 24% on estimated sales of Rs. 26 crores. The assessee had computed the gross turnover of Rs. 25,06,61,673/- on the basis of seized documents and books of account and has pointed out several mistakes and instances of double counting of sales computed by the Special Auditor in the estimates of gross turnover. The ld. CIT (A) as well as AO have not pointed out any defect in the calculation of gross turnover by the assessee on the basis of seized records. Therefore, It will be in the interest of equity and justice that weighted average gross profit rate of last four years i.e. 16.98% should be taken into consideration on turnover of Rs. 25,06,61,673/- which gives gross profit of Rs. 4,25,62,352/-. It is also noted that the assessee had declared the gross profit of Rs. 1,18,43,142/- in the trading account filed with the return and further the assessee had declared Rs. 2,46,00,000/- in the return filed u/s 153A on account of undisclosed income from unaccounted sales/purchase. Therefore, the trading addition of Rs. 61,19,120/- (Rs. 4,25,62,352/- minus (1,18,43,142+2,46,00,000) is sustained on the basis of weighted average gross profit rate on the basis of past history of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K. Contractor [ 2009 (1) TMI 840 - RAJASTHAN HIGH COURT ] wherein held even if the assessee has failed to discharge his onus of proof in explaining the cash credits shown in the books of account as market outstanding , the AO having estimated the higher profit rate on total contract receipts after rejection of the books of account invoking the provisions of s. 145(3), no separate additions can be made on account of unexplained cash credit u/s 68 - Hence, we find no reason to interfere with the order of the ld. CIT (A) on this issue. Thus Ground No. 6 of the Revenue is dismissed. Non -Adjustment of the seized cash lying in PD account against the self assessment tax liability - HELD THAT:- It is noted that similar issue has also been decided in favour of the assessee in the case of DCIT vs. Late Smt. Sudha Patni [ 2016 (10) TMI 1399 - ITAT JAIPUR] - Hence, we concur with the findings of the ld. CIT (A) on this issue. Thus Ground No. 7 of the Revenue is dismissed. Trading addition - estimating GP rate @ 20% on declared sales as against 14.01% declared by the assessee - HELD THAT:- It may be mentioned that in the case of the assessee for the assessment year 2010-11, we have adopted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deserves to be annulled as the special auditors have computed the income of the assessee on the basis of certain presumption and assumption, possibilities and probabilities dehors of material and the AO has borrowed the same in the assessment, meaning thereby the AO has delegated the task of framing an assessment to the auditor. 4. On the facts and in the circumstances of the case and in law the ld CIT (A) erred in rejecting contention of the assessee that the special auditors have conducted the audit beyond the scope of the provisions of Section 142(2A) by recasting the books of account and by applying presumption and assumption and such audit report cannot be considered for the Assessment of the assessee. Therefore and thus, the ld CIT (A) erred in not declaring the entire assessment as bad in law. 5. On the facts and in the circumstances of the case and in law the ld CIT (A) erred in rejecting contention of the assessee that the learned A.O. passed the Assessment Order based on no evidence or on irrelevant evidence and on surmises and conjectures and the facts of the case stated in assessment order are contrary to the records and is against the doctrine of udi alterm partem , a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether on the facts and the circumstances of the case the ld CIT (A) was right in deleting the addition of Rs. 5,516/- being bill premium expenses without appreciating the fact that same can t be considered to be admissible expenses since the same has been incurred to procure bogus purchase bill. 6. Whether on the facts and the circumstances of the case the ld CIT (A) was right in deleting the addition of Rs. 1,66,336/- made by disallowing 15% of the total expenses found recorded in the books of accounts named Jadavji maintained by the assessee. 7. Whether on the facts and the circumstances of the case the ld CIT (A) was right in allowing the appeal of the assessee without appreciating the fact that amount lying in the PD account has to be adjusted against the existing liability of the assessee and as per explanation-2 of the Section 132B of the I.T. Act, 1961. It has been clarified that the existing liability doesn t include advance tax payable in accordance with the provisions of part-C of Chapter XVII. 3.1 Brief facts of the case are that the assessee is a private limited company and engaged in the business of manufacturing and trading of studded jewellery. The department carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... special audit was approved by the ld CIT, Central, Jaipur and the AO vide his letter dated 22.03.2013 (Copy at PB Page 180-181) directed to assessee to get its accounts audited u/s 142(2A) of Income Tax Act, 1961 as per the terms of reference which has been reproduced by AO at Page 7 of assessment order. The special auditors gave the report vide their report dated 14.09.2013 which was received to assessee on 17.09.2013 and the same was filed to AO on the same date (Copy of letter is at PB Page 182) wherein the net profit of the assessee company was computed Rs. 7,45,84,379/- as against Rs. 2,36,16,893/- shown by the assessee. The copy of special audit report is separately filed by the assessee as Paper Book Vol-4. The AO rejected the books of accounts of assessee and estimated the profits by applying the provisions of section 145(3) of Income Tax Act, 1961 and assessment order vide his order dated 14.11.2013 u/s 144 r.w.s. 153A of Income Tax Act, 1961 assessing the total income of assessee Rs. 15,28,93,350/- as against returned income of Rs. 2,31,17,670/- by making the following additions/disallowances: - S. No. Particulars Amount (Rs.) 1. Trading addition on unaccounted sales and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng challenging the validity of assessment reference made for special audit and validity of assessment order. The facts as emerges from the order of the ld. CIT (A) is as under:- 3.1.3 I have duly considered assessee's submission, remand report and rejoinder filed by the assessee. I have also taken a note of judicial pronouncement relied upon by the appellant as well as the factual matrix of the case. On plain reading of sub-section (2A) of Section 142 of the Act, it seen that the AO should form on opinion before issuing on order under the said sub-section. The said opinion is to be formed having regard to the nature and complexity of the accounts maintained by the assessee and in the interest of the Revenue. Such a satisfaction is a condition precedent to passing an order u/s 142 (2A) of the Act. On perusal of assessee s submission, it is seen that the assessee itself has admitted that the Department as a result of search found a CPU marked as exhibit-4 wherein duplicate and parallel books are maintained. The assessee has also admitted that the books of account maintained in computed are not in complete from and also entries therein are not made correctly. All these defects poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 26. crores by observing as under:- After considering the past history of the assessee and gross profit of 15.30% in comparable cases cited by the A.R. of the assessee, I found that the gross profit rate of 26.21% seems to be on higher side in the business of the assessee. The consolidated sales worked out by the assessee after the correction comes to Rs. 25,06,61,673/- but the fact remains the accounts of Jadavji are incomplete and there may remain some more unaccounted sales. Therefore, I estimate the consolidates sales of the assessee at Rs. 26.00 crores. So far as the addition of gross profit is concerned, the Special Auditor has computed the gross profit rate of 26.21% on the basis of sample size selected by him. The A.R. of the assessee has cited some more cases wherein the gross profit rate is (-) 5.67%. If the examples cited by the A.R. of the assessee are added to the sample selected by special auditors, the weighted average gross profit comes to 24.08%. Considering this fact and assessed gross profit in past and next years, I estimate the gross profit rate of 24% as against 26.21% adopted by the AO and 16.95% shown by the assessee. Thus the gross profit comes to Rs. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le /over recording of sales, under recording of purchases and expenses, holding some of purchases as bogus whereas the seized records shows the purchases of goods from these parties etc, which the ld CIT (A) has reproduced in his order at pg 26-61 of his order. The assessee has pointed out these defects to AO in assessment proceedings also, which was rejected by AO on technical reasons such as the audit was carried out by special auditors wherein the assessee had active involvement, the assessee has not pointed out these defects to the special auditors when copy of final trail balance was given to the assessee. The Ld AO rejected the defects pointed out by the assessee in recasted books by saying that there is no need to have any correction in the purchase/sales/expenditure/fixed assets in the figure taken in special audit report. Ld CIT (A) sent the submission of the assessee to ld AO for comments in remand report. The ld AO has also not controverted the defects pointed out by the assessee in remand report. The ld CIT (A) has reproduced the remand report of the AO at page 3-12 of his order. Ld CIT (A) after considering the defects pointed out by the assessee in recasted books by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n technicalities. The justice always prevails over the technicalities. The AO should independently apply his own mind over the objections raised by the assessee on the figures arrived by Special Auditors in recasted books of account. The copy of submission of ld AR was sent to AO for comments on the issue raised by ld AR on the recasting of books of account made by Special Auditors. In remand report the AO is silent on these issues. I have examined the contention of the ld A/R of assessee that purchases were understated and sales were over stated in the recasted account and found force in the contention of AR. Therefore, ld CIT (A) upheld the defects in recasting of books of account by special auditors. The above findings of ld CIT (A) is not under challenge by the department. The ld AO made the high pitched assessment assessing the total income of assessee at Rs. 15,28,93,350/- on the total sales computed by Special Auditors at Rs. 26,96,46,926/- and Ld CIT (A) confirmed the trading addition of Rs. 2,59,56,858/- on sales estimated by him at Rs. 26.00 crore in complete disregard to concept of real income. The ld AO has rejected the books of account of the assessee. After rejecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annexed with special audit report (Copy at Page 28 of SAR PB Vol - 4) it has been mentioned that .........there may be transactions which are not entered in Jadav Ji . In absence of specific details of such transactions, standard auditing procedure and methods of determination of income cannot be apply. . iii. In para 3.3.6 at Page 4 of common notes annexed with special audit report (Copy at Page 29 of SAR PB Vol 4) it has been mentioned that in the books of accounts titled as Jadavji most of the purchases, sales, transfers, returns have been entered in pieces whereas in regular books of accounts, these have been entered in gms/cts. Therefore, in absence of common unit of measurement for those transactions which are not entered in regular books or vice versa, the correct quantitative stock cannot be determined by applying the standard auditing procedure . Thus in this para the special auditors themselves expressed their inability to compute the stock on the basis of books of accounts named as Jadav Ji while as per terms of reference of audit they were required to compute the closing stock as on the date of search on the basis of these books of accounts. Further this was one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46,926/- The assessee has pointed out several mistakes showing double accounting of sales. The detailed submission in this regard has been submitted in Ground No 3 to 5 above. Besides that the sales in the account of Buntiji CA was determined on presumption and assumption. The copy of ledger account of Buntiji CA in the books named as Jadavji is at PB pg 349 and recasted ledger of this account is at PB pg 349A . No any description or narration or quantitative detail etc is mentioned to treat the figure of Rs. 1,12,20,000/- in this account as of sales. Further, the GP rate of 26.21% is also not justifiable. The assessee has submitted detailed explanation to the AO in this regard objecting the estimation of profit on GP rate of 26.21%. (Paper book page 342-343). The assessee has objected the estimation of income by applying GP rate of 26.21% on the following grounds:- a) The estimation of GP of 26.21% is based on the instances of sales given in Appendix-9 of the special auditor report. The instances are based only on the sales of Rs. 75,93,362/- while the total sales of the assessee for the year under consideration was Rs. 26,96,46,926/-, therefore the sample size in not comparable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at after correction in the sale figure worked out by special auditors, it comes out to the figure of Rs. 25,06,61,673/- (Pg 80-81 of order of d CIT(A). Therefore it is highly unjustifiable to estimate the sales of the assessee at Rs. 26.00 crore. Ld CIT (A) has estimated the profit of the assessee by applying GP rate of 24% on the estimated sales of Rs. 26.00 crore which was worked out at Rs. 6,24,00,000/-. The assessee has declared Gross Profit of Rs. 1,18,43,142/- in Trading Account filed with the return. The assessee has further declared Rs. 2,46,00,000/- in the return filed u/s 153A of the Act on account of undisclosed income from unaccounted sales/purchases. The ld CIT (A) sustained the trading addition of Rs. 2,59,56,858/- {Rs. 6,24,00,000 minus (1,18,43,142+2,46,00,000)}, for which no corroborative undisclosed assets/expenditure was found after rummage of all corners of premises of the assessee and its directors. Estimation of Profit by applying GP rate of 24% (i) It is relevant to mention here that in the trade of the assessee the sales are not made on the fixed profit margin and the sales price vary day to day on the basis of market rate of bullion, therefore the few insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3531618.00 512723.00 14.52% 2 2007-08 18562148.00 2509297.00 13.52% 3 2008-09 20591252.00 3047886.00 14.80% 4 2009-10 12824830.00 3356643.00 26.17% Weighted Average GP 55509848.00 9426549 16.98% The assessments of the assessee for AY 2006-07 to AY 2009-10 were completed u/s 153A of Income Tax Act, 1961 and the GP declared by the assessee was accepted therein. From the perusal of above chart your honor would find that the GP rate of the assessee of all the assessment years except AY 2009-10 ranging between 13.52% of 16.95%. In the AY 2009-10 the sales of the assessee were substantially reduced in comparison to previous years, therefore the GP of this year is not comparable. However the reason of high GP in AY 2009-10 in comparison to AY 2010-11 was as follow: - i. In AY 2009-10 the entire sales of the assessee were of Diamond studded gold Jeweler while during the year the sales of the assessee consists the sales of Kundan Meena Jeweler as well as diamond studded Jewellery. ii. Further in AY 2009-10 the entire sales were of traded jeweler while in AY 2010-11 the sales was of traded jewellery as well as own manufactured jewelry. iii. When we compare the sales rate and purchases/produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is best guiding factor. Further, if assets and expenditure theory is applied than no trading addition deserves to be sustained as the department has not found any undisclosed assets/expenses as the result of the search. The humble assessee prays your honor kindly to dismiss the ground raised by the department and allow the grounds raised by the assessee in this regard. 6.5 The ld. DR relied on the order of the lower authorities 6.6 We have heard the rival contentions and perused the materials available on record. It is noted from the records that the AO made the addition of Rs. 5,30,97,994/-(i.e.Rs.5,09,67,486+Rs.21,30,508 )estimating the gross profit @ 26.21% on sales of Rs. 26,96,46,926/- (sales as worked out by Special auditor. It is noted that in the given samples all the transactions were of trading goods of diamond jewellery while the assessee has sales of Kundan Meena Jewellery for substantial amount i.e. almost 50% of total sales. We would like to state that the samples which represented sales of diamond jewellery cannot be applied for sales of Kundan Meena jewellery. Margins in both these items varies and canot be applied to each other. To reach at a comparable and reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction in its regular books of accounts and payments against the purchases and expenditure were made in cash and no relaxation can be given for the illegal activities. He further held that he has not rejected the parallel and duplicate books of accounts maintained by the assessee and judicial decisions relied upon by the assessee are not applicable to the case of the assessee. On the other hand the ld AR submitted that the assessee was not engaged in any illegal business or a business prohibited by law. It made only sale and purchases not recorded in its regular books of account. The unaccounted sales and purchases were recorded in parallel and duplicate books of named maintained in Tally under the name Jadauji . I inclined to agree with this contention of ld AR that the assessee was not engaged in any unlawful business. The fact remains that the assessee was indulged in unaccounted sale and purchase business of jewellery and the provisions of section 40A(3) cannot be used as penal action, the law prescribes separate penal action u/s 271(1)(c)/271AAA for the unaccounted income. Further, these books were incomplete and not maintained in proper way therefore definite and correct pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble ITAT including the jurisdictional Jaipur bench of Hon ble ITAT and various High Court including the jurisdictional Hon ble Rajasthan High Court has held that where the estimation of income is made by applying GP rate, further disallowance cannot be made by applying the provisions of section 40A(3) of Income-tax Act,. It would be worthwhile to reproduce the relevant para of decision of Hon ble ITAT Jaipur Bench, Jaipur ITAT in the case of Shri Shankar Khandelwal v/s ACIT, Central Circle-1, Jaipur in ITA No. 392/JP/2011 AY 2008-09 Order dated 12/08/2011 as under:- 5.9 We have heard both the parties. The ld. AR during the course of proceedings before us has argued that no disallowance u/s 40A(3) can be made in case the books of accounts are rejected. Our attention was drawn towards the fact that the AO has rejected the books of accounts and has made the addition on account of construction and work in progress expenses and has also made disallowance of taxi running expenses. The addition made under both the heads is substantial. The Hon'ble Jurisdictional High Court in the case of CIT Vs. G.K. Contractors, 19 DTR 305 held that if the profit is estimated by applying higher net p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7.2 During the course of hearing, the ld. AR of the assessee supported the order of the ld. CIT(A). The ld. AR of the assessee submitted the following written submission which has been taken into consideration. B Further, we brought to your kind notice following facts:- (i) That the assessment order has been passed u/s 144 of Income Tax Act, which is best judgment assessment. In the case of the assessee order u/s 144 can be passed only after applying the provisions of section 145(3). (ii) The assessee has pointed out several serious mistakes/errors in the books maintained in name Jadavji and recasted accounts prepared by the special auditors. The assessee has submitted detailed submission in this regard, which has been reproduced by ld CIT (A) in his order at pg 26-69 of his order. (iii) The special auditors themselves have mentioned under common remarks that the true and correct profit cannot be determined due to inherent limitation of records and method of accounting. For ready reference, the common remarks of the special auditors in this regard are reproduced as under:- (a) In para 3.3 at Page 2 of common notes annexed with special audit report (Copy at Page 27-28 of SAR) it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport certain entries in the financial statements drawn or there may be also exist certain other limitations imposed by the circumstances. Thus in this para the special auditors admitting the true and correct profit from the books of accounts named as Jadav Ji cannot be deduced. (iv) The ld AO himself has estimated the profit by applying GP rate of 26.21% on consolidated sales determined by the special auditors in recasted accounts. The ld AO determined the consolidated sales at Rs. 26,96,46,926/- and applied the GP rate of 26.21% to estimate the profit. In this way, he estimated the overall profit of the assessee at Rs. 7,06,74,459/-. Since the profit computed by the Special Auditors was Rs. 6,85,43,951/- so he made further addition of Rs. 21,30,508/-. This action of the AO shows that he himself does not believe that recasted accounts by the auditors are true and correct. The AO himself held indirectly that the true profit cannot be deduced from the recasted account otherwise there was no need to estimate the profit by applying GP rate on the consolidated sales determined by the special auditors in recasted accounts. C) In addition to above submission the most important crux of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made u/s 40A (3) of the Act and disallowed as above are only in respect of the transactions contained in the duplicate/parallel books of accounts named Jadavji and not in the regular and audited books of accounts. It is only the regular and audited books of accounts which have been found to be incorrect and incomplete and hence rejected u/s 145(3) of the Act. Therefore, any argument that disallowance u/s 40A(3) of the Act, cannot be made in respect of transactions contained in such books of accounts which have been rejected, shall not be correct on facts of this case . In this regard we submit as under:- (i) The ld AO was biased and acted vindictively, capriciously and perversely mentioned the above findings. Section 145(3) can be applied where the true profit cannot be deduced from the books of account. The ld AO has treated the regular books separate books. When we talk the rejection of regular books, we have to see whether the true profit can be deduced from books of account. Further, the ld AO himself has estimated profit by applying GP rate on consolidated sales recasted by special auditors and made addition for the shortfall in profits determined by the special auditors by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be added as income of the assessee but addition could be made only to the extent of estimated profits embedded in sales. Hon ble ITAT Ahmedabad Bench in the case of M/s Rameshwar Textile Mills Ltd vs JCIT, Range 4, Surat has 2015 (1) TMI 508 has taken similar view and followed the above decision of Hon ble Gujarat High Court. But in the case of the assessee the LD AO bent upon to assess high pitched income so he assessed the gross value of the sales as income. G) It is quite interesting to note that the ld. AO was assessing the total income of single assessee named as Jadau Jewellers Manufacturers Pvt Ltd which was maintaining the books of accounts of regular transactions as well as unaccounted transactions. For computing the income on the one hand the ld. AO rejecting the regular books of accounts but on the other hands relying on the books of accounts named as Jadavji which itself consisting several defects. Thus, by this act the ld. AO holding that the assessee is partly correct and party incorrect for the same state of transactions. For the single act either a person can be correct or not correct. For the same affairs dual opinion cannot be framed for the same person. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of I. Tax Act, 1961 proves that the books of accounts of the assessee were rejected by the ld AO for all practical purpose. J) Thus from the above submissions and the submission in the forgoing paras this is to submit that the ld. AO has rejected the book of account of the assessee for all practical purpose. In the case of the assessee, the profit has been estimated therefore, further addition u/s 40A(3) cannot be made. Reliance is placed on following decisions:- ITAT Jaipur Cases:- i) The Jaipur ITAT in the case of Singhal Builders Contractor V/s. Addl. CIT, 133 TTJ 102 has held that once an income of the assessee is estimated by applying the gross profit rate or net profit rate then no disallowance can be made u/s 40A(3) or any other provisions. ii) The same view was taken by the Jaipur ITAT in the case of Shri Shankar Khandelwal v/s ACIT, Central Circle-1, Jaipur in ITA No. 154/JP/2011 AY 2005- 2006; 391/JP/2011 AY 2007-08; 392/JP/2011 AY 2008- 09 Order dated 12/08/2011 wherein it has been held that where the profit has been estimated no further disallowance u/s 40A(3) can be made. iii) P.C. Mundra vs. Assistant Commissioner of Income tax ITAT, JAIPUR BENCH ITA Nos. 229 230/JP/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (All) 533 wherein it was held that Where income is assessed at G.P. rate by rejecting the books of the assessee, no disallowance can be made separately u/s 40 A (3). ix) CIT v/s Smt. Santosh Jain (2008) 296 ITR (P H) 324 wherein it was held that when income of the assessee is computed by applying GP rate, there is no need to invoke the provisions of section 40A(3), as applying the GP rate takes care of expenditure paid otherwise by way of crossed cheque also. x) CIT vs. Purshottamlal Tamrakar Uchehra (2003) 184 CTR (MP) 349/270 ITR 314 (MP) Business expenditure Disallowance under s. 40A(3) Application of net profit rate Sec. 40A(3) is not applicable when income is determined by the AO by applying net profit rate Other ITAT Cases x) Chhattisgarh Steel Casting (P) Ltd. Vs. Assistant Commissioner of Income Tax* ITAT, Bilaspur Bench ITA No. 290/Nag/2007; Asst. Yr. 2004-05 15th February, 2008 (2008) 8 DTR (Bilaspur)(Trib) 14 Business expenditure Disallowance under s. 40A(3) Estimation of income Disallowance under s. 40A(3) made by AO out of unrecorded purchases from the record seized by Excise Department was uncalled for where income was estimated and payment itself was not proved xi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business expediency and other relevant factors. The Proviso to section 40A(3) is as under:- Provided that no disallowance shall be made and no payment shall be deemed to be the profit and gains of business or profession under sub-section (3) and this sub-section where a payment or aggregate of payments made to a person in a day, otherwise than by account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, in such case and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. The words having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors were added to under such circumstances as may be prescribed have some specific meanings. If the legislature intended to restrict the exemption only to the circumstances prescribed under rule 6DD than there was no need to add these words. The intention of the law is to give proper weightage to availability of banking facilities, business expediency and other relevant factors. The reliance is placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 944/JP/07 vide order dated 12.03.2010 has deleted the addition made by the AO by applying the provisions of section 40A(3) by considering the Second Proviso to section 40A(3) of Income Tax Act. d) It is an admitted fact that the payments so made in cash in the books of accounts named as Jadavji are in relation to undisclosed business activities carried out by the assessee and no one will accept the undisclosed payments through a/c payee cheque or bank draft. This was a practical difficulty with the assessee, therefore the benefit of exemption allowed in provision of section 40A(3) wherein it held that ------ having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors should be allowed to the assessee. It is relevant to mention here that while claiming the exemption provided for applicability of provisions of section 40A(3) the assessee has to established that there are exceptional or unavoidable circumstances for not paying crossed cheques or draft as required by the rule. When it was intended by both the parties of the transactions that it should be an unaccounted transactions than this itself consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 220 dated 31.05-77 clearly states that Rule 6DD(j) has to be liberally construed, and ordinarily where the genuineness of the transaction, the requirement of Rule 6DD(j) must be deemed to has been satisfied- Genuineness of the transactions and the identity of the payee is not disputed Thus from the above submission this is to clear that the total income of the assessee was estimated by applying the GP rate, therefore no disallowance u/s 40A(3) can be made in the case of the assessee. In view of the above submissions and cases cited before your honor, the humble assessee prays your honor kind to confirm the findings of ld CIT (A) and reject the ground raised by revenue. 7.3 During the course of hearing, the ld. DR relied on the order of the AO. 74 We have heard the rival contentions and perused the materials available on record. It is noted that the ld. CIT (A) has restricted the disallowance u/s 40A(3) of the Act from Rs. 6,83,23,399/- to Rs. 3,35,092/- by observing as under:- Therefore, in view of various judicial pronouncements, the addition on account of disallowance made u/s 40A(3) cannot be sustained where the profit was estimated by rejecting the books of account and by appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements of various benches of Hon ble ITAT the addition of the remaining amount Rs. 6,99,228/- minus Rs. 4,81,614/- = Rs. 217614/- cannot be sustained. The AO is directed to delete the addition of Rs. 2,17,614/- made by disallowing u/s 40(a)(ia) of I.T. Act and the addition for the remaining amount Rs. 4,81,614/- is sustained as the same has been added by the assessee in the return filed u/s 153A of the Act. Assessee s appeal is partly allowed. 8.2 During the course of hearing, the ld. DR relied on the order of the AO. 8.3 On the other hand, the ld. AR of the assessee supported the order of the ld. CIT(A). However, the ld. AR of the assessee submitted following written submission. We have submitted that the assessee s books of account have been rejected by the AO for all practical purpose and the profit has been estimated by applying GP rate. Therefore, no further addition can be made on the basis of entries in the books of account. Reliance is placed on the following decisions:- (i) ITAT Cuttack Bench in the case of ITO v/s Sahadev Pradhan (2012) 18 ITR 0180. The findings of Hon ble ITAT are as under:- 7. Having heard the rival parties and going through the impugned orders of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of books of account regularly maintained by the assessee which the Assessing Officer did by estimating the profit at 5% of the sales. The learned Counsel for the assessee has relied on the decision of ITAT, Hyderabad in the case of Teja Constructions v. ACIT, which is squarely applicable to the facts of the assessee's case when the decision of Hon'ble Andhra Pradesh High Court in the case of Indwell Constructions v. CIT (1998() 232 ITR 776 was taken note of when having rejected the book result it was not the case of the Assessing Officer to go back to those very books of account which indicated nondeduction of tax at source on certain expenditures that had ripened to be disallowed u/s. 40(a)(ia). Confining ourselves to the issue on hand we are inclined to follow the decision of the ITAT, Cuttack Bench in the case of Sanjay Kumar Pradhan v. ACIT in ITA No. 450/CTK/2011 dt.16.12.2011 (copy placed on record) indicating that it cannot be said that a change of stand can be taken up later when the finding of facts remains the same as were available to the Assessing Officer in view of the fact that part deduction of tax on certain payments do not lead to the finding that all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made on a/c of bogus share application , relevant extracts of which are reproduced here as under: 6.1 On facts also, the assessee has produced before the Assessing Officer copy of share application, confirmation of the cash creditors, copy of PAN, copy of Board resolution, copy of Director s report, auditor s report, copy of balance sheet, copy of P L account, copy of bank account in all the cases to prove the identity, genuineness and creditworthiness of the cash creditors. The ld Assessing Officer made addition on the basis of investigation conducted by the ITO, Investigation Wing, Kolkata but the ld Assessing Officer of the assessee has not clarified what inquiry had been conducted and what evidences collected which goes against the assessee. The notice U/s 131 issued by the ITO, Investigation Wing, Kolkata were served in case of Vidya Agencies Pvt. Ltd. and Shivarpan Mercantiles Pvt. Ltd., but compliance could not be made on the given date because concerned officer was on leave. In case of Middleton Goods Pvt. Ltd. And Lactrodryer Marketing Pvt. Ltd., notices were served on the assessee and in compliance to the notice, the party submitted all the documents in the IT office. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases Pvt Ltd. 12,500 1,25,000 23,75,000 25,00,000 Omega Suppliers Pvt Ltd 10,000 1,00,000 19,00,000 20,00,000 Sabhyata Suppliers Pvt Ltd. 12,500 1,25,000 23,75,000 25,00,000 It is observed from the records that the AO made similar addition on same facts and ground in AY 2006-07 2008-09. The appeal of the assessee for AY 2006-07 had been decided by ld CIT (A) in favour of the assessee and addition was deleted. The department has not filed appeal in Tribunal against the appeal order for AY 2006-07. The addition in appeal for AY 2008-09 was confirmed by ld CIT (Appeal), Central Jaipur. The assessee filed appeal before Hon ble ITAT, Jaipur Bench, Jaipur. The appeal of the assessee was decided by Hon ble ITAT in ITA No. 686/JP/2014 vide order dated 27.11.2015 wherein the addition confirmed by ld CIT (A) was deleted Copy PB pg 1051-1065/ Vol -3. The relevant Para of findings of Hon ble ITAT in the case of assessee is as under:- 6.1 On facts also, the assessee has produced before the Assessing Officer copy of share application, confirmation of the cash creditors, copy of PAN, copy of Board resolution, copy of Director s report, auditor s report, copy of balance sheet, copy of P L acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the addition of Rs. 5,516/- made by the AO by making disallowance form expenses named as Bill premium debited in books of accounts Jadavji . The facts as emerges from the order of the ld. CIT (A) is as under:- 3.6.3 I have considered assessee s submission and the factual matrix of the case. I have decided the issue of trading addition in ground no 3 to 10 above by holding that the true profit cannot be determined on the basis of recasted books of account prepared by Special Auditors due to certain limitation pointed out by Special Auditors in their report and the AO himself assessed the trading results of the assessee by estimating the GP rate of 26.21% on consolidated sales. Therefore, the separate addition on account of bill premium cannot be sustained. Further the AO made a finding that the assessee has not challenged the reduction of corresponding purchases relatable to the bill premium expenses. This finding of AO is against the facts. The AO has reproduced a chart at page 46-47 of his order wherein the assessee claimed the purchases should be increased by Rs. 3,37,50,507/-. In this chart Purchases from M/s Baheti Gems and Mr Girdhari are included. Further the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seized No 2 books ( Jadavji ) as well as regular books both shows the issue of cheque against the purchases. Had this entry was against the bogus bill, than there would be entry of receipt of cash as against issue of cheque in no.2 books of account. The special auditors treated this purchase as bogus only on the basis of presumption and assumption without making further inquires. The supplier party charged extra Rs. 2000/- on account of billing charges. It was practice of this party to charge some extra if bill is taken against the goods supplied. If the goods is taken without bill than no charges of the bill. Therefore bill premium is part and partial amount of goods purchased. Further the bills premium was only credited in a/c of the party and amount against purchases was paid by cheque. Later on this entry was w. Off by transferring the same in discount a/c meaning which the payment of bill premium was not made to this party. Further, no show cause notice was given by the AO before accepting the audit report which says this purchase as bogus. (ii) Mr. Girdhari purchases of Rs. 5,05,992/- Bill premium Rs. 3516/- During the year under consideration the assessee company made purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances as discussed above, addition of Rs. 5,516/- made by AO on account of bill premium cannot be sustained and AO is directed to delete this addition. Assessee s appeal in Gr No 16 stands allowed. Taking into consideration the present facts and circumstances of the case, we find no infirmity in the order of the ld. CIT (A) which is sustained. Thus Ground No. 5 of the Revenue is dismissed. 11.1 As regards Ground No. 6 of the Revenue wherein the Revenue is aggrieved that the ld. CIT (A) has erred in deleting the addition of Rs. 1,66,336/-made by the AO by disallowing 15% of total expenses of Rs. 11,08,906/- found recorded in the books of account named as Jadavji . The facts as emerges from the order of the ld. CIT (A) is as under:- 3.7.3 I have duly considered assessee s submission and taken a note of the factual matrix of the case. As I have already decided the issue of trading addition in ground no 3 to 10 in above para by holding that the true profit cannot be determined on the basis of re-casted books of account prepared by Special Auditors due to certain limitation pointed out by Special Auditors in their report and the AO himself assessed the trading results of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The facts as emerges from the order of the ld. CIT (A) is as under:- 3.10.4 I have considered assessee s submission and the factual matrix of the case. In this case, a search seizure operations u/s 132(1) of Act was carried. Pursuant to the notice issued u/s 153A of the Act, assessee filed its return of income for AY 2010-11 on 31.03.2012 declaring total income of Rs. 2,31,17,670/- which includes the income of Rs. 2,46,00,000/- surrender on account of income earned from unaccounted sales. On perusal of the return filed on 31.03.2012 for AY 2010-11, it is seen that assessee itself computed total tax liability including interest to Rs. 98,17,671/- and out of the total tax liability, assessee has paid Rs. 45,00,000/- on 31/03/2011 and Rs. 817670/- on 30/03/2012 and for the remaining amount of Rs. 45,00,000/- request was made to Ld CIT Central Jaipur for adjustment against amount lying in PD A/c by filing a letter on 31/03/2012 under copy to DCIT Central Circle-2 Jaipur. AO has not allowed any adjustment of cash lying in the PD A/c against self assessment tax liability till 17.12.2013 even though assessee had made request to Ld CIT (Central) Jaipur on 31.03.2012. It is also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure tax Act, 1987, the GT Act, 1958, and the Interest-tax Act, 1974, and since in the other statutes, there is no concept of advance tax, therefore the expression existing liability used in s. 132B(1)(i) cannot be understood to mean advance tax liability under the IT Act, 1961. In our considered opinion, interpretation placed by the Revenue is misplaced and would lead to absurd results. 9. It is well understood that as per s. 4 of the Act, an assessee is chargeable to income-tax in respect of his total income. Sub-s. (2) of s. 4 prescribes that the income-tax so chargeable shall be deducted at source or paid in advance, where it is so deductible or payable under any provision of the Act. We have observed earlier that advance tax liability is governed by ss. 208 to 210 of the Act. Similarly, s. 140A provides for payment of self-assessment tax on the basis of any return of income required to be filed by the assessee. The relevant provisions also prescribe the dates and the amount of tax required to be paid by an assessee. Therefore, the expression existing liability in s. 132B(1)(i) cannot be read to exclude a particular tax liability, if it can be shown to have existed on a par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order under s. 132(5) is passed that the assessee can make a request that the seized amount which is sought to be released in his favour be adjusted or appropriated towards the liability to pay advance tax. Though, in the context of the present assessment year before us, the provisions of s. 132(5) are not applicable and therefore, strictly speaking, the ratio of the judgment of the Hon ble Madhya Pradesh High Court does not apply, so however it is pertinent to observe that the Hon ble High Court has not read any blanket prohibition in the Act against adjusting the seized assets against liability for payment of advance tax. Therefore, there is no justification for the CIT (A) to rely upon the order of the Madhya Pradesh High Court in the case of Ramjilal Jagannath (supra) and deny the claim of the assessee. In case of ACIT Central Circle-23 New Delhi Vs. Sh Arun Kumar Gupta, Hon'ble ITAT New Delhi in ITA No. 4108/Del/2010 by respectfully following the decision of Nikka Mal Babu (supra) and K K Marketing (Delhi High Court 278 ITR 596) has upheld the decision of CIT (A) and finally directed the AO to recompute the interest chargeable u/s 234 B 234C accordingly after giving cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed on 30/6/10 with tax payable of Rs. 2,92,25,240/- and therefore requesting the AO once again for adjustment of tax liability with the cash lying in the PD account. In the circumstances, the assessee had done all it could do so as to ensure that cash lying in the PD account would be adjusted towards the advance tax liability. However, it seen that no action was www.taxguru.in ITA No. 290 /Agra/2013 A.Y. 2010-11 5 taken on the assessee s petition by any of the authorities before whom the assessee has filed the petition. To my mind, it is an apparent injustice to the appellant to hold on the cash belonging in the assessee in the Government Account and at the same time charge interest for non-payment of advance tax on the due dates. It is clear that the appellant s application for adjustment has been submitted before the various authorities, the seized cash should have been either been adjusted as requested by the assessee to meet the advance tax obligations or the Assessee should have been informed the reasons why the request made by the assessee cannot be acceded to. The Hon ble Bombay High Court in the case of CIT Vs. Shri Jyotindra B. Modi in order dated 21.09.2011 has clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a letter on 31/03/2012 under copy to DCIT Central Circle-2 Jaipur. AO has not allowed any adjustment of cash lying in the PD A/c against self assessment tax liability till 17.12.2013 even though assessee had made request to Ld CIT (Central) Jaipur on 31.03.2012 It is also noted that the AO had not adjusted the credit of amount lying in the PD account against self tax liability. The ld. CIT (A) has allowed the same giving the direction as under:- In view of facts and circumstances of the case as discussed above and respectfully following the decisions of aforementioned judicial pronouncements AO is directed to re-compute the interest chargeable u/s 234 B after giving credit of amount of Rs. 45,00,000/- ( Lying in PD A/c) against the self assessment tax liability fallen due on 31-03-2012. The assessee s appeal on this ground stands allowed It is also noted that similar issue has also been decided in favour of the assessee by the ITAT Jaipur Bench in the case of DCIT vs. Late Smt. Sudha Patni (ITA No. 161/JP/2016 vide order dated 18-10-2016 for the assessment year 2012-13). Hence, looking to the facts, circumstances of the case and also the order of Coordinate Bench in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report cannot be considered for the Assessment of the assessee. Therefore and thus, the ld CIT (A) erred in not declaring the entire assessment as bad in law and void ab-initio. 4. On the facts and in the circumstances of the case and in law the ld CIT (A) erred in rejecting contention of the assessee that the learned A.O. passed the Assessment Order based on no evidence or on irrelevant evidence and on surmises and conjectures and the facts of the case stated in the assessment order are contrary to the records and is against the doctrine of udi alterm partem , a principle of natural justice and therefore and thus the ld CIT (A) erred in no declaring the Assessment Order u/s 144 read with Section 143(3), as bad in law and ab-initio void. 5. On the facts and in the circumstances of the case and in law the ld. CIT (A) erred in confirming trading addition of Rs. 58,53,506/- by estimating GP rate @ 20% on the declared sales of Rs. 12,28,29,758/- as against GP rate @ 14.01% declared by the assessee. 6. On the facts and in the circumstances of the case and in law the lower authorities erred in not allowing the benefit of telescoping, recycling and rotation of funds. ITA No. 503/JP/2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uplicate/parallel books of accounts of the assessee company maintained in the form of memoirs, containing the entries of recorded and unrecorded transactions of the assessee company. However the books of accounts named as Jadavji were neither complete nor correct. Further these books of accounts consists the entries pertaining to AY 2010-11 only. No parallel/duplicate books of account of assessee company for AT 2011-12 was found by the search party. . During the course of assessment proceedings it was opined by ld. AO that the entries in the books of accounts named as Jadavji were extremely complex in nature therefore the ld. AO moved a proposal to ld CIT, Central, Jaipur vide letter dated 13.03.2013 for approval of special audit of accounts of the assessee u/s 142(2A) of Income Tax Act, 1961. In response to the proposal of ld. AO the ld CIT (Central), Jaipur issued a show cause notice dated 15.03.2013 (Copy at PB Page 176-177) to the assessee for approval of special audit and in response to the show cause notice, the assessee objected the reference of special audit u/s 142(2A) of Income Tax Act, 1961 vide its letter dated 18.03.2013 (Copy at PB Page 178-179) but the proposal for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the ld. CIT(A). 17.1 The Ground No. 1 of the Revenue s appeal is in respect of restricting the trading addition of Rs. 91,37,068/- to Rs. 58,70,206/- 17.2 The Ground No. 2 to 5 of the assessee's appeal are in respect of confirming the addition of Rs. 58,53,506/- by estimating the gross profit rate @ 20% on declared sales of Rs. 12,28,29,758/- as against 14.01% declared by the assessee. 17.3 From the above grounds raised by the Revenue and assessee, it is observed that the ld. CIT (A) has restricted the addition of Rs. 91,37,068/- to Rs. 58,70,206/- on the basis of his findings at pages 48 to 52. The ld. CIT (A) took into consideration the rejection of books of account and he estimated the gross profit of the assessee by applying the gross profit rate of 20% on the declared sales of the assessee. The observation of the ld. CIT (A) on the issue in question is as under:- 3.2.3 I have considered assessee s submission and also taken a note of judicial pronouncements relied upon by the appellant as well as the factual matrix of the case. Here in this case, the special auditor has re-casted the accounts of the assessee and computed the consolidated net profit of Rs. 2,30,22,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been mentioned that The figures of adjustments have been derived by applying professional judgments and surroundings materials. Significant estimations and assumptions have been made, wherever corroborative evidences are not available or considering the limitations imposed by circumstances, if it is warranted to do so. Therefore, any change, in such professional judgement or estimation or assumption, may lead to change in financial statements, as discussed hereinafter while explaining the basis of adjustments. (v) In para 4 (Page 30 of Special Audit Report), the special auditor has expressed their limitation as under:- Under the facts and circumstances narrated hereinbefore and applying our professional judgement, we are of the opinion that audit procedure and methods of determination of income or loss, believed to be desirable, cannot be applied in the given circumstances. Hence, we have attempted to carryout reasonable alternative procedure and methods to obtain sufficient or appropriate conclusion. However there may be lack of corroborative evidence to support certain entries in the financial statements drawn or there may be also exist certain other limitations imposed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading and Profit and Loss Account is placed at Page 131 of SAR (Vol-III of PB). The consolidated Trading and Profit and loss account is placed at page 81 of SAR (Vol III of PB), which shows no transaction in Jadavji except opening stock of Rs. 7,60,132.17 and certain adjustment entries in the audited books of account. The adjustment entries carried out by special auditors may be summarised as under:- Net Profit Increased by Rs. 91,37,067.89 S.No. Particulars Amount 1 GP Increased in transaction of regular books 1866349.89 2 Purchases of stock transferred to Indore out of unaccounted income 7204766 3 Advertisement Expenses disallowed 4000 4 Extra Depreciation Allowed -1548 5 Packing Expenses disallowed 50000 6 Vehicle Expenses disallowed 13500 Total Net profit Increased 91,37,067.89 Closing Stock increased :- 1,00,99,593.06 S.No. Particulars Amount 1 GP Increased in transaction of regular books 1866349.89 2. Opening Stock Transferred from parallel and duplicate books Jadavji 760132.17 3. Purchases of stock transferred to Indore out of unaccounted income 7204766 4. Purchases of diamond against negative stock in stock register 268345 Stock Increased in regular books as on 31.03.2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the GP comes to Rs. 1,72,12,445.56 +91,37,068= Rs. 2,63,49,513.56 which gives GP of 21.45% on sales of Rs. 12,28,29,758/-. The assessee has cited an example of comparable case of M/s Rambhajo s. (PAN: - AAJFR4553Q) who was assessed at Central Cirlce-1, Jaipur u/s 153A for AY 2010-11 and the GP rate of 15.30% has been accepted. Here in this case, assessment was made u/s 144 of Income Tax Act after applying the provisions of section 145(3) of the Act and in view of the observations and remarks of the special auditors and discrepancies pointed out by the AR of the assessee the profit of the assessee should be estimated by applying appropriate GP rate. After considering the fact that the AO has made addition of Rs. 91,37,068/- and treated it as income from sales of Rs. 12,28,29,758, which gives the GP rate of 21.45% on sales. Further no any other undisclosed business activity of the assessee has brought to the notice. Further the GP rate in most of the years was assessed to less than 15%. Even in the next year AY 2012-13, the GP of Rs 2,43,34,969.12 was accepted on sales of Rs. 14,41,31,286.15 which gives the GP rate of 16.88%. The weighted average GP rate for the AY 2006-07 to AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. 17.4 During the course of hearing, the ld. AR of the assessee prayed that the ld. CIT (A) erred in confirming the trading addition of Rs. 58,53,506/- by estimating GP rate @ 20% on declared sales of Rs. 12,28,29,758/- as against 14.01% declared by the assessee. The ld. AR of the assessee filed the following written submission which has been taken into consideration. As regard the assessee s appeal we submit that the ld CIT (A) confirmed the trading addition of Rs. 58,53,506/- by estimating the GP rate of 20% on the declared sales. It is admitted fact the assessee was not indulged in any unaccounted purchase sales or other business activities. When there is no unaccounted business, than there cannot be unaccounted income. Further, the books of account of the assessee has been rejected but it does not give unfettered power to lower authorities to assessee the income of the assessee at their whims and fancies. Assessment framed u/s 144 of Income Tax Act is best judgment it means income should be assessee considering the best available material, past history, nature and practice of trade in such manner which gives a justifiable result. The lower authorities have assessed higher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18562148.00 2509297.00 13.52% 3 2008-09 20591252.00 3047886.00 14.80% 4 2009-10 12824830.00 3356643.00 26.17% 5 2010-11 69891003.00 11843141.55 16.95% 6 2011-12 122829758.50 17212445.56 14.01% 7. 2012-13 144131286.15 24334969.12 16.88% Weighted GP 392361895.65 62817105.23 16.01% Accordingly, the ground no. 2 to 5 of the assessee's are partly allowed and the Ground No. 1 of the Revenue is dismissed. 18.1 The Ground No. 2 of the Revenue is regarding restricting the addition of Rs. 2,71,50,538/- to Rs. 1,20,751/- made by the AO by making disallowance u/s 40A(3) of the Act. The facts as emerges from the order of the ld. CIT (A) is as under:- 3.3.3 I have considered assessee s submission and also taken a note of judicial pronouncements relied upon by the appellant as well as the factual matrix of the case. I found that the AO made disallowance by holding that the assessee is indulged in illegal activities by not recoding the correct purchases, sales, Revenue capital transaction in its regular books of accounts and payments against the purchases and expenditure were made in cash and no relaxation can be given for the illegal activities. He further held that he has not rejected the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orative entries seized documents. The seized paper pg 2 exhibit 2 (PB pg 23) shows cash payment of Rs. 27,16,000/- only against which the special auditor has recorded the cash payment of Rs. 2,67,91,442/- in name of Sameer Bhai. Similarly, the special auditor presumed the cash purchases of Rs. 2,38,345/- against the negative stock of diamond calculated by him on the basis of stock register wherein the consumption of diamond was not shown on day to day basis but on monthly basis. The special auditors recasted these books of account but in recasting of these books, he pointed out certain limitation remarks and expressed that the recasting of the books were made by applying certain estimation and assumptions. He also expressed his view under common remarks that the true and correct profit cannot be determined due to inherent limitation of records and method of accounting. Further, the purchases in respect to seized document page 2 of Exhibit 2 pertain to AY 2010-11 and the fact remains that the profit of the assessee for AY 2010-11 by applying the GP rate of 26.21% was estimated and the assessment was finalized u/s 144 of I.T. Act after applying the provisions of section 145(3) of Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Bollineni Castings and Steel Limited Versus DCIT, Central Circle 1(3), Hyderabad (supra) has dealt the issue of disallowance of expenditure recorded in the seized material. It is useful to refer here the findings of Hon ble Tribunal as under:- Having regard to the rival contentions and the material on record and the judicial precedents relied by each of the parties, we find that the undisputed facts are that the assessee has accepted that books found and seized during the course of search pertain to the assessee and that the receipts and payments mentioned therein are also relating to the business operations of the assessee. Whatever may be the reason for accepting the receipts mentioned in the books, the lone contention of the assessee before us is that the expenditure relating to the receipts should be allowed. We agree with the contention of the Ld. D.R. that the expenditure which has been incurred wholly and exclusively for the purpose of business alone can be allowed and it is not verifiable from the seized material that this expenditure is incurred wholly and exclusively for the purpose of business of the assessee. We also agree with the Ld. D.R. that most of the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining amount Rs. 2,71,50,538/- minus Rs. 1,20,751/- = Rs. 2,70,29,787/- cannot be sustained. Therefore, AO is directed to delete the addition of Rs. 2,70,29,787/- made by him by disallowing the cash payment u/s 40A(3) of I.T. Act and the addition for the remaining amount Rs. 1,20,751/- is sustained as the same is on agreed basis. 18.2 During the course of hearing, the ld. DR relied on the order of the AO. 18.3 On the other hand, the ld. AR of the assessee supported the order of the ld. CIT(A). 18.4 We have heard the rival contentions and perused the materials available on record. It may be noted that in the appeal of the Revenue for the assessment year 2010-11, the issue raised by the Revenue has been dismissed confirming the action of the ld. CIT (A) on the issue in question. Thus Ground No. 2 of the Revenue is also dismissed as indicated in Revenue s appeal (supra). 19.1 The Ground No. 3 of the Revenue is regarding deletion of addition of Rs. 3,87,948/- made by AO by treating the purchases made from M/s. Aditya Gems as unverifiable/ non-genuine. The facts as emerges from the order of the ld. CIT (A) is as under:- 3.4.3 I have duly considered assessee s submission and also taken a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord. It may be noted that the ld. CIT (A) has given clear findings hereunder on the issue in question by deleting the addition of Rs. 3,87,948/- I have also called for assessment records of AY 2012-13 for necessary verification of facts and found that this party appeared before the AO and purchases from this party in AY 2012-13 was treated as genuine. This proves that the party is genuine party and the party is existing on the given address, filing Income-tax record and also getting refunds from the Dept. The aforementioned documents are part of case record and even AO has recorded the same in the order sheet dt 25/2/2015 for the scrutiny assessment of AY 2012-13. Therefore in view of the above facts and circumstances the addition of Rs. 3,87,948/- cannot be sustained. The AO is directed to delete the same. Assessee s appeal succeeds. It is noted that the order of the ld. CIT (A) is well reasoned and we find no reason to interfere with the order of the ld. CIT(A). Thus Ground No. 3 of the Revenue is dismissed. 20.1 Ground No. 1 of the assessee is regarding challenging the validity of assessment reference made for special audit and validity of assessment order. 20.2 We have heard th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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