TMI Blog2013 (9) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment years 2005-06, 2006-07 and 2007-08 is identical to that of the earlier assessment years, respectfully following the decision of the Income-tax Appellate Tribunal, additions made by the Assessing Officer are deleted. Addition on the ground of undisclosed speculation business income – Held that:- During the course of search, no evidence was found to the effect that the assessee-company was engaged in speculative trading in agricultural commodities - On birthday of Mahashaya Dharam Pal Gulati, gold chains are distributed to the dealers, who achieve certain targets. For this purpose the assessee had purchased gold and alloy and got them converted from the jeweller, namely, Vijay Kumar Jewellers. The assessee had regular account with him for manufacturing of gold chains - The expenditure incurred by way of making charges as well as purchase of gold is reflected in the books of account – This transaction can not be treated as speculation transaction - The assessee is not engaged in purchase and sale of gold on the basis of which it could be presumed that the asses- see was engaged in speculative business – No evidence was brought on record – Decided in favor of Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. No. 4576/Del/2010 (assessment year 2005-06) : 1. The assessing authorities including the Dispute Resolution Panel (DRP) erred in law and on facts and also by ignoring the evidences on record in making an addition of ₹ 11,00,00,000 on account of alleged undisclosed profit though no evidence of any nature what soever was found at the time of search showing that the appellant was engaged in any activities outside the books of account. Thus, the addition made on surmises and conjectures must be deleted. 2. The assessing authorities including the Dispute Resolution Panel erred in law and on facts in making an addition of ₹ 21,66,50,451 on account of undisclosed speculation business income though no evi dence of any nature whatsoever was found at the time of search showing that the appellant was engaged in such activities. Thus, the addition made on surmises and conjectures must be deleted. 3. The assessing authorities including the Dispute Resolution Panel erred in law and on facts in making a disallowance of ₹ 2,38,70,600 out of the advertisement and publicity expenses on surmises and con jectures without appreciating the exigencies of the business. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,66,69,806 to the associated enterprises, which is challenged on the following grounds : (a) The transfer pricing order computing the arm's length price at a higher figure than the actual figures passed by the Transfer Pricing Officer, the Deputy Commissioner of Income-tax, Transfer Pricing Officer 1(6), New Delhi is bad in law and on facts as the same was passed without approval of the Director of Income-tax (Transfer Pric ing) in spite the Central Board of Direct Taxes Instruction No. 3 dated May 20, 2003 rendering the said order void ab initio. (b) The transfer pricing proceedings initiated and undertaken are bad in law and on facts for the specific reasons mentioned below, also communicated to the Transfer Pricing Officer vide letter dated Janu ary 12, 2009, besides other reasons submitted later on : (i) The proceedings initiated referred to some name, which was a non-existent assessee. (ii) The same did not refer to each transaction for which the arm's length price was to be determined. (iii) The same was referred only for the sake of seeking exten sion of the limitation to complete the assessment by December 31, 2008. (iv) The referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are working to establish new market overseas for the products of the appellant and all such expenses were the sole responsibility of the appellant. 9. The directive order dated August 31, 2010 of the Dispute Reso lution Panel is bad in law and on facts as it does not mention the sub missions of the appellant on all the issues rather contains an incorrect averment that no argument or information was submitted by the appellant. Thus, the same has to be annulled. 10. The assessment order framed without allowing an opportu nity to cross-examine the evidence collected and statements recorded at the back of the appellant is bad in law and must be annulled. I. T. A. No. 4577/Del/2010 (assessment year 2006-07) : 1. The assessing authorities including the Dispute Resolution Panel (DRP) erred in law and on facts and also by ignoring the evi dence on record in making an addition of ₹ 14,00,00,000 on account of alleged undisclosed profit though no evidence of any nature what soever was found at the time of search showing that the appellant was engaged in any activities outside the books of account. Thus, the addition made on surmises and conjectures must be deleted. 2. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands of the appellant. Thus, the addition so made on surmises and conjectures must be deleted. 8. The assessing authorities including the Dispute Resolution Panel erred in law and on facts in making the addition of ₹ 1,12,52,632 on account of arm's length pricing that too on an export turnover of ₹ 4,05,75,626 to the associated enterprises, which is challenged on the following grounds : (a) The transfer pricing order computing the arm's length price at a higher figure than the actual figures passed by the Transfer Pric ing Officer, Deputy Commissioner of Income-tax, Transfer Pricing Officer 1(6), New Delhi is bad in law and on facts as the same was passed without approval of the Director of Income-tax (Transfer Pric ing) in spite the Central Board of Direct Taxes Instruction No. 3 dated May 20, 2003 rendering the said order void ab initio. (b) The transfer pricing proceedings initiated and undertaken are bad in law and on facts for the specific reasons mentioned below, also communicated to the Transfer Pricing Officer vide letter dated January 12, 2009, besides other reasons submitted later on : (i) The proceedings initiated referred to some name, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans actional net margin method of computing the export price and sub stituting the same with comparable uncontrolled price though in the case of the appellant transactional net margin method is the most suitable method considering the factors and circumstances of the wholly owned subsidiaries overseas who are working to establish new market overseas for the products of the appellant and all such expenses were the sole responsibility of the appellant. 9. The directive order dated August 31, 2010 of the Dispute Reso lution Panel is bad in law and on facts as it does not mention the sub missions of the appellant on all the issues rather contains an incorrect averment that no argument or information was submitted by the appellant. Thus, the same has to be annulled. 10. The assessment order framed without allowing an opportu nity to cross-examine the evidence collected and statements recorded at the back of the appellant is bad in law and must be annulled. I. T. A. No. 4578/Del/2010 (assessment year 2007-08) : 1. The assessing authorities including the Dispute Resolution Panel (DRP) erred in law and on facts and also by ignoring the evi dence on record in making an addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 11,00,00,000 towards some hypothetical discrepancy in closing stock and business transactions, mainly on the basis of surrender taken from a director at the time of search in an unethical manner, which on the basis of evidence was a coercive and which was retracted immediately thereafter, and also while neither bringing on record any physical inventory of stock, if any, prepared during the course of search by the visiting revenue personnel nor pointing out any specific instances of the alleged discrepancies in the business transactions. Thus, the addition so made on surmises and conjectures must be deleted. 8. The assessing authorities including the Dispute Resolution Panel erred in law and on facts in making the addition of ₹ 73,000 towards unexplained advances on the basis of some statement of an accountant of some other firm that too in its case and not of the appellant recorded without providing a copy of the same to the appellant and also without affording opportunity of cross-examina tion of the said person to it. Thus, the said addition is bad in law and must be deleted. 9. The assessing authorities including the Dispute Resolution Panel erred in law and on fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable. Thus, the same must be deleted. (e) The Transfer Pricing Officer/Assessing Officer/Dispute Resolution Panel has erred in law and on facts in ignoring that pricing of exports to each country varies due to several factors, e.g., packing, fumigation, shelf-life, local food control regulations, etc. Further no consideration has been taken while computing the arm's length price for the quantity supplied to associate enterprises and non-associate enterprises. It is well known that the rate of supplies for large quan tities is always lower than the rates at which supplies of small quan tities are made. The associate enterprises were supplied a very large quantity as compared to the other buyers. In a nutshell the entire exercise to compute the impugned arm's length price and the alleged difference by the Transfer Pricing Officer is incorrect and must be struck down. (f) The Transfer Pricing Officer/Assessing Officer/Dispute Resolution Panel has erred in law and on facts in rejecting the trans actional net margin method of computing the export price and sub stituting the same with comparable uncontrolled price though in the case of the appellant transactional net mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of alleged undisclosed sales and purchases. During the course of search a bunch of loose papers were seized (marked as Annexure A-9/O-1) from the business premises of M/s. MDH Ltd. at 9/44, Kirti Nagar Industrial Area, New Delhi. As per these papers pages 48 to 57 were the printed papers titled all India sales report of MDH and the sales month-wise and state-wise had been recorded for the financial years 2000-01 to 2004-05. Similar printed statements had also been seized vide pages 26 to 42 of Annexure AA-9/O-2 seized in the business premises of M/s. Super Delicacy P. Ltd. Further similar statements were seized as per Annexure A-II/O-3 from business premises at 139, Udyog Vihar, Phase-I, Gurgaon. These printed statements contained all India sales report of MDH Ltd. for the years 2000-01 to 2005- 06 month-wise for each state in the country. The total sales as per these reports are tabulated on page 7 of assessment order as under : Financial year Turnover (Rs.) 2000-01 94,63,07,936 2001-02 111,45,48,904 2002-03 129,36,49,261 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase of spices and dry-fruits (magaj and ilaichi) for April, 2005 to May, 2005. These purchases were not recorded in the books of account of M/s. Nanak Enterprises, owned and controlled by Shri Prem Kumar Arora. The total unaccounted purchases as per details in the note book were of ₹ 3,35,19,690. These purchases on closer scrutiny were related to the assessee-company. The Assessing Officer therefore, concluded that the assessee-company had not only been making unaccounted sales but also made unaccounted purchases on large scale. 7. The total unaccounted purchases for two months in the financial year 2005-06 was ₹ 3,35,19,690 which gave monthly average of ₹ 1,67,59,845. The evidence seized was recorded in a diary/note pad titled MDH Sambhar Masala . Most of the raw material purchased recorded in this pocket note book were items like jeera, dhania, magaj, imli, pudina, ajwain which are the products required in the manufacturing of masalas. The quantities purchased were also on very large, which could be only for the purpose of a large undertaking like M/s. MDH Ltd. The peculiar feature of the entries recorded in note pad is that it has four columns where the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be confronted and verified from his books of account though as per him the said note book contained the transactions which were not connected with the assessee. Nowhere in the said annexure name of the assessee or any supplies made by him to the assessee were mentioned. He also informed that income on the basis of said annexure had already been offered by him in his returns of income filed after the search. Thus, there was no reason to presume that the assessee had made any unaccounted purchases from M/s. Nanak Enterprises or Shri Prem Kumar Arora at any time. It was also informed that Shri Prem Kumar Arora had also not stated that any sale was made by him to MDH Ltd. which was not recorded in the books of account. In this regard it was important to appreciate that Shri Arora has been running a market outlet in Khari Baoli, Delhi which is a wholesale market and sells goods to other buyers. It was not that he was solely working for the assessee. Therefore, proposition made by the Assessing Officer was baseless and without any evidence and should not be acted upon. 9. However, this explanation offered by the assessee was not found satisfactory by the Assessing Officer. The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all India sales report were figures before the adjustment of discounts and commission did not seem to be correct as comparison was being made with respect to gross sales of ₹ 1,56,78,66,369 from which discounts and commission of ₹ 4,10,20,000 if reduced then the net sales would not come to ₹ 128,61,99,000. He further observed that gross sales in the return of income and all India sales report were at variance. The assessee's claim that figures in all India sales report were figures before the adjustment of discount and commission also was not correct as the comparison was being made with respect to gross sales in the return of income. The explanation offered by the assessee was not at all satisfactory. He, therefore, rejected the explanation offered by the assessee. The Assessing Officer applied gross profit rate of 37.62 per cent. on unaccounted sales of ₹ 18,16,67,639 and determined the profit at ₹ 10,59,63,264. However, since unaccounted purchases were also estimated at ₹ 17,41,73,226, the Assessing Officer made an addition of ₹ 11,00,00,000 on account of profit from unaccounted sales for the years under consideration. 12. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are reduced and on the net amount sales tax is charged and the resultant amount is taken as sales made by the assessee in the books of account. In other words, in MIS report the product value is taken whereas in the books of account the sales after allowing trade discount and sales-tax payable thereon is taken. During the course of hearing, the learned authorised representative for the assessee reconciled the figures with MIS report and the sales recorded in the books of account. To cite an example, M/s. Anurag and Company is super-stockists for Haryana. The sales as per books of account for the month of July, 2000 are at ₹ 59,39,028.01 whereas as per MIS report the sales in respect of Haryana for the month of July, 2000 is at ₹ 65,17,979. Learned counsel for the assessee recon ciled this figure as under : (Rs.) 1. Local sales (spices) 63,69,942.80 2. Local sales (hawan) 1,38,240.00 3. Local sales (hina) 6,966.00 4. Loca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MIS report. We have also gone through the sample vouchers for the month of February, 2000. The perusal of these vouchers again shows that the assessee has deducted the trade discount and cash discount from the product value and after levy of sales tax the sales are recorded in the books of account. We have also gone through the annual reconcili ation for the assessment year 2001-02, which is placed at page 574 of the paper book. The sales as per invoice are at ₹ 94,63,07,936 which has been recorded in MIS report. The discount as per invoice have been allowed at ₹ 14,86,41,784. The resultant sales of ₹ 79,76,66,153 has been recorded in the books of account. Similar is the position for the assessment years 2002-03, 2003-04 and 2004-05. Therefore, there is no difference between the figures reported in MIS information and as per the books of account. The assessee had been following this accounting policy for recording sales in the books of account consistently. If the assessee had not deducted the trade dis count, cash discount or other discounts allowed at the time of sales, the assessee would have paid higher sales tax, which was not required. Therefore, in our con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his regard we would also like to record our findings about the note pad maintained by Shri Prem Kumar Arora. The Assessing Officer has estimated the unaccounted purchases on the basis of third column, which according to the Assessing Officer is the rate. On the other hand, according to the assessee the third column represents the lot No. on the ground that the new paisa cannot be in three figures e.g. 7856/260 cannot be read as ₹ 7,856 and 260 paise. Likewise 7898/100 cannot be ₹ 7,898 and 100 paise. According to the assessee it is lot No. For example at page 139 of the paper book, the sales as on April 20, 2005 has been recorded. Some of the entries are as under : 25K magaz 6191/KDI (SLCS) 25K magaz 50/DL (SLCS) The entry 25K represents some unit in form of katta or bag which is evident from the total made at 100 items. Therefore, it is not the weight in kgs., but quantity in kattas/bags. Likewise for magaz the rate cannot be ₹ 6191/KDI and for another quantity of 25 katta the rate cannot be ₹ 50/DL. The figures taken as sale price d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence of the director of the company, Shri Rajiv Gulati cash of ₹ 48,00,000 was found in his bedroom and ₹ 24.86 lakhs was found from the bedroom of Shri Dharam Pal Gulati. When asked about the source of cash found, both the directors in their statements under section 132(4) admitted that they have been doing speculation in commodities during the financial year 2006-07. Both the directors have also declared substantial income of ₹ 15 crores each as income towards speculative trading in commodities. In their statements they have also admitted that the speculative trading carried out by them were in cash and the commodity trading was in respect of the agricultural commodities. They further admitted that the income from this speculative trading was not reflected anywhere in the books of account. Shri Rajiv Gulati also gave details of investments made out of such income by stating that they have been investing in purchase of jewellery, improvement of home and advances against purchase of properties, contribution towards charitable trusts, advances given to different parties for speculative trading, etc. Similarly Shri Dharam Pal Gulati in his statement under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party only. The said statement shows the date-wise stock of gold of .995 purity and allow in grams (g.) milligrams (mg.). It was further stated that alloy is mixed as impurity with the pure gold to make any ornament. Thus, gold bars as well as alloy was bought and given to the said party by MDH Ltd. In the statement credit column represented gold chains (new ornaments) produced and supplied to MDH by the said jeweller whereas weights of the balance gold remaining on a particular day with the jeweller was mentioned in the last column. The first row of the statement shows an opening balance as on April 1, 2004 of gold having 93 per cent. purity level and weighing 208.343 gms. (i.e. 208 g. and 343 mg.). In this next row, on April 13, 2004 the jeweller received 2 kgs of gold of.995 purity and the same was written below the credit column as 2000.000 gms. (i.e. 2000g and 000 mg.) when he also received alloy weighing 139.784 gms. on the same day. Likewise, all other receipts of gold and alloys were recorded. On April 28, 2004, 211 pieces of gold chains (i.e. new ornaments) were supplied to MDH Ltd., which were recorded under debit column having total weight of 2970.690 gms. The bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -07. The income however, belonged to the assessee-company as the same was earned by deploying the funds of the company, by using the purchase network of the assessee-company and this income arose in the natural course of business of the assessee-company. The income for the financial year 2004-05 from the commodity speculation was estimated by using the admitted profits of speculation in the financial year 2006-07 at ₹ 30 crores as the yardstick in the hands of the company. The Assessing Officer estimated the profit for all the three years in the same proportion as the turnover of the financial year 2004-05 as it bears to the turnover of the financial year 2006-07. 18. The addition proposed by the Assessing Officer was objected before the Dispute Resolution Panel. However, the Dispute Resolution Panel sustained the addition on the ground that identical additions were made in the assessment years 2001-02 to 2004-05. The Dispute Resolution Panel further noted that the addition was made by the Assessing Officer but was deleted by the Commissioner of Income-tax (Appeals). However, the Department was in appeal before the Income-tax Appellate Tribunal. The Dispute Resolution Pane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer relied on the surrender made by two directors on account of specu lative activities of ₹ 15 crores each, carried out by them. The Assess ing Officer took the amount of ₹ 30 crores as base figure for making the impugned additions in all the assessment years. The Assessing Officer in order to work out undisclosed income of each of the four years adopted formula by which he multiplied the said ₹ 30 crores with the assessee's turnover for each assessment year and by dividing the turnover of the assessee for the assessment year 2006-07 in which search took place and alleged speculative income of ₹ 30 crores was offered by the two directors in their personal hands. 29. On appeal it was submitted that Annexure A-4 was found from the possession of Shri Sushil Trehan, who had owned up and the income arising on account of said annexure was duly declared by him, which has also been assessed in his hands. It was also submitted that there was no speculation in chilly and haldi by any person as the seized material does not indicate so. As regards purchase of gold, it was submitted that the assessee distributed gold chains as a part of sales promotion schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k, Ludhiana. Before us the learned Commissioner of Income-tax-Departmental representative submitted that once the surrender was made during the course of search, the assessee was bound to declare the same in the return of income and pay taxes thereon. She supported the order of the Assessing Officer. On the other hand, learned counsel for the assessee reiterated similar arguments before the learned Commis sioner of Income-tax (Appeals). He submitted that when surrender is retracted, then onus is on the Revenue to prove that the surrender was correct on the basis of evidences gathered at the time of search or thereafter. Merely because surrender was made the same is not bind ing on the assessee unless proved otherwise by the Revenue. In fact retraction of surrender was also accepted by the investigation unit as the cheques taken by the Income-tax Officials at the time of surrender against the Income-tax liability thereon were not at all presented for encashment on the due dates. He, therefore, supported the order of the learned Commissioner of Income-tax (Appeals). The Income-tax Appellate Tribunal after considering the above facts held as under : 31. We have heard both par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under consideration is identical and the Revenue has not brought any material contrary to the assessment years 2001-02 to 2004-05, we do not find any reason to differ from the decision taken in earlier years. We accordingly delete the addition on account of speculative business in agricultural commodities and gold. 22. The next issue for consideration relates to confirming the addition on account of advertisement expenditure of ₹ 2,38,70,600 in the assessment year 2005-06 ; ₹ 2,11,27,739 in the assessment year 2006-07 ; and ₹ 2,46,82,361 in the assessment year 2007-08. The facts of the case are that the assessee incurred ₹ 11,93,53,000 on advertisement expenditure in the assessment year 2005-06 ; ₹ 10,56,38,697 in the assessment year 2006- 07 ; and ₹ 12,34,11,805 in the assessment year 2007-08. The Assessing Officer observed that expenses incurred on advertisement were high. He referred to the reasons for disallowance of advertisement expenses in the assessment years 2001-02 to 2004-05. The Assessing Officer while disallowing the advertisement expenses observed that in all the advertisements given by the assessee-company in print and visual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT v. Paarel Imports and Exports P. Ltd. [2008] 171 Taxman 209 (Ker). As regards decisions relied upon in the case of section 40A(2)(a) the learned authorised representative for the assessee submitted that the decisions relied upon are in respect of payments of excess payments to its sister concern. The said payments have been made to the said concern in earlier years but no disallowance has ever been called for. Disallowance has been made not under section 40A(2)(b) but on estimate basis at 20 per cent. on other expenses. In the case of CIT v. Shatrunjay Diamonds [2003] 261 ITR 258 (Bom), the Assessing Officer compared the price of diamonds imported by the assessee through the related parties and other parties and had come to the conclusion that the assessee had paid extra price to the related parties and therefore, the disallowance was made. The matter was remanded for verification to the Assessing Officer. In the case of the assessee no such comparison of price has been drawn by the Assessing Officer and no evidence has been brought on record and therefore facts of the case are entirely different. It was also submitted that facts of NEPC India Ltd. [2008] 303 ITR 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006-07 1,25,43,293 2007-08 1,32,63,588 27. During the course of search operation Annexure A-4/O-18 was seized from the office of Shri Sushil Kumar Trehan located in Mata Chanan Devi Hospital at C-1, Janakpuri, New Delhi. During the course of search Shri Sushil Kumar Trehan, son-in-law of Shri Dharam Pal Gulati admitted in his statement recorded under section 132(4) of the Act that he was looking after purchases of MDH group. Pages 14 to 22 of Annexure A-4/O-18 are the statement of account of M/s. Karni Sons (KS) (page 14), M/s. Karni Enterprises (KE) (page 19) and M/s. Jitesh Kumar Bhupesh Kumar and Co., (pages 20 and 21) wherein date-wise, bill-wise quantitative details of chillies and haldi purchased from these firms are recorded. The details pertained to the financial years 2003-04, 2004-05 and 2005-06. The total quantity of chillies and haldi purchased is multiplied by 3 for haldi and by 5 for chillies. The Assessing Officer on the basis of entries recorded had noted that the purchase invoices of chillies and haldi raised by these parties were for MDH Ltd. The purchases were over invoiced to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 713226 kgs. x ₹ 3.00 21,39,678 Chillies 2080723 kgs. x ₹ 5.00 1,04,03,615 Total 1,25,43,293 Assessment year 2007-08 (Rs.) Haldi 859361 kgs. x ₹ 3.00 25,78,083 Chillies 2137101 kgs. x ₹ 5.00 1,06,85,505 Total 1,32,63,588 28. The Assessing Officer proposed addition of the abovementioned amounts in the hands of the assessee in the draft orders for the assessment years 2005-06, 2006-07 and 2007-08. 29. The assessee objected to additions proposed by the Assessing Officer for inflation of purchases. The Dispute Resolution Panel observed that the Assessing Officer had discussed the additions in paragraph 9 of the draft assessment orders for the assessment year 2005-06 and 2006-07 and in paragraph 8 of the draft assessment order for the assessment year 2007-08. It has also been observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or recipient or person, who had made the investment. He also placed reliance on the decision of the hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah [1996] 218 ITR 239 (SC). 31. We have heard both parties and have gone through the material available on record. We find that this issue is squarely covered by the decision of the Income-tax Appellate Tribunal dated October 29, 2010 for the assessment years 2001-02 to 2004-05. We have gone through the statement given by Shri Rajiv Gulati. In his statement Shri Rajiv Gulati stated that Shri Sushil Kumar Trehan was looking after supplies of raw-material to M/s. MDH Ltd. It was also stated that there was no practice in MDH Ltd. to inflate the purchase price. Shri Sushil Kumar Trehan was doing on his own account and initially to escape the liability of tax he had made statement that purchase inflation was on account of purchases made by MDH Ltd. It was also stated that Shri Sushil Kumar Trehan has admitted income from over invoicing in his return of income. The Income-tax Appellate Tribunal, Delhi Bench E , New Delhi, in the order dated October 29, 2010 in I. T. A. Nos. 1270 to 1273(Del) of 2010 in the assessee's own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Sushil Trehan, the amount to that extent is in nature of commission income and becomes the expenditure in the hands of the assessee particularly when no evidence suggesting that over invoicing was done at the instance of the assessee was found. Moreover the same income cannot be taxed twice, once in the hand of Sushil Trehan as his income and again in the hands of the assessee by way of dis allowance of the expenditure. Therefore, in our considered opinion, no addition can be sustained in the hands of the assessee. Accord ingly, we delete the addition in all the years under consideration. 32. The abovementioned view of the Tribunal is supported by the following decisions : (i) In the case of CIT v. Shiv Prakash Aggarwal [2008] 306 ITR 324 (Delhi) a search was conducted at the premises of the assessee who was residing along with his father. The Assessing Officer issued notice under section 158BC to the assessee for filing of block return but the assessee objected to the same stating that search warrant was in the name of his father and not in his name. The assessee also explained that documents/ material seized from during search also belonged to his father. The Assess ing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he next issue for consideration which is common for all the three years relates to addition towards inflation in expenses based on documents seized under annexure A-4/O-18. The Assessing Officer examined the entries found recorded on pages 51, 52 and 89 of annexure A-4/O-18. The assessee purchased chillies from M/s. B.D. Patil Industries, Vinayak Traders, M/s. B. D. Patil Sons and Shri Someshwar Commission Company. There was inflation of prices at ₹ 5 per kg. for chillies. The Assessing Officer found inflation of purchases in the assessment year 2005-06 at ₹ 54,48,600. On a query raised by the Assessing Officer it was stated that page 52 on the letter head of M/s. B.D. Patil Industries had been explained by Shri Sushil Kumar Trehan and declared unaccounted income noted therein. Further it was stated that no adverse cognizance can be taken as the assessee has no knowledge of what Shri Sushil Kumar Trehan might have been doing at his back for his own personal gains. It was also stated that the director of the assessee-company namely Shri Rajiv Gulati in his statement dated December 15, 2008 had denied that said amounts of ₹ 5 and ₹ 3 per kg. of chillies and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices rendered by him. In the process of procuring the supplies of chillies and haldi for the assessee Shri Sushil Kumar Trehan received secret commission at ₹ 5 per kg. for chillies and ₹ 3 per kg. for haldi for himself. He had surrendered amount of secret commission in his return of income. Therefore, no addition could be made in the hands of the assessee. However, the Dispute Resolution Panel was of the view that the explanation offered by the assessee was an afterthought. The disclosure of unaccounted income in the hands of Shri Sushil Kumar Trehan could be for any reason but it did not explain in anyway the action of the assessee in inflating its purchase of chilli and haldi. The fact remained that Shri Trehan was neither a director nor an employee of the assessee-company. In fact the price of chilli and haldi at the prevailing market rate on the date of all these supplies was lower by ₹ 5 per kg in case of chilli and ₹ 2 per kg. for haldi when these have been purchased by the assessee. The inflated price had been received by the assessee as kick-back through Shri Trehan who is a close relative of the managing director of the company. The amount received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as received by the assessee and then in the next line it puts an allegation that kick-back was received by the directors of the company. Therefore, the findings of the Dispute Resolution Panel are contradictory and cannot be relied upon. It was further submitted that income on the basis of pages 40, 51 and 89 has been declared by Shri Sushil Kumar in his return of income under section 153A of the Act. Therefore, the same cannot be added in the hands of the assessee. The learned authorised representative of the assessee further submitted that the Assessing Officer had made addition of ₹ 1,13,71,759 for over invoicing of chillies and haldi by considering the quantity of the said items purchased during the entire year by the assessee-company. Thus the addition again made for over invoicing of purchase of chillies and haldi on the basis of seized material referring to the intermediate period amounts to double addition because even the quantity purchased during the period to which the seized material referred have already been considered in the addition made for over invoicing by ground No. 4. Thus the addition of ₹ 54,48,600 is a case of two tier double addition. Firstly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee but also giving huge disclosure of undisclosed income. 38. We have heard both parties and gone through the material available on record. During the course of search Shri Sushil Kumar Trehan has admitted that he was purchasing haldi, chillies and jeera on behalf of the assesseecompany. There is no dispute about the fact that those papers containing over invoicing were found from his custody. It is also a fact that Shri Sushil Kumar Trehan was not paid any remuneration. Shri Rajiv Gulati in his statement admitted that there was no such practice in MDH Ltd. to inflate the purchases. He also admitted that those transactions were made by Shri Sushil Kumar on his own account and initially to escape the liability of tax on the basis of those papers, he made statement that purchase inflation was on account of purchases done by MDH Ltd. It was further stated by Shri Rajiv Gulati that income arising from those papers was admitted by Shri Sushil Kumar Trehan. Shri Rajiv Gulati also stated that Shri Sushil Kumar Trehan was involved in supply of raw spices to the MDH for his own benefit. The Income-tax Appellate Tribunal, Delhi Bench E in order dated October 29, 2010 has he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in haldi and chillies. During the course of search loose papers containing purchases made from Karni Sons, Jitesh Kumar Bhupesh Kumar, Karni Enterprises were found. These documents pertain to purchases of haldi and chillies made on behalf of MDH Ltd. The Assessing Officer on the basis of entries recorded on loose papers of Annexure A-4/O-18 made the additions as below : Sl.No. Page No. Name of the person Amount 1. 14 Karni Sons 19,03,530 2. 15 Jitesh Kumar Bhupesh Kumar 7,02,810 3. 19 Karni Enterprises 5,00,000 4. 21 Jitesh Kumar Bhupesh Kumar 4,93,500 Total 35,99,840 41. During the course of assessment proceedings, it was submitted by the assessee that these papers were found from the possession of Shri Sushil Kumar from the premises of Mata Chanan Devi H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would amount to double addition. The learned Commissioner of Income-tax-Departmental representative on the other hand submitted that contention of the assessee that both the papers were related to Shri Sushil Kumar is not correct. The assessee had inflated the purchases and therefore, the Assessing Officer had issued questionnaire to the assessee. The assessee's explanation was not found to be acceptable. Therefore, the Assessing Officer as well as the Dispute Resolution Panel were justified in making the addition in the hands of the assessee. 44. We have heard both parties and gone through the material available on record. The facts relating to this ground are identical to the ground relating to addition of ₹ 54,48,600. For the same reasons it is held that no addition can be made in the hands of the assessee when Shri Sushil Trehan has owned up the papers found in his possession. He was collecting ₹ 5 and ₹ 3 per kg. in respect of chillies and haldi without the knowledge of management. Moreover, this addition is also part of addition of ₹ 1,13,71,759. Therefore, the addition of ₹ 35,99,840 amounts to double addition. Therefore, in our considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f that was so the assessee would have claimed the same for deduction under section 80G. Since the assessee was not able to explain the total cash of ₹ 15,60,000 (Rs. 10,60,000 + 5,00,000) pertaining to the assessment year 2005-06, true nature of these documents was not established. The presumption as per section 292C of the Act was that the paper belonged to the assessee and its contents were proved. The Assessing Officer therefore, made the addition of ₹ 37,35,000 (Rs. 21,75,000 + ₹ 15,60,000). 46. The assessee raised objection before the Dispute Resolution Panel. The Dispute Resolution Panel rejected the objections raised by the assessee on the ground that the addition made was based on seized papers. 47. Before us it was submitted that pages 41-42 of Annexure A-4/O-18 contain details of donations collected by Mahashay Chunni Lal Charitable Trust and the same were found from the premises of Mata Chanan Devi Hospital from the possession of Shri Sushil Trehan who had owned up the said documents and had given cash donations of ₹ 11.3 lakhs and ₹ 28.75 lakhs noted therein out of his undisclosed income. The cash book of Shri Sushil Kumar Trehan for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Thus the source of income out of which the payment of ₹ 11.30 lakhs and ₹ 28.75 lakhs has been made exists in the earlier years. Therefore, the amount of ₹ 10.60 lakhs and ₹ 21.75 lakhs which is part of ₹ 11.3 lakhs and ₹ 28.75 lakhs respectively cannot be assessed in the assessment year 2005-06 as the source of the income pertains to the earlier years. As regards the amount of ₹ 5 lakhs, pages 540 and 541 are receipts of ₹ 5 lakhs which has been received by demand draft No.767248 dated March 5, 2004 from Mahashay Chunni Lal Charitable Trust. We have also gone through the bank statement of Mahashay Chunni Lal Charitable Trust with Syndicate Bank which gives the details of ₹ 5 lakhs debited to the account of ₹ 5,00,000 has been paid on October 19, 2004 from the bank account of Mahashay Chunni Lal Charitable Trust. Therefore, ₹ 5,00,000 payment pertained to Mahashay Chunni Lal Charitable Trust. There is nothing on record to suggest that these amounts had been paid by the assessee. Thus the source of income of ₹ 10.60 lakhs which is part of ₹ 11.30 lakhs and ₹ 21.75 lakhs which is part of ₹ 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding at Byadgi. The said school belongs to Mahashay Chunni Lal Charitable Trust, an independent assessee. On a query it was submitted that the assessee- company had no connection with the said papers which were found from the possession of Shri Sushil Trehan. It was also stated that it was incorrect to say that the assessee-company was inflating purchases in order to invest in construction. Shri Sushil Kumar Trehan in his statement recorded on oath on date of search had admitted while replying question No. 23 that expenses in school building were out of books. The Assessing Officer further observed that in the past completed assessment it had been held that on the basis of seized record that M/s. MDH Ltd. was inflating expenses and investing in properties. Mahashya Dharam Pal was the main person behind the trust. The Assessing Officer further observed that Mahashya Dharam Pal was also chairman and main deriving force behind the assessee-company. All other companies were dependent on the assessee-company for their activities. Therefore, the Assessing Officer concluded that Shri Sushil Kumar Trehan had been made fall guy that is how he had owned up all the transaction. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said sum. The donations were given by Shri Sushil Kumar Trehan out of his undisclosed income and therefore, no addition could be made in the hands of the assessee. It was further submitted that addition of ₹ 37,35,000 has been made in the year in which income was earned and therefore, no separate addition for the utilisation of the said amount could be made as it would tantamount to double addition which is not permissible by law. It was therefore, submitted that addition for utilisation of donations received by the trust in the hands of the assessee should be deleted because those transactions do not pertain to the assessee and addition of the said amount will lead to double addition. 54. We have heard both parties and gone through the material available on record. Page 45 of Annexure A-4/O-18 placed at page 424 of the paper book contains details of ₹ 27,41,005. This page does not contain name of the person from whom the money of ₹ 27,41,005 had come for investment in school building. Pages 46 to 49 contain details of expenditure of ₹ 17,57,274. There is no name of any person from whose account the money has come for investment in school building. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e books of the assessee and hence no addition was required to be made. However, the Assessing Officer proposed the addition of ₹ 1,56,61,544. 57. Before the Dispute Resolution Panel it was explained that entries on seized page 82 were actually reflected in the books of account of the assessee. In support of his argument the learned authorised representative of the assessee referred to paper book pages 551 to 561 of the paper book. It was submitted that page 551 of the paper book is the account of M/s. Vinayak Traders a supplier of the assessee (Gurgaon office account of the assessee) and page 552 of the paper book is the copy of account of M/s. Vinayak Traders (Delhi office account) of the assessee. It was submitted that the closing balance of ₹ 34,44,461 in Gurgaon office account as on December 7, 2005 and the closing balance of ₹ 1,22,17,083 in the Delhi office account as on December 6, 2005 is reflected on letter dated December 9, 2005 and the sum of ₹ 50,00,000 is the sum total of two entries of ₹ 25 lakhs each which is the capital contribution of Mahashayaji which is a reference to the managing director of the company who is known as Mahashayaj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 25,05,000 has been introduced by each of the partner and the assessee-company is not partner therein. The Dispute Resolution Panel accepted that said sum was paid by Mahashayaji and Rajivji as capital in the said firm. The learned authorised representative for the assessee, therefore, submitted that since the said amount was paid by two persons who are independently assessed, no addition could be made in the hands of the assessee. Thus the addition of ₹ 50 lakhs could not be made in the hands of the assessee. 59. The learned Commissioner of Income-tax-Departmental representative has submitted that the Assessing Officer proposed addition of ₹ 1,56,61,544 based on entries of ₹ 1,22,17,083 against New Delhi and ₹ 34,44,461 against Gurgaon on the basis of entries recorded on page 82 of the seized material a letter dated December 9, 2005 from M/s. Vinayak Traders. However, the Dispute Resolution Panel noted that the authorised representative has not been able to show with reference to books of account the amount of ₹ 25 lakhs each totalling to ₹ 50 lakhs paid to M/s. Vinayak Traders on account of capital contribution by Mahashyaji and Rajivji ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,05,000 each. The amount of ₹ 50 lakhs has been transferred from outstanding balance of M/s. Vinayak Traders in the capital account of Shri Mahashaya Dharam Pal Gulati and Shri Rajiv Gulati, i.e., ₹ 25 lakhs each. Sh. Suresh Patil has sent the account in layman's way after capital contribution by Sh. Dharam Pal Gulati and Sh. Rajiv Gulati amount due was ₹ 1,06,61,544. Because of this the amount of ₹ 50 lakhs has been reduced from the figure of ₹ 1,56,61,544. Therefore, the amount of ₹ 25 lakhs each in the names of the partners has been contributed them. In case the amount is not explainable the addition should have been in the hands of the partners and not in the hands of the assessee. Accordingly no addition can be made in the hands of the assessee. 62. In the draft assessment order the Assessing Officer has proposed addition of ₹ 1,56,61,544 which was based on the outstanding amount in respect of MDH Delhi and MDH Gurgaon. The Dispute Resolution Panel has not approved the addition of ₹ 1,56,61,544. However, they have approved the addition of ₹ 50 lakhs credited to the account of the partners. According to the learned a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le trust. The addition was made on the basis of valuer's report in respect of investment in school building at Byadgi which was owned by the trust. Therefore, if any addition was required to be made it should have made in the hands of the trust. However, the Dispute Resolution Panel rejected the contention of the assessee. It was observed that pages 51, 82, 89, 14, 22, 41 and 42 of Annexure A-4/O-18 clearly showed that expenditure on construction of building had been made by the assessee. The school was being run in the name of family member of the managing director of the company. The Dispute Resolution Panel therefore, rejected the objections raised by the assessee and affirmed the draft assessment order on this ground. 65. Before us the learned authorised representative of the assessee submitted that school at Byadgi belongs to Mahashaya Chunni Lal Charitable Trust which is a separate assessee being assessed by the same Assessing Officer. If the valuation of the said property owned by the said trust is found to be higher than the addition could be made in the hands of the said trust and not in the hands of the assessee. It was also submitted that notice under section 148 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed investment detected on the basis of seized material. The learned authorised representative of the assessee in rejoinder submitted that the school does not belong to the assessee and therefore, no addition can be made in its hands. Notice under section 148 had already been issued to the trust who is the owner of the said school. 67. We have heard both parties and gone through the material available on record. There is no dispute about the fact that the Assessing Officer had issued notice under section 148 on the basis of valuation report for the assessment year 2005-06. There is also no dispute that school is owned by the trust. No evidence was found during the course of search that MDH Ltd. has incurred expenditure on construction of school building at Byadgi. On the contrary Shri Sushil Kumar has owned up the expenditure out of his undisclosed income. We have also gone through the reasons recorded under section 148 for reopening of the case of the trust. As per reasons recorded proceedings under section 147 have been initiated on the basis of valuation report of the school building at ₹ 75,86,800. The amount of ₹ 75,86,800 has been bifurcated in two assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r its utilisation cannot be made. It was further submitted that ₹ 6.25 lakhs was utilised for purchase of land and ₹ 3.25 lakhs aggregating to ₹ 9,50,000 was used for school construction as per details on page 48 of annexure A-4/O-18 for which separate addition has been made in the assessment year 2005-06 and therefore, no separate addition for this amount can be made in the assessment year 2007-08. Moreover, the payment has been made out of undisclosed income of Shri Sushil Kumar Trehan and hence, no addition can be made in the hands of the assessee. On the other hand, the learned Commissioner of Income-tax-Departmental representative supported the order of the Assessing Officer. 70. We have heard both parties and gone through the entries recorded on page 51 of annexure A-4/O-18. We find that the entrees on page 51 relate up to May 15, 2004. Some of the entries relate to year ended on March 31, 2004. Thus the amount expended on construction of school building relate to the assessment years 2004-05 and 2005-06. The source of income is commission of ₹ 5 per kg of chilies charged by Sh. Sushil Trehan on purchases made by him for MDH Ltd. This commission has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,46,90,000 for the period of four months in the financial year 2006-07 relevant to the assessment year 2007-08. 72. On a query it was explained by the assessee that page 40 of the annexure A-2/O-1 contained balances in the bank account of Ludhiana branch of MDH Ltd on the particular day mentioned therein. The assessee submitted photo copies of the bank statements in support of its contention. These figures were noted telephonically by Mr. Gupta, the accountant in Gurgaon branch of MDH Ltd. On comparison of entries with bank statements the Assessing Officer found that only one entry tallied completely date-wise and deposit-wise. The Assessing Officer test checked 33 entries. Except a deposit of ₹ 4,00,000 on August 22, 2006 none of the other entries tallied. Since the assessee had inflated purchase of haldi and chillies and was also indulging speculation of agricultural commodities, gold, etc., the Assessing Officer concluded that cash was generated by various means. Since the assessee was not able to explain entries relating to cash account recorded on page 40, the Assessing Officer added the amount of ₹ 12,46,90,000 as unexplained income. 73. The assessee obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed business. He also observed that the availability of cash date-wise recorded on page 40 was tallying with the bank statement. On the other hand, the contention of the assessee is that the accountant of the company used to obtain telephonically the availability of cash in HDFC Bank, Ludhiana, where the customers were depositing the cheques directly in the account. To demonstrate entries the learned authorised representative for the assessee explained entries before the Assessing Officer as below : To illustrate the same, on the front side of page 40/A- 3/O-2 (marked as side 'B' in the explanations given now), in the second column (marked as '1' now) closing balance of August 21, 2006 (i.e., of the previous day) is stated on the third row as ₹ 19,68,739.55, which is the clear/usable opening bank balance available on August 22, 2006, ₹ 4,00,000 stated just above it represents the value of the post-dated cheque dated August 22, 2006 deposited on August 21, 2006 in the bank, but which was not readily available for use on August 21, 2006 as explained. The same is squarely verifiable from the copy of the bank statement of the relevant dates fur nished here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of ₹ 15,05,244.55 stated right on top of the said two sums is the balance before adding ₹ 15,00,000 for cheque dated October 11, 2006, deposited on October 10, 2006 from the said available balance of ₹ 30,05,244.55 on October 11, 2006 which is again verifiable from the bank statement itself. Accordingly, in the explanatory statement prepared for reconciling the balances as per the bank statement and as per the seized loose paper, the said transactions for October 11, 2006 have been reconciled as under : Particulars Amount (Rs.) Opening balance as on October 11, 2006 as per bank statement 43,05,244.55 Add : Cheque dated October 12, 2006 deposited on October 11, 2006 5,50,000.00 48,55,244.55 Less: Cheque presented for payment 13,00,000.00 Closing balance as on October 11, 2006 as per bank statement (marked as A-1) 35,55,244.55 Less : Post dated value cheque 5,50,000.00 Closing Bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... figures, these were not entered in the books of account. This reply of the assessee was considered by the Assessing Officer as self-serving reply. He observed that on the seized papers nothing like projections, etc. was mentioned. Therefore, the reply of the assessee was rejected as no evidence was filed in support of the contention of the assessee. As regards pages 78 to 82 of annexure A-6/O-1 it was explained by the assessee that the said pages were print out of stock summary for the assessment year 2005-06 in respect of Kirti Nagar factory. It was stated that the stock register was produced. However, the Assessing Officer observed that no such entries were recorded on the note-sheet. Therefore, the assessee could easily attach the copies of four pages of the stock register in support. The Assessing Officer therefore, treated the bunch of papers 78 to 82 as unexplained. As regards page 87 of annexure A-8/O-1 the assessee was asked to reconcile the stock as on October 30, 2006 for various items like aggarbatti (54 cases), dhoop fancy (3084 cases), hawan (375 cases), manjan (76 cases), mehandi (58 cases), papad (1 case), pouch (461 cases), pouch fancy (213 cases), sachettes (115 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax authorities during the course of search to extract surrender. The assessee referred to question Nos. 21 to 23. The assessee retracted the surrender. Shri Rajiv Gulati was not informed as to how the valuation of inventories was prepared, i.e., whether it was on MRP or at cost. Many cold storages were not surveyed or searched where the goods were kept. The assessee contended that there was no discrepancy in the stock. The Assessing Officer referred to provisions of section 292C of the Act. He observed that there was presumption that the material found in the search belonged to the assessee and contents of the same are true and onus was on the assessee to prove otherwise. As regards mentioning of Ghaziabad factory along with Gurgaon and Kirti Nagar factory, the Assessing Officer noted that it was a mistake in typing. Such mistake could not vitiate the proceedings and also had no impact on admission of the assessee regarding the surrendering of stock valuing ₹ 11 crores due to discrepancies found. The Assessing Officer therefore, added the amount of ₹ 11 crores-Rs. 10 crores towards stock and ₹ 1 crore towards discrepancies. 80. The Dispute Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to the residence of Shri Rajiv Gulati where he surrendered the amount of ₹ 11 crores on account of discrepancy in stock. Further the surrender was retracted by the director. Mr. Rajiv Gulati was not informed as to how the valuation of inventory was prepared, whether at cost or MRP. Many cold storages were not surveyed or searched where the goods were kept. Then how the discrepancy in stock was computed was not understood. The statement of Shri Rajiv Gulati was recorded during the course of search proceedings on November 28, 2006 wherein reply to question No. 20, he stated that he was misled with the pressure and presumption that there was discrepancy in the stock. A general question was put with no actual figures suggesting that the disclosure be made to close the issue though no discrepancy in any premises was pointed out in the figures. It has been stated that even though surrender of ₹ 10 crores was made, the Assessing Officer was duty bound to work out the exact quantity of stock as on the date of search and to compare the same with the stock recorded in the books. He submitted that the Income- tax Appellate Tribunal in its decision for the assessment years 2001- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ostensible consideration was not the real consideration and that the assessee had, in fact, received an amount higher than the amount disclosed by him in the sale documents, and consequently there was understatement or concealment of the consideration. The learned Commissioner of Income-tax, Departmental representative, on the retraction of admitted income also placed reliance on the following decisions : (i) Asst. CIT v. Espresso Investments [2006] 8 SOT 287 (Mum). (ii) Manmohansingh Vig v. Deputy CIT [2006] 6 SOT 18 (Mum). 82. We have heard both parties. During the course of search Shri Rajiv Gulati surrendered the amount of ₹ 10 crores towards difference in stock and Rs. one crore on account of certain discrepancies. Thus the total amount surrendered was ₹ 11 crores. During the course of search inventory of stock lying in different premises, i.e., factory at Kirti Nagar, Gurgaon Cold Storage, godown, etc., was made. As per stock inventory so made the total stock was ₹ 13,04,15,172. The authorised officers obtained the surrender by stating that there was difference in stock. The contention of the assessee is that during the course of search Shri Rajiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement recorded under section 132(4) of the Act. If the Assessing Officer wanted to add the amount of ₹ 11 crores on account of stock inventory, he should have brought material on record. In the absence of such material, in our considered opinion, no addition can be made. We, therefore, delete the addition. 85. The next issue for consideration relates to addition of ₹ 73,000 on the basis of statement of assistant accountant of M/s. Satvik Traders. Survey under section 133A was conducted at the premises of M/s. Satvik Traders, 6680 Khari Baoli, Delhi. Statement of Shri P.C. Sati, assistant accountant on oath had accepted that advances were received from the customers and the same were not entered in the books. At page 9 of the statement he accepted that ₹ 73,000 was accepted as advance on November 21, 2006. Further he admitted that this amount of ₹ 73,000 was unaccounted for. The Assessing Officer asked the assessee to explain as to why the amount of ₹ 73,000 should not be added as income of the assessee. It was submitted by the assessee that M/s. Satvik Traders was not concern of the assessee. It was no concern of the assessee whether M/s. Satvik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 2006-07 and ₹ 8,89,40,732 in the assessment year 2007-08. The Assessing Officer referred the matter to the Transfer Pricing Officer for determination of the arm's length pricing on December 22, 2008 after obtaining the permission from the Commissioner of Income-tax, Central-I, New Delhi. The Transfer Pricing Officer determined vide order under section 92C(3) dated October 23, 2009 directing the Assessing Officer that arm's length pricing shown by the assessee for export to the associated enterprises, be increased by ₹ 52,91,986 in the assessment year 2005-06, ₹ 1,12,52,632 in the assessment year 2006-07 and ₹ 5,14,66,456 in the assessment year 2007- 08. During the assessment proceedings the assessee on October 30, 2009 admitted that copy of the said order had been received by the assessee. The Assessing Officer further noted that the Transfer Pricing Officer has observed that no documentation has been prescribed under rule 10D(1)(e) to 10D(1)(m) could be filed. No transfer pricing study/working in regard to the international transactions was undertaken and most of the method claimed to have been applied and reported in Form No. 3CED ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was learnt by the assessee only on inspection undertaken on its behalf on March 9, 2010. He further submitted that it is a legal objection which goes to the root of the subject and thus can be raised at any time in assessment proceedings. 93. It has further been submitted that the transfer pricing proceedings initiated and undertaken are bad in law and on facts for the specific reasons mentioned below also communicated to the Transfer Pricing Officer vide letter dated January 12, 2009 besides other reasons submitted later on and must be taken on record under section 292BB of the Act : (i) The same was referred in respect of some name, which was a non-existent assessee. (ii) The same did not refer to each transaction for which the arm's length price was to be determined. (iii) The same was referred to only for the sake of seeking extension of the limitation to complete the assessment by December 31, 2008. (iv) The reference was also not enterprises specific. (v) The international transactions were less than ₹ 5 crores of which no reference was desired as per instruction No. 3 dated May 20, 2003 of the Central Board of Direct Taxes placed at pages 722 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y company were placed on record at pages 802 to 827 of the paper book enclosed with the letter dated October 14, 2009. On perusal of the annual accounts it would be seen that the expenses incurred by the said associate enterprise were in the range of 17 to 20 per cent. of the sales there and the profits were in the range of 4.5 to 6 per cent. of the sales there and which was its margin on investment. Incurrence of all these expenses was the sole responsibility of the assessee as it was the assessee who was establishing its own marketing set up there. Thus more discounts was given to the associated enterprise who were catering to the small retail outlets overseas as compared to the non associate enterprises who were the large store chains overseas and could afford to buy one container load goods at a time. But the small retailers were also to be given the same margin as the big store chains as the consumer purchases the produce at the same rate from any nearest store and MRP is printed on each packet. If those subsidiaries had not been opened but branches were opened, then the expenses incurred there would have been met by the assessee only. The Transfer Pricing Officer/the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in the case of Aztec Software and Technology Services Ltd. v. Asst. CIT [2007] 294 ITR (AT) 32 (Bang). The learned Commissioner of Income-tax (Departmental representative) further submitted that the RBI is not transfer pricing authority and hence the restrictions imposed on the assessee for investment is not relevant. The purpose for which permission was granted by RBI is only concerned with the foreign exchange regulations and not for arm's length price. He placed reliance on the decision of the hon'ble Delhi High Court in the case of CIT v. Nestle India Ltd. [2011] 337 ITR 103 (Delhi). Choice of the determination of the arm's length price is not unfettered choice on the part of the taxpayer and this choice is to be exercised on the touch stone of principles governing selection of most appropriate method set out in section 92C(1). Where the Assessing Officer finds that that selection of most appropriate is not correct, he has the power as well as corresponding duty to select the most appropriate method and compute the arm's length price by applying that method. In the absence of any comparables forthcoming from the assessee on the form of an appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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