TMI Blog2013 (12) TMI 712X X X X Extracts X X X X X X X X Extracts X X X X ..... ount withdrawn by a person from his bank account cannot be regarded to be his income - Under Sec. 4 of the Income Tax Act the income tax is chargeable only on the real income - The amount withdrawn from the bank account represents only the current asset of the Assessee – Decided in favour of assessee. Undisclosed cash payment – Held that:- The Assessee has disclosed only a sum of Rs.6,31,00,000/- during the year as undisclosed income of the Assessee - The Assessee had made cash payment during the year amounting to Rs. 8,50,39,441 - Until and unless the income is earned by the Assessee, the Assessee cannot make the payment - Income is earned by the Assessee prior to making of the cash payment - The Assessee has not utilized the income for making the cash payments - The income declared by the Assessee in the subsequent year cannot cover the cash payments made by the Assessee during the year - Therefore, out of the cash payments of Rs. 8,50,39,441/-, we allow telescoping only to the extent of Rs. 6,31,00,000/- - Partly allowed in favour of assessee. Unaccounted sales – Held that:- The Assessee was a conduit for carrying on the business of Shri Anil H. Lad in respect of iron ore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has made purchases from various parties - The sales made by the assessee were duly accepted by the revenue - At the most, where the Assessee had saved any tax in procuring the bogus bills, the Assessee could have made more profit but the purchases made by the Assessee cannot be disallowed - The gross profits as per the books of assessee were 16.35% and 6.06% for the assessment year 2007-08 and 2008-09 respectively - Once the purchases are disallowed the gross profit will increase to 50.9% and 90.7% for the assessment year 2007-08 and 2008-09 respectively - No material or evidence whatsoever showing the comparative instance was produced before us to justify such a high gross profit - No addition on account of bogus iron ore purchases can be made as without procuring the iron ore by incurring the cost in our opinion the assessee cannot sell the iron ore - The revenue could have added the profit on such purchases @ 4% as the assessee categorically stated that he was carrying out the sales on behalf of Shri Anil H. Lad on commission basis and the evidences found during the course of search and survey also prove that the assessee is being used as conduit to siphon off iron or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of expenditure and that these expenses were incurred by the appellant. The appellant never incurred or spent any such amount and therefore the addition, having been made on the wrong premise and being erroneous both on facts and law is to be deleted. 6.3 In any case the enhancement as made by Commissioner of Income-tax (Appeals) being bad in law is to be deleted. 4. In the A.Y. 2005-06, ground nos. 1 to 5 and ground no. 8 was not pressed and therefore the only effective grounds remaining for adjudication reads as under : 6.1 The learned Assessing Officer had erred in adding a sum of Rs.1,69,768/- u/s. 40A(3) of the Act and the learned Commissioner of Income Tax (Appeals) had erred in enhancing this amount of Rs. 81,05,775/- holding that the entire expenses is not accounted and hence the entire amount liable is to be added to the income of the appellant, though no separate addition is sustained on this count by the Commissioner of Income-tax (Appeals) on account of Telescoping. 6.2 The lower authorities have erred in holding that the scribbling in the seized documents were in the nature of expenditure and that these expenses were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts in the names of and belonging to different persons and the Commissioner of Income-tax (Appeals) has erred in confirming the same. 5.2 The lower authorities have erred in holding that the appellant had control over the bank accounts. Further the lower authorities have also erred in holding that the expenses claimed by the appellant are bogus to the extent of amounts withdrawn from the bank. This conclusion of the lower authorities being without basis and being only on surmises and conjectures are to be totally ignored and additions as made by Assessing Officer and sustained by Commissioner of Income-tax (Appeals) is to be deleted. 6. In the A.Y. 2007-08, ground nos. 1 to 4 and 12 were not pressed and therefore the effective grounds remaining for adjudication reads as under : 5.1 The learned assessing officer has erred in holding that a sum of Rs. 1,85,63,104/- is liable to be disallowed u/s. 40(A)(3) of the Act, though no disallowance is made after telescoping the same against declaration made by the appellant. 5.2 The learned Commissioner of Income-tax (Appeals) has erred in making a fresh addition of Rs.9,28,15,521/- by way of enhancement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely without any basis, the observations are totally unsubstantiated and therefore to be totally ignored. 7.4 The addition on this account as sustained being totally bad on fact and in law, requires to be deleted. 8.1 The learned Assessing Officer has erred in holding a sum of Rs. 1,43,000/- as unexplained investment in plots and learned Commissioner of Income-tax (Appeals) has erred in confirming the same. There were no unaccounted investment in plots and therefore the addition being bad in law and on facts is to be deleted. 8.2 In any case and without prejudice the addition is excessive and in any case it requires to be telescoped. 9.1 The learned Assessing Officer had erred in making an addition on protective basis of Rs.5,88,72,447/- and on substantive basis Rs.7,25,86,033/- as bogus purchases and the learned Commissioner of Income-tax (Appeals) has erred in confirming this entire addition as substantive addition in the hands of the appellant. The addition as made and sustained being wholly erroneous on fact and in law be deleted. 9.2 In any case the addition as sustained is erroneous and excessive. 10.1 The learned Assessing Officer had erred in adding a sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in confirming the same. 6.2 There was no excess stock at all and there is no evidence therefor. No inventory of such stock was ever found or made by the Income-tax Department. The addition was made on conjecture and hence being without basis and confirmed by Commissioner of Income-tax (Appeals) also without basis requires to be deleted. 7.1 The learned Assessing Officer had erred in making an addition of Rs.43,00,000/- (39,09,130 + 3,90,870) as income on account of unexplained investment in purchase of iron ore and profit on such unaccounted sales. The addition as made by Assessing Officer being wholly on suspicion and surmises was wholly erroneous. 7.2 The learned Commissioner of Income-tax (Appeals) had however restricted the above addition to 4,30,000/- only by holding that the appellant had made a unaccounted turnover of Rs.43,00,000/- on behalf of third person and that on such turnover be made a profit of 10%. 7.3 The conclusions drawn by Commissioner of Income-tax (Appeals) based on various observation in the course of appellate order are absolutely without any bases the observations are totally unsubstantiated and are therefore to be totally ignored. 7.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchases as totally unaccounted shown in the names of persons as detailed in the assessment orders (relevant for A.Ys 2007-08 and 2008-09). Also, with regard to another category of purchases (again relevant for A.Ys 2007-08 and 2008-09) made from certain parties, the Assessing Officer accepted the claim of the appellant since the parties were existing parties but made a disallowance on protective basis, the substantive addition being in the hands of the individual parties. The Assessee went in appeal before CIT(A). CIT(A) noted that the Assessee has been dealing in electronics under the name of M/s. Mahaveer Electronics as its proprietor. The Assessee s turnover and business income declared in respect of business of M/s. Mahaveer Electronics has been primarily accepted by the AO. In addition, the Assessee is also dealing in iron ore in the name of M/s. Guru Rajendra Mineral Trading Company. The profits from this business have been declared under the name of M/s. Guru Rajendra Mining Company, M/s. Guru Rajendra Mineral Processing Company and M/s. Rajendra Transport Company. The CIT(A) also noted that the financials of the business carried out in the name of these 3 concerns are merge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to this ground are that as per seized documents marked as A/MJ/7 dt. 1.4.2008, the AO noted that the Assessee had made cash payment amounting to Rs. 81,05,775/-. He worked out 20% thereof to be Rs. 16,21,155/- and gave opportunity to the Assessee to explain why the amount of Rs.16,21,155/- be not disallowed u/s 40A(3). The Assessee after going through the details of the payments, worked out the details in respect of payments above Rs. 20,000/- at Rs. 8,48,843/-. The AO verified the same and found that the payment made by the Assessee in excess of Rs. 20,000/- relating to the impugned year are Rs. 8,48,843/- and therefore, he disallowed 20% thereof amounting to Rs. 1,69,768/-. When the matter went before CIT(A), CIT(A) enhanced the disallowance. CIT(A) took the view that these expenditure have been incurred outside the books of accounts. Therefore, CIT(A) after giving opportunity to the Assessee vide letter dt. 6.5.2013, enhanced the addition to Rs.81,05,775/- even ignoring the fact that the total payment made by the Assessee during the impugned assessment were Rs. 8,91,043/- which includes sum of Rs.8,48,843/- which were in excess of Rs.20,000/-. But CIT(A) since made the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lain the source of these expenses/payments, therefore, to that extent CIT(A), in our opinion, has correctly made the addition but the quantum of the addition made by CIT(A) is not correct. According to the details submitted, the total expenses/payment relating to this A.Y are only Rs. 8,91,043/-. We, therefore, reduce the addition to Rs. 8,91,043/-. To that extent, order of CIT(A) is confirmed. Thus, this ground is partly allowed. 11. Ground no. 7 relates to the sustenance of the addition of Rs. 2,88,25,000/- by CIT(A) being the amount withdrawn by several persons from 25 bank accounts in the names of and belonging to different persons. The brief facts relating to this ground are that during the course of search at the business premises of the Assessee evidences of 25 bogus bank accounts operated through Bank of India, Hospet were found. The passbooks and the cheque books of these bank accounts which were lying with the Assessee were seized. The seized documents were marked GRM/1-GRM/26. Details in respect of each of the bank accounts and the year covered by the bank account are given at pg. 6-8 of the assessment order. On the basis of these details, the AO noted that the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rawal from the bank accounts cannot par-take the character of income. Therefore, the very basis of the addition, being total withdrawal from the bank be it bogus or otherwise, is not correct and the addition on this basis itself be deleted. The AO has incorrectly concluded that the 25 bank accounts are bogus. The allegation that the bank account-holders are all employees of the Assessee is totally baseless. The statement of salary paid by the Assessee clearly shows that none of these persons are the employees of the Assessee. Name of the bank account holders as mentioned from pg. 6-8 of the assessment order do not match with the names of the employees as mentioned in Annexure A to the assessment order. Merely some of the cheque leaves, passbooks and pay slips were found in the Assessee s premises and the bank accounts are consecutively numbered did not make these accounts bogus. All these account holders are in existence, available and regular tax payers. These persons have duly filed their respective returns. These persons have confirmed that all the relevant bank accounts belonged to them only. The bank accounts are duly reflected in the balance sheet filed by each of the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded. It is not denied by the ld. DR that TDS has been deducted out of the transport charges so paid. It is not denied by the revenue that the transport charges so paid by the Assessee have been claimed by the Assessee as deduction. The AO has nowhere held that the transport charges paid by the Assessee are bogus even though the AO presumed that these bank accounts belonged to the Assessee and made the addition in respect of the amount withdrawn from these bank accounts. In our opinion, it is a fact that no addition has been made in respect of the deposits made in these bank accounts. We do not agree with the ld. AR that per se the withdrawal from these bank accounts, even if the bank accounts are treated to be belonging to the Assessee, cannot be regarded to be the undisclosed income. There is no provision under the Income Tax Act that the amount withdrawn by the Assessee from the bank account is deemed to be his income. The amount withdrawn by a person from his bank account cannot be regarded to be his income. Under Sec. 4 of the Income Tax Act the income tax is chargeable only on the real income. The amount withdrawn from the bank account represents only the current asset of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3 We have heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. It is not denied that the sum of Rs. 2,68,97,758/- represents the payment made by the Assessee outside the books of accounts. The details of these payments were not produced to us. In our opinion, if the Assessee has incurred any expenditure outside the books of accounts, the onus is on the Assessee to prove the source of such expenditure. We noted that the Assessee, in this case, surrendered an income while filing the return (copy of which is available in the paper book) u/s 153A amounting to Rs.2,41,00,000/- although in respect of reconciliation with M/s. VSL Group but the amount to that extent could be regarded to have been available with the Assessee. Therefore, in our opinion, to that extent the expenses incurred outside the books of accounts have to be treated as expenditure in respect of which the source stands explained and it is only the addition for the balance amount amounting to Rs. 27,97,758/- (Rs. 2,68,97,758 - Rs. 2,41,00,000) to be treated as unexplained and can be added to the income of the Assessee. To that extent, we delete the addition. So f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has offered a sum of Rs. 6,31,00,000/- as declaration for the relevant year. Therefore, he accepted the explanation of the Assessee and no disallowance u/s 40A(3) was made. When the appeal went before CIT(A) for the relevant A.Y. even though no ground of appeal was taken by the Assessee on this issue, the CIT(A) issued a notice of enhancement u/s 251(2) dt. 6.5.2013 and asked the Assessee to explain the source of the sum of Rs. 9,28,15,521/-. CIT(A) did not agree with the finding of AO that this addition is telescoped into already declared additional income of Rs. 6,31,00,000/-. 16.1 The ld. AR before us vehemently contended that the enhancement made by CIT(A) is illegal and void. There was no ground of appeal taken by the Assessee as the Assessee was satisfied with the finding of the AO that the sum of Rs. 9,28,15,521/- which was incurred by the Assessee outside the books of accounts were already covered by the declaration made by the Assessee. Our attention was drawn towards the declaration made by the Assessee and it was pointed out that the correct amount in respect of cash payment as per seized document A/MJ/29 for impugned A.Y. was Rs. 8,50,39,441/-. In this regard, our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... figure of the cash payment outside the books of accounts for the A.Y were Rs. 8,50,39,441/-. It was also contended that whatever income is generated by making unaccounted sales and purchase the said income has either been invested, consumed or withdrawal for making personal assets. There had been search in the case of the assessee and ultimately all these payments made outside the books of accounts culminated into an unaccounted asset by way of stock. It was stated that the A.O made separate addition on estimate basis in respect of the profit earned by the assessee on unaccounted purchase and sale carried outside the books of accounts. This has been challenged by the assessee in the impugned assessment year as well as in the assessment year 2008-09 by way of ground no.7. If your Honour sustains the addition on account of profit on unaccounted turnover the assessee be allowed telescoping in respect of profit if any so sustained as it will be a source for making the cash payments made outside the books of accounts. Therefore, the addition made by CIT(A) be deleted. 16.2 The ld. DR on the other hand, contended that no doubt the Assessee had submitted letters before the Asst. Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deficiencies in seized material, books of accounts And for other disallowances that may be called for Rs. 25,00,000/- Total Rs. 11,00,00,000/- We further noticed that vide letter dt. 20.11.2008 the Assessee further agreed to make an additional declaration of Rs. 5,10,04,519/- in addition to the sum of Rs. 11 crores as under : 1. Cash payments made as noted in the seized material A/MJ/38 Rs. 7,90,97,320/- Less : Duplication entry at page 4 and 5 Rs. 3,00,00,000/- Undisclosed Income based on the above seized material Rs. 4,90,97,320/- 2. Cash payments as per A/MJ/29 Rs. 2,68,67,758/- 3. Cash payments as per A/MJ/29 Rs. 8,50,39,441/- Rs.16,10,04,519/- Less : Disclosure already given earlier Rs.11,00,00,000/- Balance being disclosed now Rs. 5,10,04,519/- We have also noted that for A.Y 2007-08 the Assessee mentions that the cash payment as per the seized documents are Rs. 8,50,39,441/-. The AO has also mentioned the figure in the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) enhanced the addition in respect of the profit estimated at Rs. 2.92 crores, this ground has been dealt by us in the subsequent paragraphs and we have sustained the addition to the extent of Rs.89,40,874/-. We agree with the alternate submission of the learned A.R the addition so sustained by us in respect of the profit on unaccounted sales will also be available with the assessee and therefore we allow the telescoping of the said sum of Rs.89,40,874/- also alongwith the telescoping of Rs.6,31,00,000/- and therefore, we, sustain the balance addition of Rs. 1,29,98,567/-. Thus, this ground is partly allowed. 17. Ground no. 6 relates to the addition of sum of Rs. 4,96,39,000/- sustained by CIT(A), added by AO as amount withdrawn by several persons from 25 bank accounts. Both the parties agreed that the issue is also similar to ground no. 7 taken in A.Y. 2005-06 and whatever view this Tribunal may take on this addition during the A.Y 2005-06, the same view may be taken for the impugned A.Y. We have already deleted this addition while dealing with ground no. 7 during A.Y. 2005-06 in the preceding paragraphs. Respectfully following our finding for A.Y. 2005-06 on this issue, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les from Rs. 22,35,21,842/- to Rs. 29,25,88,981/- after making an abstract from the unaccounted purchase and sales made by the Assessee on the basis of the seized material detailed as under : SI. No. Month GRMTC Qty VSL Qty Amount 1 April 2006 19180.840 19180.840 23377609.00 2 May 2006 9750.880 9477.130 10424843.00 3 June 2006 3525.030 3517.030 3868733.00 4 July 2006 16919.060 16899.620 16057098.00 5 Aug 2006 7020.340 7026.550 771978.00 6 Sep 2006 19213.060 19117.110 17063464.00 7 Oct 2006 40616.720 40585.830 37651577.00 8 Nov 2006 54528.950 53737.420 54671594.00 9 Dec 2006 40170.180 39505.420 32062623.00 10 Jan 2007 19378.850 19244.300 2306982.18 11 Feb 2007 56997.570 56417.330 66621779.50 287301.480 284708.580 292588980.68 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manoj Kumar Jain. The sales proceeds received in cheques on such sales is withdrawn from bank in cash and after deducting his own commission, balance cash was handed over to Mr. Anil Lad and his associates from time to time. The various evidences found during the course of search proceedings in the case of Mr. Manoj Kumar Jain and Mr. Anil H Lad and the sworn statements recorded from Mr. Manoj Kumar Jain clearly proves this modus operandi. Our attention was also drawn towards the copy of the agreement seized, entered into between the Assessee and Shri Anil Lad, a copy of which is placed at pg. 181-182 of the paper book. As per this agreement, Shri Manoj Kumar Jain i.e. the Party of Second Part has to receive for the services rendered by him, profit @ 20% in case the iron ore is FE less than 60% and if FE is greater than 60%, the Assessee is to be paid a fixed amount of Rs. 14/- per ton. This agreement is dt. 7.10.2005 and is available in the seized material A/MJ/29 (pg. 51-56). As per the remand report, the excess of the declared quantity of the fines extracted is 237863 MT. On that basis itself, at the most Rs. 33,30,082/- could be added to the income of the Assessee. Attention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the paper book as to from where CIT(A) has taken the quantity of purchase and sales made outside the books of accounts, the ld. DR could not be able to specify the annexure which contains such details. 18.4 We have heard the rival submissions and carefully considered the same along with the order of the tax authorities below as well as the documents referred to and relied on before us during the course of the hearing. We noted that in this case CIT(A) has called for the remand report from the AO. The AO in para 2 of the remand report laid down the modus operandi of the business being carried on by the Assessee in the following manner: 2. Various incriminating documents found during the course of Search and seizure proceedings and post search investigations conducted in this case revealed that Sri. Manoj Kumar Jain was acting as an agent for Anil Lad group of concerns to regularize their unaccounted illegally extracted iron-ore and sale thereof through his own concerns. Such unaccounted and illegally extracted iron-ore was brought to the market as purchases from unregistered dealers in the concern of Sri. Manoj Kumar Jain. The sales proceeds received in cheques o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement, we noted that the Assessee is entitled for 20% of the profit for the services rendered by him for taking care of the production and marketing of the iron ore in case the iron ore FE is less than 60% and in case the iron ore FE is greater than 60%, Shri Manoj Kumar Jain is to be paid fixed amount @ Rs. 14/- per ton. Ultimately, after discussing the various evidence found in the remand report, the AO observed that the Assessee has loaded and transported iron ore more than the permitted quantity. This proves that the Assessee was resorting to unaccounted illegal extraction of iron ore from the mines. The remand report further states that excess unaccounted stocks was found during the course of the search in the premises of Shri Anil H. Lad as well as in the premises of the Assessee. The Assessee agreed to declare an additional income of Rs. 10.75 crores in respect of the unaccounted stock. The Assessee explained the source to be the cash withdrawal from the bogus accounts and cash generated through unaccounted sales. The Assessee in the various statements recorded either during the course of the search u/s 132(4) or u/s 131 stated that he was merely acting as Commission agent a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as used the code CQ for cheque and CC for cash sales. In the statement recorded on 5.4.2008 the Assessee confirmed that CC means unaccounted cash sales. Details of these unaccounted cash sales are the same as reproduced earlier amounting to Rs.22,35,21,842/-. In the remand report, the question answer of the statement recorded on 2.4.2008 has been produced. In the statement recorded on 5.4.2008 the Assessee categorically accepted that the sales against which CC is mentioned represents the cash sales. In the same very statement, in respect of the source of the cash payment, the Assessee categorically stated that the source of the cash payment is cash withdrawn from the 25 bank accounts as well as cash sales appearing in the seized material. Ultimately on 24.6.2008 when the statement was recorded in reply to question no. 4, the Assessee agreed for disclosure of additional income of Rs. 11 crores and stated that the Assessee was operating the mines of Anil H. Lad group concerns and the transactions are routed through the proprietorship concern of the Assessee on which the Assessee was getting Commission @ 2-4%. The relevant portion of the statement recorded on 5.4.2008 and 24.6.2008 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I was operating the mines of Sri. Anil H Lad group of concerns. While doing their business a part of the transactions are routed through M/s GRMTC for which I got only commission of 2 to 4 % for accommodating part of their business. The transactions mentioned by you in ques no. 2 are also of the similar nature i.e accommodation only and myself nor my staff member got more than 2 to 4% amount in other words we got commission for such arrangement to the tune of 2 to 4%. I have already declared additional undisclosed income of Rs. 11 Crores considering the above discrepancies. To cooperate with the department and to avoid further litigation I have declared more undisclosed income. 1 may mention here, that if you work out the turnover based on the 4% commission such unaccounted turnover would be more than Rs. 275 Crores. However you must have seen from the seized documents that the unaccounted turnover is not to that extent. Thus the declaration made by me is correct as per my calculation. In the case of my employees and other concerns mentioned in ques no. 2 payments were made by M/s GRMTC considering their margin of profit and each person has paid advance tax for the A.Y 2008-09 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l H. Lad and he has only earned a profit margin of certain percentage of these sales, merely by observing that the Commission of 2-4% claimed by the Assessee is too small. CIT(A), we noted, even increased the quantum of the sales even though no notice for enhancement was issued by CIT(A). The provisions of Sec. 251(2) which are very clear and mandatory stipulates that the CIT(A) shall not enhance the assessment unless the Assessee has been given a reasonable opportunity of showing cause against such enhancement. 18.4.2 The ld. DR even though relied on the order of CIT(A) but could not produce any cogent material or evidence to prove that the CIT(A) has given enhancement notice to the Assessee. Even no material whatsoever was brought to our knowledge which may prove the figures of the sales taken by the CIT(A) are based on the basis of the seized material. Under these facts and circumstances, in our opinion, the finding of the AO are to be confirmed that the unaccounted cash sales were only to the extent of Rs. 22,35,21,842/-. The Revenue has categorically accepted that the Assessee was a conduit for carrying on the business of Shri Anil H. Lad in respect of iron ore illegally ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the profit cannot be at the whims of the A.O that he may apply any rate of profit. The estimation of the profit must be based on the material evidence found during the course of search or as may be gathered by the A.O to support that the estimate made by the A.O is not arbitrary and is bonafide. This is a settled law that part of the statement cannot be accepted as true and the other part of the statement as false. Once on the basis of the statement of the assessee revenue has agreed that the assessee was engaged in unaccounted sales to accommodate the illegal mining carried out by Shri Anil Lad, in our opinion the revenue is bound to accept the other part of the statement that the assessee has earned the profit on such unaccounted business @2-4%. No cogent material or evidence was brought to our knowledge that the assessee has earned the profit @ more than 4%. Under these facts and circumstances, it will be proper and reasonable, in our opinion, the addition be made by estimating the profit on such unaccounted sales @ 4% as in case the Assessee has earned more income, the surrender made by the Assessee will take care of the same. We, accordingly direct the AO to estimate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Only on the Liabilities side of the Balance Sheet, Profit Loss for the current year is mentioned. It is a normal practice that the print out of the Balance Sheet subject to passing of the final entries is taken out and the Balance Sheet is finalised only after passing the closing entries. The Balance Sheet so found and seized, in our opinion, does not have any conclusive evidence on the basis of which the income can be determined. The Assessee is maintaining the regular books of accounts. The accounts are duly audited by the Auditor and the Auditor has duly certified the Profit Loss A/c and Balance sheet which were furnished along with the returns. The Audited Profit Loss and Balance Sheet depicts the correct and fair Profit Loss Account. The unaudited rough print out of the Balance sheet cannot substitute the audited Profit Loss and Balance sheet. In view of this fact, we set aside the order of CIT(A) and delete the addition of Rs. 86,97,774/-. 20. The next ground relates to addition of Rs. 1,43,000/- sustained by CIT(A). The brief facts relating to this ground are that as per the seized document A/MJ/30 dt. 2.4.2008 it was noted that the Assessee has made investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Raghavendra Agencies 15,500,00.00 813,750.00 03 Sairam Associates 12,409,800,00 651,515.00 04 Venkateshwara Minerals 31,637,450.00 1,660,966.00 Purchases made from the followinq parties treated as bogus for A.Y. 2008-09 SI. No. Name of the Party Amount Profit thereon 01 Prime Zak Mines Minerals 42,633,200.00 22,43,572.00 02 Gulab Shah Traders 42,557,580.00 22,34,272.00 03 Raghavendra Agencies 32,110,000.00 16,85,775.00/ 37,81,037.00 04 APN Enterprises 166,447,840.00 87,38,512.00 05 Shakambari Trading Co., 78,916,831.00 41,43,133.00 06 S R Trading Co., 29,642,500.00 15,56,231.00 07 M/s Harihant Enterprises 29,622,500.00 15,55,181.00 08 M/s Hemant Trading Co., 29,635,000.00 15,55,838.00 09 Sai Minerals 220,834,577.00 1,12,62,563.00 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven to the employees was found. Benefit of URD purchase on purchase of Rs.5 crores is decided to be given at the rate of 0.25% i.e., Rs. 1,25,000 on the purchase of Rs.5 crores. VAT and Income Tax will be paid by GRMTC. Capital will be retained by GRMTC. Employee will be given either benefit of loading or benefit URD which will be decided on quarterly basis and the benefit amount will be kept in FD for 3 years compulsorily. Monthly expenses from Rs.13,000 to Rs.20,000 will be given to employees which includes salary, rent, office expenses, petrol, mobile and stationery. Per file sales tax will be given at Rs.1500. Per file Income Tax of Rs.5,000 will be given. VAT cheque statement to be given for transferring of funds and issuing cheques. All the required vouchers will be maintained and handed over within 30 days of every month. Some of the employee's names are also written on these pages. They are none other than so called proprietors of various bogus entities from which the assessee has shown as he has made unregistered purchases. Name written on the seized material Name of the Proprietary concern shown in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerns made the purchases from unregistered dealers. They are having their bank accounts in Vijaya Bank and Bank of India. The Assessee is the introducer only in respect of 3 concerns, viz. Shakambari Trading Co., Sai Minerals and Bhavani Enterprises. Letters/summons were duly served by the AO. These parties appeared before the AO. Even their statements were also recorded. Even these parties have filed their income tax returns before issuance of notice u/s 153C. All the sales made to the Assessee are duly shown. The total purchases from the unregistered dealers are much less. Within the group, purchases are to the extent of Rs. 33,75,75,865/- while the total purchases made by the Assessee in both the years is Rs. 89,06,89,046/-. Our attention was also drawn towards the sales tax return filed by these concerns as well as their Trading Account which are appearing from pg. 152-165 of the paper book. On this basis, it was contended that in some cases the employees of the Assessee may be the proprietor but all these concerns are genuine concerns. In respect of the rest of the concerns, our attention was drawn towards the order of the A.O and it was stated that all these concerns are inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee. The procurement of the iron ore is not denied. The assessee was not the owner of the mines who would have extracted the iron ore at its own if any iron ore illegally extracted and an income is earned that would belong to the owner of the mine. In this regard reliance was placed on the decision of Hon ble Supreme Court in Civil Appeals Nos. 4540-4548 of 2000 in the case of Threesiamma Jacob Ors vs Geologists, Dptt. Of Mining Geology Ors in which Hon ble Supreme Court vide order dated 8th July, 2013 Hon ble Supreme Court held under para 57 of its order that ownership of sub-soil/mineral wealth should normally follow the ownership of the land, unless the owner of the land is deprived of the same by some valid process. Even in this case the Hon ble Supreme Court was of the opinion that there is nothing in law which declares that all mineral wealth sub-soil rights vest in the state. Before us copy of the trading account for both the years ended as on 31.3.2007 and 31.3.2008 were filed and it was contended that the gross profit during the year 31.3.2007 as per the books comes to 16.5% while for the year ended 31.3.2008 comes to 6.06%. If the purchases disallowed are co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been accepted. It is not denied from the order of the authorities below on the basis of the documents found during the course of the search that the assessee was engaged in the trading of the iron ore. During the course of carrying out the trading in iron ore the assessee has accommodated Shri Anil H. Lad and M/s VSL and Sons for selling iron ore procured by them through illegal mining carried out in their mining. Thus, the purchases made by the assessee from these firms which were without bills were shown by the assessee in his books of accounts as if the assessee has made purchases from various parties so that it may appear that the assessee has made the purchases for these parties. It is also uncontroverted fact that the assessee did not own any mine and was engaged only in trading of iron ore through its proprietorship concern. The sales made by the assessee were duly accepted by the revenue. We have gone through the decision of the Hon ble Supreme Court in Civil Appeals Nos. 4540-4548 of 2000 in the case of Threesiamma Jacob Ors vs Geologists, Dptt. of Mining Geology Ors in which Hon ble Supreme Court vide order dated 8th July, 2013 Hon ble Supreme Court held under para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement which was recorded by the revenue post-search has categorically accepted that he has paid Commission charges for procuring the bills @ 4%. This may make the bills to be bogus but we cannot conclude that the Assessee has not made the purchases. It is not a case where the Assessee has inflated the purchases i.e. the quantity of the purchases are much more than the quantity of the iron ore sold. The AO in his remand report has categorically accepted the fact that the Assessee was working on behalf of Shri Anil H. Lad who want owned the mines and has extracted iron ore illegally much more than permissible. To cover up the quantities of purchase made from Shri Anil H. Lad concern M/s VSL Sons, the Assessee had to procure the purchase bills. It is not the case of the revenue that the iron ore purchases and sales made by the Assessee are not reconcilable. The Assessee has submitted the quantitative reconciliation statement which has been referred to by the AO in his remand report. The sales accounted for and made by the Assessee have not been disputed by the Revenue. At the most, in our opinion, where the Assessee had saved any tax in procuring the bogus bills, the Assessee cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any case since more than 4% of the profit which the assessee would have earned otherwise takes care of addition of such estimated profits. Before concluding our finding on this issue we may mention that the assessing officer had disallowed the expenses incurred by the assessee for the purchases u/s 37(1)of the Income Tax Act. We, therefore, in view of our aforesaid discussion delete the addition made on account of bogus purchases. The purchase cost in the case of a trader in our opinion is allowed as deduction u/s 28 itself as u/s 28 is only the profit and gains of any business or profession which are chargeable to Inc. The consideration received by the assessee on the sales cannot be regarded to be the profit and gains of the profession. Section 28(1) does not make total revenue receipt to be chargeable to Income Tax Act. On this basis also the order of the CIT(A) cannot be sustained in our opinion on this issue. In view of our aforesaid discussion we delete the addition made on account of bogus purchases made by A.O and sustained by the CIT(A). In both the assessment years thus the ground no. 9 in assessment year 2007-08 and ground no. 8 in assessment year 2008-09 are allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Cash payments as per A/MJ/29 Rs. 8,50,39,441/- Rs.16,10,04,519/- Less : Disclosure already given earlier Rs.11,00,00,000/- Balance being disclosed now Rs. 5,10,04,519/- Thus, it was contended that the payment made in cash outside the books of accounts was duly covered by the declaration made by the Assessee and, therefore, no addition should be made in this regard. The cash payments were made out of the cash receipt from the business carried on by the assessee for which the necessary evidence were found during the course of search by way of unaccounted sales as well as unaccounted purchases. In this regard separate addition were made by the A.O. Ultimately, as on the date of the search the assessee got the undisclosed assets to the extent of stock being of eleven crores. Our attention was also drawn towards para 8 of the impugned assessment order. The AO also agreed that the correct figure of the cash payment outside the books of accounts for the A.Y were Rs.4,90,97,320/-. It was also contended that whatever income is generated by making unaccounted sales and purchase the said incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e returns submitted by the Assessee in the paper book at pg. 75 of the paper book. Therefore, the AO was not correct in taking a view that the cash payment incurred by the Assessee were duly covered by the declaration made by the Assessee. Reliance was also placed on the order of CIT(A). 25. We have heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. We have gone through the letters of the Assessee dt. 23.4.2008 and 20.11.2008, written to the Asst. Director of Income Tax (Inv.). Copies of these letters were filed before us during the course of the hearing. We noted that vide letter dtd. 23.4.2008 the Assessee agreed to disclose a sum of Rs. 11 crores in the following manner : Value of stock lying at Krishnapatnam port, AP Around 35000-40000, kept for export/sales To exporters Rs. 10,75,00,000/- Additional amount declared to cover for any further Deficiencies in seized material, books of accounts And for other disallowances that may be called for Rs. 25,00,000/- Total Rs. 11,00,00,000/- We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been disclosed by the Assessee during the aforesaid assessment year is Rs. 7,38,00,000/-. Thus, it can be said that during the year a sum of Rs. 6,41,00,000/-(to the extent relating to the stock) were available with the Assessee to cover up the cash payments made by the Assessee outside the books of accounts. Therefore, out of the cash payment of Rs. 4,90,97,320/- if we allowed telescoping for the stock declared, no addition in this regard can be sustained. Thus this ground is allowed. 26. The ground no.6 relates to the sustenance of Rs. 4,75,00,000/- made by the A.O on account of cascading effect for assessment year 2006-07 while declaring the stock in the impugned assessment year amounting to Rs.10,75,00,000/-. The brief facts relating to this addition are that the assessing officer noted that as per the books of accounts closing stock as on 31.3.2008 was Rs. 7,72,83,689/- in M/s JRMTC found during the course of search. In the survey conducted in his stock yard at Sankalanpur village bellary road, hospet stock of Rs. 5,41,20,000/- was found. Quantity of stock lying at stock yard was Rs. 51,00,000/- M.T and value of the same is Rs. 7,51,00,000/- thus there was shortage of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/-. The learned A.R even though vehemently contended for telescoping for sum of Rs. 6 crores against the income of Rs. 6,41,00,000/- but we are not convinced with his submissions as no accounting principle in our opinion allows such telescoping. If such telescoping is allowed the declaration of the income by the assessee vide letter dated 20.11.2008 amounting to Rs. 16,10,04,519/- shall get reduced by Rs. 6,00,000/-. We noted that the A.O made the addition in this regard for Rs. 4,75,00,000/- computed in the manner as stated by us in the facts narrated herein above. In fact the addition should have been made by the A.O for Rs.6,00,00,000/- but since we do not have any jurisdiction for enhancement we confirm the order of the CIT(A) sustaining the addition to Rs. 4,75,00,000/- thus this ground taken by the assessee is dismissed. 28. The ground no.7 relate to the sustenance of addition of Rs. 4,30,000/- by the CIT(A). While disposing of ground no.7 for the assessment year 2007-08 we have already sustained the addition to the extent of Rs.1,56,365/- for the impugned assessment year. Thus this ground is partly allowed. We allow the telescoping of this addition against the stock dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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