TMI Blog2014 (4) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on – Held that:- The addition is made by the CIT(A) only on estimation basis though there is no whisper on this issue at the end of the AO which is nothing but enhancement of assessed income by CIT(A) without giving fair opportunity of hearing to the assessee - no information relating to the capital employed for the purpose of purchase of raw material outside the books of account was found during the course of search - the addition is only on surmises and conjectures which cannot be permitted in search assessment – Decided partly in favour of Assessee. Genuineness of the transaction – Validity of admission of additional evidence u/s 46A of the Rules – Held that:- All 13 investors are of the family members/director of the assessee 5 company and out of them 9 are assessed to tax and they have furnished returns of income and investment is through banking channels - the CIT(A) deleted ₹ 30.25 lakhs pertaining to 9 parties and confirmed ₹ 4 lakhs from non 5 assessees – Relying upon CIT vs. Lovely Exports [2008 (1) TMI 575 - SUPREME COURT OF INDIA] - When the assessee furnished income 5 tax details, the burden cast upon the assessee is proved - If the Department has an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was utilised for payment of electricity charges for business purposes. (3) The CIT(A) while holding that the amount of Rs. 2,42,60,67 as admissible expenditure having been utilized for electricity payments for business purposes erred in estimating assumed profit at Rs. 38,58,701/- on assumption. (4) The CIT(A) erred in estimating the seed capital required at Rs. 33,49.5671- for earning the profit estimated by him. (5) The CIT(A) resorted to the additions of Rs. 38,58,701 and Rs. 33,49,567 purely on estimate basis and the assessment being a searched related assessment such routine additions should not have been made without there being any incriminating seized material detected during the search operations. (6) Without prejudice to the above contention, the CIT(A) ought to have considered the amount of Rs. 2,44,96,200 deposited in banks as turnover and estimated reasonable profit on the same without resorting to the amounts estimated by him as specified in ground nos. 3 and 4. 3. Facts of the case are that the assessee5company is engaged in the business of manufacturing M.S. Ingots and there was a search and seizure operation conducted in the group of cases on 29.01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet which has no legal base. The assessee itself stated that there are unrecorded electricity expenses. The sources for meeting these expenses are from the bank deposits. Hence, the assessee could to some extent explained the sources for the unrecorded expenditure. There are bank deposits to the tune of Rs. 2,44,96,200 in the name of four persons. The deponent Shri Kantilal admitted that deposits pertain to business activities of M/s Mahavir Ispat Pvt. Ltd and the same were not considered in the accounts of the assessee company for the AY 2008509. In this regard, the assessee simply stated that these amounts represent advances received from the purchases. The assessee could not produce any evidence in support of having received the above sums. Hence, these deposits of Rs. 2,44,96,200 are nothing but unexplained deposits in the bank. The unexplained deposits of Rs .24496200 are added to the income returned. 5. The assessee objected to the above addition of Rs. 2,44,96,200. It was submitted before the CIT(A) that while the sources of the deposits in the said bank accounts was from the business funds of the company, the said deposits were utilized by the assessee for clearing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the bank accounts were utilized for the purpose of paying the electricity expenditure of the assessee company and the payments were made by account payee cheques only. It was further submitted by the assessee that the same explanation was offered by the assessee during the assessment proceedings and the same were shown to have been incorporated in the assessment order and the essence of the said submissions indicate as under: (a) The amount of Rs. 2,44,96,200- deposited in the individual bank account were advances by customers and the monies were forfeited on technical grounds as the company did not issue any receipt for such deposits to the depositors. (b) Bank deposits were utilized for the purpose of paying electricity charges of the assessee company. (c) The electricity charges were not debited in the regular books of accounts but have been separately noted on a paper. (d) Had the assessee recorded these entries in books of accounts, it would have only increased electricity charges and receipts etc., and since the deposits and electricity charges are more or less equal, the aforesaid transactions neutralized the P L A/c. (e) Since the expenditure incurred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn from the bank accounts maintained in which the cash were deposited. However, this expenditure was not reflected in the books of account. Hence, the Assessing Officer has not considered the same as business expenditure while treating the deposits into the bank accounts, as unexplained credits/deposits based on the admission of Shri Kantilal Agarwal, the MD of the company that such deposits were out of the business receipts of the company. 10. The CIT(A) further observed that, as indicated by the assessee, this issue/factual position was brought to the notice of the Department at the very first stage of the search operations as well as the assessment proceedings. However, while completing the assessments, the Assessing Officer did not consider the assessee's claim of utilization of the said deposits towards the electricity expenses as business expense of the company, while treating the deposits/credits into the bank accounts as a business receipt of the assessee company. He has gone through the relevant portion of the statement recorded from Shri Kantilal Agarwal, the MD of the company which runs as under: ... the amounts deposited in the aforesaid bank accounts were u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the receipts and outgoings are transacted outside the books of accounts but recorded on loose sheets. (b) The receipts were spent for the purpose of business as evident in the form of cheque payments supported by bills issued by the supplier of the power company. 13. The CIT(A) further observed that these facts were in the notice of both the department and the assessee since the date of search and as such cannot be claimed as an exercise of an afterthought and as such cannot be ignored. The fact that were brought on the record clearly indicate that though the unaccounted receipts as well as the expenses are part of the record found in the course of search and are well documented, supported by payments through account payee cheques. This clearly indicates that the amounts are expended for earning the income, though the same were not recorded in the regular books of accounts maintained by the assessee. In support of its contentions, the assessee filed copies of relevant electricity bills, receipts for payment of electricity bills and copies of the bank account through which the cheque payments are made for the said expenses. As could be seen from the record of the assessee with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimated addition of profit in respect of such production outside the account books. You are requested to file your objections . 14. He observed that it is relevant to look at the angle of estimation of income arising out of the claim of unaccounted expenditure made by the assessee. Though, it has been contended by the assessee that the search operations did not result in detecting any incriminating material suggesting suppression of either production or sales, it was conceded that the production/income generated by the unaccounted expenditure, do exceed the expenses incurred. The information related to such production/turnover and the related manufacturing expenses, specially with reference to the consumption of power by the assessee for the year under reference along with few of the subsequent years, throw a pattern and on the said lines, the following information was brought on record. Rs. Electricity expenses recorded in books of account 2,17,54,813 Turnover as per the books of account 12,53,14,790 % of electricity consumption to the turnov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of consumables, with that of turnovers. This is also important to ascertain. the period of credit cycle, for the purpose of rotation of such capital/investments into the system, in quantifying the amounts of investments required. In view of the factual position that no information was traced on the unrecorded production and sales outside the books, the assessment need to be based on a fair and proper estimates on the assessee's business and the inferences to be drawn from the available material should be reliable and inferable. In this context, the book results of the assessee's business considered as the relevant material unless and until it proved otherwise. In this case, the book results were accepted by the Assessing Officer and no doubts whatsoever were raised regarding them. Further, it has been held that if the nature of the business is the same under the ordinary circumstances, it may be presumed that results of the business of the assessee will remain the same. 17. The CIT(A) observed that the information related to the assessee's record as regards the turnovers and purchases accounted in the books of account for the relevant year, so as to make the basis f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entirety of information was found in the search' proceedings. Under the circumstances, the CIT(A) was of the opinion that a minimum of investment of 10 days' purchases, as a seed capital is the requirement for the turnovers as achieved by the assessee outside the books. Accordingly, the amount required for the said purpose is quantified at Rs. 33,49,567- being the 1/3rd of Rs. 1,00,48,702- which was the average of monthly purchases estimated/quantified as above and the same is treated as the amounts of unaccounted investments that would have been required by the assessee related to the production/turnover outside the books of the account, in the form of additional business activity. On the lines of the above discussion, the unaccounted income related to the unaccounted turnover is quantified as under: Investment required for an accounted turnover- Rs, 33,49,567 Add: Profit on the unaccounted turnover- Rs. 38,58,701 Rs. 72,08,268 20. The CIT(A) observed that it is pertinent to look into the plea of the assessee that the balance of Rs. 2,25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imating the seed capital required at Rs. 33,49.5671- for earning the profit estimated by him. (5) The CIT(A) resorted to the additions of Rs. 38,58,701 and Rs. 33,49,567 purely on estimate basis and the assessment being a searched related assessment such routine additions should not have been made without there being any incriminating seized material detected during the search operations. (6) Without prejudice to the above contention, the CIT(A) ought to have considered the amount of Rs. 2,44,96,200 deposited in banks as turnover and estimated reasonable profit on the same without resorting to the amounts estimated by him as specified in ground nos. 3 and 4. 21. Ground No. 1 is general in nature and does not require any adjudication. Ground No. 2 is not pressed by the AR. Accordingly, ground No. 2 is dismissed as not pressed. 22. Ground No. 3 is with regard to estimation of profit on estimated unaccounted turnover on the basis of unaccounted receipts. 23. The learned AR submitted that the CIT(A) merely estimated the turnover in the absence of any seized material unearthed to support his findings. The CIT(A) is not justified in estimating the unaccounted turnover of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 33,49,567 which represented the estimated seed capital to carry on unaccounted business. 27. We have heard both the parties on this issue. This addition is made by the CIT(A) only on estimation basis though there is no whisper on this issue at the end of the AO which is nothing but enhancement of assessed income by CIT(A) without giving fair opportunity of hearing to the assessee. Further, no information relating to the capital employed for the purpose of purchase of raw material outside the books of account was found during the course of search. Being so, in our opinion, the addition is only on surmises and conjectures which cannot be permitted in search assessment. Accordingly, we delete the addition. In the result, ITA No. 990/Hyd/2012 is partly allowed. ITA No. 1089/Hyd/2012 (By Revenue) 28. The Revenue raised the following grounds of appeal: (1) The order of the learned CIT(A) is erroneous both on facts and in law. (2) The learned CIT(A) has erroneously accepted the contention of the assessee that the cash deposits in the bank account pertain to the business of the assessee without any documentary evidence being brought on record. (3) The learned CIT(A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year under reference and the information related to the same was stated to have been gathered from the 3CD report of the assessee company. While making the addition, the Assessing Officer observed that the assessee had not submitted the details to prove the genuineness of transaction and creditworthiness of creditors and in absence of the same, the entire amount of share application money of Rs. 34,25,000- was treated as unexplained credit in the hands of the assessee company with a further comment that share application money was received partly in cash. The assessee objected to the above addition and filed written submissions indicating the legal position and facts related to the issue, submitting that no incriminating material to throw suspicion on the share investments was detected and the addition by the Assessing Officer was on mere suspicion. It was also submitted that the investments as share application money were made by 13 individuals belonging to the same group and shares were allotted to the applicants subsequently on 2250652009. The assessee also furnished a note on legal position in the matter of investments made towards share application money/share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have also been filed. ii) As seen from the affidavits filed by Sri J. Krishna Rao, he has invested an amount of Rs.15.90 lakhs in all. The sources were stated to be his own salary income, savings and also borrowed funds which were deposited in his bank account. Shri J. Krishna Rao has also submitted copies of confirmations/pattadar pass book in support of his claim for the sources of the investment. iii) Similarly, Smt. J. Jeevitha Mala and Sri V. Sivarama Raju have deposed vide their affidavits that they have invested Rs. 7,00,000 and Rs. 5,00,000/- respectively. They have also submitted confirmations from the persons who gave them loans/gifts. iv) Copies of the bank account statements, confirmation letters, pattadar pass books, etc. submitted by the above four investors are on record. 5. The CIT(A) placed reliance on the above report and deleted the addition. We have carefully gone through the above remand report. 5.1. In the case of CIT Vs. Stellar Investments Ltd. (251 ITR 263) (SC), wherein it was held that even the share holders are not genuine, share capital cannot be regarded as undisclosed income of the assessee. 5.2 In the case of CIT Vs. Sophia Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee to relate unrelated facts and transaction. 35. The assessee raised the following grounds of appeal: (1) The order of the CIT(A), Hyderabad insofar as it went against the appellant, is erroneous both on facts and in law. (2) The CIT(A) ought to have deleted the addition of Rs. 25,83,100 made towards unexplained credits in the bank account. (3) The CIT(A) ought to have appreciated that the credits in bank account in an amount of Rs. 29,04,100 represented the turnover of the business handled by the appellant. (4) Without prejudice to the above contention, the CIT(A) ought to have considered addition of estimated reasonable profit on the turnover but not the entire amount. 36. Brief facts of the issue are that the assessee, Mr. Shivaram K Agarwal, an Individual by status is deriving income from house property and other sources and related to Kantilal Group of Cases, in whose case, a search seizure proceeding has taken place on 29.1.2009. Return of income was filed on 23.12.2010 declaring an income of Rs. 2,06,540 whereas the assessment was completed determining the total income at Rs. 81,15,440 by virtue of the addition of Rs. 53,25,800 being the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held jointly by Mr. Shivram K. Agarwal, the assessee and his wife Mrs. Vanita Agarwal at M/s Nasik Cooperative Urban Bank Ltd whose account number is 1624. However, in the submissions made by the assessee, the bank account number is taken at 1625. There is no variation in the amounts credited into the said bank account which stood at Rs. 53,25,800. Though the account is standing in the name of the assessee as well as his wife Smt. Vanita Agarwal, the addition was made in the hands of the assessee, on protective basis, while treating the same as the income of M/s. Mahavir Ispat Pvt. Ltd, on substantive basis for the assessment year under reference. The confirmation letter submitted by the assessee indicate the position accordingly. Since the company was shown as source of the cash deposits and also the end5user of the said amounts for making out its expenditure in the form of electricity charges, the said amounts are offered for tax in the hands of M/s. Mahavir Ispat Pvt. Ltd. The CIT(A) observed that the submission of the assessee are found to be acceptable. Accordingly, he directed the AO to delete the addition made on the protective basis in the hands of the assessee. 39. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the group company by name M/s. Mahavir Ispat Pvt. Ltd. The general explanation for such deposits would be that the amounts are assessed on substantive basis in the hands of the company and accordingly relief were requested in individual hands, wherein the assessments were done on protective basis. In this case, the addition was made on substantive basis and the explanation offered by the assessee that the cash deposits are out of business transactions of purchase and sale of steel ingots, is not acceptable, since the same is not substantiated by the assessee with the help of any evidence in this regard. Further, the assessee has not shown any income from such activity while furnishing the return of income and as such, the explanation can only be considered as an afterthought resorted for explaining the unexplained cash deposits made into the bank account bearing no. 1424 at Agrasen Cooperative Urban Bank Ltd., standing jointly in the names of Sri Shivram K. Agarwal and Smt Vanita Devi AgarwaL The provisions of the Income Tax Act are very dear to indicate that the credits appeared in the books of accounts which also include the bank accounts, need to be explained by the party in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the hands of the assessee. There shall not be any double addition. With these observations, we remit the issue back to the file of the AO for fresh consideration. ITA No. 713/Hyd/2012 is partly allowed for statistical purposes. ITA No. 640/Hyd/2012 (Revenue) 44. The Revenue raised the following ground of appeal: (1) The Ld. CIT(A) ought to have upheld the disallowance as neither the assessee nor the assessee's husband as Joint Account holder could explain the sources of the cash deposit during assessment or appeal proceedings. 45. The issue in the ground is relating to protective assessment in assessee's hands, substantively made in the hands of the assessee's husband Shivram K. Agarwal. Since we have remitted the issue back to the file of the AO in her husband's case in ITA No. 713/Hyd/2012, this is also goes back to the AO for re5examination and to sustain the addition only in one hand if warranted. ITA No. 640/Hyd/2012 is allowed for statistical purposes. ITA No. 430/Hyd/2012 (By Revenue): 46. The following ground is raised by the Revenue: (1) The Ld. CIT(A) has erred in deleting the protective addition in the hands of the assessee and in hold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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