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2015 (9) TMI 137 - ITAT LUCKNOW

2015 (9) TMI 137 - ITAT LUCKNOW - TMI - Addition on protective basis - coal business carried out by the assessee through the syndicate of Bhutoria Group - assessee contended that this addition was made in the hands of the assessee, solely on the basis of the statement of Shri. Prakash Chandra Bhutoria and some documents seized from his computer - CIT(A) deleted the addition - Held that:- Undisputedly the addition was made in the hands of the assessee on protective basis. Though it was observed i .....

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rted into substantive addition in the hands of the assessee in the absence of the fact that no substantive addition has been made in the hands of the syndicate group, the answer is certainly no, as the Assessing Officer himself is not confident with regard to the addition in the hands of the assessee on the basis of the statement of Shri. Prakash Chandra Bhutoria and the seized documents which were neither confronted nor the assessee was allowed to cross-examine Shri. Prakash Chandra Bhutoria wh .....

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oria whose statement was sought to be relied on by the Assessing Officer. Initially the Assessing Officer has summoned Shri. Prakash Chandra Bhutoria and asked the assessee to cross-examine in Kolkata, but on the designated date Shri. Prakash Chandra Bhutoria did not appear and the assessee was forced to come with empty hands. Thereafter though the assessee has requested to afford an opportunity to cross-examine Shri. Prakash Chandra Bhutoria with respect to the documents found during the course .....

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arty’s statement who was not allowed to be cross-examined by the assessee for any reason. More so in the instant case addition in the hands of the assessee was made on protective basis which means the Assessing Officer himself was not confident with respect to the tax liability of the alleged income estimated by him in the hands of the assessee. - Decided in favour of assessee.

Addition made on account of unexplained investment in coal business - CIT(A) deleted the addition - Held tha .....

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n favour of assessee.

Addition made under different heads as profit earned by the assessee - profit in trading of coal at Kanpur, Kolkata and Bhubaneswar - CIT(A) deleted the addition - Held that:- the basis for these additions was only the material seized during the course of search from Shri. Prakash Chandra Bhutoria and his statement. Shri. Prakash Chandra Bhutoria was not allowed to be cross-examined by the assessee, therefore, his statement cannot be relied on for making the addi .....

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e involved in these appeals, these were heard together and are being disposed of through this consolidated order. We, however, for the sake of reference extract the grounds raised in both the appeals. 2. Grounds raised in I.T.A. No. 86/LKW/2012:- 1. That Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 55,83,300/-made by the A.O. on protective basis on account of coal business carried out by the assessee through the syndicate of Bhutoria Group, without appreciating th .....

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through the syndicate of Bhutoria Group, without appreciating the facts that the AO s finding of assessing ₹ 55,83,300/- in the hands of the assessee was also supported by the statement of Shri Bhutoria recorded at the time of search at his premises, though Shri P. C. Butoria could not be crossexamined during the course of assessment proceedings, because of his non-cooperation. 3. That Ld CIT(A) has erred in law and on facts in deleting the addition of ₹ 55,83,300/-made by the AO on .....

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e addition of ₹ 12,82,850/-made by the AO on account of profit on premium on account of purchase and sale of coal in own account of the assessee, ignoring the fact that the AO has given his finding on the basis of sufficient evidence on record that the assessee was also engaged in the trading of coal in his own account. 5. That Ld CIT(A) has erred in law and on facts in deleting the addition of ₹ 18,17,200/- made by the A.O. on account of payments to the sub-agent for deposit with M/ .....

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he evidence before the A.O., the assessee has intentionally avoided the investigation which the AO might have conducted to verify the correctness of contents of the letter. 7. That Ld CIT(A) has erred in law and on facts in deleting the addition of ₹ 1,17,93,900/-made by the A.O. on account of investment in the coal business, ignoring the fact that the AO has given his finding on the basis of sufficient evidence on record that the assessee was also engaged in the trading of coal in his own .....

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appeal as stated above as and when need for doing so may arise. 10. That the order of the Ld. CIT (A) deserves to be vacated and the assessment order passed by the A.O. be restored. 3. Grounds raised in I.T.A. No. 54/LKW/2012:- 1. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 36 lacs made by the AO on protective basis on account of coal business carried out by the assessee through the syndicate of Bhutoria group, without appreciating the fact that the AO h .....

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ppreciating the fact that the AO s finding of assessing ₹ 36 lacs in the hands of the assessee was also supported by the statement of Shri Bhutoria recorded at the time of search at his premises, though Shri P. C. Bhutoria could not be cross-examined during the course of assessment proceedings, because of his non cooperation. 3. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 36 lacs made by the AO on protective basis on account of coal business carrie .....

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ccount of investment in the coal business ignoring the fact that the AO has given his finding on the basis of sufficient evidence on record that the assessee was also engaged in the trading of coal in his own account. 5. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 46,24,050/- made by the AO on account of investment in the coal business without appreciating the fact that the addition was based on the contents of the seized documents and statement of Shri .....

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n the hands of the assessee on account of Coal business carried out by the assessee through syndicate of Bhutoria Group on the basis of the seized documents PB-20 and PB-17. 5. The facts in brief borne out from the record are that on 6.12.2005 a search and seizure action under section 132 of the Income-tax Act, 1961 (hereinafter called in short the Act ) was taken place in the case of Shri. Prakash Chand Bhutoria at Kolkota, a person belonging to Bhutoria Group which was engaged in Coal business .....

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identified through codes which were decoded as under:- (i) PB : decoded as Prakash Chandra Bhutoria (ii) IB : decoded as Indraraj Mull Bhutoria (iii) LP : decoded as Laxrhan Poddar. (iv) MP : decoded as Mahendra Bhutoria (v) LCS : decoded as Labh Chandra Surana (vi) PG : decoded as Pawan Gupta (vii) LKM : decoded as LK. Mukherjee (viii)BNM : decoded as B.N. Mishra (ix) MA : decoded as Mohan Agarwal (x) BK : decoded as Vickery Khanna 6. Subsequently a search was carried out at the business-cum co .....

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his interest in the coal business, if any, carried out on syndicate in any manner. 7. After surrendering the income of ₹ 75 lakhs for assessment years 2005-06 and 2006-07, the assessee has filed return of income for assessment years 2005-06 and 2006-07 and declared income as under:- Sl. No. Particulars of Income Assessment Years 2005-06 (Rs.) 2006-07 (Rs.) (i) Business income including commission income for handling 7,46,024 39,62,285 (ii) income from other sources 30,20, 100 - TOTAL 37,66 .....

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ing Officer has completed the assessment at an income of ₹ 2,48,03,100/- by making the following additions:- i ₹ 5583300/- Addition on account of coal business done by the at Kolkatta made on protective basis. ii Rs.11793900/- Addition for alleged profit on sale proceeds of four coal rakes amounting to ₹ 3,93,13,000, treated as 'turnover' of the appellant at Kanpur. iii Rs.1282850/- Income said to have been earned by the appellant, in the coal business at Kolkata. iv Rs .....

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#8377; 55,83,300/- in assessment year 2006-07 on protective basis in the hands of the assessee. 11. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) with the submission that no syndicate as alleged by Shri. Prakash Chandra Bhutoria was existed and therefore no addition of ₹ 36 lakhs in assessment year 2005-06 and ₹ 55,83,300/- in assessment year 2006-07 is assessable in the hands of the assessee on protective basis. 12. This issue was discussed in the ld. CIT(A) s or .....

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a. He was summoned to be appeared on a particular day in Kolkata, but Shri. Prakash Chandra Bhutoria did not appear on that day, therefore, he was not allowed to be cros-examined. Thereafter, the Assessing Officer has not enforced the attendance of Shri. Prakash Chandra Bhutoria for his cross-examination. Thus, his statement cannot be relied on for making addition in the hands of the assessee. The three computer printout sheets found during the course of search was found from the computer of Shr .....

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. CIT(A) re-examined the entire issue in the light of assessee s contentions and being convinced with the explanations of the assessee, he deleted the addition of ₹ 36 lakhs in assessment year 2005-06. Addition of ₹ 55,83,300/- in assessment year 2006-07 was also deleted following the order of the ld. CIT(A) passed in assessment year 2005-06. The relevant observations of the ld. CIT(A) for assessment year 2005-06 are reproduced hereunder:- 6.1 The learned counsel appearing on behalf .....

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ntouts are wholly uncorroborated and untested (b) the existence of the syndicate in the coal business stands wholly disproved by the testimony of Sri Laxman Poddar who was alleged to be one of the members of the syndicate as per the statement of Sri Prakash Chand Bhutoria © the attendance of Sri Prakash Chand Bhutoria (who was required to be cross examined by the appellant) was not enforced by the Assessing Officer and in the absence of such a cross examination being carried out neither his .....

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heets referred to in the assessment order and also the statement of Sri Bhutoria could not have been treated to be the material against the appellant so as to give jurisdiction to the Assessing Officer to draw an inference that the appellant had made investment in coal business for doing trading at his own and has earned income from such trading. The appellant s case is on a better footing, as even after the appellant agreeing to go to Kolkata for cross examination. The witness of the department .....

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categorical statement of existence of syndicate gets wholly disproved. 14. From the discussion made in the foregoing paragraphs, it follows that no evidence or material whatsoever was brought on record by the Assessing Officer, which could go to show (a) that any such syndicate existed; (b) the assesses made any investment therein and in lieu of such investment, earned any income therefrom. Consequently adverse inference drawn by the Id. Assessing Officer are wholly unfounded and the additions m .....

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ng to law by examining the person concerned who can prove the correctness of the entries and allowing the dealer against whom those entries are sought to be used, an opportunity of hearing. The entries in the books of accounts of another person are merely statements of that person and they cannot be used against the third party except by proving them in accordance with the established proce dure. True, the provision of Indian Evidence Act do not apply to proceedings under the Sales Tax Act but t .....

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s in fact charged by the dealer in respect of sale of Vanaspati to Vishwakarma Oil Traders. This could be done only by examining the person who paid the *on money and the books of accounts could be used only for corroborating the oral statement. Nothing of this sort has been done in this case. The mere fact that VishvsakarmaOil Traders or the person concerned therewith could not be traced is no ground for dispensing with the legal modes of proof, Apart from this circumstance which was-not legall .....

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hould be given a reasonable opportunity to prove the correctness or completeness of such return. This requirement obviously applies at the first stage of the enquiry before the Sales Tax Officer comes to the conclusion that the return submitted by the assessee is incorrect or incomplete so as to warrant the making of a best judgment assessment. The question is v/hat is the content of this provision which imposes an obligation on the Sales Tax Officer to give and confers a corresponding right on .....

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witnesses and that would include equally the right to cross-examine witnesses examined by the Sales Tax Officer. Here, in the present case, the return filed by the assessee appeared to the Sales Tax Officer to be incorrect or incomplete because certain sales appearing in the books of account of Haji Usmankutty and other wholesale dealers were not shown in the books of account of the assessee. The Sales Tax Officer relied on the evidence furnished by the entries in the books of account of Haji U .....

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obviously the assessee could not do, unless he was given an opportunity of cross-examining Haji Usmankutty and other wholesale dealers with reference to their accounts. Since the evidentiary material procured from or produced by Haji Usmankutty and other wholesale dealers was sought to be relied upon for showing that the return submitted by the assessee was incorrect and incomplete, the assessee was entitled to an opportunity to have Haji Usmankutty and other wholesale dealers summoned as witnes .....

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r wholesale dealers for crossexamination by the assesses clearly constituted infraction of the right conferred on the assessee by the second part of the proviso and that vitiated the orders of assessment made against the assessee. (iii) HO Dharam Chand Agarwal repotted in (2004) (4) MFC Page 474 Lucknow Bench: I have considered the rival submissions and perused the record carefully. The Id CIT(A) has discussed the issue in detail and no interference is called for as the addition was based on the .....

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rom N s possession, and assessee was not allowed any opportunity of cross-examination and, further. N s testimony was not found creditable at all, it could not be said that there was any iota of evidence to support revenue s case that a huge figure over and above figure booked in records and accounts changed hand between parties and, therefore, no addition could be made based of such document in hand of assessee. (v) Prarthana Construction (P) Ltd. Vs. DY. CIT reported in 118 Taxmann Page 112 (A .....

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such party for acquiring development reight- No search had taken place m case of such party and no documents or records evidencing payment of on money were seized Assessee was given no opportunity to cross-examine said party. Whether addition made on basis of statement of such party would be unsustainable-Held yes. (vi) S. P. Goyal Vs. Dy. CIT reported in 82 ITD page 85 (ITAT Mumbai Third Member) In the present case, it was a mere loose sheet in which the assessee confirm that the entry was in h .....

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n the form of extra cash, jewellery or investments outside the books. In such a case, explanation offered by the assessee could not be rejected. In that view of the matter, the view taken by the Accountant member was justified. 6.3.2 The learned counsel has also relied on the decision of Supreme Court in the case of Kishinchand Chellaram vs. CIT reported in (1380) 125 FFR, page 715 in which the Hon.ble Supreme Court has held ...... .the department, ought to have called upon the manager to produc .....

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e it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him . 6.4 Decision:- 6.4.1 In this regards it would be useful to reproduce the relevant portion of the Assessment order which is as under: The information was received from the Investigation Wing, Kolkatta. During the course of search at the premises of Sri Prakash Chand Bhutoria, a laptop was .....

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being, principal agent and the persons authorized to deal with the M/s. National Cooperative Consumers Federation of India Ltd. PS-20 page-4 would show that he has been paid in cash ₹ 3600000/- @ 300/- per metric ton for the quantity lifted The details of the quantity lifted for March 2005 quota and the share of each syndicate members using 12000 metric ton has been given in the column just before the said column containing the derails of cash paid to Sri Pawan Kumar Gupta @ ₹ 300/- .....

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n no. 10 of page no. 5 of statement of Shri Prakash Chand Bhutoria recorded, which are as under:- Page-47: This relates to the transaction of the syndicate with M/s. National Cooperative Consumers Federation of India Ltd., through Pawan Gupta when 36 lacs have been paid to him by the various members of the Syndicate by in their sharing ratio of investment and profit Mr. Pawan Gupta is 50% share holder of the total transaction in this account and the entire payment was made to him is-out of books .....

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It was Shri Prakash Ghand Bhutoria who had made a statement (during the course of search & seizure conducted at his premises and from whom these sheet have been recovered) that these sheets reflected the business dealings of the syndicates which consisted of various members, including the Shri Pawan Gupta i.e. appellant. During the course of search & seizure conducted on the appellant, no documents related to such dealing were found or recovered therein. The appellant was also not given .....

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session of the AO except these three sheets and the statement of Shri P. C. Bhutoria. 6.4.3 I have carefully considered the findings of A.O. submissions made by the appellant before the A.O. as well as before me. However, before going in to the merits of the additions, i find it prudent to mention that the A.O. himself was of the view that the income on account of purchase and sale of coal for March 05 and April 05 quota ( as per the computerized sheet seized at Kolkata) belong to the Syndicate .....

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r not The third issue is as to whether the syndicate should be taxed as an entity or the department should rest with taxing the sum given to Shri Pawan Kumar Gupta by syndicate. To my view it be assessed as an A OP. In that view the sum of ₹ 36,00,000/- will be taxed in A.Y. 2006-07 on protective basis and the sum of ₹ 55,53,300/- will be taxed in A.Y. 2005-06 on protective basis. The assessing officer holding jurisdiction will be intimated to take action under section 148 of the I. .....

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ke % of profits between members, profit shares between the members in absolute number capital contribution by each of members etc.) actually represent the trading transactions of the syndicate working as a unit and, therefore, the assessment of such income can be done only in the hands of the said syndicate . Even after repeated reminders by the undersigned to the A.O., the A.O. was not able to give any answer as to what happened in the matter of the said AOP nor has the A.O. pleaded that such a .....

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t has held:- an income which has been earned can be taxed in the hands of an assessee, who is liable to pay the tax. Protective assessments are also permissible, but they cannot continue to infinity . xxxxxxxxxxxxxxx that by now the ITO must make up his mind as to who has really earned the income The additions are consequently to be made in the hands of such person alone and not in the hands of the assessee where the Department itself treated that the income is not earned by the person and the a .....

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hat department has taken due action against the said AOP as has been mentioned by the AO in the assessment order. !n any case the department is free to pursue the matter in the case of AOP, as per the provisions of the I. T. Act. 6.4.6 I am also of the considered view that in the absence of cross examination of Shri P. C Bhutoria, the said documents and his statement could not be taken as such. Reliance is placed on the following decisions of higher Judicial Authorities:- (i) Malwa Vanaspati and .....

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ce there was admittedly nothing more in this regards, no addition (which is purely based on the impugned documents), can survive. The addition made is, therefore, deleted. 14. Aggrieved, the Revenue has preferred an appeal before the Tribunal with the submission that from the statement of Shri. Prakash Chandra Bhutoria and the seized documents, it has been established that the coal business was carried own by the syndicate group of which assessee was a member and have received a particular amoun .....

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Prakash Chandra Bhutoria in order to ascertain the veracity of his statement. Once an opportunity was given but on that day Shri. Prakash Chandra Bhutoria did not turn up and he could not be cross-examined by the assessee. The ld. counsel for the assessee has further contended that the Assessing Officer did not make any effort to ensure his presence for cross-examination. The ld. counsel for the assessee has further contended that it is a settled position of law that no statement can be conside .....

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seized documents. The ld. counsel for the assessee has further invited our attention to the provisions of section 153C of the Act with the submission that in case the Assessing Officer has found something from Shri. Prakash Chandra Bhutoria which relates to the assessee, the mechanism of section 153C of the Act could have been invoked after recording requisite satisfaction in the case of Shri. Prakash Chandra Bhutoria that the material found belongs to the assessee. But nothing was done in the i .....

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n support of his contention that the statement of third party cannot be relied on unless and until the assessee is allowed to cross-examine the third party with respect to his statement in order to judge the veracity of the same:- 1. CBI vs. V. C. Shukla and Others, AIR (1998) (SC) 1406. 2. Malwa Vanaspatii and Chemicals Co. Ltd. vs. CST (1995) UPTC 987, 3. State of Kerala vs. K. T. Shaduli, AIR (1977) (SC) 1627. 4. Amarjit Singh Bakshi, HUF vs. ACIT, 86 ITD 13. 5. Prarthana Construction (P) Ltd .....

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te AOP pointed out by Shri. Prakash Chandra Bhutoria in his statement recorded during the course of search conducted at Bhutoria group or his premises, but nothing has been placed on record to establish whether any substantive addition was made in the hands of the AOP syndicate. Now the question arises whether the addition on protective basis made in the hands of the assessee can be converted into substantive addition in the hands of the assessee in the absence of the fact that no substantive ad .....

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aforesaid various judicial pronouncements and we find that it is settled opposition of law that any evidence/statement/declaration cannot be used against a person or the assessee unless and until the same is confronted to the assessee and the assessee is allowed to crossexamine the said witness or person. In the instant case, the assessee has asked the Assessing Officer during the course of assessment proceedings to allow him to cross-examine Shri. Prakash Chandra Bhutoria whose statement was so .....

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ng Officer did not enforce his attendance for cross-examination and finally despite repeated requests the assessee was not allowed to cross-examine Shri. Prakash Chandra Bhutoria. The Assessing Officer, however, heavily relied upon the statement and the seized documents for making the addition in the hands of the assessee on account of undisclosed receipt from the alleged syndicate group. Under these circumstances, we are of the considered opinion that the addition in the hands of the assessee c .....

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o infirmity therein. Accordingly we confirm his order in this regard in I.T.A. No. 54/LKW/2012 and I.T.A. No. 86/LKW/2012.. 17. Grounds No.4 and 5 in I.T.A. No. 54/LKW/2012 and grounds No.7 and 8 in I.T.A. No. 86/LKW/2012 relate to the addition made on account of investment in coal business without appreciating the fact that the addition was based on the contents of the seized documents and statement of Shri. Prakash Chandra Bhutoria. 18. The facts in brief borne out from the record in this rega .....

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₹ 1,54,13,500/- at Kanpur. On clarification, the assessee s contention was that they relate to the transaction by M/s National Cooperative Consumers Federation of India Ltd., which was not accepted by the Assessing Officer and he accordingly formed a view that the transactions recorded in loose papers do not find place in the copies of accounts obtained from M/s National Cooperative Consumers Federation of India Ltd., as such similar business like Kolkata was carried out in Kanpur. The Ass .....

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omputer sheets found in the course of search from Shri. Prakash Chandra Bhutoria and his statement and Shri. Prakash Chandra Bhutoria was not allowed to be cross-examined by the assessee. Therefore, the material seized from him cannot be relied on for making the addition. 21. With regard to the sundry debtors and creditors according to the seized material, it was stated that for NCCF branch at Kanpur, they could not get proper sub-agent. Therefore, the work carried on by the sub-agent was also h .....

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%. 22. The ld. CIT(A) re-examined this issue in the light of assessee s contentions and was of the view that these additions were made on the basis of material seized from Shri. Prakash Chandra Bhutoria who was not allowed to be cross-examined by the assessee. It was further held by the ld. CIT(A) that the price of coal was fixed and distributor price was also fixed by NCCF. The assessee was only allowed to a fixed commission for the services rendered. The relevant observations of the ld. CIT(A) .....

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en duly assessed to tax. Since the business model of the appellant was to make advance payments to NCCF for lifting the coal, it was natural that certain amount of investment had to be made by the appellant and since he was supplying the coal to the tiny consumers, it was quite natural again that there would be debtors/creditors. Therefore, I agree with the learned A. R. s contention that mere presence of debtors/creditors and payment of interest cannot prove that the appellant was indulging int .....

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order, I find that the AO has not pointed out any material which leads to believe that the assessee was earning any income other than the commission on such supplies. I, therefore, hold that no addition can be sustained merely on conjectures and surmises, in this view of the matter, in the absence of any such material, addition made by AO cannot survive and the same is, therefore, deleted. 23. Aggrieved, the Revenue is in appeal before the Tribunal, but during the course of hearing, the ld. D. .....

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e assessee. Therefore, the evidence and statement of Shri. Prakash Chandra Bhutoria collected by the Assessing Officer could not be relied on for making the addition. 24. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the Assessing Officer has made addition only on conjectures and surmises. No evidence was brought on record in order to establish that the assessee has earned any other income except commission receipts. Moreover, t .....

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ofit earned by the assessee. 26. With regard to these additions, the Assessing Officer has estimated the profit having treated certain deposits with NCCF as the investment made for purchase and sale of coal by the assessee. The Assessing Officer accordingly made the following additions:- 1) ₹ 1,17,93,900/- for profit in trading of coal at Kanpur. 2) ₹ 12,82,850/- for profit in trading of coal at Kolkata. 3) ₹ 18,17,200/- for profit in trading of coal at Bhubaneswar. 27. Before .....

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